29 Jan 2009 07:00
RNS Number : 4240M
Parity Group PLC
29 January 2009
29 January 2009
Parity Group plc
("Parity" or the "Company")
Disposal of Parity Training
and
Introduction of a Senior Executive Option Plan
The Board of Parity are pleased to announce that it has agreed the disposal of Parity Training, its training division, to ECS Limited for a total cash consideration of up to £3.0 million. In addition, the Board announces the proposed introduction of a senior executive option plan.
Highlights:
Proposed disposal of Parity Training for a total cash consideration of up to £3.0 million.
Following the disposal, Parity will be in a stronger financial position and will be focused on growing its two main divisions, Resources and Solutions.
The disposal is conditional on Parity Shareholder approval.
Adoption of a new Senior Executive Option Plan to retain and motivate the current senior management, conditional on Parity Shareholder approval.
Alwyn Welch, Chief Executive of Parity, said:
"Having been frustrated in our proposed disposal of Parity Training to Xpertise in August 2008, we are pleased to announce that we have now reached agreement to sell the business to ECS.
"The disposal means that Parity will be in a stronger position, both financially and strategically, to focus on and grow its Resources and Solutions businesses, whilst Parity Training will be better able to continue its development as part of a company which focuses solely on training."
Enquiries:
| Parity Group plc Alwyn Welch, Chief Executive Officer Ian Ketchin, Finance Director | 0845 873 6942 |
| | |
| Arbuthnot Securities Limited Alastair Moreton/Richard Tulloch | 020 7012 2000 |
| | |
| The Hogarth Partnership John Olsen/Ian Payne | 020 7357 9477 |
This announcement is for information purposes only and does not constitute an offer or invitation to acquire or dispose of any securities or investment advice in any jurisdiction.
This announcement contains a number of forward looking statements relating to the Parity Group with respect to, amongst others, the following: financial conditions; results of operations; economic conditions in which the Parity Group operates; the business of the Parity Group; future benefits of the Disposal; and management plans and objectives. Parity considers any statements that are not historical facts as "forward looking statements". They relate to events and trends that are subject to risks, uncertainties and assumptions that could cause the actual results and financial position of the Parity Group to differ materially from the information presented in the relevant forward looking statement. When used in this announcement the words "estimate", "project", "intend", "aim", "anticipate", "believe", "expect", "should", and similar expressions, as they relate to the Parity Group or the management of it, are intended to identify such forward looking statements. Readers are cautioned not to place undue reliance on these forward looking statements which speak only as at the date of this announcement. Neither Parity nor any member of the Parity Group undertakes any obligation to update publicly or revise any of the forward looking statements, whether as a result of new information, future events or otherwise, save in respect of any requirement under applicable laws, the Listing Rules, the Disclosure and Transparency Rules and other regulations.
Arbuthnot Securities Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting for Parity Group plc and for no one else in connection with the contents of this announcement and will not be responsible to anyone other than Parity Group plc for providing the protections afforded to customers of Arbuthnot Securities Limited in relation to the contents of this announcement or any other matters referred to in this announcement.
Proposed Disposal of Parity Training to ECS Limited
and
Proposed Introduction of a Senior Executive Option Plan
1. Introduction
The Board of Parity previously announced on 23 July 2008 that the Company had entered into a conditional agreement for the disposal of Parity Training, being the Training Business of the Parity Group, to Xpertise, for a total cash consideration of £4.775 million. This disposal to Xpertise was approved by the Parity Shareholders on 13 August 2008. However, on 22 August 2008, QA-IQ announced an unsolicited offer to acquire the entire issued share capital of Xpertise which offer was conditional on Xpertise’s acquisition of Parity Training not proceeding. At Xpertise’s subsequent general meeting, on 26 August 2008, the acquisition of Parity Training was not approved by its shareholders and the disposal to Xpertise did not proceed. As a result of this, Xpertise paid a break fee of £100,000 to the Company in accordance with the terms of that disposal agreement.
