CEPS PLC

Annual Report • May 3, 2016

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RNS Number : 9468W

CEPS PLC

03 May 2016

3 May 2016

CEPS PLC

("CEPS" OR THE "COMPANY")

FINAL RESULTS

The Board of CEPS is pleased to announce its final results for the year ended 31 December 2015.

CHAIRMAN'S STATEMENT

Review of the period

This is my first Chairman's Statement and I thought I would take the opportunity to set out again the original plan on which I led the refinancing of what was then called Dinkie Heel plc and was renamed CEPS plc (Chelverton Equity PartnerS).

The objective then, and today, is to acquire profitable cash generative companies operating in niche market sectors in partnership with the "business drivers" of these companies.  With the input, both strategic and financial from the CEPS Board, the intention is to encourage and help the management teams to develop the businesses and to grow them steadily over time. 

As the companies grow their profits and generate cash, the free cash will be used to repay the funding used to originally acquire the company.  The style and structure of this approach has more in common with the creation of a conglomerate and is different to the private equity approach, where companies are owned for up to five years and then sold.  Once the acquisition debt due to banks, vendor shareholders and CEPS has been repaid then the free cash generated will be used to pay dividends and to further develop the company.  CEPS will receive its share of any dividends paid and will also support any company initiative requiring further investment.

The original plan was to acquire one company a year financed as to 50% in equity and 50% in bank debt.  It was felt that once eight companies had been acquired, further development of those eight companies and further acquisitions would then be financed from the Group's cash flow with no further equity issuance.  With the acquisition of Friedman's in 2005 and then Sunline in early 2007, the plan was on track.  However, the onset of the Credit Crunch and the "Great Recession" put everything on hold as the trading of companies became less predictable and it also became impossible to obtain bank debt to finance further acquisitions.

It was not until five years later, in 2012, that CEPS made its next acquisition with other investors in the partial purchase of CEM Press.  Since then CEPS has acquired Aford Awards in November 2014, the balance of CEM Press in October 2015 and, very recently, Hickton Consultants in January 2016.

CEPS now has six subsidiaries and has made very significant progress in the past eighteen months both in increasing the breadth of the business and also in investing in the development and improvement of the CEPS' businesses.  As ever evidence of improvement takes a while to become clear to people not involved day to day in the companies.   

Shareholder value in CEPS is created as follows:

1.       The size of a target company generally means that it is too small for a private equity investor to deem worthwhile applying time and large resources to.  At the same time, there are few individuals with adequate resources to compete.  Therefore, there is generally very little price competition when CEPS acquires a company.

2.       Because CEPS is effectively a conglomerate, no acquired company has any particular strategic value and, therefore, CEPS will not overpay.

3.       Vendors are asked to retain part of their consideration as interest bearing loan notes, which has the dual effect of mitigating the risk of purchase and, also, provides an element of gearing.

4.       The management team invests in the shares of a new company established to buy the target and also to provide a measure of commitment to a five‑year plan by providing interest bearing loan finance.

5.       The repayment, in time, of all of the purchase price bar £100,000, being the share capital of the new company, means that CEPS and the management team get all of their investment back whilst still owning the company.

6.       Under the ownership of CEPS, these acquired companies will become better quality companies as the appropriate elements of corporate governance are gradually and appropriately introduced.

7.       Finally, and of greatest importance, we will aim to acquire companies whose profits are steadily growing and will consequently become more valuable.       

Further acquisitions will be either as stand-alone companies or additions to existing subsidiaries. 

Financial review

The results for the year do not evidence the significant positive developments that have taken place in each of the subsidiaries over the past 12 months.  We expect this progress to be more apparent at the interim stage in September and, of course, for the full set of results for the current year.

As a result of the three purchases mentioned above, CEPS is now a much broader Group than eighteen months ago and the profit contribution from these acquisitions is expected to make a material difference to the Group accounts. 

