Last checked at 27 Nov 2008 07:00
27 November 2008
Interim Results
The Group has continued its record of revenue and operating profit growth, despite a challenging economic period
Highlights
Revenue1 up 5 per cent to £41.3 million (2007: £39.2 million)
Digital and online revenue growth of 72 per cent, now represents 25 per cent of Group revenue.
Headline PBIT2 up 3 per cent to £7.0 million (2007: £6.8 million)
Reported PBIT constant at £5.6 million (2007: £5.6 million)
Headline PBIT margin at 17 per cent (2007: 17 per cent)
Reported and Headline Diluted Earnings Per Share up 33 per cent to 5.45 pence (2007: 4.10 pence) and up 10 per cent to 8.24 pence (2007: 7.49 pence) respectively
Net annualised new business wins in the 6 months of over £11 million revenue (2007: £5 million). Wins include: Aviva, BMI Healthcare, COI (anti-smoking community), GSK, House of Fraser, Insignia (General Motors), Invesco Perpetual, Jaguar, Land Rover, Liptons & PG Tips (Unilever), Miller & Pillsner (SAB Miller), Sainsburys Business Direct, Takeda, The Health Lottery, T-Mobile (multimedia), the trainline.com and Trinity Mirror.
Financial Results
| Headline results² | Reported results | |||||
| 2008 | 2007 | Change | 2008 | 2007 | Change | |
| Revenue | 41.3 | 39.2 | +5% | 41.3 | 39.2 | +5% |
| PBIT3 | 7.0 | 6.8 | +3% | 5.6 | 5.6 | +0% |
| Profit before taxation | 6.3 | 6.0 | +4% | 4.4 | 3.9 | +13% |
| Diluted EPS (pence) | 8.24 | 7.49 | +10% | 5.45 | 4.10 | +33% |
| Dividends per share (pence) | 0.73 | 0.97 | -25% | 0.73 | 0.97 | -25% |
"The Group has continued to deliver revenue and profit growth, and achieved a record period of net new business wins. Traditionally the Group has reported its operating performance to be weighted towards the second half of the year and this trend is expected to continue. Current trading remains in line with the Board's expectations. We believe that our diversified model, strong new business performance, positive cash generation and the weighting of our companies to market research, digital and direct marketing will provide resilience during a downturn in the economy."
1 Reported and like-for-like revenue growth rates are the same since there were no acquisitions during the periods under consideration.
2 Headline performance measures exclude the impact of deemed remuneration, notional finance costs on deferred consideration, costs associated with Creston US for the six months ending September 2007, advisor fees on the aborted offer and exceptional restructuring costs. A reconciliation of Headline PBIT, PBT and Profit after taxation (PAT) to their Reported equivalents is set out in Note 4 of the Interim Report
3 Profit before Interest and Tax (PBIT) is defined as Profit before finance income, finance costs, income from financial assets and taxation.
CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT
The Group has continued its record of revenue and Headline PBIT growth, despite the challenging economic environment. In the six month period to September 2008 revenue has grown 5 per cent, with growth in the second quarter of 6 per cent. This growth is due to the Group achieving a record period of net new business wins and by the rapid expansion of its digital and on-line marketing services, which have experienced revenue growth of 72 per cent and now represent 25 per cent of Group revenue.
Our diversified portfolio strategy has allowed the Group to respond to the changing market and client demands. Our offer of effective, accountable and integrated on and off line marketing services, continues to grow in demand. Our operating companies have won major blue chip new business and industry awards during the period.
The reputation and calibre of our companies ensure there is a continuous pipeline of new business opportunities and due to the high pitch to win ratio, in excess of 50 per cent, we have achieved an outstanding annualised net new business record of £11 million of revenue in the first six months (2007: £5 million). Of this, less than 25 per cent has impacted the first half of the year.
The new business revenue secured in the first half of the year, alongside existing long term retainer contracts and tracker studies in our research companies provides a strong foundation for the Group going in to the second half of the year.
We believe marketing expenditure of large international clients will remain more robust than clients with a purely domestic business in the current economic climate. Around 70 per cent of Group revenue is derived from our blue chip global client list; and of the Group's domestic clients, a large proportion is accounted for by well established national clients such as Morrisons, Sainsbury's, Royal Mail and the UK government (COI).
All Group companies are UK based, however an increasing proportion of our clients are engaging us to provide services internationally. During the first half of the 2009 financial year, 23 per cent of all revenue was generated internationally (2007: 17 per cent). This geographic spread lessens the impact of the macro UK economy on our business.
Awards and operating highlights during the year to date have included:
DLKW won the Retail Marketing Week Effectiveness Award (Morrisons 'Fresh Choice for you').
TMW won Best Online campaign for Guinness' 'New Can' campaign at the 2008 International Food & Beverage Awards (FAB).
The Real Adventure won the Gramia Direct Marketing agency of the year award, for the second consecutive year, for their Quaker Oats campaign.
EMO is to undergo material growth during the year, having won Land Rover, Jaguar, the government's community based anti-smoking campaign and pilot projects from the Nationwide. This bears testament to their new proposition of "Your brand's national, your customer is local".
RDC were nominated as PR Consultancy of the Year for a record sixth consecutive year at the 2008 Communique Awards, having won the award in 2004 and 2007.
