Preliminary Results
CEPS PLC ("CEPS" OR THE "COMPANY")
Preliminary announcement of unaudited results for
Year Ended 31 December 2007
Chairman's Statement (extract)
Highlights:
* Profit before tax of £674,000, an increase of 142% on 2006
* Group revenue of £15.4m, an increase of 100% on 2006
* Adjusted earnings per share of 6.95p (2006, after tax credit, 11.95p)
* Gearing reduced to 51% (2006, 76%)
* £713,000 debt repaid during the year from internally generated resources
* Strong balance sheet with capital and reserves of £4.2m (2006, £1.2m)
Chairman's Statement
Overview:
The progress achieved in the first half was partially sustained in the second
half, in spite of increasingly uncertain trading conditions. The Sunline Direct
Mail business, acquired in February 2007, is now fully integrated within the
Group and its Lettershop business (Sunline Solutions) has had a particularly
strong year.
At Friedman's, our lycra distribution business, overall sales levels were in
line with expectations but profitability was flat year-on-year. The revenue
cost of developing an online retail business, FunkiFabrics, an unexpected bad
debt late in the year and Euro exchange rate appreciation, all reduced
profitability in the second half.
Davies Odell performed ahead of expectation in the first half and with a steady
second half performance saw revenue for the year rise by 6% and profitability
by 5%.
Group revenue doubled and operating profit increased by 145% to £945,000 (2006,
£385,000) after charging abortive acquisition costs of £71,000. Group profit
before tax rose by a similar percentage to £674,000 (2006, £279,000). Adjusted
earnings per share, before deduction of abortive acquisition costs of £71,000,
were 6.95p (2006, after tax credit, 11.95p).
Further potential acquisitions are under review, both as enhancements to
existing activities and as stand-alone businesses in their own right. The
structure and strategy adopted by CEPS appears to have become an accepted exit
solution for companies with a value below the size criterion of the private
equity investors.
Financial review:
Revenue doubled to £15.4m (2006, £7.7m), and operating profit rose by 145% to £
945,000 (2006, £385,000) after charging abortive acquisition costs of £71,000.
Profit before tax rose by a similar percentage to £674,000 (2006, £279,000) and
after tax of £88,000 (2006, credit £158,000) the profit for the year was £
586,000 (2006, £437,000).
Earnings per share, basic and diluted, were 6.32p (2006, 11.95p), the figures
taking into account the 1 for 50 share consolidation and placing of 4,750,000
new shares in February 2007.
Cash generated from operations in the year was £1,466,000 (2006, £450,000). The
share placing in February raised £2,375,000 before expenses of £57,000. The
investment by the Group in Sunline was £3,940,000, comprising shares and loan
stock of £1,450,000 plus the expenses of the acquisition of £698,000, less £
208,000 cash acquired with the business and together with new bank loans of £
2,000,000.
Total bank loans of £2,257,000 (2006, £861,000) include £2,190,000 (2006, £
697,000) secured against the assets of subsidiary companies and with no
recourse to the rest of the Group. The increase includes the £2,000,000 of bank
loans related to the acquisition of Sunline, of which £300,000 had been repaid
at the year end.
Gearing has been reduced to 51% (2006, 76%) as a result of the additional
equity raised, the repayment of bank loans and finance lease borrowings from
internally generated resources totalling £713,000 and by increased cash
balances of £348,000.
The Group balance sheet remains strong. Total capital and reserves attributable
to equity shareholders of the Company at the year end were £4,206,000 (2006, £
1,201,000).
These are the first set of results since the adoption by the Group of
International Financial Reporting Standards (IFRS). Comparative figures have
been restated to comply with IFRS and a detailed explanation of the changes is
given in the half-yearly report to shareholders dated 24 September 2007.
Operational review:
Friedman's - Revenue for the year was up 8%, with the segmental profit level
similar to last year. As the year progressed operating margins came under
pressure as the effective price of imported lycra increased with the
substantial appreciation of the Euro against Sterling. This pressure was
especially acute in the last quarter of the year.
During the second half, Friedman's launched a new business called FunkiFabrics,
selling some of the current ranges direct to end-users. A completely new
transactional website (www.funkifabrics.com) has been developed and a number of
agents recruited to stimulate business by showing products from comprehensive
sample books. Sales so far are encouraging, though launch costs, as expected,
have impacted on second half profitability.
Davies Odell - Revenue for the year increased by 6%, although the second half
was similar to the comparative period for 2006. Within the matting operation,
horse mat (Equimat) sales grew but tighter margins due to raw material price
increases have kept the contribution at 2006 levels. As expected, cowmats saw a
substantial decline in revenue and hence contribution, though margins remained
steady. Floor and Gym protection matting saw steady growth in both revenue and
margin as a direct result of increased business with a prominent Gym/Fitness
Club equipment distributor.
