Report & Accounts2007CEPS PLCRegistered address:11 George StreetBath BA1 2EHT 01225 483030www.cepsplc.comIncorporated in England507461 CEPS PLC Company number 507461ContentspageChairman's Statement1Directors’ Report5Corporate Governance8Independent Auditors’ Report10Consolidated Income Statementand Consolidated Statement ofRecognised Income and Expense12Consolidated and CompanyBalance Sheets13Consolidated and CompanyCash Flow Statements14Notes to the Financial Statements15Notice of Meeting52Proposed changes to the Articlesof Association55Group Information57 OverviewThe progress achieved in the first half was partially sustained in the second half, in spiteof increasingly uncertain trading conditions. The Sunline Direct Mail business, acquiredin 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 withexpectations but profitability was flat year-on-year. The revenue cost of developing anonline retail business, FunkiFabrics, an unexpected bad debt late in the year and euroexchange rate appreciation, all reduced profitability in the second half.Davies Odell performed ahead of expectation in the first half and with a steady secondhalf performance saw revenue for the year rise by 6% and profitability by 5%.Group revenue doubled and operating profit increased by 145% to £945,000(2006: £385,000) after charging abortive acquisition costs of £71,000. Group profitbefore tax rose by a similar percentage to £674,000 (2006: £279,000). Adjustedearnings per share, before deduction of abortive acquisition costs of £71,000, were6.95p (2006, after tax credit: 11.95p).Further potential acquisitions are under review, both as enhancements to existingactivities and as stand-alone businesses in their own right. The structure and strategyadopted by CEPS appears to have become an accepted exit solution for companies witha value below the size criterion of the private equity investors.Financial reviewRevenue doubled to £15.4m (2006: £7.7m), and operating profit rose by 145% to£945,000 (2006: £385,000) after charging abortive acquisition costs of £71,000. Profitbefore tax rose by a similar percentage to £674,000 (2006: £279,000) and after tax of£88,000 (2006: credit £158,000) the profit for the year was £586,000 (2006: £437,000).Earnings per share, basic and diluted, were 6.32p (2006: 11.95p), the figures taking intoaccount the 1 for 50 share consolidation and placing of 4,750,000 new shares inFebruary 2007.Cash generated from operations in the period was £1,466,000 (2006: £450,000). Theshare placing in February raised £2,375,000 before expenses of £57,000. Theinvestment by the Group in Sunline was £3,940,000, comprising shares and loan stockof £1,450,000 plus the expenses of the acquisition of £698,000, less £208,000 cashacquired with the business and together with the new bank loans of £2,000,000.Total bank loans of £2,257,000 (2006: £861,000) include £2,190,000 (2006: £697,000)secured against the assets of subsidiary companies and with no recourse to the rest ofthe Group. The increase includes £2,000,000 of bank loans related to the acquisition ofSunline, of which £300,000 had been repaid at the year end.CEPS PLCChairman’s StatementHighlights•Profit before tax of £674,000, an increase of 142% on 2006•Group revenue of £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%)•£713,000 debt repaid during the year from internally generated resources•Strong balance sheet with capital and reserves of £4.2m (2006: £1.2m)1 CEPS PLCChairman’s StatementcontinuedFinancial review continuedGearing 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 generatedresources totalling £713,000 and by increased cash balances of £348,000.The Group balance sheet remains strong. Total capital and reserves attributable to equityshareholders of the Company at the year end were £4,206,000 (2006: £1,201,000).These are the first set of results since the adoption by the Group of International FinancialReporting Standards (IFRS). Comparative figures have been restated to comply withIFRS and a detailed explanation of the changes is given in the half-yearly report toshareholders dated 24 September 2007.Operational reviewFriedman’s– Revenue for the year was up 8%, with the segmental profit level similar tolast year. As the year progressed operating margins came under pressure as theeffective price of imported Lycra increased with the substantial appreciation of the euroagainst 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, sellingsome 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 tostimulate business by showing products from comprehensive sample books. Sales sofar are encouraging, though launch costs, as expected, have impacted on second halfprofitability.Davies Odell– Revenue for the year increased by 6%, although the second half wassimilar 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 keptthe contribution at 2006 levels. As expected, cowmats saw a substantial decline inturnover and hence contribution, though margins remained steady. Floor and gymprotection matting saw steady growth in both revenue and margin as a direct result ofincreased business with a prominent gym/fitness club equipment distributor.Elsewhere in this business, sales of shoe repair products remained reasonably buoyantalthough input prices are now rising here with limited scope to pass them on to ourcustomers in the current economic climate. The Forcefield body armour range hascontinued its strong growth with revenue up by more than 90%. The UK retaildistribution network now exceeds 100 outlets for motorcycling, off-road biking, skiingand snowboarding. The sales performance of Forcefield in ski/snowboard outlets thisautumn has been a particular highlight. Business with our key distributor in the USAdoubled in the year and other export markets have also seen strong growth with risingenquiry levels.Sunline Direct Mail – Revenue for the 11 months within the CEPS Group reached £7.2mgenerating a segmental profit (before depreciation charge) of £865,000. ThePolywrapping business has encountered increased competition in its marketplaceputting margins under pressure. The company has tightened its sales criteria to ensurethe optimum mix of business and has instituted improved production scheduling. Theseinitiatives will result in production efficiencies and will maximise the profit available.The Lettershop business has begun to fulfil its real potential in 2007 with revenueincreased by 26% and operating profit increased by three times. Several core clientshave been grown substantially in volume terms and new accounts have also been addedto the portfolio. The site and equipment are now being more fully utilised than for someyears.2 CEPS PLCChairman’s Statementcontinued3DividendIn 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 thepayment of a final dividend at this stage.Power to issue sharesThe Board will seek at the annual general meeting to renew the following authorities thatwere initially approved by shareholders at the extraordinary general meeting in February2007.It is proposed that the directors be given authority in accordance with section 80 of theCompanies Act 1985 (the “Act”) to allot relevant securities (as defined in that section) upto an aggregate nominal amount of £334,288.45 (representing approximately 80.4% ofthe present issued ordinary share capital).It is also proposed that the directors be given authority pursuant to section 95 of the Actto allot equity securities (within the meaning of section 94 of the Act) for cash as if section89(1) of the Act did not apply to any such allotment provided that this power is limited toa pre-emptive issue and any other issue of equity securities for cash up to an aggregatenominal amount of £272,268.30 (representing approximately 65.5% of the presentissued ordinary share capital).The directors believe that these authorities would for example allow the Group to issuenew ordinary shares as consideration, in part or whole, for a suitable acquisition.The Board considers that to limit its ability to issue shares, other than in strict proportionto existing shareholders, to 5% of the present issue share capital would be undulyrestrictive. Whilst there is no present intention of issuing shares, the Board considers thatthe powers could be helpful and are not excessive in view of its investment strategy andthe present size of the Group.New Articles of AssociationThe Companies Act 2006 has proposed various changes to company law that the Boardconsiders it sensible to adopt and incorporate within a new set of Articles. Furtherchanges to company law are expected to be brought into force later this year and theBoard seeks the power to adopt these further changes when they happen.The principal changes concern the convening of extraordinary and annual generalmeetings, the votes of members, the age of directors on appointment, conflicts ofinterest, distribution of assets other than in cash, electronic and web communicationsand directors’ indemnities and loans to fund expenditure.Explanatory notes at the back of this document give more detailed information abouteach of these proposed changes.PeopleI would like to thank all our employees for their continuing dedication to serving ourcustomers effectively. We have strong teams in each of the businesses, and I amconfident in the more challenging times I see ahead they will respond and outperformtheir competition.ProspectsAs I indicated at the half-year the second half had started slowly and this caution provedappropriate given the outcome for the Group across the balance of 2007. Since thattime 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 increasinglylikely to affect consumer behaviour.So far the effect on the Group has been limited with revenue and profitability at expectedlevels for the first quarter across all of the businesses. 4CEPS PLCChairman’s StatementcontinuedProspects continuedAt Friedman’s the euro exchange rate will be the source of continuing pressure on itsLycra input prices and measures are in hand to mitigate the effect. Davies Odell isbeginning to see inflationary price increases proposed by their sources in the Far Eastwhich they will not be able to pass on. Product re-engineering and alternative sourcesare being vigorously explored.Sunline has had a better than expected start to the year with the Polywrapping businessshowing increased consistency of performance and the Lettershop business carrying onfrom where it left off in 2007.At the time of writing, one has to take the view that growth in consumer spending is likelyto ease downwards throughout 2008. In these circumstances, I remain cautious as tothe overall prospects for 2008 but confident that our management teams will outperformtheir immediate competition and maximise profitability and return on capital employed.Richard Organ20 May 2008 Your directors have pleasure in submitting their annual report and the audited financialstatements of the Group for the year ended 31 December 2007.Principal activities and The principal activities of CEPS PLC are that of an investment company, acquiring majoritybusiness reviewstakes in stable, profitable and steadily growing entrepreneurial companies. TheCompany's subsidiaries carry on the following trades:Friedman's Limited –the conversion and distribution of specialist Lycra.Davies Odell Limited –the manufacture and distribution of protection equipment, mattingand footwear components.Sunline Direct Mail Limited –the provision of direct mail services.A review of the business, its prospects and future developments are set out in theChairman's Statement on pages 1 to 4.The Group internal reporting system enables the Board to assess the strategic directionof the Group against agreed targets. The table below shows the most important keyindicators used by the Group.20072006))Revenue£15,394,000£7,709,000)Gross margin14.9%15.6%)Operating profit before interest and tax£945,000£385,000)Profit after tax£586,000£437,000)Total equity£4,365,000£1,339,000)Net debt£2,207,000£1,015,000)Gearing ratio51%76%)The directors do not recommend the payment of a dividend. The profit for the year isadded to reserves.The Board also monitors matters relating to health and safety and the environment andreviews them at its regular meetings. The risks to the business arising from changes tothe trading environment and employee retention and training are also regularly monitoredand reviewed.IFRS AdoptionWith effect from 1 January 2006 the Group has adopted International Financial ReportingStandards (IFRS). Comparative figures have been restated to comply with IFRS and adetailed explanation of the changes is given in note 29 to these financial statements.DirectorsThe directors' beneficial interests in shares of the Company at the end of the financialyear are shown in note 7 to the accounts on page 28.R T Organ BA(Hons) FRSA (55) is a non-executive director and Chairman. He hassignificant experience of manufacturing and marketing in the footwear and clothingindustries gained with C & J Clark Ltd and Coats Viyella PLC. He is a non-executivedirector of Swallowfield PLC.D A Horner (48) is a Chartered Accountant. He qualified with Touche Ross and in 1986joined 3i Corporate Finance Limited. In 1997 he set up Chelverton Asset ManagementLimited which specialises in managing portfolios of investments in private companies andsmall to medium size public companies. He set up and manages Chelverton GrowthTrust Plc, manages the Small Companies Dividend Trust Plc and is a director of AthelneyTrust plc and the Quoted Companies Alliance.CEPS PLCDirectors’ Report5 6CEPS PLCDirectors’ ReportcontinuedP G Cook (56) was appointed Group Managing Director on 24 September 2007. He isa Chartered Accountant who, having qualified with Kidsons Impey, has taken finance andcommercial roles with a number of companies. He served as finance director andmanaging director of Assurity Europe Limited, a venture capital financed MBO whoseactivities are focused on the fast growing market for business consultancy and disasterrecovery services serving blue chip clients in the UK. He is currently a director of anumber of other companies.G C Martin (63) is Financial Director. He has a service contract with the Companyrequiring six months notice of termination.The director retiring by rotation in accordance with Articles 90 and 91 is R T Organ who,being eligible, offers himself for re-election.AcquisitionOn 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 MailLimited (SDM), a supplier of poly wrapping and associated services to the direct mailmarket. The initial consideration paid by SDMH for SDM was £3,800,000 which wassatisfied by a cash payment of £3,450,000 and the issue of shares and loan notes inSDMH to the value of £350,000. The cash payment was funded by non-recourse bankfinance of £2,000,000 and subscriptions by the Company of £80,000 