RNS Number:5438F
Creston PLC
20 June 2001
Creston Plc
Preliminary Results
for the year to 31 March 2001
For further information:
Don Elgie, Chief Executive 020 7930 9757
Tim Alderson, Finance Director 020 7930 9757
Richard Fallowfield, Cardew & Co. 020 7930 0777
Jonathan Rooper, Cardew & Co. 020 7930 0777
CHAIRMAN'S STATEMENT
The year to 31 March 2001 has seen considerable change for Creston.
As far back as October 1999, it was announced that it was Creston's intention
to leave the property sector as market sentiment had moved against property
companies, particularly those with small market capitalisations.
We successfully realised the Group's assets and have returned part of the
proceeds to shareholders by way of two special dividends: 36p per share was
paid on 5 May 2000, and 32.5p per share was paid on 17 November 2000. In view
of these two sizeable dividends it is not proposed to pay a further dividend
for the year ended 31 March 2001.
Your Board has spent considerable time evaluating opportunities to refocus
Creston in order to enhance shareholder value. The objective was to find a
sector that has demonstrated consistent profitable growth and has potential
for the future. After considerable research the marketing services sector was
identified as the area which met our requirements. Details of our new
strategy are covered in the Chief Executive's Overview that follows.
On 4 January 2001, we announced that Creston would become a diversified
marketing services company. The first step was the acquisition of Synergie
Consulting Limited and Marketing Sciences Limited.
Synergie Consulting was founded by Don Elgie, Creston's new Chief Executive,
for the purpose of developing a "buy and build" concept within the marketing
services sector. Marketing Sciences Limited, is a well established
quantitative research company with a blue chip client list.
The figures presented in these preliminary results show ten months as a
residual property company and only two months of trading as "new" Creston.
The new Creston is trading in line with management expectations.
It is the objective of the Board to ensure that Creston achieves a
significant critical mass within three to five years through a series of
acquisitions and through organic growth, and that the company will become a
leading player in its industry.
I would like to thank my fellow Directors and staff who have worked hard to
secure maximum value for the Company's property assets. With Creston's
repositioning as a marketing services group, it is right that non-executive
directors are appointed who are familiar with the sector and can add value.
In this respect I welcome the appointment of David Hanger, Publisher of The
Economist Newspaper. Other appointments will be proposed following the
repositioning of Creston.
I would like to thank Michael Robotham and Charles Bunker who resign as
Directors after the AGM on 24 July 2001 following the refocusing of the
company.
I am enthusiastic about the "new" Creston and its objectives and look forward
to playing my part in building the Company into a flourishing marketing
services group.
David Marshall 20 June 2001
Chairman
CHIEF EXECUTIVE'S OVERVIEW
As described in the Chairman's Statement, Creston refocused as a marketing
services group following the EGM on 29 January 2001.
The Business Objective
Creston's objective is to build the company both organically and through
acquisition. Its defining characteristic will be to establish customer needs
and motivation and to identify and keep abreast of changes as they inevitably
occur. In addition to expanding within the UK, the Board will also be looking
for opportunities to expand internationally.
The Company has created a small headquarters office capable of achieving
proposed future growth at minimal additional cost.
Acquisition criteria
Companies targeted by Creston will have:
* good quality businesses
* scope for involvement in one to one marketing relationships with their
customers
* at least #1m PBT in the previous year (unless they are part of a high
growth sector or are part of a multiple acquisition)
* good growth prospects
* committed management
Each Company within the Group will be chosen, not just for its quality, but
also for its potential to generate additional income through co-operation and
cross fertilisation with other companies in the Group.
Target Market Sectors
Creston's strategy is to acquire companies with niche businesses which will
fit together and complement one another. The areas of greatest interest to us
are:
Market Research
Market Research entails exploring market trends, gathering data, views and
opinions from customers and transforming it into useful information so that
companies can act on it for the purposes of strategic planning and product
development.
The market research sector has experienced consistent growth over the last
ten years with an average 11% growth per annum. The total UK market research
market was estimated to be worth approximately #1 billion in 2000 (source:
BMRA).
Creston made its first acquisition in market research with the purchase of
Marketing Sciences Limited, a quantitative market research company.
Direct Marketing
Creston's definition of direct marketing is any form of communication that
requires a direct response from the customer. This can be via: -
Radio advertising Television
Outdoor/transport advertising Contract Magazines
New Media Cinema Advertising
Direct Mail
The UK market as described above is estimated to be worth #10.7 billion in
1999 and is growing at an annual rate of 17% (source: Euromonitor).
