Final Results

Christie Group PLC 28 March 2008 Christie Group plc Preliminary Results for the year ended 31 December 2007 Christie Group plc, is a leading provider of professional services for the leisure, retail and care sectors. Another record year - Operating profit increased by 15% to £7.0m (2006: £6.1m) - Profit before tax rose by 17% to £7.2m (2006: £6.2m) on revenue of £87.4m (2006: £87.1m) - Earnings per share increased by 13% to 19.12p (2006: 16.90p) - Final dividend is 2.75p per share, making a total dividend of 4.25p (2006: 4.00p) - Christie + Co expanded with new offices in London and Hamburg - Orridge established a further European stocktaking base in the Netherlands - Venners developed new areas of business in Compliance Audit and Food Safety Commenting on the results, Philip Gwyn, Chairman of Christie Group, said: 'We continued to make good progress in 2007 and whilst being prepared for a more demanding trading environment in 2008, we have seen encouraging new business opportunities continuing to materialise in both the UK and Europe. Historically, we have experienced the opportunities to build our market share in a more difficult trading environment. We have entered the New Year with substantial cash resources. We believe we are well placed to take advantage of opportunities as they occur.' Enquiries Christie Group plc 020 7227 0707 David Rugg, Chief Executive Robert Zenker, Finance Director Weber Shandwick Financial 020 7067 0700 Richard Hews, Rachel Martin, Hannah Marwood Charles Stanley Securities 020 7149 6000 Nominated Adviser & Broker Russell Cook / Carl Holmes Notes to Editors Professional Business Services The expertise offered by Christie + Co and Christie Finance covers all aspects of valuing, buying, selling, financing and insuring a wide variety of businesses. Its scope is complemented by the comprehensive appraisal and project management services available from Pinders. Software Solutions VCSTIMELESS specialises in sophisticated IT systems and solutions designed to capture and control the complex sales and other data connected with the management of cinemas, hotels, restaurants, leisure complexes, warehouses and retail outlets internationally. Stock & Inventory Orridge and Venners are the leading specialists in stock control and inventory management services. Employing state-of-the-art technologies and bespoke software, the division is focused on Europe, where both companies have a major share of the retail and leisure sectors. Further information on Christie Group plc is available at www.christiegroup.com. Chairman's Statement I am pleased to report a further record year with operating profit increased by 15% to £7.0m (2006: £6.1m). Profit before tax rose by 17% to £7.2m (2006: £6.2m) on revenue of £87.4m (2006: £87.1m). Earnings per share rose by 13% to 19.12p (2006: 16.90p). I confirm that the final dividend is 2.75p per share, making a total of 4.25p for 2007, an increase of 0.25p over the prior year. Christie Group delivered significant organic profit growth during the year. This was achieved by focusing on further international expansion, leveraging our complementary business services and skills to best advantage and developing new opportunities within the leisure, retail and care sectors. Our Professional Business Services Division returned a further strong trading performance, with a continued increase in revenues through our international network of 11 (2007: 9) offices. Already in 2008 we have opened an additional French regional office in Rennes. In April, we open in Finland with an office in Helsinki, serving the markets in Scandinavia, Russia and the Baltic states. Christie + Co has experienced a busy start to the year as longstanding business owners seek to sell before the forthcoming changes in Capital Gains Tax on 5 April. Also in April, we will see the start of the phasing in of Energy Performance Certificates for commercial properties. We consider that both the cost of inspections and lack of inspectors may disrupt the flow of businesses to the market, and reduce opportunistic off-market acquisition activity. Portfolio disposals now tend to be transacted as a series of individual or smaller tranche disposals, as the effects of the credit crunch limit the scale of finance available to purchasers. In challenging times, however, property based trading businesses remain an attractive asset class. Christie Finance should benefit from the Budget changes in the Small Firms Loan Guarantee Scheme, which will allow the Scheme to be used for financing existing businesses, as well as start-ups. Our Software Solutions Division saw a decline in revenue but an increase in gross margin as we reduced our dependency on the effects of third party software. We gained 22 new customers through an impressive range of software solutions already in place. We continued to invest in product development during the year but, due to a delay in product launch, losses from the division increased. In October, we appointed a new Development Director and reorganised our development facility. We also outsourced the bespoke customer developments for our existing systems, for which an encouraging backlog of requirements exists. As a result, we now expect to release our Colombus.next budgeting and assortment planning modules in June. Our Stock and Inventory Services Division contributed a solid performance, even after taking account of the costs of expansion in Europe. Through Orridge, we have established a further European stocktaking base in the Netherlands. Venners is the only stocktaking business to gain British Institute of Innkeeping accreditation, and is successfully developing new areas of business including specialist food safety consultancy and operational audits. Together, these companies offer a largely contra-cyclical, recurring revenue stream. We continued to make good progress in 2007 and whilst being prepared for a more demanding trading environment in 2008, we have seen encouraging new business opportunities continuing to materialise in both the UK and Europe. Historically, we have experienced the opportunities to build our market share in a more difficult trading environment. We have entered the New Year with substantial cash resources. We believe