Ceps Regulatory News (CEPS)

29 Jun 2006 15:00

CEPS PLC Preliminary Results for the year ended 31 December 2005 Chairman's StatementOverviewThe year to December 2005 has been one of considerable effort to improve theperformance of the Group's businesses. These improvements will take time to bereflected in the financial results but the Group's current performance isencouraging. Friedman's, the first acquisition under the new CEPS approach, has beensuccessfully integrated into the Group and, following its move in February, hasnow settled into its new larger premises. The investment in these facilitieswill bear fruit in the future, as it is better able to present its extensiverange of products and to use its increased capacity to meet the potentialdemand as new agents are appointed across Europe.Last year was a difficult one for Davies Odell. However the investment duringthe past year together with the restructuring of the businesses is beginning toshow positive results. We anticipate that the momentum evident in the firsthalf of 2006 should continue for the remainder of the year.In the past year we have reviewed many acquisition opportunities and have beensurprised to find that the "equity gap" for small companies extends to muchlarger companies than we had initially thought. As a result we are nowtargeting 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 amplifiedgiven 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 morecompanies, with the result that any additional company will be expected to makea significant contribution to profit as the infrastructure is already in placeto cope with a much larger operation.Financial reviewCEPS PLC this year reports for the first time as a Group and is required tomake a distinction in the accounts between the results of the Group, includingsubsidiary companies, and those of the company itself.Group operating profit for the year before amortisation of goodwill of ‚£74,000arising from the investment in Signature, the intermediate holding company ofFriedman's Limited, was ‚£242,000 (2004 restated, ‚£146,000). Group operatingprofit for the year after amortisation of goodwill was ‚£168,000 (2004 restated,‚£146,000). After interest charges of ‚£115,000 (2004 restated, ‚£32,000) butbefore amortisation of goodwill, Group profit on ordinary activities before taxwas ‚£127,000 (2004 restated, ‚£114,000). Group profit on ordinary activitiesbefore tax and after amortisation of goodwill was ‚£53,000 (2004 restated, ‚£114,000) and after tax and minority interests the retained profit for the yearwas ‚£40,000 (2004 restated, ‚£102,000).Earnings per share (fully diluted) were 0.02p (2004 restated, 0.09p). Earningsper share calculated prior to the charge for the amortisation of goodwill were0.07p (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 theissue of ordinary shares realising ‚£759,000 after expenses and the remainder byan increase in non recourse bank debt. Group net debt increased in the yearfrom ‚£294,000 (restated) to ‚£1,220,000 of which ‚£867,000 is attributable toSignature 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 equityshareholders' funds increased from ‚£157,000 (2004 restated) to ‚£716,000.In this year the Group has adopted FRS17 'Retirement Benefits' and has restatedthe results for previous periods. The prior year adjustment and the effects ofthe actuarial loss arising in each accounting year are shown in the statementof total recognised gains and losses. The net pension liability at the year endwas ‚£471,000 (2004 restated, ‚£318,000). The Group has agreed a contributionrate with the scheme trustees that, over the four years from 1 July 2005, isintended to restore a 100% funding level in the scheme.In December 2005, CEPS PLC commenced an operational reorganisation transferringthe trade assets and associated liabilities, including the defined benefitspension scheme of its residual trading divisions, into a wholly ownedsubsidiary company Davies Odell Limited. This reorganisation was completed inearly 2006.Operational reviewWith the inclusion of Friedman's accounts for 11 months, Group sales in 2005increased by 29% to ‚£6,919,000 (2004, ‚£5,363,000). Segmental profits beforegroup 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 by3.6% year-on-year and, coupled with rapidly rising energy and material costs,margins came under pressure. Reductions in sales of Phillips repair productsand in sales of body armour components to the equestrian trade wereparticularly relevant.However, there were a number of bright spots: Forcefield body armour salesdoubled in the year, beginning to justify the substantial investment in productdevelopment and promotion. At the very close of the year, a major repaircustomer for Phillips rubber soles and heels was regained from a competitorwhich should lead to improved sales for these products. In the matting businessall segments saw sales growth over the previous year, with the Equimat stablematting in particular achieving a 22% sales increase in a highly competitivemarket 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 duringits first eleven months of Group ownership. UK sales were slightly down onprevious years but these were replaced by increased sales in Europe. Now thatFriedman's has successfully relocated to new premises and the disruption causedby the change in ownership is behind us we anticipate that they will continueto make steady progress.DividendThe 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 topaying a growing dividend as part of investors' overall return from theirinvestment.Power to issue sharesThe 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 issuedproportionately to existing shareholders. These powers would for example allowthe company to issue shares as consideration, in part or whole, for a suitableacquisition.The directors seek the power to allot shares for the whole of the unissuedshare capital of ‚£152,211.83 and to issue shares other than in strictproportion 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 