Last checked at 29 Aug 2008 07:00
29 August 2008
Parity Group PLC
Interim results for the six months ended 30 June 2008
Parity Group plc, the UK IT Services Company, announces its interim results for the six months ended 30th June 2008.
Key points:
Revenue of £74.7M (H1 2007: £83.9M)
Operating profit on continuing operations of £0.6M (H1 2007: £1.7M)
Loss before tax on continuing operations of £ 0.1M (H1 2007: £1.1M profit); Loss per share on continuing operations of 1.85p (H1 2007: earnings of 1.12p)
Close attention paid to cash flow in the period, and net debt reduced to £5.9M at period end (31 December 2007: £6.6M)
Resources had very good H1, reflecting strategy of focusing on higher margin business as opposed to volume
Solutions saw slippage on some bids ; full impact of cost saving initiatives and refocusing of sales effort will start to show through in Q3
Training incurred significant loss in Q1, due to clients delaying decisions on training investments; cost reductions and better selling yielded good improvement in Q2
Alwyn Welch, Chief Executive, commented:
"These results reflect weak trading in Q1 as previously reported, with evidence of client nervousness and slower decision making in the current uncertain economic climate. Against this background, we have acted quickly to reduce cost and refocus our selling efforts and the benefits started to show in Q2.
"In Resources we have a good market share and reputation in the public sector in particular, and our priority is to continue to build a recruitment business focused on high value, scarcer skill sets. Our Solutions business has demonstrated both its depth of technical capability and its ability to manage complex IT projects and our priority now is to grow this operation. The Training business is now very lean and the next step is to increase market share whilst maintaining the strong gross margin model that has been established.
"Overall, we will continue to manage with prudence, maintaining tight cost control, focusing on areas where we can see demand and where we can differentiate, in a volatile and generally weakening market. We will also invest carefully to take advantage of market opportunities and to improve the efficiency of our operations. Having made good progress in the second quarter, following a slow start to the year, we expect to make continued progress during the second half."
Enquiries:
| Parity Group plc Alwyn Welch, Chief Executive Officer Ian Ketchin, Finance Director | 0845 873 6942 |
| The Hogarth Partnership John Olsen/Sarah Richardson/Ian Payne | 020 7357 9477 |
Notes to editors:
About Parity Group plc
Parity Group PLC is a UK-focused IT services company, operating via three core business units - Parity Resources, Parity Solutions and Parity Training.
Parity Resources is a leading IT recruitment specialist, with over 30 years experience in providing permanent and contract technology staff, temporary staff and managed recruitment services across all markets.
Parity Solutions specialises in providing IT, Projects and Consulting, using leading edge technologies and drawing upon the depth of experience of its consultants in Programme and Project Management.
Parity Training is one of the UK's leading Management and IT training providers. In addition to a comprehensive schedule of public courses, Parity delivers tailored learning solutions and customised programmes for major clients.
Parity is listed on the London Stock Exchange, with a ticker of PTY.LN.
CHIEF EXECUTIVE'S REVIEW
Introduction
As stated in our Interim Management Statement on 2 May 2008, despite Resources making a good start to the year, trading in the first quarter was impacted by softness in the training market and delays in signing systems integration projects within Solutions. We believe that both are evidence of client nervousness in the current uncertain economic climate: whilst spending is not being obviously reduced, clients are delaying buying decisions.
Against this background, management took immediate action which yielded a rapid improvement in performance in the second quarter as indicated in our trading statement on 23 July 2008. This involved a refocusing of sales operations and some urgent cost reductions. As a result we incurred a one-off staff cost of £270k, which should deliver annualised savings of £1.1M when the full impact is realised by the end of Q3. There was also a £130k charge related to the settlement of an employee dispute. Overall, excluding these one-off costs, a modest profit was achieved in H1 2008.
Resources had a very good first half, with strong revenue growth, up 5.6% compared to H2 2007, to £54.6M. Revenue was lower than in H1 2007, as we had exited some high volume, low margin contracts towards the end of that period, in line with our strategy of focusing on higher margin, quality business. The impact of this change can be seen in the operating profit margin, which increased to 2.6% (H1 2007 2.0%) and, excluding one-off costs, reached 2.9%. We experienced good growth in contractors during H1 2008, whilst continuing to increase our selling margin. We also kept SG&A costs under close control, reducing them by £0.2M to £before one-offs during the first half (H1 2007: £
Solutions experienced slippage on a number of contracts in Q1, impacting revenue and utilisation. Revenue reduced by 27% to £11.7M (H1 2007: £16.2M), primarily as a result of decreased third party revenue. Operating profit margins (excluding one-off charges) were also lower, at 5.4% (4.2% after one-off charges) compared to 9% in H1 2007, due to lower utilisation rates. In light of sales slippages, costs were reduced at the end of Q1, the full benefit of which, together with the refocusing of our sales efforts, are expected to start to show through in Q3.
