Parity Regulatory News (PTY)

PARITY GROUP PLC

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021

27 April 2022

Parity Group plc ("Parity" or the "Group"), the data and technology focused professional services business, announces its full year results for the year ended 31 December 2021.

Headlines

2021 has been a year of two halves with a management change mid-year to refocus the business on its heritage and strength in recruitment, rebuilding capability to take advantage of growing market opportunities.

· The management structure has been streamlined, creating a much simpler, balanced organisation with clear lines of accountability and unlocking cost to invest in key customer-facing areas.

· The recruitment operation has been rebuilt, is highly motivated and operating well, delivering strong conversion rate performance.

· Improvements in customer relationship management and customer satisfaction has begun to reverse previous declines in share of customer-wallet. Amongst early signs of success with the refocused strategy is a material increase in revenue at three of the Group's top five customers and 'exclusivity' arrangements with two others.

· An academy has been set up to develop talent inhouse, this has already delivered success.

· The overall cost base of the Group has been reduced and is significantly more scalable.

· Adjusted EBITDA for 2021 of £0.1m.

· The defined benefit pension scheme surplus increased from £0.2m to £1.9m.

Key Financials

Mark Braund, Executive Chairman of Parity Group plc, said:

"2021 has been a year of two halves, the first continuing the pursuit of a strategy that failed to ignite, the second reclaiming the original purpose of the Parity business, that of being a trusted and successful provider of recruitment solutions.

Step-change improvements to back-office processes and systems alongside the re-building of a capable and scalable recruitment solutions team places us in a strong position to benefit from the continuing demand for digital transformation. As organisations adapt to new ways of doing business, we are supplying our clients with the talented and experienced people that make this change possible.

The response from colleagues has been tremendous; their inspiration, enthusiasm and hard work has helped us rapidly refocus the business and, combined with strong demand in Parity's core markets, I believe we can re-establish growth and profitability in the near to medium term"

Investor presentation

Mark Braund and Mike Johns will provide a live presentation relating to Full year results to 31 December 2021 via the Investor Meet Company platform on 4th May 2022 at 11:00am BST.

The presentation is open to all existing and potential shareholders. Questions can be submitted pre-event via your Investor Meet Company dashboard up until 9am the day before the meeting or at any time during the live presentation.

Investors can sign up to Investor Meet Company for free and add to meet Parity Group plc via:

https://www.investormeetcompany.com/parity-group-plc/register-investor

Investors who already follow Parity Group plc on the Investor Meet Company platform will automatically be invited.

This announcement contains certain statements that are or may be forward-looking with respect to the financial condition, results or operations and business of Parity Group plc. By their nature forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include, but are not limited to (i) adverse changes to the current outlook for the UK IT recruitment and solutions market, (ii) adverse changes in tax laws and regulations, (iii) the risks associated with the introduction of new products and services, (iv) pricing and product initiatives of competitors, (v) changes in technology or consumer demand, (vi) the termination or delay of key contracts and (vii) volatility in financial markets.

Chairman's Statement

Parity is a people business. At its core, the Company has a strong heritage and brand, recognised for its strengths in engaging and placing talented professionals to carry out important work in both the public and commercial sectors.

Over the last few years the business had lost sight of these strengths as it pursued a strategy in a different direction. Unfortunately, this did not deliver the performance expected.

A change in key management in June 2021 led to a review of opportunities for the business. The decision was made to refocus on Parity's core competence in recruitment solutions, where its brand and reputation is strong and where market activity provides a wealth of opportunities for value and growth.

As a result, 2021 became a year of two halves, the first continuing the pursuit of a strategy that failed to ignite, the second reclaiming the original purpose of the Parity business, that of being a trusted and successful provider of recruitment solutions.

As a supplier of critical and in demand IT and data skills we have continued to meet the needs of existing clients during the year and have had notable successes in the second half of 2021, growing 3 of our largest accounts, one of which has more than doubled in size over the last 18-months. We are suppliers on the UK's key public sector frameworks for IT and Data resources and see an opportunity in 2022 to grow this further.

