Interim Results

Embargoed for 07.00 15th September 2004 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 2004. Group Summary * Group turnover from continuing businesses up 14.5% at Â£90.3 million (1H/03: Â£78.9 million) * Operating profit before goodwill amortisation and discontinued operations of Â£500,000 (1H/03: loss of 939,000) * Operating profit after goodwill amortisation and discontinued operations of Â£185,000 (1H/03: loss of Â£4.5 million) * Retained profit before tax of Â£14,000 (1H/03: loss Â£13.8 million) * Operating cash outflow after discontinued operations only Â£571,000 despite working capital increase caused by 18% growth in consultants on billing in Resourcing Solutions UK * Continued success in implementation of stated strategy * + Five-year ICI contract announced on 7 September is second major win in HR Business Process Outsourcing + Cabinet Office BPM contract extended for two years to 1 April 2010 + Premiere 2 graduate management development contract for Northern Ireland government retained for minimum of two years in competitive re-tender * Central costs reduced by 10.2% at Â£1.5 million (1H/03: Â£1.6 million) Divisional highlights Business Solutions * Revenues flat at Â£11.7 million (1H/03: Â£11.6 million) * Operating profit* increased by 51.6% (Â£914,000) against 1H/03 (Â£603,000) through higher staff utilisation and focus on winning profitable contracts * New Sales Director appointed and sales team built up in 1H * Order book steady but pipeline now building Training * UK market leader in IT Training for 2004, from seventh in 2002 and second in 2003 based on annual survey by IT Skills Research Group * Revenues Â£12.3 million down 3.7% (1H/03: Â£12.8 million) * Operating at breakeven* in 1H (1H/03: profit of Â£157,000) as over-capacity in market produced losses for almost all the major players in IT training * Traditionally strong second half being supported by considerable increase in sales resource but timing of revenue is an issue Resourcing Solutions - UK * Revenue up 43.9% at Â£45.5 million (1H/03: Â£31.6 million) * Operating profit* Â£737,000 (1H/03: Â£94,000) * Fastest growth in consultants on billing in over seven years - 18% in first six months * Permanent recruitment revenues grew by 32.9% at Â£469,000 (1H/03: Â£353,000), providing a significant contribution to the improvement in profitability - Mainland Europe * Revenue of Â£13.2 million (1H/03: Â£14.3 million), down 7.1% at actual exchange rates * Core business revenue growth of 2.7% excluding one-off contract in 1H/03 * Significant increase in operating profit* at Â£194,000 (1H/03: Â£20,000) * New contracts announced in March now generating revenue and profit Americas * Revenue of Â£7.7 million (1H/03: Â£8.7 million), down 12.1% at actual exchange rates, 1.3% at constant exchange rates * Significant increase in operating profit* at Â£100,000 (1H/03: loss Â£ 197,000) * New sales resources in first half starting to show benefit despite slow start up * Before goodwill amortisation and discontinued operations in current period and before exceptional items in prior periods Commenting on the results, Parity CEO Ian Miller said: 'Parts of our market are clearly improving while others are still proving slow to recover. The staffing businesses in the UK and mainland Europe are both performing strongly and are significantly better than at the same point last year. We are confident that improvement will be maintained through the rest of the year. Business Solutions continues to improve utilisation and profitability by focusing on those sales opportunities that play to its strengths. Our Training business is now the UK market leader, but over capacity in this market means that the first half produced only a break-even position. We have made a significant investment in the sales resource and have put in place a number of marketing initiatives. The focus for the second half will be on getting the traditional seasonal upturn in public training and on gaining further market share, but timing is an issue. Our Americas Business Unit maintained profitability throughout the first half but was affected by the sluggish economy in the US and exchange rates. It should be able to improve on that position in the second half. Overall we have made good progress in the first half and profitability is far better than at the same point last year. First half revenue is up 14.5%, and operating profit before goodwill amortisation and discontinued operations is Â£ 500,000 compared to a loss of Â£939,000 in the first half of 2003. Despite being the UK market leader in training, we have not yet seen the normal and anticipated seasonal uplift in the order book for the last four months of the year, but apart from Training, the Board is comfortable with