RNS Number:1597Q
Parity Group PLC
25 September 2003
Parity Group plc
Interim Results for the Six Months Ended 30 June 2003
Parity Group plc, the international IT services group, announces its results for
the six months ended 30 June 2003 and its proposed, fully-underwritten #10.1m
(gross) rights issue, details of which are announced separately today.
Group Summary:
* Group turnover #78.9m (H1/02: #96.0m)*
* Group pre-tax operating loss before discontinued operations and goodwill
amortisation #1.4m (H1/02: loss #0.2m)**
* Retained loss for the period, including loss on termination of business
#13.9m (H1/02: #1.3m)
* Basic loss per share 9.18p (H1/02: 0.63p)
* Basic loss per share before discontinued operations and goodwill
amortisation 0.95p (H1/02: 0.17p)
* Improvement in operating profit before central costs and discontinued
operations compared to H2/02
* #5.1m of cost savings for the period resulting from 17% reduction in costs
(excluding discontinued operations and goodwill) compared to H1/02
* Parity Solutions BV, the Dutch subsidiary closed on 13 June 2003 with a
trading loss of #3.2m and a loss on termination of #8.9m (including goodwill
of #8.7m previously written off to Other Reserves)
* Proposed #10.1m (gross) rights issue to strengthen the Group's balance
sheet
* No interim dividend proposed, in view of the proposed rights issue
* excludes turnover of #2.0m (H1/02: #3.0m) in respect of discontinued
operations
** excludes operating loss of #3.2m (H1/02: profit #0.1m) in respect of
discontinued operations
Divisional Summary
Business Solutions:
* UK contribution of #603k against H2/02 contribution of #217k
* Order book up 38% in the period
* Overheads reduced by further 11% against H2/02 and down 19% against the
same period last year
Training:
* Contribution of #157k against H2/02 loss of #144k
* 27% of revenue from multi-year outsourcing contracts, up from 13% in H1/02
* Overheads down 9% against H2/02 and 12% against the same period last year
Resourcing Solutions:
* UK contribution of #94k compared to loss of #138k in H2/02
* Significant improvement in Mainland Europe over H2/02 from a loss of #372k
to a positive contribution of #20k
* Overheads reduced by further 6% against H2/02 and down 24% against the
same period last year
Americas:
* Decline in profitability arrested in Q2 - returned to profit in August
* Activity rates suggest strengthening US market
* Overheads down 19% against same period last year
Commenting on the results, Ian Miller, Chief Executive, said:
"We are continuing to make progress in refocusing the Group on higher value
business and selling longer running contracts to our key accounts, including a
#5m, five year contract with the Charity Commission won shortly after the period
end amongst other contract wins that have strengthened our order book in the
period.
Earlier this year we announced that we had identified irregularities at one of
our Dutch subsidiaries, Parity Solutions BV, which resulted in an overstatement
of the Group's revenue and operating profit for 2002 of #1.6m. Following the
examination of a number of options regarding the future of this business a
petition to have the business put into receivership was granted and the Group's
liabilities were capped at that point. The full impact of the closure of this
business is reflected in the interim accounts and there are no further potential
liabilities to the Group in relation to Parity Solutions BV.
We have achieved significant savings from the restructuring initiatives
announced in previous years coupled with tight control over discretionary spend.
The reduction in costs resulting from these initiatives, together with enhanced
sales effectiveness, have enabled us to improve performance in the UK and
Mainland Europe compared to the second half of last year. In addition, we are
now seeing signs of increased activity in the US IT staffing market.
In the second half we should benefit from our reduced cost base. There is still
work to do to close the opportunities in the sales pipeline that we need to meet
our revenue targets and we need to ensure that progress made in the performance
of the Americas business unit in the latter part of the period continues.
However, full year results for the continuing businesses are anticipated to be
in line with our expectations."
Commenting on the intention to raise funds through the proposed rights issue
announced separately today, Bill Cockburn, Non-executive Chairman, added:
"In order to ensure our business is appropriately structured to take the Group
forward effectively we are announcing today a proposed #10.1m (gross) rights
issue to strengthen the Group's balance sheet, facilitate the extension of its
restructuring programme to further reduce overheads, provide working capital to
accommodate increased activity across the Group and fund limited capital
investment required to extract further savings in back office and support
functions."
