Parity Group plc Report and Accounts for the year ended 31 December 2009 P a r i t y G r o u p p c l R e p o r t a n d A c c o u n t s f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 0 9 Parity Group plc Wimbledon Bridge House 1 Hartfield Road Wimbledon London SW19 3RU Tel: 0845 873 0790 Fax: 020 8545 6355 www.parity.net About Parity Group Corporate Information Parity is a business and IT solutions company with over 40 years’ industry experience. Parity delivers a range of recruitment and business and IT solutions to clients across the public and private sectors. “Over 40 years’ industry experience.” Why our clients choose Parity IT starts with our people: our clients enjoy the experience of working with Parity people who combine excellent skills with a refreshingly open way of working. Proud of our delivery capabilities: we deliver on high performance solutions and projects, enjoying the challenge of hugely complex problems or projects. Investment in IT: we partner with the best-of-breed technology companies and have invested in improving our own processes and systems to allow for improved effi ciencies and cost savings. Contents 01 Highlights 02 Group at a glance 06 Chairman’s statement 07 Operating review 11 Financial review 14 Board of Directors and Executive Committee 16 Directors’ report 18 Social, environmental & ethical policies 19 Corporate governance report 22 Remuneration report 26 Independent auditors’ report 27 Consolidated income statement 28 Statements of recognised income and expense 29 Balance sheets 30 Cash flow statements 31 Notes to the accounts Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY Advisors Auditors BDO LLP 55 Baker Street London W1U 7EU Bankers RBS Group 9th Floor 280 Bishopsgate London EC2M 4RB Financial advisors & stockbrokers Arbuthnot Securities Arbuthnot House 20 Ropemaker Street London EC2Y 9AR Solicitors Ashurst Broadwalk House 5 Appold Street London EC2A 2HA Pinsent Masons 30 Aylesbury Street London EC1R 0ER Registered office Wimbledon Bridge House 1 Hartfield Road Wimbledon London SW19 3RU Tel: 0845 873 0790 Fax: 020 8545 6355 Registered in England & Wales No. 3539413 Registrars Equiniti Limited, Aspect House Spencer Road Lancing West Sussex BN99 6DA Tel: 0870 600 3964 Fax: 0870 600 3980 Equiniti offer a range of information on-line. You can access information on your shareholding, indicative share prices and dividend details and find practical help on transferring shares or updating your details at www.shareview.co.uk Enquires concerning shareholdings in Parity Group plc should be directed, in the first instance, to the Registrars, Equiniti, as above. Financial calendar 2010 Annual General Meeting: Interim management statement: Interim results: 2 June 2010 19 May 2010 August 2010 Investor relations The Hogarth Partnership Limited No 1 London Bridge London SE1 9BG Tel: 020 7357 9477 Fax: 020 7357 8533 Further information for shareholders including copies of the Annual and Interim Reports can be obtained from the Company Secretary’s office at the registered office address below or from the Parity Group website at www.parity.net The Company Secretary Parity Group plc Wimbledon Bridge House 1 Hartfield Road Wimbledon London SW19 3RU Or by email to: cosec@parity.net Highlights of 2009 Financial highlights Operational highlights z Group revenues from continuing operations of z Training business divested in February 2009 z Decisive action taken on costs, with closure of Hemel Hempstead and Leeds sites and staff reductions across the business z Client service levels maintained z Successfully widened public sector client base to reduce dependency on a few large organisations z Sales effort more focused on private sector to take advantage of any upturn z Implementation of new IT systems with clear benefits showing through in the current year £119.0 million (2008: £132.3 million) z Resilient performance from Resources with revenues of £100.5 million (2008: £110.2 million) and operating profit before exceptional items of £3.0 million (2008: £3.7 million) z Solutions experienced difficult trading conditions, with revenues of £18.5 million (2008: £22.1 million) and operating profit before exceptional items of £0.03 million (2008: £1.4 million) z Group profit from continuing operations before tax and exceptional items of £0.25 million (2008: £1.7 million) z Net debt of £9.8 million (2008: £3.8 million), due to lower profitability, legacy cash outflows, restructuring costs and a short-term H2 increase in debtor days. Now improved with a consequent reduction in net debt as at the end of February to £7.5 million 01 Group at a Glance Our Mission Our Markets Parity works with its customers to bring out the best in their businesses. We draw on our experience to help organisations meet the challenges they face. Strong values mixed with personality make Parity a trusted partner for hundreds of clients across the UK and Ireland. Through specialised recruitment, we provide decision makers with the best candidates to drive strategies forward and focus on results. Through collaborative solutions, we identify and deliver innovative systems and processes to help our clients achieve their objectives. We aim to ensure that every customer, partner, employee and investor is in a position to achieve success. It is the combination of people from Parity and our relationship with our customers that makes the difference. 02 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY Key trends Challenging public sector cuts means “spend to save” together with fast ROIs expected Fixed price/risk reward becoming more prevalent as budgets are capped — this coupled with project complexity creates challenges for service providers Demand for IT resources continued to weaken until Q4 2009, when confidence improved The outlook for IT permanent recruitment shows sharp recovery Market watchers support our view that both Business Intelligence and Business Process Outsourcing may buck the public sector’s spend tightening Graduate unemployment in both Northern Ireland and Great Britain becoming a serious challenge — BPO services expected to be a compelling offer Analysts predict the banking and finance sectors to increase their investment in IT recruitment by 5% during 2010 Public Sector vs Private Sector breakdown — 2009 Public Sector 73%* Private Sector 27%* British Council Charity Commission Civil Aviation Authority Department of Health Highways Agency HM Prison Service HM Revenue & Customs Home Offi ce House of Lords Ministry of Defence Northamptonshire County Council Northern Ireland Tourist Board Offi ce of the First Minister and Deputy First Minister Ofsted Wigan Council Youth Justice Agency AXA Bank of England BAT BT Corus UK Deloitte & Touche GlaxoSmithKline Kellogg Management Services MBNA Europe Bank National Grid O2 Royal Bank of Scotland Scottish Power Shell T-Systems Unilever * Based on 2009 continuing operations revenue. Our Services Solutions Parity Solutions harnesses the power of IT and its people skills to deliver tangible business benefi ts to both public and private sector organisations. We work with a number of leading edge technology and “best of breed” partners including Microsoft, Oracle, Adobe and Sonata. Together we enable rapid ROI for our clients and are proud that a signifi cant number of our clients continue to select us as their preferred supplier. Client Engagements We provide the project and programme management skills, the Business Intelligence expertise and people and processes that enable organisations to achieve their business goals through the successful delivery of projects and programmes. Our collaborative engagement style ensures our clients remain an integral part of their programmes while we work with and support them in meeting the technical challenges and managing complexity and risk to deliver working solutions that make benefits realisation a reality. Professional Services Our Professional Services model allows our clients to engage Parity technical staff to help them flex their IT staffing levels as it suits. Clients avoid the cost and headache of recruitment, employment issues and staff turnover, while we take responsibility for the staff and their skills training. Business Process Outsourcing We are leading edge providers of programmes for our clients that identify, select, train and deploy top quality Graduates in both Northern Ireland and Great Britain. Supported by technology and unrivalled management training skills, we ensure the process is seamless and streamlined to meet our clients operational business and brand objectives. Applications Management We help our clients get better value out of their investment in their systems. We maintain, enhance and manage core business applications and work as an extended part of our clients’ IT team to provide a high quality, efficient and professional service. Resources Parity Resources is a specialist IT recruitment business providing dedicated IT staffi ng solutions to UK public and private sector organisations. Services: Contract & Permanent Recruitment We take a proactive, creative and flexible approach to contract, permanent and interim recruitment. Our sector based approach ensures that our recruitment consultants offer the best service to our clients. Our consultants understand the current issues and challenges that a particular sector may be facing. This knowledge forms the foundation for strong and ongoing relationships with both clients and candidates so we can identify and match the right skills and cultural fit for our clients. Public Sector Placing both contract and permanent staff within this sector, we have a strong heritage and are the leading supplier on the Buying Solutions framework for Specialist Contractors. Having developed close relationships over the years with our clients, we are able to understand their business drivers and help them to achieve their resourcing objectives. Our dedicated teams focus across sub-sectors within Government including; Central, Local, Criminal Justice, Health, Education and Defence and the Not-for-Profit sectors. In 2009, we were listed by Recruitment International as the Number 4 public sector recruitment firm. Private Sector Working successfully with both clients and candidates, we commit to a genuine and value-added partnership approach. Our consultants have developed an in-depth knowledge across the private sector including; Insurance and Finance, Energy, Not-for-Profit, FMCG and wider markets. A continuous dialogue with our candidates and clients allows us to define the level of specialisation required for a particular role: be it a contract or permanent position, and enables an understanding of a candidate’s professional aspirations. This relationship-based approach supports us to find the right professional for each vacancy. We were listed by Recruiter as the Number 1 IT recruitment firm for 2009. Our Brand Values - A committed approach - People that count - Creativity - Going the extra mile - Experience driving innovation 03 Our Customers Major contract wins 2009 January Electricity Supply Board SharePoint Internet Development March House of Commons 3 Year Framework for work for Staff Temporary IT Staff February Ofsted Corporate Judgement Repository and Collaboration projects April BAT Portal Development 04 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY May Buying Solutions Health 2 Year Framework for Contract Staff July Department for Employment & Learning INTRO Programme Extension June Dublin Airport Authority Intranet & Internet Support, Development & Hosting Framework The challenge MoD sought expert technical support at multiple locations for the provision of a highly specialised technical team to undertake a major IT programme. The profile of the individuals the MoD required was clearly defined and the task of identifying and selecting them was challenging: each of the candidates had to be proficient in a number of skills that collectively are in short supply from the marketplace. The challenge 190,000 Charities in England and Wales have to file Annual Returns. Lengthy paper forms were draining valuable resources for both the Charity Commission and individual Charities. Parity was awarded the project to deliver an online portal in time for the next Returns cycle. August BECTA Applications Management October Houses of Parliament Strategic Consultancy and Procurement Support November Recruitment International s the listed Parity as the blic Number 4 public ment sector recruitment firm Recruiter s listed Parity as IT the Number 1 IT rm recruitment firm Looking ahead We launched our Belfast Centre of Excellence in January 2010. Our strategy is to focus on improving business productivity within both the bu public and private sectors and this pu Centre is an integral part of our strategy: C allowing us to expand the range of our competencies in order to provide world class Internet Based Collaboration and Business Productivity solutions for our clients. Over the next three years we will be recruiting over 90 staff. These professionals will be a mix of experienced practitioners and fresh graduate talent working in Technical Design, Senior Developer and Junior Developer roles. The solution The result Parity demonstrated a thorough understanding of MoD’s requirements with an imaginative approach underpinned by a methodology that led to maximising resources at minimal costs. Parity not only took care of the ambitious volume recruitment process, but also provided a managed services solution for the technical support programme. This therefore meant that MoD site managers and other staff could focus on their activities without needing to become involved in lengthy recruiting and selection procedures for the additional staff they required. Parity applied its first-class knowledge and experience in volume recruitment to create a suitable pool of candidates. Finding a pool of some 70 individuals with such high levels of skills and specific knowledge was not an easy task. Parity’s recruiting and selection capability and managed service made a significant contribution to MoD during the migration phase of the project. The Parity team energetically supported the migration process, trained key MoD staff, ensured users at all levels were absolutely clear on their role in making the project succeed and provided critical continuity of support to the Project Team. The solution The result Parity developed the online portal so it would meet the need for Charities to complete their Returns in a timely and accurate manner by providing secure online filing, improved accessibility, built-in validation checks, links to helpful advice and guidance and to also allow for an enhanced customer experience. For the first time, the Commission was able to start phasing out time-consuming and costly practices associated with managing paper Returns. Within the first year of going live, 20% of Charities were choosing to submit their Returns online. This had risen by the end of December 2009 to 80% take- up and usage. The reduction in paper transactions has delivered substantial savings for the taxpayer. Each paper Return was costing the Commission £4.50 to produce, despatch and capture the data. Current levels of online submissions are expected to amount to several £million in cost savings over the coming years. 05 Chairman’s Statement Lord Freeman “Strong reputation for excellent service in the public sector” The past year has again been very difficult for the IT Services Industry. I express the Board’s thanks to our management and staff for their efforts in responding to the challenges we have faced. Public expenditure pressures over the coming years will certainly affect our industry but we are better placed than most given our reputation for excellent service in the public sector. The disposal of our Training business is leading to greater focus on improving profitability in our Resources and Solutions businesses. We are fully focused on creating greater scale in our businesses and on reducing cost, in what is a highly competitive market. We are determined to resolve these challenges in the best interests of our shareholders and staff and the continued support of both is much appreciated. Roger Freeman Chairman 19 April 2010 Kellogg Company “Parity has been a preferred supplier to Kellogg for over 8 years and has demonstrated a proactive service providing quality contracted IT.” Graham Liddell, Procurement Manager for IT, Kellogg Company 06 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY Operating Review Alwyn Welch “We made a number of investments both to improve our offerings to clients and to operate the business more efficiently.” INTRODUCTION During 2009, as the recession deepened, the Group continued to experience difficult trading conditions, with client spending reductions, downwards price pressures and lengthened procurement cycles. Against this background, Resources delivered a very resilient performance, especially compared to most of its competitors, whilst Solutions struggled for much of the year although showed improvement in the second half. We disposed of the Training business in February 2009. As part of the transaction we continued to provide certain back office support for most of the year. Market Parity operates from five offices in the UK and Ireland. We operate in the IT Services (Solutions) and IT Recruitment (Resources) sectors. Activity in both sectors tends to follow changes in GDP and often in an exaggerated manner as a significant proportion of IT spending is considered discretionary by clients. In 2009 discretionary spending, even in the public sector, was subject to significant reductions and to lengthened procurement cycles. Recruitment of permanent IT staff declined and whilst the decline in temporary staff recruitment was less severe, pricing pressures were consistently downwards. Driven both by this significant change to our business and by a need to continually improve our cost effectiveness, we closed two locations and consolidated most of our back office team into Wimbledon whilst reducing headcount in the process. We also implemented new integrated IT systems to replace dated, inefficient software, and to enable us to take further cost out of the Group and so operate more effectively. Much of Parity’s work is short-term in nature, although in Solutions we have some multi-year contracts and in Resources certain temporary staff who are critical to our clients’ ongoing operations are on long-term assignments. As project procurements slowed, and project and assignment durations shortened, our visibility of the business became very short and we experienced considerable market volatility. By acting quickly we weathered the economic storm far better than the Group has done in the past. Competition, not surprisingly, has increased and we also saw larger competitors fighting in our tier of the market as larger opportunities in both the private and public sector markets became scarce. Ministry of Justice “Parity has provided contractors across a range of disciplines taking care to match candidates to both requirements and team cultures. Our enquiries have always been handled quickly and professionally with excellent on-going support.” Steve Verdon, HR Director, Ministry of Justice 07 Operating Review continued In 2009 the majority of our business was delivered to public sector clients, where we were successful in widening our client base. More recently we have also started to re-orient our sales effort towards private sector clients, to take advantage of an expected upturn in that market as the recession lifts and to reduce our exposure to the spending-constrained public sector. OPERATIONAL REVIEW Group revenue was £119.0 million, 10% lower than in 2008 (£132.3 million). Operating profit before exceptional items was lower at £1.5 million (2008: £3.0 million), due to lower revenue and price pressures, combined with stranded costs after the Training disposal, offset by cost reductions through the year. Profit before tax and exceptional items for continuing operations was £251k (2008: £1,693k). Exceptional charges of £271k relate to the closure of the Hemel Hempstead office. Within operating profit before exceptional items we incurred aborted transaction costs of £63k and restructuring charges of £200k. Net debt increased to £9.8 million (2008: £3.8 million; H1 2009: £6.3 million). Lower profitability combined with legacy cash outflows, together with the cost of closing Hemel Hempstead and investment in new IT systems contributed to this position. Increasing debtor levels, caused by invoicing issues both internally and at a number of our larger clients, were the major factor in the second half of the year. Since the year end the position has improved significantly. At the end of February 2010 net debt had fallen to £7.5 million and trade debtors had reduced by over £2 million. Our internal systems and process issues have now been resolved and our debtor days have already reduced to our normal 30. “eGoverment national award winner.” Resources In a weak recruitment market, Resources delivered a strong result, better than many competitors. This was due to a combination of strong positioning in the market where we are in the top ten IT recruiters in the UK, and the top four in the public sector, and a clear focus on delivering operating profit. Revenue of £100.5 million was 9% lower than 2008 (£110.2 million), due to lower contractor volumes and average daily rates decreasing due to pricing pressures. Contractor margins reduced to 8.5% (2008: 9.5%) and permanent revenue (and margin) declined by £0.5 million. These factors combined with lower contractor revenue reduced gross margin by 21% to £8.7 million (2008: £11.1 million). Strong cost controls in the business, including a reduction in headcount of 28% from a peak in March to the year end, delivered a reduction of 23% in SG&A† costs to £5.7 million (2008: £7.4 million). The resulting operating profit before exceptional items of £3.0 million (2008: £3.7 million) represented a margin of 3.0% compared to 3.4% in 2008. Of the £0.7 million decrease in operating profit before exceptional items, some £500k was due to lower permanent revenue. Average contractor numbers declined by 7% from H2 2008 to H1 2009, and by 8% from H1 to H2 2009. Most of this decline was in the commercial sector, although we did see a worse seasonal impact than we have recently experienced in the public sector in Q2. Orders, measured by gross margin on new and extension contracts signed, improved by 38% in H2 compared to H1. We won key new frameworks at the NHS (PASA) and our focus on diversifying in the public sector was demonstrated by growth over the year of 51% in the numbers of contractors in Health, which helped offset a reduction of 19% in Central Government where spending pressures were applied early in the year. In the private sector, we renewed and grew revenue over the year at clients such as Shell and Unilever. Since entering 2010, contractor numbers in public and commercial clients sectors have grown above the mid December level and overall by 5%. We have seen strengthening demand from our commercial clients and so far good resilience in the public sector market, although we expect weakness here in our second quarter due to the pressures on UK public spending. Solutions Solutions experienced very difficult trading conditions throughout the year, with customers’ buying decisions being delayed and some project cancellations. Price pressures resulted in an average