we are well placed to take advantage of opportunities as they occur. Philip Gwyn 27th March 2008 Chief Executive's Statement RIGOROUS APPLICATION OF A SIMPLE PHILOSOPHY As an international professional services organisation, Christie Group is founded on knowledge. We continue to prosper through rigorous application of a simple business philosophy. We invest in, and continue to expand, those parts of the business that are successful. It is a tried and tested strategy and it serves us well. We have built up unrivalled expertise in our chosen markets - the leisure, care and retail sectors. We continue to grow profits organically. This was achieved on a stable turnover of £87.4m compared with £87.1m in 2006. Our £7.0m profit for 2007 represents 15% progress on 2006's excellent performance. Professional Business Services Revenue: £51.4m (2006: £49.7m) Operating profit: £9.9m (2006: £8.4m) Software Solutions Revenue: £12.6m (2006: £15.1m) Operating loss: £3.1m (2006: £2.4m) Stock and Inventory Services Revenue: £23.3m (2006: £22.3m) Operating profit: £0.5m (2006: £0.6m) We have adopted a measured approach over the past few years, focusing on building a logical portfolio of complementary business activities through steady, organic growth. One of our greatest strengths is that we understand our customers, their business operations and their markets in depth. We are market leaders in our chosen sectors. Christie + Co is Europe's number one specialist business agency and valuation business; Pinders is the UK's largest business appraiser; Venners is the largest stocktaker in the UK hospitality sector; Orridge provides the largest retail stocktaking service in the UK and VCSTIMELESS is the leading retail software provider in the European fashion industry. We seek to build on these strengths - by becoming more deeply embedded in our specialist sectors and by understanding our customers more closely. We believe the underlying strength of our business stands us in good stead when markets are changing. Shifting market dynamics may also create opportunities. As a debt-free (net) enterprise we are not currently constrained by increased cost of capital. Historically, the business has achieved some of its biggest gains in market share during challenging trading conditions. One of our major strengths is that we enjoy profit contributions from most of our businesses. So, although VCSTIMELESS experienced a decline in revenues in 2007 as it focused on bringing its .NEXT products to market, this was offset by strong results elsewhere. We aim to build on the strengths of the separate businesses while leveraging our ability to act as a cohesive international group. Our growth in Europe is proceeding and we are broadening our geographic reach in each of our three divisions. Christie + Co opened a Hamburg office - its fifth in Germany, we have established a stocktaking base in the Netherlands and our software solutions now operate from London to Milan and New York to Tokyo. The rapid growth of the Christie + Co consultancy business is particularly pleasing. In just a few years we have capitalised on our industry knowledge to become one of the biggest hotel and care consultancies in Europe. Our financial businesses are addressing their niche markets in a far more focused manner. We now have three distinct financial services businesses - Christie Finance, Christie Insurance and Christie Corporate Finance. At the year-end we welcomed two new MDs to lead these businesses. Sue Dougal became MD of Christie Finance and Christie Insurance, and building closer synergies with Christie + Co will be a strategic priority for these two businesses. Christie Corporate Finance was set up in 2007 to serve customers with more substantial and complex requirements. Mark Stevens, who joined us in 2007, became its MD at the end of the year. We are also extending our capabilities through an active programme of systems development. For example, we are investing in a replacement for the Christie + Co internal computer system and evolving the Venners stocktaking system. In 2008 we will maintain our focus on sustainability through a combination of geographic expansion, increased market penetration in our core sectors, development of our services and increased synergies between our constituent businesses. I am confident that we are taking the right steps to enable the future growth of our business. We provide demand services to the growing leisure, care and retail sectors, the medium and long-term prospects for which are good. Christie Group people have been crucial in our success so far. Attracting and retaining high quality personnel will remain a key priority. I wish to thank all our people for their great collective effort in 2007. Their skill, dedication and drive applied to the markets we serve give me confidence for the future of our business. Divisional Review 1 Professional business services Christie + Co Christie + Co is the largest business broker in Europe. We provide professional brokerage and advisory services throughout the UK and across Europe. We offer specialist expertise and business intelligence in our chosen markets - hotels, pubs, restaurants, leisure, care and retail. With over 350 specialists, we operate in 28 offices in the UK, France, Germany and Spain. By the end of 2007 European property values appeared to have peaked. Investors had become more cautious and discerning and individual deals were taking longer to finalise but there was still support for the right commercial transactions. Our agency business did well throughout 2007. The hotel sector enjoyed strong trading fundamentals, with most major European markets still in a growth phase. High quality hotel assets remained much sought-after and we continued to experience good volume. We acted for Four Pillars Hotel Group during its acquisition by RREEF Real Estate for a reported £120 million and also brokered the £32.5 million sale of the iconic St David's Hotel and Spa in Cardiff Bay, for Rocco Forte Hotels. Other highlights included: • Acquisition of eight Thistle hotels for Menzies Hotels for £54 million. • Acting for the investors in the acquisition of the 19-hotel Bonsai portfolio in France. • Acting for an investor in the acquisition of ten Jardins