Half Yearly Report

RNS Number : 1571S
Creston PLC
28 November 2012
 



28 November 2012

 

Creston plc

('Creston' or the 'Group')

 

Half year results for the six months to 30 September 2012

 

Creston plc (LSE: CRE), the Insight and Communications group, today announces its half year results for the six months to 30 September 2012 ('the Period').

 

Group Financial Highlights

 

·     Revenue up 2 per cent to £37.2 million (H1 2012: £36.5 million)

·     Headline1 EBITDA2of £5.4 million (H1 2012: £5.5 million)

·     Headline PBT3of £4.4 million (H1 2012: £4.8 million)

·     Headline DEPS4 up 32 per cent to 7.44 pence (H1 2012: 5.63 pence) per share

·     Half year dividend per share increased by 20 per cent to 1.00 pence (H1 2012: 0.83 pence)

 

Corporate and Operational Highlights

 

·     Digital and online revenue up 8 per cent, representing 45 per cent of Group revenue (H1 2012: 42 per cent)

·     Continued focus on digital marketing with today's acquisition of digital healthcare agency DJM Digital Solutions Ltd ('DJM') post Period end

·     International revenue increased by 35 per cent, and now represents 35 per cent of Group revenue (H1 2012: 26 per cent)

·     Net new business of £3.1 million in annualised revenue (H1 2012: £2.6 million)

·     Solid performance by the Communications division, reporting growth in Headline PBIT5 of 8 per cent driven by an improving margin

·     Health division benefiting from successful integration of The Corkery Group into the New York office

·     A slower Insight division margin recovery against a tough industry backdrop, despite stabilised revenues

 

Group Financial Results

 


Headline results

Reported results


H1 2013

£ million

H1 2012

£ million

H1 2013

£ million

H1 2012

£ million

Revenue

37.2

36.5

37.2

36.5

EBITDA

5.4

5.5

8.8

5.0

PBIT

4.4

4.9

7.9

4.3

PBT

4.4

4.8

7.9

4.1

DEPS

7.44 pence

5.63 pence

13.66 pence

4.67 pence

Dividend per share

1.00 pence

0.83 pence

1.00 pence

0.83 pence

 

1Headline results reflect the underlying performance of the Group and excludes acquisition, start-up and restructuring related costs, deemed remuneration charges, non-recurring property-related costs, movement in fair value of deferred consideration and notional finance costs. A full reconciliation is presented in note 4 to this half year statement.

2 Earnings before finance costs, finance income, taxation, depreciation and amortisation (EBITDA).

3 Profit before taxation (PBT).

4 Profit before taxation (PBT).

5 Profit before finance costs, finance income and taxation (PBIT).

 

Commenting on the results, Don Elgie, Group Chief Executive of Creston plc, said:

 

 

"The Group has continued to increase revenue through the expansion of its international business, and the addition of some significant new clients and brands to its roster.

 

"Many of these new business wins have a significant digital element and Creston is continuing to focus on establishing itself as one of the leaders in providing digital marketing services. This position has been further enhanced through the 8 per cent growth of our online and digital revenue, and today's announcement of the acquisition of digital healthcare agency DJM. 

 

"While the market remains volatile on the back of continuing macro-economic pressures and we therefore naturally remain cautious, the Group will look to build on its first half revenue increase during its historically stronger second half. The Group's current new business pipeline is healthy and based on historic conversion levels, the Group expects to deliver full year Headline PBIT at around the prior year level."

 

 

 

 

There will be a presentation for analysts today at 09.30 at the offices of M:Communications, Citypoint, 11th Floor, 1 Ropemaker Street, London, EC2Y 9AW.

 

 

 

For further information on the Group's half year results or about the analyst meeting please contact:

 

Creston plc

+ 44 (0)20 7930 9757

Don Elgie, Group Chief Executive

 

Barrie Brien, COO/CFO

 

 

 

M:Communications

+44 (0)20 7920 2339

Elly Williamson

 

Matthew Neal

 

 

 

About Creston plc

Creston plc (LSE: CRE) is a marketing services company focused on insight-led communications. The Group delivers a range of marketing services, including advertising, brand consultancy, CRM, digital and direct marketing, health communications, local marketing, market research, PR and social media marketing to a broad spectrum of blue-chip global clients. Our insight companies give us a real edge, providing the analytic intelligence to enable us to truly understand, influence and inspire consumers and it's that insight-led intelligence that drives our creativity. www.creston.com

 

 

 

 

 

 

  

Group Chief Executive's Statement

Group Performance

 

During the first six months of the current financial year, Group revenue grew by 2 per cent compared to the same prior year period. The driver behind this increase was a combination of the continued growth of our international business, which now represents 35 per cent of total revenue (H1 2012: 26 per cent), and the addition of some significant new clients and brands to our roster.

 

Group Headline EBITDA was £5.4 million (H1 2012: £5.5 million), Group Headline PBIT was £4.4 million (H1 2012: £4.9 million) and Group Headline PBT was £4.4 million (H1 2012: £4.8 million).

 

Headline DEPS increased 32 per cent to 7.44 pence (H1 2012: 5.63 pence) per share. This increase in DEPS is due to a tax credit in the Period following a positive conclusion to an outstanding HMRC enquiry (further explanation can be found in note 6).  Reported PBT was £7.9 million (H1 2012: £4.1 million) with the material difference between Headline and Reported PBT principally due to a revaluation of estimated deferred consideration (see note 4). This revaluation and the tax credit referred to above have increased Reported DEPS by 192 per cent to 13.66 pence (H1 2012: 4.67 pence) per share.

