Conduit Hldg Regulatory News (CRE)

26 Jun 2006 07:02

Creston PLC26 June 2006 Date: 26 June 2006 On behalf of: Creston plc ("Creston" or "the Group") Embargoed until: 0700hrs Creston plc Results for the year ended 31 March 2006 Creston plc, the diversified marketing services group, today announced its fifthyear of record results for the year ended 31 March 2006. The highlights, whichdemonstrate the Group's ability to successfully acquire and manage companies,are: FINANCIAL HIGHLIGHTS Change• Revenue to £43.5m (2005:£19.4m) +124% • Headline PBIT to £8.0m (2005: £3.6m) +123%• Reported* PBIT to £6.3m (2005:£3.1m) +103% • Operating company like-for-like Revenue Growth + 14%• Operating company like-for-like Headline PBIT Growth + 18% • Headline PBT to £7.7m (2005: £3.4m) +125%• Reported* PBT to £4.7m (2005: £2.6m) + 82% • Headline diluted EPS to 14.04 p (2005: 10.30p) + 36%• Reported* diluted EPS to 7.67p (2005: 6.93p) + 11% • Net Debt reduced to £2.5m (2005: £3.3m) + 26%• Dividend per Share to 2.40p (2005: 2.15p) + 12% * Under IFRS OPERATIONAL HIGHLIGHTS • Acquisition of Red Door Communications Limited completed on 7 July2005 for a maximum consideration of £13.5 million - the acquisition broadensCreston's range of marketing services into healthcare. • Appointment of Simon Williams as the Group Synergy and StrategyDirector on 5 December 2005. • Post balance sheet events - on 17 May 2006, the Company acquired ICMResearch, a leading market research company, for a maximum consideration of£37.2 million, and Tullo Marshall Warren, a leading direct marketing company,for a maximum consideration of £38.3 million. Commenting on today's announcement, Don Elgie, Group Chief Executive, said: "Creston has yet again substantially outperformed the FTSE All Share Media andEntertainment Index by continuing to execute successfully its strategy of strongorganic growth as well as attracting market leading companies to the Crestonstable. "Creston has also demonstrated the robustness of its business model for fiveconsecutive years. With the Group's low level of net debt, strong portfolio ofdiversified operating companies and exceptional like-for-like performance,Creston is well placed to continue into the next phase of its strategicdevelopment. We see nothing on the horizon that will prevent us from deliveringanother excellent year in 2007." FOR FURTHER INFORMATION, PLEASE CONTACT: Creston plc 020 7930 9757Don Elgie, Chief ExecutiveBarrie Brien, COO/CFOwww.creston.com Redleaf Communications 020 7955 1410Emma Kane/Sanna Lehtinen 07876 338339 NOTES TO EDITORS: • Publication quality photographs are available through Redleaf on thenumbers shown above. About Creston plc • Our vision is to build an international diversified marketingservices group with centres in six countries around Europe, USA, Asia andeventually Latin America. • The growth of the Group will be driven by strong organic growth aswell as earnings-enhancing acquisitions. • We will strive to ensure that our entrepreneurial culture thrives inan atmosphere of openness and recognition, where talent provides exceptionalresults for clients. We believe that this is ultimately what drives the growthof a successful company. • Creston's companies boast a substantial range of blue-chip clients. • Creston's share price is quoted in the Financial Times, Telegraph,the Times and the London Evening Standard. CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT Creston has had its fifth year of record results and has, yet again,substantially outperformed the FTSE All Share Media and Entertainment Index bycontinuing to execute successfully its strategy of strong organic growth as wellas attracting market leading companies to the Creston stable. Financial Highlights Overall, we are very pleased with the exceptional performance of the Group.Revenue has increased by 124 per cent to £43.5 million (2005: £19.4 million);Headline operating profit has increased by 123 per cent to £8.0 million (2005:£3.6 million) and profit before tax has increased by 125 per cent to £7.7million (2005: £3.4 million). Reported operating profit has increased by 103per cent to £6.3 million (2005: £3.1 million) and reported profit before tax by82 per cent to £4.7 million (2005: £2.6 million). Most importantly, thissubstantial growth has not merely been achieved via our strategy of selectiveacquisitions. It includes like-for-like growth at our operating company levelof 14 per cent in revenue and 18 per cent in PBIT, which yet again far exceedsthe UK market norms. The Board is proposing a final dividend of 1.60 pence per share, giving a totaldividend for 2006 of 2.40 pence (2005: 2.15 pence). This represents an increasein dividend per share of 12 per cent. Depending on trading performance at thetime, the Board expects to continue increasing the dividend payments to itsshareholders. Divisional Performance A key tenet of Creston's strategy is to build a diversified marketing servicesgroup in order to minimise risk while maximising the opportunities for synergy.Due to the timing of acquisitions there may sometimes be a short-term weightingtowards one division. For the year