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
Perivan Financial Print 224692
Parity Group plc Report and Accounts
Year ended 31 December 2011
About Parity
Corporate information
About Parity
Parity in Human Resources
Parity Resources provides skilled
IT professionals, consultants and
project managers to a wide range of
UK leading companies. Parity Talent
Management provides graduate
selection, training and development.
Parity in IT Systems
Parity Systems is an IT solutions
provider specialising in Business
Intelligence, Oracle and SharePoint
applications; with a new emerging
technology and IP development facility
(TechLab) in Belfast sponsored by
Invest NI.
Parity Future Strategy
Parity Group intends to build on its
Systems base to create a creative
technology division combining digital
media and emerging technology skills.
Advisors
Auditors
KPMG Audit Plc
8 Salisbury Square
London
EC4Y 8BB
Bankers
RBS Group
9th Floor
280 Bishopsgate
London
EC2M 4RB
PNC Business Credit
8-14 The Broadway
Hayward’s Heath
West Sussex
RH16 3AP
Financial advisors & stockbrokers
Singer Capital Markets
One Hanover Street
London
W1S 1YZ
Solicitors
Pinsent Masons
30 Crown Place
London
EC2A 4ES
Registered office
Wimbledon Bridge House
1 Hartfield Road, Wimbledon
London, SW19 3RU
Tel: 0845 873 0790
Registrars
Equiniti Limited
Aspect House, Spencer Road, Lancing,
West Sussex, BN99 6DA
Tele 0870 600 3964
Fax: 0870 600 3980
Equiniti offer a range of information on-line. You can access
information on your shareholding, indicative share prices and
dividend details and find practical help on transferring shares or
updating your details at www.shareview.co.uk
Enquiries concerning shareholdings in Parity Group plc
should be directed, in the first instance, to the Registrars,
Equiniti, as above.
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 office at the registered office address below or from
the Parity Group website at www.parity.net
The Company Secretary
Parity Group plc
Wimbledon Bridge House
1 Hartfield Road, Wimbledon,
London, SW19 3RU
Or by email to: cosec@parity.net
Parity has offices in:
London
Wimbledon
Edinburgh
Camberley
Sale
Belfast
For all general enquires call 0845 873 0790
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 Auditor’s 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 2011
www.parity.net
stock code: PTY
Parity provides Information Technology and Human Resources solutions to clients in the UK, across both public and private sectors. Highlights of 2011
Financial highlights
Operational highlights
❚ Revenues of £80.1m (2010: £93.0m)
❚ Parity Group plc returns to a positive EBIT
❚ Adjusted EBITDA1 of £0.36m (2010 : £1.98m
in 2011
loss)
❚ Cash at year end £5.2m (2010: £0.2m)
❚ Net debt reduced to £1.3m (2010: £6.1m)
❚ Central costs2 reduced to £4.8m (2010: £6.5m)
❚ Non-recurring items on property and IT
restructure £1.47m (2010: £2.82m)
❚ Group loss for the year reduced to £2.30m
(2010: £6.13m)
❚ Divisional Contribution3 up 28% to £5.83m
(2010: £4.55m)
❚ Successful Placing and Open Offer in May 2011
raised £6.4m net for working capital and
investment in restructuring the business
❚ Resources division showed an improved trend in
H2 with a 10% increase in contractor numbers
❚ Systems division launched new emerging
technology TechLab initiative, and OneParity
virtual workforce service offering
❚ Talent Management division renewed its
Northern Ireland graduate development
programme
Resources £3.51m (2010: £4.08m)
❚ InvestNI sponsoring Parity’s new Belfast
Systems £1.86m (2010: loss of £0.07m)
Talent Management £0.46m (2010: £0.54m)
emerging technology TechLab
❚ Group IT system moved in-house with signifi cant
future savings
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1 In assessing the performance of the business, the directors use a non-GAAP measure “Adjusted EBITDA” being the statutory measure, prior to non-recurring items and
share based compensation. Non-recurring items and share based compensation are detailed in note 4. Adjusted EBITDA is reconciled to operating loss in note 4.
2 Central costs represent all centrally managed costs, and include Corporate, Finance, HR, IT and Property costs.
3 Divisional contribution in this narrative refers to the segment contribution before central costs 2, tax, interest, non-recurring items and investment costs.
01
Board
There have been a number of Board changes in 2011. Alastair
Woolley FCA, was appointed Finance Director in April 2011 in
the place of Ian Ketchin. David Courtley and Mike Phillips joined
as non-executive directors during the year and in November
2011 Nigel Tose left the Board, after five years, in line with the
Board’s normal policy regarding non-executive director rotation.
Lord Roger Freeman continues as my Deputy Chairman and of
course Paul Davies is our CEO.
On behalf of the Board, I would like to thank both Ian Ketchin
and Nigel Tose for their respective contributions to the Group.
Current Trading and Future Prospects
As discussed in the CEO’s Report the Group’s revenues are
now more stable and the Board is particularly encouraged by
the progress made on the growth strategies of its Resources
and Talent Management divisions. Parity Resources increased
contractor placements by 10% during the second half of the
year, whilst Parity Talent Management won its first contract for
graduate development in England recently and is already in
discussions with other universities. Parity Systems, with its
strengthened management team, is more stable and looking
forward to Parity’s strategic move into the digital agency and
e-commerce world.
Progress in the current year to date has been encouraging.
After a difficult eighteen months of cost saving and redirection
the Board can now move forward on its exciting digital media
strategy. We now look to build the necessary digital agency
business through acquisition, whilst also looking to widen the
Group’s skill base in the emerging technology field.
The Board now looks forward to building on this much healthier
base and although the UK economic backdrop remains
uncertain, the Board is gaining confidence in its ability to
significantly increase shareholder value through a combination
of the redirection of the current businesses and its new
strategic initiative.
Philip Swinstead OBE
Chairman
5 March 2012
Chairman’s Statement
Philip Swinstead OBE
2011 Results
I am pleased to report that we made good progress in 2011,
stabilising and consolidating the business after significant cost
reductions and business re-orientation in 2010. In parallel new
growth-orientated strategies were agreed by the Board both for
the Group and for its major divisions, and we have made good
progress in beginning to implement these.
Revenues declined to £80.1m from £93.0m in 2010 due to
reduced government spending; but in a challenging market for
IT services, divisional contribution increased to £5.83m
(2010: £4.55m). The Group returned an adjusted EBITDA profit
of £0.36m against an adjusted EBITDA loss of £1.98m in 2010.
A Group loss for the year of £2.30m attributable to shareholders
compares to a £6.13m loss in 2010.
Non-recurring items in the year were £1.47m. This included the
cancellation of the Group’s outsourced contract for its internal
IT system at a cost in 2011 of £0.44m, which is expected to
save over £0.5m of cost each year going forward.
Cash, Dividend and Investments
Cash at year end was £5.2m (2010: £0.2m), after raising net
funds of £6.4m in May 2011 in an over-subscribed Placing and
Open Offer. Net debt as a result of the Placing decreased to
£1.3m against £6.1m last year. This is after investment of
£0.69m in the second half of 2011 on the new initiatives
outlined in the Placing documents. New banking arrangements
with PNC have been in place since late 2010 with a maximum
facility of £15m, which is adequate for the Group’s predicted
requirements. The Board has decided not to pay a dividend for
the 2011 financial year; but will continue to consider this policy
each year.
Strategy
Across the Group all business offerings were reviewed and
initiatives put in place to better serve our existing customers,
whilst looking ahead to predicted future demands in a
fast-moving technological world. These strategies are in place
in the Resources and Talent Management businesses, and
beginning to produce results.
The Systems division announced last year its new One Parity
service offering and is looking forward to Parity’s intended move
into the new exciting digital media field. In this field there is a
recognised gap between creative and technology skills,
exacerbated by fast-moving emerging technologies and the
increasing power and influence of the web and e-commerce.
We are a nimble early mover in this exciting new market, which
we expect to provide an important new channel for IT skills. We
therefore intend to create a new digital agency division linked to
both our Systems division and our new emerging technology
TechLab. The TechLab strategy during 2011 led to an
agreement with InvestNI to sponsor an R&D facility in Belfast
looking to create innovative emerging technology software
products and tools. We intend in due course that, through
combining these three units as a creative technology business,
Parity will be able to offer a full service to brands, from creative
digital campaigns through web portal development and
e-commerce consultancy to enterprise systems interface.
02
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
Operating Review
Paul Davies
Overview
When the new management team re-joined Parity in June 2010
it soon became clear that a number of significant actions were
required immediately to put the Group on a more secure
footing. As a result we were able to report at the end of 2010
that significant cost savings had been achieved, borrowings
had been reduced and a new bank facility had been negotiated.
Major programme risks had been identified and addressed and
a number of new opportunities identified.
2011 by contrast has been a year of consolidation, with
considerable progress being made on a number of new
initiatives. All Divisions have returned to generating positive
contributions with several new contract awards in what remains
a challenging marketplace. Further cost savings have been
identified and achieved during the year and we now have a
solid foundation from which to move forward. We continue to
work on a number of new opportunities which will differentiate
ourselves from the competition.
Adjusted EBITDA at £0.36m (2010: £1.98m loss) is a clear
indication of the turn round in operating performance achieved
in the year, and is after allowing for investment costs of £0.69m
(2010: £nil).
Group Markets
Parity continued to operate during the year in the IT Services
and Resources market and traded exclusively in the UK from
offices in Wimbledon, Sale, Belfast, Edinburgh, Camberley with
new offices opened in Shoreditch in the second half. We have
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 accounts for more than 12% of Group
turnover. Whilst the Group maintains a degree of exposure to
Government spending, the breadth of our private sector portfolio
has been increased this year and this is expected to continue.
The Group has strengthened its relationship with several major
IT partners and this will continue through 2012. Whilst the
markets for our existing services remain challenging we have
taken steps to improve our competitive edge by developing an
alternative and differentiated offering and our strategy to move
towards newer and more profitable emerging demands and
technologies is well advanced.
Parity Resources
The business entered the year with a considerable reliance on
traditional Government and Public Sector revenues. Despite
winning the Government Buying Solutions framework contract
in the second half of 2010, however, activity in this sector
reduced in line with UK Government’s spending cuts. To
compensate for this, new initiatives were started in the Private
Sector, including the opening of a new sales office in Shoreditch
and increased sales activity in a number of sectors.
Throughout the first half of 2011 gains in the private sector
were essentially negated by reductions in Government
spending with total contractor numbers remaining consistent at
around 700. During the second half, however, our strategy
started to show initial signs of success with total contractor
numbers growing in that period by over 10% to stand at 772 by
year end.
In total, revenues in the year declined to £68.7m
(2010: £78.1m) with a divisional contribution of £3.51m
(2010: £4.08m). Overall contractor margins have increased
during 2011 from 7.9% in January to 8.3% in December
reversing the declining trend in the previous year.
At the year end the ratio of Private/Government-Public sector
placings was 48/52 (end 2010: 43/57). Whilst we intend to
remain a major player in the important Government and Public
Sector market we plan to continue to develop a more
balanced portfolio.
A number of existing contracts were extended and over
60 new clients were signed up during the year. These will
provide the seedcorn for growth in 2012 in what remains a
competitive market.
Parity Systems
The business entered 2011 having undergone some significant
changes to remove unnecessary overheads whilst addressing a
series of loss making fixed price contracts entered into in
previous years. As a result it faced three major challenges.
The first was to finalise negotiations on the remaining fixed price
contracts to remove the risks inherent therein. This activity was
successfully completed in the second half of the year with no
risk outstanding.
The second was to maintain and if possible grow existing
revenue streams whilst alternative strategies were implemented.
The rapid return to generating divisional contribution was a
result of cost savings made in the latter half of 2010 combined
with considerable success in developing relations with existing
major clients. This included signing a new deal with BAT to run
throughout 2012 and continuing long term partnerships with
the Charity Commission and MOD.
The third was to define, and develop new offerings to the
market. These are essentially based around the company’s
extensive Business Intelligence capability, enhanced to
encompass new techniques and providing a rapid response
capability developed alongside the Resources Division. Market
response to these initiatives has been positive and a roll out
campaign is in place for 2012.
