Parity Regulatory News (PTY)

14 Mar 2007 07:02

Parity Group PLC14 March 2007 14 March 2007 Embargoed until 07.00am 14.03.07 PARITY GROUP PLC 2006 Preliminary Results Parity returns to operating profit and revenue growth Parity Group plc ("Parity" or "the Group"), a leading UK IT services groupannounces its preliminary results for the year ended 31 December 2006. Financial Highlights * Group turnover from continuing operations up 16% to £156.8m (2005: £135.1m) * Operating profit before exceptional items and goodwill impairment £1.4m (2005: loss of £1.9m) * Reported operating profit £0.8m (2005: loss of £6.7m) * Reported loss before tax (for continuing operations) £0.8m (2005: loss of £8.6m) * Profit after tax (after discontinued operations) £0.8m (2005: loss of £9.2m) * Net debt at year end reduced by 70% to £5.7m (2005: £19.1m) * Balance sheet successfully strengthened, and further progress made on property disposals, exits and sub-leases resulting in cash savings * Earnings per ordinary share on profit for the year 2.99p (2005: loss 129.73p) Operational Highlights * Resources grew ahead of market rate, with revenues up 24%, operating profit (before exceptionals) up 65% and improved margins * Solutions returned to profit, and experienced strong growth in H2, with revenue increasing by 38% from H1 to H2, and order book built for delivery in 2007 * Training transitioned from significant loss in 2005 to operating profit (before exceptionals and goodwill impairment) of £0.3m (2005: loss £1.2m), through growth in soft skills business and cost reductions * Completion of overseas disposal programme * Sales, General and Administrative (SG&A) costs reduced by 13% Commenting on the results, Parity Chairman John Hughes said: "2006 has been a year of very substantial progress for the Group. The move to aUK-centric strategy was successfully completed in the first half of the year andthe actions taken in 2005 to drive down UK costs delivered the expectedbenefits. The initiatives undertaken during 2006 have resulted in majoroperational performance improvements in each of our three areas of business, asignificantly stronger balance sheet, a quality team of operational businessleaders and strong on-going relationships with our customers." Alwyn Welch, Chief Executive Officer, added: "The Group has made very substantial progress over the last year. This growth isevidence of our market focus and alignment, and the skills and professionalismof all those who identify, win and deliver business." Enquiries:Parity Group PLC 020 7832 3500John Hughes, ChairmanAlwyn Welch, Chief Executive Officer 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 2006 has been a year of substantial progress for the Group. The move to aUK-centric strategy was completed in the first half of the year and the actionstaken in 2005 to drive down UK costs delivered the expected benefits.Importantly all three of our business units returned to operating profitabilitywith strong growth achieved in both Resources and Solutions. The strengthened leadership team under the direction of Alwyn Welch has madesubstantial progress in improving operations, getting closer to the customersand strengthening our sales and marketing capabilities. The actions taken acrossthe business to improve our go-to-market capabilities have demonstrated success,not least in Solutions where new order growth was achieved for the first time ina number of years, resulting in revenue growth, an increased order book and asignificant improvement in operating profitability. Training, where our focuswas on returning the business to profitability rather than striving for growth,also delivered the improvements we sought. Our plan to improve margins and henceprofitability in Resources whilst still growing revenues at an above market ratehas also borne fruit. We continue to take actions to reduce the burden of excess property, the benefitof which has shown in the 2006 financials and is expected to deliver furtherimprovements in future periods. We shall continue to drive out costs wherever wecan while at the same time improving our new orders rate and ensuring that wecontinue the quality delivery on which our brand is founded. The fund raising completed in 2006 substantially strengthened our balance sheetfacilitating one of our key objectives which remains to drive the entirebusiness to sustainable positive operating cash flow. Market conditions lead us to believe that the performance improvements we haveseen should continue in 2007, thanks to the skilled resources we provide, thenumber and type of projects underway and our initiatives to increase the highervalue added elements of all our businesses. We are seeing good opportunities forParity in early 2007 and believe that we are well positioned in a market whichcontinues to grow, albeit modestly. While the challenges of the training markethave had some impact on the rate of our recovery, the changes made in both thecost structure and the improvement in focus and sales channels should improveour position relative to 2006. In the Solutions business the outlook for futuregrowth both in revenue and profitability terms remains positive and ourResources activity will focus on remaining nimble whilst driving better returnsfrom the business, albeit perhaps with a slowing rate of revenue growth. Today we can reflect on major operational improvements in each of our threeareas of business, a significantly stronger balance sheet, a first rate ChiefExecutive and high quality team of business unit heads and an on-going strongrelationship with our customers. In the context of the progress made by the newmanagement team