PARITY GROUP PLC
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 231526
Parity Group plc Report and Accounts
Year ended 31 December 2013
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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 . 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
Strategic Report
02 Chairman’s Statement
04 Operating Review
07 Financial Review
Governance
10 Board of Directors
11 Directors’ Report
13 Social, Environmental & Ethical Policies
14 Corporate Governance Report
18 Remuneration Report
23
Independent Auditor’s Report to the Members of Parity
Group Plc
Financials
24 Consolidated Income Statement
25 Statement of Comprehensive Income and Statement of
Changes in Equity
27 Statements of Financial Position
28 Statements of Cash Flows
29 Notes to the Accounts
60 Corporate Information
60 Advisors
Parity Group plc
Report and Accounts 2013
www.parity.net
stock code: PTY
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Headlines
Parity Group plc reports another good year of growth, increased
profi tability and investment for the future
❚ Revenues up 7.1% at £91.95m (2012: £85.89m)
❚ Adjusted EBITDA1 of £2.53m (2012: £1.39m)
❚ Operating profi t before non-recurring items £1.06m (2012: £0.65m)
❚ Group profi t before non-recurring items and tax £0.65m (2012: £0.28m)
❚ Cash and cash equivalents £7.38m (2012: £2.87m)
❚ Net debt £2.53m (2012: £5.41m)
❚ New divisional structure established during the year
o Parity Professionals – Specialising in the sourcing, development and placing of professional staff
• Revenue £83.7m (2012: £77.5m)
• Divisional contribution2 £4.2m (2012: £4.7m)
• Contractor numbers up 12.8% to 993 at year end (2012: 880)
• Alan Rommel promoted to divisional CEO
o Parity Digital Solutions – Leading edge IT and digital marketing system development services
• Revenue £8.2m (2012: £8.4m)
• Margins improved to 23.4% (2012: 18.4%)
• Divisional contribution2 £1.93m (2012: £1.55m)
• Andy Law appointed as divisional Chairman in March 2014
• Mark Andrews appointed as divisional CEO in March 2014
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1 In assessing the performance of the business, the directors use a non-GAAP measure “Adjusted EBITDA” being the measure of EBITDA, prior to non-recurring items,
share based compensation and strategic initiative costs. Non-recurring items, share based compensation and strategic initiative costs 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
2013 Results
I am pleased to report further progress in 2013 with an increase
in both Group revenue, and profit before tax and non-recurring
items. Revenues were up 7.1% at £91.95m (2012: £85.89m)
and adjusted EBITDA increased to £2.53m (2012: £1.39m).
Operating profit before non-recurring items was £1.06m
(2012: £0.65m).
Move to AIM, Placing and Change of NOMAD
On 5th July 2013 the Group’s shares commenced trading on
the AIM market and their Official Listing was cancelled. The
Board believes the AIM market is more suitable for the
Company’s current stage of development. At that time a
Placing of 25,925,926 new Ordinary Shares was completed at
a price of 27 pence raising £6.5m net.
Central costs reduced to £4.68m (2012: £4.95m). In 2014 a
large proportion of central costs will be delegated to the
divisions which will be held directly accountable for those costs.
As a result, it is anticipated that further operational efficiencies
will be forthcoming.
We have completed the re-structuring of the Group into two
independent divisions, Parity Professionals and Parity Digital
Solutions, which we for the first time report separately in these
accounts. We have invested substantially in people, systems
and hardware to support our plans for growth under the new
divisional structure.
Parity Professionals increased its revenues in an improving
market in the second half of 2013; with margins starting to
move upward in the past few months. The Talent Management
business grew slowly in the second half due to delays in
educational spending; but also with some encouraging signs
late in the year.
Revenues in Parity Digital Solutions were stable. Good growth
at Inition, the 3D experiential specialist business, was balanced
by Systems revenues which reduced in an over-supplied
market. Both, however, produced improved operating profits.
Before non-recurring items and tax the Group returned a profit
of £0.65m (2012: £0.28m). Non-recurring items were £1.18m
(2012: £1.22m) representing property provisions, restructuring
and transaction costs. We expect a significant reduction in this
area in 2014. Group loss for the year was £1.65m (2012:
£1.39m) and was after non-recurring costs of £1.6m, strategic
initiative costs of £1.1m, and a deferred tax charge of £0.7m all
of which will significantly reduce in 2014.
Cash, Dividend and Pension
Cash at year end increased to £7.38m (2012: £2.87m). There
was a share Placing to the net value of £6.5m at the time of the
Group’s move to AIM in July.
Banking arrangements with PNC have been in place since
2010, and the asset backed lending facility of up to £15m has
been extended until December 2016.
Due to the continuing financial improvement of the Group, it has
been possible to re-negotiate with the trustees of the Parity Group
Retirement Plan, improvements to the assumptions underlying the
valuation of pension scheme liabilities. The outcome of these
negotiations was a significant fall in the deficit on a technical
provisions basis and as a consequence, a substantial reduction in
future annual payments. On an annualised basis these payments
have now fallen from £1.09m to £0.68m but will be subject to a
5% per annum increase each August.
No dividend is payable for this year but the Board will keep the
policy under review.
On 23rd September the Group announced the appointment of
Investec as its new Nominated Adviser and Broker.
Group Structure
The Group has implemented a new divisional structure in 2013
to better reflect, internally and externally, the different interests
of the two parts of its business. This is now the reporting
structure of the Group.
Parity Professionals, the largest division, contains the Parity
Resources and Talent Management businesses.
Parity Digital Solutions contains the Group’s systems integration
business and its first acquisition, Inition, which has now earned
its first year earn-out payment of £0.5m based on operating
profit to 31 March 2013. Performance has continued to
improve towards the likely achievement of its second year
earn-out target.
Divisional results and current trading are discussed in the
Operational Review.
Changes to the Main Board
On 26th September the Group announced a number of Board
changes –
• Philip Swinstead became Executive Chairman from
1st October to drive the Group’s digital strategy, now that the
base business has achieved financial stability. Paul Davies
remains as Group CEO and Alastair Woolley as Group FD.
• Mike Phillips, a non-executive director since 3rd November
2011 and Chairman of the Audit Committee since 22nd
November 2011 has, as a result of other commitments,
stepped down from the Board. The Board thanks him for his
contribution and wishes him every success.
• Neal Ransome, MA FCA CF, aged 53, joined the Board as a
Non-Executive Director and took over from Mike Phillips as
Chairman of the Audit Committee. Neal had recently retired
from PwC, where he was a Corporate Finance Partner and
Chief Operating Officer of PwC’s Advisory line of service.
• Due to the evolution of our strategic thinking, Stephen Whyte
resigned as a director and executive in September 2013.
• Sir Peter Luff MP, FCIPR, aged 58, joined the Board as a
Non-Executive Director. Peter was previously the Managing
Director of a leading public affairs company, is currently a
Member of Parliament and was Minister for Defence
Equipment, Support and Technology from 2010-12.
• Suzanne Chase continued as our General Counsel but
stepped down as a Director and took over the role of
Company Secretary from Alastair Woolley.
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Strategy
The Group has two distinct business divisions; with separate
missions and strategies to achieve them.
Parity Professionals’ mission is to be a premium supplier
working closely with clients to source and develop talent,
building capacity and capability to improve individual and
organizational performance.
• The IT staffing business has broken down its offering into
segments which are offered on a unique Resources as a
Service basis.
• The Group has invested in expanding the training and career
development offering of the Talent Management business
across the UK from its traditional Northern Irish market.
Parity Digital Solutions is the base for the Group’s technology
systems offering, which has been retargeted to the digital
marketing world. The IT services market is mature and one in
which it is difficult for a small systems business to grow.
However, the Board identified an opportunity to transfer the
Group’s experience of project management and business
process to a marketing context as digital technology claims an
increasing share of market spend.
• The Group has indicated since 2011 that it is looking to
re-focus its systems integration capabilities into this new
market by both acquisition of key skills and market position,
and organic growth.
• With the successful acquisition and profit improvement of
the 3D specialist Inition, the Group has demonstrated the
relevance of its management skills to the new market.
• In a change of tactics the Board has decided that
shareholder value can be best increased by further smaller
acquisitions to create the skill base needed to grow a
significant new style of technology services business in the
digital marketing field; neither an advertising agency nor a
digital agency.
The division has also been seeking to increase its own
top management capabilities from the advertising and
marketing world.
• Given his highly successful top level background in
international marketing, the Board is pleased to announce
the appointment of Andy Law as Chairman of the division on
a three days a week basis. Andy has held senior positions at
many of the top advertising agencies including Board
Director at CDP and led the buyout from Omnicom of Chiat/
Day creating the groundbreaking agency, St Lukes, which
became one of London’s leading agencies. He is also a
successful writer and international speaker – including
chairing sessions at Davos.
• I am also pleased to report today the appointment of Mark
Andrews as CEO of this division. Mark is a highly experienced
MD in the TV commercial and video production world. He
started as a graphics designer and then commercial producer,
becoming main board Head of TV at major award winning
agency, CDP, and then MD at the world’s largest video/
commercial production company, Propaganda Films. In 1997
he founded Tsunami Films and then left in 2003 to become
founder and proprietor of the MADE group.
The Group’s TechLab joint venture with Royal Holloway and
Bedford New College has now entered the commercialization
phase. The Groupseer next-generation, patented, social media
search engine now has a joint team working on ensuring that it
has all the necessary functions, is fully tested and has a fluid
interface. In parallel, early market feedback will be sought from
selected potential users in a few target areas.
Current Trading and Future Prospects
The Group continues to trade in line with management expectations.
Parity Professionals is seeing the early signs of improvement in
its market and margins, as hiring levels begin to rise. The Board
is looking to this division to grow revenues and profits in future
years, under the leadership of CEO, Alan Rommel, who along
with other senior management, has experience of leading the
business through a similar stage of the recovery cycle.
Parity Digital Solutions will be renamed in 2014 to reflect its new
strategic direction. Inition is now operating with good margins
and is investing in its marketing capabilities to build on the
increased recognition of its augmented and virtual reality
solutions. Under its strong management team, the division will
seek to further extend its services into Digital Content
Management and Content Production. We expect to make
further small acquisitions this year to put the necessary skills in
place and allow the expanded management team to grow the
business offerings in a rapidly developing market.
2014 will see the end of nearly all of our unused property
leases and the significant cash burden they impose. This
together with reduced pension deficit payments, will
significantly reduce our cash outflow and contribute towards
the Group becoming cash generative.
After three tough years turning round the business, the good
health, management and forecast market growth for both our
divisions allows the Board to be confident about further
improvement in shareholder value in 2014 and future years.
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Philip Swinstead
Chairman
12 March 2014
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03
Operating Review
Paul Davies
Overview
The three year turnaround programme set out by the new
management team in 2010 has now been completed. This has
seen the establishment of two separate, profitable and growing
businesses in Parity Professionals (specialising in the sourcing,
development and placing of professional staff) and Parity Digital
Solutions (currently comprising Systems and Inition) forming a
small but profitable platform focussed on the fast growing
demand for technology solutions in digital marketing.
After an initial period of cost cutting and market realignment the
Company has returned to solid revenue and Adjusted EBITDA
growth of over 7% and 82% respectively.
The initiative to consolidate our operations into two separate
divisions will allow us to report them on a separate basis going
forward enabling clearer analysis of each as ‘independent’
businesses with only Group costs being shared.
To facilitate this, two Divisional Boards have been established
under separate CEO’s with detailed Terms of Reference and
Authority Levels and reporting to the Group Board on a monthly
basis.
Group Operations
Much of Parity’s work remains short term in nature although
several client and 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 and Public Sector spending the
breadth of our private sector portfolio and growing business in
the Digital Marketing arena continues to increase and it is
expected that this trend will continue.
New Finance and CRM Systems
In order to improve reporting and operating efficiencies the
custom built, expensive and difficult to modify older finance
system based on Microsoft AX has now been replaced.
The Parity Digital Solutions business has been successfully
migrated onto a SAP By Design cloud based solution and we
are in the final stages of migrating the Parity Professionals
business onto a SAFE finance system specifically designed for
a Resources style business. In parallel we are replacing our
existing outdated CRM systems with a package by Bullhorn
that has dedicated applications for staff resourcing which is
expected to improve efficiency and data sharing between Parity
Resources and Talent Management.
Parity Professionals
Reporting separately to the Board this newly formed division
comprising Parity Resources and Talent Management was
launched under the Parity Professionals banner earlier in the year
and now has it s own staff, infrastructure, offices, web presence
and senior management team under CEO Alan Rommel.
Whilst the two component divisions currently address different
market sectors (staff recruitment and graduate placement/talent
development respectively) they have a common theme of
sourcing, recruitment and development of professional staff at
all stages of their career, providing consultancy skills to improve
individual and organisational performance.
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A number of opportunities have been identified as a result of
combining these two business units, including cross selling to
existing clients, collaboration of databases, and an enhanced
overall proposition to the market.
Parity Resources’ continued focus on increasing contractor
numbers, improving conversion rates and seeking out
opportunities to increase margin (against a continued market
pressure for rate reduction) has sustained the return to growth
established in 2012.
