7th Mar 2006 07:02
Brammer PLC07 March 2006 PRESS RELEASE PRELIMINARY RESULTS ORGANIC GROWTH MEETS CORPORATE OBJECTIVE Brammer is a market leading European industrial services group whose ultimateaim is to supply its customers with a consistent quality of product and service,across the entire bearings, power transmission and fluid power product range,anywhere in Europe. Brammer presently operates in over 260 locations in 11countries. Brammer today announces its results for the year ended 31 December 2005, underIFRS. FINANCIAL SUMMARY 2005 2004 Restated £m £m ChangeContinuing operations Turnover £287.4m £270.8m +6% Profit before tax £10.1m £6.25m +62% Net debt £50.6m £57.0m Earnings per share pence pence Basic 15.8p 7.9p +100% Diluted 15.7p 7.9p Highlights • Revenues increased 6% and profit before tax by 62%, improving both on the continent and in the UK • Clear and simple strategy helps win market share in all European operations • Growth in Sales Per Working Day achieved the corporate objective of 6%, a target exceeded by France (6.7%), Germany (9.5%) and the Benelux (10.5%) • Key Account sales grew by 14.5% and now represent 26% of total revenues • Operating margins improved from 3.3% to 4.4% despite price pressures, with operating profit increasing by 40% to £12.5 million • Revenues per head increased by 5% to £154,000, indicating a significant improvement in productivity • Important new Key Account wins across the Group • Cash flow remained positive, net borrowings reduced from £57m to £50.6m. This is the 4th consecutive year in which operating cash flow has considerably exceeded operating profit. David Dunn, chairman, said: "We have successfully continued to implement our very clear and straightforwardstrategy. That success can be seen in our sales growth, improving efficienciesand capabilities, and in the opportunities now open to us. For 2006, althoughwe expect our markets to remain tough and competitive, we nonetheless anticipatefurther good progress." Enquiries: Brammer plc 020 7638 9571 (8.00am - 1.00pm) 0161 902 5572 (1.00pm - 4.30pm) David Dunn, chairman Ian Fraser, chief executive Paul Thwaite, finance director Issued: Citigate Dewe Rogerson Ltd 020 7638 9571 Martin Jackson Anthony Kennaway BRAMMER PLC 2005 PRELIMINARY RESULTS CHAIRMAN'S STATEMENT Overview Accounts for the year ended 31 December 2005 including restated comparatives,have, as is now required, been prepared in accordance with InternationalFinancial Reporting Standards (IFRS). The main differences arising from thechange to IFRS from UK Generally Accepted Accounting Practice were described ina press release issued on 24 August 2005 and were included in the 2005 InterimAccounts. The 2005 Annual Report provides further explanation of these changesin the notes to the financial statements. The 2004 comparatives include the results of discontinued businesses on one linein the Profit and Loss Account as required by IFRS. Subsequent comments in thisstatement relate only to continuing businesses. In summary, turnover increased by 6% to £287.4 million and profit before taxrose from £6.25 million to £10.1million. Consequently basic earnings per shareincreased from 7.9 pence to 15.8 pence. Net debt reduced again in the year from£57 million to £50.6 million. Overview of results These were encouraging results and build on the positive momentum establishedsince the decision in 2004 to focus solely on Brammer's European distributionbusinesses. Organic growth in sales per working day met our corporate objectiveof 6%. All geographic territories increased sales and we have continued to winlarge and important corporate account business across Europe. This is a keyelement of our strategy for future growth and sales from these major accountsincreased by some 14.5% in the year, with many excellent prospects in thepipeline. The chief executive's report will provide further details on thisperformance but we were particularly pleased with the progress made in Germany,France and the Benelux region in markets which were, for all territories, highlychallenging and competitive. Strategy We have successfully continued to implement our very clear and straightforwardstrategy. I have referred to our sales growth above and customer surveysreinforce our view that we have the correct approach, although there is stillmuch to do. The capability element of our strategy has also progressed in 2005.The development and training of all of our people is a key consideration, andagain we have had a positive response from our staff surveys that we are on theright track. Good progress on systems, costs and synergies was also achieved. The "OneBrammer" programme is now established across all of our businesses with a clearrecognition that we are stronger together than as individual entities. In the interim report, I referred to the opportunity to acquire quality bolt-onacquisitions to add to our presence in Europe and improve our ability to serveour pan European customers. This work continues and we have identified a numberof interesting opportunities. In September we welcomed MHBH, a bearings andpower transmission distributor based in the Czech Republic, to the Brammerfamily. MHBH fits ideally with our acquisition profile and significantlyextends our cover in this area of Eastern Europe. We welcome them to our Groupand hope to be able to announce further progress on acquisitions in due course. Board At the time of our interim announcement, I welcomed Svante Adde to the Board asa non-executive director. I also referred to the impending retirement of KevinMellor. Kevin joined the Brammer Board in 1996 and has overseen much change inthe Group. His contribution throughout has been invaluable and we areparticularly indebted to him over the past few years as we have restructured.He leaves Brammer in a position of strength and we thank him for his efforts onour behalf and wish him well for the future. Chris Conway succeeds Kevin as theSenior Independent Director and Svante Adde has assumed the Chairmanship of theRemuneration Committee. Dividend The final dividend being recommended by the Board is 3.65p (2004 3.3p).Combined with the interim of 1.65p, this gives a total of 5.3p (2004 4.8p) anincrease of 10.4%. The final dividend will be payable to shareholders on theregister at the close of business on 9 June 2006. Prospects In referring to our prospects for 2006, I am very aware and grateful to all ourpeople in producing a satisfactory outcome for 2005. Much hard work has goneinto this performance and, as in any service business, our people are ofparamount importance in any success we achieve. For 2006, we expect our markets to remain tough and competitive. Nonetheless weanticipate further good progress as we continue to implement our strategy forprofitable growth. David M Dunn 7 March 2006 CHIEF EXECUTIVE'S REVIEW Overview During 2005 we further strengthened Brammer's market leading position in Europe. Our strategy, outlined in my review last year, has continued to producepleasing results and is helping us win market share in all of our Europeanoperations. We made considerable progress in the creation of "One Brammer" - abusiness which can offer consistent products and services in each of 265locations in 11 countries. This scale and coverage differentiates us from thecompetition and drives our successful European Key Account business. Ourultimate aim is to supply our customers a consistent quality of product andservice, across the entire bearings, power transmission and fluid power productrange, anywhere in Europe. Operational Review Brammer is the leading European supplier of technical components and relatedservices to the maintenance, repair and operations ("MRO") markets. In 2005revenues from continuing operations increased by 6.1% to £287.4 million, whilstoperating profit increased by 40% to £12.5 million, despite challenges in the UKand Spain. Earnings per share from continuing operations increased to 15.8pence per share (7.9 pence per share in 2004). Turnover and profits improvedboth on the continent and in the UK. Cash generated from operating activitieswas £15.5 million. Net current assets(excluding acquisitions) reduced by £0.6million compared to December 2004 as we continued our planned reduction inworking capital, mainly achieved through an improvement in inventory turns. Ineach of the past 4 years we have produced considerably more operating cash flowthan operating profit. Operating margin improved from 3.3% to 4.4% despite price pressure in themarketplace. At year-end total headcount in Brammer (on a full-time equivalentbasis and adjusted for acquisitions) was 1,866 compared to 1,845 at the end oflast year. Revenues per head, for continuing operations increased by 5.0% to£154,000 indicating significant improvement in productivity. UK sales of £103.1 million represented an increase on a sales per working daybasis ("SPWD") of 0.9%, and produced an increase of £1.6 million in operatingprofit despite market conditions worsening in the second half. Capital employedcontinued to be well managed, and reduced by £2.5 million (17.4%), due toimprovements in