Overall, Group revenue at £18.2m for the year (2014: £17.0m) was up by 7% whilst operating profit grew almost 100% to £486,000 from £244,000.  Profit before tax was up 60.8% at £394,000 (2014: £245,000) before an exceptional charge of £138,000 due to the required accounting treatment in respect of the CEM Press acquisition.  Group costs were marginally higher than last year at £370,000, but include a £79,000 write-off of historic goodwill.  If this is excluded, Group costs are down by £61,000 at £291,000 (2014: £352,000) mainly reflecting the non‑replacement of Peter Cook, the former Group Managing Director, but including an ex‑gratia payment to him.  Post-tax profit was £57,000 (2014: £251:000) due to a significant tax charge of £199,000 (2014: credit of £6,000 resulting from a deferred tax adjustment).  Earnings per share on a basic and diluted basis were (3.65p) (2014: (3.13p)).  In the year there was an improvement in cash generated from operations amounting to £889,000 (2014: £580,000) and there was a net increase in cash and cash equivalents of £206,000 (2014: £177,000).  Year end cash and cash equivalents (excluding bank overdrafts) were £854,000 (2014: £346,000).  The enlarged Group has contributed to these improvements and cash is expected to improve further in future years.

Operational review

Aford Awards

We looked to expand the business in 2015 by making a small acquisition.  However, we were not prepared to meet the price expectations of the vendor.  We will continue to look at ways of expanding the business both organically and by acquisition, in 2016.  The creation of a new showroom and investment in a new engraving machine will improve the sales and marketing capability and manufacturing capacity.   

CEM Press

CEPS completed the purchase of CEM Press through a new company with the existing management team at the end of September 2015.  As the business had been underinvested for several years, a number of projects are now underway aimed at improving efficiency and quality.  This will, as ever, take a little while.  However, we are pleased that in this brief period of majority ownership, improvements in the operational efficiencies are beginning to be evident.

Davies Odell

Trading continued to be difficult in 2015 and sadly it was necessary to address the cost base by making eight people redundant.  A considerable amount of effort has gone into addressing the issues in the company and progress is now being made.  We expect that Davies Odell will make some progress in 2016. 

Friedman's

The company has had an excellent 2015 and we expect it to do well in 2016, notwithstanding the cost impact of a weakening Pound.  The continuing development of Funki Fabrics is expected to become a major profit driver in 2016 and beyond.    

Hickton

Hickton was acquired after the financial year end with a number of investors from the Chelverton Investor Club and the managing director of the company.  Trading has gone well in the brief period of ownership and we expect Hickton to make a good contribution to the Group in 2016.

Sunline

After the very difficult operational issues in 2014, it is pleasing to be able to report that Sunline's original business moved back into profit in 2015, albeit with the use of extra labour to ensure no repeat of the problems experienced in 2014.  In 2016 the emphasis will be on fine-tuning the labour costs, now that the capacity and efficiency of the production line has been established.  Also, additional sales resource has been recruited to fill the extra capacity of the new plant.  

The "Pick, Pack and Despatch" business which was started in 2014 made very good progress in 2015, although it is still loss-making as it has yet to reach critical mass.  It is expected that the business will break into profit on a monthly basis at the end of this year and, thereafter, will become a valuable earnings stream and an important adjunct to the polywrap business.

Dividend

A dividend is not proposed at this time (2014: £nil), but the situation will be kept under review.

Power to issue and purchase shares  

The Company will be convening its Annual General Meeting to be held on 20 June 2016.  Among other resolutions to be proposed, the Board will seek authority to allot shares equating to 100% of its present issued ordinary share capital in line with the requirements of our acquisition strategy.

People

The Board is most grateful for the diligent efforts of all the Group's employees in 2015. 

I am sorry to have to report that Peter Cook, formerly Group Managing Director, has had to retire from the Company as a consequence of a serious illness.

Also Richard Organ has stated that he wishes to step down from the Board at the AGM.  I would like to thank Richard for all he has done for the Group over the past 16 years.  We all wish him well in his gradual retirement.

We are currently considering potential candidates for the role of Non-Executive Director and hope to be in a position to make an announcement shortly.

Prospects

Underlying trading in the Group companies is improving.  Steps have been taken in all of the subsidiaries to promote further development and, once the uncertainty caused by the European Union Referendum is removed, one way or the other, we believe our companies will continue to make progress.   

