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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Partway Group Plc | LSE:PTY | London | Ordinary Share | GB00B1235860 | ORD 2P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.875 | 0.85 | 0.90 | 0.875 | 0.8425 | 0.875 | 567 | 08:00:14 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Computer Related Svcs, Nec | 41.6M | -1.72M | -0.0166 | -0.52 | 896.76k |
From Apr 2019 to Apr 2024
TIDMPTY
RNS Number : 3444K
Parity Group PLC
10 April 2018
10 April 2018
PARITY GROUP PLC
FULL YEAR RESULTS FOR THE YEAR TO 31 DECEMBER 2017
Parity Group plc ("Parity" or the "Group"), the technology focussed consultancy and staffing business, announces its full year results for the year ended 31 December 2017.
Financial Headlines:
Strong momentum in Consultancy Services drove double digit profit growth
-- Group revenues(1) of GBP83.82m (2016: GBP91.76m)
-- Significant growth in Parity Consultancy Services' ("Consultancy Services") revenue, up by 78.7% to GBP9.54m (2016: GBP5.34m)
-- Parity Professionals' ("Professionals") revenue(2) down by 7.9% to GBP80.04m (2016: GBP86.90m)
-- Operating profit(1) before non-recurring costs(3) up 16.4% to GBP2.06m (2016: GBP1.77m) -- Improved operating margin to 2.5% (2016: 1.9%) -- Profit before tax(1) increased by 73% to GBP1.66m (2016: GBP0.96m) -- Basic earnings per share(4) of 2.15p (2016: 0.87p) -- Cash conversion of 128% of EBITDA (2016: 180%) -- Further significant reduction in net debt to GBP1.6m (2016: GBP4.4m)
Strategic and Operational Headlines:
-- Successfully rebalancing the Group towards higher margin Consultancy Services which now represents 33% of contribution (2016: 25%), and also provides greater revenue visibility
-- Encouraging sales momentum: -- key framework success through the year
-- post period end contract extensions for Consultancy Services and award of a managed service contract for all of Primark's IT contract recruitment for Professionals
1. On a continuing basis 2. Including inter-segment revenues 3. Non-recurring costs were GBPnil (2016: GBP0.36m) 4. After tax credit of GBP0.53m (2016: GBP0.08m tax charge)
John Conoley, Non-Executive Chairman of Parity Group, said:
"Our results reflect the affirmative steps taken to focus the Group on higher value services, and realign our two divisions to support mutual collaboration, which is proving successful for both our overall business and for our clients."
"Our integrated model is becoming more balanced and the flexibility that we offer to our clients with access to a broad range of services has mitigated a challenging backdrop as our market was impacted by UK tax reforms."
"In addition to improving our sales performance, we have strengthened our operational controls and taken a disciplined approach which has seen us focussing on key growth initiatives in higher margin services, whilst improving the Group's structure by exiting non-core activities."
"Our investment has been self-funded, supported by strong cash generation from which we have also significantly reduced the Group's debt, building value for all stakeholders in our business."
"Our most important strategic objective is to realign the business by continuing to build critical mass in the Consultancy Services business, working closely with Professionals, by investing to drive organic growth and, at the right time, identifying appropriate acquisition opportunities to accelerate the development of the business. Progress to date provides confidence in the Group's future prospects as we develop our capability in our exciting growth markets."
For further information, contact:
Alan Rommel CEO Roger Antony Parity Group 020 8543 GFD plc 5353 Katie Hunt 020 3128 Kelsey Traynor MHP Communications 8100 Mike Coe Ed Allsopp WH Ireland 01179 453470
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 and (vii) volatility in financial markets.
Strategic Report
Chairman's Statement
John Conoley - Non-Executive Chairman
INTRODUCTION
2017 was an important year for Parity, one in which good operational management created continuing improvement despite the risk and headwinds of the IR35 regulatory changes to the taxation of intermediaries which offered a significant challenge to our industry.
STRATEGY
Importantly, the management team has begun further activity to leverage the consulting services side of the business, to drive operating margin improvement. The Board will seek to accelerate growth in the consulting business, whilst sustaining investment in the traditional professional services side of the business.
Strategically, Parity believes it has established a clear point of differentiation from competitors due to the synergy between its consulting and professional services divisions. We are now highly focussed on exploiting this advantage and we are investing in key hires to optimise the opportunities which we believe exist. We also believe that a focus on Data Management, which we first identified as an opportunity 18 months ago, now has the potential to become a leading offering for the Group in 2018.
RESULTS
It has been particularly pleasing in 2017 to see strong customer relationship management lead to a 73% increase in profit before tax to GBP1.66m (2016: GBP0.96m). This was further leveraged by strong working capital management, with Group debtor days at a record low of 20 days (2016: 29 days). As a result of strong cash generation, we were able to reduce net debt substantially to GBP1.6m at 31 December 2017 (2016: GBP4.4m), whilst also investing for future growth.
Key relationships held by the business for many years such as the Education and Skills Funding Agency, British American Tobacco and the Ministry of Defence, continued to widen and deepen, and we were able to announce post-close extensions on these contracts. New clients have been developed such as Primark, the high street retailer, and this together with the combination of good relationship management and increasing traction from new relationships underpin the outlook for 2018.
DISCONTINUED OPERATIONS
The final legacy from the previous strategy is the Group's bespoke 3D development arm, Inition which has for some time been a non-core asset. It has been held for sale and accounted for as a discontinued operation in these accounts. Despite having good skills and some specific successes, the business had a disappointing year in 2017 due to its lack of scale and lack of synergy with the rest of the Group. Following a diligent process, the Board remains optimistic of a sale of the business to a home where a greater synergy can be achieved, and will keep this plan under review.
DIVID
The Board will not declare a dividend at this time but looks forward to restoring a dividend in the medium term.
PEOPLE
We would like to thank the wider team across Parity for all their hard work and commitment in helping the management team drive the business forward. It is a testament to this hard work that we have been able to make such strong progress with our strategy and achieve such a robust performance despite considerable change.
BOARD
As first announced on 23 March 2017, I joined the Board as Group Non-Executive Chairman on 27 April 2017, replacing Lord Freeman.
CURRENT TRADING AND OUTLOOK
Trading in the current financial year remains in line with expectations and the Board remains confident in the outlook and continues to target investment to support strategic progress. We believe our continued drive to rebalance revenues towards the higher margin consulting arm of the business positions us well to deliver both growth and further improvements in profitability in 2018 and beyond.