 

There were some strong performances from our two largest divisions, Communications and Health, but a slower recovery from our smallest division, Insight. Our Communications division reported an 8 per cent increase in its Headline PBIT; and our Health division, bolstered by the acquisition of The Corkery Group, delivered good revenue and Headline PBIT growth with a flat like-for-like revenue performance as the sector began to stabilise. Both of these divisions also delivered margin improvements. Our Insight division experienced a slower recovery in a challenging market following its FY12 Q4 slowdown, but saw a return to profit in FY13 Q2 following two prior quarters of losses. Management is continuing its proactive cost management to restore the Insight margin.

 

It is clear that our more digitally focused offer is attractive to clients, as we are seeing an increase in new business opportunities as a direct result of our digital capabilities. As an example, all agencies within the Communications division have recently been appointed to the Government's Agile Route to Market roster. The Group is currently pitching for some major new business opportunities and a significant portion of these are joint pitches between two or more of our agencies in both the Communications and Health divisions, endorsing the strength of our 'Better Together' proposition.

 

Following the previously reported fall in revenues at the end of the last financial year, like-for-like revenues in the Period declined by 6 per cent, however this is being replaced by a strong new business pipeline and the Group has added net new business from both new and existing clients of £3.1 million (H1 2012: £2.6 million) in annualised revenue.

 

With work from online and digital activities now accounting for 45 per cent of Group revenue (H1 2012: 42 per cent), the Group is more focused than ever on establishing itself as one of the leaders in providing digital marketing services to clients. This position has been further cemented by today's announcement of the acquisition of digital healthcare agency DJM.

 

Corporate Development

 

As well as being marginally earnings enhancing in this financial year, the acquisition of digital marketing specialist DJM, supports the continued development of the Group's Health division. Working as part of Creston Health, we are confident that DJM will facilitate the continued growth of the division as digital becomes an ever-more significant element of our clients' requirements.

 

 

Business Review

 

The respective revenue, Headline PBIT and percentage contributions per division are as follows:  

 

H1 2013

Revenue

Headline PBIT

 

£ million

% of Group

£ million

% of Group

Communications

20.7

55%

3.1

54%

Health

11.0

30%

2.6

45%

Insight

5.5

15%

0.04

1%

 

Communications

 

 

H1 2013

£ million

H1 2012

£ million

Revenue

20.7

21.0

Contribution to Group revenue (%)

55%

58%

Headline PBIT

3.1

2.9

Reported PBIT

3.1

2.6

Headline PBIT margin (%)

15%

14%

 

The Group's Communications division delivered a solid performance during the Period. There was good growth of 8 per cent in the division's Headline PBIT to £3.1 million (H1 2012: £2.9 million), despite a small decline in revenue to £20.7 million (H1 2012: £21.0 million), which was a robust performance against two tough prior year revenue growth comparisons (H1 2012: 6 per cent; H1 2011: 14 per cent). The Headline PBIT growth was as a result of our continued vigorous focus on profitable revenue generation and improved recovery rates. Accordingly this has resulted in a continued strengthening of the divisional half year Headline PBIT margin to 15.1 per cent (H1 2012: 13.8 per cent; H1 2011: 11.8 per cent). As the Group's largest division, contributing 55 per cent of revenues and 54 per cent of Headline PBIT, this is an encouraging performance.

 

Three of the four divisional companies, namely TMW, The Real Adventure and the Nelson Bostock Group, produced good performances during the first half, delivering both revenue and Headline PBIT growth and so underpinning the division's strong PBIT performance. Marketing magazine reinforced TMW's strength in the digital space naming it a Top 5 mobile and e-CRM agency and overall Top 10 digital agency in a recent league table.

 

Following the decline in revenue at EMO as it entered the current financial year, management undertook a review of its offer, processes and operational structure. The management team is confident this full operational review, along with some major on-going pitches, will enable the business to grow its revenue and improve its profitability during the course of FY14. In the current year however, its revenue and PBIT decline against the prior year will impact the full year results of the division by off-setting the growth from the rest of the division's companies.

 

New business won by our Communications division during the Period from new and existing clients includes campaigns for several new Unilever brands in the UK: Impulse, VO5, Dove Men + Care and Simple Skincare; EE, Brother and salesforce.com. 

 

Health

 

 

H1 2013

£ million

H1 2012

£ million

Revenue

11.0

8.0

Contribution to Group revenue (%)

30%

22%

Headline PBIT

2.6

1.8

Reported PBIT

6.1

1.5

Headline PBIT margin (%)

24%

22%

 

 

Revenue for the Health division rose by 38 per cent to £11.0 million (H1 2012: £8.0 million) and Headline PBIT increased by 47 per cent to £2.6 million (H1 2012: £1.8 million), as a result of the six month contribution from The Corkery Group. Like-for-like revenue was broadly flat against the prior year, while the Headline PBIT margin for the division increased to 24 per cent (H1 2012: 22 per cent).

In the US, the performances of our most recent acquisitions were encouraging. Both The Corkery Group and Cooney/Waters have reported year-on-year growth in revenue and Headline PBIT. However, owing to continued pressure on the pharmaceutical industry, less funding is being given to institutions that raise disease awareness, which is the practice area of Alembic within the Cooney/Waters Group. We are therefore taking a longer term view that Alembic will not return to former revenue levels in the period to March 2015 (the end of its earn out period) and, consequently, with this reduction in future revenue and PBIT growth, we have reduced the Cooney/Waters Group estimated future deferred consideration by £4.0 million. This movement in the fair value of deferred consideration has resulted in a credit to the income statement and represents the majority of the material growth in our Reported results.

In the UK, despite a difficult 2012 for the pharmaceutical industry which resulted in a drop off in new business opportunities for the division, our investment in the division is starting to bear fruit. Investment in senior hires including a Head of Digital for the division and a Head of International at Red Door Communications (which was recently named Most Rated UK agency by health journalists according to PR Week), our acquisition of digital healthcare agency DJM after the Period end, and a good new business conversion rate mean our agencies are well positioned to capitalise on the growing number of new business opportunities in the current financial year.

