Final Results
Parity Group PLC
14 March 2007
14 March 2007
Embargoed until 07.00am 14.03.07
PARITY GROUP PLC
2006 Preliminary Results
Parity returns to operating profit and revenue growth
Parity Group plc ('Parity' or 'the Group'), a leading UK IT services group
announces its preliminary results for the year ended 31 December 2006.
Financial Highlights
* Group turnover from continuing operations up 16% to £156.8m (2005:
£135.1m)
* Operating profit before exceptional items and goodwill impairment £1.4m
(2005: loss of £1.9m)
* Reported operating profit £0.8m (2005: loss of £6.7m)
* Reported loss before tax (for continuing operations) £0.8m (2005: loss of
£8.6m)
* Profit after tax (after discontinued operations) £0.8m (2005: loss of
£9.2m)
* Net debt at year end reduced by 70% to £5.7m (2005: £19.1m)
* Balance sheet successfully strengthened, and further progress made on
property disposals, exits and sub-leases resulting in cash savings
* Earnings per ordinary share on profit for the year 2.99p (2005: loss
129.73p)
Operational Highlights
* Resources grew ahead of market rate, with revenues up 24%, operating
profit (before exceptionals) up 65% and improved margins
* Solutions returned to profit, and experienced strong growth in H2, with
revenue increasing by 38% from H1 to H2, and order book built for delivery
in 2007
* Training transitioned from significant loss in 2005 to operating profit
(before exceptionals and goodwill impairment) of £0.3m (2005: loss £1.2m),
through growth in soft skills business and cost reductions
* Completion of overseas disposal programme
* Sales, General and Administrative (SG&A) costs reduced by 13%
Commenting on the results, Parity Chairman John Hughes said:
'2006 has been a year of very substantial progress for the Group. The move to a
UK-centric strategy was successfully completed in the first half of the year and
the actions taken in 2005 to drive down UK costs delivered the expected
benefits. The initiatives undertaken during 2006 have resulted in major
operational performance improvements in each of our three areas of business, a
significantly stronger balance sheet, a quality team of operational business
leaders and strong on-going relationships with our customers.'
Alwyn Welch, Chief Executive Officer, added:
'The Group has made very substantial progress over the last year. This growth is
evidence of our market focus and alignment, and the skills and professionalism
of all those who identify, win and deliver business.'
Enquiries:
Parity Group PLC 020 7832 3500
John Hughes, Chairman
Alwyn Welch, Chief Executive Officer
Hogarth Partnership Limited 020 7357 9477
John Olsen/Sarah Richardson
Notes to editors:
About Parity Group plc
Parity Group PLC is a UK-focused IT services company, operating via three core
business units - Parity Resources, Parity Solutions and Parity Training.
Parity Resources is a leading IT recruitment specialist, with over 30 years
experience in providing permanent and contract technology staff, temporary staff
and managed recruitment services across all markets.
Parity Solutions specialises in providing IT, Projects and Consulting, using
leading edge technologies and drawing upon the depth of experience of its
consultants in Programme and Project Management.
Parity Training is one of the UK's leading Management and IT training providers.
In addition to a comprehensive schedule of public courses, Parity delivers
tailored learning solutions and customised programmes for major clients.
Parity is listed on the London Stock Exchange, with a ticker of PTY.LN.
Chairman's Statement
2006 has been a year of substantial progress for the Group. The move to a
UK-centric strategy was completed in the first half of the year and the actions
taken in 2005 to drive down UK costs delivered the expected benefits.
Importantly all three of our business units returned to operating profitability
with strong growth achieved in both Resources and Solutions.
The strengthened leadership team under the direction of Alwyn Welch has made
substantial progress in improving operations, getting closer to the customers
and strengthening our sales and marketing capabilities. The actions taken across
the business to improve our go-to-market capabilities have demonstrated success,
not least in Solutions where new order growth was achieved for the first time in
a number of years, resulting in revenue growth, an increased order book and a
significant improvement in operating profitability. Training, where our focus
was on returning the business to profitability rather than striving for growth,
also delivered the improvements we sought. Our plan to improve margins and hence
profitability in Resources whilst still growing revenues at an above market rate
has also borne fruit.
We continue to take actions to reduce the burden of excess property, the benefit
of which has shown in the 2006 financials and is expected to deliver further
improvements in future periods. We shall continue to drive out costs wherever we
can while at the same time improving our new orders rate and ensuring that we
continue the quality delivery on which our brand is founded.
The fund raising completed in 2006 substantially strengthened our balance sheet
facilitating one of our key objectives which remains to drive the entire
business to sustainable positive operating cash flow.
Market conditions lead us to believe that the performance improvements we have
seen should continue in 2007, thanks to the skilled resources we provide, the
number and type of projects underway and our initiatives to increase the higher
value added elements of all our businesses. We are seeing good opportunities for
Parity in early 2007 and believe that we are well positioned in a market which
continues to grow, albeit modestly. While the challenges of the training market
have had some impact on the rate of our recovery, the changes made in both the
cost structure and the improvement in focus and sales channels should improve
our position relative to 2006. In the Solutions business the outlook for future
growth both in revenue and profitability terms remains positive and our
Resources activity will focus on remaining nimble whilst driving better returns
from the business, albeit perhaps with a slowing rate of revenue growth.
