Parity Regulatory News (PTY)

12 Sep 2007 07:01

Parity Group PLC12 September 2007 Parity Group PLC Interim results for the six months ended 30 June 2007 Parity Group plc, the UK IT Services Company, is pleased to announce interimresults for the six months ended 30th June 2007. Financial Highlights: • Revenue from continuing operations up 15% to £84M (H1 2006: £73M) • Adjusted operating profit from continuing operations* £2.0M (H1 2006: £234k), with both Resources and Solutions strong contributors • Profit before tax from continuing operations of £1.1M (H1 2006: loss of £1.3M) • Profit before tax of £1.25M (H1 2006: £469k) and earnings per share of 1.44p (H1 2006: 3.13p) • Net debt of £9.3M (31 December 2006: £5.7M) with movement mainly due to working capital timing. * Adjusted operating profit excludes share-based compensation charge of £0.3M (H1 2006 £10k credit) and exceptional items in H1 2006 of £0.6M. Operational Highlights: • 60% growth in revenue in Solutions, and very good margin recovery, with margins at 9% • 9% revenue growth in Resources, with investment in new business areas • Continued margin improvement in Training, due to cost savings and mix changes • Modest investment made in infrastructure, recruitment and service offers • Continuing operational improvement and refocusing the business on higher margin and growth market opportunities. Commenting on the results Alwyn Welch, Chief Executive, said: "We are very pleased with the continued improvement in our business. We havebeen aggressively moving our sales focus and investing in higher margin revenueopportunities, especially in Resources and Training. Much of the expected marginbenefit has yet to come, but we have managed to deliver a strong overall profitimprovement whilst making these necessary changes. "Solutions delivered a very good result, demonstrating our ability to win anddeliver fixed price projects, combined with continued attention to overheadcosts across the business. Overall an encouraging set of results, justifying theconfidence placed in our recovery by shareholders, clients, and staff alike." Enquiries: Parity Group PLCAlwyn Welch, Chief Executive Officer 020 8543 5353Ian Ketchin, Finance Director 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. Chief Executive's Review Introduction For the third consecutive period, the results in the first half of 2007 haveshown good overall improvement and the Group has continued to make solidprogress. Trading was in line with market expectations, and represented strongimprovement over the same period in 2006. Solutions in particular grew at a very good rate, although sequential growthfrom the second half of last year is a more meaningful measure, and is nowperforming within our target operating margin range, of 8-10%. Project deliverycontinues well, both with established large clients such as Northern IrelandElectricity, but also in newer clients, for example, the new Commission forEquality & Human Rights ("CEHR"), utilising Microsoft Sharepoint 2007. We havealso made good progress in extending and growing established clients, such asBAT and the Cabinet Office. Training also made good profit progress, which has been achieved mainly throughchanging the revenue mix, and focusing on project and service management. Wehave turned around the performance of Training, to produce a third profitableperiod after several years of large losses. Revenue in our core focus areas ofproject, programme and service management grew by 30%, and we invested in newproducts in areas such as ITIL3. We added new large clients such as BarclaysBank to the more established, and renewed relationships such as HBOS. Whilst Resources grew over H1 2006, we invested in newer higher margin markets,and this held back absolute profitability. As in Training, we are focussing onhigher margin contracts and we started to see the revenue and margin impact ofthis during this period. New business was written with over 50 new clients,mainly smaller and higher margin contracts. In particular, we recruited an SAPfocussed team that has now achieved some significant early wins. Overall the Group achieved 15% revenue growth, and delivered a solid profit fromcontinuing operations. Sequential revenue progression over H2 2006 was flat, dueto our focus on higher margin business in Resources, and the exiting of twolarge low margin contracts, in line with this strategy. Group adjusted operating profit from continuing operations (stated before sharebased compensation charge of £0.3M) was £2.0M compared to £234k in H1 2006(stated before share based compensation credit of £10k and exceptional charge of£0.6M), and Group profit before tax from continuing operations was £1.1Mcompared to a loss in H1 2006 of £1.3M. A profit before tax of £164k was madefrom discontinued operations, leading to a Group profit before tax of £1.25M (H12006: £0.5M). Business Focus and Strategy Since mid 2005, Parity has been focused on returning its operations toprofitable growth. We have streamlined our geographic focus to the UK andIreland, and after disposal of operations outside of this region, our businesshas focused on organic growth. The mid-term operational