High employee turnover over the previous three years and the impact of working remotely from home during the pandemic has meant that a key focus for us during the second half of 2021 has been rebuilding employee morale and motivation. 

We have made rapid progress creating a new culture within the business that will enable us to foster growth and development. We have established an academy structure around our core recruitment team to develop our own talent and this is already adding value with a second cohort joining the academy in January 2022. As a business we seek to offer opportunities for all and are proud of our diverse and inclusive workforce. Whilst we strive for more, we are proud of the fact that we have a gender balanced workforce.

Parity is now smaller than it has been historically, however changes in back-office processes and systems alongside the re-building of a capable and scalable recruitment solutions team places us in a strong position to benefit from the continuing demand for digital transformation. As businesses adapt to new ways of doing business post Covid, we are supplying our clients with the talented and experienced people that make this change possible.

Over the last three years the Group has actively transformed itself into highly flexible business, its cloud infrastructure and digital backbone combined with a hybrid working environment enable the business to adapt and scale to meet future opportunities and challenges. Alongside this we have put in place a new three-year asset based lending facility in 2021 with Leumi ABL that will provide support and flexibility as we grow the business.

People, remain critical to the success of most if not all, commercial and public service activities. As technology advances, talent is relied on to define and architect solutions, integrate and implement components, manage change and continuously develop advances that deliver improvements to the way things work.

This all takes place in a market where the best talent is demanding more flexibility whilst the ecosystem demands greater productivity. Demand for talent to support this ever-changing environment continues unabated. It is into this environment Parity has strong foundations to acquire and provide solutions that deliver value.

As we chart our path forwards, we are excited by the opportunity. 

We end as we start, our business is all about people and the changes over the last six to nine months have only been made possible by our talented and committed teams in Edinburgh and London. On behalf of my colleagues, I wish to thank the whole team at Parity for their work so far, we have more to do, however the base from which we move forward is now solid.

Operational and Financial Review

Overview

· During 2021 the business continued to develop key relationships with growth in 3 of top 5 client accounts.

· The refocus of investment to support the development and growth of the core recruitment business has been delivered in 2021 without increasing costs.

· As a result the Group recorded a modest Adjusted EBITDA profit of £0.1m for 2021 (2020: £1.1m).

· The Group maintains its strong cash collection with a DSO of 17 days (2020: 14 days) and no bad debts.

· During 2021 the Group replaced its previous asset based lending facility (ABL) with a new 3 year debt facility provided by Leumi ABL, increasing funding flexibility across both billed and unbilled assets.

· As a consequence of the changes to the business in 2021 the Group made increased use of its ABL facility and at 31 December 2021 the net debt was £1.2m (2020: net cash of £0.2m).

· The defined benefit pension scheme surplus has increased significantly during 2021 to £1.9m.

The financial performance in 2021 reflects the challenging year for the Group.

Whilst our strong position in the public sector helped cushion the impact of Covid in 2020, the return of the market and contractor mobility/churn in particular, exposed the lack of depth in the recruitment team and the business was unable to take advantage of the increasingly buoyant recruitment market during 2021. This has had a significant impact upon performance in 2021.

To address this, investment in H2 2021 was redirected to rebuilding the recruitment capability. A reallocation of resource from non-core activities to support client facing recruitment along with a streamlining of the extended management team meant that this was achieved without an increase in operating costs (non-underlying costs excluded). This close management of costs within the Group has enabled the Group to deliver a modest Adjusted EBITDA for 2021 despite the fall in Net Fee Income.

Revenue

Year on year revenue has declined by 19% to £47m, driven by a fall in contract recruitment revenue that makes up 97% of total revenue.

The impact of an under resourced recruitment team and lack of additional capacity to pursue new business has been a year on year fall in the number of contractors by 20%. This decline in contractor numbers has in part been offset by an increase in average billing rates by 8% during the year, reaching £504/day in December 2021.

This increase is attributable to two factors:

· Over the last 2 years the business has been increasingly focusing its contract recruitment on higher value IT resources.

