Preliminary Results

RNS Number : 3591F

CEPS PLC

21 April 2011

 



CEPS PLC ("CEPS" OR THE "COMPANY")

PRELIMINARY ANNOUNCEMENT OF UNAUDITED RESULTS FOR

YEAR ENDED 31 DECEMBER 2010

CHAIRMAN'S STATEMENT (extract)

Review of the year

As I suggested in my review at the half-year, 2010 has turned out to be the toughest year the Group has had to cope with.  Consumer demand has remained very fragile throughout, with the prospects remaining subdued as a result of the Emergency Budget and the requirement to deal with the massive public spending deficit.  As I have mentioned before, raw material input prices have accelerated, driven both by the deteriorating UK exchange rate and global price inflation.  Just to round things off, the extremely cold weather at the end of the year adversely affected trading in December and at the start of 2011.

Against this back drop the Group has produced a creditable result.  Revenue across the Group was up 4% at £16.5m (2009: £15.9m) and close once more to the levels achieved in 2008.  Continuing the theme of my half-year report, trading profit has fallen from £1.1m to £811,000 for the reasons outlined above.  However, I am pleased to report that we have at least held, or slightly increased, our market share and in some instances developed new markets, both at home and internationally, during this difficult period.

The decision to consolidate Sunline's operations on one site has given rise to exceptional costs of £302,000.  The impact of trading conditions and these one-off costs is to significantly reduce the Group's net operating profit, after Group costs, from £722,000 in 2009 to £165,000 in the current year.

Financial review

The strong cash generative nature of the Group's trading businesses has been clearly demonstrated this year.  Segmental EBITDA before exceptional costs for the businesses is in excess of £1.0m and this has allowed the operating businesses to absorb the large increase in trading inventories of £424,000, the provision for exceptional charges at Sunline, £302,000, and Group costs of £344,000.

Inventories are considerably higher due to the expansion of Davies Odell's product range and also due to deliveries of stock just before the year-end, which have been subsequently sold and the cash released during the first quarter of 2011.  As a consequence, cash generated from operations for the year was £52,000 (2009: £1.3m). 

After interest charges, tax and capital expenditure, the Group's net debt rose modestly from £2.2m to £2.5m at the year end.  Shareholder funds increased marginally from £5.8m at the end of 2009 to £5.9m at the end of 2010.  Despite the decline in profitability, the Group has reduced its acquisition borrowings from £921,000 to £500,000.

Operational review

Davies Odell

Overall in 2010 Davies Odell produced steady sales growth, but was unable to pass on all the raw material price increases it received.  Turnover rose by 8% to £5.7m (2009: £5.3m), but raw material costs rose faster, by 11% overall.

The drive to build an appropriate pan-European sales network for the Forcefield body-armour products has proceeded well.  Sales rose by 28% for the year, with excellent new dealers engaged and operating in key European target markets.  Both the new Sales Director and UK salesman are now fully operational, the point-of-sale roll out continues and the advertising and marketing activity is producing increasing exposure and positive press coverage.  Forcefield has created and developed a market-leading position and the pace of new product development has continued, with the most recent introduction a selection of brightly coloured, children's-size back protectors.  The strategic progress we set out to achieve with Forcefield is coming through strongly, even in a European motorcycle market where sales are apparently 15% down.

In the matting part of the business sales have risen by 6% with cost increases exceeding this figure.  Only an increase in Cowmat business to more profitable markets has enabled this profit erosion effect to be neutralised, with operating profits very similar to 2009.

The shoe repair part of the business has not had an easy year.  Where it imports raw materials or finished goods, pricing and margins have been under continuous pressure and consumer demand has been slowly reducing.  In this context, to achieve the same turnover as 2009 must be viewed as a good result.  Where the business manufactures leather heel components in the UK for the premium UK based men's shoe manufacturers the picture is much more positive.  Demand has been strong, benefiting from the weaker export exchange rate, and sales have grown 9%.   Finally, this business has always had a materials factoring operation supplying both shoe and non-shoe customers.  The small, focused team that has worked on these products has produced an exceptional result, a sales increase of 30% at the average margin for Davies Odell.

The investment in increasing Forcefield's sales and marketing activities has depressed the Davies Odell segmental result from £250,000 in 2009 to £138,000 in 2010, but the out-turn is close to the budget we set for the business in December 2009.

