CEPS PLC
("CEPS" OR THE "COMPANY")
FINAL RESULTS
The Board of CEPS is pleased to announce its final results for the year ended 31 December 2017.
CHAIRMAN'S STATEMENT
Financial review
Group revenue at £23.60m for the year (2016: £24.32m) was down by 3% whilst operating profit more than doubled to £1.10m from £536,000. Profit before tax was up at £902,000 (2016: £146,000) before the exceptional goodwill impairment charge of £847,000 (2016: £611,000).
Group costs were slightly higher than last year at £322,000 (2016: £308,000), but include the professional fees for the triennial valuation of the Dinkie Heel Retirement Benefit Scheme. The post-tax loss was £221,000 (2016: loss £913,000).
Loss per share on a basic and diluted basis was (4.11p) (2016: (11.83p)). In the year cash generated from operations improved to £1.77m (2016: £1.11m), and there was a net increase in cash and cash equivalents of £807,000 (2016: net decrease of £67,000). Year-end cash was £1.37m (2016: £840,000).
Operational review
Aford Awards
Aford Awards has continued to make good progress and produce record profits. The cash generated from these profits has meant the vendor loans have now been completely repaid and the repayment of CEPS acquisition loans will now commence.
A number of "bolt-on" acquisitions are being investigated and it is hoped that at least one of these will be acquired in the second half.
CEM Press
A complete overhaul of the business has taken place over the past year. In a difficult and very competitive market CEM Press was again loss making. However, there is no doubt that we now have a more efficient and more competitive company. We are very encouraged by the level of sales enquiries which we are hoping will convert into confirmed orders and will provide a significant boost to the second half of 2018.
In a very small sector, with only a handful of competitors, there will be in the future scope for consolidation and we, and the management team at CEM Press, intend to be the consolidator.
Under accounting rules it is necessary every year to review the carrying value of the goodwill of each company. Whilst this review produced a very positive result for several of the CEPS subsidiaries, because of the poor financial performance of CEM Press in the recent past, this review showed that the carrying value of goodwill needed to be reduced. The Board decided to write-off the carrying value of goodwill in full in this company. This is a non-cash item and does not affect the underlying value of the company.
Davies Odell
The company returned to modest profitability and has at the same time invested in new products across its various activities, which should produce greater sales going forward. Better control of working capital has meant that the balance sheet has got stronger and should in time lead to further debt reduction.
Friedman's
Another exceptional year with record profits and very strong cash generation.
When CEPS bought this company with David Kaitiff in 2005 we quickly moved the business to premises that were three times larger. In March of this year Friedman's moved to premises that are double in size to their previous ones. This increase in space has enabled Friedman's to significantly increase capacity by acquiring more digital printing machines and having access to more power capacity. These machines will be used in the expansion of the existing business and also to enable it to move into new business areas.
Hickton Consultants
The company has continued to generate profits and a steady stream of new contract wins, whilst some of the longer standing, larger projects have been extended, providing predictability of income.
BRCS (Building Control) was acquired in May 2017 to provide a complementary offering to the clerk-of-works, quality assurance role provided by Hickton Consultants. The two management teams are working well together to integrate the business. Clients of both companies have expressed an interest in the additional services now on offer and there have been some cross-referrals.
Sunline
The polywrap and letter shop business moved into profit last year although, again, December proved to be a seriously loss-making month and was much worse than expected. The fulfilment business, which from 2018 is in a separate company called CYNC, was moved to new and much larger premises in December. Whilst the move was entirely necessary, the timing was certainly not ideal and large unexpected costs were incurred in 2017. There have also been operational issues in the new premises which have proved very challenging. For these reasons, Sunline recorded a loss for the year.
Dividend
Recognising the confidence that the Board has in the future of the Company, the clearest tangible signal of this confidence is to reintroduce the payment of an annual dividend. It is twenty years since the Company last paid a dividend and the Board feels that now is an appropriate time to provide shareholders with a revenue reward for holding the shares.
Because of the write-offs in goodwill over the past few years the Company, in accounting terms, is currently prevented from paying a dividend. Therefore, as part of the business carried out at the Annual General Meeting, a resolution will be put forward to enable the Company to undertake a capital reconstruction as soon as possible during 2018, which will facilitate the payment of this and future dividends.
