Final Results

RNS Number : 8515K

CEPS PLC

10 May 2022

 

10 May 2022

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 2021.

CHAIRMAN'S STATEMENT

I am pleased to present the results for CEPS plc for the year ended 31 December 2021.  As I have been saying for several years I have been looking forward to the occasion when the published accounts would be simpler to read and understand.  Whilst the comparatives for 2020 remain complex due to the accounting treatment of discontinued operations, I am pleased that the results we are reporting on for 2021 are hopefully clear and readily understandable.

It already seems like a long time ago, but it is important to remember that the first six months of this reporting period were subject to lockdown regulations and of course, and for those of us whose Christmas celebrations were put on hold, the very rapid rise of the Covid Omicron variant towards the end of 2021, had, for a briefer period, a major impact on the economy. 

So, it is encouraging to report that sales for the Group have risen from £11.9m, being the continuing activities in 2020, to £20.3m in 2021.  This represents a 70% increase.  Because of the impact of Covid restrictions this comparison is between "apples and pears" and, were we to compare this with sales in the financial year to 31 December 2019, the last year unaffected by Covid, this would be a 62% increase.  However, as shareholders are aware, several acquisitions have been made in 2021 meaning the comparison takes into account acquisitive as well as organic growth. 

We are delighted that the strategic steps taken over the past few years are now finally being evidenced in the results with this being the first year, for some 10 years, that all the subsidiary segments and the associate have been profitable.  This is a major positive step forward and as the old saying goes "you make money by not losing money"!

In common with every enterprise in the United Kingdom, and indeed Europe, our companies are of course facing issues with recruitment and retention of their workforces.  As readers of my statements, with respect to this Company and other businesses with which I am involved, will know this has been a concern and a theme I have written about for many years.  The problem of finding people to do "the job" as I have said before is, in my view, only going to get worse in the future.  I am not going to enter a Leave/Remain debate here as it is not relevant as this is a European-wide problem.  However, in the short term, with the number of vacancies in the UK leading inexorably to significant wage rises and with the modest strengthening of Sterling against the Euro, a number of registered European workers who have left the UK will return.

The answer in the longer term is the use of more automation, robotisation, artificial intelligence, smarter working and, dare I say it, harder working for much more reward.  The management teams of the businesses are doing their jobs which involves working to manage around these issues and to put in place plans to mitigate these issues in the future. 

It is interesting to observe that with constant social media and rolling 24-hour news on a year-round basis these issues are discussed, dissected, and agonised over by all and sundry.  The UK has had a driver, and in particular HGV driver, shortage for many, many decades.  Indeed, I recall as a 20-year-old considering qualifying as a driver as the option looked like a ready source of part- time work and, therefore, funding as a university student.  If one believed the rhetoric six months ago the whole country was going to grind to a halt as nothing would ever be moved by road again!  Whilst I am fully aware that there are far more serious and tragic events unfolding in Eastern Europe, I cannot recall when I last read about the "driver crisis".

Whilst in no way belittling the issues facing people across the country caused by steeply rising prices, history has shown these events are short-lived and will pass.  Indeed, with one of my "other hats on", it appears to me that a number of public companies are already starting to talk about distribution issues beginning to ease and of course, largely unreported, gas prices have declined over the past month, having reached a recent peak.  If this trend continues it will, in my view, mean that inflation, as driven by gas prices will decline from May onwards!

Financial review

As already mentioned, total revenue from continuing operations increased to £20.3m from £11.9m, an increase of 70%.  In addition, gross profits from continuing operations have increased from £4.4m in 2020 to £8.4m, an increase of 93% and operating profits from continuing operations have significantly improved from a loss of £ 252,000 to a profit of £1.6m.

Looking at the underlying companies in some more detail.

Aford Awards

As shareholders will recall, we effected a change of the management team on the 30 September 2020.  This new team has made rapid progress over the past 18 months.  As a result of the transaction, CEPS' shareholding increased from 70% to 75% and the amount of loan stock held by CEPS increased by £525,000.  I am aware that a few market participants struggle with the idea that superficially little appears to have changed in the corporate structure and yet somehow the extra loan stock has been created!  This is a very important part of the CEPS strategy and shareholders should be aware that, periodically, these sorts of reconstructions will take place. 

The new team took the opportunity afforded by the significant reduction of business in the first six months of 2021 caused by the lockdown to completely restructure and reposition the operation.  This meant that the company was fully set up to action the next part of the plan, which was to acquire, relocate and integrate very small lifestyle type businesses in its market.  To that end, three small operations were acquired in September 2021.

As a result of these small transactions being announced, an owner of another business in the sector, Impact Promotional Merchandise Limited, got in touch and the business and assets of that operation were acquired very recently on 12 April 2022 for an initial payment of £558,000 and deferred consideration of an additional £450,000 to be paid post completion on pre-determined dates.  I have personally guaranteed the deferred consideration should Aford Awards not be able to fund it.