Following the announcement that the disposal of Parity Training to Xpertise was not proceeding, the Company received expressions of interest in Training from a number of interested parties. As a result, the Board is pleased to announce that the Company had entered into a conditional agreement for the sale of Parity Training to ECS Limited, a Dubai registered company, for a total cash Consideration of up to £3.0 million, subject to the terms and conditions of the Disposal Agreement. Thunder Bay is a supplier of IT Training in the UK which trades as New Horizons and is the guarantor of the Buyer’s obligations under the Disposal Agreement. The Company will receive an initial cash sum of £0.5 million 60 days following Completion with a further £1.0 million to be paid by the Buyer in instalments in the 13 months following Completion. The Buyer will pay a further £1.5 million which shall be dependent on the achievement of certain targets for the combined revenues of Parity Training and New Horizons in the 12 months following Completion. Further details of the Disposal Agreement will be set out in a circular to be sent Shareholders shortly.
In addition, the Company also announces proposals for the introduction of a senior executive share incentive scheme and set out below are further details on the background to, reasons for and details of the proposed Senior Executive Option Plan.
Owing to the size of the Consideration relative to the market capitalisation of the Company, the Disposal constitutes a Class 1 transaction for the purpose of the Listing Rules. The adoption of the Senior Executive Option Plan is also subject to the requirements of the Listing Rules. As a result, completion of the Disposal and adoption by the Company of the Senior Executive Option Plan are conditional upon the approval of the Shareholders at the Extraordinary General Meeting.
2. Information on Parity Training
Parity Training, a leading provider of IT training in the UK by revenue, is focused on the provision of flexible IT learning solutions to both public and private sector organisations. It offers a broad range of IT training courses via instructor led training, e-learning or a blend with a focus on the core areas of project and programme management, service management, business systems design and other soft skills related to IT.
A number of strategic and operational changes have been implemented within Parity Training over the last few years, with the aim of increasing its competitiveness and focusing it on attractive higher margin business. This has involved transforming the cost base of Parity Training from one which comprised primarily fixed costs to one which is more variable and flexible. The changes also sought to reduce the number of public courses delivered with the focus now being on courses where Parity Training has an established position and can achieve higher levels of utilisation. This resulted in an improvement in Parity Training’s performance with operational results increasing from an operating loss (before exceptionals) of £1.2 million in 2005 to an operating profit of £0.6 million in 2007. In the year ended 31 December 2007, Parity Training made a profit before tax of £0.2 million and as at 31 December 2007, had gross assets of £9.6 million.
3. Background to and reasons for the Disposal and use of proceeds
Following the successful implementation of the changes in Parity Training, as described above, the Board believes that for the Training Business to continue to develop and take advantage of market opportunities as they emerge, it would be better placed if it was part of a company which focuses solely on IT training. As detailed above, it was against this backdrop that the Company previously agreed to dispose of the Training Business to Xpertise, which did not proceed. As described in the November Interim Management Statement, the disruption caused by the aborted disposal to Xpertise negatively impacted Training’s revenue which has been coupled with a general fall in demand from clients and customers due to current market conditions. As a result, the Board believes that the price agreed with ECS Limited for Parity Training reflects the quality of the Training Business and its prospects and that the Training Business will be able to continue to develop under its new ownership.
Following the Disposal, the Board believes that the Continuing Group will be in a stronger financial position and will be focused on growing its two main divisions, Resources and Solutions. In addition the Board intends to use the net proceeds of the Disposal to reduce the Group’s borrowings, further strengthening its financial position going forward.
Further information on the Continuing Group is set out below.
4. Principal terms and conditions of the Disposal
The Company, Parity Holdings, Thunder Bay and ECS entered into the Disposal Agreement on 28 January 2009 pursuant to which the Company agreed to procure the sale of, by its subsidiary Parity Holdings, and ECS agreed to purchase, with full title guarantee, the entire share capital of Parity Training as a going concern.
