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 228174
Parity Group plc Report and Accounts
Year ended 31 December 2012
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About Parity
The Parity Group operates in two distinct fi elds:
PARITY PROFESSIONALS
Parity Resources provides skilled IT
professionals, consultants and project
managers to a wide range of leading
UK companies on a temporary and
permanent basis.
Parity Talent Management provides
graduate selection, training, placement
and career development services.
PARITY DIGITAL SOLUTIONS
Building on its core expertise, Parity is
creating a unique, Creative Technology,
marketing services business through
acquisition. This division currently
comprises:
Inition is a leading 3D technology
specialist that creates leading edge
marketing installations.
Systems provides business
intelligence development and
consulting to both the private and
public sectors.
IT Professional Services
Digital Media &
Marketing Services
Contents
01 Headlines
02 Chairman’s Statement
03 Operating Review
06 Financial Review
09 Board of Directors
10 Directors’ Report
12 Social, Environmental and Ethical Policies
13 Corporate Governance Report
17 Remuneration Report
22
Independent Auditor’s Report
23 Consolidated Income Statement
24 Statement of Comprehensive Income
25 Statements of Changes in Equity
26 Statements of Financial Position
27 Statements of Cash Flows
28 Notes to the Accounts
IBC Corporate Information
IBC Advisors
Parity Group plc
Report and Accounts 2012
www.parity.net
stock code: PTY
Corporate information
Registered office
Wimbledon Bridge House
1 Hartfi eld Road, Wimbledon
London, SW19 3RU
Tel: 0845 873 0790
Fax: 020 8545 6355
Registered in England & Wales No. 3539413
Registrars
Equiniti Limited,
Aspect House, Spencer Road, Lancing,
West Sussex, BN99 6DA
Tel: 0870 600 3964
Fax: 0870 600 3980
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
Equiniti offer a range of information on-line. You can access
information on your shareholding, indicative share prices and
dividend details and fi nd practical help on transferring shares or
updating your details at www.shareview.co.uk
Financial advisors & stockbrokers
N+1 Singer
One Bartholomew Lane
London
EC2N 2AN
Solicitors
Pinsent Masons
30 Crown Place
London
EC2A 4ES
Enquiries concerning shareholdings in Parity Group plc
should be directed, in the fi rst 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 offi ce at the registered offi ce address below or from
the Parity Group website at www.parity.net
The Company Secretary
Parity Group plc
Wimbledon Bridge House
1 Hartfi eld Road, Wimbledon,
London, SW19 3RU
Or by email to: cosec@parity.net
Parity has offices in:
London
Wimbledon
Edinburgh
Camberley
Sale
Belfast
For all general enquires call 0845 873 0790
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Headlines
Parity Group plc reports good growth and a return to
underlying profi tability
❚ Revenues up 7.2% at £85.9m (2011: £80.1m)
❚ Adjusted EBITDA1 of £1.27m (2011: £0.36m)
❚ Group Profi t before non-recurring items and tax £0.28m (2011: £0.71m loss)
❚ Group loss for the year reduced to £1.39m (2011: £2.30m)
❚ Divisional results for 2012 –
o Resources
• £4.0m divisional contribution2 (2011: £3.5m)
• Contractor numbers up 15% to 880 at year end (2011: up 10% to 772)
• Expanded portfolio now more balanced towards private sector
o Systems
• £1.29m divisional contribution2 (2011: £1.86 m)
• Margins remained stable at 20%
• First TechLab IP initiative announced
o Talent Management
• £0.67m divisional contribution2 (2011: £0.46m)
• 14 clients gained following entry in GB market during 2012
• Wins included Sheffi eld Hallam University, the Welsh Assembly and the National Skills Academy
o Inition (acquired May 2012)
• £0.26m divisional contribution2
• Trading well with fi rst earnout target achieved 3 months early
• Clients in 2012 included Jaguar Land Rover, Gadget Show and Castrol
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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 Divisional contribution in this narrative refers to the segment contribution before central costs3, tax, interest, non-recurring items and investment costs.
3 Central costs represent all centrally managed costs, and include Corporate, Finance, HR, IT and Property costs.
01
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Chairman’s Statement
Philip Swinstead OBE
2012 Results
I am pleased to report that we made further good progress in
2012, returning to a Group profit before tax and non-recurring
items for the first time since 2009. New growth-oriented
strategies have been implemented by the Board across, all
divisions and the results are apparent.
Revenues increased to £85.9m in 2012 from £80.1m in 2011;
and in a challenging market for IT services Resources increased
its divisional contribution as did Talent Management which won
14 clients following its GB marketing initiative. In addition the
Group made its first move into the digital media market with the
acquisition of Inition Limited in May 2012, which has performed
well achieving its first earn-out profit target three months early.
The Group’s Techlab initiative agreed in principle in January
2013, a joint venture with Royal Holloway, University of London
to develop their innovative social media search algorithm.
Before non-recurring items and tax the Group returned a profit
of £0.28m compared to a loss of £0.71m in 2011. A Group loss
for the year of £1.39m attributable to shareholders compares to
£2.30m loss in 2011.
Non-recurring items in the year were £1.22m including
transaction costs of £0.84m relating to the acquisition of Inition,
and other on-going and aborted acquisition costs.
During the year we sublet 8,430 sq. ft. of unused office space
in Wimbledon. The Group now holds no empty office space.
Divisional results and current trading are discussed in the CEO’s
Report.
Cash, Dividend and Investments
Cash at year end was £2.87m (2011: £5.24m) following an
outlay of £1.5m cash for the Inition first stage payment, pension
deficit payments of £1.0m and transaction costs. There were
£0.46m of investment costs in 2012 (2011: £0.69m) which
completed the two year investment programme intended to
reduce costs, transition the Group into profitable work and
initiate its digital media strategy. The Board decided to place
shares to the value of £0.6m (net) in January 2013 to provide
funding for the Inition payment and on-going transaction costs.
Banking arrangements with PNC have been in place since late
2010 with a maximum facility of £15m, which the Board
believes is adequate for the Group’s current and future
requirements. Recently this facility was extended to December
2014.
The Board has decided not to pay a dividend for the 2012
financial year; but will continue to reconsider this policy each
year.
Strategy
Having returned the Group to profitability the Board can
concentrate on growing its Resources, Talent Management,
Systems and Inition divisions; whilst making strategic moves in
the digital media market towards its ambition of becoming a
significant early mover in the new Creative Technology sector of
this market. This will be underpinned by a strong technology
edge; particularly in areas such as 3D, augmented and virtual
reality, interactive applications and mobile App developments.
02
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Report and Accounts 2012
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In the last quarter of 2012 we set in motion an internal de-
centralisation to separate our technology businesses (Systems
and Inition) from our human resources businesses (Resources
and Talent management) so that they could own the central
functions and services they each need to carry out their
business.. The former as our embryo digital division will in future
be known as Parity Digital Solutions and the latter as Parity
Professionals. We expect this new structure to be more efficient
and to enable further cost savings, as well as allowing a clearer
focused strategy for each division.
Appointments to the Main Board
I am pleased to announce today that Stephen Whyte has been
appointed a director of Parity Group plc. As CEO of Parity
Digital Solutions he will lead the Group’s digital media strategy.
With over twenty five years management experience in
marketing communications, including CEO at Acxiom Europe
and McCann Erickson, he brings great experience and
knowledge to our Board.
On 1 February 2013 I was also pleased to report that Suzanne
Chase, a qualified lawyer and a senior executive with extensive
legal and commercial experience, joined our Board as our
part-time general counsel. Suzanne had previously worked with
us for twelve months and her skills are very relevant to the
acquisitive nature of our digital strategy.
Current Trading and Future Prospects
The Group’s revenues have increased during 2012 and the
Board is particularly encouraged by the steady improvements in
profitability, which we expect to continue into 2013. In a quiet IT
Services market our early moves away from slowing IT sectors
and towards specific niche sectors have been successful; but
we will continue to review our position in this competitive
market carefully.
This is a pivotal year for our Group as we press ahead with our
digital media strategy; in relation to which the performance of
Inition and positive market feedback received to date gives the
Board increasing confidence. With the strong management put
in place over the last two years the Group is now well
positioned to move forward with its plans. Trading in the early
weeks of the current year has been in line with expectations.
The Board remains confident in its ability to significantly
increase shareholder value through a combination of the growth
of the current businesses and its new strategic initiative in digital
media.
Philip Swinstead OBE
Chairman
6 March 2013
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Operating Review
Paul Davies
Overview
Over the past two years Parity has created a solid base from
which to execute its expansion plans including further
development of its digital marketing strategy. All divisions now
return healthy margins and the cost base has been reduced.
As a result we have increased our contractor numbers by 14%
to 880 at year end (2011: 772) and improved conversion rates
to 30% (2011: 26%). We have also seen increased activity with
permanent recruitment and have newly established teams to
focus on the engineering and digital skills markets.
Several new initiatives announced last year are progressing well
including expansion of our Talent Management business,
evolution of a Parity Technology Laboratory and our first
acquisition for a number of years.
We are also consolidating our businesses into two distinct
divisions. The first is focused on developing and placing skilled
people (getting professional people into work). The second is
focused on addressing the exciting and emerging digital media
market (using new technologies for marketing purposes) as
identified in our corporate strategy two years ago. From the
second quarter of 2013 these two divisions will report
separately to the Board under the headings of ‘Parity
Professionals’ and ‘Parity Digital Solutions’. Future reporting will
be on this basis.
Adjusted EBITDA at £1.27m (2011: £0.36m) from a £1.98m
loss in 2010 demonstrates the continued turnaround and
improved profitability of the Group.
Group Operations
Parity continued to operate during the year in the IT Services
market and traded exclusively in the UK from offices in
Wimbledon, Shoreditch, Camberley, Sale, Edinburgh and
Belfast.
In May 2012 we announced the acquisition of Inition Ltd, a
specialist in 3D scanning and printing, advanced augmented
reality systems and virtual reality installations operating in the
UK from their offices in Shoreditch.
Much of Parity’s work remains short term in nature although
several contract relationships have extended over a number of
years. No individual client accounts for more than 14% of
Group turnover. Whilst the Group maintains a degree of
exposure to Government spending, the breadth of our private
sector portfolio continues to increase and it is expected that
this trend will continue.
Our entry into the GB graduate development market with our
Talent Management business and into the digital marketing
arena with our Inition acquisition has broadened our customer
base and is moving us into new and exciting sectors.
Parity Resources
Our main objective for this division in 2012 was to reverse the
decline in recent years of both revenues and contribution by
extending services, increasing contractor numbers, improving
conversion rates and maintaining overall margins. This was
accomplished against a backcloth of a depressed employment
market which responded to continued economic pressures by
seeking to reduce headcount, margins and utilisation wherever
possible.
During the period we invested in additional sales and support
staff, built upon our reputation as a value-add provider, sought
new business opportunities and extended our services beyond
our traditional IT base.
The investment in staff to fuel our growth ambitions had a minor
impact on second half contributions but was considered
essential to reinforce team size, particularly in our London office
which was established in 2011, became self funding during
2012 and is now making a positive contribution.
In total, revenues in the year increased by 10% to £75.3m
(2011: £68.7m) with divisional contribution increasing by 14%
to £4.0m (2011: £3.5m).
At the year end the ratio of Private/Government-Public Sector
placings was 63/37 (end 2011: 48/52) reflecting our ambitions
to develop a more balanced portfolio whilst continuing to
recognise the importance of the Government and Public Sector
markets to our overall business.
A number of existing contracts were extended and 67 new
clients were signed up during the year (2011: 60). Along with
our investment in new staff and sectors, these will maintain our
impetus for 2013 in what remains a competitive market. This
business will sit within our new Parity Professionals division
going forward.
Parity Talent Management
This business was originally established 16 years ago around
the successful graduate development programme for the
Northern Ireland Government. It was later extended to include
the prestigious Faststream graduate recruitment programme
run on behalf of HMRC. Both contracts were renewed in 2012
for a further 3 years and 1 year respectively although delays in
the Northern Ireland contract resulted in deferrals of expected
revenues to later years.