CEO Statement
Alan Rommel - Chief Executive Officer
Introduction
I am delighted by the continuing improvement in the Group's performance, as shown by five consecutive halves of improving comparative metrics, all achieved through self-funded growth. I would like to thank all my colleagues at Parity for their continued support in delivering this positive run of results.
We have plenty still to do to build on our strategic improvement of the business and we would like to thank our shareholders who have been both patient and supportive during our journey to this point. Our focus in 2018 is on demonstrating that the consulting arm, working in tandem with the recruitment division, can deliver sustained growth and profitability improvements, to the benefit of our shareholders.
We aim to grow Group revenues, with further focus on the development of the consultancy business driving margins, and to manage that growth with continued strong cost management.
Our lead offering in support of our consulting proposition is Data Management - the provision of data-driven insight, with which we have already demonstrated success with BAT, MoD and in the Education and Utilities sectors. We believe this is an attractive area to focus on due to strong market growth rates and the impact of an increase in demand for relatively scarce IT and digital specialist skills across the broader market. The benefits of having an aligned recruitment business in Parity Professionals specialising in the sourcing of these niche skills has been demonstrated by the significant increase in collaboration and inter-company trading.
The Sector
Parity as a Group is addressing the needs of a large, high demand and growing market.
In early 2018, Mavenlink published a report in conjunction with Research Now, detailing the results of a survey of 576 executives (Director and above) from service-centric companies in North America, Europe and Asia-Pacific. 65% of these executives stated that they had had to turn down work in the last 12 months:
-- 82% said they did not have enough resources; -- 18% said they did not have the right skill set; and
-- 50% said contractors/freelancers/sub-contractors were very important to delivery, and a further 31% said they were critical to delivery.
With regards to the market for Consultancy Services' data offering more specifically, research by Gartner in 2017 forecast that the global Business Intelligence (BI) and Analytics market would grow from $18bn to $23bn by 2020.
Gartner estimated that the global Master Data Management (MDM) market was worth between $3-5bn in 2016. Furthermore, the MDM market is expected to experience significant growth with MarketsandMarkets forecasting a compound annual growth rate of 23.3% to 2020.
In addition, market reports indicate that there continues to be a shortage of people with the necessary digital skills to meet the demands of the market. Clients are increasingly reliant upon agencies and third party suppliers to provide access to the necessary skills or outsource the projects in part or in whole.
We are very well positioned as a Group to exploit this opportunity. We have a strong reputation with long-standing relationships in both divisions, established over 45 years of delivering successful projects. Our clients benefit through our deliberate strategy of aligning our services to provide flexible access to a substantial resource pool. Digitalisation of services is a global trend that is creating new business possibilities and new business models for our customers. Our services are part of the platform that enables this disruption, driving their businesses forwards, with Gold Partnerships with Oracle and Microsoft positioning us at the forefront of technology developments.
Parity's Competitive Advantage
Parity has a proactive and well-received integrated model and this underpins our consultancy business with the very best expertise available in the market, while maximising our exposure to opportunities. This enables flexibility, speed to scale up for new opportunities, and cost effective delivery.
Parity can apply delivery models to suit its clients' specific needs at every stage of their development lifecycle, for example it can:
-- provide full delivery of data projects; -- manage project teams to deliver outcomes-based managed services; and -- supply contract or permanent IT skills to supplement internal staff.
By aligning both divisions, Parity provides an attractive combination of trusted consultancy advice with access to the best delivery expertise. When necessary, we supplement our industry and technology specialists with access to the broader contractor market through Parity Professionals. As a client-centric organisation, this enables us to fulfil their needs through a broad range of services ensuring Parity remains innovative, flexible and very scalable. The model is now proven, and we look forward to accelerating it during 2018 and 2019.
2017 Performance
Our emerging strategy has already driven growth in the more profitable Consultancy Services division where we also benefit from greater visibility of future revenues. The Group has continued to make progress in line with expectations, simplifying the structure and improving focus on profitable activities which are symbiotic, benefiting both operating divisions. The management team is pleased to have achieved strategic progress including:
-- profit growth, supported by significant revenue growth in Parity Consultancy Services with the benefit of greater collaboration with the Professionals Division;
-- the exit from the non-core, loss making Talent Management Services;
-- improved new sales KPIs in Parity Professionals against a headwind of disruption caused by changes to the application of taxation to Public Sector off-payroll workers (IR35) and to a lesser extent, uncertainty surrounding the impact of Brexit in the UK; and
-- strong financial controls, which resulted in strong cash generation and a significant further reduction in net debt.
Operational and Financial Review
Alan Rommel - Chief Executive Officer
Roger Antony - Group Finance Director
Continuing Operations
Hot Features
Premium
2017 2016 Incr./(Decr.)
GBP000's GBP000's %
--------------------------------------- ---------- ---------- --------------
Key Financials
Revenue 83,815 91,764 (8.7%)
Operating profit before non-recurring
items 2,056 1,766 16.4%
Net debt (1,632) (4,386) (62.8%)
--------------------------------------- ---------- ---------- --------------
Ratios
Operating margin % 2.5% 1.9%
Net debt / EBITDA ratio 0.7 2.0
--------------------------------------- ---------- ---------- --------------
The Group's financial performance demonstrates the encouraging progress in rebalancing the business by growing revenues in the Consultancy Services division which generates greater yields. Consultancy Services now delivers 33.2% of Group contribution from 11.4% of external revenues.
The 9% decline in Group revenue for the year from GBP91.8m to GBP83.8m is predominately a result of the effect of the IR35 reforms on the Professionals division. A significant increase in Consultancy Services' revenues helped to partially offset the impact. The improved revenue mix gave rise to a 16% increase in Group operating profit before non-recurring items (non-recurring items were GBPnil in 2017), with the Group operating margin improving from 1.9% to 2.5%. We achieved a second successive year of cash conversion in excess of 100% of EBITDA in 2017, enabling us to reduce net debt from GBP7.4m at the end of 2015 to GBP1.6m at the end of 2017, with the net debt/EBITDA ratio at the end of year improved to 0.7x (2016: 2.0x).
Divisional performance
2017 2016 Incr./(Decr.)
