2009 Report & Accounts CEPS PLC Registered address: 11 George Street Bath BA1 2EH T 01225 483030 www.cepsplc.com Incorporated in England 507461 CEPS PLC Company number 507461 Contents Chairman’s Statement Directors’ Report Corporate Governance Independent Auditors’ Report Consolidated Statement of Comprehensive Income Consolidated and Company Balance Sheets Consolidated and Company Statement of Cashflows Consolidated Statement of Changes in Shareholders’ Equity Notes to the Financial Statements Notice of Meeting Group Information page 2 6 8 10 12 13 14 15 16 48 51 1 CEPS PLC Chairman’s Statement Highlights • • • • • Solid sales performance in a very challenging economic climate Excellent operating cash generation at £1.3m (2008: 1.4m) Net debt reduced by £700,000 Gearing reduced to 38% (2008: 57%) Total equity increased 12% to £5.8m (2008: 5.1m) Review of the year In my last half yearly statement, I commented that business had stabilised in the second quarter, but that I anticipated no fundamental improvement in trading conditions in the second half. So it proved to be. Financial review Overall Group revenue in 2009 fell to £15.9m (2008: £16.8m) with second half revenue falling only 3.2%. In all the business units, margins remained under pressure throughout the year, and even with excellent overhead control, the operating profit for the year fell by 37% to £722,000 (2008: £1,148,000). Finance costs were much reduced at £146,000 (2008: £241,000) as a result of the repayment of debt finance in accordance with the Group’s acquisition strategy and lower interest rates. The taxation charge has benefited from the recognition of a greater proportion of accumulated historical losses and for the year was a credit of £43,000 (2008: charge £193,000). After finance costs and provision for taxation, the profit for the year was £619,000 (2008: £714,000). Careful management of cash continues to be a priority for the Group and at the year end net debt was reduced by 24% to £2.2m from £2.9m at the end of 2008. Gearing has, in consequence, been reduced to 38% (2008: 57%). Cash generated from operations for the year was £1.3m (2008: £1.4m). After finance costs, tax and capital expenditure, the net increase in cash for the year was £99,000 (2008: £156,000). Net cash and cash equivalents at the year end were £631,000 (2008: £532,000). Bank loans at the year end were lower than a year earlier by £650,000 at £921,000 (2008: £1,571,000). All of these loans were non-recourse, secured only against the assets of the borrowing subsidiary companies. Shareholder funds increased by 12% to £5.8m (2008: £5.1m). The Group made an investment in 2005 in Friedman’s that was financed by a bank loan of £1.1m. Over the period of our investment the company has been profitable, cash generative and in early 2010 has repaid its bank loan. The original agreement included an undertaking to increase management’s stake in the business from 25% to 45%, subject to certain conditions. In recognition of the excellent results to date and in anticipation that the performance of the last five years will continue, the Board has decided it would give immediate effect to the share incentive. The consequent historic increase in the minority interest results in a charge against the Group profits for 2009 of £82,000. 2 CEPS PLC Chairman’s Statement continued Operational review 1. Davies Odell After the particularly difficult start to the year, trading in the second half settled down, with revenue reduced by just over 8% when compared to the same period in the previous year. Across the shoe components business there were a number of ups and downs, but overall turnover and margin were just above 2008. I am pleased to say that every opportunity was taken to secure extra business across our product portfolio, with sales of Vibram rubber soles, for example, up by over 70%. The shoe repair trade has been affected by the recession and sales of ladies stiletto heels have declined in the UK, but there is no significant shift in fashion and export sales were vibrant. Our matting business had a particularly tough year with both raw material price increases and the strength of the US Dollar against Sterling conspiring to reduce both margin and turnover. Exports of cow mats fell by over 50%, particularly to Russia and to Ireland, driving a considerable margin shortfall. Sales of horse matting (largely in the UK) were also down and the only bright spot in this business was an increase in floor protection matting sales for gyms, judo and the like. Within the personal protection business, Forcefield branded body armour sales were up by a healthy 23%, but this was offset by a reduction in component sales for equestrian body protectors and overall revenue was up a little over 3%. The new Forcefield Pro- Sub 4 back protector received CE approval in April 2009 and first sales commenced via our American distributor. This is the first back protector in the world that transmits less than 4 KiloNewtons of force in a fall creating for the first time the conditions to prevent cracked ribs. In September we took a record order from our Swedish customer for back protectors, old and new, to be delivered in December 2009 and January 2010, and in February 2010 the Pro-Sub 4 was voted Motorcycle News Product of the Year 2009. Along with all the other businesses purchasing product in US Dollars, Forcefield has seen huge pressure on margins from the exchange rate and much product engineering and sourcing work has been done to mitigate the impact. The overall segmental result at £250,000 (2008: £509,000) shows just how debilitating the first quarter was, with some welcome recovery towards last year’s levels in the second half. 2. Friedman’s Sales at Friedman’s overall were down 6% at £3.0m (2008: £3.2m) with the second half somewhat weaker than the first. The improvement in the Euro exchange rate helped a good deal in the first half, but with further weakening of the Pound versus the Euro in the second half, margin and pricing pressures have re-emerged. This prompted much activity to seek out new and more cost-effective sources and investment in a digital fabric printer, enabling the future production of bespoke Friedman’s designs in high margin short runs. The bank position has been well managed at Friedman’s and its bank loan was fully repaid in early 2010. The overall segmental result for 2009 at £203,000 (2008: £180,000) was a 13% improvement on 2008. 3. Sunline Within the Sunline business the trends identified at the half year have broadly continued through the second half. Revenue as a whole is down just 1% on 2008 at £7.6m (2008: £7.7m) with the Solutions business showing a 5% turnover increase over the previous year. 3 CEPS PLC Chairman’s Statement continued Operational review continued Dividend Competitive pressures continued to intensify in the polywrapping business throughout the year, bearing down on both margins and available volumes. The management team has managed to tread the fine line of securing necessary volumes, especially in the second half, without accepting unprofitable contracts. Many competitors did not do this: three of our direct competitors have gone into administration or receivership in the last twelve months, two since Christmas 2009. The workforce has continued to respond flexibly, and though profitability has suffered in 2009, we enter 2010 in a much stronger position. The Solutions business at Redditch has had a busy and successful year, culminating in a profit substantially ahead of both its budget and the previous year. New laser printers have been installed and commissioned and are slowly gaining traction with the customers. The team at Solutions has worked very hard to deliver a record result and deserves our congratulations. In the last quarter of the year Solutions experienced a significant downturn in activity and this is proving somewhat difficult to replace in the current economic climate. The segmental result at £913,000 (2008: £1,095,000) is 17% down on the previous year, but under the competitive circumstances must be regarded as a more than acceptable result. With the effect of the recession on consumer behaviour and a much weakened set of exchange rates against the Pound, the Board has again decided that it is prudent to conserve cash. As a result, the payment of a dividend is not recommended although the Board remains keen to do so as soon as conditions become favourable. Power to issue and purchase shares The Board will seek at the Annual General Meeting to renew the following authorities that were approved by shareholders at the Annual General Meeting in 2009: 1. that the Directors be given authority in accordance with section 551 of the Companies Act 2006 (the “Act”) to allot shares in the Company or grant rights to subscribe for or to convert any security into shares in the Company up to an aggregate nominal amount of £334,284.50; and 2. that the Directors be given authority pursuant to section 570 of the Act to allot equity securities (within the meaning of section 560 of the Act) for cash as if section 561(1) of the Act did not apply to any such allotment, provided that this power is limited to a pre-emptive issue and any other issue of equity securities for cash up to an aggregate nominal amount of £200,150.00 (representing approximately 48% of the Company’s present issued ordinary share capital). The directors believe that these authorities would, for example, allow the Group to issue new 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 proportion to existing shareholders, to 5% of the present issue share capital would be unduly restrictive. Whilst there is no present intention of issuing shares, the Board considers that the powers could be helpful and are not excessive in view of its investment strategy and the present size of the Group. The Board will also seek the power at the Annual General Meeting to make market purchases (within the meaning of section 693(4) of the Act) of ordinary shares of 5 pence each in the capital of the Company on such terms as the directors think fit, provided that the maximum number of ordinary shares authorised to be purchased is limited to an aggregate of 831,431 shares, representing 10% of the Company’s present issued ordinary capital, and subject to certain other conditions related to price. 4 People Prospects CEPS PLC Chairman’s Statement continued At this point I would like to pay particular tribute to Geoff Martin, who retired as Group Finance Director at the end of February 2010. Geoff has worked for the Group for 28 years and has consistently provided wise and thoughtful counsel to the Board and his colleagues. His executive presence will be sorely missed, but we are delighted he has agreed to remain as a non-executive director for the time being. I would like to thank all our employees and pay tribute to their commitment, dedication and in particular their flexibility. It will be their skill and persistence that will enable us to weather this recession and emerge stronger and more capable. Their flexibility has already allowed many essential adjustments to working practices and customer services to be implemented with minimal disruption. The improvement in the Group’s cash and net debt position continued through the second half of 2009, leaving it well placed to fund modest acquisitions subject only to the availability of bank finance. The Board continues to review suitable investment opportunities. However, in the current banking climate, it is unlikely the Group will be able to secure non-recourse cash flow based lending of the same magnitude as past acquisitions with which to make future investments. The trading start to 2010 has been no better than satisfactory and many of the currency and competitive pressures experienced in 2009 have carried over. Consumer spending is only picking up slowly and has at times been severely buffeted by extreme weather, election uncertainty and a lack of confidence. Both the Friedman’s and Sunline businesses are showing modest improvement against a poor first quarter last year. In the Davies Odell business significant investment is being made to drive up both the UK and international sales of our excellent Forcefield body armour products. This will certainly restrain profitability over the short term. Overall I expect 2010 to be a difficult year