Final Results
CEPS PLC
Preliminary Results
for the year ended 31 December 2005
Chairman's Statement
Overview
The year to December 2005 has been one of considerable effort to improve the
performance of the Group's businesses. These improvements will take time to be
reflected in the financial results but the Group's current performance is
encouraging.
Friedman's, the first acquisition under the new CEPS approach, has been
successfully integrated into the Group and, following its move in February, has
now settled into its new larger premises. The investment in these facilities
will bear fruit in the future, as it is better able to present its extensive
range of products and to use its increased capacity to meet the potential
demand as new agents are appointed across Europe.
Last year was a difficult one for Davies Odell. However the investment during
the past year together with the restructuring of the businesses is beginning to
show positive results. We anticipate that the momentum evident in the first
half of 2006 should continue for the remainder of the year.
In the past year we have reviewed many acquisition opportunities and have been
surprised to find that the "equity gap" for small companies extends to much
larger companies than we had initially thought. As a result we are now
targeting those making pre-tax profits of between £500,000 and £1million.
Anyone operating in this area of the market will be aware that the "gestation"
period for private company transactions can be very long, and this is amplified
given the structure that CEPS insists upon for its operational model.
The cost of running the Group is disproportionately large for its current size.
However, as it expands, these largely fixed costs will be spread across more
companies, with the result that any additional company will be expected to make
a significant contribution to profit as the infrastructure is already in place
to cope with a much larger operation.
Financial review
CEPS PLC this year reports for the first time as a Group and is required to
make a distinction in the accounts between the results of the Group, including
subsidiary companies, and those of the company itself.
Group operating profit for the year before amortisation of goodwill of £74,000
arising from the investment in Signature, the intermediate holding company of
Friedman's Limited, was £242,000 (2004 restated, £146,000). Group operating
profit for the year after amortisation of goodwill was £168,000 (2004 restated,
£146,000). After interest charges of £115,000 (2004 restated, £32,000) but
before amortisation of goodwill, Group profit on ordinary activities before tax
was £127,000 (2004 restated, £114,000). Group profit on ordinary activities
before tax and after amortisation of goodwill was £53,000 (2004 restated, £
114,000) and after tax and minority interests the retained profit for the year
was £40,000 (2004 restated, £102,000).
Earnings per share (fully diluted) were 0.02p (2004 restated, 0.09p). Earnings
per share calculated prior to the charge for the amortisation of goodwill were
0.07p (2004 restated, 0.09p).
Net cash inflow from operating activities was £138,000 (2004 restated, outflow
£432,000). The investment in Signature of £1,599,000 was financed partly by the
issue of ordinary shares realising £759,000 after expenses and the remainder by
an increase in non recourse bank debt. Group net debt increased in the year
from £294,000 (restated) to £1,220,000 of which £867,000 is attributable to
Signature and has no recourse to the rest of the Group.
Group net assets at 31 December 2005, excluding the pension liability,
increased to £1,314,000 (2004 restated, £475,000) and total equity
shareholders' funds increased from £157,000 (2004 restated) to £716,000.
In this year the Group has adopted FRS17 'Retirement Benefits' and has restated
the results for previous periods. The prior year adjustment and the effects of
the actuarial loss arising in each accounting year are shown in the statement
of total recognised gains and losses. The net pension liability at the year end
was £471,000 (2004 restated, £318,000). The Group has agreed a contribution
rate with the scheme trustees that, over the four years from 1 July 2005, is
intended to restore a 100% funding level in the scheme.
In December 2005, CEPS PLC commenced an operational reorganisation transferring
the trade assets and associated liabilities, including the defined benefits
pension scheme of its residual trading divisions, into a wholly owned
subsidiary company Davies Odell Limited. This reorganisation was completed in
early 2006.
Operational review
With the inclusion of Friedman's accounts for 11 months, Group sales in 2005
increased by 29% to £6,919,000 (2004, £5,363,000). Segmental profits before
group costs increased more slowly by 20% to £380,000 (2004 restated, £316,000)
reflecting the tougher trading environment. Group costs were £212,000 (2004, £
170,000) and include professional fees of £40,000.
