Final Results

Embargoed for 07.01 Tuesday 18 March 2003 PARITY GROUP PLC PRELIMINARY RESULTS Parity Group plc ('Parity'), the international IT services group, announces its preliminary results for the year ended 31 December 2002. Parity also announces that it is in exclusive negotiations to acquire Technical Training Limited, a Scottish training company which will extend Parity's training coverage in the UK and that it has signed a Letter of Intent to become the sole European alliance partner of Chimes Inc. Under the Chimes agreement, separately announced today, Chimes will assign to Parity existing contracts which generated revenues of £15m in 2002. Group Financials · Group turnover £183.3m (2001: £246.9m) · Group pre tax loss before exceptional items and goodwill amortisation £2.1m (2001: £3.3m profit) · Basic loss per share 16.01p (2001: 2.05p) · Loss per share before exceptional items and goodwill l.62p (2001: earnings l.71p) · Further restructuring resulting in annualised savings of £4.6m and an exceptional restructuring charge of £3.6m · Exceptional goodwill write-off £12.8m · Exceptional provision against carrying value of Parity shares held by Employee Benefit Trust £4.7m · Final dividend of 0.06p; total dividend for the year of 0.26p Divisional Highlights Business Solutions · Profitability improved as revenues declined under policy of not pursuing poor margin business · Mainland Europe performance significantly improved · Commercial sector business increased by 80% and the government sector now accounts for 40% of revenues · Overheads reduced by 19% · Market remains highly competitive but late stage pipeline much stronger than in 2002 Training · Revenues up by 2% in very tough market, clearly winning market share · Improving pipeline of large, multi-year contracts · Won four large training outsourcing contracts in the period including Halifax Bank of Scotland, the Department of Work and Pensions, Galileo and a large European hi-tech manufacturing and services group · Initial agreement to acquire Technical Training Limited, a Scottish training company which will extend Parity's training coverage in the UK · Awarded Training Company of the Year and IT Trainer of the Year in February 2003 Resourcing Solutions · Profitability sustained in the UK although at lower levels · Improving pipeline · Continued focus on cost reduction · £5m-7m BT Ignite contract announced in December 2002 · Letter of Intent signed to become the sole European alliance partner of Chimes Inc. (see separate announcement) · Markets remain challenging but new value propositions with other Group divisions generating increased interest and sales Parity Americas · Results impacted by exposure to Finance, IT and Airline sectors · Restructuring actions bring annualised cost savings of £0.4m · Selected vendor for CitiGroup consulting work, bringing new opportunity · Major systems integration contract won with Renal Solutions Inc. in December 2002 off-setting market pressure in staffing Commenting on the results, Parity Group Chairman Bill Cockburn said: 'In the last year we took strong and appropriate action to reduce our cost base and have seen the benefits of the cost reductions implemented in 2001. Benefits will also accrue from last year's new large contract wins, adding to our existing high quality blue chip customer base, and the revenue benefits of these contracts are anticipated to be significantly larger in 2003 than in 2002. The Group now has 41% of its budgeted 2003 revenues sold forward or expected under framework agreements. 'While the markets in which we operate are still uncertain and we are disappointed to report a loss for the year, the Group's increasing security of revenues, promising pipelines and lower cost base give us the confidence that we will make good progress in 2003.' Enquiries: Parity Group plc Telephone: 020 7776 0800 Ian Miller, Group Chief Executive Alison Leyshon, Group Finance Director Financial Dynamics Telephone: 020 7831 3113 Giles Sanderson Harriet Keen Notes to Editors About Parity Group plc Parity Group is a leading provider of IT services, technology staff, training and human capital management solutions operating from over 30 offices across the UK, mainland Europe and the USA. It comprises three key areas:- 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 is 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. The division was selected as a finalist in the 'Best International Recruitment Firm' Professional Recruiter Awards 2002. Training delivers bespoke and public scheduled courses in technology, management and business skills at eleven 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. Customers