Parity Group plc
Wimbledon Bridge House, 1 Hartfield Road, Wimbledon, London, SW19 3RU
Tel: 0845 873 0790
Fax: 020 8545 6355
www.parity.net
stock code: PTY
Parity Group plc Report and Accounts
Year Ended 31 December 2010
221423 PARITY NEW COVER.indd 1
221423 PARITY NEW COVER.indd 1
27/04/2011 15:13
27/04/2011 15:13
About Parity
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.
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 Chairman’s Statement
03 Operating Review
05 Financial Review
08 Board of Directors
09 Directors’ Report
11 Social, Environmental and Ethical Policies
12 Corporate Governance Report
16 Remuneration Report
21 Independent Auditors’ Report
22 Consolidated Income Statement
23 Statement of Comprehensive Income
24 Statements of Changes in Equity
25 Statements of Financial Position
26 Statements of Cash Flows
27 Notes to the Accounts
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
Registered office
Wimbledon Bridge House
1 Hartfi eld 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
Tele 0870 600 3964
Fax: 0870 600 3980
Advisors
Auditors
BDO LLP
55 Baker Street
London
W1U 7EU
Bankers
RBS Group
9th Floor
280 Bishopsgate
London
EC2M 4RB
PNC Business Credit
8-14 The Broadway
Haywards Heath
West Sussex
RH16 3AP
Equiniti offer a range of information online. You can access
information on your shareholding, indicative share prices and
dividend details and fi nd practical help on transferring shares or
updating your details at www.shareview.co.uk
Financial advisors & stockbrokers
Singer Capital Markets
One Hanover Street
London
W1S 1YZ
Enquiries concerning shareholdings in Parity Group plc
should be directed, in the fi rst instance, to the Registrars,
Equiniti, as above.
Financial calendar 2010
Annual General Meeting:
Interim management statement:
Interim results:
7 June 2011
16 May 2011
August 2011
Solicitors
Pinsent Masons
30 Crown Place
London
EC2A 4ES
Investor relations
MHP Communications
60 Great Portland Street
London
W1W 7RT
Tel: 020 3128 8100
Further information for shareholders including copies of the
Annual and Interim Reports can be obtained from the Company
Secretary’s offi ce at the registered offi ce address below or from
the Parity Group website at www.parity.net
The Company Secretary
Parity Group plc
Wimbledon Bridge House
1 Hartfi eld Road, Wimbledon,
London, SW19 3RU
Or by email to: cosec@parity.net
221423 PARITY NEW COVER.indd 2
221423 PARITY NEW COVER.indd 2
27/04/2011 15:13
27/04/2011 15:13
Highlights of 2010
Financial highlights
Operational highlights
❚ Revenues of £93.0 million (2009: £119.0 million)
❚ Founder Chairman and CEO both rejoined
❚ Group operating loss from continuing operations
before exceptional items of £2.6 million (2009:
£0.8 million profi t)
Resources division: £2.0 million operating profi t
before exceptional items (2009: £3.0 million)
Solutions division: £2.0 million operating
loss before exceptional items (2009:
£0.6 million loss)
❚ Group loss from continuing operations before
tax and exceptional items of £3.1 million (2009:
£0.3 million profi t)
❚ Exceptional and discontinued business costs of
£3.0 million (2009: £0.7 million)
❚ Net debt at year end reduced to £6.1 million
(2009: £9.8 million)
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
Board in June 2010, committed to improving
shareholder value
❚ New Finance Director assumed role as from
1 April 2011
❚ Major management restructuring and cost-
cutting undertaken in second half, reducing
cost base by some £3.5 million
❚ Bidding on large fi xed price contracts was
stopped; problems on a number of projects
have either been resolved or are near to
resolution
❚ Important wins in the second half included
the Cabinet Offi ce and government Buying
Solutions framework
❚ Solutions division improves to break-even in the
last quarter of 2010
❚ New asset-based lending facility signed in
December 2010, providing enhanced facilities
❚ New Divisional structure created, around
Systems, Talent Management, and Resources
❚ Board now focused on implementing new
strategies aimed at growth markets, with the
necessary new management, marketing and
consequent investment
i
O
u
r
F
n
a
n
c
a
s
i
l
221423 PARITY FRONT.indd 01
221423 PARITY FRONT.indd 01
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
01
Market Trends
The Board sees major opportunities and changes ahead in both
the skills base and the types of IT application required by
customers. Parity has particular skills and experience in the
Business Intelligence area but recognizes that technology
trends will change the nature and delivery of such applications.
The Cloud revolution is gathering pace and new technology
combined with the web enables quite different communication
processes. In particular there is the corporate use of mobile
internet devices, the requirement for visual rather than text
communication, and the increasing relevance of IT technology
to the marketing processes of all corporates through digital
media and social networks. These trends are likely to produce
a growing but different IT services requirement over the coming
years and Parity is determined to position itself to take full
advantage.
Board
In June 2010, I rejoined the Board as Chairman, and Paul
Davies, who co-founded Parity with me in 1994, rejoined as
Chief Executive Officer.
Finance Director Ian Ketchin retired from the Board at the
end of March and was replaced by Alastair Woolley FCA.
The current Board also includes Lord Freeman, Deputy
Chairman, and Nigel Tose, Non-Executive Director. The
Directors are looking to make further appointments to
strengthen the Board as we move ahead.
Future Prospects
The UK IT services market remains uncertain with some signs
of recovery, including the Government sector. This will therefore
be a year of consolidation with the focus obviously being on
continuing to improve performance and finalising our new
growth strategy. The Board will be further strengthening both
management and technological capability in the coming months
and pushing forward on new marketing initiatives. We will
provide more detail, on these measures and on trading
performance, as we move through the coming months.
Philip Swinstead OBE
Chairman
27 April 2011
Chairman’s Statement
Philip Swinstead OBE
Results
Revenues for the year were 22% lower at £93.0 million, and the
Group recorded an operating loss before exceptional items of
£2.6 million compared to a profit of £0.8 million the previous
year. Exceptional costs from continuing activities relating to
Board changes, restructuring and excess property amounted to
£2.1 million compared to £0.3 million in 2009, with a further
cost of £0.9 million (£0.5 million in 2009) relating to the
discontinued business Parity Training, which was sold in 2009.
This produced a loss attributable to shareholders for the year of
£6.1 million (£0.3 million in 2009).
The revenue decline was caused primarily by the reduction in
Government expenditure to which the business failed to react
sufficiently quickly. There were also poor project controls, and
the sale of Parity Training in 2009 with unsatisfactory contract
conditions proved costly. These factors, when combined, led to
a poor performance in 2010.
The Resources business stood up well to a freeze on spending on
temporary IT staff by government in the autumn and increased its
commercial work. Solutions, despite suffering from a difficult
market, improved its operating performance to break-even by
the year end.
Cash
Borrowings at year end were £6.1 million, down from £9.8million
12 months before. Cash was managed very tightly in the second
half of 2010, and this continues into this year. We agreed new
bank facilities with PNC in December 2010, and the Group now
has a total invoice discounting and accrued revenue facility of up
to £15.0 million. The adequacy of the company’s capital is
discussed further in the Directors Report and in Note 1.
Management Action
Within days of rejoining the Board it was clear to the new
management that immediate action was required to put the
Group on a more secure footing. As a consequence, a £3.5
million cost reduction programme was initiated in two phases to
balance revenues and costs. In parallel an immediate stop
was put on all significant fixed price bidding until the necessary
functions and processes were in place. There is further
significant overhead cost savings possible, which will require
some financial investment, and this will be addressed
when possible.
Divisional Reorganisation
In the second half the Solutions division was split into two
separate entities: a Systems division under new management,
and a Talent Management division focused on the graduate
selection, training and placement market, which is so vital to
the UK at this time.
The Group therefore now operates through three divisions:
Systems, Talent Management and Resources. The divisions
work closely together to provide a range of services including
consultancy, development, application management, support,
IT resources and graduate recruitment programmes.
The Systems and Resources divisions provide customers with
a powerful Virtual Resource, able to quickly create multi-skilled
project teams both from our permanent senior staff and the
many thousands of skilled professionals available to us on
contract.
02
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY FRONT.indd 02
221423 PARITY FRONT.indd 02
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
Operating Review
Paul Davies
Resources Division
Despite winning the Buying Solutions framework agreement
against strong competition early in the second half,
Government spending cuts resulted in a revenue decline to
£78.1 million (2009: £100.5 million) and an operating profit
before exceptional items of £2.0 million (2009: £3.0 million) with
an operating margin of 2.6% (2009: 3.0%).
New initiatives in the year to grow the commercial business
have seen contractor numbers increase in this sector from 243
to 306 at year end. Additional sales resource has been recruited
to continue this growth trend into 2011.
Overall, contractor numbers declined by 10% through the year
to 700, with contractor margins being maintained at 8.4%
(2009: 8.5%).
A reorganisation has commenced to increase our ability to
compete in higher margin commercial sectors and the non-
framework (spot market) environment where higher margins
are available.
We therefore intend to continue to be a major player in the
important public sector market whilst extending our sales and
account management capabilities to encompass growing
commercial and spot market opportunities.
Solutions Division
The Solutions business had been overly dependent on a large
fixed price projects initiative embarked upon several years ago,
operating in a crowded, competitive market. It had a large and
costly infrastructure with only a few contract wins, many of
which proved to be loss-making due to poor control systems.
This part of the business was discontinued in the second half
resulting in considerable cost savings and reduced business
risk. This also reflects a general IT services industry trend away
from larger projects, and puts the business in a good position
to capitalise on the opportunities around Cloud computing as
this area of the market develops.
As a result we enter 2011 with a more stable platform with
costs and income aligned. Having defined the skills we require
to support our market strategies we commenced, towards the
end of the year, a recruitment programme to enhance our
technical and sales capabilities.
Revenues in the year were £14.8 million (2009: £18.5 million)
with an operating loss of £2.0 million (2009: loss £0.6 million).
As a result of the actions taken at half year a divisional
operating loss of £1.5 million in the first half was reduced to
£0.5 million in the second and break-even in the last quarter.
Group Restructuring
The Company entered 2010 with an overhead structure more
suited to a much larger organisation which, combined with poor
performance in the fixed price contracts division and a
reduction in public sector spend, resulted in a decline in
operating profit.
An urgent business review, conducted by the new management
team upon its appointment in June, resulted in a number of
conclusions.
The central overheads needed to be considerably reduced and
actions were immediately put in place to remove costs in the
order of £1.5 million.
The decision made within the projects division of the Solutions
business to migrate away from large fixed price programmes
towards a lower risk business model has enabled a further
£2.0 million of cost to be removed by year end.
There are substantial overhead costs which have been
identified for subsequent reduction. These relate primarily to
excess office space and a long-term outsourced IT contract
which is materially oversized for the Company’s requirements.
Some planned investments in new market initiatives and
improved controls will partially dilute these savings going
forward.
Divisional Restructuring
Restructuring during the second half resulted in a number of
organisational and management changes. The Solutions
business unit was split in the second half into two distinct
divisions. The largest is the Systems division based in
Wimbledon and Belfast, which provides IT services and
solutions.
A separate Talent Management division provides graduate
selection and development programmes for the Northern
Ireland Government and industry based in Belfast, and a
graduate selection programme for the UK Cabinet Office from
the Camberley office.
In 2011 the Talent Management division will operate as a
separate business unit focusing on developing its considerable
potential to provide graduate recruitment and development
services to Government, universities and industry.
Both of these divisions are now run by managers identified from
within Parity and they sit alongside the Resources division. The
new management teams have responded positively to the
challenges they face and have already demonstrated that they
are determined to make Parity a major player.
Management and Staff
In a services company the staff are without doubt the most
important asset. At a time when we have seen some necessary
downsizing within Parity it is particularly encouraging to note
the enthusiasm expressed by so many and their commitment
to ensuring the successful growth of the Company. The Board
wishes to express its special thanks for their support and
loyalty.
It is important that we maintain the skills and commitment of
everyone as we seek to grow the Company. To that end we
maintain a balanced and affordable approach to targeted
training programmes and incentives, which include bonus
plans, sales commissions, share options and an employee
share save scheme.
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
i
l
221423 PARITY FRONT.indd 03
221423 PARITY FRONT.indd 03
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
03
Operating Review continued
Group Markets
Parity continued to operate during the year in the IT Services
and Resources market and traded almost exclusively in the UK
from Wimbledon, Sale, Belfast, Edinburgh and Camberley, with
no overseas offices. Much of Parity’s work remains short-term
in nature although several contract relationships have extended
over several years.
No individual client accounted for more than 6% of Group
turnover although the Company remained heavily dependent on
public sector business (70% by revenue) which declined over
the period as a result of Government spending reductions. To
mitigate this trend increased attention has been paid to growing
the commercial base by extending existing capabilities and
expanding into new growth areas.
Increased attention has also been placed in the second half on
strengthening our relationships with major IT industry partners.
This will continue through 2011.
The market for our services continues to be uncertain and
competitive, but we are making positive steps to develop our
strategy to improve our competitive edge and move our
offerings towards newer and more profitable emerging
demands and technologies.
Paul Davies
Chief Executive Officer
27 April 2011
04
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY FRONT.indd 04
221423 PARITY FRONT.indd 04
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
Financial Review
Alastair Woolley
Revenue
Continuing operations
Resources
Solutions
Operating loss
Continuing operations
Resources
Solutions
Operating profit before central costs and exceptional items
Central costs
Operating loss before exceptional items
2010
£’000
78,117
14,846
92,963
2009
£’000
100,517
18,507
119,024
2009
£’000
(as restated –
note 1)
2,984
(636)
2,348
(1,568)
780
2010
£’000
2,041
(1,985)
56
(2,698)
(2,642)
Following a poor first half of 2010 action was taken to restructure the business. The cost of workforce changes has been treated as
an exceptional item. In Solutions, where much of the restructuring effort has been focused, the business returned to a small
operating profit before exceptional items for the fourth quarter.
