Interim Results

PARITY GROUP PLC 6 September 1999 PARITY GROUP PLC : INTERIM RESULTS GOOD GROWTH IN TURNOVER AND PROFIT STRONG PERFORMANCE FROM SOLUTIONS BUSINESSES Parity Group plc, the international IT consultancy group, announces its results for the six months to 30 June 1999. Highlights - Group turnover up 14 per cent to £153.6 million - Group pre-tax profit up 18 per cent to £10.3 million* - Earnings per share up 18 per cent to 4.71 pence* - Interim dividend increased by 16 per cent to 0.93 pence - Solutions businesses operating profits up 36 per cent - UK IT Staff Agency maintains profit - Management changes ready for next growth phase * excluding goodwill amortisation Commenting on the results Chairman, Philip Swinstead, said:- 'This is a year of change for Parity as we prepare for the exciting challenges of our new strategic mission. We intend to be a global leader in the e- solutions arena and are making good progress led by Parity Solutions in the UK. All our divisions performed well in the first half, with the international Solutions businesses producing an excellent profit performance and the Resources business demonstrating its stability in a challenging market. 'The second half has started well and, with a new management team in place, we look forward to another reliable performance for shareholders at the full year.' Further information: Parity Group plc Brunswick Group Philip Swinstead, Executive Chairman Andrew Fenwick Ray King, Group Finance Director Philippa Power Michael Harrington, Group Communications Tel: 0171-404 5959 until 3pm Tel: 0171-404 5959 Tel: 0171-824 8008 after 3pm email: cosec@parity.co.uk Interim Statement Parity Group plc, the information technology (IT) consultancy, recorded another good performance in the first six months of 1999. Group profit before tax and goodwill amortisation increased by 18 per cent to £10.31 million (1998: £8.75 million) whilst turnover rose 14 per cent to £153.6 million (1998: £135.0 million). Orders received in the period were over £169 million, well ahead of revenues. At 30 June 1999, Parity had net cash balances of £2.8 million (1998: £4.1 million) after paying £6.2 million for the acquisition of TMS Information Systems in April 1999. 1999 1998 Growth Turnover £153.6m £135.0m 14 per cent EBITDA £11.46m £9.56m 20 per cent Pre-tax profit* £10.31m £8.75m 18 per cent Earnings per share* 4.71p 4.00p 18 per cent Interim dividend 0.93p 0.80p 16 per cent * excluding goodwill amortisation The Board has declared an increased interim dividend of 0.93 pence per new share in Parity Group plc (equivalent 1998 interim: 0.80 pence). The dividend will be paid on 10 November 1999 to shareholders on the register at the close of business on 8 October 1999. Restructuring On 7 May 1999, proposals were circulated to shareholders for a restructuring of the Group to better reflect its future strategy. This was approved by shareholders at an Extraordinary Meeting on 2 June 1999. The restructuring was completed on 5 July 1999 and Parity Group plc became the quoted parent company. Following the completion of the process, shareholders now hold three times as many shares in Parity Group as they held in Parity plc, representing an unchanged percentage of the issued share capital. The new corporate structure is aligned with the Group's primary strategic intent to be a leading international IT solutions business. Acquisitions On 7 April 1999 Parity announced that it had acquired TMS Information Systems Limited, a specialist developer of intranets and knowledge management systems. TMS is now a UK division of Parity Solutions and has been integrated into the company's management structure. The contribution to the Group's results in the period from acquisition to 30 June 1999 was turnover of £2.6 million and operating profit of £0.2 million. Divisional Results Turnover Growth Profit* Growth RoS £m £m Solutions UK (including TMS) 27.1 15 per cent 3.37 43 per cent 12.4 per cent Mainland Europe 36.1 26 per cent 2.32 34 per cent 6.4 per cent USA 21.1 12 per cent 1.94 29 per cent 9.2 per cent -------- ----------- ------- ----------- ------------- Total Solutions 84.3 19 per cent 7.63 36 per cent 9.1 per cent Resources 69.3 8 per cent 3.94 9 per cent 5.7 per cent Central costs (1.12) Interest (0.14) -------- ----------- ------- ----------- ------------- Total 153.6 14 per cent 10.31 18 per cent 6.7 per cent Goodwill amortisation (0.07) -------- ----------- ------- ----------- ------------- Parity Group plc 153.6 10.24 -------- ----------- ------- ----------- ------------- *Operating profit for divisions; pre-tax profit for Parity Group plc. The Solutions businesses, which represented some 55 per cent of Group turnover and 66 per cent of business profit, produced an excellent performance with the international spread of business across Europe and the USA providing an important economic balance. Steady sustainable growth continued to be the focus, combined with strong financial management which allowed further margin improvement in the UK and USA. In the UK, Parity Solutions continued to