expectations at the trading level for the other Business Units.' Enquiries: Parity Group plc Telephone 020 7776 0800 Ian Miller, Group Chief Executive Alison Leyshon, Group Finance Director Financial Dynamics Telephone 020 7831 3113 Giles Sanderson Cass Helstrip Notes to Editors About Parity Group plc Parity is a professional services company that helps customers ensure that the right people are in the right roles, using the right technology and the right processes in the right way. Parity has four core competencies: * developing and managing large or complex IT systems, and related consultancy services * management and technology training, and workforce development strategy consulting * providing permanent and temporary staff, and managing related back office activities * managing business processes related to the optimisation of workforce skills and utilisation Parity operates from 30 offices across the UK, mainland Europe and the USA. Customers across the Group include AT&T, BT, Cendant Corp, Citigroup, CSFB, Department for Work and Pensions, HP, HSBC, IBM, ICI, JP Morgan Chase, Shell, National Health Service, Royal Bank of Scotland and Royal Mail. For more information on Parity visit www.parity.net Interim Statement Divisional Performance Six months ended Six months ended Year ended 30 June 2004 30 June 2003 31 December 2003 Profit/ Profit/ Profit/ (loss) (loss) (loss) before before before Turnover taxation Turnover taxation Turnover taxation Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Business Solutions - United Kingdom 11,650 914 11,582 603 23,527 1,530 Training - United Kingdom 12,309 6 12,777 157 25,302 1,410 Resourcing Solutions - United Kingdom 45,468 737 31,590 94 79,544 1,147 - Mainland Europe 13,234 194 14,250 20 27,936 178 58,702 931 45,840 114 107,480 1,325 Americas 7,651 100 8,706 (197) 17,644 1 Operating total before central costs, exceptional items and goodwill amortisation 1,951 677 4,266 Central costs (1,451) (1,616) (2,831) Net interest payable (391) (423) (889) Profit (loss) before tax,goodwill amortisation and exceptional items 109 (1,362) 546 Goodwill amortisation (315) (315) (629) Operating exceptional items - - (5,666) Amounts written off investments - - (724) 90,312 (206) 78,905 (1,677) 173,953 (6,473) Discontinued operations Business Solutions - Mainland Europe - - 1,999 (1,598) 1,999 (1,598) Operating exceptional items - (1,600) (1,600) Loss on termination of operations 220 (8,881) (9,000) Net interest payable - (51) (51) 90,312 14 80,904 (13,807) 175,952 (18,722) Update on Strategy The Group entered the recession in IT Services in 2001 with a number of challenges, including a balance sheet with a large proportion of intangible assets in respect of goodwill arising on acquisitions made at the top of the market, a high level of debt from these acquisitions, and a significant level of overhead. Parity also had a devolved strategy where the Business Units pursued their respective markets individually, with very little cooperation even in shared clients. The strategic and organisational changes since that date have produced a far more focused, coordinated and cost-effective business. However, one of our primary objectives has been to determine whether the Group's combination of businesses had a strategic rationale or whether the individual Business Units would be better operated separately. Over the past three years intra-Group cooperation and teamwork have produced far larger contracts than ever before, many of which the individual businesses would have struggled to win on their own. In addition, we have identified a Group value proposition for the high-growth Business Process Management market in those areas of HR that can benefit from better technology. This requires the skills of all three lines of business and is the niche where the Group is uniquely positioned, even against very large competitors. The Cabinet Office graduate recruitment technology solution was the breakthrough contract, but the recently announced Business Process Management Agreement with ICI is just as strategically important. The performance of our traditional businesses is far stronger than at the Group's low point and the Business Process Management market is opening up to our combination of skills and technology. We believe that there are excellent prospects for us to demonstrate that the Group is worth more than the sum of the parts. Operating Review Business Solutions This Business Unit continued to focus on winning contracts that add measurable value to our clients and offer Parity better margins. As a result, revenue was flat when compared to the previous year but profitability* improved by 51.6%. Staff utilisation was good and overhead costs were carefully managed to ensure the right level of