REG - CEPS PLC - Final Results
03/05/2024 07:00
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RNS Number : 0642N CEPS PLC 03 May 2024
3 May 2024
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 2023.
CHAIRMAN'S STATEMENT
I am delighted to present to shareholders the CEPS PLC ("CEPS" or "Company")
final accounts for the year ended 31 December 2023.
Macro overview
The year we are reporting on has followed the pattern of the past few years
with several momentous world events impacting on the UK economy. Firstly, we
have the continuation of the war between Russia and Ukraine following Russia's
invasion in February 2022. This has now been ongoing for more than two years
and whilst the market economic repercussions of this were strongly felt in
2022, over the course of 2023 these have gradually dissipated. The demise of
the Silicon Valley Bank, which was the 16th largest bank in the USA and with
representation in the UK, in March 2023, was initially a major concern but its
problems were highly localised and did not, in the end, spread contagion into
the wider banking system.
The attack on Israel by Hamas in October 2023 and the subsequent reactions of
Israel and Iran has caused a heightening in tensions in an already tense part
of the World. This uncertainty has led to volatility in oil and gas prices
and recently the Houthi pirates operating in Yemen have been attacking
shipping in the Red Sea and off the coast of Yemen. This has led to
increased costs and delays for shipping.
However, the two major factors in 2023, which we are still facing as I write
today, were the rapid rise in inflation in 2022, the impact of which was
largely felt in 2023, and the associated multiple rises in interest rates
which rose 14 times from 0.1% in December 2021 to what we expect to be a peak
today of 5.25%. This rate was reached in August 2023. Of greater
importance to CEPS PLC is the impact on consumer spending and the public's
disposable income. Initially, with the very rapid rise in inflation, real
wages fell behind. However, more recently as wages have risen sharply and
inflation has declined equally sharply, positive real wage growth has
re-emerged.
Of equal importance, markets were expecting a dramatic rise in mortgage rates
which would have severely reduced spending power as much higher rates would
have replaced, historically, extraordinarily low rates. However, this impact
has been far less than was feared as today some 80% of mortgages, as compared
to almost none in 1988 when fixed rate mortgages were first introduced, are
now on fixed terms. Therefore, there is, by definition, a long lead in time
for the impact of these increases to have any effect. Mortgage rates,
anticipating a future steady reduction in Bank of England rates, have fallen
sharply to much more manageable levels and, consequently, what was expected to
be a massive problem is now much reduced.
Some eighteen months ago the Bank of England warned that the UK was going to
move into its longest recession for one hundred years and that unemployment
would rise from 3.5% to 6.5%. The IMF also endorsed this view. Thankfully,
the outturn was significantly different with the UK moving into a technical,
very marginal recession in January 2024. Unemployment has risen to 4.2% in
the past few months, still some way short of the long-term average.
Financial review and performance of the CEPS Group
Despite these issues on the macro level, total CEPS revenue increased to
£29.7m from £26.4m, an increase of 12.2%, gross profits increased from
£10.9m to £12.5m, an increase of 14.5%, and operating profits rose from
£2.1m to £2.5m, an increase of 19.9%. Earnings per share increased from
2.19p to 2.65p an increase of 21.0%.
Looking at the financial performance of the underlying companies in more
detail.
Aford Awards
The company has had a year of consolidation, and, not unlike the Hickton Group
in 2022, has built a stronger, more diversified and better controlled
business. However, this has obviously come at a cost which is reflected in
the modest improvements in profits below.
The market sector is experiencing some strategic change and Aford Awards is
looking to position itself for the future. It has, as ever, several
discussions under way with small competitor companies which would, if they are
acquired, be integrated into the Aford Awards structure at Maidstone.
In addition, Aford Awards are creating and developing several new embryonic
business streams which are related to their current activities, and which it
is expected, in the future, will make high returns on capital
employed.
Sales in 2023 were £3.5m as compared to £3.1m in 2022. The associated
EBITDAs were £556,000 and £546,000, respectively.
Friedman's/Milano International
The two companies together had sales of £6.8m in 2023 as compared to £6.4m
in 2022. The associated EBITDAs were £1.1m and £897,000.
Friedman's has continued to grow its profits, whilst Milano International is
now responding well to management treatment and has now moved into
profitability in 2023 and is expected to increase its profitability further in
2024.
