TIDMPTY
RNS Number : 8018J
Parity Group PLC
16 April 2020
16 April 2020
PARITY GROUP PLC
FULL YEAR RESULTS FOR THE YEARED 31 DECEMBER 2019
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 2019.
2019 Financial Headlines:
-- Group revenues GBP80.4m (2018: GBP86.1m)
-- Adjusted profit before tax(1) GBP115k (2018: GBP853k)
-- Loss before tax GBP1,057k (2018: profit before tax GBP358k)
-- Continued positive cash flow from operations of GBP3.4m (2018: GBP0.6m)
-- Net cash positive at year end GBP0.9m (2018: net debt of GBP1.1m)
1 Adjusted profit before tax is defined as profit before tax and non-recurring items
2019 Strategic and Operational Headlines:
-- Significant business restructuring delivers gross GBP3.3m of annualised cost savings
-- Cost savings higher than anticipated
-- Net annualised cost savings, after reinvestment in new team, of GBP2.0m
-- Staff numbers reduced by net 44%
-- Started shift to flexible and scalable outsourced operating model
-- Investment in new team to drive new higher margin business model
-- Focus on consultancy and higher margin recruitment
-- New heads of consultancy and resourcing delivering new opportunities
-- Dedicated Learning & Development offer within consultancy service
-- Refreshed market proposition and brand gaining good traction with clients
-- Good progress in securing government and private sector data
services work including NHS Digital and NHS Health Data Research
and consulting work supporting BooHoo.com
-- Brand relaunched with more active communications and reputation management
2020 Outlook:
Board unable to forecast with any certainty 2020 revenue and
profit before tax performance at this time in light of ongoing
Covid-19 uncertainties
-- Covid-19 impacts will, in part, be mitigated by cost savings already achieved in 2019
-- Further organisational design and process mapping work
instigated before the pandemic will deliver additional gross
annualised savings, targeted to be GBP700k, in 2020
-- In direct response to the pandemic, management have agreed a
20% reduction in salaries with all Directors and staff for the
three months starting 1 April 2020
-- Management are conducting a daily review of Covid-19 impacts
with clients and contractors to assess supply and demand in as
close to real time as possible. This review process is designed to
give the advanced warning required to be able to manage impacts on
the business and to help clients fill potential gaps in their
workforces
-- Parity remains well capitalised, with net cash at 31 December
2019, and a GBP10m existing credit facility providing a comfortable
level of headroom through asset-based lending
-- The government's VAT deferral measures will provide an
additional useful help to cash flow in the current year
-- The Board remains confident that Parity has sufficient access
to cash to enable it to trade its way through this period of global
uncertainty
John Conoley, Non-Executive Chairman of Parity Group, said:
"The significant disruption to the world economy brought on by
the Covid-19 virus will impact almost every single company. At this
point it is difficult to predict its impact on Parity. The
significant costs that have come out of the business in the last
twelve months will help us to ride out the storm.
"Parity's business is heavily weighted towards the public
sector, which accounted for approximately 70% of revenues in 2019.
We are already seeing signs that Government expenditure will be
more resilient as much of it is aligned to the provision of key
public services. However due to the ongoing uncertainty caused by
Covid-19, Parity expects there will be an impact on revenues for
the current year, the exact extent of this impact remains
impossible to quantify at this stage.
"In 2019 we made great progress in implementing our new strategy
and the transformation of our business is on track. We have moved
to a new business model, taken a significant level of cost out of
the business and invested in new talent. That we have been able to
achieve such a significant organisational change whilst still
reporting a modest adjusted profit before tax, and improving our
cash position, gives us confidence in the future of the
business."
Matthew Bayfield, Chief Executive, said:
"The Covid-19 pandemic has brought significant uncertainty to
our business however all our staff are working remotely, enabling
the business to remain fully operational. Our responsibility is to
all stakeholders in these difficult times, we are committed to
providing the best support we can to protect staff, contractors and
clients.
"The coming months will be challenging for our business, but our
people have been fantastic in the way they have reacted to the
evolving needs of our clients and contractors.
"Technology continues to transform the recruitment market and
this process has been accelerated by the pandemic. The multitude of
platforms employers use to look for candidates, the artificial
intelligence that brings speed and efficiency to the recruitment
process, and the lower costs of technology led solutions, have
brought about fundamental changes in the way our market operates.
At Parity, with our focus on data people and skills, we see great
opportunities from these market shifts, however we have needed to
restructure our business in order to take full advantage."
"To that end we began a 'digital first' transformation in our
business. This has led to a headcount reduction of over 40% with a
net annualised saving of GBP2m. We have streamlined processes that
enable us to be more agile, flexible and cost efficient at
servicing our client needs. This transformation will continue
throughout 2020."
For further information, contact:
Matthew Bayfield
CEO 020 8543
Roger Antony GFD Parity Group plc 5353
David Beck Donhead Consultants 07836 293383
Mike Coe 0207 220
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
2019 - Transformation on track
Parity underwent very significant change during 2019. At the
beginning of the year we appointed our new chief executive Matthew
Bayfield and the Board asked him to address the structural changes
that were impacting our markets and undermining our ability to earn
returns for shareholders from the recruitment market. The loss of a
large framework contract in Scotland at the beginning of the year
and the end of a significant consultancy contract were both further
catalysts for change, they gave us an urgency in our pursuit of a
new business model that will deliver for all our stakeholders.
I am pleased to be able to report that we have made great
progress in implementing our new strategy and the transformation of
our business is very much on track. Whilst revenues, EBITDA and
adjusted profit before tax are all lower than in the previous year
this is in line with the Board's expectations. We have moved to a
new business model, taken a significant level of cost out of the
business and invested in new talent. That we have been able to
achieve such a significant organisational change whilst still
reporting a modest adjusted profit before tax, and improving our
cash position, gives us confidence in the future of the
business.
Strategy
Our strategy is a reflection of our client's needs. Data is a
huge challenge for businesses; the volume of data in data centre
storage is five times higher than it was five years ago and that
rate of growth is forecast to continue. For businesses, that makes
decision making more complex and the analysis of data more
difficult, and to make matters more challenging, data analytic
skills are scarce and data gurus at a premium.
