Last checked at 12 Mar 2009 07:00
12 March 2009
PARITY GROUP PLC
UNAUDITED PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2008
Parity Group plc, the UK IT Services Company, announces its unaudited preliminary results for the year ended 31 December 2008.
Financial headlines:
Group performance1
Group revenue down 7% to £148.7M (2007: £159.9M)
Profit after tax from continuing operations of £1.2M (2007: £0.5M)
Loss after tax from discontinued operations of £4.6M (2007: £0.1M)
Net debt further reduced to £3.8M (2007: £6.6M) primarily through working capital improvement
Continuing businesses2
Revenue down 6% to £132.3M (2007: £141.3M)
Operating profit down 15% to £2.64M (2007: £3.1M)
Profit before tax3 of £1.7M (2007: £2.1M)
Profit before tax (after exceptional items) of £1.3M (2007: 1.7M)
1 From continuing and discontinued businesses
2 Excluding Training, divested February 2009
3 Before exceptional items of £371,000 (2007: £347,000)
Operational key points:
Trading environment deteriorated as the year progressed
Excellent performance in Resources business, with strong H2 revenue growth
Solutions and Training businesses badly impacted by market conditions
Disposal of Training business completed in February 2009
Action taken on cost base and sales focus
Modest focused investment in offerings, people and efficiency
Alwyn Welch, Chief Executive, commented:
"2008 was a year of mixed fortunes in the Group. Whilst the economic downturn led to slowing client buying decisions in both Training and Solutions, Resources delivered a strong performance throughout the year. Combined with a number of cost reduction actions, this allowed us to reverse a first half loss and generate a much improved trading result for the second half of the year.
"We have seen market conditions at the start of 2009 remain very difficult and unpredictable. In these conditions, visibility is low even for the near future, and we will therefore continue to manage our business in a prudent and cautious manner.
"With a better focus and profile, good positions in our chosen markets, and with net debt further reduced, the Board remains determined that the Group will emerge from the recession stronger."
Enquiries:
| Parity Group plc Alwyn Welch, Chief Executive Officer Ian Ketchin, Finance Director | 0845 873 6942 |
| The Hogarth Partnership John Olsen / Ian Payne | 020 7357 9477 |
About Parity Group plc:
Parity Group PLC is a UK-focused IT services company, operating via two core business units - Parity Resources and Parity Solutions.
Parity Resources is a leading IT recruitment specialist, with over 30 years experience in providing permanent and contract technology staff, temporary staff and managed recruitment services across all markets.
Parity Solutions specialises in providing IT, Projects and Consulting, using leading edge technologies and drawing upon the depth of experience of its consultants in Programme and Project Management.
Parity is listed on the London Stock Exchange, with a ticker of PTY.LN.
PARITY GROUP PLC
UNAUDITED PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2008
CHAIRMAN'S STATEMENT
Parity Group faces the challenges of a significant UK recession. Your Board of Directors will continually work to make the Company more efficient and cost effective, sometimes taking painful but necessary decisions.
We appreciate the cooperation, understanding and efforts of all our management and staff in difficult times. Their loyalty is not taken for granted. The Board thanks them.
Under the leadership of Alwyn Welch and Ian Ketchin we will concentrate on maintaining market leadership in our specific market sectors. Their efforts are appreciated and essential. During 2008, Alastair Macdonald retired from a now smaller Board and I thank him on your behalf for his wise counsel over many years.
We are determined to continue our focus on managing the business effectively through this recession thanks to the efforts of all.
Lord Freeman
Chairman
CHIEF EXECUTIVE'S REVIEW
INTRODUCTION
2008 was a year of very mixed fortunes in the Group. We started to feel the effects of the economic downturn in the first quarter, and the slowing of client buying decisions had an increasing impact on both Training and Solutions as the year progressed. Resources, whilst not immune to the effects of the recession, was able to deliver a strong performance throughout the year. This strength, combined with a number of cost reduction actions taken to protect the Group against the declining demand, allowed us to reverse a first half loss and generate a much improved trading result for the second half of the year.
Despite the worsening market conditions, we made a number of investments both to improve our offerings to clients and to operate the business more efficiently. We continued a series of facilities consolidations and initiated a programme of investment in our IT systems which will aid efficiency and reduce operational risk. We were able to afford this investment due to very strong cash management. Despite a relatively low level of trading profit, and some exceptional items, we reduced total net debt through good cash and working capital management. In the current difficult credit environment we gave cash generation a very high focus.
Market
Parity operates wholly from locations within the UK and Ireland, and most of our services are delivered to clients in these countries. For our continuing business, in excess of 60% of our 2008 revenue was from clients in the Public Sector.
We experienced deteriorating market conditions during the year. Many of the services we offer in Solutions are considered discretionary, or possible to delay, and as organisations in the public and private sectors have reacted to the recession they have sought to reduce their overall level of spending and applied increased pressure to prices.
In Solutions we have found many of the larger players competing for contracts in mid-sized companies, as their traditional marketplace comes under great pressure. We have also had some minor exposure to clients seeking administrative protection, writing off £50,000 in the Resources business in 2008.
We expect the economy in general, and the IT market, to continue to experience downward pressure on spending and pricing for the remainder of 2009 and this may well continue into 2010. Our high exposure to the public sector and scarcer skills is giving us some protection, but our relatively low level of multi-year contracts gives us limited visibility. We will continue to focus on niches where there is stronger relative demand during a recession.