objective remains to achieve above market growth rates,and to deliver above median operating margins. Margin improvement is beingachieved through overhead cost control as well as focusing on higher marginrevenue streams. We have started to invest modestly in the infrastructure of our operations andthe people in our business, both to improve efficiency of operation and to beable to attract and retain the key staff who are critical for our continuedgrowth. Management Team and Board of Directors We made two significant changes to the Board during this period. Firstly werecruited Ian Ketchin as Group Finance Director. Ian has a background with Ernst& Young and most recently as Finance Director of MSB, and has rapidlydemonstrated the benefits of his experience across the Group. At the end of June we also welcomed Lord Roger Freeman as Non-Executive Chairmanof the Group. He brings the benefit of a long and successful track record inbusiness and politics. John Hughes, Executive Chairman since May 2005, hasstepped down to become Deputy Chairman as planned. People The people who work for Parity, whether employees, associates or contractors,form the key element of the service we deliver to our clients. I would like tothank all our staff for their continued hard work, and the critical part thatthey play in the operation of the Parity Group. We have continued the process of improving the way we manage our people andthis, combined with our improved business performance, has helped us improvestaff retention in the first half of 2007. For the first time in several yearswe grew our staff numbers, recruiting 80 people in the period, to deliver thenew business we have been winning. Cash Flow and Net Debt The movement in net borrowings during the period was £3.6M, of which £1.1M wascapital expenditure (mainly facilities property fit out and IT), £0.4M was forexceptional items recorded in prior periods, £0.5M was pension fund related and£0.6M is held as a performance bond on a large contract. Working capitalincreased by £3.3M, mainly in Resources, due to receivables from two largeclients and other payment timing issues, but also due to cash required to fundrevenue growth. Net Debt as a result increased to £9.3M (December 2006: £5.7M). Subsequent tothe half year end collections have continued to be a focus and good progress hasbeen made. Continuing reduction of our level of indebtedness remains a priority. Tax The tax charge for continuing operations for the period was £663k (H1 2006 £81kcredit), but with no cash outflow, on a Group profit on continuing operations of£1.1M. The tax charge represents an effective tax rate of 61% compared to the UKstatutory rate of 30%. The main reason for this variance is that the new UKCorporation Tax rate from April 2008 will be 28% and the resulting reduction inthe Group's deferred tax asset has been charged in the period. Discontinued Operations and Exceptional Items We continue to work actively to complete closure of the residual elements ofdiscontinued operations in the USA and continental Europe, with an objective ofclosing all legal entities as soon as practicable. We received a payment of£130k from a fully provided bad debt in Switzerland during the period. No exceptional charges were made during the period, but work continues todispose of surplus properties in the UK. Dividend No interim dividend is proposed in respect of the year ending 31st December 2007(2006: final dividend £nil; interim dividend £nil). Market Conditions and Outlook The overall markets in which Parity operates continue to show modest growth, andthe skills areas in which we now focus remain in good demand. Recent volatilityin financial markets, and a focus on spending efficiency in Government have notmaterially impacted our business outlook. In both Training and Resources our plans are to continue to invest in changingour mix of services to improve both absolute profit and profit margins. In Solutions we will continue to focus on growing our fee and service basedrevenues, and lower-margin subcontracted revenue will become of less importance.Our objective is to build a stronger, larger scale Solutions business basedaround fees work delivered by our own staff and associates. The Group continues to have as its near-term operational objectives profitimprovement through a focus on higher margin services and tight cost control. Wewill continue to invest prudently to achieve these goals. We have now deliveredseveral periods of operational improvement. Although work remains to achieve ourtarget profit goals, we are well positioned to continue along the path ofsustained performance improvement. Alwyn WelchChief Executive Financial summary Six months Six months Year ended to 30.6.07 to 30.6.06 31.12.06 (unaudited) (unaudited) (audited) £'000 £'000 £'000------------------------------------------------------------------------------ Revenue from continuing operations 83,930 73,018 156,845 Operating profit from continuingoperations before exceptional items 1,741 244 1,377 Operating profit (loss) fromcontinuing operations 1,741 (356) 777 Profit (loss) before taxation fromcontinuing operations 1,086 (1,317) (774) Profit for the period 546 