· The increased enforcement of IR35 legislation and potential for large penalties has prompted many organisations to take a conservative approach to IR35 assessments. The impact of this is an increase in roles deemed to be inside IR35. To attract candidates, clients are in most cases having to increase rates to offset the increased tax burden a contractor faces if inside IR35.

Non recruitment revenues totalled £1.3m in 2021 (2020: £1.6m).

Net Fee Income

Total Net Fee Income was £4.1m in 2021, a fall of £1.5m (27%) over 2020. Of this £0.3m is attributable non-recruitment Net Fee Income and the remaining £1.2m is a direct consequence of the lower Contract Recruitment Net Fee income, of £3.4m (2020: £4.6m).

Lower contractor numbers in 2021 account for £1.1m of the drop in Contract Recruitment Net Fee Income. In parallel with the reduction in contractors the underlying % margin has fallen from 8.2% to 7.4% resulting in a £0.4m reduction in Net Fee Income. This margin dilution reflects the impact of the under resourced recruitment team who were successfully able to support and grow large key accounts but unable to manage and pursue smaller higher margin accounts. These two adverse variances are partially tempered by the increase in billing rate during the year which has flowed through to Net Fee income, adding £0.3m.

With the new recruitment team in place there is now resourcing to cover all accounts and with a renewed focus on engaging with contractors there will be a push to win back higher margin business in 2022.

Segmental performance

As noted previously, the key driver of the lower revenue and net fee income has been a fall in contractor numbers. This has had an impact on both public and private sector income streams with a lack of capacity in the recruitment team during the first three quarters of the year limiting the ability to manage beyond key accounts.

In the public sector specifically, this has resulted in a decline in net fee income by 27%, driven by the loss of contractors in the first three quarters. The slight drop in % margin reflects the loss of some smaller, higher margin accounts.

Private sector has maintained revenue in line with the prior year at £14.5m as a result of strong growth in a key account during the year that has offset lower contractor numbers elsewhere and the impact of the failure to establish a sustainable and scalable consultancy division.

Net fee income for private sector has dropped by £0.5m with growth from the key account adding £0.2m to net fee income but insufficient to offset a fall of £0.4m due to lower contractor numbers in smaller accounts where margins are higher. Additionally, the failure to generate new consulting opportunities was responsible for a further £0.2m of the drop in Net fee income.

The fall in net fee income as a % of revenue between 2020 and 2021 reflects a change in revenue mix, with a fall in high % margin consulting income being replaced by lower margin contract recruitment.

Selling and Administration Costs

2021 was a year of two halves for expenditure, H1 2021 began with the business making further investments in management and new business capability to support the continual development of non-recruitment activities. Following the change in management in June 2021 investment shifted towards recruitment, rebuilding the capacity in the team during H2 2022 to take advantage of future opportunities in the market.

Resources engaged in non-core activities were reduced during H2 2021 and the management team streamlined to facilitate the investment in additional recruitment resources. This created £1.1m (Annualised) of capacity to re-invest in recruitment and new business resources.

In addition to hiring experienced recruitment professionals, investment has also been made into long term development of employees with the creation of an academy structure focused on developing talent in house. The first cohort through the academy are already thriving and second intake started in January 2022, this structure will support the Group's organic growth and profitability in future years.

Selling and Administration costs for H2 2021 were 9% lower than H1 2021, this variance is primarily the result of the switch from non-core activities into core recruitment and gives the Group scope to invest further in 2022. Against prior year, Selling and Administration costs are 10% lower.

Depreciation and amortisation

In accordance with IFRS 16, the 2021 results are presented with lease assets and liabilities recognised in the Group's Statement of Financial Position, where the Group is the lessee.

Non-underlying items

The Board measures the performance of the Group after excluding costs (and income) that would not be incurred during the normal operation of the business and classify these exceptional costs under the category of non-underlying items. With the change in management in June 2021 and subsequent refocus around the recruitment business the non-underlying costs incurred in 2021 total £0.6m (2020: £0.4m) and relate almost entirely to the costs of departing employees. A detailed analysis of the non-underlying items is provided in note 5.