ended 31 March 2006, Creston was pleasedwith the contribution from each of the divisions in terms of revenue andoperating profit and the weighting towards the highest growth and non-cyclicalsectors within marketing services. The divisional split in PBIT is: BRANDCOM 24per cent, Insight 18 per cent, MARCOMS 37 per cent and Public Relations 21 percent. This diversification and weighting towards Insight and MARCOMS is furtheramplified following the recent acquisitions of ICM Group, which sits in theInsight Division and TMW plus Colombus, which sits in the MARCOMS division. BRANDCOM Division The BRANDCOM Division was formed in March 2005 following the acquisition of DLKWGroup and this is its first full year of trading. Its revenue of £15.1 millionand PBIT of £2.6 million are ahead of management's expectations for thefinancial year, due to strong new business performance with wins including theAA, Opel and Dollond & Aitchison. These gains generated like-for-like revenuegrowth of 21 per cent and PBIT growth of 29 per cent. The PBIT margin of 18 percent remains strong for this sector. Insight Division Creston's Insight Division has contributed revenue of £6.3 million (2005: £5.7million) and PBIT of £1.9 million (2005: £1.6 million). This year shows staticlike-for-like revenue but with like-for-like PBIT growth of 4 per cent. ThePBIT margin has increased from 28 per cent to 30 per cent, as increasedefficiencies have been achieved. This division has been further strengthened bythe acquisition of the ICM Group in May 2006. MARCOMS Division The MARCOMS Division has shown strong growth with revenue increasing to £15.0million (2005: £8.5 million) and PBIT increasing to £4.0 million (2005: £2.3million). Like-for-Like revenue and PBIT growth was 18 per cent and 24 per centrespectively. Following the acquisition of DLKW Group, this division wasfurther strengthened by the addition of DLKW Dialogue and TCR, which togetherhave generated revenue of £6.9 million and PBIT of £1.8 million in 2006. Thesetwo businesses have performed particularly strongly in the year following anumber of new client wins including the AA and Blockbuster. The Division's PBITmargin remains very good at 27 per cent. This division has been furtherenhanced by the acquisition of TMW in May 2006. Public Relations Division The Public Relations Division has been strengthened by the acquisition of RDCduring the period. The division has contributed revenue of £7.1 million (2005:£4.4 million) and PBIT of £2.3 million (2005: £1.3 million). Like-for-likerevenue and PBIT growth are 10 per cent and 8 per cent respectively. These twobusinesses have performed strongly in the year following a number of new clientwins including Kraft, Virgin Games, GLA, GE Healthcare and Roche Products. ThePBIT margin has improved to 32 per cent. Acquisitions With our acquisitions we have focused on marketing disciplines that deliver whatour clients increasingly want - genuine insights into the preferences of theircustomers and efficient, measurable ways of reaching them. Overall we feel thatwe are now well-placed to grow further and take advantage of the changinginternational marketing landscape. Since the last Report and Accounts, Creston has made three acquisitions: one inJuly 2005 and two in May 2006. Red Door Communications, one of Britain's best performing healthcare PRcompanies, was acquired on 7 July 2005 for an initial consideration of £6.8million, including costs and estimated further deferred consideration (on anIFRS basis) of £1.9 million. Its clients include AstraZenecaUK, Bayer andGlaxoSmithKline. The acquisition has bedded in well and the company continuesto excel. Our Insight Division has recently been strengthened by the acquisition of ICMGroup Limited (ICM). Britain's largest independent market research company, ICMGroup, was acquired on 17 May 2006. Clients include Vodafone, Orange, O2,Wanadoo, Norwich Union, NOP, Dixon Store Group, Saga, BT Mobile and YorkshireBank. TMW, Britain's leading direct marketing and digital communications agency, wasalso acquired on 17 May 2006 along with its sister company ColombusCommunications. Clients include Lloyds TSB, British Airways, Nissan andUnilever. With TMW we have an insight and data mining/analysis capability thatwe consider the equal to any in Europe. The result of these acquisitions is that Creston has developed into a roundeddiversified group with huge growth potential, as we increasingly see thebenefits of the synergies we have created in the Group. We will continue toidentify opportunities in the UK, as described later, but our attention willalso increasingly turn abroad. The Group will continue to pursue acquisition targets that fit in with itsstated strategy and criteria whilst always maintaining prudent levels ofgearing, interest cover and banking covenant headroom. It is our policy thatall future acquisitions are made on a financially prudent basis and areearnings-enhancing. Outline of Key Strategic Priorities International In order to better serve our clients, our main priority will be to develop aninternational presence. Although we declared our international aspirationspublicly