Creston Plc Interim Results

Creston PLC 14 November 2002 14 November 2002 CRESTON PLC ANNOUNCES ACQUISITION AND INTERIM RESULTS HIGHLIGHTS • Core companies within the group report strong growth in Operating Profits • Proposed Acquisition of EMO Group Limited for a total consideration of £5.7 million • Increases in Turnover of 128% and Gross Profit of 78% • Performance gives testimony to identifying companies that are capable of performing well in a downturn Commenting on today's announcement, David Marshall, Group Chairman, said: "In what are undoubtedly the toughest market conditions for over a decade, I am delighted that Creston has been able to put in a robust performance. It is testimony to our ability to identify companies that are capable of being resilient in a downturn. The announcement of our proposed acquisition of EMO Group Limited is particularly pleasing as it enables Creston to start to leverage off the synergies that will become evident from having a broader marketing services mix. Following the success of our two initial acquisitions, Marketing Sciences Limited and The Real Adventure Marketing Communications Limited, we are continuing with our 'buy-and-build' strategy and will continue to pursue further acquisition opportunities." For further information, please contact: Don Elgie Creston Plc, Chief Executive 020 7930 9757 Tim Alderson Creston Plc, Finance Director 020 7930 9757 Andrew Nicolls Penrose Financial 020 7786 4881 James Montgomerie Penrose Financial 020 7786 4863 Notes to editors: Creston Plc is a marketing services group that was refocused in Jan 2001 in order to take advantage of the considerable opportunities identified by the Board in the marketing services arena. Creston is growing both organically and through acquisition. Its defining characteristic is capitalising upon the way that the market is moving towards having a one to one relationship with customers. In addition to expanding within the UK, the Board will also be looking for opportunities to expand internationally. Creston's strategy is to acquire companies that complement one another. Each acquisition will be chosen not just for its quality, but also for its potential to generate additional income through co-operation and cross fertilisation with other companies in the Group. Target markets include: market research, direct marketing, CRM, telemarketing, e-marketing, public relations, channel marketing and field marketing. Highly cyclical sectors like advertising and design will be avoided for the time being. Acquisitions made to date include Marketing Sciences Limited, which specialises in quantitative and qualitative research, and The Real Adventure Marketing Communications Limited, which works across direct marketing and CRM. Together, they boast a range of blue-chip clients including Unilever, Kimberley Clark, Tesco and Lloyds Black Horse. INTERIM RESULTS FOR CRESTON FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2002 Chairman's Statement Creston has continued to implement its 'buy and build' strategy in difficult market conditions. Turnover grew by l28 per cent. and gross profit by 78 per cent. for the half year to 30 September 2002 compared to the same period last year. Profit on ordinary activities before interest and tax grew from a loss of £225,000 to a profit of £296,000. Creston Group Highlights Unaudited six Unaudited six months ended 30 months ended 30 September 2002 September 2001 % Change £'000 £'000 Turnover 7,878 3,453 +128 Gross profit 4,106 2,301 +78 Profit/(loss) on ordinary activities before interest 296 (225) and tax Trading during the first six months of the year to 31 March 2003 by the main operating companies within the Creston Group, Marketing Sciences Limited ("MSL") and The Real Adventure Marketing Communications Limited ("TRA"), has been good. This is particularly gratifying given the tough market environment that exists at present and gives testimony to our ability to identify companies that are capable of being resilient in a downturn. MSL MSL met budget for the first six months even though the target was a challenging one and it was achieved against a negative market growth of 3.7 per cent. as reported by the British Market Research Association for the quarter to June 2002 compared to the same quarter a year ago. We understand the sale of consumer goods to be holding up relatively well, and this is an area in which MSL is particularly strong as Unilever, Tesco and Kimberly-Clark are important clients. The like for like growth in operating profit is shown below. Although the first