Final Results

Parity Group PLC 19 April 2005 Embargoed for 7.00am, Tuesday 19 April 2005 PARITY GROUP PLC PRELIMINARY RESULTS, STRATEGY REVIEW AND NEW CHAIRMAN Parity Group plc ('Parity' or 'the Group'), the international IT services group, announces its preliminary results for the year ended 31 December 2004. Summary • Financials in line with Trading Update of 20 January 2005 • Strategic Review completed • First round of cost-cutting completed • New strategic direction approved by Board focussing on the UK market • Group reorganisation planned for 2005 with debt reduction and further savings expected • Mainland European business to be sold • New executive Chairman appointed to lead the new Parity strategy • Philip Swinstead to remain on the Board as Deputy Chairman • Renewed facilities agreed with the bank through to the end of 2006 Group financials • Group turnover from continuing operations up 7% at £169.9m (2003: £158.9m restated and excluding discontinued operations) • Loss after discontinued operations and before goodwill amortisation and tax of £6.3m (2003: £18.1m), of which £3.7m attributable to exceptional costs, compares to loss of the order of £6.5m advised in January 2005 Trading Update • Retained loss for the year of £6.4m (2003: £15.7m) • Net debt at year end of £13.7m, an increase of £1.7m including a £1.6m outflow from exceptional items • Net cash inflow from trading before discontinued operations and exceptional items of £0.2m (2003: £0.1m) • Loss per ordinary share 2.24p (2003: 7.70p) Operating Performance (before exceptional items) • Resourcing Solutions (UK) continues to grow revenues and profits • Resourcing Solutions (mainland Europe) increases profits • Training makes significant loss after sales switched away from public courses in 2004 • Business Solutions profits halved by the effect of sales cutbacks in 2003/4 and prudent revenue recognition on a single project • Americas business remains profitable Commenting on the results, Parity founder and Chairman Philip Swinstead said: 'This was another disappointing financial year for Parity which resulted in my being asked to rejoin the Board and take over as Chairman in November, 2004. Since then we have cut costs, established a new strategic direction, planned a Group reorganisation including further cost savings, started a debt reduction process and begun to create a management team for the future. I am delighted that at the end of my review and planning phase I can welcome John Hughes, as incoming Chairman, and step back to Deputy Chairman myself. John, whom I have known for some years, has extensive senior level experience in our industry. After a dismal three years and a year of restructuring in 2005, I expect to see this company back in shape for 2006'. Enquiries: Parity Group Telephone 020 7776 0800 Philip Swinstead, Chairman Financial Dynamics Telephone 020 7831 3113 Giles Sanderson Harriet Keen Notes to Editors About Parity Group plc Parity, uniquely for its size, offers a full range of IT services to major companies including: Business process consultancy Management and technology training Development and management of complex IT systems Oracle and Microsoft technology and application skills Permanent and temporary IT staff Parity operates from 27 offices across the UK, mainland Europe and the USA. Customers across the group include Alcatel, Allianz, AT&T, British American Tobacco, CISCO, Department for Education & Skills, Department for Work & Pensions, HBOS, Hewlett Packard, HM Revenue & Excise, HSBC, IBM, ICI, Ministry of Defence, NASA, National Programme for IT at the NHS, O2, Perot Systems, Reuters, Royal Bank of Scotland, Royal Mail, Siemens, Sony Ericsson, The Cabinet Office, The Met Office, and T-Systems. For more information on Parity, visit www.parity.net GROUP OVERVIEW AND RESULTS Results In the financial year to 31 December 2004 Parity Group plc reported revenues of £169.9m (2003: £158.9m restated and excluding discontinued operations) and losses before goodwill amortisation and tax of £6.3m (2003: £18.1m). Net debt at the year end was £13.7m (2003: £12.0m). The loss after goodwill amortisation and tax was £6.4m (2003: £15.6m) giving a basic loss per share of 2.24 pence compared to 7.70 pence in the previous period. Dividend The Board will not be recommending the payment of a final dividend in respect of the year ended 31 December 2004 (2003: 0.03p per share). No interim dividend was paid (2003: nil). This policy will be reviewed when cash resources allow. Review The last few years have clearly not been satisfactory with the Group reporting significant losses, regular restructuring charges and significant net cash outflows. Consequently, when I became Chairman at the end of last year I initiated a wide-ranging review of Parity's operations. This was completed on schedule