Parity Regulatory News (PTY)

5 Mar 2008 07:00

Parity Group PLC05 March 2008 5th March 2008 PARITY GROUP PLC Preliminary results for the year ended 31 December 2007 Parity Group plc, the UK IT services company, announces preliminary results forthe year ended 31 December 2007. Financial highlights • Revenue from continuing operations up 2% to £160M (2006: £157M) following exit of low margin contracts. • Adjusted operating profit from continuing operations up 216% to £4.6M (2006: £1.4M)* • Profit from continuing operations before tax and exceptional item £2.6M (2006: loss of £0.2M). • Profit before tax from continuing operations of £2.3M (2006: loss of £0.8M). • Adjusted basic earnings per share from continuing operations of 3.79p (2006: loss per share of 1.98p).** • Basic earnings per share of 1.08p (2006: 2.99p). • Net debt of £6.6M (2006: £5.7M). * Adjusted operating profit excludes share-based compensation of £551,000 (2006:£68,000) and exceptional item of £347,000 (2006: £600,000). ** Adjusted basic earnings per share from continuing operations is stated before exceptional item after tax of £243,000 (2006: £420,000) and deferred tax write downs of £1.039M (2006: nil) Operational highlights • Business now clearly focused on higher margin revenue opportunities, resulting in stronger and better quality pipeline. • Solutions: strong margins driven by good project delivery and revenue growth. • Resources: exit from low margin contracts resulting in margin improvement through the year; strong start to 2008. • Training: accelerated shift in mix to strategic, higher margin products; investment to improve efficiency. • Good progress made on property rationalisation and disposal. • Strengthened management teams and significantly leaner operating structure. Alwyn Welch, Chief Executive of Parity, said: "2007 was a year during which we successfully continued the performance recoverywhilst making a number of changes and investments to position the Group forfurther success. "We achieved good margin progression in all three of our business streams,through a combination of top line growth, a better mix of services and greatercontrol of costs. In addition, we have significantly improved our cash flow. We have seen an encouraging start to 2008, although the current economicbackdrop is uncertain. With our continued focus on higher margin activities ingrowth segments of the market, the Board remains confident of the Group'sprospects." Enquiries: Parity Group PLC 0845 873 0790Alwyn Welch, Chief Executive OfficerIan Ketchin, Group Finance Director Hogarth Partnership Limited 020 7357 9477John Olsen/Sarah Richardson Notes to editors: About Parity Group plc Parity Group PLC is a UK-focused IT services company, operating via three corebusiness units - Parity Resources, Parity Solutions and Parity Training. Parity Resources is a leading IT recruitment specialist, with over 30 yearsexperience in providing permanent and contract technology staff, temporary staffand managed recruitment services across all markets. Parity Solutions specialises in providing IT, Projects and Consulting, usingleading edge technologies and drawing upon the depth of experience of itsconsultants in Programme and Project Management. Parity Training is one of the UK's leading Management and IT training providers.In addition to a comprehensive schedule of public courses, Parity deliverstailored learning solutions and customised programmes for major clients. Parity is listed on the London Stock Exchange, with a ticker of PTY.LN. Chairman's Statement I have been much impressed, since joining the Board as Chairman in July 2007, bythe quality of Parity's management and staff. In particular I single out ourChief Executive, Alwyn Welch, and our new Group Finance Director, Ian Ketchin. Supported by the impressive depth of experience and qualifications of theexecutive management team and staff, your company has achieved a consistent andsignificant improvement in profitability. I am convinced that this will bemaintained. Your Board has been ably led in the recent past by John Hughes to whom we owe aparticular debt of gratitude for his perseverance in restoring the Company tofinancial health. He remains Deputy Chairman. Philip Swinstead has recently retired from the Board after giving much wise andexperienced support on his return to the Company when it was needed most of all.On behalf of shareholders may I thank both John and Philip most sincerely. My continuing duty to shareholders is clear: to lead a united Board in guidingour executive team and all our staff to deliver consistently improving financialreturns. I know that together we shall succeed. Lord FreemanChairman Chief Executive's Review Introduction 2007 saw a further period of business improvement throughout the Group. Havingdelivered a profit in the second half of 2006, we continued with our performancerecovery programme in 2007 whilst making a number of changes and investmentsnecessary to position the Group for continued growth. Trading was generally inline with both management and market expectations, driven by our strong focus onrecurring revenues and higher quality work to add predictability to thebusiness. Morale across the Group improved immensely, and our reputation in themarketplace has further improved. The increasing robustness and momentum within the business allowed us to copewith the many challenges we faced throughout the year, whilst keeping our focusclear and making good progress. By the year end we successfully reduced theincreased level of borrowings relating to working capital built up during thefirst half. Despite continued investment especially in facilities and IT,reduction in debtors and work in progress led to total net debt reducing to£6.6M at 31 December 2007. At the same time we have made excellent progressduring 2007 and since the end of the year in closing down most of the remaininglegacy issues. Group revenue from continuing operations grew 2% to £159.9M (2006: £156.8M),with a strong performance from Solutions being offset by a reduction inResources where our priority is quality of revenue rather than volume