Ceps Regulatory News (CEPS)

CEPS PLC

("CEPS" OR THE "COMPANY")

FINAL RESULTS

The Board of CEPS is pleased to announce its final results for the year ended 31 December 2018.

CHAIRMAN'S STATEMENT

Financial review

These accounts from CEPS PLC are even more complicated than usual with discontinued activities in the form of Sunline Direct Mail ("Sunline"), exceptional costs being non-cash write-offs relating to CEM and of course movements on the deferred tax account which every other year make the tax charge look somewhat unusual!

The headline results are that total revenue was £21.6m for the year ended 31 December 2018 (2017: £23.6m) with some £3.1m represented by the discontinued activities of Sunline. Therefore, continuing revenue was £18.5m (2017: £16.9m).

Adjusted operating profit was £629,000 (2017: £1.1m) but included discontinued losses of £350,000 (2017: losses of £61,000). Consequently, ongoing operating profits were £979,000 (2017: £1.2m), which included significant losses in two of the five remaining subsidiaries. Both 2018 and 2017 had intangible impairments of £588,000 (customer lists) and £847,000 (goodwill) respectively. The operating loss after exceptional items was £12,000 (2017: operating profit after exceptional items £254,000).

In 2018 there was a loss before tax of £308,000 (2017: profit of £55,000) but this was after including discontinued losses of £445,000 (2017: losses of £156,000) and an intangible write-off of £588,000 (2017: £847,000). Consequently, the ongoing profit was a modest £137,000 (2017: £211,000).

Group costs were higher than last year at £386,000 (2017: £322,000) but included non-recurring costs of

£25,000.

Loss per share on a basic and diluted basis was 9.06p (2017: (4.11p)). The loss per share for the continuing operations was 6.26p (2017: (3.14p)) and if the impact of intangible impairments in both years is ignored, as well as the deferred tax asset write-off of £220,000 in 2018, the loss per share improves to 0.91p (2017: earnings per share 3.4p).

In the year 2018, cash generated from operations was £1.7m (2017: £1.8m) and there was a net increase in cash and cash equivalents of £854,000 (2017: £807,000). Year-end cash was £1.7m (2017: £851,000).

Operational review

Aford Awards

This company had another very good year and produced record profits. The repayment of the CEPS acquisition loan notes has commenced with £163,000 repaid in the year.

Several acquisition opportunities were investigated with a very small operation, C & M Trophies, being acquired in Littlehampton. This was modestly successful. However, it was decided in October to close the operation and to retain as much business as possible and service it out of Aford Awards' operation in Maidstone. This was a very useful exercise and gave the team much needed experience.

Other bolt-on deals are being investigated.

CEM Press

2018 was a very disappointing year for this company. Whilst it did win a number of large orders, as expected last year, it was unable to efficiently produce the volume of product within a demanding production schedule. It is also even more disappointing as other parts of the business performed well but were dragged back by the deficiencies of this production process.

After the year-end a major strategic move was made by the acquisition on 27 March 2019 of Travelfast Limited, trading as Sampling International ("Sampling"), based in Batley in West Yorkshire, for up to £1.2m conditional on the performance of the combined CEM and Sampling operations over a three-year period.

Sampling is approximately twice the size of CEM and this merged group creates one of the largest pattern book and shade card makers in the UK with two production facilities.

Some 40% of Sampling's business is in carpet sampling, a completely new area of sampling for CEM.

The objective of the merger is to broaden the CEM/Sampling business and, over time, become more efficient through the specialism of activities. Inevitably this will make 2019 a year of transition as exceptional costs are incurred in setting up the merged business such that it can deliver our expectation of good and growing profits into the future.

As we stated last year, we wanted CEM to be a consolidator in a fragmented industry sector. The first major step has been achieved and we are confident that there will other opportunities to grow by targeted acquisition going forward.

Under accounting rules, the carrying value of the intangible assets (customer lists and goodwill) needs to be reviewed annually and impaired if required. Consequently, the Board decided to write-off completely the value of the customer lists (£588,000). This a non-cash item and does not affect the underlying value of the business.

Davies Odell

This company had a tough year and was loss-making, which was disappointing after the move back into modest profit, at the EBITDA level before exceptional costs, the previous year

This company unfortunately had to make three people redundant to drive greater efficiency through the business and this cost was taken in the last quarter of the year with none of the benefit of the reduced cost base coming through in the results.

Since the year end this company has been profitable each month from a lower cost base, is ahead of budget and is working hard to improve efficiency and service levels. Its financial position and balance sheet are now better than they have been for many years and is the result of several years of steady improvement in the working capital position.

Friedman's

Another excellent year for this company with record ongoing profitability, pre-exceptional costs, which in turn has produced very strong cash generation.