instrict proportion to existing shareholders, to 5% of the present issued sharecapital (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 considersthat the powers could be helpful and are not excessive in view of itsinvestment strategy and the present size of the company.Prospects - Existing ActivitiesDavies Odell and Friedman's have started 2006 well ahead of last year and inboth cases internal budgets anticipate improved financial performance over theprevious year.Friedman's have relocated to highly satisfactory newer and larger premises inStockport, which will provide the physical infrastructure for their anticipatedfuture growth for the next few years. At Davies Odell the business streams have been restructured under our twoGeneral Managers. All footwear and footwear repair sales are to be handledthrough Rushden, leaving the team at Kettering entirely focused on driving theprofitable growth of the matting business. Considerable opportunities forfurther growth in matting sales are foreseen through existing and new saleschannels. In both locations this change in approach has been embraced by theteams involved.Prospects - AcquisitionsOn the corporate development side considerable work has been put intoestablishing the next building block and we hope to be able to report on thesedevelopments in the future. As mentioned above, each extra business acquiredat this early stage in CEPS development would be expected to make a significantcontribution to the overall profitability of the Group. Unfortunately the "Concert Party" deemed by the Takeover Panel to have been setup at the time of the refinancing in April 2004 remains in place. As theConcert Party's aggregate holding fell last year below 50% nobody in thiscollective is able to buy shares without making a bid for the whole companywhich has adverse consequences on the liquidity of CEPS shares in the market.We look forward to the current year anticipating better results from theexisting companies and with the expectation that we will be able to expand theGroup through the acquisition of another high quality business. Richard OrganChairman 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 announcementdoes not comprise statutory accounts within the meaning of Section 240 of theCompanies Act 2005.The figures in this preliminary announcement have been prepared under generallyaccepted accounting policies in the United Kingdom. With the exception of thechanges in accounting policy set out in note 2 below, the accounting policiesadopted are those set out in the Annual Report & Accounts for the year ended 31December 2004 which includes the unqualified report of the independent auditorsand which have been filed with the Registrar of Companies.2. Changes in accounting Policy:The group has adopted Financial Reporting Standard 17 'Retirement Benefits' inthe financial statements. The adoption of the standard represents a change inaccounting policy and the comparative figures have been restated accordingly.The effect of the change in accounting policy to adopt FRS 17 was to decreasestaff 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 wasincreased 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 backedworking capital facilities and in 2005 has separately disclosed them withincreditors. At 31 December 2005 the amount of these facilities was ‚£416,000(2004, ‚£271,000). These were previously included within bank overdrafts and thecomparative figures have been restated.The directors have also considered the requirements of the other UK FinancialReporting Standards which apply to the Group for the first time in 2005 andhave concluded that they do not impact the Group's financial statements.3. Turnover and segmental analysisThe United Kingdom is the source of turnover and operating profit and theprincipal location of the net assets of the group. The directors consider thatthe group operates in two business segments serving various markets. Turnover,segmental profit/(loss) before group costs and net assets are analysed asfollows: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 nocomparative figures are included above. Friedman's converts and distributesspecialist Lycra.Davies Odell manufactures and distributes protection equipment, matting andfootwear components.The operations comprising the Dinkie segment were sold in December 2004 to amanagement 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. TaxationThe 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 shareBasic earnings per share is calculated on the profit on ordinary activitiesafter taxation and minority interests of ‚£40,000 (2004 restated, ‚£102,000) andon 175,344,987 (2004, 106,125,367) ordinary shares, being the weighted numberin 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 thepotential effect of the exercise of share warrants.6. AcquisitionOn 25 January 2005 the group acquired an initial 75% equity holding in theshare capital of Signature Fabrics Limited (Signature), a company set up forthe purpose of acquiring Friedman's Limited (Friedman's). The acquisition wasfunded by subscriptions by the group of ‚£91,666 for equity and ‚£408,333 forloan stock, by an initial 20% equity investment from the management ofSignature and the balance by bank finance and the issue of 5% of the sharecapital of Signature to the sellers. The group's 75% equity stake will reduceon a ratchet basis to 55% dependent on the speed with which the loan stock inSignature is repaid.Friedman's imports, converts and distributes Lycra based materials to swimwearand dancewear manufacturers. From the audited accounts for the year ended 31October 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 1November 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 taxcharge 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 atthe company's registered office, 11 George Street, Bath BA1 2EH.For further information contact:Paul Quade, City Road Communications Ltd 020 7334 0243Peter Cook, CEPS PLC 07779 644680ENDCEPS PLC