Final Results

Ceps

22/05/2020 07:00

RNS Number : 6835N

CEPS PLC

22 May 2020

 

CEPS PLC

('CEPS' OR THE 'COMPANY' OR THE 'GROUP')

 

FINAL RESULTS

 

The Board of CEPS is pleased to announce its final results for the year ended 31 December 2019.

 

CHAIRMAN'S STATEMENT

 

I sincerely hope that all our shareholders, customers and suppliers are safe and bearing up in these very difficult and exceptional times.

 

To our knowledge all our employees are safe and well during this period of Coronavirus lockdown and it is important to stress that, however CEPS PLC and our subsidiaries move forward from this current position, it will only be done after full consideration of people's safety and welfare.

 

Writing this report now feels very strange as our plans and strategies have, literally, been put on hold until a move to normalisation is commenced.  However, it is also equally important to stress that all steps that can be taken have been taken to ensure that when that happens CEPS and its subsidiaries are ready to implement, as appropriate, our plans and strategies.

 

Financial review

 

The financial year being reported on epitomises the recent challenge with CEPS: most of the companies doing well or very well with one subsidiary doing very badly and, consequently, tainting the whole picture.  This year we decided that we were unable to continue supporting the merged CEM and Sampling International as the losses and cash requirement grew to unacceptable levels.  This grouping was placed into administration. However, in order to maximise the chances of an employee led buy-out we delayed this until early January 2020.  The expectation is that in 2020 an exceptional gain on the ultimate disposal will be recognised.  Therefore, whilst our intention was to enter the new year with a clear, trouble-free profile we were not able to achieve this before the current circumstances have, effectively, put a clean set of accounts on hold until at least 2021.

 

Although the consolidated results for the year include CEM and Sampling International, to get a better understanding of the results and the make-up of the Group from 2020 onwards we have included two supplementary pages (notes 13 and 14) which analyse the Consolidated Statement of Comprehensive Income and the Consolidated Statement of Cash Flow between 'continuing' (made up of Aford Awards, Davies Odell, Friedman's and Hickton Consultants) and 'to be discontinued' (made up of CEM and Sampling International) operations.

 

Total revenue for 2019 was £21.8m (2018: £21.6m; £18.5m from continuing operations), of which £16.1m was generated from continuing operations and £5.7m from to be discontinued operations.

 

The segmental result (EBITDA) before exceptional items of £971,000 (2018: £1.5m; £1.7m from continuing operations) shows EBITDA of £2.5m from continuing operations. For all companies within this category there was an improvement in performance when compared to the previous year.

 

The operating loss for the year was £1.9m (2018: loss of £12,000; operating profit of £391,000 from continuing operations), which includes the £3.5m losses from CEM and Sampling International, part of which was the £1.2m exceptional cost resulting from the write-down of assets to their net realisable value.  If we exclude these amounts the operating profits generated from continuing operations were £1.6m.

 

The loss for the year before taxation was £2.3m (2018: loss of £308,000; profits of £137,000 from continuing operations), but the profits of the continuing businesses in 2019 amounted to £1.3m and the losses of to be discontinued operations totalled £3.6m.

 

The loss for the year after taxation was £2.6m (2018: loss of £876,000; £431,000 from continuing operations), but the profits from continuing operations in 2019 amounted to £935,000 while the losses of to be discontinued operations totalled £3.6m.

 

Loss per share on a basic and diluted basis was 15.86p (2018: loss per share of 9.06p; loss from continuing operations 6.26p) which can be analysed between earnings per share of 1.47p from continuing operations and a loss per share of 17.33p from to be discontinued operations.

 

From a cash perspective, the cash generated from operations was £365,000 in 2019 (2018: £1.7m; cash generated from continuing operations £1.4m), of which £1.4m cash was generated by continuing operations and £1.1m was used by CEM and Sampling International.

 

Net debt increased over the year from £1.4m at the end of 2018 to £4.3m at the end of 2019 and as a result the gearing ratio increased from 25% to 156% over the same period.  Borrowings by CEPS increased by £4.3m, part of which was used to finance new acquisitions and part was used to support CEM and Sampling International, prior to the decision to place the companies into administration.

 

On 1 January 2019, the Group implemented IFRS 16 Leases, which replaces IAS 17 Leases.  The new standard brings most leases on to the Consolidated Statement of Financial Position for lessees and eliminates the distinction between operating and finance leases.  Under IFRS 16 a lessee recognises a right-of-use asset and a lease liability.  The right-of-use asset is treated in a similar way to a non-financial asset and is depreciated.  The lease liability is initially measured at the present value of the stream of lease payments over the lease term, discounted at the incremental borrowing rate.

 

The Group implemented IFRS 16 from 1 January 2019 by applying the modified retrospective approach meaning that comparative figures in the financial statements for the year ending 31 December 2019 are not restated to show the impact of IFRS 16.

 

The operating leases that are recorded for the first time relate to properties and vehicles.  The right-of-use asset in the Consolidated Statement of Financial Position at 31 December 2019 was £1.1m and the lease liabilities were £1.2m.