half of 2001/02 had problems, the increase represents not only a recovery, but a steady growth as well. Six months ended Six months ended 30 September 2002 30 September 2001 £'000 £'000 % Change MSL Operating Profit 468 126 +271 TRA TRA's results were unaffected in a tough market environment with 34 per cent. profit growth on the first half compared to last year. TRA's excellent performance and continued growth for the tenth successive year is testimony to its business model of working very closely with blue chip clients by providing proven strategies particularly in direct marketing and Customer Relationship Marketing. This accounts for a very low client attrition rate. The growth in income has come from Lloyds Blackhorse, a growing relationship with Cow & Gate, and by winning new business in the pharmaceutical sector. Six months ended Six months ended 30 September 2002 30 September 2001 £'000 £'000 % Change TRA Operating Profit 466 347 +34 As previously reported, management issues have been addressed at Mobile Sensory Testing Services Limited ("MSTS"), the subsidiary of MSL. The new Managing Director is now firmly in place and is building sales including valuable new business wins in McCormicks herbs and spices, Danone and Diageo. The new office is fully functional and overheads have been trimmed, putting MSTS in a much stronger state to achieve profitable growth. The Group has not been satisfied with the progress of MSL's Visualizer joint venture since its US partner was acquired by WPP. It was therefore mutually agreed to terminate this relationship with effect from the end of September 2002. MSL owns the IPR and has completed negotiations to buy back the marketing rights for the USA to allow Visualizer to continue with a new partner. The lack of corporate activity in the marketing services sector and the tougher trading environment has meant that vendors have become more realistic with regard to valuations. Currently, Creston is able to fund acquisitions with bank structured finance as the Directors believe that this is not the time to raise funds on the stockmarket, due to poor market sentiment. There have been two significant movements in the Balance Sheet in the half-year, both relating to the MSL acquisition. Some £2m of the initial consideration loan notes have been redeemed on schedule. MSL deferred consideration has been reduced by £890,000 at the half year reflecting the difficult trading in MSTS and the Visualizer joint venture. This has reduced the holding value and associated goodwill by the same amount. The proposed acquisition of EMO Group Limited ("EMO") will add to the critical mass of Creston without substantial additional head-office costs, which means the benefits will immediately fall to the bottom line. The EMO deal is expected to be earnings enhancing in the current year. Since the end of September, I am pleased to report that trading has been in line with expectations. No interim dividend will be paid, but the Board is planning to recommend a dividend for the full year. It is with great sadness that I have to announce the death of Vincent Moran, a Non-executive Director, on 10 August 2002. We shall all miss him, not just for the contribution he made, but also as a friend. In summary, I am pleased with the Group's performance in a difficult market. The Group has demonstrated it is able to perform credibly and continue its acquisition strategy. This augurs very well for when the economy and stockmarket sentiment improves. David Marshall Chairman 14 November 2002 GROUP PROFIT AND LOSS ACCOUNT Unaudited six Unaudited six Audited months ended 30 months ended 30 year ended September 2002 September 2001 31 March 2002 £'000 £'000 £'000 Turnover 7,878 3,453 9,810 Cost of sales (3,772) (1,152) (6,376) Gross profit 4,106 2,301 3,434 Administrative expenses (3,753) (2,510) (3,139) Operating profit/(loss) 353 (209) 295 Share of operating loss in joint ventures (57) (16) (64) Profit/(loss) on ordinary activities before interest 296 (225) 231 Net interest (80) 31 (24) Profit/(loss) on ordinary activities before tax 216 (194) 207 Tax (80) - (69) Profit/(loss) for the period 136 (194) 138 Dividends - - (79) Retained profit/(loss) for the period 136 (194) 59 Basic earnings/(loss) per share 1.20p (1.7)p 1.23p Diluted earnings/(loss) per share 1.20p (1.7)p 1.23p GROUP BALANCE SHEET Unaudited six Restated Unaudited Audited months ended 30 six months ended 30 year ended September 2002 September 2001 31 March 2002 £'000 £'000 £'000 Fixed assets Intangible assets 15,454 9,927 16,306 Tangible fixed assets 