Power to allot additional shares
The Company will be convening its Annual General Meeting to be held on 18 June 2018. Among other resolutions to be proposed, the Board will seek authority to allot shares equating to 100% of its present issued ordinary share capital in line with the requirements of our acquisition strategy.
People
Following a very busy period where each of the businesses has faced challenges, the Board is most grateful for the ongoing efforts of all the Group's employees.
Outlook
Since I became Chairman three years ago considerable effort has been expended, by all CEPS colleagues, on growing the successful companies and getting those companies that were performing less well back on the right track for future profitability and growth. This does not happen overnight and it is undoubtedly the case that everything seems to take longer than one expects and hopes.
We now feel that we are making progress and that in the future the accounts will, hopefully, demonstrate this current confidence.
Considerable time, and no little investment, is being spent on improving the operational efficiency of each company. Targeted effort is going into automating and mechanising processes wherever possible.
The combination of a tightening labour supply market and the introduction of the Minimum Wage, Auto Enrolment and the Apprentice Levy have all led to significant increases in the cost of employing people, presupposing the right skilled people can be found. We believe that this situation will only get worse in the future and it is, therefore, essential that we work at "future-proofing" the businesses today.
Trading in the current year is marginally behind the Board's expectations. However, we expect the Group to make progress as the year unfolds.
David Horner
Chairman
10 May 2018
This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.
David Horner, Chairman, CEPS PLC
Tel: 01225 483030
Tony Rawlinson, Cairn Financial Advisers LLP
James Caithie
Nominated Adviser
Tel: 020 7213 0880
CEPS PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED 31 DECEMBER 2017
|
2017 |
2016 |
|
£'000 |
£'000 |
Continuing operations |
|
|
Revenue (note 4) |
23,601 |
24,320 |
Cost of sales |
(18,187) |
(19,465) |
Gross profit |
5,414 |
4,855 |
|
|
|
Administration expenses |
(4,313) |
(4,319) |
|
|
|
Operating profit |
1,101 |
536 |
|
|
|
Goodwill impairment |
(847) |
(611) |
|
|
|
Adjusted operating profit/(loss) |
254 |
(75) |
|
|
|
Analysis of operating profit/(loss) |
|
|
- Trading |
1,423 |
844 |
- Goodwill impairment |
(847) |
(611) |
- Group costs |
(322) |
(308) |
|
254 |
(75) |
|
|
|
Finance income |
128 |
26 |
Finance costs |
(337) |
(416) |
Profit on disposal of investment |
10 |
- |
Profit/(loss) before tax |
55 |
(465) |
Taxation (note 5) |
(276) |
(448) |
Loss for the year from continuing operations |
(221) |
(913) |
|
|
|
Other comprehensive loss: Items that will not be reclassified to profit or loss |
|
|
Actuarial loss on defined benefit pension plans |
(66) |
(80) |
Items that may be subsequently reclassified to profit or loss |
- |
- |
Other comprehensive loss for the year, net of tax |
(66) |
(80) |
Total comprehensive loss for the year |
(287) |
(993) |
|
|
|
(Loss)/income attributable to: |
|
|
Owners of the parent |
(532) |
(1,132) |
Non-controlling interest |
311 |
219 |
|
(221) |
(913) |
|
|
|
Total comprehensive (loss)/income attributable to: |
|
|
Owners of the parent |
(598) |
(1,212) |
Non-controlling interest |
311 |
219 |
|
(287) |
(993) |
Earnings per share |
|
|
- basic and diluted (note 6) |
(4.11)p |
(11.83)p |
CEPS PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2017
|
2017 |
2016 |
|
£'000 |
£'000 |
Assets |
|
|
Non-current assets |
|
|
Property, plant and equipment (note 7) |
2,320 |
2,419 |
Intangible assets (note 9) |
5,600 |
5,738 |
Deferred tax asset |
226 |
220 |
|
8,146 |
8,377 |
|
|
|
Current assets |
|
|
Inventories |
1,770 |
2,020 |
Trade and other receivables |
3,691 |
3,701 |
Cash and cash equivalents (excluding bank overdrafts) |
1,371 |
840 |
|
6,832 |
6,561 |
Total assets |
14,978 |
14,938 |
|
|
|
Equity |
|
|
Capital and reserves attributable to owners of the parent |
|
|
Called up share capital (note 10) |
1,320 |
957 |
Share premium |
4,843 |
3,943 |
Retained earnings |
(2,556) |
(1,924) |
|
3,607 |
2,976 |
Non-controlling interest in equity |
1,347 |
1,227 |
Total equity |
4,954 |
4,203 |
|
|
|
Liabilities |
|
|
Non-current liabilities |
|
|
Borrowings |
2,223 |
2,600 |
Trade and other payables |
313 |
- |
Deferred tax liability |
71 |
80 |
Provisions for liabilities and charges |
50 |
50 |
|
2,657 |
2,730 |
|
|
|
Current liabilities |
|
|
Borrowings |
3,503 |
3,838 |
Trade and other payables |
3,556 |
3,934 |
Current tax liabilities |
258 |
171 |
Provisions for liabilities and charges |
50 |
62 |
|
7,367 |
8,005 |
Total liabilities |
10,024 |
10,735 |
Total equity and liabilities |
14,978 |
14,938 |
The profit within the parent company financial statements for the year was £301,000 (2016: £160,000).