Elsewhere in this business, sales of shoe repair products remained reasonably
buoyant, although input prices are now rising here with limited scope to pass
them on to our customers in the current economic climate. The Forcefield body
armour range has continued its strong growth with revenue up by more than 90%.
The UK retail distribution network now exceeds 100 outlets for motorcycling,
off-road biking, skiing and snowboarding. The sales performance of Forcefield
in ski/snowboard outlets this autumn has been a particular highlight. Business
with our key distributor in the USA doubled in the year and other export
markets have also seen strong growth with rising enquiry levels.
Sunline Direct Mail - Revenue for the 11 months within the CEPS Group reached £
7.2m generating a segmental profit (before depreciation charge) of £865,000.
The Polywrapping business has encountered increased competition in its
marketplace putting margins under pressure. The company has tightened its sales
criteria to ensure the optimum mix of business and has instituted improved
production scheduling. These initiatives will result in production efficiencies
and will maximise the profit available.
The Lettershop business has begun to fulfil its real potential in 2007 with
revenue increased by 26% and operating profit increased by three times. Several
core clients have been grown substantially in volume terms and new accounts
have also been added to the portfolio. The site and equipment are now being
more fully utilised than for some years.
Dividend:
In the light of the likely slow-down in consumer spending which may impact our
trading, the Board has decided to conserve cash and considers it prudent not to
recommend the payment of a final dividend at this stage.
Prospects:
As I indicated at the half-year the second half had started slowly and this
caution proved appropriate given the outcome for the Group across the balance
of 2007. Since that time the "credit crunch" has rippled-out from the banking
sector to the wider economy, with the well documented effect on house prices
and mortgage availability increasingly likely to affect consumer behaviour.
So far the effect on the Group has been limited with revenue and profitability
at expected levels for the first quarter across all of the businesses.
At Friedman's the Euro exchange rate will be the source of continuing pressure
on its lycra input prices and measures are in hand to mitigate the effect.
Davies Odell is beginning to see inflationary price increases proposed by their
sources in the Far East which they will not be able to pass on. Product
re-engineering and alternative sources are being vigorously explored.
Sunline has had a better than expected start to the year with the Polywrapping
business showing increased consistency of performance and the Lettershop
business carrying on from where it left off in 2007.
At the time of writing, one has to take the view that growth in consumer
spending is likely to ease downwards throughout 2008. In these circumstances, I
remain cautious as to the overall prospects for 2008 but confident that our
management teams will outperform their immediate competition and maximise
profitability and return on capital employed.
Richard Organ
6 May 2008
CEPS PLC
Consolidated Income Statement
Year ended 31 December 2007
(unaudited) (unaudited)
2007 2006
Note £'000 £'000
Revenue 2
- Continuing 8,239 7,709
- Acquisition 7,155 -
15,394 7,709
Cost of sales (13,102) (6,504)
Gross profit 2,292 1,205
Distribution expenses (366) (183)
Administration expenses (981) (637)
Operating profit 945 385
Analysis of operating profit
- Continuing 612 593
- Acquisition 712 -
- Abortive acquisition costs (71) -
- Group costs (308) (208)
Finance costs (271) (106)
Profit before tax 674 279
Taxation 3 (88) 158
Profit for the year 586 437
Attributable to:
Equity holders of the Company 491 426
Minority interest 95 11
586 437
Earnings per share 4
- basic and diluted 6.32p 11.95p
Consolidated Statement of Recognised Income &
Expense
(unaudited) (unaudited)
2007 2006
£'000 £'000
Fair value gains, net of tax 196 59
- Actuarial gain on retirement benefit
obligations
Net income recognised directly in equity 196 59
Profit for the year 586 437
Total recognised income for the year 782 496
Attributable to:
Equity holders of the Company 687 485
Minority interest 95 11
782 496
CEPS PLC
Consolidated Balance Sheet
As at 31 December 2007
(unaudited) (unaudited)
2007 2006
£'000 £'000
Assets
Non-current assets
Property, plant and equipment 1,239 279
Intangible assets 4,751 1,529
Deferred tax asset 45 155
6,035 1,963
Current assets
Inventories 1,391 1,324
Trade and other receivables 3,151 1,793
Deferred tax asset 225 218
Cash and cash equivalents 383 35
5,150 3,370
Total assets 11,185 5,333
Equity
Capital and reserves attributable to equity holders
of the Company