inventory efficiency and further service stock provided bysuppliers. We increased sales through Insites and part-time insites (thoselocations where we have several regular clinics with the customer's staff eachweek) by 5.3%. Customer locations where we have contracted to provide on sitesupport, or where we provide a consigned stock solution to the site, nowrepresent 26% of our revenues in the UK. Several new contracts were won withcustomers such as Marshalls, Alcoa, Abbott Laboratories, Kelda Water, Innovene,Marley Eternit and Cemex. In addition, further investment in our regional andnational sales teams has resulted in an extensive pipeline of opportunities,which is now significantly ahead of the same time last year. Actions taken toaddress areas for improvement identified by our staff survey in 2004 havedelivered significant increases in morale and motivation of our staff, and wesaw a good improvement in the results of the employee survey carried out towardsthe end of 2005. German sales of £76.1 million represented an increase in SPWD of 9.5%, and,together with a tight control of costs, resulted in an increase of £1.3 millionin operating profit. By comparison, VTH, the technical distributors' tradeassociation reported market underlying growth of 3.4%. We increased investmentin our Key Accounts team and made excellent progress, with revenues in thissegment up 37.9%, now representing 17.1% of our business in Germany. Ourpneumatics contract with Volkswagen across six locations continued to exceed ourexpectations and we enjoyed good development with our contracts with GKN andSmurfit. We saw good growth in pneumatics, a new product line in 2005, and theimportant but underrepresented mechanical power transmission product group grewby 23%. Headcount increased by 7 to 398 and productivity as measured by salesper head increased by 8.5% compared with 2004. French sales of £53.5 million represented an increase in SPWD of 6.7%, resultingin an increase of £0.5 million in operating profit. The continued growth in KeyAccounts and Insites, and new product introduction, particularly pneumatics,combined with tight control of costs, contributed to this improved result. Weincreased our investment in Key Accounts and revenues in this segment grew by11.1% now representing 34.2% of our business in France. New contracts were wonwith Veolia, Lyonnaise des Eaux, Balthazard and Nexans. Base business grew by4.5%, well in excess of the market, which was reported to have grown by just 2%.Several initiatives were introduced to improve capital employed which resultedin a reduction in average capital employed of 11% Spanish sales of £27.4 million represented an increase in SPWD of 3.9%.Operating profit however fell by £0.5 million. We continued to increase oursales to the MRO market (up 5.8%) reducing further our exposure to the morecyclical original equipment manufacturers ("OEM") marketplace (up only 0.6%).At the end of 2004 we made considerable SDA investment in both marketing and ourbranch network in order to improve our growth prospects. This investment,though successful in starting to accelerate top line growth, did not produce apositive return in 2005 and as a result operating profit in Spain declined by17%. We expect our investment to result in increased sales growth and a completerecovery in profits in 2006. Key Account sales in 2005 grew by 24%, but stillrepresent only 13.8% of Spanish revenues, up from 11.3% in 2004. We won newcontracts with Italcementi, Damm, Mercadona, Danone, Uralita and Bridgestone,and further extended our existing business with Bosch, Smurfit, GKN, Crown,Repsol and Pepsi. New product introductions contributed to growth withpneumatics up 95%, seals up 17% and linear motion up 23%. Benelux sales of £22.8 million represented an increase in SPWD of 10.5%, and anincrease of £0.2 million in operating profit with good growth in MRO salescontributing to yet further improvement in the gross profit margin. Several newcontracts were won including Nedtrain, Kamps Bakery, Gazelle and Cabot. Weintroduced pneumatics and extended our supplier base across the majority of ourproduct range. In our Developing Businesses (comprising Austria, Hungary, the Czech Republic,Slovakia and Italy), total sales grew from £4.7 million to £8.8 million, £2.0million of this growth being represented by the acquisition of MHBH. InAustria, we completed the integration of our two companies under one managementteam, achieving significant operating improvements in the process. The combinedbusinesses achieved 6.7% growth on last year. In the Czech Republic, our majortask was to plan and implement the integration of MHBH with our existingbusiness. We have already made significant inroads in the introduction of newKey Accounts to our enlarged Czech business. In Hungary, considerable progresshas been made through the achievement of authorisation from Key Suppliers suchas Norgren, Gates Schneeberger, Schaeffler and SKF enabling us to approach withmore confidence the Key Accounts which are present in the country. SPWD grew by18.2% Our start-up in Italy was successful having developed business withseveral Key Accounts including Eaton Corporation and GKN. Strategy We continued to implement our clear strategy under the headings ofgrowth,synergies,capabilities and costs. Growth Overall SPWD growth was 6%, in line with our declared strategy. We gained marketshare in all territories. Key Account sales grew by 14.5%, in line with ourinternal objectives. Sales to our contracted European customers grew by 27.8%and, in total, Key Accounts represented 26% of our revenues. Additionalinvestment has been made in our Key Account teams in every territory as well asin the centre to accelerate development of this important segment of ourbusiness and maintain high levels of service to this sophisticated customerbase. Segmented marketing packages were introduced for the Food and Beveragemarket segment, and we have begun work on the pulp, paper, and packaging segmentwhere we are already very strong. We continued to evaluate bolt-on acquisitionopportunities in each of our businesses on the continent and in new territories.We aim, over the medium term, to match our targeted 6% organic growth with anequivalent amount of acquisitive growth. Synergies/costs Brammer is made up from the acquisition, over a period of years, of a number ofwell-run single country-based companies. Each has its own portfolio ofinformation systems covering the main business needs. However these systems aredifferent in each country, have been run independently and do not naturallycommunicate. Our corporate strategy is to move from "co-operation" between companies to "integration" - the concept of "One Brammer". This will involve presenting asingle Brammer face to our customers, especially to our Key Accounts. Ourinitial work was on the brand and Brammer is now in the names of all ourbusinesses across Europe. By 2007, all of our businesses will be united underone brand. We plan to fully integrate our "back office" activities in suchareas as stock planning and stock purchasing. To underpin this, we need toidentify a set of best practice business processes, which we can adoptuniversally, and which will ensure consistently high quality in all aspects ofour work, across Europe. It is critical that the Information Systems used by the group are initially "aligned", and subsequently "integrated" into a comprehensive and consistent setof solutions which support the needs of the integrated business, and to achievethis we have developed a robust IS strategy, with a roadmap which describes away forward for the next 2 and 5 years. Over the next 2 years we will continue to develop our Master Data Managementsystem, with the aim of creating a single product database for Brammer Europewide. Over 2005 our Brammer Inline system underwent a major functionalityupgrade. We are developing a Brammer Stock Planning System, the aim of which is toimplement a best practice methodology across all the Brammer businesses fordemand forecasting and stock profiling. We are also working on a BusinessProcess Analysis Project which will ensure that, where it makes sense, thepractices applied in each company are optimised and follow a consistent approachallowing us to improve our performances and customer satisfaction. Finally, we are reducing the number of ERP systems across the Group. We havealready seen the implementation of SAP in Austria to replace their local ITsystem and we plan further system consolidations in the future Capabilities With more than 2000 people in over 260 locations in 11 countries our challengeis to create learning which will be accessible to all. We have done this throughthe creation of the Foundation Programme, an e-learning programme developed toinform all of our staff about Brammer and what products we offer. This has beenmade available to all of our staff in six languages and currently over 70% ofour people have completed the programme across the Group, significantlyimproving the technical knowledge of our people. In 2005 we began investment in a major new Distributed Learning Programme