CEPS PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED 31 DECEMBER 2017
|
2017 |
2016 |
|
£'000 |
£'000 |
Cash flows from operating activities |
|
|
Profit/(loss) before income tax |
55 |
(465) |
Adjustments for: |
|
|
Depreciation and amortisation |
497 |
478 |
Intangible assets written off |
847 |
611 |
Loss on disposal of property, plant and equipment |
(17) |
- |
Net finance costs |
209 |
390 |
Changes in working capital: |
|
|
Decrease in inventories |
250 |
10 |
Decrease/(increase) in trade and other receivables |
11 |
(546) |
(Decrease)/Increase in trade and other payables |
(75) |
578 |
(Decrease)/increase in provisions |
(12) |
57 |
Cash generated from operations |
1,765 |
1,113 |
Income tax paid |
(229) |
(236) |
Interest received |
128 |
26 |
Interest paid |
(337) |
(416) |
Net cash generated from operations |
1,327 |
487 |
|
|
|
Cash flows from investing activities |
|
|
Acquisition of subsidiary net of cash acquired |
(444) |
(188) |
Increase in existing shareholding in subsidiary |
(7) |
- |
Purchase of property, plant and equipment |
(266) |
(899) |
Proceeds from sale of assets |
32 |
- |
Purchase of intangibles |
(11) |
(33) |
Disposal of property, plant and equipment |
- |
- |
Interest received |
- |
26 |
Net cash used in investing activities |
(696) |
(1,094) |
|
|
|
Cash flows from financing activities |
|
|
(Repayment of)/proceeds from borrowings |
(476) |
1,067 |
Proceeds from share issue net of issue costs |
1,263 |
- |
Dividend paid to non-controlling interests |
(225) |
(180) |
Repayment of capital element of finance leases |
(386) |
(321) |
Net cash generated from financing activities |
176 |
566 |
|
|
|
Net increase/(decrease) in cash and cash equivalents |
807 |
(67) |
Cash and cash equivalents at the beginning of the year |
44 |
111 |
Cash and cash equivalents at the end of the year |
851 |
44 |
|
|
|
CEPS PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 31 DECEMBER 2017
|
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 2016 |
957 |
3,943 |
(712) |
4,188 |
873 |
5,061 |
Actuarial loss |
- |
- |
(80) |
(80) |
- |
(80) |
(Loss)/profit for the year |
- |
- |
(1,132) |
(1,132) |
219 |
(913) |
Total comprehensive (loss)/ income for the year |
- |
- |
(1,212) |
(1,212) |
219 |
(993) |
Dividend paid to non-controlling interest |
- |
- |
- |
- |
(180) |
(180) |
Total distributions recognised directly in equity |
- |
- |
- |
- |
(180) |
(180) |
Acquisition of a subsidiary |
- |
- |
- |
- |
315 |
315 |
At 31 December 2016 |
957 |
3,943 |
(1,924) |
2,976 |
1,227 |
4,203 |
Actuarial loss |
- |
- |
(66) |
(66) |
- |
(66) |
(Loss)/profit for the year |
- |
- |
(532) |
(532) |
311 |
(221) |
Total comprehensive (loss)/income for the year |
- |
- |
(598) |
(598) |
311 |
(287) |
Changes in ownership interest in a subsidiary |
- |
- |
(34) |
(34) |
34 |
- |
Dividend paid to non-controlling interest |
- |
- |
- |
- |
(225) |
(225) |
Total distributions recognised directly in equity |
- |
- |
(34) |
(34) |
(191) |
(225) |
Proceeds from shares issued net of costs |
363 |
900 |
- |
1,263 |
- |
1,263 |
At 31 December 2017 |
1,320 |
4,843 |
(2,556) |
3,607 |
1,347 |
4,954 |