During 2011 a strategic decision was taken to invest in this
business so as to extend the portfolio and introduce a number
of graduate development programmes across the UK,
focussing initially on Higher Education establishments and
industry. As a result we entered 2012 with an increased cost
base, a unique and proven proposition, but only the two
contracts referred to above.
Our mission therefore was to address this new market and
build upon our established capabilities and reputation.
In the first quarter we won our first contract in the education
sector with a range of graduate employability programmes for
Sheffield Hallam University (SHU). This initial 18 month contract
has led to a further partnership with SHU to win a graduate
programme for the National Skills Academy Food Engineering
Degree.
On the back of this success the division has since won similar
contracts with a further 3 English Universities together with a 3
year contract for the Welsh Assembly involving initially 4 Welsh
Universities.
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03
Operating Review continued
As momentum built during the year operating margins
improved from 21% in the first half to 33% in the second half,
as our earlier investments began to pay off. During the year 14
new contracts were signed across GB from this standing start
with £3.7m of new business achieved.
Inition
On 29 May the Group announced its first step in implementing
the stated strategy to move into the expanding digital media
market with the acquisition of London based Inition a leading
3D specialist.
Inition’s founders have remained with the business and have
achieved their first year profit based earn out 3 months early
thereby demonstrating the commercial potential of this
acquisition.
The business can boast having worked on projects for a
number of major corporations, including for example: Jaguar
Land Rover, Gadget Show, Castrol, Guardian and Edrington
Group. Project work during the period has included medical
applications, augmented reality visualisation at a car launch, an
immersive wing suit experience for a major manufacturer,
holographic animation for advertising purposes and crowd
gaming experiences for shows and exhibitions. The list goes on
and on, but is specialised and addresses the emerging new
digital marketing space.
Revenues for the 7 months from May were £1.9m with a
contribution of £0.26m. Inition has continued to run for earn out
purposes with it’s separately defined overhead structure. It is
anticipated that during 2013 some sharing of overheads with
the remainder of the Group will occur with associated cost
savings. The business will sit within our new Parity Digital
Solutions division going forward.
Group Cost Savings
We continue to seek ways in which to improve operational
efficiencies and in particular identified three areas for further
savings:
New Finance System
The company has for some time utilised a custom built
bespoke finance reporting system based on Microsoft AX. This
system is expensive to maintain, difficult to modify and will
increasingly become unsuitable as we extend our operations.
For this reason the decision has been made to move onto a
more flexible and cost effective finance platform with a roll out
programme having commenced in December.
Initially our Systems and Inition businesses will be migrated
onto a SAP Business By Design Cloud based solution with our
Resources and Talent Management business migrating off AX
during the course of 2013.
As a result of this we have written off £0.7m which relates to
the net book value of the Micro soft AX system as at 31st
December 2012. The effect of this write off will be to reduce the
annual depreciation charge from the 2012 level by £0.2m.
Having established a solid base in this market we are now
seeking to invest further to extend our propositions and seek to
address the equally attractive apprentice development market.
Whilst investment and a contract delay resulted in a slow start
to the year, subsequent successes resulted in revenues of
£2.2m (2011: £2.3m) and contributions of £0.67m (2011:
£0.46m). Overall divisional operating margins were also
increased to 30.6% (2011: 20.25%). This business will sit within
our new Parity Professionals division going forward.
Parity Systems
Over the past two years the division has been transformed from
loss making to a stable operation with creditable operating
margins. This has been achieved by the removal of loss making
business (primarily associated with legacy fixed price
contracts), reductions in operating costs and a focus on
established clients. These actions, as anticipated, have resulted
in revenue reductions whilst creating a stable and profitable
platform with appropriate skill sets to operate within the new
Digital Solutions division.
Long standing contractual arrangements with our 3 major
clients continue although we anticipate work with the Charity
Commission to decline as they redirect their budgets. Our close
relationship with BAT has resulted in them extending their
contract with us for a further year. Similarly, we continue to
provide services to the MOD and are currently introducing
some potentially exciting 3D and augmented reality capabilities
from our Inition Ltd acquisition to them.
We have also had some success with our Business Intelligence
initiative, announced last year, signing a consultancy and
subsequent implementation contract with a major legal firm.
During the year Parity maintained its Gold partner status with
Microsoft and Oracle.
The Parity R&D Technology Laboratory initiative (Tech Lab)
announced in January its first contract with the Northern Ireland
Government to research emerging digital technologies. More
recently Tech Lab has agreed in principle a joint venture with
Royal Holloway, University of London to develop their innovative
social media search algorithm. We will continue to use Tech
Lab to establish potential sources of IP and to develop digital
technology partnerships.
Our planned exit from loss making and largely fixed price
systems integration work has resulted in a decline in revenues
to £6.5m (2011: £9.2m). Margins, however, have been
stabilised for 2 years at around 20% (2011: 20%) with a
resultant contribution of £1.3m (2011: £1.9m). This business
will sit within our new Parity Digital Solutions division going
forward.
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Property
In June 2010 Parity Training, which was sold in February 2009,
was placed in administration. The Group remained guarantor
on certain leases held by Parity Training and since had to bear
significant costs on those leases. During 2012, the final lease
was disposed of and we no longer hold any legacy property
formerly owned by Parity Training.
In our head office in Wimbledon we had just under 9,000 sq. ft.
of unused office space which due to the economic climate and
short lease term remaining we felt would be very difficult to
obtain a tenant for and therefore in 2011 provided for in full the
lease costs on the vacant space to the end of the term. We are
pleased to report though that during 2012 we have managed to
secure a sub-tenant for the remainder of the lease which will
generate additional cash of £0.2m per year.
Parity Professionals and Parity Digital Solutions
As a result of the internal de-centralisation to separate out our
technology businesses (Systems and Inition) from our human
resources businesses (Resources and Talent Management), we
expect that this new structure will be more efficient and enable
further cost savings to be made.
Investment in New Initiatives
In accordance with statements made during our May 2011
placing we have continued to invest in certain aspects of the
business. In particular we have established Talent Management
across the UK, expanded our Resources portfolio, created Tech
Lab, and achieved our first entry into the digital media market
with the part cash acquisition of Inition.
Additionally we have continued to invest in staff and advisors to
research the digital technology arena and further enhance our
corporate strategy in this respect.
As a result some £0.46m has been spent in the year which
brings to and end this investment programme.
Management and Staff
Once again our team has responded to the considerable
challenges involved in positioning the company for profitable
growth both in its existing markets and those identified in the
Group strategy, particularly relating to the digital media market.
They continue to be responsive and embrace the challenges
brought by change. Without their skills and commitment we
could not have set a solid base for future growth and this within
a continued difficult economic climate. The Board is again
proud and grateful to them and wishes to express its thanks for
their on-going support and loyalty.
Paul Davies
Chief Executive Officer
6 March 2013
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Financial Review
Alastair Woolley
Revenue
Continuing operations
Resources
Systems
Talent Management
Inition
2012
£’000
75,289
6,504
2,202
1,892
2011
£’000
68,662
9,209
2,271
–
85,887
80,142
Revenue in total has increased by 7.2% to £85.9m (2011: £80.1m). The Resources division has continued to see good growth from
2011, increasing its revenues by £6.6m (9.6%) from £68.7m to £75.3m. Systems revenue has fallen by £2.7m since 2011 to £6.5m
as the removal of loss making contracts (mainly associated with earlier fixed price contracts) has now been completed. In Talent
Management, government spending was cut back in the second half of 2011 and this had a knock on affect into the first half of
2012. However, revenues during 2012 have steadily grown with revenue in the first half of £0.94m increasing to £1.27m in the
second half. Revenue for Inition of £1.89m represented the first 7 months since acquisition and on an annualised basis based on its
results to 31 March 2012, showed growth of 22.8%.
Divisional contribution
Continuing operations
Resources
Systems
Talent Management
Inition
Divisional contribution before central costs, non-recurring items and investment costs
2012
£’000
4,000
1,288
674
258
6,220
2011
£’000
3,506
1,862
461
–
5,829
Divisional contribution has increased by £0.39m to £6.22m (2011: £5.83m). Divisional contribution has increased in Resources and
Talent Management both in absolute terms and as a percentage of revenue. Divisional contribution in Resources has increased to
5.3% (2011: 5.1%) and in Talent Management to 30.6% (2011: 20.3%). In Systems, margins have been gradually improving from
16% in the first half to 23.5% in the second half. Note, however, that margins in the second half of 2011 were improved by a release
of provisions on fixed price contracts, this not being the case in 2012. Inition, which was acquired on 29 May 2012 has made a
divisional contribution in its first 7 months of £0.26m at a margin of 13.6% representing a significant improvement in profitability
compared to the full year prior to acquisition, (Year to 31 March 2012) of £0.06m.
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
Operating profit/(loss) before non-recurring items
Non-recurring items (continuing operations)
Operating (loss) from continuing operations
2012
£’000
6,220
(4,488)
(497)
(124)
(461)
650
(1,350)
(700)
2011
£’000
5,829
(4,785)
(537)
(177)
(688)
(358)
(1,437)
(1,795)
Central costs continue to be a focus of management’s attention, as evidenced by the £0.30m reduction from £4.8m in 2011 to
£4.5m in 2012. 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 in May 2011. The investment programme
has now been completed. The combination of improved divisional performance and further reduction in central costs has
contributed to an improvement of £1m in operating profit turning the loss of £0.36m in 2011 into a profit of £0.65m in 2012.
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Non-recurring items
Continuing operations
Restructuring
Transaction costs
Property provisions
2012
£’000
961
840
(451)
1,350
2011
£’000
491
–
946
1,437
Non-recurring items in the year include the writing off of the remaining investment in our Microsoft Dynamics AX ERP system of
£0.72m. The heavily customised system was installed 4 years ago and has shown itself to be inflexible, expensive to maintain, and
will not provide the correct platform for the company as we extend our operations. Initially our Systems and Inition businesses will
be migrated onto SAP by Design, with the Resources and Talent Management businesses migrating off of AX during the course of
2013.
Transaction costs refer to the professional fees incurred in our acquisition programme and relate to the acquisition of Inition Limited,
an aborted acquisition, and on-going acquisition activity.
The Board believed last year that due to the economic climate and because such a short period of lease remained on the vacant
offices at Wimbledon, a provision should be made against the remaining previously un-provided costs to the end of the lease.
However, the Board is pleased to report that despite the difficulties, this unoccupied area has now been sublet and the release in
provision reflects the contracted sub-let income to the end of the lease.
Further details of the non-recurring costs are given in note 5.
Earnings per share and dividend
The basic loss per share from continuing operations was 2.00 pence (2011: 3.99 pence).
The Board does not propose a dividend for 2012 (2011: nil), but will continue to review this policy each year.
Statement of Financial Position
The most significant movements in the balance sheet were in the recognition of goodwill on the acquisition of Inition, the increase in
the defined benefit scheme liability as a result of an actuarial loss, the write off of the investment in Microsoft AX ERP and the
increase in net debt caused by acquisition activity and legacy payments. The net impact of these movements was to reduce the
Group’s net assets by £1.84m.
Trade receivables and accrued income
Trade receivables increased by £0.5m to £13.0m (2011: £12.5m) during the year, reflecting mainly the increase in group revenue
and acquisition of Inition Limited. Due to continued focus on working capital management, debtor days at the end of the year,
calculated on billings on a countback basis, improved to 26 (2011: 27).
Trade and other payables
Trade and other payables increased slightly during the year to £9.4m (2011: £8.8m). As with trade receivables this is mainly due to
the increase in trading volumes and the acquisition of Inition Limited.