for equity,£520,000 for preference shares and £850,000 for loan stock. The remaining 20% ofSDMH is owned by the managing director of SDM. Deferred consideration, currentlyestimated at £50,000 but potentially up to a maximum of £500,000, is payabledependent on the future trading performance of SDM.Further details are given in note 28 to the accounts on page 48.Share placing andOn 12 February 2007 shareholders approved a share consolidation on the ratio of 50consolidationexisting ordinary shares of 0.1p each for one new ordinary share of 5p each and a placingto raise £2,375,000 before expenses of £57,000 by the issue of 4,750,000 placingshares at 50p per share (equivalent to 1p per share prior to the share consolidation). Theproceeds 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 membersof the concert party detailed in the circular sent to shareholders on 11 January 2007.Further information about SDMH is given in note 28.Also on 12 February 2007 warrant holders approved amendments to the terms of thewarrants increasing the exercise price to 62.5p per share, corresponding to 1.25p pershare before the share consolidation, extending the exercise date to 20 April 2010 andmaking the warrants freely transferable.Further details are given in note 24 on page 45.Substantial shareholdingsIn addition to directors' shareholdings shown on page 28, the following shareholdersheld more than 3% of the Company's ordinary shares at 15 May 2008:Shares)David Abell421,000Chelverton Growth Trust Plc625,856HSBC Global Custody Nominee (UK) Limited 813259 ACCT865,220Mark Thistlethwayte1,200,000Directors continued Creditor payment policyThe policy of the Group and Company is to determine terms and conditions of paymentwith suppliers when negotiating other terms of supply and to abide by the terms ofpayment. At the year end the Group had an average of 54 days (2006: 56 days)purchases outstanding in trade creditors. There were no amounts owing to tradecreditors by the Company at the year end (2006: nil).Financial and treasury policyThe Group finances its operations by a combination of retained profits, management ofworking capital, bank overdraft and debtor backed working capital facilities and mediumterm loans. The disclosures for financial instruments are made in note 21a to theaccounts on page 43.Interest rate risk is controlled by the use of a combination of fixed and variable rates ofinterest.Liquidity risk is managed by the preparation of cash flow forecasts and by monthlycomparison of actual cash flows against the forecasts. Group policy is to ensure thatfunding is in place sufficient that trading activities are not adversely impacted.Currency risk is principally in respect of transactions in US dollars and euros. Grouppolicy is to match as far as possible through the normal course of trade the level of salesand purchases in foreign currencies.For further details of Group financial risk and management thereof see note 2 on pages21 to 23.Disclosure of informationSo far as each director is aware, there is no relevant information of which the Company'sto auditorsauditors are unaware. Relevant information is defined as 'information needed by theCompany's auditors in connection with preparing their report'. Each director has takenall the steps (such as making enquiries of other directors and the auditors and any othersteps required by the director's duty to exercise due care, skill and diligence) that heought to have taken in his duty as a director in order to make himself aware of anyrelevant audit information and to establish that the Company's auditors are aware of thatinformation.AuditorsPricewaterhouseCoopers LLP are willing to continue in office and a resolution proposingtheir re-appointment will be submitted to the annual general meeting.On behalf of the BoardG C MartinSecretary20 May 20087CEPS PLCDirectors’ Reportcontinued The Board is committed to high standards of corporate governance and recognises thatit is accountable to shareholders for good governance. The Company’s corporategovernance procedures define the duties and constitution of the Board and the variousBoard committees and, as appropriate, specify responsibilities and level of responsibility.The principal procedures are summarised below:The BoardThe Board comprises two non executive directors, one of whom is Chairman, and twoexecutive directors. Further details of the Board members are given in the Directors'Report on pages 5 and 6.All directors, with the exception of the Managing Director, are subject to retirement byrotation and re-election by the shareholders in accordance with the Articles ofAssociation.The Board meets regularly, at least six times a year and with additional meetings beingarranged when necessary.The Company seeks constructive dialogue with institutional and private shareholdersthrough direct contact and through the opportunity for all shareholders to attend and askquestions at the annual general meeting.Audit committeeThis committee comprises the non-executive directors and is chaired by D A Horner. Theaudit committee is responsible for the appointment of the external auditor, agreeing thenature and scope of the audit and reviewing and making recommendations to the Boardon matters related to the issue of financial information to the public. It assists all directorsin discharging their responsibility to ensure that accounting records are adequate andthat the financial statements give a true and fair view.Nomination committeeThis committee is comprised of the Chairman and the other non-executive director. It isresponsible for making recommendations to the Board on any appointment to the Board.Remuneration committeeThis committee is comprised of the Chairman and the other non-executive director.The remuneration committee sets the remuneration and other terms of employment ofexecutive directors. Remuneration levels are set by reference to individual performance,experience and market conditions with a view to providing a package appropriate for theresponsibilities involved.Directors’ contracts are designed to provide the assurance of continuity which theCompany desires. There are no provisions for pre-determined compensation ontermination.Pensions for directors are based on salary alone and are provided by the companydefined contribution scheme and defined benefits scheme. Contributions are paid tothese schemes in accordance with independent actuarial recommendations or fundingrates determined by the remuneration committee as appropriate to the type of scheme.Non-executive directors have no service contracts and no pension contributions aremade on their behalf.Full details of directors’ remuneration and benefits are given in note 7 to the financialstatements on pages 27 and 28.8CEPS PLCCorporate Governance AIM compliance committeeIn accordance with AIM Rule 31 the Company is required to have in place sufficientprocedures, resources and controls to enable its compliance with the AIM Rules; seekadvice from its nominated adviser ("Nomad") regarding its compliance with the AIM Ruleswhenever appropriate and take that advice into account; provide the Company’s Nomadwith any information it requests in order for the Nomad to carry out its responsibilitiesunder the AIM Rules for Companies and the AIM Rules for Nominated Advisers; ensurethat each of the Company’s directors accepts full responsibility, collectively andindividually, for compliance with the AIM Rules; and ensure that each director discloseswithout delay all information which the Company needs in order to comply with AIM Rule17 (Disclosure of Miscellaneous Information) insofar as that information is known to thedirector or could with reasonable diligence be ascertained by the director.In order to ensure that these obligations are being discharged, the Board has establisheda 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 Boardand the Nomad to ensure that such is the case, the AIM Committee is satisfied that theCompany’s obligations under AIM Rule 31 have been satisfied during the year underreview.Internal financial controlThe Board has overall responsibility for the system of internal financial control which isdesigned with regard to the size of the company to provide reasonable but not absoluteassurance against material misstatement or loss. The Board reviews the effectiveness ofthe internal financial control environment. The organisational structure of the Group givesclear management responsibilities in relation to internal financial control. Financial risksare controlled through clearly laid down authorisation levels. There is an annual budgetwhich is approved by the directors. The results are reported monthly and compared tothe budget. The audit committee receives a report from the external auditors annually.Going concernThe directors have considered the financial and operating position of the Group and theyconsider that it is appropriate to adopt the going concern basis in preparing the financialstatements.Statement of directors’The directors are required to prepare financial statements which give a true and fair viewresponsibilitiesof the state of affairs of the Group and Company as at the end of each financial year andof the results for the year. In preparing the financial statements suitable accountingpolicies have been used and consistently applied and reasonable and prudentjudgements and estimates have been made. The financial statements are prepared ona going concern basis and in compliance with the applicable accounting standardsincluding compliance with IFRSs as adopted by the European Union and IFRSs issuedby IASB and with the Companies Act 1985. The directors are also responsible formaintaining adequate accounting records that disclose with reasonable accuracy at anytime the financial position of the Group, for safeguarding the assets of the Group and fortaking reasonable steps to prevent and detect fraud and other irregularities.9CEPS PLCCorporate Governancecontinued CEPS PLCIndependent Auditors’ Reportto the members of CEPS PLC10We have audited the Group and parent company financial statements (the ‘‘financialstatements’’) of CEPS PLC for the year ended 31 December 2007 which comprise theConsolidated Income Statement, the Consolidated and Parent Company BalanceSheets, the Consolidated and Parent Company Cash Flow Statements, the Consolidatedand Parent Company Statements of Recognised Income and Expense and the relatednotes. These financial statements have been prepared under the accounting policies setout therein.Respective responsibilities The directors’ responsibilities for preparing the Annual Report and the financialof directors and auditorsstatements in accordance with applicable law and International Financial ReportingStandards (IFRSs) as adopted by the European Union are set out in the Statement ofDirectors’ Responsibilities.Our responsibility is to audit the financial statements in accordance with relevant legaland regulatory requirements and International Standards on Auditing (UK and Ireland).This report, including the opinion, has been prepared for and only for the company’smembers as a body in accordance with Section 235 of the Companies Act 1985 and forno other purpose. We do not, in giving this opinion, accept or assume responsibility forany other purpose or to any other person to whom this report is shown or into whosehands it may come save where expressly agreed by our prior consent in writing.We report to you our opinion as to whether the financial statements give a true and fairview and have been properly prepared in accordance with the Companies Act 1985. Wealso report to you whether in our opinion the information given in the Directors' Report isconsistent with the financial statements. The information given in the Directors’ Reportincludes that specific information presented in the Chairman’s Statement that is crossreferred from the Business Review section of the Directors’ Report.In addition we report to you if, in our opinion, the company has not kept properaccounting records, if we have not received all the information and explanations werequire for our audit, or if information specified by law regarding directors’ remunerationand other transactions is not disclosed.We read other information contained in the Annual Report and consider whether it isconsistent with the audited financial statements. The other information comprises onlythe Directors’ Report, the Chairman’s Statement and the Corporate GovernanceStatement. We consider the implications for our report if we become aware of anyapparent misstatements or material inconsistencies with the financial statements. Ourresponsibilities do not extend to any other information. CEPS PLCIndependent Auditors’ Reportto the members of CEPS PLCcontinued11Basis of audit opinionWe conducted our audit in accordance with International Standards on Auditing (UK andIreland) issued by the Auditing Practices Board. An audit includes examination, on a testbasis, of evidence relevant to the amounts and disclosures in the financial statements. Italso includes an assessment of the significant estimates and judgments made by thedirectors in the preparation of the financial statements, and of whether the accountingpolicies are appropriate to the group’s and company’s circumstances, consistentlyapplied and adequately disclosed.We planned and performed our audit so as to obtain all the information and explanationswhich we considered necessary in order to provide us with sufficient evidence to givereasonable assurance that the financial statements are free from material misstatement,whether caused by fraud or other irregularity or error. In forming our opinion we alsoevaluated the overall adequacy of the presentation of information in the financialstatements.OpinionIn our opinion:–the Group financial statements give a true and fair view, in accordance with IFRSs asadopted by the European Union, of the state of the group’s affairs as at 31 December 2007 and of the group’s profit and cash flows for the year then ended;–the parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company’s affairs as at31 December 2007 and cash flows for the year then ended;–the financial statements have been properly prepared in accordance with the Companies Act 1985; and–the information given in the Directors' Report is consistent with the financial statements.PricewaterhouseCoopers LLPChartered Accountants and Registered AuditorsBristol21 May 2008Notes:a)The maintenance and integrity of the CEPS PLC website is the responsibility of thedirectors; the work carried out by the auditors does not involve consideration of thesematters and, accordingly, the auditors accept no responsibility for any changes thatmay have occurred to the financial statements since they were initially presented onthe website.b)Legislation in the United Kingdom governing the preparation and dissemination offinancial statements may differ from legislation in other jurisdictions. 