de Paris hotels across the capital. In the public house sector the continuing shortage of freehold stock has increased activity in the leasehold market. This is creating new business opportunities for Christie + Co. During 2007, for instance, we completed the letting of 637 former Spirit pubs from Punch Taverns' managed estate and secured premiums for the majority of these leases. Following this success we handled letting campaigns for other leading pub companies, including Greene King, Marston's Pub Company, Charles Wells, Hall & Woodhouse and Mitchells & Butlers. The restaurant sector saw steady activity throughout the year and we took on several major appointments from, amongst others, Tragus, for its £14.15 million acquisition of the 16-strong Ma Potter's chain and The Shire Group in its acquisition of Smollensky's. The retail sector performed strongly during 2007 and we were involved in several major deals including advising on disposals for Anglian Convenience Stores, Rusts and Martin McColl. We saw considerable activity in the forecourt sector, with acquisitive operators - including convenience, fast food and off-licence brands - targeting sites across the UK. Our Valuation Services teams experienced increased volume in more challenging market conditions. With the credit crunch starting to bite, banks come to Christie + Co for independent valuations in order to help them identify which deals to back. Our sector specialists are also helping to value bid targets. We completed a major advisory assignment for Terra Firma, which was assessing whether to bid for Boots. This involved our retail valuation specialists visiting close to 1,500 of Boots' UK and Irish stores in just four days. Our consultancy business made excellent progress during the year. Examples of the wide range of major assignments across Europe included feasibility studies for hotel chains in Germany and Austria. The rapidly developing care sector has been another major success for us in 2007. In the UK, continuing consolidation plays to our strengths. In Germany, several investor groups appointed us to help them build portfolios. We continued our European expansion by opening a new office in Hamburg, our eleventh international office and our fifth German location; thereby extending our Continental presence and enhancing our status in international markets. In 2008 we will focus on developing our core retail activities together with our European operations. We will also look to enhance the breadth and the quality of our activities in our corporate markets. Christie Finance and Christie Insurance The rebranding of our finance businesses into three separate entities (Christie Finance, Christie Insurance and Christie Corporate Finance) greatly assisted in the market perception of what we offer and contributed to a strong trading year. On a like-for-like basis, Christie Finance and Christie Insurance increased fee income by 5.5% compared to 2006. Christie Finance is building a growing national reputation for knowledge and expertise when acting as a specialist commercial mortgage broker. We have integrated our mortgage brokers into Christie + Co's UK regional network and there are now 25 brokers located in offices around the country. They operate entirely independently but can draw on Christie + Co's specialist market knowledge to meet individual client needs. Christie Insurance has aligned itself with Christie + Co and specialises in the hospitality, retail, leisure and care sectors. It provides commercial and corporate insurance and life assurance to allow business owners and corporate clients to protect their assets, income and debts. It has a particular strength in the care sector and has adapted to the needs of individual clients as they have grown from operating one or two homes to over 100. The successful rebranding is already reaping significant rewards. We will build on this while maximising the benefit we gain from our close association with our sister companies. Further developing our knowledge and expertise, increasing our efficiency and growing the number of mortgage brokers will be key in 2008. Central for both companies will be a client-led approach, delivering impartial and expert services. Christie Corporate Finance Christie Corporate Finance was established to work with clients looking for complex, high value finance and refinancing packages. Our experienced corporate financiers offer a full service, specialising in acquisitions, disposals, management buy-outs, raising development capital for growth, deal structuring and asset-specific funding. We take a strategic approach to bringing lenders and equity providers on board. In particular, we act as lead adviser for the project management of a transaction and the co-ordination of the other professional advisers involved. In current market conditions, we offer borrowers a value-added service giving them access to alternative sources of funding at a time when their previous banks may not be in a position to absorb any further exposure. Now, more than ever, our up-to-date knowledge about which institutions will invest and on what terms, is keenly sought by both purchasers and those wishing to re-finance. An example of where our sector expertise worked to the advantage of our clients is when the owners of Balbirnie House Hotel sought finance for an ambitious health spa. Our chief aim in 2008 is to drive up our volume of transactions in order to build a substantial business. To this end, we are already recruiting and putting our marketing plan into effect. Pinders Pinders combines business analysis and surveying skills to arrive at an accurate assessment of the trading potential and value of businesses. We specialise in the healthcare, retail and licensed/leisure sectors, acting for potential lenders, commercial brokers and buyers in M&A and refinancing situations whenever an accurate business appraisal or valuation is required. Much of our work goes on behind the scenes and remains confidential. Our highly qualified surveyors and consultants have access to a UK database containing detailed analysis in respect of over 180,000 businesses inspected by us. This resource is invaluable in assisting them to reach a measured judgement on the earnings