Interim Results

Christie Group PLC 14 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 â€¢ Turnover up 9% to Â£38.9 million (2004: Â£35.7 million) â€¢ Overall Group operating profit (stated under IFRS) up 5% to Â£2.35 million (2004: Â£2.23 million), reflecting continued investment in business development â€¢ Strong performance at established operations with operating profit of Â£4.4 million (2004: Â£3.1 million) â€¢ West London Estates successfully integrated into Pinders â€¢ Christie + Co advised 'LRG Acquisition' on their Â£1 billion purchase of 73 hotels from InterContinental Hotel Group, the largest investment deal of its kind in UK Hotel Sector â€¢ VcsTimeless and Wincor Nixdorf sign accord for development of EPoS solution for non-food retailers â€¢ Important business wins in stocktaking business including Argos and Boots â€¢ Interim dividend maintained at 1 pence per share â€¢ 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 and taken a number of steps to help ensure that we are well positioned for future growth, including the acquisition and successful integration of West London Estates into our Pinder business. These actions, combined with the continuing investment we are making in software R&D and European expansion, will help us ensure the sustainable long term development of Christie Group. Despite a challenging trading environment, I believe that the diversity of our income streams and the profitability of our established businesses mean we are well positioned for further progress during 2005.' Enquiries: Christie Group 020 7227 0707 Philip Gwyn, Chairman David Rugg, Chief Executive Robert Zenker, Finance Director Brunswick 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 leading international professional services business with 32 offices throughout Europe and Canada. Christie Group consists of three autonomously managed business divisions: Professional Business Services, Software Solutions and Stock and Inventory Services. The three complementary businesses are specifically focused on 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 Â£38.9 million (2004: Â£35.7 million). Overall Group operating profit (stated under IFRS) increased by 5% to Â£2.35 million (2004: Â£2.23 million). These figures mask sharply higher profits from established operations (Â£4.4 million against Â£3.1 million in 2004), and more substantial losses from developing businesses, details of which are given below. The Board remains confident that the developing 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%. West London Estates (acquired in January 2005), which has now been fully integrated into our Pinder business, was profitable in the first half and provides a nucleus for growth. Christie + Co advised 'LRG Acquisition' on their purchase of a Â£1 billion portfolio of 73 hotels from InterContinental Hotel Group, with IHG retaining the management of the hotels. This is the largest investment deal of its kind in the UK Hotel Sector. During the first half of 2005, Christie + Co incurred losses of Â£1.3 million from continuing European and UK expansion and development. New operational bases were opened in Epsom and Enfield in the UK and in May 2005 we opened a new office in Madrid. We recognise that the gestation periods of these operations and 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 of 2005. The Insurance Broking operation wrote 16% more policies than in the corresponding period of 2004 but commission income rose 11%, reflecting reduced premiums in a continuing 'soft' market. Software Solutions Overall, turnover for the division increased by 19% including a contribution from our Spanish operation, following two years of significant investment. In June 2005, our Retail Software Solutions company, VcsTimeless, won the European Retail Solutions award for Project Implementation of the Year in association with our customer Lancel, the luxury goods company. Since the implementation of VcsTimeless' Colombus Retail Software Suite, Lancel has been able to increase efficiencies, achieve greater inventory availability and control, improve the speed and accuracy of stock replenishment and raise staff productivity. During the period VcsTimeless also signed an accord with Wincor Nixdorf to create a new EPoS solution for top tier non-food retailers. The solution will be marketed by VcsTimeless in our existing territories and elsewhere by Wincor Nixdorf. This EPoS solution is designed to interface with our real time head office system, code named Magellan, which is set for launch at our 2006 user conference. Stock and Inventory Services Profit in our stocktaking business nearly doubled to Â£1.1 million (2004: Â£0.6 million) in its seasonally stronger first half on turnover of Â£11.5 million (2004: Â£11.3 million). Having successfully absorbed a 36% increase in retail stocktaking business during 2004, we now anticipate further additional work for the 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 Alternative Investment Market ('AIM'). AIM is designed for smaller companies and we believe an AIM Listing would, offer a number of benefits to our business. AIM's simplification of administrative requirements and a more flexible regulatory regime have both competitive and cost advantages. It would enable us to agree and execute transactions more quickly should acquisition opportunities arise. We envisage no alteration in the standards of reporting and governance which the Group has always achieved. Thus we see ourselves as continuing to be attractive to specialist institutional funds while the AIM tax regime will also make us more attractive to the retail investor. A circular regarding the proposed move to AIM convening an EGM will be sent to shareholders shortly. Outlook Christie Group enjoys a diverse range