PAN and RDC have jointly reached the finals of the PharmaTimes Marketing Communications Agency Team of the Year award.
ICM Research appointed as the sole research supplier to Aviva in the UK and is also winning material contracts in Europe and Asia.
In addition to the many new client wins and industry awards, managing our operating cost base remains of paramount importance. Retaining a level of flexibility in our costs via the use of freelancers and cost savings enacted earlier in the year have allowed us to maintain our above market key performance indicators, which include a Headline PBIT margin of 17 per cent (2007: 17 per cent).
Divisional Performance
Insight Division
The Insight Division has contributed revenue of £8.5 million (2007: £9.0 million) and Headline PBIT of £2.4 million (2007: £2.8 million). On a Reported basis, PBIT is £2.2 million (2007: £2.6 million). The Headline PBIT margin remains very good at 28 per cent (2007: 31 per cent).
The robust underlying performance from MSL and ICM has been offset by the underperformance of the division's smallest research companies CML and MSTS. CML and MSTS operate in the qualitative, sensory and concept testing research sectors respectively, both of which are very short term project based businesses with no long term tracking studies and therefore have very little visibility. Due to their size, they have little critical mass to absorb client churn and budget cuts.
As a result we have discontinued MSTS and transferred its sensory and concept testing function to MSL. The closure of MSTS has resulted in £78,000 (see note 4 to the interim report) of non-recurring costs and the full benefit of this re-structure will not materialise until the next financial year.
The online research product, newvista research continues to perform very strongly, with revenue growth of 34 per cent. This growth continues to be largely substitutional as clients switch spend from traditional research towards online. However, in our experience, our strategy of offering all three forms of face-to-face, telephone and online research meets with client needs and demands. Through its quality proposition, newvista research continues to be ranked as one of the world's best online surveys by panellists.
Communications Division
The Communications Division has contributed revenue of £32.8 million (2007: £30.2 million) and Headline PBIT of £6.4 million (2007: £5.7 million), which represents an increase of 9 per cent and 11 per cent, respectively. On a Reported basis, PBIT has increased 6 per cent to £5.5 million (2007: £5.2 million). The Headline PBIT margin remains strong at 19 per cent (2007: 19 per cent). The Headline results for the period exclude non-recurring redundancy costs of £706,000 (see note 4 to the interim report) in DLKW.
The Division has benefited from our focus on responding to the changing market and evolving our client proposition in order to maintain competitive advantage. The Partners' Board identified their strategic priorities and during the last six months we have made significant progress across each of these areas and this has contributed to our financial performance:
Digital
Revenue from digital activities now accounts for 25 per cent of the Division (up from 16 per cent at September 2007 and 17 per cent at March 2008). The increased importance of digital is underpinned by revenue growth of 86 per cent - revenue from digital and online marketing now exceeds £8.2 million (2007: £4.4 million).
This growth in digital is partly driven by clients switching spend between traditional and online methods, but increasingly clients are demanding integrated solutions from their communication specialists - indeed the majority of TMW client campaigns are now fully integrated across both on and offline direct marketing.
Creston is well placed to respond to this changing market. In 2007 DLKW integrated their digital and direct marketing company with their creative advertising company. tmwdigital forms a pivotal division within the TMW network and both EMO and TRA offer their clients both online and offline communication solutions.
Healthcare
PAN and RDC increasingly work actively together, so much so that they have jointly reached the finals of the PharmaTimes Marketing Communication Agency Team of the Year award.
Our organic growth initiatives across the Group in healthcare include: (i) Hi Health, launched in 2008, a joint venture combining PAN's healthcare expertise with TMW's customer relationship marketing skills. This venture has already borne fruit, with a win from Pfizer; (ii) a medical education offering branded The Lime House, was launched in 2008 due to the increasing demands from our healthcare clients for an integrated approach to advertising, medical education and PR.
Financial Overview
Revenue has increased by 5 per cent to £41.3 million (2007: £39.2 million) and Headline PBIT has increased by 3 per cent to £7.0 million (2007: £6.8 million). Reported PBIT is in line with the prior year at £5.6 million (2007: £5.6 million).
To provide a truer picture of the ongoing operational performance of the Group year-on-year, Creston has presented Headline results as the key profit performance indicators. They eliminate the non-recurring deemed remuneration and notional finance costs associated with previous acquisitions of £0.5million (2007: £1.0 million), the adviser costs associated with the aborted offer for the company of £0.2million (2007: £nil), the exceptional redundancy and restructuring costs at DLKW and MSTS respectively, of £0.8 million (2007: £nil), and the operating costs associated with Creston US £nil (2007: £0.2 million).
Headline Basic EPS has increased by 10 per cent to 8.25 pence (2007: 7.52 pence) and Headline Diluted EPS has increased by 10 per cent to 8.24 pence (2007: 7.49 pence). Reported Basic EPS has increased by 33 per cent to 5.46 pence (2007: 4.12 pence) and Reported Diluted EPS has increased by 33 per cent to 5.45 pence (2007: 4.10 pence).