Training Disposal
After an unsolicited approach, we announced the sale of our Training business in July. Regrettably we were frustrated when the buyers were themselves the subject of a successful hostile takeover bid a few days before our deal would have become unconditional, and as a result the sale did not complete.
We then received a number of alternative offers, and agreed to sell Training to ECS, a Dubai-based company, a transaction which was approved by shareholders, and completed, in February 2009. Training is shown as a discontinued business in the 2008 statutory results as at the year end the disposal was at an advanced stage.
Performance
Revenue for continuing businesses declined by 6% to £132.3M (2007: 141.3M) with flat revenue in Resources and a decline in Solutions. Operating profit before exceptional items for continuing businesses reduced to £3.0M (2007: £3.5M), with very good growth in Resources offset by a significant reduction in Solutions.
Group Revenue (for both continuing and discontinued businesses) declined by 7% to £148.7M (2007: 159.9M) and Operating Profit before exceptional items by 39% to £2.4M (2007: £4.0M).
From a profit before tax (and before adjustments relating to the sale of Training) of £0.7M*, we generated sufficient cash to reduce net debt by £2.8M to £3.8M. Debt reduction has been a significant focus for management and this level of net debt is the lowest for eight years.
| £m | |
| * Continuing operations profit before tax | 1.3 |
| Discontinued operations loss before tax | (3.8) |
| Goodwill write off | 2.5 |
| Disposal costs | 0.7 |
| Adjusted profit before tax | 0.7 |
OPERATIONAL REVIEW
Resources
Resources produced a very strong result despite the economic background and its impact on the wider recruitment market. Our strong position in the public sector, combined with a strategic focus on the scarcer, higher margin skills helped sustain gross margins. Good cost control drove a strong improvement in profitability, particularly in the second half of the year. In the first half of 2007 we had exited some low margin contracts. We therefore saw lower comparative revenue in the first half of 2008, but overall revenue for the year was flat at £110.1M (2007: £110.3M) due to growth in the second half.
Gross margins in our contracting business were under market pressure, but by better selling and due to our market focus we delivered a 9.3% contractor margin (2007: 8.7%). A rapid deterioration in the permanent recruitment market stalled our progression there, with gross margin from permanent growing modestly from £338,000 in H1 to £373,000 in H2. Overall gross margin for the year was £11.1M, or 10.1% (2007: £10.5M; 9.5%).
In anticipation of the impact of the recession on recruitment, we operated the business with a much tighter SG&A* cost during 2008 which in absolute terms was £7.4M, down from £7.8M in 2007. This was achieved despite investment in widening our client base, especially in the public sector, and in strengthening our SAP and permanent team.
The result was a significant increase in Operating Profit to £3.69M (2007: £2.66M), bringing the operating margin up by 1% to 3.4%. It has been our objective to achieve between 3% and 4% without a radical mix change towards permanent recruitment, and to reach this target against the economic backdrop of 2008 demonstrates the underlying strength and positioning of Parity Resources.
We will remain focused on the higher level, higher demand, skills in the IT and related areas of the market, which will be a significant advantage in a period when overall demand is now clearly reducing. Our strength in the public sector remains critical to future success, and we are working to diversify our client base into the defence, education and health segments. We are also maintaining our investment in the wider commercial sector, including senior roles in SAP, and in maintaining a good permanent recruitment offering to round-out the service that we can offer to clients. Finally we will continue to manage the business for margin, to ensure that the business performance remains robust through the recession.
* Sales, general and administrative costs (SG&A) is defined as total operating costs less cost of sales before exceptional items.
Solutions
After a very strong year in 2007, Solutions delivered a much weaker performance in 2008. Despite entering the year with a good pipeline, we experienced significant slippage on a number of potential contracts due to the deteriorating economic climate; many were indefinitely postponed or cancelled; and even some business that was won during the year was then immediately put on hold. Much of the work carried out by Solutions can become an easy target for seekers of cost savings in this recessionary climate. The impact of this, combined with a large reduction in low margin third party revenue related to large contracts, caused revenue to drop by nearly 29%.
We took a number of actions to improve sales by re-focusing the sales activity and by concentrating most effort on addressing the collaborative information management (CIM) market mainly using Microsoft Sharepoint technology. As a result we have achieved a high utilisation of these skills all year. We also reduced costs in the light of the weaker market, both in management and administrative areas and by reducing under-utilised delivery capacity. Additionally we are now making selective use of lower cost offshore resources where appropriate to improve our delivery competitiveness.
Revenue for the year was £22.1M (2007: £31M), with third party delivered revenue dropping over 60% and own staff delivered revenue falling 18%. Gross margin fell from 24.9% to 21.7%, with the benefit of the lower proportion of third party revenue only partly offsetting an under-utilisation of our own staff. SG&A costs reduced by 24%, but this was not enough to compensate for the revenue reduction and operating profit dropped to £1.3M (2007: £3.2M). Profit margin fell from 10.3% to 6.1%.
Our market focus remains on mid-sized organisations in the Public and Commercial sectors, where our size and flexibility, breadth of capability and strong delivery track record gives us a strong competitive edge. We will partner flexibly, leading or as part of consortia, to extend our sales reach.
Training
Training had a disappointing year, reversing some of the performance improvements delivered since 2005, due to the weakening economy and the distraction caused by the protracted disposal process. We experienced delays in buying decisions from large clients which, by the end of the first quarter, were clearly indicating a material downturn in training programme expenditure. This trend, of delays or cancellation of training programmes, continued through 2008 although short-term discrete spending held up in some months. As a result revenue declined 12% to £16.4M, and by 16% in H2 compared to 2007 in part due to a large spending cutback from a major, troubled, financial services client.
