Parity Group PLC Half-year Report

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Parity Group PLC Half-year Report

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3 Meses : De Ago 2019 a Nov 2019

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RNS Number : 0245N

Parity Group PLC

20 September 2019

PARITY GROUP PLC

INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2019

20 September 2019

Parity Group plc ("Parity" or the "Group" or the "Company"), the data and technology focussed professional services business, announces its half year results for the six months ended 30 June 2019.

Headlines:

-- Phase 1 of a comprehensive transformation programme, commenced in March under new CEO, completed

-- Annualised gross operating costs reduced by GBP2.08m, a higher than anticipated gross cost saving, including a net headcount reduction of 35%

-- After GBP0.93m investment in the transformation programme, net annualised cost savings of GBP1.15m achieved

   --     Investment in the transformation program: 

o Following the appointment of the new Head of Consultancy division, Antonio Acuña MBE, a new Commercial Director, Christopher Jones, and Head of Learning and Development, Dianne Martin, have been appointed

o The new Parity brand and associated marketing campaigns have been launched since the half year end

o Commenced an evaluation of Artificial Intelligence and technological advancement opportunities in the recruitment market

   --     Board anticipates making a modest level of adjusted pre-tax profit for the full year 2019 

-- Continuing difficult market conditions in the traditional UK recruitment market including loss of major Scottish Government contract announced in March 2019 only partially offset by recent wins in Consultancy business

o New initial consultancy retainer contract just signed with Compass Group plc

o Two new contract wins with the Department of Education

o New contract with BAT

-- Continued positive cash flow from operating activities(3) of GBP0.08m despite GBP0.41m outflow in relation to restructuring costs

-- Period on period reduction in net debt(3) to GBP1.2m (30 June 2018: GBP1.9m, 31 December 2018: GBP1.1m)

-- GBP10m credit facility with current provider extended on improved terms for a further two years until May 2021.

Six months ended 30 June 2019

 
                                                 Six months     Six months 
                                                         to             to 
                                                   30.06.19       30.06.18      Incr./ 
                                                (Unaudited)    (Unaudited)     (Decr.) 
                                                    GBP'000        GBP'000           % 
--------------------------------------------  -------------  -------------  ---------- 
 Revenue                                             44,514         43,220          3% 
 Adjusted profit before tax(1)                          203            847       (76%) 
 (Loss)/profit before tax(2)                          (541)            847           - 
 Net cash flow from operating activities(3)              77          (238)           - 
 Net debt(3)                                          1,174          1,891       (38%) 
 
   1.          On a Continuing basis, before non-recurring items 
   2.          On a Continuing basis 
   3.          Pre the adoption of IFRS 16 

John Conoley, Non-Executive Chairman of Parity Group plc, said:

"The period we are reporting on includes the first four months under our new Chief Executive, Matthew Bayfield, who was appointed in February 2019. He and the senior management team have moved quickly to restructure the business, executing the plan set out earlier in the year.

"The Board is confident in reaching a modest level of adjusted profitability for the year, which will be a significant achievement by the management team given the extent of the transformation being undertaken and following the loss of the very large legacy contract with the Scottish Govt in Q1. The precise year end achievement will depend on the timing and mix of contracts closed in the remainder of the year."

Matthew Bayfield, Chief Executive, said:

"Due to changing client demand we are moving Parity's focus from a single line of business dependent upon relatively low margin recruitment revenues into a multi-line business built around consultancy, learning and development and strategic recruitment in the data world.

"The restructuring programme that we embarked upon earlier in the year has gone deeper into the organisation and has had to be more comprehensive than we originally anticipated. This more comprehensive transformation programme has had an expected impact on our short term gross revenue, however we are seeing the first signs that the plan will deliver higher margins and robust profitability in the medium term.

"A new senior team has been recruited which is focussed on higher margin opportunities and new service lines. The second phase of our transformation plan is about taking the new Parity business model to market with a renewed marketing and communications focus.

"Whilst we still have a long way to go, we have a clear vision, a good plan and the support of our clients in what we are setting out to achieve, which is helping us develop a growing pipeline of new revenue opportunities. In the last few months we have signed new contracts with, amongst others, the Department of Education, BAT and The Crown Commercial Service and are delighted to report today a new retainer consultancy relationship with Compass Group."

For further information, contact:

 
 
   Matthew Bayfield 
   CEO                                           020 8543 
   Roger Antony GFD        Parity Group plc      5353 
 David Beck              Donhead Consultants   07836 293383 
 Mike Coe 
  Chris Savidge          WH Ireland            01179 453470 
 

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.

Overview:

Due to changing client demand we are moving Parity's focus from a single line of business dependent upon relatively low margin recruitment revenues into a multi-line business built around consultancy, learning and development and strategic recruitment in the data world.

The restructuring programme that we embarked upon earlier in the year has gone deeper into the organisation and has had to be more comprehensive than we originally anticipated. This more comprehensive transformation programme has had an impact on our short term profitability however we can see the first signs that the plan will deliver in the medium term.

A new senior team has been recruited who are focussed on higher margin opportunities and new service lines. The second phase of our transformation plan is about taking the new Parity business model to market with a renewed marketing and communications focus.

Whilst we still have a long way to go, we have a clear vision, a good plan and the support of our clients in what we are setting out to achieve, which is helping us develop a growing pipeline of new revenue opportunities. In the last few months we have signed new contracts with amongst others the Department of Education, BAT and The Crown Commercial Service and are delighted to report today a new retainer consultancy relationship with Compass Group.