Exceptional items
Continuing operations
Restructuring
Property provisions
The restructuring during 2010 involved a change in senior
management, the exit from fixed price contracts and a major
downsizing of the Group’s costs. Solutions headcount has been
reduced by more than 30% year on year. This reduction in
headcount also created vacant office space. Further details of
the exceptional costs are given in note 4.
Discontinued business
Parity Training was sold in February 2009. Although potential
consideration was up to £3.0 million, half of this depended on
the performance of Parity Training in the year after disposal and
half on the value of the net assets on completion. The business
deteriorated after the sale was agreed which had the effect of
reducing the net assets on completion. The market continued
to deteriorate throughout 2009 and Parity Training also lost its
major customer. Consequently no performance-related
consideration became receivable. Consideration of £1.0 million
was recognised in 2009, recognising the expected outcome of
completion accounts. In June 2010 Parity Training was placed
in administration. The remaining deferred consideration of
£0.2 million was written off.
2010
£’000
1,538
600
2,138
2009
£’000
271
–
271
The buyer of Parity Training failed to take over the guarantee on
certain Group leases, as envisaged in the sale contract, and the
Group incurred a charge of £0.7 million in this respect, which is
included in the discontinued operations line of the income
statement.
Earnings per share and dividend
The basic loss per share was 16.15 pence (2009: 0.71 pence).
The basic loss per share from continuing operations was
13.75 pence (2009: earnings of 0.59 pence).
The Board does not propose a dividend for 2010 (2009: nil).
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
i
l
221423 PARITY FRONT.indd 05
221423 PARITY FRONT.indd 05
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
05
Financial Review continued
Statement of Financial Position
Restructuring the business to fit its revenues contributed £2.1 million
to the reduction in net assets and the impact of the loss incurred in
relation to the Training business, sold in 2009, was £0.9 million.
The recession and, in particular, the cuts in public sector
spending had a major impact, resulting in a loss before
exceptional items and tax of £3.1 million. The loss for the year
led to a reduction in net assets from £7.1 million to £1.3 million.
The most significant movements in the balance sheet were in
trade receivables and accrued income, financial liabilities,
provisions and the retirement benefit liability.
Trade receivables and accrued income
At the end of 2009 trade receivables were particularly high
following changes to our own systems and in client processes.
As a result of addressing these issues and continued
improvements in working capital management, but also the fall
in revenue levels, trade receivables and accrued income fell by
£9.9 million to £13.2 million. Debtor days, calculated on billings
on a countback basis, were 31 (2009: 40).
Other financial liabilities
Other financial liabilities represent the Group’s debt under the
asset-based lending facility. This is a working capital facility and
is consequently linked to the same cycle as the trade
receivables. Whilst the fall in revenues and the improvements in
working capital management had the impact of reducing
borrowing requirements, the losses incurred in the year had the
opposite effect. The combination of these changes reduced
financial liabilities by £3.6 million.
In December 2010 the Group signed a new asset-based
lending facility. This provides for borrowing of up to £15.0
million depending on the availability of appropriate assets as
security. Interest on borrowings is charged at 2.5% over the
prevailing base rate.
Cash flow and net debt
At the start of the year the Group had net debt (working capital
facility less cash and cash equivalents) of £9.8 million. During
the year the Group generated net cash of £4.1 million from
operating activities. This was primarily a result of the fall in
revenues and improvements in management of working capital,
as outlined above. £0.8 million was paid in respect of vacant
property, of which £0.2 million related to Parity Training; and
£1.8 million was paid in respect of the restructuring
programme.
The Group had net debt of £6.1 million at the end of the
year. The Group’s borrowings are all under an asset-based
facility. At the year end, headroom on the facility was
£1.7 million.
Provisions
The main provision increase relates to properties. The Group
has vacated space as a result of the contraction of the business
which it has not yet been able to sublet. Property provisions
also increased as a result of the Group’s position as guarantor
on a Training property. On Parity Training entering administration
in June 2010 the guarantee became active and provision has
been made for the Group’s future liability under this guarantee.
Change in accounting policy
The presentation in the Income Statement of the amounts
relating to the defined benefit pension scheme has been
amended in the year. Previously the expected return on scheme
assets was included within operating profit, while the notional
interest on liabilities was included within finance costs. The
expected return on assets is now presented within finance
income and the comparative for 2009 has been adjusted. The
impact is to reduce the 2009 operating profit and increase 2009
finance income by £0.7 million. This change has been made to
give a fairer reflection of the trading performance of the
business.
Pension Fund
The Group has a legacy defined benefit pension scheme. The
accounting deficit on this scheme fell by £0.9 million in the year
mainly due to contributions paid of £0.8 million and increases in
asset values. The contributions are a significant drain on the
Group’s cash resources. In order to help fund the restructuring
of the business the Trustees of the fund agreed to a
contribution holiday starting in November 2010. When
contributions recommence in January 2012 they will be at an
increased level of £1.1 million per annum compared to the
previous level of £0.9 million, depending on asset performance.
In December 2010 the Company issued one million share
options at 9 pence each to the Scheme to be exercised at the
discretion of the Trustees. Any gain from the exercise of these
share options is to be used to reduce the Scheme deficit.
Principal risks and uncertainties
Market
The Group remains exposed to the public sector, with over
70% of 2010 revenues derived from this area. The reduction in
Government spending in 2010 caused a reduction in the
Group’s revenues. Spending levels have stabilised but there
remains uncertainty over public sector budgets in the new
financial year starting in April 2011. In order to mitigate the risk,
during 2010 the Group took action to reduce costs and align
the cost base with expected revenues.
Following the reorganisation of the Group there is a major
emphasis on addressing growth technologies and private
sector clients.
06
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY FRONT.indd 06
221423 PARITY FRONT.indd 06
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
Adequacy of capital
The losses of 2010 have depleted the capital of the Group.
Should revenues fall further there is a risk that insufficient capital
will be available to the Group. The Board regularly reviews the
adequacy of resources available and considers the options
available to increase them. The Board are actively pursuing
other fund raising activities at present which are discussed in
the Directors’ Report.
People
Our people are the most important part of our service and
having appropriately trained and motivated staff helps us
reduce the risk of poor service delivery. Share plans are used to
incentivise and retain senior staff in the medium term. HR
policies and procedures are reviewed regularly to ensure the
business recruits and retains appropriately trained and
experienced staff.
Technology
As an IT services provider the Group relies on its IT,
telecommunications and infrastructure systems to perform and
manage the services we provide to clients. The Group engages
with its service providers and reviews its own disaster recovery
systems regularly in order to minimise the risk of prolonged
disruption to systems.
Legal
The Board 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 to
reduce the risk of non-compliance.
Requirement to prepare a Business Review
The Directors, in preparing this Business Review, have
complied with s417 of the Companies Act 2006.
This Business Review has been prepared for the Group as a
whole and therefore gives greater emphasis to those matters
which are significant to Parity Group plc and its subsidiary
undertakings when viewed as a whole.
Alastair Woolley
Finance Director
27 April 2011
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
l
i
221423 PARITY FRONT.indd 07
221423 PARITY FRONT.indd 07
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
07
Paul Davies
Chief Executive Officer
Paul Davies,62, was appointed as Chief Executive in June
2010. He was co-founder of Parity, together with Philip
Swinstead, and Chief Executive until 1999. Previously Paul was
MD of EASAMS, GEC’s systems company. Paul has been
Deputy Chairman of Microgen plc since 1999 and for a period
was Chairman of MSB International plc. More recently he joined
the operations board of Fujitsu Services for two years tasked
with improving the performance of their portfolio of large
IT programmes.
Alastair Woolley
Finance Director
Alastair Woolley, 49, was appointed in April 2011. Alastair
trained with Deloitte and spent 11 years in various department
including audit and business services. Since leaving Deloitte,
Alastair has worked during the last 16 years in a variety of
companies, mainly technology based, as Finance Director and
also for a period of time, as Managing Director. He has worked
with Philip Swinstead previously as Finance Director and also
lately with both Philip and Paul Davies as a consultant on a
number of projects. Alastair has responsibility for Finance,
Property and Facilities and our Legal and Contracts team.
Board of Directors
Philip Swinstead OBE
Chairman 1, 2
Philip Swinstead, 67, was appointed Non-executive Chairman
in June 2010. Philip is a UK software industry founder. He
started SD in 1969 and was Chairman for 20 years. SD
became the first software house to obtain a full listing in the UK
in 1982, it entered the FTSE 250, and was renamed SD-Scicon
before being sold to EDS in 1991. Philip arranged the buyout
and refinancing of French systems company, GFI, which then
went public in Paris in 1998. Philip Swinstead was co-founder
of Parity plc in 1993, and Parity joined the FTSE 250 within five
years. More recently he has founded private companies in the
software animation and mobile application sectors.
Lord Freeman
Non-executive Deputy Chairman 1, 2, 3
Roger Freeman, 68, 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.
Nigel Tose
Non-executive Director 1, 2, 3
Nigel Tose, 67, 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) Limited. 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.
1 Member of the nominations committee
2 Member of the remuneration committee
3 Member of the audit committee
08
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY FRONT.indd 08
221423 PARITY FRONT.indd 08
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
Directors’ Report
The Directors present their report and the audited accounts for
the year ended 31 December 2010.
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
02 to 07. The Group’s social, environmental and ethical policies
are set out on page 11. A statement on the application of the
going concern principle is set out below. Details of financial
instruments are set out in note 21 to the accounts. 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 £5,243,000 (2009: £20,000) after charging
exceptional items of £2,138,000 (2009: £271,000). After a tax
credit of £20,000 (2009: £245,000) and a loss from
discontinued operations of £911,000 (2009: £496,000), the
retained loss of £6,134,000 (2009: £271,000) has been
transferred to reserves. The results for the year are set out in
the consolidated income statement on page 22.
Dividends
The Directors do not recommend a final dividend (2009: nil
pence per ordinary share). The total dividends for the year were
nil pence per ordinary share (2009: 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 23.
Purchase of own shares
At the end of the year, the Company had authority, under the
shareholders’ resolution of 1 June 2010, to purchase in the
market 3,802,178 of the Company’s ordinary shares at prices
ranging between 2 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 7 June 2011.
Board of Directors
Biographical information on each of the Directors as at
27 April 2011 is set out on page 08, together with details of
membership of the Board committees.
In accordance with the Company’s Articles of Association, the
following will retire and offer themselves for re-election at the
2011 Annual General Meeting:
● Philip Swinstead and Paul Davies, who were appointed after
the announcement of the 2010 AGM;
● Alastair Woolley, who was appointed Finance Director on
1 April 2011; and
● Lord Freeman, who will have served three years since last
being re-elected.
Directors’ interests
The Directors’ beneficial interests in the ordinary share capital
of the Company are set out within the remuneration report on
page 20.
Principal shareholders
At the close of business on 26 April 2011 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:
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
Philip Swinstead
Dominion Holdings
Henderson Global Investors Ltd
Kristian Overend
BP Pension Trustees
Simon Marsh
Number of
Ordinary 2p shares
Percentage
held
9,795,327
4,400,000
1,933,970
1,250,000
1,232,221
1,200,000
25.76
11.57
5.01
3.29
3.24
3.16
09
i
O
u
r
F
n
a
n
c
a
s
l
i
221423 PARITY FRONT.indd 09
221423 PARITY FRONT.indd 09
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
Directors’ Report continued
Capital structure
The Company has two classes of shares in issue, ordinary
shares of 2 pence and deferred shares of 0.04 pence. 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 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.
Going concern
The Group’s business activities, together with the factors likely to
affect its future development, performance and position are set
out above (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 05 to 07 and in note 21 to the accounts. Note 21 also
includes the Group’s objectives for managing capital.
As outlined in note 21, The Group meets its day-to-day working
capital requirements through an asset-based finance facility.
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.
In considering the appropriateness of the going concern
assumption, the directors have taken into consideration cash
flow projections together with expected funding and facilities.
Following a year of significant losses, the directors believe that it
is necessary to increase its cash resources in order to increase
working capital, allow further cost savings and to back its new
growth initiatives. In the absence of additional funding the new
initiatives and cost savings would need to be postponed and
the directors believe that the company would not necessarily
have adequate headroom to finance the business on a day to
day basis. To address this, the directors have explored
additional financing opportunities and are at advanced stages
of successfully completing one of these opportunities.
It is on this basis that the directors consider it appropriate to
prepare the financial statements on a going concern basis.
However if the company was unable to secure further funding
from the bank or from other sources the directors are of the view
that the company might find itself under cash pressure which
would jeopardise the preparation of accounts on a going concern
basis and that consequent adjustments would therefore have to
be made to the carrying value of both assets and liabilities.
The Directors believe that the going concern basis is the most
appropriate basis on which to prepare the financial statements,
although the fact that the funds have not yet been raised
constitutes a material uncertainty that may cast significant
doubt over the company’s ability to continue as a going
concern in that the company may be unable to realise its assets
and liabilities in the normal course of business.
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 change of
control, the share options held by Mr Davies under the Senior
10
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
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 2010 unpaid creditors of the Group
amounted to 28 days of purchases (2009: 28 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 11. This statement
covers the Group’s Employment Policies, Environmental Policy
and Health and Safety Policy.
Contributions for charitable and political purposes
The Group made no charitable contributions during 2010
(2009: £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.
The senior statutory auditor, Julian Frost, was due to retire by
rotation before the audit of the 2010 accounts, having served
for five years. However, his tenure has been extended by two
years. The business has undergone significant change in 2010
and the Audit Committee felt it important that with changes at
both Board and senior management level, and the significant
disruption of a major cost reduction exercise, it was important
to have a senior auditor who knows Parity’s business well in
order to maintain audit quality and also to supplement the
Board’s knowledge of the Group’s recent past history.