That is Parity's opportunity, our strategy is to help our
clients realise the true value of their data. We can do that in
different ways; we can help them find data expertise because we
have access to a community of experts, we can teach our clients'
people to become data experts and we can take on our clients' data
services as a consultancy project, and of course we can offer them
any combination of all three of those services.
Board and people
Matthew Bayfield joined the board as Chief Executive in February
2019 and had an immediate impact on the business. He and Roger
Antony, our CFO, have been responsible for the implementation of
the new strategy which has seen us move a number of people out of
the business and recruit others with the skills we require to
develop new services and take them to market. It is never an easy
task to make such significant people changes, we have tried very
hard to ensure that we have treated all concerned with respect and
fairness. We have welcomed some new and very talented people to the
business, and we have changed the way we incentivise people to
align management and shareholder's interests, moving to a profit
based incentive plan.
The Board wishes to record its thanks to all of the staff who
have contributed to the transformation of our business, much hard
work has gone into ensuring we remain focused on delivering for
existing clients and identifying potential new clients. We are
fortunate to have an enthusiastic and talented team.
Results
Revenue across the Group was 6.6% lower at GBP80.4 million,
largely as a result of lower recruitment revenues as our large
contract with the Scottish Government, which was not renewed in
early 2019, began to wind down. The Group continues to be cash
generative and helped by a reduction in working capital we
generated GBP3.4m in cash from operations taking us to a net cash
positive position of GBP0.9m at the year end. Adjusted profit
before tax of GBP115k was in line with our expectations. After
non-recurring items of GBP1.2m before tax, we recorded a loss
before tax for the year of GBP1.1m (2018: profit before tax of
GBP0.4m). Going forward we will look to build revenues in higher
margin service lines such as consultancy and learning and
development and also change the nature of our recruitment offer to
higher margin work.
Financing and dividend
In May we renewed our banking arrangements with PNC for a
further two years at more competitive rates, resulting in a GBP10m
facility at 2.00% above base. The exceptional cash performance at
the end of 2019 left us with GBP0.9m of net cash at the year end.
An improved cash position will give us further flexibility when
reviewing our facility, which has a minimum period to May 2021. The
Board is not proposing a dividend at this time but will keep this
policy under review.
Current trading and outlook
The significant disruption to the world economy brought on by
the Covid-19 virus will impact almost every single company. At this
point it is difficult to predict its impact on Parity. The
significant costs that have come out of the business in the last
twelve months will help us to ride out the storm.
Parity's business is heavily weighted towards the public sector,
which accounted for approximately 70% of revenues in 2019. We are
already seeing signs that Government expenditure will be more
resilient as much of it is aligned to the provision of key public
services.
However in light of the ongoing Covid-19 the Board is unable to
forecast with any certainty 2020 revenue and profit before tax
performance at this time. We anticipate that Covid-19 impacts will,
in part, be mitigated by cost savings already achieved in 2019 and
further organisational design and process mapping work instigated
before the pandemic will deliver additional savings in 2020.
In direct response to the pandemic, management have agreed a 20%
reduction in salaries with all Directors and staff for the three
months starting 1 April 2020. Management are conducting a daily
review of Covid-19 impacts with clients and contractors to assess
supply and demand in as close to real time as possible. This review
process is designed to give the advanced warning required to be
able to manage impacts on the business and to help clients fill
potential gaps in their workforces.
Parity remains well capitalised, with net cash at 31 December
2019, and a GBP10m existing credit facility providing a comfortable
level of headroom through asset-based lending. The government's VAT
deferral measures will provide an additional useful help to cash
flow in the current year. The Board remains confident that Parity
has sufficient access to cash to enable it to trade its way through
this period of global uncertainty.
Chief Executive's statement
A restructured business, focussed on growth
2019 saw comprehensive changes to our business as we implemented
the strategic plan set out a year ago.
Technology continues to transform the recruitment market and
recently this process has been accelerated by the Covid-19
pandemic. The multitude of platforms that employers use to look for
candidates, the artificial intelligence that brings speed and
efficiency to the recruitment process, and the lower costs of
technology led solutions, have brought about fundamental changes in
the way our market operates. At Parity, with our focus on data
people and skills, we continue to see great opportunities from
these market shifts, however we have needed to restructure our
business in order to take full advantage.
To that end we began a 'digital first' transformation in our
business. This has led to a headcount reduction of over 40% with a
net annualised saving of over GBP2m. We have streamlined processes
that enable us to be more agile, flexible and cost efficient at
servicing our client needs. This transformation will continue
throughout 2020.
At the beginning of 2019 we set out to refocus our business on
sustainable, higher margin revenues. We said we would:
-- refresh our senior management with new skills in consulting,
learning and development and marketing;
-- implement a new single operating model;
-- refresh the Parity brand and upgrade our web presence;
-- review the role of technology in recruitment services and
investigate how AI can help us keep ahead of market changes;
-- create a new business function; and
-- set out to reduce our overheads both to be able to afford the
investment required and to improve the company's net margins and
cash position.
Progress on many fronts
Stronger financially
In 2019 we reduced our operating costs by a gross GBP3.3
million. These savings were significantly ahead of what we
initially set out to achieve as our restructuring went further and
deeper into the organisation. Staff numbers reduced by a net 44% as
we rightsized our recruitment team and made savings in central
management. After reinvesting a total of GBP1.3m, our net
annualised cost savings in 2019 were GBP2.0m.
The cost of achieving these savings was a restructuring charge
of GBP1.2m in the full year, we will see a return on the cost of
these net savings in less than 8 months. We were also able to
implement these cost savings whilst making a significant further
improvement to our net cash position. Helped by a reduction in
working capital, we generated GBP3.4m of cash from operations
during the year and were net cash positive at the year end. The
business is now less constrained by debt, this enables us to plan
for the future with greater confidence.
A refreshed and strengthened management team
The restructuring of our operating costs has allowed us to
invest in building a stronger senior team. Of the total GBP1.3m of
cost savings reinvested, GBP1.0m was in new hires.
In April we appointed Antonio Acuña MBE to head our consultancy
offer. Antonio had worked in the public sector for over 15 years,
with a foundation in digital transformation, lean processes and
efficiencies, he mainly focused on difficult, large projects. Since
joining Parity he has led our renewed focus on providing clients
with data consultancy and execution using Parity data experts.
Antonio and his team have had success within both the government
and the private sectors.