toprovide a "commercial complement" to the Foundation Programme. The aim of thisprogramme - "The Business of Brammer" - is to enhance the commercial skills ofour people - how we make money. It includes modules on selling our products andservices, making our deals profitable, keeping our costs under control and thefundamentals of business finance. We will use the programme to provide anillustration of the relationship between Brammer and its customers. As is thecase with the Foundation Programme the Business of Brammer will be translatedinto all our languages and will be available to all. Our Key Accounts Toolkit has now been rolled out across the Group. As a resultwe can ensure that for delivery of service and product to key accounts ourpeople and processes are consistent across all of our operations, a requirementespecially important to our growing number of multi-location pan-European KeyAccounts. In 2005 we continued to implement action plans to improve the engagement of ourpeople based on the results of our externally commissioned Employee OpinionSurvey. We have seen continued improvements in all of the targeted areas.Especially encouraging is the improvement in the Engagement Matrix which saw thepercentage of our people who are disaffected fall from 7% to 5% and the percentof those who are engaged rising from 79% to 83%. We will continue to aim forimprovements in the survey this year by creating action plans in each countryacross the Group. The future We have a strong presence within Europe upon which to build and are confident wecan achieve further gains in market share in our fragmented market place. Thetrend for customers to seek a single European source of supply for our chosenproduct range is increasing, and we shall continue to invest to take advantageof this trend. The excellent cash flow generated by the business shouldcontinue for the foreseeable future, and provides the funding for bolt-onacquisitions. As previously stated, our growth targets are to achieve 6% organictop line growth, and to match this with acquisitive growth from bolt-onacquisitions over the longer term. Ian R Fraser 7 March 2006 FINANCIAL REVIEW Overview The financial statements, including restated comparatives have been prepared inaccordance with International Financial Reporting Standards (IFRS). Theprincipal differences arising from the transition to IFRS from UK GenerallyAccepted Accounting Practice were set out in a press release dated 24 August2005 and details are also included in the notes to these financial statements. As required under IFRS, the results of discontinued businesses are reported onone line in the Profit and Loss account. As the discontinued activities ceasedin the first half of 2004, all further comments from hereon refer to continuingbusinesses unless otherwise stated. Turnover Turnover increased by 6.1%, of which continental Europe accounted for a 9.8%increase and the UK a level performance. At constant exchange rates, turnoverincreased by 4.8%. This equates to an increase in turnover per working day of6.2%, comprising 9.4% in continental Europe and 0.9% in the UK (there being anaverage of 1.5 less working days throughout the Group in 2005 than in 2004). Profit The profit for the year from continuing operations before tax increased to £10.1million (2004 £6.2 million). Profit before exceptional items and after interestwas £10.1 million (2004 £7.1 million). Goodwill Goodwill in the balance sheet stands at £39.0 million at the end of the year(2004 £37.4 million). In 2005, goodwill increased by £2.6 million in respect ofacquisitions and decreased by £1.0 million due to exchange movements on goodwillheld in foreign currencies. Trading during the year Profit from continuing operations before exceptional items, interest and tax ("underlying profit") increased by 28.9% to £12.5 million (2004 £9.7 million), ofwhich £6.6 million was delivered in the first half and £5.9 million in thesecond half (see table below), reflecting the number of working days available. Continuing operations First half Second half Full year £'m £'m £'m2005Turnover 145.5 141.9 287.4Underlying profit 6.6 5.9 12.5 2004 £'m £'m £'mTurnover 136.9 133.9 270.8Underlying profit 4.8 4.9 9.7 For the first half, turnover increased by £8.6 million resulting in an increasein underlying profit of £1.8 million and for the second half, turnover increasedby £8.0 million resulting in an increase in underlying profit of £1.0 million. The second half comparison is affected by the acquisition of MHBH (September2005). There is no material impact from exchange rates. Interest The net interest charge for the year of £2.5 million (2004 £2.6 million)represents an effective interest rate on average net borrowings of 4.4% (20044.2%). Our profit before interest, exceptional items and tax covers interest by5.1x compared to 3.7x in 2004. Tax The tax charge for the year of £2.5 million represents an effective rate of taxof 25.1% (2004 39.1%). It has been reduced this year by a prior year credit fortax losses not previously recognised and the IAS 12 allowance for the costs ofshare options. Going forward the tax rate is likely to return to a morenormalised level. Cash flow Cash flow (total business) 2005 2004 Total Continued Dis-continued £m £m £m £mCash inflow from operating activities 15.5 18.7 12.7 6.0Net capital expenditure (purchases net of disposals) (2.8) (6.2) (1.8) (4.4)Operational cash generation 12.7 12.5 10.9 1.6Acquisitions (2.0) (0.1)Deferred consideration (2.7) (4.1)Disposals 4.5 18.6Exchange 1.3 (2.4)Tax (2.2) 2.8Interest, dividends & other (5.2) (4.6)Reduction in net debt 6.4 22.7Opening net debt (57.0) (79.7)Closing net debt (50.6) (57.0) In 2004, the cash inflow from continuing businesses was £12.7 million with netcapital expenditure of £1.8 million resulting in an operational cash generationfrom continuing businesses of £10.9 million. The operational cash generation of£12.7 million in 2005 is therefore an increase of 16.5% on a comparable basis. Net debt decreased by £6.4 million from £57.0 million to £50.6 million. Cash inflow from operating activities of £15.5 million (including a workingcapital increase of £0.1 million) was reduced by £2.8 million of net purchasesof tangible fixed assets and reduced by a payout of £2.0 million for MHBH and of£2.7million for deferred consideration, primarily relating to the Germansubsidiary, offset by the repayment of loans from Livingston of £4.5 million.Average net borrowings in 2005 were £55.3 million compared to £62.7 million in2004. Treasury The Group does not enter into speculative currency transactions. The companies in the Group account in their local currency, principally eithersterling or euros and mostly trade within their domestic markets in their localcurrency. Where companies trade into export markets, this is generally at thebehest of domestic customers who trade globally. Net operating assets and financing by currency at 31 December 2005 were asillustrated on page 11. Net operating assets Financing Net assets employed £'m £'m £'mSterling (15.5) (1.9) (17.4)Euro 61.3 (48.7) 12.6Other 5.9 5.9 51.7 (50.6) 1.1 Included in net operating assets is a pension fund liability under IFRSprimarily relating to the UK scheme of £33.7 million (£23.6 million net ofdeferred tax) which in 2004 was £32.4 million (£22.6 million net of deferredtax). The small adverse movement is explained by a strong performance in the UKscheme investments being more than offset by an increase in liabilities. Theincrease in liabilities results from a reduction in the discount rate caused bya decrease in corporate bond yields. With effect from 1 March 2006, the UKscheme was closed to future accrual. The company paid £1.5 million in 2005 byway of contributions to close the deficit and has currently agreed to pay £1.4million per annum in each of the years 2006 to 2017 (inclusive). A full fundingvaluation of the scheme is being carried out from 1 January 2006. Overall therefore, at 31 December 2005, £61.3 million of the Group's netoperating assets were held in euros, £15.5 million of net liabilities insterling and £5.9 million net assets in other currencies. Net worth is £1.1million (2004 £ (3.1) million). The directors consider the Group to have adequate resources to continueoperations for the foreseeable future and therefore continue to use the goingconcern basis in the preparation of the financial statements. We will continue to focus on generating cash to enable us to expand operationsin Europe, organically and by acquisition. Earnings per share Basic earnings per share were 15.8p (2004 1.8p). Earnings per share fromcontinuing operations increased from 7.9p in 2004 to 15.8p in 2005. Paul Thwaite7 March 2006 Brammer Preliminary results announcementGroup results for the year ended 31 December 2005 2005 2004 Restated Note £'000 £'000 Continuing operationsRevenue 2 287,390 270,786Cost of sales (198,588) (189,337) Gross profit 88,802 81,449 Distribution costs (76,260) (71,639)Exceptional distribution costs 5 - (850) Total distribution costs (76,260) (72,489) Operating profit 2 12,542 8,960Finance expense (2,683) (2,956)Finance