Annual General Meeting
The resolutions to be proposed at the Annual General Meeting
to be held on 7 June 2011, together with explanatory notes,
appear in the separate Notice of Annual General Meeting sent
to all shareholders.
By order of the Board
Alastair Woolley
Company Secretary
27 April 2011
221423 PARITY FRONT.indd 10
221423 PARITY FRONT.indd 10
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
Social, Environmental and Ethical Policies
Employment policies
As a professional services business, Parity’s strength derives
from the commitment, capability and cultural diversity of its
employees. The Group aims to adopt a policy of diversity at
all levels including selection, role assignment, teamwork and
individual career development. 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 also conducts an annual Employee Survey to
measure the satisfaction and engagement of its employees
and receive suggestions for improvement, which is used to
formulate and further develop its people-related plans and
activities. The Group incentivises employees through
share-based incentives and the payment of bonuses and
commissions linked to performance objectives. 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 and 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 is encouraged to report this to his/her manager
for investigation.
Annual Health and Safety audits are carried out at every Parity
office to ensure high standards are maintained.
As part of its benefits package Parity offers a number of
benefits to support the health and well being of its staff, as well
as an Employee Assistance helpline.
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.
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 as part of the benefits
package. 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.
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 employees, local schools or charities
or sent to recycling plants.
Ethics
Parity Group is committed to maintaining the highest standards
of ethics, professionalism and business conduct as well as
ensuring that we act in accordance with the law at all times.
The Group supports and promotes the principles of equal
opportunities in employment and promotes a culture where
every employee is treated fairly. A culture of teamwork,
openness, integrity and professionalism forms a key element
of our company principles and values which sets out the
standards of behaviour we expect from all our employees.
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
i
l
221423 PARITY FRONT.indd 11
221423 PARITY FRONT.indd 11
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
11
Corporate Governance Report
Introduction
The maintenance of high standards of corporate governance
remains a key priority for the Board. UK Listing Rules require
listed companies to disclose how they have applied the
principles of the Combined Code on Corporate Governance
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 16 to 20, describes how
the Group has complied with the Combined Code during the
year. The revised UK Corporate Governance Code, published in
May 2010, will be in force for 2011.
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 2008
Combined Code, except in the following areas:
• Under the code, as Chairman, Philip Swinstead is not
considered independent. However, as the Board includes
two other Non-executive Directors, the Board believes that
there is a sufficient degree of independence.
• No member of the audit committee has recent and relevant
financial experience as stipulated in the provisions of the
Combined Code. However, the Board considers that the
members of the audit committee have the financial
experience and qualifications required and the requisite skills
and attributes to enable the audit committee to properly
discharge its responsibilities. The Board intends to appoint a
new Non-executive Director with suitable financial
qualifications.
• Due to procedures outlined under internal control on page
15, 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. The need for an internal audit function
is kept under review.
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 10.
The workings of the Board and its committees
The Board
The Board consists of the Chairman Philip Swinstead, the
Deputy Chairman Roger Freeman, the Chief Executive Officer
Paul Davies, the Group Finance Director Alastair Woolley and
Non-executive Director Nigel Tose. The Directors’ biographies,
which are set out on page 08, demonstrate a range of business
backgrounds and experience.
Chairman
The Chairman, Philip Swinstead, is responsible for the
leadership and efficient operation of the Board. He is also
responsible for effective communications with shareholders.
12
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
Senior Independent Director
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 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.
Re-election of Directors
All Directors submit themselves for reappointment at the next
Annual General Meeting following their appointment and retire
by rotation, offering themselves for re-election. The names of
the Directors submitted for reappointment are set out in the
Directors’ report on page 9 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.
Company Secretary
All Directors have access to the advice and services of the
Company Secretary, who is responsible for ensuring that Board
procedures and applicable rules and regulations are observed.
There is an agreed procedure for Directors to obtain independent
professional advice, if necessary, at the Company’s expense.
The Board meets regularly throughout the year. 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 13. 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.
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.
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.
221423 PARITY FRONT.indd 12
221423 PARITY FRONT.indd 12
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
Performance evaluation
Individual Board members’ performance is evaluated through
regular appraisals. The performance of the Chairman is
evaluated annually by the Non-executive Directors.
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.
Attendance at Board meetings
The Board had 11 scheduled Board meetings in 2010 and
ad hoc meetings (not included below) were convened as
necessary to deal with urgent matters. Detail of attendance at
scheduled Board meetings is summarised below. Committee
attendance is shown for Committee members only.
Number held
Number attended 1
Philip Swinstead 2
Roger Freeman
Paul Davies 2
Ian Ketchin 4
Nigel Tose
Alwyn Welch 3
John Hughes 3
Board
Audit
Nominations
Remuneration
11
7
10
7
11
11
4
4
2
1*
–*
–
–
2
–
1
1
–
1
–
–
1
–
–
3
–
3
–
–
3
–
1
* Philip Swinstead attended a meeting of the Audit Committee as Roger Freeman’s alternate when he was unable to attend.
1 All Directors who were members of the Board at the time attended the Group’s Annual General Meeting on 2 June 2010.
2 Appointed 1 June 2010.
3 Resigned 30 May 2010.
4
Ian Ketchin stepped down as a Director with effect from 31 March 2011.
Committees
Each of the Board’s three Committees has formal written terms
of reference, which were reviewed in 2010. These terms of
reference 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
Group’s website.
Audit committee
The audit committee which is chaired by Nigel Tose, meets at
least twice annually. Roger Freeman 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:
• the oversight responsibilities described in the above
paragraph;
• reviewing compliance with laws, regulations and the Group’s
code of conduct and policies;
• 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;
• reviewing the findings of the external audit with the external
auditors;
• making recommendations to the Board, for it to put to the
shareholders for their approval, regarding the appointment,
reappointment and removal of the external auditors and
approving the remuneration and terms of engagement of the
external auditors;
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
l
i
221423 PARITY FRONT.indd 13
221423 PARITY FRONT.indd 13
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
13
Corporate Governance Report continued
Annual Report
The Annual Report is designed to present a balanced and
understandable view of the Group’s activities and prospects.
The Operating Review and Financial Review provide an
assessment of the Group’s affairs and position. The Annual
Report and Interim Report are sent to all shareholders on the
Register.
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:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• 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;
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business;
• prepare a Directors’ Report and Directors’ 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.
• monitoring and reviewing the external auditors’
independence and the effectiveness of the audit process;
• developing and implementing policy on the engagement of
the external auditors to supply non-audit services; and
• reviewing the Group’s arrangements for its employees to
raise concerns, in confidence, about possible wrongdoing 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 auditors each year. The
Group normally expects to retain the external auditors to
provide audit-related services, including work in relation to
shareholder circulars and similar services. The external auditors
provided audit-related services during 2010, details of which
are set out in note 3 to the accounts.
Audit committee meetings are attended by the external auditors
and 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 16 to 20.
Nominations committee
The nominations committee comprises the Non-executive
Directors and is chaired by Philip Swinstead. 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 where possible in regular dialogue with
its major 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’ 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.
14
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY FRONT.indd 14
221423 PARITY FRONT.indd 14
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
Directors’ responsibilities pursuant to DTR4
The Directors confirm to the best of their knowledge:
• 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.
• 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 of the principal risks and uncertainties that
they face.
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
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.
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.
The review of internal controls revealed that certain contracts
were taken on where there was an adverse balance of risk and
reward. As a result of this, the Group suffered losses on several
contracts. Following the review of internal controls, new
authority limits have been set and this has resulted in bid
reviews and project reviews chaired by the CEO for all
major projects.
Risk management
The Group is exposed through its operations to the following
financial risks:
– Fair value and cash flow interest rate risk;
– Foreign currency risk;
– Liquidity risk; and
– 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 21 to the financial
statements. Other risks and uncertainties are discussed in the
Financial Review on pages 06 and 07.
i
O
u
r
F
n
a
n
c
a
s
l
i
221423 PARITY FRONT.indd 15
221423 PARITY FRONT.indd 15
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
15
Remuneration Report
Remuneration committee
The remuneration committee comprises Roger Freeman as
Chairman and Nigel Tose. Directors are excluded from
discussions about their personal remuneration.
The committee 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 Senior
Executive Share Option Plan, 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 advisors and, if appropriate, by
attending seminars. Pension advice is provided by Cartwright
Group Limited. Advice on share options and Co-investment
Plans is provided by Pinsent Masons, who also provide other
legal services to the Group.
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 2010 are set out
in the table on page 19.
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.
The four key elements of the remuneration package of senior
Executives, including Executive Directors, in the Group in 2010
were basic annual salary and benefits in kind; performance
bonus payments; long-term incentives including share options;
and pension arrangements.
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 the size of
the company (turnover, profits and employee numbers); the
diversity and complexity of their businesses; the geographical
spread of their businesses; and their growth, expansion and
change profile. In light of the economic conditions prevailing at
the start of 2010 the policy applied as a result of the annual
salary review was for increases to be given only where an
individual’s role had changed or where there was a pay
anomaly. No changes in Directors’ remuneration arose as a
result of this review.
Performance bonus
The terms of the incentive bonus for Executive Directors are
agreed annually. For 2010 a first half target was set as well as
the full year target. No performance bonuses were earned by,
or paid to, Executive Directors in 2010.
Long-term incentive arrangements
The long-term incentive arrangements operated by the
Company for Executive Directors comprise Share Option
Schemes including a Co-investment Scheme.
Share option schemes
During 2010 the Group operated three types of share option
scheme: an Executive Share Option Plan, a Savings Related
Share Option Scheme (Sharesave Scheme), and a Senior
Executive Share Option Plan.
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.
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.
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.
There are no awards outstanding to the Directors under the
Executive Share Option Plans.
16
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY FRONT.indd 16
221423 PARITY FRONT.indd 16
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
Senior Executive Share Option Plan
The Senior Executive Share Option Plan was approved by
shareholders on 19 February 2009 and renewed at an EGM on
25 October 2010. 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.
Following his appointment as CEO, Paul Davies was granted
2,851,633 options under the Senior Executive Share Option
Plan in October 2010. The exercise price is 10 pence per
share and there are no other performance conditions. The
options vest quarterly in seven equal tranches starting
25 January 2011.
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 was 20 pence per
share and there was no other performance condition. Alwyn
Welch’s options lapsed on him leaving the Group in May 2010.
Ian Ketchin surrendered his options on 31 December 2010.
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.
There are no 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, provided 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.
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 2010 the comparator group comprised:
• Anite
• Charteris
• Harvey Nash
• Hays
• Highams Systems Services
• ILX
• Interquest
• Kellan
• Logica
• Maxima
• Phoenix IT
• SciSys
• SQS
• SThree
• The Rethink Group
5 Year Total Shareholder Return graph —
quarterly (rebased to 100)
180
160
140
120
100
80
60
40
20
2006
2007
2008
2009
2010
Parity Group
FTSE All Share
Peer (simple average not weighted)
Share price
The Parity Group plc mid market share price on 31 December
2010 was 15.8 pence. During the period 1 January to
31 December 2010 shares traded at market prices between
6.25 pence and 15.8 pence.
Directors’ pension information
Paul Davies is entitled to a non-contributory company pension
contribution of 11% of basic salary. Ian Ketchin was entitled to
a contributory company pension contribution of 5% of
basic salary.
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
l
i
221423 PARITY FRONT.indd 17
221423 PARITY FRONT.indd 17
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
17
Remuneration Report continued
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.
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.
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
Philip Swinstead
Lord Freeman 1
Ian Ketchin 2, 3
Nigel Tose 1
Paul Davies 2
Alastair Woolley 4
Contract date
Notice period
Contractual termination
payment
1 September 2010
1 July 2007
17 May 2007
3 July 2006
2 June 2010
1 April 2011
n/a
n/a
n/a
n/a
12 months
12 months rolling
n/a
n/a
12 months
12 months rolling
3 months
n/a
1 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 six months’ notice to the Company.
3 Ian Ketchin stepped down as a Director with effect from 31 March 2011.
In addition to his contractual remuneration for the period to 30 June 2011, he will receive an ex gratia sum of £75,000.
4 As from 1 October 2011 notice period to be given by either party will increase to 6 months.
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.
Philip Swinstead, Lord Freeman, Nigel Tose and Paul Davies
hold non-executive positions outside the Group.
18
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY FRONT.indd 18
221423 PARITY FRONT.indd 18
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
Directors’ remuneration (audited)
The remuneration of the Directors who served during the year is set out below.
Salary/
fees
2010
£’000
128
150
108
107
38
30
15
576
Salary/
fees
2009
£’000
249
144
51
30
34
508
Executive Directors
P Davies1
I Ketchin7
A Welch2
Non-executive Directors
P Swinstead1,3
Lord Freeman
N Tose
J Hughes2
Total emoluments
Executive Directors
A Welch5
I Ketchin5 7
Non-executive Directors
Lord Freeman6
N Tose
J Hughes6
Total emoluments
1 Appointed 1 June 2010.
2 Resigned 31 May 2010.
Benefi ts
2010
£’000
Compensation for
loss of offi ce
2010
£’000
Total emoluments
2010
£’000
Company pension
contributions4
2010
£’000
11
11
18
–
–
–
6
46
–
–
338
–
–
–
23
361
139
161
464
107
38
30
44
983
14
8
11
–
–
–
–
33
Performance
bonus
2009
£’000
Benefi ts
2009
£’000
Total emoluments
2009
£’000
Company pension
contributions4
2009
£’000
4
3
–
–
–
7
19
11
–
–
16
46
272
158
51
30
50
561
3 From 2 June 2010 to 31 August 2010, Philip Swinstead’s services as Chairman were provided under a contract with e-Loan BV, a company incorporated in the
Netherlands. As at 31 December 2010, these services together with those provided since 1 September 2010 remain accrued but unpaid.
4 Company pension contributions disclosed in the table above represent the contractual pension entitlements due to the Directors from the Company.
5 In 2009 Alwyn Welch and Ian Ketchin exchanged £9,952 and £5,769 of their salary respectively in return for additional, unpaid leave.