and wherewe exited certain low margin contracts. Operating profit (before exceptionalitems) has continued to show an excellent improvement to £4.0M (2006: £1.4M).Training and Solutions delivered good year on year margin improvement, andResources, whilst flat compared to 2006, made excellent progress during theyear. Resources Resources, after three years of strong revenue growth, saw a modest revenuedecline of 4% to £110.3M (2006 £114.5M). Two significant low margin contractsended during the first half of the year and this contributed to lower secondhalf revenue. We chose not to seek higher volume, low margin, replacementbusiness but instead to concentrate on growing higher quality business in nicheswhere we can establish good differentiation and where demand is strong. Operating profit (before exceptionals) therefore reduced slightly to £2.66M(2006 £2.71M), and the margin for the year held at 2.4%. However this masks animprovement from 2.0% in the first half of 2007 to 2.8% in the second half.Gross Margin (net fee income) was flat at £5.2M in both halves of the year, andsales costs were held at 44% of gross margin reflecting continued investment innew higher margin revenue streams. Good cost control delivered an operatingprofit of 25% of gross margin for the year and 28% in the second half. The real strength of this operation is our Public Sector business, where weremain the largest supplier under the specialist contractor sections of the UKGovernment's Catalist buying framework, with many large departments beingclients. We experienced some margin pressure in the public sector during theearly part of 2007 but through strong selling and high quality delivery we sawmargins increase as the year progressed. Our Commercial Sector business shrank due to the end of the two large lowermargin contracts and we are investing in new business sales teams to replacethis with higher margin business. We saw good traction in our new SAP practice,and we have recently strengthened the management team. We remain focused on higher value skills, where we can attract better day ratesand margins. This means concentrating on those skills in strong demand,typically those where the continuing shift in technology is creating demand andwhere offshoring is not deflating salaries. Our primary skills focus is inproject, programme and service management, and in skills such as SAP and .net.We continue to believe that a focus on these skills, combined with a strongreputation for delivery quality, is appropriate for continued businessimprovement during 2008 and beyond. Solutions Solutions continued the turnaround which commenced during the second half of2006. Revenue for the year grew 30% to £31.0M (2006 £23.9M) and, despite thesuccessful completion of the large Northern Ireland Electricity ("NIE") contractduring the second half of the year, still grew 7% in the second half compared tothe same period in 2006. Operating profit increased 311% to £3.2M (2006: £0.78M)and margin showed an impressive increase from 3.3% to 10.3%. Revenue excluding hardware, software and third party subcontractors, increasedby 31% from £17.9M in 2006 to £23.4M in 2007 with the growth in the second halfof 2007 34% higher than the same period in 2006. This removed the "lumpy" natureof large system integration contracts, and demonstrates the improvement in theunderlying "own delivered" revenue. We also grew our managed services revenue,derived from longer term "annuity" contracts, from £2.2M to £4.7M, furthercontributing to an increased visibility and stability in the business. This fast growth and return to profit has necessitated an investment in oursales capability and also a strengthening of our delivery management, whilstcontinuing to attack G&A costs. So whilst gross margin increased from £6.65M in2006 to £8.20M in 2007, SG&A costs also decreased from £5.87M to £5.00M. Our delivery quality remains good. In particular we received excellent feedbackon the large NIE systems integration project, which we completed in good timefor the client to be ready for the newly deregulated market in Ireland. Thedemands of this project, and also the growth in our Microsoft technologyprojects activity, led to us running at very high levels of utilisation duringmuch of 2007 despite hiring efforts and a much reduced rate of staff attrition.This also had a knock-on impact on sales during the middle of the year, but weended 2007 with a very strong pipeline and continued high overall utilisation. Our market focus is on mid-sized organisations in the Public Sector, wheredemand for small scale projects remains high, as well as selected clients in thecommercial arena and specifically in the Utility market, where NIE has given usexcellent credentials. With a good capability in Oracle and Microsoft(especially Sharepoint) technology, combined with strong project management anda co-operative delivery culture, we aim to continue to strengthen this businessto remain a strong player in the mid market. We will avoid opportunities thatrequire offshore delivery and will continue to partner flexibly to broaden ourreach as we grow to achieve long term sustainable mass in our chosen market. Training Training has been the business unit that required the most radical changes overthe last two years to be both competitive and to target attractive areas of themarket. During 2007 we continued to address the cost base, incurring one-offcosts of approximately £150,000 in the year to reduce on-going costs in salesand delivery, where we exited delivery of technical training courses. We are pleased to report that revenue showed a modest improvement at £18.6M(2006 £18.4M) after three years of decline. We have significantly changed themix of business in Training. First, our more commoditised technical trainingdeclined by 25% to £3.5M, whilst our areas of focus (project and programmemanagement, service management, business systems design, and other soft skillsrelated to IT) grew by 14% to £11.1M. Second, we saw a continuation in the shiftof business from public courses (inherently higher margin but with littlevisibility) to training programmes and