across the group include AT&T, CSFB, HP, IBM, JP Morgan Chase, Shell, and in the UK, Barclaycard, British Aerospace, BT, Royal Mail, Food Standards Agency, Lloyds TSB, National Health Service and ScottishPower. For more information on Parity, visit www.parity.net Group Overview and Results Turnover and Profits The Group has continued to adjust its business mix in response to the ongoing recession in the IT Services sector. This resulted in reduced Group revenues of £183.3m (2001: £246.9m), down 26% on the prior year. The Group's loss before goodwill amortisation, exceptional items and taxation was £2.1m (2001: £ 3.3m profit), including a loss of £0.6m generated in mainland Europe. After exceptional costs, goodwill amortisation and taxation the Group reported a loss of £24.2m (2001: £3.1m loss). Exceptional Costs As announced at the time of the interim results, in response to continued uncertainty in the sector the Board carried out a further restructuring exercise during the year in order to reduce the Group's cost base. The aim was to improve profitability, optimise the use of UK property across the Group, improve staff utilisation rates and streamline support functions. This exercise was largely completed by the financial year end at a total cost of £3.6m which is being treated as an exceptional charge. The restructuring programme is expected to result in savings of over £4.6m on an annualised basis. The savings from this exercise attributable to 2002 are £1.6m. In total, more than £11.0m has been removed from the Group's cost base since 2001. As announced in the trading statement issued on 17 January 2003, in view of the current economic climate the Board has conducted an impairment review of the carrying value of goodwill held on the balance sheet arising on previous acquisitions and the value of Parity shares held by the Employee Benefit Trust. This has resulted in exceptional provisions for impairment of £12.8m and £4.7m respectively. At 31 December 2002 the remaining carrying value of goodwill held on the balance sheet was £10.2m whilst shares held by the EBT were valued at £0.4m, based on the market price of Parity's shares at 31 December 2002 of 16.25p. Taxation The effective tax rate for the Group for 2002 was 6.2% (2001: 9.0%) based on the loss before goodwill and amounts written off investments. The low effective rate was due mainly to the inability to utilise tax losses in jurisdictions where only limited tax relief was available. The exceptional costs gave rise to a tax credit of £0.7m. At 31 December 2002 the Group had unrelieved tax losses of £1.8m which will be carried forward to be offset against future profits. Dividend As stated in our Interim results announcement, in the light of the ongoing recession in the IT industry, and the impact that this has had on share prices in the sector, the Board decided to amend its dividend policy to bring the dividend yield back in line with the sector. The Board is recommending that the final dividend should be set at 0.06p, giving a total dividend for the year of 0.26p. The final dividend will be payable on 1 July 2003 to all shareholders on the register at the close of business on 30 May 2003. Cash Flow and Net Debt Trading activities before exceptional items generated a cash inflow of £3.9m (2001: £10.1m) including a cash inflow of £2.8m (2001: £3.0m) from working capital. The net cash outflow from exceptional items was £3.1m of which £1.6m related to exceptional items accrued in 2001. Further cash costs relating to the restructuring programme will be incurred in 2003 but these have been fully provided for in 2002. At year end the Group had net debt of £15.0m (2001: £12.7m) an increase of £ 1.7m compared to the position at the half year despite the payment of £2.7m of final 2001 and interim 2002 dividends in the second half. We continue to maintain tight control over our cash with capital and discretionary expenditure being approved only on the basis of a clear business need. Banking facilities The Group has successfully renegotiated an extension of its £18.0m committed revolver loan facility with Lloyds TSB until 31 March 2006. However, as this facility was not formally approved until 2003, the borrowings against the previous facility are shown as being repayable within one year in the Group balance sheet as the original facility was due to expire on 31 October 2003, less than twelve months after the balance sheet date. This facility is secured over the trade debtors of our main UK operating companies. The Group now has total facilities, including overdrafts, of £24.0m and the Board remains confident