Called up share capital 416 178
Share premium 2,756 676
Profit and loss account 1,034 347
4,206 1,201
Minority interest in equity 159 138
Total equity 4,365 1,339
Liabilities
Non-current liabilities
Bank borrowings - loans 1,579 566
Other loans 330 -
Finance lease obligations 229 27
Retirement benefit liabilities 162 517
Provisions 55 32
2,355 1,142
Current liabilities
Bank borrowings - loans & overdrafts 685 448
Debtor backed working capital facilities 708 935
Finance lease obligations 97 9
Trade and other payables 2,778 1,427
Deferred tax liability 152 -
Current tax liabilities 45 33
4,465 2,852
Total liabilities 6,820 3,994
Total equity and liabilities 11,185 5,333
CEPS PLC
Consolidated Cash Flow Statement
Year ended 31 December 2007
(unaudited) (unaudited)
2007 2006
£'000 £'000
Cash flow from operating activities
Cash generated from operations 1,466 450
Tax(paid)/ received (237) 10
Interest paid (254) (106)
Net cash generated from operations 975 354
Cash flow from investing activities
Purchase of property, plant and equipment (116) (89)
Purchase of subsidiary undertakings (net of cash (3,940) -
acquired)
Payment of deferred consideration (30) (20)
Net cash used in investing activities (4,086) (109)
Cash flow from financing activities
Proceeds from issue of Ordinary share capital 2,318 -
Proceeds from new bank loans 2,000 -
Repayment of bank loans (604) (262)
Repayment of capital element of hire purchase (109) (4)
agreements
Net cash generated from/(used in) financing 3,605 (266)
activities
Net increase/(decrease) in cash and cash 494 (21)
equivalents
Cash and cash equivalents at the beginning of the (118) (97)
year
Cash and cash equivalents at the end of the year 376 (118)
Cash flows from operating activities
The reconciliation of operating profit to cash
flows from operating activities is as follows:
Operating profit for the year 945 385
Adjustments for:
Depreciation charge 264 110
Difference between pension charge and cash (76) (71)
contribution
Operating profit before changes in working capital 1,133 424
and provisions
Movement in provisions (27) (8)
Increase in inventories (3) (237)
Decrease/(increase) in trade and other receivables 164 (382)
Increase in trade and other payables 199 653
Cash generated from operations 1,466 450
Cash and cash equivalents
Cash at bank and in hand 383 35
Bank overdrafts repayable on demand (unsecured) (7) (153)
376 (118)
Notes to the financial information
1. Basis of preparation
These unaudited preliminary results have been prepared under the historical
cost convention and in accordance with International Financial Reporting
Standards ("IFRS") and interpretations in issue at 31 December 2007.
The Group set out the effect of adopting IFRS, its IFRS accounting policies and
details of significant IFRS adjustments in respect of the opening balance sheet
at 1 January 2006, the results for the year ended 31 December 2006 and the
balance sheet at 31 December 2006 in its half-yearly report published on 24
September 2007. The opening IFRS adjustments are again detailed in note 7
below.
The preliminary results were approved by the Board of Directors on 6 May 2008.
The preliminary results do not constitute statutory accounts within the meaning
of Section 240 of the Companies Act 1985. Comparative figures in the results
for the year ended 31 December 2006 have been taken from the IFRS half-yearly
report.
All periods presented are unaudited.
2. Segmental analysis
All activities are classed as continuing.
a) Primary reporting format - Business segments
The Group is managed in three principal business segments, with each segment
comprising a single trading subsidiary and operating in a defined business
sector.
i) Results by segment
Year ended 31 December 2007
Sale of goods Rendering of services
Friedman's Davies Odell Sunline Group
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
2007 2006 2007 2006 2007 2007 2006
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 2,878 2,663 5,361 5,046 7,155 15,394 7,709
Segmental result 294 293 429 410 865 1,588 703
Depreciation (32) (33) (79) (77) (153) (264) (110)
charge
Abortive (71) -
acquisition costs
Group costs (308) (208)
Operating profit 945 385
Interest expenses (271) (106)
Profit before 674 279
taxation
Taxation (88) 158
Profit for the 586 437
year
ii) Assets and liabilities by segment
As at 31 December 2007
Segment assets Segment liabilities Segment net assets
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
2007 2006 2007 2006 2007 2006
£'000 £'000 £'000 £'000 £'000 £'000
CEPS Group 467 150 (12) (55) 455 95
Friedman's 2,886 2,850 (1,956) (2,595) 930 255
Davies Odell 2,187 2,333 (1,254) (1,344) 933 989
Sunline 6,011 - (3,964) - 2,047 -
Total - Group 11,551 5,333 (7,186) (3,994) 4,365 1,339
iii) Non-cash expenses and capital expenditure
Other than as stated above there were no significant non-cash expenses.