contracts for typically largerorganisations, which give us far better revenue visibility at the expense ofsome margin. We also sold more e-learning material as part of these programmes. As a result we saw gross margins decline from 39% to 36%, but managed to offsetthis with lower SG&A costs, and therefore increased operating profit to £570,000(2006 £308,000). We invested in a new IT system to run this operation during2006 and the first part of 2007. Initial teething issues caused some additionalcosts and working capital during the third quarter of the year, but by year endthe system was well bedded in and the business operating as usual. We invested in three main areas in this business during the year. We expandedour product portfolio to include e-learning, which we are continuing in 2008with our "Learning Plus" platform. We invested in people, both to provideconsultancy in training and learning and to deliver more training courses. Wehad lost a number of our own trainers during 2005 and 2006, which was impactingthe quality and the margin delivered by courses so we grew our headcount ofemployed trainers by 9 during the year whilst increasing utilisation from 72% to78%, and decreasing use of contractors. Overall this was a year of significantchallenge and change for this business, which the team met well. SG&A Costs (Sales, general and administrative costs (SG&A) are defined as total operatingcosts less cost of sales and before exceptional items.) We continued to reduce SG&A costs during the year, particularly in the area offacilities and other centrally managed shared services. Most of the costreduction has been in G&A as we have maintained and in places increasedinvestment in sales. We reduced SG&A across the business from £27.0M in 2005, to £23.4M in 2006 andagain to £21.1M in 2007. (2005 and 2006 restated to exclude employedconsultants). We needed to continue the investment in re-furbishing and consolidating officesduring 2007, and combined our Northern Ireland presence into a new facility inBelfast; closed the old company HQ in London and moved this function intoWimbledon; exited most of the Birmingham training facility; and invested in asingle training facility in Moorgate in London which opened on 1st Jan 2008. Weexited the previous two facilities in London in early 2008. This significant capital investment has been made both to reduce overall runningcosts but also to ensure we have the working environment to attract both staffand clients. Restructuring & Discontinued Operations We have continued to make good progress in completing the closure of all itemsoutstanding from the disposals of overseas operations made in 2005 and 2006. Atour interim results we declared a modest profit on the recovery of a fullyprovided bad debt in Switzerland, and in the second half we have a further gaindue to consideration received from a similarly provided bad debt in the USA. Wehave also realised a small gain in the USA and Europe as liabilities have beenclosed off. The total impact of these items during 2007 was a profit after taxof £257,000. At the end of 2007 we also made good progress, finally, on surplus emptyproperty, primarily the office in Fleet. This has stood empty since 2005 on along lease in an area with low demand and excess capacity, where market rentshave as a result declined. This has made it difficult to sub-let, but we havenow agreed terms to sub-let for the remaining term of the lease albeit below ouroriginal head lease rent. This combined with a sub let of an empty floor inLeeds has required the charging of an exceptional cost of £347,000 before tax.However this will mean all our surplus property is sub-let, and the cash outflowassociated with this legacy will decline significantly over the next 18 months. Market Parity operates wholly from locations within the UK and Ireland, and the vastmajority of our services are sold and delivered to clients in this geography.This specific geographic focus has allowed us to concentrate our efforts on oneof the largest IT services and recruitment markets in Europe without thedistraction and cost of expanding further afield. During the last year we have experienced generally favourable market conditionsoverall, and our market focus has been to concentrate on those areas wheredemand is stronger and Parity has good differentiation other than price. Thishas helped us improve margins despite the micro and macro economic pressures onour clients. We have experienced little impact so far from the pressureaffecting the financial services market, nor the expected tightening of publicsector spending. We will continue to seek niches of strong demand to counter anypotential general market squeeze. Focus Our overall business objective remains to achieve margin improvement throughconcentration on higher margin services combined with cost control. We willinvest prudently to help realise our objectives and to narrow our focus andimprove long term sustainability of our business. Training has exited delivery of technical courses to concentrate on highervalue, IT-related areas such as project, programme and service management aswell as business systems design. We continue to manage delivery of technicalcourses and have added more value around our base courses with e-learningcomponents. Our client base increasingly comprises large organisations in thepublic and private sector, with a shift towards training programmes and awayfrom "public" courses. This brings the benefit of size of contract and stabilityof revenue, but at a cost of lower margins and as a consequence we have madechanges to our organisation and cost base to reflect this evolution. Resources remains focused on the supply of temporary and permanent skilled staffinto typically larger organisations within the Public and Private sectors. Ourtarget market for recruitment is therefore similar to that of Training, wherenot only is the daily rate higher, but the excess of demand over supply allowsus to create real value for clients by finding and attracting the people thattheir operations require. We will continue, within these broad skill areas, tofocus