Final Results

Parity Group PLC 14 March 2007 14 March 2007 Embargoed until 07.00am 14.03.07 PARITY GROUP PLC 2006 Preliminary Results Parity returns to operating profit and revenue growth Parity Group plc ('Parity' or 'the Group'), a leading UK IT services group announces its preliminary results for the year ended 31 December 2006. Financial Highlights * Group turnover from continuing operations up 16% to Â£156.8m (2005: Â£135.1m) * Operating profit before exceptional items and goodwill impairment Â£1.4m (2005: loss of Â£1.9m) * Reported operating profit Â£0.8m (2005: loss of Â£6.7m) * Reported loss before tax (for continuing operations) Â£0.8m (2005: loss of Â£8.6m) * Profit after tax (after discontinued operations) Â£0.8m (2005: loss of Â£9.2m) * Net debt at year end reduced by 70% to Â£5.7m (2005: Â£19.1m) * Balance sheet successfully strengthened, and further progress made on property disposals, exits and sub-leases resulting in cash savings * Earnings per ordinary share on profit for the year 2.99p (2005: loss 129.73p) Operational Highlights * Resources grew ahead of market rate, with revenues up 24%, operating profit (before exceptionals) up 65% and improved margins * Solutions returned to profit, and experienced strong growth in H2, with revenue increasing by 38% from H1 to H2, and order book built for delivery in 2007 * Training transitioned from significant loss in 2005 to operating profit (before exceptionals and goodwill impairment) of Â£0.3m (2005: loss Â£1.2m), through growth in soft skills business and cost reductions * Completion of overseas disposal programme * Sales, General and Administrative (SG&A) costs reduced by 13% Commenting on the results, Parity Chairman John Hughes said: '2006 has been a year of very substantial progress for the Group. The move to a UK-centric strategy was successfully completed in the first half of the year and the actions taken in 2005 to drive down UK costs delivered the expected benefits. The initiatives undertaken during 2006 have resulted in major operational performance improvements in each of our three areas of business, a significantly stronger balance sheet, a quality team of operational business leaders and strong on-going relationships with our customers.' Alwyn Welch, Chief Executive Officer, added: 'The Group has made very substantial progress over the last year. This growth is evidence of our market focus and alignment, and the skills and professionalism of all those who identify, win and deliver business.' Enquiries: Parity Group PLC 020 7832 3500 John Hughes, Chairman Alwyn Welch, Chief Executive Officer Hogarth Partnership Limited 020 7357 9477 John Olsen/Sarah Richardson Notes to editors: About Parity Group plc Parity Group PLC is a UK-focused IT services company, operating via three core business units - Parity Resources, Parity Solutions and Parity Training. Parity Resources is a leading IT recruitment specialist, with over 30 years experience in providing permanent and contract technology staff, temporary staff and managed recruitment services across all markets. Parity Solutions specialises in providing IT, Projects and Consulting, using leading edge technologies and drawing upon the depth of experience of its consultants in Programme and Project Management. Parity Training is one of the UK's leading Management and IT training providers. In addition to a comprehensive schedule of public courses, Parity delivers tailored learning solutions and customised programmes for major clients. Parity is listed on the London Stock Exchange, with a ticker of PTY.LN. Chairman's Statement 2006 has been a year of substantial progress for the Group. The move to a UK-centric strategy was completed in the first half of the year and the actions taken in 2005 to drive down UK costs delivered the expected benefits. Importantly all three of our business units returned to operating profitability with strong growth achieved in both Resources and Solutions. The strengthened leadership team under the direction of Alwyn Welch has made substantial progress in improving operations, getting closer to the customers and strengthening our sales and marketing capabilities. The actions taken across the business to improve our go-to-market capabilities have demonstrated success, not least in Solutions where new order growth was achieved for the first time in a number of years, resulting in revenue growth, an increased order book and a significant improvement in operating profitability. Training, where our focus was on returning the business to profitability rather than striving for growth, also delivered the improvements we sought. Our plan to improve margins and hence profitability in Resources whilst still growing revenues at an above market rate has also borne fruit. We continue to take actions to reduce the burden of excess property, the benefit of which has shown in the 2006 financials and is expected to deliver further improvements in future periods. We shall continue to drive out costs wherever we can while at the same time improving our new orders rate and ensuring that we continue the quality delivery on which our brand is founded. The fund raising completed in 2006 substantially strengthened our balance sheet facilitating one of our key objectives which remains to drive the entire business to sustainable positive operating cash flow. Market conditions lead us to believe that the performance improvements we have seen should continue in 2007, thanks to the skilled resources we provide, the number and type of projects underway and our initiatives to increase the higher value added elements of all our businesses. We are seeing good opportunities for Parity in early 2007 and believe that we are well positioned in a market which continues to grow, albeit modestly. While the challenges of the training market have had some impact on the rate of our recovery, the changes made in both the cost structure and the improvement in focus and sales channels should improve our position relative to 2006. In the Solutions business the outlook for future growth