of our ability to operate within these facilities for the foreseeable future. Divisional Performance Year to 31 December Turnover (£ Profit/(loss) before RoS% m) tax (£m) 2002 2001 2002 2001 2002 2001 Business Solutions UK 26.6 32.8 1.18 1.81 4.5 5.5 Mainland Europe 5.7 5.8 (0.13) (0.85) (2.2) (14.7) 32.3 38.6 1.05 0.96 3.3 2.5 Training 27.1 26.6 0.07 1.68 0.2 6.3 Resourcing Solutions 69.1 97.5 0.24 3.44 0.3 3.5 UK 31.8 47.4 (0.47) (0.63) (1.5) (1.3) Mainland Europe 100.9 144.9 (0.23) 2.81 (0.2) 1.9 Parity Americas 23.0 36.8 0.62 2.57 2.7 7.0 Operating total 183.3 246.9 1.51 8.02 0.8 3.2 Central costs (2.92) (3.88) Net interest (0.70) (0.88) Before goodwill (2.11) 3.26 amortisation and exceptional items Goodwill amortisation (1.39) (1.37) Exceptional items (16.38) (5.16) Amounts written off (4.69) - investments Group total 183.3 246.9 (24.57) (3.27) Operational Review Business Solutions Business Solutions has continued to focus on larger contracts which improve utilisation and therefore margins. While revenues declined by 16% compared with 2001 to £32.3m (2001: £38.6m) profit for the year before exceptional costs was £1.0m, an increase of 10% compared to 2001. The general market for Business Solutions remains highly competitive, and the Group's policy of not pursuing business on which it cannot make a reasonable profit resulted in revenues for the second half being lower than the first half. That position has now stabilised and revenues have flattened out. The mainland Europe business has benefited significantly from this focus, and has seen a commendable improvement in performance to show flat revenues year on year, and a loss of £0.8m in 2001 being reduced to a loss of £0.1m in 2002. In the UK, revenues decreased by 19% to £26.6m (2001: £32.8m). Operating profit decreased by 35% to £1.2m (2001: £1.8m). Market sectors in decline were those most affected by the economy. The Communications Sector was down 93%, Energy by 65% and Finance by 76%, as sales effort was moved to those sectors with better prospects. Those sectors showing most growth were Government, which increased by 6% and Commercial, which recorded an increase of 80%. The Technical Authoring and Translation unit based in the UK, which relied to a large extent on work from declining sectors, was closed and the residual capability merged into mainstream units. Margins continued the improvement made in the first half year as a result of increased utilisation of permanent staff following a combination of headcount reductions at the end of 2001 and in 2002. In addition, overheads have fallen by 19% year on year as a result of the restructuring actions taken in the second half of the year and tight control over discretionary expenditure. Training Our Training business unit grew revenues by 2% in an extremely tough market which saw a number of its competitors shrink considerably or exit the market altogether. This impressive performance was achieved through a change in the sales mix, with a decline in the proportion of revenues generated from public courses from 55% in 2001 to 49%, offset by an increase in in-house programmes and bought in courses, both driven by the large training outsourcing contracts won during the year, all of which came on-stream in quarters two and three. These included Halifax Bank of Scotland, the Department of Work and Pensions, Galileo and a large European hi-tech manufacturing and services group which took total Training outsourcing revenues to £10m per annum under framework agreements for the next two and a half years. This has had an adverse impact on profitability in the short term as selling costs and transition costs have been taken as incurred, and the transfer of business from the previous suppliers to Parity needs to be phased over several quarters. During this transfer process, Parity oversees the provision of services by third party training and facility providers with whom the outsourcing client has existing commitments. We have been working with these outsourcing clients to accelerate the migration of their third party commitments to Parity and by the fourth quarter we had already seen considerable progress. This reduction in the proportion of revenues generated from third party courses will result in a further increase in profitability from these contracts in 2003. One-off bid and infrastructure costs incurred in 2002 in winning these larger outsourcing contracts were estimated to be in the region of £0.5m compared to £ nil in 2001. Despite these upfront costs outsourcing contracts provide a strong foundation for future sales growth. We have already been asked to increase the scope of the service