in 2002, the fact that we have yet to announce an internationalacquisition shows the very conservative nature of Creston's acquisitionsstrategy. Having demonstrated the durability of our acquisitions strategy inthe UK, we will apply a similar model abroad. Our goal is to be centred in only six countries within the main Europeanmarkets, USA, Asia and eventually Latin America. The timescale will depend onmatching the right opportunities with the right cultural fit. We will not forcea timetable on ourselves that might create ill-founded and unnecessary pressure. We plan to identify potential "sister" companies which are strong in the maindisciplines represented in the UK such as market research, marketingcommunications (including direct marketing), advertising, PR, digital andonline. The Internet and Digital Communications (i) Marketing Communications 9.6% of marketing spend in the UK was via the internet in 2005 and that isforecast to grow by 39% in 2006 (source: Group M). Creston, as a group, iswell-represented in this area with 10.1% of Group revenue already associatedwith the Internet and Digital Communications. This rises to 13.1% with theacquisition of TMW and ICM. For instance, TMW with 38 people in digital, hasarguably the largest digital division of any of the non-specialist agencies inthe UK. However, we recognise that we must continue to grow in this area if weare to match the growth in the market. (ii) Online Research Whilst there are very specific reasons such as geography and safety for thegrowth of online research in the USA, we appreciate the importance of onlineresearch which grew by 23% in 2005 in the UK (source: Inside Research September2005). Both ICM and Marketing Sciences Ltd (MSL), our two quantitative researchcompanies, already conduct research surveys online. We aim to reinforce andincrease this offering. Building out the UK Group Our objective is to develop a market-leading group offering. To date we arevery pleased with our diversified portfolio of companies in the UK but recognisethat further additions will be required. We will look to compliment our channeland brand communication planning offerings, as well as our MARCOM disciplines. Common Accounting System Whilst we continue to build the Group, we recognise the importance of investingin the infrastructure needed to sustain our growth. In this way we can maintaintight financial internal controls, take advantage of our critical mass in costsynergies and allow our operating companies to focus on what they do best. Accordingly, the introduction of a common accounting system for all groupcompanies is being rolled out throughout the Group Maconomy. This is awell-established system within the marketing services industry. People Synergy has been a core tenet of the Creston strategy since the formation of theGroup. In December 2005 we were very pleased to appoint Simon Williams as GroupSynergy and Strategy Director to drive the synergy process forward. April 2006was the best month on record for synergy. With 800 employees, the Group can now achieve significant technologyefficiencies, not just in cost but in common operating systems. In the lastyear, Creston appointed Gavin Whatrup from DLKW as Head of IT for the Group witha remit of aligning our IT strategy and investment, as well as securingfavourable group procurement agreements. Board We would like to thank the other Board members for the excellent contributionthey have made throughout the year. In recognition of corporate governanceguidelines, we intend to identify an appropriate non-executive directorcandidate who will also act as Chairman of the Audit Committee by the 2007 AGM.In turn, the Board would like to thank staff and colleagues for theircontribution and efforts for last year's excellent performance. Outlook Creston has demonstrated the robustness of its business model for fiveconsecutive years. With Creston's low level of net debt, strong portfolio ofdiversified operating companies and exceptional like-for-like performance, theGroup is well placed to continue into the next phase of its strategicdevelopment. As our profile rises, an increasing number of high qualitycompanies and individuals are approaching us. We see nothing on the horizonthat will prevent us from having another excellent year in 2007. David Marshall Don ElgieChairman Chief Executive 26 June 2006 FINANCIAL REVIEW Results and impact of IFRS The Group's results have been prepared under International Financial ReportingStandards ("IFRS"), which were adopted with effect from 1 April 2004. Due tothe impact of IFRS and as detailed in the Interims, Creston has presentedHeadline results as the key profit performance indicators since these eliminatethe impact associated with the adoption of IFRS. Key Performance Indicators The Group continues to manage its internal operational performance with the helpof various key performance indicators (KPIs). Creston is pleased with theperformance in all its KPIs. The most important ratios are very promising:revenue per head has increased by 36 per cent to £84,500 (2005: £62,000);Headline PBIT per head has increased by 35 per