6 In 2009 Roger Freeman and John Hughes waived £1,924 and £1,346 of their fees respectively.
7 Ian Ketchin stepped down as a Director with effect from 31 March 2011.
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
i
l
26
8
–
–
–
34
19
221423 PARITY FRONT.indd 19
221423 PARITY FRONT.indd 19
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
Remuneration Report continued
Executive Directors’ share options (audited)
As at
1 January
2010
Lapsed /
Surrendered
in the
year
Exercised
in the
year
Awarded
in the
year
As at 31
December
2010
Exercise
period
Exercise
price
per share
–
–
–
2,851,633
2,851,633
2011-2017
£0.10
Paul Davies
Senior Executive share option plan
2010
Ian Ketchin
Executive share option plan
2007
174,698
174,698
Senior Executive share option plan
2009
Alwyn Welch
950,544
950,544
Senior Executive share option plan
2009
2,851,633
2,851,633
–
–
–
–
–
–
–
–
2010-2017
£0.83
2009-2015
£0.20
–
2009-2015
£0.20
Directors’ interests in shares
The beneficial interests of the Directors who served during the year and their families in the ordinary share capital of the Company
are shown below.
At 1 January 2010 or date
of appointment
% issued share capital
date of resignation % issued share capital
Shareholding as at
31 December 2010 or
9,795,327
25.762
9,795,327
25.762
5,000
720,000
100,000
30,000
314,815
53,000
0.013
1.894
0.263
0.079
0.828
0.139
5,000
720,000
100,000
30,000
314,815
53,000
0.013
1.894
0.263
0.079
0.828
0.139
11,018,142
28.978
11,018,142
28.978
Philip Swinstead
Lord Freeman
Paul Davies
Nigel Tose
Ian Ketchin
Alwyn Welch
John Hughes
Total
For and on behalf of the Board
Roger Freeman
Chairman of the remuneration committee
27 April 2011
20
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY FRONT.indd 20
221423 PARITY FRONT.indd 20
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
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 2010 which comprise the
consolidated income statement, the consolidated statement
of comprehensive income, the consolidated and parent
Company statements of changes in equity, the consolidated
and parent Company statements of financial position, the
consolidated and parent Company statements of cash flows
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.
R espective 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 and express
an opinion on 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
A description of the scope of an audit of financial
statements is provided on the APB’s website at
www.frc.org.uk/apb/scope/private.cfm.
Opinion on financial statements
In our opinion:
● 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 2010 and of the Group’s loss for the year then
ended;
● the Group financial statements have been properly prepared
in accordance with IFRSs as adopted by the European Union;
going concern. While the Directors are confident that the
required funds will be raised from additional financing
opportunities, there are no binding agreements in place. These
conditions indicate the existence of a material uncertainty which
may cast doubt about the Group’s ability to continue as a going
concern. The financial statements do not include the
adjustments that would result if the Group was unable to
continue as a going concern.
Opinion on other matters prescribed
by the Companies Act 2006
In our opinion:
● the part of the Directors’ remuneration report to be audited
has been properly prepared in accordance with the
Companies Act 2006;
● the information given in the Directors’ report for the financial
year for which the financial statements are prepared is
consistent with the financial statements; and
● the information given in the Corporate Governance report
with respect to internal control and risk management
systems in relation to financial reporting processes and
about share capital structures 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:
● 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
● 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
● certain disclosures of Directors’ remuneration specified by
law are not made; or
● we have not received all the information and explanations we
require for our audit; or
● a Corporate Governance report has not been prepared by
the Company.
Under the Listing Rules we are required to review:
● the Directors’ statement, set out on page 10, in relation to
● the parent Company financial statements have been properly
going concern;
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
● 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
Emphasis of Matter – Going Concern
In forming our opinion, which is not modified, we have
considered the adequacy of the disclosures made in note 1 to
the financial statements concerning the Group’s ability to
continue as a going concern. The Group is dependent on the
raising of new funds in order to fund working capital and
finance its strategy in a timely manner, in order to continue as a
● the part of the corporate governance report relating to the
Company’s compliance with the nine provisions of the June
2008 Combined Code specified for our review; and
● certain elements of the report to shareholders by the Board
in relation to Directors’ remuneration.
Julian Frost (senior statutory auditor)
For and on behalf of BDO LLP, statutory auditor
London
United Kingdom
27 April 2011
BDO LLP is a limited liability partnership registered in
England and Wales (with registered number OC305127).
21
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
l
i
221423 PARITY FRONT.indd 21
221423 PARITY FRONT.indd 21
/
/
P
f
27/04/2011 13:20
27/04/2011 13:20
Consolidated Income Statement
for the year ended 31 December 2010
Before
exceptional
items
2010
£’000
Exceptional
items
2010
(note 4)
£’000
After
exceptional
items
2010
£’000
Notes
Before
exceptional
items
(as restated –
note 1)
2009
£’000
After
exceptional
items
(as restated –
note 1)
2009
£’000
Exceptional
items
2009
(note 4)
£’000
Continuing operations
Revenue
Employee benefit costs
Depreciation & amortisation
All other operating expenses
Total operating expenses
Operating (loss)/profi t
Finance income
Finance costs
(Loss)/profi t before tax
Taxation
Write-down of deferred tax asset
Other taxation
(Loss)/profi t for the year
from continuing operations
Discontinued operations
Loss for the year from
discontinued operations
Loss for the year
attributable to owners of
the parent
Basic and diluted loss per
share on loss for the year
Basic and diluted (loss)/
earnings per share from
continuing operations
2
3
3
3
6
6
9
7
10
10
92,963
(9,881)
(636)
(85,088)
(95,605)
(2,642)
773
(1,236)
(3,105)
–
20
20
–
92,963
119,024
–
119,024
(1,421)
(11,302)
(12,214)
(271)
(12,485)
–
(636)
(488)
(717)
(85,805)
(105,542)
(2,138)
(2,138)
–
–
(2,138)
–
–
–
(97,743)
(118,244)
(4,780)
773
(1,236)
(5,243)
–
20
20
780
674
(1,203)
251
(300)
469
169
–
–
(271)
(271)
–
–
(271)
–
76
76
(488)
(105,542)
(118,515)
509
674
(1,203)
(20)
(300)
545
245
(3,085)
(2,138)
(5,223)
420
(195)
225
(231)
(680)
(911)
(496)
–
(496)
(3,316)
(2,818)
(6,134)
(76)
(195)
(271)
(16.15p)
(13.75p)
(0.71p)
0.59p
22
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY BACK.indd 22
221423 PARITY BACK.indd 22
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
Statement of Comprehensive Income
for the year ended 31 December 2010
Loss for the year
Other comprehensive income:
Exchange differences on translation of foreign operations
Actuarial gain/(loss) on defined benefit pension scheme
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
Notes
23
15
9
Consolidated
2010
£’000
(6,134)
61
299
(57)
303
(5,831)
2009
£’000
(271)
781
(2,088)
–
(1,307)
(1,578)
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
i
l
221423 PARITY BACK.indd 23
221423 PARITY BACK.indd 23
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
23
Statements of Changes in Equity
for the year ended 31 December 2010
Consolidated
At 1 January 2010
Loss for the year
Other comprehensive
income for the year net of tax
Total other comprehensive income
Share options — value of employee services
Share
capital
£’000
760
Deferred
shares
£’000
14,319
–
–
–
–
–
–
–
–
Share
premium
reserve
£’000
20,134
–
–
–
–
Other
reserves
£’000
44,160
–
–
–
–
Retained
earnings
£’000
(72,239)
(6,134)
303
(5,831)
30
At 31 December 2010
760
14,319
20,134
44,160
(78,040)
Consolidated
At 1 January 2009
Loss for the year
Other comprehensive
expense for the year net of tax
Total other comprehensive income
Share options — value of employee services
Share
capital
£’000
760
–
–
–
–
Deferred
shares
£’000
14,319
–
–
–
–
Share
premium
reserve
£’000
20,134
–
–
–
–
Other
reserves
£’000
Retained
earnings
£’000
44,160
(70,714)
–
–
–
–
(271)
(1,307)
(1,578)
53
At 31 December 2009
760
14,319
20,134
44,160
(72,239)
Total
£’000
7,134
(6,134)
303
(5,831)
30
1,333
Total
£’000
8,659
(271)
(1,307)
(1,578)
53
7,134
Company
At 1 January 2010
Loss for the year
Share options — value of employee services
Share
capital
£’000
760
–
–
Deferred
shares
£’000
14,319
–
–
Share
premium
reserve
£’000
20,134
–
–
Other
reserves
£’000
22,729
–
–
Retained
earnings
£’000
(27,754)
(14,774)
40
Total
£’000
30,188
(14,774)
40
At 31 December 2010
760
14,319
20,134
22,729
(42,488)
15,454
Company
At 1 January 2009
Loss for the year
Share options — value of employee services
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)
Total
£’000
31,496
(1,263)
(45)
At 31 December 2009
760
14,319
20,134
22,729
(27,754)
30,188
24
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY BACK.indd 24
221423 PARITY BACK.indd 24
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
Statements of Financial Position
As at 31 December 2010
Company number 3539413
Assets
Non-current assets
Intangible assets
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
Total assets
Liabilities
Current liabilities
Other financial liabilities
Trade and other payables
Provisions
Non-current liabilities
Trade and other payables
Provisions
Retirement benefit liability
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 27 April 2011.
Philip Swinstead OBE
Chairman
Alastair Woolley
Group Finance Director
Consolidated
Company
Notes
2010
£’000
2009
£’000
2010
£’000
2009
£’000
11
13
14
17
29
15
16
17
18
19
20
19
20
23
24
22
22
22
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
l
i
6,124
1,159
117
–
–
1,535
8,935
451
25,382
128
25,961
34,896
–
–
–
66,602
20,527
–
–
–
–
61,087
30,127
–
87,129
91,214
–
5,340
96
5,436
92,565
–
836
36
872
92,086
(9,913)
(13,476)
(401)
(23,790)
–
(2,636)
(692)
(3,328)
(81)
(1,997)
(331)
(2,409)
–
(72,995)
(59,019)
5,796
870
134
–
–
1,498
8,298
237
14,800
245
15,282
23,580
(6,354)
(11,385)
(1,160)
(18,899)
–
(923)
(2,425)
(3,348)
(646)
(3,326)
(3,972)
(22,247)
(27,762)
1,333
7,134
15,079
20,134
44,160
15,079
20,134
44,160
(78,040)
(72,239)
1,333
7,134
(788)
–
(73,783)
(77,111)
15,454
15,079
20,134
22,729
(42,488)
15,454
(470)
–
(59,489)
(61,898)
30,188
15,079
20,134
22,729
(27,754)
30,188
25
221423 PARITY BACK.indd 25
221423 PARITY BACK.indd 25
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
Statements of Cash Flows
for the year ended 31 December 2010
Cash fl ows from operating activities
Loss for year
Adjustments for:
Finance income
Finance costs
Loss on sale of discontinued operations, net of tax
Share-based payment expense
Income tax credit
Amortisation of intangible fixed assets
Impairment of intangible fixed assets
Depreciation of property plant and equipment
Change in fair value of available-for-sale investment
Impairment of investment in subsidiaries
Decrease in work in progress
(Increase)/decrease in trade and other receivables
Decrease in trade and other payables
Increase/(decrease) in provisions
Payments to retirement benefit plan
Cash generated from operations
Income taxes received
Net cash fl ows from operating activities
Investing activities
Net cash movement on disposal of subsidiary
Purchase of intangibles
Purchase of property, plant and equipment
Net cash used in investing activities
Financing activities
Net repayment of/(proceeds from) closed finance facility
Net proceeds from new finance facility
Net movement on intercompany funding
Interest received
Interest paid
Net cash (used in)/from fi nancing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Consolidated
Company
Notes
2010
£’000
2009 (as
restated –
note 1)
£’000
2010
£’000
2009
£’000
(6,134)
(271)
(14,774)
(1,263)
(773)
1,236
(674)
1,204
6
6
7
8
9
11
11
13
14
29
23
7
11
13
6
–
30
(20)
295
49
341
(17)
–
(4,993)
214
10,588
(2,036)
1,036
(750)
4,059
–
4,059
–
(16)
(52)
(68)
(9,913)
6,354
–
–
(315)
(3,874)
117
128
245
(264)
1,036
–
40
(876)
–
–
–
–
9,600
(5,238)
–
(3,452)
(308)
680
–
208
54
(56)
40
–
488
13
–
1,006
187
595
(4,136)
(273)
(900)
(3,521)
(8,318)
1
–
(3,520)
(8,318)
(265)
(1,654)
(199)
(2,118)
5,603
–
–
4
(341)
5,266
(372)
500
128
–
–
–
–
(81)
–
8,459
–
–
8,378
60
36
96
(169)
983
–
(45)
(671)
–
–
1
–
–
(1,164)
–
246
1,541
(250)
–
373
–
373
–
–
–
–
81
–
(87)
–
(341)
(347)
26
10
36
26
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY BACK.indd 26
221423 PARITY BACK.indd 26
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
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 unless otherwise stated. The financial statements have been prepared on a going
concern basis as outlined in the Director’s Report on page 10. In considering the appropriateness of the going concern
assumption, the directors have taken into consideration cash flow projections together with expected funding and facilities.
Following a year of significant losses, the directors believe that it is necessary to increase its cash resources in order to increase
working capital, allow further cost savings and to back its new growth initiatives. In the absence of additional funding the new
initiatives and cost savings would need to be postponed and the directors believe that the company would not necessarily have
adequate headroom to finance the business on a day to day basis. To address this, the directors have explored additional
financing opportunities and are at advanced stages of successfully completing one of these opportunities.
It is on this basis that the directors consider it appropriate to prepare the financial statements on a going concern basis.
