Issue of Equity

Parity Group PLC
25 September 2003

Not for release, publication or distribution in or into the United States,
Australia, Canada, Japan the Republic of Ireland or the Republic of South Africa


                                                               25 September 2003


                                PARITY GROUP PLC


 PROPOSED 7 FOR 8 RIGHTS ISSUE OF UP TO 134,723,373 NEW ORDINARY SHARES AT 7.5
                                PENCE PER SHARE



Highlights


  • Proposed 7 for 8 Rights Issue of up to 134,723,373 New Ordinary Shares at
    7.5 pence per share, to raise approximately £10.1 million (£9.2 million net
    of expenses)


  • Proceeds from the Rights Issue are intended to be used for strengthening
    the Group's balance sheet, undertaking a restructuring programme to further
    reduce overheads, providing working capital to accommodate increased levels
    of activity in the Group's businesses and limited capital investment in the
    IT systems required to achieve further savings in back office and support
    functions


  • New Ordinary Shares, when fully paid, will rank pari passu with Existing
    Shares


  • Rights Issue fully underwritten by HSBC



A Prospectus published by the Company and containing details of the Rights Issue
(the 'Prospectus') is expected to be posted to Qualifying Shareholders today and
Provisional Allotment Letters are expected to be sent to Qualifying Shareholders
following the Extraordinary General Meeting to be held on 13 October 2003.


Commenting today, Bill Cockburn, Non-executive Chairman of Parity, said:


'In order to ensure our business is appropriately structured to take the Group
forward effectively we are today announcing a proposed £10.1 million (gross)
rights issue to strengthen the Group's balance sheet, facilitate the extension
of its restructuring programme to further reduce overheads, provide working
capital to accommodate increased activity across the Group and fund limited
capital investment required to extract further savings in back office and
support functions.'


For further information contact:

Parity Group plc                 Ian Miller, Chief Executive       020 7776 0800

                                 Alison Leyshon, Finance Director



HSBC Bank plc                    Alastair Moreton                  020 7991 8888

Financial Adviser and Sponsor    Marcus Ayre



HSBC Bank plc                    Michele Acton                     020 7991 8888

Corporate Broking                Giles Lambert



Financial Dynamics               Harriet Keen                      020 7831 3113

Public Relations





HSBC Bank plc, which is authorised in the United Kingdom to engage in investment
activity by the Financial Services Authority Limited, is acting exclusively for
Parity Group plc and no-one else in connection with the Rights Issue and the
matters described in this announcement and will not be responsible to anyone
other than Parity Group plc for providing the protections afforded to customers
of HSBC, nor for providing advice in relation to the Rights Issue or any matters
referred to in this announcement.


This announcement does not constitute, or form part of, an offer or any
solicitation of an offer for securities, and any purchase of, or application
for, shares in the Rights Issue should only be made on the basis of the
information contained in the Prospectus and any supplement thereto issued in
connection with the Rights Issue.


This announcement does not constitute an offer of securities for sale in the
United States, Australia, Canada, Japan, the Republic of Ireland or the Republic
of South Africa. The securities referred to in this announcement may not be
offered or sold in the United States or to persons resident in the United States
absent an applicable exemption from registration under the US Securities Act of
1933, as amended.


The securities referred to in this announcement have not been and will not be
registered under the United States Securities Act 1933, as amended, nor under
the applicable securities laws of any state of the United States, any province
or territory of Australia, Canada, Japan, the Republic of Ireland and the
Republic of South Africa. No prospectus has been or will be lodged with, or
registered by, the Australian Securities and Investments Commission, and,
subject to certain limited exceptions, the securities may not be offered, sold,
taken up, renounced or delivered, directly or indirectly, in or into Australia,
Canada, Japan, the Republic of Ireland, the United States or the Republic of
South Africa or any country, territory or possession where to do so may
contravene local securities laws or regulations.


This summary should be read in conjunction with the full text of the attached
press release.



Not for release, publication or distribution in or into the United States,
Australia, Canada, Japan, the Republic of Ireland or the Republic of South
Africa



                                                               25 September 2003


                                PARITY GROUP PLC


 PROPOSED 7 FOR 8 RIGHTS ISSUE OF UP TO 134,723,373 NEW ORDINARY SHARES AT 7.5
                                PENCE PER SHARE



INTRODUCTION


Parity announces that it proposes to raise approximately £10.1 million (£9.2
million net of expenses) by way of a 7 for 8 Rights Issue of up to 134,723,373
new Ordinary Shares at a price of 7.5 pence per new Ordinary Share. The Rights
Issue has been fully underwritten by HSBC. The new Ordinary Shares to be issued
under the Rights Issue, when fully paid, will rank pari passu with the existing
Ordinary Shares. HSBC is acting as sponsor, financial adviser and broker to
Parity.