We have created a Learning & Development Practice within our
consultancy service, reporting to Antonio. The team based in
Manchester and Edinburgh offer organisations support in developing
their own talented people and getting the best from their
workforce.
Lee-Ann Falconer joined as Head of Resourcing earlier this year
with a wealth of experience within resourcing, recruitment and
leadership across a number of sectors. Based in Edinburgh, Lee-Ann
is helping us to focus our recruitment business on higher margin
briefs, specialising in real data experts who we can identify from
our growing community.
Shaun O'Hara has been our new people Director since May, he is
passionate about making Parity a great place to work for existing
and future employees, believing that the best way to ensure
incredible service and delivery for clients is to help nurture a
motivated and aligned team.
We have outsourced our marketing function and are working with a
firm of specialist marketeers who are helping with lead generation,
content and marketing plans. This is part of our overall strategy
to move from a fixed to flexible cost base that is scalable and
aligned to market performance.
A new business model and refreshed brand
Parity sets out to be the 'trusted partner of data driven
transformation' for our clients. We have designed and implemented a
new business model that allows us to deliver on that purpose. We
provide solutions across three areas;
-- Data Solutions. We help our clients architect and develop
their data strategy, designing and delivering data solutions that
drive confident commercial decision making.
-- People Solutions. We understand the people who understand
data. With the most experienced community of talent in the market,
we can help our clients build a team of data experts and leaders to
transform their businesses.
-- Development Solutions. We can help our clients become data
driven organisations. Through training, shaping and developing
their existing teams' skills and behaviours to deliver high
performance even within complex data environments.
Our organisation is designed to find the right solution or
combination of solutions matched to each client's needs. A single
account management function allows us to be solution agnostic and
always put the client first.
Parity has more than forty-five years history of trusted
relationships with our clients and a name that is well known in its
market. However, the Parity brand had not been refreshed for many
years and was failing to convey our values. Starting with last
year's annual report and accounts we rolled out our new branding,
including a new web site, marketing literature and social media
feeds.
Artificial Intelligence (AI) in our market place
In 2019 we undertook to review the role of technology in
recruitment services and to investigate how AI can help us keep
ahead of market changes. We have already seen the impact of web and
app based recruitment tools and the structural changes they have
prompted. Less well recognised is the impact of the vast quantities
of data that is recorded and stored about individuals and the role
AI has to play in the intelligent analysis of that data to assist
recruiters.
In November we announced a strategic partnership with Integumen
which we believe will help accelerate Parity's transformation from
a predominantly commoditised recruitment business to a data
consultancy service provider of intelligent data management
systems, extracting value using analytics, with a focus on return
on investment for our clients. Integumen's proprietary software
includes full GDPR compliance with secure cloud data migration from
existing legacy systems to a digital workplace through the military
grade encryption "Drive4Growth" AI platform powered by Integumen's
Rinodrive.
Rinodrive delivers big data, AI functionality and world class
infrastructure to large companies with big data problems. These
include financial services, education and life science companies. A
fully integrated set of software tools that can ingest data, in any
volume, from any source in any format, interact with it, learn from
it and enrich it to unlock insights and discoveries. This data
management solution was developed by scientists and engineers with
experience in software, sensors, AI, optofluidic research, fintech,
green-tech, travel and healthcare. It was designed to allow
interaction, in a cyber-secure environment, with commercially
sensitive data, and to share insights across multi-disciplinary
teams, generating different data formats, from multiple sources,
located in different countries.
At Parity we will continue to be at the forefront of
technological advances and are excited by the opportunity to work
with Integumen to bring the benefits of AI to our clients. This is
another example of how we have sought to modernise our business and
move it to higher value solutions for our clients.
Building a higher margin business
At the heart of our strategy is our determination to increase
our gross profit margin in order to improve total shareholder
returns. The structural shifts in the recruitment market described
above have meant that our already low margin recruitment business
was not going to remain sustainable without significant changes.
The Board, in setting out a new strategic direction for the
Company, was conscious that at no time in our recent past have we
achieved a net profit margin of even 2%. With continued and
sustained gross margin pressure in recruitment, this record was not
likely to change unless we embraced some fundamental changes to our
business model and strategy.
Our new business model is designed to substantially change our
financial model. Revenues will be lower as we reduce our exposure
to relatively high volume but low margin recruitment revenues.
Margins on the other hand will improve as we focus on higher value
recruitment specialising in data skilled people and build our data
consultancy and learning & development service lines, both of
which attract significantly higher gross margins.
As is evident from the 2019 results it will take time for the
changes we have made to our business to impact our financial
performance. The year under review saw revenues fall by only 6.6%
as we continued to service legacy low margin contracts, notably
with the Scottish government, and our gross margins have also been
held back by these legacy contracts.
Conclusion
A new business model, a new team and a new sense of purpose have
all been achieved in 2019. I am pleased to be able to report that
our transformation is on track. In terms of cost savings we are
ahead of plan and we have been encouraged by our clients' support
for our new offer.
The Covid-19 pandemic has brought significant uncertainty to our
business, however all our staff are working remotely, enabling the
business to remain fully operational. Our responsibility is to all
stakeholders in these difficult times and we are committed to
providing the best support we can to protect staff, contractors and
clients.
The coming months will be challenging for our business, but our
people have been fantastic in the way they have reacted to the
evolving needs of our clients and contractors.
Operational and Financial Review
-- Strategic decision to move away from lower margin recruitment work
-- Transformation impacts profits during the year; but
encouraging wins including first Consultancy retainer
-- Swings from net debt to net cash, bolstered by exceptional cash collections in December 2019
2019 2018
GBP000's GBP000's
------------------------------- ---------- ----------
Key Financials
Revenue 80,409 86,112
Adjusted profit before tax(1) 115 853
Net cash/(debt) 899 (1,090)
------------------------------- ---------- ----------
1 Adjusted profit before tax is defined as profit before tax and non-recurring items
As indicated in last year's Annual Report and Accounts, Group
revenues were impacted during the year by the non-renewal of a
large framework agreement with the Scottish Government for the
supply of temporary workers. Revenues derived from the framework
are subject to a gradual run down over a two year period which
commenced in March 2019. During the year the Group embarked upon a
transformation programme to move away from a dependence on low
margin recruitment work, which has also impacted revenues.