During the period Parity also maintained its Gold Partner status
with both Microsoft and Oracle whilst additionally obtaining
Gold Partner accreditation for the new Microsoft categories of
Business Intelligence and Portals & Collaboration.
Re-certification at Gold level was also achieved with Adobe.
In November we announced that we had reached agreement
with Invest Northern Ireland (Invest NI) to create, with their
support, an R&D Technology Laboratory in Belfast to develop
know-how and Parity’s own intellectual property. The first project
definition phase started in January 2012 and is intended to lead
to a long term venture with continued sponsorship from InvestNI.
This initiative is intended to support both our existing Parity
Systems business as well as our Digital Agency as it evolves.
As a consequence of the above, in the year total revenues
declined to £9.2m (2010: £12.1m) but with a significant
increase in divisional contribution to £1.86m (2010: loss
of £0.07m)
03
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Operating Review continued
Parity Talent Management
This new business unit is based around the Parity graduate
selection and development programme which has been
operating successfully for over 15 years in Northern Ireland for
both Government and industry and combines with the
prestigious FastStream graduate programme run on behalf of
the Cabinet Office to provide a unique offering.
Whilst still at an early age of development, the unit benefits from
an established team with many years experience delivering
successful programmes and is formed at a time when graduate
employability is a high profile issue in the UK.
During the year much effort has been invested to develop a
range of programmes to address a series of graduate
employability challenges and thereby generate interest from
both universities and industry. Following a good start to the year
the second half proved challenging due primarily to delays in
Government spending in Northern Ireland. The result was that,
in total, revenue has decreased to £2.3m (2010: £2.8m) and
divisional contribution fell to £0.46m (2010: £0.54m) but as a
percentage of revenue, divisional contribution increased to
20.3% (2010: 19.6%).
After a successful pilot scheme with a GB university we are now
in active discussion with them to expand the programme. Also
in January 2012, following a competitive tender process, the
Northern Ireland Government Department for Employment and
Learning (DEL) confirmed that Parity would continue as its
partner in the Intro Graduate Development Programme.
These successes provide a good platform from which to capitalise
on the work carried out during 2011 in further developing these
new propositions and taking them to a wider market.
Group Cost Savings
Further significant cost savings were identified during the year
primarily relating to IT and office accommodation. In December
we successfully completed the transfer of our company IT
system from an outsourced provider to being managed in-house.
The one off cost associated with this move was £0.44m resulting
in an on-going annual saving of £0.50m pa and with considerably
improved performance. We also have the possibility to reduce
our overall accommodation costs by sub-letting part of our
Wimbledon office and will continue to market this actively during
2012. However as the remaining term of the lease is now very
short the Directors believe that a successful sub-lease will be
very difficult and have therefore decided to make a full provision
of £0.95m against the vacant offices.
Investment in New Initiatives
The Group completed an oversubscribed placing in May 2011
which raised £6.4m net of expenses. The Board indicated that
some £2.0m of the proceeds would be used to provide
additional working capital to improve the balance sheet and
£1.0m to reduce the cost base including the move of the IT
system. The remainder was to be used for specific growth
initiatives which have already made progress as follows:
• A number of new senior managers have joined our team.
• A new fast response service, OneParity, has been created in
Parity Systems.
• Parity’s Technology Laboratory has started work in
collaboration with InvestNI.
• Parity Resources has increased its sales activity in the
private sector.
• Parity Talent Management has developed a range of new
propositions to enhance its entry into the GB market.
All of these are progressing well with spend on these initiatives
amounting to £0.69m in 2011, since the Placing.
Management and Staff
The improved result this year could not have been achieved
without the hard work of our team. They recognised the need
for drastic action in the latter half of 2010 and supported the
tough decisions that had to be made. They have embraced
change this year as we have set the scene for a return to
successful growth. They have been actively involved in
developing our plans to become a new style IT company. They
are enthusiastic about making these plans a reality in 2012 and
beyond. Above all they have done this in one of the most
difficult economic environments witnessed for many years. The
Board is both proud of and grateful to them and wishes to
express its special thanks for their support and loyalty.
Paul Davies
Chief Executive Officer
5 March 2012
04
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
Financial Review
Alastair Woolley
Revenue
Continuing operations
Resources
Systems
Talent Management
Divisional contribution
Continuing operations
Resources
Systems
Talent Management
Divisional contribution before central costs, non-recurring items and investment costs
2011
£’000
68,662
9,209
2,271
80,142
2011
£’000
3,506
1,862
461
5,829
2010
£’000
78,117
12,078
2,768
92,963
2010
£’000
4,075
(68)
542
4,549
Although revenues in total have declined by 14% to £80.1m (2010: £93.0m) overall divisional contribution has risen to £5.83m
(2010: £4.55m), driven mainly by Systems. Divisional contribution in Resources as a percentage of revenue has remained very
stable. Systems contribution, now that the division has exited the large fixed price and loss making contracts has shown a very
significant improvement, making a contribution in 2011 of £1.86m compared to a loss of £0.07m in 2010. Talent Management has
experienced delays in the second half in public sector spending in Northern Ireland, but despite this has still managed a slight
improvement on divisional contribution as a percentage of revenue, increasing to 20.3% (2010: 19.6%).
Reconciliation of divisional contribution to operating loss from continuing operations
Divisional contribution before central costs, non-recurring items and investment costs
Central costs
Depreciation and amortisation
Share-based payment charges
Investment costs
Non-recurring items (continuing operations)
Operating loss from continuing operations
2011
£’000
5,829
(4,785)
(537)
(177)
(688)
(1,437)
(1,795)
2010
£’000
4,549
(6,525)
(636)
(30)
–
(2,138)
(4,780)
As with divisional overheads, central costs have been and continue to be a focus of attention, as evidenced by the £1.7m reduction
from £6.5m in 2010 to £4.8m in 2011.
Investment costs refer to costs associated with new initiatives which were outlined in the Group’s prospectus, issued in respect of
the Firm Placing, and Placing and Open Offer of new ordinary shares (see note 22, “Capital Disclosures”).
Non-recurring items
Continuing operations
Restructuring
Property provisions
2011
£’000
491
946
1,437
2010
£’000
1,538
600
2,138
Non-recurring items in the year include the cancellation of the Group’s outsourced contract for its internal IT system at a cost in
2011 of £0.44m, which is expected to save over £0.5m of cost each year in future. Non-recurring items also include taking
provisions for unused office space in Wimbledon up to the lease expiring in 2014 amounting to £0.95m. The Board believes it is
unlikely to be sublet in the current climate with such a short period on offer.
Further details of the non-recurring costs are given in note 5.
05
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Financial Review continued
Earnings per share and dividend
The basic loss per share from continuing operations was 3.99
pence (2010: loss of 13.75 pence).
The Board does not propose a dividend for 2011 (2010: nil),
but will continue to review this policy each year.
Statement of Financial Position
The share placing during the year has strengthened the balance
sheet from its weak opening position. Whilst some of the funds
have already been absorbed as anticipated in the prospectus,
the closing cash position of £5.2m has increased the Group’s
net assets to £5.7m.
The Group’s loss of £2.3m included non-recurring items of
£1.47m and investments costs of £0.69m. The impact of the
loss was to reduce the Group’s net assets by £2.1m.
Issue of new shares
On 11 May 2011 the Group published a prospectus in respect
of a Firm Placing of 20,873,087 New Ordinary Shares and a
Placing and Open Offer of 9,561,696 New Ordinary Shares at
the Issue Price of 23 pence per New Ordinary Share. Qualifying
shareholders were able to subscribe for Open Offer shares on
the basis of one Open Offer Share for every four Existing
Ordinary Shares held. Shareholder approval for the issue was
sought and received at an extraordinary general meeting held
on 27 May 2011.
Net proceeds from this Firm Placing and Placing and Open
Offer amounted to £6.4m. The proceeds are being used by
management to provide additional working capital, invest in
new initiatives, and take advantage of opportunities to reduce
the cost base.
Trade receivables and accrued income
Trade receivables reduced by £2.0m during the year, mainly as
result of further improvements in working capital management,
and to a lesser extent, as a result of the fall in trading volumes.
Debtor days at the end of the year, calculated on billings on a
countback basis, were 27 (2010: 31).
Trade and other payables
At the start of the year the Group had extended the payment
terms of certain current liabilities with the agreement of the
counterparty. Following the completion of the new asset based
lending facility signed in December 2010, and the receipt of
funds from the share placing, the Group has reverted to paying
all its liabilities as they fell due. This has led to a £2.6m
reduction in trade and other payables during the year.
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. The fall in revenues and the improvements in
working capital management had the impact of reducing
borrowing requirements, however this was offset by the loss
incurred during the year.
The asset-based lending facility provides for borrowing of up to
£15.0m 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
The Group incurred an operating outflow of £1.5m for the year
(2010: outflow of £1.2m). The outflow includes investment
costs of £0.69m, and £0.8m in relation to onerous leases.
The Group had net debt of £1.3m at the end of the year
(2010: £6.1m). The Group’s borrowings are all under an
asset-based facility.
Provisions
The net reduction in provisions of £0.15m includes the creation
of the additional provision in respect of the vacant offices in the
Wimbledon head office of £0.95m, and a cash outflow against
existing provisions of £0.8m.
Pension Fund
In 2010 the Group agreed a deficit reduction payments
holiday with the trustees of the defined benefit scheme which
meant that no payments were made during 2011. Despite
this, the actuarial valuation showed a small gain of £81,000 at
the end of 2011. After allowing for the interest on plan
liabilities and the return on plan assets, the liability increased
by £42,000 to £2.47m during 2011 (2010: £2.43m).
The deficit reduction payments holiday ceased in December
2011, and payments will recommence in January 2012.
Principal risks and uncertainties
Market
The Group reduced its exposure to the public sector during the
year, with 2011 revenues from public sector clients falling from
70% to 63% of total revenue during the year. However, the
Group remains exposed to potential further public sector
budget cuts and recruitment freezes.
The Group trades exclusively in the UK, and is very aware of the
ongoing tough economic conditions that prevail. As a result
there is a major emphasis on addressing growth technologies in
order to diversify the Group’s offerings.
06
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
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 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.
Alastair Woolley
Finance Director
5 March 2012
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07
Board of Directors
Philip Swinstead OBE
Chairman 1, 2
Philip Swinstead, 68, 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, 69, 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.
David Courtley
Non-executive Director 1, 2, 3
David Courtley, 54, was appointed to the Board as a
non-executive Director on 8 June 2011. David has extensive
experience within the IT services sector and has held senior
executive positions within Fujitsu, EDS and SD-Scicon and is
currently Chief Executive of Phoenix IT Group plc. He was Chief
Executive of Fujitsu Services between 2001 and 2009 and was
instrumental in the transformation of that business. David is also
non-executive director of Sagentia Group plc and the French
software company Axway
Mike Phillips
Non-executive Director 1, 2, 3
Mike Phillips, 49, was appointed to the Board as a
non-executive Director on 3 November 2011. Mike has more
than 10 years’ experience as a public company director and is
currently Chief Financial Officer of Micro Focus International plc.
Prior to this Mike was Group Finance Director and then Chief
Executive Officer of Morse plc until its successful sale to 2e2 in
June 2010 and from 1998 to 2007 was Group Finance Director
at Microgen plc. Earlier roles include seven years corporate
finance work at Smith & Williamson, as well as two years at
PricewaterhouseCoopers where he led the UK
technology team.
Paul Davies
Chief Executive Officer
Paul Davies, 63, 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 2 years tasked with
improving the performance of their portfolio of large
IT programmes.
Alastair Woolley
Finance Director
Alastair Woolley, 50, was appointed in April 2011. Alastair
trained with Deloitte and spent 11 years in various departments
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.
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 2011
www.parity.net
stock code: PTY
Directors’ Report
The Directors present their report and the audited accounts for
the year ended 31 December 2011.
Principal activities
The Group delivers a range of recruitment and business and IT
solutions to clients across the public and private sectors. During
the period under review the Group operated through three
divisions; Resources, Systems and Talent Management.
