REG - CEPS PLC - Final Results and Notice of AGM
05/05/2023 07:00
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RNS Number : 4980Y CEPS PLC 05 May 2023
5 May 2023
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 2022.
CHAIRMAN'S STATEMENT
At the beginning of this year being reported on, we had hoped, indeed
expected, that for the first time in several years we would be reporting on a
'normal' year. In the event, amongst other things, our hopes were dashed by
the Russian invasion of Ukraine in February 2022.
It is encouraging to report that sales for the CEPS Group have increased from
£20.3m in 2021 to £26.5m in 2022. This has resulted from an increase in
the underlying businesses, the full 12-month impact of acquisitions made in
2021, along with the partial year impact of an acquisition made in 2022.
In addition, there has been a change in accounting estimate in the Hickton
accounts to bring its treatment of deferred income into line with others in
the industry. This has had a positive impact to the profit before tax of
£681,000 in these accounts and this change will be explained more below and
in the notes to the accounts.
It is my view that the major market dislocation which developed following the
economies of the world rapidly leaving behind lockdowns and the consequent
supply issues created because of the Covid epidemic, was followed by new and
deeper supply chain problems created by this unexpected and totally
unwarranted invasion of Ukraine. In addition to these world issues, in the
UK we managed to create further uncertainty both politically and economically,
the political issues in the governing party causing there to be three Prime
Ministers in the space of just under two months and creating turmoil in the
markets in the Autumn around the 'Mini Budget'. Almost all the proposals in
this radical budget were subsequently cancelled once a new Chancellor was in
place.
In the UK, we are living with inflation of some 10% and interest rates at
multi-year highs, having risen ten times since November 2021 from 0.10% to the
current 4.25%. The Bank of England has been forecasting for some time that
the UK economy would move into recession, which we are pleased to see has to
date proven to be inaccurate. Very recently the IMF has forecast that the UK
will be the worst performing economy in the G20 in 2023, with a small decline
in GDP during the next twelve months. However, it should also be noted that
of the last 28 predictions by the IMF, 25 were too pessimistic.
We are experiencing an economy that has been stagnating, with increased levels
of industrial action and a shortage of available labour. In addition, there
have been significant rises in energy prices and industry-wide increases in
input prices and, as mentioned above, supply chain issues. However, there
has been recent evidence that as time passes and the economies of the world
transition away from the Covid period, these issues are beginning to ease.
More recently, further market volatility has been caused by the collapse of
the Silicon Valley Bank and the distressed emergency takeover of Credit Suisse
has caused further uncertainty. We are reassured that the UK banking system
is very strong following the major rebuilding of balance sheets over the past
15 years.
Financial review
As stated in the introduction, total revenue increased to £26.5m from
£20.3m, an increase of 30.1%, gross profits increased from £8.4m to £10.9m,
an increase of 30.1%, and operating profits rose from £1.6m to £2.1m, an
increase of 31.0%.
Looking at the financial performance of the underlying companies in more
detail:
Aford Awards ("Aford")
The company has made strong progress over the past 12 months with the
acquisitions made in 2021 having been successfully integrated into the core
business based in Maidstone.
A further major strategic step was taken in April 2022 when the business and
assets of Impact Promotional Merchandise Limited ("Impact") were acquired for
a total consideration of £1.008m. £558,000 was paid at completion with a
further £450,000 to be paid in three tranches between March 2023 and March
2025. The first milestone has passed and, in accordance with the agreed
terms, £210,000 was paid in March 2023. Impact is a pure internet sales
business and, therefore, significantly increases Aford's presence in this
market. The company has looked at other acquisitions during the year and,
now Impact has been fully integrated, the acquisition programme will be
revitalised.
Sales in 2022 were £3.1m as compared to £1.4m in 2021 and £2.0m in 2019,
the last year unaffected by Covid. The associated EBITDAs were £546,000,
£235,000 and £411,000 respectively.
Friedman's/Milano International
As we forecast, and expected, sales have continued to recover strongly at
Friedman's, the lycra printer. However, and like last year, whilst sales have
recovered in Milano International, the manufacturer of leotards and gymnastic
clothing, it remains loss-making.