perform very well across its consultancy, training and systems development divisions with considerable improvement in both profits and margins. Demand for its consultancy services was strong, with a sharp increase in demand for e-business skills including expertise in Customer Relationship Management and Supply Chain Management. Operating profits were up 43 per cent and turnover up 15 per cent on the comparative period last year. Fast growth in Continental Europe reflected both satisfactory market conditions and the investment in new offices across Europe over the last few years. Our main European business, Parity EuroSoft, experienced particularly strong turnover growth in Germany and Switzerland, reflecting both an increased level of demand from the Finance sector as well as an improved sales performance across the board. The Group will now focus on expanding the range of high-value services offered through its European offices, which will provide the opportunity for higher margins. In the USA, Teltech's customer base of major corporations, which is spread across many market sectors, allowed it to continue to grow and increase its margins despite the effect of the slowdown in IT procurement in the New York financial sector at the end of last year. Within Parity Resources, the concentration on forming long-term relationships with clients has been a key factor in the first six months of 1999. The mainstream UK-based IT staff agency experienced flat market conditions yet managed creditable sales growth and maintained its level of operating profit, with the northern division doing particularly well. However, the permanent recruitment business recorded a loss of £0.3 million, reflecting both a market move away from traditional advertising and investment in new facilities and management. Main Board This is a year of change for the Parity Group with an evolving strategic mission and the building of a new management team to realise the objectives being set for the business. Earlier this year the Chairman, Philip Swinstead, moved back into an executive role to lead the development of the new management structure and corporate plan. It was announced on 7 July 1999 that David Firth, Group Finance Director, had tendered his resignation with effect from these Interims to take up another post. The Board was delighted to be able to announce that he was to be replaced by Ray King who joins the Group from Diageo, where he was Director of Group Finance and Control. Ray's experience at senior levels in much larger public companies will be of great value in the next phase of Parity's ambitious growth plan. Today the Board announces that Paul Davies, the Chief Executive Officer, has decided to leave us and pursue alternative career opportunities. Paul has made an exceptional contribution since he joined Parity Group in the early days and all his colleagues wish him every success. Rick Bacon has joined the Board as Corporate Development Director to help implement the new strategic mission for Parity Group. Rick has particular experience of acquisitions and strategic planning, and has immediately taken responsibility for our evolving Continental European business. The Board is also pleased to announce that Keith Jennings, Managing Director of Parity Solutions, has been appointed to the Board. Keith, who joined Parity Group in 1994, has overseen the turnround of our 1994 acquisition, ACT Business Systems, and its evolution into the successful business that is Parity Solutions today. The Board also announces today the appointments of Alison Leyshon as Company Secretary and Group Financial Controller, and Steve Sanderson as Managing Director of Parity Resources. Steve previously ran the northern division of Parity Resources. The Future The Group's international Solutions business is well placed to adapt rapidly to market trends and to gain competitive edge through innovation and focused marketing strategies. Parity Solutions in the UK is leading the Group's important move into e-solutions, winning significant contracts and forming the necessary partnerships with global product suppliers. Further niche acquisitions are envisaged to ensure that Parity can offer the complete range of skills needed to advise major corporations on all aspects of the impact of the internet on their business. Parity Resources is a quality IT staff agency business which will continue to benefit from the long-term trend towards self-employment in the IT sector. Its strong account management systems and excellent long-term client relationships will remain an important strength over the remainder of the year. We will continue to manage the business actively to further its position as a market leader, whilst considering a range of options to ensure that the strength and value of the business is properly realised. Parity Group is continuing to trade well in the second half. The Solutions business has had a good two months and, whilst conditions in the Agency market remain challenging, Parity Resources continues to deliver steady profits. Parity intends to produce another