daily fee rate decrease of approximately 10% over the year, and as our utilisation has generally remained high this created the need for † Sales, general and administration costs (SG&A) is defined as total operating costs less cost of sales before exceptional items. †† Fee revenue is defined as project revenue delivered by our own staff or associates 08 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY continued cost reductions and also a mix change in the skills of the delivery people we employ. Revenue for 2009 at £18.5 million was 16% lower than in 2008 (£22.1 million) and fee revenue†† reduced by 18% in part due to price decreases as noted earlier. Operating profit before exceptional items was impacted and reduced to £29k (2008: £1.4 million). The 2009 numbers include over £300k of non-exceptional restructuring costs and internal costs on our new IT systems. In what was otherwise a very difficult year for Solutions, we made good progress in the market and in improving our underlying competitiveness. We won and started to deliver to two new significant clients at CAA and Ofsted, both using Microsoft technology and beating Tier 1 incumbent suppliers. We began working with Adobe, and have won our first project and also a framework agreement at the Met Office. In Northern Ireland we won an unsolicited bid for a new Talent Management BPO project with DEL, and shortly after the end of the year we announced the creation of a Microsoft skills Centre of Excellence in Belfast with strong support from Invest NI and Microsoft themselves. We have been building a relationship with our offshore delivery partner Sonata Software. Initially this involved using their staff in the UK to supplement our own, but recently they have started to deliver significant sized work packages from Bangalore. We are now taking some of their offerings to market in the UK, so gradually strengthening and widening our relationship. Sonata bring us very strong technical and project capability, and allow us to be more competitive with our larger competitors who have their own offshore capability. Solutions ended the year with an improving pipeline, competitive position, and orders. Nonetheless the outlook remains volatile as much of the work we undertake is seen as discretionary by our clients. Broadening our client base, and working more with partners including some larger systems integrators, will be the focus for us in 2010. Training (Discontinued) As previously noted, we disposed of the Training business to ECS Ltd at the end of February 2009. Training lost £245k in the first two months of the year. Since the disposal we have continued to deliver certain services to Parity Training, as agreed under a transitional services agreement. We have also focused on reducing the stranded costs. STRATEGY Parity’s overarching strategy continues to be to build a strong mid-sized business to deliver high quality IT and recruitment services into the UK and Ireland market. We differentiate through the quality of the work we do, the people we work with (internally and externally), and through the experience enjoyed by our clients when we work for them. We will manage the business prudently to ensure we balance quality with affordability, so building value for all stakeholders in our business. In Resources, where we have an estimated overall market share that places us in the Top ten IT recruiters in the UK, and the Top four in the public sector, our priority is to build a business based on higher value and scarcer skill sets. This strategy has enabled us to protect operating margin even as prices and volumes come under pressure, and it will allow us to continue to differentiate on service rather than risk becoming commoditised. We wish to have a modest level of permanent recruitment income, to improve operating margin and to allow us to offer a wider range of services to our clients, but we do not wish to become a generalist supplier. In Solutions our most important strategic objective is to grow our business to gain critical mass. Our technology focus will remain heavily towards Microsoft, but also complementing our existing Oracle capability with a growing presence in Adobe solutions. Whilst we have a good track record in mid-tier organisations in the public sector, and in utility companies, increasingly our application strength is in delivering Business Intelligence (BI) and knowledge sharing systems. This requires strong integration skills, understanding of the business issues in those domains, and the ability to bring together the skills required to deliver to clients. We will continue to focus our growth in this area, complementing our Talent Management BPO services. Offi ce of the First Minister and Deputy First Minister “Parity provided us with an end-to- end solution in the application analysis, development and migration to SharePoint from Lotus Notes. Their understanding and commitment around the SharePoint platform and their strengths in managing projects on time and on budget meant we delivered effectively against our business objectives.” Joe Beattie, Chief Technical Offi cer/ Departmental Accreditor 09 Operating Review continued PEOPLE 2009 was a second tough year for our staff, and as the essence of our business is the service delivered by people this created challenges for management and our staff alike. We had significant losses of people, with the disposal of Training; the closure of our Hemel Hempstead and Leeds offices; and some other staff reductions across the business. In common with much of our industry we awarded very limited pay rises, and little profit-related variable compensation was paid. We also offered our staff the opportunity to take unpaid leave as part of our focus on reducing costs without causing long-term damage to our ability to service our clients. It is a credit to all our colleagues that they managed to retain their focus and commitment during this difficult year. Importantly, we did not experience what is a common symptom of low morale: poor service delivery. Indeed the very culture that attracts and retains clients, has provided a source of stability in our Company. On behalf of the Board, and particularly of the Executive Committee, I would like to thank all Parity people for fighting so hard and effectively during such a tough year. Whilst the financial results were not as we would have wished, our people contributed strongly to the resilience we have shown. OUTLOOK We do not expect the markets in which we operate to grow significantly during the current year. Whilst the economy overall may grow slowly, we expect IT spending in the public sector to continue to come under strong pressure. Conversely we see signs for optimism in the private sector. Revenue visibility remains low and volatility high. However, there are clearly areas of the market which are already growing and we are focusing our selling efforts on those. Our reputation for high quality service delivery across our business will help us to continue to differentiate well. Clients investing at this stage of the cycle insist upon low risk, high quality delivery as well as competitive prices. Prudence and caution will remain our operational watchwords as we navigate Parity through the current year and as the market slowly emerges from recession. Alwyn Welch Chief Executive Officer 19 April 2010 Coview Solutions “Parity has always provided me with a professional, effi cient and effective service. With their in-depth understanding of the telecoms market, I know that I will receive the right candidate for the vacancies I have. This reliable and friendly service means I will be happy to use Parity for future recruitment needs.” Ken Whittleston, Operations Director, Coview Solutions 10 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY Financial Review Ian Ketchin REVENUE Continuing operations Resources Solutions “Parity Resources proved to be more resilient to the effects of the recession than many of its competitors.” 2009 £’000 2008 £’000 100,517 110,161 18,507 22,117 119,024 132,278 Group revenues from continuing operations fell by £13.3 million (10%) to £119.0 million, reflecting the tough trading conditions experienced by the Group during the year. Resources proved to be more resilient to the effects of recession than many of its competitors. Permanent recruitment, which declined most significantly in 2009, forms only a small part of the Resources business. Contract recruitment, which is where Parity specialises, has been more robust. The Solutions business continued to experience customer delays in signing contracts to start work, reductions in scope after contracts had been awarded and price pressures. Operating profit Continuing operations Resources Solutions Operating profit before central costs and exceptional items Central costs Operating profit before exceptional items Operating profit before exceptional items decreased by 52% reflecting the economic conditions prevailing during 2009. Resources saw a decline in operating profit before exceptional items from £3.7 million to £3.0 million which is nevertheless 13% more than reported in 2007. Operating profit before exceptional items in Solutions was at breakeven. Despite further cost reductions the market conditions and the competition for business meant that Solutions was unable to generate sufficient revenue to make a good return. 2009 £’000 2008 £’000 2,993 29 3,022 (1,572) 1,450 3,691 1,351 5,042 (2,034) 3,008 Disposal and discontinued operations On 27 February 2009 we completed the sale of the Training business to ECS Ltd (a Dubai-based company) for consideration of up to £3.0 million. This included £1.5 million dependent on revenue performance in the 12 months following the sale. We do not expect performance levels to have been adequate to trigger payment of any of this conditional consideration. This disposal simplified the business and improved focus. The results for discontinued operations include a loss on disposal of £208,000 and a trading loss for Training in the first two months of the year of £245,000. As a result of the disposal the Group addressed its cost base, as certain costs previously charged across three business units are now shared across two. We closed our major back office facility in Hemel Hempstead and moved the roles to our head office in Wimbledon, whilst also reducing the number of staff engaged in support functions. We continue to work to reduce our IT infrastructure costs. 11 Financial Review continued Exceptional item As a result of the closure of our Hemel Hempstead office we incurred an exceptional charge of £271,000. This included redundancy costs for certain staff and retention bonuses for those moving to our Wimbledon office in addition to recruitment costs to complete the new team. It is a credit to our people that despite the upheaval of this move, the change in staff and the implementation of a new finance system during the year, the finance team delivered an uninterrupted service to the business. In 2008 there was an exceptional restructuring charge of £371,000 relating to redundancies in the Solutions business and moderate central cost changes. Finance system During 2009 we implemented our new Microsoft Dynamics AX ERP system across the business. This replaced a number of old systems, some of which were no longer supported. AX is also integrated with our front office recruitment system to create processing efficiencies. Finance costs Interest charges include notional interest on the Group’s pension liabilities of £862,000 (2008: £827,000) in accordance with IAS 19. Interest costs on borrowings fell by £147,000 to £341,000 owing to falling interest rates. Taxation There was a tax credit of £245,000 on continuing operations (2008: charge of £129,000). This included the write back of a surplus provision of £360,000 and a reduction of £300,000 in the deferred tax asset in the Solutions business owing to reduced visibility of future profits. The tax on discontinued operations was a charge of £189,000 (2008: £784,000). Pensions The Group’s defined benefit pension scheme had an increased accounting deficit at the year end. The accounting deficit was £3.3 million (2008: £1.9 million) at 31 December 2009. The increase reflects the projected changes in the financial markets, and an increase in longevity of members. The Group contributes £900,000 a year to reduce the deficit. Net assets Net assets totalled £7.3 million at the period end, a decrease of £1.3 million on last year. The largest single item leading to this reduction was the £1.4 million increase in the pension liability. Cash flow and net debt Net debt at 31 December 2009 was £9.8 million (2008: £3.8 million) (see note 32). This result was disappointing and reflected a number of factors. The challenge of transitioning to our new financial systems was compounded by the growing trend in the public sector to outsource payment processes or use shared service centres. The changes in those processes gave rise to further challenges in our payment cycle. With a similar ageing profile of trade debtors to 31 December 2008 we would have expected £2 million – £3 million less net debt at 31 December 2009. At the end of February 2010 net debt had been reduced by £2.3 million. The other major factors affecting the year end net debt were a reduction in trade and other creditors of £4.2 million which was in line with the fall in turnover and the capital expenditure of £1.7 million. Debtor days closed the year at 33 days (2008: 30 days) and have subsequently been reduced again to 30 days. Earnings per share and dividend The weighted average number of shares used in the calculation of basic earnings per share was 37.9 million (2008: 37.9 million). The basic loss per share was 0.71 pence (2008: loss of 9.08 pence. The basic earnings per share from continuing operations was 0.59 pence (2008: earnings of 3.14 pence). The Board does not propose a dividend for 2009 (2008: nil). Risks and uncertainties There are a number of potential risks and uncertainties that could have an adverse impact on the Group’s long-term performance. Risk management is seen as an important element of internal control and is used to mitigate the Group’s exposure to such risks. The key risks facing the business and how we address them are outlined on the next page. 12 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY Market and client risk Risk from losing out to our competitors is minimised by ensuring we maintain a competitive edge through strong relationship management and quality of service delivery. Contract risk Parity’s contracts can be complex and each one is different. The operation and management of those contracts is key to successful performance. Our exposure to market risks is further limited by the fact that we serve a diverse range of clients with the largest accounting for less than 6% of turnover of the Continuing Group in 2009. 73% of turnover came from the public sector. The Company has established detailed and formal controls to manage the risks associated with taking on new clients and the continued supply of services to ensure that contractual obligations are met over the life of a contract. The Company constantly reviews levels of fixed cost in order to reduce the impact of a downturn in revenue. Resources The continuing consolidation in the market combined with the economic downturn brings pricing pressure. Parity’s response is to focus on higher margin, higher level skill areas that are not so vulnerable to low margin, high volume competitors. Resources delivers 45% of its revenue under the Buying Solutions public sector framework. This framework is presently subject to retender. Should Parity not retain its position on this framework, we may be able to offer services to our public sector clients though other public sector frameworks. In addition if we were to lose our Buying Solutions accreditation, the current contractor book would take some time to erode, giving the Company time to find new business and adjust the cost base. Solutions The increasing trend to offshore IT development could restrict Parity’s ability to win new work. The Company’s approach is to focus on smaller contracts where the additional cost of managing the outsourced service would offset the lower delivery cost. In addition we have partnered with an Indian company, Sonata Software, who will deliver modules of projects for Parity where remote delivery is considered effective. Our core competence is in project management and we believe this will always require on-site presence. Human Resources Our people are an important element of our service and having appropriately trained staff helps us mitigate the risk of poor service delivery. Our performance management system ensures that staff have clear objectives and are appropriately rewarded for the outcome, while also identifying training and development needs. Technology risk As an IT services provider we rely on our IT, telecommunications and infrastructure systems to perform and manage the services we provide to clients. The Company engages with its service providers and reviews its own disaster recovery systems regularly in order to minimise the risk of prolonged disruption to systems. Regulatory and legal The Board also recognises that non-compliance with relevant laws and regulations can result in substantial fines or penalties. Suitable controls are built into our service delivery processes. Ian Ketchin Group Finance Director 19 April 2010 Learning and Skills Council “Parity makes contracting easy. They take care of everything. They always give me suffi cient information on the role when I apply, keep me informed during selection and make the whole payment process simple. A pain-free agency!” Craig Warmington, Programme Manager, Learning and Skills Council 13 Board of Directors 4 2 1 5 3 3 Nigel Tose Non-executive Director 1,2,3 Nigel Tose, 66, was appointed to the Board as a Non-executive Director in 2006. He has over 30 years’ experience in investment banking, serving until 2005 as Co-Head of Corporate Finance at Investec Bank (UK) Ltd. Prior to joining Investec in 1994, he held a number of senior roles, both domestic and international, at financial organisations including Lloyds Merchant Bank and Lloyds Bank International. He is Chairman of Parity’s audit committee. 4 Alwyn Welch Chief Executive Offi cer Alwyn Welch, 52, joined Parity as Chief Executive in February 2006. He has over 25 years’ experience in the technology sector in the UK and internationally. After studying for an Engineering Science degree, he carried out applied electronic research and then worked in engineering management in the Plessey Group plc. He subsequently worked for over 14 years at CapGemini including as CEO for their Nordic Region and as CEO of their UK and Asia Pacific region and as a member of the Group Executive Committee. He was also a member of the Executive Board of Logica with responsibility for the Americas, Management Consulting and Financial Products; served as Chairman of the IT National Training Organisation in the UK and was COO and a director of Brainspark plc. He joined Parity from Unisys where he was Vice President and General Manager of the United Kingdom, Middle East and Africa region. 5 Ian Ketchin Group Finance Director Ian Ketchin, 46, was appointed Finance Director in May 2007. Before joining Parity he was Finance Director at MSB International plc, a publicly listed recruitment business, and he played a key role in its successful sale to Networkers International plc at the end of 2006. He was previously with Ernst & Young and has over 16 years of significant financial and industry experience. Ian has responsibility for Finance, Property and Facilities and our Legal and Contracts team. 1 Lord Freeman Chairman 1,2 Roger Freeman, 67, was appointed Non-executive Chairman in July 2007 and is Chairman of the remuneration and nominations committees. After qualifying as a Chartered Accountant in 1969 he joined Lehman Brothers, the US Investment Bank, and was a Partner in the London Office until 1983 when he entered the House of Commons. He served as a Minister between 1986 and 1997 including Cabinet Minister for Public Service. He became a Life Peer in 1997 and also became a Partner with PricewaterhouseCoopers for whom he now chairs their UK Advisory Board. He is Chairman or Non-executive Director of a number of listed and private companies including Thales SA, Chemring Group plc and Savile Group plc. 2 John Hughes Non-executive Deputy Chairman 1, 2, 3 John Hughes, 58, joined the Group as Executive Chairman in May 2005 and continued in that role until July 2007. He now serves as Non-executive Deputy Chairman. He has over 30 years’ international experience in the IT industry and latterly was Executive VP and Chief Operating Officer of Thales Group. Prior to this, he held senior executive positions at Lucent Technologies and Hewlett Packard and has extensive experience of managing both services and product companies in high growth as well as refocus/turnaround situations. He is Chairman of Telecity Group, Spectris plc and Intec Telecom Systems and a Board member of NICE Systems Ltd and Chloride Group plc. Committees 1 Member of the nominations committee 2 Member of the remuneration committee 3 Member of the audit committee 14 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY Executive Committee 4 5 6 8 7 8 Simon Wayne Simon Wayne, 55, has over 20 years’ experience within the IT sector and was appointed as Managing Director of Parity’s Solutions business in 2008. Prior to his appointment, he headed up Solutions’ Services division. Simon joined Parity after spending 19 years at CapGemini where he ran the wholesale banking and capital markets division, the applications product team and the Professional Services division. Simon has a tremendous understanding of the business and an ambition and determination to grow the Solutions division further. 6 Alan Rommel Alan Rommel, 38, has been Managing Director for Parity Resources for over 2 years, having managed both the commercial and public sector divisions during a 16 year career with Parity. Alan has been instrumental in building public sector recruitment revenues through the Buying Solutions framework and direct relationships. He has led a number of successful bids for client frameworks and sole supplier status for major government projects. With excellent team building and management skills, Alan is responsible for 60 staff, across a number of Parity locations, and the provision of both contract services and permanent employees to public and private sector clients. 7 Sarah Cooke Sarah Cooke, 44, has 20 years’ experience in HR roles in the IT and Professional Services Industry, of which 16 have been with Parity in both operational and corporate roles, covering each of Parity’s business lines. Prior to this she held a variety of HR roles with BIS and ACT. Sarah was appointed Head of Human Resources in 2005 where the prime focus of her role was to implement the people changes that were necessary as part of the recovery plan and also to create a newly centralised HR team and put in place new people processes across the organisation. Sarah led the implementation of a new flexible benefits plan across Parity thereby improving the degree of choice and enhancing the provision of information and guidance available to employees. 