Sales were £1.4m as compared to £844,000 in 2020, against and of great relevance £2.0m in 2019, the last year unaffected by Covid.  The associated EBITDAs were £235,000, £111,000 (after significant government support) and £411,000 respectively.  I am pleased to say that the company has just had a record first quarter in 2022 as business starts to return to normal post-Covid.

Friedman's

During 2021 there has been a strong recovery in the Friedman's business, the lycra printer, and a much slower recovery in Milano International, the manufacturer of leotards and gymnastic clothing.  Whilst gym clubs remained closed throughout the last two years there was effectively no demand for the products.  More recently, as clubs have reopened and competitions have recommenced following easing of lockdown restrictions in the first quarter of 2022, sales have rebounded.

Friedman's is currently struggling to acquire plain lycra and is facing significant rises in prices when it can be obtained.  In addition, in the Milano business, there is a shortage of people to manufacture the products and this will for a period act as a constraint on the company. 

Sales were £4.8m as compared to £3.9m in 2020 and £5.8m in 2019.  The associated EBITDAs were £809,000, £124,000 (after significant government support) and £1.2m respectively.

Hickton Group

With the inclusion of the Cook Brown businesses for a full 12 months (they were acquired in March 2020), and the inclusion for almost ten months of the Millington Lord group of businesses (which includes Millington Lord Limited ("MLL") as a holding company with three wholly owned subsidiaries: Morgan Lambert Limited ("ML"), Qualitas Compliance Limited ("QC") and Morgan Lambert Electrical Limited ("MLE")), revenues have increased dramatically from £7.1m to £14.2m.  For completeness, and to demonstrate the growth in the business, sales were £4.7m in 2019.  EBITDA in 2021 was £1.5m, up from £929,000 in 2020 and £850,000 in 2019.

In order to retain its working capital headroom while having sufficient funding to pay the deferred and earnout consideration in relation to the acquisition of MLL, Hickton Group carried out a modest fundraise of £433,800 and CEPS invested £143,640 in a mix of ordinary equity and 8% loan stock.  As the management team was keen to commit more funds CEPS was content to let its holding moderately decrease from 54.7% to 52.4%.

MLL is a gas and electrical safety consultancy, providing auditing, consulting and training services. ML is the group's principal operating subsidiary and services clients in the social housing market, whereas QC provides the same services to private sector clients. This addition has complemented the existing building services and the companies have integrated well within the Hickton Group. We have an ambitious management team with their own equity incentive to continue growing these businesses, looking to add more quality building compliance services and income.

Vale Brothers

Following the sale of Davies Odell Limited to a new holding company called Vale Brothers Group Limited and the effective merger of the business with Vale Brothers in December 2020, it is pleasing to report that the company contributed £66,000 of profit in 2021, accounted for as an associate as CEPS' shareholding is only 33%.

It is worth noting that as an 85% subsidiary of CEPS in prior years, Davies Odell had lost money in seven of the previous eight years. 

In common with the other companies in the CEPS Group, Vale Brothers is struggling to recruit skilled workers and is experiencing high input cost inflation.  Whilst the company is passing these on by increasing prices there will be an inevitable lag in timing. 

Capital and debt structure

In order to provide funds for the modest "bolt-on" acquisitions mentioned above, a placing of 4,000,000 new shares was made at 40p per share in September raising £1.6m of gross funds or £1.58m net of expenses.  This takes the total issued share capital to 21,000,000 shares.  Details of the major shareholders in CEPS are set out in the Directors' Report.

In May 2021, a new loan was entered into with a third party to provide £2.0m to replace the existing £2.0m from another third party.  This loan is due to be repaid on 30 June 2025.  This, therefore, allows three years to ensure adequate repayment of sufficient of the current £5.0m of loan stock due to CEPS from Group companies.

In addition, the term of the loan from Chelverton Asset Management Limited (which as at 31 December 2021 stood at £2,950,000 with all interest having been paid up to the year-end) has been extended such that it is now on a rolling 18-month notice basis.

I continue to personally guarantee both these loans.  In addition, my loan to the Company stands at £192,000 at 31 December 2021.

Cash held by the Company at the financial year end was £468,000 (2020: £31,000) and Group cash was £2.1m (2020: £2.3m).

Pension

The Company's defined benefit pension scheme has reported a surplus in recent years which has allowed the Trustees to enter into a buy-in contract with Aviva. This will secure the benefits for the members of the scheme and remove future funding risks for pensioners and the Company.  The current expectation is that the contract will convert to a full buy-out policy in due course without the need for any additional funding and whilst I would not, as yet, anticipate any significant surplus at that time, if one does arise there would be some cash returning into CEPS. We are, therefore, now considerably down the road to removing both the risks and the administrative costs that have previously arisen from the scheme.

Outlook

We are much encouraged by the results produced here as they confirm that the strategy being followed over the past four years is now beginning to show good progress.  As the vestiges of the Covid crisis are put behind us and the issues directly and indirectly resulting from the various lockdowns are overcome, we are confident that the CEPS group of companies will make good progress in the coming year.

David Horner

Chairman

9 May 2022

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).