Against this background, we anticipate further recovery at Sunline, continued good results from Friedman's and a good maiden contribution from Hickton Consultants.  Aford Awards and CEM Press are expected to make steady progress and Davies Odell should, as the year progresses, begin to show a return to appropriate profits.    

Trading in the year to date is in line with the Board's expectations.  Whilst there is currently great uncertainty at the macro level in the UK economy, our companies are working hard to make multiple small improvements in their trading.  We expect the Group to make further significant progress as the year unfolds.

David Horner

Chairman

29 April 2016

David Horner, Chairman, CEPS PLC

Tel: 01225 483030

Tony Rawlinson, Cairn Financial Advisers LLP

Nominated Adviser

Tel:  020 7148 7900

CEPS PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

YEAR ENDED 31 DECEMBER 2015

	2015	2014
	£'000	£'000
Continuing operations
Revenue (note 5)	18,229	16,981
Cost of sales	(15,035)	(14,640)
Gross profit	3,194	2,341
Net operating expenses	(2,708)	(2,097)
Operating profit	486	244
Analysis of operating profit
- Trading	856	596
- Group costs	(370)	(352)
	486	244
Finance income	8	11
Finance costs	(121)	(24)
Loss on step acquisition	(138)	-
Share of investment accounted for using the equity method	21	14
Profit before tax	256	245
Taxation (note 6)	(199)	6
Profit for the year from continuing operations	57	251
Other comprehensive loss: Items that will not be reclassified to profit or loss
Re-measurement of post employment benefit obligations	(68)	(87)
Items that may be subsequently reclassified to profit or loss	-	-
Other comprehensive loss for the year, net of tax	(68)	(87)
Total comprehensive (loss)/income for the year	(11)	164
(Loss)/profit attributable to:
Owners of the parent	(275)	(169)
Non-controlling interest	332	420
	57	251
Total comprehensive (loss)/income attributable to:
Owners of the parent	(343)	(256)
Non-controlling interest	332	420
	(11)	164
Earnings per share from continuing operations attributable to the equity holders of the parent
- basic and diluted (note 7)	(3.65)p	(3.13)p

CEPS PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2015

	2015	2014
	£'000	£'000
Assets
Non-current assets
Property, plant and equipment (note 8)	2,122	1,999
Intangible assets (note 10)	4,652	3,285
Investment using the equity method	-	568
Deferred tax asset	440	487
	7,214	6,339
Current assets
Inventories	2,030	1,914
Trade and other receivables	3,155	2,569
Cash and cash equivalents (excluding bank overdrafts)	854	346
	6,039	4,829
Total assets	13,253	11,168
Equity
Capital and reserves attributable to owners of the parent
Share capital (note 11)	957	541
Share premium	3,943	3,114
Retained earnings	(712)	(281)
	4,188	3,374
Non-controlling interest in equity	873	694
Total equity	5,061	4,068
Liabilities
Non-current liabilities
Borrowings	2,275	1,406
Deferred tax liability	77	36
Provisions for liabilities and charges	55	55
	2,407	1,497
Current liabilities
Borrowings	2,319	2,876
Trade and other payables	3,359	2,672
Current tax liabilities	107	55
Provisions for liabilities and charges	-	-
	5,785	5,603
Total liabilities	8,192	7,100
Total equity and liabilities	13,253	11,168

CEPS PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

YEAR ENDED 31 DECEMBER 2015

	2015	2014
	£'000	£'000
Cash flows from operating activities
Cash generated from operations	889	580
Income tax paid	(59)	(113)
Interest received	8	-
Interest paid	(18)	(24)
Net cash generated from operations	820	443
Cash flows from investing activities
Acquisition of subsidiary net of cash acquired	(267)	(1,054)
Purchase of property, plant and equipment	(205)	(517)
Proceeds from sale of assets	12	-
Purchase of intangibles	(35)	(14)
Disposal of property, plant and equipment	295	-
Net cash used in investing activities	(200)	(1,585)
Cash flows from financing activities
Proceeds from borrowings	(1,306)	1,574
Dividend paid to non-controlling interests	(180)	(45)
Share issue net of costs	1,245	-
Repayment of capital element of finance leases	(173)	(210)
Net cash generated (used in)/from financing activities	(414)	1,319
Net increase in cash and cash equivalents	206	177
Cash and cash equivalents at the beginning of the year	(95)	(272)
Cash and cash equivalents at the end of the year	111	(95)
Cash generated from operations
Profit before income tax	256	245
Adjustments for:
Depreciation and amortisation	503	320
Profit of associate	(21)	(14)
Loss on disposal on step acquisition	138	45
Net finance costs	113	13
Retirement benefit obligations	-	(77)
Changes in working capital:
Decrease/(increase) in inventories	165	(134)
Increase in trade and other receivables	(112)	(37)
(Decrease)/increase in trade and other payables	(93)	233
Decrease in provisions	(60)	(14)
Cash generated from operations	889	580

