Final Results

RNS Number : 2592A

Parity Group PLC

23 March 2017

 

23 March 2017

PARITY GROUP PLC

FULL YEAR RESULTS FOR THE YEAR TO 31 DECEMBER 2016

Parity Group plc ("Parity" or the "Group"), the UK information and technology services group, announces its full year results for the year ended 31 December 2016.

Financial Headlines

·     Continuing Group¹ revenues increased by 11% to £91.8m from £82.6m

·     Continuing Group adjusted EBITDA² increased by 47% to £2.2m from £1.5m (£2.5m including discontinued operations {2015: £1.6m})

·     Operating profit before non-recurring items increased by 72% to £1.77m from £1.03m and replaces adjusted EBITDA as a key measure of performance

·     Profit before tax of £0.96m (2015: loss before tax £3.27m)

·     Earnings per share 0.87p (2015: loss per share 3.37p)

·     Significant increase in cash inflow from operations to £3.4m (2015: £0.2m)

·     Reduction in net debt to £4.4m (2015: £7.4m)

·     Significant reduction in non-recurring items before tax to £0.4m (2015: £3.7m)

·     £15m financing facility extended with PNC Bank on improved terms

Parity Professionals - Specialising in the sourcing and development of professional staff

·     Revenue increased by over 10% to £86.4m (2015: £78.2m)

·     Divisional contribution³ increased by 17% to £2.66m (2015: £2.28m)

Parity Consultancy Services - Niche expertise and technology solutions

·     Revenue increased by 20% to £5.3m (2015: £4.4m)

·     Divisional contribution³ increased by 30% to £0.91m (2015: £0.70m)

 

Operational Headlines:

·     Delivering against new growth strategy

o  Continued progress following robust H1 performance. KPIs positive with improvement in revenues, profitability and cash in both businesses

·     Aligned functions supporting further growth opportunity in higher margin services

o  Functions are maintaining expertise in their services with a shift in momentum to managed service projects

o  Parity Consultancy Services awarded two new significant long-term contracts with a total opportunity of £6.7m

·     Development of Parity Consultancy Services ("PCS")

o  Strengthened sales focus on data driven technology solutions to deliver business intelligence and cost modelling applications

·     Strong cost controls maintained whilst self-funding organic growth

·     Inition business held for sale to allow greater focus on the core business, with the eventual sales proceeds to be used to support the development of PCS, and to further reduce debt

·     Extension of significant contracts including £1.4m for Military Capability Output Costing System ("MCOCS") business intelligence solution for MoD in the Consultancy division and FastStream graduate recruitment programme into the Civil Service for Parity Professionals

·     Reduced pensions contributions commenced in line with the improved payment terms on the legacy pension deficit

·     Board of Directors enhanced with the appointment of David Firth as a Non-Executive Director, and today's announcement that John Conoley will shortly replace Lord Freeman as Non-Executive Chairman

1      The Continuing Group excludes the Inition service offering, which has been classified as discontinuing operations

2      In prior years, the directors used a non-GAAP measure "Adjusted EBITDA" being the measure of EBITDA, prior to non-recurring items and share based compensation as detailed in note 4 to assess the performance of the business.

3      Divisional contribution in this narrative refers to the segment contribution before Group costs⁴, tax, interest, non-recurring items and share based payment charge.

4      Group costs include directors' salaries and costs relating to group activities and are not allocated to reporting segments.

5      This announcement contains certain statements that are or may be forward-looking with respect to the financial condition, results or operations and business of Parity Group plc. By their nature forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include, but are not limited to (i) adverse changes to the current outlook for the UK IT recruitment and solutions market, (ii) adverse changes in tax laws and regulations, (iii) the risks associated with the introduction of new products and services, (iv) pricing and product initiatives of competitors, (v) changes in technology or consumer demand, (vi) the termination or delay of key contracts, (vii) fluctuations in exchange rates and (viii) volatility in financial markets.

 

Alan Rommel, CEO of Parity Group, said:

"The Board is very encouraged by the improved financial results, demonstrating the substantial progress made in 2016. This was a year for stabilisation, consolidating the propositions and setting the course for the future. Financial security was underwritten by the significant cost reductions where we have streamlined some functions and services. In parallel, we have initiated investment in improving the efficiency and alignment of services to facilitate collaboration between the divisions. We have confirmed our intention to divest Inition, enabling a renewed focus on our core strengths. The business is now strategically placed to benefit from the development of new higher margin services as the multi-channel partner to support clients through change - people led and technology enabled. We have proven capabilities in which we will continue self-funded organic growth. In addition, we will monitor market conditions and opportunities and at the right point intend to accelerate the growth in higher margin services through targeted acquisition in line with our longer-term strategy.

On behalf of the Board I would like to express our sincere thanks to all the Group's staff across the different service lines for their support, hard work, commitment and enthusiasm which has enabled us to deliver excellent service to both clients and candidates.

With current trading in-line with our expectations, the Board remains confident in the future of the business with a clear strategy supporting its' commitment to increasing shareholder value through both organic growth and targeted strategic investment." 

For further information, contact:

Alan Rommel CEO Roger Antony GFD		Parity Group plc	0845 873 7921
John Olsen Kelsey Traynor		MHP Communications	020 3128 8100
Andrew Pinder Patrick Robb Dominic Emery		Investec	020 7597 5970

Strategic Report

Chairman's Statement

Lord Freeman - Non-Executive Chairman

FINANCIALS

The Group's financial performance in 2016 reflects the effectiveness of the changes initiated in the second half of 2015 and is underpinned by the operational performance through the year as the strategy has been executed. On a Continuing Group basis, revenues improved by 11.1% to £91.8m (2015: £82.6m), and operating profit before non-recurring items increased by 71.8% to £1.77m (2015: £1.03m).

The Parity Board has taken the decision to divest the Inition service offering as it is not in-line with our strategic direction. Inition's performance has improved as the focus has shifted to Virtual Reality and Augmented Reality installations and whilst an exciting and creative arena, it provides little opportunity for collaboration with the Continuing Group.

We have presented our results with Inition as a discontinued operation. The table below represents the impact of this decision on the Group's results for 2016.

Year Ended 31 December 2016	Group Continuing Operations £m	Inition £m	Group including Inition £m
Adjusted EBITDA	2.19	0.32	2.51
Depreciation and share based charges	(0.42)	(0.44)	(0.86)
Operating profit/(loss) before non-recurring charges	1.77	(0.12)	1.65

Parity Professionals revenues improved by 10.5% to £86.4m (2015: £78.2m) with a corresponding increase in Divisional Contribution of 16.7% to £2.66m (2015: £2.28m). The higher margin Parity Consultancy Services business is demonstrating good trading momentum with an improvement in revenue of 20.5% to £5.3m (2015: £4.4m) supporting a significant 30.0% increase in Divisional Contribution to £0.91m (2015: £0.70m).

Non-recurring costs and impairment have reduced significantly (from £3.7m in 2015 to £0.4m in 2016) and include the restructuring costs associated with the previous strategy. 