and the future needs of the business, my Board colleagues and Ihave agreed that it would now be appropriate to put in place a Board structureled by a Non-Executive Chairman for whom we have already initiated a searchprocess. I look forward to continuing to serve the company as Deputy Chairmanand to contributing to the continued creation of shareholder value - I intend tofocus on specific aspects of corporate development and very particularly insupporting the leadership team on strategic sales and marketing initiatives. Ibelieve the steps outlined above will underpin what we all perceive to be apositive outlook for the Group in 2007 and beyond. John Hughes Executive Chairman Chief Executive's Review Introduction Parity has been working through a very significant transformation for more than18 months. The strategy outlined, and actions commenced in 2005 have beeninstrumental in returning the Group to growth and real profitability. Much workstill remains to be completed, but we have now laid the foundations for a moresoundly based business in the future. The Group has exited 2006 with eachbusiness unit in profit, a lower cost base and a clear vision of where it needsto be focused in the market. With strong support from shareholders we have significantly reduced debt and,despite the need to fund restructuring, through good cash management we havefunded a modest investment in future product offerings and in our people.Finally we completed the disposal of all overseas operations during the firsthalf of the year, so Parity is today a business exclusively operating in the UKand Irish marketplace. Group revenues, from continuing operations, grew 16% to £156.8m (2005 £135.1m)due to strong growth in Resources throughout the year and in Solutions in thesecond half. Operating profit (*before exceptional items and impairment ofgoodwill) has shown sustained improvement each half year starting in 2005 andaccelerating in 2006. For the year Operating profit (*) of £1.4m was asubstantial improvement of £3.3m over 2005, with all business units deliveringgood margin improvement. This, combined with reducing Sales, General andAdministrative (SG&A) costs and interest payments, helped deliver a profitbefore tax in the second half of 2006 (the first such profit from the operationssince H1 2004). Resources Parity Resources delivered strong growth for the third year running. Revenueincreased 24%, to £114.5m (2005: £92.4m). This was due to good progress in thepublic sector combined with contract extensions in the commercial market.Operating profit (before exceptionals) increased by 65% to £2.7m. Price pressurein certain large commercial clients was offset by volume growth from publicsector clients and controlled growth in SG&A costs. Permanent recruitment was less satisfactory, in a strong market, and this had adilutive impact on margins. However we started to invest in re-building thePermanent team in the second half, and this together with a re-orientation ofthe Spot market team is expected to show returns during 2007. Deliveringsustainable margin improvement remains a high priority in this business unitwith further work to achieve this in 2007. Sales successes in the year included the Government's Catalist buying frameworkfor both Specialist Contractors and Interim Managers; and good wins at publicsector organisations such as the Department for Constitutional Affairs,Department of Work and Pensions and NHS Services for Scotland, as well asseveral local Government organisations. In the commercial domain we achievedwins and extended or renewed contracts at organisations as diverse as Shell, BT,MBNA and the FSA. We believe that our strength and quality in delivery,especially of our focused skills, were critical to building this strong clientbase. Solutions Parity Solutions saw an impressive transition during the year. We entered theyear with a weak order book, and declining business, principally due to anunacceptable sales performance in prior periods. Consequently we made a numberof important management changes in this business unit, with a particular focuson tight control in the short-term whilst building a strong sales team. Revenue for the year grew by 6% to £23.9m (2005: 22.6m), and more significantly,and as a direct result of these people changes, revenue in the second half grewby 33% over H2 2005, to £13.9m. This was a sequential growth of 38% over thefirst half of 2006. Despite the re-building of our sales capability, we reducedSG&A costs by 18% in 2006. The combination of these successes resulted in a 3.2%margin improvement over 2005, bringing this business unit back to profit, and inH2 we delivered 5% margin. We have an excellent reputation for the delivery of technology projects, andthis underpinned our sales improvement as well as the turnaround in profits. Wealso have a project management culture that combines strong delivery with a wayof working with clients that is much more cooperative than many of ourcompetitors, and this serves as a clear differentiator. These factors were verymaterial in helping us win a £15m plus fixed price contract with NorthernIreland Electricity, to support the deregulation of the Irish electricitymarket. This involves managing a number of large sub-contractors, and meetingtight deadlines. We are making good progress in the main part of this contractwhere work started in October. We are also establishing a strong position in the new Microsoft Sharepointserver 2007 technology, particularly for building web portals, winning projectsin the £300k-£1.5m range with clients mainly in the Public Sector. We willcontinue with this focus during 2007, with an intention