CEPS PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

YEAR ENDED 31 DECEMBER 2015

	Share capital	Share premium	Retained earnings	Attributable to  owners of the parent	Non-controlling interest	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2014	541	3,114	(25)	3,630	235	3,865
Other comprehensive income  - re‑measurement of post employee benefit obligations	-	-	(87)	(87)	-	(87)
(Loss)/profit for the year	-	-	(169)	(169)	420	251
Total comprehensive (loss)/ income for the year	-	-	(256)	(256)	420	164
Dividend paid to non-controlling         interest	-	-	-	-	(45)	(45)
Total transactions recognised         directly in equity	-	-	-	-	(45)	(45)
Change in ownership interest in         a subsidiary not resulting in         loss of control	-	-	-	-	54	54
Acquisition of a subsidiary	-	-	-	-	30	30
Total changes in ownership interest that do not result in a loss of control	-	-	-	-	84	84
Total transactions with owners recognised directly in equity	-	-	-	-	39	39
At 31 December 2014	541	3,114	(281)	3,374	694	4,068
Other comprehensive income - re‑measurement of post employee benefit obligations	-	-	(68)	(68)	-	(68)
(Loss)/profit for the year	-	-	(275)	(275)	332	57
Total comprehensive (loss)/income for the year	-	-	(343)	(343)	332	(11)
Proceeds from shares issued net of expenses	416	829	-	1,245	-	1,245
Total contributions by owners         of the parent recognised         in equity	416	829	-	1,245	-	1,245
Dividend paid to non-controlling interest	-	-	-	-	(180)	(180)
Total transactions recognised directly in equity	-	-	-	-	(180)	(180)
Change in ownership interest in   an associate	-	-	(88)	(88)	-	(88)
Acquisition of a subsidiary	-	-	-	-	27	27
Total changes in ownership interest that do not result in a loss of control	-	-	(88)	(88)	27	(61)
Total transactions with owners recognised directly in equity	-	-	(88)	(88)	(153)	(241)
At 31 December 2015	957	3,943	(712)	4,188	873	5,061

Notes to the financial information

1.       General information

The Company is a limited liability company incorporated and domiciled in the UK. The address of its registered office is 12b George Street, Bath, BA1 2EH and the registered number of the Company is 507461.

2.       Basis of preparation

This announcement is an extract from the consolidated financial statements of the Company for the year ended 31 December 2015 and comprises the Company and its subsidiaries.  The consolidated financial statements were authorised for issuance on 29 April 2016.  The financial information set out below does not constitute the Company's statutory accounts for the years ended 31 December 2014 or 2015 within the meaning of Section 434 of the Companies Act 2006, but is derived from those accounts. Statutory accounts for 2014 have been delivered to the Registrar of Companies and those for 2015 will be delivered following the Company's Annual General Meeting. The auditors' reports on the statutory accounts for the years ended 31 December 2014 and 31 December 2015 were unqualified and do not contain statements under s498(2) or (3) Companies Act 2006.

This financial information has been prepared in accordance with the International Financial Reporting Standards ("IFRSs") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.  Details of the accounting policies applied are set out in the financial statements.

Certain statements in this announcement constitute forward-looking statements. Any statement in this announcement that is not a statement of historical fact including, without limitation, those regarding the Company's future expectations, operations, financial performance, financial condition and business is a forward-looking statement. Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties include, amongst other factors, changing economic, financial, business or other market conditions.  These and other factors could adversely affect the outcome and financial effects of the plans and events described in this announcement and the Company undertakes no obligation to update its view of such risks and uncertainties or to update the forward-looking statements contained herein. Nothing in this announcement should be construed as a profit forecast.

