Interim Results
Parity Group PLC
4 September 2001
4 September 2001 embargoed for 7 am
PARITY GROUP PLC
INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2001
Parity Group plc, the international IT services group, announces its results
for the six months to 30 June 2001.
Group Summary
* Group turnover: £130.4m (2000: £139.2m)
* Group pre-tax profit: £1.4m (2000: £7.1m)**
* Basic earnings per share: 1.44p (2000: 3.14p)**
* Interim dividend maintained at 0.93p
* Exceptional costs of £2.2m in first half
* Restructuring will save over £2m in 2002
* Group strategy starting to deliver traction
**excluding goodwill amortisation and exceptional items
Divisional highlights
Solutions
* Revised service offerings focused on benefits to clients' bottom
lines
* Focus on largest clients now producing results
* Government, Energy and Manufacturing providing real opportunity
* Excellent first half for Parity Training; taking market share
through quality
* Costs in UK and Netherlands reduced significantly
* £0.6m supply chain project for leading UK international blue chip
industrial company, announced today
Software Services
* Good growth momentum with major accounts in UK; 15 PSA wins
* UK acquisition of Prime Selection; growth with their main clients
* Rollout of Parity Selection across UK and mainland Europe
* Consultants on billing held constant in mainland Europe despite
falling market
* Creditable 6.9% return on sales in USA despite tough market
Commenting on the results, Ian Miller, Chief Executive, said: 'During the
first half of the year, the Board's priority has been to keep a tight control
of costs while driving through our focused strategy. As a result, the Group
has achieved a solid first half performance at the operating level, despite
the very difficult market conditions. The focus on solutions-oriented service
offerings, longer-term contracts and higher levels of repeat business from key
accounts has enabled us to grow our business strongly with several of our
larger clients during the period, offsetting the drop in revenue from ad-hoc
projects with smaller clients.'
On the outlook for the future, Bill Cockburn, Chairman, added: 'Implementation
of the Group strategy is working well and, although market conditions remain
unstable and difficult to predict in the short term, the Group is weathering
the storm well and is positioned for strong growth as the market returns to
normal.
The Board is confident that it has the right focused strategy and the right
management team now in place to implement the strategy, together with service
offerings that meet the market needs.'
- Ends -
Further information
Parity Group plc Financial Dynamics
Bill Cockburn, Chairman Giles Sanderson
Ian Miller, Chief Executive Harriet Keen
Alison Leyshon, Finance Director Tel 020 7831 3113
Tel: 020 7776 0800
web site: www.parity.co.uk
Interim Statement
On 25 May, the Board announced the results of a Strategic Review carried out
by the Chief Executive. The review proposed changes in the Group's service
offering, with a much clearer focus on value propositions that relate directly
to the business issues facing Parity's clients, together with a more
structured approach to sales and marketing, targeting fewer higher growth
sectors.
The strategy is being implemented successfully across the Group. The Solutions
business is winning contracts for its new suite of six service offerings; the
Training division has grown substantially in a flat market; and Software
Services has completed the first sale of its Human Capital Management service,
also involving the Training division, leveraging the synergies between our
business streams. Whilst the Group is making progress, there is no doubt that
the demand for IT services has slowed, competition has increased and the
market remains very difficult to predict in the short term.
During the first half of the year, therefore, the Board's priority has been to
keep a tight control of costs while driving through our focused strategy. As
a result, the Group has achieved a solid first half performance at the
operating level, despite market conditions. The concentration on
solutions-oriented service offerings, longer-term contracts and higher levels
of repeat business from key accounts has enabled us to grow our business
strongly with several of our larger clients during the period, offsetting the
drop in revenue from ad-hoc projects with smaller clients.
Financial performance
The Group's overall performance in the six months to 30 June 2001 was in line
with the guidance given in our trading statement issued on 25 May. Group
turnover held up well at £130.4 million (2000: £139.2 million) while operating
profit before tax, goodwill amortisation and exceptional items was £1.4
million (2000: £7.1 million). After allowing for the exceptional items
outlined below, the result was a loss for the period of £1.5 million after
goodwill amortisation (2000: £6.5 million profit).
