Christie Regulatory News (CTG)

14 Sep 2005 07:01

Christie Group PLC14 September 2005 CHRISTIE GROUP PLC 14th SEPTEMBER 2005 Interim Results for the six months ended 30 June 2005 Christie Group, a leading business services and software group, today announces its interim results for the six months ended 30 June 2005. Highlights • Turnover up 9% to £38.9 million (2004: £35.7 million) • Overall Group operating profit (stated under IFRS) up 5% to £2.35 million (2004: £2.23 million), reflecting continued investment in business development • Strong performance at established operations with operating profit of £4.4 million (2004: £3.1 million) • West London Estates successfully integrated into Pinders • Christie + Co advised "LRG Acquisition" on their £1 billion purchase of 73 hotels from InterContinental Hotel Group, the largest investment deal of its kind in UK Hotel Sector • VcsTimeless and Wincor Nixdorf sign accord for development of EPoS solution for non-food retailers • Important business wins in stocktaking business including Argos and Boots • Interim dividend maintained at 1 pence per share • Board announces intention to move listing to Alternative Investment Market ("AIM"), subject to shareholder approval Philip Gwyn, Chairman, commented: "During the first half of this year, we have won important new business andtaken a number of steps to help ensure that we are well positioned for futuregrowth, including the acquisition and successful integration of West LondonEstates into our Pinder business. These actions, combined with the continuinginvestment we are making in software R&D and European expansion, will help usensure the sustainable long term development of Christie Group. Despite a challenging trading environment, I believe that the diversity of ourincome streams and the profitability of our established businesses mean we arewell positioned for further progress during 2005." Enquiries:Christie Group 020 7227 0707 Philip Gwyn, Chairman David Rugg, Chief Executive Robert Zenker, Finance DirectorBrunswick 020 7404 5959 Michaela Hopkins or Ash Spiegelberg Note to Editors Christie Group (CTG.L) is listed on the London Stock Exchange. It is a leadinginternational professional services business with 32 offices throughout Europeand Canada. Christie Group consists of three autonomously managed businessdivisions: Professional Business Services, Software Solutions and Stock andInventory Services. The three complementary businesses are specifically focusedon the leisure, retail and care sectors. For more information, please go to: www.christiegroup.com CHAIRMAN'S STATEMENT HALF YEAR TO 30 JUNE 2005 Christie Group's turnover for the half year to June 2005 increased 9% to £38.9million (2004: £35.7 million). Overall Group operating profit (stated underIFRS) increased by 5% to £2.35 million (2004: £2.23 million). These figuresmask sharply higher profits from established operations (£4.4 million against£3.1 million in 2004), and more substantial losses from developing businesses,details of which are given below. The Board remains confident that thedeveloping businesses will bring benefits to shareholders in future periods. Dividend The Board has declared an unchanged interim dividend of 1p per share. Professional Business Services Sales in our Professional Business Services division moved ahead by 10%. WestLondon Estates (acquired in January 2005), which has now been fully integratedinto our Pinder business, was profitable in the first half and provides anucleus for growth. Christie + Co advised "LRG Acquisition" on their purchase of a £1 billionportfolio of 73 hotels from InterContinental Hotel Group, with IHG retaining themanagement of the hotels. This is the largest investment deal of its kind inthe UK Hotel Sector. During the first half of 2005, Christie + Co incurred losses of £1.3 millionfrom continuing European and UK expansion and development. New operationalbases were opened in Epsom and Enfield in the UK and in May 2005 we opened a newoffice in Madrid. We recognise that the gestation periods of these operationsand the speed at which they will reach profitability will vary. Christie +Co's UK revenue rose 14% compared to the first half of 2004. Turnover at Christie First Business Mortgages was flat during the first half of2005. The Insurance Broking operation wrote 16% more policies than in thecorresponding period of 2004 but commission income rose 11%, reflecting reducedpremiums in a continuing "soft" market. Software Solutions Overall, turnover for the division increased by 19% including a contributionfrom our Spanish operation, following two years of significant investment. In June 2005, our Retail Software Solutions company, VcsTimeless, won theEuropean Retail Solutions award for Project Implementation of the Year inassociation with our customer Lancel, the luxury goods company. Since theimplementation of VcsTimeless' Colombus Retail Software Suite, Lancel has beenable to increase efficiencies, achieve greater inventory availability andcontrol, improve the speed and accuracy of stock replenishment and raise staffproductivity. During the period VcsTimeless also signed an accord with Wincor Nixdorf tocreate a new EPoS solution for top tier non-food retailers. The solution willbe marketed by VcsTimeless in our existing territories and elsewhere by WincorNixdorf. This EPoS solution is designed to interface with our real time headoffice system, code named Magellan, which is set for launch at our 2006 userconference. Stock and Inventory Services Profit in our stocktaking business nearly doubled to £1.1 million (2004: £0.6million) in its seasonally stronger first half on turnover of £11.5 million(2004: £11.3 million). Having successfully absorbed a 36% increase in retailstocktaking business during 2004, we now anticipate further additional work forthe second half of this year and 2006, following business wins from Boots,Argos, Gieves & Hawkes, Barbour and others. AIM Your Board has carefully considered the attractions of moving to the AlternativeInvestment Market ("AIM"). AIM is designed for smaller companies and we believean AIM Listing would, offer a number of benefits to our business. AIM'ssimplification of administrative requirements and a more flexible regulatoryregime have both competitive and cost advantages. It would enable us to agreeand execute transactions more quickly should acquisition opportunities arise. We envisage no alteration in the standards of reporting and governance which theGroup has always achieved. Thus we see ourselves as continuing to beattractive to specialist institutional funds while the AIM tax regime will alsomake us more attractive to the retail investor. A circular regarding the proposed move to AIM convening an EGM will be sent toshareholders shortly. Outlook Christie Group enjoys a diverse range of income from the services it provides tothe Retail, Leisure and Care industries throughout Europe. Our establishedbusiness operations are both profitable and growing. Although the currenttrading environment remains challenging, I believe we are well positioned tomake further progress during the second half of 2005. Index to the consolidated interim financial statements Half year to 30 June 2005 Consolidated interim income statementConsolidated interim balance sheetConsolidated interim statement of changes in shareholders' equityConsolidated interim cash flow statementNotes to the consolidated interim financial statements 1. General information 2. Summary of significant accounting policies 3. Critical accounting estimates and judgements 4. Transition to IFRS 5. Segment information 6. Taxation 7. Earnings per share 8. Dividends per share 9. Retirement benefit obligations 10. Notes to the cash flow statements 11. Fair value and other reserves Consolidated interim income statement Half year to Half year to Year ended 31 30 June 2005 30 June 2004 December 2004 £'000 £'000 £'000 (Unaudited) (Unaudited) (Unaudited)* Note Revenue 38,878 35,694 69,968 Employee benefit costs (22,171) (19,379) (39,876) 16,707 16,315 30,092 Depreciation and amortisation (639) (540) (1,203) Other expenses (13,723) (13,542) (24,892) Operating Profit 2,345 2,233 3,997 Interest payable (884) (833) (1,619) Interest receivable 683 644 1,290 Exceptional finance credit - - 2,455 Total finance (costs) / credit (201) (189) 2,126 Profit before income tax 2,144 2,044 6,123 Income tax expense 6 (801) (826) (360) Profit for the period after tax 1,343 1,218 5,763 Minority interest (1) (2) (10) Profit for the period 1,342 1,216 5,753 Earnings per share (pence) - Basic 7 5.42p 4.94p 23.32p - Fully diluted 7 5.36p 4.85p 22.98p * The UK GAAP income statement was audited for the year ended 31 December 2004. Consolidated interim balance sheet Note At 30 June At 30 June At 31 December 2004 2005 2004 £'000 £'000 £'000 (Unaudited) (Unaudited) (Unaudited)* ASSETS Non-current assets Property, plant and equipment 2,484 2,428 2,659 Goodwill 4,025 3,918 3,918 Intangible assets 2,183 370 1,153 Deferred income tax assets 2,231 2,527 2,327 Available-for-sale financial assets 100 100 100 11,023 9,343 10,157 Current assets Inventories 295 272 355 Trade and other receivables 17,474 16,391 13,371 Available-for-sale financial assets 504 504 504 Current income tax assets - - 413 Cash and cash equivalents 3,019 2,312 3,499 21,292 19,479 18,142 Total assets 32,315 28,822 28,299 EQUITY Capital and reserves attributable to the Company's equity holders Share capital 498 495 495 Fair value and other reserves 4,581 4,467 4,484 Cumulative translation adjustment (467) (320) (347) Retained earnings 3,862 (1,293) 3,002 8,474 3,349 7,634 Minority interest 17 3 16 Total equity 8,491 3,352 7,650 