The principal activity of the Resources division is to provide
recruitment, predominately interim recruitment, and consultancy
services, to a diverse range of clients. In 2011 its clients’ market
sectors included central and local government within the public
sector, and FMCG, Insurance, Oil, and Transport in the
private sector.
The principal activities of the Systems division comprise
innovative information technology solutions and application
support. Systems delivered its services during the year to
central government departments in the public sector, and to
Tobacco, IT and Telecommunications clients in the
private sector.
The principal activity of the Talent Management division is to
provide graduate placement services. In 2011 it operated
predominantly in the public sector, and geographically between
Northern Ireland and England.
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,
contribution, 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 2
to 7. 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 22 to the financial statements.
Each of the above is incorporated in this report by reference.
Group results
The Group loss from continuing operations before taxation for
the year was £2,149,000 (2010: £5,243,000) after charging
non-recurring items of £1,437,000 (2010: £2,138,000). After a
tax expense of £92,000 (2010: credit of £20,000) and a loss
after tax from discontinued operations of £58,000 (2010:
£911,000), the retained loss of £2,299,000 (2010: £6,134,000)
has been transferred from 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 (2010: nil
pence per ordinary share). The total dividends for the year were
nil pence per ordinary share (2010: 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 24.
Purchase of own shares
At the end of the year, the Company had authority, under the
shareholders’ resolution of 7 June 2011, to purchase in the
market 3,824,678 of the Company’s ordinary shares at prices
ranging between two pence and an amount equal to 105% of
the average of the middle market prices quoted in the five
business days immediately preceding the day of purchase. No
purchases were made during the year. The Directors intend to
seek renewal of this authority at the forthcoming Annual
General Meeting.
Board of Directors
Biographical information on each of the Directors as at 5 March
2012 is set out on page 8, together with details of membership
of the Board committees.
David Courtley and Mike Phillips were appointed to the Board
on 8 June 2011, and 3 November 2011 respectively.
Ian Ketchin and Nigel Tose resigned from the Board on
31 March 2011 and 22 November 2011 respectively.
In accordance with the Company’s Articles of Association, the
following will retire and offers themselves for re-election at the
2012 Annual General Meeting:
David Courtley and Mike Phillips, who were appointed after the
announcement of the 2011 AGM.
Directors’ interests
The Directors’ beneficial interests in the ordinary share capital of
the Company are set out within the remuneration report on
page 16.
Principal shareholders
At the close of business on 2 March 2012 (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:
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Philip Swinstead
David Courtley
Henderson Global Investors
Dominion Holdings
Artemis Investment Management
Slater Management
Number of
Ordinary 2p shares
12,180,543
6,521,739
6,102,066
4,950,000
4,616,710
3,933,157
Percentage
held
17.71
9.49
8.88
7.20
6.72
5.72
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Directors’ Report continued
Capital structure
The Company has two classes of shares in issue, ordinary
shares of 2p and deferred shares of 0.04p. The ordinary shares
are listed on the London Stock Exchange and ordinary
shareholders are entitled to vote at Company meetings, to
receive dividends and to the return of their capital in the event of
liquidation, with the exception of ordinary shares held by the
Parity Group plc Employee Share Ownership Trust which are not
entitled to 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 5 to 7 and in note 22 to the financial statements. Note 22
also includes the Group’s objectives for managing capital.
As outlined in note 22, the Group meets its day to day working
capital requirements through an asset-based finance facility. The
facility contains certain financial covenants which have been met
throughout the period. Improved financial covenants have
recently been secured in respect of the facility that will provide
greater flexibility to the Group.
The Group’s forecasts and projections, taking account of
reasonably possible changes in trading performance, show that
the Group will be able to operate within the level of its current
facility for the foreseeable future. The bank has not drawn to the
attention of the Group any matters to suggest that this facility
will not be continued on acceptable terms.
After making enquiries, the Directors have a reasonable
expectation that the Company and the Group have adequate
resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt
the going concern basis in preparing the Annual Report
and Accounts.
Change of control
The Company is not party to any significant agreements that
take effect, alter or terminate upon a change of control of the
Company following a takeover bid. In the event of a change of
control, the share options held by Mr Davies under the Senior
Executive Option Plan would vest. There are no other
agreements between the Company and its Directors or
employees providing for compensation for loss of office or
employment that occurs because of a takeover bid.
Payments to suppliers
The Group seeks to abide by the payment terms agreed with
suppliers when it is satisfied that the supplier has provided the
goods or services in accordance with the agreed terms and
conditions. In the United Kingdom and Ireland the Group agrees
payment terms with its suppliers when it enters into binding
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Report and Accounts 2011
www.parity.net
stock code: PTY
purchase contracts. At 31 December 2011 unpaid creditors of
the Group amounted to 39 days of purchases (2010: 40 days).
Creditor days have not been calculated for the Company as it
has no trade payables.
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 2011
(2010: £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 auditor
So far as the Directors are aware, there is no relevant audit
information of which the auditor is unaware and each Director
has taken all reasonable steps to make himself aware of any
relevant audit information and to establish that the auditor is
aware of that information.
Corporate Governance
The Corporate Governance Report on pages 12 to 15 form part
of the Directors’ Report.
Auditor
BDO LLP resigned as auditor of the company on 25 October
2011 and KPMG Audit Plc were appointed.
Pursuant to Section 487 of the Companies Act 2006, the
auditor will be deemed to be reappointed and KPMG Audit Plc
will therefore continue in office.
Resolutions will be proposed at the Annual General Meeting to
reappoint KPMG Audit Plc as auditor to the Company and to
authorise the Directors to determine their remuneration.
Annual General Meeting
The resolutions to be proposed at the Annual General Meeting,
together with explanatory notes, will appear in the Notice of
Annual General Meeting which will be circulated with the annual
report when sent to all Shareholders.
By order of the Board
Alastair Woolley
Director
5 March 2012
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.
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.
Health & safety
The health and safety of Parity’s employees is paramount.
Group policy is to provide and maintain safe and healthy
working conditions, equipment and systems of work for all
employees and to provide such information, training and
supervision as is needed for this purpose.
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.
Appropriate written health and safety information outlining the
Group’s policy in each area is issued to all new employees. This
includes:
Whenever economically justifiable, the paper and other
consumables used are made from environmentally-friendly or
recycled material or from renewable resources.
• 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.
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.
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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 UK Corporate Governance Code on Corporate
Governance and whether they have complied with the provisions
set out in section 1 of the UK Corporate Governance 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 UK
Corporate Governance Code during the year.
Statement by the Directors of compliance with the
provisions of the UK Corporate Governance Code
The Board considers that, throughout the period under review,
the Group has complied with the provisions of the June 2010
UK Corporate Governance Code, except in the following areas:
• Under the code, as Chairman, Philip Swinstead is not
considered independent. However as the Board includes
three other Non-executive Directors, the Board believes that
there is a sufficient degree of independence.
• 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 pages 9 to 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 Directors David Courtley and Mike Phillips. The
Directors’ biographies, which are set out on page 8,
demonstrate a range of business backgrounds and experience.
Chairman
The Chairman, Philip Swinstead, is responsible for the
leadership and efficient operation of the Board. This entails
ensuring that Board meetings are held in an open manner, and
allow sufficient time for agenda points to be discussed. It also
entails the regular appraisal of each director, providing feedback
and reviewing any training or development needs.
Philip is also responsible for effective communications with
shareholders, and relaying any shareholder concerns to
the Directors.
Senior Independent Director
Lord Freeman acts as the senior independent Non-executive
Director and his prime responsibility is to provide a
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Report and Accounts 2011
www.parity.net
stock code: PTY
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 pages 9 t o 10 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 to set long term
objectives and to monitor progress against those objectives. 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.
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 UK Corporate Governance 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 importance of attaining an improved gender balance on the
Board has been recognised by the current Board members.
The issue was discussed at the end of the year, and an
improvement in gender diversity will be a key deciding factor in
any new appointments made.
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 10 scheduled Board meetings in 2011 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.
Board
Audit
Nominations
Remuneration
Number held
Number attended1
Philip Swinstead
Roger Freeman
Paul Davies
Alastair Woolley2
David Courtley3
Mike Phillips4
Nigel Tose5
Ian Ketchin6
10
10
10
9
7
4
2
9
3
3
–
3
–
–
–
–
3
–
2
2
2
–
–
–
–
2
–
3
3
3
–
–
–
–
3
–
1 All Directors who were members of the Board at the time attended the Group’s Annual General Meeting on 7 June 2011
2 Appointed 1 April 2011
3 Appointed 8 June 2011
4 Appointed 3 November 2011
5 Resigned 22 November 2011
6 Resigned 31 March 2011
Committees
Each of the Board’s three Committees has formal written terms
of reference, which were reviewed in 2011. 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 Mike Phillips, meets at
least three times a year. Lord Freeman and David Courtley are
the other members 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 auditor
and the effectiveness of the Group’s system of accounting, its
internal financial controls and external audit function.
• 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
auditor;
• making recommendations to the Board, for it to put to the
shareholders for their approval, regarding the appointment,
re-appointment and removal of the external auditor and
approving the remuneration and terms of engagement of the
external auditor;
• monitoring and reviewing the external auditor’s 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
The committee’s principal terms of reference include:
• reviewing the Group’s arrangements for its employees to
• the oversight responsibilities described in the above paragraph;
• reviewing compliance with laws, regulations and the Group’s
code of conduct and policies;
raise concerns, in confidence, about possible wrong doing in
financial reporting or other matters.
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Corporate Governance Report continued
In order to ensure an appropriate balance between cost
effectiveness, objectivity and independence, the audit
committee reviews the nature of all services, including
non-audit work, provided by the external auditor each year.
The Group normally expects to retain the external auditor to
provide audit-related services, including work in relation to
shareholder circulars and similar services. The external auditor
provided audit-related services during 2011, 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 no 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.
Annual Report
The Annual Report is designed to present a balanced and
understandable view of the Group’s activities and prospects.
The Operating & Financial Review provides 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 and Corporate Governance statement that comply
with the requirements of the Companies Act 2006.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain the
Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Company
and enable them to ensure that the financial statements
comply with the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Website publication
The directors are responsible for ensuring the annual report
and the financial statements are made available on the Parity
Group 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.
14
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
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.
In 2010 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:
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 22 to the financial
statements. Other risks and uncertainties are discussed in the
Financial Review on pages 5 to 7.
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.
• Interest rate risk;
• Foreign currency risk;
• Liquidity risk; and
• Credit risk
Alastair Woolley
Director
5 March 2012
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15
Remuneration Report
Remuneration committee
The remuneration committee comprises Lord Freeman as
Chairman, David Courtley and Mike Phillips. 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 advisers 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 2011 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 2011
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 2011
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 2011 a target for the full year was set. No
performance bonuses were earned by, or paid to, Executive
Directors in 2011.
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 2011 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.
On 7 June 2011 300,000 share options were awarded under this
scheme to Alastair Woolley. The exercise price of the options is
28 pence, and the options are subject to a performance
condition being that the share price must be greater than or
equal to 35 pence. The options will vest in 3 years and lapse in
10 years if not exercised.
16
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
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 performance conditions. The options vest
quarterly in seven equal tranches starting 25 January 2011.
There are no other live options under the Senior Executive
Share Option Plan.
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.
In April 2011, the Group made a grant of options under the
Sharesave scheme. Options were granted in conjunction with a
three year savings contract, up to a monthly limit of £150.00.
Options were granted at a discount of 10% to the market price.
None of the directors held options under the Sharesave
scheme on 31 December 2011.
Co-investment scheme
The Co-investment Scheme was approved by shareholders in
2004. Members are invited to join by the Board, having regard to
the recommendations of the remuneration committee. At present
the scheme is open to the Chief Executive Officer, Group Finance
Director and the Managing Directors of the business units and
one other senior executive. Under the rules of the scheme,
members are entitled to invest up to 50% of the bonus that they
earn under the Annual Performance Bonus Scheme in Parity
shares. The shares are held on behalf of the employee and,
providing the employee remains in Parity’s employment, any
bonuses invested will be matched in number by the Company on
a sliding scale of up to 1.5 for 1 at the end of a defined period of
up to three years following the date of purchase.
