Final Results

Christie Group PLC 30 March 2007 Christie Group plc 30 March 2007 Audited Preliminary Results for the year ended 31 December 2006 Christie Group, a leading business services and software group, today announces its preliminary results for the year ended 31 December 2006. Our year in brief â€¢ Revenue up by 12% to Â£87.1 million â€¢ Operating profit up by 38% to Â£6.1 million â€¢ EPS up 57% to 16.90p â€¢ Total dividend for 2006 up 0.5p to 4p â€¢ Christie + Co's European offices into profit â€¢ New Christie + Co offices opened in Marseilles and Dusseldorf â€¢ Orridge wins major food retailer â€¢ First BeStore customer for VCSTIMELESS â€¢ Strong performance in buoyant market for Professional Business Services Division '2006 was a year of continued development for Christie Group and these record results demonstrate the strength of the Group. Our sources of income are diverse but complimentary. We trade across three major sectors, whilst operating on a wide yet manageable geographical scale. We have delivered on what we set out to do in Christie + Co Europe by reporting a maiden profit for the year.' Chairman's Statement Our agency and valuations business, Christie + Co, gave a robust performance. It continues to benefit from its focus on substantial but specialist business areas such as licensed, leisure, care and retail, to a depth of understanding that cannot be matched by any of our competitors. A particularly pleasing aspect of the year is that the European offices of Christie + Co came into profit for the first time, having achieved a 54% sales gain in the year. The first European office was opened nine years ago. Since that time, the growth of the European business has been supported by strong marketing aimed at developing the Christie + Co brand. We have also opened other offices in major national or regional centres and finally we have recruited and developed suitably skilled staff members. We now have eight offices in three countries (France, Spain and Germany). We believe the way ahead should prove less arduous. In aggregate, the Professional Business Services division produced a profit of Â£8.4 million on a turnover of Â£49.7 million. Our software solutions business produced an increased loss of Â£2.4 million. Whilst sales increased to Â£15.1 million, our new software was only available for pilot testing towards the end of this period, but we believe this should generate increasing sales orders as the year progresses. Our stocktaking division continued to grow, but as reported in my interim statement in what proved to be something of a transitional year, it incurred high training costs as part of re-equipping. We won our first major food retailer, Co-op, and we foresee good growth prospects for us in this sector. In summary, professional business services and stock and inventory services together generated over Â£8.9 million operating profit and Â£11.6 million of cash. Continued investment in software development is programmed for 2007 and 2008. We intend to meet such costs from our existing cash resources, without impinging on our ability to fund growth in our profitable divisions The Board proposes a final dividend of 2.75p (2005: 2.50p) per share, totalling 4.0p (2005: 3.50p) for the year, an increase of 14%. We have enjoyed a very good year, thanks to the commitment of our skilled teams and we continue to see scope for further improvement. Philip Gwyn Chairman Enquiries Christie Group 020 7227 0707 David Rugg, Chief Executive Robert Zenker, Finance Director Brunswick 020 7404 4959 Ash Spiegelberg Charles Stanley Securities 020 7149 6457 Philip Davies Notes to editors Christie Group plc (CTG.L) is listed on AIM. It is a leading business services and software group with three business divisions: Professional Business Services, Software Solutions and Stock & Inventory Services. The three complementary businesses focus on the leisure, retail and care markets. Christie Group has 34 offices across Europe - located in the UK as well as Belgium, France, Germany, Italy and Spain - and one office in Canada. For more information please go to: www.christiegroup.com Chief Executive's Statement Our business philosophy is to focus on what we know and do best. Years of experience serving leisure, retail and care clients have given us a profound understanding of the operational dynamics that govern these sectors. As a result, our clients - and ultimately Christie Group stakeholders - gain the full benefit of our skills and expertise. Adhering to our philosophy served us well in 2006. Our turnover rose by 12% from Â£77.5 million to Â£87.1 million. Equally encouraging, our total operating profit rose by 38% from Â£4.4 million to Â£6.1 million. Each of our three divisions - professional business services, software solutions and stock and inventory services - achieved material organic growth within our areas of business activity. Consistent with our strategy, each division also worked to develop a portfolio of logically related pan-European services meeting the requirements that run throughout our clients' business activities. During the year, we reinforced this continental platform with the opening of new offices in Marseilles and Dusseldorf. Now, we are better placed than ever in France and Germany and particularly well-positioned to grow our hotel consultancy and retail stocktaking and software business in an enlarged European Union. As a result, our business risks and opportunities are diversified across a number of economies, industry sectors and types of service provision. Our investment policy has also proved to be successful. We continue to provide the requisite time, energy, expertise and people in all our businesses, and we have invested in new products and appropriate strategic alliances. An example of this is our partnership with the Japanese third-party IT service provider PBC. Also during 2006, we built on the success of existing partnerships with other leading third-party companies such as Capgemini, BearingPoint and LogicaCMG. What we are not doing, however, is engaging in technological innovation for its own sake. That is not in our, or our customers' interests. Instead, in 2006 we continued to ensure that our investment in research and development programmes was confined to creating new products and services that would give us a competitive edge in best meeting customers' needs. Looking ahead, while Christie Group remains a market leader in the services we provide, the potential for growth remains significant. In each of our three divisions, we pursue a strategy for growth by accessing a wider geographical market for our products and services, and deliberately moving higher up the value chain - whilst maintaining our penetration of private clients' requirements in our multi-domestic markets. Our client focus is often the requirement of the company or division in addition to that of the individual trading unit. The arrival of financial buyers in our business environment increases our ability to provide services across the leisure, retail and care markets as such investors are catholic in the range of businesses they own. In each of our chosen sectors we see opportunities to serve a wider range of businesses without losing our sector focus. Examples include forecourt businesses, domiciliary care and event catering. One of the challenges to sustainable growth is attracting and retaining the right people. In 2006 we made progress in this area, selectively expanding our staff while our profits for the same period rose by 38%. The productivity and professionalism of everyone in the group should be applauded. Thanks to the efforts of Christie Group people, we are well-equipped to face the future. Divisional review Professional Business Services Christie Group has its origins as a supplier of professional business services. This division, comprising three companies, still develops that role and remains the largest part of our group. Today's services include provision of business intelligence in our specialist sectors through Christie + Co; market leadership in finance and insurance from Christie First; and business appraisal, valuation and consultancy by Pinders. Overall, turnover in the division in 2006 rose by 15% to Â£49.7m and profit by 86% to Â£8.4m. Christie + Co The 2006 strategy for Christie + Co, the oldest and largest component in the division, was to continue focusing on its specialist areas. Overall, our aim was to leverage the brand to its maximum potential and enhance positive perceptions of Christie + Co throughout our target markets. This was achieved through, among other things, the consolidation of the new brand and the launch of a bespoke e-marketing tool; part of a wider marketing strategy to reduce our reliance on printed material. At the same time, we continued to make the most of promising opportunities to increase our business reach, both geographically and within our defined areas of expertise. This strategy worked. In 2006 there were improvements in performance and earnings throughout the business, including a 17% growth in like-for-like fee income. Also, in the UK, for example, we saw a substantial increase in profits over the previous year and the number of agency inspections rose by 1,500. Such success was due to creativity and hard work, helped by market conditions that were decidedly in our favour. This situation is likely to continue thanks to the growing trend for existing and future clients to seek the sort of specialist advice and services for which we are well-known; for example, investment advice. From our operations in the UK and continental Europe, we are increasingly involved in global markets. Continued expansion, including the opening of our Marseilles and Dusseldorf offices, has helped to enhance our standing as a business adviser to clients beyond the confines of Europe. Private equity is growing in importance throughout our specialist markets, and membership of the British Venture Capital Association provides us with valuable links to this industry. In a year of overall success, we negotiated the sale of the London and Birmingham Metropole hotels on behalf of Hilton Hotel Corporation, and we successfully launched the on-going instruction from Punch to convert 720 managed pubs throughout the UK to leases for premiums. Other highlights included: â€¢ The valuation of Paragon Healthcare in advance of HgCapital's acquisition of the business for Â£322 million â€¢ The sale of Oakley Court in Windsor off an asking price of Â£50 million, on behalf of Queens Moat Houses â€¢ Valuation of more than 1,500 pubs for The Wolverhampton & Dudley Breweries â€¢ The sale of 11 Holiday Inn hotels on behalf of LRG Acquisition Looking ahead, we will focus on improving our core retail agency activities as well as raising the game in delivering local valuation services. We will also concentrate on enhanced activities in our corporate markets, and further develop our European operations. Christie Finance and Christie Insurance We embarked on a major re-branding programme in 2006, which will result in the emergence of four new trading names in 2007: Christie Finance, Christie Corporate Finance, Christie