Conduit Hldg Regulatory News (CRE)

12 June 2013

Creston plc

('Creston' or the 'Group')

Unaudited Full Year Results for the Year Ended 31 March 2013

Creston plc (LSE: CRE), the digitally focused insight and communications group, today announces its full year results for the year ended 31 March 2013.

Financial Highlights

·; Revenue increased to £75.2 million (2012: £74.9 million)

·; Digital and online revenue increased by 16 per cent in absolute terms, to represent 48 per cent of Group revenue (2012: 41 per cent)

·; Group Headline EBITDA increased by 2 per cent to £12.0 million (2012: £11.8 million)

·; Adjusted operating cash flow increased by 14 per cent to £12.3 million (2012: £10.7 million)

·; Net cash position of £11.2 million (2012: £0.1 million net debt)

·; Headline Diluted Earnings Per Share increased to 14.66 pence (2012: 12.34 pence)

·; Total full year dividend up 5 per cent to 3.67 pence per share (2012: 3.50 pence per share)

Corporate and Operational Highlights

·; Strengthened digital healthcare marketing offer through successful integration of the DJM Digital Solutions Limited ('DJM') acquisition

·; International revenue increased by 15 per cent in absolute terms, to represent 35 per cent of Group revenue (2012: 30 per cent)

·; £11.0 million in new business revenue as a Group with wins including: EE, Gilead, Sony Mobile and UNAIDS

·; Group's Communications division, as well as Red Door Communications from its Health division, appointed on a three year term to the UK Government Procurement Service's roster for marketing services (which includes digital marketing)

·; Property consolidation - concluding the Group's long-term co-location strategy by consolidating more than 20 property leases to eight across the Group

 Group Financial Results

1 Headline 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, impairment of goodwill and notional finance costs. A full reconciliation is presented in note 4 to this full year statement.

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

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

"The Group delivered a solid performance overall, despite the difficult macroeconomic environment. We continued to make progress in establishing the Group as one of the leaders in digital marketing. The acquisition and integration of DJM Digital Solutions Limited into our Health division has already resulted in major joint client wins with strong demand for digital. We will be looking to further strengthen our presence in this high growth area by launching a DJM office in New York.

"We have continued to invest in product development, our people and our long term co-location strategy by consolidating our property leases across the Group and by moving into one office in London this summer.

"We are confident that we have good momentum for a successful year ahead."

There will be a presentation for analysts today at 9.30am at the offices of Liberum Capital Limited, Ropemaker Place, Level 12, 25 Ropemaker Street, London, EC2Y 9LY

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

About Creston plc

Creston plc (LSE: CRE) is a digitally focused insight and communications group. 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 deliver original thinking that engages audiences, invites participation and influences future trends. www.creston.com

Group Chief Executive's Statement

Overview

The Group has seen continued strong growth in its international and digital revenues, added some exciting new clients and brands and achieved a lot operationally in FY13. In addition, the Group increased its dividend and ended the year in a strong cash position with a robust balance sheet.

The past 12 months represented another year of rapid change for our industry with technological advancements continuing apace. Standout developments during the year included the continued roll-out of HTML5, the sustained growth of smartphone penetration and the UK launch of 4G, an event our Communications division was heavily involved with. Adhering to our three Group values - agility, enterprise and innovation - ensured we were well placed to exploit these industry advances while continuing our own product development and innovation.

Investment during the year was directed towards product development, our people, our co-location strategy

and our prior year start-up, healthcare research consultancy Vitaris. This investment is central to achieving our broader Group strategy and will enable us to continue to exceed client expectations. Our innovative approach to marketing has already resulted in us winning further work from existing clients such as Danone, Vodafone, Diageo and Unilever and is best demonstrated by the 10 year average tenure of our top 20 clients. In addition to these new projects, we have added a number of significant new clients including EE, General Mills, Orange, Reckitt Benckiser, salesforce.com and Sony Mobile. Overall, as a Group, we have won £11.0 million in new business revenue during FY13.

Performance

Continued international development, through a full year contribution from The Corkery Group in the US, and global wins such as Gilead's appointment of Creston Health to work on its Hepatitis C business across Europe and Australia, resulted in the Group recording a 15 per cent increase in its international revenue to represent 35 per cent of the Group's total revenue.