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 2017 and comprises the Company and its subsidiaries. The consolidated financial statements were authorised for issuance on 10 May 2018. The financial information set out below does not constitute the Company's statutory accounts for the years ended 31 December 2016 or 2017 within the meaning of Section 434 of the Companies Act 2006, but is derived from those accounts. Statutory accounts for 2016 have been delivered to the Registrar of Companies and those for 2017 will be delivered following the Company's Annual General Meeting. The auditors' reports on the statutory accounts for the years ended 31 December 2016 and 31 December 2017 were unqualified 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 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 10 May 2018.
3. Critical accounting assumptions, judgements and estimates
The fair values of all financial assets and liabilities approximate to their carrying values.
a) Impairment of intangible assets (including goodwill and customer relationships)
The Group tests annually whether intangible assets (including goodwill) have suffered any impairment. The recoverable amounts of the cash-generating units have been determined based on value-in-use calculations. The calculations require the use of estimates.
b) Deferred tax assets
Certain subsidiaries of the Group (principally Davies Odell) have accelerated capital allowances and brought forward tax losses. Deferred tax assets have been recognised in respect of the brought-forward tax losses. The recognition of the assets reflects management's estimate of the recoverable amounts in respect of these items.
c) Retirement benefit liabilities
One subsidiary of 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.
d) Acquisitions
During the year Hickton Holdings Limited acquired 100 per cent of BRCS (Building Control) Limited. Management has made estimates concerning the intangible assets arising on acquisition as well as the fair value of the assets and liabilities at the acquisition date.
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, a manufacturer of fabric 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
- Hickton, a supplier of services to the construction industry
- Sunline, a supplier of services to the direct mail market
- 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 Group information provided below, therefore, also represents the geographical segmental analysis. Of the £23,601,000 (2016: £24,320,000) revenue £21,001,000 (2016: £21,666,000) is derived from UK customers with the remaining £2,600,000 (2016: £2,654,000) being derived from a number of overseas countries, none of which is material in isolation.
The Board assesses the performance of each operating segment by a measure of adjusted earnings before interest, tax, Group costs, depreciation and amortisation (EBITDA). 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 2017
|
Aford Awards |
CEM |
Davies |
Friedman's |
Hickton |
Sunline |
Total |
|
2017 |
2017 |
2017 |
2017 |
2017 |
2017 |
2017 |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
Revenue |
1,907 |
2,414 |
3,804 |
5,053 |
3,748 |
6,675 |
23,601 |
Segmental result (EBITDA) |
328 |
(310) |
33 |
1,198 |
447 |
224 |
1,920 |
Depreciation and |
|
|
|
|
|
|
(497) |
Goodwill impairment |
|
|
|
|
|
|
(847) |
Group costs |
|
|
|
|
|
|
(322) |
Net finance costs |
|
|
|
|
|
|
(209) |
Profit on disposal of investments |
|
|
|
|
|
|
10 |
Profit before taxation |
|
|
|
|
|
|
