PARITY GROUP PLC
Parity Group plc
2 Bath Place, Rivington Street, London EC2A 3DR
Tel: 0845 873 0790
Fax: 020 8545 6355
www.parity.net
stock code: PTY
Perivan Financial Print 235954
Parity Group plc Report and Accounts
Year ended 31 December 2014
About Parity
Parity Group has two independent trading divisions:
PARITY PROFESSIONALS
Provid ing skilled IT professionals,
consultants and project managers to a
wide range of leading UK companies
on a temporary and permanent basis.
Providing graduate selection, training,
placement and career development
services.
SUPERCOMMUNICATIONS
Advising brands at Board level on the
latest on line strategies.
Designing and developing IT systems,
including eCRM to convert brands into
Tech Brands.
Optimising online channels to produce
smooth customer journeys.
Creating latest technology augmented
and virtual reality solutions for Out of
Home marketing.
IT Professional Services
Digital Business Transformation
Contents
01 Headlines
Strategic Report
03 Chairman’s Statement
05 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
2 3
Independent Auditor’s Report to the Members of Parity
Group Plc
Accounts, notes and other information
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 2014
www.parity.net
stock code: PTY
Headlines
Parity Group plc reports further improved profi tability, completion of its
restructuring programme and the launch of its two independent
profi table divisions
Key achievements
❚ Steady overall performance in a very busy year
❚ Launch of the Parity Professionals division
❚ Launch of a re-targeted SuperCommunications division
❚ New senior management appointments
❚ Group returned to profi t before recurring items, after several years of losses
Results summary:
❚ Revenues £92.26m (2013: £91.95m)
❚ Adjusted EBITDA1 of £1.60m (2013: £1.45m)
❚ Cash and cash equivalents £2.97m (2013: £7.38m)
❚ Net debt at year end of £6.58m (2013: £2.53m)
❚ Profi t for the year before non-recurring items £0.22m (2013: loss of £0.46m)
❚ Non-recurring costs of £0.81m (2013: £1.60m), resulting from restructuring process now completed
o Parity Professionals – Specialising in the sourcing, development and placing of professional staff
• Revenue £84.47m (2013: £83.71m)
• Divisional contribution2 £2.49m (2013: £2.38m)
• Launch of Parity Professionals in last quarter of the year as an independent integrated division
• Redirection of the Resources offering towards higher margin business
• Good performance from the Talent Management offering
o SuperCommunications – Creative marketing and information technology solutions
• Revenue £7.80m (2013: £8.24m)
• Divisional contribution2 £0.68m (2013: £1.11m)
• Appointment of Andy Law as Executive Chairman of SuperCommunications division in May and
then as a director of the Group Board in November
• Appointment of a General Manager, and new Managing Directors for Inition and Solutions offerings
• Inition refocused on Augmented Reality and Virtual Reality solutions
• Solutions makes fi rst move into e-commerce market
• First top-level business transformation consultancy project commenced
• Encouraging results from trials of TechLab’s GroupSeer – a social media search algorithm project in
partnership with Royal Holloway University
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
and share based compensation as detailed in note 4.
2 Divisional contribution in this narrative refers to the segment contribution before Group costs3, tax, interest, non-recurring items and share based payment charge.
3 Group costs includes director’s salaries and costs relating to group activities and are not allocated to reporting segments.
01
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Headlines continued
The table below highlights the good progress the Group has made since the new management returned in 2010.
Revenue
Divisional EBITDA
Group costs
Adjusted EBITDA
Share based payment
Non-recurring costs
EBITDA from continuing operations
Depreciation
Finance costs net of income
Tax charge
Profit/ (Loss) after tax from continuing activities
Discontinued operations
Profit/ (Loss) after tax
Philip Swinstead, Chairman of Parity, said:
2010
92,963
4,549
(6,525)
(1,976)
(30)
(2,138)
(4,144)
(636)
(463)
20
(5,223)
(911)
(6,134)
2012
2013
2014
2011
80,142
5,829
(5,473)
356
(177)
(1,437)
(1,258)
(537)
(354)
(92)
85,887
91,949
6,220
(4,949)
1,271
(124)
(1,350)
(203)
(497)
(366)
(349)
3,492
(2,039)
1,453
(120)
(1,600)
(267)
(271)
(411)
(743)
(2,241)
(1,415)
(1,692)
(58)
26
41
(2,299)
(1,389)
(1,651)
92,264
3,174
(1,570)
1,604
(242)
(814)
548
(477)
(479)
(25)
(433)
(5)
(438)
“I am pleased that we managed to slightly improve our overall performance in 2014 and reduce substantially the non-recurring costs
as our divisional restructuring programme came to an end. This was achieved during a year of significant change. Looking ahead we
now have two well-managed independent divisions concentrating on their very clear strategies, without further significant
restructuring or re-direction.
Parity Professionals is a stable well-managed business which must now continue to migrate certain of its offerings into the most
attractive long-term growth sectors of its markets. I expect this to restrict its growth prospects this year, but it will ensure that it can
then move forward thereafter.
We can now look forward to SuperCommunications winning Board-level business transformation projects through its new
consultancy offering, whilst our decision to focus the Inition brand on scalable Augmented Reality and Virtual Reality solutions is
already bearing fruit.
I am also most encouraged by the trials of the GroupSeer search engine technology prototype, in the social media space.