on further sub-niches in areas such as applications (eg SAP), businessissues (e.g. security) and narrow vertical segments (e.g. criminal justice). Solutions focuses on the delivery of high quality, mainly fixed-price, projectsand application-centric services to mid-tier clients. Our main targets aremid-sized contracts where the size and nature of the work, or where the type ofactivity or client sensitivity, generally precludes offshore delivery. Our mainareas of technology are Microsoft (especially Sharepoint) and Oracle. We combinethis with rigorous project management skills, and a delivery culture thatencourages working together with clients. This culture also enables us topartner effectively to extend our reach and scope, and act as a true integratorof services. We can make use of our well-established Belfast operation toprovide a modestly lower cost capability compared to south-east England, andthis also gives us a strong presence in the Irish market. People As with any service company, the people who work for Parity are our main asset,and therefore critical to our success. We have therefore invested in improvingour working environment and the rewards and benefits available to our employees,so that we can attract and retain the people we need. This, combined with ourimproved business performance, has helped us reduce unwanted staff attritionfrom over 30% in 2006 to 20% in 2007, which is closer to industry average. Werecruited to grow our headcount during the first half of 2007, particularly inthe areas of Microsoft technology, recruiting sales and trainers. We have had in place a new performance management system since 2006, and linkthe outcome of this to rewards including variable compensation. An element ofthe latter, principally related to profit, is in place for all staff in 2008. Wehave also started to update our benefits through the introduction of flexiblebenefits. On behalf of the whole Board I would like to thank all the people who haveworked for Parity over the last year for their support and strong delivery,which has driven the recovery of the Group. Outlook We have seen an encouraging start to 2008 although the current economic backdropis uncertain. With our continued focus on higher margin activities in growthsegments of the market, the Board remains confident of the Group's prospects. Alwyn WelchChief Executive Officer Financial review 2007 was a year of continued recovery for Parity. Following the disposal ofoverseas operations in 2006, the focus in 2007 was on generating improvedmargins in the UK and Ireland market. This, together with continuing costaction, has generated results that are again significantly improved on theprevious year. Revenue and operating margin from business units 2007 2006 2007 2006 2007 2006Business Revenue Revenue Operating Operating Operating Operatingunit £000 £000 profit profit margin margin £000 £000 % % Resources 110,279 114,517 2,656 2,710 2.41 2.37Solutions 31,034 23,922 3,195 778 10.30 3.25Training 18,625 18,406 570 308 3.06 1.67 -------- -------- --------- --------- --------- ---------Total 159,938 156,845 6,421 3,796 4.01 2.42 -------- -------- --------- --------- --------- --------- The Resources business exited two large, low margin contracts during the yearand this was a major factor in both the revenue fall and the modest improvementin operating margin. Margin pressure was experienced in the public sector in thefirst half of 2007 but eased in the second half. Solutions continued to drive operational efficiencies and successfully completeda large contract with Northern Ireland Electricity during 2007. This providedthe step up in performance from the 2006 results. Training has concentrated on delivering higher margin courses in softer skillsand now subcontracts the delivery of technical training, which has becomecommoditised. There has also been a greater focus on in-house delivery ratherthan public courses. Whilst in-house courses attract lower gross margins theeconomies of scale more than compensate in S,G&A savings. Together withincreased use of our own trainers this has resulted in a significant improvementin operating margin. Across the business units, operational efficiencies yielded savings of close to£2.3M in S,G&A costs. This is the second consecutive year of substantial profitimprovements. Group trading summary 2007 2006 £000 £000 Operating profit from business units 6,421 3,796Central costs (2,409) (2,419) ------- -------Operating profit before exceptional items 4,012 1,377Net finance expense (1,377) (1,551) ------- -------Profit/(loss) before tax and exceptional item 2,635 (174)Exceptional item (347) (600) ------- -------Profit/(loss) before tax 2,288 (774) ------- ------- Group profit before tax and exceptional items from continuing operations was£2,635,000 (2006: loss of £174,000). Central costs were held at £2.4M afterabsorbing the cost of Board changes. Share option charges for 2007 were £551,000(2006: £68,000). The exceptional item relates to provisions for unoccupied andsublet property in the UK (2006: £600,000). Net borrowing costs were £577,000(2006: £865,000), while notional interest on the pension deficit was £800,000(2006: £686,000). Cashflow Cash of £1.7M was generated from operations (2006: £4.5M outflow). There weresignificant non-trading outflows in the year, including £0.9M to the pensionfund, £2.2M on capital items, principally on fit out of office buildings, and£0.9M on vacant property. Days sales outstanding opened 2007 at a particularly low figure of 32. Duringthe first half this deteriorated to 41 days at half year having peaked at 47 inMay. This increase was caused by a number of specific client issues and alsostaff turnover. By the year end, after concerted effort, days sales outstandingstood at 35. Net borrowings opened the year at £5.7M and reached £9.3M at halfyear before being reduced down to £6.6M at the end of 2007. Property Property consolidation and moves in 2007 reduced the portfolio by two propertiesand included opening a new training centre on the edge of the City of London inMoorgate and a new Belfast office. Terms have been agreed to