for Group profitability, but the Board is convinced that its investment strategy will enhance sustainable profitability over the longer term. In these circumstances, the directors and managers in the Group will focus on the basics of seeking to maximise profitable business, controlling our internal costs and managing our cash and balance sheet with care. From experience over the last two difficult years in particular, I remain confident that our management teams will more than match the performance of their competitors and will remain a force to be reckoned with. Richard Organ Chairman 30 April 2010 5 Principal activities and business review CEPS PLC Directors’ Report The directors have pleasure in submitting their annual report and the audited consolidated financial statements of the Group for the year ended 31 December 2009. The company number is 507461. The principal activities of CEPS PLC are that of an industrial holding company, acquiring majority stakes in stable, profitable and steadily growing entrepreneurial companies. The activities of the Company’s trading subsidiaries are described in note 16 to the accounts. Segmental analysis is given in note 4 to the accounts. A review of the business and its prospects are set out in the Chairman’s Statement on pages 2 to 5. The Group’s internal reporting system enables the Board to assess the strategic direction of the Group against agreed targets. The table below shows the most important key indicators used by the Group. Revenue Gross margin Segmental result (EBITDA) Operating profit before interest and tax Profit after tax Total equity Net debt (total borrowing less cash) Gearing ratio (net debt/total equity) 2009 2008)) £15,880,000 12% £1,366,000 £722,000 £619,000 £5,765,000 £2,220,000 38% £16,796,000) 15%) £1,784,000) £1,148,000) £714,000) £5,138,000) £2,920,000) 57%) The directors do not recommend the payment of a dividend (2008: £nil). The profit for the year is added to reserves. The Board also monitors matters relating to health and safety and the environment and reviews them at its regular meetings. The risks to the business arising from changes to the trading environment and employee retention and training are also regularly monitored and reviewed. The Board operates a continuous process for identifying, evaluating and managing risk. The internal controls seek to minimise the impact of identified risks, as explained in the Corporate Governance statement on page 9. The principal risks faced by the Group are those associated with the trading subsidiaries which are considered further within the Chairman’s Statement on pages 2 to 5. The key risks the Board seeks to mitigate are: competition, employees and supply chain. Competition – while the Group’s trade is differentiated, there is still significant pricing pressure and the barriers to entry are relatively low. In order to mitigate this pressure, local management seek to hold regular discussions with customers and actively monitor the market for changes in competitors’ prices. Employees – the Group’s performance is largely dependent on its subsidiary staff and managers. The loss of a key individual could adversely impact the Group’s results. To mitigate this the Group actively seek to retain key staff through a practice of succession planning. Suppliers – the differentiated nature of the Group’s trade means that it is exposed to a reliance on a small number of suppliers. The Group mitigates this risk through effective supplier selection and procurement practices. Directors The directors of the Company who were in office during the year and up to the date of signing the financial statements were as follows: R T Organ BA(Hons) FRSA (57) is a non-executive director and Chairman. He has significant experience of manufacturing and marketing in the footwear and clothing 6 CEPS PLC Directors’ Report continued Directors continued industries gained with C & J Clark Ltd and Coats Viyella PLC. D A Horner (50) is a Chartered Accountant. He qualified with Touche Ross and in 1986 joined 3i Corporate Finance Limited. In 1997 he set up Chelverton Asset Management Limited which specialises in managing portfolios of investments in private companies and small to medium size public companies. He set up and manages Chelverton Growth Trust Plc, manages the Small Companies Dividend Trust Plc and is a director of Athelney Trust plc and a number of private companies. P G Cook (58) is Group Managing Director. He is a Chartered Accountant who, having qualified with Kidsons Impey, has taken finance and commercial roles with a number of companies. He is currently a director of a number of other companies. G C Martin (65) retired as Company Secretary on 1 January 2010 and as Financial Director on 28 February 2010. He was appointed as a non-executive director on 1 March 2010. The director retiring by rotation in accordance with Articles 71 and 72 is D A Horner who, being eligible, offers himself for re-election. Substantial shareholdings In addition to directors’ shareholdings shown on page 30, the following shareholders held more than 3% of the Company’s ordinary shares at 14 April 2010: ODL Nominees Limited Rensburg Sheppards Investment Management Limited David Abell Chelverton Growth Trust Plc Lynchwood Nominees Limited Mark Thistlethwayte Shares) 290,000 301,000 476,000 625,856 899,070 1,290,000 Creditor payment policy The policy of the Group and Company is to determine terms and conditions of payment with suppliers when negotiating other terms of supply and to abide by the terms of payment. At the year end the Group had an average of 49 days (2008: 48 days) purchases outstanding in trade creditors. There were no amounts owing to trade creditors by the Company at the year end (2008: nil). Financial and treasury policy The Group finances its operations by a combination of retained profits, management of working capital, bank overdraft and debtor backed working capital facilities and medium term loans. The disclosures for financial instruments are made in note 21a to the accounts on page 43. Disclosure of information to auditors For further details of Group financial risk and management thereof see note 2 on pages 22 to 24. So far as each director is aware, there is no relevant information of which the Company’s auditors are unaware. Relevant information is defined as ‘information needed by the Company’s auditors in connection with preparing their report’. Each director has taken all the steps (such as making enquiries of other directors and the auditors and any other steps required by the director’s duty to exercise due care, skill and diligence) that he ought to have taken in his duty as a director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. Independent auditors PricewaterhouseCoopers LLP are willing to continue in office and a resolution proposing their re-appointment will be submitted to the Annual General Meeting. By order of the Board V E Langford Company Secretary 30 April 2010 7 CEPS PLC Corporate Governance The Board Audit committee The Board is committed to high standards of corporate governance and recognises that it is accountable to shareholders for good governance. The Company’s corporate governance procedures define the duties and constitution of the Board and the various Board committees and, as appropriate, specify responsibilities and level of responsibility. The principal procedures are summarised below: The Board comprises three non-executive directors, one of whom is Chairman, and one executive director. Further details of the Board members are given in the Directors’ Report on page 6. All directors are subject to retirement by rotation and re-election by the shareholders in accordance with the Articles of Association. The Board meets regularly, at least six times a year and with additional meetings being arranged when necessary. The Company seeks constructive dialogue with institutional and private shareholders through direct contact and through the opportunity for all shareholders to attend and ask questions at the Annual General Meeting. This committee comprises D A Horner (Chair) and R T Organ. The audit committee is responsible for the appointment of the external auditor, agreeing the nature and scope of the audit and reviewing and making recommendations to the Board on matters related to the issue of financial information to the public. It assists all directors in discharging their responsibility to ensure that accounting records are adequate and that the financial statements give a true and fair view. Nomination committee This committee is comprised of the Chairman and D A Horner. It is responsible for making recommendations to the Board on any appointment to the Board. Remuneration committee This committee is comprised of the Chairman and D A Horner. The remuneration committee sets the remuneration and other terms of employment of executive directors. Remuneration levels are set by reference to individual performance, experience and market conditions with a view to providing a package appropriate for the responsibilities involved. Directors’ contracts are designed to provide the assurance of continuity which the Company desires. There are no provisions for pre-determined compensation on termination. Pensions for directors are based on salary alone and are provided by the Company defined contribution scheme and defined benefits scheme. Contributions are paid to these schemes in accordance with independent actuarial recommendations or funding rates determined by the remuneration committee as appropriate to the type of scheme. Non-executive directors have no service contracts and no pension contributions are made on their behalf. Full details of directors’ remuneration and benefits are given in note 7 to the financial statements on pages 29 and 30. In accordance with AIM Rule 31 the Company is required to have in place sufficient procedures, resources and controls to enable its compliance with the AIM Rules; seek advice from its nominated adviser (“Nomad”) regarding its compliance with the AIM Rules whenever appropriate and take that advice into account; provide the Company’s Nomad with any information it requests in order for the Nomad to carry out its responsibilities under the AIM Rules for Companies and the AIM Rules for Nominated Advisers; ensure that each of the Company’s directors accepts full responsibility, collectively and individually, for compliance with the AIM Rules; and ensure that each director discloses 8 AIM compliance committee CEPS PLC Corporate Governance continued AIM compliance committee continued without delay all information which the Company needs in order to comply with AIM Rule 17 (Disclosure of Miscellaneous Information) insofar as that information is known to the director or could with reasonable diligence be ascertained by the director. Internal financial control In order to ensure that these obligations are being discharged, the Board has established a committee of the Board (the “AIM committee”), chaired by Richard Organ, a non- executive director of the Company. Having reviewed relevant Board papers, and met with the Company’s Executive Board and the Nomad to ensure that such is the case, the AIM committee is satisfied that the Company’s obligations under AIM Rule 31 have been satisfied during the period under review. The Board has overall responsibility for the system of internal financial control which is designed with regard to the size of the Company to provide reasonable but not absolute assurance against material misstatement or loss. The Board reviews the effectiveness of the internal controls and has concluded that the internal financial control environment is appropriate, with no significant matters noted. The organisational structure of the Group gives clear management responsibilities in relation to internal financial control. Financial risks are controlled through clearly laid down authorisation levels. There is an annual budget which is approved by the directors. The results are reported monthly and compared to the budget. The audit committee receives a report from the external auditors annually. Going concern At the time of approving the financial statements the directors consider that it is appropriate to adopt the going concern basis of preparation. The directors have considered the impact of the current economic environment