Meanwhile, our continued investment and renowned expertise in digital resulted in a number of major client wins during FY13 and post year end. In a relationship which started earlier in the financial year with TMW's appointment to Durex's social media account, Reckitt Benckiser UK subsequently consolidated all of its digital activity across its portfolio of 19 brands (including Cillit Bang, Clearasil, Gaviscon, Nurofen and Strepsils) into the agency post the year end. Additionally, in a win which includes digital marketing activity, the Group's entire Communications division, as well as Red Door Communications from our Health division, was appointed on a three year term to the UK Government Procurement Service's roster for marketing services. The proportion of the Group's revenue derived from digital and online work stood at 48 per cent, a 16 per cent increase on the prior year and a trend we believe will continue in the immediate future as the Group accelerates towards a 50 per cent digital revenue weighting. We are well ahead of our initial target to hit a 50 per cent digital revenue split in FY15 and now expect to exceed 50 per cent in the current financial year. Indeed, in addition to the Reckitt Benckiser digital win, FY14 has already seen a major appointment by ASOS to manage a large scale digital design, user experience and website build project.

Overall, the Group delivered an increase in revenue to £75.2 million (2012: £74.9 million), while Group Headline EBITDA increased to £12.0 million (2012: £11.8 million). Group Headline PBT was £10.0 million (2012: £10.3 million).

As previously reported, two of our operating companies, ICM and EMO, had a challenging fourth quarter in FY12. This continued to impact Group performance into FY13, offsetting organic growth elsewhere in the Group and resulting in a like-for-like Group revenue decline of 6 per cent compared to the prior year. However, as a result of the cost reduction actions taken during the course of FY12 and into FY13, together with improving turnover and revenue, ICM saw a turnaround in its performance during the second half of FY13; and following management action EMO has seen two sequential half year improvements in its Headline PBIT.

Overall the Group margin declined slightly to 13.5 per cent (2012: 13.9 per cent), partially as a result of the short term impact of the Group's co-location strategy and the underperformance mentioned above. Restoring the Group margin to prior levels is a key priority for management.

At year end the Group was in a net cash position of £11.2 million (2012: £0.1 million net debt), which included £6.5 million of the previously announced £7.2 million (including VAT) received as a reverse premium and contribution to the agreed dilapidations obligation for the Group's new London office.

Strategic Developments

One of the key strategic developments during the course of the year was the acquisition of DJM, a UK-based digital healthcare agency. The acquisition was in line with the Group's strategy to establish itself as one of the leaders in providing digital marketing services to clients and also supports the continued growth of the Health division. This acquisition is a good example of the type of selective acquisition which the Group pursues, delivering a great strategic Better Together fit with the rest of the division and has already had a positive impact creating and converting new business opportunities, particularly as part of a cross-agency team.

In the current financial year, as we continue to grow with our clients' needs, we are looking to open a DJM presence in New York following the demand from our US-based health clients for more digitally-led campaigns. International markets continue to represent a significant growth opportunity for all three of our divisions and, with revenues from markets outside of the UK now exceeding a third of the Group's total revenue, Group diversification through further international development either organically or acquisitively remains a key element of our planned growth strategy.

Following the co-location of our south west agencies in Bristol in April 2012 and co-location of our US businesses into one office in New York City in September 2012, all of our London agencies, comprising approximately 450 people, will co-locate into our new flagship London office, Creston House, at 10 Great Pulteney Street in Soho, in summer 2013. To allow for future expansion the Group has increased its London accommodation from approximately 38,000 to 45,000 square feet. The cost of the Group's London property will therefore increase accordingly. This final co-location in London concludes our long term co-location strategy which has seen more than 20 property leases consolidate to eight across the Group. This Group co-location strategy has enabled us to operationally streamline our businesses through sharing infrastructure and also facilitates a more joined-up offer to clients. We believe that by bringing our companies physically closer together, our Group's Better Together ethos becomes even more powerful through enabling the sharing of ideas and innovations on a regular basis. This joined-up way of working unlocks value by way of new product development, more client referrals and joint new business pitching.