The Consideration to be paid by ECS to the Company is up to £3.0 million in cash, subject to the adjustments as detailed below. The Company will receive an initial cash payment of £0.5 million 60 days following Completion and a further £1.0 million to be paid by the Buyer in six equal monthly instalments, with the first payment falling at the start of the eight month following Completion with the final payment due at the start of the thirteenth month following Completion. In addition, the Company may also receive up to a further £1.5 million depending on the Combined Revenue in the 12 month period following Completion (“Earn-Out Period”). In the event that the Combined Revenue of Parity Training and New Horizons exceeds £23.0 million for the Earn-Out Period, ECS shall pay the Company a further 50 pence for every £1 by which the Combined Revenue exceeds £23.0 million up to a maximum payment of £1.0 million. In addition, in the event that the Combined Revenue exceeds £26.0 million for the Earn-Out Period, the Company will receive a further £250,000. A further £250,000 shall be paid by the Buyer if the Combined Revenue exceeds £27.0 million for the Earn-Out Period.
Completion is conditional on the approval of Parity Shareholders of the Disposal by the Company at the forthcoming EGM. If this condition is not satisfied by 6 March 2009, the Disposal Agreement will terminate. In addition, if there is a material adverse change in the financial position of Parity Training prior to Completion, the Buyer shall have a right to terminate the Disposal Agreement without any liability.
Under the terms of the Disposal Agreement, the Consideration payable may be reduced on a £-for-£ basis to the extent that the consolidated net assets of Parity Training ascertained by the completion accounts to be prepared and agreed by the parties following Completion are less than £1,155,000 after writing back all inter-company balances and disregarding the deferred tax asset in Parity Training and the pension scheme liability under the Parity Group Retirement Benefit Plan. Similarly, there is an upward adjustment to the Consideration, which is capped at £200,000, to the extent the net assets of Parity Training are more than £1,155,000.
Thunder Bay, a supplier of IT training in the UK (trading as New Horizons), is guaranteeing the obligations of the Buyer under the Disposal Agreement and the Company is taking security over the shares in Parity Training pending full payment of the Consideration by the Buyer.
Further details of the Disposal Agreement will be set out in the circular to be sent to Shareholders shortly.
5. Information on the Continuing Group
The Disposal will enable Parity to focus on its two main divisions, Resources and Solutions.
Resources, Parity’s largest business unit, is a leading IT recruitment specialist in the UK by revenue, providing permanent and contract technology staff, temporary staff and managed recruitment services to a wide range of clients in the public and private sectors. In the year ended 31 December 2007, Resources had revenue of £110.3 million and an operating profit (before exceptionals) of £2.7 million.
Solutions provides IT consulting, systems development and applications and management services to blue chip private and public sector clients, specialising in Microsoft and Oracle technologies. Solutions, with its in-house technical expertise and project management experience, will work both as a primary and secondary contractor on projects and programmes. In the year ended 31 December 2007, Solutions had revenue of £31.0 million and an operating profit (before exceptionals) of £3.2 million.
6. Current trading
Continuing Group
Following Completion, the Continuing Group will be focused on its two main divisions, Resources and Solutions. As announced in the November Interim Management Statement, the Company has seen a deterioration in market conditions with buying cycles lengthening and overall client spend tightening. As a result of this, the Company expects this difficult trading environment to continue well into 2009. Despite this deterioration in market conditions, within Resources the focus remains on gross margin improvement and strengthening its focus on areas of higher demand in a generally depressed market. Solutions continues to be affected by delays in buying decisions by its clients and customers. As a result, costs have been reduced and the offering focused on areas that are relevant to organisations during a difficult economic period.
Parity Training
As stated in the November Interim Management Statement, Training’s revenue was negatively impacted by the aborted sale to Xpertise. Since then Training has seen a general tightening of pricing in the market as demand from clients and customers falls. However, together with some cost reductions, we are investing modestly in our offerings to ensure that they remain competitive and in marketing to attract more of the available demand.
7. Background to and reasons for the proposed new Senior Executive Option Plan
As previously stated in the November Interim Management Statement, the Company has seen market conditions deteriorate with buying cycles continuing to lengthen and overall client spending tightening. In response to such market deteriorations, the Company has been reducing overhead costs across the Group, in part enabled by implementation of more effective IT systems and improved business processes. The Company stated in its November Interim Management Statement that some benefit had already been gained from these cost reductions but that the Group would not benefit from the full impact of these savings, being approximately £1.0 million in annualised savings, until the end of the first half of 2009.