income 225 339Share of associate's loss after tax - (96) 10,084Profit before tax 6,247 (2,535)Taxation (2,443) Profit for the year from continuing operations 2 7,549 3,804 Discontinued operationsLoss for the year from discontinued operations 4 - (2,954) Profit for the year attributable to equity shareholders 7,549 850 Earnings per share - total 3Basic 15.8p 1.8pDiluted 15.7p 1.8p Earnings per share - continuing operations 3Basic 15.8p 7.9pDiluted 15.7p 7.9p Brammer Group statement of recognised income and expense for the year ended 31 December2005 2005 2004 Note £'000 £'000 Profit for the year 8 7,549 850 Net exchange differences on translating foreign operations 8 (663) 122Actuarial losses 8 (1,595) (2,305)Tax on actuarial losses 8 508 710Value of employee services 8 623 226Tax on share options 8 40 - Net losses not recognised in income (1,087) (1,247)statement Total recognised income and expense 6,462 (397) Brammer Consolidated balance sheet as at 31 December 2005 2005 2004 Restated Note £'000 £'000AssetsNon-current assetsGoodwill 39,009 37,394Intangible assets 2,559 1,367Property, plant and equipment 9,944 10,557Deferred tax assets 12,480 10,813 63,992 60,131 Current assetsInventories 44,341 45,862Trade and other receivables 51,175 55,520Cash and cash equivalents 7 9,445 8,320 104,961 109,702LiabilitiesCurrent liabilitiesFinancial liabilities - borrowings 7 (10,991) (13,564)Trade and other payables (61,639) (65,217)Deferred consideration (375) (2,762)Current tax liabilities (2,965) (2,696) (75,970) (84,239) Net current assets 28,991 25,463 Non-current liabilitiesFinancial liabilities - borrowings 7 (49,106) (51,797)Deferred tax liabilities (4,863) (3,643)Provisions (1,979) (637)Deferred consideration (2,241) (199)Retirement benefit obligations 6 (33,726) (32,389) (91,915) (88,665) Net assets / (liabilities) 1,068 (3,071) Shareholders' equity 8Share capital 9,573 9,573Share premium 3,552 3,552Translation reserve (541) 122Retained earnings (11,516) (16,318) Total equity 1,068 (3,071) Brammer Consolidated cash flow statement for the year ended 31 December 2005 2005 2004 Restated £'000 £'000 Retained profit 7,549 850Tax charge (including discontinued operations) 2,535 2,833Depreciation of tangible and intangible assets 2,437 2,806Share options - value of employee services 623 226Share of associate's loss - 96Loss on sale of business - 5,502Loss on sale of property, plant and equipment 7 1,040Financing expense 2,458 2,617 Movement in working capital 135 3,628Pension obligations (258) (888) Cash generated from operating activities 15,486 18,710Interest received 208 336Interest paid (2,945) (2,843)Tax (paid)/received (2,165) 2,795 Net cash generated from operating activities 10,584 18,998 Cash flows from investing activitiesProceeds from disposal of discontinued businesses (net of cash 4,500 18,650disposed of)Acquisition of subsidiaries (net of cash acquired) (1,986) (144)Deferred consideration paid on prior acquisitions (2,674) (4,061)Proceeds from sale of property, plant and equipment 225 2,564Purchase of property, plant and equipment (1,975) (8,442)Purchase of software (987) (318) Net cash (used in) /generated from investing activities (2,897) 8,249 Cash flows from financing activitiesRepayment of loans (4,104) (24,803)Finance lease principal payments (73) (533)Dividends paid to shareholders (2,323) (2,117)Purchase of own shares - (187) Net cash used in financing activities (6,500) (27,640) Net increase / (decrease) in cash and cash equivalents 1,187 (393)Exchange gains and losses on cash and cash equivalents (257) (438)Cash and cash equivalents at beginning of period 7,804 8,635 Net cash at end of period 8,734 7,804 Cash and cash equivalents 9,445 8,320Overdrafts (711) (516) Net cash at end of period 8,734 7,804 Brammer Accounting policies The principal accounting policies adopted in the preparation of these financialstatements are set out below. These policies have been consistently applied toall the years presented, unless otherwise stated. Basis of preparation This preliminary announcement is unaudited and does not comprise statutoryaccounts within the meaning of Section 240 of the Companies Act 1985. From 1 January 2005, Brammer PLC is required to prepare its consolidatedfinancial statements in accordance with International Financial ReportingStandards (IFRS) endorsed by the European Union. Reconciliations anddescriptions of the effect of the transition from UK GAAP to IFRS on the Group'sequity and its income statement are provided in an attachment to thisannouncement. This preliminary announcement has been prepared in accordance with InternationalFinancial Reporting Standards and IFRIC interpretations and with those parts ofthe Companies Act, 1985 applicable to companies reporting under IFRS. Thefinancial statements have been prepared under the historical cost convention. Asummary of the more important group accounting policies is set out below. The preparation of financial statements in conformity with generally acceptedaccounting principles requires the use of estimates and assumptions that affectthe reported amounts of assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Although these estimates are based on management's bestknowledge of the amount, events or actions, actual results ultimately may differfrom those estimates. When preparing the Group's IFRS balance sheet at 1 January 2004 the followingoptional exemptions from full retrospective application of IFRS accountingpolicies have been adopted: • The Group has taken the option under IAS 19 revised, whereby, the accumulated actuarial gains and losses in respect of employee defined benefit plans have been recognised in full through reserves as opposed to using the corridor approach • Business combinations prior to 1 January 2004 have not been restated on an IFRS basis • IFRS 2 has not been applied to equity instruments granted before 7 November 2002 • Previously accumulated translation differences on net investments overseas have been set to zero at 1 January 2004 • The group has adopted IAS32 and IAS39 from 1 January 2005 Group accounting Subsidiaries are those entities which the Group has an interest of more than onehalf of the voting rights or otherwise has power to govern the financial andoperating policies. The existence and effect of potential voting rights that arepresently exercisable or presently convertible are considered when assessingwhether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred tothe Group and are no longer consolidated from the date that control ceases. Thepurchase method of accounting is used to account for the acquisition ofsubsidiaries. Inter-company transactions, balances and unrealised gains ontransactions between Group companies are eliminated. Unrealised losses are alsoeliminated unless cost cannot be recovered. Where necessary, the accountingpolicies of subsidiaries have been changed in order to ensure consistency withthe policies adopted by the Group. Investments in associates are accounted for by the equity method of accounting.Under this method the company's share of the post-acquisition profits or lossesof associates is recognised in the income statement and its share ofpost-acquisition movements in reserves is recognised in reserves. Thecumulative post-acquisition movements are adjusted against the cost of theinvestment. Associates are entities over which the Group generally has between20% and 50% of the voting rights, or over which the Group has significantinfluence, but which it does not control. Unrealised gains on transactionsbetween the Group and its associates are eliminated to the extent of the Group'sinterest in the associates; unrealised losses are also eliminated unless thetransaction provides evidence of an impairment of the asset transferred. TheGroup's investment in associates includes goodwill. When the Group's share oflosses in an associate equals or exceeds its interest in the associate, theGroup does not recognise further losses, unless the Group has incurredobligations or made payments on behalf of the associates. The exemption under IFRS 1 which allows IFRS 3 to be applied prospectively fromthe date of transition, has been taken. Business combinations recognised beforethe date of transition have therefore not been restated. Foreign currency translation Measurement currency Items included in the financial statements of each entity in the Group aremeasured using the currency that best reflects the economic substance of theunderlying events and circumstances relevant to that entity ("the measurementcurrency"). The consolidated financial statements are presented in sterling,which is the measurement currency of the parent. Transactions and balances Foreign currency transactions are translated into the measurement currency usingthe exchange rates prevailing at the dates of the transactions. Foreignexchange gains and losses resulting from the settlement of such transactions andfrom the translation of monetary assets and liabilities denominated in foreigncurrencies are recognised in the income statement. Group companies Income statements and cash flows