Today we can reflect on major operational improvements in each of our three
areas of business, a significantly stronger balance sheet, a first rate Chief
Executive and high quality team of business unit heads and an on-going strong
relationship with our customers. In the context of the progress made by the new
management team and the future needs of the business, my Board colleagues and I
have agreed that it would now be appropriate to put in place a Board structure
led by a Non-Executive Chairman for whom we have already initiated a search
process. I look forward to continuing to serve the company as Deputy Chairman
and to contributing to the continued creation of shareholder value - I intend to
focus on specific aspects of corporate development and very particularly in
supporting the leadership team on strategic sales and marketing initiatives. I
believe the steps outlined above will underpin what we all perceive to be a
positive outlook for the Group in 2007 and beyond.
John Hughes
Executive Chairman
Chief Executive's Review
Introduction
Parity has been working through a very significant transformation for more than
18 months. The strategy outlined, and actions commenced in 2005 have been
instrumental in returning the Group to growth and real profitability. Much work
still remains to be completed, but we have now laid the foundations for a more
soundly based business in the future. The Group has exited 2006 with each
business unit in profit, a lower cost base and a clear vision of where it needs
to be focused in the market.
With strong support from shareholders we have significantly reduced debt and,
despite the need to fund restructuring, through good cash management we have
funded a modest investment in future product offerings and in our people.
Finally we completed the disposal of all overseas operations during the first
half of the year, so Parity is today a business exclusively operating in the UK
and Irish marketplace.
Group revenues, from continuing operations, grew 16% to £156.8m (2005 £135.1m)
due to strong growth in Resources throughout the year and in Solutions in the
second half. Operating profit (*before exceptional items and impairment of
goodwill) has shown sustained improvement each half year starting in 2005 and
accelerating in 2006. For the year Operating profit (*) of £1.4m was a
substantial improvement of £3.3m over 2005, with all business units delivering
good margin improvement. This, combined with reducing Sales, General and
Administrative (SG&A) costs and interest payments, helped deliver a profit
before tax in the second half of 2006 (the first such profit from the operations
since H1 2004).
Resources
Parity Resources delivered strong growth for the third year running. Revenue
increased 24%, to £114.5m (2005: £92.4m). This was due to good progress in the
public sector combined with contract extensions in the commercial market.
Operating profit (before exceptionals) increased by 65% to £2.7m. Price pressure
in certain large commercial clients was offset by volume growth from public
sector clients and controlled growth in SG&A costs.
Permanent recruitment was less satisfactory, in a strong market, and this had a
dilutive impact on margins. However we started to invest in re-building the
Permanent team in the second half, and this together with a re-orientation of
the Spot market team is expected to show returns during 2007. Delivering
sustainable margin improvement remains a high priority in this business unit
with further work to achieve this in 2007.
Sales successes in the year included the Government's Catalist buying framework
for both Specialist Contractors and Interim Managers; and good wins at public
sector organisations such as the Department for Constitutional Affairs,
Department of Work and Pensions and NHS Services for Scotland, as well as
several local Government organisations. In the commercial domain we achieved
wins and extended or renewed contracts at organisations as diverse as Shell, BT,
MBNA and the FSA. We believe that our strength and quality in delivery,
especially of our focused skills, were critical to building this strong client
base.
Solutions
Parity Solutions saw an impressive transition during the year. We entered the
year with a weak order book, and declining business, principally due to an
unacceptable sales performance in prior periods. Consequently we made a number
of important management changes in this business unit, with a particular focus
on tight control in the short-term whilst building a strong sales team.
Revenue for the year grew by 6% to £23.9m (2005: 22.6m), and more significantly,
and as a direct result of these people changes, revenue in the second half grew
by 33% over H2 2005, to £13.9m. This was a sequential growth of 38% over the
first half of 2006. Despite the re-building of our sales capability, we reduced
SG&A costs by 18% in 2006. The combination of these successes resulted in a 3.2%
margin improvement over 2005, bringing this business unit back to profit, and in
H2 we delivered 5% margin.
We have an excellent reputation for the delivery of technology projects, and
this underpinned our sales improvement as well as the turnaround in profits. We
also have a project management culture that combines strong delivery with a way
of working with clients that is much more cooperative than many of our
competitors, and this serves as a clear differentiator. These factors were very
material in helping us win a £15m plus fixed price contract with Northern
Ireland Electricity, to support the deregulation of the Irish electricity
market. This involves managing a number of large sub-contractors, and meeting
tight deadlines. We are making good progress in the main part of this contract
where work started in October.
We are also establishing a strong position in the new Microsoft Sharepoint
server 2007 technology, particularly for building web portals, winning projects
in the £300k-£1.5m range with clients mainly in the Public Sector. We will
continue with this focus during 2007, with an intention to build a leading
position in this area. We will also focus on growing the level of 'annuity'
business in our Solutions mix, where we have small but long term contracts for
the delivery of applications and business process management services.
Training
Parity Training has enjoyed its best trading performance since 2003. Again we
have made significant changes to strengthen the management team, and worked hard
to reduce the cost base and make more costs directly related to revenue. We have
also directed our sales to reinforce our leading position in the areas of
project, programme and service management training. These are all soft skills,
closely related to IT, and where we are seeing good growth in the market.
Changing the mix in this business unit, combined with the actions taken on cost,
is the way that we will drive margins up to target levels.
With this focus, revenue for the year declined by 8% to £18.4m (2005: £20.0m).