We have already seen encouraging results in terms of joint innovation and new business from our Richmond, Bristol and New York City co-locations and will look to build on this in the coming year as our largest co-location is completed.

Divisional review

Communications division

\* There is no like-for-like revenue figure as there were no acquisitions within the Communications division during the year.

There was strong organic growth across the majority of the Communications division during the year, though this was offset by the continuing impact on EMO's FY13 performance of its challenging fourth quarter in FY12. However, EMO has now delivered two sequential halves of Headline PBIT improvement and, as a result of improved divisional operational efficiencies, the Communications division delivered a marginal year-on-year improvement in its Headline PBIT margin.

The past 12 months saw the Group's Better Together ethos truly embed itself in the division, with all agencies working more closely together, with collaboration and joint pitching becoming commonplace. The previously announced roster appointment by the UK Government Procurement Service for all of the division's agencies working together in consortiums, is a great example of how our Better Together approach is delivering results. In Bristol, where The Real Adventure and EMO co-located in April 2012, the benefits of physically being together are evident day-to-day and we aim to replicate this success when the Nelson Bostock Group and TMW co-locate in London alongside the ICM Group and Creston plc at Creston House over the summer. Creston House will also enable both The Real Adventure and EMO to have a London presence.

Driven by the rapid pace of industry technological advancements, we expect digital advertising spend to continue to grow in FY14. We will therefore continue to develop our own innovative digital solutions expanding our offer to clients, particularly in the area of mobile and connected devices, enhancing our capabilities strategically, creatively and technologically.

Additionally, we will look to maximise opportunities arising from major new business wins, particularly our new Government Procurement roster positions. The division will also look to build on the success of its existing Shopper Marketing offer; continue to lead the way in the use of social media; enhance its creativity through continued adoption of technology and innovation; consider acquisitions and partnerships to service growing international client needs as appropriate; and build the division's production and outsourcing capabilities via Colombus and partners.

New business wins during the year includes work for: Danone, EE, Irn-Bru, Orange, salesforce.com, Sony Mobile and several brands for General Mills including Old El Paso, Green Giant and Häagen-Dazs.

Health division

Revenue for the division increased by 21 per cent and Headline PBIT increased by 11 per cent as a result of the full year contribution from The Corkery Group and a four month contribution from the Group's latest acquisition, DJM. Globally, pharmaceutical companies continued to see revenues come under pressure as a consequence of healthcare reforms and austerity measures, increased competition and challenges in bringing new drugs to market.

The material difference between Headline and Reported PBIT (see note 3 for the reconciliation) is a net result of two factors. Firstly, the revaluation of the estimated deferred consideration for the Cooney/Waters Group following its contract with long standing client Sanofi Pasteur coming to an end during the fourth quarter of FY13, which resulted in a credit of £6.8 million to the income statement under the accounting rules of IFRS 3 (revised), as further explained in note 4 to the full year results statement. Secondly, Cooney/Waters' goodwill has been impaired by £5.2 million due to the reduction in estimated future earnings. These two factors resulted in a net credit to the income statement of £1.6 million. This demonstrates that the deal structure, including a long earn-out, for the acquisition of the Cooney/Waters Group, protected Creston from a potential overpayment in consideration.

Creston Health, as a group of companies, has worked together closer than ever this year, resulting in a significant number of new shared clients, joint pitches and client referrals.

In the UK, the Group's latest acquisition of DJM has further strengthened the division's specialist digital offer. Collaboration between the Health companies continues apace generating several new clients and business opportunities with digital running through the heart of them. The coming year will see the launch of the DJM New York office to additionally strengthen the Health division's current international offer. DJM has also been fundamental in the development and launch of the Institute of Direct and Digital Marketing accredited Digital Academy, which all Creston Health companies have attended, as well as a number of their clients. Furthermore, this year saw Creston Health launch its own specialist online TV channel www.digitalondrugs.tv.

Our digital offer is core to the division's growth strategy going forward and the acquisition of DJM provides the ideal partnership to deliver innovative digital solutions to clients. International business also remains central to the division's growth strategy and this year will see the rebranding of the PR network (The Health Collective) under the guidance of Red Door Communication's new Head of International who joined the company from Pfizer. Following the division's large cross-agency global account win from Gilead in FY13, the focus for FY14 is on finding further like-minded clients to join Creston Health's expanding global client list.