that we provide to three of these clients and expect revenues to continue to grow over the remainder of the contract period. The outsourcing contracts also bring us greater visibility of future revenues. Our own response to the reduced demand for public training was to improve efficiency and reduce our overheads by consolidating our training space whilst retaining our geographic footprint and realigning our headcount. In addition, we have been reducing bought in costs by driving harder deals on direct costs such as hotels and catering. At the end of the year we carried out a fundamental restructuring of our sales force to address the change in sales mix and improve selling efficiency. The Division moved away from regional sales teams towards a single customer service centre based in Leeds responsible for targeting the public course market and a national sales team focused on relationship management. Public training remains an important part of our market and we regularly review the range of public courses we offer to ensure that they continue to satisfy market needs. In spite of difficult trading conditions we have continued to invest in our public courses, developing 124 new courses in the year and refreshing and updating 50 existing courses. We were delighted that our successes in 2002 were recognised when we won both top prizes, Trainer of the Year and Training Company of the Year, awarded by the Institute of IT Training in February 2003. Also announced today is the signing by Parity Training of an initial agreement to acquire Technical Training Limited, an Edinburgh based training company. The consideration will be performance related, subject to a maximum of £0.7m in cash and will be payable, based on business revenues, over thirty six months from the date of acquisition. The acquisition will bring with it significant new blue chip clients which will add to Parity's UK coverage. Resourcing Solutions Conditions in the staffing market remain very challenging. Revenues for the business unit as a whole have declined by 30% year on year although second half performance was only down by 17% compared to the same period in 2001. Intense pressure on selling price and margins has resulted in a loss for the year of £0.2m with losses in mainland Europe of £0.4m outweighing a profit of £ 0.2m in the UK. The UK result includes a loss of £0.2m in respect of a sales unit established at the end of 2001. A decision was taken to close down this unit at the end of the year and the associated redundancy costs have been included in the restructuring charge. Further costs were removed from both the UK and mainland Europe operations during the year in order to reduce the breakeven position in the face of declining margins. Under the partnership agreement with Chimes, details of which were separately announced today, Chimes will assign existing contracts to Parity which generated revenues of £15m in 2002. Parity Americas Our US business has been severely impacted by the downturn in the American economy particularly given its reliance on the finance, IT and travel sectors. In 2001 these sectors contributed 67% of total revenues. In 2002 this increased to 71% but the absolute revenues earned decreased by 38% as clients in these sectors cut their spending. Revenues from our largest client fell by 49%. We were particularly affected by the trend amongst banking and financial institutions of converting contractors to permanent employees. We not only lost the future revenue stream associated with these contractors but, in common with market practice in the US, did not receive a conversion fee. As in the UK there has also been severe pressure on margins which we have countered as far as possible by reducing overheads. Annualised cost savings arising as a result of this restructuring are estimated to be £0.5m. In September 2002 we appointed a new Managing Director for this business unit in order to drive an increase in Solutions sales thereby protecting the deterioration in margins in our contractor business. We are pleased to announce the award of a £1.0m applications design and development contract with Renal Solutions Inc., a US supplier of dialysis products and services, building on our experience in the Healthcare sector. We have also been selected as a 'Tier 1' vendor for consulting work at CitiGroup. This client has reduced from an unlimited number of suppliers down to 19. The contract will not be fully implemented until May 2003 but we expect to see a significant benefit in 2003 based on details of projected spend provided by the client. Group Strategy We announced at the time of our Strategy Review in May 2001 that the Group would continue to develop its existing lines of business, each of which has a clear strategy for its own market. In addition, we would seek to capitalise on the combined strengths of the Group in two target markets - our Key Accounts, and those segments open to value propositions that linked the capabilities of two or more of the lines of business. That strategy appears to be working well, despite the recession across the IT Services industry. 