The award of matching shares is subject to the share price
outperforming the average Total Shareholder Return
performance of a comparator group comprising a basket of
companies in the IT services sector and the period during
which the employee has to hold shares before they are
matched by the Company increases from one year to three
years. Depending on the Group’s performance over those
three years, the shares purchased by the employee will be
matched on a sliding scale up to a maximum of 1.5-to-1 for
outstanding performance.
None of the Directors have awards outstanding under the
Co-investment Scheme.
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 Group’s two main lines of business; Resources
and Systems. Until February 2009 the Group also operated a
Training business.
At 31 December 2011 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)
140
120
100
80
60
40
20
0
2007
2008
2009
2010
2011
Parity (cid:2)Group (cid:2)PLC
FTSE(cid:2) All Share
Peer (cid:2)(simple average (cid:2)not (cid:2)weighted)
Share price
The Parity Group plc mid market share price on 31 December
2011 was 19p. During the period 1 January to 31 December
2011 shares traded at market prices between 16.15p and 38.5p.
Directors’ pension information
Paul Davies is entitled to a non-contributory company pension
contribution of 11% of basic salary. Alastair Woolley is entitled
to a contributory company pension contribution of 5% of basic
salary. Ian Ketchin was entitled to a contributory company
pension contribution of 5% until the expiry of his contractual
remuneration period on 30 June 2011.
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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 Freeman1
Paul Davies2
Alastair Woolley
David Courtley
Mike Phillips3
Contract date
Notice period
Contractual termination
payment
1 June 2010
1 July 2007
1 June 2010
1 April 2011
8 June 2011
3 November 2011
n/a
n/a
n/a
n/a
12 months
12 months rolling
6 months
6 months rolling
n/a
n/a
n/a
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 Chief Executive Officer who is required to give 6 months notice to
the Company.
3 As from 3 February 2012 notice period to be given by either party will be 3 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.
Paul Davies holds a non-executive position outside the Group.
18
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
Directors’ remuneration (audited)
The remuneration of the Directors who served during the year is set out below.
Salary/
fees
2011
£’000
220
90
38
200
30
23
6
27
633
Salary/
fees
2010
£’000
128
150
108
107
38
30
15
576
Executive Directors
P Davies
A Woolley1
I Ketchin2
Non-executive Directors
P Swinstead3
Lord Freeman
D Courtley4
M Phillips5
N Tose6
Total emoluments
Executive Directors
P Davies7
I Ketchin2
A Welch8
Non-executive Directors
P Swinstead7,9
Lord Freeman
N Tose6
J Hughes8
Total emoluments
Notes
Benefi ts
2011
£’000
Compensation for
loss of offi ce
2011
£’000
Total emoluments
2011
£’000
19
8
3
–
–
–
–
–
–
–
113
–
–
–
–
–
29
113
239
98
153
200
30
23
6
27
775
Company pension
contributions10
2011
£’000
24
4
2
–
–
–
–
–
Share Based
Payment
2011
£’000
81
9
–
–
–
–
–
–
30
90
Benefi ts
2010
£’000
Compensation
for loss of offi ce
2010
£’000
Total emoluments
2010
£’000
Company pension
contributions10
2010
£’000
Share Based
Payment
2010
£’000
11
11
18
6
46
338
23
361
139
161
464
107
38
30
44
983
14
8
11
33
33
16
(12)
–
–
–
–
37
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1 Appointed 1 April 2011.
2 Resigned 31 March 2011.
2 During 2011 The Remuneration Committee elected to pay Philip Swinstead an additional fee of £150,000 for discharging services as Chairman. As at 31 December
2011, these services remain accrued but unpaid.
4 Appointed 8 June 2011.
5 Appointed 3 November 2011.
6 Resigned 22 November 2011.
7 Appointed 1 June 2010.
8 Resigned 31 May 2010.
9 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.
10 Company pension contributions disclosed in the table above represent the contractual pension entitlements due to the Directors of the company.
19
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Remuneration Report continued
Executive Directors’ share options (audited)
Paul Davies
Senior Executive share
option plan 2010
Alastair Woolley
Executive share option plan
2011
As at
1 January
2011
Lapsed/
Surrendered
in the
year
Exercised
in the
year
Awarded
in the
year
As at
31 December
2011
Exercise
period
Exercise
price
per share
2,851,633
2,851,633
2011-2017
£0.10
–
–
300,000
300,000
2014-2021
£0.28
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 2011 (or date
of appointment If later)
Shareholding as at
31 December 2011 (or
% issued share capital
date of resignation) % issued share capital
9,795,327
5,000
720,000
56
6,521,739
100,000
30,000
25.76
12,180,543
0.01
1.89
–
9.49
0.26
0.08
6,250
720,000
56
6,521,739
180,639
30,000
17.72
0.01
1.05
–
9.49
0.26
0.04
Philip Swinstead
Lord Freeman
Paul Davies
Alastair Woolley
David Courtley
Nigel Tose
Ian Ketchin
For and on behalf of the Board
Lord Freeman
Chairman of the remuneration committee
5 March 2012
20
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
Independent Auditor’s Report to the Members of Parity Group Plc
We have audited the financial statements of Parity Group Plc
for the year ended 31 December 2011 set out on pages 22 to
55. The financial reporting framework that has been applied in
their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the EU and as
regards the parent company financial statements, as applied in
accordance with the provisions of the Companies Act 2006.
This report is made solely to the company’s members, as
a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so
that we might state to the company’s members those matters
we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than
the company and the company’s members, as a body, for our
audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities
Statement set out on page 14, 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 of the parent company’s affairs as at
31 December 2011 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 EU;
● the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the EU 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.
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; and
● 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
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
Under the Listing Rules we are required to review:
● the directors’ statement, set out on page 10, in relation to
going concern;
● the part of the Corporate Governance Statement on
pages 12 to 15 relating to the company’s compliance with
the nine provisions of the UK Corporate Governance Code
● certain elements of the report to shareholders by the Board
on directors’ remuneration.
Andy Turner (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, statutory auditor
Chartered Accountants
8 Salisbury Square
EC4Y 8BB
London
United Kingdom
5 March 2012
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Consolidated Income Statement
for the year ended 31 December 2011
Before non-
recurring items
2011
£’000
Notes
Non-recurring
items
2011
(note 5)
£’000
Total
2011
£’000
Before non-
recurring items
2010
£’000
Non-recurring
items
2010
(note 5)
£’000
Continuing operations
Revenue
Employee benefit costs
Depreciation & amortisation
All other operating expenses
Total operating expenses
Operating loss
Finance income
Finance costs
Loss before tax
Taxation
Loss 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
2
3
3
3
7
7
10
80,142
(7,989)
(537)
(71,974)
(80,500)
(358)
770
(1,124)
(712)
(208)
–
–
–
(1,437)
(1,437)
(1,437)
–
–
(1,437)
116
80,142
(7,989)
(537)
(73,411)
(81,937)
(1,795)
770
(1,124)
(2,149)
(92)
(920)
(1,321)
(2,241)
92,963
(9,881)
(636)
(85,088)
(95,605)
(2,642)
773
(1,236)
(3,105)
20
(3,085)
–
(1,421)
–
(717)
(2,138)
(2,138)
–
–
(2,138)
–
(2,138)
(5,223)
Total
2010
£’000
92,963
(11,302)
(636)
(85,805)
(97,743)
(4,780)
773
(1,236)
(5,243)
20
8
(22)
(36)
(58)
(231)
(680)
(911)
(942)
(1,357)
(2,299)
(3,316)
(2,818)
(6,134)
11
(3.99p)
(13.75p)
22
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
Statements of Comprehensive Income
for the year ended 31 December 2011
Loss for the year
Other comprehensive income:
Exchange differences on translation of foreign operations
Actuarial gain 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 attributable to equity holders
of the parent
Notes
24
16
10
Consolidated
2011
£’000
2010
£’000
(2,299)
(6,134)
24
81
16
83
61
299
(57)
303
(2,216)
(5,831)
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Statements of Changes in Equity
for the year ended 31 December 2011
Consolidated
At 1 January 2011
Loss for the year
Other comprehensive income for the year
net of tax
Total other comprehensive income
Issue of new ordinary shares
Share options – value of employee services
Share
capital
£’000
760
–
–
–
615
–
Deferred
shares
£’000
14,319
–
–
–
–
–
Share
premium
reserve
£’000
20,134
–
–
–
5,810
–
Other
reserves
£’000
44,160
–
–
–
–
–
Retained
earnings
£’000
(78,040)
(2,299)
83
(2,216)
–
177
At 31 December 2011
1,375
14,319
25,944
44,160
(80,079)
Consolidated
At 1 January 2010
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
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)
Company
At 1 January 2011
Loss for the year
Issue of new ordinary shares
Share options – value of employee services
Share
capital
£’000
760
–
615
–
Deferred
shares
£’000
14,319
–
–
–
Share
premium
reserve
£’000
20,134
–
5,810
–
Other
reserves
£’000
22,729
–
–
–
Retained
earnings
£’000
(42,488)
(2,985)
–
92
Total
£’000
1,333
(2,299)
83
(2,216)
6,425
177
5,719
Total
£’000
7,134
(6,134)
303
(5,831)
30
1,333
Total
£’000
15,454
(2,985)
6,425
92
At 31 December 2011
1,375
14,319
25,944
22,729
(45,381)
18,986
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
24
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
Statements of Financial Position
As at 31 December 2011
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 5 March 2012.
Paul Davies
Chief Executive Officer
Alastair Woolley
Group Finance Director
Notes
12
14
15
18
30
16
17
18
19
20
21
20
21
24
25
23
23
23
2011
£’000
5,547
593
–
–
–
1,384
7,524
116
12,539
5,241
17,896
25,420
2010
£’000
5,796
870
134
–
–
1,498
8,298
237
14,800
245
15,282
23,580
(6,504)
(8,783)
(881)
(6,354)
(11,385)
(1,160)
(16,168)
(18,899)
–
–
(1,066)
(923)
(2,467)
(3,533)
(2,425)
(3,348)
(19,701)
(22,247)
5,719
1,333
15,694
25,944
44,160
15,079
20,134
44,160
(80,079)
(78,040)
5,719
1,333
Consolidated
Company
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2011
£’000
2010
£’000
–
–
–
77,241
20,527
–
–
–
–
66,602
20,527
–
97,768
87,129
–
2,915
5,107
8,022
105,790
–
(1,681)
(737)
(2,418)
(83,328)
(1,058)
–
(84,386)
(86,804)
18,986
15,694
25,944
22,729
(45,381)
18,986
–
5,340
96
5,436
92,565
–
(2,636)
(692)
(3,328)
(72,994)
(789)
–
(73,783)
(77,111)
15,454
15,079
20,134
22,729
(42,488)
15,454
25
Statements of Cash Flows
for the year ended 31 December 2011
Cash flows from operating activities
(2,299)
(6,134)
(2,985)
(14,774)
Consolidated
Company
Notes
2011
£’000
2010
£’000
2011
£’000
2010
£’000
(770)
1,124
(773)
1,236
177
95
249
–
288
7
–
30
(20)
295
49
341
(17)
–
(386)
1,210
91
(363)
–
–
–
–
–
(1,129)
(4,993)
(2,433)
121
2,260
(2,570)
(139)
–
(1,457)
214
10,588
(2,036)
1,036
(750)
4,059
–
(2,400)
3,334
314
–
(1,185)
(8,318)
(3)
–
–
–
(1,460)
4,059
(1,185)
(8,318)
7
7
9
10
12
12
14
15
30
24
12
14
15
–
(11)
123
112
(16)
(52)
–
(68)
–
–
–
–
25
6,425
–
6,425
7
–
150
–
(231)
6,344
4,996
245
5,241
(9,913)
6,354
–
(315)
(3,874)
117
128
245
–
–
(229)
–
6,196
5,011
96
5,107
(264)
1,036
40
(876)
–
–
–
–
9,600
(5,238)
–
(3,452)
(308)
680
–
–
–
–
–
–
(81)
–
8,459
–
8,378
60
36
96
Loss for year:
Adjustments for:
Finance income
Finance expense
Share-based payment expense
Income tax expense/(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
Working Capital
Decrease in work in progress
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
(Decrease)/increase in provisions
Payments to retirement benefit plan
Cash generated from operations
Income taxes paid
Net cash flows from operating activities
Investing activities
Purchase of intangibles
Purchase of property, plant and equipment
Proceeds from disposal of available for sale assets
Net cash used in investing activities
Financing activities
Issue of ordinary shares
Net repayment of closed finance facility
Proceeds from new finance facility
Net movement on intercompany funding
Interest paid
Net cash (used in)/from financing activities
Net increase 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
26
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
Notes to the Accounts
1 Accounting policies
Basis of preparation
Parity Group plc (the “Company”) is a company incorporated and domiciled in the UK.