55 |
Taxation |
|
|
|
|
|
|
(276) |
Loss for the year |
|
|
|
|
|
|
(221) |
Year ended 31 December 2016
|
Aford Awards |
CEM |
Davies Odell |
Friedman's |
Hickton |
Sunline |
Total |
|||
|
2016 |
2016 |
2016 |
2016 |
2016 |
2016 |
2016 |
|||
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|||
Revenue |
1,596 |
2,954 |
4,317 |
4,555 |
2,961 |
7,937 |
24,320 |
|
||
Segmental result (EBITDA) |
298 |
(149) |
(10) |
887 |
386 |
(90) |
1,322 |
|
||
Depreciation and |
|
|
|
|
|
|
(478) |
|
||
Goodwill impairment |
|
|
|
|
|
|
(611) |
|
||
Group costs |
|
|
|
|
|
|
(308) |
|
||
Net finance costs |
|
|
|
|
|
|
(390) |
|
||
Loss before taxation |
|
|
|
|
|
|
(465) |
|
||
Taxation |
|
|
|
|
|
|
(448) |
|
||
Loss for the year |
|
|
|
|
|
|
(913) |
|
||
ii) Assets and liabilities by segment
As at 31 December
|
Segment assets |
Segment liabilities |
Segment net assets |
|||
|
2017 |
2016 |
2017 |
2016 |
2017 |
2016 |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
CEPS Group |
41 |
30 |
(1,078) |
(873) |
(1,037) |
(843) |
Aford Awards |
1,558 |
1,465 |
(346) |
(430) |
1,212 |
1,035 |
CEM Press |
1,400 |
2,422 |
(1,627) |
(1,924) |
(227) |
498 |
Davies Odell |
1,974 |
1,919 |
(1,401) |
(1,353) |
573 |
566 |
Friedman's |
3,860 |
3,549 |
(800) |
(915) |
3,060 |
2,634 |
Hickton |
3,368 |
2,431 |
(1,942) |
(1,220) |
1,426 |
1,211 |
Sunline |
2,777 |
3,122 |
(2,830) |
(4,020) |
(53) |
(898) |
Total - Group |
14,978 |
14,938 |
(10,024) |
(10,735) |
4,954 |
4,203 |
5. Tax
|
2017 |
2016 |
|
£'000 |
£'000 |
Analysis of taxation in the year: |
|
|
Current tax |
|
|
Tax in respect of current year |
317 |
215 |
Tax in respect of prior years |
(21) |
14 |
Total current tax |
296 |
229 |
Deferred tax |
|
|
Current year deferred tax movement |
(20) |
- |
Origination and reversal of temporary differences |
- |
219 |
Total deferred tax |
(20) |
219 |
Total tax charge |
276 |
448 |
Deferred tax charged to the Consolidated Statement of Changes in Equity |
- |
- |
The tax assessed for the year is higher (2016: higher) than the standard rate of corporation tax in the UK (19%) (2016: 20%)
Factors affecting current tax: |
|
|
Profit/(loss) before taxation |
55 |
(465) |
Profit/(loss) multiplied by the standard rate of UK tax of 19% |
11 |
(93) |
Effects of: |
|
|
Permanent differences |
306 |
308 |
Current year deferred tax movement |
(20) |
- |
Prior year adjustment, current tax |
(21) |
14 |
Prior year adjustment, deferred tax |
- |
219 |
Total tax charge |
276 |
448 |
The standard rate of corporation tax in the UK changed to 19% with effect from 1 April 2017. Accordingly, the Group's profits for this accounting year are taxed at an effective rate of 19%.
Reduction in the United Kingdom corporation tax rate to 17% (effective from 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the Group's future current tax charge accordingly. The deferred tax balance has been calculated based on the rate of 19%.
6. Earnings per share
Basic earnings per share is calculated on the loss for the year after taxation attributable to owners of the parent of £532,000 (2016: loss £1,132,000) and on 12,951,576 (2016: 9,573,822) ordinary shares, being the weighted number in issue during the year.
No adjustment is required for dilution in either year as there are no items that would have a dilutive impact on earnings per share.