Cash Management and Net Debt
The Group generated positive operating cash flow of £4.2 million (2007: £5.9 million) for the period, which represents a conversion from Reported PBIT of 74 per cent (2007: 105 per cent). This lower than expected conversion rate has been caused by timing issues within working capital, principally material receivable balances outstanding at 30 September 2008, which were collected in October and November.
At 30 September 2008 the Group had reported net debt of £31.7 million (March 2008: £17.9 million), which represents a gearing level of 38 per cent (March 2008: 22 per cent) to total equity. This increase in net debt is due to: i) the issue of £13.9 million of cash and loan notes in respect of DLKW's final consideration, which will be redeemed in January 2009 and ii) the timing issues within receivables referred to above. The cash collection post period end has resulted in a net debt position in line with the Board's expectation of £25.0 million by the announcement of these interims.
Banking Facility and Earn Out Commitments (deferred consideration)
During the current financial year (June 2008) the Group agreed a new £40 million banking facility, which is made up of a £15 million term loan and a £25 million revolving credit facility. There are three covenants and the principal covenant is the ratio of Net Debt to Headline EBITDA, for which the Group operated at a ratio of 1.5:1 (versus the covenant of 2.5:1) for the last twelve months and represents headroom of almost 40 per cent. The Group maintains significant headroom across its other two banking covenants.
The Headline deferred consideration (including deemed remuneration and notional finance costs), estimated at £18.2 million, will crystallise in June 2009, as it is contingent on the audited March 2009 financial statements. Due to the proximity to this date, the liability can be estimated with a high degree of certainty. The Group has the option to settle up to £8.0 million of this consideration in equity rather than loan notes or cash. However, it is intended to issue loan notes to settle the deferred consideration and these will be due for payment in December 2009 and June 2010. The Group will utilise the £25 million revolving credit facility and annual cash flow from operating activities, which was £12.3 million during the financial year ending 31 March 2008, to finance its earn out commitments.
Dividends
An interim dividend per share of 0.73 pence (2007:0.97 pence) will be paid on 12 January 2009 to shareholders on the register at 12 December 2008. The Board, having taken account of the prevailing economic conditions, has decided that it is both prudent and appropriate to reduce the interim dividend for the six months ended 30 September 2008,with the intention to pay a final dividend at the year end.
Principal risk and uncertainties
Creston's principal operating risks and uncertainties are those outlined on Page 44 of the Annual Report and Accounts 2008, which are the retention of key personnel and clients. The current economic climate creates additional uncertainties, which the Group regularly reviews.
Potential Offer for the Company
On 15 September 2008 the Board announced that it was in discussions regarding a possible offer for the company with a private equity firm. These discussions had been ongoing for several months prior to the 15 September announcement. On 13 October 2008, it was announced that these discussions had ceased. Creston has incurred £160,000 (see note 4 to the interim report) of adviser fees in connection with the offer and these have been provided for in full in the six months ended 30 September 2008.
Outlook
The Group has continued to deliver revenue and profit growth, and achieved a record period of net new business wins. Traditionally the Group has reported its operating performance to be weighted towards the second half of the year and this trend is expected to continue. Current trading remains in line with the Board's expectations. We believe that our diversified model, strong new business performance, positive cash generation and the focus of our companies to market research, digital and direct marketing will provide resilience during a downturn in the economy.
UNAUDITED CONSOLIDATED INCOME STATEMENT
for the six months ended 30 September 2008
| Note | Six months ended 30 September 2008 £'000 | Six months ended 30 September 2007 £'000 | Year ended 31 March 2008 £'000 | |||
| Turnover (billings) | 69,653 | 68,643 | 137,257 |
| Revenue | 41,341 | 39,199 | 80,516 | |||
| Operating costs | (35,753) | (33,612) | (67,830) |
| Profit before finance income, finance costs, income from financial assets and taxation | 4 | 5,588 | 5,587 | 12,686 | ||
| Finance income | 39 | 28 | 77 | |||
| Finance costs | (1,364) | (1,724) | (3,187) | |||
| Income from financial assets | 150 | - | - |
| Profit before taxation | 4 | 4,413 | 3,891 | 9,576 | ||
| Taxation | 6 | (1,462) | (1,611) | (4,794) |
| Profit for the period | 4 | 2,951 | 2,280 | 4,782 |
| Basic earnings per share (pence) | 7 | 5.46 | 4.12 | 8.65 | ||
| Diluted earnings per share (pence) | 7 | 5.45 | 4.10 | 8.64 |
The results above arise wholly from continuing operations.