Training incurred a significant loss in Q1, mainly due to clients delaying decisions on training investments, which we believe was due to nervousness over the economy. However, cost reductions coupled with more focused selling, resulted in a significant improvement in Q2 with revenues up 3% on Q2 2007 and an increase in gross margin of over £400k compared to Q1. This drove a good return to profit in Q2. The overall H1 loss in Training was £359k, or £280k before one-off costs (H1 2007: £350k profit), on revenue 8% lower at £8.5M (H1 2007: £9.2M).
Group revenue was £74.7M, 11% lower than H1 2007 although only 1.5% lower than H2 07. The loss before tax on continuing operations was £0.1M (excluding one-off costs this was a profit of £0.3M) compared to a profit of £1.1M in H1 2007, and £1.5M in H2 2007 before exceptional items.
Training Business
As announced on 23 July 2008, the Board agreed to sell Parity Training Limited to Xpertise Group PLC, an AIM-listed IT Training company, for £4.775M in cash. This was approved by Parity shareholders at the EGM held on 13 August and was due to complete on 29 August 2008.
However, on 22 August Xpertise received a hostile bid that was supported by over 45% of their shareholders and which was conditional on their acquisition of Parity Training not proceeding. As a result the acquisition was not approved by Xpertise shareholders at their EGM on 26 August. Whilst this was clearly a frustrating outcome, Parity Training remains a high quality business for which there are significant opportunities.
Business Focus and Strategy
Over the last three years, Parity has concentrated on returning its operations to profitable growth. This has included the disposal of overseas operations and significant changes within the company itself. We have also given close attention to improved cash management and tight cost control.
By strengthening and streamlining the operations, we have been able to gain some protection from the recent negative trends in our markets, as demonstrated by our quick reaction and recovery from a weak first quarter.
The priority for the Group will remain improving our operations to maximise performance in the prevailing challenging market conditions. This will now include a full review of our back office operations.
In Resources we have a good market share and reputation in the public sector in particular, where we have grown revenue by over 10% and have won several new clients, including the Land Registry and Ministry of Defence. Our priority is to continue to build a recruitment business focused on high value, scarcer skill sets. This focus will allow us to sustain and improve margins in the medium term. We will also increase our sales efforts outside the public sector, evolve our portfolio of related skills and increase the volume of activity in our permanent recruitment division. We do not intend to become a generalist supplier as we are determined to maintain our low level of exposure to any general tightening in the jobs market.
Solutions has demonstrated both its depth of technical capability and the ability to manage complex IT projects during the last three years. Our main priority now is to grow this operation, especially in terms of the scale of our own delivery team. This growth will be in the areas of Microsoft and Oracle technology, as well as in project and programme management capabilities and associated consulting skills, with a primary focus on the Public Sector and Utilities industry. We believe that, in due course, we will need to increase the size of this operation significantly to achieve critical mass.
The Training business is now lean, having focused resolutely on margin improvement over the last twelve months, and the next step is to increase market share. We believe there are significant opportunities available for a provider of quality, tailored learning solutions such as Parity Training and we will build our client base while maintaining the strong gross margin model that has been established over the past year. Once we have overcome the inevitable trading impact of the distraction caused by the aborted sale of this division, we believe it is well-placed to make good progress.
Management Team
We made one change to the Executive team during the first half of 2008, promoting Alan Rommel to Business Unit Head of the Resources operation in February. Alan has worked at Parity for most of his career, working in our recruitment business for all of that time. We also recruited a number of individuals to strengthen our senior management team across the Group.
Alastair MacDonald, our senior independent non-Executive Director, has decided to step down after years on the Board. He has played a very significant role in helping to steer the Group through times of considerable change and we will miss his wisdom and experience.
Alastair will be succeeded in this role by John Hughes, whose role as Deputy Chairman will become non-Executive.
People
This has been a challenging period for the people who work for Parity, as we have needed to take some tough decisions to reduce costs which have inevitably affected some individuals.
Despite this, the quality of the work we deliver to our clients remains of the highest standard, and morale across the Group remains good. On behalf of the whole Board I would like to thank all those who work for Parity, especially our employees, for their hard work and continued strong support.
