Ceps Regulatory News (CEPS)

20 Sep 2005 06:00

CEPS PLC Interim results for the six months ended 30 June 2005 Chairman's StatementOverviewIn the 6 months to 30 June 2005, your Board has taken the first step in thedevelopment of the CEPS (Chelverton Equity Partners) concept with itsinvestment at the end of January in Friedman's, a specialist Lycra converterand distributor. I am delighted to say that trading in this company has metexpectations.Davies Odell, the protection equipment, matting and shoe components business,has experienced a slowing of demand in its original trading areas. However ithas been able, with larger marketing resources, to increase the sales ofpersonal protection equipment, the future growth area of the business.Your Board has looked at many investment opportunities over the past six monthsand has been surprised and pleased at the quality and size of the businessesthat have been introduced to CEPS. It appears that the CEPS concept hassignificant appeal to owner managers who wish to remain involved with theirbusinesses but arrange a structured exit over a period of time and be paid outon a gradual basis.A number of offers have been made but, as anyone who has dealt with thetransfer of private company ownership knows, discussions are generally lengthyand tortuous. When CEPS was refinanced last year, we had hoped to be able toadd new companies at the rate of one or two a year. We still believe this to bea realistic target.Financial ReviewIn the first half of 2005, the group has delivered an operating profit, afterexceptional items, ahead of last year at ‚£131,000 (2004 restated: ‚£123,000).This result includes for the first time the group share of the profit from itsinvestment in Friedman's. After interest charges of ‚£59,000 (2004 restated: ‚£28,000) the group profit on ordinary activities before taxation was ‚£72,000(2004 restated: ‚£95,000). Earnings per share (fully diluted) were 0.03p (2004restated: 0.14p).The purchase of a majority stake in Friedman's was funded by ‚£1.2 million ofnon recourse bank finance and a successful share placing, raising ‚£750,000before expenses, leaving additional funds with which to further strengthen thebalance sheet. Net assets as at 30 June 2005 excluding the pension liabilityincreased to ‚£1,324,000 (2004 restated: ‚£475,000) and total equityshareholders' funds increased from ‚£21,000 as at 31 December 2004 (restated) to‚£751,000.In this period the group has adopted FRS17 `Retirement Benefits' and hasrestated the results for previous periods. This has particularly affected thebalance sheet where a consequential pension liability of ‚£454,000 wasestablished at 1 January 2005. The changes also result in lower Group operatingcosts for pensions of which details are given in note 5. Agreement has beenreached with the Trustees of the Pension Fund to make good the existingactuarial shortfall of ‚£223,000 by way of additional contributions commencingin July 2005 at the rate of ‚£56,000 per annum.Operational reviewWith the inclusion of Friedman's, total sales increased in the six month periodby 23%. Segmental profit before group costs, however, increased by just 8% to ‚£218,000 (2004 restated: ‚£201,000).Trading at Davies Odell has been affected in some areas from the sharp slowdownin consumer spending this year. Sales overall are down 6% at ‚£2,046,000 withsales of rubber products to the shoe repair sector of particular concern.Margins have come under pressure, and profits have been further reduced by theinvestment in developing both the `Forcefield' products and brand. Overall thebusiness has achieved a segmental profit of ‚£86,000 compared with ‚£246,000. Themanagement has responded by reducing the head count and cutting costsgenerally. However, while these cost savings are material, they will only startto impact towards the end of the year.Davies Odell has continued to invest heavily in developing the `Forcefield'body-armour brand. The January edition of `Ride', a leading specialist consumermagazine, reported that the `Forcefield' back protector was the `best buy' onthe market. Additional advertising has been undertaken to ensure this positivemessage is promoted. Further new products have been developed and launched anda new website is being created. I am pleased to report that sales are running100% ahead of last year with improving margins. We believe that these products,starved of investment and marketing expenditure over the past five years,represent a significant business opportunity.Friedman's, on the other hand, has continued to enjoy good trading conditionsand the newly appointed French agent has successfully opened up new markets andaccounts. As a result of this success, the company will be looking to appointagents in other European countries beginning with Germany in the New Year.Reflecting the reduced central workload, Geoff Martin, the Finance Director,has decreased his time spent with the group and, simultaneously, the originalBristol office has now been closed.DividendThe Board is not recommending the payment of an interim dividend for the firsthalf of 2005 (2004: Nil). It is nevertheless committed to returning to thedividend list and paying a growing dividend as part of shareholders' returnfrom their investment.Prospects