Braime (T.F.& J.H.) (Hldgs) PLC 28 September 2005 T.F. & J.H. BRAIME (HOLDINGS) P.L.C. INTERIM REPORT FOR THE PERIOD ENDED 30 JUNE 2005 The delay in announcing the interim result has been caused by the requirement to prepare both the half year accounts and to re-state last years figures in accordance with the new International Financial Reporting Standards (IFRS). While the directors support any measures which improve transparency in the presentation of accounts, they are of the opinion that IFRS achieves the reverse effect while adding a further burden of unproductive cost. Sales for the first six months increased by 9% compared to the first half of 2004. The improvement in sales was still not sufficient to return the company to profit and the result for the half year was a net loss of £81,000 compared to a loss of £172,000 for the same period of 2004. The effect of the application of IFRS relating to pensions created an increased finance cost and produced an operating profit of £6,000. In view of the overall half year result, the directors have decided it would be unwise to pay an interim dividend. Our USA subsidiary had a successful half year. However, all other parts of the group continued to struggle to restore margins following the significant increases in raw material costs over the past twelve months. Since the half year, Braime Pressings Limited has secured a significant amount of new work. In September, the company acquired tooling and equipment to manufacture additional components, for distribution through existing channels. Taken together this additional volume should Note 2005 2004 significantly improve our long term profitability (unaudited) (unaudited) £ £ Sales revenue 5 5,140,165 4,703,180 Operating profit/( loss) 6,443 (94,780) Finance costs (111,740) (102,829) Finance income 24,632 25,487 Result for the year before tax (80,665) (172,122) Tax expense, net - - Net result of the period 5 (80,665) (172,122) Attributable to shareholders of T.F. & J.H. Braime (80,665) (172,122) (Holdings) P.L.C. Earnings per share Pence Pence Basic 7 (5.60) (11.95) 30 June 30 June 31 Dec 2005 2004 2004 (unaudited) (unaudited) (unaudited) £ £ £ Assets Non-current Pension benefits 75,000 - 85,000 Property, plant and equipment 587,334 567,832 555,488 662,334 567,832 640,488 Current Inventories 2,412,309 1,916,092 2,115,681 Trade and other receivables 2,554,732 2,287,893 2,450,028 Cash and cash equivalents 1,493,715 1,420,186 1,415,832 6,460,756 5,624,171 5,981,541 Total assets 7,123,090 6,192,003 6,622,029 30 June 30 June 31 Dec 2005 2004 2004 (unaudited) (unaudited) (unaudited) Equity £ £ £ Equity attributable to shareholders of T.F. & J. H. Braime (Holdings) P.L.C. Share capital 540,000 540,000 540,000 Capital reserve 77,319 77,319 77,319 Translation reserve (6,345) (7,750) (9,137) Retained earnings 3,482,501 3,039,163 3,567,666 Total equity 4,093,475 3,648,732 4,175,848 Liabilities Non-current Pension and other employee obligations - 259,500 - Long term financial liabilities 42,864 - 52,979 Other liabilities 23,956 25,612 24,784 66,820 285,112 77,763 Current Bank overdrafts 1,338,305 1,084,832 1,080,600 Bank loan 133,854 133,376 140,307 Trade and other payables 1,480,636 1,039,951 1,094,311 Current tax liabilities 10,000 - 10,000 Other liabilities - - 43,200 2,962,795 2,258,159 2,368,418 Total liabilities 3,029,615 2,543,271 2,446,181 Total equity and liabilities 7,123,090 6,192,003 6,622,029 6 months to 6 months to 30 June 30 June 2005 2004 (unaudited) (unaudited) £ £ Exchange differences on translation of foreign operations 2,792 (7,750) Net income recognised directly in equity 2,792 (7,750) Loss for the period (80,665) (172,122) Total recognised income and expense for the period (77,873) (179,872) Attributable to: Equity holders of T.F. & J.H. Braime (Holdings) P.L.C. (77,873) (179,872) 6 months to 6 months to 30 June 30 June 2005 2004 (unaudited) (unaudited) £ £ Operating activities Result for the year before tax 6,443 (94,780) Adjustments Changes in inventories (296,628) (25,893) Change in trade and other receivables (90,138) (366,942) Change in trade and other payables 386,325 51,611 Outflow from pension and other employee obligations (84,000) (72,000) Depreciation 52,990 46,992 Profit on sale (3,316) - Grants amortised (828) (828) Taxes paid (14,566) (31,906) Taxes recovered - 10,399 Exchange difference in value of assets 10,856 (4,208) (32,862) (487,555) Investing activities Additions to property, plant and equipment (92,902) (91,830) Proceeds from disposals of property, plant and equipment 3,318 600 Interest received 24,632 25,487 (64,952) (65,743) Financing activities Repayment of bank loans (6,453) (6,269) Discharge of finance liability (10,115) - Interest paid (17,740) (10,329) Dividends paid (47,700) (62,100) (82,008) (78,698) Cash and cash equivalents, beginning of period 335,232 967,350 Net decrease