Both the parent company financial statements and the group financial statements have been prepared and approved by the
directors in accordance with International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”). On publishing
the parent company financial statements here together with the group financial statements, the Company is taking advantage of
the exemption in s408 of the Companies Act 2006 not to present its individual income statement and related notes that form a
part of these approved financial statements.
The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have
been consistently applied to all the years presented unless otherwise stated.
The financial statements have been prepared on a going concern basis. The Group’s business activities, together with the
factors likely to affect its future development, performance and position are set out in the Directors’ Report (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 5 to 7 and in note 22 to the financial statements. Note 22 also includes the Group’s
objectives for managing capital.
As outlined in note 22, the Group meets its day to day working capital requirements through an asset-based finance facility. The
facility contains certain financial covenants which have been met throughout the period. Improved financial covenants have
recently been secured in respect of the facility that will provide greater flexibility to the Group.
The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the
Group will be able to operate within the level of its current facility for the foreseeable future. The bank has not drawn to the
attention of the Group any matters to suggest that this facility will not be continued on acceptable terms.
After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in
preparing the Annual Report and Accounts.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December
2011. Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration
potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the
acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control
commences until the date that control ceases. Losses applicable to the non-controlling interests in a subsidiary are allocated to
the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.
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 £2,985,000 (2010:
loss of £14,774,000).
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The related costs of acquisition other than those
associated with the issue of debt or equity securities, are recognised in the profit and loss as incurred. The acquiree’s identifiable
assets and liabilities and contingent liabilities that meet the conditions for recognition under IFRS3 (2008) “Business
combinations” are recognised at their fair value at the acquisition date.
Changes in accounting policies: new standards, interpretations and amendments effective in 2011 adopted by the
Group and published standards not yet effective
No new standards, amendments to published standards or interpretations of existing standards effective in 2011 had a material
impact on the Group’s 2011 financial statements. No published standards that are not yet effective are expected to have a
material impact on the Group’s financial statements.
Measurement convention
The financial statements are prepared on the historical cost basis except that the following assets and liabilities are stated at
their fair value: derivative financial instruments and financial instruments classified as fair value through the profit or loss or as
available-for-sale. Non-current assets are stated at the lower of previous carrying amount and fair value less costs to sell.
27
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Notes to the Accounts continued
1 Accounting policies continued
Revenue recognition
Revenue represents the value of work completed for clients including attributable profit, after adjusting for all foreseeable future
losses, net of value added tax.
Revenue on contracts for the supply of professional services at pre-determined rates is recognised as and when the work is
performed, irrespective of the duration of the contract. Permanent placement staffing revenue is recognised when candidates
commence employment. Rebates may be applicable on a sliding scale where the candidate’s employment is terminated within
9 weeks. Rebate provisions are not created based on the limited incidence of claims.
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.
Non-recurring items
Items which are both material and non-recurring are presented as non-recurring items within the relevant Income Statement
category. The separate reporting of non-recurring items helps provide a better indication of the Group’s underlying business
performance. Events which may give rise to the classification of items as non-recurring, if of a significantly material value, include
gains or losses on the disposal of a business, restructuring of a business, litigation and similar settlements, asset impairments,
and onerous contracts.
Finance lease payments
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance
charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining
balance of the liability.
Financing income and expenses
Financing expenses comprise interest payable, finance charges on shares classified as liabilities and finance leases recognised
in profit or loss using the effective interest method, unwinding of the discount on the retirement benefit scheme liabilities, and net
foreign exchange losses that are recognised in the income statement (see foreign currency accounting policy). Financing income
comprises the expected return on the retirement benefit scheme assets, interest receivable on funds invested, dividend income,
and net foreign exchange gains.
Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method. Dividend
income is recognised in the income statement on the date the entity’s right to receive payments is established. Foreign currency
gains and losses are reported on a net 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.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the
extent that it relates to items recognised directly in equity, in which case it is recognised in equity or in other
comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or
substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial
recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a
business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in
the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the temporary difference can be utilised.
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.
28
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
1 Accounting policies continued
Foreign currencies continued
Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are
stated at fair value are retranslated to the functional currency at foreign exchange rates ruling at the dates the fair value
was determined.
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 Operations Board comprising the Chief Executive, the Finance Director, the
Business Unit Managing Directors and the HR Director.
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 stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-
generating units and is not amortised but is tested annually for impairment. In respect of equity accounted investees, the
carrying amount of goodwill is included in the carrying amount of the investment in the investee.
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.
Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce
the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the
unit (group of units) on a pro rata basis.
29
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Notes to the Accounts continued
1 Accounting policies continued
Impairment of non-financial assets (excluding deferred tax assets) continued
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.
For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of
assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups
of assets (the “cash-generating unit”). The goodwill acquired in a business combination, for the purpose of impairment testing, is
allocated to cash-generating units, or (“CGU”). Subject to an operating segment ceiling test, for the purposes of goodwill
impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested
reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business
combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior
periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment
loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is
reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if no impairment loss had been recognised.
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. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any
impairment losses.
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 other operating expenses in the Income Statement.
On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the
associated provision.
Available-for-sale: non-derivative financial assets not included in the above categories are classified as available-for-sale and
comprised 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.
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 recoverable on contracts which are expected to benefit performance and be recoverable over the life of the contracts are
recognised 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.
30
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
1 Accounting policies continued
Work in progress continued
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. Lease incentives
received are recognised in the income statement as an integral part of the total lease expense.
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past
event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific
to the liability.
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, 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
non-serviced properties.
Pensions
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 services are rendered
by the employees, and the Group has no further obligation to pay further amounts.
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.
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation in
respect of defined benefit pension plans is calculated by estimating the amount of future benefit that employees have earned in
return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value
of any plan assets (at bid price) and any unrecognised past service costs are deducted. The liability discount rate is the yield at
the balance sheet date on AA credit rated bonds denominated in the currency of, and having maturity dates approximating to,
the terms of the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method.
When the calculation results in a benefit to the Group, the recognised asset is limited to the present value of benefits available in
the form of any future refunds from the plan, reductions in future contributions to the plan or on settlement of the plan and takes
into account the adverse effect of any minimum funding requirements.
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Notes to the Accounts continued
1 Accounting policies continued
Share capital
Following the adoption of IAS 32, financial instruments issued by the Group are treated as equity only to the extent that they
meet the following two conditions:
(a)
(b)
they include no contractual obligations upon the company (or group as the case may be) to deliver cash or other financial
assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially
unfavourable to the company (or group); and
where the instrument will or may be settled in the company’s own equity instruments, it is either a non-derivative that
includes no obligation to deliver a variable number of the company’s own equity instruments or is a derivative that will be
settled by the company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own
equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so
classified takes the legal form of the company’s own shares, the amounts presented in these financial statements for called up
share capital and share premium account exclude amounts in relation to those shares.
For the purposes of the disclosures given in note 22, the Group considers its capital to comprise its cash and cash equivalents,
its asset-based bank borrowings, and its equity attributable to equity holders, comprising issued capital, reserves and retained
earnings, as disclosed in the statement of changes in equity.
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.
Share based payments transactions
Share-based payment arrangements in which the Group receives goods or services as consideration for its own equity
instruments are accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are
obtained by the Group.
The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a
corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The fair
value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon
which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of awards for
which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately
recognised as an expense is based on the number of awards that do meet the related service and non-market performance
conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the
share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and
actual outcomes.
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.
32
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
1 Accounting policies continued
Significant accounting estimates and judgements continued
Property provisions. Provisions for onerous lease costs are based on the future contractual lease obligations of the Group less
future contractual sub-let income. The estimated future sub-let income is based upon existing sub-lease contracts and it is
assumed the contractual commitments will be fulfilled. Dilapidations provisions are based on contractual lease obligations and
management estimates and assumptions regarding the future costs of meeting those obligations. The estimates are based upon
the size and condition of each property, and past experience of dilapidation costs. Changes in assumptions are not anticipated
to have a material impact in the current year, other than the possible sub-let of the Wimbledon offices.
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 24. The Group
takes advice from independent actuaries relating to the appropriateness of the assumptions. Changes in the assumptions used
may have a significant effect on the Income Statement and the Statement of Financial Position.
Recoverability of deferred tax assets. The deferred tax assets are reviewed for recoverability and recognised to the extent that it
is probable that taxable profits will be available against which deductible temporary difference can be utilised. 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 13). If forecast
future profitability were 10% lower, a further deferred tax asset write down of £52,000 would be considered necessary.
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 13). 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 the investment would still not be impaired.
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.
2 Segmental information
Factors that management used to identify the Group’s reporting segments
In accordance with IFRS 8 ‘Operating Segments’ the Group’s management structure, and the reporting of financial information
to the Chief Operating Decision Maker (the Executive Committee), have been used as the basis to define reporting segments.
Each reporting segment is headed up by a dedicated managing director, with direct responsibility for delivering the segmental
contribution budget. The internal financial information prepared for the Executive Committee includes contribution at a segmental
level, and the Executive Committee allocates resources on the basis of this information.
Adjusted EBITDA as defined in note 4, profit before tax, and assets and liabilities are internally reported at a Group level.
Description of the types of services from which each reportable segment derives its revenues
The Group has three segments:
•
•
•
Resources – this segment provides contract, interim and permanent IT recruitment services across all markets. Resources
provides 86% (2010: 84%) of the continuing Group’s revenues.
Systems – this segment delivers innovative technology solutions designed around client problems, including Cloud solutions,
database solutions and collaborative information management. Systems provides 11% (2010: 13%) of the continuing
Group’s revenues.
Talent Management – this segment works with clients to recruit, develop and grow their talent through improving skills and
capability early in employees’ careers. Talent Management provides 3% (2010: 3%) of the continuing Group’s revenues.
Central costs include Corporate, Finance, HR, IT and Property costs, and are all managed centrally, and are not allocated to
reporting segments for internal reporting purposes.
Measurement of operating segment contribution
The accounting policies of the operating segments are the same as those described in the summary of significant
accounting policies.
The Group evaluates performance on the basis of contribution from operations before tax not including non-recurring items,
such as restructuring costs.
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2 Segmental information continued
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.
Revenue
Total revenue
Inter-segment revenue
Revenue from external customers
Attributable costs
Segmental contribution
Central costs
Investment costs **
Adjusted EBITDA
Depreciation and amortisation
Share based payment
Non-recurring items
Finance income
Finance costs
Loss before tax (continuing operations)
Revenue
Total revenue
Inter-segment revenue
Revenue from external customers
Attributable costs
Segmental contribution
Central costs
Investment costs **
Adjusted EBITDA
Depreciation and amortisation
Share based payment
Non-recurring items
Finance income
Finance costs
Loss before tax (continuing operations)
Resources
2011
£’000
68,959
(297)
68,662
(65,156)
3,506
Systems
2011
£’000
9,222
(13)
9,209
(7,347)
1,862
Talent
Management
2011
£’000
2,271
–
2,271
(1,810)
461
Resources
2010
£’000
78,286
(169)
78,117
(74,042)
4,075
Systems
2010
£’000
12,108
(30)
12,078
(12,146)
(68)
Talent
Management
2010
£’000
2,768
–
2,768
(2,226)
542
Total
2011
£’000
80,452
(310)
80,142
(74,313)
5,829
(4,785)
(688)
356
(537)
(177)
(1,437)
770
(1,124)
(2,149)
Total
2010
£’000
93,162
(199)
92,963
(88,414)
4,549
(6,525)
–
(1,976)
(636)
(30)
(2,138)
773
(1,236)
(5,243)
** Investment costs refer to costs associated with new initiatives which were outlined in the Group’s prospectus, issued in respect of the Firm Placing, and Placing
and Open Offer of new ordinary shares (see note 22, “Capital disclosures”).
