Parity Regulatory News (PTY)

19 Apr 2005 07:01

Parity Group PLC19 April 2005 Embargoed for 7.00am, Tuesday 19 April 2005 PARITY GROUP PLC PRELIMINARY RESULTS, STRATEGY REVIEW AND NEW CHAIRMAN Parity Group plc ('Parity' or 'the Group'), the international IT services group,announces its preliminary results for the year ended 31 December 2004. Summary • Financials in line with Trading Update of 20 January 2005• Strategic Review completed• First round of cost-cutting completed• New strategic direction approved by Board focussing on the UK market• Group reorganisation planned for 2005 with debt reduction and further savings expected• Mainland European business to be sold• New executive Chairman appointed to lead the new Parity strategy• Philip Swinstead to remain on the Board as Deputy Chairman• Renewed facilities agreed with the bank through to the end of 2006 Group financials • Group turnover from continuing operations up 7% at £169.9m (2003: £158.9m restated and excluding discontinued operations)• Loss after discontinued operations and before goodwill amortisation and tax of £6.3m (2003: £18.1m), of which £3.7m attributable to exceptional costs, compares to loss of the order of £6.5m advised in January 2005 Trading Update• Retained loss for the year of £6.4m (2003: £15.7m)• Net debt at year end of £13.7m, an increase of £1.7m including a £1.6m outflow from exceptional items• Net cash inflow from trading before discontinued operations and exceptional items of £0.2m (2003: £0.1m)• Loss per ordinary share 2.24p (2003: 7.70p) Operating Performance (before exceptional items) • Resourcing Solutions (UK) continues to grow revenues and profits• Resourcing Solutions (mainland Europe) increases profits• Training makes significant loss after sales switched away from public courses in 2004• Business Solutions profits halved by the effect of sales cutbacks in 2003/4 and prudent revenue recognition on a single project• Americas business remains profitable Commenting on the results, Parity founder and Chairman Philip Swinstead said: "This was another disappointing financial year for Parity which resulted in mybeing asked to rejoin the Board and take over as Chairman in November, 2004.Since then we have cut costs, established a new strategic direction, planned aGroup reorganisation including further cost savings, started a debt reductionprocess and begun to create a management team for the future. I am delighted that at the end of my review and planning phase I can welcomeJohn Hughes, as incoming Chairman, and step back to Deputy Chairman myself.John, whom I have known for some years, has extensive senior level experience inour industry. After a dismal three years and a year of restructuring in 2005, Iexpect to see this company back in shape for 2006". Enquiries: Parity GroupTelephone 020 7776 0800Philip Swinstead, Chairman Financial DynamicsTelephone 020 7831 3113Giles SandersonHarriet Keen Notes to Editors About Parity Group plc Parity, uniquely for its size, offers a full range of IT services to majorcompanies including: Business process consultancyManagement and technology trainingDevelopment and management of complex IT systemsOracle and Microsoft technology and application skillsPermanent and temporary IT staff Parity operates from 27 offices across the UK, mainland Europe and the USA. Customers across the group include Alcatel, Allianz, AT&T, British AmericanTobacco, CISCO, Department for Education & Skills, Department for Work &Pensions, HBOS, Hewlett Packard, HM Revenue & Excise, HSBC, IBM, ICI, Ministryof Defence, NASA, National Programme for IT at the NHS, O2, Perot Systems,Reuters, Royal Bank of Scotland, Royal Mail, Siemens, Sony Ericsson, The CabinetOffice, The Met Office, and T-Systems. For more information on Parity, visit www.parity.net GROUP OVERVIEW AND RESULTS Results In the financial year to 31 December 2004 Parity Group plc reported revenues of£169.9m (2003: £158.9m restated and excluding discontinued operations) andlosses before goodwill amortisation and tax of £6.3m (2003: £18.1m). Net debt atthe year end was £13.7m (2003: £12.0m). The loss after goodwill amortisation andtax was £6.4m (2003: £15.6m) giving a basic loss per share of 2.24 pencecompared to 7.70 pence in the previous period. Dividend The Board will not be recommending the payment of a final dividend in respect ofthe year ended 31 December 2004 (2003: 0.03p per share). No interim dividendwas paid (2003: nil). This policy will be reviewed when cash resources allow. Review The last few years have clearly not been satisfactory with the Group reportingsignificant losses, regular restructuring charges and significant net cashoutflows. Consequently, when I became Chairman at the end of last year Iinitiated a wide-ranging review of Parity's operations. This was completed onschedule and the