With consumer spending at reduced levels, Davies Odell saw its turnover fall by
3.6% year-on-year and, coupled with rapidly rising energy and material costs,
margins came under pressure. Reductions in sales of Phillips repair products
and in sales of body armour components to the equestrian trade were
particularly relevant.
However, there were a number of bright spots: Forcefield body armour sales
doubled in the year, beginning to justify the substantial investment in product
development and promotion. At the very close of the year, a major repair
customer for Phillips rubber soles and heels was regained from a competitor
which should lead to improved sales for these products. In the matting business
all segments saw sales growth over the previous year, with the Equimat stable
matting in particular achieving a 22% sales increase in a highly competitive
market place.
Friedman's continues to perform steadily producing an operational profit of £
235,000 before goodwill amortisation of £74,000 on sales of £2,410,000 during
its first eleven months of Group ownership. UK sales were slightly down on
previous years but these were replaced by increased sales in Europe. Now that
Friedman's has successfully relocated to new premises and the disruption caused
by the change in ownership is behind us we anticipate that they will continue
to make steady progress.
Dividend
The Board is not recommending the payment of a final dividend for 2005 (2004,
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.
Power to issue shares
The Board seeks the continuing power to issue shares and to disapply Section 89
(1) of the Companies Act 1985 which requires shares always to be issued
proportionately to existing shareholders. These powers would for example allow
the company to issue shares as consideration, in part or whole, for a suitable
acquisition.
The directors seek the power to allot shares for the whole of the unissued
share capital of £152,211.83 and to issue shares other than in strict
proportion to existing shareholders up to a nominal value of £79,910.84.
The Board considers that to limit its ability to issue shares, other than in
strict proportion to existing shareholders, to 5% of the present issued share
capital (a routine level amounting to shares with a nominal value of £8,909.57)
would be unduly restrictive.
Whilst there is no present intention of issuing shares, the Board considers
that the powers could be helpful and are not excessive in view of its
investment strategy and the present size of the company.
Prospects - Existing Activities
Davies Odell and Friedman's have started 2006 well ahead of last year and in
both cases internal budgets anticipate improved financial performance over the
previous year.
Friedman's have relocated to highly satisfactory newer and larger premises in
Stockport, which will provide the physical infrastructure for their anticipated
future growth for the next few years.
At Davies Odell the business streams have been restructured under our two
General Managers. All footwear and footwear repair sales are to be handled
through Rushden, leaving the team at Kettering entirely focused on driving the
profitable growth of the matting business. Considerable opportunities for
further growth in matting sales are foreseen through existing and new sales
channels. In both locations this change in approach has been embraced by the
teams involved.
Prospects - Acquisitions
On the corporate development side considerable work has been put into
establishing the next building block and we hope to be able to report on these
developments in the future. As mentioned above, each extra business acquired
at this early stage in CEPS development would be expected to make a significant
contribution to the overall profitability of the Group.
Unfortunately the "Concert Party" deemed by the Takeover Panel to have been set
up at the time of the refinancing in April 2004 remains in place. As the
Concert Party's aggregate holding fell last year below 50% nobody in this
collective is able to buy shares without making a bid for the whole company
which has adverse consequences on the liquidity of CEPS shares in the market.
We look forward to the current year anticipating better results from the
existing companies and with the expectation that we will be able to expand the
Group through the acquisition of another high quality business.