Trading in 2015 has started in line with our plans, and we can look forward to a year of continuing strategic and financial progress.”
For further information contact:
Philip Swinstead OBE, Chairman
Parity Group plc
John Olsen
Andrew Pinder
Patrick Robb
Dominic Emery
MHP Communications
Investec
0845 873 7921
020 3128 8100
020 7597 4000
02
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
Chairman’s Statement
Philip Swinstead
2014 Review
This has been a year of significant activity to ensure that both our
divisions had the necessary strategy, management and
resources to operate as independent brands in their very different
market sectors. It was a year of internal restructuring to ensure
the necessary base for their future growth.
In 2014 Group revenue remained stable at £92.26m (2013:
£91.95m), and profit before non-recurring items increased as
expected to £0.22m (2013: £0.46m loss). Adjusted EBITDA
increased, as it has every year since the new management
arrived in 2010 to £1.60m (2013: £1.45m).
Parity Professionals revenues and divisional contribution
increased slightly with revenues of £84.47m (2013: £83.71m)
and divisional contribution of £2.49m (2013: £2.38m). In the
division’s IT resources area the divisional margins were
maintained in spite of volatility in contractor levels as the business
started to migrate its sales activity to higher margin sectors in
response to larger clients moving towards managed services.
The talent management brand grew revenues and profits by over
10% in the year, focussing on those areas in which it was seeing
good success.
SuperCommunications revenues in the year were £7.80m (2013:
£8.2m) and divisional contribution was £0.68m (2013: £1.11m).
The reduced contribution reflected additional senior management
costs, the business launch, the refocusing of the Inition brand on
augmented reality (AR) and virtual reality (VR) solutions, and
Golden Square costs. The division bought the small Golden
Square business out of administration in May to acquire access
to new clients and skills in production and post-production. This
business’s cost base was reduced substantially and senior staff
integrated into the Inition team. The division started its first
high-level consultancy project in the insurance market; and is
now bidding consequent development and e-commerce
projects. The IT solutions area had another successful year albeit
with a small reduction in revenue as predicted mid-year.
Group costs reduced to £1.57m (2013: £2.04m) reflecting
continued cost control and the further allocation to divisions of
costs specifically attributable to them.
For the first time for many years the Group returned an annual
profit before non-recurring items of £0.22m (2013: loss of
£0.46m). As forecast last year, non-recurring items reduced
significantly to £0.81m (2013: £1.6m) representing empty
property, transaction costs and staff reductions particularly in
Golden Square. We do not expect non-recurring costs to be at a
significant level in 2015. Group loss for the year improved to
£0.44m (2013: £1.65m).
Cash, Dividend and Pension
Cash and cash equivalents at year end were £2.97m (2013:
£7.38m) with net debt being £6.58m (2013: £2.53m). Cash
movement in the period reflects the final phase of the large
empty property provisions and outflows in respect of pension
deficit payments, acquisition costs, restructuring costs and the
payment of large one off creditors including the Inition earn out
that were outstanding at the end of last year.
Banking arrangements with PNC have been in place since
2010, and the asset backed lending facility of up to £15m
continues until December 2016.
No dividend is payable for this year, but the Board intends to
keep the policy under review.
Board Appointment
Andy Law was appointed Executive Chairman of Parity Digital
Solutions in May 2014, following which he re-launched the
division as SuperCommunications – targeted at the creative
marketing technology market. On 27th November 2014 he was
appointed as a director of Parity Group plc.
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
organisational performance. The division will continue its
migration in the staff agency area from managed services
situations towards the higher margins available elsewhere. In
this way it can continue its growth ambitions after a couple of
years of stable performance last year and this year.
SuperCommunications intends to have a small number of key
niche business units which are individually profitable and
growing in the digital marketing arena; together with a high level
consultancy and project management service for major brands
which pulls together online strategy, data-led IT systems,
smooth customer journeys and excellent latest technology
content. We believe from conversations with major brand
boards that there is a serious lack of joined-up advice for large
brands on how to transform their business to achieve their
online ambitions. We expect the on-going growth of
e-commerce and competitive pressures will cause on-line
businesses to upgrade their IT systems fundamentally and
indeed often their organisation in order to become data-led with
excellent customer interfaces and vital quick response to
trading patterns.
GroupSeer is the Group’s TechLab joint venture with Royal
Holloway University of London - a next-generation marketing
search engine for which patents have been applied. We are
encouraged by the results of a series of trials of the first
prototype on social media big data. We now seek to partner
with a major reference brand to develop the full commercial
product.
Current Trading and Future Prospects
Parity Professionals is going through a period of stability in
revenue and profit as it both integrates its service offerings
within a Parity Professionals banner, and increases its sales
activity into medium-sized businesses in response to the
growth in managed services in its sector. The Board is
confident that the strong management in the business will make
good progress with its strategy to improve overall margins in
future years.
In the SuperCommunications division the fruits of focussing the
Inition brand on AR and VR started to come through towards
the end of last year. There was significant interest in particular in
goggle-based VR and immersive 360VR. This has continued
with a strong start to this year with important retail projects
including an immersive VR and video wall experience for a
major London shopping mall. The division expects the Inition
offering to perform well this year, whilst its performance in the IT
solutions market is expected to continue to be stable with its
03
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Chairman’s Statement continued
normal good profitability, awaiting growth from the IT
development projects which are expected to flow from the
division’s strategic consulting practice.
