Preliminary Results

CEPS PLC ("CEPS" OR THE "COMPANY") Preliminary announcement of unaudited results for Year Ended 31 December 2007 Chairman's Statement (extract) Highlights: * Profit before tax of Â£674,000, an increase of 142% on 2006 * Group revenue of Â£15.4m, an increase of 100% on 2006 * Adjusted earnings per share of 6.95p (2006, after tax credit, 11.95p) * Gearing reduced to 51% (2006, 76%) * Â£713,000 debt repaid during the year from internally generated resources * Strong balance sheet with capital and reserves of Â£4.2m (2006, Â£1.2m) Chairman's Statement Overview: The progress achieved in the first half was partially sustained in the second half, in spite of increasingly uncertain trading conditions. The Sunline Direct Mail business, acquired in February 2007, is now fully integrated within the Group and its Lettershop business (Sunline Solutions) has had a particularly strong year. At Friedman's, our lycra distribution business, overall sales levels were in line with expectations but profitability was flat year-on-year. The revenue cost of developing an online retail business, FunkiFabrics, an unexpected bad debt late in the year and Euro exchange rate appreciation, all reduced profitability in the second half. Davies Odell performed ahead of expectation in the first half and with a steady second half performance saw revenue for the year rise by 6% and profitability by 5%. Group revenue doubled and operating profit increased by 145% to Â£945,000 (2006, Â£385,000) after charging abortive acquisition costs of Â£71,000. Group profit before tax rose by a similar percentage to Â£674,000 (2006, Â£279,000). Adjusted earnings per share, before deduction of abortive acquisition costs of Â£71,000, were 6.95p (2006, after tax credit, 11.95p). Further potential acquisitions are under review, both as enhancements to existing activities and as stand-alone businesses in their own right. The structure and strategy adopted by CEPS appears to have become an accepted exit solution for companies with a value below the size criterion of the private equity investors. Financial review: Revenue doubled to Â£15.4m (2006, Â£7.7m), and operating profit rose by 145% to Â£ 945,000 (2006, Â£385,000) after charging abortive acquisition costs of Â£71,000. Profit before tax rose by a similar percentage to Â£674,000 (2006, Â£279,000) and after tax of Â£88,000 (2006, credit Â£158,000) the profit for the year was Â£ 586,000 (2006, Â£437,000). Earnings per share, basic and diluted, were 6.32p (2006, 11.95p), the figures taking into account the 1 for 50 share consolidation and placing of 4,750,000 new shares in February 2007. Cash generated from operations in the year was Â£1,466,000 (2006, Â£450,000). The share placing in February raised Â£2,375,000 before expenses of Â£57,000. The investment by the Group in Sunline was Â£3,940,000, comprising shares and loan stock of Â£1,450,000 plus the expenses of the acquisition of Â£698,000, less Â£ 208,000 cash acquired with the business and together with new bank loans of Â£ 2,000,000. Total bank loans of Â£2,257,000 (2006, Â£861,000) include Â£2,190,000 (2006, Â£ 697,000) secured against the assets of subsidiary companies and with no recourse to the rest of the Group. The increase includes the Â£2,000,000 of bank loans related to the acquisition of Sunline, of which Â£300,000 had been repaid at the year end. Gearing has been reduced to 51% (2006, 76%) as a result of the additional equity raised, the repayment of bank loans and finance lease borrowings from internally generated resources totalling Â£713,000 and by increased cash balances of Â£348,000. The Group balance sheet remains strong. Total capital and reserves attributable to equity shareholders of the Company at the year end were Â£4,206,000 (2006, Â£ 1,201,000). These are the first set of results since the adoption by the Group of International Financial Reporting Standards (IFRS). Comparative figures have been restated to comply with IFRS and a detailed explanation of the changes is given in the half-yearly report to shareholders dated 24 September 2007. Operational review: Friedman's - Revenue for the year was up 8%, with the segmental profit level similar to