In view of the requirement to seek authority from Shareholders to, inter alia,
allot the new Ordinary Shares, there will be an Extraordinary General Meeting to
be held on 13 October 2003.


BACKGROUND TO AND REASONS FOR THE RIGHTS ISSUE


Overview of Parity's business


Parity is a leading provider of IT services including technology, training and
human capital management solutions, operating from over 30 offices across the
UK, mainland Europe and the US. It comprises three business units in Europe and
one in the US:


  • Business Solutions: designs, builds and operates complete systems covering
    a variety of business functions. Focusing on maximising investment returns,
    its consultants specialise in interactive commerce, customer relationship
    management, content management, web-enablement, security and applications
    management, providing services across a range of vertical sectors;


  • Resourcing Solutions: a professional services supplier providing permanent
    and interim technology staff. It advises companies on how to optimise the
    deployment and utilisation of staff and skills. It also supplies technology
    and consultancy to maximise the effectiveness with which its customers use
    external suppliers and internal resources;


  • Training: delivers bespoke and public scheduled courses in technology,
    management and business skills at ten training centres nationwide and at
    customer sites. Blending traditional training with e-learning to achieve
    effective learning outcomes, it additionally provides a range of learning
    services spanning the design and delivery of integrated learning solutions
    to fully outsourced training and development; and


  • Parity Americas: provides business solutions, resourcing solutions and
    training on the East Coast and also operates on a project basis elsewhere in
    the region.


Reasons for the Rights Issue

Since March 2001, the Group has addressed each of the three market segments
serviced by each of its divisions with a strategy based on value-adding
propositions. This has been under-pinned by a combined approach to marketing,
sales and relationship management with Parity's key blue-chip clients. A vital
element of this strategy has been focussing on larger, longer-term contracts to
produce more predicable and sustainable revenue streams. The Group's award of
the Cabinet Office contract is an example of the success of a number of the
Group's businesses combining their skills in winning this major 5 year business
process outsourcing contract.


In pursuing this approach and in response to significant adverse conditions in
all the markets in which it operates, Parity has also focussed on reducing the
overheads within its businesses in order to better align its cost base with the
lower revenues which have been experienced. Exceptional restructuring charges of
£6.5 million and £3.6 million were charged to the profit and loss account in the
years ending 31 December 2001 and 2002 respectively. As a result of these
actions Group overheads (excluding goodwill and discontinued operations) have
been reduced by £13.4 million (19 per cent.) between 2000 and 2002. In addition,
overheads for the six months ended 30 June 2003 were £5.1 million (17 per cent.)
less than in the same period in 2002.


Whilst these cost reductions continue to benefit Parity's results, the
investment required to achieve these savings, together with the longest-running
recession the IT industry has seen to date, has contributed to a significant
rise in the Group's net debt which currently amounts to approximately £19
million. The Board believes that the current level of debt is too high and will
constrain the Group going forward. As the Group continues to succeed in getting
to the bid short-list for larger and longer contracts with substantial clients,
its balance sheet, which has also been adversely effected by the write off of
goodwill related to historic acquisitions, is becoming a constraining factor. A
number of measures have been taken to address this position including tight
working capital management, significant reductions in capital expenditure, and
arrangement of the Invoice Discounting Facility and renegotiation of banking
covenants. The Board has also considered the sale of certain of the Group's
businesses. Following the Rights Issue, Parity's principal lending bank has
agreed that it will maintain its £18.0 million committed facility through to
March 2006 together with £2.0 million of overdraft facilities. Parity has also
put in place the Invoice Discounting Facility which, based on its current debtor
book, will provide a further facility of approximately £4.0 million.


As referred to in the Group's interim results released today, there are a number
of indicators which the Directors believe position Parity well to build on the
opportunities that are becoming available in the markets in which the Group
operates. Stronger order books in Business Solutions, gains in market share in
Training (whilst many competitors have experienced more significant declines in
revenues), a strengthening sales position in Resourcing Solutions over the
usually quiet summer period and a significantly improved level of interest and
enquiries in Parity Americas provide positive signals for the future.