Cash Flow and Net Debt
Close attention was paid to cash flow in the period. Good progress was made in improving working capital, and debtor days reduced from 35 days at the end of 2007 to 31 days at the period end. Although, we continued to have a cash outflow due to contributions to our pension fund (£0.5M in H1 2008) and the impact of vacant property (£0.4M in H1 2008), the profit impact of which was recorded in prior periods, we reduced net debt by £0.7M in the period to £5.9M as at 30 June 2008. We will continue to focus on reducing our borrowings through prudent cash management.
Tax
The Group recorded a tax charge of £562k on a loss on continuing operations before tax of £142k. The deferred tax assets in Resources and Solutions were reduced as they were used to offset tax charges. The deferred tax asset in Training has been written down by £500k to reflect the expected increase in the time needed to recover the asset given the current economic conditions and the first half performance.
Exceptional Items and Discontinued Operations
Although we made no exceptional charges during the period, as noted above we did incur one-off charges of £400k. Of these, £270krelated to restructuring costs to reduce our cost base (mainly people) in response to the trading conditions being experienced in Q1, and £130k related to the settlement of a long standing employee dispute.
We continue to work to complete closure of the residual elements of discontinued operations in the US and Continental Europe. Discontinued operations had a minimal impact on the group result for the period.
Dividend
No interim dividend is proposed in respect of the year ending 31st December 2008 (2007: final dividend £nil: interim dividend £nil).
Market Conditions and Outlook
We are experiencing varied conditions in the markets in which we operate. While demand in Resources for higher value skills, especially in the public sector, has remained robust, some clients are delaying buying decisions for projects, and others are reducing the scale of some investments within Solutions and Training. However there is much variation in demand and investment depending on the organisation and the market sector.
Within the prevailing economic climate Parity will continue to manage with prudence, maintaining tight control of costs and making reductions where and when appropriate, whilst focusing on those areas of the market where we can see sustained demand and where we can differentiate well. We will continue to invest carefully to take advantage of market opportunities and to improve the efficiency of our operations.
Having made good progress in the second quarter, with trading in line with management's expectations following a slow first quarter, the Board expects continued progress during the second half.
Alwyn Welch
Chief Executive
Financial summary
| Six months to 30.06.08 (unaudited) £'000 | Six months to 30.06.07 (unaudited) £'000 | Year ended 31.12.07 (audited) £'000 | ||
| Revenue from continuing operations | 74,748 | 83,930 | 159,938 | |
| Operating profit from continuing operations before exceptional items | 558 | 1,741 | 4,012 | |
| Operating profit from continuing operations | 558 | 1,741 | 3,665 | |
| (Loss)/profit before taxation from continuing operations | (142) | 1,086 | 2,288 | |
| (Loss)/profit for the period | (694) | 546 | 410 | |
|
| ||||
| Net debt (see note 10) | (5,857) | (9,306) | (6,627) | |
| Equity shareholders' funds | 12,206 | 12,013 | 12,759 | |
| Pence | Pence | Pence | ||
| (Loss)/earnings per share | ||||
| Basic | (1.83) | 1.44 | 1.08 | |
| Diluted | (1.83) | 1.37 | 1.07 | |
| (Loss)/earnings per share from continuing operations | ||||
| Basic | (1.85) | 1.12 | 0.40 | |
| Diluted | (1.85) | 1.06 | 0.40 | |
|
|
Divisional performance - continuing operations
| Six months to 30.06.08 (unaudited) | Six months to 30.06.07 (unaudited) | Year to 31.12.07 (audited) | ||||
| Revenue £'000 | Profit/(loss) before taxation £'000 | Revenue £'000 | Profit before taxation £'000 | Revenue £'000 | Profit before taxation £'000 | |
| Resources | 54,589 | 1,412 | 58,538 | 1,191 | 110,279 | 2,656 |
| Solutions | 11,695 | 490 | 16,164 | 1,462 | 31,034 | 3,195 |
| Training | 8,464 | (359) | 9,228 | 350 | 18,625 | 570 |
| Operating profit before central costs and exceptional items | 1,543 | 3,003 | 6,421 | |||
| Central costs | (985) | (1,262) | (2,409) | |||
| Operating profit before exceptional items | 558 | 1,741 | 4,012 | |||
| Net finance costs | (700) | (655) | (1,377) | |||
| (Loss)/profit before tax and exceptional items | (142) | 1,086 | 2,635 | |||
| Exceptional costs | - | - | (347) | |||