New business won during the Period by the Health division from new and existing clients includes work for: Almirall, AstraZeneca, Celgene EU and UK, Leo Pharma, Pfizer, UCB and Warner Chilcott.

 

Insight

 

 

H1 2013

£ million

H1 2012

£ million

Revenue

5.5

7.5

Contribution to Group revenue (%)

15%

20%

Headline PBIT

0.04

1.7

Reported PBIT

0.04

1.7

Headline PBIT margin (%)

1%

22%

 

The Insight division reported a decline in revenue to £5.5 million (H1 2012: £7.5 million). However, revenue is stabilising with FY13 Q2 flat on FY13 Q1 and showing growth on Q4 of the previous financial year, when there was a drop off in revenue at ICM as previously reported.

 

While a decline in PBIT was expected, a PBIT of £0.04 million (H1 2012: £1.7 million) caused by a slower recovery and weaker gross margins at ICM was disappointing. However, despite a rapid slowdown in market research activity during July to September 2012 according to the latest Market Research Society Quarterly Market Trends report, the division returned to profit in FY13 Q2 following two prior quarters of losses. While ICM's recovery is slower than originally anticipated, both revenue and Headline PBIT are expected to grow in the second half as a result of improving commissions and the swift cost-cutting and management actions, which have been on-going since the last financial year.

 

The division has undertaken a major investment in tablet PCs ('tablets') to digitise its face-to-face research. The benefits of digitising the interview process include a faster response rate for the client and a more engaging experience for the consumer. With 350 tablets, Marketing Sciences has one of the largest operations in the UK and has been rewarded with a major new customer satisfaction tracker from a top retailer.

 

The division's latest start-up, healthcare research consultancy Vitaris, performed well in the Period, turning profitable in FY13 Q2 within 12 months of launch.

 

New business won during the period included new commissions from longstanding clients as well as new clients such as Internet Advertising Bureau, VELUX, Gomez and the North West Public Health Observatory.

 

Co-location

 

The Group continued to realise its long-term co-location strategy during the Period with its three New York health companies moving to one New York office in September 2012, following the co-location in Bristol of UK agencies EMO and The Real Adventure in April 2012. The Group's UK health companies co-located in Richmond during the prior year.


The Group is also in negotiation to sign a lease to co-locate all its central London agencies (ICM, the Nelson Bostock Group and TMW) and Creston plc next summer. We strongly believe that alongside the clear operational efficiencies from sharing one building and infrastructure, further value will follow from increased client referrals, pitching for more integrated projects and creating a shared environment where our 'innovation through collaboration' and 'Better Together' approach can thrive.

In relation to the New York and London co-locations there will be an associated one-off cost recognised in the full year and FY14 numbers owing to a double rent period and some short-term onerous lease charges. This will be an accounting charge not a cash charge due to the rent free periods which will have been agreed.

 

Balance Sheet

 

As at 30 September 2012 the Group continued to strengthen its balance sheet with net current assets of £0.3 million compared with the year-end position of net current liabilities of £2.0 million. The total debt position also improved from the year-end position of £7.0 million to £4.9 million. Net debt of £2.0 million as at the Period end gives an unused banking facility of £16.8 million. As at 30 September 2012, the Group had a low gearing position of 4 per cent versus the year-end position of 7 per cent.

 

There has been a short-term increase in the Group's working capital position from a negative position of £0.5 million at the year-end to a positive position of £3.4 million. The Group's five year average cash conversion to 30 September 2012 remains high at 93 per cent demonstrating the Group's solid performance in cash generation.

 

Dividend

 

As previously reported, in light of the Group's history of strong cash generation and low gearing, it is the Board's intention to maintain a progressive dividend policy. Reflecting this, the Board has declared a half year dividend of 1.00 pence (H1 2012: 0.83 pence) per share to be paid on 10 January 2013 to shareholders registered at 7 December 2012. This represents a 20 per cent increase on the prior year however, this growth rate is higher than the expectation for the full year dividend, as the Board looks to move to a one-third / two-third allocation between the half year / final dividend payment respectively.

 

Outlook

 

We are seeing good new business opportunities across the Group, which, combined with our focus on restoring the Insight division's margin, should lead to a second half improvement in our key operational performance indicators.

 

Creston is continuing to focus on establishing itself as one of the leaders in providing digital marketing services, a position we will look to build on following today's announcement of the acquisition of digital healthcare agency DJM.

 

While the market remains volatile on the back of continuing macro-economic pressures and we therefore naturally remain cautious, the Group will look to build on its first half revenue increase during its historically stronger second half. The Group's current new business pipeline is healthy and based on historic conversion levels, the Group expects to deliver full year Headline PBIT at around the prior year level.

 

 

Don Elgie

Group Chief Executive 


UNAUDITED CONSOLIDATED INCOME STATEMENT

for the six months ended 30 September 2012

 


Note

Six months ended 30 September 2012

 

£'000

Six months ended 30 September 2011

 

£'000

Audited

Year ended

31 March

2012

£'000

Turnover (billings)


52,865

109,968

 

Revenue

 

5

 

37,165

 

36,500

 

74,924

Operating costs


(32,736)

(31,642)

(64,506)






Headline profit before finance income, finance costs and taxation

 

4

 

4,429

 

4,858

 

10,418

 

Headline items

 

4

 

3,450

 

(543)

 

659

Profit before finance income, finance costs and taxation

 

4

 

7,879

 

4,315

 

11,077

Finance costs


(12)

(217)

(246)

 

Profit before taxation

 

4

 

7,867

 

4,098

 

10,831

 