As a result of the restructuring and new focus of the Group, the Directors have decided to use Operating Profit as the key measure to assess its performance, replacing adjusted EBITDA.

CASH, DIVIDEND and PENSION

The Group has been financially proactive, further strengthening the balance sheet with net debt at the year-end of £4.4m (2015: £7.4m) from the strong cash generation performance, extending the finance facility, and maintaining strong working capital controls. We have also improved the payment terms for our discontinued defined benefit pension scheme with the continued support of the trustees.

PNC Bank has provided Parity's banking arrangements since 2010 and the relationship remains strong. On 1 September 2016 Parity extended the £15 million finance facility to 31 December 2018 at an improved discount rate. 

The Group has been restructured in line with the new strategy and as a result, in order to ensure funds remain available for further investment in Parity's growth, the Board is not recommending that a dividend is payable for 2016. We intend to keep this policy under review.

 

Strategic Report (continued)

Chairman's Statement (continued)

BOARD

I have very much enjoyed my involvement with the Parity Group for many years and as we have moved to a new strategic direction I have been happy to provide an element of stability and continuity. Nevertheless, as announced in October 2016, I intend to retire shortly and am pleased that John Conoley has agreed to join the Board as the Group's new Chairman, to help drive our future strategic ambitions.

On 22 April 2016, Mike Aspinall stepped down as Group Finance Director and was replaced by Roger Antony.  Roger has been with Parity for over 18 years, holding the position of Group Financial Controller since 2006, and prior to that the role of Financial Controller for the International Resources Division. Roger joined the Group after qualifying as an accountant in 1997, and previously held managerial roles within a variety of listed entity finance departments. He has a thorough understanding, and experience, of the IT Services sector.

As first announced on 31 May 2016, David Firth joined the Parity Board as a Non-Executive Director. David was Finance Director of Penna Consulting plc and Finance Director of Parity Group in the 1990s and he has been able to make an immediate positive impact with his directly related industry experience. On 6 October 2016, Neal Ransome stepped down from the Board after three years' service.

On behalf of the Board, I would like to thank both Neal Ransome and Mike Aspinall for their respective contributions to the Board.

CURRENT TRADING AND OUTLOOK

The Group has made significant progress in delivering growth in all the KPIs for both Parity Professionals and Parity Consultancy Services. These improvements have been the result of organic growth in the specialist services of each business, and additionally the result of collaboration across the businesses.  One of the opportunities we highlighted at the interim results was the ability and opportunity to cross-sell solutions to clients, supported by the consolidation of offices and unification onto a single CRM, which improved communication whilst also reducing costs. The divestment of Inition underwrites the ambition of the strong management team to focus on the core businesses as well as the significant opportunities for collaboration that have been demonstrated.

With early signs of success, the management team continues to work closely to identify opportunities for the wider business that will further consolidate our relationship with key clients as a multi-channel partner of choice with the flexibility to adjust the delivery model to suit specific needs.

The year has certainly seen the potential for wider market impact as we progress to a future outside of the EU and with a new President of the U.S.A. The UK Government is also closely reviewing the employment status and tax-structure of the contractors providing services into Government projects (IR35). Despite the UK proving resilient to the broader global macro-economic outlook, there has been an increased level of uncertainty due to Brexit with a potential for this to impact both client and candidate confidence.

 

Strategic Report (continued)

Chairman's Statement (continued)

CURRENT TRADING AND OUTLOOK (continued)

With a UK focus we are somewhat de-risked on the flux impacting the global markets, and to date we have seen minimal impact as a result of Brexit. We do not anticipate significant supply side issues in relation to access to labour. At the time of writing it is too early to fully appreciate the potential impact due to the review of IR35 Intermediaries Legislation which will apply from April 2017, which is intended to reform off-payroll working practices within the Public Sector. This has the potential to impact supply into the Public Sector with engagements less attractive to contractors which may result in higher costs to the clients. There have been delays from HMRC in publishing final legislative guidance, including the tool to assess the tax status of our clients' roles which has created uncertainty, though we ensure regular communication to stakeholders on the latest updates. As a Group we are well positioned to be able to deliver both service based solutions and contingent recruitment to best meet client and market demand. The managed service propositions are an opportunity for growth in our Consultancy Services that we are exploring. We have formed working parties to closely monitor changes, risks and opportunities driven by Brexit and IR35.

Notwithstanding the market influences, Parity Professionals expects to maintain steady progress with the usual seasonality through 2017, whilst maintaining investment in new sales staff to target opportunities aligned with the wider Group, business transformation and leadership, and higher demand technology skills. This growth is being managed whilst adhering to our scalable structure enabling effective and efficient cost control underwritten by our inclusion in the Recruiter Hot 100 for 2016.

Parity Consultancy Services is an exciting growth opportunity as illustrated by the two recent awards of long-term managed service contracts for the delivery and support of IT solutions with a total opportunity of £6.7million which will be delivered by wrapping the very best of the wider Group services into packaged solutions. We have the ambition to develop this part of the Group with an increased focus on technical solutions to generate competitive advantage for our clients by transforming them into data guided organisations. We will also develop close ties in supporting clients with business transformation and project management solutions which are now being taken to market by our industry focussed consultants which will drive revenues for the wider Group.

Despite some elements of uncertainty in the market potentially delaying decision-making, Parity should continue to benefit from improvements in the underlying markets, the cross-sell ability, and the increasing potential in new consultancy based solutions. This is due to the Group's ability to adapt to market conditions due to its breadth of offerings, which enable it to react quickly and therefore, meet the evolving needs of our clients. With current trading in-line with our expectations, the Board remains confident in the future of the business with a clear strategy supporting its' commitment to increasing shareholder value through both organic growth and targeted strategic investment. 

The Board is dedicated to driving profitability, cash flow and shareholder value and looks forward to 2017 with confidence.

Lord Freeman

Non-Executive Chairman

22 March 2017

 

Strategic Report (continued)

Strategy

Alan Rommel - Chief Executive Officer

Parity Group is:

Driving Change, People Led, Technology Enabled

Parity has created a well-established, stable and robust business model. We provide managed IT services, supported by expertise and a depth of industry understanding, in order to align the skills that clients require in their market sector. We are now ideally placed to provide clients with the people they need and the technology that will enable them to drive change through two strongly defined and complementary business units.

Parity Professionals

This division provides targeted recruitment of temporary and permanent professionals and leadership development to support business change. We ensure our clients have both the capacity and capability to transform organisational performance in high growth and rapidly evolving markets.

Parity Consultancy Services

This division is focused on niche expertise driven by senior industry-experienced consultants, exploiting technology and generating competitive advantage for our clients by transforming them into data guided organisations.

We clarified a 3 year plan focused on growth, market leadership and future investment, to be achieved by organically expanding our established offerings and targeting strategic investment where we identify aligned opportunity in the higher margin consultancy proposition.

Growth

Whilst both businesses have grown independently, we have also identified the synergies between them and are now starting to deliver these benefits to our clients, which in turn is beneficial for the Group. This provides us with the opportunity to develop a much more balanced business through solutions that are of greater value to the client and can command higher margins. We expect this to lead to increased project revenue over longer durations and improves forward looking visibility for our business. Our flexible delivery structure also supports greater agility, with a rapidly scalable and cost-effective model.