LIABILITIES Non-current liabilities Borrowings 2,281 79 2,108 Retirement benefit obligations 9 6,745 6,939 7,067 9,026 7,018 9,175 Current liabilities Trade and other payables 12,909 11,735 11,200 Current income tax liabilities 325 942 - Borrowings 1,564 5,775 274 14,798 18,452 11,474 Total liabilities 23,824 25,470 20,649 Total equity and liabilities 32,315 28,822 28,299 These consolidated interim financial statements have been approved for issue bythe Board of Directors on 13 September 2005. * The UK GAAP balance sheet was audited as at 31 December 2004. Consolidated interim statement of changes in shareholders' equity Attributable to the equity holders of the Minority Total Company Interest equity Share Fair Value Cumulative Retained capital and other earnings reserves Translation (See note 11) adjustments Balance at 1 January 2004 493 4,411 (359) (2,029) 6 2,522 Issue of share capital 2 42 - - - 44Movement on minority interest - - - - (5) (5)Currency translation adjustments - - 39 - - 39Net income/(expense) recognised 2 42 39 - (5) 78directly in equityProfit for the period - - - 1,216 2 1,218Total recognised income for the 2 42 39 1,216 (3) 1,296periodEmployee share option scheme:-value of services provided - 14 - - - 14Dividend - - - (480) - (480)Balance at 30 June 2004 495 4,467 (320) (1,293) 3 3,352 Balance at 1 July 2004 495 4,467 (320) (1,293) 3 3,352 Issue of share capital - 4 - - - 4Movement on minority interest - - - - 5 5Currency translation adjustments - - (27) - - (27)Net income/(expenses) recognised - 4 (27) - 5 (18)directly in equityProfit for the period - - - 4,537 8 4.545Total recognised income for the - 4 (27) 4,537 13 4,527periodMovement in respect of employee - (11) - - - (11)share schemeEmployee share option scheme:-value of services provided - 24 - - - 24Dividend - - - (242) - (242)Balance at 31 December 2004 495 4,484 (347) 3,002 16 7,650 Balance at 1 January 2005 495 4,484 (347) 3,002 16 7,650 Issue of share capital 3 65 - - - 68Movement on minority interest - - - - 1 1Currency translation adjustments - - (120) - - (120)Net income/(expenses) recognised 3 65 (120) - 1 (51)directly in equityProfit for the period - - - 1,342 - 1,342Total recognised income for the 3 65 (120) 1,342 1 1,291periodEmployee share option scheme:- value of services provided - 32 - - - 32Dividend - - - (482) - (482)Balance at 30 June 2005 498 4,581 (467) 3,862 17 8,491 Consolidated interim cash flow statement Half year to Half year to Year to 30 June 2005 30 June 2004 31 December £'000 £'000 2004 (Unaudited) (Unaudited) £'000 (Unaudited) NoteCash flow from operating activities Cash generated from / (used in) operations 10 a) 117 (1,313) 3,688Interest paid (121) (156) (268)Income tax received / (paid) 33 (750) (1,439)Net cash generated from / (used in) operating activities 29 (2,219) 1,981 Cash flow from investing activitiesAcquisition of subsidiary (net of cash acquired) 10 b) (139) - -Purchase of property, plant and equipment (PPE) (523) (462) (1,317)Proceeds from sale of PPE 103 5 29Purchase of intangible assets (1,072) (214) (1,020)Interest received 73 44 92Net cash used in investing activities (1,558) (627) (2,216) Cash flow from financing activitiesProceeds from issue of share capital 68 44 48Investment in ESOP - - (13)Proceeds from borrowings 510 60 2,121Repayments of borrowings (27) (15) -Renegotiation of loan - - (1,730)Payments of finance lease liabilities (58) (27) (115)Dividends paid (482) (480) (721)Net cash generated from / (used in) financing activities 11 (418) (410) Net decrease in net cash (including bank overdrafts) (1,518) (3,264) (645)Cash and bank overdrafts at beginning of period 3,354 3,722 3,722Exceptional gain - - 277Cash and bank overdrafts at end of period 1,836 458 3,354 Notes to the consolidated interim financial statements 1. General information Christie Group plc is the parent undertaking of a group of companies covering arange of related activities. These fall into three divisions - ProfessionalBusiness Services, Software Solutions and Stock and Inventory Services.Professional Business Services principally covers business valuation and agency,mortgage and insurance services, and business appraisal. Software Solutionscovers EPoS, Head office systems and supply chain management. Stock andInventory Services covers Stock and Audit inventory preparation and valuation. 2. Summary of significant accounting policies Accounting policies for the year ending 31 December 2005 The principal accounting policies adopted in the preparation of these financialstatements are set out below. 2.1 Basis of preparation These interim consolidated financial statements of Christie Group plc are forthe six months ended 30 June 2005 and are covered by IFRS 1, First-time Adoptionof International Financial Reporting Standards (IFRS), because they are part ofthe period covered by the Group's first IFRS financial statements for the yearended 31 December 2005. The interim financial statements have been prepared inaccordance with those IFRS standards and IFRIC interpretations issued andeffective or issued and early adopted as at the time of preparing thesestatements (September 2005). The IFRS standards and IFRIC interpretations thatwill be applicable at 31 December 2005, including those that will be applicableon an optional basis, are not known with certainty at the time of preparingthese interim financial statements. The policies set out below have been consistently applied to all the periodspresented except for those relating to the classification and measurement offinancial instruments. The Group has made use of the exemption available underIFRS 1 to only apply IAS 32 and IAS 39 from 1 January 2005. The policies appliedto financial instruments for 2004 and 2005 are disclosed separately below. Christie Group plc's consolidated financial statements were prepared inaccordance with UK Generally Accepted Accounting Principles (GAAP) until 31December 2004. GAAP differs in some areas from IFRS. In preparing Christie Groupplc's 2005 consolidated interim financial statements, management has amendedcertain accounting, valuation and consolidation methods applied in the GAAPfinancial statements to comply with IFRS. The comparative figures in respect of2004 were restated to reflect these adjustments, except as described in theaccounting policies. Reconciliations and descriptions of the effect of the transition from GAAP toIFRS on the Group's equity and its net income and cash flows are provided inNote 4. These consolidated interim financial statements have been prepared under thehistorical cost convention. The preparation of financial statements in accordance with IFRS requires the useof certain critical accounting estimates. It also requires management toexercise judgement in the process of applying the Company's accounting policies.The areas involving a higher degree of judgement or complexity, or areas whereassumptions and estimates are significant to the consolidated interim financialstatements, are disclosed in Note 3. 2.2 Consolidation The Group financial statements include the results of Christie Group plc and allits subsidiary undertakings on the basis of their financial statements to 30June 2005. The results of businesses acquired or disposed of are included fromthe date of acquisition or disposal. A subsidiary is an entity controlled, directly or indirectly, by Christie Groupplc. Control is regarded as the power to govern the financial and operatingpolicies of the entity so as to obtain the benefits from its activities. 2.3 Foreign currency translation Functional and presentation currency Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates ('the functional currency'). The consolidated financialstatements are presented in pounds sterling, which is the Company's functionaland presentational currency. Transactions and balances Foreign currency transactions are translated into the functional 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 at year-end exchange rates of monetary assets andliabilities denominated in foreign currencies are recognised in the incomestatement. Translation differences on non-monetary items, such as equities held at fairvalue through profit or loss, are reported as part of the fair value gain orloss. Translation differences on non-monetary items, such as equitiesclassified as available-for-sale financial assets, are included in the fairvalue reserve in equity. Group companies The results and financial position of all the group entities (none of which hasthe currency of a hyperinflationary economy) that have a functional currencydifferent from the presentation currency are translated into the presentationcurrency as follows: a) assets and liabilities for each balance sheet presented are translatedat the closing rate at the date of that balance sheet; b) income and expenses for each income statement are translated at averageexchange rates (unless this average is not a reasonable approximation of thecumulative effect of the rates prevailing on the transaction dates, in whichcase income and expenses are translated at the dates of the transactions); and c) all resulting exchange differences are recognised as a separatecomponent of equity (Cumulative translation adjustment). On consolidation, exchange differences arising from the translation of the netinvestment in foreign entities, and of borrowings and other currency instrumentsdesignated as hedges of such investments, are taken to shareholders' equity.When a foreign operation is sold, such exchange differences are recognised inthe income statement as part of the gain or 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. 