detailed recommendations have been accepted by the Board. Thekey elements are summarised below. The Group's past business strategy of moving towards larger contracts andmanaged services reflected industry trends and was sensible in principle butrequired more careful implementation. The significant additional overheadsresulting from the strategy did not in general produce profitable business butdid reduce available sales effort for core business. This redirection of saleseffort produced disappointing results in Training last year in its core publiccourse business. Reduced sales effort in Business Solutions and prudent revenuerecognition on one particular project resulted in a breakeven second half and alow order book at the year end. The UK and mainland Europe Resourcing Solutions businesses both saw good growthin improved market conditions. Margins were still tight in the UK but less soabroad where a significant investment in sales staff in the last quarter reducedprofits. The US business moved into profit by good cost control and eliminationof low margin and risky business. The Way Forward My objective following the review has been to create a business plan to ensurethat Parity once again addresses the IT services market with an attractive,competitive offering, has a suitable overhead structure which is appropriate tothe Group's size and scale, and a culture that encourages prudent budgeting andsetting of expectations. As well as reducing debt, this plan must generateshareholder value by turning Parity into a growing, profitable, cash generativebusiness. Exceptional Costs One of the initial findings of the review was that a degree of cost cutting wasrequired, particularly at the centre, to bring overheads more in line with theGroup's current size. As a first step we announced and have largely implementeda cost reduction programme which in particular included reducing staff numbersby over fifty and moving our head office into smaller temporary accommodation. New Corporate Strategy The future strategy of the group must be to focus on the UK market with onecoherent business with a number of niche service offerings, within a singlemarketing message designed to be competitive in today's IT services market. Market Strategy The Group, uniquely for its size, can offer a one-stop shop for a wide range ofIT services from consultancy to training, resources and project development tofull managed services. The Parity marketing message is therefore clear and isone that is already proving to be a good sales differentiator. Users of ITservices have in the past often had to deal with a number of different suppliersfor closely related services, involving unnecessary overhead costs for thecustomer. Parity's competitive edge is its ability to make life simple forcustomers by providing a range of services to meet their overall requirements. Non-UK Businesses These changes will mean that the mainland Europe Resourcing Solutions businessis not central to our new strategy and we are currently discussing a possibledisposal with several parties, in full co-operation with the divisionalmanagement who see the opportunity of increasing the scale of their growingbusiness through a combination with a larger group. This disposal will clearlyreduce the level of debt in the Group. The US business has established a management link to the UK Resourcing Solutionsdivision which enables the experience of this successful business to betransferred to the smaller US division. The strategic rationale for a USoperation has not been proved in recent years but with new management andorganisation we are expecting better performance ahead in an improving market,and the Board will review the strategic logic in the light of progress made. Reorganisation The Group will therefore reorganise its UK operations this year. Groupmanagement becomes the UK management in this new scenario. There are currentlythree independent divisions of differing sizes with separate management,production, support functions, marketing and sales. We will now simplify theGroup's structure, creating a number of niche service offerings under one UKmarketing umbrella. There will be overall market sector management andcoordination using a new Customer Relationship Management system installation,an area where we have considerable technical expertise. We will concentrate onour customer relationships with coordinated account management but retainspecific sales activities in the individual service profit centres. We are alsoexamining how the IT infrastructure services provided to the Group can be betterattuned to requirements. We will ensure that account management is our keystone and that each division'sservices are made available to all our clients in a co-ordinated manner. We willbe a full service, integrated UK IT services business selling