For further information:
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
Interim Statement
Financial Performance
The IT services market in the first half has remained challenging and, as
indicated in our AGM statement in June, turnover for the period was at a similar
level to the second half of last year. Group turnover excluding discontinued
operations was #78.9m (H1/02: #96.0m) giving rise to a loss before discontinued
operations, interest and goodwill of #936k (H1/02: profit of #112k) but an
improvement of #462k (32%) compared to the second half of 2002. The loss per
share before discontinued operations and goodwill amortisation was 0.95p (H1/02:
0.17p). After goodwill amortisation, discontinued operations and exceptional
items the loss for the period before taxation was #13.8m (H1/02: #0.8m) and the
basic loss per share was 9.18p (H1/02: 0.63p).
Dutch Subsidiary
On 9 May 2003, we announced that we had identified irregularities at one of our
Dutch subsidiaries, Parity Solutions BV, which resulted in an overstatement of
the Group's revenue and operating profit for 2002 of #1.6m. A further
announcement was made on 13 June 2003 stating that, following the examination of
a number of options regarding the future of this business, the Board had
concluded that the business was no longer viable due to the losses arising out
of the irregularities identified and it was unable to justify its ongoing
support by the Group. A petition to have the business put into receivership was
granted by the Utrecht court and the Group's liabilities were capped at that
point. The full impact of the closure of this business is reflected in these
accounts and there are no further potential liabilities to the Group in relation
to Parity Solutions BV. An insurance claim has been lodged and is currently
being evaluated by the Group's insurers.
As indicated at the AGM in June 2003, the results of Parity Solutions BV for the
period up to 13 June 2003 have been reported as discontinued operations. The
operating loss for the period of #3.2m comprises an adjustment for the #1.6m
overstatement of revenues in 2002 and a trading loss of #1.6m for the period up
to 13 June 2003.
In addition we have reported a loss on the termination of this business of #8.9m
which includes #8.7m of goodwill that had been written off directly to Other
Reserves at the time of acquisition, in accordance with the required treatment
under UK accounting standards at that time. For the purpose of calculating the
loss on termination, the goodwill has been reinstated and written off through
the profit and loss account and has therefore not impacted net assets. The loss
on termination also includes net closure costs of #0.2m.
Cash Flow and Net Debt
There has been a net cash outflow of #0.6m during the period (H1/02: outflow of
#4.5m). This included a cash outflow of #0.5m relating to discontinued
operations and an outflow of #2.0m relating to previous restructuring
initiatives. The net cash inflow from operating activities before discontinued
operations was #0.4m. Borrowings against committed facilities increased by #2.5m
in the period, resulting in net debt as at 30 June 2003 of #18.0m, an increase
of #3.0m compared to 31 December 2002.
The Group has been concerned for some time about the impact of high debt levels
on its ability to implement the right business decisions. The Group's strategy
of focusing on larger, longer-term outsourcing contracts to produce more
predictable and sustainable revenue streams has led to the need for a stronger
balance sheet. Large clients need to be assured of the financial strength of the
Group and we risk losing business as a result of our weak balance sheet and high
level of debt.
Strenuous efforts have been made to manage cash.Net capital expenditure over the
last eighteen months has been limited to a very conservative #0.5m compared to
#4.2m in the prior eighteen months. Debtor days are running at 44 compared to
the 2002 average of 49, and bad debts have been reduced considerably. In
addition, the Board has seriously investigated the possible disposal of certain
business units but has concluded that none of the offers made have fairly
reflected the value of those businesses and it has not, therefore, been in the
interests of shareholders to accept them. Further opportunities exist to reduce
costs but these require investment of capital expenditure that the Group is not
currently able to afford.
We have today announced details of a proposed #10.1m (gross) rights issue
(contained in a separate announcement) to strengthen the Group's balance sheet,
facilitate the extension of its restructuring programme to further reduce
overheads, provide working capital to accommodate increased levels of activity
in the Group's business and fund limited capital investment in IT systems
required to extract further savings in back office and support functions.
Further Potential Restructuring and Other Exceptional costs
Between 2000 and 2002, Group overheads excluding goodwill and discontinued
operations have been reduced by 19% (over #13m). In addition we are on track to
deliver in 2003, the further savings of #4.6m arising from the 2002
restructuring programme described in the 2002 Report and Accounts.
