Parity Regulatory News (PTY)

27 Sep 2005 07:03

Parity Group PLC27 September 2005 PARITY GROUP PLC INTERIM RESULTS Parity Group plc ('Parity' or 'the Group'), the international IT services group,announces its interim results for the half year ended 30 June 2005. Summary • Positive progress on UK centric strategy with a clear focus on better and more predictable financial performance in 2006 • Debt financing renegotiated with Lloyds TSB • Significant progress on sub-leasing or reusing empty properties • Strengthened internal cash management processes • Curtailed all non-customer and contract related capital expenditure • Two planned disposals currently under way - Parity Americas and European Resourcing Solutions business • Network and IT services contract terminated and being replaced with more flexible, lower cost solution • Significant senior management reductions in former Business Solutions organisation • Group-wide Finance and HR functions created Financials • Group revenue increased 7.1% compared to the same period in the prior year to £88.8 million (1H/04: £82.9 million) • The Group produced a loss after tax of £1.842 million (1H/04: profit of £144,000 after discontinued operations) • The net cash outflow from operating activities was £1.831 million during the period (1H/04: outflow of £571,000). This included a cash outflow for exceptional costs recorded in prior years of £1.583 million (1H/04: outflow of £932,000 for exceptional items and a recovery of £220,000 in respect of discontinued operations) • Net debt as at 30 June 2005 was £15.5 million, an increase of £1.8 million from 31 December 2004. The increase in net debt was driven mainly by the payment of exceptional costs recorded in prior years • The basic loss per share was 0.64p (1H/04: earnings per share of 0.05p after discontinued operations) NB: As indicated in the 31 December 2004 annual Report and Accounts, the prioryear comparatives have been restated to show revenue from UK recruitment vendormanagement contracts based on net rather than gross fee income. Operations • Both UK and mainland European Resourcing Solution businesses recorded strong growth in the first half of 2005 growing by 17.8% and 22.5% respectively year-on-year reflecting Parity's strong position and well accepted customer propositions in both areas • Training has not recovered as well as was previously hoped for and continues to suffer from operating in a market which has both a highly fragmented structure and is extremely competitive. Given the short cycle between enrolment and course delivery, the business remains difficult to forecast • Parity Americas remains a small business, which has been exposed to the changing demands of one major US customer as well as, subsequent to H1 end, the Chapter 11 filing of another, Delta Air Lines • Business Solutions turnover was essentially flat as compared to the same period in the prior year but did win two new major contracts valued at £6 million from the Ministry of Defence and e-fire, the UK's first online Fire and Rescue Service Portal • The Group continues to garner praise in the industry for its market leading work and has been short listed for the 2005 Computing awards as best IT services supplier, and for the Personnel Today awards for its Cabinet Office work Commenting on the results, Parity Executive Chairman, John Hughes, said:"From a revenue standpoint we have assumed no major changes in the outlookfor the second half of the year. The Group believes that the nature of itscustomer relationships and the positive comments we continue to receive aboutthe quality of service delivered should sustain the recovering picture of ourbusiness in general, albeit with some areas of challenge. There remains substantial work to do to complete the restructuring of Parity andto build a truly competitive, long term sustainable UK centric business. Iremain convinced that the strategic direction we have set is sound and theactions we are taking will position the company to be more competitive and toperform financially in 2006." Enquiries: Parity Group plcTelephone 020 7832 3500John Hughes, Executive ChairmanEd Watkinson, Head of Finance LEWIS CommunicationsTelephone 020 7802 2626Giles Read About Parity Group plcParity, uniquely for its size, offers a full range of IT services to majorcompanies including: Business process consultancyManagement and technology trainingDevelopment and management of complex IT systemsOracle and Microsoft technology and application skillsPermanent and temporary IT staff Parity operates from 27 offices across the UK, mainland Europe and the USA. Customers across the group include Alcatel, Allianz, AT&T, British AmericanTobacco, CISCO, Department for Education & Skills, Department for Work &Pensions, HBOS, Hewlett Packard, HM Revenue & Excise, HSBC, IBM, ICI, Ministryof Defence, NASA, National Programme for IT at the NHS, O2, Perot Systems,Reuters, Royal Bank of Scotland, Royal Mail, Siemens, Sony Ericsson, The CabinetOffice, The Met Office, and T-Systems. For more information on Parity, visit www.parity.net Financial Summary Six months Six months Year ended to 30.6.05 to 30.6.04 31.12.04 £'000 £'000 £'000 Revenue 88,790 82,931 169,860 Operating (loss) profit (985) 903 (4,534) Operating (loss) profit before exceptionalitems in prior periods (985) 903 (851) (Loss) profit before taxation (1,934) 203 (6,073) Net debt (15,473) (12,602) (13,693) Equity shareholdersO funds 2,960 10,680 4,997 Pence Pence Pence Loss per Ordinary share before discontinuedoperations and exceptional items in priorperiodsBasic (0.64p) (0.03p) (0.84p)Diluted (0.64p) (0.03p) (0.84p) (Loss) earnings per Ordinary shareBasic (0.64p) 0.05p (1.91p)Diluted (0.64p) 0.05p (1.91p) Interim Statement Chairman's Statement Introduction The first half of 2005 has been marked by significant transformation at Paritystarting with the strategic review at the time of the preliminary resultsstatement. Major steps have been and continue to be taken to return the companyto a stable and profitable footing. All efforts are focussed on addressing bothbalance sheet and expenditure issues to position the company for a predictablybetter financial performance in 2006 Disposals In addition to the planned disposal of the mainland European ResourcingSolutions business, which continues to progress with on-going negotiations beingheld with a number of interested parties, the decision has been taken to divestthe US activities (Parity Americas). Discussions are in progress with a numberof parties who have expressed an interest in the business Parity Americas is aresourcing and training business operating in the eastern United States through3 regional offices. Although the planned disposal will improve the cashposition, the disposal of the US activities is anticipated to have a negative(non-cash) effect on the Group's consolidated balance sheet. Updates will be provided as and when any material development occurs in eitherof these two planned transactions. Proceeds from the disposals will be used toreduce the Group's level of indebtedness. Banking Facilities The Group's principal banking facilities continue to be provided by Lloyds TSBwhich remains supportive of the Group's transformation. We have completedrenegotiation of the terms of the facilities to recognise changes in businessperformance and to align their profile with the dates on which proceeds shouldbe available from the anticipated disposals. Based on the renegotiatedfacilities and the company's most recent forecasts, sufficient capacity isprovided to the Group through to the end of 2006 and the Board is confident ofadequate financing thereafter. Additionally, the Group is in the final stages ofsecuring new financing facilities to replace the current factoring arrangementcovering mainland Europe. Other