UNAUDITED CONSOLIDATED BALANCE SHEET
as at 30 September 2008
| Note | As at 30 September 2008 £'000 | As at 30 September 2007 £'000 | As at 31 March 2008 £'000 | |||
| Non-current assets | ||||||
| Intangible assets | ||||||
| Goodwill | 9 | 119,277 | 123,475 | 119,565 | ||
| Other | 9 | 1,429 | 1,369 | 1,440 | ||
| Property, plant and equipment | 9 | 3,201 | 4,042 | 3,622 | ||
| Financial assets - available for sale | 614 | 550 | 550 | |||
| Deferred tax assets | 869 | 1,443 | 786 | |||
| 125,390 | 130,879 | 125,963 | ||||
| Current assets | ||||||
| Inventories and work in progress | 3,261 | 3,811 | 1,932 | |||
| Trade and other receivables | 36,126 | 30,946 | 34,583 | |||
| Cash and short term deposits | 19 | 22 | 3,785 | |||
| 39,406 | 34,779 | 40,300 | ||||
| Current liabilities | ||||||
| Trade and other payables | (30,261) | (25,222) | (29,204) | |||
| Corporate income tax payable | (1,673) | (1,829) | (2,069) | |||
| Obligations under finance leases | (34) | (53) | (39) | |||
| Bank overdraft, loans and loan notes | (18,624) | (7,208) | (7,189) | |||
| Short term provisions | 10 | (16,967) | (12,955) | (13,757) | ||
| (67,559) | (47,267) | (52,258) | ||||
| Net current liabilities | (28,153) | (12,488) | (11,958) | |||
| Total assets less current liabilities | 97,237 | 118,391 | 114,005 | |||
| Non-current liabilities | ||||||
| Bank loans and loan notes | (13,000) | (17,200) | (14,400) | |||
| Long term provisions | 10 | - | (20,418) | (16,701) | ||
| (13,000) | (37,618) | (31,101) | ||||
| Net assets | 84,237 | 80,773 | 82,904 | |||
| Equity | ||||||
| Called up share capital | 5,576 | 5,576 | 5,576 | |||
| Share premium account | 33,345 | 33,345 | 33,345 | |||
| Own shares | (1,077) | (233) | (233) | |||
| Shares to be issued | 2,635 | 2,394 | 2,447 | |||
| Other reserves | 31,357 | 31,357 | 31,357 | |||
| Retained earnings | 12,401 | 8,334 | 10,412 | |||
| Total equity | 84,237 | 80,773 | 82,904 |
UNAUDITED STATEMENT OF CHANGES IN EQUITY
Six months ended 30 September 2008
| Share capital £'000 | Share premium £'000 | Own shares £'000 | Shares to be issued £'000 | Other reserves £'000 | Retained earnings £'000 | Total £'000 | |
| Changes in equity for the period | |||||||
| At 1 April 2008 | 5,576 | 33,345 | (233) | 2,447 | 31,357 | 10,412 | 82,904 |
| Credit for share based incentive scheme | - | - | - | 282 | - | - | 282 |
| Exercise of share award | - | - | 91 | (94) | - | - | (3) |
| Loss on treasury scheme | - | - | - | - | - | (65) | (65) |
| Fair value adjustment of own shares issued | - | - | - | - | - | 74 | 74 |
| Own shares purchased | - | - | (935) | - | - | - | (935) |
| Profit for the period | - | - | - | - | - | 2,951 | 2,951 |
| Dividends | - | - | - | - | - | (971) | (971) |
| At 30 September 2008 | 5,576 | 33,345 | (1,077) | 2,635 | 31,357 | 12,401 | 84,237 |
Six months ended 30 September 2007
| Share capital £'000 | Share premium £'000 | Own shares £'000 | Shares to be issued £'000 | Other reserves £'000 | Retained earnings £'000 | Total £'000 | |
| Changes in equity for the period | |||||||
| At 1 April 2007 | 5,576 | 33,345 | (104) | 1,998 | 31,357 | 7,032 | 79,204 |
| Credit for share based incentive scheme | - | - | - | 396 | - | - | 396 |
| Own shares purchased | - | - | (129) | - | - | - | (129) |
| Profit for the period | - | - | - | - | - | 2,280 | 2,280 |
| Dividends | - | - | - | - | - | (978) | (978) |
| At 30 September 2007 | 5,576 | 33,345 | (233) | 2,394 | 31,357 | 8,334 | 80,773 |
Year ended 31 March 2008
| Share capital £'000 | Share premium £'000 | Own shares £'000 | Shares to be issued £'000 | Other reserves £'000 | Retained earnings £'000 | Total £'000 | |
| Changes in equity for the year | |||||||
| At 1 April 2007 | 5,576 | 33,345 | (104) | 1,998 | 31,357 | 7,032 | 79,204 |
| Credit for share based incentive scheme | - | - | - | 567 | - | - | 567 |
| Own shares purchased | - | - | (129) | - | - | - | (129) |
| Profit for the year | - | - | - | - | - | 4,782 | 4,782 |
| Transfer of lapsed option costs | (118) | 118 | - | ||||
| Dividends | - | - | - | - | - | (1,520) | (1,520) |
| At 31 March 2008 | 5,576 | 33,345 | (233) | 2,447 | 31,357 | 10,412 | 82,904 |
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 30 September 2008
| Note | Six months ended 30 September 2008 £'000 | Six months ended 30 September 2007 £'000 | Year ended 31 March 2008 £'000 | |||
| Operating cash flow | 11 | 4,157 | 5,850 | 17,796 | ||
| Finance income | 39 | 28 | 77 | |||
| Finance costs Income from financial assets Tax paid | (758) 150 (1,952) | (474) - (1,479) | (1,933) - (3,661) | |||
| Net cash inflow from operating activities | 1,636 | 3,925 | 12,279 | |||
| Investing activities | ||||||
| Purchase of subsidiary undertakings | (2,385) | (2,511) | (3,949) | |||
| Purchase of property, plant and equipment | (735) | (742) | (1,681) | |||
| Sale of property, plant and equipment | - | - | 187 | |||
| Purchase of intangible assets Decrease in restricted cash deposits | - (3) | (145) - | (235) - | |||
| Proceeds from vendors under sale and purchase agreement | 935 | - | - | |||
| Net cash outflow from investing activities | (2,188) | (3,398) | (5,678) | |||
| Financing activities | ||||||
| Share repurchases | (935) | (129) | (129) | |||
| (Decrease)/increase in borrowings (net) | (3,200) | (1,500) | (2,800) | |||
| Dividends paid | (971) | (978) | (1,520) | |||
| Capital element of finance lease payments | (5) | (8) | (22) | |||
| Net cash outflow from financing | (5,111) | (2,615) | (4,471) | |||
| (Decrease)/increase in cash and cash equivalents | (5,663) | (2,088) | 2,130 | |||
| Cash and cash equivalents at start of period | 3,763 | 1,633 | 1,633 | |||
| Cash and cash equivalents at end of period | 12 | (1,900) | (455) | 3,763 |
NOTES TO THE INTERIM REPORT
for the six months ended 30 September 2008
1. Presentation of financial information
The financial information contained in this Interim Report does not constitute statutory accounts within the meaning of the Companies Act 1985 and has not been audited or reviewed by the Group's auditors.