Insurance and Christie Corporate Insurance. The intention is that the two new corporate brands will focus on further establishing the Christie name as a leading provider of financial services in our corporate markets. Christie Finance continued to expand during the year, partly as a result of a re-structuring. Re-aligning the business more closely with Christie + Co took further advantage of the two companies' synergies whilst retaining Christie Finance's independence in the finance market. In line with the resulting heightened activity, there was a significant increase in the number of business mortgage personnel appointments throughout our regions. Pinders The star performer in our appraisal, valuation and consultancy business was the retail sector. Instructions on an increasingly varied range of businesses were up by more than 30% over the previous year, exceeding 2006 forecasts. This increased activity occurred not only in our more traditional markets but also in niche markets that benefited from our diversity of expertise and involvement. The level of weekly instructions fluctuated in our other sectors, due to a combination of increased competition and fewer quality businesses coming to the market. However, lenders remained committed to these business sectors and, with continued demand from purchasers, values continued to rise. Overall, lenders continued to be reticent about funding leasehold going concerns, preferring to concentrate more on freehold businesses. This had a particular impact on the number of leisure sector appraisals we undertook in 2006. The project management part of our business built up a strong pipeline of appointments during the year. Typically, this involved a degree of high level strategic advice that yielded significant fees and raised our profile. There was also a particular focus on the not-for-profit and public sectors, where our impartial specialist advice and professionalism is well recognised. In building surveying, we consolidated our position following new staff appointments and we now have a sound team for 2007. Of course, much of the work we do is behind the scenes and, due to the confidential nature of our work with lenders, applicants and vendors, must remain so. Dedication and discretion have been rewarded by engendering increasingly close relationships with a number of clients, which leads of course to repeat business and word-of-mouth recommendations. Lender panel positions were maintained and increased in a number of cases during the year, with new entrants to the market anticipated in 2007. Looking to 2007, we foresee an increasing focus on niche and specialist markets such as dentists, clinics, health centres, supported living units and veterinary practices. There will also be greater emphasis on work at the higher end of our markets, producing correspondingly higher fees. Software solutions VCSTIMELESS, our provider of business software solutions, has its origins in the early 1990s with the belief that electronic point of sale (EPoS) systems required some form of continued external audit and therefore needed to provide an interface to stock auditors. From its start in the hospitality sector, the original company soon expanded into leisure, particularly multiplex cinemas. Following Christie Group's targeted acquisition of a specialist retail software company in 2000, we moved into the rapidly growing non-food retail sector as well. Today, our software solutions encompass merchandise management, EPoS, CRM, supply chain optimisation and business intelligence applications. Thanks to the international nature of our clients, operations span the globe. During the year, VCSTIMELESS's revenues grew by 10% to a record Â£15.1 million. Software revenue increased by 15% thanks to significant market wins, and new business represented 52% of total revenue, compared with 21% in 2005. However, despite these figures, VCSTIMELESS had a challenging year and reported losses. These were due to: â€¢ Late delivery of Colombus.next, which will be progressively available from 2007 â€¢ The requirement for additional new Colombus.next modules in the light of changing customer demands â€¢ Increased focus and investment on large retailer accounts characterised by long sales cycles and varying levels of commitment International scale In 2006 we consolidated our position as a truly international company, with 72% of our total revenue coming from international operations outside the UK. In France, where VCSTIMELESS has its retail origins, there was success in signing new, major higher-tier retail players. These included Veti, an apparel retailer with over 150 stores in France and 14 in Portugal and Comptoir des Cotonniers with more than 210 stores in seven countries in Western Europe plus Japan. In the UK, new customers featured the country's second largest cinema chain, Vue. Also included was Hamleys, the world-famous toy retailer, which not only has its famous shop in London but 12 more at major airports and in department stores, with another to open soon in a shopping mall in Dubai. Results in Canada were better than forecast, thanks in large part to the successful roll-out of the cinema software we distribute in Cineplex, Canada's largest cinema chain. Southern Europe saw gratifying sales and the addition of four major retailers to the customer roster in Spain and Italy. A particularly welcome win was Blanco, a fast-growing fashion retailer in the process of opening 30 stores every year across Europe. In the second half of 2006, we also strengthened our Spanish and Italian sales organisations by the appointment of a new country manager in Spain and a sales manager in Italy. Two factors guided the choice made by major new clients: firstly, shared commitment to innovation and international scope matching VCSTIMELESS's own vision; secondly, our compelling new products and services. New products; higher profile By far the most important new product development in 2006 was the preparation for the phased launch of Colombus.next. The latest in the highly successful Colombus range of products, Colombus.next is a uniquely advanced supply chain optimisation, decision and planning solution for retailers using the latest Microsoft technologies and service-oriented architecture. By the end of the year, five tier-2 fashion retailers (Naf Naf, Orchestra, Cannelle, Tally Weijl and Veti) had already selected Colombus.next. In addition, orders were received for our other new products, BeStore (EPoS) and Colombus BI (Business Intelligence). In May 2006 we staged our third European User Conference, attracting a record 350 delegates from Asia and Europe. In February, our flagship Colombus Enterprise won an award in Spain for the best retail management software solution. The jury recognised its best in class features as well as its innovative use on the Tour de France, one of the world's most popular sporting events, where we delivered an effective mobile store system. Strategy for success In 2006 we began a partnership with the Japanese third-party service provider PBC to secure training, help desk, project management and roll-out of Colombus Enterprise across Japan. As a result of this partnership, our proven EPoS solution, Colombus Ret@il, is now available in Japanese - an option chosen by existing clients Anne Fontaine and Bonpoint to support their Asian operations. Partnered by Microsoft we had the support of a vigorous worldwide sales organisation enabling us to achieve heightened international status and expand our scope. On these solid foundations, and during the critical year ahead, our major challenges will include: â€¢ Successfully delivering an exemplary service to our first .next customers in order to accelerate both the .next market and the sales process â€¢ Consolidating our cooperation and existing partnerships with third-party companies that influence tier-1 and 2 businesses. These organisations include Capgemini, BearingPoint and LogicaCMG â€¢ Accelerating the time to market of all future .next products in order to secure revenues from our existing customer base â€¢ Improving profitability by financing further product development in partnership with our high value customers Exciting opportunities ahead should yield continued growth across all our regions. This growth will be based on sales generated by new products and by the strengthening of our international business. Stock & inventory services Christie Group has been stocktaking on a significant commercial scale since 1984, when we acquired Venners, a venerable family firm with roots in the 19th century and a specialist supplier to the licensed sector. Since then, we have expanded to become a leading supplier of stocktaking, inventory, control audit and related stock management services to the hospitality and retail sectors. More recently, our 2002 acquisition of Orridge, Europe's longest-established stocktaking business, enabled us to expand our retail activities even further. These now include high street chains, warehouses, factories and supermarkets throughout the UK, and from our continental European base in Belgium we now service customers in 13 countries. During 2007 we are targeting increased expansion in Europe, responding to and anticipating the needs of our international retailing clients. Profit in the division was held back in 2006 because of a re-equipping in the first half and the cost of an on-going and significant TUPE transfer in the second. The effects of this will continue into 2007. Venners Demand for our services in the hospitality sector heightened in 2006. We conducted some 26,000 individual stock audits, which involved tallying almost 5 million individual stock items. True to our roots, we won a broad cross-section of new clients in 2006. The biggest of these was Sodexho, the event caterers. As a result, we provided stocktaking and other services at some of the most prestigious events in the UK's social and sporting calendar. These included the Royal Horticultural Society's Chelsea Flower Show, the Open, the Derby, the Ryder Cup and Royal Ascot. Among the other major clients we acquired in 2006 were Thistle Hotels, Legacy Hotels, Leisure Plex, British Country Inns and New Legion Clubs. Some of the support for these new clients was provided through our innovative VenPowa system, a new software package that assists operators in the control of their stock movements. The conceptualisation, writing and implementation of VenPowa took three months of intense development. We immediately deployed it at a number of clients' venues such as Twickenham Stadium. Also in 2006 we laid the groundwork for considerable volumes of new or repeat business. We signed contracts with Foundation Group, International Currency Exchange (ICE), Legacy Hotels, Thwaites and Residor SAS. Looking ahead, negotiations are underway with several major chains with some already committed to contracts that will start in early 2007. At a time when food hygiene has become an issue of increasing public concern, we revamped and re-launched an operational reporting template that encompasses state-of-the-art food hygiene parameters. A year of high performance was marred by two receiverships (Barvest and London & Edinburgh Swallow Group) and also the closure of a protracted tribunal claim related to the collapse of the Unwins chain. Both of these hit our profits. As part of our focus on customer service we appointed a services director and improved our year on year rating based on customer survey results. Orridge Throughout Europe, the retail sector increasingly regards stocktaking as an outsourced activity. As specialists in this area, this is good news for us. It perfectly places us to tap into this sizeable market - estimated in the UK alone to be worth Â£90 million a year. Half of that is as yet unexploited, particularly in certain sectors such as pharmacies. We are making the most of this situation. In 2006 a key objective was to increase our penetration across the various business activities of our existing clients. For example, work for the Co-op (for which we now do 5,500 audits per annum) was originally limited to the client's pharmacy operations. Now it has expanded to include the supermarket part of the business - a milestone in our determination to become a significant player in that sector. Work for Waterstones also grew as a result of its purchase of Ottakers. Another way to grow revenues from existing clients is to increase the range of services we provide to them. Through our partnership with Ernst & Young, we assisted WHSmith with its delivery tracking. We also expanded our services to New Look by developing our supply chain offering; in particular, delivery checks including exports. At Woolworth's we ensured that the accuracy of stock at its online distribution centre was ready for the Christmas rush. During the year we also took advantage of the synergies between Christie Group companies. For example, we worked closely with VCSTIMELESS on a widening range of accounts including Louis Pion-Royal Quartz, a chain of 30 jewellers in France, Italian lingerie retailer Loveable and Mer du Nord, the Belgian fashion retailer. The two companies also collaborated on retail promotion. Other noteworthy Orridge achievements during 2006 included: â€¢ Securing Savers as a client - part of the AS Watson Group â€¢ Rolling out 1,300 new scanners to all our field staff â€¢ Restructuring of our IT help desk â€¢ Completing the rollout of wireless LAN field technology â€¢ Developing a technology-based distribution solution for B&Q and Somerfield â€¢ Joining with Ernst & Young in a supply chain partnership â€¢ Increasing our northern region management to support the additional work from the Co-op and Superdrug â€¢ Appointing a divisional head for our pharmacy work, to reflect its growing importance as part of our business mix â€¢ Re-structuring the board of directors in order to increase efficiency and re-align responsibilities To consolidate these achievements and continue to grow, we have developed a comprehensive strategy for 2007. This includes continued focus on the supermarket sector, heightened brand awareness in retail and a drive to agree longer term contracts with as many of our customers as possible, to mutual benefit. Our staff training and development will concentrate on the skills needed to drive sales. David Rugg Chief Executive Consolidated income statement - Audited For the year ended 31 December 2006 Note 2006 2005 Â£'000 Â£'000 Revenue 5 87,096 77,506 Employee benefit expenses 6 (50,949) (45,832) 36,147 31,674 Depreciation and amortisation (1,298) (1,292) Other operating expenses (28,770) (25,973) Operating Profit 5 6,079 4,409 Finance costs 7 (274) (249) Finance income 7 347 221 Total finance credit/(costs) 7 73 (28) Profit before tax 8 6,152 4,381 Taxation 9 (2,019) (1,694) Profit for the year after tax 4,133 2,687 Attributable to: Equity Shareholders of the parent 4,131 2,684 Minority interest 2 3 4,133 2,687 Earnings per share -Basic 11 16.90p 10.79p -Fully diluted 11 16.41p 10.69p All the amounts derive from continuing activities. Consolidated Statement of changes in shareholders' equity - Audited As at 31 December 2006 Attributable to the Equity Holders of the Company Share Fair value Cumulative Retained Minority capital and other translation earnings Interest Total reserves reserve Equity (Note 20) Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Balance at 1 January 2005 495 4,484 (347) 3,002 16 7,650 Exchange difference on repayment of foreign exchange loan - - 158 (158) - - Currency translation adjustments - - (40) - - (40) Net income/(expenses) recognised - - 118 (158) - (40) directly in equity Profit for the year - - - 2,684 3 2,687 Total recognised income for the year - - 118 2,526 3 2,647 Issue of share capital 5 109 - - - 114 Movement in respect of employee share scheme - 64 - - - 64 Employee share option scheme: - value of services provided - 65 - - - 65 Dividends paid - - - (726) - (726) Balance at 1 January 2006 500 4,722 (229) 4,802 19 9,814 Currency translation adjustments - - (153) - - (153) Net expenses recognised directly in - - (153) - - (153) equity Profit for the year - - - 4,131 2 4,133 Total recognised income/(expenses) for - - (153) 4,131 2 3,980 the year Issue of share capital 4 105 - - - 109 Movement in respect of employee share - (523) - - - (523) scheme Employee share option scheme: - value of services provided - 106 - - - 106 Purchase of minority interest - - - (15) (21) (36) Dividends paid - - - (917) - (917) Balance at 31 December 2006 504 4,410 (382) 8,001 - 12,533 Consolidated Balance sheet - Audited As at 31 December 2006 Note 2006 2005 Â£'000 Â£'000 Assets Non-current assets Intangible assets - Goodwill 12 4,096 3,939 Intangible assets - Other 13 3,166 2,810 Property, plant and equipment 14 2,214 2,179 Deferred tax assets 15 2,176 1,977 Available-for-sale financial assets 16a 300 300 11,952 11,205 Current assets Inventories 17 332 310 Trade and other receivables 18 14,279 14,117 Current tax assets 282 - Cash and cash equivalents 11,414 6,811 26,307 21,238 Total assets 38,259 32,443 Equity Capital and reserves attributable to the Company's equity holders Share capital 19 504 500 Fair value and other reserves 20 4,410 4,722 Cumulative translation reserve (382) (229) Retained earnings 20 8,001 4,802 12,533 9,795 Minority interest - 19 Total equity 12,533 9,814 Liabilities Non-current liabilities Borrowings 23 1,735 2,221 Retirement benefit obligations 21 6,300 6,790 8,035 9,011 Current liabilities Trade and other payables 22 16,954 12,748 Current tax liabilities - 732 Borrowings 23 737 138 17,691 13,618 Total liabilities 25,726 22,629 Total equity and liabilities 38,259 32,443 These consolidated financial statements have been approved for issue by the Board of Directors on 29 March 2007. Consolidated Cash Flow Statement - Audited For the year ended 31 December 2006 2006 2005 Note Â£'000 Â£'000 Cash flow from operating activities Cash generated from operations 24a 10,578 6,772 Interest paid (274) (249) Tax paid (3,233) (214) Net cash generated from operating activities 7,071 6,309 Cash flow from investing activities Acquisition of subsidiary (net of cash acquired) 24b - (79) Purchase of minority interest in subsidiary (36) - Purchase of property, plant and equipment (PPE) (1,407) (858) Proceeds from sale of PPE 156 132 Intangible assets expenditure (1,503) (1,712) Proceeds from disposal of intangible assets 13 1,193 - Proceeds from sale of available-for-sale asset - 70 Increased investment in available-for-sale asset - (200) Interest received 347 221 Net cash used in investing activities (1,250) (2,426) Cash flow from financing activities Proceeds from issue of share capital 109 114 (Payments to)/proceeds from ESOP (523) 64 Proceeds from borrowings - 510 Repayment of borrowings (82) (277) Payments of finance lease liabilities (59) (111) Dividends paid (917) (726) Net cash used in financing activities (1,472) (426) Net increase in net cash (including bank overdrafts) 4,349 3,457 Cash and bank overdrafts at beginning of year 6,811 3,354 Cash and bank overdrafts at end of year 11,160 6,811 Company Statement of changes in shareholders' equity - Audited As at 31 December 2006 Attributable to the Equity Holders of the Company Share capital Fair value and other Retained Total equity reserves (Note 20) earnings Â£'000 Â£'000 Â£'000 Â£'000 Balance at 1 January 2005 495 4,535 7,817 12,847 Profit for the year - - 2,417 2,417 Total recognised income for the year - - 2,417 2,417 Issue of share capital 5 109 - 114 Movement in respect of employee share scheme - 64 - 64 Dividends paid - - (726) (726) Balance at 1 January 2006 500 4,708 9,508 14,716 Profit for the year - - 2,275 2,275 Total recognised income for the year - - 2,275 2,275 Issue of share capital 4 105 - 109 Movement in respect of employee share - (523) - (523) scheme Employee share options scheme - value - 1 - 1 of services provided Dividends paid - - (917) (917) Balance at 31 December 2006 504 4,291 10,866 15,661 Company Balance sheet - Audited As at 31 December 2006 Note 2006 2005 Â£'000 Â£'000 Assets Non-current assets Investments in subsidiaries 16 11,250 11,250 Deferred tax assets 15 174 172 Available-for-sale financial assets 16a 300 300 Other receivables 18 6,058 - 17,782 11,722 Current assets Trade and other receivables 18 3,333 7,504 Current tax assets 1,528 - Cash and cash equivalents 6,489 4,321 11,350 11,825 Total assets 29,132 23,547 Equity Capital and reserves attributable to the Company's equity holders Share capital 19 504 500 Fair value and other reserves 20 4,291 4,708 Retained earnings 20 10,866 9,508 Total equity 15,661 14,716 Liabilities Non-current liabilities Borrowings 23 1,600 2,000 Retirement benefit obligations 21 578 613 2,178 2,613 Current liabilities Trade and other payables 22 10,893 5,452 Current tax liabilities - 766 Borrowings 23 400 - 11,293 6,218 Total liabilities 13,471 8,831 Total equity and liabilities 29,132 23,547 These Company financial statements have been approved for issue by the Board of Directors on 29 March 2007. David Rugg Chief Executive Robert Zenker Finance Director Company Cash Flow Statement - Audited For the year ended 31 December 2006 Note 2006 2005 Â£'000 Â£'000 Cash flow from operating activities Cash used in operations 24a (582) (1,132) Interest paid (260) (264) Tax (paid)/received (1,527) 1,155 Net cash used in operating activities (2,369) (241) Cash flow from investing activities Proceeds from sale of available-for-sale financial asset - 70 Investment in available-for-sale financial asset - (200) Investment income from fixed asset investments 5,350 2,778 Interest received 518 439 Net cash generated from investing activities 5,868 3,087 Cash flow from financing activities Proceeds from issue of share capital 109 114 (Payments to)/proceeds from ESOP (523) 64 Dividends paid (917) (726) Net cash used in financing activities (1,331) (548) Net increase in net cash 2,168 2,298 Cash at beginning of year 4,321 2,023 Cash at end of year 6,489 4,321 Notes to the Consolidated Financial Statements - Audited 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, consultancy 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 audit and inventory preparation and valuation. 