39% of Group revenue in 2002 came from our top 20 accounts compared to 19% in 2000. While the cooperation between lines of business has worked from an early stage, the successes were in relatively small contracts. That changed in November 2002 when we were delighted to announce an £8.0m five year contract with the Cabinet Office to redevelop, manage and operate candidate handling and management for Fast Stream, the Civil Service's premiere graduate selection and recruitment programme. This contract will involve all three of Parity's service offerings, using the skills of Business Solutions to computerise the application and candidate tracking procedure, the recruitment knowledge of Resourcing Solutions to advise on the process, and the regional centres of Training to run the assessment tests. We believe that a market is opening for business process management in those aspects of HR that can benefit from better technology. Parity is very well positioned to manage this type of opportunity and will be actively pursuing this market space in 2003. Current Trading and Outlook In the last year we took strong and appropriate action to reduce our cost base and have seen the benefits of the cost reductions implemented in 2001. Benefits will also accrue from last year's new large contract wins, adding to our existing blue chip customer base, and the revenue benefits of these contracts are anticipated to be significantly larger in 2003 than in 2002. The Group now has 41% of its budgeted 2003 revenues sold forward or expected under framework agreements. While the markets in which we operate are still uncertain and we are disappointed to report a loss for the year, the Group's increasing security of revenues, promising pipelines and lower cost base give us the confidence that we will make good progress in 2003. Group Profit and Loss Account Before Before exceptional Exceptional Total exceptional Exceptional Total items items 2002 items items 2001 Notes £'000 £'000 £'000 £'000 £'000 £'000 Turnover 2 183,273 - 183,273 246,930 - 246,930 Operating (184,685) (3,603) (188,288) (242,789) (5,157) (247,946) costs before goodwill Goodwill (1,385) - (1,385) (1,369) - (1,369) amortisation Impairment - (12,772) (12,772) - - - of goodwill Operating (186,070) (16,375) (202,445) (244,158) (5,157) (249,315) costs Operating (2,797) (16,375) (19,172) 2,772 (5,157) (2,385) (loss) profit Amounts - (4,690) (4,690) - - - written off investment Net interest (705) - (705) (880) - (880) payable (Loss) 2 (2,117) (8,293) (10,410) 3,261 (5,157) (1,896) profit on ordinary activities before goodwill and taxation Goodwill (1,385) (12,772) (14,157) (1,369) - (1,369) amortisation and impairment (Loss) (3,502) (21,065) (24,567) 1,892 (5,157) (3,265) profit on ordinary activities before taxation Taxation (334) 691 357 (687) 858 171 credit (charge) on (loss) profit on ordinary activities (Loss) (3,836) (20,374) (24,210) 1,205 (4,299) (3,094) profit on ordinary activities after taxation Dividends 4 (393) - (393) (3,778) - (3,778) Retained (4,229) (20,374) (24,603) (2,573) (4,299) (6,872) loss for the financial year All amounts are related to continuing operations Loss per 3 ordinary share - Basic (16.01p) (2.05p) - (16.01p) (2.03p) Diluted (Loss) 3 earnings per ordinary share before goodwill amortisation and exceptional items - Basic (1.62p) 1.71p - (1.62p) 1.68p Diluted Group Balance Sheet 2002 2001 Notes £'000 £'000 FIXED ASSETS Intangible assets 10,245 24,380 Tangible assets 4,380 6,589 Investments 1,177 5,867 15,802 36,836 CURRENT ASSETS Debtors 39,028 45,733 Cash at bank and in hand 3,608 5,948 42,636 51,681 CREDITORS: amounts falling due within one year (28) (4,014) Variable rate loan notes payable (44,438) (33,307) Other creditors (44,466) (37,321) NET CURRENT (LIABILITIES) ASSETS (1,830) 14,360 TOTAL ASSETS LESS CURRENT LIABILITIES 13,972 51,196 CREDITORS: amounts falling due after more than one - (12,000) year PROVISIONS FOR LIABILITIES AND CHARGES (2,364) (2,620) NET ASSETS 11,608 36,576 CAPITAL AND RESERVES Called up share capital 7,698 7,694 Capital redemption reserve 7 50 50 Share premium account 7 3,729 3,701 Other reserves 7 35,320 35,320 Profit and loss account 7 (35,189) (10,189) EQUITY SHAREHOLDERS' FUNDS 11,608 36,576 Group Cash Flow Statement 2002 2001 £'000 £'000 NET CASH FLOW FROM OPERATING ACTIVITIES 3,874 10,067 BEFORE EXCEPTIONAL ITEMS Exceptional items (3,075) (1,182) NET CASH INFLOW FROM OPERATING ACTIVITIES 799 8,885 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received 126 54 Interest paid (867) (833) NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING (741) (779) OF FINANCE TAXATION RECEIVED/(PAID) 508 (4,607) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Purchase of tangible fixed assets (649) (3,230) Sale of tangible fixed assets 531 92 Purchase of other investments - (729) NET CASH OUTFLOW FROM CAPITAL (118) (3,867) EXPENDITURE AND FINANCIAL INVESTMENT ACQUISITIONS AND DISPOSALS Purchase of subsidiary undertakings - (1,921) Net overdraft acquired with subsidiary undertaking - (575) NET CASH OUTFLOW FROM ACQUISITIONS AND DISPOSALS - (2,496) EQUITY DIVIDENDS PAID (2,676) (3,760) NET CASH OUTFLOW BEFORE FINANCING (2,228) (6,624) FINANCING Issue of ordinary shares 29 199 Repayment of loan notes (3,986) (750) Increase in borrowings 3,000 8,492 NET CASH (OUTFLOW) INFLOW FROM FINANCING (957) 7,941 (DECREASE) INCREASE IN CASH IN THE PERIOD (3,185) 1,317 Reconciliation of net cash flow to movement in net debt 2002 2001 £'000 £'000 (Decrease) increase in cash in the period (3,185) 1,317 Variable rate loan notes 2004 repaid 3,986 750 Increase in bank loans (3,000) (8,492) Loan notes issued on acquisition of Prime Selection - (3,986) Limited Change in net debt resulting from cash flows in the (2,199) (10,411) period Exchange movements (122) (13) Movement in net debt in the period (2,321) (10,424) Net debt at 1 January 2002 (12,674) (2,250) Net debt at 31 December 2002 (14,995) (12,674) Reconciliation of Movements in Shareholders' Funds 2002 2001 £'000 £'000 Loss for the year attributable to shareholders (24,210) (3,094) Dividends (393) (3,778) Retained losses (24,603) (6,872) Other recognised losses (394) (46) Share options exercised - 63 Shares issued to QUEST 29 137 Shares issued to vendors - (9) Net decrease in shareholders' funds (24,968) (6,727) Equity shareholders' funds at start of year 36,576 43,303 Equity shareholders' funds at end of year 11,608 36,576 Statement of Total Recognised Gains and Losses 2002 2001 £'000 £'000 Loss for the year attributable to shareholders (24,210) (3,094) Currency translation differences on foreign currency net (394) (46) investments Total recognised losses for the year (24,604) (3,140) Notes to the Accounts 1. BASIS OF PREPARATION The financial information for the year ended 31 December 2002 does not constitute the full statutory accounts for the year. The results for the year ended 31 December 2002 are an extract from the Company's statutory accounts. These accounts have been reported on by the Company's auditors and will be delivered to the Registrar of Companies in due course. The report of the auditors was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The results for the year ended 31 December 2001 are an extract from the Company's statutory accounts for that year. Those statutory accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under Section 237(2) or (3) of the Companies Act 1985. Basis of Consolidation The consolidated financial statements incorporate the results of Parity Group plc and its subsidiary undertakings drawn up to 31 December each year. 2. SEGMENTAL ANALYSIS The Group provides information technology services through its Business Solutions, Training, Resourcing Solutions and Parity Americas business segments. 2002 2001 Turnover Profit Net Turnover Profit Net (loss) assets (loss) assets £'000 £'000 before £'000 before £'000 taxation taxation £'000 £'000 Business Solutions United Kingdom 26,529 1,184 1,307 32,850 1,809 1,264 Mainland Europe 5,732 (128) 2,166 5,763 (850) 703 32,261 1,056 3,473 38,613 959 1,967 Training - United 27,138 65 616 26,563 1,681 2,915 Kingdom Resourcing Solutions United Kingdom 69,100 241 6,667 97,463 3,439 8,898 Mainland Europe 31,739 (468) 2,001 47,418 (628) 3,947 100,839 (227) 8,668 144,881 2,811 12,845 Parity Americas 23,035 618 1,409 36,873 2,573 2,993 Operating total 183,273 1,512 14,166 246,930 8,024 20,720 before central costs Central costs (2,924) (3,883) Net interest payable (705) (880) Non-operating assets and (12,803) (8,524) liabilities including net debt Before goodwill (2,117) 1,363 3,261 12,196 and exceptional items Goodwill amortisation (1,385) (1,369) Goodwill 10,245 24,380 Exceptional items (16,375) (5,157) - Amounts written off (4,690) - investments 183,273 (24,567) 11,608 246,930 (3,265) 36,576 Turnover and profit