This has required the further investment in sales and support
staff, expansion of our offerings and improved systems. We
have launched our unique Resources as a Service (RaaS), a
segmented, menu driven procurement methodology proposition
and are seeking to expand our limited presence in the
permanent recruitment market.
As a result, we have increased our contractor numbers by
13% to 993 (2012: 880) and improved conversion rates to
33% (2012: 30%). In addition a number of existing contracts
were extended and 70 new clients were signed up during the
year (2012: 67) with improved average margins of 8.39%
(2012: 7.95%).
In total, revenues in the year increased by 8.1% to £81.4m
(2012: £75.3m) with a slightly reduced divisional contribution of
£3.7m (2012: £4m) due to the continued investment in staff,
training and offices.
Whilst the UK market remains challenging, with continued
pressures on recruitment levels and margins, the last few
months of the year saw a slight upturn in demand which we
anticipate continuing into the first part of 2014.
The Talent Management business which has almost 20 years
success in the sourcing, development and placing of graduates
in Northern Ireland led to a strategic decision to invest in the
business to extend the service across the UK. Addressing this
new market by building upon our established capabilities and
reputation has resulted in a number of successes and the
business is committed to establishing its foothold in Great
Britain from which to grow.
A traditional seasonal slow first half to the year was followed by
an anticipated upturn resulting from the higher levels of
graduate development and recruitment post mid year
graduation. We continued our success in the ongoing
prestigious Faststream graduate recruitment programme which
we run on behalf of HMRC. This has again been renewed for a
further year and won the Association of Graduate Recruiters
annual award for Graduate Selection and Assessment.
Continued success in Northern Ireland resulted in the number
of graduates sponsored by the Department of Employment and
Learning for the Intro programme increasing to 160 (2012: 100)
and the Management and Leadership Development Programme
numbers increasing to 196 (2012: 24).
The number of new corporate clients across the UK also
increased to 19 (2012: 16).
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Despite market conditions in Higher Education remaining a
challenge, we have maintained the foothold established in Great
Britain during 2011 with revenues of £2.3m (2012: £2.2m) and
contributions of £0.54m (2012: £0.67m). During this period we
have further invested in sales and marketing, extended our
offerings in order to build upon the platform established in our
first two years in the GB higher education marketplace.
Having established a solid UK presence over the past two years
the priority for 2014 is to take advantage of the sales
opportunities identified and grow both revenue and profit within
higher education and corporate clients.
Parity Digital Solutions
Reporting separately to the Board, this division currently
comprises Parity Systems and Inition. The division has its own
staff, infrastructure, offices, web presence and senior
management team under CEO, Mark Andrews.
Parity Systems is a small systems integration business with all
the functions necessary to deliver custom IT systems at a profit.
It has been difficult for all such small systems businesses to win
new customers in a recession. However, the business
processes and SI systems have been invaluable in allowing the
Inition experiential systems business to make good profits from
the excellent business it has been doing for some years. As has
been said before, the Board believe that the future for new
growth in technology services is in the marketing arena; not in
automating business systems. Therefore, the systems
integration base that exists is the perfect platform for such an
initiative as has been proved by the much improved
performance of Inition.
In the year we further extended our long term relationship with
BAT to include a framework for applications support,
development and consultancy services and have also benefited
from the return of previous clients purchasing this type of
service. Our similarly long term relationship with the UK’s
Ministry of Defence continues with the provision of specialist
technical support despite defence spending constraints, and
our business with a large international legal firm started two
years ago has led to further project work.
Together with Parity Resources, Parity Systems was successful
in securing a place on the G-Cloud 3 UK Government
procurement framework. This was followed up later in the year
with further success on G-Cloud 4.
Parity Systems’ exit from loss-making fixed price contracts,
which was completed in 2012, has allowed the business to
enhance margins and consolidate long term client relationships
whilst focussing skill sets particularly aligned to the emerging
digital market (web portals, business intelligence, and project
management) in expectation of future business from the
Group’s strategic initiative in this area.
Our planned exit from these bad projects resulted in a decline in
revenues but an increase in margins and contribution, as
overheads were reduced. Focus on our traditional client base,
together with some new business intelligence clients, has driven
further margin improvement to 24% (2012: 20%) thereby
stabilising contribution at £1.3m (2012: £1.3m) on a reduced
revenue of £5.38m (2012: £6.5m).
The previously announced Parity R&D Technology Laboratory
initiative with Royal Holloway and Bedford College of the
University of London, to develop their innovative social media
search algorithm, has resulted in a formal joint venture in which
Parity has a 60% stake. A team is being assembled in Parity
offices to complete the production of the software to market
standards in parallel with further market research to define the
most suitable applications for this patented technology.
Inition, which was acquired in May 2012, continues to be run
for earn-out purposes with its separate overhead structure. It
has benefitted during the year from the new reporting system
referred to above and improved operational and project
management assistance from Parity Systems. The second and
final earn -out period completes in March 2014 and it seems
likely at this time that the full earn -out amount will again
become payable. This follows an excellent performance by the
founding management, helped by our experience in delivering
custom technology systems.
Revenues for the first full year were £2.85m (7 months 2012:
£1.9m) with a contribution of £588k (7 months 2012: £260k).
Following the acquisition and integration into Parity Digital
Solutions in 2012, Inition is a successful first move into project
based professional services in marketing technology services.
The performance would not have been possible without the
Group’s extensive experience in project based services in
information technology. It was a successful test of
management’s belief that IT systems experience and processes
are very pertinent in the digital marketing world.
Inition is now increasing its account management function to
take its exciting capabilities to new market sectors and to
extend its business in areas where it has already proved
successful (e.g. automotive, property, retail and higher
education sectors). A number of high profile installations have
been launched in major London stores including Selfridge s,
John Lewis and Topshop. We are also introducing these new
technologies to existing Parity clients such as the MOD, which
includes working with Defence Science and Technology
Laboratory (via a partnership with QinetiQ) to utilise emerging
technologies for armed forces training.
Property
We have relocated the Parity Professionals finance and support
team from Wimbledon to our existing sales office in Bath Place,
Shoreditch. This had the duel effect of improving
communications and increasing efficiency between the two
teams. As a result only our Parity Digital Systems division
currently has a presence in Wimbledon.
The Wimbledon office’s lease expires in the second half of
2014. In the near future we expect further improvements in
efficiency as the Group HQ and Systems divisions move into a
further floor in Curtain Road, (where Inition are based) thus
vacating the Wimbledon and Chancery Lane facilities.
To accommodate additional sales staff necessary to fuel further
growth within Parity Professionals we have also in the year
expanded both our Sale and Edinburgh offices. As a result, with
the exception of shared offices in Belfast the two divisions
operate from separate offices; Parity Professionals in
Camberley, Shoreditch (Bath Place), Sale, Edinburgh and Parity
Digital in Wimbledon, Shoreditch (Curtain Road).
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Operating Review continued
Management and Staff
2013 was another period of positive development for Parity.
During the year we made the necessary organisation changes
to establish two distinct divisions both positioned to take
advantage of the growth opportunities which now present
themselves. In what continued to be challenging end markets
we have returned the company to stable growth whilst
absorbing the inevitable disruption of implementing the new
business systems which will provide us with improved operating
efficiencies in future.
We have additionally invested in training, increased our sales
capacity and relocated a number of offices to accommodate
increased headcount and continue the programme of vacating
unsuitable legacy offices.
None of this could have been accomplished without the
support of management and staff who repeatedly go the extra
mile to ensure objectives are achieved.
On behalf of the Board I wish to offer them all our sincere
thanks for their continued loyalty and commitment to Parity.
Paul Davies
Chief Executive Officer
12 March 2014
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Financial Review
Alastair Woolley
Revenue
Continuing operations
Parity Professionals
Parity Digital
Group
2013
£’000
83,711
8,238
91,949
2012
£’000
77,491
8,396
85,887
Revenue for the group has increased by 7.1% to £91.95m (2012: £85.89m). The Parity Professional division has continued to see
good growth particularly in its Resources business unit with divisional revenue increasing by £6.2m (8.0%) from £77.5m to £83.7m.
Parity Digital revenue has fallen by £0.16m to £8.24m (2012: £8.40m). The Systems business has experienced pressure from the
spending constraints within the MOD, but has concentrated on consolidating its position with existing clients and maintaining
margins. The objective in 2013 within the Inition business unit, the first full year post acquisition, was to improve internal systems
and processes and further improve margins. This objective has been successfully achieved.
Divisional contribution
Continuing operations
Parity Professional
Parity Digital
Divisional contribution before central costs, non-recurring items and strategic initiative &
acquisition costs
2013
£’000
4,206
1,930
2012
£’000
4,674
1,546
6,136
6,220
Divisional contribution has decreased slightly by £0.1m to £6.1m (2012: £6.2m). In Parity Professional emphasis has been placed
within the Resources business unit on gaining contractor numbers and seeking out opportunities to increase margin. However, this has
required investment during the year in sales and support staff and improved systems which has diluted the year end contribution.
In Parity Digital, margins grew strongly, improving from 18.4% in 2012 to 23.4% in 2013. The Systems business continues to
maintain good margins and the focus at Inition, of improving internal processes as a result of experience from the Systems business
unit has resulted in significantly improved margins.
Reconciliation of divisional contribution to operating loss from continuing operations
Divisional contribution before central costs, non-recurring items and
strategic initiative and acquisition costs
Central costs
Strategic initiative costs
Investment costs
Total central costs
Depreciation and amortisation
Share-based payment charges
Operating profit/(loss) before non-recurring items
Non-recurring items (continuing operations)
Operating (loss) from continuing operations
2013
£’000
6,136
(3,607)
(1,076)
–
(4,683)
(271)
(120)
1,062
(1,600)
(538)
2012
£’000
6,220
(4,364)
(124)
(461)
(4,949)
(497)
(124)
650
(1,350)
(700)
Total central costs have continued the trend from previous years and have decreased £0.2m to £4.7m (2012: £4.9m) despite the
significant spend on strategic initiative costs. It is anticipated that in 2014, strategic initiative costs will be significantly lower.
Depreciation has fallen by £0.2m in 2013 mainly due to the fact that the costs associated with the Microsoft Dynamic AX ERP
system (discussed later under intangible fixed assets) are no longer having to be written off. The result of this is that operating profit
has increased by £0.41m to £1.06m (2012: £0.65m).
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07
Financial Review continued
Non-recurring items
Continuing operations
Restructuring
Strategic initiative costs
Property provisions
2013
£’000
173
695
732
1,600
2012
£’000
961
840
(451)
1,350
Strategic Initiative costs refer to the professional fees incurred in the Group’s acquisition programme.
The main element of the property provision charge is in relation to Wimbledon Bridge House. The lease on the property comes to an
end in September 2014. In preparation for this and as part of the process of creating the two divisions of Parity Professional and
Parity Digital, support and finance staff have been moved out of Wimbledon Bridge House and transferred to locations where sales
and client service staff already operate from. This has further improved communications between the teams and will also lead to
reduced occupancy costs. As a result of the termination of the Wimbledon office lease in September 2014, a further provision has
been made for dilapidation costs. The total charge this year therefore comprises a mixture of onerous lease costs and an increase to
the dilapidations provision.
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 1.88 pence (2012: 2.00 pence).
The Board does not propose a dividend for 2013 (2012: nil), but will continue to review this policy each year.
Statement of Financial Position
The balance sheet has strengthened since last year with net assets increasing to £9.7m (2012: £3.9m). This improvement was
mainly as a result of the Placing that took place in July 2013 which raised net proceeds of £6.5m but also due to the reduction in
the retirement benefit liability of £0.9m. These improvements to the net assets position have, however, been partially offset by the
required increase in working capital to fund the continued growth of the group.
Intangible fixed assets
As reported last year, the Board decided to write off the remaining cost of the Microsoft Dynamics AX ERP system. This was a
heavily customised system which had been installed 5 years ago at cost of over £1.7m and was inflexible, expensive to maintain
and would not provide the correct platform for the company as we extended operations and split into the two distinct divisions.
During the course of 2013 the Company has invested in new systems for both of its divisions. The systems have been selected to
specifically address the business needs of each division rather than applying one generic solution that falls short of the operational
benefits we are striving to achieve. Parity Digital successfully migrated its business units onto SAP by Design and the Inition
business unit has been developing intellectual property for their augmented reality product lines. Parity Professional has selected
and is in the process of implementing fully integrated solutions to replace its back, middle and front of office systems and these are
due to go live early in 2014. It has also launched in the year a sophisticated and dedicated Parity Professionals website. At a group
level, a new HR system has also been implemented which will improve efficiency and allow for the administration of the new auto
enrolment requirements due to impact the company in 2014. The cost of these investments was £0.7m.
Trade receivables and accrued income
Trade receivables increased by £3.4m to £16.4m (2012: £13.0m) during the year, reflecting the increase in group revenue and to
some extent the change in public/private sector mix. However, due to continued focus on working capital management, debtor
days at the end of the year, calculated on billings on a countback basis, has only increased by 1 day to 27 (2012: 26).
Trade and other payables
Trade and other payables increased during the year to £10.4m (2012: £8.9m). As with trade receivables this is mainly due to the
increase in trading volumes.