The two companies together had sales of £6.4m in 2022 as compared to £4.8m
in 2021 and £5.8m in 2019. The associated EBITDAs were £ 897,000,
£809,000 and £1.2m respectively. However, in 2022 this was made up of a
much-increased EBITDA at Friedman's with Milano having gone backwards.
In the latter part of 2022, pressures on supply and costs of raw materials
started to ease and in 2023 we expect to see further progress in both
companies.
Hickton Group
As was mentioned at the interim results stage, the Hickton group of companies
experienced problems in retaining staff, problems in recruiting staff and
strong wage inflation. It became clear in the year that following recent
significant growth the business needed to 'pause' and restructure its
operations. The marketplace became very competitive and recruiting staff was
a real problem. More structure has been progressively put in place and it is
believed that this has now rectified matters.
In addition, it became obvious, as a number of its staff were recruited from
market competitors, that Hickton's accounting estimate of deferred income was
significantly different to its competitors. Therefore, it was decided that
it was appropriate to change this deferred income calculation. 2022 has
benefitted from the revision to brought forward deferred revenue of £363,000
and by £318,000 for the application of the estimate to 2022 which, before
tax, will make a difference in this year of £681,000, with no impact on the
prior year's results. Details of the estimate change are shown in note
3(viii).
Sales were £16.9m in 2022 as compared to £14.2m in 2021 and £4.7m in 2019,
the last year unaffected by Covid, demonstrating the recent significant
growth, which has been, in part, driven by acquisitions made over this
period. The associated EBITDAs were £1.8m, £1.5m, and £850,000
respectively. EBITDA for 2022 without the estimate change would have been
£1.1m.
It is also pleasing to be able to report that the first three months of the
current year have produced record sales and are currently well ahead of
budget.
Vale Brothers
The company has struggled through the year as its bought-in products from
China and India cost a lot more than had been expected and the associated
freight charges were, as has been well reported, much higher for most of
2022. In addition, for its UK manufactured products, the company found it
very difficult to recruit skilled staff and had to pay significantly more.
Whilst the company raised its prices across the board by some 10%, in
hindsight it needed a price rise of 20%. Whilst prices have since increased
further, it will take time to recover its position.
Capital and debt structure
There was no share issuance in the current year and, therefore, the issued
share capital remains at 21,000,000 shares.
The debt in CEPS PLC, the parent Company, remains unchanged with a £2.0m loan
from a shareholding third party with a coupon of 7% and due to be repaid by 30
June 2025. In addition, the loan from Chelverton Asset Management Limited of
£2.95m with a coupon of 5% repayable with a notice period of 18 months and a
loan of £192,000 from myself remain outstanding.
Cash held by the Company at the financial year end was £256,000 (2021:
£468,000) and Group cash was £1.3m (2021: £2.1m).
Pension
As we brought to shareholders' attention in June 2022, we expect the surplus
from the pension scheme, which was transferred to Aviva, to be paid to the
Company by the end of 2023 and these proceeds will be used to partially repay
debt and to increase working capital. The amount the Trustees expect to be
left over is in the order of £700,000, although it may be more or less than
that. After deducting the required amount of tax, currently expected to be
35%, this would make the net amount receivable £455,000.
Outlook
As mentioned in my introduction, things are currently very uncertain across
the UK and Europe. Sadly, the war in Ukraine continues and currently there
appears to be no end in sight. European countries have rebalanced their
economies and have achieved major savings in energy which it is to be hoped
will become embedded.
With the impact of the draconian lockdown in China and with the 'Ever Given'
container vessel blocking the Suez Canal, it became clear to European buyers
that they had been underpricing the risk of sourcing so many key products from
China. Coupled with the population issues in China, we believe there will be
a rebalancing of production, bringing it much closer to home.
It is my opinion that the UK economy is now expected to flat-line in 2023, but
to 'bounce back' to near long-term trend growth in 2024. Inflation is
expected to decline sharply by the end of the year, and it might well be that
interest rates have already peaked. As the countries of Europe and the World
return to 'normal' there is expected to be steady growth in the UK economy.