The move to the new premises in Altrincham in March of last year was executed with minimum disruption to the business. These premises now showcase this excellent business and it is a real pleasure to have seen the development of this company over the past 12 years of CEPS' ownership.

The new premises and access to sufficient power has "future-proofed" the business and has enabled the team to set up a new product area marketed through the website www.alexandermaverick.co.uk which is selling customer designed and coloured cottons and linen for home furnishings. This goes alongside the rapidly growing Funki Fabrics website, www.funkifabrics.com, which is selling customer designed and coloured Lycra.

Hickton Consultants

This was a record set of results for this company with an acceleration in performance in the year with the second half being a significant improvement on the first half as the benefits of the acquisition of BRCS started to appear.

We are keen to expand this business and have reviewed several acquisition opportunities.

Sunline

As we reported at the interim stage this company went into administration on 13 June 2018. Having struggled to improve efficiency through automation and mechanisation and to change the product mix from some 90% plastic/10% paper to 60% plastic/40% paper, the impact of the introduction of the EU General Data Protection Act ("GDPR") in the first quarter of last year, which caused clients to delay placing orders, and the whole "Plastics Debate" led to the eventual administration of this company.

It is pleasing to note that anecdotally staff made redundant were able to find new roles in other organisations within a very short period.

Dividend

Whilst we had planned to carry out a capital reconstruction last year to enable CEPS to be able to pay a dividend, events around the Sunline administration meant that the Board considered this to be inappropriate.

Recognising the confidence that the Board has in the future of CEPS, this process will be "resurrected".

Power to allot additional shares

CEPS will be convening its Annual General Meeting to be held on 17 June 2019. Among other resolutions to be proposed, the Board will seek authority to allot shares equating to 100% of its present issued ordinary share capital in line with the requirements of our acquisition strategy.

People

The Board is most grateful to the ongoing efforts of all the Group's employees at a time of pressure and challenges in our companies. The Board would like to thank Mark Pollard for his three years of service and to welcome David Johnson as a non-executive director.

Outlook

I feel that there is no doubt that the CEPS "Group" in overall terms is going in the right direction. Certainly, as I said earlier, these accounts are very confusing and complicated, and it is hard, in the absence of individual company monthly management accounts, for the CEPS shareholder to discern this level of progress and improvement. I sincerely hope that the interim accounts and then final accounts in one year's time will clearly evidence what I believe to be the case.

To assist in the understanding of CEPS and its group of companies, the Board is investigating commissioning a third-party research company to produce periodic research which can be displayed on our website and sent out to interested parties, including existing and potential shareholders.

We are investigating a number of potential bolt-on acquisitions for 2019. These types of transaction bring considerable benefit, typically at a reasonable price and should, logically, be lower risk.

It is pleasing to have managed to get to this point without mentioning Brexit! We have reflected over the last few years on the impact some form of Brexit may have on our companies and it is our belief that if the UK economy continues to grow, as various august bodies are forecasting, then the economic environment will be satisfactory for our companies.

As the UK is still unclear around the outcome of Brexit and the likely impact on the UK economy, it is not possible to have a clear view on how this will impact the Group. However, because the Group has trading with Europe we acknowledge that there may be some impact.

Trading so far in the current year is marginally ahead of the Board's expectations and we will do all we can to keep pushing things forward.

David Horner

Chairman

7 May 2019

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

David Horner, Chairman, CEPS PLC

Tel: 01225 483030

Tony Rawlinson, Cairn Financial Advisers LLP

James Caithie

Nominated Adviser

Tel: 020 7213 0880

CEPS PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

YEAR ENDED 31 DECEMBER 2018

CEPS PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2018

The loss within the parent company financial statements for the year was £5,808,000 (2017: profit of £301,000).CEPS PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

YEAR ENDED 31 DECEMBER 2018

CEPS PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

YEAR ENDED 31 DECEMBER 2018

Share capital comprises the nominal value of shares subscribed for.

Share premium represents the amount above nominal value received for shares issued, less transaction costs.

Retained earnings comprise accumulated comprehensive income for the year and prior periods attributable to the parent, less dividends paid.

Non-controlling interest represents the element of retained earnings which is not attributable to the owners of the parent.

Notes to the financial information

1. General information

The Company is a limited liability company incorporated and domiciled in the UK. The address of its registered office is 11 Laura Place, Bath BA2 4BL and the registered number of the Company is 00507461.