the complete rangeof IT services individually or together as required by our customers. We willcarefully evolve into larger projects as we progress, when we can make sensiblemargins, and continue our drive into managed services which is the directionthat the market is moving. Our approach to change is evolution not revolution. Creating one UK company managing all Parity's operations (post the Europeandisposal) will allow considerable simplification and the necessary significantcost savings going forward. The fruits of this strategy will not be visibleuntil next year. Banking Facilities It became clear early in my review that the level of debt was too high for thecurrent size of the Group. The proposed disposal of mainland Europe and thecost savings associated with the reorganisation of UK operations will clearlyhelp to address this issue and will reduce the future cash requirements of theGroup. I am also pleased to report that the committed revolving loan facilitywith the Group's principal bankers, Lloyds TSB, has been successfully extendedto the end of 2006. Board Changes Bill Cockburn retired as Chairman on 12 November 2004 having been appointed whenI retired due to a serious illness in 2001. I would like to thank Bill for hisstewardship during this difficult period. Ian Miller, the former Group ChiefExecutive, left the Board on 30 November 2004 and the Board asked me to assumean executive role in the short term whilst I completed my review of thebusiness. John Maxwell had indicated to the previous Chairman that he wished to stand downdue to a heavy workload and consequently will not stand for election at the AGM.John has been extremely helpful to me in understanding the last few years, ashas our other Non-executive Director Alastair MacDonald, and I thank them fortheir openness and enthusiasm to improve performance. The Board intends toappoint at least one more non-executive director this year. I am very pleased to announce that John Hughes, until recently Chief OperatingOfficer of Thales Group where he was responsible for their entire InformationTechnology and Services and Aerospace business areas, managing a €4.5 billion P&L, will join the Board on the 2 May 2005 and take over from me as executiveChairman now that my review is complete. I have known John for some years and weare fortunate that a person of his calibre is joining our Board. I am confidentthat John and I can complete an orderly transition and subsequently worktogether on the board to continue the turn around of Parity - a vision we bothshare. We have discussed the new strategy in detail in recent weeks and he willbring just the skills and experience that Parity needs to refine and enact thenew strategy and then drive the business forward over the years. I will stepdown to Deputy Chairman on a part-time basis for this year and then move to anon-executive role next year. It is with great sadness that I must inform you that Billy Carbutt who served asa director of the Group from March 1994 to January 2004, acting as Chairman forthree years during this period, has died after a long illness. We all very muchappreciated Billy's counsel when we were serving together on the Board and willmiss his wisdom and humour. Employees I would like to thank all of our employees for their continued commitment andloyalty to the Group in what has been a difficult few years. I hope that 2005will be a year of change for the good, not only for our shareholders but alsofor our employees whose enthusiasm to get the company back to winning ways hasbeen inspiring. Current Trading and Prospects The Resourcing Solutions businesses in the UK and mainland Europe have continuedto expand profitably this year in similar market conditions to last year. TheTraining division is recovering from its setback in the second half of lastyear, and is expecting to improve steadily through this year. Business Solutionslooks to grow its order backlog in 2005 and will particularly benefit from therestructuring outlined above in returning to full health. There are signs ofrecovery in the US market and optimism in our US business for the first time forseveral years. Central costs have been much reduced but given a high interest charge,contributions to the defined benefit pension deficit and goodwill amortisation,the Group cannot expect to return to overall profitability in 2005. The Boardbelieves that the strategic and reorganisational changes will be of significantbenefit in taking the Group forward with further cost cuts, lower debt and areturn to overall growth in a simpler business model. Clearly 2005 will be ayear of restructuring but the Board expects that the changes will then enableParity to move into 2006 in much better shape. Philip Swinstead OBEChairman GROUP PROFIT AND LOSS ACCOUNT 2004 2003 £'000 £'000 Notes Restated+TURNOVER- Continuing