Basic earnings per share before goodwill amortisation and exceptional items
were 1.44p (2000: 3.14p). The Board has declared an unchanged interim dividend
of 0.93 pence per share. The dividend will be paid on 7 November 2001 to all
shareholders on the register at the close of business on 5 October 2001.
Exceptional items
As indicated in May's trading statement, the Board began a restructuring
programme during the first half aimed at eliminating unnecessary activities,
increasing utilisation, implementing new IT systems and reducing overheads.
The programme is expected to involve one-off costs of around £3 million for
the full year, including the costs of Board restructuring (£0.9 million) and
exceptional bad debt write-offs in Europe (£0.5 million). Of these costs, £2.2
million has been charged against first half profits. As a result of the
programme, the ongoing cost base of the Group will be reduced by over £1
million in the second half of 2001 and over £2 million in 2002.
Divisional Performance
Turnover (£m) Profit(£m) % RoS
Six months ended
30 June 2001 2000 2001 2000 2001 2000
Solutions
- United Kingdom 31.1 35.5 1.84 3.67 5.9 10.3
- Mainland Europe 2.9 4.0 (0.61) 0.15 (21.0) 3.7
34.0 39.5 1.23 3.82 3.6 9.7
Software Services
- Mainland Europe 23.8 26.0 (0.59) 0.82 (2.5) 3.2
- USA 21.2 23.0 1.46 2.08 6.9 9.0
- United Kingdom 51.4 50.7 2.13 2.69 4.1 5.3
96.4 99.7 3.00 5.59 3.1 5.6
Central costs (2.40) (2.14)
Interest (net) (0.41) (0.19)
Total 1.42 7.08
Goodwill (0.68) (0.54)
amortisation
Exceptional items (2.21) -
Parity Group plc 130.4 139.2 (1.47) 6.54
The results of Solutions BV are included within Solutions for 2001 and 2000;
they were previously included within Software Services.
Operating Review
Solutions
With the downturn continuing to affect both the UK and Benelux, turnover in
our Solutions division fell 14% in the first half to £34.0 million, with
profits of £1.2 million (2000: £3.8 million) overall.
Although the half year started quietly, as many client projects were put on
hold or cancelled, utilisation levels had recovered to acceptable levels by
the end of the period as our new service offerings began to gain traction in
the marketplace with substantial new contracts in the target sectors of
Government, Manufacturing and Energy/Chemicals.
By focusing on our key accounts, we managed to grow our turnover with several
of our larger clients, including Consignia (formerly The Post Office) and BAT.
We also announce today the award of a £0.6 million supply chain project for a
leading UK international blue chip industrial company, a new client for Parity
Group. Our revenues from central and local government also grew steadily, as
we worked on a number of projects related to content management and customer
relationship management, one example being the recently announced six-figure
contract for the Food Standards Agency.
A cost reduction programme, including the closure of one office, was
undertaken in the UK operations, which delivered an operating profit of £1.8
million. Our Netherlands operation produced a trading loss of £0.6 million in
difficult market conditions; it has been restructured and will return to
profitability in the second half.
Our Training business, now one of the top four in the UK, had a good first
half, taking market share from its competitors whilst maintaining margins. A
key factor in this performance was the strong demand for its management
training and development courses.
Software Services
In the UK, though market demand for IT consultants fell by 25% compared with
the same period of the previous year, according to industry sources, we grew
turnover by 1.4% to £51.4 million (2000: £50.7 million), including £5 million
from the acquisition of Prime in January 2001. The focus on key accounts was
particularly successful, as we grew strongly with several large clients,
including BT, Royal Bank of Scotland Group, Unilever and Government, both
central and local.
After strengthening our bid management team at the start of the year, we
recorded a record number of 15 Preferred Supplier Agreements in the first six
months, including Shell, M&G, Ordnance Survey, MoD, Scottish Parliament, Legal
Services Commission, Morse, EWS, Lynx and ACT Financial Systems. Our permanent
recruitment business had a strong first half, with turnover of £1.5 million
compared with £0.3 million in the same period last year.