2007)2006)Notes£'000)£'000)Revenue)CCContinuing8,239)7,709)CCAcquisition7,155)–)))415,394)7,709)Cost of sales)(13,102)(6,504))))Gross profit)2,292)1,205)Distribution expenses(366)(183)Administration expenses(981)(637)))Operating profit5945)385)Analysis of operating profit CCContinuing612)593)CCAcquisition712)–)CCAbortive acquisition costs(71)–)CCGroup costs(308)(208)Finance costs9(271)(106)))Profit before tax674)279)Taxation10(88)158)))Profit for the year586)437)))Attributable to:)Equity holders of the Company491)426)Minority interest95)11)))586)437)))Earnings per shareCC– basic and diluted126.32p)11.95p)))))2007)2006)£'000)£'000)Fair value gains, net of taxCCActuarial gain on retirement benefit obligations8,22196)59)))Net income recognised directly in equity196)59)Profit for the year586)437))))Total recognised income for the year782)496)))Attributable to:Equity holders of the Company687)485)Minority interest95)11)))782)496))))There are no movements to be recognised through the parent company statement ofrecognised income and expense in 2007 or 2006.Consolidated incomestatementConsolidated statementof recognised incomeand expense12CEPS PLC Year ended 31 December 2007Consolidated Income Statement andConsolidated Statement of Recognised Income and Expense CEPS PLC As at 31 December 2007Consolidated and Company Balance Sheets13GroupCompany2007)2006)2007)2006)Notes£'000)£'000)£'000)£'000)AssetsNon-current assetsProperty, plant and equipment141,239)279)–)–)Intangible assets154,751)1,529)96)1)Investments in Group CCundertakings16–)–))2,571)500)Deferred tax asset2245)155))–)–)))))6,035)1,963))2,667)501)))))Current assetsInventory171,391)1,324)–)–)Trade and other receivables183,151)1,793)618)573)Deferred tax asset2273)218)–)–)Cash and cash equivalents383)35)5)3)))))4,998)3,370)623)576)))))Total assets11,033)5,333)3,290)1,077)))))EquityCapital and reserves attributable to equity holders of the CompanyCalled up share capital24416)178)416)178)Share premium252,756)676)2,808)676)Profit and loss account)251,034)347)(29)118)))))4,206)1,201)3,195)972)Minority interest in equity25159)138)–)–)))))Total equity4,365)1,339)3,195)972)))))LiabilitiesNon-current liabilitiesBorrowings202,138)593)–)–)Retirement benefit liabilities8162)517)–)–)Provisions2355)32)–)–)))))2,355)1,142)–)–)))))Current liabilitiesBorrowings201,490)1,392)–)–)Trade and other payables192,778)1,427)95)105)Current tax liabilities45)33)–)–)))))4,313)2,852)95)105)))))Total liabilities6,668)3,994)95)105)))))Total equity and liabilities11,033)5,333)3,290)1,077)))))These accounts were approved by the Board of Directors on 20 May 2008.R T OrganG C MartinDirectors CEPS PLC Year ended 31 December 2007Consolidated and Company Cash Flow Statements14GroupCompany2007)2006)2007)2006)£'000)£'000)£'000)£'000)Cash flows from operating activitiesCash generated from operations1,466)450)(296)(20)Tax (paid)/received(237)10)–)14)Interest (paid)/received(254)(106)94)9)))))Net cash generated from/(used in) CCoperations975)354)(202)3)))))Cash flow from investing activitiesPurchase of property, plant and CCequipment(67)(89)–)–)Purchase of computer softwareCCand website development(49)–)(17)–)Purchase of subsidiary undertakingsCCnet of cash acquired(3,940)–)(2,149)–)Payment of deferred consideration(30)(20)–)–)))))Net cash used in investing activities(4,086)(109)(2,166)–)))))Cash flow from financing activitiesProceeds from issue of Ordinary CCshare capital2,318)–)2,370)–)Proceeds from new bank loans2,000)–)–)–)Repayment of bank loans(604)(262)–)–)Repayment of capital element of hireCCpurchase agreements(109)(4)–)–)CC))))Net cash generated from/(used in)CCfinancing activities3,605)(266)2,370)–)))))Net increase/(decrease) in cashCCand cash equivalents494)(21)2)3)Cash and cash equivalents at theCCbeginning of the year(118)(97)3)–)))))Cash and cash equivalents at the CCend of the year376)(118)5)3))))Cash flows from operating activitiesThe reconciliation of operating profit to cash flows from operating activities is as follows:Operating profit/(loss) for the year945)385)(369)(205)Adjustments for:Depreciation charge264)110)–)–)Difference between pension chargeCCand cash contribution(76)(71)–)–)))))Operating profit/(loss) before changesCCin working capital and provisions1,133)424)(369)(205)Movement in provisions(27)(8)–)–)Increase in inventories(3)(237)–)–)Decrease/(increase) in trade and CCother receivables164)(382)85)140)Increase/(decrease) in trade and CCother payables199)653)(12)45)))))Cash generated from operations1,466)450)(296)(20)))))Cash and cash equivalentsCash at bank and in hand383)35)5)3)Bank overdrafts repayable on CCdemand(7)(153)–)–)))))376)(118)5)3))))) CEPS PLC 31 December 2007Notes to the Financial Statements151. Accounting policiesThe principal accounting policies applied in the preparation of these financial statementsare set out below. These policies have been applied consistently to all the yearspresented, unless otherwise stated, and in preparing an opening IFRS balance sheet at1 January 2006 for the purpose of transition to IFRS.Basis of preparationThese are the first set of financial statements since the adoption of International FinancialReporting Standards (IFRS) and have been prepared in accordance with IFRS issued bythe International Accounting Standards Board (IASB) and International FinancialReporting Interpretations Committee’s (IFRIC) interpretations as adopted by theEuropean Union, applicable as at 31 December 2007 and those parts of the CompaniesAct 1985 applicable to companies reporting under IFRS. In accordance with EUlegislation the Group's first annual financial statements have been prepared for the yearended 31 December 2007.The consolidated financial statements have been prepared on a going concern basis andunder the historical cost convention.This is the Group’s first consolidated financial statements and IFRS 1 –First-timeAdoption of International Financial Reporting Standards–has been applied. Thecomparative information has been restated from the Group’s previously publishedaccounts for 2006 prepared under UK GAAP, to comply with IFRS. The Group’s date oftransition to IFRS was 1 January 2006 and reconciliations between IFRS and UK GAAPof the previously reported equity at 31 January 2006 and 31 December 2006 and of theprofit for the year ended 31 December 2006 are presented in note 29.The preparation of financial statements in conformity with IFRS requires the use of certaincritical accounting estimates. It also requires management to exercise its judgement inthe process of applying the Group’s accounting policies. The areas involving a higherdegree of judgement or complexity, or areas where assumptions and estimates aresignificant to the consolidated financial statements are disclosed in note 3.The audited UK GAAP statutory accounts for the year ended 31 December 2006, uponwhich an unqualified audit opinion was given, have been delivered to the Registrar ofCompanies.The Group has taken advantage of the exemption under section 230 of the CompaniesAct 1985 not to present a Company income statement. Information about the Companyresult for the period is given in note 13. There are no movements to be recognisedthrough the Company's statement of recognised income and expenses in 2007 or 2006.First time adoptionThe procedures for first time adopting IFRS, that the Group must follow, are set out inIFRS 1. The general principle is that all IFRS standards be retrospectively applied.However IFRS 1 includes optional exemptions and mandatory exceptions relating toretrospective application. The most significant of these that impact the Group are asfollows:a) Business combinations –The Group has elected not to apply IFRS 3 to businesscombinations that occurred prior to the transition date of 1 January 2006.b) Share based payments –The Group has elected not to apply IFRS 2 to share optionsand warrants granted prior to 7 November 2002 and as this relates to all current awardsthe results have not been affected. This is consistent with the previous UK GAAPtreatment.c) Fair value or revaluation as deemed cost –The Group has elected not to fair valueselective items of property, plant and equipment at the date of transition. CEPS PLC 31 December 2007Notes to the Financial StatementscontinuedIFRS effective in 2007 but not yet relevantThe following IFRS have not been adopted by the Group in these financial statements,as they are not deemed to be relevant:–IFRS 4 –Insurance contracts;–IFRIC 7, Applying the restatement approach under IAS 29, Financial reporting in hyper-–inflationary economies;–IFRIC 9, Re-assessment of embedded derivatives; and–IFRIC 11, IFRS 2 –Group and treasury share transactions.Basis of consolidationSubsidiaries are all entities over which the Group has the power to govern the financialand operating policies generally accompanying a shareholding of more than one half ofthe voting rights. The existence and effect of potential voting rights that are currentlyexercisable or convertible are considered when assessing whether the Group controlsanother entity. Subsidiaries are fully consolidated from the date on which control istransferred to the Group. They are de-consolidated from the date that control ceases.The cost of an acquisition is measured as the fair value of the assets given, equityinstruments issued and liabilities incurred or assumed at the date of exchange, plus costsdirectly attributable to the acquisition. Identifiable assets acquired and liabilities andcontingent liabilities assumed in a business combination are measured initially at their fairvalues at the acquisition date, irrespective of the extent of any minority interest. Theexcess of the cost of acquisition over the fair value of the Group’s share of the identifiablenet assets acquired is recorded as goodwill.Inter-company transactions, balances and unrealised gains on transactions betweenGroup companies are eliminated. Unrealised losses are also eliminated but consideredan impairment indicator of the asset transferred. Accounting policies of subsidiaries havebeen changed where necessary to ensure consistency with the policies adopted by theGroup.The Group applies a policy of treating transactions with minority interests as transactionswith parties external to the Group. Disposals to minority interests result in gains andlosses for the Group that are recorded in the income statement. Purchases from minorityinterests result in goodwill, being the difference between any consideration paid and therelevant share acquired of the carrying value of net assets of the subsidiary.Segmental reportingA business segment is a group of assets and operations engaged in providing productsor services that are subject to risks and returns that are different from those of otherbusiness segments. A geographical segment is engaged in providing products orservices within a particular economic environment that are subject to risks and returnsthat are different from those of segments operating in other economic environments.Revenue recognitionRevenue comprises the invoiced value of goods sold and services provided (recognisedon despatch or transfer of substantial risks and rewards where different), excluding VAT.161. Accounting policies1. continued CEPS PLC 31 December 2007Notes to the Financial StatementscontinuedProperty, plant and equipmentProperty, plant and equipment is stated at initial cost, including expenditure that isdirectly attributable to the acquired item, less accumulated depreciation and impairmentlosses.Depreciation is calculated on an appropriate basis over the deemed useful life of an assetand is applied to the cost less any residual value. The asset classes are depreciated overthe following periods (the useful life, the residual value and the depreciation method isassessed annually):Plant and machinery, tools and moulds:Between 5 and 10 years or on a 25% reducingbalance basisMotor vehicles:5 years straight lineLeasehold property improvements:Over the term of the lease.The carrying value of the property, plant and equipment is compared to the higher ofvalue in use and the pre-tax realisable value. If the carrying value exceeds the higher ofthe value in use and pre-tax realisable value the asset is impaired and its value reducedby charging additional depreciation. Borrowing costs are not capitalised.Intangible assetsa) GoodwillGoodwill is recognised to the extent that it arises through business combinations. Inrespect of business combinations that have occurred since 1 January 2006, goodwillrepresents the difference between the cost of the acquisition and the fair value of netidentifiable assets acquired. In respect of business combinations prior to this date,goodwill is included on the basis of its deemed cost, which represents the amountrecorded under previous GAAP. The classification and accounting treatment of businesscombinations that occurred prior to 1 January 2006 has not been reconsidered inpreparing the Group’s opening IFRS balance sheet.Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocatedto appropriate cash generating units (those expected to benefit from the businesscombination) and is no longer amortised but is tested for impairment.b) Computer software and websitesNon-integral computer software purchases are capitalised at cost. These costs areamortised over their estimated useful lives (between 3 and 10 years). Costs associatedwith implementing or maintaining computer software programmes are recognised as anexpense as incurred.Costs incurred in the development of new websites are capitalised only where the costcan be directly attributed to developing the website to operate in the manner intendedby management and only to the extent of the future economic benefits expected from itsuse. These costs are amortised over their useful lives. Costs associated withmaintaining websites are recognised as an expense as incurred.171. Accounting policies1. continued Impairment of intangible assetsAssets that have an indefinite useful life are not subject to amortisation but are reviewedfor impairment annually or whenever events or changes in circumstances indicate thatthe carrying amount may not be recoverable. Assets that are subject to amortisation arereviewed for impairment whenever events or changes in circumstances indicate that thecarrying amount may not be recoverable. An impairment loss is recognised for theamount by which the asset’s carrying amount exceeds its recoverable amount. Therecoverable amount is the higher of an asset’s fair value less costs to sell or its value inuse. For the purposes of assessing impairment, assets are grouped at the lowest levelsfor which there are separately identifiable cash flows (cash-generating units). Anyimpairment losses are not reversed.InventoriesInventories are valued at the lower of cost and net realisable value. Raw materials arevalued on a first in first out basis at net invoice values charged by suppliers. The valueof work in progress and finished goods includes the direct cost of materials and labourtogether with an appropriate proportion of factory overheads.Cash and cash equivalentsCash and cash equivalents include cash in hand, short term bank deposits held at call,other short term highly liquid investments with an original maturity of less than threemonths, and bank overdrafts. Bank overdrafts are shown in current liabilities asborrowings. All are carried at cost in the balance sheet.Current and deferred taxationThe current income tax charge is calculated on the basis of the tax laws enacted orsubstantively enacted at the balance sheet date in the countries where the Company’ssubsidiaries and associates operate and generate taxable income. Managementperiodically evaluates positions taken in tax returns with respect to situations in whichapplicable tax regulation is subject to interpretation and establishes provisions whereappropriate on the basis of amounts expected to be paid to the tax authorities.Deferred income tax is provided in full, using the liability method, on temporarydifferences arising between the tax bases of assets and liabilities and their carryingamounts in the consolidated financial statements. However, the deferred income tax isnot accounted for if it arises from initial recognition of an asset or liability in a transactionother than a business combination that at the time of the transaction affects neitheraccounting nor taxable profit or loss. Deferred income tax is determined using tax rates(and laws) that have been enacted or substantially enacted by the balance sheet dateand are expected to apply when the related deferred income tax asset is realised or thedeferred income tax liability is settled.Deferred tax assets are recognised to the extent that it is probable that future taxableprofits will be generated enabling the utilisation of the temporary timing differences.Foreign currenciesThe results are recorded in sterling which is deemed to be the functional currency of theGroup, the Company and all its subsidiaries.Foreign currency transactions are expressed in sterling at the rates of exchange ruling atthe date of the transaction, and if still in existence at the year end the balance isretranslated at the rates of exchange ruling at the balance sheet date. Differences arisingfrom changes in exchange rates during the year are taken to the income statement.18CEPS PLC 31 December 2007Notes to the Financial Statementscontinued1. Accounting policies1. continued PensionsDefined benefit pension costs are recognised in the 'income statement' and the'statement of recognised income and expense'. The full annual actuarial gain or loss isrecognised in the 'statement of recognised income and expense'. Contributions to thedefined contribution schemes are charged to the income statement as incurred.Operating leasesThe annual costs of operating leases are charged to the income statement as incurred.Finance leasesFor leases where a significant portion of the risks and rewards of ownership is obtainedor where legal title is to pass to the Group the assets are capitalised at cost in thebalance sheet and depreciated over the expected useful economic life. The interestelement of the rental obligation is charged to the income statement over the period of thelease and represents a constant proportion of the balance of capital repaymentoutstanding.Minority interestMinority interests represent the interest of shareholders in subsidiaries which are notwholly owned by the Group.ProvisionsProvisions are recognised when the Group has a present legal or constructive obligationas a result of past events; it is probable that an outflow of resources will be required tosettle the obligation; and the amount has been reliably estimated. Provisions are notrecognised for future operating losses.Provisions are measured at the present value of the expenditures expected to berequired to settle the obligation using a pre-tax rate that reflects current marketassessments of the time value of money and the risks specific to the obligation. Theincrease in the provision due to passage of time is recognised as interest expense.Share capitalOrdinary shares are classified as equity while redeemable preference shares are classifiedas liabilities.Financial instrumentsThe Group classifies financial instruments, or their component parts, on initial recognitionas a financial asset, a financial liability or an equity instrument in accordance with thesubstance of the contractual arrangement.Financial instruments are recognised on the balance sheet at fair value when the Groupbecomes a party to the contractual provisions of the instrument.a) Financial assets at fair value through profit or lossFinancial assets at fair value through profit or loss are financial assets held for trading. Afinancial asset is classified in this category if acquired principally for the purpose of sellingin the short term. Assets in this category are classified as current assets. However theGroup does not generally hold such assets.b) Available-for-sale financial assetsAvailable-for-sale financial assets are non-derivatives that are either designated in thiscategory or not classified in any of the other categories. They are included in non-currentassets unless management intends to dispose of the investment within 12 months of thebalance sheet date.19CEPS PLC 31 December 2007Notes to the Financial Statementscontinued1. Accounting policies1. continued c) Trade receivablesTrade receivables are recognised initially at fair value and subsequently measured atamortised cost. A provision for impairment of trade receivables is established when thereis objective evidence that the Group will not be able to collect all amounts due accordingto the original terms of the receivables. Significant financial difficulties of the debtor,probability that the debtor will enter bankruptcy or financial reorganisation, and default ordelinquency in payments (more than 30 days overdue) are considered indicators that thetrade receivable is impaired. The amount of the provision is the difference between thecarrying amount of the asset and its estimated future cash flow. The carrying amount ofthe asset is reduced through the use of a bad debt provision and the amount of the lossis recognised in the income statement within cost of sales. When a trade receivable isuncollectible it is written off against the bad debt provision. Subsequent recoveries ofamounts previously written off are credited against cost of sales in the income statement.d) Trade payablesTrade payables are recognised initially at fair value.e) BorrowingsBorrowings are initially recognised at fair value, net of transaction costs incurred.Borrowings are subsequently stated at amortised cost.Borrowings are classified as current liabilities unless the Group has an unconditional rightto defer settlement of the liability for at least 12 months after the balance sheet date.Derivative financial instruments and hedging activitiesWhere material, derivatives are initially recognised at fair value on the date a derivativecontract is entered into and are subsequently remeasured at their fair value. The Groupuses forward foreign exchange contracts to hedge certain export sales and purchases.Any gains or losses arising are recognised in the income statement as cost of sales.20CEPS PLC 31 December 2007Notes to the Financial Statementscontinued1. Accounting policies1. continued 2. Financial risk2.1 Financial risk factors2. managementThe Group’s activities expose it to a variety of financial risks: market risk (includingcurrency risk, fair value interest rate risk and cash flow interest rate risk), credit risk andliquidity risk. The Group’s overall risk management programme focuses on theunpredictability of financial markets and seeks to minimise potential adverse effects onthe Group’s financial performance. The Group uses derivative financial instruments tohedge certain risk exposures.Risk management is carried out by local management under policies approved by theboard of directors.a) Market riski) Foreign exchange riskThe Group operates internationally and is exposed to foreign exchange risk arising fromvarious currency exposures, primarily with respect to the euro, US dollar and sterling.Foreign exchange risk arises from future commercial transactions and recognised assetsand liabilities.Management has a policy to require Group companies to manage their foreign exchangerisk against their functional currency. The policy is to match as far as possible throughthe normal course of trade the level of sales and purchases in foreign currencies and,where applicable, to enter forward foreign exchange contracts as hedges of foreignexchange risk on specific assets, liabilities or future transactions.At 31 December 2007, if sterling had weakened by 5% against the euro and all othervariables held constant, post-tax profit for the year would have been £34,000 (2006:£34,000) lower as a consequence of foreign exchange losses.ii) Cash flow and fair value interest rate riskAs the Group has no significant interest-bearing assets, the Group’s income andoperating cash flows are substantially independent of changes in market interest rates.The Group’s interest rate risk arises from medium-term borrowings. Borrowings issuedat variable rates expose the Group to cash flow interest rate risk. Borrowings issued atfixed rates expose the Group to fair value interest rate risk.Group policy is to maintain an appropriate balance between borrowings expressed infixed rates and those at variable rates. All of the Group’s borrowings are denominated insterling. CEPS strategy is as far as possible to use the assets of businesses in which itmakes investments to secure the necessary borrowings for those investments.The impact on post tax profit of a 1% shift in interest rates on the Group's non currentbank borrowings would be a maximum of £16,000 (2006: £6,000).b) Credit riskThe Group is exposed to the credit risk inherent in non-payment by either its customersor the counterparties of its financial instruments. The Group utilises credit insurancepolicies to mitigate its risk from some of its trading exposure, especially in overseasmarkets, and in all cases seeks satisfactory references and the best possible terms ofpayment. It mitigates its exposure on financial instruments by only using instrumentsfrom banks and financial institutions with a minimum rating of 'A'.c) Liquidity riskPrudent liquidity risk management implies maintaining sufficient cash and havingavailable an adequate amount of committed credit facilities.21CEPS PLC 31 December 2007Notes to the Financial Statementscontinued c) Liquidity riskcontinuedManagement monitors rolling forecasts of the Group’s available liquidity on the basis ofexpected future cash flows. Forecasts are generated in the first instance at local level inthe operating subsidiaries of the Group.The table below analyses the Group’s financial liabilities into relevant maturity groupingsbased on the remaining period at the balance sheet to the contractual maturity date. Theamounts disclosed in the table are the contractual undiscounted cash flows. Balancesdue within 12 months equal their carrying balances as the impact of discounting is notsignificant.Less thanBetweenBetween1 year1 and 2 years2 and 5 yearsOver 5 years£’000£’000£’000£’000At 31 December 2007Trade and other payables2,778–––Other loans–110220–Bank borrowings678611968–Bank overdrafts7–––Trade receivables backedCCworking capital facilities708–––Finance lease obligations97164105–4,2688851,293–At 31 December 2006Trade and other payables1,427–––Bank borrowings295291275–Bank overdrafts153–––Trade receivables backedCCworking capital facilities935–––Finance lease obligations9922–2,819300297–2.2 Capital risk management: IAS 1 amendment in relation to IFRS 7The Group’s objectives when managing capital are to safeguard the Group’s ability tocontinue as a going concern in order to provide returns for shareholders and benefits forother stakeholders and to maintain an optimal capital structure to reduce the cost ofcapital.In order to maintain or adjust the capital structure, the Group may pay dividends toshareholders, return capital to shareholders, issue new shares or sell assets to reducedebt.Consistent with others in the industry, the Group monitors capital on the basis of thegearing ratio. This ratio measures net debt as a proportion of total equity as shown inthe consolidated balance sheet. Net debt is calculated as total bank and finance leaseborrowings, including current and non-current borrowings, less cash and cashequivalents.22CEPS PLC 31 December 2007Notes to the Financial Statementscontinued2. Financial risk2. management continued 2.2 Capital risk managementcontinuedThe gearing ratios at 31 December 2007 and 2006 were as follows:2007)2006)£’000)£’000)Total borrowings2,590)1,050)Less: cash and cash equivalents(383)(35)))Net debt2,207)1,015)))Total equity4,365)1,339)))Gearing ratio51%)76%)Net debt was increased by £2,000,000 of bank finance related to the acquisition ofSunline Direct Mail Limited but reduced by repayments of bank loans and finance leaseborrowings in the period totalling £713,000 and by cash balances. Total equity increasedby the issue of new shares realising £2,318,000 after expenses, and by the profit for theperiod. As a result the gearing ratio fell to 51% (2006: 76%).2.3 Fair value estimationThe fair value of forward foreign exchange contracts is determined using quoted forwardexchange rates at the balance sheet date.The carrying value less impairment provision of trade receivables and payables areassumed to approximate their fair values. The fair value of the financial liabilities fordisclosure purposes is estimated by discounting the future contractual cash flows at thecurrent interest rate.23CEPS PLC 31 December 2007Notes to the Financial Statementscontinued2. Financial risk2. management continued 3. Accounting estimatesThe preparation of the financial statements requires management to make estimates and3. and judgementsassumptions that affect the reported amount of revenues, expenses, assets and liabilitiesand the disclosure of contingent liabilities at the date of the financial statements. If in thefuture such estimates and assumptions, which are based on management's bestjudgement at the date of preparation of the financial statements, deviate from actualcircumstances the original estimates and assumptions will be altered as necessary in theyear in which the circumstances change. Where necessary, comparative figures will berestated from the previously reported