operations 169,860 158,883- Discontinued operations - 1,999 --------------------------- 169,860 160,882 |---------------------------| Operating costs before goodwill amortisation and | |exceptional items |(171,761) (161,045)| | |Goodwill amortisation | (629) (629)| | |Exceptional items 2 | (3,683) (7,266)| |---------------------------| --------------------------- Operating costs (176,073) (168,940) ---------------------------OPERATING LOSS- Continuing operations (6,213) (4,860)- Discontinued operations - (3,198) --------------------------- (6,213) (8,058) Gain (loss) on termination of operations 220 (9,000) Amounts written off investments 2 - (724) Net interest payable (921) (940) --------------------------- |---------------------------| Loss on ordinary activities before goodwill amortisation, | |exceptional items and taxation | (2,822) (1,103)| | |Goodwill amortisation | (629) (629)|Exceptional items | |- Operating exceptional costs 2 | (3,683) (7,266)|- Gain (loss) on termination of operations | 220 (9,000)|- Amounts written off investments 2 | - (724)| |---------------------------| ---------------------------LOSS ON ORDINARYACTIVITIES BEFORE TAXATION (6,914) (18,722) Taxation credit on ordinary activities 507 3,117 ---------------------------LOSS ON ORDINARYACTIVITIES AFTER TAXATION (6,407) (15,605) Ordinary dividends on equity shares 4 - (87) --------------------------- RETAINED LOSS FORTHE FINANCIAL PERIOD (6,407) (15,692) ===========================LOSS PER ORDINARY SHARE- Basic 3 (2.24p) (7.70p)- Diluted (2.24p) (7.70p) (LOSS) EARNINGS PER SHARE BEFORE GOODWILLAMORTISATION, DISCONTINUED OPERATIONS ANDEXCEPTIONAL ITEMS- Basic 3 (0.95p) 1.04p- Diluted (0.95p) 1.04p + refer note 1 GROUP BALANCE SHEET 2004 2003 Notes £'000 £'000 Restated+Fixed assetsIntangible assets 8,987 9,616Tangible fixed assets 1,920 2,586Investments 30 30 --------- --------- 10,937 12,232 --------- ---------Current assetsStock - work in progress 1,664 561Debtors- due within one year 41,089 40,550- due after more than one year 4,130 3,418Cash at bank and in hand 5,641 3,241 --------- --------- 52,524 47,770 --------- --------- Creditors: amounts falling due within one year (38,803) (30,942) --------- --------- Net current assets 13,721 16,828 --------- --------- Total assets less current liabilities 24,658 29,060 Creditors: amounts falling due after more than one year (12,241) (11,058) Provisions for liabilities and charges (5,611) (4,500) --------- --------- Net assets 6,806 13,502 ========= =========Capital and reservesCalled up share capital 14,434 14,434Capital redemption reserve 5 50 50Share premium account 5 6,062 6,062Other reserves 5 44,110 44,110Profit and loss account 5 (57,850) (51,154) --------- --------- Equity shareholders' funds 6,806 13,502 ========= ========= + refer note 1 GROUP CASH FLOW STATEMENT 2004 2003 £'000 £'000 Net cash flow from operating activities before discontinued operations and exceptional costs 171 130Cash flows from discontinued operations 220 (515) --------- --------- Net cash flow from operating activities before exceptional items 391 (385)Exceptional items (1,560) (4,050) --------- --------- Net cash outflow from operating activities (1,169) (4,435) --------- --------- Returns on investments and servicing of financeInterest received 49 46Interest paid (884) (1,066) --------- ---------Net cash outflow from returns on investments and servicing of finance (835) (1,020) --------- --------- Taxation received (paid) 1,006 (164) --------- --------- Capital expenditure and financial investmentPurchase of tangible fixed assets (518) (509)Sale of tangible fixed assets - 27Additions to fixed asset investments - (25) --------- ---------Net cash outflow from capital expenditure and financial investment (518) (507) --------- --------- Equity dividends paid (87) (90) --------- --------- Net cash outflow before financing (1,603) (6,216) --------- ---------FinancingIssue of ordinary share capital - 10,104Expenses of share issue (56) (979)Proceeds on sale of nil paid rights in Employee Benefit Trust - 84Repayment of loan notes (8) (14)Increase (decrease) in borrowings 2,475 (1,719)Repayment of capital element of finance lease obligations (17) (14) --------- ---------Net cash inflow from financing 2,394 7,462 --------- --------- Increase in cash in the period 791 1,246 ========= ========= RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 2004 2003 £'000 £'000 Increase in cash in the period 791 1,246(Increase) decrease in borrowings (2,475) 1,719Repayment of obligations under finance leases 17 14Variable rate loan notes 2004 repaid 8 14 --------- ---------Change in net debt resulting from cash flows in the period (1,659) 2,993Exchange movements 3 56Other non cash changes - (91) --------- ---------Movement in net debt in the period (1,656) 2,958 Net