2. Summary of significant accounting policies Accounting policies for the year ended 31 December 2006 The principal accounting policies adopted in the preparation of these financial statements are set out below. 2.1 Basis of preparation The consolidated and Company financial statements of Christie Group plc have been prepared in accordance with International Financial Reporting Standards (IFRS). These consolidated and Company financial statements have been prepared under the historical cost convention. The financial statements have been prepared in accordance with IFRS standards and IFRIC interpretations issued and effective or issued and early adopted as at the time of preparing these statements (March 2007). 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 and parent company statements are disclosed in Note 4. Interpretations and amendments to published standards effective in 2006 The following amendments and interpretations to standards are mandatory for the Group's accounting periods beginning on or after 1 January 2006. - IAS 19 (Amendment), Employee Benefits (effective from 1 January 2006). This amendment introduced the option of an alternative recognition approach for actuarial gains and losses. It also imposed additional recognition requirements for multi-employer plans where insufficient information is available to apply defined benefit accounting. It also added new disclosure requirements. As the Group has not changed the accounting policy adopted for recognition of actuarial gains and losses the adoption of this amendment has only impacted the format and extent of disclosures presented in the financial statements. It is anticipated that mandatory new standards or interpretations, effective for accounting periods beginning on or after 1 January 2006, not covered specifically above will have no impact on the Group's financial statements. Standards, interpretations and amendments to published standards that are not yet effective Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group's accounting periods beginning on or after 1 January 2007 or later periods but which the group has not early adopted, are as follows: - IFRIC 8, Scope of IFRS 2 (effective for accounting periods beginning on or after 1 May 2006). This interpretation requires consideration of transactions involving the issuance of equity instruments, where the identifiable consideration received is less than the fair value of the equity instruments issued to establish whether or not they fall within the scope of IFRS 2. The Group will apply IFRIC 8 from 1 January 2007, but it is not expected to have any impact on the Group's financial statements. - IFRIC 10, Interim Financial Reporting and Impairment (effective for accounting periods beginning on or after 1 November 2006). IFRIC 10 prohibits the impairment losses recognised in an interim period on goodwill, investments in equity instruments and investments in financial assets carried at cost to be reversed at a subsequent balance sheet date. The Group will apply IFRIC 10 from 1 January 2007, but it is not expected to have any impact on the Group's financial statements. - IFRIC 11, Group and Treasury Share Transactions (effective for accounting periods beginning on or after 1 March 2007). The interpretation provides guidance on whether share-based transactions involving treasury shares or involving group entities (for instance, options over a parent's shares) should be accounted for as equity-settled or cash-settled share-based payment transactions. Management is currently assessing the impact of IFRIC 11 on the Group's operations. - IFRS 7, Financial instruments: Disclosures, and the complementary Amendment to IAS 1, Presentation of Financial Statements - Capital Disclosures (effective for accounting periods beginning on or after 1 January 2007). IFRS 7 introduces new disclosures relating to financial instruments. This standard does not have any impact on the classification and valuation of the Group's financial instruments. - IFRS 8, Operating Segments (effective for accounting periods on or after 1 January 2009). IFRS 8 proposes that entities adopt 'the management approach' to reporting the financial performance of its operating segments. Management is currently assessing the impact of IFRS 8 on the format and extent of disclosures presented in the financial statements. It is anticipated that new standards or interpretations, currently in issue at the time of preparing these financial statements (March 2007), not covered specifically above will have no impact on the Group's financial statements. 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 31 December 2006. 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 presentation 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. 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; and c) all resulting exchange differences are recognised as a separate component of equity, the cumulative translation reserve. On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings, 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 Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services provided in the ordinary course of the Group's activities. Revenue derived from the Group's principal activities (which is shown exclusive of applicable sales taxes or equivalents) is recognised as follows: Agency, consultancy and valuations Net agency fees are recognised as income on exchange of contracts. Consultancy income is recognised in the accounting period in which the service is rendered, assessed on the basis of actual service provided as a proportion of the total services to be provided. In respect of valuations, turnover is recognised once the property or business has been inspected. Appraisal income is recognised in the accounting period in which the service is rendered, assessed on the basis of actual service provided as a proportion of the total services to be provided. 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 on an accruals basis when the insurance policy commences. Software solutions Hardware revenues are recognised on installation or as otherwise specified in the terms of the contract. Software revenues are recognised on delivery or as otherwise specified in the terms of the contract. Revenues on maintenance contracts are recognised over the period of the contract. Revenue in respect of Services, such as implementation, training and consultancy, are recognised when the services are performed. 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. 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. Segment expenses consist of directly attributable costs and other costs, which are allocated based on relevant criteria. 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 Intangible assets 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. Goodwill arising on acquisitions prior to the date of transition to IFRS has been retained at previous UK GAAP amounts as permitted by IFRS 1 'First time adoption of International Accounting Standards'. Prior to 1 January 2004, goodwill was amortised over its estimated useful life, such amortisation ceased on 31 December 2003, subject to an impairment review at the date of transition, in which no impairment was recognised. The Group's policy for the years up to 31 March 1998 was to eliminate goodwill arising on acquisitions against reserves. As permitted by IFRS 1 and IFRS 3, such goodwill remains eliminated against reserves. Research and development Software development is capitalised at cost when the following criteria are demonstrated: - The technical feasibility of completing the product so that it will be available for use or sale; - The intention to complete the product and use or sell it; - The ability to use the completed product or sell it; - It is probable that the completed product will generate future economic benefits; - The availability of adequate technical, financial and other resources to complete the development and to use or sell the completed product; and - The ability to reliably measure the expenditure on the intangible asset during its development. Development costs are amortised in equal annual instalments over the expected product or system life, commencing in the year when the product is completed. 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. 2.7 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 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. 2.8 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. 2.9 Impairment of assets Non-current 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 post-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. 2.10 Investments The Group classifies its investments depending 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. 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. 2.11 Inventories Inventory held for resale is valued at the lower of cost and net realisable value. 2.12 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 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. 2.13 Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. Cash and cash equivalents comprise cash in 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. 2.14 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. 2.15 Taxation including deferred tax Tax on company profits is provided for at the current rate applicable in each of the relevant territories. Deferred 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 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 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 tax asset is realised or the deferred tax liability is settled. Deferred 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. This is reviewed annually. 2.16 Share capital and share premium Ordinary shares are classified as equity. Where any Group company or the Employee Share Ownership Plan (ESOP) trust purchases the Company's equity share capital (own shares), the consideration paid, including any directly attributable incremental costs (net of 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 tax effects, is included in equity attributable to the Company's equity holders. 2.17 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. 2.18 Employee benefits Pension obligations The Group has both defined benefit and defined contribution schemes. A defined benefit scheme is a pension scheme 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 scheme is a pension scheme 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 schemes is the present value of the defined benefit obligation at the balance sheet date less the fair value of scheme 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% of the value of scheme 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 the income statement, unless the changes to the pension scheme 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 scheme Group companies contribute towards a personal pension scheme for their participating employees. These employees are currently entitled to such contributions after a qualifying period has elapsed. Payments to the scheme are charged as an employee benefit expense as they fall due. The Group has no further payment obligations once the contributions have been paid. Share based compensation The fair value of employee share option schemes, including Save As You Earn (SAYE) schemes, is measured by a Black-Scholes pricing model. Further details are set out in Note 19a. 