We worked hard throughout the year to adjust our cost base and operations to reflect the rapidly changing market. Our use of associates reduced from 53% of delivered courses in 2007 to 37% in 2008, and training centre usage improved. The mix of courses delivered continued to evolve during the year, with the core higher value courses (project, programme and service management; business systems design and other soft skills related to IT) growing to 63.1% of revenue (2007: 59.7%).
STRATEGY
Over the last three years, we have concentrated on returning our operations to profitable growth and strengthening our balance sheet. This has included the disposal of overseas operations and now Training as well as significant changes within the Company itself.
By strengthening and focusing the operations, we have been able to gain some protection from the recent downturn in our markets, reacting quickly to the changing environment and reducing debt.
We will now concentrate on our two core business units, Resources and Solutions. The priority will remain to improve operations to maximise performance in the prevailing challenging market conditions, which will include adjusting the size of our back office to reflect the reduced size of the Group.
In Resources we have a good market share and reputation, especially in the public sector. Our priority is to continue to build a recruitment business focused on high value, scarcer skill sets. This focus will allow us to sustain and improve margins in the medium term. We will also broaden our client focus both within and beyond the public sector, evolve our portfolio of related skills and gradually increase the volume of activity in our permanent recruitment division. We do not, however, intend to become a generalist supplier in the jobs market.
Solutions has demonstrated both its depth of technical capability and its ability to manage complex IT projects during the last three years. Our intention is to significantly grow the scale of this operation, especially in terms of the size of our own delivery team. This growth will be in the areas of Microsoft and Oracle technology, as well as in project and programme management capabilities and associated consulting skills. We believe that, in due course, we will need to significantly increase the size of this operation to achieve sustainable critical mass.
During the latter part of 2008, we undertook a project to revisit and revitalise our Group's mission and values. Having listened to clients, staff and partners and then engaged a cross-section of our staff, we have been able to bring greater clarity to the way in which we articulate and communicate our brand and differentiation both internally and, most importantly, externally.
MANAGEMENT AND PEOPLE
Parity is totally reliant on the people who work in our business and those who work for us as contractors and associates. We have invested in our working environment and benefits to ensure that we can attract and retain the people we need to deliver for our clients.
We are in the middle of a project to overhaul, simplify and modernise our business processes and systems, sub-contracting much of the work to a company with the appropriate ERP expertise. This investment will reduce operational costs and considerable systems risks, as well as allowing our staff to be more productive and equip them better for their core roles.
Over the last three years we have reinforced our performance management system, and introduced some element of variable compensation for almost all staff. For many this is related to the profitability of Parity Group or their unit and, with our weaker performance in 2008, the level of payments reduced significantly and for many staff at all levels of our business it was zero. We also implemented a very limited budget for salary changes in 2009, again with many staff receiving no increase. These policies are intended to be fair to all staff, to reward performance, but also to protect our business and allow it to remain competitive.
As we noted at the half year, despite the recession and some very tough decisions that we have needed to make concerning people, the quality of our delivery to clients remains very high. I would like to thank all of our staff, on behalf of the Board, for their hard work and continued support in these difficult times.
Management changes
There were three changes to the management team in 2008. At the start of the year Alan Rommel was promoted to head of the Resources business unit, having worked in the Group for most of his career. In the early Autumn Simon Wayne was appointed head of the Solutions business unit, having worked in interim roles in Solutions and Resources over the previous two years. Finally, in November Allan Pettman was promoted to head of the Training business unit.
OUTLOOK
We have seen market conditions at the start of 2009 remain very difficult and unpredictable. Client buying decisions are slow, and spending on existing contracts delayed or curtailed. In these conditions, visibility is low even for the near future, and we will therefore continue to manage our business in a prudent and cautious manner. With a better focus and profile, good positions in our chosen markets, and with net debt further reduced, the Board remains determined that the Group will emerge from the recession stronger.
Alwyn WelchChief Executive Officer
FINANCIAL REVIEW
REVENUE
| Continuing operations | 2008 £'000 | 2007 £'000 |
| Resources | 110,161 | 110,279 |
| Solutions | 22,117 | 31,034 |
| 132,278 | 141,313 |
Group revenues from continuing operations fell by £9.0M (6%) to £132.3M. The Resources business continued to perform well in the deteriorating market. In 2007 Solutions had the benefit of a particularly large contract within its results. A weak order book at the start of 2008 was compounded by a trend of customers delaying the letting of contracts and reducing the scope of work on contracts awarded. Consequently the Continuing Group's decline in revenue was almost all attributable to Solutions.
OPERATING PROFIT
| Continuing operations | 2008 £'000 | 2007 £'000 |
| Resources | 3,691 | 2,656 |
| Solutions | 1,351 | 3,195 |
| Operating profit before central costs and exceptional items | 4,628 | 5,851 |
| Central costs | (2,034) | (2,396) |
| Operating profit before exceptional items | 3,008 | 3,455 |
The operating results of the continuing business were mixed in 2008. Resources improved gross margin on flat revenues and managed cost carefully to deliver an increase in operating profit of more then £1.0M. By contrast the fall in Solutions revenue resulted in a significant drop in operating profit as staff were underutilised
Overall central costs reduced owing to a number of factors. There was a net share-based payment credit relating to central staff of £317,000 in 2008 compared to a charge of £282,000 in 2007. In addition the Board has reduced in size and there was a reduction of £214,000 in bonus payments for 2008.This was partly offset by a charge of £414,000 in respect of onerous leases. In the current economy sub-tenants are using every lease break to attempt to reduce their cost base and as a result our estimates of rental shortfalls have now been revised.
