Final Results
CEPS PLC
Preliminary announcement of unaudited results for
Year Ended 31 December 2006
Chairman's Statement (extract)
Highlights
# Group turnover up 11.4% to £7.7million
# Operating Profit up 82% to £305,000
# Net debt decreased by 17% to £1,015,000
# Earnings per share 0.19p (2005 0.02p)
# Sunline Direct Mail fundraising and acquisition completed February 2007
# Illustrative operating profit including Sunline acquisition £1.0m before
goodwill amortisation
Overview
During the current year the business improvements initiated in prior years have
been reflected in the Group's performance. The existing businesses all saw
steady increases in turnover in the first half, with a surge in turnover during
the second half of the year, especially at Davies Odell. Operating margins
strengthened in the second half, as anticipated at the half year, as a result
of action taken on input costs, pricing and product specification.
This resulted in a substantial increase in operating profit, after group costs,
to £305,000, an 82% improvement on the result for 2005. Both Friedman's and
Davies Odell saw improved operating profits for the year and in the second
half, by comparison with the same period in 2005, Friedman's operating profit
was up by 203% and Davies Odell by 62%. Both businesses controlled their cash
positions, with the result that Group net debt (excluding invoice finance
borrowings) fell by 17% from the level at the end of 2005.
2007 has started on a positive note with the successful completion of a £2.4
million fundraising at 50p per share following a one for 50 share
consolidation.
The proceeds of this fundraising were used to complete the reverse takeover of
Sunline Direct Mail Limited (Sunline) in early February 2007 in which the Group
has an 80% equity interest.
The consolidation of Sunline's profits into the Group's results for 2007 will
have a significant impact as shown in the Sunline acquisition section below.
Financial review
Group operating profit for the year before amortisation of goodwill of £80,000
(2005, £74,000) was £385,000 (2005, £242,000). After amortisation of goodwill
and interest charges the Group profit before taxation increased to £199,000
(2005, £53,000).
The taxation credit for the year is £158,000 (2005, charge £6,000). This
includes a current year credit for deferred taxation of £192,000 (2005, £2,000)
arising principally from the recognition of a proportion of the accumulation of
capital allowances that the Group now expects to recover in the foreseeable
future.
After tax and minority interests the retained profit for the year was £346,000
(2005, £40,000).
Earnings per share, basic and fully diluted, were 0.19p (2005, 0.02p) per
share.
Net cash inflow from operating activities was £450,000 (2005, £138,000) and
Group net debt decreased in the year by £205,000 to £1,015,000 (2005, £
1,220,000).
Group net assets at 31 December 2006, excluding the pension liability,
increased to £1,621,000 (2005, £1,314,000) and total equity shareholders' funds
increased by £405,000 to £1,121,000 (2005, £716,000). The pension scheme
liability reduced during the year by £109,000 to £362,000 (2005, £471,000).
Operational Review
Group sales for 2006 increased by 11.4% to £7.7 million, with a particularly
strong result from Davies Odell with an 11.9% increase to £5,046,000 (2005, £
4,509,000). With this strong increase in turnover and improving margins in the
second half, segmental profits before group costs rose by 35% to £513,000
(2005, £380,000). Group costs were £208,000 (2005, £212,000).
After successful relocation in the first half, Friedman's achieved a 10.5%
growth in turnover for the year by comparison with the 11 months of our
ownership in 2005. The second half was particularly strong with higher volumes
of better margin bespoke lycra sales. This enabled the business to finish the
year with an 11.8% improvement in trading profit at £180,000 (2005, £161,000).
Overall margins achieved are now in line with expectations at the time of the
acquisition.
Davies Odell saw a strong increase in overall turnover in 2006, with a 17.5%
increase to £2,894,000 (2005, £2,463,000) in the second half.
In the Davies matting business, turnover exceeded both budget and the previous
year by some way, largely as result of strong orders for Cowmats. However
margins were a little below expectation, though overall profitability exceeded
our plan. The focus achieved on the matting business as a result of the
mid-year reorganisation has provided the impetus to develop a number of new
products, which will be launched in the first half of 2007.