However if the company was unable to secure further funding from the bank or other sources the directors are of the view that
the company might find itself under cash pressure which would jeopardise the preparation of accounts on a going concern basis
and that consequent adjustments would therefore have to be made to the carrying value of both assets and liabilities.
The Directors believe that the going concern basis is the most appropriate basis on which to prepare the financial statements,
although the fact that the funds have not yet been raised indicates the existence of a material uncertainty that may cast
significant doubt over the company’s ability to continue as a going concern in that the company may be unable to realise its
assets and liabilities in the normal course of business. The financial statements do not include the adjustments that would result
if the company was unable to continue as a going concern.
These financial statements have been prepared in accordance with International Financial Reporting Standards, International
Accounting Standards and Interpretations (collectively IFRSs) issued by the International Accounting Standards Board (IASB) as
adopted by the European Union (“adopted IFRSs”).
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December
2010. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control and
continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared
for the same reporting period as the parent Company, using consistent accounting policies. All intra-group balances,
transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full.
In accordance with Section 408 of the Companies Act 2006, the Company has not presented its own Income Statement or
Statement of Comprehensive Income. The loss for the year dealt with in the accounts of the Company was £14,774,000 (2009:
loss of £1,263,000).
Changes in accounting policies: new standards, interpretations and amendments effective in 2010 adopted by the
Group and published standards not yet effective
No new standards, amendments to published standards or interpretations of existing standards effective in 2010 had a material
impact on the Group’s 2010 financial statements. No published standards that are not yet effective are expected to have a
material impact on the Group’s financial statements.
Change in accounting policy: Pension accounting
The Group operates a defined benefit pension scheme that is closed to new entrants and to future service accrual. Previously
the expected return on scheme assets was included within operating costs in the Consolidated Income Statement and the
unwinding of the discount on scheme liabilities was included as a finance cost. In order to give a clearer view of operating
performance the presentation has been changed and return on scheme assets is now included in finance income and the
unwinding of the discount on plan liabilities in finance costs. The 2009 comparative has also been adjusted.
As a result of this change in accounting policy the following adjustments were made to the consolidated financial statements:
For the year ended
Increase operating expenses
Increase finance income
31 December 2010
£000
31 December 2009
£000
773
773
670
670
Under paragraph 10(f) of IAS 1 “Presentation of Financial Statements”, this change in accounting policy would ordinarily require
the presentation of a consolidated statement of financial position as at the beginning of the earliest comparative period.
However, as the change in accounting policy has no effect on the statement of financial position, the Directors do not consider
that this would provide any additional information and, in consequence, have not presented it within these financial statements.
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.
27
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
l
i
221423 PARITY BACK.indd 27
221423 PARITY BACK.indd 27
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
Notes to the Accounts continued
1 Accounting policies continued
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. Permanent placement staffing revenue is recognised when candidates
commence employment.
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 reporting date. Provision is made for all foreseeable future losses.
Exceptional items
Items which are both material and non-recurring are presented as exceptional items within the relevant 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 a business, restructuring of a business, litigation and similar settlements, and asset
impairments.
Finance income and costs
Finance income and costs are 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 reporting 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 charged or credited in the Income Statement or in Other Comprehensive Income, 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.
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 reporting date.
Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at
actual rate are recognised in Other Comprehensive Income. On disposal of a foreign operation, the cumulative exchange
differences recognised in other comprehensive income relating to that operation up to the date of disposal are transferred to
the consolidated 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.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision
maker. The chief operating decision maker is the management team comprising the Chief Executive and the Finance Director.
28
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY BACK.indd 28
221423 PARITY BACK.indd 28
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
1 Accounting policies continued
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 (“CGUs”) 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.
Software
The carrying amount of an intangible asset is its cost less any accumulated amortisation and any provision for impairment.
Software is amortised on a straight-line basis 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 on a straight-line basis over its expected useful economic life, as follows:
Leasehold improvements
Office equipment
Between 5 and 10 years
Between 3 and 5 years
The carrying value of property, plant and equipment is reviewed for impairment if events or changes in circumstances indicate
the carrying value may not be recoverable.
Impairment of non-financial assets (excluding deferred tax assets)
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 reporting 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 many 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).
They are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition or issue, 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.
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
i
l
221423 PARITY BACK.indd 29
221423 PARITY BACK.indd 29
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
29
Notes to the Accounts continued
1 Accounting policies continued
Financial assets continued
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 Other Comprehensive Income. 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 Other Comprehensive Income. On sale, the amount held in Other Comprehensive Income 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 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 Statement of Financial Position 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.
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 Statement of Financial Position 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 reporting 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
All of the Group’s financial liabilities are classified as financial liabilities carried at amortised cost. 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.
Financial liabilities include the following items:
•
•
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.
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 consolidated Statement of Financial Position. 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
Rentals paid under operating leases are charged to income on a straight-line basis over the term of the lease.
30
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY BACK.indd 30
221423 PARITY BACK.indd 30
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
1 Accounting policies continued
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.
From time to time the Group faces the potential of legal action in respect of employment or other contracts. In such situations,
where it is probable that a payment will be required to settle the action, provision is made for the Group’s best estimate of the
outcome.
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.
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 finance income; and the imputed
interest on the pension plan liabilities within 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 Other Comprehensive Income in the period in which they arise.
Defined benefit scheme surpluses and deficits are measured at the fair value of assets at the reporting 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 21, 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 consolidated financial statements. 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 consolidated financial statements. The ESOP’s investment in the
Company’s shares is deducted from shareholders’ equity in the Consolidated Statement of Financial Position as if they were
treasury shares.
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
i
l
221423 PARITY BACK.indd 31
221423 PARITY BACK.indd 31
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
31
Notes to the Accounts continued
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 if 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
reporting 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.
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.
Where equity instruments are granted to persons other than employees, the fair value of goods and services received is charged
against Other Comprehensive Income.
Significant accounting estimates and judgements
The preparation of financial statements under IFRS requires the Group to make estimates and assumptions regarding the future.
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.
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. Changes in assumptions are not anticipated to have a material impact in the
current year.
Legal provisions. Legal provisions are made having reviewed outstanding and potential legal cases. The opinions or views of
legal advisors are sought to inform the Group’s making of provisions.
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 23. The Group
takes advice from independent actuaries relating to the appropriateness of the assumptions.
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. The forecasts for the business used in this review were the
same as those used in the review of impairment of goodwill (see note 12). If forecast future profitability were 10% lower, the
deferred tax asset would still be considered recoverable.
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 (see note 12). If forecast future profitability were 10% lower, the goodwill
would still not be impaired.
Investments in subsidiaries. The Company reviews its investment in subsidiaries to test whether any impairment has been
suffered. The recoverable amounts are determined using discounted future cash flows. If forecast future cash generation were
10% lower, a further provision of £3.9 million would be required.
Intercompany receivables. The Company reviews receivables due from subsidiary undertakings to test whether they are
recoverable. Provision is made for where there is uncertainty as to full recovery.
32
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY BACK.indd 32
221423 PARITY BACK.indd 32
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
2 Segmental information
Description of the types of services from which each reportable segment derives its revenues
The Group has two segments:
•
•
Resources — This segment provides contract, interim and permanent IT recruitment services across all markets. Resources
provides 84% (2009: 84%) of the continuing Group’s revenues.
Solutions — This segment comprises two business streams which will be reported separately for 2011. Systems delivers
innovative technology solutions designed around client problems, including Cloud solutions, database solutions and
collaborative information management. Talent Management works with clients to recruit, develop and grow their talent
through improving skills and capability early in employees’ careers. Solutions provides 16% (2009: 16%) of the continuing
Group’s revenues.
Corporate costs and Board costs are recorded centrally and not allocated to the reporting segments.
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. To date the revenues of the
Talent Management business stream have been insufficient to justify separate management and reporting and, together with the
results of Systems, have been included in the Solutions segment.
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 include allocated goodwill and deferred tax; and exclude assets used primarily for corporate purposes.
Segment liabilities exclude corporation tax liabilities, financial liabilities and the defined benefit pension scheme deficit.
Revenue
Total revenue
Inter-segment revenue
Revenue from external customers
Depreciation
Amortisation
Segment profit/(loss) before tax, interest, defined benefit
pension scheme accounting and exceptional items
Exceptional items
Reportable segment assets
Reportable segment liabilities
Additions to non-current assets
Resources
2010
£’000
Solutions
2010
£’000
78,286
(169)
78,117
59
248
2,041
(93)
15,290
(6,996)
32
14,876
(30)
14,846
282
47
(1,985)
(897)
7,211
(2,517)
36
Total
2010
£’000
93,162
(199)
92,963
341
295
56
(990)
22,501
(9,513)
68
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
i
l
221423 PARITY BACK.indd 33
221423 PARITY BACK.indd 33
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
33
Notes to the Accounts continued
2 Segmental information continued
Revenue
Total revenue
Inter-segment revenue
Revenue from external customers
Depreciation
Amortisation
Segment profit/(loss) before tax, interest, defined benefit
pension scheme accounting and exceptional items
Exceptional items
Reportable segment assets
Reportable segment liabilities
Additions to non-current assets
Resources 2009
£’000
Solutions 2009
(as restated – note 1)
£’000
Total 2009
(as restated – note 1)
£’000
100,517
–
100,517
78
103
2,984
(245)
24,613
(10,581)
1,538
18,518
(11)
18,507
276
31
(636)
–
9,214
(2,007)
235
119,035
(11)
119,024
354
134
2,348
(245)
33,827
(12,588)
1,773
Reconciliation of reportable segment profit or loss, assets and liabilities to the Group’s corresponding amounts:
Total profit or loss for reportable segments
Corporate costs
Exceptional items
Finance income
Finance costs
Corporation tax
(Loss)/profit after tax on continuing activities
2010
£’000
56
(2,698)
(2,138)
773
(1,236)
20
(5,223)
2009
(as restated – note 1)
£’000
2,348
(1,568)
(271)
674
(1,203)
245
225
Central assets and liabilities include those of discontinued activities that are not held for sale, but rather represent assets and
liabilities of closed businesses that will be realised and eliminated in due course.
Assets
Total assets for reportable segments
Central prepayments and other debtors
Cash
Discontinued operations assets
Group’s assets
Liabilities
Total liabilities for reportable segments
Central liabilities
Discontinued operations liabilities
Pension deficit
Invoice finance debt and overdraft
Group’s liabilities
2010
£000
2009
£’000
22,501
33,827
493
245
341
641
128
300
23,580
34,896
(9,513)
(3,540)
(415)
(2,425)
(6,354)
(22,247)
(12,588)
(1,472)
(463)
(3,326)
(9,913)
(27,762)
The continuing Group operates solely in the UK and the Republic of Ireland. All revenues are generated and all segment assets
are located in those countries.
70% (2009: 72%) or £55.6 million (2009: £72.9 million) of the Resources revenue was generated in the Public Sector. 75%
(2009: 78%) or £11.2 million (2009: £14.4 million) of the Solutions revenue was generated in the Public Sector. The largest single
customer in Resources contributed revenue of £6.6 million or 8% and was in the private sector (2009: £6.6 million or 7% and in
the public sector). The largest single customer in Solutions contributed revenue of £4.0 million or 27% and was in the public
sector (2009: £4.8 million or 26% in the public sector).
34
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY BACK.indd 34
221423 PARITY BACK.indd 34
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
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
Contractor costs
Subcontracted direct costs
Group statutory audit fees and expenses
Other services supplied by auditor under legislation
Operating lease rentals — plant and machinery
— land and buildings
Sub-let income — land and buildings
Other occupancy costs
IT costs
Net exchange loss
Equity-settled share-based payment charge
Other operating costs
Total operating expenses
Disclosures relating to the remuneration of Directors are set out on pages 16 to 20.
Operating costs include auditors’ remuneration as follows:
Statutory audit of the consolidated financial statements
Statutory audit of the Company’s subsidiaries pursuant to legislation
Other services supplied under legislation
Non-audit services:
Tax compliance
Other advice
All non-audit services have been performed in the United Kingdom.
2010
£’000
9,910
1,074
318
11,302
295
341
636
75,462
2,357
21
80
33
1,129
(389)
673
1,405
21
30
4,983
85,805
97,743
2010
£’000
21
60
20
101
31
32
63
164
Consolidated
2009
(as restated)
£’000
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
10,966
1,168
351
12,485
134
354
488
97,329
1,644
23
75
31
1,498
(536)
813
1,118
28
53
3,466
105,542
118,515
Consolidated
2009
£’000
23
54
21
98
52
33
85
183
35
i
O
u
r
F
n
a
n
c
a
s
l
i
221423 PARITY BACK.indd 35
221423 PARITY BACK.indd 35
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
Notes to the Accounts continued
4 Exceptional items
Continuing operations
Restructuring
— Employee benefit costs
— Other operating costs
Property provisions (other operating costs)
Discontinued operations
Property provisions
2010
£’000
2009
£’000
1,421
117
600
2,138
2010
£’000
680
680
271
–
–
271
2009
£’000
–
–
During 2010 there was a significant restructuring of the business involving a change in senior management, the exit from
delivering contracts on a fixed price basis and a major down-sizing of the business, including both frontline staff, primarily in the
Solutions business, and support functions. The Group also incurred legal costs associated with the down-sizing. The reduction
in headcount also created vacant office space. The tax credit relating to these costs was £nil.
In June 2010 Parity Training, which was sold in February 2009, was placed in administration. The Group remained as guarantor
on certain leases held by Parity Training and incurred a charge of £0.7 million in this respect. More information on the disposal of
Parity Training is given in note 7 and in the Financial Review.
The restructuring costs in 2009 related to the closure of an office and the associated relocation of roles. The roles related to
finance staff supporting the Resources business and some Corporate staff. The tax credit relating to this exceptional item was
£76,000.
5 Average staff numbers
Continuing operations
Resources — United Kingdom1
Solutions — United Kingdom, including corporate office2
Discontinued operations
1 Includes 35 (2009: 46) employees providing shared services across the Group.
2 Includes 6 (2009: 6) employees of the Company.
At 31 December 2010, the Group had 165 continuing employees (2009: 222).
