Interim Results
CEPS PLC
Interim results for the six months ended 30 June 2005
Chairman's Statement
Overview
In the 6 months to 30 June 2005, your Board has taken the first step in the
development of the CEPS (Chelverton Equity Partners) concept with its
investment at the end of January in Friedman's, a specialist Lycra converter
and distributor. I am delighted to say that trading in this company has met
expectations.
Davies Odell, the protection equipment, matting and shoe components business,
has experienced a slowing of demand in its original trading areas. However it
has been able, with larger marketing resources, to increase the sales of
personal protection equipment, the future growth area of the business.
Your Board has looked at many investment opportunities over the past six months
and has been surprised and pleased at the quality and size of the businesses
that have been introduced to CEPS. It appears that the CEPS concept has
significant appeal to owner managers who wish to remain involved with their
businesses but arrange a structured exit over a period of time and be paid out
on a gradual basis.
A number of offers have been made but, as anyone who has dealt with the
transfer of private company ownership knows, discussions are generally lengthy
and tortuous. When CEPS was refinanced last year, we had hoped to be able to
add new companies at the rate of one or two a year. We still believe this to be
a realistic target.
Financial Review
In the first half of 2005, the group has delivered an operating profit, after
exceptional items, ahead of last year at £131,000 (2004 restated: £123,000).
This result includes for the first time the group share of the profit from its
investment in Friedman's. After interest charges of £59,000 (2004 restated: £
28,000) the group profit on ordinary activities before taxation was £72,000
(2004 restated: £95,000). Earnings per share (fully diluted) were 0.03p (2004
restated: 0.14p).
The purchase of a majority stake in Friedman's was funded by £1.2 million of
non recourse bank finance and a successful share placing, raising £750,000
before expenses, leaving additional funds with which to further strengthen the
balance sheet. Net assets as at 30 June 2005 excluding the pension liability
increased to £1,324,000 (2004 restated: £475,000) and total equity
shareholders' funds increased from £21,000 as at 31 December 2004 (restated) to
£751,000.
In this period the group has adopted FRS17 `Retirement Benefits' and has
restated the results for previous periods. This has particularly affected the
balance sheet where a consequential pension liability of £454,000 was
established at 1 January 2005. The changes also result in lower Group operating
costs for pensions of which details are given in note 5. Agreement has been
reached with the Trustees of the Pension Fund to make good the existing
actuarial shortfall of £223,000 by way of additional contributions commencing
in July 2005 at the rate of £56,000 per annum.
Operational review
With the inclusion of Friedman's, total sales increased in the six month period
by 23%. Segmental profit before group costs, however, increased by just 8% to £
218,000 (2004 restated: £201,000).
Trading at Davies Odell has been affected in some areas from the sharp slowdown
in consumer spending this year. Sales overall are down 6% at £2,046,000 with
sales of rubber products to the shoe repair sector of particular concern.
Margins have come under pressure, and profits have been further reduced by the
investment in developing both the `Forcefield' products and brand. Overall the
business has achieved a segmental profit of £86,000 compared with £246,000. The
management has responded by reducing the head count and cutting costs
generally. However, while these cost savings are material, they will only start
to impact towards the end of the year.
Davies Odell has continued to invest heavily in developing the `Forcefield'
body-armour brand. The January edition of `Ride', a leading specialist consumer
magazine, reported that the `Forcefield' back protector was the `best buy' on
the market. Additional advertising has been undertaken to ensure this positive
message is promoted. Further new products have been developed and launched and
a new website is being created. I am pleased to report that sales are running
100% ahead of last year with improving margins. We believe that these products,
starved of investment and marketing expenditure over the past five years,
represent a significant business opportunity.
Friedman's, on the other hand, has continued to enjoy good trading conditions
and the newly appointed French agent has successfully opened up new markets and
accounts. As a result of this success, the company will be looking to appoint
agents in other European countries beginning with Germany in the New Year.
Reflecting the reduced central workload, Geoff Martin, the Finance Director,
has decreased his time spent with the group and, simultaneously, the original
Bristol office has now been closed.
Dividend
The Board is not recommending the payment of an interim dividend for the first
half of 2005 (2004: Nil). It is nevertheless committed to returning to the
dividend list and paying a growing dividend as part of shareholders' return
from their investment.
Prospects and future developments
Trading in Friedman's for the second six months is expected to show growth on
last year. With new agents being appointed and the extra anticipated business
generated, the company is shortly going to move to larger premises to manage
this and future growth.
Trading in parts of the Davies Odell businesses continues to be slow with both
sales and margins under pressure. All businesses are managing their overheads
tightly and, as mentioned above, action has already been taken to reduce the
workforce in line with the longer term expected levels of UK-based processing
work. Particular efforts are also being made to drive up margins in the matting
business, where sales are currently on target.
The development of the CEPS concept continues and a considerable amount of time
and effort has gone into identifying the right sort of company to enhance it in
the future. It is easy to overpay for a good company and it is also easy to buy
cheap businesses. We are striving to find the right companies at the right
price, with the right management teams who are properly incentivised. We have
achieved this with Friedman's and a number of very promising opportunities are
being studied at the moment.