However we turned an operating loss (before exceptionals and goodwill
impairment) of £1.2m in 2005 into a profit of £0.3m in 2006, with a 7.2% margin
swing in the second half compared to the same period in 2005 as the mix change
started to show through in the growth of our public courses and in gross margin.
We reduced SG&A costs by £2.6m from 2005 to 2006, despite strengthening our
sales capability.
Approximately 50% of the total costs of this business are variable and directly
related to revenue, which is providing resilience to changing trends in the
market, but with some negative impact on the margins we can achieve in periods
of high demand. We will also concentrate our delivery more on our areas of high
differentiation and market strength, whilst continuing to offer a full service
to clients.
An increasingly important target market for us are the larger IT Systems
Integrators and IT and Business Process Outsourcers. For example we have won
contracts with Xchanging, and train staff from many of the market leaders. We
are also delivering larger, longer term training programmes, larger longer term
contracts, where our expertise in developing specialised and custom training
content is combined with managing the logistics of these large and complex
training programmes.
SG&A Costs
Sales, general and administrative (SG&A) costs are defined as total operating
costs less cost of sales and before exceptional costs and goodwill impairment.
Overall SG&A costs for continuing businesses reduced from £34.2m in 2005 to
£29.7m in 2006. Much of this reduction was due to the restructuring actions
initiated in 2005 and continued in 2006 reflecting headcount reductions,
renegotiation of IT support, and property rationalisation.
We now manage most business infrastructure costs centrally, including
facilities, IT, accounting, legal and contracts and HR. Again these costs are
being tightly managed, whilst we expect the level of service delivered to
business units to be sustained or improved. Central costs represent those costs
that would not be required for standalone operation of the business units.
Property costs reduced by £1m from 2005 to 2006, with the closing or sub-letting
of properties in Bristol, London, Antrim and Manchester during the year. We are
moving to a new facility in Belfast and closing the Holborn Circus office early
in 2007 moving the Group's headquarters to Wimbledon where it will more closely
integrate with the business units. These and other actions will create further
property cost savings in future years.
These property changes, and starting to replace older and in some cases obsolete
ICT equipment, have required a modest increase in capital expenditure during
2006 and this will continue but only at an affordable rate.
Net Debt
As noted in the 2005 Annual Report, the Group's net debt reduced significantly
following the successful Share Placing and Open Offer in April 2006. This raised
£14.6m net of expenses, to which was added a net £4.6m from the sale of the
former operations in Europe.
Through good management of working capital, especially debtors and payment
terms, we kept a close focus on cash. We also moved banking facilities, with
more advantageous terms, to RBS during July.
Restructuring
Apart from costs incurred or provided for as part of the disposal of non-UK
operations, we needed to make one exceptional restructuring charge of £600,000
in H1 2006. This was for onerous rent on the Fleet facility where it became
apparent that the market rate for this type of property in that location was
lower than we had been advised at the end of 2005.
Focus
Each Parity business unit focuses on the areas of project, programme and service
management. This is a market area where demand is good, and consequently there
are shortages of experienced people. Our reputation for quality delivery in all
that we do, together with a favourable market, is helping us to execute the
transformation of our Group.
Parity's near-term strategy is to continue the improvement in business
performance, to achieve our mid-term goal of upper quartile financial
performance. We are concentrating on the UK and Ireland market, keeping to our
core strengths and leveraging our strong reputation for high quality delivery.
We see a number of opportunities to aid that improvement, and whilst we do not
intend to stray from our core business, we will react quickly and decisively to
changes and opportunities in the market.
Within the business, we are creating a high performance culture, where we set
stretching goals and expect a high level of achievement. We also expect to
operate a predictable and controlled business, allowing entrepreneurial
management to flourish whilst being close to the operations and clients.
People
During 2006 we started the process of revitalising the way we manage our people.
For example, as part of our internal communication processes, I now have regular
face-to-face, two-way meetings with all staff; we re-launched our Performance
Plus assessment system and linked the individual outcome to salary changes; and
we have started to review and update our benefits scheme.
Outlook
The Group has made substantial progress over the last year. Overall we are
delivering above market organic growth rates. This growth is evidence of our
market focus and alignment, and the skills and professionalism of all those who
identify, win and deliver business.
We have started 2007 in far better shape than at the start of 2006 and while
work remains to be done to deliver the anticipated margin improvements,
particularly in Resources, we are well positioned to continue the on-going
business improvement.
Alwyn Welch
Chief Executive Officer
Financial Review
The Group's recovery is now well underway and the financial performance has
improved significantly with all units now generating a profit. The
transformation actions have delivered substantial cost savings and we have
disposed of all overseas operations to focus on three core UK businesses.
Following the fund-raising Parity now has a strengthened balance sheet and new
banking facilities to support further growth.