results to take into account presentationalchanges.a) Amortisation of intangible assets and depreciation of property, plant and equipmentAmortisation and depreciation is provided in the consolidated financial statements so asto write down the respective assets to their residual values over their estimated usefullives. The selection of the estimated useful lives and the expected residual values of theassets requires the use of estimates and judgements.b) Impairment of intangible assets, property, plant and equipmentWhere there is an indication that the carrying value of intangible assets, property or plantand equipment may have been impaired through events or changes in circumstances, areview will be undertaken of the recoverable amount of those assets based on a value inuse calculation that will involve estimates and assumptions to be made by management.c) Inventory provisionsThe Group reviews its inventory on a regular basis and where appropriate makesprovision for slow moving and obsolete items based on estimates of future salesrequirements. The estimates of future sales requirements will be based both on historicalexperience and on the expected outcomes based on knowledge of the markets in whichthe Group operates.d) Dilapidations provisionsThe Group occupies leasehold properties for which there are potential costs ofdilapidations reparation on termination of those leases. The Group attempts to anticipatethose potential future costs by making estimates of those costs and provision for them.The estimates are made from knowledge of the leased premises, their state of repair, therequirements of the leases and management's judgement of the potential future liability. e) Deferred tax assetsCertain subsidiaries of the Group have accelerated capital allowances and retirementbenefit liabilities all of which may reduce future corporation tax payable within the Group.Deferred tax assets have been recognised in respect of accelerated capital allowancesto be claimed over the next five years and the full amount of the retirement benefitliabilities. The recognition of the assets reflects management's estimate of therecoverable amounts in respect of these items.f) Retirement benefit liabilitiesOne subsidiary of the Group operates a defined benefits pension scheme. The schemeis subject to trienniel actuarial valuation and the Group commissions an independentqualified actuary to update to each financial year end the previous trienniel result. Theresults of this update are included in the financial statements. In reaching the annuallyupdated results the actuary makes assumptions and estimates with the assistance ofmanagement. These assumptions and estimates are made advisedly but are not anyguarantee of the performance of the scheme or of the outcome of each trienniel review.24CEPS PLC 31 December 2007Notes to the Financial Statementscontinued 25CEPS PLC 31 December 2007Notes to the Financial Statementscontinued4. Segmental analysisAll activities are classed as continuing.a) Primary reporting format – Business segmentsThe Group is managed in three principal business segments, with each segmentcomprising a single trading subsidiary and operating in a defined business sector.i) Results by segmentRendering ofSale of goodsservicesFriedman’sDavies OdellSunline)Group2007)2006)2007)2006)2007)2007)2006)£'000)£'000)£'000)£'000)£'000)£'000)£'000)Revenue2,878)2,663)5,361)5,046)7,155)15,394)7,709))))))))Segmental resultCCbefore Group costs294)293)429)410)865)1,588)703))))))Depreciation charge(32)(33)(79)(77)(153)(264)(110))))))))Abortive acquisition costs(71)–)Group costs(308)(208)))Operating profit945)385)Interest expenses(271)(106)))Profit before taxation674)279)Taxation))))(88)158)))Profit for the year586)437)))ii) Assets and liabilities by segment as at 31 DecemberSegment assetsSegment liabilitiesSegment net assets2007)2006)2007)2006)2007)2006)£'000)£'000)£'000)£'000)£'000)£'000)CEPS Group83)150)(72)(55)11)95)Friedman’s2,879)2,850)(1,860)(2,595)1,019)255)Davies Odell2,203)2,333)(1,270)(1,344)933)989)Sunline5,868)–)(3,466)–)2,402)–)))))))Total – Group11,033)5,333)(6,668)(3,994)4,365)1,339)))))))iii) Non-cash expenses and capital expenditureOther than as stated above there were no significant non-cash expenses.2007)2006)Capital expenditure£'000)£'000) CEPS Group17)–)Friedman’s59)104)Davies Odell86)27)Sunline102)–)))))Total – Group264)131)))b) Secondary reporting format – Geographical segmentsThe United Kingdom is the source of turnover, operating profit and is the principallocation of the assets of the Group. The Group information provided above thereforerepresents the geographical segmental analysis. CEPS PLC 31 December 2007Notes to the Financial Statementscontinued262007)2006)£'000)£'000)Profit on ordinary activities before tax is statedafter charging:Employee costs (note 6)4,341)1,304)Depreciation of owned assets (note 14)207)98)Depreciation of assets held under hire purchase contractsCC(note 14)57)12)Exchange loss/(gain))9)(1))Other operating lease rentals:–on land and buildings303)137)–on plant and machinery34)39))))Fees paid to auditorsAudit fees in respect of the audit of the accountsCCof the Company13)12)Audit fees in respect of the audit of the accountsCCof subsidiaries of the Company25)20)))38)32)Services relating to taxation18)15)Services relating to the pension scheme3)3)Services relating to accounting advice8)–)))Total fees67)50)))In addition, fees of £150,000 were paid to the Company’s auditors in respect ofacquisition related financial due diligence and other similar related services. These feesare included within the acquisition expenses of Sunline Direct Mail (Holdings) Limited.6. EmployeesThe average number of persons employed by the Group during the year was:2007)2006)Management and administration38)18)Production and sales161)39)))199)57)))The aggregate payroll costs of these persons were:2007)2006))£'000)£'000)Wages and salaries3,899)1,131)Social security costs343)107)Other pension costs99)66)))4,341)1,304)))The compensation of key management personnel is included with those of members ofthe Board and shown in note 7.5. Operating profit CEPS PLC 31 December 2007Notes to the Financial Statementscontinued277. Directors’ emolumentsThe aggregate remuneration of the directors was:2007)2006)£’000)£’000)Fees15)15)Salaries and benefits132)70)))147)85)))The remuneration of the Chairman, R T Organ, and of the other directors who servedduring the year was:Salaries and feesBenefitsTotal2007)2006)2007)2006)2007)2006)£’000)£’000)£’000)£’000)£’000)£’000)P G Cook75)30)–)–)75)30)D A Horner11)–)–)–)11)–)G C Martin34)33)3)2)37)35)R T Organ24)20)–)–)24)20)))))))144)83)3)2)147)85)))))))The remuneration of P G Cook includes a fee related to the successful acquisition ofSunline Direct Mail Limited.Benefits represent the value attributed to medical insurance.G C Martin has a pension secured in the Group defined benefits scheme of which detailsare:)£’000pa)Accrued pension at 31 December 2006)22)Increase in accrued pension during 2007)2))Accrued pension at 31 December 2007)24)))£’000)Transfer value of the increase in accrued pension during 200715))G C Martin was also a member of a Group defined contribution scheme. Contributionson his behalf to the scheme in 2007 were £8,000 (2006: £6,000). The aggregate payroll costs of members of the Board and other key managementpersonnel of the Group were:2007)2006)£’000)£’000)Wages and salaries349)183)Social security costs41)21)Other pension costs15)7)))405)211)))At 31 December 2006 the directors’ beneficial interests, including those of their families,in shares of the group were:shares)warrants)P G Cook8,333,333)3,500,000)D A Horner21,355,556)10,000,000)G C Martin1,012,586)506,293)R T Organ5,966,667)2,650,000)At 31 December 2007 and following the share placing and consolidation, of which detailswere included in a circular to shareholders dated 11 January 2007 and that wereapproved by shareholders on 12 February 2007, the directors’ beneficial interests inshares of the Group were:shares)warrants)P G Cook366,666)70,000)D A Horner1,287,110)200,000)G C Martin20,251)10,125)R T Organ169,333)53,000)There have been no changes in the interests of any director between 31 December 2007and 20 May 2008.R T Organ has an option expiring on 21 May 2011 to subscribe for 3,000 shares at337.5p per share the terms of which may be adjusted by the Board to reflect variationsof share capital. No options lapsed or were granted or exercised during the year norhave any been granted or exercised up to 20 May 2008. The market price of the sharesat 31 December 2007 was 54.5p and the range during 2007 was 40.0p to 75.0p.The register of directors' interests, which is open to inspection, contains full details ofdirectors' shareholdings and options to subscribe for shares.28CEPS PLC 31 December 2007Notes to the Financial Statementscontinued7. Directors’ emoluments7. continued 29CEPS PLC 31 December 2007Notes to the Financial StatementscontinuedThe Group operates two defined contribution schemes. The assets of the schemes areheld in independently administered funds. The pension cost charge representscontributions payable to the funds and amounted to £47,000 (2006: £54,000).The Group also operates a defined benefits scheme. The scheme was closed to newmembers in 1988. The assets of the scheme are held separately from those of the Groupin a deposit administration contract underwritten by an insurance company.Contributions to the scheme are determined by a qualified external actuary on the basisof triennial valuations using the attained age method. The most recent actuarial valuationwas at 1 July 2004 and the main actuarial assumptions were investment returns of 7.0%before retirement, 5.0% after retirement, a discount rate of 5.4% and a rate of salaryincrease of 5.0%. The valuation showed that the market value of the scheme assets was£1,777,000 and that the level of funding on an ongoing basis is 89%. At 1 July 2005 theGroup funding rate was increased to £7,313 per month, an amount intended to restorea 100% funding level over four years. The full results of the actuarial valuation at 1 July2007 are awaited. The preliminary Section 179 valuation is that scheme assets are£2,551,000, total protected liabilities are £2,535,000 and that the scheme funding levelis 101%.The Group commissioned an independent qualified actuary to update to 31 December2007 the results of the actuarial valuation at 1 July 2004. The results of the update areas follows: 2007)2006)Assumptions at 31 DecemberInterest rate for discounting liabilities5.90%)5.30%)Expected return on plan assets6.30%)6.30%)Rate of salary increase3.95%)3.85%)Retail Price Inflation3.20%)3.10%)LPI increases to pensions3.20%)3.10%)MortalityCurrent pensionerspxa92c2028)pxa92c2025)Future pensionerspxa92c2028)pxa92c2025)The following amounts were measured in accordance with the requirements of IAS 19:2007)2006)£’000)£’000)Amounts recognised in the balance sheet are as follows:Fair value of plan assets1,982)1,852)Present value of defined benefit obligation(2,144)(2,369)))Net liability(162)(517)))8. Pension costs 2007)2006)£’000)£’000)Pension cost recognised in the income statement for the yearOperating cost:Current service cost5)13)))Finance cost:Interest cost122)121)Expected return on plan assets(115)(116)))7)5)))Total pension cost12)18)))Statement of recognised income and expense for the yearExperience losses/(gains) on liabilities2)(5)Actuarial gains on liabilities due to assumptions(210)(61)Experience gains on assets(71)(20)))Total gain(279)(86)))Movement in balance sheet for the yearNet pension liability at the start of the year(517)(673)Employer’s pension cost(12)(18)Statement of recognised income and expense279)86)Employer contributions88)88)))Net pension liability at the end of the year(162)(517)))Reconciliation of the defined benefit obligationDefined benefit obligation at the start of the year2,369)2,504)Service cost5)13)Interest cost122)121)Plan participants’ contributions2)2)Actuarial gain(208)(66)Benefits and expenses paid(146)(205)))Defined benefit obligation at the end of the year2,144)2,369)))30CEPS PLC 31 December 2007Notes to the Financial Statementscontinued8. Pension costscontinued 31CEPS PLC 31 December 2007Notes to the Financial Statementscontinued2007)2006)£’000)£’000)Reconciliation of plan assetsFair value of plan assets at the start of the year1,852)1,831)Actuarial return on plan assets186)136)Employer contributions88)88)Plan participants’ contributions2)2)Benefits and expenses paid(146)(205)))Fair value of plan assets at the end of the year1,982)1,852)))Amounts for the current and previous year are as follows:Plan assets1,982)1,852)Defined benefit obligation(2,144)(2,369)))Deficit in plan(162)(517)Experience (losses)/gains on liabilities(2)5)Actuarial gains on liabilities due to assumptions210)61)Experience gains on assets71)20)Subject to the conclusions of the actuarial valuation at 1 July 2007, the Companyexpects to contribute £87,756 to its pension plan during the financial year 2008.9. Finance income and costs2007)2006)£’000)£’000)Interest receivable25)–)))Total finance income25)–)))Interest payable on interest-bearing loans and borrowings258)100)Pension scheme finance costs (note 8)7)5)Finance lease costs14)1)Preference dividend accrued17)–)))Total finance costs296)106)))Net finance costs271)106)))8. Pension costscontinued 10. Taxation2007)2006)£’000)£’000)Analysis of taxation in the year:Current taxUK corporation tax on profits of the year at 30%123)25)Tax repaid in respect of prior periods(34)–)))Total current tax89)25)))Deferred taxCurrent year credit to the income statement(59)(192)Prior year58)9)))Total deferred tax(1)(183)))Total tax charge/(credit)88)(158)))Deferred tax charge to the statement ofCCrecognised income and expense83)27)))Factors affecting total taxation:Profit before taxation674)279)))Profit multiplied by the standard rate of UK tax of 30%202)84)Effects of:Small companies tax relief(3)(7)Current year losses not utilised/(utilised)6)(66)Other timing differences(117)2)Expenses not deductible for tax purposes13)18)Capital allowances in excess of depreciation22)(6)Prior year adjustment, current tax(34)–)Prior year adjustment, deferred tax58)16)Pension cost relief in excess of pension charge, deferred tax16)21)Capital allowances in excess of depreciation, deferred tax(75)(220)))Total tax charge/(credit)88)(158))).32CEPS PLC 31 December 2007Notes to the Financial Statementscontinued 33CEPS PLC 31 December 2007Notes to the Financial Statementscontinued11. DividendsNo dividends have been paid or proposed for the year (2006: nil).12. Earnings per shareBasic earnings per share is calculated on the profit for the year after taxation attributableto equity holders of the Company of £491,000 (2006: £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 inissue