Parity Regulatory News (PTY)

26 Sep 2006 07:01

Parity Group PLC26 September 2006 26 September 2006 Parity Group PLC Interim Results for the six months ended 30 June 2006 Parity Group PLC, the UK IT services group, is pleased to announce interimresults for the six months ended 30 June 2006. Financial Highlights: •Revenue from continuing operations up 9% to £73.0m (H1 2005: £67.3m) •Operating profit from continuing operations, before exceptional items and goodwill impairment, of £244,000 (H1 2005: Loss of £1,132,000)) and move into profitability in each division •Profit after tax of £557,000 (H1 2005: Loss of £1,842,000) •Net debt reduced by 75% to £4.8m (December 2005: £19.1m), further to successful placing in April 2006, raising £14.6m net •Net cash outflow for continuing operations reduced by 37% to £1.2m (H1 2005: £1.9m), reflecting careful control of expenditure •New banking facilities secured with RBS Operational Highlights: •Strong growth in Resources, substantially ahead of market rates •Solutions returned to profit, with important new business wins including Northern Ireland Electricity, BAT and Invest Northern Ireland resulting in stronger order book for H2 •Significant improvement in Training with losses eliminated •Completion of overseas disposal programme •Success of streamlining the business into UK-centric operation showing through Commenting on the results Alwyn Welch, Chief Executive, said: "Overall the group achieved 9% revenue growth, an indication that our renewedbusiness development focus is having the desired impact in the market and thatcustomers remain committed to Parity as a partner and provider. The fact thatall three of our lines of business delivered positive operating profit,underlines the improving financial and operating performance in H1 2006. "Many of the key indicators of the business have improved substantially from ayear ago but we must and will remain focussed on continuing the progress we haveachieved to date and on creating value for our shareholders." John Hughes, Chairman, said: "We have continued to execute the strategy previously set out, and these resultsprovide strong evidence that the steps taken in 2005 are starting to bear fruit.Parity has made substantial progress towards our stated objectives and thebusiness is in a materially stronger financial position." Enquiries: Parity Group PLCJohn Hughes, Chairman 020 7832 3500Alwyn Welch, Chief Executive Officer The Hogarth PartnershipJohn Olsen/Sarah Richardson 020 7357 9477 Notes to editors: 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 IntroductionThe first half of 2006 has provided strong evidence that the steps taken in 2005are starting to bear fruit. The company has made substantial progress towardsour stated objectives and the business is in a materially stronger financialposition. Group trading was in line with, or slightly ahead of, expectations in each ofthe business lines. The Resources business demonstrated strong growth,substantially above market rates whilst at the same time improving margins. TheTraining business exhibited a significant turnaround with improved margins on,as expected, modestly lower turnover. The Solutions business achieved a positiveoperating profit and also saw an acceleration in new orders which will translateinto revenue and margin growth in H2. Overall the group achieved 9% revenue growth, an indication that our renewedbusiness development focus is having the desired impact in the market and thatcustomers remain committed to Parity both as a partner and as a provider. The fact that all three of our lines of business delivered positive operatingprofit performance underlines the improving financial and operating performancein H1 2006. Group operating profit from continuing operations before exceptional items andgoodwill impairment was £244,000 as compared to a loss of £1,132,000 in H1 2005,and a loss of £399,000 in H2 2005. The Group's headline post-tax profit of£557,000 (H1 2005: loss of £1,842,000) was achieved as a result of substantialgains on disposal offset by associated restructuring charges. Business focus and strategyWe have continued to execute the strategy outlined over the past fifteen months,maintaining a clear focus on the UK and Irish markets. From an operational perspective we are aiming to reach median or above marginsin each business unit whilst ensuring that we develop increased flexibility inour cost structure. We also continue to focus on the disposal of excessfacilities, where we continue to make progress. In both Resources and Solutions, our focus remains on securing profitablebusiness while continuing to invest in our sales capability - all of which isdesigned to secure continued revenue growth and margin improvement. Key wins in H1 included winning frameworks with Catalist and the NHS alongsidemany smaller wins across a number of clients in Resources; a £1.0m project inTraining for a large insurance company to assist in a major business changeprogramme; and