DISPOSAL AND DISCONTINUED OPERATIONS
On 27 February 2009 we completed the sale of the Training business to ECS Ltd (a Dubai-based company) for consideration of up to £3.0M, including £1.5M dependent on future revenue performance. Under the Sale and Purchase agreement Parity is required to deliver Parity Training to the buyer with minimum net assets of £1.155M. This disposal simplifies the business and improves focus. As a result of the disposal the Group must again address the cost base, as certain costs previously charged across three business units will now be shared across two. The exercise to minimise "stranded cost" is well underway.
The Training business was hit hard by the economic slowdown with revenues falling by £2.25M to £16.4M. Despite the actions taken in 2007 and throughout 2008 to reduce fixed costs, this fall in revenues resulted in a significant turnaround in the operating result. The loss for the year including the loss on disposal was £4.6M.
The wind-up of the overseas businesses disposed of in 2006 continues.
EXCEPTIONAL ITEM
The reduction in Solutions revenue in 2008 necessitated the re-sizing of the business. This together with moderate central cost changes resulted in an exceptional restructuring charge of £371k in the year. These restructuring costs related to redundancies. Exceptional costs in 2007 related to charges for onerous leases.
FINANCE COSTS
Interest charges includes interest on the Group's pension liabilities of £827,000 (2007: £800,000) in accordance with IAS 19. Interest costs on borrowings fell by £103,000 to £489,000 owing to falling interest rates and a strong focus on cash management in the year.
TAXATION
There was a tax charge of £129,000 on continuing operations (2007: £1.24M).
CASH FLOW AND NET DEBT
Cash flow of £3.5M was generated from operations during the year (2007: £1.1M). This was achieved through a concerted effort to collect old trading debtors. Net debt improved by £2.8M from an opening position of £6.6M to the closing net debt of £3.8M. The Group has invoice financing facilities of up to £20M available subject to an appropriate level of trade debtors. The bank's next annual review of the facility will be in November 2009.
Days sales outstanding stood at 30 days at the end of 2008 compared to 35 days at the end of 2007.
EARNINGS PER SHARE AND DIVIDEND
The weighted average number of shares used in the calculation of basic earnings per share was 37.9 million (2007: 37.9 million). The basic loss per share was 9.08 pence (2007: earnings of 1.08 pence. The basic earnings per share from continuing operations was 3.14 pence (2007: 1.30 pence).
The Board does not propose a dividend for 2008 (2007: nil).
RISKS AND UNCERTAINTIES
There are a number of potential risks and uncertainties that could have an adverse impact on the Group's long-term performance. Risk management is seen as an important element of internal control and is used to mitigate the Group's exposure to such risks. The key risks facing the business and how we address them are outlined below.
Market and client risk
Risk from losing out to our competitors is minimised by ensuring we maintain a competitive edge through strong relationship management and quality of service delivery.
Our exposure to market risks is further limited by the fact that we serve a diverse range of clients with the largest accounting for less than 6% of turnover of the Continuing Group in 2008. Sixty-three per cent of turnover came from the public sector.
The Company constantly reviews levels of fixed cost in order to reduce the impact of a downturn in revenue.
Resources
The continuing consolidation in the market combined with the economic downturn brings pricing pressure. Parity's response is to focus on higher margin, higher level skill areas that are not so vulnerable to low margin, high volume competitors.
Solutions
The increasing trend to offshore IT development could restrict Parity's ability to win new work. The Company's approach is to focus on smaller contracts where the additional cost of managing the outsourced service would offset the lower delivery cost. Our core competence is in project management and we believe this will always require on-site presence.
Contract risk
Parity's contracts can be complex and each one is different. The operation and management of those contracts is key to successful performance.
The Company has established detailed and formal controls to manage the risks associated with the take on of new clients and the continued supply of services to ensure that contractual obligations are met over the life of a contract.
Human Resources
Our people are an important element of our service and having appropriately trained staff helps us mitigate the risk of poor service delivery. Our performance management system ensures that staff have clear objectives and are appropriately rewarded for the outcome, while also identifying training and development needs.
Technology risk
As an IT services provider we rely on our IT, telecommunications and infrastructure systems to perform and manage the services we provide to clients. The Company engages with its service providers and reviews its own disaster recovery systems regularly in order to minimise the risk of prolonged disruption to systems.
Regulatory and legal
The Board also recognises that non-compliance with relevant laws and regulations can result in substantial fines or penalties. Suitable controls are built into our service delivery processes.
