Final Results

Creston PLC 16 June 2003 Date: 16 June 2003 On behalf of: Creston plc Embargoed until: 0700hrs CRESTON PLC Preliminary Results for the year ended 31 March 2003 In its second year of trading as a fully focused marketing services group, Creston plc announces another year of strong growth achieved across the Group. Highlights • Turnover up 90% to £18.6m (2002: £9.8m) • Organic growth remains strong at 14% - 70% of turnover derived from repeat business • Operating profits increased to £1.2m (2002: £0.3m) • Profit before tax up 341% to £0.9m (2002: £0.2m) • Earnings per share increased to 6.38p (2002: 1.23p) • Proposed dividend per share doubled to 1.4p (2002: 0.7p) • Most recent acquisition, EMO, completed in a difficult market and already earnings enhancing during first four months as part of the Group • Creston now has a highly skilled and well-motivated team of 210 employees Commenting on the results, Don Elgie, Chief Executive of Creston, said: "We are very pleased to have delivered another set of strong figures, achieved against a background of continuing difficult trading conditions, and this performance confirms our strategy of investing only in resilient areas of marketing services. In just two years, Creston has established a significant platform within the marketing services and communications sector to achieve sustainable growth and we are confident of the future prospects of the Group. "The new financial year has started well with performance comfortably ahead of budget. We have fulfilled our initial buy-and-build objectives and are confident that we will maintain our progress with good organic growth and further high-quality acquisitions during 2003." Enquiries Don Elgie, Chief Executive Tel: 020 7930 9757 Tim Alderson, Finance Director Creston plc Emma Kane/Katharine Sharkey Tel: 020 7955 1410 Redleaf Communications Mob: 07876 338339 Further information on Creston is available on the Company's website: www.creston.com CHAIRMAN'S STATEMENT In our second full year of trading as a marketing services group, Creston has continued its strategy of organic and acquisitive growth in tightly focused marketing services sectors. In December 2002 Creston made its third acquisition supporting this strategy. The other Group companies continue to deliver organic growth well above the relevant market sector average. RESULTS Group turnover was £18.6 million (2002: £9.8 million), an increase of 90 per cent on the prior year, and gross profit was £6.7 million (2002: £3.4 million) representing a gross margin of 36.0 per cent (2002: 35.0 per cent). These results reflect not only contributions from The Real Adventure Marketing Communications Limited ("TRA") for a full year and EMO Group Limited ("EMO") for four months, but they also include strong organic growth by the Marketing Sciences Group ("MSL"). Profit before taxation for the year was £0.9 million (2002: £0.2 million), an increase of over three times. This also reflects the increasing operating leverage of spreading the head office costs over an increasing number of operating companies. Basic earnings per share were 6.38 pence (2002: 1.23 pence), some five times that of the previous year. Annualised turnover for the Group is approximately £24m and annualised operating profits of the operating subsidiaries are approximately £2.5m before central overheads. DIVIDEND In line with the stated strategy of pursuing a progressive dividend policy, the Board proposes to increase the dividend for this year to 1.4 pence per share (2002: 0.7 pence per share). The cost to the Group of this dividend is £157,000. The dividend will be paid on 29 August 2003, subject to shareholder approval at the forthcoming AGM of the Company, to shareholders on the register at the close of business on 25 July 2003. STRATEGY Creston's strategy is to build an international marketing services group which reflects the way the market is moving, namely to having a one-to-one relationship with customers. This strategy will be achieved by acquiring companies with a record of strong organic growth and management who are committed to further growth under the Creston "umbrella". REVIEW OF OPERATIONS Our most recent acquisition was EMO, a group based in Swindon and Bristol specialising in channel marketing, which was completed in December 2002 and is already earnings enhancing. Following this acquisition, Creston comprises three marketing services companies: MSL - providing quantitative and qualitative market research; TRA - providing direct marketing and customer relationship marketing ("CRM") and EMO - providing marketing communications and channel marketing. All of these companies have demonstrated consistent organic growth over the year under review despite difficult trading conditions. Creston has focused on making acquisitions in resilient sectors, hence its robust performance has been derived not just from acquisitions but also from strong organic growth: • MSL's organic growth in operating profits has been 32 per cent. Its resilience is