and the detailed recommendations have been accepted by the Board. The key elements are summarised below. The Group's past business strategy of moving towards larger contracts and managed services reflected industry trends and was sensible in principle but required more careful implementation. The significant additional overheads resulting from the strategy did not in general produce profitable business but did reduce available sales effort for core business. This redirection of sales effort produced disappointing results in Training last year in its core public course business. Reduced sales effort in Business Solutions and prudent revenue recognition on one particular project resulted in a breakeven second half and a low order book at the year end. The UK and mainland Europe Resourcing Solutions businesses both saw good growth in improved market conditions. Margins were still tight in the UK but less so abroad where a significant investment in sales staff in the last quarter reduced profits. The US business moved into profit by good cost control and elimination of low margin and risky business. The Way Forward My objective following the review has been to create a business plan to ensure that Parity once again addresses the IT services market with an attractive, competitive offering, has a suitable overhead structure which is appropriate to the Group's size and scale, and a culture that encourages prudent budgeting and setting of expectations. As well as reducing debt, this plan must generate shareholder value by turning Parity into a growing, profitable, cash generative business. Exceptional Costs One of the initial findings of the review was that a degree of cost cutting was required, particularly at the centre, to bring overheads more in line with the Group's current size. As a first step we announced and have largely implemented a cost reduction programme which in particular included reducing staff numbers by over fifty and moving our head office into smaller temporary accommodation. New Corporate Strategy The future strategy of the group must be to focus on the UK market with one coherent business with a number of niche service offerings, within a single marketing message designed to be competitive in today's IT services market. Market Strategy The Group, uniquely for its size, can offer a one-stop shop for a wide range of IT services from consultancy to training, resources and project development to full managed services. The Parity marketing message is therefore clear and is one that is already proving to be a good sales differentiator. Users of IT services have in the past often had to deal with a number of different suppliers for closely related services, involving unnecessary overhead costs for the customer. Parity's competitive edge is its ability to make life simple for customers by providing a range of services to meet their overall requirements. Non-UK Businesses These changes will mean that the mainland Europe Resourcing Solutions business is not central to our new strategy and we are currently discussing a possible disposal with several parties, in full co-operation with the divisional management who see the opportunity of increasing the scale of their growing business through a combination with a larger group. This disposal will clearly reduce the level of debt in the Group. The US business has established a management link to the UK Resourcing Solutions division which enables the experience of this successful business to be transferred to the smaller US division. The strategic rationale for a US operation has not been proved in recent years but with new management and organisation we are expecting better performance ahead in an improving market, and the Board will review the strategic logic in the light of progress made. Reorganisation The Group will therefore reorganise its UK operations this year. Group management becomes the UK management in this new scenario. There are currently three independent divisions of differing sizes with separate management, production, support functions, marketing and sales. We will now simplify the Group's structure, creating a number of niche service offerings under one UK marketing umbrella. There will be overall market sector management and coordination using a new Customer Relationship Management system installation, an area where we have considerable technical expertise. We will concentrate on our customer relationships with coordinated account management but retain specific sales activities in the individual service profit centres. We are also examining how the IT infrastructure services provided to the Group can be better attuned to requirements. We will ensure that account management is our keystone and that each division's services are made available to all our clients in a co-ordinated manner. We