Market Leadership

Each business has its own direct sales team to ensure the depth of understanding in their area of expertise and the quality of service, but we have aligned the structure to facilitate collaboration. Clients can benefit from the breadth of our capability to select the best solution to meet their exact needs at that time, be that individual services or an integrated solution. This is supported by the strengthening of our shared bids and marketing functions and scheduled further investment in our websites and social media presence.

Future Investment

Whilst we are investing internally in marketing, sales and new services to target the higher margin consultancy and managed service propositions, it should be expected that there is a lead-time to build momentum. The Parity Board is ambitious and whilst 2016 has been focussed on establishing the structure and organic growth, at the right point we will actively engage in reviewing bolt-on opportunities to enhance and accelerate the development of the higher margin consultancy offerings in aligned services and growing sectors.

Strategic Report (continued)

Strategy (continued)

Summary

Parity is a client-centric organisation, delivering a range of services and scale rapidly to meet existing and new client objectives. Our clients' need for change is driven by both advances in technology, and by the demands of their customers with the market changing ever-more rapidly. Parity Group, as both a people and technology provider, is ideally placed to service our clients' needs, enabling the changes which will drive their growth.

We have aligned the businesses and clarified the proposition to the market with proven capability to cross-sell. We have the ambition to further develop higher margin services whilst delivering improvements in all key metrics across both businesses.

The Parity Board remains confident that we are well positioned to become the clients' technology partner of choice where they seek efficiency and competitive advantage. We will leverage our established Parity Professionals business to build a strong and stable consultancy brand, which is intended to in turn increase revenues, generate further positive cash flows and improve shareholder value. 

 

Strategic Report (continued)

Operating Review

PARITY PROFESSIONALS

Overview

Parity Professionals has a clear 'people' focus - building capacity and capability for our clients to transform organisational performance. We provide targeted recruitment of temporary and permanent professionals and leadership development to support business change.  This broader capability has elevated the proposition for the recruitment and placement services with the added benefit of differentiation through leadership and coaching services for our clients to support large change programmes. We make significant change programmes easier for our clients through our broad range of integrated HR services - from graduate recruitment and induction through to delivering high demand IT specialists and business transformation services.

We strive to provide a more consultative range of services to our clients, adding value and strengthening the relationship and securing repeat business.

Revenues in the year improved by 10.5% to £86.4m (2015: £78.2m) with divisional contribution increasing by 16.7% to £2.66m (2015: £2.28m) with all operating overheads allocated to the business.

The IT Resources Offering

Client side demand and recruitment activity levels remained strong through the year in both contract and permanent markets. The increased volumes in opportunity and in placements delivered consistent growth though the rate of growth softened in the fourth quarter where uncertainty on IR35 increased contractor churn and we identified a reduction in average order value with shorter durations. Despite the impact, the increased sales levels ensured the business delivered improvement in all the primary KPIs including volumes (average number of contractors on billing increased by 13% vs 2015), margins (average weekly gross profit improved by 19% against 2015), and permanent placement fees (improved by 34% vs 2015). 

Demand for skills in the IT sector continues to outstrip supply and remains an opportunity for organic growth, especially in the contract market when combined with the demographic shift we are experiencing with younger workers looking for more flexible working as part of the 'Gig Economy'. Research from the UK Careers and Employability Service has predicted a 20% growth in employment for the IT sector to 2024 which is the highest growth in any of the main sectors of the UK economy, with a need for 518,000 additional workers within the highest skilled occupational groups in the digital arena by 2022.

We are afforded some protection against recruitment process outsourcing due to our focus in high demand IT skills, and close client relationships, through being able to offer a broad range of solutions, including collaborations with Parity Consultancy Services enabling managed service solutions. We also develop and maintain strong relationships with our contractor base, underwritten by good service and high levels of engagement - in 2016, 93% of candidates rated the responsiveness of our recruitment consultants to issues as "Excellent" or "Very Good".

The focus for our resourcing offering remains on contract placements with higher overall profitability over their full duration and the stability it provides to our forward-order book. It is important to balance this with an ability to provide a permanent recruitment service to lock-in client engagement, and further build our brand in the candidate and client community for niche skills. The growth in our permanent business has been primarily due to targeting skills verticals such as the digital sector, infrastructure and information security.

This is a resilient business and we need to maintain targeted strategic investment in new areas to support longer term organic growth. We have proven our resilience to adapt to market conditions, and through tough times we have by necessity applied appropriate close cost controls in the core business whilst ensuring sustained profitability as evidenced by our inclusion in the Recruiter Hot 100 which assesses profitability per head.

Strategic Report (continued)

Operating Review (continued)

The Talent Management Offering

As a relatively small team, our Talent Management specialists have re-engineered their offering to be more streamlined and focussed upon 'Leadership Development' with the ability to apply this to different audiences from graduate level through to senior management. This more productised delivery solution has proven successful with our clients and simplifies scalability and replication. The focus for new sales activity has moved to mainland GB from Northern Ireland which has improved the average fee rates, average project value and reduced reliance on public sector spend.

PARITY CONSULTANCY SERVICES

Overview

Whilst still able to deliver broader technical solutions with some established contracts, the Technical Solutions team have refined their sales offering to target data solutions to assist clients in generating competitive advantage by transforming them into data guided organisations.

We have supplemented our clients' technical teams by recruiting Practice Heads with sector expertise to drive Business Consultancy opportunities in Health, Utilities and Defence where we have established relationships to leverage, and we have identified that there is significant change driven by legislative or industry evolution.

Growth in the Consultancy Services business creates much better balance with strong, higher margin and higher value sales linked with greater project and recurring revenue.

Technical Solutions Offering

At the core of the Parity Consultancy Services business, the Technical Solutions offering helps our clients by developing, delivering and supporting IT projects with niche expertise to provide efficiency gains and competitive advantage. This creates an important differentiator between the people-led Parity Professionals business and the solution driven Parity Consultancy Services though the two businesses complement each other as we supplement our in-house development teams with expertise provided by Parity Professionals.

Technical solutions to a rapidly evolving market have been at the core of Parity Group's services from the very beginning and we will build upon this reputation with an offer more directly related to the fast-growing data solutions software market. This is not new as 'Information technology' has always been about successful storage, interrogation and interpretation of information, but the volumes of data have increased exponentially whilst the sources multiply. 'Data' is a currency with real value, but to leverage that value, the data needs to be collated and interrogated to enable decision making and drive targeted campaigns. 

Our Data Consulting proposition supports the client transition to becoming a Data-guided organisation, clarifying its: 

·     Data Strategy  

·     Data Usage

·     Data Governance

·     Data Management        

That leads into the technology solution and the development and implementation of applications to support all the above, including:

·     Data Collection

·     Storage

·     Management

·     Security

·     Analysis

·     Visualisation

·     Monetisation

Strategic Report (continued)

Operating Review (continued)

Technical Solutions Offering (continued)

The development team have secured a further extension to the Military Capability Output Costing System (MCOCS), a major Business Intelligence programme for the MoD worth an additional £1.4 million over the next two years. This team is supplemented with interim technology skills resourced by Parity Professionals.