David Horner, Chairman, CEPS PLC

Tel: [phone]

James Caithie, Sandy Jamieson, Cairn Financial Advisers LLP

Nominated Adviser

Tel:  [phone]

CEPS PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

YEAR ENDED 31 DECEMBER 2021

				Continuing Operations		Discontinued Operations		Total
		Audited		Audited		Audited		Audited
		2021		2020		2020		2020
		£'000		£'000		£'000		£'000
Revenue (note 4)		20,333		11,861		2,091		13,952
Cost of sales		(11,946)		(7,511)		(1,817)		(9,328)
Gross profit		8,387		4,350		274		4,624
Other operating income		276		690		171		861
Administration expenses before exceptional items		(7,043)		(4,811)		(662)		(5,473)
Adjusted operating profit/(loss)		1,620		229		(217)		12
Exceptional items		-		(127)		(64)		(191)
Impairment of intangible assets (note 10)		-		(354)		-		(354)
Operating profit/(loss)		1,620		(252)		(281)		(533)
Analysis of operating profit/(loss)
- Trading		2,002		659		(217)		442
- Exceptional items		-		(127)		(64)		(191)
- Impairment of intangible assets		-		(354)		-		(354)
- Group costs		(382)		(430)		-		(430)
		1,620		(252)		(281)		(533)
Profit on disposal of discontinued operation		-		-		626		626
Share of associate		66		-		-		-
Finance income		24		24		-		24
Finance costs		(714)		(732)		(30)		(762)
Profit/(loss) before tax		996		(960)		315		(645)
Taxation (note 5)		(204)		(20)		-		(20)
Profit/(loss) for the financial year		792		(980)		315		(665)
Other comprehensive income/(loss): Items that will not be reclassified to profit or loss
Actuarial gain/(loss) on defined benefit pension plans		73		(13)		-		(13)
Other comprehensive income/(loss) for the year, net of tax		73		(13)		-		(13)
Total comprehensive income/(loss) for the financial year		865		(993)		315		(678)
Income/(loss) attributable to:
Owners of the parent		296		(939)		315		(624)
Non-controlling interests		496		(41)		-		(41)
		792		(980)		315		(665)
Total comprehensive income/(loss) attributable to:
Owners of the parent		369		(952)		315		(637)
Non-controlling interests		496		(41)		-		(41)
		865		(993)		315		(678)
Earnings per share
- basic and diluted (note 6)		1.64p		(5.52p)		1.85p		(3.67p)

CEPS PLC

CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2021

	2021		2020
	£'000		£'000
Assets
Non-current assets
Property, plant and equipment (note 7)	764		633
Right-of-use assets (note 8)	1,225		976
Intangible assets (note 10)	10,729		9,208
Investments	66		-
	12,784		10,817
Current assets
Inventories	1,612		1,441
Trade and other receivables	3,036		1,883
Cash and cash equivalents (excluding bank overdrafts)	2,081		2,332
	6,729		5,656
Total assets	19,513		16,473
Equity
Capital and reserves attributable to owners of the parent
Called up share capital (note 11)	2,100		1,700
Share premium (note 11)	7,017		5,841
Retained earnings	(8,040)		(8,402)
	1,077		(861)
Non-controlling interests in equity	2,465		1,954
Total equity	3,542		1,093
Liabilities
Non-current liabilities
Borrowings	8,436		6,415
Lease liabilities	1,096		887
Trade and other payables	45		-
Deferred tax liability	255		51
	9,832		7,353
Current liabilities
Borrowings	1,759		3,861
Lease liabilities	258		248
Trade and other payables	3,141		2,909
Current tax liabilities	981		1,009
	6,139		8,027
Total liabilities	15,971		15,380
Total equity and liabilities	19,513		16,473

The comprehensive expense within the parent company financial statements for the year was a loss of £245,000 (2020: profit of £1,343,000).

CEPS PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

YEAR ENDED 31 DECEMBER 2021

	2021		2020
	£'000		£'000
Cash flows from operating activities
Profit/(loss) for the financial year	792		(665)
Adjustments for:
Depreciation and amortisation	564		601
Loss on disposal of fixed assets	6		-
Profit on disposal of subsidiaries	-		(626)
Customer list impairment	-		182
Impairment of goodwill	-		172
Pension contributions less than administrative charge	84		9
Share of associate profit	(66)		-
Net finance costs	690		738
Taxation charge	204		20
Changes in working capital:
Movement in inventories	(171)		375
Movement in trade and other receivables	(261)		325
Movement in trade and other payables	(469)		377
Cash generated from operations	1,373		1,508
Corporation tax paid	(187)		(241)
Net cash generated from operations	1,186		1,267
Cash flows from investing activities
Interest received	13		2
Acquisition of subsidiaries, net of cash acquired	(1,220)		(866)
Acquisition in minority shareholdings in subsidiaries	-		(1,366)
Disposal of subsidiaries, net of cash	-		(4)
Purchase of property, plant and equipment	(309)		(95)
Proceeds from sale of assets	35		1
Purchase of intangibles assets	(73)		(24)
Net cash used in investing activities	(1,554)		(2,352)
Cash flows from financing activities
Issue of share capital	1,018		-
Proceeds from borrowings	3,330		3,174
Repayment of borrowings	(3,108)		(904)
Loan issue costs paid	-		(86)
Proceeds from subsidiary share issue	4		26
Interest paid	(791)		(432)
Lease liability payments	(336)		(319)
Net cash generated from financing activities	117		1,459
Net (decrease)/increase in cash and cash equivalents	(251)		374
Cash and cash equivalents at the beginning of the year	2,332		1,958
Cash and cash equivalents at the end of the year	2,081		2,332