Group Trading Summary
-------------------------------- -------- ---------
2006 2005
£'000 £'000
-------------------------------- -------- ---------
Revenues 156,845 135,073
Operating profit (loss) before exceptional items 1,377 (1,895)
and impairment of goodwill
Exceptional operating expense (600) (2,290)
Impairment of goodwill - (2,500)
Net finance expense (1,551) (1,935)
Loss before tax (774) (8,620)
Tax (197) 576
Loss for the year from continuing operations (971) (8,044)
Profit (loss) for the year from discontinued operations 1,804 (1,178)
-------------------------------- -------- ---------
Profit (loss) for the year 833 (9,222)
-------------------------------- -------- ---------
Revenues
Group revenues from continuing operations increased by £21.8m (16%) to £156.8m
and are analysed by business unit below:
-------------------------------- --------- ---------
Business unit 2006 2005
£'000 £'000
--------- ---------
Resources 114,517 92,442
Solutions 23,922 22,587
Training 18,406 20,044
-------------------------------- --------- ---------
Total 156,845 135,073
--------- ---------
Resources continued to see strong demand for its services with an increase in
heads on billing and an increase in day rates driving 24% growth in revenues.
Growth was slower in Solutions reflecting the weak order book at the start of
the year, however revenues increased by 38% in H2 06 over H1 06 as the
strengthened management team began to have an impact. Training refocused on
profitable revenue streams and whilst revenues declined 8%, the business was
profitable in the year.
Operating Profit
Performance by business unit is summarised below:
-------------------------------- --------- ---------
2006 2005
£'000 £'000
-------------------------------- --------- ---------
Resources 2,710 1,647
Solutions 778 21
Training 308 (1,161)
-------------------------------- --------- ---------
Operating results* 3,796 507
-------------------------------- --------- ---------
* before central costs, exceptional items and goodwill impairment.
Operating results from the business units increased by £3.3m and all units made
a profit. Resources continued to deliver strong profit growth, whilst Solutions
and Training saw significant turnaround with both businesses showing strong
profit improvement. The Group produced an operating profit of £1.4m, before an
exceptional item (see below), an improvement of £3.3m on last year. This
improvement was driven primarily by savings in SG&A costs. SG&A costs are
included in total operating expenses which are summarised as follows:
-------------------------------- --------- ---------
2006 2005
£'000 £'000
-------------------------------- --------- ---------
Cost of sales 125,764 102,814
SG&A costs (including central costs) 29,704 34,154
-------------------------------- --------- ---------
Total operating expenses** 155,468 136,968
-------------------------------- --------- ---------
**excludes exceptional costs and goodwill impairment.
There has been a significant focus on SG&A costs which have reduced by 13% to
£29.7m. Whilst the focus on cost-saving opportunities will continue, we are also
investing in people and facilities to support new growth opportunities.
The retained profit for the year was £0.8m (2005: loss £9.2m).
Disposals and Discontinued Operations
In January, the Group successfully completed the disposal of the major elements
of its continental European business and in May disposed of the remaining
Benelux business for total gross consideration (before costs incurred) of £5.9m.
These disposals were in line with our strategy of streamlining the business to
focus on the UK and Ireland. All anticipated legacy costs associated with the
disposed businesses have been provided for in H1 2006.
Revenue from discontinued operations was £3.4m (2005: £41.6m) and pre tax loss
was £0.5m (2005: profit £0.3m).
The remaining legal entities associated with these businesses are in the process
of being closed and all legacy properties relating to these operations in
continental Europe and the US have been assigned or sub-let. As a result of
these disposals a one-off net gain on disposal of £2.2m (2005: £0.2m) (see note
4) was recognised in the year.
Exceptional Item
An additional exceptional charge of £0.6m was provided for in H1 2006 in respect
of one unoccupied property in the UK where it has become clear that existing
provisions would be insufficient given the current commercial property market in
that locality.
Finance Costs
Interest charges include interest on the Group's pension liabilities of £0.7m
(2005: £0.7m) in accordance with IAS19. Total finance costs fell during the year
reflecting the lower level of borrowings following the successful Share Placing
and Open Offer in April 2006.
Taxation
The tax charge was £0.2m (2005: credit £0.6m) reflecting permanent differences
together with tax losses not fully recognised.
Pensions
The Group operates a number of defined contribution pension schemes as well as a
defined benefit scheme. Assets for the defined contribution schemes are held in
separate, independently administered funds. Contributions to these schemes were
£0.8m (2005: £0.6m). The defined benefit scheme is closed to both future members
and to future service accrual, although actuaries continue to advise the
Trustees on the required funding rate. The Group has agreed a payment plan of
£0.9m per annum over 10 years to reduce the current deficit of £4.7m (2005:
£4.7m).
Earnings per Share and Dividend
The number of shares in issue used to calculate basic earnings per share
increased to 37.8m following the share placing and open offer. The weighted
average number of shares in issue used to calculate basic earnings per share was
27.9m (2005: 7.1m). The loss per share from continuing operations was 3.49p
(2005: loss 113.16p). The Board is not proposing a dividend for the year (2005:
nil per share).
Balance Sheet and Cash Flow
In April the Group completed a share placing and open offer, raising £14.6
million net (£16 million gross) with good support from our existing shareholders
and a number of new institutions joining the share register. Upon completion of
the fundraising the Group secured new banking facilities on better terms than
previously, providing a facility appropriate in both type and scale to support
the needs of the business as it recovers and grows. Net debt at 31 December 2006
was £5.7m a decrease of £13.4 million from 31 December 2005. The Group has a
total credit facility based on eligible discounted debtor invoices of up to
£20m.
The net cash outflow from operating activities, before a cash outflow for
exceptional costs of £3.5m (2005: £2.7m) and before pension deficit
contributions of £0.8m (2005: £0.6m), was £0.2m (2005: outflow £1.2m). The net
cash outflow from operating activities (after exceptional cash flows and pension
contributions) was £4.5m (2005: outflow £4.5m).