Further e-commerce and user experience skills will be brought
into the Group in due course, and the cadre of highly skilled
associate consultants expanded to support the expected
growth of the division’s consultancy activities.
Having split the Group into two divisions in 2013, this past year
has seen them prepared for a possible independent future. We
expect another stable performance from Parity Professionals
this year. We look forward to both growth and better profitability
from the SuperCommunications division in 2015; and thereafter
as its consultancy and implementation activities expand in a
predicted long-term growth markets. We can now target
becoming cash generative in the year.
Philip Swinstead OBE,
Chairman
7 April 2015
04
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
Operating Review
Overview
Philip Swinstead – Executive Group Chairman
The two divisions of the Group both made good progress in
2014, ensuring that they had the management, resources and
offerings in place to operate as independent businesses in
2015.
In the year the Parity Professionals division did well to produce
a stable revenue and profit performance after a couple of
specific setbacks which were not under its control. Its new
integrated offering is being well received by customers and the
IT staff agency started to migrate its sales offering in response
to the managed service trend for large users of freelance IT
staff, in order to improve margins. The rate of winning new
business has been maintained which bodes well for the future.
In May, Andy Law joined the Group full-time and became
Chairman of the Group’s digital marketing initiative, He created
the renamed SuperCommunications division, reoriented its
strategy and commenced initial marketing of its top level
consultancy services to brands’ senior management as well as
revisiting the marketing strategy of the two divisional offerings
– Inition and IT Solutions. The division’s pioneering Brand
Transformation consultancy projects are long term and are
expected to generate significant implementation revenues after
the early scoping and advisory phases. In the year the division
focussed on its first such client and completed the first phase
whilst discussing the future path at Board level. The purchase
from administration of the small Golden Square post-production
business has been challenging. However, its senior skills are
now within the Inition team, with all its overheads stopped.
Looking ahead it is pleasing to see two divisions which are
making a good divisional contribution in comparison to the very
serious problems that Paul Davies and I found when re-joining
in 2010. The Group is now in good shape and the challenges
ahead for the divisions are well understood and normal for
businesses with significant growth ambitions.
PARITY PROFESSIONALS
Paul Davies – Executive Chairman, Parity Professionals
Overview
Parity Professionals was launched in 2013 as the result of
combining the hitherto separate IT resources and talent
management offerings into a single entity. This created an
opportunity to work more closely with clients on the sourcing of
skills, people development and associated improved
performance at all levels in an organisation.
During 2014 the management team, under CEO Alan Rommel,
have identified a number of techniques to expand and invest in
this base model to capitalise on marketing the enhanced
business, extend service offerings and thereby move towards
higher value services. This has already resulted in client contract
engagements around an integrated approach to the
recruitment, retention and development of both temporary and
permanent staff including management.
Investments during the year in more appropriate finance and
CRM systems together with some office relocations are now
complete and form the foundation for continued efficiencies
whilst better supporting the new business model.
Revenues during the year increased by 1% to £84.5m (2013:
£83.7m) with contribution increasing by 4.5% to £2.49m (2013:
£2.38m) on a like for like basis. (i.e. with all operating overheads
allocated to the business).
The IT Resources Offerings
Following a positive start to the year, second half performance
was affected by a client’s decision to cancel a significant
contract as part of a strategic move to manage temporary
recruitment via a major vendor; together with the delay until
2015 by another client in calling off scheduled activities from a
permanent recruitment contract.
Notwithstanding this, both revenues at £81.98m (2013:
£81.45m) and contribution were stable in the year.
A total of 79 new clients resulted in a year-end total of over 200
‘active’ clients with year on year increases in average contractor
numbers, average weekly margin run rates and overall gross
margins.
From the low in 2011 of 695 average contractors numbers have
steadily increased year on year and now stand at 913. As a
result of the contract cancellation referred to above, contractor
numbers started 2015 below this level, but the rate of signing
new deals remains healthy.
From a low base in the previous year we also increased the
permanent placement fees written by 30%, and we continue to
invest in sales capability in this complimentary and lucrative
market.
In response to margin pressures resulting in particular from the
UK Government’s increased tendency to appoint larger
corporates to act as gatekeepers, increased sale effort is now
being focussed on alternative areas. This combined with the
benefits of an integrated Parity Professionals sales proposition,
is expected to add better margin opportunities to the existing
business model.
The Talent Management Offering
The Talent Management service offering has had a successful
year resulting primarily from both the consolidation of existing
business and the expansion of the capability outside Northern
Ireland into new sectors.
As a result revenues increased by 10% to £2.49m (2013:
£2.25m) and contribution by 22% in the year.
Once again we continued our success in the prestigious
Faststream graduate recruitment programme which we run on
behalf of HMRC and which has been renewed for yet another
year. Likewise our long association with the Northern Ireland
Government has resulted in extensions to the Graduate
Recruitment Project (INTRO) and their Management and
Leadership Development Programme (MLDP).
Further progress has been made in developing opportunities in
the higher education and private sector with 16 new clients
across HE, Food & Drink, Manufacturing and Engineering and
Construction sectors resulting in higher value opportunities.