Balance Sheet Items Significant work has been undertaken to terminate leased facilities and tosub-lease empty properties already provisioned in the 2003 and 2004 accounts. Inthe most recent period, the Group has been successful in sub-leasing its formerheadquarters facility in London, and will imminently sign a sub-lease for anunoccupied office in the USA. Additionally, notice of termination of two leasesin Northern Ireland has been served and a short-term lease on the former,temporary, UK headquarters facility has been terminated all without any majorexpense. The two Northern Ireland offices will be replaced by significantlylower cost solutions. The Group headquarters has been relocated to space inHolborn Circus, which had been previously provisioned for and had beenunoccupied for an extended period. Finally personnel will be relocated duringthe fourth quarter from an office building in Fleet, Hampshire into otherfacilities and agents appointed to seek a tenant for the entire Fleet facility.It is the Board's view that the existing property provisions are sufficient inmagnitude to cover all current and anticipated situations. Additionally, cashmanagement controls have been strengthened and capital spending substantiallycurtailed whilst protecting the on-going business and customer commitments. Spending Reductions We have embarked upon extensive cost saving exercises designed to significantlyreduce the Group's cost base, these include: - Consolidation of the Group's previously distributed divisional Finance functions into one finance team which will utilise a single accounting system;- Consolidation of a distributed HR function into a single Group-wide entity;- Reduction in management overhead to allow the businesses to focus their investment on sales and revenue generating personnel;- Property cost reduction measures as described above;- Actions to rebalance the Training business in order that it can operate with a lower fixed cost base;- Realignment of employment terms and conditions to be both more consistent across the Group, whilst remaining industry competitive;- Minimising expenditure on external consultants and service providers. These actions will continue during the second half of 2005 in support of ourobjective of returning the Group to profitability in 2006. The Group's IT and Network Services Effective June 2005, the Group has terminated its contract with a third partywhich is currently providing IT and network support services; The contract isprogrammed to end in mid-December 2005 and will be replaced with a combinationof in-house Parity services and a new third party provider. This new arrangementis expected to yield very substantial cost savings starting in 2006, as well asproviding a much more flexible structure. The cost of exit has not yet beenagreed with the current provider but there will be a significant cost of makingthis change of supplier in the second half of 2005. Financial Performance This is the first set of results, including comparatives, to be presented byParity under the International Financial Reporting Standards presently adoptedby the European Union, the impact of which is explained in the notes to thefinancial statements. On this basis, Group revenue increased by 7.1% compared tothe same period in the prior year to £88.8 million (1H/04: £82.9 millionrestated). As indicated in the 31 December 2004 Annual Report and Accounts, theprior year comparatives have been restated to show revenue from UK recruitmentvendor management contracts based on net, rather than gross, fee income. The Group produced a loss after tax of £1,842,000 (1H/04: profit of £144,000after discontinued operations). The basic loss per share was 0.64p (1H/04:earnings per share of 0.05p after discontinued operations). Both UK and mainland European Resourcing Solution businesses recorded stronggrowth in the first half of 2005 growing by 17.8% and 22.5% respectivelyyear-on-year reflecting Parity's strong position and well accepted customerpropositions in both areas Training has not recovered as well as was previously hoped for and continues tosuffer from operating in a market which has both a highly fragmented structureand is extremely competitive. Given the short cycle between enrolment and coursedelivery, the business remains difficult to forecast. Parity Americas provides temporary and permanent staff and training services tolarge corporate clients in the north eastern and south eastern regions of theUnited States through three regional offices. It remains a small business, whichhas been exposed to the changing demands of one major US customer as well as,subsequent to H1 end, the Chapter 11 filing of Delta Air Lines which is animportant customer of Parity Americas; discussions continue to secure themaximum on-going business with Delta during this period. Business Solutions turnover was essentially flat as compared to the same periodin the prior year. The business is currently being re-aligned into two separateprofit centres - Managed Services and Systems & Consulting both of whichrequire on-going development to achieve the growth profile we seek. Bothbusinesses secured significant new orders in the first half giving comfort thatthe strategy and execution models being built are appropriate. Tax The tax credit for the period was £92,000 (1H/04: £279,000 charge) against aGroup loss before tax of £1,934,000 (1H/04: profit of £203,000 excludingdiscontinued operations). The credit has been calculated based on the resultsof the individual operating companies for the current period, at the estimatedstatutory tax rates for the countries in which they are registered. The taxcredit represents an effective tax rate of 4.8% compared to the UK statutoryrate of 30% due to the fact that a deferred tax asset has not been recognised inrespect of certain tax losses, largely relating to central costs, and also dueto temporary differences. Cash Flow and Net Debt The net cash outflow from operating activities was £1,831,000 during the period(1H/04: outflow of £571,000). This included a cash outflow for exceptionalcosts recorded in prior years of £1,583,000 (1H/04: outflow of £932,000 forexceptional items and a recovery of £220,000 in respect of discontinuedoperations). Net debt as at 30 June 2005 was £15.5 million, an increase of £1.8million from 31 December 2004. The increase in net debt was driven mainly bythe payment of these exceptional costs recorded in prior years. Dividend The Board will not be recommending the payment of an interim dividend in respectof the year ending 31 December 2005 (2004: final dividend £nil; interim dividend£nil). Outlook From a revenue standpoint we have assumed no major changes in the outlook forthe second half of the year. The Group believes that the nature of its customerrelationships and the positive comments we continue to receive about the qualityof service delivered should sustain the recovering picture of our business ingeneral, albeit with some areas of challenge as laid out below. The outlook for the UK Resourcing Solutions business remains relatively robust,especially thanks to our substantial public sector exposure; additionally wecontinue to invest to grow our capabilities in both the 'spot' market forspecific skills and in building capabilities in selected vertical markets. TheMainland Europe outlook remains positive despite the inevitable distraction ofthe on-going disposal process and we continue to look for strong revenueperformance. The Training business should experience some support from the seasonal trendtoward stronger business in late Q3/early Q4 but there can be no assurance as tothe magnitude of the uplift. Much work remains to be done to improve both thedelivery capability and most especially the sales channel. Overall improvementin the business is only likely to