New business won during the year from new and existing clients includes: Daylong, Gilead, Meda, SpecSavers HearCare, UNAIDS and post the year end, Novartis UK and Global.

Insight division

\* There is no like-for-like revenue figure as there were no acquisitions within the Insight division during the year.

In the continuing tough environment for market research services, the division saw a marked recovery in its financial performance during the second half of FY13, reporting both revenue and Headline PBIT growth against both H1 FY13 and H2 FY12. This was as a direct result of the cost reduction and structural changes implemented at ICM since FY12, together with the division's improving turnover and revenue.

While the industry market size declined during the year, according to The Market Research Society's Quarterly Trends Analysis, in a theme common to all of the Group's divisions the market research industry continued to see rapid technological change which brought with it many new opportunities. In particular, changes in consumer behaviour and connectivity have opened up new and more cost-effective ways to collect insights and this has been accompanied by an explosion in the range of data sources available to clients. At the same time, there are increasing client demands for all insights to be delivered in more compelling and engaging ways through 'smart' reporting such as video storytelling, interactive online dashboards and activation workshops. Creston Insight has continued to invest in people and technology during the year to ensure it is one of the leaders in meeting these evolving client needs.

Innovation, particularly around digital developments and creativity, is vital to driving growth in the coming year and Creston has set up an Insight Innovations team to scan the ever-changing market, identify key trends and recommend future investment opportunities, particularly around data collection, to ensure it stays at the forefront of the industry in delivering for its clients. Growth will also be driven by delivering more creative solutions (engaging and challenging proposals) as well as continued creativity in 'smart' reporting. Alongside the division's continued focus on growing digital and qualitative research, Marketing Sciences will look to drive its high margin sensory business and B2B work during FY14, while ICM will be launching a new initiative focused on helping clients negotiate the world of Big Data.

New business won during the year from new and existing clients includes: the Department of Health, Iglo Group, the Internet Advertising Bureau, Shell, VELUX, Vonage and Vodafone.  

Dividend

Following another year of good cash conversion, and the Group's net cash position combined with the Group's outlook, the Board recommends a final dividend of 2.67 pence per share (2012: 2.67 pence per share). This, with the half year dividend of 1.00 pence per share (2012: 0.83 pence per share), gives a total full year dividend of 3.67 pence per share (2012: 3.50 pence per share), representing a 5 per cent increase compared to the prior year.

In light of the Group's history of strong cash generation and low gearing, the Board intends to maintain a progressive dividend policy and will continue to work towards a one-third/two-third allocation between the half year/final dividend payment respectively.

People

As a digitally focused marketing services business, our people are our greatest asset. In their everyday work they exemplify our Group values delivering the original thinking which enables our strategy and therefore our business to succeed. I would like to thank all Creston employees for the dedication and enthusiasm they continue to bring to our business. This year also saw Best Companies,the workplace engagement specialists, recognise three Creston companies through its Accreditation standard which acknowledges excellence in the workplace. 

Outlook

Operationally much has been achieved in FY13. Our businesses will soon complete their co-location and are well placed to exploit the industry's high growth areas, such as digital, which remain the focus of the Group. Combined with the strong new business performance in FY13 and into FY14, and our longstanding base of blue-chip clients, we believe the Group has the right foundations in place for a successful year ahead. To build on this momentum, we will look to continue to invest in growing the business through a combination of organic growth, selective acquisitions, new start-ups and innovative product development funded by our strong cash flow and balance sheet.

Don Elgie

Group Chief Executive

Financial Review

Headline results

For the financial year ended 31 March 2013, Group revenue increased to £75.2 million (2012: £74.9 million) and Group Headline EBITDA increased by 2 per cent to £12.0 million (2012: £11.8 million). However, due to the increased depreciation charge following the Group's co-location strategy, Group Headline PBIT decreased by 2 per cent to £10.2 million (2012: £10.4 million) and Group Headline PBT for the year was £10.0 million (2012: £10.3 million). Headline Diluted Earnings Per Share (DEPS) increased 19 per cent to 14.66 pence (2012: 12.34 pence). This increase in DEPS is due to a tax credit in the year following a positive conclusion to an outstanding HMRC enquiry (further explanation can be found in note 5).