Adjusted profit before tax fell to GBP0.1m from GBP0.9m as a
result of lower contract recruitment revenues and also due to 2018
including revenues from the MoD MCOCS consultancy project. The
Group has taken action on overheads during the year, primarily
people costs, achieving an annualised net cost out of GBP2.0m. The
majority of the cost actions were taken in Q2 2019 and Q3 2019 with
only a partial impact to the 2019 results.
Non-recurring items relate to restructuring costs incurred as
part of the transformation in relation to the new strategy, and
totalled GBP1.2m before tax. Loss before tax after deducting
non-recurring items was GBP1.1m (2018: profit before tax of
GBP0.4m). Net cash generated from operations was GBP3.4m reflecting
exceptional collections in December 2019, and swinging the Group
into a cash positive position of GBP0.9m at year end (2018 year
end: net debt of GBP1.1m).
Segmental performance
2019 2018 Incr./(Decr.)
GBP000's GBP000's %
----------------------------- ---------- ---------- --------------
Revenue
Recruitment 73,548 77,616 (5.2%)
Consultancy 6,861 8,496 (19.2%)
Group revenue 80,409 86,112 (6.6%)
----------------------------- ---------- ---------- --------------
External contribution
Recruitment 6,755 7,681 (12.1%)
Consultancy 1,347 1,996 (32.5%)
----------------------------- ---------- ---------- --------------
Total external contribution 8,102 9,677 (16.3%)
----------------------------- ---------- ---------- --------------
Reconciliation of external contribution to operating profit
2019 2018
GBP'000 GBP'000
--------------------------------------- --------------- ---------------
External contribution 8,102 9,677
Selling & administrative expenses (6,687) (8,136)
Share-based payment charges (162) (129)
Depreciation and amortisation (806) (194)
Operating profit before non-recurring
items 447 1,218
Non-recurring items (1,172) (495)
Operating (loss)/profit (725) 723
--------------------------------------- --------------- ---------------
External contribution is reconciled to the income statement as
part of segmental information presented in note 2.
Recruitment
The decline in year on year revenues was primarily driven by the
loss of the Scottish Government framework for the supply of
contract workers. Following the announcement of the decision in
March 2019, the number of contractors on billing through the
framework was subject to gradual run down over a two year period
ending 2021. As a consequence, the total average number of
contractors for the Group during the year was 871 (2018: 972) with
the closing volume of contractors at 31 December being 648 (31
December 2018: 995).
The loss of the Scottish Government framework reflects margin
challenges in the commoditised UK recruitment market. The Group
sought to address this issue in two ways. Firstly, by focussing on
offering greater value to our clients, with solutions to their
specific data challenges, and thereby attracting higher margins.
Secondly, management took action to right-size its operations, with
particular focus on costs associated with delivery to the Scottish
Government framework.
During the year the Group also made the commercial decision to
discontinue two small teams of permanent candidate recruiters. The
Group continued to supply contract recruitment through several
established frameworks in the public sector and to its clients such
as Primark in the private sector.
Consultancy
Whilst financial results were down year on year, the 2018
financial year benefitted from 8 months' work at the MOD, on the
relatively higher margin MCOCS project. During the year, the Group
continued consultancy delivery to both the Department of Education
and BAT, with contract renewals at both clients extending into
2020.
The Group appointed Antonio Acuna as Head of the Consulting
Practice during the year to help accelerate the data strategy.
Under Antonio's leadership the Group won higher margin data
consultancy work with large organisations in both the public and
private sectors. The revenues from the new work tend to be
accretive, providing optimism for the longer term, with one large
client in the private sector signing up to a retainer fee during
the year.
Selling and Administrative Costs
During the year, the Group took action to right size the Group
in relation to the new strategy, and following the loss of the
Scottish Government Framework. As a result, the Group achieved an
annualised net cost out of GBP2.0m. The savings were predominately
in relation to people costs with a 44% reduction in headcount over
the course of the year.
Depreciation and Amortisation
In accordance with IFRS 16, the 2019 results are presented with
lease assets and liabilities recognised in the Group's Statement of
Financial Position, where the Group is the lessee. Consequently,
depreciation and amortisation include GBP0.7m of expenses that were
classified as operating expenses in 2018.
Non-recurring items
Non-recurring items of GBP1.2m (2018: GBP0.5m) before tax were
incurred during the year, primarily as a result of restructuring
the Group, following the appointment of a new CEO, and a change in
strategy, and are analysed in note 5.
Taxation
The tax charge on profit before tax was GBP0.03m (2018: tax
credit of GBP0.06m) mainly representing a deferred tax adjustment
in respect of prior periods. The Group did not provide for
corporation tax payable in 2019 due to the utilisation of Group
relief and the availability of carried forward deductible timing
differences and tax losses.
Discontinued operations
There were no discontinued operations during the year. In 2018
the Group disposed of the non-core Inition subsidiary in April 2018
for consideration of GBP0.2m and recorded a loss on disposal of
GBP0.3m.
Earnings per share and dividend
The basic loss per share from continuing operations was 1.05
pence (2018: earnings of 0.41 pence per share). The Group's results
were impacted by significant restructuring costs.
The Board does not propose a dividend for 2019 (2018: nil) but
will keep the position under review.
Statement of Financial Position
Trade and other receivables
Trade and other receivables decreased significantly during the
year to GBP6.7m (2018: GBP12.0m). This is mainly due to the
exceptional level of cash collections experienced in December 2019
with Group debtor days, calculated on billings on a countback
basis, at an all-time low of 12 days (2018: 18 days). We benefitted
from a number of clients paying ahead of terms before the financial
year end and therefore do not expect debtor days to hold at these
unprecedented levels. To a lesser extent, the decrease was also due
to the fall in the contractor volumes over the year and the
associated release of working capital.
Trade and other payables
Trade and other payables decreased during the year to GBP6.0m
(2018: GBP8.3m) mainly as a result in the reduction in contractor
volumes. At the year end, creditor days were 24 days (2018: 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, has been in place
since 2010 and was renewed in May 2019 on improved terms. Following
the renewal, the facility allows for borrowing of up to GBP10m
depending on the availability of appropriate assets as security,
with borrowings at a discount rate of 2.0% above base (previously
2.35% above base). The current facility is subject to a minimum
period of two years after which the facility becomes evergreen.