Ian Ketchin
Group Finance Director
Parity Group plc
Consolidated income statement
For the year ended 31 December 2008
_______________________________________________________________________
| | Notes | Before exceptional items 2008 £’000 unaudited | Exceptional items 2008 £’000 unaudited | After exceptional items 2008 £’000 unaudited | Before exceptional items 2007 £’000 audited (see note 1) | Exceptional Items 2007 £’000 audited (see note 1) | After exceptional items 2007 £’000 audited (see note 1) | |
| Continuing operations Revenue | 2 | 132,278 | - | 132,278 | 141,313 | - | 141,313 | |
| Employee benefit costs | | (14,479) | (371) | (14,850) | (15,551) | - | (15,551) | |
| Depreciation | | (327) | - | (327) | (318) | - | (318) | |
| All other operating expenses | | (114,464) | | (114,464) | (122,029) | (347) | (122,376) | |
| Total operating expenses | | (129,270) | (371) | (129,641) | (137,858) | (347) | (138,205) | |
| Operating profit | 2 | 3,008 | (371) | 2,637 | 3,455 | (347) | 3,108 | |
| Finance income Finance costs | 4 5 | 1 (1,316) | - - | 1 (1,316) | 15 (1,392) | - - | 15 (1,392) | |
| Profit/(loss) before tax | | 1,693 | (371) | 1,322 | 2,078 | (347) | 1,731 | |
| Taxation | | | | | | | | |
| Write down of deferred tax asset and impact of rate change | | - | - | - | (132) | - | (132) | |
| Other taxation | | (236) | 107 | (129) | (1,209) | 104 | (1,105) | |
| | 6 | (236) | 107 | (129) | (1,341) | 104 | (1,237) | |
| Profit/(loss) for the year from continuing operations | 2 | 1,457 | (264) | 1,193 | 737 | (243) | 494 | |
| Discontinued operations Loss for the year from discontinued operations | 2 | (4,641) | - | (4,641) | (84) | - | (84) | |
| (Loss)/profit for the year attributable to equity shareholders | | (3,184) | (264) | (3,448) | 653 | (243) | 410 | |
| Basic (loss)/earnings per share on profit for the year | | | | (9.08p) | | | 1.08p | |
| Basic earnings per share from continuing operations | | | | 3.14p | | | 1.30p | |
| Diluted (loss)/earnings per share on profit for the year | | | | (9.08p) | | | 1.07p | |
| Diluted earnings per share from continuing operations | | | | 3.14p | | | 1.29p | |
Parity Group plc
Statements of recognised income and expense
for the year ended 31 December 2008
| | Consolidated | |
| | 2008 £’000 unaudited | 2007 £’000 audited (see note 1) |
| Exchange differences on translation of foreign operations | (612) | (111) |
| Actuarial gains on defined benefit pension schemes | 116 | 1,090 |
| Deferred taxation on items taken directly to equity | (32) | (328) |
| Net (expense)/income recognised directly in equity | (528) | 651 |
| (Loss)/ profit for the year | (3,448) | 410 |
| Total recognised income and expense for the year attributable to equity shareholders | (3,976) | 1,061 |
Parity Group plc
Balance sheet
As at 31 December 2008
| Consolidated | ||
| As at 31.12.08 £'000 unaudited | As at 31.12.07 £'000audited (see note 1) | |
| Non-current assets | ||
| Goodwill | 4,594 | 7,116 |
| Intangible assets - software | 67 | 370 |
| Property, plant and equipment | 1,343 | 2,071 |
| Available for sale financial assets | 130 | 124 |
| Deferred tax assets | 1,813 | 2,635 |
| 7,947 | 12,316 | |
| Current assets | ||
| Work in progress | 638 | 706 |
| Trade and other receivables | 24,719 | 35,680 |
| Cash and cash equivalents | 369 | 770 |
|
| 25,726 | 37,156 |
| Assets classified as held for sale and included in disposal groups | 4,055 | - |
| Total assets | 37,728 | 49,472 |
| Current liabilities | ||
| Financial liabilities | (4,310) | (7,397) |
| Trade and other payables | (16,410) | (24,168) |
| Current tax liabilities | (944) | (268) |
| Provisions | (444) | (967) |
| (22,108) | (32,800) | |
| Non-current liabilities | ||
| Provisions | (864) | (1,067) |
| Retirement benefit liability | (1,946) | (2,846) |
| (2,810) | (3,913) | |
| Liabilities classified as held for sale and included in disposal groups | (4,151) | - |
| Total liabilities | (29,069) | (36,713) |
| Net assets | 8,659 | 12,759 |
| Shareholders' equity | ||
| Called up share capital | 15,079 | 15,079 |
| Share premium account | 20,134 | 20,134 |
| Other reserves | 44,160 | 44,160 |
| Retained earnings | (70,714) | (66,614) |
| Total shareholders' equity | 8,659 | 12,759 |
Parity Group plc
Cash flow statements
for the year ended 31 December 2008
| Consolidated | |||
| 2008 £'000 unaudited | 2007 £'000 audited (see note 1) | ||
| Cash flows from operating activities | |||
| Cash generated from operations | 3,897 | 1,711 | |
| Interest received | - | 15 | |
| Interest paid | (488) | (592) | |
| Taxation received | 100 | - | |
| Net cash from operations | 3,509 | 1,134 | |
| Cash flows from investing activities | |||
| Purchase of intangible assets - software | (65) | (295) | |
| Purchase of property, plant and equipment | (426) | (1,913) | |
| Net cash used in investing activities | (491) | (2,208) | |
| Cash flows from financing activities | |||
| Issue of ordinary shares | - | 118 | |
| Net movement on invoice financing | (3,085) | 2,017 | |
| Payment of capital element of finance leases | (2) | (19) | |
| Net cash (used in)/from financing activities | (3,087) | 2,116 | |
| Net increase in cash and cash equivalents | (69) | 1,042 | |
| Cash and cash equivalents at beginning of the year | 770 | 260) | |
| Net foreign exchange difference | (201) | (12) | |
| Cash and cash equivalents at end of the year | 500 | (770) | |
Parity Group plc
Unaudited Notes to the Preliminary Results
1 Accounting Policies
Basis of preparation
These preliminary results do not constitute full Financial Statements within the meaning of section 240 of the Companies Act 1985. The financial information for the year ended 31 December 2008 has been extracted from the unaudited financial statements of Parity Group plc for the year ended 2008 which will be delivered to the Registrar of Companies in due course. The results for the year ended 31 December 2007 have been extracted from the audited accounts for the year ended 31 December 2007. Figures for the year ended 31 December 2007 contained in the consolidated income statement, consolidated cash flow statement and related notes have been have been restated to present the Training operation within discontinued operations. This restatement has not impacted the profit attributable to equity shareholders. The auditors issued an unqualified opinion on the Group's statutory financial statements for the year ended 31 December 2007, which have been filed with the Registrar of Companies and did not contain statements under Section 237 (2)-(3) of the Companies Act 1985, or include reference to any matters to which the auditors wished to draw attention by way of emphasis without qualifying their report.