2010
number
2009
number
84
117
201
–
201
105
142
247
14
261
36
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY BACK.indd 36
221423 PARITY BACK.indd 36
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
6 Finance income and costs
Finance income
Expected return on pension scheme assets
Interest received on bank deposits
Finance costs
Interest expense on fi nancial liabilities
Notional interest on post retirement benefi ts
2010
£’000
773
–
773
315
921
1,236
2009
(as restated)
£’000
670
4
674
341
862
1,203
The interest expense on financial liabilities represents interest paid on the Group’s invoice financing facilities. A 1% increase in the
base rate would increase annual borrowing costs by approximately £100,000.
7 Discontinued operations
In February 2009 the Group sold Parity Training Limited. The pre-disposal trading results of this unit and the loss on disposal are
included within the Income Statement in the line item “loss for the year on discontinued operations”.
More detail on the disposal of Parity Training is given in the Financial Review.
A loss on disposal of £3,267,000 was recorded in 2008, being a goodwill write off of £2,522,000 and disposal expenses of
£745,000. The post-tax loss on disposal of Parity Training recorded in 2009 was determined as follows:
Cash consideration
Deferred consideration
Cash disposed of
Net assets disposed (other than cash):
Property, plant and equipment
Intangibles
Trade and other receivables
Trade and other payables
Disposal expenses
Pre and post-tax loss relating to Parity Training
2009
£’000
834
166
1,000
776
488
320
2,091
(2,520)
1,155
(53)
(208)
The results of discontinued operations include the results of other statutory entities still owned by the Group which sold their
businesses in 2005 and 2006. These entities are not held for sale. Their assets and liabilities will be realised and eliminated in
due course.
Parity Training entered administration in June 2010. Parity Group remained as guarantor on certain leases of properties operated
by Parity Training. The results below include £680,000 in respect of the onerous obligations and dilapidations of these leases.
The deferred consideration of £166,000 was also written off.
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
i
l
221423 PARITY BACK.indd 37
221423 PARITY BACK.indd 37
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
37
Notes to the Accounts continued
7 Discontinued operations continued
The post-tax result of discontinued operations was determined as follows:
Revenue
Expenses other than fi nance costs
Tax charge
Exceptional costs (note 4)
Loss on disposal of Parity Training after tax
Loss for the year
2010
£’000
—
(231)
–
(680)
–
(911)
2009
£’000
2,197
(2,296)
(189)
–
(208)
(496)
The discontinued operations revenue in 2009 related entirely to Parity Training. The 2009 pre-tax trading result for Training before
disposal was a loss of £245,000. For 2010 it was £222,000, representing the write-off of consideration due and legal expenses.
The pre-tax loss for other discontinued operations was £9,000 (2009: profit of £146,000). The £146,000 profit for 2009 primarily
represents the release of surplus accruals.
The Statement of Cash Flows includes a £343,000 (2009: £234,000) cash outflow from operating activities and nil (2009:
£265,000) from investing activities in respect of discontinued operations.
8 Share-based payments
The Group operates several share-based reward schemes for employees:
● A United Kingdom tax authority approved scheme for Executive Directors and senior staff;
● An unapproved scheme for Executive Directors and senior staff;
● A Co-Investment Scheme for senior management;
● A Save As You Earn Scheme for all employees; and
● A Senior Executive Share Option Plan for Executive Directors.
Under the approved and unapproved schemes and the Co-Investment Scheme, options vest if the Total Shareholder Return
(“TSR”) of the Company outperforms the average TSR of a peer group over a three year period from the date of grant. Options
lapse if the individual leaves the Group, except under certain circumstances such as leaving by reason of redundancy, when the
options lapse 12 months after the leaving date.
Save As You Earn options lapse if not exercised within six months after the vesting date. They are also subject to continued
employment within the Group.
Options under the Senior Executive Share Option Plan have no performance conditions other than continued employment within
the Group and must be exercised within five years of the date of grant.
All employee options other than those issued under the Senior Executive Share Option Plan have a maximum term of ten years
from the date of grant. The total share-based remuneration recognised in the Income Statement was £30,000 (2009: £54,000).
Outstanding at beginning of the year
Granted during the year
Lapsed during the year
Outstanding at the end of the year
2010
Weighted
average
exercise
price (p)
28
9
29
11
2010
Number
6,923,353
5,451,633
(5,916,418)
6,458,568
2009
Weighted
average
exercise
price (p)
52
18
54
28
2009
Number
3,402,038
4,777,177
(1,255,862)
6,923,353
38
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY BACK.indd 38
221423 PARITY BACK.indd 38
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
8 Share-based payments continued
The exercise price of options outstanding at the end of the year and their weighted average contractual life fell within the following
ranges:
Exercise
price (p)
7.5 – 10
25 – 39
165 – 209
2010
Weighted average
contractual life (years)
7
8
3
Exercise
price (p)
9
20
25 – 39
52.5 – 86.5
105 – 209
2009
Weighted average
contractual life (years)
9
4
9
7
4
Number
5,676,633
770,000
11,935
6,458,568
Number
975,000
3,802,177
930,000
1,204,241
11,935
6,923,353
Of the total number of options outstanding at the end of the year, 416,935 (2009: 1,641,439) had vested and were exercisable at
the end of the year. The weighted average exercise price of those options was 21 pence (2009: 21 pence).
No options were exercised during the year.
The weighted average fair value of each option granted during the year was 4 pence (2009: 2 pence).
The following information is relevant in determining the fair value of options granted during the year under equity-settled
share-based remuneration schemes operated by the Group. There are no cash-settled schemes.
Option pricing model:
Weighted average share price at grant date (p)
Weighted average exercise price (p)
Weighted average contractual life (years)
Weighted average expected life (years)
Expected volatility
Weighted average risk free rate
Expected dividend growth rate
2010
Stochastic
2009
Stochastic
9
9
7
4
9
18
6
3
62 – 71%
56 – 67%
1.18%
0%
1.81%
0%
The volatility assumption is calculated as the historic volatility of the share price over a three and five year period prior to
grant date.
The TSR performance condition was modelled by considering the volatility of the comparator companies and the correlation of
this with the Company.
Share options issued to defined benefit pension scheme
In December 2010 the Group issued 1,000,000 share options in Parity Group plc to the pension scheme at an exercise price of
9 pence per share. These options may be exercised at the discretion of the Trustees; they vested on grant and have no expiry
date. Any gain on exercise is to be used to reduce the scheme deficit. These options were valued using the stochastic method.
The share price on the grant date was 15.75 pence. The expected life of the options is eight years. The expected volatility is
64.2% and the average risk free rate assumed was 3.4%.
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
i
l
221423 PARITY BACK.indd 39
221423 PARITY BACK.indd 39
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
39
Notes to the Accounts continued
9 Taxation
Current tax expense
Current tax on loss for the year
Adjustments in respect of prior periods
Total current tax
Deferred tax (credit)/expense
Accelerated capital allowances
Origination and reversal of other temporary differences
Change in corporation tax rate
Retirement benefi t liability
Write-down of deferred tax asset
Adjustments in respect of prior periods
Total tax credit excluding tax on sale of discontinued operations
Income tax expense from continuing operations
Income tax expense from discontinued operations (excluding loss on sale)
2010
£’000
–
–
–
(32)
13
55
75
–
(131)
(20)
(20)
–
(20)
2009
£’000
(163)
(360)
(523)
(51)
29
–
–
300
–
(245)
(245)
189
(56)
The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United
Kingdom applied to losses for the year are as follows:
Loss for the year
Income tax credit (including discontinued operations)
Loss before income tax
Expected tax credit based on the standard rate of United
Kingdom corporation tax of 28% (2009: 28%)
Expenses not allowable for tax purposes
Adjustment for under/(over) provision in prior years
Reduction in deferred tax asset due to change in enacted rate
Tax losses not recognised
Deferred tax not provided
Utilisation of tax losses
Deferred tax write-down
Tax on each component of other comprehensive income is as follows:
Exchange differences on translation
of foreign operations
Actuarial gain/(loss) on defi ned benefi t
pension scheme
Before
tax
£’000
61
299
360
2010
Tax
£’000
–
(57)
(57)
After
tax
£’000
61
242
303
Before
tax
£’000
781
(2,088)
(1,307)
(6,134)
(20)
(6,154)
(1,723)
85
(208)
54
1,772
–
–
–
(20)
2009
Tax
£’000
–
–
–
(271)
(56)
(327)
(92)
94
(334)
–
176
(168)
(32)
300
(56)
After
tax
£’000
781
(2,088)
(1,307)
40
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY BACK.indd 40
221423 PARITY BACK.indd 40
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
10 Earnings per ordinary share
Basic earnings per share is calculated by dividing the basic earnings for the year by the weighted average number of fully paid
ordinary shares in issue during the year, less those shares held by the ESOP Trust, which are treated as cancelled. The ESOP
Trust held 43,143 shares at 31 December 2010 (2009: 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. None of the
potential ordinary shares are dilutive, as the Group made a loss on continuing activities during the year.
Basic (loss)/ per share
Effect of dilutive options
Diluted (loss)/ per share
Basic (loss)/earnings per share from
continuing operations
Effect of dilutive options
Diluted (loss)/earnings per share from
continuing operations
Weighted
average
number of
shares
2010
000’s
Earnings
2010
£’000
Earnings
per share
2010
Pence
Earnings
2009
£’000
Weighted
average
number of
shares
2009
000’s
(6,134)
37,979
(16.15)
(271)
37,979
–
–
–
(6,134)
37,979
(16.15)
(271)
37,979
(5,223)
37,979
(13.75)
225
37,979
–
–
–
(5,223)
37,979
(13.75)
225
37,979
As at 31 December 2010 the number of ordinary shares in issue was 38,021,784 (2009: 38,021,784).
Basic and diluted loss per share from discontinued operations was 2.40 pence (2009: basic and diluted 1.31 pence).
11 Intangible assets
Cost
At 1 January
Additions
At 31 December
Accumulated amortisation
At 1 January
Charge for the year
Impairment
At 31 December
Net book amount
Software
Goodwill
Total
2010
£’000
1,689
16
1,705
159
295
49
503
2009
£’000
93
1,596
1,689
25
134
–
159
2010
£’000
4,594
–
4,594
–
–
–
–
2009
£’000
4,594
–
4,594
–
–
–
–
2010
£’000
6,283
16
6,299
159
295
49
503
1,202
1,530
4,594
4,594
5,796
6,124
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
Earnings
per share
2009
Pence
(0.71)
–
(0.71)
0.59
–
0.59
2009
£’000
4,687
1,596
6,283
25
134
–
159
The remaining amortisation period of the software is three to five years.
As at 31 December 2010, neither the Group nor the Company had any capital commitments for the purchase of intangible assets.
i
O
u
r
F
n
a
n
c
a
s
l
i
221423 PARITY BACK.indd 41
221423 PARITY BACK.indd 41
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
41
Notes to the Accounts continued
12 Goodwill
The carrying amount of goodwill is allocated to the cash generating units (CGUs) as follows:
Resources
Solutions
Goodwill carrying amount
2010
£’000
1,470
3,124
4,594
2009
£’000
1,470
3,124
4,594
Goodwill was tested for impairment in accordance with IAS 36. No impairment was recognised during the year. The recoverable
amounts of the CGUs are based on value-in-use calculations using the pre-tax cash fl ows based on budgets approved by
management for 2011. Years from 2012 onward are based on the budget for the second half of 2011 projected forward at a nil
growth rate. This is considered prudent based on current expectations of the long-term growth rate. Other major assumptions are
as follows:
2010
Discount rate
Operating margin 2011
Operating margin 2012 onward
2009
Discount rate
Operating margin 2010
Resources
%
Solutions
%
8.5
3.1
3.7
6.9
2.9
8.5
5.4
11.7
6.9
6.0
Discount rates are based on the Group’s weighted average cost of capital. Operating margins are based on past experience
adjusted for cost action taken in 2010 and on future expectations of economic conditions.
The Directors believe there is no reasonably possible change in a key assumption that would cause the carrying value of goodwill
to exceed its recoverable amount.
42
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY BACK.indd 42
221423 PARITY BACK.indd 42
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
13 Property, plant and equipment
Consolidated
At cost
Balance at 1 January 2009
Additions
Disposals
Balance at 31 December 2009
Balance at 1 January 2010
Additions
Disposals
Balance at 31 December 2010
Accumulated depreciation
Balance at 1 January 2009
Depreciation charge for the year
Disposals
Balance at 31 December 2009
Balance at 1 January 2010
Depreciation charge for the year
Disposals
Balance at 31 December 2010
Net book value
At 1 January 2009
At 31 December 2009
At 31 December 2010
Company
At cost
Balance at 1 January 2009
Disposals
Balance at 31 December 2009
Balance at 1 January 2010
Balance at 31 December 2010
Accumulated depreciation
Balance at 1 January 2009
Depreciation charge for the year
Disposals
Balance at 31 December 2009
Balance at 1 January 2010
Balance at 31 December 2010
Net book value
At 1 January 2009
At 31 December 2009
At 31 December 2010
Leasehold
improvements
£’000
Offi ce
equipment
£’000
Total
£’000
2,457
13,408
15,865
115
(13)
2,559
2,559
2
(1,414)
1,147
55
(5,234)
8,229
8,229
50
(5,415)
2,864
1,574
12,948
136
(13)
1,697
1,697
157
(1,414)
440
883
862
707
218
(5,234)
7,932
7,932
184
(5,415)
2,701
460
297
163
Offi ce
equipment
£’000
399
(399)
–
–
–
398
1
(399)
–
–
–
1
–
–
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
170
(5,247)
10,788
10,788
52
(6,829)
4,011
14,522
354
(5,247)
9,629
9,629
341
(6,829)
3,141
1,343
1,159
870
Total
£’000
399
(399)
–
–
–
398
1
(399)
i
O
u
r
F
n
a
n
c
a
s
l
i
–
–
–
1
–
–
43
As at 31 December 2010, neither the Group nor the Company had any capital commitments contracted for but not provided
(2009: £nil).