sublet two vacantproperties, in Fleet and Leeds, to the end of the respective leases. A furtherprovision for vacant and sublet property of £347,000 was made for all knownshortfalls between rental outgoings and income on sublets. Discontinued activities In line with the strategy of focus on the UK and Ireland, the group disposed ofthe last of its overseas activities in 2006. No revenue was generated in 2007 asthe overseas businesses no longer trade. However provisions have been adjustedto reflect the anticipated costs of wind-up and we have also received cash orother consideration totalling £290,000 for two large debts, previously provided.The net result is a £257,000 profit after tax for discontinued activities. Write down of deferred tax asset and impact of rate change The Group carries a significant deferred tax asset arising from historic losses.In addition to the normal tax charge for 2007 there is a reduction of £1.039M inthe value of this asset. The deferred tax asset in respect of the Trainingbusiness was written down by £0.85M after an assessment of the visibility offuture profits likely to be available to utilise this asset. The asset has alsobeen reduced by £189,000 to reflect the change in the corporation tax rate atwhich relief for past losses will be received from 30% to 28%. Other taxation The tax charge on current year continuing activities was £1.096M (2006:£197,000) and is made up as follows: £'000Profit for the year @ 30% 686Disallowable expenses 260Prior period adjustments 126Timing and other differences 24 ------- 1,096 ------- Pensions The Group operates a number of defined contribution pension schemes as well as aclosed defined benefit scheme. Assets for the defined contribution schemes areheld in separate, independently administered funds. Company contributions to thedefined benefit scheme were £0.9M (2006: £0.8M). The defined benefit scheme isclosed to both future members and to future service accrual, although actuariescontinue to advise the Trustees on the required funding rate. During 2006 theGroup agreed a payment plan of £0.9M per annum to reduce the pension deficit. At31 December 2007, the accounting deficit was £2.8M (2006: £4.7M). The reductionin accounting deficit reflects the 2007 cash payment and the impact of a higherdiscount rate on the scheme liabilities. Earnings per share and dividend The weighted average number of shares used in the calculation of basic earningsper share was 37.9M (2006: 27.9M). The basic earnings per share was 1.08p (2006:2.99p). The basic earnings per share from continuing activities beforeexceptional item and deferred tax write-downs was 3.79p (2006: loss of 1.98p). The Board does not propose a dividend for the year (2006: nil). Ian KetchinGroup Finance Director Parity Group plcConsolidated Income Statement For the year ended 31 December 2007_________________________________________________________________________________________________________ 2007 before 2007 2007 after 2006 before 2006 2006 after exceptional exceptional exceptional exceptional exceptional exceptional Items items Items Items items Items (unaudited) (unaudited) (unaudited) (audited) (audited) (audited) Notes £'000 £'000 £'000 £'000 £'000 £'000------------- ----- -------- -------- -------- ------- ---------- --------Continuingoperations Revenue 2 159,938 - 159,938 156,845 - 156,845------------- ----- -------- -------- -------- ------- ---------- --------Employeebenefit costs (20,606) - (20,606) (20,672) - (20,672)Depreciation (466) - (466) (569) - (569)All otheroperatingexpenses (134,854) (347) (135,201) (134,227) (600) (134,827)------------- ----- -------- -------- -------- ------- ---------- --------Total operatingexpenses (155,926) (347) (156,273) (155,468) (600) (156,068)------------- ----- -------- -------- -------- ------- ---------- --------Operatingprofit (loss) 2 4,012 (347) 3,665 1,377 (600) 777------------- ----- -------- -------- -------- ------- ---------- --------Finance income 15 - 15 7 - 7Finance costs (1,392) - (1,392) (1,558) - (1,558)------------- ----- -------- -------- -------- ------- ---------- --------Profit/(loss)before tax 2,635 (347) 2,288 (174) (600) (774)------------- ----- -------- -------- -------- ------- ---------- --------Write down ofdeferred tax asset andimpact ofrate change (1,039) - (1,039) - - -Other taxation (1,200) 104 (1,096) (377) 180 (197)------------- ----- -------- -------- -------- ------- ---------- --------Taxation (2,239) 104 (2,135) (377) 180 (197)------------- ----- -------- -------- -------- ------- ---------- --------Profit (loss)for the year fromcontinuingoperations 396 (243) 153 (551) (420) (971) ------------- ----- -------- -------- -------- ------- ---------- --------Discontinuedoperations 2 - (366) 2,170Profit for theyear fromdiscontinuedoperations 257 257 1,804------------- ----- -------- -------- -------- ------- ---------- --------Profit (loss)for the yearattributableto equityshareholders 653 (243) 410 (917) 1,750 833 ------------- ----- -------- -------- -------- ------- ---------- --------Basic earningsper share onprofit for theyear 5 1.08p 2.99pBasicearnings/(loss) per share fromcontinuingoperations 5 0.40p (3.49p) Dilutedearnings pershare onprofit for theyear 5 1.07p 2.99p Dilutedearnings/(loss) per share fromcontinuingoperations 5 0.40p (3.49p) Parity Group plcBalance Sheet As at 31 December 2007________________________________________________________________________________ Consolidated------------------------ ---------- ---------- As at As at 31.12.07 31.12.06 £'000 £'000 unaudited audited------------------------ ---------- ----------Non-current assetsGoodwill 7,116 7,116Intangible assets - software 370 -Property, plant and equipment 2,071 615Available for sale financial assets 124 -Deferred tax assets 2,635 5,102------------------------ ---------- ---------- 12,316 12,833Current assetsWork in progress 706 998Trade and other receivables 35,680 39,494Cash and cash equivalents 770 736------------------------ ---------- ---------- 37,156 41,228------------------------ ---------- ----------Total assets 49,472 54,061------------------------ ---------- ----------Current liabilitiesFinancial liabilities (7,397) (6,394)Trade and other payables (24,168) (28,687)Current tax liabilities (268) (201)Provisions (967) (677)------------------------ ---------- ---------- (32,800) (35,959)Non-current liabilitiesFinancial liabilities - (1)Provisions (1,067) (2,369)Retirement benefit liability (2,846) (4,703)------------------------ ---------- ---------- (3,913) (7,073)------------------------ ---------- ----------Total liabilities (36,713) (43,032)------------------------ ---------- ----------Net assets 12,759 11,029------------------------ ---------- ----------Shareholders' equityCalled up share capital 15,079 15,075Share premium account 20,134 20,020Other reserves 44,160 44,160Retained earnings (66,614) (68,226)------------------------ ---------- ----------Total shareholders' equity 12,759 11,029------------------------ ---------- ---------- Parity Group plcStatement of Recognised Income and Expense For the year ended 31 December 2007________________________________________________________________________________ Consolidated------------------------------- --------- ---------- Year Year ended ended 31.12.07 31.12.06 £'000 £'000 unaudited audited------------------------------- --------- ----------Exchange differences on translation of foreignoperations (111) 152Actuarial gains/(losses) on defined benefit pensionschemes 1,090 (762)Deferred taxation on items taken directly to equity (328) 229------------------------------- --------- ----------Net profit/(loss) recognised directly in equity 651 (381)Profit for the year 410 833------------------------------- --------- ----------Total recognised income for the year attributable to equity shareholders 1,061 452------------------------------- --------- ---------- Parity Group plcCash Flow Statement For the year ended 31 December 2007________________________________________________________________________________ Consolidated------------------------------- ----- -------- ------- Note Year Year ended ended 31.12.07 31.12.06 £'000 £'000 unaudited audited------------------------------- ----- -------- -------Cash flows from operating activitiesCash generated from operations 6 1,711 (4,508)Interest received 15 11Interest paid (592) (872)Tax received - -------------------------------- ----- -------- -------Net cash from operations 1,134 (5,369)------------------------------- ----- -------- -------Cash flows from investing activitiesPurchase of intangible assets - software (295) -Purchase of property, plant and equipment (1,913) (272)Net proceeds from disposal of subsidiary - 4,649undertakingsProceeds from disposal of available for sale assets - 71Proceeds from disposal of property, plant and equipment - -------------------------------- ----- -------- -------Net cash (used in)/from investing activities (2,208) 4,448------------------------------- ----- -------- -------Cash flows from financing activitiesIssue of ordinary shares 118 14,599Cash (outflow) in respect of repayment of bankborrowing - (20,176)Net movement on invoice financing 2,017 4,804Payment of capital element of finance leases (19) (19)------------------------------- ----- -------- -------Net cash from/(used in) financing activities 2,116 (792)------------------------------- ----- -------- -------Net increase/(decrease) in cash and cash equivalents 1,042 (1,713)Cash and cash equivalents at beginning of the year (260) 1,738Net foreign exchange difference (12) (285)------------------------------- ----- -------- -------Cash and cash equivalents at end of the year 770 (260)------------------------------- ----- -------- ------- Parity Group plcUnaudited Notes to the Preliminary Results 1 Accounting Policies Basis of preparation These preliminary results do not constitute full Financial Statements within themeaning of section 240 of the Companies Act 1985. The financial information forthe year ended 31 December 2007 has been extracted from the unaudited financialstatements of Parity Group plc for the year ended 31 December 2007 which will bedelivered to the Registrar of Companies in due course. The results for the yearended 31 December 2006 have been extracted from the audited accounts for theyear ended 31 December 2006. The auditors have issued an unqualified opinion onthe Group's statutory financial statements for the year ended 31 December 2006,which have been filed with the Registrar of Companies and did not containstatements under Section 237 (2)-(3) of the Companies Act 1985, or includereference to any matters to which the auditors wished to draw attention by wayof emphasis without qualifying their report. 2 Segmental Analysis The Group is organised into three primary business segments: Solutions, Trainingand Resources. Consolidated------------------------------- --------- ---------- 2007 2006 £'000 £'000 unaudited audited------------------------------- --------- ----------Revenue - continuing operationsSolutions 31,034 23,922Training 18,625 18,406Resources 110,279 114,517------------------------------- --------- ---------- 159,938 156,845------------------------------- --------- ---------- Geographical analysisUnited Kingdom and Ireland 159,938 156,845------------------------------- --------- ---------- 159,938 156,845------------------------------- --------- ---------- Revenue - discontinued operations------------------------------- --------- ----------Resources - Mainland Europe - 3,380------------------------------- --------- ---------- 2 Segmental Analysis continued Operating result before exceptional Exceptional Operating items items profit-------------- ------- ------- ------- ------- ------- ------- 2007 2006 2007 2006 2007 2006 £'000 £'000 £'000 £'000 £'000 £'000 unaudited audited unaudited audited unaudited audited-------------- ------- ------- ------- ------- ------- -------Continuing operationsResources 2,656 2,710 - - 2,656 2,710Solutions 3,195 778 - - 3,195 778Training 570 308 - - 570 308-------------- ------- ------- ------- ------- ------- ------- 6,421 3,796 - - 6,421 3,796Central costs (2,409) (2,419) (347) (600) (2,756) (3,019)-------------- ------- ------- ------- ------- ------- -------Segment