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 increase in revenues and the improvements in working capital
management had the impact of reducing borrowing requirements; however this was offset by the various acquisition and legacy
payments made 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
Before working capital movements, the Group generated cash during 2012 of £0.67m compared to an outflow in 2011 of £1.13m
but once working capital movements are taken into consideration there was a net outflow in 2012 of £2.6m (2011: £1.46m). Cash
and cash equivalents fells by £2.37m during the year and coupled with an increase in loans and borrowings of £1.78m, net debt
increased during the year by £4.1m. This increase can be broken down into two types. Firstly, acquisition based activity. £1.2m
represented the net acquisition costs of Inition Limited and £0.7m represented transaction costs on Inition and an aborted
transaction. The second type can be described as legacy payments and include £1m paid in deficit reduction contributions to the
retirement benefit fund; £0.5m paid for the cancellation of the Group’s outsourced contract for its internal IT system; and £0.43m in
payments in respect of unused property.
Provisions
The net reduction in provisions of £1.18m includes the release of excess empty property provisions in respect of the vacant offices
in the Wimbledon of £0.45m, and a cash outflow against existing provisions of £0.43m.
07
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Financial Review continued
Pension Fund
During 2012 the Group paid deficit reduction payments of £1m
into the defined benefit scheme but despite this and following
the triennial valuation that took place in 2012, the liability
increased by £0.58m to £3.05m (2011: £2.47m). At the year
end an actuarial loss of £1.55m was recorded, mainly as a
result of a reduction to the discount rate used in valuing the
scheme liabilities.
Principal risks and uncertainties
Market
The Group continues to reduce its exposure to the public
sector with 2012 revenues from public sector clients falling from
63% to 54% 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.
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
6 March 2013
08
Parity Group plc
Report and Accounts 2012
www.parity.net
stock code: PTY
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Board of Directors
Philip Swinstead OBE
Chairman
Philip Swinstead, 69, 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, 70, 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 Services. 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 Chemring Group plc and ITM Power plc.
David Courtley
Non-executive Director 1, 2, 3
David Courtley, 55, 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
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, 50, 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, 64, 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, 51, 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 IT.
Directors appointed after the balance sheet date
Suzanne Chase
Executive Director and General Counsel
Suzanne Chase, 50, was appointed on 1 February 2013.
Suzanne is a qualified lawyer and a senior executive with
extensive legal and commercial experience. Suzanne joined the
business as General Counsel on 1 February 2012. Previously
she has held the positions of Group General Counsel and
Company Secretary for Morse plc, Compliance Partner at King
Sturge LLP, Group General Counsel and Company Secretary of
The Big Food Group plc and General Counsel of Wickes plc.
Suzanne was also a solicitor at D J Freeman.
Stephen Whyte
CEO of Parity Digital Solutions
Stephen Whyte, 49, was appointed to the Board on 7th March
2013. Stephen has extensive knowledge of and over 25 years’
experience in the marketing services, digital media and creative
industry sectors, both in the UK and at an international level.
Most recently, he was European CEO of Acxiom Corporation, a
major interactive and marketing services company specialising
in consumer data and analytics, data integration, multi-channel
marketing and consultancy. Prior to that, he was Chief
Executive at McCann Erickson and Leo Burnett, both top 10
UK agency groups. Stephen graduated from Oxford University
with a degree in Chemistry and is a Fellow of the Institute of
Practitioners in Advertising (IPA). As CEO of Parity Digital
Solutions he will lead the Group’s digital media strategy.
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1 Member of the nominations committee
2 Member of the remuneration committee
3 Member of the audit committee
09
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Directors’ Report
The Directors present their report and the audited accounts for
the year ended 31 December 2012.
Principal activities
The Group delivers a range of recruitment and business and
technology 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, and a fourth division, Inition, for the last 7 months
of the period.
The principal activity of the Resources division is to provide
recruitment, predominately interim recruitment, and consultancy
services, to a diverse range of clients. In 2012 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 2012 it operated
predominantly in the public sector, and geographically between
Northern Ireland and England.
The principal activity of the Inition division is to provide 3D
technology solutions, in the form of consultancy, systems
integration, and the resale of 3D equipment. In 2012 it operated
predominately in the private sector delivering its offerings to
clients in a wide range of sectors.
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 8. The Group’s social, environmental and ethical policies are
set out on page 1 2. A statement on the application of the going
concern principle is set out below. Details of financial
instruments are set out in note 23 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 £1,066,000 (2011: £2,149,000) after charging
non-recurring items of £1,350,000 (2011: £1,437,000). After a
tax expense of £349,000 (2011: expense of £92,000) and a
profit after tax from discontinued operations of £26,000 (2011:
loss after tax of £58,000), the retained loss of £1,389,000
(2011: £2,299,000) has been transferred from reserves. The
results for the year are set out in the consolidated income
statement on page 23.
Dividends
The Directors do not recommend a final dividend (2011: nil
pence per ordinary share). The total dividends for the year were
nil pence per ordinary share (2011 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 25.
Purchase of own shares
At the end of the year, the Company had authority, under the
shareholders’ resolution of 29 May 2012, to purchase in the
market 6,874,157 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 6 March
2013 is set out on page 9, together with details of membership
of the Board committees.
Suzanne Chase was appointed to the Board on 1 February
2013, and Stephen Whyte was appointed to the Board on
7 March 2013.
In accordance with the Company’s Articles of Association,
Suzanne Chase and Stephen Whyte, who were appointed after
the announcement of the 2012 AGM, will retire and offer
themselves for re-election at the 2013 Annual General Meeting.
Directors’ interests
The Directors’ beneficial interests in the ordinary share capital of
the Company are set out within the remuneration report on
page 2 1.
Principal shareholders
At the close of business on 5 March 2013 (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:
Philip Swinstead
Henderson Global Investors
David Courtley
Dominion Holdings
Artemis Investment Management
Slater Management
Hargreave Hale
10
Parity Group plc
Report and Accounts 2012
www.parity.net
stock code: PTY
Number of
Ordinary 2p shares
12,180,543
6,877,066
6,521,739
4,950,000
4,791,710
4,623,157
2,596,753
Percentage
held
16.25
9.17
8.70
6.60
6.39
6.17
3.46
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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 6 to 8 and in note 23 to the financial statements. Note 23
also includes the Group’s objectives for managing capital.
As outlined in note 23, 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. The facility was recently extended to
December 2014.
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.
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
purchase contracts. At 31 December 2012 unpaid creditors of
the Group amounted to 32 days of purchases (2011: 39 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 12. 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 2012
(2011: £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 or herself 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 13 to 16 forms
part of the Directors’ Report.
Auditor
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.
Post Balance Sheet Events
Post balance sheet events are disclosed in note 32.
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.
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By order of the Board
Alastair Woolley
Director
6 March 2013
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11
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.
12
Parity Group plc
Report and Accounts 2012
www.parity.net
stock code: PTY
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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 17 to 2 1 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.
Going concern
The Board confirms that after making enquiries, the Directors
have a reasonable expectation that the Company and the
Group have adequate resources to continue in operational
existence for the foreseeable future. For this reason they
continue to adopt the going concern basis in preparing the
accounts. Further details are outlined in the Directors’ Report
on page 1 1.
The workings of the Board and its committees
The Board
During the period the Board consisted of the Chairman Philip
Swinstead, the Deputy Chairman and Senior Independent
Director Lord Freeman, the Chief Executive Officer Paul Davies,
the Finance Director Alastair Woolley and Non-executive
Directors David Courtley and Mike Phillips. On 1 February 2013
Suzanne Chase was appointed Executive Director and General
Counsel. On 7 March 2013 Stephen Whyte was appointed
Executive Director. The Directors’ biographies, which are set
out on page 9, demonstrate a range of business backgrounds
and experience.
Chairman
The Chairman, Philip Swinstead, is responsible for the
leadership and efficient operation of the Board, on all aspects of
its role. 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. He 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 Director and his
prime responsibility is to provide a communication channel
between the Chairman and the Non-executive Directors and to
ensure that the views of each Non-executive Director are given
due consideration. He is also an additional contact point for
shareholders if they have reason for concern, when contact
through the normal channels of the Chairman, Chief Executive
and other executive directors has failed to resolve their
concerns, or where such contact is inappropriate.
Re-election of Directors
All Directors submit themselves for reappointment at the next
Annual General Meeting following their appointment and retire
by rotation, offering themselves for re-election. The names of
the Directors submitted for reappointment are set out in the
Directors’ report on page 1 0 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 14. The
Board maintains close dialogue by email and telephone
between formal meetings. The Board has a formal schedule of
matters reserved for its specific approval including review of
Group strategic, operational and financial matters including
proposed acquisitions and divestments. It approves the annual
accounts and interim report, the annual budget, significant
transactions and major capital expenditure and reviews the
effectiveness of the system of internal control and the risks
faced by the Group. The review covers all controls, including
financial, operational and compliance controls and risk
management. Authority is delegated to management through
Group authorisation limits on a structured basis, ensuring that
proper management oversight exists at the appropriate level.
The Group authorisation levels were reviewed by the Board in
December 2012.
In October 2012 the Board reviewed the role and
responsibilities between the Chairman, Chief Executive Officer,
the Senior Independent Director and the Non-executive
directors.
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.
13
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Corporate Governance Report continued
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. The Chief Executive
officer also holds monthly Executive Committee meetings which
are attended by the Finance Director, General Counsel, the HR
Director and the business unit Managing Directors.
Performance evaluation
In the year the Board undertook an annual evaluation of its own
performance and that of its committees and individual directors.
The performance of the Chairman was reviewed by the Deputy
Chairman.
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
Number held
Number attended1
Philip Swinstead
Lord Freeman
Paul Davies
Alastair Woolley
David Courtley
Mike Phillips
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. On
1 February 2013 Suzanne Chase was appointed to the Board
as Executive Director and General Counsel. Gender diversity
will continue to be a 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 12 scheduled Board meetings in 2012 and 7 ad
hoc meetings (included below) were convened as necessary to
deal with urgent matters. Detail of attendance at Board
meetings is summarised below. Committee attendance is
shown for Committee members only.
Board
Audit
Nominations
Remuneration
19
17
15
19
18
17
15
3
–
3
–
–
2
3
2
–
2
–
–
2
2
2
–
2
–
–
2
2
1 All Directors who were members of the Board at the time attended the Group’s Annual General Meeting on 29 May 2012
Committees
Each of the Board’s three Committees has formal written
terms of reference, which were reviewed in April 2012. 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
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.
The committee’s principal terms of reference include:
• the oversight responsibilities described in the above
paragraph;
• reviewing compliance with laws, regulations and the Group’s
code of conduct and policies;
• monitoring the integrity of the Group’s financial statements
and 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;
• reviewing the Group’s arrangements for its employees to
raise concerns, in confidence, about possible wrong doing in
financial reporting or other matters; and
• reviewing the adequacy and effectiveness of the Company’s
internal financial controls, internal control, and risk
management systems.
14
Parity Group plc
Report and Accounts 2012
www.parity.net
stock code: PTY
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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 2012, details of which are set out
in note 3 to the accounts.
Audit committee meetings are attended by the external
auditors and, by invitation of the committee, all of the
Executive Directors. The external auditors meet separately
with the audit committee on request, without the presence of
the Executive Directors, 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 17 to 21.
Nominations committee
The Nominations Committee comprises the non-executive
Directors and is chaired by Lord Freeman. It is responsible for
proposing candidates for appointment to the Board, having
regard to the balance and structure of the Board, and
succession planning. 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 information 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 fair, 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 Group and parent company financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare group and
parent company financial statements for each financial year.
Under that law they are required to prepare the group financial
statements in accordance with IFRSs as adopted by the EU
and applicable law and have elected to prepare the parent
company financial statements on the same basis.
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 parent
company and of their profit or loss for that period. In preparing
each of the group and parent company financial statements,
the directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and
prudent;
• state whether they have been prepared in accordance with
IFRSs as adopted by the EU; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and the
parent company will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
company’s transactions and disclose with reasonable
accuracy at any time the financial position of the parent
company and enable them to ensure that its financial
statements comply with the Companies Act 2006. They have
general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the group and to
prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also
responsible for preparing a Directors’ Report, Directors’
Remuneration Report and Corporate Governance Statement
that complies with that law and those regulations.