2.4 Revenue recognition Income derived from the Group's principal activities (which is shown exclusiveof applicable sales taxes or equivalents) is recognised as follows: Agency, valuations and appraisals: Net agency fees are recognised as income on exchange of contracts. In respectof valuations, turnover is recognised once the property or business has beeninspected. Appraisal income is recognised upon submission of the completedreport to the client. Business mortgage broking: Fee income is taken either when a loan offer is secured or when the loan isdrawn down. Insurance broking: Insurance brokerage is accounted for when insurance commences. Software solutions: Hardware revenues are recognised on installation. Software revenues arerecognised on the signing of contracts. Revenues on maintenance contracts arerecognised over the period of the contracts. Stock and inventory services: Fees are recognised on completion of the visit to client's premises. Other income is recognised as follows: Interest income: Interest income is recognised on a time-proportion basis using the effectiveinterest method. Dividend income: Dividend income is recognised when the right to receive payment is established. 2.5 Segmental reporting In accordance with the Group's risks and returns, the definition of segments forprimary and secondary segment reporting reflects the internal managementreporting structure. Segment expenses consist of directly attributable costsand other costs, which are allocated based on relevant criteria. A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. A geographical segment is engaged inproviding products or services within a particular economic environment that aresubject to risks and returns that are different from those of componentsoperating in other economic environments. 2.6 Goodwill On the acquisition of a business, fair values are attributed to the net assetsacquired. Goodwill arises on the acquisition of subsidiary undertakings,representing any excess of the fair value of the consideration given over thefair value of the identifiable assets and liabilities acquired. Goodwillarising on acquisitions is capitalised and subject to impairment review, bothannually and when there are indications that the carrying value may not berecoverable. Prior to 1 January 2004, goodwill was amortised over its estimateduseful life, such amortisation ceased on 31 December 2003. The Group's policy for the years up to 31 March 1998 was to eliminate goodwillarising on acquisitions against reserves. Under IFRS 1 and IFRS 3, suchgoodwill will remain eliminated against reserves. 2.7 Intangibles Research and Development Development projects where reasonable certainty exists as regards technical andcommercial viability are capitalised and amortised over the expected product orsystem life, commencing in the year when sales of the product are made or thesystem used for the first time. Development costs previously recognised as anexpense are not recognised as an asset in a subsequent period. All otherresearch and development costs are written off in the year in which they areincurred. Other Intangible fixed assets such as software, trademarks and patent rights arestated at cost, net of amortisation and any provision for impairment.Amortisation is calculated to write down the cost of all intangible fixed assetsto their estimated residual value by equal annual instalments over theirexpected useful economic lives. The expected useful lives are between three andten years. 2.8 Property plant and equipment Tangible fixed assets are stated at cost, net of depreciation and provision forany impairment. Depreciation is calculated to write down the cost of alltangible fixed assets to their estimated residual value by equal annualinstalments over their expected useful lives as follows: Leasehold property Lease termFixtures, fittings and equipment 5 - 10 yearsComputer equipment 2 - 3 yearsMotor vehicles 4 years The assets' residual values and useful lives are reviewed, and adjusted ifappropriate, at each balance sheet date. An asset's carrying amount is writtendown immediately to its recoverable amount if the asset's carrying amount isgreater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the disposal proceedswith the carrying amount and are included in the income statement. 2.9 Leases Leases where the lessor retains a significant portion of the risks and rewardsof ownership are classified as operating leases. Rentals under operating leases(net of any incentives received) are charged to the income statement on astraight-line basis over the period of the lease. Assets, held under finance leases, which confer rights and obligations similarto those attached to owned assets, are capitalised as tangible fixed assets andare depreciated over the shorter of the lease terms and their useful lives. Thecapital elements of future lease obligations are recorded as liabilities, whilstthe interest elements are charged to the income statement over the period of theleases at a constant rate. 2.10 Impairment of assets Fixed assets are reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount may not be recoverable. Animpairment loss is recognised for the amount by which the asset's carrying valueexceeds its recoverable amount. The recoverable amount is the higher of anasset's fair value less costs to sell and value in use. Value in use is basedon the present value of the future cash flows relating to the asset. For thepurposes of assessing impairment, assets are grouped at the lowest levels forwhich there are separately identifiable cash flows (cash generating units). Any assessment of impairment based on value in use takes account of the timevalue of money and the uncertainty or risk inherent in the future cash flows.The discount rates applied are pre-tax and reflect current market assessments ofthe time value of money and the risks specific to the asset for which the futurecash flow estimates have not been adjusted. 2.11 Investments From 1 January 2004 to 31 December 2004 Financial fixed assets include investments in companies other than subsidiariesand associates, financial receivables held for investment purposes, treasurystock and other securities. Financial fixed assets are recorded at cost,including additional direct charges. Current assets may also include investments and securities acquired as atemporary investment, which are valued at the lower of cost and market, costbeing determined on a last-in-first-out (LIFO) basis. From 1 January 2005 The Group classifies its investments in the following categories: financialassets at fair value through profit or loss, loans and receivables,held-to-maturity investments and available-for-sale financial assets. Theclassification depends on the purpose for which the investments were acquired.Management determines the classification of its investments at initialrecognition and re-evaluates this designation at every reporting date. (1) Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, andthose designated at fair value through profit or loss at inception. A financialasset is classified in this category if acquired principally for the purpose ofselling in the short term or if so designated by management. Derivatives are also categorised as held for trading unless they are designatedas hedges. Assets in this category are classified as current assets if theyeither are held for trading or are expected to be realised within 12 months ofthe balance sheet date. During the year, the Group did not hold any investmentsin this category. (2) Loans and receivables Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. They arise whenthe Group provides money, goods or services directly to a debtor with nointention of trading the receivable. They are included in current assets, exceptfor maturities greater than 12 months after the balance sheet date. These areclassified as non-current assets. Loans and receivables are included in tradeand other receivables in the balance sheet. During the year, the Group did nothold any investments in this category. (3) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed ordeterminable payments and fixed maturities that the Group's management has thepositive intention and ability to hold to maturity. During the year, the Groupdid not hold any investments in this category. (4) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are eitherdesignated in this category or not classified in any of the other categories.They are included in non-current assets unless management intends to dispose ofthe investment within 12 months of the balance sheet date. Purchases and sales of investments are recognised on trade date, the date onwhich the Group commits to purchase or sell the asset. Investments are initiallyrecognised at fair value plus transaction costs for all financial assets notcarried at fair value through profit or loss. Investments are derecognised whenthe rights to receive cash flows from the investments have expired or have beentransferred and the Group has transferred substantially all risks and rewards ofownership. Available-for-sale financial assets and financial assets at fairvalue through profit or loss are subsequently carried at fair value. Loans andreceivables and held-to-maturity investments are carried at amortised cost usingthe effective interest method. Realised and unrealised gains and losses arisingfrom changes in the fair value of the 'financial assets at fair value throughprofit or loss' category are included in the income statement in the period inwhich they arise. Unrealised gains and losses arising from changes in the fairvalue of non-monetary securities classified as available-for-sale are recognisedin equity. When securities classified as available-for-sale are sold orimpaired, the accumulated fair value adjustments are included in the incomestatement as gains and losses from investment securities. The fair values of quoted investments are based on current bid prices. If themarket for a financial asset is not active (and for unlisted securities), theGroup establishes fair value by using valuation techniques. These include theuse of recent arm's length transactions, reference to other instruments that aresubstantially the same, discounted cash flow analysis, and option pricing modelsrefined to reflect the issuer's specific circumstances. The Group assesses at each balance sheet date whether there is objectiveevidence that a financial asset or a group of financial assets is impaired. Inthe case of equity securities classified as available for sale, a significant orprolonged decline in the fair value of the security below its cost is consideredin determining whether the securities are impaired. If any such evidence exists for available-for-sale financial assets, thecumulative loss - measured as the difference between the acquisition cost andthe current fair value, less any impairment loss on that financial assetpreviously recognised in profit or loss - is removed from equity and recognisedin the income statement. Impairment losses recognised in the income statement onequity instruments are not reversed through the income statement. 