Assuming the rights issue is successful, we now plan to extend our restructuring
programme to take some #2.9m out of overheads on an annualised basis in order to
improve profitability and enhance efficiency, through better divisional
integration and shared central costs. Some of these savings will be realised as
early as Q4 this year.
Some additional investment in new systems will be put in place in order to
achieve greater levels of cost-effectiveness, while improving communication and
control between the Group's divisions and geographic areas of operation. It is
estimated that a restructuring charge of approximately #3.0m will be taken in
the second half of 2003.
The Group continues to seek to sub-let or otherwise exit the onerous leases on
the surplus properties vacated to reduce costs. However, the property market has
been difficult and other rationalisation possibilities are being explored which
may require additional exceptional provisions in H2/03 to those set up in 2001.
The costs incurred over the summer in respect of investigations into the
disposal of certain businesses within the Group together with an accelerated
depreciation charge on software licences and other fixed assets in connection
with the restructuring will also form part of the exceptional charge for the
year.
In total, and on the assumption the rights issue is successfully achieved to
finance the discretionary costs, we estimate that exceptional costs in the
second half of 2003 will be in the order of #6.0m with an associated cash cost
in 2003 of #1.7m.
Dividend
At the present time the Board considers it to be inappropriate to pay an interim
dividend (2002: 0.2p per share).
Divisional Performance
6 months ended 6 months ended Year ended
30 June 2003 30 June 2002 31 December 2002
Profit/(loss) Profit/(loss) Profit/(loss)
before before before
Turnover taxation Turnover taxation Turnover taxation
2003 2003 2002 2002 2002 2002
#'000 #'000 #'000 #'000 #'000 #'000
Business Solutions
United Kingdom 11,582 603 14,321 967 26,529 1,184
Mainland Europe - - 2,986 63 5,732 (128)
11,582 603 17,307 1,030 32,261 1,056
Training 12,777 157 13,516 209 27,138 65
Resourcing Solutions
United Kingdom 31,590 94 38,031 379 69,100 241
Mainland Europe 14,250 20 17,095 (372) 31,739 (468)
45,840 114 55,126 7 100,839 (227)
Parity US 8,706 (197) 13,009 422 23,035 618
Central costs (1,616) (1,494) (2,924)
Interest (net) (423) (302) (705)
Before goodwill and
exceptional items 78,905 (1,362) 98,958 (128) 183,273 (2,117)
Goodwill amortisation - (315) - (692) - (1,385)
Exceptional items - prior - - - - - (16,375)
year
Amounts written off
investments - - - - - (4,690)
Discontinued Operations
Trading result 1,999 (1,598) - - - -
Exceptional item - (1,600) - - - -
Loss on termination of
operations - (175) - - - -
Net interest payable - (51) - - - -
Goodwill previously written - (8,706) - - - -
off to reserves
80,904 (13,807) 98,958 (820) 183,273 (24,567)
Operating Review
Business Solutions
Business Solutions revenues in the UK decreased from #14.3m in H1/02 to #11.6m
in H1/03, and the unit's contribution was #0.6m compared to #1.0m in H1/02.
However, against the second half of 2002, profitability before exceptionals
increased from #0.2m showing the impact of the improved business mix and the
reduced cost base. These results reflect the decision to focus on fewer, higher
quality contracts in order to drive up utilisation rates and reduce selling
costs.
Overhead costs were contained in line with the lower sales activity with a 19%
reduction in cost compared with the first half of 2002, achieved through
headcount reduction and continued tight control of discretionary expenditure.
We continued to focus on developing revenues from key accounts and longer term
contracts which resulted in an increase of 38% in our order book over the
six-month period. The proportion of revenues generated from key accounts
increased to 63% compared with 55% for the first half of 2002.
This business unit now has seven contracts which will run for longer than one
year, compared to only one contract two years ago. While progress has been made
in the business unit's commercial key accounts, the attention given to securing
more government work has resulted in this sector accounting for 54% of its
revenues in the period (H1/02: 39%) and public sector orders of over #5.6m were
secured during the period. Parity is one of the few companies to be qualified
under the UK Government's S-CAT (pre-approved supplier) contract procedure for
all of the IT and Human Capital Management categories, and that gives the Group
a significant advantage in this important market.
The business unit's lower cost base and recognised quality make it highly
competitive against far larger competitors and although pressure on pricing
continued in the period, win rates remained steady. Going forward, the objective
is to target selectively government and commercial key accounts to get the
business unit back into high growth while maintaining gross margins and keeping
down overhead costs.