Our business in mainland Europe had a mixed half-year. Turnover was £23.8
million (2000: £26.0 million), and the business delivered a loss of £0.6
million compared with a profit of £0.8 million for the same period last year.
Across Europe, the actions of major computer services companies selling their
permanent staff into the contractor market at very low rates has continued to
impact our markets. Despite this, both the number of Parity consultants placed
and gross margins held up well and we ended the period with the same number of
consultants placed as in January. Costs are being reduced through the
introduction of new back office systems and increased operating efficiency,
and this unit is expected to be back in profit by the end of the year.
Among the highlights of the first half were a number of pan-European preferred
supplier agreements won with Shell, AT&T, Hewlett Packard and Deutsche Bank as
well as several national agreements with companies including TotalElfFina and
Cap Gemini. Our permanent recruitment business was also successfully extended
across Europe during the first half year, with turnover up 25% on the prior
period.
Despite the economic downturn in the USA, turnover held up well at £21.2
million (2000: £23.0 million), with operating profits 30% lower than the
previous year at £1.5 million. Given the market conditions, the 6.9% return on
sales was creditable.
Highlights of the first half included a number of new preferred supplier
agreements, including Guardian Life and EDS, and several wins in the public
sector.
Outlook
Implementation of the Group strategy is working well and, although market
conditions remain unstable and difficult to predict in the short term, the
Group is weathering the storm well and is positioned for strong growth as the
market returns to normal.
The Board is confident that it has the right focused strategy and the right
management team now in place to implement the strategy, together with service
offerings that meet the market needs.
In the meantime, the focus is on managing the cost base very tightly as we
implement the marketing and sales strategy. That is being done so that waste
is eliminated whilst the investment required to re-position the Group for the
new market is protected. The Board believes that the action taken and
successes already achieved mean that Parity's future is encouraging.
Group Profit and Loss Account
Six months Six months Year
ended ended ended
30 June 30 June 31
2001 2000 December
2000
£'000 £'000 £'000
Notes(unaudited)(unaudited)(audited)
TURNOVER 130,367 139,241 269,228
Operating costs before goodwill
amortisation and exceptional items
(128,530) (131,969) (254,971)
Goodwill amortisation (676) (543) (1,078)
Exceptional items 4 (2,215) - -
Operating costs (131,421) (132,512) (256,049)
OPERATING (LOSS)/PROFIT (1,054) 6,729 13,179
Net interest payable (414) (191) (369)
Profit on ordinary activities before taxation,
goodwill amortisation and exceptional items 1,423 7,081 13,888
Goodwill amortisation (676) (543) (1,078)
Exceptional items 4 (2,215) -
(LOSS)/PROFIT ON ORDINARY
ACTIVITIES BEFORE TAXATION (1,468) 6,538 12,810
Taxation credit/(charge) on ordinary
activities 5 745 (2,337) (4,440)
PROFIT ON ORDINARY
ACTIVITIES AFTER TAXATION (723) 4,201 8,370
Dividends (1,405) (1,424) (3,763)
RETAINED (LOSS)/PROFIT FOR
THE FINANCIAL PERIOD (2,128) 2,777 4,607
(LOSS)/EARNINGS PER ORDINARY SHARE
-Basic (0.48p) 2.78p 5.58p
-Diluted (0.48p) 2.73p 5.53p
EARNINGS PER SHARE BEFORE GOODWILL AMORTISATION
AND EXCEPTIONAL ITEMS
-Basic 1.44p 3.14p 6.30p
-Diluted 1.43p 3.08p 6.25p
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 £107,000 of exchange gains (2000 half year: £514,000 of exchange gains,
2000 full year: £426,000 of exchange gains) which have been taken directly to
reserves.