Year ended 31 December
Capital expenditure
(unaudited) (unaudited)
2007 2006
£'000 £'000
CEPS Group 17 -
Friedman's 59 104
Davies Odell 86 27
Sunline 102 -
Total - Group 264 131
b) Secondary reporting format - Geographical segments
The United Kingdom is the source of turnover, operating profit and is the
principal location of the assets of the Group. The Group information provided
above therefore also represents the geographical segmental analysis.
3. Taxation
The charge for taxation on the profit for the year is analysed as follows:
2007 2006
(unaudited) (unaudited)
£'000 £'000
Current tax
UK corporation tax on profits of the year at 30% 123 25
Tax repaid in respect of prior periods (34) -
Total current tax 89 25
Deferred tax
Current year credit to the income statement (59) (192)
Prior year 58 9
Total deferred tax (1) (183)
Total tax charge/(credit) 88 (158)
Deferred tax charge to the statement of recognised 83 27
income and expense
4. Earnings per share
Basic earnings per share is calculated on the profit for the year after
taxation attributable to equity holders of the Company of £491,000 (2006, £
426,000) and on 7,767,435 (2006, 3,563,828) ordinary shares, being the weighted
number in issue during the year.
Diluted earnings per share is calculated on the weighted number of ordinary
shares in issue adjusted to reflect the potential effect of the exercise of
share warrants. No adjustment is required in either period because the fair
value of warrants was below the exercise price.
Adjusted earnings per share illustrates the calculation of basic earnings per
share before deduction of abortive acquisition costs of £71,000.
5. Acquisition
On 12 February 2007 the company acquired 80% of Sunline Direct Mail (Holdings)
Limited (SDMH) and 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.
The initial consideration paid by SDMH for SDM was £3,800,000 which 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.
The remaining 20% of SDMH is owned by the managing director of SDM. Deferred
consideration, currently estimated at £50,000 but potentially of up to a
maximum of £500,000, is payable dependent on the future trading performance of
SDM.
Since acquisition SDMH has contributed revenue of £7,155,000 and operating
profit of £712,000 to the Group results. Had SDMH been acquired at 1 January
2007, the first day of the financial year, it is anticipated that it would have
contributed revenue of £7,735,000 and operating profit of £760,000.
Details of the acquisition of SDM by SDMH are as follows:
Book Provisional
values fair values
£'000 £'000
Intangible fixed assets 473 -
Tangible fixed assets 1,014 1,014
Inventories 64 64
Debtors 1,522 1,522
Corporation tax (160) (160)
Creditors (888) (888)
Provisions (50) (50)
Deferred tax liability (173) (173)
Finance leases (256) (256)
Cash acquired 208 208
Net assets acquired 1,754 1,281
less Minority 20% interest (256)
Net assets acquired 1,025
Purchased goodwill 3,173
Consideration 4,198
Analysis of consideration:
Cash 3,450
Deferred consideration 50
Acquisition expenses 698
4,198
Purchased goodwill reflects the value of the reputation and customer base of
SDM but intangible assets have not been separately recognised because fair
values could not be attributed to them.
The fair value adjustment has been recognised to eliminate the goodwill
previously carried in SDM and now subsumed into the goodwill recognised on this
transaction
6. Share consolidation and fund raising
On 12 February 2007, shareholders approved a share consolidation in 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 £57,000 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 Sunline Direct Mail (Holdings ) Limited (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. Further
information about SDMH is given in note 5 above.
7. Explanation of the transition from UK GAAP to IFRS
These financial statements are the first set to be prepared under IFRS and as
such the following disclosures are required in the year of transition. The date
of transition is 1 January 2006.