debt at 1 January 2004 (12,037) (14,995) --------- --------- Net debt at 31 December 2004 (13,693) (12,037) ========= ========= ANALYSIS OF NET DEBT At At 1 January Cash Exchange 31 December 2004 flow movements 2004 £'000 £'000 £'000 £'000 Cash at bank and in hand 3,241 2,409 (9) 5,641 Overdrafts (1,848) (1,618) - (3,466) --------- --------- --------- --------- 1,393 791 (9) 2,175 Bank loans (11,000) (1,200) - (12,200) Other bank borrowings (2,339) (1,275) 12 (3,602) Obligations under finance leases (77) 17 - (60) Variable rate loan notes 2004 (14) 8 - (6) --------- --------- --------- --------- (12,037) (1,659) 3 (13,693) ========= ========= ========= ========= RECONCILIATION OF OPERATING LOSS TO NET CASH FLOWFROM OPERATING ACTIVITIES BEFORE EXCEPTIONAL ITEMS 2004 2003 £'000 £'000Continuing operationsOperating loss (6,213) (8,058)Operating exceptional items 3,683 7,266 --------- --------- Operating loss before exceptional items (2,530) (792)Depreciation of tangible assets 1,134 1,680Amortisation of intangible assets 629 629Loss on disposal of tangible assets 42 2Increase in stock (1,103) (561)Increase in debtors (1,891) (4,148)Increase in creditors 1,551 3,202Increase in provisions 2,339 118 --------- --------- Net cash flow from operating activities beforeexceptional items 171 130 ========= ========= The total net cash outflow from exceptional items during the year was £1,560,000(2003: £4,050,000). The cash outflow from exceptional costs incurred in 2004 was£189,000. Cash outflows in 2004 relating to exceptional costs incurred in 2003and prior years was £1,371,000. Depreciation of tangible assets excludes an exceptional charge of £nil (2003:£503,000) relating to accelerated depreciation on tangible fixed assets. Discontinued Operations In 2004, discontinued operations contributed £220,000 (2003: £515,000 outflow)to the net operating cash outflow, paid £nil (2003: £51,000) in respect ofservicing of finance, paid £nil (2003: £nil) in respect of taxation and utilised£nil (2003: £16,000) for capital expenditure. RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS 2004 2003 £'000 £'000 Restated+ Loss for the year attributable to shareholders (6,407) (15,605)Dividends - (87) --------- --------- Retained loss (6,407) (15,692) Other recognised (losses) gains (289) 175 Shares issued net of issue costs - 9,069 Gain on sale of nil paid rights in Employee Benefit Trust - 84 Reversal of goodwill previously written off directly to reserves - 8,706 --------- --------- Net (decrease) increase in shareholders' funds (6,696) 2,342 Equity shareholders' funds at start of year 13,502 11,608 Prior year adjustment - (448) --------- --------- Equity shareholders' funds at end of year 6,806 13,502 ========= ========= + refer note 1 STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2004 2003 £'000 £'000 Loss for the year attributable to shareholders (6,407) (15,605)Currency translation differences on foreign currency net investments (289) 175 --------- --------- Total recognised losses for the year (6,696) (15,430) ========= ========= DIVISIONAL PERFORMANCE 2004 2003 ---------------------------------------- ----------------------------------------- Profit Profit (loss) (loss) before Return Turnover before Return Turnover taxation on sales (restated taxation on sales *)Continuing operations £'000 £'000 % £'000 £'000 %Business Solutions United Kingdom 23,067 721 3.1 23,527 1,530 6.5 Training United Kingdom 23,771 (1,535) (6.5) 25,302 1,410 5.6 Resourcing Solutions United Kingdom 81,301 1,377 1.7 64,474 1,147 1.8 Mainland Europe 27,232 379 1.4 27,936 178 0.6 Parity Americas 14,489 91 0.6 17,644 1 - --------- --------- --------- --------- --------- ---------Operating total before central costs, exceptional items and goodwill amortisation 169,860 1,033 0.6 158,883 4,266 2.7 Central costs (2,934) (2,831) Net interest payable (921) (889) --------- ---------(Loss) profit before tax, goodwill amortisation and exceptional items (2,822) 546 Goodwill amortisation (629) (629)Operating exceptional items(note 2) (3,683) (5,666)Amounts written off investments - (724) --------- --------- --------- --------- 169,860 (7,134) 158,883 (6,473) Discontinued operationsBusiness Solutions Mainland Europe - 1,999 (1,598)Operating exceptional items (note 2) - (1,600)Profit (loss) on termination of operations 220 (9,000)Net interest payable - (51) --------- --------- --------- --------- 169,860 (6,914) 160,882 (18,722) ========= ========= ========= ========= Turnover and profit are stated on the basis of origin. There is nomaterial difference between turnover and profit by origin and by destination. Turnover for Resourcing Solutions in the UK as shown above excludes £2,664,000 (2003: £1,977,000) of inter-segmental turnover and £12,600,000 (2003: £15,070,000) of turnover in respect of management