Conduit Hldg Regulatory News (CRE)

22 Jun 2005 07:01

Creston PLC22 June 2005 Date: 22 June 2005 On behalf of: Creston Plc ("Creston" or "the Group") Embargoed until: 0700hrs Creston Plc Preliminary Results 2005 for the year ended 31 March 2005 The results of Creston's fourth full year as a marketing services groupdemonstrate the strength of the Group's strategy. Creston has outperformed theUK marketing communications sector and exceeded its operational and financialtargets to deliver a fourth consecutive set of record results. HIGHLIGHTS Change • Increase in turnover to £35.87m (2004: £29.45m) +22%• Increase in gross profit to £16.22m (2004: £11.12m) +46%• Increase in operating profit to £3.68m (2004: £2.36m) +56%• Increase in organic operating profit +15%• Increase in PBT to £3.50m (2004: £2.10m) +68%• Increase in operating margin to 23% (2004: 21%) +9%• Increase in gross margin to 45% (2004: 38%) +18%• Increase in EPS 10.72p (2004: 9.03p) +19%• Increase in diluted EPS 10.56p (2004: 8.47p) +25%• Increase in full year dividend to 2.15p (2004:1.80p) +19%• CML Research Limited ("CML") acquired in September 2004 for a maximum consideration of £7.4m• DLKW Group ("DLKW") acquired in March 2005 for a maximum consideration of £39.2m• The Group now has a highly skilled and well-motivated team of 467 employees (2004: 269) Commenting on today's announcement, Don Elgie, Group Chief Executive, said: "I am pleased to report that Creston has had another successful year in which ithas exceeded its operational and financial objectives to achieve record results.The current financial year has started well: performance is ahead ofexpectations and business prospects are strong." "The Group has grown substantially in the past year, building a strong,diversified marketing services group and taking advantage of the synergies,which that diversity offers." "The Board is confident that the coming year will be a further year of stronggrowth, both organically and by acquisition. We believe that Creston hasestablished a robust business model, which will allow the Group to do this, andare confident of the Group's future prospects." FOR FURTHER INFORMATION, PLEASE CONTACT: Creston Plc 020 7930 9757Don Elgie, Chief ExecutiveBarrie Brien, COO/CFOwww.creston.com Redleaf Communications 020 7955 1410Emma Kane/Miranda Good/Wendy Timmons 07876 338339 NOTES TO EDITORS: • Publication quality photographs are available through Redleaf on thenumbers shown above. About Creston Plc • Creston's strategy is to build a diversified international marketing services group through a combination of organic growth and selective acquisitions. The Board's aim is to identify synergistic benefits between currently independent marketing services companies offering premium services such as market research, direct marketing, customer relationship marketing and other areas of marketing communications. • Since January 2001, when the Company was repositioned as a marketing services group, Creston has made six significant acquisitions, which have demonstrated growth despite difficult market conditions: January 2001 Acquisition of Marketing Sciences Limited, an international quantitative and qualitative market research company, based in Winchester November 2001 Acquisition of The Real Adventure Marketing Communications Limited, a national marketing communications company, based in Bath December 2002 Acquisition of EMO Group Limited, a national channel marketing communications company, based in Swindon and Bristol October 2003 Acquisition of Nelson Bostock Communications Limited, a London based public relations agency September 2004 Acquisition of CML Research Limited, a London based qualitative market research business March 2005 Acquisition of DLKW Group, a London based advertising and communications group • Together these companies boast a range of blue-chip clients including Lloyds Black Horse, Unilever, Kimberly-Clark, Tesco, Toshiba, Canon, BMW (UK), MINI, Pfizer, Cow & Gate, Bacardi-Martini, Nestle Rowntree, NEC, NTL, George Wimpey, Scottish Courage, Vodafone, HBOS, COI, e-Bay, Burger King, General Motors, Exxon, Financial Times and WHSmith • Creston's share price is quoted in the Financial Times, Daily Telegraph, the Times and the London Evening Standard. CHAIRMAN'S STATEMENT Over the last four years, Creston has built a highly successful business model.Unashamedly, our strategy remains unaltered, that of growing both organicallyand through selective acquisitions to become a substantial, diversified,international marketing services group. This strategy will continue to be achieved by acquiring companies with a recordof strong organic growth and management who are committed to further growth aspart of the Creston group of companies. The Board believes that an important part of this strategy is to avoidover-concentration in any one part of the marketing services sector, therebyminimising risk. Creston