Taxation

 

6

 

392

 

(1,277)

 

(1,719)






Profit for the period

 

4

 

8,259

 

2,821

 

9,112






Basic and diluted earnings per share (pence):

 

7

 

13.66

 

4.67

 

15.08



13.66

4.67

15.08

 

 

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 September 2012



Six months ended 30 September 2012

 

£'000

Six months ended 30 September 2011

 

£'000

Audited

Year ended 31 March 2012

£'000






Profit for the period


8,259

2,821

9,112






Other comprehensive (expense)/income:





Exchange differences on translation of foreign operations


 

 

(185)

 

 

211

 

 

17






Other comprehensive (expense)/income for the period, net of tax


 

(185)

 

211

 

17






Total comprehensive income for the period


8,074

3,032

9,129

 



 

UNAUDITED CONSOLIDATED BALANCE SHEET

as at 30 September 2012

 


Note

As at

 30 September

2012

£'000

As at

 30 September 2011

£'000

Audited as at

31 March

2012

£'000

Non-current assets





Intangible assets





         Goodwill

9

106,850

101,611

107,050

         Other

9

1,388

1,303

1,473

Property, plant and equipment

9

3,721

2,111

3,390

Deferred tax assets


754

732

592



112,713

105,757

112,505






Current assets





Inventories and work in progress


1,088

1,688

1,202

Trade and other receivables


26,196

28,793

25,982

Cash and cash equivalents

13

1,189

436

1,818



28,473

30,917

29,002






Current liabilities





Trade and other payables


(23,903)

(20,903)

(27,636)

Corporation tax payable


(1,047)

(2,811)

(1,419)

Obligations under finance leases

13

(2)

(7)

(2)

Bank overdraft, loans and loan notes

13

(3,210)

(6,258)

(1,908)

Derivative financial instrument

12

(40)

-

-



(28,202)

(29,979)

(30,965)






Net current assets/(liabilities)


271

938

(1,963)






Total assets less current liabilities


112,984

106,695

110,542






Non-current liabilities





Provision for other liabilities and charges

10

(2,849)

(8,569)

(6,929)

Obligations under finance leases

13

-

(2)

-

Deferred tax liabilities


(118)

(17)

(118)



(2,967)

(8,588)

(7,047)






Net assets


110,017

98,107

103,495






Equity





Called up share capital


6,134

6,134

6,134

Share premium account


35,943

35,943

35,943

Own shares


(656)

(656)

(656)

Shares to be issued


1,141

1,286

1,079

Other reserves


30,822

30,822

30,822

Foreign currency translation reserve


(358)

21

(173)

Retained earnings


36,991

24,557

30,346

Total equity


110,017

98,107

103,495

           



 

UNAUDITED STATEMENT OF CHANGES IN EQUITY

Six months ended 30 September 2012

 


Called up share capital

Share premium

Own shares

Shares to be issued

Other reserves

Foreign currency translation reserve

Retained earnings

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Changes in equity for the period









At 1 April 2012

6,134

35,943

(656)

1,079

30,822

(173)

30,346

103,495

Profit for the period







8,259

8,259

Other comprehensive expense:









Exchange differences on translation of foreign operations






 

 

(185)


 

 

(185)

Total comprehensive income for the period






 

(185)

 

8,259

 

8,074

Credit for share-based incentive schemes




 

62




 

62

Dividends (note 8)







(1,614)

(1,614)

 

At 30 September 2012

 

6,134

 

35,943

 

(656)

 

1,141

 

30,822

 

(358)

 

36,991

 

110,017

 

 


Called up share capital

Share premium

Own shares

Shares to be issued

Other reserves

Foreign currency translation reserve

Retained earnings

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Changes in equity for the period









At 1 April 2011

6,134

35,943

(779)

1,545

30,822

(190)

23,289

96,764

Profit for the period

-

-

-

-

-

-

2,821

2,821

Other comprehensive income:









Exchange differences on translation of foreign operations

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

211

 

 

-

 

 

211

Total comprehensive income for the period

 

-

 

-

 

-

 

-

 

-

 

211

 

2,821

 

3,032

Credit for share-based incentive schemes

 

-

 

-

 

-

 

56

 

-

 

-

 

-

 

56

Exercise of share award

-

-

123

(315)

-

-

-

(192)

Gain on treasury scheme/employee benefit trust

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

81

 

 

81

Fair value adjustment of own shares

 

-

 

-

 

-

 

-

 

-

 

-

 

(274)

 

(274)

Dividends (note 8)

-

-

-

-

-

-

(1,360)

(1,360)

 

At 30 September 2011

 

6,134

 

35,943

 

(656)

 

1,286

 

30,822

 

21

 

24,557

 

98,107

 

  


Called up share capital

Share premium

Own shares

Shares to be issued

Other reserves

Foreign currency translation reserve

Retained earnings

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Changes in equity for the year









At 1 April 2011

6,134

35,943

(779)

1,545

30,822

(190)

23,289

96,764

Profit for the period

-

-

-

-

-

-

9,112

9,112

Other comprehensive income:









Exchange differences on translation of foreign operations

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

17

 

 

-

 

 

17

Total comprehensive income for the period

 

-

 

-

 

-

 

-

 

-

 

17

 

9,112

 

9,129

Debit for share-based incentive schemes

 

-

 

-

 

-

 

(151)

 

-

 

-

 

-

 

(151)

Exercise of share award

-

-

123

(315)

-

-

-

(192)

Gain on treasury scheme/employee benefit trust

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

81

 

 

81

Fair value adjustment of own shares

 

-

 

-

 

-

 

-

 

-

 

-

 

(274)

 

(274)

Dividends (note 8)

-

-

-

-

-

-

(1,862)

(1,862)

 

At 31 March 2012

 