Taken overall, the Group has in the first quarter of 2023 performed ahead of
expectations but, as I note above, significant uncertainties remain for 2023.
It is the Board's intention to continue to develop the underlying companies
and, where appropriate, to make judicious acquisitions to accelerate this
anticipated organic growth. Improvements in productivity, quality, service
and margins are the universal targets.
David Horner
Chairman
4 May 2023
This announcement contains inside information for the purposes of Article 7 of
EU Regulation 596/2014 (which forms part of domestic UK law pursuant to the
European Union (Withdrawal) Act 2018).
The directors of the Company accept responsibility for the content of this
announcement.
Enquiries
CEPS PLC
Vivien Langford, Group Finance Director +44 1225 483030
Cairn Financial Advisers LLP
James Caithie / Sandy Jamieson / Emily Staples +44 20 7213 0880
Caution regarding forward looking statements
Certain statements in this announcement, are, or may be deemed to be, forward
looking statements. Forward looking statements are identified by their use of
terms and phrases such as ''believe'', ''could'', "should" ''envisage'',
''estimate'', ''intend'', ''may'', ''plan'', ''potentially'', "expect",
''will'' or the negative of those, variations or comparable expressions,
including references to assumptions. These forward-looking statements are not
based on historical facts but rather on the Directors' current expectations
and assumptions regarding the Company's future growth, results of operations,
performance, future capital and other expenditures (including the amount,
nature and sources of funding thereof), competitive advantages, business
prospects and opportunities. Such forward looking statements reflect the
Directors' current beliefs and assumptions and are based on information
currently available to the Directors.
CEPS PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED 31 DECEMBER 2022
Audited Audited
2022 2021
£'000 £'000
Revenue (note 4) 26,449 20,333
Cost of sales (15,538) (11,946)
Gross profit 10,911 8,387
Other operating income 47 276
Administration expenses (8,835) (7,043)
Operating profit 2,123 1,620
Analysis of operating profit
- Trading 2,523 2,002
- Group costs (400) (382)
2,123 1,620
Share of associate (loss)/profit (66) 66
Finance income 27 24
Finance costs (738) (714)
Profit before tax 1,346 996
Taxation (note 5) (270) (204)
Profit for the financial year 1,076 792
Other comprehensive income:
Items that will not be reclassified to profit or loss
Actuarial gain on defined benefit pension plans 54 73
Other comprehensive income for the year, net of tax 54 73
Total comprehensive income for the financial year 1,130 865
Income attributable to:
Owners of the parent 460 296
Non-controlling interests 616 496
1,076 792
Total comprehensive income attributable to:
Owners of the parent 514 369
Non-controlling interests 616 496
1,130 865
Earnings per share
- basic and diluted (pence) (note 6) 2.19p 1.64p
All activity relates to continuing operations.
CEPS PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
2022 2021
£'000 £'000
Assets
Non-current assets
Property, plant and equipment (note 7) 671 764
Right-of-use assets (note 8) 1,694 1,225
Intangible assets (note 10) 11,728 10,729
Investments - 66
14,093 12,784
Current assets
Inventories 2,138 1,612
Trade and other receivables 4,006 3,036
Cash and cash equivalents (excluding bank overdrafts) 1,284 2,081
7,428 6,729
Total assets 21,521 19,513
Equity
Capital and reserves attributable to owners of the parent
Called up share capital (note 11) 2,100 2,100
Share premium (note 11) 7,017 7,017
Retained earnings (7,526) (8,040)
1,591 1,077
Non-controlling interests in equity 2,924 2,465
Total equity 4,515 3,542
Liabilities
Non-current liabilities
Borrowings 8,367 8,436
Lease liabilities 1,522 1,096
Trade and other payables 208 45
Deferred tax liability 338 255
10,435 9,832
Current liabilities
Borrowings 1,487 1,759
Lease liabilities 313 258
Trade and other payables 3,325 3,141
Current tax liabilities 1,446 981
6,571 6,139
Total liabilities 17,006 15,971
Total equity and liabilities 21,521 19,513
The comprehensive expense within the parent Company financial statements for
the year was a loss of £24,000 (2021: loss of £245,000).