Joseph Kelly
Group Finance Director
Parity Group plc
Consolidated Income Statement
For the year ended 31 December 2006
________________________________________________________________________
------------------------- ------- ---------- ---------
Notes Year ended Year ended
31.12.06 31.12.05
£'000 £'000
unaudited audited
------------------------- ------- ---------- ---------
Continuing operations 2 156,845 135,073
Revenue
------------------------- ------- ---------- ---------
Employee benefit costs (20,672) (23,788)
Depreciation (569) (945)
Impairment of goodwill - (2,500)
All other operating expenses (134,827) (114,525)
------------------------- ------- ---------- ---------
Total operating expenses (156,068) (141,758)
------------------------- ------- ---------- ---------
Operating profit (loss) before exceptional 2 1,377 (1,895)
items and impairment of goodwill 3 (600) (4,790)
Exceptional items and impairment of goodwill
------------------------- ------- ---------- ---------
------------------------- ------- ---------- ---------
Operating profit (loss) 777 (6,685)
------------------------- ------- ---------- ---------
Finance income 7 5
Finance costs (1,558) (1,940)
------------------------- ------- ---------- ---------
Loss before tax (774) (8,620)
Tax (197) 576
------------------------- ------- ---------- ---------
Loss for the year from continuing (971) (8,044)
operations
------------------------- ------- ---------- ---------
Discontinued operations 4 1,804 (1,178)
Profit (loss) for the year from discontinued
operations
------------------------- ------- ---------- ---------
Profit (loss) for the year attributable to
equity shareholders 9 833 (9,222)
------------------------- ------- ---------- ---------
Basic and diluted earnings (loss) per share
on profit (loss) for the year 5 2.99p (129.73p)
Basic and diluted loss per share from
continuing operations 5 (3.49p) (113.16p)
Parity Group plc
Balance Sheet
As at 31 December 2006
Consolidated
------------------------
As at As at
31.12.06 31.12.05
£'000 £'000
unaudited audited
------------------------ ---------- ----------
Non-current assets
Goodwill 7,116 7,116
Property, plant and equipment 615 988
Available for sale financial assets - 30
Deferred tax assets 5,102 4,954
------------------------ ---------- ----------
12,833 13,088
Current assets
Work in progress 998 1,323
Trade and other receivables 39,494 35,539
Current tax assets - 24
Cash and cash equivalents 736 749
------------------------ ---------- ----------
41,228 37,635
------------------------ ---------- ----------
Assets classified as held for sale and included - 8,746
in disposal groups
------------------------ ---------- ----------
Total assets 54,061 59,469
------------------------ ---------- ----------
Current liabilities
Financial liabilities (6,394) (18,039)
Trade and other payables (28,687) (29,550)
Current tax liabilities (201) (216)
Provisions (677) (1,718)
------------------------ ---------- ----------
(35,959) (49,523)
Non-current liabilities
Financial liabilities (1) (19)
Provisions (2,369) (2,129)
Retirement benefit liability (4,703) (4,657)
------------------------ ---------- ----------
(7,073) (6,805)
------------------------ ---------- ----------
Liabilities classified as held for sale and - (7,231)
included in disposal groups
Total liabilities (43,032) (63,559)
------------------------ ---------- ----------
Net assets (liabilities) 11,029 (4,090)
------------------------ ---------- ----------
Shareholders' equity (deficit)
Called up share capital 15,075 14,434
Share premium account 20,020 6,062
Other reserves 44,160 44,160
Retained earnings (68,226) (68,746)
------------------------ ---------- ----------
Total shareholders' equity (deficit) 11,029 (4,090)
------------------------ ---------- ----------
Parity Group plc
Statement of Recognised Income and Expense
For the year ended 31 December 2006
Consolidated
-----------------------
Year Year
ended ended
31.12.06 31.12.05
£'000 £'000
unaudited audited
------------------------------ ---------- ----------
Exchange differences on translation of foreign
operations 152 178
Actuarial losses on defined benefit pension schemes (762) (263)
Deferred taxation on items taken directly to equity 229 79
------------------------------ ---------- ----------
Net loss recognised directly in equity (381) (6)
Profit (loss) for the year 833 (9,222)
------------------------------ ---------- ----------
Total recognised income (expense) for the year 452 (9,228)
attributable to equity shareholders
------------------------------ ---------- ----------
Parity Group plc
Cash Flow Statement
For the year ended 31 December 2006
Consolidated
----------------------
Year Year
ended ended
31.12.06 31.12.05
£'000 £'000
unaudited audited
-------------------------------- ---------- ----------
Cash flows from operating activities
Cash generated from operations (4,508) (4,460)
Interest received 11 23
Interest paid (872) (1,417)
Tax received - 585
-------------------------------- ---------- ----------
Net cash from operations (5,369) (5,269)
-------------------------------- ---------- ----------
Cash flows from investing activities
Purchase of property, plant and equipment (272) (327)
Net proceeds from disposal of subsidiary 4,649 -
undertakings
Proceeds from disposal of available for sale 71 -
assets
Proceeds from disposal of property, plant and - 155
equipment
-------------------------------- ---------- ----------
Net cash from investing activities 4,448 (172)
-------------------------------- ---------- ----------
Cash flows from financing activities
Issue of ordinary shares 14,599 -
Repayment of loan notes - (6)
Cash (outflow) in respect of repayment of bank (20,176) (913)
borrowing
Cash inflow from new bank loans - 5,300
Net movement on invoice discounting 4,804 560
Payment of capital element of finance leases (19) (20)
-------------------------------- ---------- ----------
Net cash used in financing activities (792) 4,921
-------------------------------- ---------- ----------
Net decrease in cash and cash equivalents (1,713) (520)
Cash and cash equivalents at beginning of the 1,738 2,175
year
Net foreign exchange difference (285) 83
-------------------------------- ---------- ----------
Cash and cash equivalents at end of the year (260) 1,738
-------------------------------- ---------- ----------
Parity Group plc
Notes to the Preliminary Results
1 Accounting Policies
Basis of preparation
These preliminary results do not constitute full Financial Statements within the
meaning of section 240 of the Companies Act 1985. The financial information for
the year ended 31 December 2006 and 2005 have been extracted from the unaudited
financial statements of Parity Group plc for the year ended 31 December 2006
which will be delivered to the Registrar of Companies in due course. The
auditors have issued an unqualified opinion on the Group's statutory financial
statements for the year ended 31 December 2005, which have been filed with the
Registrar of Companies
These financial statements have been prepared in accordance with International
Financial Reporting Standards as adopted by the EU (IFRSs and IFRIC
interpretations) issued by the International Accounting Standards Board (IASB)
and with those parts of the Companies Act 1985 applicable to companies preparing
their accounts under IFRS.