About us:

 
 45 years of trusted relationships with our clients 
  Parity provides expertise that delivers positive growth 
  for our clients through realising the true value of their 
  data. We are passionate about empowering business and 
  government to make better commercial decisions based 
  on reliable data. 
  Specifically, we advise on data and we provide access 
  to skills either as a managed service, through resourcing 
  in the contract and permanent market, or as part of a 
  learning and development programme. 
  Our work comes from a mix of long-term contracts with 
  public and private sector organisations as well as expanded 
  projects with existing clients as a result of strong 
  relationships and a track record of high client satisfaction. 
  Around 60 staff work in our offices in Belfast, Edinburgh, 
  London and Manchester and we had, during H1 2019, over 
  1,000 associates supporting clients around the UK and 
  Ireland. 
 
 
 OUR STRATEGIC GOAL       OUR FINANCIAL GOAL    OUR OPERATING MODEL 
  To equip clients with    To grow margin and    Applying an account 
  the talent, skills       net profitability.    management approach 
  and advice necessary                           to ensure clients can 
  to make bold data-led                          choose the right mix 
  business decisions                             of our support in consulting, 
  confidently.                                   resourcing, and learning 
                                                 and development. 
 
 
 OUR PURPOSE               OUR MISSION               OUR VISION 
  We are the trusted        We provide expertise      To build the world's 
  partner of data driven    that delivers positive    most dynamic community 
  transformation.           growth for clients        of data experts, enabling 
                            through realising the     our clients to realise 
                            true value of their       their vision. 
                            data. 
 

Transformation to deliver growth

New Operating Model

Since the appointment of Matthew Bayfield as Chief Executive in February this year the Group has adopted a new and more client focused operating model. Clients are now offered a suite of integrated services through a single account management structure. Working with our clients we identify their needs and design a solution that can encompass consultancy, learning and development or strategic recruitment, or any combination of the three. We have put this client centric account management at the heart of our business to improve the quality of our client relationships and to ensure our clients are able to access the full range of services that Parity can offer them.

The success of this new model will be judged on the depth of our client relationships and our ability to help our clients realise the value of their data and make better commercial decisions based on reliable data. When successfully in place the new model will also transform the profitability of Parity as we will have moved from low margin and increasingly commoditised recruitment into, data focused consultancy, learning and development and strategic recruitment for data people; service lines that attract significantly higher margins.

Investment in New Strategic Hires

Critical to the success of our new model is the quality of our people and especially the leaders of each of our service lines. We have invested in new team members who will work together as part of a new executive operating board to oversee the implementation of our new model and complete the transformation of the business. We have recently completed this process with the appointment of a new Head of Learning and Development and a Commercial Director.

Senior hires made in the last six months as part of the transformation programme have been as follows:

   --     Antonio Acuña MBE appointed as Head of Consulting in April 
   --     Dianne Martin appointed as Head of Learning and Development in August 
   --     Chris Jones appointed as Commercial Director in September 
   --     Shaun O'Hara engaged as People Officer, focussed on Transformation 

Investment in Branding and New Website

As we move to a new way of working and the transformation of our business it has been important to refresh and update the Parity brand which had not seen any significant investment for over ten years.

In July we launched our new identity which reflects the new integrated offering. Our new website went live at the same time with a fresh look and modern feel, we have unified Parity's web presence to reflect the integrated offering and increase both client and candidate interaction.

The new brand is central to the second phase of our transformation as we initiate a new marketing strategy to support growth and generate leads via the website.

Aligning our Cost Base

A further critical element of our transformation plan has been to align our cost base to our new operating model, both reducing overall costs and moving costs into account management and the three service lines that support the model. We have achieved a gross annualised saving of GBP2.08m (GBP1.15m net of investments) and a net reduction of 35% in our headcount.

As part of the review of our cost base we have been able to move resources away from low margin commoditised recruitment to higher margin work, and redeployed resource to improve the consistency of our client relationships. Whilst the net 35% reduction in headcount relates predominately to a reduction in recruitment sales staff, the annualised savings figure also includes reductions in general and administration, IT and property costs. There were one off costs of the restructuring of GBP0.74m in the first half.

Financial Review

Revenue

Group revenues were up by 3% or GBP1.3m year on year. Lower margin recruitment revenues were up by 7% or GBP2.8m reflecting higher contractor volumes which averaged 1,021 in H1 2019 (H1 2018: 953 contractors). Whilst there was an increase in the year on year average, we saw a downward trajectory over H1 with the number of contractors on billing decreasing from 995 to 913 over the six months. The reduction was due in part to the expected run off of contractors under the Scottish Government framework which we announced in March 2019, and also as a result of challenging trading conditions in the UK recruitment market.

Consultancy revenues were down by GBP1.55m or 30% due to the inclusion of revenues from the significant MoD contract in the comparative period. The MoD contract ran until August 2018 but was not renewed. Consultancy revenues in H1 2019 included GBP0.2m from new higher margin data consultancy work.

Selling Contribution

External contribution margin for recruitment was GBP3.9m at a margin of 9.6% (H1 2018: GBP3.8m at 10.1%) and for consultancy was GBP0.8m at a margin of 21% (H1 2018: GBP1.4m at 27%). Group selling contribution to overheads was GBP2.4m (H1 2018: GBP2.8m) down by 14% or GBP0.4m due to the sales mix between recruitment and consultancy.

Result Before Tax

The Group reported a loss before tax for the six months of GBP0.5m (H1 2018: profit of GBP0.8m) and an adjusted profit before tax (excluding non-recurring items) of GBP0.2m (H1 2018: GBP0.8m). Non-recurring items were GBP0.7m (H1 2018: GBPnil) and reflect the charge for specific restructuring costs. The restructuring costs primarily related to the headcount reduction, but also included onerous property lease costs in respect of office relocations.