The Remuneration Committee believes it is crucial to retain and motivate the current senior management during this important period in order to maximise the benefits for the Company and Shareholders following the disposal of Training and the implementation of the cost reduction programme described above. It is the view of the Remuneration Committee that the current arrangements in place are not providing an effective incentive to the current senior management.
As a result of this, the Remuneration Committee would like to address this by putting in place the Senior Executive Option Plan, under which it is proposed significant options will be granted to the Executive Directors.
8. Summary of employee share incentive arrangements
The Company’s existing Parity Share Schemes comprise traditional share option plans and a co-investment plan.
The exercise prices of all other options outstanding under the Parity Share Schemes are significantly in excess of the current Share price, including those granted to Ian Ketchin, the Finance Director, in June 2007 over 174,698 Shares which have an exercise price of 83 pence per Share.
The former Long-Term Incentive Plan has been terminated. It was not proving to be an effective incentive as it was highly unlikely that the performance targets could ever be met and the last remaining award has been cancelled. As a result, there are no longer any outstanding awards under the Long-Term Incentive Plan.
The Remuneration Committee therefore considers it imperative to put in place awards which provide an appropriate incentive to the Executive Directors in the current economic climate, providing further alignment of the Executive Directors' interests with those of the Company and its Shareholders. The Executive Directors have to date shown their commitment to the Company by purchasing Shares in the market at prices significantly in excess of the current Share price.
The key points of the Senior Executive Option Plan are summarised below:
·; The number of new ordinary shares over which options may be granted under the Senior Executive Option Plan may not exceed 10.0 per cent. of the Company's issued share capital from time to time. The Remuneration Committee believes this limit is necessary and appropriate to enable the making of awards which are meaningful to participants and so will provide sufficient motivation and incentivisation to the Executive Directors.
·; As was the case with the separate 12 per cent. dilution limit approved by Shareholders in 2005 for the former Long-Term Incentive Plan, it is proposed that Shares issued or which may be issued under the Senior Executive Option Plan will not count towards the dilution limits for the Company's existing Parity Share Schemes. A separate resolution is proposed to authorise the related amendments to the relevant Parity Share Schemes to reflect the separate limit for the Senior Executive Option Plan. The Remuneration Committee intends that the Company's other share incentive arrangements be reviewed with a view to renewing or replacing them at the Company’s 2009 annual general meeting.
·; The Remuneration Committee currently intends that Alwyn Welch, Chief Executive, and Ian Ketchin, Finance Director will receive options under the Senior Executive Option Plan over 7.5 per cent. and 2.5 per cent. respectively of the Company’s current issued share capital.
·; It is proposed that the options, proposed to be granted to the Executive Directors as soon as possible after the adoption of the Senior Executive Option Plan, will become exercisable at a Share price of 20 pence per Share, considerably in excess of the Company's current Share price of 8.25 pence per Share as at 28 January 2009, the last practicable date prior to this announcement. Since this represents a considerable hurdle, no additional performance conditions are proposed.
·; It is proposed that options under the Senior Executive Option Plan will vest on a phased basis, so that in the normal course the full number of option Shares will be available only at the end of December 2010. The options will lapse if not exercised within five years of grant.
The Remuneration Committee has unanimously approved these proposals in relation to the Senior Executive Option Plan and view it as important that the options, as set out above, are granted at the earliest opportunity. Accordingly, following approval by Shareholders of the Senior Executive Option Plan, it is the Company’s intention to grant the options on the business day immediately following the release of the preliminary results for the year ended 31 December 2008, which are expected to be announced in mid March 2009, being such time as it is anticipated that the Company will not be in a close period (for the purpose of the Model Code).
9. Further information and details of the Disposal
A circular containing further details of the Disposal and the new Senior Executive Option Plan, including notice of the Extraordinary General Meeting to seek Shareholders approval for the Disposal, the adoption of the new Senior Executive Option Plan and the consequential amendments to the existing Parity Share Schemes and the recommendation of the Board to vote in favour of the Disposal, the new Senior Executive Option Plan and the consequential amendments, will be sent to Shareholders shortly.