Friedman's

Steady turnover growth, coupled with a well-timed change of sourcing strategy and the introduction of a bespoke, digital printing service, have produced a very strong result at Friedman's for the full year.  Overall turnover increased by 5% to £3.2m (2009: £3.0m) with much of the growth coming from export and short-run digital printing orders.

More impressively, gross profit is up 13% with a full 2% rise in gross margin.  This is very much the product of moving part of the sourcing of several core fabrics to China and Korea and the growing impact of the additional margins which can be derived from the digital printing of our own release papers.  Overall costs have been contained to the levels of 2009 and the cash generated has been used to significantly reduce creditor balances.

The team at Friedman's is to be congratulated on raising its segmental result by 65% to £334,000 (2009: £203,000) and in achieving an operating profit to sales ratio of 10% in the toughest of trading conditions.

Sunline

It has been apparent for some time that the consolidation of Sunline's activities on one site at Loughborough would give rise to significant operational efficiencies and provide a more coherent service to its clients.  A combination of events during the current year created advantageous conditions for the company to make this positive step.  Property became available adjacent to Sunline's existing operations in Loughborough and a reduction of activity at the Redditch site, which was precipitated by the loss of its most substantial and profitable customer in May 2010, as noted in my half-yearly report.  The company decided, therefore, to close the Redditch site (Sunline Solutions) and consolidate the remaining business and equipment on the Loughborough site during the period when disruption to the Solutions' business would be minimal. 

Turnover for the whole business was flat in 2010 at £7.6m and the segmental result, before exceptional costs associated with the closure of the Redditch site, was £619,000 compared with £913,000 in 2009.  However, these results covered some major differences between Loughborough and Redditch.  At Loughborough sales grew by 28% as the business ensured it was fully loaded.  As noted previously, there remained an overhang of 'shaky competitors' and excess capacity in the mail polywrapping sector which has continued to exert serious downward pressures on margins.  In consequence, the overall operating profit coming from this site was only marginally improved on the 2009 result.

At Redditch the picture was rather different.  The second half saw regular monthly losses with the profit achieved in the first half eroded, such that the year-end result was marginally above break-even.  The closure of the plant and the removal of the equipment has now been completed.  The exceptional costs associated with these changes, amounting to £302,000, have been provided for in these accounts.  Of this amount approximately £67,000 is a non- cash element relating to the write-off of assets which will not be transferred to Loughborough.  We are confident the new configuration will enhance Sunline's business and enable it to prosper once more on the one extended site.    

Dividend

With the on-going effect of the recession on consumer spending, the vital investment in Forcefield products and branding, and the need for substantial reorganisation at Sunline, the Board has again decided that it is prudent to conserve cash.  As a result, the payment of a dividend is not recommended at this stage, although the Board remains keen to do so as soon as conditions become more favourable.

Prospects

The Board has reviewed a number of acquisition opportunities during 2010, but because bank finance has been difficult to secure these have not been pursued.  The directors will continue to review potential acquisition opportunities in the current year.

Looking to the trading prospects for 2011, I remain cautious.  At the time of writing the expected UK growth rate has just been cut to 1.7% and consumer inflation is running at around 5%.  Raw material price inflation does not appear to be abating yet, with the 'BRIC' economies still growing strongly and out-competing us for raw material supply.  This is not a recipe for sales or margin growth and in these circumstances we will only grow at the expense of our competitors.

Davies Odell has had a steady start to the year, with sales and profits close to budget.  As noted earlier, the very cold December weather had a very nasty hangover effect on shoe repair trading in January and February, but we have seen an improving trend of late. We are looking for an increase in Forcefield sales again and we are busily taking increased forward orders now for our second snow/ski season.

Friedman's, too, has made a steady start to the year and is about to take delivery of a second, much faster digital printer.  A designer has been engaged to take full advantage of the total capability we now have at our disposal.  This should enable additional, larger margin, bespoke orders to be produced, further increasing turnover and margin.

At Sunline the relocation of the lettershop equipment and its smooth run-up into full production needs to be tackled in the second quarter.  Additional sales are possible on this underused plant and our sales team will be looking for profitable additions.  Perhaps most importantly of all, further efforts will need to be made to drive up prices and margins on our core polywrapping activity.  For budgeting purposes, we have taken a cautious view of how quickly this can be achieved in 2011, but the whole team remains committed to this requirement.