adjusted to reflect the potential effect of the exercise of share warrants. Noadjustment is required in either period because the fair value of warrants was below theexercise price.Adjusted earnings per share illustrates the calculation of basic earnings per share beforededuction of abortive acquisition costs of £71,000.13. Profits of the holdingOf the profit for the year, a loss of £147,000 (2006: loss £176,000) is dealt with in13. companythe accounts of CEPS PLC. The Company seeks to invest and acquire majorityshareholdings in private industrial service companies with a history of profitability andcash generation. The directors have taken advantage of the exemption available undersection 230 of the Companies Act 1985 and not presented a profit and loss account forthe Company alone.There has been no impact on the Company’s results or opening balance sheet as a resultof adopting IFRS. Plant,)Leasehold)machinery)Motor))property)(and tools)vehicles)(Total)£'000)£'000)£'000)£'000)14. GroupCostat 1 January 200621)894)42)957)additions at cost30)101)–)131)disposals–)–)(42)(42)))))at 31 December 200651)995)–)1,046)additions at cost–)199)15)214)acquisition5)2,177)85)2,267)disposals–)–)(11)(11)))))at 31 December 200756)3,371)89)3,516)))))Depreciationat 1 January 200617)639)42)698)charge for the year4)107)(1)110)disposals–)–)(41)(41)))))at 31 December 200621)746)–)767)acquisition3)1,220)30)1,253)charge for the year5)246)13)264)disposals–)–)(7)(7)))))at 31 December 200729)2,212)36)2,277)))))Net book amountat 31 December 200727)1,159)53)1,239)))))at 31 December 200630)249)–)279)))))Assets held under hire purchase contracts and capitalised as plant, machinery and toolshave a net book value of £480,000 (2006: £28,000) and an accumulated depreciationbalance of £211,000 at the year end (2006: £20,000).14. Property, plant and14. equipment34CEPS PLC 31 December 2007Notes to the Financial Statementscontinued 35CEPS PLC 31 December 2007Notes to the Financial StatementscontinuedPlant,))machinery)Motor)))(and tools)vehicles)(Total))£'000)£'000)£'000)14. CompanyCostat 1 January 2006712)42)754)transferred to subsidiary company(712)(42)(754))))at 31 December 2006 and31 December 2007–)–)–))))Depreciationat 1 January 2006495)42)537)transferred to subsidiary company(495)(42)(537))))at 31 December 2006 and31 December 2007–)–)–))))Net book amountat 31 December 2006 and31 December 2007–)–)–))))14. Property, plant and14. equipmentcontinued Goodwill)Other)Total)£'000)£'000)£'000)15. GroupCostat 1 January 2006 and 31 December 20061,650)–)1,650)additions3,173)49)3,222))))at 31 December 20074,823)49)4,872))))Amortisationat 1 January 2006, 31 December 2006 CCand 31 December 2007121)–)121))))Net book amountat 31 December 20074,702)49)4,751))))at 31 December 20061,529)–)1,529))))15. CompanyCostat 1 January 200649)–)49)transferred to subsidiary company(47)–)(47))))at 31 December 20062)–)2)additions78)17)95))))at 31 December 200780)17)97))))Amortisationat 1 January 200648)–)48)transferred to subsidiary company(47)–)(47))))at 31 December 2006 and 31 December 20071)–)1))))Net book amountat 31 December 200779)17)96))))at 31 December 20061)–)1))))Management assess the nature of purchase consideration, and any in excess ofidentified intangible assets is recorded as goodwill. Goodwill is not amortised underIFRS, but is subject to impairment testing either annually or on the occurrence of sometriggering event.Other intangibles relate to website development costs.15. Intangible fixed assets36CEPS PLC 31 December 2007Notes to the Financial Statementscontinued 37CEPS PLC 31 December 2007Notes to the Financial StatementscontinuedImpairment tests for goodwill and other intangible assetsThe Group tests goodwill annually for impairment or more frequently if there areindications that goodwill may be impaired.Other intangible assets with a definite life are tested for impairment only where there isan indication that an impairment may have occurred. The Group does not have any otherintangible assets with indefinite lives.For the purpose of impairment testing, goodwill is allocated to the Group’s cashgenerating units (CGU’s) on a business segment basis:20072006£'000£'000Friedman’s1,529)1,529)Davies Odell–)–)Sunline3,173)–)))Total4,702)1,529)))The recoverable amount of a CGU is based on value-in-use calculations. Thesecalculations use cash flow projections based on financial budgets approved bymanagement covering a five year period. Cash flows beyond five years are assumed tobe constant. An appropriate discount rate of 6.9%, representing the Group’s current pre-tax cost of capital, has been applied to these projections.At 31 December 2007 the Group performed its annual impairment test on Goodwill usingthe above discount rate for value-in-use calculations. These tests concluded that noimpairment is required.15. Intangible fixed assets15. continued 38CEPS PLC 31 December 2007Notes to the Financial Statementscontinued2007)2006)£'000)£'000)16. CompanyShares in group undertakingsat 1 January92)92)additions at cost600)–)))at 31 December692)92)))Loan to group undertakingsat 1 January408)408)additions at cost1,471)–)))at 31 December1,879)408)))Total fixed asset investments2,571))500)))Of the loans to group undertakings £408,000 is represented by 9% Guaranteed LoanStock 2010 repayable in instalments between January 2007 and January 2010 and£850,000 by instalments between April 2009 and February 2012. A further loan of£621,000 carries no interest and is repayable at no less than one year’s notice.Investments in subsidiary companies are stated at cost. A list of subsidiaryundertakings, all of which have been included in the consolidation, is given below.)Shares)Shares)))held)heldvia)Incorporated and)Share)direct)subsidiaries)Name of undertakingregistered in)(class)%)(%)Trading company:Davies Odell LimitedEngland)ordinary)100))Signature Fabrics LimitedEngland)‘A’ ordinary)75)Friedman’s LimitedEngland)ordinary))75)Sunline Direct Mail (Holdings) LimitedEngland)ordinary)80)Sunline Direct Mail LimitedEngland)ordinary))80)Non-trading:Davies & Co (Kettering) LtdEngland)ordinary)100)Phillips Rubber LtdEngland)ordinary)100)Farmat LimitedEngland)ordinary)100)Davies and Company LimitedEngland)ordinary)100)FunkiFabrics LimitedEngland)ordinary))75)Nature of business of trading companies:Davies Odell LimitedManufacture and distribution of protection equipment, matting and footwear componentsSignature Fabrics LimitedHolding company for Friedman’s LimitedFriedman’s LimitedConversion and distribution of specialist LycraSunline Direct Mail (Holdings) LimitedHolding company for Sunline Direct Mail LimitedSunline Direct Mail LimitedSupplier of services to the direct mail market16. Fixed asset investments 39CEPS PLC 31 December 2007Notes to the Financial StatementscontinuedGroupCompany2007)2006)2007)2006)£'000)£'000)£'000)£'000)Raw materials and consumables465)415)–)–)Work in progress17)19)–)–)Finished goods and goods for resale909)890)–)–)))))1,391)1,324)–)–)))))The cost of inventories recognised as an expense and included within cost of salesamounted to £6,981,000 (2006: £4,714,000).GroupCompany2007)2006)2007)2006)£'000)£'000)£'000)£'000)Trade receivables2,891)1,579)–)–)less: provision for impairmentCCof trade receivables(48)(23)–)–)))))Trade receivables –net2,843)1,556)–)–)Amount due from subsidiary CCcompanies–)–)613)378)Other receivables6)17)–)17)Prepayments and accrued income302)220)5)178)))))3,151)1,793)618)573)))))The above are deemed to be the fair values for the trade and other receivables.As at 31 December 2007, trade receivables of £2,072,000 (2006: £895,000) were fullyperforming.Trade receivables that are less than three months past due are not considered impaired.As of 31 December 2007, trade receivables of £765,000 (2006, £626,000) were pastdue but not impaired. These relate to a number of independent customers for whomthere is no recent history of default. The ageing analysis of these trade receivables is asfollows:2007)2006))£'000)£'000)))Up to 3 months596)556)))3 to 6 months169)70)))))))765)626)))))))17. Inventories18. Trade and other18. receivables As of 31 December 2007, trade receivables of £54,000 (2006: £58,000) were impairedand provided for. The amount of the provision was £48,000 as of 31 December 2007(2006: £23,000). The individually impaired receivables mainly relate to customers whoare in unexpectedly difficult economic situations. It was assessed that a portion of thereceivables is expected to be recovered. The ageing of these receivables is as follows:2007)2006))£'000)£'000)))Up to 3 months31)56)))Over 6 months23)2)))))))54)58)))))))GroupThe carrying amounts of Group’s trade and other receivables are denominated in thefollowing currencies:2007)2006))£'000)£'000)))Sterling3,065)1,679)))Euro86)114)))))))3,151)1,793)))))))Movements in the Group provision for impairment of trade receivables are as follows:2007)2006))£'000)£'000)))At 1 January23)2)))Acquisition87)–)))Provision for receivables impairment43)22)))Receivables written off during the year(106)(1)))Unused amounts reversed1)–)))))48)23)))))))The creation and release of provisions for impaired receivables have been included incost of sales in the consolidated income statement. Amounts charged to the allowanceaccount are generally written off, when there is no expectation of recovering additionalcash.The other classes within trade and other receivables do not contain impaired assets. TheGroup does not hold any collateral as security.The maximum exposure to credit risk at the reporting date is the carrying value of eachclass of receivable.40CEPS PLC 31 December 2007Notes to the Financial Statementscontinued18. Trade and other18. receivablescontinued 41CEPS PLC 31 December 2007Notes to the Financial StatementscontinuedGroupCompany2007)2006)2007)2006)£'000)£'000)£'000)£'000)Trade payables1,938)1,002)–)–)Other tax and social security410)163)–)–)Other payables109)48)–)–)Accruals and deferred income321)214)95)105)))))2,778)1,427)95)105)))))GroupCompany2007)2006)2007)2006)£'000)£'000)£'000)£'000)Non-current:Bank borrowings1,579)566)–)–)Other loans330)–)–)–)Finance lease obligations229)27)–)–)))))2,138)593)–)–)))))Current:Bank overdraft7)153)–)–)Bank borrowings678)295)–)–)Trade receivables backed workingCCcapital facilities708)935)–)–)Finance lease obligations97)9)–)–)))))1,490)1,392)–)–)))))Total borrowings3,628)1,985)–)–)))))Bank borrowings and overdrafts are secured by fixed and floating charges over theassets of the subsidiary to which they relate with the exception of CEPS PLC and DaviesOdell Limited who have given unlimited cross guarantees to secure the liabilities of eachother. Trade receivable backed working capital facilities are secured by the tradereceivable to which they relate.At 31 December 2007 the analysis of the security of bank borrowings and overdrafts andtrade receivables backed working capital facilities was as follows:Secured on the assets ofby fixed and)by trade))floating charges))receivables)Total)£’000)£’000)£’000)Friedman’s490)314)804)Sunline1,700)–)1,700)Davies Odell and CEPS PLC74)394)468))))2,264)708)2,972))))The committed bank borrowings mature through until February 2012 and carry interestof between 2% and 3.25% above the bank's base rate.19. Trade and other18. payables20. Borrowings The exposure of the Group’s borrowings to interest rate changes and the contractualrepricing dates at the balance sheet dates are as follows:2007))2006)Finance)Finance)Bank)lease)Bank)lease)£’000)£’000)£’000)£’000)Within one year715)16)1,088)–)Between one and two years67)106)–)–)Between two and five years2,190)204)861)36)))))2,972)326)1,949)36)))))The fair value of current borrowings equals their carrying amount, as the impact ofdiscounting is not significant.The carrying amounts of the non-current bank borrowings is £1,579,000 (2006:£566,000) and their fair values £1,341,000 (2006: £490,000). The carrying amounts ofnon-current finance lease obligations is £229,000 (2006: £27,000) and their fair values£168,000 (2006: £28,000).Other loans represent preference shares of £130,000 and loan stock of £200,000,subscribed by minorities. Preference shares carry a dividend of 15% pa and loan stockinterest of 10% pa and are each repayable in quarterly instalments over three yearscommencing in April 2009.The minimum lease payments under finance leases fall due as follows:2007)2006)£’000)£’000)Not more than one year164)10)Later than one year but not more than five years202)30)))366)40)Finance charge(40)(4)))Present value of finance lease liabilities)326)36)))The carrying amounts of the Group’s borrowings are denominated in sterling.The Group has bank loan facilities available for draw down of £nil (2006: £nil).42CEPS PLC 31 December 2007Notes to the Financial Statementscontinued20. Borrowingscontinued 43CEPS PLC 31 December 2007Notes to the Financial StatementscontinuedThe accounting policies for financial instruments have been applied to the line itemsbelow:Group31 December 2007Assets as per balance sheet)Assets at fair)))))value through)Derivatives)))Loans and)the profit)used for)Available))receivables)and loss)hedging)for sale)Total)£'000)£'000)£'000)£'000)£'000)Trade and other CCreceivables2,891)–)–)–)2,891)Cash and cash CCequivalents383)–)–)–)383))))))Total3,274)–)–)–)3,274))))))Liabilities as per balance sheet)Liabilities at)))))fair value)Derivatives)Other)))through the)used for)financial)))profit and loss)hedging)liabilities)Total))£'000)£'000)£'000)£'000)Borrowings2,264))–)–)2,264))))))Group31 December 2006Assets as per balance sheet)Assets at fair)))))value through)Derivatives)))Loans and)the profit)used for)Available))receivables)and loss)hedging)for sale)Total)£'000)£'000)£'000)£'000)£'000)Trade and other CCreceivables1,579)–)–)–)1,579)Cash and cash CCequivalents35)–)–)–)35))))))Total1,614)–)–)–)1,614))))))Liabilities as per balance sheet)Liabilities at)))))fair value)Derivatives)Other)))through the)used for)financial)))profit and loss)hedging)liabilities)Total))£'000)£'000)£'000)£'000)Borrowings)1,014))–)–)1,014))))))21a. Financial instruments21a.by category 21b. Credit quality of21b. financial assets44CEPS PLC 31 December 2007Notes to the Financial StatementscontinuedThe credit quality of financial assets that are neither past due nor impaired can beassessed by reference to external credit ratings (if available) or to historical informationabout counterparty default rates:Trade receivables are analysed between:Group)2007)2006)))£'000)£'000)Sale of goods1,459)1,579)Rendering of services))1,432)–)))))))2,891)1,579)))))The Group has a customer base which is for the most part stable, long standing and wellknown to the businesses. Credit and credit terms are negotiated with these customerstaking into account their trading history with the Group and their payment record. Newcustomers are only given credit after