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. No expense was recognised in respect of share options granted before 7 November 2002 and those which had vested before 1 January 2005. The expense is recognised when the options are exercised and proceeds received allocated between share capital and share premium. For share options granted after 7 November 2002 and vested after 1 January 2005 the Group operates an equity-settled, share option scheme 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 a provision where contractually obliged or where there is a past practice that has created a constructive obligation. 3. Financial risk management The Group uses a limited number of financial instruments, comprising cash, short-term deposits, bank loans and overdrafts and various items such as trade receivables and payables, which arise directly from operations. The Group does not trade in financial instruments. 3.1 Financial risk factors The Group's activities expose it to a variety of financial risks: market risk (including currency risk, and interest rate risk), credit risk, liquidity risk and cash flow interest rate risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance. a) Market risk Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the UK pound and the Euro. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity's functional currency. The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. b) Credit risk The Group has no significant concentrations of credit risk and has policies in place to ensure that sales are made to customers with an appropriate credit history. A number of subsidiaries utilise credit insurance to mitigate credit risk. c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and available funding through an adequate amount of committed credit facilities. The Group ensures it has adequate cover through the availability of bank overdraft and loan facilities. d) Cash flow and interest rate risk The Group finances its operations through a mix of cash flow from current operations together with cash on deposit and bank and other borrowings. Borrowings are generally at floating rates of interest and no use of interest rate swaps has been made. Overall the Group's trading operations are normally cash generative. 3.2 Fair value estimation The nominal value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. 4. 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. 4.1 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 (Note 12). (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; and - the estimated life expectancy of participating members. The assumptions used by the Group, as stated in Note 21, 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. 5. Segment information a. Primary reporting format - business segments The Group is organised into three main business segments: Professional Business Services, Software Solutions and Stock and Inventory Services. The segment results for the year ended 31 December 2006 are as follows: Stock and Inventory Professional Business Software Services Services Solutions Other Group Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Continuing Operations Total gross segment revenue 49,739 15,053 22,337 2,777 89,906 Inter-segment revenue (33) - - (2,777) (2,810) Revenue 49,706 15,053 22,337 - 87,096 Operating profit 8,386 (2,400) 555 (462) 6,079 Net finance credit 73 Profit before tax 6,152 Taxation (2,019) Profit for the year after tax 4,133 The segment results for the year ended 31 December 2005 are as follows: Professional Business Stock and Services Inventory Software Services Â£'000 Solutions Other Group Â£'000 Â£'000 Â£'000 Â£'000 Continuing Operations Total gross segment revenue 43,289 13,714 20,536 2,554 80,093 Inter-segment revenue (33) - - (2,554) (2,587) Revenue 43,256 13,714 20,536 - 77,506 Operating profit 4,519 (1,268) 1,356 (198) 4,409 Net finance costs (28) Profit before tax 4,381 Taxation (1,694) Profit for the year after tax 2,687 Other segment items included in the income statements for the years ended 31 December 2006 and 2005 are as follows: Professional Stock and Business Services Inventory Software Services Â£'000 Solutions Other Group Â£'000 Â£'000 Â£'000 Â£'000 31 December 2006 Depreciation and amortisation 557 333 379 29 1,298 Impairment of trade receivables 701 382 55 - 1,138 31 December 2005 Depreciation and amortisation 673 304 269 46 1,292 Impairment of trade receivables 644 166 2 - 812 The segment assets and liabilities at 31 December 2006 and capital expenditure for the year then ended are as follows: Professional Stock and Business Services Inventory Software Services Â£'000 Solutions Other Group Â£'000 Â£'000 Â£'000 Â£'000 Assets 10,433 11,953 5,329 8,086 35,801 Deferred tax assets 2,176 Current tax assets 282 38,259 Liabilities 12,959 4,268 4,056 1,977 23,260 Borrowings (excluding finance leases) 2,466 25,726 Capital expenditure 191 1,776 997 94 3,058 The segment assets and liabilities at 31 December 2005 and capital expenditure for the year are as follows; Professional Stock and Business Services Inventory Software Services Â£'000 Solutions Other Group Â£'000 Â£'000 Â£'000 Â£'000 Assets 12,168 9,937 4,707 3,654 30,466 Deferred tax assets 1,977 32,443 Liabilities 10,066 3,507 4,006 2,024 19,603 Current tax liabilities 732 Borrowings (excluding finance leases) 2,294 22,629 Capital expenditure 1,130 1,224 187 29 2,570 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 reporting format - geographical segments The Group manages its business segments on a global basis. The UK is the home country of the parent. The operations are based in two main geographical areas. The main operations in the principal territories are as follows: - Europe - Rest of the World (primarily North America) The Group's revenue is mainly in Europe. Revenue is allocated based on the country in which the customer is located. 2006 2005 Â£'000 Â£'000 Revenue Europe 86,435 77,080 Rest of the World 661 426 87,096 77,506 Total segment assets Europe 35,666 30,169 Rest of the World 135 297 35,801 30,466 Capital expenditure is allocated based on where the assets are located. 2006 2005 Â£'000 Â£'000 Capital expenditure Europe 3,058 2,570 2006 2005 Â£'000 Â£'000 Analysis of revenue by category Sales of goods 6,709 2,568 Revenue from services 80,387 74,938 87,096 77,506 6. Employee benefit expenses 2006 2005 Staff costs for the Group during the year Â£'000 Â£'000 Wages and salaries 40,657 36,588 Social security costs 6,255 5,387 Other benefits 2,485 2,335 Pension costs - defined benefit schemes (Note 21) 1,058 1,169 Pension costs - defined contribution scheme 388 288 Cost of employee share scheme 106 65 50,949 45,832 The amounts included in employee benefit expenses in 2005 have been amended to include certain expenditure previously included in other operating expenses. The reclassification has no effect on operating profit. Average number of people (including executive directors) employed by the Group 2006 2005 during the year was Number Number Operational 1,039 1,025 Administration and support staff 303 305 1,342 1,330 7. Finance (credit)/costs 2006 2005 Â£'000 Â£'000 Interest payable on bank loans and overdrafts 267 242 Other interest payable 5 - Interest payable on finance leases 2 7 Total finance costs 274 249 Bank interest receivable (335) (126) Other interest receivable (12) (95) Total finance income (347) (221) Net finance (credit)/costs (73) 28 8. Profit before tax Group 2006 2005 Â£'000 Â£'000 Profit before tax is stated after charging/(crediting): Depreciation of property, plant and equipment - owned assets 1,196 1,125 - under finance leases 53 126 Amortisation of intangible fixed assets 49 41 Profit on sale of property, plant and equipment (47) (20) Loss on sale of intangible fixed asset 19 - Profit on sale of current available for sale financial assets (including Company Â£nil - (176) (2005: Â£176,000)) Operating lease charges - buildings 1,741 1,412 - other 1,162 752 Repairs and maintenance expenditure on property, plant and equipment 337 397 Research and non-capitalised development costs 1,486 1,308 Loss on foreign exchange (including Company Â£45,000 (2005: Â£31,000)) 11 28 Inventories - (credit)/cost of inventories recognised as an expense (included in other operating expenses) (27) 41 - write down of inventories 8 1 Services provided by the group's auditor and network firms During the year the group (including its overseas subsidiaries) obtained the following services from the group's auditor or a network firm of the group's auditor as detailed below: Group Company 2006 2005 2006 2005 Â£'000 Â£'000 Â£'000 Â£'000 Audit services - audit of the parent company and consolidated financial statements 21 18 21 18 - audit of the subsidiary company financial statements 113 109 - - Other services pursuant to legislation 13 12 5 5 Tax services 145 130 87 55 Other services not covered above 19 33 - - In addition to the above services, the Group's auditor acted as auditor to the Christie Group plc Pension & Assurance Scheme and the Venners Retirement Benefit Scheme. The appointment of auditors to the Group's pension schemes and the fees paid in respect of those audits are agreed by the trustees of each scheme, who act independently from the management of the Group. The aggregate fees paid to the Group's auditor for audit services to the pension schemes during the year were Â£9,500 (2005: Â£9,000). 9. Taxation 2006 2005 Â£'000 Â£'000 Current tax UK Corporation tax at 30% (2005: 30%) 2,406 1,324 Foreign tax 73 57 Adjustment in respect of prior periods (267) (37) Total current tax 2,212 1,344 Deferred tax Origination and reversal of timing differences (193) 350 Total deferred tax (193) 350 Tax on profit on ordinary activities 2,019 1,694 The tax for the year is higher (2005: higher) than the standard rate of corporation tax in the UK (30%). The differences are explained below: Tax on profit on ordinary activities 2006 2005 Â£'000 Â£'000 Profit on ordinary activities before tax 6,152 4,381 Profit on ordinary activities at standard rate of UK corporation tax of 30% (2005: 30%) 1,846 1,314 Effects of: - tax losses not yet utilised 716 236 - expenses not deductible for tax purposes 478 105 - taxable deductions (638) - - utilisation of tax losses and other deductions (5) - - adjustment to tax charge in respect of previous periods (267) (37) - fixed asset timing differences 62 (15) - other timing differences 26 (259) - rate differential on certain tax losses (6) - Total current tax 2,212 1,344 10. Dividends 2006 2005 Group and Company Â£'000 Â£'000 Interim 2005 interim, paid October 2005 (1.0p) - 245 2006 interim, paid October 2006 (1.25p) 306 - Final 2004 final, paid June 2005 (2.0p) - 481 2005 final, paid June 2006 (2.5p) 611 - 917 726 A dividend in respect of the year ended 31 December 2006 of 2.75p per share, amounting to a total dividend of Â£677,000, is to be proposed at the Annual General Meeting on 29 June 2007. These financial statements do not reflect this proposed dividend. 