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 on-going integrity
of the financial statements contained therein.
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15
Corporate Governance Report continued
Internal control
The Board is ultimately responsible for the Group’s system of
internal control and for reviewing its effectiveness and is
assisted in this respect by the audit committee. Such a system
is designed to manage rather than eliminate the risk of failure
to achieve business objectives and can only provide
reasonable and not absolute assurance against material
misstatement or loss. The Group’s system of internal control,
which complies with the Turnbull Guidance, has been in place
throughout the year and up to the date of this report. The
Directors confirm that they have reviewed the effectiveness of
the Group’s system of internal controls during the year.
The Group did not consider it necessary to have a separate
internal audit function, but will continue to keep the need
under review.
Risk management
The Group is exposed through its operations to the following
financial risks:
• Interest rate risk;
• Foreign currency risk;
• Liquidity risk; and
• Credit risk.
The policies for managing these risks are set by the Board
following recommendations from the Finance Director. Certain
risks are managed centrally, while others are managed locally
following guidelines communicated from the centre. The
policies for each of the above risks, and the nature and extent
of those risks, are described in detail in note 23 to the financial
statements. Other risks and uncertainties are discussed in the
Financial Review on page 6.
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.
Alastair Woolley
Director
6 March 2013
16
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Report and Accounts 2012
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stock code: PTY
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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.
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.
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 2012 are set out
in the table on page 20.
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 2012
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 2012 the policy applied as a result of the annual
Performance bonus
The terms of the incentive bonus for Executive Directors are
agreed annually. For 2012 a target for the full year was set. No
performance bonuses were earned by, or paid to, Executive
Directors in 2012.
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 2012 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. The exercise of the options is conditional upon
the share price either outperforming the average Total
Shareholder Return performance of a comparator group
comprising a basket of companies in the IT services sector, or
outperforming a target price.
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
17
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Remuneration Report continued
greater than or equal to 35 pence. The options will vest in
3 years and lapse in 10 years if not exercised.
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 2012 the comparator group comprised:
• Anite
• Charteris
• Harvey Nash
• Hays
• ILX
• Interquest
• Kellan
• Nakama Group
• Phoenix IT
• Sci Sys
• SQS
• SThree
• The Rethink Group
5 Year Total Shareholder Return graph —
quarterly (rebased to 100)
140
120
100
80
60
40
20
0
2008
2009
2010
2011
2012
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
2012 was 18.5p. During the period 1 January to 31 December
2012 shares traded at market prices between 18.5p and 27.35p.
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.
On 4 April 2012 a further 60,000 share options were awarded
under this scheme to Alastair Woolley. The exercise price of the
options is 26.25 pence, and the options are subject to a
performance condition being that the share price must be
greater than or equal to 50 pence. The options will vest in
3 years and lapse in 10 years if not exercised.
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 had all
vested by the balance sheet date.
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 2012, 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 £250.00.
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 2012.
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.
18
Parity Group plc
Report and Accounts 2012
www.parity.net
stock code: PTY
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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 Swinstead1
Lord Freeman1
Paul Davies2
Alastair Woolley
David Courtley1
Mike Phillips
Suzanne Chase
Stephen Whyte3
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
1 February 2013
7 March 2013
n/a
n/a
n/a
n/a
12 months
12 months rolling
6 months
n/a
3 months
3 months
6 months
6 months rolling
n/a
3 months rolling
3 months rolling
6 months rolling
1 The appointment of Non-executive Directors, other than Mike Phillips, 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 18 August 2013, Stephen Whyte’s notice period to be given by either party will be increased to 12 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.
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19
Remuneration Report continued
Directors’ remuneration (audited)
The remuneration of the Directors who served during the year is set out below.
Salary/
fees
2012
£’000
220
120
200
40
40
40
660
Salary/
fees
2011
£’000
220
90
38
200
30
23
6
27
633
Executive Directors
P Davies1
A Woolley
Non-executive Directors
P Swinstead 2
Lord Freeman
D Courtley
M Phillips
Total emoluments
Executive Directors
P Davies
A Woolley3
I Ketchin4
Non-executive Directors
P Swinstead2
Lord Freeman
D Courtley5
M Phillips6
N Tose7
Total emoluments
Notes
Benefi ts
2012
£’000
Compensation for
loss of offi ce
2012
£’000
Total emoluments
2012
£’000
18
10
–
–
–
–
28
–
–
–
–
–
–
–
238
130
200
40
40
40
688
Company pension
contributions1
2012
£’000
174
6
–
–
–
–
180
Share Based
Payment
2012
£’000
11
18
–
–
–
–
29
Benefi ts
2011
£’000
Compensation
for loss of offi ce
2011
£’000
Total emoluments
2011
£’000
Company pension
contributions1
2011
£’000
Share Based
Payment
2011
£’000
19
8
3
–
–
–
–
–
–
–
113
–
–
–
–
–
29
113
239
98
153
200
30
23
6
27
775
24
4
2
–
–
–
–
–
30
81
9
–
–
–
–
–
–
90
1 Company pension contributions disclosed in the table above represent the contractual pension entitlements due to the Directors of the company, with the exception of
a contribution of £150,000 made to Paul Davies’ pension, which was agreed by The Remuneration Committee.
2 During 2012 and 2011 The Remuneration Committee elected to pay Philip Swinstead an additional fee of £150,000 for discharging services as Chairman. As at
31 December 2012, £37,500 worth of these services remain accrued but unpaid.
3 Appointed 1 April 2011.
4 Resigned 31 March 2011.
5 Appointed 8 June 2011.
6 Appointed 3 November 2011.
7 Resigned 22 November 2011.
20
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www.parity.net
stock code: PTY
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Executive Directors’ share options (audited)
As at
31 December
2011
Lapsed/
Surrendered
in the
year
Exercised
in the
year
Awarded
in the
year
As at
31 December
2012
Exercise
period
Exercise
price
per share
Paul Davies
Senior Executive share
option plan 2010
Alastair Woolley
Executive share option plan
2011
2012
Sub-total
Total
2,851,633
300,000
–
300,000
3,151,633
–
–
–
–
–
–
–
–
–
–
–
2,851,633
2011-2017
£0.10
–
300,000
2014-2021
£0.28
60,000
60,000
60,000
60,000
2015-2022
£0.2625
360,000
3,211,633
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 31 December 2011 (or
date of appointment If later)
% issued share capital
Shareholding as at
31 December 2012 (or
date of resignation)
% issued share capital
12,180,543
6,250
720,000
56
6,521,739
–
17.72
12,180,543
0.01
1.05
–
9.49
–
6,250
720,000
56
6,521,739
–
16.25
0.01
0.96
–
8.70
–
Philip Swinstead
Lord Freeman
Paul Davies
Alastair Woolley
David Courtley
Mike Phillips
For and on behalf of the Board
Lord Freeman
Chairman of the remuneration committee
6 March 2013
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21
Independent Auditor’s Report to the Members of Parity Group Plc
• information given in the Corporate Governance Statement
set out on pages 13 to 16 with respect to internal control
and risk management systems in relation to financial
reporting processes and about share capital structures is
consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required
to report to you if, in our opinion:
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
• the parent company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by
law are not made; or
• we have not received all the information and explanations we
require for our audit; or
• a Corporate Governance Statement has not been prepared
by the company.
Under the Listing Rules we are required to review:
• the directors’ statement, set out on page 1 1, in relation to
going concern;
• the part of the Corporate Governance Statement on pages
13 to 16 relating to the company’s compliance with the nine
provisions of the UK Corporate Governance Code specified
for our review; and
• 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
6 March 2013
We have audited the financial statements of Parity Group Plc
for the year ended 31 December 2012 set out on pages 23 to
60. 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 15, 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 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 Financial Reporting Council’s
website at www.frc.org.uk/auditscopeukprivate.
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 2012 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
22
Parity Group plc
Report and Accounts 2012
www.parity.net
stock code: PTY
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Consolidated Income Statement
for the year ended 31 December 2012
Continuing operations
Revenue
Employee benefit costs
Depreciation & amortisation
All other operating expenses
Total operating expenses
Operating profi t/(loss)
Finance income
Finance costs
Profi t/(loss) before tax
Taxation
Loss for the year from
continuing operations
Discontinued operations
Profit/(loss) for the year from
discontinued operations
Loss for the year
attributable to owners
of the parent
Basic and diluted loss
per share
Before non-
recurring items
2012
£’000
Notes
Non-recurring
items
2012
(note 5)
£’000
Total
2012
£’000
Before non-
recurring items
2011
£’000
Non-recurring
items
2011
(note 5)
£’000
2
3
3
3
7
7
11
85,887
(8,032)
(497)
(76,708)
(85,237)
650
695
(1,061)
284
(497)
–
(226)
–
(1,124)
(1,350)
(1,350)
–
–
(1,350)
148
85,887
(8,258)
(497)
(77,832)
(86,587)
(700)
695
(1,061)
(1,066)
(349)
80,142
(7,989)
(537)
(71,974)
(80,500)
(358)
770
(1,124)
(712)
(208)
–
–
–
(1,437)
(1,437)
(1,437)
–
–
(1,437)
116
Total
2011
£’000
80,142
(7,989)
(537)
(73,411)
(81,937)
(1,795)
770
(1,124)
(2,149)
(92)
(213)
(1,202)
(1,415)
(920)
(1,321)
(2,241)
8
45
(19)
26
(22)
(36)
(58)
(168)
(1,221)
(1,389)
(942)
(1,357)
(2,299)
12
(2.00p)
(3.99p)
The notes on pages 28 to 60 form part of the financial statements.
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23
Statements of Comprehensive Income
for the year ended 31 December 2012
Loss for the year
Other comprehensive income:
Exchange differences on translation of foreign operations
Actuarial (loss)/gain on defined benefit pension scheme
Deferred taxation on actuarial losses/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
The notes on pages 28 to 60 form part of the financial statements.
Notes
25
17
11
Consolidated
2012
£’000
2011
£’000
(1,389)
(2,299)
(64)
(1,554)
287
(1,331)
24
81
(22)
83
(2,720)
(2,216)
24
Parity Group plc
Report and Accounts 2012
www.parity.net
stock code: PTY
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Statements of Changes in Equity
for the year ended 31 December 2012
Consolidated
At 1 January 2012
Loss for the year
Exchange differences on translation of
foreign operations
Actuarial loss on defined benefit pension
scheme
Deferred taxation on actuarial loss on
pension scheme taken directly to equity
Issue of new ordinary shares
Share options – value of employee services
Share
capital
£’000
1,375
Deferred
shares
£’000
14,319
Share
premium
reserve
£’000
25,944
Other
reserves
£’000
44,160
–
–
–
–
62
–
–
–
–
–
–
–
–
–
–
–
693
–
–
–
–
–
–
–
Retained
earnings
£’000
(80,079)
(1,389)
Total
£’000
5,719
(1,389)
(64)
(64)
(1,554)
(1,554)
287
–
124
287
755
124
At 31 December 2012
1,437
14,319
26,637
44,160
(82,675)
3,878
Consolidated
At 1 January 2011
Loss for the year
Exchange differences on translation of
foreign operations
Actuarial loss on defined benefit pension
scheme
Deferred taxation on actuarial loss on
pension scheme taken directly to equity
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)
24
81
(22)
–
177
At 31 December 2011
1,375
14,319
25,944
44,160
(80,079)
Company
At 1 January 2012
Loss for the year
Issue of new ordinary shares
Share options – value of employee services
Share
capital
£’000
1,375
–
62
–
Deferred
shares
£’000
14,319
–
–
–
Share
premium
reserve
£’000
25,944
–
693
–
Other
reserves
£’000
22,729
–
–
–
Retained
earnings
£’000
(45,381)
(2,409)
–
32
Total
£’000
1,333
(2,299)
24
81
(22)
6,425
177
5,719
Total
£’000
18,986
(2,409)
755
32
At 31 December 2012
1,437
14,319
26,637
22,729
(47,758)
17,364
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
15,454
(2,985)
6,425
92
At 31 December 2011
1,375
14,319
25,944
22,729
(45,381)
18,986
The notes on pages 28 to 60 form part of the financial statements.