CEPS PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED 31 DECEMBER 2022
2022 2021
£'000 £'000
Cash flows from operating activities
Profit for the financial year 1,076 792
Adjustments for:
Depreciation and amortisation 719 564
Loss on disposal of fixed assets 6 6
Pension contributions less than administrative charge 69 84
Share of associate loss/(profit) 66 (66)
Net finance costs 711 690
Taxation charge 270 204
Changes in working capital:
Movement in inventories (518) (171)
Movement in trade and other receivables (970) (261)
Movement in trade and other payables 301 (469)
Cash generated from operations 1,730 1,373
Corporation tax paid (61) (187)
Net cash generated from operations 1,669 1,186
Cash flows from investing activities
Interest received 12 13
Acquisition of businesses and subsidiaries, net of cash acquired (611) (1,220)
Purchase of property, plant and equipment (120) (309)
Proceeds from sale of assets 3 35
Purchase of intangibles assets (75) (73)
Net cash used in investing activities (791) (1,554)
Cash flows from financing activities
Issue of share capital - 1,018
Proceeds from borrowings 396 3,330
Repayment of borrowings (773) (3,108)
Dividends paid to non-controlling interests (157) -
Proceeds from subsidiary share issue - 4
Interest paid (815) (791)
Lease liability payments (326) (336)
Net cash (used in)/ generated from financing activities (1,675) 117
Net decrease in cash and cash equivalents (797) (251)
Cash and cash equivalents at the beginning of the year 2,081 2,332
Cash and cash equivalents at the end of the year 1,284 2,081
Major non-cash movements: there were £807,000 of non-cash additions to
right-of-use assets and lease liabilities in the year (2021: £558,000 of new
share capital was settled against a loan liability and there were £555,000 of
non-cash additions to right-of-use assets and lease liabilities).
CEPS PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 31 DECEMBER 2022
Attributable to owners of the parent
Non-controlling interest
Share capital Share premium Retained earnings Total
equity
£'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2021 1,700 5,841 (8,402) (861) 1,954 1,093
Actuarial gain - - 73 73 - 73
Profit for the year - - 296 296 496 792
Total comprehensive income for the financial year - - 369 369 496 865
Shares issued in the year (note 11) 400 1,176 - 1,576 - 1,576
Changes in ownership interest in subsidiaries - - (7) (7) 15 8
Total amounts recognised directly in equity - - (7) 1,569 15 1,584
At 31 December 2021 2,100 7,017 (8,040) 1,077 2,465 3,542
Actuarial gain - - 54 54 - 54
Profit for the year - - 460 460 616 1,076
Total comprehensive income for the financial year - - 514 514 616 1,130
Dividends paid in respect of a non-controlling interest - - - - (157) (157)
At 31 December 2022 2,100 7,017 (7,526) 1,591 2,924 4,515
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 current
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
CEPS PLC (the 'Company') is a company incorporated and domiciled in England
and Wales. The Company is a public company limited by shares, which is
admitted to trading on the AIM market of the London Stock Exchange. The
address of the registered office is11 Laura Place, Bath BA2 4BL.
The principal activities of the Company are that of a holding company for
service and manufacturing companies, acquiring stakes in stable and steadily
growing entrepreneurial companies. Segmental analysis is given in note 4.
The financial statements are presented in British Pounds Sterling (£), the
currency of the primary economic environment in which the Group's activities
are operated and are reported in £'000. The financial statements are to the
year ended 31 December 2022.
The registered number of the Company is 00507461.
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies have
been consistently applied throughout the year, unless otherwise stated.
2. Basis of preparation and going concern
This announcement is an extract from the consolidated financial statements of
the Company for the year ended 31 December 2022 and comprises the Company and
its subsidiaries. The consolidated financial statements were authorised for
issuance on 4 May 2023. The financial information set out below does not
constitute the Company's statutory accounts for the years ended 31 December
2021 or 2022 within the meaning of Section 434 of the Companies Act 2006, but
is derived from those accounts. Statutory accounts for 2021 have been
delivered to the Registrar of Companies and those for 2022 will be delivered
following the Company's Annual General Meeting. The auditor's reports on the
statutory accounts for the years ended 31 December 2021 and 31 December 2022
were unqualified and do not contain statements under s498(2) or (3) Companies
Act 2006.