GBP000's GBP000's %
--------------------------------------- ---------- ---------- -------------------
Revenue
Parity Professionals 80,036 86,900 (7.9%)
Parity Consultancy Services 9,543 5,345 78.5%
Less inter-segment revenue (5,764) (481) -
--------------------------------------- ---------- ---------- -------------------
Group revenue 83,815 91,764 (8.7%)
--------------------------------------- ---------- ---------- -------------------
Divisional contribution
Parity Professionals 2,307 2,660 (13.3%)
Parity Consultancy Services 1,148 910 26.2%
--------------------------------------- ---------- ---------- -------------------
Total divisional contribution 3,455 3,570 (3.2%)
--------------------------------------- ---------- ---------- -------------------
2017 2016
GBP'000 GBP'000
--------------------------------------- ---------------------- -----------------
Divisional contribution 3,455 3,570
Group costs (1,045) (1,383)
Depreciation and amortisation (286) (365)
Share-based payment charges (68) (56)
Operating profit before non-recurring
items 2,056 1,766
Non-recurring items (continuing
operations) - (355)
Operating profit from continuing
operations 2,056 1,411
--------------------------------------- ---------------------- -----------------
Reconciliation of divisional contribution to operating profit from continuing operations
The Consultancy Services business has grown in line with our strategic intent with a significant improvement in revenue of 78.5% to GBP9.5m (2016: GBP5.3m). This growth has clearly demonstrated the opportunities in aligning delivery within the business to support rapid scaling in higher value services with inter segment revenues of GBP5.76m (2016: GBP0.48m). This revenue growth supported a strong 26.2% increase in divisional contribution to GBP1.15m (2016: GBP0.91m), whilst we also continued to invest for growth.
As anticipated, Professionals' revenues reduced by 7.9% to GBP80.0m (2016: GBP86.9m) as contractor volumes were impacted by IR35 with a corresponding reduction in divisional contribution of 13.3% to GBP2.31m (2016: GBP2.66m).
Parity Consultancy Services
The consultancy business has undergone a service driven structural re-organisation to improve focus and align sales and delivery functions around core propositions. This provides clarity and ownership to our client facing activities, centred on the provision of data solutions and on delivery of IT projects for our clients.
Data-driven insight is critical to optimising operations and developing informed business strategies for our clients. Parity Consultancy Services has created a suite of tools and capabilities to support the development of the Data Strategy through to the delivery of Data Analytics. We help clients understand the key data that they need to gain real insight, with a Data Maturity Diagnostic which benchmarks the organisation to define the start point. Our services then take the client from their current position to where they need to be, ensuring that the investment made in driving their data strategy does not just provide the same management information that the client always had in a different format.
In addition, Consultancy Services is still able to use its project management and technical delivery expertise, supported by contract staffing from Parity Professionals and our internal permanent staff to provide "Outcome Managed Services". We work alongside clients on key projects where they don't have the internal capability or bandwidth, offering access to skilled resource, sharing delivery risk and saving money in comparison to a full project outsource by managing the flexible resource levels to suit project demands.
Growth in the business is creating a much better balance with strong, higher margin and higher value sales linked with greater project scale and duration. Improving visibility of recurring revenues provides a strong foundation from which to build. We are pleased to report that all key contracts for the business have been extended. In the past two years, the client base has significantly increased in size to 21 clients and revenues have more than doubled. We are equally proud to have retained long-term relationships with the MoD and BAT alongside newer significant wins including the Education and Skills Funding Agency.
The business has successfully tendered for the Dynamic Procurement System for the Scottish Government, adding to the award of G-Cloud and the Digital Outcomes and Specialists frameworks which provide access to our specialist services to Public Sector clients in England, Wales and Northern Ireland.
Consultancy Services ended the year with an improving pipeline and stronger visibility on orders with H1 2018 contracted revenues over 33% above H1 2017 contracted revenues (GBP2.8m vs GBP2.1m, measured at the end of February).
We saw approximately a 10% increase in internal staff days delivered in the year compared to 2016, though by far the greatest increase in delivered days was from contract staff supplied by Parity Professionals. Whilst this underwrites the benefit of the businesses being aligned, it has held back operating margin. The division's overheads also included talent investment as we continue to develop the division's proposition in line with the Group's strategy. Continuing to broaden the client base whilst delivering projects with similar core skills will enable further permanent recruitment activity to support project delivery which will help to improve operating margin.
Parity Professionals
Parity Professionals provides targeted recruitment of temporary and permanent professionals with the staff to deliver business change programmes. We supply a broad range of skills from project management through to the niche skills in Digital, Data and Information Security required to ensure our clients can deliver their projects.
Parity Professionals has a strong reputation and a well-established client base in the Public Sector. As highlighted in the interim financial results, contractor volumes were impacted due to the implementation of IR35 reforms applied to public sector workers in April 2017. The average number of contractors on billing in the Professionals division during the year was 6.6% lower at 942 (2016: 1,009), resulting from an initial post IR35 implementation drop in overall contractor numbers of approximately 15% in April. The remainder of the year has seen volumes recover towards pre-implementation levels. Investment was sustained in the profitable recruitment business with costs controlled in part by the exit from a significantly reduced Talent Management team which failed to generate traction in training and development services in the year.
Underwriting these decisions, we are pleased to report an improvement in the key sales activities at the front end which mitigated the increased churn in our contractor base. Sales activity generated an increase in new candidate placements of 7.7% and the margin generated from these new placements increased by 9.2% in comparison to 2016, driving the growth trend in contractor volumes from April. We are continuing to invest in training and to build both contract and permanent sales capacity.
Permanent placements help to develop our market knowledge and brand awareness in niche sectors with both the client and the candidate community. Whilst contract placements provide more predictable longer-term revenue, the improvement in our permanent capability has supported our new client acquisition strategy. We improved revenues on permanent placements by 24% to GBP657,000 (2016: GBP530,000), targeting niche skills verticals with strong growth in digital skills to the SME sector.
The long-standing contract covering the service-wrap for the Public Sector FastStream Graduate intake was extended for a further 12 months to November 2018. We extended key Public Sector framework contracts with the Scottish Government, G-Cloud and Non-Medical Non-Clinical (NMNC), and continued to build our client base with 120 new clients in the year, 80 of which were in the Private Sector. As with permanent placements, we are seeing increased penetration into the SMEs, assisting with digital skills which provides a positive balance to maintaining supply to the larger volume clients that provide longer-term visibility. Parity Professionals improved operational profitability with higher conversion of opportunity to placement, and performed strongly against our peers. This is evidenced by our improved ranking in the Recruiter Hot 100 which assesses profitability per head across the agency sector. Our position improved from 59(th) place to 43(rd) .