6,134

 

35,943

 

(656)

 

1,079

 

30,822

 

(173)

 

30,346

 

103,495



 

UNAUDITED CONSOLIDATED STATEMENT OF CASHFLOWS
for the six months ended 30 September 2012


Note

Six months ended 30 September 2012

£'000

Six months ended 30 September 2011

£'000

Year ended

31 March

2012

£'000






Operating cash flow

11

1,694

(1,760)

10,713

Tax paid


(196)

(1,588)

(3,176)

Net cash inflow/(outflow) from operating activities


 

1,498

 

(3,348)

 

7,537






Investing activities





Purchase of subsidiary undertakings


(491)

(377)

(3,545)

Net cash acquired with subsidiaries


-

-

453

Purchase of property, plant and equipment

 

9

 

(1,150)

 

(511)

 

(2,296)

Proceeds from sale of property, plant and equipment


 

6

 

-

 

17

Purchase of intangible assets

9

(50)

(29)

(247)

Net cash outflow from investing activities


 

(1,685)

 

(917)

 

(5,618)






Financing activities





Finance costs


(70)

(66)

(107)

Net increase in borrowings


1,000

3,000

-

Dividends paid


(1,614)

(1,360)

(1,862)

Capital element of finance lease payments


 

-

 

-

 

(7)

Net cash (outflow)/inflow from financing activities


 

(684)

 

1,574

 

(1,976)

 

Decrease in cash and cash equivalents


 

(871)

 

(2,691)

 

(57)






Net cash and cash equivalents at start of period


 

(80)

 

(19)

 

(19)

Effect of foreign exchange rates


(60)

(92)

(4)






Net cash and cash equivalents at end of period

 

13

 

(1,011)

 

(2,802)

 

(80)






 

  

NOTES TO THE HALF YEAR REPORT
for the six months ended 30 September 2012

1.         Presentation of financial information

The financial information contained in this half year report does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006.

Statutory accounts for the year ended 31 March 2012 were approved by the Board of Directors on 12 July 2012 and delivered to the Registrar of Companies.  The report of the auditors by PricewaterhouseCoopers LLP on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 448 of the Companies Act 2006.

The half year report has not been audited or reviewed by the Group's auditors.

2.         Basis of Preparation

The half year report of Creston plc for the six months ended 30 September 2012 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, "Interim financial reporting" as adopted by the European Union.

The accounting policies applied in the preparation of the annual financial statements are based on the European Union adopted International Financial Reporting Standards (IFRS) and IFRIC interpretations that are applicable at this time.

The condensed half year consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 March 2012 which have been prepared in accordance with IFRS as adopted by the European Union.

3.         Accounting policies

The half year consolidated financial statements of Creston plc for the six months ended 30 September 2012 have been prepared in accordance with the accounting policies contained in the Group's Annual Report and Accounts 2012 and the policies as described in note 2 above.

The following new standards have been issued and are effective for annual periods beginning after 1 April 2012, but have not been adopted as they are not seen to have a significant impact on the Group:

·      Amendment to IAS 1, 'Financial statement presentation' regarding other comprehensive income. The main change resulting from these amendments is a requirement for entities to group items presented in 'other comprehensive income' (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do not address which items are presented in OCI.

·      IFRS 12, 'Disclosures of interests in other entities', includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The group is yet to assess IFRS 12's full impact and intends to adopt IFRS 12 no later than the accounting period beginning on or after 1 April 2013.  

 

4.         Reconciliation of Headline profit to Reported profit

In order to enable a better understanding of the underlying trading of the Group, the Directors refer to Headline PBIT, PBT and PAT which eliminate certain amounts from the Reported figures.  These break down into two parts:

(i)         certain accounting policies which have a material impact and introduce volatility to the Reported figures include acquisition-related charges deemed as remuneration arising on payments made by Creston to non-shareholding employees in respect of the consideration on the business acquisitions; movement in fair value of deferred consideration; and notional finance costs on deferred consideration.  In the financial year ended 31 March 2012, there were also charges relating to the amortisation of acquired intangible assets; and

(ii)         exceptional non-recurring operating charges which include property-related costs. In the financial year ending 31 March 2012, there were also acquisition, start-up and restructuring related costs.

 

Six months ended 30 September 2012


PBIT

£'000

PBT

£'000

PAT

£'000

Headline

4,429

4,354

4,499

Property-related costs

(432)

(432)

(432)

Acquisition, start-up and restructuring-related costs

-

-

-

Movement in fair value of deferred consideration

4,032

4,032

4,032

Future acquisition payments to employees deemed as remuneration

 

(150)

 

(150)

 

(150)

Notional finance cost on future deferred consideration

-

63

63

Taxation impact



247

Reported

7,879

7,867

8,259





Headline Basic and Diluted EPS (pence)



7.44

Reported Basic and Diluted EPS (pence)



13.66





Six months ended 30 September 2011


PBIT

£'000

PBT

£'000

PAT

£'000

Headline

4,858

4,779

3,398

Acquisition, start-up and restructuring-related costs

(300)

(300)

(300)

Future acquisition payments to employees deemed as remuneration

 

(243)

 

(243)

 

(243)

Notional finance cost on future deferred consideration

-

(138)

(138)

Taxation impact



104

Reported

4,315

4,098

2,821





Headline Basic and Diluted EPS (pence)



5.63

Reported Basic and Diluted EPS (pence)



4.67













Year ended 31 March 2012





PBIT

£'000

PBT

£'000

PAT

£'000

Headline

10,418

10,288

7,455

Acquisition, start-up and restructuring-related costs

(3,114)

(3,114)

(3,114)

Movement in fair value of deferred consideration

4,763

4,763

4,763

Amortisation of acquired intangible assets

(110)

(110)

(110)

Future acquisition payments to employees deemed as remuneration

 

(880)

 

(880)

 

(880)

Notional finance costs on future deferred consideration

-

(116)

(116)

Taxation impact



1,114

Reported

11,077

10,831

9,112





Headline Basic and Diluted EPS (pence)



12.34

Reported Basic and Diluted EPS (pence)



15.08

5.         Segmental analysis

The chief operating decision-maker has been identified as the Executive Board of Directors ('Executive Board') who make the strategic decisions.  The Executive Board has determined the operating segments in a manner consistent with the internal reporting provided to the Executive Board.  The Executive Board considers the business from a divisional perspective, that being Communications, Health and Insight.