taking references or making trade and agencyenquiries. Management does not believe there to be a credit exposure beyond that forwhich provision has already been made.The Company cash and cash equivalents includes £383,000 (2006: £35,000) which ison account with differing financial institutions and is readily available. The external creditrating as assessed by Standard & Poor's for short term funds for each of the institutionsis A-1+.The following are the major deferred tax assets recognised by the Group, and themovement thereon, during the current and prior years.)Depreciation))Provisions))Pension)versus))and other))scheme)tax))timing))deficit)allowances)differences)Total)£'000)£'000)£'000)£'000)At 1 January 2006,asset202)12)2)216)(Charge)/credit to the income statement(21)206)(2)183)Charged to equity(26)–)–)(26)))))at 31 December 2006,asset155)218)–)373)Acquisition in the year–)(173)–)(173)(Charge)/credit to the income statement(27)28)–)1)Charged to equity(83)–)–)(83)))))at 31 December 2007, asset45)73)–)118)))))Deferred income tax assets and liabilities are recognised at 28% and offset only whenthere is a legally enforceable right to offset current tax assets against current tax liabilitiesand when the deferred income taxes relate to the same fiscal authority. In the currentyear no offset has occurred (2006: £nil).Deferred income tax assets are recognised for tax loss carry-forwards to the extent thatthe realisation of the related tax benefit through the future taxable profits is probable.22. Deferred tax 45CEPS PLC 31 December 2007Notes to the Financial StatementscontinuedDilapidations provision))Due within)Due after))one year)one year)Total))£'000)£'000)£'000)At 31 December 2006)–)32)32)Income statement movement during the year5)(32)(27)Acquisition in the year–)50)50)))))at 31 December 20075)50)55)))))Dilapidations provisions are carried against the costs anticipated on termination ofproperty leases.)))2007)2006))))£'000)£'000)Ordinary sharesAuthorised:15,000,000 shares of 5.0p per share CC(2006: 330,403,256 of 0.1p per share)750)330)))Allotted called and fully paid:8,314,231 shares of 5.0p per shareCC(2006: 178,191,426 shares of 0.1p per share)416)178)))On 12 February 2007 shareholders approved a share consolidation in the ratio of50 existing ordinary shares of 0.1p each for one new ordinary share of 5p each and aplacing to raise £2,375,000 before expenses of £57,000 by the issue of 4,750,000placing shares at 50p per share (equivalent to 1p per share prior to the shareconsolidation). The proceeds were used to acquire a majority interest in Sunline DirectMail (Holdings) Limited (SDMH) and to strengthen the Group's balance sheet. Theinvestors included members of the concert party detailed in the circular sent toshareholders on 11 January 2007. Further information about SDMH is given in note 28.Also on 12 February 2007 warrant holders approved amendments to the terms of thewarrants increasing the exercise price to 62.5p per share, corresponding to 1.25p pershare before the share consolidation, extending the exercise date to 20 April 2010 andmaking the warrants freely transferable. Following these changes the number ofwarrants in issue was 1,437,769. During the year warrants to acquire 403 shares wereexercised and at 31 December 2007 the number of warrants outstanding was1,437,366.Options granted and remaining unexercised at 31 December 2007 were:Number of sharesPeriod during which the right is exercisablePrice per share to be paid5,000until 31 December 2008337.5p3,000until 21 May 2011337.5pThe share options were issued for 250,000 and 150,000 shares at a price to be paid of6.75p per share. The terms of the share options may be adjusted by the Board to reflectvariations of share capital and, following the amendments approved by shareholders inFebruary 2007 and described above, the effective price per share to be paid is increasedto 337.5p and the total number of shares over which options remain unexercised isreduced to 8,000. The fair value of these options has not been impacted by thismodification.24. Called up share capital23. Provisions for 23. liabilities and charges 46CEPS PLC 31 December 2007Notes to the Financial Statementscontinued25. Statement of changes25. in shareholders’ equity)Profit and)))Share)Share)loss)Minority))capital)premium)account)interest)Total)£'000)£'000)£'000)£'000)£'000)GroupAt 1 January 2006178)676)(138)127)843))))))Actuarial gain–)–)59)–)59)Profit for the year–)–)426)11)437))))))Total recognised incomeCCfor the year–)–)485)11)496))))))at 31 December 2006178)676)347)138)1,339))))))Actuarial gain–)–)196)–)196)Profit for the year–)–)491)95)586))))))Total recognised incomeCCfor the year–)–)687)95)782))))))Share issues238)2,080)–)–)2,318)Acquisition–)–)–)(74)(74))))))at 31 December 2007416)2,756)1,034)159)4,365)))))))Profit and)))Share)Share)loss))capital)premium)account)Total)£'000)£'000)£'000)£'000)CompanyAt 1 January 2006178)676)294)1,148)))))Loss for the year–)–)(176)(176)))))Total recognised lossCCfor the year–)–)(176)(176)))))at 31 December 2006178)676)118))972)))))Loss for the year–)–)(147)(147)))))Total recognised lossCCfor the year–)–)(147)(147)))))Share issues238)2,132)–)2,370)))))at 31 December 2007416)2,808)(29)3,195))))) 47CEPS PLC 31 December 2007Notes to the Financial Statementscontinueda) Operating lease commitmentsThe Group leases various offices, warehouses and light industrial premises under non-cancellable operating lease agreements. The leases have varying terms, escalationclauses and renewal rights.The Group also leases various plant and machinery and motor vehicles under cancellableoperating lease agreements. The Group is required to give not more than six monthsnotice for the termination of these agreements. The lease expenditure charged to theincome statement during the year is shown in note 5.The future aggregate minimum lease payments under non-cancellable operating leases are:))2007)2006))£'000)£'000)Land and buildings leases expiring:CCwithin one year)))62)144)CCwithin two to five years)1,149)20)CCafter more than five years)–)191)))))))1,211)355)))))b) Contingent liabilitiesThere are no material contingent liabilities as at 31 December 2007 (2006: £nil).c) Capital commitmentsThere are no material capital commitments as at 31 December 2007 (2006: £nil).The Group has no material transactions with related parties which might reasonably beexpected to influence decisions made by users of these financial statements.26. Commitments and26. contingent liabilities27. Related party26. transactions 28. AcquisitionOn 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 £3,800,000 which was satisfied bya cash payment of £3,450,000 and the issue of shares and loan notes in SDMH to thevalue of £350,000. The cash payment was funded by non-recourse bank finance of£2,000,000 and subscriptions by the Company of £80,000 for equity, £520,000 forpreference shares and £850,000 for loan stock. The remaining 20% of SDMH is ownedby the managing director of SDM. Deferred consideration, currently estimated at£50,000 but potentially of up to a maximum of £500,000, is payable dependent on thefuture trading performance of SDM.Since acquisition SDMH has contributed revenue of £7,155,000 and operating profit of£712,000 to the Group results. Had SDMH been acquired at 1 January 2007, the firstday of the financial year, it is anticipated that it would have contributed revenue of£7,735,000 and operating profit of £760,000.Details of the acquisition are as follows:Book)Assessed)values)fair values)£’000)£’000)Intangible fixed assets473)–)))Tangible fixed assets1,014)1,014)))Stock64)64)))Debtors1,522)1,522)))Corporation tax(160)(160)))Creditors(888)(888)))Provisions(50)(50)))Deferred tax liability(173)(173)))Finance leases(256)(256)))Cash acquired208)208)))))))Net assets acquired1,754)1,281))))))less Minority 20% interest)(256)))))Net assets acquired)1,025)Purchased goodwill)3,173)))))4,198))))ConsiderationCash)3,450)))Deferred consideration)50)))Acquisition expenses)698))))))4,198))Purchased goodwill reflects the value of the reputation and customer base of SDM butintangible assets have not been separately recognised because fair values could not beattributed to them.The fair value adjustment has been recognised to eliminate the goodwill previouslycarried in SDM and now subsumed into the goodwill recognised on this transaction.48CEPS PLC 31 December 2007Notes to the Financial Statementscontinued 49CEPS PLC 31 December 2007Notes to the Financial StatementscontinuedThese financial statements are the first set to be prepared under IFRS and as such thefollowing disclosures are required in the year of transition. The date of transition is1 January 2006.i) Reconciliation of profit for the year ended 31 December 2006£'000)Retained profit under UK GAAP357)Amortisation of goodwill80))Retained profit under IFRS437))ii) Reconciliation of equity at 1 January 2006Transition))UK GAAP)adjustment)IFRS)£'000)£'000)£'000)Notes)29. AssetsNon-current assetsProperty, plant and equipment259)–)259)Intangible assets1,529)–)1,529)Deferred tax asset–)202)202))))1,788)202)1,990)))))Current assetsInventory1,087)–)1,087)Trade and other receivables1,411)–)1,411)Current tax recoverable1)–)1)Deferred tax asset16)–)16)Cash and cash equivalents24)–)24))))2,539)–)2,539)))))Total assets 4,327)202)4,529))))29. EquityCapital and reserves attributableCCto equity holders of the CompanyCalled up share capital178)–)178)Share premium676)–)676)Profit and loss account(138)–))(138))))716)–)716)))Minority interest in equity127)–)127))))Total equity843)–)843)))))29. Explanation of the29. transition from UK29. GAAP to IFRS Transition))UK GAAP)adjustment)IFRS)£'000)£'000)£'000)Notes)29. LiabilitiesNon-current liabilitiesBank borrowings –loans878)–)878)Retirement benefit liabilities471)202)673)Provisions32)–))32))))1,381)202)1,583))))Current liabilitiesBank borrowings –loans CCand overdrafts366)–)366)Debtor backed working capital416)–)416)Trade and other payables1,311)–)1,311)Provisions10)–)10))))2,103)–)2,103))))Total liabilities3,484)202)3,686))))Total4,327202)4,529))))iii) Reconciliation of equity at 31 December 200629. AssetsNon-current assetsProperty, plant and equipment279)–)279)Intangible assets1,449)80)1,529)a)Deferred tax asset–)155)155)b))))1,728)235)1,963)))))Current assetsInventory1,324)–)1,324)Trade and other receivables1,793)–)1,793)Deferred tax asset218)–)218)Cash and cash equivalents35)–)35))))3,370)–)3,370)))))Total assets 5,098)235)5,333))))50CEPS PLC 31 December 2007Notes to the Financial Statementscontinued29. Explanation of the29. transition from UK29. GAAP to IFRS29. continued 51CEPS PLC 31 December 2007Notes to the Financial StatementscontinuedTransition))UK GAAP)adjustment)IFRS)£'000)£'000)£'000)Notes)29. EquityCapital and reserves attributableCCto equity holders of the CompanyCalled up share capital178)–)178)Share premium676)–)676)Profit and loss account267)80)347))))1,121)80)1,201)))Minority interest in equity138)–)138))))Total equity1,259)80)1,339)))))29. LiabilitiesNon-current liabilitiesBank borrowings –loans566)–)566)Trade and other payables27)–)27)Retirement benefit liabilities362)155)517)b))Provisions32)–)32))))987)155)1,142))))Current liabilitiesBank borrowings –loans CCand overdrafts448)–)448)Debtor backed working capital935)–)935)Trade and other payables1,436)–)1,436)Current tax liabilities33)–)33))))2,852)–)2,852))))Total liabilities3,839)155)3,994))))Total5,098)235)5,333))))The transition had no impact on the reported cash flow of the Group.iv) Notes to transition adjustmentsa) IAS 38, Intangible assets, requires that goodwill is no longer amortised, but instead issubject to an annual impairment review. In compliance, the goodwill amortisationcharged 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 toretrospectively restate goodwill relating to acquisitions prior to 1 January 2006 and theUK GAAP goodwill balance at 31 December 2005 has been included in the transitionIFRS balance sheet and is no longer amortised.b) IAS 19, Employee benefits, requires the pension liability to be disclosed on the faceof the balance sheet, gross of any recognised deferred tax. As a result the deferred taxasset relating to the pension liability has been transferred to non-current assets.29. Explanation of the29. transition from UK29. GAAP to IFRS29. continued CEPS PLC Company number 507461Notice of MeetingNotice is hereby given that the annual general meeting of CEPS PLC will be held atEngineers’ House, The Promenade, Clifton Down, Bristol on Friday 20 June 2008 at11.30am for the following purposes:To consider and, if thought fit, to pass the following resolutions, of which numbers 1 to5 will be proposed as ordinary resolutions and numbers 6 to 8 as special resolutions.1To receive, consider and adopt the Company’s annual accounts for the financialyear ended 31 December 2007 together with the directors’ report and auditors’report on those accounts.2To re-elect R T Organ as a director.3To re-appoint PricewaterhouseCoopers LLP, Chartered Accountants andRegistered Auditors, as auditors of the Company to hold office from conclusionof the meeting to the conclusion of the next meeting at which the accounts areto be laid.4To authorise the directors to agree the auditors’ remuneration.5THAT, in substitution for any existing authority subsisting at the date of thisresolution to the extent unused, the directors be generally and unconditionallyauthorised in accordance with section 80 of the Companies Act 1985 (the “Act”)to allot relevant securities (within the meaning of section 80(2) of the Act) up to amaximum aggregate nominal amount of £334,288.45 such authority to expire atthe commencement of the next annual general meeting held after the date of thepassing of this resolution, or, if earlier, fifteen months after the date of the passingof this resolution but so that the Company may, before the expiry of such period,make an offer or agreement which would or might require relevant securities tobe allotted after the expiry of such period and the directors may allot relevantsecurities pursuant to such an offer or agreement as if the authority had notexpired.6THAT subject to and conditional on the passing of resolution number 5 and insubstitution for any existing authority subsisting at the date of this resolution tothe extent unused, the directors be empowered, pursuant to section 95 of theAct, to allot equity securities (within the meaning of section 94 of the Act) for cashpursuant to the authority conferred by resolution number 5 as if section 89(1) ofthe Act did not apply to any such allotment, provided that this power shall belimited to the allotment of equity securities:6.1in connection with an offer of such securities by way of rights issue; 6.2otherwise than pursuant to sub-paragraph 6.1 above up to an aggregatenominal amount