2.12 Inventories Inventory held for resale is valued at the lower of cost and net realisablevalue. 2.13 Trade receivables Trade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost using the effective interest method, less provisionfor impairment. A provision for impairment of trade receivables is establishedwhen there is objective evidence that the Group will not be able to collect allamounts due according to the original terms of the receivables. The amount ofthe provision is the difference between the asset's carrying amount and thepresent value of estimated future cash flows, discounted at the effectiveinterest rate. The amount of the provision is recognised in the incomestatement. 2.14 Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. Cash andcash equivalents comprise cash on hand, deposits held at call with banks, othershort-term, highly liquid investments with original maturities of three monthsor less, and bank overdrafts. Bank overdrafts are included within borrowings incurrent liabilities on the balance sheet. 2.15 Borrowings Borrowings are recognised initially at fair value, net of transaction costsincurred. Borrowings are subsequently stated at amortised cost; any differencebetween proceeds (net of transaction costs) and the redemption value isrecognised in the income statement over the period of the borrowings using theeffective interest method. Borrowings are classified as current liabilities unless the Group has anunconditional right to defer settlement of the liability for at least 12 monthsafter the balance sheet date. 2.16 Taxation including deferred tax Tax on company profits is provided for at the current rate applicable in each ofthe relevant territories. 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 consolidated financial statements. However, ifthe deferred income tax arises from initial recognition of an asset or liabilityin a transaction other than a business combination that at the time of thetransaction affects neither accounting nor taxable profit or loss, it is notaccounted for. Deferred income tax is determined using tax rates (and laws) thathave been enacted or substantially enacted by the balance sheet date and areexpected to apply when the related deferred income tax asset is realised or thedeferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable thatfuture taxable profit will be available, against which the temporary differencescan be utilised. Deferred income tax is provided on temporary differences arising on investmentsin subsidiaries and associates, except where the timing of the reversal of thetemporary difference is controlled by the Group and it is probable that thetemporary difference will not reverse in the foreseeable future. 2.17 Share capital and share premium Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or optionsare shown in equity as a deduction, net of tax, from the proceeds. Incrementalcosts directly attributable to the issue of new shares or options, or for theacquisition of a business, are included in the cost of acquisition as part ofthe purchase consideration. Where any Group company purchases the Company's equity share capital (ownshares), the consideration paid, including any directly attributableincremental costs (net of income taxes), is deducted from equity attributable tothe Company's equity holders until the shares are cancelled, reissued ordisposed of. Where such shares are subsequently sold or reissued, anyconsideration received, net of any directly attributable incremental transactioncosts and the related income tax effects, is included in equity attributable tothe Company's equity holders. 2.18 Dividend distribution Dividend distribution to the Company's shareholders is recognised as a liabilityin the Group's financial statements in the period in which the dividends areapproved by the Company's shareholders. In respect of interim dividends, whichare paid prior to approval by the Company's shareholders they are recognised onpayment. 2.19 Employee benefits Pension obligations The Group operates both defined benefit and defined contribution plans. Adefined benefit plan is a pension plan that defines the amount of pensionbenefit that an employee will receive on retirement, usually dependent on one ormore factors such as age, years of service and remuneration. A definedcontribution plan is a pension plan under which the Group pays fixedcontributions into a separate entity. The schemes are generally funded throughpayments to insurance companies or trustee-administered funds, determined byperiodic actuarial calculations. Pension obligations - Defined benefit schemes The liability recognised in the balance sheet in respect of defined benefitpension plans is the present value of the defined benefit obligation at thebalance sheet date less the fair value of plan assets, together with adjustmentsfor unrecognised actuarial gains or losses and past service costs. The definedbenefit obligation is calculated annually by independent actuaries using theprojected unit credit method. The present value of the defined benefitobligation is determined by discounting the estimated future cash outflows usinginterest rates of high-quality corporate bonds that are denominated in thecurrency in which the benefits will be paid, and that have terms to maturityapproximating to the terms of the related pension liability. Cumulative actuarial gains and losses arising from experience adjustments andchanges in actuarial assumptions in excess of the greater of 10% and the valueof plan assets or 10% of the defined benefit obligation are charged or creditedto the income statement over the employees' expected average remaining workinglives. Past-service costs are recognised immediately in income, unless the changes tothe pension plan are conditional on the employees remaining in service for aspecified period of time (the vesting period). In this case, the past-servicecosts are amortised on a straight-line basis over the vesting period. Pension obligations - Personal pension plans Group companies contribute towards personal pension plans for participatingemployees. These employees are currently entitled to such contributions after aqualifying period has elapsed. Payments to the plan are charged as an employeebenefit expense as they fall due. Prepaid contributions are recognised as anasset to the extent that a cash refund or a reduction in the future payments isavailable. The Group has no further payment obligations once the contributionshave been paid. Share based compensation The fair value of employee share option plans, including Save As You Earn (SAYE)schemes, is calculated using an appropriate option pricing model. In accordancewith IFRS 2 'Share-based Payments' the resulting cost is charged to the incomestatement over the vesting period of the options. The value of the charge isadjusted to reflect expected and actual levels of options vesting. Share options granted before 7 November 2002 and vested before 1 January 2005. No expense is recognised in respect of these options. The shares are recognisedwhen the options are exercised and the proceeds received allocated between sharecapital and share premium. Share options granted after 7 November 2002 and vested after 1 January 2005. The Group operates an equity-settled, long term incentive plan designed to alignmanagement interests with those of shareholders. The fair value of theemployee's services received in exchange for the grant of the options isrecognised as an expense. The total amount to be expensed over the vestingperiod is determined by reference to the fair value of the options granted,excluding the impact of any non-market vesting conditions (for example,profitability and sales growth targets). Non-market vesting conditions areincluded in assumptions about the number of options that are expected to becomeexercisable. At each balance sheet date, the entity revises its estimates of thenumber of options that are expected to become exercisable. It recognises theimpact of the revision of original estimates, if any, in the income statement,and a corresponding adjustment to equity. The proceeds received net of anydirectly attributable transaction costs are credited to share capital (nominalvalue) and share premium when the options are exercised. Commissions and bonus plans The Group recognises a liability and an expense for commissions and bonuses,based on formula driven calculations. The Group recognises provisions wherecontractually obliged or where there is a past practice that has created aconstructive obligation. 