The Odell business had a strong year both in its core footwear component
operations and for its protection products. Sales of men's leather heel
top-pieces and stiletto top-pieces for ladies shoe repairs both continued
strongly, and the steady recovery of turnover in the Phillips footwear repair
business continued. Margins have been well managed, despite the major buffeting
from energy and raw material prices.
The protection business has moved forward strongly with Forcefield body armour
products at the forefront. Sales were up 30% year-on-year as the product range
was expanded from just the top-rated back protector to include protective
undershirts, shorts and pants, and limb protectors. Further new products are
ready to launch in 2007, and the recently recruited Sales Manager is making
substantial progress with extended UK distribution for the Forcefield range.
Sunline acquisition
Included within the table below are the results of Sunline Direct Mail Limited
for the fifteen month period to 31st January 2007.
Sunline Direct
Mail
£'000
Turnover 8,935
Cost of sales (5,767)
Gross profit 3,168
Net operating expenses (2,343)
Operating profit 825
The figures set out above are expressed before any goodwill amortisation.
Had the Group consolidated these results on a pro rata basis for a twelve month
period the Group would have reported operating profits before goodwill of £1.0
million on turnover of £14.8 million for the current year.
Dividend
The Board is not recommending the payment of a final dividend for 2006 (2005,
nil). It is nevertheless committed to returning to the dividend list, and to
paying a growing dividend as part of investors' overall return from their
investment.
Prospects
From a trading perspective 2007 has started well, with all the businesses
seeing turnover increases with stable margins. Friedman's is seeing steady
turnover growth driven by increasing European orders and the recently
negotiated sole rights to distribute a specialist Italian crepe lycra.
At Davies Odell the turnover growth in the second half of last year has carried
over into the first half of 2007. In particular, the benefits of the
significant investment in product development and sales personnel for our
Forcefield body armour range are coming through in strong orders, improving UK
and Overseas distribution, and a flow of positive press comment about our
products. Shoe repair sales remain buoyant but may well ease through the year
as fashion changes.
It is encouraging to note that Sunline is currently busy and has a solid order
book for the coming summer months.
Identifying suitable acquisitions remains one of our key objectives for 2007.
There remains a funding gap in the market and several promising targets have
already been reviewed. The evidence of improving results from the existing
companies, the significant impact of the Sunline acquisition on the 2007
results and the widened shareholder base will enable us to raise sufficient
funds for attractive opportunities at the appropriate time.
The Board has been encouraged by the trading performance of the Group so far
this year and is optimistic about the outcome for 2007. The company is now in
discussions with a number of companies that fit the investment criteria of CEPS
and would be hopeful that a similarly attractive transaction to Sunline will be
achieved this year.
Richard Organ
Chairman
26 April 2007
CEPS PLC
Consolidated Profit and Loss Account
Year ended 31 December 2006
2006 2005
(unaudited)
Note £'000 £'000
Turnover, continuing operations 3 7,709 6,919
Cost of sales (6,584) (5,869)
Gross profit 1,125 1,050
Net operating expenses (820) (882)
Operating profit, continuing operations 3 305 168
Analysis of operating profit
trading 593 454
amortisation of goodwill (80) (74)
group costs (208) (212)
Interest payable (106) (115)
Profit on ordinary activities before taxation 199 53
Taxation 158 (6)
Profit on ordinary activities after taxation 4 357 47