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 asset-based lending facility provides for borrowing of up to
£15m depending on the availability of appropriate assets as security. Interest on borrowings is charged at 2.5% over the prevailing
base rate. The company has recently extended its facility until December 2016.
Cash flow and net debt
Cash generated from operations improved slightly compared to 2012 although there was still an outflow of £2.61m (2012: £2.64m).
However, a substantial part of the outflow of funds in 2013 was as a result of the increased investment in working capital required to
fund the continuing growth of the company and the payments to the retirement benefit plan.
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Cash used in investing activities in 2013 was £1.39m. £0.5m of
this was the first of the earnout payments following the
acquisition of Inition. The terms of the acquisition included an
earnout target of generating £0.3m operating profit for the year
ended 31 March 2013. This was achieved and triggered the
£0.5m payment. Investment of £0.7m has been made in
substantially improving the systems in both Parity Professionals
and Parity Digital. A programme was also undertaken during
2013 to replace most of the ageing PC’s and laptops used by
the company’s staff.
Provisions
The net increase in provisions of £0.2m includes an increase to
the empty property provision of £0.53m which mainly related to
the Wimbledon office and an increase to the dilapidations
provision of £0.19m also in respect of the Wimbledon office.
Utilised in the year were £0.5m of empty property provisions in
respect of the Wimbledon and Fleet offices.
Pension Fund
During 2013 the Group paid deficit reduction payments of
£0.83m compared to £1.09m in 2012. As a result of the
improving financial position, the Company was able to negotiate
with the Trustees a revised actuarial position of the Plan. As a
consequence the deficit on a technical provisions basis has
been reduced by £2.33m to £6.33m and on-going payments to
the Plan will reduce from an annualised basis of £1.09m to
£0.68m and then only increasing as from 1 August 2013 at the
rate of 5% per annum.
Principal risks and uncertainties
Market
The Group continues to monitor its exposure to the public
sector and while the Group’s exposure has reduced over recent
years, it still 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.
Financial
The Group actively monitors it liquidity position to ensure it has
sufficient available funds and working capital in order to operate
and meet its planned commitments and has a credit risk policy
that requires appropriate status checks and or references as
necessary.
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
12 March 2014
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09
Neal Ransome
Non-executive Director 1, 2, 3
Neal Ransome, MA FCA CF, 53, was appointed to the Board as
a Non-Executive Director on 26th September 2013 and has
taken over from Mike Phillips as Chairman of the Audit
Committee. Neal has recently retired from PwC, where he was a
Corporate Finance Partner and Chief Operating Officer of PwC’s
Advisory line of service. In addition to his direct managerial
experience in a large services organisation, Neal has over twenty
years’ experience of advising clients on their M&A activities.
Paul Davies
Chief Executive Officer
Paul Davies, 65, re-joined Parity in June 2010 and was
appointed as Chief Executive. 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 was Deputy Chairman of Microgen plc from 1999 until
April 2012 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, 52, joined Parity in late 2010 and was
appointed Finance Director in April 2011. Alastair trained with
Deloitte and spent 11 years in various departments including
audit and business services. After leaving Deloitte in 1996,
Alastair has worked in a variety of companies, mainly
technology based, as Finance Director and also for a period of
time, as Managing Director. Alastair has responsibility for
Finance, Property and Facilities and IT.
Board of Directors
Philip Swinstead OBE Executive
Chairman
Philip Swinstead, 70, re-joined Parity in June 2010 and was
appointed Non-executive Chairman, and appointed Executive
Chairman on 1 October 2013. 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, 71, was appointed Non-executive Chairman
in July 2007 and is Chairman of the remuneration and
nominations committees. After qualifying as a Chartered
Accountant in 1969 he joined Lehman Brothers, the US
Investment Bank, and was a Partner in the London Office until
1983 when he entered the House of Commons. He served as
a Minister between 1986 and 1997 including Cabinet Minister
for Public Service. He became a Life Peer in 1997 and also
became a Partner with PricewaterhouseCoopers for whom he
now chairs their UK Advisory Board. He is Chairman or
Non-executive Director of a number of listed and private
companies including Thales SA, Chemring Group plc and
Savile Group plc.
David Courtley
Non-executive Director 1, 2, 3
David Courtley, 56, 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.
Sir Peter Luff
Non-executive Director 1, 2, 3
Peter Luff MP, FCIPR, 58, was appointed to the Board as a
Non-Executive Director on 26th September 2013. Peter has
more than 30 years’ experience of working with and for the
public sector and has been the Managing Director of a leading
public affairs company. He is currently Member of Parliament for
Mid Worcestershire and was Minister for Defence Equipment,
Support and Technology from 2010-12. Previously (2005-10)
Peter had been chairman of the Business, Innovation and Skills
Committee of the House of Commons. He is also a
non-executive director of Marlin Group Holdings plc, a
manufacturer of advanced manufacturing systems, and an
Honorary Fellow of the Chartered Institute of Public Relations.
1 Member of the nominations committee
2 Member of the remuneration committee
3 Member of the audit committee
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Directors’ Report
The Directors present their report and the audited accounts for
the year ended 31 December 2013.
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 two divisions; Professionals and Digital.
The principal activity of the Professionals division is to provide
recruitment, predominately interim recruitment, and graduate
placement services, to a diverse range of clients. In 2013 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 Digital division comprise creative
technology solutions, business intelligence solutions, and the
resale of 3D equipment. Digital delivered its services during the
year to central government departments in the public sector,
and to Tobacco, Retail, IT, Telecommunications and Automotive
clients in the private sector.
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 9. The Group’s social, environmental and ethical
policies are set out on page 12. A statement on the application
of the going concern principle is set out below. Details of
financial instruments are set out in note 22 to the financial
statements. Each of the above is incorporated in this report by
reference.
Group results
The Group loss from continuing operations before taxation for
the year was £949,000 (2012: £1,066,000) after charging
non-recurring items of £1,600,000 (2012: £1,350,000). After a
tax expense of £743,000 (2012: expense of £349,000) and a
profit after tax from discontinued operations of £41,000 (2012:
profit after tax of £26,000), the retained loss of £1,651,000
(2012: £1,389,000) has been transferred from reserves. The
results for the year are set out in the consolidated income
statement on page 24 .
Hargreave Hale Limited
Philip Swinstead
Killik & Co
David Courtley
Slater Investments Limited
Dominion Holdings
Barclays Stockbrokers
TD Waterhouse
RBC Jersey Client
Artemis Investment Management
Henderson Global Investors
Dividends
The Directors do not recommend a final dividend (2012: nil
pence per ordinary share). The total dividends for the year were
nil pence per ordinary share (2012 nil pence per ordinary share).
Pension
The Group operates a defined contribution pension scheme.
There is also a defined benefit scheme which is closed both to
new members and to future service accrual. Details of the
defined benefit pension scheme are given in note 24.
Purchase of own shares
At the end of the year, the Company had authority, under the
shareholders’ resolution of 30 May 2013, to purchase in the
market 7,509,809 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
12 March 2014 is set out on page 10, together with details of
membership of the Board committees.
In accordance with the Company’s Articles of Association,
Peter Luff and Neal Ransome, who were appointed after the
announcement of the 2013 AGM, will retire and offer
themselves for re-election at the 2014 Annual General Meeting.
The Company’s articles of association also requires that each
Director retire from office and seek reappointment at the third
annual general meeting after the general meeting at which he
was last appointed or re-appointed. Accordingly Mr P E
Swinstead, Lord Freeman, Mr P Davies and Mr A Woolley each
retire and offer themselves for re-election as a Director.
Directors’ interests
The Directors’ beneficial interests in the ordinary share capital of
the Company are set out within the remuneration report on
page 22.
Principal shareholders
At the close of business on 8 March 2014 (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:
Number of
Ordinary 2p shares
Percentage
held
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15,000,000
13,186,470
7, 173,505
6,521,739
5, 110,657
4,950,000
4, 022,964
3, 966,068
3,823,766
3, 305,000
3, 284,501
14.76
12.97
7. 06
6.42
5. 03
4.87
3.96
3.90
3.76
3. 25
3.23
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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 13. 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 2013 (2012:
£nil). No payments were made for political purposes.
Directors’ and officers’ liability insurance and indemnity
The Company has purchased insurance to cover its Directors
and officers against their costs in defending themselves in any
legal proceedings taken against them in that capacity and in
respect of damages resulting from the unsuccessful defence of
any proceedings.
Disclosure of information to auditor
So far as the Directors are aware, there is no relevant audit
information of which the auditor is unaware and each Director
has taken all reasonable steps to make himself aware of any
relevant audit information and to establish that the auditor is
aware of that information.
Corporate Governance
The Corporate Governance Report on pages 14 to 17 forms
part of the Directors’ Report.
Auditor
Our auditor, KPMG Audit Plc is currently in the process of
transferring to KPMG LLP. The Board has therefore decided to
put KPMG LLP forward to be appointed as auditors and a
resolution concerning their appointment will be put to the
forthcoming AGM of the Company.
Post Balance Sheet Events
There were no material post balance sheet events.
Annual General Meeting
The resolutions to be proposed at the Annual General Meeting,
together with the explanatory notes, will appear in the Notice of
the Annual General Meeting which will be circulated with the
annual report when sent to all Shareholders.
By order of the Board
Alastair Woolley
Director
12 March 2014
Directors’ Report continued
Capital structure
The Company has two classes of shares in issue, ordinary
shares of 2p and deferred shares of 0.04p. The ordinary shares
are listed on the London Stock Exchange and ordinary
shareholders are entitled to vote at Company meetings, to
receive dividends and to the return of their capital in the event of
liquidation, with the exception of ordinary shares held by the
Parity Group plc Employee Share Ownership Trust which are not
entitled to receive dividends. The deferred shares are not listed,
have no voting rights, no rights to dividends and the right only to
a very limited return on capital in the event of liquidation.
The Directors are not aware of any restrictions on transfers of
shares in the Company or on voting rights or of any agreements
between holders of the Company’s shares which may result in
such restrictions
Going concern
The Group’s business activities, together with the factors likely
to affect its future development, performance and position are
set out above (Review of business and future developments).
The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the Financial
Review on pages 7 to 9 and in note 22 to the financial
statements. Note 22 also includes the Group’s objectives for
managing capital.
As outlined in note 22, the Group meets its day -to -day working
capital requirements through an asset-based finance facility. The
facility contains certain financial covenants which have been met
throughout the period. The facility was recently extended to
December 2016.
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 2013 unpaid creditors of
the Group amounted to 36 days of purchases (2012: 32 days).
Creditor days have not been calculated for the Company as it
has no trade payables.
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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 incentivises employees through share-based
incentives and the payment of bonuses and commissions linked
to performance objectives. Where appropriate these objectives
are linked to profitability. The Group also has a structured
approach to performance appraisal and career development
and ensures that every employee has an annual performance
review and has clear objectives and performance standards.
Health & safety
The health and safety of Parity’s employees is paramount.
Group policy is to provide and maintain safe and healthy
working conditions, equipment and systems of work for all
employees and to provide such information, training and
supervision as is needed for this purpose.
Appropriate written health and safety information outlining the
Group’s policy in each area is issued to all new employees. This
includes:
• First aid — Each office has a person qualified in first aid. First
aid boxes are readily accessible and records kept of all
accidents and injuries.
• Fire safety — Each office has an evacuation marshal who will
liaise with building management or local emergency
authorities, as appropriate. Evacuation assembly points are
agreed for every location and a full evacuation carried out
every six months. Fire alarms are tested regularly.
• Employees’ health — Any employee who believes he/she is
suffering from an illness or condition related to their working
environment is encouraged to report this to his/her manager
for investigation.
Annual Health and Safety audits are carried out at every Parity
office to ensure high standards are maintained.
As part of its benefits package Parity offers a number of benefits
to support the health and well being of its staff, as well as an
Employee Assistance helpline.
Social responsibilities
It is Group policy to be a good corporate citizen wherever it
operates. As part of the Group’s social responsibility, employees
are encouraged to become involved in their local communities
and fund raising events for charity.
Environmental policy
While Parity Group’s operations by their very nature have
minimal environmental impact, the Group recognises its
responsibilities to protect and sustain the environment and its
resources. The Group’s policy is to meet or exceed the statutory
requirements in this area and it has adopted a code of good
environmental practice, particularly in its main areas of
environmental impact, namely energy efficiency, use and
recycling of resources and transport.
Transport
Public transport is used whenever possible. Interest-free season
ticket loans are made to staff as part of the benefits package.
Teleconference facilities are extended to main office locations to
minimise business travel and increase efficiency. PCs (portable
or desktop) are made available to staff where needed to facilitate
home working and minimise the need to travel to offices.
Energy
Only energy-efficient computers and peripherals are acquired
and they are turned off at the end of each day. As a normal part
of its operations the Group seeks to occupy offices which have
efficient building management systems and, ideally, low energy
lighting. Office lighting is turned off at the end of each day.
Whenever economically justifiable, the paper and other
consumables used are made from environmentally-friendly or
recycled material or from renewable resources.
Recycling
The Group makes every effort to recycle office paper and
envelopes. Appropriate containers are provided at all offices and
all paper collected is sent to recycling plants. The Group also
recycles as much other material, such as toner cartridges, as is
economically viable. When replaced, computers and peripherals
are offered to employees at market value, local schools or
charities, or sent to recycling plants.