be visible in 2006 as a result of theinvestments being made in a new on-line registration system which is now inplace, substantially improved public course and corporate training sales &marketing programmes and the move from fixed costs to a more flexible base. The Americas business is not expected to deliver any substantial return due tothe uncertainty around the customer situation and the relatively weak firsthalf. All of this despite steps which have been taken and are now starting tobear fruit in terms of developing the metropolitan New York market. The Managed Services and Systems & Consulting businesses (Business Solutions)continue to operate in a very competitive environment where the building of anorder book for 2006 remains a major priority. Both businesses do profit from astrong and loyal customer base and capabilities in a number of high potentialsegments of the market. There remains substantial work to do to complete the restructuring of Parity andto build a truly competitive, long term sustainable UK centric business; thebusiness outlook in the UK is relatively robust in the Government sector, butspending in the corporate market remains unpredictable. Management and the Boardremain committed to achieving a very substantial turn round of the Group thisyear. We hope and expect to take all the remaining major steps before the yearend. The associated costs, some not yet quantified, will contribute to areported loss in 2005 - as indicated previously. I remain convinced that withthe market and customer position which Parity enjoys and the calibre of ourpeople the strategic direction we have set is sound and that the actions we aretaking will position the company to be both more competitive and to performsignificantly better financially in 2006. Divisional Performance Six months to Six months to Year to 30.6.05 30.6.04 31.12.04 Profit Profit Profit (loss) (loss) (loss) before before before Revenue taxation Revenue taxation Revenue taxation £'000 £'000 £'000 £'000 £'000 £'000 Business Solutions 12,147 35 12,068 1,105 23,664 1,295Training 10,437 (695) 12,573 253 24,395 (938)Resourcing Solutions 66,206 736 58,290 1,010 121,801 1,782 Operating profit beforecentral costs,exceptional items 76 2,368 2,139 Central costs (1,061) (1,465) (2,990)Net finance costs (949) (700) (1,539) (Loss) profit beforetax, and exceptionalitems (1,934) 203 (2,390) Exceptional costs - - (3,683) 88,790 (1,934) 82,931 203 169,860 (6,073) Geographical Performance Six months to Six months to Year to 30.6.05 30.6.04 31.12.04 Operating Operating Operating profit before profit before profit 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 67,252 (48) 62,046 2,071 128,139 1,744Mainland Europe 16,215 115 13,234 204 27,232 318USA 5,323 9 7,651 93 14,489 77 88,790 76 82,931 2,368 169,860 2,139 Operating ReviewConsolidated Income Statement (Unaudited)For the Six Months Ended 30 June 2005 Six months to Six month to Year to 30.6.05 30.6.04 31.12.04 Notes £'000 £'000 £'000 Revenue 2 88,790 82,931 169,860 Staff costs (15,924) (17,875) (34,645)Depreciation (455) (600) (1,134)All other operating expenses (73,396) (63,553) (138,615)Total operating expenses (89,775) (82,028) (174,394) Operating (loss) profit 2 (985) 903 (4,534) Analysed as:Operating (loss) profit before exceptional items (985) 903 (851)Exceptional items 3 - - (3,683)Operating (loss) profit after exceptional items (985) 903 (4,534) Finance income 4 - 33 51Finance costs 5 (949) (733) (1,590) (Loss) profit before tax (1,934) 203 (6,073)Tax 6 92 (279) 394 Loss for the period from continuing operations (1,842) (76) (5,679) Discontinued operations Profit for the period from discontinued operations - 220 220 (Loss) profit for the period (1,842) 144 (5,459) Basic (loss) earnings per share 7 (0.64p) 0.05p (1.91p)Diluted (loss) earnings per share 7 (0.64p) 0.05p (1.91p) Consolidated Balance Sheet (Unaudited)As at 30 June 2005 Notes As at As at As at 30.6.05 30.6.04 31.12.04 £'000 £'000 £'000Non-current assetsGoodwill 9,616 9,616 9,616Property, plant and equipment 1,538 2,210 1,920Available for sale financial assets 30 - -Investments - 30 30Deferred tax assets 5,640 4,571 5,280 16,824 16,427 16,846 Current assetsInventories 1,459 1,071 1,664Trade and other receivables 42,004 42,515 40,402Current tax assets 15 972 687Cash and cash equivalents 9 1,935 1,463 5,641 45,413 46,021 48,394 Total Assets 62,237 62,448 65,240 Current liabilitiesBorrowings 9 (3,878) (4,516) (7,093)Trade and other payables (33,138) (30,281) (31,785)Current tax liabilities - (74) -Provisions (1,215) (1,159) (1,562) (38,231) (36,030) (40,440) Non-current liabilitiesBorrowings 9 (13,530) (9,549) (12,241)Provisions (2,508) (1,781) (2,816)Retirement benefit liability 12 (5,008) (4,408) (4,746) (21,046) (15,738) (19,803) Total liabilities (59,277) (51,768) (60,243) Net assets 2,960 10,680 4,997 Shareholders' equityCalled up share capital 11 14,434 14,434 14,434Share premium account 11 6,062 6,062 6,062Other reserves 11 44,160 44,160 44,160Retained earnings 11 (61,696) (53,976) (59,659) Total shareholders' equity 2,960 10,680 4,997 Consolidated Statement of Recognised Income and Expense (Unaudited)For the Six Months Ended 30 June 2005 Six months to Six months to Year to 30.6.05 30.6.04 31.12.04 £'000 £'000 £'000Exchange differences on translation of foreign operations 40 (434) (289)Actuarial losses on defined benefit pensionschemes (436) (462) (924)Taxation on items taken directly to equity 131 138 277 Net losses recognised directly inEquity (265) (758) (936)(Loss) profit for the period (1,842) 144 (5,459)Total recognised expense for thePeriod (2,107) (614) (6,395) Consolidated Cash Flow Statement (Unaudited)For the Six Months Ended 30 June 2005 Notes Six months Six months Year ended to 30.6.05 to 30.6.04 31.12.04 £'000 £'000 £'000 Cash flows from operating activitiesCash used in operations 10 (1,831) (571) (1,169)Interest received - 33 49Interest paid (582) (417) (884)Tax received 536 692 1,006 Net cash used in operations (1,877) (263) (998) Cash flows used in investing activitiesPurchase of property, plant and equipment (76) (230) (518)Proceeds from disposal of property, plantand equipment 18 - - Net cash used in investing activities (58) (230) (518) Cash flows from financing activitiesExpenses from issue of ordinary shares - (56) (56)Repayment of loan notes 9 (6) - (8)Net cash inflow (outflow) from borrowings 9 1,637 (679) 2,475Payment of capital element of finance leases 9 (10) (10) (17)Equity dividends paid - - (87) Net cash from (used in) financing activities 1,621 (745) 2,307 Net (decrease) increase in cash and cashequivalents (314) (1,238) 791Cash and cash equivalents at beginning of the period 2,175 1,393 1,393Net foreign exchange difference 74 (97) (9) Cash and cash equivalents at end of the 9 1,935 58 2,175period Cash and cash equivalents consist of:- Cash 1,935 1,463 5,641- Overdrafts - (1,405) (3,466) 9 1,935 58 2,175 For the purposes of the cashflow statement, cash and cash equivalents are net ofoverdrafts. These overdrafts are excluded from the definition of cash and cashequivalents in the balance sheet. 