will consider acquisitions across the marketing services disciplinesincluding market research, direct marketing, customer relationship marketing anddigital marketing. We will also consider companies that have strong trackrecords within more cyclical sectors but only where they meet our strictacquisitions criteria, which have been the key to our success. This allowed usto acquire DLKW, one of Britain's leading advertising agencies. Our outstanding performance has been recognised in two independent surveys. The'Hot 100 for 2005' survey prepared from Companies House data by Real BusinessMagazine and in association with Lloyds Development Capital, features Creston asthe third fastest growing Main List public company in the UK and the fastestgrowing marketing services public company. Creston achieved 13th place in 2004Europe 500 listing, the only independent pan-European listing of high growth jobcreating companies. Our robust business model is very different to that of the large trade groupsand is the key to Creston's ability to continue to outperform the market. Creston's acquisition criteria are: • Growth companies Creston buys established businesses with proven growth histories and credible business plans. • Committed vendors Creston will not consider companies where the vendors want an immediate exit, although it is sensitive to life stage issues. The Board prefers to harness the entrepreneurial skills of vendors to work together to grow Creston. • Creston equity - An important part of retaining vendor loyalty Creston equity forms a meaningful part of the consideration and helps bind vendors' and Creston's ambitions together. • Creston Operating Board Creston harnesses the entrepreneurial talents of the acquired company management through representation on the Operating Board. This reviews overall strategy, performances and synergy opportunities and reports to the Creston plc Board. Overview of Financial Results Turnover grew by 22 per cent. to £35.9 million (2004: £29.5 million). Operatingprofit grew by 56 per cent. to £3.7 million (2004: £2.4 million), and profitbefore tax grew by 68 per cent. to £3.5 million (2004: £2.1 million). Operatingmargins grew by 9 per cent. to 23 per cent. Basic earnings per share were 10.72 pence (2004: 9.03 pence), an increase of 19per cent. and diluted earnings per share increased by 25 per cent. to 10.56pence (2004: 8.47 pence). Detailed information on the Group's financialperformance is set out in the Chief Operating and Financial Officer's Review. Dividend In line with the strategy of pursuing a progressive dividend policy, the Boardrecommends for payment a final dividend for this year of 1.45 pence per share inaddition to the interim of 0.70 pence per share paid in November 2004, making atotal dividend for the year of 2.15 pence per share (2004: 1.80 pence pershare). The dividend will be paid on 1 August 2005 subject to shareholderapproval at the forthcoming AGM of the Company, to shareholders on the registerat the close of business on 1 July 2005. The Board intends to maintain its progressive dividend policy, recognising theimportance to shareholders of dividends and it is the intention of the Board tocontinue to pay interim dividends in future, subject to satisfactory financialperformance and prudent cash management. This year's dividend represents a 19per cent. increase on last year reflecting this policy. Staff The Group now has 467 employees, compared to 269 last year, in 10 locations inthe United Kingdom - Bath, Bristol, London (five), Swindon, Westerham andWinchester. I would like to welcome the staff of CML who joined the Group in September 2004and DLKW who joined in March of this year. I would also like to congratulate the directors and staff across the Group whohave been responsible for such excellent results, particularly when set againstthe market and our competitors. In order to maintain the enthusiasm of the staff, shareholders approved aSharesave Scheme and an Enterprise Management Incentive Scheme at the 2004 AGM. I am very pleased to report that the take up of the Sharesave Scheme, which isentirely voluntary, was very high at 42 per cent. of all staff - a sign, Ibelieve, of the commitment and confidence the staff as a whole have towardsCreston's future. It is intended to make a further offering under the SharesaveScheme to enable our new employees to participate in the future. Senior management motivation is clearly vital and a Long Term Incentive Plan,the details of which are contained in the Remuneration Report, will be put tothe AGM for approval. Outlook The Board believes that Creston has established a robust business model and isconfident of the Group's future prospects. I am confident that the coming yearwill again deliver a further year of strong growth, both organically and byacquisition. D C MarshallChairman 21 June 2005 CHIEF EXECUTIVE'S REVIEW Over the year under review, organic