Group costs
Group costs reduced to GBP1.05m (2016: GBP1.38m) as a result of lower headcount and cost savings, for example reduced insurance costs, through actions taken by management.
The absence of non-recurring items in 2017 provides greater clarity to the Group's profitability.
Taxation
The tax credit on continuing profit before tax was GBP0.53m (2016: tax charge of GBP0.07m) mainly representing a deferred tax credit in respect of Parity Consultancy Services. The division previously carried forward an unrecognised deferred tax asset in respect of deductible timing differences that had not been recognised due to historic financial performance. Given the recent turnaround of the division it is considered more likely than not that there will be sufficient taxable profits for the timing differences to be deducted, and the corresponding asset was recognised in accordance with IAS 12. We have taken a prudent view on the division's carried forward tax losses which remain unrecognised, but will keep this under review.
The Group did not need to provide for corporation tax payable in 2017 due to the utilisation of Group relief and the availability of carried forward deductible timing differences and tax losses.
Discontinued operations
Inition was held for sale during 2017 and accordingly its results are presented as discontinued. During 2017 Inition incurred an operating loss after tax of GBP0.9m (2016: GBP0.1m). In addition, a non-cash charge of GBP1.1m (2016: GBPnil) was incurred in respect of the impairment of the remaining goodwill relating to Inition. Other discontinued costs include professional advisor fees incurred in connection with actions taken to divest of Inition.
Earnings per share and dividend
The basic earnings per share from continuing operations were 2.15 pence (2016: 0.87 pence). The increase is driven by profit before tax growth and the deferred tax credit.
The Board does not propose a dividend for 2017 (2016: nil), but will continue to review this policy and will seek to restore a dividend in the medium term.
Statement of Financial Position
Trade and other receivables
Trade and other receivables decreased by GBP2.4m to GBP12.0m (2016: GBP14.4m). The decrease is principally attributable to an improvement in debtor collections in the Professionals division. Group debtor days, calculated on billings on a countback basis, decreased to a record low of 20 days (2016: 29 days).
Trade and other payables
Trade and other payables decreased slightly during the year to GBP8.3m (2016: GBP9.1m). At the year end, creditor days were 28 days (2016: 26 days).
Loans and borrowings
Loans and borrowings 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 Business Credit ("PNC"), a leading secured finance lender, allows for borrowing of up to GBP15m depending on the availability of appropriate assets as security. The current facility, which has been in place since 2010, was renewed on 1 September 2016 and runs until the end of 2018, at which point PNC have indicated a willingness to renew the facility. The interest rate applied to borrowings was 2.35% over the prevailing base rate.
Cash flow and net debt
The Group generated positive net cash flows from operating activities of GBP3.0m (2016: GBP3.4m), driven by EBITDA and a positive working capital swing with a reduction in debtor days to 20 (2016: 29 days). The GBP3.0m cash generated was after an outflow of GBP0.7m in respect of discontinued operations, and despite the reversal of GBP0.6m fees in advance carried forward from 2016.
As a result of the positive cash flow, net debt reduced to GBP1.6m (2016: GBP4.4m).
Defined Benefit Pension Deficit
During the year the Group agreed to the trustees' proposal to implement liability driven investment ("LDI"). LDI seeks to reduce volatility of the scheme deficit by hedging against liability risks, which was considered to be appropriate given the maturity of the scheme (88% of members are pensioners).
At the year end the deficit had decreased to GBP1.06m (2016: GBP1.85m), primarily due to a good return on the scheme assets.
Share Capital
In May 2017 we cancelled the legacy deferred shares in issue. The deferred shares were not listed, and effectively carried no rights. As a result, share capital reduced to GBP2.0m (2016: GBP16.3m) and a capital redemption reserve of GBP14.3m was created (2016: GBPnil).
Principal risks and uncertainties
The Board maintains a close watch on issues that affect our business, markets and the wider economy. Whilst the markets that we operate in can be cyclical in their nature, we take necessary action to mitigate the risk and potential impact profile. We have provided a sample below:
-- Macro-economic uncertainty
Client project decisions can stall and recruitment activity is affected by confidence. We operate a largely elastic cost base with flexible resourcing and costs (both staffing and commissions) related to activity levels, and managed offices on shorter-term contracts with options to exit. The expected increase in interest rates has been mitigated with significantly reduced debt, with our debtor days below market norms (20 days).
-- Brexit
The Group operates predominately in the UK and notwithstanding delays due to the wider macro-economic uncertainty, is not expected to suffer a direct long-term negative impact due to Brexit, as it is supported by the strong underlying UK economy. Demand for the Group's services could reduce as an indirect result of impact of Brexit on the UK economy, although Brexit has also driven additional opportunity to the Group with established Public Sector clients creating additional infrastructure in preparation.
-- Legislation - e.g. IR35, GDPR
IR35 has increased the 'churn' rate of contractors in the Public Sector as they leave to work in roles which are not assessed to be within IR35, elsewhere in the Public Sector, or leave for roles in the Private Sector which are assessed differently. Our exposure was greater than most with a high concentration of Public Sector contractors. Parity tracks changes directly and as an active founding member of the Association of Professional Staffing Companies (APSCo) which lobbies and advises on changes. An internal working group changed our processes and ensured all stakeholders (client, candidate and staff) were informed through the transition. The processes are now business as usual, sales activities have increased, and our broader managed services in the consulting business have expanded to support clients who are also impacted by increased churn. If the same rules are applied to the Private Sector as rumoured, we will be very well prepared. We are following the same principles with a working group in place focused on GDPR.
-- Strategy fails to deliver anticipated growth
The Group's anticipated growth may not be achievable if the Group is unable to implement its strategy effectively. The Board seeks to mitigate this through a robust assessment of its opportunities, the feedback from its clients and potential clients, clear priorities and focus on delivering key objectives, and incentivising its team to deliver against those objectives.
-- Loss of key client accounts
A portion of the Group's revenues are dependent on the award of framework agreements as an approved supplier. It is possible that the Group will lose this status. We seek to mitigate this through closely monitoring our service level agreements and ensuring the quality of our delivery. The Group also has a deliberate focus on winning new client framework agreements to continue to diversify its revenue streams.