We have replicated this success with the award of two longer-term project based orders with an opportunity of £6.7m with two new clients for Parity Consultancy Services as we establish our managed service offering. The business has successfully tendered for the G-Cloud and the Digital Outcomes and Specialists frameworks which provide access to our specialist services to Public Sector clients.

We continue to benefit from a high level of repeat business with strong relationships developed through our customer centric approach. In 2016, we achieved greater efficiency, with an improvement in internal delivery staff utilisation to 80% (2015: 73%). The new projects and frameworks, provide additional opportunity in the future pipeline and generate continuing recurring revenue, giving enhanced forward visibility of our order-book and cashflow.

Business Consultancy Offering

The Practice Heads have been recruited, and are now raising their profile with propositions that support clients in the adoption of change, getting the most from both their people and technology. They offer initial diagnostics to facilitate and review business change programmes, clarify outcomes, and understand existing capabilities to then support clients through the transformation. The client solutions can range from contingent access to niche specialist knowledge and skills, through to project management, and creating a full development service with the benefit of being able to deliver all of this through the wider Parity Group.

Current sectors are complementary to the wider business in Health, Utilities and Defence, where we have experience and understand the opportunity due to market dynamics or legislation. We intend to diversify into additional sectors where we identify strong opportunity as the offering gains momentum.

SUMMARY

In an increasingly complex landscape, Parity is uniquely placed in being able to offer clients multi-channel access to the best solution to fit their needs - a consultancy that understands the challenges they face in their markets, supporting and developing their leadership team, plus flexible access to skills for the management and delivery of projects to give competitive advantage with data driven decision making. 

We have strong visibility of skills that are in demand across different sectors through Parity Professionals and can use this to our benefit with the ability to redirect focus to new and emerging trends without recruitment and development start-up delays.

With increased clarity of a more aligned and targeted business strategy, and with an underlying strength in the business model, we have leveraged several cross-selling opportunities at higher values, leading to long-term orders.  We are confident that the business provides further enhanced growth opportunities, positive cash flows and shareholder value.

Alan Rommel

Chief Executive Officer

22 March 2017

 

Strategic Report (continued)

Financial Review

Roger Antony - Group Finance Director

Overview - Continuing Operations

	2016 £000's	2015 £000's	Incr./(Decr.) %
Revenue	91,764	82,607	11.1%
Adjusted EBITDA	2,187	1,531	42.8%
Operating Profit before non-recurring items	1,766	1,026	72.1%
Net Debt	(4,386)	(7,379)	(40.6%)
Operating Margin %	1.9%	1.2%
Net Debt / Adjusted EBITDA ratio	2.0	4.8

Group revenue in the year increased by 11% from £82.6m to £91.7m, with growth in both divisions. The revenue growth has translated to a 72% increase in Group operating profit before non-recurring items, with Group operating margins improving from 1.2% to 1.9%.  During 2016 we have made significant progress towards strengthening the balance sheet, with the Net Debt/Adjusted EBITDA ratio at the end of year improved to 2.0x (2015: 4.8x).

We have decided to sell the Inition subsidiary, as it is not aligned to the current Group strategy. Accordingly, the Inition service offering is presented as "Assets Held for Sale" and its financial results for 2016 and 2015 presented as "Discontinued Operations". Inition's results were previously included in the Parity Consultancy Services division.

Divisional performance

	2016 £000's	2015 £000's	Incr. %
Revenue
Parity Professionals	86,419	78,190	10.5%
Parity Consultancy Services	5,345	4,417	21.0%
Group Revenue	91,764	82,607	11.1%
Divisional Contribution
Parity Professionals	2,660	2,276	16.9%
Parity Consultancy Services	910	698	30.4%
Total Divisional Contribution	3,570	2,974	20.0%

Both divisions grew revenues and contribution during the year. The increase in Group revenues is mainly as a result of the 10.5% increase in revenues in the Professional's division. The growth was predominately driven by an increase in contractor volumes, with average contractor numbers on billing increasing to 1,009 (2015: 891).

Parity Consultancy Services revenues were enhanced by the ongoing work on the MCOCS contract for the MoD during the year, as well as continued work with BAT. The division invested in three new senior Practice Heads in H2 2016, to support the Group's strategic growth plans.

Strategic Report (continued)

Financial Review (continued)

Reconciliation of divisional contribution to operating profit/(loss) from continuing operations

	2016 £'000	2015 £'000
Divisional contribution	3,570	2,974
Group costs	(1,383)	(1,443)
Depreciation and amortisation	(365)	(357)
Share-based payment charges	(56)	(148)
Operating profit before non-recurring items	1,766	1,026
Non-recurring items (continuing operations)	(355)	(1,731)
Impairment	-	(1,994)
Operating profit / (loss) from continuing operations	1,411	(2,699)

Group costs reduced to £1.38m (2015: £1.44m) as a result of the cost reduction programme implemented in 2015. Share based payment charges have fallen due to a one-off credit under "bad leaver" provisions.

Continuing operations	2016 £'000	2015 £'000
Write down of GPSeer	267	-
Impairment loss	-	1,994
Restructuring costs
- Employee benefit costs	260	1,077
- Write down of tangible fixed assets	-	341
- Other operating costs	36	126
Transaction costs	52	125
Property provisions	46	62
Insolvency dividend	(306)	-
	355	3,725

Non-recurring items

Impairment

The £0.27m write down charge in 2016 relates to the full write down of GPSeer, an initiative under the previous Digital strategy to develop a cutting-edge internet search engine. No further development work has been performed by the Group since the change in strategy. In 2015, an impairment loss of £1.99m was recorded in respect of the Inition service offering.

Other non-recurring items

Employee benefit costs relate to compensation payments incurred in downsizing the Talent Management service offering in Northern Ireland, and Board changes aligned to the Group's strategy. The insolvency dividend relates to a one-off payment received in 2016 from the administrators of a legacy overseas subsidiary.

In 2015, employee benefit costs related to compensation payments incurred in exiting the digital acquisition strategy, the streamlining of the Board and the closure of the Golden Square Content service offering. The impairment of tangible fixed assets relates to the closure of Golden Square.

Strategic Report (continued)

Financial Review (continued)

Earnings per share and dividend

The basic earnings per share from continuing operations was 0.87 pence (2015: loss per share 3.37 pence).

The Board does not propose a dividend for 2016 (2015: nil), but will continue to review this policy each year.

Statement of Financial Position

Intangible assets

Following the decision to sell the Inition service offering, the associated goodwill of £1.17m, and related other intangible assets of £0.15m, have been reclassified as "Assets held for sale" at the balance sheet date. 

The intellectual property in relation to GPSeer of £0.12m was written down.

Trade receivables and accrued income

Trade and other receivables decreased by £1.2m to £14.4m (2015: £15.6m). Of this movement, £0.9m was due to the reclassification of Inition's assets, and £0.3m broadly due to an improvement in debtor days. At the end of the year, calculated on billings on a countback basis, debtor days decreased to 29 days (2015: 31 days).