Continued development of our capabilities and market offerings
is enabling us to build upon the solid reputation established
over recent years across the UK to take advantage of the sales
opportunities now available to us.
05
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Operating Review continued
SUPERCOMMUNICATIONS
Andy Law – Executive Chairman, SuperCommunications
SuperCommunications was formed in 2014 from the Parity
Digital division combining Parity Solutions and Inition offerings
and TechLab. In addition the division started its new
consultancy and project management offering; which
transforms on-line businesses by implementing technology
solutions to achieve competitive advantage. The year saw a
major online insurance sector company becoming the first new
client for this service - a digital strategy assignment which is
expected to continue with further work phases during 2015.
Divisional revenues in 2014 reduced slightly to £7.8m (2013:
£8.2m) due mostly to the completion of a series of work
packages for a client, as predicted in the Interims. Divisional
contribution reduced to £0.68m ( 2013:£1.1m) as a
consequence of the costs of additional divisional senior
management, the refocusing of Inition on AR and VR with a
£0.37m R&D spend in the year, and losses at Golden Square.
An improved performance is expected this year and the Inition
brand in particular has started 2015 with good sales success.
The division’s IT Solutions offering provides business
consultancy and systems integration services including
bespoke development of big database solutions. It has
continued with its profitable trend over recent years and has
signed a new 3 year application development, consultancy &
support framework agreement with a key long-established
client, British American Tobacco. The MOD account has
continued to generate similar levels of business to the previous
year (for provision of specialist technical support services)
despite Government spending constraints. The division has
been successful in securing a place on the Government
G-Cloud procurement framework, and in renewing its Microsoft
Gold partnership.
The Inition brand is continuing to make progress with its R&D
investment reinforcing its new focus on augmented and virtual
reality experiences. This has seen a significant increase in
activity during the year partly due to the interest generated by
Facebook’s acquisition of the Occulus Rift VR headset
business. A project at Topshop made use of this technology to
do a live stream of London Fashion show catwalk into virtual
reality headsets at the Oxford Street shop window. This won
‘Project of the Year’ at the BT Retail Technology Awards and
Best Virtual Event at the 2014 Event Technology Awards. Over
50 other virtual/augmented reality experiences were
implemented in 2014 across a range of industry sectors:
automotive, oil & gas, property, retail and health. Recent wins
include development of an immersive ‘Future Fashion’
experience for the Westfield shopping centres in London. We
see this as a long term high growth sector in which we want
Inition to be an important player.
Golden Square was acquired in May 2014 to provide content
post-production services. During a challenging year of
consolidation, it is now focused on specialist 360 immersive
post-production, as part of the Inition team, where we have
seen an increased level of client interest in 360 VR experiences.
In the year the IT Solutions team moved to new London shared
services offices and the small Group team moved to shared
services offices in Warwick Street in Soho. We disposed of the
Golden Square premises as we reduced staff numbers and
moved senior staff into the Inition team. The normal staffing
policy across the division is to expand by both recruitment and
calling on a group of known associates for short-term peaks
and specialist skills.
Towards the end of 2014 Simon Dutton was appointed as MD
of the Inition and Andy Ogg was appointed MD of the IT
Solutions offering. Both had previously been successful senior
managers in Parity Solutions.
The Groupseer R&D joint venture with Royal Holloway
University of London, to develop their innovative social media
search algorithm, has now built a proof of concept that has
processed 260 million tweets from 315,000 users. The next
step is to choose a brand partner to work with us on the
development and testing of a Minimum Viable Product.
06
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
Financial Review
Alastair Woolley
Divisional performance
Continuing operations
Parity Professionals
SuperCommunications
Group
Revenue
Contribution
2014
£’000
84,466
7,798
92,264
2013
£’000
83,711
8,238
91,949
2014
£’000
2,491
683
3,174
2013
£’000
2,382
1,110
3,492
Revenue for the group has increased by 0.3% to £92.26m (2013: £91.95m) although at divisional level, contribution has fallen to
£3.17m (2013: £3.49m).
The Parity Professional division grew revenues by 0.9% with IT resources revenue growing by 0.6% and talent management
revenues growing by 10.2%. Contribution rose to £2.49m (2013: £2.38m) due to focus on higher margin work and continued tight
control over costs.
SuperCommunications revenue fell to £7.8m (2013: £8.2m). Contribution fell to £0.68m (2013: £1.1m) which was due to a
combination of investment in new SuperCommunications management, the investment in product development in the Inition area,
the investment in the GroupSeer search technology, and the loss made by Golden Square acquired from the Administrator in May
2014.
Reconciliation of divisional contribution to operating profit/(loss) from continuing operations
Divisional contribution
Group costs
Depreciation and amortisation
Share-based payment charges
Operating profit/(loss) before non-recurring items
Non-recurring items (continuing operations)
Operating profit (loss) from continuing operations
2014
£’000
3,174
(1,570)
(477)
(242)
885
(814)
71
2013
£’000
3,492
(2,039)
(271)
(120)
1,062
(1,600)
(538)
Continued attention on controlling Group costs, together with re-allocation to divisions of costs directly attributable to them, has
resulted in a further fall and in 2014 Group costs were £1.57m (2013: £2.04m)
Depreciation has risen in 2014 which is due to the investments being made in updating all the back office systems in both the Parity
Professionals and SuperCommunications divisions. This investment programme is now complete and both divisions have efficient
and independent accounting and management information systems.
