Final Results

Parity Group PLC 6 March 2001 Tuesday 6 March 2001 - Embargoed for 7.01am PARITY GROUP PLC Preliminary results and appointment of new Group Chief Executive; Parity Solutions to be re-branded as Plerion Parity Group plc, the IT consultancy group announces its preliminary results for the year ended 31 December 2000, changes to the Board including the appointment of a new Group Chief Executive and the re-branding of Parity Solutions. Key features for the year ended 31 December 2000 * Group turnover £269.2m (1999: £314.2m) * Group profit before tax £13.9m (1999: £21.3m)** * Basic earnings per share 6.30p (1999: 9.61p)** * Final dividend unchanged at 1.57p * Investment programme revenue costs of £3.1m; capital £0.2m ** excluding goodwill amortisation and 1999 exceptional items Board appointments * Billy Carbutt appointed non-executive Chairman (formerly Chairman 1994-1997) * Ian Miller joins as Group CEO from EDS global management team. * Philip Swinstead becomes a non-executive Director as he recovers from illness * Ray King and Rick Bacon continue in their current roles * Keith Jennings, Managing Director of Parity Solutions UK, to move on from the Group. Divisional highlights: Parity Solutions: advanced technology systems integration and training * Parity Solutions to be renamed Plerion * Revenues up 12% including prior year acquisitions * Tight management of cost base; return on sales 10.2% (UK: 11.5%) * Strong market for new technology solutions * Organic growth of 16% in Parity Training Parity Software Services: international technology staffing solutions * Revenues down 22% due to Y2K hiatus and withdrawal from low margin business * Return on sales 5.5%; strong profit performance in USA * Market stabilised after difficult first half * Important new Preferred Supplier Agreements, capitalising on international footprint * Integration of Prime Selection proceeding well Commenting on the results, Parity Group Chairman and CEO Philip Swinstead said: 'The Group produced a creditable performance in 2000 in difficult market conditions following the Y2K slowdown. Our investment programme has revitalised the businesses under strong new management. Over the last two years, we have created the strategy, management and market position to move forward with confidence as market conditions improve this year. It is timely, therefore, for me to step back into a non-executive Board position and hand Ian the reins whilst I convalesce after a recent illness.' Enquiries: Parity Group plc Telephone: 020 7831 3113 (on the day) Ian Miller, Group Chief Executive Telephone: 020 7776 0800 (thereafter) Ray King, Group Finance Director Michael Harrington, Group Communications Director Financial Dynamics Telephone: 020 7831 3113 Giles Sanderson Harriet Keen Group overview and results Parity Group produced solid profits in the second half of 2000 in market conditions that stabilised after the Y2K slowdown and the continued reduction in classic IT services expenditure thereafter. Return on sales of 5.2% for the year before goodwill amortisation and revenues down only 14% reflected both strong management and excellent customer relationships. The results are stated after investment programme revenue expenditure of £3.1m on re-skilling and re-focusing the Group to meet changing market demands. Group turnover for the year was £269.2m (1999: £314.2m) and profit before tax, goodwill amortisation and exceptional items was £13.9m (1999: £21.3m). Basic earnings per share on the same basis were 6.30p (1999: 9.61p). The Group's effective tax rate was 32% (1999: 33.2%) pre-goodwill amortisation and, in 1999, pre-exceptional items. Goodwill amortisation increased to £1.08m (1999: £0.22m) following the acquisition of Idev and Comtec in December 1999. If the results of overseas subsidiaries had been translated using the average exchange rates prevailing during 1999, turnover and profit before tax would have been £1.5m higher and £0.1m lower, respectively. Dividend The Board is recommending an unchanged final dividend for the year of 1.57p. The total dividends for the year are therefore unchanged at 2.5p per share. The final dividend will be payable on 2 July 2001 to all shareholders on the register at the close of business on 6 April 2001 Cash flow and net debt The Group recorded an operating cash inflow of £15.1m (1999: £21.1m). Other cash flows, including £6.3 million of capital expenditure and