in Solutions, a systems integration project valued at an initial£1.5m with Northern Ireland Electric, a £3-6m applications management anddevelopment contract with BAT, and a people development programme for InvestNorthern Ireland valued at £3m over 3 years. As well as this major focus on business development, management remains heavilyfocused on managing our cash resources, despite demands of the growing Resourcesbusiness. Management team and Board of DirectorsChanges to the leadership team are now substantially complete. In February 2006Alwyn Welch was recruited as the Group's new Chief Executive, and he is alreadymaking a positive difference in all areas of the business. During the period, wemade two internal appointments, Joe Kelly became Group Finance Director andDavid Conkleton was appointed Managing Director of Solutions. In June, the Board was further strengthened by the appointment of Nigel Tose asa Non-Executive Director and Chairman of the Audit Committee. Balance sheet strengthenedIn April the Group successfully completed a share placing and open offer,raising £14.6 million net (£16 million gross) with good support from ourexisting shareholders and a number of new institutions joining the shareregister. Upon completion of the fundraising the Group has successfully securednew banking facilities on significantly better terms than previously, providinga facility appropriate in both type and scale to support the needs of thebusiness as it recovers and grows. Cash flow and net debtThe net cash outflow from continuing operating activities was £1,201,000 duringthe period (H1 05: outflow of £1,875,000). This included a cash outflow forexceptional costs recorded in prior years of £1,371,000 (H1 05: outflow of£1,583,000 for exceptional items). Net debt as at 30 June 2006 was £4.8 million,a decrease of £14.2 million from 31 December 2005. TaxThe tax credit on continuing operations for the period was £81,000 (H1 05:£174,000) on a Group loss on continuing operations before tax of £1,317,000 (H105: £2,002,000). The tax credit represents an effective tax rate of 6.2%compared to the UK statutory rate of 30% due to the fact that a deferred taxasset has not been recognised in respect of certain tax losses, largely relatingto central costs, and also due to temporary timing differences. Disposals and exceptional itemIn January, the Group successfully completed the disposal of the major elementsof its continental European business to GFT, and in May disposed of theremaining Benelux business. These disposals were in line with our strategy ofstreamlining the business to focus on the UK and Ireland. All legacy costs associated with the disposed business have been provided for inH1 2006. It is Group strategy that all remaining legal entities associated withthese businesses be closed as soon as practicable. As a result of thesedisposals a one-off net gain on disposal of £2.0m was booked in the period. A further exceptional charge of £600,000 was made for one empty property in theUK, where it has become clear that the provisions made in previous years wouldbe insufficient given the current commercial property market in that locality. DividendNo interim dividend is payable in respect of the year ending 31 December 2006(2005: final dividend £nil; interim dividend £nil). Market conditions and outlook The overall outlook for the markets Parity serves remains modestly positive. The market and outlook for our Resources business remains good, especially formore senior roles in which Parity specialises, although we continue to see pricepressure in the commercial sector, despite some skill shortages. Based oncontinuing demand in the skills areas on which we are focused, we expect to seecontinued revenue growth in H2, and with an increased focus on marginimprovement which should start to show benefits in 2007. The Training market remains very price sensitive, but the decline in overallmarket size seen in previous periods appears to have halted. We do not expect tosee major changes in the performance of the Training business. Our focus remainson earnings rather than top line growth and work continues to improve both theproduct mix and its associated profit margin as well as our sales channels, inorder to deliver modest improvements in future periods allied to a morepredictable business. The Solutions market, whilst remaining competitive, is healthy overall and evenstrong in some segments such as parts of Public Sector, but with some skillsshortages increasing costs. Our Solutions order book built to date this year isexpected to lead to above market growth rates in the second half and into 2007.Furthermore we are expecting gradual margin improvement as utilisation levelsreach our target in H2. Management remains focussed on continuing the improvement in the Group'soperational and financial performance. The results for H2 will further benefitfrom lower interest charges for the entire period, as a result of thefundraising. Based on