| 74,748 | (142) | 83,930 | 1,086 | 159,938 | 2,288 | |
Geographical performance - continuing operations
| Six months to 30.06.08 (unaudited) | Six months to 30.06.07 (unaudited) | Year to 31.12.07 (audited) | ||||
| Revenue £'000 | Operating profit before central costs and exceptional items £'000 | Revenue £'000 | Operating profit before central costs and exceptional items £'000 | Revenue £'000 | Operating profit before central costs and exceptional items £'000 | |
| United Kingdom | 74,716 | 1,521 | 83,623 | 3,003 | 159,594 | 6,415 |
| Ireland | 32 | 22 | 307 | - | 344 | 6 |
| 74,748 | 1,543 | 83,930 | 3,003 | 159,938 | 6,421 | |
Consolidated income statement
For the six months ended 30 June 2008
| Notes | Six months to 30.06.08 (unaudited) £'000 | Six months to 30.06.07 (unaudited) £'000 | Year to 31.12.07 (audited) £'000 | |
| Continuing operations Revenue | 2 | 74,748 | 83,930 | 159,938 |
| Employee benefit costs | (10,562) | (10,391) | (20,606) | |
| Depreciation and amortisation | (330) | (170) | (466) | |
| All other operating expenses | (63,298) | (71,628) | (135,201) | |
| Total operating expenses | (74,190) | (82,189) | (156,273) | |
| Operating profit before exceptional items | 2 | 558 | 1,741 | 4,012 |
| Exceptional items | 3 | - | - | (347) |
| Operating profit | 2 | 558 | 1,741 | 3,665 |
| Finance income | 4 | - | 15 | 15 |
| Finance costs | 5 | (700) | (670) | (1,392) |
| (Loss)/profit before tax | (142) | 1,086 | 2,288 | |
| Tax | 6 | (562) | (663) | (2,135) |
| (Loss)/profit for the period from continuing operations | (704) | 423 | 153 | |
| Discontinued operations | ||||
| Profit for the period from discontinued operations | 7 | 10 | 123 | 257 |
| (Loss)/profit for the period attributable to equity shareholders | 11 | (694) | 546 | 410 |
| (Loss)/earnings per share | ||||
| Basic | 8 | (1.83p) | 1.44p | 1.08p |
| Diluted | 8 | (1.83p) | 1.37p | 1.07p |
| (Loss)/earnings per share from continuing operations | ||||
| Basic | 8 | (1.85p) | 1.12p | 0.40p |
| Diluted | 8 | (1.85p) | 1.06p | 0.40p |
Consolidated statement of recognised income and expense
For the six months ended 30 June 2008
| Notes | Six months to 30.06.08 (unaudited) £'000 | Six months to 30.06.07 (unaudited) £'000 | Year to 31.12.07 (audited) £'000 | |
| Exchange differences on translation of foreign operations | - | 78 | (111) | |
| Actuarial losses on defined benefit pension schemes | - | - | 1,090 | |
| Deferred taxation on items taken directly to equity | - | - | (328) | |
| Net income (expense) recognised directly in equity | 11 | - | 78 | 651 |
| (Loss)/profit for the period | 11 | (694) | 546 | 410 |
| Total recognised (expense)/income for the period | (694) | 624 | 1,061 | |
Consolidated balance sheet
As at 30 June 2008
| Notes | As at 30.06.08 (unaudited) £'000 | As at 30.06.07 (unaudited) £'000 | As at 31.12.07 (audited) £'000 | |
| Non-current assets | ||||
| Goodwill | 7,116 | 7,116 | 7,116 | |
| Intangible assets - software | 329 | - | 370 | |
| Property, plant and equipment | 2,010 | 1,544 | 2,071 | |
| Available for sale financial assets | 48 | - | 124 | |
| Deferred tax assets | 2,073 | 4,269 | 2,635 | |
| 11,576 | 12,929 | 12,316 | ||
| Current assets | ||||
| Work in progress | 811 | 776 | 706 | |
| Trade and other receivables | 31,336 | 42,301 | 35,680 | |
| Cash and cash equivalents | 701 | 1,014 | 770 | |
| 32,848 | 44,091 | 37,156 | ||
| Total assets | 44,424 | 57,020 | 49,472 | |
| Current liabilities | ||||
| Financial liabilities | (6,558) | (10,320) | (7,397) | |
| Trade and other payables | (21,534) | (27,664) | (24,168) | |
| Current tax liabilities | (266) | (72) | (268) | |
| Provisions | (577) | (986) | (967) | |
| (28,935) | (39,042) | (32,800) | ||
| Non-current liabilities | ||||
| Provisions | (829) | (1,647) | (1,067) | |
| Retirement benefit liability | (2,454) | (4,318) | (2,846) | |
| (3,283) | (5,965) | (3,913) | ||
| Total liabilities | (32,218) | (45,007) | (36,713) | |
| Net assets | 12,206 | 12,013 | 12,759 | |
| Shareholders' equity | ||||
| Called up share capital | 11 | 15,079 | 15,078 | 15,079 |
| Share premium account | 11 | 20,134 | 20,086 | 20,134 |
| Other reserves | 11 | 44,160 | 44,160 | 44,160 |
| Retained earnings | 11 | (67,167) | (67,311) | (66,614) |
| Total shareholders' equity | 11 | 12,206 | 12,013 | 12,759 |
Consolidated cash flow statement
For the six months ended 30 June 2008
| Notes | Six months to 30.06.08 (unaudited) £'000 | Six months to 30.06.07 (unaudited) £'000 | Year to 31.12.07 (audited) £'000 | |
| Cash flows from operating activities | ||||
| Cash from/(used in) operations | 9 | 1,346 | (2,374) | 1,711 |