Creston aims to make acquisitions in direct marketing and its related fields.
CRM (Customer Relationship Marketing)
CRM, or Database Marketing as this sector is also called, is the development
and manipulation of customer databases to facilitate a one to one
relationship with customers.
The CRM market was estimated to be worth #1.0 billion in 1999 and to be
growing at a rate of 25% a year (source: Euromonitor).
This growth has come about as a result of: -
* Companies recognising the importance of direct communication with their
customers
* Companies recognising that the quality of existing databases is inadequate
for the tasks now demanded of them.
CRM expertise is often incorporated into both Direct Marketing agencies and
Telemarketing Centres. Creston's preference is to acquire specific in-depth
expertise.
Telemarketing
Telemarketing covers both voice and the new internet voice-callback contact
with customers - both inbound (typically sales enquiries and orders) and
outbound (typically sales). Telemarketing is today an essential part of the
marketing mix in maintaining a one to one relationship with customers.
The telemarketing market was estimated to be worth #2.7 billion in 1999 and
is estimated to have grown by 25% in the year (source: Euromonitor).
Retailers, financial institutions and telecoms companies are all seeking to
strengthen their relationship with their customer base on a direct basis.
Indeed, many newer industries have no physical high street presence (such as
mobile airtime providers and internet banks), and therefore rely on voice
(and mail) for customer contact. In short, telemarketing has become a vital
part of many companies' interaction with customers.
Creston is seeking to make acquisitions in the areas of call handling,
consultancy and training services in both inbound and outbound telemarketing.
E-marketing
In spite of the way that values of internet based companies radically
overheated at the end of 1999/beginning of 2000, the internet as a channel of
communication and sales is here to stay.
Within the e-marketing sector Creston intends to target consultancies and not
e-commerce companies with a direct consumer interface. The latter are noted
for high cash burn on technology and marketing.
It is not possible to provide reliable estimates of market size and growth at
this early stage of market development.
Advertising, Public Relations and Design
These marketing service sectors are generally cash generative and capable of
delivering good net margins. Creston intends to acquire companies in these
markets but at the moment we are taking a cautious view because these sectors
are sensitive to prevailing economic conditions.
Summary
Since Completion at the end of January we have reviewed each of the main
sectors identified and have initiated discussions with a number of potential
targets. As Creston's profile as a marketing services group has risen,
approaches made to it by potential target companies have increased. These
approaches may or may not lead to offers being made.
I believe we have laid solid foundations for the challenging tasks that lie
ahead in building Creston into a dynamic marketing services group.
Don Elgie
Chief Executive
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 31 March 2001
Nine
months
ended
Year ended 31 March 2001 31 March
2000
Continuing Discontinued Total
operations operations
Note Acquisitions
#'000 #'000 #'000 #'000 #'000
Turnover 2 - 1,168 1,454 2,622 5,037
Cost of sales - (709)(1,266) (1,975) (2,282)
Gross profit - 459 188 647 2,755
Administrative expenses (300) (410) (546) (1,256) (1,127)
Operating profit (300) 49 (358) (609) 1,628
Share of operating
profit in joint ventures 16 -
Loss on disposal
of investment properties - (174)
Exceptional profits/(losses)
arising from disposal of
property portfolio 72 (4,766)
Loss on ordinary
activities before
interest (521) (3,312)
Net interest
receivable/
(payable) 4 522 (1,942)
Profit/(loss) on
ordinary
activities before
taxation 1 (5,254)
Tax on
profit/(loss) on
ordinary
activities 5 (25) -
Loss for the
financial period (24) (5,254)
Dividends 7 - (6,581)
Retained loss for
the financial year (24) (11,835)
Loss per share 6 (0.2p) (59.2p)
CONSOLIDATED BALANCE SHEET
As at 31 March 2001
Group
31 March 31 March
Note 2001 2000
#'000 #'000
Fixed assets
Investment properties - 1,086
Other tangible fixed assets 160 12
Investments in joint ventures
Share of gross assets 176 -
Share of gross liabilities (105) -
71 -
Intangible assets 8 9,927 -
10,158 1,098
Current assets
Stocks 332 1,200
Debtors 2,528 2,385
Cash at bank and in hand 9 6,090 13,579
8,950 17,164
Creditors: amounts falling due
within one year (2,676) (10,038)
Net current assets 6,274 7,126
Total assets less current
liabilities 16,432 8,224
Creditors: amounts falling due
after more than one year 10 (6,599) -
Net assets 9,833 8,224
Capital and reserves
Called up share capital 1,121 952
Share premium account 4,879 3,415
Special reserve 2,385 2,385
Other reserve 1,385 1,385
Capital redemption reserve 72 72
Profit and loss account (9) 15
Total equity shareholders' funds 9,833 8,224
The accounts were approved by the Board of Directors on 19 June 2001.