1 Basis of preparation The financial information comprises the unaudited results for the six months to30 June 2005 and 30 June 2004, together with the unaudited results for thetwelve months ended 31 December 2004. The Group's UK published financial statements for the year ended 31 December2004 have been reported on by the Group's auditors and filed with the Registrarof Companies. The report of the auditor was unqualified and did not contain astatement under Section 237 (2) or (3) of the Companies Act 1985. Prior to 2005, the Group prepared its audited annual financial statements andunaudited interim financial statements under UK Generally Accepted AccountingPrinciples (UK GAAP). From 1 January 2005, the Group is required to prepareannual consolidated financial statements in accordance with InternationalFinancial Reporting Standards (IFRS) as adopted by the European Union (EU) andimplemented in the UK. As the 2005 annual financial statements will includecomparatives for 2004, the Group's date of transition to IFRS is 1 January 2004and the 2004 comparatives have been restated to IFRS. Accounting policies The Group's results for the six months ended 30 June 2005 have been prepared ona basis consistent with the Group's IFRS accounting policies. These IFRSaccounting policies have been applied on a basis consistent with IFRS andinterpretations expected to be in effect for the year ending 31 December 2005.It is possible that there will be changes to these standards and interpretationsbefore the end of 2005, which might require further adjustments to thisinformation before it is included in the 2005 annual financial statements. Inaddition, the Group has early adopted the amendment to IAS19 Employee Benefitson the basis that this is expected to be formally adopted by the EU before theend of 2005. First-time adoption The general principle that should be applied on first-time adoption of IFRS isthat standards are applied with full retrospective effect. IFRS 1 First-timeAdoption of International Financial Reporting Standards, sets out certainmandatory exceptions to retrospective application and certain optionalexemptions. The optional exemptions adopted by the Group are set out below: (i) not to restate its business combinations made prior to 1 January2004 to comply with IFRS 3 Business Combinations; (ii) to retain previous UK GAAP carrying values of property, plant andequipment, treating any historic revaluations as deemed cost at 1 January 2004; (iii) to recognise all cumulative actuarial gains and losses in respectof defined benefit pension schemes, and similar benefits in shareholders' equityat 1 January 2004; (iv) to apply IFRS 2 Share-based Payments only to awards granted after7 November 2002 and not vested by 1 January 2005; (v) to deem cumulative translation differences for all foreignoperations to be £nil at 1 January 2004; and (vi) not to present comparative information in accordance with IAS 32Financial Instruments: Disclosure and Presentation and IAS 39 FinancialInstruments: Recognition and Measurement In addition, under IAS 32 cash balances and bank overdrafts can only bepresented net where there is both the legal ability and intention to settle net. Impact of transition While the application of IFRS has a broadly neutral impact on profit before taxand earnings, it results in a decrease in net assets, mainly due to therecognition of the pension deficit. The principal differences for the Groupbetween reporting on the basis of UK GAAP and IFRS are as follows: (i) recognising an expense for the fair value of employeeshare-based awards rather than the intrinsic value; (ii) ceasing to amortise goodwill but instead testing for impairmentat least annually; (iii) recognising the full pension deficit on the balance sheet, takingpension operating and financing costs to the income statement, and actuarialgains and losses to the statement of recognised income and expense; (iv) no longer recognising dividends proposed but not declared as aliability at the balance sheet date. The application of IFRS has also changed the presentation of the cash flowstatement which now shows cash flows from three activities - operating,investing and financing. In addition, under IFRS the cash flow statementincludes all cash flows in respect of cash and cash equivalents. This is abroader definition of cash than under UK GAAP. 2 Segmental Analysis The Group is organised into three primary business segments: Business Solutions,Training and Resourcing Solutions. Six months to Six months to Year to 30.6.05 30.6.04 31.12.04 £'000 £'000 £'000 restatedRevenueBusiness Solutions 12,147 12,068 23,664Training 10,437 12,573 24,395Resourcing Solutions ** 66,206 58,290 121,801 88,790 82,931 169,860 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 30.6.05 30.6.04 31.12.04 30.6.05 30.6.04 31.12.04 30.6.05 30.6.04 31.12.04 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 BusinessSolutions 35 1,105 1,295 - - (893) 35 1,105 402Training (695) 253 (938) - - (218) (695) 253 (1,156)ResourcingSolutions 736 1,010 1,782 - - (218) 736 1,010 1,564 76 2,368 2,139 - - (1,329) 76 2,368 810CentralCosts (1,061) (1,465) (2,990) - - (2,354) (1,061) (1,465) (5,344) (985) 903 (851) - - (3,683) (985) 903 (4,534) On 1 January 2005, certain contracts were assigned from Training toBusiness Solutions. Had these contracts been assigned on 1 January 2004,Business Solutions revenue would increase by, and the revenue for Training woulddecrease by, £1,406,000 and £2,565,000 for the six months ended 30 June 2004 andyear ended 31 December 2004 respectively. The profit impact of such anassignment would be an increase in Business Solutions profit and a decrease inTraining profit by £343,000 and £258,000 for the six months ended 30 June 2004and the year ended 31 December 2004 respectively. ** During 2004, the accounting policy for revenue recognitionin respect of Resourcing Solutions managed services contracts was amended.Following the negotiation of certain managed service contracts, which havedifferent characteristics to the Group's other managed service contracts, thedirectors no longer believe that it is appropriate to treat Parity as theprincipal in these contracts and therefore revenue has been shown on a netbasis. Revenue for the six months ended 30 June 2004 has been restated toreflect this change, resulting in a reduction in Resourcing Solutions UnitedKingdom's revenue of £7,381,000. There is no impact on group operating profit. 3 Exceptional items Six months to Six months to Year to 30.6.05 30.6.04 31.12.04 £'000 £'000 £'000 Redundancy payments - - 1,648Property restructuring - - 1,810Other - - 225Total exceptional items - - 3,683 4 Finance income Six months to Six months to Year to 30.6.05 30.6.04 31.12.04 £'000 £'000 £'000 Bank interest receivable - 33 51Total finance income - 33 51 5 Finance costs Six months to Six months to Year to 30.6.05 30.6.04 31.12.04 £'000 £'000 £'000 Bank interest payable (602) (420) (965)Post retirement benefits (344) (309) (618)Other interest payable (3) (4) (7)Total finance costs (949) (733) (1,590) 6 Tax Six months to Six months to Year to 30.6.05 30.6.04 31.12.04 £'000 £'000 £'000 Current tax:- UK corporation tax - - (3)- Overseas taxes (96) (319) 56Deferred tax 188 40 341Total tax credit (charge) 92 (279) 394 The tax credit (charge) above includes £nil for the six months ended 30 June2005 (£nil for the six months ended 30 June 2004 and £400,000 for the year ended31 December 2004) arising in respect of exceptional items. 