will be a full service, integrated UK IT services business selling the complete range of IT services individually or together as required by our customers. We will carefully evolve into larger projects as we progress, when we can make sensible margins, and continue our drive into managed services which is the direction that the market is moving. Our approach to change is evolution not revolution. Creating one UK company managing all Parity's operations (post the European disposal) will allow considerable simplification and the necessary significant cost savings going forward. The fruits of this strategy will not be visible until next year. Banking Facilities It became clear early in my review that the level of debt was too high for the current size of the Group. The proposed disposal of mainland Europe and the cost savings associated with the reorganisation of UK operations will clearly help to address this issue and will reduce the future cash requirements of the Group. I am also pleased to report that the committed revolving loan facility with the Group's principal bankers, Lloyds TSB, has been successfully extended to the end of 2006. Board Changes Bill Cockburn retired as Chairman on 12 November 2004 having been appointed when I retired due to a serious illness in 2001. I would like to thank Bill for his stewardship during this difficult period. Ian Miller, the former Group Chief Executive, left the Board on 30 November 2004 and the Board asked me to assume an executive role in the short term whilst I completed my review of the business. John Maxwell had indicated to the previous Chairman that he wished to stand down due to a heavy workload and consequently will not stand for election at the AGM. John has been extremely helpful to me in understanding the last few years, as has our other Non-executive Director Alastair MacDonald, and I thank them for their openness and enthusiasm to improve performance. The Board intends to appoint at least one more non-executive director this year. I am very pleased to announce that John Hughes, until recently Chief Operating Officer of Thales Group where he was responsible for their entire Information Technology and Services and Aerospace business areas, managing a €4.5 billion P& L, will join the Board on the 2 May 2005 and take over from me as executive Chairman now that my review is complete. I have known John for some years and we are fortunate that a person of his calibre is joining our Board. I am confident that John and I can complete an orderly transition and subsequently work together on the board to continue the turn around of Parity - a vision we both share. We have discussed the new strategy in detail in recent weeks and he will bring just the skills and experience that Parity needs to refine and enact the new strategy and then drive the business forward over the years. I will step down to Deputy Chairman on a part-time basis for this year and then move to a non-executive role next year. It is with great sadness that I must inform you that Billy Carbutt who served as a director of the Group from March 1994 to January 2004, acting as Chairman for three years during this period, has died after a long illness. We all very much appreciated Billy's counsel when we were serving together on the Board and will miss his wisdom and humour. Employees I would like to thank all of our employees for their continued commitment and loyalty to the Group in what has been a difficult few years. I hope that 2005 will be a year of change for the good, not only for our shareholders but also for our employees whose enthusiasm to get the company back to winning ways has been inspiring. Current Trading and Prospects The Resourcing Solutions businesses in the UK and mainland Europe have continued to expand profitably this year in similar market conditions to last year. The Training division is recovering from its setback in the second half of last year, and is expecting to improve steadily through this year. Business Solutions looks to grow its order backlog in 2005 and will particularly benefit from the restructuring outlined above in returning to full health. There are signs of recovery in the US market and optimism in our US business for the first time for several years. Central costs have been much reduced but given a high interest charge, contributions to the defined benefit pension deficit and goodwill amortisation, the Group cannot expect to return to overall profitability in 2005. The Board believes that the strategic and reorganisational changes will be of significant benefit in taking the Group forward with further cost cuts, lower debt and a return to overall growth in a simpler business model. Clearly 2005 will be a year of restructuring but the Board expects that the changes will then enable Parity to move into 2006 in