Cash and Net Debt

Free cash flow from operating activities, pre the adoption of IFRS 16, was an inflow of GBP0.1m (H1 2018: outflow of GBP0.2m) and was after an outflow of GBP0.4m in respect of restructuring costs. We achieved a further improvement in debtor days to 16 days (H1 2018: 20 days).

Net debt, pre the adoption of IFRS 16, at the end of June was GBP1.2m (30 June 2018: GBP1.9m; 31 December 2018: GBP1.1m). During the period we finalised renewal of our credit facility with PNC who have acted as the Company's lenders since 2010. The GBP10m facility is subject to a minimum period of two years, expiring May 2021, with an improved discount rate of 2.00% + base (previously 2.35% + base).

Defined Benefit Pension

The final salary pension scheme deficit was GBP1.1m at 30 June 2019 (30 June 2018: GBP0.9m; 31 December 2018 GBP1.9m). The deficit has reduced by GBP0.8m since the 2018 year end despite a fall in discount rates. The improvement was partly due to an increase in the value of scheme investments and partly as a result of actions taken by the Board and the Trustees to reduce scheme risk.

The results of the triennial review as at 5 April 2018 were agreed during the period. As part of the agreement, minimum contributions to the scheme will remain at similar levels to contributions made in 2018 at GBP0.3m per year.

Outlook

Trading conditions in the UK recruitment market continue to be extremely challenging, which supports the Board's view of the need to change the Parity business model. To that end we have implemented the first phase of a transformation programme that we believe will improve the medium-term profitability of the business.

We are encouraged by the recently announced contract wins and renewals, and our growing pipeline in higher margin service lines, but recognise that it will take time for the benefits of our change programme to translate into improved financial returns. The Board anticipate making a modest level of adjusted pre-tax profit in the full year 2019. The precise year end achievement will depend on the timing and mix of contracts closed in the remainder of the year.

We remain excited by the scale of opportunity in the data market. The second half will see further progress with the transformation plan as we take the new Parity offer to our clients with enhanced marketing and client communications. We look forward with increasing confidence to 2020 now that we have the right people and the right plan in place. The next phase of the investment programme will include an evaluation of technology opportunities for competitive advantage and operational efficiency.

Consolidated condensed income statement

For the six months ended 30 June 2019

 
                                                       Six months                                                       Year 
                                                       to 30.06.19                                                   to 31.12.18 
                                                                                      Six months 
                                                                                      to 30.06.18 
                                                       (Unaudited)                    (Unaudited)                     (Audited) 
                                                      Non-recurring                                                 Non-recurring 
                                             Before           items           After                        Before           items           After 
                                      non-recurring           (note   non-recurring                 non-recurring           (note   non-recurring 
                                              items              4)           items                         items              4)           items 
                              Notes         GBP'000         GBP'000         GBP'000       GBP'000         GBP'000         GBP'000         GBP'000 
--------------------------  -------  --------------  --------------  --------------  ------------  --------------  --------------  -------------- 
 
 
 Continuing operations          2, 
  Revenue                       3            44,514               -          44,514        43,220          86,112               -          86,112 
 Employee benefit 
  costs                                     (2,906)           (500)         (3,406)       (3,098)         (5,976)           (299)         (6,275) 
 Depreciation, 
  amortisation and 
  impairment                                  (410)           (174)           (584)         (112)           (194)               -           (194) 
 All other operating 
  expenses                                 (40,784)            (70)        (40,854)      (38,984)        (78,724)           (196)        (78,920) 
--------------------------  -------  --------------  --------------  --------------  ------------  --------------  --------------  -------------- 
 Total operating 
  expenses                                 (44,100)           (744)        (44,844)      (42,194)        (84,894)           (495)        (85,389) 
--------------------------  -------  --------------  --------------  --------------  ------------  --------------  --------------  -------------- 
 Operating profit/(loss)                        414           (744)           (330)         1,026           1,218           (495)             723 
 Finance costs                 5              (211)               -           (211)         (179)           (365)               -           (365) 
--------------------------  -------  --------------  --------------  --------------  ------------  --------------  --------------  -------------- 
 Profit/(loss) 
  before tax                                    203           (744)           (541)           847             853           (495)             358 
 Tax (charge)/credit           7               (71)             135              64          (88)            (16)              79              63 
--------------------------  -------  --------------  --------------  --------------  ------------  --------------  --------------  -------------- 
 Profit/(loss) 
  for the period 
  from continuing 
  operations                                    132           (609)           (477)           759             837           (416)             421 
--------------------------  -------  --------------  --------------  --------------  ------------  --------------  --------------  -------------- 
 
   Discontinued operations 
   Loss from discontinued 
   operations after 
   tax                         6                  -               -               -         (388)           (381)               -           (381) 
--------------------------  -------  --------------  --------------  --------------  ------------  --------------  --------------  -------------- 
 Profit/(loss) 
  for the period 
  attributable to 
  owners of the 
  parent                                        132           (609)           (477)           371             456           (416)              40 
--------------------------  -------  --------------  --------------  --------------  ------------  --------------  --------------  -------------- 
 
 (Loss)/earnings per share - Continuing 
  operations 
 Basic (loss)/earnings         8                                            (0.47p)         0.74p                                           0.41p 
  per share 
  Diluted (loss)/earnings       8                                           (0.47p)         0.73p                                           0.41p 
   per share 
 (Loss)/earnings per share - Continuing 
  and discontinued operations 
 Basic (loss)/earnings         8                                            (0.47p)         0.36p                                           0.04p 
  per share 
  Diluted (loss)/earnings       8                                           (0.47p)         0.36p                                           0.04p 
   per share 
--------------------------  -------  --------------  --------------  --------------  ------------  --------------  --------------  -------------- 
 