Cash flow and net debt
The Group generated positive net cash flows from operating
activities of GBP3.4m (2018: GBP0.6m), driven by the positive
working capital swing (see paragraph headed "Trade and Other
Receivables" above) with a reduction in debtor days to 12 (2018: 18
days). The GBP3.4m cash generated was after outflows of GBP0.7m in
respect of non-recurring items.
As a result of the positive cash flow, the Group swung to a net
cash positive position of GBP0.9m (2018: net debt of GBP1.1m).
Defined Benefit Pension Deficit
At the year end the deficit had improved to GBP0.9m (2018:
GBP1.9m). Whilst the scheme liabilities increased during the year
as a result of lower long term bond rates, the scheme investments
increased by a greater amount, reflecting stronger global equity
markets.
During the year the triennial actuarial review as at 5 April
2018 was completed. The outcome of the review was such that the
Group agreed to pay contributions of GBP0.3m per annum for five
years, with contributions being assessed at the next actuarial
review, scheduled as at 5 April 2020.
Consolidated Income Statement for the year ended 31 December
2019
Non-recurring Non-recurring
items items
Before (note Before (note
non- 5) non- 5)
recurring 2019 recurring 2018
items GBP'000 Total items GBP'000 Total
Notes 2019 2019 2018 2018
GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ------------ -------------- ----------- ------------ -------------- -----------
Continuing
operations
Revenue 3 80,409 - 80,409 86,112 - 86,112
Employee benefit
costs 4 (4,876) (867) (5,743) (5,976) (299) (6,275)
Depreciation,
amortisation
and impairment 4 (806) (142) (948) (194) - (194)
All other
operating
expenses 4 (74,280) (163) (74,443) (78,724) (196) (78,920)
----------------- ----- ------------ -------------- ----------- ------------ -------------- -----------
Total operating
expenses (79,962) (1,172) (81,134) (84,894) (495) (85,389)
----------------- ----- ------------ -------------- ----------- ------------ -------------- -----------
Operating
profit/(loss) 447 (1,172) (725) 1,218 (495) 723
Finance costs 7 (332) - (332) (365) - (365)
----------------- ----- ------------ -------------- ----------- ------------ -------------- -----------
Profit/(loss)
before
tax 115 (1,172) (1,057) 853 (495) 358
Tax
(charge)/credit 9 (149) 124 (25) (16) 79 63
----------------- ----- ------------ -------------- ----------- ------------ -------------- -----------
(Loss)/profit
for
the year from
continuing
operations (34) (1,048) (1,082) 837 (416) 421
----------------- ----- ------------ -------------- ----------- ------------ -------------- -----------
Discontinued
operations
Loss from
discontinued
operations
after
tax 8 - - - (381) - (381)
----------------- ----- ------------ -------------- ----------- ------------ -------------- -----------
(Loss)/profit
for
the year
attributable
to owners of
the
parent (34) (1,048) (1,082) 456 (416) 40
----------------- ----- ------------ -------------- ----------- ------------ -------------- -----------
(Loss)/earnings per share - Continuing operations
Basic 10 (1.05p) 0.41p
Diluted 10 (1.05p) 0.41p
(Loss)/earnings per share - Continuing and discontinued
operations
Basic 10 (1.05p) 0.04p
Diluted 10 (1.05p) 0.04p
----------------- ----- ------------ -------------- ----------- ------------ -------------- -----------
Consolidated Statement of Comprehensive Income for the year
ended 31 December 2019
2019 2018
Notes GBP'000 GBP'000
------------------------------------------------------- -------- --------- ---------
(Loss)/profit for the year (1,082) 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 931 (1,005)
Deferred taxation on remeasurement of defined
pension scheme 12 (158) 171
Other comprehensive income/(expense) for the
year after tax 773 (837)
------------------------------------------------------- -------- --------- ---------
Total comprehensive expense for the year attributable
to owners of the parent (309) (797)
------------------------------------------------------- -------- --------- ---------
Consolidated Statement of Changes in Equity for the year ended
31 December 2019
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 - - - - 162 162
---------------------------- --------- ---------- ------------ ---------- ---------- ---------
Transactions with owners - - - - 162 162
---------------------------- --------- ---------- ------------ ---------- ---------- ---------
Loss for the year - - - - (1,082) (1,082)
Remeasurement of defined
benefit pension scheme - - - - 931 931
Deferred taxation on
remeasurement of defined
pension scheme taken
directly to equity - - - - (158) (158)
At 31 December 2019 2,053 33,244 14,319 34,560 (77,753) 6,423
---------------------------- --------- ---------- ------------ ---------- ---------- ---------
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
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
---------------------------- --------- ---------- ------------ ---------- ---------- ---------
Consolidated Statement of Financial Position as at 31 December
2019
2019 2018
Notes GBP'000 GBP'000
------------------------------- -------- --------- ---------
Assets
Non-current assets
Goodwill 11 4,594 4,594
Other intangible assets 32 86
Property, plant and equipment 43 69
Right-of-use assets 395 -
Deferred tax assets 12 970 1,153
Total non-current assets 6,034 5,902
------------------------------- -------- --------- ---------
Current assets
Trade and other receivables 6,739 12,018
Cash and cash equivalents 4,116 5,829
Total current assets 10,855 17,847
------------------------------- -------- --------- ---------
Total assets 16,889 23,749
------------------------------- -------- --------- ---------
Liabilities
Current liabilities
Loans and borrowings (2,719) (6,919)
Lease liabilities (325) -
Trade and other payables (6,012) (8,261)
Provisions (324) (43)
Total current liabilities (9,380) (15,223)
------------------------------- -------- --------- ---------
Non-current liabilities
Lease liabilities (173) -
Provisions (21) (20)
Retirement benefit liability (892) (1,942)
Total non-current liabilities (1,086) (1,962)
------------------------------- -------- ---------
Total liabilities (10,466) (17,185)
------------------------------- -------- --------- ---------
Net assets 6,423 6,564
------------------------------- -------- --------- ---------
Shareholders' equity
Called up share capital 2,053 2,053
Share premium reserve 33,244 33,244
Capital redemption reserve 14,319 14,319
Other reserves 34,560 34,560
Retained earnings (77,753) (77,612)
------------------------------- -------- ---------
Total shareholders' equity 6,423 6,564
------------------------------- -------- --------- ---------
Consolidated Statement of Cash Flows for the year ended 31
December 2019
2019 2018
Notes GBP'000 GBP'000
----------------------------------------------- ------ ---------- ---------
Operating activities
(Loss)/profit for the year (1,082) 40
Adjustments for:
Net finance expense 7 332 365
Share-based payment expense 162 129
Income tax charge/(credit) 9 25 (236)
Amortisation of intangible assets 52 165
Depreciation of property, plant and equipment 56 53
Depreciation and impairment of right-of-use 840 -
assets
Loss on write down of assets 16 -
Loss on disposal of subsidiary - 306
401 822
Working capital movements
Decrease in trade and other receivables 5,233 204
(Decrease)/increase in trade and other
payables (2,249) (141)
Increase in provisions 282 45
Payments to retirement benefit plan (249) (326)
----------------------------------------------- ------ ---------- ---------
Net cash flows from/(used in) operating
activities 3,418 604
----------------------------------------------- ------ ---------- ---------
Investing activities
Purchase of intangible assets - (14)
Purchase of property, plant and equipment (44) (35)
Net proceeds from disposal of subsidiary - 114