Major non-cash movements: £558,000 of new share capital was settled against a loan liability and there were £555,000

of non-cash additions to right-of-use assets and lease liabilities in the year (no major non-cash movements in 2020).

CEPS PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

YEAR ENDED 31 DECEMBER 2021

	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 2020	1,700	5,841	(6,808)	733	2,018	2,751
Actuarial loss	-	-	(13)	(13)	-	(13)
Loss for the year	-	-	(624)	(624)	(41)	(665)
Total comprehensive loss for the year	-	-	(637)	(637)	(41)	(678)
Changes in ownership interest in subsidiaries	-	-	(957)	(957)	(23)	(980)
Total distributions recognised directly in equity	-	-	(957)	(957)	(23)	(980)
At 31 December 2020	1,700	5,841	(8,402)	(861)	1,954	1,093
Actuarial gain	-	-	73	73	-	73
Profit for the year	-	-	296	296	496	792
Total comprehensive income for the financial year	-	-	369	369	496	865
Shares issued in the year	400	1,176	-	1,576	-	1,576
Changes in ownership interest in subsidiaries	-	-	(7)	(7)	15	8
Total contributions and distributions recognised directly in equity	400	1,176	(7)	1,569	15	1,584
At 31 December 2021	2,100	7,017	(8,040)	1,077	2,465	3,542

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 one 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 listed on the AIM market of the London Stock Exchange.  The address of the registered office is 11 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, profitable and steadily growing entrepreneurial companies.  The activities of the Company's trading subsidiaries are described in note 4.  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 Group comprises CEPS PLC and its subsidiary companies as set out in note 4.  The financial statements are to the year ended 31 December 2021.

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 2021 and comprises the Company and its subsidiaries.  The consolidated financial statements were authorised for issuance on 9 May 2022.  The financial information set out below does not constitute the Company's statutory accounts for the years ended 31 December 2020 or 2021 within the meaning of Section 434 of the Companies Act 2006, but is derived from those accounts. Statutory accounts for 2020 have been delivered to the Registrar of Companies and those for 2021 will be delivered following the Company's Annual General Meeting. The auditor's reports on the statutory accounts for the years ended 31 December 2020 and 31 December 2021 were unqualified with reference in 2020 only to a material uncertainty in respect of going concern due to the global Coronavirus pandemic, 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 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.

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 financial information set out in this announcement was approved by the Board on 9 May 2022.

3.  Critical accounting assumptions, judgements and estimates

The directors make estimates and assumptions concerning the future.  They are also required to exercise judgement in the process of applying the Company's accounting policies.  Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are assessed below:

i)  Impairment of intangible assets (including goodwill)

  The Group tests annually whether intangible assets (including goodwill) have suffered any impairment.  The recoverable amounts of the cash-generating units have been determined based on value-in-use calculations.  The calculations require the use of estimates (note 10).  

ii)  Impairment of non-current assets

The Company assesses the impairment of tangible fixed assets subject to depreciation whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  Factors considered important that could trigger an impairment review include the following:

· significant underperformance relative to historical or projected future operating results;

· significant changes in the manner of the use of the acquired assets or the strategy for the overall business; and

· significant negative industry or economic trends.

iii)  Depreciation and residual values

The directors have reviewed the asset lives and associated residual values of all fixed asset classes and have concluded that asset lives and residual values are appropriate.  

The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors.  In re-assessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken into account.  Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projects' disposal values.

iv)  Carrying value of stocks

Management reviews the market value of and demand for its stocks on a periodic basis to ensure stock is recorded in the financial statements at the lower of cost and net realisable value.  Any provision for impairment is recorded against the carrying value of stocks.  Management uses its knowledge of market conditions, historical experiences and estimates of future events to assess future demand for the Company's products and achievable selling prices.

v)  Recoverability of trade debtors

Trade and other debtors are recognised to the extent that they are judged recoverable.  Management reviews are performed to estimate the level of reserves required for irrecoverable debt.  Provisions are made specifically against invoices where recoverability is uncertain.