potential and value of all kinds of businesses. The retail sector led an all-round improved performance from Pinders in 2007. We issued 31% more reports than the previous year generating a 33% increase in retail-related income. Overall, turnover was up by 16% with notable performances in the care sector (where income increased by 36%) while leisure declined. There was also strong growth in our consultancy business, which was nearly twice as active as in the previous year. In a significant move, we dispensed with our standard fee scale during the early part of the year in favour of a new bespoke fee structure. This more accurately reflects our clients' particular requirements as they become increasingly wide-ranging. Over the course of the year our average fee increased by 9%. We are receiving more appraisal instructions in the 'white coat' sector with vets, dentists, pharmacists and GPs now regularly enlisting our expertise. Rydon Group asked us to provide consultancy and valuation advice relating to the construction of a new doctors' surgery to form part of a landmark scheme in Clapham, when they were seeking preferred bidder status with the local authority. We continue to raise our profile in the charitable sector. When the Shaftesbury Society and the trustees of John Grooms were mooting a merger they asked us to produce Charities Act-compliant reports and valuation advice. This required the inspection of specialist care homes, respite care centres and specially adapted self-catering units. We work closely with new lenders in our specialist sectors and we were appointed to several new lender panels during the year. This was against the background of a noticeable tightening in the number of available panel appointments as banks work to ensure supplier quality. Looking ahead to 2008, we plan to increase the size of our appraisal business, recruit additional qualified staff, continue to develop our own graduate training programme and further refine our appraisal report. 2 Software solutions VCSTIMELESS, now the key brand for our software solutions division, was originally set up to provide Electronic Point of Sale (EPoS) systems, which linked with order tracking and stock management systems. Originating in the hospitality sector, the company swiftly expanded into the leisure sector, particularly multiplex cinemas. Following a targeted acquisition in 2000 we moved into the rapidly growing non-food retail sector. With numerous international customers, our solutions span the globe and encompass merchandise management, EPoS, CRM, supply chain optimisation and business intelligence applications. We continued to invest in product development during 2007. We invested substantial funds to revamp our core applications and reposition them on modern technological platforms. Although revenue fell during the year to £12.6m (2006: £15.1m) we increased gross margins. This was achieved by controlling costs and concentrating on selling our own software rather than re-selling third party software. A much improved performance in Spain was a highlight of 2007. We signed seven new customers including Coronel Tapiocca, with 150 stores in Spain, Italy and Portugal, and Salsa, an international fashion retailer with over 100 outlets across Europe. We exhibited at Expo retail in Spain in September where we received a client testimony from Sans Branded Apparel, the Spanish lingerie retailer. Our UK operation - now restructured with strengthened sales and marketing - scored important wins. Luxury casualwear retailer Gant UK selected our flagship Enterprise suite for its eight UK stores. We were also selected by both John Richard, a fashion jewellery chain with over 100 concessions in UK department stores and Historic Royal Palaces. The UK ended 2007 with a healthy pipeline and is well placed for 2008 and beyond. In the French market, Ripcurl Europe, the world's second largest surfing brand and Lewinger, a ladies' fashion retailer with 65 stores nationwide, implemented the Colombus Enterprise suite to optimise merchandise management across their stores. Both customers identified the multi-channel features of Colombus and VCSTIMELESS's .NET-based architecture strategy as key factors behind their decisions. Also, the French fashion retailer, Veti, implemented our Colombus merchandise management solution at its central buying office. The French domestic market was challenging during 2007. All of our domestic revenues came from existing customers. It was a different story elsewhere and we gained 22 new customers overall. 82% of the division's total business is now generated outside the UK. Development delays in Colombus.next, our new generation supply chain optimisation solution, meant that this product made no revenue contribution during 2007 although the high level of interest for the product bodes well. The first customer installation is planned for the first half of 2008. We completed our first BeStore implementation during 2007. This advanced EPoS solution benefits from our worldwide partnership with Wincor Nixdorf and Microsoft. We successfully rolled out BeStore into the tier-two European retailer Comptoir des Cotonniers (part of the Japanese retail group Fast Retailing). The solution was implemented simultaneously across more than 300 stores in 10 European countries. The entire project was completed in just eight weeks. It confirms that our strategy of targeting large international retailers with the latest applications based on .NET protocols and service-oriented architecture is the right one. Our first Columbus Ret@il Pocket roll-out to French fashion retailer Rodier was also a highlight in 2007. The solution trialled successfully in the 300-store fashion chain Caroll and was fully implemented by the end of January 2008. Six retailers implemented our new Colombus Business Intelligence module in 2007. Going forward, management has identified three key success factors for the business: Globalisation: we continue to invest in Asia and the US. With a Tokyo operation opening in 2008 we will be the only worldwide retail software vendor able to sell, implement and support a merchandise and store management solution in the US, Europe and Asia; a genuine differentiator for our international customers. Innovation: our customers deserve and expect best-in-class, future-proofed solutions. We continue to invest in product development and showcase the latest technologies in our FutureStore concept. Two years ago we presented a prototype of our Ret@il Pocket mobile point of sale solution. This has now been rolled out by two major customers. We are currently showcasing RFID in-store applications. These will enter the mainstream in 2008. Industrialisation: we need to reduce time-to-market still further in order to compete effectively. We invested heavily to industrialise our development process and raise productivity. The first fruits from this strategy will appear in 2008 when a number of new .NEXT modules will be launched at our June user conference. 