7 Earnings per ordinary share The calculation of the loss per Ordinary share is based on a loss after taxationof £1,842,000 (30 June 2004: £144,000 profit, 31 December 2004: £5,459,000loss). The calculation of the loss per share before discontinued operations andexceptional items in prior years is based on a loss after taxation of £1,842,000(30 June 2004: £76,000 loss, 31 December 2004: £2,396,000 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. The weighted average number of Ordinary shares used in the calculation of thebasic and diluted loss per share are as follows: Six months to Six months to Year to 30.6.05 30.6.04 31.12.04 £'000 £'000 £'000 BasicWeighted average number of fully paidordinary shares in issue during the period 288,691,692 288,691,692 288,691,692Held by ESOP trust (2,756,238) (2,756,238) (2,756,238) 285,935,454 285,935,454 285,935,454DilutiveWeighted average number of fully paidordinary shares in issue during the period: 288,691,692 288,691,692 288,691,692Dilutive effect of potential ordinary shares - 930,286 441,075Held by ESOP trust (2,756,238) (2,756,238) (2,756,238)Adjusted weighted average number of fullypaid ordinary shares in issue during theperiod 285,935,454 286,865,740 286,376,529 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 dilutive potential ordinary shares.The Group has one class of potential dilutive ordinary shares being thoseshare options granted to employees where the exercise price is less than theaverage market price of the Company's ordinary shares during the period. Therewere no such options at 30 June 2005 8. Reconciliation of Net Cash Flow to Movement in Net Debt 30.6.05 £'000 Decrease in cash in the period (314)Increase in bank loans and other bank borrowings (1,637)Repayment of obligations under finance leases 10Repayment of loan notes 6Exchange movements 155 Movement in net debt in the period (1,780) Net debt at 1 January 2005 (13,693) Net debt at 30 June 2005 (15,473) 9. Analysis of Net Debt 1.1.05 Cash flow Exchange 30.6.05 movements £'000 £'000 £'000 £'000 Cash at bank and in hand 5,641 (3,780) 74 1,935Overdrafts (3,466) 3,466 - - 2,175 (314) 74 1,935 Bank loans (12,200) (1,300) - (13,500)Other bank borrowings (3,602) (337) 81 (3,858)Obligations under finance leases (60) 10 - (50)Variable rate loan notes (6) 6 - - Net Debt (13,693) (1,935) 155 (15,473) 10. Reconciliation of Operating (Loss) Profit to Net Cash Flow Six months to Six months to Year to 30.6.05 30.6.04 31.12.04 £'000 £'000 £O000 Net (loss) profit for the period (1,842) 144 (5,459) Adjustments for:Tax (92) 279 (394)Depreciation 455 600 1,134Equity settled share based payments 70 71 169(Profit) loss on disposal of tangible (7) - 41fixed assetsInterest income - (33) (51)Interest expense 949 733 1,590 Changes in working capitalDecrease (increase) in stock 205 (510) (1,103)Increase in trade and other receivables (1,601) (4,005) (1,891)Increase in trade and other payables 1,222 3,278 4,918(Decrease) increase in provisions (655) (696) 742Increase in retirement benefit liability* (535) (432) (865)Cash used in operations (1,831) (571) (1,169) * Excludes finance cost which is shown in interest expense Cash generated from operations includes cash outflows relating to exceptionalitems recorded in prior years under UK GAAP of £1,583,000 (30 June 2004: outflowof £932,000 relating to exceptional items and a recovery of £220,000 in respectof discontinued operations; 31 December 2004: outflow of £1,560,000 relating toexceptional items and a recovery of £220,000 in respect of discontinuedoperations) 11. Statement of changes in Shareholders' equity Share Share Premium Other Retained Capital Reserve Reserves Earnings Total £'000 £'000 £'000 £'000 £'000 At 1 January 2005 14,434 6,062 44,160 (59,659) 4,997 Net loss for the period - - - (1,842) (1,842) Share options - value of - - - 70 70employee services Net loss recognised directly in - - - (265) (265)equity At 30 June 2005 14,434 6,062 44,160 (61,696) 2,960 12 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 2004 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. 13 Contingencies In the normal course of business, the Group is exposed to the risk of claims inrespect of contracts where the customer or supplier is dissatisfied with theperformance, pricing and/or completion of the contracted service or product.Such claims are normally resolved by a combination of negotiation, further workby Parity or the supplier and/or monetary settlement without formal legalprocess being necessary. Occasionally, such claims progress into legal action.At the present time, Group management believes the resolution of any knownclaims or legal proceedings will not have a material further impact on thefinancial position of the Group. Independent review report to Parity Group plc for the six months ended 30 June2005 Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2005 which comprises a consolidated balance sheetas at 30 June 2005, a consolidated income statement, a consolidated statement ofrecognised income and expense, a consolidated cash flow statement for the periodthen ended, comparative figures and associated notes. We have read the otherinformation contained in the interim report and considered whether it containsany apparent misstatements or material inconsistencies with the financialinformation. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority. As disclosed in note 1, the next annual financial statements of the group willbe prepared in accordance with accounting standards adopted for use in theEuropean Union. This interim report has been prepared in accordance with thebasis set out in Note 1. The accounting policies are consistent with those that the directors intend touse in the next annual financial statements. As explained in note 1, there is,however, a possibility that the directors may determine that some changes arenecessary when preparing the full annual financial statements for the first timein accordance with accounting standards adopted for use in the European Union.The IFRS standards and IFRIC interpretations that will be applicable and adoptedfor use in the European Union at 31 December 2005 are not known with certaintyat the time of preparing this interim financial information. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2005. PricewaterhouseCoopers LLPChartered AccountantsLondon27 September 2005 Explanation of transition to IFRS The Company's financial statements for the year ending 31 December 2005 will bethe first annual financial statements that comply with IFRS. These interimfinancial statements have been prepared as described in note (a) of thisappendix. The Company has applied IFRS 1 in preparing these interim financialstatements. The last financial statements under UK GAAP were for the year ended31 December 2004 and the date of transition was therefore 1 January 2004.Presented below are the reconciliation of profit for the year ended 31 December2004 and the reconciliations of equity at 1 January 2004 (date of transition toIFRS) and at 31 December 2004 (date of last UK GAAP financial statements) asrequired by IFRS 1. In addition, the reconciliation of equity at 30 June 2004 and the reconciliationof profit for the six months ended 30 June 2004 have been included below asrequired by IFRS 1 to enable the comparison of the 2005 interim figures withthose published in the corresponding period of the prior year. (a) Accounting policies The principal accounting policies applied in the preparation of these condensedconsolidated financial statements are set out below. Basis of preparation The condensed consolidated financial statements have been prepared in accordancewith International Financial Reporting Standards (IFRS) and IFRICinterpretations issued and effective or issued and early adopted as at 30 June2005. The IFRS standards and IFRIC interpretations that will be applicable at31 December 2005 are not known with certainty at the time of preparing thesecondensed consolidated financial statements. The condensed consolidatedfinancial statements have been prepared under the historical cost convention asmodified by the revaluation of financial assets and liabilities at fair valuethrough profit or loss from 1 January 2005. Basis of consolidation The consolidated financial statements comprise the financial statements of theparent company (Parity Group plc) and its subsidiary undertakings (defined aswhere the Group has control). The financial statements of subsidiaries areprepared as of the same reporting date as the parent company, using consistentaccounting policies. The results of subsidiaries are consolidated, using the purchase method ofaccounting, from the date on which control of the net assets and operations ofthe acquired company are effectively transferred to the Group. Similarly, theresults of subsidiaries