| Interest received | - | 15 | 15 | |
| Interest paid | (288) | (270) | (592) | |
| Net cash from/(used in) operations | 1,058 | (2,629) | 1,134 | |
| Cash flows from investing activities | ||||
| Purchase of intangible assets - software | (1) | - | (295) | |
| Purchase of property, plant and equipment | (349) | (1,099) | (1,913) | |
| Proceeds from sale of property, plant and equipment | 80 | - | - | |
| Net cash used in investing activities | (270) | (1,099) | (2,208) | |
| Cash flows from financing activities | ||||
| Net cash from issue of ordinary shares | - | 69 | 118 | |
| Net movement on invoice financing | 10 | (837) | 4,916 | 2,017 |
| Payment of capital element of finance leases | 10 | (2) | (10) | (19) |
| Net cash (used in)/from financing activities | (839) | 4,975 | 2,116 | |
| Net (decrease)/increase in cash and cash equivalents | 10 | (52) | 1,247 | 1,042 |
| Cash and cash equivalents at beginning of the period | 770 | (260) | (260) | |
| Net foreign exchange difference | 10 | (17) | 12 | (12) |
| Cash and cash equivalents at end of the period | 701 | 999 | 770 | |
| Cash and cash equivalents consist of: | ||||
| - Cash | 701 | 1,014 | 770 | |
| - Overdrafts | - | (15) | - | |
| 701 | 999 | 770 | ||
For the purposes of the cash flow statement, cash and cash equivalents are net of overdrafts. These overdrafts are excluded from the definition of cash and cash equivalents in the balance sheet.
Notes to the interim results
1 Basis of preparation
The financial information comprises the unaudited results for the six months to 30 June 2008 and 30 June 2007 and the audited results for the twelve months ended 31 December 2007. The results for the twelve months ended 31 December 2007 included in this report do not constitute statutory accounts for the purpose of section 240 of the Companies Act 1985. A copy of the statutory accounts for the twelve months ended 31 December 2007 has been delivered to the Registrar of Companies. An unqualified report on the statutory accounts for the twelve months ended 31 December 2007 has been made by the auditors and they did not contain a statement under section 237 (2)-(3) of the Companies Act 1985, or include a reference to any matters to which the auditors wished to draw attention by way of emphasis without qualifying their report.
The interim financial statements for the period ended 30 June 2008 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 'Interim Financial Reporting' as adopted by the European Union.
Accounting policies
The same accounting policies and methods of computation have been followed in the preparation of these results as were applied in the group's latest annual audited financial statements and it is not expected that there will be any changes or additions to these in the 2008 annual financial statements. . International Financial Reporting Standards are subject to amendment and interpretation by the International Accounting Standards Board (IASB) and there is an ongoing process of review and endorsement by the European Commission.
2 Segmental analysis
The Group is organised into three primary business segments: Resources, Solutions and Training.
| Six months to 30.06.08 (unaudited) £'000 | Six months to 30.06.07 (unaudited) £'000 | Year to 31.12.07 (audited) £'000 | ||
| Revenue - continuing operations | ||||
| Resources | 54,589 | 58,538 | 110,279 | |
| Solutions | 11,695 | 16,164 | 31,034 | |
| Training | 8,464 | 9,228 | 18,625 | |
| 74,748 | 83,930 | 159,938 |
| Operating result before exceptional items | Exceptional items | Operating result after exceptional items | |||||||
| Six months to 30.06.08 (unaudited) £'000 | Six months to 30.06.07 (unaudited) £'000 | Year to 31.12.07 (audited) £'000 | Six months to 30.06.08 (unaudited) £'000 | Six months to 30.06.07 (unaudited) £'000 | Year to 31.12.07 (audited) £'000 | Six months to 30.06.08 (unaudited) £'000 | Six months to 30.06.07 (unaudited) £'000 | Year to 31.12.07 (audited) £'000 | |
| Continuing operations | |||||||||
| Resources | 1,412 | 1,191 | 2,656 | - | - | - | 1,412 | 1,191 | 2,656 |
| Solutions | 490 | 1,462 | 3,195 | - | - | - | 490 | 1,462 | 3,195 |
| Training | (359) | 350 | 570 | - | - | - | (359) | 350 | 570 |
| 1,543 | 3,003 | 6,421 | - | - | - | 1,543 | 3,003 | 6,421 | |
| Central costs | (985) | (1,262) | (2,409) | - | - | (347) | (985) | (1,262) | (2,756) |
| 558 | 1,741 | 4,012 | - | - | (347) | 558 | 1,741 | 3,665 | |
Included within operating costs are £268,000 relating to restructuring to reduce our cost base and £134,000 relating to the settlement of a long-standing employee dispute.