2. Basis of preparation

This announcement is an extract from the consolidated financial statements of the Company for the year ended 31 December 2018 and comprises the Company and its subsidiaries. The consolidated financial statements were authorised for issuance on 7 May 2019. The financial information set out below does not constitute the Company's statutory accounts for the years ended 31 December 2017 or 2018 within the meaning of Section 434 of the Companies Act 2006, but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered following the Company's Annual General Meeting. The auditor's reports on the statutory accounts for the years ended 31 December 2017 and 31 December 2018 were unqualified and do not contain statements under s498(2) or (3) Companies Act 2006.This financial information has been prepared in accordance with the International Financial Reporting Standards ("IFRSs") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. Details of the key accounting policies applied are set out in the financial statements.Certain statements in this announcement constitute forward-looking statements. Any statement in this announcement that is not a statement of historical fact including, without limitation, those regarding the Company's future expectations, operations, financial performance, financial condition and business is a forward-looking statement. Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties include, amongst other factors, changing economic, financial, business or other market conditions. These and other factors could adversely affect the outcome and financial effects of the plans and events described in this announcement and the Company undertakes no obligation to update its view of such risks and uncertainties or to update the forward-looking statements contained herein. Nothing in this announcement should be construed as a profit forecast.

The Group financial statements are presented in GBP (£) and to the nearest thousand ('000). This Group expects to transact more of its business in GBP than any other currency and it is also the functional currency of the Group.

The financial information set out in this announcement was approved by the Board on 7 May 2019.

3. Critical accounting assumptions, judgements and estimates

The fair values of all financial assets and liabilities approximate to their carrying values.

a) Impairment of intangible assets (including goodwill and customer relationships)

The Group tests annually whether intangible assets (including goodwill) have suffered any impairment. The recoverable amounts of the cash-generating units have been determined based on value-in-use calculations. The calculations require the use of estimates (note 8).

b) Impairment of non-current assets

The Company assesses the impairment of tangible fixed assets subject to depreciation whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important that could trigger an impairment review include the following:

· Significant underperformance relative to historical or projected future operating results;

· Significant changes in the manner of the use of the acquired assets or the strategy for the overall business; and

· Significant negative industry or economic trends.

c) Depreciation and residual values

The Directors have reviewed the asset lives and associated residual values of all fixed asset classes and have concluded that asset lives and residual values are appropriate.

The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors. In re-assessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projects' disposal values.

d) Carrying value of stocks

Management reviews the market value of and demand for its stocks on a periodic basis to ensure stock is recorded in the financial statements at the lower of cost and net realisable value. Any provision for impairment is recorded against the carrying value of stocks. Management uses its knowledge of market conditions, historical experiences and estimates of future events to assess future demand for the Company's products and achievable selling prices.

e) Recoverability of trade debtors

Trade and other debtors are recognised to the extent that they are judged recoverable. Management reviews are performed to estimate the level of reserves required for irrecoverable debt. Provisions are made specifically against invoices where recoverability is uncertain.

Management makes allowance for doubtful debts based on an assessment of the recoverability of debtors. Allowances are applied to debtors where events or changes in circumstances indicate that the carrying amounts may not be recoverable. Management specifically analyses historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when making a judgement to evaluate the adequacy of the provision for doubtful debts. Where the expectation is different from the original estimate, such difference will impact the carrying value of debtors and the charge in the Consolidated Statement of Comprehensive Income.

f) Leases

Management must determine whether leases entered into by the Company either as a lessor or a lessee are operating or finance leases. These decisions depend on an assessment of whether the risks and rewards of ownership have been transferred from the lessor to the lessee on a lease by lease basis based on an evaluation of the terms and conditions of the arrangements, and accordingly whether the lease requires an asset and liability to be recognised in the Consolidated Statement of Financial Position.

g) Taxation

There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due.

h) Deferred tax assets

Certain subsidiaries of the Group (principally Davies Odell) have accelerated capital allowances and brought forward tax losses. In the previous year deferred tax assets were recognised in respect of the brought-forward tax losses. The recognition of the assets reflects management's estimate of the recoverable amounts in respect of these items. Due to the uncertainty around the level of future profits deferred tax assets have been written-off this year.

i) Retirement benefit liabilities

The Group operates a defined benefits pension scheme. The scheme is subject to triennial actuarial valuation and the Group commissions an independent qualified actuary to update to each financial year end the previous triennial result. The results of this update are included in the financial statements. In reaching the annually updated results management makes assumptions and estimates. These assumptions and estimates are made advisedly but are not any guarantee of the performance of the scheme or of the outcome of each triennial review.

4. Segmental analysis

The Chief Operating Decision Maker ("CODM) of the Group is its Board. Each operating segment regularly reports its performance to the Board which, based on those reports, allocates resources to and assesses the performance of those operating segments.