----------------------------------------------- ------ ---------- ---------
Net cash flows (used in)/from investing
activities (44) 65
----------------------------------------------- ------ ---------- ---------
Financing activities
Issue of ordinary shares - 43
(Repayment)/drawdown of finance facility (4,192) 330
Principal repayment of lease liabilities (764) -
Interest paid 7 (131) (181)
----------------------------------------------- ------ ---------- ---------
Net cash flows (used in)/from financing
activities (5,087) 192
----------------------------------------------- ------ ---------- ---------
Net (decrease)/increase in cash and cash
equivalents (1,713) 861
----------------------------------------------- ------ ---------- ---------
Cash and cash equivalents at the beginning
of the year 5,829 4,968
----------------------------------------------- ------ ---------- ---------
Cash and cash equivalents at the end of
the year 4,116 5,829
----------------------------------------------- ------ ---------- ---------
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
2019 and 2018. The notes in these audited preliminary results have
been extracted from the Group's audited consolidated accounts for
the year ended 31 December 2019.
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 financial statements have been prepared on a going concern
basis. The Directors have reviewed the Group's cash flow forecasts
for the period to 31 December 2021, taking account of reasonably
possible changes in trading performance, including potential
downsides from the impact of Covid-19. Downside sensitivities have
included reduced levels of new business, lower contractor
extensions and reduced contractor utilisation in the event that
some contractors are unable to work or have their contracts
terminated. In these scenarios, the Directors do not anticipate
issues with the Group's financing requirements. The Group is
currently well capitalised with its financing facility providing a
comfortable level of headroom. Measures have already been taken to
protect the Group from a downturn in revenues and there are further
mitigating actions which would be taken if required. Nevertheless,
the Directors acknowledge the significant uncertainty caused by the
Covid-19 pandemic and are closely monitoring the outlook for the
Group. The Directors cannot be certain as to the severity and
duration of these impacts and therefore there is a material
uncertainty which may cast significant doubt on the Group's and
parent company's going concern.
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 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 mainly
impacted by IFRS 16 on its leases for office premises.
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 opening 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
as follows:
-- Relying on previous assessments on whether leases are onerous
as an alternative to performing an impairment review. There were no
onerous leases at 1 January 2019
-- Excluding initial direct costs from the measurement of
right-of-use assets at the date of initial application
Application resulted in the recognition of total lease
liabilities of GBP1,057,000 and right-of-use assets of
GBP1,063,000, resulting in an increase to retained earnings of
GBP6,000.
2 Segmental information
Factors that management used to identify the Group's reporting
segments
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.
Description of the types of services from which each reportable
segment derives its revenues
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. In 2019 the Group derived revenue from two
operating segments, being Recruitment (previously Parity
Professionals) and Consultancy (previously Parity Consultancy
Services). These 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.
The Group's operating segments are defined as follows:
-- Recruitment - targeted recruitment of temporary and permanent
professionals to support IT and business change programmes.
Recruitment provides 91% (2018: 90%) of the continuing Group's
revenues.
-- Consultancy - business and IT consultancy services focusing
on the provision of data solutions and delivery of IT projects.
Consultancy provides 9% (2018: 10%) of the continuing Group's
revenues.
The internal financial information prepared for the Group Board
includes external contribution at a segmental level, and the Group
Board allocates resources on the basis of this information.
Segment external contribution, defined as gross revenue less
contractor and sub-contracted direct costs, profit before tax, and
assets and liabilities are internally reported at a Group
level.
Selling and administrative expenses include sales and delivery
costs plus central costs and salaries of Directors and support
staff. These are not allocated to reporting segments for internal
reporting purposes.
Measurement of operating segment contribution
The accounting policies of the operating segments are the same
as those described in the summary of significant accounting
policies.
The Group evaluates performance on the basis of results before
tax and 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 Recruitment
selling IT recruitment services to Consultancy. These amounts are
eliminated in the segmental reporting below.
Recruitment Consultancy Total
2019 2019 2019
GBP'000 GBP'000 GBP'000
Gross revenue from external customers 73,548 6,861 80,409
Contractor costs (66,793) - (66,793)
--------------------------------------- -------------- -------------- ---------
Net revenue 6,755 6,861 13,616
Sub-contracted direct costs - (5,514) (5,514)
--------------------------------------- -------------- -------------- ---------
External contribution 6,755 1,347 8,102
--------------------------------------- -------------- -------------- ---------
Selling and administrative expenses (6,687)
Depreciation and amortisation (806)
Share-based payment (162)
Operating profit before non-recurring
items 447
Finance costs (332)
--------------------------------------- -------------- -------------- ---------
Adjusted profit before tax 115
Non-recurring items (1,172)
--------------------------------------- -------------- -------------- ---------
Loss before tax (1,057)
--------------------------------------- -------------- -------------- ---------
Recruitment Consultancy Total
2018 2018 2018
(Restated) (Restated) (Restated)
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
--------------------------------------- ------------ ------------ ------------
Selling and administrative expenses (8,136)
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
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:
Recruitment Consultancy Recruitment Consultancy
2019 2019 2018 2018
Continuing operations GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ------------ ------------ ------------ ------------
Services transferred over
time 73,162 6,861 76,978 8,496
Services transferred at a
point in time 386 - 638 -
--------------------------------- ------------ ------------ ------------ ------------
Revenue from external customers 73,548 6,861 77,616 8,496
--------------------------------- ------------ ------------ ------------ ------------
The Group's revenue from external customers disaggregated by
primary geographical market is as follows:
Recruitment Consultancy Recruitment Consultancy
2019 2019 2018 2018
Continuing operations GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ------------ ------------ ------------ ------------
UK 71,143 6,861 76,033 8,496
Rest of EU 2,405 - 1,583 -
--------------------------------- ------------ ------------ ------------ ------------
Revenue from external customers 73,548 6,861 77,616 8,496
--------------------------------- ------------ ------------ ------------ ------------
72% (2018: 72%) or GBP53.2m (2018: GBP56.0m) of Recruitment
revenue from external customers was generated in the public sector.