of income from the services it provides to the Retail, Leisure and Care industries throughout Europe. Our established business operations are both profitable and growing. Although the current trading environment remains challenging, I believe we are well positioned to make further progress during the second half of 2005. Index to the consolidated interim financial statements Half year to 30 June 2005 Consolidated interim income statement Consolidated interim balance sheet Consolidated interim statement of changes in shareholders' equity Consolidated interim cash flow statement Notes 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 Â£'000 Â£'000 Â£'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 Â£'000 Â£'000 Â£'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 by the 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 - - - 44 Movement on minority interest - - - - (5) (5) Currency translation adjustments - - 39 - - 39 Net income/(expense) recognised 2 42 39 - (5) 78 directly in equity Profit for the period - - - 1,216 2 1,218 Total recognised income for the 2 42 39 1,216 (3) 1,296 period Employee share option scheme: -value of services provided - 14 - - - 14 Dividend - - - (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 - - - 4 Movement on minority interest - - - - 5 5 Currency translation adjustments - - (27) - - (27) Net income/(expenses) recognised - 4 (27) - 5 (18) directly in equity Profit for the period - - - 4,537 8 4.545 Total recognised income for the - 4 (27) 4,537 13 4,527 period Movement in respect of employee - (11) - - - (11) share scheme Employee share option scheme: -value of services provided - 24 - - - 24 Dividend - - - (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 - - - 68 Movement on minority interest - - - - 1 1 Currency translation adjustments - - (120) - - (120) Net income/(expenses) recognised 3 65 (120) - 1 (51) directly in equity Profit for the period - - - 1,342 - 1,342 Total recognised income for the 3 65 (120) 1,342 1 1,291 period Employee share option scheme: - value of services provided - 32 - - - 32 Dividend - - - (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 Â£'000 Â£'000 2004 (Unaudited) (Unaudited) Â£'000 (Unaudited) Note Cash flow from operating activities Cash generated from / (used in) operations 10 a) 117 (1,313) 3,688 Interest 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 activities Acquisition 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 29 Purchase of intangible assets (1,072) (214) (1,020) Interest received 73 44 92 Net cash used in investing activities (1,558) (627) (2,216) Cash flow from financing activities Proceeds from issue of share capital 68 44 48 Investment in ESOP - - (13) Proceeds from borrowings 510 60 2,121 Repayments 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 3,722 Exceptional gain - - 277 Cash 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 a range of related activities. These fall into three divisions - Professional Business 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 Solutions covers EPoS, Head office systems and supply chain management. Stock and Inventory 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 financial statements are set out below. 2.1 Basis of preparation These interim consolidated financial statements of Christie Group plc are for the six months ended 30 June 2005 and are covered by IFRS 1, First-time Adoption of International Financial Reporting Standards (IFRS), because they are part of the period covered by the Group's first IFRS financial statements for the year ended 31 December 2005. The interim financial statements have been prepared in accordance with those IFRS standards and IFRIC interpretations issued and effective or issued and early adopted as at the time of preparing these statements (September 2005). The IFRS standards and IFRIC interpretations that will be applicable at 31 December 2005, including those that will be applicable on an optional basis, are not known with certainty at the time of preparing these interim financial statements. The policies set out below have been consistently applied to all the periods presented except for those relating to the classification and measurement of financial instruments. The Group has made use of the exemption available under IFRS 1 to only apply IAS 32 and IAS 39 from 1 January 2005. The policies applied to financial instruments for 2004 and 2005 are disclosed separately below. Christie Group plc's consolidated financial statements were prepared in accordance with UK Generally Accepted Accounting Principles (GAAP) until 31 December 2004. GAAP differs in some areas from IFRS. In preparing Christie Group plc's 2005 consolidated interim financial statements, management has amended certain accounting, valuation and consolidation methods applied in the GAAP financial statements to comply with IFRS. The comparative figures in respect of 2004 were restated to reflect these adjustments, except as described in the accounting policies. Reconciliations and descriptions of the effect of the transition from GAAP to IFRS on the Group's equity and its net income and cash flows are provided in Note 4. These consolidated interim financial statements have been prepared under the historical cost convention. The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Company's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated interim financial statements, are disclosed in Note 3. 