2.20 Interim measurement note (a) Current income tax Current income tax expense is recognised in these interim consolidated financialstatements based on management's best estimates of the weighted average annualincome tax rate expected for the full financial year. (b) Costs Costs that are incurred unevenly during the financial year are anticipated ordeferred in the interim report only if it would also be appropriate toanticipate or defer such costs at the end of the financial year. (c) Retirement benefit obligations The measurement of the expenses and liabilities associated with the Group'sretirement benefit obligations at 30 June 2005 reflects a number of assumptions,based on the actuarial valuation as at 31 December 2004 after taking intoaccount actual cash contributions to the schemes. Further details of theassumptions used are detailed in Note 3.1 (b). 3. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that arebelieved to be reasonable under the circumstances. 3.1 Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resultingaccounting estimates will by definition, seldom equal the related actualresults. The estimates and assumptions that have a significant risk of causing amaterial adjustment to the carrying amounts of assets and liabilities within thenext financial year are discussed below. (a) Estimated impairment of goodwill Goodwill is subject to an impairment review both annually and when there areindications that the carrying value may not be recoverable, in accordance withthe accounting policy stated in Note 2.6. The recoverable amounts ofcash-generating units have been determined based on value-in-use calculations.These calculations require the use of estimates. (b) Retirement benefit obligations The assumptions used to measure the expense and liabilities related to theGroup's two defined benefit pension plans are reviewed annually byprofessionally qualified, independent actuaries, trustees and management asappropriate. The measurement of the expense for a period requires judgementwith respect to the following matters, among others: - the probable long-term rate of increase in pensionable pay; - the discount rate - the expected return on plan assets - the estimated life expectancy of participating employees The assumptions used by the Group may differ materially from actual results, andthese differences may result in a significant impact on the amount of pensionexpense recorded in future periods. In accordance with IAS 19, the Groupamortises actuarial gains and losses outside the 10% corridor, over the averagefuture service lives of employees. Under this method, major changes inassumptions, and variances between assumptions and actual results, may affectretained earnings over several future periods rather than one period, while moreminor variances and assumption changes may be offset by other changes and haveno direct effect on retained earnings. (c) Income taxes The Group is subject to income taxes in numerous jurisdictions. Significantjudgement is required in determining the provision for income taxes. There aremany transactions and calculations for which the ultimate tax determination isuncertain during the ordinary course of business. The Group recognisesliabilities for anticipated tax audit issues based on estimates of whetheradditional taxes will be due. Where the final tax outcome of these matters isdifferent from the amounts initially recorded, such differences will impact theincome tax and deferred tax provisions in the period in which such determinationis made. 4. Transition to IFRS 4.1 Basis of transition to IFRS 4.1.1 Application of IFRS The Group's financial statements for the year ended 31 December 2005 will be thefirst annual financial statements that comply with IFRS. These interim financialstatements have been prepared as described in Note 2.1. The Group has appliedIFRS 1 in preparing these consolidated interim financial statements. Christie Group plc's transition date is 1 January 2004. The Group prepared itsopening IFRS balance sheet at that date. The reporting date of these interimconsolidated financial statements is 30 June 2005. The Group's IFRS adoptiondate is 1 January 2005. In preparing these interim consolidated financial statements in accordance withIFRS 1, the Group has applied the mandatory exceptions and certain of theoptional exemptions from full retrospective application of IFRS, as detailedbelow. 4.1.2 Exemptions from full retrospective application elected by the Group Christie Group plc has elected to apply the following optional exemptions fromfull retrospective application. (a) Business combinations exemption Christie Group plc has applied the business combinations exemption in IFRS 1. Ithas not restated business combinations that took place prior to the 1 January2004 transition date. (b) Fair value as deemed cost exemption Christie Group plc has elected to measure certain items of property, plant andequipment at fair value as at 1 January 2004. (c) Employee benefits exemption Christie Group plc has elected to recognise all cumulative actuarial gains andlosses as at 1 January 2004. (d) Exemption from restatement of comparatives for IAS 32 and IAS 39. The Group elected to apply this exemption. It applies previous GAAP rules toderivatives, financial assets and financial liabilities and to hedgingrelationships for the 2004 comparative information. The adjustments required fordifferences between GAAP and IAS 32 and IAS 39 are determined and recognised at1 January 2005. (e) Designation of financial assets and financial liabilities exemption The Group reclassified various securities as available-for-sale investments andas financial assets at fair value through profit and loss. The adjustmentsrelating to IAS 32 and IAS 39 at the opening balance sheet date of 1 January2005, the IAS 32 / 39 transition date. (f) Share-based payment transaction exemption The Group has elected to apply the share-based payment exemption. It appliedIFRS 2 from 1 January 2004 to those options, that were issued after 7 November2002 but that have not vested by 1 January 2005. (g) Fair value measurement of financial assets or liabilities at initialrecognition The Group has not applied the exemption offered by the revision of IAS 39 on theinitial recognition of the financial instruments measured at fair value throughprofit and loss where there is no active market. This exemption is therefore notapplicable. 4.1.3 Exceptions from full retrospective application followed by the Group Christie Group plc has applied the following mandatory exceptions fromretrospective application. (a) Derecognition of financial assets and liabilities exception Financial assets and liabilities derecognised before 1 January 2004 are notre-recognised under IFRS. The application of the exemption from restatingcomparatives for IAS 32 and IAS 39 means that the Group recognised from 1January 2005 any financial assets and financial liabilities derecognised since 1January 2004 that do not meet the IAS 39 derecognition criteria. Management didnot choose to apply the IAS 39 derecognition criteria to an earlier date. (b) Estimates exception Estimates under IFRS at 1 January 2004 should be consistent with estimates madefor the same date under previous GAAP, unless there is evidence that thoseestimates were in error. (c) Assets held for sale and discontinued operations exception Management applies IFRS 5 prospectively from 1 January 2005. Any non-currentassets held for sale or discontinued operations are recognised in accordancewith IFRS 5 only from 1 January 2005. Christie Group plc did not have any non-current assets that met the held-for-sale criteria during the period presented.No adjustment was required. 4.2 Reconciliations between IFRS and GAAP The following reconciliations provide a quantification of the effect of thetransition to IFRS. The first reconciliation provides an overview of the impacton equity of the transition at 1 January 2004, 30 June 2004 and 31 December2004. The following seven reconciliations provide details of the impact of thetransition on: - equity at 1 January 2004 (Note 4.2.2) - equity at 30 June 2004 (Note 4.2.3) - equity at 31 December 2004 (Note 4.2.4) - net income 30 June 2004 (Note 4.2.5) - net income 31 December 2004 (Note 4.2.6) - cash flow 30 June 2004 (Note 4.2.7) - cash flow 31 December 2004 (Note 4.2.8) 4.2.1 Summary of equity 1 January Note 30 June Note 31 December Note 2004 2004 2004 £'000 £'000 £'000Total equity under UK GAAP 7,256 7,700 11,568Recognition of post-retirement benefit (7,466) 4.2.2 e) (6,939) 4.2.3 g) (7,067) 4.2.4 g)obligations under IAS 19Recognition of deferred tax on Retirement 2,240 4.2.2 c) 2,082 4.2.3 d) 2,120 4.2.4 d)benefit obligationsReversal of Goodwill amortised - 269 4.2.3 b) 548 4.2.4 b)Reversal of proposed ordinary dividends 492 4.2.2 f) 240 4.2.3 h) 481 4.2.4 h)payableTotal equity under IFRS 2,522 3,352 7,650 4.2.2 Reconciliation of equity at 1 January 2004 Note GAAP Effect of IFRS transition to IFRS £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment a) 2,631 (144) 2,487Goodwill 3,918 - 3,918Intangible assets b) 35 144 179Deferred income tax assets c) 445 2,240 2,685Available-for-sale financial assets 100 - 100 7,129 2,240 9,369Current assetsInventories 312 - 312Trade and other receivables 12,635 - 12,635Available-for-sale financial assets 504 - 504Cash and cash equivalents 4,346 - 4,346 17,797 - 17,797 Total assets 24,926 