cent to £15,600 (2005: £11,500);Headline PBIT margin remains far in excess of our competitors at 18 per cent;and Headline and reported diluted earnings per share have grown by 36 per centto 14.04 pence and 11 per cent to 7.67 pence respectively. These KPIs demonstrate that Creston continues to improve its efficiency andproductivity across the Group and more importantly, that its strategy of buyingcompanies that offer clients higher added-value services is translating intoexcellent financial returns. Total staff numbers increased from 313 to 515 on a full-time equivalent basisand following the post-balance sheet events of the acquisitions of TMW and ICMGroup, the total headcount now stands at over 800 employees. Like-for-like Growth At the operating company level, Creston has demonstrated outstandinglike-for-like growth with turnover, revenue and PBIT increasing by 18 per cent,14 per cent and 18 per cent respectively. This performance demonstrates thesuccess of the subsidiaries in their ability to win more net new business fromnew and existing clients, thereby growing market share at the expense of theircompetitors. Earnings Per Share On a Headline basis, basic earnings per share rose 41 per cent to 14.72 pence(2005: 10.45 pence) and fully diluted earnings per share rose 36 per cent to14.04 pence (2005: 10.30 pence). This is the fifth successive year ofsignificant growth in these key financial ratios reflecting the Group's successin completing earnings-enhancing acquisitions and delivering superior value andreturns to shareholders. On a reported basis (under IFRS) the basic earnings per share rose 14 per centto 8.04 pence (2005: 7.04 pence) and diluted earnings per share rose 11 per centto 7.67 pence (2005: 6.93 pence). Cash Flow As an acquisitive company, operating cash flow is a key focus for management.We are pleased with the net cash inflow from operating activities rising to £8.0million (2005: £4.9 million) and the cash conversion rate from operating profitwhich remains high at 99 per cent (2005: 133 per cent). The high operating cash flow was partly used to finance the acquisition of RDCfor £4.2 million together with transaction costs, tax and deferredconsideration. As a consequence, the cash balance remained stable at £5.3million (2005: £5.4 million). Banking On 19 April 2006, the Group agreed a new £40.0 million banking facility. Thenew facility allows term debt of £30 million (£16 million remains undrawnfollowing the acquisitions of ICM Group and TMW) and borrowings for workingcapital of £10 million. Balance Sheet, Net Debt and Gearing Total equity rose by £5.6 million in the year to £47.4 million. Earningscontributed £2.1 million to its growth and new share capital issued was £3.1million mainly as a result of the RDC acquisition. Under the deferred consideration arrangements, Creston has the right to settlecertain of these liabilities in equity rather than loan notes and the amount ofthe deferred consideration is amended each year to the current expected amountpayable. As a result of the increased shareholders' funds and positive cash flow,Creston's gearing (net debt over equity) was 5.2 per cent and the net debt forthe Group at 31 March 2006 was £2.5 million (2005: £3.3 million). Afterincluding net deferred consideration to be settled in a mixture of loan notesand shares of £20.4 million (2005: £14.6 million) the Group's total debt hasincreased to £22.9 million (2005: £17.9 million). Creston will continue to maintain its policy of managing and restricting the netdebt and gearing to prudent levels to preserve its financial stability andmaintain high levels of headroom in its banking covenants and interest cover. Net finance costs The Headline net finance costs paid were £0.4 million (2005: £0.2 million)reflecting the increased term loan for the DLKW acquisition offset by improvedcash balances and effective treasury management throughout the Group. Netfinance costs were well covered by Headline profit before interest and tax at 20times (2005: 21 times). Creston continued with its interest rate hedging strategy on half of its newmedium-term loan by maintaining an interest rate collar provided by BarclaysCapital. Effective Tax Rate The Group's effective Headline tax rate has remained at 31 per cent. The reported effective tax rate under IFRS was 38 per cent (2005: 33 per cent),due to the reduction in underlying profits from items not subject to tax reliefsuch as notional finance costs and deemed remuneration. Dividends The Board is proposing a final dividend of 1.60 pence per share, giving a totaldividend per share in respect of the 2006 profits of 2.40 pence (2005: 2.15).This represents an increase in dividend per share of 12 per cent. Depending on trading performance at the time, the Board expects to continueincreasing the dividend payments to its shareholders. Capital Expenditure The total capital expenditure for 2006 was £2.3 million (2005: £0.6 million).The main categories of investment were leasehold refurbishment and computersystems and software. The capital expenditure includes the costs of implementing a group-wideaccounting system, Maconomy. The purpose of having a single accounting systemis to maintain strong internal controls as the Group grows, facilitate audits,and improve the financial information to the Boards. At the time of thisreport, Maconomy has been rolled out in nearly a third of the Group companies.We aim to complete the roll-out in all companies by the end of the nextfinancial year. International Financial Reporting Standards (IFRS) The underlying trading of the Group, which has been referred to as Headline,does not include the following IFRS adjustments: 1. notional finance costs on future deferred consideration payments; 2. future acquisition payments due to employees deemed as remuneration; and 3. amortisation of intangible assets. 