Hickton Group
As expected, the Hickton Group had a strong recovery from the results of 2022.
Sales were £19.4m in 2023 as compared to £16.9m in 2022. The associated
EBITDAs were £2.1m and £1.8m, respectively.
Vale Brothers
Unfortunately, the company went into administration on 19 October 2023. This
was in common with other companies providing equipment to the sporting leisure
market where demand has been sharply reduced.
CEPS had held the shares and loan stock in Vale Brothers at nil value so there
was no impact on the Company's profitability or balance sheet.
Dilapidations
A review of potential costs for leased properties within the Group has been
undertaken in the year. Where applicable, provision has been made for
dilapidations, including associated professional fees, which may be
required. As at 31 December 2023 the provision amounted to
£400,000.
Share capital
There was no share issuance in the current year and, therefore, the issued
share capital remains at 21,000,000 shares as it has since September 2021.
A major shareholder of CEPS, Chelverton Growth Trust plc ("CGT"), owned
5,406,301 shares in CEPS PLC (26.0%) and was placed into a planned members
voluntary liquidation to return its assets to its shareholders. For each
share in Chelverton Growth Trust plc a shareholder received one share in
CEPS. This transfer took place recently in March 2024. So, whilst there
was no change in the number of shares in issue, the number of CEPS
shareholders has increased to 220.
Because CEPS itself was an old fully listed public company and CGT was created
from another old public company, there is now a long tail of long-term
shareholders with small shareholdings. The bottom 177 shareholders, roughly
80% of shareholders by number, are estimated to own 8.7% of the issued share
capital.
You will see below that the share capital reduction is expected to become
effective in early May 2024. One of the reasons for doing this is to enable
the Company, in time, to buy back its own shares. So, once the Company has
sufficient distributable reserves, anticipated to be by the publication of the
audited results for next year, the Company is expected to be in a position
where it can technically buy back and cancel shares. This will be,
hopefully, a great benefit to shareholders with very small shareholdings who
are not registered with a stockbroker or trading platform.
The Takeover Panel, which is one of the bodies that monitors and regulates
large shareholdings and takeovers of AIM and Listed companies, has designated
that there is a new "Concert Party." A Concert Party is a group of
shareholders which the Takeover Panel has decided are sufficiently closely
related in business and socially that they should be deemed as acting
together. The Horner Family, which owns 29.99% of CEPS' share capital, and a
further six individuals, including two directors, are now deemed to be in this
group making up a total of 33.7%.
Debt structure
The debt in CEPS, the parent company, remains unchanged with a £2.0m loan
from a 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 ("CAM") of
£2.95m with a coupon of 5% is repayable with a notice period of 18 months and
a loan of £192,000 to me remains outstanding.
Cash held by the Company at the financial year end was £185,000 (2022:
£256,000) and Group cash was £916,000 (2022: £1.3m).
The reason CEPS has debt at this level is principally because we are acutely
conscious of the cost of equity and have historically been very reluctant to
issue shares and, in particular, at what we consider to be "the wrong
price." The loan from CAM ("CAM Loan") referred to above is guaranteed by
me. CAM is a fund management company that I founded 26 years ago which has a
strong balance sheet.
CEPS' subsidiary companies are profitable and are strong cash generators and,
therefore, using an element of debt in their financing is highly logical.
The financing for our subsidiaries is largely provided through vendor loan
notes when we buy companies and by CEPS providing finance to go with the
modest equity investment.
So, for example, CEPS made a £1m loan to Signature Fabrics Limited, the
holding company of Friedman's and Milano International, which was used to part
finance the acquisition of Milano International in October 2019. As
Friedman's and Milano International make profits and generate cash, then these
funds will be used to service the interest and to repay this loan stock.
Indeed, as at 31December 2023, repayments had been made to CEPS from Signature
Fabrics such that the outstanding debt amounted to £816,000. As further
repayments are made, the funds received will be used to repay the CEPS debts
referred to above. So, although CEPS only owns 55% of the equity of
Signature Fabrics, it has access to 100% of its cashflow until the loan notes
are repaid.
In CEPS we have external debt, as referred to above of some £5,142,000 and
loan notes and loans owed by the three subsidiaries of some
£4,490,000.