to build a leadingposition in this area. We will also focus on growing the level of "annuity"business in our Solutions mix, where we have small but long term contracts forthe delivery of applications and business process management services. Training Parity Training has enjoyed its best trading performance since 2003. Again wehave made significant changes to strengthen the management team, and worked hardto reduce the cost base and make more costs directly related to revenue. We havealso directed our sales to reinforce our leading position in the areas ofproject, programme and service management training. These are all soft skills,closely related to IT, and where we are seeing good growth in the market.Changing the mix in this business unit, combined with the actions taken on cost,is the way that we will drive margins up to target levels. With this focus, revenue for the year declined by 8% to £18.4m (2005: £20.0m).However we turned an operating loss (before exceptionals and goodwillimpairment) of £1.2m in 2005 into a profit of £0.3m in 2006, with a 7.2% marginswing in the second half compared to the same period in 2005 as the mix changestarted to show through in the growth of our public courses and in gross margin.We reduced SG&A costs by £2.6m from 2005 to 2006, despite strengthening oursales capability. Approximately 50% of the total costs of this business are variable and directlyrelated to revenue, which is providing resilience to changing trends in themarket, but with some negative impact on the margins we can achieve in periodsof high demand. We will also concentrate our delivery more on our areas of highdifferentiation and market strength, whilst continuing to offer a full serviceto clients. An increasingly important target market for us are the larger IT SystemsIntegrators and IT and Business Process Outsourcers. For example we have woncontracts with Xchanging, and train staff from many of the market leaders. Weare also delivering larger, longer term training programmes, larger longer termcontracts, where our expertise in developing specialised and custom trainingcontent is combined with managing the logistics of these large and complextraining programmes. SG&A Costs Sales, general and administrative (SG&A) costs are defined as total operatingcosts less cost of sales and before exceptional costs and goodwill impairment. Overall SG&A costs for continuing businesses reduced from £34.2m in 2005 to£29.7m in 2006. Much of this reduction was due to the restructuring actionsinitiated in 2005 and continued in 2006 reflecting headcount reductions,renegotiation of IT support, and property rationalisation. We now manage most business infrastructure costs centrally, includingfacilities, IT, accounting, legal and contracts and HR. Again these costs arebeing tightly managed, whilst we expect the level of service delivered tobusiness units to be sustained or improved. Central costs represent those coststhat would not be required for standalone operation of the business units. Property costs reduced by £1m from 2005 to 2006, with the closing or sub-lettingof properties in Bristol, London, Antrim and Manchester during the year. We aremoving to a new facility in Belfast and closing the Holborn Circus office earlyin 2007 moving the Group's headquarters to Wimbledon where it will more closelyintegrate with the business units. These and other actions will create furtherproperty cost savings in future years. These property changes, and starting to replace older and in some cases obsoleteICT equipment, have required a modest increase in capital expenditure during2006 and this will continue but only at an affordable rate. Net Debt As noted in the 2005 Annual Report, the Group's net debt reduced significantlyfollowing the successful Share Placing and Open Offer in April 2006. This raised£14.6m net of expenses, to which was added a net £4.6m from the sale of theformer operations in Europe. Through good management of working capital, especially debtors and paymentterms, we kept a close focus on cash. We also moved banking facilities, withmore advantageous terms, to RBS during July. Restructuring Apart from costs incurred or provided for as part of the disposal of non-UKoperations, we needed to make one exceptional restructuring charge of £600,000in H1 2006. This was for onerous rent on the Fleet facility where it becameapparent that the market rate for this type of property in that location waslower than we had been advised at the end of 2005. Focus Each Parity business unit focuses on the areas of project, programme and servicemanagement. This is a market area where demand is good, and consequently thereare shortages of experienced people. Our reputation for quality delivery in allthat we do, together with a favourable market, is helping us to execute thetransformation of our Group. Parity's near-term strategy is to continue the improvement in businessperformance, to achieve our mid-term goal of upper quartile financialperformance. We are concentrating on the UK and Ireland market, keeping to ourcore strengths and leveraging our strong reputation for high quality delivery. We see a number of opportunities to aid that improvement, and whilst we do notintend to stray from our core business, we will react quickly and decisively tochanges and opportunities in the market. Within the business, we are creating a high performance culture, where we setstretching goals and expect a high level of achievement. We also expect tooperate a predictable and controlled business, allowing entrepreneurialmanagement to flourish whilst being close to the operations and clients. People During 2006 we started