Management makes allowance for doubtful debts based on an assessment of the recoverability of debtors.  Allowances are applied to debtors where events or changes in circumstances indicate that the carrying amounts may not be recoverable.  Management specifically analyses historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when making a judgement to evaluate the adequacy of the provision for doubtful debts.  Where the expectation is different from the original estimate, such difference will impact the carrying value of debtors and the charge in the Consolidated Statement of Comprehensive Income.

vi)  Leases

Management utilise judgement in respect of any option clauses in leases and whether such an option to extend would be reasonably certain to be exercised.  Management consider all facts and circumstances including past practice, costs of alternatives and future forecasts to determine the lease term.  Management also apply judgement and estimation in assessing the discount rate, which is based on the incremental borrowing rate.  These judgements impact on the lease term and associated lease liabilities.

vii)  Retirement benefit liabilities

The Group operates a defined benefits pension scheme.  The scheme is subject to triennial actuarial valuation and the Group commissions an independent qualified actuary to update to each financial year end the previous triennial result.  The results of this update are included in the financial statements.  In reaching the annually updated results management makes assumptions and estimates.  These assumptions and estimates are made advisedly, but are not any guarantee of the performance of the scheme or of the outcome of each triennial review. 

4.  Segmental analysis

The Chief Operating Decision-Maker ('CODM') of the Group is its Board.  Each operating segment regularly reports its performance to the Board which, based on those reports, allocates resources to and assesses the performance of those operating segments.

The operating segments set out below are the only level for which discrete information is available or utilised by the CODM.

Operating segments and their principal activities are as follows:

· Aford Awards, a sports trophy and engraving company;

· Friedman's, a convertor and distributor of specialist lycra, including Milano International (trading as Milano Pro-Sport), a designer and manufacturer of leotards;

· Hickton Group, comprising Hickton Consultants, BRCS, Cook Brown, Morgan Lambert and Qualitas Compliance providers of services to the construction industry.

Discontinued operations represent the activities of Davies Odell, a manufacturer and distributor of protection equipment, matting and footwear components, until disposal in December 2020.

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.  Group revenue is recognised at a point in time, other than £4,234,000 (2020: £2,674,000) in respect of Cook Brown Building Control which is recognised over a period in time as the services are performed, in line with the requirements of IFRS 15.

The Board assesses the performance of each operating segment by a measure of adjusted earnings before interest, tax, Group costs, depreciation and amortisation (EBITDA) before exceptional costs.  Other information provided to the Board is measured in a manner consistent with that in the financial statements.

i)  Results by segment

	Aford Awards	Friedman's	Hickton Group	Total Group
	2021	2021	2021	2021
	£'000	£'000	£'000	£'000
Revenue	1,385	4,762	14,186	20,333
Expenses	(1,150)	(3,953)	(12,665)	(17,768)
Segmental result (EBITDA)	235	809	1,521	2,565
Depreciation and amortisation charge	(22)	(135)	(100)	(257)
IFRS 16 depreciation	(45)	(168)	(93)	(306)
Group costs				(382)
Share of associate profit				66
Net finance costs (including IFRS 16)				(690)
Profit before taxation				996
Taxation				(204)
Profit for the year				792

	Aford Awards	Friedman's	Hickton Group	Continuing operations	Discontinued operations	Total Group
	2020	2020	2020	2020	2020	2020
	£'000	£'000	£'000	£'000	£'000	£'000
Revenue	844	3,878	7,139	11,861	2,091	13,952
Expenses	(733)	(3,754)	(6,210)	(10,697)	(2,211)	(12,908)
Segmental result (EBITDA) before exceptional costs	111	124	929	1,164	(120)	1,044
Depreciation and amortisation charge	(7)	(209)	(40)	(256)	(63)	(319)
IFRS 16 depreciation	(47)	(139)	(63)	(249)	(34)	(283)
Exceptional costs	-	-	(481)	(481)	(64)	(545)
Profit on disposal of discontinued operations				-	626	626
Group costs				(430)	-	(430)
Net finance costs (including IFRS 16)				(708)	(30)	(738)
(Loss)/profit before taxation				(960)	315	(645)
Taxation				(20)	-	(20)
(Loss)/profit for the year				(980)	315	(665)

ii)  Assets and liabilities by segment

As at 31 December

	Segment assets				Segment liabilities				Segment net assets/(liabilities)
	2021		2020		2021		2020		2021		2020
	£'000		£'000		£'000		£'000		£'000		£'000
Continuing operations
CEPS Group	543		57		(5,251)		(5,995)		(4,708)		(5,938)
Aford Awards	1,974		1,661		(789)		(601)		1,185		1,060
Friedman's	7,620		7,363		(2,146)		(2,227)		5,474		5,136
Hickton Group	9,376		7,393		(7,785)		(6,558)		1,591		835
Total - Group	19,513		16,474		(15,971)		(15,381)		3,542		1,093

(iii)  Revenue by geographical destination

	2021		2020
	£'000		£'000
UK	19,048		11,939
Europe	762		1,091
Rest of world	523		922
	20,333		13,952

(iv)  Nature of revenue

	2021		2020
	£'000		£'000
Products - recognised at a point in time	6,147		6,813
Services - recognised over time delivered	14,186		7,139
	20,333		13,952

