Interim Results
Parity Group PLC
27 September 2005
PARITY GROUP PLC
INTERIM RESULTS
Parity Group plc ('Parity' or 'the Group'), the international IT services group,
announces its interim results for the half year ended 30 June 2005.
Summary
• Positive progress on UK centric strategy with a clear focus on better and
more predictable financial performance in 2006
• Debt financing renegotiated with Lloyds TSB
• Significant progress on sub-leasing or reusing empty properties
• Strengthened internal cash management processes
• Curtailed all non-customer and contract related capital expenditure
• Two planned disposals currently under way - Parity Americas and
European Resourcing Solutions business
• Network and IT services contract terminated and being replaced with more
flexible, lower cost solution
• Significant senior management reductions in former Business Solutions
organisation
• Group-wide Finance and HR functions created
Financials
• Group revenue increased 7.1% compared to the same period in the prior year
to £88.8 million (1H/04: £82.9 million)
• The Group produced a loss after tax of £1.842 million (1H/04: profit of
£144,000 after discontinued operations)
• The net cash outflow from operating activities was £1.831 million during
the period (1H/04: outflow of £571,000). This included a cash outflow for
exceptional costs recorded in prior years of £1.583 million (1H/04: outflow
of £932,000 for exceptional items and a recovery of £220,000 in respect of
discontinued operations)
• Net debt as at 30 June 2005 was £15.5 million, an increase of £1.8 million
from 31 December 2004. The increase in net debt was driven mainly by the
payment of exceptional costs recorded in prior years
• The basic loss per share was 0.64p (1H/04: earnings per share of 0.05p
after discontinued operations)
NB: As indicated in the 31 December 2004 annual Report and Accounts, the prior
year comparatives have been restated to show revenue from UK recruitment vendor
management contracts based on net rather than gross fee income.
Operations
• Both UK and mainland European Resourcing Solution businesses recorded
strong growth in the first half of 2005 growing by 17.8% and 22.5%
respectively year-on-year reflecting Parity's strong position and well
accepted customer propositions in both areas
• Training has not recovered as well as was previously hoped for and
continues to suffer from operating in a market which has both a highly
fragmented structure and is extremely competitive. Given the short cycle
between enrolment and course delivery, the business remains difficult to
forecast
• Parity Americas remains a small business, which has been exposed to the
changing demands of one major US customer as well as, subsequent to H1 end,
the Chapter 11 filing of another, Delta Air Lines
• Business Solutions turnover was essentially flat as compared to the same
period in the prior year but did win two new major contracts valued at £6
million from the Ministry of Defence and e-fire, the UK's first online Fire
and Rescue Service Portal
• The Group continues to garner praise in the industry for its market
leading work and has been short listed for the 2005 Computing awards as best
IT services supplier, and for the Personnel Today awards for its Cabinet
Office work
Commenting on the results, Parity Executive Chairman, John Hughes, said:
'From a revenue standpoint we have assumed no major changes in the outlook
for the second half of the year. The Group believes that the nature of its
customer relationships and the positive comments we continue to receive about
the quality of service delivered should sustain the recovering picture of our
business in general, albeit with some areas of challenge.
There remains substantial work to do to complete the restructuring of Parity and
to build a truly competitive, long term sustainable UK centric business. I
remain convinced that the strategic direction we have set is sound and the
actions we are taking will position the company to be more competitive and to
perform financially in 2006.'
Enquiries:
Parity Group plc
Telephone 020 7832 3500
John Hughes, Executive Chairman
Ed Watkinson, Head of Finance
LEWIS Communications
Telephone 020 7802 2626
Giles Read
About Parity Group plc
Parity, uniquely for its size, offers a full range of IT services to major
companies including:
Business process consultancy
Management and technology training
Development and management of complex IT systems
Oracle and Microsoft technology and application skills
Permanent and temporary IT staff
Parity operates from 27 offices across the UK, mainland Europe and the USA.
Customers across the group include Alcatel, Allianz, AT&T, British American
Tobacco, CISCO, Department for Education & Skills, Department for Work &
Pensions, HBOS, Hewlett Packard, HM Revenue & Excise, HSBC, IBM, ICI, Ministry
of Defence, NASA, National Programme for IT at the NHS, O2, Perot Systems,
Reuters, Royal Bank of Scotland, Royal Mail, Siemens, Sony Ericsson, The Cabinet
Office, The Met Office, and T-Systems.
For more information on Parity, visit www.parity.net
Financial Summary
Six months Six months Year ended
to 30.6.05 to 30.6.04 31.12.04
£'000 £'000 £'000
Revenue 88,790 82,931 169,860
Operating (loss) profit (985) 903 (4,534)
Operating (loss) profit before exceptional
items in prior periods (985) 903 (851)
(Loss) profit before taxation (1,934) 203 (6,073)
Net debt (15,473) (12,602) (13,693)
Equity shareholdersO funds 2,960 10,680 4,997
Pence Pence Pence
Loss per Ordinary share before discontinued
operations and exceptional items in prior
periods
Basic (0.64p) (0.03p) (0.84p)
Diluted (0.64p) (0.03p) (0.84p)
(Loss) earnings per Ordinary share
Basic (0.64p) 0.05p (1.91p)
Diluted (0.64p) 0.05p (1.91p)
Interim Statement
Chairman's Statement
Introduction
The first half of 2005 has been marked by significant transformation at Parity
starting with the strategic review at the time of the preliminary results
statement. Major steps have been and continue to be taken to return the company
to a stable and profitable footing. All efforts are focussed on addressing both
balance sheet and expenditure issues to position the company for a predictably
better financial performance in 2006
Disposals
In addition to the planned disposal of the mainland European Resourcing
Solutions business, which continues to progress with on-going negotiations being
held with a number of interested parties, the decision has been taken to divest
the US activities (Parity Americas). Discussions are in progress with a number
of parties who have expressed an interest in the business Parity Americas is a
resourcing and training business operating in the eastern United States through
3 regional offices. Although the planned disposal will improve the cash
position, the disposal of the US activities is anticipated to have a negative
(non-cash) effect on the Group's consolidated balance sheet.
Updates will be provided as and when any material development occurs in either
of these two planned transactions. Proceeds from the disposals will be used to
reduce the Group's level of indebtedness.
Banking Facilities
The Group's principal banking facilities continue to be provided by Lloyds TSB
which remains supportive of the Group's transformation. We have completed
renegotiation of the terms of the facilities to recognise changes in business
performance and to align their profile with the dates on which proceeds should
be available from the anticipated disposals. Based on the renegotiated
facilities and the company's most recent forecasts, sufficient capacity is
provided to the Group through to the end of 2006 and the Board is confident of
adequate financing thereafter. Additionally, the Group is in the final stages of
securing new financing facilities to replace the current factoring arrangement
covering mainland Europe.