The principal activities of the three divisions are as follows:

Communications
The Communications division offers clients an integrated approach to their marketing and communications strategy, offering a range of services which include advertising, brand strategy, customer relationship marketing (CRM), data analytics, digital marketing, events marketing, mobile marketing, local marketing, public relations and social media.

Health
The Health division provides an integrated communications solution to the healthcare and pharmaceuticals sectors and offers services which include advertising, direct marketing, digital marketing, issue management, market research, medical education, public relations and social media.

Insight
The Insight division performs a complete range of market research services on behalf of its clients, through both qualitative and quantitative means using face-to-face, telephone and online techniques.

The Executive Board assesses the performance of the operating segments based on a measure of revenue and Headline PBIT.  This measurement basis excludes the effects of certain amounts from the operating segments, such as amortisation of acquired intangible assets, acquisition, start-up and restructuring-related costs, property-related costs, movement in fair value of deferred consideration, future acquisition payments to employees deemed as remuneration and notional finance costs on deferred consideration.

Accounting policies are consistent across the reportable segments.

All significant assets and liabilities are located within the UK and the US.  The Board does not review the assets and liabilities of the Group on a divisional basis and as such has not segmented the assets and liabilities of the Group.

Other information provided to the Board of Directors is measured in a manner consistent with that in the financial statements.

 

Divisional segmentation

Turnover, revenue, Headline and Reported profit before finance income and finance costs (PBIT), and profit before tax attributable to Group activities are shown below:


Communications

Health

Insight

Head Office

Group

Six months ended

30 September 2012

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

Turnover (billings)

29,044

13,308

10,513

-

52,865

Revenue

20,650

10,978

5,537

-

37,165

Headline PBIT

3,125

2,600

38

(1,334)

4,429

Property-related costs

-

(432)

-

-

(432)

Movement in fair value of deferred consideration

 

-

 

4,032

 

-

 

-

 

4,032

Future acquisition payments to employees deemed as remuneration

 

 

-

 

 

(150)

 

 

-

 

 

-

 

 

(150)

Reported PBIT

3,125

6,050

38

(1,334)

7,879

Finance costs

-

-

-

(75)

(75)

Notional finance cost on future deferred consideration

 

 

 

63



 

63

Profit before taxation

3,125

6,113

38

(1,409)

7,867

Taxation





392

Profit for the period





8,259








Communications

Health

Insight

Head Office

Group

Six months ended

30 September 2011

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

Turnover (billings)

31,819

10,712

13,444

-

55,975

Revenue

21,044

7,961

7,495

-

36,500

Headline PBIT

2,896

1,764

1,668

(1,470)

4,858

Acquisition, start-up and restructuring-related costs

 

(300)

 

-

 

-

 

-

 

(300)

Future acquisition payments to employees deemed as remuneration

 

 

-

 

 

(221)

 

 

-

 

 

(22)

 

 

(243)

Reported PBIT

2,596

1,543

1,668

(1,492)

4,315

Finance costs

-

-

-

(79)

(79)

Notional finance cost on future deferred consideration

 

-

 

(138)

 

-

 

-

 

(138)

Profit before taxation

2,596

1,405

1,668

(1,571)

4,098

Taxation





(1,277)

Profit for the period





2,821







 

  


Communications

Health

Insight

Head Office

Group

Year ended

31 March 2012

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

Turnover (billings)

64,718

22,117

23,133

-

109,968

Revenue

43,009

18,066

13,849

-

74,924

Headline PBIT

6,308

4,559

2,137

(2,586)

10,418

Acquisition, start-up and restructuring-related costs

(1,595)

(791)

(728)

-

(3,114)

Movement in fair value of deferred consideration

-

4,763

-

-

4,763

Amortisation of acquired intangible assets

-

(110)

-

-

(110)

Future acquisition payments to employees deemed as remuneration

-

(1,017)

-

137

(880)

Reported PBIT

4,713

7,404

1,409

(2,449)

11,077

Finance costs

-

-

-

(130)

(130)

Notional finance cost on future deferred consideration

 

-

 

(116)

 

-

 

-

 

(116)

Profit before taxation

4,713

7,288

1,409

(2,579)

10,831

Taxation





(1,719)

Profit for the period





9,112

 

 

Geographical segmentation

 

The following table provides an analysis of the Group's turnover and revenue by geographical market, irrespective of the origin of the services:

 


Turnover

Revenue


Six months ended 30 September 2012

Six months ended 30 September 2011

Year ended 31 March

 

2012

Six months ended 30 September 2012

Six months ended 30 September 2011

Year ended 31 March

 

2012


£'000

£'000

£'000

£'000

£'000

£'000








UK

35,808

42,578

79,741

24,268

26,916

52,086

Rest of Europe

8,127

7,598

15,173

5,302

5,466

11,347

Rest of the World (including USA)

 

8,930

 

5,799

 

15,054

 

7,595

 

4,118

 

11,491


52,865

55,975

109,968

37,165

36,500

74,924

 

 

6.         Taxation

 

The Headline and Reported tax rate is lower than the UK statutory rate of 24 per cent following the resolution of HMRC's enquiry into the tax deductibility of goodwill that was written off following the closure of a Group subsidiary in 2009.  HMRC has confirmed that tax relief will be allowed in respect of the goodwill write-off, leading to a release of the provision that was set up in 31 March 2010.  All periods up to and including the year ended 31 March 2010 have now been agreed with HMRC. In future periods we expect the tax charge to return to a rate that is higher than the UK statutory rate of 24 per cent as a result of disallowable expenditure and higher rates of tax incurred by Creston's US operations.