in no small part due to a high visibility of earnings from clients like Tesco and Unilever; • TRA's organic growth in operating profits has been 30 per cent. Its resilience lies both in its high repeat revenues and durable clients like Lloyds Black Horse, Pfizer and Cow & Gate; and • EMO's pro forma annualised growth in operating profits has been 103 per cent for continuing businesses. Its resilience lies in a high level of contracted revenue, especially from the BMW Group, which includes BMW (GB), MINI and Rolls Royce. In view of this encouraging performance Creston's long term strategy remains unchanged, namely to become a major player in marketing services by building on our domestic base and by expanding overseas to become an international company in the medium term. EMPLOYEES It has been a further year of growth and the Group now has 210 employees, compared to 156 last year, in six locations in the United Kingdom. I would like to thank the directors and staff both new and old for their continued hard work, so self evident with the excellent results achieved. The one sad event this year has been the sudden death of Vincent Moran, a non-executive director of Creston, on 10 August 2002. He was a strong supporter of Creston's refocus to a marketing services group and was highly valued, not just for his business advice, but as a friend. Our best wishes go to his widow, Anne, and their children. OUTLOOK We continue to actively identify and review acquisitions that meet Creston's criteria. Specifically, we have identified complementary opportunities within market research and marketing communications, including direct marketing and CRM. We will bring specific proposals to shareholders at the appropriate time. The creation of synergies across the Group in terms of additional income and efficiencies has begun to bear fruit. In spite of the continued challenging economic environment, Creston has begun the new financial year with a strong performance from all subsidiaries. The Creston model has proved to be robust and the Board believes that the outlook for the Group remains highly positive. I look forward to building on this year's success, both organically and through further acquisition. David Marshall Chairman 13 June 2003 CHIEF EXECUTIVE'S OVERVIEW The year to 31 March 2003 was Creston's second full year as a marketing services group. The Group has had a very successful year and has achieved its operational and financial objectives and the results confirm the good progress that has been made. Both the main operating companies, MSL and TRA, produced excellent results demonstrating significant organic growth. EMO, acquired in December 2002, also had a very encouraging first four months as part of the Group. The performance of the operating companies was achieved in difficult market conditions and the Group has considerably out-performed the marketing services sector as a whole. STRATEGY AND OBJECTIVES Creston's strategy remains to build the Group both organically and through selective acquisitions to become a substantial diversified marketing services group. It is the Board's objective that each element of the Group will reflect the continued trend away from mass marketing towards one-to-one marketing between clients and customers. The Board believes an important part of its strategy is to build a broadly based group and to avoid over-concentration in any one sector, thereby minimising risk. At the current stage of development, it is the Board's intention to continue to avoid very cyclical sectors such as above-the-line advertising. However, we will consider acquisitions of companies that have demonstrated strong organic growth in cyclical sectors. The Group will consider potential acquisitions particularly in marketing services sectors such as market research, direct marketing, CRM and digital marketing. Creston is committed to harnessing the entrepreneurial skills of the vendors and senior management of its operating subsidiaries. Creston encourages them to deliver continued organic growth through exploitation of their existing niche market positions and through leveraging cross-selling opportunities that exist within the Group. Creston is achieving this objective by providing appropriate levels of incentivisation through earn-out targets, payment of acquisition consideration through both ordinary shares and cash, and competitive remuneration packages. CRESTON OPERATING BOARD Creston has created an Operating Board, which reports to the Board on a monthly basis, to review overall strategy, performance, and acquisition opportunities and to create synergy opportunities between the subsidiaries. This is the key forum for the operational management of the Group and the Board believes that it is a vital element in harnessing the entrepreneurial talent of the subsidiary managements' expertise and experience. TRADING IN THE YEAR TO 31 MARCH 2003 As reported in the Chairman's Statement, turnover for the Group increased by 90 per cent compared to last year. Operating