both in revenue and profitability terms remains positive and our Resources activity will focus on remaining nimble whilst driving better returns from the business, albeit perhaps with a slowing rate of revenue growth. Today we can reflect on major operational improvements in each of our three areas of business, a significantly stronger balance sheet, a first rate Chief Executive and high quality team of business unit heads and an on-going strong relationship with our customers. In the context of the progress made by the new management team and the future needs of the business, my Board colleagues and I have agreed that it would now be appropriate to put in place a Board structure led by a Non-Executive Chairman for whom we have already initiated a search process. I look forward to continuing to serve the company as Deputy Chairman and to contributing to the continued creation of shareholder value - I intend to focus on specific aspects of corporate development and very particularly in supporting the leadership team on strategic sales and marketing initiatives. I believe the steps outlined above will underpin what we all perceive to be a positive outlook for the Group in 2007 and beyond. John Hughes Executive Chairman Chief Executive's Review Introduction Parity has been working through a very significant transformation for more than 18 months. The strategy outlined, and actions commenced in 2005 have been instrumental in returning the Group to growth and real profitability. Much work still remains to be completed, but we have now laid the foundations for a more soundly based business in the future. The Group has exited 2006 with each business unit in profit, a lower cost base and a clear vision of where it needs to be focused in the market. With strong support from shareholders we have significantly reduced debt and, despite the need to fund restructuring, through good cash management we have funded a modest investment in future product offerings and in our people. Finally we completed the disposal of all overseas operations during the first half of the year, so Parity is today a business exclusively operating in the UK and Irish marketplace. Group revenues, from continuing operations, grew 16% to Â£156.8m (2005 Â£135.1m) due to strong growth in Resources throughout the year and in Solutions in the second half. Operating profit (*before exceptional items and impairment of goodwill) has shown sustained improvement each half year starting in 2005 and accelerating in 2006. For the year Operating profit (*) of Â£1.4m was a substantial improvement of Â£3.3m over 2005, with all business units delivering good margin improvement. This, combined with reducing Sales, General and Administrative (SG&A) costs and interest payments, helped deliver a profit before tax in the second half of 2006 (the first such profit from the operations since H1 2004). Resources Parity Resources delivered strong growth for the third year running. Revenue increased 24%, to Â£114.5m (2005: Â£92.4m). This was due to good progress in the public sector combined with contract extensions in the commercial market. Operating profit (before exceptionals) increased by 65% to Â£2.7m. Price pressure in certain large commercial clients was offset by volume growth from public sector clients and controlled growth in SG&A costs. Permanent recruitment was less satisfactory, in a strong market, and this had a dilutive impact on margins. However we started to invest in re-building the Permanent team in the second half, and this together with a re-orientation of the Spot market team is expected to show returns during 2007. Delivering sustainable margin improvement remains a high priority in this business unit with further work to achieve this in 2007. Sales successes in the year included the Government's Catalist buying framework for both Specialist Contractors and Interim Managers; and good wins at public sector organisations such as the Department for Constitutional Affairs, Department of Work and Pensions and NHS Services for Scotland, as well as several local Government organisations. In the commercial domain we achieved wins and extended or renewed contracts at organisations as diverse as Shell, BT, MBNA and the FSA. We believe that our strength and quality in delivery, especially of our focused skills, were critical to building this strong client base. Solutions Parity Solutions saw an impressive transition during the year. We entered the year with a weak order book, and declining business, principally due to an unacceptable sales performance in prior periods. Consequently we made a number of important management changes in this business unit, with a particular focus on tight control in the short-term whilst building a strong sales team. Revenue for the year grew by 6% to Â£23.9m (2005: 22.6m), and more significantly, and as a direct result of these people changes, revenue in the second half grew by 33% over H2 2005, to Â£13.9m. This was a sequential growth of 38% over the first half of 2006. Despite the re-building of our sales capability, we reduced SG&A costs by 18% in 2006. The combination of these successes resulted in a 3.2% margin improvement over 2005, bringing this business unit back to profit, and in H2 we delivered 5% margin. We have an excellent reputation for the delivery of technology projects, and this underpinned our sales improvement as well as the turnaround in profits. We also have a project management culture that combines strong delivery with a way of working with clients that is much more cooperative than many of our competitors, and this serves as a clear differentiator. These factors were very material in helping us win a Â£15m plus fixed price contract with Northern Ireland Electricity, to support the deregulation of the Irish electricity market. This involves managing a number of large sub-contractors, and meeting tight deadlines. We are making good progress in the main part of this contract where work started in October. We are also establishing a strong position in the new Microsoft Sharepoint server 2007 