2.2 Consolidation The Group financial statements include the results of Christie Group plc and all its subsidiary undertakings on the basis of their financial statements to 30 June 2005. The results of businesses acquired or disposed of are included from the date of acquisition or disposal. A subsidiary is an entity controlled, directly or indirectly, by Christie Group plc. Control is regarded as the power to govern the financial and operating policies 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 are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in pounds sterling, which is the Company's functional and presentational currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Translation differences on non-monetary items, such as equities held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary items, such as equities classified as available-for-sale financial assets, are included in the fair value reserve in equity. Group companies The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: a) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; b) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and c) all resulting exchange differences are recognised as a separate component of equity (Cumulative translation adjustment). On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders' equity. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. 2.4 Revenue recognition Income derived from the Group's principal activities (which is shown exclusive of 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 respect of valuations, turnover is recognised once the property or business has been inspected. Appraisal income is recognised upon submission of the completed report to the client. Business mortgage broking: Fee income is taken either when a loan offer is secured or when the loan is drawn down. Insurance broking: Insurance brokerage is accounted for when insurance commences. Software solutions: Hardware revenues are recognised on installation. Software revenues are recognised on the signing of contracts. Revenues on maintenance contracts are recognised 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 effective interest 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 for primary and secondary segment reporting reflects the internal management reporting structure. Segment expenses consist of directly attributable costs and other costs, which are allocated based on relevant criteria. A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of components operating in other economic environments. 2.6 Goodwill On the acquisition of a business, fair values are attributed to the net assets acquired. Goodwill arises on the acquisition of subsidiary undertakings, representing any excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired. Goodwill arising on acquisitions is capitalised and subject to impairment review, both annually and when there are indications that the carrying value may not be recoverable. Prior to 1 January 2004, goodwill was amortised over its estimated useful life, such amortisation ceased on 31 December 2003. The Group's policy for the years up to 31 March 1998 was to eliminate goodwill arising on acquisitions against reserves. Under IFRS 1 and IFRS 3, such goodwill will remain eliminated against reserves. 2.7 Intangibles Research and Development Development projects where reasonable certainty exists as regards technical and commercial viability are capitalised and amortised over the expected product or system life, commencing in the year when sales of the product are made or the system used for the first time. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. All other research and development costs are written off in the year in which they are incurred. Other Intangible fixed assets such as software, trademarks and patent rights are stated at cost, net of amortisation and any provision for impairment. Amortisation is calculated to write down the cost of all intangible fixed assets to their estimated residual value by equal annual instalments over their expected useful economic lives. The expected useful lives are between three and ten years. 2.8 Property plant and equipment Tangible fixed assets are stated at cost, net of depreciation and provision for any impairment. Depreciation is calculated to write down the cost of all tangible fixed assets to their estimated residual value by equal annual instalments over their expected useful lives as follows: Leasehold property Lease term Fixtures, fittings and equipment 5 - 10 years Computer equipment 2 - 3 years Motor vehicles 4 years The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the disposal proceeds with 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 rewards of ownership are classified as operating leases. Rentals under operating leases (net of any incentives received) are charged to the income statement on a straight-line basis over the period of the lease. Assets, held under finance leases, which confer rights and obligations similar to those attached to owned assets, are capitalised as tangible fixed assets and are depreciated over the shorter of the lease terms and their useful lives. The capital elements of future lease obligations are recorded as liabilities, whilst the interest elements are charged to the income statement over the period of the leases at a constant rate. 2.10 Impairment of assets Fixed assets are reviewed 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 carrying value exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. Value in use is based on the present value of the future cash flows relating to the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). Any assessment of impairment based on value in use takes account of the time value 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 of the time value of money and the risks specific to the asset for which the future cash 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 subsidiaries and associates, financial receivables held for investment purposes, treasury stock and other securities. Financial fixed assets are recorded at cost, including additional direct charges. Current assets may also include investments and securities acquired as a temporary investment, which are valued at the lower of cost and market, cost being determined on a last-in-first-out (LIFO) basis. From 1 January 2005 The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition 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, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they either are held for trading or are expected to be realised within 12 months of the balance sheet date. During the year, the Group did not hold any investments in this category. (2) Loans and receivables 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 receivable. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are included in trade and other receivables in the balance sheet. During the year, the Group did not hold any investments in this category. (3) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group's management has the positive intention and ability to hold to maturity. During the year, the Group did not hold any investments in this category. (4) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Purchases and sales of investments are recognised on trade date, the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are included in the income statement in the period in which they arise. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer's specific circumstances. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. 2.12 Inventories Inventory held for resale is valued at the lower of cost and net realisable value. 2.13 Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement. 2.14 Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. Cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term, highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are included within borrowings in current liabilities on the balance sheet. 2.15 Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. 2.16 Taxation including deferred tax Tax on company profits is provided for at the current rate applicable in each of the relevant territories. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available, against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary 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 options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, or for the acquisition of a business, are included in the cost of acquisition as part of the purchase consideration. Where any Group company purchases the Company's equity share capital (own shares), the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the Company's equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company's equity holders. 2.18 Dividend distribution Dividend distribution to the Company's shareholders is recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Company's shareholders. In respect of interim dividends, which are paid prior to approval by the Company's shareholders they are recognised on payment. 2.19 Employee benefits Pension obligations The Group operates both defined benefit and defined contribution plans. A defined benefit plan is a pension plan that defines the 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 remuneration. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The schemes are generally funded through payments to insurance companies or trustee-administered funds, determined by periodic actuarial calculations. Pension obligations - Defined benefit schemes The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation 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. Cumulative actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% and the value of plan assets or 10% of the defined benefit obligation are charged or credited to the income statement over the employees' expected average remaining working lives. Past-service costs are recognised immediately in income, 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. Pension obligations - Personal pension plans Group companies contribute towards personal pension plans for participating employees. These employees are currently entitled to such contributions after a qualifying period has elapsed. Payments to the plan are charged as an employee benefit expense as they fall due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. The Group has no further payment obligations once the contributions have 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 accordance with IFRS 2 'Share-based Payments' the resulting cost is charged to the income statement over the vesting period of the options. The value of the charge is adjusted 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 recognised when the options are exercised and the proceeds received allocated between share capital 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 align management interests with those of shareholders. The fair value of the employee's services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period 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 are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) 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 where contractually obliged or where there is a past practice that has created a constructive obligation. 2.20 Interim measurement note (a) Current income tax Current income tax expense is recognised in these interim consolidated financial statements based on management's best estimates of the weighted average annual income tax rate expected for the full financial year. (b) Costs Costs that are incurred unevenly during the financial year are anticipated or deferred in the interim report only if it would also be appropriate to anticipate 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's retirement benefit obligations at 30 June 2005 reflects a number of assumptions, based on the actuarial valuation as at 31 December 2004 after taking into account actual cash contributions to the schemes. Further details of the assumptions used are detailed in Note 3.1 (b). 3. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 3.1 Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (a) Estimated impairment of goodwill Goodwill is subject to an impairment review both annually and when there are indications that the carrying value may not be recoverable, in accordance with the accounting policy stated in Note 2.6. The recoverable amounts of cash-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 the Group's two defined benefit pension plans are reviewed annually by professionally qualified, independent actuaries, trustees and management as appropriate. The measurement of the expense for a period requires judgement with 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, and these differences may result in a significant impact on the amount of pension expense recorded in future periods. In accordance with IAS 19, the Group amortises actuarial gains and losses outside the 10% corridor, over the average future service lives of employees. Under this method, major changes in assumptions, and variances between assumptions and actual results, may affect retained earnings over several future periods rather than one period, while more minor variances and assumption changes may be offset by other changes and have no direct effect on retained earnings. (c) Income taxes The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is 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 the first annual financial statements that comply with IFRS. These interim financial statements have been prepared as described in Note 2.1. The Group has applied IFRS 1 in preparing these consolidated interim financial statements. Christie Group plc's transition date is 1 January 2004. The Group prepared its opening IFRS balance sheet at that date. The reporting date of these interim consolidated financial statements is 30 June 2005. The Group's IFRS adoption date is 1 January 2005. In preparing these interim consolidated financial statements in accordance with IFRS 1, the Group has applied the mandatory exceptions and certain of the optional exemptions from full retrospective application of IFRS, as detailed below. 4.1.2 Exemptions from full retrospective application elected by the Group Christie Group plc has elected to apply the following optional exemptions from full retrospective application. (a) Business combinations exemption Christie Group plc has applied the business combinations exemption in IFRS 1. It has not restated business combinations that took place prior to the 1 January 2004 transition date. (b) Fair value as deemed cost exemption Christie Group plc has elected to measure certain items of property, plant and equipment at fair value as at 1 January 2004. (c) Employee benefits exemption Christie Group plc has elected to recognise all cumulative actuarial gains and losses 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 to derivatives, financial assets and financial liabilities and to hedging relationships for the 2004 comparative information. The adjustments required for differences between GAAP and IAS 32 and IAS 39 are determined and recognised at 1 January 2005. (e) Designation of financial assets and financial liabilities exemption The Group reclassified various securities as available-for-sale investments and as financial assets at fair value through profit and loss. The adjustments relating to IAS 32 and IAS 39 at the opening balance sheet date of 1 January 2005, the IAS 32 / 39 transition date. (f) Share-based payment transaction exemption The Group has elected to apply the share-based payment exemption. It applied IFRS 2 from 1 January 2004 to those options, that were issued after 7 November 2002 but that have not vested by 1 January 2005. (g) Fair value measurement of financial assets or liabilities at initial recognition The Group has not applied the exemption offered by the revision of IAS 39 on the initial recognition of the financial instruments measured at fair value through profit and loss where there is no active market. This exemption is therefore not applicable. 4.1.3 Exceptions from full retrospective application followed by the Group Christie Group plc has applied the following mandatory exceptions from retrospective application. (a) Derecognition of financial assets and liabilities exception Financial assets and liabilities derecognised before 1 January 2004 are not re-recognised under IFRS. The application of the exemption from restating comparatives for IAS 32 and IAS 39 means that the Group recognised from 1 January 2005 any financial assets and financial liabilities derecognised since 1 January 2004 that do not meet the IAS 39 derecognition criteria. Management did not 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 made for the same date under previous GAAP, unless there is evidence that those estimates were in error. (c) Assets held for sale and discontinued operations exception Management applies IFRS 5 prospectively from 1 January 2005. Any non-current assets held for sale or discontinued operations are recognised in accordance with 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 the transition to IFRS. The first reconciliation provides an overview of the impact on equity of the transition at 1 January 2004, 30 June 2004 and 31 December 2004. The following seven reconciliations provide details of the impact of the transition 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 Â£'000 Â£'000 Â£'000 Total equity under UK GAAP 7,256 7,700 11,568 Recognition 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 19 Recognition of deferred tax on Retirement 