reliable performance for shareholders at the full year. Group Profit and Loss Account for the six months ended 30 June 1999 Six months Six months ended ended Year ended 30 June 30 June 31 December 1999 1998 1998 Notes £'000 £'000 £'000 (unaudited) (unaudited) (audited) TURNOVER 153,556 134,987 290,200 Operating costs excluding goodwill amortisation (143,106) (126,242) (270,073) Goodwill amortisation (73) - - ----------- ----------- ----------- OPERATING PROFIT 10,377 8,745 20,127 Net interest (payable)/receivable (137) 9 (95) ----------- ----------- ----------- PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 10,240 8,754 20,032 Taxation on Ordinary Activities (3,379) (2,880) (6,613) ----------- ----------- ----------- PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 6,861 5,874 13,419 Dividends (1,384) (1,189) (3,335) ----------- ----------- ----------- RETAINED PROFIT FOR THE FINANCIAL PERIOD 5,477 4,685 10,084 =========== =========== =========== EARNINGS PER ORDINARY SHARE 4 - Basic 4.66p 4.00p 9.15p - Diluted 4.53p 3.86p 8.84p =========== =========== =========== EARNINGS PER SHARE EXCLUDING GOODWILL AMORTISATION 4 - Basic 4.71p 4.00p 9.15p - Diluted 4.58p 3.86p 8.84p =========== =========== =========== The difference between recognised gains and losses reported in the profit and loss account and the total recognised gains and losses amounts to £281,000 of exchange losses (1998 half year - £195,000 of exchange losses) (1998 full year - £387,000 of exchange gains) which have been taken directly to reserves. Group Balance Sheet at 30 June 1999 30 June 30 June 31 December 1999 1998 1998 £'000 £'000 £'000 (unaudited) (unaudited) (audited) FIXED ASSETS Intangible assets 5,774 - - Tangible assets 4,767 3,573 3,790 Investments 1,668 1,075 1,316 ----------- ----------- ----------- 12,209 4,648 5,106 ----------- ----------- ----------- CURRENT ASSETS Debtors 65,076 58,750 59,628 Taxation recoverable after more than one year 87 981 87 Cash at bank and in hand 6,436 4,071 12,446 ----------- ----------- ----------- 71,599 63,802 72,161 ----------- ----------- ----------- CREDITORS: amounts falling due within one year Variable rate loan notes payable (560) (91) (590) Other Creditors (52,340) (47,327) (51,023) ----------- ----------- ----------- (52,900) (47,418) (51,613) ----------- ----------- ----------- NET CURRENT ASSETS 18,699 16,384 20,548 TOTAL ASSETS LESS CURRENT LIABILITIES 30,908 21,032 25,654 CREDITORS: amounts falling due after more than one year - (1,518) - PROVISIONS FOR LIABILITIES AND CHARGES (938) (1,022) (1,310) ----------- ----------- ----------- NET ASSETS 29,970 18,492 24,344 =========== =========== =========== CAPITAL AND RESERVES Called up share capital 2,485 2,468 2,468 Share premium account 35,763 35,341 35,350 Other reserves 46 26 26 Profit and loss account (8,324) (19,343) (13,500) ----------- ----------- ----------- EQUITY SHAREHOLDERS' FUNDS 29,970 18,492 24,344 Group Cash Flow Statement for the six months ended 30 June 1999 Six Months Six Months Year Ended Ended Ended 30 June 30 June 31 December 1999 1998 1998 £'000 £'000 £'000 (unaudited) (unaudited) (audited) NET CASH FLOW FROM OPERATING ACTIVITIES 4,456 2,774 16,451 NET CASH (OUTFLOW)/INFLOW FROM RETURN ON INVESTMENTS AND SERVICING OF FINANCE (137) 9 (95) TAXATION PAID (1,765) (1,998) (5,568) NET CASH OUTFLOW FROM CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (1,763) (438) (1,788) NET CASH OUTFLOW FROM ACQUISITIONS AND DISPOSALS (6,197) - - EQUITY DIVIDENDS PAID - - (2,862) ---------------------------------------------------------------------------- NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING (5,406) 347 6,138 NET CASH OUTFLOW FROM FINANCING (1,102) (5,364) (5,830) ---------------------------------------------------------------------------- (DECREASE)/INCREASE IN CASH IN THE PERIOD (6,508) (5,017) 308 ---------------------------------------------------------------------------- Reconciliation of operating profit to net cash flow Six Six Twelve Months Months Months Ended Ended Ended 30 June 30 June 31 December 1999 1998 1998 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Operating profit 10,377 8,745 20,127 Depreciation 1,006 811 1,753 Amortisation of goodwill 73 - - Loss on disposal of tangible fixed assets 7 - (51) Increase in working capital (6,635) (6,451) (5,335) Decrease in provisions (372) (331) (43) ----------- ----------- ----------- Net cash flow from operating activities 4,456 2,774 16,451 =========== =========== =========== Geographical and Segmental Analysis Six Months Ended 30 June Profit Before Profit Before Turnover Taxation Turnover Taxation 1999 1999 1998 1998 £'000 £'000 £'000 £'000 SOLUTIONS United Kingdom 27,135 3,366 23,526 2,352 Rest of Europe 36,102 2,320 28,687 1,736 USA 21,025 1,937 18,798 1,499 -------- -------- -------- -------- 84,262 7,623 71,011 5,587 RESOURCES United Kingdom 69,294 3,935 63,976 4,312 Unallocated Central Costs - (1,108) - (1,154) Net Interest - (137) - 9 Goodwill Amortisation - (73) - - -------- -------- -------- -------- TOTAL 153,556 10,240 134,987 8,754 -------- -------- -------- -------- The turnover and operating profit figures for the Solutions business disclosed in the table above include the impact of exchange rate movements which have given rise to a net increase in turnover of £1.5 million and an increase in profit of £0.1 million. Notes to the Accounts 1. The information contained in this interim statement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. 