Tim Alderson
Finance Director
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 March 2001
Nine
Year ended months
31 March ended 31
Note 2001 March 2000
#'000 #'000
Net cash (outflow)/inflow
from operating activities (17) 2,327
Returns on investments and
servicing of finance
Interest received 522 37
Interest paid - (1,804)
Exceptional costs paid
relating to redemption of loans - (1,085)
Net cash inflow/(outflow)
from returns on investments
and servicing of finance 522 (2,852)
Capital expenditure and
financial investment
Additions to investment
properties - (2,042)
Purchase of tangible
fixed assets (14) -
Sale of investment
properties 1,000 34,831
Sale of tangible fixed
assets - 7
Net cash inflow from
capital expenditure and
financial investment 986 32,796
Acquisitions and disposals
Purchase of subsidiary
undertakings (3,386) -
Net cash acquired with
subsidiaries 895 -
Disposal of subsidiary
undertakings 2,867 -
Net cash disposed of with
subsidiaries (3,126) -
Net cash outflow from
acquisitions and disposals (2,750) -
Equity dividends paid (6,431) (268)
Management of liquid
resources
Cash invested on short
term treasury deposits - (12,950)
Net cash (outflow)/inflow
before financing (7,690) 19,053
Financing
Issue of share capital for
cash consideration - 158
Repayment of loans - (19,349)
Capital element of finance
lease rentals (2) -
Net cash outflow from financing (2) (19,191)
Decrease in cash (7,692) (138)
NOTES TO THE PRELIMINARY ANNOUNCEMENT
For the year ended 31 March 2001
1 BASIS OF PREPARATION
The preliminary announcement has been prepared in accordance with applicable
accounting standards and under the historical cost convention except that the
comparative figures include the effects of the disposal of freehold and
leasehold properties which had been carried at revalued amounts.
The principal accounting policies of the Group are set out in the Group's
2001 annual report and financial statements. The policies have remained
unchanged from those set out in the previous annual report apart from the
inclusion of policies which are considered more appropriate to a marketing
services group and the non-applicability of policies which were relevant when
the Group was involved in the property sector. None of these changes had a
financial effect on the results of the current or prior year.
The Group's accounting policy on goodwill is that goodwill arising from the
acquisition of subsidiary undertakings, representing the difference between
the purchase consideration and fair value of net assets acquired, has been
capitalised in accordance with the requirements of Financial Reporting
Standard number 10 (FRS 10).
The directors are of the opinion that the intangible assets of the Group have
an indefinite economic life given the durability of the MSL, MSTS and
Visualiser brand names, their historic ability to sustain long term
profitability, and the Group's commitment to continue to build branded
products with added-value. In accordance with Financial Reporting Standards
10 and 11, the carrying value of intangible assets will continue to be
reviewed annually for impairment on the basis stipulated in FRS 11 and
adjusted should this be required. The individual circumstances of each future
acquisition will be assessed to determine the appropriate treatment of any
related goodwill.
The financial statements depart from the requirement of companies'
legislation to 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 made during the year had been amortised over a period of twenty
years, operating profit would have decreased by #83,000.
2 TURNOVER
Nine
Year ended months
31 March ended 31
2001 March 2000
#'000 #'000
Marketing services
(excluding share of joint
venture's turnover of
#41,000) 1,168 -
Discontinued businesses:
Rental income 157 2,420
Property trading 1,200 2,400
Other income 97 217
2,622 5,037
All of the Group's current activities are marketing services activities based
primarily in the United Kingdom. Turnover from marketing services relates
only to the two months since acquisition.
The Group discontinued its property activities during the year. The sale of
properties where sale contracts were exchanged prior to 31 March 2000, the
distribution to shareholders of shares in Industrial & Commercial Holdings
Plc, and the sale of the remaining property subsidiaries were all completed
by 31 December 2000.
3 EMPLOYEES
The average number of employees of the Group during the year was:
Nine
Year ended months
31 March ended 31
2001 March 2000
Number Number
Directors 4 7
Marketing services 9 -
Property activities 1 12
14 19
The marketing services number is for 2 months only, the number of employees
at the year end was 64.