profit increased by 307 per cent in the year to 31 March 2003. Each of the main operating subsidiaries has generated a net contribution and all are budgeted to do so in the forthcoming year. MARKETING SCIENCES Turnover for MSL was £6.6 million (2002: £6.0 million), a 10 per cent increase on the prior year, a particularly strong performance when compared to the British Market Research Association's ("BMRA") reported growth of 2.6 per cent for 2002. Operating profit increased by 32 per cent to £0.83 million (2002: £0.60 million). MSL's performance was underpinned by the fact that over two-thirds of its turnover has been generated by repeat business from existing clients. MSL provides a wide range of quantitative and qualitative research services to clients such as Tesco, Unilever and Kimberly-Clark. Since the appointment of a new business development director, MSTS is currently generating record levels of new business enquiries. The Board anticipates that MSTS will deliver further profitable growth in the year to 31March 2004. The Board has also taken the decision to close the US joint venture, Visualiser Llc, because trading conditions in the USA have remained extremely difficult. This will affect the trading performance of MSL positively in 2004. The Visualizer intellectual property rights remain with MSL. THE REAL ADVENTURE Turnover for TRA was £8.6 million with operating profit of £0.98 million. Although no directly comparable figures are available because the agency was acquired in November 2001 and its year end moved to 31 March 2003, pro forma year-on-year turnover growth was 22 per cent and operating profit growth was 30 per cent. Repeat income from TRA's client base represented 85 per cent of turnover, primarily a result of TRA's close working relationships with its clients and implementation of proven strategies in direct and customer relationship marketing. During the year, the company recruited a further 10 employees. Significant new work has been won from Pfizer Consumer Healthcare, a new CRM campaign has been launched for Cow & Gate, and the level and breadth of contracted work for Lloyds TSB Black Horse Finance has seen a significant increase with two new areas of that business having been competitively pitched for and won during the year. EMO Creston acquired EMO on 2 December 2002 and the results therefore reflect only four months' trading. Turnover for that period was £1.9 million and operating profit was £0.23 million. Proforma year-on-year operating profit growth excluding discontinued businesses was 103 per cent. EMO manages all the UK dealer and sales channel marketing programmes for BMW (GB). This work includes both the MINI brands and the newly launched Rolls Royce and covers all areas of automotive marketing including new and used cars, servicing, parts and financing. The EMO Group has also undertaken significant work for Andreas Stihl in helping to increase brand awareness and sales in the UK over the last five years, in which time its sales have almost doubled. Sky Rock Communications Limited ("Sky Rock"), another member of the EMO Group, provides creative and technical support to electronic communications programmes on behalf of EMO's clients. Other notable clients of EMO include Intel Corporation (UK) and George Wimpey. EMO has shown consistent earnings growth over the last three years and the Board has been encouraged by their trading performance since acquisition. OUTLOOK I am pleased to report that the new financial year has started well with performance comfortably ahead of budget. With the acquisition of EMO, the synergy opportunities within the Group have increased. In particular, opportunities exist to facilitate client referrals and create joint products as well as to leverage the Group's specialist marketing skills within each business to generate cross-selling opportunities. Referral opportunities are already being seen across the Group including clients such as Cow & Gate, PHH Arval, Scottish Courage and Coca-Cola. It is the Board's intention to continue its acquisitions strategy throughout the current financial year. However, we believe that organic performance, including a full year of EMO, will produce strong growth. The Board believes that in just two years Creston has established a significant platform within the marketing services and communications sector to achieve sustainable future growth and is confident of the future prospects of the Group. Don Elgie Chief Executive 13 June 2003 CRESTON PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 2003 Note Continuing Acquisitions 2003 2002 Operations £'000 £'000 £'000 £'000 Turnover 2 16,647 1,989 18,636 9,810 Cost of sales (10,599) (1,323) (11,922) (6,376) Gross profit 6,048 666 6,714 3,434 Administrative expenses (5,080) (433) (5,513) (3,139) Operating profit 968 233 1,201 295 Share of operating loss in joint venture (78) (64) Profit on ordinary activities before 1,123 231 interest Net interest payable (211) (24) Profit on ordinary activities before 912 207 taxation