performance at the operating level was verystrong with an increase of 15 per cent. in PBIT on a like for like basis. Thisperformance has to be reviewed against the less than 5 per cent. growth reportedfor most marketing service sectors. CML, one of Britain's leading qualitative research companies was acquired on 3September 2004 and its acquisition further extends our research capabilities.DLKW, one of Britain's leading advertising and integrated agency groups, wasacquired on 9 March 2005, and marked an excellent finish to the year. Itsacquisition was funded by a Placing and Open Offer of shares which raised £9.8million for the Group. Creston now has a broad range of marketing service businesses with a strongbalance sheet and cash flows. Insight Division Creston's Insight Division had a strong year delivering a 25 per cent. increasein PBIT (the British Market Research Association reported 4 per cent. growth inturnover for 2004). This was underpinned by strong higher margin UK workcompared to international work and effective cost control. Over two thirds of MSL's business is generated by repeat business from itsclients such as Tesco, Unilever and Kimberly Clark. Key new clients won in theyear for MSL include Drambuie, Boots Healthcare International and Lafarge. MSTS, the sensory research subsidiary of MSL, had a succession of new businesswins such as Premier Foods, General Mills and RHM, plus a growing relationshipwith Heinz. CML was only acquired in September 2004 but already includes the new win ofToyota Europe and being added to the COI Communications roster. CML's otherclients include Vodafone, Halifax and Audi. We look forward to CML contributing to Creston's performance. Marketing Communications Division Creston's Marketing Communications division grew by 18 per cent. PBIT over the2004 year. The marketing communications sector is not reported on as a singleunit, but we have used the Keynote 2005 report on Direct Marketing as a guide.This shows an estimated growth of 5 per cent. in turnover for the industry in2004 on 2003. TRA had strong organic growth from clients such as Pfizer and Cow & Gate andexcellent new business wins. PepsiCo's Tropicana was an important win for TRAand has been further strengthened by the win of a further Tropicana brand, PJSmoothies; together with HPI, the vehicle tracking subsidiary of Norwich Union. EMO enjoyed increased expenditure by BMW, George Wimpey, Bang & Olufsen andHonda. Whilst only being part of Creston since 9 March 2005, Dialogue and TCR haddemonstrated strong performance, most noticeably for Dialogue with theintegrated win for the AA, breakdown and roadside assistance. Public Relations Division Creston acquired NBC in October 2003 and therefore a full year like for like isnot possible, however, on an annualised basis, the company has achievedsubstantial growth. Canon, Toshiba and NTL remain important clients. New wins inthis year include Bollinger, The Post Office Residential Phone Services, Vonage,the US market leader for telephony services over broadband and Warner HomeVideo. Advertising Division DLKW was acquired on 9 March 2005 and therefore there are only three weeksfigures consolidated into the Group. As well as major clients like HBOS, Vauxhall, COI Communications, e-Bay, W HSmith, new wins this year include the AA, Diageo's Bulliet Bourbon, GeneralMotors Vectra across Europe and SCA's Tena brand across Europe. The advertising industry showed real growth in 2004 with an estimated increaseof 5 per cent. in revenue over 2003 according to the Advertising Association andgrowth for 2005 is predicted at 4.5 per cent. Synergy It has been a successful year for incremental synergy income and the synergyopportunities are increasing as the Group grows. Examples include Tropicana research projects, the PR launch of the BMW Series 1and London Dungeons have appointed Nelson Bostock on a retained basis for PR. In total, thirteen clients now work with more than one agency within the Group:Campbells, Tropicana, Premier Foods, Nutricia, London Dungeons, Bacardi, ArlaFoods, Scottish Courage, COI Communications, Danone, Pfizer, Unilever, BMW. We are committed to increasing these synergy opportunities, as they represent akey area of future organic growth. To this end, we are near to employing aSynergy New Business Director to leverage further the cross sellingopportunities across the Group. Forward Plans We have built a strong domestic diversified marketing services group in fouryears and aim to continue to add in the UK with complementary business inhealthcare, digital and other growth niche marketing service areas. International It is our stated intention to become an international marketing group in orderto better serve clients. We hope to make progress in this goal during the newfinancial year, particularly in the USA, which offers a large and relativelybuoyant economy and further growth opportunities for the