7.         Earnings per share

 


Headline

Reported


Six months ended 30 September 2012

£'000

Six months ended 30 September 2011

£'000

Year ended 31 March 2012

 

£'000

Six months ended 30 September 2012

£'000

Six months ended 30 September 2011

£'000

Year ended 31 March 2012

 

£'000

Earnings














Profit for the period

4,499

3,398

7,455

8,259

2,821

9,112








Number of shares














Weighted average number of shares

 

60,458,946

 

60,374,966

 

60,413,845

 

60,458,946

 

60,374,966

 

60,413,845

Earnings per share







Basic and diluted earnings per share (pence):

 

 

7.44

 

 

5.63

 

 

12.34

 

 

13.66

 

 

4.67

 

 

15.08

 

The Headline EPS and Headline DEPS are based on the Headline PBT analysed in note 4 less attributable tax and divided by the weighted average number of shares and by the weighted average number of diluted shares respectively.

 

8.         Dividends

 

The prior year final dividend of 2.67 pence (H1 2012: 2.25 pence) per share was paid to shareholders on 12 September 2012 giving a total of £1,614,254 (H1 2012: £1,360,000).

 

The Board has declared a half year dividend to be paid on 10 January 2013 of 1.00 pence (H1 2012: 0.83 pence) per share to all ordinary shareholders on the register at 07 December 2012. 

 

9.         Non-current assets

 

Six months ended

30 September 2012






Property, plant and equipment

£'000

Intangible assets - goodwill

£'000

Intangible assets - other

£'000

 

Total

£'000

Net book amount at

1 April 2012

 

3,390

 

107,050

 

1,473

 

111,913

Additions

1,150

-

50

1,200

Disposals

(12)

-

-

(12)

Depreciation and amortisation

(793)

-

(135)

(928)

Exchange differences

(14)

(200)

-

(214)

Net book amount at            30 September 2012

 

3,721

 

106,850

 

1,388

 

111,959






Six months ended

30 September 2011






Property, plant and equipment

£'000

Intangible assets - goodwill

£'000

Intangible assets - other

£'000

 

Total

£'000

Net book amount at

1 April 2011

 

2,144

 

101,280

 

1,379

 

104,803

Additions

511

-

29

540

Depreciation and amortisation

(546)

-

(111)

(657)

Exchange differences

2

331

6

339

Net book amount at            30 September 2011

 

2,111

 

101,611

 

1,303

 

105,025











Year ended 31 March 2012






Property, plant and equipment

£'000

Intangible assets - goodwill

£'000

Intangible assets- other

£'000

 

Total

£'000

Net book amount at                1 April 2011

 

2,144

 

101,280

 

1,379

 

104,803

Transfer to tangible assets

5

-

(5)

-

Additions

2,296

-

247

2,543

Disposals

(28)

-

(14)

(42)

Acquisition of subsidiary

92

5,902

218

6,212

Charge for the year

(1,118)

-

(347)

(1,465)

Exchange differences

(1)

(132)

(5)

(138)

Net book amount at            31 March 2012

 

3,390

 

107,050

 

1,473

 

111,913

 

 

10.        Provisions for other liabilities and charges

 

The earn-out obligations are set out below:

 


As at

30 September

2012

As at

30 September

2011

As at

31 March

2012


£'000

£'000

£'000





Brought forward

6,929

8,376

8,376

Movement in fair value of deferred consideration

 

(4,032)

 

-

 

(4,763)

Acquisitions made during the financial year

-

-

3,311

Exchange differences

15

55

(111)

Income statement:

- Notional finance (credit)/cost on future deferred consideration

 

 

(63)

 

 

138

 

 

116

Carried forward

2,849

8,569

6,929










As at

30 September

2012

£'000

As at

30 September

2011

£'000

As at

31 March

2012

£'000

Analysed as:

Non-current liabilities

 

2,849

 

8,569

 

6,929

 

The Group considers that the above liabilities approximate to their fair value.  The notional interest rate used during the period was 3.3 per cent (31 March 2012: 3.3 per cent).

 

The earn-out obligations will be paid in cash, in accordance with the associated sale purchase agreement. These payments become due in June 2015.

Due to the reduction of £4.0 million in deferred consideration for the Cooney/Waters Group, management conducted an impairment review and due to the headroom between the present value of future cash flows and the carrying value of goodwill and intangible assets, no impairment is required.

 

11.        Reconciliation of profit for the period to operating cash flow

 


Six months ended

30 September 2012

£'000

Six months ended

30 September 2011

£'000

Year ended

31 March

2012

 

£'000

Profit for the period

8,259

2,821

9,112

Taxation

(392)

1,277

1,719

Profit before taxation

7,867

4,098

10,831

Finance costs

12

217

246

Profit before finance income, finance costs and taxation

 

7,879

 

4,315

 

11,077

Depreciation of property, plant and equipment

793

546

1,118

Amortisation of intangible assets

135

111

347

Share based payments/(credits)

62

53

(41)

Deemed remuneration

150

243

880

Movement in fair value of deferred consideration

(4,032)

-

(4,763)

Loss on disposal of property, plant and equipment

6

-

11

Loss on disposal of intangible assets

-

-

14

Decrease/(increase) in inventories and work in progress

114

(239)

251

(Increase)/decrease in trade and other receivables

(274)

301

3,861

Decrease in trade and other payables

(3,139)

(7,090)

(2,042)

Operating cash flow

1,694

(1,760)

10,713

 

 

12.        Derivative financial instrument

 

The Group uses derivative financial instruments to manage its foreign currency exposure. These are initially recognised at fair value at the contract date and continue to be stated at fair value at the balance sheet date with gains and losses on revaluation being recognised immediately to the income statement.