investment in the business to drive profitable growth. During the first half, there has been a significant investment in the sales team with the appointment of a new Sales and Marketing Director in February of this year and a doubling of the account managers to 10 at the end of June 2004. The Business Unit continues its focus on key accounts and longer term contracts and the intention now is to increase the number of sales opportunities being actively pursued to build the order book in the second half and get a stronger start to 2005. Training The market for training continued to be weak throughout the first half and revenue in Training declined by 3.7% year on year, despite Parity winning market share to become the UK market leader (based on the annual survey conducted by IT Skills Research Group). This Business Unit was only marginally profitable* at the half year point. Over capacity in the UK market is depressing prices and, more importantly, spreading too little volume over too many training facilities with fixed operating costs. The result is that few companies in this market are profitable. We have seen several competitors leave the market in the past year and it is likely that, at this stage in the life-cycle of the training industry, we will see further changes to the structure of the supplier base. The second half is traditionally far stronger than the first half for training and this Business Unit has doubled the size of its contact centre and re-organised its field sales force ahead of the key buying season. New initiatives such as e-learning priced by module and supported by trainers, and price discounting, have been put in place. The market is still difficult to read however, and we are reliant on the historic seasonal uplift in trading in the second half, and the successful closure of several large opportunities in the sales pipeline, if this Business Unit is to meet our expectations for the year. Resourcing Solutions UK Revenue increased by 43.9% year on year, with 23.9% of that coming from the contracts transferred from Chimes Inc. in the partnership agreement announced last year and 20.0% from organic growth. The number of IT contractors placed with clients increased by 18% in the six months to 30 June 2004, the highest rate of growth in over seven years. It appears that the market for IT staffing is considerably stronger than it has been for the past three years, but Resourcing Solutions' success in winning and delivering against new Preferred Supplier Agreements has been a major factor in its improved performance. The permanent recruitment contractor division also delivered an excellent performance, increasing revenues by 32.9% to Â£469,000 (1H/03: Â£353,000). Profitability* improved markedly from Â£94,000 in 1H/03 to Â£737,000 as the benefit of higher contractor volumes and increased permanent recruitment revenues fed through to the bottom line. This business continues to experience strong growth in numbers on billing in the second half and permanent recruitment requirements remain steady and we believe this Business Unit is capable of exceeding our previous expectations for the year. Resourcing Solutions is contributing to the Group value proposition of Business Process Management in HR Administration through its management of the contract with ICI announced on 7 September 2004. The synergy between this unit and both Business Solutions and Training is a clear area of differentiation for Parity in the market. Mainland Europe Revenue fell in Euro terms by 6.2% and in Sterling by 7.1%. However, after stripping out the benefit of a large, one-off, short-term contract in 1H/03, which at its peak required over 100 contractors, revenues for the core business grew by 2.7%. Despite the fall in revenue, profitability was much improved compared to prior year because of a 19% reduction in overheads. Operating profit* was Â£194,000 against a breakeven position at June 2003. The unit had several significant sales in the first half, most notably to the T-Systems Division of Deutsche Telecom and to Deutsche Post. These are now benefiting revenue and operating profit and the number of consultants on billing continues to grow. While the overall employment market in mainland Europe still appears to be weak, we are seeing increased demand for both permanent and temporary staffing in France and Germany. The Netherlands and Switzerland have been slower to respond but additional sales resource there is having the expected affect. Closer links to the other parts of the Group are evident through the sales to international key accounts and to a stronger sales pipeline that encompasses training and solutions. We expect to maintain progress in the second half. Americas The market in the US continues to be weak in the