TIDMPTY
RNS Number : 2676W
Parity Group PLC
16 April 2019
16 April 2019
PARITY GROUP PLC
FULL YEAR RESULTS FOR THE YEAR TO 31 DECEMBER 2018
Parity Group plc ("Parity" or the "Group"), the data and
technology focussed professional services business, announces its
full year results for the year ended 31 December 2018.
Financial Headlines:
-- Group revenues(1) up by 2.7% to GBP86.1m (2017: GBP83.8m)
-- Adjusted profit before tax(2) declined by 48.7% to GBP0.85m
(2017: GBP1.66m) primarily due to non-renewal of large consultancy
contract
-- Continued positive cash flow from operations of GBP0.6m (2017: GBP3.0m)
-- Further reduction in net debt to GBP1.1m (2017: GBP1.6m)
1. On a continuing basis
2. Profit before tax and non-recurring items from continuing operations
Strategic and Operational Headlines:
-- Revenue growth strongest in lower margin business
-- Strong performance with our public sector framework contracts during 2018
-- Increasing repeat business from long standing clients
-- Wins in private sector complement historic government strengths
-- Changes to consulting business begin
-- Appointment of Antonio Acuna to lead consulting division
-- New projects in data analysis and management for private and public sector clients
-- Restructuring of consulting team to optimise margin and reflect client demand
-- Cross-selling between divisions
-- Clients buying support from both sides of the business - recruitment and consultancy
-- Disposal
-- Exit from loss-making, non-core activity Inition.
John Conoley, Non-Executive Chairman of Parity Group, said:
"2018 was the year when Parity revisited its long-term strategy.
We set in place the foundations for growth in a market that has
continued to evolve. We invested in senior talent and marketing.
Reorganising and reshaping of our proposition will build on our
strengths as trusted partners with deep and lasting relationships
that empower clients to make bold data-led business decisions."
"Trading remains in line with expectations and the Board's
confidence in the refreshed strategy is reflected in its continuing
investment. Alongside a strengthening of senior talent, we have the
foundations for growth in the coming years."
Matthew Bayfield, Chief Executive, said:
"This has been a year of reflection and change for Parity."
"As client and market needs changed, we experienced real
challenges that questioned our approach. We responded with a
roadmap for a new operating model that includes new service lines,
a clearer emphasis on consistent and integrated relationship
management and a stronger brand and communication to the market.
Our strengths in financial management have enabled us to reduce
debt and continue to generate cash and, together with a positive
initial response from clients to our new offer, this gives us
confidence for the future."
For further information, contact:
Matthew Bayfield, CEO
Roger Antony, GFD Parity Group 020 8543
David Beck, PR & Communications plc 5353
Mike Coe 020 7220
Chris Savidge WH Ireland 1666
This announcement contains certain statements that are or may be
forward-looking with respect to the financial condition, results or
operations and business of Parity Group plc. By their nature
forward-looking statements involve risk and uncertainty because
they relate to events and depend on circumstances that will occur
in the future. There are a number of factors that could cause
actual results and developments to differ materially from those
expressed or implied by such forward-looking statements. These
factors include, but are not limited to (i) adverse changes to the
current outlook for the UK IT recruitment and solutions market,
(ii) adverse changes in tax laws and regulations, (iii) the risks
associated with the introduction of new products and services, (iv)
pricing and product initiatives of competitors, (v) changes in
technology or consumer demand, (vi) the termination or delay of key
contracts and (vii) volatility in financial markets.
Chairman's Report
2018 - a year of strategic realignment for Parity
This year has been very significant for Parity.
After a period of consolidation and reflection we have embarked
on a course for long term growth that will capitalise on our
strengths and develop a proposition that meets client need.
Our experience has increasingly told us that we have two
opportunities. We have a strong story to tell about how data is
used by organisations which should bring us higher margin
consulting projects. We are also seeing increasing success when
introducing clients to the breadth of our services. The board
decided that it is time for a more co-ordinated offer and
structure.
Results
Revenue grew at 2.7% across the Group increasing to GBP86.1m for
the full year (2017: GBP83.8m). The Group continues to be cash
generative and has maintained strong working capital management
with debtor days reduced to 18 days (2017: 20 days), resulting in a
further reduction of net debt to GBP1.1m (2017: GBP1.6m),
underpinning our solid platform for future investment and
development of the Group strategy.
Despite this, our strong first-half was followed by a
significant delay and subsequent non-renewal of a major project for
our Consultancy Services business. This reversed the trend of
growing contribution from this side of the business and prompted us
to accelerate a restructuring which we had planned to manage more
progressively.
Board changes and people
The existing management team had made consistent progress in
simplifying the structure of the business and aligning services
better to support our clients in the growth markets we had
identified. The recruitment of Matthew Bayfield in May 2018 was
another significant step in ensuring the development of services to
meet the demand for data driven solutions. Every company is
investing to exploit the opportunities available to make better
decisions through the mining and deciphering of information. With
his recognised industry expertise, Matthew has quickly been able to
develop services that have been well received by our clients and
are leading to further opportunities.
As announced in February 2019, Matthew Bayfield joined the Board
on 5 February as Chief Executive Officer, replacing Alan Rommel.
Subsequently, on 8 April, we announced that Alan Rommel had stepped
down from his Board role as Chief Operating Officer in order to
pursue other interests. The Board acknowledges and thanks Alan for
his significant contribution and commitment to the Group over the
last 25 years.
We are lucky in being supported by a strong team of committed
professionals at every level of the business and see investment in
skills as a key plank of our future plans.
Strategy
Having been greatly encouraged by the opportunities identified
in higher-margin data consultancy services, the Board has
restructured the Consultancy Services division to focus more
closely on this market. In addition to the promotion of Matthew, we
are investing significantly in senior talent to drive thought
leadership and engage with clients at the earliest stages of their
data policy development leading on to delivering their data
projects.
Better alignment between our consulting and recruitment
businesses offers Parity a competitive advantage as we widen the
client base to which we offer the full portfolio of our services.
Our aim is to drive further operating margin improvement and
deliver consistent growth in earnings and sustainable shareholder
value in the medium and long-term.
This will be supported by the forthcoming developments in
marketing and branding which we have initiated for roll-out in
2019. Additionally, changes to our internal operating model will
assure consistent quality in our relationship and account
management whilst maintaining our strength in financial
management.
Financing and dividend
Banking arrangements with PNC have been in place since 2010. PNC
has confirmed internal credit approval to extend the facility for a
further two years on improved terms. The renewal will result in a
GBP10m facility with interest charged at 2.00% above base
(previously 2.35%).
The Board is not proposing to declare a dividend at this time
but will keep this policy under review.
Current trading and outlook
Trading in the current financial year remains in line with
expectations. The Board remains confident in its strategy and
continues to invest to improve the operational efficiencies in the
core recruitment service offering, the alignment of the service
offerings from both a sales and delivery capability, and the
strengthening of the senior talent within the firm to deliver an
improved trajectory through 2019 and beyond.