These financial statements have been prepared on a going concern basis under
the historical cost convention in accordance with UK adopted International
Financial Reporting Standards ('IFRS'), IFRIC interpretations and the
Companies Act 2006 as applicable to companies reporting under IFRS.
The consolidated financial statements have been prepared on a going concern
basis and under the historical cost convention. The Group's business
activities and financial position likely to affect its future development,
performance and position are set out in the front end of the report.
The preparation of financial statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group's accounting
policies. The areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the consolidated
financial statements are disclosed in note 3.
The Company has taken advantage of the exemption under the Companies Act 2006
not to present its own Statement of Comprehensive Income.
Going concern
The Directors have considered the trading performance and financial position
of the Company and of the Group together with detailed forecasts for the
period to the end of 2024. The Aford Awards Group Holdings, Signature Fabrics
and Hickton Group sub-groups service their bank and shareholder held debt from
cash generated in the trading subsidiaries which are trading profitably and
which have recovered from the impacts of the pandemic. The Group is generating
cash from operations with significant headroom in the banking covenants and
mitigating actions could be taken to compensate for the current inflationary
pressures and a degree of fluctuation in the economy. The Company had cash
balances at 31 December 2022 and is receiving interest and fees from the
trading subsidiary groups.
After making enquiries, the Directors have a reasonable expectation that the
Company and the Group have adequate resources to operate and to meet
liabilities for the foreseeable future. Accordingly, the going concern basis
of preparation continues to be adopted in the financial statements.
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
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
Management utilise judgement in respect of any option clauses in leases and
whether such an option to extend would be reasonably certain to be
exercised. Management consider all facts and circumstances including past
practice, costs of alternatives and future forecasts to determine the lease
term. Management also apply judgement and estimation in assessing the
discount rate, which is based on the incremental borrowing rate. These
judgements impact on the lease term and associated lease liabilities.
vii) 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.
viii) Recognition of revenue in respect of services and change in
accounting estimate
Revenue is recognised in the period in which the services are provided in
accordance with the stage of completion of the contract. This requires a
degree of estimation in respect of the stage of completion and time required
to complete the services but is based on experience and data from completed
services.
In the year, the directors recognised that the prior estimates in a subsidiary
were too prudent by reference to actual outcomes and the specific tasks to be
completed and have applied a revised method with increased reference to
experience and the expected costs as services progress. This has been
treated as a change in accounting estimate and application of the new method
has resulted in a reduction in deferred income and increase in revenue of
£681,000 for the year ended 31 December 2022, of which £363,000 relates to
income which would not have been deferred at 31 December 2021 under the new
method and a further £318,000 recognised for services that commenced in
2022. This change brings the company in line with industry norms.
ix) Acquisitions
Fair values have been applied on the acquisition of businesses which involve a
degree of judgement and estimation, in particular in the identification and
evaluation of intangible assets including customer relationships. The values
recognised are derived from discounted cash flow forecasts and assumptions
based on experience and estimated factors relevant to the nature of the
business activity.
Where contingent consideration arises in respect of acquisitions, the best
estimate of further payments to be made is accrued. The actual trading
results may result in different amounts being payable and subsequent
adjustments to the deferred consideration.
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.
The operating segments set out below are the only level for which discrete
information is available or utilised by the CODM.
Operating segments and their principal activities are as follows:
Aford Awards, a sports trophy and engraving company;
Friedman's, a convertor and distributor of specialist lycra, including Milano
International (trading as Milano Pro-Sport), a designer and manufacturer of
leotards;
Hickton Group, comprising Hickton Quality Control, BRCS, Cook Brown, Morgan
Lambert and Qualitas Compliance, providers of services to the construction
industry.
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.