regions and sectors that have been the traditional strengths of this unit. Revenue declined by 12.1% in Sterling from 1H/03, though the fall was only 1.3% in US Dollar terms. Despite the fall in revenue, the unit improved profitability through a 25.5% reduction (at constant exchange rates) in overheads. As a result, the Americas business unit produced a profit* of Â£100,000 for the first half of 2004 compared to a loss of Â£197,000 for the same period in 2003. The outlook for the Americas market is still uncertain as weakness in the economy continues into the second half. However, the additional sales resources added to the staffing business are now generating improving sales and we would expect this to show through in the second half of 2004. The unit continues to generate cash and is increasingly adding value to the Group by enabling us to support global clients such as ICI, Citigroup and HSBC. * Operating profit before central costs, goodwill amortisation and discontinued operations in the current period and before exceptional items in prior periods. Financial Performance Group turnover was Â£90.3 million (1H/03: Â£78.9 million, excluding discontinued operations) giving rise to an operating profit before goodwill amortisation of Â£500,000 (1H/03: loss of Â£939,000, before exceptional items and discontinued operations). Operating profit after goodwill amortisation, exceptional items and discontinued operations was Â£185,000 (1H/03: loss of Â£4.5 million). The loss per share before goodwill amortisation, exceptional items and discontinued operations was 0.05p (1H/03: loss per share 0.77p). After goodwill amortisation and a Â£0.2m recovery in respect of discontinued operations, the profit for the period before taxation was Â£14,000 (1H/03: loss of Â£13.8 million, after discontinued operations and exceptional items) and the basic loss per share was 0.08p (1H/03: loss per share 7.39p). Loss per share figures for 1H/03 have been adjusted to reflect the 7 for 8 rights issue that took place in 2H 2003. Tax The tax charge for the period was Â£250,000 (1H/03: Â£79,000) against Group profit before tax and goodwill amortisation of Â£329,000 (1H/03: loss of Â£13.5 million). The charge has been calculated based on the profits of the individual operating companies for the current period, at the estimated statutory tax rates for the countries in which they are registered. A tax credit was booked in the Profit and Loss Account in 2003 in respect of trading losses in that period and the utilisation of these losses should result in a minimal cash outflow in respect of tax for the year. Â£129,000 of the current tax charge for the period arises in the UK as tax relief for central costs is restricted because UK trading companies must first utilise their own brought forward trading losses. Cash Flow and Net Debt The net cash outflow from operating activities, including discontinued operations and exceptional items, was Â£571,000 during the period (1H/03: outflow of Â£2.1 million). This included a cash inflow of Â£220,000 relating to a recovery in respect of discontinued operations and an outflow of Â£932,000 relating to prior period restructuring initiatives. Net debt as at 30 June 2004 was Â£12.6 million, a modest increase of Â£565,000 compared to 31 December 2003, despite an increase of 18% in the number of contractors on billing in Resourcing Solutions UK. Efforts continue to be focused on minimising the adverse working capital impact of growing numbers on billing in the Resourcing Solutions business. Pension Charge The Group operates a Defined Benefit Pension Plan ('the Plan') which has been closed to new members since 1995 and has 29 active members. In accordance with UK legislation, the Plan's assets and liabilities must be revalued by an actuary every three years. The last official actuarial valuation was carried out as at 5 April 2001 and accordingly a new valuation was commissioned as at 5 April 2004. A draft valuation at this date has now been received from the actuary, but is not yet finalised and no adjustment has therefore been booked in the Interim accounts to reflect the impact on the charge to the Profit and Loss Account. However, assuming that the draft valuation is approved, the pensions charge, calculated in accordance with generally accepted accounting policies in the UK (UK GAAP), will increase by an amount of up to Â£300,000 in the second half of the year. The charge to the Profit and Loss Account in respect of the Plan in 2005 will be calculated under International Accounting Standards (IAS) using a different set of valuation assumptions to UK GAAP. An update of the likely impact of IAS on the Group's results as a whole will be issued in the next few months. Dividend In line with the Board's decision to