Trade and other payables

Trade and other payables increased during the year to £9.1m (2015: £8.6m). The increase is after the reclassification of £0.5m of liabilities relating to Inition, and relates to an increase in fees in advance of £0.3m and timing differences in the Parity Professional's contractor payment cycle. At the end of the year, creditor days were 26 days (2015: 26 days).

Other financial liabilities

Other financial liabilities represent the Group's debt under the asset-based lending facility. This is a working capital facility and is consequently linked to the same cycle as the trade receivables. The asset-based lending facility with PNC provides for borrowing of up to £15m depending on the availability of appropriate assets as security. The current facility was renewed on 1 September 2016, and runs until the end of 2018. Upon renewal, the interest rate applied to borrowings improved to 2.35% from 2.50% over the prevailing base rate.

Cash flow and net debt

The Group generated positive net cash flows from operating activities of £3.4m (2015: £0.2m), helped by an increase in client fees received in advance of £0.6m (includes £0.2m from Inition), and a one-off receipt of £0.3m in respect of a legacy overseas subsidiary.

As a result of the positive cash flow, net debt reduced to £4.4m (2015: £7.4m).

Pension Fund

In March 2016, we reached agreement with the trustees of the defined benefit pension scheme to reduce deficit reduction contributions. Following a contribution holiday, the Group resumed payments in April 2016, commencing with a lump sum payment of £0.1m, and followed be reduced monthly amounts. The agreement will help the Group's interest cover ratio and cash generating capability.

At the end of the year the deficit increased to £1.85m (2015: £1.49m), primarily due to lower bond yields, which resulted in a lower discount rate used to calculate scheme liabilities. There was a good return on plan assets which partially offset the increase in scheme liabilities.

Strategic Report (continued)

Financial Review (continued)

Principal risks and uncertainties

Specific present risks, such as Reform of the Intermediaries Legislation (IR35) are discussed in the Chairman's Report on pages 4 to 6.

Market

The Group continues to monitor its exposure to the public sector and while the Group's exposure has reduced over recent years, it still remains exposed to potential public sector budget reductions and changes to recruitment.

The Group trades almost exclusively in the UK, and is aware of the changing competitive environment that faces both its divisions. As a result, there is a major emphasis on addressing the lower volume but higher margin niche sectors and opportunities in the Parity Professionals division and the new growth areas for the Parity Consultancy Services division.

People

Our people are the most important part of our service and having appropriately trained and motivated staff helps us reduce the risk of poor service delivery. Share plans are used to incentivise and retain senior staff in the medium term. HR policies and procedures are reviewed regularly to ensure the business recruits and retains appropriately trained and experienced staff.

Financial

The Group actively monitors its liquidity position to ensure it has sufficient available funds and working capital in order to operate and meet its planned commitments and has a credit risk policy that requires appropriate status checks and or references as necessary.

Technology

As an IT services provider the Group relies on its IT, telecommunications and infrastructure systems to perform and manage the services we provide to clients. The Group reviews its own disaster recovery systems regularly in order to minimise the risk of prolonged disruption to systems.

Legal

The Board recognises that non-compliance with relevant laws and regulations can result in substantial fines or penalties. Suitable controls are built into our service delivery processes to reduce the risk of non-compliance.

Roger Antony

Group Finance Director

22 March 2017

 

Parity Group plc

Consolidated income statement

for the year ended 31 December 2016

	Notes		Before non-recurring items 2016 £'000	Non-recurring items 2016 (note 5) £'000	Total           2016          £'000	Before non-recurring items (Restated) 2015 £'000	Non-recurring Items (Restated) 2015 (note 5) £'000	Total (Restated)           2015          £'000
Continuing operations Revenue		2	91,764	-	91,764	82,607	-	82,607
Employee benefit costs		3	(6,245)	(260)	(6,505)	(6,765)	(1,077)	(7,842)
Depreciation, amortisation & impairment		3	(365)	(115)	(480)	(357)	(2,335)	(2,692)
All other operating expenses		3	(83,388)	20	(83,368)	(74,459)	(313)	(74,772)
Total operating expenses			(89,998)	(355)	(90,353)	(81,581)	(3,725)	(85,306)
Operating profit/(loss)			1,766	(355)	1,411	1,026	(3,725)	(2,699)
Finance income		7	611	-	611	506	-	506
Finance costs		7	(1,063)	-	(1,063)	(1,072)	-	(1,072)
Profit/(loss) before tax			1,314	(355)	959	460	(3,725)	(3,265)
Tax (charge)/credit		9	(154)	79	(75)	(353)	189	(164)
Profit/(loss) for the year from continuing operations			1,160	(276)	884	107	(3,536)	(3,429)
Discontinued operations Loss from discontinued operations, net of tax		8	(78)	-	(78)	(226)	(264)	(490)
Profit/(loss) for the year attributable to owners of the parent			1,082	(276)	806	(119)	(3,800)	(3,919)
Basic earnings / (loss) per share Diluted earnings / (loss) per share		10 10			0.87p 0.83p			(3.37p) (3.37p)

The notes on pages 20 to 28 form part of the financial statements.

 

Parity Group plc

Consolidated statement of comprehensive income and consolidated statement of changes in equity

for the year ended 31 December 2016

Consolidated statement of comprehensive income for the year ended 31 December 2016
	Notes	2016 £'000	2015 £'000
Profit/(loss) for the year		806	(3,919)
Other comprehensive income:
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations		(13)	42
		(13)	42
Items that will never be reclassified to profit or loss
Remeasurement of defined benefit pension scheme		(413)	848
		(413)	848
Other comprehensive income for the year net of tax		(426)	890
Total comprehensive income for the year attributable to equity holders of the parent		380	(3,029)

Consolidated statement of changes in equity

for the year ended 31 December 2016

	Share capital £'000	Deferred  shares £'000	Share premium reserve £'000	Other reserves £'000	Retained earnings £'000	Total £'000
At 1 January 2016	2,037	14,319	33,195	44,160	(87,689)	6,022
Profit for the year	-	-	-	-	806	806
Exchange differences on translation of foreign operations	-	-	-	-	(13)	(13)
Remeasurement of defined benefit pension scheme	-	-	-	-	(413)	(413)
Share options - value of employee services	-	-	-	-	58	58
At 31 December 2016	2,037	14,319	33,195	44,160	(87,251)	6,460

	Share capital £'000	Deferred  shares £'000	Share premium reserve £'000	Other reserves £'000	Retained earnings £'000	Total £'000
At 1 January 2015	2,035	14,319	33,189	44,160	(84,812)	8,891
Loss for the year	-	-	-	-	(3,919)	(3,919)
Exchange differences on translation of foreign operations	-	-	-	-	42	42
Remeasurement of defined benefit pension scheme	-	-	-	-	848	848
Issue of new ordinary shares	2	-	6	-	-	8
Share options - value of employee services	-	-	-	-	152	152
At 31 December 2015	2,037	14,319	33,195	44,160	(87,689)	6,022

The notes on pages 20 to 28 form part of the financial statements.