The Board assesses the performance of each operating segment by a measure of
adjusted earnings before interest, tax, Group costs, depreciation,
amortisation and, when applicable, exceptional costs (EBITDA). Other
information provided to the Board is measured in a manner consistent with that
in the financial statements.
i) Results by segment
Aford Friedman's Hickton Total
Awards
Group
Group
2022 2022 2022 2022
£'000 £'000 £'000 £'000
Revenue 3,086 6,423 16,940 26,449
Expenses (2,540) (5,526) (15,140) (23,206)
Segmental result (EBITDA) 546 897 1,800 3,243
Depreciation and amortisation charge (115) (183) (117) (415)
IFRS 16 depreciation (75) (129) (100) (304)
Group costs (400)
Share of associate loss (66)
Net finance costs (including IFRS 16) (712)
Profit before taxation 1,346
Taxation (270)
Profit for the year 1,076
Aford Friedman's Hickton Total
Awards
Group
Group
2021 2021 2021 2021
£'000 £'000 £'000 £'000
Revenue 1,385 4,762 14,186 20,333
Expenses (1,150) (3,953) (12,665) (17,768)
Segmental result (EBITDA) 235 809 1,521 2,565
Depreciation and amortisation charge (22) (135) (100) (257)
IFRS 16 depreciation (45) (168) (93) (306)
Group costs (382)
Share of associate profit 66
Net finance costs (including IFRS 16) (690)
Profit before taxation 996
Taxation (204)
Profit for the year 792
ii) Assets and liabilities by segment as at 31 December
Segment assets Segment liabilities Segment net assets/(liabilities)
2022 2021 2022 2021 2022 2021
£'000 £'000 £'000 £'000 £'000 £'000
Continuing operations
CEPS Group 286 543 (5,410) (5,251) (5,124) (4,708)
Aford Awards 4,014 1,974 (2,170) (789) 1,844 1,185
Friedman's 7,575 7,620 (2,244) (2,146) 5,331 5,474
Hickton Group 9,646 9,376 (7,182) (7,785) 2,464 1,591
Total - Group 21,521 19,513 (17,006) (15,971) 4,515 3,542
(iii) Revenue by geographical destination
2022 2021
£'000 £'000
UK 24,782 19,048
Europe 1,113 762
Rest of world 554 523
26,449 20,333
(iv) Nature of revenue
2022 2021
£'000 £'000
Products - recognised at a point in time 9,509 6,147
Services - recognised over time delivered 16,940 14,186
26,449 20,333
5. Taxation
2022 2021
£'000 £'000
Analysis of taxation in the year:
Current tax
Tax on profits of the year 295 153
Tax in respect of prior years (7) (9)
Total current tax 288 144
Deferred tax
Current year deferred tax movement (34) 8
Tax in respect of prior years 16 20
Change in tax rate - 32
Total deferred tax (18) 60
Total tax charge 270 204
The tax assessed for the year is higher (2021: higher) than the standard rate
of corporation tax in the UK (19%) (2021: 19%)
Factors affecting current tax:
Profit before taxation 1,346 996
Profit multiplied by the standard rate of UK tax of 19% (2021: 19%) 256 189
Effects of:
Expenses not deductible 39 27
Additional capital allowances (9) (15)
Additional research and development allowances - (20)
Adjustments to tax in prior periods 9 11
Adjustments to deferred tax rate (2) 32
Deferred tax not recognised (23) (20)
Total tax charge 270 204
In May 2021 a change in rate to 25% from April 2023 was substantively
enacted. The rate of 25% is accordingly applied to UK deferred taxation
balances at 31 December 2022 (2021: 25%).
There are tax losses carried forward in the Company of approximately £1.55m
(2021: £1.8m).
6. Earnings per share
Basic earnings per share is calculated on the profit for the year after
taxation attributable to the owners of the parent of £460,000 (2021:
£296,000) and on 21,000,000 (2021: 18,084,932) ordinary shares, being the
weighted number in issue during the year.
There are no potentially dilutive shares in the Group.