pay only a full year dividend in respect of 2003, no interim dividend is proposed (2003: Â£nil per share). Outlook Parts of our market are clearly improving while others are still proving slow to recover. The staffing businesses in the UK and mainland Europe are both performing strongly and are significantly better than at the same point last year. We are confident that improvement will be maintained through the rest of the year. Business Solutions continues to improve utilisation and profitability by focusing on those sales opportunities that play to its strengths. Our Training business is now the UK market leader, but over capacity in this market means that the first half produced only a break-even position. We have made a significant investment in the sales resource and have put in place a number of marketing initiatives. The focus for the second half will be on getting the traditional seasonal upturn in public training and on gaining further market share, but timing is an issue. Our Americas Business Unit maintained profitability throughout the first half but was affected by the sluggish economy in the US and exchange rates. It should be able to improve on that position in the second half. Overall we have made good progress in the first half and profitability is far better than at the same point last year. First half revenue is up 14.5%, and operating profit before goodwill amortisation and discontinued operations is Â£ 500,000 compared to a loss of Â£939,000 in the first half of 2003. Despite being the UK market leader in training, we have not yet seen the normal and anticipated seasonal uplift in the order book for the last four months of the year, but apart from Training, the Board is comfortable with expectations at the trading level for the other Business Units. Group Profit and Loss Account Six months Six months Year ended ended 30 June ended 30 31 December June 2004 2003 2003 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) TURNOVER - Continuing operations 90,312 78,905 173,953 - Discontinued operations - 1,999 1,999 90,312 80,904 175,952 Operating costs before goodwill amortisation and exceptional items (89,812) (83,441) (176,115) Goodwill amortisation (315) (315) (629) Exceptional items - (1,600) (7,266) Operating costs (90,127) (85,356) (184,010) OPERATING PROFIT (LOSS) - Continuing operations 185 (1,254) (4,860) - Discontinued operations - (3,198) (3,198) 185 (4,452) (8,058) Gain (loss) on termination of operations 220 (8,881) (9,000) Amounts written off investments - - (724) Net interest payable (391) (474) (940) Profit (loss) on ordinary activities before goodwill amortisation, exceptional items and taxation 109 (3,011) (1,103) Goodwill amortisation (315) (315) (629) Exceptional items - Operating exceptional costs - (1,600) (7,266) - Gain (loss) on termination of operations 220 (8,881) (9,000) - Amounts written off - - (724) investments PROFIT (LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION 14 (13,807) (18,722) Taxation (charge) credit on ordinary activities (250) (79) 3,117 LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (236) (13,886) (15,605) Ordinary dividends on equity - - (87) shares RETAINED LOSS FOR THE FINANCIAL PERIOD (236) (13,886) (15,692) LOSS PER ORDINARY SHARE - Basic (0.08)p (7.39)p (7.70)p - Diluted (0.08)p (7.39)p (7.70)p (LOSS) PROFIT PER SHARE BEFORE GOODWILL AMORTISATION, DISCONTINUED OPERATIONS AND EXCEPTIONAL ITEMS - Basic (0.05)p (0.77)p 1.04p - Diluted (0.05)p (0.77)p 1.04p The difference between recognised gains and losses reported in the profit and loss account and the total recognised gains and losses for the period amounts to a loss of Â£434,000 in respect of currency translation differences. Group Balance Sheet 30 June 31 December 30 June 2003 2003 2004 Â£'000 Â£'000 Â£'000 Restated+ Restated+ (unaudited) (unaudited) (audited) FIXED ASSETS Intangible assets 9,301 9,930 9,616 Tangible assets 2,210 3,468 2,586 Investments 30 729 30 11,541 14,127 12,232 CURRENT ASSETS Stock - work in progress 1,071 - 561 Debtors - due within one year 43,487 39,632 40,550 - due after more than one year 3,476 - 3,418 Cash at bank and in hand 1,463 2,554 3,241 49,497 42,186 47,770 CREDITORS: amounts falling due within one year Other creditors (34,763) (48,575) (30,942) NET CURRENT ASSETS (LIABILITIES) 14,734 (6,389) 16,828 TOTAL ASSETS LESS CURRENT LIABILITIES 26,275 7,738 29,060 CREDITORS: amounts falling due after more than one year (9,549) - (11,058) PROVISIONS FOR LIABILITIES AND CHARGES (3,894) (1,466) (4,500) NET ASSETS 12,832 6,272 13,502 CAPITAL AND RESERVES Called up share capital 14,434 7,698 14,434 Capital redemption reserve 50 50 50 Share premium account 6,062 3,729 6,062 Other reserves 44,110 44,026 44,110 Profit and loss account (51,824) (49,231) (51,154) EQUITY