This preliminary announcement has been prepared on the basis of the accounting policies set out in the Group financial statements as disclosed in the annual accounts to 31 December 2007.
These preliminary results of the Group for the year ended 31 December 2008 were approved by the directors on 12 March 2009.
2 Segmental analysis
The continuing Group is organised into two primary business segments: Resources and Solutions.
| Consolidated | ||
| 2008 £'000 unaudited | 2007 £'000 audited (see note 1) | |
| Revenue - continuing operations | ||
| Resources | 110,161 | 110,279 |
| Solutions | 22,117 | 31,034 |
| 132,278 | 141,313 |
| 2008 £'000 unaudited | 2007 £'000 audited (see note 1) | |
| Revenue - discontinued operations | ||
| Training | 16,380 | 18,625 |
The Group operates solely in the United Kingdom and Republic of Ireland.
| Before exceptional items | Exceptional items | Total | |||||||
| Continuing operations | 2008 £'000 unaudited | 2007 £'000 audited (see note 1) | 2008 £'000 unaudited | 2007 £'000 audited (see note 1) | 2008 £'000 unaudited | 2007 £'000 audited (see note 1) | |||
| Operating results Resources | 3,691 | 2,656 | - | - | 3,691 | 2,656 | |||
| Solutions | 1,351 | 3,195 | (331) | - | 1,020 | 3,195 | |||
| 4,628 | 5,851 | (331) | - | 4,297 | 5,851 | ||||
| Central costs | (2,034) | (2,396) | (40) | (347) | (2,074) | (2,743) | |||
| Operating profit | 3,008 | 3,455 | (371) | (347) | 2,637 | 3,108 | |||
| Finance income | 1 | 15 | - | - | 1 | 15 | |||
| Finance costs | (1,316) | (1,392) | - | - | (1,316) | (1,392) | |||
| Profit/(loss) before tax | 1,693 | 2,078 | (371) | (347) | 1,322 | 1,731 | |||
| Taxation | (236) | (1,341) | 107 | 104 | (129) | (1,237) | |||
| Profit/(loss) for the year from continuing operations | 1,457 | 737 | (264) | (243) | 1,193 | 494 | |||
| Before exceptional items | Exceptional items | Total | ||||
| Discontinued operations | 2008 £'000 unaudited | 2007 £'000 audited (see note 1) | 2008 £'000 unaudited | 2007 £'000 audited (see note 1) | 2008 £'000 unaudited | 2007 £'000 audited (see note 1) |
| Operating results | ||||||
| Resources | (5) | 314 | - | - | (5) | 314 |
| Training | (3,851) | 557 | - | - | (3,851) | 557 |
| (3,856) | 871 | - | - | (3,856) | 884 | |
| Finance income | - | 13 | - | - | - | 13 |
| Finance costs | (1) | - | - | - | (1) | |
| (Loss)/profit before tax | (3,857) | 884 | - | - | (3,857) | 884 |
| Taxation | (784) | (968) | - | - | (784) | (968) |
| Loss for the year from discontinued operations | (4,641) | (84) | - | - | (4,641) | (84) |
The operating result for Training includes a goodwill impairment of £2,522,000 and costs of disposal of £745,000.
3 Exceptional items
| Continuing operations | 2008 £'000 unaudited | 2007 £'000 audited (see note 1) | |
| Restructuring | 371 | - | |
| Property restructuring | - | 347 |
The exceptional charge of £371,000 for 2008 for continuing operations relates to restructuring costs. There have been a number of redundancies across the Group in order to adjust the business to the current market. The tax credit relating to the exceptional item is £107,000.
The exceptional charge of £347,000 for 2007 for continuing operations relates to unoccupied property in the UK. The tax credit relating to the exceptional item for 2007 was £104,000.
4 Finance income
| 2008 £'000 unaudited | 2007 £'000 audited (see note 1) | |||
| Bank interest receivable | 1 | 15 |
5 Finance costs
| 2008 £'000 unaudited | 2007 £'000 audited (see note 1) | |||
| Bank interest payable | 489 | 592 | ||
| Post retirement benefits | 827 | 800 | ||
| Total finance costs | 1,316 | 1,392 |
The bank interest payable is in respect of the Group's invoice financing facilities.