Tax on profit on ordinary activities 3 (197) (69) Profit for the financial year 715 138 Dividends 4 (157) (79) Retained profit for the financial year 558 59 Earnings per share 5 6.38p 1.23p Diluted earnings per share 5 6.38p 1.23p CRESTON PLC CONSOLIDATED BALANCE SHEET AS AT 31 MARCH 2003 Note 2003 2002 £'000 £'000 Fixed assets Intangible assets 6 19,001 16,306 Tangible fixed assets 670 265 Investment in joint venture Share of gross assets 57 43 Share of gross liabilities (57) (75) 0 (32) 19,671 16,539 Current assets Stocks 474 351 Debtors 5,299 3,771 Cash at bank and in hand 2,424 6,004 8,197 10,126 Creditors: amounts falling due within one (5,929) (8,437) year Net current assets 2,268 1,689 Total assets less current liabilities 21,939 18,228 Creditors: amounts falling due after more 8 (11,403) (8,250) than one year Net assets 10,536 9,978 Capital and reserves Called up share capital 1,122 1,122 Share premium account 4,880 4,880 Special reserve 2,385 2,385 Other reserve 1,385 1,385 Capital redemption reserve 72 72 Profit and loss account 692 134 Total equity shareholders' funds 10,536 9,978 CRESTON PLC CONSOLIDATED CASHFLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2003 Note 2003 2002 £'000 £'000 Net cash inflow/ (outflow) from operating Activities 9 1,516 (241) Dividends received from joint venture - 39 Returns on investments and servicing of finance Bank interest received 147 60 Bank interest paid (367) (75) Finance lease interest paid (5) - Net cash outflow from returns on investments and servicing of finance (225) (15) Taxation (212) (337) Capital expenditure and financial investment Purchase of tangible fixed assets (227) (120) Sale of tangible fixed assets 26 2 Decrease in restricted cash deposits 4,089 500 Net cash inflow from capital expenditure and 3,888 382 financial investment Acquisitions and disposals Purchase of subsidiary undertakings (2,980) (1,767) Net cash acquired with subsidiaries 1,004 939 Net cash outflow from acquisitions and disposals (1,976) (828) Equity dividends paid (79) - Net cash inflow/ (outflow) before financing 2,912 (1,000) Financing Issue of share capital for cash consideration - 1 Receipt of bank loan 3,060 1,519 Repayment of bank loan (464) - Repayment of loan notes (4,889) - New finance leases acquired 27 - Capital element of finance lease payments (48) (18) Net cash (outflow)/ inflow from financing (2,314) 1,502 Increase in cash 10 598 502 1. ACCOUNTING POLICIES Basis of preparation The accounts have been prepared under the historical cost convention and in accordance with United Kingdom applicable accounting standards up to and including Financial Reporting Standard (FRS) 19. The principal accounting policies of the Group are as set out in the Group's 2003 annual report and financial statements, and have remained unchanged from the previous year. Goodwill arising from the acquisition of subsidiary undertakings, representing the difference between the purchase consideration and fair value of net assets acquired, has been capitalised in accordance with the requirements of FRS 10. The directors are of the opinion that the intangible assets of the Group have an indefinite economic life given the durability of MSL, MSTS, The Real Adventure and EMO brand names, their historic ability to sustain long term profitability, and the Group's commitment to continue to build branded products with added-value. In accordance with FRS 10 and 11, the carrying value of intangible assets will continue to be reviewed annually for impairment on the basis stipulated in FRS 11 and adjusted should this be required. The individual circumstances of each future acquisition will be assessed to determine the appropriate treatment of any related goodwill. The financial statements depart from the requirement of companies' legislation to amortise goodwill over a finite period in order to give a true and fair view, for the reasons outlined above. If the goodwill arising on all acquisitions had been amortised over a period of twenty years, operating profit would have decreased by £784,000 (2002: £612,000). 2. TURNOVER 2003 2002 £'000 £'000 Marketing services (excluding share of joint venture's turnover of £104,000; 2002 - 171,000) 18,636 9,810 All of the Group's current activities are marketing services activities based primarily in the United Kingdom. Turnover for EMO Group relates only to the four months since acquisition. 3. TAX ON PROFIT ON ORDINARY ACTIVITIES 2003 2002 £'000 £'000 The tax charge comprises: Current tax: Corporation tax at 30% (2002: 30%) 236 85 Overprovision of corporation tax in prior year (37) (25) Deferred tax: 199 60 Origination and reversal of timing differences (2) 9 Tax charge 197 69 4. DIVIDENDS 2003 2002 £'000 £'000 Proposed final dividend: 1.4p per share (2002: 0.7p per share) 157 79 5. EARNINGS PER SHARE 2003 2002 Profit for the financial year (£'000) 715 138 Weighted average number of shares (number) 11,215,364 11,214,177 Earnings per share (pence) 6.38 1.23 No dilutive effects arose in relation to the options, warrants or convertible loan notes in issue during either year. 6. INTANGIBLE ASSETS Goodwill on consolidation Group £'000 Cost At 1 April 2002 16,306 Additions (see below) 4,983 Adjustment to consideration (2,288) At 31 March 2003 19,001 The adjustment to consideration relates to reductions to the estimated deferred consideration payable to the vendors of MSL and TRA under the terms of the Sale and Purchase agreements. 