4 NET INTEREST RECEIVABLE/(PAYABLE)
Nine
Year ended months
31 March ended 31
2001 March 2000
#'000 #'000
Interest receivable on deposits 522 72
Interest payable on bank
overdrafts and loans - (772)
Interest payable on other loans - (516)
Exceptional costs relating
to redemption of loans - (726)
522 (1,942)
5 TAX ON (LOSS)/PROFIT ON ORDINARY ACTIVITIES
Nine
Year ended months
31 March ended 31
2001 March 2000
#'000 #'000
The tax charge comprises:
Corporation tax at 30% (2000: 30%) 20 -
Share of tax charge of joint ventures 5 -
25 -
Unutilised tax losses of approximately #450,000 remain available for carry
forward against future taxable trading profits subject to agreement with the
Inland Revenue.
6 LOSS PER SHARE
Loss per share
Nine Nine Nine
Year months Year months Year months
ended 31 ended 31 ended 31 ended 31 ended 31 ended 31
March March March March March March
2001 2000 2001 2000 2001 2000
#'000 #'000 Number Number pence pence
Loss for the
financial period (24) (5,254)
Weighted average
number of shares 11,213,781 8,880,420
Loss per share (0.2) (59.2)
7 DIVIDENDS
Nine
Year ended months
31 March ended 31
2001 March 2000
#'000 #'000
Additional dividend charge relating to 1999 - 6
Special dividend paid 5 May 2000 of 36p per share - 3,456
Proposed final: nil per share (2000: 32.5p per share) - 3,119
- 6,581
The proposed final dividend was paid as 31p cash and 1.5p as a scrip
dividend.
8 ACQUISITIONS
On 29 January 2001, the Company acquired the whole of the issued share
capital of Marketing Sciences Limited and Synergie Consulting Limited for
consideration (including deferred consideration) as set out below. This
purchase has been accounted for by the acquisition method of accounting. The
profit after taxation of the Marketing Sciences Group and of Synergie
Consulting Limited from 1 September 2000 to the date of acquisition was
#96,000. Their profit after taxation for the year ended 31 August 2000 was
#536,000.
The consolidated assets and liabilities of the Marketing Sciences Group and
Synergie Consulting Ltd at 31 January 2001 were as follows:
Accounting
policy
Book value adjustments Fair value
#'000 #'000 #'000
Fixed assets
Tangible 154 - 154
Investments in joint ventures:
Share of gross assets 170 - 170
Share of gross liabilities (122) - (122)
48 - 48
Current assets
Stocks 511 (37) 474
Debtors 2,372 - 2,372
Bank and cash 897 - 897
Total assets 3,982 (37) 3,945
Creditors
Bank loans and overdrafts (2) - (2)
Trade creditors (1,048) - (1,048)
Other creditors (1,146) - (1,146)
Accruals (36) - (36)
Total liabilities (2,232) - (2,232)
Net assets 1,750 (37) 1,713
Purchased goodwill
capitalised 9,927
11,640
Satisfied by:
#'000
Issue of shares 1,550
Issue of loan notes 4,700
Cash 2,500
Deferred/contingent consideration 1,890
Acquisition costs 1,000
11,640
9 CASH AT BANK AND IN HAND
Cash includes #4,700,000 which is maintained in a designated account as
security for the loan notes issued on the acquisition of Marketing Sciences
Limited and is, therefore, not freely available to the Group.
10 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Group
31 31
March March
2001 2000
#'000 #'000
Acquisition loan notes 4,700 -
Acquisition deferred
consideration 1,890 -
Amounts due under
finance leases 9 -
6,599 -
The acquisition loan notes are secured against an equivalent amount of cash
held in an escrow account.
11 ANALYSIS OF NET FUNDS
At At
1 April Non-cash 31 March
2000 Cash flow items 2001
#'000 #'000 #'000 #'000
Cash at bank and
in hand 629 5,461 - 6,090
Overdrafts - (203) - (203)
Short term
treasury deposits 12,950 (12,950) - -
13,579 (7,692) - 5,887
Convertible loan
stock 2000 due
within one year (83) - 83 -
Acquisition loan notes - - (4,700) (4,700)
Net funds 13,496 (7,692) (4,617) 1,187
Short term treasury deposits of less than one month are classified as liquid
resources.
12 PUBLICATION OF NON-STATUTORY ACCOUNTS
The summarised balance sheet at 31 March 2001 and the summarised profit and
loss account, summarised cash flow statement and associated notes for the
year then ended have been extracted from the Group's 2001 statutory financial
statements upon which the auditors' opinion is unqualified and does not
include any statement under Section 237 of the Companies Act 1985.
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