The continuing Group operates exclusively in the UK. All revenues are generated and all segment assets are located in
those countries.
62% (2010: 71%) or £42.5m (2010: £55.6m) of the Resources revenue was generated in the Public Sector. 63% (2010: 73%) or
£5.8m (2010: £8.9m) of the Systems revenue was generated in the Public Sector. 86% (2010: 90%) or £2.0m (2010: £2.5m) of
the Talent Management revenue was generated in the Public Sector. The largest single customer in Resources contributed
revenue of £9.9m or 14% and was in the private sector (2010: £6.6m or 8% and in the private sector). The largest single
customer in Systems contributed revenue of £3.3m or 36% and was in the public sector (2010: £4.0m or 33% in the public
sector). The largest single customer in TMS contributed revenue of £1.2m or 51% and was in the public sector (2010: £1.4m or
52% in the public sector).
34
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
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
Sub-contracted direct costs
Auditors’ remuneration 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 page 19.
Operating costs include auditors’ remuneration as follows:
Statutory audit of the consolidated financial statements
Statutory audit of the Company’s subsidiaries pursuant to legislation
Amounts paid to previous auditor under legislation
Non-audit services:
Tax compliance
Other advice
2011
£’000
6,972
787
230
7,989
249
288
537
66,295
1,983
89
44
1,154
(304)
591
1,047
4
177
2,331
73,411
81,937
2011
£’000
10
59
20
89
21
–
21
110
Consolidated
Consolidated
2010
£’000
9,910
1,074
318
11,302
295
341
636
75,462
2,357
101
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
All non-audit services have been performed in the United Kingdom.
On 25 October 2011, the previous auditor resigned as auditor to the Group. The auditor’s remuneration in 2010 relates entirely
to fees paid to the previous auditor. Remuneration amounts in 2011 relate to the new auditor, unless otherwise stated.
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4 Reconciliation of operating loss to adjusted EBITDA
Operating loss from continuing operations
Non-recurring items
Share-based payment charges
Depreciation and amortisation
Adjusted EBITDA
Note
5
3
3
2011
£’000
(1,795)
1,437
177
537
356
The directors use EBITDA before non-recurring items and share-based payment charges (‘Adjusted EBITDA’) as a key
performance measure of the business.
5 Non-recurring items
Continuing Operations
Restructuring
– Employee benefit costs
– Other operating costs
Property provisions (other operating costs)
Discontinued Operations
Property provisions
2011
£’000
–
491
946
1,437
36
36
2010
£’000
(4,780)
2,138
30
636
(1,976)
2010
£’000
1,421
117
600
2,138
680
680
In 2011 further restructuring decisions were made to those taken in 2010 (see paragraph below). Firstly, the IT outsource
contract was terminated early, with the IT infrastructure support service now being provided in-house. The early termination
payment incurred was £0.44m. Secondly, it has been decided that the Belfast office will relocate to a more suitable location,
incurring costs of £0.12m. Both of these decisions will result in cost savings to the Group. In addition, the directors have taken
the view that the vacant offices of the Wimbledon property is unlikely to be sub-let before the head lease expires (as had been
previously assumed), and therefore the previously unprovided costs to the end of the lease in 2014 of £0.95m should be
provided for.
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
Systems 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.
Discontinued operations relates to the unwinding of the provision discount, and a small top-up of the provision for an ex Parity
Training building.
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 £0.69m in this respect.
6 Average staff numbers
Continuing operations
Resources – United Kingdom1
Systems – United Kingdom, including corporate offi ce2
Talent Management – United Kingdom
1 Includes 27 (2010: 35) employees providing shared services across the Group.
2 Includes 7 (2010: 6) employees of the Company.
At 31 December 2011, the Group had 161 continuing employees (2010: 165).
36
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
2011
number
2010
number
75
60
34
169
84
89
28
201
7 Finance income and costs
Finance income
Expected return on pension scheme assets
Finance costs
Interest expense on fi nancial liabilities
Notional interest on post retirement benefi ts
2011
£’000
770
770
231
893
1,124
2010
£’000
773
773
315
921
1,236
The interest expense on financial liabilities represents interest paid on the Group’s asset-based financing facilities. A 1% increase
in the base rate would increase annual borrowing costs by approximately £40,000.
8 Discontinued operations
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 reversed and eliminated in
due course.
In 2009 the Group sold Parity Training Limited, however, Parity Training Limited entered into administration in June 2010. Parity
Group plc remained as guarantor on certain leases of properties operated by Parity Training Limited. The 2010 results include
£680,000 in respect of the onerous obligations and dilapidations of these leases.
The post-tax result of discontinued operations was determined as follows:
Expenses other than fi nance costs
Non-recurring costs (note 5)
Pre-tax loss
Taxation
Loss for the year
2011
£’000
(19)
(36)
(55)
(3)
(58)
2010
£’000
(231)
(680)
(911)
–
(911)
For 2011 the pre-tax loss relates to legacy overseas subsidiaries of the Group, and comprise company secretarial and
accounting fees.
For 2010 a £222,000 loss was incurred in respect of Parity Training Limited, representing the write off of consideration due and
legal expenses. The pre-tax loss for other discontinued operations was £19,000 (2010: loss of £9,000).
The Statement of Cash Flows includes a £67,000 (2010: £343,000) cash outflow from operating activities in respect of
discontinued operations.
9 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 Group 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.
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9 Share based payments continued
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 £177,000 (2010: £30,000).
Outstanding at beginning of the year
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at the end of the year
2011
Weighted
average
exercise
price (p)
12
24
12
22
12
2011
Number
6,458,568
1,255,100
(285,000)
(1,060,000)
6,368,668
2010
Weighted
average
exercise
price (p)
2010
Number
28
6,923,353
9
–
29
12
5,451,633
–
(5,916,418)
6,458,568
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
21 – 28
165 – 209
2011
Weighted average
contractual life (years)
6
7
2
Number
5,101,633
1,255,100
11,935
6,368,668
Exercise
price (p)
7.5 – 10
25 – 39
165 – 209
2010
Weighted average
contractual life (years)
7
8
3
Number
5,676,633
770,000
11,935
6,458,568
Of the total number of options outstanding at the end of the year, 11,935 (2010: 416,935) had vested and were exercisable at
the end of the year. The weighted average exercise price of those options was £1.92 (2010: 21p).
The weighted average fair value of each option granted during the year was 17 pence (2010: 4 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
2011
Stochastic
2010
Stochastic
28
24
7
4
9
9
7
4
64 – 77%
62 – 71%
1.26%
0%
1.18%
0%
The volatility assumption is calculated as the historic volatility of the share price over a 3 and 5 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 Group.
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 8 years. The expected volatility is 64.2%
and the average risk free rate assumed was 3.4%.
38
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
10 Taxation
Current tax expense
Current tax on loss for the year
Adjustments in respect of prior periods
Total current tax
Deferred tax expense/(credit)
Accelerated capital allowances
Origination and reversal of other temporary differences
Change in corporation tax rate
Retirement benefi t liability
Adjustments in respect of prior periods
Total tax expense/(credit) excluding tax on sale of discontinued operations
Income tax expense from continuing operations
Income tax expense from discontinued operations
2011
£’000
2010
£’000
–
–
–
–
(5)
137
(33)
(7)
92
92
3
95
–
–
–
(32)
13
55
75
(131)
(20)
(20)
–
(20)
The Finance (No 2) Act 2010, which was substantively enacted on 20 July 2010, included legislation reducing the main rate of
corporation tax from 28% to 27% from 1 April 2011.
On 23 March 2011 the Chancellor announced a reduction in the main rate of UK corporation tax to 26% with effect from
1 April 2011. This change became substantively enacted on 29 March 2011. A further reduction to 25% with effect from
1 April 2012 was substantively enacted on July 5 2011.
The Chancellor also proposed changes to further reduce the main rate of corporation tax by one percent per annum to 23% by
1 April 2014. However this change was not substantively enacted at the balance sheet date it have not been included in the
figures above.
The 2011 tax expense is after a tax credit of £116,000 (2010: £nil) in respect of exceptional items.
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 expense / (credit) (including discontinued operations)
Loss before income tax
Expected tax credit based on the standard rate of
United Kingdom corporation tax of 26.5% (2010: 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
Tax on each component of other comprehensive income is as follows:
Exchange differences on translation
of foreign operations
Actuarial gain on defi ned benefi t
pension scheme
Before
tax
£’000
24
81
105
2011
Tax
£’000
–
(22)
(22)
After
tax
£’000
24
59
83
Before
tax
£’000
61
299
360
2011
£’000
(2,299)
95
(2,204)
(584)
105
8
137
429
95
2010
Tax
£’000
–
(57)
(57)
2010
£’000
(6,134)
(20)
(6,154)
(1,723)
85
(208)
54
1,772
(20)
After
tax
£’000
61
242
303
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11 Earnings per ordinary share
Basic earnings per share is calculated by dividing the basic earnings from continuing operations for the year by the weighted
average number of fully paid ordinary shares in issue during the year.
Diluted earnings per share is calculated on the same basis as the basic earnings per share with a further adjustment to the
weighted average number of fully paid ordinary shares to reflect the effect of all dilutive potential ordinary shares. 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
Weighted
average
number of
shares
2011
000’s
Earnings
2011
£’000
Earnings
per share
2011
Pence
Earnings
2010
£’000
Weighted
average
number of
shares
2010
000’s
(2,241)
56,155
(3.99)
(5,223)
37,979
–
–
–
Earnings
per share
2010
Pence
(13.75)
–
(2,241)
56,155
(3.99)
(5,223)
37,979
(13.75)
As at 31 December 2011 the number of ordinary shares in issue was 68,741,567 (2010: 38,021,784).
Basic and diluted loss per share from discontinued operations was 0.10p (2010: basic and diluted loss 2.40p).
12 Intangible assets
Cost
At 1 January
Additions
Disposals
At 31 December
Accumulated amortisation
At 1 January
Charge for the year
Impairment
Disposals
At 31 December
Net book amount
Software
Goodwill
Total
2011
£’000
2010
£’000
2011
£’000
2010
£’000
2011
£’000
1,705
–
(150)
1,555
503
249
–
(150)
602
953
1,689
4,594
4,594
16
–
–
–
–
–
1,705
4,594
4,594
159
295
49
–
503
1,202
–
–
–
–
–
–
–
–
–
–
4,594
4,594
6,299
–
(150)
6,149
503
249
–
(150)
602
5,547
2010
£’000
6,283
16
–
6,299
159
295
49
–
503
5,796
The remaining amortisation period of the software is 2-4 years.
As at 31 December 2011, neither the Group nor the Company had any capital commitments for the purchase of intangible assets.
13 Goodwill
The carrying amount of goodwill is allocated to the cash generating units (CGU’s) as follows:
Resources
Systems
Goodwill carrying amount
2011
£’000
1,470
3,124
4,594
2010
£’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 CGU’s are based on value in use calculations using the pre-tax cash flows based on budgets approved by
management for 2012. Years from 2013 onward are based on the budget for 2012 projected forward at expected growth rates.
This is considered prudent based on current expectations of the long-term growth rate.
Talent Management is an internally generated CGU and therefore has no goodwill allocated against it.
40
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
13 Goodwill continued
Other major assumptions are as follows:
2011
Discount rate
Operating margin 2012
Operating margin 2013 onward
2010
Discount rate
Operating margin 2011
Operating margin 2012 onward
Resources
%
Systems
%
7.2
3.4
3.6
8.5
3.1
3.7
7.2
4.7
11.3
8.5
5.4
11.7
Discount rates are based on the Group’s weighted average cost of capital adjusted for the specific risks of each cash
generating unit. The directors do not consider the risk of the CGU’s to be materially different. Operating margins are based on
past experience adjusted for investments and cost action taken in 2011 and on future expectations of economic conditions.