557 833 Net debt (see note 10) (9,306) (4,812) (5,659) Equity shareholders' funds 12,013 11,099 11,029------------------------------------------------------------------------------ Pence Pence Pence------------------------------------------------------------------------------ Earnings per shareBasic 1.44 3.13 2.99Diluted 1.37 3.13 2.99 Earnings (loss) per share from continuingoperationsBasic 1.12 (6.95) (3.49)Diluted 1.06 (6.95) (3.49)------------------------------------------------------------------------------ Divisional performance - continuing operations Six months to Six months to Year to 30.06.07 30.06.06 31.12.06 (unaudited) (unaudited) (audited) Profit Profit (loss) Profit (loss) before before before Revenue taxation Revenue taxation Revenue taxation £'000 £'000 £'000 £'000 £'000 £'000 -----------------------------------------------------------------------------------Solutions 16,164 1,462 10,058 73 23,922 778Training 9,228 350 9,223 94 18,406 308Resources 58,538 1,191 53,737 1,401 114,517 2,710-----------------------------------------------------------------------------------Operatingprofit beforecentral costsandexceptionalitems 3,003 1,568 3,796Central costs (1,262) (1,324) (2,419)-----------------------------------------------------------------------------------Operatingprofit beforeexceptionalitems 1,741 244 1,377Net financecosts (655) (961) (1,551)-----------------------------------------------------------------------------------Profit (loss)before tax andexceptionalitems 1,086 (717) (174)Exceptionalcosts - (600) (600)----------------------------------------------------------------------------------- 83,930 1,086 73,018 (1,317) 156,845 (774)----------------------------------------------------------------------------------- Geographical performance - continuing operations Six months to Six months to Year to 30.06.07 30.06.06 31.12.06 (unaudited) (unaudited) (audited) Operating Operating Operating profit profit profit before before before central costs central costs central costs and and and exceptional exceptional exceptional Revenue items Revenue items Revenue items £'000 £'000 £'000 £'000 £'000 £'000 ----------------------------------------------------------------------------------------United Kingdom 83,623 3,003 72,743 1,568 156,171 3,796Ireland 307 - 275 - 674 ----------------------------------------------------------------------------------------- 83,930 3,003 73,018 1,568 156,845 3,796---------------------------------------------------------------------------------------- Consolidated income statementFor the six months ended 30 June 2007 Six months to Six months to Year to 30.06.07 30.06.06 31.12.06 (unaudited) (unaudited) (audited) Notes £'000 £'000 £'000------------------------------------------------------------------------------Continuing operations 2 83,930 73,018 156,845Revenue------------------------------------------------------------------------------ Employee benefit costs (10,391) (10,975) (20,672)Depreciation (170) (303) (569)All other operating expenses (71,628) (62,096) (134,827)------------------------------------------------------------------------------Total operating expenses (82,189) (73,374) (156,068)------------------------------------------------------------------------------ ------------------------------------------------------------------------------Operating profit beforeexceptional items 2 1,741 244 1,377Exceptional items 3 - (600) (600)------------------------------------------------------------------------------ Operating profit (loss) 2 1,741 (356) 777 Finance income 4 15 - 7Finance costs 5 (670) (961) (1,558)------------------------------------------------------------------------------ Profit (loss) before tax 1,086 (1,317) (774)Tax 6 (663) 81 (197)------------------------------------------------------------------------------ Profit (loss) for the periodfrom continuing operations 423 (1,236) (971)------------------------------------------------------------------------------ Discontinued operationsProfit for the period fromdiscontinued operations 7 123 1,793 1,804------------------------------------------------------------------------------Profit for the periodattributable to equity 11 546 557 833shareholders------------------------------------------------------------------------------ ------------------------------------------------------------------------------Earnings per shareBasic 8 1.44p 3.13p 2.99pDiluted 8 1.37p 3.13p 2.99p Earnings (loss) per sharefrom continuing operationsBasic 8 1.12p (6.95p) (3.49p)Diluted 8 1.06p (6.95p) (3.49p)------------------------------------------------------------------------------ Consolidated balance sheetAs at 30 June 2007 Notes As at As at As at 30.06.07 30.06.06 31.12.06 (unaudited) (unaudited) (audited) £'000 £'000 £'000------------------------------------------------------------------------------Non-current assetsGoodwill 7,116 7,116 7,116Property, plant and equipment 1,544 697 615Available for sale financial - 30 -assetsDeferred tax assets 4,269 5,160 5,102------------------------------------------------------------------------------ 12,929 13,003 12,833------------------------------------------------------------------------------ Current assetsWork in progress 776 1,146 998Trade and other receivables 42,301 34,572 39,494Cash and cash equivalents 1,014 1,785 736------------------------------------------------------------------------------ 44,091 37,503 41,228------------------------------------------------------------------------------ ------------------------------------------------------------------------------Total assets 57,020 50,506 54,061------------------------------------------------------------------------------ Current liabilitiesFinancial liabilities (10,320) (2,086) (6,394)Trade and other payables (27,664) (24,092) (28,687)Current tax liabilities (72) (252) (201)Provisions (986) (1,743) (677)------------------------------------------------------------------------------ (39,042) (28,173) (35,959)------------------------------------------------------------------------------ Non-current liabilitiesFinancial liabilities - (4,511) (1)Provisions (1,647) (2,103) (2,369)Retirement benefit liability (4,318) (4,620) (4,703)------------------------------------------------------------------------------ (5,965) (11,234) (7,073)------------------------------------------------------------------------------ ------------------------------------------------------------------------------Total liabilities (45,007) (39,407) (43,032)------------------------------------------------------------------------------ ------------------------------------------------------------------------------Net assets 12,013 11,099 11,029------------------------------------------------------------------------------ Shareholders' equityCalled up share capital 11 15,078 15,075 15,075Share premium account 11 20,086 20,055 20,020Other reserves 11 44,160 44,160 44,160Retained earnings 11 (67,311) (68,191) (68,226)------------------------------------------------------------------------------Total shareholders' equity 11 12,013 11,099 11,029------------------------------------------------------------------------------ Consolidated statement of recognised income and expenseFor the six months ended 30 June 2007 Notes Six months to Six months to Year to 30.06.07 30.06.06 31.12.06 (unaudited) (unaudited) (audited) £'000 £'000 £'000------------------------------------------------------------------------------Exchange differences ontranslation of foreignoperations 78 8 152Actuarial losses on definedbenefit pension schemes - - (762)Deferred taxation on itemstaken directly to equity - - 229------------------------------------------------------------------------------Net income (expense)recognised directly inequity 11 78 8 (381)Profit for the period 11 546 557 833------------------------------------------------------------------------------Total recognised income forthe period 624 565 452------------------------------------------------------------------------------ Consolidated cash flow statementFor the six months ended 30 June 2007 ------------------------------------------------------------------------------ Notes Six months to Six months to Year to 30.06.07 30.06.06 31.12.06 (unaudited) (unaudited) (audited) £'000 £'000 £'000------------------------------------------------------------------------------ Cash flows from operatingactivitiesCash used in operations 9 (2,374) (4,256) (4,508)Interest received 15 - 11Interest paid (270) (615) (872)------------------------------------------------------------------------------Net cash used in operations (2,629) (4,871) (5,369)------------------------------------------------------------------------------ Cash flows from investingactivitiesPurchase of property, plantand equipment (1,099) (74) (272)Proceeds from sale ofsubsidiary undertakings - 4,649 4,649Proceeds from disposal ofavailable for sale assets - - 71------------------------------------------------------------------------------Net cash (used in) frominvesting activities (1,099) 4,575 4,448------------------------------------------------------------------------------ Cash flows from financingactivitiesNet cash from issue ofordinary shares 69 14,634 14,599Cash outflow in respect ofrepayment of bank borrowing - (16,824) (20,176)Net movement on invoicediscounting 10 4,916 574 4,804Payment of capital elementof finance leases 10 (10) (9) (19)------------------------------------------------------------------------------Net cash from (used in)financing activities 4,975 (1,625) (792)------------------------------------------------------------------------------ Net increase (decrease) incash and cash equivalents 10 1,247 (1,921) (1,713)Cash and cash equivalents atbeginning of the period (260) 1,738 1,738Net foreign exchangedifference 10 12 (98) (285)------------------------------------------------------------------------------Cash and cash equivalents atend of the period 999 (281) (260)------------------------------------------------------------------------------ Cash and cash equivalentsconsist of: - Cash 1,014 1,785 736 - Overdrafts (15) (2,066) (996)------------------------------------------------------------------------------ 999 (281) (260)------------------------------------------------------------------------------ 