Overall I foresee modest improvement for 2011.  To conclude, I remain cautious about the outlook for 2011, but feel strongly that all the Group companies are now in good shape to meet their particular challenges. 

Richard Organ

Chairman

21 April 2011

Peter Cook, Group Managing Director, CEPS PLC

Tel: [phone]

Tony Rawlinson, Partner, Cairn Financial Advisers LLP

Tel:  [phone]

CEPS PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

YEAR ENDED 31 DECEMBER 2010

	(unaudited)	(audited)
	2010	2009
	£'000	£'000
Revenue (note 3)	16,519	15,880
Cost of sales	(15,108)	(13,968)
Gross profit	1,411	1,912
Net operating expenses	(1,246)	(1,190)
Operating profit	165	722
Analysis of operating profit
- Trading	811	1,086
- Exceptional costs	(302)	-
- Group costs	(344)	(282)
- Deemed loss arising on the increase in the non-                             controlling interest	-	(82)
	165	722
Net finance costs	(151)	(146)
Profit before tax	14	576
Taxation	206	43
Profit for the year from continuing operations	220	619
Other comprehensive income
Actuarial loss on defined benefit pension plans	(83)	(74)
Other comprehensive income for the year, net of tax	(83)	(74)
Total comprehensive income for the year	137	545
Profit attributable to:
Owners of the parent	175	550
Non-controlling interest	45	69
	220	619
Total comprehensive income attributable to:
Owners of the parent	92	476
Non-controlling interest	45	69
	137	545
Earnings per share (note 4)
- basic and diluted	2.10p	6.62p

CEPS PLC

CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2010

	(unaudited)	(audited)
	2010	2009
	£'000	£'000
Assets
Non-current assets
Property, plant and equipment	1,376	1,548
Intangible fixed assets	4,732	4,744
Deferred tax asset	582	164
	6,690	6,456
Current assets
Inventories	1,993	1,569
Trade and other receivables	2,704	2,622
Cash and cash equivalents	282	736
	4,979	4,927
Total assets	11,669	11,383
Equity
Capital and reserves attributable to owners of the parent
Called up share capital	416	416
Share premium	2,756	2,756
Retained earnings	2,285	2,193
	5,457	5,365
Non-controlling interest	445	400
Total equity	5,902	5,765
Liabilities
Non-current liabilities
Borrowings	777	1,346
Deferred tax liability	171	-
Provisions for liabilities and charges	155	55
	1,103	1,401
Current liabilities
Borrowings	1,975	1,610
Trade and other payables	2,449	2,562
Current tax liabilities	38	45
Provisions for liabilities and charges	202	-
	4,664	4,217
Total liabilities	5,767	5,618
Total equity and liabilities	11,669	11,383

CEPS PLC

CONSOLIDATED STATEMENT OF CASHFLOWS

YEAR ENDED 31 DECEMBER 2010

	(unaudited)	(audited)
	2010	2009
	£'000	£'000
Cash flows from operating activities
Cash generated from operations	52	1,326
Tax paid	(48)	(202)
Interest paid	(149)	(129)
Net cash (used in)/generated from operations	(145)	995
Cash flows from investing activities
Purchase of property, plant and equipment	(66)	(62)
Disposal of property, plant and equipment	30	3
Interest received	2	3
Net cash used in investing activities	(34)	(56)
Cash flows from financing activities
Repayment of borrowings	(421)	(650)
Repayment of capital element of finance leases	(273)	(190)
Net cash used in financing activities	(694)	(840)
Net (decrease)/increase in cash and cash equivalents	(873)	99
Cash and cash equivalents at the beginning of the year	631	532
Cash and cash equivalents at the end of the year	(242)	631
Cash generated from operations
Profit before income tax	14	576
Adjustments for:
Depreciation and amortisation charge	286	285
(Profit)/loss on disposal of property, plant and equipment	(14)	9
Increase in non-controlling interest	-	82
Net finance cost	151	146
Retirement benefit obligations	(69)	(74)
Changes in working capital:
(Increase)/decrease in inventories	(424)	226
(Increase)/decrease in trade and other receivables	(82)	206
Decrease in trade and other payables	(112)	(130)
Increase in provisions	302	-
Cash generated from operations	52	1,326