Consolidated condensed statement of comprehensive income

For the six months ended 30 June 2019

 
                                                 Six months     Six months           Year 
                                                to 30.06.19    to 30.06.18    to 31.12.18 
                                                (Unaudited)    (Unaudited)      (Audited) 
                                                    GBP'000        GBP'000        GBP'000 
-------------------------------------------  --------------  -------------  ------------- 
 (Loss)/profit for the period                         (477)            371             40 
 
 Other comprehensive income 
 Items that may be reclassified to profit 
 or loss 
 Exchange differences on translation 
  of foreign operations                                   -              -            (3) 
 
   Items that will never be reclassified 
   to profit or loss 
 Remeasurement of defined benefit pension 
 scheme                                                 857            124        (1,005) 
 Deferred taxation on remeasurement of 
  defined benefit pension scheme                      (146)           (21)            171 
-------------------------------------------  --------------  -------------  ------------- 
 Other comprehensive income/(expense) 
  for the period after tax                              711            103          (837) 
-------------------------------------------  --------------  -------------  ------------- 
 Total comprehensive income/(expense) 
  for the period attributable to owners 
  of the parent                                         234            474          (797) 
-------------------------------------------  --------------  -------------  ------------- 
 
 
 

Consolidated condensed statement of changes in equity

For the six months ended 30 June 2019

Six months to 30 June 2019 (Unaudited)

 
                                           Share       Capital 
                                Share    premium    redemption       Other    Retained 
                              capital    reserve       reserve    reserves    earnings      Total 
                              GBP'000    GBP'000       GBP'000     GBP'000     GBP'000    GBP'000 
--------------------------  ---------  ---------  ------------  ----------  ----------  --------- 
 At 31 December 2018            2,053     33,244        14,319      34,560    (77,612)      6,564 
 Adoption of IFRS 16 
  (note 1)                          -          -             -           -           6          6 
--------------------------  ---------  ---------  ------------  ----------  ----------  --------- 
 Revised at 1 January 
  2019                          2,053     33,244        14,319      34,560    (77,606)      6,570 
 Share options - value 
  of employee services              -          -             -           -         116        116 
--------------------------  ---------  ---------  ------------  ----------  ----------  --------- 
 Transactions with owners           -          -             -           -         116        116 
--------------------------  ---------  ---------  ------------  ----------  ----------  --------- 
 Loss for the period                -          -             -           -       (477)      (477) 
 Other comprehensive 
  income for the period 
  after tax                         -          -             -           -         711        711 
 At 30 June 2019                2,053     33,244        14,319      34,560    (77,256)      6,920 
--------------------------  ---------  ---------  ------------  ----------  ----------  --------- 
 

Six months to 30 June 2018 (Unaudited)

 
                                           Share       Capital 
                                Share    premium    redemption       Other    Retained 
                              capital    reserve       reserve    reserves    earnings      Total 
                              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              -          -             -           -          27         27 
--------------------------  ---------  ---------  ------------  ----------  ----------  --------- 
 Transactions with owners          10         33             -           -          27         70 
--------------------------  ---------  ---------  ------------  ----------  ----------  --------- 
 Profit for the period              -          -             -           -         371        371 
 Other comprehensive 
  income for the period 
  after tax                         -          -             -           -         103        103 
 At 30 June 2018                2,053     33,244        14,319      44,160    (86,043)      7,733 
--------------------------  ---------  ---------  ------------  ----------  ----------  --------- 
 

Year to 31 December 2018 (Audited)

 
                                             Share       Capital 
                                  Share    premium    redemption       Other    Retained 
                                capital    reserve       reserve    reserves    earnings      Total 
                                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 
 Other comprehensive 
  expense for the year 
  after tax                           -          -             -           -       (837)      (837) 
 Reallocation of impairment 
  charge                              -          -             -     (9,600)       9,600          - 
----------------------------  ---------  ---------  ------------  ----------  ----------  --------- 
 At 31 December 2018              2,053     33,244        14,319      34,560    (77,612)      6,564 
----------------------------  ---------  ---------  ------------  ----------  ----------  --------- 
 

Consolidated condensed statement of financial position

As at 30 June 2019

 
                                                 As at          As at        As at 
                                              30.06.19       30.06.18     31.12.18 
                                           (Unaudited)    (Unaudited)    (Audited) 
                                  Notes        GBP'000        GBP'000      GBP'000 
-------------------------------  ------  -------------  -------------  ----------- 
 Assets 
  Non-current assets 
 Goodwill                                        4,594          4,594        4,594 
 Other intangible assets                            93            139           86 
 Property, plant and equipment                      92             61           69 
 Right-of-use assets                1              710              -            - 
 Deferred tax assets                             1,071            810        1,153 
-------------------------------  ------  -------------  -------------  ----------- 
 Total non-current assets                        6,560          5,604        5,902 
-------------------------------  ------  -------------  -------------  ----------- 
 Current assets 
 Trade and other receivables                    11,063         13,279       12,018 
 Cash and cash equivalents                       5,152          5,461        5,829 
 Total current assets                           16,215         18,740       17,847 
-------------------------------  ------  -------------  -------------  ----------- 
 Total assets                                   22,775         24,344       23,749 
-------------------------------  ------  -------------  -------------  ----------- 
 Liabilities 
 Current liabilities 
 Loans and borrowings                          (6,326)        (7,364)      (6,919) 
 Lease liabilities                  1            (625)              -            - 
 Trade and other payables                      (7,365)        (8,324)      (8,261) 
 Provisions                                      (168)              -         (43) 
 Total current liabilities                    (14,484)       (15,688)     (15,223) 
-------------------------------  ------  -------------  -------------  ----------- 
 Non-current liabilities 
 Loans and borrowings                                -            (2)            - 
 Lease liabilities                  1            (256)              -            - 
 Provisions                                       (20)           (19)         (20) 
 Retirement benefit liability       9          (1,095)          (902)      (1,942) 
 Total non-current liabilities                 (1,371)          (923)      (1,962) 
-------------------------------  ------  -------------  -------------  ----------- 
 Total liabilities                            (15,855)       (16,611)     (17,185) 
-------------------------------  ------  -------------  -------------  ----------- 
 Net assets                                      6,920          7,733        6,564 
-------------------------------  ------  -------------  -------------  ----------- 
 