Taxation

The tax income on profit before tax was £0.47m (2020: charge of £0.15m), mainly representing a deferred tax adjustment in respect of recognition of tax losses that were not recognised previously. The Group did not provide for corporation tax payable in 2021 due to the utilisation of Group relief and the availability of carried forward deductible timing differences and tax losses.

Earnings per share and dividend

The basic loss per share from continuing operations was 0.62 pence (2020: loss of 0.46 pence per share). The Group's results for both 2021 and 2020 were impacted by restructuring costs.

The Board does not propose a dividend for 2021 (2020: nil).

Statement of financial position

Trade and other receivables

The Group continues to maintain its strong performance on trade debtors, keeping a close relationship with clients to ensure both prompt payment and quick resolution of any issues, this approach has both maintained low debtor days and also ensured that the business has no bad debt. Group debtor days (calculated on billings on a countback basis) at the end of the year were 17 days (2020: 14 days).

Overall trade and other receivables decreased during the year to £4.8m (2020: £6.1m), the main driver being the reduction in contractor numbers.

Trade and other payables

Trade and other payables decreased during the year by £1.3m to £3.6m (2020: £4.9m). Of this, key variances were £0.6m decrease attributable to the reduction in contractor numbers and a further £0.3m to the payment of VAT deferred in 2020 under the Covid-19 VAT deferral scheme.

At the year end, creditor days were 23 days (2020: 23 days).

Loans and borrowings

Loans and borrowings represent the Group's debt under its asset-based lending ("ABL") facility. This is a working capital facility and linked to the same cycle as trade receivables. In April 2021 the Group switched its ABL facility from PNC to Leumi ABL. As a result of this switch the amount that can be borrowed against billed and unbilled receivables increased and borrowing costs reduced because the Group will only pay fees on amounts it borrows (under the previous PNC facility the Group were charged a 1% fee for any unutilised facility). The facility in place with Leumi ABL is for a minimum of 3 years giving the Group the support it needs to optimise its working capital requirements.

In 2021 the average borrowings were £2.5m (2020: £1.6m) and the Group only borrowed more than £3 million for 79 days during the year (2020: 29 days).

Cash flow and net debt

Net cash outflow in the year (excluding IFRS16 adj) was £1.4m. Of this, £0.2m related to ongoing operating activities and a further £0.4m the impact of the non-underlying costs. In addition, the Group incurred £0.1m of capital expenditure for the development of a data warehouse to provide business intelligence to the Group. The balance of the cash outflow is made up of primarily of pension costs of £0.3m (included within the FY21 finance costs of £0.4m) and the repayment of £0.3m of VAT deferred under the government Covid scheme.

Defined benefit pension surplus

Solid investment management of the Defined Benefit pension scheme assets has further increased the surplus from £0.2m at the beginning of the year to £1.9m at the end of 2021. Whilst financial markets are currently volatile based on world events and there is always potential for surplus position to change, the strength of the scheme's assets, is now sufficient for the Group and Trustees to target, over the medium term, a buyout of the scheme.

During 2021 the Group paid £0.3m contributions to the scheme.

Consolidated Income Statement for the year ended 31 December 2021

All activities comprise continuing operations.

1 Adjusted (loss)/profit before tax is a non-IFRS alternative performance measure, defined as (loss)/profit before tax and non-underlying items.

Consolidated Statement of Comprehensive Income for the year ended 31 December 2021 

Statements of Changes in Equity for the year ended 31 December 2021 

Statements of Financial Position as at 31 December 2021

In accordance with Section 408 of the Companies Act 2006, the Company has not presented its own income statement or statement of comprehensive income. The profit for the year dealt with in the accounts of the Company was £700,000 (2020: loss of £2,909,000).

Statements of Cash Flows for the year ended 31 December 2021

Notes to the Financial Statements for the year ended 31 December 2021

1 Accounting policies

Basis of preparation

Parity Group plc (the "Company") is a company incorporated and domiciled in the UK.

Both the parent company financial statements and the Group financial statements have been prepared and approved by the Directors in accordance with company law and UK adopted international accounting standards. Financial Information is presented in £'000.