3 Stock and inventory services Venners Venners is the longest established and the largest stock audit company servicing the hospitality sector. Turnover was slightly down in 2007 (1.2%). However, this demonstrates our underlying strength following the loss of our biggest customer, London & Edinburgh Inns (which accounted for 11% of turnover) when it went into administration in 2006. No non-contracted client now accounts for more than 5% of our turnover. Experience counts in our business and we have plenty of it. Fourteen years is the average length of service for our stocktakers and we are committed to high quality training. In 2007, we became the only stocktaking business to gain British Institute of Innkeeping accreditation for our basic stock auditor training programme. Historically, stocktaking has formed the bulk of what we do. Over 90% of our employees, 170 people, are skilled stocktakers. They conducted over 25,000 individual audits during the year. We also recognise that our customers' needs are changing and we are extending our services to help meet new business challenges. In the pub sector many operators now face increased regulation having developed food offerings following the smoking ban. This has provided new challenges, not least with food safety where there can be no room for compromise. The risks to reputation and from litigation are just too severe. To meet this growing requirement, we integrated a specialist food safety consultancy into our portfolio during 2007. Early signs of demand for this service are encouraging. Our operational compliance audit division, which assesses parts of a business against agreed procedures, is also growing fast. New clients include the international event caterer Elior, for which we conduct audits at locations ranging from a Tesco's cafe to Ibrox Stadium. At the same time, we are extending our relationships with existing clients. For example, Marston's, a long-standing stocktaking customer, appointed us to conduct compliance audits in its estate of pubs. Much of our success is due to our highly skilled and experienced staff but we also embrace technology. Our VenPowa product gives customers the ability to assess their own stock levels and is cementing our relationships with those who need interim as well as regular audits. Also, our inventory team uses digital imagery and voice recording to produce a DVD product. This allows us to overcome language barriers and service the European markets where we undertook projects in eight countries during 2007. We believe we are the best at what we do and, following a strategic review, we rebranded the business to emphasise 'excellence in audit'. In 2008, we will continue to focus on customer needs and work hard to communicate the quality and value of our service through a cohesive marketing programme. Orridge European retailers are increasingly outsourcing stocktaking. It makes sense. To manage its supply chain effectively, improve customer service and gain bottom line benefits, a company first needs an accurate picture of its stock levels. As a leading stocktaking service provider, that's good news for Orridge. We have aligned our services to the needs of modern international retailers. We currently undertake assignments in 14 countries. We track stock across the supply chain from on-shelf availability inspections to continuous inventory monitoring. We bring these services together in our supply chain optimisation programme. For example, clothing and accessories specialist Fat Face is one of a number of retailers now using the service to coordinate its international sales and distribution. We bring experience, independence and authority to every project we take on. Over 1,000 people across the business support a growing list of clients. We work with numerous blue chip retailers - internationally renowned names like Mexx, WE and Kruidvat. Retailers are highly price conscious and the UK retail market in particular is extremely competitive. Given that context, we performed well in 2007. Turnover was up both in the UK and on the Continent. During the year, we maintained our focus on strengthening our relationships with existing customers. We are well established in the UK where we work with some of the largest UK supermarket chains, including Morrisons, Somerfield and the Co-op. The supermarket sector remains a strategic priority. We continued to diversify our client base to reduce reliance on individual contracts. We won major new clients in 2007, such as Kookai, Savers, Gucci, Calvin Klein and TM Lewin. We increased our use of long-term contracts in line with our strategic objectives. These are attractive for clients. They represent good value, are simpler to manage and allow us to work together as partners with our clients to improve stock handling and reduce stock holdings. They also help us to develop our business as cashflow becomes far more predictable, thus providing the company with a sound financial base. In 2007 the vast majority of our work was contract backed and we expect that proportion to increase further in 2008. Orridge has always embraced technology. We continue to invest in the latest handheld technology as the retail market develops. Counters are equipped with wireless LAN scanners and laptops with broadband connectivity communicate their results in real time. Our technology-led approach helped us win a major contract for stocktaking services in Belgium and the Netherlands for Kruidvat, Holland's leading pharmacy retailer. This contract