Pension
As we brought to shareholders' attention late in 2022, the Dinkie Heel plc
Retirement Benefits Scheme was transferred to Aviva. This was a really
important step and the potential savings and, more importantly, the reduction
of risk was probably underappreciated by market observers. We have been
waiting for the payment from Aviva and were pleased to announce on the 18
April 2024 that £345,000 had been received on account and that, once all the
fees and costs have been settled, then there may be further modest sums
received in the future.
Shareholder value creation
It has been raised in the past by investors and potential investors that the
"CEPS Model" is unusual as compared to most public companies. The model has
been developed over some 20 years and the objective is to acquire companies in
niche sectors, at a size level where there are little or no competitive
buyers, with the companies being too big for individual purchasers, but also
too small for corporate or private equity investors. The "business
drivers" in the target company are incentivised and commit to at least a
five-year programme.
An example of the CEPS acquisition model would be as follows: all but
£100,000, which is the equity, is committed and the rest of the purchase
price is financed by the sellers providing vendor loan notes, CEPS providing
acquisition loan notes and the shareholders in the new company, set up to make
the acquisition, providing shareholder loan notes. Whilst this seems to be a
lot of debt, all the loan stocks are unsecured and the payment of the interest
on the loan notes and, indeed, their repayment is decided by the Board. So,
in fact these loan notes have many of the characteristics of equity but can be
repaid from surplus cash generation.
There are several profit/value drivers which we will harness going forward,
and we hope that they will increase the value of CEPS:
1. Expected increase in the profits of the three subsidiaries;
2. Self-funded "bolt-on deals" in each of the three
subsidiaries in the manner that has occurred over the past five years;
3. Repayment of loan stocks from the subsidiaries, absent any
acquisitions, leading firstly to the repayment of the £2m third party loan in
2025 and then the CAM Loan of £2.95m;
4. Increase in CEPS' shareholdings in the subsidiary
companies. For example, shareholders will be aware that CEPS increased its
shareholding in the Hickton Group from 52.4% to 53.8% by buying shares from
exiting external minority investors. Clearly, this is a very low risk form
of acquisition;
5. Share buy backs and cancellation in the future as the small
shareholders may wish to sell their shares with CEPS acting as the buyer of
last resort. This shrinking of the share capital should, at the right price,
and over time, prove to be very earnings accretive; and
6. As we grow the businesses, it is likely that we will be
approached by larger corporates and private equity funds to buy one or more of
the subsidiaries. This would likely be for a significant one-off gain.
Share price
Shareholders may be aware of the recent decline in the share price. The
Board, who collectively owns 6,709,000 shares (32.0%), is of course, acutely
aware of this!
The recent announcement that CEPS had received £345,000, net of tax, from
Aviva prompted a 12.5% decline in the share price which I have to say, even to
someone who has been managing funds investing in Listed and AIM shares for 30
years, I found to be completely perverse. Because the Horner Family owns
6,299,000 shares, if we were to buy another 1,000 shares we would be obliged
to make an offer for the whole Company. It is not our intention to do this
currently.
One of the reasons why I have produced such a long statement is to ensure that
what we are trying to do and how we are doing it at CEPS is in the "public
domain." This will enable me to go and introduce CEPS to new buyers who may
well be able to buy up small parcels of shares to try to ensure that the
market makers are not worried about being left with CEPS shares on their
books.
As it is not our intention, at this point, to instigate a major fundraising
exercise then there will not be availability of significant blocks of shares
for larger buyers to build a significant holding. This explains the
intention of finding private clients who are prepared to gradually build a
holding, over time, from multiple small purchases.
It is important to point out the Board is focused on not only improving the
profits of the underlying subsidiaries, but also to improve their quality and
to gradually transform privately run companies, with all the good and bad that
suggests, to be properly accountable and well-run businesses.
It is also important to bear in mind that we believe that CEPS' shares qualify
for Business Relief which means that if the shares are owned for more than two
years, they fall out of an individual's estate for Inheritance Tax purposes.
Whilst this is, of course, very attractive, our primary focus is making the
shares much more valuable.