Chief Executive's statement
Since my appointment as Chief Executive two months ago I have
spent considerable time with our clients. I have been seeking to
better understand our clients' data and technology needs and to
review our ability to fully service those needs. The explosion of
data analytic software and the value potential that is created from
a better understanding of customer behaviour is well known.
The new and ever-growing challenges facing corporates and
government organisations in data have become:
-- acquiring the human skills to interpret the vast quantity of data being generated;
-- attracting the people who can adapt operating systems in
light of learnings from that data; and
-- inspire confident decision making based upon reliable data and advice.
Parity, as a specialist in the people who know and understand
the value of data, is ideally placed to benefit from this next
stage in the data growth story.
Parity has great strengths in recruitment and resourcing and in
providing our clients with data and technology experts who are
focused on delivery. Alongside our resourcing business we have
built a smaller but higher margin consultancy business that
delivers data and technology solutions to a small number of large
clients.
However, we have not been as successful as we would like in
leveraging our strengths and skills in resourcing to help us to
grow our consultancy business. Our operating model is set up to
support a relatively low margin recruitment business which is very
focussed on delivery but is less well suited to selling higher
margin consultancy; the business has operated within silos and has
failed to transfer clients between the two service lines at
scale.
The new Parity business model
In future the Parity business model will change, we will have
three distinct propositions to take to clients; recruitment,
learning and development and consultancy, all delivered through a
single account management team working to deliver a single P&L.
They will be supported by a single and enhanced sales and marketing
function.
The three service lines will complement each other and encourage
cross referrals and integrated solutions, delivering what our
clients have asked for, being the support of a collaborative
partner, that enables confident decision making based on reliable
data.
Recruitment
Our recruitment proposition represents the heritage of our
business, it has an enviable list of blue-chip clients in both the
public and private sector. Clients like the excellent level of
service we provide and its specialism in the field of data and
technology. However, the market for these services operates on
relatively low margins, is increasingly commoditised and is highly
price sensitive. We will continue to be active in this field but
will increasingly focus on the higher value recruitment that fits
alongside our other service lines of learning and development and
consultancy.
Consultancy
We are also in the market offering data and technology
consulting and whilst we have enjoyed some successes, we have also
had challenges and they have largely been of our own making. We
have lacked sufficient account management skills and are failing to
fully capitalise on our proven knowledge of the data and IT
markets. We regard this as a significant opportunity and are
investing in senior management to lead this effort. We announced
today that Antonio Acuna MBE, formerly Head of the UK Government's
open data initiative data.gov.uk, has joined us to lead our
consultancy services. Working more closely with the established
account management teams in recruitment we will be able to offer
integrated recruitment and advisory packages to help solve clients'
need for effective data management and analysis.
Learning & Development
We will launch a new service line in learning and development.
Clients who engage with us and buy our recruitment and advice
services are also looking to develop their existing people. With
our proven knowledge of the skills required of people in data and
technology we are ideally placed to diagnose clients' learning and
development needs. We will design and deliver programs to upskill
our clients' existing people resources in data management and
analysis, whilst identifying gaps that can be filled through
recruitment as well as data and IT projects that require our
consultancy service.
One Parity business
All three service offerings will operate as one business
reported as such without divisional breakdowns. We will be
completely re-engineering our sales and marketing function and are
in the process of recruiting a new leader for this critical
function. In the past we have tended to rely on our existing
relationships and been reactive to clients' requests; in the future
we will be much more proactive in leading thinking in the area of
data management and analysis. With three integrated market
propositions that are relevant to companies across all sectors and
almost regardless of size there is a huge addressable market.
We will be relaunching the Parity brand in the very near future
with a new more modern identity and clearer messaging. We have a
large network of employees, consultants and people who we have
placed within organisations all of whom can become ambassadors and
advocates for the new Parity way of working.
Parity is a professional services business with unrivalled
skills and expertise in a hugely important and fast-growing market,
which gives us great confidence in our future prospects.
Operational and Financial Review
-- An increase in revenue but weighted towards lower margin recruitment work
-- Delay and subsequent loss of the MoD account impacted operating profit substantially
-- Continued strong working capital management resulted in a decrease in net debt
Continuing Operations 2018 2017 Incr./(Decr.)
GBP000's GBP000's %
---------------------------------- ---------- ---------- --------------
Key Financials
Revenue 86,112 83,815 2.7%
Adjusted profit before tax(1) 853 1,662 (48.7%)
Net debt (1,090) (1,632) (33.2%)
---------------------------------- ---------- ---------- --------------
Ratios
Adjusted PBT margin % 1.0% 2.0%
Net debt / Adjusted EBITDA ratio 0.8 0.7
---------------------------------- ---------- ---------- --------------
1 Adjusted profit before tax is defined as profit before tax and non-recurring items
Despite growth in its revenues, the Group experienced a
reduction in adjusted profit before tax during the year ended 31
December 2018. The decline in profit derived mainly from the mix
impact of revenue growth in the lower margin Professionals
division, and a reduction in both revenue and contribution from the
Consultancy Services division. The trading challenges in the
Consultancy Services division prompted a restructure of the
division with the associated one-off costs treated as non-recurring
items. The Group was cash generative during the year resulting in a
further reduction to net debt.
Revenue for the year ended 31 December 2018 increased by 2.7%
from GBP83.8m to GBP86.1m driven by growth in the Professionals
division. The division's contractor volumes recovered from the
impact of IR35 reforms introduced in the public sector in 2017. The
trading issues in the Consultancy Services division led to a weaker
revenue mix. Consequently, adjusted profit before tax fell by 48.7%
from GBP1.66m to GBP0.85m with the Group adjusted PBT margin
tightening from 2.0% to 1.0%. Non-recurring items incurred in the
year were predominately related to restructuring and totalled
GBP495,000. Profit before tax after deducting non-recurring items
was GBP358,000. Net cash generated from operations was GBP604,000
enabling us to reduce net debt from GBP1.6m to GBP1.1m at the end
of 2018, with the Net Debt/Adjusted EBITDA ratio at the end of year
0.8x (2017: 0.7x).
Divisional performance
2018 2017 Incr./(Decr.)
GBP000's GBP000's %
------------------------------- ---------- ---------- --------------
Revenue
Parity Professionals 84,025 80,036 5.0%
Parity Consultancy Services 8,496 9,543 (11.0%)
Less inter-segment revenue (6,409) (5,764) -
------------------------------- ---------- ---------- --------------
Group revenue 86,112 83,815 2.7%
------------------------------- ---------- ---------- --------------
Divisional contribution
Parity Professionals 2,314 2,307 0.3%
Parity Consultancy Services 320 1,148 (72.1%)
------------------------------- ---------- ---------- --------------
Total divisional contribution 2,634 3,455 (23.8%)
------------------------------- ---------- ---------- --------------
Reconciliation of divisional contribution and adjusted EBITDA to
operating profit from continuing operations
2018 2017
GBP'000 GBP'000
--------------------------------------------- --------- ---------
Divisional contribution 2,634 3,455
Group costs (1,093) (1,045)
Share-based payment charges (129) (68)
--------------------------------------------- --------- ---------
Adjusted EBITDA 1,412 2,342
Depreciation and amortisation (194) (286)
Operating profit before non-recurring
items 1,218 2,056
Non-recurring items (continuing operations) (495) -
Operating profit from continuing operations 723 2,056
--------------------------------------------- --------- ---------
Divisional contribution is reconciled to the income statement as
part of segmental information presented in note 2.