 

As stated in note 9 of notes to the financial statements the most recent valuation of the Dinkie Heel Defined Benefit Pension Scheme at 1 July 2019 showed a surplus in the scheme and, based on this result, no recovery plan is necessary at least until the next triennial valuation in 2022.  In real terms, this means a cash saving to CEPS of £81,000 per annum.

 

It is clear that, prior to the impact of the Coronavirus pandemic, the likelihood was that the Group, made up of continuing operations as defined in 2019, would be profitable and cash generative in 2020.

 

In the last quarter of 2019, anticipating that 2020 was going to be the start of a very positive outcome for CEPS, we signed up with a third party research company who we engaged to produce 'independent' research to inform potential investors about the activities and financial performance of CEPS.  Sadly, this has now had to be put on hold for obvious reasons and will be resurrected in the latter part of this year if the UK emerges from lockdown in a satisfactory manner.

 

Operational review

 

I will now report on the performance of the individual companies.

 

Aford Awards

Trading was in line with expectations.  Steps were taken through the year to improve efficiencies in the business in all areas and, consequently, the busy seasonal periods were better managed than in the past.  This encouraged the management team to scale up marketing in the busy period of 2020 confident that it could manage and deliver more late notice business.

 

The company continued to repay its outstanding loan notes and by the end of the year had reduced these original acquisition loans to the shareholder loans, totalling £300,000, of which CEPS' share is 70%.

 

During the year the decision was taken to close C & M, the small shop-based operation acquired in the previous year, and transfer as much recurring trade as possible back to the Aford Awards base in Maidstone.

 

This has been successful and will be one of the business drivers for the company in the future.  The trophies/awards/engraving sector, despite the internet, remains very fragmented and Aford Awards will, in the future, act as a consolidator.  This is, of course, a relatively low-risk method of expansion as the purchase price of these businesses is, essentially, the stock and equipment and the work that can be transferred will make a significant marginal contribution.

 

Davies Odell

The company remains marginally loss-making following the reduction in overheads in 2018.  The process of rightsizing the business continues and, sadly, additional people have left the company.  The benefit of this overhead reduction was to have been felt in 2020, but its impact has been lessened by the effects of the Coronavirus on the performance of the company.

 

Friedman's

The business continued to make very good profits in 2019 and steps were taken to increase the sales and marketing efforts in order to better utilise the increased capacity put in place the previous year.

 

The management team was very busy and involved for a good part of the year on the purchase of Milano International Limited ('Milano') on 4 October 2019.  Milano, based in Preston, is a supplier of gymnastic leotards made from Lycra, some of which is supplied by Friedman's.

 

Discussions had been off and on with the owners of Milano over a period of five years. Signature Holdings, the holding company for Friedman's, has acquired Milano financed by £1m of loan stock from CEPS, vendor loans and funding from cash generated by Friedman's.

 

Since the purchase considerable work and investment has gone into expanding the manufacturing capacity, revamping the sales and marketing efforts and broadening the product range.  Everything was planned to be launched in early April, but of course is now on hold.

 

Hickton Consultants

Another excellent year from the company.

 

Trading in Hickton was ahead of expectations, although the performance of the much smaller subsidiary, BRCS, continued to disappoint.

 

Partially to address this, post year end on 11 March 2020, a major transaction was completed which had been in process from the end of 2018.  This was the purchases of Cook Brown Building Control Limited, a building control company like BRCS, and Cook Brown Energy Limited (together 'Cook Brown').  The transaction was completed by forming a new company called Hickton Group Limited which acquired both Hickton Consultants and Cook Brown.

 

As part of this exercise James Cook and Matthew Brown received shares in Hickton Group and will work alongside Tony Mobbs, Chairman of Hickton Group, and Janet Pryke, Finance Director.

 

CEPS 'rolled over' its entire investment into 55% of the equity of the Hickton Group with, in addition, £2.24m of loan stock.

 

The Board is very excited about the future development of this specialist building services group.

 

Outlook

It is of course very difficult or even impossible at this stage to write anything about the outlook that will possibly bear scrutiny in a month or two, never mind in 12 months' time.

 

The management teams at each subsidiary are doing their utmost to protect their companies from the current pressing issues, whilst ensuring that they will be ready to emerge from our current lockdown state in strong operational positions ready to make a significant recovery and then progress.

 

I believe that the restructuring of the Group over the last two years now leaves it with subsidiaries that are well positioned to grow and to deliver attractive shareholder returns, once the world returns to more normal conditions.

 

David Horner

Chairman

 

21 May 2020

 

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

 

 

David Horner, Chairman, CEPS PLC

Tel: 01225 483030

 

James Caithie, Cairn Financial Advisers LLP

Nominated Adviser

Tel:  020 7213 0880

 

The Impact of Coronavirus on the Group

 

At the date of signing these accounts, Coronavirus represents both a risk to the business and its people.  The Group is taking active measures to ensure its people remain safe and healthy.  Measures include additional education on cleanliness, self-isolation, social distancing and the ability to work from home or in roster patterns where necessary. There are daily business continuity and health and safety meetings to ensure compliance with the measures introduced.

 

As with most businesses, there are some short-term practical difficulties that have had to be managed.  The severity and length of economic downturn is unknown due to the social distancing methods currently in place by the UK Government.  However, the majority of the Group's subsidiaries are continuing to trade by the virtue of being online or in a construction related sector, albeit it at a reduced volume.