divested cease to be consolidated from the date on whichcontrol of the net assets and operations are transferred out of the Group. Revenue recognition Revenue represents the value of work completed for clients includingattributable profit, after adjusting for all foreseeable future losses, net ofvalue added tax. Revenue on contracts for the supply of professional services at pre-determinedrates is recognised as and when the work is performed, irrespective of theduration of the contract. Revenue is recognised on fixed price contracts while the contract is inprogress, having regard to the proportion of the total contract costs which havebeen incurred at the balance sheet date. Provision is made for all foreseeablefuture losses. Training revenue is recognised as and when the training event occurs. Contractor staffing services revenue is recognised when contractors renderservices. Permanent placement staffing revenue is recognised when employmentcandidates accept offers of permanent employment. Allowances are established toestimate losses due to placed candidates not remaining for the guarantee period. Under managed service contracts, with the exception of certain contractscurrently operated by Resourcing Solutions UK where Parity does not consideritself principal, the Directors believe that Group meets the definition of aprincipal in accordance with IAS 18 and consequently the value of servicesbilled to clients is recognised on a gross basis as those services areperformed. Share-based payments The Group operates various share-based award schemes. The fair value of theaward at the date of grant is recognised in the income statement (together witha corresponding increase in shareholdersO equity) on a straight line basis overthe vesting period, based on an estimate of the number of shares that willeventually vest. No expense is recognised for awards that do not ultimatelyvest, except for awards where vesting rests upon a market condition. Exceptional items Items which are both material and non-recurring are presented as exceptionalitems within their relevant consolidated income statement category. Theseparate reporting of exceptional items helps provide a better indication of theGroup's underlying business performance. Events which may give rise to theclassification of items as exceptional include gains or losses on the disposalof businesses, restructuring of businesses, litigation and similar settlements,and asset impairments. Dividends Final dividends proposed by the Board of Directors and unpaid at the year endare not recognised in the financial statements until they have been approved bythe shareholders at the Annual General Meeting. Interim dividends, which do notrequire shareholder approval are recognised when they are approved by the Boardof Directors. Goodwill Goodwill represents the excess of the cost of acquisition of a businesscombination over the Group's share of the fair value of identifiable net assetsof the business acquired. After initial recognition, goodwill is measured at cost less any accumulatedimpairment losses. At the date of acquisition, the goodwill is allocated tocash generating units for the purpose of impairment testing and is tested atleast annually for impairment. Gains and losses on disposal of a business include the carrying amount ofgoodwill relating to the business sold in determining the gain or loss ondisposal, except for goodwill arising on business combinations on or before 31December 1997 which has been deducted from shareholders' equity and remainsindefinitely in shareholders' equity. Goodwill is tested at least annually for impairment. An impairment loss isrecognised for the amount by which the asset's carrying amount exceeds itsrecoverable amount, the latter being the higher of the asset's fair value lesscosts to sell and value in use. Value in use calculations are performed usingcash flow projections, discounted at a pre-tax rate which reflects the assetspecific risks and the time value of money. Income tax The charge for current income tax is based on the results for the year asadjusted for items which are not taxed or disallowed. It is calculated usingtax rates that have been enacted or substantively enacted by the balance sheetdate. Deferred income tax is accounted for using the liability method in respect oftemporary differences arising from differences between the tax bases of assetsand liabilities and their carrying amounts in the financial statements. In principle, deferred tax liabilities are recognised for all taxable temporarydifferences and deferred tax assets are recognised to the extent that it isprobable that taxable profits will be available against which deductibletemporary differences can be utilised. Such assets and liabilities are notrecognised if the temporary difference is due to goodwill arising on a businesscombination or from an asset or liability, the initial recognition of which doesnot affect either taxable or accounting income. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries except where the Group is able to controlthe reversal of the temporary difference and it is probable that the temporarydifference will not reverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply to theperiod when the asset is realised or liability is settled. Deferred tax ischarged or credited in the income statement, except when it relates to itemscredited or charged directly to shareholdersO equity, in which case the deferredtax is also dealt with in shareholdersO equity. Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and inhand, short term deposits and other short term liquid investments. In the consolidated cash flow statement, cash and cash equivalents comprise cashand cash equivalents, as defined above, net of bank overdrafts. Provisions Provisions are recognised when the Group has a present obligation in respect ofa past event, where it is more likely than not that an outflow of resources willbe required to settle the obligation, and where the amount can be reliablyestimated. Foreign Currencies Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates (the 'functional currency'). The consolidated financialstatements are presented in sterling, which is the Company's functional andpresentation currency. The accounts of overseas subsidiary undertakings are translated at the rate ofexchange ruling at the balance sheet date. The exchange differences arising onthe retranslation of opening net assets, together with the year-end adjustmentto closing rates of profit and loss accounts translated at average rates, aretaken directly to reserves. All other translation differences are taken to theprofit and loss account with the exception of differences on foreign currencyborrowings to the extent that they are used to finance or provide a hedgeagainst Group equity investments in foreign enterprises, which are takendirectly to reserves together with the exchange difference on the net investmentin these enterprises. Tax charges and credits attributable to exchangedifferences on those borrowings are also dealt with in reserves. Leases Assets held under finance leases, which are leases where substantiallyall the risks and rewards of ownership of the asset have passed to the group,are capitalised in the balance sheet and are depreciated over their usefullives. The capital elements of future obligations under leases are included asliabilities in the balance sheet. The interest elements of the rentalobligations are charged to the profit and loss account over the period of theleases and represent a constant proportion of the balance of capital repaymentsoutstanding. Rentals paid under operating leases are charged to income on a straight linebasis over the term of the lease. Property provisions Where leasehold properties are surplus to requirements, both