7. Property, plant and equipment
Leasehold property improvements Plant and machinery Motor Total
vehicles
Group £'000 £'000 £'000 £'000
Cost
at 1 January 2021 480 606 9 1,095
Assets acquired on purchase of a subsidiary or a business - 43 - 43
Additions at cost 7 289 13 309
Disposals - (172) (1) (173)
at 31 December 2021 487 766 21 1,274
Additions at cost - 120 - 120
Disposals - (13) - (13)
at 31 December 2022 487 873 21 1,381
Accumulated depreciation
at 1 January 2021 189 264 9 462
Charge for the year 45 135 - 180
Disposals - (131) (1) (132)
at 31 December 2021 234 268 8 510
Charge for the year 42 159 3 204
Disposals - (4) - (4)
at 31 December 2022 276 423 11 710
Net book amount
at 31 December 2022 211 450 10 671
at 31 December 2021 253 498 13 764
8. Right-of-use assets
Leasehold property Plant and machinery Motor Total
vehicles
Group £'000 £'000 £'000 £'000
Cost
at 1 January 2021 1,402 16 12 1,430
Assets acquired on purchase of a subsidiary 20 - - 20
Additions at cost 354 181 - 535
Disposals at the end of the lease term (162) - (12) (174)
At 31 December 2021 1,614 197 - 1,811
Additions at cost 753 54 - 807
At 31 December 2022 2,367 251 - 2,618
Accumulated depreciation
At 1 January 2021 442 5 7 454
Charge for the year 252 49 5 306
Disposals at the end of the lease term (162) - (12) (174)
at 31 December 2021 532 54 - 586
Charge for the year 282 56 - 338
At 31 December 2022 814 110 - 924
Net book amount
at 31 December 2022 1,553 141 - 1,694
at 31 December 2021 1,082 143 - 1,225
At the year end, assets held under hire purchase contracts and capitalised as
plant and machinery right-of-use assets have a net book value of £97,000
(2021: £76,000).
The depreciation of £33,000 (2021: £29,000) in respect of these has been
charged to cost of sales in the Consolidated Statement of Comprehensive
Income.
9. Business combinations
i) Acquisition in 2022 of Impact Promotional Merchandise Limited
On 12 April 2022, a subsidiary, Aford Awards Limited, acquired the trade and
certain assets of Impact Promotional Merchandise Limited. This supplies
trophies, awards and medals together with customised promotional merchandise
including mugs and clothing.
The acquisition has been accounted for using the acquisition method of
accounting. Fair value adjustments were made in respect of a website and
customer relationships amounting to £420,000 together with a related deferred
tax liability of £101,000.
Goodwill of £681,000 arose from the acquisition primarily in respect of the
ability to win further business including the business synergies and
opportunities from being integrated into the company.
Acquisition fees of £16,000 were incurred which have been expensed as an
administrative cost in the year.
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 and liabilities
Intangible assets 420
Inventories 8
Deferred taxation (101)
327
Goodwill 681
1,008
Consideration
Cash consideration paid at completion 558
Deferred consideration 450
1,008
The cash outflow at the date of acquisition was £558,000 with deferred
consideration of £210,000 payable on 14 March 2023; £60,000 on 30 September
2023; £60,000 on 31 March 2024; £60,000 on 30 September 2024 and £60,000 on
31 March 2025.
The business contributed £864,000 of revenue for the eight months in the year
after the acquisition date. It is integrated into the overall Aford Awards
business and generates similar margins.
£53,000 of deferred consideration was also paid in the year in respect of
businesses acquired in 2021.
ii) Acquisition in 2021 of Millington Lord Limited
On 15 March 2021 a subsidiary, Hickton Group Limited, acquired 100 per cent of
the issued share capital of Millington Lord Limited with its two trading
subsidiaries Morgan Lambert Limited and Qualitas Compliance Limited. There
was initial cash consideration of £700,000 together with deferred and
contingent amounts of £400,000 which were subsequently paid in the year.
The acquisition has been accounted for using the acquisition method of
accounting. After including the fair value of customer intangible assets and
related deferred tax, the fair value of net assets acquired was £248,000.
Goodwill of £852,000 arose from the acquisition primarily in respect of the
overall workforce skills and their ability to generate income. Acquisition
fees of £45,500 were incurred which were expensed as an administrative cost
in the year.