221423 PARITY BACK.indd 43
221423 PARITY BACK.indd 43
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
Notes to the Accounts continued
14 Available for sale financial assets
At 1 January
Revaluation
At 31 December
Consolidated
2010
£’000
117
17
134
2009
£’000
130
(13)
117
These assets comprise equity securities quoted in the US. The fair value is based on published market prices.
15 Deferred tax
At 1 January
Recognised in other comprehensive income
Actuarial gain on defi ned benefi t pension scheme
Recognised in income statement
Change in enacted tax rate
Adjustments in relation to prior periods
Accelerated capital allowances
Retirement benefi t liability
De recognition of deferred tax asset
Other short-term timing differences
At 31 December
The deferred tax asset of £1,498,000 (2009: £1,535,000) comprises:
Accelerated capital allowances
Retirement benefi t liability
Short-term and other timing differences
Consolidated
2010
£’000
1,535
(57)
(55)
131
32
(75)
–
(13)
1,498
2009
£’000
1,813
–
–
–
51
–
(300)
(29)
1,535
Consolidated
2010
£’000
1,034
316
148
2009
£’000
844
545
146
1,498
1,535
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. The Directors believe that the deferred
tax asset recognised is recoverable based on the future earning potential of the Group. The forecasts for the business used in
this review were the same as those used in the review of the impairment of goodwill (see note 12). Commentary on the Group’s
profitability and its future prospects is given in the Operating and Financial Review on pages 03 to 07. A deferred tax asset is not
recognised where there is insufficient evidence of short-term recoverability.
The movements in deferred tax assets during the period are shown below:
Accelerated capital allowances
Other short-term timing differences
Retirement benefi t plan liability
44
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
Asset
2010
£000
1,034
148
316
1,498
Charged/
(credited) to
Charged/
(credited) to
other
income comprehensive
income
2010
£000
statement
2010
£000
190
2
(172)
20
–
–
(57)
(57)
221423 PARITY BACK.indd 44
221423 PARITY BACK.indd 44
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
15 Deferred tax continued
Accelerated capital allowances
Other short-term timing differences
Retirement benefi t plan liability
Credited
to income
statement
2009
£000
Charged
to other
comprehensive
income
2009
£000
(249)
(29)
–
(278)
–
–
–
–
Asset
2009
£000
844
146
545
1,535
The Group has unrecognised carried forward tax losses of £26,255,000 (2009: 18,690,000). The Company has unrecognised
carried forward tax losses of £19,073,000 (2009: £11,693,000). The Group and Company have unrecognised capital losses
carried forward of approximately £282,000,000 (2009: 282,064,000). These losses may be carried forward indefinitely.
16 Work in progress
Work in progress:
Net costs less foreseeable losses
Consolidated
2010
£’000
2009
£’000
237
451
Work in progress represents the value of services provided on contracts that were incomplete as at the reporting date.
17 Trade and other receivables
Amounts falling due within one year:
Trade receivables
Accrued income
Amounts recoverable on contracts
Amounts owed by subsidiary undertakings
Other receivables
Prepayments
Amounts falling due after one year:
Amounts owed by subsidiary undertakings
Total
Consolidated
Company
2010
£’000
7,835
5,319
752
–
419
475
2009
£’000
2010
£’000
13,438
9,568
1,218
–
788
370
–
–
–
5,260
15
65
14,800
25,382
5,340
2009
£’000
–
–
–
834
–
2
836
–
–
14,800
25,382
66,602
71,942
61,087
61,923
The fair values of trade and other receivables are not considered to differ from the values set out above.
The Group’s trade receivables of £7,835,000 and £4,316,000 of the Group’s accrued income are pledged as collateral for the
asset-based borrowings. These borrowings fluctuate daily and at the year end totalled £6,354,000 (2009: £9,832,000).
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
l
i
221423 PARITY BACK.indd 45
221423 PARITY BACK.indd 45
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
45
Notes to the Accounts continued
17 Trade and other receivables continued
The Group records impairment losses on its trade receivables separately from gross receivables. Factors considered in making
provisions for receivables include the ability of the customer to settle the debt, the age of the debt and any other circumstance
particular to the transaction that may impact recoverability. The movements on the allowance account during the year are
included within operating costs in the consolidated statement of comprehensive income and are summarised below:
Opening balance
Increases in provisions
Written off against provisions
Recovered amounts reversed
Closing balance
Consolidated
2010
£’000
120
157
(101)
(65)
111
2009
£’000
277
30
(173)
(14)
120
All balances provided at 31 December 2010 and 31 December 2009 were greater than 90 days past due. The allowance
account represents full provision against specific gross debts.
As at 31 December 2010 trade receivables of £2,822,000 (2009: £6,381,000) were past due but not impaired. These relate to
customers where there is no evidence of unwillingness or of an inability to settle the debt. The ageing of these receivables is as
follows:
30-60 days
60-90 days
>90 days
Total
2010
£’000
2,326
294
202
2,822
2009
£’000
3,317
1,549
1,515
6,381
The Company had no provisions for trade receivables, as it has no trade receivables. Other receivables in the Group and
Company were not past due and not impaired.
18 Other financial liabilities
Current
Bank and other borrowings due within one year or on demand:
Overdraft
Asset-based fi nancing facility
Consolidated
Company
2010
£’000
2009
£’000
2010
£’000
2009
£’000
–
6,354
6,354
81
9,832
9,913
–
–
–
81
–
81
The Group has no non-current financial liabilities. Further details of the Group’s banking facilities are given in note 21.
19 Trade and other payables
Amounts falling due within one year:
Payments in advance
Trade payables
Amounts due to subsidiary undertakings
Other tax and social security payables
Other payables and accruals
Amounts falling due after one year:
Amounts due to subsidiary undertakings
Total
46
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
Consolidated
Company
2010
£’000
229
7,070
–
1,782
2,304
2009
£’000
216
9,741
–
1,488
2,031
2010
£’000
2009
£’000
–
–
–
–
2,088
1,924
133
415
62
11
11,385
13,476
2,636
1,997
–
–
11,385
13,476
72,995
75,631
59,019
61,016
221423 PARITY BACK.indd 46
221423 PARITY BACK.indd 46
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
20 Provisions
Consolidated
At 1 January 2010
Created in year
Utilised in year
Released in year
Reclassifi ed
At 31 December 2010
Due within one year or less
Due after more than one year
Total
Company
At 1 January 2010
Created in year
Utilised in year
Released in year
Reclassifi ed
At 31 December 2010
Due within one year or less
Due after more than one year
Total
Legal
£000
–
412
–
–
–
412
412
–
412
–
–
–
–
–
–
–
–
–
Leasehold
dilapidations Onerous leases
£000
123
141
(10)
(18)
–
236
–
236
236
16
117
–
–
53
186
–
186
186
£000
924
1,374
(766)
(195)
98
1,435
748
687
1,435
785
1,380
(676)
(195)
–
1,294
692
602
1,294
Total
£000
1,047
1,927
(776)
(213)
98
2,083
1,160
923
2,083
801
1,497
(676)
(195)
53
1,480
692
788
1,480
Legal
The Group currently has a number of legal disputes. The amount provided represents the Directors’ best estimate of the
Group’s legal liability, having taken legal advice. Uncertainties relate to whether claims will be settled out of court or, if not,
whether the Group is successful in defending any action. It is expected that all these disputes will be settled in 2011.
Further information has not been disclosed as the Directors believe this would be seriously prejudicial to the Group’s position in
defending the respective cases.
Leasehold dilapidations
Leasehold dilapidations relate to the estimated cost of returning a leasehold property to its original state at the end of the lease
in accordance with the lease terms. The cost is recognised over the life of the lease or, if shorter, the period to the end of the
next lease break. Based on current lease expiry dates it is estimated these provisions will be settled over a period of two to five
years. The main uncertainty relates to the estimation of the costs that will be incurred at the end of the lease.
Onerous leases
This provision relates to the excess of rents payable over rents receivable on vacant and sub-let office space. The main
uncertainties in measuring the provision are the estimates of the time to sub-let and the rentals achievable. Of the non-current
amounts provided, approximately £400,000 is expected to fall within 2012.
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
l
i
221423 PARITY BACK.indd 47
221423 PARITY BACK.indd 47
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
47
Notes to the Accounts continued
21 Financial instruments — risk management
The Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’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 and
cash equivalents, quoted investments, trade and other payables and bank borrowings.
A summary by category of the financial instruments held by the Group is provided below:
Consolidated
As at 31 December 2010
Financial assets
Net cash and cash equivalents
Available-for-sale fi nancial assets
Trade and other short term receivables
Financial liabilities
Asset-based fi nancing facility
Trade and other short-term payables
As at 31 December 2009
Financial assets
Net cash and cash equivalents
Available-for-sale fi nancial assets
Trade and other short-term receivables
Financial liabilities
Asset-based fi nancing facility
Overdrafts
Trade and other short-term payables
Amortised
cost
£’000
Loans and
receivables
£’000
Available-
for-sale
£’000
–
–
–
–
6,354
11,156
17,510
245
–
8,254
8,499
–
–
–
–
–
–
–
128
–
14,250
14,378
9,832
81
13,260
23,173
–
–
–
–
–
134
–
134
–
–
–
–
117
–
117
–
–
–
–
Total
£’000
245
134
8,254
8,633
6,354
11,156
17,510
128
117
14,250
14,495
9,832
81
13,260
23,173
48
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY BACK.indd 48
221423 PARITY BACK.indd 48
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
21 Financial instruments — risk management continued
A summary by category of the financial instruments held by the Company is provided below:
Company
As at 31 December 2010
Financial assets
Non-current trade and other receivables
Investment in subsidiary
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
As at 31 December 2009
Financial assets
Non-current trade and other receivables
Investment in subsidiary
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
Amortised
cost
£’000
Loans and
receivables
£’000
–
66,602
20,527
–
–
20,527
2,636
72,995
75,631
–
96
5,275
71,973
–
–
–
–
61,087
30,127
–
–
–
36
836
Total
£’000
66,602
20,527
96
5,275
92,500
2,636
72,995
75,631
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
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
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.
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 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 operates primarily in the UK. Approximately 70% of the Group’s turnover is derived from the public sector. No single
customer accounts for more than 6% of the trade receivables balance.
Quantitative disclosures of the credit risk exposure in relation to financial assets are set out below. Further disclosures regarding
trade and other receivables, which are neither past due nor impaired, are provided in note 17.
i
O
u
r
F
n
a
n
c
a
s
i
l
221423 PARITY BACK.indd 49
221423 PARITY BACK.indd 49
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
49
Notes to the Accounts continued
21 Financial instruments — risk management continued
Financial assets
Cash and cash equivalents
Trade and other receivables
Available-for-sale investments
Total fi nancial assets
2010
Carrying
value
£’000
Maximum
exposure
£’000
2009
Carrying
value
£’000
Maximum
exposure
£’000
245
245
128
128
13,906
13,906
24,224
24,224
134
134
117
117
14,285
14,285
24,469
24,469
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in
interest rates.
It is currently Group policy that all external Group borrowings are drawn down on the asset-based financing facilities arranged
with our bankers which bear a floating rate of interest based on the KBC base rate. Borrowings against the asset-based
financing facilities are typically drawn or repaid on a daily basis in order to minimise borrowings and interest costs and
transaction charges. Although the Board accepts that this policy neither protects the Group entirely from the risk of paying rates
in excess of current market rates nor eliminates the cash flow risk associated with interest payments, it considers that it achieves
an appropriate balance of these risks.
Throughout 2010 and 2009 the Group’s variable rate borrowings were denominated in sterling.
If interest rates on borrowings had been 1% higher/lower throughout the year with all other variables held constant, the loss after
tax for the year would have been approximately £100,000 higher/lower and net assets £100,000 lower/higher. The Directors
consider a 1% change in base rates is the maximum likely change over the next year, being the period to the next point at which
these disclosures are expected to be made.
Foreign exchange risk
Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes
in foreign exchange rates.
The Group no longer has any active overseas operations, but does retain certain overseas subsidiaries that are not trading and
are in the process of being closed down. The Group’s net assets arising from overseas operations are exposed to currency risk
resulting in gains or losses on retranslation into sterling. The asset exposure is mainly in respect of intercompany balances.
The Group does not hedge its net investment in overseas operations as it does not consider that the potential financial impact of
such hedging techniques warrants the reduction in volatility in consolidated net assets.
The continuing business has few transactions in foreign currency. The hedging of individual contracts is considered on a case by
case basis. Owing to the small value and volume of such contracts no hedging transactions were entered in 2010 or 2009.
The currency profile of the Group’s net financial assets was as follows:
Net foreign currency
fi nancial assets
2010
£000
Sterling
Sterling
Euro
US Dollar
Total net exposure
–
2
70
72
2009
£000
–
2
30
32
Euro
2010
£000
2009
£000
22,910
22,557
–
1,251
24,161
–
1,182
23,739
Functional currency of individual entity
US Dollar
2010
£000
857
–
–
857
2009
£000
870
–
–
870
Total
2010
£000
2009
£000
23,767
23,427
2
1,321
25,090
2
1,212
24,641
50
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY BACK.indd 50
221423 PARITY BACK.indd 50
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
21 Financial instruments — risk management continued
The profile of the Company’s net financial assets was as follows:
Net foreign currency fi nancial assets
Euro
US Dollar
Total net exposure
Functional currency: Sterling
2010
£000
2
70
72
2009
£000
2
30
32
Liquidity risk
Liquidity risk arises from the Group’s management of working capital and the finance charges on its borrowings under its
asset-based 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. Normal supplier terms range from two weeks to 30 days. The Group has agreed extended terms with a number
of suppliers in the short term. The level of the Group facility is approved periodically by the Board and negotiated with the
Group’s current bankers. At the reporting 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.