Headline items

Headline items consist of certain items which are eliminated from Reported results to enable a better understanding of the underlying performance of the Group (see note 4 for further detail), the material items of which were:

(i) Movement in fair value of deferred consideration and impairment of goodwill

The loss of Sanofi Pasteur, a major client of Cooney/Waters, and the continued pressure on the pharmaceutical industry has led to a reduction in the deferred consideration payable under the earn-out for the Cooney/Waters Group. The structure of the acquisition's deferred consideration protected Creston for such events and therefore gives rise to a credit of £6.8 million in FY13 and £4.8 million in FY12, totalling a credit of £11.6 million to the income statement over the two years. Due to the estimated future reduction in profit, the goodwill of Cooney/Waters has been impaired by £5.2 million from £13.0 million to £7.8 million.

(ii) Property related costs

As mentioned in the Group Chief Executive's Statement, the Group has now concluded its long term co-location strategy by signing a lease to co-locate all its central London agencies (the ICM Group, the Nelson Bostock Group and TMW) and Creston plc to one property in Soho, London. This follows earlier co-locations in Richmond and Bristol, with the co-location of the Group's three New York companies to one New York City office in September 2012.

As the Group has increased its London space by 18 per cent from approximately 38,000 square feet to 45,000 square feet to allow for future expansion, the cost to the Group will increase.

In London, the Group has taken over the end of a lease which expires in seven years. In return for this assignment, the Group received £7.2 million on completion which is made up of £4.0 million for the reverse premium; £2.2 million for dilapidations; and £1.5 million for VAT. An amount of £0.5 million was netted off against this for rent the Group owed.

In total for FY13, there were non-trading costs associated with both the London move and the New York move which resulted in a Headline adjustment of £0.9 million. This charge is made up of double rent (£0.67 million) and business rates (£0.27 million) for the vacant period. There will be another final non-recurring charge in the year ending 31 March 2014, which will again be treated as a Headline item.

Reported results

Group Reported PBIT decreased by 1 per cent to £11.0 million (2012: £11.1 million) and resulted in a Group Reported PBIT margin of 15 per cent (2012: 15 per cent). Group Reported PBT increased 2 per cent to £11.0 million (2012: £10.8 million). Group Reported DEPS increased 7 per cent to 16.10 pence (2012: 15.08 pence). Note 4 to the full year results presents a reconciliation between Headline and Reported results. 

Key performance indicators

The Group manages its operational performance through a number of key performance indicators (KPIs). The principal ones are as follows:

Acquisition of DJM Digital Solutions Limited ('DJM')

As described in the Group Chief Executive's Statement, during the year the Group acquired 75 per cent of the share capital of DJM for an initial consideration payment to the shareholders and key employees of £1.3 million. Cash acquired on acquisition amounted to £0.4 million resulting in a net payment of £0.9 million. A deferred consideration payment for the 75 per cent shareholding is due in July 2015 and will be based on the average PBIT from completion of the acquisition in November 2012 until March 2015. The maximum deferred consideration payment is £1.8 million; however, the fair value recorded in the balance sheet at 31 March 2013 is £1.4 million after discounting for notional interest of £0.1 million. In addition to the deferred consideration, a further acquisition-related payment will be made to certain key employees of DJM, which is based on the same performance metrics as the deferred consideration. This cost is referred to as deemed remuneration and will become due in July 2015, of which £0.02 million has been charged to the income statement in FY13 (2012: £nil). The current estimated full pay-out for deemed remuneration for DJM is £0.2 million.

From April 2018 onwards the minority shareholders of DJM will be able to request a put option and from April 2020 onwards Creston will have a call option, both options are for the remaining 25 per cent of DJM for a maximum consideration of £2.4 million.

Balance sheet

As at 31 March 2013, the Group was in a net cash position of £11.2 million (2012: £0.1 million net debt). This includes £6.5 million of the previously announced £7.2 million (including VAT) received as a reverse premium and contribution to the agreed dilapidations obligation for the Group's new London office. Excluding this amount gives a net cash position of £4.7 million following another year of strong cash generation for the Group. Including deferred consideration liabilities of £1.7 million (£0.3 million for the Cooney/Waters Group and £1.4 million for DJM) the total cash position was £9.5 million (2012: £7.0 million total debt). As at 31 March 2013 the negative working capital position was £1.3 million (2012: £0.5 million).