on the Group’s future cash flows and its ability to meet liabilities as they fall due, being a period of not less than 12 months from the date of approving the financial statements. The directors have also considered compliance with future banking covenants, and the borrowings structure of the Group. Statement of directors’ responsibilities The directors are responsible for preparing the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and parent company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that year. In preparing these financial statements, the directors are required to: – select suitable accounting policies and then apply them consistently; – make judgements and accounting estimates that are reasonable and prudent; – state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; and – prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Group will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 9 CEPS PLC Independent Auditors’ Report to the members of CEPS PLC Respective responsibilities of directors and auditors Scope of the audit of the financial statements Opinion on financial statements We have audited the Group and parent company financial statements (the ‘financial statements’) of CEPS PLC for the year ended 31 December 2009 which comprise the Group and parent company Balance Sheets, the Consolidated Statement of Comprehensive Income, the Group and parent company Statement of Cashflows, the Group and parent company Statement of Changes in Shareholders’ Equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. As explained more fully in the Directors’ Responsibilities Statement, set out on page 9, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In our opinion: – the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2009 and of the Group’s profit and Group’s and parent company’s cash flows for the year then ended; – the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; – the parent company’s financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and – the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. 10 CEPS PLC Independent Auditors’ Report to the members of CEPS PLC continued Opinion on other matters prescribed by the Companies Act 2006 Matters on which we are required to report by exception In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: – adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or – the parent company financial statements are not in agreement with the accounting records and returns; or – certain disclosures of directors’ remuneration specified by law are not made; or – we have not received all the information and explanations we require for our audit. Jason Clarke Senior Statutory Auditor for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Bristol 30 April 2010 Notes: a) The maintenance and integrity of the CEPS PLC website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 11 CEPS PLC Year ended 31 December 2009 Consolidated Statement of Comprehensive Income Revenue) Cost of sales) Gross profit) Distribution costs Administration expenses Operating profit Analysis of operating profit CCTrading CCGroup costs CCDeemed loss arising on the increase CCin the minority interest Finance costs Profit before tax Taxation Profit for the year from continuing operations Other comprehensive income Actuarial (loss)/gain on defined benefit pension plans Other comprehensive (loss)/income for the year, CCnet of tax Total comprehensive income for the year Profit attributable to: Owners of the parent Minority interest Total comprehensive income attributable to: Owners of the parent Minority interest Notes 4 5 9 10 ) ) ) 2009) £’000) 15,880) (13,968) ) 1,912) (222) (968) ) 722) 1,086) (282) (82) ) 722) (146) ) 576) 43) ) 619) ) (74) ) (74) ) 545) ) 550) 69) ) 619) ) 476) 69) ) 545) ) 2008) £’000) 16,796) (14,228) ) 2,568) (359) (1,061) ) 1,148) 1,514) (366) –) ) 1,148) (241) ) 907) (193) ) 714) ) 59) ) 59) ) 773) ) 624) 90) ) 714) ) 683) 90) ) 773) ) Earnings per share CCbasic and diluted 12 6.62p) ) 7.51p) ) 12 Assets Equity Liabilities CEPS PLC As at 31 December 2009 Consolidated and Company Balance Sheets Group 2009) £’000) 2008) £’000) Company 2009) £’000) 2008) £’000) Notes Non-current assets Property, plant and equipment 14 15 Intangible assets Investments in Group CCundertakings Deferred tax asset 16 22 17 18 27 24 20 23 20 19 Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets Capital and reserves attributable to owners of the parent Called up share capital Share premium Retained earnings/ (accumulated losses) Minority interest in equity Total equity Non-current liabilities Borrowings Provisions for liabilities CCand charges Current liabilities Borrowings Trade and other payables Current tax liabilities Total liabilities 1,548) 4,744) –) 164) ) 6,456) ) 1,569) 2,622) 736) ) 4,927) ) 11,383) ) 416) 2,756) 2,193) ) 5,365) 400) ) 5,765) ) 1,610) 4,826) –)) 24)) ) 6,460)) ) 1,795) 2,828) 665) ) 5,288) ) 11,748) ) 416) 2,756) 1,717) ) 4,889) 249) ) 5,138) ) 1,346) 1,751) 55) ) 1,401) ) 1,610) 2,562) 45) ) 4,217) ) 5,618) ) 55) ) 1,806) ) 1,834) 2,819) 151) ) 4,804) ) 6,610) ) –) 85) 2,553) –) ) 2,638) ) –) 750) 24) ) 774) ) 3,412) ) 416) 2,808) 122) ) 3,346) –) ) 3,346) ) –) –) ) –) ) –) 62) 4) ) 66) ) 66) ) –) 91) 2,571) 9) ) 2,671) ) –) 552) 3) ) 555) ) 3,226) ) 416) 2,808) (66) ) 3,158) –) ) 3,158) ) –) –) ) –) ) –) 68) –) ) 68) ) 68) ) Total equity and liabilities 11,383) ) 11,748) ) 3,412) ) 3,226) ) These financial statements were approved by the Board of Directors on 30 April 2010. R T Organ P G Cook Directors 13 CEPS PLC Year ended 31 December 2009 Consolidated and Company Statement of Cashflows Group 2009) £’000) 2008) £’000) Company 2009) £’000) 2008) £’000) Cash flows from operating activities Cash generated from/(used in) CCoperations Tax (paid)/received Interest (paid)/received Net cash generated from/(used in) CCoperations 1,326) (202) (126) ) 998) ) 1,388) (16) (222) ) 1,150) ) (209) 87) 143) ) 21) ) (144) –) 142) ) (2) ) Cash flow from investing activities Purchase of property, plant and CCequipment Disposal of property, plant and CCequipment Purchase of computer software CCand website development Net cash used in investing activities Cash flow from financing activities Repayment of bank loans Repayment of capital element of hire CCpurchase agreements CC Net cash used in financing activities Net increase/(decrease) in cash CCand cash equivalents Cash and cash equivalents at the CCbeginning of the year Cash and cash equivalents at the CCend of the year Cash flows from operating activities The reconciliation of operating profit (62) 3) –) ) (59) ) (650) (190) ) (840) ) 99) 532) ) 631) ) (78) 11) (1) ) (68) ) (686) (240) ) (926) ) 156) 376) ) 532) ) –) –) –) ) –) ) –) –) ) –) ) 21) 3) ) 24) ) –) –) –) ) –) ) –) –) ) –) ) (2) 5) ) 3) ) to cash flows from operating activities is as follows: Operating profit/(loss) for the year Adjustments for: Depreciation and amortisation charge Loss on disposal of property, plant CCand equipment Increase in minority interest Difference between pension charge CCand cash contribution Operating profit/(loss) before changes CCin working capital and provisions Decrease/(increase) in inventories Decrease in trade and other CCreceivables (Decrease)/increase in trade and CCother payables, including trade CCreceivables backed working CCcapital facilities Cash generated from/(used in) CCoperations 722) 1,148) (282) (349) 285) 275) 9) 82) (74) ) 23) –) (80) ) 1,024) 226) 1,366) (404) 206) 323) (130) ) 1,326) ) 103) ) 1,388) ) 6) –) –) –) ) (276) –) 73) (6) ) (209) ) 5) –) –) –) ) (344) –) 225) (25) ) (144) ) 14 CEPS PLC Year ended 31 December 2009 Consolidated Statement of Changes in Shareholders’ Equity Attributable to) the owners) Called up) Share) Retained) share capital) premium) earnings) £'000) £'000) £'000) of the) Minority) interest) parent) £'000) £'000) Total) equity) £'000) Group At 1 January 2008 Actuarial gain Profit for the year Total comprehensive income for the year 416) ) 2,756) ) 1,034) ) 4,206) ) 159) ) 4,365) ) –) –) ) –) ) –) –) ) –) ) 59) 624) ) 683) ) 59) 624) ) 683) ) –) 90) ) 90) ) 59) 714) ) 773) ) At 31 December 2008 416) ) 2,756) ) 1,717) ) 4,889) ) 249) ) 5,138) ) Actuarial loss Profit for the year Total comprehensive income for the year Increase in minority interest charged against profit for the year –) –) ) –) –) ) –) –) ) –) –) ) (74) 550) ) 476) –) ) (74) 550) ) 476) –) ) –) 69) ) 69) 82) ) (74) 619) ) 545) 82) ) At 31 December 2009 416) ) 2,756) ) 2,193) ) 5,365) ) 400) ) 5,765) ) Company At 1 January 2008 Loss for the year) At 31 December 2008 Profit for the year At 31 December 2009 Called up) Share)retained) premium) £'000) share capital) £'000) (Accumulated) losses)/ retained) earnings) £'000) 416) ) –) ) 416) ) –) ) 416) ) 2,808) ) –) ) 2,808) ) –) ) 2,808) ) (29) ) (37) ) (66) ) 188) ) 122) ) ) Total) equity) £'000) 3,195) ) (37) ) 3,158) ) 188) ) 3,346) ) 15 CEPS PLC 31 December 2009 Notes to the Financial Statements 1. Accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have, unless otherwise stated, been applied consistently to all the years presented. The Company is domiciled and registered in England and its registered office is 11 George Street, Bath BA1 2EH. Basis of preparation These financial statements have been prepared in accordance with the International Financial Reporting Standards (‘IFRS’) as adopted by the European Union, IFRIC interpretations and Companies Act 2006. The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3. The Company has taken advantage of the exemption under the Companies Act 2006 not to present a Statement of Comprehensive Income. Information about the Company result for the period is given in note 13. IFRSs effective in 2009 and adopted by the Group The following new and amended IFRSs have been adopted by the Group in these financial statements as of 1 January 2009: – IFRS 7 Financial instruments – Disclosures (amendment) – effective 1 January 2009. The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy. As the change in accounting policy only results in additional disclosures, there is no impact on earnings per share; – IAS 1 (revised) Presentation of financial statements – effective 1 January 2009. The revised standard prohibits the presentation of items of income and expense (that is, ‘non- owner changes in equity’) in the Consolidated Statement of Changes in Shareholders’ Equity, requiring ‘non-owner changes in equity’ to be presented separately from owner changes in equity in the Consolidated Statement of Comprehensive Income. As a result the Group presents in the Consolidated Statement of Changes in Shareholders’ Equity all owner changes in equity, whereas all non-owner changes in equity are presented in the Consolidated Statement of Comprehensive Income. Comparative information has been re-presented so that it also is in conformity with the revised standard. As the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share; and – IFRS 8 Operating Segments – effective 1 January 2009. This standard sets out the requirements for disclosure of information about the entity's operating segments. This change has resulted in the restatement of the prior year. In the prior year there were deemed to be two principal business segments, the sale of goods and the rendering of services. IFRS effective in 2009 but not yet relevant to the Group The following IFRS has not been adopted by the Group in these financial statements, as it is not deemed to be relevant: – IAS 23 (revised) – Borrowing Costs 16 CEPS PLC 31 December 2009 Notes to the Financial Statements 1. Accounting policies 1. continued IFRSs not yet effective but may be relevant to the Group Certain new IFRSs are mandatory for accounting periods beginning after 1 January 2009, but the Group has chosen not to adopt them early. The new standards that could be relevant to the Group's operations are as follows: – IFRS 3 (revised) – Business combinations – effective from 1 July 2009. The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the Consolidated Statement of Comprehensive Income. There is a choice on an acquisition-by-acquisition basis to measure the non- controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs should be expensed. The Group will apply IFRS 3 (revised) prospectively to all business combinations from 1 January 2010; – IAS 27 (revised) – Consolidated and separate financial statements – effective from 1 July 2009. The revised standard requires the effects of all transactions with non- controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in the profit or loss for the year. The Group will apply IAS 27 (revised) prospectively to transactions with non-controlling interests from 1 January 2010; – IFRIC 17 – Distribution of non-cash assets to owners – effective on or after 1 July 2009. The interpretation is part of the IASB’s annual improvements project published in April 2009. This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. IFRS 5 has also been amended to require that assets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable. The Group and Company will apply IFRIC 17 from 1 January 2010. It is not expected to have a material impact on the Group or Company’s financial statements; and – IAS 38 (amendment) – Intangible Assets. The amendment is part of the IASB’s annual improvements project published in April 2009 and the Group and Company will apply IAS 38 (amendment) from the date IFRS 3 (revised) is adopted. The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and it permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives. The amendment will not result in a material impact on the Group or Company’s financial statements. Basis of consolidation Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are accounted for using the purchase method of accounting. 