Training
Training has continued to achieve significant gains in market share, moving from
the seventh largest IT training provider in the UK to the second largest
according to an industry survey published in 2003 (source - IT Training
Magazine, July/August 2003). This performance and the achievement of
profitability in a market populated by loss-making training companies is in
large part due to Parity's focus on longer-term and more secure multi-year
outsourcing contracts.
The business unit has not, however, been immune to the slowdown in the public
training market and overall revenues fell by 5.5% against the first half of
2002. That compares to a contraction in the market of approximately 12 - 15%
(source - IT Skills Research Group, September 2003). Profitability in H1/03
declined compared to H1/02 from #0.2m to #0.16m but against H2/02 we saw an
improvement from a loss of #0.1m and this gain runs counter to the trend for
training companies in the UK. In addition to protecting its revenue stream to
the maximum extent possible, the business unit has been managing its costs
tightly and overheads have been reduced by 12% since the first half of 2002.
New contract wins and extensions in the year to date included a pilot project
with an estimated value of #1.4m in partnership with the GMB to provide learning
opportunities for basic skills for adults, ongoing outsourcing work with HBOS
plc estimated at #2.0m per annum; and an extension for the twelfth consecutive
year of our work with the Northern Irish government worth over #1.3m in the
current financial year.
The business unit now generates more than 27% of its revenues from contracts
running for more than one year, against 13% two years ago. One of the reasons
for the continued success of this business is its reputation for quality. It won
the IT Training Company of the Year Award, and the individual Trainer of the
Year Award through one of its members of staff, in February 2003.
Resourcing Solutions
This business unit saw a fall in revenue from #55.1m in H1/02 to #45.8m in H1/03
(-17%). However, against the second half of 2002, revenues for the first half of
2003 increased by 0.3%. We have seen signs of the sales position continuing to
strengthen over the traditionally slow summer period although it is too early to
determine if this is an overall improvement in the market or the effect of our
tighter sales focus. The Chimes outsourcing contracts transferred to the Group
in July 2003 will have a significant impact on revenues in the second half of
2003, though only a marginal impact on profitability. The advantage of the
Chimes relationship is in providing access for the Group to Chimes'
world-leading package in temporary staff contractor management enhancing our
ability to compete in the growing contractor management outsourcing market.
Despite the deterioration in sales, profitability was improved from near
break-even in H1/02 to a profit of #0.11m in H1/03. Against the second half of
2002, profitability improved from a loss of #0.23m, demonstrating the benefits
of the programme of cost reduction that has been ongoing since 2001. Overhead
costs have been reduced by 24% compared to H1/02 and continue to be tightly
managed.
In the UK, the business unit gained ground in the first half of 2003, seeing a
2% growth in revenues over the second half of 2002 and an improvement in
profitability over the same period from a loss of #0.14m to a profit of #0.09m.
The increased contribution from commercial and government Preferred Supplier
Agreements (PSAs) offset weaker demand in permanent recruitment. These PSAs now
account for over 90% of the UK revenue of this business unit.
In mainland Europe, revenue declined by 3% against the second half of 2002, but
profitability was improved. A second half loss of #0.1m was turned into a
contribution of #0.02m for the period. Contractor numbers fell in the period
from March to June, almost entirely due to the completion of a major project for
a client in Germany. However, numbers on billing have risen again - even in the
summer holiday period - which is contrary to the normal seasonal trend. In part
this is due to the award of several new contracts, but it may also indicate an
increasing willingness on the part of customers to outsource project work to
contractors rather than employ new permanent staff to undertake temporary
assignments.
Americas
This business unit operates in the staffing, business solutions and training
markets in the east of the US, but also operates on a project basis elsewhere in
The Americas. New management was put in place in late 2002 to refocus the
business and to reduce its cost base following an extended period of declining
financial performance. Following this change overheads have been reduced by 19%
compared to the first half of 2002. Despite this action the business unit
reported a loss for the period of #0.2m (H1/02: profit #0.4m) as the market
sectors in which it has traditionally been strongest continued to be impacted by
the depressed economic climate in the US. However, as a result of the cost
reduction actions taken during the period and an increase in the number of
contractors on billing, this business unit returned to profitability in August.