6 Taxation
| 2008 £'000 unaudited | 2007 £'000 audited (see note 1) | |||
| Current tax | ||||
| Continuing operations | 141 | 140 | ||
| Discontinued operations | (18) | (82) | ||
| 123 | 58 | |||
| Deferred tax | ||||
| Continuing operations | (12) | 1,097 | ||
| Discontinued operations | 802 | 1,050 | ||
| 790 | 2,147 | |||
| Taxation charge | 913 | 2,205 |
The 2008 tax charge includes a credit of £107,000 (2007: £104,000) in respect of exceptional items. In addition, the tax charge above includes £802,000 (2007: £850,000) arising as a result of the derecognition of deferred tax assets where recovery is not expected in the foreseeable future. In 2007 there was a charge of £189,000 to reflect the reduction of the deferred tax asset as a result of the change in corporation tax rate at which relief for past losses will be received from 30% to 28%.
The total tax charge relating to continuing operations is £129,000 (2007: £1,237,000).
| Continuing operations | 2008 £'000 unaudited | 2007 £'000 audited (see note 1) | ||
| Analysis of tax charge for the year | ||||
| Current tax | ||||
| Tax on profits for the current year | 141 | 140 | ||
| Deferred tax | ||||
| Origination and reversal of temporary timing differences | 240 | 865 | ||
| Impact of change in corporation tax rate | - | 132 | ||
| Adjustments in respect of prior periods | (252) | 100 | ||
| (12) | 1,097 | |||
| Total tax charge on continuing operations | 129 | 1,237 |
| Tax on items charged to equity | 2008 £'000 | 2007 £'000 | ||
| Deferred tax charge relating to defined benefit pension scheme | 32 | 328 | ||
Reconciliation of the total tax charge
The tax charge in the income statement for the year differs from the standard rate of Corporation tax in the UK of 28.5% (2007:30%). The differences are reconciled below.
| 2008 £'000 unaudited | 2007 £'000 audited (see note 1) | |||
| Profit on ordinary activities before tax | 1,322 | 1,731 | ||
| Profit on ordinary activities multiplied by rate of corporation tax in the UK of 28.5% (2007: 30%) | 377 | 519 | ||
| Effects of: | ||||
| Adjustments in respect of prior periods - deferred tax | (252) | 100 | ||
| Adjustments in respect of prior periods - current tax | 123 | - | ||
| Impact of change in corporation tax rate | - | 132 | ||
| Disallowable expense | 34 | 203 | ||
| Other | (153) | 283 | ||
| Tax charge on continuing operations | 129 | 1,237 | ||
| Taxation charge on discontinued operations | 784 | 968 | ||
| Total tax charge for year | 913 | 2,205 |
7 Discontinued operations
| 2008 £'000 unaudited | 2007 £'000 audited (see note 1) | |
| Pre tax (loss)/profit from discontinued operations | (3,857) | 884 |
| Taxation | (784) | (968) |
| Total | (4,641) | (84) |
Cash flows from discontinued operations
| 2008 £'000 unaudited | 2007 £'000 audited (see note 1) | |
| Net cash flows used in operating activities | 668 | (241) |
| Net cash flows from investing activities | (297) | (670) |
| Total | 371 | (911) |
Discontinued operations contributed £16,380,000 (2007: £18,625,000) to revenue, other income of £nil (2007:£314,000), £20,237,000 (2007: £18,055,000) to expenses and the taxation relating to discontinued operations was £784,000 (2007: £968,000).
8 Earnings per ordinary share
Basic earnings per share is calculated by dividing the basic earnings for the year by the weighted average number of fully paid ordinary shares in issue during the year, less those shares held by the ESOP Trust, which are treated as cancelled. The ESOP Trust held 43,143 shares at 31 December 2008 (2007:43,143).
Diluted earnings per share is calculated on the same basis as the basic earnings per share with a further adjustment to the weighted average number of fully paid ordinary shares to reflect the effect of all dilutive potential ordinary shares. The Group has one class of potential dilutive ordinary shares being those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year. These options, held under the Executive Share Option Scheme, are not dilutive as the performance criteria had not been met.
In March 2008 and September 2008 respectively the Company granted 240,000 and 1,100,000 options under the Executive Share Option Scheme.
| Earnings 2008 £'000 unaudited | Weighted average number of shares 2008 £000's unaudited | Earnings per share 2008 Pence unaudited | Earnings 2007 £'000audited (see note 1) | Weighted average number of shares 2007 £000'saudited (see note 1) | Earnings per share 2007 Penceaudited (see note 1) | |
| Basic (loss)/earnings per share | (3,448) | 37,979 | (9.08) | 410 | 37,896 | 1.08 |
| Effect of dilutive options | - | 468 | ||||
| Diluted (loss)/earnings per share | (3,448) | 38,979 | (9.08) | 410 | 38,464 | 1.07 |
| Basic earnings per share from continuing operations | 1,193 | 37,979 | 3.14 | 494 | 37,896 | 1.30 |
| Effect of dilutive options | - | 468 | ||||
| Diluted earnings per share from continuing operations | 1,193 | 38,979 | 3.14 | 494 | 38,464 | 1.28 |
The denominator used in the earnings per share calculations is the adjusted weighted average number of ordinary shares in issue.
As at 31 December 2008 the number of ordinary shares in issue was 38,021,784 (2007: 38,021,784).
Basic and diluted loss per share from discontinued operations was 12.22p (2007: basic 0.22p, diluted 0.21p).