25
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Statements of Financial Position
As at 31 December 2012
Company number 3539413
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Trade and other receivables
Investment in subsidiaries
Deferred tax assets
Current assets
Stocks and work in progress
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Loans and borrowings
Trade and other payables
Provisions
Non-current liabilities
Loans and borrowings
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
Notes
13, 14
15
19
31
17
18
19
20
21
22
20
21
22
25
26
24
24
24
Consolidated
Company
2012
£’000
7,756
415
–
–
1,318
9,489
20
13,044
2,871
15,935
25,424
2011
£’000
5,547
593
–
–
1,384
7,524
116
12,539
5,241
17,896
25,420
2012
£’000
2011
£’000
–
–
69,763
20,527
–
–
–
77,241
20,527
–
90,290
97,768
–
2,619
2,362
4,981
–
2,915
5,107
8,022
95,271
105,790
(8,283)
(8,938)
(308)
(6,504)
(8,783)
(881)
(17,529)
(16,168)
–
(2,491)
(305)
(2,796)
(8)
(500)
–
–
–
(74,656)
(462) (1,066)
(3,047)
(4,017)
(2,467)
(3,533)
(21,546)
(19,701)
3,878
5,719
15,756
26,637
44,160
15,694
25,944
44,160
(455)
–
(75,111)
(77,907)
17,364
15,756
26,637
22,729
(82,675)
(80,079)
(47,758)
3,878
5,719
17,364
–
(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
Approved by the Directors and authorised for issue on 6 March 2013.
The notes on pages 28 to 60 form part of the financial statements.
Paul Davies
Chief Executive Officer
Alastair Woolley
Finance Director
26
Parity Group plc
Report and Accounts 2012
www.parity.net
stock code: PTY
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Statements of Cash Flows
for the year ended 31 December 2012
Cash flows from operating activities
(1,389)
(2,299)
(2,409)
(2,985)
Consolidated
Company
Notes
2012
£’000
2011
£’000
2012
£’000
2011
£’000
Loss for year:
Adjustments for:
Finance income
Finance expense
Share-based payment expense
Income tax expense/(credit)
Amortisation of intangible fixed assets
Depreciation of property plant and equipment
Impairment of intangible assets
Change in fair value of available-for-sale investment
Working Capital
Decrease in work in progress
(Increase)/decrease in trade and other receivables
(Decrease)/increase in trade and other payables
(Decrease)/increase in provisions
Payments to retirement benefit plan
Cash absorbed by operations
Income taxes paid
Net cash flows from operating activities
Investing activities
Acquisitions (net of cash received)
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from disposal of available for sale assets
Net cash used in investing activities
Financing activities
Issue of ordinary shares
Proceeds from finance facility
Net movement on intercompany funding
Interest paid
Net cash (used in)/ from financing activities
Net (decrease)/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
The notes on pages 28 to 60 form part of the financial statements.
7
7
10
11
13
15
13
16
25
9
15
13
16
26
7
(695)
1,061
124
349
233
264
721
–
668
117
(229)
(925)
(1,178)
(1,090)
(2,637)
–
(770)
1,124
177
95
249
288
–
7
(394)
1,044
32
(641)
–
–
–
–
(386)
1,210
91
(363)
–
–
–
(1,129)
(2,368)
(2,433)
121
2,260
(2,570)
(139)
–
–
8,496
(9,651)
(1,035)
–
–
(2,400)
3,334
314
–
(1,457)
(4,558)
(1,185)
(3)
–
–
(2,637)
(1,460)
(4,558)
(1,185)
(1,138)
(113)
(3)
–
(1,254)
5
1,766
–
(250)
1,521
(2,370)
5,241
2,871
–
(11)
–
123
112
6,425
150
–
(231)
6,344
4,996
245
5,241
–
–
–
–
–
5
–
2,057
(249)
1,813
(2,745)
5,107
2,362
–
–
–
–
–
6,425
–
(229)
–
6,196
5,011
96
5,107
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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 6 to 8 and in note 23 to the financial statements. Note 23 also includes the Group’s
objectives for managing capital.
As outlined in note 23, 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. The facility has recently been extended
to December 2014.
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
2012. 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 £2,409,000 (2011:
£2,985,000).
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 2012 adopted by the
Group and published standards not yet effective
No new standards, amendments to published standards or interpretations of existing standards effective in 2012 had a material
impact on the Group’s 2012 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.
Revenue recognition
The Group generates revenue principally through the provision of recruitment and technology services, and to a lesser extent,
through the resale of 3D equipment.
28
Parity Group plc
Report and Accounts 2012
www.parity.net
stock code: PTY
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1 Accounting policies continued
Revenue recognition continued
The Group recognises revenue when certain criteria are met: there is clear evidence that a contract exists, the amount of
revenue can be measured reliably, it is probable that future economic benefits will flow to the Group, the stage of completion can
be measured reliably where services are delivered, and the significant risks and rewards of ownership, including effective control,
are transferred to clients where equipment is sold. Revenue is measured at the fair value of the consideration received or
receivable, net of discounts, volume rebates and 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, using the percentage of completion method,
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.
Revenue from systems integration and consulting services under time and material arrangements is recognised as the services
are rendered.
Revenue for equipment sales is recognised at the point of delivery, which is the point when the significant risks and rewards of
ownership of the equipment have passed to the buyer.
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, transaction costs, 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.
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Notes to the Accounts continued
1 Accounting policies continued
Foreign currencies
Company
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are
taken to the Income statement.
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
The lesser of the asset life and the remaining length of the lease
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.
30
Parity Group plc
Report and Accounts 2012
www.parity.net
stock code: PTY
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1 Accounting policies continued
Impairment of non-financial assets (excluding deferred tax assets) continued
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.
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.
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31
Notes to the Accounts continued
1 Accounting policies continued
Stocks and work in progress
Stocks are stated at the lower of cost and net realisable value. Cost comprises equipment for resale. Net realisable value
represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and
distribution.
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.
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.
Finance leases which are initially measured 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.
Operating 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.
32
Parity Group plc
Report and Accounts 2012
www.parity.net
stock code: PTY
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1 Accounting policies continued
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 total of any unrecognised past
service costs and ) 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.
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 23, 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 an agent 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 and Company 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 and Company.
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.
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Notes to the Accounts continued
1 Accounting policies continued
Share based payments transactions continued
Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured
immediately before and after the modification, is also charged to the Income Statement over the remaining vesting period.
Where equity instruments are granted to persons other than employees, the fair value of goods and services received is charged
against Other Comprehensive Income.
Significant accounting estimates and judgements
The preparation of financial statements under IFRS requires the Group to make estimates and assumptions regarding the future.
Estimates and judgements are continually evaluated and are based on historical experience and other factors including
expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these
estimates. The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount
of assets and liabilities within the next financial year are discussed below.
Property provisions. Provisions for onerous lease costs are based on the future contractual lease obligations of the Group less
future contractual sub-let income. 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.
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 25. 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 14). If forecast
future profitability for Parity Solutions Limited was 10% lower, a deferred tax asset write down of £35,000 would be considered
necessary. The deferred tax asset would not require writing down if the forecast future profitability of Parity Resouces limited was
10% lower.
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 14). 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.
34
Parity Group plc
Report and Accounts 2012
www.parity.net
stock code: PTY
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2 Segmental information continued
Description of the types of services from which each reportable segment derives its revenues
The Group has four segments:
•
•
•
•
Resources – this segment provides contract, interim and permanent IT recruitment services across all markets. Resources
provides 88% (2011: 86%) 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 8% (2011: 11%) 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% (2011: 3%) of the continuing Group’s revenues.
Inition - this segment was acquired by the Group on 29 May 2012. Inition specialises in leading-edge 3D technology
consultancy, systems integration and equipment. Inition provided 3% (2011: nil%) of the continuing Group’s revenues, for the
7 months that it was part of the Group.
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.
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.
Resources
2012
£’000
Systems
2012
£’000
TMS
2012
£’000
Inition
2012
£’000
Total
2012
£’000
75,492
(203)
75,289
(71,289)
4,000
6,517
(13)
6,504
(5,216)
1,288
2,202
–
2,202
(1,528)
674
Revenue
Total revenue
Inter-segment revenue
Revenue from external customers
Attributable costs
Segmental Contribution
Central costs
Adjusted EBITDA before investment costs
Investment costs*
Adjusted EBITDA
Depreciation and amortisation
Share based charges
Non-recurring items
Finance income
Finance costs
Loss before tax (continuing activities)
1,892
86,103
–
(216)
1,892
85,887
(1,634)
(79,667)
258
6,220
(4,488)
1,732
(461)
1,271
(497)
(124)
(1,350)
695
(1,061)
(1,066)
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Notes to the Accounts continued
2 Segmental information continued
Revenue
Total revenue
Inter-segment revenue
Revenue from external customers
Attributable costs
Segmental contribution
Central costs
Adjusted EBITDA before investment costs
Investment costs*
Adjusted EBITDA
Depreciation and amortisation
Share based charges
Non-recurring items
Finance income
Finance costs
Loss before tax (continuing activities)
Resources
2011
£’000
Systems
2011
£’000
68,959
(297)
68,662
(65,156)
3,506
9,222
(13)
9,209
(7,347)
1,862
TMS
2011
£’000
2,271
–
2,271
(1,810)
461
Inition
2011
£’000
Total
2011
£’000
–
–
–
–
–
80,452
(310)
80,142
(74,313)
5,829
(4,785)
1,044
(688)
356
(537)
(177)
(1,437)
770
(1,124)
(2,149)
* 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 23, “Capital disclosures”).
The continuing Group operates exclusively in the UK. All revenues are generated and all segment assets are located in those
countries.
51% (2011: 62%) or £38.5m (2011: £42.5m) of the Resources revenue was generated in the Public Sector. 52% (2011: 63%) or
£3.4m (2011: £5.8m) of the Systems revenue was generated in the Public Sector. 76% (2011: 86%) or £1.7m (2011: £2.0m) of
the Talent Management revenue was generated in the Public Sector. Inition’s revenues are exclusively generated in the Private
Sector.
The largest single customer in Resources contributed revenue of £11.7m or 16% and was in the private sector (2011: of £9.9m
or 14% and in the private sector). The largest single customer in Systems contributed revenue of £2.7m or 41% and was in the
public sector (2011: £3.3m or 36% a in the public sector). The largest single customer in TMS contributed revenue of £0.9m or
40% and was in the public sector (2011: £1.2m or 51% in the public sector). The largest single customer in Inition contributed
revenue of £0.2m or 11% and was in the private sector (2011: Inition not part of the Group).
36
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3 Operating costs
Continuing operations
Employee benefi t 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
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
Consolidated
2012
£’000
2011
£’000
7,124
768
366
8,258
233
264
497
71,917
990
52
1,245
(452)
495
514
5
124
2,942
77,832
86,587
6,972
787
230
7,989
249
288
537
66,295
1,983
44
1,154
(304)
591
1,047
4
177
2,420
73,411
81,937
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Disclosures relating to the remuneration of Directors are set out on page 17 to 21.
During the year the Group obtained the following services for the Group’s auditor, KPMG Audit plc:
Audit services:
Statutory audit of the Company and Group fi nancial statements
Statutory audit of the Company’s subsidiaries pursuant to legislation
Amounts paid to previous auditor under legislation
Non-audit services:
Tax compliance
Other services
Consolidated
2012
£’000
2011
£’000
10
68
–
78
23
289
312
390
10
59
20
89
21
–
21
110
All non-audit services have been performed in the United Kingdom.
On 25 October 2011, the previous auditor resigned as auditor to the Group. Remuneration amounts in 2011 relate to the new
auditor, unless otherwise stated.
Other advice received in 2012 relates to services provided in relation to acquisition activity.