15 Directors’ Report The Directors present their report and the audited accounts for the year ended 31 December 2009. Principal activities The Group’s principal activities during the year were technology staffing and the provision of IT and business solutions. Review of business and future developments A review of the business and its outlook, including commentary on the key performance indicators of turnover, gross margin, debtor days and net debt, and the principal risks and uncertainties facing the Group is included in the Chairman’s Statement, Operating Review and Financial Review on pages 6 to 13. The Group’s social, environmental and ethical policies are set out on page 18. A statement on the application of the going concern principle is set out below. Details of financial instruments are set out in note 27 to the financial statements. Each of the above is incorporated in this report by reference. Group results The Group loss from continuing operations before taxation for the year was £20,000 (2008: profit of £1,322,000) after charging exceptional items of £271,000 (2008: £371,000). After a tax credit of £245,000 (2008: charge of £129,000), dividends paid and proposed of £nil (2008: £nil) and a loss from discontinued operations of £496,000 (2008: £4,641,000), the retained loss of £271,000 (2008: £3,448,000) has been transferred to reserves. The results for the year are set out in the consolidated income statement on page 27. Dividends The Directors do not recommend a final dividend (2008: nil pence per ordinary share). The total dividends for the year were nil pence per ordinary share (2008: nil pence per ordinary share). Pension The Group operates a defined contribution pension scheme. There is also a defined benefit scheme which is closed both to new members and to future service accrual. Details of the defined benefit pension scheme are given in note 30. Purchase of own shares At the end of the year, the Company had authority, under the shareholders’ resolution of 14 May 2009, to purchase in the market 3,802,178 of the Company’s ordinary shares at prices ranging between two pence and an amount equal to 105% of the average of the middle market prices quoted in the five business days immediately preceding the day of purchase. No purchases were made during the year. The Directors intend to seek renewal of this authority at the forthcoming Annual General Meeting on 24 May 2010. Board of Directors Biographical information on each of the Directors as at 19 April 2010 is set out on page 14, together with details of membership of the Board committees. In accordance with the Company’s Articles of Association, Nigel Tose will retire by rotation and offer himself for re-election at the 2010 Annual General Meeting. Directors’ interests The Directors’ beneficial interests in the ordinary share capital of the Company are set out within the remuneration report on page 22 . Principal shareholders At the close of business on 15 April 2010 (being the latest practical date prior to the signing of the Directors’ Report) the Company had received notification of the following substantial interests representing over 3% of the issued share capital: Aberforth Partners LLP * Philip Swinstead Dominion Holdings Ltd BlackRock, Inc. Gartmore Investment Management Lloyds Banking Group T D Waterhouse Nominees Europe Ltd Winterflood Securities Ltd BP Pension Trustees * Aberforth Partners LLP controls the voting rights of 6,079,782 shares, representing 15.99%. Number of Ordinary 2p shares Percentage held 7,951,519 6,795,327 4,400,000 2,463,668 2,150,000 1,904,309 1,556,331 1,248,753 1,232,221 20.91 17.87 11.57 6.48 5.65 5.01 4.09 3.28 3.24 16 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY Capital structure The Company has two classes of shares in issue, ordinary shares of 2p and deferred shares of 0.04p. The ordinary shares are listed on the London Stock Exchange and ordinary shareholders are entitled to vote at Company meetings, to receive dividends and to the return of their capital in the event of liquidation, with the exception of ordinary shares held by the Parity Group plc Employee Share Ownership Trust which are not entitled to vote or to receive dividends. The deferred shares are not listed, have no voting rights, no rights to dividends and the right only to a very limited return on capital in the event of liquidation. The Directors are not aware of any restrictions on transfers of shares in the Company or on voting rights or of any agreements between holders of the Company’s shares which may result in such restrictions. Risks and uncertainties There are a number of potential risks and uncertainties that could have an adverse impact on the Group’s long-term performance. Risk management is seen as an important element of internal control and is used to mitigate the Group’s exposure to such risks. The key risks facing the business and how they are addressed are outlined within the Financial Review on pages 11 to 13. Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out on the previous page (Review of business and future developments). The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review on pages 11 to 13 and in note 27 to the financial statements. In addition note 32 includes the Group’s objectives for managing capital. As highlighted in note 27, the Group meets its day to day working capital requirements through an invoice financing facility. This is a rolling facility subject to review each year. The current economic conditions create uncertainty particularly over the level of demand for the Group’s services and the availability of bank finance in the foreseeable future. The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current facility. The bank has not drawn to the attention of the Group any matters to suggest that this facility will not be continued on acceptable terms. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts. Change of control The Company is not party to any significant agreements that take effect, alter or terminate upon a change of control of the Company following a takeover bid. In the event of a takeover bid that would result in Mr Welch or Mr Ketchin losing their office and employment with the Company, they would each be entitled to compensation for loss of office of one year’s salary, bonus and benefits in kind. In the event of a change of control, the share options held by Mr Welch and Mr Ketchin under the Senior Executive Option Plan would vest. There are no other agreements between the Company and its Directors or employees providing for compensation for loss of office or employment that occurs because of a takeover bid. Payments to suppliers The Group seeks to abide by the payment terms agreed with suppliers when it is satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. In the United Kingdom, the Group agrees payment terms with its suppliers when it enters into binding purchase contracts. At 31 December 2009 unpaid creditors of the Group amounted to 28 days of purchases (2008: 32 days). Creditor days have not been calculated for the Company as it has no trade creditors. Corporate social responsibility The Group recognises its corporate social responsibilities and reports on these in a separate statement of social, environmental and ethical policies on page 18. This report covers the Group’s Employment Policies, Environmental Policy and Health and Safety Policy. The Group’s Corporate Social Responsibility policy can be found on the Group’s website at investor.parity.net/csr. Contributions for charitable and political purposes The Group made charitable contributions of £nil during 2009 (2008: £nil). No payments were made for political purposes. Directors’ and officers’ liability insurance and indemnity The Company has purchased insurance to cover its Directors and officers against their costs in defending themselves in any legal proceedings taken against them in that capacity and in respect of damages resulting from the unsuccessful defence of any proceedings. Disclosure of information to auditors So far as the Directors are aware, there is no relevant audit information of which the auditors are unaware and each Director has taken all reasonable steps to make himself aware of any relevant audit information and to establish that the auditors are aware of that information. Auditors Resolutions will be proposed at the Annual General Meeting to reappoint BDO LLP as auditors to the Company and to authorise the Directors to determine their remuneration. Annual General Meeting The resolutions to be proposed at the Annual General Meeting to be held on 2 June 2010, together with explanatory notes appear in the separate Notice of Annual General Meeting sent to all Shareholders. By order of the Board Ian Ketchin Company Secretary 19 April 2010 17 Social, Environmental & Ethical Policies Employment policies The Group is committed to offering equal employment opportunities and its policies are designed to attract, retain and motivate the very best staff regardless of sex, age, race, religion or disability. The Group encourages the participation of all employees in the operation and development of the business by offering open access to senior management, including the Executive Directors, and adopting a policy of regular communications through road shows and the intranet. The Group incentivises certain employees through the payment of bonuses linked to performance objectives, which are agreed at the start of the year. All employees have an element of remuneration linked to performance. Where appropriate these objectives are linked to profitability. The Group also has a structured approach to performance appraisal and career development and ensures that every employee has an annual performance review and has clear objectives and performance standards. Health & safety The health and safety of Parity’s employees is paramount. Group policy is to provide and maintain safe and healthy working conditions, equipment and systems of work for all employees and to provide such information, training and supervision as is needed for this purpose. Appropriate written health and safety information outlining the Group’s policy in each area is issued to all new employees. This includes: First aid — Each office has a person qualified in first aid. First aid boxes are readily accessible and records kept of all accidents and injuries. Fire safety — Each office has an evacuation marshal who will liaise with building management or local emergency authorities, as appropriate. Evacuation assembly points are agreed for every location and a full evacuation carried out every six months. Fire alarms are tested regularly. Employees’ health — Any employee who believes he/she is suffering from an illness or condition related to their working environment are encouraged to report this to his/her manager for investigation. Social responsibilities It is Group policy to be a good corporate citizen wherever it operates. As part of the Group’s social responsibility, employees are encouraged to become involved in their local communities and fund raising events for charity. In 2009 Parity took part in Byte Night, an event to support Action for Children’s work with vulnerable young people leaving care, or those at risk of becoming homeless. Parity’s participants raised over £7,000. Environmental policy While Parity Group’s operations by their very nature have minimal environmental impact, the Group recognises its responsibilities to protect and sustain the environment and its resources. The Group’s policy is to meet or exceed the statutory requirements in this area and it has adopted a code of good environmental practice, particularly in its main areas of environmental impact, namely energy efficiency, use and recycling of resources and transport. Transport Public transport is used whenever possible. Interest-free season ticket loans are made to staff at the discretion of local management. Teleconference facilities are extended to main office locations to minimise business travel and increase efficiency. PCs (portable or desktop) are made available to staff where needed to facilitate home working and minimise the need to travel to offices. Energy Only energy-efficient computers and peripherals are acquired and they are turned off at the end of each day. As a normal part of its operations the Group seeks to occupy offices which have efficient building management systems and, ideally, low energy lighting. Office lighting is turned off at the end of each day. Consumables Whenever economically justifiable, the paper and other consumables used are made from environmentally-friendly or recycled material or from renewable resources. Recycling The Group makes every effort to recycle office paper and envelopes. Appropriate containers are provided at all offices and all paper collected is sent to recycling plants. The Group also recycles as much other material, such as toner cartridges, as is economically viable. When replaced, computers and peripherals are offered to local schools or charities or sent to recycling plants. Ethics Parity Group’s policy is to comply with all national and local laws wherever it operates. The Group also operates a non-discriminatory equal opportunities policy in employment, training and promotion. All job applicants and employees receive fair and equal treatment irrespective of age, sex, sexual orientation, marital status, nationality, colour, race, ethnicity, national origin, religion or disability. Diversity in the workforce is encouraged to reflect, where practicable, the diversity of the working population in each company’s areas of operation. 18 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY Corporate Governance Report Introduction The maintenance of high standards of corporate governance remains a key priority for the Board. The Financial Reporting Council published an updated Combined Code on Corporate Governance (the “Combined Code”) in June 2008. The UK Listing Rules require listed companies to disclose how they have applied the principles of the Combined Code and whether they have complied with the provisions set out in section 1 of the Combined Code throughout the year. If there are instances of non- compliance, companies must state which provisions they have not complied with, what period the non-compliance covered during the year and provide an explanation for the non-compliance. This statement, together with the remuneration report on pages 22 to 25 describes how the Group has complied with the Combined Code during the year. Statement by the Directors of compliance with the provisions of the Combined Code The Board considers that, throughout the period under review, the Group has complied with the provisions of the Combined Code, except in the following areas: l Under the code, as Chairman, Roger Freeman is not considered independent. However as the Board included at least two other Non-executive Directors, the Board believes that there was a sufficient degree of independence. l No member of the audit committee has recent and relevant financial experience. The Board considers that the members of the audit committee have the financial experience and qualifications required and collectively the members have the requisite skills and attributes to enable the audit committee to properly discharge its responsibilities. l Due to procedures outlined under internal control on page 21, and after allowing for the internal checking procedures carried out under the Group’s system of quality control, the Group did not consider it necessary to have a separate internal audit function. Going concern The Board confirms that after making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the accounts. Further details are outlined in the Directors’ Report on page 17. The workings of the Board and its committees The Board The Board consists of the Chairman Roger Freeman, the Non- executive Deputy Chairman John Hughes, the Chief Executive Officer Alwyn Welch, the Group Finance Director Ian Ketchin and Non-executive Director Nigel Tose. The Directors’ biographies, which are set out on page 14, demonstrate a range of business backgrounds and experience. Nigel Tose acts as the senior independent Non-executive Director and his prime responsibility is to provide a communication channel between the Chairman and the Non-executive Directors and to ensure that the views of each Non-executive Director are given due consideration. He is also an additional contact point for the shareholders if they have reason for concern, when contact through the normal channels of the Executive Directors has failed to resolve their concerns or where such contact is inappropriate. The Board normally has eight scheduled meetings a year and meets more frequently as required. A table showing the number of meetings of the Board and its committees held during the year and attendance at those meetings by each Board member is set out on page 20. The Board maintains close dialogue by email and telephone between formal meetings. The Board has a formal schedule of matters reserved for its specific approval including review of Group strategic, operational and financial matters including proposed acquisitions and divestments. It approves the annual accounts and interim report, the annual budget, significant transactions and major capital expenditure and reviews the effectiveness of the system of internal control and the risks faced by the Group. The review covers all controls, including financial, operational and compliance controls and risk management. Authority is delegated to management through Group authorisation limits on a structured basis, ensuring that proper management oversight exists at the appropriate level. The Managing Directors of each of the business units held regular meetings with the Chief Executive Officer and Group Finance Director during the year to discuss operating and financial performance and key issues arising from these meetings were reported to the Board. All members of the Board are supplied in advance of meetings with appropriate information covering the matters which are to be considered. A procedure exists for the Directors, in the furtherance of their duties, to take independent professional advice if required. If a Director has any concerns about a particular issue, such concerns are recorded in the minutes of the relevant Board meeting. In the event that a Director resigned over a matter that was of concern to him, such concerns would be communicated to the other Directors. All Directors have the opportunity to undertake relevant training, to have full and timely access to relevant information and advice and to obtain the services of the Company Secretary. All Directors submit themselves for reappointment at the next Annual General Meeting following their appointment. The name of the Director submitted for reappointment is noted in the Directors’ report on page 16 and in the separate Notice of Annual General Meeting sent to all Shareholders. The Chairman, and in the case of the Chairman himself, the Deputy Chairman confirms that the performance of each Director submitting themselves for reappointment continues to be effective and the individuals continue to demonstrate commitment to the role. Performance evaluation Individual Board members’ performance is evaluated through six-monthly appraisals. The performance of the Chairman is evaluated by the Non-executive Directors every six months. Details of the Directors’ remuneration packages, including performance based elements, are set out in the Directors’ remuneration report on pages 22 to 25. 19 Corporate Governance Report continued Attendance at Board meetings The Board had eight scheduled Board meetings in 2009 and ad hoc meetings (not included below) were convened as necessary to deal with urgent matters. Details of attendance at scheduled meetings is summarised below: Number held Number attended 1 Roger Freeman John Hughes Ian Ketchin Nigel Tose Alwyn Welch Board Audit Nominations Remuneration 8 8 8 8 8 8 3 — 3 — 3 — 1 1 1 — 1 — 3 3 3 — 3 — 1 All Directors who were members of the Board at the time with the exception of John Hughes attended the Group’s Annual General Meeting on 14 May 2009. Committees The terms of reference of the three committees of the Board are made available for inspection by shareholders at the Annual General Meeting or, on request to the Company Secretary, can be inspected at the Company’s head office and are also available in the Corporate Governance section of the Company’s website. Audit committee The audit committee which is chaired by Nigel Tose, meets at least twice annually. John Hughes is the other member of the audit committee. The audit committee reviews and, as appropriate, actively engages in the processes for financial reporting, internal control, risk assessment, audit and compliance assurance, the consideration of the independence of the Group’s external auditors and the effectiveness of the Group’s system of accounting, its internal financial controls and external audit function. The committee’s principal terms of reference include: l the oversight responsibilities described in the above paragraph; l reviewing compliance with laws, regulations and the Group’s code of conduct and policies; l monitoring the integrity of the Group’s financial statements and any announcements relating to the Group’s financial performance and reviewing significant financial reporting judgements, changes in accounting policies and practices, significant adjustments resulting from the audit and the application of the going concern assumption; l reviewing the findings of the external audit with the external auditors; l making recommendations to the Board, for it to put to the shareholders for their approval, regarding the appointment, reappointment and removal of the external auditor and approving the remuneration and terms of engagement of the external auditor; l monitoring and reviewing the external auditors’ independence and the effectiveness of the audit process; l developing and implementing policy on the engagement of the external auditors to supply non-audit services; and l reviewing the Group’s arrangements for its employees to raise concerns, in confidence, about possible wrong doing in financial reporting or other matters. In order to ensure an appropriate balance between cost effectiveness, objectivity and independence, the audit committee reviews the nature of all services, including non-audit work, provided by the external auditor each year. The Group normally expects to retain the external auditor to provide audit-related services, including work in relation to shareholder circulars and similar services. The external auditor has provided audit-related services during 2009, details of which are set out in note 3 to the accounts. Audit committee meetings are attended by the Finance Director at the invitation of the committee. The external auditors meet separately with the audit committee on request, without the presence of the Finance Director, to ensure open communication. Remuneration committee Details of the membership and responsibilities of the remuneration committee are set out in the remuneration report on pages 22 to 25. Nominations committee The nominations committee comprises the Non-executive Directors and is chaired by Roger Freeman. It is responsible for proposing candidates for appointment to the Board, having regard to the balance and structure of the Board. Where necessary, recruitment consultants are used to assist the process. Investor relations The Company engages in regular dialogue with its institutional shareholders through presentations and meetings after the announcement of the Group’s full year and interim results. Private and institutional shareholders are given an opportunity to communicate directly with the Board at the Annual General Meeting. Shareholders’ queries received via the Company Secretary’s email address at cosec@parity.net or by telephone to the Group’s head office are responded to in person by the Company Secretary or by another appropriate employee. All members of the Board usually attend the Annual General Meeting. The chairmen of the audit, remuneration and nominations committees will normally be available to answer shareholders’ 20 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY questions at that meeting. Notice of the Meeting is posted to shareholders with the report and accounts not fewer than 21 working days prior to the date of the Annual General Meeting. The package sent to shareholders includes a summary of the business to be covered at the Annual General Meeting, where a separate resolution is proposed for each substantive matter. The Group’s annual report and accounts, interim report and other stock exchange announcements are published on the Group’s website at www.parity.net. Copies of any presentations made to analysts or institutional shareholders are also published on the website. Internal control The Board is ultimately responsible for the Group’s system of internal control and for reviewing its effectiveness and is assisted in this respect by the audit committee. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Group’s system of internal control, which complies with the Turnbull Guidance, has been in place throughout the year and up to the date of this report. The Directors confirm that they have reviewed the effectiveness of the Group’s system of internal controls during the year. Board balance and independence The Combined Code requires a balance of Executive and Non- executive Directors such that no individual or small group of individuals can dominate the Board’s decision making. The number and quality of the Non-executive Directors on the Board, with their combination of diverse backgrounds and expertise, ensures that this principle is met. The Board considers that there are no relationships or circumstances which are likely to affect the independent judgement of the Non-executive Directors. Risk management The Group is exposed through its operations to the following financial risks: l Fair value and cash flow interest rate risk; l Foreign currency risk; l Liquidity risk; and l Credit risk. The policies for managing these risks are set by the Board following recommendations from the Finance Director. Certain risks are managed centrally, while others are managed locally following guidelines communicated from the centre. The policies for each of the above risks, and the nature and extent of those risks, are described in detail in note 28 to the financial statements. Other risks and uncertainties are discussed in the Financial Review on pages 11 to 13. Directors’ responsibilities The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements and have elected to prepare the Company financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss for the Group and Company for that period. In preparing these financial statements, the Directors are required to: l select suitable accounting policies and then apply them consistently; l make judgements and accounting estimates that are reasonable and prudent; l state whether they have been prepared in accordance with IFRS as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; l prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; l prepare a Director’s Report and Director’s Remuneration Report which comply with the requirements of the Companies Act 2006. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Website publication The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. Directors’ responsibilities pursuant to DTR4 The Directors confirm to the best of their knowledge: l the Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group. l the annual report includes a fair review of the development and performance of the business and the financial position of the Group and the parent Company, together with a description or the principal risks and uncertainties that they face. 21 Remuneration Report Remuneration committee The remuneration committee comprises Roger Freeman as Chairman, John Hughes and Nigel Tose. Directors are excluded from discussions about their personal remuneration. Performance bonus The terms of the incentive bonus for Executive Directors are agreed annually. For 2009 a first half target was set as well as the full year target. The committee meets regularly and is responsible for reviewing the Group’s remuneration policy, the emoluments of the Executive Directors and other senior management and the Group’s pension arrangements and for making recommendations thereon to the Board. The committee also makes recommendations to the Board in respect of awards of options under the Executive Share Option and Sharesave Schemes and in respect of employees who should be invited to participate in the Co-investment Scheme. It also reviews the terms of service contracts with senior employees and Executive Directors and any compensation arrangements resulting from the termination by the Company of such contracts. The committee has access to external advisors to assist it with ensuring that salary and benefit packages are competitive and appropriate. In addition, committee members keep themselves fully informed of all relevant developments and best practice by reading the circulars on remuneration and related matters that the Company receives from its advisers and, if appropriate, by attending seminars. Pensions advice is provided by Cartwright Group Ltd. Advice on share options, Co-investment and other Long-term Incentive Plans is provided by Pinsent Masons, who also provide other legal services to the Group. Alwyn Welch received a performance bonus of £4,100 for the first half of 2009. The performance bonus was assessed by reference to financial performance targets for the first half of 2009 for Group profit before tax and personal objectives. Ian Ketchin received a performance bonus of £2,500 for the first half of 2009. The bonus was assessed with reference to the Group’s profit before tax for the year and a discretionary sum awarded based on working capital management. Long-term incentive arrangements The long-term incentive arrangements operated by the Company for Executive Directors comprised: l Share Option Schemes; and l the Co-investment Scheme. Share option schemes During 2009 the Group operated three types of share option scheme: an Executive Share Option Plan and a Savings Related Share Option Scheme (Sharesave Scheme) which were approved by shareholders in July 1999 and renewed in May 2009, and a Senior Executive Share Option Plan. The Board determines the remuneration of all Non-executive Directors within the limits set out in the Company’s Articles of Association. Non-executive Directors are not involved in any decisions about their own remuneration. Details of Directors’ remuneration for the year ended 31 December 2009 are set out in the table on page 24. Executive share option plans The Group operates both an HMRC Approved Share Option Plan and an Unapproved Share Option Plan for options awarded to UK employees in excess of the HMRC limit of £30,000. Share options are granted to Executive Directors and other senior employees over a period of time and according to performance. Remuneration policy Parity aims to recruit, motivate and retain high calibre Executives capable of achieving the objectives of the Group and to encourage and reward appropriately superior performance in a manner which enhances shareholder value. Accordingly, the Group operates a remuneration policy which ensures that there is a clear link to business strategy and a close alignment with shareholder interests and current best practice, and aims to ensure that senior executives are rewarded fairly for their respective individual contributions to the Group’s performance. There were four key elements to the remuneration package of senior executives, including Executive Directors, in the Group in 2009: The rules of the Executive Share Option Plans allow for annual grants to be awarded equivalent to a value of up to one times salary or up to two times salary in exceptional circumstances. A limit of 15% of the issued share capital of the Company in a ten year period, on a rolling basis, is applicable to the headroom available to award options over the life of the Schemes. Rules of the current Plans expire in May 2019. The terms and conditions of existing share options have not been varied in the year. Executive Share Options granted after 2004 are exercisable in normal circumstances between three and ten years after the date of grant, provided that the share price has outperformed the average Total Shareholder Return performance of a comparator group comprising a basket of companies in the IT services sector. a) basic annual salary and benefits in kind; b) performance bonus payments; c) long-term incentives including share options; and d) pension arrangements. Salaries and benefits Salaries and benefits are reviewed annually. In order to assess the competitiveness of the pay and benefits packages offered by the Group, comparisons are made to those offered by similar companies. These are chosen with regard to: a) the size of the Company (turnover, profits and employee numbers); b) the diversity and complexity of their businesses; c) the geographical spread of their businesses; and d) their growth, expansion and change profile. 22 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY Options granted in 2003 and 2004 have a performance criterion of growth in EPS exceeding RPI plus an average of 3% per annum. The year 2004 has been taken as the base year against which EPS growth is measured. The exercise of share options is satisfied either through shares issued by the Company or through purchases in the market via the Employee Benefit Trust. In the event that an employee resigns, the options that they hold will lapse. Options are granted at nil cost. The option exercise price is set at the closing mid-market share price on date of grant without any discount. Awards outstanding to the Directors under the Executive Share Option Plans are set out on page 25. Senior Executive Share Option Plan Following the termination of the Long-Term Incentive Plan in 2008, the remuneration committee considered it imperative to provide an appropriate incentive to the Executive Directors in the current economic climate, providing further alignment of the interests of the Executive Directors and shareholders. The Senior Executive Share Option Plan was approved by shareholders on 19 February 2009. The maximum number of shares over which options may be granted under the Senior Executive Share Option Plan is 10% of the Company’s issued share capital. On 12 March 2009 options were granted under this scheme over 2,851,633 and 950,544 shares respectively to Alwyn Welch and Ian Ketchin. The exercise price is 20 pence per share and there are no other performance conditions other than continued service. The options vest in seven equal tranches. The first tranche vested on 30 June 2009 and thereafter the tranches vest at the end of each calendar quarter up to 31 December 2010. These options will lapse if not exercised within five years of grant. Sharesave schemes All UK employees, including the Executive Directors, are eligible to participate in the Group’s savings related option scheme (Sharesave Scheme) which enables them to subscribe for ordinary shares in the Company. Options granted under the Sharesave Scheme do not have performance related conditions attached to them. All existing options were granted under the 1999 Scheme which provides for options granted to be exercised on completion of a savings contract. None of the Directors have options outstanding under the Sharesave Scheme. Co-investment scheme The Co-investment Scheme was approved by shareholders in 2004. Members are invited to join by the Board, having regard to the recommendations of the remuneration committee. At present the scheme is open to the Chief Executive Officer, Group Finance Director and the Managing Directors of the business units and one other senior executive. Under the rules of the scheme, members are entitled to invest up to 50% of the bonus that they earn under the Annual Performance Bonus Scheme in Parity shares. The shares are held on behalf of the employee and, providing the employee remains in Parity’s employment, any bonuses invested will be matched in number by the Company on a sliding scale of up to 1.5 for 1 at the end of a defined period of up to three years following the date of purchase. The award of matching shares is subject to the share price outperforming the average Total Shareholder Return performance of a comparator group comprising a basket of companies in the IT services sector and the period during which the employee has to hold shares before they are matched by the Company increases from one year to three years. Depending on the Group’s performance over those three years, the shares purchased by the employee will be matched on a sliding scale up to a maximum of 1.5 to 1 for outstanding performance. None of the Directors have awards outstanding under the Co-investment Scheme. Share-based payment credit/charge This part of the remuneration report is audited. The aggregate share-based payment charge relating to the Directors for the year ended 31 December 2009 was £75,235 (2008: credit of £293,000). Total shareholder return The graph below shows Parity’s total shareholder return performance over the past five years compared to a comparator group which includes Parity and by reference to the FTSE All Share Index. The comparator group was chosen to provide a benchmark against other companies in the same sector reflecting the Group’s two lines of business; Resources and Solutions. Until February 2009 the Group also operated a Training business. At 31 December 2009 the comparator group comprised: l Anite l Charteris l FDM Group l Harvey Nash l Hays l ILX l Kellan l Logica l Maxima l Morse l OPD Group l Phoenix IT l RDF l SciSys 5 Year Total Shareholder Return Graph — quarterly (rebased to 100) 180 160 140 120 100 80 60 40 20 0 2005 2006 2007 2008 2009 Parity Group FTSE All Share Peer (simple average, not weighted) Share price The Parity Group plc mid market share price on 31 December 2009 was 13.0p. During the period 1 January to 31 December 2009 shares traded at market prices between 8.25p and 24.0p. Directors’ pension information Alwyn Welch is entitled to a non-contributory Company pension contribution of 10% of basic salary. Ian Ketchin is entitled to a contributory Company pension contribution of 5% of basic salary. Non-executive Directors’ remuneration The Board determines the remuneration of the Non-executive Directors with the benefit of independent advice when required. The fees are set at a level which will attract individuals with the necessary experience and ability to make a significant contribution to the Group and are benchmarked against those fees paid by other UK listed companies. As Non-executive Chairman, Roger Freeman receives an annual fee of £50,000 reduced from £60,000 on 1 April 2009. John Hughes’ annual fee is £35,000. He also has a Company car, life insurance and the Company pays the cost of his personal tax advice. Nigel Tose received an annual fee of £30,000. The Non-executive Directors do not receive bonuses or pension contributions and are not eligible for grants under any of the Group’s share incentive schemes. They are entitled to be reimbursed for reasonable expenses incurred by them in carrying out their duties as Directors of the Company. 23 Remuneration Report continued Service contracts and letters of appointment The Group’s policy is that no Director has a service contract with a notice period of greater than one year or has provision for pre- determined compensation on termination which exceeds one year’s salary, bonus and benefits in kind. Non-executive Directors have letters of appointment which set out the terms of their appointments. All Board appointments are subject to the Company’s articles of association. Contractual arrangements for current Directors are summarised below: Director Lord Freeman1 John Hughes1 Ian Ketchin2 Nigel Tose1 Alwyn Welch2 Contract date 1 July 2007 2 May 2005 17 May 2007 3 July 2006 Notice period n/a 1 month Contractual termination payment n/a 1 month fees, 12 months benefits 12 months 12 months rolling n/a n/a 13 February 2006 12 months 12 months rolling 1 With the exception of John Hughes who has a notice period of one month, the appointment of Non-executive Directors is terminable at the will of the parties 2 The Company is required to give 12 months notice of termination of the service agreement to the Executive Director who is required to give 6 months notice to the Company. Other Non-executive posts Subject to the approval of the Board, the Executive Directors may hold external Non-executive appointments. The Group believes that such appointments provide a valuable opportunity in terms of personal and professional development. Fees derived from such appointments may be retained by the Executive Director concerned. Roger Freeman, John Hughes and Nigel Tose hold a number of Non-executive positions outside the Group. The remuneration of the Directors for the year ended 31 December 2009 is set out below. This table is audited. Executive Directors I Ketchin2 A Welch2 John Hughes5 Non-executive Directors Lord Freeman J Hughes5 A Macdonald4 N Tose Total emoluments Salary/ fees 2009 £’000 Performance bonus 2009 £’000 Benefits 2009 £’000 Total emoluments Company pension contributions1 2009 £’000 2008 £’000 2009 £’000 2008 £’000 144 249 — 51 34 — 30 508 3 4 — — — — — 7 11 19 — — 16 — — 46 158 272 — 51 50 — 30 561 176 278 105 60 18 20 30 687 8 26 — — — — — 34 8 26 3 — — — — 37 Notes 1 Company pension contributions disclosed in the table above represent the contractual pension entitlements due to the Directors from the Company. 2 In 2009, Alwyn Welch and Ian Ketchin exchanged £9,952 and £5,769 of their salary respectively in return for additional, unpaid leave. 3 In 2009, Roger Freeman and John Hughes waived £1,924 and £1,346 of their fees respectively. 4 Alastair Macdonald resigned from the Board on 28 August 2008. 5 John Hughes became a Non-executive Director on 28 August 2008. 24 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY Executive Directors’ share options This part of the remuneration report is audited. As at 1 January 2009 Lapsed/ Surrendered in the year Exercised in the year Awarded In the year As at 31 December 2009 Exercise period Exercise price per share Alwyn Welch Senior Executive share option plan 2009 Ian Ketchin Executive share option plan 2007 Senior Executive share option plan 2009 — 174,698 — — — — — 2,851,633 2,851,633 2009-2015 £0.20 — — — 174,698 2010-2017 £0.83 950,544 950,544 2009-2015 £0.20 Directors’ interests in shares The Directors’ beneficial interests in the ordinary share capital of the Company at 31 December 2009 were as follows: Lord Freeman John Hughes Ian Ketchin Nigel Tose Alwyn Welch Total Shareholding as at 31 December 2009 5,000 53,000 30,000 100,000 314,815 502,815 % issued share capital 0.013 0.139 0.079 0.263 0.828 1.322 Shareholding as at 31 December 2008 5,000 53,000 30,000 100,000 314,815 502,815 % issued share capital 0.013 0.139 0.079 0.263 0.828 1.322 Auditable part of remuneration report In their audit opinion on page 26 BDO LLP refer to their audit of the disclosures required by the Companies Act 2006. These comprise the following disclosures in this remuneration report: l The table on page 24 showing total emoluments received by the Directors in 2009. l The table on page 24 showing total pension contributions made on behalf of the Directors in 2009. The share options table on this page also forms part of the audited accounts. For and on behalf of the Board Roger Freeman Chairman of the remuneration committee 19 April 2010 25 Independent Auditors’ Report to the Members of Parity Group plc We have audited the financial statements of Parity Group plc for the year ended 31 December 2009 which comprise the Consolidated Income Statement, the Consolidated and parent Company Statements of Comprehensive Income, the Consolidated and Parent Company Balance Sheets, the Consolidated and Parent Company Statements of Changes in Equity, the Consolidated and Parent Company Cash Flow Statements and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditors As explained more fully in the statement of Directors’ responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: l the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and l the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: l adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or l the Parent Company financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with the accounting records and returns; or l certain disclosures of Directors’ remuneration specified by law are not made; or l we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: l the Directors’ statement, set out on page 17, in relation to going concern; and l the part of the corporate governance statement relating to the Company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review. Julian Frost (senior statutory auditor) For and on behalf of BDO LLP, statutory auditor London United Kingdom 19 April 2010 Opinion on financial statements In our opinion: BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). l the financial statements give a true and fair view of the state of the Group’s and the Parent Company’s affairs as at 31 December 2009 and of the Group’s loss for the year then ended; l the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; l the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and l the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. 