the process of revitalising the way we manage our people.For example, as part of our internal communication processes, I now have regularface-to-face, two-way meetings with all staff; we re-launched our PerformancePlus assessment system and linked the individual outcome to salary changes; andwe have started to review and update our benefits scheme. Outlook The Group has made substantial progress over the last year. Overall we aredelivering above market organic growth rates. This growth is evidence of ourmarket focus and alignment, and the skills and professionalism of all those whoidentify, win and deliver business. We have started 2007 in far better shape than at the start of 2006 and whilework remains to be done to deliver the anticipated margin improvements,particularly in Resources, we are well positioned to continue the on-goingbusiness improvement. Alwyn Welch Chief Executive Officer Financial Review The Group's recovery is now well underway and the financial performance hasimproved significantly with all units now generating a profit. Thetransformation actions have delivered substantial cost savings and we havedisposed of all overseas operations to focus on three core UK businesses.Following the fund-raising Parity now has a strengthened balance sheet and newbanking facilities to support further growth. Group Trading Summary -------------------------------- -------- --------- 2006 2005 £'000 £'000-------------------------------- -------- ---------Revenues 156,845 135,073Operating profit (loss) before exceptional items 1,377 (1,895)and impairment of goodwillExceptional operating expense (600) (2,290)Impairment of goodwill - (2,500)Net finance expense (1,551) (1,935)Loss before tax (774) (8,620)Tax (197) 576Loss for the year from continuing operations (971) (8,044)Profit (loss) for the year from discontinued operations 1,804 (1,178)-------------------------------- -------- ---------Profit (loss) for the year 833 (9,222)-------------------------------- -------- --------- Revenues Group revenues from continuing operations increased by £21.8m (16%) to £156.8mand are analysed by business unit below: -------------------------------- --------- ---------Business unit 2006 2005 £'000 £'000 --------- ---------Resources 114,517 92,442Solutions 23,922 22,587Training 18,406 20,044-------------------------------- --------- ---------Total 156,845 135,073 --------- --------- Resources continued to see strong demand for its services with an increase inheads on billing and an increase in day rates driving 24% growth in revenues.Growth was slower in Solutions reflecting the weak order book at the start ofthe year, however revenues increased by 38% in H2 06 over H1 06 as thestrengthened management team began to have an impact. Training refocused onprofitable revenue streams and whilst revenues declined 8%, the business wasprofitable in the year. Operating Profit Performance by business unit is summarised below: -------------------------------- --------- --------- 2006 2005 £'000 £'000-------------------------------- --------- ---------Resources 2,710 1,647Solutions 778 21Training 308 (1,161)-------------------------------- --------- ---------Operating results* 3,796 507-------------------------------- --------- --------- * before central costs, exceptional items and goodwill impairment. Operating results from the business units increased by £3.3m and all units madea profit. Resources continued to deliver strong profit growth, whilst Solutionsand Training saw significant turnaround with both businesses showing strongprofit improvement. The Group produced an operating profit of £1.4m, before anexceptional item (see below), an improvement of £3.3m on last year. Thisimprovement was driven primarily by savings in SG&A costs. SG&A costs areincluded in total operating expenses which are summarised as follows: -------------------------------- --------- --------- 2006 2005 £'000 £'000-------------------------------- --------- ---------Cost of sales 125,764 102,814SG&A costs (including central costs) 29,704 34,154-------------------------------- --------- ---------Total operating expenses** 155,468 136,968-------------------------------- --------- --------- **excludes exceptional costs and goodwill impairment. There has been a significant focus on SG&A costs which have reduced by 13% to£29.7m. Whilst the focus on cost-saving opportunities will continue, we are alsoinvesting in people and facilities to support new growth opportunities. The retained profit for the year was £0.8m (2005: loss £9.2m). Disposals and Discontinued Operations In January, the Group successfully completed the disposal of the major elementsof its continental European business and in May disposed of the remainingBenelux business for total gross consideration (before costs incurred) of £5.9m.These disposals were in line with our strategy of streamlining the business tofocus on the UK and Ireland. All anticipated legacy costs associated with thedisposed businesses have been provided for in H1 2006. Revenue from discontinued operations was £3.4m (2005: £41.6m) and pre tax losswas £0.5m (2005: profit £0.3m). The remaining legal entities associated with these businesses are in the processof being closed and all legacy properties relating to these operations incontinental Europe and the US have been assigned or sub-let. As a result ofthese disposals a one-off net gain on disposal of £2.2m (2005: £0.2m) (see note4) was recognised in the year. Exceptional Item An additional exceptional charge of £0.6m was provided for in H1 2006 in respectof one unoccupied property in the UK where it has become clear that existingprovisions