Enquiries:
| Parity Group plc Alwyn Welch, Chief Executive Officer Ian Ketchin, Finance Director | 0845 873 6942 |
| | |
| Arbuthnot Securities Limited Alastair Moreton/Richard Tulloch | 020 7012 2000 |
| | |
| The Hogarth Partnership John Olsen/Ian Payne | 020 7357 9477 |
Definitions
The following definitions apply throughout this announcement unless the context requires otherwise:
| "Board" or "Directors" | the directors of the Company |
| "Buyer" or "ECS" | ECS Limited, a Dubai registered company, the proposed buyer of Parity Training |
| "Consideration" | the consideration payable by ECS for Parity Training pursuant to the Disposal Agreement of up to £3.0 million |
| "Combined Revenue" | means the combined revenue of Parity Training and New Horizons for the Earn-Our Period |
| "Completion" | Completion of the disposal of Parity Training to the Buyer |
| "Continuing Group" | the Parity Group as constituted after Completion |
| "Disclosure and Transparency Rules" or "DTRs" | the Disclosure and Transparency Rules made under Part VI of FSMA as set out in the FSA Handbook (as amended) |
| "Disposal" | the proposed disposal by Parity Group, of Parity Training Limited pursuant to the terms and subject to the conditions of the Disposal Agreement |
| "Disposal Agreement" | means the conditional agreement dated 28 January 2009 between Parity Group, Parity Holdings, Thunder Bay and ECS relating to the Disposal |
| "Disposal Resolution" | the resolution to be proposed at the EGM to approve the Disposal |
| "Earn-Out" | means the consideration of up to £1.5 million which may be payable by the Buyer in the event that the Combined Revenue exceeds £23 million in the Earn-Out Period and payable in full in the event that the Combined Revenue exceeds £27 million in the Earn-Out Period |
| "Earn-Out Period" | the 12 month period from the date of Completion until the day falling on the first anniversary following the date of Completion (inclusive) |
| "Executive Directors" | Alwyn Welch and Ian Ketchin |
| "Extraordinary General Meeting" or "EGM" | the extraordinary general meeting of the Company details of which will be set out in a circular to Shareholders |
| "Financial Services Authority" or "FSA" | the Financial Services Authority |
| "FSMA" | Financial Services and Markets Act 2000 |
| "IT" | information technology |
| "Listing Rules" | the listing rules of the UK Listing Authority (as amended) for the purposes of Part VI of FSMA |
| "Model Code" | the Model Code requirements as set out in the Listing Rules |
| "New Horizons" | the operating businesses of Thunder Bay known as New Horizons |
| "Non-executive Directors" or "Remuneration Committee" | Lord Freeman, John Hughes and Nigel Tose, being all of the members of the Remuneration Committee |
| "November Interim Management Statement" | the interim management statement issued by the Company on 4 November 2008 |
| "Ordinary Shares" or "Parity Shares" or "Shares" | the ordinary shares of 2 pence each in the capital of the Company |
| "Parity" or the "Company" | Parity Group plc |
| "Parity Group" or "Group" | the Company and its subsidiaries as at the date of this announcement |
| "Parity Holdings" | Parity Holdings Limited, a wholly owned subsidiary of Parity |
| "Parity Training" | Parity Training Limited |
| "Parity Shareholders" or "Shareholders" | holders of Ordinary Shares |
| "Parity Share Schemes" | The Parity Group 1999 Company Share Option Plan, the Parity Group 1999 Unapproved Company Share Option Plan, the Parity Group 1999 Savings Related Share Option Scheme and the Parity Group 2004 Share Co-Investment Scheme |
| "QA-IQ" | QA-IQ Investments (UK) Limited |
| "Resources" | the IT recruitment specialist business of the Parity Group |
| "Senior Executive Option Plan" | the Parity 2009 Senior Executive Share Option Plan |
| "Solutions" | the IT consulting systems development and applications business of the Parity Group |
| "Thunder Bay" | Thunder Bay Limited, a supplier of IT training in the UK (trading as New Horizons), and the guarantor of the Buyer's obligations under the Disposal Agreement |
| "Training Business" or "Training" | the IT training business of the Parity Group |
| "UK Listing Authority" | the Financial Services Authority acting in its capacity as the competent authority for the purposes of Part VI of FSMA |
| "Xpertise" | Xpertise Group PLC |
This information is provided by RNS
The company news service from the London Stock Exchange
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