Ethics
Parity Group is committed to maintaining the highest standards
of ethics, professionalism and business conduct as well as
ensuring that we act in accordance with the law at all times. The
Group supports and promotes the principles of equal
opportunities in employment and promotes a culture where
every employee is treated fairly. A culture of teamwork,
openness, integrity and professionalism forms a key element of
our company principles and values which sets out the standards
of behaviour we expect from all our employees.
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13
Corporate Governance Report
Introduction
During the year the Company moved from the Main Market of
the London Stock Exchange to AIM. On the 5 June 2013
shareholders resolved to cancel the listing of the Ordinary
Shares on the Official List, to remove such Ordinary Shares from
trading on the Main Market of the London Stock Exchange and
to apply for the Ordinary Shares to be admitted to trade on AIM.
On the 4 July 2013 the Company ceased from trading on the
Main Market of the London Stock Exchange and its shares were
admitted to AIM on 5 July 2013. As Parity plc is listed on AIM, it
is neither required to comply with the UK Corporate Governance
Code that was published in September 2012 by the Financial
Reporting Council (the Code) nor issue a statement of
compliance with it. Nevertheless, the Board fully supports the
principles set out in the Code and seeks to follow these as best
practice wherever this is appropriate; having regard to the size
of the Company, the resources available to it and the
interpretation of the Code in the Quoted Companies Alliance
Corporate Governance Code for Small and Mid-sized Quoted
Companies. Details are provided below of how the Company
applies the elements of the Code that are deemed appropriate.
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 2.
The workings of the Board and its committees
The Board
At the date of this report the Board comprises of Executive
Chairman Philip Swinstead, the Deputy Chairman and Senior
Independent Director Lord Freeman, Chief Executive Officer Paul
Davies, Group Finance Director Alastair Woolley, Non-executive
Directors David Courtley, Sir Peter Luff and Neal Ransome.
During the year Mike Phillips Non-executive Director, Suzanne
Chase part-time Executive Director and General Counsel, and
Stephen Whyte Chief Executive Officer of Parity Digital Solutions
were also members of the Board but stepped down on
26 September 2013 at which time Sir Peter Luff and Neal
Ransome were appointed to the Board. As from the 26
September 2013 Suzanne Chase continues as General Counsel
and took over the role of Company Secretary from Alastair
Woolley. The table on page 20 sets out the dates of tenure of
the Directors on the Board during the year. The Directors’
biographies, which are set out on page 10, demonstrate a range
of business backgrounds and experience appropriate to the
Company.
Executive Chairman
The Executive 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. On the 1 October 2013 Philip Swinstead became
Executive Chairman in order to closely direct the Group’s digital
strategy utilising his significant experience and leadership
qualities. In his executive role the Executive Chairman reports to
14
Parity Group plc
Report and Accounts 2013
www.parity.net
stock code: PTY
the Senior Independent Director, whilst remaining answerable to
the Board at all times. Two independent Non-executive Directors
were appointed in the year. During the year the Executive
Chairman met the Non-Executive Directors without the
Executive Directors present.
Senior Independent Director
Lord Freeman acts as the Senior Independent Director and his
prime responsibility is to provide a sounding board for the
Executive Chairman and to serve as an intermediary for the
other Directors when necessary. He is also an additional contact
point for shareholders if they have reason for concern, when
contact through the normal channels of the Executive Chairman,
Chief Executive Officer and other executive directors has failed
to resolve their concerns, or where such contact is
inappropriate. During the year the Senior Independent Director
met the Non- Executive Directors without the Executive
Chairman and the Executive Directors present.
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 1 and in the separate Notice of
Annual General Meeting sent to all Shareholders. The Executive
Chairman, and in the case of the Executive 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.
New directors receive a comprehensive, formal and tailored
induction to the Group’s operations including corporate
governance, the legislative framework and visits to
Group premises.
Board meetings
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 15. 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 November 2013.
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All members of the Board are supplied in advance of meetings
with appropriate information covering the matters which are to
be considered. If unable to attend a meeting a Director will
provide feedback to the Executive Chairman, the chair of the
Committee or the Company Secretary and their comments are
then communicated at the meeting. 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.
During the reporting period the operational business was divided
into two separate divisions, Parity Professionals and Parity
Digital Solutions. The Board appointed a Chief Operating Officer
for each division and established operational boards with formal
terms of reference. Formal monthly business division reviews are
held which are attended by the Executive Chairman, the Chief
Executive Officer, Group Finance Director and Company
Secretary/General Counsel together with the Chief Operating
Officer of the relevant business division and members of their
finance and operational teams. Any key issues arising from
these reviews are reported to the Board. The Executive Directors
ensure that informal contact is maintained with the
Non-executive Directors who are invited to visit the Group’s
premises and are encouraged to have an informal dialogue with
the Chief Operating Officers.
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 Executive Chairman was reviewed by
the Deputy Chairman. The outcome of the evaluation of the
Board is reviewed by the Board as a whole and the results are
used to assist the Board in developing its approach
going forward.
Board balance and independence
The Code requires a balance of Executive and Non-executive
Directors such that no individual or small group of individuals
can dominate the Board’s decision making. The number and
quality of the Non-executive Directors on the Board, with their
combination of diverse backgrounds and expertise, ensures that
this principle is met. The Non-executive Directors ensure that
independent judgement is brought to Board discussions and
decisions. The Board are aware of the importance of attaining
an improved gender balance.
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 and committee meetings
During the year 10 scheduled Board meetings, and 8 ad hoc
Board meetings were convened as necessary to deal with
various matters. Details of attendance at Board meetings is
summarised below. Committee attendance is shown for
Committee members only.
Board
Audit
Nominations
Remuneration
Number held
Number attended1
Philip Swinstead
Lord Freeman
Paul Davies
Alastair Woolley
David Courtley
Mike Phillips
Suzanne Chase
Stephen Whyte
Peter Luff
Neal Ransome
18
17
16
18
18
14
10
10
7
4
4
3
–
3
–
–
3
2
–
–
1
1
5
–
5
–
–
5
3
–
–
1
1
4
–
4
–
–
4
2
–
–
1
1
1 All Directors who were members of the Board at the time attended the Group’s Annual General Meeting on 30 May 2013
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 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
During the year the audit committee was chaired by Mike Phillips
until 26 September 2013 and then by Neal Ransome, the
current chairman. Details of Neal Ransome’s recent and relevant
financial experience are set out in his biography on page 10. The
audit committee meets three times a year. Lord Freeman, David
Courtley and Sir Peter Luff 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, and
considers 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;
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Corporate Governance Report continued
• 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.
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 2013, details of which are set out
in note 3 to the accounts.
Audit committee meetings are attended by invitation of the
committee, by the external auditors and 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 18 to 22. Where necessary, specialist external
consultants are used to assist the committee.
Nominations committee
The Nominations Committee comprises all of 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. During the year the committee considered
the size, composition, skills, experience and independence of
the Board having regard to the requirements of the business.
The process for new Board appointments includes an initial
search, preliminary interviews and discussions including with the
chairman of the committee. Informal meetings are also held with
the Non-executive Directors. Following this process
recommendations are then made to the committee and the
Board on merit against objective criteria. Where necessary,
recruitment consultants are used to assist the process.
16
Parity Group plc
Report and Accounts 2013
www.parity.net
stock code: PTY
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 clear 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.
Statement of Directors’ responsibilities in respect of the
Annual Report and the financial statements
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulations.
Company law requires the directors to prepare group and parent
company financial statements for each financial year. As
required by the AIM Rules of the London Stock Exchange 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.
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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.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company’s website. Legislation in the UK governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
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 Board does not currently 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 22 to the financial
statements. Other risks and uncertainties are discussed in the
Financial Review on page 10.
Each of the persons who is a director as at the date of approval
of this annual report confirms that:
• so far as the director is aware, there is no relevant audit
information of which the Company’s auditors are
unaware; and
• the director has taken all the steps that he or she ought to
have taken as a director in order to make himself/herself
aware of any relevant audit information and to establish that
the Company’s auditors are aware of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of s418 of the Companies
Act 2006.
Suzanne Chase
Company Secretary
12 March 2014
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17
Remuneration Report
Remuneration committee
The remuneration committee comprises Lord Freeman as
Chairman, David Courtley and Peter Luff and Neal Ransome.
Directors are excluded from discussions about their
personal remuneration.
The committee is responsible for reviewing the Group’s
remuneration policy, the emoluments of the Executive Directors
and other senior management and the Group’s pension
arrangements and for making recommendations thereon to the
Board. The committee also makes recommendations to the
Board in respect of awards of options under the Senior Executive
Share Option Plan, Executive Share Option and Sharesave
Schemes and in respect of employees who should be invited to
participate in the Co-investment Scheme. It also reviews the
terms of service contracts with senior employees and Executive
Directors and any compensation arrangements resulting from the
termination by the Company of such contracts.
The committee has access to external advisors to assist it with
ensuring that salary and benefit packages are competitive and
appropriate. In addition, committee members keep themselves
fully informed of all relevant developments and best practice by
reading the circulars on remuneration and related matters that
the Company receives from its advisers and, if appropriate, by
attending seminars. Pension advice is provided by Cartwright
Group Limited. Advice on share options and Co-investment
Plans is provided by Pinsent Masons, who also provide other
legal services to the Group.
The Board determines the remuneration of all Non-executive
Directors within the limits set out in the Company’s Articles of
Association. Non-executive Directors are not involved in any
decisions about their own remuneration. Details of Directors’
remuneration for the year ended 31 December 2013 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 2013
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 2013 the policy applied as a result of the annual
salary review was for increases to be given only where an
individual’s role had changed or where there was a pay
anomaly. No changes in Directors’ remuneration arose as a
result of this review.
Performance bonus
The terms of the incentive bonus for Executive Directors are
agreed annually. For 2013 a target for the full year was set. No
performance bonuses were earned by, or paid to, Executive
Directors in 2013.
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 2013 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 had a performance criterion of growth
in EPS exceeding RPI plus an average of 3% per annum. The
year 2004 had been taken as the base year against which EPS
growth is measured. All of these options lapsed during 2013.
The exercise of share options is satisfied either through shares
issued by the Company or through purchases in the market via
the Employee Benefit Trust. In the event that an employee
resigns, the options that they hold will lapse. Options are granted
at nil cost. The option exercise price is set at the closing
mid-market share price on date of grant without any discount.
On 7 June 2011 300,000 share options were awarded under this
scheme to Alastair Woolley. The exercise price of the options is
28 pence, and the options are subject to a performance
condition being that the share price must be greater than or
equal to 35 pence for 20 consecutive days. The options will vest
in 3 years and lapse in 10 years if not exercised.
18
Parity Group plc
Report and Accounts 2013
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stock code: PTY
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purchased by the employee will be matched on a sliding scale up
to a maximum of 1.5-to-1 for outstanding performance.
None of the Directors have awards outstanding under the
Co-investment Scheme.
Share price
The Parity Group plc mid market share price on 31 December
2013 was 29.25 pence. During the period 1 January to
31 December 2013 shares traded at market prices between
18.5 pence and 44 pence.
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.
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.
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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 for 20 consecutive days. The options
will vest in 3 years and lapse in 10 years if not exercised.
On 8 March 2013 a further 300,000 share options were awarded
under this scheme to Alastair Woolley. The exercise price of the
options is 26.5 pence, and the options are subject to a
performance condition being that the share price must be greater
than or equal to 33.125 pence for 5 consecutive days. 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 2013, 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 2013.
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
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19
Remuneration Report continued
Contractual arrangements for current Directors are summarised below:
Director
Philip Swinstead1
Lord Freeman2
Paul Davies1
Alastair Woolley
David Courtley2
Peter Luff2
Neal Ransome2
Contract date
Notice period
Contractual termination payment
1 June 2010
1 July 2007
1 June 2010
1 April 2011
8 June 2011
26 September 2013
26 September 2013
n/a
n/a
12 months
6 months
n/a
n/a
n/a
n/a
n/a
12 months rolling
6 months rolling
n/a
n/a
n/a
1 The Company is required to give 12 months notice of termination of the service agreement to the Executive Chairman and Chief Executive Officer who are required to
give 6 months notice to the Company.
2 The appointment of Non-executive Directors is terminable at the will of the parties.
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.
Directors’ remuneration (audited)
The remuneration of the Directors who served during the year is set out below.
