6th Sep 2005 07:03
Brammer PLC06 September 2005 FOR IMMEDIATE RELEASE 6 September 2005 2005 INTERIM RESULTS Improved profitability and continued market share gains Brammer plc, the European industrial services group, today announces its resultsfor the six months ending 30 June 2005, under IFRS. FINANCIAL SUMMARY 2005 2004 Restated £m £m ChangeTotal operationsTurnover 145.5 156.2 Profit before tax 5.3 0.3 Net debt (51.5) (57.7) Earnings/ (loss) per share pence pence Basic 7.6 (3.3) Diluted 7.6 (3.3) Before exceptional items 7.6 7.0 Continuing operations Turnover 145.5 136.9 6.3% Profit before tax 5.3 3.0 77.7% Earnings per share pence pence Basic 7.6 4.8 58.3%Diluted 7.6 4.8 58.3%Before exceptional items 7.6 5.4 40.7% Last year, the UK GAAP reported profit before goodwill amortisation, exceptionalitems and tax for the 6 months to June 2004 was £5.2m. Had this years accountsbeen prepared under UK GAAP, the equivalent result for the 6 months to June 2005would have been £5.7m Highlights • Revenues for continuing operations up 6.3% and profit before tax up 77.7% • Brammer now offers customers consistent products and services in over 250 locations in 10 countries, representing further progress towards its ultimate aim of supplying customers anywhere in Europe. • Significant increases in sales per working day, up 6% overall, were enjoyed across the group reflecting growth in corporate accounts, now representing 26% of total revenues, and Insites • Operating margin improved by 1.2% to 4.5% and revenues per head by 7.9% reflecting cost benefits from closer supplier relationships and significant improvements in productivity. • Profits improved both on the continent and in the UK • Cash flow remained positive, net borrowings reduced from £58m to £52m - in each of the past 4 years, operating cash flow has considerably exceeded operating profit, a trend that is expected to continue David Dunn, chairman, said: "Trading since the end of June has been satisfactory and we are anticipatingfurther progress in the second half The Board has declared an increased interim dividend of 1.65p (2004 1.5p). Thiswill be paid on the 4th November 2005 to shareholders on the register at theclose of business on 7th October 2005." Enquiries: Brammer plc 020 7638 9571 (8.00am - 1.00pm) David Dunn, chairman 0161 902 5599 (1.00pm - 4.30pm) 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 The first six months The interim financial statements, including restated comparatives, of Brammerfor the period ending 30 June 2005 have been prepared in accordance withInternational Financial Reporting Standards (IFRS). The principal differencesarising from the transition to IFRS from UK Generally Accepted AccountingPractice were set out in a press release dated 24 August 2005 and details arealso 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. Brammer continued to improve its performance in the first half of 2005. Turnoverincreased by 6.3% to £145.5m and profit before tax was £5.3m compared to £3.0mlast year (2004 results included a £0.3m exceptional charge) Basic earnings pershare improved to 7.6p (2004 restated 4.8p). Trading All geographic locations increased their sales in the first half of 2005. Whilstoverall market conditions have been subdued and highly competitive, Brammer hascontinued to successfully grow its corporate accounts business and win marketshare. Margins have been held steady and, combined with a firm control of costs,profits have therefore increased. Some increased costs have necessarily beenincurred to specifically support corporate account activity and systemsdevelopment as we implement our strategy for growth. Cash flow in the period was also positive with further reductions in workingcapital. Net borrowings reduced from £58m to £52m. Strategy We have made good progress in implementing the strategy outlined in my previousstatement, and are on target with the time specific benchmarks we have setourselves. Brammer operates in a highly fragmented market place and whilst ourgeographic coverage in Europe provides a market leading position in the supplyof essential components and services to industry, our overall market shareremains relatively small. We therefore intend to intensify our efforts toidentify quality bolt on acquisitions which can both add to our presence inEurope and meet the expansion needs of our customers, particularly in EasternEurope. We believe this is possible to achieve from within our existingresources. Board We are delighted to welcome Svante Adde to the Board as a non executivedirector. Svante is a Swedish national living in London and has extensiveexperience in dealing with businesses in many of our key market sectors. We lookforward to his contribution in helping to develop Brammer in the future. Inmaking this appointment we are planning for the retirement in December of KevinMellor, our senior independent non executive director who has served on theBoard since 1997. Dividend The Board has declared an increased interim dividend of 1.65p (2004 1.5p). Thiswill be paid on the 4th November to shareholders on the register at the close ofbusiness on 7th October 2005. Outlook Trading since the end of June has been satisfactory and we are anticipatingfurther progress in the second half. David