Trading Statement

Parity Group PLC 25 May 2001 25 May 2001 - Embargoed until 07.01am Parity Group plc: Strategic Review and Trading Update Summary Following the appointment in March of Ian Miller as Group CEO, the Board is delighted to announce today, in a separate release, the appointment of Bill Cockburn as Non-executive Chairman of the Group. The Board of Parity Group plc also announces the result of a strategic review initiated by the CEO. The review indicates that the rapid evolution of the IT services market requires changes in the service offerings of the Group and a more focussed marketing and sales approach. This requirement is reflected in an unsatisfactory trading performance in the first four months of this year which has also been aggravated by the current economic slowdown. In order to position the Group for growth, a restructuring programme has been implemented as outlined below. The Group results before goodwill amortisation are expected to show a small loss for the first six months of the year after allowing for restructuring costs. However, the Board is optimistic of a much better second half performance as the benefits from accelerating the implementation of the strategy and restructuring come through. Strategy Parity intends to become one of a new breed of IT service companies that concentrate on providing a clearly defined range of value creating service offerings to its international blue chip client base. These service offerings are designed to be responsive to clients' demands for comprehensive solutions to their system development and IT resource needs and will be provided through Parity's business streams - Parity Solutions, which includes Training, and Parity Software Services. Each of Parity's business streams will retain its own management structure and market focus while also exploiting the cross-business synergies which exist principally between geographic areas and in key accounts. Thus the divisions will play to the strengths of the Group while retaining their identity and autonomy. Key benefits of the new Group strategy will include: * Growth at or above market rates through solutions-oriented service offerings * Improved visibility from longer-term contracts for services such as applications and content management and human capital management. * Higher levels of repeat business from key accounts, using strengthened client relationship management techniques to leverage the excellent reputation of Parity in its blue-chip client base Further details of the revised service offerings within each of the Group's businesses are given in the appendix. Restructuring As a consequence of the strategic review and the need to improve an unsatisfactory trading performance during this period of change and economic slowdown, the Board is implementing a restructuring programme involving one- off costs of £3m. This is aimed at eliminating unnecessary activities, increasing utilisation, implementing new IT systems and reducing overheads. It also includes the costs of Board restructuring (£0.9m) and bad debt write-offs in Europe (£0.5m), where credit controls have been strengthened. The majority of the cost is expected to be charged against profits in the first half of 2001. As a result of the programme, the ongoing cost base of the Group will reduce by over £1m in the second half of 2001 and over £2m in a full year. Trading Update The Board stated in Parity's preliminary results for the year ended 31 December 2000 on 6 March 2001 that market conditions in the UK and Europe had been stable to improving, but that the US market had softened due to short term economic uncertainty. The Board has continued to see the impact of the US situation on the Group's activities. Parity's US business was expected to start slowly and then improve as confidence in the economy returned. That improvement has not yet been seen, and costs are being managed down to minimise the impact of lower revenue. The businesses in Continental Europe have also been affected, with major US multinationals cutting or freezing headcount. Revenues have been stable since the beginning of the year, notwithstanding increased competition due to software houses selling out their staff into the contractor market in order to maintain utilisation rates. This will continue to limit growth prospects in the short term. Management is responding to this by focusing on major accounts that require a broader range of IT staffing solutions and where the Group's international relationships can be leveraged. Steps are also being taken to reduce significantly the overhead base of the business by scaling it to current revenue levels. In the UK, Parity Solutions has seen demand for its skills-based business deteriorate significantly over the last few months as the UK market has moved towards buying value-added business propositions rather than IT capability. The new strategic focus on specific service offerings and key accounts is now in place and is already paying dividends. However, trading performance in the first half of 2001 will be substantially lower than last year. Parity Training has made a good start to the year with a strong level of demand. The UK IT staffing business is performing satisfactorily in challenging market conditions and has won some 15 preferred supplier agreements since the beginning of the year. Parity Selection, following its launch last year, is making strong progress in the UK and Prime Selection has been integrated and is performing fully in line with expectations. The issues identified above, including charging the full cost of restructuring are expected to result in small pre-tax loss before goodwill amortisation in the first six months of 2001. The Board expects a much-improved second half performance following the cost savings from restructuring and as the new strategic direction begins to generate growth. Ian Miller, Parity Group CEO said: 'Since taking over as Chief Executive in March, my view of Parity as a high quality IT services provider has been completely supported by what I have found. The company has excellent people with up to date skills, an impressive, blue-chip client base, and a reputation for quality of delivery that is rare in this industry. That said, much needs to be done to better address the clear opportunities offered by the market, even in today's conditions. 'The strategic review that we have recently completed is resulting in a far clearer focus on value propositions that relate to the business issues and opportunities for Parity's clients. These play to Parity's undoubted business and technical strengths, and are already having an impact on sales as clients respond favourably to the new approach. I see no reason why we should not get Parity back to growth at or above market rates in all three lines of business.' For further information, please contact: Ian Miller, Chief Executive, Parity Group plc Tel: 020-7776-0800 Ray King, Finance Director, Parity Group plc Tel: 020-7776-0800 Giles Sanderson/Harriet Keen, Financial Dynamics Tel: 020-7831-3113 Appendix Parity's Businesses and Services Parity's businesses are organised into two divisions - Parity Solutions, which includes Training, and Parity Software Services. Together these make up three related business streams with key strengths in their respective markets: Parity Solutions provides end-to-end IT solutions for business and government, including web architecture, IT systems design and integration and applications management. Its strengths include its excellent balance of traditional and e-business skills, its true 'end to end' capabilities and its first class business control systems. Its large blue chip client base includes the Post Office, BT, BAT and the MoD. In future Parity Solutions will go to market with value-added service offerings in areas where it has great depth of skills and experience, and will strengthen its sales and account management processes to support the change. Service offerings will be focused on : * Applications management * Content management * Customer relationship management * Interactive commerce * Legacy integration * Security Five key target industries have been chosen based on growth prospects and profitability. These are Financial Services, Manufacturing, Government, Energy and Communications. The Board believes that over the next two years, companies will concentrate their IT budgets on getting the most out of the considerable recent investment in IT systems. Parity Solutions will therefore provide offerings to address two key themes: * Increasing business value from past and current investment in IT * Realising the potential of linking e-business systems and legacy systems Parity Training, which provides IT and management training, is one of the country's top four training companies. Its strengths include the unrivalled quality of its courses, the breadth of its offerings and its excellent client base. Parity Training will continue to provide excellent classroom training together with new e-learning offerings in Europe and the United States. Parity Software Services provides IT staffing solutions, including strategy and planning, permanent and temporary staffing, and Human Capital Management (HCM) services. Its strengths include its international footprint, its technology for Client Relationship Management, its differentiated position as an IT resource management/solutions provider and its excellent blue chip client base in both Europe and the USA. Clients include IBM, Unilever, Reuters, JP Morgan Chase and Shell. Parity Software Services is developing value-added offerings which will put it at the centre of the huge HRM market. It will provide services which enable companies to manage more effectively their IT resources, reduce wastage and ' time to market', increase the retention and utilisation of scarce skills and reduce the total cost of IT support services. This move into HCM consultancy will reduce the cyclical nature of revenue streams associated with traditional staffing and offer excellent margins.
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