Salary/
fees
2013
£’000
Benefi ts
2013
£’000
Compensation for
loss of offi ce
2013
£’000
Total emoluments
2013
£’000
Company pension
contributions8
2013
£’000
Share Based
Payment
2013
£’000
Executive Directors
P Swinstead1,2
P Davies
A Woolley
S Chase3
S Whyte4
Non-executive Directors
Lord Freeman
D Courtley
M Phillips5
P Luff6
N Ransome7
Total emoluments
200
220
120
61
151
40
40
30
10
10
882
–
18
10
6
8
–
–
–
–
–
–
–
–
–
148
–
–
–
–
–
200
238
130
67
307
40
40
30
10
10
42
148
1,072
–
24
6
5
10
–
–
–
–
–
45
–
–
29
5
–
–
–
–
–
–
34
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Directors’ remuneration (audited) continued
Salary/
fees
2012
£’000
220
120
200
40
40
40
660
Benefi ts
2012
£’000
Compensation
for loss of offi ce
2012
£’000
Total emoluments
2012
£’000
Company pension
contributions8
2012
£’000
Share Based
Payment
2012
£’000
18
10
–
–
–
–
28
–
–
–
–
–
–
238
130
200
40
40
40
688
174
6
–
–
–
–
180
11
18
–
–
–
–
29
Executive Directors
P Davies8
A Woolley
Non-executive Directors
P Swinstead1,2
Lord Freeman
D Courtley
M Phillips5
Total emoluments
Notes
1 P Swinstead was appointed Executive Chairman on 1 October 2013. Previously Mr Swinstead was Non-executive Chairman.
2 During 2013 and 2012 The Remuneration Committee elected to pay Mr Swinstead an additional fee of £150,000 per annum for discharging services as
Non executive Chairman.
3 Appointed 1 February 2013 on a part time basis (3 days a week). Resigned as a Board director on 26 September 2013, but continued employment as the Group’s
General Counsel and Company Secretary.
4 Engaged by the Group on 18 February 2013 and appointed to the Board on 7 March 2013. Mr Whyte resigned on 26 September 2013, and was appointed as an
independent consultant to the Board for 6 months.
5 Mr Phillips stepped down on 26 September 2013.
6 Appointed 26 September 2013.
7 Appointed 26 September 2013.
8 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 in 2012, which was agreed by The Remuneration Committee.
Executive Directors’ share options (audited)
As at
31 January
2012
Lapsed/
Surrendered
in the
year
Exercised
in the
year
Awarded
In the
year
As at
31 December
2013
Exercise
period
Exercise
price
per share
Paul Davies
Senior Executive share
option plan 2010
Alastair Woolley
Executive share option plan
2011
2012
2013
Sub-total
Total
2,851,633
300,000
60,000
–
360,000
3,211,633
–
–
–
–
–
–
–
–
–
–
–
–
–
2,851,633
2011-2017
£0.10
–
–
300,000
300,000
300,000
2014-2021
£0.28
60,000
2015-2022
£0.2625
300,000
2016-2023
£0.265
660,000
300,000
3,511,633
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21
Remuneration Report continued
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 2012
(or date of appointment
if later)
% issued share capital
(or date of resignation) % issued share capital
Shareholding as at
31 December 2013
12,180,543
6,250
720,000
56
–
6,521,739
–
–
–
16.25
0.01
0.96
–
–
8.70
–
–
–
13,186,470
6,250
1,275,556
56
–
6,521,739
–
–
33,000
12.97
0.01
1.26
–
–
6.42
–
–
0.03
Philip Swinstead
Lord Freeman
Paul Davies
Alastair Woolley
Suzanne Chase
David Courtley
Mike Phillips
Peter Luff
Neal Ransome
For and on behalf of the Board
Lord Freeman
Chairman of the remuneration committee
12 March 2014
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Independent Auditor’s Report to the Members of Parity Group Plc
We have audited the financial statements of Parity Group Plc for
the year ended 31 December 2013 set out on pages 24 to 59.
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 16, 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 2013 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.
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion the information given in the Strategic Report,
Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the
financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following where the
Companies Act 2006 requires us 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.
Andrew Turner (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
8 Salisbury Square
EC4Y 8BB
London
United Kingdom
12 March 2014
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23
Consolidated Income Statement
for the year ended 31 December 2013
Before non-
recurring items
2013
£’000
Notes
Non-recurring
items
2013
(note 5)
£’000
Total
2013
£’000
Before non-
recurring items
2012
£’000
Non-recurring
items
2012
(note 5)
£’000
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
Tax (charge)/credit
Loss for the year from
continuing operations
Discontinued operations
Profit/(loss) for the year from
Discontinued operations
Loss for the year
Attributable of owners of
the parent
Basic and diluted loss
per share
Total
2012
£’000
85,887
(8,258)
(497)
(77,832)
(86,587)
(700)
695
(1,061)
(1,066)
(349)
2
3
3
3
7
7
11
91,949
(8,163)
(271)
(82,453)
(90,887)
1,062
655
(1,066)
651
(1,115)
–
(173)
–
91,949
(8,336)
(271)
(1,427)
(83,880)
(92,487)
(538)
655
(1,600)
(1,600)
–
–
(1,600)
372
85,887
(8,032)
(497)
(76,708)
(85,237)
650
695
(1,066)
(1,061)
(949)
(743)
284
(497)
–
(226)
–
(1,124)
(1,350)
(1,350)
–
–
(1,350)
148
(464)
(1,228)
(1,692)
(213)
(1,202)
(1,415)
8
(5)
46
41
45
(19)
26
(469)
(1,182)
(1,651)
(168)
(1,221)
(1,389)
12
(1.88p)
(2.00p)
The notes on pages 29 to 59 form part of the financial statements.
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Statements of Comprehensive Income
for the year ended 31 December 2013
Loss for the year
Other comprehensive income:
Items that may be reclassifi ed to profi t or loss
Exchange differences on translation of foreign operations
Items that will never be reclassified to profit or loss
Actuarial gain/(loss) on defined benefit pension scheme
Deferred taxation on actuarial gains/(losses) 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 29 to 59 form part of the financial statements.
Notes
24
16
Consolidated
2013
£’000
2012
£’000
(1,651)
(1,389)
(25)
(25)
220
(23)
197
172
(64)
(64)
(1,554)
287
(1,267)
(1,331)
(1,479)
(2,720)
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25
Total
£’000
3,878
(1,651)
(25)
220
(23)
7,142
120
9,661
Total
£’000
5,719
(1,389)
Statements of Changes in Equity
for the year ended 31 December 2013
Consolidated
At 1 January 2013
Loss for the year
Exchange differences on translation of
foreign operations
Actuarial gain on defined benefit pension
scheme
Deferred taxation on actuarial gain on
pension scheme taken directly to equity
Issue of new ordinary shares
Share options – value of employee services
Share
capital
£’000
1,437
–
–
–
–
596
–
Deferred
shares
£’000
14,319
Share
premium
reserve
£’000
26,637
Other
reserves
£’000
44,160
–
–
–
–
–
–
–
–
–
–
6,546
–
–
–
–
–
–
–
Retained
earnings
£’000
(82,675)
(1,651)
(25)
220
(23)
–
120
At 31 December 2013
2,033
14,319
33,183
44,160
(84,034)
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
–
–
–
–
62
–
–
–
–
–
–
–
Share
premium
reserve
£’000
25,944
–
–
–
–
693
–
Other
reserves
£’000
44,160
–
–
–
–
–
–
Retained
earnings
£’000
(80,079)
(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
Company
At 1 January 2013
Loss for the year
Issue of new ordinary shares
Share options – value of employee services
Share
capital
£’000
1,437
–
596
–
Deferred
shares
£’000
14,319
–
–
–
Share
premium
reserve
£’000
26,637
–
6,546
–
Other
reserves
£’000
22,729
–
–
–
Retained
earnings
£’000
(47,758)
(3,490)
–
34
Total
£’000
17,364
(3,490)
7,142
34
At 31 December 2013
2,033
14,319
33,183
22,729
(51,214)
21,050
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
18,986
(2,409)
755
32
At 31 December 2012
1,437
14,319
26,637
22,729
(47,758)
17,364
The notes on pages 29 to 59 form part of the financial statements.
26
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Statements of Financial Position
As at 31 December 2013
Company number 3539413
Assets
Non-current assets
Intangible assets and goodwill
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
18
30
16
17
18
19
20
21
19
20
21
24
25
23
23
23
Approved by the Directors and authorised for issue on 12 March 2014.
The notes on pages 29 to 60 form part of the financial statements.
Paul Davies
Chief Executive Officer
Alastair Woolley
Finance Director
Consolidated
Company
2013
£’000
8,459
334
–
–
552
9,345
19
16,360
7,376
23,755
33,100
2012
£’000
7,756
415
–
–
1,318
9,489
20
13,044
2,871
15,935
25,424
2013
£’000
2012
£’000
–
2
93,008
20,527
–
–
–
69,763
20,527
–
113,537
90,290
–
3,481
37
3,518
–
2,619
2,362
4,981
117,055
95,271
(9,909)
(10,387)
(895)
(8,283)
(8,938)
(308)
(21,191)
(17,529)
–
(5,238)
(895)
(6,133)
–
(2,491)
(305)
(2,796)
(8)
–
–
(500)
(89,806)
(74,656)
–
–
(78)
(2,170)
(2,248)
(462)
(3,047)
(4,017)
(23,439)
(21,546)
9,661
3,878
16,352
33,183
44,160
15,756
26,637
44,160
(84,034)
(82,675)
9,661
3,878
(66)
–
(89,872)
(96,005)
21,050
16,352
33,183
22,729
(51,214)
21,050
(455)
–
(75,111)
(77,907)
17,364
15,756
26,637
22,729
(47,758)
17,364
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Statements of Cash Flows
for the year ended 31 December 2013
Cash flows from operating activities
Loss for year
Adjustments for:
Finance income
Finance expense
Share-based payment expense
Income tax expense/(credit)
Amortisation of intangible assets
Depreciation of property plant and equipment
Impairment of intangible assets
Working Capital
Decrease in stocks and work in progress
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Increase/(decrease) in provisions
Payments to retirement benefit plan
Cash generated from operations
Income taxes received
Net cash flows from operating activities
Investing activities
Acquisitions (net of cash received)
Purchase of intangible assets
Purchase of property, plant and equipment
Net cash used in investing activities
Financing activities
Issue of ordinary shares
Proceeds from finance facility
Net movements on intercompany funding
Repayment of loans acquired through business combinations
Interest paid
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The notes on pages 29 to 59 form part of the financial statements.
Consolidated
Company
Notes
2013
£’000
2012
£’000
2013
£’000
2012
£’000
(1,651)
(1,389)
(3,490)
(2,409)
7
7
10
11
13
15
13
24
9
13
15
25
7
(655)
1,066
120
743
21
250
–
(106)
1
(3,324)
1,454
203
(833)
(2,605)
8
(695)
1,061
124
349
233
264
721
668
117
(229)
(925)
(1,178)
(1,090)
(2,637)
–
(738)
1,212
34
(658)
–
1
–
(394)
1,044
32
(641)
–
–
–
(3,639)
(2,368)
–
(2,486)
2,217
201
–
–
8,496
(9,651)
(1,035)
–
(3,707)
(4,558)
–
–
(2,597)
(2,637)
(3,707)
(4,558)
(500)
(724)
(169)
(1,138)
(3)
(113)
(1,393)
(1,254)
7,142
1,633
–
(46)
(234)
8,495
4,505
2,871
7,376
5
1,766
–
–
(250)
1,521
(2,370)
5,241
2,871
–
–
(4)
(4)
7,142
–
(5,522)
–
(234)
1,386
(2,325)
2,362
37
–
–
–
–
5
–
2,057
–
(249)
1,813
(2,745)
5,107
2,362
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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 7 to 9 and in note 22 to the financial statements. Note 22 also includes the Group’s
objectives for managing capital.
As outlined in note 22, the Group meets its day to day working capital requirements through an asset-based finance facility. The
facility contains certain financial covenants which have been met throughout the period. The facility has recently been extended
to December 2016.
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
2013. 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 £3,490,000
(2012: £ 2,409,000).
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 2013 adopted by the
Group and published standards not yet effective
No new standards, amendments to published standards or interpretations of existing standards effective in 2013 had a material
impact on the Group’s 2013 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.
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Notes to the Accounts continued
1 Accounting policies continued
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.
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.
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1 Accounting policies continued
Taxation continued
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the temporary difference can be utilised.
Foreign currencies
Company
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are
taken to the Income statement.
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.
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Notes to the Accounts continued
1 Accounting policies continued
Impairment of non-financial assets (excluding deferred tax assets)
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount, the
latter being the higher of the fair value less costs to sell associated with the CGU and its value in use. Value in use calculations
are performed using cash flow projections for the CGU to which the goodwill relates, discounted at a pre-tax rate which reflects
the asset specific risks and the time value of money.
Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce
the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the
unit (group of units) on a pro rata basis.
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.
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.
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.
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1 Accounting policies continued
Stocks and work in progress continued
Work in progress is stated at the lower of cost and net realisable amount and represents that element of start up costs which, at
the reporting date, has not been charged to the Income Statement. Cost includes materials, direct labour and an attributable
portion of overheads based on normal levels of activity. Net realisable amount is based on estimated selling price less further
costs expected to be incurred to completion and disposal including provision for contingencies and anticipated future losses.
Amounts recoverable on contracts and payments in advance
Amounts recoverable on contracts are stated at the net sales value of work done less amounts received as progress payments on
account. Where progress payments exceed the sales value of work done, they are included in payables as payments in advance.
Financial liabilities
All of the Group’s financial liabilities are classified as financial liabilities carried at amortised cost. The Group does not use
derivative financial instruments or hedge account for any transactions.
Unless otherwise indicated, the carrying amounts of the Group’s financial liabilities are a reasonable approximation of their
fair values.
Financial liabilities include the following items:
•
•
•
Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried
at amortised cost using the effective interest method.