A 10% change in any of the underlying assumptions used in the discounted cash flow forecasts would not lead to the carrying
value of goodwill being in excess of its recoverable amount.
14 Property, plant and equipment
Consolidated
At cost
Balance at 1 January 2010
Additions
Disposals
Balance at 31 December 2010
Balance at 1 January 2011
Additions
Disposals
Balance at 31 December 2011
Accumulated depreciation
Balance at 1 January 2010
Depreciation charge for the year
Disposals
Balance at 31 December 2010
Balance at 1 January 2011
Depreciation charge for the year
Disposals
Balance at 31 December 2011
Net book value
At 1 January 2010
At 31 December 2010
At 31 December 2011
Leasehold
improvements
£’000
Offi ce
equipment
£’000
2,559
2
(1,414)
1,147
1,147
–
–
8,229
50
(5,415)
2,864
2,864
11
(30)
Total
£’000
10,788
52
(6,829)
4,011
4,011
11
(30)
1,147
2,845
3,992
1,697
157
(1,414)
440
440
158
–
598
862
707
549
7,932
184
(5,415)
2,701
2,701
130
(30)
9,629
341
(6,829)
3,141
3,141
288
(30)
2,801
3,399
297
163
44
1,159
870
593
As at 31 December 2011, neither the Group nor the Company had any capital commitments contracted for but not provided
(2010: £nil).
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15 Available for sale financial assets
At 1 January
Revaluation
Exchange loss
Disposals
At 31 December
Consolidated
2011
£’000
134
(7)
(4)
(123)
–
2010
£’000
117
17
–
–
134
These assets comprise equity securities quoted in the US, which were sold on the open market during 2011.
16 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
Depreciation in excess of capital allowances
Retirement benefi t liability
Other short term timing differences
At 31 December
The deferred tax asset of £1,384,000 (2010: £1,498,000) comprises:
Depreciation in excess of capital allowances
Retirement benefi t liability
Short term and other timing differences
Consolidated
2011
£’000
1,498
2010
£’000
1,535
(22)
(137)
7
–
33
5
(57)
(55)
131
32
(75)
(13)
1,384
1,498
Consolidated
2011
£’000
959
303
122
1,384
2010
£’000
1,034
316
148
1,498
A deferred tax asset on tax losses brought forward is not recognised unless it is more likely than not that there will be taxable
profits in the foreseeable future against which the deferred tax asset can be 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 13). Commentary on the Group’s
profitability and its future prospects is given in the Operating and Financial Review on pages 3 to 7.
The commentary outlines the significant progress the current management team have made towards returning the Group to
profitability, through a refocused sales strategy and actions taken to restructure its cost base. The forecasts for the Group,
based on current run rate and reasonable growth assumptions, show the Group returning sufficient probable profits to support
the unwinding of the deferred tax asset.
The Finance (No 2) Act 2010, which was substantively enacted on 20 July 2010, included legislation reducing the main rate of
corporation tax from 28% to 27% from 1 April 2011.
On 23 March 2011 the Chancellor announced a reduction in the main rate of UK corporation tax to 26% with effect from
1 April 2011. This change became substantively enacted on 29 March 2011. A further reduction to 25% with effect from
1 April 2012 was substantively enacted on July 5 2011. Management have used the 25% rate to calculate the deferred tax
asset at the balance sheet date.
The Chancellor also proposed changes to further reduce the main rate of corporation tax by one percent per annum to 23% by
1 April 2014. However this change was not substantively enacted at the balance sheet date and is not reflected in the
figures above.
42
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
16 Deferred tax continued
The movements in deferred tax assets during the period are shown below:
Depreciation in excess of capital allowances
Other short-term timing differences
Retirement benefi t plan liability
Depreciation in excess of capital allowances
Other short-term timing differences
Retirement benefi t plan liability
Asset
2011
£000
959
122
303
1,384
Asset
2010
£000
1,034
148
316
1,498
Charged/
(credited) to
Charged/
(credited) to
other
income comprehensive
income
2011
£000
statement
2011
£000
75
26
(9)
92
–
–
22
22
Charged/
(credited) to
income
statement
2010
£000
Charged/
(credited) to
other
comprehensive
income
2010
£000
(190)
(2)
172
(20)
–
–
57
57
The Group has unrecognised carried forward tax losses of £26,143,000 (2010: 23,950,000). The Company has unrecognised
carried forward tax losses of £19,794,000 (2010: £19,270,000). The Group has unrecognised capital losses carried forward of
approximately £281,875,386 (2010: 281,875,386). These losses may be carried forward indefinitely.
17 Work in progress
Work in progress:
Net costs less foreseeable losses
Consolidated
2011
£’000
2010
£’000
116
237
Work in progress represents the value of costs recoverable on contracts which are expected to benefit performance and be
recoverable over the life of the contracts.
18 Trade and other receivables
Amounts falling due within one year:
Trade receivables
Accrued income
Amounts recoverable on contracts
Amounts owed by subsidiar y undertakings
Other receivables
Prepayments
Amounts falling due after one year:
Amounts owed by subsidiar y undertakings
Total
Consolidated
Company
2011
£’000
5,824
5,351
637
–
299
428
2010
£’000
7 ,835
5,319
752
–
419
475
2011
£’000
2010
£’000
–
–
–
–
–
–
2,913
5,260
–
2
15
65
12,539
14,800
2,915
5,34 0
–
–
12,539
14,800
77,241
80,15 6
66,602
71,942
The fair values of trade and other receivables are not considered to differ from the values set out above.
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18 Trade and other receivables continued
The Group’s trade receivables of £5,824,000 (2010: £7,835,000) and £4,739,000 (2010: £5,376,000) 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
£6,504,000 (2010: £6,354,000).
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 income statement and are summarised below:
Opening balance
Increases in provisions
Written off against provisions
Recovered amounts reversed
Closing balance
Consolidated
2011
£’000
111
12
(36)
–
87
2010
£’000
120
157
(101)
(65)
111
All balances provided at 31 December 2011 and 31 December 2010 were greater than 60 days old. The allowance account
represents full provision against specific gross debts.
As at 31 December 2011 trade receivables of £1,301,000 (2010: £2,822,000) 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 Group trade receivables
is as follows:
Not past due
31-60 days, and past due
61-90 days
>90 days
Total
Gross
£’000
4,523
1,120
207
61
5,911
2011
Impaired
£’000
–
–
(26)
(61)
(87)
Total
£’000
4,523
1,120
181
–
Gross
£’000
5,013
2,326
294
313
5,824
7,946
2010
Impaired
£’000
–
–
–
(111)
(111)
Total
£’000
5,013
2,326
294
202
7,835
The Company had no provisions for trade receivables, as it has no trade receivables. Other receivables in the Group and the
Company were not past due and not impaired.
19 Other financial liabilities
Current
Bank and other borrowings due within one year or on demand:
Asset-based fi nancing facility
Consolidated
2011
£’000
2010
£’000
6,504
6,354
The Group has no non-current financial liabilities. Further details of the Group’s banking facilities are given in note 22.
20 Trade and other payables
Amounts falling due within one year:
Payments in advance
Trade payables
Amounts due to su bsidiary undertakings
Other tax and soc ial security payables
Other payables an d accruals
Amounts falling due after one year:
Amounts due to su bsidiary undertakings
Total
44
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
Consolidated
Company
2011
£’000
185
5, 946
–
986
1,666
8,783
2010
£’000
229
7,070
–
1,782
2,304
11,385
2011
£’000
–
5
1,391
72
213
1,6 81
2010
£’000
–
–
2,088
133
415
2,636
–
–
8,783
11,38 5
83,328
85,009
72,994
75,630
21 Provisions
Consolidated
At 1 January 2011
Created in year
Utilised in year
Released in year
Unwind of discount
At 31 December 2011
Due within one year or less
Due after more than one year
Total
Company
At 1 January 2011
Created in year
Utilised in year
Released in year
Unwind/(creation) of discount
At 31 December 2011
Due within one year o r less
Due after more than o ne year
Total
Legal
£000
412
–
(112)
(300)
–
–
–
–
–
–
–
–
–
–
–
–
–
Leasehold
dilapidations Onerous leases
£000
236
37
–
(33)
8
248
132
116
248
1 86
23
–
–
5
214
106
108
214
£000
1,435
974
(713)
–
3
1,699
749
950
1,699
1,294
974
(686)
–
(1)
1,581
631
950
1,581
Total
£000
2,083
1,011
(825)
(333)
11
1,947
881
1,066
1,947
1,480
997
(686)
–
4
1,795
737
1,058
1,7 95
Legal
The legal disputes provided for at the 31 December 2010 were formally resolved during 2011. There were no outstanding
liabilities in respect of these disputes as at 31 December 2011.
The resulting profit and loss releases were categorised so as to match the categorisation of the corresponding costs in 2010,
upon the creation of the provision. Therefore in 2011 £230,000 of the provision was released against normal operating costs,
and £70,000 of the provision was released against non-recurring items.
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. Dilapidation charges that will crystallise at the end of the period of occupancy are provided
for in full on all non-serviced properties. 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 pr ovision 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 £509,000 is expected to fall within 2013.
22 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.
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22 Financial instruments – risk management continued
A summary by category of the financial instruments held by the Group is provided below:
Consolidated
As at 31 December 2011
Financial assets
Net cash and cash equivalents
Trade and other short term receivables
Financial liabilities
Asset-based fi nancing facility
Trade and other short term payables
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
Amortised
cost
£’000
Loans and
receivables
£’000
Available
for sale
£’000
–
–
–
5,241
12,111
17,352
6,504
8,598
15,102
–
–
–
–
–
–
–
245
–
14,325
14,570
6,354
11,156
17,510
–
–
–
–
–
–
–
–
–
–
134
–
134
–
–
–
A summary by category of the financial instruments held by the Company is provided below:
Total
£’000
5,241
12,111
17,352
6,504
8,598
15,102
245
134
14,325
14,704
6,354
11,156
17,510
Total
£’000
Company
As at 31 December 2011
Financial assets
Non-current trade and other rec eivables
Net cash and cash equivalents
Trade and other short term receivables
Financial liab ilities
Trade and other short term paya bles
Non-current trade and other pay ables
As at 31 De cember 2010
Financial assets
Non-current trade and other receivables
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
46
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
Amortised
cost
£’000
Loans and
receivables
£’000
–
–
–
–
77,241
77,241
5,107
2,913
5,107
2,913
85,261
85,261
1,681
83,328
85,009
–
–
–
–
2,636
72,995
75,631
–
–
–
1,681
83,328
85,009
66,602
66,602
96
5,275
71,973
–
–
–
96
5,275
71,973
2,636
72,995
75,631
22 Financial instruments – risk management continued
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 does not collect collateral to mitigate credit risk.
The Group operates exclusively in the UK. Approximately 63% of the Group’s turnover is derived from the public sector. The
largest customer balance represents 19% (2010: 6%) of the trade receivable 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 18.
Financial assets
Cash and cash equivalents
Trade and other receivables
Available-for-sale investments
Total fi nancial assets
2011
Carrying
value
£’000
5,241
12,111
–
Maximum
exposure
£’000
5,241
12,111
–
2010
Carrying
value
£’000
Maximum
exposure
£’000
245
245
14,325
14,325
134
134
17,352
17,352
14,704
14,704
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
interest rates.
It is 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 PNC 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 2011 and 2010 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 £55,000 higher/lower and net assets £55,000 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 or 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 2011 or 2010.