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, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. 17 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 1. Accounting policies 1. continued Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that are recorded in the Consolidated Statement of Comprehensive Income. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary. Segmental reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker, the Board. Revenue recognition The revenues of Friedman’s and Davies Odell arise from the invoiced value of goods sold (recognised on despatch or transfer of substantial risks and rewards where different), excluding VAT. The revenues of Sunline arise from the invoiced value for services provided (recognised on completion of the service), excluding VAT. Property, plant and equipment Property, plant and equipment is stated at initial cost, including expenditure that is directly attributable to the acquired item, less accumulated depreciation and impairment losses. Depreciation is calculated on an appropriate basis over the deemed useful life of an asset and is applied to the cost less any residual value. The asset classes are depreciated over the following periods (the useful life, the residual value and the depreciation method is assessed annually): Plant and machinery, tools and moulds: Between 5 and 10 years, over the period of the contract, or on a 25% reducing balance basis Motor vehicles: 5 years straight line Leasehold property improvements: Over the term of the lease on a straight line basis. The residual values and useful lives are reviewed and adjusted if appropriate at each balance sheet date. The carrying value of the property, plant and equipment is compared to the higher of value in use and the pre-tax realisable value. If the carrying value exceeds the higher of the value in use and pre-tax realisable value the asset is impaired and its value reduced by charging additional depreciation. 18 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 1. Accounting policies 1. continued Intangible assets a) Goodwill Goodwill is recognised to the extent that it arises through business combinations. In respect of business combinations that have occurred since 1 January 2006, goodwill represents the difference between the cost of the acquisition and the fair value of net identifiable assets acquired. In respect of business combinations prior to this date, goodwill is included on the basis of its deemed cost, which represents the amount recorded under GAAP. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to appropriate cash generating units (those expected to benefit from the business combination) and is no longer amortised but is tested for impairment. b) Computer software and websites Computer software and costs incurred in the development of websites are stated at cost less accumulated amortisation. Non-integral computer software purchases are capitalised at cost. These costs are amortised over their estimated useful lives (between 3 and 10 years). Costs associated with implementing or maintaining computer software programmes are recognised as an expense as incurred. Costs incurred in the development of new websites are capitalised only where the cost can be directly attributed to developing the website to operate in the manner intended by management and only to the extent of the future economic benefits expected from its use. These costs are amortised over their useful lives (between 3 and 5 years). Costs associated with maintaining websites are recognised as an expense as incurred. Impairment of intangible assets Assets that have an indefinite useful life are not subject to amortisation, but are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Any impairment losses relating to goodwill are not reversed. Investments Investments in subsidiaries are stated at cost, which reflects the fair value of the consideration paid. The investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Inventories Inventories are valued at the lower of cost and net realisable value. Raw materials are valued on a first in first out basis at net invoice values charged by suppliers. The value of work in progress and finished goods includes the direct cost of materials and labour together with an appropriate proportion of factory overheads. Current and deferred taxation The tax expense for the year comprises current and deferred tax. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. 19 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 1. Accounting policies 1. continued Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting 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 date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be generated enabling the utilisation of the temporary timing differences. Foreign currencies The results are recorded in Sterling which is deemed to be the functional currency of the Group, the Company and all its subsidiaries. Foreign currency transactions are expressed in Sterling at the rates of exchange ruling at the date of the transaction, and if still in existence at the year end the balance is retranslated at the rates of exchange ruling at the balance sheet date. Differences arising from changes in exchange rates during the year are taken to the Consolidated Statement of Comprehensive Income. Pensions The Company operates a defined benefit pension scheme, the assets of which are held separately from those of the Company in independently administered funds. Pension scheme assets are measured using market value. Pension scheme liabilities are measured using the projected unit actuarial method and are discounted at the current rate of return on a high quality corporate bond of equivalent terms and currency to the liability. The increase in the present value of the liabilities of the Group’s defined benefit pension schemes expected to arise from employee service in the period is a charge to operating profit. The expected return on the schemes’ assets and the increase during the year in the present value of the schemes’ liabilities arising from the passage of time are included in other finance income. Actuarial gains and losses are recognised in the Consolidated Statement of Comprehensive Income. Pension schemes’ surpluses, to the extent that they are considered recoverable, or deficits, are recognised in full and presented on the face of the balance sheet net of the related deferred tax. Defined benefit pension costs are recognised in the Consolidated Statement of Comprehensive Income. The full annual actuarial gain or loss is recognised in the Consolidated Statement of Comprehensive Income as other comprehensive income. Contributions to the defined contribution schemes are charged to the Consolidated Statement of Comprehensive Income as incurred. Operating leases The annual costs of operating leases are charged to the Consolidated Statement of Comprehensive Income on a straight line basis over the lease term. Hire purchase leases For leases where a significant portion of the risks and rewards of ownership is obtained or where legal title is to pass to the Group the assets are capitalised at cost in the balance sheet and depreciated over the expected useful economic life. The interest element of the rental obligation is charged to the Consolidated Statement of Comprehensive Income over the period of the lease and represents a constant proportion of the balance of capital repayment outstanding. 20 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 1. Accounting policies 1. continued Minority interest Minority interests represent the interest of shareholders in subsidiaries which are not wholly owned by the Group. Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as an interest expense. Share capital Ordinary shares are classified as equity while redeemable preference shares are classified as liabilities. Financial instruments The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial instruments are recognised on the balance sheet at fair value when the Group becomes a party to the contractual provisions of the instrument. a) Loans and receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the carrying amount of the asset and its estimated future cash flow. The carrying amount of the asset is reduced through the use of a bad debt provision and the amount of the loss is recognised in the Consolidated Statement of Comprehensive Income within cost of sales. When a trade receivable is uncollectible it is written off against the bad debt provision. Subsequent recoveries of amounts previously written off are credited against cost of sales in the Consolidated Statement of Comprehensive Income. Cash 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 three months, and bank overdrafts. Bank overdrafts are shown in current liabilities as borrowings. All are carried at cost in the balance sheet. b) Trade payables Trade payables are initially recognised at fair value and subsequently measured at amortised cost. c) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred, and subsequently stated at amortised cost. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. 21 2. Financial risk 2. management CEPS PLC 31 December 2009 Notes to the Financial Statements continued 2.1 Financial risk factors The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Risk management is carried out by local management under policies approved by the Board of directors. a) Market risk i) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Euro and US Dollar and Sterling. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities. Management has a policy to require Group companies to manage their foreign exchange risk against their functional currency. The policy is to match as far as possible through the 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 foreign exchange risk on specific assets, liabilities or future transactions. At 31 December 2009, if Sterling had weakened by 5% against the Euro and all other variables held constant, post-tax profit for the year would have been £37,000 (2008: £52,000) lower as a consequence of foreign exchange losses. ii) Cash flow and fair value interest rate risk As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. Group policy is to maintain an appropriate balance between borrowings expressed in fixed rates and those at variable rates. All of the Group’s borrowings are denominated in Sterling. The strategy of CEPS is as far as possible to use the assets of businesses in which it makes 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-current bank borrowings would be a maximum of £5,000 (2008: £9,000). b) Credit risk The Group is exposed to the credit risk inherent in non-payment by either its customers or the counterparties of its financial instruments. The Group utilises credit insurance policies to mitigate its risk from some of its trading exposure, especially in overseas markets, and in all cases seeks satisfactory references and the best possible terms of payment. It mitigates its exposure on financial instruments by only using instruments from banks and financial institutions with a minimum rating of ‘A’. c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and having available an adequate amount of committed credit facilities. Management monitors rolling forecasts of the Group’s available liquidity on the basis of expected future cash flows. Forecasts are generated in the first instance at local level in the operating subsidiaries of the Group. 