Richard Organ
Chairman
20 September 2005
CEPS PLC
Consolidated Profit and Loss Account
Six months ended 30 June 2005
Unaudited Audited
6 months to 6 months to 12 months to
30 June 30 June 31 December
2005 2004 2004
(restated) (restated)
£'000 £'000 £'000
Turnover 2,046 2,191 4,676
continuing operations
acquisition 1,184 - -
discontinued operations - 428 687
3,230 2,619 5,363
Operating profit 131 152 245
before exceptional items
Exceptional items
Restructuring costs - (29) (99)
Operating profit/(loss) (1) 168 269
continuing operations
acquisition 132 - -
discontinued operations - (45) (123)
131 123 146
Interest payable (59) (28) (32)
Profit on ordinary activities 72 95 114
before taxation
Taxation - - -
Profit after taxation 72 95 114
Minority interests (20) - -
Profit for the period 52 95 114
Dividends - - -
Retained profit for the period 52 95 114
Earnings per share 0.03p 0.14p 0.11 p
- basic 0.03p 0.14p 0.10 p
- diluted
Statement of total recognised
gains and losses
£'000 £'000 £'000
Profit for the period 52 95 114
Actuarial loss recognised in - - (660)
pension scheme
Total recognised gains/(losses) 52 95 (546)
for the period
Prior year adjustment (454)
Total recognised losses since last (402)
annual report
CEPS PLC
Consolidated Balance Sheet
As at 30 June 2005
Unaudited Audited
As at As at As at
30 June 30 June 31 December
2005 2004 2004
(restated) (restated)
£'000 £'000 £'000
Net assets employed
Fixed Assets 1,502 - -
Intangible 303 266 263
Tangible
1,805 266 263
Current assets :
Stocks 1,171 553 639
Debtors 1,267 814 813
Cash at bank and in hand 33 - 422
2,471 1,367 1,874
Creditors: amounts falling due (1,951) (656) (1,242)
within one year
Net current assets 520 711 632
Total assets less current 2,325 977 895
liabilities
Creditors : amounts falling due (997) (502) (420)
after more than one year
Provisions for liabilities and (4) - -
charges
Net assets excluding pension 1,324 475 475
liability
Pension (liability)/asset (see (433) 186 (454)
note 5)
Net assets including pension 891 661 21
liability
Capital and reserves
Called up share capital 178 914 145
Share premium 645 1,783 -
Special reserve - - 304
Profit and loss account (72) (2,036) (428)
Total equity shareholders' funds 751 661 21
Minority interests: equity 78 - -
: non equity 62 - -
Capital employed 891 661 21
CEPS PLC
Consolidated Cash Flow Statement
Six months ended 30 June 2005
Unaudited Audited
6 months to 6 months to 12 months to
30 June 30 June 31 December
2005 2004 2004
(restated) (restated)
£'000 £'000 £'000
Reconciliation of operating profit
to net cash flow from operating
activities
Operating profit 131 123 146
Depreciation and amortisation 78 26 52
charges
(Increase)/decrease in stocks (147) 36 (50)
Decrease/(increase) in debtors 24 45 (91)
Decrease in creditors (225) (215) (228)
. . .
Net cash (outflow)/inflow (139) 15 (171)
from operating activities
Cash Flow Statement
Net cash (outflow)/inflow (139) 15 (171)
from operating activities
Returns on investments and (59) (28) (32)
servicing of
finance
Taxation - - -
Capital expenditure and financial (35) (20) (43)
investment
Acquisition (1,563) - -
Disposal - - 137
(1,796) (33) (109)
Financing 1,288 890 776
(Decrease)/increase in cash (508) 857 667
Reconciliation of net cash flow to
movement in net debt
(Decrease)/increase in cash in the (508) 857 667
period
Cash (increase)/decrease (560) 312 427
from change in debt
Change in net debt (1,068) 1,169 1,094
Net debt at 1 January (565) (1,659) (1,659)
Net debt at period end (1,633) (490) (565)
Notes to the Financial Statements
1. Segmental analysis
Unaudited Friedman's Davies Odell Dinkie Group
6 months to 30 June 2005 2005 2004 2004 2005 2004
(restated)
£'000 £'000 £'000 £'000 £'000 £'000
Turnover 1,184 2,046 2,191 428 3,230 2,619
Segmental profit/ 132 86 246 (16) 218 230
(loss)
before exceptional
items
Exceptional items - - - (29) - (29)
Segmental profit/ 132 86 246 (45) 218 201
(loss)
before Group costs
Group costs (87) (78)
Profit before interest 131 123
and taxation
Interest payable (59) (28)
Group profit before 72 95
taxation
Net assets 1,918 1,039 933 32 2,957 965
Pension (liability)/ (433) 186
asset
Unallocated net (1,633) (490)
liabilities
Total net assets 891 661
The investment in Friedman's was acquired on 25 January 2005 and accordingly no
comparative figures are included above.