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 premiums 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.
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.
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Notes to the Accounts continued
1 Accounting policies continued
Share capital
Following the adoption of IAS 32, financial instruments issued by the Group are treated as equity only to the extent that they
meet the following two conditions:
(a)
(b)
they include no contractual obligations upon the company (or group as the case may be) to deliver cash or other financial
assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially
unfavourable to the company (or group); and
where the instrument will or may be settled in the company’s own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the company’s own equity instruments or is a derivative that will be settled by the
company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so
classified takes the legal form of the company’s own shares, the amounts presented in these financial statements for called up
share capital and share premium account exclude amounts in relation to those shares.
For the purposes of the disclosures given in note 22, the Group considers its capital to comprise its cash and cash equivalents,
its asset-based bank borrowings, and its equity attributable to equity holders, comprising issued capital, reserves and retained
earnings, as disclosed in the statement of changes in equity.
Financial guarantee contracts
Where Group companies enter into financial guarantee contracts and guarantee the indebtedness of other companies within the
Group, the company considers these to be insurance arrangements and accounts for them as such. In this respect, the
company treats the guarantee contract as a contingent liability until such time that it becomes probable that any Group
company will be required to make a payment under the guarantee.
Employee Share Ownership Plan (ESOP)
As the Company is deemed to have control of its ESOP trust, it is treated as 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.
Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured
immediately before and after the modification, is also charged to the Income Statement over the remaining vesting period.
Significant accounting estimates and judgements
The preparation of financial statements under IFRS requires the Group to make estimates and assumptions 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.
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1 Accounting policies continued
Significant accounting estimates and judgements continued
Retirement benefit liability. The costs, assets and liabilities of the defined benefit scheme operated by the Group are determined
using methods relying on actuarial estimates and assumptions. Details of the key assumptions are set out in note 24. The Group
takes advice from independent actuaries relating to the appropriateness of the assumptions. Changes in the assumptions used
may have a significant effect on the Income Statement and the Statement of Financial Position.
Recoverability of deferred tax assets. The deferred tax assets are reviewed for recoverability and recognised to the extent that it is
probable that taxable profits will be available against which deductible temporary differences 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). The deferred tax
asset would not require writing down if the forecast future profitability of Parity Resources 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 Group Board), have been used as the basis to define reporting segments.
During the reporting period each reporting segment was headed up by a dedicated C OO, 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 Group Board allocates resources on the basis of this information.
Adjusted EBITDA as defined in note 4, profit before tax, and assets and liabilities are internally reported at a Group level.
Description of the types of services from which each reportable segment derives its revenues
The Group has two segments:
•
•
Parity Professionals – this segment provides IT recruitment services across all UK markets. It also provides graduate
selection, training, placement and career development services. 91% (2012: 90%) of the continuing Group’s revenues.
Parity Digital – this segment delivers unique 3D creative technology, and business intelligence solutions designed around
client problems. Digital provides 9% (2012: 10%) of the continuing Group’s revenues.
Central costs include Corporate, Finance, HR, IT and Property costs, and are all managed centrally, and are not allocated to
reporting segments for internal reporting purposes.
Measurement of operating segment contribution
The accounting policies of the operating segments are the same as those described in the summary of significant
accounting policies.
The Group evaluates performance on the basis of contribution from operations before tax not including non-recurring items,
such as restructuring costs.
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.
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Notes to the Accounts continued
2 Segmental information continued
Revenue from external customers
Attributable costs
Segmental contribution
Central costs
Adjusted EBITDA
Strategic initiative costs*
Depreciation and amortisation
Share based payment
Other non-recurring items
Finance income
Finance costs
Parity
Professionals
2013
£’000
83,711
79,505
4,206
Parity
Digital
2013
£’000
8,238
6,308
1,930
Before non-
recurring
items
£’000
Non-
recurring
items
£’000
91,949
85,813
6,136
(3,607)
2,529
(1,076)
(271)
(120)
–
655
(1,066)
–
–
–
–
–
(695)
–
–
(905)
–
–
Profit/(loss) before tax (continuing activities)
–
–
651
(1,600)
Revenue from external customers
Attributable costs
Segmental contribution
Central costs
Adjusted EBITDA
Strategic initiative costs*
Depreciation and amortisation
Share based payment
Other non-recurring items
Finance income
Finance costs
Profit/(loss) before tax
Parity
Professionals
2012
£’000
77,491
72,817
4,674
Parity
Digital
2012
£’000
8,396
6,850
1,546
–
–
Before non-
recurring
items
£’000
Non-
recurring
items
£’000
85,887
79,667
6,220
(4,825)
1,395
(124)
(497)
(124)
–
695
(1,061)
284
–
–
–
–
–
(840)
–
–
(510)
–
–
(1,350)
Total
2013
£’000
91,949
85,813
6,136
(3,607)
2,529
(1,771)
(271)
(120)
(905)
655
(1,066)
(949)
Total
2012
£’000
85,887
79,667
6,220
(4,825)
1,395
(964)
(497)
(124)
(510)
695
(1,061)
(1,066)
* Strategic initiative costs refer to costs associated with reviewing potential acquisition targets and other costs incurred as a result of pursuing the digital strategy.
The continuing Group operates exclusively in the UK. All revenues are generated and all segment assets are located in the UK.
55% (2012: 52%) or £45.8m (2012: £40.2m) of the Parity Professionals revenue was generated in the Public Sector. 32%
(2012: 40%) or £2.7m (2012: £3.4m) of the Parity Digital revenue was generated in the Public Sector.
The largest single customer in Parity Professionals contributed revenue of £12.5m or 15% and was in the private sector (2012:
£11.7m or 15% and in the private sector). The largest single customer in Parity Digital contributed revenue of £2.7m or 33%
and was in the private sector (2012: £2.7m or 33% and in the private sector).
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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
Disclosures relating to the remuneration of Directors are set out on page 20.
During the year the Group obtained the following services for the Group’s auditor, KPMG Audit plc:
Audit of the Group’s fi nancial statements
Other services:
Audit related assurance services
Interim review
Tax compliance
Other
All other services have been performed in the United Kingdom.
Other refers to services provided in relation to potential acquisition activity.
Consolidated
2013
£’000
2012
£‘000
7,294
816
226
8,336
21
250
271
7,124
768
366
8,258
233
264
497
78,125
71,917
495
56
1,472
(522)
442
405
–
120
3,287
83,880
92,487
990
52
1,245
(452)
495
514
5
124
2,942
77,832
86,587
Consolidated
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£’000
11
62
7
26
150
245
256
2012
£‘000
10
61
7
23
289
380
390
37
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Notes to the Accounts continued
4 Reconciliation of operating loss to adjusted EBITDA
Operating loss from continuing operations
Strategic initiative costs
Non-recurring items
Share-based payment charges
Depreciation and amortisation
Adjusted EBITDA
Note
2
5
3
3
2013
£’000
(538)
1,076
1,600
120
271
2,529
2012
£’000
(700)
124
1,350
124
497
1,395
The directors use EBITDA before strategic initiative costs, non-recurring items and share-based payment charges (‘Adjusted
EBITDA’) as a key performance measure of the business.
5 Non-recurring items
Continuing Operations
Strategic initiative costs
Restructuring
– Employee benefi t costs
– Other operating costs
Property provisions (other operating costs)
Discontinued Operations
Property provisions
2013
£’000
695
173
–
732
1,600
(46)
(46)
2012
£’000
840
226
735
(451)
1,350
19
19
The continuing operations non-recurring charge for 2013 includes strategic initiative costs, restructuring costs and a charge
relating to surplus property. Strategic initiative costs refer to the professional services incurred in the Group’s acquisition
programme. Restructuring costs refer mainly to the compensation payment for loss of office paid to Stephen Whyte who
resigned from the Board on 26 September 2013. Of the charge for surplus properties, £471,000 relates to onerous lease costs
in respect of additional unoccupied space at the Wimbledon head office, following the relocation of staff to offices in Chancery
Lane and Shoreditch. The charge also includes a top up of £162,000 to the dilapidations provision for the Wimbledon office. The
lease expires in September 2014. £60,671 of the property charge relates to onerous lease costs in respect of unoccupied floors
of the Camberley office. The remainder of the property charge (£38,000) relates to onerous lease cost for empty properties,
which were exited during 2013 and for which the lease had expired by the end of 2013.
The discontinued operations non-recurring credit for 2013 relates to a payment received from the administrators of Parity
Training Limited. The administration dividend related to a claim made by the Group in respect of costs it incurred under its
obligation as guarantor on two Parity Training Limited properties, subsequent to the divestment of Parity Training Limited.
The continuing operations non-recurring charge for 2012 included strategic initiative costs, restructuring costs and a credit
relating to surplus property. Strategic initiative costs referred to the professional services incurred in the Group’s acquisition
programme and included the costs relating to the acquisition of Inition Limited. Restructuring costs referred to the employee
costs incurred in relation to the re-organisation of Parity Systems. Other operating costs referred 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. The credit for surplus properties related to the sublet of an unoccupied area of the Wimbledon head office, for
which the lease costs had been previously provided for, and reflected the contracted sub-let income to the end of the sub-lease.
The discontinued operations non-recurring charge for 2012 related to the costs payable for an ex-Parity Training Limited office,
and the unwind of the provision discount in respect of discontinued properties.
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6 Average staff numbers
Continuing operations
Professionals – United Kingdom1
Digital – United Kingdom, including corporate offi ce2
1 Includes 27 (2012: 29) employees providing shared services across the Group.
2 Includes 8 (2012: 7) employees of the Company.
At 31 December 2013, the Group had 148 continuing employees (2012: 156).
7 Finance income and costs
Finance income
Finance income in respect of post-retirement benefi ts
Finance costs
Interest expense on fi nancial liabilities
Finance costs in respect of post-retirement benefi ts
2013
Number
2012
Number
98
58
156
103
59
162
2013
£’000
655
655
234
832
1,066
2012
£’000
695
695
250
811
1,061
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 £78,000.
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.
The post-tax result of discontinued operations was determined as follows:
(Expenses)/income other than fi nance costs
Non-recurring income/(expenses) (note 5)
Pre-tax profi t
Taxation
Profi t for the year
2013
£’000
(5)
46
41
–
41
2012
£’000
45
(19)
26
–
26
For 2013 the pre-tax profit before non-recurring items relates to legacy overseas subsidiaries of the Group, and comprises
company secretarial and accounting fees.
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.
The Statement of Cash Flows includes a £32,000 cash inflow (2012: £274,000 cash outflow) from operating activities in respect
of discontinued operations.
9 Acquisition of subsidiary
On 29 May 2012, the Group acquired Inition Limited. During 2012 the initial cash consideration, less cash acquired, amounted
to £1,138,000.
The Sale and Purchase agreement included additional cash consideration subject to the ongoing performance o f Inition up to
31 March 2014 (an earn-out of £0.5 million was payable to the vendors if Inition made at least £0.3m profit before interest and
tax in the year to 31 March 2013, and a further £0.5 million would become payable if Inition makes a profit before interest and
tax of at least £0.5m in the year to 31 March 2014.)
Inition met its first earn-out target and consequently £0.5 million was paid to the vendors during 2013.
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39
Notes to the Accounts continued
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 share price averages a target
price for 20 consecutive days 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 £120,000 (2012: £124,000).
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
2013
Weighted
average
exercise
price (p)
12
27
9
26
16
2013
Number
7,406,587
3,602,992
(737,500)
(2,422,634)
7,849,445
2012
Weighted
average
exercise
price (p)
12
22
9
24
12
2012
Number
6,368,668
1,542,329
(62,500)
(441,910)
7,406,587
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
2013
Weighted average
contractual life (years)
3
6
–
Number
4,301,633
3,547,812
Exercise
price (p)
7.5 – 10
19 – 28
–
165 – 209
7,849,445
2012
Weighted average
contractual life (years)
5
6
1
Number
5,039,133
2,357,429
10,025
7,406,587
Of the total number of options outstanding at the end of the year, 4,301,633 (2012: 297,525) had vested and were exercisable at
the end of the year. The weighted average exercise price of those options was 10 pence (2012: 15 pence).
737,500 (2012: 62,500) options were exercised during the year at an average exercise price of 9 pence (2012: 9 pence)
The weighted average fair value of each option granted during the year was 13 pence (2012: 22 pence).
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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
2013
Stochastic
2012
Stochastic
26
27
10
5
25
22
7
4
54 – 74%
57 – 70%
0.86%
0%
1.18%
0%
The volatility assumption is calculated as the historic volatility of the share price over a 3 and 5 year period prior to grant date.
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
Write down of deferred tax asset
Trading losses
Adjustments in respect of prior periods
Total tax expense
Tax expense on continuing operations
2013
£’000
–
–
(25)
(28)
157
65
545
–
29
743
743
2012
£’000
–
–
(33)
1
118
245
18
–
349
349
The 2013 Budget on 20 March 2013 announced that the UK corporation tax rate will reduce from 23% to 21% from 1 April 2014
and, further, reduce to 20% from 1 April 2015. These changes were substantively enacted on 2 July 2013.
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 2013 tax expense is after a tax credit of £372,000 (2012: £148,000) in respect of exceptional items.