26 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY Consolidated Income Statement for the year ended 31 December Continuing operations Revenue Employee benefit costs Depreciation & amortisation All other operating expenses Total operating expenses Operating profit Finance income Finance costs Profit/(loss) before tax Taxation Write down of deferred tax asset Other taxation Profit/(loss) for the year from continuing operations Discontinued operations Loss for the year from discontinued operations Before exceptional items 2009 £’000 Exceptional items 2009 £’000 After exceptional items 2009 £’000 Before exceptional items 2008 £’000 Exceptional items 2008 £’000 119,024 (12,214) (488) (104,872) (117,574) 1,450 4 (1,203) 251 (300) 469 169 — (271) — — (271) (271) — — (271) — 76 76 119,024 132,278 (12,485) (14,479) (488) (327) (104,872) (114,464) (117,845) (129,270) 1,179 4 (1,203) (20) (300) 545 245 3,008 1 (1,316) 1,693 — (236) (236) — (371) — — (371) (371) — — (371) — 107 107 After exceptional items 2008 £’000 132,278 (14,850) (327) (114,464) (129,641) 2,637 1 (1,316) 1,322 — (129) (129) 420 (195) 225 1,457 (264) 1,193 (496) — (496) (4,641) — (4,641) Notes 2 3, 4 3 3 3, 4 6 7 10 2 8 (Loss)/profit for the year attributable to equity shareholders Basic (loss) per share on loss for the year 11 Basic earnings per share from continuing operations Diluted (loss) per share on loss for the year Diluted earnings per share from continuing operations 11 11 11 (76) (195) (271) (0.71p) 0.59p (0.71p) 0.59p (3,184) (264) (3,448) (9.08p) 3.14p (9.08p) 3.14p 27 Statements of Comprehensive Income for the year ended 31 December Loss for the year Other comprehensive income: Consolidated Company 2009 £’000 unaudited Note 2008 £’000 audited (see note 1) 2009 £’000 2008 £’000 (271) (3,448) (1,263) (2,975) Exchange differences on translation of foreign operations Actuarial (loss)/gain on defined benefit pension scheme 30 Deferred taxation on actuarial gains on pension scheme taken directly to equity Other comprehensive income for the year net of tax Total comprehensive income for the year 781 (2,088) — (1,307) (1,578) (612) 116 (32) (528) — — — — — — — — (3,976) (1,263) (2,975) Statements of Changes In Equity for the year ended 31 December Consolidated At 1 January 2009 Loss for the year Note Other comprehensive expense for the year net of tax Share options — value of employee services At 31 December 2009 Consolidated At 1 January 2008 Loss for the year 29 Note Other comprehensive expense for the year net of tax Share options — value of employee services Share capital £’000 760 — — — 760 Share capital £’000 760 — — — Deferred shares £’000 14,319 — — — Share premium reserve £’000 20,134 — — — Other reserves £’000 44,160 — — — Retained earnings £’000 (70,714) (271) (1,307) 53 14,319 20,134 44,160 (72,239) Deferred shares £’000 14,319 — — — Share premium reserve £’000 20,134 — — — Other reserves £’000 44,160 — — — Retained earnings £’000 (66,614) (3,448) (528) (124) At 31 December 2008 29 760 14,319 20,134 44,160 (70,714) Company At 1 January 2009 Net loss for the year Note Share options — value of employee services At 31 December 2009 Company At 1 January 2008 Net loss for the year Share options – value of employee services 29 Note Share capital £’000 760 — — 760 Share capital £’000 760 — — Deferred shares £’000 14,319 — — Share premium reserve £’000 20,134 — — Other reserves £’000 22,729 — — Retained earnings £’000 (26,446) (1,263) (45) 14,319 20,134 22,729 (27,754) 30,188 Deferred shares £’000 14,319 — — Share premium reserve £’000 20,134 — — Other reserves £’000 22,729 — — Retained earnings £’000 (23,154) (2,975) (317) Total £’000 34,788 (2,975) (317) At 31 December 2008 29 760 14,319 20,134 22,729 (26,446) 31,496 28 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY Total £’000 8,659 (271) (1,307) 53 7,134 Total £’000 12,759 (3,448) (528) (124) 8,659 Total £’000 31,496 (1,263) (45) Balance Sheets As at 31 December Non-current assets Goodwill Intangible assets — software Property, plant and equipment Available-for-sale financial assets Trade and other receivables Investment in subsidiaries Deferred tax assets Current assets Work in progress Trade and other receivables Cash and cash equivalents Assets classified as held for sale and included in disposal groups Total assets Current liabilities Financial liabilities Trade and other payables Current tax liabilities Provisions Non-current liabilities Trade and other payables Provisions Retirement benefit liability Liabilities associated with assets classified as held for sale and included in disposal groups Total liabilities Net assets Shareholders’ equity Called up share capital Share premium account Other reserves Retained earnings Total shareholders’ equity Approved by the Directors and authorised for issue on 19 April 2010. Alwyn Welch Chief Executive Officer Ian Ketchin Group Finance Director Notes 12 13 14 15 19 16 17 18 19 20 21 22 23 24 25 23 25 30 21 31 29 29 29 Consolidated Company 2009 £’000 4,594 1,530 1,159 117 — — 1,535 8,935 2008 £’000 4,594 67 1,343 130 — — 1,813 7,947 451 638 25,382 24,719 128 25,961 — 34,896 (9,913) (13,476) — (401) 369 25,726 4,055 37,728 (4,310) (16,410) (944) (444) 2009 £’000 2008 £’000 — — — — — — 1 — 61,087 30,127 — 59,757 30,127 — 91,214 89,885 — 836 36 872 — — 4,992 10 5,002 — 92,086 94,887 (81) — (1,997) (1,276) — (331) — (310) (23,790) (22,108) (2,409) (1,586) (59,019) (61,064) (470) — (741) — (59,489) (61,805) — (646) (3,326) (3,972) — (27,762) 7,134 15,079 20,134 44,160 — (864) (1,946) (2,810) (4,151) (29,069) 8,659 15,079 20,134 44,160 — (61,898) 30,188 15,079 20,134 22,729 (72,239) (70,714) (27,754) 7,134 8,659 30,188 — (63,391) 31,496 15,079 20,134 22,729 (26,446) 31,496 29 Cash Flow Statements for the year ended 31 December Consolidated Company Cash flows (used in)/generated from operating activities Cash (used in)/generated from operations 26 (3,521) 3,897 Notes 2009 £’000 2008 £’000 Interest received Interest paid Taxation received Net cash (used in)/from operations Cash flows from investing activities Purchase of intangible assets – software Purchase of property, plant and equipment Cash disposed of with subsidiary undertaking Net proceeds from sale of subsidiary undertaking Net cash movement from sale of subsidiary undertakings (776) 511 Net cash used in investing activities Cash flows from financing activities Net movement on invoice financing Movement on overdrafts Payment of capital element of finance leases Net movement on intercompany funding Net cash from/(used in) financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of the year Net foreign exchange difference Cash and cash equivalents at end of the year Analysed as: Cash and cash equivalents of continuing business Cash and cash equivalents held in assets classified as held for sale and in disposal groups 20 20 4 (341) 1 — (488) 100 (3,857) 3,509 (1,654) (199) (265) (2,118) — — (65) (426) — (491) 5,522 (3,085) 81 — — — (2) — 5,603 (3,087) (372) 500 — 128 128 — 128 (69) 770 (201) 500 369 131 500 2009 £’000 373 — (341) — 32 — — — — — — — 81 — (87) (6) 26 10 — 36 36 — 36 2008 £’000 (5,626) — (488) — (6,114) — — — — — — — — 6,097 6,097 (17) 27 — 10 10 — 10 30 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY Notes to the Accounts 1 Accounting policies Basis of preparation The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented unless otherwise stated. These Group accounting policies are also those applied by the Company. These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union (“adopted IFRSs”). The consolidated financial statements have been prepared on the historical cost basis, as modified by the revaluation of available-for-sale financial assets. Basis of consolidation Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the Company and its subsidiaries (“the Group”) as if they formed a single entity. Intercompany transactions and balances between Group Companies are therefore eliminated in full. Changes in accounting policies: new standards, amendments to published standards and interpretations of existing standards effective in 2009 adopted by the Group IFRS 8 Operating Segments. IFRS 8 replaces IAS 14 and introduces new disclosure requirements to increase the information provided about each of an entities reportable operating segments and their products and services, geographical areas and major customers and the means used to identify those reportable operating segments. IAS 1 (revised) — Amendments — Presentation of Financial Statements. The amendments to IAS 1 (revised) are purely presentational and have no impact on the Group’s results. The Group has elected to present two separate Statements: an Income Statement and a Statement of Comprehensive Income. Previously it presented an Income Statement and a Statement of Recognised Income and Expense. In addition, a Statement of Changes in Equity is now presented as a primary statement where previously the information was included in a note. The Amendment does not change the recognition or measurement of transactions and balances in the Financial Statements. No other new standards, amendments to published standards and interpretations of existing standards effective in 2009 had a material impact on the Group’s 2009 Financial Statements. Changes in accounting policies: standards, interpretations and amendments of published standards effective in 2009 but which are not relevant to the Group The following standards, amendments and interpretations to published standards are mandatory for accounting periods beginning on or after 1 January 2009 but are currently not relevant to the Group’s operations. Effective date — accounting periods beginning on or after Endorsement status with EU Standard or interpretation Amendments to IAS 39: Reclassification of Financial Instruments IFRIC 16 Hedges of a Net Investment in a Foreign Operation 1 July 2008 1 October 2008 IFRIC 13 Customer Loyalty Programmes 1 July 2008 Endorsed Endorsed Endorsed Amendments to IAS 32 and IAS 1 Puttable Financial Instruments and Obligations Arising on Liquidation Amendments to IFRS 1 and IAS 27 Cost of an Investment in a subsidiary, partly-controlled entity or associate Improving disclosures about Financial Instruments (Amendments to IFRS 7) Improvements to IFRSs (2008) IFRIC 15 Agreements for the Construction of Real Estate 1 January 2009 Endorsed 1 January 2009 1 January 2009 1 January 2009 1 January 2009 Endorsed Endorsed Endorsed Endorsed 31 Notes to the Accounts continued 1 Accounting policies continued Changes in accounting policies: standards, amendments and interpretations of published standards not yet effective Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group’s accounting periods beginning on or after 1 January 2010 or later periods and which the Group has decided not to adopt early. None of those new standards, amendments and interpretations are expected to have a material impact on the Group. Revenue recognition Revenue represents the value of work completed for clients including attributable profit, after adjusting for all foreseeable future losses, net of value added tax. Revenue on contracts for the supply of professional services at pre-determined rates is recognised as and when the work is performed, irrespective of the duration of the contract. Revenue is recognised on fixed price contracts while the contract is in progress, having regard to the proportion of the total contract costs which have been incurred at the balance sheet date. Provision is made for all foreseeable future losses. Training revenue is recognised as and when the training event occurs. Contractor staffing services revenue is recognised when contractors render services. Permanent placement staffing revenue is recognised when candidates commence employment. Exceptional items Items which are both material and non-recurring are presented as exceptional items within their relevant Consolidated Income Statement category. The separate reporting of exceptional items helps provide a better indication of the Group’s underlying business performance. Events which may give rise to the classification of items as exceptional, if of a significantly material value, include gains or losses on the disposal of businesses, restructuring of businesses, litigation and similar settlements, and asset impairments. Finance income and expense Finance income and expense is recognised on an accruals basis. Dividends Final dividends proposed by the Board of Directors and unpaid at the year end are not recognised in the financial statements until they have been approved by the shareholders at the Annual General Meeting. Interim dividends, which do not require shareholder approval, are recognised when paid. Income tax The charge for current income tax is based on the results for the year as adjusted for items which are not taxed or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the Balance Sheet date. Deferred income tax is accounted for using the liability method in respect of temporary differences arising from differences between the tax bases of certain assets and liabilities and their carrying amounts in the financial statements. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference is due to goodwill arising on a business combination or from an asset or liability, the initial recognition of which does not affect either taxable or accounting income. Deferred tax assets and liabilities are recognised where they have been acquired as part of a business combination. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to shareholders’ equity, in which case the deferred tax is also dealt with in shareholders’ equity. 32 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY 1 Accounting policies continued Foreign currencies Company Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the Balance Sheet date. All differences are taken to the Income Statement. Group On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations are translated at the rate ruling at the Balance Sheet date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in equity. Exchange differences recognised in the Income Statement of Group entities’ separate financial statements on the translation of long-term monetary items (of which there is an immaterial amount) forming part of the Group’s net investment in the overseas operation concerned are reclassified to reserves if the item is denominated in the functional currency of the Group or the overseas operation concerned. On disposal of a foreign operation, the cumulative exchange differences recognised in reserves relating to that operation up to the date of disposal are transferred to the Income Statement as part of the profit or loss on disposal. Discontinued operations A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations or its subsidiary acquired exclusively with a view to resale, that has been disposed of, has been abandoned or that meets the criteria to be classified as held for sale. Discontinued operations are presented in the Income Statement (including in the comparative period) as a single line which comprises the post-tax profit or loss of the discontinued operation and the post-tax gain or loss recognised on the re-measurement to fair value less costs to sell or on disposal of the assets or disposal groups constituting discontinued operations. Intangible Assets Goodwill Goodwill represents the excess of the cost of acquisition of a business combination over the Group’s share of the fair value of identifiable net assets of the business acquired. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. At the date of acquisition, the goodwill is allocated to cash generating units (“CGU’s”) for the purpose of impairment testing. Gains and losses on disposal of a business include the carrying amount of goodwill relating to the business sold in determining the gain or loss on disposal, except for goodwill arising on business combinations on or before 31 December 1997 which has been deducted from shareholders’ equity and remains indefinitely in shareholders’ equity. Business combinations effected before 1 January 2004 were not restated on conversion to IFRS. The carrying value of capitalised goodwill at 31 December 2003 that arose on business combinations accounted for using the acquisition method under UK GAAP was frozen at this date. Software The carrying amount of an intangible asset is its cost less any accumulated amortisation and any provision for impairment. Software is amortised over its expected useful economic life of three to seven years. Property, plant and equipment Property, plant and equipment are stated at cost, net of depreciation and any provision for impairment. Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost less estimated residual value of each asset over its expected useful economic life, as follows: Leasehold improvements Between 5 and 10 years Office equipment Between 3 and 5 years 33 Notes to the Accounts continued 1 Accounting policies continued Impairment An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount, the latter being the higher of the fair value less costs to sell associated with the CGU and its value in use. Value in use calculations are performed using cash flow projections for the CGU to which the goodwill relates, discounted at a pre-tax rate which reflects the asset specific risks and the time value of money. Goodwill is tested for impairment at each balance sheet date. The carrying value of other intangible assets and property, plant and equipment is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. Financial assets The Group’s financial assets fall into the categories discussed below, with the allocation depending to an extent on the purpose for which the asset was acquired. Unless otherwise indicated, the carrying amounts of the Group’s financial assets are a reasonable approximation of their fair values. Loans and receivables: these assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition or issue and subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. The effect of discounting on these financial instruments is not considered to be material. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the Income Statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. Available-for-sale: non-derivative financial assets not included in the above categories are classified as available-for-sale and comprise the Group’s investment in shares listed on the US stock exchange. They are carried at fair value with changes in fair value recognised directly in the available-for-sale reserve. Where there is a significant or prolonged decline in the fair value of an available-for-sale financial asset (which constitutes objective evidence of impairment), the full amount of the impairment, including any amount previously charged to equity, is recognised in the Income Statement. Purchases and sales of available-for-sale financial assets are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in the available-for-sale reserve. On sale, the amount held in the available-for-sale reserve associated with that asset is removed from equity and recognised in the Income Statement. Income from shares classified as available-for-sale is recognised in finance income in the Income Statement. The value of available-for-sale assets is not material to the Group (2008: not material). The fair value of the Group’s investment in shares is their listed market price. Investments: investments in subsidiary undertakings are recorded at cost. The carrying values of investments are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable. Cash and cash equivalents: cash and cash equivalents in the Balance Sheet comprise cash at bank and in hand, short-term deposits and other short-term liquid investments. In the Cash Flow Statement, cash and cash equivalents comprise cash and cash equivalents, as defined above, net of bank overdrafts. 34 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY 1 Accounting policies continued Work in progress Costs incurred in the start-up of long-term contracts which are expected to benefit performance and be recoverable over the life of the contracts are capitalised in the Balance Sheet as work in progress and charged to the Income Statement over the life of the contract so as to match costs with revenues. Work in progress is stated at the lower of cost and net realisable amount and represents that element of start up costs which, at the Balance Sheet date, has not been charged to the Income Statement. Cost includes materials, direct labour and an attributable portion of overheads based on normal levels of activity. Net realisable amount is based on estimated selling price less further costs expected to be incurred to completion and disposal including provision for contingencies and anticipated future losses. Amounts recoverable on contracts and payments in advance Amounts recoverable on contracts are stated at the net sales value of work done less amounts received as progress payments on account. Where progress payments exceed the sales value of work done, they are included in payables as payments in advance. Financial liabilities The Group classifies its financial liabilities into one of two categories, depending on the purpose for which the asset was acquired. The Group does not use derivative financial instruments or hedge account for any transactions. Unless otherwise indicated, the carrying amounts of the Group’s financial liabilities are a reasonable approximation of their fair values. Fair value through profit or loss: liabilities in this category are carried in the Balance Sheet at fair value with changes in fair value recognised in finance income or expense. The Group does not have any liabilities held for trading. Financial liabilities measured at amortised cost: other financial liabilities include the following items: l Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method. l Bank borrowings, which are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the Balance Sheet. Interest expense in this context includes initial transaction costs and premia payable on redemption, as well as any interest or coupon payable while the liability is outstanding. Leases Assets held under finance leases, which are leases where substantially all the risks and rewards of ownership of the asset have passed to the Group, are capitalised in the Balance Sheet and are depreciated over their useful lives. The capital elements of future obligations under leases are included as liabilities in the Balance Sheet. The interest elements of the rental obligations are charged to the Income Statement over the period of the leases and represent a constant proportion of the balance of capital repayments outstanding. Rentals paid under operating leases are charged to income on a straight line basis over the term of the lease. Property provisions Where leasehold properties are surplus to requirements, both now and in the foreseeable future, provisions are made for the best estimates of the unavoidable net future costs. Provisions for dilapidation charges that will crystallise at the end of the period of occupancy are provided for in full on empty properties and are charged to the Income Statement evenly over the period of the lease for occupied properties. Provisions Provisions are recognised when the Group has a present obligation in respect of a past event, where it is more likely than not that an outflow of resources will be required to settle the obligation, and where the amount can be reliably estimated. 