much better shape. Philip Swinstead OBE Chairman GROUP PROFIT AND LOSS ACCOUNT 2004 2003 £'000 £'000 Notes Restated+ TURNOVER - Continuing operations 169,860 158,883 - Discontinued operations - 1,999 --------------------------- 169,860 160,882 |---------------------------| Operating costs before goodwill amortisation and | | exceptional items |(171,761) (161,045)| | | Goodwill amortisation | (629) (629)| | | Exceptional items 2 | (3,683) (7,266)| |---------------------------| --------------------------- Operating costs (176,073) (168,940) --------------------------- OPERATING LOSS - Continuing operations (6,213) (4,860) - Discontinued operations - (3,198) --------------------------- (6,213) (8,058) Gain (loss) on termination of operations 220 (9,000) Amounts written off investments 2 - (724) Net interest payable (921) (940) --------------------------- |---------------------------| Loss on ordinary activities before goodwill amortisation, | | exceptional items and taxation | (2,822) (1,103)| | | Goodwill amortisation | (629) (629)| Exceptional items | | - Operating exceptional costs 2 | (3,683) (7,266)| - Gain (loss) on termination of operations | 220 (9,000)| - Amounts written off investments 2 | - (724)| |---------------------------| --------------------------- LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (6,914) (18,722) Taxation credit on ordinary activities 507 3,117 --------------------------- LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (6,407) (15,605) Ordinary dividends on equity shares 4 - (87) --------------------------- RETAINED LOSS FOR THE FINANCIAL PERIOD (6,407) (15,692) =========================== LOSS PER ORDINARY SHARE - Basic 3 (2.24p) (7.70p) - Diluted (2.24p) (7.70p) (LOSS) EARNINGS PER SHARE BEFORE GOODWILL AMORTISATION, DISCONTINUED OPERATIONS AND EXCEPTIONAL ITEMS - Basic 3 (0.95p) 1.04p - Diluted (0.95p) 1.04p + refer note 1 GROUP BALANCE SHEET 2004 2003 Notes £'000 £'000 Restated+ Fixed assets Intangible assets 8,987 9,616 Tangible fixed assets 1,920 2,586 Investments 30 30 --------- --------- 10,937 12,232 --------- --------- Current assets Stock - work in progress 1,664 561 Debtors - due within one year 41,089 40,550 - due after more than one year 4,130 3,418 Cash at bank and in hand 5,641 3,241 --------- --------- 52,524 47,770 --------- --------- Creditors: amounts falling due within one year (38,803) (30,942) --------- --------- Net current assets 13,721 16,828 --------- --------- Total assets less current liabilities 24,658 29,060 Creditors: amounts falling due after more than one year (12,241) (11,058) Provisions for liabilities and charges (5,611) (4,500) --------- --------- Net assets 6,806 13,502 ========= ========= Capital and reserves Called up share capital 14,434 14,434 Capital redemption reserve 5 50 50 Share premium account 5 6,062 6,062 Other reserves 5 44,110 44,110 Profit and loss account 5 (57,850) (51,154) --------- --------- Equity shareholders' funds 6,806 13,502 ========= ========= + refer note 1 GROUP CASH FLOW STATEMENT 2004 2003 £'000 £'000 Net cash flow from operating activities before discontinued operations and exceptional costs 171 130 Cash flows from discontinued operations 220 (515) --------- --------- Net cash flow from operating activities before exceptional items 391 (385) Exceptional items (1,560) (4,050) --------- --------- Net cash outflow from operating activities (1,169) (4,435) --------- --------- Returns on investments and servicing of finance Interest received 49 46 Interest paid (884) (1,066) --------- --------- Net cash outflow from returns on investments and servicing of finance (835) (1,020) --------- --------- Taxation received (paid) 1,006 (164) --------- --------- Capital expenditure and financial investment Purchase of tangible fixed assets (518) (509) Sale of tangible fixed assets - 27 Additions to fixed asset investments - (25) --------- --------- Net cash outflow from capital expenditure and financial investment (518) (507) --------- --------- Equity dividends paid (87) (90) --------- --------- Net cash outflow before financing (1,603) (6,216) --------- --------- Financing Issue of ordinary share capital - 10,104 Expenses of share issue (56) (979) Proceeds on sale of nil paid rights in Employee Benefit Trust - 84 Repayment of loan notes (8) (14) Increase (decrease) in borrowings 2,475 (1,719) Repayment of capital element of finance lease obligations (17) (14) --------- --------- Net cash inflow from financing 2,394 7,462 --------- --------- Increase in cash in the period 791 1,246 ========= ========= RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 2004 2003 £'000 £'000 Increase in cash in the period 791 1,246 (Increase) decrease in borrowings (2,475) 1,719 Repayment of obligations under finance leases 17 14 Variable rate loan notes 2004 repaid 8 14 --------- --------- Change in net debt resulting from cash flows in the period (1,659) 2,993 Exchange movements 3 56 Other non cash changes - (91) --------- --------- Movement in net debt in the period (1,656) 2,958 Net debt at 1 January 2004 (12,037) (14,995) --------- --------- Net debt at 31 December 2004 (13,693) (12,037) ========= ========= ANALYSIS OF NET DEBT At At 1 January Cash Exchange 31 December 2004 flow movements 2004 £'000 £'000 £'000 £'000 Cash at bank and in hand 3,241 2,409 (9) 5,641 Overdrafts (1,848) (1,618) - (3,466) --------- --------- --------- --------- 1,393 791 (9) 2,175 Bank loans (11,000) (1,200) - (12,200) Other bank borrowings (2,339) (1,275) 12 (3,602) Obligations under finance leases (77) 17 - (60) Variable rate loan notes 2004 (14) 8 - (6) --------- --------- --------- --------- (12,037) (1,659) 3 (13,693) ========= ========= ========= ========= RECONCILIATION OF OPERATING LOSS TO NET CASH FLOW FROM OPERATING ACTIVITIES BEFORE EXCEPTIONAL ITEMS 2004 2003 £'000 £'000 Continuing operations Operating loss (6,213) (8,058) Operating exceptional items 3,683 7,266 --------- --------- Operating loss before exceptional items (2,530) (792) Depreciation of tangible assets 1,134 1,680 Amortisation of intangible assets 629 629 Loss on disposal of tangible assets 42 2 Increase in stock (1,103) (561) Increase in debtors (1,891) (4,148) Increase in creditors 1,551 3,202 Increase in provisions 2,339 118 --------- --------- Net cash flow from operating activities before exceptional items 171 130 ========= ========= The total net cash outflow from exceptional items during the year was £1,560,000 (2003: £4,050,000). The cash outflow from exceptional costs incurred in 2004 was £189,000. Cash outflows in 2004 relating to exceptional costs incurred in 2003 and prior years was £1,371,000. Depreciation of tangible assets excludes an exceptional charge of £nil (2003: £503,000) relating to accelerated depreciation on tangible fixed assets. Discontinued Operations In 2004, discontinued operations contributed £220,000 (2003: £515,000 outflow) to the net operating cash outflow, paid £nil (2003: £51,000) in respect of servicing of finance, paid £nil (2003: £nil) in respect of taxation and utilised £nil (2003: £16,000) for capital expenditure. RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS 2004 2003 £'000 £'000 Restated+ Loss for the year attributable to shareholders (6,407) (15,605) Dividends - (87) --------- --------- Retained loss (6,407) (15,692) Other recognised (losses) gains (289) 175 Shares issued net of issue costs - 9,069 Gain on sale of nil paid rights in Employee Benefit Trust - 84 Reversal of goodwill previously written off directly to reserves - 8,706 --------- --------- Net (decrease) increase in shareholders' funds (6,696) 2,342 Equity shareholders' funds at start of year 13,502 11,608 Prior year adjustment - (448) --------- --------- Equity shareholders' funds at end of year 6,806 13,502 ========= ========= + refer note 1 STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2004 2003 £'000 £'000 Loss for the year attributable to shareholders (6,407) (15,605) Currency translation differences on foreign currency net investments (289) 175 --------- --------- Total recognised losses for the year (6,696) (15,430) ========= ========= DIVISIONAL PERFORMANCE 2004 2003 ---------------------------------------- ----------------------------------------- Profit Profit (loss) (loss) before Return Turnover before Return Turnover taxation on sales (restated taxation on sales *) Continuing operations £'000 £'000 % £'000 £'000 % Business Solutions United Kingdom 23,067 721 3.1 23,527 1,530 6.5 Training United Kingdom 23,771 (1,535) (6.5) 25,302 1,410 5.6 Resourcing Solutions United Kingdom 81,301 1,377 1.7 64,474 1,147 1.8 Mainland Europe 27,232 379 1.4 27,936 178 0.6 Parity Americas 14,489 91 0.6 17,644 1 - --------- --------- --------- --------- --------- --------- Operating total before central costs, exceptional items and goodwill amortisation 169,860 1,033 0.6 158,883 4,266 2.7 Central costs (2,934) (2,831) Net interest payable (921) (889) --------- --------- (Loss) profit before tax, goodwill amortisation and exceptional items (2,822) 546 Goodwill amortisation (629) (629) Operating exceptional items (note 2) (3,683) (5,666) Amounts written off investments - (724) --------- --------- --------- --------- 169,860 (7,134) 158,883 (6,473) Discontinued operations Business Solutions Mainland Europe - 1,999 (1,598) Operating exceptional items (note 2) - (1,600) Profit (loss) on termination of operations 220 (9,000) Net interest payable - (51) --------- --------- --------- --------- 169,860 (6,914) 160,882 (18,722) ========= ========= ========= ========= Turnover and profit are stated on the basis of origin. There is no material difference between turnover and