higher operating profit and lower interest, we aim todeliver positive PBT in H2. Many of the key indicators of the business have improved substantially from ayear ago but we must and will remain focussed on continuing the progress we haveachieved to date and on creating value for our shareholders. Financial summary _______________________________________________________________________________ Six months Six months Year ended to 30.6.06 to 30.6.05 31.12.05 (unaudited) (unaudited) (audited - £'000 £'000 see note 1) £'000_______________________________________________________________________________ Revenue from continuing operations 73,018 67,252 135,256 Operating profit (loss) from continuing operations before exceptional items and goodwillimpairment 244 (1,132) (1,531) Operating (loss) from continuingoperations (356) (1,132) (6,321) (Loss) before taxation fromcontinuing operations (1,317) (2,002) (8,256) Profit (loss) for the period 557 (1,842) (9,222) Net debt (4,812) (15,473) (19,052) Equity shareholders' funds (deficit) 11,099 2,960 (4,090)_______________________________________________________________________________ Pence Pence Pence_______________________________________________________________________________ Loss per share from continuing operationsBasic (6.95) (25.71) (108.04)Diluted (6.95) (25.71) (108.04) Earnings (loss) per ordinary shareBasic 3.13 (25.91) (129.73)Diluted 3.13 (25.91) (129.73)_______________________________________________________________________________ Divisional performance - continuing operations Six months to Six months to Year to 30.06.06 30.06.05 31.12.05 (unaudited) (unaudited) (audited - see note 1) Revenue Profit Revenue Profit Revenue Profit £'000 before £'000 (loss) £'000 (loss) taxation before before taxation taxation £'000 £'000 £'000_______________________________________________________________________________________Business Solutions 10,058 73 12,147 35 22,587 21Training 9,223 94 10,437 (695) 20,044 (1,161)Resources 53,737 1,401 44,668 589 92,625 2,011_______________________________________________________________________________________ Operating profit (loss) before central costs, exceptional items and goodwill impairment 1,568 (71) 871 Central costs (1,324) (1,061) (2,402)Operating profit (loss) before exceptionalitems and goodwillimpairment 244 (1,132) (1,531)Net finance costs (961) (870) (1,935)Impairment of goodwill - - (2,500)_______________________________________________________________________________________Loss before tax, andexceptional items (717) (2,002) (5,966)Exceptional (costs) (600) - (2,290)_______________________________________________________________________________________ 73,018 (1,317) 67,252 (2,002) 135,256 (8,256)_______________________________________________________________________________________ Geographical performance - continuing operations Six months to Six months to Year to 30.06.06 30.06.05 31.12.05 (unaudited) (unaudited) (audited - see note 1) Revenue Operating Revenue Operating Revenue Operating £'000 profit £'000 profit (loss) £'000 profit (loss) before before before central central central costs and costs and costs and exceptional exceptional exceptional items items items £'000 £'000 £'000__________________________________________________________________________________________United Kingdom 72,743 1,568 66,880 (72) 134,501 881Ireland 275 - 372 1 755 (10) __________________________________________________________________________________________ 73,018 1,568 67,252 (71) 135,256 871__________________________________________________________________________________________ Consolidated Income Statement (Unaudited)For the Six Months Ended 30 June 2006 Notes Six months to Six months to Year to 30.06.06 30.06.05 31.12.05 (unaudited) (unaudited) (audited - see note 1) £'000 £'000 £'000_______________________________________________________________________________Continuing operations Revenue 2 73,018 67,252 135,256_______________________________________________________________________________ Employee benefit costs (10,975) (11,436) (23,305)Depreciation (303) (386) (751)All other operating expenses (61,496) (56,562) (112,731)_______________________________________________________________________________Total operating expensesbefore exceptional items and impairment of goodwill (72,774) (68,384) (136,787) _______________________________________________________________________________ _______________________________________________________________________________Operating profit (loss)before exceptional items and impairment of goodwill 2 244 (1,132) (1,531) _______________________________________________________________________________ Exceptional operatingexpenses 3 (600) - (2,290)Impairment of goodwill - - (2,500)_______________________________________________________________________________ Total operating expenses (73,374) (68,384) (141,577)_______________________________________________________________________________ Operating