Capital reduction
The capital reduction received Court approval on 30 April 2024 and is expected
to become effective in early May 2024. It is something of a technical issue
as the total balance sheet value of the Company does not change and the
constituent parts are reclassified. The effect of this is to reduce the
historical deficit on retained earnings in the reserves and to accelerate the
time when the Company can be able to pay dividends or, more likely, buy back
shares.
Outlook
Going forward in 2024 we are very hopeful that the continued anticipated
decline in inflation will lead to a steady, but regular, decline in interest
rates in the second half of the calendar year. Historically, that sort of
environment has been very positive for small company share prices.
As mentioned in my introduction, things are currently very uncertain across
the UK and Europe. This year, 2024, is being labelled as the Year of
Elections, as more than half the World will be voting in national elections.
In the UK, the polling currently shows that we are set for a change of
government. After all the instability over the past eight years, a period of
political renewal and revitalisation is to be welcomed.
Whilst a reader and listener to the mainstream media might well believe that
the UK economy is in a disastrous place, in my opinion this is not completely
correct. Certainly, things could be better, but when could they not! The
UK has for far too long suffered with low growth and whilst UK GDP has grown
modestly, GDP per capita has not. It seems that all parties accept that much
of what Liz Truss and Kwasi Kwarteng were saying was correct, it was just
their ham-fisted way of introducing it that was wrong.
With the management teams continuing to perform in the subsidiaries, we expect
our companies to be winners and to outperform. A long overdue period of
stability will assist them in their endeavours. As I wrote last year, and
frankly I believe I could not put better, "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
2 May 2024
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 2023
Audited Audited
2023 2022
£'000 £'000
Revenue (note 4) 29,675 26,449
Cost of sales (17,187) (15,538)
Gross profit 12,488 10,911
Other operating income 7 47
Exceptional income and expenses (note 5) 137 -
Administration expenses (10,086) (8,835)
Operating profit 2,546 2,123
Analysis of operating profit
- Trading 2,875 2,523
- Group net costs (329) (400)
2,546 2,123
Share of associate loss - (66)
Finance income 38 27
Finance costs (793) (738)
Profit before tax 1,791 1,346
Taxation (note 6) (567) (270)
Profit for the financial year 1,224 1,076
Other comprehensive income:
Items that will not be reclassified to profit or loss
Actuarial gain on defined benefit pension plans 13 54
Other comprehensive income for the year, net of tax 13 54
Total comprehensive income for the financial year 1,237 1,130
Income attributable to:
Owners of the parent 556 460
Non-controlling interests 668 616
1,224 1,076
Total comprehensive income attributable to:
Owners of the parent 569 514
Non-controlling interests 668 616
1,237 1,130
Earnings per share
- basic and diluted (pence) (note 7) 2.65 2.19p
All activity relates to continuing operations.
CEPS PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2023
2023 2022
£'000 £'000
Assets
Non-current assets
Property, plant and equipment (note 8) 974 671
Right-of-use assets (note 9) 2,025 1,694
Intangible assets (note 11) 11,605 11,728
14,604 14,093
Current assets
Inventories 2,388 2,138
Trade and other receivables 4,837 4,006
Cash and cash equivalents (excluding bank overdrafts) 916 1,284
8,141 7,428
Total assets 22,745 21,521
Equity
Capital and reserves attributable to owners of the parent
Called up share capital (note 12) 2,100 2,100
Share premium (note 12) 7,017 7,017
Retained earnings (6,931) (7,526)
2,186 1,591
Non-controlling interests in equity 3,407 2,924
Total equity 5,593 4,515
Liabilities
Non-current liabilities
Borrowings 6,889 8,367
Lease liabilities 1,721 1,522
Trade and other payables 60 208
Provisions 400 -
Deferred tax liability 372 338
9,442 10,435
Current liabilities
Borrowings 2,178 1,487
Lease liabilities 449 313
Trade and other payables 3,683 3,325
Current tax liabilities 1,400 1,446
7,710 6,571
Total liabilities 17,152 17,006
Total equity and liabilities 22,745 21,521
The comprehensive expense within the parent Company financial statements for
the year was a loss of £110,000 (2022: loss of £24,000).