of foreign entities are translated into theGroup's measurement currency at average exchange rates for the year and theirbalance sheets are translated at the exchange rates ruling at the period end.Exchange differences arising from the translation of the net investment inforeign entities and of borrowings designated as hedges of such investments aretaken to shareholders' equity where the hedging criteria are met. The exemptionunder IFRS 1, allowing these exchange differences to be reset to zero onadoption of IFRS has been utilised. When a foreign entity is sold, theseexchange differences are recognised in the income statement as part of the gainor loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing rate. Property, plant and equipment All property, plant and equipment are stated at historical cost lessdepreciation. Cost includes the original purchase price of the asset and thecosts attributable to bringing the asset to its working condition for itsintended use. Finance costs are not included. Depreciation is calculated on the straight-line method to write off the cost ofeach asset to their residual values over their estimated useful lives asfollows: Freehold buildings Individually estimated subject to a maximum of 50 years.Leasehold properties The term of the lease subject to a maximum of 50 years.Plant and equipment 10 yearsComputers and similar office equipment 3-7 yearsMotor cars 4 yearsCommercial vehicles 3 years Land is not depreciated Where the carrying amount of an asset is greater than its estimated recoverableamount, it is written down immediately to its recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carryingamount and are included in operating profit. Repairs and maintenance are charged to the income statement during the financialperiod in which they are incurred. The cost of major renovations is included inthe carrying amount of the asset when it is probable that future economicbenefits in excess of the originally assessed standard of performance of theexisting asset will flow to the Group. Major renovations are depreciated overthe remaining useful life of the related asset. Intangible assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair valueof the Group's share of the net assets of the acquired subsidiary/associate atthe date of acquisition. Goodwill on acquisition of subsidiaries occurring onor after 1 January 1998 is included in intangible assets. Goodwill onacquisitions of associates occurring on or after 1 January 1998 is included ininvestments in associates. Goodwill on acquisitions that occurred prior to 1January 1998 has been charged in full to retained earnings in shareholders'equity; such goodwill has not been retrospectively capitalised. Prior to 1 January 2004, (the date of transition to IFRS) goodwill was amortisedover its estimated useful life; such amortisation ceasing on 31 December 2003.Goodwill is subject to impairment review, both annually and when there areindicators that the carrying value may not be recoverable. A write down is madeif the carrying amount exceeds the recoverable amount. Computer software Cost associated with maintaining computer software programmes are recognised asan expense as incurred. Costs that are directly associated with identifiablesoftware systems operated by the Group and will probably generate economicbenefits exceeding costs beyond one year, are recognised as intangible assets.Direct costs include staff costs of the software development team and anappropriate portion of relevant overheads. Expenditure which enhances or extends the performance of identifiable softwaresystems beyond their original specifications is recognised as a capitalimprovement and added to the original cost of the software. Computer softwaredevelopment costs recognised as assets are amortised using the straight-linemethod over their useful lives, not exceeding a period of 7 years. Impairment of long life assets Property, plant and equipment and other non-current assets, including goodwilland intangible assets are reviewed on an annual basis to determine whetherevents or changes in circumstances indicate that the carrying amount of theassets may not be recoverable. If any such indication exists, the recoverableamount of the asset is estimated as either the higher of the asset's net sellingprice or value in use; the resultant impairment (the amount by which thecarrying amount of the asset exceeds its recoverable amount) is recognised as acharge in the consolidated income statement. The value in use is calculated as the present value of estimated future cashflows expected to result from the use of assets and their eventual disposalproceeds. In order to calculate the present value of estimated future cash flowsthe Group uses a discount rate based on the Group's estimated weighted averagecost of capital, together with any risk premium determined appropriate.Estimated future cash flows used in the impairment calculation representmanagement's best view of the likely future market conditions and currentdecisions on the use of each asset or asset group. For the purpose of assessing impairment, assets are grouped at the lowest levelsat which there are separately identifiable cash flows. Finance leases where the group is the lessee Leases of property, plant and equipment where the Group is subject tosubstantially all the risks and rewards of ownership, are classified as financeleases. Finance leases are capitalised at the inception of the lease at thelower of the fair value of the leased property or the present value of theminimum lease payments. Each lease payment is allocated between the liabilityand finance charges so as to achieve a constant rate on the finance balanceoutstanding. The corresponding rental obligations, net of finance charges, areincluded in other payables. The interest element of the finance cost is chargedto the income statement over the lease period so as to produce a constantperiodic rate of interest on the remaining balance of the liability for eachperiod. The property, plant and equipment acquired under finance leases isdepreciated over the shorter of the useful life of the asset or the lease term. Leases where a significant portion of the risks and rewards of ownership areretained by the lessor are classified as operating leases. Payments made underoperating leases (net of any incentives received from the lessor) are charged tothe income statement on a straight-line basis over the period of the lease.Incentives received are recorded as deferred income and spread over the term ofthe lease on a straight line basis. Where reference is made in the report and financial statements to financeleases, this includes hire purchase agreements. Inventories Inventories are stated at the lower of cost, determined on a weighted averagecost formula, or net realisable value. Cost of inventory represents materialand a proportion of procurement overheads. Provisions are made for slow movingand obsolete items. Net realisable value is the estimated selling price in theordinary course of business, less selling expenses. Trade receivables Trade receivables are carried at original invoice amount less provision made forimpairment of these receivables. A provision for impairment of tradereceivables is established when there is objective evidence that the Group willnot be able to collect all amounts due according to the original terms ofreceivables. The amount of the provision is the difference between the carryingamount and the directors' best estimate of the amount recoverable. Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For thepurpose of the cash flow statement, cash and cash equivalents comprise cash onhand, deposits held at call with banks, other short-term highly liquidinvestments with original maturities of three months or less, and bankoverdrafts. Bank overdrafts are included within borrowings in currentliabilities on the balance sheet. Deferred consideration The amounts recognised for deferred consideration are the directors' bestestimates of the actual amounts which will be payable. Employee benefits Defined Contribution schemes A defined contribution plan is a pension plan under which the group pays fixedcontributions into a separate entity (a fund) and will have no legal orconstructive obligations to pay further contributions if the fund does not holdsufficient assets to pay all employees benefits relating to employee service inthe current and prior periods. Contributions are charged to the profit and lossaccount in the year in which they arise. Defined Benefit schemes A defined benefit plan is a pension plan that defines an amount of pensionbenefit to be provided, usually as a function of one or more factors such asage, years of service or compensation. The operating and financing costs of such plans are recognised separately in theincome statement; service costs are spread systematically over the lives ofemployees and financing costs are recognised in the periods in which they arise.Finance costs are included in distribution costs. The liability in respect of defined benefit pension plans is the present valueof the defined