loss (356) (1,132) (6,321) Finance income 4 - - 5Finance costs 5 (961) (870) (1,940)_______________________________________________________________________________ Loss before tax (1,317) (2,002) (8,256)Tax 6 81 174 576_______________________________________________________________________________ Loss for the period fromcontinuing operations (1,236) (1,828) (7,680)_______________________________________________________________________________ Discontinued operations Profit (loss) for the period from discontinued operations 7 1,793 (14) (1,542)_______________________________________________________________________________Profit (loss) for theperiod attributable to equity shareholders 12 557 (1,842) (9,222)_______________________________________________________________________________ Earnings (loss) per shareexpressed in pence pershareBasic and diluted 8 3.13p (25.91p) (129.73p) Earning (loss) per sharefrom continuing operationsBasic and diluted 8 (6.95p) (25.71p) (108.04p) Consolidated Balance Sheet (Unaudited)As at 30 June 2006 Notes As at As at As at 30.06.06 30.06.05 31.12.05 (unaudited) (unaudited) (audited - see note 1) £'000 £'000 £'000_______________________________________________________________________________Non-current assetsGoodwill 7,116 9,616 7,116Property, plant and equipment 697 1,538 988Available for sale financialassets 30 30 30Deferred tax assets 5,160 5,640 4,954_______________________________________________________________________________ 13,003 16,824 13,088_______________________________________________________________________________ Current assetsInventories 1,146 1,459 1,323Trade and other receivables 34,572 42,004 35,539Current tax assets - 15 24Cash and cash equivalents 10 1,785 1,935 749_______________________________________________________________________________ 37,503 45,413 37,635_______________________________________________________________________________ Assets classified as held forsale and included in disposal groups - - 8,746_______________________________________________________________________________Total assets 50,506 62,237 59,469_______________________________________________________________________________ Current liabilitiesFinancial liabilities 10 (2,086) (3,878) (18,039)Trade and other payables (24,092) (33,138) (29,550)Current tax liabilities (252) - (216)Provisions (1,743) (1,215) (1,718)_______________________________________________________________________________ (28,173) (38,231) (49,523)_______________________________________________________________________________ Non-current liabilitiesFinancial liabilities 10 (4,511) (13,530) (19)Provisions (2,103) (2,508) (2,129)Retirement benefit liability 14 (4,620) (5,008) (4,657)_______________________________________________________________________________ (11,234) (21,046) (6,805)_______________________________________________________________________________ Liabilities classified as held for sale and included in disposal groups - - (7,231)_______________________________________________________________________________Total liabilities (39,407) (59,277) (63,559)_______________________________________________________________________________Net assets (liabilities) 11,099 2,960 (4,090)_______________________________________________________________________________ Shareholders' equity (deficit)Called up share capital 12, 13 15,075 14,434 14,434Share premium account 12 20,055 6,062 6,062Other reserves 12 44,160 44,160 44,160Retained earnings 12 (68,191) (61,696) (68,746)_______________________________________________________________________________Total shareholders' equity(deficit) 11,099 2,960 (4,090)_______________________________________________________________________________ Consolidated Statement of Recognised Income and Expense (Unaudited)For the Six Months Ended 30 June 2006 Six months to Six months to Year to 30.06.06 30.06.05 31.12.05 (unaudited) (unaudited) (audited - see note 1) £'000 £'000 £'000______________________________________________________________________________________Exchange differences on translation of foreign operations 8 40 178Actuarial losses on defined benefit pension schemes - (436) (263)Deferred taxation on items takendirectly to equity - 131 79______________________________________________________________________________________ Net income (expense) recogniseddirectly in equity 8 (265) (6)Profit (loss) for the period 557 (1,842) (9,222)______________________________________________________________________________________Total recognised income (expense)for the period 565 (2,107) (9,228)______________________________________________________________________________________ Consolidated Cash Flow Statement (Unaudited)For the Six Months Ended 30 June 2006 Notes Six months to Six months to Year to 30.06.06 30.06.05 31.12.05 (unaudited) (unaudited) (audited - £'000 £'000 see note 1) £'000________________________________________________________________________________ Cash flows