Cash flow performance

During the financial year, the adjusted operating cash flow increased 14 per cent to £12.3 million (2012: £10.7 million). The cash conversion ratio of adjusted operating cash flow to Headline EBITDA was 102 per cent (2012: 91 per cent). Management continues to place significant emphasis on managing working capital effectively and this has resulted in a five-year cumulative cash conversion of 103 per cent.

Capital expenditure during the year was £2.7 million (2012: £2.5 million) with investment mainly resulting from the co-location of our New York office and the commencement of our London co-location.

Net finance costs

Despite the Group being in a stronger cash position throughout the year, Headline net finance costs were £0.2 million (2012: £0.1 million) due to the interest paid for the revolving credit facility. The Group's average interest rate margin paid over LIBOR was 1.75 per cent (2012: 1.3 per cent) during the year. Headline net finance costs were covered by Headline EBITDA 79 times (2012: 91 times).

The Reported net finance cost was £nil (2012: £0.2 million), which includes a notional finance credit relating to the deferred consideration payments of £0.2 million (2012: £0.1 million cost).

Effective tax rate

The Group's Headline tax rate was 11 per cent (2012: 28 per cent). This rate is lower than the current UK statutory rate of 24 per cent as a result of a release in a prior year provision following the conclusion of an HMRC enquiry into the deductibility of goodwill that was written off when CML Research Ltd ceased to trade in 2009. The Reported effective tax rate was 11 per cent (2012: 16 per cent) and is lower than the statutory rate of 24 per cent because of the release of the CML provision mentioned above, as well as the non-taxable credit recognised on the revaluation of deferred consideration.

Share buy-back

The Group announced on 4 February 2013 that it had launched a new three year Save As You Earn (SAYE) share incentive scheme for its UK employees. The uptake of this scheme was good and as a result the Group will now launch a share buy-back programme with the objective of meeting obligations arising from the scheme. Further details of the share buy-back programme will be announced separately by the Group today.

Barrie Brien

Chief Operating and Financial Officer

UNAUDITED CONSOLIDATED INCOME STATEMENT

for the year ended 31 March 2013

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEfor the year ended 31 March 2013

CONSOLIDATED BALANCE SHEETas at 31 March 2013

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 March 2013

CONSOLIDATED STATEMENT OF CASH FLOWSfor the year ended 31 March 2013

NOTES TO THE FULL YEAR RESULTS STATEMENTfor the year ended 31 March 2013

1. Basis of Preparation

The financial information set out herein does not constitute the company's statutory accounts for the years ended 31 March 2013 or 2012, within the meaning of section 434 of the Companies Act 2006. Statutory accounts for 2012 have been delivered to the Registrar of Companies. The auditors have reported on these 2012 accounts and their report was (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain statements under section 498(2) or (3) of the Companies Act 2006. Copies of the statutory accounts for 31 March 2013 will be distributed to shareholders in advance of the Annual General Meeting and will be delivered to the registrar of companies upon approval.

The information has been prepared in accordance with the EU-adopted International Financial Reporting Standards (IFRS) and IFRIC interpretations and with those parts of the Companies Act 2006 which are applicable to companies reporting under IFRS, however, this full year statement in itself does not contain sufficient information to comply with IFRS.

2. Accounting policies

The full year results were prepared in accordance with the policies disclosed in the 2012 audited Annual Report and Accounts with no new standards, amendments or interpretations relevant to the Group.

3. Segmental Analysis

The chief operating decision-maker has been identified as the Executive Board of Directors ('the Board') which makes the strategic decisions. The Board has determined the operating segments in a manner consistent with the internal reporting provided to the Board. The 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 communication strategy, offering a range of services which include advertising, brand strategy, channel marketing, customer relationship marketing (CRM), digital marketing, direct marketing, local marketing, social media marketing and public relations.