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37
Notes to the Accounts continued
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
2012
£’000
(700)
1,350
124
497
1,271
2011
£’000
(1,795)
1,437
177
537
356
5
3
3
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
Transaction costs
Restructuring
– Employee benefi t costs
– Other operating costs
Property provisions (other operating costs)
Discontinued Operations
Property provisions
2012
£’000
840
226
735
(451)
1,350
19
19
2011
£’000
–
–
491
946
1,437
36
36
The continuing operations non-recurring charge for 2012 includes transaction costs, restructuring costs and a credit relating to
surplus property. Transaction costs refer to the professional services rendered in the Group’s acquisition programme, and mainly
relate to the acquisition of Inition Limited and an aborted acquisition. Restructuring costs refer to the employee costs incurred in
relation to the re-organisation of Parity Systems. Other operating costs refers to the write off of the net book value of the Group’s
financial system (£721,000), and professional fees of £14,000 in relation to employees affected by the reorganisation. New
financial systems will be implemented across the Group, commencing with the Systems division, which plans to go-live in Q1
2013. The credit for surplus properties relates to the sublet of an unoccupied area of the Wimbledon head office, for which the
lease costs had been previously provided for, and reflects the contracted sub-let income to the end of the sub-lease.
The discontinued operations non-recurring charge relates to the costs payable for an ex-Parity Training Limited office, and the
unwind of the provision discount in respect of discontinued properties.
In 2011 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 was decided that the Belfast office would relocate to a more
suitable location, incurring costs of £0.12m. Both of these decisions have resulted in cost savings to the Group. In addition, the
directors took the prudent view that the vacant office of the Wimbledon property was unlikely to be sub-let before the head lease
expired, and therefore the previously unprovided costs to the end of the lease in 2014 of £0.95m were provided for.
Discontinued operations in 2011 relates to the unwinding of the provision discount, and a small top-up of the provision for an ex
Parity Training building.
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6 Average staff numbers
Continuing operations
Resources – United Kingdom1
Systems – United Kingdom, including corporate offi ce2
Talent Management – United Kingdom
Inition – United Kingdom
1 Includes 29 (2011: 27) employees providing shared services across the Group.
2 Includes 7 (2011: 7) employees of the Company.
At 31 December 2012, the Group had 156 continuing employees (2011: 161).
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
2012
number
2011
number
74
47
29
12
162
2012
£’000
695
695
250
811
1,061
75
60
34
–
169
2011
£’000
770
770
231
893
1,124
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 £83,000.
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.
The post-tax result of discontinued operations was determined as follows:
Income/(expenses) other than fi nance costs
Non-recurring costs (note 5)
Pre-tax profi t (loss)
Taxation
Profi t/(loss) for the year
2012
£’000
45
(19)
26
–
26
2011
£’000
(19)
(36)
(55)
(3)
(58)
For 2012 the pre-tax profit represents the write back of various accruals where the directors consider there to be no liability, offset
by company secretarial and accounting fees.
For 2011 the pre-tax loss relates to legacy overseas subsidiaries of the Group, and comprises company secretarial and
accounting fees.
The Statement of Cash Flows includes a £274,000 (2011: £67,000) cash outflow from operating activities in respect of
discontinued operations.
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39
Notes to the Accounts continued
9 Acquisition of subsidiary
On 29 May 2012, Parity Digital Solutions Limited, a wholly owned subsidiary of the Group, acquired 100% of the issued share
capital of Inition Limited. Inition is a UK based operator, specialising in 3D solutions.
The fair values of the assets and liabilities acquired are set out in the table below.
Inition Limited
Note
Book value
£’000
Fair value
adjustments
£’000
Fair value
£’000
Property, plant and equipment
Trade and other receivables
Stock and other assets
Current tax asset
Cash and cash equivalents
Less cash repaid to vendors
Net cash and cash equivalents
Trade and other payables
Deferred income
Deferred tax liability
Net assets acquired
Consideration paid:
Cash paid
Shares issued
Contingent consideration
Total
Goodwill arising
107
143
137
8
561
(200)
361
(330)
(331)
(4)
91
–
–
–
–
–
–
–
–
–
–
–
11
107
143
137
8
561
(200)
361
(330)
(331)
(4)
91
1,500
750
1,000
3,250
3,159
The Sale and Purchase Agreement allowed for the repayment of surplus cash in excess of £250,000, up to a maximum surplus
of £200,000. Since the acquired cash balance was £561,000, an amount of £200,000 became due to the vendors of Inition.
This liability was paid to the vendors during 2012.
The directors have assessed the potential intangible assets of Inition, and concluded that none exist. The directors have also
assessed the fair value of the assets and liabilities acquired and concluded that they are not materially different from their book
values.
Inition contributed revenue of £1,892,000, a contribution of £258,000 and a profit before tax of £214,000 to the Group results
for the year. These results are included in the segmental analysis in Note 2.
If Inition’s results had been consolidated from 1 January 2012, then it would have contributed revenue of £3,099,000 and a profit
before tax of £333,000.
Contingent consideration
The Group agreed to pay the vendors additional cash consideration subject to the on-going performance of Inition up to
31 March 2014 (an earn-out of £0.5 million is payable to the vendors if Inition makes at least £0.3m profit before interest and tax
in the year to 31 March 2013, and a further £0.5m is payable if Inition makes a profit before interest and tax of at least £0.5m in
the following year). At 31 December 2012 Inition had already met the first earn-out profit target.
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10 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.
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 £124,000
(2011: £177,000).
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
2012
Weighted
average
exercise
price (p)
12
22
9
24
14
2012
Number
6,368,668
1,542,329
(62,500)
(441,910)
7,406,587
2011
Weighted
average
exercise
price (p)
11
24
12
22
12
2011
Number
6,458,568
1,255,100
(285,000)
(1,060,000)
6,368,668
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
19 – 28
165 – 209
2012
Weighted average
contractual life (years)
5
6
1
Number
5,039,133
2,357,429
10,025
7,406,587
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
Of the total number of options outstanding at the end of the year, 297,525 (2011: 11,935) had vested and were exercisable at the
end of the year. The weighted average exercise price of those options was £0.15 (2011: £1.92).
The weighted average fair value of each option granted during the year was 22 pence (2011: 17 pence).
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41
Notes to the Accounts continued
10 Share based payments continued
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
2012
Stochastic
2011
Stochastic
25
22
7
4
28
24
7
4
57-70%
64 – 77%
1.18%
0%
1.26%
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%.
11 Taxation
Current tax expense
Current tax on loss for the year
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
Trading losses
Adjustments in respect of prior periods
Total tax expense/(credit)
Income tax expense from continuing operations
Income tax expense from discontinued operations
2012
£’000
2011
£’000
–
–
(33)
1
118
245
18
–
349
349
–
349
–
–
–
(5)
137
(33)
–
(7)
92
92
3
95
The 2012 Budget on 21 March 2012 announced that the UK corporation tax rate will reduce to 22% by 2014. A reduction in the
rate from 26% to 25% (effective from 1 April 2011) was substantively enacted on 5 July 2011, and further reductions to 24%
(effective from 1 April 2012) and 23% (effective from 1 April 2013) were substantively enacted on 26 March 2012 and 3 July 2012
respectively.
This will reduce the company’s future current tax charge accordingly. It has not yet been possible to quantify the full anticipated
effect of the announced further 1% rate reduction, although this will further reduce the company’s future current tax charge and
reduce the company’s deferred tax asset accordingly.
The 2012 tax expense is after a tax credit of £148,000 (2011: £116,000) in respect of exceptional items.
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11 Taxation continued
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 24.5% (2011 26.5%)
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
(64)
(1,554)
(1,618)
2012
Tax
£’000
–
287
287
After tax
£’000
Before tax
£’000
(64)
(1,267)
(1,331)
24
81
105
2012
£’000
2011
£’000
(1,389)
(2,299)
349
95
(1,040)
(2,204)
(256)
264
3
118
220
349
2011
Tax
£’000
–
(22)
(22)
(584)
105
8
137
429
95
After tax
£’000
24
59
83
12 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
2012
£’000
Earnings
2012
£’000
Earnings
per share
2012
Pence
Weighted
avergae number
of shares
2011
£’000
Earnings
2011
£’000
(1,415)
70,578
(2.00)
(2,241)
56,155
–
–
–
(1,415)
70,578
(2.00)
(2,241)
56,155
Earnings
per share
2011
Pence
(3.99)
–
(3.99)
As at 31 December 2012 the number of ordinary shares in issue was 71,835,594 (2011: 68,741,567).
Basic and diluted earnings per share from discontinued operations was 0.04p (2011: basic and diluted loss 0.10p).
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43
Notes to the Accounts continued
13 Intangible assets
Cost
At 1 January
Additions
Impairment
Disposals
At 31 December
Accumulated amortisation
At 1 January
Charge for the year
Impairment
Disposals
At 31 December
Net book amount
Software
Goodwill
Total
2012
£’000
2011
£’000
1,555
3
(1,555)
–
3
602
233
(835)
–
–
3
1,705
–
–
(150)
1,555
503
249
–
(150)
602
953
2012
£’000
4,594
3,159
–
–
2011
£’000
4,594
–
–
–
7,753
4,594
–
–
–
–
–
–
–
–
–
–
2012
£’000
6,149
3,162
(1,555)
–
7,756
602
233
(835)
–
–
2011
£’000
6,299
–
–
(150)
6,149
503
249
–
(150)
602
7,753
4,594
7,756
5,547
During the year the directors decided that the Group’s financial system was no longer appropriate for the Group’s needs. The
system will be replaced in 2013, using a phased approach to implement new systems for each business unit. The impairment of
the incumbent finance system was £721,000.
As at 31 December 2012, the Group had signed contracts for a new financial system for its System’s division at a cost of
£16,000. Neither the Group nor the Company had any additional capital commitments for the purchase of intangible assets as at
the balance sheet date.
14 Goodwill
The carrying amount of goodwill is allocated to the cash generating units (CGU’s) as follows:
Resources
Solutions
Digital Solutions
Goodwill carrying amount
2012
£’000
1,470
3,124
3,159
7,753
2011
£’000
1,470
3,124
–
4,594
The Goodwill arising on the acquisition of Inition (see note 9) is allocated to the Group’s embryonic Digital Solutions division. As at the
balance sheet date this CGU is comprised solely of the Inition business, and the recoverable amount is based purely on Inition’s
projected pre-tax cash flows. The Digital Solutions division is discussed in the Chairman’s statement on strategy on page 2.
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.
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14 Goodwill continued
Major assumptions are as follows:
2012
Discount rate
Forecast revenue growth
Operating margin 2013
Operating margin 2014 onward
2011
Discount rate
Forecast revenue growth
Operating margin 2012
Operating margin 2013 onward
Resources
%
Systems
%
Digital
Solutions
%
7.7
9.2
2.8
3.2
7.2
8.4
3.4
3.6
6.1
17.7
4.7
5.1
7.2
20.7
4.7
11.3
6.1
37.4
10.6
9.5
–
–
–
–
Discount rates are based on the Group’s weighted average cost of capital adjusted for the specific risks of each cash generating unit.
Forecast revenue growth is expressed as the compound growth rate over the next 4 years, and is based on the workings used
for impairment testing. For Resources the rates are based on past experience of growth in revenues and future expectations of
economic conditions. For Solutions and Inition, the growth rates also incorporate the expected return on planned investment.
Operating margins are based on past experience adjusted for investments, and cost action taken in 2012.
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.