Group Balance Sheet
30 June 30 June 31 December
2001 2000 2000
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
FIXED ASSETS
Intangible assets 25,074 20,988 20,266
Tangible assets 5,982 6,537 6,283
Investments 5,138 2,380 5,138
36,194 29,905 31,687
CURRENT ASSETS
Debtors 59,215 58,153 53,568
Cash at bank and in hand 4,710 5,748 4,078
63,925 63,901 57,646
CREDITORS: amounts falling due
within one year
Variable rate loan notes payable (4,764) (810) (778)
Other creditors (53,701) (50,774) (44,554)
(58,465) (51,584) (45,332)
NET CURRENT ASSETS 5,460 12,317 12,314
TOTAL ASSETS LESS CURRENT LIABILITIES 41,654 42,222 44,001
PROVISIONS FOR LIABILITIES AND CHARGES (218) (671) (698)
NET ASSETS 41,436 41,551 43,303
CAPITAL AND RESERVES
Called up share capital 7,690 7,655 7,675
Shares to be issued 6 255 22
Capital redemption reserve 50 50 50
Share premium account 3,670 2,874 3,440
Other reserves 35,308 35,263 35,308
Profit and loss account (5,288) (4,546) (3,192)
EQUITY SHAREHOLDERS' FUNDS 41,436 41,551 43,303
Group Cash Flow Statement
30 June 30 June 31 December
2001 2000 2000
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
NET CASH INFLOW FROM OPERATING
ACTIVITIES BEFORE EXCEPTIONAL ITEMS
1,657 6,762 15,345
EXCEPTIONAL ITEMS (1,311) (244) (244)
NET CASH INFLOW FROM OPERATING 346 6,518 15,101
ACTIVITIES
RETURN ON INVESTMENTS AND SERVICING
OF FINANCE
Interest received 52 75 160
Interest paid (392) (280) (536)
NET CASH OUTFLOW FROM RETURN ON
INVESTMENTS AND SERVICING OF FINANCE (340) (205) (376)
TAXATION PAID (3,635) (2,415) (5,903)
CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT
Purchase of tangible fixed assets (1,145) (1,607) (2,716)
Sale of tangible fixed assets 40 40 79
Purchase of own shares by ESOP - (952) (3,710)
Sale of own shares by ESOP - 81 82
NET CASH OUTFLOW FROM CAPITAL
EXPENDITURE AND FINANCIAL INVESTMENT (1,105) (2,438) (6,265)
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertakings (1,846) - -
Net overdraft acquired with (575) - -
subsidiary
NET CASH OUTFLOW FROM ACQUISITIONS
AND DISPOSALS (2,421) - -
EQUITY DIVIDENDS PAID - - (3,793)
NET CASH (OUTFLOW)/INFLOW BEFORE
FINANCING (7,155) 1,460 (1,236)
FINANCING
Issue of Ordinary shares 163 324 520
Repayment of loan notes - - (32)
Payment of deferred consideration - - -
Increase/(decrease) in borrowings 7,492 (7,276) (6,820)
NET CASH INFLOW/(OUTFLOW) FROM
FINANCING 7,655 (6,952) (6,332)
INCREASE/(DECREASE) IN CASH IN THE
PERIOD 500 (5,492) (7,568)
Reconciliation of net cash flow to movement in net debt
Six months
ended
30 June
2001
£'000
Increase in cash in the period 500
Increase in borrowings under variable rate credit facilities (7,492)
Loan notes issued in respect of acquisitions (3,986)
Exchange movements (31)
Movement in net debt in the period (11,009)
Net debt at 1 January 2001 (2,250)
Net debt at 30 June 2001 (13,259)
Analysis of net debt
Six months
ended
At Non 30 June
1 January Cash cash Exchange 2001
2001 Flow movement movements £'000
£'000 £'000 £'000 £'000
Cash at bank and in 4,078 668 - (36) 4,710
hand
Overdrafts (2,042) (168) - 5 (2,205)
2,036 500 - (31) 2,505
Variable rate (3,508) (7,492) - - (11,000)
credit facilities
Variable rate loan (778) - (3,986) - (4,764)
notes
NET DEBT (2,250) (6,992) (3,986) (31) (13,259)
Reconciliation of operating profit to net cash flow
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2001 2000 2000
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Operating profit before 1,161 6,729 13,179
exceptional items
Depreciation of tangible fixed 1,298 1,185 2,529
assets
Amortisation of intangible 676 543 1,078
fixed assets
Gain on issue of own shares held by ESOP to - - (13)
option holders
Profit on disposal of tangible fixed assets (16) (8) (13)
Increase in working capital (1,348) (1,588) (1,249)