Health

The Health division provides an integrated communications solution to the healthcare and pharmaceuticals sector and offers services which include advertising, advocacy, digital and direct marketing, public relations, issues and reputation management and medical education.

Insight

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

The Board assesses the performance of the operating segments based on a measure of revenue and Headline PBIT. This measurement basis excludes the effects of exceptional charges 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, impairment of goodwill, 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 US. The Board does not review the assets and liabilities of the Group on a divisional basis and therefore has chosen to adopt the amendments to IFRS 8 of not segmenting the assets of the Group.

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

The analysis below has been presented on a continuing operations basis. The turnover for the year ended 31 March 2012 has been amended to ensure comparability with the turnover recognised in the current year. This has had no impact on revenue or profit before tax for the year.

Segmental analysis by business

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

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.

4. Reconciliation of Headline profit to Reported profit

In order to enable a better understanding of the underlying trading of the Group, the Board 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. These are acquisition related costs, amortisation of acquired intangible assets, movement in the fair value of deferred consideration, future acquisition payments to employees deemed as remuneration and notional finance costs on future deferred consideration. These charges will cease once all the relevant earn-out and related obligations have been settled; and

(ii) Exceptional non-recurring operating charges, which consist of start-up and restructuring related costs, property related costs and the impairment of goodwill.

The reduction in deferred consideration and the resulting credit to the income statement, is due to management's revision of expected trading performance of Cooney/Waters during the earn-out period. Under IFRS 3 (revised) any changes in fair value of future deferred consideration is charged/credited through the comprehensive income statement.

An impairment charge has also been recognised for the Cooney/Waters goodwill with the revision in expected trading performance no longer supporting the carrying value of goodwill.

5. 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.

6. Earnings per share

A reconciliation from Headline to Reported profit after tax is provided in note 4.

7. Dividends

A final dividend of 2.67 pence per share (2012: 2.67 pence per share) equivalent to £1,614,254 is recommended to be paid on 12 September 2013 to shareholders on the register on 2 August 2013. The final dividend will be recognised in the 2014 accounts, should it be approved by shareholders at the AGM.

8. Goodwill

Goodwill represents the excess of cost of acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition.

The Group acquired DJM Digital Solutions Limited and also recognised an impairment to Cooney/Waters in the year to 31 March 2013. The Corkery Group was acquired in the year to 31 March 2012.

In accordance with the Group's accounting policy, the carrying values of goodwill and other intangible assets are not subject to systematic amortisation but are reviewed annually for impairment. The review assesses whether the carrying value of goodwill could be supported by the present value of future cash flows derived from operating activities. Future cash flows are calculated with reference to each subsidiary's two year business plan (approved in March 2013) which is subject to a rigorous review and challenge process. The residual growth rate thereafter is at a nominal rate of 3 per cent (2012: 3 per cent) for all units and after year six, a terminal value with 2.5 per cent (2012: zero per cent) growth has been applied.

For acquisitions made within the last two years, the Group uses the relevant company's current year Headline performance and applies a 3 per cent growth (2012: 3 per cent) for the following four years with 2.5 per cent (2012: zero per cent) growth on the terminal value. This is then adjusted for any related deemed remuneration charges relevant for that cash generating unit. Management believe this method to be more appropriate as it allows them to work with any new acquisitions through one complete budgeting and performance cycle. Where a specific business issue such as the loss of a key client in the current year, as experienced by Cooney/Waters this year, means that the expected cash flows in the following four-year period are expected to be materially different to residual growth rate of 3 per cent, the expected cash flows are used instead.

The pre-tax discount rate used to assess the carrying value of goodwill is 9.7 per cent (2012: 9.4 per cent). As all the cash generating units are similar in nature, the risk profile is considered the same across countries. As a result the same discount rate is used for each.

The review performed at the year end has resulted in the impairment of £5.2 million (2012: £nil) to the Cooney/Waters goodwill. The review did not result in an impairment of goodwill for any other cash-generating unit.

The Board has considered the following sensitivities:

(a) at 31 March 2013, had the Board increased its discount rate by 10 per cent to 10.6 per cent, an impairment of £2.5 million would be required on ICM and an additional impairment of £1.3 million on Cooney/Waters would be required; and

(b) had the Board kept the discount rate the same and applied a 10 per cent decrease to the projected future cash flows an impairment of £2.1 million would be required on ICM and an additional impairment of £0.9 million on Cooney/Waters would be required.