35 Notes to the Accounts continued 1 Accounting policies continued Pensions and other post-employment benefits The Group operates a number of retirement benefit schemes. With the exception of the “Parity Retirement Benefit Plan”, all of the schemes are defined contribution plans and the assets are held in separate, independently administered funds. The Group’s contributions to defined contribution plans are charged to the Income Statement in the period to which the contributions relate. The “Parity Retirement Benefit Plan” is a defined benefit pension fund with assets held separately from the Group. This fund has been closed to new members since 1995 and with effect from 1 January 2005 was also closed to future service accrual. The expected return on the assets of the funded defined benefit pension plan is included within other operating costs in the income statement and the imputed interest on the pension plan liabilities comprises the pension element of finance costs in the Income Statement. Differences between the actual and expected return on assets, changes in the retirement benefit obligation due to experience and changes in actuarial assumptions are included in the Statement of Recognised Income and Expense in full in the period in which they arise. Defined benefit scheme surpluses and deficits are measured at the fair value of assets at the balance sheet date less scheme liabilities using the projected unit credit method discounted to its present value using yields available on high quality corporate bonds that have maturity dates approximating to the terms of the liabilities. Share capital Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Group’s ordinary shares are classified as equity instruments. For the purposes of the disclosures given in note 32, the Group considers its capital to comprise its ordinary share capital, share premium and other reserves, net of accumulated retained losses. There have been no changes in what the Group considers to be capital since the previous period. The Group is not subject to any externally imposed capital requirements. Financial guarantee contracts Where Group companies enter into financial guarantee contracts and guarantee the indebtedness of other companies within the Group, the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time that it becomes probable that any Group company will be required to make a payment under the guarantee. Employee Share Ownership Plan (ESOP) As the Company is deemed to have control of its ESOP trust, it is treated as a subsidiary and consolidated for the purposes of the Group accounts. The ESOP’s assets (other than investments in the Company’s shares), liabilities, income and expenses are included on a line-by-line basis in the Group financial statements. The ESOP’s investment in the Company’s shares is deducted from shareholders’ equity in the Group Balance Sheet as if they were treasury shares, except that profits on the sale of ESOP shares are not credited to the share premium account. The trustees of the ESOP have discretionary powers to grant options to Group employees. At 31 December 2009, the ESOP held 43,143 (2008: 43,143) ordinary shares. At 31 December 2009, the market value of the ordinary shares held by the ESOP was £5,609 (2008: £3,559). The value of the ESOP’s investment in the Company that has been deducted from shareholders’ equity in the Group Balance Sheet is £351,000 (2008: £351,000). 36 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY 1 Accounting policies continued Share-based payments The Group operates various share-based award schemes. The fair value of the award at the date of grant is recognised in the Income Statement (together with a corresponding increase in shareholders’ equity) on a straight-line basis over the vesting period, based on an estimate of the number of shares that will eventually vest. No expense is recognised for awards that do not ultimately vest, except for awards where vesting rests upon a market condition. Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the Income Statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each Balance Sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the income statement over the remaining vesting period. Significant accounting estimates and judgements The preparation of financial statements under IFRS requires the Group to make estimates and assumptions that affect the application of policies and reported amounts. Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below. Impairment of goodwill. The Group is required to test whether goodwill has suffered any impairment. The recoverable amounts of cash generating units have been determined based on value-in-use calculations. The use of this method requires the estimation of future cash flows expected to arise from the continuing operation of the cash generating unit and the choice of a suitable discount rate in order to calculate the present value. Actual outcomes could vary significantly from these estimates. See note 12. Recoverability of deferred tax assets. The deferred tax assets are reviewed for recoverability and recognised to the extent that they are expected to be recovered in the foreseeable future. This is determined based on management estimates and assumptions as to the future profitability of the related business units. See note 17. Property provisions. Provisions for onerous lease costs are based on the future contractual lease obligations of the Group less future contractual sub-let income and management estimates and assumptions regarding potential future sub-let income. Dilapidations provisions are based on contractual lease obligations and management estimates and assumptions regarding the future costs of meeting those obligations. See note 25. Retirement benefit liability. The costs, assets and liabilities of the defined benefit scheme operated by the Group are determined using methods relying on actuarial estimates and assumptions. Details of the key assumptions are set out in note 30. The Group takes advice from independent actuaries relating to the appropriateness of the assumptions. Changes in the assumptions used may have a significant effect on the Income Statement and Statement of Financial Position. 37 Notes to the Accounts continued 2 Segmental information Description of the types of services from which each reportable segment derives its revenues The Group has two reportable segments: l Resources — This segment provides contract, interim and permanent IT recruitment services across all markets. Resources provides 84% (2008: 83%) of the continuing Group’s revenues. l Solutions — This segment provides IT projects and solutions using leading edge technologies. Services include Applications Management, BPO, Business Intelligence, Talent Management, Systems Integration and Business and IT Consulting. Solutions provides 16% (2008: 17%) of the continuing Group’s revenues. Corporate costs and Board costs are recorded centrally and not allocated to the reporting segments. A review of operations is set out on pages 8 and 9. Factors that management used to identify the Group’s reporting segments The Group’s reportable segments are strategic business units that offer different services. They are managed separately because each business requires different marketing strategies and uses personnel with differing skill sets. Measurement of operating segment profit or loss, assets and liabilities 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 profit or loss from operations before tax not including non-recurring items, such as restructuring costs. Inter-segment sales are priced on the same basis as sales to external customers, with a discount applied to encourage the use of Group resources at a rate acceptable to the tax authorities. Segment assets exclude tax assets and assets used primarily for corporate purposes. Segment liabilities exclude tax liabilities. Revenue Total revenue Inter-segment revenue Revenue from external customers Depreciation Amortisation Segment profit before tax and exceptional items Exceptional items Reportable segment assets Reportable segment liabilities Additions to non-current assets Resources 2009 £’000 Solutions 2009 £’000 Total 2009 £’000 100,517 18,518 119,035 — (11) (11) 100,517 18,507 119,024 78 103 2,993 (245) 276 31 29 — 354 134 3,022 (245) 24,680 9,215 33,895 (10,608) (5,333) (15,941) 1,538 235 1,773 38 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY Reconciliation of reportable segment revenues, profit or loss, assets and liabilities to the Group’s corresponding amounts: 2 Segmental information continued Revenue Total revenue Inter-segment revenue Revenue from external customers Depreciation Amortisation Segment profit before tax and exceptional items Exceptional items Reportable segment assets Reportable segment liabilities Additions to non-current assets Total profit or loss for reportable segments Corporate costs Exceptional items (including Corporate) Finance income Finance costs Corporation tax Profit after tax (continuing activities) Assets Total assets for reportable segments Central prepayments, other debtors and cash Discontinued operations assets Group’s assets Liabilities Total liabilities for reportable segments Central liabilities Discontinued operations liabilities Group’s liabilities Resources 2008 £’000 Solutions 2008 £’000 Total 2008 £’000 110,161 22,140 132,301 — (23) (23) 110,161 22,117 132,278 87 — 3,691 — 23,139 (14,094) 51 286 25 1,351 (331) 9,198 (5,439) 143 373 25 5,042 (331) 32,337 (19,533) 194 2008 £’000 5,042 (2,034) (371) 1 (1,316) (129) 1,193 2009 £’000 3,022 (1,572) (271) 4 (1,203) 245 225 33,895 32,337 683 318 986 4,405 34,896 37,728 (15,941) (11,358) (463) (19,533) (3,018) (6,518) (27,762) (29,069) Geographical Information: The continuing Group operates solely in the UK and the Republic of Ireland. All material revenues are generated and all material segment assets are located in the UK. Results of trade from the Republic of Ireland are not material to the Group. 72% (2008: 64%) or £72.9 million (2008: £71.3 million) of the Resources revenue was generated in the public sector. 78% (2008: 73%) or £14.4 million (2008: £16.1 million) of the Solutions revenue was generated in the public sector. The largest single customer in Resources contributed revenue of £6.6 million or 7% and was in the public sector (2008: £6.8 million or 7% and in the private sector). The largest single customer in Solutions contributed revenue of £4.8 million or 26% and was in the public sector (2008: £5.4 million or 24% in the public sector). 39 Notes to the Accounts continued 3 Operating costs Continuing operations Employee benefit costs — wages and salaries — social security costs — other pension costs Depreciation and amortisation Amortisation of intangible assets — software Depreciation of tangible assets All other operating expenses Group statutory audit fees and expenses Other services supplied under legislation Operating lease rentals — plant and machinery — land and buildings Net exchange loss Equity-settled share-based payment charge/(credit) Other operating costs Total operating expenses Operating costs include auditors’ remuneration as follows: Statutory audit fees Other services supplied under legislation Non-audit services: Tax compliance Other advice Consolidated 2009 £’000 2008 £’000 10,695 1,168 351 12,214 134 354 488 23 75 31 1,498 28 53 103,435 105,143 117,845 13,091 1,381 378 14,850 20 380 400 23 69 44 1,699 201 (159) 112,514 114,391 129,641 Consolidated 2009 £’000 23 75 98 52 33 85 183 2008 £’000 23 69 92 50 280 330 422 All non-audit services have been performed in the United Kingdom. Disclosures relating to the remuneration of Directors are set out on pages 22 to 25. 40 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY 4 Exceptional items Continuing operations Restructuring 2009 £’000 271 2008 £’000 371 The exceptional charge of £271,000 for 2009 for continuing operations related to reorganisation costs following the closure of an office and the associated relocation of roles. These roles related to finance staff supporting the Resources business and some Corporate staff. The tax credit relating to the exceptional item was £76,000. The exceptional charge of £371,000 for 2008 for continuing operations related to restructuring costs. There were a number of redundancies across the Group in order to adjust the business to the current market. The tax credit relating to the 2008 exceptional item was £107,000. 5 Average staff numbers Continuing operations Resources — United Kingdom1 Solutions — United Kingdom, including corporate office2 Discontinued operations 1 Includes 46 (2008: 52) employees providing shared services across the Group. 2 Includes 6 (2008: 8) employees of the Company. At 31 December 2009, the Group had 222 continuing employees (2008: 256). 6 Finance income Bank interest receivable 7 Finance costs Bank interest payable Post retirement benefits Total finance costs The bank interest payable is in respect of the Group’s invoice financing facilities. 2009 number 2008 number 105 142 247 14 261 2009 £’000 4 2009 £’000 341 862 121 151 272 96 368 2008 £’000 1 2008 £’000 489 827 1,203 1,316 41 Notes to the Accounts continued 8 Discontinued operations In February 2009 the Group sold Parity Training Ltd. The comparatives for this subsidiary are included within the Income Statement in the line item “loss for the year on discontinued operations”. The consolidated financial statements also include within discontinued activities the results in respect of the statutory entities still owned which sold their businesses in 2005 and 2006. These latter businesses were part of the Resources segment. The post-tax gain on disposal of the Parity Training was determined as follows: Cash Deferred consideration Consideration received Cash disposed of Net assets disposed (other than cash): Property, plant and equipment Intangibles Trade and other receivables Trade and other payables Disposal expenses Goodwill written off Pre-tax and post-tax loss on disposal of Parity Training The post-tax result of discontinued operations was determined as follows: Revenue Expenses other than finance costs Finance costs Tax charge Loss on disposal after tax Loss for the year 2009 £’000 834 166 1,000 776 488 320 2,091 (2,520) 1,155 (53) — (208) 2009 £’000 2,197 (2,296) — (189) (208) (496) 2008 £’000 — — — — — — — — — (745) (2,522) (3,267) 2008 £’000 16,380 (16,969) (1) (784) (3,267) (4,641) The discontinued operations revenue in both 2009 and 2008 related entirely to Parity Training. The pre-tax result before loss on disposal for Training was a loss of £245,000 (2008: £584,000) and the pre-tax result for the Resources discontinued operations was a profit of £146,000 (2008: £5,000). The Resources result for 2009 primarily represents the release of accruals no longer required. 42 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY 9 Share-based payments The Group operates several share-based reward schemes, the terms of which are summarised below. Key Scheme terms Vesting condition Determinant of exercise price Senior Executive Share Option Plan Exercisable between vesting and a date ten years from grant subject to continued employment. No performance condition was set as the option price was considered a challenging performance target. Set at 20p per share, which at the time of grant was considered a suitably challenging target. Options were issued on 12 March 2009. The options issued vest in seven equal tranches each calendar quarter starting on 30 June 2009. No further options maybe issued under this plan after 26 February 2010. Options granted in 2003 and 2004 have a performance condition linked to EPS exceeding RPI plus 3% pa. Options issued after 2004 are subject to the share price outperforming the average Total Shareholder Return of a peer group. Vesting period of three years. Subject to Total Shareholder Return criterion. Closing mid-market price on the day preceding date of award. Nil cost awards. Executive Share Option Ordinarily exercisable between three and ten years from date of grant subject to continued employment. Co-investment Scheme SAYE Members invited to invest up to 30% of their bonus in shares which are then matched by the Company on a sliding scale up to 1.5. Employee savings plan over No performance conditions. a period of three or five years, Employees must complete exercisable within six months of maturity of savings plan. savings plan. Closing mid-market price on the day preceding date of announcement of scheme. 43 Notes to the Accounts continued 9 Share-based payments continued Movements on share-based awards during the year Details of the relevant share options outstanding at 31 December 2009 are set out below: Senior Executive Share Option Plan 2009 Executive share option plans 2003 2003 2006 2007 2007 2007 2007 2008 2008 2009 Sharesave schemes 2007 1 January 2009 Lapsed in year Exercised in year Awarded in year 31 December 2009 Exercise period Exercise price per share — — — 3,802,177 3,802,177 2009–2014 £0.20 14,590 18,115 (7,177) (13,593) 785, 708 (428,566) 173,874 174,698 373,410 140,000 230,000 (69,566) — (196,531) — (40,000) 1,100,000 (360,000) — — 3,010,395 (1,115,433) 391,643 (140,429) 7,413 2006–2013 4,522 2006–2013 357,142 2009–2016 104,308 2010–2017 174,698 2010–2017 176,879 2010–2017 140,000 2010–2017 190,000 2011–2018 740,000 2011–2018 — — — — — — — 975,000 975,000 2012–2019 975,000 2,869,962 2007–2014 £2.09 £1.65 £0.525 £0.69 £0.83 £0.865 £0.675 £0.39 £0.25 £0.09 £2.09 — 251,214 2010 £0.65 — — — — — — — — — — 3,402,038 (1,255,862) — 4,777,177 6,923,353 The aggregate share-based payment charge for 2009 was £54,000 (2008: Credit of £124,000). The weighted average exercise price of options that were exercisable as at 31 December 2009 was £0.24 (2008: £1.85). No share options were exercised during 2009. The aggregate number of share options exerciseable at 31 December 2009 was 1,641,439 (2008: 32,705). 44 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY 9 Share-based payments continued Movements on share-based awards during the prior year Details of the relevant share options outstanding at 31 December 2008 are set out below: Executive share option plans 2003 2003 2004 2004 2005 2005 2006 2007 2007 2007 2007 2008 2008 Long-term incentive plan 2006 Sharesave schemes 2007 1 January 2008 Lapsed/ surrendered in year 14,623 33,223 86 2,917 31,030 42,357 (33) (15,108) (86) (2,917) (31,030) (42,357) 1,776,187 (990,479) 411,555 174,698 393,063 440,000 — — (237,681) — (19,653) (300,000) — — Exercised in year Awarded in year 31 December 2008 Exercise period — — — — — — — — — — — — — — — — — — — — — — — 14,590 2006–2013 18,115 2006–2013 — 2007–2014 — 2007–2014 — 2008–2015 — 2008–2015 785,708 2009–2016 173,874 2010–2017 174,698 2010–2017 373,410 2010–2017 140,000 2010–2017 230,000 230,000 2011–2018 — 1,100,000 1,100,000 2011–2018 3,319,739 (1,639,344) — 1,330,000 3,010,395 Exercise price per share £2.09 £1.65 £2.09 £1.65 £1.57 £1.24 £0.525 £0.69 £0.83 £0.865 £0.675 £0.39 £0.25 2,560,000 (2,560,000) — 551,578 (159,935) — — — 2009 £0.02 391,643 2010 £0.65 6,431,317 (4,359,279) — 1,330,000 3,402,038 Executive Share Option Plan 975,000 share options were granted to 9 senior managers across the Group in 2009 at an exercise price of 9p. 1,330,000 options were granted in 2008. Options issued since 2006 have been valued using the Monte Carlo stochastic model. All earlier options were valued using the Cox Ross Rubinstein binomial model. The value ascribed to options issued before 2008 would not have been materially different if the Monte Carlo model had been used to value them. The fair value per option granted in respect of options in existence as at 31 December 2009 and the assumptions used in the calculations are as follows: Grant date Share price at grant date (£) Adjusted exercise price (£) Number of employees Shares under option Vesting period (years) Expected volatility Option life (years) Expected life (years) Risk free rate Expected dividends expressed as a dividend yield Expectations of meeting performance criteria in full Fair value per option (p) 21 Oct 2003 £0.10 £2.09 4 7,413 3 85% 10 5 21 Oct 2003 £0.10 £1.65 1 4,522 3 85% 10 5 4.90% 4.90% 1.5% N/A 6.43 1.5% N/A 6.43 26 Sept 2006 £0.525 £0.525 7 357,142 3 65.7% 10 5 5.38% — 75% 27.54 45 Notes to the Accounts continued 9 Share-based payments continued Executive share option plan continued Grant date Share price at grant date (£) Adjusted exercise price (£) Number of employees Shares under option Vesting period (years) Expected volatility Option life (years) Expected life (years) Risk free rate Expected dividends expressed as a dividend yield Expectations of meeting performance criteria in full Fair value per option (p) Grant date Share price at grant date (£) Exercise price (£) Number of employees Shares under option Vesting period (years) Expected volatility Option life (years) Expected life (years) Risk free rate Expected dividends expressed as a dividend yield Expectations of meeting performance criteria in full Fair value per option (p) Grant date Share price at grant date (£) Exercise price (£) Number of employees Shares under option Vesting period (years) Expected volatility Option life (years) Expected life (years) Risk free rate Expected dividends expressed as a dividend yield Expectations of meeting performance criteria in full Fair value per option (p) 15 March 2007 £0.69 £0.69 2 4 June 2007 £0.83 £0.83 1 13 Sept 2007 £0.865 £0.865 4 104,308 174,698 176,879 3 3 3 70.08% 69.69% 68.10% 10 5 5.05% — 82% 38.28 5 Nov 2007 £0.675 £0.675 2 10 5 5.57% — 100% 46.21 19 March 2008 £0.39 £0.39 2 10 5 5.04% — 100% 45.51 25 Sept 2008 £0.235 £0.25 10 140,000 190,000 740,000 3 3 3 60.80% 59.50% 58.10% 10 5 4.92% — 43% 33.08 10 5 3.87% — 100% 18.00 10 5 4.48% — 100% 10.52 15 Apr 2009 £0.09 £0.09 9 975,000 3 60.0% 10 5 2.74% — 100% 4.07 The expected volatility is based on historical volatility over the last five years in each respective year of award. The expected life is the average expected period to exercise. The risk free rate of return is the yield on a Treasury Gilt of a term consistent with the assumed option life. 46 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY 9 Share-based payments continued Co-investment Scheme No awards were granted during the year (2008: nil). Long-term Incentive Plan In 2007 a total of 2,560,000 awards were granted to Alwyn Welch and John Hughes. No further awards have been granted. During 2008 both Alwyn Welch and John Hughes surrendered their options and the long-term incentive plan was closed. Sharesave schemes No awards were granted during the year (2008: 551,578). The awards granted in 2007 were valued using the Monte Carlo stochastic model. No performance conditions were included in the fair value calculations. The fair value per option for existing awards and the assumptions used in the calculations are as follows: Grant date Share price at grant date (£) Exercise price (£) Number of employees Shares under option Vesting period (years) Expected volatility Option life (years) Expected life (years) Risk free rate Expected dividends expressed as a dividend yield Possibility of ceasing employment before vesting Expectations of meeting performance criteria in full Fair value per option (p) 1 June 2007 £0.82 £0.65 69 391,643 3 61.6% 3.5 3.25 5.73% 0% 0% N/A 44.44 The expected volatility was based on historical volatility over the last 3.25 years. The risk free rate of return is the yield on a Treasury Gilt of a term consistent with the option life. 47 Notes to the Accounts continued 9 Share-based payments continued Senior Executive Share Option Plan On 12 March 2009 a total of 3,802,177 awards were granted to Alwyn Welch and Ian Ketchin, the Executive Directors. No further awards have been granted under this plan. Grant date Share price at grant date Exercise price Number of employees Shares under option Risk free rate Expected dividends expressed as a dividend yield Vesting date 30 June 2009 30 September 2009 31 December 2009 31 March 2010 30 June 2010 30 September 2010 31 December 2010 12 March 2009 £0.095 £0.20 2 3,802,177 1.57% 0% Number of shares 543,168 543,168 543,168 543,168 543,168 543,168 543,168 Expected volatility Fair value per option (p) 56.9% 57.3% 61.1% 60.5% 60.5% 67.1% 67.1% 1.26 1.36 1.65 1.70 1.77 2.27 2.36 The expected volatility was based on historical volatility over the last 3.25 years. The risk free rate of return is the yield on a Treasury Gilt of a term consistent with the option life. 48 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY 10 Taxation Current tax Continuing operations Discontinued operations Deferred tax Continuing operations Discontinued operations Taxation (credit)/charge 2009 £’000 (523) 189 (334) 278 — 278 (56) 2008 £’000 141 (18) 123 (12) 802 790 913 The 2009 tax credit includes a credit of £76,000 (2008: £107,000) in respect of exceptional items. In addition, the tax (credit)/charge above includes a charge of £300,000 (2008: £802,000) arising as a result of the derecognition of deferred tax assets where recovery is not expected in the foreseeable future. The total tax credit relating to continuing operations is £245,000 (2008: charge of £129,000). Continuing operations Analysis of tax (credit)/charge for the year Current tax Tax on (loss)/profit for the current year Adjustments in respect of prior periods Deferred tax Origination and reversal of temporary differences Write down of deferred tax asset Adjustments in respect of prior periods Total tax (credit)/charge on continuing operations Tax on items charged to equity Deferred tax charge relating to defined benefit pension scheme 2009 £’000 2008 £’000 (163) (360) (523) (22) 300 — 278 (245) 2009 £’000 — 141 — 141 240 — (252) (12) 129 2008 £’000 32 49 Notes to the Accounts continued 10 Taxation continued Reconciliation of the total tax charge The tax charge in the income statement for the year differs from the standard rate of Corporation tax in the UK of 28% (2008: 28.5%). The differences are reconciled below. Loss on ordinary activities before tax Loss on ordinary activities multiplied by rate of corporation tax in the UK of 28% (2008: 28.5%) Effects of: Tax losses not recognised Adjustments in respect of prior periods — deferred tax Adjustments in respect of prior periods — current tax Deferred tax not provided Goodwill write off not allowable Other disallowable expense Write down of deferred tax asset Other Total tax (credit)/charge for year Analysed as: Tax (credit)/charge on continuing operations Tax charge on discontinued operations Total tax (credit)/charge for the year 11 Earnings per ordinary share 2009 £’000 (327) (92) 176 — (334) (168) — 94 300 (32) (56) (245) 189 (56) 2008 £’000 (2,535) (722) — (252) 123 — 719 282 802 (39) 913 129 784 913 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, less those shares held by the ESOP Trust, which are treated as cancelled. The ESOP Trust held 43,143 shares at 31 December 2009 (2008: 43,143). 