9 Assets and liabilities classified as held for sale and in disposal groups
The major classes of assets and liabilities comprising the operations classified as held for sale are set out below. An impairment loss of £2,522,000 has been recognised against the goodwill of the Training division on the classification of these operations as held for sale.
| 31 December 2008 | ||
| £000 unaudited | ||
| Intangibles - software | 274 | |
| Property, plant and equipment | 488 | |
| Trade and other receivables | 3,162 | |
| Cash and cash equivalents | 131 | |
| Total assets classified as held for sale | 4,055 | |
| Trade and other payables | 4,038 | |
| Provisions | 113 | |
| Total liabilities associated with assets classified as held for sale | 4,151 | |
| Net liabilities of disposal group | (96) |
10 Reconciliation of operating profit to net cash flow
| Consolidated | |||
| 2008 £'000 unaudited | 2007 £'000 audited (see note 1) | ||
| Continuing operations Profit for the year | 1,193 | 494 | |
| Adjustments for: | |||
| Tax | 129 | 1,237 | |
| Depreciation and amortisation | 400 | 318 | |
| Equity settled share based payments | (159) | 446 | |
| Loss on disposal of property, plant and equipment | - | 21 | |
| Finance income | (1) | (13) | |
| Finance costs | 1,316 | 1,392 | |
| Changes in working capital | |||
| Decrease in work in progress | 68 | 292 | |
| Decrease/(increase) in trade and other receivables | 6,005 | 4,087 | |
| Decrease in trade and other payables | (3,503) | (3,879) | |
| Decrease in provisions | (607) | (876) | |
| Change in retirement benefit liability | (1,612) | (1,567) | |
| Cash from/(used in) continuing operations | 3,229 | 1,952 | |
| Discontinued operations | |||
| Loss for the year | (4,641) | (84) | |
| Adjustments for: | |||
| Tax | 784 | 968 | |
| Depreciation and amortisation | 237 | 148 | |
| Equity settled share based payments | 35 | 105 | |
| Loss on disposal of property, plant and equipment | 123 | ||
| Change in fair value of available for sale assets | (6) | 26 | |
| Impairment of goodwill | 2,522 | - | |
| Finance income | - | (13) | |
| Finance costs | 1 | - | |
| Changes in working capital | |||
| Decrease in trade and other receivables | 1,742 | (528) | |
| Decrease in trade and other payables | (123) | (727) | |
| Decrease in provisions | (6) | (136) | |
| Cash from/(used in) discontinued operations | 668 | (241) | |
| Total net cash flow from operating activities | 3,897 | 1,711 | |
Cash generated from operations includes cash outflows relating to exceptional items recorded in prior years of £784,000 (2007: £880,000).
11 Consolidated reconciliation of net cash flow to movement in net debt
| Consolidated | ||
| 2008 £'000 unaudited | 2007 £'000 audited (see note 1) | |
| (Decrease)/increase in cash in the year | (69) | 46 |
| Decrease in overdrafts | - | 996 |
| (Decrease)/increase in cash and cash equivalents | (69) | 1,042 |
| Decrease/(increase) in invoice financing facility | 3,085 | (2,017) |
| Repayment of obligations under finance leases | 2 | 19 |
| Exchange movements | (201) | (12) |
| Movement in net debt in the year | 2,817 | (968) |
| Net debt at 1 January | (6,627) | (5,659) |
| Net debt at 31 December | (3,810) | (6,627) |
| Net debt at 31 December comprise: | ||
| Cash and cash equivalents | 500 | 770 |
| Financial liabilities - current | (4,310) | (7,397) |
| (3,810) | (6,627) | |
12 Changes in Shareholders' Equity
| Consolidated | Share capital £'000 | Deferred shares £'000 | Share premium reserve £'000 | Other reserves £'000 | Retained earnings £'000 | Total £'000 |
| At 1 January 2008 | 760 | 14,319 | 20,134 | 44,160 | (66,614) | 12,759 |
| Net loss for the year | - | - | - | - | (3,448) | (3,448) |
| Net loss recognised directly in equity | - | - | - | - | (528) | (528) |
| Share options - value of employee services | - | - | - | - | (124) | (124) |
| At 31 December 2008 | 760 | 14,319 | 20,134 | 44,160 | (70,714) | 8,659 |
| Consolidated | Share capital £'000 | Deferred shares £'000 | Share premium reserve £'000 | Other reserves £'000 | Retained earnings £'000 | Total £'000 |
| At 1 January 2007 | 756 | 14,319 | 20,020 | 44,160 | (68,226) | 11,029 |
| Net profit for the year | - | - | - | - | 410 | 410 |
| Net gain recognised directly in equity | - | - | - | - | 651 | 651 |
| Exercise of employee share options | 4 | - | 114 | - | - | 118 |
| Share options - value of employee services | - | - | - | - | 551 | 551 |
| At 31 December 2007 | 760 | 14,319 | 20,134 | 44,160 | (66,614) | 12,759 |
The Board is not proposing a dividend for the year (2007: nil pence per share).
13 Post retirement benefits
The Group provides employee benefits under various arrangements, including through a defined benefit and defined contribution plans, the details of which are disclosed in the Annual Report and Accounts.
14 Commitments and contingencies
The Group leases various buildings which operate within all segments. The leases are non-cancellable operating agreements with varying terms and renewal rights. The Group also has various other non-cancellable operating leases.
15 Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are therefore not disclosed in this note. There were no material related party transactions requiring disclosure either in 2008 or 2007.
16 Post balance sheet events
On 29 January 2009 the Company announced it had agreed to sell Parity Training Limited to ECS Limited, a Dubai-based company, for up to £3.0M in cash, half of which is contingent on certain revenue targets being met. Under the Sale and Purchase agreement Parity is required to deliver Parity Training to the buyer with minimum net assets of £1.155M. This was approved by shareholders at an EGM on 19 February 2009 and the transaction was completed on 27 February 2009.