from operatingactivitiesCash used in operations 11 (4,256) (1,831) (4,460)Interest received - - 23Interest paid (615) (582) (1,417)Tax received - 536 585________________________________________________________________________________Net cash used in operations (4,871) (1,877) (5,269)________________________________________________________________________________ Cash flows from investingactivitiesPurchase of property, plant and equipment (74) (76) (327)Proceeds from disposal ofproperty, plant andequipment - 18 155Proceeds from sale ofsubsidiary undertakings 4,649 - -________________________________________________________________________________Net cash from (used in)investing activities 4,575 (58) (172)________________________________________________________________________________ Cash flows from financingactivitiesNet cash from issue ofordinary shares 14,634 - -Repayment of loan notes - (6) (6)Net cash relating toborrowings (16,250) 1,637 4,947Payment of capital elementof finance leases (9) (10) (20)Equity dividends paid - - -________________________________________________________________________________Net cash (used in) fromfinancing activities (1,625) 1,621 4,921________________________________________________________________________________ Net decrease in cash and cash equivalents (1,921) (314) (520)Cash and cash equivalentsat beginning of the period 1,738 2,175 2,175Net foreign exchangedifference (98) 74 83________________________________________________________________________________Cash and cash equivalentsat end of the period 10 (281) 1,935 1,738________________________________________________________________________________ Cash and cash equivalentsconsist of: - Cash 1,785 1,935 749- Overdrafts (2,066) - -- Cash and cash equivalents held in assets classified as held for sale and included in disposal groups - - 989________________________________________________________________________________ 10 (281) 1,935 1,738________________________________________________________________________________ For the purposes of the cash flow statement, cash and cash equivalents are netof overdrafts. These overdrafts are excluded from the definition of cash andcash equivalents in the balance sheet. Notes to the Interim Results (Unaudited) 1 Basis of preparation The financial information comprises the unaudited results for the six months to30 June 2006 and 30 June 2005 and the results for the twelve months ended 31December 2005. The results for the twelve months ended 31 December 2005 includedin this report do not constitute statutory accounts for the purpose of section240 of the Companies Act 1985. A copy of the statutory accounts for the twelvemonths ended 31 December 2005, on which an unqualified report has been made bythe auditors, prior to the restatement for the matter below and which did notcontain a statement under section 237 (2)-(3) of the Companies Act 1985, hasbeen delivered to the Registrar of Companies. Figures for the six months to 30 June 2005 contained in the consolidated incomestatement and related notes have been restated to present the US, German,French, Belgian, Dutch and Swiss operations within discontinued operations.Figures for the year to 31 December 2005 contained in the consolidated incomestatement and related notes have been restated to present the Belgian, Dutch andSwiss operations within discontinued operations. Accounting policiesThis interim report has been prepared on the basis of the accounting policiesset out in the Group financial statements for the twelve months ended 31December 2005 and on the basis of the International Financial ReportingStandards (IFRS) as adopted for use in the EU that the Group expects to beapplicable as at 31 December 2006. IFRS are subject to amendment andinterpretation by the International Accounting Standards Board (IASB) and thereis an ongoing process of review and endorsement by the European Commission. Notes continued 2 Segmental analysis The Group is organised into three primary business segments: Business Solutions,Training and Resources. Six months to Six months to Year to 30.06.06 30.06.05 31.12.05 (unaudited) (unaudited) (audited - see note 1) £'000 £'000 £'000_______________________________________________________________________________Revenue - continuing operationsBusiness Solutions 10,058 12,147 22,587Training 9,223 10,437 20,044Resources 53,737 44,668 92,625_______________________________________________________________________________ 73,018 67,252 135,256_______________________________________________________________________________ Revenue - discontinued operations Resources 3,339 21,538 41,383_______________________________________________________________________________ Operating result before Exceptional items Operating result after exceptional items exceptional items Six Six Year Six Six Year Six Six Year months months to months months to months months to to to 31.12.05 to to 31.12.05 to to 31.12.05 30.06.06 30.06.05 (audited - 