22 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 2. Financial risk 2. management continued 2.1 Financial risk factors continued The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant. Less than 1 year £’000 Between 1 and 2 years £’000 Between 2 and 5 years £’000 Over 5 years £’000 At 31 December 2009 Trade and other payables Other loans* Bank borrowings** Bank overdrafts Trade receivables backed CCworking capital facilities Finance lease obligations At 31 December 2008 Trade and other payables Others loans* Bank borrowings** Bank overdrafts Trade receivables backed CCworking capital facilities Finance lease obligations 2,562 91 421 105 888 241 4,308 2,819 85 650 133 876 227 4,790 – 98 400 – – 218 716 – 85 421 – – 188 694 – 206 100 – – 239 545 – 160 500 – – 368 1,028 – – – – – – – – – – – – – – * The loan holder has confirmed that he will not seek repayment during 2010. ** The borrowing payments relate to capital only, interest is paid as accrued at an interest rate between 2% and 3.25% above the bank’s base rate. 2.2 Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may pay dividends to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group monitors capital on the basis of the gearing ratio. This ratio measures net debt as a proportion of total equity as shown in the Consolidated Balance Sheet. Net debt is calculated as total borrowings less cash and cash equivalents. 23 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 2. Financial risk 2. management continued 2.2 Capital risk management continued The gearing ratios at 31 December 2009 and 2008 were as follows: Total borrowings Less: cash and cash equivalents Net debt Total equity Gearing ratio 2009) £’000) 2,956) (736) ) 2,220) ) 5,765) ) 38%) 2008) £’000) 3,585) (665) ) 2,920) ) 5,138) ) 57%) Total borrowings have been reduced in the year by the repayment of bank loans and finance lease obligations totalling £840,000 and overdrafts of £28,000 and increased by loan notes of £65,000 issued in settlement of deferred consideration, new finance lease obligations of £162,000 and trade receivables backed working capital facilities of £12,000. Cash balances rose by £71,000. Total equity increased by the total comprehensive income for the year of £545,000 and the increase in the minority interest of £82,000. As a result, gearing fell to 38% (2008: 57%). 2.3 Fair value estimation The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of the financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current interest rate. The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates at the balance sheet date. However, no contracts were open at either the current or prior year end. 24 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 3. Critical accounting 3. assumptions and 3. judgements a) Amortisation of intangible assets and depreciation of property, plant and equipment Amortisation and depreciation is provided in the consolidated financial statements so as to write down the respective assets to their residual values over their estimated useful lives. The selection of the estimated useful lives and the expected residual values of the assets requires the use of estimates and judgements. b) Impairment of intangible assets, property, plant and equipment Where there is an indication that the carrying value of intangible assets, property or plant and equipment may have been impaired through events or changes in circumstances, a review will be undertaken of the recoverable amount of those assets based on a value in use calculation that will involve estimates and assumptions to be made by management. A review is performed annually for goodwill. c) Inventory provisions The Group reviews its inventory on a regular basis and where appropriate makes provision for slow moving and obsolete items based on estimates of future sales requirements. The estimates of future sales requirements will be based both on historical experience and on the expected outcomes based on knowledge of the markets in which the Group operates. d) Dilapidations provisions The Group occupies leasehold properties for which there are potential costs of dilapidations reparation on termination of those leases. The Group attempts to anticipate those 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, the requirements of the leases and management’s judgement of the potential future liability. e) Deferred tax assets Certain subsidiaries of the Group have accelerated capital allowances and retirement benefit liabilities all of which may reduce future corporation tax payable within the Group. Deferred tax assets have been recognised in respect of accelerated capital allowances to be claimed over the next five years and the full amount of the retirement benefit liabilities. The recognition of the assets reflects management’s estimate of the recoverable amounts in respect of these items. f) Retirement benefit liabilities One subsidiary of the Group operates a defined benefits pension scheme. The scheme is subject to trienniel actuarial valuation and the Group commissions an independent qualified actuary to update to each financial year end the previous trienniel result. The results of this update are included in the financial statements. In reaching the annually updated results the actuary makes assumptions and estimates with the assistance of management. These assumptions and estimates are made advisedly, but are not any guarantee of the performance of the scheme or of the outcome of each trienniel review. 25 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 4. Segmental analysis The chief operating decision-maker of the Group is its Board. Each operating segment regularly reports its performance to the Board which, based on those reports, allocates resources to and assesses the performance of those operating segments. Operating segments and their principal activities are as follows: Davies Odell, the manufacture and distribution of protection equipment, matting and footwear components Friedman’s, the conversion and distribution of specialist Lycra Sunline, a supplier of services to the direct mail market. The United Kingdom is the main country of operation from which the Group derives its revenue and operating profit and is the principal location of the assets of the Group. The Group information provided below, therefore, also represents the geographical segmental analysis. Of the £15,880,000 revenue, £13,823,000 is derived from UK customers. The Board assesses the performance of each operating segment by a measure of adjusted earnings before interest, tax and Group costs, depreciation and amortisation (EBITDA). Other information provided to the Board is measured in a manner consistent with that in the financial statements. The 2008 results have, where necessary, been restated to comply with the adoption of IFRS 8. i) Results by segment Revenue ) Segmental result (EBITDA) Depreciation charge Group costs Increase in minority interest Interest expenses Profit before taxation Taxation Profit for the year ) Revenue ) Segmental result (EBITDA) Depreciation charge Group costs Interest expenses Profit before taxation Taxation Profit for the year 26 ) ) ) ) ) ) ) ) ) )Davies Odell) Friedman’s) 2009) £’000) 2009) £’000) ) 5,296) ) 250) ) 2,993) ) 203) ) Sunline) 2009) £’000) 7,591) ) 913) ) ) Davies Odell) Friedman’s) 2008) £’000) 2008) £’000) 5,942) ) 509) ) 3,175) ) 180) ) Sunline) 2008) £’000) 7,679) ) 1,095) ) Group) 2009) £’000) 15,880) ) 1,366) ) (280) (282) (82) (146) ) 576) 43) ) 619) ) Group) 2008) £’000) 16,796) ) 1,784) ) (270) (366) (241) ) 907) (193) ) 714) ) CEPS PLC 31 December 2009 Notes to the Financial Statements continued 4. Segmental analysis 2. continued ii) Assets and liabilities by segment as at 31 December Segment assets 2008) 2009) £’000) £’000) Segment liabilities Segment net assets 2008) £’000) 2009) £’000) 2009) £’000) 2008) £’000) CEPS Group Davies Odell Friedman’s Sunline Total – Group 114) 103) 2,332) 2,240) 2,853) 3,203) 6,084) 6,202) (67) (1,043) (1,694) (2,814) ) ) 11,383) 11,748) ) ) ) (5,618) ) 47) (24) 79) (1,165) 1,289) 1,075) (2,153) 1,159) 1,050) (3,268) 3,270) 2,934) ) ) ) (6,610) 5,765) 5,138) ) ) ) iii) Non-cash expenses and capital expenditure Other than as stated above there were no significant non-cash expenses. Capital expenditure Davies Odell Friedman’s Sunline )) Total – Group 2009) £’000) 2008) £’000) 9) 39) 175) ) 223) ) 38) 6) 710) ) 754) ) 27 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 5. Operating profit Profit on ordinary activities before tax is stated after charging: Employee costs (note 6) Depreciation of owned assets and assets held under CChire purchase contracts (note 14) Loss on disposal of property, plant and equipment Exchange (gain)/loss Other operating lease rentals on land and buildings and CCon plant and machinery: Amortisation charge (note 15) Fees paid to auditors Audit fees in respect of the audit of the accounts CCof the Company Audit fees in respect of the audit of the accounts CCof subsidiaries of the Company Services relating to taxation Services relating to the pension scheme Total fees Expenses by nature Change in inventories Employee benefit expense Depreciation and amortisation Operating lease payments Other expenses 6. Employees The average number of persons employed by the Group during the year was: Management and administration Production and sales The aggregate payroll costs of these persons were: Wages and salaries Social security costs Pension costs and related fees 2009) 39) 149) ) 188) ) 2009) £’000) 4,103) 371) 85) ) 4,559) ) Key management personnel are deemed to be members of the Board and local management and their compensation is shown in note 7. 28 2009) £’000) 2008) £’000) 4,559) 4,771) 273) 9) (64) 385) 12) ) 16) 25) ) 41) 18) 4) ) 63) ) 7,557) 4,559) 285) 385) 2,372) ) 15,158) ) 263) 23) 228) 372) 12) 16) 25) ) 41) 16) 4) ) 61) ) 7,567) 4,771) 275) 372) 2,663) ) 15,648) ) 2008) 38) 168) ) 206) ) 2008)) £’000) 4,292) 382) 97) ) 4,771) ) CEPS PLC 31 December 2009 Notes to the Financial Statements continued 7. Directors’ emoluments 7. and interests The aggregate remuneration of the directors was: Fees Salaries and benefits 2009) £’000) 2008) £’000) –) 155) ) 155) ) –) 149) ) 149) ) The remuneration of the Chairman, R T Organ, and of the other directors who served during the year was: P G Cook D A Horner G C Martin R T Organ Salaries and fees 2008) 2009) £’000) £’000) Benefits 2009) £’000) 2008) £’000) Total 2009) £’000) 2008) £’000) 62) 16) 47) 26) ) 151) ) 62) 15) 43) 26) ) 146) ) –) –) 4) –) ) 4) ) –) –) 3) –) ) 3) ) 62) 16) 51) 26) ) 155) ) 62) 15) 46) 26) ) 149) ) Benefits represent the value attributed to medical insurance. G C Martin has a pension secured in the Group defined benefits scheme of which details are: Accrued pension at 31 December 2008 Increase in accrued pension during 2009 Accrued pension at 31 December 2009 Transfer value of the increase in accrued pension during 2009 ) ) ) ) ) £’000pa) 25) 2) ) 27) ) £’000) 35) ) G C Martin was also a member of a Group defined contribution scheme. Contributions on his behalf to the scheme in 2009 were £nil (2008: £4,786). The aggregate payroll costs of members of the Board and other key personnel of the Group were: Wages and salaries Social security costs Other pension costs 29 2009) £’000) 380) 43) 38) ) 461) ) 2008) £’000) 360) 40) 13) ) 413) ) CEPS PLC 31 December 2009 Notes to the Financial Statements continued 7. Directors’ emoluments 7. and interests continued The directors’ beneficial interests, including those of their families, in shares of the Group were: P G Cook D A Horner G C Martin R T Organ at 31 December 2009 shares) warrants at 31 December 2008 shares) warrants) 366,666 1,287,110 20,251 169,333 70,000 200,000 10,125 53,000 366,666) 1,287,110) 20,251) 169,333) 70,000) 200,000) 10,125) 53,000) There have been no changes in the interests of any director between 31 December 2009 and 30 April 2010. R T Organ has an option expiring on 21 May 2011 to subscribe for 3,000 shares at 337.5p per share the terms of which may be adjusted by the Board to reflect variations of share capital. All warrants lapsed on 20 April 2010 and none were granted or exercised between the year end and this date. The market price of the shares at 31 December 2009 was 25.0p and the range during 2009 was 15.0p to 25.0p. The register of directors’ interests, which is open to inspection, contains full details of directors’ shareholdings and options to subscribe for shares. 