financial investment, gave rise to a total outflow of £16.3m (1999: £29.8m outflow, including £14.8m for acquisitions), resulting in a net cash outflow for the year of £1.2m before financing items (1999: £8.7m outflow). Net debt at 31 December was £2.2m (1999: £1.6m). Divisional performance Year To Turnover (£m) Profit (£m) RoS % 31 December before tax 2000 1999 2000 1999 2000 1999 Parity Solutions 76.9 68.7 7.86 10.05 10.2 14.6 Parity Software Services UK 93.8 136.6 4.21 7.37 4.5 5.4 Continental Europe 50.2 65.0 1.48 3.89 2.9 6.0 USA 48.3 43.9 4.86 4.30 10.1 9.8 192.3 245.5 10.55 15.56 5.5 6.3 Central costs (4.15) (4.09) Interest (net) (0.37) (0.20) Group before goodwill and exceptional 269.2 314.2 13.89 21.32 5.2 6.8 items Goodwill amortisation (1.08) (0.22) Exceptional items - (2.54) Parity Group plc 12.81 18.56 Note: Parity Solutions' results include Parity Solutions BV for both years; they were previously included within Parity Software Services. Parity Solutions Parity Solutions contains the Group's strategic and e-business consultancy, systems development and training services with both new technology and traditional skills. Trading in 2000 was in line with mid-year expectations, with annual revenues up 12% on 1999, including sales by Comtec and Idev, acquired in December 1999; underlying revenues in the UK were unchanged. Market conditions in the traditional systems markets, together with the smaller average size of new technology projects, impacted on staff utilisation and reduced return on sales to 10.2% overall (UK: 11.5%), with operating profits declining to £7.9 million. A disappointing performance in Parity Solutions BV resulted in a small loss for the year. This business is being restructured to focus on its key strengths. Parity Training grew very well in the second half of the year, with particularly strong demand for the new technology courses, to produce organic growth of 16% over the year. These results include investment programme revenue expenditure of £2.1m and capital of £0.2m, the majority of which related to re-skilling by investment in web-based prototypes and new technology training. These activities included the ongoing development of an e-knowledge portal, a web-pack demonstrator, a new development methodology and the launch of the Web Academy. Our early deployment of the latest Microsoft technology on leading edge projects led to our becoming one of the first Microsoft Gold Certified Partners for E-Commerce Solutions in the UK. The division now has an excellent balance of traditional and e-business skills with around 200 consultants trained in the latter. Our ability to provide a full range of services from initial consultancy including creative design through to system development, support and training provides a valuable competitive edge for the future. The evolution of Parity Solutions from a traditional systems integration house to a new technology solutions business, started in early 1999, is now nearly complete and the demand for its new technology services is growing rapidly. This business has a great opportunity for organic growth in the UK and internationally as the market for its services develops. To grasp this opportunity, it needs a clear focus and identity, together with strong branding. The Board has therefore decided that Parity Solutions will be re-branded as Plerion to differentiate its offerings from the international staffing solutions division of Parity. Parity Software Services Parity Software Services provides technology staffing solutions, including permanent and temporary IT staff, and outplacement services, across Europe and in the USA. The division was adversely affected by the Y2K slowdown and the quiet market conditions thereafter with revenues down 22% to £192.3m. Approximately one-third of this decrease reflected the decision to exit certain low margin business in the UK together with adverse exchange movements on translation of overseas results. With profits of £10.6m, the division maintained a creditable 5.5% return on sales. After a weak first half, the technology staffing market stabilised in the UK and Continental Europe and in the last quarter began to show signs of increased activity. European margins declined significantly as a consequence of the strategic decision to maintain the division's branch structure (twelve branches across five countries) despite a lower revenue base in the expectation of growth