and future developmentsTrading in Friedman's for the second six months is expected to show growth onlast year. With new agents being appointed and the extra anticipated businessgenerated, the company is shortly going to move to larger premises to managethis and future growth.Trading in parts of the Davies Odell businesses continues to be slow with bothsales and margins under pressure. All businesses are managing their overheadstightly and, as mentioned above, action has already been taken to reduce theworkforce in line with the longer term expected levels of UK-based processingwork. Particular efforts are also being made to drive up margins in the mattingbusiness, where sales are currently on target.The development of the CEPS concept continues and a considerable amount of timeand effort has gone into identifying the right sort of company to enhance it inthe future. It is easy to overpay for a good company and it is also easy to buycheap businesses. We are striving to find the right companies at the rightprice, with the right management teams who are properly incentivised. We haveachieved this with Friedman's and a number of very promising opportunities arebeing studied at the moment.Richard OrganChairman20 September 2005CEPS PLCConsolidated Profit and Loss AccountSix months ended 30 June 2005 Unaudited Audited 6 months to 6 months to 12 months to 30 June 30 June 31 December 2005 2004 2004 (restated) (restated) ‚£'000 ‚£'000 ‚£'000 Turnover 2,046 2,191 4,676 continuing operations acquisition 1,184 - - discontinued operations - 428 687 3,230 2,619 5,363 Operating profit 131 152 245 before exceptional items Exceptional items Restructuring costs - (29) (99) Operating profit/(loss) (1) 168 269 continuing operations acquisition 132 - - discontinued operations - (45) (123) 131 123 146 Interest payable (59) (28) (32) Profit on ordinary activities 72 95 114 before taxation Taxation - - - Profit after taxation 72 95 114 Minority interests (20) - - Profit for the period 52 95 114 Dividends - - - Retained profit for the period 52 95 114 Earnings per share 0.03p 0.14p 0.11 p - basic 0.03p 0.14p 0.10 p - diluted Statement of total recognised gains and losses ‚£'000 ‚£'000 ‚£'000 Profit for the period 52 95 114 Actuarial loss recognised in - - (660)pension scheme Total recognised gains/(losses) 52 95 (546)for the period Prior year adjustment (454) Total recognised losses since last (402) annual report CEPS PLCConsolidated Balance SheetAs at 30 June 2005 Unaudited Audited As at As at As at 30 June 30 June 31 December 2005 2004 2004 (restated) (restated) ‚£'000 ‚£'000 ‚£'000 Net assets employed Fixed Assets 1,502 - - Intangible 303 266 263 Tangible 1,805 266 263 Current assets : Stocks 1,171 553 639 Debtors 1,267 814 813 Cash at bank and in hand 33 - 422 2,471 1,367 1,874 Creditors: amounts falling due (1,951) (656) (1,242)within one year Net current assets 520 711 632 Total assets less current 2,325 977 895liabilities Creditors : amounts falling due (997) (502) (420)after more than one year Provisions for liabilities and (4) - -charges Net assets excluding pension 1,324 475 475liability Pension (liability)/asset (see (433) 186 (454)note 5) Net assets including pension 891 661 21liability Capital and reserves Called up share capital 178 914 145 Share premium 645 1,783 - Special reserve - - 304 Profit and loss account (72) (2,036) (428) Total equity shareholders' funds 751 661 21 Minority interests: equity 78 - - : non equity 62 - - Capital employed 891 661 21 CEPS PLCConsolidated Cash Flow StatementSix months ended 30 June 2005 Unaudited Audited 6 months to 6 months to 12 months to 30 June 30 June 31 December 2005 2004 2004 (restated) (restated) ‚£'000 ‚£'000 ‚£'000 Reconciliation of operating profit to net cash flow from operating activities Operating profit 131 123 146 Depreciation and amortisation 78 26 52charges (Increase)/decrease in stocks (147) 36 (50) Decrease/(increase) in debtors 24 45 (91) Decrease in creditors (225) (215) (228) . . . Net cash (outflow)/inflow (139) 15 (171) from operating activities Cash Flow Statement Net cash (outflow)/inflow (139) 15 (171) from operating activities Returns on investments and (59) (28) (32)servicing of finance Taxation - - - Capital expenditure and financial (35) (20) (43)investment Acquisition (1,563) - - Disposal - - 137 (1,796) (33) (109) Financing 1,288 890 776 (Decrease)/increase in cash (508) 857 667 Reconciliation of net cash flow to movement in net debt (Decrease)/increase in cash in the (508) 857 667period Cash (increase)/decrease (560) 312 427 from change in debt Change in net debt (1,068) 1,169 1,094 Net debt at 1 January (565) (1,659) (1,659) Net debt at period end (1,633) (490) (565)Notes to the Financial Statements1. Segmental analysisUnaudited Friedman's Davies Odell Dinkie Group 6 months to 30 June 2005 2005 2004 2004 2005 2004 (restated) ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Turnover 1,184 2,046 2,191 428 3,230 2,619 Segmental profit/ 132 86 246 (16) 218 230(loss) before exceptional items Exceptional items - - - (29) - (29) Segmental profit/ 132 86 246 (45) 218 201(loss) before Group costs Group costs (87) (78) Profit before interest 131 123and taxation Interest payable (59) (28) Group profit before 72 95taxation