RNS Number:2340R
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
* 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 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 #38.9
million (2004: #35.7 million). Overall Group operating profit (stated under
IFRS) increased by 5% to #2.35 million (2004: #2.23 million). These figures
mask 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 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 #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 #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 #1.1 million (2004: #0.6
million) in its seasonally stronger first half on turnover of #11.5 million
(2004: #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
#'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 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
#'000 #'000 2004
(Unaudited) (Unaudited) #'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
#'000 #'000 #'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
#'000 #'000 #'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.
#'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
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