in cash and cash equivalents (179,822) (631,996) Cash and cash equivalents, end of period 155,410 335,354 1 basis of preparation The unaudited condensed consolidated interim financial statements of the Group have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting and the requirements of International Financial Reporting Standard 1 First-time Adoption of International Financial Reporting Standards relevant to interim reports. T.F. & J.H. Braime (Holdings) P.L.C. is adopting International Financial Reporting Standards (IFRS) for the first time in its consolidated financial statements for the year ending 31 December 2005, of which these condensed consolidated interim financial statements form a part. The change from UK GAAP to IFRS was mandatory on this date to comply with UK security exchange regulations for all listed companies. These condensed consolidated interim financial statements have been prepared on the basis of IFRSs in issue that are effective or available for early adoption at the Group's first IFRS annual reporting date, 31 December 2005. Based on these IFRSs, the Board of Directors have made assumptions about the accounting policies expected to be adopted when the first IFRS annual financial statements are prepared for the year ended 31 December 2005. There is, however, a possibility that the directors may determine that some changes to these policies are necessary when preparing the full annual financial statements for the first time in accordance with those IFRSs adopted for use by the European Union. This is because the directors have anticipated that the revised IAS 19 Employee Benefits, which has yet to be formally adopted for use in the European Union, will be so adopted in time to be applicable to the next annual financial statements (see note 3.16). The transition to IFRS reporting has resulted in a number of changes in the reported financial statements, notes thereto and accounting principles compared to previous interim reports. Note 2 provides further details on the transition from UK GAAP to IFRS and note 3 provides a summary of significant accounting policies. The condensed consolidated interim financial statements for the six months ended 30 June 2005 were approved by the board of directors on 27 September 2005. 2 Transition to International Financial Reporting Standards The transition from previous GAAP to IFRS has been made in accordance with IFRS 1, First-time Adoption of International Financial Reporting Standards. The following reconciliations and explanatory notes thereto describe the effects of the transition on the IFRS opening balance sheet as at 1 January 2004 and for the financial year 2004. All explanations should be read in conjunction with the IFRS accounting policies of T.F. & J.H. Braime (Holdings) P.L.C. as disclosed in note 3. The remeasurement of balance sheet items at the IFRS opening balance sheet date may be summarised as follows: Reconciliation as at 1 January 2004 UK GAAP Effect of IFRS transition £ £ £ Other intangible assets 11,644 (11,644) - Property, plant and equipment 554,479 (27,343) 527,136 Total change to assets (38,987) Pension and other employee obligations - (239,000) (239,000) Total change to liabilities (239,000) Total adjustment to equity (277,987) The reconciliation of the Group's equity reported under previous GAAP to its equity under IFRSs as at 1 January 2004 may be summarised as follows: Reconciliation as at 1 January 2004 £ Share capital - UK GAAP 540,000 Share capital - IFRS 540,000 Capital reserve - UK GAAP 77,319 Capital reserve - IFRS 77,319 Retained earnings - UK GAAP 3,493,772 - derecognition of other intangible assets (11,644) - derecognition of property, plant and equipment (27,343) - recognition of pension obligations (239,000) Retained earnings - IFRS 3,215,785 Total adjustments to equity (277,987) The remeasurement of balance sheet items as at 31 December 2004 may be summarised as follows: Reconciliation as at 31 December 2004 UK GAAP Effect of IFRS transition £ £ £ Other intangible assets 11,035 (11,035) - Property, plant and equipment 557,301 (1,813) 555,488 Pension benefits - 85,000 85,000 Total change to assets 72,152 Total adjustment to equity 72,152 The reconciliation of the Group's equity reported under previous GAAP to its equity under IFRSs as at 31 December 2004 may be summarised as follows: Reconciliation as at 31 December 2004 £ Share capital - UK GAAP 540,000 Share capital - IFRS 540,000 Translation reserve - UK GAAP - - reclassification of currency translation differences (9,137) Translation reserve - IFRS (9,137) Capital reserve - UK GAAP 77,319 Capital reserve - IFRS 77,319 Retained earnings - UK GAAP 3,486,377 - reclassification to other reserves 9,137 - derecognition of other intangible assets (11,035) - derecognition of property, plant and equipment (17,553) - reversal of property depreciation 15,740 - recognition