4. deferred tax on the above items Barrie BrienChief Operating and Financial Officer CONSOLIDATED INCOME STATEMENT Note Year Year ended ended 31 March 31 March 2006 2005 £'000 £'000 Turnover (Billings) 2 81,472 35,870 ________________________ Revenue 2 43,503 19,401Operating costs (37,234) (16,308) ________________________ Profit on ordinary activitiesbefore finance costs, income frominvestments and taxation 6,269 3,093Finance income 182 162Finance costs 4 (1,836) (665)Income from investments 109 - ________________________Profit on ordinary activitiesbefore taxation 3 4,724 2,590Taxation (1,797) (857) __________ ________Profit for financial year 2,927 1,733 _______________________Basic earnings per share (pence) 5 8.04 7.04Diluted earnings per share (pence) 5 7.67 6.93 CONSOLIDATED BALANCE SHEET Note As at As at 31 March 31 March 2006 2005 £'000 £'000 Non-current assetsIntangible assets Goodwill 7 66,535 57,053 Other 350 533Trade and other receivables 1,162 -Property, plant and equipment 3,006 1,740Investments - available for sale 550 550Deferred tax asset 906 569 _______ ______ 72,509 60,445 ______ ______ Current assetsInventories and work in progress 2,907 1,810Trade and other receivables 19,961 14,638Cash and short term deposits 5,317 5,419 ______ ______ 28,185 21,867 Current liabilitiesTrade and other payables (22,497) (16,441)Corporation tax payable (1,452) (668)Obligations under finance leases (196) (216)Bank overdraft, loans and loan (2,525) (1,687)notes Short term provisions 9 (7,046) - ______ ______ (33,716) (19,012) Net current (liabilities)/assets (5,531) 2,855 ______ ______ Total assets less current 66,978 63,300liabilities Non current liabilitiesBank loans and loan notes (5,073) (6,659)Obligations under finance leases (9) (205)Long term provisions 9 (14,502) (14,603) _______ _______ (19,584) (21,467) Net assets 47,394 41,833 _______ _______ EquityCalled up share capital 3,759 3,493Share premium account 19,734 19,168Own shares (46) -Shares to be issued 1,836 1,426Special reserve 2,385 2,385Revaluation reserve 535 535Other reserve 14,690 12,442Capital redemption reserve 72 72Retained earnings 4,429 2,312 ______ ______ Total equity 47,394 41,833 ______ ______ CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2006 Share Share Own Retained Other Shares to capital premium shares earnings reserves be issued Total £'000 £'000 £'000 £'000 £'000 £'000 £'000Changes in equity for2006At 1 April 2005 3,493 19,168 - 2,312 15,434 1,426 41,833New shares issued 266 566 - - 2,258 - 3,090Credit for share based - - - - - 410 410incentive schemesOwn shares purchased - - (46) - - - (46)Loss on Treasury Scheme - - - - (10) - (10)Profit for the year - - - 2,927 - - 2,927Dividends (note 6) - - - (810) - - (810)At 31 March 2006 3,759 19,734 (46) 4,429 17,682 1,836 47,394 Share Share Own Retained Other Shares to capital premium shares earnings reserves be issued Total £'000 £'000 £'000 £'000 £'000 £'000 £'000Changes in equity for2005At 1 April 2004 2,207 9,083 - 1,020 8,175 449 20,934Revaluation of - - - - 535 - 535investments availablefor saleProfit for the year - - - 1,733 - - 1,733Total recognised income - - - 1,733 535 - 2,268and expense for theperiodNew shares issued 1,286 10,085 - - 6,724 - 18,095Credit for share based - - - - - 977 977incentive schemesDividends - - - (441) - - (441)At 31 March 2005 3,493 19,168 2,312 15,434 1,426 41,833 CONSOLIDATED CASH FLOW STATEMENT Note Year ended Year ended 31 March 2006 31 March 2005 £'000 £'000 Operating cash flow 10 7,970 4,930Net finance costs (303) (176)Tax paid (1,908) (887) _____ _____Net cash inflow from operating activities 5,759 3,867 Investing activitiesPurchase of subsidiary undertakings (4,240) (20,413)Net cash acquired with subsidiaries 1,779 4,233Purchase of property, plant andequipment (2,262) (549)Sale of property, plant and equipment 117 25Decrease in restricted cash deposits 27 240 _______ ________Net cash (outflow) from investing activities (4,579) (16,464) Financing activitiesIssue of shares 642 11,290Share repurchases (30) -Increase in borrowings - 3,791(Decrease) in borrowings (841) -Financing and share issue costs - (416)Equity dividends paid (810) (441)Capital element of finance lease payments (216) (124) ______ ______ Net cash (outflow)/inflow from financing (1,255) 14,100 ______ ______(Decrease)/increase in cash and cashequivalents (75) 1,503 Cash and cash equivalents at start of period 5,357 