Group. Outlook I am pleased to report that the current financial year has started well withperformance ahead of the Board's expectations. Business prospects are strongreflecting the aforementioned recent client wins such as the AA, Diageo, SCA,General Motors Vectra, Tropicana brands and this new business record should helpcontinue the Group's impressive organic growth into 2006. Don ElgieChief Executive 21 June 2005 CHIEF OPERATING AND FINANCIAL OFFICER'S REVIEW The Group has continued to exceed its financial and operational objectives ofdriving acquisitive and organic growth, strengthening its Balance Sheet anddelivering significant growth in EPS. All this has been achieved, whileimproving already above market operating margins and completing the acquisitionsof CML in September 2004 and DLKW in March 2005. Operating Profit and Margin Gross profit increased by 46 per cent. over last year reflecting the acquisitionof CML and DLKW, a full year of results from NBC and strong organic growthacross the Group. Due to the acquisitions, plus a high level of new businesswins and tight cost control, operating profits increased by 56 per cent. to £3.7million (2004: £2.4 million) and operating margins to 23 per cent. from 21 percent. The inclusion of CML and DLKW has raised gross margins to 45 per cent. from 38per cent. Total staff numbers increased from 269 to 467 on a full timeequivalent basis. Key performance indicators are regularly reviewed across theGroup and efficiency continued to improve indicated by a rise in gross profitand operating profit per head of 12 per cent. and 20 per cent. respectively. Organic Growth At both the operating company and Group level, Creston has demonstratedoutstanding organic growth. Turnover, gross profit and PBIT for the operatingcompanies' increased by 2, 6 and 15 per cent. respectively. This result shows avery high profit conversion (80 per cent.) on the organic gross profit and thecontinued move to higher value added services, as demonstrated by high grossprofit growth compared to small turnover growth. In 2005 Creston continued to invest in its head office infrastructure to supportthe future growth of the Group. Even when including this investment, the Crestongroup managed organic (or like for like) growth in PBIT of 8 per cent. Interest The net interest charge was £0.2 million (2004: £0.2 million) reflecting theincreased term loan offset by improved cash balances and treasury managementthroughout the Group. Interest was well covered by profit before interest andtax at 21 times (2004: 10 times). Creston introduced an interest rate hedging strategy on approximately half ofits new medium term loan and accordingly entered into an interest rate collarprovided by Barclays Bank. Effective Tax Rate The Group's effective underlying tax rate has remained at the 30 per cent.standard rate. In 2005, the Group's results benefited from favourable taxtreatments in certain areas, for example, a tax benefit on the goodwill of CMLas it was a trade and asset purchase, which reduced the tax charge by £0.2million to give a net effective tax rate of 25 per cent. Earnings per Share Basic earnings per share rose 19 per cent. to 10.72 pence (2004: 9.03 pence) anddiluted earnings per share rose 25 per cent. to 10.56 pence (2004: 8.47 pence).This is the fourth successive year of significant growth in these key financialratios reflecting the Group's success in delivering enhanced value and returnsto shareholders. Acquisitions On 3 September 2004, Creston bought CML for an initial investment of £5.1million, including costs and maximum further deferred consideration of £2.3million. On 9 March 2005, Creston bought Face Communications Ltd (main tradingname DLKW & Partners) for an initial investment of £19.9 million, includingcosts and maximum further deferred consideration of £19.3 million. The Group will continue to pursue acquisition targets that fit in with itsstated strategy. We are currently assessing a number of other opportunities,with particular focus on expanding into the USA and Europe. It is our policythat all future acquisitions are made on a financially prudent basis and areearnings enhancing. Capital Expenditure The total capital expenditure for 2005 was £0.6 million (2004: £0.4 million).The main categories of investment being leasehold refurbishment, computersystems, software and some motor cars. At the year end the Group had acommitment to complete refurbishment work on one of its London offices at anestimated cost of £0.4 million. Cash Flow and Net Debt The cash generated by operating profit continues to be very strong. Net cashinflow from operating activities rose to £4.9 million (2004: £3.1 million), andthe cash conversion rate from operating profit was 134 per cent. (2004: 130 percent.). The high operational cash flow was used to finance transaction costs, tax anddeferred consideration. A key cash movement in the year was the net cash