30 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 8. Pension costs The Group operates a number of defined contribution schemes. The assets of the schemes are held in independently administered funds. The pension cost charge represents contributions payable to the funds and amounted to £81,000 (2008: £47,000). The Group also operates a defined benefits scheme. The scheme was closed to new members in 1988. The assets of the scheme are held separately from those of the Group in a deposit administration contract underwritten by an insurance company. Contributions to the scheme are determined by a qualified external actuary on the basis of triennial valuations using, for accrued service, the ‘projected unit’ method and, for future service, the ‘attained age’ method. The most recent actuarial valuation was at 1 July 2007 and the main actuarial assumptions were investment returns of 5.8% before retirement, 5.3% after retirement and a rate of salary increase of 5.0%. The valuation showed that the total value of the scheme assets was £2,623,000 and that the level of funding on an ongoing basis is 87%. At 1 October 2008 the Group agreed a recovery plan of £3,515 per month, an amount intended to restore a 100% funding level over ten years. The Group commissioned an independent qualified actuary to update to 31 December 2009 the results of the actuarial valuation at 1 July 2007. The results of the update are as follows: Assumptions at 31 December Interest rate for discounting liabilities Expected return on plan assets Rate of salary increase Retail Price Inflation Pensions increase Mortality Current and future pensioners Life expectancies For a 65 year old male For a 65 year old male, currently aged 50 The following amounts were measured in accordance with the requirements of IAS 19: Amounts recognised in the balance sheet are as follows: Fair value of plan assets Present value of defined benefit obligation Actuarial surplus not recognised 2009) 2008) 5.80%) 6.30%) N/A) 3.40%) 3.40%) 6.60%) 6.30%) 0.00%) 2.60%) 2.60%) PCA00) year of birth) long cohort) PCA00) year of birth) long cohort) 23.4) 24.3) 2009) £’000) 2,129) (2,101) (28) ) –) ) 23.4) 24.3) 2008) £’000) 1,992) (1,738)) (254)) ) –) ) 31 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 8. Pension costs continued 2009) £’000) 2008) £’000) Pension cost recognised in the income statement for the year Operating cost: Current service cost (cost of sales) Finance cost: Interest cost Expected return on plan assets Total pension (credit)/cost Statement of recognised income and expense for the year Actuarial loss/(gain) Experience (gains)/losses on assets Movement in actuarial surplus not recognised Total loss/(gain) Movement in balance sheet for the year Net pension liability at the start of the year Employer’s pension cost Statement of recognised income and expense Employer contributions Accrued pension at the end of the period Reconciliation of the defined benefit obligation Defined benefit obligation at the start of the year Service cost Interest cost Plan participants’ contributions Actuarial loss/(gain) Benefits and expenses paid Defined benefit obligation at the end of the year Actual return on planned assets Reconciliation of plan assets Fair value of plan assets at the start of the year Actuarial return on plan assets Employer contributions Plan participants’ contributions Benefits and expenses paid Fair value of plan assets at the end of the year 6) ) 112) (125) ) (13) ) (7) ) 325) (25) (226) ) 74) ) –) 7) (74) 67) ) –) ) 1,738) 6) 112) 3) 325) (83) ) 2,101) ) 150) 1,992) 150) 67) 3) (83) ) 2,129) ) 4) ) 126) (127) ) (1) ) 3) ) (523) 187) 254) ) (82) ) (162) (3) 82) 83) ) –) ) 2,144) 4) 126) 2) (523) (15) ) 1,738) ) (60) 1,982) (60) 83) 2) (15) ) 1,992) ) 32 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 8. Pension costs continued Asset categories at the end of the year Equities Bonds Property Cash 2009) 2008) 41%) 37%) 9%) 13%) 38%) 47%) 9%) 6%) Amounts for the current and previous three years are as follows: Plan assets Defined benefit obligation Actuarial surplus not recognised Deficit in scheme Actuarial (losses)/gains on liabilities due to assumptions Experience gains/(losses) on assets Movement in actuarial surplus not recognised Total (losses)/gains recognised for the year Cumulative amount of gains recognised in the Consolidated Statement of Comprehensive Income 2009) £’000) 2008) £’000) 2007) £’000) 2006) £’000) 2,129) (2,101) (28) ) –) ) (325) 25) 226) ) (74) ) 1,992) (1,738) (254) ) –) ) 523) (187) (254) ) 82) ) 1,982) (2,144) –) ) (162) ) 1,852) (2,369) –) ) (517) ) 208) 71) –) ) 279) ) 66) 20) –) ) 86) ) 373) 447) 365) 86) 9. Finance income and costs Interest receivable Pension scheme finance income (note 8) Total finance income Interest payable on interest-bearing loans and borrowings Finance lease costs Preference dividend accrued Total finance costs Net finance costs 2009) £’000) 2008) £’000) 3) 13) ) 16) ) 100) 42) 20) ) 162) ) 146) ) 21) 1) ) 22) ) 218) 26) 19) ) 263) ) 241) ) 33 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 10. Taxation 2009) £’000) 2008) £’000) Analysis of taxation in the year: Current tax UK corporation tax on profits of the year at 28% CC(2008: 28.5%) Tax repaid/(repaid) in respect of prior periods Total current tax Deferred tax Current year charge to the income statement Prior year Total deferred tax Total tax (credit)/charge Deferred tax charge to the Statement of CCComprehensive Income Factors affecting current taxation: Profit before taxation Profit multiplied by the standard rate of UK tax of 28% CC(2008: 28.5%) Effects of: Small companies tax relief Other timing differences Expenses not deductible for tax purposes Prior year adjustment, current tax Prior year adjustment, deferred tax Total tax charge 96) 1) ) 97) ) 31) (171) ) (140) ) (43) ) –) ) 576) ) 161) (4) (61) 31) 1) (171) ) (43) ) 127) (5) ) 122) ) 76) (5) ) 71) ) 193) ) 23) ) 907) ) 258) (3) (53) 1) (5) (5) ) 193) ) 11. Dividends No ordinary dividends have been paid or proposed for the year (2008: £nil). 12. Earnings per share Basic earnings per share is calculated on the profit for the year after taxation attributable to equity holders of the Company of £550,000 (2008: £624,000) and on 8,314,297 (2008: 8,314,249) ordinary shares, being the weighted number in issue during the year. Diluted earnings per share is calculated on the weighted number of ordinary shares in issue adjusted to reflect the potential effect of the exercise of share warrants and options. No adjustment is required in either year because the fair value of warrants and options was below the exercise price. 34 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 13. Profits of the holding 13. company Of the Group profit for the year a profit of £188,000 prior to consolidation adjustments (2008: loss £37,000) is dealt with in the accounts of CEPS PLC. The directors have taken advantage of the exemption available under section 408 of the Companies Act 2006 and not presented the results for the Company alone. 14. Property, plant and 14. equipment 14. Group Cost at 1 January 2008 additions at cost disposals at 31 December 2008 additions at cost disposals at 31 December 2009 Accumulated depreciation at 1 January 2008 charge for the year disposals at 31 December 2008 charge for the year disposals at 31 December 2009 Net book amount at 31 December 2009 at 31 December 2008 at 1 January 2008 Plant,) Leasehold) machinery,) tools and) ( moulds) £’000) property) improvements) £’000) Motor) vehicles) £’000) 56) 1) –) ) 57) 1) –) ) 58) ) 29) 4) –) ) 33) 3) –) ) 36) ) 22) ) 24) ) 27) ) 3,371) 651) (200) ) 3,822) 198) (21) ) 3,999) ) 2,212) 247) (167) ) 2,292) 252) (13) ) 2,531) ) 1,468) ) 1,530) ) 1,159) ) 89) 15) –) ) 104) 24) (19) ) 109) ) 36) 12) –) ) 48) 18) (15) ) 51) ) 58) ) 56) ) 53) ) ) (Total) £’000) 3,516) 667) (200) ) 3,983) 223) (40) ) 4,166) ) 2,277 263) (167) ) 2,373) 273) (28) ) 2,618) ) 1,548) ) 1,610) ) 1,239) ) At the year end, assets held under hire purchase contracts and capitalised as plant, machinery and tools have a net book value of £793,000 (2008: £846,000) and an accumulated depreciation balance of £220,000 (2008: £191,000). The depreciation has been charged to cost of sales in the Consolidated Statement of Comprehensive Income. 14. Company Throughout 2008 and 2009 the Company held no property, plant and equipment. 35 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 15. Intangible fixed assets 15. Group Cost at 1 January 2008 additions at 31 December 2008 adjustment of deferred consideration at 31 December 2009 Accumulated amortisation at 1 January 2008 charge at 31 December 2008 charge at 31 December 2009 Net book amount at 31 December 2009 at 31 December 2008 at 1 January 2008 15. Company Cost at 1 January 2008, 31 December 2008 and 31 December 2009 Accumulated amortisation at 1 January 2008 charge at 31 December 2008 charge at 31 December 2009 Net book amount at 31 December 2009 at 31 December 2008 at 1 January 2008 Goodwill) £’000) Other) £’000) Total) £’000) 4,823) 86) ) 4,909) (70) ) 4,839) ) 121) –) ) 121) –) ) 121) ) 4,718) ) 4,788) ) 4,702) ) 80) ) 1) –) ) 1) –) ) 1) ) 79) ) 79) ) 79) ) 49) 1) ) 50) –) ) 50) ) –) 12) ) 12) 12) ) 24) ) 26) ) 38) ) 49) ) 17) ) –) 5) ) 5) 6) ) 11) ) 6) ) 12) ) 17) ) 4,872) 87) ) 4,959) (70) ) 4,889) ) 121) 12) ) 133) 12) ) 145) ) 4,744) ) 4,826) ) 4,751) ) 97) ) 1) 5) ) 6) 6) ) 12) ) 85) ) 91) ) 96) ) Goodwill arose in 2007 on the acquisition of 80% of Sunline Direct Mail (Holdings) Limited. The acquisition included an element of deferred consideration, the fair value of which has been revisited at each year end. The settlement was finalised at the current year end and the goodwill adjusted. 36 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 15. Intangible fixed assets 15. continued Management assess the nature of purchase consideration and any in excess of identified intangible assets is recorded as goodwill. Goodwill is not amortised under IFRS, but is subject to impairment testing either annually or on the occurrence of a triggering event. Other intangibles relate to website development costs and are amortised over their estimated economic lives. The annual amortisation charge is expensed to cost of sales in the Consolidated Statement of Comprehensive Income. Impairment tests for goodwill and other intangibles The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill may be impaired. For the purpose of impairment testing, goodwill is allocated to the Group’s cash generating units (CGUs) on a business segment basis: Friedman’s Sunline Total 2009) £’000) 1,529) 3,189) ) 4,718) ) 2008) £’000) 1,529) 3,259) ) 4,788) ) The recoverable amount of a CGU is based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five year period. Cash flows beyond five years are assumed to be constant. An appropriate discount rate of 7.8%, representing the Group’s current pre- tax cost of capital, has been applied to these projections. At 31 December 2009 the Group performed its annual impairment test on goodwill using the above discount rate for value-in-use calculations. These tests concluded that no impairment is required. Recoverable amounts for Friedman’s and Sunline exceeded the carrying values by £4,250,000 and £7,000,000 respectively. The value-in-use calculations are sensitive to changes in the discount rate and cash flows. The value-in-use of Friedman’s and Sunline would be equal to the carrying value of assets if the discount rates were 30% and 17% higher respectively or if forecast cash flows were 79% and 67% lower respectively. 