3,854 ______ ______Cash and cash equivalents at end of period 11 5,282 5,357 ______ ______ NOTES TO THE FINAL 2006 RESULTSfor the year ended 31 March 2006 1. Presentation of financial information and accounting policies Basis of preparation The Preliminary Announcement is extracted from financial statements that havebeen prepared for the first time, in accordance with International FinancialReporting Standards (IFRS), adopted for use in the European Union and thereforecomply with Article 4 of the EU IAS regulation. The Preliminary Announcement has been prepared in sterling, the currency inwhich the majority of the Group's transactions are denominated, and on thehistorical cost basis, except for the revaluation of certain financialinstruments. In preparing the Preliminary Announcement the following exemptions have beenadopted: (i) Business combinations - in accordance with IFRS 1 Creston haschosen not to restate business combinations that took place before the date oftransition (1 April 2004). (ii) Share based payments - in accordance with IFRS 2 equityinstruments granted before 7 November 2002 or that had vested by 1 January 2005have not been restated to fair value. The significant accounting policies are:- Basis of consolidation Acquisitions of subsidiaries are dealt with by the purchase method. Thepurchase method involves the recognition at fair value of all identifiableassets and liabilities, including contingent liabilities of the subsidiary, atthe acquisition date, regardless of whether or not they were recorded in thefinancial statements of the subsidiary prior to acquisition. On initialrecognition, the assets and liabilities of the subsidiary are included in theconsolidated balance sheet at their fair values, which are also used as thebasis for subsequent measurements in accordance with the group accountingpolicies. Goodwill is stated after separating out identifiable intangibleassets. Goodwill represents the excess of acquisition cost over the fair valueof the Group's share of the identifiable net assets of the acquired subsidiaryat the date of acquisition. Goodwill Goodwill arising from the purchase of subsidiary undertakings, representing thedifference between the purchase consideration and the fair value of theidentifiable assets, liabilities and contingent liabilities of a subsidiaryacquired, has been capitalised in accordance with the requirements of IFRS 3.Future anticipated payments to vendors in respect of earn-outs are based on thedirector's best estimates of these obligations. Earn-outs are dependent on thefuture performance of the relevant business and are regularly reviewed. Thedeferred consideration is discounted to its fair value in accordance with IFRS 3and IAS 39. The difference between the fair value of these liabilities and theactual amounts payable are charged to the income statement as notional financecosts over the life of the associated liability. The goodwill arising on therelevant acquisition is adjusted to these revised estimates throughout theearn-out period, subject to the impact on notional interest being taken to theincome statement. Intangible assets Other acquired intangible assets are capitalised at cost. Intangible assetsacquired as part of a business combination are capitalised at fair value at thedate of acquisition. The list of such intangible assets is significantly morecomprehensive under IFRS than was the case under UK GAAP. Intangible assets areamortised to residual values over the useful economic life of the asset. Wherean asset's life is considered to be indefinite an annual impairment test isperformed. The identified intangible assets and associated periods of amortisation are asfollows: Intangible asset Period of amortisationBrands Indefinite life -subject to annual impairmentCustomer contracts Over the notice period of the contract (generally 1 to 3 months) Share based payment transactions In accordance with IFRS 3 certain payments made to employees in respect ofearn-out arrangements are required to be treated as remuneration within theincome statement. These amounts are required to be charged to the incomestatement. The Group has applied the requirements of IFRS 2 Shared-based Payments. Inaccordance with the transitional provisions, IFRS 2 has been applied to allgrants of equity instruments after 7 November 2002 that were unvested as of 1January 2005. The Group issues equity-settled and cash-settled share-based payments to certainemployees. Equity-settled share-based payments are measured at fair value atthe date of grant. The fair value determined at the grant date of theequity-settled share-based payments is expensed on a straight-line basis overthe vesting period, based on the Group's estimate of the number of shares thatwill eventually vest. Fair value is measured by use of a Black Scholes model on the grounds that thereare no market related vesting conditions. The expected life used in the modelhas been adjusted, based on management's best estimate, for the effects ofnon-transferability, exercise restrictions and behavioural considerations. A liability equal to the portion of the goods or services received is recognisedat the current fair value determined at each balance sheet date for cash-settledshare-based payments. Over the vesting period, where re-measurementsmaterialise, differences are taken to the income statement. 