Parity Group plc

Consolidated statement of financial position

As at 31 December 2016

Company number 3539413	Notes	2016 £'000	2015 £'000
Assets Non-current assets
Intangible assets and goodwill	11,12	5,055	7,113
Property, plant and equipment		72	180
Deferred tax assets		409	507
		5,536	7,800
Current assets
Stocks and work in progress		-	61
Trade and other receivables		14,373	15,619
Cash and cash equivalents		4,272	2,648
		18,645	18,328
Assets classified as held for sale and included in disposal groups		2,389	-
Total assets		26,570	26,128
Liabilities Current liabilities
Loans and borrowings		(8,636)	(10,016)
Trade and other payables		(9,104)	(8,574)
		(17,740)	(18,590)
Non-current liabilities
Loans and borrowings		(22)	(11)
Provisions		(17)	(14)
Retirement benefit liability		(1,848)	(1,491)
		(1,887)	(1,516)
Liabilities associated with assets classified as held for sale and included in disposal groups		(483)	-
Total liabilities		(20,110)	(20,106)
Net assets		6,460	6,022
Shareholders' equity
Called up share capital		16,356	16,356
Share premium account		33,195	33,195
Other reserves		44,160	44,160
Retained earnings		(87,251)	(87,689)
Total shareholders' equity		6,460	6,022

Approved by the Directors and authorised for issue on 22 March 2017.

The notes on pages 20 to 28 form part of the financial statements.

Alan Rommel                                                                         Roger Antony

Chief Executive Officer                                                         Finance Director
 

Parity Group plc

Consolidated statement of cash flows

For the year ended 31 December 2016

	Notes	2016 £'000	2015 £'000
Cash flows from operating activities Profit/(loss) for year		806	(3,919)
Adjustments for:
Finance income	7	(611)	(506)
Finance expense	7	1,063	1,072
Share-based payment expense		58	152
Income tax expense/(credit)	9	44	6
Amortisation of intangible assets	11	652	546
Depreciation of property, plant and equipment		147	173
Impairment of goodwill	11	-	1,994
Loss on write down of intangible assets	11	115	3
Loss on write down of property, plant and equipment		-	341
		2,274	(138)
Working Capital
Decrease/(increase) in work in progress		44	(34)
Decrease/(increase) in trade and other receivables		330	(96)
Increase/(decrease) in trade and other payables		962	522
Increase/(decrease) in provisions		33	(68)
Payments to retirement benefit plan		(231)	(28)
Cash generated from operations		3,412	158
Income taxes received		-	23
Net cash flows from operating activities		3,412	181
Investing activities
Acquisition of subsidiaries		-	(250)
Purchase of intangible assets	11	(22)	(349)
Purchase of property, plant and equipment		(129)	(92)
Net cash used in investing activities		(151)	(691)
Financing activities
Issue of ordinary shares		-	8
(Repayment of)/proceeds from finance facility		(1,360)	476
Interest paid	7	(277)	(300)
Net cash from financing activities		(1,637)	184
Net increase/(decrease) in cash and cash equivalents		1,624	(326)
Cash and cash equivalents at the beginning of the year		2,648	2,974
Cash and cash equivalents at the end of the year		4,272	2,648

The notes on pages 20 to 28 form part of the financial statements.

 

Notes to the accounts

1       Accounting policies

Basis of preparation

Parity Group plc (the "Company") is a company incorporated and domiciled in the UK.

The financial information set out in these audited preliminary results constitutes the Company's statutory accounts for 2016 and 2015. The notes in this preliminary announcement have been extracted from the audited accounts for the year ended 31 December 2016.

The financial information set out in these audited preliminary results has been prepared using recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in European Union (collectively Adopted IFRS). The accounting policies adopted in this preliminary results announcement have been consistently applied to all the years presented and are consistent with the policies used in the preparation of the statutory accounts for the period ended 31 December 2015. The principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2015.

2        Segmental information

Factors that management used to identify the Group's reporting segments

In accordance with IFRS 8 'Operating Segments' the Group's management structure, and the reporting of financial information to the Chief Operating Decision Maker (the Group Board), have been used as the basis to define reporting segments.  The Group has two continuing defined cash generating units (see note 12) which form the basis of each operating segment.  The components of each segment are described below.

The internal financial information prepared for the Group Board includes contribution at a segmental level, and the Group Board allocates resources on the basis of this information.

Segmental contribution, defined as divisional revenues less attributable overheads, profit before tax, and assets and liabilities are internally reported at a Group level.

Description of the types of services from which each reportable segment derives its revenues

The Group has two segments:

·     Parity Professionals - this segment provides IT recruitment services across all UK markets. It also provides graduate selection, training, placement and career development services. Parity Professionals provides 94% (2015: 95%) of the continuing Group's revenues.

·     Parity Consultancy Services - this segment delivers business intelligence solutions designed around client problems. Parity Consultancy Services provides 6% (2015: 5%) of the continuing Group's revenues.

Group costs include directors' salaries and costs relating to Group activities and are not allocated to reporting segments for internal reporting purposes.

Measurement of operating segment contribution

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies.

The Group evaluates performance on the basis of contribution from operations before tax not including non-recurring items, such as restructuring costs.

Inter-segment sales are priced on the same basis as sales to external customers, with a discount applied to encourage the use of group resources at a rate acceptable to the tax authorities.

Notes to the accounts (continued)

2    Segmental information (continued)

	Parity Professionals  2016 £'000	Parity Consultancy Services 2016 £'000	Before non-recurring Items 2016 £'000	Non-recurring Items 2016 £'000	Total 2016 £'000
Revenue from external customers	86,419	5,345	91,764	-	91,764
Inter-segment revenue	481	-	481	-	481
Segment revenue	86,900	5,345	92,245	-	92,245
Attributable costs	(84,240)	(4,435)	(88,675)	-	(88,675)
Segmental contribution	2,660	910	3,570	-	3,570
Group costs			(1,383)	-	(1,383)
Depreciation and amortisation			(365)	(115)	(480)
Share based payment			(56)	-	(56)
Other non-recurring items			-	(240)	(240)
Operating Profit			1,766	(355)	1,411
Finance income			611	-	611
Finance costs			(1,063)	-	(1,063)
Profit/(loss) before tax (continuing activities)			1,314	(355)	959

	Parity Professionals  2015 £'000	Parity Consultancy Services 2015 £'000	Before non-recurring Items 2015 £'000	Non-recurring Items 2015 £'000	Total 2015 £'000
Revenue from external customers	78,190	4,417	82,607	-	82,607
Inter-segment revenue	118	-	118	-	118
Segment revenue	78,308	4,417	82,725	-	82,725
Attributable costs	(76,032)	(3,719)	(79,751)	-	(79,751)
Segmental contribution	2,276	698	2,974	-	2,974
Group costs			(1,443)	-	(1,443)
Depreciation and amortisation			(357)	(341)	(698)
Share based payment			(148)	-	(148)
Impairment of goodwill Other non-recurring items			- -	(1,994) (1,390)	(1,994) (1,390)
Operating Profit			1,026	(3,725)	(2,699)
Finance income			506	-	506
Finance costs			(1,072)	-	(1,072)
Profit/(loss) before tax (continuing activities)	-	-	460	(3,725)	(3,265)

The continuing Group operates exclusively in the UK. All revenues are generated and all segment assets are located in the UK. All revenues are generated and all segment assets are located in the UK.  Inter-segment revenue in the year is a result of Parity Professionals selling IT recruitment services to Parity Consultancy Services.