The Group financial statements are presented in GBP (£) and to the nearest thousand ('000).  This Group expects to transact more of its business in GBP than any other currency and it is also the functional currency of the Group.

The financial information set out in this announcement was approved by the Board on 29 April 2016.

3.       Accounting Policies

The following new accounting policy was adopted during the year:

(a)   Intangible assets

As a result of the acquisition of CEM Press the Group now holds intangible assets in respect of customer lists acquired.  These intangible assets are not amortised, but are subject to an annual impairment review.

4.       Critical accounting assumptions, judgements and estimates

The fair values of all financial assets and liabilities approximate to their carrying values.

a)    Impairment of intangible assets (including goodwill and customer relationships)

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

b)    Deferred tax assets

Certain subsidiaries of the Group (principally Davies Odell) have accelerated capital allowances and brought forward tax losses.  Deferred tax assets have been recognised in respect of the brought-forward tax losses.  The recognition of the assets reflects management's estimate of the recoverable amounts in respect of these items.

c)    Retirement benefit liabilities

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

d)    Acquisitions

During the year the Group acquired CEM Teal Limited.  Management has made estimates concerning the intangible assets arising on acquisition as well as the fair value of the assets and liabilities at the acquisition date.

5.       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:

-     Aford Awards, a sports trophy and engraving company

-     CEM Press, a manufacturer of fabric and wallpaper pattern books, swatches and shade cards

-     Davies Odell, a manufacturer and distributor of protection equipment, matting and footwear components

-     Friedman's, a convertor and distributor of specialist Lycra

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

-     Group costs, costs incurred at Head Office level to support the activities of the Group

The United Kingdom is the main country of operation from which the Group derives its revenue and operating profit and is the principal location of the assets and liabilities of the Group.  The Group information provided below, therefore, also represents the geographical segmental analysis.  Of the £18,229,000 (2014: £16,981,000) revenue £15,884,000 (2014: £14,662,000) is derived from UK customers with the remaining £2,345,000 (2014: £2,319,000) being derived from a number of overseas countries, none of which is material in isolation.

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

i)     Results by segment

Year ended 31 December 2015

	Aford Awards	CEM Press	Davies Odell	Friedman's	Sunline	Total
	2015	2015	2015	2015	2015	2015
	£'000	£'000	£'000	£'000	£'000	£'000
Revenue	1,468	654	4,971	4,221	6,915	18,229
Segmental result (EBITDA)	273	(49)	(73)	925	204	1,280
Depreciation and amortisation         charge						(424)
Group costs						(370)
Net finance costs						(113)
Loss on step acquisition						(138)
Share of investment accounted for using the equity method						21
Profit before taxation						256
Taxation						(199)
Profit for the year						57

Year ended 31 December 2014

	Aford Awards	CEM Press	Davies Odell	Friedman's	Sunline	Total
	2014	2014	2014	2014	2014	2014
	£'000	£'000	£'000	£'000	£'000	£'000
Revenue	146	-	5,579	3,926	7,330	16,981
Segmental result (EBITDA)	(7)	-	216	643	67	919
Depreciation and amortisation charge						(323)
Group costs						(352)
Net finance costs						(13)
Share of investment accounted for using the equity method						14
Profit before taxation						245
Taxation						6
Profit for the year						251

ii)     Assets and liabilities by segment

As at 31 December

	Segment assets		Segment liabilities		Segment net assets
	2015	2014	2015	2014	2015	2014
	£'000	£'000	£'000	£'000	£'000	£'000
CEPS Group	275	736	(178)	(924)	97	(188)
Aford Awards	1,393	1,350	(489)	(579)	904	771
CEM Press	2,645	-	(2,031)	-	614	-
Davies Odell	2,147	2,430	(1,256)	(1,308)	891	1,122
Friedman's	3,408	2,953	(1,031)	(853)	2,377	2,100
Sunline	3,385	3,699	(3,207)	(3,436)	178	263
Total - Group	13,253	11,168	(8,192)	(7,100)	5,061	4,068

iii)    Non-cash expenses and capital expenditure

Other than as stated above there were no significant non-cash expenses

	2015	2014
	£'000	£'000
Capital expenditure
Aford Awards	5	29
CEM Press	361	-
Davies Odell	74	121
Friedman's	2	49
Sunline	93	1,152
Total - Group	535	1,351