outflow on the DLKW and CMLacquisitions of £16.2 million, which was funded by the proceeds from shareissues raising £10.9 million net of costs and net new bank loans of £5.1million. These factors resulted in the Group having net debt of £3.3 million at31 March 2005 (2004: net funds of £0.4 million). At the time of the DLKW acquisition, Creston agreed with Barclays Bank a newSenior Debt structure. This comprises an £8.3 million medium term loan (fullydrawn) and a £5.0 million revolving credit facility (which remains undrawn). Itis intended to utilise the revolving credit facility to manage working capitalrequirements. Balance Sheet and Gearing Shareholders' funds rose by £27.1 million in the year to £52.3 million. Earningscontributed £2.0 million to their growth and new share capital issued was £18.1million (including the Placing and Open Offer which raised £9.8 million net ofcosts in February 2005 and the acquisitions of DLKW and CML). In addition, £11.0million of deferred consideration is included as shares to be issued, anincrease of £7.0 million in the year. The amount of the deferred consideration (settled by a combination of cash loannotes and shares) is amended in each year to the current expected amountpayable. As a result, Creston's gearing (net debt over equity) is 6 per cent.and the net debt for the Group at 31 March 2005 was £3.3 million compared to netfunds of £0.4 million at 31 March 2004. After including deferred considerationand loan notes of £9.4 million (2004: £2.4 million) the Group's total debt hasincreased to £12.7 million (2004: £2.0 million). Based on total debt, theGroup's gearing has increased to 24 per cent. from 8 per cent. reflecting theincreased indebtedness arising principally from the acquisition of DLKW. The Group will continue to maintain its policy of managing and controlling thenet debt and gearing to prudent levels in order to preserve its financialstability, whilst seeking to use the low interest rate levels to enhanceshareholder returns. Barrie BrienChief Operating andFinancial Officer 21 June 2005 Consolidated Profit and Loss Accountfor the year ended 31 March 2005 Continuing Operations Acquisitions 2005 2004 Note £'000 £'000 £'000 £'000 Turnover 2 33,069 2,801 35,870 29,453Cost of sales (19,001) (649) (19,650) (18,326)Gross profit 14,068 2,152 16,220 11,127Administrative expenses (10,961) (1,579) (12,540) (8,770)Operating profit 3,107 573 3,680 2,357Share of operating loss in joint - (34)ventureProfit on ordinary activities before 3,680 2,323interestNet interest payable (176) (235)Profit on ordinary activities before 2 3,504 2,088taxationTax on profit on ordinary activities 3 (864) (639)Profit for the financial year 2,640 1,449Dividends 4 (684) (332)Retained profit for the financial 1,956 1,117yearEarnings per share 5 10.72p 9.03pDiluted earnings per share 5 10.56p 8.47p The Group has no recognised gains or losses other than the results for the yearas set out above. Consolidated Balance Sheetas at 31 March 2005 2005 2004 Note £'000 £'000Fixed assetsIntangible assets 6 64,212 25,820Tangible assets 1,740 775Investments 15 - 65,967 26,595Current assetsStocks and work in progress 1,810 777Debtors 14,821 6,213Cash at bank and in hand 5,419 4,160 22,050 11,150Creditors: amounts falling due within one year (19,480) (8,980)Net current assets 2,570 2,170Total assets less current liabilities 68,537 28,765Creditors: amounts falling due after more than one year 8 (16,196) (3,511)Net assets 52,341 25,254Capital and reservesCalled up share capital 3,493 2,207Share premium account 19,168 9,083Special reserve 2,385 2,385Other reserve 12,442 5,719Capital redemption reserve 72 72Shares to be issued 11,016 3,979Profit and loss account 3,765 1,809Total equity shareholders' funds 52,341 25,254 Consolidated Cash Flow Statementfor the year ended 31 March 2005 2005 2004 Note £'000 £'000Net cash inflow from operating activities 9 4,930 3,057Returns on investments and servicing of financeBank interest received 162 101Bank and other loan interest paid (331) (378)Finance lease interest paid (7) (13)Net cash outflow from returns on investments and servicing of (176) (290)financeTaxation (887) (677)Capital expenditure and financial investmentPurchase of tangible fixed assets (549) (240)Proceeds on sale of tangible fixed assets 25 24Decrease/(increase) in restricted cash deposits 240 (191)Net cash outflow from capital expenditure and financial (284) (407)investmentAcquisitions and disposalsPurchase of subsidiary undertakings (20,413) (4,588)Net cash acquired with subsidiaries 4,233 1,795Net cash outflow from acquisitions and disposals (16,180) (2,793)Equity dividends paid (441) (224)Net cash outflow before financing (13,038) (1,334)FinancingIssue of share capital for cash consideration 11,290 4,751Expenses paid in connection with share issues (416) (293)Receipt of bank loan 11,284 -Repayment of bank loan (6,198) (916)Repayment of loan