would be insufficient given the current commercial property market inthat locality. Finance Costs Interest charges include interest on the Group's pension liabilities of £0.7m(2005: £0.7m) in accordance with IAS19. Total finance costs fell during the yearreflecting the lower level of borrowings following the successful Share Placingand Open Offer in April 2006. Taxation The tax charge was £0.2m (2005: credit £0.6m) reflecting permanent differencestogether with tax losses not fully recognised. Pensions The Group operates a number of defined contribution pension schemes as well as adefined benefit scheme. Assets for the defined contribution schemes are held inseparate, independently administered funds. Contributions to these schemes were£0.8m (2005: £0.6m). The defined benefit scheme is closed to both future membersand to future service accrual, although actuaries continue to advise theTrustees on the required funding rate. The Group has agreed a payment plan of£0.9m per annum over 10 years to reduce the current deficit of £4.7m (2005:£4.7m). Earnings per Share and Dividend The number of shares in issue used to calculate basic earnings per shareincreased to 37.8m following the share placing and open offer. The weightedaverage number of shares in issue used to calculate basic earnings per share was27.9m (2005: 7.1m). The loss per share from continuing operations was 3.49p(2005: loss 113.16p). The Board is not proposing a dividend for the year (2005:nil per share). Balance Sheet and Cash Flow In April the Group completed a share placing and open offer, raising £14.6million net (£16 million gross) with good support from our existing shareholdersand a number of new institutions joining the share register. Upon completion ofthe fundraising the Group secured new banking facilities on better terms thanpreviously, providing a facility appropriate in both type and scale to supportthe needs of the business as it recovers and grows. Net debt at 31 December 2006was £5.7m a decrease of £13.4 million from 31 December 2005. The Group has atotal credit facility based on eligible discounted debtor invoices of up to£20m. The net cash outflow from operating activities, before a cash outflow forexceptional costs of £3.5m (2005: £2.7m) and before pension deficitcontributions of £0.8m (2005: £0.6m), was £0.2m (2005: outflow £1.2m). The netcash outflow from operating activities (after exceptional cash flows and pensioncontributions) was £4.5m (2005: outflow £4.5m). Joseph Kelly Group Finance Director Parity Group plc Consolidated Income StatementFor the year ended 31 December 2006________________________________________________________________________ ------------------------- ------- ---------- --------- Notes Year ended Year ended 31.12.06 31.12.05 £'000 £'000 unaudited audited------------------------- ------- ---------- ---------Continuing operations 2 156,845 135,073Revenue------------------------- ------- ---------- ---------Employee benefit costs (20,672) (23,788)Depreciation (569) (945)Impairment of goodwill - (2,500)All other operating expenses (134,827) (114,525)------------------------- ------- ---------- ---------Total operating expenses (156,068) (141,758)------------------------- ------- ---------- ---------Operating profit (loss) before exceptional 2 1,377 (1,895)items and impairment of goodwill 3 (600) (4,790)Exceptional items and impairment of goodwill------------------------- ------- ---------- ---------------------------------- ------- ---------- ---------Operating profit (loss) 777 (6,685)------------------------- ------- ---------- ---------Finance income 7 5Finance costs (1,558) (1,940)------------------------- ------- ---------- ---------Loss before tax (774) (8,620)Tax (197) 576------------------------- ------- ---------- ---------Loss for the year from continuing (971) (8,044)operations------------------------- ------- ---------- ---------Discontinued operations 4 1,804 (1,178)Profit (loss) for the year from discontinuedoperations------------------------- ------- ---------- ---------Profit (loss) for the year attributable toequity shareholders 9 833 (9,222)------------------------- ------- ---------- ---------Basic and diluted earnings (loss) per shareon profit (loss) for the year 5 2.99p (129.73p) Basic and diluted loss per share fromcontinuing operations 5 (3.49p) (113.16p) Parity Group plcBalance SheetAs at 31 December 2006 Consolidated ------------------------ As at As at 31.12.06 31.12.05 £'000 £'000 unaudited audited------------------------ ---------- ----------Non-current assetsGoodwill 7,116 7,116Property, plant and equipment 615 988Available for sale financial assets - 30Deferred tax assets 5,102 4,954------------------------ ---------- ---------- 12,833 13,088Current assetsWork in progress 998 1,323Trade and other receivables 39,494 35,539Current tax assets - 24Cash and cash equivalents 736 749------------------------ ---------- ---------- 41,228 37,635------------------------ ---------- ----------Assets classified as held for sale and included - 8,746in disposal groups------------------------ ---------- ----------Total assets 54,061 59,469------------------------ ---------- ----------Current liabilitiesFinancial liabilities (6,394) (18,039)Trade and other payables (28,687) (29,550)Current tax liabilities (201) (216)Provisions (677) (1,718)------------------------ ---------- ---------- (35,959) (49,523)Non-current liabilitiesFinancial liabilities (1) (19)Provisions (2,369) (2,129)Retirement benefit liability (4,703) (4,657)------------------------ ---------- ---------- (7,073) (6,805)------------------------ ---------- ----------Liabilities classified as held