Share based payment charges have risen due to a further issue of employee shares options in March 2014 and the issue of share
options to Andy Law in November 2014.
Non-recurring items
Continuing operations
Transaction costs
Gain on acquisition
Restructuring
Property provisions
2014
£’000
166
(55)
534
169
814
2013
£’000
695
-
173
732
1,600
The restructuring charge consists of £0.40m employee benefit costs and £0.13m of other operating related costs. The employee
costs arose for two main reasons - further staff reductions were enabled by the investment in more efficient back office systems and
staff reductions made as part of the restructuring of Golden Square. The other operating costs arose due to the write down of
equipment in Golden Square during the restructuring process.
The gain on acquisition is as a result of acquiring the assets of Golden Square Post Productions from its administrator in May 2014
and is set out in more detail in note 9.
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Financial Review continued
The property provision charge this year is substantially lower
than previous years. The large long term lease on Wimbledon
Bridge House finished in September 2014 and all dilapidation
costs have been settled. We now have only one small legacy
property left which is due to end in November 2015 and we do
not anticipate any significant costs arising from the disposal of
that final property.
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
0.43 pence (2013: 1.88 pence).
The Board does not propose a dividend for 2014 (2013: nil),
but will continue to review this policy each year.
Statement of Financial Position
Intangible fixed assets
During the course of 2014 the Company has continued to
invest in new systems and intellectual property for both
divisions. The systems have been selected to specifically
address the business needs of each division and allow each
division to operate independently of each other. These new
systems have led to operational efficiencies and improved
management information. The investment in intellectual
property has mainly been in the SuperCommunications division
and relates to a range of products being developed under the
Inition brand which are already generating revenue and the
development of a marketing search engine in association with
Royal Holloway for which patents are currently being applied
for.
Trade receivables and accrued income
Trade and other receivables fell by £0.9m to £15.5m (2013:
£16.4m) due to a dip in yearend billings compared to the same
period last year. Debtor days at the end of the year, calculated
on billings on a countback basis, has increased to 33 days
(2013: 27 days) due to changing contractual terms with some
of the Company’s larger clients.
Trade and other payables
Trade and other payables decreased during the year to £8.3m
(2013: £10.4m). The reduction is due to a variety of reasons;
partly due to a lower level of trading in December 2014
compared to the previous December but also due to various
large one off creditors that were outstanding at the end of 2013
including the Inition earn out, transaction costs and Wimbledon
Bridge House rent and service charges.
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 facility
agreement currently extends to December 2016.
08
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
Cash flow and net debt
Cash generated from operations has further improved from
previous years although there was still an outflow of £1.86m
(2013: £2.61m). The outflow mainly arising from the payment of
pension deficit payments of £0.8m and payments for empty
property of £0.8m which will in 2015 have ceased.
Cash used in investing activities in 201 4 was £1.82m (2013:
£1.39m) and consisted of the earn out payments to Inition, the
investment in management information systems, the investment
in product development at Inition and the GroupSeer market
data search engine and of the acquisition of Golden Square.
Provisions
Provisions which were all property related have significantly
decreased during the year to £0.08m (2013: £0.97m) and
reflects the fact that except for one property lease, all empty
properties have now been terminated and the dilapidations
settled.
Pension Fund
During 2014 the Group paid deficit reduction payments of
£0.89m compared to £0.83m in 2013. There has been little
change in the overall retirement benefit liability as although net
assets in the scheme increased significantly during the year, as
a result of the fall in corporate bond yields, the discount rate
applied to the liabilities fell substantially towards the end of
2014 and so consequently the underlying liabilities of the
scheme increased giving rise to the minimal movement of the
overall liability.
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 almost exclusively in the UK, and is very
aware of the changing competitive environment that faces both
its divisions. As a result there is a major emphasis on
addressing the lower volume but higher margin niche sectors
and consultancy opportunities in the Parity Professionals
division and the new growth areas for digital transformation in
the SuperCommunications division.
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
7 April 2015
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09
Lord Freeman
Non-Executive Deputy Chairman1, 2, 3
Roger Freeman, 72, 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 of the
Trustees of the Thales UK Pension Fund.
David Courtley
Non-executive Director1, 2, 3
David Courtley, 57, 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
Neal Ransome
Non-executive Director1, 2, 3
Neal Ransome, 54, was appointed to the Board as a Non-
Executive Director on 26th September 2013 and is Chairman of
the audit committee. Neal retired from PwC in 2013 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. Neal is also a Non-executive Director of Quercus
(General Partner) Limited and Trustee and Council Member of
the RSPB.
Board of Directors
Philip Swinstead OBE
Executive Chairman
Philip Swinstead, 71, re-joined Parity in June 2010 and was
appointed Non-executive Chairman, and then 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. He was
co-founder Chairman of Parity plc in 1993, which joined the
FTSE 250 within five years. More recently he has invested in
private companies in the software animation, App testing and
mobile application sectors.
Paul Davies
Executive Chairman of Parity Professionals and Executive
Director of Parity Group plc
Paul Davies, 66, re-joined Parity in June 2010. He stepped
down as Chief Executive on 1 July 2014 to concentrate on his
role as Chairman of Parity Professionals. 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.