are stated on the basis of origin. There is no material difference between turnover and profit by origin and by destination. Turnover for Resourcing Solutions in the UK as shown above excludes £1,264,000 (2001: £1,016,000) of inter-segmental turnover. Turnover for Business Solutions in the UK excludes £59,000 (2001: £nil) of inter-segmental turnover. Turnover for Business Solutions in mainland Europe as shown above excludes £ 97,000 (2001: £14,000) of inter-segmental turnover. Turnover for Training as shown above excludes £107,000 of inter-segmental turnover (2001: £185,000). Of the goodwill amortisation charge for the year £1,078,000 (2001: £1,078,000) relates to Business Solutions (UK) and £307,000 (2001: £291,000) relates to Resourcing Solutions (UK). The Training business has not previously been reported separately from Business Solutions. In recognition of the importance of the division within the Group, Training has been shown as a separate segment and comparative amounts have been restated accordingly. 3. EARNINGS PER ORDINARY SHARE Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year, excluding those held in the Employee Benefit Trust which are treated as cancelled. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has one class of dilutive potential ordinary shares: those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year; however during the year the exercise price was greater than the average market price of the companies ordinary shares and consequently the share options granted to employees are excluded from the diluted EPS calculations. 2002 2001 (Loss) earnings per share (Loss) earnings per share (Loss) (Loss) earnings Basic Diluted earnings Basic Diluted £'000 pence pence £'000 pence pence Loss per ordinary (24,210) (16.01) (16.01) (3,094) (2.05) (2.03) share Exceptional items 20,374 13.47 13.47 4,299 2.85 2.81 Goodwill amortisation 1,385 0.92 0.92 1,369 0.91 0.90 (Loss) earnings per (2,451) (1.62) (1.62) 2,574 1.71 1.68 ordinary share before goodwill amortisation and exceptional items Supplementary basic and diluted EPS have been calculated to exclude the effect of goodwill amortisation and exceptional items. The adjusted numbers have been provided in order that the effects of goodwill amortisation and exceptional items on reported earnings can be fully appreciated. The weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share is as follows: 2002 2001 Average Average number number i) Basic weighted average number of shares in issue 153,928,731 153,691,485 Adjustment for shares held by EBT (2,756,238) (2,756,238) 151,172,493 150,935,247 ii) Dilutive weighted average number of 153,928,731 153,691,485 shares in issue Adjustment for share options - 1,785,392 Adjustment for shares held by EBT (2,756,238) (2,756,238) 151,172,493 152,720,639 The number of ordinary shares in issue at 31 December 2002 was 153,969,570 (2001: 153,882,905) 4. DIVIDENDS The Directors have proposed a final dividend of 0.06p (2001: 1.57p) per ordinary share, payable on 1 July 2003 to shareholders on the register at the close of business on 30 May 2003. 5. RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW 2002 2001 £'000 £'000 Operating (loss) profit before exceptional items (2,797) 2,772 Depreciation of tangible assets 2,366 2,908 Amortisation of intangible assets 1,385 1,369 Loss on disposal of tangible assets 108 37 Decrease in debtors 6,748 12,349 Decrease in creditors (4,253) (11,638) Increase in provisions 317 2,270 Net cash flow from operating activities before exceptional 3,874 10,067 items The net cash outflow from exceptional items during the year was £3,075,000. The cash outflow from exceptional costs incurred in 2002 was £1,466,000. Cash outflows in 2002 relating to exceptional costs incurred in 2001 were £ 1,609,000. 6. ANALYSIS OF NET DEBT At Cash Exchange At 1 January Flow Movements 31 December 2002 £'000 £'000 2002 £'000 £'000 Cash at bank and in hand 5,948 (2,285) (55) 3,608 Overdrafts (2,608) (900) (67) (3,575) 3,340 (3,185) (122) 33 (12,000) (3,000) - (15,000) Bank loans (4,014) 3,986 - (28) Variable rate loan notes 2004 (12,674) (2,199) (122) (14,995) 7. RESERVES Capital Profit & redemption Share Other loss reserve Premium reserves account Total £'000 £'000 £'000 £'000 £'000 At 1 January 2002 50 3,701 35,320 (10,189) 28,882 Shares issued to - 28 - (3) 25 QUEST Retained loss for the - - - (24,603) (24,603) year Exchange adjustments - - - (394) (394) At 31 December 2002 50 3,729 35,320 (35,189) 3,910 The cumulative amount of unamortised goodwill which has been taken to reserves is £69,291,000 (2001:£69,291,000).

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