Dunn 6 September 2005 CHIEF EXECUTIVE'S REVIEW Overview In the first half of 2005 we further strengthened Brammer's market leadingposition in Europe. We continued to execute the clear and simple strategyoutlined in my statement last year and in particular, made considerable progressin the creation of "One Brammer" - a business which can offer consistentproducts and services in each of 255 locations in 10 countries. Our ultimateaim is to supply our customers a consistent quality of service across the entirebearings, power transmission and fluid power product range 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 thefirst half revenues for continuing operations increased by 6.3% to £145.5million, whilst operating profit before exceptional items and interest increasedby 36.5% to £6.6 million. Profits improved both on the continent and in the UK.Cash generated from operating activities was £3.9 million and net current assetsreduced by £1 million compared to June 2004 as we continued our plannedreduction in working capital, mainly achieved through an improvement ininventory turns. In each of the past 4 years we have produced considerably moreoperating cash flow than operating profit, and we expect to continue this trendin 2005 and beyond as we improve inventory turns by managing our inventory on aEuropean basis. Operating margin improved by 1.2% to 4.5% despite price pressure in themarketplace. At the end of the first half, total headcount in Brammer was 1,861compared to 1,845 at the end of last year. Revenues per head increased by 7.7%to £78,000 for the half year, compared with the second half of last year,indicating significant improvement in productivity. In the UK, revenues on a sales per working day basis ("SPWD") increased by 2.1%as management actions implemented last year began to take effect. Capitalemployed reduced by £1.4 million (9.8%), due to improvements in inventoryefficiency and the provision by suppliers of a total of £2.1 million of servicestock. We increased sales through Insites and part-time insites (thoselocations where we have several regular clinics with the customer's staff eachweek) by 3%. Customer locations where we have contracted to provide either fullor part-time regular on site support, or where we provide a consigned stocksolution to the site, now represent 26% of our revenues in the UK. Several newcontracts were won with customers such as Marshalls plc, Alcoa, Alstom PowerLtd, Abbott Laboratories and Kelda Water. In Germany SPWD grew by 11.0%, costs were tightly controlled and operatingprofit increased by 32.3% compared with last year. Excellent progress was madeon corporate accounts, with revenues in this segment up 43.6%, and nowrepresenting 15.9% of our business. Our pneumatics contract with Volkswagenacross six locations reported last year has exceeded our expectations and wehave developed good business with GKN and Smurfit. We extended our contractwith Daimler-Chrysler, and won a pan European contract with Bosch which couldprovide revenues across Europe in excess of €10 million. Headcount increased by9 to 397 and productivity as measured by sales per head increased by 9.4%compared with the first half of 2004. In France SPWD increased by 7.2%, driven by continued growth in key accounts andInsites, and new product introduction, particularly pneumatics. This growth,combined with tight control of costs, helped increase operating profit by 14.5%.Revenues through Insites increased by 18% compared with the second half of lastyear. Key account revenues grew by 13% and now represent 33.8% of our business. New contracts were won with Veolia, Lyonnaise des Eaux, Balthazard and Nexans. In Spain SPWD grew 4%. We continued to increase our sales to the MRO market (up5%) reducing further our exposure to the more cyclical original equipmentmanufacturers ("OEM") marketplace (up only 3%). At the end of last year we madeconsiderable SDA investment in both marketing and our branch network in order toimprove our growth prospects. This investment, though successful in starting toaccelerate top line growth, will not produce a positive return until the firsthalf of 2006. Accordingly, operating profit in Spain declined by 14.8%.Corporate account sales grew by 27.3%, but still represent only 11.9% of Spanishrevenues. We won new contracts with Italcementi, Damm, Mercadona, Danone andBridgestone. New product introductions contributed to growth with pneumatics up129%, seals up 25% and linear motion up 29%. In the Netherlands SPWD were up 4.3% on a like for like basis, with good growthin MRO sales contributing to yet further improvement in the gross profit margin. Several new contracts were won including Vecrot - SEW and Gazelle, the Dutchleading bike manufacturer. In our developing businesses, overall SPWD increasedby 13.9%, and total revenues were £7.5 million. In Belgium we established a newmanagement team, the business is becoming highly focused and the improvement isstarting to show through in SPWD improvement of 12%. In Austria, we have begunthe process of integration of our two companies under one management team,achieving significant operating improvements in the process. The combinedbusinesses are achieving around 18% growth on last year. In the Czech Republic,we have enhanced