15 Property, plant and equipment
Consolidated
At cost
Balance at 1 January 2011
Additions
Disposals
Balance at 31 December 2011
Balance at 1 January 2012
Additions
Acquisitions through business combinations
Disposals
Balance at 31 December 2012
Accumulated depreciation
Balance at 1 January 2011
Depreciation charge for the year
Disposals
Balance at 31 December 2011
Balance at 1 January 2012
Depreciation charge for the year
Acquisitions through business combinations
Disposals
Balance at 31 December 2012
Net book value
At 1 January 2011
At 31 December 2011
At 31 December 2012
Leasehold
improvements
£’000
Offi ce
equipment
£’000
Total
£’000
1,147
2,864
4,011
–
–
1,147
1,147
17
–
(234)
930
440
158
–
598
598
148
–
(120)
626
707
549
304
11
(30)
2,845
2,845
96
250
(41)
3,150
11
(30)
3,992
3,992
113
250
(275)
4,080
2,701
3,141
130
(30)
2,801
2,801
116
143
(21)
3,039
163
44
111
288
(30)
3,399
3,399
264
143
(141)
3,665
870
593
415
45
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Notes to the Accounts continued
15 Property, plant and equipment continued
As at 31 December 2012, neither the Group nor the Company had any capital commitments contracted for but not provided, for
the purchase of tangible assets (2011: £nil).
Leased plant and equipment
As a result of the acquisition of Inition, the Group acquired a 3D camera which is leased under a finance lease agreement. The
Group does not lease any other plant or equipment under finance lease agreements. At 31 December 2012 the net carrying value
of the leased equipment was £18,842 (2011: £nil).
16 Available for sale financial assets
At 1 January
Revaluation
Exchange loss
Disposals
At 31 December
Consolidated
2012
£’000
–
–
–
–
–
2011
£’000
134
(7)
(4)
(123)
–
These assets comprise equity securities quoted in the US, which were sold on the open market during 2011.
17 Deferred tax
At 1 January
Acquired in business combinations
Depreciation in excess of capital allowances
Trading Losses
Recognised in other comprehensive income
Actuarial gain on defi ned benefi t pension scheme
Recognised in the income statement
Change in enacted tax rate
Adjustments in relation to prior periods
Depreciation in excess of capital allowances
Retirement benefi t liability
Trading Losses
Other short term timing differences
At 31 December
The deferred tax asset of £1,318,000 (2011: £1,384,000) comprises:
Depreciation in excess of capital allowances
Retirement benefi t liability
Short term and other timing differences
Consolidated
2012
£’000
1,384
(22)
18
2011
£’000
1,498
–
287
( 22)
(118)
(137)
1
33
(245)
(18)
(2)
7
–
33
5
1,318
1,384
Consolidated
2012
£’000
893
314
111
2011
£’000
959
303
122
1,318
1,384
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 14). Commentary on the Group’s
profitability and its future prospects is given in the Operating and Financial Review on pages 3 to 8.
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.
46
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stock code: PTY
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17 Deferred tax continued
The 2012 Budget on 21 March 2012 announced that the UK corporation tax rate will reduce to 22% by 2014. A reduction in the
rate from 26% to 25% (effective from 1 April 2011) was substantively enacted on 5 July 2011, and further reductions to 24%
(effective from 1 April 2012) and 23% (effective from 1 April 2013) were substantively enacted on 26 March 2012 and 3 July
2012 respectively.
The deferred tax asset at 31 December 2012 has been calculated based on the rate of 23% substantively enacted at the
balance sheet date.
It has not yet been possible to quantify the full anticipated effect of the announced further 1% rate reduction, although this will
further reduce the company’s future current tax charge and reduce the company’s deferred tax asset accordingly.
The movements in deferred tax assets during the period are shown below:
Asset
2012
£’000
893
111
314
–
1,318
Depreciation in excess of capital allowances
Other short-term timing differences
Retirement benefi t plan liability
Trading Losses
Depreciation in excess of capital allowances
Other short-term timing differences
Retirement benefi t plan liability
Acquired in
business
combinations
2012
£’000
Charged/
(credited) to
Charged/
(credited) to
other
income comprehensive
income
2012
£’000
statement
2012
£’000
(22)
–
–
18
(4)
Asset
2011
£’000
959
122
303
1,384
(44)
(11)
(276)
(18)
(349)
–
–
287
–
287
Charged/
(credited) to
income
statement
2011
£’000
Charged/
(credited) to
other
comprehensive
income
2011
£’000
75
26
(9)
92
–
–
22
22
The Group has unrecognised carried forward tax losses of £23,649,000 (2011: £26,143,000). The Company has unrecognised
carried forward tax losses of £17,216,000 (2011: £19,794,000). The Group has unrecognised capital losses carried forward of
£281,875,386 (2011: £281,875,386). These losses may be carried forward indefinitely.
18 Stocks and work in progress
Stocks
Work in progress - net costs less foreseeable losses
Net costs less foreseeable losses
Consolidated
2012
£’000
20
–
20
2011
£’000
–
116
116
Stocks refers to 3D equipment purchased for resale, and are stated at the lower of cost and net realisable value.
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.
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47
Notes to the Accounts continued
19 Trade and other receivables
Amounts falling due within one year:
Trade receivables
Accrued income
Amounts recoverable on contracts
Amounts owed by subsidiar y undertakings
Corporation tax due to be refunded
Other receivables
Prepayments
Amounts falling due after one year:
Amounts owed by subsidiar y undertakings
Total
Consolidated
Company
2012
£’000
7,626
4,351
510
–
8
57
492
2011
£’000
5,824
5,351
637
–
–
299
428
2012
£’000
2011
£’000
–
–
–
–
–
–
2,613
2,913
–
–
6
–
–
2
13,044
12,539
2,619
2,915
–
–
13,044
12,539
69,763
72,382
77,241
80,156
The fair values of trade and other receivables are not considered to differ from the values set out above.
The Group’s trade receivables of 7,626,000 (2011: £5,824,000) and £4,176,000 (2011: £4,739,000) 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
£8,270,000 (2011: £6,504,000).
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
(Decreases)/increases in provisions
Written off against provisions
Recovered amounts reversed
Closing balance
Consolidated
2012
£’000
87
(36)
(18)
–
33
2011
£’000
111
12
(36)
–
87
All balances provided at 31 December 2012 and 31 December 2011 were greater than 60 days old. The allowance account
represents full provision against specific gross debts.
As at 31 December 2012 trade receivables of £902,000 (2011: £1,301,000) 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
6,724
605
211
119
7,659
Impaired
£’000
–
–
–
(33)
(33)
2012
Total
£’000
6,724
605
211
86
Gross
£’000
4,523
1,120
207
61
7,626
5,911
Impaired
£’000
–
–
(26)
(61)
(87)
2011
Total
£’000
4,523
1,120
181
–
5,824
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.
48
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20 Loans & Borrowings
Non-current
Finance lease liabilities
Current
Bank and other borrowings due within one year or on demand:
Asset-based fi nancing facility
Current portion of fi nance lease liabilities
Finance lease liabilities
Less than one year
Between one and two years
Future
minimum
lease
payments
2012
£’000
13
8
21
Present
value of
minimum
lease
payments
2012
£’000
12
8
20
Future
minimum
lease
payments
2011
£’000
–
–
–
Interest
2012
£’000
1
–
1
Further details of the Group’s banking facilities are given in note 23.
21 Trade and other payables
Consolidated
2012
£’000
2011
£’000
8
8
–
–
8,270
13
8,283
6,504
–
6,504
Present
value of
minimum
lease
payments
2011
£’000
–
–
–
Interest
2011
£’000
–
–
–
Amounts falling due within one year:
Payments in advance
Trade payables
Amounts due to subsidiary undertakings
Other tax and social security payables
Other payables and accruals
Amounts falling due after one year:
Amounts due to subsidiary undertakings
Other payables and accruals
Total
Consolidated
Company
2012
£’000
165
5,365
–
1,412
1,996
8,938
–
500
2011
£’000
185
5,946
2012
£’000
–
–
-
2,209
986
1,666
8,783
23
259
2,491
2011
£’000
-
5
1,391
72
213
1,681
–
–
74,656
83,328
–
–
9,438
8,783
77,147
85,009
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49
Notes to the Accounts continued
22 Provisions
Consolidated
At 1 January 2012
Created in year
Utilised in year
Released in year
Unwind of discount
At 31 December 2012
Due within one year or less
Due after more than one year
Total
Company
At 1 January 2012
Created in year
Utilised in year
Released in year
Unwind/(creation) of discount
At 31 December 2012
Due within one year or less
Due after more than one year
Total
Leasehold
dilapidations Onerous leases
£’000
248
30
(109)
(35)
7
141
–
141
141
214
23
(95)
(15)
6
133
–
133
133
£’000
1,699
40
(548)
(606)
44
629
308
321
629
Total
£’000
1,947
70
(657)
(641)
51
770
308
462
770
1,581
1,795
40
(550)
(486)
42
627
305
322
627
63
(645)
(501)
48
760
305
455
760
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 three years. The main uncertainty relates to the estimation of the costs that will be incurred at the end of the
lease.
Onerous leases
This provision relates to office space no longer occupied by the Group, and represents the excess of rents payable over rents
receivable on sub-let office space. Of the non-current amounts provided, approximately £248,000 is expected to fall within 2014.
50
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stock code: PTY
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23 Financial instruments – risk management
The Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies
and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of
these risks is presented throughout these financial statements.
There have been no substantive changes in the Group’s exposure to financial instrument risks and the methods used to measure
them from previous periods unless otherwise stated in this note.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are trade receivables, cash and
cash equivalents, quoted investments, trade and other payables and bank borrowings.
A summary by category of the financial instruments held by the Group is provided below:
Consolidated
As at 31 December 2012
Financial assets
Net cash and cash equivalents
Trade and other short term receivables
Financial liabilities
Asset-based fi nancing facility
Finance Lease liabilities
Trade and other short term payables
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
Finance Lease liabilities
Trade and other short term payables
Amortised
cost
£’000
Loans and
receivables
£’000
–
–
–
2,871
12,544
15,415
8,270
21
8,773
17,064
–
–
–
–
–
–
–
5,241
12,111
17,352
6,504
–
8,598
15,102
–
–
–
–
Total
£’000
2,871
12,544
15,415
8,270
21
8,773
17,064
5,241
12,111
17,352
6,504
–
8,598
15,102
51
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Notes to the Accounts continued
23 Financial instruments – risk management continued
A summary by category of the financial instruments held by the Company is provided below:
Company
As at 31 December 2012
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
As at 31 De cember 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
Amortised
cost
£’000
Loans and
receivables
£’000
Total
£’000
–
–
–
–
69,763
69,763
2,362
2,613
2,362
2,613
74,738
74,738
2,492
74,656
77,148
–
–
–
2,492
74,656
77,148
–
–
–
–
77,241
77,241
5,107
2,913
5,107
2,913
85,261
85,261
1,681
83,328
85,009
–
–
–
1,681
83,328
85,009
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 54% (2011: 63%) of the Group’s turnover is derived from the public
sector. The largest customer balance represents 20% (2011:19%) 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 19.
2012
Carrying
value
£’000
2,871
12,544
15,415
Maximum
exposure
£’000
2,871
12,544
15,415
2011
Carrying
value
£’000
5,241
12,111
17,352
Maximum
exposure
£’000
5,241
12,111
17,352
Financial assets
Cash and cash equivalents
Trade and other receivables
Total fi nancial assets
52
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23 Financial instruments – risk management continued
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 2012 and 2011 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 £83,000 higher/lower and net assets £83,000 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 2012 or 2011.
The currency profile of the Group’s net financial assets was as follows:
Sterling
Functional currency of individual entity
Euro
US Dollar
Net foreign currency 2012
fi nancial assets
£’000
2011
£’000
2012
£’000
2011
£’000
Sterling
Euro
US Dollar
Total net exposure
–
1
23
24
–
–
4
4
23,931
23,449
–
1,225
25,156
–
1,247
24,696
2012
£’000
966
–
–
966
The profile of the Company’s net financial assets was as follows:
2011
£’000
966
–
–
966
Total
2012
£’000
2011
£’000
24,897
24,415
1
1,248
26,14 6
–
1,251
25,666
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Net foreign currency fi nancial assets
Sterling
Euro
US Dollar
Total net exposure
Functional currency: Sterling
2011
2012
£’000
£’000
–
–
23
23
–
–
4
4
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.