Where Group companies enter into financial guarantee contracts and guarantee the
indebtedness of other companies within the Group, the Group considers these to
be insurance arrangements, and accounts for them as such. In this respect, the
Group treats the guarantee contract as a contingent liability until such time
that it becomes probable that any Group company will be required to make a
payment under the guarantee.
2 Segmental Analysis
The Group is organised into three primary business segments: Business Solutions,
Training and Resources.
Consolidated
-------------
2006 2005
£'000 £'000
unaudited audited
see (1) below
--------- ----------
Revenue - continuing operations
Business Solutions 23,922 22,587
Training 18,406 20,044
Resources 114,517 92,442
------------------------------- --------- ----------
156,845 135,073
--------- ----------
Geographical analysis
United Kingdom and Ireland 156,845 135,073
------------------------------- --------- ----------
156,845 135,073
--------- ----------
Revenue - discontinued operations
------------------------------- --------- ----------
Resources - Mainland Europe 3,380 41,567
------------------------------- --------- ----------
-------------- -------------- --------------
Operating Exceptional Operating
result before items profit
exceptional
items
-------------- -------------- -------------- --------------
2006 2005 2006 2005 2006 2005
£'000 £'000 £'000 £'000 £'000 £'000
unaudited audited unaudited audited unaudited audited
see see see
(1) below (1) below (1) below
-------------- ------- -------- ------- -------- ------- --------
Continuing
operations
Business
Solutions 778 21 - (607) 778 (586)
Training 308 (1,161) - (1,007) 308 (2,168)
Resources 2,710 1,647 - 5 2,710 1,652
-------------- ------- -------- ------- -------- ------- --------
3,796 507 - (1,609) 3,796 (1,102)
Central costs (2,419) (2,402) (600) (681) (3,019) (3,083)
-------------- ------- -------- ------- -------- ------- --------
Impairment of
goodwill - (2,500) - - - (2,500)
(Training)
-------------- ------- -------- ------- -------- ------- --------
Segment results 1,377 (4,395) (600) (2,290) 777 (6,685)
Interest
expense (1,558) (1,940) - - (1,558) (1,940)
Interest income 7 5 - - 7 5
-------------- ------- -------- ------- -------- ------- --------
Loss before tax (174) (6,330) (600) (2,290) (774) (8,620)
Tax (377) (40) 180 616 (197) 576
-------------- ------- -------- ------- -------- ------- --------
Loss for the
year from (551) (6,370) (420) (1,674) (971) (8,044)
continuing
operations
-------------- ------- -------- ------- -------- ------- --------
-------------- -------------- --------------
Operating Exceptional Operating
result before items profit
exceptional
items
------------- ------- -------- ------- --------
2006 2005 2006 2005 2006 2005
£'000 £'000 £'000 £'000 £'000 £'000
unaudited audited unaudited audited unaudited audited
see see see
(1) below (1) below (1) below
-------------- ------- -------- ------- -------- ------- --------
Discontinued
operations
Business - -
Solutions
Training - -
Resources (462) 1,252 2,170 (563) 1,708 689
-------------- ------- -------- ------- -------- ------- --------
Segment results (462) 1,252 2,170 (563) 1,708 689
Interest
expense - (237) - - - (237)
Interest income 4 18 - - 4 18
-------------- ------- -------- ------- -------- ------- --------
Profit (loss)
before tax (458) 1,033 2,170 (563) 1,712 470
Tax 92 (1,648) - - 92 (1,648)
-------------- ------- -------- ------- -------- ------- --------
Profit (loss)
for the year (366) (615) 2,170 (563) 1,804 (1,178)
from discontinued
operations
-------------- ------- -------- ------- -------- ------- --------
(1) 2005 figures have been restated to reflect the discontinuation of the
Holland, Belgium and Switzerland operations.