Other Balance Sheet Items
Significant work has been undertaken to terminate leased facilities and to
sub-lease empty properties already provisioned in the 2003 and 2004 accounts. In
the most recent period, the Group has been successful in sub-leasing its former
headquarters facility in London, and will imminently sign a sub-lease for an
unoccupied office in the USA. Additionally, notice of termination of two leases
in Northern Ireland has been served and a short-term lease on the former,
temporary, UK headquarters facility has been terminated all without any major
expense. The two Northern Ireland offices will be replaced by significantly
lower cost solutions. The Group headquarters has been relocated to space in
Holborn Circus, which had been previously provisioned for and had been
unoccupied for an extended period. Finally personnel will be relocated during
the fourth quarter from an office building in Fleet, Hampshire into other
facilities and agents appointed to seek a tenant for the entire Fleet facility.
It is the Board's view that the existing property provisions are sufficient in
magnitude to cover all current and anticipated situations. Additionally, cash
management controls have been strengthened and capital spending substantially
curtailed whilst protecting the on-going business and customer commitments.
Spending Reductions
We have embarked upon extensive cost saving exercises designed to significantly
reduce the Group's cost base, these include:
- Consolidation of the Group's previously distributed divisional Finance
functions into one finance team which will utilise a single accounting
system;
- Consolidation of a distributed HR function into a single Group-wide
entity;
- Reduction in management overhead to allow the businesses to focus their
investment on sales and revenue generating personnel;
- Property cost reduction measures as described above;
- Actions to rebalance the Training business in order that it can operate
with a lower fixed cost base;
- Realignment of employment terms and conditions to be both more
consistent across the Group, whilst remaining industry competitive;
- Minimising expenditure on external consultants and service providers.
These actions will continue during the second half of 2005 in support of our
objective of returning the Group to profitability in 2006.
The Group's IT and Network Services
Effective June 2005, the Group has terminated its contract with a third party
which is currently providing IT and network support services; The contract is
programmed to end in mid-December 2005 and will be replaced with a combination
of in-house Parity services and a new third party provider. This new arrangement
is expected to yield very substantial cost savings starting in 2006, as well as
providing a much more flexible structure. The cost of exit has not yet been
agreed with the current provider but there will be a significant cost of making
this change of supplier in the second half of 2005.
Financial Performance
This is the first set of results, including comparatives, to be presented by
Parity under the International Financial Reporting Standards presently adopted
by the European Union, the impact of which is explained in the notes to the
financial statements. On this basis, Group revenue increased by 7.1% compared to
the same period in the prior year to £88.8 million (1H/04: £82.9 million
restated). As indicated in the 31 December 2004 Annual Report and Accounts, the
prior year comparatives have been restated to show revenue from UK recruitment
vendor management contracts based on net, rather than gross, fee income.
The Group produced a loss after tax of £1,842,000 (1H/04: profit of £144,000
after discontinued operations). The basic loss per share was 0.64p (1H/04:
earnings per share of 0.05p after discontinued operations).
Both UK and mainland European Resourcing Solution businesses recorded strong
growth in the first half of 2005 growing by 17.8% and 22.5% respectively
year-on-year reflecting Parity's strong position and well accepted customer
propositions in both areas
Training has not recovered as well as was previously hoped for and continues to
suffer from operating in a market which has both a highly fragmented structure
and is extremely competitive. Given the short cycle between enrolment and course
delivery, the business remains difficult to forecast.
Parity Americas provides temporary and permanent staff and training services to
large corporate clients in the north eastern and south eastern regions of the
United States through three regional offices. It remains a small business, which
has been exposed to the changing demands of one major US customer as well as,
subsequent to H1 end, the Chapter 11 filing of Delta Air Lines which is an
important customer of Parity Americas; discussions continue to secure the
maximum on-going business with Delta during this period.
Business Solutions turnover was essentially flat as compared to the same period
in the prior year. The business is currently being re-aligned into two separate
profit centres - Managed Services and Systems & Consulting both of which
require on-going development to achieve the growth profile we seek. Both
businesses secured significant new orders in the first half giving comfort that
the strategy and execution models being built are appropriate.
Tax
The tax credit for the period was £92,000 (1H/04: £279,000 charge) against a
Group loss before tax of £1,934,000 (1H/04: profit of £203,000 excluding
discontinued operations). The credit has been calculated based on the results
of the individual operating companies for the current period, at the estimated
statutory tax rates for the countries in which they are registered. The tax
credit represents an effective tax rate of 4.8% compared to the UK statutory
rate of 30% due to the fact that a deferred tax asset has not been recognised in
respect of certain tax losses, largely relating to central costs, and also due
to temporary differences.
Cash Flow and Net Debt
The net cash outflow from operating activities was £1,831,000 during the period
(1H/04: outflow of £571,000). This included a cash outflow for exceptional
costs recorded in prior years of £1,583,000 (1H/04: outflow of £932,000 for
exceptional items and a recovery of £220,000 in respect of discontinued
operations). Net debt as at 30 June 2005 was £15.5 million, an increase of £1.8
million from 31 December 2004. The increase in net debt was driven mainly by
the payment of these exceptional costs recorded in prior years.
Dividend
The Board will not be recommending the payment of an interim dividend in respect
of the year ending 31 December 2005 (2004: final dividend £nil; interim dividend
£nil).
Outlook
From a revenue standpoint we have assumed no major changes in the outlook for
the second half of the year. The Group believes that the nature of its customer
relationships and the positive comments we continue to receive about the quality
of service delivered should sustain the recovering picture of our business in
general, albeit with some areas of challenge as laid out below.
The outlook for the UK Resourcing Solutions business remains relatively robust,
especially thanks to our substantial public sector exposure; additionally we
continue to invest to grow our capabilities in both the 'spot' market for
specific skills and in building capabilities in selected vertical markets. The
Mainland Europe outlook remains positive despite the inevitable distraction of
the on-going disposal process and we continue to look for strong revenue
performance.
The Training business should experience some support from the seasonal trend
toward stronger business in late Q3/early Q4 but there can be no assurance as to
the magnitude of the uplift. Much work remains to be done to improve both the
delivery capability and most especially the sales channel. Overall improvement
in the business is only likely to be visible in 2006 as a result of the
investments being made in a new on-line registration system which is now in
place, substantially improved public course and corporate training sales &
marketing programmes and the move from fixed costs to a more flexible base.
The Americas business is not expected to deliver any substantial return due to
the uncertainty around the customer situation and the relatively weak first
half. All of this despite steps which have been taken and are now starting to
bear fruit in terms of developing the metropolitan New York market.
The Managed Services and Systems & Consulting businesses (Business Solutions)
continue to operate in a very competitive environment where the building of an
order book for 2006 remains a major priority. Both businesses do profit from a
strong and loyal customer base and capabilities in a number of high potential
segments of the market.
There remains substantial work to do to complete the restructuring of Parity and
to build a truly competitive, long term sustainable UK centric business; the
business outlook in the UK is relatively robust in the Government sector, but
spending in the corporate market remains unpredictable. Management and the Board
remain committed to achieving a very substantial turn round of the Group this
year. We hope and expect to take all the remaining major steps before the year
end. The associated costs, some not yet quantified, will contribute to a
reported loss in 2005 - as indicated previously. I remain convinced that with
the market and customer position which Parity enjoys and the calibre of our
people the strategic direction we have set is sound and that the actions we are
taking will position the company to be both more competitive and to perform
significantly better financially in 2006.