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 2016 |
138 |
5,657 |
166 |
5,961 |
|
Additions at cost |
20 |
727 |
4 |
751 |
|
Assets acquired on purchase of a subsidiary |
20 |
128 |
- |
148 |
|
Disposals |
- |
(46) |
(15) |
(61) |
|
at 31 December 2016 |
178 |
6,466 |
155 |
6,799 |
|
Additions at cost |
15 |
380 |
21 |
416 |
|
Assets acquired on purchase of a subsidiary |
21 |
45 |
- |
66 |
|
Disposals |
- |
(64) |
(28) |
(92) |
|
at 31 December 2017 |
214 |
6,827 |
148 |
7,189 |
|
Accumulated depreciation |
|
|
|
|
|
at 1 January 2016 |
96 |
3,645 |
98 |
3,839 |
|
Assets acquired on purchase of a subsidiary |
20 |
105 |
- |
125 |
|
Adjustment |
- |
1 |
1 |
2 |
|
Charge for the year |
9 |
440 |
17 |
466 |
|
Disposals |
- |
(42) |
(10) |
(52) |
|
at 31 December 2016 |
125 |
4,149 |
106 |
4,380 |
|
Assets acquired on purchase of a subsidiary |
21 |
33 |
- |
54 |
|
Charge for the year |
9 |
452 |
17 |
478 |
|
Disposals |
- |
(20) |
(23) |
(43) |
|
at 31 December 2017 |
155 |
4,614 |
100 |
4,869 |
|
Net book amount |
|
|
|
|
|
at 31 December 2017 |
59 |
2,213 |
48 |
2,320 |
|
at 31 December 2016 |
53 |
2,317 |
49 |
2,419 |
At the year end, assets held under hire purchase contracts and capitalised as plant, machinery, tools and moulds have a net book value of £1,479,000 (2016: £1,679,000) and an accumulated depreciation balance of £2,194,000 (2016: £1,961,000).
The depreciation has been charged to cost of sales in the Consolidated Statement of Comprehensive income.
8. Acquisitions in 2017
(a) BRCS (Building Control) Limited
During the year Hickton Holdings Limited acquired 100 per cent of the issued share capital of BRCS (Building Control) Limited. The initial consideration was £616,000 with the balance of the consideration payable over the next two years, dependent on financial performance over the period. No equity investment from CEPS was required to undertake the transaction, which was completed on 18 May 2017.
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 £132,000.
Goodwill of £717,000 arose from the acquisition. Of this amount £182,000 was allocated to customer lists.
The following table shows the fair value of assets and liabilities included in the consolidated Financial Statements at the date of acquisition:
|
Fair Value |
|
£'000 |
Identifiable assets |
|
Cash and cash equivalents |
98 |
Property, plant and equipment |
12 |
Trade and other receivables |
146 |
Trade and other payables |
(120) |
Deferred tax liabilities |
(4) |
|
132 |
Consideration calculation |
|
Purchase price consideration |
616 |
Deferred consideration |
226 |
Stamp duty |
7 |
|
849 |
Goodwill |
717 |
|
|
Analysis of cash flows on acquisition |
|
Cash paid |
616 |
Less: net cash acquired with subsidiary |
(98) |
Net cash flow on acquisition |
518 |
From the date of acquisition BRCS (Building Control) contributed £273,000 of revenue and £72,000 loss before tax. If the combination had taken place at the beginning of the year, revenue would have been £519,000 and loss before tax would have been £4,000.
(b) Acquisition of additional interest in CemTeal Limited
During the year the Group acquired an additional 7% interest in the voting shares of CemTeal, increasing its effective ownership interest to 80%. Cash consideration of £7,000 was paid to the non-controlling shareholders. The carrying value of the net liabilities of CemTeal (excluding goodwill on the original acquisition) was £27,000. Shown below is a schedule of the additional interest acquired:
|
£'000 |
Cash paid to non-controlling shareholders |
7 |
Less: carrying value of the additional interest |
27 |
Difference recognised in retained earnings |
34 |
9. Intangible assets
|
|
Goodwill |
Customer lists |
Other |
Total |
Group |
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Cost |
|
|
|
|
|
at 1 January 2016 |
6,736 |
577 |
69 |
7,382 |
|
Acquisition |
1,679 |
- |
- |
1,679 |
|
Additions at cost |
- |
13 |
20 |
33 |
|
At 31 December 2016 |
8,415 |
590 |
89 |
9,094 |
|
Acquisition |
535 |
182 |
- |
717 |
|
Additions at cost |
- |
- |
11 |
11 |
|
At 31 December 2017 |
8,950 |
772 |
100 |
9,822 |
|
Accumulated amortisation and impairment |
|
|
|
|
|
at 1 January 2016 |
2,700 |
- |
30 |
2,730 |
|
Adjustment |
- |
- |
3 |
3 |
|
Amortisation charge |
- |
1 |
11 |
12 |
|
Impairment |
611 |
- |
- |
611 |
|
at 31 December 2016 |
3,311 |
1 |
44 |
3,356 |
|
Amortisation charge |
- |
4 |
15 |
19 |
|
Impairment |
847 |
- |
- |
847 |
|
at 31 December 2017 |
4,158 |
5 |
59 |
4,222 |
|
Net book amount |
|
|
|
|
|
at 31 December 2017 |
4,792 |
767 |
41 |
5,600 |
|
at 31 December 2016 |
5,104 |
589 |
45 |
5,738 |
Goodwill is not amortised under IFRS, but is subject to impairment testing either annually or on the occurrence of a triggering event. Amortisation charges are included in administration expenses.