technology, particularly for building web portals, winning projects in the Â£300k-Â£1.5m range with clients mainly in the Public Sector. We will continue with this focus during 2007, with an intention to build a leading position in this area. We will also focus on growing the level of 'annuity' business in our Solutions mix, where we have small but long term contracts for the delivery of applications and business process management services. Training Parity Training has enjoyed its best trading performance since 2003. Again we have made significant changes to strengthen the management team, and worked hard to reduce the cost base and make more costs directly related to revenue. We have also directed our sales to reinforce our leading position in the areas of project, programme and service management training. These are all soft skills, closely related to IT, and where we are seeing good growth in the market. Changing the mix in this business unit, combined with the actions taken on cost, is the way that we will drive margins up to target levels. With this focus, revenue for the year declined by 8% to Â£18.4m (2005: Â£20.0m). However we turned an operating loss (before exceptionals and goodwill impairment) of Â£1.2m in 2005 into a profit of Â£0.3m in 2006, with a 7.2% margin swing in the second half compared to the same period in 2005 as the mix change started to show through in the growth of our public courses and in gross margin. We reduced SG&A costs by Â£2.6m from 2005 to 2006, despite strengthening our sales capability. Approximately 50% of the total costs of this business are variable and directly related to revenue, which is providing resilience to changing trends in the market, but with some negative impact on the margins we can achieve in periods of high demand. We will also concentrate our delivery more on our areas of high differentiation and market strength, whilst continuing to offer a full service to clients. An increasingly important target market for us are the larger IT Systems Integrators and IT and Business Process Outsourcers. For example we have won contracts with Xchanging, and train staff from many of the market leaders. We are also delivering larger, longer term training programmes, larger longer term contracts, where our expertise in developing specialised and custom training content is combined with managing the logistics of these large and complex training programmes. SG&A Costs Sales, general and administrative (SG&A) costs are defined as total operating costs less cost of sales and before exceptional costs and goodwill impairment. Overall SG&A costs for continuing businesses reduced from Â£34.2m in 2005 to Â£29.7m in 2006. Much of this reduction was due to the restructuring actions initiated in 2005 and continued in 2006 reflecting headcount reductions, renegotiation of IT support, and property rationalisation. We now manage most business infrastructure costs centrally, including facilities, IT, accounting, legal and contracts and HR. Again these costs are being tightly managed, whilst we expect the level of service delivered to business units to be sustained or improved. Central costs represent those costs that would not be required for standalone operation of the business units. Property costs reduced by Â£1m from 2005 to 2006, with the closing or sub-letting of properties in Bristol, London, Antrim and Manchester during the year. We are moving to a new facility in Belfast and closing the Holborn Circus office early in 2007 moving the Group's headquarters to Wimbledon where it will more closely integrate with the business units. These and other actions will create further property cost savings in future years. These property changes, and starting to replace older and in some cases obsolete ICT equipment, have required a modest increase in capital expenditure during 2006 and this will continue but only at an affordable rate. Net Debt As noted in the 2005 Annual Report, the Group's net debt reduced significantly following the successful Share Placing and Open Offer in April 2006. This raised Â£14.6m net of expenses, to which was added a net Â£4.6m from the sale of the former operations in Europe. Through good management of working capital, especially debtors and payment terms, we kept a close focus on cash. We also moved banking facilities, with more advantageous terms, to RBS during July. Restructuring Apart from costs incurred or provided for as part of the disposal of non-UK operations, we needed to make one exceptional restructuring charge of Â£600,000 in H1 2006. This was for onerous rent on the Fleet facility where it became apparent that the market rate for this type of property in that location was lower than we had been advised at the end of 2005. Focus Each Parity business unit focuses on the areas of project, programme and service management. This is a market area where demand is good, and consequently there are shortages of experienced people. Our reputation for quality delivery in all that we do, together with a favourable market, is helping us to execute the transformation of our Group. Parity's near-term strategy is to continue the improvement in business performance, to achieve our mid-term goal of upper quartile financial performance. We are concentrating on the UK and Ireland market, keeping to our core strengths and leveraging our strong reputation for high quality delivery. We see a number of opportunities to aid that improvement, and whilst we do not intend to stray from our core business, we will react quickly and decisively to changes and opportunities in the market. Within the business, we are creating a high performance culture, where we set stretching goals and expect a high level of achievement. We also expect to operate a predictable and controlled business, allowing entrepreneurial management to flourish whilst being close to the operations and clients. People During 2006 we started the process of revitalising the way we manage our people. For example, as part of our internal communication processes, I now have regular