Divisional Performance
Six months to Six months to Year to
30.6.05 30.6.04 31.12.04
Profit Profit Profit
(loss) (loss) (loss)
before before before
Revenue taxation Revenue taxation Revenue taxation
£'000 £'000 £'000 £'000 £'000 £'000
Business Solutions 12,147 35 12,068 1,105 23,664 1,295
Training 10,437 (695) 12,573 253 24,395 (938)
Resourcing Solutions 66,206 736 58,290 1,010 121,801 1,782
Operating profit before
central costs,
exceptional items 76 2,368 2,139
Central costs (1,061) (1,465) (2,990)
Net finance costs (949) (700) (1,539)
(Loss) profit before
tax, and exceptional
items (1,934) 203 (2,390)
Exceptional costs - - (3,683)
88,790 (1,934) 82,931 203 169,860 (6,073)
Geographical Performance
Six months to Six months to Year to
30.6.05 30.6.04 31.12.04
Operating Operating Operating
profit before profit before profit before
central costs central costs central costs
and and and
exceptional exceptional exceptional
Revenue items Revenue items Revenue items
£'000 £'000 £'000 £'000 £'000 £'000
United Kingdom 67,252 (48) 62,046 2,071 128,139 1,744
Mainland Europe 16,215 115 13,234 204 27,232 318
USA 5,323 9 7,651 93 14,489 77
88,790 76 82,931 2,368 169,860 2,139
Operating Review
Consolidated Income Statement (Unaudited)
For the Six Months Ended 30 June 2005
Six months to Six month to Year to
30.6.05 30.6.04 31.12.04
Notes £'000 £'000 £'000
Revenue 2 88,790 82,931 169,860
Staff costs (15,924) (17,875) (34,645)
Depreciation (455) (600) (1,134)
All other operating expenses (73,396) (63,553) (138,615)
Total operating expenses (89,775) (82,028) (174,394)
Operating (loss) profit 2 (985) 903 (4,534)
Analysed as:
Operating (loss) profit before exceptional
items (985) 903 (851)
Exceptional items 3 - - (3,683)
Operating (loss) profit after exceptional
items (985) 903 (4,534)
Finance income 4 - 33 51
Finance costs 5 (949) (733) (1,590)
(Loss) profit before tax (1,934) 203 (6,073)
Tax 6 92 (279) 394
Loss for the period from continuing
operations (1,842) (76) (5,679)
Discontinued operations
Profit for the period from discontinued
operations - 220 220
(Loss) profit for the period (1,842) 144 (5,459)
Basic (loss) earnings per share 7 (0.64p) 0.05p (1.91p)
Diluted (loss) earnings per share 7 (0.64p) 0.05p (1.91p)
Consolidated Balance Sheet (Unaudited)
As at 30 June 2005
Notes As at As at As at
30.6.05 30.6.04 31.12.04
£'000 £'000 £'000
Non-current assets
Goodwill 9,616 9,616 9,616
Property, plant and equipment 1,538 2,210 1,920
Available for sale financial assets 30 - -
Investments - 30 30
Deferred tax assets 5,640 4,571 5,280
16,824 16,427 16,846
Current assets
Inventories 1,459 1,071 1,664
Trade and other receivables 42,004 42,515 40,402
Current tax assets 15 972 687
Cash and cash equivalents 9 1,935 1,463 5,641
45,413 46,021 48,394
Total Assets 62,237 62,448 65,240
Current liabilities
Borrowings 9 (3,878) (4,516) (7,093)
Trade and other payables (33,138) (30,281) (31,785)
Current tax liabilities - (74) -
Provisions (1,215) (1,159) (1,562)
(38,231) (36,030) (40,440)
Non-current liabilities
Borrowings 9 (13,530) (9,549) (12,241)
Provisions (2,508) (1,781) (2,816)
Retirement benefit liability 12 (5,008) (4,408) (4,746)
(21,046) (15,738) (19,803)
Total liabilities (59,277) (51,768) (60,243)
Net assets 2,960 10,680 4,997
Shareholders' equity
Called up share capital 11 14,434 14,434 14,434
Share premium account 11 6,062 6,062 6,062
Other reserves 11 44,160 44,160 44,160
Retained earnings 11 (61,696) (53,976) (59,659)
Total shareholders' equity 2,960 10,680 4,997
Consolidated Statement of Recognised Income and Expense (Unaudited)
For the Six Months Ended 30 June 2005
Six months to Six months to Year to
30.6.05 30.6.04 31.12.04
£'000 £'000 £'000
Exchange differences on translation of foreign
operations 40 (434) (289)
Actuarial losses on defined benefit pension
schemes (436) (462) (924)
Taxation on items taken directly to equity 131 138 277
Net losses recognised directly in
Equity (265) (758) (936)
(Loss) profit for the period (1,842) 144 (5,459)
Total recognised expense for the
Period (2,107) (614) (6,395)
Consolidated Cash Flow Statement (Unaudited)
For the Six Months Ended 30 June 2005
Notes Six months Six months Year ended
to 30.6.05 to 30.6.04 31.12.04
£'000 £'000 £'000
Cash flows from operating activities
Cash used in operations 10 (1,831) (571) (1,169)
Interest received - 33 49
Interest paid (582) (417) (884)
Tax received 536 692 1,006
Net cash used in operations (1,877) (263) (998)
Cash flows used in investing activities
Purchase of property, plant and equipment (76) (230) (518)
Proceeds from disposal of property, plant
and equipment 18 - -
Net cash used in investing activities (58) (230) (518)
Cash flows from financing activities
Expenses from issue of ordinary shares - (56) (56)
Repayment of loan notes 9 (6) - (8)
Net cash inflow (outflow) from borrowings 9 1,637 (679) 2,475
Payment of capital element of finance leases 9 (10) (10) (17)
Equity dividends paid - - (87)
Net cash from (used in) financing activities 1,621 (745) 2,307
Net (decrease) increase in cash and cash
equivalents (314) (1,238) 791
Cash and cash equivalents at beginning of
the period 2,175 1,393 1,393
Net foreign exchange difference 74 (97) (9)
Cash and cash equivalents at end of the 9 1,935 58 2,175
period
Cash and cash equivalents consist of:
- Cash 1,935 1,463 5,641
- Overdrafts - (1,405) (3,466)
9 1,935 58 2,175
For the purposes of the cashflow statement, cash and cash equivalents are net of
overdrafts. These overdrafts are excluded from the definition of cash and cash
equivalents in the balance sheet.
1 Basis of preparation
The financial information comprises the unaudited results for the six months to
30 June 2005 and 30 June 2004, together with the unaudited results for the
twelve months ended 31 December 2004.
The Group's UK published financial statements for the year ended 31 December
2004 have been reported on by the Group's auditors and filed with the Registrar
of Companies. The report of the auditor was unqualified and did not contain a
statement under Section 237 (2) or (3) of the Companies Act 1985.
Prior to 2005, the Group prepared its audited annual financial statements and
unaudited interim financial statements under UK Generally Accepted Accounting
Principles (UK GAAP). From 1 January 2005, the Group is required to prepare
annual consolidated financial statements in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and
implemented in the UK. As the 2005 annual financial statements will include
comparatives for 2004, the Group's date of transition to IFRS is 1 January 2004
and the 2004 comparatives have been restated to IFRS.