The operations comprising the Dinkie segment were sold in December 2004 to a
management buy-out company.1. Segmental analysis (continued)
Audited Dinkie Davies Odell Group
(restated)
Year ended 31 December £'000 £'000 £'000
2004
Turnover 687 4,676 5,363
Segmental (loss)/profit (24) 439 415
before exceptional items
Exceptional items (99) - (99)
Segmental (loss)/profit (123) 439 316
before Group costs
Group costs (170)
Profit before interest and 146
taxation
Interest payable (32)
Group profit before 114
taxation
Net (liabilities)/assets (129) 1,169 1,040
Pension liability (454)
Unallocated net (565)
liabilities
Total net assets 21
2. Earnings per share
Basic earnings per share is calculated on earnings attributable to ordinary
shareholders after taxation of £52,000 (2004 restated, £95,000) and on
172,451,369 (2004, 66,667,761) ordinary shares, being the weighted number in
issue during the period.
Diluted earnings per share is calculated on 190,299,165 ordinary shares, being
the weighted average number adjusted to reflect the potential effect of the
exercise of share warrants. In 2004 the exercise of warrants would not have
been dilutive as the fair value of ordinary shares was below the exercise price
and accordingly basic and diluted earnings per share were the same.
3. Acquisition
0n 25 January 2005 the group acquired an initial 75% equity stake in the share
capital of Signature Fabrics Limited (Signature), a company set up for the
purpose of acquiring Friedman's Limited (Friedman's). The acquisition was
funded by subscriptions by the group of £91,666 for equity and £408,333 for
loan stock, by an initial 20% equity investment from the management of
Signature and the balance by bank finance. The group's 75% equity stake will
reduce on a ratchet basis to 55% dependent on the speed with which the loan
stock in Signature is repaid.
Friedman's imports, converts and distributes lycra based materials to swimwear
and dancewear manufacturers. From the audited accounts for the year ended 31
October 2004, Friedman's turnover was £2,620,000 and profit before tax £
320,000. Net assets at the same date were £470,000.
Details of the acquisition of Friedman's by Signature are as follows:
Book value and
provisional fair
value
£'000
Fixed assets 51
Stock 385
Debtors 478
Cash 242
Creditors (701)
Provisions (4)
Net assets acquired 451
Purchased goodwill 1,534
1,985
Consideration:
Cash 1,592
Deferred cash 110
Ordinary shares 8
Preference shares 62
Acquisition expenses 213
1,985
4. Share capital and reserves
On 25 January 2005 the group placed 33,333,335 new ordinary shares of 0.1p each
at a price of 2.25p each raising £750,000 before expenses. The investors
included members of the concert party detailed in the circular sent to
shareholders of the company on 26 March 2004. The placing proceeds were in the
main utilised to finance the acquisition of Friedman's (see note 3 above) with
the balance providing additional working capital for the group.
Following the share placing, and in accordance with the arrangements confirmed
by the High Court of Justice on 13 October 2004, the special reserve of £
304,000 has been eliminated and transferred to the profit and loss account.
The movement in the profit and loss account reserve is shown below:
Unaudited
6 months to
30 June 2005
£'000
At beginning of period, as previously reported 26
Prior year adjustment - FRS17 (454)
Retained profit for the period 52
Special reserve transfer 304
.
At end of period (72)
5. Adoption of FRS17 `Retirement Benefits'
In the period the group has adopted FRS17 `Retirement Benefits' and the balance
sheets at 30 June 2004 and at 31 December 2004 and the profit and loss accounts
for the year ended 31 December 2004 and for the six months ended 30 June 2004
have been restated.
Adoption of FRS17 has reduced the pension charge against operating profit in
the six month periods to 30 June 2005 and 2004 by £20,000 and £3,000
respectively. It has also reduced finance costs by £1,000 (£17,000), these
changes being reflected within the group charge for interest payable. In the
year ended 31 December 2004 the reduction in the pension charge was £6,000 and
in finance costs £34,000.
Shareholders' funds have, in total, been reduced by £454,000. This amount is
comprised of the pension fund surplus at 1 January 2004 of £166,000 increased
in the year ended 31 December 2004 by the lower pension charge of £40,000 and
reduced by the recognition of the actuarial loss in the year of £660,000.
The movement in the profit and loss account reserve is shown in note 4 above.
6. Status of the financial information
The financial information contained in the accounts does not constitute full
accounts within the meaning of the Companies Act 1985. The results for the half
year to 30 June 2005 are unaudited. The abridged profit and loss account,
balance sheet and cash flow statement for the year ended 31 December 2004 were
extracted from the published accounts which received an unqualified audit
report and which have been delivered to the Registrar of Companies.
7. Distribution of the interim report
A copy of the interim report is being sent to shareholders. Further copies will
be available to the public from the Company Secretary at the company's
registered address at 11 George Street, Bath BA1 2EH or from City Financial
Associates Limited, Pountney Hill House, 6 Laurence Pountney Hill, London EC4R
0BL.
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