The financial information set out in this document does not constitute the Group's statutory accounts for the years ended 31 December 2021 or 2020 but is derived from those accounts. Statutory accounts for 2020 have been delivered to the registrar of companies. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not contain an Emphasis of Matter highlighting a materiality uncertainly related to going concern and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. Statutory accounts for 2021 will be delivered to the registrar of companies in due course. The auditors have reported on those accounts; their reports were (i) unqualified, and (ii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The financial statements for the year ended 31 December 2021 (including the comparatives for the year ended 31 December 2020) were approved and authorised for issue by the Board of Directors on 27 April 2022. This results announcement for the year ended 31 December 2021 was also approved by the Board on 27 April 2022.

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented unless otherwise stated.

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Directors' Report (Review of business and future developments). The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Operational and Financial Review and in note 20 to the financial statements. Note 20 also includes the Group's objectives for managing capital.

As outlined in note 20, the Group meets its day to day working capital requirements through an asset-based finance facility. The facility contains certain financial covenants which have been met throughout the period. During the period the PNC facility was replaced in April 2021 with a new asset based lending facility provided by Leumi ABL. This new facility runs for 3 years and provides up to £9m of borrowing.

The financial statements have been prepared on a going concern basis. The Directors have reviewed the Group's cash flow forecasts for the period to 31 December 2023, taking account of reasonably possible changes in trading performance. Discussion of this risk is included within Principal Risks and Uncertainties. Downside sensitivities have included reduced levels of new business in these scenarios, the Directors do not anticipate issues with the Group's financing requirements.

Basis of consolidation

In accordance with Section 408 of the Companies Act 2006, the Company has not presented its own income statement or statement of comprehensive income. The profit for the year dealt with in the accounts of the Company was £700,000 (2020: loss of £2,909,000).

Business combinations

Accounting policies: new standards, amendments and interpretations effective and adopted by the Group

There are no other standards, amendments or interpretations effective this year which have a significant impact on these financial statements.

Accounting policies: new standards, amendments and interpretations that are not yet effective and have not been adopted early by the Group

Measurement convention

In obtaining some contracts, the Group may incur a number of incremental costs, such as commissions paid to sales staff. As the amortisation period of these costs, if capitalised, would be less than one year, the Group makes use of the practical expedient in IFRS 15 and expenses them as incurred.

Financing income and expenses

Dividends

Taxation

Segmental reporting

Intangible assets

Goodwill

Software

The carrying amount of software is its cost less any accumulated amortisation and provision for impairment. Software is amortised on a straight-line basis over its expected useful economic life of three to seven years.

Property, plant and equipment

Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost less estimated residual value of each asset on a straight-line basis over its expected useful economic life, as follows:

Impairment of non-financial assets (excluding deferred tax assets)

An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount, the latter being the higher of the fair value less costs to sell associated with the cash generating unit (CGU) and its value in use. Value in use calculations are performed using cash flow projections for the CGU to which the goodwill relates, discounted at a pre-tax rate which reflects the asset specific risks and the time value of money.

Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.

Goodwill is tested for impairment at each reporting date. The carrying value of other intangible assets and property, plant and equipment is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable.

For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets, being the cash generating unit. The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to CGUs. Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination. 

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Cash and cash equivalents

Cash and short-term deposits in the consolidated balance sheet compromise cash at bank and in hand and short-term deposits with the original maturity of three months or less. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and short-term deposits as defined above. Amounts drawn down from the asset-based lending facility with Leumi are shown within loans and borrowings on the consolidated balance sheet.

Financial instruments

Financial assets and liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the contractual rights to the cash flows expire or when substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

Except for trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with IFRS 15, all financial assets are initially measured at fair value adjusted for transaction costs. Financial assets, other than those designated and effective as hedging instruments, are classified as either amortised cost, fair value through profit or loss (FVTPL) or fair value through other comprehensive income (FVOCI). In the periods presented, the Group has no financial assets categorised as FVTPL or FVOCI.

Amounts recoverable on contracts and accrued income

Accrued income primarily arises where temporary workers have provided their services but approved timesheets are outstanding. As such, the amount incurred and margin earned thereon has yet to be invoiced onto the client. In making an accrual for time worked by contractors at the balance sheet date, management make an estimate of the time worked based on knowledge of the contracts in place, the number of working days outstanding and experience adjustments from prior periods.