30.06.06 30.06.05 (audited - 30.06.06 30.06.05 (audited - see (unaudited) (unaudited) see note 1) (unaudited) (unaudited) (unaudited) (unaudited) see note 1) note 1) £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000________________________________________________________________________________________________________________________Continuingoperations 73 35 21 - - (607) 73 35 (586)BusinessSolutionsTraining 94 (695) (1,161) - - (1,007) 94 (695) (2,168)Resources 1,401 589 2,011 - - 5 1,401 589 2,016________________________________________________________________________________________________________________________ 1,568 (71) 871 - - (1,609) 1,568 (71) (738)________________________________________________________________________________________________________________________ Central (1,324) (1,061) (2,402) (600) - (681) (1,924) (1,061) (3,083)costsImpairmentof goodwill - - (2,500) - - - - - (2,500)________________________________________________________________________________________________________________________ 244 (1,132) (4,031) (600) - (2,290) (356) (1,132) (6,321)________________________________________________________________________________________________________________________ Notes continued 3 Exceptional items Six months to Six months to Year to 30.06.06 30.06.05 31.12.05 (unaudited) (unaudited) (audited - £'000 £'000 see note 1) £'000_______________________________________________________________________________Continuing operationsRedundancy payments - - (483)Property restructuring (600) - (573)Network and IT support servicesexit costs - - (1,234)_______________________________________________________________________________Total exceptional items fromcontinuing operations (600) - (2,290)_______________________________________________________________________________ Six months to Six months to Year to 30.06.06 30.06.05 31.12.05 (unaudited) (unaudited) (audited - £'000 £'000 see note 1) £'000_______________________________________________________________________________Discontinued operationsRedundancy payments - - (60)Property restructuring - - (287)Disposal of subsidiary 2,046 - -undertakingsOther - - (216)_______________________________________________________________________________Total exceptional items fromdiscontinued operations 2,046 - (563)_______________________________________________________________________________ 4 Finance income Six months to Six months to Year to 30.06.06 30.06.05 31.12.05 (unaudited) (unaudited) (audited - £'000 £'000 see note 1) £'000_______________________________________________________________________________Bank interest receivable - - 5_______________________________________________________________________________Total finance income - - 5_______________________________________________________________________________ Notes continued 5 Finance costs Six months to Six months to Year to 30.06.06 30.06.05 31.12.05 (unaudited) (unaudited) (audited - £'000 £'000 see note 1) £'000_______________________________________________________________________________Bank interest payable 595 523 1,246Post retirement benefits 346 344 692Other interest payable 20 3 2_______________________________________________________________________________Total finance costs 961 870 1,940_______________________________________________________________________________ 6 Tax Six months to Six months to Year to 30.06.06 30.06.05 31.12.05 (unaudited) (unaudited) (audited - £'000 £'000 see note 1) £'000_______________________________________________________________________________Current tax (88) 96 879Deferred tax - (188) 193_______________________________________________________________________________Total tax (credit) charge (88) (92) 1,072_______________________________________________________________________________ Six months to Six months to Year to 30.06.06 30.06.05 31.12.05 (unaudited) (unaudited) (audited - £'000 £'000 see note 1) £'000_______________________________________________________________________________Continuing operations (81) (174) (576)Discontinued operations (7) 82 1,648_______________________________________________________________________________Total tax (credit) charge (88) (92) 1,072_______________________________________________________________________________ The tax (credit) charge above includes a £180,000 tax credit for the six monthsended 30 June 2006 (£nil for the six months ended 30 June 2005 and £616,000credit for the year ended 31 December 2005) arising in respect of exceptionalitems Notes continued 7 Discontinued operations Six months to Six months to Year to 30.06.06 30.06.05 31.12.05 (unaudited) (unaudited) (audited - £'000 £'000 see note 1) £'000_______________________________________________________________________________Pre-tax (loss) profit fromdiscontinued operations (391) 68 (82)_______________________________________________________________________________Gain on disposal of US subsidiarynet tangible assets 131 - 188Gain on