2,240 27,166 EQUITYCapital and reserves attributable to the company'sequity holdersShare capital 493 - 493Fair value and other reserves 4,411 - 4,411Cumulative translation adjustment d) - (359) (359)Retained earnings g) 2,346 (4,375) (2,029) 7,250 (4,734) 2,516Minority interest 6 - 6Total equity 7,256 (4,734) 2,522 LIABILITIESNon-current liabilitiesBorrowings 121 - 121Retirement benefit obligations e) - 7,466 7,466Provisions and other liabilities 31 - 31 152 7,466 7,618Current liabilitiesTrade and other payables f) 11,920 (492) 11,428Current income tax liabilities 1,023 - 1,023Borrowings 4,575 - 4,575 17,518 (492) 17,026 Total liabilities 17,670 6,974 24,644 Total equity and liabilities 24,926 2,240 27,166 Explanation of the effect of the transition to IFRS The following explains the material adjustments to the balance sheet at the dateof transition, 1 January 2004. £'000a) Property, plant and equipment Reclassification of computer software to intangible assets (144) Total impact - decrease in Property, plant and equipment (144) Under IAS 38 only computer software that is integral to a related item of hardware should be included as Property, plant and equipment. This adjustment reclassifies relevant computer software in accordance with IAS 38. b) Intangible assets Reclassification of computer software from Property, plant and equipment 144 Total impact - increase in Intangible assets 144 This adjustment is as per a) above. c) Deferred tax Recognition of deferred tax on the Retirement benefit obligations 2,240 Total impact - increase in deferred tax assets 2,240 IAS 12 allows a net presentation of deferred tax assets and liabilities only when certain criteria are met. This adjustment recognises the deferred tax asset relating to the inclusion of Retirement benefit obligations under IAS 19. d) Cumulative translation adjustment Recognition of cumulative translation adjustments 359 Total impact - decrease in cumulative translation adjustment 359 In accordance with IAS 21 cumulative translation differences have been recognised. e) Retirement benefit obligations Recognition of post-retirement benefit obligations under IAS 19 (7,466) Total impact - increase in retirement benefit obligations (7,466) Under UK GAAP the liability / asset on the balance sheet represents the timing differences between the SSAP 24 charge and the payments made to the pension and post-retirement healthcare schemes. Under IFRS, the liability / asset on the balance sheet represents the deficit / surplus on pension and post-retirement healthcare schemes. This balance encompasses all assets / liabilities arising from defined benefit schemes. f) Trade and other payables (current) Reversal of proposed ordinary dividends payable 492 Total impact - decrease in Trade and other payables (current) 492 Dividends proposed after the balance sheet date but before the financial statements are finalised were treated as an adjusting post-balance sheet event under UK GAAP and accrued in the financial statements. Such dividends are treated as a non-adjusting balance sheet event under IFRS and are not accrued. g) Retained earnings All above adjustments were recorded against the opening retained earnings at 1 January 2004. The total net impact is a decrease in retained earnings of £4,375,000. 4.2.3 Reconciliation of equity at 30 June 2004 ASSETS Note GAAP Effect of IFRS transition to £'000 IFRS £'000 £'000Non-current assetsProperty, plant and equipment a) 2,573 (145) 2,428Goodwill b) 3,649 269 3,918Intangible assets c) 225 145 370Deferred income tax assets d) 445 2,082 2,527Available-for-sale financial assets 100 - 100 6,992 2,351 9,343 Current assetsInventories 272 - 272Trade and other receivables 16,391 - 16,391Available-for-sale financial assets 504 - 504Cash and cash equivalents 2,312 - 2,312 19,479 - 19,479 Total assets 26,471 2,351 28,822 EQUITYCapital and reserves attributable to equity holdersShare capital 495 - 495Fair value and other reserves e) 4,453 14 4,467Cumulative translation adjustment f) - (320) (320)Retained earnings i) 2,749 (4,042) (1,293) 7,697 (4,348) 3,349Minority interest 3 - 3Total equity 7,700 (4,348) 3,352 LIABILITIESNon-current liabilitiesBorrowings 79 - 79Retirement benefit obligations g) - 6,939 6,939 79 6,939 7,018 Current liabilitiesTrade and other payables h) 11,975 (240) 11,735Current income tax liabilities 942 - 942Borrowings 5,775 - 5,775 18,692 (240) 18,452 Total liabilities 18,771 6,699 25,470 Total equity and liabilities 26,471 2,351 28,822 The nature of the adjustments from UK GAAP to IFRS at 30 June 2004 is similar tothose at 1 January 2004. There are two additional adjustments at 30 June 2004,relating to goodwill and share options. Explanations of all other adjustmentsare disclosed in Note 4.2.2. £'000a) Property, plant and equipment Reclassification of computer software to intangible assets (145) Total impact - decrease in Property, plant and equipment (145) b) Goodwill Reversal of goodwill amortised in the period 269 Total impact - increase in Goodwill 269 In accordance with IFRS 3, goodwill and other intangible long-term assets with indefinite useful lives should not be amortised. c) Intangible assets Reclassification of computer software from Property, plant and equipment 145 Total impact - increase in Intangible assets 145 d) Deferred tax Recognition of deferred tax on the Retirement benefit obligations 2,082 Total impact - increase in deferred tax assets 2,082 e) Fair value and other reserves Recognition of share options issued after 7 November 2002 and not vested at 1 January 2005. (14) Total impact - increase in Fair value and other reserves (14) The Group has issued share options to senior management, these were not recognised under GAAP. f) Cumulative translation adjustment Recognition of cumulative translation adjustments 320 Total impact - decrease in cumulative translation adjustment 320 g) Retirement benefit obligations Recognition of post-retirement benefit obligations under IAS 19 (6,939) Total impact - increase in retirement benefit obligations (6,939) h) Trade and other payables (current) Reversal of proposed ordinary dividends payable 240 Total impact - decrease in Trade and other payables (current) 240 i) Retained earnings All above adjustments were recorded against the opening retained earnings at 30 June 2004. The total net impact is a decrease in retained earnings of £4,042,000. 4.2.4 Reconciliation equity at 31 December 2004 ASSETS Note Effect of transition to GAAP IFRS £'000 £'000 IFRS (Audited) £'000Non-current assetsProperty, plant and equipment a) 3,231 (572) 2,659Goodwill b) 3,370 548 3,918Intangible assets c) 581 572 1,153Deferred income tax assets d) 207 2,120 2,327Available-for-sale financial assets 100 - 100 7,489 2,668 10,157Current assetsInventories 355 - 355Trade and other receivables 13,371 - 13,371Available-for-sale financial assets 504 - 504Other financial assets at fair value through profit or loss 413 - 413Cash and cash equivalents 3,499 - 3,499 18,142 - 18,142 Total assets 25,631 2,668 28,299 EQUITYCapital and reserves attributable to equity holdersShare capital 495 - 495Fair value and other reserves e) 4,446 38 4,484Cumulative translation adjustment f) - (347) (347)Retained earnings i) 6,611 (3,609) 3,002 11,552 (3,918) 7,634Minority interest 16 - 16Total equity 11,568 (3,918) 7,650 LIABILITIESNon-current liabilitiesBorrowings 2,108 - 2,108Retirement benefit obligations g) - 7,067 7,067 2,108 7,067 9,175Current liabilitiesTrade and other payables h) 11,681 (481) 11,200Borrowings 274 - 274 11,955 (481) 11,474 Total liabilities 14,063 6,586 20,649 Total equity and liabilities 25,631 2,668 28,299 The nature of the adjustments from GAAP to IFRS at 31 December 2004 is similarto that of the adjustments from GAAP to IFRS at 1 January 2004 and 30 June 2004.Explanations of the adjustments are disclosed in Notes 4.2.2 and 4.2.3. £'000a) Property, plant and equipment Reclassification of computer software to intangible assets (572) Total impact - decrease in Property, plant and equipment (572) b) Goodwill Reversal of goodwill amortised in the period 548 Total impact - increase in Goodwill 548 c) Intangible assets Reclassification of computer software from Property, plant and equipment 572 Total impact - increase in Intangible assets 572 d) Deferred tax Recognition of deferred tax on the Retirement benefit obligations 2,120 Total impact - increase in deferred tax assets 2,120 e) Fair value and other reserves Recognition of share options issued after 7 November 2002 and not vested at 1 January 2005. (38) Total impact - increase in Fair value and other reserves (38) f) Cumulative translation adjustment Recognition of cumulative translation adjustments 347 Total impact - decrease in cumulative translation adjustment 347 g) Retirement benefit obligations Recognition of post-retirement benefit obligations under IAS 19 (7,067) Total impact - increase in retirement benefit obligations (7,067) h) Trade and other payables (current) Reversal of proposed ordinary dividends payable 481 Total impact - decrease in Trade and other payables (current) 481 i) Retained earnings The cumulative effect of all of the above adjustments has resulted in a decrease in retained earnings at 30 June 2004 of £3,609,000. 