 Shareholders' equity 
 Called up share capital                         2,053          2,053        2,053 
 Share premium account                          33,244         33,244       33,244 
 Capital redemption reserve                     14,319         14,319       14,319 
 Other reserves                                 34,560         44,160       34,560 
 Retained earnings                            (77,256)       (86,043)     (77,612) 
-------------------------------  ------  -------------  -------------  ----------- 
 Total shareholders' equity                      6,920          7,733        6,564 
-------------------------------  ------  -------------  -------------  ----------- 
 

Consolidated condensed statement of cash flows

For the six months ended 30 June 2019

 
                                                     Six months     Six months           Year 
                                                    to 30.06.19    to 30.06.18    to 31.12.18 
                                                    (Unaudited)    (Unaudited)      (Audited) 
                                          Notes         GBP'000        GBP'000        GBP'000 
--------------------------------------  -------  --------------  -------------  ------------- 
 
 Cash flows from operating activities 
 (Loss)/profit for the period                             (477)            371             40 
 Adjustments for: 
 Net finance expense                       5                211            179            365 
 Share-based payment expense                                116             27            129 
 Income tax credit                         7               (64)           (85)          (236) 
 Amortisation of intangible assets                           35             99            165 
 Depreciation of property, plant 
  and equipment                                              20             37             53 
 Depreciation and impairment                                529              -              - 
  of right-to-use assets 
 Loss on disposal of discontinued 
  operation                                6                  -            312            306 
--------------------------------------  -------  --------------  -------------  ------------- 
                                                            370            940            822 
 Working capital movements 
 Decrease/(increase) in trade 
  and other receivables                                     955          (958)            204 
 Decrease in trade and other 
  payables                                                (896)           (96)          (141) 
 Increase in provisions                                     125              1             45 
 Payments to retirement benefit 
  plan                                     9              (103)          (125)          (326) 
--------------------------------------  -------  --------------  -------------  ------------- 
 Net cash flow from/(used in) 
  operating activities                                      451          (238)            604 
--------------------------------------  -------  --------------  -------------  ------------- 
 
 Investing activities 
 Purchase of intangible assets                             (42)              -           (14) 
 Purchase of property, plant 
  and equipment                                            (43)           (11)           (35) 
 Net proceeds from disposal of 
  subsidiary                               6                  -             14            114 
--------------------------------------  -------  --------------  -------------  ------------- 
 Net cash flow (used in)/from 
  investing activities                                     (85)              3             65 
--------------------------------------  -------  --------------  -------------  ------------- 
 
 Financing activities 
 Issue of ordinary shares                                     -             43             43 
 (Repayment)/drawdown of finance 
  facility                                                (585)            771            330 
 Principal repayment of lease 
  liabilities                              1              (374)              -              - 
 Interest paid                             5               (84)           (86)          (181) 
--------------------------------------  -------  --------------  -------------  ------------- 
 Net cash (used in)/from financing 
  activities                                            (1,043)            728            192 
--------------------------------------  -------  --------------  -------------  ------------- 
 
 Net (decrease)/increase in cash 
  and cash equivalents                                    (677)            493            861 
--------------------------------------  -------  --------------  -------------  ------------- 
 Cash and cash equivalents at the beginning 
  of the period                                           5,829          4,968          4,968 
-----------------------------------------------  --------------  -------------  ------------- 
 Cash and cash equivalents at the end 
  of the period                                           5,152          5,461          5,829 
-----------------------------------------------  --------------  -------------  ------------- 
 
 

Notes to the interim results

   1              Accounting policies 

Basis of preparation

The condensed interim financial statements comprise the unaudited results for the six months to 30 June 2019 and 30 June 2018 and the audited results for the year ended 31 December 2018. The financial information for the year ended 31 December 2018 herein does not constitute the full statutory accounts for that period. The Annual Report and Financial Statements for 2018 have been filed with the Registrar of Companies. The Independent Auditor's Report on the Annual Report and Financial Statements for 2018 was unqualified and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

The condensed financial statements for the period ended 30 June 2019 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 'Interim Financial Reporting' as adopted by the European Union. The information in these condensed financial statements does not include all the information and disclosures made in the annual financial statements.

The condensed financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU in a manner consistent with the accounting policies set out in the Group financial statements for the year ended 31 December 2018, with the exception of new standards, amendments and interpretations effective as of 1 January 2019 as detailed below. IFRS are subject to amendment and interpretation by the International Accounting Standards Board (IASB) and there is an ongoing process of review and endorsement by the European Commission. Any standards, amendments or interpretations that have been issued but not yet effective have not been adopted early by the Group.