Accounting policies
The Group's results for the six months ended 30 June 2005 have been prepared on
a basis consistent with the Group's IFRS accounting policies. These IFRS
accounting policies have been applied on a basis consistent with IFRS and
interpretations expected to be in effect for the year ending 31 December 2005.
It is possible that there will be changes to these standards and interpretations
before the end of 2005, which might require further adjustments to this
information before it is included in the 2005 annual financial statements. In
addition, the Group has early adopted the amendment to IAS19 Employee Benefits
on the basis that this is expected to be formally adopted by the EU before the
end of 2005.
First-time adoption
The general principle that should be applied on first-time adoption of IFRS is
that standards are applied with full retrospective effect. IFRS 1 First-time
Adoption of International Financial Reporting Standards, sets out certain
mandatory exceptions to retrospective application and certain optional
exemptions. The optional exemptions adopted by the Group are set out below:
(i) not to restate its business combinations made prior to 1 January
2004 to comply with IFRS 3 Business Combinations;
(ii) to retain previous UK GAAP carrying values of property, plant and
equipment, treating any historic revaluations as deemed cost at 1 January 2004;
(iii) to recognise all cumulative actuarial gains and losses in respect
of defined benefit pension schemes, and similar benefits in shareholders' equity
at 1 January 2004;
(iv) to apply IFRS 2 Share-based Payments only to awards granted after
7 November 2002 and not vested by 1 January 2005;
(v) to deem cumulative translation differences for all foreign
operations to be £nil at 1 January 2004; and
(vi) not to present comparative information in accordance with IAS 32
Financial Instruments: Disclosure and Presentation and IAS 39 Financial
Instruments: Recognition and Measurement
In addition, under IAS 32 cash balances and bank overdrafts can only be
presented net where there is both the legal ability and intention to settle net.
Impact of transition
While the application of IFRS has a broadly neutral impact on profit before tax
and earnings, it results in a decrease in net assets, mainly due to the
recognition of the pension deficit. The principal differences for the Group
between reporting on the basis of UK GAAP and IFRS are as follows:
(i) recognising an expense for the fair value of employee
share-based awards rather than the intrinsic value;
(ii) ceasing to amortise goodwill but instead testing for impairment
at least annually;
(iii) recognising the full pension deficit on the balance sheet, taking
pension operating and financing costs to the income statement, and actuarial
gains and losses to the statement of recognised income and expense;
(iv) no longer recognising dividends proposed but not declared as a
liability at the balance sheet date.
The application of IFRS has also changed the presentation of the cash flow
statement which now shows cash flows from three activities - operating,
investing and financing. In addition, under IFRS the cash flow statement
includes all cash flows in respect of cash and cash equivalents. This is a
broader definition of cash than under UK GAAP.
2 Segmental Analysis
The Group is organised into three primary business segments: Business Solutions,
Training and Resourcing Solutions.
Six months to Six months to Year to
30.6.05 30.6.04 31.12.04
£'000 £'000 £'000
restated
Revenue
Business Solutions 12,147 12,068 23,664
Training 10,437 12,573 24,395
Resourcing Solutions ** 66,206 58,290 121,801
88,790 82,931 169,860
Operating result before Exceptional items Operating result after
exceptional items exceptional items
Six Six Six Six Six Six
months months Year months months Year months months Year
to to to to to to to to to
30.6.05 30.6.04 31.12.04 30.6.05 30.6.04 31.12.04 30.6.05 30.6.04 31.12.04
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Business
Solutions 35 1,105 1,295 - - (893) 35 1,105 402
Training (695) 253 (938) - - (218) (695) 253 (1,156)
Resourcing
Solutions 736 1,010 1,782 - - (218) 736 1,010 1,564
76 2,368 2,139 - - (1,329) 76 2,368 810
Central
Costs (1,061) (1,465) (2,990) - - (2,354) (1,061) (1,465) (5,344)
(985) 903 (851) - - (3,683) (985) 903 (4,534)
On 1 January 2005, certain contracts were assigned from Training to
Business Solutions. Had these contracts been assigned on 1 January 2004,
Business Solutions revenue would increase by, and the revenue for Training would
decrease by, £1,406,000 and £2,565,000 for the six months ended 30 June 2004 and
year ended 31 December 2004 respectively. The profit impact of such an
assignment would be an increase in Business Solutions profit and a decrease in
Training profit by £343,000 and £258,000 for the six months ended 30 June 2004
and the year ended 31 December 2004 respectively.
** During 2004, the accounting policy for revenue recognition
in respect of Resourcing Solutions managed services contracts was amended.
Following the negotiation of certain managed service contracts, which have
different characteristics to the Group's other managed service contracts, the
directors no longer believe that it is appropriate to treat Parity as the
principal in these contracts and therefore revenue has been shown on a net
basis. Revenue for the six months ended 30 June 2004 has been restated to
reflect this change, resulting in a reduction in Resourcing Solutions United
Kingdom's revenue of £7,381,000. There is no impact on group operating profit.
3 Exceptional items
Six months to Six months to Year to
30.6.05 30.6.04 31.12.04
£'000 £'000 £'000
Redundancy payments - - 1,648
Property restructuring - - 1,810
Other - - 225
Total exceptional items - - 3,683
4 Finance income
Six months to Six months to Year to
30.6.05 30.6.04 31.12.04
£'000 £'000 £'000
Bank interest receivable - 33 51
Total finance income - 33 51
5 Finance costs
Six months to Six months to Year to
30.6.05 30.6.04 31.12.04
£'000 £'000 £'000
Bank interest payable (602) (420) (965)
Post retirement benefits (344) (309) (618)
Other interest payable (3) (4) (7)
Total finance costs (949) (733) (1,590)
6 Tax
Six months to Six months to Year to
30.6.05 30.6.04 31.12.04
£'000 £'000 £'000
Current tax:
- UK corporation tax - - (3)
- Overseas taxes (96) (319) 56
Deferred tax 188 40 341
Total tax credit (charge) 92 (279) 394
The tax credit (charge) above includes £nil for the six months ended 30 June
2005 (£nil for the six months ended 30 June 2004 and £400,000 for the year ended
31 December 2004) arising in respect of exceptional items.
7 Earnings per ordinary share
The calculation of the loss per Ordinary share is based on a loss after taxation
of £1,842,000 (30 June 2004: £144,000 profit, 31 December 2004: £5,459,000
loss). The calculation of the loss per share before discontinued operations and
exceptional items in prior years is based on a loss after taxation of £1,842,000
(30 June 2004: £76,000 loss, 31 December 2004: £2,396,000 loss).
Supplementary basic and diluted earnings per share have been calculated to
exclude the effect of exceptional items and discontinued operations. The
adjusted numbers have been shown in the financial summary in order that the
effects of exceptional items and discontinued operations on reported earnings
can be fully appreciated.