for sale and - (7,231)included in disposal groupsTotal liabilities (43,032) (63,559)------------------------ ---------- ----------Net assets (liabilities) 11,029 (4,090)------------------------ ---------- ----------Shareholders' equity (deficit)Called up share capital 15,075 14,434Share premium account 20,020 6,062Other reserves 44,160 44,160Retained earnings (68,226) (68,746)------------------------ ---------- ----------Total shareholders' equity (deficit) 11,029 (4,090)------------------------ ---------- ---------- Parity Group plcStatement of Recognised Income and ExpenseFor the year ended 31 December 2006 Consolidated ----------------------- Year Year ended ended 31.12.06 31.12.05 £'000 £'000 unaudited audited------------------------------ ---------- ----------Exchange differences on translation of foreignoperations 152 178Actuarial losses on defined benefit pension schemes (762) (263)Deferred taxation on items taken directly to equity 229 79------------------------------ ---------- ----------Net loss recognised directly in equity (381) (6)Profit (loss) for the year 833 (9,222)------------------------------ ---------- ----------Total recognised income (expense) for the year 452 (9,228)attributable to equity shareholders------------------------------ ---------- ---------- Parity Group plcCash Flow StatementFor the year ended 31 December 2006 Consolidated ---------------------- Year Year ended ended 31.12.06 31.12.05 £'000 £'000 unaudited audited-------------------------------- ---------- ----------Cash flows from operating activitiesCash generated from operations (4,508) (4,460)Interest received 11 23Interest paid (872) (1,417)Tax received - 585-------------------------------- ---------- ----------Net cash from operations (5,369) (5,269)-------------------------------- ---------- ----------Cash flows from investing activitiesPurchase of property, plant and equipment (272) (327)Net proceeds from disposal of subsidiary 4,649 -undertakingsProceeds from disposal of available for sale 71 -assetsProceeds from disposal of property, plant and - 155equipment -------------------------------- ---------- ----------Net cash from investing activities 4,448 (172)-------------------------------- ---------- ----------Cash flows from financing activitiesIssue of ordinary shares 14,599 -Repayment of loan notes - (6)Cash (outflow) in respect of repayment of bank (20,176) (913)borrowingCash inflow from new bank loans - 5,300Net movement on invoice discounting 4,804 560Payment of capital element of finance leases (19) (20)-------------------------------- ---------- ----------Net cash used in financing activities (792) 4,921-------------------------------- ---------- ----------Net decrease in cash and cash equivalents (1,713) (520)Cash and cash equivalents at beginning of the 1,738 2,175yearNet foreign exchange difference (285) 83-------------------------------- ---------- ----------Cash and cash equivalents at end of the year (260) 1,738-------------------------------- ---------- ---------- Parity Group plcNotes 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 2006 and 2005 have been extracted from the unauditedfinancial statements of Parity Group plc for the year ended 31 December 2006which will be delivered to the Registrar of Companies in due course. Theauditors have issued an unqualified opinion on the Group's statutory financialstatements for the year ended 31 December 2005, which have been filed with theRegistrar of Companies These financial statements have been prepared in accordance with InternationalFinancial Reporting Standards as adopted by the EU (IFRSs and IFRICinterpretations) issued by the International Accounting Standards Board (IASB)and with those parts of the Companies Act 1985 applicable to companies preparingtheir accounts under IFRS. Where Group companies enter into financial guarantee contracts and guarantee theindebtedness of other companies within the Group, the Group considers these tobe insurance arrangements, and accounts for them as such. In this respect, theGroup treats the guarantee contract as a contingent liability until such timethat it becomes probable that any Group company will be required to make apayment under the guarantee. 2 Segmental Analysis The Group is organised into three primary business segments: Business Solutions,Training and Resources. Consolidated ------------- 2006 2005 £'000 £'000 unaudited audited see (1) below --------- ----------Revenue - continuing operationsBusiness Solutions 23,922 22,587Training 18,406 20,044Resources 114,517 92,442------------------------------- --------- ---------- 156,845 135,073 --------- ---------- Geographical analysisUnited Kingdom and Ireland 156,845 135,073------------------------------- --------- ---------- 156,845 135,073 --------- ---------- Revenue - discontinued operations------------------------------- --------- ----------Resources - Mainland Europe 3,380 41,567------------------------------- --------- ---------- -------------- -------------- -------------- Operating Exceptional Operating result before items profit exceptional items -------------- -------------- -------------- -------------- 2006 2005 2006 2005 2006 2005 £'000 £'000 £'000 £'000 £'000 £'000 unaudited audited unaudited audited unaudited audited see see see (1) below (1) below (1) below-------------- ------- -------- ------- -------- ------- --------ContinuingoperationsBusinessSolutions 778 21 - (607) 778 (586)Training 308 (1,161) - (1,007) 308 (2,168)Resources 2,710 1,647 - 5 2,710 1,652-------------- ------- -------- ------- -------- ------- -------- 3,796 507 - (1,609) 3,796 (1,102)Central costs (2,419) (2,402) (600) (681) (3,019) (3,083)-------------- ------- -------- ------- -------- ------- --------Impairment ofgoodwill - (2,500) - - - (2,500)(Training)-------------- ------- -------- ------- -------- ------- --------Segment results 1,377 (4,395) (600) (2,290) 777 (6,685)Interestexpense (1,558) (1,940) - - (1,558) (1,940)Interest income 7 5 - - 7 5-------------- ------- -------- ------- -------- ------- --------Loss before tax (174) (6,330) (600) (2,290) (774) (8,620)Tax (377) (40) 180 616 (197) 576-------------- ------- -------- ------- -------- ------- --------Loss for theyear from (551) (6,370) (420) (1,674) (971) (8,044)continuingoperations -------------- ------- -------- ------- -------- ------- -------- -------------- -------------- -------------- Operating Exceptional Operating result before items profit exceptional items ------------- ------- -------- ------- -------- 2006 2005 2006 2005 2006 2005 £'000 £'000 £'000 £'000 £'000 £'000 unaudited audited unaudited audited unaudited audited see see see (1) below (1) below (1) below-------------- ------- -------- ------- -------- ------- --------DiscontinuedoperationsBusiness - -SolutionsTraining - -Resources (462) 1,252 2,170 (563) 1,708 689-------------- ------- -------- ------- -------- ------- --------Segment results (462) 1,252 2,170 (563) 1,708 689Interestexpense - (237) - - - (237)Interest income 4 18 - - 4 18-------------- ------- -------- ------- -------- ------- --------Profit (loss)before tax (458) 1,033 2,170 (563) 1,712 470Tax 92 (1,648) - - 92 (1,648)-------------- ------- -------- ------- -------- ------- --------Profit (loss)for the year (366) (615) 2,170 (563) 1,804 (1,178)from discontinuedoperations-------------- ------- -------- ------- -------- ------- -------- (1) 2005 figures have been restated to reflect the discontinuation of theHolland, Belgium and Switzerland operations. 3 Exceptional Items Consolidated------------------------- --------------Continuing operations 2006 2005 £'000 £'000 unaudited audited see (1) in note 2------------------------- ------- --------Redundancy payments - 483Property restructuring 600 573Network and IT Support Services exit costs - 1,234------------------------- ------- --------Total exceptional items from continuing operations 600 2,290------------------------- ------- -------- The exceptional charge of £600,000 for 2006 for continuing operations relates toone unoccupied property in the UK. The tax credit relating to the exceptionalitem is £180,000 (2005: £616,000). The exceptional charges in 2005 related to arestructuring programme in order to execute the plans of a strategic review. Consolidated----------------------------------- ---------------Discontinued operations 2006 2005 £'000 £'000 unaudited audited see (1) in note 2----------------------------------- ------- -------Gain on disposal of subsidiaries 2,170 -Redundancy payments - 60Property restructuring - 287Other - 216----------------------------------- ------- -------Total exceptional items from discontinued operations 2,170 563----------------------------------- ------- ------- The exceptional item in 2006, from discontinued operations, relates to the gainon disposal of subsidiaries in Mainland Europe (see below). Exceptional itemsfrom discontinued operations are shown gross of tax. The tax credit relating toexceptional items from discontinued operations is £nil (2005: £nil). 4 Discontinued Operations ----------------------------------- ------- -------- 2006 2005 £'000 £'000 unaudited audited see (1) in note 2----------------------------------- ------- --------Pre tax (loss) profit from discontinued operations (458) 282Gain on disposal of subsidiary net tangible assets 2,170 188----------------------------------- ------- --------Profit (loss) before tax 1,712 470Taxation 92 (1,648)----------------------------------- ------- --------Total 1,804 (1,178)----------------------------------- ------- -------- In May 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 tax credit of £92,000 (2005: £1,648,000 charge) relates to operations. Cash flows from discontinued operations ----------------------------------- ------- -------- 2006 2005 £'000 £'000 unaudited audited see (1) in note 2----------------------------------- ------- --------Net cash flows (used in) from operating activities (23) 4Net cash flows from investing activities - 60Net cash flows used in financing activities (3,249) (352)----------------------------------- ------- --------Total (3,272) (288) ------- -------- Discontinued operations contributed £3,380,000 (2005: £41,567,000) to revenue,£3,838,000 (2005: £41,285,000) to expenses, a gain on disposal of £2,170,000(2005: £188,000) and the taxation relating to discontinued operations was£92,000 credit (2005: £1,648,000 expense). 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. 