notes (1,295) (528)Capital element of finance lease payments (124) (112)Net cash inflow from financing 14,541 2,902Increase in cash 10 1,503 1,568 1. ACCOUNTING POLICIES Basis of preparation The accounts have been prepared under the historical cost convention and inaccordance with United Kingdom applicable accounting standards. The true andfair override provisions of the Companies Act 1985 have been invoked with regardto goodwill as detailed below. The principal accounting policies of the Grouphave remained unchanged from the previous year. Goodwill Goodwill arising from the acquisition of subsidiary undertakings, representingthe difference between the purchase consideration and fair value of net assetsacquired, has been capitalised in accordance with the requirements of FRS 10.Future anticipated payments to vendors in respect of earn-outs are based on theDirectors' best estimates of these obligations. Earn-outs are dependent on thefuture performance of the relevant business and are regularly reviewed. Thegoodwill arising on the relevant acquisition is adjusted to these revisedestimates throughout the earn-out period. The Directors have considered the appropriate method of accounting for goodwill.They are of the opinion that reviewing goodwill on an annual basis is a moresuitable method than writing it off over a specific number of years. Animpairment review is carried out every six months based on projected future cashflows discounted at an appropriate discount rate based on the Group's weightedaverage cost of capital. In accordance with FRS 10 and 11, the carrying valueof intangible assets will continue to be reviewed for impairment on the basisstipulated in FRS 11 and adjusted should this be required. The individualcircumstances of each future acquisition will be assessed to determine theappropriate treatment of any related goodwill. The financial statements depart from the requirement of companies' legislationto amortise goodwill over a finite period in order to give a true and fair view,for the reasons outlined above. If the goodwill arising on all acquisitions hadbeen amortised over a period of twenty years, operating profit would havedecreased by £1,513,000 (2004: £1,163,000). 2. SEGMENTAL ANALYSIS Turnover, gross profit, profit before tax and net assets attributable to Crestonactivities are shown below. Turnover Gross Profit 2005 2004 2005 2004 £'000 £'000 £'000 £'000Marketing Communications 17,876 17,330 6,754 5,727Insight 9,917 9,360 4,228 3,613Public Relations 6,851 2,763 4,371 1,787Advertising 1,226 - 867 - 35,870 29,453 16,220 11,127 All of the Group's current activities are marketing services activities, whichare based primarily in the United Kingdom. Profit before tax 2005 2004 £'000 £'000Marketing Communications 2,298 1,955Insight 1,594 1,271Public Relations 1,297 417Advertising 164 -Agency Total 5,353 3,643Head Office (1,673) (1,286)Operating profit 3,680 2,357Share of operating loss in joint ventures - (34)Net interest payable (176) (235)Profit before tax 3,504 2,088 Net Assets 2005 2004 £'000 £'000Marketing Communications 22,139 11,219Insight 12,961 8,576Public Relations 7,700 7,537Advertising 23,684 -Agency total 66,484 27,332Non operatingNet bank debt (2,864) 551Head office (1,439) (341)Dividends payable (508) (265)Deferred consideration (9,332) (2,023)Net Assets 52,341 25,254 Turnover, gross profit and profit before interest and tax may also be splitbetween organic activities (a like for like comparison of results for operationsreflecting their period of ownership by Creston) and acquisitions. Theacquisitions figures include the results of acquisitions in the current period(which are disclosed on the face of the profit and loss account) as well as thefull year impact of acquisitions completed in 2004 (turnover: £2,894,000, grossprofit: £2,252,000 and profit before interest and tax: £588,000). Agency Head Organic Acquisitions Total office Total £000 £000 £000 £000 £000Turnover 30,175 5,695 35,870 - 35,870Gross profit 11,816 4,404 16,220 - 16,220Profit before interest and tax 4,192 1,161 5,353 (1,673) 3,680 The organic results for 2005 compare to 2004 as follows: 2005 2004 Change £000 £000 %Turnover 30,175 29,453 +2Gross profit 11,816 11,127 +6Profit before interest and tax - agency total 4,192 3,643 +15 - total 2,519 2,323 +8 3. TAX ON PROFIT ON ORDINARY ACTIVITIES 2005 2004 £'000 £'000The tax charge comprises: Current tax:Corporation tax at 30% (2004: 30%) 907 618Overprovision of corporation tax in previous year (8) (2) 899 616Deferred tax:Origination and reversal of timing differences (35) 23Tax charge on profit on ordinary activities 864 639 4. DIVIDEND 2005 2004 £'000 £'000 Interim dividend of 0.7p per share (2004: 0.6p per share) 176 67Proposed final equity dividend of 1.45p per share (2004: 1.2p final per 508 265share) 684 332 The proposed final dividend will be paid on 1 August 2005 to shareholders on the register at 1 July 2005. 