11. Earnings per share 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 year. 2006 2005 Profit attributable to equity holders of the Company (Â£'000) 4,131 2,684 Weighted average number of ordinary shares in issue (thousands) 24,448 24,866 Basic earnings per share (pence) 16.90 10.79 Diluted earnings per share is calculated by 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. 2006 2005 Profit attributable to equity holders of the Company (Â£'000) 4,131 2,684 Weighted average number of ordinary shares in issue (thousands) 24,448 24,866 Adjustment for share options (thousands) 728 249 Weighted average number of ordinary shares for diluted earnings per share (thousands) 25,176 25,115 Diluted earnings per share (pence) 16.41 10.69 12. Intangible assets - Goodwill Group Total Â£'000 Cost At 1 January 2006 3,939 Acquisitions 157 At 31 December 2006 4,096 Group Total Â£'000 Cost At 1 January 2005 3,918 Acquisitions 21 At 31 December 2005 3,939 Goodwill is allocated to the Group's cash-generating units (CGUs) identified according to country of operation and business segment. The carrying amounts of goodwill by segment as at 31 December 2006 are as follows: Goodwill Professional Business Stock and Inventory Services Services Software Solutions Â£'000 Â£'000 Â£'000 UK 178 - 833 Continental Europe - 3,085 - During the year, the acquired goodwill was tested for impairment in accordance with IAS 36 on the basis of the relevant CGUs. Following the impairment tests there has been no change to the carrying values. The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on current business plans. The key assumptions for the value-in-use calculations are those regarding revenue growth rates, discount rates and long-term growth rates. Management determined budgeted revenue growth based on past performance and its expectations for the market development. Discount rates were determined using post-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. Cash flows beyond the five-year period are extrapolated using estimated long term growth rates. The growth rate does not exceed the long-term average growth rate for the businesses in which the CGUs operate. 13. Intangible assets - Other Group Software Software Total Â£'000 development Â£'000 Â£'000 Cost At 1 January 2006 202 2,719 2,921 Exchange adjustments (4) (34) (38) Additions 105 1,546 1,651 Disposals (36) (1,193) (1,229) At 31 December 2006 267 3,038 3,305 Accumulated amortisation At 1 January 2006 111 - 111 Exchange adjustments (4) - (4) Charge for the year 49 - 49 Disposals (17) - (17) At 31 December 2006 139 - 139 Net book amount at 31 December 2006 128 3,038 3,166 The expected useful lives are as follows: Software 3 - 10 years Software development 5 - 10 years The investment in software development relates to development of products for resale in the Software Solutions division. The Software Development disposal reflects amounts relating to the Christie + Co operational support system, the costs of which were recovered from the third party software house contracted to provide the system. Group Software Software Total Â£'000 development Â£'000 Â£'000 Cost At 1 January 2005 103 1,122 1,225 Exchange adjustments (2) (14) (16) Additions 101 1,611 1,712 At 31 December 2005 202 2,719 2,921 Accumulated amortisation At 1 January 2005 72 - 72 Exchange adjustments (2) - (2) Charge for the year 41 - 41 At 31 December 2005 111 - 111 Net book amount at 31 December 2005 91 2,719 2,810 14. Property, plant and equipment Fixtures, fittings, computer equipment and Short leasehold property motor vehicles Total Â£'000 Â£'000 Â£'000 Group Cost At 1 January 2006 531 7,179 7,710 Exchange adjustments (1) (41) (42) Additions - 1,407 1,407 Disposals (158) (256) (414) At 31 December 2006 372 8,289 8,661 Accumulated depreciation At 1 January 2006 348 5,183 5,531 Exchange adjustments (1) (27) (28) Charge for the year 64 1,185 1,249 Disposals (155) (150) (305) At 31 December 2006 256 6,191 6,447 Net book amount at 31 December 2006 116 2,098 2,214 Fixtures, fittings, computer equipment and Short leasehold property motor vehicles Total Â£'000 Â£'000 Â£'000 Group Cost At 1 January 2005 517 6,827 7,344 Exchange adjustments - (22) (22) Additions 14 844 858 Acquisitions - 32 32 Disposals - (502) (502) At 31 December 2005 531 7,179 7,710 Accumulated depreciation At 1 January 2005 245 4,440 4,685 Exchange adjustments - (15) (15) Charge for the year 96 1,155 1,251 Reclassification 7 (7) - Disposals - (390) (390) At 31 December 2005 348 5,183 5,531 Net book amount at 31 December 2005 183 1,996 2,179 Depreciation in the year on fixtures, fittings, computer equipment and motor vehicles includes Â£53,000 (2005: Â£126,000) on assets held under finance lease or hire purchase agreements which have a net book value at 31 December 2006 of Â£8,000 (2005: Â£62,000). At 31 December 2006 and 2005 the Company held fixtures, fittings, computer equipment and motor vehicles with a cost of Â£9,000 and accumulated depreciation of Â£9,000. 15. Deferred tax Deferred tax assets have been recognised in respect of tax losses and other temporary differences giving rise to deferred tax assets where it is probable that these assets will be recovered. The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS 12) during the year are shown below. Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net. Group Company 2006 2005 2006 2005 Â£'000 Â£'000 Â£'000 Â£'000 Deferred tax assets/(liabilities) comprises: Accelerated capital allowances 201 109 2 2 Short-term timing differences 103 (152) (1) (13) Deferred tax asset/(liability) 304 (43) 1 (11) Deferred tax asset on pension 1,872 2,020 173 183 At 31 December 2,176 1,977 174 172 Movements in the deferred tax asset: Group Company 2006 2005 2006 2005 Â£'000 Â£'000 Â£'000 Â£'000 At 1 January 1,977 2,327 172 203 Exchange adjustments 6 - - - Transfer from/(to) the income statement 193 (350) 2 (31) At 31 December 2,176 1,977 174 172 Deferred tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. The Group did not recognise deferred tax assets of Â£587,000 (2005: Â£307,000) in respect of losses that can be carried forward against future taxable income. The forthcoming reduction in the rate of UK corporation tax to 28% (previously 30%) announced in the Budget on 21 March 2007 would reduce the deferred tax asset recognised at 31 December 2006 by approximately Â£145,000. 16. Investments in subsidiaries Shares in Loans to subsidiary subsidiary undertakings undertakings Total Â£'000 Â£'000 Â£'000 Company Cost At 1 January 2006 and at 31 December 2006 5,559 6,301 11,860 Provisions At 1 January 2006 and at 31 December 2006 610 - 610 Net book amount at 31 December 2006 4,949 6,301 11,250 Net book amount at 31 December 2005 4,949 6,301 11,250 Subsidiary undertakings At 31 December 2006 the principal subsidiaries were as follows: Company Country of Nature of business incorporation Christie, Owen & Davies plc (trading as Christie + UK Business valuers, surveyors and agents Co)* Christie + Co SARL* France Business valuers, surveyors and agents Christie + Co GmbH* Germany Business valuers, surveyors and agents Christie, Owen & Davies SL* Spain Business valuers, surveyors and agents Pinders Professional & Consultancy Services Ltd UK Business appraisers RCC Business Mortgage Brokers plc (trading as UK Business mortgage brokers Christie Finance) RCC Insurance Brokers plc* (trading as Christie UK Insurance brokers Insurance) Orridge & Co Ltd UK Stocktaking and inventory management services Orridge SA* Belgium Stocktaking and inventory management services Venners plc UK Licensed stock and inventory auditors and valuers VcsTimeless Ltd* UK EPoS, head office systems and merchandise control Venners Computer Systems Corporation* Canada EPoS, head office systems and merchandise control Timeless SA* France EPoS, head office systems and merchandise control Timeless Premier SL* Spain EPoS, head office systems and merchandise control Timeless Italia Srl* Italy EPoS, head office systems and merchandise control The Company directly or indirectly* owns 100% of the ordinary share capital of each of the above companies. During the year the Group purchased the remaining 10% of the Orridge SA ordinary share capital, making it a wholly owned subsidiary. 16a. Available-for-sale financial assets Group Company Non-current assets 2006 2005 2006 2005 Â£'000 Â£'000 Â£'000 Â£'000 At 1 January 300 604 300 604 Additions 53 200 - 200 Disposals - (504) - (504) At 31 December 353 300 300 300 Provisions Charge for the year 53 - - - At 31 December 53 - - - Net book amount at 31 December 300 300 300 300 During the year the Group purchased 1,522,500 1p ordinary shares in Capcon Holdings plc, an AIM listed business. At 31 December 2006 the market value of the shares was Â£42,000. The investment has been provided against given the relative illiquidity of the shares. The other available-for-sale financial assets represent an unquoted investment held at cost. The fair value of the unquoted investment at 31 December 2006 approximates to cost. 17. Inventories Group 2006 2005 Â£'000 Â£'000 Finished goods and goods for resale 332 310 A provision of Â£17,000 (2005: Â£21,000) is held against goods for resale to reflect the net realisable value of the inventory. 18. Trade and other receivables Group Company Current assets 2006 2005 2006 2005 Â£'000 Â£'000 Â£'000 Â£'000 Trade receivables 11,317 10,621 - - Less: Provision for impairment of receivables (2,387) (1,778) - - Amounts owed by group undertakings - - 1,868 6,333 Other debtors 2,435 2,273 1,336 1,151 Prepayments and accrued income 2,914 3,001 129 20 14,279 14,117 3,333 7,504 Group Company Non-current assets 2006 2005 2006 2005 Â£'000 Â£'000 Â£'000 Â£'000 Amounts owed by group undertakings - - 8,458 - Less: Provision for impairment of amounts owed by group - - (2,400) - undertakings - - 6,058 - During the year the Company renegotiated the repayment terms of loans with certain subsidiaries which has resulted in the loans being due after more than one year. The fair values of trade and other receivables approximates to the cost as detailed above. Concentrations of credit risk with respect to trade receivables are limited due to the Group's customer base being large and diverse in addition certain Group companies utilise credit insurance. Due to this, management believe there is no further credit risk provision required in excess of the normal provision for doubtful receivables. 