The financial information for the year to 31 March 2008 does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. It is extracted from the statutory accounts for that year that were prepared under IFRS, on which the Group's auditors at that time, PricewaterhouseCoopers LLP, gave an unqualified audit report. Statutory accounts for the year ended 31 March 2008 have been delivered to the Registrar of Companies.
2. Basis of Preparation
The Interim Report of Creston plc for the six months ended 30 September 2008 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, "Interim financial reporting" as adopted by the European Union.
The accounting policies applied in the preparation of the annual financial statements are based on the European Union adopted International Financial Reporting Standards (IFRS) and IFRIC interpretations that are applicable at this time.
The condensed interim consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 March 2008 which have been prepared in accordance with IFRS as adopted by the European Union.
3. Accounting policies
The interim consolidated financial statements of Creston plc for the six months ended 30 September 2008 have been prepared in accordance with the accounting policies contained in the Group's Annual Report and Accounts 2008 and the policies as described in Note 2 above.
The following new standards, amendments to standards or interpretations are mandatory for the first time for financial years beginning 1 April 2008, but are not currently relevant for the group.
IFRIC 11, 'IFRS 2 - Group and treasury share transactions'.
IFRIC 12, 'Service concession arrangements'.
IFRIC 14, 'IAS 19 - the limit on a defined benefit asset, minimum funding requirements and their interaction'.
The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 April 2009 and have not been early adopted:
IFRS 8, 'Operating segments', effective for annual periods beginning on or after 1 January 2009. IFRS 8 replaces IAS 14, 'Segment reporting', and requires a 'management approach' under which segment information is presented on the same basis as that used for internal reporting purposes.
IAS 23 (amendment), 'Borrowing costs', effective for annual periods beginning on or after 1 January 2009. This amendment is not relevant to the group as the group currently applies a policy of capitalising borrowing costs.
IFRS 2 (amendment) 'Share-based payment', effective for annual periods beginning on or after 1 January 2009. Management is assessing the impact of changes to vesting conditions and cancellations on the group's SAYE schemes.
IFRS 3 (amendment), 'Business combinations' and consequential amendments to IAS 27, 'Consolidated and separate financial statements', IAS 28, 'Investments in associates' and IAS 31, 'Interests in joint ventures', effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. Management is assessing the impact of the new requirements regarding acquisition accounting, consolidation and associates on the group. The group does not have any joint ventures.
IAS 1 (amendment), 'Presentation of financial statements', effective for annual periods beginning on or after 1 January 2009. Management is in the process of developing proforma accounts under the revised disclosure requirements of this standard.
IAS 32 (amendment), 'Financial instruments: presentation', and consequential amendments to IAS 1, 'Presentation of financial statements', effective for annual periods beginning on or after 1 January 2009. This is not relevant to the group, as the group does not have any puttable instruments.
4. Reconciliation of Headline profit to Reported profit
In order to enable a better understanding of the underlying trading of the Group, Creston refer to Headline PBIT, PBT and PAT which eliminate non-recurring charges from the reported figures. These break down into two parts:
(i) Certain accounting policies that have a material impact and introduce volatility to the reported figures. These are acquisition related charges deemed as remuneration arising on payments made by Creston to non-shareholding employees in respect of the consideration on the business acquisitions; and notional finance costs relating to the deferred consideration and will cease once the relevant earn-outs have been settled.