management and have introduced the SKF brand. We are beginningto make progress on Key Accounts. In Hungary, considerable progress has beenmade through the achievement of authorisation from Key Suppliers such asNorgren, Gates and Schneeberger, enabling us to approach with more confidencethe Key Accounts which are present in the country. Our start-up in Italy wassuccessful having developed business with several key accounts including EatonCorporation and GKN. Strategy We continued to implement our clear strategy Growth • Overall SPWD growth was 6%, exactly in line with our declared strategy, and representing significant market share gains. • Key account sales grew by 15%, in line with our internal objectives. Sales to our contracted European customers grew by 40%. Key accounts represented 26% of total revenues. Additional investment has been made in our key account teams in every territory as well as the centre to accelerate development of this important segment of our business and maintain high levels of service to this sophisticated customer base. • Segmented marketing packages were introduced for the Food and Beverage market segment. • We continued to evaluate bolt-on acquisition opportunities in each of our businesses on the continent. Costs/Synergies • We continued to develop closer relationships with strategic suppliers, and increased concentration of spend with those suppliers, leading to both cost benefits and greater supplier marketing support in the field. • The development of the Brammer Brand continues. All our businesses are now either using the 'linked Brand name' or have moved directly to the Brammer Brand. This development is on track for a complete make-over of the Group by 1 January 2007. Capability • The Foundation Programme offered to all our people across the Group has now achieved a take-up rate of over 70%, in some countries as high as 85%. This programme is the first of a series of e-learning programmes underway which will enable all our people in all our locations to have access to relevant learning to help them do their job, upgrading their technical and selling skills. • The Key Performance Indicators have now been refined to a set of 10 measures which our businesses will be reporting on monthly. These measures will help establish systematic and consistent service levels across the Group. • Our Key Account Toolkit, which is operating in all our businesses, is now being enhanced by a learning programme which introduces it to all sales staff and helps them to understand their role in this vital part of our operations. The future We have a strong presence within Europe upon which to build and anticipate gainsin market share in an extremely fragmented market place. The trend forcustomers to seek a single European source of supply for our chosen productrange is increasing, and we continue investing to take advantage of this trend.The excellent cash flow generated by the business should continue for theforeseeable future, and provides the funding for bolt-on acquisitions. Aspreviously stated, our growth targets are to achieve 6% organic top line growth,and to match this with acquisitive growth from bolt-on acquisitions over thelonger term. Ian Fraser 6 September 2005 Brammer CONSOLIDATED INTERIM INCOME STATEMENT (unaudited) The unaudited group results for the six months Six months to Six months to Year to 30 June 2005 30 June 2004 31 Dec 2004 Restated Restated £'000 £'000 £'000 Continuing operationsRevenue (note 2) 145,528 136,876 270,786Cost of sales (100,903) (95,993) (189,337) Gross profit 44,625 40,883 81,449 Distribution costs (38,033) (36,054) (71,639)Exceptional distribution costs - (274) (850) Total distribution costs (38,033) (36,328) (72,489) Operating profit (note 2) 6,592 4,555 8,960Finance expense (1,422) (1,645) (2,956)Finance income 96 93 339Share of associate's loss after tax - (39) (96) Profit before tax 5,266 2,964 6,247 Taxation (1,640) (677) (2,443) Profit for the period from continuing operations (note 2) 3,626 2,287 3,804 Discontinued operations (note 4)Loss for the period from discontinued operations - (3,876) (2,954) Profit/(loss) for the period attributable to equity 3,626 (1,589) 850shareholders Earnings per share - total (note 3)Basic 7.6p (3.3)p 1.8pDiluted 7.6p (3.3)p 1.8p Earnings per share - continuing operations (note 3)Basic 7.6p 4.8p 7.9pDiluted 7.6p 4.8p 7.9p The notes on pages 12 to 26 form part of these accounts. Brammer INTERIM STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY(unaudited) The unaudited group results for the six months Share Share Treasury Translation Retained capital premium shares reserve earnings Total £'000 £'000 £'000 £'000 £'000 £'000For the period ended 30 June 2005At 1 January 2005 restated 9,573 3,552 (958) 122 (15,360) (3,071)Profit for the year attributableto equity shareholders - - - - 3,626 3,626Unrealised exchange movement - - - (365) - (365)Share options - Value of employee - - - - 248 248servicesDividends - - - - (1,580) (1,580)Actuarial gains on pensionsschemes - - - - 1,520 1,520Tax on actuarial gains on pensionsschemes - - - - (456) (456)Movement in period - - - (365) 3,358 2,993At 30 June 2005 9,573 3,552 (958) (243) (12,002) (78) For the period ended 30 June 2004restatedAt 1 January 2004 