Customer lists are assessed to have indefinite life. When a decision is taken to terminate a product or service, the related customer lists are amortised over the remaining life of the product. Impairment reviews are undertaken annually or if changes in circumstances indicate a potential impairment.
Other intangibles relate to computer software and website costs 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 intangible assets (goodwill and customer lists)
The Group tests goodwill and intangible assets arising on acquisition of a subsidiary (customer relationships) 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 |
Friedman's |
Hickton |
Sunline |
Total |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
at 1 January 2016 |
1,039 |
1,435 |
1,528 |
- |
611 |
4,613 |
Acquisition of subsidiary |
- |
- |
- |
1,679 |
- |
1,679 |
Additions - customer lists |
13 |
- |
- |
- |
- |
13 |
Amortisation charge |
(1) |
- |
- |
- |
|
(1) |
Impairment |
- |
- |
- |
- |
(611) |
(611) |
at 31 December 2016 |
1,051 |
1,435 |
1,528 |
1,679 |
- |
5,693 |
Acquisition of subsidiary |
- |
- |
- |
535 |
- |
535 |
Additions - customer lists |
- |
- |
11 |
182 |
- |
193 |
Amortisation charge |
(4) |
- |
(11) |
- |
- |
(15) |
Impairment |
- |
(847) |
- |
- |
- |
(847) |
at 31 December 2017 |
1,047 |
588 |
1,528 |
2,396 |
- |
5,559 |
The recoverable amount of 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 9.95% (2016: 10.85%), representing the estimated pre-tax cost of capital has been applied to these projections. The risk profile of both CGUs is considered to be similar.
The key assumptions used in the value-in-use calculations are as follows:-
|
Revenue growth |
Gross margin |
Long-term growth |
|||
|
2017 |
2016 |
2017 |
2016 |
2017 |
2016 |
|
% |
% |
% |
% |
% |
% |
Aford Awards |
3.0 |
1.0 |
31.6 |
32.4 |
1.0 |
1.0 |
CEM Press |
2.0 |
1.0 |
34.0 |
38.7 |
1.0 |
1.0 |
Friedman's |
5.0 |
3.0 |
42.0 |
42.0 |
2.0 |
2.0 |
Hickton Consultants |
2.0 |
1.0 |
41.1 |
37.0 |
- |
- |
Sunline |
2.0 |
2.0 |
42.2 |
33.0 |
1.0 |
1.0 |
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, CEM Press, Friedman's 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 December 2017 an impairment charge of £847,000 was taken against the carrying value of goodwill related to CemTeal. This reflected the challenging economic and trading environment of the pattern book market in which the business was operating.
10. Share Capital
|
Number of shares |
Share capital |
Share premium |
Total |
|
|
£'000 |
£'000 |
£'000 |
At 1 January 2016 and 31 December 2016 |
9,573,822 |
957 |
3,943 |
4,900 |
Shares issued |
3,626,118 |
363 |
907 |
1,270 |
Transaction costs |
- |
- |
(7) |
(7) |
At 31 December 2017 |
13,199,940 |
1,320 |
4,843 |
6,163 |
11. Distribution of the Annual Report and Notice of AGM
A copy of the 2017 Annual Report, together with a notice of the Company's Annual General Meeting to be held at 11:30am on Monday 18 June 2018 at 11 Laura Place, Bath BA2 4BL, will be sent to all shareholders on Wednesday 16 May 2018. 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.