| Six months to 30.06.08 (unaudited) £'000 | Six months to 30.06.07 (unaudited) £'000 | Year to 31.12.07 (audited) £'000 | ||
| Revenue - discontinued operations | ||||
| Resources | - | - | - | |
| Operating results - discontinued operations | ||||
| Resources | 10 | 164 | 314 |
3 Exceptional items
| Six months to 30.06.08 (unaudited) £'000 | Six months to 30.06.07 (unaudited) £'000 | Year to 31.12.07 (audited) £'000 | ||
| Continuing operations | ||||
| Property restructuring | - | - | (347) | |
| Total exceptional items from continuing operations | - | - | (347) |
These items have been included within other operating expenses in the consolidated income statement.
4 Finance income
| Six months to 30.06.08 (unaudited) £'000 | Six months to 30.06.07 (unaudited) £'000 | Year to 31.12.07 (audited) £'000 | ||
| Bank interest receivable | - | 15 | 15 | |
| Total finance income | - | 15 | 15 |
5 Finance costs
| Six months to 30.06.08 (unaudited) £'000 | Six months to 30.06.07 (unaudited) £'000 | Year to 31.12.07 (audited) £'000 | ||
| Bank interest payable | 288 | 270 | 592 | |
| Post retirement benefits | 412 | 400 | 800 | |
| Total finance costs | 700 | 670 | 1,392 |
6 Tax
| Six months to 30.06.08 (unaudited) £'000 | Six months to 30.06.07 (unaudited) £'000 | Year to 31.12.07 (audited) £'000 | ||
| Current tax | - | (129) | 58 | |
| Deferred tax | 562 | 833 | 2,147 | |
| Total tax charge (credit) | 562 | 704 | 2,205 |
| Six months to 30.06.08 (unaudited) £'000 | Six months to 30.06.07 (unaudited) £'000 | Year to 31.12.07 (audited) £'000 | ||
| Continuing operations | 562 | 663 | 2,135 | |
| Discontinued operations | - | 41 | 70 | |
| Total tax charge (credit) | 562 | 704 | 2,205 |
The tax charge/(credit) above includes a £nil tax credit for the six months ended 30 June 2008 in respect of exceptional items (£nil tax credit for the six months ended 30 June 2007 and £104,000 for the year ended 31 December 2007).
The UK corporation tax rate changed from 30% to 28% on 6 April 2008. This reduced the group's deferred tax assets by £307,000 as at 30 June 2007 and £189,000 as at 31 December 2007.
7 Discontinued operations
| Six months to 30.06.08 (unaudited) £'000 | Six months to 30.06.07 (unaudited) £'000 | Year to 31.12.07 (audited) £'000 | ||
| Pre-tax profit from discontinued operations | 10 | 164 | 327 | |
| Taxation | - | (41) | (70) | |
| Total | 10 | 123 | (257) |
8 Earnings per share
The calculation of the earnings per share is based on a loss after taxation of £694,000 (30 June 2007: profit of £546,000, 31 December 2007: profit of £410,000). The calculation of the earnings per share from continuing operations (see Financial Summary) is based on a loss after taxation of £704,000 (30 June 2007: profit of £423,000, 31 December 2007: profit of £153,000).