Additional cost reduction actions have already been taken in the second half of
the year and if numbers on billing continue to increase we should see a better
performance in the second half.
Outlook and Prospects
We are continuing to make progress in refocusing the Group on higher value
business and selling longer running contracts to our key accounts, including a
#5m, five year contract with the Charity Commission won shortly after the period
end amongst other contract wins that have strengthened our order book in the
period.
We have achieved significant savings from the restructuring initiatives
announced in previous years coupled with tight control over discretionary spend.
The reduction in costs resulting from these initiatives, together with enhanced
sales effectiveness, have enabled us to improve performance in the UK and
mainland Europe, as compared to the second half of last year. In addition, we
are now seeing signs of increased activity in the US IT staffing market.
In the second half we should benefit from our reduced cost base. There is still
work to do to close the opportunities in the sales pipeline that we need to meet
our revenue targets and we need to ensure that progress made in the performance
of the Americas business unit in the latter part of the period continues.
However, full year results for the continuing businesses are anticipated to be
in line with our expectations.
In order to ensure our business is appropriately structured to take the Group
forward effectively we are also announcing today a proposed #10.1m (gross)
rights issue to strengthen the Group's balance sheet, facilitate the extension
of its restructuring programme to further reduce overheads, provide working
capital to accommodate increased levels of activity in the Group's business and
fund limited capital investment in IT systems required to extract further
savings in back office and support functions.
Group Profit and Loss Account
Continuing Discontinued
operations operations Total
6 months 6 months 6 months 6 months Year
ended ended ended ended ended
30 June 30 June 30 June 30 June 31 Dec
2003 2003 2003 2002 2002
#'000 #'000 #'000 #'000 #'000
(unaudited) (unaudited) (unaudited) (unaudited) (audited)
TURNOVER 78,905 1,999 80,904 98,958 183,273
Operating costs before goodwill
amortisation and exceptional items (79,844) (3,597) (83,441) (98,784) (184,685)
Goodwill amortisation (315) - (315) (692) (1,385)
Exceptional items - (1,600) (1,600) - (16,375)
Operating costs (80,159) (5,197) (85,356) (99,476) (202,445)
OPERATING LOSS (1,254) (3,198) (4,452) (518) (19,172)
Loss on termination of operations - (175) (175) - -
Goodwill previously written off to
reserves - (8,706) (8,706) - -
Amounts written off investments - - - - (4,690)
Net interest payable (423) (51) (474) (302) (705)
Loss on ordinary activities before
taxation and goodwill amortisation (1,362) (1,824) (3,186) (128) (2,117)
Amounts written off investments - - - - (4,690)
Goodwill previously written off to
reserves - (8,706) (8,706) - -
Goodwill amortisation (315) - (315) (692) (1,385)
Exceptional items - (1,600) (1,600) - (16,375)
LOSS ON ORDINARY
ACTIVITIES BEFORE TAXATION (1,677) (12,130) (13,807) (820) (24,567)
Taxation on ordinary activities (79) - (79) (133) 357
LOSS ON ORDINARY
ACTIVITIES AFTER TAXATION (1,756) (12,130) (13,886) (953) (24,210)
Dividends - - - (303) (393)
RETAINED LOSS FOR
THE FINANCIAL PERIOD (1,756) (12,130) (13,886) (1,256) (24,603)
LOSS PER ORDINARY SHARE
-Basic (9.18p) (0.63p) (16.01p)
-Diluted (9.18p) (0.63p) (16.01p)
LOSS PER SHARE BEFORE GOODWILL
AMORTISATION AND EXCEPTIONAL ITEMS
-Basic (0.95p) (0.17p) (1.62p)
-Diluted (0.95p) (0.17p) (1.62p)
Group Balance Sheet
30 June 30 June 31 December
2003 2002 2002
#'000 #'000 #'000
(unaudited) (unaudited) (audited)
FIXED ASSETS
Intangible assets 9,930 23,688 10,245
Tangible assets 3,468 5,599 4,380
Investments 1,177 5,867 1,177
14,575 35,154 15,802
CURRENT ASSETS
Debtors 39,632 48,276 39,028
Cash at bank and in hand 2,554 3,282 3,608
42,186 51,558 42,636
CREDITORS: amounts falling due