Parity Consultancy Services
During 2018 the Consultancy Services business was focused on
delivering data and technology solutions to its clients. Whilst
trading was in line with our expectations in the first half of the
year, the division was impacted by challenges in the second half
which resulted in a 72% drop in full year divisional contribution
to GBP0.3m (2017: GBP1.1m). Nevertheless, we remain convinced by
the opportunity that the data consultancy market provides to the
Group and have invested in senior management and marketing during
the year. The difficult second half prompted a restructuring of the
division, to align the cost base towards the more profitable
opportunities available to the Group.
The most significant challenge related to the long-standing
MCOCS contract with the MoD. Whilst the division maintained the
quality of its delivery to the client during the year, an expected
extension in Q3 to the contract was delayed due to a protracted
client decision-making process, and subsequently not renewed. As a
result of the delay the division incurred losses associated with
its fixed cost delivery base. To a lesser extent the division was
also impacted in H2 by a reduction in spend for our Application
Management Support services in comparison to previous years.
In Q4 the division acted to address its losses, taking the
decision to restructure its delivery function. We have excluded
further work on the MCOCS project from our financial projections,
and right-sized our delivery model for Application Management
Support. Inevitably this resulted in some redundancies. The
associated one-off costs have been treated as non-recurring
items.
Good progress has been made with other clients including the
Education and Skills Funding Agency where we are supporting our
client with its digital projects. Most pleasingly, we have seen
early signs of success from the investments made to focus efforts
on data consultancy services. These investments have been
instrumental in winning work with a leading contract catering and
facilities group.
Parity Professionals
Parity Professionals provides targeted recruitment of temporary
and permanent professionals with the staff to deliver business
change programmes. We supply a broad range of skills from project
management through to the niche skills in digital, data and
information security required to ensure our clients can deliver
their projects.
Parity Professionals generated revenue growth of 5% at GBP84.0m
(2017: GBP80.0m), building on a well-established client base in the
Public Sector with 15 framework wins and over 100 new clients in
the year. Over 50% of the new client wins were in the Private
Sector including household names such as Primark, not-for profit
organisations such as the British Standards Institute and a number
of housing associations.
Revenue growth was supported by a higher number of new interim
candidate placements in the period. Contractor volumes recovered
from the impact of the IR35 reforms which were introduced in April
2017 and applied to contractors working at our public sector
clients. At the end of 2018 the number of contractors on billing
was 995 (end 2017: 940). The total margin value on new sales in the
period grew by 8% compared to 2017, and this momentum has improved
through the year, resulting in a forward order book at year end of
GBP32.7m (2017: GBP27.5m). Revenue from permanent recruitment was
broadly flat at GBP638,000 (2017: GBP657,000) partly due to supply
side shortages, though average fee rates per placement increased
significantly as we targeted more senior roles and niche skills in
the digital and cyber security markets.
One challenge created by the IR35 reforms and affecting the
divisions contribution is a higher contractor churn rate, partly
due to the lure of roles in the Private Sector, where the reforms
will not apply until 2020. The divisional contribution margin was
also affected by the managed service win at Primark, with lower
than average contractor gross margins initially, but with the
opportunity to improve profitability in the future, by placing
contractors that we have sourced.
We continue to deliver the service-wrap for the Public Sector
FastStream Graduate intake and this contract has been extended
through to September 2019, though it is expected that the client
will in-house the service provision, TUPEing Parity staff from this
point with no stranded costs to the business. Parity Professionals
successfully retendered for G-Cloud 10 framework with the Crown
Commercial Service and has been awarded a managed service for the
provision of project and programme management services for the
Scottish Government Digital Superfast Broadband programme
underwriting our dominant position for trusted delivery on key
Public Sector contracts.
After the year end we were informed that a significant framework
contract for the placement of staff with the Scottish Government
would not be renewed. Our incumbent contractors placed through the
framework will continue their contracts until their assignments end
but we will not be able to make any new placements. This will
result in revenues from the framework contract gradually winding
down over the next two financial years. While this legacy type of
contract has been significant in revenue terms it has provided
relatively low levels of margin, the loss of which will be largely
offset by costs savings mainly related to serving this specific
contract during the period of contract run off.
In the longer term the end of this contract will improve the
Group's net margin performance albeit from a lower level of
revenue, consistent with the longer term direction of travel for
Parity.
Non-recurring items
Non-recurring items of GBP0.50m (2017: GBPnil) were incurred
during the year, primarily as a result of restructuring the
Consultancy Services division.
Taxation
The tax credit on continuing profit before tax was GBP63,000
(2017: tax credit of GBP534,000), mainly representing a deferred
tax adjustment in respect of prior periods. Whilst the Consultancy
Services division generated a lower contribution than the previous
year, its outlook remains positive. Therefore, we continue to take
a prudent view on the division's carried forward tax losses which
remain unrecognised but will keep this under review.
The Group did not provide for corporation tax payable in 2018
due to the utilisation of Group relief and the availability of
carried forward deductible timing differences and tax losses.
Discontinued operations
We disposed of the non-core Inition subsidiary in April 2018 for
consideration of GBP0.2m and recorded a loss on disposal of
GBP0.3m. Inition was held for sale at the start of the year and
accordingly its results to the point of disposal are presented as
discontinued. During the portion of 2018 that Inition was owned by
the Group, it incurred an operating loss before tax of GBP0.3m
(2017: GBP1.1m).
Earnings per share and dividend
The basic earnings per share from continuing operations were
0.41 pence (2017: 2.15 pence). The decrease stems from lower
profitability and the deferred tax credit recognised in 2017.
The Board does not propose a dividend for 2018 (2017: nil).
During the year the Board sought external advice in respect of the
steps needed to restore a dividend. The Board suspended the
exercise when it became clear that profits before tax would be
lower than in 2017 but will keep the position under review.
Statement of Financial Position
Trade and other receivables
Trade and other receivables remained at a consistent level in
comparison to the previous year at GBP12.0m (2017: GBP12.0m).
Ordinarily we would expect the increased contractor volumes in the
Professionals division to carry a higher working capital
requirement. However, the working capital requirement has been
offset by a further improvement in debtor collections in the
Professionals division. Group debtor days, calculated on billings
on a countback basis, decreased to a record low of 18 days (2017:
20 days).
Trade and other payables
Trade and other payables also remained at similar levels to the
previous year at GBP8.3m (2017: GBP8.3m). At the year end, creditor
days were 28 days (2017: 28 days).
Loans and borrowings
Loans and borrowings represent the Group's debt under the
asset-based lending facility. This is a working capital facility
and is consequently linked to the same cycle as the trade
receivables. The asset-based lending facility with PNC Business
Credit ("PNC"), a leading secured finance lender, allows for
borrowing of up to GBP15m depending on the availability of
appropriate assets as security. The current facility which has been
in place since 2010 is in the final stages of being renewed on
improved terms including a reduction in the interest rate to 2.00%
above base rate from 2.35% previously. The terms of the agreement
have been sanctioned by PNC's credit committee with just the legal
paperwork to tie up to complete the renewal.