Richard Organ
Chairman
29 June 2006
CEPS PLC
Consolidated Profit and Loss Account
Year ended 31 December 2005
2005 2004
(restated)
£'000 £'000
Turnover
continuing operations 4,509 4,676
acquisition 2,410 -
discontinued operations - 687
6,919 5,363
Cost of sales (5,869) (4,476)
Gross profit 1,050 887
Net operating expenses (including exceptional items) (882) (642)
Operating profit before exceptional items 168 245
Exceptional items: restructuring costs - (99)
Operating profit 168 146
Analysis of operating profit
continuing operations, trading 219 439
continuing operations, group costs (212) (170)
acquisition 161 -
discontinued operations - (123)
Interest payable (115) (32)
Profit on ordinary activities before taxation 53 114
Taxation (6) (12)
Profit after taxation 47 102
Minority interests (7) -
Profit for the period 40 102
Dividends - -
Retained profit for the year 40 102
Earnings per share
basic 0.02p 0.10p
diluted 0.02p 0.09p
CEPS PLC
Consolidated Statement of Total Recognised Gains and Losses
Year ended 31 December 2005
2005 2004
(restated)
£'000 £'000
Profit for the year 40 102
Actuarial loss recognised in pension scheme (272) (660)
Movement on deferred tax relating to pension scheme 82 198
Total recognised losses for the year (150) (360)
Prior year adjustment (318)
Total recognised losses since last annual report (468)
CEPS PLC
Group Balance Sheet
31 December 2005
2005 2004
(restated)
£'000 £'000
Fixed assets
Intangible 1,529 -
Tangible 259 263
1,788 263
Current assets
Stocks 1,087 639
Debtors 1,428 813
Cash at bank and in hand 24 422
2,539 1,874
Creditors: amounts falling due within one year (2,093) (1,242)
Net current assets 446 632
Total assets less current liabilities 2,234 895
Creditors: amounts falling due after more than one year (878) (420)
Provisions for liabilities and charges (42) -
Net assets excluding pension liability 1,314 475
Pension liability (471) (318)
Net assets including pension liability 843 157
Capital and reserves
Called up share capital 178 145
Share premium 676 -
Special reserve - 304
Profit and loss account (138) (292)
Total equity shareholders' funds 716 157
Minority interests 127
Capital employed 843 157
CEPS PLC
Consolidated Cash Flow Statement
Year ended 31 December 2005
2005 2004
(restated)
£'000 £'000
Reconciliation of operating profit to net cash flow from
operating activities
Operating profit 168 146
Depreciation and amortisation charges 170 52
Difference between pension charge and cash contributions (53) (40)
Increase in stocks (63) (50)
Increase in debtors (120) (91)
Increase/(decrease) in creditors 36 (449)
Net cash inflow/(outflow) from operating activities 138 (432)
Cash flow statement
Net cash inflow/(outflow) from operating activities 138 (432)
Returns on investments and servicing of finance (115) (32)
Taxation (68) -
Capital expenditure and financial investment (41) (43)
Acquisition (1,599) -
Disposal - 137
(1,685) (370)
Financing 1,197 776
(Decrease)/increase in cash (488) 406
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash (488) 406
Cash (increase)/decrease from change in debt (438) 427
Change in net debt (926) 833
Net debt at 1 January (294) (1,127)
Net debt at 31 December (1,220) (294)
Analysis of changes in net debt
at 1 Jan cash at 31 Dec
2005 flows acquisition 2005
£'000 £'000 £'000 £'000
Cash at bank and in hand 422 (640) 242 24
Overdrafts (31) (90) (121)
- -
391 (730) 242 (97)
Debt due within one year (305) 60 (245)
Debt due after one year (380) (498) (878)
(294) (1,168) 242 (1,220)
CEPS PLC
31 December 2005
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. With the exception of the
changes in accounting policy set out in note 2 below, the accounting policies
adopted are those set out in the Annual Report & Accounts for the year ended 31
December 2004 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 17 'Retirement Benefits' in
the financial statements. The adoption of the standard represents a change in
accounting policy and the comparative figures have been restated accordingly.
The effect of the change in accounting policy to adopt FRS 17 was to decrease
staff costs by £53,000 (2004, £6,000), finance costs by £nil (2004, £34,000)
and to increase the tax charge by £nil (2004, £12,000). Profit for the year was
increased by £53,000 (2004, £28,000). Actuarial losses recognised were £190,000
(2004, £462,000).
The group has also reviewed the accounting treatment of its debtor backed
working capital facilities and in 2005 has separately disclosed them within
creditors. At 31 December 2005 the amount of these facilities was £416,000
(2004, £271,000). These were previously included within bank overdrafts and the
comparative figures have been restated.