results 4,012 1,377 (347) (600) 3,665 777Interestexpense (1,392) (1,558) - - (1,392) (1,558)Interest income 15 7 - - 15 7-------------- ------- ------- ------- ------- ------- -------Profit/(loss)before tax 2,635 (174) (347) (600) 2,288 (774)Tax (2,239) (377) 104 180 (2,135) (197)-------------- ------- ------- ------- ------- ------- -------Profit/(loss)for the year from continuingoperations 396 (551) (243) (420) 153 (971)-------------- ------- ------- ------- ------- ------- ------- Operating result before exceptional Exceptional Operating items items profit-------------- ------- ------- ------- ------- ------- ------- 2007 2006 2007 2006 2007 2006 £'000 £'000 £'000 £'000 £'000 £'000 unaudited audited unaudited audited unaudited audited-------------- ------- ------- ------- ------- ------- -------Discontinued operationsResources 314 (462) - 2,170 314 1,708-------------- ------- ------- ------- ------- ------- -------Segment results 314 (462) - 2,170 314 1,708Interest income 13 4 - - 13 4-------------- ------- ------- ------- ------- ------- -------Profit (loss)before tax 327 (458) - 2,170 327 1,712Tax (70) 92 - - (70) 92-------------- ------- ------- ------- ------- ------- -------Profit (loss)for the year from discontinuedoperations 257 (366) - 2,170 257 1,804-------------- ------- ------- ------- ------- ------- ------- 3 Exceptional Items Consolidated------------------------- ------- -------Continuing operations 2007 2006 £'000 £'000 unaudited audited------------------------- ------- -------Property restructuring 347 600------------------------- ------- -------Total exceptional items from continuing operations 347 600------------------------- ------- ------- The exceptional charge of £347,000 for 2007 (2006: £600,000) for continuingoperations relates to unoccupied property in the UK. The tax credit relating tothe exceptional item is £104,000 (2006: £180,000). Consolidated------------------------- ------------ ------- -------Discontinued operations 2007 2006 £'000 £'000 unaudited audited----------------------------------- ------- -------Gain on disposal of subsidiaries - 2,170----------------------------------- ------- -------Total exceptional items from discontinued operations - 2,170----------------------------------- ------- ------- The exceptional item in 2006, from discontinued operations, relates to the gainon disposal of subsidiaries in Mainland Europe. Exceptional items fromdiscontinued operations are shown gross of tax. The tax credit relating toexceptional items from discontinued operations is £nil (2006: £nil). 4 Discontinued Operations 2007 2006 £'000 £'000 unaudited audited----------------------------------- ------- --------Pre tax profit (loss) from discontinued operations 327 (458)----------------------------------- ------- --------Gain on disposal of subsidiary net tangible assets - 2,170Profit before tax 327 1,712----------------------------------- ------- --------Taxation (70) 92----------------------------------- ------- --------Total 257 1,804----------------------------------- ------- -------- In May 2006 the Group completed the disposals of the major elements of itsContinental European businesses. These disposals were in line with the strategyof streamlining the business to focus on the UK and Ireland. The 2006 tax credit of £92,000 relates to trading operations. Cash flows from discontinued operations 2007 2006 £'000 £'000 unaudited audited----------------------------------- ------- --------Net cash flows used in operating activities (45) (23)Net cash flows from investing activities - -Net cash flows used in financing activities - (3,249)----------------------------------- ------- --------Total (45) (3,272)----------------------------------- ------- -------- Discontinued operations contributed nil (2006: £3,380,000) to revenue, otherincome of £314,000 (2006: nil), £nil (2006: £3,838,000) to expenses, a gain ondisposal in 2006 of £2,170,000 and the taxation relating to discontinuedoperations was £70,000 (2006: £92,000 credit). 5 Earnings Per Ordinary Share Basic earnings per share is calculated by dividing the basic earnings for theyear by the weighted average number of fully paid ordinary shares in issueduring the year, less those shares held by the ESOP Trust, which are treated ascancelled. The ESOP Trust held 43,143 shares at 31 December 2007 (2006:46,950). Diluted earnings per share is calculated on the same basis as the basic earningsper share with a further adjustment to the weighted average number of fully paidordinary shares to reflect the effect of all dilutive potential ordinary shares.The Group has one class of potential dilutive ordinary shares being those shareoptions granted to employees where the exercise price is less than the averagemarket price of the Company's ordinary shares during the year. These options,where held under the Executive Share Option Scheme, are not dilutive as theperformance criteria had not been met. 551,578 of these options are under theShare Save Scheme, have no performance criteria and are dilutive. In March 2007, June 2007, September 2007 and November 2007 respectively theCompany granted 411,555, 174,698, 393,063 and 440,000 options under theExecutive Share Option Scheme and in June 2007 551,578 awards under the ShareSave Scheme. In September 2006 and October 2006, the Company granted 2,023,805options under the Executive Share Option Scheme and 2,560,000 awards under theLong-Term Incentive Plan respectively. Earnings 2007 Pence Earnings 2006 Weighted Pence £'000 Weighted per share £'000 ave. no. of per share ave. no. of Shares shares 000's 000's-------------------- ------- ------- ------- ------- ------- ------- Basic earningsper share 410 37,896 1.08 833 27,857 2.99Effect of dilutiveoptions 468Diluted earnings pershare 410 38,364 1.07 833 27,857 2.99-------------------- ------- ------- ------- ------- ------- ------- Basic earnings/(loss) per share fromcontinuing operations 153 37,896 0.40 (971) 27,857 (3.49)Effect of dilutiveoptions 468Diluted earnings/(loss) per share fromcontinuing operations 153 38,364 0.40 (971) 27,857 (3.49)-------------------- ------- ------- ------- ------- ------- ------- Basic earningsper share 410 37,896 1.08 833 27,857 2.99Effect ofadjustingitems 1,025 (1,384)Adjusted basicearnings pershare fromcontinuingoperations * 1,435 37,896 3.79 (551) 27,857 (1.98)-------------------- ------- ------- ------- ------- ------- ------- Diluted earnings pershare 410 38,364 1.07 833 27,857 2.99Effect of adjustingitems 1,025 (1,384)Adjusted dilutedearnings/(loss) per share fromcontinuing operations* 1,435 38,364 3.74 (551) 27,857 (1.98)-------------------- ------- ------- ------- ------- ------- ------- * Adjusted earnings per share from continuing operations is stated beforediscontinued operations, the exceptional item after tax and deferred tax writedown and rate change. 