4.2.5 Reconciliation of net income for six months ended 30 June 2004 Note Effect of transition to IFRS £'000 GAAP IFRS £'000 £'000Revenue 35,694 - 35,694 Employee benefit costs a) (19,969) 590 (19,379)Depreciation and amortisation b) (809) 269 (540)Other expenses (13,542) - (13,542)Total expenses (34,320) 859 (33,461)Operating Profit 1,374 859 2,233Interest payable c) (157) (676) (833)Interest receivable d) 45 599 644Total finance (costs) / credit (112) (77) (189)Profit before income tax 1,262 782 2,044Income tax expense e) (668) (158) (826)Profit for the period 594 624 1,218 The following explains the material adjustments to the income statement for thesix months ended 30 June 2004. £'000a) Employee benefit costs Recognition of post-retirement benefit costs under IAS 19 604 Recognition of charge for share options (14) Total impact - decrease in Employee benefit costs 590 Under UK GAAP, the Group measures pension commitments and other related benefits in accordance with SSAP 24 'Accounting for pension costs'. Additional disclosures are given in accordance with FRS 17 'Retirement benefits'. Under IFRS, the Group measures pension commitments and other related benefits in accordance with IAS 19 'Employee Benefits'. Rather than showing solely an operating charge in the income statement, as is the case under current UK GAAP, under IAS 19 a net financing charge is also recognised. The net finance charge relates to the unwinding of the discount applied to the liabilities of the post-retirement benefit schemes offset by the expected return on the assets of the scheme. The IAS 19 adjustment reflects the net credit to employee benefit costs resulting from the reclassification of the financing charge and change in accounting from SSAP 24 to IAS 19. The Group has issued share options to senior management, which were not recognised under UK GAAP. b) Goodwill amortised Reversal of goodwill amortised in the period 269 Total impact - decrease in Goodwill amortisation 269 In accordance with IFRS 3, goodwill and other intangible long-term assets with indefinite useful lives should not be amortised. c) Interest payable Recognition of post-retirement benefit costs under IAS 19 (676) Total impact - increase in interest payable (676) This represents the finance charge relating to the unwinding of the discount applied to the liabilities of the post-retirement benefit schemes. d) Interest receivable Recognition of post-retirement benefit credits under IAS 19 599 Total impact - increase in interest receivable 599 This represents the finance credit relating to the expected return on the assets of the post-retirement benefit schemes. e) Income tax expense Movement in deferred tax asset relating to Retirement benefit obligations (158) Total impact - increase in income tax expense (158) This adjustment reflects the movement in the deferred tax asset relating to the inclusion of Retirement benefit obligations under IAS 19. 4.2.6 Reconciliation of net income for year ended 31 December 2004 Note GAAP Effect of £'000 transition (Audited) to IFRS IFRS £'000 £'000Revenue 69,968 - 69,968 Employee benefit costs a) (40,390) 514 (39,876)Depreciation and amortisation b) (1,751) 548 (1,203)Other expenses (24,892) - (24,892)Total expenses (67,033) 1,062 (65,971)Operating Profit 2,935 1,062 3,997Interest payable c) (268) (1,351) (1,619)Interest receivable d) 92 1,198 1,290Exceptional finance credit 2,455 - 2,455Total finance (costs) / credit 2,279 (153) 2,126Profit before income tax 5,214 909 6,123Income tax expense e) (240) (120) (360)Profit for the period 4,974 789 5,763 The nature of adjustments from UK GAAP at 31 December 2004 is similar to thoseadjustments from UK GAAP to IFRS at 30 June 2004. £'000a) Employee benefit costs Recognition of post-retirement benefit costs under IAS 19 552 Recognition of charge for share options (38) Total impact - decrease in Employee benefit costs 514 b) Goodwill amortised Reversal of goodwill amortised in the period 548 Total impact - decrease in Goodwill amortisation 548 c) Interest payable Recognition of post-retirement benefit costs under IAS 19 (1,351) Total impact - increase in interest payable (1,351) d) Interest receivable Recognition of post-retirement benefit credits under IAS 19 1,198 Total impact - increase in interest receivable 1,198 e) Income tax expense Movement in deferred tax asset relating to Retirement benefit obligations (120) Total impact - increase in income tax expense (120) 4.2.7 Reconciliation of cash flow for the six months ended 30 June 2004 The only IFRS transition effects presented by the Group in its statement of cashflow for the six months ended 30 June 2004, were as follows: a) Under UK GAAP, borrowings included 'Bank overdrafts'. Bank overdraftsunder IFRS are classified as part of 'cash and cash equivalents' becausethey form an integral part of the entity's cash management. b) Purchase of property, plant and equipment was reduced by, and thePurchase of intangible assets was increased by £144,000, reflecting thereclassification of computer software as an intangible asset in accordance withIAS 38, see 4.2.2 a) and b). 4.2.8 Reconciliation of cash flow for the year ended 31 December 2004 The nature of adjustments from UK GAAP to IFRS at 31 December 2004 is similar tothose at 30 June 2004. a) Purchase of property, plant and equipment was reduced by, and thePurchase of intangible assets was increased by, £572,000. 5. Segment information a. Primary reporting format - business segments At 30 June 2005, the Group is organised into three main business segments:Professional Business Services, Software Solutions and Stock and InventoryServices. The segment results for the period ended 30 June 2005 are as follows: Professional Stock and Business Inventory Services Software Services Solutions Other Group £'000 £'000 £'000 £'000 £'000Continuing OperationsTotal gross segment sales 20,126 7,299 11,473 1,285 40,183Inter-segment sales (20) - - (1,285) (1,305)Sales 20,106 7,299 11,473 - 38,878Operating profit 1,669 (287) 1,055 (92) 2,345Net finance credit/(costs) (201)Profit before income taxes 2,144Income taxes (801)Profit for the period after tax 1,343 The segment results for the period ended 30 June 2004 are as follows: Professional Stock and Business Inventory Services Software Services Solutions Other Group £'000 £'000 £'000 £'000 £'000Continuing operationsTotal gross segment sales 18,318 6,131 11,265 1,253 36,967Inter-segment sales (20) - - (1,253) (1,273)Sales 18,298 6,131 11,265 - 35,694Operating profit 2,185 (557) 633 (28) 2,233Net finance credit/(costs) (189)Profit before income taxes 2,044Income taxes (826)Profit for the period after 1,218tax The segment results for the year ended 31 December 2004 are as follows: Professional Stock and Business Inventory Services Software Services Solutions Other Group £'000 £'000 £'000 £'000 £'000Continuing operationsTotal gross segment sales 37,289 12,976 19,723 2,452 72,440Inter-segment sales (20) - - (2,452) (2,472)Sales 37,269 12,976 19,723 - 69,968Operating profit 4,293 (1,145) 958 (109) 3,997Net finance credit/(costs) (329)Exceptional finance credit 2,455Profit before income taxes 6,123Income taxes (360)Profit for the period after 5,763tax Other segment items included in the income statement are as follows: Professional Stock and Business Inventory Services Software Services Solutions Other Group £'000 £'000 £'000 £'000 £'000Depreciation and amortisationFor the period ended 30 June 2005 345 149 124 21 639For the period ended 30 June 2004 317 97 93 33 540For the year ended 31 December 647 247 248 61 1,2032004 The segment assets and liabilities at 30 June 2005 and capital expenditure forthe period then ended are as follows: Professional Stock and Business Inventory Services Software Services Other Group Solutions £'000 £'000 £'000 £'000 £'000 Assets 13,301 10,739 5,930 114 30,084Deferred income tax assets 2,231 32,315 Liabilities 9,520 4,344 4,471 1,438 19,773Current income tax liabilities 325Borrowings (excluding finance 3,726leases) 23,824 Capital expenditure 998 511 64 22 1,595 The segment assets and liabilities at 30 June 2004 and capital expenditure forthe period then ended are as follows: Professional Stock and Business Inventory Services Software Services Solutions Other Group £'000 £'000 £'000 £'000 £'000 Assets 10,989 7,666 5,957 1,683 26,295Deferred income tax assets 2,527 28,822 Liabilities 9,531 3,581 4,062 1,675 18,849Current income tax liabilities 942Borrowings (excluding finance 5,679leases) 25,470 Capital expenditure 258 352 70 5 685 The segment assets and liabilities at 31 December 2004 and capital expenditurefor the period then ended are as follows: Professional Stock and Business Inventory Services Software Services Solutions Other Group £'000 £'000 £'000 £'000 £'000 Assets 10,678 8,960 3,928 1,993 25,559Deferred income tax assets 2,327Current income tax asset 413 28,299 Liabilities 9,001 3,968 3,366 2,108 18,443Borrowings (excluding finance 2,206leases) 20,649 Capital expenditure 1,283 826 306 10 2,425 Segment assets consist primarily of property, plant and equipment, intangibleassets, inventories, receivables and operating cash. They exclude deferredtaxation. Segment liabilities comprise operating liabilities. They exclude items such astaxation and corporate borrowings. Capital expenditure comprises additions to property, plant and equipment andintangible assets. b. Secondary format - geographical segments The Group manages its business segments on a global basis. The operations arebased in three main geographical areas. The UK is the home country of theparent. The main operations in the principal territories are as follows: - UK- Continental Europe- Rest of the World. The Rest of the World segment operations are mainly based in North America. The Group's sales are mainly in the UK and Continental Europe. Sales areallocated based on the country in which the customer is located. 30 June 2005 30 June 2004 31 December 2004 £'000 £'000 £'000SalesUK 31,793 29,629 57,083Continental Europe 6,844 5,856 12,345Rest of the World 241 209 540 38,878 35,694 69,968 Total Segment assets are allocated based on where the assets are located. 