5. EARNINGS PER SHARE 2005 2004 Profit for Weighted Pence Profit for Weighted Pence per the financial average per the average share year number of share financial number of £'000 shares year shares £'000 Basic earnings per shareEarnings attributable to ordinary shareholders 2,640 24,617,806 10.72 1,449 16,045,576 9.03 Dilutive effect of securities:Warrants - 33,562 (0.01) - 15,275 (0.01)Options - 339,245 (0.15) - 70,179 (0.03)Contingent shares - - - - 985,033 (0.52) Diluted earnings per share 2,640 24,990,613 10.56 1,449 17,116,063 8.47 6. INTANGIBLE ASSETS Group Purchased Goodwill on goodwill consolidation Total £'000 £'000 £'000CostAt 1 April 2004 - 25,820 25,820Additions 7,125 30,671 37,796Adjustments to consideration and net assets (2,340) 2,936 596 At 31 March 2005 4,785 59,427 64,212 Net book amount at 31 March 2005 4,785 59,427 64,212 Net book amount at 31 March 2004 - 25,820 25,820 As explained in note 1, goodwill on consolidation and purchased goodwill havenot been amortised as the directors are of the opinion that it has an indefiniteeconomic life. The adjustments to consideration relate to a change in the estimated deferredconsideration for agencies in the earn-out period under the terms of therelevant sale and purchase agreements. 7. ACQUISITIONS CML Research Limited ("CML") On 3 September 2004, the Company acquired the trade and assets of the CMLResearch partnership. Prior to its acquisition the trade and assets were soldby the CML Research partnership into a dormant company, CML. The Companyacquired the whole of the issued share capital of CML for consideration(including deferred consideration) as set out below. This purchase has beenaccounted for by the acquisition method of accounting. The unaudited profitattributable to the partners (before partners' drawings and salaries) for theyear ended 30 April 2004 was £1.1 million. The unaudited turnover and profitbefore tax of the CML Research partnership from 1 May 2004 to 2 September 2004were £667,000 and £147,000 respectively. The assets and liabilities of CML at 3September 2004 were as follows: Accounting policy Book value adjustments Fair value £'000 £'000 £'000Fixed assetsIntangible assets 7,125 - 7,125Tangible assets 29 - 29 7,154 - 7,154 Current assetsDebtors 493 - 493 Creditors amounts falling due within one year (222) - (222)Net current assets 271 271 Net assets 7,425 - 7,425 Satisfied by: £'000 Cash 2,959Shares issued 1,806Deferred/contingent consideration 2,340Acquisition costs 320 7,425 The amount of deferred/contingent consideration payable is dependent upon thelevel of profit before taxation achieved by CML in the period from 3 September2004 to 31 March 2008. At the date of acquisition the directors recognised themaximum deferred consideration of £2.3 million. The directors consider the mostreasonable estimate of the current amounts payable is £nil. This deferredconsideration is to be settled by 30% in guaranteed loan notes 2008 and 70% inunsecured loan notes 2008 or shares (at the Company's discretion). In addition,should average profits for the period to 31 March 2008 fall below certain levelsthen the Company has the ability to claw back the initial consideration to amaximum of £1.8 million. Face Communications Ltd and its subsidiaries ("DLKW group") On 9 March 2005, the Company acquired the whole of the issued share capital ofthe DLKW group for consideration (including deferred consideration) as set outbelow. This purchase has been accounted for by the acquisition method ofaccounting. The profit after taxation of DLKW group for the year ended 31December 2004 was £1.9 million. The unaudited turnover and profit before tax ofthe DLKW group from 1 January 2004 to 8 March 2005 were £39.1 million and £3.3million respectively. The assets and liabilities of the DLKW group at 9 March2005 were as follows: Accounting policy Book value adjustments Fair value £'000 £'000 £'000Fixed assetsIntangible fixed assets 921 - 921Tangible assets 856 - 856Investments 15 - 15 1,792 - 1,792 Current assetsWork in progress 1,297 - 1,297Debtors 7,271 - 7,271Bank and cash 4,351 - 4,351 12,919 - 12,919Creditors amounts falling due within one year (10,564) - (10,564)Net current assets 2,355 - 2,355 Total assets less current liabilities 4,147 - 4,147Creditors amounts falling due after more than one year (155) - (155)Net assets 3,992 - 3,992Goodwill 29,750 33,742 Satisfied by: £'000 Cash 14,969Shares issued 4,003Deferred/contingent consideration 13,856Acquisition costs 914 33,742 Creditors due within one year include amounts due to the vendors of £1,251,000,which were paid prior to 31 March 2005. The amount of deferred consideration payable is dependent upon: i the level of profit before taxation for the year ending 31 March 2006 exceeding the level for the year ended 31 December 2004 in which case estimated interim consideration of £4,888,000 is payable. The directors consider this to be the