last year. As the year progressed operating margins came under pressure as the effective price of imported lycra increased with the substantial appreciation of the Euro against Sterling. This pressure was especially acute in the last quarter of the year. During the second half, Friedman's launched a new business called FunkiFabrics, selling some of the current ranges direct to end-users. A completely new transactional website (www.funkifabrics.com) has been developed and a number of agents recruited to stimulate business by showing products from comprehensive sample books. Sales so far are encouraging, though launch costs, as expected, have impacted on second half profitability. Davies Odell - Revenue for the year increased by 6%, although the second half was similar to the comparative period for 2006. Within the matting operation, horse mat (Equimat) sales grew but tighter margins due to raw material price increases have kept the contribution at 2006 levels. As expected, cowmats saw a substantial decline in revenue and hence contribution, though margins remained steady. Floor and Gym protection matting saw steady growth in both revenue and margin as a direct result of increased business with a prominent Gym/Fitness Club equipment distributor. Elsewhere in this business, sales of shoe repair products remained reasonably buoyant, although input prices are now rising here with limited scope to pass them on to our customers in the current economic climate. The Forcefield body armour range has continued its strong growth with revenue up by more than 90%. The UK retail distribution network now exceeds 100 outlets for motorcycling, off-road biking, skiing and snowboarding. The sales performance of Forcefield in ski/snowboard outlets this autumn has been a particular highlight. Business with our key distributor in the USA doubled in the year and other export markets have also seen strong growth with rising enquiry levels. Sunline Direct Mail - Revenue for the 11 months within the CEPS Group reached Â£ 7.2m generating a segmental profit (before depreciation charge) of Â£865,000. The Polywrapping business has encountered increased competition in its marketplace putting margins under pressure. The company has tightened its sales criteria to ensure the optimum mix of business and has instituted improved production scheduling. These initiatives will result in production efficiencies and will maximise the profit available. The Lettershop business has begun to fulfil its real potential in 2007 with revenue increased by 26% and operating profit increased by three times. Several core clients have been grown substantially in volume terms and new accounts have also been added to the portfolio. The site and equipment are now being more fully utilised than for some years. Dividend: In the light of the likely slow-down in consumer spending which may impact our trading, the Board has decided to conserve cash and considers it prudent not to recommend the payment of a final dividend at this stage. Prospects: As I indicated at the half-year the second half had started slowly and this caution proved appropriate given the outcome for the Group across the balance of 2007. Since that time the "credit crunch" has rippled-out from the banking sector to the wider economy, with the well documented effect on house prices and mortgage availability increasingly likely to affect consumer behaviour. So far the effect on the Group has been limited with revenue and profitability at expected levels for the first quarter across all of the businesses. At Friedman's the Euro exchange rate will be the source of continuing pressure on its lycra input prices and measures are in hand to mitigate the effect. Davies Odell is beginning to see inflationary price increases proposed by their sources in the Far East which they will not be able to pass on. Product re-engineering and alternative sources are being vigorously explored. Sunline has had a better than expected start to the year with the Polywrapping business showing increased consistency of performance and the Lettershop business carrying on from where it left off in 2007. At the time of writing, one has to take the view that growth in