Minority interests (11) (7)
Profit for the year 346 40
Dividends - -
Retained profit for the year 346 40
Earnings per share
basic 5 0.19p 0.02p
diluted 5 0.19p 0.02p
Consolidated Statement of Total Recognised Gains and Losses
Year ended 31 December 2006
2006 2005
(unaudited)
£'000 £'000
Profit for the year 346 40
Actuarial gain/(loss) recognised in pension scheme 85 (272)
Movement on deferred tax relating to pension scheme (26) 82
Total recognised gains/(losses) for the year 405 (150)
CEPS PLC
Group Balance Sheet
31 December 2006
2006 2005
(unaudited)
£'000 £'000
Fixed assets
Intangible 1,449 1,529
Tangible 279 259
1,728 1,788
Current assets
Stocks 1,324 1,087
Debtors 2,011 1,428
Cash at bank and in hand 35 24
3,370 2,539
Creditors: amounts falling due within one year (2,852) (2,093)
Net current assets 518 446
Total assets less current liabilities 2,246 2,234
Creditors: amounts falling due after more than one year (593) (878)
Provisions for liabilities and charges (32) (42)
Net assets excluding pension liability 1,621 1,314
Pension liability (362) (471)
Net assets including pension liability 1,259 843
Capital and reserves
Called up share capital 178 178
Share premium 676 676
Profit and loss account 267 (138)
Total equity shareholders' funds 1,121 716
Minority interests 138 127
Capital employed 1,259 843
CEPS PLC
Consolidated Cash Flow Statement
Year ended 31 December 2006
2006 2005
(unaudited)
£'000 £'000
Reconciliation of operating profit to net cash flow from operating
activities
Operating profit 305 168
Depreciation and amortisation charges 190 170
Difference between pension charge and cash contributions (71) (53)
Increase in stocks (237) (63)
Increase in debtors (382) (120)
Increase in creditors 653 36
Movement in provisions for liabilities and charges (8) -
Net cash inflow from operating activities 450 138
Cash flow statement
Net cash inflow from operating activities 450 138
Returns on investments and servicing of finance (106) (115)
Taxation 10 (68)
Capital expenditure and financial investment (89) (41)
Acquisition (20) (1,599)
245 (1,685)
Financing (266) 1,197
Decrease in cash (21) (488)
Reconciliation of net cash flow to movement in net debt
Decrease in cash (21) (488)
Cash decrease/(increase) from change in debt and finance lease obligations 266 (438)
New finance lease obligations (40) -
Change in net debt 205 (926)
Net debt at 1 January (1,220) (294)
Net debt at 31 December (1,015) (1,220)
Analysis of changes in net debt
at 1 Jan cash non cash at 31 Dec
2006 flows flows 2006
(unaudited) (unaudited) (unaudited)
£'000 £'000 £'000 £'000
Cash at bank and in hand 24 11 - 35
Overdrafts (121) (32) - (153)
(97) (21) - (118)
Debt due within one year (245) 262 (312) (295)
Debt due after one year (878) - 312 (566)
Finance lease obligations - 4 (40) (36)
(1,220) 245 (40) (1,015)
CEPS PLC
31 December 2006
Notes to the Preliminary announcement
1. Basis of preparation
The unaudited financial information contained in this preliminary announcement
does not comprise statutory accounts within the meaning of Section 240 of the
Companies Act 2005.
The figures in this preliminary announcement have been prepared under generally
accepted accounting policies in the United Kingdom. The accounting policies
adopted are those set out in the Annual Report & Accounts for the year ended 31
December 2005 which includes the unqualified report of the independent auditors
and which have been filed with the Registrar of Companies.
2. Changes in accounting Policy
The group has adopted Financial Reporting Standard 20 'Share Based Payments' in
the financial statements. The adoption of the standard has not affected the
results as the share options were granted before 7 November 2002.
The directors have also considered the requirements of the other UK Financial
Reporting Standards which apply to the Group for the first time in 2006 and
have concluded that they do not impact the Group's financial statements.