7. ACQUISITIONS On 2 December 2002, the Company acquired the whole of the issued share capital of EMO Group Limited for consideration (including deferred consideration) as set out below. This purchase has been accounted for by the acquisition method of accounting. The profit after taxation of EMO Group Limited from 1 January 2002 to the date of acquisition was £315,000. Its profit after taxation for the year ended 31 December 2001 was £193,000. The assets and liabilities of EMO Group Limited at 2 December 2002 were as follows: Accounting policy Book value adjustments Fair value £'000 £'000 £'000 Fixed assets Tangible fixed assets 442 - 442 Current assets Stocks and work in progress 213 13 226 Debtors 1,144 (6) 1,138 Prepayments 77 10 87 Bank and cash 1,004 1,004 Total assets 2,880 17 2,897 Creditors Trade creditors (520) - (520) Other creditors (37) 5 (32) Accruals (604) 6 (598) Social security and other taxes (219) - (219) Finance leases (175) - (175) Corporation tax (151) (40) (191) Total liabilities (1,706) (29) (1,735) Net assets 1,174 (12) 1,162 Purchased goodwill capitalised 4,983 6,145 Satisfied by: £'000 Issue of convertible loan notes 1,165 Cash 1,860 Consideration paid 700 Deferred/contingent consideration 2,000 Acquisition costs 420 6,145 The deferred/contingent consideration is dependent upon the level of profit before taxation achieved by EMO Group Limited in the period from 1 April 2002 to 31 March 2006. 8. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 31 March 2003 31 March 2002 £'000 £'000 Acquisition convertible loan notes 2,915 1,750 Acquisition loan notes 584 555 Bank loans 3,199 1,055 Acquisition deferred consideration 4,613 4,890 Deferred taxation 6 - Amounts due under finance leases 86 - 11,403 8,250 9. RECONCILIATION OF OPERATING PROFIT/(LOSS) TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES 2003 2002 £'000 £'000 Operating profit 1,201 295 Depreciation 219 111 Loss/ (profit) on disposal of plant, vehicles and equipment 19 (2) (Increase)/decrease in stock (130) 36 (Increase)/decrease in debtors (303) 108 Increase/(decrease) in creditors 510 (789) Net cash inflow/ (outflow) from operating activities 1,516 (241) 10. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 2003 2002 £'000 £'000 Increase in cash in the year 598 502 Cash outflow from reduction in debt 336 18 Cash inflow from increase in debt (3,060) (1,519) Movement in net debt in the year resulting from cash flows (2,126) (999) New finance leases (27) - Reduction of loan stock 4,889 500 Issue of acquisition loan notes (1,165) (3,050) Net debt at start of year (7,089) (3,540) Net debt at end of year (5,518) (7,089) 11. ANALYSIS OF NET DEBT At Cash flow Acquisitions Non-cash items At 31 March 31 March 2002 2003 £'000 £'000 £'000 £'000 £'000 Cash at bank and in hand 1,804 509 - - 2,313 Overdrafts (115) 88 - - (27) 1,689 597 - - 2,286 Acquisition convertible (1,750) - - (1,165) (2,915) loan notes Acquisition loan notes (5,500) 4,889 - - (611) Bank loan (1,519) (2,596) - - (4,115) Finance leases (9) 48 (175) (27) (163) Net debt (7,089) 2,938 (175) (1,192) (5,518) Restricted cash deposits 4,200 (4,089) - - 111 Net debt including (2,889) (1,151) (175) (1,192) (5,407) restricted cash deposits 12. PUBLICATION OF NON STATUTORY ACCOUNTS The financial information relating to the years ended 31 March 2002 and 2003 does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985 ("the Act"). The summarised balance sheet at 31 March 2003 and the summarised profit and loss account, summarised cash flow statement and associated notes for the year then ended have been extracted from the Group's 2003 statutory financial statements upon which the auditors' opinion is unqualified and does not include any statement under Section 237 of the Act. The summarised balance sheet at 31 March 2002 and the summarised profit and loss account, summarised cash flow statement and associated notes for the year then ended have been extracted from the Group's 2002 statutory financial statements which have been delivered to the Registrar of Companies, and in respect of which the auditors gave an unqualified opinion which did not contain a statement under section 237 of the Act. The auditors have agreed this preliminary statement of final results. 13. ANNUAL REPORT & ACCOUNTS Creston plc's Annual Report & Accounts will be mailed to shareholders on 27 June 2003. Copies will be made available from the Company's Head Office, 56 Haymarket, London, SW1Y 4RN. This information is provided by RNS The company news service from the London Stock Exchange

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