Cash flow and net debt
The Group generated positive net cash flows from operating
activities of GBP0.6m (2017: GBP3.0m), driven by EBITDA and a
positive working capital swing with a reduction in debtor days to
18 (2017: 20 days). The GBP0.6m cash generated was after cash flows
of GBP0.4m outflow and GBP0.1m inflow in respect of non-recurring
items and discontinued operations respectively.
As a result of the positive cash flow, net debt reduced to
GBP1.1m (2017: GBP1.6m).
Defined benefit pension deficit
During the year the pension scheme was subject to a triennial
actuarial review, the outcome of which is in the process of being
agreed between the Trustees and the Group.
At the year end the deficit had increased to GBP1.9m (2017:
GBP1.1m), primarily due to a fall in the value of the scheme's
investments, reflecting weaker global equity markets.
Assets and liabilities held for sale
The assets and liabilities held for sale on the 2017 balance
sheet related entirely to the Inition subsidiary which was disposed
of in April 2018.
Consolidated Income Statement for the year ended 31 December
2018
Before non-
recurring Non-recurring
items (note
5)
items 2018 Total Total
2018 GBP'000 2018 2017
Notes GBP'000 GBP'000 GBP'000
------------------------------- ------- ------------- --------------- ----------- --------------
Continuing operations
Revenue 2,3 86,112 - 86,112 83,815
Employee benefit costs 4 (5,976) (299) (6,275) (5,939)
Depreciation and amortisation 4 (194) - (194) (286)
All other operating expenses 4 (78,724) (196) (78,920) (75,534)
------------------------------- ------- ------------- --------------- ----------- --------------
Total operating expenses (84,894) (495) (85,389) (81,759)
------------------------------- ------- ------------- --------------- ----------- --------------
Operating profit/(loss) 1,218 (495) 723 2,056
Finance costs 7 (365) - (365) (394)
------------------------------- ------- ------------- --------------- ----------- --------------
Profit/(loss) before
tax 853 (495) 358 1,662
Tax (charge)/credit 9 (16) 79 63 534
------------------------------- ------- ------------- --------------- ----------- --------------
Profit/(loss) for the
year from continuing
operations 837 (416) 421 2,196
------------------------------- ------- ------------- --------------- ----------- --------------
Discontinued operations
Loss from discontinued
operations after tax 8 (381) - (381) (2,182)
------------------------------- ------- ------------- --------------- ----------- --------------
Profit/(loss) for the
year attributable to
owners of the parent 456 (416) 40 14
------------------------------- ------- ------------- --------------- ----------- --------------
Earnings per share - Continuing operations
Basic earnings per share 10 0.41p 2.15p
Diluted earnings per
share 10 0.41p 2.12p
Earnings per share - Continuing and discontinued operations
Basic earnings per share 10 0.04p 0.01p
Diluted earnings per
share 10 0.04p 0.01p
------------------------------- ------- ------------- --------------- ----------- --------------
Consolidated Statement of Comprehensive Income for the year
ended 31 December 2018
2018 2017
Notes GBP'000 GBP'000
------------------------------------------------- -------- --------- ---------
Profit for the year 40 14
Other comprehensive income
Items that may be reclassified to profit or
loss
Exchange differences on translation of foreign
operations (3) (39)
Items that will never be reclassified to profit
or loss
Remeasurement of defined benefit pension scheme (1,005) 800
Deferred taxation on remeasurement of defined
pension scheme 12 171 (136)
Other comprehensive (expense)/income for the
year after tax (837) 625
------------------------------------------------- -------- --------- ---------
Total comprehensive (expense)/income for the
year attributable to owners of the parent (797) 639
------------------------------------------------- -------- --------- ---------
Consolidated Statement of Changes in Equity for the year ended
31 December 2018
Share Capital
Share Deferred premium redemption Other Retained
capital shares reserve reserve reserves earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ --------- --------- ---------- ------------ ---------- ---------- ---------
At 1 January 2018 2,043 - 33,211 14,319 44,160 (86,544) 7,189
------------------------ --------- --------- ---------- ------------ ---------- ---------- ---------
Issue of new ordinary
shares 10 - 33 - - - 43
Share options -
value of employee
services - - - - - 129 129
------------------------ --------- --------- ---------- ------------ ---------- ---------- ---------
Transactions with
owners 10 - 33 - - 129 172
------------------------ --------- --------- ---------- ------------ ---------- ---------- ---------
Profit for the year - - - - - 40 40
Exchange differences
on translation of
foreign operations - - - - - (3) (3)
Remeasurement of
defined benefit
pension scheme - - - - - (1,005) (1,005)
Deferred taxation
on remeasurement
of defined pension
scheme taken directly
to equity - - - - - 171 171
Reallocation of
impairment charge - - - - (9,600) 9,600 -
------------------------ --------- --------- ---------- ------------ ---------- ---------- ---------
At 31 December 2018 2,053 - 33,244 14,319 34,560 (77,612) 6,564
------------------------ --------- --------- ---------- ------------ ---------- ---------- ---------
Share Capital
Share Deferred premium redemption Other Retained
capital shares reserve reserve reserves earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ --------- --------- ---------- ------------ ---------- ---------- ---------
At 1 January 2017 2,037 14,319 33,195 - 44,160 (87,251) 6,460
------------------------ --------- --------- ---------- ------------ ---------- ---------- ---------
Issue of new ordinary
shares 6 - 16 - - - 22
Share options -
value of employee
services - - - - - 68 68
Cancellation of
deferred shares - (14,319) - 14,319 - - -
------------------------ --------- --------- ---------- ------------ ---------- ---------- ---------
Transactions with
owners 6 (14,319) - 14,319 - 68 90
------------------------ --------- --------- ---------- ------------ ---------- ---------- ---------
Profit for the year - - - - - 14 14
Exchange differences
on translation of
foreign operations - - - - - (39) (39)
Remeasurement of
defined benefit
pension scheme - - - - - 800 800
Deferred taxation
on remeasurement
of defined pension
scheme taken directly
to equity - - - - - (136) (136)
At 31 December 2017 2,043 - 33,211 14,319 44,160 (86,544) 7,189
------------------------ --------- --------- ---------- ------------ ---------- ---------- ---------
Consolidated Statement of Financial Position as at 31 December
2018
2018 2017
Notes GBP'000 GBP'000
----------------------------------------- -------- --------- ---------
Assets
Non-current assets
Goodwill 11 4,594 4,594
Other intangible assets 86 227
Property, plant and equipment 69 78
Deferred tax assets 12 1,153 919
Total non-current assets 5,902 5,818
----------------------------------------- -------- --------- ---------
Current assets
Trade and other receivables 12,018 12,033
Cash and cash equivalents 5,829 4,968
Assets classified as held for sale - 791
Total current assets 17,847 17,792