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-------------------------------------------------------------------------------- 1 Basis of preparation The financial information comprises the unaudited results for the six months to30 June 2007 and 30 June 2006 and the audited results for the twelve monthsended 31 December 2006. The results for the twelve months ended 31 December 2006included in this report do not constitute statutory accounts for the purpose ofsection 240 of the Companies Act 1985. A copy of the statutory accounts for thetwelve months ended 31 December 2006 has been delivered to the Registrar ofCompanies. An unqualified report on the statutory accounts for the twelve monthsended 31 December 2006 has been made by the auditors and they did not contain astatement under section 237 (2)-(3) of the Companies Act 1985, or include areference to any matters to which the auditors wished to draw attention by wayof emphasis without qualifying their report. Accounting policies This interim report has been prepared on the basis of the accounting policiesset out in the group financial statements for the twelve months ended 31December 2006 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 2007. 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. 2 Segmental analysis The Group is organised into three primary business segments: Solutions, Trainingand Resources. Six months to Six months to Year to 30.06.07 30.06.06 31.12.06 (unaudited) (unaudited) (audited) £'000 £'000 £'000------------------------------------------------------------------------------Revenue - continuing operationsSolutions 16,164 10,058 23,922Training 9,228 9,223 18,406Resources 58,538 53,737 114,517------------------------------------------------------------------------------ 83,930 73,018 156,845------------------------------------------------------------------------------ ------------------------------------------------------------------------------Revenue - discontinued operationsResources - 3,369 3,380------------------------------------------------------------------------------ Operating result before Exceptional items Operating result after exceptional items exceptional items Six Six Six Six Six Six months months Year months months Year months months Year to to to to to to to to to 30.06.07 30.06.06 31.12.06 30.06.07 30.06.06 31.12.06 30.06.07 30.06.06 31.12.06 (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 ---------------------------------------------------------------------------------------------------------------------- Continuingoperations 1,462 73 778 - - - 1,462 73 778SolutionsTraining 350 94 308 - - - 350 94 308Resources 1,191 1,401 2,710 - - - 1,191 1,401 2,710---------------------------------------------------------------------------------------------------------------------- 3,003 1,568 3,796 - - - 3,003 1,568 3,796Central (1,262) (1,324) (2,419) - (600) (600) (1,262) (1,924) (3,019)costs ---------------------------------------------------------------------------------------------------------------------- 1,741 244 1,377 - (600) (600) 1,741 (356) 777---------------------------------------------------------------------------------------------------------------------- Notes continued -------------------------------------------------------------------------------- 3 Exceptional items Six months to Six months to Year to 30.06.07 30.06.06 31.12.06 (unaudited) (unaudited) (audited) £'000 £'000 £'000------------------------------------------------------------------------------Continuing operationsProperty restructuring - (600) (600)------------------------------------------------------------------------------Total exceptional items fromcontinuing operations - (600) (600)------------------------------------------------------------------------------ Six months to Six months to Year to 30.06.07 30.06.06 31.12.06 (unaudited) (unaudited) (audited) £'000 £'000 £'000------------------------------------------------------------------------------Discontinued operationsDisposal of subsidiary undertakings - 2,046 2,170------------------------------------------------------------------------------Total exceptional items fromdiscontinued operations - 2,046 2,170------------------------------------------------------------------------------ 4 Finance income Six months to Six months to Year to 30.06.07 30.06.06 31.12.06 (unaudited) (unaudited) (audited) £'000 £'000 £'000------------------------------------------------------------------------------ Bank interest receivable 15 - 7------------------------------------------------------------------------------Total finance income 15 - 7------------------------------------------------------------------------------ 5 Finance costs Six months to Six months to Year to 30.06.07 30.06.06 31.12.06 (unaudited) (unaudited) (audited) £'000 £'000 £'000------------------------------------------------------------------------------ Bank interest payable 270 595 872Post retirement benefits 400 346 686Other interest payable - 20 -------------------------------------------------------------------------------Total finance costs 670 961 1,558------------------------------------------------------------------------------ Notes continued -------------------------------------------------------------------------------- 6 Tax Six months to Six months to Year to 30.06.07 30.06.06 31.12.06 (unaudited) (unaudited) (audited) £'000 £'000 £'000------------------------------------------------------------------------------Current tax (129) (88) (109)Deferred tax 833 - 214------------------------------------------------------------------------------Total tax charge (credit) 704 (88) 105------------------------------------------------------------------------------ Six months to Six months to Year to 30.06.07 30.06.06 31.12.06 (unaudited) (unaudited) (audited) £'000 £'000 £'000------------------------------------------------------------------------------ Continuing operations 663 (81) 197Discontinued operations 41 (7) (92)------------------------------------------------------------------------------Total tax charge (credit) 704 (88) 105------------------------------------------------------------------------------ The tax charge (credit) above includes a £nil tax credit for the six monthsended 30 June 2007 in respect of exceptional items (£180,000 tax credit for thesix months ended 30 June 2006 and for the year ended 31 December 2006). The UK corporation tax rate will change from 30% to 28% from April 2008. Thishas reduced the group's deferred tax assets by £307,000 as at 30 June 2007. 7 Discontinued operations Six months to Six months to Year to 30.06.07 30.06.06 31.12.06 (unaudited) (unaudited) (audited) £'000 £'000 £'000------------------------------------------------------------------------------Pre-tax profit (loss) fromdiscontinued operations 164 (391) (458)------------------------------------------------------------------------------Gain on disposal of US subsidiary netassets - 131 131Gain on disposal of Europeansubsidiary net assets - 2,046 2,039Taxation (41) 7 92------------------------------------------------------------------------------Total 123 1,793 1,804------------------------------------------------------------------------------ 8 Earnings per share The calculation of the earnings per share is based on a profit after taxation of£546,000 (30 June 2006: £557,000, 31 December 2006: £833,000). The calculationof the earnings (loss) per share from continuing operations (see FinancialSummary) is based on a profit after taxation of £423,000 (30 June 2006:£1,236,000 loss, 31 December 2006: £971,000 loss). Earnings per share on discontinued Six months to Six months to Year tooperations 30.06.07 30.06.06 31.12.06 (unaudited) (unaudited) (audited)------------------------------------------------------------------------------ Basic 0.32p 10.08p 6.48pDiluted 0.31p 10.08p 6.48p------------------------------------------------------------------------------ Notes continued -------------------------------------------------------------------------------- 8 Earnings per share continued The weighted average number of shares used in the calculation of the basic anddiluted earnings per share are as follows: Six months to Six months to Year to 30.06.07 30.06.06 31.12.06 (unaudited) (unaudited) (audited) £'000 £'000 £'000------------------------------------------------------------------------------ BasicWeighted average number of fullypaid ordinary shares in issue during the period 37,914,549 16,925,330 27,454,632Weighted average number held by ESOPtrust (43,143) (50,822) (46,950)Adjustment for the effect of theissue of new shares under the exercise of rights - 906,200 449,376------------------------------------------------------------------------------Adjusted weighted average number offully paid ordinary shares in issueduring the period 37,871,406 17,780,708 27,857,058------------------------------------------------------------------------------ DilutiveWeighted average number of fullypaidordinary shares in issue during the period 37,914,549 16,925,330 27,454,632Dilutive effect of potentialordinary shares 2,085,822 - -Weighted average number held by ESOPtrust (43,143) (50,822) (46,950)Adjustment for the effect of theissue of new shares under the exercise of rights - 906,200 449,376------------------------------------------------------------------------------Adjusted diluted weighted averagenumber of fully paid ordinary sharesin issue during the period 39,957,228 17,780,708 27,857,058------------------------------------------------------------------------------ Number of issued ordinary sharesat the end of the period 37,926,546 37,812,260 37,812,260------------------------------------------------------------------------------ Basic earnings per share is calculated by dividing the basic earnings for theperiod by the weighted average number of fully paid ordinary shares in issueduring the period, less those shares held by the ESOP Trust. Diluted earnings per share is calculated on the same basis as the basic earningsper share with a further adjustment to the weighted average number of fully paidordinary shares to reflect the effect of all potentially dilutive ordinaryshares. The Group has one class of potentially dilutive ordinary shares beingthose share options granted to employees where the exercise price is less thanthe average market price of the Company's ordinary shares during