(ii) Exceptional non-recurring operating charges, namely the restructuring costs and severance charges relating to DLKW and MSTS respectively, the advisor fees incurred in the aborted offer for the company and costs associated with the now terminated Creston US office.
| Six months ended 30 September 2008 | PBIT | PBT | PAT |
| £'000 | £'000 | £'000 | |
| Headline | 7,031 | 6,269 | 4,458 |
| Restructuring costs | (784) | (784) | (784) |
| Advisor fees on aborted offer | (160) | (160) | (160) |
| Future acquisition payments to employees deemed as remuneration | (499) | (499) | (499) |
| Notional finance costs on future deferred consideration | - | (413) | (413) |
| Taxation impact | - | - | 349 |
| Reported | 5,588 | 4,413 | 2,951 |
| Headline Basic EPS (pence) | 8.25 | ||
| Headline Diluted EPS (pence) | 8.24 | ||
| Reported Basic EPS (pence) | 5.46 | ||
| Reported Diluted EPS (pence) | 5.45 |
| Six months ended 30 September 2007 | PBIT | PBT | PAT |
| £'000 | £'000 | £'000 | |
| Headline (as adjusted, see below) | 6,842 | 6,002 | 4,160 |
| Costs of US office | (245) | (245) | (245) |
| Future acquisition payments to employees deemed as remuneration | (1,010) | (1,010) | (1,010) |
| Notional finance costs on future deferred consideration | - | (856) | (856) |
| Taxation impact | - | - | 231 |
| Reported | 5,587 | 3,891 | 2,280 |
| Headline Basic EPS (pence) | 7.52 | ||
| Headline Diluted EPS (pence) | 7.49 | ||
| Reported Basic EPS (pence) | 4.12 | ||
| Reported Diluted EPS (pence) | 4.10 | ||
The September 2007 Headline PBIT, PBT and PAT have been adjusted to reflect the one-off costs of the Creston US office incurred in that period. The office was closed during the year ended 31 March 2008 and the costs treated as a headline adjustment in the Annual Report and Accounts 2008.
| Year ended 31 March 2008 | PBIT | PBT | PAT |
| £'000 | £'000 | £'000 | |
| Headline | 15,248 | 13,539 | 9,418 |
| Cost of US office | (586) | (586) | (586) |
| Future acquisition payments to employees deemed as remuneration | (1,976) | (1,976) | (1,976) |
| Notional finance costs on future deferred consideration | - | (1,401) | (1,401) |
| Taxation impact | - | - | (673) |
| Reported | 12,686 | 9,576 | 4,782 |
| Headline Basic EPS (pence) | 17.04 | ||
| Headline Diluted EPS (pence) | 17.01 | ||
| Reported Basic EPS (pence) | 8.65 | ||
| Reported Diluted EPS (pence) | 8.64 | ||
5. Segmental analysis
Turnover, revenue, profit before financial income, finance costs, income from financial assets and taxation attributable to group activities are shown below.
| Six months ended 30 September 2008 | Insight | Communications | Head office | Group | |||
| £'000 | £'000 | £'000 | £'000 | ||||
| Turnover (billings) | 14,570 | 55,083 | - | 69,653 | |||
| Revenue | 8,507 | 32,834 | - | 41,341 | |||
| Profit before finance income, finance costs, income from financial assets and taxation (segment result) | 2,239 | 5,468 | (2,119) | 5,588 | |||
| Finance income | - | - | 39 | 39 | |||
| Finance costs | (147) | (265) | (952) | (1,364) | |||
| Income from financial assets | - | - | 150 | 150 | |||
| Profit before taxation | 2,092 | 5,203 | (2,882) | 4,413 | |||
| Taxation | (1,462) | ||||||
| Profit for the period | 2,951 | ||||||
| Six months ended 30 September 2007 | Insight | Communications | Head office | Group | |||
| £'000 | £'000 | £'000 | £'000 | ||||
| Turnover (billings) | 15,562 | 53,081 | - | 68,643 | |||
| Revenue | 8,994 | 30,205 | - | 39,199 | |||
| Profit before finance income, finance costs, income from financial assets and taxation (segment result) | 2,609 | 5,179 | (2,201) | 5,587 | |||
| Finance income | - | - | 28 | 28 | |||
| Finance costs | (195) | (661) | (868) | (1,724) | |||
| Profit before taxation | 2,414 | 4,518 | (3,041) | 3,891 | |||
| Taxation | (1,611) | ||||||
| Profit for the period | 2,280 | ||||||
| Year ended 31 March 2008 | Insight | Communications | Head office | Group | |||
| £'000 | £'000 | £'000 | £'000 | ||||
| Turnover (billings) | 30,754 | 106,503 | - | 137,257 | |||
| Revenue | 17,885 | 62,631 | - | 80,516 | |||
| Profit before finance income, finance costs, income from financial assets and taxation (segment result) | 5,192 | 11,723 | (4,229) | 12,686 | |||
| Finance income | - | - | 77 | 77 | |||
| Finance costs | (291) | (1,110) | (1,786) | (3,187) | |||
| Income from financial assets | - | - | - | - | |||
| Profit before taxation | 4,901 | 10,613 | (5,938) | 9,576 | |||
| Taxation | (4,794) | ||||||
| Profit for the period | 4,782 |
All significant assets and liabilities are located within the UK with the exception of certain trade receivables which relate to the turnover and revenue noted above.
6. Taxation
Taxation is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the year to 31 March 2009 is 33% (the estimated tax rate for the six months ended 30 September 2007 was 41%).
The Headline average annual tax rate for 31 March 2009 is expected to be 29% (the estimated Headline tax rate for the six months ended 30 September 2007 was 30%).