profit by origin and by destination. Turnover for Resourcing Solutions in the UK as shown above excludes £2,664,000 (2003: £1,977,000) of inter-segmental turnover and £12,600,000 (2003: £15,070,000) of turnover in respect of management service contracts. Turnover for Business Solutions in the UK excludes £1,192,000 (2003: £709,000) of inter-segmental turnover. Turnover for Training as shown above excludes £33,000 of inter-segmental turnover (2003: £70,000). Of the goodwill amortisation charge for the year, £543,000 (2003: £543,000) relates to Business Solutions in the UK and £86,000 (2003: £86,000) relates to Resourcing Solutions in the UK. * refer note 1 NOTES TO THE ACCOUNTS 1. BASIS OF PREPARATION The financial information above and the notes thereto, for the year ended 31 December 2004 included in this Preliminary Announcement are an extract from the full statutory accounts for the year as defined in section 240 of the Companies Act 1985. These accounts have been reported on by the Company's auditors and will be delivered to the Registrar of Companies in due course. The report of the auditors was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The results for the year ended 31 December 2003 are an extract from the Company's statutory accounts for that year. Those statutory accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under Section 237(2) or (3) of the Companies Act 1985. Changes in Accounting Policies During the year, the accounting policy for revenue recognition in respect of Resourcing Solutions managed service contracts has been amended. Following the negotiation of new managed service contracts, which have different characteristics to the original managed service contracts, the directors no longer believe that it is appropriate to treat Parity as the principal in these contracts and therefore revenue has been shown on a net basis. Prior year figures have been restated to reflect this change, resulting in a reduction in Resourcing Solutions United Kingdom's revenue for 2003 of £15,070,000. There is no impact on group operating profit. UITF Abstract 38 'Accounting for ESOP Trusts' has been adopted for the first time in 2004. This has resulted in a reclassification of own shares of £448,000 at 31 December 2003 from investments to equity shareholders' funds. In addition, UITF17 (Revised 2003) 'Employee Share Schemes' has been adopted in 2004, although this has no impact on costs in 2003 or 2004. Basis of Consolidation The consolidated financial statements incorporate the results of Parity Group plc and its subsidiary undertakings drawn up to 31 December each year. The information contained in this interim statement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The Group's Revolving Loan Facility ('RLF') with its principal banker, Lloyds TSB ('LTSB'), has been successfully renegotiated to 31 December 2006. The RLF, currently for £18m, will be reduced by at least £1m following the disposal of Resourcing Solutions mainland Europe. In the unlikely event that the mainland Europe disposal process has not been completed by 30 September 2005, LTSB will require the Group to take such other steps as it may require in order to achieve a £1m reduction in borrowings. Progress on the sale of mainland Europe is being monitored closely by the Board and in the event, at any stage, that the Board believes the disposal will not be completed by 30 September 2005, such other actions to reduce debt that the Board has at its disposal will be taken in order to allow the Group to remain within its banking facilities. The Group also has a debt purchase facility with HSBC which it uses to finance its French, German and US operations. HSBC has announced that it has withdrawn this product and the Group's existing facility with HSBC will expire on 30 June 2005. In the event that the mainland Europe disposal process has not been completed by 30 June 2005, HSBC has indicated that it would be willing to extend the facility for the French and German operations to 30 September 2005 and for the US operations to 31 December 2005. Alternative funding arrangements to replace the US element of the HSBC facility have been explored and the Board is confident that these could be put in place by 30 June 2005, if required. However, such debt purchase financing would not be necessary following the sale of the mainland Europe business. In the light of these facilities, the Group's cash flow forecasts and the progress being made regarding the sale of the mainland European operations, the Board believes that the adoption of the going concern basis is appropriate in the preparation of the 31 December 2004 Report and Accounts. If the adoption of the going concern basis were not to be appropriate, adjustments would be required to reclassify fixed assets as current assets, to adjust assets to their recoverable values and to provide for any further liabilities that may arise. 