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53
Notes to the Accounts continued
23 Financial instruments – risk management continued
The following table sets out the contractual maturities (representing undiscounted contractual cash flows) of financial liabilities:
Consolidated
At 31 December 2012
Trade and other payables
Borrowings
Total
Consolidated
At 31 December 2011
Trade and other payables
Borrowings
Total
Company
At 31 December 2012
Trade and other payables
Borrowings
Total
Company
At 31 December 2011
Trade and other payables
Borrowings
Total
Up to
1 month
£’000
8,938
8,270
17,208
Up to
1 month
£’000
8,783
6,504
15,287
Between
1 and
12 months
£’000
Over
1 month
£’000
500
21
521
Over
1 month
£’000
–
–
–
Over
1 year
£’000
Total
£’000
9,438
8,291
17,729
Total
£’000
8,783
6,504
15,287
Total
£’000
–
–
–
74,656
77,147
–
–
74,656
77,147
Between
1 and
12 months
£’000
Over
1 year
£’000
Total
£’000
–
–
–
83,328
85,009
–
–
83,328
85,009
Up to
1 month
£’000
2,491
–
2,491
Up to
1 month
£’000
1,681
–
1,681
More detail on trade and other payables is given in note 21.
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, except for a finance lease which the Group acquired through its purchase of Inition.
The lease represents a liability of £21,000 and is repayable within two years. The Company is funded through equity and
intercompany loans.
The Group uses an asset-based finance facility with PNC Business Credit, a member of The PNC Financial Services Group, Inc.
The facility, which enables the Group to borrow against both trade debt and accrued income and provides for borrowing of up to
£15.0m depending on the availability of appropriate assets as security.
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 have been used by
management to provide additional working capital, invest in new initiatives, and take advantage of opportunities to reduce the
cost base.
The Group’s and Company’s objectives when maintaining capital are:
● to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and
benefits for other stakeholders; and
● to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.
54
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23 Financial instruments – risk management continued
Cash and cash equivalents
Asset-based borrowings
Net debt
2012
£’000
2,871
(8,270)
(5,399)
2011
£’000
5,241
(6,504)
(1,263)
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.
On the 10 January 2013, the Group issued 3,125,000 new ordinary shares raising approximately £600,000 (net of expenses).
See note 32.
24 Reserves
The Board is not proposing a dividend for the year (2011: 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.
On 29 May 2012, the Group issued 3,031,527 New Ordinary Shares as partial consideration for the acquisition of Inition Limited
(see note 10). Following the issue of the shares, and also the exercising of 62,500 share options, the share capital increased
from £15,693,948 to £15,755,829.
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 shares issued as partial consideration for the acquisition of Inition Limited at a price of 24.74 pence in May 2012,
the share premium increased from £25,944,124 to £26,637,869.
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
(2011: £351,000).
25 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 £216,000 (2011: £206,000).
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.
2012
2011
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
%
3.6
4.3
3.0
2.2
4.5
Note: the rate of increase in pensionable salaries is no longer applicable as the scheme is closed for future service.
%
3.6
4.7
3.0
2.0
4.6
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Notes to the Accounts continued
25 Pension commitments continued
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
2012, yields on gilts were approximately 2.5% and on corporate bonds were 4.3%. Equities are assumed to carry a risk
premium over gilt returns of 6.5%. 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 2012 is in accordance with the standard table known as S1PA Light using the CMI
2011 projection based on year of birth with a long term rate of improvement of 1.5% p.a. The 2011 assumption 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.
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
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
2012
£’000
16,620
(19,667)
(3,047)
2011
£’000
15,206
(17,673)
(2,467)
2012
£’000
2011
£’000
15,206
14,550
695
1,090
(833)
462
770
–
(869)
755
16,620
15,206
2012
£’000
5,938
5,168
5,287
96
131
2011
£’000
5,214
5,008
4,770
96
118
16,620
15,206
2012
£’000
2011
£’000
17,673
16,975
811
(833)
2,016
19,667
893
(869)
674
17,673
The actuarial loss for the year of £2,016,000 (2011: £674,000) in respect of plan liabilities is mainly as a result of the change in the
discount rate over the period, which has increased the value of the scheme liabilities.
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25 Pension commitments continued
The cumulative amount of actuarial losses recognised since 1 January 2002 in other comprehensive income is £6,389,000
(2011: £4,835,000). 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)
2012
£’000
695
811
2011
£’000
770
893
The actual return on plan assets was £1,157,000 (2011: £1,525,000). This represents the sum of the expected return on assets
and the actuarial gain.
2012
£’000
2011
£’000
16,620
15,206
(19,667)
(17,673)
(3,047)
(2,467)
462
2.9%
2,016
11.4%
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%)
Defined benefit obligation trends
Plan assets
Plan liabilities
Deficit
Experience adjustments on assets
Experience adjustments on liabilities
2 6 Share capital
Authorised share capital
Authorised at 1 January
Authorised at 31 December
Issued share capital
Ordinary shares 2p each
Deferred shares of 0.04p each
2012
number
409,044,603
409,044,603
2012
£000
8,181
8,181
2012
number
35,797,769,808
35,797,769,808
2012
£000
14,319
14,319
Ordinary shares 2p each
Deferred shares of 0.04p each
2012
£000
2012
number
2012
£000
Issued and fully paid at 1 January
New Issue (fully paid)
Share options exercised
2012
number
68,741,567
3,031,527
62,500
1,375
35,797,769,808
14,319
15,694
61
1
–
–
–
–
61
1
Issued and fully paid at 31 December
71,835,594
1,437
35,797,769,808
14,319
15,756
On 29 May 2012, the Group issued 3,031,527 New Ordinary Shares as partial consideration for the acquisition of Inition Limited
(see note 9). The deemed cash value of the issue was £0.75m representing an issue price per ordinary share of 24.74 pence,
being the average of closing mid-market share prices of the Group over the 30 previous trading days before completion.
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.
2012
Number
43,143
2011
Number
43,143
57
(876)
(7.3%)
(193)
(1.4%)
Total
2012
£000
22,500
22,500
Total
2012
£000
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Notes to the Accounts continued
2 7 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
Discontinued operations
Amounts payable:
Within one year
Between two and five years
Operating leases – lessor
Land and
buildings
2012
£’000
Plant and
machinery
2012
£’000
Land and
buildings
2011
£’000
Plant and
machinery
2011
£’000
1,248
1,062
2,310
–
–
–
51
71
122
–
–
–
1,133
2,073
3,206
355
–
355
52
76
128
–
–
–
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
Discontinued operations
Amounts receivable:
Within one year
Between two and fi ve years
Land and
buildings
2012
£’000
Land and
buildings
2011
£’000
522
484
1,006
–
–
–
305
644
949
215
–
215
28 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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29 Key management remuneration
Key management comprises the Board of Directors. The total remuneration received by key management for 2012 was
£896,000 (2011: £895,000). 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
30 Related party transactions
Company
2012
£’000
660
28
180
–
28
896
2011
£’000
633
29
30
113
90
895
Details of the Company’s holding in Group undertakings are given in note 31. The Company entered into transactions with other
Group undertakings as shown in the table below.
Operating
costs
2012
£’000
Amounts incurred from Group subsidiaries
(719)
Amounts charged to Group subsidiaries
–
Finance
income
2012
£’000
–
394
Finance
expense
2012
£’000
Operating
costs
2011
£’000
(795)
(1,324)
–
–
Finance
income
2011
£’000
–
386
Finance
expense
2011
£’000
(979)
–
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 19)
Falling due after one year (note 19)
Amounts due to subsidiary undertakings
Falling due within one year (note 21)
Falling due after one year (note 21)
During the year, other related party transactions were as follows:
Related party relationship
Type of transaction
Directors
Purchase of Group shares
2012
£’000
2011
£’000
2,613
69,763
2,913
77,241
(2,209)
(1,391)
(74,656)
(83,328)
Transaction
Amount
2012
£’000
Transaction
Amount
2011
£’000
–
556
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Notes to the Accounts continued
31 Subsidiaries
The principal subsidiaries of Parity Group plc, which have been included in these consolidated financial statements, are Parity
Resources Limited, Parity Solutions Limited and Inition Limited. Parity Resources Limited and Parity Solutions Limited are
wholly owned by Parity Holdings Limited and incorporated in the United Kingdom. Inition Limited is wholly owned by Parity
Digital Solutions Limited and is incorporated in the United Kingdom. Parity Digital Solutions Limited is a direct subsidiary of
Parity Holdings Limited, and 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. Inition Limited specialises in 3D solutions and equipment.
The Company’s investment in subsidiary was reviewed for impairment at the year end owing to the performance during 2012.
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 (2011: £20,527,000). The assessment was performed on a value in use
basis using discount rates of between 6.1% and 7.7% (2011: 7.2%) and the other parameters used in the goodwill impairment
review, as outlined in note 14.
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
32 Post Balance Sheet Events
On the 10 January 2013, the Group announced the issue of 3,125,000 new ordinary shares of 2p each at 20 pence per share
to raise approximately £600,000 (net of expenses). The issue price represents a discount of 7.0% to the closing middle market
price on 9 January 2013 (being the last dealing day prior to the announcement). The proceeds will be used to fund the first
earn-out in relation to the acquisition of Inition as announced on 29 May 2012 and potential future transaction costs. Inition has
performed beyond expectations, earning the founders their first year earn-out in only seven months, reinforcing the Board’s
confidence in its digital media strategy. The Company has already funded the upfront £1.5 million cash cost of the Inition
acquisition.
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About Parity
The Parity Group operates in two distinct fi elds:
PARITY PROFESSIONALS
Parity Resources provides skilled IT
professionals, consultants and project
managers to a wide range of leading
UK companies on a temporary and
permanent basis.
Parity Talent Management provides
graduate selection, training, placement
and career development services.
PARITY DIGITAL SOLUTIONS
Building on its core expertise, Parity is
creating a unique, Creative Technology,
marketing services business through
acquisition. This division currently
comprises:
Inition is a leading 3D technology
specialist that creates leading edge
marketing installations.
Systems provides business
intelligence development and
consulting to both the private and
public sectors.
IT Professional Services
Digital Media &
Marketing Services
Contents
01 Headlines
02 Chairman’s Statement
03 Operating Review
06 Financial Review
09 Board of Directors
10 Directors’ Report
12 Social, Environmental and Ethical Policies
13 Corporate Governance Report
17 Remuneration Report
22
Independent Auditor’s Report
23 Consolidated Income Statement
24 Statement of Comprehensive Income
25 Statements of Changes in Equity
26 Statements of Financial Position
27 Statements of Cash Flows
28 Notes to the Accounts
IBC Corporate Information
IBC Advisors
Parity Group plc
Report and Accounts 2012
www.parity.net
stock code: PTY
Corporate information
Registered office
Wimbledon Bridge House
1 Hartfi eld Road, Wimbledon
London, SW19 3RU
Tel: 0845 873 0790
Fax: 020 8545 6355
Registered in England & Wales No. 3539413
Registrars
Equiniti Limited,
Aspect House, Spencer Road, Lancing,
West Sussex, BN99 6DA
Tel: 0870 600 3964
Fax: 0870 600 3980
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
Equiniti offer a range of information on-line. You can access
information on your shareholding, indicative share prices and
dividend details and fi nd practical help on transferring shares or
updating your details at www.shareview.co.uk
Financial advisors & stockbrokers
N+1 Singer
One Bartholomew Lane
London
EC2N 2AN
Solicitors
Pinsent Masons
30 Crown Place
London
EC2A 4ES
Enquiries concerning shareholdings in Parity Group plc
should be directed, in the fi rst 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 offi ce at the registered offi ce address below or from
the Parity Group website at www.parity.net
The Company Secretary
Parity Group plc
Wimbledon Bridge House
1 Hartfi eld Road, Wimbledon,
London, SW19 3RU
Or by email to: cosec@parity.net
Parity has offices in:
London
Wimbledon
Edinburgh
Camberley
Sale
Belfast
For all general enquires call 0845 873 0790
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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 228174
Parity Group plc Report and Accounts
Year ended 31 December 2012
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