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. The Group has one class of potential dilutive ordinary shares being those share options granted to employees where the exercise price is less than the average market price of the Company’s ordinary shares during the year. These options, held under the Executive Share Option Scheme, are not dilutive. At 31 December 2009 there were 6,923,353 (2008: 3,402,038) non-dilutive options in issue. In March 2009 the Company granted 3,802,177 options under the Senior Executive Share Option Plan. In April 2009 the Company granted 975,000 options under the Executive Share Option Scheme. 50 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY 11 Earnings per ordinary share continued Basic (loss)/earnings per share Effect of dilutive options Diluted (loss)/earnings per share Weighted average number of shares 2009 000’s Earnings per share 2009 Pence Earnings 2009 £’000 (271) 37,979 (0.71) (271) — 37,979 37,979 — (0.71) 0.59 Weighted average number of shares 2008 000’s 37,979 — 37,979 37,979 Earnings per share 2008 Pence (9.08) (9.08) 3.14 37,979 3.14 Earnings 2008 £’000 (3,448) (3,448) 1,193 — 1,193 Basic earnings per share from continuing operations 225 Effect of dilutive options Diluted earnings per share from continuing operations 225 37,979 0.59 The denominator used in the earnings per share calculations is the adjusted weighted average number of ordinary shares in issue. As at 31 December 2009 the number of ordinary shares in issue was 38,021,784 (2008: 38,021,784). Basic and diluted loss per share from discontinued operations was 1.31p (2008: basic and diluted 12.22p). 12 Goodwill Cost At 1 January Transferred to assets held for sale At 31 December Impairment provisions At 1 January Impairment charge Transferred to assets held for sale At 31 December Net book value at 1 January Net book value at 31 December Consolidated 2009 £’000 4,594 — 4,594 — — — — 4,594 4,594 2008 £’000 9,616 (5,022) 4,594 (2,500) (2,522) 5,022 — 7,116 4,594 The carrying value of goodwill relating to continuing operations was tested for impairment in accordance with IAS 36. No impairment was recognised during the year. All recoverable amounts were based on value in use. 51 Notes to the Accounts continued 12 Goodwill continued Details of goodwill allocated to cash generating units for which the amount of goodwill so allocated is significant in comparison to total goodwill, is as follows: Resources Solutions Goodwill carrying amount 2008 £’000 2009 £’000 1,470 3,124 4,594 1,470 3,124 4,594 The key areas of judgement used in the consideration of the carrying amount of goodwill are gross margin, discount rate and growth rate. The gross margin used in the value in use calculations was based on the achieved gross margin for the relevant cash generating unit in 2009. A pre-tax discount rate of 6.9% (2008: 8.0%) was used in the value in use calculations. The cash flow projections were based on budgets approved by management covering 2010 and detailed forecasts for 2011 and 2012. After the initial projection period a steady long-term growth rate of 2.5% has been applied to the pre-tax cash flow forecast. This is considered prudent based on experience and current expectations of the long-term growth rate. The Directors believe there is no reasonably possible change in a key assumption that would cause the carrying amount of goodwill to exceed its recoverable amount. As at 31 December 2008 the goodwill of Parity Training Ltd was tested for impairment prior to the transfer of its Balance Sheet to assets held for sale and disposal groups. This resulted in the recognition of an impairment charge of £2,522,000. 13 Intangible assets — software Cost At 1 January Additions at cost Transferred to assets held for sale At 31 December Accumulated amortisation At 1 January Charge for the year Transferred to assets held for sale At 31 December Net book amount Consolidated 2009 £’000 93 1,596 — 1,689 25 134 — 159 1,530 2008 £’000 400 65 (372) 93 30 94 (98) 26 67 52 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY 14 Property, plant and equipment Consolidated Cost At 1 January 2009 Additions at cost Disposals At 31 December 2009 Accumulated depreciation At 1 January 2009 Charge for the year Disposals At 31 December 2009 Net book amount at 31 December 2009 Net book amount at 1 January 2009 Leasehold improvements £’000 Office equipment £’000 2,457 13,408 115 (13) 2,559 55 (5,234) 8,229 1,574 12,948 136 (13) 1,697 862 883 218 (5,234) 7,932 297 460 As at 31 December 2009, the Group had £nil capital commitments contracted for but not provided (2008: £nil). Company Cost At 1 January 2009 Disposals At 31 December 2009 Accumulated depreciation At 1 January 2009 Charge for the year Disposals At 31 December 2009 Net book amount at 31 December 2009 Net book amount at 1 January 2009 Office equipment £’000 399 (399) — 398 1 (399) — — 1 As at 31 December 2009, the Company had £nil capital commitments contracted for but not provided (2008: £nil). Total £’000 15,865 170 (5,247) 10,788 14,522 354 (5,247) 9,629 1,159 1,343 Total £’000 399 (399) — 398 1 (399) — — 1 53 Notes to the Accounts continued 14 Property, plant and equipment continued Consolidated Cost At 1 January 2008 Additions at cost Disposals Transferred to assets held for sale At 31 December 2008 Accumulated depreciation At 1 January 2008 Charge for the year Disposals Transferred to assets held for sale At 31 December 2008 Net book amount at 31 December 2008 Net book amount at 1 January 2008 Company Cost At 1 January 2008 and 31 December 2008 Accumulated depreciation At 1 January 2008 Charge for the year At 31 December 2008 Net book amount at 31 December 2008 Net book amount at 1 January 2008 15 Available-for-sale financial assets At 1 January Revaluation At 31 December Leasehold improvements £’000 Office equipment £’000 3,320 302 (527) (638) 2,457 1,748 290 (272) (192) 1,574 883 1,572 17,440 124 (4,041) (115) 13,408 16,941 253 (4,173) (73) 12,948 460 499 Office equipment £’000 399 396 2 398 1 3 Total £’000 20,760 426 (4,568) (753) 15,865 18,689 543 (4,445) (265) 14,522 1,343 2,071 Total £’000 399 396 2 398 1 3 Consolidated 2009 £’000 130 (13) 117 2008 £’000 124 6 130 In 2007 16,603 shares of common stock in Delta Air Lines Inc. were received in lieu of debt. The Group intends to sell these shares as soon as practicable. 54 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY 16 Investment in subsidiaries Shares in Group undertakings At 1 January and at 31 December Company 2009 £’000 2008 £’000 30,127 30,127 Investments in subsidiary undertakings Investments in subsidiary undertakings are stated at cost. A list of principal subsidiary undertakings is given in note 38. Provision for impairment At 31 December 2009, an impairment review of the Company’s equity and loan investments in subsidiaries was carried out. It was not considered appropriate to record an impairment provision. 17 Deferred tax At 1 January Amounts taken directly to equity Timing differences and adjustments in relation to prior periods Derecognition of deferred tax asset Other The deferred tax asset of £1,535,000 (2008: £1,813,000) comprises: Trading losses carried forward Short-term and other timing differences Consolidated 2009 £’000 1,813 — 22 (300) — 1,535 2008 £’000 2,635 (32) 12 (802) — 1,813 Consolidated 2009 £’000 — 1,535 1,535 2008 £’000 — 1,813 1,813 A temporary timing difference of £386,000 (2008: nil) arose during the year relating to the increase in the Group Retirement Benefit Plan deficit. This potential deferred tax asset has not been provided. The Group has unrecognised carried forward tax losses of £18,690,000 (2008: 19,919,000). The Company has unrecognised carried forward tax losses of £11,693,000 (2008: £9,406,000). The Group has unrecognised capital losses carried forward of approximately £282,064,000 (2008: 282,064,000). A deferred tax asset is recognised in respect of tax losses carried forward where it is more likely than not that there will be taxable profits in the foreseeable future against which the deferred tax asset can be offset. Commentary on the Group’s profitability and its future prospects is given in the operating review on pages 7 to 10. A deferred tax asset is not recognised where there is insufficient evidence of short-term recoverability. 18 Work in progress Work in progress: Net costs less foreseeable losses Consolidated 2009 £’000 451 2008 £’000 638 Work in progress represents the value of services provided on contracts that were incomplete as at the balance sheet date. 55 Notes to the Accounts continued 19 Trade and other receivables Amounts falling due within one year: Trade debtors Accrued income Amounts recoverable on contracts Amounts owed by subsidiary undertakings Other debtors Prepayments Amounts falling due after one year: Amounts owed by subsidiary undertakings Total Consolidated Company 2009 £’000 2008 £’000 2009 £’000 2008 £’000 13,438 9,568 1,218 — 788 370 11,985 11,056 565 — 194 919 25,382 24,719 — — — 834 — 2 836 — — — 4,883 — 109 4,992 — — 25,382 24,719 61,087 61,923 59,757 64,749 The Group records impairment losses on its trade receivables separately from gross receivables. The movements on the allowance account during the year are summarised below: Consolidated Opening balance Increases in provisions Written off against provisions Recovered amounts reversed Transferred to assets held for disposal Closing balance 2009 £’000 277 30 (173) (14) — 120 The allowance account represents full provisions against specific gross debts. 20 Cash and cash equivalents Cash and cash equivalents Cash and cash equivalents held in assets classified as held for sale and in disposal groups Total cash and cash equivalents Consolidated Company 2009 £’000 128 — 128 2008 £’000 369 131 500 2009 £’000 36 — 36 2008 £’000 544 50 (221) — (96) 277 2008 £’000 10 — 10 56 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY 21 Assets and liabilities classified as held for sale and included in disposal groups The major classes of assets and liabilities comprising the operations classified as held for sale as at 31 December 2008 are set out below. An impairment loss of £2,522,000 was recognised against the goodwill of the Training division on the classification of these operations as held for sale. Intangibles — software Property, plant and equipment Trade and other receivables Cash and cash equivalents Total assets classified as held for sale Trade and other payables Provisions Total liabilities associated with assets classified as held for sale Net liabilities of disposal group 31 December 2008 £’000 274 488 3,162 131 4,055 4,038 113 4,151 (96) On 27 February 2009 the Group completed the sale of Parity Training Ltd to ECS Ltd, a Dubai-based company, for up to £3.0 million in cash, half of which is contingent on certain revenue targets being met. Under the Sale & Purchase Agreement, Parity was required to deliver Parity Training to the buyer with minimum net assets of £1,155,000. 22 Financial liabilities — borrowings Consolidated Company 2009 £’000 2008 £’000 2009 £’000 2008 £’000 Current Bank and other borrowings due within one year or on demand: Overdraft Invoice financing facility 1 Obligations under finance leases (note 33) 81 9,832 — 9,913 — 4,310 — 4,310 81 — — 81 1 Borrowings under invoice financing facilities are secured by trade debtors of £12,929,000 (2008: £4,975,000). The Group has no non-current financial liabilities. Further details of the Group’s banking facilities are given in note 27. 23 Trade and other payables Consolidated Company — — — — 2008 £’000 — — 2009 £’000 216 9,741 — 1,488 2,031 2008 £’000 605 11,086 — 1,197 3,522 2009 £’000 — — 1,924 1,186 62 11 27 63 13,476 16,410 1,997 1,276 — — 13,476 16,410 59,019 61,016 61,064 62,340 57 Amounts falling due within one year: Payments in advance Trade creditors Amounts due to subsidiary undertakings Other tax and social security creditors Other creditors and accruals Amounts falling due after one year: Amounts due to subsidiary undertakings Total Notes to the Accounts continued 24 Current tax liabilities UK corporation tax 25 Provisions Current Non-current Consolidated Balance at 1 January 2009 Created Utilised Released Transferred to liabilities held for sale Balance at 31 December 2009 Consolidated 2009 £’000 — 2008 £’000 944 Consolidated Company 2009 £’000 401 646 2008 £’000 444 864 1,047 1,308 2009 £’000 331 470 801 2008 £’000 310 741 1,051 Property provisions £’000 1,308 80 (305) (36) — 1,047 Property provisions for the Group comprise provisions for onerous leases and dilapidations of £924,000 (2008: £1,177,000) and £123,000 (2008: £131,000) respectively. The provisions relating to dilapidations will be released on the completion of their respective leases. Onerous lease provisions will be released over the remaining length of the leases. All leases expire within ten years. Property provisions represent the estimated cost of unavoidable future liabilities in respect of leasehold properties which are surplus to the requirements of the Group, plus provisions for dilapidations that are provided for in accordance with the Group’s accounting policy (see note 1). There is no material difference between the value of the property provisions recorded in the accounts and the net present value of the future costs. Property provisions are not interest bearing. Company Balance at 1 January 2009 Created Utilised Released Balance at 31 December 2009 Property provisions £’000 1,051 1 (215) (36) 801 Property provisions for the Company comprise provisions for onerous leases and dilapidations of £785,000 (2008: £1,051,000) and £16,000 (2008: £15,000) respectively. 58 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY 26 Reconciliation of operating profit to net cash flow Continuing operations Profit for the year Adjustments for: Tax Depreciation and amortisation Equity-settled share-based payments Finance income Finance costs Changes in working capital Decrease in work in progress Decrease/(increase) in trade and other receivables Decrease in trade and other payables Decrease in provisions Change in retirement benefit liability Cash (used in)/from continuing operations Discontinued operations Loss for the year Adjustments for: Tax Depreciation and amortisation Equity-settled share-based payments Loss on disposal of property, plant and equipment Loss on disposal of subsidiary undertaking Change in fair value of available-for-sale assets Impairment of goodwill Finance costs Changes in working capital (Increase)/decrease in trade and other receivables Decrease in trade and other payables Increase/(decrease) in provisions Cash (used in)/from discontinued operations Total net cash flow from operating activities Consolidated Company 2009 £’000 2008 £’000 2009 £’000 2008 £’000 225 1,193 (1,263) (2,975) (245) 488 54 (4) 129 400 (159) (1) 1,203 1,316 187 717 (4,046) (296) (1,570) (3,287) 68 6,005 (3,503) (607) (1,612) 3,229 (496) (4,641) 189 40 — — 208 13 — 1 (122) (90) 23 (234) (3,521) 784 237 35 123 — (6) 2,522 1 1,742 (123) (6) 668 3,897 (671) 1 (45) (169) 983 — 246 1,541 (250) — 373 — — — — — — — — — — — — — (481) 2 (317) (466) 1,894 — (1,432) (1,809) (42) — (5,626) — — — — — — — — — — — — — 373 (5,626) Cash generated from operations includes cash outflows relating to exceptional items recorded in prior years of £272,000 (2008: £784,000). 59 Notes to the Accounts continued 27 Financial instruments The financial instruments of the Group as classified in the financial statements as at 31 December can be analysed under the following IAS 39 categories: As at 31 December 2009 Financial assets Net cash and cash equivalents Available-for-sale financial assets Trade and other short-term receivables Financial liabilities Invoice financing facility Overdrafts Trade and other short-term payables As at 31 December 2008 Financial assets Net cash and cash equivalents Available-for-sale financial assets Trade and other short-term receivables Financial liabilities Invoice financing facility Trade and other short-term payables Amortised cost £’000 Loans and receivables £’000 Available- for-sale £’000 — — — — 9,832 81 13,260 23,173 — — — — 4,310 18,584 22,894 128 — 14,251 14,378 — — — — 500 — 14,821 15,321 — — — — 117 — 117 — — — — — 130 — 130 — — — Total £’000 128 117 14,251 14,495 9,832 81 13,260 23,173 500 130 14,821 15,451 4,310 18,584 22,894 At 31 December 2009, the Group has not designated any financial assets or liabilities at fair value through the Income Statement. As at 31 December 2008, trade and other short-term receivables included £2,642,000 and trade and other short-term payables included £2,769,000 classified as held for sale and included in disposal groups and disclosed as such in the Consolidated Balance Sheet. The financial instruments of the Company as classified in the financial statements as at 31 December can be analysed under the following IAS 39 categories: Company As at 31 December 2009 Financial assets Non-current trade and other receivables Investment in subsidiaries Net cash and cash equivalents Trade and other short-term receivables Financial liabilities Trade and other short-term payables Overdrafts Non-current trade and other payables 60 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY Amortised cost £’000 Loans and receivables £’000 — 61,087 30,127 — — — 36 836 Total £’000 61,087 30,127 36 836 30,127 61,959 92,086 1,997 81 59,019 61,097 — — — — 1,997 81 59,019 61,097 Amortised cost £’000 Loans and receivables £’000 Available- for-sale £’000 27 Financial instruments continued Company As at 31 December 2008 Financial assets Non-current trade and other receivables Investment in subsidiaries Net cash and cash equivalents Trade and other short-term receivables Financial liabilities Trade and other short-term payables Non-current trade and other payables The currency profile of the Group’s financial assets and liabilities was as follows: — — — — — 1,276 61,064 62,340 59,757 — 10 4,883 64,650 — — — As at 31 December 2009 Financial assets Net cash and cash equivalents Available-for-sale financial assets Trade and other short-term receivables Financial liabilities Invoice financing facility Overdraft Trade and other short-term payables As at 31 December 2008 Financial assets Net cash and cash equivalents Available-for-sale financial assets Trade and other short-term receivables Financial liabilities Invoice financing facility Trade and other short-term payables Sterling £’000 US dollars £’000 Euro £’000 41 — 14,058 14,099 9,832 81 12,886 22,799 160 — 14,756 14,916 4,310 18,199 22,509 — 117 121 238 — — 128 128 47 130 1 178 — 68 68 87 — 47 134 — — 246 246 231 — 64 295 — 308 308 — 30,127 — — 30,127 — — — Swiss francs £’000 — — — — — — — — 62 — — 62 — 9 9 Total £’000 59,757 30,127 10 4,883 94,777 1,276 61,064 62,340 Total £’000 128 117 14,226 14,471 9,832 81 13,260 23,173 500 130 14,821 15,451 4,310 18,584 22,894 61 Notes to the Accounts continued 27 Financial instruments continued The currency profile of the Company’s financial assets and liabilities was as follows: As at 31 December 2009 Financial assets Non-current trade and other receivables Investment in subsidiaries Net cash and cash equivalents Trade and other short-term receivables Financial liabilities Trade and other short-term payables Overdraft Non-current trade and other payables As at 31 December 2008 Financial assets Non-current trade and other receivables Investment in subsidiaries Net cash and cash equivalents Trade and other short-term receivables Financial liabilities Trade and other short-term payables Non-current trade and other payables Sterling £’000 Euro £’000 Total £’000 61,087 30,127 32 836 92,082 1,997 81 59,019 61,097 59,757 30,127 10 4,883 94,777 1,276 61,064 62,340 — — 4 — 4 — — — — — — — — — — — — 61,087 30,127 36 836 92,086 1,997 81 59,019 61,097 59,757 30,127 10 4,883 94,777 1,276 61,064 62,340 In the table above, all the non-current trade and other receivables and payables, £834,000 (2008: all) of the trade and other short-term receivables and £1,924,000 (2008: £1,186,000) of the trade and other short-term payables are intercompany amounts. Interest on the non-current intercompany receivables and payables is calculated at 2% above the Bank of England base rate. Financial assets The financial assets of the Group include £128,000 (2008: £500,000) cash at bank and in hand. Cash is either paid into the invoice financing facility (see below) to reduce borrowings and interest costs or invested at money market floating rates of interest where the rate is reset more than once a year. All other financial assets are non-interest bearing and categorised as loans and receivables with the exception of available-for-sale assets of £117,000 (2008: £130,000). The financial assets of the Company include £36,000 (2008: £10,000) cash at bank and in hand. Current trade and other receivables are non-interest bearing. The Company had brought forward and carried forward provisions against amounts due from subsidiary undertakings after more than one year of £20,000,000 (2008: £20,000,000). Financial liabilities The objectives of the Group and the Company for holding financial instruments are described in detail in note 28. Finance lease obligations are at a fixed rate of interest. Property provisions, trade payables, other tax and social security creditors, other creditors and accruals and amounts due to subsidiary undertakings due within one year are non-interest bearing. Invoice financing facilities Parity Resources Ltd and Parity Solutions Ltd have entered into invoice financing facilities with Royal Bank of Scotland plc. Borrowings under the facilities are dependent upon the value of invoices raised and are subject to a maximum drawdown of £20 million. Borrowings under these facilities carry a floating rate of interest linked to the Bank of England base rate. As at 31 December 2009 £8,288,000 (2008: £3,473,000) had been drawn on the Parity Resources Ltd facility and £1,544,000 (2008: £837,000) on the Parity Solutions Ltd facility. 