CEPS PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

YEAR ENDED 31 DECEMBER 2010

	Share capital	Share premium	Profit and loss account	Attributable to the owners of the parent	Non-controlling interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2009 (audited)	416	2,756	1,717	4,889	249	5,138
Actuarial loss	-	-	(74)	(74)	-	(74)
Profit for the year	-	-	550	550	69	619
Total comprehensive income for the year Increase in non-controlling interest charged against profit for the year	- -	- -	476 -	476 -	69 82	545 82
At 31 December 2009 (audited)	416	2,756	2,193	5,365	400	5,765
Actuarial loss	-	-	(83)	(83)	-	(83)
Profit for the year	-	-	175	175	45	220
Total comprehensive income for the year	-	-	92	92	45	137
At 31 December 2010 (unaudited)	416	2,756	2,285	5,457	445	5,902

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 George Street, Bath, BA1 2EH and the registered number of the company is 507461.

2.         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 2010.

The preliminary results were approved by the Board of Directors on 21 April 2011. The preliminary results do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006.

3.    Segmental analysis

All activities are classed as continuing.

The chief operating decision maker 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:

-     Davies Odell, the manufacture and distribution of protection equipment, matting and footwear components

-     Friedman's, the conversion and distribution of specialist Lycra

-     Sunline, a supplier of services to the direct mail market

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 of the Group.  The Group information provided below, therefore, also represents the geographical segmental analysis.  Of the £16,519,000 (2009: £15,880,000) revenue £14,123,000 (2009: £13,823,000) is derived from UK customers with the remaining £2,396,000 (2009: £2,057,000) 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 2010

	Davies Odell	Friedman's	Sunline	CEPS	Group
	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)
	2010	2010	2010	2010	2010
	£'000	£'000	£'000	£'000	£'000
Revenue	5,734	3,154	7,631	-	16,519
Segmental result (EBITDA) before exceptional costs	138	334	619	-	1,091
Exceptional costs	-	-	(302)	-	(302)
Segmental result (EBITDA) after exceptional costs	138	334	317	-	789
Depreciation charge	(35)	(33)	(212)	-	(280)
Group costs	-	-	-	(344)	(344)
Interest expenses	(29)	(4)	(118)	-	(151)
Profit/(loss) before taxation	74	297	(13)	(344)	14
Taxation	177	(58)	5	82	206
Profit/(loss) for the year	251	239	(8)	(262)	220

ii)     Results by segment (continued)

Year ended 31 December 2009

	Davies Odell	Friedman's	Sunline	CEPS	Group
	(audited)	(audited)	(audited)	(audited)	(audited)
	2009	2009	2009	2009	2009
	£'000	£'000	£'000	£'000	£'000
Revenue	5,296	2,993	7,591	-	15,880
Segmental result (EBITDA)	250	203	913	-	1,366
Depreciation charge	(30)	(30)	(220)	-	(280)
Group costs	-	-	-	(282)	(282)
Increase in non-controlling interest	-	-	-	(82)	(82)
Interest expenses	(3)	(10)	(134)	1	(146)
Profit/(loss) before taxation	217	163	559	(363)	576
Taxation	161	(19)	(128)	29	43
Profit/(loss) for the year	378	144	431	(334)	619

ii)     Assets and liabilities by segment

As at 31 December

	Segment assets		Segment liabilities		Segment net assets
	(unaudited)	(audited)	(unaudited)	(audited)	(unaudited)	(audited)
	2010	2009	2010	2009	2010	2009
	£'000	£'000	£'000	£'000	£'000	£'000
CEPS Group	86	114	(120)	(67)	(34)	47
Davies Odell	2,918	2,332	(1,576)	(1,043)	1,342	1,289
Friedman's	2,826	2,853	(1,465)	(1,694)	1,361	1,159
Sunline	5,668	6,084	(2,435)	(2,814)	3,233	3,270
Total - Group	11,498	11,383	(5,596)	(5,618)	5,902	5,765

4.    Earnings per share

Basic earnings per share is calculated on the profit after taxation for the year attributable to equity holders of the Company of £175,000 (2009: £550,000) and on 8,314,310 (2009: 8,314,297) 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 year because the fair value of warrants was below the exercise price.  The warrants lapsed unexercised on 20 April 2010.

5.    Distribution of the Annual Report

A copy of the Annual Report and Financial Statements, together with a notice of the Annual General Meeting, will be sent to all shareholders on 4 May 2011. 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 and from the Group website, www.cepsplc.com.

 

END

 

 

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