Net assets 1,918 1,039 933 32 2,957 965 Pension (liability)/ (433) 186asset Unallocated net (1,633) (490)liabilities Total net assets 891 661 The investment in Friedman's was acquired on 25 January 2005 and accordingly nocomparative figures are included above.The operations comprising the Dinkie segment were sold in December 2004 to amanagement buy-out company.1. Segmental analysis (continued)Audited Dinkie Davies Odell Group (restated) Year ended 31 December ‚£'000 ‚£'000 ‚£'0002004 Turnover 687 4,676 5,363 Segmental (loss)/profit (24) 439 415 before exceptional items Exceptional items (99) - (99) Segmental (loss)/profit (123) 439 316 before Group costs Group costs (170) Profit before interest and 146 taxation Interest payable (32) Group profit before 114taxation Net (liabilities)/assets (129) 1,169 1,040 Pension liability (454) Unallocated net (565)liabilities Total net assets 212. Earnings per shareBasic earnings per share is calculated on earnings attributable to ordinaryshareholders after taxation of ‚£52,000 (2004 restated, ‚£95,000) and on172,451,369 (2004, 66,667,761) ordinary shares, being the weighted number inissue during the period.Diluted earnings per share is calculated on 190,299,165 ordinary shares, beingthe weighted average number adjusted to reflect the potential effect of theexercise of share warrants. In 2004 the exercise of warrants would not havebeen dilutive as the fair value of ordinary shares was below the exercise priceand accordingly basic and diluted earnings per share were the same.3. Acquisition0n 25 January 2005 the group acquired an initial 75% equity stake in the sharecapital of Signature Fabrics Limited (Signature), a company set up for thepurpose 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. The group's 75% equity stake willreduce on a ratchet basis to 55% dependent on the speed with which the loanstock in Signature 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 profit before tax ‚£320,000. Net assets at the same date were ‚£470,000.Details of the acquisition of Friedman's by Signature are as follows: Book value and provisional fair value ‚£'000 Fixed assets 51 Stock 385 Debtors 478 Cash 242 Creditors (701) Provisions (4) Net assets acquired 451 Purchased goodwill 1,534 1,985 Consideration: Cash 1,592 Deferred cash 110 Ordinary shares 8 Preference shares 62 Acquisition expenses 213 1,9854. Share capital and reservesOn 25 January 2005 the group placed 33,333,335 new ordinary shares of 0.1p eachat a price of 2.25p each raising ‚£750,000 before expenses. The investorsincluded members of the concert party detailed in the circular sent toshareholders of the company on 26 March 2004. The placing proceeds were in themain utilised to finance the acquisition of Friedman's (see note 3 above) withthe balance providing additional working capital for the group.Following the share placing, and in accordance with the arrangements confirmedby the High Court of Justice on 13 October 2004, the special reserve of ‚£304,000 has been eliminated and transferred to the profit and loss account.The movement in the profit and loss account reserve is shown below: Unaudited 6 months to 30 June 2005 ‚£'000 At beginning of period, as previously reported 26 Prior year adjustment - FRS17 (454) Retained profit for the period 52 Special reserve transfer 304 . At end of period (72)5. Adoption of FRS17 `Retirement Benefits'In the period the group has adopted FRS17 `Retirement Benefits' and the balancesheets at 30 June 2004 and at 31 December 2004 and the profit and loss accountsfor the year ended 31 December 2004 and for the six months ended 30 June 2004have been restated.Adoption of FRS17 has reduced the pension charge against operating profit inthe six month periods to 30 June 2005 and 2004 by ‚£20,000 and ‚£3,000respectively. It has also reduced finance costs by ‚£1,000 (‚£17,000), thesechanges being reflected within the group charge for interest payable. In theyear ended 31 December 2004 the reduction in the pension charge was ‚£6,000 andin finance costs ‚£34,000.Shareholders' funds have, in total, been reduced by ‚£454,000. This amount iscomprised of the pension fund surplus at 1 January 2004 of ‚£166,000 increasedin the year ended 31 December 2004 by the lower pension charge of ‚£40,000 andreduced by the recognition of the actuarial loss in the year of ‚£660,000.The movement in the profit and loss account reserve is shown in note 4 above.6. Status of the financial informationThe financial information contained in the accounts does not constitute fullaccounts within the meaning of the Companies Act 1985. The results for the halfyear to 30 June 2005 are unaudited. The abridged profit and loss account,balance sheet and cash flow statement for the year ended 31 December 2004 wereextracted from the published accounts which received an unqualified auditreport and which have been delivered to the Registrar of Companies.7. Distribution of the interim reportA copy of the interim report is being sent to shareholders. Further copies willbe available to the public from the Company Secretary at the company'sregistered address at 11 George Street, Bath BA1 2EH or from City FinancialAssociates Limited, Pountney Hill House, 6 Laurence Pountney Hill, London EC4R0BL.ENDCEPS PLC