3. Turnover and segmental analysis
The United Kingdom is the source of turnover and operating profit and the
principal location of the net assets of the Group. The directors consider that
the Group operates in two business segments serving various markets. Turnover,
segmental profit before Group costs and net assets are analysed as follows:
Segment of activity Friedman's Davies Odell Group
2006 2005 2006 2005 2006 2005
(unaudited) (unaudited) (unaudited)
£'000 £'000 £'000 £'000 £'000 £'000
Turnover 2,663 2,410 5,046 4,509 7,709 6,919
Segmental profit
before amortisation
of goodwill 260 235 333 219 593 454
Amortisation of
goodwill (80) (74) - - (80) (74)
Segmental profit
before Group costs 180 161 333 219 513 380
Group costs (208) (212)
Profit before
interest and
taxation 305 168
Interest payable (106) (115)
Group profit before
taxation 199 53
Net assets 1,395 1,517 1,150 1,017 2,545 2,534
Pension liability (362) (471)
Unallocated net
liabilities (1,015) (1,220)
CEPS Group assets 91 -
Total net assets 1,259 843
The investment in Friedman's was acquired on 25 January 2005. Friedman's
converts and distributes specialist Lycra.
Davies Odell manufactures and distributes protection equipment, matting and
footwear components.
Geographical analysis of turnover by destination 2006 2005
(unaudited)
£'000 £'000
United Kingdom 5,780 5,504
Rest of Europe 1,589 1,198
The Americas 156 89
Australasia 2 6
Far East 103 78
Africa 79 44
7,709 6,919
4. Taxation
The charge for taxation on the profit for the year is analysed as follows:
2006 2005
(unaudited)
£'000 £'000
UK corporation tax on profits of the year 25 22
Tax repaid in respect of prior periods - (14)
Total current tax 25 8
Deferred tax:
Current year credit (192) (2)
Prior year charge 9 -
Total deferred tax (183) (2)
Tax (credit)/charge on profit on ordinary activities (158) 6
The current year credit for deferred taxation arises principally from the
recognition of a proportion of the accumulation of capital allowances that the
Group now expects to recover in the foreseeable future.
5. Earnings per share
Basic earnings per share is calculated on the profit on ordinary activities
after taxation and minority interests of £346,000 (2005, £40,000) and on
178,191,426 (2005, 175,344,987) ordinary shares, being the weighted number in
issue during the year.
Diluted earnings per share is calculated on the weighted average number of
ordinary shares in issue adjusted to reflect the potential effect of the
exercise of share warrants. In 2005 diluted earnings per share is calculated on
183,199,908 ordinary shares but in 2006 no adjustment is required because the
fair value of warrants and share options was below the exercise price.
6. Post balance sheet events
In February 2007 the company, through Sunline Direct Mail (Holdings) Limited
(SDMH), acquired the entire issued share capital of Sunline Direct Mail Limited
(SDM), a supplier of poly wrapping and associated services to the direct mail
market, for an initial consideration of £3,800,000. The company acquired 80% of
SDMH, the remaining 20% being owned by the managing director of SDM.
For the 15 months ended 31 January 2007 the turnover of SDM was £8,935,000 and
the operating profit before goodwill amortisation £825,000. After goodwill
amortisation of £55,000 and interest receivable of £19,000 the profit before
taxation was £789,000. Net assets at the same date were £2,496,000.
The initial consideration was satisfied by a cash payment of £3,450,000 and the
issue of shares and loan notes in SDMH to the value of £350,000. The cash
payment was funded by non-recourse bank finance of £2,000,000 and subscriptions
by the company of £80,000 for equity, £520,000 for preference shares and £
850,000 for loan stock. Deferred consideration of up to a maximum of £500,000
will be payable dependent on the future trading performance of SDM.
On 12 February 2007 shareholders approved a share consolidation on the ratio of
50 existing ordinary shares of 0.1p each for one new ordinary share of 5p each
and a placing to raise £2,375,000 before expenses of £650,000 by the issue of
4,750,000 placing shares at 50p per share (equivalent to 1p per share prior to
the share consolidation). The proceeds were used to acquire a majority interest
in SDMH and to strengthen the group's balance sheet. The investors included
members of the concert party detailed in the circular sent to shareholders on
11 January 2007.
7. The Annual Report and Financial Statements will be sent to all shareholders.
Further copies will be available to the public from the Company Secretary at
the company's registered office, 11 George Street, Bath BA1 2EH.
For further information contact:
Peter Cook, CEPS PLC 07779 644680
City Financial Associates Ltd 020 70907800
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