2,240 4.2.2 c) 2,082 4.2.3 d) 2,120 4.2.4 d) benefit obligations Reversal 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) payable Total 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 Â£'000 Â£'000 Â£'000 ASSETS Non-current assets Property, plant and equipment a) 2,631 (144) 2,487 Goodwill 3,918 - 3,918 Intangible assets b) 35 144 179 Deferred income tax assets c) 445 2,240 2,685 Available-for-sale financial assets 100 - 100 7,129 2,240 9,369 Current assets Inventories 312 - 312 Trade and other receivables 12,635 - 12,635 Available-for-sale financial assets 504 - 504 Cash and cash equivalents 4,346 - 4,346 17,797 - 17,797 Total assets 24,926 2,240 27,166 EQUITY Capital and reserves attributable to the company's equity holders Share capital 493 - 493 Fair value and other reserves 4,411 - 4,411 Cumulative translation adjustment d) - (359) (359) Retained earnings g) 2,346 (4,375) (2,029) 7,250 (4,734) 2,516 Minority interest 6 - 6 Total equity 7,256 (4,734) 2,522 LIABILITIES Non-current liabilities Borrowings 121 - 121 Retirement benefit obligations e) - 7,466 7,466 Provisions and other liabilities 31 - 31 152 7,466 7,618 Current liabilities Trade and other payables f) 11,920 (492) 11,428 Current income tax liabilities 1,023 - 1,023 Borrowings 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 date of transition, 1 January 2004. Â£'000 a) 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 Â£4,375,000. 4.2.3 Reconciliation of equity at 30 June 2004 ASSETS Note GAAP Effect of IFRS transition to Â£'000 IFRS Â£'000 Â£'000 Non-current assets Property, plant and equipment a) 2,573 (145) 2,428 Goodwill b) 3,649 269 3,918 Intangible assets c) 225 145 370 Deferred income tax assets d) 445 2,082 2,527 Available-for-sale financial assets 100 - 100 6,992 2,351 9,343 Current assets Inventories 272 - 272 Trade and other receivables 16,391 - 16,391 Available-for-sale financial assets 504 - 504 Cash and cash equivalents 2,312 - 2,312 19,479 - 19,479 Total assets 26,471 2,351 28,822 EQUITY Capital and reserves attributable to equity holders Share capital 495 - 495 Fair value and other reserves e) 4,453 14 4,467 Cumulative translation adjustment f) - (320) (320) Retained earnings i) 2,749 (4,042) (1,293) 7,697 (4,348) 3,349 Minority interest 3 - 3 Total equity 7,700 (4,348) 3,352 LIABILITIES Non-current liabilities Borrowings 79 - 79 Retirement benefit obligations g) - 6,939 6,939 79 6,939 7,018 Current liabilities Trade and other payables h) 11,975 (240) 11,735 Current income tax liabilities 942 - 942 Borrowings 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 to those at 1 January 2004. There are two additional adjustments at 30 June 2004, relating to goodwill and share options. Explanations of all other adjustments are disclosed in Note 4.2.2. Â£'000 a) 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 Â£4,042,000. 4.2.4 Reconciliation equity at 31 December 2004 ASSETS Note Effect of transition to GAAP IFRS Â£'000 Â£'000 IFRS (Audited) Â£'000 Non-current assets Property, plant and equipment a) 3,231 (572) 2,659 Goodwill b) 3,370 548 3,918 Intangible assets c) 581 572 1,153 Deferred income tax assets d) 207 2,120 2,327 Available-for-sale financial assets 100 - 100 7,489 2,668 10,157 Current assets Inventories 355 - 355 Trade and other receivables 13,371 - 13,371 Available-for-sale financial assets 504 - 504 Other financial assets at fair value through profit or loss 413 - 413 Cash and cash equivalents 3,499 - 3,499 18,142 - 18,142 Total assets 25,631 2,668 28,299 EQUITY Capital and reserves attributable to equity holders Share capital 495 - 495 Fair value and other reserves e) 4,446 38 4,484 Cumulative translation adjustment f) - (347) (347) Retained earnings i) 6,611 (3,609) 3,002 11,552 (3,918) 7,634 Minority interest 16 - 16 Total equity 11,568 (3,918) 7,650 LIABILITIES Non-current liabilities Borrowings 2,108 - 2,108 Retirement benefit obligations g) - 7,067 7,067 2,108 7,067 9,175 Current liabilities Trade and other payables h) 11,681 (481) 11,200 Borrowings 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 similar to 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. Â£'000 a) 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 Â£3,609,000. 4.2.5 Reconciliation of net income for six months ended 30 June 2004 Note Effect of transition to IFRS Â£'000 GAAP IFRS Â£'000 Â£'000 Revenue 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 2,233 Interest payable c) (157) (676) (833) Interest receivable d) 45 599 644 Total finance (costs) / credit (112) (77) (189) Profit before income tax 1,262 782 2,044 Income 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 the six months ended 30 June 2004. Â£'000 a) 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 Â£'000 transition (Audited) to IFRS IFRS Â£'000 Â£'000 Revenue 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 3,997 Interest payable c) (268) (1,351) (1,619) Interest receivable d) 92 1,198 1,290 Exceptional finance credit 2,455 - 2,455 Total finance (costs) / credit 2,279 (153) 2,126 Profit before income tax 5,214 909 6,123 Income 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 those adjustments from UK GAAP to IFRS at 30 June 2004. Â£'000 a) 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 cash flow for the six months ended 30 June 2004, were as follows: a) Under UK GAAP, borrowings included 'Bank overdrafts'. Bank overdrafts under IFRS are classified as part of 'cash and cash equivalents' because they form an integral part of the entity's cash management. b) Purchase of property, plant and equipment was reduced by, and the Purchase of intangible assets was increased by Â£144,000, reflecting the reclassification of computer software as an intangible asset in accordance with IAS 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 