The weighted average number of Ordinary shares used in the calculation of the
basic and diluted loss per share are as follows:
Six months to Six months to Year to
30.6.05 30.6.04 31.12.04
£'000 £'000 £'000
Basic
Weighted average number of fully paid
ordinary shares in issue during the period 288,691,692 288,691,692 288,691,692
Held by ESOP trust (2,756,238) (2,756,238) (2,756,238)
285,935,454 285,935,454 285,935,454
Dilutive
Weighted average number of fully paid
ordinary shares in issue during the period: 288,691,692 288,691,692 288,691,692
Dilutive effect of potential ordinary
shares - 930,286 441,075
Held by ESOP trust (2,756,238) (2,756,238) (2,756,238)
Adjusted weighted average number of fully
paid ordinary shares in issue during the
period 285,935,454 286,865,740 286,376,529
Basic earnings per share is calculated by dividing the basic earnings for the
period by the weighted average number of fully paid ordinary shares in issue
during the period, less those shares held by the ESOP Trust.
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 period. There
were no such options at 30 June 2005
8. Reconciliation of Net Cash Flow to Movement in Net Debt
30.6.05
£'000
Decrease in cash in the period (314)
Increase in bank loans and other bank borrowings (1,637)
Repayment of obligations under finance leases 10
Repayment of loan notes 6
Exchange movements 155
Movement in net debt in the period (1,780)
Net debt at 1 January 2005 (13,693)
Net debt at 30 June 2005 (15,473)
9. Analysis of Net Debt
1.1.05 Cash flow Exchange 30.6.05
movements
£'000 £'000 £'000 £'000
Cash at bank and in hand 5,641 (3,780) 74 1,935
Overdrafts (3,466) 3,466 - -
2,175 (314) 74 1,935
Bank loans (12,200) (1,300) - (13,500)
Other bank borrowings (3,602) (337) 81 (3,858)
Obligations under finance leases (60) 10 - (50)
Variable rate loan notes (6) 6 - -
Net Debt (13,693) (1,935) 155 (15,473)
10. Reconciliation of Operating (Loss) Profit to Net Cash Flow
Six months to Six months to Year to
30.6.05 30.6.04 31.12.04
£'000 £'000 £O000
Net (loss) profit for the period (1,842) 144 (5,459)
Adjustments for:
Tax (92) 279 (394)
Depreciation 455 600 1,134
Equity settled share based payments 70 71 169
(Profit) loss on disposal of tangible (7) - 41
fixed assets
Interest income - (33) (51)
Interest expense 949 733 1,590
Changes in working capital
Decrease (increase) in stock 205 (510) (1,103)
Increase in trade and other
receivables (1,601) (4,005) (1,891)
Increase in trade and other payables 1,222 3,278 4,918
(Decrease) increase in provisions (655) (696) 742
Increase in retirement benefit liability* (535) (432) (865)
Cash used in operations (1,831) (571) (1,169)
* Excludes finance cost which is shown in interest expense
Cash generated from operations includes cash outflows relating to exceptional
items recorded in prior years under UK GAAP of £1,583,000 (30 June 2004: outflow
of £932,000 relating to exceptional items and a recovery of £220,000 in respect
of discontinued operations; 31 December 2004: outflow of £1,560,000 relating to
exceptional items and a recovery of £220,000 in respect of discontinued
operations)
11. Statement of changes in Shareholders' equity
Share
Share Premium Other Retained
Capital Reserve Reserves Earnings Total
£'000 £'000 £'000 £'000 £'000
At 1 January 2005 14,434 6,062 44,160 (59,659) 4,997
Net loss for the period - - - (1,842) (1,842)
Share options - value of - - - 70 70
employee services
Net loss recognised directly in - - - (265) (265)
equity
At 30 June 2005 14,434 6,062 44,160 (61,696) 2,960
12 Post retirement benefits
The Group provides employee benefits under various arrangements, including
through defined benefit and defined contribution pension plans, the details of
which are disclosed in the 2004 annual Report and Accounts. At the interim
balance sheet date, the assets and liabilities of the principal defined benefit
plans have been updated from the latest actuarial valuations.
13 Contingencies
In the normal course of business, the Group is exposed to the risk of claims in
respect of contracts where the customer or supplier is dissatisfied with the
performance, pricing and/or completion of the contracted service or product.
Such claims are normally resolved by a combination of negotiation, further work
by Parity or the supplier and/or monetary settlement without formal legal
process being necessary. Occasionally, such claims progress into legal action.
At the present time, Group management believes the resolution of any known
claims or legal proceedings will not have a material further impact on the
financial position of the Group.
Independent review report to Parity Group plc for the six months ended 30 June
2005
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2005 which comprises a consolidated balance sheet
as at 30 June 2005, a consolidated income statement, a consolidated statement of
recognised income and expense, a consolidated cash flow statement for the period
then ended, comparative figures and associated notes. 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.
As disclosed in note 1, the next annual financial statements of the group will
be prepared in accordance with accounting standards adopted for use in the
European Union. This interim report has been prepared in accordance with the
basis set out in Note 1.
The accounting policies are consistent with those that the directors intend to
use in the next annual financial statements. As explained in note 1, there is,
however, a possibility that the directors may determine that some changes are
necessary when preparing the full annual financial statements for the first time
in accordance with accounting standards adopted for use in the European Union.
The IFRS standards and IFRIC interpretations that will be applicable and adopted
for use in the European Union at 31 December 2005 are not known with certainty
at the time of preparing this interim financial information.
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 disclosed accounting policies have
been applied. 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 and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for 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 2005.
PricewaterhouseCoopers LLP
Chartered Accountants
London
27 September 2005
Explanation of transition to IFRS
The Company's financial statements for the year ending 31 December 2005 will be
the first annual financial statements that comply with IFRS. These interim
financial statements have been prepared as described in note (a) of this
appendix. The Company has applied IFRS 1 in preparing these interim financial
statements. The last financial statements under UK GAAP were for the year ended
31 December 2004 and the date of transition was therefore 1 January 2004.
Presented below are the reconciliation of profit for the year ended 31 December
2004 and the reconciliations of equity at 1 January 2004 (date of transition to
IFRS) and at 31 December 2004 (date of last UK GAAP financial statements) as
required by IFRS 1.
In addition, the reconciliation of equity at 30 June 2004 and the reconciliation
of profit for the six months ended 30 June 2004 have been included below as
required by IFRS 1 to enable the comparison of the 2005 interim figures with
those published in the corresponding period of the prior year.
(a) Accounting policies
The principal accounting policies applied in the preparation of these condensed
consolidated financial statements are set out below.
Basis of preparation
The condensed consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS) and IFRIC
interpretations issued and effective or issued and early adopted as at 30 June
2005. The IFRS standards and IFRIC interpretations that will be applicable at
31 December 2005 are not known with certainty at the time of preparing these
condensed consolidated financial statements. The condensed consolidated
financial statements have been prepared under the historical cost convention as
modified by the revaluation of financial assets and liabilities at fair value
through profit or loss from 1 January 2005.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the
parent company (Parity Group plc) and its subsidiary undertakings (defined as
where the Group has control). The financial statements of subsidiaries are
prepared as of the same reporting date as the parent company, using consistent
accounting policies.
