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LONDON (Alliance News) - CEPS PLC saw its shares drop over 20% early Thursday, after it said operating profit dropped by 30% as newly automated production lines at its Sunline direct mail business underperformed during the key profit-earning period.
CEPS, which has four businesses comprising body armour and matting manufacturer Davies Odell, textile importer Friedmand's, direct mail business Sunline, and trophies and medals maker Aford Awards, reported an operating profit of GBP244,000 for 2014, down from GBP348,000 in 2013, as a big increase in operating expenses related to the problems at Sunline offset an increase in overall revenue to GBP17.0 million from GBP15.6 million.
Its pretax profit fell to GBP245,000, from GBP261,000 in 2013, as some of the decline in operating profit was offset by a GBP104,000 drop in finance costs as it wrote back GBP134,000 in finance costs due to a waiver of the amount of outstanding preference dividend due to Sunline's non-controlling interest.
Sunline spent GBP1.2 million on restructuring its polywrap production line, automating the production process and allowing despatch to be made in trays, which the company says will become the industry norm in 2016.
"A combination of a shortage of skilled labour, the unforeseen interaction between lines causing slow running and the shortage of work despatchable in the trays used in production, created major levels of underproduction. This, inevitably, required extensive and expensive contracting-out and large unforeseen overtime costs in order to meet customer deadlines," CEPS said.
This meant that although sales were up 5% in the second half of 2014 at Sunline, the business swung to an operating loss of GBP149,000 in 2014 as a whole compared with a profit of GBP237,000 in 2013.
CEPS said Sunline is now in the process of "hauling itself back to profitability" and it broke even in the early months of 2015.
"The team is resolutely addressing the issues that have been identified with additional recruitment, more training for current staff, careful emphasis on detailed production planning on the automated polywrap lines and by driving up the potential to despatch in trays from 15 % to above 70%. I expect the business to make further substantial progress as the year unfolds," CEPS Chairman Richard Organ said.
Its other businesses performed better in 2014. Revenue was up 2% at Davies Odell and margins also improved, and the same applied in the Freidman's business.
It said Friedmand's has bought another digital printer, enabling extensive short-run production runs for customers buying directly via the Funki Fabrics website.
"The underlying trading environment is strengthening slowly in the UK and USA, though the Eurozone remains pretty flat. Any upside from this is being offset by margin reductions because of the strengthening of the dollar and weakening of the euro," the company said in its outlook statement.
"Against this background, I anticipate further strong performances from Friedman's and, for the first time, Aford Awards. Increased sales at Davies Odell have been hard to generate in the first quarter of 2015 and I remain cautious about its prospects," Organ said.
CEPS shares were down 22.3% at 26.82 pence early Thursday, making it one of the worst-performing stocks in London's Main Market.
By Steve McGrath; stevemcgrath@alliancenews.com; @stevemcgrath1
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