 

The pledges made by the UK Government provide further comfort to the directors that they will have access to additional funding, should they require, from the various measures that the Government has put in place to help protect employment and support businesses through this period of uncertainty.  All subsidiaries are currently accessing the UK Government's Job Retention Scheme and are pursuing other relevant schemes available to them.

 

The directors have prepared Group cash flow projections for the period to 30 June 2021 based on latest subsidiary forecasts that show that the Group will be able to operate within the Group's current funding resources.  The financial uncertainty created within the economy as a result of Covid-19 is clearly difficult to forecast and predict, but the directors have produced sensitised forecasts based on their best estimates of likely outcomes and they believe that, for the 12 month period from the date of signing these financial statements, the Group will be able to operate within the financial facilities available to it.  Post year end, the Group has secured an extension and additional funding from existing debt providers to 30 June 2021 to enable the business to operate within the financial facilities available to it.

 

Furthermore, the directors are comforted by the clear sentiment from the UK Government that they will support business during this difficult time with a range of measures already outlined to protect jobs and business, with more to come.

 

On this basis, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and for at least 12 months from the date of these financial statements.  The directors, therefore, continue to adopt the going concern basis in preparing the financial statements.

CEPS PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

YEAR ENDED 31 DECEMBER 2019

 

Continuing Operations
Discontinued Operations
Audited
Audited
Audited
2019
2018
2018
2018
£'000
£'000
£'000
Revenue (note 4)
21,753
18,474
3,118
21,592
Cost of sales
(15,588)
(12,469)
(3,172)
(15,641)
Gross profit/(loss)
6,165
6,005
(54)
5,951
Administration expenses
(6,203)
(5,026)
(296)
(5,322)
Adjusted operating (loss)/profit
(38)
979
(350)
629
Exceptional item
(1,836)
-
(53)
(53)
Customer list impairment (note 10)
-
(588)
-
(588)
Operating (loss)/profit
(1,874)
391
(403)
(12)
Analysis of operating (loss)/profit
- Trading
338
1,365
(350)
1,015
- Exceptional item
(1,836)
-
(53)
(53)
- Customer list impairment
-
(588)
-
(588)
- Group costs
(376)
(386)
-
(386)
(1,874)
391
(403)
(12)
Finance income
28
15
-
15
Finance costs
(441)
(269)
(42)
(311)
(Loss)/profit before tax
(2,287)
137
(445)
(308)
Taxation (note 5)
(342)
(568)
-
(568)
Loss for the year
(2,629)
(431)
(445)
(876)
Other comprehensive loss:
 Items that will not be reclassified to profit or loss
Actuarial loss on defined benefit pension plans
(99)
(88)
-
(88)
Other comprehensive loss for the year, net of tax
(99)
(88)
-
(88)
Total comprehensive loss for the year
(2,728)
(519)
(445)
(964)
(Loss)/income attributable to:
Owners of the parent
(2,696)
(946)
(423)
(1,369)
Non-controlling interest
67
515
(22)
493
(2,629)
(431)
(445)
(876)
Total comprehensive (loss)/income attributable to:
Owners of the parent
(2,795)
(1,034)
(423)
(1,457)
Non-controlling interest
67
515
(22)
493
(2,728)
(519)
(445)
(964)
Earnings per share
- basic and diluted (note 6)
(15.86p)
(6.26p)
(2.80p)
(9.06p)

CEPS PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2019

2019
2018
£'000
£'000
Assets
Non-current assets
Property, plant and equipment
1,099
991
Right-of-use assets
1,072
-
Intangible assets
6,360
4,741
Investments in subsidiaries
-
-
8,531
5,732
Current assets
Inventories
2,254
1,815
Trade and other receivables
3,366
3,331
Cash and cash equivalents (excluding bank overdrafts)
1,958
1,705
7,578
6,851
Total assets
16,109
12,583
Equity
Capital and reserves attributable to owners of the parent
Called up share capital
1,700
1,700
Share premium
5,841
5,841
Retained earnings
(6,808)
(4,013)
733
3,528
Non-controlling interest in equity
2,018
1,932
Total equity
2,751
5,460
Liabilities
Non-current liabilities
Borrowings
5,152
1,128
IFRS lease liability
982
-
Deferred tax liability
109
88
6,243
1,216
Current liabilities
Borrowings
2,174
2,734
IFRS lease liability
201
-
Trade and other payables
3,544
2,180
Current tax liabilities
1,196
993
7,115
5,907
Total liabilities
13,358
7,123
Total equity and liabilities
16,109
12,583

 

The loss within the parent company financial statements for the year was £3,254,000 (2018: loss of £5,808,000).