19. Share capital Ordinary shares of 2p each Number 2006 Number 2005 Â£'000 Â£'000 Authorised: 30,000,000 600 30,000,000 600 At 1 January and 31 December Allotted and fully paid: At 1 January 25,003,552 500 24,747,496 495 Issued during the year 212,832 4 256,056 5 At 31 December 25,216,384 504 25,003,552 500 The consideration received for the shares issued in the year was Â£109,000 (2005: Â£114,000). The Company has one class of ordinary shares which carry no right to fixed income. Investment in own shares The Group has established an Employee Share Ownership Plan (ESOP) trust to purchase shares in the market for distribution at a later date in accordance with the terms of the Group's share option schemes. The rights to dividend on the shares held have been waived. At 31 December 2006 the total payments by the Company to the ESOP to finance the purchase of ordinary shares was Â£916,000 (2005: Â£641,000). The market value at 31 December 2006 of the ordinary shares held in the ESOP was Â£1,601,000 (2005: Â£768,000). The investment in own shares represents 616,000 shares (2005: 665,000) with a nominal value of 2p each. 19a. Share based payments Certain employees hold options to subscribe for shares in the Company at prices ranging from 36p to 145p under share option schemes for the period from August 1998 to April 2006. The remaining options outstanding under approved schemes at 31 December are shown below: Number of Shares Option exercise price Date granted Option exercise period 2006 2005 - 27,000 35.70p Aug 1996 Aug 1999 - Aug 2006 - 65,833 48.00p Dec 1997 Dec 2000 - Dec 2007 6,000 6,000 47.50p Aug 1998 Aug 2001 - Aug 2008 7,667 40,667 41.50p Dec 1998 Dec 2001 - Dec 2008 15,000 15,000 81.00p Sep 1999 Sep 2002 - Sep 2009 22,000 34,333 145.00p May 2000 May 2003 - May 2010 6,000 21,000 81.50p Oct 2000 Oct 2003 - Oct 2010 37,000 43,333 53.50p Apr 2001 Apr 2004 - Apr 2011 6,000 9,000 40.00p Oct 2001 Oct 2004 - Oct 2011 9,000 26,333 36.00p Apr 2002 Apr 2005 - Apr 2012 25,000 25,000 45.50p Sep 2002 Sep 2005 - Sep 2012 43,000 81,000 47.50p Apr 2003 Apr 2006 - Apr 2013 31,000 57,000 46.50p Jun 2003 Jun 2006 - Jun 2013 93,000 103,000 94.00p May 2004 May 2007 - May 2014 38,000 41,000 111.50p Jun 2004 Jun 2007 - Jun 2014 37,000 52,000 98.50p Oct 2004 Oct 2007 - Oct 2014 168,000 175,000 100.00p Apr 2005 Apr 2008 - Apr 2015 35,000 44,000 101.50p Oct 2005 Oct 2008 - Oct 2015 188,000 - 130.50p Apr 2006 Apr 2009 - Apr 2016 766,667 866,499 Under the Share Option Scheme the Remuneration Committee can grant options over shares to employees of the Company. Options are granted with a fixed exercise price equal to the market price of the shares under option at the date of grant. The contractual life of an option is 10 years. Awards under the Share Option Scheme are generally reserved for employees at senior management level and 119 employees are currently participating in this group. The Company has made grants at least annually. Options granted under the Share Option Scheme will become exercisable on the third anniversary of the date of grant. Exercise of an option is subject to continued employment and achievement of a performance target. The Group also operates a Save As You Earn (SAYE) scheme which was introduced in 2002. Under the SAYE scheme eligible employees can save up to Â£250 per month over a three or five year period and use the savings to exercise options granted between 45.5p to 228.5p. There were 783,000 (2005: 814,000) remaining options outstanding under the SAYE scheme at 31 December 2006. Share options (including SAYE schemes) were valued using the Black-Scholes option-pricing model. No performance conditions were included in the fair value calculations. The key assumptions used in the calculations are as follows: 2006 2005 Share price at grant date 46.50p - 222.00p 46.50p - 111.50p Exercise price 46.50p - 228.50p 46.50p - 111.50p Expected volatility 36.3% - 52.7% 36.3% - 52.7% Expected life (years) 3 - 5 years 3 - 5 years Risk free rate 4.4% - 5.1% 4.4% Dividend yield 1.6% - 2.7% 2.7% Fair value per option 19.04p - 78.91p 19.04p - 45.63p The expected volatility is based on historical volatility over the last 8 years. The expected life is the average expected period to exercise. The risk free rate of return is the yield on zero-coupon UK government bonds of a term consistent with the assumed option life. A reconciliation of share option movements (excluding SAYE schemes) over the year to 31 December is shown below: 2006 2005 Weighted average Weighted average exercise price exercise price Number Number Outstanding at 1 January 866,499 76.87p 977,555 63.37p Granted 191,000 130.50p 226,000 100.29p Forfeited/lapsed (78,000) 83.00p (81,000) 81.36p Exercised (212,832) 51.14p (256,056) 44.59p Outstanding at 31 December 766,667 96.75p 866,499 76.87p Exercisable at 31 December 207,667 60.97p 313,499 59.86p The weighted average share price for options exercised over the year was 170.70p (2005: 102.16p). The total charge for the year relating to employee share based payment plans was Â£106,000 (2005: Â£65,000), all of which related to equity-settled share based payment transactions. The weighted average remaining contractual life of share options outstanding at 31 December 2006 was 7.4 years (2005: 6.8 years). 20. Reserves Capital Fair value Share Merger Share based Own redemption and other Retained premium reserve payments shares reserve reserves earnings Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Group At 1 January 2006 3,935 945 103 (271) 10 4,722 4,802 Share issues 105 - - - - 105 - Movement in respect of - - 106 (523) - (417) - employee share scheme Purchase of minority interest - - - - - - (15) Retained profit for the year - - - - - - 3,214 At 31 December 2006 4,040 945 209 (794) 10 4,410 8,001 Capital Fair value Share Merger Share based Own redemption and other Retained premium reserve payments shares reserve reserves earnings Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Group At 1 January 2005 3,826 945 38 (335) 10 4,484 3,002 Share issues 109 - - - - 109 - Movement in respect of - - 65 64 - 129 - employee share scheme Exchange difference on - - - - - - (158) repayment of foreign exchange loan Retained profit for the year - - - - - - 1,958 At 31 December 2005 3,935 945 103 (271) 10 4,722 4,802 Capital Other Fair value Share Merger Share based Own redemption reserves and other Retained premium reserve payments shares reserve reserves earnings Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Company At 1 January 2006 3,935 945 - (271) 10 89 4,708 9,508 Share issues 105 - - - - - 105 - Movement in respect of - - 1 (523) - - (522) - employee share scheme Retained profit for the - - - - - - - 1,358 year At 31 December 2006 4,040 945 1 (794) 10 89 4,291 10,866 Fair value Capital and Share Merger redemption Other other Retained premium reserve Own shares reserve reserves reserves earnings Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Company At 1 January 2005 3,826 945 (335) 10 89 4,535 7,817 Share issues 109 - - - - 109 - Movement in respect of - - 64 - - 64 - employee share scheme Retained profit for the - - - - - - 1,691 year At 31 December 2005 3,935 945 (271) 10 89 4,708 9,508 Share premium - The balance on the share premium reserve represents the amounts received in excess of the nominal value of the ordinary shares. Merger reserve - The balance on the merger reserve represents the fair value of the consideration given in excess of the nominal value of the ordinary shares issued in an acquisition made by the issue of shares. Share based payments - The balance on the share based payments reserve represents the value of services provided in relation to employee share ownership schemes. Own shares - Own shares represents Company shares held in the Employee Share Ownership Plan (ESOP) that can be used to meet the future requirements of employee Save As You Earn and share option schemes. Capital redemption reserve - The balance on the capital redemption reserve represents the aggregate nominal value of all the ordinary shares repurchased and cancelled. 21. Retirement benefit obligations The amounts recognised in the balance sheet are determined as follows: 2006 2005 Â£'000 Â£'000 United Kingdom 6,240 6,732 Overseas 60 58 6,300 6,790 United Kingdom The Group operates two defined benefit schemes, providing benefits 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. 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 balance sheet are determined as follows: 2006 2005 Â£'000 Â£'000 Present value of funded obligations 28,663 24,250 Fair value of plan assets (25,679) (22,054) 2,984 2,196 Present value of unfunded obligations 3,640 6,277 Unrecognised actuarial losses (384) (1,741) Liability in the balance sheet 6,240 6,732 The principal actuarial assumptions used were as follows: 2006 2005 % % Discount rate 4.80 - 5.00 4.70 - 4.80 Inflation rate 3.00 2.75 Expected return on plan assets 6.20 - 6.90 6.00 - 6.25 Future salary increases 3.00 - 3.25 2.75 - 3.10 Future pension increases 3.00 3.00 - 3.60 Assumptions regarding future mortality experience are set based on advice from published statistics and experience. The average life expectancy in years of a pensioner retiring at age 65 is as follows: 2006 2005 Years Years Male 21.7 19.8 Female 24.6 22.8 The movement in the defined benefit obligation is as follows: 2006 2005 Â£'000 Â£'000 At 1 January 30,527 28,556 Interest cost 1,477 1,515 Current service cost 945 897 Benefits paid (204) (493) Actuarial (gains)/losses (442) 52 At 31 December 32,303 30,527 Attributable to: Present value of funded obligations 28,663 24,250 Present value of unfunded obligations 3,640 6,277 32,303 30,527 The movement in the fair value of plan assets is as follows: 2006 2005 Â£'000 Â£'000 At 1 January 22,054 18,325 Expected return on plan assets 1,364 1,269 Contributions 1,550 1,504 Benefits paid (204) (493) Actuarial gain 915 1,449 At 31 December 25,679 22,054 The amounts recognised in the income statement are as follows: 2006 2005 Â£'000 Â£'000 Current service cost (945) (897) Interest cost (1,477) (1,515) Expected return on plan assets 1,364 1,269 Net actuarial loss recognised in the year - (26) Total included in employee benefit expenses (Note 6) (1,058) (1,169) The actual return on plan assets was Â£2,279,000 (2005: Â£2,718,000). Plan assets are comprised as follows: 2006 2005 Expected return % Expected return % Â£'000 Â£'000 Equity 17,288 6.70 - 7.60 11,235 6.30 - 8.00 Debt 3,618 4.80 - 5.10 5,827 4.60 - 4.80 Other 4,773 5.30 - 5.70 4,992 4.00 - 6.30 25,679 6.20 - 6.90 22,054 6.00 - 6.25 The expected return on plan assets was determined by considering the expected returns available on the assets underlying the current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance sheet date. Expected returns on equity and property investments reflect long-term real rates of return experienced in the respective markets Expected contributions to UK post retirement benefit schemes for the year ending 31 December 2007 are Â£1,580,000. History of experience adjustments: 2006 2005 2004 As at 31 December Â£'000 Â£'000 Â£'000 Present value of defined obligations 32,303 30,527 28,556 Fair value of plan assets (25,679) (22,054) (18,325) Deficit 6,624 8,473 10,231 Experience adjustments on plan liabilities 364 183 (1,232) Experience adjustments on plan assets 915 1,449 52 The income statement charge of Â£82,000 (2005: Â£108,000) and balance sheet liability Â£578,000 (2005: Â£613,000) recognised by the Company in relation to the Christie Group defined benefit scheme has been allocated on the basis of contributions to the scheme. For the year ended 31 December 2006 contributions paid by the Company amounted to Â£135,000 (2005: Â£155,000). Overseas In accordance with French law a retirement indemnity provision is held. Rights to these benefits accrue on the condition that the employee will be with the employer at retirement date. The movement in the liability recognised in the balance sheet is as follows: 2006 2005 Â£'000 Â£'000 Beginning of the year 58 50 Expenses included in employee benefit expenses 2 8 End of the year 60 58 The principal assumptions used were as follows: 2006 2005 % % Discount rate 2.50 2.50 Future salary increases 3.00 3.00 Employee turnover 12.00 12.00 Assumptions regarding future mortality experience are set based on advice from published statistics and experience with mortality table INSEE statistic ref: TD-TV 00-02 being used. Expected contributions to the Overseas post retirement benefit scheme for the year ending 31 December 2007 are Â£65,000. 