The following table sets out the contractual maturities (representing undiscounted contractual cashflows) of financial liabilities:
Consolidated
At 31 December 2010
Trade and other payables
Borrowings
Total
Consolidated
At 31 December 2009
Trade and other payables
Borrowings
Total
Company
At 31 December 2010
Trade and other payables
Borrowings
Total
Company
At 31 December 2009
Trade and other payables
Borrowings
Total
More detail on trade and other payables is given in note 19.
Up to
1 month
£000
9,814
6,354
16,168
Up to
1 month
£000
13,476
9,913
23,389
Up to
1 month
£000
2,636
–
Over
1 month
£000
1,571
–
1,571
Over
1 month
£000
–
–
–
Over
1 year
£000
Total
£000
11,385
6,354
17,739
Total
£000
13,476
9,913
23,389
Total
£000
72,995
75,631
–
–
2,636
72,995
75,631
Up to
1 month
£000
1,997
81
2,078
Over
1 year
£000
Total
£000
59,019
61,016
–
81
59,019
61,097
51
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
i
l
221423 PARITY BACK.indd 51
221423 PARITY BACK.indd 51
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
Notes to the Accounts continued
21 Financial instruments — risk management continued
Capital disclosures
The Group is presently funded through equity and asset-based finance. There is no long-term external debt. The Company is
funded through equity and intercompany loans.
In December 2010 the Company signed a new asset-based finance facility with PNC Business Credit, a member of The PNC
Financial Services Group, Inc. This new facility, which enables the Group to borrow against both trade debt and accrued income
replaced an invoice discounting facility with RBS Invoice Finance Ltd. The new facility provides for borrowing of up to £15.0
million depending on the availability of appropriate assets as security.
The Group’s and the Company’s objectives when maintaining capital are:
● 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
● to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.
During 2010 the Group’s focus with respect to capital has been on managing working capital tightly in order to be able to
accommodate the restructuring programme embarked upon in the middle of the year and the operating losses being made.
The Group reduced net borrowings in the year despite the losses sustained.
Cash and cash equivalents
Asset-based borrowings
Net debt
2010
£’000
245
(6,354)
(6,109)
2009
£’000
128
(9,913)
(9,785)
The Board regularly reviews the adequacy of resources available and considers the options available to increase them.
The Company does not have distributable reserves available for dividend payments. A capital reconstruction would be necessary
to create reserves available for distribution.
22 Reserves
The Board is not proposing a dividend for the year (2009: nil pence per share).
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 Income Statement.
Consolidated retained earnings are stated after adjustment for the ESOP’s investment in the Company’s shares of £351,000
(2009: £351,000).
52
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY BACK.indd 52
221423 PARITY BACK.indd 52
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
23 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 separately administered funds. Contributions to defined
contribution schemes were £299,000 (2009: £351,000).
Defined benefit plan
In March 1995, the Group established the Parity Retirement Benefit Plan, renamed as the Parity Group Retirement Benefit Plan,
following a 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.
Principal actuarial assumptions
Rate of increase of pensions in payment
Discount rate
Retail price infl ation
Consumer price infl ation
Expected return on plan assets
2010
2009
%
3.7
5.4
3.5
3.0
5.5
%
3.7
5.7
3.5
n/a
5.9
Note: the rate of increase in pensionable salaries is no longer applicable as the scheme is closed for future service.
The expected return on plan assets is equal to the weighted average return appropriate to each class of asset within the
scheme. The return attributed to each class has been reached following discussions with the Group’s actuaries. At 31 December
2010, yields on gilts were approximately 4% and on corporate bonds were 5.4%. Equities are assumed to carry a risk premium
over gilt returns of 3%. The bank base rate of 0.5% has been used as the yield on cash. The scheme’s assets are invested in
equities, gilts and bonds in approximately equal proportions.
The underlying mortality assumption used for both 2010 and 2009 is based upon the standard table known as PCA00 on a year
of birth usage with long cohort future improvement factors, subject to a minimum annual rate of future improvement equal to
0.5% per annum.
Contribution holiday
In November 2010 the Group agreed a contribution holiday. Until November 2010 deficit reduction contributions were £900,000
per annum. When contributions resume in January 2012, they will be at the rate of £1,090,020 per annum.
In addition to the increase in deficit reduction contributions on resumption in January 2012, the principal terms of the
contribution holiday were the issue to the Plan of 1,000,000 share options in Parity Group plc at an exercise price of 9 pence
per share to be exercised at the discretion of the Trustees and any gain to be used for the benefit of the Plan. These options
vested on grant and have no expiry date.
Reconciliation to consolidated statement of financial position
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
Fair value of plan assets
Present value of funded obligations
Net liabilities
2010
£’000
14,550
(16,975)
(2,425)
2009
£’000
13,261
(16,587)
(3,326)
53
i
O
u
r
F
n
a
n
c
a
s
i
l
221423 PARITY BACK.indd 53
221423 PARITY BACK.indd 53
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
Notes to the Accounts continued
23 Pension commitments continued
Reconciliation of plan assets
At beginning of year
Expected return
Contributions by Group
Issue of options in Parity Group plc
Benefi ts paid
Actuarial gain
At end of year
Composition of plan assets
Equities
Gilts
Bonds
Options in Parity Group plc
Cash
Total
Reconciliation of plan liabilities
At beginning of year
Interest cost
Benefi ts paid
Actuarial loss
At end of year
2010
£’000
2009
£’000
13,261
11,972
773
750
96
(859)
529
670
900
–
(487)
206
14,550
13,261
2010
£’000
5,102
4,671
4,627
96
54
2009
£’000
4,506
4,294
4,278
–
183
14,550
13,261
2010
£’000
2009
£’000
16,587
13,919
921
(859)
326
16,975
862
(487)
2,293
16,587
The cumulative amount of actuarial losses recognised since 1 January 2002 in other comprehensive income is £4,916,000
(2009: £5,119,000). The Group is unable to disclose how much of the pension scheme deficit recognised on 1 January 2002
and taken directly to equity is attributable to actuarial gains and losses since inception of the pension scheme because that
information is not available.
54
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY BACK.indd 54
221423 PARITY BACK.indd 54
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
23 Pension commitments continued
Amounts recognised in the consolidated income statement
Included in Finance Income
Expected return on plan assets
Included in Finance Costs
Unwinding of discount on plan liabilities (interest cost)
2010
£’000
773
921
2009
£’000
670
862
The actual return on plan assets was £1,302,000 (2009: £876,000). This represents the sum of the expected return on assets
and the actuarial gain.
Defined benefit obligation trends
Plan assets
Plan liabilities
Defi cit
Experience adjustments on assets
Experience adjustments on liabilities
24 Share capital
Authorised at 1 January and 31 December:
Ordinary shares of 2 pence each
Deferred shares of 0.04 pence each
Issued and fully paid at 1 January and 31 December:
Ordinary shares of 2 pence each
Deferred shares of 0.04 pence each
2010
£’000
2009
£’000
2008
£’000
2007
£’000
2006
£’000
14,550
13,261
11,973
11,575
10,873
(16,975)
(16,587)
(13,919)
(14,421)
(15,586)
(2,425)
(3,326)
529
3.7%
321
1.9%
206
1.6%
(169)
(1.0%)
(1,946)
(876)
(7.3%)
(193)
(1.4%)
(2,846)
(425)
(3.7%)
131
0.9%
(4,713)
(80)
(0.7%)
(787)
(5.0%)
2010
Number
2010
£’000
409,044,603
35,797,769,808
38,021,784
35,797,769,808
8,181
14,319
22,500
760
14,319
15,079
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.
Shares held by ESOP/Treasury Shares
Ordinary shares held by the ESOP
The shares held by the ESOP are expected to be issued under share option contracts.
2010
Number
43,143
2009
Number
43,143
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
i
l
221423 PARITY BACK.indd 55
221423 PARITY BACK.indd 55
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
55
Notes to the Accounts continued
25 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 fi ve years
After fi ve years
Discontinued operations
Amounts payable:
Within one year
Between two and fi ve years
Land and
buildings
2010
£’000
Plant and
machinery
2010
£’000
Land and
buildings
2009
£’000
Plant and
machinery
2009
£’000
1,204
3,241
132
4,577
407
354
761
27
91
–
118
–
–
–
1,129
3,872
441
5,442
141
280
421
37
56
–
93
–
–
–
Operating leases — lessor
Certain properties may have been vacated by the Group prior to the end of the lease term. Where possible the Group always
endeavours to sublet 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 fi ve years
After fi ve years
Discontinued operations
Amounts receivable:
Within one year
Between two and fi ve years
Land and
buildings
2010
£’000
Land and
buildings
2009
£’000
304
948
–
1,252
213
215
428
389
1,107
146
1,642
123
244
367
26 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.
56
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
221423 PARITY BACK.indd 56
221423 PARITY BACK.indd 56
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
27 Key management remuneration
Key management comprises the Board of Directors. The total remuneration received by key management for 2010 was
£1,056,000 (2009: £670,000). This comprises emoluments received, pension contributions, compensation for loss of office and
share based payment charges. Key management remuneration is disclosed in detail within the remuneration report.
Salary and fees
Other short-term benefi ts
Post-employments benefi ts
Termination benefi ts
Share-based payments
2010
£’000
576
46
33
361
40
1,056
2009
£’000
508
53
34
–
75
670
28 Related party transactions
Company
Details of the Company’s holding in Group undertakings are given in note 29. The Company entered into transactions with other
Group undertakings as shown in the table below.
Interest received from subsidiaries
Interest paid to subsidiaries
2010
£’000
264
721
At 31 December, the Company had the following amounts payable and receivable to/from Group undertakings.
2010
£’000
2009
£’000
169
642
2009
£’000
Amounts owed by subsidiary undertakings
Falling due within one year (note 17)
Falling due after one year (note 17)
Amounts due to subsidiary undertakings
Falling due within one year (note 19)
Falling due after one year (note 19)
5,260
66,602
834
61,087
2,088
72,994
1,924
59,019
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.
29 Subsidiaries
The principal subsidiaries of Parity Group plc, which have been included in these consolidated financial statements, are Parity
Resources Limited and Parity Solutions Limited. Both are wholly owned by Parity Holdings Limited and incorporated in the United
Kingdom. Parity Holdings Limited is a direct subsidiary of Parity Group plc.
Parity Resources Limited is a specialist IT recruitment company. Parity Solutions Limited delivers technology solutions and talent
management services.
The Company’s investment in subsidiary was reviewed for impairment at the year end owing to the performance during 2010.
A discounted future cash flow method was employed for the review. As a result of this review, a provision of £9,600,000 was
recorded against the carrying value of this investment, leaving a carrying value of £20,527,000 (2009: £30,127,000). The
assessment was performed on a value in use basis using a discount rate of 8.5% and the other parameters used in the goodwill
impairment review, as outlined in note 12.
O
u
r
P
e
r
f
o
r
m
a
n
c
e
O
u
r
G
o
v
e
r
n
a
n
c
e
i
O
u
r
F
n
a
n
c
a
s
l
i
221423 PARITY BACK.indd 57
221423 PARITY BACK.indd 57
/
/
P
f
27/04/2011 13:24
27/04/2011 13:24
57
About Parity
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.
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 Chairman’s Statement
03 Operating Review
05 Financial Review
08 Board of Directors
09 Directors’ Report
11 Social, Environmental and Ethical Policies
12 Corporate Governance Report
16 Remuneration Report
21 Independent Auditors’ Report
22 Consolidated Income Statement
23 Statement of Comprehensive Income
24 Statements of Changes in Equity
25 Statements of Financial Position
26 Statements of Cash Flows
27 Notes to the Accounts
Parity Group plc
Report and Accounts 2010
www.parity.net
stock code: PTY
Registered office
Wimbledon Bridge House
1 Hartfi eld 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
Tele 0870 600 3964
Fax: 0870 600 3980
Advisors
Auditors
BDO LLP
55 Baker Street
London
W1U 7EU
Bankers
RBS Group
9th Floor
280 Bishopsgate
London
EC2M 4RB
PNC Business Credit
8-14 The Broadway
Haywards Heath
West Sussex
RH16 3AP
Equiniti offer a range of information online. You can access
information on your shareholding, indicative share prices and
dividend details and fi nd practical help on transferring shares or
updating your details at www.shareview.co.uk
Financial advisors & stockbrokers
Singer Capital Markets
One Hanover Street
London
W1S 1YZ
Enquiries concerning shareholdings in Parity Group plc
should be directed, in the fi rst instance, to the Registrars,
Equiniti, as above.
Financial calendar 2010
Annual General Meeting:
Interim management statement:
Interim results:
7 June 2011
16 May 2011
August 2011
Solicitors
Pinsent Masons
30 Crown Place
London
EC2A 4ES
Investor relations
MHP Communications
60 Great Portland Street
London
W1W 7RT
Tel: 020 3128 8100
Further information for shareholders including copies of the
Annual and Interim Reports can be obtained from the Company
Secretary’s offi ce at the registered offi ce address below or from
the Parity Group website at www.parity.net
The Company Secretary
Parity Group plc
Wimbledon Bridge House
1 Hartfi eld Road, Wimbledon,
London, SW19 3RU
Or by email to: cosec@parity.net
221423 PARITY NEW COVER.indd 2
221423 PARITY NEW COVER.indd 2
27/04/2011 15:13
27/04/2011 15:13
Parity Group plc
Wimbledon Bridge House, 1 Hartfield Road, Wimbledon, London, SW19 3RU
Tel: 0845 873 0790
Fax: 020 8545 6355
www.parity.net
stock code: PTY
Parity Group plc Report and Accounts
Year Ended 31 December 2010
221423 PARITY NEW COVER.indd 1
221423 PARITY NEW COVER.indd 1
27/04/2011 15:13
27/04/2011 15:13