to those at 30 June 2004. a) Purchase of property, plant and equipment was reduced by, and the Purchase of intangible assets was increased by, Â£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 Inventory Services. The segment results for the period ended 30 June 2005 are as follows: Professional Stock and Business Inventory Services Software Services Solutions Other Group Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Continuing Operations Total gross segment sales 20,126 7,299 11,473 1,285 40,183 Inter-segment sales (20) - - (1,285) (1,305) Sales 20,106 7,299 11,473 - 38,878 Operating profit 1,669 (287) 1,055 (92) 2,345 Net finance credit/(costs) (201) Profit before income taxes 2,144 Income 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 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Continuing operations Total gross segment sales 18,318 6,131 11,265 1,253 36,967 Inter-segment sales (20) - - (1,253) (1,273) Sales 18,298 6,131 11,265 - 35,694 Operating profit 2,185 (557) 633 (28) 2,233 Net finance credit/(costs) (189) Profit before income taxes 2,044 Income taxes (826) Profit for the period after 1,218 tax The segment results for the year ended 31 December 2004 are as follows: Professional Stock and Business Inventory Services Software Services Solutions Other Group Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Continuing operations Total gross segment sales 37,289 12,976 19,723 2,452 72,440 Inter-segment sales (20) - - (2,452) (2,472) Sales 37,269 12,976 19,723 - 69,968 Operating profit 4,293 (1,145) 958 (109) 3,997 Net finance credit/(costs) (329) Exceptional finance credit 2,455 Profit before income taxes 6,123 Income taxes (360) Profit for the period after 5,763 tax Other segment items included in the income statement are as follows: Professional Stock and Business Inventory Services Software Services Solutions Other Group Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Depreciation and amortisation For the period ended 30 June 2005 345 149 124 21 639 For the period ended 30 June 2004 317 97 93 33 540 For the year ended 31 December 647 247 248 61 1,203 2004 The segment assets and liabilities at 30 June 2005 and capital expenditure for the period then ended are as follows: Professional Stock and Business Inventory Services Software Services Other Group Solutions Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Assets 13,301 10,739 5,930 114 30,084 Deferred income tax assets 2,231 32,315 Liabilities 9,520 4,344 4,471 1,438 19,773 Current income tax liabilities 325 Borrowings (excluding finance 3,726 leases) 23,824 Capital expenditure 998 511 64 22 1,595 The segment assets and liabilities at 30 June 2004 and capital expenditure for the period then ended are as follows: Professional Stock and Business Inventory Services Software Services Solutions Other Group Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Assets 10,989 7,666 5,957 1,683 26,295 Deferred income tax assets 2,527 28,822 Liabilities 9,531 3,581 4,062 1,675 18,849 Current income tax liabilities 942 Borrowings (excluding finance 5,679 leases) 25,470 Capital expenditure 258 352 70 5 685 The segment assets and liabilities at 31 December 2004 and capital expenditure for the period then ended are as follows: Professional Stock and Business Inventory Services Software Services Solutions Other Group Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Assets 10,678 8,960 3,928 1,993 25,559 Deferred income tax assets 2,327 Current income tax asset 413 28,299 Liabilities 9,001 3,968 3,366 2,108 18,443 Borrowings (excluding finance 2,206 leases) 20,649 Capital expenditure 1,283 826 306 10 2,425 Segment assets consist primarily of property, plant and equipment, intangible assets, inventories, receivables and operating cash. They exclude deferred taxation. Segment liabilities comprise operating liabilities. They exclude items such as taxation and corporate borrowings. Capital expenditure comprises additions to property, plant and equipment and intangible assets. b. Secondary format - geographical segments The Group manages its business segments on a global basis. The operations are based in three main geographical areas. The UK is the home country of the parent. 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 are allocated based on the country in which the customer is located. 30 June 2005 30 June 2004 31 December 2004 Â£'000 Â£'000 Â£'000 Sales UK 31,793 29,629 57,083 Continental Europe 6,844 5,856 12,345 Rest 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 Â£'000 Â£'000 Â£'000 Total assets UK 23,057 22,182 19,883 Continental Europe 6,754 4,058 5,548 Rest 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 Â£'000 Â£'000 Â£'000 Capital expenditure UK 1,069 372 1,544 Continental Europe 526 309 856 Rest 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 a forecasted effective tax rate for the year to 31 December 2005 of 38% (2004: 42%), together with the movement in deferred tax asset relating to Retirement Benefit obligations. A deferred tax asset of Â£207,000 was recognised at 31 December 2004, prior to any deferred tax relating to Retirement Benefit obligations, and there has been no material change in the position at 30 June 2005 (30 June 2004: Â£445,000). 7. Earnings per share Basic Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in 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 (Â£'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 number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has only one category of dilutive potential ordinary shares: share options. The calculation is performed for the share options to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options. 