 

At 30 September 2012 the Group had a derivative financial instrument open which had an estimated net fair value liability of £40,000. This amount is based on the market value of equivalent instruments at the balance sheet date. This has been recognised on the balance sheet as a derivative financial liability with the movement going through the income statement.

 

13.        Analysis of net and total debt

 

As at 30 September 2012

As at

1 April 2012

Acquisitions*

Cash flow

Foreign exchange

As at

30 September 2012


£'000

£'000

£'000

£'000

£'000

 

Cash and cash equivalents

 

1,818

 

-

 

(569)

 

(60)

 

1,189

Bank overdraft

(1,898)

-

(302)

-

(2,200)

Net cash and cash equivalents

(80)

-

(871)

(60)

(1,011)

Revolving credit facility

-

-

(1,000)

-

(1,000)

Acquisition loan notes

(10)

-

-

-

(10)

Finance leases

(2)

-

-

-

(2)

Net debt

(92)

-

(1,871)

(60)

(2,023)

Provision for deferred consideration

(6,929)

4,080

-

-

(2,849)

Total debt

(7,021)

4,080

(1,871)

(60)

(4,872)



















As at 30 September 2011

As at

1 April 2011

Acquisitions*

Cash flow

Foreign exchange

As at

30 September 2011


£'000

£'000

£'000

£'000

£'000

 

Cash and cash equivalents

 

1,677

 

-

 

(1,149)

 

(92)

 

436

Bank overdraft

(1,696)

-

(1,542)

-

(3,238)

Net cash and cash equivalents

(19)

-

(2,691)

(92)

(2,802)

Revolving credit facility

-

-

(3,000)

-

(3,000)

Acquisition loan notes

(20)

-

-

-

(20)

Finance leases

(9)

-

-

-

(9)

Net debt

(48)

-

(5,691)

(92)

(5,831)

Provision for deferred consideration

(8,376)

(138)

-

(55)

(8,569)

Total debt

(8,424)

(138)

(5,691)

(147)

(14,400)







 

 

 






 

Year ended 31 March 2012

As at

1 April 2011

Acquisitions*

Cash flow

Foreign exchange

As at

31 March

2012


£'000

£'000

£'000

£'000

£'000

 

Cash and cash equivalents

 

1,677

 

453

 

(308)

 

(4)

 

1,818

Bank overdraft

(1,696)

(3,545)

3,343

-

(1,898)

Net cash and cash equivalents

(19)

(3,092)

3,035

(4)

(80)

Acquisition loan notes

(20)

-

10

-

(10)

Finance leases

(9)

-

7

-

(2)

Net debt

(48)

(3,092)

3,052

(4)

(92)

Provision for deferred consideration

(8,376)

1,447

-

-

(6,929)

Total debt

(8,424)

(1,645)

3,052

(4)

(7,021)

 

* Includes both cash and non-cash items.

14.        Related-party transactions

 

During the six months ended 30 September 2012 total fees of £32,500 (H1 2012: £29,730) were incurred in relation to City Group P.L.C., £15,000 (H1 2012: £14,730) for the provision of company secretarial services and £17,500 (H1 2012: £15,000) for the services of Mr D C Marshall, a Non-Executive Director.  During the prior period the Group, through its wholly owned subsidiary Emery McLaven Orr Limited, provided services to Vanessa Knox Limited, a company owned by Vanessa Knox, the wife of Mr B C Brien, a Director of Creston plc.  The value of the services amounted to £25,417.  The balance due at 30 September 2011 was £30,500. As at 30 September 2012 there were no outstanding balances. All transactions were conducted on an arm's length basis.

 

15.        Key risks and uncertainties

 

The Group's key risks and uncertainties are detailed on pages 37 to 39 on the 2012 Annual Report and Accounts.  These risks are not considered to have changed since the 2012 Annual Report and Accounts were published.

 

16.        Post balance sheet events

On 28 November 2012 we announced the acquisition of 75 per cent of the share capital of DJM, a UK-based full service digital healthcare agency. On completion, an initial cash consideration payment of £1.2 million will be payable. There will be a final cash consideration payment for the 75 per cent based on the average PBIT from completion to March 2015 of up to £1.8 million. The remaining 25 per cent will remain with the existing shareholders, Dominic Marchant and Seda Marchant. Dominic will continue as managing director of DJM. The minority shareholders in DJM will have a request to put option from April 2018 onwards and Creston will have a call option from April 2020 onwards, for the remaining 25 per cent of DJM for a maximum consideration of £2.4 million. 

 

17.        Statement of Directors' responsibilities

 

The Directors confirm that to the best of their knowledge these condensed consolidated set of financial statements have been prepared in accordance with IAS 34 as adopted by the European Union.  The half year management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R; namely:

 

·      an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·      material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

 

The Directors are responsible for the maintenance and integrity of the Company website.  Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

The Directors of Creston plc are listed in the Creston Group Annual Report and Accounts 2012.  A list of current Directors is maintained on the Creston website: www.creston.com.

 

By order of the Board

Don Elgie

28 November 2012

Group Chief Executive

 

18.        Forward-looking statements

 

Certain statements in this half year report are forward-looking.  Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct.  As these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

 

We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

 

19.        Availability of the half year report

 

Copies of the half year report are available on the Company's website www.creston.com.


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