Going concern

The directors are satisfied that the Group has sufficient resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing these financial statements.

Financial instruments

Unless otherwise indicated, the carrying amounts of the Group's financial assets and liabilities are a reasonable approximation of their fair values.

Accounting policies: new standards, amendments and interpretations

IFRS 16 'Leases'

The Group adopted IFRS 16 from 1 January 2019, replacing IAS 17 'Leases' and related interpretations. This represents a change in accounting for lease arrangements in which the Group acts as lessee whereby operating leases previously treated solely through profit and loss are to be recorded in the statement of financial position in the form of a right-of-use asset and a lease liability, subject to exemptions for low value and short-term leases. The nature of the costs changes from operating expenses to predominantly depreciation with an interest expense on the lease liability. The Group has been impacted by IFRS 16 on its leases for property.

In accordance with the transition provisions of IFRS 16, comparative information has not been restated, with the cumulative effect of initially applying the standard recognised as an adjustment to retained earnings at 1 January 2019. Lease liabilities previously assessed as operating leases have been measured on 1 January 2019 at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate at that date of 3.10%. Associated right-of-use assets have been measured at amounts equal to the lease liabilities, adjusted for any prepaid or accrued lease payments.

The Group has applied practical expedients permitted by IFRS 16, including relying on previous assessments on whether leases are onerous as an alternative to performing an impairment review and excluding initial direct costs for the measurement of right-of-use assets at 1 January 2019.

   1              Accounting policies (continued) 

Application resulted in the recognition of total lease liabilities of GBP1,060,000 and right-of-use assets of GBP1,066,000, with an adjustment to retained earnings of GBP6,000. At 30 June 2019 the difference between the lease liabilities and right-of-use assets mainly relates to an impairment to the right-of-use assets. Depreciation on right-of-use assets for the six months to 30 June 2019 was GBP355,000.

The amounts recognised in relation to right-of-use assets and lease liabilities at the interim balance sheet date are as follows:

 
                                                           (Unaudited) 
                                                               GBP'000 
--------------------------------------------------------  ------------ 
 Lease liabilities 
 Operating lease commitments disclosed at 31 December 
  2018                                                           1,132 
 Not recognised within the scope of IFRS 16                       (39) 
 Effect of discounting using incremental borrowing rate           (33) 
--------------------------------------------------------  ------------ 
 Recognised on application of IFRS 16 on 1 January 2019          1,060 
 Other finance leases at 1 January 2019                              8 
 Additions                                                         173 
 Interest expense                                                   14 
 Principal repayment                                             (374) 
--------------------------------------------------------  ------------ 
 At 30 June 2019                                                   881 
--------------------------------------------------------  ------------ 
 
 Right-of-use assets 
 Recognised on application of IFRS 16 on 1 January 2019          1,066 
 Additions                                                         173 
 Depreciation                                                    (355) 
 Impairment (note 4)                                             (174) 
 At 30 June 2019                                                   710 
--------------------------------------------------------  ------------ 
 
 
   2              Segmental information 

During the period, the Group initiated a strategic reorganisation such that reporting of financial information to the Chief Operating Decision Maker (the Group Board) by operating segments changed. The Group currently has three operating segments, being Recruitment (previously Parity Professionals), Consultancy (previously Parity Consultancy Services) and, since 2019, Learning & Development. The three service lines are supported by a single sales, marketing and back office function. Accordingly, internal overheads are not allocated to service lines. In accordance with IFRS 8 'Operating Segments', segmental information from prior periods has been restated.

 
 Six months to 30 June 2019 
  (Unaudited)                                                                    Learning 
                                            Recruitment     Consultancy     & Development      Total 
 Continuing operations                          GBP'000         GBP'000           GBP'000    GBP'000 
 Gross revenue from external 
  customers                                      40,920           3,594                 -     44,514 
 Contractor costs                              (36,973)               -                 -   (36,973) 
---------------------------------------  --------------  --------------  ----------------  --------- 
 Net revenue                                      3,947           3,594                 -      7,541 
 Sub-contracted direct costs                          -         (2,843)                 -    (2,843) 
---------------------------------------  --------------  --------------  ----------------  --------- 
 External contribution                            3,947             751                 -      4,698 
 Internal sales and delivery 
  costs                                                                                      (2,266) 
---------------------------------------  --------------  --------------  ----------------  --------- 
 Contribution                                                                                  2,432 
 Group and shared service 
  costs                                                                                      (1,492) 
 Depreciation and amortisation                                                                 (410) 
 Share-based payment                                                                           (116) 
 Operating profit before non-recurring 
  items                                                                                          414 
 Finance costs                                                                                 (211) 
---------------------------------------  --------------  --------------  ----------------  --------- 
 Adjusted profit before tax                                                                      203 
 Non-recurring items                                                                           (744) 
---------------------------------------  --------------  --------------  ----------------  --------- 
 Loss before tax                                                                               (541) 
---------------------------------------  --------------  --------------  ----------------  --------- 
 