consumer spending is likely to ease downwards throughout 2008. In these circumstances, I remain cautious as to the overall prospects for 2008 but confident that our management teams will outperform their immediate competition and maximise profitability and return on capital employed. Richard Organ 6 May 2008 CEPS PLC Consolidated Income Statement Year ended 31 December 2007 (unaudited) (unaudited) 2007 2006 Note Â£'000 Â£'000 Revenue 2 - Continuing 8,239 7,709 - Acquisition 7,155 - 15,394 7,709 Cost of sales (13,102) (6,504) Gross profit 2,292 1,205 Distribution expenses (366) (183) Administration expenses (981) (637) Operating profit 945 385 Analysis of operating profit - Continuing 612 593 - Acquisition 712 - - Abortive acquisition costs (71) - - Group costs (308) (208) Finance costs (271) (106) Profit before tax 674 279 Taxation 3 (88) 158 Profit for the year 586 437 Attributable to: Equity holders of the Company 491 426 Minority interest 95 11 586 437 Earnings per share 4 - basic and diluted 6.32p 11.95p Consolidated Statement of Recognised Income & Expense (unaudited) (unaudited) 2007 2006 Â£'000 Â£'000 Fair value gains, net of tax 196 59 - Actuarial gain on retirement benefit obligations Net income recognised directly in equity 196 59 Profit for the year 586 437 Total recognised income for the year 782 496 Attributable to: Equity holders of the Company 687 485 Minority interest 95 11 782 496 CEPS PLC Consolidated Balance Sheet As at 31 December 2007 (unaudited) (unaudited) 2007 2006 Â£'000 Â£'000 Assets Non-current assets Property, plant and equipment 1,239 279 Intangible assets 4,751 1,529 Deferred tax asset 45 155 6,035 1,963 Current assets Inventories 1,391 1,324 Trade and other receivables 3,151 1,793 Deferred tax asset 225 218 Cash and cash equivalents 383 35 5,150 3,370 Total assets 11,185 5,333 Equity Capital and reserves attributable to equity holders of the Company Called up share capital 416 178 Share premium 2,756 676 Profit and loss account 1,034 347 4,206 1,201 Minority interest in equity 159 138 Total equity 4,365 1,339 Liabilities Non-current liabilities Bank borrowings - loans 1,579 566 Other loans 330 - Finance lease obligations 229 27 Retirement benefit liabilities 162 517 Provisions 55 32 2,355 1,142 Current liabilities Bank borrowings - loans & overdrafts 685 448 Debtor backed working capital facilities 708 935 Finance lease obligations 97 9 Trade and other payables 2,778 1,427 Deferred tax liability 152 - Current tax liabilities 45 33 4,465 2,852 Total liabilities 6,820 3,994 Total equity and liabilities 11,185 5,333 CEPS PLC Consolidated Cash Flow Statement Year ended 31 December 2007 (unaudited) (unaudited) 2007 2006 Â£'000 Â£'000 Cash flow from operating activities Cash generated from operations 1,466 450 Tax(paid)/ received (237) 10 Interest paid (254) (106) Net cash generated from operations 975 354 Cash flow from investing activities Purchase of property, plant and equipment (116) (89) Purchase of subsidiary undertakings (net of cash (3,940) - acquired) Payment of deferred consideration (30) (20) Net cash used in investing activities (4,086) (109) Cash flow from financing activities Proceeds from issue of Ordinary share capital 2,318 - Proceeds from new bank loans 2,000 - Repayment of bank loans (604) (262) Repayment of capital element of hire purchase (109) (4) agreements Net cash generated from/(used in) financing 3,605 (266) activities Net increase/(decrease) in cash and cash 494 (21) equivalents Cash and cash equivalents at the beginning of the (118) (97) year Cash and cash equivalents at the end of the year 376 (118) Cash flows from operating activities The reconciliation of operating profit to cash flows from operating activities is as follows: Operating profit for the year 945 385 Adjustments for: Depreciation charge 264 110 Difference between pension charge and cash (76) (71) contribution Operating profit before changes in working capital 1,133 424 and provisions Movement in provisions (27) (8) Increase in inventories (3) (237) Decrease/(increase) in trade and other receivables 164 (382) Increase in trade and other payables 199 653 Cash generated from operations 1,466 450 Cash and cash equivalents Cash