6 Reconciliation of Profit /(Loss) to Net Cash Flow Consolidated------------------------ --------- ---------Continuing operations 2007 2006 £'000 £'000 unaudited audited------------------------ --------- ---------Profit/(loss) for the year 153 (971)Adjustments for:Tax 2,135 197Depreciation and amortisation 466 569Equity settled share based payments 551 68Profit on disposal of available for sale assets - (41)Loss on disposal of tangible fixed assets 21 76Interest income (2) (7)Interest expense 1,392 1,558Changes in working capitalDecrease in work in progress 292 325Decrease/(increase) in trade and other receivables 3,301 (3,836)Decrease in trade and other payables (3,961) (437)Decrease in provisions (1,012) (580)Change in retirement benefit liability (1,567) (1,402)------------------------ --------- ---------Cash from /(used in) continuing operations 1,769 (4,481)------------------------ --------- ---------Discontinued operations------------------------ --------- --------- Profit (loss) for the year 257 1,804Adjustments for:Tax 70 (92)Impairment of available for sale assets 26 -Interest income (13) (4)Profit on disposal of discontinued operations - (2,170)Interest expense - -Changes in working capitalDecrease in trade and other receivables 258 2,111Decrease in trade and other payables (656) (1,455)Increase/(Decrease) in provisions - (221)------------------------ --------- ---------Cash used in discontinued operations (58) (27)------------------------ --------- ---------Total net cash flow from/(used in) operating activities 1,711 (4,508)------------------------ --------- --------- Cash generated from operations includes cash outflows relating to exceptionalitems recorded in prior years of £880,000 (2006: outflow of £3,535,000). 7 Consolidated Reconciliation of Net Cash Flow to Movement in Net Borrowings 2007 2006 £'000 £'000 unaudited audited-------------------------------- ---------- --------Increase/(decrease) in cash in the year 46 (717)Decrease/(increase) in overdrafts 996 (996)Decrease (increase) in bank loans - 17,500Decrease in other bank borrowings - 2,676Increase in invoice financing facility (2,017) (4,804)Repayment of obligations under finance leases 19 19Exchange movements (12) (285)-------------------------------- ---------- --------Movement in net debt in the year (968) 13,393Net debt at 1 January (5,659) (19,052)-------------------------------- ---------- --------Net debt at 31 December (6,627) (5,659)-------------------------------- ---------- -------- 8 Statement of Changes in Shareholders' Equity ShareConsolidated Share Deferred premium Other Retained capital shares reserve reserves earnings Total £'000 £'000 £'000 £'000 £'000 £'000---------------- ------- ------- ------- ------- ------- ------At 1 January 2007 756 14,319 20,020 44,160 (68,226) 11,029Net profit for the year - - - - 410 410Net gain recognised - - - - 651 651directly in equityIssue of new shares 4 - 114 - - 118Share options - value of employee services - - - - 551 551---------------- ------- ------- ------- ------- ------- ------At 31 December 2007 760 14,319 20,134 44,160 (66,614) 12,759---------------- ------- ------- ------- ------- ------- ------ ShareConsolidated Share Deferred premium Other Retained capital shares reserve reserves earnings Total £'000 £'000 £'000 £'000 £'000 £'000---------------- ------- ------- ------- ------- ------- ------At 1 January 2006 14,434 - 6,062 44,160 (68,746) (4,090)Net profit for theyear - - - - 833 833Net gain recognised (381) (381)directly in equityCapital restructure (14,319) 14,319 - - - -Issue of new shares 641 - 13,958 - - 14,599Share options - value of employee services - - - - 68 68---------------- ------- ------- ------- ------- ------- ------At 31 December 2006 756 14,319 20,020 44,160 (68,226) 11,029---------------- ------- ------- ------- ------- ------- ------ The Board is not proposing a dividend for the year (2006: nil per share) 9 Issue of New Shares During the year 209,524 shares were issued on the exercise of share options. On 30 March 2006 the Company published a prospectus in respect of the fullyunderwritten issue of a Firm Placing of 16,000,000 New Ordinary Shares and aPlacing and Open Offer of 16,038,427 New Ordinary Shares to qualifyingshareholders holding ordinary shares at the close of business on 29 March 2006.A capital reorganisation was also proposed to subdivide and re-designate eachordinary share of 5p into one new ordinary share of 2p and 124 deferred shares.Shareholder approval for the issue and capital reorganisation was sought andreceived at an extraordinary general meeting held on 24 April 2006. In order to issue shares at below the pre-existing nominal price of 5p theCompany completed a capital reorganisation on 28 April 2006 such that: • Each issued ordinary share of 5p was re-designated into one ordinary share of 2p • Every 50 shares were consolidated into one New ordinary share and 124 deferred shares • Every 2 unissued ordinary shares of 5p were re-designated into 5 New ordinary shares The deferred shares are not listed on the London Stock Exchange, having novoting rights, no rights to dividends and the right only to a very limitedreturn on capital in the event of liquidation. Net proceeds from this firm placing and placing and open offer amounted to£14,599,000. This information is provided by RNS The company news service from the London Stock Exchange