----------------------------------------- -------- --------- ---------
Total assets 23,749 23,610
----------------------------------------- -------- --------- ---------
Liabilities
Current liabilities
Loans and borrowings (6,919) (6,592)
Trade and other payables (8,261) (8,349)
Provisions (43) -
Liabilities classified as held for sale - (395)
Total current liabilities (15,223) (15,336)
----------------------------------------- -------- --------- ---------
Non-current liabilities
Loans and borrowings - (8)
Provisions (20) (18)
Retirement benefit liability (1,942) (1,059)
Total non-current liabilities (1,962) (1,085)
----------------------------------------- -------- ---------
Total liabilities (17,185) (16,421)
----------------------------------------- -------- --------- ---------
Net assets 6,564 7,189
----------------------------------------- -------- --------- ---------
Shareholders' equity
Called up share capital 2,053 2,043
Share premium reserve 33,244 33,211
Capital redemption reserve 14,319 14,319
Other reserves 34,560 44,160
Retained earnings (77,612) (86,544)
----------------------------------------- -------- ---------
Total shareholders' equity 6,564 7,189
----------------------------------------- -------- --------- ---------
Consolidated Statement of Cash Flows for the year ended 31
December 2018
2018 2017
Notes GBP'000 GBP'000
---------------------------------------------------- ------ --------- ---------
Cash flows from operating activities
Profit for the year 40 14
Adjustments for:
Net finance expense 7 365 394
Share-based payment expense 129 68
Income tax credit 8,9 (236) (619)
Amortisation of intangible assets 165 341
Depreciation of property, plant and equipment 53 106
Impairment of goodwill 8 - 1,165
Loss on write down of intangible assets 8 - 3
Loss on disposal of subsidiary 8 306 -
822 1,472
Working capital movements
Decrease in work in progress - 3
Decrease in trade and other receivables 204 2,619
Decrease in trade and other payables (141) (910)
Increase in provisions 45 1
Payments to retirement benefit plan (326) (184)
---------------------------------------------------- ------ --------- ---------
Net cash flows from operating activities 604 3,001
---------------------------------------------------- ------ --------- ---------
Investing activities
Purchase of intangible assets (14) (5)
Purchase of property, plant and equipment (35) (91)
Net proceeds from disposal of subsidiary 8 114 -
---------------------------------------------------- ------ --------- ---------
Net cash flows from/(used in) investing activities 65 (96)
---------------------------------------------------- ------ --------- ---------
Financing activities
Issue of ordinary shares 43 22
Drawdown/(repayment) of finance facility 330 (2,032)
Interest paid 7 (181) (199)
---------------------------------------------------- ------ --------- ---------
Net cash flows from/(used in) financing activities 192 (2,209)
---------------------------------------------------- ------ --------- ---------
Net increase in cash and cash equivalents 861 696
---------------------------------------------------- ------ --------- ---------
Cash and cash equivalents at the beginning
of the year 4,968 4,272
---------------------------------------------------- ------ --------- ---------
Cash and cash equivalents at the end of the
year 5,829 4,968
---------------------------------------------------- ------ --------- ---------
Notes to the audited preliminary results
1 Accounting policies
Basis of preparation
Parity Group plc (the "Company") is a company incorporated and
domiciled in the UK.
The financial information set out in these audited preliminary
results constitutes the Group's audited consolidated accounts for
2018 and 2017. The notes in these audited preliminary results have
been extracted from the Group's audited consolidated accounts for
the year ended 31 December 2018.
The financial information set out in these audited preliminary
results has been prepared in accordance with International
Financial Reporting Standards as adopted by the EU ("Adopted
IFRSs"). The policies have been consistently applied to all the
years presented unless otherwise stated.
The Group has adopted IFRS 15 'Revenue from Contracts with
Customers' effective 1 January 2018 and applied it retrospectively.
The Group has assessed its contracts against principal vs agent
considerations and determines that revenue of GBP2,049,000 (2017:
GBPnil), relating to contracts where the Group acts as a managed
service provider, falls under recognition as agent under IFRS 15
that would have fallen under recognition as principal under IAS 18.
Accordingly, if IAS 18 still applied, revenue and operating
expenses would both be higher by GBP2,049,000 (2017: GBPnil)
compared to IFRS 15. These affected contracts however were not in
place prior to 2018 therefore there is no impact to periods prior
to 2018. The implementation of IFRS 15 did not have an impact on
the timing or amount of revenue recognised by the Group on its
other contracts.
The Group has adopted IFRS 9 'Financial Instruments' effective 1
January 2018 and applied transitional relief and opted not to
restate prior periods. The implementation of IFRS 9 did not have a
significant impact on the value or classification of the Group's
financial assets and liabilities.
2 Segmental information
In accordance with IFRS 8 'Operating Segments' the Group's
management structure, and the reporting of financial information to
the Chief Operating Decision Maker (the Group Board), have been
used as the basis to define reporting segments. The Group has two
continuing defined cash generating units (see note 11) which form
the basis of each operating segment. The components of each segment
are described below.
The internal financial information prepared for the Group Board
includes contribution at a segmental level, and the Group Board
allocates resources on the basis of this information.
Segment contribution, defined as divisional revenue less
attributable costs, profit before tax, and assets and liabilities
are internally reported at a Group level.
The Group has two segments:
-- Parity Professionals - provides targeted recruitment of
temporary and permanent professionals to support IT and business
change programmes. Parity Professionals provides 90% (2017: 89%) of
the continuing Group's revenues.
-- Parity Consultancy Services - provides business and IT
consultancy services focusing on the provision of data solutions
and delivery of IT projects. Parity Consultancy Services provides
10% (2017: 11%) of the continuing Group's revenues.
Group costs include Directors' salaries and costs relating to
Group activities and are not allocated to reporting segments for
internal reporting purposes.
The Group evaluates performance on the basis of contribution
from operations before tax not including non-recurring items, such
as restructuring costs.
Inter-segment sales are priced on the same basis as sales to
external customers, with a discount applied to encourage the use of
Group resources at a rate acceptable to the tax authorities.
Inter-segment revenue in the year is a result of Parity
Professionals selling IT recruitment services to Parity Consultancy
Services.