CEPS PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

YEAR ENDED 31 DECEMBER 2019

2019
2018
£'000
£'000
Cash flows from operating activities
Loss for the financial year
(2,629)
(308)
Adjustments for:
Depreciation and amortisation
633
470
Profit on disposal of a subsidiary
-
(147)
Customer list impairment
-
588
Impairment of goodwill
395
-
Write-down of fixed assets
229
Loss on disposal of property, plant and equipment
-
29
Net finance costs
413
296
Taxation charge
342
-
Changes in working capital:
Movement in inventories
172
(86)
Movement in trade and other receivables
928
(773)
Movement in trade and other payables
(118)
1,682
Movement in provisions
-
(100)
Cash generated from operations
365
1,651
Corporation tax paid
(341)
(258)
Net cash generated from operations
24
1,393
Cash flows from investing activities
Interest received
28
-
Acquisition of subsidiary net of cash acquired
(1,790)
-
Purchase of property, plant and equipment
(241)
(859)
Proceeds from sale of assets
-
1
Purchase of intangibles
-
(150)
Net cash used in investing activities
(2,003)
(1,008)
Cash flows from financing activities
Proceeds from/(repayment of) borrowings
2,885
(267)
Proceeds from share issue net of issue costs
-
1,326
Dividend paid to non-controlling interests
-
(45)
Interest paid
(310)
(311)
Repayment of finance leases/IFRS leases
(343)
(234)
Net cash generated from financing activities
2,232
469
Net increase in cash and cash equivalents
253
854
Cash and cash equivalents at the beginning of the year
1,705
851
Cash and cash equivalents at the end of the year
1,958
1,705


 

CEPS PLC

CONSOLIDATED STATEMENT OF CASH FLOWS (PRIOR YEAR)

YEAR ENDED 31 DECEMBER 2019

 

 

Continuing Operations
 2018
Discontinued Operations
 2018
2018
£'000
£'000
£'000
Cash flows from operating activities
Profit/(loss) for the financial year
137
(445)
(308)
Adjustments for:
Depreciation and amortisation
324
146
470
Profit on disposal of a subsidiary
-
(147)
(147)
Customer list impairment
588
-
588
Loss on disposal of property, plant and equipment
29
-
29
Net finance costs
254
42
296
Changes in working capital:
Movement in inventories
(90)
4
(86)
Movement in trade and other receivables
(731)
(42)
(773)
Movement in trade and other payables
939
743
1,682
Movement in provisions
(50)
(50)
(100)
Cash generated from operations
1,400
251
1,651
Income tax paid
(258)
-
(258)
Net cash generated from operations
1,142
251
1,393
Cash flows from investing activities
Purchase of property, plant and equipment
(769)
(90)
(859)
Proceeds from sale of assets
1
-
1
Purchase of intangibles
(150)
-
(150)
Net cash used in investing activities
(918)
(90)
(1,008)
Cash flows from financing activities
Repayment of borrowings
(267)
-
(267)
Proceeds from share issue net of issue costs
1,326
-
1,326
Dividend paid to non-controlling interests
(45)
-
(45)
Interest paid
(269)
(42)
(311)
Repayment of capital element of finance leases
(115)
(119)
(234)
Net cash generated from financing activities
630
(161)
469
Net increase in cash and cash equivalents
854
-
854
Cash and cash equivalents at the beginning of the year
851
-
851
Cash and cash equivalents at the end of the year
1,705
-
1,705


 

 

CEPS PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

YEAR ENDED 31 DECEMBER 2019

Share capital
Share premium
Retained earnings
Attributable to owners of the parent
Non-controlling interest
Total
equity
£'000
£'000
£'000
£'000
£'000
£'000
At 1 January 2018
1,320
4,843
(2,556)
3,607
1,347
4,954
Actuarial loss
-
-
(88)
(88)
-
(88)
(Loss)/profit for the year
-
-
(1,369)
(1,369)
493
(876)
Total comprehensive (loss)/income for the year
-
-
(1,457)
(1,457)
493
(964)
Changes in ownership interest in a subsidiary
-
-
-
-
137
137
Dividend paid to non-controlling interest
-
-
-
-
(45)
(45)
Total distributions recognised directly in equity
-
-
-
-
92
92
Correction to opening position
-
52
-
52
-
52
Proceeds from shares issued net of costs
380
946
-
1,326
-
1,326
At 31 December 2018
1,700
5,841
(4,013)
3,528
1,932
5,460
Actuarial loss
-
-
(99)
(99)
-
(99)
(Loss)/profit for the year
-
-
(2,696)
(2,696)
67
(2,629)
Total comprehensive (loss)/income for the year
-
-
(2,795)
(2,795)
67
(2,728)
Acquisition of Milano group
-
-
-
-
19
19
At 31 December 2019
1,700
5,841
(6,808)
733
2,018
2,751

 

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 one 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 2019 and comprises the Company and its subsidiaries.  The consolidated financial statements were authorised for issuance on 21 May 2020.  The financial information set out below does not constitute the Company's statutory accounts for the years ended 31 December 2018 or 2019 within the meaning of Section 434 of the Companies Act 2006, but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies and those for 2019 will be delivered following the Company's Annual General Meeting. The auditor's report on the statutory accounts for the year ended 31 December 2018 was unqualified and for the year ended 31 December 2019 was unqualified with reference to a material uncertainty in respect of going concern due to the global Coronavirus pandemic, 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 21 May 2020.

3.       Critical accounting assumptions, judgements and estimates

The directors make estimates and assumptions concerning the future.  They are also required to exercise judgement in the process of applying the Company's accounting policies.  Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are assessed below:

i)        Impairment of intangible assets (including goodwill)

          The Group tests annually whether intangible assets (including goodwill) have suffered any impairment, in accordance with the relevant accounting policy.  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 10). 

ii)       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.