5.  Taxation

	2021		2020
	£'000		£'000
Analysis of taxation in the year:
Current tax
Tax on profits of the year	153		41
Tax in respect of prior years	(9)		(14)
Total current tax	144		27
Deferred tax
Current year deferred tax movement	8		(13)
Tax in respect of prior years	20		6
Change in tax rate	32		-
Total deferred tax	60		(7)
Total tax charge	204		20

The tax assessed for the year is higher (2020: higher) than the standard rate of corporation tax in the UK (19%) (2020: 19%)

Factors affecting current tax:
Profit/(loss) before taxation	996		(645)
Profit/(loss) multiplied by the standard rate of UK tax of 19% (2020: 19%)	189		(123)
Effects of:
Expenses not deductible	27		46
Expenses not deductible goodwill impairment	-		67
Additional capital allowances	(15)		-
Additional research and development allowances	(20)		-
Adjustments to tax in prior periods	11		(14)
Other timing differences	-		(2)
Gain on disposal not taxed	-		(119)
Adjustments to deferred tax rate	32		6
Deferred tax not recognised	(20)		159
Total tax charge	204		20

The rate from 1 April 2020 remained at 19% rather than the previously enacted reduction to 17%.  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 2021 (2020: 19%).

There are tax losses carried forward in the Company of approximately £1.8m and in the subsidiary companies of £30,000 (2020: £1.3m and £195,000).

6.  Earnings per share

Basic earnings per share is calculated on the profit for the year after taxation attributable to the owners of the parent of £277,000 (2020: loss of £624,000) and on 18,084,932 (2020: 17,000,000) ordinary shares, being the weighted number in issue during the year.

Basic earnings per share for continuing operations is calculated on the profit for the year after taxation attributable to owners of the parent of £296,000 (2020: loss of £939,000) and on 18,084,932 (2020: 17,000,000) ordinary shares, being the weighted number in issue during the year.  Basic earnings per share from discontinued operations is calculated on the profit for the year after taxation attributable to owners of the parent of £nil (2020: profit of £315,000) and on 18,084,932 (2020: 17,000,000) ordinary shares, being the weighted number in issue during the year.

There are no potentially dilutive shares in the Group.

7.  Property, plant and equipment

	Leasehold property improvements		Plant and machinery		Motor vehicles		Total
Group	£'000		£'000		£'000		£'000
Cost
at 1 January 2020	677		4,049		46		4,772
Assets acquired on purchase of a subsidiary	34		77		-		111
Additions at cost	22		74		-		96
Disposals on sale or administration of subsidiaries	(253)		(3,559)		(37)		(3,849)
Disposals	-		(35)		-		(35)
at 31 December 2020	480		606		9		1,095
Assets acquired on purchase of a subsidiary or business	-		43		-		43
Additions at cost	7		289		13		309
Disposals	-		(172)		(1)		(173)
at 31 December 2021	487		766		21		1,274
Accumulated depreciation
at 1 January 2020	340		3,298		35		3,673
Accumulated depreciation acquired on purchase of a subsidiary	24		51		-		75
Charge for the year	50		202		1		253
Disposals on sale or administration of subsidiaries	(225)		(3,253)		(27)		(3,505)
Disposals	-		(34)		-		(34)
at 31 December 2020	189		264		9		462
Charge for the year	45		135		-		180
Disposals	-		(131)		(1)		(132)
at 31 December 2021	234		268		8		510
Net book amount
at 31 December 2021	253		498		13		764
at 31 December 2020	291		342		-		633

8.  Right-of-use assets

	Leasehold property improvements		Plant and machinery		Motor vehicles		Total
Group	£'000		£'000		£'000		£'000
Cost
at 1 January 2020	1,321		-		149		1,470
Assets acquired on purchase of a subsidiary	30		11		14		55
Additions at cost	162		5		-		167
Reclassification	39		-		(39)		-
Disposals on sale of a subsidiary	(52)		-		(48)		(100)
Disposals at the end of the lease term	(98)		-		(64)		(162)
At 31 December 2020	1,402		16		12		1,430
Assets acquired on purchase of a subsidiary	20		-		-		20
Additions at cost	354		181		-		535
Disposals at the end of the lease term	(162)		-		(12)		(174)
At 31 December 2021	1,614		197		-		1,811
Accumulated depreciation
At 1 January 2020	320		-		78		398
Charge for the year	246		5		32		283
Disposals on the sale of a subsidiary	(26)		-		(39)		(65)
Disposals at the end of the lease term	(98)		-		(64)		(162)
at 31 December 2020	442		5		7		454
Charge for the year	252		49		5		306
Disposals at the end of the lease term	(162)		-		(12)		(174)
At 31 December 2021	532		54		-		586
Net book amount
at 31 December 2021	1,082		143		-		1,225
at 31 December 2020	960		11		5		976

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 £76,000 (2020: £46,000).

The depreciation of £29,000 (2020: £23,000) in respect of these has been charged to cost of sales in the Consolidated Statement of Comprehensive Income.

On 29 December 2021, a subsidiary entered into new property leases to replace those ending on its existing premises on 1 January 2022.  The leases are for a term of up to 10 years and the estimated right-of-use asset of £750,000 will be accounted for from 1 January 2022. 