80% (2018: 83%) or GBP5.5m (2018: GBP7.0m) of Consultancy revenue
was generated in the public sector.
The largest single customer in Recruitment contributed revenue
of 19% or GBP14.6m and was in the public sector (2018: 14% or
GBP11.7m and in the public sector). The largest single customer in
Consultancy contributed revenue of 70% or GBP4.8m and was in the
public sector (2018: 64% or GBP5.4m and in the public sector).
4 Operating expenses
2019 2018
Continuing operations GBP'000 GBP'000
------------------------------------------------------------------------- ---- ---- --------- ---------
Employee benefit costs
- wages and salaries 5,008 5,478
- social security costs 576 623
- other pension costs 159 174
------------------------------------------------------------------------------------- --------- ---------
5,743 6,275
----------------------------------------------------------------------------------- --------- ---------
Depreciation, amortisation and impairment
Amortisation of intangible assets
- software 52 155
Depreciation of leased property,
plant and equipment 7 11
Depreciation of owned property,
plant and equipment 49 28
Depreciation of right-of-use assets 698 -
Impairment of right-of-use assets 142 -
------------------------------------------------------------------------------------- --------- ---------
948 194
----------------------------------------------------------------------------------- --------- ---------
All other operating expenses
Contractor costs 72,031 76,067
Sub-contracted direct costs 271 363
Operating lease rentals - plant
and machinery - 8
- land and buildings - 661
Other occupancy costs 170 156
IT costs 317 326
Net exchange loss/(gain) 13 (6)
Equity settled share-based payment
charge 162 129
Other operating costs 1,479 1,216
------------------------------------------------------------------------------------- --------- ---------
74,443 78,920
----------------------------------------------------------------------------------- --------- ---------
Total operating expenses 81,134 85,389
------------------------------------------------------------------------------------- --------- ---------
During the year the Group obtained the following services from
the Group's auditors:
Grant Thornton
UK LLP
2019 2018
GBP'000 GBP'000
-------------------------------------------- --------- ---------
Audit of the Group, Company and subsidiary
financial statements 65 65
Tax compliance 16 14
Other services 16 14
-------------------------------------------- --------- ---------
Total fees 81 79
-------------------------------------------- --------- ---------
All other services have been performed in the UK.
5 Non-recurring items
2019 2018
Continuing operations GBP'000 GBP'000
--------------------------------------- --------- ---------
Restructuring
* Costs related to employees 940 318
230 -
* Costs related to premises
* Other costs 68 122
Legal costs - 35
Past service cost for defined benefit
pension scheme - 20
Receipt from previously impaired (66) -
receivable
1,172 495
--------------------------------------- --------- ---------
Non-recurring items during 2019 included:
-- Costs related to the restructuring of the Group, following
its new strategic direction under a new CEO and in reaction to the
loss of a significant contract within the tightening recruitment
market. Costs include employee termination payments and fees for
professional services
-- Impairment of right-of-use assets and provisions for other
property costs following the decision to vacate two office premises
ahead of their planned lease end dates in order to secure office
space at premises more appropriate for the restructured
business
-- Receipt of a cash amount in respect of a previously impaired
receivable, related to the Inition business that was sold in
2018
Non-recurring items during 2018 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
The restructurings that took place in 2018 and 2019 are distinct
events. In 2018, restructuring focused solely on the realignment of
Parity Consultancy Services, however the restructuring in 2019 was
a separate and more significant Group-wide exercise, based on
following the Group's new strategic direction and the right-sizing
of the business required following the loss of a significant
contract.
6 Average staff numbers
2019 2018
Number Number
----------------------------------------- -------- --------
Continuing operations
Recruitment - United Kingdom(1) 60 86
Consultancy - United Kingdom, including
corporate office(2) 16 23
76 109
----------------------------------------- -------- --------
Discontinued operations
Consultancy(3) - 15
------------------------------------------ -------- --------
(1) Includes 18 (2018: 20) employees providing shared services
across the Group
(2) Includes 4 (2018: 4) employees of the Company
(3) 2018 average for 4 months
At 31 December 2019, the Group had 57 continuing employees
(2018: 101).
7 Finance costs
2019 2018
GBP'000 GBP'000
--------------------------------------- --------- ---------
Finance costs
Interest expense on financial
liabilities 131 181
Interest expense on lease liabilities 24 -
Net finance costs in respect
of post-retirement benefits 177 184
----------------------------------------- --------- ---------
332 365
--------------------------------------- --------- ---------
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 GBP26,000 (2018: GBP37,000).
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
comparative year, including the loss on disposal and the impairment
of goodwill associated with the Inition cash generating unit, is
presented as discontinued.
9 Taxation
2019 2018
GBP'000 GBP'000
------------------------------------------ ---- ---- --------- ---------
Current tax
Current tax on profit for the year - -
Total current tax expense - -
------------------------------------------ ---- ---- --------- ---------
Deferred tax
Accelerated capital allowances (12) 15
Origination and reversal of other
temporary differences (20) 72
Adjustments in respect of prior periods 57 (150)
------------------------------------------------------ --------- ---------
Total deferred tax charge/(credit) 25 (63)
------------------------------------------------------ --------- ---------
Tax charge/(credit) on continuing
operations 25 (63)
------------------------------------------------------ --------- ---------
The tax credit on continuing operations in 2018 excludes the tax
credit from discontinued operations of GBP173,000, comprising a
current tax credit of GBP173,000 and a deferred tax expense of
GBPnil. This has been included in loss from discontinued operations
after tax.
The adjustment in respect of prior periods of GBP57,000 (2018:
credit of GBP150,000) largely relates to decisions to claim or
disclaim capital allowances.
