TIDMPTY
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 Group(1) revenues increased by 11% to GBP91.8m from GBP82.6m
-- Continuing Group adjusted EBITDA(2) increased by 47% to
GBP2.2m from GBP1.5m (GBP2.5m including discontinued operations
{2015: GBP1.6m})
-- Operating profit before non-recurring items increased by 72%
to GBP1.77m from GBP1.03m and replaces adjusted EBITDA as a key
measure of performance
-- Profit before tax of GBP0.96m (2015: loss before tax GBP3.27m)
-- Earnings per share 0.87p (2015: loss per share 3.37p)
-- Significant increase in cash inflow from operations to GBP3.4m (2015: GBP0.2m)
-- Reduction in net debt to GBP4.4m (2015: GBP7.4m)
-- Significant reduction in non-recurring items before tax to GBP0.4m (2015: GBP3.7m)
-- GBP15m 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 GBP86.4m (2015: GBP78.2m)
-- Divisional contribution(3) increased by 17% to GBP2.66m (2015: GBP2.28m)
Parity Consultancy Services - Niche expertise and technology
solutions
-- Revenue increased by 20% to GBP5.3m (2015: GBP4.4m)
-- Divisional contribution(3) increased by 30% to GBP0.91m (2015: GBP0.70m)
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 GBP6.7m
-- 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 GBP1.4m 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 costs(4) , 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 Parity Group 0845 873
GFD plc 7921
John Olsen 020 3128
Kelsey Traynor MHP Communications 8100
Andrew Pinder
Patrick Robb 020 7597
Dominic Emery Investec 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 GBP91.8m (2015: GBP82.6m), and
operating profit before non-recurring items increased by 71.8% to
GBP1.77m (2015: GBP1.03m).
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 Group
Continuing including
Operations Inition Inition
GBPm GBPm GBPm
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 GBP86.4m
(2015: GBP78.2m) with a corresponding increase in Divisional
Contribution of 16.7% to GBP2.66m (2015: GBP2.28m). The higher
margin Parity Consultancy Services business is demonstrating good
trading momentum with an improvement in revenue of 20.5% to GBP5.3m
(2015: GBP4.4m) supporting a significant 30.0% increase in
Divisional Contribution to GBP0.91m (2015: GBP0.70m).
Non-recurring costs and impairment have reduced significantly
(from GBP3.7m in 2015 to GBP0.4m 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, DIVID and PENSION
The Group has been financially proactive, further strengthening
the balance sheet with net debt at the year-end of GBP4.4m (2015:
GBP7.4m) 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 GBP15 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 GBP6.7million 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 GBP86.4m (2015:
GBP78.2m) with divisional contribution increasing by 16.7% to
GBP2.66m (2015: GBP2.28m) 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 GBP1.4
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 GBP6.7m
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 2015 Incr./(Decr.)
GBP000's GBP000's %
--------------------------------------- ---------- ---------- --------------
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 GBP82.6m to
GBP91.7m, 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 2015 Incr.
GBP000's GBP000's %
------------------------------- ---------- ---------- ------
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 2015
GBP'000 GBP'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 GBP1.38m (2015: GBP1.44m) 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 2015
GBP'000 GBP'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 GBP0.27m 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 GBP1.99m 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 GBP1.17m, and related other intangible
assets of GBP0.15m, have been reclassified as "Assets held for
sale" at the balance sheet date.
The intellectual property in relation to GPSeer of GBP0.12m was
written down.
Trade receivables and accrued income
Trade and other receivables decreased by GBP1.2m to GBP14.4m
(2015: GBP15.6m). Of this movement, GBP0.9m was due to the
reclassification of Inition's assets, and GBP0.3m 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 GBP9.1m
(2015: GBP8.6m). The increase is after the reclassification of
GBP0.5m of liabilities relating to Inition, and relates to an
increase in fees in advance of GBP0.3m 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 GBP15m 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 GBP3.4m (2015: GBP0.2m), helped by an increase in
client fees received in advance of GBP0.6m (includes GBP0.2m from
Inition), and a one-off receipt of GBP0.3m in respect of a legacy
overseas subsidiary.
As a result of the positive cash flow, net debt reduced to
GBP4.4m (2015: GBP7.4m).
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
GBP0.1m, 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 GBP1.85m (2015:
GBP1.49m), 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
Before Non-recurring
non-recurring
items
Before Non-recurring (Restated) Items
non-recurring
items
2016 items 2015 (Restated) Total
Notes GBP'000 2016 Total GBP'000 2015 (Restated)
(note 2016 (note 2015
5) 5)
GBP'000 GBP'000 GBP'000 GBP'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)
--------------------------- ------- --------------- --------------- ----------- --------------- --------------- -------------
0.87p (3.37p)
Basic earnings 10
/ (loss) per 0.83p (3.37p)
share 10
Diluted earnings
/ (loss) per
share
--------------------------- ------- --------------- --------------- ----------- --------------- --------------- -------------
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
2016 2015
Notes GBP'000 GBP'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
Share Deferred premium Other Retained
capital shares reserve reserves earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
Share Deferred premium Other Retained
capital shares reserve reserves earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 2015
GBP'000 GBP'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 2,389 -
sale and included in disposal
groups
-------------------------------- -------- ---------- ---------
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 (483) -
assets classified as held for
sale and included in disposal
groups
-------------------------------- -------- ---------- ---------
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
2016 2015
Notes GBP'000 GBP'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 Before
Parity Consultancy non-recurring Non-recurring
Professionals Services Items Items Total
2016 2016 2016 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 Before
Parity Consultancy non-recurring Non-recurring
Professionals Services Items Items Total
2015 2015 2015 2015 2015
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 - (1,994) (1,994)
items - (1,390) (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 GBP52.7m (2015: GBP44.8m) of the Parity
Professionals revenue was generated in the public sector. 57%
(2015: 32%) or GBP3.0m (2015: GBP1.4m) of the Parity Consultancy
Services revenue was generated in the Public Sector.