of pension benefits 85,000 Retained earnings - IFRS 3,567,666 Total adjustments to equity 72,152 The remeasurement of balance sheet items as at 30 June 2004 may be summarised as follows: Reconciliation as at 30 June 2004 UK GAAP Effect of IFRS transition £ £ £ Other intangible assets 10,806 (10,806) - Property, plant and equipment 582,916 (15,084) 567,832 Total change to assets (25,890) Pension and other employee obligations - (259,500) (259,500) Total change to liabilities (259,500) Total adjustment to equity (285,390) The reconciliation of the Group's equity reported under previous GAAP to its equity under IFRSs as at 30 June 2004 may be summarised as follows: Reconciliation as at 30 June 2004 £ Share capital - UK GAAP 540,000 Share capital - IFRS 540,000 Translation reserve - UK GAAP - - reclassification of currency translation differences (7,750) Translation reserve - IFRS (7,750) Capital reserve - UK GAAP 77,319 Capital reserve - IFRS 77,319 Retained earnings - UK GAAP 3,316,803 - reclassification to other reserves 7,750 - derecognition of other intangible assets (10,806) - derecognition of property, plant and equipment (27,343) - reversal of property depreciation 12,259 - recognition of pension obligations (259,500) Retained earnings - IFRS 3,039,163 Total adjustments to equity (285,390) Profit and loss reported under UK GAAP for the year ending 31 December 2004 is reconciled to IFRS as follows: Reconciliation for the year ending UK GAAP Effect of IFRS 31 December 2004 transition £ £ £ Sales revenue 9,330,733 - 9,330,733 Costs of material (4,751,911) - (4,751,911) Employee benefits expense (2,766,754) 144,000 (2,622,754) Depreciation and amortisation (90,882) 26,139 (64,743) Other expenses (1,679,398) - (1,679,398) Operating result 41,788 170,139 211,927 Finance costs (23,238) (185,000) (208,238) Finance income 50,363 - 50,363 Result for the year before tax 68,913 (14,861) 54,052 Tax expense, net (14,971) - (14,971) Net result for the year 53,942 (14,861) 39,081 Profit and loss reported under UK GAAP for the period ending 30 June 2004 is reconciled to IFRS as follows: Reconciliation for the period ending UK GAAP Effect of IFRS 30 June 2004 transition £ £ £ Sales revenue 4,703,180 - 4,703,180 Costs of material (2,765,229) - (2,765,229) Employee benefits expense (1,403,128) 72,000 (1,331,128) Depreciation and amortisation (60,089) 13,097 (46,992) Other expenses (654,611) - (654,611) Operating result (179,877) 85,097 (94,780) Finance costs (10,329) (92,500) (102,829) Finance income 25,487 - 25,487 Result for the period before tax (164,719) (7,403) (172,122) Tax expense, net - - - Net result for the period (164,719) (7,403) (172,122) 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3.1 Overall considerations The significant accounting policies that have been used in the preparation of these condensed consolidated interim financial statements are summarised below. The condensed consolidated interim financial statements have been prepared on the historical cost basis except for the revaluation of certain financial assets and liabilities. The measurement bases are more fully described in the accounting policies below. It should be noted that accounting estimates and assumptions are used in preparing the interim financial statements. Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates. 3.2 Consolidation Subsidiaries are all entities over which the Group has the power to control the financial and operating policies. T.F. & J.H. Braime (Holdings) P.L.C. obtains and exercises control through voting rights. The consolidated financial statements of T.F. & J.H. Braime (Holdings) P.L.C. incorporate the financial statements of the parent company as well as those entities controlled by the Group by full consolidation. In addition, acquired subsidiaries are subject to application of the purchase method. This involves the revaluation to fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their fair value amounts, which are also used as the bases for subsequent measurement in accordance with the Group accounting policies. Goodwill represents the excess of acquisition cost over the fair value of the Group's share of the identifiable net assets of the acquired subsidiary at the date of acquisition. 