37 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 16. Fixed asset investments 16. Company Shares in group undertakings at 1 January disposal at 31 December Loan to group undertakings at 1 January additions at cost at 31 December Total fixed asset investments 2009) £’000) 2008) £’000) 692) (18) ) 674) ) 1,879) –) ) 1,879) ) 2,553) ) 692) –) ) 692) ) 1,879) –) ) 1,879) ) 2,571) ) Of the loans to Group undertakings £408,000 is represented by 9% Guaranteed Loan Stock 2010 repayable in instalments between January 2007 and January 2010 and £850,000 by 15% loan stock repayable in 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 subsidiary undertakings, all of which have been included in the consolidation, is given below. Name of undertaking ) Incorporated and) registered in) ) ) Share) (class) Shares) held) direct) %) Shares) held via) subsidiaries) (%) Trading company: Davies Odell Limited Signature Fabrics Limited Friedman’s Limited Sunline Direct Mail (Holdings) Limited Sunline Direct Mail Limited Non-trading: Davies & Co (Kettering) Ltd Phillips Rubber Ltd Farmat Limited Davies and Company Limited FunkiFabrics Limited England) ordinary) England) ‘A’ ordinary) ordinary) England) ordinary) England) ordinary) England) England) England) England) England) England) ordinary) ordinary) ordinary) ordinary) ordinary) 100) 55) ) 80) ) 100) 100) 100) 100) ) ) 55) 80) 55) Nature of business of trading companies: Davies Odell Limited Signature Fabrics Limited Friedman’s Limited Sunline Direct Mail (Holdings) Limited Sunline Direct Mail Limited Manufacture and distribution of protection equipment, matting and footwear components Holding company for Friedman’s Limited Conversion and distribution of specialist Lycra Holding company for Sunline Direct Mail Limited Supplier of services to the direct mail market During the year Signature Fabrics Limited resolved to redesignate 4,750 issued A Ordinary shares of £1 each and 250 issued B Ordinary shares of £1 each into deferred shares of £1 each. Deferred shares do not carry voting rights and are entitled to a maximum aggregate return of capital of £1. The reclassification has reduced the Company’s holding in Signature Fabrics Limited from 75% to 55%. The resultant deemed loss on disposal of £82,000 has been recognised in the Consolidated Statement of Comprehensive Income of the Group and a loss of £18,000 has been recognised in the Company’s result for the year. 38 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 17. Inventories 18. Trade and other 18. receivables Raw materials and consumables Work in progress Finished goods and goods for resale Group Company 2009) £’000) 497) 23) 1,049) ) 1,569) ) 2008) £’000) 715) 11) 1,069) ) 1,795) ) 2009) £’000) 2008) £’000) –) –) –) ) –) ) –) –) –) ) –) ) The cost of inventories recognised as an expense and included within cost of sales amounted to £7,557,000 (2007: £7,567,000). Trade receivables less: provision for impairment CCof trade receivables Trade receivables – net Amount due from subsidiary CCcompanies Other receivables Prepayments and accrued income Group Company 2009) £’000) 2008) £’000) 2009) £’000) 2008) £’000) 2,384) 2,647) (15) ) 2,369) –) 2) 251) ) 2,622) ) (33) ) 2,614) –) 4) 210) ) 2,828) ) –) –) ) –) 745) –) 5) ) 750) ) –) –) ) –) 550) –) 2) ) 552) ) The above are deemed to be the fair values for the trade and other receivables. As at 31 December 2009, trade receivables of £1,669,000 (2008: £1,869,000) were fully performing. Trade receivables that are less than three months past due are not considered impaired. As of 31 December 2009, trade receivables of £672,000 (2008: £680,000) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows: Up to 3 months 3 to 6 months 2009) £’000) 552) 120) ) 672) ) 2008) £’000) 589) 91) ) 680) ) ) ) ) ) ) ) ) ) ) ) ) ) ) 39 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 18. Trade and other 18. receivables continued As of 31 December 2009, trade receivables of £43,000 (2008: £98,000) were impaired. A portion of the receivables is expected to be recovered and a provision of £15,000 (2008: £33,000) has been made for non-recovery. The individually impaired receivables mainly relate to customers who are in unexpectedly difficult economic situations. The ageing of these receivables is as follows: 3 to 6 months Over 6 months 2009) £’000) 2008) £’000) 43) –) ) 43) ) 53) 45) ) 98) ) ) ) ) ) ) ) ) ) ) ) ) ) ) The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies: Sterling Euro US $ 2009) £’000) 2,539) 67) 16) ) 2,622) ) 2008) £’000) 2,712) 111) 5) ) 2,828) ) ) ) ) ) ) ) ) Movements in the Group provision for impairment of trade receivables are as follows: At 1 January Acquisition Provision for receivables impairment Receivables written off during the year Unused amounts reversed 2009) £’000) 2008) £’000) 33) –) –) (14) (4) ) 15) ) 48) –) 37) (22) (30) ) 33) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) The creation and release of provisions for impaired receivables have been included in cost of sales in the Consolidated Statement of Comprehensive Income. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. The other classes within trade and other receivables do not contain impaired assets. The Group does not hold any collateral as security. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable. 40 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 19. Trade and other 18. payables 20. Borrowings Trade payables Other tax and social security Other payables Accruals and deferred income Non-current: Bank borrowings Other loans Finance lease obligations Current: Bank overdraft Bank borrowings Trade receivables backed working CCcapital facilities Finance lease obligations Total borrowings Group Company 2008) £’000) 1,875) 349) 204) 391) ) 2,819) ) 2009) £’000) 2008) £’000) –) –) –) 62) ) 62) ) –) –) –) 68) ) 68) ) Group Company 2008) £’000) 921) 330) 500) ) 1,751) ) 133) 650) 876) 175) ) 1,834) ) 3,585) ) 2009) £’000) 2008) £’000) –) –) –) ) –) ) –) –) –) –) ) –) ) –) ) –) –) –) ) –) ) –) –) –) –) ) –) ) –) ) 2009) £’000) 1,862) 363) 84) 253) ) 2,562) ) 2009) £’000) 500) 395) 451) ) 1,346) ) 105) 421) 888) 196) ) 1,610) ) 2,956) ) Bank borrowings and overdrafts are secured by fixed and floating charges over the assets of the subsidiary to which they relate with the exception of CEPS PLC and Davies Odell Limited who have given unlimited cross guarantees to secure the liabilities of each other. Trade receivable backed working capital facilities are secured by the trade receivable to which they relate. All borrowings are denominated in Sterling. At 31 December 2009 the analysis of the security of bank borrowings and overdrafts and trade receivables backed working capital facilities was as follows: Secured on the assets of Friedman’s Sunline Davies Odell and CEPS PLC By fixed and) floating charges) £’000) By trade) receivables) £’000) 21) 900) 105) ) 1,026) ) 304) –) 584) ) 888) ) Total) £’000) 325) 900) 689) ) 1,914) ) 41 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 20. Borrowings continued At 31 December 2008 the analysis of the security of bank borrowings and overdrafts and trade receivables backed working capital facilities was as follows: Secured on the assets of Friedman’s Sunline Davies Odell and CEPS PLC By fixed and) floating charges) £’000) By trade) receivables) £’000) 271) 1,300) 133) ) 1,704) ) 369) –) 507) ) 876) ) Total) £’000) 640) 1,300) 640) ) 2,580) ) The committed bank borrowings mature through until February 2012 and carry interest of between 2% and 3.25% above the bank’s base rate. The exposure of the Group’s borrowings to interest rate changes and the contractual repricing dates at the balance sheet dates are as follows: Within one year Between one and two years Between two and five years 2009) )2008) Bank) £’000) 993) 521) 400) ) 1,914) ) Finance) lease) £’000) 196) 185) 266) ) 647) ) Bank) £’000) 1,009) 271) 1,300) ) 2,580) ) Finance) lease) £’000) 175) 183) 317) ) 675) ) The fair value of current borrowings equals their carrying amount, as the impact of discounting is not significant. The carrying amounts of the non-current bank borrowings is £500,000 (2008: £921,000) and their fair values £480,000 (2008: £874,000). The carrying amounts of the non- current finance lease obligations is £451,000 (2008: £500,000) and their fair values £321,000 (2008: £454,000). Other loans represent preference shares of £130,000 and loan stock of £200,000, subscribed by minorities and loan stock of £65,000 issued to minorities in settlement of deferred consideration. Preference shares carry a dividend of 15% pa and loan stock interest of 15% pa and are each repayable in quarterly instalments over three years commencing in April 2009. The preference shares and loan notes are held by the minority interest and are in Sunline Direct Mail Holdings Limited. The minority has confirmed that he has no intention to seek any settlement during 2010 and, consequently, management believes it is appropriate to recognise the liability as non-current. The minimum lease payments under finance leases fall due as follows: Not more than one year Later than one year but not more than five years Finance charge Present value of finance lease liabilities) 2009) £’000) 241) 458) ) 699) (52) ) 647) ) 2008) £’000) 227) 556) ) 783) (108) ) 675) ) The carrying amounts of the Group’s borrowings are denominated in Sterling. Trade receivables backed working capital facilities are available to the Group and are currently subject to re-negotiation. The Group has no bank loan facilities available for draw down. 42 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 21a. Financial instruments 21a. by category The accounting policies for financial instruments have been applied to the line items below: Group, 31 December 2009 Assets as per balance sheet Trade and other receivables (excluding prepayments) Cash and cash equivalents Total Liabilities as per balance sheet Borrowings (excluding finance leases) Finance leases Trade and other payables (excluding statutory liabilities) Total Group, 31 December 2008 Assets as per balance sheet Trade and other receivables (excluding prepayments) Cash and cash equivalents Total Loans and receivables) £’000) 2,371) 736) ) 3,107) ) Other financial) )liabilities) )£’000) 1,914) 647) 2,199) ) 4,760) ) Loans and) receivables) £’000) 2,618) 665) ) 3,283) ) Liabilities as per balance sheet Borrowings (excluding finance leases) Finance leases Trade and other payables (excluding statutory liabilities) Other financial) liabilities) £’000) 2,580) 675) 2,470) ) 5,725) ) The Company’s assets in both the current and prior year are categorised as loans and receivables. The Company’s liabilities are categorised as other financial liabilities. Total 43 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 21b. Credit quality of 21b. financial assets The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates: Trade receivables are analysed between: Group Davies Odell Friedman’s Sunline ) ) ) ) ) ) ) ) ) ) ) ) ) 2009) £’000) 924) 442) 1,018) ) 2,384) ) 2008) £’000) 1,028) 565) 1,054) ) 2,647) ) The Group has a customer base which is for the most part stable, long standing and well known to the businesses. Credit and credit terms are negotiated with these customers taking into account their trading history with the Group and their payment record. New customers are only given credit after taking references or making trade and agency enquiries. Management does not believe there to be a credit exposure beyond that for which provision has already been made. The Company cash and cash equivalents includes £736,000 (2008: £665,000) which is on account with differing financial institutions and is readily available. The external credit rating as assessed by Standard & Poor’s for short term funds for each of the institutions is A-1+. 