6.          Tax

	2015	2014
	£'000	£'000
Analysis of taxation in the year:
Current tax
Tax on profits of the year	111	43
Tax in respect of prior years	-	(21)
Total current tax	111	22
Deferred tax
Origination and reversal of temporary differences	88	(28)
Total deferred tax	88	(28)
Total tax (credit)/charge	199	(6)
Deferred tax charged to the Consolidated Statement of Changes in Equity	-	-

The tax assessed for the year is higher (2014: lower) than the standard rate of corporation tax in the UK (20.25%) (2014: 21.5%)

Factors affecting current tax:
Profit before taxation	256	245
Profit multiplied by the standard rate of UK tax of 20.25% (2014: 21.5%)	52	53
Effects of:
Permanent differences	147	(38)
Prior year adjustment, current tax	-	(21)
Total tax charge/(credit)	199	(6)

The standard rate of corporation tax in the UK changed from 21% to 20% with effect from 1 April 2015.  Accordingly, the Group's profits for this accounting year are taxed at an effective rate of 20.25%.

Reductions in the United Kingdom corporation tax rate to 19% (effective from 1 April 2017) and 18% (effective from 1 April 2020) were substantively enacted on 26 October 2015.  This will reduce the Group's future current tax charge accordingly.  The deferred tax balance has been calculated based on the rate of 20%.

7.       Earnings per share

Basic earnings per share is calculated on the loss for the year after taxation of £275,000 (2014: loss £169,000) and on 7,530,443 (2014: 5,407,155) ordinary shares, being the weighted number in issue during the year. 

No adjustment is required for dilution in either year as there are no items that would have a dilutive impact on earnings per share.

8.    Property, plant and equipment

		Leasehold property improvements	Plant, machinery, tools and moulds	Motor vehicles	Total
Group		£'000	£'000	£'000	£'000
	Cost
	at 1 January 2014	131	3,988	140	4,259
	Additions	6	1,318	27	1,351
	Disposals	-	(160)	(22)	(182)
	at 31 December 2014	137	5,146	145	5,428
	Additions	1	183	21	205
	Assets acquired on purchase of a subsidiary	-	330	-	330
	Disposals	-	(2)	-	(2)
	at 31 December 2015	138	5,657	166	5,961
	Accumulated depreciation
	at 1 January 2014	72	3,102	81	3,255
	Charge for the year	13	279	19	311
	Disposals	-	(117)	(20)	(137)
	at 31 December 2014	85	3,264	80	3,429
	Charge for the year	11	381	18	410
	at 31 December 2015	96	3,645	98	3,839
	Net book amount
	at 31 December 2015	42	2,012	68	2,122
	at 31 December 2014	52	1,882	65	1,999

	At the year end, assets held under hire purchase contracts and capitalised as plant, machinery, tools and moulds have a net book value of £1,453,000 (2014: £1,539,000) and an accumulated depreciation balance of £1,699,000 (2014: £1,461,000). The depreciation has been charged to cost of sales in the Consolidated Statement of Comprehensive income.

9.       Acquisition in 2015

During the year CEPS significantly increased its indirect shareholding in CEM Press Limited from 21.4% to 71.5% and, as a result, gained control. CEPS previously acquired its shareholding in CEM Press Limited through CEM Press Holdings Limited (formerly NG42 Acquisitions Limited) which was initially formed for the purpose of acquiring CEM Press.

In line with CEPS' financing strategy, the acquisition was effected by the introduction of a new holding company, CEM Teal Limited, which has acquired 97.9% of CEM Press and of which CEPS is a 73% shareholder.  Taking control of CEM Press will enable the Group to modernise its working practices, reduce costs and develop relationships.

CEM Press is a manufacturer of fabric and wallpaper pattern books, swatches and shade cards, with a focus on the high-end fabric and wallpaper market.