Leased assets

Share capital

Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions:

 (a) they include no contractual obligations upon the company (or Group as the case may be) to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the company (or Group); and

(b) where the instrument will or may be settled in the company's own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the company's own equity instruments or is a derivative that will be settled by the company's exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.

Financial guarantee contracts

Where Group companies enter into financial guarantee contracts and guarantee the indebtedness of other companies within the Group, the company considers these to be insurance arrangements and accounts for them as such. In this respect, the company does not recognise liabilities under the contracts until it becomes probable that any Group company will be required to make a payment under the guarantee.

Significant management judgements in applying accounting policies and estimation uncertainty

When preparing the financial statements, management make a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities, income and expenses. The following are the judgements made by management in applying the accounting policies of the Group and the estimates that have the most significant effect on the financial statements.

2 Segmental information

Factors that management used to identify the Group's reporting segments

In accordance with IFRS 8 'Operating Segments' the Group's management structure, and the reporting of financial information to the Chief Operating Decision Maker (the Group Board), have been used as the basis to define reporting segments.

Description of the types of services from which each reportable segment derives its revenues

During the period the Group derived revenue from two operating segments relating to customer sectors, being the public sector and private sector. The reporting of financial information presented to the Chief operating Decision maker, being the Group board of directors, is consistent with these reporting segments. These reporting segments are supported by a combined back office and therefore there is no allocation of overheads between sectors.

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies.

All segment assets and liabilities are based in the UK.

3 Revenue

All of the Group's revenue derives from contracts with customers. Trade receivables, amounts recoverable on contracts and accrued income as presented in note 16 arise from contracts with customers. Changes to the Group's contract assets are attributable solely to the satisfaction of performance obligations.

The Group's revenue disaggregated by pattern of revenue recognition is as follows:

The Group's revenue disaggregated by primary geographical market is as follows:

The largest single customer in the public sector contributed 26% or £8.2m to public sector revenue (2020: 25% or £11.0m). The largest single customer in the private sector contributed 79% or £11.7m to private sector revenue (2020: 46% or £6.7m).

4 Operating expenses

During the year the Group obtained the following services from the Group's auditors:

All other services have been performed in the UK.

5 Non-underlying items

Items are classified as non-underlying by nature of their magnitude, incidence or unpredictable nature and their separate identification results in a calculation of an underlying profit measure that is consistent with that reviewed by the Board in their monitoring of the performance of the Group.

Non-underlying items during 2021 include costs related to changes in senior management of the Group, including employee termination payments.

6 Average staff numbers

The average number of staff employed by the Group during the year was as follows:

The total above includes 4 (2020: 5) employees of the Company.

At 31 December 2021, the Group had 35 employees (2020: 41).

7 Finance costs

The interest expense on financial liabilities represents interest paid on the Group's asset-based financing facilities. A 1% increase in the base rate would have increased annual borrowing costs by approximately £25,000 (2020: £17,000).

8 Share-based payments

The Group operates several share-based reward schemes for employees:

· HMRC approved schemes for Executive Directors and senior staff;

· an unapproved scheme for Executive Directors and senior staff; and

· a Save As You Earn Scheme for all employees.

Under the approved and unapproved schemes, options vest if the share price averages a target price for 5 consecutive days over a three-year period from the date of grant. Options lapse if the individual leaves the Group, except under certain circumstances such as leaving by reason of redundancy, when the options lapse 12 months after the leaving date.

In May 2021 the Save As You Earn Scheme was closed for all new participants and current participants were granted six months to either purchase shares at the exercise price of 10 pence per share or to withdraw their funds from the scheme. As at the end of 2021 all funds were withdrawn and the Save As You Earn Scheme was closed.

All employee options have a maximum term of ten years from the date of grant. The total share-based remuneration recognised in the income statement was a gain of £64,000 (2020: loss of £90,000). Share-based remuneration relating to key management personnel is disclosed in note 25.