extended our relationship with the AS Watson Group, building on existing relationships with its Superdrug and Savers subsidiaries. Our growing presence in the pharmacy sector is returning the company to its roots. Orridge has had a specialist pharmacy team ever since Benjamin Orridge opened for business as a chemists' valuer and transfer agent in 1846. We have some of the most highly trained specialist stocktakers in the industry, and we will continue to apply our specialist skills to increasing numbers of pharmacies, doctors' surgeries, hospitals and medical service providers. Our specialist staff add value in this mission-critical sector. A good level of our revenue currently derives from mainland Europe. We are targeting further European expansion with a European team to drive the process. We restructured our Belgian operation in 2007, opened a base in the Netherlands during the year and have further expansion planned. Consolidated Income Statement - Audited For the year ended 31 December 2007 Note 2007 2006 £'000 £'000 Revenue 3 87,372 87,096 Employee benefit expenses (52,592) (50,949) 34,780 36,147 Depreciation, amortisation and impairment* 3 & 8 (2,573) (1,298) Other operating expenses (25,206) (28,770) Operating profit 3 7,001 6,079 Finance costs 4 (149) (274) Finance income 4 363 347 Total finance credit 4 214 73 Profit before tax 7,215 6,152 Taxation 5 (2,567) (2,019) Profit for the year after tax 4,648 4,133 Attributable to: Equity Shareholders of the parent 4,648 4,131 Minority interest - 2 4,648 4,133 Earnings per share -Basic 7 19.12p 16.90p -Fully diluted 7 18.65p 16.41p All the amounts derive from continuing activities. *This includes a £1,329,000 impairment recognised against the software development asset. Consolidated Statement of Changes in Shareholders' Equity - Audited As at 31 December 2007 Attributable to the Equity Holders of the Company Minority Total Interest equity Share Fair value Cumulative Retained capital and other translation earnings reserves reserve £'000 £'000 £'000 £'000 £'000 £'000 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) - - (153) 4,131 2 3,980 for 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 - 106 - - - 106 provided Purchase of minority interest - - - (15) (21) (36) Dividends paid - - - (917) - (917) Balance at 1 January 2007 504 4,410 (382) 8,001 - 12,533 Exchange difference on repayment of - - (27) 27 - - foreign exchange loan Currency translation adjustments - - 546 - - 546 Net income recognised directly in - - 519 27 - 546 equity Profit for the year - - - 4,648 - 4,648 Total recognised income for the year - - 519 4,675 - 5,194 Issue of share capital 1 33 - - - 34 Movement in respect of employee share - (858) - (30) - (888) scheme Employee share option scheme: - value of services - 121 - - - 121 provided Dividends paid - - - (1,030) - (1,030) Balance at 31 December 2007 505 3,706 137 11,616 - 15,964 Consolidated Balance Sheet - Audited As at 31 December 2007 Note 2007 2006 £'000 £'000 Assets Non-current assets Intangible assets - Goodwill 4,096 4,096 Intangible assets - Other 8 4,555 3,166 Property, plant and equipment 1,796 2,214 Deferred tax assets 2,664 2,176 Available-for-sale financial assets 300 300 Other receivables 1,088 - 14,499 11,952 Current assets Inventories 404 332 Trade and other receivables 13,248 14,279 Current tax assets - 282 Cash and cash equivalents 10,593 11,414 24,245 26,307 Total assets 38,744 38,259 Equity Capital and reserves attributable to the Company's equity holders Share capital 505 504 Fair value and other reserves 3,706 4,410 Cumulative translation reserve 137 (382) Retained earnings 11,616 8,001 Total equity 15,964 12,533 Liabilities Non-current liabilities Borrowings 1,275 1,735 Retirement benefit obligations 4,343 6,300 Provisions for other liabilities and charges 432 145 6,050 8,180 Current liabilities Trade and other payables 15,545 16,800 Borrowings 468 737 Current tax liabilities 700 - Provisions for other liabilities and charges 17 9 16,730 17,546 Total liabilities 22,780 25,726 Total equity and liabilities 38,744 38,259 These Consolidated financial statements have been approved for issue by the Board of Directors on 27 March 2008. Consolidated Cash Flow Statement - Audited For the year ended 31 December 2007 2007 2006 Note £'000 £'000 Cash flow from operating activities Cash generated from operations 9 7,952 10,631 Interest paid (149) (274) Tax paid (2,036) (3,233) Net cash generated from operating activities 5,767 7,124 Cash flow from investing activities Purchase of minority interest in subsidiary - (36) Purchase of property, plant and equipment (PPE) (786) (1,407) Proceeds from sale of PPE 41 156 Intangible asset expenditure (2,485) (1,503) Proceeds from disposal of intangible assets - 1,193 Investment in an available-for-sale asset (9) (53) Interest received 363 347 Net cash used in investing activities (2,876) (1,303) Cash flow from financing activities Proceeds from issue of share capital 34 109 Payments to ESOP (1,976) (523) Repayment of borrowings (477) (82) Payments of finance lease liabilities (9) (59) Dividends paid (1,030) (917) Net cash used in financing activities (3,458) (1,472) Net (decrease)/increase in net cash (including bank overdrafts) (567) 4,349 Cash and cash equivalents at beginning of year 11,160 6,811 Cash and cash equivalents at end of year 10,593 11,160 Notes to the Consolidated Financial Statements - Audited 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 and IFRIC interpretations issued and effective or issued and early adopted as at the time of preparing these statements (March 2008). 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 2. Interpretations and amendments to published standards effective in 2007 The following amendments and interpretations to standards are mandatory for the Group's accounting periods beginning on or after 1 January 2007. - IFRS 7, Financial instruments: Disclosures, and the complementary Amendment to IAS 1, Presentation of Financial Statements - Capital Disclosures. IFRS 7 introduces new disclosures relating to financial instruments, which are reflected in the financial statements as appropriate. This standard does not have any impact on the classification and valuation of the Group's financial instruments. - IFRIC 8, Scope of IFRS 2. 