face-to-face, two-way meetings with all staff; we re-launched our Performance Plus assessment system and linked the individual outcome to salary changes; and we have started to review and update our benefits scheme. Outlook The Group has made substantial progress over the last year. Overall we are delivering above market organic growth rates. This growth is evidence of our market focus and alignment, and the skills and professionalism of all those who identify, win and deliver business. We have started 2007 in far better shape than at the start of 2006 and while work remains to be done to deliver the anticipated margin improvements, particularly in Resources, we are well positioned to continue the on-going business improvement. Alwyn Welch Chief Executive Officer Financial Review The Group's recovery is now well underway and the financial performance has improved significantly with all units now generating a profit. The transformation actions have delivered substantial cost savings and we have disposed of all overseas operations to focus on three core UK businesses. Following the fund-raising Parity now has a strengthened balance sheet and new banking facilities to support further growth. Group Trading Summary -------------------------------- -------- --------- 2006 2005 Â£'000 Â£'000 -------------------------------- -------- --------- Revenues 156,845 135,073 Operating profit (loss) before exceptional items 1,377 (1,895) and impairment of goodwill Exceptional operating expense (600) (2,290) Impairment of goodwill - (2,500) Net finance expense (1,551) (1,935) Loss before tax (774) (8,620) Tax (197) 576 Loss for the year from continuing operations (971) (8,044) Profit (loss) for the year from discontinued operations 1,804 (1,178) -------------------------------- -------- --------- Profit (loss) for the year 833 (9,222) -------------------------------- -------- --------- Revenues Group revenues from continuing operations increased by Â£21.8m (16%) to Â£156.8m and are analysed by business unit below: -------------------------------- --------- --------- Business unit 2006 2005 Â£'000 Â£'000 --------- --------- Resources 114,517 92,442 Solutions 23,922 22,587 Training 18,406 20,044 -------------------------------- --------- --------- Total 156,845 135,073 --------- --------- Resources continued to see strong demand for its services with an increase in heads on billing and an increase in day rates driving 24% growth in revenues. Growth was slower in Solutions reflecting the weak order book at the start of the year, however revenues increased by 38% in H2 06 over H1 06 as the strengthened management team began to have an impact. Training refocused on profitable revenue streams and whilst revenues declined 8%, the business was profitable in the year. Operating Profit Performance by business unit is summarised below: -------------------------------- --------- --------- 2006 2005 Â£'000 Â£'000 -------------------------------- --------- --------- Resources 2,710 1,647 Solutions 778 21 Training 308 (1,161) -------------------------------- --------- --------- Operating results* 3,796 507 -------------------------------- --------- --------- * before central costs, exceptional items and goodwill impairment. Operating results from the business units increased by Â£3.3m and all units made a profit. Resources continued to deliver strong profit growth, whilst Solutions and Training saw significant turnaround with both businesses showing strong profit improvement. The Group produced an operating profit of Â£1.4m, before an exceptional item (see below), an improvement of Â£3.3m on last year. This improvement was driven primarily by savings in SG&A costs. SG&A costs are included in total operating expenses which are summarised as follows: -------------------------------- --------- --------- 2006 2005 Â£'000 Â£'000 -------------------------------- --------- --------- Cost of sales 125,764 102,814 SG&A costs (including central costs) 29,704 34,154 -------------------------------- --------- --------- Total operating expenses** 155,468 136,968 -------------------------------- --------- --------- **excludes exceptional costs and goodwill impairment. There has been a significant focus on SG&A costs which have reduced by 13% to Â£29.7m. Whilst the focus on cost-saving opportunities will continue, we are also investing in people and facilities to support new growth opportunities. The retained profit for the year was Â£0.8m (2005: loss Â£9.2m). Disposals and Discontinued Operations In January, the Group successfully completed the disposal of the major elements of its continental European business and in May disposed of the remaining Benelux business for total gross consideration (before costs incurred) of Â£5.9m. These disposals were in line with our strategy of streamlining the business to focus on the UK and Ireland. All anticipated legacy costs associated with the disposed businesses have been provided for in H1 2006. Revenue from discontinued operations was Â£3.4m (2005: Â£41.6m) and pre tax loss was Â£0.5m (2005: profit Â£0.3m). The remaining legal entities associated with these businesses are in the process of being closed and all legacy properties relating to these operations in continental Europe and the US have been assigned or sub-let. As a result of these disposals a one-off net gain on disposal of Â£2.2m (2005: Â£0.2m) (see note 4) was recognised in the year. Exceptional Item An additional exceptional charge of Â£0.6m was provided for in H1 2006 in respect of one unoccupied property in the UK where it has become clear that existing provisions would be insufficient given the current commercial property market in that locality. Finance Costs Interest charges include interest on the Group's pension liabilities of Â£0.7m (2005: Â£0.7m) in accordance with IAS19. Total finance costs fell during the year reflecting the lower level of borrowings following the successful Share Placing and Open Offer in April 2006. Taxation The tax charge was Â£0.2m (2005: credit Â£0.6m) reflecting permanent differences together with