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Notes to the Accounts continued
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
Loss before income tax
Expected tax credit based on the standard rate of United
Kingdom corporation tax of 23.25% (2012: 24.5%)
(Income)/expenses not allowable for tax purposes
Adjustment for under provision in prior years
Reduction in deferred tax asset due to change in enacted rate
Tax losses not recognised
Write down of deferred tax asset
Tax on each component of other comprehensive income is as follows:
Exchange differences on translation
of foreign operations
Actuarial gain/(loss) on defi ned benefi t
pension scheme
Before tax
£’000
2013
Tax
£’000
After tax
£’000
Before tax
£’000
(25)
220
195
–
(25)
(64)
(23)
(23)
197
172
(1,554)
(1,618)
2013
£’000
(1,651)
743
(908)
(211)
(20)
29
157
243
545
743
2012
Tax
£’000
–
287
287
2012
£’000
(1,389)
349
(1,040)
(256)
264
3
118
220
–
349
After tax
£’000
(64)
(1,267)
(1,331)
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
2013
000’s
Earnings
2013
£’000
Earnings
per share
2013
Pence
Weighted
avergae number
of shares
2012
000’s
Earnings
2012
£’000
(1,651)
87,905
(1.88)
(1,415)
70,578
–
–
–
(1,651)
87,905
(1.88)
(1,415)
70,578
Earnings
per share
2012
Pence
(2.00)
–
(2.00)
As at 31 December 2013 the number of ordinary shares in issue was 101,624,020 (2012: 71,835,594).
Basic and diluted earnings per share from discontinued operations was 0.05p (2012: basic and diluted loss per share 0.04p).
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13 Intangible assets
Cost
At 1 January
Additions
Disposals
At 31 December
Accumulated amortisation
At 1 January
Charge for the year
Disposals
At 31 December
Net book amount
2013
£’000
3
724
–
727
–
21
–
21
706
Software
Goodwill
Total
2012
£’000
1,555
3
(1,555)
2013
£’000
7,753
–
–
3
7,753
602
233
(835)
–
3
–
–
–
–
2012
£’000
4,594
3,159
–
7,753
–
–
–
–
2013
£’000
7,756
724
–
8,480
–
21
–
21
2012
£’000
6,149
3,162
(1,555)
7,756
602
233
(835)
–
7,753
7,753
8,459
7,756
In 2012 the directors decided that the Group’s financial system was no longer appropriate for the Group’s needs. The impairment
of the incumbent finance system was £720,000.
As at 31 December 2013, the Group had implemented a new financial system and dedicated website for its Digital division at a
cost of £160,000 and Inition has been developing intellectual property for its augmented reality product lines which amounts to
an investment so far of £110,000. Projects were also in progress to implement a new financial system, a CRM system and to
develop and launch a new sophisticated and dedicated website for its Professional division with costs to date of £408,000 being
treated as intangible asset additions in 2013. At group level, a new HR system has also been implemented at a cost of £46,000.
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
2013
£’000
1,470
3,124
3,159
7,753
2012
£’000
1,470
3,124
3,159
7,753
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 2013. Years from 2015 onward are based on the budget for 2014 projected forward at expected growth rates.
This is considered prudent based on current expectations of the 2014 long-term growth rate.
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Notes to the Accounts continued
14 Goodwill continued
Major assumptions are as follows:
2013
Discount rate
Forecast revenue growth
Operating margin 2014
Operating margin 2015 onward
2012
Discount rate
Forecast revenue growth
Operating margin 2013
Operating margin 2014 onward
Resources
%
Solutions
%
Digital
Solutions
%
11.9
8.3
2.5
2.9
7.7
9.2
2.8
3.2
6.8
1.5
4.2
7.1
6.1
17.7
4.7
5.1
8.9
21.9
4.3
9.3
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 Digital Solutions, 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 2013.
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 2012
Additions
Acquisitions through business combinations
Disposals
Balance at 31 December 2012
Balance at 1 January 2013
Additions
Disposals
Balance at 31 December 2013
Accumulated depreciation
Balance at 1 January 2012
Depreciation charge for the year
Acquisitions through business combinations
Disposals
Balance at 31 December 2012
Balance at 1 January 2013
Depreciation charge for the year
Disposals
Balance at 31 December 2013
Net book value
At 1 January 2012
At 31 December 2012
At 31 December 2013
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Leasehold
improvements
£’000
Offi ce
equipment
£’000
Total
£’000
1,147
2,845
3,992
17
–
(234)
930
930
6
–
96
250
(41)
3,150
3,150
163
–
936
3,313
113
250
(275)
4,080
4,080
169
–
4,249
598
148
–
(120)
626
626
142
–
768
549
304
168
2,801
3,399
116
143
(21)
3,039
3,039
108
–
3,147
44
111
166
264
143
(141)
3,665
3,665
250
–
3,915
593
415
334
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15 Property, plant and equipment continued
Company
At cost
Balance at 1 January 2012
Balance at 31 December 2012
Balance at 1 January 2013
Additions
Balance at 31 December 2013
Accumulated amortisation
Balance at 1 January 2012
Balance at 31 December 2012
Balance at 1 January 2013
Depreciation charge for the year
Balance at 31 December 2013
Net book value
At 1 January 2012
At 31 December 2012
At 31 December 2013
Leasehold
improvements
£’000
Offi ce
equipment
£’000
Total
£’000
–
–
–
1
1
–
–
–
1
1
–
–
–
–
–
–
2
2
–
–
–
–
–
–
–
2
–
–
–
3
3
–
–
–
1
1
–
–
2
As at 31 December 2013, neither the Group nor the Company had any capital commitments contracted for but not provided, for
the purchase of tangible assets (2012: £nil).
Leased plant and equipment
As a result of the acquisition of Inition during 2012, 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 2013 the
net carrying value of the leased equipment was £10,509 (2012: £18,842).
16 Deferred tax
At 1 January
Acquired in business combinations
Depreciation in excess of capital allowances
Trading Losses
Recognised in other comprehensive income
Actuarial gain/(loss) 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
Write down
Trading Losses
Other short term timing differences
At 31 December
Consolidated
2013
£’000
1,318
–
–
2012
£’000
1,384
(22)
18
(23)
287
(157)
(29)
25
(65)
(545)
–
28
552
(118)
1
33
(245)
–
(18)
(2)
1,318
45
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Notes to the Accounts continued
16 Deferred tax continued
The deferred tax asset of £552,000 (2012: £1,318,000) comprises:
Depreciation in excess of capital allowances
Retirement benefi t liability
Short term and other timing differences
Consolidated
2013
£’000
457
–
95
552
2012
£’000
893
314
111
1,318
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 use d in this
review were the same as those used in the review of the impairment of goodwill (see note 14).
The forecasts for Resources comfortably support the unwinding of the deferred tax asset held by this business of £552,000 (2012:
£602,000). However, as a result of the creation of the two divisions which involved the transfer of the Talent Management business
from the Systems business unit to the Parity Professionals division, the Directors do not believe there are now sufficient taxable
profits in the short to medium term to justify the recognition of the deferred tax asset associated with the System’s business (2012:
£716,000). This has resulted in a write down of the tax asset by £545,000, after other movements, during the year.
The 2013 Budget on 20 March 2013 announced that the UK corporation tax rate will reduce from 23% to 21% from 1 April 2014
and, further, reduce to 20% from 1 April 2015. These changes were substantively enacted on 2 July 2013. The deferred tax asset
at 31 December 2013 has been calculated based on the rate of 20% 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:
Depreciation in excess of capital allowances
Other short-term timing differences
Retirement benefi t plan liability
Depreciation in excess of capital allowances
Other short-term timing differences
Retirement benefi t plan liability
Trading Losses
Asset
2013
£’000
457
95
–
552
Asset
2012
£’000
893
111
314
–
1,318
Acquired in
business
combinations
2013
£’000
–
–
–
–
(Charged)/
credited to
(Charged)/
credited to
other
income comprehensive
income
2013
statement
2013
£’000
(436)
(16)
(291)
(743)
£’000
–
–
(23)
(23)
Acquired in
business
combinations
2012
£’000
(Charged)/
credited to
income
statement
2012
£’000
(Charged)/
credited to
other
comprehensive
income
2012
£’000
(22)
–
–
18
(4)
(44)
(11)
(276)
(18)
(349)
–
–
287
–
287
The Group has unrecognised carried forward tax losses of £27,928,000 (2012: £23,649,000). The Company has unrecognised
carried forward tax losses of £21,899,000 (2012: £17,216,000). The Group has unrecognised capital losses carried forward of
£281,875,386 (2012: £281,875,386). These losses may be carried forward indefinitely.
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17 Stocks and work in progress
Stocks
Consolidated
2013
£’000
19
19
2012
£’000
20
20
Stocks refers to 3D equipment purchased for resale, and are stated at the lower of cost and net realisable value.
18 Trade and other receivables
Amounts falling due within one year:
Trade receivables
Accrued income
Amounts recoverable on contracts
Amounts owed by subsidiary undertakings
Corporation tax due to be refunded
Other receivables
Prepayments
Amounts falling due after one year:
Amounts owed by subsidiary undertakings
Total
Consolidated
2013
£’000
8,939
5,575
1,262
–
–
32
552
2012
£’000
7,626
4,351
510
–
8
57
492
Company
2013
£’000
2012
£’000
–
–
–
–
–
–
3,479
2,613
–
–
2
–
–
6
16,360
13,044
3,481
2,619
–
–
16,360
13,044
93,008
96,489
69,763
72,382
The fair values of trade and other receivables are not considered to differ from the values set out above.
£8,173,000 (2012: £7,626,000) of the Group’s trade receivables, and £5,116,000 (2012 £4,176,000) 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
£9,904,000 (2012: £8,270,000).
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:
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Opening balance
(Decreases)/increases in provisions
Written off against provisions
Recovered amounts reversed
Closing balance
Consolidated
2013
£’000
33
48
(42)
(6)
33
2012
£’000
87
(36)
(18)
–
33
All balances provided at 31 December 2013 and 31 December 2012 were greater than 60 days old. The allowance account
represents full provision against specific gross debts.
As at 31 December 2013 trade receivables of £1,146,000 (2012: £902,000) 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
7,793
548
385
246
8,972
Impaired
£’000
–
–
–
(33)
(33)
2013
Total
£’000
7,793
548
385
213
Gross
£’000
6,724
605
211
119
8,939
7,659
Impaired
£’000
–
–
–
(33)
(33)
2012
Total
£’000
6,724
605
211
86
7,626
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.
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Notes to the Accounts continued
19 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 finance lease liabilities
Finance lease liabilities
Less than one year
Between one and two years
Future
minimum
lease
payments
2013
£’000
5
–
5
Present
value of
minimum
lease
payments
2013
£’000
5
–
5
Future
minimum
lease
payments
2012
£’000
13
8
21
Interest
2013
£’000
–
–
–
Further details of the Group’s banking facilities are given in note 22.
20 Trade and other payables
Consolidated
2013
£’000
2012
£’000
–
–
8
8
9,904
5
9,909
8,270
13
8,283
Present
value of
minimum
lease
payments
2012
£’000
12
8
20
Interest
2012
£’000
1
–
1
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
2013
£’000
312
6,767
–
1,260
2,048
10,387
2012
£’000
165
5,365
–
1,412
1,996
8,938
2013
£’000
–
126
4,961
26
125
5,238
2012
£’000
–
–
2,209
23
259
2,491
–
–
–
500
89,806
74,656
–
–
10,387
9,438
95,044
77,147
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21 Provisions
Consolidated
At 1 January 2013
Created in year
Utilised in year
Unwind of discount
At 31 December 2013
Due within one year or less
Due after more than one year
Total
Company
At 1 January 2013
Created in year
Utilised in year
Unwind of discount
At 31 December 2013
Due within one year or less
Due after more than one year
Total
Leasehold
dilapidations Onerous leases
£’000
141
186
–
–
327
317
10
327
133
185
–
–
318
317
1
318
£’000
629
528
(516)
5
646
578
68
646
627
528
(517)
5
643
578
65
643
Total
£’000
770
714
(516)
5
973
895
78
973
760
713
(517)
5
961
895
66
961
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. The total non-current amount provided of £68,000 is expected to fall within 2015.
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49
Notes to the Accounts continued
22 Financial instruments – risk management
The Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies
and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of
these risks is presented throughout these financial statements.
There have been no substantive changes in the Group’s exposure to financial instrument risks and the methods used to measure
them from previous periods unless otherwise stated in this note.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are trade receivables, cash and
cash equivalents, 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 2013
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 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
Amortised
cost
£’000
Loans and
receivables
£’000
–
–
–
7,376
15,808
23,184
9,904
5
10,074
19,983
–
–
–
–
–
–
–
2,871
12,544
15,415
8,270
21
8,773
17,064
–
–
–
–
Total
£’000
7,376
15,808
23,184
9,904
5
10,074
19,983
2,871
12,544
15,415
8,270
21
8,773
17,064
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22 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 2013
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 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
Amortised
cost
£’000
Loans and
receivables
£’000
Total
£’000
–
–
–
–
5,125
89,806
94,931
93,008
93,008
37
3,479
96,524
–
–
–
37
3,479
96,524
5,125
89,806
94,931
–
–
–
–
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
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 53% (2012: 54%) of the Group’s turnover is derived from the public
sector. The largest customer balance represents 14% (2012: 20%) of the trade receivable balance.