the period.There were no dilutive potential ordinary shares in issue for the six monthsended 30 June 2006 or the year ended 31 December 2006 because the group madelosses on continuing activities. Notes continued -------------------------------------------------------------------------------- 9 Reconciliation of profit (loss) after tax to net cash flow Continuing operations Six months to Six months to Year to 30.06.07 30.06.06 31.12.06 (unaudited) (unaudited) (audited) £'000 £'000 £'000------------------------------------------------------------------------------Net profit (loss) for the period 423 (1,236) (971)Adjustments for:Tax 663 (81) 197Depreciation 170 303 569Equity settled share based payments 291 (10) 68Loss on disposal of tangible fixedassets - 62 76Profit on disposal of available forsale assets - - (41)Interest income (15) - (7)Interest expense 670 961 1,558Changes in working capitalDecrease in work in progress 222 177 325(Increase) decrease in trade andother (2,279) 806 (3,836)receivablesDecrease in trade and other payables (602) (2,070) (437)Decrease in provisions (379) (1) (580)Change in retirement benefit (785) (112) (1,402)liabilityTransfer of funds to client guaranteeaccount (see below) (600) - -------------------------------------------------------------------------------Cash used in continuing operations (2,221) (1,201) (4,481)------------------------------------------------------------------------------Discontinued operations------------------------------------------------------------------------------Net profit for the period 123 1,793 1,804Adjustments for:Tax 41 (7) (92)Loss on disposal of tangible fixedassets - 26 -Profit on disposal of discontinuedoperations - (2,046) (2,170)Interest income - - (4)Interest expense - - -Changes in working capital(Increase) decrease in trade andother receivables 93 764 2,111Increase (decrease) in trade andother payables (376) (3,585) (1,455)Decrease in provisions (34) - (221)------------------------------------------------------------------------------Cash from (used in) discontinuedoperations (153) (3,055) (27)------------------------------------------------------------------------------ ------------------------------------------------------------------------------Total net cash flow from operatingactivities (2,374) (4,256) (4,508)------------------------------------------------------------------------------ Cash generated from operations includes cash outflows relating to exceptionalitems recorded in prior years of £368,000 (30 June 2006: outflow of £1,371,000;31 December 2007: outflow of £3,535,000). During the six months ended 30 June 2007, the group transferred £600,000 to aseparate 'guarantee' bank account as part of the terms of a business contract.For the duration of the contract these funds are ring-fenced and unavailable forthe Group's use and may not be classified as cash or cash equivalents under IAS7, but are included in other debtors. On successful performance and completionof the services under the contract, these funds will revert to the Group andagain be available for use. It is expected that these funds will be returnedbefore 31 December 2007. Notes continued -------------------------------------------------------------------------------- 10 Consolidated reconciliation of net cash flow to movement in net borrowings Six months to Six months to 30.06.07 30.06.06 (unaudited) (unaudited) £'000 £'000------------------------------------------------------------------------------ Increase in cash in the period from cashflows 266 145Decrease in overdrafts in the period fromcashflows 981 (2,066)Exchange movements 12 (98)Increase/(decrease) in drawings on invoicefinancing facilities and bank borrowings (4,916) 16,250Repayment of obligations under finance leases 10 9------------------------------------------------------------------------------Movement in net borrowings in the period (3,647) 14,240Net borrowings at 1 January 2007 (5,659) (19,052)------------------------------------------------------------------------------Net borrowings at 30 June 2007 (9,306) (4,812)------------------------------------------------------------------------------ 11 Movement on capital and reserves ------------------------------------------------------------------------------- Share Share Deferred premium Other Retained capital Shares reserve reserves earnings Total £'000 £'000 £'000 £'000 £'000 £'000------------------------------------------------------------------------------- At 1 January 2007 756 14,319 20,020 44,160 (68,226) 11,029Net profit for theperiod - - - - 546 546Issue of new shares 3 - 66 - - 69Share options -value of employeeservices - - - - 291 291Net incomerecognised directlyin 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, includingthrough a defined benefit and defined contribution pension plans, the details ofwhich are disclosed in the 2006 Annual Report and Accounts. At the interimbalance sheet date, the assets and liabilities of the defined benefit plan havebeen updated from the latest actuarial valuation and no material differenceswere identified. This information is provided by RNS The company news service from the London Stock Exchange