The exercise price of options outstanding at the end of the year and their weighted average contractual life fell within the following ranges:

Of the total number of options outstanding at the end of the year 10,000 (2020: 840,000) had vested and were exercisable at the end of the year. The weighted average exercise price of those options was 26 pence (2020: 9 pence).

No options were exercised during the year (2020: none).

2,500,000 options were granted during the year (2020: 6,000,000) at a weighted average fair value of 1 pence (2020: 2 pence). In addition, 3,500,000 share warrants were granted during the year (2020: nil) at a weighted average fair value of 1 pence (2020: nil).

The following information is relevant in determining the fair value of options granted during the year under equity-settled share-based remuneration schemes operated by the Group. There are no cash-settled schemes.

The volatility assumption is calculated as the historic volatility of the share price over a 5 year period prior to grant date.

Share options issued to defined benefit pension scheme

In December 2010 the Group issued 1,000,000 share options in Parity Group plc to the pension scheme at an exercise price of 9 pence per share. These options may be exercised at the discretion of the Trustees; they vested on grant and have no expiry date. Any gain on exercise is to be used to reduce the scheme deficit. These options were valued using the stochastic method. The share price on the grant date was 15.75 pence. Whilst the options do not have an expiry date, for valuation purposes it is assumed that the expected life of the options is 8 years. The expected volatility is 64.2% and the average risk-free rate assumed was 3.4%.

9 Taxation

The adjustment in respect of prior periods of £115,000 (2020: £230,000) largely relates to decisions to claim or disclaim capital allowances.

There is no current tax payable by the Group for 2021 (2020: £nil).

The Group's profits for this accounting period are subject to tax at a rate of 19% (2020: 19%).

The reasons for the difference between the actual tax credit for the year and the standard rate of corporation tax in the UK applied to profit for the year are as follows:

Tax on each component of other comprehensive income is as follows:

10 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.

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.

As at 31 December 2021 the number of ordinary shares in issue was 103,075,633 (2020: 102,624,020). There were 8,010,000 options that had a potential dilutive effect in 2021 (2020: Nil).

11 Goodwill

The carrying amount of goodwill is allocated to the Group's two separate continuing cash generating units (CGUs), being Parity Professionals Limited and Parity Consultancy Services Limited.

Carrying amounts are as follows:

Goodwill was tested for impairment in accordance with IAS 36 at the year end and no impairment charge was recognised. Impairment calculations include the effect of changes following the application of IFRS 16.

The recoverable amounts of the CGUs are based on value in use calculations using the pre-tax cash flows based on forecasts approved by management for 2022. Years from 2023 to 2027 are based on the forecast for 2022 projected forward at expected growth rates, with no growth assumed beyond these years. This approach is considered prudent based on current expectations of the 2022 long-term growth rate.

Major assumptions are as follows:

Discount rates are based on the Group's weighted average cost of capital.

Forecast revenue growth rates are based on past experience and future expectations of economic conditions. Growth for the CGUs is assumed to be higher than the long-term growth rate for the UK economy due to the following factors:

· There is focused investment in growing new clients and service lines, including areas that are seeing significant growth post the Covid-19 pandemic;

· The business recruited additional heads to focus on key areas of new business within recruitment including value added services and permanent recruitment; and

· Market indicators and recent engagements with clients support the increased demand for high skilled IT and data professionals and help underwrite the growth forecasts.

A 10% change in any of the underlying assumptions used in the discounted cash flow forecasts would not lead to the carrying value of goodwill being materially in excess of their recoverable amounts.

12 Other intangible assets

In 2021 the Group invested in the development of a data warehouse to support the ongoing business operations. The additions to Intellectual Property represent the costs associated with building the data warehouse and creating the data asset within the data warehouse.

As at 31 December 2021, the Group had no capital commitments contracted for but not provided for the purchase of intangible assets (2020: £nil).

13 Property, plant and equipment

14 Leases

The Group holds leases for its main office premises. Each lease is reflected on the balance sheet as a right-of-use asset and a lease liability unless exempt. The statement of financial position includes the following amounts in relation to leases where the Group is a lessee:

Additions to right-of-use assets during the year were £345,000 (2020: £562,000). The total cash outflow for lease liabilities during the year was £490,000 (2020: £649,000).