Andy Law
Executive Chairman of SuperCommunications and Executive
Director of Parity Group plc
Andy Law, 58, was appointed to the Board as an executive
Director on 27 November 2014. 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 most significant agencies. Andy has gained
worldwide experience in helping companies, at board level,
transform their communications for the digital age. He is also a
successful business writer and international speaker – including
chairing sessions at Davos. Andy was appointed Chairman of
SuperCommunications in March 2014.
Alastair Woolley
Group Finance Director
Alastair Woolley, 53, joined Parity in late 2010 and was
appointed Group 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.
1 Member of the nominations committee
2 Member of the remuneration committee
3 Member of the audit committee
10
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
Directors’ Report
The Directors present their report and the audited accounts for
the year ended 31 December 2014.
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; Parity Professionals and
SuperCommunications.
The principal activity of the Parity Professionals division is to
provide recruitment, predominately interim recruitment, and
graduate placement services, to a diverse range of clients.
In 2014 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 SuperCommunications division
comprise delivering creative technology solutions, business
intelligence solutions, and the resale of latest technology
equipment. SuperCommunications delivered its services during
the year to central government departments in the public
sector, and to Manufacturing, 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 3
to 9. The Group’s social, environmental and ethical policies are
set out on page 13. 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 £408,000 (2013: £949,000) after charging
non-recurring items of £814,000 (2013: £1,600,000). After a tax
expense of £25,000 (2013: £743,000) and a loss after tax from
discontinued operations of £5,000 (2013: £41,000 profit), the
retained loss of £438,000 (2013: £1,651,000) has been
transferred to 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
Dominion Holdings
RBC Jersey Clients
Slater Investments
Barclays Stockbrokers
Dividends
The Directors do not recommend a final dividend (2013: nil
pence per ordinary share). The total dividends for the year were
nil pence per ordinary share (2013 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 2014, to purchase in the
market 10,163,652 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 7 April
2015 is set out on page 1 0, together with details of
membership of the Board committees.
In accordance with the Company’s Articles of Association,
Andy Law, who was appointed after the announcement of
the 2014 AGM, will retire and offer himself for re-election
at the 2015 Annual General Meeting.
Directors’ interests
The Directors’ beneficial interests in the ordinary share capital of
the Company are set out within the remuneration report on
page 22.
Principal shareholders
At the close of business on 7 April 2015 (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
15,059,957
13,295,215
8,200,450
6,521,739
4,950,000
4,823,766
4,482,627
3,660,987
14.80
13.07
8.06
6.41
4.87
4.74
4.41
3.60
11
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Directors’ Report continued
Capital structure
The Company has two classes of shares in issue, ordinary
shares of 2p and deferred shares of 0.04p. The ordinary shares
are listed on the London Stock Exchange and ordinary
shareholders are entitled to vote at Company meetings, to
receive dividends and to the return of their capital in the event of
liquidation, with the exception of ordinary shares held by the
Parity Group plc Employee Share Ownership Trust which are not
entitled to receive dividends. The deferred shares are not listed,
have no voting rights, no rights to dividends and the right only to
a very limited return on capital in the event of liquidation.
The Directors are not aware of any restrictions on transfers of
shares in the Company or on voting rights or of any agreements
between holders of the Company’s shares which may result in
such restrictions
Going concern
The Group’s business activities, together with the factors likely
to affect its future development, performance and position are
set out above (Review of business and future developments).
The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the Financial
Review on pages 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 currently extends 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.
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.
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.
Corporate Governance
The Corporate Governance Report on pages 14 to 17 forms
part of the Directors’ Report.
Auditor
Resolutions will be proposed at the Annual General Meeting to
reappoint KPMG LLP as auditor to the Company and to
authorise the Directors to determine their remuneration.
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
7 April 2015
12
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
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
As the Company is AIM listed it is not required to follow the
provisions of The UK Corporate Governance Code published by
the Financial Reporting Council in September 2012 (the Code).
However the Board continues to maintain that high standards of
corporate governance remain a key priority and that it will seek
to continue to follow the Code as far as is practicable and
appropriate; having regard to the size and resources of the
Company and also the Quoted Companies Alliance Corporate
Governance Code for Small and Mid-Size Quoted Companies.
Accordingly this report sets out how the Company applies
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 12.
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, Executive Chairman of the
Parity Professionals Division Paul Davies, Executive Chairman of
the SuperCommunications Division Andy Law, Group Finance
Director Alastair Woolley, Non-executive Directors David
Courtley and Neal Ransome. During the year Sir Peter Luff
stepped down as a Non-executive Director on 29 May 2014,
Paul Davies moved from Group Chief Executive Officer to
Executive Chairman of Parity Professionals on 1 July 2014 and
Andy Law joined the Board as Executive Chairman of
SuperCommunications division on 27 November 2014. 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, illustrating a range of business
backgrounds, skills, independence and experience appropriate
to the Company.
Executive Chairman
The Executive Chairman, Philip Swinstead, is responsible for the
leadership of the Board, ensuring its effectiveness on all aspects
of its role. This includes ensuring that Board meetings are held
in an open manner, that the Directors receive accurate, timely
and clear information and allowing sufficient time for agenda items
to be discussed. Regular appraisals are held 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. In his executive role the Executive Chairman reports
to the Deputy Chairman and Senior Independent Director, whilst
remaining answerable to the Board at all times. During the year
the Executive Chairman met the Non-executive Directors
without the other Executive Directors present.