61% (2015: 57%) or £52.7m (2015: £44.8m) of the Parity Professionals revenue was generated in the public sector. 57% (2015: 32%) or £3.0m (2015: £1.4m) of the Parity Consultancy Services revenue was generated in the Public Sector.

The largest single customer in Parity Professionals contributed revenue of £10.8m or 12% and was in the public sector (2015: £11.8m or 15% and in the private sector). The largest single customer in Parity Consultancy Services contributed revenue of £2.9m or 54% and was in the public sector (2015: £2.4m or 53% and in the private sector).

 

Notes to the accounts (continued)

3          Operating costs

Continuing operations			2016 £'000	2015 (restated) £'000
Employee benefit costs -   wages and salaries -   social security costs -   other pension costs			5,688 639 178	6,997 660 185
			6,505	7,842
Depreciation, amortisation and impairment
Amortisation of intangible assets - software			294	254
Depreciation of leased property, plant and equipment Depreciation of owned property, plant and equipment Write down of property, plant and equipment Write down of intangible assets Impairment of goodwill			35 36 - 115 -	27 76 341 - 1,994
			480	2,692
All other operating expenses
Contractor costs Sub-contracted direct costs			80,409 350	72,014 366
Operating lease rentals           -   plant and machinery			27	37
-   land and buildings			775	1,003
Sub-let income - land and buildings			-	(150)
Other occupancy costs IT costs			147 348	263 249
Equity settled share based payment charge			56	148
Other operating costs			1,256	842
			83,368	74,772
Total operating expenses			90,353	85,306

During the year the Group obtained the following services from the Group's auditor, KPMG LLP:

			2016 £'000	2015 £'000
Audit of the Parent Company and consolidated financial statements			11	11
Other services:
Audit of the Company's subsidiaries			65	65
Interim review			6	6
Tax compliance			27	27
Other			17	33
			115	131
			126	142

All other services have been performed in the United Kingdom.

Other refers to services provided in relation to advice relating to the Retirement Benefit Plan and transaction costs.  

 

Notes to the accounts (continued)

4            Reconciliation of operating profit/(loss) to adjusted EBITDA

	Note	2016 £'000	2015 (restated) £'000
Operating profit/(loss) from continuing operations		1,411	(2,699)
Non-recurring items	5	355	3,725
Share-based payment charges	3	56	148
Depreciation and amortisation	3	365	357
Adjusted EBITDA		2,187	1,531

The directors previously used EBITDA before non-recurring items and share-based payment charges ('Adjusted EBITDA') as a key performance measure of the business.

5            Non-recurring items

	Note	2016 £'000	2015 (restated) £'000
Continuing Operations
Write down of GPSeer -     Write down of intangible assets -     Other operating costs		115 152	- -
Total write down of GPSeer		267	-
Impairment of goodwill	11,12	-	1,994
Restructuring
-     Employee benefit costs -     Write down of property, plant and equipment		260 -	1,077 341
-     Other operating costs		36	126
Transaction costs		52	125
Property provisions		46	62
Insolvency dividend		(306)	-
		355	3,725

The continuing operations non-recurring charge for 2016 includes:   

·     The write down of assets in the GPSeer joint venture.  GPSeer is an initiative under the previous digital strategy to develop a cutting-edge internet search engine.  Since the change in strategy, no further development work has been performed by the Group.

·     Restructuring costs including compensation payments incurred to downsize the Talent Management service offering in Northern Ireland, the cost of Board changes aligned to the Group's strategy, and residual expenses incurred to close the Golden Square service offering. 

·     Transaction costs relating to professional services incurred to implement the Board's strategy to focus on core business. 

·     Property provisions represent empty property costs incurred as a result of centralising the London office. 

·     The insolvency dividend relates to a one-off payment received in 2016 from the administrators of a legacy overseas subsidiary. 

The continuing operations non-recurring charge for 2015 includes:

·     A goodwill impairment charge relating solely to the Group's investment in Inition Limited (see note 12).

·     Restructuring costs of £737,000 relating to the closure of the Golden Square business (including a £341,000 write down of tangible fixed assets) and £787,000 of compensation payments made in respect of redundancies and Board changes following the Group's decision to discontinue its digital acquisition initiative.

·     Transaction costs for professional services incurred in the Group's acquisition programme which was discontinued during the year.

Notes to the accounts (continued)

6          Average staff numbers

		2016 Number	2015 Number
Continuing operations
Professionals - United Kingdom 1		89	92
Consultancy Services - United Kingdom, including corporate office 2		28	32
		117	124
Discontinued Operations
Consultancy Services		22	25

¹ Includes 22 (2015: 19) employees providing shared services across the Group.

² Includes 7 (2015: 8) employees of the Company.

At 31 December 2016, the Group had 112 continuing employees (2015: 110).

7         Finance income and costs

		2016 £'000	2015 £'000
Finance income
Finance income in respect of post-retirement benefits		611	506
		611	506
Finance costs
Interest expense on financial liabilities		277	300
Finance costs in respect of post-retirement benefits		786	772
		1,063	1,072

The interest expense on financial liabilities represents interest paid on the Group's asset-based financing facilities. A 1% increase in the base rate would increase annual borrowing costs by approximately £100,000.

8       Discontinued operations

In December 2016 the Group Board committed to a plan to sell the Inition cash generating unit following the strategic decision made in May 2015 to place greater focus on the Group's core business. 

Inition was not previously classified as held-for-sale or as a discontinued operation. As such, the comparative consolidated income statement has been restated to show the discontinued operation separately from continuing operations.

The results of discontinued operations also include the results of other statutory entities still owned by the Group which sold their businesses in 2005 and 2006. These entities are not held for sale.

The post-tax result of discontinued operations was determined as follows:

	Note	2016 £'000	2015 £'000
Revenue		3,263	2,235
Expenses		(3,372)	(2,883)
Pre-tax loss		(109)	(648)
Taxation credit		31	158
Loss for the year		(78)	(490)
Basic loss per share	10	0.08p	0.48p
Diluted loss per share	10	0.07p	0.48p

The loss from the discontinued operation of £78,000 (2015: £490,000) is attributable entirely to the owners of the Company.