62 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY 27 Financial instruments continued Finance lease obligations The Group has no continuing finance leases. Fair value of financial instruments At 31 December 2009, there are no material differences between the book value and the fair value of the Group’s financial assets and liabilities. There are no derivative financial instruments at 31 December 2009 (2008: nil). Currency exposures Most monetary assets and liabilities are held in the functional currency of the relevant Group Company. At 31 December 2009 the Parent Company, Parity Group plc, held £4,000 in euros (2008: nil). Overdraft At 31 December 2009, the Group had an unauthorised overdraft of £81,000. Maturity of financial liabilities The maturity profile of the carrying amount of the Group’s financial liabilities, at 31 December, was as follows: Consolidated In one year or less Company In one year or less After more than five years Trade and other short-term creditors £’000 Debt £’000 2009 Total £’000 Debt £’000 Trade and other short-term creditors £’000 2008 Total £’000 9,913 13,158 23,071 4,310 18,584 22,872 Trade and other short-term creditors £’000 Non-current trade and other payables £’000 1,997 — 1,997 — 59,019 59,019 Debt £’000 81 — 81 Trade and other short-term creditors £’000 Non-current trade and other payables £’000 1,276 — 1,276 — 61,064 61,064 2009 Total £’000 2,078 59,019 61,097 2008 Total £’000 1,276 61,064 62,340 28 Financial instrument risk exposure and management In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s and the Company’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group’s exposure to financial instrument risks and the methods used to measure them from previous periods unless otherwise stated in this note. Principal financial instruments The principal financial instruments used by the Group, from which financial instrument risk arises, are trade receivables, cash at bank, trade and other payables and financial liabilities. General objectives, policies and processes — risk management The Group is exposed through its operations to the following financial instrument risks: credit risk; liquidity risk; interest rate risk; and foreign currency risk. 63 Notes to the Accounts continued 28 Financial instrument risk exposure and management continued The policy for managing these risks is set by the Board following recommendations from the Finance Director. Certain risks are managed centrally, while others are managed locally following guidelines communicated from the centre. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. The policy for each of the above risks is described in more detail below. Credit risk Credit risk arises from the Group’s trade receivables. It is the risk that the counterparty fails to discharge their obligation in respect of the instrument. The Group is mainly exposed to credit risk from credit sales. It is Group policy, implemented locally, to assess the credit risk of new customers before entering contracts. Such credit ratings are then factored into the credit assessment process to determine the appropriate credit limit for each customer. The Group does not enter into derivatives to manage credit risk. The following table illustrates the concentrations of credit risk within the Group at the Balance Sheet date: Resources Solutions Discontinued operations Impairment provisions Total debt 2009 £’000 11,012 2,546 — 0-60 days 2009 £’000 8,315 1,806 — 13,558 10,121 (120) — 13,438 10,121 60+ days 2009 £’000 2,697 740 — 3,437 (120) 3,317 Total debt 2008 £’000 10,129 2,133 2,700 14,962 (373) 14,589 0-60 days 2008 £’000 8,243 1,926 2,337 12,506 — 12,506 60+ days 2008 £’000 1,886 207 363 2,456 (373) 2,083 Ageing of debt is based on invoice date, i.e. date of invoice is day zero. There is no difference between the carrying amount of trade receivables and the Group’s maximum credit risk exposure. The analysis of the Group’s provisions against trade receivables, is shown in the table below: Resources Solutions Discontinued Gross value 2009 £’000 £’000 11,012 2,546 — 13,558 Bad debt provision 2009 £’000 £’000 (100) (20) — (120) Net carrying value 2009 £’000 £’000 10,912 2,526 — 13,438 Gross value 2008 £’000 £’000 10,129 2,133 2,700 14,962 Bad debt provision 2008 £’000 £’000 (227) (50) (96) (373) Net carrying value 2008 £’000 £’000 9,902 2,083 2,604 14,589 Liquidity risk Liquidity risk arises from the Group’s management of working capital and the finance charges on its borrowings under its invoice financing arrangements. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The liquidity of each Group entity is managed centrally, with daily transfers to operating entities to maintain a pre-determined cash balance. The level of the Group facility is approved periodically by the Board and negotiated with the Group’s current bankers. At the Balance Sheet date, cash flow projections were considered by the Board and the Group is forecast to have sufficient funds and available funding facilities to meet its obligations as they fall due, under all reasonably expected circumstances. 64 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY 29 Reserves The Board is not proposing a dividend for the year (2008: nil pence per share). In accordance with Section 408 of the Companies Act 2006, the Company has not presented its own Income Statement. The loss for the year dealt with in the accounts of the Company was £1,263,000 (2008: loss of £2,975,000). The following describes the nature and purpose of each reserve within owners’ equity: Share capital is the amount subscribed for ordinary share capital at nominal value. Deferred share capital is the nominal value assigned to the deferred share capital. Share premium is the amount subscribed for share capital in excess of nominal value. Other Reserves of £30,440,000 were created in the Company’s shareholders’ equity as a result of the merger accounting applied for the Scheme of Arrangement in July 1999. The remaining balance in Other Reserves relates principally to share premium on shares issued to vendors and option holders together with the reversal of an £8,706,000 goodwill write off which arose in 2003 on the termination of a business unit. A further deduction of £14,000,000 to Other Reserves was made in 2005 to reflect the transfer, from retained earnings, of a provision for the impairment of investments, leaving the balance of £22,729,000. Retained earnings represents the cumulative net gains and losses recognised in the Consolidated Income Statement. Consolidated retained earnings are stated after adjustment for the ESOP’s investment in the Company’s shares of £351,000 (2008: £351,000). 30 Pension commitments The Group operates a number of pension schemes. With the exception of the Parity Group Retirement Benefit Plan, all of the schemes are defined contribution plans and the assets are held in separate, independently administered funds. Contributions to defined contribution schemes for continuing operations were as follows: Defined contribution schemes Consolidated 2009 £’000 351 2008 £’000 378 Defined benefit plan In March 1995, the Group established the Parity Retirement Benefit Plan, renamed as the Parity Group Retirement Benefit Plan, following the Scheme of Arrangement in 1999, in order to facilitate the continuance of pension entitlements for staff transferring from other schemes following acquisitions in 1994. This is a funded defined benefit scheme and has been closed to new members since 1995. With effect from 1 January 2005 this scheme was also closed to future service accrual and future contributions paid into money purchase arrangements. The major assumptions used by the actuary in assessing the IAS 19 position are set out below. The figures for 2009 are based on a roll-forward by the actuary from the latest formal valuation carried out as at 6 April 2009. Those for 2008 were based on a roll-forward by the actuary from the previous formal valuation carried out as at 6 April 2006. Rate of increase of pensions in payment Discount rate Inflation Expected return on plan assets 2009 % 3.7 5.7 3.5 5.9 Note: the rate of increase in pensionable salaries is no longer applicable as the scheme is closed for future service. Contributions to the defined benefit plan in 2010 are expected to be the same as in 2009. 2008 % 3.5 6.3 2.9 5.5 65 Notes to the Accounts continued 30 Pension commitments continued Pension obligations The amounts recognised in the Balance Sheet are determined as follows: Present value of funded obligations Fair value of plan assets Deficit in the scheme Related deferred tax asset Net liability recognised in the Balance Sheet 2009 £’000 2008 £’000 (16,587) (13,919) 13,261 (3,326) 545 (2,781) 11,973 (1,946) 545 (1,401) Reconciliation to balance sheet: Scheme assets Scheme liabilities Reconciliation of scheme assets: At beginning of year Expected return Contributions by Group Benefits paid Actuarial gain/(loss) At end of year Actual return on scheme assets: Expected return Actuarial gain/(loss) 2009 £’000 2008 £’000 2007 £’000 2006 £’000 2005 £’000 13,261 (16,587) (3,326) 11,973 (13,919) (1,946) 11,575 (14,421) (2,846) 10,883 (15,586) (4,703) 9,955 (14,612) (4,657) 2009 £’000 2008 £’000 11,972 11,575 670 900 (487) 206 711 900 (338) (876) 13,261 11,972 2009 £’000 670 206 876 2008 £’000 711 (876) (165) 66 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY 30 Pension commitments continued Composition of scheme assets: Equities and property Gilts Bonds Cash Reconciliation of scheme liabilities: At beginning of year Interest cost Benefits paid Actuarial (loss)/gain At end of year Composition of scheme liabilities: Schemes wholly or partly funded Experience adjustments on assets: Amount £’000 As a % of scheme assets Experience adjustments on liabilities: Amount £’000 As a % of scheme liabilities 2009 £’000 4,506 4,294 4,278 183 2008 £’000 3,957 3,985 3,834 196 13,261 11,972 2009 £’000 2008 £’000 (13,919) (14,421) (862) 487 (2,293) (827) 337 992 (16,587) (13,919) 2009 £’000 2008 £’000 (16,587) (13,919) 2009 2008 2007 2006 2005 206 1.6% (876) (7.3%) (425) (3.7%) (80) (0.7%) (169) (1.0%) (193) (1.4%) 131 0.9% (787) (5.0%) 957 9.6% 582 4.0% 67 Notes to the Accounts continued 30 Pension commitments continued The amounts recognised in the income statement are as follows: Interest cost Expected return on plan assets Pension costs included in the Income Statement Actuarial (losses)/gains recognised and pension costs recognised in the statement of comprehensive income There are no unrecognised actuarial gains or losses in 2009 or 2008. Analysis of the movement in the balance sheet liability: At beginning of year Movement during the year: — contributions — operating costs/return on assets — other finance expense — actuarial (loss)/gain Liability at end of year 31 Share capital Authorised: Ordinary shares: 409,044,603 ordinary shares of 2p each (2008: 409,044,603 ordinary shares of 2p each) Deferred shares: 35,797,769,808 deferred shares of 0.04p each (2008: 35,797,769,808) Share capital allotted, called up and fully paid: Ordinary shares: 38,021,784 ordinary shares of 2p each (2008: 38,021,784 ordinary shares of 2p each) Deferred shares: 35,797,769,808 deferred shares of 0.04p each (2008: 35,797,769,808) 68 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY 2009 £’000 (862) 670 (192) 2008 £’000 (827) 711 (116) (2,088) 116 2009 £’000 2008 £’000 (1,946) (2,846) 900 670 (862) (2,088) (3,326) 900 711 (827) 116 (1,946) 2009 £’000 2008 £’000 8,181 8,181 14,319 22,500 14,319 22,500 760 760 14,319 15,079 14,319 15,079 31 Share capital continued Movements in issued and fully paid share capital: Ordinary shares of 2p each At 1 January & 31 December Deferred shares of 0.04p each At 1 January & 31 December 2009 £’000 2009 number 2008 £’000 2008 number 760 38,021,784 760 38,021,784 14,319 35,797,769,808 14,319 35,797,769,808 The deferred shares are not listed on the London Stock Exchange, have no voting rights, no rights to dividends and the right only to a very limited return on capital in the event of liquidation. Potential issues of ordinary shares Certain employees hold options to subscribe for shares in the Company at prices ranging from £0.09 to £2.09 under the Group’s various incentive schemes. The number of shares subject to options, the periods in which they were granted and the periods in which they may be exercised are given below. Executive share option plan 2003 2003 2006 2007 2007 2007 2007 2008 2008 2009 Exercise period 2006–2013 2006–2013 2009–2016 2010–2017 2010–2017 2010–2017 2010–2017 2011–2018 2011–2018 2012–2019 Senior Executive Share Option Plan 2009 Sharesave schemes 2007 2009-2014 Adjusted exercise price per share £2.09 £1.65 £0.525 £0.69 £0.83 £0.865 £0.675 £0.39 £0.25 £0.09 As at 1 January 2009 14,590 18,115 785,708 173,874 174,698 373,410 140,000 230,000 1,100,000 — 3,010,395 Lapsed in year Exercised in year Awarded in year (7,177) (13,593) (428,566) (69,566) — (196,531) — (40,000) (360,000) — (1,115,433) — — — — — — — — — — — — — — — — — — — — 975,000 975,000 As at 31 December 2009 7,413 4,522 357,142 104,308 174,698 176,879 140,000 190,000 740,000 975,000 2,869,962 £0.20 — — — 3,802,177 3,802,177 2011 £0.65 391,643 3,402,038 (140,429) (1,255,862) — — — 4,777,177 251,214 6,923,353 The aggregate number of share options exercisable at the year end was 1,650,249 (2008: 32,705). 32 Management of capital structure The Group is presently funded through equity and a core level of short-term borrowings. The Company is funded through both equity and intercompany loans. The Group’s and the Company’s objectives when maintaining capital are: l to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and l to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk. The Group sets the amount of capital it requires in proportion to risk. The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. 69 Notes to the Accounts continued 32 Management of capital structure continued In managing capital, the Group’s key focus is on net debt. During 2009, the Group’s strategy, which was unchanged from 2008, was to keep net debt to a minimum, through profitable trading and good cash management. Consistent with others in the industry, the Group monitors capital on the basis of the debt to adjusted capital ratio. For this purpose the invoice financing drawings are considered as debt. This ratio is calculated as net debt divided by adjusted capital. Net debt is calculated as total debt (as shown in the Balance Sheet) less cash and cash equivalents. Adjusted capital comprises all components of equity (i.e. share capital, share premium, other reserves and retained earnings). Consolidated 2009 £’000 2008 £’000 (9,832) (4,310) (81) 128 (9,785) 7,134 2009 % 137.2 2009 £’000 36 (81) — 500 (3,810) 8,659 Company 2008 % 44.0 2008 £’000 10 — (59,019) (59,064) (61,064) (61,054) Consolidated 2008 £’000 — Consolidated 2008 £’000 2 (2) — 2009 £’000 — 2009 £’000 — — — Invoice financing drawings Overdraft Cash and cash equivalents Net debt Total shareholders’ equity Debt to adjusted capital ratio Cash and cash equivalents Overdraft Intercompany loans Net debt 33 Finance lease obligations Amounts payable: Within one year Analysis of changes in finance lease obligations during the year: At 1 January Capital element of finance lease rental payments At 31 December 70 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY 34 Operating lease commitments Operating leases — lessee The total future minimum rents payable under non-cancellable operating leases are as follows: Continuing operations Amounts payable: Within one year Between two and five years After five years Discontinued operations Amounts payable: Within one year Between two and five years Over five years Land and buildings 2009 £’000 Plant and machinery 2009 £’000 Land and buildings 2008 £’000 Plant and machinery 2008 £’000 1,129 3,872 441 5,442 141 280 — 421 37 56 — 93 — — — — 1,534 5,208 1,414 8,156 613 1,601 — 2,214 31 73 — 104 11 — — 11 Operating leases — lessor Certain properties may have been vacated prior to the end of the lease term. Where possible the Group always endeavours to sublease such vacant space. An onerous provision is recognised where the rents receivable over the lease term are less than the obligation to the head lessor. The total future minimum rents receivable under non-cancellable operating leases on sublet properties are as follows: Continuing operations Amounts receivable: Within one year Between two and five years After five years Discontinued operations Amounts receivable: Within one year Between two and five years Over five years Land and buildings 2009 £’000 Land and buildings 2008 £’000 389 1,107 146 1,642 123 244 — 367 416 1,217 340 1,973 155 456 — 611 71 Notes to the Accounts continued 35 Contingencies In the normal course of business, the Group is exposed to the risk of claims in respect of contracts where the customer or supplier is dissatisfied with the performance, pricing and/or completion of the contracted service or product. Such claims are normally resolved by a combination of negotiation, further work by Parity or the supplier and/or monetary settlement without formal legal process being necessary. Occasionally, such claims progress into legal action. At the present time, Group management believes the resolution of any known claims or legal proceedings will not have a material further impact on the financial position of the Group. The Company is guarantor of two property leases held by Parity Training Ltd, which was sold on 27 February 2009. 36 Key management remuneration Key management comprises the Board of Directors. The total remuneration received by key management for 2009 was £670,000 (2008: £431,000). This comprises emoluments received, pension contributions and share-based payment charges. In 2009 there was a net charge to share-based payments of £75,000 (2008: credit of £293,000). Key management remuneration is disclosed in detail within the remuneration report. 37 Related party transactions Company Details of the Company’s shares in Group undertakings are given in note 16. The Company entered into transactions with other Group undertakings as shown in the table below. Interest received from subsidiaries Interest paid to subsidiaries At 31 December, the Company had the following amounts payable and receivable to/from Group undertakings. Amounts owed by subsidiary undertakings: Falling due within one year (note 19) Falling due after one year (note 19) Amounts due to subsidiary undertakings Falling due within one year (note 23) Falling due after one year (note 23) 2009 £’000 169 642 2008 £’000 466 1,406 2009 £’000 2008 £’000 834 61,087 4,883 59,757 1,924 59,019 1,186 61,064 During the current and preceding year the Company recharged other Group undertakings for various administrative expenses incurred on their behalf. The Company also received administrative cost recharges from other Group undertakings. It is not practicable to analyse the high volume of funding transactions between the Company and other Group undertakings. 38 Subsidiary undertakings The principal subsidiary undertakings affecting the consolidated results of the Group which are wholly owned and registered in England, except where indicated below, are as follows: Name Parity Resources Limited 1 Parity Solutions Limited 1 Parity Training Limited 1,2 Parity International BV 1, 4 TelTech International Corp 1,3 1 Held by subsidiary undertaking 2 Sold on 27 February 2009 3 Inactive as at 31 December 2008 4 Registered in England Country of incorporation Proportion of ownership interest Principal activity England and Wales 100% Technology staffing services England and Wales England and Wales The Netherlands New York State USA 100% 100% 100% 100% IT and business services Training services Holding Ceased to trade All of the subsidiary undertakings have the same accounting reference date as Parity Group plc. 72 Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY About Parity Group Corporate Information Parity is a business and IT solutions company with over 40 years’ industry experience. Parity delivers a range of recruitment and business and IT solutions to clients across the public and private sectors. “Over 40 years’ industry experience.” Why our clients choose Parity IT starts with our people: our clients enjoy the experience of working with Parity people who combine excellent skills with a refreshingly open way of working. Proud of our delivery capabilities: we deliver on high performance solutions and projects, enjoying the challenge of hugely complex problems or projects. Investment in IT: we partner with the best-of-breed technology companies and have invested in improving our own processes and systems to allow for improved effi ciencies and cost savings. Contents 01 Highlights 02 Group at a glance 06 Chairman’s statement 07 Operating review 11 Financial review 14 Board of Directors and Executive Committee 16 Directors’ report 18 Social, environmental & ethical policies 19 Corporate governance report 22 Remuneration report 26 Independent auditors’ report 27 Consolidated income statement 28 Statements of recognised income and expense 29 Balance sheets 30 Cash flow statements 31 Notes to the accounts Parity Group plc Report and Accounts 2009 www.parity.net stock code: PTY Advisors Auditors BDO LLP 55 Baker Street London W1U 7EU Bankers RBS Group 9th Floor 280 Bishopsgate London EC2M 4RB Financial advisors & stockbrokers Arbuthnot Securities Arbuthnot House 20 Ropemaker Street London EC2Y 9AR Solicitors Ashurst Broadwalk House 5 Appold Street London EC2A 2HA Pinsent Masons 30 Aylesbury Street London EC1R 0ER Registered office Wimbledon Bridge House 1 Hartfield Road Wimbledon London SW19 3RU Tel: 0845 873 0790 Fax: 020 8545 6355 Registered in England & Wales No. 3539413 Registrars Equiniti Limited, Aspect House Spencer Road Lancing West Sussex BN99 6DA Tel: 0870 600 3964 Fax: 0870 600 3980 Equiniti offer a range of information on-line. You can access information on your shareholding, indicative share prices and dividend details and find practical help on transferring shares or updating your details at www.shareview.co.uk Enquires concerning shareholdings in Parity Group plc should be directed, in the first instance, to the Registrars, Equiniti, as above. Financial calendar 2010 Annual General Meeting: Interim management statement: Interim results: 2 June 2010 19 May 2010 August 2010 Investor relations The Hogarth Partnership Limited No 1 London Bridge London SE1 9BG Tel: 020 7357 9477 Fax: 020 7357 8533 Further information for shareholders including copies of the Annual and Interim Reports can be obtained from the Company Secretary’s office at the registered office address below or from the Parity Group website at www.parity.net The Company Secretary Parity Group plc Wimbledon Bridge House 1 Hartfield Road Wimbledon London SW19 3RU Or by email to: cosec@parity.net Parity Group plc Report and Accounts for the year ended 31 December 2009 P a r i t y G r o u p p c l R e p o r t a n d A c c o u n t s f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 0 9 Parity Group plc Wimbledon Bridge House 1 Hartfield Road Wimbledon London SW19 3RU Tel: 0845 873 0790 Fax: 020 8545 6355 www.parity.net