benefit obligation at the balance sheet date less the fair valueof plan assets. The defined benefit obligation is calculated annually byindependent actuaries using the projected unit credit method. The present valueof the defined benefit obligation is determined by the estimated future cashoutflows using interest rates of government securities, which have terms tomaturity approximating the terms of the related liability. The amendments to IAS 19 issued by the IASB allowing actuarial gains or lossesto be taken directly to reserves, as is required under FRS 17 'RetirementBenefits', are effective for accounting periods commencing on or after 1 January2006, with earlier adoption encouraged by the IASB. Brammer has adopted theseamended provisions from 1 January 2004 (the date of transition). Curtailment gains in respect of discontinued operations are recognised in theincome statement in the year of disposal. Termination Benefits Termination benefits are payable whenever an employee's employment is terminatedbefore the normal retirement date or whenever an employee accepts voluntaryredundancy in exchange for these benefits. The Group recognises terminationbenefits when it is demonstrably committed to either terminate the employment ofcurrent employees according to a detailed formal plan without possibility ofwithdrawal or to provide termination benefits as a result of an offer made toencourage voluntary redundancy. Benefits falling due more than 12 months afterbalance sheet date are discounted to present value. Profit sharing and bonus plans Liabilities for profit sharing and bonus plans are expected to be settled within12 months and are measured at the amounts expected to be paid when they aresettled. Share-based payments The fair values of employee share option and share performance plans arecalculated using the Black-Scholes model. In accordance with IFRS 2, 'Share-based Payments' the resulting cost is charged to the income statement overthe vesting period of the options. The value of the charge is adjusted toreflect expected and actual levels of options vesting for changes in non marketvesting criteria. Treasury shares The cost of the purchase of own shares are taken directly to reserves and aredisclosed in the "treasury shares" reserve. Borrowings Borrowings are recognised as the proceeds received, net of transaction costsincurred, which are then amortised over the expected life of the facility. Deferred income taxes Deferred income tax is provided in full, using the balance sheet liabilitymethod, on temporary differences arising between the tax bases of assets andliabilities and their carrying amounts in the financial statements. Currentlyenacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognised to the extent that it is probable that futuretaxable profit will be available against which the temporary differences can beutilised. No deferred tax asset or liability is recognised in respect of temporarydifferences associated with investments in subsidiaries, branches, associatesand joint ventures, where the Group is able to control the timing of reversal ofthe temporary differences and it is probable that the temporary differences willnot reverse in the foreseeable future. Provisions Provisions are recognised when the group has a present legal or constructiveobligation as a result of past events, it is probable that an outflow ofresources will be required to settle the obligation, and a reliable estimate ofthe amount can be made. Where the Group expects a provision to be reimbursed,for example under an insurance contract, the reimbursement is recognised as aseparate asset but only when the reimbursement is virtually certain. Provisions are measured at the best estimate of the amount to be spent and arediscounted where material. Revenue recognition Revenue comprises the invoiced value for the sale of goods and services net ofvalue-added tax, rebates and discounts, and after eliminating sales within theGroup. Revenue from the sale of goods is recognised when significant risks andrewards of ownership of the goods are transferred to the buyer, which is usuallyon dispatch. Interest income is recognised on a time proportion basis, taking account of theprincipal outstanding and the effective rate over the period of maturity, whenit is determined that such income will accrue to the Group. Dividends arerecognised when the right to receive payment is established. Dividends The final dividend is recognised in the Group's financial statements in theperiod in which it is approved by the Group's shareholders. The interim dividendis recognised when paid. Segment reporting Geographical segments provide products or services within a particular economicenvironment that is subject to risks and returns that are different from thoseof components operating in other economic environments. Business segmentsprovide products or services that are subject to risks and returns that aredifferent from those of other business segments. Corporate costs are allocated to segments on the basis of external turnover. Comparatives Where necessary, comparative figures have been adjusted to conform to changes inpresentation in the current year. BRAMMER FINANCIAL RISK MANAGEMENT The Group's activities expose it to a variety of financial risks: market risk(including foreign exchange price risk), credit risk, liquidity risk, cash flowand interest rate risk. The Group's overall risk management programme focuses onthe unpredictability of financial markets and seeks to minimise potentialadverse effects on the Group's financial performance. Risk management is carried out by a central treasury department (Group Treasury)under policies approved by the Board of Directors. Group Treasury identifies,evaluates and hedges financial risks in close co-operation with the Group'soperating units. The Board provides written principles for overall riskmanagement, as well as written policies covering specific areas, such as foreignexchange risk, interest-rate risk, credit risk, use of non-derivative financialinstruments, and investing excess liquidity. Foreign exchange risk The Group operates internationally and is exposed to foreign exchange riskarising from currency exposures, primarily with respect to the Euro and the UKpound. Foreign exchange risk arises primarily from recognised assets andliabilities and net investments in foreign operations. The Group has severalinvestments in foreign operations, whose net assets are exposed to foreigncurrency translation risk. Currency exposure arising from the net assets of theGroup's foreign operations is managed primarily through borrowings denominatedin the relevant foreign currencies. Credit risk The Group has no significant concentrations of credit risk. It has policies inplace to ensure that sales of products are made to customers with an appropriatecredit history. Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and theavailability of funding through an adequate amount of committed creditfacilities. Group treasury aims to maintain flexibility in funding by keepingcommitted credit lines available. Cash flow and interest rate risk The Group's income and operating cash flows are substantially independent ofchanges in market interest rates. The Group's cash flow interest rate riskarises from long-term borrowings. Borrowings issued at variable rates expose theGroup to cash flow interest rate risk. Borrowings issued at fixed rates exposethe Group to fair value interest rate risk. Due to the benign state of theinterest rate environment the Group does not enter into fixed rate borrowings ofgreater than six months nor enter into floating to fixed rate interest rateswaps. Instead the Group minimises effective interest rates using cash poolingand tight management of working capital. Accounting for hedging activities The Group documents at the inception of the transaction the relationship betweenthe hedging instruments and hedged items, as well as its risk managementobjective and strategy for undertaking hedging transactions. The Group alsodocuments its assessment, both at hedge inception and on an on-going basis, ofwhether the hedging instruments that are used are highly effective. Where theGroup hedges net investments in foreign entities through currency borrowings,gains or losses on the borrowings are recognised in equity. The gains or lossesrelating to the ineffective portion are recognised immediately in the incomestatement. Brammer NOTES TO THE ACCOUNTS 1 COMPARATIVE RESULTS Comparative figures for the year ended 31 December 2004 are taken from thecompany's statutory accounts (as adjusted to comply with the new IFRSregulations) which have been delivered to the Registrar of Companies with anunqualified audit report. Copies of the 2004 annual report and the 2005 interimreport are available on the company's web site (www.brammer.biz). 