   2              Segmental information (continued) 
 
 Six months to 30 June 2018 (Unaudited, 
  Restated)                                  Recruitment     Consultancy      Total 
 Continuing operations                           GBP'000         GBP'000    GBP'000 
 Gross revenue from external customers            38,078           5,142     43,220 
 Contractor costs                               (34,230)               -   (34,230) 
----------------------------------------  --------------  --------------  --------- 
 Net revenue                                       3,848           5,142      8,990 
 Sub-contracted direct costs                           -         (3,756)    (3,756) 
----------------------------------------  --------------  --------------  --------- 
 External contribution                             3,848           1,386      5,234 
 Internal sales and delivery costs                                          (2,448) 
----------------------------------------  --------------  --------------  --------- 
 Contribution                                                                 2,786 
 Group and shared service costs                                             (1,621) 
 Depreciation and amortisation                                                (112) 
 Share-based payment                                                           (27) 
 Operating profit before non-recurring 
  items                                                                       1,026 
 Finance costs                                                                (179) 
----------------------------------------  --------------  --------------  --------- 
 Adjusted profit before tax                                                     847 
 Non-recurring items                                                              - 
----------------------------------------  --------------  --------------  --------- 
 Profit before tax                                                              847 
----------------------------------------  --------------  --------------  --------- 
 
 Year to 31 December 2018 (Audited, 
  Restated)                                  Recruitment     Consultancy      Total 
 Continuing operations                           GBP'000         GBP'000    GBP'000 
 Gross revenue from external customers            77,616           8,496     86,112 
 Contractor costs                               (69,935)               -   (69,935) 
----------------------------------------  --------------  --------------  --------- 
 Net revenue                                       7,681           8,496     16,177 
 Sub-contracted direct costs                           -         (6,500)    (6,500) 
----------------------------------------  --------------  --------------  --------- 
 External contribution                             7,681           1,996      9,677 
 Internal sales and delivery costs                                          (5,034) 
----------------------------------------  --------------  --------------  --------- 
 Contribution                                                                 4,643 
 Group and shared service costs                                             (3,102) 
 Depreciation and amortisation                                                (194) 
 Share-based payment                                                          (129) 
 Operating profit before non-recurring 
  items                                                                       1,218 
 Finance costs                                                                (365) 
----------------------------------------  --------------  --------------  --------- 
 Adjusted profit before tax                                                     853 
 Non-recurring items                                                          (495) 
----------------------------------------  --------------  --------------  --------- 
 Profit before tax                                                              358 
----------------------------------------  --------------  --------------  --------- 
 
 
 

All segment assets and liabilities are based in the UK.

   3              Revenue 

The Group's revenue from external customers disaggregated by pattern of revenue recognition is as follows:

 
                                  Six months to               Six months to             Year to 31.12.18 
                               30.06.19 (Unaudited)        30.06.18 (Unaudited)             (Audited) 
                            Recruitment   Consultancy   Recruitment   Consultancy   Recruitment   Consultancy 
   Continuing operations        GBP'000       GBP'000       GBP'000       GBP'000       GBP'000       GBP'000 
-------------------------  ------------  ------------  ------------  ------------  ------------  ------------ 
 Services transferred 
  over time                      40,602         3,594        37,712         5,142        76,978         8,496 
 Services transferred 
  at a point in time                318             -           366             -           638             - 
 Revenue from external 
  customers                      40,920         3,594        38,078         5,142        77,616         8,496 
-------------------------  ------------  ------------  ------------  ------------  ------------  ------------ 
 
   3              Revenue (continued) 

The Group's revenue from external customers disaggregated by primary geographical market is as follows:

 
                                  Six months to               Six months to             Year to 31.12.18 
                               30.06.19 (Unaudited)        30.06.18 (Unaudited)             (Audited) 
                            Recruitment   Consultancy   Recruitment   Consultancy   Recruitment   Consultancy 
   Continuing operations        GBP'000       GBP'000       GBP'000       GBP'000       GBP'000       GBP'000 
-------------------------  ------------  ------------  ------------  ------------  ------------  ------------ 
 UK                              39,590         3,594        37,889         5,142        76,033         8,496 
 Rest of EU                       1,330             -           189             -         1,583             - 
 Revenue from external 
  customers                      40,920         3,594        38,078         5,142        77,616         8,496 
-------------------------  ------------  ------------  ------------  ------------  ------------  ------------ 
 
   4              Non-recurring items 
 
                                            Six months     Six months      Year to 
                                                    to             to     31.12.18 
                                              30.06.19       30.06.18    (Audited) 
                                           (Unaudited)    (Unaudited)      GBP'000 
  Continuing operations                        GBP'000        GBP'000 
---------------------------------------  -------------  -------------  ----------- 
 Restructuring 
 - Employee benefit costs                          500              -          279 
 - Impairment of right-of-use assets               174              -            - 
 - Other operating costs                            70              -          122 
 Legal costs                                         -              -           74 
 Past service cost for defined benefit 
  pension scheme                                     -              -           20 
---------------------------------------  -------------  -------------  ----------- 
                                                   744              -          495 
---------------------------------------  -------------  -------------  ----------- 
 
 

Non-recurring items during 2019 included:

-- Costs related to the restructuring of the Group, aligning the organisation to its refocused strategy. Costs include employee termination payments, impairments to right-of-use assets and provisions for costs from vacated property, and fees for related professional services

The impairment of right-of-use assets of GBP174,000 relates to the Group's vacated office premises and is equal to the difference between the carrying value of the assets and the expected recoverable amount from subletting from the premises. Further onerous costs in respect of the premises are included within provisions.

Non-recurring items during 2018 included:

-- Costs related to restructuring of the Parity Consultancy Services division. 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 

-- Past service cost for the Group's defined benefit pension scheme in respect of GMP equalisation

   5              Finance costs 
 
                                            Six months     Six months      Year to 
                                                    to             to     31.12.18 
                                              30.06.19       30.06.18    (Audited) 
                                           (Unaudited)    (Unaudited)      GBP'000 
                                               GBP'000        GBP'000 
---------------------------------------  -------------  -------------  ----------- 
 Interest expense on lease liabilities              14              -            - 
 Interest expense on other financial 
  liabilities                                       84             86          181 
 Net finance costs in respect of 
  post-retirement benefits                         113             93          184 
 Total finance costs                               211            179          365 
---------------------------------------  -------------  -------------  ----------- 
 

The interest expense on other financial liabilities represents interest paid on the Group's asset-based financing facilities.