returning in 2001. Throughout the year the market for permanent IT placements was robust and revenues grew strongly. In the USA, Parity Teltech did particularly well in quiet market conditions and grew its profits by 6% in dollar terms. The division made considerable investment, particularly in the second half, to strengthen management teams, open four new branches and invest in new systems. Investment programme revenue expenditure in the year totalled £1.0m. Following its creation as a unified international business with a greatly strengthened management team, Parity Software Services has in the second half won a significant number of new preferred supplier agreements with blue chip customers, including many international assignments. Board appointment I am delighted to report that Ian Miller is joining the Board today as Group Chief Executive. Ian was until recently Head of the $1 billion global energy business of EDS, based in Dallas, having previously been a partner of PA Consulting for 16 years. Also today Billy Carbutt has been appointed Chairman of the Group, a non-executive position that he previously held from 1994 to 1997. The timing is right to hand over to the team that will lead Parity through its next phase. I have agreed with the Board that I will now step down from the executive roles that I have held for the last two years during our strategic restructuring, but will continue as a non-executive member of the Board. I expect to return to a more active involvement in Parity by late summer. Separate announcements have been made today on these important Board changes. Current trading and prospects Market conditions in the UK and Europe have been stable to improving in recent months but the US market has softened somewhat due to short term economic uncertainty. Whilst the Board remains cautious after recent experiences, it expects improving market conditions as the year progresses and customers respond to the business advantages offered by the latest communication and application technology and the consequent redevelopment of inflexible legacy systems. Meanwhile the business will continue to be managed strongly to maintain margins and retain both skills and market coverage. Parity's businesses are now well-positioned across a wide range of market sectors, with strengthened management, an excellent 'blue chip' client base, respectable profit margins and the latest skills and service offerings. Group Profit and Loss Account For the year ended 31 December 2000 Unaudited Audited 2000 1999 Notes £'000 £'000 Turnover 2 269,228 314,154 Operating costs before goodwill amortisation (254,971) (292,634) and exceptional items Goodwill amortisation (1,078) (219) Exceptional items - (2,542) Operating costs (256,049) (295,395) _______ _______ Operating profit 13,179 18,759 Net interest payable (369) (198) Profit on ordinary activities before taxation, 13,888 21,322 goodwill amortisation and exceptional items Goodwill amortisation (1,078) (219) Exceptional items - (2,542) Profit on ordinary activities before taxation 2 12,810 18,561 Taxation on profit on ordinary activities (4,440) (6,819) _______ _______ Profit on ordinary activities after taxation 8,370 11,742 Dividends (3,763) (3,773) _______ _______ Retained profit for the financial year 6 4,607 7,969 _______ _______ Earnings per ordinary share 3 - Basic 5.58p 7.92p - Diluted 5.53p 7.77p Earnings per ordinary share before goodwill 3 amortisation and exceptional items - Basic 6.30p 9.61p - Diluted 6.25p 9.42p Group Balance Sheet At 31 December 2000 Unaudited Audited 2000 1999 Notes £'000 £'000 FIXED ASSETS Intangible assets 20,266 22,370 Tangible assets 6,283 6,123 Investments 5,138 1,497 _______ _______ 31,687 29,990 CURRENT ASSETS Debtors 53,568 57,117 Cash at bank and in hand 4,078 12,997 _______ _______ 57,646 70,114 _______ _______ CREDITORS : amounts falling due within one year Variable rate loan notes payable (778) (810) Other creditors (44,554) (59,751) _______ _______ (45,332) (60,561) _______ _______ NET CURRENT ASSETS 12,314 9,553 _______ _______ TOTAL ASSETS LESS CURRENT LIABILITIES 44,001 39,543 PROVISIONS FOR LIABILITIES AND CHARGES (698) (767) _______ _______ NET ASSETS 43,303 38,776 _______ _______ CAPITAL AND RESERVES Called up share capital 7,675 7,598 Shares to be issued 22 1,986 Capital redemption reserve 50 50 Share premium account 3,440 1,554 Other reserves 35,308 34,390 Profit and loss account (3,192) (6,802) _______ _______ EQUITY SHAREHOLDERS' FUNDS 6 43,303 38,776 Group Cash Flow Statement For the year ended 31 December 2000 Unaudited Audited 2000 1999 Total Total Notes £'000 £'000 NET CASH FLOW FROM OPERATING ACTIVITIES 4 15,345 23,404 BEFORE EXCEPTIONAL ITEMS Exceptional items (244) (2,298) _____ _____ NET CASH FLOW FROM OPERATING ACTIVITIES 15,101 21,106 NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND (376) (182) SERVICING OF FINANCE TAXATION PAID (5,903) (8,338) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Purchase of tangible assets (2,716) (2,980) Sale of tangible assets 79 69 Purchase of own shares by ESOP (3,710) (560) Cash received by ESOP from option exercises 82 545 _____ _____ NET CASH OUTFLOW FROM CAPITAL EXPENDITURE (6,265) (2,926) AND FINANCIAL INVESTMENT NET CASH OUTFLOW FROM ACQUISITIONS AND DISPOSALS - (14,813) EQUITY DIVIDENDS PAID (3,793) (3,547) _____ _____ NET CASH OUTFLOW BEFORE FINANCING (1,236) (8,700) NET CASH (OUTFLOW)/INFLOW FROM FINANCING (6,332) 9,339 _____ _____ (DECREASE)/INCREASE IN CASH IN THE PERIOD 5 (7,568) 639 _____ _____ Reconciliation of net cash flow to movement in net debt £'000 Decrease in cash in the period (7,568) Loan notes repaid 32 Decrease in borrowings under variable rate credit facilities 6,820 Exchange movements 78 Movement in net funds in the period (638) Net debt at 1 January 2000 (1,612) 5 (2,250) Net debt at 31 December 2000 Reconciliation of Movements In Shareholders' Funds For the year ended 31 December 2000 Unaudited Audited 2000 1999 Total Total £'000 £'000 Profit for the year attributable to shareholders 8,370 11,742 Dividends (3,763) (3,773) _____ _____ Retained earnings 4,607 7,969 Other recognised gains/(losses) 426 (1,200) Share options exercised 15 1,177 Shares issued to QUEST 505 - Shares issued to vendors 938 4,500 Shares to be issued to vendors (1,964 1,986 _____ _____ Net increase in shareholders' funds 4,527 14,432 Equity shareholders' funds at start of year 38,776 24,344 _____ _____ Equity shareholders' funds at end of year 43,303 38,776 _____ _____ Statement of Total Recognised Gains and Losse For the year ended 31 December 2000 Unaudited Audited 2000 1999 Total Total £'000 £'000 Profit for the year attributable to shareholders 8,370 11,742 Currency translation differences on foreign currency net 426 (1,200) investments _____ _____ Total recognised gains and losses for the year 8,796 10,542 _____ _____ 1. BASIS OF PREPARATION The financial information for the year ended 31 December 2000 does not constitute the full statutory accounts for the year, which have not yet been delivered to the Registrar of Companies. The auditors have not made any report on the full statutory accounts. The Annual Report will be posted to shareholders in April 2001. The results for the year ended 31 December 1999 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. The combination of Parity Group plc and Parity Limited (formerly Parity plc) following the Scheme of Arrangement on 5 July 1999 under which Parity Group plc became the holding company of Parity Limited and its subsidiaries, has been accounted for on a merger accounting basis as it if had occurred on 1 January 1999. 2. SEGMENTAL ANALYSIS The Group provides information technology services through its e-business/ Solutions and Software Services business segments. 2000 Turnover Profit before Net assets £'000 taxation £'000 £'000 e-business/Solutions United Kingdom 69,666 7,984 5,191 Continental Europe 7,187 (123) 1,127 _____ _____ _____ 76,853 7,861 6,318 Software Services United Kingdom 93,838 4,205 6,693 Continental Europe 50,205 1,478 7,206 USA 48,332 4,863 5,730 ______ ______ ______ 192,375 10,546 19,629 Central costs including net interest (4,519) payable Non-operating assets and liabilities (2,910 including net debt ______ Before goodwill and exceptional items 13,888 23,037 Goodwill (1,078) 20,266 Exceptional items ______ - - ______ ______ 269,228 12,810 43,303 ______ ______ ______ 1999 Turnover Profit before Net assets £'000 taxation £'000 £'000 e-business/Solutions United Kingdom 59,692 9,031 1,342 Continental Europe 8,952 1,014 938 ______ ______ ______ 68,644 10,045 2,280 Software Services United Kingdom 136,567 7,373 10,430 Continental Europe 65,008 3,891 7,332 USA 43,935 4,300 4,894 ______ ______ ______ 245,510 15,564 22,656 Central costs including net interest (4,287) - payable Non-operating assets and liabilities - (8,286) including net debt ______ Before goodwill and exceptional items 21,322 16,650 Goodwill (219) 22,370 Exceptional items ______ (2,542) (244) ______ ______ 314,154 18,561 38,776 ______ ______ ______ There is no material difference between turnover and profit by origin and by destination. Turnover for Software Services in the UK as shown above excludes £2,050,000 (1999 - £3,532,000) of inter-segmental turnover. The results and net assets of Solutions BV have been included within e-business/Solutions. Net debt has been transferred out of the operating assets of each of the individual businessess and is shown within non-operating assets and liabilities. 