2. The financial information, on pages 5 to 8 and the notes thereto, for the six months ended 30 June 1999 has not been audited but has been reviewed by PricewaterhouseCoopers and their report is set out on page 11. The financial information has been prepared on the basis of the accounting policies set out in the Group's statutory accounts for the year ended 31 December 1998 which have been delivered to the Registrar of Companies; in particular, the goodwill arising on the acquisition made during the period has been capitalised and is being amortised over its useful economic life. The auditors' report on these accounts was unqualified and did not contain a statement under section 237 of the Companies Act 1985. 3. The interim dividend will be paid on 10 November 1999 to all Shareholders on the register at the close of business on 8 October 1999. 4. On 5 July 1999 Parity Group plc became the holding company of Parity plc and its subsidiaries under a Scheme of Arrangement whereby shareholders received three new Parity Group plc shares for each Parity plc share held. The earnings per share and dividends per share figures, including prior period comparatives, disclosed in this report have been restated to reflect the effect of the Scheme of Arrangement on the number of shares. The calculation of earnings per Ordinary share is based on a profit after taxation and amortisation of £6,861,000 (30 June 1998 - £5,874,000, 31 December 1998 - £13,419,000). The calculation of earnings per share excluding goodwill amortisation is based on a profit after taxation of £6,934,000 (30 June 1998 - £5,874,000, 31 December 1998 - £13,419,000). The weighted average number of Ordinary shares used in the calculation of the basic and diluted earnings per share after adjusting for the impact of the Scheme of Arrangement are as follows: Twelve Six Months Months 1999 1998 1998 Average Average Average Number Number Number i) Basic weighted average number of shares Shares in issue 148,459,884 148,060,200 148,060,290 Adustment for shares held by ESOP (1,130,124) (1,070,436) (1,313,010) ------------ ------------ ------------ 147,329,760 146,989,764 146,747,280 ============ ============ ============ ii) Dilutive weighted average number of shares Shares in issue 148,459,884 148,060,200 148,060,290 Adjustment for options 2,893,044 4,173,108 3,781,827 ------------ ------------ ------------ 151,352,928 152,233,308 151,842,117 ============ ============ ============ The number of Ordinary shares in issue at 30 June 1999 after adjusting for the impact of the Scheme of Arrangement was 149,118,993 (30 June 1998 was 148,060,899, 31 December 1998 was 148,090,662). 5. The costs relating to the Scheme of Arrangement which became effective on 5 July 1999 will be expensed in the second half of the year. 6. TMS Information Solutions Limited was acquired on 6 April 1999 for consideration of £6,759,000, (including fees and other costs of £202,000), giving rise to goodwill of £5,847,000 which is being amortised over 20 years, being the period over which the directors estimate that the value of the underlying business is expected to exceed the value of the underlying tangible assets. The cash outflow from acquisitions disclosed in the cash flow statement is stated net of cash acquired of £562,000. In the three months since its acquisition TMS has contributed turnover of £2,600,000 and profit before taxation of £168,000. YEAR 2000 The Group has carried out a Year 2000 Assurance Review of its internal systems and business operations. Programmes to identify and mitigate the risks associated with the potential Year 2000 problems which might arise at or before the turn of the century are well advanced and at this stage it is not anticipated that any material separately identifiable costs relating to Year 2000 issues will be incurred. INTERIM REPORT Copies of the Interim Report have been sent to shareholders and are available from the Company Secretary at the registered office: 16 St Martins Le Grand London EC1A 4NA Tel: 0207 824 8008 Fax: 0207 259 0021 email: cosec@parity.co.uk Auditors' independent review report to Parity Group plc Introduction We have been instructed by the Company to review the financial information set out on pages 5 to 8 and we have read the other information contained in the interim report for any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The Listing Rules of the London Stock Exchange require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data, and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 1999. PricewaterhouseCoopers Chartered Accountants 6 September 1999

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