7. Earnings per share
| Reported earnings per share for the six months ended 30 September 2008 | Headline earnings per share for the six months ended 30 September 2008 | ||||||
| Reported profit for the financial period | Weighted average number of shares | Pence per share | Headline profit for the financial period | Weighted average number of shares | Pence per share | ||
| £'000 | £'000 | ||||||
| Basic earnings per share | 2,951 | 54,007,428 | 5.46 | 4,458 | 54,007,428 | 8.25 | |
| Restricted shares | - | 125,640 | (0.01) | - | 125,640 | (0.01) | |
| Diluted earnings per share | 2,951 | 54,133,068 | 5.45 | 4,458 | 54,133,068 | 8.24 | |
| Reported earnings per share for the six months ended 30 September 2007 | Headline earnings per share for the six months ended 30 September 2007 | ||||||
| Reported profit for the financial period | Weighted average number of shares | Pence per share | Headline profit for the financial period | Weighted average number of shares | Pence per share | ||
| £'000 | £'000 | ||||||
| Basic earnings per share | 2,280 | 55,290,839 | 4.12 | 4,160 | 55,290,839 | 7.52 | |
| Options | - | 278,387 | (0.02) | - | 278,387 | (0.03) | |
| Diluted earnings per share | 2,280 | 55,569,226 | 4.10 | 4,160 | 55,569,226 | 7.49 | |
| Reported earnings per share for the year ended 31 March 2008 | Headline earnings per share for the year ended 31 March 2008 | ||||||
| Reported profit for the financial period | Weighted average number of shares | Pence per share | Headline profit for the financial period | Weighted average number of shares | Pence per share | ||
| £'000 | £'000 | ||||||
| Basic earnings per share | 4,782 |
55,265,027 | 8.65 | 9,418 |
55,265,027 | 17.04 | |
| Options | - | 91,663 | (0.01) | - |
91,663 | (0.03) | |
| Diluted earnings per share | 4,782 |
55,356,690 | 8.64 | 9,418 |
55,356,690 | 17.01 | |
DEPS has been calculated based on the following dilutive elements:
(i) 125,640 restricted shares which have vested but not been issued at the balance sheet date (2007: nil);
(ii) An estimate of nil share options (2007: 278,387) which remain outstanding that would have been issued based on the average share price for the period.
The Headline EPS and Headline diluted EPS are based on the Headline PBT analysed in note 4 less attributable tax and divided by the weighted average number of shares and by the weighted average number of diluted shares respectively.
8. Dividends
The Board has declared an interim dividend to be paid on 12 January 2009 of 0.73 pence (2007: 0.97 pence) per share to all ordinary shareholders on the register at 12 December 2008. This dividend is not reflected in the Income Statement for the six months to 30 September 2008 as it was not approved by the Board until 25 November 2008. However, the final dividend of 1.80 pence per share for the year to 31 March 2008 was recognised during the period after it was approved at the AGM on 1 September 2008 and paid on 5 September 2008.
9. Non-current assets
| Six months ended 30 September 2008 | Property, plant and equipment | Intangible assets - goodwill | Intangible assets - other | ||
| £'000 | £'000 | £'000 | |||
| Net book amount at 1 April 2008 | 3,622 | 119,565 | 1,440 | ||
| Additions | 735 | - | - | ||
| Adjustments to consideration | - | (288) | - | ||
| Depreciation and amortisation | (1,156) | - | (11) | ||
| Net book amount at 30 September 2008 | 3,201 | 119,277 | 1,429 | ||
| Six months ended 30 September 2007 | Property, plant and equipment | Intangible assets - goodwill | Intangible assets - other | ||
| £'000 | £'000 | £'000 | |||
| Net book amount at 1 April 2007 | 4,267 | 122,984 | 1,290 | ||
| Additions | 742 | - | 145 | ||
| Adjustments to consideration | - | 491 | - | ||
| Depreciation and amortisation | (967) | - | (66) | ||
| Net book amount at 30 September 2007 | 4,042 | 123,475 | 1,369 | ||
| Year ended 31 March 2008 | Property, plant and equipment | Intangible assets - goodwill | Intangible assets - other | ||
| £'000 | £'000 | £'000 | |||
| Net book amount at 1 April 2007 | 4,267 | 122,984 | 1,290 | ||
| Additions | 1,681 | - | 235 | ||
| Disposals | (184) | - | |||
| Adjustments to consideration | - | (3,252) | - | ||
| Depreciation and amortisation | (2,142) | - | (85) | ||
| Fair value adjustment | - | (167) | - | ||
| Net book amount at 31 March 2008 | 3,622 | 119,565 | 1,440 |
10. Short term and long term provisions
Short term and long term provisions represent the fair value of deferred consideration. The deferred consideration will be settled by a mixture of cash, loan notes and new ordinary shares, dependent on the terms of the relevant sale and purchase agreement.