3.3 Foreign currency translation T.F. & J.H. Braime (Holdings) P.L.C. consolidated financial statements are presented in Sterling (£), which is also the functional currency of the parent company. In the separate financial statements of the consolidated entities, foreign currency transactions are translated into the functional currency of the individual entity using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities at year-end exchange rates are recognised in the income statement under "other income" or "other expenses", respectively. In the consolidated financial statements, all separate financial statements of subsidiaries originally presented in a currency different from the Group's presentation currency, have been converted into Sterling. Assets and liabilities have been translated into Sterling at the closing rate at the balance sheet date. Income and expenses have been converted into the Group's presentation currency using the exchange rates prevailing at the dates of the transactions. Any differences arising from this procedure have been charged/ (credited) to the currency translation reserve in equity. The company has taken advantage of the exemption in IFRS 1 with respect to cumulative translation differences that existed at the date of transition to IFRS. Accordingly, the cumulative translation differences for all foreign operations are deemed to be zero at the date of transition. 3.4 Income and expenses recognition Revenue is recognised when the risks and rewards of owning the goods have passed to the customer, which is generally on delivery. Operating expenses are recognised in the income statement upon utilisation of the service or at the date of their origin. Expenditure for warranties is recognised and charged against the associated provision when the related revenue is recognised. Interest income and expenses are reported on an accrual basis. Dividends received are recognised at the time of their distribution. 3.5 Borrowing costs All borrowing costs are expensed as incurred. 3.6 Goodwill Goodwill arising on past acquisitions was written off against reserves in accounting periods prior to transition to IFRS. 3.7 Research and development activities Costs associated with research activities are expensed in the income statement as they occur. Costs that are directly attributable to the development phase of new products are recognised as intangible assets provided they meet the following recognition requirements: - demonstration of technical feasibility of the prospective product for internal use or sale - the intangible asset will generate probable economic benefits through internal use or sale - sufficient technical, financial and other resources are available for completion - the costs to be capitalised as an intangible asset can be reliably measured. All other development costs are expensed as incurred. 3.8 Property, plant and equipment Property, plant and equipment (other than freehold land) are carried at acquisition cost less subsequent depreciation and impairment losses. Freehold land is carried at acquisition cost and is not depreciated. The useful lives of property, plant and equipment (other than freehold land) can be summarised as follows: - Freehold buildings 25 years - Property improvements 10 years - Plant and fixtures 5 years - Motor vehicles 4 years - 3.9 Leases In accordance with IAS 17 (rev 2003), the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is recognised at the time of inception of the lease at the fair value of the leased asset or, if lower, the present value of the lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised as a finance leasing liability, irrespective of whether some of these lease payments are payable up-front at the date of inception of the lease. Subsequent accounting for assets held under finance lease agreements, ie depreciation methods and useful lives, correspond to those applied to comparable acquired assets. The corresponding finance leasing liability is reduced by lease payments less finance charges, which are expensed to finance costs. Finance charges represent a constant periodic rate of interest on the outstanding balance of the finance lease liability. All other leases are treated as operating leases. Payments on operating lease agreements are recognised as an expense on a straight-line basis. Associated costs, such as maintenance and insurance, are expensed as incurred. The Group does not act as a lessor. 3.10 Impairment testing of intangible assets and property, plant and equipment The Group's intangible assets and property, plant and equipment are subject to impairment testing. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Individual assets or cash-generating units that include intangible assets with an indefinite useful life or those not yet available for use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell and value in use, based on an internal discounted cash flow evaluation. Impairment losses are charged pro rata to the assets in the cash generating unit. All assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. 3.11 Financial assets T.F. & J.H. Braime (Holdings) P.L.C.'s financial assets include cash and financial instruments. Financial assets, other than hedging instruments, can be divided into the following categories: loans and receivables, financial assets at fair value through profit or loss, available-for-sale financial assets and held-to-maturity investments. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired. The designation of financial assets is re-evaluated at every reporting date at which a choice of classification or accounting treatment is available. Management consider that the financial assets of T.F & J.H. Braime (Holdings) P.L.C.'s represent loans and receivables. No items have been designated at fair value through profit or loss. All financial assets are recognised on their settlement date. All financial assets are initially recognised at fair value, plus transaction costs. Derecognition of financial instruments occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. An assessment for impairment is undertaken at least at each balance sheet date whether or not there is objective evidence that a financial asset or a group of financial assets is impaired. Non-compounding interest and other cash flows resulting from holding financial assets are recognised in profit or loss when received, regardless of how the related carrying amount of financial assets is measured. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivables. Loans and receivables are subsequently measured at amortised cost using the effective interest method, less provision for impairment. Any change in their value is recognised in profit or loss. Trade receivables are provided against when objective evidence is received that the Group will not be able to collect all amounts due to it in accordance with the original terms of the receivables. The amount of the write-down is determined as the difference between the asset's carrying amount and the present value of estimated future cash flows. 3.12 Inventories Inventories comprise raw materials, supplies and purchased goods. Cost includes all expenses directly attributable to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity. Financing costs are not taken into consideration. At the balance sheet date, inventories are carried at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less any applicable selling expenses. 3.13 Accounting for income taxes Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognised as a component of tax expense in the income statement. Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying amounts of assets and liabilities in the consolidated financial statements with their respective tax bases. However, in accordance with the rules set out in IAS 12, no deferred taxes are recognised in conjunction with goodwill. This applies also to temporary differences associated with shares in subsidiaries and joint ventures if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets. Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that they will be able to be offset against future taxable income. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Most changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement. Only changes in deferred tax assets or liabilities that relate to a change in value of assets or liabilities that is charged directly to equity (such as the revaluation of land) are charged or credited directly to equity. 3.14 Cash and cash equivalents Cash and cash equivalents include cash at bank and in hand as well as short term highly liquid investments such as money market instruments and bank deposits. 3.15 Equity Ordinary share capital is determined using the nominal value of shares that have been issued. Retained earnings include all current and prior period results as disclosed in the income statement. 3.16 Pension obligations and short term employee benefits Pensions to employees are provided through a defined benefit plan as well as a defined contribution plan. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and salary. The legal obligation for any benefits from this kind of pension plan remains with the Group, even if plan assets for funding the defined benefit plan have been acquired. Plan assets may include assets specifically designated to a long term benefit fund as well as qualifying insurance policies. A defined contribution plan is a pension plan under which the Group pays fixed contributions into an independent entity. The Group has no legal or constructive obligations to pay further contributions after payment of the fixed contribution. The liability recognised in the balance sheet for defined benefit pension plans is the present value of the defined benefit obligation (DBO) at the balance sheet date less the fair value of plan assets, together with adjustments for past service costs. The DBO is calculated annually by independent actuaries using the projected unit credit method. The present value of the DBO is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability. Actuarial gains and losses are recognised immediately and in full in the statement of recognised income and expense. Past-service costs are recognised immediately in the income statement, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortised on a straight-line