Parity Consultancy Before
Parity Services non-recurring Non-recurring
Professionals 2018 Items Items Total
2018 GBP'000 2018 2018 2018
Continuing operations GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- --------------- ------------------- --------------- -------------- ---------
Revenue from external
customers 77,616 8,496 86,112 - 86,112
Inter-segment revenue 6,409 - 6,409 - 6,409
------------------------------- --------------- ------------------- --------------- -------------- ---------
Segment revenue 84,025 8,496 92,521 - 92,521
Attributable costs (81,711) (8,176) (89,887) - (89,887)
------------------------------- --------------- ------------------- --------------- -------------- ---------
Segment contribution 2,314 320 2,634 - 2,634
Group costs (1,093) - (1,093)
Depreciation and amortisation (194) - (194)
Share-based payment (129) - (129)
Non-recurring items - (495) (495)
Operating profit/(loss) 1,218 (495) 723
Finance costs (365) - (365)
------------------------------- --------------- ------------------- --------------- -------------- ---------
Profit/(loss) before
tax 853 (495) 358
------------------------------- --------------- ------------------- --------------- -------------- ---------
Parity Consultancy Before
Parity Services non-recurring Non-recurring
Professionals 2017 Items Items Total
2017 GBP'000 2017 2017 2017
Continuing operations GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- --------------- ------------------- --------------- -------------- ---------
Revenue from external
customers 74,272 9,543 83,815 - 83,815
Inter-segment revenue 5,764 - 5,764 - 5,764
------------------------------- --------------- ------------------- --------------- -------------- ---------
Segment revenue 80,036 9,543 89,579 - 89,579
Attributable costs (77,729) (8,395) (86,124) - (86,124)
------------------------------- --------------- ------------------- --------------- -------------- ---------
Segment contribution 2,307 1,148 3,455 - 3,455
Group costs (1,045) - (1,045)
Depreciation and amortisation (286) - (286)
Share-based payment (68) - (68)
Non-recurring items - - -
Operating profit 2,056 - 2,056
Finance costs (394) - (394)
------------------------------- --------------- ------------------- --------------- -------------- ---------
Profit before tax 1,662 - 1,662
------------------------------- --------------- ------------------- --------------- -------------- ---------
All segment assets and liabilities are based
in the UK.
3 Revenue
All of the Group's revenue derives from contracts with
customers. Trade receivables, amounts recoverable on contracts and
accrued income arise from contracts with customers. Changes to the
Group's contract assets are attributable solely to the satisfaction
of performance obligations.
The Group's revenue from external customers disaggregated by
pattern of revenue recognition is as follows:
Parity Parity
Parity Consultancy Parity Consultancy
Professionals Services Professionals Services
2018 2018 2017 2017
Continuing operations GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ---------------- ------------- ---------------- -------------
Services transferred over
time 76,978 8,496 73,615 9,543
Services transferred at a
point in time 638 - 657 -
--------------------------------- ---------------- ------------- ---------------- -------------
Revenue from external customers 77,616 8,496 74,272 9,543
--------------------------------- ---------------- ------------- ---------------- -------------
The Group's revenue from external customers disaggregated by
primary geographical market is as follows:
Parity Parity
Parity Consultancy Parity Consultancy
Professionals Services Professionals Services
2018 2018 2017 2017
Continuing operations GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ---------------- ------------- ---------------- -------------
UK 76,033 8,496 74,272 9,543
Rest of EU 1,583 - - -
--------------------------------- ---------------- ------------- ---------------- -------------
Revenue from external customers 77,616 8,496 74,272 9,543
--------------------------------- ---------------- ------------- ---------------- -------------
72% (2017: 68%) or GBP56.0m (2017: GBP50.4m) of the Parity
Professionals revenue from external customers was generated in the
public sector. 83% (2017: 82%) or GBP7.0m (2017: GBP7.8m) of the
Parity Consultancy Services revenue was generated in the public
sector.
The largest single customer in Parity Professionals contributed
revenue of 14% or GBP11.7m and was in the public sector (2017: 11%
or GBP8.8m and in the public sector). The largest single customer
in Parity Consultancy Services contributed revenue of 64% or
GBP5.4m and was in the public sector (2017: 46% or GBP4.4m and in
the public sector).
4 Operating expenses
2018 2017
Continuing operations GBP'000 GBP'000
------------------------------------------------------------------------- ---- ---- --------- ---------
Employee benefit costs
- wages and salaries 5,478 5,138
- social security costs 623 609
- other pension costs 174 192
------------------------------------------------------------------------------------- --------- ---------
6,275 5,939
----------------------------------------------------------------------------------- --------- ---------
Depreciation and amortisation
Amortisation of intangible assets -
software 155 239
Depreciation of leased property, plant
and equipment 11 9
Depreciation of owned property, plant
and equipment 28 38
------------------------------------------------------------------------------------- --------- ---------
194 286
----------------------------------------------------------------------------------- --------- ---------
All other operating expenses
Contractor costs 76,067 73,088
Sub-contracted direct costs 363 228
Operating lease rentals - plant and
machinery 8 17
- land and buildings 661 659
Other occupancy costs 156 98
IT costs 326 278
Net exchange gain (6) -
Equity settled share-based payment
charge 129 68
Other operating costs 1,216 1,098
------------------------------------------------------------------------------------- --------- ---------
78,920 75,534
----------------------------------------------------------------------------------- --------- ---------
Total operating expenses 85,389 81,759
------------------------------------------------------------------------------------- --------- ---------
During the year the Group obtained the following services from
the Group's auditors:
Grant Thornton KPMG LLP
UK LLP
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ----------------- --------- --------- ---------
Audit of the Group, Company
and subsidiary financial statements 65 - - 77
Interim review - - - 6
Tax compliance 14 - - 27
Other - - 20 26
-------------------------------------- ----------------- --------- --------- ---------
Other services 14 - 20 59
-------------------------------------- ----------------- --------- --------- ---------
Total fees 79 - 20 136
-------------------------------------- ----------------- --------- --------- ---------
All other services have been performed in the UK. 'Other' refers
to services provided in relation to advice relating to the
Retirement Benefit Plan, transaction costs and assistance provided
with research and development tax credit applications.
5 Non-recurring items
2018 2017
Continuing operations GBP'000 GBP'000
-------------------------------------- --------- ---------
Restructuring
279 -
* Employee benefit costs
122 -
* Other operating costs
Legal costs 74 -
Past service cost for defined benefit 20 -
pension scheme
495 -
-------------------------------------- --------- ---------
Non-recurring items during 2018 in respect of continuing
operations included:
-- Costs related to restructuring of Parity Consultancy Services
to align to the Group's strategy of focusing on the data
consultancy market. Costs include employee termination payments,
fees for professional services and costs of changes in management
structure
-- Legal costs for professional services fees in respect of
one-off cases with no significant further related costs
anticipated
-- Past service cost for the Group's defined benefit pension
scheme in respect of GMP equalisation
There were no non-recurring items during 2017.
6 Average staff numbers
2018 2017
Number Number
---------------------------------------- -------- --------
Continuing operations
Professionals - United Kingdom(1) 86 85
Consultancy Services - United Kingdom,
including corporate office 23 25
109 110
---------------------------------------- -------- --------
Discontinued operations
Consultancy Services(2) 15 22
----------------------------------------- -------- --------
(1) Includes 20 (2017: 22) employees providing shared services
across the Group
(2) Average for 4 months (2017: 12 months)
At 31 December 2018, the Group had 101 continuing employees
(2017: 105).
7 Finance costs
2018 2017
GBP'000 GBP'000
--------------------------------- --------- ---------
Finance costs
Interest expense on financial
liabilities 181 199
Net finance costs in respect of
post-retirement benefits 184 195
----------------------------------- --------- ---------
365 394
--------------------------------- --------- ---------
The interest expense on financial liabilities represents
interest paid on the Group's asset-based financing facilities. A 1%
increase in the base rate would have increased annual borrowing
costs by approximately GBP37,000 (2017: GBP53,000).