2 SEGMENTAL ANALYSIS Continuing operations Continuing operations represent the Brammer distribution business which is aseparately identifiable segment. The Group is primarily controlled on a countryby country basis in line with legal structure of the group. Segment assetsinclude property, plant and equipment, intangible assets,inventories, and tradeand other receivables. Segment liabilities comprise trade and other payables,and provisions. All inter-segmental trading is at an arms-length basis. UK France Germany Spain Benelux Other Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 Year ended 31 Dec 2005RevenueSales to external customers 102,738 53,217 75,030 26,937 20,671 8,797 287,390Inter company sales 328 311 1,094 419 2,132 (4,284) - Total 103,066 53,528 76,124 27,356 22,803 4,513 287,390 Operating profit 1,336 2,474 4,780 2,430 1,233 289 12,542Finance expense (2,683)Finance income 225 Profit before tax 10,084Taxation (2,535) Profit for the year 7,549attributable to equityshareholders Segment assets 33,409 24,403 20,632 13,633 10,523 5,419 108,019Goodwill - 2,217 27,845 1,288 3,865 3,794 39,009 33,409 26,620 48,477 14,921 14,388 9,213 147,028Cash and cash equivalents 9,445Deferred tax 12,480 Total assets 168,953 Segment liabilities (21,509) (15,648) (8,490) (9,969) (5,190) (2,812) (63,618)Corporation tax (2,965)Deferred tax (4,863)Deferred consideration (2,616)Financial liabilities (60,097)Retirement benefit liability (33,726) Total liabilities (167,885) Net assets 1,068 Other segment itemsCapital expenditure:- intangible assets - 3 - - - 984 987- property, plant & 914 148 114 360 142 297 1,975equipmentAmortisation/depreciation- intangible assets - (3) (208) - - (164) (375)- property, plant & (1,129) (291) (149) (190) (193) (110) (2,062)equipmentTrade receivables impairment - (203) - - (6) - (209) 2 SEGMENTAL ANALYSIS(Continued) UK France Germany Spain Benelux Other Total £'000 £'000 £'000 £'000 £'000 £'000 £'000Year ended 31 Dec 2004Continuing operationsRevenueSales to external customers 102,671 49,808 67,976 25,742 19,880 4,709 270,786Inter company sales 271 301 1,232 358 1,771 (3,933) - Total 102,942 50,109 69,208 26,100 21,651 776 270,786 Operating (loss)/ profit (247) 1,969 3,445 2,919 1,002 (128) 8,960Finance expense (2,956)Finance income 339Share of associate's loss - - - - - (96) (96)after tax Profit before tax 6,247Taxation (2,443)Profit for the year 3,804 Discontinued operationsRevenueSales to external customers 2,657 10,074 3,901 1,038 1,674 (39) 19,305Inter company sales 219 320 313 - 36 (888) - Total 2,876 10,394 4,214 1,038 1,710 (927) 19,305 Operating profit/(loss)before exceptionals 2,439 216 (687) (229) (199) 98 1,638Exceptional pension income 1,300Loss on sale of subsidiarynet tangible assets (5,502) Loss before tax (2,564)Taxation (390)Loss for the year (2,954) Net profit attributable toshareholders 850 Segment assets 35,596 24,345 21,317 13,120 11,027 7,901 113,306Goodwill - 2,282 28,652 1,656 3,696 1,108 37,394 35,596 26,627 49,969 14,776 14,723 9,009 150,700Cash and cash equivalents 8,320Deferred tax 10,813Total assets 169,833 Segment liabilities (22,815) (15,980) (9,996) (8,541) (6,118) (2,404) (65,854)Corporation tax (2,696)Deferred tax (3,643)Deferred consideration (2,961)Financial liabilities (65,361)Retirement benefit liability (32,389)Total liabilities (172,904) Net liabilities (3,071) Other segment itemsContinuing operationsCapital expenditure:- intangible assets - - - - - 232 232- property, plant & 1,247 128 87 160 151 56 1,829equipmentAmortisation/depreciation- intangible assets (122) - (125) - - (15) (262)- property, plant & (1,665) (245) (255) (185) (96) (321) (2,767)equipment Trade receivables impairment (264) (63) (162) (33) (84) (28) (634) Discontinued operationsCapital expenditure 881 930 2,795 950 375 6 5,937Depreciation - release of impairment provision 223 - - - - - 223 3 EARNINGS PER SHARE 2005 Earnings per share Earnings Basic Diluted £'000Weighted average number of shares in issue ('000) 47,865 48,083 Total - all continuing operationsProfit for the financial year 7,549 15.8p 15.7p Earnings 15.8p 15.7p 2004 Earnings per share Earnings Basic Diluted £'000Weighted average number of shares in issue ('000) 47,865 47,931 TotalProfit for the financial year (continuing and discontinued) 850 1.8p 1.8pExceptional items 850Loss on sale of subsidiary net tangible assets (note 4) 5,502Exceptional pension income (note 4) (1,300)Tax on exceptional pension income 390 Earnings before exceptional items and loss on discontinued operations 6,292 13.1p 13.1p Continuing operationsProfit for the financial year 3,804 7.9p 7.9pExceptional items 850Tax on exceptional items (251) Earnings before exceptional items 4,403 9.2p 9.2p 4 DISCONTINUED OPERATIONS 2005 2004 £'000 Restated £'000Revenue - 19,305Cost of sales - (11,710) Gross profit - 7,595 Distribution costs - (5,957) Profit before tax and exceptionals - 1,638Exceptional pension income - 1,300Loss on sale of subsidiary net tangible assets - (5,502) Loss before tax - (2,564)Taxation - (390) Loss for the year - (2,954) 5. EXCEPTIONAL DISTRIBUTION COSTS The prior year exceptional distribution costs of £850,000 resulted from actionto re-size overheads, particularly for central functions, following the sale ofthe Livingston businesses 6 PENSIONS The valuations used for IAS 19 disclosures have been based on the most recent actuarial valuation at 1January 2003 updated by KPMG to take account of the requirements of IAS 19 in order to assess theliabilities of each of the schemes at 31 December 2005. Assets are stated at their market value at 31December 2005. The financial assumptions used to calculate the liabilities under IAS 19are UK 2005 2004Inflation rate 2.90% 2.80%Rate of increase in salaries 4.15% 4.30%Rate of increase of pensions in payment 2.90% 2.80%Rate of increase for deferred pensioners 2.90% 2.80%Discount rate 4.85% 5.30% Netherlands 2005 2004Inflation rate 2.00% 2.00%Rate of increase in salaries 3.00% 3.00%Rate of increase of pensions in payment 2.00% 2.00%Rate of increase for deferred pensioners 2.00% 2.00%Discount rate 4.00% 4.75% The amounts recognised in the balance sheet are determined as follows: 2005 2004 £m £mPresent value of funded obligations 103.5 89.6Fair value of plan assets (69.8) (57.2) Net liability recognised in the balance sheet 33.7 32.4 The amounts recognised in the income statement are as follows 2005 2004 £m £mCurrent service cost 1.6 1.9Interest cost 4.7 4.4Expected return on plan assets (4.1) (4.0) On-going pension expense 2.2 2.3Settlement/Curtailment gain on discontinued operations - (1.3) Total pension expense 2.2 1.0 6 PENSIONS (Continued) Analysis of the movement in the balance sheet liability 2005 2004 £m £mOpening 32.4 31.0Exchange adjustments (0.1) 0.0Fair value adjustments in Holland - 0.5Total expense as above 2.2 1.0Employer contributions (2.4) (2.4)Actuarial gain/loss recognised as a reserves movement 1.6 2.3 Closing 33.7 32.4 Reconciliation of defined benefit obligation 2005 2004 £m £mOpening 89.6 81.8Exchange adjustments (0.1) -Fair value adjustments in Holland - 1.3Service cost 1.6 1.9Interest cost 4.7 4.4Employee contributions 0.5 0.5Loss on defined benefit obligation 10.2 2.6Actual benefit payments (3.0) (1.6)Settlement/Curtailment - (1.3) Closing 103.5 89.6 Reconciliation of bid value of assets 2005 2004 £m £mOpening (57.2) (50.8)Fair value adjustments in Holland - (0.8)Expected return on assets (4.1) (4.0)Gain on assets (8.6) (0.3)Employer contributions (2.4) (2.4)Employee contributions (0.5) (0.5)Actual benefit payments 3.0 1.6 Closing (69.8) (57.2) The on-going pension expense has been included in distribution costs. The actual return on plan assets was£12.9m (2004:£4.2m) 7 CLOSING NET DEBT 2005 2004 £'000 £'000 Borrowings - current (10,991) (13,564)Borrowings - non-current (49,106) (51,797)Cash and cash equivalents 9,445 8,320 Closing net debt (50,652) (57,041) 8 CHANGES IN SHAREHOLDERS' EQUITY Share Share Treasury Translation Retained capital premium shares reserve earnings Total £'000 £'000 £'000 £'000 £'000 £'000For the year ended 31 December2005At 1 January 2005 restated 9,573 3,552 (958) 122 (15,360) (3,071)Profit for the year attributableto equity shareholders - - - - 7,549 7,549Unrealised exchange movement - - - (663) - (663)Share options - Value of employeeservices - - - - 623 623Tax on share options - - - - 40 40Dividends - - - - (2,323) (2,323)Actuarial gains on pensionsschemes - - - - (1,595) (1,595)Tax on actuarial gains on pensionsschemes - - - - 508 508Movement in period - - - (663) 4,802 4,139At 31 December 2005 9,573 3,552 (958) (541) (10,558) 1,068 For the year ended 31 December2004 restatedAt 1 January 2004 9,573 3,552 (771) - (12,724) (370)Profit for the year attributableto equity shareholders - - - - 850 850Unrealised exchange movement - - - 122 - 122Acquisition of own shares - - (187) - - (187)Share options - Value of employee - - - - 226 226servicesDividends - - - - (2,117) (2,117)Actuarial losses on pensionsschemes - - - - (2,305) (2,305)Tax on actuarial losses onpensions schemes - - - - 710 710Movement in period - - (187) 122 (2,636) (2,701)At 31 December 2004 9,573 3,552 (958) 122 (15,360) (3,071) Retained earnings as disclosed in the Balance Sheet (page 14) represent theretained earnings and treasury share balances above. 