CEPS PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED 31 DECEMBER 2023
2023 2022
£'000 £'000
Cash flows from operating activities
Profit for the financial year 1,224 1,076
Adjustments for:
Depreciation and amortisation 821 719
Loss on disposal of fixed assets 21 6
Pension contributions less than administrative charge 50 69
Share of associate loss - 66
Net finance costs 755 711
Taxation charge 567 270
Changes in working capital:
Movement in inventories (250) (518)
Movement in trade and other receivables (965) (970)
Movement in trade and other payables 652 301
Movement in provisions 400 -
Cash generated from operations 3,275 1,730
Corporation tax paid (450) (61)
Net cash generated from operations 2,825 1,669
Cash flows from investing activities
Interest received 1 12
Acquisition of businesses and subsidiaries including deferred consideration (320) (611)
paid
Purchase of property, plant and equipment (610) (120)
Proceeds from sale of assets 70 3
Purchase of intangibles assets (80) (75)
Purchase of loan notes in subsidiary from holder (57) -
Net cash used in investing activities (996) (791)
Cash flows from financing activities
Purchase of subsidiary shares from minority holders (2) -
Proceeds from borrowings 502 396
Repayment of borrowings (1,253) (773)
Dividends paid to non-controlling interests (157) (157)
Interest paid (889) (815)
Lease liability payments (398) (326)
Net cash used in financing activities (2,197) (1,675)
Net decrease in cash and cash equivalents (368) (797)
Cash and cash equivalents at the beginning of the year 1,284 2,081
Cash and cash equivalents at the end of the year 916 1,284
Major non-cash movements: there were £733,000 of non-cash additions to
right-of-use assets and lease liabilities in the year (2022: £807,000 of
non-cash additions to right-of-use assets and lease liabilities).
CEPS PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 31 DECEMBER 2023
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 2022 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 non controlling interests - - - - (157) (157)
Total amounts recognised directly in equity - - - - (157) (157)
At 31 December 2022 2,100 7,017 (7,526) 1,591 2,924 4,515
Actuarial gain - - 13 13 - 13
Profit for the year - - 556 556 668 1,224
Total comprehensive income for the financial year - - 569 569 668 1,237
Changes in ownership interest in subsidiaries - - 26 26 (27) (1)
Dividends paid in respect of a non-controlling interest - - - - (158) (158
At 31 December 2023 2,100 7,017 (6,931) 2,186 3,407 5,593
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 2023 (2022: 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 2023 and comprises the Company and
its subsidiaries. The consolidated financial statements were authorised for
issue on 2 May 2024. The financial information set out below does not
constitute the Company's statutory accounts for the years ended 31 December
2022 or 2023 within the meaning of Section 434 of the Companies Act 2006, but
is derived from those accounts. Statutory accounts for 2022 have been
delivered to the Registrar of Companies and those for 2023 will be delivered
following the Company's Annual General Meeting. The auditor's reports on the
statutory accounts for the years ended 31 December 2022 and 31 December 2023
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 2025. 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 2023 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:
a) 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 11).
b) Impairment of non-current assets
The Company assesses the impairment of tangible fixed assets subject to
depreciation whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Factors considered important that
could trigger an impairment review include the following:
· significant underperformance relative to historical or projected
future operating results;
· significant changes in the manner of the use of the acquired assets
or the strategy for the overall business; and
· significant negative industry or economic trends.
c) Depreciation and residual values
The directors have reviewed the asset lives and associated residual values of
all fixed asset classes and have concluded that asset lives and residual
values are appropriate.
The actual lives of the assets and residual values are assessed annually and
may vary depending on a number of factors. In re-assessing asset lives,
factors such as technological innovation, product life cycles and maintenance
programmes are taken into account. Residual value assessments consider
issues such as future market conditions, the remaining life of the asset and
projects' disposal values.
d) Carrying value of stocks
Management reviews the market value of and demand for its stocks on a periodic
basis to ensure stock is recorded in the financial statements at the lower of
cost and net realisable value. Any provision for impairment is recorded
against the carrying value of stocks. Management uses its knowledge of
market conditions, historical experiences and estimates of future events to
assess future demand for the Company's products and achievable selling prices.
e) Recoverability of trade debtors
Trade and other debtors are recognised to the extent that they are judged
recoverable. Management reviews are performed to estimate the level of
reserves required for irrecoverable debt. Provisions are made specifically
against invoices where recoverability is uncertain.