service contracts. Turnover for Business Solutions in the UK excludes £1,192,000 (2003: £709,000) ofinter-segmental turnover. Turnover for Training as shown above excludes £33,000of inter-segmental turnover (2003: £70,000). Of the goodwill amortisation charge for the year, £543,000 (2003: £543,000) relates to Business Solutions in the UK and £86,000 (2003: £86,000) relates to Resourcing Solutions in the UK. * refer note 1 NOTES TO THE ACCOUNTS 1. BASIS OF PREPARATION The financial information above and the notes thereto, for the year ended 31December 2004 included in this Preliminary Announcement are an extract from thefull statutory accounts for the year as defined in section 240 of the CompaniesAct 1985. These accounts have been reported on by the Company's auditors andwill be delivered to the Registrar of Companies in due course. The report ofthe auditors was unqualified and did not contain a statement under section237(2) or (3) of the Companies Act 1985. The results for the year ended 31 December 2003 are an extract from theCompany's statutory accounts for that year. Those statutory accounts have beenreported on by the Company's auditors and delivered to the Registrar ofCompanies. The report of the auditors was unqualified and did not contain astatement under Section 237(2) or (3) of the Companies Act 1985. Changes in Accounting Policies During the year, the accounting policy for revenue recognition in respect ofResourcing Solutions managed service contracts has been amended. Following thenegotiation of new managed service contracts, which have differentcharacteristics to the original managed service contracts, the directors nolonger believe that it is appropriate to treat Parity as the principal in thesecontracts and therefore revenue has been shown on a net basis. Prior yearfigures have been restated to reflect this change, resulting in a reduction inResourcing Solutions United Kingdom's revenue for 2003 of £15,070,000. There isno impact on group operating profit. UITF Abstract 38 "Accounting for ESOP Trusts" has been adopted for the firsttime in 2004. This has resulted in a reclassification of own shares of £448,000at 31 December 2003 from investments to equity shareholders' funds. Inaddition, UITF17 (Revised 2003) "Employee Share Schemes" has been adopted in2004, although this has no impact on costs in 2003 or 2004. Basis of Consolidation The consolidated financial statements incorporate the results of Parity Group plc and its subsidiary undertakings drawn up to 31 December each year. The information contained in this interim statement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The Group's Revolving Loan Facility ("RLF") with its principal banker, LloydsTSB ("LTSB"), has been successfully renegotiated to 31 December 2006. The RLF,currently for £18m, will be reduced by at least £1m following the disposal ofResourcing Solutions mainland Europe. In the unlikely event that the mainlandEurope disposal process has not been completed by 30 September 2005, LTSB willrequire the Group to take such other steps as it may require in order to achievea £1m reduction in borrowings. Progress on the sale of mainland Europe is beingmonitored closely by the Board and in the event, at any stage, that the Boardbelieves the disposal will not be completed by 30 September 2005, such otheractions to reduce debt that the Board has at its disposal will be taken in orderto allow the Group to remain within its banking facilities. The Group also has a debt purchase facility with HSBC which it uses to financeits French, German and US operations. HSBC has announced that it has withdrawnthis product and the Group's existing facility with HSBC will expire on 30 June2005. In the event that the mainland Europe disposal process has not beencompleted by 30 June 2005, HSBC has indicated that it would be willing to extendthe facility for the French and German operations to 30 September 2005 and forthe US operations to 31 December 2005. Alternative funding arrangements toreplace the US element of the HSBC facility have been explored and the Board isconfident that these could be put in place by 30 June 2005, if required.However, such debt purchase financing would not be necessary following the saleof the mainland Europe business. In the light of these facilities, the Group's cash flow forecasts and theprogress being made regarding the sale of the mainland European operations, theBoard believes that the adoption of the going concern basis is appropriate inthe preparation of the 31 December 2004 Report and Accounts. If the adoption of the going concern basis were not to be appropriate,adjustments would be required to reclassify fixed assets as current assets, toadjust assets to their recoverable values and to provide for any furtherliabilities that may arise. 