most reasonable estimate that can be made. ii the level of profit before taxation achieved by the DLKW Group in the period from 9 March 2005 to 31 March 2008. The directors have recognised the estimated £8,968,000 of deferred consideration at this time. At the date of acquisition, the directors considered the combined additionalconsideration of £13,856,000 to be the most reasonable estimate that could bemade on the information available. Since the completion of the acquisition, theagency has secured a significant number of new clients. Based on these newclient gains further consideration of £2,280,000 will fall to be payable. The total goodwill arising on the acquisition of the DLKW group is £30,671,000(including the existing intangible asset of £921,000). 8. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 2005 2004 £'000 £'000 Acquisition loan notes 35 56Bank loan 6,624 2,283Acquisition deferred consideration 9,332 1,068Deferred taxation - 3Amounts due under finance leases 205 101 16,196 3,511 Acquisition loan notes Pursuant to the acquisition of MSL loan notes were issued. These are repayableaccording to the agreed schedule with the final payment in 2008. The loan notesaccrue interest at 6% per annum. Bank loan The bank loan is secured by a fixed and floating charge over the assets of allthe Group companies. The loan is repayable in equal annual instalments of£1,660,000. The bank loan accrues interest at 2.06% above LIBOR. Acquisition deferred consideration The directors' best estimate of future earn-out obligations is set out below: Loan notes Shares to Total to be be issued issued £'000 £'000 £'000 Between one and two years 2,962 3,653 6,615Between two and three years 745 1,738 2,483Between three and four years 5,625 5,625 11,250 9,332 11,016 20,348 The loan notes that will be issued to settle the above liabilities will beunsecured and will bear interest at various rates. The shares to be issued may also be settled by either new Ordinary Shares orloan notes (at Creston's discretion). 9. RECONCILIATION OF OPERATING PROFIT TO NET CASHINFLOW FROM OPERATING ACTIVITIES 2005 2004 £'000 £'000 Operating profit 3,680 2,357Depreciation 488 384Profit on disposal of plant, vehicles and equipment (6) (2)Decrease/(increase) in stock and work in progress 264 (126)(Increase)/decrease in debtors (832) 223Increase in creditors 1,336 221Net cash inflow from operating activities 4,930 3,057 10. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET (DEBT)/FUNDS 2005 2004 £'000 £'000 Increase in cash in the year 1,503 1,568Cash outflow from reduction in debt 6,663 1,556Cash inflow from increase in debt (11,284) -Movement in net (debt)/funds in the year resulting from cash flows (3,118) 3,124New finance leases (341) (153)Reduction of loan stock - 2,915Issue of acquisition loan notes - (319)Net funds/(debt) at 1 April 2004 49 (5,518)Net (debt)/funds at 31 March 2005 (3,410) 49 11. ANALYSIS OF NET (DEBT)/FUNDS At At 1 April Non-cash 31 March 2004 Cash flow Acquisitions items 2005 £'000 £'000 £'000 £'000 £'000 Cash at bank and in hand 3,858 1,499 - - 5,357Overdrafts (4) 4 - - - 3,854 1,503 - - 5,357Acquisition loan notes (402) 340 - - (62)Bank loans (3,199) (5,085) - - (8,284)Finance leases (204) 124 (304) (37) (421)Net funds/(debt) 49 (3,118) (304) (37) (3,410)Restricted cash deposits (note 15) 302 (240) - - 62Net funds/(debt) including restricted 351 (3,358) (304) (37) (3,348)cash deposits Short term bank deposits of less than one month are classified as liquidresources. 12. PUBLICATION OF NON STATUTORY ACCOUNTS The financial information relating to the years ended 31 March 2004 and 2005does not constitute statutory accounts within the meaning of section 240 of theCompanies Act 1985 ("the Act"). The summarised balance sheet at 31 March 2005 and the summarised profit and lossaccount, summarised cash flow statement and associated notes for the year thenended have been extracted from the Group's 2005 statutory financial statementsupon which the auditors' opinion is unqualified and does not include anystatement under Section 237 of the Act. The summarised balance sheet at 31 March 2004 and the summarised profit and lossaccount, summarised cash flow statement and associated notes for the year thenended have been extracted from the Group's 2004 statutory financial statementsupon which the auditors' opinion is unqualified and does not include anystatement under Section 237 of the Act. The Group's 2005 statutory financial statements have not yet been delivered tothe Registrar of Companies. 13. ANNUAL REPORT AND ACCOUNTS Creston plc's Annual Report and Accounts will be mailed to shareholders on 29June 2005. Copies will be made available from the Company's Head Office, 30-35Pall Mall, London SW1Y 5LP and on the investor relations section of the Group'swebsite (www.creston.com). This information is provided by RNS The company news service from the London Stock Exchange