 

iii)      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.

 

iv)      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.

 

v)       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.

 

vi)      Leases

Where the Group has an option to extend or terminate a lease, management uses its judgement to determine whether such an option would be reasonably certain to be exercised.  Management considers all facts and circumstances, including past practice and costs that would be incurred if an option were to be exercised, to help it determine the lease term.  Management has also applied judgements in assessing the discount rate, which is based on the incremental borrowing rate.  Such judgements could impact lease terms and associated lease liabilities.  The Group has availed itself of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a lease.  Consequently, the definition of a lease, in accordance with IAS 17 and the guidance in IFRIC 4, will continue to be applied to those leases entered into or modified before 1 January 2019.

vii)     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.

viii)     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, including Travelfast (trading as Sampling International), a manufacturer of fabric, carpet 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, including Milano International (trading as Milano Pro-Sport), a designer and manufacturer of leotards;

-     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) before exceptional costs.  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 2019

Aford Awards
Davies
 Odell
Friedman's
Hickton
Continuing operations
To be discontinued operations CEM Press
Total
 Group
2019
2019
2019
2019
2019
2019
2019
£'000
£'000
£'000
£'000
£'000
£'000
£'000
Revenue
1,969
3,563
5,791
4,741
16,064
5,689
21,753
Expenses
(1,558)
(3,590)
(4,547)
(3,891)
(13,586)
(7,196)
(20,782)
Segmental result (EBITDA) before exceptional costs
411
(27)
1,244
850
2,478
(1,507)
971
Depreciation and
 amortisation charge
(9)
(54)
(208)
(12)
(283)
(149)
(432)
IFRS 16 depreciation
(43)
(37)
(102)
(19)
(201)
-
(201)
Exceptional items
-
(1,836)
(1,836)
Group costs
(376)
-
(376)
Net finance costs
 (including IFRS 16)
(341)
(72)
(413)
Profit/(loss) before taxation
1,277
(3,564)
(2,287)
Taxation
(342)
-
(342)
Profit/(loss) for the year
935
(3,564)
(2,629)

 

Year ended 31 December 2018

Aford Awards
CEM
 Press
Davies
 Odell
Friedman's
Hickton
Continuing operations
Discon-
 tinued
Sunline
Total
 Group
2018
2018
2018
2018
2018
2018
2018
2018
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
Revenue
1,902
2,824
3,919
5,345
4,484
18,474
3,118
21,592
Expenses
(1,564)
(3,251)
(4,026)
(4,173)
(3,771)
(16,785)
(3,322)
(20,107)
Segmental result (EBITDA) before exceptional costs
338
(427)
(107)
1,172
713
1,689
(204)
1,485
Depreciation and
 amortisation charge
(13)
(68)
(58)
(179)
(6)
(324)
(146)
(470)
Exceptional items
-
(53)
(53)
Customer list impairment
(588)
-
(588)
Group costs
(386)
-
(386)
Net finance costs
(254)
(42)
(296)
Profit/(loss) before taxation
137
(445)
(308)
Taxation
(568)
-
(568)
Loss for the year
(431)
(445)
(876)

ii)          Assets and liabilities by segment

As at 31 December

Segment assets
Segment liabilities
Segment net assets/(liabilities)
2019
2018
2019
2018
2019
2018
£'000
£'000
£'000
£'000
£'000
£'000
CEPS Group
52
59
(5,041)
(1,623)
(4,989)
(1,564)
Aford Awards
1,576
1,762
(407)
(494)
1,169
1,268
CEM Press
1,386
1,090
(3,177)
(1,410)
(1,791)
(320)
Davies Odell
1,509
1,426
(964)
(966)
545
460
Friedman's
7,923
4,759
(2,490)
(1,017)
5,433
3,742
Hickton
3,663
3,487
(1,279)
(1,613)
2,384
1,874
Total - Group
16,109
12,583
(13,358)
(7,123)
2,751
5,460


 

5.          Taxation

2019
2018
£'000
£'000
Analysis of taxation in the year:
Current tax
Tax on profits of the year
340
323
Tax in respect of prior years
(7)
2
Total current tax
333
325
Deferred tax
Current year deferred tax movement
2
237
Tax in respect of prior years
7
6
Total deferred tax
9
243
Total tax charge
342
568

 

The tax assessed for the year is higher (2018: higher) than the standard rate of corporation tax in the UK (19%) (2018: 19%)

 

Factors affecting current tax:
Loss before taxation
(2,287)
(308)
Loss multiplied by the standard rate of UK tax of 19% (2018: 19%)
(435)
(59)
Effects of:
Expenses not deductible
613
16
Expenses not deductible goodwill impairment
75
112
Adjustments to brought-forward values
21
-
Amounts credited directly to Other Comprehensive Income
19
-
Capital allowances in excess of depreciation
3
4
Adjustments to tax in prior periods
(7)
2
Adjustments to deferred tax in prior periods
7
6
Transfer pricing adjustment
(15)
-
Other timing differences
-
(5)
Deferred tax write-off
-
220
Adjustments to deferred tax rate
3
-
Deferred tax not recognised
58
272
Total tax charge
342
568

 

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%.