disposal of Europeansubsidiary net tangible assets 2,046 - -Taxation 7 (82) (1,648)_______________________________________________________________________________Net profit (loss) on disposal 2,184 (82) (1,460)_______________________________________________________________________________Total 1,793 (14) (1,542)_______________________________________________________________________________ 8 Earnings (loss) per Ordinary share The calculation of the earnings (loss) per Ordinary share is based on a profitafter taxation of £557,000 (30 June 2005: £1,842,000 loss, 31 December 2005:£9,222,000 loss). The calculation of the loss per share before discontinuedoperations and exceptional items (see the financial summary on page 2) is basedon a loss after taxation of £816,000 (30 June 2005: £1,828,000 loss, 31 December2005: £6,006,000 loss). Supplementary basic and diluted earnings per share have been calculated toexclude the effect of exceptional items and discontinued operations. Theadjusted numbers have been shown in the financial summary in order that theeffects of exceptional items and discontinued operations on reported earningscan be fully appreciated. Earnings (loss) per share on Six months to Six months to Year todiscontinued operations 30.06.06 30.06.05 31.12.05 (unaudited) (unaudited) (audited - see note 1)_______________________________________________________________________________Basic 10.08p (0.20p) (21.69p)Diluted 10.08p (0.20p) (21.69p)_______________________________________________________________________________ Notes continued 8 Earnings (loss) per Ordinary share continued The weighted average number of Ordinary shares used in the calculation of thebasic and diluted earnings (loss) per share are as follows: Six months to Six months to Year to 30.06.06 30.06.05 31.12.05 (unaudited) (unaudited) (audited - £'000 £'000 see note 1) £'000_______________________________________________________________________________BasicWeighted average number of fullypaid Ordinary shares in issue during the period 16,925,330 5,773,833 5,773,833Weighted average number held byESOP trust (50,822) (55,124) (55,124)Adjustment for the effect of theissue of new shares under theexercise of rights (see note 13) 906,200 1,389,969 1,389,969_______________________________________________________________________________Adjusted weighted average numberof fully paid Ordinary shares in issue during the period 17,780,708 7,108,678 7,108,678_______________________________________________________________________________DilutiveWeighted average number of fullypaid Ordinary shares in issue during the period 16,925,330 5,773,833 5,773,833Dilutive effect of potential - - -ordinary sharesWeighted average number held byESOP trust (50,822) (55,124) (55,124)Adjustment for the effect of theissue of new shares under theexercise of rights (see note 13) 906,200 1,389,969 1,389,969Adjusted diluted weighted averagenumber of fully paid Ordinaryshares in issue during the period 17,780,708 7,108,678 7,108,678Number of issued Ordinary shares at the end of the period 37,812,260 5,773,833 5,773,833_______________________________________________________________________________ The weighted average number of Ordinary shares and the issued Ordinary sharesfor prior periods have been restated to reflect the impact of the capitalreorganisation (see note 13). Basic earnings (loss) per share is calculated by dividing the basic earnings forthe period by the weighted average number of fully paid ordinary shares in issueduring the period, less those shares held by the ESOP Trust. Diluted earnings (loss) per share is calculated on the same basis as the basicearnings (loss) per share with a further adjustment to the weighted averagenumber of fully paid ordinary shares to reflect the effect of all potentiallydilutive ordinary shares. All options granted by the Group have exercise pricesthat are above the average price of the Company's ordinary shares for the sixmonths to 30 June 2006. Since it is appropriate to assume that option holderswould act rationally, no adjustment has been made to diluted EPS for shareoptions with an exercise price in excess of the market price at the period end. Notes continued 9 Consolidated reconciliation of net cash flow to movement in net debt Six months to 30.06.06 (unaudited) £'000_______________________________________________________________________________ Decrease in cash and overdrafts in the period (1,921)Decrease in cash and overdrafts in the period due toforeign exchange movements (98)Decrease in bank loans and other bank borrowings 16,250Repayment of obligations under finance leases 9_______________________________________________________________________________Movement in net debt in the period 14,240 Net debt at 1 January 2006 (19,052)_______________________________________________________________________________Net debt at 30 June 2006 (4,812)_______________________________________________________________________________ 10 Analysis