The results of subsidiaries are consolidated, using the purchase method of
accounting, from the date on which control of the net assets and operations of
the acquired company are effectively transferred to the Group. Similarly, the
results of subsidiaries divested cease to be consolidated from the date on which
control of the net assets and operations are transferred out of the Group.
Revenue recognition
Revenue represents the value of work completed for clients including
attributable profit, after adjusting for all foreseeable future losses, net of
value added tax.
Revenue on contracts for the supply of professional services at pre-determined
rates is recognised as and when the work is performed, irrespective of the
duration of the contract.
Revenue is recognised on fixed price contracts while the contract is in
progress, having regard to the proportion of the total contract costs which have
been incurred at the balance sheet date. Provision is made for all foreseeable
future losses.
Training revenue is recognised as and when the training event occurs.
Contractor staffing services revenue is recognised when contractors render
services. Permanent placement staffing revenue is recognised when employment
candidates accept offers of permanent employment. Allowances are established to
estimate losses due to placed candidates not remaining for the guarantee period.
Under managed service contracts, with the exception of certain contracts
currently operated by Resourcing Solutions UK where Parity does not consider
itself principal, the Directors believe that Group meets the definition of a
principal in accordance with IAS 18 and consequently the value of services
billed to clients is recognised on a gross basis as those services are
performed.
Share-based payments
The Group operates various share-based award schemes. The fair value of the
award at the date of grant is recognised in the income statement (together with
a corresponding increase in shareholdersO equity) on a straight line basis over
the vesting period, based on an estimate of the number of shares that will
eventually vest. No expense is recognised for awards that do not ultimately
vest, except for awards where vesting rests upon a market condition.
Exceptional items
Items which are both material and non-recurring are presented as exceptional
items within their relevant consolidated income statement category. The
separate reporting of exceptional items helps provide a better indication of the
Group's underlying business performance. Events which may give rise to the
classification of items as exceptional include gains or losses on the disposal
of businesses, restructuring of businesses, litigation and similar settlements,
and asset impairments.
Dividends
Final dividends proposed by the Board of Directors and unpaid at the year end
are not recognised in the financial statements until they have been approved by
the shareholders at the Annual General Meeting. Interim dividends, which do not
require shareholder approval are recognised when they are approved by the Board
of Directors.
Goodwill
Goodwill represents the excess of the cost of acquisition of a business
combination over the Group's share of the fair value of identifiable net assets
of the business acquired.
After initial recognition, goodwill is measured at cost less any accumulated
impairment losses. At the date of acquisition, the goodwill is allocated to
cash generating units for the purpose of impairment testing and is tested at
least annually for impairment.
Gains and losses on disposal of a business include the carrying amount of
goodwill relating to the business sold in determining the gain or loss on
disposal, except for goodwill arising on business combinations on or before 31
December 1997 which has been deducted from shareholders' equity and remains
indefinitely in shareholders' equity.
Goodwill is tested at least annually for impairment. An impairment loss is
recognised for the amount by which the asset's carrying amount exceeds its
recoverable amount, the latter being the higher of the asset's fair value less
costs to sell and value in use. Value in use calculations are performed using
cash flow projections, discounted at a pre-tax rate which reflects the asset
specific risks and the time value of money.
Income tax
The charge for current income tax is based on the results for the year as
adjusted for items which are not taxed or disallowed. It is calculated using
tax rates that have been enacted or substantively enacted by the balance sheet
date.
Deferred income tax is accounted for using the liability method in respect of
temporary differences arising from differences between the tax bases of assets
and liabilities and their carrying amounts in the financial statements.
In principle, deferred tax liabilities are recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference is due to goodwill arising on a business
combination or from an asset or liability, the initial recognition of which does
not affect either taxable or accounting income.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries except where the Group is able to control
the reversal of the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply to the
period when the asset is realised or liability is settled. Deferred tax is
charged or credited in the income statement, except when it relates to items
credited or charged directly to shareholdersO equity, in which case the deferred
tax is also dealt with in shareholdersO equity.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and in
hand, short term deposits and other short term liquid investments.
In the consolidated cash flow statement, cash and cash equivalents comprise cash
and cash equivalents, as defined above, net of bank overdrafts.
Provisions
Provisions are recognised when the Group has a present obligation in respect of
a past event, where it is more likely than not that an outflow of resources will
be required to settle the obligation, and where the amount can be reliably
estimated.
Foreign Currencies
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates (the 'functional currency'). The consolidated financial
statements are presented in sterling, which is the Company's functional and
presentation currency.
The accounts of overseas subsidiary undertakings are translated at the rate of
exchange ruling at the balance sheet date. The exchange differences arising on
the retranslation of opening net assets, together with the year-end adjustment
to closing rates of profit and loss accounts translated at average rates, are
taken directly to reserves. All other translation differences are taken to the
profit and loss account with the exception of differences on foreign currency
borrowings to the extent that they are used to finance or provide a hedge
against Group equity investments in foreign enterprises, which are taken
directly to reserves together with the exchange difference on the net investment
in these enterprises. Tax charges and credits attributable to exchange
differences on those borrowings are also dealt with in reserves.
Leases
Assets held under finance leases, which are leases where substantially
all the risks and rewards of ownership of the asset have passed to the group,
are capitalised in the balance sheet and are depreciated over their useful
lives. The capital elements of future obligations under leases are included as
liabilities in the balance sheet. The interest elements of the rental
obligations are charged to the profit and loss account over the period of the
leases and represent a constant proportion of the balance of capital repayments
outstanding.
Rentals paid under operating leases are charged to income on a straight line
basis over the term of the lease.
Property provisions
Where leasehold properties are surplus to requirements, both now and in the
foreseeable future, provisions are made for the best estimates of the
unavoidable net future costs.
Provisions for dilapidation charges that will crystallise at the end of the
period of occupancy are provided for in full on empty properties and are charged
to the income statement evenly over the period of the lease for occupied
properties. No dilapidations provisions are created for any properties which
have leases that expire in more than 10 years on the basis that the
dilapidations charge cannot be accurately estimated when the remaining life of
the lease is so long.
Pensions and other post-employment benefits
The Group operates a number of retirement benefit schemes. With the exception of
the 'Parity Retirement Benefit Plan', all of the schemes are defined
contribution plans and the assets are held in separate, independently
administered funds. The Group's contributions to defined contribution plans are
charged to the income statement in the period to which the contributions relate.
The 'Parity Retirement Benefit Plan' is a defined benefit pension fund with
assets held separately from the Group. This fund has been closed to new members
since 1995 and with effect from 1 January 2005 was also closed to future service
accrual. The cost of providing benefits under the plan is determined using the
projected unit credit actuarial valuation method.
Past service costs are included where the benefits have vested otherwise they
are amortised on a straight line basis over the vesting period. The expected
return on the assets of the funded defined benefit pension plan and the imputed
interest on the pension plan liabilities comprise the pension element of the net
finance cost/income in the income statement.
Differences between the actual and expected return on assets, changes in the
retirement benefit obligation due to experience and changes in actuarial
assumptions are included in the statement of recognised income and expense in
full in the period in which they arise.