The largest single customer in Parity Professionals contributed
revenue of GBP10.8m or 12% and was in the public sector (2015:
GBP11.8m or 15% and in the private sector). The largest single
customer in Parity Consultancy Services contributed revenue of
GBP2.9m or 54% and was in the public sector (2015: GBP2.4m or 53%
and in the private sector).
Notes to the accounts (continued)
3 Operating costs
Continuing operations 2015
2016 (restated)
GBP'000 GBP'000
------------------------------------------------------------------------- ---- ---- ---------- ------------
Employee benefit costs
- wages and salaries 5,688 6,997
- social security costs 639 660
- other pension costs 178 185
------------------------------------------------------------------------------------- ---------- ------------
6,505 7,842
----------------------------------------------------------------------------------- ---------- ------------
Depreciation, amortisation
and impairment
Amortisation of intangible
assets - software 294 254
Depreciation of leased property,
plant and equipment 35 27
Depreciation of owned property,
plant and equipment 36 76
Write down of property, plant
and equipment - 341
Write down of intangible assets 115 -
Impairment of goodwill - 1,994
------------------------------------------------------------------------------------- ---------- ------------
480 2,692
----------------------------------------------------------------------------------- ---------- ------------
All other operating expenses
Contractor costs 80,409 72,014
Sub-contracted direct costs 350 366
Operating lease rentals -
plant and machinery 27 37
- land and buildings 775 1,003
Sub-let income - land and
buildings - (150)
Other occupancy costs 147 263
IT costs 348 249
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 2015
GBP'000 GBP'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
2015
Note 2016 (restated)
GBP'000 GBP'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
2015
Note 2016 (restated)
GBP'000 GBP'000
---------------------------------------------------- ------ ---------- ------------
Continuing Operations
Write down of GPSeer
* Write down of intangible assets 115 -
152 -
* Other operating costs
---------------------------------------------------- ------ ---------- ------------
Total write down of GPSeer 267 -
Impairment of goodwill 11,12 - 1,994
Restructuring
260 1,077
* Employee benefit costs - 341
* Write down of property, plant and equipment
* 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 GBP737,000 relating to the closure of
the Golden Square business (including a GBP341,000 write down of
tangible fixed assets) and GBP787,000 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 2015
Number 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 2015
GBP'000 GBP'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 GBP100,000.
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 2015
GBP'000 GBP'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 GBP78,000 (2015:
GBP490,000) 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 2015
GBP'000 GBP'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
2015
2016 (Restated)
GBP'000 GBP'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 3 (7)
Change in corporation tax rate 20 53
Adjustments in respect of prior
periods 8 -
---------------------------------------------- ---------- ------------
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 GBP31,000 (2015: GBP158,000).
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 GBP79,000 (2015:
GBP189,000) 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:
2015
2016 (Restated)
GBP'000 GBP'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 5 445
Adjustment for under provision
in prior years 8 2
Reduction in deferred tax asset
due to change in enacted rate 20 53
Tax losses not recognised - 272
Deferred tax not provided (150) 53
------------------------------------------------ ---------- ------------
75 164
---------------------------------------------- ---------- ------------
Tax on each component of other comprehensive income is as
follows:
2016 2015
Before After Before After
tax Tax tax tax Tax tax
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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.
Weighted Weighted
average average
number number
of of
shares Earnings shares Earnings
Earnings 2016 per Earnings 2015 per
share share
2016 000's 2016 2015 000's 2015
GBP'000 Pence GBP'000 Pence
------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Basic earnings / (loss)
per share 884 101,824 0.87 (3,429) 101,731 (3.37)
Effect of dilutive - 4,691 - - - -
options
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 Goodwill Total
Property
2016 2015 2016 2015 2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- -------- -------- -------- -------- -------- -------- -------- --------
Cost
At 1 January 1,285 1,219 852 572 5,759 7,753 7,896 9,544
Additions 22 66 - 283 - - 22 349
Disposals (51) - - (3) - - (51) (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 287 262 365 284 - - 652 546
Disposals (51) - - - - - (51) -
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
GBPnil 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
GBP157,000. 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 Solutions Inition Total
GBP'000 GBP'000 GBP'000 GBP'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 GBP1,994,000 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 - 19.0 -
3.9 - 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 - 16.1 9.5 -
3.5 - 16.9 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EANDAALXXEFF
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