The Directors also believe that it would be appropriate to undertake a further
restructuring with the aim of taking additional cost out of the Group's cost
base through the further integration of back office systems and central support
functions. The total cost of this restructuring is anticipated to be £3.0
million which would be treated as an exceptional charge in the results for the
year ending 31 December 2003 and is expected to generate annualised cost savings
of some £2.9 million. The Group continues to seek to sub-let or otherwise exit
the onerous leases on its surplus properties. However, the property market has
been difficult and other rationalisation possibilities are being explored which
may require additional exceptional provisions to be charged in the second half
of 2003. The costs incurred over the summer in respect of investigations into
the disposal of certain businesses within the Group, together with an
accelerated depreciation charge on software licenses and other fixed assets in
connection with the proposed restructuring will also form part of the
exceptional charge for the year. Including the restructuring charge and
potential property provisions referred to above, this is estimated to amount to
some £6.0 million in total. The 2003 cash cost of the potential exceptional
charge is estimated to be approximately £1.7 million, with further cash outlays
in 2004 and 2005 if surplus property cannot be sublet or otherwise exited.


Accordingly, the Board has concluded that the existing financial constraints of
the Group would be best addressed by means of the Rights Issue. The proceeds of
the Rights Issue are intended to be used for:

  • strengthening the Group's Balance Sheet;
  • undertaking a restructuring programme to further reduce overheads;
  • working capital to accommodate increased levels of activity in the Group's
    businesses; and
  • limited capital investment in the IT systems required to achieve further
    savings in back office and support functions.

In the short term, some of the proceeds of the Rights Issue will be used to
reduce the current level of drawdown against both the committed facility and
overdraft facility.


Importance of the proposal


In the event that the Rights Issue does not proceed, the Bank has agreed to
maintain its £18.0 million committed facility and a £4.0 million overdraft
facility whilst a strategic review and debt reduction programme is agreed with
the Directors, which may include the Directors considering, inter alia, equity
fundraisings or asset disposals. In addition, Parity would continue to have
access to the Invoice Discounting Facility of approximately £4 million referred
to above. The Directors believe that such a level of ongoing facilities would
provide significant constraints on the Group going forward, including
constraining its ability to compete for larger and longer contracts with
substantial clients and its ability to further reduce overheads. The Directors
consider that this course of action would not be in the best interests of the
Company and its Shareholders as a whole and this has been taken into account by
the Directors in arriving at their decision to recommend Shareholders to vote in
favour of the Resolution.


CURRENT TRADING AND PROSPECTS


Parity today announced its interim results for the six months ended 30 June
2003. Following the Rights Issue, the Directors believe that Parity will have a
stronger financial structure going forward and accordingly have confidence in
the prospects of the Group.


PRINCIPAL TERMS AND CONDITIONS OF THE RIGHTS ISSUE


The Company is proposing to raise approximately £9.2 million (net of expenses),
by way of the Rights Issue. The Issue Price of 7.5 pence per new Ordinary Share,
which is payable in full on acceptance by not later than 10.30 am on 5 November
2003, represents:


 a. a 42.3 per cent. discount to the closing middle market price of 13.0 pence
    per ordinary Share on 18 September 2003, the last business day before the
    announcement by Parity confirming that it was considering an equity issue;
    and


 b. a 33.3 per cent. discount to the closing middle market price of 11.25 pence
    per Ordinary Share on 24 September, the last business day prior to the
    publication of this document.


Subject to the fulfilment of, amongst others, the conditions set out below, the
Company will offer up to 134,723,373 new Ordinary Shares by way of the Rights
Issue to Qualifying Shareholders at 7.5 pence per new Ordinary Share payable in
full on acceptance. The Rights Issue will be on the basis of:


               7 new Ordinary Shares for every 8 Ordinary Shares

held by Qualifying Shareholders on the Record Date, and so in proportion to any
other number of existing Ordinary Shares then held and otherwise on the terms
and conditions set out in the Prospectus to be despatched to Shareholders today
and, in the case of Qualifying non-CREST Shareholders only, the Provisional
Allotment Letter. Holdings of Ordinary Shares in certificated and uncertificated
form will be treated as separate holdings for the purpose of calculating
entitlements under the Rights Issue. Fractional entitlements to new Ordinary
Shares will not be allotted and, where necessary, entitlements will be rounded
down to the nearest whole number (nil paid) of new Ordinary Shares.


The new Ordinary Shares will, when issued and fully paid, rank pari passu in all
respects with the Ordinary Shares including the right to all future dividends
and other distributions declared, made or paid.


The Rights Issue is conditional, amongst other things, upon:


        (a)     the passing of the Resolution at the Extraordinary General
        Meeting without amendment;


        (b)     the Company having applied to CRESTCo for admission of the Nil
        Paid Rights to CREST as participating securities and no notification
        having been received from CRESTCo on or before Admission that such
        admission or facility for holding and settlement has been or is to be
        refused;


        (c)     Admission taking place by not later than 8.30 a.m. on 14 October
        2003 (or such later time and/or date as HSBC and the Company may agree,
        being not later than 8.30 a.m. on 21 October 2003); and


        (d)     the Underwriting Agreement becoming unconditional in all
        respects and not having been rescinded or terminated in accordance with
        its terms prior to Admission.