of net borrowings 01.01.06 Cash flow Exchange 30.06.06 £'000 £'000 movements £'000 £'000______________________________________________________________________________Cash and cash equivalentsCash at bank and in hand 1,738 145 (98) 1,785Overdrafts - (2,066) - (2,066)______________________________________________________________________________ 1,738 (1,921) (98) (281)______________________________________________________________________________BorrowingsBank loans (17,500) 13,000 - (4,500)Other bank borrowings (2,676) 2,676 - -Invoice factoring facility (574) 574 - -Obligations under finance leases (40) 9 - (31)______________________________________________________________________________Net Borrowings (19,052) 14,338 (98) (4,812)______________________________________________________________________________ Cash and cash equivalents includes cash held in assets classified as held forsale and included in disposal groups of £nil (1 January 2006 £989,000).Borrowings includes other bank borrowings and invoice factoring facilities of£nil (1 January 2006 £2,157,000) and £nil (1 January 2006 £574,000)respectively, held in liabilities classified as held for sale and included indisposal groups. Notes continued 11 Reconciliation of operating loss after tax to net cash flow Continuing operations Six months to Six months to Year to 30.06.06 30.06.05 31.12.05 (unaudited) (unaudited) (audited - £'000 £'000 see note 1) £'000_______________________________________________________________________________Net loss for the period (1,236) (1,828) (7,680) Adjustments for:Tax (81) (174) (576)Depreciation 303 386 945Equity settled share basedpayments (10) 70 141Impairment of goodwill - - 2,500Loss (profit) on disposal oftangible fixed assets 62 (6) 18Interest income - - (5)Interest expense 961 870 1,940 Changes in working capitalDecrease in work in progress 177 205 341Decrease (increase) in trade andother receivables 806 (967) (3,178)(Decrease) increase in trade andother payables (2,070) 759 2,634Decrease in provisions (1) (655) (751)Change in retirement benefitliability * (112) (535) (1,123)_______________________________________________________________________________Cash used in continuingoperations (1,201) (1,875) (4,794)_______________________________________________________________________________ Discontinued operations_______________________________________________________________________________ Net profit (loss) for the period 1,793 (14) (1,542) Adjustments for:Tax (7) 82 1,648Depreciation - 69 94 Loss (profit) on disposal of tangible fixedassets 26 (1) 23(Profit) on disposal of discontinued operations (2,046) - -Interest income - - (18)Interest expense - 79 236 Changes in working capitalDecrease (increase) in trade and otherreceivables 764 (634) 320(Decrease) increase in trade and other payables (3,585) 463 (660)Increase in provisions - - 233_______________________________________________________________________________Cash (from) used in discontinued operations (3,055) 44 334_______________________________________________________________________________Total net cash flow from operating activities (4,256) (1,831) (4,460)_______________________________________________________________________________ * Excludes finance cost which is shown in interest expense. Cash generated from operations includes cash outflows relating to exceptionalitems recorded in prior years of £1,371,000 (30 June 2005: outflow of£1,583,000; 31 December 2005: outflow of £2,663,000) Notes continued 12 Statement of changes in shareholders' equity (deficit) 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 theperiod - - - - 557 557Capital restructure (14,319) 14,319 - - - -Issue of new shares (see note 13) 641 - 13,993 - - 14,634 Share options -value of employee services - - - - (10) (10) Net gain recognised directly in equity - - - - 8 8________________________________________________________________________________At 30 June 2006 756 14,319 20,055 44,160 (68,191) 11,099________________________________________________________________________________ 13 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 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. Deferred shares are not listed on the London Stock Exchange; have no votingrights, no rights to dividends and the right only to a very limited return oncapital in the event of liquidation. Net proceeds from this firm placing and placing and open offer amounted to£14,634,000. 14 Post retirement benefits The Group provides employee benefits under various arrangements, includingthrough defined benefit and defined contribution pension plans, the details ofwhich are disclosed in the 2005 Annual Report and Accounts. At the interimbalance sheet date, the assets and liabilities of the principal defined benefitplans have been updated from the latest actuarial valuations and no materialdifferences were identified. This information is provided by RNS The company news service from the London Stock Exchange