SHAREHOLDERS' FUNDS 12,832 6,272 13,502 + Prior year comparatives have been restated to reflect the adoption of UITF Abstract 38, Accounting for ESOP Trusts (see note 1) Group Cash Flow Statement Six months Six months Year ended ended 30 ended 30 31 December June June 2004 2003 2003 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) NET CASH FLOW FROM OPERATING ACTIVITIES BEFORE EXCEPTIONAL ITEMS 361 (105) (385) EXCEPTIONAL ITEMS (932) (2,032) (4,050) NET CASH FLOW FROM OPERATING ACTIVITIES (571) (2,137) (4,435) RETURN ON INVESTMENTS AND SERVICING OF FINANCE Interest received 33 5 46 Interest paid (417) (546) (1,066) NET CASH OUTFLOW FROM RETURN ON INVESTMENTS AND SERVICING OF FINANCE (384) (541) (1,020) TAXATION RECEIVED (PAID) 692 (61) (164) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Purchase of tangible fixed assets (230) (366) (509) Sale of tangible fixed assets - 19 27 Additions to fixed asset investments - - (25) NET CASH OUTFLOW FROM CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (230) (347) (507) EQUITY DIVIDENDS PAID - - (90) NET CASH OUTFLOW BEFORE FINANCING (493) (3,086) (6,216) FINANCING Issue of ordinary share capital - - 10,104 Expenses of share issue (56) - (979) Proceeds on sale of nil paid rights in Employee Benefit Trust - - 84 Repayment of loan notes - (7) (14) (Decrease) increase in borrowings (679) 2,500 (1,719) Repayment of capital element of finance lease obligations (10) - (14) NET CASH OUTFLOW FROM FINANCING (745) (2,493) 7,462 (DECREASE) INCREASE IN CASH IN THE PERIOD (1,238) (593) 1,246 Reconciliation of Net Cash Flow to Movement in Net Debt Â£'000 Decrease in cash in the period (1,238) Decrease in bank loans and other bank borrowings 679 Repayment of obligations under finance leases 10 Exchange movements (16) Movement in net debt in the period (565) Net debt at 1 January 2004 (12,037) Net debt at 30 June 2004 (12,602) Analysis of Net Debt 1 January Cash Exchange 30 June 2004 Flow movements 2004 Â£'000 Â£'000 Â£'000 Â£'000 Cash at bank and in hand 3,241 (1,681) (97) 1,463 Overdrafts (1,848) 443 - (1,405) 1,393 (1,238) (97) 58 Bank loans (11,000) 1,500 - (9,500) Other bank borrowings (2,339) (821) 81 (3,079) Obligations under finance leases (77) 10 - (67) Variable rate loan notes - 2004 (14) - - (14) Net debt (12,037) (549) (16) (12,602) Reconciliation of Operating Profit (Loss) to Net Cash Flow Six months Six months Year ended ended ended 30 June 30 June 31 December 2004 2003 2003 Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Operating profit (loss) 185 (4,452) (8,058) Operating exceptional items - 1,600 7,266 185 (2,852) (792) Depreciation of intangible assts 600 1,023 1,680 Amortisation of intangible assets 315 315 629 Loss on disposal of tangible fixed - 260 2 assets Increase in stock (510) - (561) (Increase) decrease in working capital (603) 2,378 (946) Increase (decrease) in provisions 154 (714) 118 Net cash from operating activities before discontinued operations and exceptional items 141 410 130 Cash flows from discontinued 220 (515) (515) operations Net cash flow from operating activities before exceptional items 361 (105) (385) Reconciliation of Movements in Shareholders' Funds Six months Six months ended Year ended ended 30 June 31 December 30 June 2003 2003 2004 restated restated Â£'000 Â£'000 Â£'000 (unaudited) (unaudited) (audited) Loss on ordinary activities after (236) (13,886) (15,605) taxation Ordinary dividends on equity shares - - (87) Retained loss (236) (13,886) (15,692) Other recognised (losses) earnings (434) 292 175 Shares issued net of issue costs - - 9,069 Gain on sale of nil paid rights in Employment Benefit Trust - - 84 Reversal of goodwill written off directly to reserves - 8,706 8,706 Net (decrease) increase in shareholders' funds (670) (4,888) 2,342 Opening shareholders' funds as previously stated 13,950 11,608 11,608 Prior year adjustment (note 1) (448) (448) (448) Opening shareholders' funds as 13,502 11,160 11,160 restated Closing shareholders' funds 12,832 6,272 13,502 Notes to the Accounts Basis of Preparation 1. The financial information above and the notes thereto, for the six months ended 30 June 2004 have not been audited but has been reviewed by PricewaterhouseCoopers LLP and their report is set out below. The financial information has been prepared on the basis of the accounting policies set out in the Group's statutory accounts for the year ended 31 December 2003, which have been delivered to the Registrar of Companies, except that UITF Abstract 38 Accounting for ESOP Trusts has been adopted for the first time in this interim statement. This has resulted in a reclassification of own shares of Â£448,000 at 1 January 2004, 30 June 2003 and 31 December 2003 from investments to equity shareholders' funds. The auditors' report on the Group's statutory accounts for the year ended 31 December 2003 was unqualified and did not contain a statement under section 237 of the Companies Act 1985. The information contained in this interim statement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. 