now and in theforeseeable future, provisions are made for the best estimates of theunavoidable net future costs. Provisions for dilapidation charges that will crystallise at the end of theperiod of occupancy are provided for in full on empty properties and are chargedto the income statement evenly over the period of the lease for occupiedproperties. No dilapidations provisions are created for any properties whichhave leases that expire in more than 10 years on the basis that thedilapidations charge cannot be accurately estimated when the remaining life ofthe lease is so long. Pensions and other post-employment benefits The Group operates a number of retirement benefit schemes. With the exception ofthe 'Parity Retirement Benefit Plan', all of the schemes are definedcontribution plans and the assets are held in separate, independentlyadministered funds. The Group's contributions to defined contribution plans arecharged to the income statement in the period to which the contributions relate. The 'Parity Retirement Benefit Plan' is a defined benefit pension fund withassets held separately from the Group. This fund has been closed to new memberssince 1995 and with effect from 1 January 2005 was also closed to future serviceaccrual. The cost of providing benefits under the plan is determined using theprojected unit credit actuarial valuation method. Past service costs are included where the benefits have vested otherwise theyare amortised on a straight line basis over the vesting period. The expectedreturn on the assets of the funded defined benefit pension plan and the imputedinterest on the pension plan liabilities comprise the pension element of the netfinance cost/income in the income statement. Differences between the actual and expected return on assets, changes in theretirement benefit obligation due to experience and changes in actuarialassumptions are included in the statement of recognised income and expense infull in the period in which they arise. Derivative financial instruments (up to 31 December 2004) Derivative financial instruments are used to manage the Group's exposure tofluctuations in foreign currency exchange rates. Instruments accounted for ashedges are designated as hedges at the inception of contracts. Gains and losseson foreign currency hedges are recognised on maturity of the underlyingtransaction. Currency swap agreements are retranslated at the rates ruling inthe agreements with resulting gains and losses being offset against foreignexchange gains and losses on the related borrowings. Gains and losses onhedging instruments which are cancelled due to the termination of the underlyingexposure are taken to the income statement immediately. Derivative financial instruments (after 31 December 2004) Parity has not sought to apply hedge accounting to the limited number ofderivative instruments it uses and as such any gains or losses arising fromchanges in fair value are taken directly to the income statement. (b) Reconciliation of (loss) profit to 30 June 2004 and 31 December 2004from UK GAAP to IFRS Six months ended 30.6.04 Year ended 31.12.04 Effect of Effect of transition transition UK to to GAAP IFRS IFRS UK GAAP IFRS IFRS Unaudited Unaudited Unaudited Audited Unaudited Unaudited £'000 £'000 £'000 £'000 £'000 £'000 Notes Restated+Continuing OperationsRevenue 82,931 - 82,931 169,860 - 169,860 Staff costs (g)ii (g) (18,278) 403 (17,875) (34,047) 1,050 (32,997) iiiDepreciation and (g)i (915) 315 (600) (1,763) 629 (1,134)amortisationAll other operating expenses (63,553) - (63,553) (136,580) - (136,580) Total operatingexpensesbefore exceptionalitems (82,746) 718 (82,028) (172,390) 1,679 (170,711)Exceptional items - - - (3,683) - (3,683)Total operating (82,746) 718 (82,028) (176,073) 1,679 (174,394)expenses Operating profit (loss) 185 718 903 (6,213) 1,679 (4,534) Finance income 33 - 33 51 - 51Finance costs (g)ii (424) (309) (733) (972) (618) (1,590) Profit (loss) before tax (206) 409 203 (7,134) 1,061 (6,073)Tax (g)iv (250) (29) (279) 507 (113) 394 Loss for the period fromcontinuing operations (456) 380 (76) (6,627) 948 (5,679) DiscontinuedoperationsProfit for the period fromdiscontinuedoperations 220 - 220 220 - 220 (Loss) profit for the period (236) 380 144 (6,407) 948 (5,459) + Refer note 2 (c) Reconciliation of UK GAAP loss to IFRS profit (loss) Notes Six months ended Year ended 30.6.04 31.12.04 £'000 £'000(Loss) for period as reported under UK GAAP (236) (6,407)Adjustments for:Goodwill not amortised after date of transition (g)i 315 629IAS 19 pension interest cost (g)ii (309) (618)Add UKGAAP charge in respect of employee benefits 352 893Add IFRS credit in respect of employee benefits 122 326Share based payments charge (g)iii (71) (169)Deferred tax on IAS 19 (g)iv (50) (164)Deferred tax on share based payments (g)iv 21 51Total profit (loss) as reported under IFRS 144 (5,459) (d) Reconciliation of equity as at 1 January 2004 and 31 December 2004from UK GAAP to IFRS As at 1 January 2004 As at 31 December 2004 Notes Effect of Effect of transition transition to IFRS to IFRS Unaudited Unaudited UK GAAP £;000 IFRS UK GAAP £'000 IFRS Audited Unaudited Audited Unaudited £'000 £'000 £'000 £'000Non-current assetsGoodwill (g)i 9,616 - 9,616 8,987 629 9,616Property, plant and 2,586 - 2,586 1,920 - 1,920equipmentAvailable for sale 30 - 30 30 - 30financial assetsDeferred tax assets (g)iv 3,418 986 4,404 4,130 1,150 5,280 15,650 986 16,636 15,067 1,779 16,846 Current assetsInventories 561 - 561 1,664 - 1,664Trade and other 38,510 - 38,510 40,402 - 40,402receivablesCurrent tax assets 2,040 - 2,040 687 - 687Cash and cash 3,241 - 3,241 5,641 - 5,641equivalents 44,352 - 44,352 48,394 - 48,394 Total Assets 60,002 986 60,988 63,461 1,779 65,240 Current liabilitiesBorrowings (4,220) - (4,220) (7,093) - (7,093)Trade and other (g)ii (g)v (26,660) 27 (26,633) (31,710) (75) (31,785)payablesCurrent tax liabilities (62) - (62) - - -Provisions - (1,526) (1,526) - (1,562) (1,562) (30,942) (1,499) (32,441) (38,803) (1,637) (40,440) Non-current liabilitiesBorrowings (11,058) - (11,058)(12,241) - (12,241)Provisions (3,636) 1,526 (2,110) (4,378) 1,562 (2,816)Retirement benefit (g)ii (864) (3,205) (4,069) (1,233) (3,513) (4,746)liability (15,558) (1,679) (17,237)(17,852) (1,951) (19,803) Total liabilities (46,500) (3,178) (49,678)(56,655) (3,588) (60,243) Net assets 13,502 (2,192) 11,310 6,806 (1,809) 4,997 Shareholders' equityCalled up share capital 14,434 - 14,434 14,434 - 14,434Share premium account 6,062 - 6,062 6,062 - 6,062Capital redemption 50 - 50 50 - 50reserveOther reserves 44,110 - 44,110 44,110 - 44,110Retained earnings (51,154) (2,192) (53,346)(57,850) (1,809) (59,659) Total shareholders' 13,502 (2,192) 11,310 6,806 (1,809) 4,997equity (e) Reconciliation of equity as at 30 June 2004 from UK GAAP to IFRS Notes Effect of UK GAAP transition to IFRS unaudited IFRS unaudited £'000 £'000 £'000Non-current assetsGoodwill (g)i 9,301 315 9,616Property, plant and equipment 2,210 - 2,210Available for sale financial assets 30 - 30Deferred tax assets (g)iv 3,476 1,095 4,571 15,017 1,410 16,427Current assets -Inventories 1,071 - 1,071Trade and other receivables 42,515 - 42,515Current tax assets 972 - 972Cash and cash equivalents 1,463 - 1,463 46,021 - 46,021Total Assets 61,038 1,410 62,448 Current liabilitiesBorrowings (4,516) - (4,516)Trade and other payables (g)ii (g)v (30,173) (108) (30,281) Current tax liabilities (74) - (74)Provisions - (1,159) (1,159) (34,763) (1,267) (36,030)Non-current liabilities Borrowings (9,549) - (9,549)Provisions (2,940) 1,159 (1,781)Retirement benefit liability (g)ii (954) (3,454) (4,408) (13,443) (2,295) (15,738) Total liabilities (48,206) (3,562) (51,768) Net assets 12,832 (2,152) 10,680Shareholders' equityCalled up share capital 14,434 - 14,434Share premium account 6,062 - 