   6              Discontinued operations 

In April 2018 the Group sold Inition Limited. As such, Inition Limited's operating result for the comparative periods, as well as the loss on disposal of Inition Limited is presented as discontinued.

   7              Taxation 
 
                                         Six months     Six months      Year to 
                                                 to             to     31.12.18 
                                           30.06.19       30.06.18    (Audited) 
                                        (Unaudited)    (Unaudited)      GBP'000 
  Continuing operations                     GBP'000        GBP'000 
------------------------------------  -------------  -------------  ----------- 
 Recognised in the income statement 
 Current tax charge                               -              -            - 
 Deferred tax (credit)/charge                  (64)             88         (63) 
------------------------------------  -------------  -------------  ----------- 
 Total tax (credit)/charge                     (64)             88         (63) 
------------------------------------  -------------  -------------  ----------- 
 
 Recognised in other comprehensive 
  income 
 Deferred tax charge/(credit)                   146             21        (171) 
------------------------------------  -------------  -------------  ----------- 
 
   8              Earnings per ordinary share 

Basic earnings per share is calculated by dividing the basic earnings for the period by the weighted average number of fully paid ordinary shares in issue during the period. 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.

 
                      Six months to 30.06.2019           Six months to 30.06.2018                 Year to 31.12.2018 
                             (Unaudited)                   (Unaudited, restated)                       (Audited) 
-----------------  ------------------------------  ------------------------------------  ------------------------------------ 
                               Weighted                          Weighted                              Weighted 
                                average                           average     Earnings/                 average     Earnings/ 
                                 number      Loss    Earnings/     number        (loss)    Earnings/     number        (loss) 
                        Loss         of       per       (loss)         of           per       (loss)         of           per 
                     GBP'000     shares     share      GBP'000     shares         share      GBP'000     shares         share 
                                  000's     Pence                   000's         Pence                   000's         Pence 
-----------------  ---------  ---------  --------  -----------  ---------  ------------  -----------  ---------  ------------ 
 Continuing operations 
 Basic 
  (loss)/earnings 
  per share            (477)    102,624    (0.47)          759    102,302          0.74          421    102,464          0.41 
 Effect of 
  dilutive 
  options                  -          -         -            -      1,412             -            -      1,126             - 
 Diluted 
  (loss)/earnings 
  per share            (477)    102,624    (0.47)          759    103,714          0.73          421    103,590          0.41 
 
 Discontinued operations 
 Basic loss per 
  share                    -          -         -        (388)    102,302        (0.38)        (381)    102,464        (0.37) 
 Effect of                 -          -         -            -          -             -            -          -             - 
 dilutive 
 options 
 Diluted earnings 
  per share                -          -         -        (388)    102,302        (0.38)        (381)    102,464        (0.37) 
 
 Continuing and discontinued operations 
 Basic 
  (loss)/earnings 
  per share            (477)    102,624    (0.47)          371    102,302          0.36           40    102,464          0.04 
 Effect of 
  dilutive 
  options                  -          -         -            -      1,412             -            -      1,126             - 
 Diluted 
  (loss)/earnings 
  per share            (477)    102,624    (0.47)          371    103,714          0.36           40    103,590          0.04 
-----------------  ---------  ---------  --------  -----------  ---------  ------------  -----------  ---------  ------------ 
 
 

As at 30 June 2019 the number of ordinary shares in issue was 102,624,020 (30 June 2018 and 31 December 2018: 102,624,020).

   9              Pension commitments 

The Group provides employee benefits under various arrangements, through defined benefit and defined contribution pension plans, the details of which are disclosed in the 2018 Annual Report and Accounts. At the interim balance sheet date, the major assumptions used in assessing the defined benefit pension scheme liability have been reviewed and updated based on a roll-forward of the last formal actuarial valuation, which was carried out as at 5 April 2018.

The following changes in estimate have been applied to the IAS 19 valuation as at 30 June 2019:

 
                                            30.06.19   30.06.18   31.12.18 
-----------------------------------------  ---------  ---------  --------- 
 Rate of increase in pensions in payment    3.7-3.9%   3.7-3.9%   3.7-4.0% 
 Discount rate                                  2.3%       2.7%       2.8% 
 Retail price inflation                         3.3%       3.2%       3.4% 
 Consumer price inflation                       2.3%       2.2%       2.4% 
-----------------------------------------  ---------  ---------  --------- 
 

The deficit has reduced by GBP0.8m since the 2018 year end despite a fall in discount rates. The improvement was partly due to an increase in the value of scheme investments and partly as a result of actions taken by the board and the Trustees to reduce scheme risk.

   10           Related party transactions 

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are therefore not disclosed in this note.

There were no other related party transactions during the period (2018: none).

   11           Events after the reporting period 

There are no events after the reporting period not reflected in the interim financial statements.

Statement of Directors' responsibilities

The Directors confirm, to the best of their knowledge:

-- The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the European Union;

-- The interim management report includes a fair review of the information required by DTR 4.2.7R of the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year, and gives a true and fair view of the assets, liabilities, financial position and profit for the period of the Group; and

-- The interim management report includes a fair review of the information required by DTR 4.2.8R of the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority, being a disclosure of related party transactions and changes therein since the previous annual report.

By order of the Board

John Conoley

Non-Executive Chairman

20 September 2019

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

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