1999 comparatives have been restated accordingly. 3. EARNINGS PER ORDINARY SHARE The calculation of basic and diluted earnings per ordinary share is based on the following: 2000 Earnings per share Earnings Basic Diluted £'000 pence pence Earnings per ordinary share 8,370 5.58 5.53 Exceptional items - - - Goodwill amortisation 1,078 0.72 0.72 ______ ______ ______ Earnings per ordinary share before goodwill amortisation 9,448 6.30 6.25 and exceptional items 1999 Earnings per share Earnings Basic Diluted £'000 pence pence Earnings per ordinary share 11,742 7.92 7.77 Exceptional items 2,287 1.54 1.51 Goodwill amortisation 219 0.15 0.14 ______ ______ ______ Earnings per ordinary share before goodwill amortisation 14,248 9.61 9.42 and exceptional items ______ ______ ______ The weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share is as follows: 2000 1999 Average Average Number Number i) Basic weighted average number of shares in issue 152,743,963 149,165,867 Adjustment for shares held by ESOP (2,756,238) (907,938) _______ _______ 149,987,725 148,257,929 _______ _______ ii) Dilutive weighted average number of shares in issue 152,743,963 149,165,867 Adjustment for share options 1,237,587 2,946,563 Adjustment for shares held by ESOP (2,756,238) (907,938) _______ _______ 151,225,312 151,204,492 _______ _______ The number of ordinary shares in issue at 31 December 2000 was 153,500,578 (31 December 1999 - 151,957,011). The Directors have proposed a final dividend of 1.57p (1999: 1.57p) per Ordinary share, payable on 2 July to shareholders on the register at the close of business on 6 April 2001. 4. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW 2000 1999 £'000 £'000 Operating profit before exceptional items 13,179 21,301 Depreciation of tangible assets 2,529 1,890 Amortisation of intangible assets 1,078 219 Gain on issue of own shares held by ESOP to option holders (13) (166) (Profit)/loss on disposal of tangible assets (13) 20 Decrease in debtors 3,771 5,594 Decrease in creditors (5,020) (4,914) Decrease in provisions (166) (540) _____ _____ Net cash flow from operating activities before exceptional 15,345 23,404 items _____ _____ 5. ANALYSIS OF NET DEBT Group At 1 January Cash Flow Exchange At 31 December 2000 £'000 £'000 Movements £'000 2000 £'000 Cash at bank and in 12,997 (9,089) 170 4,078 hand Overdrafts (3,555) 1,521 (8) (2,042) _____ _____ _____ _____ 9,442 (7,568) 162 2,036 Variable rate credit (10,244) 6,820 (84) (3,508) facilities Variable rate loan (810) 32 - (778) notes _____ _____ _____ _____ (1,612) (716) 78 (2,250) _____ _____ _____ _____ 6. SHAREHOLDERS' FUNDS Group Ordinary Shares Capital share to be redemption Share capital issued reserve premium £'000 £'000 £'000 £'000 Shareholders' funds as at 7,598 1,986 50 1,554 1 January 2000 Share options exercised 2 - - 13 Shares issued to QUEST 55 - - 1,873 Shares issued to vendors 20 (1,502) - - Shares to be issued to vendors - (462) - - Retained profit for the year - - - - Exchange adjustments - - - - _____ _____ _____ _____ Balance as at 31 December 2000 7,675 22 50 3,440 _____ _____ _____ ______ Group Profit & Other loss reserves account Total £'000 £'000 £'000 Shareholders' funds as at 34,390 (6,802) 38,776 1 January 2000 Share options exercised - - 15 Shares issued to QUEST - (1,423) 505 Shares issued to vendors 918 - (564) Shares to be issued to vendors - - (462) Retained profit for the year - 4,607 4,607 Exchange adjustments - 426 426 Balance as at 31 December 2000 35,308 (3,192) 43,303 _____ _____ _____ The premium of £918,000 arising on the shares issued to vendors as part of the deferred purchase consideration for Idev has been taken to other reserves in accordance with Section 131 of the Companies Act.

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