tax losses not fully recognised. Pensions The Group operates a number of defined contribution pension schemes as well as a defined benefit scheme. Assets for the defined contribution schemes are held in separate, independently administered funds. Contributions to these schemes were Â£0.8m (2005: Â£0.6m). The defined benefit scheme is closed to both future members and to future service accrual, although actuaries continue to advise the Trustees on the required funding rate. The Group has agreed a payment plan of Â£0.9m per annum over 10 years to reduce the current deficit of Â£4.7m (2005: Â£4.7m). Earnings per Share and Dividend The number of shares in issue used to calculate basic earnings per share increased to 37.8m following the share placing and open offer. The weighted average number of shares in issue used to calculate basic earnings per share was 27.9m (2005: 7.1m). The loss per share from continuing operations was 3.49p (2005: loss 113.16p). The Board is not proposing a dividend for the year (2005: nil per share). Balance Sheet and Cash Flow In April the Group completed a share placing and open offer, raising Â£14.6 million net (Â£16 million gross) with good support from our existing shareholders and a number of new institutions joining the share register. Upon completion of the fundraising the Group secured new banking facilities on better terms than previously, providing a facility appropriate in both type and scale to support the needs of the business as it recovers and grows. Net debt at 31 December 2006 was Â£5.7m a decrease of Â£13.4 million from 31 December 2005. The Group has a total credit facility based on eligible discounted debtor invoices of up to Â£20m. The net cash outflow from operating activities, before a cash outflow for exceptional costs of Â£3.5m (2005: Â£2.7m) and before pension deficit contributions of Â£0.8m (2005: Â£0.6m), was Â£0.2m (2005: outflow Â£1.2m). The net cash outflow from operating activities (after exceptional cash flows and pension contributions) was Â£4.5m (2005: outflow Â£4.5m). Joseph Kelly Group Finance Director Parity Group plc Consolidated Income Statement For the year ended 31 December 2006 ________________________________________________________________________ ------------------------- ------- ---------- --------- Notes Year ended Year ended 31.12.06 31.12.05 Â£'000 Â£'000 unaudited audited ------------------------- ------- ---------- --------- Continuing operations 2 156,845 135,073 Revenue ------------------------- ------- ---------- --------- Employee benefit costs (20,672) (23,788) Depreciation (569) (945) Impairment of goodwill - (2,500) All other operating expenses (134,827) (114,525) ------------------------- ------- ---------- --------- Total operating expenses (156,068) (141,758) ------------------------- ------- ---------- --------- Operating profit (loss) before exceptional 2 1,377 (1,895) items and impairment of goodwill 3 (600) (4,790) Exceptional items and impairment of goodwill ------------------------- ------- ---------- --------- ------------------------- ------- ---------- --------- Operating profit (loss) 777 (6,685) ------------------------- ------- ---------- --------- Finance income 7 5 Finance costs (1,558) (1,940) ------------------------- ------- ---------- --------- Loss before tax (774) (8,620) Tax (197) 576 ------------------------- ------- ---------- --------- Loss for the year from continuing (971) (8,044) operations ------------------------- ------- ---------- --------- Discontinued operations 4 1,804 (1,178) Profit (loss) for the year from discontinued operations ------------------------- ------- ---------- --------- Profit (loss) for the year attributable to equity shareholders 9 833 (9,222) ------------------------- ------- ---------- --------- Basic and diluted earnings (loss) per share on profit (loss) for the year 5 2.99p (129.73p) Basic and diluted loss per share from continuing operations 5 (3.49p) (113.16p) Parity Group plc Balance Sheet As at 31 December 2006 Consolidated ------------------------ As at As at 31.12.06 31.12.05 Â£'000 Â£'000 unaudited audited ------------------------ ---------- ---------- Non-current assets Goodwill 7,116 7,116 Property, plant and equipment 615 988 Available for sale financial assets - 30 Deferred tax assets 5,102 4,954 ------------------------ ---------- ---------- 12,833 13,088 Current assets Work in progress 998 1,323 Trade and other receivables 39,494 35,539 Current tax assets - 24 Cash and cash equivalents 736 749 ------------------------ ---------- ---------- 41,228 37,635 ------------------------ ---------- ---------- Assets classified as held for sale and included - 8,746 in disposal groups ------------------------ ---------- ---------- Total assets 54,061 59,469 ------------------------ ---------- ---------- Current liabilities Financial liabilities (6,394) (18,039) Trade and other payables (28,687) (29,550) Current tax liabilities (201) (216) Provisions (677) (1,718) ------------------------ ---------- ---------- (35,959) (49,523) Non-current liabilities Financial liabilities (1) (19) Provisions (2,369) (2,129) Retirement benefit liability (4,703) (4,657) ------------------------ ---------- ---------- (7,073) (6,805) ------------------------ ---------- ---------- Liabilities classified as held for sale and - (7,231) included in disposal groups Total liabilities (43,032) (63,559) ------------------------ ---------- ---------- Net assets (liabilities) 11,029 (4,090) ------------------------ ---------- ---------- Shareholders' equity (deficit) Called up share capital 15,075 14,434 Share premium account 20,020 6,062 Other reserves 44,160 44,160 Retained earnings (68,226) (68,746) ------------------------ ---------- ---------- Total shareholders' equity (deficit) 11,029 (4,090) ------------------------ ---------- ---------- Parity Group plc Statement of Recognised Income and Expense For the year ended 31 December 2006 Consolidated ----------------------- Year Year ended ended 31.12.06 31.12.05 Â£'000 Â£'000 unaudited audited ------------------------------ ---------- ---------- Exchange differences on translation of foreign operations 152 178 Actuarial losses on defined benefit pension schemes (762) (263) Deferred taxation on items taken directly to equity 229 79 ------------------------------ ---------- ---------- Net loss recognised directly in equity (381) (6) Profit (loss) for the year 833 (9,222) ------------------------------ ---------- ---------- Total recognised income (expense) for the year 452 (9,228) attributable to equity shareholders ------------------------------ ---------- ---------- Parity Group plc Cash Flow Statement For the year ended 31 December 2006 Consolidated ---------------------- Year Year ended ended 31.12.06 31.12.05 Â£'000 Â£'000 unaudited audited -------------------------------- ---------- ---------- Cash flows from operating activities Cash generated from operations (4,508) (4,460) Interest received 11 23 Interest paid (872) (1,417) Tax received - 585 -------------------------------- ---------- ---------- Net cash from operations (5,369) (5,269) -------------------------------- ---------- ---------- Cash flows from investing activities Purchase of property, plant and equipment (272) (327) Net proceeds from disposal of subsidiary 4,649 - undertakings Proceeds from disposal of available for sale 71 - assets Proceeds from disposal of property, plant and - 155 equipment -------------------------------- ---------- ---------- Net cash from investing activities 4,448 (172) -------------------------------- ---------- ---------- Cash flows from financing activities Issue of ordinary shares 14,599 - Repayment of loan notes - (6) Cash (outflow) in respect of repayment of bank (20,176) (913) borrowing Cash inflow from new bank loans - 5,300 Net movement on invoice discounting 4,804 560 Payment of capital element of finance leases (19) (20) -------------------------------- ---------- ---------- Net cash used in financing activities (792) 4,921 -------------------------------- ---------- ---------- Net decrease in cash and cash equivalents (1,713) (520) Cash and cash equivalents at beginning of the 1,738 2,175 year Net foreign exchange difference (285) 83 -------------------------------- ---------- ---------- Cash and cash equivalents at end of the year (260) 1,738 -------------------------------- ---------- ---------- Parity Group plc Notes to the Preliminary Results 1 Accounting Policies Basis of preparation These preliminary results do not constitute full Financial Statements within the meaning of section 240 of the Companies Act 1985. The financial information for the year ended 31 December 2006 and 2005 have been extracted from the unaudited financial statements of Parity Group plc for the year ended 31 December 2006 which will be delivered to the Registrar of Companies in due course. The auditors have issued an unqualified opinion on the Group's statutory financial statements for the year ended 31 December 2005, which have been filed with the Registrar of Companies These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (IFRSs and IFRIC interpretations) issued by the International Accounting Standards Board (IASB) and with those parts of the Companies Act 1985 applicable to companies preparing their accounts under IFRS. Where Group companies enter into financial guarantee contracts and guarantee the indebtedness of other companies within the Group, the Group considers these to be insurance arrangements, and accounts for them as such. In this respect, the Group treats the guarantee contract as a contingent liability until such time that it becomes probable that any Group company will be required to make a payment under the guarantee. 2 Segmental Analysis The Group is organised into three primary business segments: Business Solutions, Training and Resources. Consolidated ------------- 2006 2005 Â£'000 Â£'000 unaudited audited see (1) below --------- ---------- Revenue - continuing operations Business Solutions 23,922 22,587 Training 18,406 20,044 Resources 114,517 92,442 ------------------------------- --------- ---------- 156,845 135,073 --------- ---------- Geographical analysis United Kingdom and Ireland 156,845 135,073 ------------------------------- --------- ---------- 156,845 135,073 --------- ---------- Revenue - discontinued operations ------------------------------- --------- ---------- Resources - Mainland Europe 3,380 41,567 ------------------------------- --------- ---------- -------------- -------------- -------------- Operating Exceptional Operating result before items profit exceptional items -------------- -------------- -------------- -------------- 2006 2005 2006 2005 2006 2005 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 unaudited audited unaudited audited unaudited audited see see see (1) below (1) below (1) below -------------- ------- -------- ------- -------- ------- -------- Continuing operations Business Solutions 778 21 - (607) 778 (586) Training 308 (1,161) - (1,007) 308 (2,168) Resources 2,710 1,647 - 5 2,710 1,652 -------------- ------- -------- ------- -------- ------- -------- 3,796 507 - (1,609) 3,796 (1,102) Central costs (2,419) (2,402) (600) (681) (3,019) (3,083) -------------- ------- -------- ------- -------- ------- -------- Impairment of goodwill - (2,500) - - - (2,500) (Training) -------------- ------- -------- ------- -------- ------- -------- Segment results 1,377 (4,395) (600) (2,290) 777 (6,685) Interest expense (1,558) (1,940) - - (1,558) (1,940) Interest income 7 5 - - 7 5 -------------- ------- -------- ------- -------- ------- -------- Loss before tax (174) (6,330) (600) (2,290) (774) (8,620) Tax (377) (40) 180 616 (197) 576 -------------- ------- -------- ------- -------- ------- -------- Loss for the year from (551) (6,370) (420) (1,674) (971) (8,044) continuing operations -------------- ------- -------- ------- -------- ------- -------- -------------- -------------- -------------- Operating Exceptional Operating result before items profit exceptional items ------------- ------- -------- ------- -------- 2006 2005 2006 2005 2006 2005 