22. Trade and other payables Group Company 2006 2005 2006 2005 Â£'000 Â£'000 Â£'000 Â£'000 Trade payables 2,159 2,565 - - Amounts owed to group undertakings - - 9,085 4,304 Other taxes and social security 4,248 3,332 897 856 Other creditors 917 898 229 139 Accruals 8,421 4,570 682 153 Deferred income 1,209 1,383 - - 16,954 12,748 10,893 5,452 23. Borrowings Group Company 2006 2005 2006 2005 Non-current Â£'000 Â£'000 Â£'000 Â£'000 Bank and other borrowings (unsecured) 1,735 2,212 1,600 2,000 Finance lease obligations - 9 - - 1,735 2,221 1,600 2,000 Group Company Current 2006 2005 2006 2005 Â£'000 Â£'000 Â£'000 Â£'000 Bank and other borrowings (unsecured) 731 82 400 - Finance lease obligations 6 56 - - 737 138 400 - Total borrowings 2,472 2,359 2,000 2,000 The Group is not subject to any contractual repricing. The financial liabilities comprise: Group Company 2006 2005 2006 2005 Â£'000 Â£'000 Â£'000 Â£'000 Floating interest rate loans 2,212 2,294 2,000 2,000 Overdraft 45 - - - Invoice discounting 209 - - - Finance lease liabilities 6 65 - - 2,472 2,359 2,000 2,000 The maturity of non-current borrowings is as follows: Group Company 2006 2005 2006 2005 Â£'000 Â£'000 Â£'000 Â£'000 Bank loans repayable between one and two years 460 477 400 400 Bank loans repayable between two and five years 1,275 1,735 1,200 1,600 Obligation under finance leases: -between one and two years - 9 - - 1,735 2,221 1,600 2,000 Interest on the Group's borrowings is as follows: - Floating interest rate loans - 1.25% to 1.37% above LIBOR; - Invoice discounting - 1.75% above base rate; and - Finance lease liabilities - variable. The carrying amounts of short-term and non-current borrowings approximate to their fair value. 24. Notes to the cash flow statement a. Cash generated from/(used in) operations 2006 Group Company Â£'000 2005 2006 2005 Â£'000 Â£'000 Â£'000 Profit for the year 4,133 2,687 2,275 2,416 Adjustments for: - Taxation 2,019 1,694 (535) (49) - Finance (credit)/costs (73) 28 (5,608) (2,953) - Depreciation 1,249 1,251 - - - Amortisation of intangible assets 49 41 - - - Profit on sale of property, plant and equipment (47) (20) - - - Profit on sale of current available-for-sale financial - (176) - (176) assets - Loss on sale of intangible assets 19 - - - - Foreign currency translation (105) (19) - - - Movement in share option charge 106 65 1 - - Movement in retirement benefit obligation (490) (327) (35) (47) - Increase in non-current other receivables - - (6,058) - Changes in working capital (excluding the effects of acquisition and exchange differences on consolidation): - (Increase)/decrease in inventories (22) 45 - - - (Increase)/decrease in trade and other receivables (318) (515) 4,170 (2,086) - Decrease in current available-for-sale financial - 504 504 assets - - Increase in trade and other payables 4,058 1,514 5,208 1,259 Cash generated from/(used in) operations 10,578 6,772 (582) (1,132) 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: 2005 Â£'000 Property, plant and equipment 32 Net current assets 270 Assets acquired 302 Goodwill on acquisition 21 Consideration paid 323 Cash acquired (244) Net cash outflow (79) 25. Reconciliation of movement in net funds As at As at 1 January Cash flow Non-cash movements 31 December 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Cash in hand and at bank 6,811 4,603 - 11,414 Overdraft - (45) - (45) Invoice discounting - (209) - (209) Debt due after one year (2,212) - 477 (1,735) Debt due within one year (82) 82 (477) (477) Finance leases due after one year (9) 9 - - Finance leases due within one year (56) 50 - (6) 4,452 4,490 - 8,942 26. Commitments a. Operating lease commitments At 31 December 2006 the group has lease agreements in respect of properties, vehicles, plant and equipment, for which the payments extend over a number of years. 2005 Property 2006 Vehicles Property Vehicles and and equipment equipment Â£'000 Â£'000 Â£'000 Â£'000 Commitments under non-cancellable operating leases due: Within one year 1,567 805 1,379 552 Within two to five years 4,655 932 3,914 1,431 After five years 2,225 - 3,579 - 8,447 1,737 8,872 1,983 Operating lease payments represent: - rentals payable by the Group for certain of its office properties. The leases have varying terms, break clauses and renewal rights. - rentals for vehicles and equipment under non-cancellable operating lease agreements. The Group also sub-lets an element of office space in respect of certain property lease agreements. b. Capital commitments The Group has contracted but not provided for capital commitments for Â£255,000 (2005: Â£298,000) of capital expenditure. 27. Contingent liabilities In the ordinary course of business, claims arise in Group companies. In the opinion of the Directors, appropriate amounts have been set aside in respect of liabilities which individual companies within the Group may suffer as a result of the resolution of these claims. FIVE YEAR RECORD The Group adopted IFRS for the first time in 2005 and in accordance with the requirements of IFRS, 2004 figures were restated. Restatement of earlier years is not required under IFRS and accordingly the information presented below for 2003 and 2002 in respect of the income statement is prepared under UK GAAP. The main adjustments that would be required to comply with IFRS (for 2003 and 2002) are the recognition of the defined benefit pension funds liabilities on the balance sheet in accordance with IAS 19 and the reversal of goodwill amortisation (IFRS 3). Consolidated income statements IFRS IFRS IFRS UK GAAP UK GAAP 2006 2005 2004 2003 2002 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Revenue 87,096 77,506 69,968 62,457 46,473 Operating profit before goodwill amortisation 6,079 4,409 3,844 3,245 2,614 Goodwill amortisation - - - (551) (497) Exceptional item - - 2,455 - - Finance credit/(costs) 73 (28) (176) (206) (164) Profit on ordinary activities before tax 6,152 4,381 6,123 2,488 1,953 Taxation (2,019) (1,694) (360) (1,469) (1,182) Profit on ordinary activities after tax 4,133 2,687 5,763 1,019 771 Minority interest (2) (3) (10) - - Dividends paid (917) (726) (722) (722) (625) Retained profit for the year 3,214 1,958 5,031 297 146 Earnings per share - basic 16.90p 10.79p 23.28p 4.15p 3.06p - basic before exceptional items (net of tax)* 16.90p 10.79p 9.23p 4.15p 3.06p - basic before goodwill amortisation and exceptional 16.90p 10.79p 9.23p 6.39p 5.03p items (net of tax)* Dividends per ordinary share (payable in respect of 4.0p 3.5p 3.0p 3.0p 2.5p the year) *Exceptional items include credit for the prior year dual residence tax losses and the exceptional finance credit of Â£2,455,000 in 2004. Consolidated balance sheets 2006 2005 Â£'000 2004 Â£'000 Â£'000 Non-current assets 11,952 11,205 10,157 Current assets 26,307 21,238 18,142 Current liabilities (17,691) (13,618) (11,424) 20,568 18,825 16,875 Non-current borrowings (1,735) (2,221) (2,108) Retirement benefit obligations (6,300) (6,790) (7,117) Net assets 12,533 9,814 7,650 Shareholders' funds - equity interests 12,533 9,795 7,634 Minority interest - 19 16 12,533 9,814 7,650 Financial information The financial information does not constitute the statutory financial statements of the Company as defined by Section 240 of the Companies Act 1985. It is an extract from the financial statements for the year ended 31 December 2006, which have not yet been filed with the Registrar of Companies. The auditors' report was unqualified. The auditors' report does not contain a statement under either Section 237(2) or (3) of the Companies Act 1985. The Group's auditors have reported on the financial statements as required by Section 235 of the Companies Act 1985. Key dates The Annual Report and Financial Statements are scheduled to be posted to shareholders in early May. The Annual General Meeting of the Company is scheduled to take place at 10am on Friday 29 June 2007 at 39 Victoria Street, London, SW1H 0EU. Dividends, the ex-dividend date is 6 June 2007, the record date 8 June 2007 and the date payable is 5 July 2007. Group companies Professional business services Business sales and valuations, consultancy, financial services Christie + Co The leading specialist firm providing business intelligence in the hospitality, leisure, retail and care sectors. International operations are based in Barcelona, Berlin, Dusseldorf, Frankfurt, London, Madrid, Marseilles, Munich and Paris. Its 16 offices across the UK are focused on agency, valuation services, investment and consultancy activity in its key sectors - hotels, public houses, restaurants, leisure, care and retail. www.christie.com and www.christiecorporate.com Christie Finance and Christie Insurance The market leaders in finance and insurance for the leisure, retail and care sectors. Services include finance for business purchase or re-financing in both the private and corporate sectors arranged in conjunction with major financial institutions, and the provision of tailored insurance schemes. www.christiefinance.com and www.christieinsurance.com Pinders The UK's leading specialist business appraisal, valuation and consultancy company, principally providing professional services to the licensed leisure, retail and care sectors, and increasingly within the commercial and corporate business sectors, especially in relation to professional practices and service businesses. Its expanding Building Consultancy Division that offers a full range of project management, building monitoring and building surveying services. Instructions are undertaken for a broad cross section of corporate, charity, private and public sector clients. www.pinders.co.uk and www.pinderpack.com Software solutions EPoS and head office systems VCSTIMELESS Retail The VCSTIMELESS retail applications address such sectors as fashion, accessories, luggage, leather goods, sports, footwear, home furnishings, perfumery and toys. Solutions include merchandising planning and management, forecasting, supply chain optimisation, EPoS, CRM and business intelligence applications. The Colombus Enterprise suite is a comprehensive retail management software suite, proven to meet the specific needs of single and multi-channel retailers. Colombus.next is a next generation supply chain optimisation and decision support solution. Leisure and cinemas VCSTIMELESS' VENPoS and Vista-branded leisure, hospitality and cinema management softwares comprise admissions, head office, back office and online ticketing modules. www.vcstimeless.com This information is provided by RNS The company news service from the London Stock Exchange

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