basis over the vesting period. The contributions recognised in respect of defined contribution plans are expensed as they fall due. Liabilities and assets may be recognised if underpayment or prepayment has occurred and are included in current liabilities or current assets as they are normally of a short term nature. Short-term employee benefits are recognised for the number of paid leave days (usually holiday entitlement) remaining at the balance sheet date. They are included in current pension and other employee obligations at the undiscounted amount that the Group expects to pay as a result of the unused entitlement. This accounting policy reflects the early adoption of the amendment to IAS 19 which, although yet to be formally adopted for use in the European Union, the directors anticipate will be so adopted in time to be applicable to the next annual financial statements. 3.17 Financial liabilities The Group's financial liabilities include bank loans and overdrafts, trade and other payables and finance leasing liabilities. They are included in balance sheet line items 'long-term financial liabilities' and 'trade and other payables'. Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest related charges is recognised as an expense in "finance cost" in the income statement. Bank loans are raised for support of long term funding of the Group's operations. They are recognised at proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to profit or loss on an accrual basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Trade payables are recognised initially at their nominal value and subsequently measured at amortised cost less settlement payments. Dividend distributions to shareholders are included in 'other short term financial liabilities' when the dividends are approved by the shareholders' meeting. 3.18 Other provisions, contingent liabilities and contingent assets Other provisions are recognised when present obligations will probably lead to an outflow of economic resources from the Group and they can be estimated reliably. Timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events, for example, product warranties granted, legal disputes or onerous contracts. Restructuring provisions are recognised only if a detailed formal plan for the restructuring has been developed and implemented, or management has at least announced the plan's main features to those affected by it. Provisions are not recognised for future operating losses. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the balance sheet date, including the risks and uncertainties associated with the present obligation. Any reimbursement expected to be received in the course of settlement of the present obligation is recognised, if virtually certain as a separate asset, not exceeding the amount of the related provision. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. In addition, long term provisions are discounted to their present values, where time value of money is material. All provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote, or the amount to be provided for cannot be measured reliably, no liability is recognised in the consolidated balance sheet, unless assumed in the course of a business combination as described in note 3.2. These contingent liabilities are recognised in the course of the allocation of purchase price to the assets and liabilities acquired in the business combination. They are subsequently measured at the higher amount of a comparable provision as described above and the amount initially recognised, less any amortisation. Probable inflows of economic benefits to the Group that do not yet meet the recognition criteria of an asset are considered contingent assets. They are described along with the Group's contingent liabilities in note 10. 4 BASIS OF CONSOLIDATION 4.1 Unconsolidated subsidiaries 4B Sudamerica SA (incorporated in Argentina) has not been consolidated into T.F. & J.H. Braime (Holdings) P.L.C. Group's financial statements on the grounds of immateriality. 5 SEGMENTAL INFORMATION Segment information is presented in the condensed consolidated interim financial statements in respect of the Group's business segments, which are the primary basis of segment reporting. The business segment reporting format reflects the Group's management and internal reporting structure. T.F. & J.H. Braime (Holdings) P.L.C. operates two business segments, the manufacture of metal presswork and the distribution of bulk material handling components. All inter-segment transfers are priced and carried out at arm's length. Business segments Pressings Elevator Group 30 June 2005 components £ £ £ Revenue - from external customers 1,685,506 3,454,659 5,140,165 - from other segments Operating result 18,783 (12,340) 6,443 Finance costs, net (84,227) (2,881) (87,108) Tax expense - - - Net result for the period (65,444) (15,221) (80,665) Depreciation and amortisation 28,440 24,550 52,990 Comparative figures for the period ended 30 June 2004: Business segments Pressings Elevator Group 30 June 2004 components £ £ £ Revenue - from external customers 1,437,032 3,266,148 4,703,180 - from other segments Operating result (23,737) (71,043) (94,780) Finance costs, net (76,862) (480) (77,342) Tax expense - - - Net result for the period (100,599) (71,523) (172,122) Depreciation and amortisation 26,238 20,754 46,992 6 WRITE-DOWN OF INVENTORIES During the six months ended 30 June 2005 the Group recognised a write-down of finished goods inventories of £38,580 (2004: £66,671) to reflect the ageing of certain items of stock. 