Amounts recognised in profit or loss in respect of the above leases are as follows:

Future minimum lease payments at 31 December 2021 were as follows:

At 31 December 2021, the Group was committed to £nil (2020: £nil) of future lease payments in respect of leases not yet commenced.

All leases held during 2021 were accounted for under IFRS 16.

15 Deferred taxation

The deferred asset of £528,000 (2020: £627,000) comprises:

A deferred tax asset for unused tax losses carried forward is normally recognised on the same basis as for deductible temporary differences. However, the existence of the unused tax losses is itself strong evidence that future taxable profit may not be available. Therefore, when an entity has a history of recent losses, the entity recognises a deferred tax asset arising from unused tax losses only to the extent that there is convincing evidence that sufficient taxable profit will be available against which the unused tax losses can be utilised. At the balance sheet date, the Directors considered recognising a deferred tax asset for previously unrecognised unused tax losses carried forward by Parity Consultancy Services Limited. The review concluded that as Parity Consultancy Services Limited has a deferred tax liability of £678,000 (2020: £39,000) related to its defined benefit pension plan, a deferred tax asset for previously unrecognised unused tax losses of £678,000 would be recognised to offset the liability.

The Directors believe that the deferred tax asset recognised is recoverable based on the future earning potential of the Group and the individual subsidiaries. The forecasts for Parity Professionals Limited comfortably support the unwinding of the deferred tax asset held by this company of £256,000 (2020: £335,000). Parity Consultancy Services Limited currently has a deferred tax asset of £272,000 (2020: £292,000) which can be offset against the deferred tax liability to be unwound on the same defined benefit scheme .

The Group has unrecognised carried forward tax losses of £32,679,000 (2020: £29,392,000). The Group has unrecognised capital losses carried forward of £282,441,000 (2020: £282,441,000). These losses may be carried forward indefinitely.

The Company has unrecognised carried forward tax losses of £26,522,000 (2020: £23,511,000). The Company has unrecognised capital losses carried forward of £281,875,000 (2020: £281,875,000). These losses may be carried forward indefinitely.

16 Trade and other receivables

The fair values of trade and other receivables are not considered to differ from the values set out above.

£2,116,000 (2020: £2,197,000) of the Group's trade receivables and £2,435,000 (2020: £3,591,000) of the total of the Group's accrued income and amounts recoverable on contracts, are pledged as collateral for the asset-based borrowings. These borrowings fluctuate daily and at 31 December 2021 totalled £2,279,000 (2020: £2,941,000).

The movement in accrued revenue on contracts during the period is shown below:

The Group records impairment losses on its trade receivables separately from gross receivables. Factors considered in making provisions for receivables include the ability of the customer to settle the debt, the age of the debt and any other circumstance particular to the transaction that may impact recoverability.

The balance of impaired losses for the Group at 31 December 2021 was £nil (2020: £9,000). All debts at 31 December 2021 are considered to be recoverable.

The Company holds interest-bearing loan agreements with some of its subsidiary undertakings. Interest on all loans is charged at 2.0% above the prevailing Bank of England base rate. The Company's receivables due from subsidiary undertakings were reviewed for impairment at the balance sheet date based on the performance of 2021 and on subsequent years' forecast projections. A discounted future cash flow method was employed for the review. As a result of this review, no provision was deemed necessary. The assessment was performed on a value in use basis using a discount rate of 9.3% (2020: 11.3%) and the other parameters used in the goodwill impairment review, as outlined in note 11.

As at 31 December 2021 trade receivables of £523,000 (2020: £374,000) were past due but not impaired. These relate to customers where there is no evidence of unwillingness or of an inability to settle the debt. The ageing of Group trade receivables is as follows:

The Company had no provisions for trade receivables, as it has no trade receivables. Other receivables in the Group and the Company were not past due and not impaired.

17 Loans & borrowings

Further details of the Group's banking facilities are given in note 20.

18 Trade and other payables

19 Provisions