at bank and in hand 383 35 Bank overdrafts repayable on demand (unsecured) (7) (153) 376 (118) Notes to the financial information 1. Basis of preparation These unaudited preliminary results have been prepared under the historical cost convention and in accordance with International Financial Reporting Standards ("IFRS") and interpretations in issue at 31 December 2007. The Group set out the effect of adopting IFRS, its IFRS accounting policies and details of significant IFRS adjustments in respect of the opening balance sheet at 1 January 2006, the results for the year ended 31 December 2006 and the balance sheet at 31 December 2006 in its half-yearly report published on 24 September 2007. The opening IFRS adjustments are again detailed in note 7 below. The preliminary results were approved by the Board of Directors on 6 May 2008. The preliminary results do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. Comparative figures in the results for the year ended 31 December 2006 have been taken from the IFRS half-yearly report. All periods presented are unaudited. 2. Segmental analysis All activities are classed as continuing. a) Primary reporting format - Business segments The Group is managed in three principal business segments, with each segment comprising a single trading subsidiary and operating in a defined business sector. i) Results by segment Year ended 31 December 2007 Sale of goods Rendering of services Friedman's Davies Odell Sunline Group (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) 2007 2006 2007 2006 2007 2007 2006 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Revenue 2,878 2,663 5,361 5,046 7,155 15,394 7,709 Segmental result 294 293 429 410 865 1,588 703 Depreciation (32) (33) (79) (77) (153) (264) (110) charge Abortive (71) - acquisition costs Group costs (308) (208) Operating profit 945 385 Interest expenses (271) (106) Profit before 674 279 taxation Taxation (88) 158 Profit for the 586 437 year ii) Assets and liabilities by segment As at 31 December 2007 Segment assets Segment liabilities Segment net assets (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) 2007 2006 2007 2006 2007 2006 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 CEPS Group 467 150 (12) (55) 455 95 Friedman's 2,886 2,850 (1,956) (2,595) 930 255 Davies Odell 2,187 2,333 (1,254) (1,344) 933 989 Sunline 6,011 - (3,964) - 2,047 - Total - Group 11,551 5,333 (7,186) (3,994) 4,365 1,339 iii) Non-cash expenses and capital expenditure Other than as stated above there were no significant non-cash expenses. Year ended 31 December Capital expenditure (unaudited) (unaudited) 2007 2006 Â£'000 Â£'000 CEPS Group 17 - Friedman's 59 104 Davies Odell 86 27 Sunline 102 - Total - Group 264 131 b) Secondary reporting format - Geographical segments The United Kingdom is the source of turnover, operating profit and is the principal location of the assets of the Group. The Group information provided above therefore also represents the geographical segmental analysis. 3. Taxation The charge for taxation on the profit for the year is analysed as follows: 2007 2006 (unaudited) (unaudited) Â£'000 Â£'000 Current tax UK corporation tax on profits of the year at 30% 123 25 Tax repaid in respect of prior periods (34) - Total current tax 89 25 Deferred tax Current year credit to the income statement (59) (192) Prior year 58 9 Total deferred tax (1) (183) Total tax charge/(credit) 88 (158) Deferred tax charge to the statement of recognised 83 27 income and expense 4. Earnings per share Basic earnings per share is calculated on the profit for the year after taxation attributable to equity holders of the Company of Â£491,000 (2006, Â£ 426,000) and on 7,767,435 (2006, 3,563,828) ordinary shares, being the weighted number in issue during the year. Diluted earnings per share is calculated on the weighted number of ordinary shares in issue adjusted to reflect the potential effect of the exercise of share warrants. No adjustment is required in either period because the fair value of warrants was below the exercise price. Adjusted earnings per share illustrates the calculation of basic earnings per share before deduction of abortive acquisition costs of Â£71,000. 