8 Discontinued operations
In April 2018 the Group sold Inition Limited following the
strategic decision made to place greater focus on the Group's core
business. As such, Inition Limited's operating result for the
current and comparative year, the loss on disposal and the
impairment of goodwill associated with the Inition cash generating
unit is presented as discontinued.
The loss on disposal of Inition Limited was determined as
follows:
2018 2017
GBP'000 GBP'000
--------------------------------- --------- ---------
Consideration 200 -
Net assets disposed of
Intangible assets 33 -
Property, plant and equipment 62 -
Cash and cash equivalents 86 -
Trade and other receivables 695 -
Trade and other payables (485) -
--------------------------------- --------- ---------
Total net assets disposed of 391 -
Loss on disposal before disposal (191) -
expenses
Disposal expenses (115) -
--------------------------------- --------- ---------
Loss on disposal of Inition (306) -
Limited
--------------------------------- --------- ---------
Net proceeds received on disposal of Inition Limited were as
follows:
2018 2017
GBP'000 GBP'000
------------------------------ --------- ---------
Cash consideration received 200 -
Cash disposed of (86) -
------------------------------ --------- ---------
Net proceeds from disposal of 114 -
Inition Limited
------------------------------ --------- ---------
The post-tax result of discontinued operations was determined as
follows:
Note 2018 2017
GBP'000 GBP'000
----------------------------------- ----- --------- ---------
Revenue 523 2,324
Depreciation and amortisation (24) (161)
Loss on write down of intangible
assets - (3)
All other operating expenses (787) (3,262)
----------------------------------- ----- --------- ---------
Operating loss (288) (1,102)
Impairment of goodwill - (1,165)
Loss on disposal of Inition (306) -
Limited
Debtor insolvency dividend 40 -
----------------------------------- ----- --------- ---------
Loss from discontinued operations
before tax (554) (2,267)
Tax credit 173 85
----------------------------------- ----- --------- ---------
Loss from discontinued operations
after tax (381) (2,182)
----------------------------------- ----- --------- ---------
Basic loss per share 10 (0.37p) (2.14p)
Diluted loss per share 10 (0.37p) (2.14p)
----------------------------------- ----- --------- ---------
The discontinued operations operating loss relates entirely to
Inition Limited. The debtor insolvency dividend of GBP40,000 (2017:
GBPnil) represents a one-off payment received from the
administrators of Atraxis AG and relates to a bad debt previously
written off by a former Group subsidiary registered in Switzerland.
The discontinued operations tax credit of GBP173,000 in 2018
relates to a research and development tax credit claimed by Inition
Limited.
Cash flows from/(used in) discontinued operations are as
follows:
2018 2017
GBP'000 GBP'000
---------------------------------------------- --------- ---------
Net cash from/(used in) operating activities 105 (674)
Net cash used in investing activities (5) (38)
---------------------------------------------- --------- ---------
Net cash flows for the year from/(used
in) discontinued operations 100 (712)
---------------------------------------------- --------- ---------
9 Taxation
2018 2017
GBP'000 GBP'000
------------------------------------------ ---- ---- --------- ---------
Current tax expense
Current tax on profit for the year - 112
Total current tax expense - 112
------------------------------------------------------ --------- ---------
Deferred tax credit
Accelerated capital allowances 15 68
Origination and reversal of other
temporary differences 72 -
Recognition of deferred tax previously
unprovided - (675)
Adjustments in respect of prior periods (150) (39)
------------------------------------------------------ --------- ---------
Total deferred tax credit (63) (646)
------------------------------------------------------ --------- ---------
Tax credit on continuing operations (63) (534)
------------------------------------------------------ --------- ---------
The tax credit on continuing operations excludes the tax credit
from discontinued operations of GBP173,000 (2016: GBP85,000). This
comprises a current tax credit of GBP173,000 (2017: GBP112,000) and
a deferred tax expense of GBPnil (2017: GBP27,000). This has been
included in loss from discontinued operations after tax (see note
8). The adjustment in respect of prior periods of GBP150,000 (2017:
GBP39,000) largely relates to capital allowances that had been
expected to be claimed that were subsequently not claimed.
There is no current tax payable by the Group for 2018 (2017:
GBPnil).
The standard rate of corporation tax in the United Kingdom
changed from 20% to 19% with effect from 1 April 2017 and remained
at 19% during 2018. Accordingly, the Group's profits for this
accounting period are subject to tax at a rate of 19% (2017:
19.25%). A reduction to 17% effective 1 April 2020 was
substantively enacted on 15 September 2016. As such, the tax rate
of 17% (2017: 17%) has been applied in calculating the UK deferred
tax position of the Group.
The reasons for the difference between the actual tax credit for
the year and the standard rate of corporation tax in the UK applied
to profit for the year are as follows:
2018 2017
GBP'000 GBP'000
Profit before tax from continuing operations 358 1,662
----------------------------------------------------------- ------- -------
Expected tax charge based on the standard
rate of UK
corporation tax of 19% (2017: 19.25%) 68 320
Expenses not allowable for tax purposes 29 10
Adjustments in respect of prior periods (150) (39)
Utilisation of unprovided tax losses carried
forward - (141)
Recognition of deferred tax asset previously
unprovided - (675)
Other (10) (9)
----------------------------------------------------------- ------- -------
Tax credit on continuing operations (63) (534)
----------------------------------------------------------- ------- -------
Tax on each component of other comprehensive income is as
follows:
2018 2017
Before After Before After
tax Tax tax tax Tax tax
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- --------- ---------- --------- --------- ---------- ---------
Exchange differences on translation
of foreign operations (3) - (3) (39) - (39)
Remeasurement of defined benefit
pension scheme (1,005) 171 (834) 800 (136) 664
------------------------------------- --------- ---------- --------- --------- ---------- ---------
(1,008) 171 (837) 761 (136) 625
------------------------------------- --------- ---------- --------- --------- ---------- ---------
10 Earnings per ordinary share
Basic earnings per share is calculated by dividing the basic
earnings for the year by the weighted average number of fully paid
ordinary shares in issue during the year.
Diluted earnings per share is calculated on the same basis as
the basic earnings per share with a further adjustment to the
weighted average number of fully paid ordinary shares to reflect
the effect of all dilutive potential ordinary shares.
Weighted Weighted
average average
number Earnings/ number Earnings/
of (loss) of (loss)
Earnings/ Earnings/
(loss) shares per share (loss) shares per share
2018 2018 2018 2017 2017 2017
GBP'000 '000 Pence GBP'000 '000 Pence
-------------------------- ----------- --------- ------------ ----------- --------- ------------
Continuing operations
Basic earnings per share 421 102,464 0.41 2,196 102,087 2.15
Effect of dilutive
options - 1,126 - - 1,292 -
Diluted earnings per
share 421 103,590 0.41 2,196 103,379 2.12
Discontinued operations
Basic loss per share (381) 102,464 (0.37) (2,182) 102,087 (2.14)
Effect of dilutive - - - - - -
options
Diluted loss per share (381) 102,464 (0.37) (2,182) 102,087 (2.14)
Continuing and discontinued
operations
Basic earnings per share 40 102,464 0.04 14 102,087 0.01
Effect of dilutive
options - 1,126 - - 1,292 -
Diluted earnings per
share 40 103,590 0.04 14 103,379 0.01
-------------------------- ----------- --------- ------------ ----------- --------- ------------
As at 31 December 2018 the number of ordinary shares in issue
was 102,624,020 (2017: 102,124,020).