297 210 265 Investment in joint venture Share of gross assets 33 141 43 Share of gross liabilities (121) (120) (75) (88) 21 (32) 15,663 10,158 16,539 Current assets Stocks 375 178 351 Debtors 3,500 2,000 3,771 Cash at bank and in hand 3,800 6,111 6,004 7,675 8,289 10,126 Creditors - amounts falling due within one year (6,095) (2,134) (8,437) Net current assets 1,580 6,155 1,689 Total assets less current liabilities 17,243 16,313 18,228 Creditors - amounts falling due after more than one (7,129) (6,590) (8,250) year Net assets 10,114 9,723 9,978 Capital and reserves Called up share capital 1,122 1,122 1,122 Share premium account 4,880 4,879 4,880 Special reserve 2,385 2,385 2,385 Other reserve 1,385 1,385 1,385 Capital redemption reserve 72 72 72 Profit and loss account 270 (119) 134 Shareholders' funds 10,114 9,723 9,978 GROUP CASH FLOW Unaudited six Restated Unaudited Audited months ended 30 six months ended 30 year ended September 2002 September 2001 31 March 2002 £'000 £'000 £'000 Net cash inflow/(outflow) from operating 624 465 (241) activities Dividends received from joint ventures - 24 39 Returns on investments and servicing of finance Net interest received/(paid) (203) 31 (15) Taxation - (191) (337) Capital expenditure and financial investment Purchase of tangible fixed assets (146) (96) (120) Sale of tangible fixed assets - - 2 Decrease in restricted cash deposits 2,044 - 500 Net cash inflow/(outflow) from capital 1,898 (96) 382 expenditure and financial investment Acquisitions and disposals Purchase of subsidiary undertakings - - (1,767) Net cash acquired with subsidiaries - - 939 Net cash (outflow) from acquisitions and - - (828) disposals Equity dividends paid (79) - - Net cash inflow/(outflow) before financing - 233 (1,000) Financing Issue of share capital for cash consideration - - 1 Capital element of finance lease rentals (9) (9) (18) Repayment of loan notes (2,044) - - Receipt/(repayment) of bank loan (232) - 1,519 Net cash (outflow)/inflow from financing (2,285) (9) 1,502 Increase/(decrease) in cash (45) 224 502 NOTES TO THE INTERIM REPORT 1. Basis of preparation The interim financial information has been prepared in accordance with applicable accounting standards and under the historical cost convention. The principal accounting policies have remained unchanged from those set out in the Group's 2002 annual report and financial statements. The comparative figures for the six months ended 30 September 2001 have been restated to reflect the effects of the change in accounting policy relating to deferred taxation that was adopted in the Group's accounts for the year ended 31 March 2002. 2. Earnings/(loss) per share The calculation of the basic earnings/(loss) per share is based on the profit/ (loss) attributable to ordinary shareholders divided by the weighted average number of shares in issue for each period, which were 11,215,364 for the period to 30 September 2002 (30 September 2001: 11,213,781). 3. Cash and liquid resources At 1 April At 30 September 2002 Cash flow 2002 £'000 £'000 £'000 Cash at bank and in hand 6,004 (2,204) 3,800 Overdrafts (115) 115 - 5,889 (2,089) 3,800 Less restricted cash balances (4,200) 2,044 (2,156) Cash available for use 1,689 (45) 1,644 The restricted cash balances are maintained in a designated account as security for the loan notes issued on the acquisition of Marketing Sciences Limited and is, therefore, not freely available to the Group. 4. Post balance sheet Events On 14 November 2002, the Company announced its intention to acquire the entire share capital of EMO Group Limited. Full details are provided in the Circular to Shareholders dated 14 November 2002. 5. Revaluation of goodwill A revaluation of the carrying value of acquisitions has been carried out using the reforecast profits, which resulted in fair value adjustments of £38,000 and the reduction of the deferred consideration payable to MSL by £890,000, with a corresponding reduction on goodwill. An impairment review was also carried out and no impairment was deemed necessary. 6. Publication of non-statutory accounts The financial information set out in this interim report does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The financial information for the year ended 31 March 2002 has been extracted from the Group's statutory accounts for that period which contained an unqualified audit report and which have been filed with the Registrar of Companies. This information is provided by RNS The company news service from the London Stock Exchange

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