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22 Financial instruments – risk management continued
The currency profile of the Group’s net financial assets was as follows:
Functional currency of individual entity
Net foreign currency
fi nancial assets
2011
£000
Sterling
Sterling
Euro
US Dollar
Total net exposure
–
–
4
4
2010
£000
–
2
70
72
Euro
2011
£000
2010
£000
23,449
22,910
–
1,247
24,696
–
1,251
24,161
The profile of the Company’s net financial assets was as follows:
US Dollar
2010
£000
857
–
–
857
Total
2011
£000
2010
£000
24,415
23,767
–
1,251
25,666
2
1,321
25,090
2011
£000
966
–
–
966
Net foreign currency fi nancial assets
Euro
US Dollar
Total net exposure
Functional currency: Sterling
2010
2011
£000
£000
–
4
4
2
70
72
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 2 weeks to 30 days. 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 cash flows) of financial liabilities:
Consolidated
At 31 December 2011
Trade and other payables
Borrowings
Total
Consolidated
At 31 December 2010
Trade and other payables
Borrowings
Total
Up to
1 month
£000
8,783
6,504
15,287
Up to
1 month
£000
9,814
6,354
16,168
Over
1 month
£000
–
–
–
Over
1 month
£000
1,571
–
1,571
Total
£000
8,783
6,504
15,287
Total
£000
11,385
6,354
17,739
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Report and Accounts 2011
www.parity.net
stock code: PTY
22 Financial instruments – risk management continued
Company
At 31 December 2011
Trade and other payables
Borrowings
Total
Company
At 31 December 2010
Trade and other payables
Borrowings
Total
Up to
1 month
£000
1,681
–
1,681
Up to
1 month
£000
2,636
–
2,636
Between
1 and
12 months
£000
Over
1 year
£000
Total
£000
–
–
–
83,328
85,009
–
–
83,328
85,009
Between
1 and
12 months
£000
Over
1 year
£000
Total
£000
–
–
–
72,995
75,631
–
–
72,995
75,631
More detail on trade and other payables is given in note 20.
Capital disclosures
The capital structure of the Group consists of cash and cash equivalents, equity attributable to equity holders, and asset-based
finance. There is no long-term external debt. The Company is funded through equity and intercompany loans.
On 11 May 2011 the Group published a prospectus in respect of a Firm Placing of 20,873,087 New Ordinary Shares and a
Placing and Open Offer of 9,561,696 New Ordinary Shares at the Issue Price of 23 pence per New Ordinary Share. Qualifying
shareholders were able to subscribe for Open Offer shares on the basis of one Open Offer Share for every four Existing Ordinary
Shares held. Shareholder approval for the issue was sought and received at an extraordinary general meeting held on
27 May 2011
Net proceeds from this Firm Placing and Placing and Open Offer amounted to £6,389,514. The proceeds will be used by
management to provide additional working capital, invest in new initiatives, and take advantage of opportunities to reduce the
cost base.
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
£15.0m depending on the availability of appropriate assets as security.
The Group’s and Company’s objectives when maintaining capital are:
● to safegua rd 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.
Cash and cash equivalents
Asset-based borrowings
Net debt
2011
£’000
5,241
(6,504)
(1,263)
2010
£’000
245
(6,354)
(6,109)
The Board regularly reviews the adequacy of resources available and considers the options available to increase them. The
asset-based borrowing facility contains certain externally imposed financial covenants which have been met throughout
the period.
The Company does not have distributable reserves available for dividend payments. A capital reconstruction would be
necessary to create reserves available for distribution.
23 Reserves
The Board is not proposing a dividend for the year (2010: 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. In May 2011, Shareholder approval for the
placing of 30,434,783 new ordinary shares was approved. Following the issue of the shares, and also the exercising of 285,000
share options, the share capital increased from £15,079,552 to £15,693,948.
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Notes to the Accounts continued
23 Reserves continued
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. Following the share placing at a price of
23 pence in May 2011, the share premium increased from £20,133,756 to £25,944,124.
Other reserves of the Group of £44,160,000 comprise £30,440,000 created in the Group’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.
The difference between the Other reserves of the Group (£44,160,000) and the Company (£22,729,000) relates to provisions for
the impairment of investments.
Retained earnings represent 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
(2010: £351,000).
24 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 £206,000 (2010: £299,000).
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
2011
2010
%
3.6
4.7
3.0
2.0
4.6
%
3.7
5.4
3.5
3.0
5.5
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
2011, yields on gilts were approximately 2.5% and on corporate bonds were 4.7%. Equities are assumed to carry a risk
premium over gilt returns of 4%. 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 2011 and 2010 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. Contributions resumed in January 2012, 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.
50
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
24 Pension commitments continued
Reconciliation to consolidated statement of financial position
Fair value of plan assets
Present value of funded obligations
At the end of the year
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
2011
£’000
15,206
(17,673)
(2,467)
2010
£’000
14,550
(16,975)
(2,425)
2011
£’000
2010
£’000
14,550
13,261
770
–
–
(869)
755
773
750
96
(859)
529
15,206
14,550
2011
£’000
5,214
5,008
4,770
96
118
2010
£’000
5,102
4,671
4,627
96
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14,550
2011
£’000
2010
£’000
16,975
16,587
893
(869)
674
921
(859)
326
17,673
16,975
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The cumulative amount of actuarial losses recognised since 1 January 2002 in other comprehensive income is £4,835,000
(20010: £4,916,000). 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.
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)
2011
£’000
770
893
2010
£’000
773
921
The actual return on plan assets was £1,525,000 (2010: £1,302,000). This represents the sum of the expected return on assets
and the actuarial gain.
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24 Pension commitments continued
Defined benefit obligation trends
Plan assets
Plan liabilities
Deficit
Experience adjustments on assets
Experience adjustments on liabilities
25 Share capital
Authorised share capital
Authorised at 1 January
Authorised at 31 December
Issued share capital
2011
£’000
15,206
(17,673)
(2,467)
755
5.2%
674
4.0%
2010
£’000
14,550
(16,975)
(2,425)
529
3.7%
321
1.9%
2009
£’000
2008
£’000
13,261
11,973
(16,587)
(13,919)
(3,326)
(1,946)
206
1.6%
(169)
(1.0%)
(876)
(7.3%)
(193)
(1.4%)
Ordinary shares 2p each
Deferred shares of 0.04p each
2011
number
409,044,603
409,044,603
2011
£000
8,181
8,181
2011
number
35,797,769,808
35,797,769,808
2011
£000
14,319
14,319
Ordinary shares 2p each
Deferred shares of 0.04p each
2007
£’000
11,575
(14,421)
(2,846)
(425)
(3.7%)
131
0.9%
Total
2011
£000
22,500
22,500
Total
2011
£000
Issued and fully paid at 1 January
New Issue (fully paid)
Share options exercised
2011
number
38,021,784
30,434,783
285,000
2011
£000
760
609
6
2011
number
2011
£000
35,797,769,808
14,319
15,079
–
–
–
–
609
6
Issued and fully paid at 31 December
68,741,567
1,375
35,797,769,808
14,319
15,694
In May 2011, the Group published a prospectus in respect of a firm placing of 20,873,087 New Ordinary Shares and a Placing
and Open Offer of 9,561,696 New Ordinary Shares at the Issue Price of 23 pence per New Ordinary Share. Shareholder
approval for the placing was received at an EGM, and 30,434,783 new ordinary shares were issued at 23 pence each.
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.
2011
Number
43,143
2010
Number
43,143
52
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
26 Operating lease commitments
Operating leases – lessee
The total future minimum rents payable under non-cancellable operating leases are as follows:
Continuing operations
Amounts payable:
Within one year
Between two and five years
After five years
Discontinued operations
Amounts payable:
Within one year
Between two and five years
Operating leases – lessor
Land and
buildings
2011
£’000
Plant and
machinery
2011
£’000
Land and
buildings
2010
£’000
Plant and
machinery
2010
£’000
1,133
2,073
–
3,206
355
–
355
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–
128
–
–
–
1,204
3,241
132
4,577
407
354
761
27
91
–
118
–
–
–
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
2011
£’000
Land and
buildings
2010
£’000
305
644
–
949
215
–
215
304
948
–
1,252
213
215
428
27 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.
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Notes to the Accounts continued
28 Key management remuneration
Key management comprises the Board of Directors. The total remuneration received by key management for 2011 was
£895,000 (2010: £1,056,000). 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
29 Related party transactions
Company
2011
£’000
633
29
30
113
90
895
2010
£’000
576
46
33
361
40
1,056
Details of the Company’s holding in Group undertakings are given in note 30. The Company entered into transactions with other
Group undertakings as shown in the table below.
Operating
costs
2011
£’000
Amounts incurred from Group subsidiaries
(1,324)
Amounts charged to Group subsidiaries
–
Finance
income
2011
£’000
–
386
Finance
expense
2011
£’000
Operating
costs
2010
£’000
(979)
(1,309)
–
–
Finance
income
2010
£’000
–
264
Finance
expense
2010
£’000
(721)
–
At 31 December, the Company had the following amounts payable to/recoverable from Group undertakings.
Amounts owed by subsidiary undertakings
Falling due within one year (note 18)
Falling due after one year (note 18)
Amounts due to subsidiary undertakings
Falling due within one year (note 20)
Falling due after one year (note 20)
During the year, other related party transactions were as follows:
Related party relationship
Type of transaction
Directors
Purchase of Group shares
2011
£’000
2010
£’000
2,913
77,241
5,260
66,602
(1,391)
(2,088)
(83,328)
(72,994)
Transaction
Amount
2011
£’000
Transaction
Amount
2010
£’000
556
–
54
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
30 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 2011. A
discounted future cash flow method was employed for the review. As a result of this review, no provision was deemed
necessary, leaving a carrying value of £20,527,000 (2010: £20,527,000). The assessment was performed on a value in use
basis using a discount rate of 7.2% and the other parameters used in the goodwill impairment review, as outlined in note 13.
A full list of the Group’s subsidiaries can be obtained at the address below:
Company Secretary
Parity Group plc
Wimbledon Bridge House
1 Hartfield Road
Wimbledon
London
SW19 3RU
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Shareholder Notes
56
Parity Group plc
Report and Accounts 2011
www.parity.net
stock code: PTY
About Parity
Corporate information
About Parity
Parity in Human Resources
Parity Resources provides skilled
IT professionals, consultants and
project managers to a wide range of
UK leading companies. Parity Talent
Management provides graduate
selection, training and development.
Parity in IT Systems
Parity Systems is an IT solutions
provider specialising in Business
Intelligence, Oracle and SharePoint
applications; with a new emerging
technology and IP development facility
(TechLab) in Belfast sponsored by
Invest NI.
Parity Future Strategy
Parity Group intends to build on its
Systems base to create a creative
technology division combining digital
media and emerging technology skills.
Advisors
Auditors
KPMG Audit Plc
8 Salisbury Square
London
EC4Y 8BB
Bankers
RBS Group
9th Floor
280 Bishopsgate
London
EC2M 4RB
PNC Business Credit
8-14 The Broadway
Hayward’s Heath
West Sussex
RH16 3AP
Financial advisors & stockbrokers
Singer Capital Markets
One Hanover Street
London
W1S 1YZ
Solicitors
Pinsent Masons
30 Crown Place
London
EC2A 4ES
Registered office
Wimbledon Bridge House
1 Hartfield Road, Wimbledon
London, SW19 3RU
Tel: 0845 873 0790
Registrars
Equiniti Limited
Aspect House, Spencer Road, Lancing,
West Sussex, BN99 6DA
Tele 0870 600 3964
Fax: 0870 600 3980
Equiniti offer a range of information on-line. You can access
information on your shareholding, indicative share prices and
dividend details and find practical help on transferring shares or
updating your details at www.shareview.co.uk
Enquiries concerning shareholdings in Parity Group plc
should be directed, in the first instance, to the Registrars,
Equiniti, as above.
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 office at the registered office address below or from
the Parity Group website at www.parity.net
The Company Secretary
Parity Group plc
Wimbledon Bridge House
1 Hartfield Road, Wimbledon,
London, SW19 3RU
Or by email to: cosec@parity.net
Parity has offices in:
London
Wimbledon
Edinburgh
Camberley
Sale
Belfast
For all general enquires call 0845 873 0790
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 Auditor’s 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 2011
www.parity.net
stock code: PTY
Parity provides Information Technology and Human Resources solutions to clients in the UK, across both public and private sectors. 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
Perivan Financial Print 224692
Parity Group plc Report and Accounts
Year ended 31 December 2011