30 June 2005 30 June 2004 31 December 2004 £'000 £'000 £'000Total assetsUK 23,057 22,182 19,883Continental Europe 6,754 4,058 5,548Rest of the World 273 55 128 30,084 26,295 25,559 Capital expenditure is allocated based on where the assets are located. 30 June 2005 30 June 2004 31 December 2004 £'000 £'000 £'000Capital expenditureUK 1,069 372 1,544Continental Europe 526 309 856Rest of the World - 4 25 1,595 685 2,425 6. Taxation The tax charge for the six months ending 30 June 2005 has been based on aforecasted effective tax rate for the year to 31 December 2005 of 38% (2004:42%), together with the movement in deferred tax asset relating to RetirementBenefit obligations. A deferred tax asset of £207,000 was recognised at 31 December 2004, prior toany deferred tax relating to Retirement Benefit obligations, and there has beenno material change in the position at 30 June 2005 (30 June 2004: £445,000). 7. Earnings per share Basic Basic earnings per share is calculated by dividing the profit attributable toequity holders of the Company by the weighted average number of ordinary sharesin issue during the period. 30 June 2005 30 June 2004 31 December 2004 Profit attributable to equity holders of the Company 1,343 1,218 5,763 (£'000) Weighted average number of ordinary shares in issue 24,788 24,677 24,709 (thousands) Basic earnings per share (pence) 5.42 4.94 23.32 Diluted earnings per share is calculated adjusting the weighted average numberof ordinary shares outstanding to assume conversion of all dilutive potentialordinary shares. The Company has only one category of dilutive potentialordinary shares: share options. The calculation is performed for the share options to determine the number ofshares that could have been acquired at fair value (determined as the averageannual market share price of the Company's shares) based on the monetary valueof the subscription rights attached to outstanding share options. The number ofshares calculated as above is compared with the number of shares that would havebeen issued assuming the exercise of the share options. 30 June 2005 30 June 2004 31 December 2004Profit attributable to equity holders of the Company (£'000) 1,343 1,218 5,763Weighted average number of ordinary shares in issue (thousands) 24,788 24,677 24,709Adjustment for share options (thousands) 285 438 368Weighted average number of ordinary shares for diluted earnings 25,073 25,115 25,077per share (thousands)Diluted earnings per share (pence) 5.36 4.85 22.98 8. Dividends per share The dividends paid in June 2005 and June 2004 were £482,000 (2p per share) and£480,000 (2p per share) respectively. An interim dividend in respect of 2005 of1p per share, amounting to a dividend of £242,000, was declared by the directorsat their meeting on 13 September 2005. These financial statements do not reflectthis dividend payable. 9. Retirement benefit obligations The Group operates two defined benefit schemes, providing benefits based onfinal pensionable pay. The contributions are determined by qualified actuarieson the basis of triennial valuations using the projected unit method. When a member retires, the pension and any spouse's pension is either secured byan annuity contract or paid from the managed fund. The assets of the schemesare reduced by the purchase price of any annuity purchase and the benefits nolonger regarded as liabilities of the scheme. The amounts recognised in the income statement are as follows: Half year to Half year to Year ended 30 June 2005 30 June 2004 31 December 2004 £'000 £'000 £'000Current service cost 460 486 972Interest cost 764 676 1,351Expected return on plan assets (611) (599) (1,198)Total expense charged in income statement 613 563 1,125 The movement in the liability recognised in the balance sheet is as follows: £'000Beginning of the six-month period 1 January 2004 (7,466)Total expense charged in the income statement (563)Contributions paid 1,090End of the six month period 30 June 2004 (6,939) Beginning of the six-month period 1 July 2004 (6,939)Total expense charged in the income statement (562)Contributions paid 434End of the six month period 31 December 2004 (7,067) Beginning of the six-month period 1 January 2005 (7,067)Total expense charged in the income statement (613)Contributions paid 935End of the six month period 30 June 2005 (6,745) 10. Notes to the cash flow statement a) Cash generated from / (used in) operations Half year to Half year to Year to 30 June 2005 30 June 2004 31 December 2004 £'000 £'000 £'000Profit for the period 1,343 1,218 5,763Adjustments for:- tax charge 801 826 360- finance costs 201 189 329- exceptional finance credit - - (2,455)- depreciation 623 531 1,175- amortisation of intangible assets 16 9 28- (profit) / loss on sale of tangible assets (16) (1) 16- loss on sale of intangible assets - - 31- foreign currency translation (74) (50) (9)Changes in working capital (excluding the effects ofacquisition and exchange differences on consolidation):- movement in share option charge 32 14 38- movement in retirement benefit obligation (475) (604) (552)- decrease / (increase) in inventories 60 40 (43)- increase in debtors (3,976) (4,077) (734)- increase / (decrease) in creditors 1,582 592 (259)Cash generated from / (used in) operations 117 (1,313) 3,688 b) Acquisition of subsidiary On 18 January 2005 the Group purchased West London Estates Limited. The cashoutflow as a result of the acquisition is detailed below: Half year to 30 June 2005 £'000Goodwill on acquisition 107Property, plant and equipment 32Net current assets 244Consideration paid 383Cash acquired (244)Net cash outflow 139 11. Fair value and other reserves Own Shares Share Merger Share option Capital Total fair premium reserve reserve redemption value and reserve other reservesBalance at 1 January 2004 (324) 3,780 945 - 10 4,411Issue of share capital - 42 - - - 42Employee share option scheme: - value of services provided - - - 14 - 14Balance at 30 June 2004 (324) 3,822 945 14 10 4,467 Balance at 1 July 2004 (324) 3,822 945 14 10 4,467Issue of share capital - 4 - - - 4Movement in respect of employee share - - - - (11)scheme (11)Employee share option scheme:- value of services provided - - - 24 - 24Balance at 31 December 2004 (335) 3,826 945 38 10 4,484 Balance at 1 January 2005 (335) 3,826 945 38 10 4,484Issue of share capital - 65 - - - 65Employee share option scheme:- value of services provided - - - 32 - 32Balance at 30 June 2005 (335) 3,891 945 70 10 4,581 GROUP COMPANIESPROFESSIONAL BUSINESS SERVICES SOFTWARE SOLUTIONS STOCK AND INVENTORY SERVICESThe expertise offered by Christie + VcsTimeless specialises in Orridge and Venners are theCo and Christie First covers all sophisticated IT systems and leading specialists in stockaspects of valuing, buying, selling, solutions designed to capture and control and inventory managementfinancing and insuring a wide control the complex sales and other services. Employingvariety of businesses. Its scope is data connected with the management of state-of-the-art technologies andcomplemented by the comprehensive cinemas, hotels, restaurants, leisure bespoke software, the division isappraisal and project management complexes, warehouses and retail focused on Europe, where bothservices available from Pinders. outlets internationally. companies have a major share of the retail and leisure sectors. Christie + Co VcsTimeless Orridgewww.christie.com www.vcstimeless.com www.orridge.co.uk The leading firm of surveyors, Retail Europe's longest establishedvaluers and agents specialising in stocktaking business, specialisingthe leisure, retail and care The VcsTimeless retail applications in all fields of retailsectors. International operations address such sectors as fashion, stocktaking including high street,based in Barcelona, Berlin, accessories, luggage, leather goods, warehousing and factory. InFrankfurt, London, Madrid, Munich sport, footwear, home furnishings, addition, it has a specialisedand Paris. Offices throughout the DIY, perfumery and toys. Solutions pharmacy division providingUK with valuation, agency, include head office, back office, valuation and stocktakingdevelopment, leisure consultancy and EPoS, CRM, Merchandise Planning and services. A full range ofinvestment teams focused on its key Business Intelligence applications. stocktaking and inventorysectors. The Colombus Enterprise Suite is a management solutions is provided comprehensive retail management for a wide range of clients in the software suite, proven to meet the UK and Europe. specific needs of single and multi-channel retailers. Christie First www.christiefirst.com Leisure and cinemas Venners VcsTimeless' VENPoS and Vista-branded www.venners.comThe market leader in finance and leisure, hospitality and cinemainsurance for the leisure, retail management software comprise Leading supplier of stocktaking,and care sectors. Services include admissions, head office, back office, inventory, control audit andfinance for business purchase or and online ticketing modules. related stock management servicesrefinancing arranged in conjunction to the hospitality sector. Bespokewith major financial institutions, software and systems enables realand the provision of tailored time management reporting to itsinsurance schemes. customer base using the most up-to-date technology. Pinders www.pinders.co.uk andwww.pinderpack.com The UK's leading independentspecialist business appraisalcompany, undertaking valuations,consultancy, building surveying,project management and professionalservices for a broad range ofclients in the leisure, retail andcare sectors. This information is provided by RNS The company news service from the London Stock Exchange