-- Staff
The risk is that staff do not have the development or the tools to perform at their best, and without a clear career path we experience increased staff turnover. Parity has invested in additional direct training and training resource for staff. We support staff to achieve expectations in their roles and there is clarity on the development required. We support staff by reviewing and acquiring new tools to help them perform at their best, and provide competitive remuneration and incentives to support retention. Our staff engagement survey for 2017 demonstrated improvement in all primary metrics, and we score as good as, or better than the industry 'norm' in each of these metrics. In addition, the Group has various share plans at its disposal, to provide staff with the opportunity to benefit from the success of the Group with minimal financial risk.
-- 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.
Parity Group plc
Consolidated income statement
for the year ended 31 December 2017
Non-recurring
Before Items
non-recurring
items
2016 (note
4)
Total GBP'000 2016 Total
Notes 2017 GBP'000 2016
GBP'000 GBP'000
---------------------------- ------- ----------- ---------------- -------------- --------------
Continuing operations
Revenue 2 83,815 91,764 - 91,764
Employee benefit
costs 3 (5,939) (6,245) (260) (6,505)
Depreciation, amortisation
& impairment 3 (286) (365) (115) (480)
All other operating
expenses 3 (75,534) (83,388) 20 (83,368)
---------------------------- ------- ----------- ---------------- -------------- --------------
Total operating expenses (81,759) (89,998) (355) (90,353)
Operating profit/(loss) 2,056 1,766 (355) 1,411
Finance costs 6 (394) (452) - (452)
---------------------------- ------- ----------- ---------------- -------------- --------------
Profit/(loss) before
tax 1,662 1,314 (355) 959
Tax credit/(charge) 8 534 (154) 79 (75)
---------------------------- ------- ----------- ---------------- -------------- --------------
Profit/(loss) for
the year from continuing
operations 2,196 1,160 (276) 884
---------------------------- ------- ----------- ---------------- -------------- --------------
Discontinued operations
Loss from discontinued
operations, net of
tax 7 (2,182) (78) - (78)
---------------------------- ------- ----------- ---------------- -------------- --------------
Profit/(loss) for
the year
attributable to owners
of
the parent 14 1,082 (276) 806
---------------------------- ------- ----------- ---------------- -------------- --------------
Earnings per share - Continuing operations
Basic earnings per 9 2.15p 0.87p
share
Diluted earnings 9 2.08p 0.83p
per share
Earnings per share - Continuing and discontinued
operations
Basic earnings per 9 0.01p 0.79p
share
Diluted earnings 9 0.01p 0.76p
per share
---------------------------- ------- ----------- ---------------- -------------- --------------
Parity Group plc
Consolidated statement of comprehensive income
for the year ended 31 December 2017
2017 2016
Notes GBP'000 GBP'000
--------------------------------------- -------- --------- ---------
Profit for the year 14 806
Other comprehensive income:
Items that may be reclassified to
profit or loss
Exchange differences on translation
of foreign operations (39) (13)
Items that will never be reclassified
to profit or loss
Remeasurement of defined benefit
pension scheme 800 (413)
Deferred taxation on remeasurement
of defined pension scheme 12 (136) -
Other comprehensive income for the
year net of tax 625 (426)
Total comprehensive income for the
year attributable to equity holders
of the parent 639 380
--------------------------------------- -------- --------- ---------
Parity Group plc
Consolidated statement of changes in equity
for the year ended 31 December 2017
Share Capital
Share Deferred premium redemption Other Retained
capital shares reserve reserve reserves earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ --------- --------- ---------- ------------ ---------- ---------- ---------
At 1 January
2017 2,037 14,319 33,195 - 44,160 (87,251) 6,460
------------------------ --------- --------- ---------- ------------ ---------- ---------- ---------
Profit for the
year - - - - - 14 14
Exchange differences
on translation
of foreign operations - - - - - (39) (39)
Remeasurement
of defined benefit
pension scheme - - - - - 800 800
Deferred taxation
on remeasurement
of defined pension
scheme taken
directly to equity - - - - - (136) (136)
Issue of new
ordinary shares 6 - 16 - - - 22
Share options
- value of employee
services - - - - - 68 68
Cancellation
of deferred shares (14,319) 14,319 - - -
------------------------ --------- --------- ---------- ------------ ---------- ---------- ---------
At 31 December
2017 2,043 - 33,211 14,319 44,160 (86,544) 7,189
------------------------ --------- --------- ---------- ------------ ---------- ---------- ---------
Share Capital
Share Deferred premium redemption Other Retained
capital shares reserve reserve reserves earnings Total
GBP'000 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
------------------------ --------- --------- ---------- ------------ ---------- ---------- ---------
Parity Group plc
Consolidated statement of financial position
As at 31 December 2017
2017 2016
Company number 3539413 Notes GBP'000 GBP'000
-------------------------------- -------- --------- ---------
Assets
Non-current assets
Intangible assets and goodwill 10,11 4,821 5,055
Property, plant and equipment 78 72
Trade and other receivables - -
Investment in subsidiaries - -
Deferred tax assets 12 919 409
5,818 5,536
-------------------------------- -------- --------- ---------
Current assets
Trade and other receivables 12,033 14,373
Cash and cash equivalents 4,968 4,272
Assets classified as held
for sale 791 2,389
17,792 21,034
-------------------------------- -------- --------- ---------
Total assets 23,610 26,570
-------------------------------- -------- --------- ---------
Liabilities
Current liabilities
Loans and borrowings (6,592) (8,636)
Trade and other payables (8,349) (9,104)
Liabilities classified
as held for sale (395) (483)
(15,336) (18,223)
-------------------------------- -------- --------- ---------
Non-current liabilities
Loans and borrowings (8) (22)
Trade and other payables - -
Provisions (18) (17)
Retirement benefit liability (1,059) (1,848)
(1,085) (1,887)
-------------------------------- -------- ---------
Total liabilities (16,421) (20,110)
-------------------------------- -------- --------- ---------
Net assets 7,189 6,460
-------------------------------- -------- --------- ---------
Shareholders' equity
Called up share capital 2,043 16,356
Share premium reserve 33,211 33,195
Capital redemption reserve 14,319 -
Other reserves 44,160 44,160
Retained earnings (86,544) (87,251)
-------------------------------- -------- ---------
Total shareholders' equity 7,189 6,460
-------------------------------- -------- --------- ---------
Parity Group plc
Statement of cash flows
For the year ended 31 December 2017
2017 2016
Notes GBP'000 GBP'000
------------------------------------ -------- --------- ---------
Cash flows from operating
activities
Profit for year 14 806
Adjustments for:
Net finance expense 6 394 452
Share-based payment expense 68 58
Income tax (credit)/expense (619) 44
Amortisation of intangible
assets 341 652
Depreciation of property,
plant and equipment 106 147
Impairment of goodwill 1,165 -
Loss on write down of intangible
assets 3 115
1,472 2,274
Working capital movements
Decrease in work in progress 3 44
Decrease in trade and other
receivables 2,619 330
(Decrease)/increase in trade
and other payables (910) 962
Increase in provisions 1 33
Payments to retirement benefit
plan (184) (231)
Net cash flows from operating
activities 3,001 3,412
Investing activities
Purchase of intangible assets (5) (22)
Purchase of property, plant
and equipment (91) (129)
Net cash used in investing
activities (96) (151)
Financing activities
Issue of ordinary shares 22 -
Repayment of finance facility (2,032) (1,360)
Net movements on intercompany - -
funding
Interest paid 6 (199) (277) ------------------------------------ -------- --------- --------- Net cash from financing activities (2,209) (1,637) Net increase in cash and cash equivalents 696 1,624 Cash and cash equivalents at the beginning of the year 4,272 2,648 ------------------------------------ -------- --------- --------- Cash and cash equivalents at the end of the year 4,968 4,272 ------------------------------------ -------- --------- ---------
Parity Group plc
Notes to the accounts
For the year ended 31 December 2017
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 2017 and 2016. The notes in this preliminary announcement have been extracted from the audited accounts for the year ended 31 December 2017.