2. Segmental analysis Turnover, revenue and profit before tax attributable to Creston activities areshown below. Turnover represents the gross billings to customers. Revenuerepresents the fees earned by the operating companies. Turnover Revenue 2006 2005 2006 2005 £'000 £'000 £'000 £'000 BRANDCOM 34,734 1,226 15,129 867Insight 10,885 9,917 6,269 5,699MARCOMS 25,800 17,876 15,042 8,461Public Relations 10,053 6,851 7,063 4,374 ______ ______ ______ ______ 81,472 35,870 43,503 19,401 ______ ______ ______ ______ Headline Profit before tax 2006 2005 £'000 £'000 BRANDCOM 2,648 164Insight 1,879 1,594MARCOMS 4,048 2,298Public Relations 2,261 1,297 _____ ______Operating Company Total 10,836 5,353Corporate expenses (2,814) (1,753) _____ _____Headline profit before interest and tax 8,022 3,600Income from investments 109 -Net finance costs (412) (176) _____ _____ 7,719 3,424 It is not possible to present a segmental split of the IFRS PBIT and net financecosts as the deemed remuneration and notional interest cannot be allocatedbetween the business segments. As Headline PBT excludes these items (togetherwith the amortisation of intangibles) a segmental split is presented on thatbasis. 3. Reconciliation of Reported profit to Headline profit 2006 2005 £'000 £'000 Headline profit before interest and tax 8,022 3,600Net finance costs and income from investments (303) (176) ______ ______Headline profit before taxation 7,719 3,424IFRS adjustmentsNotional finance costs on future deferred consideration payments (1,242) (327)Future acquisition payments to employees deemed as remuneration (1,225) (325)Amortisation of intangible assets (528) (182) ______ ______Profit before taxation - Reported 4,724 2,590 ______ ______ Headline profit before taxation 7,719 3,424Headline taxation (2,365) (851) ______ ______Headline profit after taxation 5,354 2,573IFRS adjustmentsNotional finance costs on future deferred consideration payments (1,242) (327)Future acquisition payments to employees deemed as remuneration (1,225) (325)Amortisation of intangible assets (528) (182)Taxation impact 568 (6) ______ ______Profit after taxation - Reported 2,927 1,733 ______ ______ The contingent consideration deemed as remuneration arises on payments made byCreston to employees in respect of the deferred consideration on the businessacquisitions. The notional finance costs also relate to the deferredconsideration. Both of these charges will cease once the relevant earn-outshave been settled. 4. Finance costs Finance costs include: 2006 2005 £'000 £'000 Notional finance costs on future deferred consideration payments (1,242) (327)Finance costs on bank overdrafts and loans (554) (317)Finance costs on finance leases (40) (7)Finance costs on other loans - (14) ______ ______ (1,836) (665) ______ ______ Under IAS 39 (fair value of liabilities) the Group is required to discountliabilities to their fair value. This has a significant impact on the treatmentof deferred consideration, which is generally paid more than three years afterthe date of acquisition. The difference between the fair value of theliabilities and the actual amounts payable is charged to the income statement asnotional finance costs (calculated at the annual rate of 5.5%) over the life ofthe associated liability. This has the impact of increasing the finance costsby £1,242,000 (2005: £327,000). 5. Earnings per share 2006 2005 Headline Weighted average Pence per Headline Weighted average Pence per profit for number of share profit for number of share the financial shares the shares year £'000 financial year £'000Headline basisBasic earnings per shareEarnings attributable to 5,354 36,383,218 14.72 2,573 24,617,806 10.45ordinary shareholdersDilutive effect ofsecuritiesWarrants - - - - 33,562 (0.01)Options - 415,534 (0.17) - 339,245 (0.14)Contingent shares - 1,346,950 (0.51) - - -Diluted earnings per share 5,354 38,145,702 14.04 2,573 24,990,613 10.30 2006 2005 Reported Weighted average Pence per Reported Weighted average Pence per profit for number of shares share profit for number of shares share the financial the year £'000 financial year £'000Reported basisBasic earnings per shareEarnings attributable to 2,927 36,383,218 8.04 1,733 24,617,806 7.04ordinary shareholdersDilutive effect ofsecuritiesWarrants - - - - 33,562 (0.01)Options - 415,534 (0.09) - 339,245 (0.10)Contingent shares - 1,346,950 (0.28) - - -Diluted earnings per share 2,927 38,145,702 7.67 1,733 24,990,613 6.93 Diluted EPS has been calculated based on the following dilutive elements. Nowarrants (2005: 33,562) are outstanding. An estimate of 415,534 options (2005:339,245) remain outstanding that would have been issued based on the averageshare price (this includes SAYE, EMI and unapproved options). The contingentshares (2005: nil) relate to the equity element of the deferred considerationdue within one year. A reconciliation of the profit after tax on a Reported basis and the Headlinebasis is given in note 3. 