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 Company already applies an accounting policy which complies with the requirements of IFRIC 8. - IFRIC 10, Interim Financial Reporting and Impairment. 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. This interpretation does not have any impact on the Group's financial statements. It is anticipated that mandatory new standards or interpretations, effective for accounting periods beginning on or after 1 January 2007, 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 2008 or later periods but which the Group has not early adopted, are as follows: - 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. The Group will apply IFRIC 11 from 1 January 2008, but it is not expected to have any impact on the Group's financial statements. - 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. - IFRIC 14, 'IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction' (effective from 1 January 2008). IFRIC 14 provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. The Group will apply IFRIC 14 from 1 January 2008, but it is not expected to have any impact on the Group or Company's financial statements. It is anticipated that new standards or interpretations, currently in issue at the time of preparing these financial statements (March 2008), not covered specifically above will have no impact on the Group's financial statements. 2. 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. 2.1 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. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates. (b) Retirement benefit obligations The assumptions used to measure the expense and liabilities related to the Group's two defined benefit pension plans are reviewed annually by professionally qualified, independent actuaries, trustees and management as appropriate. The measurement of the expense for a period requires judgement with respect to the following matters, among others: - the probable long-term rate of increase in pensionable pay; - the discount rate; - the expected return on plan assets; and - the estimated life expectancy of participating members. The assumptions used by the Group, may differ materially from actual results, and these differences may result in a significant impact on the amount of pension expense recorded in future periods. In accordance with IAS 19, the Group amortises actuarial gains and losses outside the 10% corridor, over the average future service lives of employees. Under this method, major changes in assumptions, and variances between assumptions and actual results, may affect retained earnings over several future periods rather than one period, while more minor variances and assumption changes may be offset by other changes and have no direct effect on retained earnings. (c) Software development In accordance with IAS 38 'Intangible assets' software development expenditure is recognised as an asset to the extent that a market exists for the products and that the products will generate future economic benefits. Future cash flows expected to be generated by the completed products are projected taking into account market conditions over a 5 year period. The present value of these cash flows determined using an appropriate discount rate, is compared to the current carrying value and, if lower the assets are impaired to the present value. These calculations require the use of estimates. 3. 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 2007 are as follows: Stock and Professional Business Software Inventory Services Solutions Services Other Group £'000 £'000 £'000 £'000 £'000 Continuing Operations Total gross segment sales 51,512 12,640 23,320 2,913 90,385 Inter-segment sales (100) - - (2,913) (3,013) Revenue 51,412 12,640 23,320 - 87,372 Operating profit/(loss) 9,921 (3,107) 544 (357) 7,001 Net finance credit 214 Profit before tax 7,215 Taxation (2,567) Profit for the year after tax 4,648 The segment results for the year ended 31 December 2006 are as follows: Stock and Professional Business Software Inventory Services Solutions Services Other Group £'000 £'000 £'000 £'000 £'000 Continuing Operations Total gross segment sales 49,739 15,053 22,337 2,777 89,906 Inter-segment sales (33) - - (2,777) (2,810) Revenue 49,706 15,053 22,337 - 87,096 Operating profit/(loss) 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 Other segment items included in the income statements for the years ended 31 December 2007 and 2006 are as follows: Stock and Professional Software Inventory Business Solutions Services Other Group Services £'000 £'000 £'000 £'000 £'000 31 December 2007 Depreciation, amortisation and impairment 402 2,038 100 33 2,573 Impairment of trade receivables 469 (121) 14 - 362 31 December 2006 Depreciation and amortisation 557 333 379 29 1,298 Impairment of trade receivables 701 382 55 - 1,138 The segment assets and liabilities at 31 December 2007 and capital expenditure for the year then ended are as follows: Professional Software Stock and Business Services Solutions Inventory Services Other Group £'000 £'000 £'000 £'000 £'000 Assets 10,614 11,618 6,040 7,808 36,080 Deferred tax assets 2,664 38,744 Liabilities 9,669 4,401 3,526 2,749 20,345 Current tax liabilities 700 Borrowings (excluding finance leases) 1,735 22,780 Capital expenditure 277 2,676 343 2 3,298 The segment assets and liabilities at 31 December 2006 and capital expenditure for the year are as follows; Professional Software Stock and Business Services Solutions Inventory Services Other Group £'000 £'000 £'000 £'000 £'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 Segment assets consist primarily of property, plant and equipment, intangible assets, inventories, receivables and operating cash. They exclude 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 sales are mainly in Europe. Sales are allocated based on the country in which the customer is located. 2007 2006 £'000 £'000 Revenue Europe 87,098 86,435 Rest of the World 274 661 87,372 87,096 2007 2006 £'000 £'000 Total segment assets Europe 35,989 35,666 Rest of the World 91 135 36,080 35,801 Capital expenditure is allocated based on where the assets are located. 