Components of goodwill at 31 March 2013 and 2012 are:

9. Acquisitions

DJM Digital Solutions Limited

On 28 November 2012, the Group acquired 75 per cent of the share capital of DJM Digital Solutions Limited (DJM), a UK-based digital healthcare agency.

The fair value of the net assets acquired and the consideration are detailed below.

Satisfied by:

As part of the sale and purchase agreement, there was an agreed working capital and cash threshold required on the balance sheet at the acquisition completion date. Any excess/shortfall from the threshold would be paid to/collected from the seller. At the time of completion there was a working capital excess of £61,000 which is due to be settled as a cash payment after the year end.

In addition to the £1.2 million initial consideration paid to the seller, £0.1 million was paid to key employees of DJM giving a total initial cash outflow of £1.3 million being paid on the completion date. An additional deferred consideration payment is due which is contingent upon the average annual PBIT achieved by DJM during the period to 31 March 2015.

The maximum (undiscounted) deferred consideration payable under the DJM sale and purchase agreement is £1.8 million. The fair value of the deferred consideration for DJM at date of acquisition was £1.4 million and was estimated by applying the income approach. The fair value estimates are based on a discount rate of 3.3 per cent and assumed probability-adjusted profit in DJM.

Deferred consideration will be paid in cash, in accordance with the associated sale and purchase agreement. This payment is due in July 2015.

IFRS 3 (revised) requires companies to expense acquisition costs. As a consequence £0.1 million has been charged to the income statement in relation to the acquisition of DJM.

Profit and cash flow:

The subsidiary undertaking acquired during the year made the following contributions to, and utilisations of, Group profit and cash flow:

DJM contributed revenue of £0.7 million and Headline PBIT of £0.3 million to the results of the Group since acquisition. If the acquisition had been completed at the beginning of the financial year, management estimate that Group revenue for the year would have been £75.8 million and Group Headline PBIT would have been £10.3 million.

10. Net proceeds on operating lease

On 7 January 2013 the Group entered into an operating lease for the new London office. On signing the lease, the Group received a one-off cash payment of £7.2 million (including VAT) in relation to a reverse premium and agreed dilapidations obligation. As at the 31 March 2013 net proceeds of £6.5 million on the operating lease remained and have been recognised as part of the Group's operating cash flow. Excluding the £6.5 million from the Group's operating cash flow of £18.8 million (2012: £10.7 million) results in an adjusted operating cash flow of £12.3 million (2012: £10.7 million).

The associated liability for the reverse premium and dilapidation obligation has been recognised within trade and other payables in the Consolidated balance sheet with £5.2 million being due in more than one year.

11. Analysis of net and total (debt)/cash

Included within the acquisitions related cash flow was an initial cash consideration of £1.2 million and cash acquired of £0.4 million for the acquisition of DJM Digital Solutions and £0.5 million paid for the working capital payment for The Corkery Group.

Included within the movement on deferred consideration was a fair value reduction in the provision of £6.8 million, the deferred consideration on the DJM acquisition of £1.4 million, a foreign exchange adjustment of £0.4 million and notional finance credit of £0.2 million.

12. Related-party transactions

Mr D C Marshall, a Non-Executive Director of Creston plc is a Director of City Group P.L.C. and Western Selection P.L.C. which held 3,000,000 Ordinary Shares in Creston plc at 31 March 2013. During the year total fees of £64,160 (2012: £63,069) were paid to City Group P.L.C., £29,160 (2012: £28,069) for the provision of secretarial services and £35,000 (2012: £35,000) for the services of Mr D C Marshall. As at 31 March 2013 £8,667 (2012: £17,260) was due to City Group P.L.C.

In the prior year 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 £17,500. There were no equivalent transactions in 2013 and as at 31 March 2013 £nil (31 March 2012: £nil) was due from Vanessa Knox Limited. All transactions were conducted on an arm's length basis.

13. Availability of the Annual Report and Accounts

Copies of the Annual Report and Accounts are available on the Company's website www.creston.com.