22. Deferred tax asset The following are the major deferred tax assets recognised by the Group, and the movement thereon, during the current and prior years. At 1 January 2008, asset (Charge)/credit to the income statement Charged to equity at 31 December 2008, asset (Charge)/credit to the income statement at 31 December 2009, asset Pension) Accelerated) capital) scheme) allowances) deficit) £’000) £’000) Other) timing) differences) £’000) 45) (22) (23) ) –) –) ) –) ) 58) (74) –) ) (16) (163) ) (179) ) 15) 25) –) ) 40) 303) ) 343) ) Total) £’000) 118) (71) (23) ) 24) 140) ) 164) ) Deferred income tax assets and liabilities are recognised at 28% and offset only when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. It is currently anticipated that £41,000 of the asset will be utilised within one year. Deferred income tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax benefit through the future taxable profits is probable. Gross tax losses of £415,000 (2008: £1,764,000) and gross ACAs of £1,094,000 (2008: £500,000) are unrecognised at the balance sheet date. The Company has recognised in 2009 a deferred tax asset of £nil (2008: £9,000) in relation to tax losses. 44 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 23. Provisions for 23. liabilities and charges Dilapidations provisions at 31 December 2009 were £55,000 (2008: 55,000) and are carried against the costs anticipated on termination of property leases. The leases to which they relate are currently due to terminate in 2012. 24. Called up share capital ) ) ) ) ) ) 2009) £’000) 2008) £’000) Ordinary shares Authorised: 15,000,000 (2008: 15,000,000) shares of 5.0p per share Allotted called and fully paid: 8,314,310 (2008: 8,314,285) shares of 5.0p per share 750) ) 416) ) 750) ) 416) ) Warrants to acquire 25 shares (2008: 54 shares) were exercised during the year at an exercise price of 62.5p. Warrants for a further 1,437,287 ordinary shares at a price of 62.5p per share were outstanding at the year end and lapsed unexercised on 20 April 2010. Options granted and remaining unexercised at 31 December 2009 were: Number of shares Period during which the right is exercisable Price per share to be paid 3,000 until 21 May 2011 337.5p The terms of the share options may be adjusted by the Board to reflect variations of share capital. 45 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 25. Operating lease 26. commitments The Group leases various offices, warehouses and light industrial premises under non- cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights. The Group also leases various plant and machinery and motor vehicles under cancellable operating lease agreements. The Group is required to give not more than six months notice for the termination of these agreements. The lease expenditure charged to the Consolidated Statement of Comprehensive Income during the year is shown in note 5. The future aggregate minimum lease payments under non-cancellable operating leases are: Land and buildings leases expiring: CCwithin one year CCwithin two to five years CCafter more than five years ) ) ) ) 2009) £’000) 342) 470) –) ) 812) ) 2008) £’000) 342) 737) –) ) 1,079) ) 46 CEPS PLC 31 December 2009 Notes to the Financial Statements continued 26. Related party 26. transactions The Group has no material transactions with related parties which might reasonably be expected to influence decisions made by users of these financial statements. During the year the Company entered into the following transactions with its subsidiaries. Receipt of ordinary share dividend – 2009 – 2008 Receipt of preference share dividend – 2009 – 2008 Receipt of loan note interest – 2009 – 2008 Receipt of management charge income – 2009 – 2008 Amount owed to the Company – 31 December 2009 – 31 December 2008 Cash at bank and in hand Bank overdrafts repayable on demand Davies) Odell) Limited) £’000) 200) –) –) –) –) –) –) –) 220) 111) 2008) £’000) 665) (133) ) 532) ) Sunline) Direct Mail) Holdings) Limited) £’000) Signature) Fabrics) Limited) £’000) –) –) 78) 78) 127) 127) 15) 15) 284) 250) –) –) –) –) 37) 37) 12) 12) 241) 190) Company 2009) £’000) 2008) £’000) 24) –) ) 24) ) 3) –) ) 3) ) Group 2009) £’000) 736) (105) ) 631) ) 27. Cash and cash 26. equivalents 47 CEPS PLC Company number 507461 Notice of Meeting Annual General Meeting Notice is hereby given that the Annual General Meeting of CEPS PLC will be held at Engineers’ House, The Promenade, Clifton Down, Bristol on Friday 28 May 2010 at 11.30am for the following purposes: To consider and, if thought fit, to pass the following resolutions, of which numbers 1 to 5 will be proposed as ordinary resolutions and numbers 6 and 7 as special resolutions. 1 2 3 4 5 6 To receive, consider and adopt the Company’s annual accounts for the financial year ended 31 December 2009 together with the directors’ report and auditors’ report on those accounts. To re-elect D A Horner as a director. To re-appoint PricewaterhouseCoopers LLP, Chartered Accountants and Registered Auditors, as auditors of the Company to hold office from conclusion of the meeting to the conclusion of the next meeting at which the accounts are to be laid. To authorise the directors to agree the auditors’ remuneration. THAT, in substitution for any existing authority subsisting at the date of this resolution to the extent unused, the directors be generally and unconditionally authorised in accordance with section 551 of the Companies Act 2006 (the “Act”) to allot shares in the Company or grant rights to subscribe for or to convert any security into shares in the Company up to an aggregate nominal amount of £334,284.50, such authority to expire at the commencement of the next Annual General Meeting held after the date of the passing of this resolution, or, if earlier, fifteen months after the date of the passing of this resolution, but so that the Company may, before the expiry of such period, make an offer or agreement which would or might require equity securities to be allotted after the expiry of such period and the directors may allot equity securities pursuant to such an offer or agreement as if the authority had not expired. ‘Rights issue’ means an offer of equity securities to holders of ordinary shares in the capital of the Company on the register on a record date fixed by the directors in proportion as nearly as may be to the respective numbers of ordinary shares held by them, but subject to such exclusions or other arrangements as the directors may deem necessary or expedient to deal with any treasury shares, fractional entitlements or legal or practical issues arising under the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory or any other matter. THAT subject to and conditional on the passing of resolution number 5 and in substitution for any existing authority subsisting at the date of this resolution to the extent unused, the directors be empowered, pursuant to section 570 of the Act, to allot equity shares (within the meaning of section 560 of the Act) for cash pursuant to the authority conferred by resolution number 5 as if section 561(1) of the Act did not apply to any such allotment, provided that this power shall be limited to the allotment of equity securities: 6.1 in connection with an offer of such securities by way of rights issue (as defined in resolution number 5); 48 Annual General Meeting continued CEPS PLC Company number 507461 Notice of Meeting continued 6 continued 6.2 otherwise than pursuant to sub-paragraph 6.1 above up to an aggregate nominal amount of £200,150.00 (such shares representing approximately 48% of the Company’s issued ordinary capital as at the date of this notice), and shall expire at the commencement of the next Annual General Meeting held after the date of the passing of this resolution, save that the Company may, before such expiry, make an offer or agreement which would or might require equity securities to be allotted after such expiry and the directors may allot equity securities in pursuance of any such offer or agreement as if the power had not expired. 7 THAT the Company be generally and unconditionally authorised to make market purchases (within the meaning of section 693(4) of the Act) of ordinary shares of 5 pence each in the capital of the Company on such terms as the directors think fit, provided that: 7.1 the maximum number of ordinary shares hereby authorised to be purchased is limited to an aggregate of 831,431 (such shares representing approximately 10% of the Company’s issued ordinary capital as at the date of this notice); 7.2 the minimum price, exclusive of any expenses, which may be paid for an ordinary share is 5 pence; 7.3 the maximum price, exclusive of any expenses, which may be paid for each ordinary share is an amount equal to the higher of: (a) 105 per cent of the average of the middle market quotations for an ordinary share, as derived from the London Stock Exchange Daily Official List, for the five business days immediately preceding the day on which the ordinary share is purchased; and (b) the amount stipulated by Article 5(1) of the Buy-back and Stabilisation Regulation 2003; and 7.4 the authority hereby conferred shall, unless previously revoked and varied, expire at the commencement of the next Annual General Meeting held after the date of the passing of the resolution (except in relation to the purchase of ordinary shares the contract for which was concluded before the expiry of this authority and which will or may be executed wholly or partly after such expiry). On behalf of the Board V E Langford Secretary Dated 5 May 2010 Registered office: 11 George Street, Bath BA1 2EH Registered in England and Wales with number 507461 49 Annual General Meeting continued CEPS PLC Company number 507461 Notice of Meeting continued Notes 1. A member entitled to attend and vote is entitled to appoint (a) proxy(ies) to attend, speak and vote instead of him/her. A member may appoint more than one proxy, provided that each proxy is appointed to exercise the rights attached to different shares. 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 other authority under which it is executed (or a duly certified copy of any such power or authority) must be deposited at the office of the Registrars of the Company, Capita Registrars, PXS, of 34 Beckenham Road, Beckenham, Kent BR3 4TU, not less than 48 hours before the time for holding the meeting. A proxy form is enclosed. The appointment of a proxy will not prevent a shareholder from subsequently attending and voting at the meeting in person. 3. Under Regulation 41 of the Uncertificated Securities Regulations 2001, only those shareholders whose names are on the register of members of the Company as at 5.30pm on 26 May 2010 or, if the meeting is adjourned, shareholders entered on the Company’s register of members not later than 48 hours before the time fixed for the adjourned meeting are entitled to attend and vote at the meeting in respect of the shares registered in their names at that time. Subsequent changes to the register shall be disregarded in determining the rights of any person to attend and vote at the meeting. 50 CEPS PLC Group Information Directors Secretary and registered office Operating locations Registrars and share transfer office P G Cook, Group Managing D A Horner, Non-executive G C Martin FCA, Non-executive R T Organ BA(Hons) FRSA, Non-executive Chairman Vivien Langford 11 George Street, Bath BA1 2EH Company number 507461 www.cepsplc.com Davies Odell Ltd Portland Road, Rushden, Northants NN10 0DJ telephone 01933 410818, fax 01933 315976 email info@daviesodell.co.uk; www.forcefieldbodyarmour.com and Beatrice Road, Kettering, Northants NN16 9QS telephone 01536 513456, fax 01536 310080 email info@davieskett.co.uk; www.equimat.co.uk Friedman’s Ltd Sunaco House, Unit 2, Bletchley Road, Stockport SK4 3EF telephone 0161 975 9002, fax 0161 975 9003 email sales@friedmans.co.uk; www.friedmans.co.uk; www.funkifabrics.com Sunline Direct Mail Ltd Cotton Way, Weldon Road Industrial Estate, Loughborough LE11 5FJ telephone 01509 263434, fax 01509 264225 email enquiries@sunlinedirect.co.uk; www.sunlinesolutions.com Capita Registrars Northern House, Woodsome Park, Fenay Bridge, Huddersfield, West Yorkshire HD8 0GA telephone 0871 664 0300 - calls cost 10p per minute plus network extras, lines are open 8.30am to 5.30pm Monday to Friday Share price information The day-to-day movement of the share price on the London Stock Exchange can be found on the Company’s website and at www.londonstockexchange.com (code CEPS) Auditors Solicitors PricewaterhouseCoopers LLP, Chartered Accountants and Statutory Auditors 31 Great George Street, Bristol BS1 5QD Berwin Leighton Paisner LLP Adelaide House, London Bridge, London EC4R 9HA Nominated adviser and broker Astaire Securities plc 30 Old Broad Street, London EC2N 1HT telephone 020 7448 4400, fax 020 7448 4411 51