The measurement to fair value of the Group's existing 21.4% interest in CEM Press resulted in a profit of £12,000, which has been included as a separate line item in the Statement of Comprehensive Income.  Up to the date of acquisition the Group's share of CEM Press's results was £21,000 (profit).

The Group incurred acquisition related costs of £18,000 for legal expenses.  These have been included in administrative expenses in the Statement of Consolidated Income.

The fair value of the identifiable assets and liabilities acquired and their carrying values as of the acquisition date were as follows:

	£'000
Identifiable Assets
Property, plant and equipment	330
Intangible assets (customer lists)	577
Stock	281
Cash and cash equivalents	3
Trade receivables	682
Other current assets	106
Total assets	1,979
Assumed Liabilities
Current liabilities
Trade and other payables	796
Non-current liabilities
Borrowings	78
Provisions for liabilities and charges	60
Total liabilities	934
Total identifiable net assets	1,061
Purchase price consideration             (cash £270,000, equity £90,000 and loan stock £1,532,000)	1,892
Total identifiable net assets	(1,061)
Non-controlling interests at acquisition	27
Goodwill	858
Analysis of cash flows on acquisition
Year ended 31 December 2015
Cash paid	270
Less:  net cash acquired with the subsidiary	(3)
Net cash flow on acquisition	267

The fair values have been determined on a provisional basis.  The fair value of intangible assets (CEM Press's customer relationships) has been determined provisionally pending completion of management's valuation.

If new information obtained within one year from the acquisition date regarding facts and circumstances that existed at the acquisition date identifies adjustment to the above amounts, or any additional provisions that existed at the acquisition date, then the acquisition accounting will be revised.

CEM Press has been successfully integrated post-acquisition into the Group.

From the date of acquisition, CEM Press has contributed £655,000 of revenue and contributed a loss before tax of £113,000, attributable to the continuing operations of the Group. If the business combination had taken place at the beginning of the year, revenue from continuing operations for the Group would have been £3,114,000 and the profit before tax from continuing operations for the Group would have been £51,000.

10.     Intangible assets

		Goodwill	Customer lists	Other	Total
Group		£'000	£'000	£'000	£'000
	Cost
	at 1 January 2014	4,839	-	82	4,921
	Additions at cost	1,039	-	14	1,053
	at 31 December 2014	5,878	-	96	5,974
	Acquisition	858	577	-	1,435
	Additions at cost	-	-	35	35
	Impairment	(79)	-	-	(79)
	Disposals	-	-	(62)	(62)
	At 31 December 2015	6,657	577	69	7,303
	Accumulated amortisation and impairment
	at 1 January 2014	2,621	-	59	2,680
	Amortisation charge	-	-	9	9
	at 31 December 2014	2,621	-	68	2,689
	Amortisation Charge	-	-	14	14
	Disposals	-	-	(52)	(52)
	at 31 December 2015	2,621	-	30	2,651
	Net book amount
	at 31 December 2015	4,036	577	39	4,652
	at 31 December 2014	3,257	-	28	3,285

	Goodwill is not amortised under IFRS, but is subject to impairment testing either annually or on the occurrence of a triggering event.  Amortisation charges are included in administration expenses. Customer lists are not amortised, but are subject to annual impairment reviews. Other intangibles relate to computer software and website 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 intangible assets (goodwill and customer lists) The Group tests goodwill and intangible assets arising on acquisition of a subsidiary (customer relationships) annually for impairment or more frequently if there are indications that goodwill or customer lists may be impaired. For the purpose of impairment testing, goodwill is allocated to the Group's cash generating units (CGUs) on a business segment basis:

		Aford Awards	CEM Press	Friedman's	Sunline	Total
		£'000	£'000	£'000	£'000	£'000
	at 1 January 2014	-	-	1,529	689	2,218
	Acquisition of subsidiary	1,039	-	-	-	1,039
	At 31 December 2014	1,039	-	1,529	689	3,257
	Acquisition of subsidiary
	Goodwill	-	858	-	-	858
	Customer lists	-	577	-	-	577
	Amortisation charge	-	-	(1)	(78)	(79)
	at 31 December 2015	1,039	1,435	1,528	611	4,613