Operating segments and their principal activities are as follows:

- Aford Awards, a sports trophy and engraving company

- CEM Press, a manufacturer of fabric and wallpaper pattern books, swatches and shade cards

- Davies Odell, a manufacturer and distributor of protection equipment, matting and footwear components

- Friedman's, a convertor and distributor of specialist Lycra

- Hickton, including BRCS, a provider of services to the construction industry

- Sunline, a supplier of services to the direct mail market. The company entered administration on 13 June 2018 and is therefore shown as a discontinued operation in these financial statements

- Group costs, costs incurred at Head Office level to support the activities of the Group

The United Kingdom is the main country of operation from which the Group derives its revenue and operating profit and is the principal location of the assets and liabilities of the Group. All Group revenue is recognised at a point in time, rather than over a period in time, in line with the requirements of IFRS 15.

The Board assesses the performance of each operating segment by a measure of adjusted earnings before interest, tax, Group costs, depreciation and amortisation (EBITDA). Other information provided to the Board is measured in a manner consistent with that in the financial statements.

i) Results by segment

Year ended 31 December 2018

Year ended 31 December 2017

ii) Assets and liabilities by segment

As at 31 December

5. Tax

The tax assessed for the year is higher (2017: higher) than the standard rate of corporation tax in the UK (19%) (2017: 19%)

The standard rate of corporation tax in the UK changed to 19% with effect from 1 April 2017. Accordingly, the Group's profits for the previous accounting year are taxed at an effective rate of 19%. Current year profits have been taxed at the actual rate of 19%.

Reduction in the United Kingdom corporation tax rate to 17% (effective from 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the Group's future current tax charge accordingly. The deferred tax balance has been calculated based on the rate of 17%.

There are unused trading losses within various subsidiaries. Please refer to the subsidiary accounts for further information.

6. Earnings per share

Basic earnings per share is calculated on the loss for the year after taxation attributable to owners of the parent of £1,369,000 (2017: loss £532,000) and on 15,105,176 (2017: 12,951,576) ordinary shares, being the weighted number in issue during the year.

7. Property, plant and equipment

At the year end, assets held under hire purchase contracts and capitalised as plant, machinery, tools and moulds have a net book value of £290,000 (2017: £1,479,000) and an accumulated depreciation balance of £2,410,000 (2017: £2,194,000).

The depreciation has been charged to cost of sales in the Consolidated Statement of Comprehensive Income.

8. Intangible assets

Goodwill is not amortised under IFRS, but is subject to impairment testing either annually or on the occurrence of a triggering event. Impairment charges are included in administration expenses and disclosed as an exceptional cost.

Customer lists are subject to annual impairment reviews.

Other intangibles relate to computer software, website costs and licences and are amortised over their estimated economic lives. The annual amortisation charge is expensed to cost of sales in the Consolidated Statement of Comprehensive Income.

Impairment tests for goodwill and intangible assets

The Group tests goodwill and intangible assets arising on acquisition of a subsidiary (customer lists) annually for impairment or more frequently if there are indications that goodwill or customer lists may be impaired.

For the purpose of impairment testing, goodwill is allocated to the Group's cash generating units (CGUs) on a business segment basis:

The recoverable amount of CGU is based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond five years are assumed to be constant. A discount rate of 9.36% (2017: 9.95%), representing the estimated pre-tax cost of capital has been applied to these projections.

The key assumptions used in the value-in-use calculations are as follows:-

Management has determined the budgeted revenue growth and gross margins based on past performance and their expectations of market developments in the future. Long-term growth rates are based on the lower of the UK long-term growth rate and management's general expectations for the relevant CGU.

In respect of Aford Awards, Friedman's and Hickton Consultants the value-in-use calculation gives rise to sufficient headroom such that reasonable changes in the key assumptions do not eliminate the headroom.

At December 2018 an impairment charge of £588,000 was taken against the carrying value of goodwill related to CEM Press. This reflected the challenging economic and trading environment of the pattern book market in which the business was operating.

9. Share capital and share premium

10. Post balance sheet event

Acquisition of Sampling International

On 27 March 2019 CemTeal Limited purchased 100% of the share capital of Travelfast Limited, which trades as Sampling International, for a consideration of £9. There is the potential for further consideration to be paid, dependent on performance of the company, with a maximum consideration of £1,200,009. The remaining consideration is payable over a three-year period from the completion date.

11. Distribution of the Annual Report and Notice of AGM

A copy of the 2018 Annual Report, together with a notice of the Company's Annual General Meeting to be held at 11:30am on Monday 17 June 2019 at 11 Laura Place, Bath BA2 4BL, will be sent to all shareholders on Tuesday 14 May 2019. Further copies will be available to the public from the Company Secretary at the Company's registered address at 11 Laura Place, Bath BA2 4BL and from the Group website, www.cepsplc.com.