Derivative financial instruments (up to 31 December 2004)
Derivative financial instruments are used to manage the Group's exposure to
fluctuations in foreign currency exchange rates. Instruments accounted for as
hedges are designated as hedges at the inception of contracts. Gains and losses
on foreign currency hedges are recognised on maturity of the underlying
transaction. Currency swap agreements are retranslated at the rates ruling in
the agreements with resulting gains and losses being offset against foreign
exchange gains and losses on the related borrowings. Gains and losses on
hedging instruments which are cancelled due to the termination of the underlying
exposure are taken to the income statement immediately.
Derivative financial instruments (after 31 December 2004)
Parity has not sought to apply hedge accounting to the limited number of
derivative instruments it uses and as such any gains or losses arising from
changes in fair value are taken directly to the income statement.
(b) Reconciliation of (loss) profit to 30 June 2004 and 31 December 2004
from UK GAAP to IFRS
Six months ended 30.6.04 Year ended 31.12.04
Effect of Effect of
transition transition
UK to to
GAAP IFRS IFRS UK GAAP IFRS IFRS
Unaudited Unaudited Unaudited Audited Unaudited Unaudited
£'000 £'000 £'000 £'000 £'000 £'000
Notes Restated+
Continuing Operations
Revenue 82,931 - 82,931 169,860 - 169,860
Staff costs (g)ii (g) (18,278) 403 (17,875) (34,047) 1,050 (32,997)
iii
Depreciation and (g)i (915) 315 (600) (1,763) 629 (1,134)
amortisation
All other operating
expenses (63,553) - (63,553) (136,580) - (136,580)
Total operating
expenses
before exceptional
items (82,746) 718 (82,028) (172,390) 1,679 (170,711)
Exceptional items - - - (3,683) - (3,683)
Total operating (82,746) 718 (82,028) (176,073) 1,679 (174,394)
expenses
Operating profit
(loss) 185 718 903 (6,213) 1,679 (4,534)
Finance income 33 - 33 51 - 51
Finance costs (g)ii (424) (309) (733) (972) (618) (1,590)
Profit (loss) before
tax (206) 409 203 (7,134) 1,061 (6,073)
Tax (g)iv (250) (29) (279) 507 (113) 394
Loss for the period
from
continuing
operations (456) 380 (76) (6,627) 948 (5,679)
Discontinued
operations
Profit for the period
from
discontinued
operations 220 - 220 220 - 220
(Loss) profit for the
period (236) 380 144 (6,407) 948 (5,459)
+ Refer note 2
(c) Reconciliation of UK GAAP loss to IFRS profit (loss)
Notes Six months
ended Year ended
30.6.04 31.12.04
£'000 £'000
(Loss) for period as reported under UK GAAP (236) (6,407)
Adjustments for:
Goodwill not amortised after date of transition (g)i 315 629
IAS 19 pension interest cost (g)ii (309) (618)
Add UKGAAP charge in respect of employee benefits 352 893
Add IFRS credit in respect of employee benefits 122 326
Share based payments charge (g)iii (71) (169)
Deferred tax on IAS 19 (g)iv (50) (164)
Deferred tax on share based payments (g)iv 21 51
Total profit (loss) as reported under IFRS 144 (5,459)
(d) Reconciliation of equity as at 1 January 2004 and 31 December 2004
from UK GAAP to IFRS
As at 1 January 2004 As at 31 December 2004
Notes Effect of Effect of
transition transition
to IFRS to IFRS
Unaudited Unaudited
UK GAAP £;000 IFRS UK GAAP £'000 IFRS
Audited Unaudited Audited Unaudited
£'000 £'000 £'000
£'000
Non-current assets
Goodwill (g)i 9,616 - 9,616 8,987 629 9,616
Property, plant and 2,586 - 2,586 1,920 - 1,920
equipment
Available for sale 30 - 30 30 - 30
financial assets
Deferred tax assets (g)iv 3,418 986 4,404 4,130 1,150 5,280
15,650 986 16,636 15,067 1,779 16,846
Current assets
Inventories 561 - 561 1,664 - 1,664
Trade and other 38,510 - 38,510 40,402 - 40,402
receivables
Current tax assets 2,040 - 2,040 687 - 687
Cash and cash 3,241 - 3,241 5,641 - 5,641
equivalents
44,352 - 44,352 48,394 - 48,394
Total Assets 60,002 986 60,988 63,461 1,779 65,240
Current liabilities
Borrowings (4,220) - (4,220) (7,093) - (7,093)
Trade and other (g)ii (g)v (26,660) 27 (26,633) (31,710) (75) (31,785)
payables
Current tax liabilities (62) - (62) - - -
Provisions - (1,526) (1,526) - (1,562) (1,562)
(30,942) (1,499) (32,441) (38,803) (1,637) (40,440)
Non-current liabilities
Borrowings (11,058) - (11,058)(12,241) - (12,241)
Provisions (3,636) 1,526 (2,110) (4,378) 1,562 (2,816)
Retirement benefit (g)ii (864) (3,205) (4,069) (1,233) (3,513) (4,746)
liability
(15,558) (1,679) (17,237)(17,852) (1,951) (19,803)
Total liabilities (46,500) (3,178) (49,678)(56,655) (3,588) (60,243)
Net assets 13,502 (2,192) 11,310 6,806 (1,809) 4,997
Shareholders' equity
Called up share capital 14,434 - 14,434 14,434 - 14,434
Share premium account 6,062 - 6,062 6,062 - 6,062
Capital redemption 50 - 50 50 - 50
reserve
Other reserves 44,110 - 44,110 44,110 - 44,110
Retained earnings (51,154) (2,192) (53,346)(57,850) (1,809) (59,659)
Total shareholders' 13,502 (2,192) 11,310 6,806 (1,809) 4,997
equity
(e) Reconciliation of equity as at 30 June 2004 from UK GAAP to IFRS
Notes Effect of
UK GAAP transition to IFRS
unaudited IFRS unaudited
£'000 £'000 £'000
Non-current assets
Goodwill (g)i 9,301 315 9,616
Property, plant and equipment 2,210 - 2,210
Available for sale financial assets 30 - 30
Deferred tax assets (g)iv 3,476 1,095 4,571
15,017 1,410 16,427
Current assets -
Inventories 1,071 - 1,071
Trade and other receivables 42,515 - 42,515
Current tax assets 972 - 972
Cash and cash equivalents 1,463 - 1,463
46,021 - 46,021
Total Assets 61,038 1,410 62,448
Current liabilities
Borrowings (4,516) - (4,516)
Trade and other payables (g)ii
(g)v (30,173) (108) (30,281)
Current tax liabilities (74) - (74)
Provisions - (1,159) (1,159)
(34,763) (1,267) (36,030)
Non-current liabilities
Borrowings (9,549) - (9,549)
Provisions (2,940) 1,159 (1,781)
Retirement benefit liability (g)ii (954) (3,454) (4,408)
(13,443) (2,295) (15,738)
Total liabilities (48,206) (3,562) (51,768)
Net assets 12,832 (2,152) 10,680
Shareholders' equity
Called up share capital 14,434 - 14,434
Share premium account 6,062 - 6,062
Capital redemption reserve 50 - 50
Other reserves 44,110 - 44,110
Retained earnings (51,824) (2,152) (53,976)
Total shareholders' equity 12,832 (2,152) 10,680
(f) Reconciliation of equity from UK GAAP to IFRS
Notes 1.1.04 30.6.04 31.12.04
£'000 £'000 £'000
Total equity as reported under UK GAAP 13,502 12,832 6,806
Adjustments for:
Goodwill not amortised after date of (g)i - 315 629
transition
Dividends not recognised as liability until (g)v 87 - -
declared
IAS 19 employee benefits (g)ii (3,265) (3,562) (3,588)
Deferred tax on IAS 19 employee benefits (g)iv 980 1,068 1,093
Deferred tax on share based payments (g)iv 6 27 57
Total equity as reported under IFRS 11,310 10,680 4,997
(g) IFRS - Explanation of impact
i. Goodwill
Under UK GAAP, capitalised goodwill was amortised over its useful economic life
of up to 20 years and goodwill previously written off to shareholders' equity
was recycled in the income statement as part of the profit or loss on disposal
of a business.