2. Operating profit Six months Six months Year ended ended ended 30 June 30 June 31December 2004 2003 2003 Â£'000 Â£'000 Â£'000 Operating profit (loss) per Profit and Loss 185 (4,452) (8,058) Account Goodwill amortisation 315 315 629 Operating impact of discontinued operations - 3,198 3,198 Other operating exceptional items - - 5,666 Operating profit before goodwill amortisation, discontinued operations and exceptional items 500 (939) 1,435 3. Discontinued operations relate to the results of Parity Solutions BV which was closed on 13 June 2003. Exceptional costs relating to the termination of this operation, including Â£8,706,000 previously written off to reserves, were Â£ 8,881,000 in the six months ended 30 June 2003, Â£9,000,000 for the year ended 31 December 2003 and a recovery of Â£220,000 in the current period. 4. Exceptional costs before discontinued operations were incurred in respect of the following items: Six months Six months Year ended ended ended 31 30 June 30 June December 2004 2003 2003 Â£'000 Â£'000 Â£'000 Restructuring of operations Redundancy payments1 - - 1,163 Property restructuring2 - - 2,723 Other2 - - 363 4,249 Property dilapidations2 - - 551 Aborted transaction costs2 - - 184 SSAP 24 pension charge1 - - 682 Operating exceptional costs before discontinued operations - - 5,666* Amounts written off investments - - 724 Total exceptional costs before discontinued - - 6,390 operations 1Classified as staff costs under Companies Act 1985 2Classified as other operating costs under Companies Act 1985 * Total operating exceptional costs, including Â£1,600,000 for discontinued operations arising in 1H/03, were Â£7,266,000 A segmental analysis of exceptional costs for the year ended 31 December 2003 are set out below: Â£'000 Business Solutions - United Kingdom 1,793 Training - United Kingdom 710 Resourcing Solutions - United Kingdom 1,836 - Mainland Europe 33 Americas 220 Central costs 1,798 6,390 5. The tax charge for the period has been calculated based on the forecast Group effective tax rate, before goodwill amortisation, for the year as a whole. No adjustment has been made in respect of prior year computations as the 2003 computations have not yet been finalised. 6. The calculation of the loss per Ordinary share is based on a loss after taxation and goodwill amortisation of Â£236,000 (30 June 2003: Â£13,886,000 loss, 31 December 2003: Â£15,605,000 loss). The calculation of the loss per share before goodwill amortisation, and discontinued operations is based on a loss after taxation of Â£141,000 (30 June 2003: Â£1,442,000 loss, 31 December 2003: Â£ 2,100,000 profit). Supplementary basic and diluted earnings per share have been calculated to exclude the effect of goodwill amortisation and exceptional items. The adjusted numbers have been provided in order that the effects of goodwill amortisation and exceptional items on reported earnings can be fully appreciated. Earnings per ordinary share for the six months ended 30 June 2003 has been restated to take into account a deemed change in the weighted average number of shares resulting from the rights issue completed during 2003. The weighted average number of Ordinary shares used in the calculation of the basic and diluted loss per share are as follows: Six months Six months Year 2004 2003 2003 average average average number number number restated i) Basic weighted average number of shares Shares in issue 288,691,692 190,593,175 205,375,143 Adjustment for shares held by ESOP (2,756,238) (2,756,238) (2,756,238) 285,935,454 187,836,937 202,618,905 ii) Diluted weighted average number of shares Shares in issue 288,691,692 190,593,175 205,375,143 Adjustment for share options 930,286 - 46,783 Adjustment for shares held by ESOP (2,756,238) (2,756,238) (2,756,238) 286,865,740 187,836,937 202,665,688 Independent Review Report to Parity Group plc Introduction We have been instructed by the Company to review the financial information which comprises the profit and loss account, the balance sheet, the cash flow statement, the reconciliation of movements in shareholders' funds and the related notes to the accounts. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/ 4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of Group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Listing Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2004. PricewaterhouseCoopers LLP Chartered Accountants London 15 September 2004

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