 

As at 31 December 2019 the substantively enacted rate for deferred tax calculation purposes was 17% and deferred taxation has been calculated at this rate.

 

On 11 March 2020 the Chancellor of the Exchequer announced that the tax rate reduction from 19% to 17% was no longer going to be implemented.

 

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 the owners of the parent of £2,696,000 (2018: loss £1,369,000) and on 17,000,000 (2018: 15,105,176) ordinary shares, being the weighted number in issue during the year.

 

Basic earnings per share for continuing operations is calculated on the profit for the year after taxation attributable to owners of the parent of £250,000 (2018: loss £946,000) and on 17,000,000 (2018: 15,105,176) ordinary shares, being the weighted number in issue during the year.  Basic earnings per share for discontinued operations is calculated on the loss for the year after taxation attributable to owners of the parent of £2,946,000 (2018: loss £423,000) and on 17,000,000 (2018: 15,105,176) ordinary shares, being the weighted number in issue during the year.

 

7.    Property, plant and equipment

Leasehold property improvements
Plant, machinery, tools and moulds
Motor
 vehicles
Total
Group
£'000
£'000
£'000
£'000
Cost
at 1 January 2018
214
6,827
148
7,189
Additions at cost
316
581
32
929
Disposals
(146)
(4,648)
(142)
(4,936)
at 31 December 2018
384
2,760
38
3,182
Assets acquired on purchase of a subsidiary
255
1,313
8
1,576
Additions at cost
38
203
-
241
Transfers
-
(3)
-
(3)
Disposals
-
(224)
-
(224)
at 31 December 2019
677
4,049
46
4,772
Accumulated depreciation
at 1 January 2018
155
4,614
100
4,869
Charge for the year
32
340
40
412
Disposals
(108)
(2,867)
(115)
(3,090)
at 31 December 2018
79
2,087
25
2,191
Accumulated depreciation acquired on purchase of a subsidiary
199
904
-
1,103
Charge for the year
62
295
10
367
Transfers
-
(3)
-
(3)
Disposals
-
(214)
-
(214)
Impairment
-
229
-
229
at 31 December 2019
340
3,298
35
3,673
Net book amount
at 31 December 2019
337
751
11
1,099
at 31 December 2018
305
673
13
991

 

At the year end, assets held under hire purchase contracts and capitalised as plant, machinery, tools and moulds have a net book value of £nil (2018: £290,000) and an accumulated depreciation balance of £nil (2018: £2,410,000).

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

 

8.       Right-of-use assets

Leasehold property improvements
Motor
 vehicles
Total
Group
£'000
£'000
£'000
Cost
at 1 January 2019
1,238
99
1,337
Additions at cost
83
50
133
at 31 December 2019
1,321
149
1,470
Accumulated depreciation
At 1 January 2019
160
37
197
Charge for the year
160
41
201
at 31 December 2019
320
78
398
Net book amount
at 31 December 2019
1,001
71
1,072
at 31 December 2018
1,078
62
1,140

 

Right-of-use assets relating to CEM Press and Travelfast have been excluded from the above analysis as their fair value is considered to be £nil as they entered into administration post year-end.

9.       Business combinations

i)        Acquisition in 2019 of Travelfast Limited (trading as Sampling International)

On 27 March 2019 CEMTeal Limited acquired 100 per cent of the issued share capital of Travelfast Limited, trading as Sampling International, for an initial consideration of £9 with up to a further £1.2m payable in cash over three years based on financial performance over the period.

The acquisition has been accounted for using the acquisition method of accounting.  After the alignment of accounting policies and other adjustments to the valuation of assets and liabilities to reflect their fair value at acquisition, the fair value of net liabilities acquired was £395,000.

Goodwill of £395,000 arose from the acquisition.

The following table shows the fair value of assets and liabilities included in the consolidated statements at the date of acquisition:

 

Fair value
£'000
Identifiable liabilities
Cash and cash equivalents
28
Property, plant and equipment
380
Inventories
300
Trade and other receivables
935
Trade and other payables
(2,038)
(395)
Consideration calculation
Purchase price consideration
-
Goodwill
395
Analysis of cash flows on acquisitions
Cash paid
-
Less: net cash acquired with the subsidiary
28
Net cash inflow on acquisition
28

 

From the date of acquisition Travelfast Limited contributed £3,808,000 of revenue and £1,574,000 loss before tax.  If the combination had taken place at the beginning of the year, revenue would have been £5,047,000 and the loss before tax would have been £1,716,000.

Despite management's efforts and cash injections from CEPS PLC it was not possible to achieve the envisaged savings and efficiencies from consolidating CEM Press and Sampling International's operations and streamlining the processes.  As a result, Travelfast Limited was placed into administration on 15 January 2020.  On 17 January 2020 the administrator sold the business and assets of Travelfast Limited to a newly formed company called Sampling International Enterprises Limited (trading as Sampling International).  No return to CEPS PLC arose from this sale.

Consequently, the £395,000 goodwill that arose on acquisition was written-off in 2019.

ii)       Acquisition in 2019 of Milano International Limited (trading as Milano Pro-Sport)

On 4 October 2019 Signature Fabrics Limited acquired 90 per cent of the issued share capital of a newly incorporated company, Milano International Holdings Limited, which had been formed to acquire 100 per cent of the issued share capital of Milano International Limited, trading as Milano Pro-Sport, for a consideration of £1,850,000.