within one year
Variable rate loan notes payable (21) (28) (28)
Bank loan (17,500) - (15,000)
Other creditors (31,054) (37,627) (29,438)
(48,575) (37,655) (44,466)
NET CURRENT (LIABILITIES) ASSETS (6,389) 13,903 (1,830)
TOTAL ASSETS LESS CURRENT
LIABILITIES 8,186 49,057 13,972
CREDITORS: amounts falling due after more
than one year - (12,000) -
PROVISIONS FOR LIABILITIES AND
CHARGES (1,466) (1,773) (2,364)
NET ASSETS 6,720 35,284 11,608
CAPITAL AND RESERVES
Called up share capital 7,698 7,698 7,698
Capital redemption reserve 50 50 50
Share premium account 3,729 3,729 3,729
Other reserves 44,026 35,320 35,320
Profit and loss account (48,783) (11,513) (35,189)
EQUITY SHAREHOLDERS' FUNDS 6,720 35,284 11,608
Group Cash Flow Statement
30 June 30 June 31 December
2003 2002 2002
#'000 #'000 #'000
(unaudited) (unaudited) (audited)
NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES
BEFORE EXCEPTIONAL ITEMS (105) 396 3,874
EXCEPTIONAL ITEMS (2,032) (877) (3,075)
NET CASH (OUTFLOW)/ INFLOW FROM
OPERATING ACTIVITIES (2,137) (481) 799
RETURN ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 5 76 126
Interest paid (546) (426) (867)
NET CASH OUTFLOW FROM RETURN ON
INVESTMENTS AND SERVICING OF FINANCE (541) (350) (741)
TAXATION (PAID)/RECEIVED (61) 390 508
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets (366) (168) (649)
Sale of tangible fixed assets 19 22 531
NET CASH OUTFLOW FROM CAPITAL
EXPENDITURE AND FINANCIAL INVESTMENT (347) (146) (118)
EQUITY DIVIDENDS PAID - - (2,676)
NET CASH OUTFLOW BEFORE FINANCING (3,086) (587) (2,228)
FINANCING
Issue of Ordinary shares - 29 29
Repayment of loan notes (7) (3,986) (3,986)
Increase in borrowings 2,500 - 3,000
NET CASH INFLOW/(OUTFLOW) FROM
FINANCING 2,493 (3,957) (957)
DECREASE IN CASH IN THE PERIOD (593) (4,544) (3,185)
Reconciliation of Net Cash Flow to Movement in Net Debt
Reconciliation of net cash flow to movements in net debt #'000
Decrease in cash in the period (593)
Increase in borrowings under variable rate credit facilities (2,493)
Exchange movements 120
Movement in net debt in the period (2,966)
Net debt at 1 January 2003 (14,995)
Net debt at 30 June 2003 (17,961)
Analysis of Net Debt
At 1 January Cash Exchange At 30 June
2003 flow movements 2003
#'000 #'000 #'000 #'000
Cash at bank and in hand 3,608 (1,071) 17 2,554
Overdrafts (3,575) 478 103 (2,994)
33 (593) 120 (440)
Variable rate credit facilities (15,000) (2,500) - (17,500)
Variable rate loan notes (28) 7 - (21)
Net debt (14,995) (3,086) 120 (17,961)
Reconciliation of Operating (Loss)/Profit to Net Cash Flow
Continuing Discontinued
operations Operations 6 months 6 months Year
6 months 6 months ended ended ended
ended 30 ended 30 30 June 30 June 31 December
June 2003 June 2003 2003 2002 2002
#'000 #'000 #'000 #'000 #'000
Operating loss before exceptional
items (1,254) (1,598) (2,852) (518) (2,797)
Depreciation of tangible fixed 963 60 1,023 1,190 2,366
assets
Amortisation of intangible fixed
assets 315 - 315 692 1,385
Loss/(profit) on disposal of
tangible fixed assets 260 - 260 (9) 108
Decrease in working capital 840 1,023 1,863 133 2,495
(Decrease)/increase in provisions (714) - (714) (1,092) 317
Net cash inflow/(outflow) from
operating activities before
exceptional items 410 (515) (105) 396 3,874
Reconciliation of Movements in Shareholders' Funds
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2003 2002 2002
#'000 #'000 #'000
(unaudited) (unaudited) (audited)
Loss on ordinary activities after taxation (13,886) (953) (24,210)
Dividends - (303) (393)
Retained losses (13,886) (1,256) (24,603)
Other recognised earnings/(losses) 292 (65) (394)
Shares issued to QUEST - 29 29
Reversal of goodwill previously written off -
directly to reserves 8,706 - -
Net decrease in shareholders' funds (4,888) (1,292) (24,968)
Shareholders' funds at start of period 11,608 36,576 36,576
Shareholders' funds at end of period 6,720 35,284 11,608
Notes to the Accounts
1. The information contained in this interim statement does not
constitute statutory accounts as defined in section 240 of the Companies
Act 1985.