Notes to the accounts (continued)

8       Discontinued operations (continued)

Cash flows from (used in) discontinued operations:

		2016 £'000	2015 £'000
Net cash from operating activities		45	208
Net cash used in investing activities		(88)	(156)
Net cash flows for the year		(43)	52

9       Taxation

			2016 £'000	2015 (Restated) £'000
Current tax expense
Current tax on profit for the year			5	125
Total current tax expense			5	125
Deferred tax expense
Accelerated capital allowances			39	(7)
Origination and reversal of other temporary differences Change in corporation tax rate Adjustments in respect of prior periods			3 20 8	(7) 53 -
Total tax expense			70	39

Tax expense on continuing operations

75

164

Tax expense on continuing operations excludes the tax income from the discontinued operation of £31,000 (2015: £158,000).  This has been included in 'profit/(loss) from discontinued operation, net of tax' (see Note 8).

The standard rate of corporation tax in the UK changed from 21% to 20% with effect from 1 April 2015. Accordingly, the Group's profits for this accounting period are subject to tax at a rate of 20% (2015: 20.25%). In his Autumn Statement, the Chancellor confirmed there will be a reduction in the corporate tax rate from 1 April 2017 to 19%, and then a further reduction from 1 April 2020 to 17%.  As such, the tax rate of 17% has been applied in calculating the UK deferred tax position of the Group at 31 December 2016.

The 2016 tax expense is after a tax credit of £79,000 (2015: £189,000) in respect of non-recurring items.

 

Notes to the accounts (continued)

9       Taxation (continued)

The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom applied to losses for the year are as follows:

			2016 £'000	2015 (Restated) £'000
Profit/(loss) before tax from continuing operations			959	(3,265)
Expected tax charge/(credit) based on the standard rate of United
Kingdom corporation tax of 20% (2015: 20.25 %)			192	(661)
Expenses/(income) not allowable for tax purposes Adjustment for under provision in prior years Reduction in deferred tax asset due to change in enacted rate Tax losses not recognised Deferred tax not provided			5 8 20 - (150)	445 2 53 272 53
			75	164

Tax on each component of other comprehensive income is as follows:

	2016			2015
	Before tax £'000	Tax £'000	After tax £'000	Before tax £'000	Tax £'000	After tax £'000
Exchange differences on translation of foreign operations	(13)	-	(13)	42	-	42
Actuarial (loss)/gain on defined benefit pension scheme	(413)	-	(413)	848	-	848
	(426)	-	(426)	890	-	890

10        Earnings per ordinary share

Basic earnings per share is calculated by dividing the basic earnings from continuing operations for the year by the weighted average number of fully paid ordinary shares in issue during the year.

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. In 2015, none of the potential ordinary shares are dilutive, as the Group made a loss on continuing activities during the year.

	Earnings 2016 £'000	Weighted average number of shares 2016 000's	Earnings per share 2016 Pence	Earnings 2015 £'000	Weighted average number of shares 2015 000's	Earnings per share 2015 Pence
Basic earnings / (loss) per share	884	101,824	0.87	(3,429)	101,731	(3.37)
Effect of dilutive options	-	4,691	-	-	-	-
Diluted earnings / (loss) per share	884	106,515	0.83	(3,429)	101,731	(3.37)

As at 31 December 2016 the number of ordinary shares in issue was 101,824,020 (2015: 101,824,020).

Basic loss per share from discontinued operations was 0.08p (2015: 0.48p).  Diluted loss per share from discontinued operations was 0.07p (2015: 0.48p).

 

Notes to the accounts (continued)

11     Intangible assets

	Software		Intellectual Property		Goodwill		Total
	2016	2015	2016	2015	2016	2015	2016	2015
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Cost
At 1 January	1,285	1,219	852	572	5,759	7,753	7,896	9,544
Additions Disposals	22 (51)	66 -	- -	283 (3)	- -	- -	22 (51)	349 (3)
Impairment	-	-	(115)	-	-	(1,994)	(115)	(1,994)
Transferred to assets held for sale	(173)	-	(628)	-	(1,165)	-	(1,966)	-
At 31 December	1,083	1,285	109	852	4,594	5,759	5,786	7,896
Accumulated amortisation
At 1 January	495	233	288	4	-	-	783	237
Charge for the year Disposals	287 (51)	262 -	365 -	284 -	- -	- -	652 (51)	546 -
Transferred to assets held for sale	(94)	-	(559)	-	-	-	(653)	-
At 31 December	637	495	94	288	-	-	731	783
Net book amount	446	790	15	564	4,594	5,759	5,055	7,113

During 2016, the Inition business reduced its spending on developing new and existing technologies and utilised the intellectual property developed in prior years.  At balance date, the intangible assets held in the Inition business unit have been reclassified as held for sale (see note 8).  Intellectual property held in the GPSeer joint arrangement has been written down to £nil due to uncertainty surrounding the future of the project (see note 5).

During 2015, the Inition business invested in enhancing certain of its existing technologies in addition to developing new technologies. This resulted in additional intellectual property of £157,000. Other additions to IP included content development for the Talent Management business.

The Group had no additional capital commitments for the purchase of intangible assets as at the balance sheet date.

 

Notes to the accounts (continued)

12     Goodwill

The carrying amount of goodwill is allocated to the Group's three separate cash generating units (CGUs) being; Parity Professionals, Parity Solutions and Inition.  At balance date, the goodwill associated with the Inition CGU has been reclassified as held for sale (see note 8).  

Carrying amounts are as follows:

	Professionals £'000	Solutions £'000	Inition £'000	Total £'000
Carrying value
Balance at 1 January 2016	2,642	1,952	1,165	5,759
Transferred to assets held for sale	-	-	(1,165)	(1,165)
Balance at 31 December 2016	2,642	1,952	-	4,594
Balance at 1 January 2015	2,642	1,952	3,159	7,753
Impairment losses	-	-	(1,994)	(1,994)
Balance at 31 December 2015	2,642	1,952	1,165	5,759

Goodwill was tested for impairment in accordance with IAS 36 at the year end and no impairment charge was recognised (2015: An impairment charge of £1,994,000 was recorded in respect of the Group's investment in Inition Limited). 

The recoverable amounts of the CGUs are based on value in use calculations using the pre-tax cash flows based on budgets approved by management for 2017. Years from 2018 onward are based on the budget for 2017 projected forward at expected growth rates. This is considered prudent based on current expectations of the 2017 long-term growth rate.

Major assumptions are as follows:

	Professionals %	Solutions %	Inition %
2016
Discount rate	5.5	3.1	-
Forecast revenue growth	5.5	9.9	-
Operating margin 2017	3.5	18.4	-
Operating margin 2018 onward	3.4 - 3.9	19.0 - 19.9	-
2015
Discount rate	6.9	4.5	15.6
Forecast revenue growth	4.8	9.2	9.9
Operating margin 2016	3.1	15.8	5.4
Operating margin 2017 onward	3.0 - 3.5	16.1 - 16.9	9.5 - 10.0

Discount rates are based on the Group's weighted average cost of capital adjusted for the specific risks of each cash generating unit.

Forecast revenue growth is expressed as the compound growth rate over the next 4 years. For all CGUs the rates are based on past experience of growth in revenues and future expectations of economic conditions.

Operating margins are based on past experience adjusted for investments.

A 10% change in any of the underlying assumptions used in the discounted cash flow forecasts would not lead to the carrying value of goodwill being in excess of their recoverable amount.

 

END

 

 

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