2. EXCEPTIONAL COSTS AND DISCONTINUED OPERATIONS Operating exceptional costs of £3,683,000 (2003: £7,266,000) were incurredduring the year in respect of the following items: 2004 2003 £'000 £'000 Restructuring of operations Redundancy payments* 1,648 1,163 Property restructuring** 1,810 2,723 Other* 175 363 --------- --------- 3,633 4,249 Property dilapidations** 50 551 Aborted transaction costs** - 184 SSAP 24 pension charge* - 682 --------- --------- Operating exceptional costs on continuing operations 3,683 5,666 Operating exceptional costs on discontinued operations - 1,600 --------- --------- Total operating exceptional costs 3,683 7,266 Amounts written off investments - 724 --------- --------- Total exceptional costs 3,683 7,990 ========= ========= Segmental analysis of operating exceptional costs 2004 2003 £'000 £'000 Business Solutions - United Kingdom 893 1,793 Training - United Kingdom 218 710 Resourcing Solutions United Kingdom (104) 1,836 Mainland Europe 49 33 Parity Americas 273 220 Central costs 2,354 1,074 Discontinued operations - 1,600 --------- --------- 3,683 7,266 ========= ========= * Classified as staff costs under Companies Act 1985** Classified as other operating costs under Companies Act 1985 3. EARNINGS PER ORDINARY SHARE Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares in issueduring the year, excluding those held in the Employee Benefit Trust which aretreated as cancelled. For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all dilutive potential ordinaryshares. The Group has one class of dilutive potential ordinary shares, beingthose share options granted to employees where the exercise price is less thanthe average market price of the Company's ordinary shares during the year. InOctober 2003, and September 2004, the Company granted 5,585,000 and 525,000share options under the Executive Share Option Plan and 2004 Employee ShareScheme respectively. These options have an exercise price of £0.10 which is lessthan the average price of the Company's ordinary shares during the year andtherefore have been included in the diluted EPS calculations. 2004 2003 ---------------------------------------- ------------------------------------------ (Loss) earnings per share (Loss) earnings per share (Loss) (Loss) earnings Basic Diluted earnings Basic Diluted £'000 pence pence £'000 pence pence Loss per ordinaryShare (6,407) (2.24) (2.24) (15,605) (7.70) (7.70) Exceptional costsfrom continuingOperations(net of tax credit) 3,283 1.15 1.15 4,827 2.38 2.38 DiscontinuedOperations (220) (0.08) (0.08) 12,249 6.05 6.05 GoodwillAmortisation 629 0.22 0.22 629 0.31 0.31 --------- --------- --------- --------- --------- ---------(Loss) earningsper ordinaryshare beforeGoodwillamortisation,discontinuedoperations andexceptionalitems (2,715) (0.95) (0.95) 2,100 1.04 1.04 ========= ========= ========= ========= ========= ========= Supplementary basic and diluted EPS have been calculated to exclude the effectof goodwill amortisation, discontinued operations and exceptional items. Theadjusted numbers have been provided in order that the effects of goodwillamortisation, discontinued operations and exceptional items on reported earningscan be fully appreciated. The weighted average number of ordinary shares used in the calculation of basicand diluted earnings per share is as follows: 2004 2003 Average Average number numberBasici) Weighted average number of shares in issue 288,691,692 205,375,143 Adjustment for shares held by EBT (2,756,238) (2,756,238) ----------- ----------- 285,935,454 202,618,905 =========== ===========Dilutiveii) Weighted average number of shares in issue 288,691,692 205,375,143 Adjustment for share options 441,075 46,783 Adjustment for shares held by EBT (2,756,238) (2,756,238) ----------- ----------- 286,376,529 202,665,688 =========== =========== The number of ordinary shares in issue at 31 December 2004 was 288,691,692 (2003: 288,691,692). 4. DIVIDEND The Directors have not proposed a final dividend in respect of 2004 (2003: 0.03p per ordinary share). 5. RESERVES Group Capital Profit & redemption Share Other loss reserve premium reserves account Total £'000 £'000 £'000 £'000 £'000 restated At 1 January 2004 as previously stated 50 6,062 44,110 (50,706) (484) Prior year adjustment- note 1 - - - (448) (448) --------- --------- --------- --------- ---------At 1 January 2004 as restated 50 6,062 44,110 (51,154) (932) Retained loss for the year - - - (6,407) (6,407) Exchange adjustments - - - (289) (289) --------- --------- --------- --------- --------- At 31 December 2004 50 6,062 44,110 (57,850) (7,628) ========= ========= ========= ========= ========= The cumulative amount of unamortised goodwill which has been written off to reserves is £60,585,000 (2003: £60,585,000). This information is provided by RNS The company news service from the London Stock Exchange