Quantitative disclosures of the credit risk exposure in relation to financial assets are set out below. Further disclosures regarding
trade and other receivables, which are neither past due nor impaired, are provided in note 18.
Financial assets
Cash and cash equivalents
Trade and other receivables
Total fi nancial assets
2013
Carrying
value
£’000
7,376
15,808
23,184
Maximum
exposure
£’000
7,376
15,808
23,184
2012
Carrying
value
£’000
2,871
12,544
15,415
Maximum
exposure
£’000
2,871
12,544
15,415
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Notes to the Accounts continued
22 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 2013 and 2012 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 £78,000 higher/lower and net assets £78,000 higher/lower. 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 2013 or 2012.
The currency profile of the Group’s net financial assets was as follows:
Functional currency of individual entity
Net foreign currency
fi nancial assets
2013
£’000
Sterling
Sterling
Euro
US Dollar
Total net exposure
–
31
3
34
2012
£’000
–
1
23
24
Euro
2013
£’000
2012
£’000
24,545
23,931
–
1,231
25,776
–
1,225
25,156
US Dollar
2012
£’000
966
–
–
966
Total
2013
£’000
2012
£’000
25,511
24,897
31
1,234
26,776
1
1,248
26,146
2013
£’000
966
–
–
966
The profile of the Company’s net financial assets was as follows:
Net foreign currency fi nancial assets
Sterling
Euro
US Dollar
Total net exposure
Functional currency: Sterling
2012
2013
£’000
£’000
–
31
3
34
–
–
23
23
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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22 Financial instruments – risk management continued
Foreign exchange risk continued
The following table sets out the contractual maturities (representing undiscounted contractual cash flows) of financial liabilities:
Consolidated
At 31 December 2013
Trade and other payables
Borrowings
Total
Consolidated
At 31 December 2012
Trade and other payables
Borrowings
Total
Company
At 31 December 2013
Trade and other payables
Borrowings
Total
Company
At 31 December 2012
Trade and other payables
Borrowings
Total
Up to
1 month
£’000
9,887
9,904
19,791
Up to
1 month
£’000
8,938
8,270
17,208
Between
1 and
12 months
£’000
Over
1 month
£’000
500
5
505
Over
1 month
£’000
500
21
521
Over
1 year
£’000
Total
£’000
10,387
9,909
20,296
Total
£’000
9,438
8,291
17,729
Total
£’000
–
–
–
89,806
95,044
–
–
89,806
95,044
Between
1 and
12 months
£’000
Over
1 year
£’000
Total
£’000
–
–
–
74,656
77,147
–
–
74,656
77,147
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£’000
5,238
–
5,238
Up to
1 month
£’000
2,491
–
2,491
More detail on trade and other payables is given in note 20.
Capital disclosures
The capital structure of the Group consists of cash and cash equivalents, equity attributable to equity holders, and asset-based
finance. There is no long-term external debt, except for a finance lease which the Group acquired through its purchase of Inition.
The lease represents a liability of £5,000 and is repayable within one year. 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 15 January 2013 the Group issued 3,125,000 New Ordinary Shares at 20 pence per share. The issue price represented a
discount of 7.0% to the closing middle market price on the 9 January 2013. Net proceeds from this issue amounted to £576,199.
The proceeds have been used by management to fund the first earn-out in relation to the acquisition of Inition, and other
transaction costs.
On 27 May 2013 the Group announced its proposal to delist to AIM and, at the same time, proposed a Placing of 25,925,926
New Ordinary Shares at a price of 27 pence per share, representing a discount of 23.4% to the closing share price on 16 May
2013. The Placing was completed on 5 July 2013. The net proceeds of £6,502,140 will be used by the Group to initiate its
acquisition strategy in the digital media market.
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.
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Notes to the Accounts continued
22 Financial instruments – risk management continued
Capital disclosures continued
Cash and cash equivalents
Asset-based borrowings
Net Debt
2013
£’000
7,376
(9,904)
(2,528)
2012
£’000
2,871
(8,270)
(5,399)
The Board regularly reviews the adequacy of resources available and considers the options available to increase them. The
asset-based borrowing facility contains certain externally imposed financial covenants which have been met throughout the period.
The Company does not have distributable reserves available for dividend payments. A capital reconstruction would be necessary
to create reserves available for distribution.
23 Reserves
The Board is not proposing a dividend for the year (2012: 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.
During 2013, the Group issued a total of 29,050,926 New Ordinary Shares. Following the issue of the shares, and also the
exercising of 737,500 share options, the share capital increased from £15,755,829 to £16,351,588.
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 exercised during 2013, the share premium increased from £26,637,869 to £33,183,314.
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
(2012: £351,000).
24 Pension commitments
The Group operates a number of pension schemes. With the exception of the Parity Group Retirement Benefit Plan, all of the
schemes are defined contribution plans and the assets are held in separately administered funds. Contributions to defined
contribution schemes were £226,000 (2012: £216,000).
Defined benefit plan
In March 1995, the Group established the Parity Retirement Benefit Plan, renamed as the Parity Group Retirement Benefit Plan,
following a Scheme of Arrangement in 1999, in order to facilitate the continuance of pension entitlements for staff transferring
from other schemes following acquisitions in 1994. This is a funded defined benefit scheme and has been closed to new
members since 1995. With effect from 1 January 2005 this scheme was also closed to future service accrual and future
contributions paid into money purchase arrangements.
Principal actuarial assumptions
Rate of increase of pensions in payment
Discount rate
Retail price infl ation
Consumer price infl ation
2013
%
3.7% – 4.0%
4.5%
3.4%
2.4%
2012
%
3.6%
4.3%
3.0%
2.2%
Note: the rate of increase in pensionable salaries is no longer applicable as the scheme is closed for future service.
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24 Pension commitments continued
Restated comparatives
In accordance with the revised IAS19, the assumption for future investment returns is the same discount rate (4.5%) used in
calculating the pension liabilities. The restated 2012 amounts have also been calculated on this basis. The scheme’s assets are
invested in equities, gilts and bonds in approximately equal proportions.
The underlying mortality assumption used for 2013 is in accordance with the standard table known as S1PA_H or S1PA_L
mortality, dependent on the size of each member’s pension, using the CMI_2011 projection based on year of birth with a long
term rate of improvement of 1.25% p.a. The 2012 assumption is based upon 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.
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. From 1 August 2013, contributions
were reduced to £680,000 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 the beginning of the year
Expected return
Contributions by Group
Benefi ts paid
Expenses met by scheme
Actuarial (loss)/gain
At the end of the year
Composition of plan assets
Equities
Gilts
Bonds
Options in Parity Group plc
Cash
Total
Reconciliation of plan liabilities
At the beginning of the year
Interest cost
Benefi ts paid
Actuarial (gain)/loss
At the end of the year
2013
£’000
17,421
(19,591)
(2,170)
2013
£’000
16,620
713
833
(653)
(58)
(34)
2012
£’000
16,620
(19,667)
(3,047)
2012
£’000
15,206
695
1,090
(833)
462
2012
Restated
£’000
15,206
716
1,090
(833)
–
441
17,421
16,620
16,620
2013
£’000
6,385
5,389
5,494
96
57
17,421
2013
£’000
19,667
832
(653)
(255)
19,591
2012
£’000
5,938
5,168
5,287
96
131
16,620
2012
£’000
17,673
811
(833)
2,016
19,667
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Notes to the Accounts continued
24 Pension commitments continued
Reconciliation of plan liabilities continued
The actuarial gain for the year of £255,000 (2012: loss of £2,016,000) in respect of plan liabilities is mainly as a result of the
change in the mortality assumption in the period, which has decreased the value of the scheme liabilities.
The cumulative amount of actuarial losses recognised since 1 January 2002 in other comprehensive income is £6,169,000
(2012: £6,389,000). 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)
2013
£’000
655
832
2012
Restated
£’000
716
811
2012
£’000
695
811
The actual return on plan assets was £679,000 (2012: £1,157,000). This represents the sum of the expected return on assets
and the actuarial gain.
Defined benefit obligation trends
Plan assets
Plan liabilities
Deficit
Experience adjustments on assets
Experience adjustments on liabilities
25 Share capital
Authorised share capital
Authorised at 1 January
Authorised at 31 December
Issued share capital
2013
£’000
17,421
(19,591)
(2,170)
(34)
(0.2%)
(255)
(1.3%)
2012
Restated
£’000
16,620
(19,667)
(3,047)
441
2.7%
2,016
11.4%
2012
£’000
16,620
(19,667)
(3,047)
462
2.9%
2,016
11.4%
2011
£’000
15,206
(17,673)
(2,467)
755
5.2%
674
4.0%
2010
£’000
14,550
(16,975)
(2,425)
529
3.7%
321
1.9%
Ordinary shares 2p each
Deferred shares of 0.04p each
2013
number
409,044,603
409,044,603
2013
£’000
8,181
8,181
2013
number
35,797,769,808
35,797,769,808
2013
£’000
14,319
14,319
Ordinary shares 2p each
Deferred shares of 0.04p each
2009
£’000
13,261
(16,587)
(3,326)
206
1.6%
(169)
(1.0%)
Total
2013
£’000
22,500
22,500
Total
2013
£000
Issued and fully paid at 1 January
New Issue (fully paid)
Share options exercised
2013
number
71,835,594
29,050,926
737,500
2013
£000
2013
number
2013
£000
1,437
35,797,769,808
14,319
15,756
581
15
–
–
–
–
581
15
Issued and fully paid at 31 December
101,624,020
2,033
35,797,769,808
14,319
16,352
On 15 January 2013 the Group issued 3,125,000 New Ordinary Shares at 20 pence per share. Net proceeds from this issue
amounted to £576,199.
On 5 July 2013 the Group completed a Placing of 25,925,926 New Ordinary Shares at a price of 27 pence per share, generating
net proceeds of £6,502,140.
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.
56
Parity Group plc
Report and Accounts 2013
www.parity.net
stock code: PTY
2013
Number
43,143
2012
Number
43,143
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26 Operating lease commitments
Operating leases – lessee
The total future minimum rents payable under non-cancellable operating leases are as follows:
Continuing operations
Amounts payable:
Within one year
Between two and five years
Operating leases – lessor
Land and
buildings
2013
£’000
Plant and
machinery
2013
£’000
Land and
buildings
2012
£’000
Plant and
machinery
2012
£’000
1,098
474
1,572
40
19
59
1,248
1,062
2,310
51
71
122
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
27 Contingencies
Land and
buildings
2013
£’000
Land and
buildings
2012
£’000
339
146
485
522
484
1,006
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.
28 Key management remuneration
Key management comprises the Board of Directors. The total remuneration received by key management for 2013 was
£1,151,000 (2012: £896,000). 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.
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Other short term benefi ts
Post employments benefi ts
Compensation for loss of offi ce
Share-based payments
2013
£’000
882
42
45
148
34
1,151
2012
£’000
660
28
180
–
28
896
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Notes to the Accounts continued
29 Related party transactions
Consolidated
During the period the Group transacted with one entity over which one of the Group’s directors had control or significant influence,
as follows:
Director
D. Courtley
Transaction
IT interim recruitment
Transaction value
Balance outstanding
2013
£’000
152
2012
£’000
–
2013
£’000
37
2012
£’000
–
The Group provided IT contractors to Mozaic Services Limited, a company that is significantly influenced by Mr D Courtley.
Amounts were billed at normal market rates for such services, and were due and payable under standard client payment terms.
Company
Details of the Company’s holding in Group undertakings are given in note 30. The Company entered into transactions with other
Group undertakings as shown in the table below.
Operating
costs
2013
£’000
Amounts incurred from Group subsidiaries
(721)
Amounts charged to Group subsidiaries
–
Finance
income
2013
£’000
–
738
Finance
expense
2013
£’000
(978)
–
Operating
costs
2012
£’000
(719)
–
Finance
income
2012
£’000
–
394
Finance
expense
2012
£’000
(795)
–
At 31 December, the Company had the following amounts payable to / recoverable from Group undertakings.
Amounts owed by subsidiary undertakings
Falling due within one year (note 18)
Falling due after one year (note 18)
Amounts due to subsidiary undertakings
Falling due within one year (note 20)
Falling due after one year (note 20)
During the year, other related party transactions were as follows:
Related party relationship
Type of transaction
Directors
Purchase of Group shares
2013
£’000
2012
£’000
3,479
93,008
2,613
69,763
(4,961)
(2,209)
(89,806)
(74,656)
Transaction
Amount
2013
£’000
Transaction
Amount
2012
£’000
10
–
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30 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 subsidiaries was reviewed for impairment at the yearend based on the performance of 2013 and
on subsequent years forecast projections. 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 (2012: £20,527,000). The assessment was
performed on a value in use basis using discount rates of between 6.8% and 11.9% (2012: between 6.1% and 7.7%) 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
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59
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
Auditor
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
Nominated advisors & brokers
Investec
2 Gresham Street
London
EC2V 7QP
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
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 231526
Parity Group plc Report and Accounts
Year ended 31 December 2013
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