5. Acquisition On 12 February 2007 the company acquired 80% of Sunline Direct Mail (Holdings) Limited (SDMH) and SDMH acquired the entire issued share capital of Sunline Direct Mail Limited (SDM), a supplier of poly wrapping and associated services to the direct mail market. The initial consideration paid by SDMH for SDM was Â£3,800,000 which was satisfied by a cash payment of Â£3,450,000 and the issue of shares and loan notes in SDMH to the value of Â£350,000. The cash payment was funded by non-recourse bank finance of Â£2,000,000 and subscriptions by the company of Â£ 80,000 for equity, Â£520,000 for preference shares and Â£850,000 for loan stock. The remaining 20% of SDMH is owned by the managing director of SDM. Deferred consideration, currently estimated at Â£50,000 but potentially of up to a maximum of Â£500,000, is payable dependent on the future trading performance of SDM. Since acquisition SDMH has contributed revenue of Â£7,155,000 and operating profit of Â£712,000 to the Group results. Had SDMH been acquired at 1 January 2007, the first day of the financial year, it is anticipated that it would have contributed revenue of Â£7,735,000 and operating profit of Â£760,000. Details of the acquisition of SDM by SDMH are as follows: Book Provisional values fair values Â£'000 Â£'000 Intangible fixed assets 473 - Tangible fixed assets 1,014 1,014 Inventories 64 64 Debtors 1,522 1,522 Corporation tax (160) (160) Creditors (888) (888) Provisions (50) (50) Deferred tax liability (173) (173) Finance leases (256) (256) Cash acquired 208 208 Net assets acquired 1,754 1,281 less Minority 20% interest (256) Net assets acquired 1,025 Purchased goodwill 3,173 Consideration 4,198 Analysis of consideration: Cash 3,450 Deferred consideration 50 Acquisition expenses 698 4,198 Purchased goodwill reflects the value of the reputation and customer base of SDM but intangible assets have not been separately recognised because fair values could not be attributed to them. The fair value adjustment has been recognised to eliminate the goodwill previously carried in SDM and now subsumed into the goodwill recognised on this transaction 6. Share consolidation and fund raising On 12 February 2007, shareholders approved a share consolidation in the ratio of 50 existing ordinary shares of 0.1p each for one new ordinary share of 5p each and a placing to raise Â£2,375,000 before expenses of Â£57,000 by the issue of 4,750,000 placing shares at 50p per share (equivalent to 1p per share prior to the share consolidation). The proceeds were used to acquire a majority interest in Sunline Direct Mail (Holdings ) Limited (SDMH) and to strengthen the group's balance sheet. The investors included members of the concert party detailed in the circular sent to shareholders on 11 January 2007. Further information about SDMH is given in note 5 above. 7. Explanation of the transition from UK GAAP to IFRS These financial statements are the first set to be prepared under IFRS and as such the following disclosures are required in the year of transition. The date of transition is 1 January 2006. i) Reconciliation of profit for the year 12 months to 31 December 2006 Â£'000 Profit under UK GAAP 357 Amortisation of goodwill 80 Profit under IFRS 437 ii) Reconciliation of equity at 1 January 2006 UK GAAP Transition IFRS Notes Adjustment Assets Â£'000 Â£'000 Â£'000 Non-current assets Property, plant and 259 - 259 equipment Intangible assets 1,529 - 1,529 Deferred tax asset - 202 202 b 1,788 202 1,990 Current assets Inventories 1,087 - 1,087 Trade and other receivables 1,411 - 1,411 Current tax recoverable 1 - 1 Deferred tax asset 16 - 16 Cash and cash equivalents 24 - 24 2,539 - 2,539 Total assets 4,327 202 4,529 Equity Capital and reserves attributable to equity holders of the Company Called up share capital 178 - 178 Share premium 676 - 676 Retained earnings (138) - (138) 716 - 716 Minority interest in equity 127 - 127 Total equity 843 - 843 UK GAAP Transition IFRS Notes Adjustment Liabilities Â£'000 Â£'000 Â£'000 Non-current liabilities Bank borrowings - loans 878 - 878 Retirement benefit 471 202 673 b liabilities Provisions 32 - 32 1,381 202 1,583 Current liabilities Bank borrowings - loans & 