Senior Independent Director
Lord Freeman acts as the Deputy Chairman and Senior
Independent Director and one of his prime responsibilities is to
provide a sounding board for the Executive Chairman as well as
serving 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 and
14
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
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 other 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 11 and in the separate Notice of
Annual General Meeting sent to all Shareholders. The Executive
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, 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 has meetings scheduled regularly throughout the
year to set long term objectives and to monitor progress against
those objectives. Additional meetings are also held as business
dictates. 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, telephone and
conference calls between scheduled meetings. The Board has a
formal schedule of matters reserved for its specific approval
including review of Group strategic, operational and financial
matters such as proposed acquisitions and divestments. It
approves the annual accounts and interim report, the annual
budget, significant transactions, major capital expenditure and
reviews the effectiveness of the system of internal control and
the risks faced by the Group. It covers all controls, including
financial, operational, compliance 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 June
2014.
All members of the Board are normally supplied in advance of
meetings with the agenda and supporting papers covering the
matters which are to be considered. If unable to attend a
meeting the Director is able to 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.
The operational business is divided into two separate divisions,
Parity Professionals and SuperCommunications (formerly known
as Parity Digital Solutions). Each division has an Executive
Chairman. Divisional operational boards meet monthly under
formal terms of reference. The meetings are attended by the
Executive Chairman of the Division, the Divisional Chief
Executive Officer or Chief Operating Officer, together with the
relevant members of their finance and operational teams. Any
key issues arising from these meetings are reported to the
Board. Non-executive Directors are invited to visit the Group’s
premises and are encouraged to have an informal dialogue with
the divisions.
Performance evaluation
The Board undertook an annual evaluation of its own
performance and that of its Committees and individual Directors
in the year. The performance of the Executive Chairman was
reviewed by the Deputy Chairman and Senior Independent
Director. 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 Board has a balance of Executive and Non-executive
Directors such that no individual or small group of individuals
can dominate the Board’s decision making, as is shown by the
number and quality of the Non-executive Directors on the
Board, with their combination of diverse backgrounds and skills.
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 3 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.
Number held
Number attended1
Philip Swinstead
Lord Freeman
Paul Davies
Alastair Woolley
David Courtley
Sir Peter Luff2
Neal Ransome
Board
13
11/13
10/13
11/13
13/13
10/13
3/4
10/13
Audit
Nominations
Remuneration
3
–
3/3
–
–
3/3
1/1
3/3
2
–
2/2
–
–
2/2
-/-
2/2
3
–
3/3
–
–
3/3
1/1
3/3
1 All Directors who were members of the Board at the time attended the Group’s Annual General Meeting on 29 May 2014.
2 Stepped down from the Board, Audit Committee, Nomination and Remuneration Committees 29 May 2014.
Committees
The Audit, Remuneration and Nomination Committees of the
Board each have formal written terms of reference. 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 Neal
Ransome. 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
and David Courtley are the other members of the Audit
Committee.
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.
The Audit Committee reviews and, as appropriate, actively
engages in the processes for financial reporting, internal control,
risk assessment, audit, compliance assurance and considers
the independence of the Group’s external auditor as well as the
effectiveness of the Group’s system of accounting, its internal
financial controls, external audit process and risk management.
The Audit Committee’s principal terms of reference include:
• the oversight responsibilities described in the foregoing
paragraph;
• reviewing compliance with laws, regulations and the Group’s
code of conduct and policies;
• monitoring the integrity of the Group’s financial statements
and announcements relating to the Group’s financial
performance and reviewing significant financial reporting
judgements, changes in accounting policies and practices,
significant adjustments resulting from the audit and the
application of the going concern assumption;
15
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Corporate Governance Report continued
• 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 and monitoring 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 2014, details of which are set out
in note 3 to the accounts.
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 due
regard to the balance and structure of the Board, as well as
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
external recruitment consultants are used to assist the process.
Investor relations
The Company engages where possible in regular dialogue with
its major Shareholders through presentations and meetings after
the announcement of the Group’s full year and interim results.
Private and institutional shareholders are given an opportunity to
communicate directly with the Board at the Annual General
Meeting. Shareholders’ queries received via the Company
Secretary’s email address at cosec@parity.net or by telephone
to the Group’s head office are responded to in person by the
Company Secretary or by another appropriate employee.
All members of the Board usually attend the Annual General
Meeting. The chairmen of the Audit, Remuneration and
Nominations Committees will normally be available to answer
Shareholders’ questions at that meeting. Notice of the Meeting
is posted to Shareholders with the report and accounts no fewer
than 21 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. Under that
law they have elected to prepare both the group and the parent
company financial statements in accordance with IFRSs as
adopted by the EU and applicable law. 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.
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.
16
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
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.
Website publication
The Directors are responsible for ensuring the annual report and
the financial statements are made available on the Parity Group
website. Financial statements are published on the Company’s
website in accordance with legislation in the United Kingdom
governing the preparation and dissemination of financial
statements, which may vary from legislation in other
jurisdictions. The maintenance and integrity of the Company’s
website is the responsibility of the Directors. The Directors’
responsibility also extends to the on-going integrity of the
financial statements contained therein.