i) Reconciliation of profit for the year
12 months to
31 December 2006
£'000
Profit under UK GAAP 357
Amortisation of goodwill 80
Profit under IFRS 437
ii) Reconciliation of equity at 1 January 2006
UK GAAP Transition IFRS Notes
Adjustment
Assets £'000 £'000 £'000
Non-current assets
Property, plant and 259 - 259
equipment
Intangible assets 1,529 - 1,529
Deferred tax asset - 202 202 b
1,788 202 1,990
Current assets
Inventories 1,087 - 1,087
Trade and other receivables 1,411 - 1,411
Current tax recoverable 1 - 1
Deferred tax asset 16 - 16
Cash and cash equivalents 24 - 24
2,539 - 2,539
Total assets 4,327 202 4,529
Equity
Capital and reserves attributable to equity holders of the Company
Called up share capital 178 - 178
Share premium 676 - 676
Retained earnings (138) - (138)
716 - 716
Minority interest in equity 127 - 127
Total equity 843 - 843
UK GAAP Transition IFRS Notes
Adjustment
Liabilities £'000 £'000 £'000
Non-current liabilities
Bank borrowings - loans 878 - 878
Retirement benefit 471 202 673 b
liabilities
Provisions 32 - 32
1,381 202 1,583
Current liabilities
Bank borrowings - loans & 366 - 366
overdrafts
Debtor backed working 416 - 416
capital
Trade and other payables 1,311 - 1,311
Provisions 10 - 10
2,103 - 2,103
Total liabilities 3,484 202 3,686
Total equity and 4,327 202 4,529
liabilities
iii) Reconciliation of equity at 31 December 2006
Assets
Non-current assets
Property, plant and 279 - 279
equipment
Intangible assets 1,449 80 1,529 a
Deferred tax asset - 155 155 b
1,728 235 1,963
Current assets
Inventories 1,324 - 1,324
Trade and other receivables 1,793 - 1,793
Deferred tax asset 218 - 218
Cash and cash equivalents 35 - 35
3,370 - 3,370
Total assets 5,098 235 5,333
Equity
Capital and reserves attributable to equity holders of the Company
Called up share capital 178 - 178
Share premium 676 - 676
Retained earnings 267 80 347
1,121 80 1,201
Minority interest in equity 138 - 138
Total equity 1,259 80 1,339
UK GAAP Transition IFRS Notes
Adjustment
Liabilities £'000 £'000 £'000
Non-current liabilities
Bank borrowings - loans 566 - 566
Trade and other payables 27 - 27
Retirement benefit 362 155 517 b
liabilities
Provisions 32 - 32
987 155 1,142
Current liabilities
Bank borrowings - loans & 448 - 448
overdrafts
Debtor backed working 935 - 935
capital
Trade and other payables 1,436 - 1,436
Current tax liabilities 33 - 33
2,852 - 2,852
Total liabilities 3,839 155 3,994
Total equity and 5,098 235 5,333
liabilities
iv) Notes to transition adjustments
a) IAS 38, Intangible assets, requires that goodwill is no longer amortised,
but instead is subject to an annual impairment review. In compliance, the
goodwill amortisation charged under UK GAAP during the year ended 31 December
2006 has been reversed. The Group has elected, as permitted under IFRS 3,
Business combinations, not to retrospectively restate goodwill relating to
acquisitions prior to 1 January 2006 and therefore the UK GAAP goodwill balance
at 31 December 2005 has been included in the transition IFRS balance sheet and
is no longer amortised.
b) IAS 19, 'Employee benefits', requires the pension liability to be disclosed
on the face of the balance sheet, gross of any recognised deferred tax. As a
result the deferred tax asset relating to the pension liability has been
transferred to non-current assets.
8. AIM compliance committee
In accordance with AIM Rule 31 the Company is required to have in place
sufficient procedures, resources and controls to enable its compliance with the
AIM Rules; seek advice from its nominated adviser ("Nomad") regarding its
compliance with the AIM Rules whenever appropriate and take that advice into
account; provide the Company's Nomad with any information it requests in order
for the Nomad to carry out its responsibilities under the AIM Rules for
Companies and the AIM Rules for Nominated Advisers; ensure that each of the
Company's directors accepts full responsibility, collectively and individually,
for compliance with the AIM Rules; and ensure that each director discloses
without delay all information which the Company needs in order to comply with
AIM Rule 17 (Disclosure of Miscellaneous Information) insofar as that
information is known to the director or could with reasonable diligence be
ascertained by the director.
In order to ensure that these obligations are being discharged, the Board has
established a committee of the Board (the "AIM Committee"), chaired by Richard
Organ, a non-executive director of the Company.
Having reviewed relevant Board papers, and met with the Company's Executive
Board and the Nomad to ensure that such is the case, the AIM Committee is
satisfied that the Company's obligations under AIM Rule 31 have been satisfied
during the year under review.
9. Distribution of the Annual Report
A copy of the Annual Report and Financial Statements will be circulated to all
shareholders shortly. Further copies will be available to the public from the
Company Secretary at the Company's registered address at 11 George Street, Bath
BA1 2EH or from the Group website, www.cepsplc.com.
For further information contact:
Peter Cook Managing Director CEPS PLC 07788 752 560
Jim McGeever Director Dowgate Capital Advisers Ltd 020 7492 4777
Aaron Smyth Assistant Director Dowgate Capital Advisers Ltd 020 7492 4777
Neil Badger Director Dowgate Capital Stockbrokers Ltd 012 9351 7744
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