366 - 366 overdrafts Debtor backed working 416 - 416 capital Trade and other payables 1,311 - 1,311 Provisions 10 - 10 2,103 - 2,103 Total liabilities 3,484 202 3,686 Total equity and 4,327 202 4,529 liabilities iii) Reconciliation of equity at 31 December 2006 Assets Non-current assets Property, plant and 279 - 279 equipment Intangible assets 1,449 80 1,529 a Deferred tax asset - 155 155 b 1,728 235 1,963 Current assets Inventories 1,324 - 1,324 Trade and other receivables 1,793 - 1,793 Deferred tax asset 218 - 218 Cash and cash equivalents 35 - 35 3,370 - 3,370 Total assets 5,098 235 5,333 Equity Capital and reserves attributable to equity holders of the Company Called up share capital 178 - 178 Share premium 676 - 676 Retained earnings 267 80 347 1,121 80 1,201 Minority interest in equity 138 - 138 Total equity 1,259 80 1,339 UK GAAP Transition IFRS Notes Adjustment Liabilities Â£'000 Â£'000 Â£'000 Non-current liabilities Bank borrowings - loans 566 - 566 Trade and other payables 27 - 27 Retirement benefit 362 155 517 b liabilities Provisions 32 - 32 987 155 1,142 Current liabilities Bank borrowings - loans & 448 - 448 overdrafts Debtor backed working 935 - 935 capital Trade and other payables 1,436 - 1,436 Current tax liabilities 33 - 33 2,852 - 2,852 Total liabilities 3,839 155 3,994 Total equity and 5,098 235 5,333 liabilities iv) Notes to transition adjustments a) IAS 38, Intangible assets, requires that goodwill is no longer amortised, but instead is subject to an annual impairment review. In compliance, the goodwill amortisation charged under UK GAAP during the year ended 31 December 2006 has been reversed. The Group has elected, as permitted under IFRS 3, Business combinations, not to retrospectively restate goodwill relating to acquisitions prior to 1 January 2006 and therefore the UK GAAP goodwill balance at 31 December 2005 has been included in the transition IFRS balance sheet and is no longer amortised. b) IAS 19, 'Employee benefits', requires the pension liability to be disclosed on the face of the balance sheet, gross of any recognised deferred tax. As a result the deferred tax asset relating to the pension liability has been transferred to non-current assets. 8. AIM compliance committee In accordance with AIM Rule 31 the Company is required to have in place sufficient procedures, resources and controls to enable its compliance with the AIM Rules; seek advice from its nominated adviser ("Nomad") regarding its compliance with the AIM Rules whenever appropriate and take that advice into account; provide the Company's Nomad with any information it requests in order for the Nomad to carry out its responsibilities under the AIM Rules for Companies and the AIM Rules for Nominated Advisers; ensure that each of the Company's directors accepts full responsibility, collectively and individually, for compliance with the AIM Rules; and ensure that each director discloses without delay all information which the Company needs in order to comply with AIM Rule 17 (Disclosure of Miscellaneous Information) insofar as that information is known to the director or could with reasonable diligence be ascertained by the director. In order to ensure that these obligations are being discharged, the Board has established a committee of the Board (the "AIM Committee"), chaired by Richard Organ, a non-executive director of the Company. Having reviewed relevant Board papers, and met with the Company's Executive Board and the Nomad to ensure that such is the case, the AIM Committee is satisfied that the Company's obligations under AIM Rule 31 have been satisfied during the year under review. 9. Distribution of the Annual Report A copy of the Annual Report and Financial Statements will be circulated to all shareholders shortly. 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 the Group website, www.cepsplc.com. For further information contact: Peter Cook Managing Director CEPS PLC 07788 752 560 Jim McGeever Director Dowgate Capital Advisers Ltd 020 7492 4777 Aaron Smyth Assistant Director Dowgate Capital Advisers Ltd 020 7492 4777 Neil Badger Director Dowgate Capital Stockbrokers Ltd 012 9351 7744

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