The recoverable amount of 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.  A discount rate of 12.23% (2014: 14.26%), representing the estimated pre-tax cost of capital has been applied to these projections.  The risk profile of both CGUs is considered to be similar. The key assumptions used in the value-in-use calculations are as follows:-

		Revenue growth		Gross margin		Long-term growth
		2015	2014	2015	2014	2015	2014
		%	%	%	%	%	%
	Aford Awards	3.0	3.0	38.1	35.9	2.0	2.0
	CEM Press	2.0	-	41.0	-	2.0	-
	Friedman's	3.0	3.0	34.1	36.0	2.0	2.0
	Sunline	3.0	3.0	39.2	43.7	2.0	3.0

	Management has determined the budgeted revenue growth and gross margins based on past performance and their expectations of market developments in the future.  Long-term growth rates are based on the lower of the UK long-term growth rate and management's general expectations for the relevant CGU. The value-in-use calculation is sensitive to changes in the gross margin percentage assumed and the discount rate assumed.  A fall of 10% in respect of the above assumptions does not give rise to an indication of impairment in relation to the carrying value of the CGUs noted.  As such, management does not consider the carrying value of the goodwill for each CGU to be impaired.

11.       Share Capital

	Number of shares	Ordinary shares	Share premium	Total
		£'000	£'000	£'000
At 31 January 2014 and 31 December 2014	5,407,155	541	3,114	3,655
Shares issued	4,166,667	416	834	1,250
Transaction costs		-	(5)	(5)
At 31 December 2015	9,573,882	957	3,943	4,900

The Group issued 4,166,667 shares on 29 June 2015.  The ordinary shares issued have the same rights as the other shares in issue.  The fair value of the shares issued amounted to £1.25m (30 pence per share).  The related transaction costs amounting to £5,000 have been netted off with the deemed proceeds.

12.       Events after the Reporting Period

On 1 February 2016 CEPS announced that it had acquired 54.97% of the issued share capital of a newly incorporated company, Hickton Holdings Limited (formerly RAM (1003) Limited) for an investment of £670,000 made up of 54,973 ordinary shares for £55,000 and £615,000 Shareholder Loan Notes with an 8% interest rate.  Hickton Holdings Limited was formed to acquire 100% of Hickton Consultants Limited, a leading provider of clerk of works services to the construction industry, providing a quality assurance resource on larger value projects across the UK, with customers ranging from end‑user clients, architects, project management firms and contractors.  The business was established in 1991 and is based in Elsecar, South Yorkshire. 

In order to finance the acquisition, CEPS received a loan from a third party for £690,000.  The loan carries interest at 10% pa and is repayable on or before 31 January 2017 and may be repaid in one or more instalments after 30 October 2016.  The loan is secured against assets held (directly or indirectly) by D A Horner.

Details of net assets acquired and goodwill are as follows:

	On acquisition
	£'000
Purchase consideration
Cash paid	1,415
Deferred consideration	650
Total purchase consideration	2,065
Fair value of assets acquired (see below)	(701)
Non-controlling interest	315
Goodwill	1,679

The above goodwill is attributable to Hickton Consultants' strong position and profitability in trading in the clerk of works market. 

The assets and liabilities arising from the acquisition, provisionally determined, are as follows:

	On acquisition
	£'000
Cash and cash equivalents	600
Property, plant and equipment	23
Trade and other receivables	660
Trade and other payables	(402)
Borrowings	(176)
Deferred tax liabilities	(4)
Net assets acquired	701

If new information obtained within one year from the acquisition date about facts and circumstances that existed at the acquisition date identifies adjustment to the above amounts, or any additional provisions that existed at the acquisition date, then the acquisition accounting will be revised.

13.       Distribution of the Annual Report and Notice of AGM

A copy of the 2015 Annual Report, together with a notice of the Company's Annual General Meeting to be held at 11:30am on Monday 20 June 2016 at 12b George Street, Bath BA1 2EH, will be sent to all shareholders on Friday 6 May 2016.  Further copies will be available to the public from the Company Secretary at the Company's registered address at 12b George Street, Bath BA1 2EH and from the Group website, www.cepsplc.com.

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR UUSWRNVAVRAR

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