Under IFRS, capitalised goodwill is not amortised but is instead tested at least
annually for impairment. Goodwill amortisation charged under UK GAAP of £315,000
and £629,000 for the six months ended 30 June 2004 and year ended 31 December
2004 respectively, has been reversed under IFRS.
Goodwill arising on business combinations on or before 31 December 1997 has been
deducted from shareholdersO equity. This amounted to £60,585,000 at 1 January
2004 and will not be recycled through the income statement on any disposal.
As permitted by IFRS 1, the Group has chosen to apply IFRS 3 prospectively from
1 January 2004 and has not restated previous business combinations. Goodwill is
therefore stated at 1 January 2004 at its UK GAAP carrying value of £9,616,000.
ii. IAS 19 - employee benefits
Under UK GAAP, Parity accounted for pensions under SSAP 24; FRS 17 information
was also disclosed in the notes to the financial statements. Parity accounts
for pensions in accordance with IAS 19 on the adoption of IFRS.
IAS 19 was amended on 16 December 2004 (although this is yet to be endorsed by
the EU) to allow a company to account for actuarial gains and losses (which
arise as a result of a PlanOs experience in the year differing from the
actuarial assumptions made at the start of that year) under the Statement of
Recognised Income and Expenditure method (SORIE). Under this method,
experienced actuarial gains and losses will be recognised immediately in the
balance sheet. The actuarial gains and losses are likely to be the most
volatile item of pension cost. This volatility is recognised and is one of the
reasons why it is not deemed appropriate to include it in the profit and loss
account.
The impact of this policy is to recognise an additional pension liability of
£3,205,000 in the GroupOs IFRS opening balance sheet at 1 January 2004,
£3,454,000 at 30 June 2004 and £3,513,000 at 31 December 2004.
The impact of the policy on operating profit for the year ended 31 December 2004
is an improvement in operating profit of £1,234,000 with a £618,000 increase in
finance costs, giving a net increase in profit of £616,000 in the income
statement. For the six months ended 30 June 2004, operating profit is increased
by £522,000 with a £309,000 increase in finance costs, giving a net improvement
of £213,000 in the income statement.
As a result of further guidance in IAS 19, a £60,000 increase in the GroupOs
holiday pay accrual has been reflected on transition, £108,000 at 30 June 2004
and £75,000 at 31 December 2004. The impact of the policy on operating profit
for the year ended 31 December 2004 is a reduction of £15,000 in the income
statement. The impact of the policy on operating profit for the six months
ended 30 June 2004 is a reduction of £48,000 in the income statement.
iii. IFRS 2 - share based payments
Parity operates a number of share-based incentive schemes. Parity did not
recognise any expense in the profit and loss account under UK GAAP for the
intrinsic value of awards under the schemes. Under IFRS, an expense is
recognised for all awards under share-based incentive schemes, based on the fair
value at the date of grant, calculated using a valuation model. The fair value
of awards post 7 November 2002 (in accordance with the transitional provisions
of IFRS 2) under the GroupOs Executive Share Option Plans and Savings Related
Option Scheme have been calculated using a Cox Ross Rubinstein binomial model
and a Black-Scholes valuation model respectively.
The fair values are calculated on the date of grant of the awards and the total
fair value is charged to the profit and loss account over the relevant vesting
periods, adjusted to reflect expected levels of lapses and in the case of
Executive Share Options, expected achievement of vesting conditions.
The charge to the profit and loss account for the six months to 30 June 2004 and
year to 31 December 2004 is £71,000 and £169,000 respectively. There is no
impact of this charge on net assets since the credit is reflected in equity.
iv. IAS 12 - income taxes
IAS 12 requires full provision for all taxable temporary differences. A
temporary difference arises where there is a difference between the carrying
amount of an asset or liability and its tax value. A temporary difference is
taxable if it will result in taxable amounts in the future, when the carrying
amount of the asset is recovered or the liability is settled.
On transition to IFRS, Parity recognised additional deferred tax assets
totalling £986,000 representing deferred tax on the IAS 19 - employee
benefits of £980,000 and deferred tax of the IFRS 2 charge of £6,000. At 30
June 2004, the Company recognised cumulative deferred tax assets totalling
£1,095,000 representing deferred tax on the IAS 19 - employee benefits
of £1,068,000 and deferred tax of the IFRS 2 charge of £27,000. At 31 December
2004, the Company recognised cumulative deferred tax assets totalling £1,150,000
representing deferred tax on the IAS 19 - employee benefits of
£1,093,000 and deferred tax of the IFRS 2 charge of £57,000.
v. IAS 10 - events after the balance sheet date
In accordance with IAS 10 - events after balance sheet date, proposed
dividends can no longer be accrued at the balance sheet date if they have not
been approved as at that date. Parity's final dividend at 31 December 2003 was
£87,000 but it was not approved by shareholders until the AGM in June 2004. As
the dividend was not approved as at 31 December 2003, it has been excluded from
the opening IFRS balance sheet.
vi. IAS 14 - segment information
Segmental reporting is addressed within IAS 14 Segment Reporting, which requires
the entity to look at its organisational structure and internal reporting system
to identify reportable segments for external financial reporting purposes.
Parity's primary business segments comprise IT and business services (Business
Solutions), Training, and technology staffing (Resourcing Solutions). The
impact of IAS 14 will result in some subtle changes to the way Parity has
previously reported under UK GAAP. Under UK GAAP, Parity reported the results
of its US business, 'Parity Americas' and Resourcing Solutions -
mainland Europe as separate primary business segments. These businesses are
predominantly technology staffing companies and as such will now be included
within the Resourcing Solutions business segment. Geographical segments are
Parity's secondary reporting format and it is likely that the technology
staffing business in Germany will require separate disclosure due to
materiality.
As required by IAS 14, Parity's full year IFRS financial statements at 31
December 2005 will also include details of assets, liabilities, capital
expenditure, depreciation and other non-cash income statement items by business
segment and capital expenditure and assets by geographical segment.
This information is provided by RNS
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