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. In September 2006and October 2006, the Company granted 2,023,805 options under the ExecutiveShare Option Scheme and 2,560,000 awards under the Long-Term Incentive Planrespectively. There were no dilutive potential ordinary shares in issue as theGroup incurred a loss on continuing activities (2005: nil). -------------------- --------- --------- -------- -------- 2006 2006 2005 2005 earnings pence earnings pence £000 per share £000 per share unaudited unaudited audited audited see (1) see (1) in in note 2 note 2-------------------- --------- --------- -------- --------Basic and diluted loss per (971) (3.49p) (8,044) (113.16p)share from continuingoperationsBasic and diluted earnings(loss) per share on profit 833 2.99p (9,222) (129.73p)(loss) for year -------------------- --------- --------- -------- -------- 2006 2005 no. of no. of shares shares-------------------- --------- --------- -------- --------Weighted average ordinaryshares in issue 27,454,632 5,773,833Adjustment for issue of new shares under the exercise of rights 449,376 1,389,969-------------------- --------- --------- -------- --------Weighted average ordinary shares held as own shares in ESOP trust (46,950) (55,124)-------------------- --------- --------- -------- --------Adjusted weighted average ordinary shares in issue 27,857,058 7,108,678-------------------- --------- --------- -------- -------- 6 Reconciliation of Operating Loss to Net Cash Flow Consolidated-------------------------------- -------------Continuing operations 2006 2005 £'000 £'000 unaudited audited see (1) in note 2-------------------------------- ---------- ---------Loss for the year (971) (8,044)Adjustments for:Tax 197 (576)Depreciation 569 945Equity settled share based payments 68 141Impairment of goodwill - 2,500Profit on disposal of available for sale (41) -assetsLoss on disposal of tangible fixed assets 76 18Interest income (7) (6)Interest expense 1,558 1,939Changes in working capitalDecrease in work in progress 325 341Increase in trade and other receivables (3,836) (3,155)(Decrease) increase in trade and other (437) 3,088payablesDecrease in provisions (580) (751)Change in retirement benefit liability (1,402) (1,123)-------------------------------- ---------- ---------Cash used in continuing operations (4,481) (4,683)-------------------------------- ---------- ---------Discontinued operations-------------------------------- ---------- --------- Profit (loss) for the year 1,804 (1,178)Adjustments for:Tax (92) 1,648Depreciation - 94Loss on disposal of tangible fixed assets - 23Interest income (4) (18)Profit on disposal of discontinued (2,170) -operationsInterest expense - 237Changes in working capitalDecrease in trade and other receivables 2,111 297Decrease in trade and other payables (1,455) (1,113)(Decrease) increase in provisions (221) 233-------------------------------- ---------- ---------Cash (used in) from discontinued operations (27) 223-------------------------------- ---------- ---------Total net cash flow used in operating (4,508) (4,460)activities-------------------------------- ---------- --------- Cash generated from operations includes cash outflows relating to exceptionalitems recorded in prior years of £3,535,000 (2005: outflow of £2,663,000). 7 Consolidated Reconciliation of Net Cash Flow to Movement in Net Borrowings -------------------------------- ---------- -------- 2006 2005 £'000 £'000-------------------------------- ---------- -------- Decrease in cash in the year (717) (520)(Increase) in overdrafts (996) -Decrease (increase) in bank loans 17,500 (5,300)Decrease in other bank borrowings 2,676 913Increase in invoice factoring facility (4,804) (571)Repayment of obligations under finance leases 19 20Repayment of loan notes - 6Exchange movements (285) 93-------------------------------- ---------- --------Movement in net debt in the year 13,393 (5,359)Net debt at 1 January (19,052) (13,693)-------------------------------- ---------- --------Net debt at 31 December (5,659) (19,052)-------------------------------- ---------- -------- 8 Analysis of Net Borrowings --------------------- -------- -------- -------- -------- 01.01.06 Cash flow Exchange 31.12.06 £'000 £'000 movements £'000 £'000--------------------- -------- -------- -------- --------Cash and cash equivalentsCash at bank and in hand 1,738 (717) (285) 736Overdrafts - (996) - (996)--------------------- -------- -------- -------- -------- 1,738 (1,713) (285) (260)BorrowingsBank loans (17,500) 17,500 - -Other bank borrowings (2,676) 2,676 - -Invoice factoring facility (574) (4,804) - (5,378)Obligations under finance leases (40) 19 - (21)--------------------- -------- -------- -------- --------Net borrowings (19,052) 13,678 (285) (5,659)--------------------- -------- -------- -------- -------- 9 Statement of Changes in Shareholders' Equity (Deficit) ---------------- ------- ------- ------- ------- ------- ------Consolidated Share Deferred Share Other Retained Total capital shares premium reserves earnings £'000 £'000 £'000 reserve £'000 £'000 £'000---------------- ------- ------- ------- ------- ------- ------At 1 January 2006 14,434 - 6,062 44,160 (68,746) (4,090)Net profit for theyear - - - - 833 833Net loss recognised (381) (381)directly in equityCapital restructure (14,319) 14,319 - - - -Issue of new shares 641 - 13,958 - - 14,599Share options -value of - - - - 68 68employee services---------------- ------- ------- ------- ------- ------- ------At 31 December 2006 756 14,319 20,020 44,160 (68,226) 11,029---------------- ------- ------- ------- ------- ------- ------ Consolidated Share Deferred Share Other Retained Total capital shares premium reserves earnings £'000 £'000 £'000 reserve £'000 £'000 £'000At 1 January 2005 14,434 - 6,062 44,160 (59,659) 4,997Net loss for theyear - - - - (9,222) (9,222)Net loss recognised - - - - (6) (6)directly in equityShare options -value of - - - - 141 141employee services---------------- ------- ------- ------- ------- ------- ------At 31 December 2005 14,434 - 6,062 44,160 (68,746) (4,090)---------------- ------- ------- ------- ------- ------- ------ The Board is not proposing a dividend for the year (2005: nil per share). 10 Issue of New Shares 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 redesignate 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 redesignated 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 redesignated 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