2007 2006 £'000 £'000 Capital expenditure Europe 3,297 3,058 Rest of World 1 - 3,298 3,058 2007 2006 £'000 £'000 Analysis of revenue by category Sales of goods 4,431 6,709 Revenue from services 82,941 80,387 87,372 87,096 4. FINANCE (CREDIT)/COSTS 2007 2006 £'000 £'000 Interest payable on bank loans and overdrafts 146 267 Other interest payable 2 5 Interest payable on finance leases 1 2 Total finance costs 149 274 Bank interest receivable (352) (335) Other interest receivable (11) (12) Total finance income (363) (347) Net finance credit (214) (73) 5. TAXATION 2007 2006 £'000 £'000 Current tax UK Corporation tax at 30% (2006: 30%) 3,058 2,406 Foreign tax 29 73 Adjustment in respect of prior periods (15) (267) Total current tax 3,072 2,212 Deferred tax Origination and reversal of timing differences (528) (193) Impact of change in UK tax rate 145 - Adjustment in respect of prior periods (122) - Total deferred tax (505) (193) Tax on profit on ordinary activities 2,567 2,019 The current tax for the year is higher (2006: higher) than the standard rate of corporation tax in the UK (30%). The differences are explained below: Tax on profit on ordinary activities 2007 2006 £'000 £'000 Profit on ordinary activities before tax 7,215 6,152 Profit on ordinary activities at standard rate of UK corporation tax of 30% (2006: 30%) 2,165 1,846 Effects of: - tax losses not yet utilised 672 716 - expenses not deductible for tax purposes 228 478 - taxable deductions (379) (638) - utilisation of tax losses and other deductions (18) (5) - adjustment to tax charge in respect of previous periods (15) (267) - fixed asset timing differences (14) 62 - other timing differences 433 26 - rate differential on certain tax losses - (6) Total current tax 3,072 2,212 6. DIVIDENDS 2007 2006 Group and Company £'000 £'000 Interim 2006 interim, paid October 2006 (1.25p) - 306 2007 interim, paid October 2007 (1.50p) 362 - Final 2005 final, paid June 2006 (2.50p) - 611 2006 final, paid June 2007 (2.75p) 668 - 1,030 917 A dividend in respect of the year ended 31 December 2007 of 2.75p per share, amounting to a total dividend of £672,000, is to be proposed at the Annual General Meeting on 23 June 2008. These financial statements do not reflect this proposed dividend. 7. 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. 2007 2006 Profit attributable to equity holders of the Company (£'000) 4,648 4,131 Weighted average number of ordinary shares in issue (thousands) 24,310 24,448 Basic earnings per share (pence) 19.12 16.90 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. 2007 2006 Profit attributable to equity holders of the Company (£'000) 4,648 4,131 Weighted average number of ordinary shares in issue (thousands) 24,310 24,448 Adjustment for share options (thousands) 610 728 Weighted average number of ordinary shares for diluted earnings per share (thousands) 24,920 25,176 Diluted earnings per share (pence) 18.65 16.41 8. INTANGIBLE ASSETS - OTHER Group Software Software Total £'000 development £'000 £'000 Cost At 1 January 2007 267 3,038 3,305 Exchange adjustments 19 268 287 Additions 97 2,404 2,501 Disposals (49) - (49) At 31 December 2007 334 5,710 6,044 Accumulated amortisation and impairment At 1 January 2007 139 - 139 Exchange adjustments 43 - 43 Charge for the year 27 - 27 Impairment loss recognised - 1,329 1,329 Disposals (49) - (49) At 31 December 2007 160 1,329 1,489 Net book amount at 31 December 2007 174 4,381 4,555 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 £1,329,000 impairment loss recognised against the software development asset reflects a delay in the likely receipt of future economic benefits that the development can generate identified through a regular review of the software development. The recoverable amount of the software development asset was determined based on value-in-use calculations. These calculations use cash flow projections based on current business plans over the next 5 years. The key assumptions for the value-in-use calculations are those regarding revenue growth rates and discount rates. Management determined budgeted revenue growth based on past performance and its expectations for the market development. The discount rate of 15% was determined using post-tax rates that reflect current market assessments of the time value of money and the risks specific to the Software Solutions division. Group Software Software Total £'000 development £'000 £'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 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. 9. NOTES TO THE CASH FLOW STATEMENT Cash generated from operations 2007 Group £'000 2006 £'000 Profit for the year after taxation 4,648 4,133 Adjustments for: - Taxation 2,567 2,019 - Finance credit (214) (73) - Depreciation 1,217 1,249 - Amortisation and impairment of intangible assets 1,356 49 - Loss/(profit) on sale of property, plant and equipment 10 (47) - Loss on sale of intangible assets - 19 - Foreign currency translation 212 (105) - Increase in provision for other liabilities and charges 295 154 - Movement in available-for-sale financial asset 9 53 - Movement in share option charge 121 106 - Movement in retirement benefit obligation (1,957) (490) Changes in working capital (excluding the effects of exchange differences on consolidation): - Increase in inventories (72) (22) - Decrease/(increase) in trade and other receivables 1,031 (318) - (Decrease)/increase in trade and other payables (1,271) 3,904 Cash generated from operations 7,952 10,631 10. RECONCILIATION OF MOVEMENT IN NET FUNDS As at As at 1 January 31 December 2007 Cash flow Non-cash movements 2007 £'000 £'000 £'000 £'000 Cash in hand and at bank 11,414 (821) - 10,593 Overdraft (45) 45 - - Invoice discounting (209) 209 - - Debt due after one year (1,735) - 460 (1,275) Debt due within one year (477) 477 (460) (460) Finance leases due within one year (6) 9 (11) (8) 8,942 (81) (11) 8,850 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 2007, 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 23 June 2008 at 39 Victoria Street, London, SW1H 0EU. Dividends, the ex-dividend date is 28 May 2008, the record date 30 May 2008 and the date payable is 27 June 2008. This information is provided by RNS The company news service from the London Stock Exchange

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