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 unaudited audited unaudited audited unaudited audited see see see (1) below (1) below (1) below -------------- ------- -------- ------- -------- ------- -------- Discontinued operations Business - - Solutions Training - - Resources (462) 1,252 2,170 (563) 1,708 689 -------------- ------- -------- ------- -------- ------- -------- Segment results (462) 1,252 2,170 (563) 1,708 689 Interest expense - (237) - - - (237) Interest income 4 18 - - 4 18 -------------- ------- -------- ------- -------- ------- -------- Profit (loss) before tax (458) 1,033 2,170 (563) 1,712 470 Tax 92 (1,648) - - 92 (1,648) -------------- ------- -------- ------- -------- ------- -------- Profit (loss) for the year (366) (615) 2,170 (563) 1,804 (1,178) from discontinued operations -------------- ------- -------- ------- -------- ------- -------- (1) 2005 figures have been restated to reflect the discontinuation of the Holland, Belgium and Switzerland operations. 3 Exceptional Items Consolidated ------------------------- -------------- Continuing operations 2006 2005 Â£'000 Â£'000 unaudited audited see (1) in note 2 ------------------------- ------- -------- Redundancy payments - 483 Property restructuring 600 573 Network and IT Support Services exit costs - 1,234 ------------------------- ------- -------- Total exceptional items from continuing operations 600 2,290 ------------------------- ------- -------- The exceptional charge of Â£600,000 for 2006 for continuing operations relates to one unoccupied property in the UK. The tax credit relating to the exceptional item is Â£180,000 (2005: Â£616,000). The exceptional charges in 2005 related to a restructuring programme in order to execute the plans of a strategic review. Consolidated ----------------------------------- --------------- Discontinued operations 2006 2005 Â£'000 Â£'000 unaudited audited see (1) in note 2 ----------------------------------- ------- ------- Gain on disposal of subsidiaries 2,170 - Redundancy payments - 60 Property restructuring - 287 Other - 216 ----------------------------------- ------- ------- Total exceptional items from discontinued operations 2,170 563 ----------------------------------- ------- ------- The exceptional item in 2006, from discontinued operations, relates to the gain on disposal of subsidiaries in Mainland Europe (see below). Exceptional items from discontinued operations are shown gross of tax. The tax credit relating to exceptional items from discontinued operations is Â£nil (2005: Â£nil). 4 Discontinued Operations ----------------------------------- ------- -------- 2006 2005 Â£'000 Â£'000 unaudited audited see (1) in note 2 ----------------------------------- ------- -------- Pre tax (loss) profit from discontinued operations (458) 282 Gain on disposal of subsidiary net tangible assets 2,170 188 ----------------------------------- ------- -------- Profit (loss) before tax 1,712 470 Taxation 92 (1,648) ----------------------------------- ------- -------- Total 1,804 (1,178) ----------------------------------- ------- -------- In May the Group completed the disposals of the major elements of its continental European businesses. These disposals were in line with the strategy of streamlining the business to focus on the UK and Ireland. The tax credit of Â£92,000 (2005: Â£1,648,000 charge) relates to operations. Cash flows from discontinued operations ----------------------------------- ------- -------- 2006 2005 Â£'000 Â£'000 unaudited audited see (1) in note 2 ----------------------------------- ------- -------- Net cash flows (used in) from operating activities (23) 4 Net cash flows from investing activities - 60 Net cash flows used in financing activities (3,249) (352) ----------------------------------- ------- -------- Total (3,272) (288) ------- -------- Discontinued operations contributed Â£3,380,000 (2005: Â£41,567,000) to revenue, Â£3,838,000 (2005: Â£41,285,000) to expenses, a gain on disposal of Â£2,170,000 (2005: Â£188,000) and the taxation relating to discontinued operations was Â£92,000 credit (2005: Â£1,648,000 expense). 5 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, less those shares held by the ESOP Trust, which are treated as cancelled. 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. The Group has one class of potential dilutive 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 September 2006 and October 2006, the Company granted 2,023,805 options under the Executive Share Option Scheme and 2,560,000 awards under the Long-Term Incentive Plan respectively. There were no dilutive potential ordinary shares in issue as the Group incurred a loss on continuing activities (2005: nil). -------------------- --------- --------- -------- -------- 2006 2006 2005 2005 earnings pence earnings pence Â£000 per share Â£000 per share unaudited unaudited audited audited see (1) see (1) in in note 2 note 2 -------------------- --------- --------- -------- -------- Basic and diluted loss per (971) (3.49p) (8,044) (113.16p) share from continuing operations Basic and diluted earnings (loss) per share on profit 833 2.99p (9,222) (129.73p) (loss) for year -------------------- --------- --------- -------- -------- 2006 2005 no. of no. of shares shares -------------------- --------- --------- -------- -------- Weighted average ordinary shares in issue 27,454,632 5,773,833 Adjustment for issue of new shares under the exercise of rights 449,376 1,389,969 -------------------- --------- --------- -------- -------- Weighted average ordinary shares held as own shares in ESOP trust (46,950) (55,124) -------------------- --------- --------- -------- -------- Adjusted weighted average ordinary shares in issue 27,857,058 7,108,678 -------------------- --------- --------- -------- -------- 6 Reconciliation of Operating Loss to Net Cash Flow Consolidated -------------------------------- ------------- Continuing operations 2006 2005 Â£'000 Â£'000 unaudited audited see (1) in note 2 -------------------------------- ---------- --------- Loss for the year (971) (8,044) Adjustments for: Tax 197 (576) Depreciation 569 945 Equity settled share based payments 68 141 Impairment of goodwill - 2,500 Profit on disposal of available for sale (41) - assets Loss on disposal of tangible fixed assets 76 18 Interest income (7) (6) Interest expense 1,558 1,939 Changes in working capital Decrease in work in progress 325 341 Increase in trade and other receivables (3,836) (3,155) (Decrease) increase in trade and other (437) 3,088 payables Decrease in provisions (580) (751) Change in retirement benefit liability (1,402) (1,123) -------------------------------- ---------- --------- Cash used in continuing operations (4,481) (4,683) -------------------------------- ---------- --------- Discontinued operations -------------------------------- ---------- --------- Profit (loss) for the year 1,804 (1,178) Adjustments for: Tax (92) 1,648 Depreciation - 94 Loss on disposal of tangible fixed assets - 23 Interest income (4) (18) Profit on disposal of discontinued (2,170) - operations Interest expense - 237 Changes in working capital Decrease in trade and other receivables 2,111 297 Decrease in trade and other payables (1,455) (1,113) (Decrease) increase in provisions (221) 233 -------------------------------- ---------- --------- Cash (used in) from discontinued operations (27) 223 -------------------------------- ---------- --------- Total net cash flow used in operating (4,508) (4,460) activities -------------------------------- ---------- --------- Cash generated from operations includes cash outflows relating to exceptional items recorded in prior years of Â£3,535,000 (2005: outflow of Â£2,663,000). 7 Consolidated Reconciliation of Net Cash Flow to Movement in Net Borrowings -------------------------------- ---------- -------- 2006 2005 Â£'000 Â£'000 -------------------------------- ---------- -------- Decrease in cash in the year (717) (520) (Increase) in overdrafts (996) - Decrease (increase) in bank loans 17,500 (5,300) Decrease in other bank borrowings 2,676 913 Increase in invoice factoring facility (4,804) (571) Repayment of obligations under finance leases 19 20 Repayment of loan notes - 6 Exchange movements (285) 93 -------------------------------- ---------- -------- Movement in net debt in the year 13,393 (5,359) Net debt at 1 January (19,052) (13,693) -------------------------------- ---------- -------- Net debt at 31 December (5,659) (19,052) -------------------------------- ---------- -------- 8 Analysis of Net Borrowings --------------------- -------- -------- -------- -------- 01.01.06 Cash flow Exchange 31.12.06 Â£'000 Â£'000 movements Â£'000 Â£'000 --------------------- -------- -------- -------- -------- Cash and cash equivalents Cash at bank and in hand 1,738 (717) (285) 736 Overdrafts - (996) - (996) --------------------- -------- -------- -------- -------- 1,738 (1,713) (285) (260) Borrowings Bank loans (17,500) 17,500 - - Other bank borrowings (2,676) 2,676 - - Invoice factoring facility (574) (4,804) - (5,378) Obligations under finance leases (40) 19 - (21) --------------------- -------- -------- -------- -------- Net borrowings (19,052) 13,678 (285) (5,659) --------------------- -------- -------- -------- -------- 9 Statement of Changes in Shareholders' Equity (Deficit) ---------------- ------- ------- ------- ------- ------- ------ Consolidated Share Deferred Share Other Retained Total capital shares premium reserves earnings Â£'000 Â£'000 Â£'000 reserve Â£'000 Â£'000 Â£'000 ---------------- ------- ------- ------- ------- ------- ------ At 1 January 2006 14,434 - 6,062 44,160 (68,746) (4,090) Net profit for the year - - - - 833 833 Net loss recognised (381) (381) directly in equity Capital restructure (14,319) 14,319 - - - - Issue of new shares 641 - 13,958 - - 14,599 Share options - value of - - - - 68 68 employee services ---------------- ------- ------- ------- ------- ------- ------ At 31 December 2006 756 14,319 20,020 44,160 (68,226) 11,029 ---------------- ------- ------- ------- ------- ------- ------ Consolidated Share Deferred Share Other Retained Total capital shares premium reserves earnings Â£'000 Â£'000 Â£'000 reserve Â£'000 Â£'000 Â£'000 At 1 January 2005 14,434 - 6,062 44,160 (59,659) 4,997 Net loss for the year - - - - (9,222) (9,222) Net loss recognised - - - - (6) (6) directly in equity Share options - value of - - - - 141 141 employee services ---------------- ------- ------- ------- ------- ------- ------ At 31 December 2005 14,434 - 6,062 44,160 (68,746) (4,090) ---------------- ------- ------- ------- ------- ------- ------ The Board is not proposing a dividend for the year (2005: nil per share). 10 Issue of New Shares On 30 March 2006 the Company published a prospectus in respect of the fully underwritten issue of a Firm Placing of 16,000,000 New Ordinary Shares and a Placing and Open Offer of 16,038,427 New Ordinary Shares to qualifying shareholders holding ordinary shares at the close of business on 29 March 2006. A capital reorganisation was also proposed to subdivide and redesignate each ordinary share of 5p into one new ordinary share of 2p and 124 deferred shares. Shareholder approval for the issue and capital reorganisation was sought and received at an extraordinary general meeting held on 24 April 2006. In order to issue shares at below the pre-existing nominal price of 5p the Company completed a capital reorganisation on 28 April 2006 such that: â€¢ Each issued ordinary share of 5p was redesignated into one ordinary share of 2p â€¢ Every 50 shares were consolidated into one new ordinary share and 124 deferred shares â€¢ Every 2 unissued ordinary shares of 5p were redesignated into 5 new ordinary shares The deferred shares are not listed on the London Stock Exchange, having no voting rights, no rights to dividends and the right only to a very limited return on capital in the event of liquidation. Net proceeds from this firm placing and placing and open offer amounted to Â£14,599,000. This information is provided by RNS The company news service from the London Stock Exchange

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