Utilisation of provisions (114) (99) (166)
NET CASH INFLOW FROM OPERATING ACTIVITIES 1,657 6,762 15,345
Reconciliation of Movements in Shareholders' Funds
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2001 2000 2000
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
(Loss)/profit on ordinary activities (723) 4,201 8,370
after taxation
Dividends (1,405) (1,424) (3,763)
Retained earnings (2,128) 2,777 4,607
Other recognised gains 107 514 426
Share options exercised 44 11 15
Shares issued to QUEST 118 312 505
Shares issued to vendors 8 892 938
Shares to be issued to vendors (16) (1,731) (1,964)
Net (decrease)/increase in shareholders' (1,867) 2,775 4,527
funds
Shareholders' funds at start of period 43,303 38,776 38,776
Shareholders' funds at end of period 41,436 41,551 43,303
Notes to the Accounts
1. The information contained in this interim statement does not
constitute statutory accounts as defined in section 240 of the Companies Act
1985.
2. The financial information on the pages above and the notes thereto,
for the six months ended 30 June 2001 has not been audited but has been
reviewed by PricewaterhouseCoopers 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 2000, which have been delivered to the Registrar of Companies. The
auditors' report on these accounts was unqualified and did not contain a
statement under section 237 of the Companies Act 1985.
3. The interim dividend will be paid on 7 November 2001 to all
Shareholders on the register at the close of business on 5 October 2001.
4. Exceptional costs of £2,215,000 were incurred during the six months
to 30 June 2001 in respect of the following items:
- Restructuring of the Board and senior management - £855,000
- Restructuring of operations - £848,000
- Bad debts write-off - £512,000
5. The tax credit for the period has been calculated based on the
forecast Group effective tax rate, before goodwill amortisation, for the year
as a whole and is stated after the release of a deferred tax provision of £
380,000 set up in respect of taxation on overseas undistributed reserves which
is no longer required.
6. The calculation of (loss)/earnings per Ordinary share is based on a
loss after taxation and goodwill amortisation of £723,000 (30 June 2000 : £
4,201,000 profit, 31 December 2000 : £8,370,000 profit). The calculation of
earnings per share before goodwill amortisation and exceptional items is based
on a profit after taxation of £2,168,000 (30 June 2000 : £4,744,000 profit, 31
December 2000 : £9,448,000 profit).
The weighted average number of Ordinary shares used in the
calculation of the basic and diluted (loss)/earnings per share, after
adjusting for the impact of the Scheme of Arrangement, are as follows:
Six months Six months Year
2001 2000 2000
average average average
number number number
i) Basic weighted average number
of shares
Shares in issue 153,553,661 152,202,316 152,743,963
Adjustment for shares held by (2,756,238) (1,156,238) (2,756,238)
ESOP
150,797,423 151,046,078 149,987,725
ii) Diluted weighted average
number of shares
Shares in issue 153,553,661 152,202,316 152,743,963
Adjustment for options and for
shares held by ESOP (2,431,878) 1,757,523 (1,518,651)
151,121,783 153,959,839 151,225,312
The number of Ordinary shares in issue at 30 June 2001, was 153,805,404
(30 June 2000 : 153,104,215, 31 December 2000 : 153,500,578).
Independent review report to Parity Group plc
Introduction
We have been instructed by the Company to review the financial information set
out on the pages above and 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.
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 2001.
PricewaterhouseCoopers
Chartered Accountants
1 Embankment Place
London
WC2N 6RH
4 September 2001
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