of £272,268.30;and shall expire at the commencement of the next annual general meeting heldafter the date of the passing of this resolution, or, if earlier, fifteen months from thedate of the passing of this resolution, save that the Company may, before suchexpiry make an offer or agreement which would or might require equity securitiesto be allotted after such expiry and the directors may allot equity securities inpursuance of any such offer or agreement as if the power had not expired.52Annual general meeting 53CEPS PLC Company number 507461Notice of Meetingcontinued6continuedIn this resolution, ‘rights issue’ means an offer of equity securities open foracceptance for a period fixed by the directors to holders on the register on a fixedrecord date in proportion as nearly as may be practical to their respectiveholdings, but subject to such exclusions or other arrangements as the directorsmay deem necessary or expedient to deal with any fractional entitlements or legalor practical difficulties under the laws of, or the requirement of any recognisedregulatory body or any stock exchange in, any territory.7THAT, with immediate effect, the articles of association of the Company containedin the document produced to the meeting (and signed by the Chairman for thepurposes of identification) be adopted as the articles of association of theCompany in substitution for, and to the exclusion of, the existing articles ofassociation of the Company.8THAT, subject to and conditional on the passing of resolution number 5 and witheffect from 00.01am on 1 October 2008 or such later date as section 175 of theCompanies Act 2006 shall be brought into force, article 90 of the articles ofassociation adopted pursuant to resolution 7 be deleted in its entirety and articles90 and 91 as set out in the document produced to the meeting (and signed bythe Chairman for the purposes of identification) be substituted therefor and theremaining articles be re-numbered and article 98 of the articles of associationadopted pursuant to resolution 7 be deleted in its entirety and article 99 as setout in the document produced to the meeting (and signed by the Chairman forthe purposes of identification) be substituted therefor.On behalf of the BoardG C MartinSecretaryDated 20 May 2008Registered office: 11 George Street, Bath BA1 2EHRegistered in England and Wales with number 507461Notes:1.A member entitled to attend and vote is entitled to appoint (a) proxy(ies) to attend,speak and vote instead of him. A proxy need not be a member of the Company.2.In order to be valid an appointment of proxy, and any power of attorney or otherauthority under which it is executed (or a duly certified copy of any such power orauthority) must be deposited at the office of the Registrars of the Company not lessthan 48 hours before the time for holding the meeting.A proxy form is enclosed. The appointment of a proxy will not prevent a shareholderfrom subsequently attending and voting at the meeting in person.Annual general meetingcontinued CEPS PLC Company number 507461Notice of MeetingcontinuedNotescontinued3.Under Regulation 41 of the Uncertificated Securities Regulations 2001, only thoseshareholders whose names are on the register of members of the Company as at5.30pm on 18 June 2008 or, if the meeting is adjourned, shareholders entered on theCompany’s register of members not later than 48 hours before the time fixed for theadjourned meeting are entitled to attend and vote at the meeting in respect of theshares registered in their names at that time. Subsequent changes to the registershall be disregarded in determining the rights of any person to attend or vote at themeeting.4.A copy of the articles of association being proposed by resolution 7 together with acopy of the revised articles of association marked to show the changes proposed byresolution 8 are available for inspection at the Company’s registered office duringbusiness hours on any weekday (Saturdays and public holidays excluded) from thedate of this notice until the conclusion of the annual general meeting and will also beavailable for inspection at the place of the meeting for fifteen minutes prior to theannual general meeting until its conclusion.5.In order to facilitate voting by corporate representatives at the meeting, arrangementswill be put in place at the meeting so that (i) if a corporate member has appointed theChairman of the meeting as its corporate representative with instructions to vote ona poll in accordance with the directions of all of the other corporate representativesfor that member at the meeting, then on a poll those corporate representatives willgive voting directions to the Chairman and the Chairman will vote (or withhold a vote)as corporate representative in accordance with those directions; and (ii) if more thanone corporate representative for the same corporate member attends the meetingbut the corporate member has not appointed the Chairman of the meeting as itscorporate representative, a designated corporate representative will be nominated,from those corporate representatives who attend, who will vote on a poll and theother corporate representatives will give voting directions to that designatedcorporate representative. Corporate members are referred to the guidance issued bythe Institute of Chartered Secretaries and Administrators on proxies and corporaterepresentatives –http://www.icsa.org.uk/ –for further details of this procedure. Theguidance includes a sample form of representation letter if the Chairman is beingappointed as described in (i) above.54Annual general meetingcontinued 55Explanatory notes1. ApproachProvisions in the existing articles of association (the “Existing Articles”) of CEPS PLC (the“Company”) which replicate provisions contained in the Companies Act 2006 are in themain to be removed in the Company’s new articles of association to be adopted at the2008 annual general meeting (the “New Articles”). This is in line with the approachadvocated by the Government that statutory provisions should not be duplicated in acompany’s constitution. Certain examples of such provisions include the requirement tokeep accounting records and provisions regarding the period of notice required toconvene general meetings. The main changes made to reflect this approach are detailedbelow. In addition, the opportunity has also been taken to bring clearer language into the NewArticles, in some areas to conform the language of the New Articles and to update theExisting Articles to reflect current practice. Provisions in the Existing Articles which areno longer relevant to the Company have not been included in the New Articles.2. Convening extraordinary and annual general meetingsThe provisions in the Existing Articles dealing with the convening of general meetings andthe length of notice required to convene general meetings have been removed in the NewArticles because the relevant matters are provided for in the Companies Act 2006. Inparticular a general meeting to consider a special resolution can be convened on14 clear days’ notice whereas previously 21 days’ notice was required. The concept ofextraordinary general meetings has been abolished under the Companies Act 2006 andall meetings, other than annual general meetings, are referred to as general meetings.3. Votes of membersUnder the Companies Act 2006 proxies are entitled to vote on a show of hands whereasunder the Existing Articles proxies are only entitled to vote on a poll. The time limits forthe appointment or termination of a proxy appointment have been altered by theCompanies Act 2006 so that the articles cannot provide that they should be receivedmore than 48 hours before the meeting or in the case of a poll taken more than 48 hoursafter the meeting, more than 24 hours before the time for the taking of a poll, withweekends and bank holidays being permitted to be excluded for this purpose. Multipleproxies may be appointed provided that each proxy is appointed to exercise the rightsattached to a different share held by the shareholder. The New Articles reflect all of thesenew provisions.4. Age of directors on appointmentThe Existing Articles contain a provision limiting the age at which a director can beappointed. Such provision could now fall foul of the Employment Equality (Age)Regulations 2006 and so has been removed from the New Articles.5. Conflicts of interestThe Companies Act 2006 sets out directors’ general duties which largely codify theexisting law but with some changes. Under the Companies Act 2006, from 1 October2008 a director must avoid a situation where he has, or can have, a direct or indirectinterest that conflicts, or possibly may conflict with the company’s interests. Therequirement is very broad and could apply, for example, if a director becomes a directorof another company or a trustee of another organisation. The Companies Act 2006allows directors of public companies to authorise conflicts and potential conflicts, whereappropriate, where the articles of association contain a provision to this effect. TheCompanies Act 2006 also allows the articles of association to contain other provisionsfor dealing with directors’ conflicts of interest to avoid a breach of duty. Once amended,the New Articles will give the directors authority to approve such situations and to includeother provisions to allow conflicts of interest to be dealt with in a similar way to the currentposition.CEPS PLC Company number 507461Proposed changes to the Articles of Association Explanatory notes continued5. Conflicts of interest continuedThere are safeguards which will apply when directors decide whether to authorise aconflict or potential conflict. Firstly, only directors who have no interest in the matterbeing considered will be able to take the relevant decision, and secondly, in taking thedecision the directors must act in a way they consider, in good faith, will be most likelyto promote the company’s success. The directors will be able to impose limits orconditions when giving authorisation if they think this is appropriate.It is also proposed that the New Articles, once amended, should contain provisionsrelating to confidential information and availability of board papers to protect a directorbeing in breach of duty if a conflict of interest or potential conflict of interest arises. Theseprovisions will only apply where the position giving rise to the potential conflict haspreviously been authorised by the directors.6. Distribution of assets otherwise than in cashThe Existing Articles contain provisions dealing with the distribution of assets in kind inthe event of the Company going into liquidation. Certain of these provisions have beenremoved in the New Articles on the grounds that a provision about the powers ofliquidators is a matter for insolvency law rather than the articles and that the InsolvencyAct 1986 confers powers on the liquidator which would enable it to do what is envisagedby the Existing Articles.7. Electronic and web communicationsProvisions of the Companies Act 2006 which came into force in January 2007 enablecompanies to communicate with members by electronic and/or websitecommunications. The New Articles allow communications to members in electronic formand they also permit the Company to take advantage of the new provisions relating towebsite communications. Before the Company can communicate with a member bymeans of website communication, the relevant member must be asked individually bythe Company to agree that the Company may send or supply documents or informationto him by means of a website, and the Company must either have received a positiveresponse or have received no response within the period of 28 days beginning with thedate on which the request was sent. The Company will notify the member (either inwriting, or by other permitted means) when a relevant document or information is placedon the website and a member can always request a hard copy version of the documentor information.8. Directors’ indemnities and loans to fund expenditureThe Companies Act 2006 has in some areas widened the scope of the powers of acompany to indemnify directors and to fund expenditure incurred in connection withcertain actions against directors. In particular, a company that is a trustee of anoccupational pension scheme can now indemnify a director against liability incurred inconnection with the company’s activities as trustee of the scheme. In addition, theexisting exemption allowing a company to provide money for the purpose of funding adirector’s defence in court proceedings now expressly covers regulatory proceedingsand applies to associated companies. The New Articles contain provisions which allowthe Company to indemnify directors and to fund expenditure incurred in connection withcertain actions against directors to the extent permitted by the Companies Act 2006.56CEPS PLC Company number 507461Proposed changes to the Articles of Associationcontinued DirectorsP G Cook, Group ManagingD A Horner, Non-executiveG C Martin FCA, FinancialR T Organ BA(Hons) FRSA, Non-executive ChairmanSecretary andG C Martin FCAregistered office11 George Street, Bath BA1 2EHCompany number 507461www.cepsplc.comOperating locationsDavies Odell LtdPortland Road, Rushden, Northants NN10 0DJtelephone 01933 410818, fax 01933 315976email info@daviesodell.co.uk; www.forcefieldbodyarmour.comandBeatrice Road, Kettering, Northants NN16 9QStelephone 01536 513456, fax 01536 310080email info@davieskett.co.uk; www.equimat.co.ukFriedman’s LtdSunaco House, Unit 2, Bletchley Road, Stockport SK4 3EFtelephone 0161 975 9002, fax 0161 975 9003email sales@friedmans.co.uk; www.friedmans.co.uk; www.funkifabrics.comSunline Direct Mail LtdCotton Way, Weldon Road Industrial Estate, Loughborough LE11 5FJtelephone 01509 263434, fax 01509 264225email enquiries@sunlinedirect.co.uk; www.sunlinesolutions.comRegistrars andCapita Registrarsshare transfer officeNorthern House, Woodsome Park, Fenay Bridge, Huddersfield,West Yorkshire HD8 0LAtelephone 0871 664 0300 - calls cost 10p per minute plus network extrasShare price informationThe day-to-day movement of the share price on the London Stock Exchange can be found on the Company website and atwww.londonstockexchange.com (code CEPS)AuditorsPricewaterhouseCoopers LLP, Chartered Accountants and Registered Auditors31 Great George Street, Bristol BS1 5QDSolicitorsBerwin Leighton Paisner LLPAdelaide House, London Bridge, London EC4R 9HANominated adviserDowgate Capital Advisers Limited46 Worship Street, London EC2A 2EAtelephone 020 7492 4777, fax 020 7492 4774BrokerDowgate Capital Stockbrokers LimitedTalisman House, Jubilee Walk, Three Bridges,Crawley, West Sussex RH10 1LQtelephone 01293 517744, fax 01293 521093email broker@dowgate.co.ukCEPS PLCGroup Information57
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