6,062Capital redemption reserve 50 - 50Other reserves 44,110 - 44,110Retained earnings (51,824) (2,152) (53,976) Total shareholders' equity 12,832 (2,152) 10,680 (f) Reconciliation of equity from UK GAAP to IFRS Notes 1.1.04 30.6.04 31.12.04 £'000 £'000 £'000Total equity as reported under UK GAAP 13,502 12,832 6,806Adjustments for:Goodwill not amortised after date of (g)i - 315 629transitionDividends not recognised as liability until (g)v 87 - -declaredIAS 19 employee benefits (g)ii (3,265) (3,562) (3,588)Deferred tax on IAS 19 employee benefits (g)iv 980 1,068 1,093Deferred tax on share based payments (g)iv 6 27 57Total equity as reported under IFRS 11,310 10,680 4,997 (g) IFRS - Explanation of impact i. Goodwill Under UK GAAP, capitalised goodwill was amortised over its useful economic lifeof up to 20 years and goodwill previously written off to shareholders' equitywas recycled in the income statement as part of the profit or loss on disposalof a business. Under IFRS, capitalised goodwill is not amortised but is instead tested at leastannually for impairment. Goodwill amortisation charged under UK GAAP of £315,000and £629,000 for the six months ended 30 June 2004 and year ended 31 December2004 respectively, has been reversed under IFRS. Goodwill arising on business combinations on or before 31 December 1997 has beendeducted from shareholdersO equity. This amounted to £60,585,000 at 1 January2004 and will not be recycled through the income statement on any disposal. As permitted by IFRS 1, the Group has chosen to apply IFRS 3 prospectively from1 January 2004 and has not restated previous business combinations. Goodwill istherefore stated at 1 January 2004 at its UK GAAP carrying value of £9,616,000. ii. IAS 19 - employee benefits Under UK GAAP, Parity accounted for pensions under SSAP 24; FRS 17 informationwas also disclosed in the notes to the financial statements. Parity accountsfor pensions in accordance with IAS 19 on the adoption of IFRS. IAS 19 was amended on 16 December 2004 (although this is yet to be endorsed bythe EU) to allow a company to account for actuarial gains and losses (whicharise as a result of a PlanOs experience in the year differing from theactuarial assumptions made at the start of that year) under the Statement ofRecognised Income and Expenditure method (SORIE). Under this method,experienced actuarial gains and losses will be recognised immediately in thebalance sheet. The actuarial gains and losses are likely to be the mostvolatile item of pension cost. This volatility is recognised and is one of thereasons why it is not deemed appropriate to include it in the profit and lossaccount. The impact of this policy is to recognise an additional pension liability of£3,205,000 in the GroupOs IFRS opening balance sheet at 1 January 2004,£3,454,000 at 30 June 2004 and £3,513,000 at 31 December 2004. The impact of the policy on operating profit for the year ended 31 December 2004is an improvement in operating profit of £1,234,000 with a £618,000 increase infinance costs, giving a net increase in profit of £616,000 in the incomestatement. For the six months ended 30 June 2004, operating profit is increasedby £522,000 with a £309,000 increase in finance costs, giving a net improvementof £213,000 in the income statement. As a result of further guidance in IAS 19, a £60,000 increase in the GroupOsholiday pay accrual has been reflected on transition, £108,000 at 30 June 2004and £75,000 at 31 December 2004. The impact of the policy on operating profitfor the year ended 31 December 2004 is a reduction of £15,000 in the incomestatement. The impact of the policy on operating profit for the six monthsended 30 June 2004 is a reduction of £48,000 in the income statement. iii. IFRS 2 - share based payments Parity operates a number of share-based incentive schemes. Parity did notrecognise any expense in the profit and loss account under UK GAAP for theintrinsic value of awards under the schemes. Under IFRS, an expense isrecognised for all awards under share-based incentive schemes, based on the fairvalue at the date of grant, calculated using a valuation model. The fair valueof awards post 7 November 2002 (in accordance with the transitional provisionsof IFRS 2) under the GroupOs Executive Share Option Plans and Savings RelatedOption Scheme have been calculated using a Cox Ross Rubinstein binomial modeland a Black-Scholes valuation model respectively. The fair values are calculated on the date of grant of the awards and the totalfair value is charged to the profit and loss account over the relevant vestingperiods, adjusted to reflect expected levels of lapses and in the case ofExecutive Share Options, expected achievement of vesting conditions. The charge to the profit and loss account for the six months to 30 June 2004 andyear to 31 December 2004 is £71,000 and £169,000 respectively. There is noimpact of this charge on net assets since the credit is reflected in equity. iv. IAS 12 - income taxes IAS 12 requires full provision for all taxable temporary differences. Atemporary difference arises where there is a difference between the carryingamount of an asset or liability and its tax value. A temporary difference istaxable if it will result in taxable amounts in the future, when the carryingamount of the asset is recovered or the liability is settled. On transition to IFRS, Parity recognised additional deferred tax assetstotalling £986,000 representing deferred tax on the IAS 19 - employeebenefits of £980,000 and deferred tax of the IFRS 2 charge of £6,000. At 30June 2004, the Company recognised cumulative deferred tax assets totalling£1,095,000 representing deferred tax on the IAS 19 - employee benefitsof £1,068,000 and deferred tax of the IFRS 2 charge of £27,000. At 31 December2004, the Company recognised cumulative deferred tax assets totalling £1,150,000representing deferred tax on the IAS 19 - employee benefits of£1,093,000 and deferred tax of the IFRS 2 charge of £57,000. v. IAS 10 - events after the balance sheet date In accordance with IAS 10 - events after balance sheet date, proposeddividends can no longer be accrued at the balance sheet date if they have notbeen approved as at that date. Parity's final dividend at 31 December 2003 was£87,000 but it was not approved by shareholders until the AGM in June 2004. Asthe dividend was not approved as at 31 December 2003, it has been excluded fromthe opening IFRS balance sheet. vi. IAS 14 - segment information Segmental reporting is addressed within IAS 14 Segment Reporting, which requiresthe entity to look at its organisational structure and internal reporting systemto identify reportable segments for external financial reporting purposes. Parity's primary business segments comprise IT and business services (BusinessSolutions), Training, and technology staffing (Resourcing Solutions). Theimpact of IAS 14 will result in some subtle changes to the way Parity haspreviously reported under UK GAAP. Under UK GAAP, Parity reported the resultsof its US business, 'Parity Americas' and Resourcing Solutions -mainland Europe as separate primary business segments. These businesses arepredominantly technology staffing companies and as such will now be includedwithin the Resourcing Solutions business segment. Geographical segments areParity's secondary reporting format and it is likely that the technologystaffing business in Germany will require separate disclosure due tomateriality. As required by IAS 14, Parity's full year IFRS financial statements at 31December 2005 will also include details of assets, liabilities, capitalexpenditure, depreciation and other non-cash income statement items by businesssegment and capital expenditure and assets by geographical segment. This information is provided by RNS The company news service from the London Stock Exchange