Management makes allowance for doubtful debts based on an assessment of the
recoverability of debtors. Allowances are applied to debtors where events or
changes in circumstances indicate that the carrying amounts may not be
recoverable. Management specifically analyses historical bad debts, customer
creditworthiness, current economic trends and changes in customer payment
terms when making a judgement to evaluate the adequacy of the provision for
doubtful debts. Where the expectation is different from the original
estimate, such difference will impact the carrying value of debtors and the
charge in the Consolidated Statement of Comprehensive Income.
f) Leases
Management 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.
g) 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 prior year ended 31 December 2022, 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 was treated as a change in accounting estimate and
application of the new method 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 related 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.
h) 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; and
Hickton Group, comprising Hickton Quality Control, 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
2023 2023 2023 2023
£'000 £'000 £'000 £'000
Revenue 3,476 6,826 19,373 29,675
Expenses (2,920) (5,759) (17,304) (25,983)
Segmental result (EBITDA) 556 1,067 2,069 3,692
Depreciation and amortisation charge (142) (208) (125) (475)
IFRS 16 depreciation (75) (168) (99) (342)
Group costs (329)
Net finance costs (including IFRS 16) (755)
Profit before taxation 1,791
Taxation (567)
Profit for the year 1,224
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
ii) Assets and liabilities by segment as at 31
December
Segment assets Segment liabilities Segment net assets/(liabilities)
2023 2022 2023 2022 2023 2022
£'000 £'000 £'000 £'000 £'000 £'000
Continuing operations
CEPS Group 626 286 (5,729) (5,410) (5,103) (5,124)
Aford Awards 3,828 4,014 (1,769) (2,170) 2,059 1,844
Friedman's 7,872 7,575 (2,709) (2,244) 5,163 5,331
Hickton Group 10,419 9,646 (6,945) (7,182) 3,474 2,464
Total - Group 22,745 21,521 (17,152) (17,006) 5,593 4,515
(iii) Revenue by geographical destination
2023 2022
£'000 £'000
UK 27,943 24,782
Europe 1,265 1,113
Rest of world 467 554
29,675 26,449
(iv) Nature of revenue
2023 2022
£'000 £'000
Products - recognised at a point in time 10,302 9,509
Services - recognised over time delivered 19,373 16,940
26,449 26,449
5. Operating profit - exceptional income and costs
Pension scheme surplus
The Trustee of the Dinkie Heel Defined Benefit Pension Scheme entered into a
buy-in contract with Aviva in December 2021 and this contract converted to a
full buy-out policy in 2023. It was agreed that that the surplus is repaid to
the Company and an amount of £403,000 net of tax and remaining expenses is
expected to be paid to the Company after the year end. This was included as an
exceptional credit of £537,000 in comprehensive income and £403,000 net of
tax of £134,000 in other debtors at 31 December 2023. On 17 April 2024 an
interim payment of £345,000 was paid to CEPS PLC.
Property dilapidations provision
The Group occupies various leased properties. In addition, the Company is
named as tenant on two leases which are no longer extant. Where applicable,
provision has been made for dilapidations, including associated professional
fees, which may be required. As at 31 December 2023 this falls within the
above provision of £400,000 (2022: £nil).
6. Taxation
2023 2022
£'000 £'000
Analysis of taxation in the year:
Current tax
Tax on profits of the year 410 295
Tax deducted at source on pension surplus 134 -
Tax in respect of prior years (11) (7)
Total current tax 533 288
Deferred tax
Current year deferred tax movement 5 (34)
Tax in respect of prior years 29 16
Total deferred tax 34 (18)
Total tax charge 567 270
The tax assessed for the year is higher (2022: higher) than the standard rate
of corporation tax in the UK (23.5%) (2022: 19%)
Factors affecting current tax:
Profit before taxation 1,791 1,346
Profit multiplied by the standard rate of UK tax of 23.5% (2022: 19%) 421 256
Effects of:
Expenses not deductible 20 39
Additional capital allowances (1) (9)
Higher tax rate on pension credit 8 -
Adjustments to tax in prior periods 18 9
Adjustments to deferred tax rate 2 (2)
Deferred tax not recognised 99 (23)
Total tax charge 567 270
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 2023 (2022: 25%).
There are tax losses carried forward in the Company of approximately £1.5m
(2022: £1.55m).