The acquisition has been accounted for using the acquisition method of accounting.  After the alignment of accounting policies and other adjustments to the valuation of assets and liabilities to reflect their fair value at acquisition, the fair value of net assets acquired was £186,000.

Goodwill of £1,683,000 arose from the acquisition.

The following table shows the fair value of assets and liabilities included in the consolidated statements at the date of acquisition:

Fair value
£'000
Identifiable assets
Cash and cash equivalents
32
Property, plant and equipment
65
Inventories
310
Trade and other receivables
35
Trade and other payables
(212)
Corporation tax liabilities
(44)
186
Consideration calculation
Purchase price consideration
1,850
Goodwill
Goodwill
1,683
Non-controlling interest in equity on acquisition
(19)
1,664
Analysis of cash flows on acquisitions
Cash paid
1,850
Less: net cash acquired with the subsidiary
(32)
Net cash outflow on acquisition
1,818

 

From the date of acquisition Milano International Limited contributed £578,000 of revenue and £177,000 profit before tax.  If the combination had taken place at the beginning of the year, revenue would have been £1,725,000 and the profit before tax would have been £220,000.

10.     Intangible assets

Goodwill
Customer lists
Other
Total
Group
£'000
£'000
£'000
£'000
Cost
at 1 January 2018
8,950
772
100
9,822
Additions at cost
-
-
150
150
Fair value adjustment
(363)
-
-
(363)
Disposals
(2,981)
-
-
(2,981)
At 31 December 2018
5,606
772
250
6,628
Additions at cost
2,078
-
1
2,079
At 31 December 2019
7,684
772
251
8,707
Accumulated amortisation and impairment
at 1 January 2018
4,158
5
59
4,222
Amortisation charge
44
4
10
58
Impairment
-
588
-
588
Disposals
(2,981)
-
-
(2,981)
at 31 December 2018
1,221
597
69
1,887
Amortisation charge
-
-
62
62
Adjustments
10
(7)
-
3
Impairment
395
-
-
395
at 31 December 2019
1,626
590
131
2,347
Net book amount
at 31 December 2019
6,058
182
120
6,360
at 31 December 2018
4,385
175
181
4,741

 

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 the 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:

 

Aford Awards
CEM
 Press
Friedman's
Hickton
Total
£'000
£'000
£'000
£'000
£'000
at 1 January 2018
1,047
588
1,528
2,396
5,559
Fair value adjustment
-
-
-
(363)
(363)
Amortisation charge
(4)
-
(44)
-
(48)
Impairment
-
(588)
-
-
(588)
at 31 December 2018
1,043
-
1,484
2,033
4,560
Additions at cost
-
395
1,683
-
2,078
Amortisation charge
(3)
-
-
-
(3)
Impairment
-
(395)
-
-
(395)
at 31 December 2019
1,040
-
3,167
2,033
6,240

 

The recoverable amount of a 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 10.60% (2018: 9.36%), 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:

 

Revenue growth
Gross margin
Long-term growth
2019
2018
2019
2018
2019
2018
%
%
%
%
%
%
Aford Awards
1.0
1.0
31.5
32.2
1.0
1.0
CEM Press
-
4.7
-
33.0
-
1.0
Friedman's
3.0
3.0
45.0
45.0
2.0
2.0
Hickton
2.0
2.0
39.6
40.6
1.0
1.0
Milano
2.0
-
53.0
-
2.0
-

 

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, including Milano Pro-Sport, 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 31 December 2019 an impairment charge of £395,000 was taken against the goodwill arising on the acquisition of Travelfast Limited (trading as Sampling International) as it went into administration on 15 January 2020.

 

11.       Share capital and share premium

Number of shares
Share capital
Share premium
Total
£'000
£'000
£'000
At 1 January 2018
13,199,940
1,320
4,843
6,163
Shares issued
3,800,060
380
950
1,330
Transaction costs
-
-
(4)
(4)
Adjustment
-
-
52
52
At 31 December 2018 and 31 December 2019
17,000,000
1,700
5,841
7,541

 

12.       Post balance sheet events

Administration of CEM Press Limited

On 8 January 2020 CEM Press Limited was placed in administration.  The remaining entities in the CEMTeal group will be wound-up in the near future.

 

Administration of Travelfast Limited (trading as Sampling International)

On 15 January 2020 Travelfast Limited (trading as Sampling International) was placed in administration.

 

On 17 January 2020 the administrator sold the business and assets of Travelfast Limited to a newly-formed company called Sampling International Enterprises Limited (trading as Sampling International).  No return to CEPS PLC arose from the sale.

 

Acquisition of Cook Brown Building Control Limited and Cook Brown Energy Limited

A new sub-holding company called Hickton Group Limited was formed by CEPS PLC to own Hickton Holdings Limited, Hickton Consultants Limited and BRCS (Building Control) Limited.  On 11 March 2020 Hickton Group Limited purchased 100% of the share capital of Cook Brown Building Control Limited and Cook Brown Energy Limited for a consideration of £3,530,445.  CEPS PLC's equity holding in Hickton Group Limited moved to 54.7% from its previous 52.4% stake in Hickton Holdings Limited.