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 and liabilities
Intangible assets 350
Property, plant and equipment 33
Trade and other receivables 892
Cash and cash equivalents 55
Trade and other payables (726)
Lease liabilities (20)
Borrowings (223)
Corporation tax payable (17)
Deferred consideration (96)
248
Goodwill 852
1,100
Consideration
Cash consideration 1,100
Analysis of cash flows on acquisition
Cash paid 1,100
Less: net cash acquired with the subsidiary (55)
Net cash outflow on acquisition 1,045
From the date of acquisition, Morgan Lambert Limited and Qualitas Compliance
Limited contributed £4,490,000 of revenue and £221,000 of profit before tax
(excluding amortisation of intangible assets). If the combination had taken
place at the beginning of the year, the revenue would have been £5,318,000
and the profit before tax would have been £284,000.
iii) Acquisition in 2021 by Aford Awards Limited of trophy business trade
and assets
A subsidiary, Aford Awards Limited, purchased tangible fixed assets with a
fair value of £30,000 and the trade, including customer relationships valued
at £207,000, of three trophy businesses on 2 September 2021 for cash
consideration of £176,000 paid in 2021 and £131,000 of estimated contingent
consideration payable. After providing for £48,000 of deferred tax,
£117,000 of goodwill arises in respect of the businesses.
The businesses contributed £69,000 of revenue for the four months in the year
after the acquisition date. They are integrated into the overall Aford
Awards business and generate similar margins.
10. Intangible assets
Goodwill Customer relationship assets Other Total
Group £'000 £'000 £'000 £'000
Cost
at 1 January 2021 9,677 772 285 10,734
Additions at cost 969 557 72 1,598
At 31 December 2021 10,646 1,329 357 12,332
Additions at cost 681 230 265 1,176
Disposals (385) (578) - (963)
At 31 December 2022 10,942 981 622 12,545
Accumulated amortisation and impairment
at 1 January 2021 557 772 197 1,526
Amortisation charge - 50 27 77
at 31 December 2021 557 822 224 1,603
Amortisation charge - 112 65 177
Disposals (385) (578) - (963)
at 31 December 2022 172 356 289 817
Net book amount
at 31 December 2022 10,770 625 333 11,728
at 31 December 2021 10,089 507 133 10,729
The net nil book value disposals relate to prior year business disposals not
removed from cost and accumulated amortisation at that time.
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 relationship related assets and other intangibles in respect of
computer software, website costs and licences 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 relationships) annually for impairment or more frequently
if there are indications that goodwill or customer relationship assets may be
impaired.
For the purpose of impairment testing, goodwill and customer assets are
allocated to the Group's cash generating units (CGUs) on a business segment
basis:
Aford Friedman's Hickton Total
Awards
Group
£'000 £'000 £'000 £'000
Goodwill
at 1 January 2021 1,157 3,167 4,913 9,237
Additions at cost - - 852 852
at 31 December 2021 1,157 3,167 5,765 10,089
Additions at cost 681 - - 681
at 31 December 2022 1,838 3,167 5,765 10,770
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 increase only by a long-term growth rate of 1.9%. A discount rate
of 12.8% (2021: 11.0%), representing the estimated pre-tax cost of capital,
has been applied to these projections.
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, Hickton Quality Control, Cook Brown
and Morgan Lambert within the Hickton Group, the value-in-use calculation
gives rise to sufficient headroom such that reasonable changes in the key
assumptions do not eliminate the headroom. The Milano International
business, within the Friedman's segment, has been the business most impacted
by the pandemic and is the most susceptible to impairment if future projected
growth is not achieved.
11. Share capital and share premium
Number of shares Ordinary £0.10 shares Share premium Total
£'000 £'000 £'000
At 31 December 2021 and 2022 21,000,000 2,100 7,017 9,117
In the prior year, on 24 September 2021, 4,000,000 £0.10 ordinary shares were
issued at 40 pence each resulting in a £400,000 increase in nominal share
capital and a £1,176,000 increase in the share premium account after
deducting share issue expenses of £24,000.
12. Distribution of the Annual Report and Notice of AGM
A copy of the 2022 Annual Report, together with a notice of the Company's
Annual General Meeting ('AGM') to be held at 11:30am on Monday 12 June 2023 at
11 Laura Place, Bath BA2 4BL, will be sent to all shareholders on Friday 12
May 2023. 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 (http://www.cepsplc.com) .
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