11. Reconciliation of profit before finance income, finance costs income from financial assets and taxation to operating cash flow
| Six months ended 30 September 2008 £'000 | Six months ended 30 September 2007 £'000 | Year Ended 31 March 2008 £'000 | |||
| Profit for the period | 2,951 | 2,280 | 4,782 | ||
| Taxation | 1,462 | 1,611 | 4,794 | ||
| Profit before taxation | 4,413 | 3,891 | 9,576 | ||
| Income from financial assets | (150) | - | - | ||
| Finance costs | 1,364 | 1,724 | 3,187 | ||
| Finance income | (39) | (28) | (77) | ||
| Profit before finance income, finance costs, income from financial assets and taxation | 5,588 | 5,587 | 12,686 | ||
| Depreciation of property, plant and equipment | 1,156 | 967 | 2,142 | ||
| Amortisation of intangible assets | 11 | 66 | 85 | ||
| Share based payments | 10 | 99 | (27) | ||
| Deemed remuneration | 499 | 1,010 | 1,976 | ||
| Profit on disposal of property, plant and equipment | - | - | (4) | ||
| (Increase)/decrease in inventories and work in progress | (1,329) | 1,269 | 3,148 | ||
| (Increase)/decrease in trade and other receivables | (2,478) | (429) | (4,194) | ||
| Increase/(decrease) in trade and other payables | 700 | (2,719) | 1,984 | ||
| Operating cash flow | 4,157 | 5,850 | 17,796 |
12. Analysis of net debt
| Six months ended 30 September 2008 | As at 1 April 2008 £'000 | Cash Flow £'000 | Acquisitions £'000 | As at 30 September 2008 £'000 | |||
| Cash and short term deposits | 3,763 | (3,763) | - | - | |||
| Bank overdrafts Revolving credit facility Acquisition loan notes | - (3,000) (1,432) | (1,900) 1,000 2,385 | - - (13,720) | (1,900) (2,000) (12,767) | |||
| Bank loans | (17,157) | 2,200 | - | (14,957) | |||
| Finance leases | (39) | 5 | - | (34) | |||
| Net (debt) | (17,865) | (73) | (13,720) | (31,658) | |||
| Restricted cash deposits | 22 | (3) | - | 19 | |||
| Net (debt) including restricted cash deposits | (17,843) | (76) | (13,720) | (31,639) |
| Six months ended 30 September 2007 | As at 1 April 2007 £'000 | Cash Flow £'000 | Acquisitions £'000 | As at 30 September 2007 £'000 | |||
| Cash and short term deposits | 1,633 | (1,633) | - | - | |||
| Bank overdrafts Revolving credit facility Acquisition loan notes | - (3,000) (309) | (455) 1,500 (2,144) | - - - | (455) (1,500) (2,453) | |||
| Bank loans | (20,000) | - | - | (20,000) | |||
| Finance leases | (61) | 8 | - | (53) | |||
| Net (debt) | (21,737) | (2,724) | - | (24,461) | |||
| Restricted cash deposits | 22 | - | - | 22 | |||
| Net (debt) including restricted cash deposits | (21,715) | (2,724) | - | (24,439) |
| Year ended 31 March 2008 | As at 1 April 2007 £'000 | Cash Flow £'000 | Acquisitions £'000 | As at 31 March 2008 £'000 | |||
| Cash and short term deposits | 1,633 | 2,130 | - | 3,763 | |||
| Bank overdrafts and revolving credit facility Acquisition loan notes Bank loans | (3,000) (309) (20,000) | - 2,212 2,843 | - (3,335) - | (3,000) (1,432) (17,157) | |||
| Finance leases | (61) | 22 | - | (39) | |||
| Net (debt) Restricted cash deposits | (21,737) 22 | 7,207 - | (3,335) - | (17,865) 22 | |||
| Net (debt) including restricted cash deposits | (21,715) | 7,207 |
(3,335) |
(17,843) |
The restricted cash deposits are maintained in a designated account as security for the loan notes issued on the acquisition of MSL and are, therefore, not freely available to the Group.
The bank overdrafts, revolving credit facility, acquisition loan notes and bank loans are as follows:-
| Current Non-current | 30 September 2008 £'000 18,623 13,000 | 30 September 2007 £'000 7,208 17,200 | 31 March 2008 £'000 7,189 14,400 | ||
| 31,623 | 24,408 | 21,589 |
On 19 June 2008, the Group restructured its banking arrangements to more fully align its financial structure with the Group's development plans. The principal changes were disclosed in note 22 of the Annual Report and Accounts 2008.
13. Related-party transactions
During the six months ended 30 September 2008 total fees of £31,789 (six months ended 30 September 2007: £25,741) were paid to City Group P.L.C. £16,789 (2007: £12,741) for the provision of secretarial services and £15,000 (2007: £13,000) for the services of Mr D C Marshall.
14. Statement of directors' responsibilities
The directors' confirm that this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8; namely:
an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
material related-party transactions in the first six months and any material changes in the related party transactions described in the last annual report.
The Directors are responsible for the maintenance and integrity of the Company website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The directors of Creston plc are listed in the Creston Group Annual Report and Accounts 2008. A list of current directors is maintained on the Creston website: www.creston.com.
By order of the Board Don Elgie
27 November 2008
Chief Executive Officer
15. Forward-looking statements
Certain statements in this interim report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.
We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
16. Availability of the Interim Report
Copies of the Interim Report will be sent to shareholders in due course and are available from the Company's registered office at City Group P.L.C., 30 City Road, London, EC1Y 2AG and on the company's website www.creston.com.