3 Exceptional Items
Consolidated
------------------------- --------------
Continuing operations 2006 2005
£'000 £'000
unaudited audited
see (1) in
note 2
------------------------- ------- --------
Redundancy payments - 483
Property restructuring 600 573
Network and IT Support Services exit costs - 1,234
------------------------- ------- --------
Total exceptional items from continuing operations 600 2,290
------------------------- ------- --------
The exceptional charge of £600,000 for 2006 for continuing operations relates to
one unoccupied property in the UK. The tax credit relating to the exceptional
item is £180,000 (2005: £616,000). The exceptional charges in 2005 related to a
restructuring programme in order to execute the plans of a strategic review.
Consolidated
----------------------------------- ---------------
Discontinued operations 2006 2005
£'000 £'000
unaudited audited
see (1) in
note 2
----------------------------------- ------- -------
Gain on disposal of subsidiaries 2,170 -
Redundancy payments - 60
Property restructuring - 287
Other - 216
----------------------------------- ------- -------
Total exceptional items from discontinued operations 2,170 563
----------------------------------- ------- -------
The exceptional item in 2006, from discontinued operations, relates to the gain
on disposal of subsidiaries in Mainland Europe (see below). Exceptional items
from discontinued operations are shown gross of tax. The tax credit relating to
exceptional items from discontinued operations is £nil (2005: £nil).
4 Discontinued Operations
----------------------------------- ------- --------
2006 2005
£'000 £'000
unaudited audited
see (1) in
note 2
----------------------------------- ------- --------
Pre tax (loss) profit from discontinued operations (458) 282
Gain on disposal of subsidiary net tangible assets 2,170 188
----------------------------------- ------- --------
Profit (loss) before tax 1,712 470
Taxation 92 (1,648)
----------------------------------- ------- --------
Total 1,804 (1,178)
----------------------------------- ------- --------
In May the Group completed the disposals of the major elements of its
continental European businesses. These disposals were in line with the strategy
of streamlining the business to focus on the UK and Ireland.
The tax credit of £92,000 (2005: £1,648,000 charge) relates to operations.
Cash flows from discontinued operations
----------------------------------- ------- --------
2006 2005
£'000 £'000
unaudited audited
see (1) in
note 2
----------------------------------- ------- --------
Net cash flows (used in) from operating activities (23) 4
Net cash flows from investing activities - 60
Net cash flows used in financing activities (3,249) (352)
----------------------------------- ------- --------
Total (3,272) (288)
------- --------
Discontinued operations contributed £3,380,000 (2005: £41,567,000) to revenue,
£3,838,000 (2005: £41,285,000) to expenses, a gain on disposal of £2,170,000
(2005: £188,000) and the taxation relating to discontinued operations was
£92,000 credit (2005: £1,648,000 expense).
5 Earnings Per Ordinary Share
Basic earnings per share is calculated by dividing the basic earnings for the
year by the weighted average number of fully paid ordinary shares in issue
during the year, less those shares held by the ESOP Trust, which are treated as
cancelled.
Diluted earnings per share is calculated on the same basis as the basic earnings
per share with a further adjustment to the weighted average number of fully paid
ordinary shares to reflect the effect of all dilutive potential ordinary shares.
The Group has one class of potential dilutive ordinary shares being those share
options granted to employees where the exercise price is less than the average
market price of the Company's ordinary shares during the year. In September 2006
and October 2006, the Company granted 2,023,805 options under the Executive
Share Option Scheme and 2,560,000 awards under the Long-Term Incentive Plan
respectively. There were no dilutive potential ordinary shares in issue as the
Group incurred a loss on continuing activities (2005: nil).
-------------------- --------- --------- -------- --------
2006 2006 2005 2005
earnings pence earnings pence
£000 per share £000 per share
unaudited unaudited audited audited
see (1) see (1) in
in note 2 note 2
-------------------- --------- --------- -------- --------
Basic and diluted loss per (971) (3.49p) (8,044) (113.16p)
share from continuing
operations
Basic and diluted earnings
(loss) per share on profit 833 2.99p (9,222) (129.73p)
(loss) for year
-------------------- --------- --------- -------- --------
2006 2005
no. of no. of
shares shares
-------------------- --------- --------- -------- --------
Weighted average ordinary
shares in issue 27,454,632 5,773,833
Adjustment for issue of new
shares under the exercise
of rights 449,376 1,389,969
-------------------- --------- --------- -------- --------
Weighted average ordinary
shares held as own shares
in ESOP trust (46,950) (55,124)
-------------------- --------- --------- -------- --------
Adjusted weighted average
ordinary shares in issue 27,857,058 7,108,678
-------------------- --------- --------- -------- --------
6 Reconciliation of Operating Loss to Net Cash Flow
Consolidated
-------------------------------- -------------
Continuing operations 2006 2005
£'000 £'000
unaudited audited
see (1)
in note 2
-------------------------------- ---------- ---------
Loss for the year (971) (8,044)
Adjustments for:
Tax 197 (576)
Depreciation 569 945
Equity settled share based payments 68 141
Impairment of goodwill - 2,500
Profit on disposal of available for sale (41) -
assets
Loss on disposal of tangible fixed assets 76 18
Interest income (7) (6)
Interest expense 1,558 1,939
Changes in working capital
Decrease in work in progress 325 341
Increase in trade and other receivables (3,836) (3,155)
(Decrease) increase in trade and other (437) 3,088
payables
Decrease in provisions (580) (751)
Change in retirement benefit liability (1,402) (1,123)
-------------------------------- ---------- ---------
Cash used in continuing operations (4,481) (4,683)
-------------------------------- ---------- ---------
Discontinued operations
-------------------------------- ---------- ---------
Profit (loss) for the year 1,804 (1,178)
Adjustments for:
Tax (92) 1,648
Depreciation - 94
Loss on disposal of tangible fixed assets - 23
Interest income (4) (18)
Profit on disposal of discontinued (2,170) -
operations
Interest expense - 237
Changes in working capital
Decrease in trade and other receivables 2,111 297
Decrease in trade and other payables (1,455) (1,113)
(Decrease) increase in provisions (221) 233
-------------------------------- ---------- ---------
Cash (used in) from discontinued operations (27) 223
-------------------------------- ---------- ---------
Total net cash flow used in operating (4,508) (4,460)
activities
-------------------------------- ---------- ---------
Cash generated from operations includes cash outflows relating to exceptional
items recorded in prior years of £3,535,000 (2005: outflow of £2,663,000).