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 2016. The principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2016.
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 - provides targeted recruitment of temporary and permanent professionals to support IT and business change programmes. Parity Professionals provides 89% (2016: 94%) of the continuing Group's revenues.
-- Parity Consultancy Services - provides business and IT consultancy services focusing on the provision of data solutions and delivery of IT projects. Parity Consultancy Services provides 11% (2016: 6%) 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.
Parity Before
Parity Consultancy non-recurring Non-recurring
Professionals Services Items Items Total
2017 2017 2017 2017 2017
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- --------------- ------------- --------------- -------------- ---------
Revenue from external
customers 74,272 9,543 83,815 - 83,815
Inter-segment revenue 5,764 - 5,764 - 5,764
-------------------------- --------------- ------------- --------------- -------------- ---------
Segment revenue 80,036 9,543 89,579 - 89,579
Attributable costs (77,729) (8,395) (86,124) - (86,124)
-------------------------- --------------- ------------- --------------- -------------- ---------
Segmental contribution 2,307 1,148 3,455 - 3,455
Group costs (1,045) - (1,045)
Depreciation and
amortisation (286) - (286)
Share based payment (68) - (68)
Operating profit 2,056 - 2,056
Finance costs (394) - (394)
-------------------------- --------------- ------------- --------------- -------------- ---------
Profit before tax
(continuing activities) 1,662 - 1,662
-------------------------- --------------- ------------- --------------- -------------- ---------
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 costs (452) - (452)
-------------------------- --------------- ------------- --------------- -------------- ---------
Profit/(loss) before
tax (continuing
activities) 1,314 (355) 959
-------------------------- --------------- ------------- --------------- -------------- ---------
The continuing Group operates exclusively 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.
68% (2016: 61%) or GBP50.4m (2016: GBP52.7m) of the Parity Professionals revenue from external customers was generated in the public sector. 82% (2016: 57%) or GBP7.8m (2016: GBP3.0m) of the Parity Consultancy Services revenue was generated in the Public Sector.
The largest single customer in Parity Professionals contributed revenue of GBP8.8m or 11% and was in the public sector (2016: GBP10.8m or 12% and in the public sector). The largest single customer in Parity Consultancy Services contributed revenue of GBP4.4m or 46% and was in the Public Sector (2016: GBP2.9m or 54% and in the Public Sector).
3 Operating costs
Continuing operations 2017 2016
GBP'000 GBP'000
------------------------------------------------------------------------- --- --- --------- ---------
Employee benefit costs
- wages and salaries 5,138 5,688
- social security costs 609 639
- other pension costs 192 178
----------------------------------------------------------------------------------- --------- ---------
5,939 6,505
--------------------------------------------------------------------------------- --------- ---------
Depreciation and amortisation
Amortisation of intangible
assets - software 239 294
Depreciation of leased property,
plant and equipment 9 35
Depreciation of owned property,
plant and equipment 38 36
Write down of intangible assets - 115
----------------------------------------------------------------------------------- --------- ---------
286 480
--------------------------------------------------------------------------------- --------- ---------
All other operating expenses
Contractor costs 73,088 80,409
Sub-contracted direct costs 228 350
Operating lease rentals -
plant and machinery 17 27
- land and buildings 659 775
Other occupancy costs 98 147
IT costs 278 348
Equity settled share based
payment charge 66 56
Other operating costs 1,100 1,256
----------------------------------------------------------------------------------- --------- ---------
75,534 83,368
--------------------------------------------------------------------------------- --------- ---------
Total operating expenses 81,759 90,353
----------------------------------------------------------------------------------- --------- ---------
During the year the Group obtained the following services from the Group's auditor, KPMG LLP:
2017 2016
GBP'000 GBP'000
------------------------------------- --------- ---------
Audit of the Parent Company and
consolidated financial statements 12 11
Other services:
Audit of the Company's subsidiaries 65 65
Interim review 6 6
Tax compliance 27 27
Other 26 17
--------------------------------------- --------- ---------
124 115
------------------------------------- --------- ---------
136 126
------------------------------------- --------- ---------
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, transaction costs and assistance provided with research and development tax credit applications.
4 Non-recurring items
2017 2016
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
Restructuring
* Employee benefit costs - 260
* Other operating costs - 36
Transaction costs - 52
Property provisions - 46
Insolvency dividend - (306)
--------------------------------------------- --------- ---------
- 355
------------------------------------------------------- ---------
There were on non-recurring charges within continuing operations during 2017.
The continuing operations non-recurring charge for 2016 included:
-- The write down of assets in the GPSeer joint venture. GPSeer was 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.
5 Average staff numbers
2017 2016
Number Number
---------------------------------------- -------- --------
Continuing operations
Professionals - United
Kingdom (1) 85 89
Consultancy Services - United Kingdom,
including corporate office (2) 25 28
110 117
---------------------------------------- -------- --------
Discontinued operations
Consultancy Services 22 22
----------------------------------------- -------- --------
(1) Includes 22 (2016: 22) employees providing shared services across the Group.