 

Coronavirus

Subsequent to the year end, there has been an outbreak of Coronavirus which has developed into a global pandemic.  At this stage the directors are assessing what impact this may have on the Group, but although there is a high level of uncertainty about the extent and the timeframe of the virus on the global economy, they believe the Group is strongly positioned to handle any downturn that may occur in the sectors in which the Group operates.

 

 

13.       Supplementary Analysis of Consolidated Statement of Comprehensive Income

Continuing operations
 2019
To be discontinued operations 2019
2019
£'000
£'000
£'000
Revenue (note 4)
16,064
5,689
21,753
Cost of Sales
(10,218)
(5,370)
(15,588)
Gross profit
5,846
319
6,165
Administration expenses
(4,228)
(1,975)
(6,203)
Adjusted operating profit/(loss)
1,618
(1,656)
(38)
Exceptional item
-
(1,836)
(1,836)
Operation profit/(loss)
1,618
(3,492)
1,874)
Analysis of operating profit/(loss)
Trading
1,994
(1,656)
338
Exceptional item
-
(1,836)
(1,836)
Group costs
(376)
-
(376)
1,618
(3,492)
(1,874)
Finance income
28
-
28
Finance costs
(369)
(72)
(441)
Profit/(loss) before tax
1,277
(3,564)
(2,287)
Taxation (note 5)
(342)
-
(342)
Profit/(loss) for the year
935
(3,564)
(2,629)
Other comprehensive loss:
 Items that will not be classified to profit or loss
Actuarial loss on defined pension plans
(99)
-
(99)
Other comprehensive loss for the year, net of tax
(99)
-
(99)
Total comprehensive income/(loss) for the year
836
(3,564)
(2,728)
Income/(loss) attributable to:
Owners of the parent
250
(2,946)
(2,696)
Non-controlling interest
685
(618)
67
935
(3,564)
(2,629)
Total comprehensive income/(loss)
Owners of the parent
151
(2,946)
(2,795)
Non-controlling interest
685
(618)
67
836
(3,564)
(2,728)
Earnings per share
Basic and diluted (note 6)
1.47p
(17.33p)
(15.86p)

 

14.       Supplementary Analysis of Group Statement of Cash Flows

Continuing operations
 2019
To be discontinued operations 2019
2019
£'000
£'000
£'000
Cash flows from operating activities
Profit/(loss) for the financial year
309
(2,938)
(2,629)
Adjustments for:
Depreciation and amortisation
484
149
633
Impairment of goodwill
395
-
395
Write-down of fixed assets
-
229
229
Net finance costs
141
272
413
Taxation charge
342
-
342
Changes in working capital:
Movement in inventories
(225)
397
172
Movement in trade and other receivables
729
199
928
Movement in trade and other payables
(749)
631
(118)
Cash generated from/(used in) operations
1,426
(1,061)
365
Corporation tax paid
(444)
103
(341)
Net cash generated from/(used in) operations
982
(958)
24
Cash flows from investing activities
Interest received
28
-
28
Acquisition of subsidiary net of cash acquired
(1,818)
28
(1,790)
Purchase of property, plant and equipment
(222)
(19)
(241)
Net cash (used in)/generated from investing activities
(2,012)
9
(2,003)
Cash flows from financing activities
Proceeds from borrowings
1,620
1,265
2,885
Interest paid
(38)
(272)
(310)
Repayment of finance leases/IFRS 16 leases
(281)
(62)
(343)
Net cash generated from financing activities
1,301
931
2,232
Net increase in cash and cash equivalents
271
(18)
253
Cash and cash equivalents at the beginning of the year
1,684
21
1,705
Cash and cash equivalents at the end of the year
1,955
3
1,958

 

15.       Distribution of the Annual Report and Notice of AGM

A copy of the 2019 Annual Report, together with a notice of the Company's Annual General Meeting ('AGM') to be held at 11:30am on Tuesday 23 June 2020 at 11 Laura Place, Bath BA2 4BL, will be sent to all shareholders on Friday 29 May 2020.  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.

 

The AGM would normally provide an opportunity for shareholders to meet with the directors, for the directors to provide an update on the Company's business and to answer questions from shareholders.  We would normally, therefore, welcome shareholders who choose to attend the AGM in person.

 

However, in the light of the Covid-19 pandemic, and in line with the Government's 'Stay at Home' measures, which became law on 26 March 2020, and guidance to public companies issued by the Chartered Governance Institute on 27 March 2020, the special arrangements described below will be followed for the holding of the AGM this year, unless the Company subsequently notifies you otherwise.

 

Two Company directors who are entitled to vote at the meeting will be physically present at the AGM in order to form the necessary quorum to enable the business of the meeting to be carried out.  In the event that one of those directors is not the Company's Chairman, David Horner, one of the directors who is present will be designated as Chairman of the AGM.

 

We are sorry to have to inform you that no other shareholders will be permitted to attend the AGM.  Any person who does attempt to attend the AGM in person, other than those required to form the quorum, will be refused admission.

 

All of the resolutions to be put to shareholders at the AGM will be put to a vote on a poll, rather than a show of hands.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

 
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