The directors have also considered the requirements of the other UK Financial
Reporting Standards which apply to the Group for the first time in 2005 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/(loss) before group costs and net assets are analysed as
follows:
Segment of activity Friedman's Davies Odell Dinkie Group
2005 2005 2004 2004 2005 2004
(restated)
£'000 £'000 £'000 £'000 £'000 £'000
Turnover 2,410 4,509 4,676 687 6,919 5,363
Segmental profit/
(loss) before
exceptional items 161 219 439 (24) 380 415
Exceptional items - - - (99) - (99)
Segmental profit/
(loss) before group
costs 161 219 439 (123) 380 316
Group costs (212) (170)
Profit before
interest and
taxation 168 146
Interest payable (115) (32)
Group profit before
taxation 53 114
Net assets/
(liabilities) 1,517 1,017 898 (129) 2,534 769
Pension liability (471) (318)
Unallocated net
liabilities (1,220) (294)
Total net assets 843 157
The investment in Friedman's was acquired on 25 January 2005 and accordingly no
comparative figures are included above. Friedman's converts and distributes
specialist Lycra.
Davies Odell manufactures and distributes protection equipment, matting and
footwear components.
The operations comprising the Dinkie segment were sold in December 2004 to a
management buy-out company.
Geographical analysis of turnover by destination 2005 2004
£'000 £'000
United Kingdom 5,504 3,654
Rest of Europe 1,198 968
The Americas 89 248
Australasia 6 35
Far East 78 443
Africa 44 15
6,919 5,363
4. Taxation
The charge for taxation on the profit for the year is analysed as follows:
2005 2004
(restated)
£'000 £'000
UK corporation tax on profits of the year 22 -
Tax repaid in respect of prior periods (14) -
Total current tax 8 -
Deferred tax:
Origination and reversal of timing differences (2) -
Pension charge in excess of pension cost - 12
Total deferred tax (2) 12
Tax on profit on ordinary activities 6 12
5. Earnings per share
Basic earnings per share is calculated on the profit on ordinary activities
after taxation and minority interests of £40,000 (2004 restated, £102,000) and
on 175,344,987 (2004, 106,125,367) ordinary shares, being the weighted number
in issue during the year.
Diluted earnings per share is calculated on 183,199,908 (2004, 114,790,505)
ordinary shares, being the weighted number in issue adjusted to reflect the
potential effect of the exercise of share warrants.
6. Acquisition
On 25 January 2005 the group acquired an initial 75% equity holding in the
share capital of Signature Fabrics Limited (Signature), a company set up for
the purpose of acquiring Friedman's Limited (Friedman's). The acquisition was
funded by subscriptions by the group of £91,666 for equity and £408,333 for
loan stock, by an initial 20% equity investment from the management of
Signature and the balance by bank finance and the issue of 5% of the share
capital of Signature to the sellers. The group's 75% equity stake will reduce
on a ratchet basis to 55% dependent on the speed with which the loan stock in
Signature is repaid.
Friedman's imports, converts and distributes Lycra based materials to swimwear
and dancewear manufacturers. From the audited accounts for the year ended 31
October 2004, Friedman's turnover was £2,620,000 and the profit before tax £
320,000. Net assets at the same date were £470,000. In the period from 1
November 2004 to 24 January 2005 Friedman's loss after taxation was £22,000.
Details of the acquisition of Friedman's by Signature are as follows:
Provisional
fair
Book value Fair
value adjustment value
£'000 £'000 £'000
Tangible fixed assets 51 - 51
Stock 385 - 385
Debtors 478 - 478
Cash 242 - 242
Creditors (701) (3) (704)
Provisions (4) (40) (44)
Net assets acquired 451 (43) 408
Purchased goodwill 1,603
2,011
Consideration:
Cash 1,614
Deferred cash 110
Ordinary shares 8
Preference shares 62
Acquisition expenses 217
2,011
The fair value adjustment represents an under provision in a prior year tax
charge and a provision for onerous lease rentals.
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:
Paul Quade, City Road Communications Ltd 020 7334 0243
Peter Cook, CEPS PLC 07779 644680
Friday, 17th May 2024
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