| Earnings per share on discontinued operations | Six months to 30.06.08 (unaudited) | Six months to 30.06.07 (unaudited) | Year to 31.12.07 (audited) | |
| Basic | 0.03p | 0.32p | 0.68p | |
| Diluted | 0.03p | 0.31p | 0.67p |
The weighted average number of shares used in the calculation of the basic and diluted earnings per share are as follows:
| Six months to 30.06.08 (unaudited) number | Six months to 30.06.07 (unaudited) number | Year to 31.12.07 (audited) number | ||
| Basic | ||||
| Weighted average number of fully paid ordinary shares in issue during the period | 38,021,784 | 37,914,549 | 37,938,862 | |
| Weighted average number held by ESOP trust | (43,143) | (43,143) | (43,143) | |
| Adjusted weighted average number of fully paid ordinary shares in issue during the period | 37,978,641 | 37,871,406 | 37,895,719 | |
| Dilutive | ||||
| Weighted average number of fully paid ordinary shares in issue during the period | 38,021,784 | 37,914,549 | 37,938,862 | |
| Dilutive effect of potential ordinary shares | - | 2,085,822 | 468,689 | |
| Weighted average number held by ESOP trust | (43,143) | (43,143) | (43,143) | |
| Adjusted diluted weighted average number of fully paid ordinary shares in issue during the period | 37,978,641 | 39,957,228 | 38,364,408 |
| Number of issued ordinary shares at the end of the period | 38,021,784 | 37,926,546 | 38,021,784 |
Basic earnings per share is calculated by dividing the basic earnings for the period by the weighted average number of fully paid ordinary shares in issue during the period, less those shares held by the ESOP Trust.
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 potentially dilutive ordinary shares. The Group has one class of potentially dilutive ordinary shares being those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period. These options, where held under the Executive Share Option Scheme, are not dilutive as the performance criteria have not been met.
9 Reconciliation of (loss)/profit after tax to net cash flow
| Continuing operations | Six months to 30.06.08 (unaudited) £'000 | Six months to 30.06.07 (unaudited) £'000 | Year to 31.12.07 (audited) £'000 | |
| Net (loss)/profit for the period | (704) | 423 | 153 | |
| Adjustments for: | ||||
| Tax | 562 | 663 | 2,135 | |
| Depreciation and amortisation | 330 | 170 | 466 | |
| Equity settled share based payments | 141 | 291 | 551 | |
| Loss on disposal of property, plant and equipment | 42 | - | 21 | |
| Interest income | - | (15) | (2) | |
| Interest expense | 700 | 670 | 1,392 | |
| Changes in working capital | ||||
| (Increase)/decrease in work in progress | (105) | 222 | 292 | |
| Decrease/(increase) in trade and other receivables | 4,370 | (2,279) | 3,301 | |
| Increase/(decrease) in trade and other payables | (2,412) | (602) | (3,961) | |
| Decrease in provisions | (628) | (379) | (1,012) | |
| Change in retirement benefit liability | (804) | (785) | (1,567) | |
| Transfer of funds to client guarantee account (see below) | - | (600) | - | |
| Cash from/(used in) continuing operations | 1,492 | (2,221) | 1,769 | |
| Discontinued operations | ||||
| Net profit for the period | 10 | 123 | 257 | |
| Adjustments for: | ||||
| Tax | - | 41 | 70 | |
| Impairment of available for sale assets | 76 | - | 26 | |
| Interest income | - | - | (13) | |
| Changes in working capital | ||||
| Decrease/(increase) in trade and other receivables | (26) | 93 | 258 | |
| Decrease in trade and other payables | (206) | (376) | (656) | |
| Decrease in provisions | - | (34) | - | |
| Cash from discontinued operations | (146) | (153) | (58) | |
| Total net cash flow from/(used in) operating activities | 1,346 | (2,374) | 1,711 | |
Cash generated from operations includes cash outflows relating to exceptional items recorded in prior years of £419,000 (30 June 2007: £368,000; 31 December 2007: £880,000).
During the six months ended 30 June 2007, the group transferred £600,000 to a separate 'guarantee' bank account as part of the terms of a business contract. For the duration of the contract these funds were ring-fenced and unavailable for the Group's use and could not be classified as cash or cash equivalents under IAS 7, but were included in other debtors. On successful performance and completion of the services under the contract, these funds reverted to the Group and again became available for use during the second half of the year ended 31 December 2007.