9.  Business combinations and disposals

i)  Acquisition in 2021 of Millington Lord Limited

On 15 March 2021 a subsidiary, Hickton Group Limited, acquired 100 per cent. of the issued share capital of Millington Lord Limited with its two trading subsidiaries Morgan Lambert Limited and Qualitas Compliance Limited.  There was initial cash consideration of £700,000 together with deferred and contingent amounts of £400,000 which were subsequently paid in the year.

The acquisition has been accounted for using the acquisition method of accounting.  After including the fair value of customer intangible assets and related deferred tax, the fair value of net assets acquired was £248,000.

Goodwill of £852,000 arose from the acquisition primarily in respect of the overall workforce skills and their ability to generate income.  Acquisition fees of £45,500 were incurred which have been expensed as an administrative cost in the year.

The following table shows the fair value of assets and liabilities included in the consolidated statements at the date of acquisition:

	Fair value
	£'000
Identifiable assets and liabilities
Intangible assets	350
Property, plant and equipment	33
Trade and other receivables	892
Cash and cash equivalents	55
Trade and other payables	(726)
Lease liabilities	(20)
Borrowings	(223)
Corporation tax payable	(17)
Deferred taxation	(96)
	248
Goodwill	852
	1,100
Consideration
Cash consideration	1,100
Analysis of cash flows on acquisition
Cash paid	1,100
Less: net cash acquired with the subsidiary	(55)
Net cash outflow on acquisition	1,045

From the date of acquisition, Morgan Lambert Limited and Qualitas Compliance Limited contributed £4,490,000 of revenue and £221,000 of profit before tax (excluding amortisation of intangible assets).  If the combination had taken place at the beginning of the year, the revenue would have been £5,318,000 and the profit before tax would have been £284,000.

ii)  Acquisition in 2021 by Aford Awards Limited of trophy businesses' trade and assets

A subsidiary, Aford Awards Limited, purchased tangible fixed assets with a fair value of £30,000 and the trade, including customer relationships valued at £207,000, of three trophy businesses on 2 September 2021 for cash consideration of £176,000 paid in 2021 and £131,000 of estimated contingent consideration payable.  After providing for £48,000 of deferred tax, £117,000 of goodwill arises in respect of the businesses.

The businesses contributed £69,000 of revenue for the four months in the year after the acquisition date.  They are integrated into the overall Aford Awards business and generate similar margins.

iii)  Acquisition in 2020 of Cook Brown Building Control Limited and Cook Brown Energy Limited

On 11 March 2020 a newly incorporated subsidiary, Hickton Group Limited, acquired 100 per cent of the issued share capital of Cook Brown Building Control Limited ('CBBC') and Cook Brown Energy Limited ('CBE').

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 £296,000.

Goodwill of £3,234,000 arose from the acquisition primarily in respect of the overall workforce skills and their ability to generate income.  Acquisition fees of £101,000 were incurred which have been expensed as an exceptional administrative cost in the year.

The following table shows the fair value of assets and liabilities included in the consolidated statements at the date of acquisition:

	Fair value
	£'000
Identifiable assets and liabilities
Intangible assets	9
Property, plant and equipment	91
Trade and other receivables	643
Cash and cash equivalents	734
Trade and other payables	(1,021)
Lease liabilities	(55)
Corporation tax payable	(103)
Deferred taxation	(2)
	296
Goodwill	3,234
	3,530
Consideration
Cash consideration	1,600
Existing loans offset against consideration	270
Shares issued	25
Loan notes issued	1,635
	3,530
Analysis of cash flows on acquisition
Cash paid	1,600
Less: net cash acquired with the subsidiary	(734)
Net cash outflow on acquisition	866

From the date of acquisition CBBC and CBE contributed £2,834,000 of revenue and £437,000 of profit before tax.  If the combination had taken place at the beginning of the year, the revenue would have been £3,408,000 and the profit before tax would have been £517,000.

iv)  Disposals in 2020 of CEM Press and the related subsidiaries and Davies Odell Limited

An administration process commenced in January 2020 in respect of CEM Press and the related subsidiaries and they have been treated as disposals from 1 January 2020.  

On 20 December 2020, the Group acquired the minority interest of 15% in Davies Odell Limited and transferred the shares to a new company, Vale Brothers Group Limited, in return for a 33% shareholding.  This ceased to be a subsidiary and is now treated as an associate.

The trading from Davies Odell Limited and the profit on disposal of all subsidiaries is presented in discontinued operations in the Consolidated Statement of Comprehensive Income.