30 June 2005 30 June 2004 31 December 2004 Profit attributable to equity holders of the Company (Â£'000) 1,343 1,218 5,763 Weighted average number of ordinary shares in issue (thousands) 24,788 24,677 24,709 Adjustment for share options (thousands) 285 438 368 Weighted average number of ordinary shares for diluted earnings 25,073 25,115 25,077 per 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 Â£482,000 (2p per share) and Â£480,000 (2p per share) respectively. An interim dividend in respect of 2005 of 1p per share, amounting to a dividend of Â£242,000, was declared by the directors at their meeting on 13 September 2005. These financial statements do not reflect this dividend payable. 9. Retirement benefit obligations The Group operates two defined benefit schemes, providing benefits based on final pensionable pay. The contributions are determined by qualified actuaries on the basis of triennial valuations using the projected unit method. When a member retires, the pension and any spouse's pension is either secured by an annuity contract or paid from the managed fund. The assets of the schemes are reduced by the purchase price of any annuity purchase and the benefits no longer 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 Â£'000 Â£'000 Â£'000 Current service cost 460 486 972 Interest cost 764 676 1,351 Expected 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: Â£'000 Beginning of the six-month period 1 January 2004 (7,466) Total expense charged in the income statement (563) Contributions paid 1,090 End 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 434 End 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 935 End 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 Â£'000 Â£'000 Â£'000 Profit for the period 1,343 1,218 5,763 Adjustments 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 of acquisition 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 cash outflow as a result of the acquisition is detailed below: Half year to 30 June 2005 Â£'000 Goodwill on acquisition 107 Property, plant and equipment 32 Net current assets 244 Consideration paid 383 Cash 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 reserves Balance at 1 January 2004 (324) 3,780 945 - 10 4,411 Issue of share capital - 42 - - - 42 Employee share option scheme: - value of services provided - - - 14 - 14 Balance at 30 June 2004 (324) 3,822 945 14 10 4,467 Balance at 1 July 2004 (324) 3,822 945 14 10 4,467 Issue of share capital - 4 - - - 4 Movement in respect of employee share - - - - (11) scheme (11) Employee share option scheme: - value of services provided - - - 24 - 24 Balance at 31 December 2004 (335) 3,826 945 38 10 4,484 Balance at 1 January 2005 (335) 3,826 945 38 10 4,484 Issue of share capital - 65 - - - 65 Employee share option scheme: - value of services provided - - - 32 - 32 Balance at 30 June 2005 (335) 3,891 945 70 10 4,581 GROUP COMPANIES PROFESSIONAL BUSINESS SERVICES SOFTWARE SOLUTIONS STOCK AND INVENTORY SERVICES The expertise offered by Christie + VcsTimeless specialises in Orridge and Venners are the Co and Christie First covers all sophisticated IT systems and leading specialists in stock aspects of valuing, buying, selling, solutions designed to capture and control and inventory management financing and insuring a wide control the complex sales and other services. Employing variety of businesses. Its scope is data connected with the management of state-of-the-art technologies and complemented by the comprehensive cinemas, hotels, restaurants, leisure bespoke software, the division is appraisal and project management complexes, warehouses and retail focused on Europe, where both services available from Pinders. outlets internationally. companies have a major share of the retail and leisure sectors. Christie + Co VcsTimeless Orridge www.christie.com www.vcstimeless.com www.orridge.co.uk The leading firm of surveyors, Retail Europe's longest established valuers and agents specialising in stocktaking business, specialising the leisure, retail and care The VcsTimeless retail applications in all fields of retail sectors. International operations address such sectors as fashion, stocktaking including high street, based in Barcelona, Berlin, accessories, luggage, leather goods, warehousing and factory. In Frankfurt, London, Madrid, Munich sport, footwear, home furnishings, addition, it has a specialised and Paris. Offices throughout the DIY, perfumery and toys. Solutions pharmacy division providing UK with valuation, agency, include head office, back office, valuation and stocktaking development, leisure consultancy and EPoS, CRM, Merchandise Planning and services. A full range of investment teams focused on its key Business Intelligence applications. stocktaking and inventory sectors. 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.com The market leader in finance and leisure, hospitality and cinema insurance for the leisure, retail management software comprise Leading supplier of stocktaking, and care sectors. Services include admissions, head office, back office, inventory, control audit and finance for business purchase or and online ticketing modules. related stock management services refinancing arranged in conjunction to the hospitality sector. Bespoke with major financial institutions, software and systems enables real and the provision of tailored time management reporting to its insurance schemes. customer base using the most up-to-date technology. Pinders www.pinders.co.uk and www.pinderpack.com The UK's leading independent specialist business appraisal company, undertaking valuations, consultancy, building surveying, project management and professional services for a broad range of clients in the leisure, retail and care sectors. This information is provided by RNS The company news service from the London Stock Exchange

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