11 Goodwill
The carrying amount of goodwill is allocated to the Group's two
separate continuing cash generating units (CGUs), being Parity
Professionals and Parity Consultancy Services.
Carrying amounts are as follows:
Parity
Parity Consultancy
Professionals Services Total
GBP'000 GBP'000 GBP'000
------------------------------- ---------------- ------------- ----------
Carrying value
Balance at 1 January 2017 and
31 December 2017 2,642 1,952 4,594
------------------------------- ---------------- ------------- ----------
Balance at 1 January 2018 and
31 December 2018 2,642 1,952 4,594
------------------------------- ---------------- ------------- ----------
Goodwill was tested for impairment in accordance with IAS 36 at
the year end and no impairment charge was recognised.
The recoverable amounts of the CGUs are based on value in use
calculations using the pre-tax cash flows based on budgets approved
by management for 2019. Years from 2020 to 2022 are based on the
budget for 2019 projected forward at expected growth rates. Years
from 2023 onward assume no further growth. This approach is
considered prudent based on current expectations of the 2019
long-term growth rate.
Major assumptions are as follows:
Parity Professionals Parity Consultancy
% Services
%
2018
Discount rate 13.0 11.5
Forecast revenue growth
(years 1 to 4) 2.0 10.0
Operating margin 2019 1.9 6.1
Operating margin 2020 2.0-2.3 7.8-10.5
onward
2017
Discount rate 13.0 11.5
Forecast revenue growth
(years 1 to 4) 5.0 10.0
Operating margin 2018 2.6 10.0
Operating margin 2019 3.0-3.6 10.7-12.9
onward
Discount rates are based on the Group's weighted average cost of
capital adjusted for the specific risks of each cash generating
unit.
Forecast revenue growth is expressed as the compound growth rate
over the next 4 years from 2019 to 2022. Growth for the Parity
Professionals CGU is based upon the long-term growth rate for the
UK economy. Growth for the Parity Consultancy Services is assumed
to be higher than the long-term growth rate due to the following
factors:
-- The CGU is the focal point of the Group's strategy and growth plans;
-- The CGU is relatively small so higher rates of growth are
achievable from a small base. For instance, the CGU achieved an
average growth of 47% in the financial years 2016 and 2017;
-- In 2018 the CGU was hit by issue on a significant contract
resulting in reduced year on year revenue for the CGU. The
Directors expect this to be a one-off rather than a trend; and
-- New client wins in 2018 and an extension to the ESFA contract
in 2019 help to underwrite the growth forecasts.
For all CGUs the rates are based on past experience of growth in
revenues and future expectations of economic conditions. Operating
margins are based on past experience.
A 10% change in any of the underlying assumptions used in the
discounted cash flow forecasts would not lead to the carrying value
of goodwill being in excess of their recoverable amount.
12 Deferred tax
2018 2017
GBP'000 GBP'000
--------------------------------------------------- -------- --------
At 1 January 919 409
Recognised in other comprehensive income
Remeasurement of defined benefit pension scheme 171 (136)
Recognised in the income statement
Adjustments in relation to prior periods 150 39
Capital allowances in excess of depreciation (15) (68)
Other short-term timing differences (72) -
Recognition of deferred tax previously unprovided - 675
At 31 December 1,153 919
--------------------------------------------------- -------- --------
The deferred tax asset of GBP1,153,000 (2017: GBP919,000)
comprises:
2018 2017
GBP'000 GBP'000
---------------------------------------------- --------- ---------
Depreciation in excess of capital allowances 820 685
Short term and other timing differences 3 54
Retirement benefit liability 330 180
---------------------------------------------- --------- ---------
1,153 919
---------------------------------------------- --------- ---------
A deferred tax asset for deductible temporary differences is not
recognised unless it is more likely than not that there will be
taxable profits in the foreseeable future against which the
deferred tax asset can be utilised. At the balance sheet date, the
Directors assessed the probability of future taxable profits being
available against which Parity Consultancy Services could recognise
a deferred tax asset for previously unrecognised deductible
temporary differences. The review concluded that it is probable
that future taxable profits will be available. As such, the
Directors have recognised a deferred tax asset for all deductible
temporary differences available to Parity Consultancy Services.
A deferred tax asset for unused tax losses carried forward is
normally recognised on the same basis as for deductible temporary
differences. However, the existence of the unused tax losses is
itself strong evidence that future taxable profit may not be
available. Therefore, when an entity has a history of recent
losses, the entity recognises a deferred tax asset arising from
unused tax losses only to the extent that there is convincing
evidence that sufficient taxable profit will be available against
which the unused tax losses can be utilised. At the balance sheet
date, the Directors considered recognising a deferred tax asset for
previously unrecognised unused tax losses carried forward by Parity
Consultancy Services. The review concluded that given the
division's history of relatively recent tax losses and the
additional requirement of providing convincing evidence that
sufficient taxable profit will be available, a prudent approach
would be taken and deferred tax would remain unrecognised for tax
losses carried forward by the division.
The Directors believe that the deferred tax asset recognised is
recoverable based on the future earning potential of the Group and
the individual cash generating divisions. The forecasts for Parity
Professionals comfortably support the unwinding of the deferred tax
asset held by this division of GBP404,000 (2017: GBP380,000) and
the forecasts for Parity Consultancy Services comfortably support
the unwinding of the deferred tax asset held by this division of
GBP749,000 (2017: GBP539,000).
The deferred tax asset at 31 December 2018 has been calculated
on the rate of 17% substantively enacted at the balance sheet
date.
The movements in deferred tax assets during the period are shown
below:
(Charge)/credit Credit to
to other comprehensive
Asset income income
2018 statement 2018
GBP'000 2018 GBP'000
GBP'000
------------------------------ ---------- ------------------- ----------------------
Depreciation in excess of
capital allowances 820 135 -
Other short-term timing
differences 3 (51) -
Retirement benefit liability 330 (21) 171
------------------------------ ---------- ------------------- ----------------------
At 31 December 2018 1,153 63 171
------------------------------ ---------- ------------------- ----------------------
Charge to
Credit to other comprehensive
Asset income statement income
2017 2017 2017
GBP'000 GBP'000 GBP'000
------------------------------ ---------- ------------------- ----------------------
Depreciation in excess of
capital allowances 685 330 -
Other short-term timing 54 - -
differences
Retirement benefit liability 180 316 (136)
At 31 December 2017 919 646 (136)
------------------------------ ---------- ------------------- ----------------------
The Group has unrecognised carried forward tax losses of
GBP30,187,000 (2017: GBP29,485,000). The Group has unrecognised
capital losses carried forward of GBP282,068,000 (2017:
GBP281,937,000). These losses may be carried forward
indefinitely.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EAPLSFFANEFF
(END) Dow Jones Newswires
April 16, 2019 02:00 ET (06:00 GMT)
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