2. EXCEPTIONAL COSTS AND DISCONTINUED OPERATIONS Operating exceptional costs of £3,683,000 (2003: £7,266,000) were incurred during the year in respect of the following items: 2004 2003 £'000 £'000 Restructuring of operations Redundancy payments* 1,648 1,163 Property restructuring** 1,810 2,723 Other* 175 363 --------- --------- 3,633 4,249 Property dilapidations** 50 551 Aborted transaction costs** - 184 SSAP 24 pension charge* - 682 --------- --------- Operating exceptional costs on continuing operations 3,683 5,666 Operating exceptional costs on discontinued operations - 1,600 --------- --------- Total operating exceptional costs 3,683 7,266 Amounts written off investments - 724 --------- --------- Total exceptional costs 3,683 7,990 ========= ========= Segmental analysis of operating exceptional costs 2004 2003 £'000 £'000 Business Solutions - United Kingdom 893 1,793 Training - United Kingdom 218 710 Resourcing Solutions United Kingdom (104) 1,836 Mainland Europe 49 33 Parity Americas 273 220 Central costs 2,354 1,074 Discontinued operations - 1,600 --------- --------- 3,683 7,266 ========= ========= * Classified as staff costs under Companies Act 1985 ** Classified as other operating costs under Companies Act 1985 3. EARNINGS PER ORDINARY SHARE Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year, excluding those held in the Employee Benefit Trust which are treated as cancelled. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has one class of dilutive potential ordinary shares, being those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year. In October 2003, and September 2004, the Company granted 5,585,000 and 525,000 share options under the Executive Share Option Plan and 2004 Employee Share Scheme respectively. These options have an exercise price of £0.10 which is less than the average price of the Company's ordinary shares during the year and therefore have been included in the diluted EPS calculations. 2004 2003 ---------------------------------------- ------------------------------------------ (Loss) earnings per share (Loss) earnings per share (Loss) (Loss) earnings Basic Diluted earnings Basic Diluted £'000 pence pence £'000 pence pence Loss per ordinary Share (6,407) (2.24) (2.24) (15,605) (7.70) (7.70) Exceptional costs from continuing Operations (net of tax credit) 3,283 1.15 1.15 4,827 2.38 2.38 Discontinued Operations (220) (0.08) (0.08) 12,249 6.05 6.05 Goodwill Amortisation 629 0.22 0.22 629 0.31 0.31 --------- --------- --------- --------- --------- --------- (Loss) earnings per ordinary share before Goodwill amortisation, discontinued operations and exceptional items (2,715) (0.95) (0.95) 2,100 1.04 1.04 ========= ========= ========= ========= ========= ========= Supplementary basic and diluted EPS have been calculated to exclude the effect of goodwill amortisation, discontinued operations and exceptional items. The adjusted numbers have been provided in order that the effects of goodwill amortisation, discontinued operations and exceptional items on reported earnings can be fully appreciated. The weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share is as follows: 2004 2003 Average Average number number Basic i) Weighted average number of shares in issue 288,691,692 205,375,143 Adjustment for shares held by EBT (2,756,238) (2,756,238) ----------- ----------- 285,935,454 202,618,905 =========== =========== Dilutive ii) Weighted average number of shares in issue 288,691,692 205,375,143 Adjustment for share options 441,075 46,783 Adjustment for shares held by EBT (2,756,238) (2,756,238) ----------- ----------- 286,376,529 202,665,688 =========== =========== The number of ordinary shares in issue at 31 December 2004 was 288,691,692 (2003: 288,691,692). 4. DIVIDEND The Directors have not proposed a final dividend in respect of 2004 (2003: 0.03p per ordinary share). 5. RESERVES Group Capital Profit & redemption Share Other loss reserve premium reserves account Total £'000 £'000 £'000 £'000 £'000 restated At 1 January 2004 as previously stated 50 6,062 44,110 (50,706) (484) Prior year adjustment - note 1 - - - (448) (448) --------- --------- --------- --------- --------- At 1 January 2004 as restated 50 6,062 44,110 (51,154) (932) Retained loss for the year - - - (6,407) (6,407) Exchange adjustments - - - (289) (289) --------- --------- --------- --------- --------- At 31 December 2004 50 6,062 44,110 (57,850) (7,628) ========= ========= ========= ========= ========= The cumulative amount of unamortised goodwill which has been written off to reserves is £60,585,000 (2003: £60,585,000). This information is provided by RNS The company news service from the London Stock Exchange FSEAE

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