2. The financial information above and the notes thereto, for the
six months ended 30 June 2003 has not been audited but has been reviewed
by PricewaterhouseCoopers LLP and their report is set out below. The
financial information has been prepared on the basis of the accounting
policies set out in the Group's statutory accounts for the year ended 31
December 2002, which have been delivered to the Registrar of Companies.
The auditors' report on those accounts was unqualified and did not
contain a statement under section 237 of the Companies Act 1985.
The Board has announced today that it intends to raise #10.1m (gross)
through a rights issue in order to strengthen the balance sheet,
facilitate the extension of its restructuring programme to further
reduce overheads, provide working capital to accommodate increased
levels of activity in the business and to fund limited capital
investment. Based on support received from certain of the Group's
shareholders (representing approximately 48% of the Company's ordinary
share capital) to date, the Board believes that it will be successful in
raising this money. In the absence of these additional funds the Board
would, in the short term, be unable to undertake certain of the
programmes outlined in "Further Potential Restructuring and Other
Exceptional Costs" above whilst remaining within its existing banking
facilities, the terms of which have been subject to renegotiation with
the Group's bankers. On the assumption that the rights issue will be
successful, or that other actions could be taken to reduce borrowings,
the Board believes that the adoption of the going concern basis is
appropriate in the preparation of the Interim Results.
If the adoption of the going concern basis were not to be appropriate,
adjustments would be required to reclassify fixed assets as current
assets, to adjust assets to their recoverable values and to provide for
any further liabilities that may arise.
3. As indicated at the AGM in June 2003, the results of Parity
Solutions BV for the period up to 13 June have been reported as
discontinued operations. The operating loss for the period of #3.2m
comprises an adjustment for the #1.6m overstatement of revenues in 2002
and a trading loss of #1.6m. The loss on the termination of this
business was #8.9m including #8.7m of goodwill which had been written
off directly to other reserves at the time of acquisition.
4. The tax charge for the period has been calculated based on the
forecast Group effective tax rate, before goodwill amortisation, for the
year as a whole.
5. The calculation of the loss per Ordinary share is based on a loss
after taxation and goodwill amortisation of #13,886,000 (30 June 2002:
#953,000 loss, 31 December 2002: #24,210,000 loss). The calculation of
loss per share before goodwill amortisation and exceptional items is
based on a loss after taxation of #1,442,000 (30 June 2002: #261,000
loss, 31 December 2002: #2,451,000 loss).
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
the basic and diluted loss per share are as follows:
6 months 6 months Year
2003 2002 2002
average average average
number number number
i) Basic weighted average number of shares
Shares in issue 153,969,570 153,887,214 153,928,731
Adjustment for shares held by ESOP (2,756,238) (2,756,238) (2,756,238)
151,213,332 151,130,976 151,172,493
ii. Dilutive weighted average number of shares
Shares in issue 153,969,570 153,887,214 153,928,731
Adjustment for options and for shares
held by ESOP (2,756,238) (2,756,238) (2,756,238)
Adjustment of share options - 28,452 -
151,213,332 151,159,428 151,172,493
Independent Review Report to Parity Group plc
Introduction
We have been instructed by the Company to review the financial information which
comprises the profit and loss account, the balance sheet, the cash flow
statement, the reconciliation of movements in shareholders' funds and the
related notes to the accounts. We have read the other information contained in
the interim report and considered whether it contains any apparent misstatements
or material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of Group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom Auditing Standards and therefore
provides a lower level of assurance than an audit. Accordingly we do not express
an audit opinion on the financial information. This report, including the
conclusion, has been prepared for and only for the company for the purpose of
the Listing Rules of the Financial Services Authority and for no other purpose.
We do not, in producing this report, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2003.
PricewaterhouseCoopers LLP
Chartered Accountants
London
25 September 2003
This information is provided by RNS
The company news service from the London Stock Exchange
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IR UVAVRORRKURR