10 Consolidated reconciliation of net cash flow to movement in net borrowings
| Six months to 30.06.08 (unaudited) £'000 | Six months to 30.06.07 (unaudited) £'000 | Year to 31.12.07 (audited) £'000 | ||
| (Decrease)/increase in cash in the period from cash flows | (52) | 266 | 46 | |
| Decrease in overdrafts in the period from cash flows | - | 981 | 996 | |
| Decrease/(increase) in drawings on invoice financing facilities and bank borrowings | 837 | (4,916) | (2,017) | |
| Repayment of obligations under finance leases | 2 | 10 | 19 | |
| Exchange movements | (17) | 12 | (12) | |
| Movement in net borrowings in the period | 770 | (3,647) | (968) | |
| Net borrowings at beginning of period | (6,627) | (5,659) | (5,659) | |
| Net borrowings at end of period | (5,857) | (9,306) | (6,627) |
11 Movement on capital and reserves
| Share capital £'000 | Deferred Shares £'000 | Share premium reserve £'000 | Other reserves £'000 | Retained earnings £'000 | Total £'000 | |
| At 1 January 2008 | 760 | 14,319 | 20,134 | 44,160 | (66,614) | 12,759 |
| Net (loss) for the period | - | - | - | - | (694) | (694) |
| Share options - value of employee services | - | - | - | - | 141 | 141 |
| At 30 June 2008 | 760 | 14,319 | 20,134 | 44,160 | (67,167) | 12,206 |
| Share capital £'000 | Deferred Shares £'000 | Share premium reserve £'000 | Other reserves £'000 | Retained earnings £'000 | Total £'000 | |
| At 1 January 2007 | 756 | 14,319 | 20,020 | 44,160 | (68,226) | 11,029 |
| Net profit for the period | - | - | - | - | 546 | 546 |
| Issue of new shares | 3 | - | 66 | - | - | 69 |
| Share options - value of employee services | - | - | - | - | 291 | 291 |
| Net income recognised directly in equity | - | - | - | - | 78 | 78 |
| At 30 June 2007 | 759 | 14,319 | 20,086 | 44,160 | (67,311) | 12,013 |
12 Post retirement benefits
The Group provides employee benefits under various arrangements, including through a defined benefit and defined contribution pension plans, the details of which are disclosed in the 2007 Annual Report and Accounts. At the interim balance sheet date, the assets and liabilities of the defined benefit plan have been updated from the latest actuarial valuation and no material differences were identified.
13 Commitments and contingencies
The group leases various buildings which operate within all the segments. The leases are non-cancellable operating agreements with varying terms and renewal rights. The group also has various other non-cancellable operating lease commitments.
14 Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are therefore not disclosed in this note. There were no material related party transactions requiring disclosure in the period or the comparable prior periods
15 Risks and uncertainties
There are a number of potential risks and uncertainties that could have an adverse impact on the Group's long-term performance. Risk management is seen as an important element of internal control and is used to mitigate the Group's exposure to such risks. The key risks facing the business, which have not changed since the financial year end, and how they are addressed are outlined below.
Market and client risk: risk from losing out to our competitors is minimised by ensuring we maintain a competitive edge through strong relationship management and quality of service delivery. Our exposure to market risks is further limited by the fact that we serve a diverse range of clients, with the largest accounting for less than 8% of turnover in 2007. Forty five per cent of turnover in 2007 came from the public sector, which shelters the business from market volatility. Further discussion of the market risks faced by each business segment is provided on page 16 of the 2007 annual report and accounts.
Other risks: other risk areas for the business include human resources, regulatory and legal requirements and the defined benefit pension scheme. The Group has taken measures to mitigate each of the risks and these measures are described in full on page 16 of the 2007 annual report and accounts.
Post balance sheet events
On 23 July 2008 the company announced it had agreed to sell Parity Training Limited to Xpertise Group PLC for £4.775M in cash. This was approved by Parity shareholders at an EGM held on 13 August and was due to complete on 29 August 2008.
However on 22 August Xpertise received a hostile bid that was supported by over 45% of their shareholders and which was conditional on their acquisition of Parity Training Limited not proceeding. As a result the acquisition was not approved by Xpertise shareholders at their EGM on 26 August and the proposed sale of Parity Training Limited to Xpertise Group PLC will therefore now not proceed.
Statement of directors' responsibilities
The directors confirm, to the best of their knowledge:
The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the European Union;
The interim management report includes a fair review of the information required by DTR 4.2.7R of the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and
The interim management report includes a fair review of the information required by DTR 4.2.8R of the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority, being a disclosure of related party transactions and changes therein since the previous annual report.
By order of the Board
Alwyn Welch
Chief Executive Officer
29 August 2008
Independent review report to Parity Group plc
for the six months ended 30 June 2008
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half yearly financial report for the six months ended 30 June 2008 which comprises the consolidated income statement, the consolidated balance sheet, the consolidated statement of recognised income and expense, the consolidated cash flow statement and the related explanatory notes. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the condensed set of financial statements.
Directors' responsibilities
The half yearly financial report is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the half yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in Note 1, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. The condensed set of financial statements included in this half yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half yearly financial report based on our review.
Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting its responsibilities in respect to half yearly financial reporting in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity', issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly we do not express an audit opinion.
Review conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half yearly report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with IAS 34 'Interim Financial Reporting', as adopted by the European Union, and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
BDO STOY HAYWARD LLP
55 Baker Street, London W1U 7EU
29 August 2008