6. Dividends 2006 2005 £'000 £'000 Amounts recognised as distributions to shareholders in the yearPrior year final dividend of 1.45 pence per share (2005: 1.2 pence) 508 265Interim dividend of 0.8 pence per share (2005: 0.7 pence) 302 176 ______ ______ 810 441 ______ ______ A final dividend of 1.60 pence (2005: 1.45 pence) is to be paid on 9 August 2006to shareholders on the register on 5 July 2006. In accordance with IFRS thefinal dividend of £860,000 will be recognised in the 2007 accounts should it beapproved by shareholders at the AGM. 7. Goodwill Purchased goodwill £'000 Goodwill on consolidation Total £'000 £'000CostAt 1 April 2005 4,785 52,268 57,053Additions - 7,501 7,501Adjustment to (1,162) 3,143 1,981consideration and net assets _______ _______ _______ 3,623 62,912 66,535 _______ _______ _______ Net book amount at 31 March 3,623 62,912 66,5352006 _______ _______ _______ Net book amount at 31 March 4,785 52,268 57,0532005 _______ _______ _______ A review of the carrying value of acquisitions has been carried out usingforecast profits. This has shown an increase in the value in use of theoperating companies and a corresponding increase in the surplus over thecarrying value in the accounts. No reduction in goodwill has therefore beenmade. 8. Acquisition The acquisition of RDC was completed on 7 July 2005. The maximum considerationpayable (including deemed remuneration and notional finance costs) for RDC is£13.5m plus legal and professional costs of £0.3m. It is satisfied by aninitial consideration of £6.5m, an estimated further £0.1m dependent upon thefinal determination of the net assets acquired and a deferred consideration ofup to £6.7m, which is dependent on the financial performance of RDC in theperiod to 31 March 2009. As part of the acquisition, 1,595,724 new ordinaryshares were issued and listed on the London Stock Exchange on 14 July 2005. Theremaining acquisition costs of £4.2m were funded from existing working capitalresources (£4.1m) and one year loan notes (£0.1m). The net assets at completion were £1.2 million. The directors initiallyassessed the deferred consideration payable to be £1.9 million. Goodwill onthis transaction of £7.5 million was capitalised. 9. Short term and long term provisions Other payables represent the accumulated amounts due under the deferredconsideration arrangements with the vendors of the operating companies ascalculated in accordance with IFRS. £'000At 1 April 2005 14,603Contingent provision on acquisition of RDC 1,885Additional provision in the year 5,060 ______At 31 March 2006 21,548 ______Analysed as:Current liabilities 7,046Non-current liabilities 14,502 ______ 21,548 ______ 10. Reconciliation of profit on ordinary activities before finance costsand tax to operating cash flow Year Year Ended Ended 31 March 31 March 2006 2005 £'000 £'000 Profit on ordinary activities before finance costs, 6,269 3,093income from investments and taxationDepreciation 1,019 488Amortisation of intangible assets 528 182Share based payments 245 80Deemed remuneration 1,226 325Profit on disposal of fixed assets (46) (6)(Increase)/decrease in inventories and work in progress (1,097) 264(Increase) in receivables (4,887) (832)(Decrease)/increase in payables 4,713 1,336 ________ ______Operating cash flow 7,970 4,930 ________ ______ 11. Analysis of net debt As at Cash Flow Acquisitions As at 1 April 31 March 2005 2006 £'000 £'000 £'000 £'000 Cash and short term deposits 5,357 (75) - 5,282Acquisition loan notes (62) 27 (93) (128)Bank loans (8,284) 814 - (7,470)Finance leases (421) 216 - (205) ______ ______ ______ ______ Net (debt) (3,410) 982 (93) (2,521)Restricted cash deposits 62 (27) - 35 ______ ______ ______ ______Net (debt) including restrictedcash deposits (3,348) 955 (93) (2,486) ______ ______ ______ ______ The restricted cash balances are maintained in a designated account as securityfor the loan notes issued on the acquisition of MSL and are, therefore, notfreely available to the Group. 12. Publication of non-statutory accounts The financial information set out in this preliminary announcement does notconstitute statutory accounts as defined in Section 240 of the Companies Act1985. The preliminary announcement includes the consolidated income statement,consolidated balance sheet, consolidated cash flow statement, consolidatedstatement of changes in equity and associated notes that have been extractedfrom the Group's audited financial statements for the year ended 31 March 2006.Those financial statements have not yet been delivered to the Registrar. Thecomparative figures relating to the year ended 31 March 2005 are taken from theaudited statutory accounts for that year, adjusted as described and set out inthe 2006 Annual Report. 13. Availability of the Annual Report and Accounts Copies of the Annual Report and Accounts will be sent to shareholders in duecourse and are available from the Company's registered office at City GroupP.L.C., 30 City Road, London, EC1Y 2AG and on the company's websitewww.creston.com. This information is provided by RNS The company news service from the London Stock Exchange