(2) Includes 4 (2016: 7) employees of the Company.
At 31 December 2017, the Group had 105 continuing employees (2016: 112).
6 Finance costs
2017 2016
GBP'000 GBP'000
------------------------------- --------- ---------
Finance costs
Interest expense on financial
liabilities 199 277
Net finance costs in respect
of post-retirement benefits 195 175
--------------------------------- --------- ---------
394 452
------------------------------- --------- ---------
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 GBP53,000.
7 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. As such, Inition's operating result for the current and comparative year, as well as impairment of goodwill associated with the Inition cash generating unit is presented as discontinued.
The results of discontinued operations also include expenses incurred that are associated with the planned disposal of Inition.
The post-tax result of discontinued operations was determined as follows:
Note 2017 2016
GBP'000 GBP'000
------------------------ ----- --------- ---------
Revenue 2,324 3,263
Expenses (3,426) (3,372)
Impairment of goodwill (1,165) -
------------------------ ----- --------- ---------
Pre-tax loss (2,267) (109)
Taxation credit 85 31
------------------------ ----- --------- ---------
Loss for the year (2,182) (78)
------------------------ ----- --------- ---------
Basic loss per share 10 2.14p 0.08p
Diluted loss per share 10 2.07p 0.07p
The loss from the discontinued operation of GBP2,182,000 (2016: GBP78,000) is attributable entirely to the owners of the Company.
Cash flows (used in)/from discontinued operations:
2017 2016
GBP'000 GBP'000
----------------------------------- --------- ---------
Net cash (used in)/from operating
activities (674) 45
Net cash used in investing
activities (38) (88)
------------------------------------ --------- ---------
Net cash flows for the year (712) (43)
------------------------------------ --------- ---------
8 Taxation
2017 2016
GBP'000 GBP'000
------------------------------------- --- --- --------- ---------
Current tax expense
Current tax on profit for the
year 112 5
Total current tax expense 112 5
----------------------------------------------- --------- ---------
Deferred tax (credit)/expense
Accelerated capital allowances 68 39
Origination and reversal of
other temporary differences - 3
Recognition of deferred tax
previously unprovided (675) -
Change in corporation tax rate - 20
Adjustments in respect of prior
periods (39) 8
----------------------------------------------- --------- ---------
Total deferred tax (credit)/expense (646) 70
----------------------------------------------- --------- ---------
Tax (credit)/expense on continuing
operations (534) 75
----------------------------------------------- --------- ---------
The tax (credit)/expense on continuing operations excludes the tax credit from discontinued operations of GBP85,000 (2016: GBP31,000). This has been included in 'profit/(loss) from discontinued operations, net of tax' (see note 7).
The tax credit from discontinued operations of GBP85,000 comprises a current tax credit of GBP112,000 and a deferred tax expense of GBP27,000. As such, there is no current tax payable by the Group for 2017.
The standard rate of corporation tax in the UK changed from 20% to 19% with effect from 1 April 2017. Accordingly, the Group's profits for this accounting period are subject to tax at a rate of 19.25% (2016: 20%). There will be a further reduction in the corporate tax rate 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 2017.
The reasons for the difference between the actual tax (credit)/charge for the year and the standard rate of corporation tax in the United Kingdom applied to losses for the year are as follows:
2017 2016
GBP'000 GBP'000
Profit before tax from continuing
operations 1,662 959
------------------------------------------- ------- --------- ---------
Expected tax charge based on the
standard rate of United
Kingdom corporation tax of 19.25%
(2016: 20%) 320 192
Expenses not allowable for tax purposes 10 5
Adjustments in respect of prior periods (39) 8
Decrease in deferred tax asset due
to change in enacted rate - 20
Accelerated capital allowances (9) -
Utilisation of unprovided tax losses
carried forward (141) (150)
Recognition of deferred tax asset
previously unprovided (675) -
------------------------------------------- ------- --------- ---------
Tax (credit)/expense on continuing
operations (534) 75
------------------------------------------- ------- --------- ---------
Tax on each component of other comprehensive income is as follows:
2017 2016
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 (39) - (39) (13) - (13)
Actuarial gain/(loss) on
defined benefit pension
scheme 800 (136) 664 (413) - (413)
------------------------------------ --------- ---------- --------- --------- ---------- ---------
761 (136) 625 (426) - (426)
------------------------------------ --------- ---------- --------- --------- ---------- ---------
9 Earnings per ordinary share
Basic earnings per share is calculated by dividing the basic earnings 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.
Weighted Weighted
average average
number number
of of
shares Earnings shares Earnings
Earnings 2017 per Earnings 2016 per
share share
2017 000's 2017 2016 000's 2016
GBP'000 Pence GBP'000 Pence
----------------------- ---------- ---------- ---------- ---------- ---------- ----------
Continuing operations
Basic earnings per
share 2,196 102,087 2.15 884 101,824 0.87
Effect of dilutive
options - 3,263 - - 4,691 -
Diluted earnings per
share 2,196 105,350 2.08 884 106,515 0.83
----------------------- ---------- ---------- ---------- ---------- ---------- ----------
As at 31 December 2017 the number of ordinary shares in issue was 102,124,020 (2016: 101,824,020).
Basic loss per share from discontinued operations was 2.14p (2016: 0.08p). Diluted loss per share from discontinued operations was 2.07p (2016: 0.07p).
Basic loss per share from continuing and discontinued operations was 0.01p (2016: 0.79p). Diluted loss per share from continuing and discontinued operations was 0.01p (2016: 0.76p).
10 Intangible assets
Software Intellectual Goodwill Total
Property
2017 2016 2017 2016 2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- -------- -------- -------- -------- -------- -------- -------- --------
Cost
At 1 January 1,083 1,285 109 852 4,594 5,759 5,786 7,896
Additions 5 22 - - - - 5 22
Disposals - (51) - - - - - (51)
Impairment - - - (115) - - - (115)
Transferred
to assets
held for
sale - (173) - (628) - (1,165) - (1,966)
---------------- -------- -------- -------- -------- -------- -------- -------- --------
At 31 December 1,088 1,083 109 109 4,594 4,594 5,791 5,786
---------------- -------- -------- -------- -------- -------- -------- -------- -------- Accumulated amortisation At 1 January 637 495 94 288 - - 731 783 Charge for the year 224 287 15 365 - - 239 652 Disposals - (51) - - - - - (51) Transferred to assets held for sale - (94) - (559) - - - (653) At 31 December 861 637 109 94 - - 970 731 ---------------- -------- -------- -------- -------- -------- -------- -------- -------- Net book amount 227 446 - 15 4,594 4,594 4,821 5,055 ---------------- -------- -------- -------- -------- -------- -------- -------- --------
At 31 December 2016 the intangible assets held in the Inition business unit were reclassified as held for sale.