9,573 3,552 (958) - (12,537) (370)Profit for the year attributableto equity shareholders - - - - (1,589) (1,589)Unrealised exchange movement - - - 1,217 - 1,217Acquisition of own shares - - - - (29) (29)Share options - Value of employee - - - - 112 112servicesDividends - - - - (1,436) (1,436)Actuarial gains on pensions - - - - 2,700 2,700schemesTax on actuarial gains on pensionsschemes - - - - (810) (810)Movement in period - - - 1,217 (1,052) 165At 30 June 2004 9,573 3,552 (958) 1,217 (13,589) (205) For the year ended 31 December2004 restatedAt 1 January 2004 9,573 3,552 (958) - (12,537) (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 - - - 122 (2,823) (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 10) represent theretained earnings and treasury share balances above The notes on pages 12 to 26 form part of these accounts. Brammer CONSOLIDATED INTERIM BALANCE SHEET (unaudited) The unaudited group financial position as at 30 June 2005 30 June 2005 30 June 2004 31 Dec 2004 Restated Restated £'000 £'000 £'000AssetsNon-current assetsGoodwill 35,890 34,324 37,394Intangible assets 1,301 1,345 1,367Property, plant and equipment 10,072 10,284 10,557Investments accounted for using equity method - 462 -Deferred tax assets 10,506 8,244 10,813 57,769 54,659 60,131 Current assetsInventories 41,811 45,109 45,862Trade and other receivables 59,150 55,514 55,520Cash and cash equivalents 8,171 9,241 8,320 109,132 109,864 109,702LiabilitiesCurrent liabilitiesFinancial liabilities - borrowings (10,879) (14,312) (13,564)Trade and other payables (66,566) (62,903) (65,217)Deferred consideration (1,724) (4,686) (2,762)Current tax liabilities (3,318) (293) (2,696) (82,487) (82,194) (84,239) Net current assets 26,645 27,670 25,463 Non-current liabilitiesFinancial liabilities - borrowings (48,760) (52,584) (51,797)Deferred tax liabilities (4,114) (2,802) (3,643)Provisions (646) - (637)Deferred consideration (163) (295) (199)Retirement benefit obligations (30,809) (26,853) (32,389) (84,492) (82,534) (88,665) Net liabilities (78) (205) (3,071) Shareholders' equityShare capital 9,573 9,573 9,573Share premium 3,552 3,552 3,552Translation reserve (243) 1,217 122Retained earnings (12,960) (14,547) (16,318) Total equity (78) (205) (3,071) The notes on pages 12 to 26 form part of these accounts. Brammer CONSOLIDATED INTERIM CASH FLOW STATEMENT (unaudited) The unaudited group cash flow for the six months Six months to Six months to Year to 30 June 2005 30 June 2004 31 Dec 2004 Restated Restated £'000 £'000 £'000 Retained profit/(loss) 3,626 (1,589) 850Tax charge (including discontinued operations) 1,640 1,921 2,833Depreciation of tangible and intangible assets 1,210 1,462 2,806Share options - value of employee services 248 112 226Share of associate's loss - 38 96Loss on sale of business - 5,570 5,502Profit on sale of property, plant and equipment - 1,040 1,040Financing expense 1,326 1,552 2,617 Movement in working capital (4,078) 1,087 3,628Pension obligations (60) (1,418) (888) Cash generated from operating activities 3,912 9,775 18,710Interest received 97 92 336Interest paid (950) (1,768) (2,843)Tax (paid)/received (594) 1,491 2,795 Net cash generated from operating activities 2,465 9,590 18,998 Cash flows from investing activitiesProceeds from disposal of subsidiaries (net of cash disposed 3,000 17,322 18,650of)Acquisition of subsidiaries (net of cash acquired) - - (144)Investment in associated undertaking - (44) -Deferred consideration paid on prior acquisitions (948) (2,074) (4,061)Proceeds from sale of property, plant and equipment 17 2,537 2,564Purchase of property, plant and equipment (833) (7,846) (8,442)Purchase of software (67) (204) (318) Net cash generated from investing activities 1,169 9,691 8,249 Cash flows from financing activitiesRepayment of loans (2,199) (16,913) (24,803)Finance lease principal payments (53) (482) (533)Dividends paid to shareholders - - (2,117)Purchase of own shares - (29) (187) Net cash used in financing activities (2,252) (17,424) (27,640) Net increase / (decrease) in cash and cash equivalents 1,382 1,857 (393)Exchange gains and losses on cash and cash equivalents (1,015) (1,597) (438)Cash and cash equivalents at beginning of period 7,804 8,635 8,635 Net cash at end of period 8,171 8,895 7,804 Cash and cash equivalents 8,171 9,241 8,320Overdrafts - (346) (516) Net cash at end of period 8,171 8,895 7,804 The notes on pages 12 to 26 form part of these accounts. 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 The interim financial statements of Brammer PLC for the half year period ended30 June 2005 are unaudited and do not comprise statutory accounts within themeaning 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 the interimreport. Standards currently in issue and adopted by the EU are subject to interpretationissued from time to time by the International Financial ReportingInterpretations Committee (IFRIC). Further standards may be issued by theInternational Accounting Standards Board that will be adopted for financialyears beginning on or after 1 January 2005. Additionally, IFRS is currentlybeing applied in the United Kingdom and in a large number of countriessimultaneously for the first time. Furthermore, due to a number of new andrevised Standards included within the body of the Standards that comprise IFRS,there is not yet a significant body of established practice on which to draw informing options regarding interpretation and application. Accordingly, practiceis continuing to evolve. At this preliminary stage, therefore, the fullfinancial effect of reporting under IFRS as it will be applied and reported onin the Company's first IFRS Financial Statements for the year ended 31 December2005 may be subject to change. These financial statements have 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 IAS 39 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, except when deferred inequity as qualifying cash flow hedges. 