7 Consolidated Reconciliation of Net Cash Flow to Movement in Net Borrowings
-------------------------------- ---------- --------
2006 2005
£'000 £'000
-------------------------------- ---------- --------
Decrease in cash in the year (717) (520)
(Increase) in overdrafts (996) -
Decrease (increase) in bank loans 17,500 (5,300)
Decrease in other bank borrowings 2,676 913
Increase in invoice factoring facility (4,804) (571)
Repayment of obligations under finance leases 19 20
Repayment of loan notes - 6
Exchange movements (285) 93
-------------------------------- ---------- --------
Movement in net debt in the year 13,393 (5,359)
Net debt at 1 January (19,052) (13,693)
-------------------------------- ---------- --------
Net debt at 31 December (5,659) (19,052)
-------------------------------- ---------- --------
8 Analysis of Net Borrowings
--------------------- -------- -------- -------- --------
01.01.06 Cash flow Exchange 31.12.06
£'000 £'000 movements £'000
£'000
--------------------- -------- -------- -------- --------
Cash and cash equivalents
Cash at bank and in hand 1,738 (717) (285) 736
Overdrafts - (996) - (996)
--------------------- -------- -------- -------- --------
1,738 (1,713) (285) (260)
Borrowings
Bank loans (17,500) 17,500 - -
Other bank borrowings (2,676) 2,676 - -
Invoice factoring facility (574) (4,804) - (5,378)
Obligations under finance leases (40) 19 - (21)
--------------------- -------- -------- -------- --------
Net borrowings (19,052) 13,678 (285) (5,659)
--------------------- -------- -------- -------- --------
9 Statement of Changes in Shareholders' Equity (Deficit)
---------------- ------- ------- ------- ------- ------- ------
Consolidated Share Deferred Share Other Retained Total
capital shares premium reserves earnings £'000
£'000 £'000 reserve £'000 £'000
£'000
---------------- ------- ------- ------- ------- ------- ------
At 1 January 2006 14,434 - 6,062 44,160 (68,746) (4,090)
Net profit for the
year - - - - 833 833
Net loss recognised (381) (381)
directly in equity
Capital restructure (14,319) 14,319 - - - -
Issue of new shares 641 - 13,958 - - 14,599
Share options -
value of - - - - 68 68
employee services
---------------- ------- ------- ------- ------- ------- ------
At 31 December 2006 756 14,319 20,020 44,160 (68,226) 11,029
---------------- ------- ------- ------- ------- ------- ------
Consolidated Share Deferred Share Other Retained Total
capital shares premium reserves earnings £'000
£'000 £'000 reserve £'000 £'000
£'000
At 1 January 2005 14,434 - 6,062 44,160 (59,659) 4,997
Net loss for the
year - - - - (9,222) (9,222)
Net loss recognised - - - - (6) (6)
directly in equity
Share options -
value of - - - - 141 141
employee services
---------------- ------- ------- ------- ------- ------- ------
At 31 December 2005 14,434 - 6,062 44,160 (68,746) (4,090)
---------------- ------- ------- ------- ------- ------- ------
The Board is not proposing a dividend for the year (2005: nil per share).
10 Issue of New Shares
On 30 March 2006 the Company published a prospectus in respect of the fully
underwritten issue of a Firm Placing of 16,000,000 New Ordinary Shares and a
Placing and Open Offer of 16,038,427 New Ordinary Shares to qualifying
shareholders holding ordinary shares at the close of business on 29 March 2006.
A capital reorganisation was also proposed to subdivide and redesignate each
ordinary share of 5p into one new ordinary share of 2p and 124 deferred shares.
Shareholder approval for the issue and capital reorganisation was sought and
received at an extraordinary general meeting held on 24 April 2006.
In order to issue shares at below the pre-existing nominal price of 5p the
Company completed a capital reorganisation on 28 April 2006 such that:
• Each issued ordinary share of 5p was redesignated into one ordinary
share of 2p
• Every 50 shares were consolidated into one new ordinary share and 124
deferred shares
• Every 2 unissued ordinary shares of 5p were redesignated into 5 new
ordinary shares
The deferred shares are not listed on the London Stock Exchange, having no
voting rights, no rights to dividends and the right only to a very limited
return on capital in the event of liquidation.
Net proceeds from this firm placing and placing and open offer amounted to
£14,599,000.
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