9 RECONCILIATION OF NET LIABILITIES AND PROFIT UNDER UK GAAP TO IFRS The reconciliations, as required by IFRS 1, are set out below. RECONCILIATION OF NET LIABILITIES 31 Dec 2004 1 Jan 2004 Notes £'000 £'000 Net assets as reported under UK GAAP 16,345 20,153Reversal of accrued dividend A 1,580 1,436Pension deficit not previously recognised B (31,585) (30,971)Full recognition of deferred tax on pension B 9,499 9,489deficitReverse SSAP 24 debtor C (1,549) (682)Reverse deferred tax on SSAP 24 debtor C 461 205Reverse amortisation of goodwill D 2,292 -Additional write off of goodwill on E (201) -disposalExchange adjustments F 87 - Net liabilities as reported under IFRS (3,071) (370) RECONCILIATION OF PROFIT BEFORE FINANCE COSTS Year to 31 Dec 2004 Notes £'000Continuing businessesTotal UK GAAP profit before interest 6,173UK GAAP loss on sale of businesses 2,833UK GAAP discontinued businesses operating (1,437)profitUK GAAP continuing operations profit before 7,569interestPensions B (735)Reversal of amortisation of goodwill D 2,091Associate's interest K (4)Costs of share options G (57) Profit before finance costs as reported 8,864under IFRS RECONCILIATION OF (LOSS)/ PROFIT FOR THE YEAR Year to 31 Dec 2004 Notes £'000 Loss for the period as reported under UK (1,369)GAAPPensions B/C (735)Reversal of amortisation of goodwill D 2,292Costs of share options G (57)Tax H (173)Exceptional pension income B 1,300Exceptional write off of goodwill on E (201)disposalExchange recycled on disposal F (2,468)Reversal of accrued dividend A 2,261 Profit for the period as reported under 850IFRS 10 RECONCILIATION OF EQUITY FROM UK GAAP TO IFRS AT 31 December 2004 1 January 2004 Effects Effects UK of move UK of move GAAP to IFRS IFRS GAAP to IFRS IFRS Notes £'000 £'000 £'000 £'000 £'000 £'000Fixed assetsGoodwill D / E 35,216 2,178 37,394 49,569 - 49,569Intangible assets I - 1,367 1,367 - 2,663 2,663Property, plant and I 11,924 (1,367) 10,557 23,783 (2,663) 21,120equipmentInvestment in associate D - - - 478 - 478Deferred tax assets H - 10,813 10,813 - 9,489 9,489 47,140 12,991 60,131 73,830 9,489 83,319 Current assetsInventories 45,862 - 45,862 51,018 - 51,018Trade and other 55,520 - 55,520 70,279 - 70,279receivablesRetirement benefits C 1,549 (1,549) - 682 (682) -Cash and cash 8,320 - 8,320 12,740 - 12,740equivalents 111,251 (1,549) 109,702 134,719 (682) 134,037 Current liabilitiesFinancial liabilities (13,564) - (13,564) (28,583) - (28,583)Trade and other payables (66,021) 804 (65,217) (80,386) - (80,386)Dividend A (1,580) 1,580 - (1,436) 1,436 -Deferred consideration (2,762) - (2,762) (6,818) - (6,818)Corporation tax (2,696) - (2,696) (1,242) - (1,242)liabilities (86,623) 2,384 (84,239) (118,465) 1,436 (117,029) Non-current liabilitiesFinancial liabilities (51,797) - (51,797) (63,876) - (63,876)Deferred tax liabilities H (2,790) (853) (3,643) (3,233) 205 (3,028)Provisions (637) - (637) (2,474) - (2,474)Deferred consideration (199) - (199) (348) - (348)Retirement benefit B - (32,389) (32,389) - (30,971) (30,971)obligation (55,423) (33,242) (88,665) (69,931) (30,766) (100,697) Net assets employed 16,345 (19,416) (3,071) 20,153 (20,523) (370) Shareholders' equityOrdinary shares 9,573 - 9,573 9,573 - 9,573Share premium 3,552 - 3,552 3,552 - 3,552Other reserves G - 384 384 - 158 158Translation reserve J - 122 122 - - -Retained earnings 3,220 (19,922) (16,702) 7,028 (20,681) (13,653) Total equity 16,345 (19,416) (3,071) 20,153 (20,523) (370) 11 RECONCILIATION OF PROFIT BEFORE TAX FROM UK GAAP TO IFRS 31 December 2004 Effects UK of move GAAP to IFRS IFRS Notes £'000 £'000 £'000Continuing operationsRevenue 270,786 - 270,786Cost of sales (189,337) - (189,337) Gross profit 81,449 - 81,449 Distribution costs before amortisation of B/G (70,847) (792) (71,639)goodwillAmortisation of goodwill D (2,089) 2,089 -Exceptional (850) - (850) Total distribution costs (73,786) 1,297 (72,489) Operating profit 7,663 1,297 8,960Financing costs (2,621) 4 (2,617)Share of associate's operating profit D (94) (2) (96) 4,948 1,299 6,247Discontinued operationsProfit before tax E 1,437 201 1,638Exceptional pension income B 1,300 1,300Loss on sale of discontinued businesses E/F (2,833) (2,669) (5,502) Profit before tax 3,552 131 3,683 Reconciliation of the cash flow statement from UK GAAP to IFRS Income taxes paid during the year ended 2004 are classified as part of operatingcash flows under IFRS, but were included in a separate category of tax cash flowunder UK GAAP. Cash and cash equivalents include short term deposits under IFRS,whilst under UK GAAP the same has been included in the management of liquidresources category. There are no other material differences between the cashflow statement presented under IFRS and the cash flow statement presented underUK GAAP. 12 NOTES TO RECONCILIATIONS FROM UK GAAP TO IFRS A Under IFRS the interim dividend is recognised on the date of payment and the final dividend is recognised on the date of the annual generalmeeting when it is approved. This adjustment reflects the effect of the timingadjustment resulting from this change. Dividends are no longer presented in theprofit and loss account and are instead shown as a deduction from reserves. B The full net pension liability is recognised for the first time according tothe calculation rules of IAS 19 in respect of the UK and Dutch Schemes(previously disclosed under FRS 17). The results of these adjustments aredisclosed further in note 6 to these accounts. In the case of the Dutch Scheme,an accrual for the pension liability at the date of acquisition of the KNS groupof £804,000 had already been recognised under UK GAAP and shown within trade andother payables. When added together with the total IFRS pension adjustment at 31December 2004 of £31,585,000, this results in a balance sheet value of£32,389,000 at 31 December 2004.. The excess of the ongoing charge under IAS 19over the SSAP 24 charge in the six months ended 31 December 2004 of £350,000represents an IAS 19 charge of £1,105,000 less a SSAP 24 charge of £755,000.Full deferred tax is recognised on all pension adjustments. As a result of thedisposal of the Livingston Group, a gain on curtailment of £1,300,000 arose inthe pension scheme under IAS 19. This has been recorded as an exceptional itemwithin discontinued operations. C As the full net pension liability is now recognised under IAS 19, the previousSSAP 24 debtor has been written off and the associated deferred tax liabilityreversed. D Under IFRS goodwill is no longer amortised but, instead, is subject toimpairment tests. The group has established that no impairment is required inrelation to any of its goodwill. This adjustment reverses the previous goodwillcharge under UK GAAP. E As a result of goodwill no longer being amortised under IFRS, the carryingvalue of the Livingston group at the date of disposal was increased by thiswrite-back of goodwill, consequently increasing the loss on sale of theLivingston group. F Exchange adjustments result from IFRS adjustments denominated in foreigncurrencies (principally the Euro) in respect of the recycling of the exchange onthe disposal of the Livingston Group (£2,468,000), Goodwill and the Dutchpension scheme. G Under UK GAAP, shares owned by the group were held in reserves anda charge made in respect of the cost of the related share options. Under IFRS acharge is made to the profit and loss account in respect of all share options toreflect the value of employee services provided in each period. This iscalculated using the "Black-Scholes" model. This adjustment reflects thedifference between these two valuation methods. The "Black-Scholes" charge forthe year ended 31 December 2004 was £226,000 compared with an amortisationcharge of £169,000. The "Black-Scholes" cost is charged to the profit and lossaccount and credited to other reserves. H The taxation charge has been adjusted to fully reflect deferred tax movementson the adjustments related to pensions. In the year to December 2004, thedeferred tax assets and liabilities have been grossed up where no legal right ofset-off exists. I Specialist software previously reported within tangible assets has beenre-classified as an intangible asset. J Under IFRS the group's unrealised exchange movements arising since the date oftransition to IFRS are reported separately in the "translation reserve". UnderUK GAAP all unrealised exchange movement were charged/credited to the profit andloss account reserve. K Under IFRS the interest arising from associates is treated as part of theshare of profits of the associate whereas under UK GAAP this was part ofinterest. 13 FINAL DIVIDEND Relevant dates concerning the payment of the final dividend are Annual general meeting 25 May 2006 Record date 9 June 2006 Payment date 10 July 2006 14 STATUTORY ACCOUNTS This unaudited preliminary announcement is not the statutory accounts. Thestatutory accounts for the year ended 31 December 2005 will be finalised on thebasis of the financial information presented by the directors in thispreliminary announcement and will be delivered to the Registrar of Companiesfollowing the company's annual general meeting. 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