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. 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 equip. 10 yearsComputers and similar office equip. 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 for impairment losses whenever events orchanges in circumstances indicate that the carrying amount may not berecoverable. An impairment loss is recognised for the amount by which thecarrying amount of the asset exceeds its recoverable amount which is the higherof an asset's net selling price and value in use. For the purpose of assessingimpairment, assets are grouped at the lowest levels at which there areseparately 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. 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 or net realisable value. Cost ofinventory represents material and a proportion of procurement overheads.Provisions are made for slow moving and obsolete items. Net realisable value isthe estimated selling price in the ordinary course of business, less sellingexpenses. 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 recoverable amount, being the present value of expected cashflows, discounted at the market rate of interest for similar borrowers. 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 quoted for deferred payments relating to acquisitions and shown asshares to be issued and deferred consideration are the directors' best estimatesof the actual amount 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. The liability in respect of defined benefit pension plans is the present valueof the defined benefit obligation at the balance sheet date minus 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', if endorsed by the EU, will be effective for accounting periodscommencing on or after 1 January 2006, with earlier adoption encouraged by theIASB. Brammer has adopted these amended provisions from 1 January 2004 (thedate 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. The cost of sharesacquired to satisfy potential awards under the group's share performance planare taken directly to reserves. 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 liability method, ontemporary differences arising between the tax bases of assets and liabilitiesand their carrying amounts in the financial statements. Currently enacted taxrates 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. Revenue arising from royalties is recognised on an accruals basis in accordancewith the substance of the relevant agreements. Interest income is recognised ona time proportion basis, taking account of the principal outstanding and theeffective rate over the period of maturity, when it is determined that suchincome will accrue to the group. Dividends are recognised when the right toreceive 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 service that are subject to risks and returns that aredifferent from those of other business segments. Treasury shares The cost of the purchase of own shares are taken directly to reserves and aredisclosed in the "treasury shares" reserve 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, 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 hedging instrument are recognised inequity. The gains or losses relating to the ineffective portion are recognisedimmediately in the income statement. 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, goodwill, inventories, debtors andoperating cash, but exclude deferred tax. Segment liabilities comprise operatingliabilities but exclude taxation and corporate borrowings. All inter-segmentaltrading is at an arms-length basis. UK France Germany Spain Benelux Other Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 Six months ended 30 June2005RevenueSales to external customers 52,285 27,161 38,501 13,981 10,292 3,308 145,528Inter company sales 188 162 594 184 799 (1,927) - Total 52,473 27,323 39,095 14,165 11,091 1,381 145,528 Operating profit 839 1,169 2,500 1,321 865 (102) 6,592Interest expense (1,422)Interest income 96 Profit before tax 5,266Tax (1,640) Profit for the year 3,626 Segment assets 41,705 24,703 22,174 17,372 11,408 3,143 120,505Goodwill - 2,177 27,357 1,581 3,846 929 35,890Investments - - - - - - -Associates - - - - - - - 41,705 26,880 49,531 18,953 15,254 4,072 156,395Corporation tax -Deferred tax 10,506 Total assets 166,901 Segment liabilities (24,608) (13,021) (11,596) (10,305) (4,637) (3,352) (67,519)Corporation tax (3,318)Deferred tax (4,114)Dividends (1,580)Loans (59,639)Retirement benefit (30,809)liability Total liabilities (166,979)Related Shares:
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