The Group had no additional capital commitments for the purchase of intangible assets as at the Balance Sheet date.
11 Goodwill
The carrying amount of goodwill is allocated to the Group's two separate continuing cash generating units (CGUs) being; Parity Professionals and Parity Consultancy Services. At 31 December 2016, the goodwill associated with the Inition CGU was reclassified as held for sale.
Carrying amounts are as follows:
Parity
Parity Consultancy
Professionals Services Inition Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ---------------- ------------- ---------- ----------
Carrying value
Balance at 1 January
2017 2,642 1,952 - 4,594
Balance at 31 December
2017 2,642 1,952 - 4,594
------------------------ ---------------- ------------- ---------- ----------
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
------------------------ ---------------- ------------- ---------- ----------
Goodwill was tested for impairment in accordance with IAS 36 at the year end and no impairment charge was recognised.
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 2018. Years from 2019 to 2021 are based on the budget for 2018 projected forward at expected growth rates. Years from 2022 onward assume no further growth. This approach is considered prudent based on current expectations of the 2018 long-term growth rate.
Major assumptions are as follows:
Parity Parity
Professionals Consultancy
% Services
%
2017
Discount rate 13.0 11.5
Forecast revenue growth 5.0 10.0
Operating margin 2018 2.6 10.0
Operating margin 2019 onward 3.0 - 3.6 10.7 - 12.9
2016
Discount rate 5.5 3.1
Forecast revenue growth 5.5 9.9
Operating margin 2017 3.5 18.4
Operating margin 2018 onward 3.4 - 3.9 19.0 - 19.9
Discount rates are based on the Group's weighted average cost of capital adjusted for the specific risks of each cash generating unit. In 2017 the Directors considered it appropriate to increase the WACC in light of industry and sector comparables.
Forecast revenue growth is expressed as the compound growth rate over the next 4 years from 2018 to 2021. 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.
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.
12 Deferred tax
Consolidated
------------------
2017 2016
GBP'000 GBP'000
---------------------------------------------- -------- --------
At 1 January 409 507
Recognised in other comprehensive income
Remeasurement of defined benefit pension
scheme (136) -
Recognised in the income statement
Change in enacted tax rate - (24)
Adjustments in relation to prior periods 39 6
Capital allowances in excess of depreciation (68) (23)
Other short-term timing differences - (3)
Recognition of deferred tax previously 675 -
unprovided
Transferred to assets held for sale - (54)
---------------------------------------------- -------- --------
At 31 December 919 409
---------------------------------------------- -------- --------
The deferred tax asset of GBP919,000 (2016: GBP409,000) comprises:
Consolidated
---------------------
2017 2016
GBP'000 GBP'000
---------------------------------------------- --------- ----------
Depreciation in excess of capital allowances 685 355
Short term and other timing differences 54 54
Retirement benefit liability 180 -
---------------------------------------------- --------- ----------
919 409
---------------------------------------------- --------- ----------
A deferred tax asset for deductible temporary differences is not recognised unless it is more likely than not that there will be taxable profits in the foreseeable future against which the deferred tax asset can be utilised. At the Balance Sheet date, the Directors assessed the probability of future taxable profits being available against which Parity Consultancy Services could recognise a deferred tax asset for previously unrecognised deductible temporary differences. The review concluded that it is probable that future taxable profits will be available. As such, the Directors have recognised a deferred tax asset for all deductible temporary differences available to Parity Consultancy Services.
A deferred tax asset for unused tax losses carried forward is recognised on the same basis as for deductible temporary differences. However, the existence of the unused tax losses is itself strong evidence that future taxable profit may not be available. Therefore, when an entity has a history of recent losses, the entity recognises a deferred tax asset arising from unused tax losses only to the extent that there is convincing evidence that sufficient taxable profit will be available against which the unused tax losses can be utilised. At the Balance Sheet date, the Directors considered recognising a deferred tax asset for previously unrecognised unused tax losses carried forward by Parity Consultancy Services. The review concluded that given the division's history of relatively recent tax losses and the additional requirement of providing convincing evidence that sufficient taxable profit will be available, a prudent approach would be taken and deferred tax would remain unrecognised for tax losses carried forward by the division.
The Directors believe that the deferred tax asset recognised is recoverable based on the future earning potential of the Group and the individual cash generating divisions. The forecasts for Parity Professionals comfortably support the unwinding of the deferred tax asset held by this division of GBP380,000 (2016: GBP409,000) and the forecasts for Parity Consultancy Services comfortably support the unwinding of the deferred tax asset held by this division of GBP539,000 (2016: GBPnil).
The deferred tax asset at 31 December 2017 has been calculated on the rate of 17% substantively enacted at the Balance Sheet date.
The movements in deferred tax assets during the period are shown below:
Charged
Credited to other Transferred
to comprehensive to assets
Asset income income held
2017 statement 2017 for sale
GBP'000 2017 GBP'000 2017
GBP'000 GBP'000
------------------------------ ---------- ------------ --------------- --------------
Depreciation in excess
of capital allowances 685 330 - -
Other short-term timing 54 - - -
differences
Retirement benefit liability 180 316 (136) -
------------------------------ ---------- ------------ --------------- --------------
919 646 (136) -
------------------------------ ---------- ------------ --------------- --------------
(Charged)/ Charged
credited to Transferred
to income other to assets
Asset statement comprehensive held
2016 2016 income for sale
GBP'000 GBP'000 2016 2016
GBP'000 GBP'000
------------------------------ ---------- ------------ --------------- --------------
Depreciation in excess
of capital allowances 355 (59) - (33)
Other short-term timing
differences 54 (6) - -
Trading losses - 21 - (21)
409 (44) - (54)
------------------------------ ---------- ------------ --------------- --------------
The Group has unrecognised carried forward tax losses of GBP29,485,138 (2016: GBP30,078,882) and unrecognised capital losses carried forward of GBP281,936,691 (2016: GBP281,875,386). These losses may be carried forward indefinitely.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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