7 EARNINGS PER SHARE AND DIVIDENDS Both the basic and diluted earnings per share have been calculated using the net results attributable to shareholders of T.F. & J.H. Braime (Holdings) P.L.C. as the numerator. The weighted average number of outstanding shares used for basic earnings per share amounted to 1,440,000 shares (30 June 2004: 1,440,000 shares). No dilutive shares existed during the periods ended 30 June 2005 or 30 June 2004. During the six months to 30 June 2005, T.F. & J.H. Braime (Holdings) P.L.C. paid dividends of £4,500 to its equity shareholders (30 June 2004: £4,500). This represents a payment of 2.5p per share (30 June 2004: 2.5p per share). 8 PROPERTY, PLANT AND EQUIPMENT Acquisitions and disposals During the six months ended 30 June 2005, the Group acquired assets with a cost of £92,902 (30 June 2004: £91,830). Assets with a net book value of £2 were disposed of during the period (30 June 2004: £600), resulting in a gain on disposal of £3,316 (30 June 2004: £Nil). Capital commitments At 30 June 2005 the Group was contracted to acquire plant at a cost of £61,250 (30 June 2004: £Nil). 9 EMPLOYEE REMUNERATION Pensions and other employee benefits and obligations The assets recognised for pensions and other employee remuneration in the balance sheet consist of the following amounts: 30 June 31 Dec 2005 2004 £ £ Non-current pension benefits 75,000 85,000 The current portion of these liabilities represents T.F. & J.H. Braime (Holdings) P.L.C.'s obligations to its current and former employees that are expected to be settled by 30 June 2006. These liabilities arise mainly from accrued holiday entitlement at the balance sheet date and pension payments. As none of the employees is eligible for early settlement of pension arrangements, the remaining part of pension obligations is considered non-current. T.F. & J.H. Braime (Holdings) P.L.C. operates a defined benefit pension scheme for certain employees of the Group. According to the plan, a certain percentage of the current salary is converted into a pension component each year. Pensions under this scheme are paid out when a beneficiary has reached the age of 65. 30 June 31 Dec 2005 2004 £ £ Present value of funded obligations (3,774,000) (3,618,000) Fair value of plan assets 3,849,000 3,703,000 Pension benefits 75,000 85,000 The plan assets held for funding the defined benefit obligation do not include any of T.F. & J.H. Braime (Holdings) P.L.C.'s own shares or any assets used by the Group. Actual returns on plan assets in the six months ended 30 June 2005 were £110,000 (year ended 31 December 2004: £495,000). The movement of the net asset / (liability), including the components of pension benefit expense due to defined benefit arrangements can be reconciled as follows: 30 June 31 Dec 2005 2004 £ £ Carrying amount brought forward 85,000 (239,000) Current service costs (82,000) (156,000) Current interest costs (94,000) (185,000) Return on plan assets 110,000 495,000 Actuarial gains on funded obligations - 60,000 Contributions paid 56,000 110,000 Carrying amount carried forward 75,000 85,000 Interest costs are included in the line item "finance costs" on the face of the income statement. All other expenses relating to employee benefits are included in the line item named "employee benefits expense". For determination of the pension asset / liability, the following actuarial assumptions were used: 30 June 31 Dec 2005 2004 Discount rate 5.25% 5.25% Expected rate of return on plan assets 5.90% 5.90% Expected rate of salary increases 4.00% 4.00% Inflation 3.00% 3.00% 10 CONTINGENT LIABILITIES At 30 June 2005 and 30 June 2004, the Group had no contingent liabilities. 11 PUBLICATION OF NON-STATUTORY ACCOUNTS The financial information set out in this interim report does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. A copy of the statutory accounts for the year ended 31 December 2004, prepared under UK GAAP, have been delivered to the Registrar of Companies and contained an unqualified auditors' report in accordance with s235 of the Companies Act 1985. -------------------------- This information is provided by RNS The company news service from the London Stock Exchange