7. 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 £556,000 (2022:
£460,000) and on 21,000,000 (2022: 21,000,000) ordinary shares, being the
weighted number in issue during the year.
There are no potentially dilutive shares in the Group.
8. Property, plant and equipment
Freehold property Leasehold property improvements Plant and machinery Motor Total
vehicles
£'000 £'000 £'000 £'000 £'000
Cost
at 1 January 2022 - 487 766 21 1,274
Additions at cost - - 120 - 120
Disposals - - (13) - (13)
at 31 December 2022 - 487 873 21 1,381
Additions at cost 398 24 188 - 610
Disposals - - (143) (21) (164)
at 31 December 2023 398 511 918 - 1,827
Accumulated depreciation
at 1 January 2023 - 234 268 8 510
Charge for the year - 42 159 3 204
Disposals - - (4) - (4)
at 31 December 2022 - 276 423 11 710
Charge for the year 8 46 161 1 216
Disposals - - (61) (12) (73)
at 31 December 2023 8 322 523 - 853
Net book amount
at 31 December 2023 390 189 395 - 974
at 31 December 2022 - 211 450 10 671
9. Right-of-use assets
Leasehold property Plant and machinery Motor Total
vehicles
£'000 £'000 £'000 £'000
Cost
at 1 January 2022 1,614 197 - 1,811
Additions at cost 753 54 - 807
At 31 December 2022 2,367 251 - 2,618
Additions at cost 284 252 197 733
Disposals at the end of the lease term (230) (11) - (241)
At 31 December 2023 2,421 492 197 3,110
Accumulated depreciation
At 1 January 2022 532 54 - 586
Charge for the year 282 56 - 338
at 31 December 2022 814 110 - 924
Charge for the year 314 79 9 402
Disposals at the end of the lease term (230) (11) - (241)
At 31 December 2023 898 178 9 1,085
Net book amount
at 31 December 2023 1,523 314 188 2,025
at 31 December 2022 1,523 141 - 1,694
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 £318,000
(2022: £97,000).
The depreciation of £60,000 (2022: £33,000) in respect of these has been
charged to cost of sales in the Consolidated Statement of Comprehensive
Income.
10. Business combinations
In 2023, deferred consideration of £320,000 was paid in respect of earlier
acquisitions.
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 2022.
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 8 months in 2022 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 2022 in respect of
businesses acquired in 2021.
11. Intangible assets
Goodwill Customer relationship assets Other Total
£'000 £'000 £'000 £'000
Cost
at 1 January 2022 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
Additions at cost - - 80 80
At 31 December 2023 10,942 981 702 12,625
Accumulated amortisation and impairment
at 1 January 2022 557 822 224 1,603
Amortisation charge - 112 65 177
Disposals (385) (578) - (963)
at 31 December 2022 172 356 289 817
Amortisation charge - 124 79 203
at 31 December 2023 172 480 368 1,020
Net book amount
at 31 December 2023 10,770 501 334 11,605
at 31 December 2022 10,770 625 333 11,728
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 1,838 3,167 5,765 10,770
At 31 December 2022 and 2023
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 1.5%. A discount rate
of 13.4% (2022: 12.8%), 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 a UK long-term
growth rate and management's general expectations for the relevant CGU.
In respect of all three CGUs, the value-in-use calculation gives rise to
sufficient headroom such that reasonable changes in the key assumptions do not
eliminate the headroom.
12. Share capital and share premium
Number of shares Ordinary £0.10 shares Share premium Total
£'000 £'000 £'000
At 31 December 2022 and 2023 21,000,000 2,100 7,017 9,117
Subsequent to the year end in March 2024, a special resolution was passed to
reduce the nominal value of each share from 10 pence to 0.3 pence and to
cancel the share premium resulting in a total nominal value of £63,000, no
share premium and with an amount of £9,054,000 transferred to retained
earnings. The capital reduction received Court approval on 30 April 2024 and
is expected to become effective in early May 2024.
13. Distribution of the Annual Report and Notice of AGM
A copy of the 2023 Annual Report, together with a notice of the Company's
Annual General Meeting ('AGM') to be held at 11:30am on Monday 10 June 2024 at
11 Laura Place, Bath BA2 4BL, will be sent to all shareholders on Friday 10
May 2024, 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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