Applications will be made to the UK Listing Authority for the new Ordinary
Shares to be admitted to the Official List and to the London Stock Exchange for
the new Ordinary Shares to be admitted to trading on its market for listed
securities. It is expected that Admission will become effective and dealings
(for normal settlement) in the new Ordinary Shares will commence, nil paid, on
14 October 2003.


HSBC, as agent for the Company, has conditionally agreed to procure subscribers
or, failing which, itself to subscribe as principal for the new Ordinary Shares
(other than those referred to in the next paragraph) not taken up in the Rights
Issue at a price of 7.5 pence per share.


Based on the share capital of the Company on 24 September 2003 (the last
practical date before this announcement) up to 134,723,373 new Ordinary Shares
will be offered pursuant to the Rights Issue and this number of new Ordinary
Shares has been underwritten by HSBC subject to the terms and conditions of the
Underwriting Agreement. If, as at the Record Date, further Ordinary Shares had
been issued pursuant to the exercise of any options under the Parity Share
Option Plans, the number of new Ordinary Shares offered under the Rights Issue
would increase. Any additional new Ordinary Shares have not been underwritten.


The latest time and date for acceptance and payment in full under the Rights
Issue is expected to be 10.30 am on 5 November 2003.


DIRECTORS' INTENTIONS


The Directors currently beneficially own, in aggregate, 432,855 Ordinary Shares
representing approximately 0.28 per cent. of the ordinary share capital of the
Company and currently intend to take up (or procure the taking up of) their
entitlements to new Ordinary shares in full. In addition, Ian Miller and Alison
Leyshon have agreed to purchase further Ordinary Shares, either through the
purchase of new Ordinary Shares which are not taken up under the Rights Issue or
through the purchase of Ordinary shares in the market following the completion
of the Rights Issue, up to a total investment, including their entitlements
under the Rights Issue, of respectively, £50,000 and £15,000.


THE BOARD


Following completion of the Rights Issue it is intended to review the structure
of the Board with a view to strengthening the Group through a new non-executive
director appointment in the near future.


RECOMMENDATION


The Directors of Parity, who have received financial advice from HSBC, consider
the Rights Issue to be in the best interests of the Company and Shareholders as
a whole. In providing advice to the Directors, HSBC has relied on the Directors'
commercial assessment of the Rights Issue.


Accordingly, the Directors of Parity will be unanimously recommending
Shareholders to vote in favour of the Resolution to be proposed at the
Extraordinary General Meeting as they and persons connected to them intend to do
in respect of their entire holdings.


A Prospectus published by the Company and containing details of the Rights Issue
is expected to be posted to Qualifying Shareholders today and Provisional
Allotment Letters are expected to be sent to Qualifying Shareholders following
the EGM to be held on 13 October 2003.


Unless otherwise stated, defined terms in this announcement have the same
meanings given to them in the prospectus.

HSBC Bank plc, which is authorised in the United Kingdom to engage in investment
activity by the Financial Services Authority Limited, is acting exclusively for
Parity Group plc and no-one else in connection with the Rights Issue and the
matters described in this announcement and will not be responsible to anyone
other than Parity Group plc for providing the protections afforded to customers
of HSBC, nor for providing advice in relation to the Rights Issue or any matters
referred to in this announcement.


This announcement does not constitute, or form part of, an offer or any
solicitation of an offer for securities, and any purchase of, or application
for, shares in the Rights Issue should only be made on the basis of the
information contained in the Prospectus and any supplement thereto issued in
connection with the Rights Issue.


This announcement does not constitute an offer of securities for sale in the
United States, Australia, Canada, Japan, the Republic of Ireland or the Republic
of South Africa. The securities referred to in this announcement may not be
offered or sold in the United States or to persons resident in the United States
absent an applicable exemption from registration under the US Securities Act of
1933, as amended.


The securities referred to in this announcement have not been and will not be
registered under the United States Securities Act 1933, as amended, nor under
the applicable securities laws of any state of the United States, any province
or territory of Australia, Canada, Japan, the Republic of Ireland or the
Republic of South Africa. No prospectus has been or will be lodged with, or
registered by, the Australian Securities and Investments Commission, and,
subject to certain limited exceptions, the securities may not be offered, sold,
taken up, renounced or delivered, directly or indirectly, in or into Australia,
Canada, Japan, the Republic of Ireland, the United States or the Republic of
South Africa or any country, territory or possession where to do so may
contravene local securities laws or regulations.



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