The assets and liabilities disposed of were as follows:

	CEM companies		Davies Odell
	£'000		£'000
Property, plant and equipment	239		139
Inventories	9		429
Trade and other receivables	1,135		396
Cash and cash equivalents	4		-
Borrowings	(1,147)		(303)
Trade and other payables	(1,839)		(404)
Lease liabilities	(97)		(58)
Corporation tax payable	(103)		-
Deferred taxation	(53)		-
	(1,852)		199
Non-controlling interest released	1,027		-
(Profit)/loss on disposal	(825)		199

The cash flows from the discontinued operations were as follows:

	2021		2020
	£'000		£'000
Operating cash flows	-		58
Investing cash flows	-		(5)
Financing cash flows	-		(164)

10.  Intangible assets

	Goodwill		Customer relationship assets		Other		Total
Group	£'000		£'000		£'000		£'000
Cost
at 1 January 2020	7,684		772		251		8,707
Additions at cost	3,234		-		34		3,268
Disposals	(1,241)		-		-		(1,241)
At 31 December 2020	9,677		772		285		10,734
Additions at cost	969		557		72		1,598
At 31 December 2021	10,646		1,329		357		12,332
Accumulated amortisation and impairment
at 1 January 2020	1,626		590		131		2,347
Amortisation charge	-		-		66		66
Impairment	172		182		-		354
Disposals	(1,241)		-		-		(1,241)
at 31 December 2020	557		772		197		1,526
Amortisation charge	-		50		27		77
at 31 December 2021	557		822		224		1,603
Net book amount
at 31 December 2021	10,089		507		133		10,729
at 31 December 2020	9,120		-		88		9,208

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 included in administrative expenses 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 lists) 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 and customer lists are allocated to the Group's cash generating units (CGUs) on a business segment basis:

	Aford Awards	Friedman's	Hickton Group	Total
	£'000	£'000	£'000	£'000
Goodwill
at 1 January 2020	1,040	3,167	2,033	6,240
Additions at cost	-	-	3,234	3,234
Impairment	-	-	(354)	(354)
at 31 December 2020	1,040	3,167	4,913	9,120
Additions at cost	117	-	852	969
at 31 December 2021	1,157	3,167	5,765	10,089

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%.  A discount rate of 11.0% (2020: 10.0%), representing the estimated pre-tax cost of capital, has been applied to these projections.

A key assumption used in the value-in-use calculations is that trading will return to pre-pandemic revenue levels in the Friedman's and Aford Awards businesses.  The Hickton Group businesses have not been affected to any major degree and forecasts reflect a continuation of 2021 trading results and underlying growth trends.

Management has determined the budgeted revenue growth and gross margins based on past performance and their expectations of market developments in the future.  Long-term growth rates are based on the lower of the UK long-term

growth rate and management's general expectations for the relevant CGU.

In respect of Aford Awards, Friedman's, Hickton Consultants, Cook Brown and Morgan Lambert within the Hickton Group the value-in-use calculation gives rise to sufficient headroom such that reasonable changes in the key assumptions do not eliminate the headroom.  The Milano International business within the Friedman's segment has been impacted by the pandemic, but a return to the level of trading profits achieved prior to this supports the goodwill in respect of this business.

At 31 December 2020 impairment charges of £354,000 were taken against the BRCS business goodwill and customer list assets (within Hickton Group) as this business incurred a loss in both 2019 and 2020.  Actions have been taken to improve margins, but the business had not recovered in 2021.

11.  Share capital and share premium

	Number of shares		Ordinary £0.10 shares		Share premium		Total
			£'000		£'000		£'000
At 1 January 2020 and 31 December 2020	17,000,000		1,700		5,841		7,541
Shares issued in the year	4,000,000		400		1,176		1,576
At 31 December 2021	21,000,000		2,100		7,017		9,117

On 24 September 2021, 4,000,000 £0.10 ordinary shares were issued at 40 pence each resulting in a £400,000 increase in nominal share capital and a £1,176,000 increase in the share premium account after deducting share issue expenses of £24,000.

12.  Post balance sheet events

On 12 April 2022 Aford Awards Limited ('AAL') purchased the business and related assets of Impact Promotional Merchandise Limited.  The consideration for the purchase was £1,008,000, £558,000 being paid on completion with a deferred consideration of £450,000 to be paid post completion in the following amounts and on the following dates: £210,000 on 14 March 2023; £60,000 on 30 September 2023; £60,000 on 31 March 2024 and £60,000 on 31 March 2025.  The initial consideration was funded as to £8,000 from AAL's existing cash resources, a loan of £450,000 from CEPS, a loan of £50,000 from Paul Wood, the Managing Director of AAL, and £50, 000 of a total loan of £90,000 from Rob Ferguson, the Sales Director of AAL.  All the loans have a coupon of 5% per annum.  There are no fixed repayment dates for the loans. The deferred consideration payments, to the extent that they cannot be met by AAL, have been guaranteed by D A Horner.

On 29 April 2022 the repayment date of the loan from Chelverton Asset Management Limited to the Company, which stands at £2,950,000, was changed from 31 March 2023 to being on a rolling 18-month basis.  The Company's obligations in respect of this loan have been guaranteed by D A Horner.

13.  Distribution of the Annual Report and Notice of AGM

A copy of the 2021 Annual Report, together with a notice of the Company's Annual General Meeting ('AGM') to be held at 11:30am on Monday 13 June 2022 at 11 Laura Place, Bath BA2 4BL , will be sent to all shareholders on Monday 16 May 2022.  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 .

 

END

 

 

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