There is no current tax payable by the Group for 2019 (2018:
GBPnil).
The Group's profits for this accounting period are subject to
tax at a rate of 19% (2018: 19%). A reduction to 17% effective 1
April 2020 was substantively enacted on 15 September 2016. As such,
the tax rate of 17% (2018: 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:
2019 2018
GBP'000 GBP'000
(Loss)/profit before tax from continuing
operations (1,057) 358
---------------------------------------------------------- -------- -------
Expected tax (credit)/charge based on the
standard rate of UK
corporation tax of 19% (2018: 19%) (201) 68
Expenses not allowable for tax purposes 69 29
Adjustments in respect of prior periods 57 (150)
Tax losses not recognised 91 -
Other 9 (10)
---------------------------------------------------------- -------- -------
Tax charge/(credit) on continuing operations 25 (63)
---------------------------------------------------------- -------- -------
Tax on each component of other comprehensive income is as
follows:
2019 2018
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)
Remeasurement of defined benefit
pension scheme 931 (158) 773 (1,005) 171 (834)
------------------------------------- --------- ---------- --------- --------- ---------- ---------
931 (158) 773 (1,008) 171 (837)
------------------------------------- --------- ---------- --------- --------- ---------- ---------
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 number Earnings/
of Loss of (loss)
Loss Earnings/
shares per share (loss) shares per share
2019 2019 2019 2018 2018 2018
GBP'000 '000 Pence GBP'000 '000 Pence
---------------------------- ---------- --------- ------------ ----------- --------- ------------
Continuing operations
Basic (1,082) 102,624 (1.05) 421 102,464 0.41
Effect of dilutive options - - - - 1,126 -
Diluted (1,082) 102,624 (1.05) 421 103,590 0.41
Discontinued operations
Basic - - - (381) 102,464 (0.37)
Effect of dilutive options - - - - - -
Diluted - - - (381) 102,464 (0.37)
Continuing and discontinued
operations
Basic (1,082) 102,624 (1.05) 40 102,464 0.04
Effect of dilutive options - - - - 1,126 -
Diluted (1,082) 102,624 (1.05) 40 103,590 0.04
---------------------------- ---------- --------- ------------ ----------- --------- ------------
As at 31 December 2019 the number of ordinary shares in issue
was 102,624,020 (2018: 102,624,020).
11 Goodwill
The carrying amount of goodwill is allocated to the Group's two
separate continuing cash generating units (CGUs), being Recruitment
and Consultancy.
Carrying amounts are as follows:
Recruitment Consultancy Total
GBP'000 GBP'000 GBP'000
------------------------------- ------------ ------------ ---------
Carrying value
Balance at 1 January 2018 and
31 December 2018 2,642 1,952 4,594
------------------------------- ------------ ------------ ---------
Balance at 1 January 2019 and
31 December 2019 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. Impairment
calculations include the effect of changes following the
application of IFRS 16.
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 2020. Years from 2021 to 2023 are based on the
budget for 2020 projected forward at expected growth rates. Years
from 2024 onward assume no further growth. This approach is
considered prudent based on current expectations of the 2020
long-term growth rate.
Major assumptions are as follows:
Recruitment Consultancy
% %
2019
Discount rate 13.0 12.5
Forecast revenue growth (years 1
to 4) 2.0 10.0
Operating margin 2020 2.4 8.5
Operating margin 2021 onward 2.5-2.8 8.9-9.9
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 onward 2.0-2.3 7.8-10.5
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 2020 to 2023. Growth for the Recruitment
CGU is based upon the long-term growth rate for the UK economy.
Growth for the Consultancy CGU 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 smaller base;
-- The business has invested in new senior hires and new
marketing and branding to focus on consultancy opportunities;
and
-- New client wins in 2019 and contract extensions 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 amounts.
12 Deferred taxation
2019 2018
GBP'000 GBP'000
------------------------------------------------- -------- --------
At 1 January 1,153 919
Recognised in other comprehensive income
Remeasurement of defined benefit pension scheme (158) 171
Recognised in the income statement
Adjustments in relation to prior periods (57) 150
Capital allowances in excess of depreciation 12 (15)
Other short-term timing differences 20 (72)
At 31 December 970 1,153
------------------------------------------------- -------- --------
The deferred tax asset of GBP970,000 (2018: GBP1,153,000)
comprises:
2019 2018
GBP'000 GBP'000
---------------------------------------------- --------- ---------
Depreciation in excess of capital allowances 775 820
Other short-term timing differences 43 3
Retirement benefit liability 152 330
---------------------------------------------- --------- ---------
970 1,153
---------------------------------------------- --------- ---------
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 Limited 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 Limited.
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 Limited. The review concluded that given the
company'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 company.
The Directors believe that the deferred tax asset recognised is
recoverable based on the future earning potential of the Group and
the individual subsidiaries. The forecasts for Parity Professionals
Limited comfortably support the unwinding of the deferred tax asset
held by this company of GBP378,000 (2018: GBP404,000) and the
forecasts for Parity Consultancy Services Limited comfortably
support the unwinding of the deferred tax asset held by this
company of GBP592,000 (2018: GBP749,000).
The deferred tax assets at 31 December 2019 and 2018 have 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 Charge to
to other comprehensive
Asset income income
2019 statement 2019
GBP'000 2019 GBP'000
GBP'000
------------------------------ ---------- ------------------ ----------------------
Depreciation in excess of
capital allowances 775 (45) -
Other short-term timing
differences 43 40 -
Retirement benefit liability 152 (20) (158)
------------------------------ ---------- ------------------ ----------------------
At 31 December 2019 970 (25) (158)
------------------------------ ---------- ------------------ ----------------------
Credit to
(Charge)/credit other comprehensive
Asset to 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
------------------------------ ---------- ------------------ ----------------------
The Group has unrecognised carried forward tax losses of
GBP30,599,000 (2018: GBP30,187,000). The Group has unrecognised
capital losses carried forward of GBP282,441,000 (2018:
GBP282,068,000). These losses may be carried forward
indefinitely.
The Company has unrecognised carried forward tax losses of
GBP25,391,000 (2018: GBP24,979,000). The Company has unrecognised
capital losses carried forward of GBP281,875,000 (2018:
GBP281,875,000). 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 EAXLSFFSEEFA
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