Internal control
The Board is ultimately responsible for the Group’s system of
internal control and for reviewing its effectiveness and is assisted
in this respect by the Audit Committee. Such a system is
designed to manage rather than eliminate the risk of failure to
achieve business objectives and can only provide reasonable
and not absolute assurance against material misstatement or
loss. The Group’s system of internal control, which complies
with the Turnbull Guidance, has been in place throughout the
year and up to the date of this report. The Directors confirm that
they have reviewed the effectiveness of the Group’s system of
internal controls during the year.
The Group did not consider it necessary to have a separate
internal audit function, but will continue to keep the need under
review.
Risk management
The Group is exposed through its operations to the following
financial risks:
• Interest rate risk;
• Foreign currency risk;
• Liquidity risk; and
• Credit risk
The policies for managing these risks are set by the Board
following recommendations from the Finance Director. Certain
risks are managed centrally, while others are managed locally
following guidelines communicated from the centre. The policies
for each of the above risks, and the nature and extent of those
risks, are described in detail in note 22 to the financial
statements. Other risks and uncertainties are discussed in the
Financial Review on page 8.
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
7 April 2015
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17
Remuneration Report
Remuneration committee
The remuneration committee comprises Lord Freeman as
Chairman, David Courtley 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 2014 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 2014
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.
Performance bonus
The terms of the incentive bonus for Executive Directors are
agreed annually. For 2014 no target was set and no
performance bonuses were earned by, or paid to, Executive
Directors in 2014.
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 2014 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.
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.
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
18
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
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.
On 18 March 2014 a further 340,000 share options were a
awarded under this scheme to Alastair Woolley. The exercise
price of the options is 21.12 pence, and the options are subject
to a performance condition being that the share price must be
greater than or equal to 26.4 pence for 5 consecutive days. The
options will vest in 3 years and lapse in 10 years if not
exercised.
On 27 November 2014 2,000,000 share options were a
awarded under this scheme to Andy Law. The exercise price of
the options is 16.75 pence, and the options are subject to a
performance condition being that the share price must be
greater than or equal to 20.94 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 2014, 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 2014.
Co-investment scheme
The Co-investment Scheme was approved by shareholders in
2004. Members are invited to join by the Board, having regard
to the recommendations of the remuneration committee. At
present the scheme is open to the Chief Executive Officer,
Group Finance Director and the Managing Directors of the
business units and one other senior executive. Under the rules
of the scheme, members are entitled to invest up to 50% of the
bonus that they earn under the Annual Performance Bonus
Scheme in Parity shares. The shares are held on behalf of the
employee and, providing the employee remains in Parity’s
employment, any bonuses invested will be matched in number
by the Company on a sliding scale of up to 1.5 for 1 at the end
of a defined period of up to three years following the date of
purchase.
The award of matching shares is subject to the share price
outperforming the average Total Shareholder Return
performance of a comparator group comprising a basket of
companies in the IT services sector and the period during
which the employee has to hold shares before they are
matched by the Company increases from one year to three
years. Depending on the Group’s performance over those three
years, the shares purchased by the employee will be matched
on a sliding scale up to a maximum of 1.5-to-1 for outstanding
performance.
None of the Directors have awards outstanding under the
Co-investment Scheme.
Share price
The Parity Group plc mid-market share price on 31 December
2014 was 16.12 pence. During the period 1 January to
31 December 2014 shares traded at market prices between
14.00 pence and 30.00 pence.
Directors’ pension information
Up until 30th June 2014, Paul Davies was entitled to a non-
contributory company pension contribution of 11% of basic
salary. As from 1st July 2014, Paul Davies has received an
amount equal to 11% of his basic salary as an additional
payment which is paid as part of his monthly 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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Remuneration Report continued
Contractual arrangements for current Directors are summarised below:
Director
Philip Swinstead1
Lord Freeman2
Paul Davies1
Alastair Woolley
David Courtley2
Andy Law
Neal Ransome2
Contract date
Notice period
Contractual termination payment
31 January 2014
1 July 2007
1 June 2010
1 April 2011
8 June 2011
27 November 2014
26 September 2013
12 months
n/a
12 months
6 months
n/a
6 months
n/a
12 months rolling
n/a
12 months rolling
6 months rolling
n/a
6 months
n/a
1 The Company is required to give 12 months notice of termination of the service agreement and the directors 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
The remuneration of the Directors who served during the year is set out below:
Salary/
fees
2014
£’000
Benefi ts
2014
£’000
Compensation for
loss of offi ce
2014
£’000
Total emoluments
2014
£’000
Company pension
contributions9
2014
£’000
Share Based
Payment
2014
£’000
Executive Directors
P Swinstead1
P Davies2
A Woolley
A Law4
Non-executive Directors
Lord Freeman
D Courtley
P Luff8
N Ransome
Total emoluments
280
183
155
17
40
40
17
40
772
–
18
10
–
–
–
–
–
28
–
–
–
–
–
–
–
–
-
280
201
165
17
40
40
17
40
800
–
12
8
–
–
–
–
–
20
–
–
31
4
–
–
–
–
35
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Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
Directors’ remuneration continued
Salary/
fees
2013
£’000
200
220
120
61
151
40
40
30
10
10
882
Benefi ts
2013
£’000
Compensation
for loss of offi ce
2013
£’000
Total emoluments
2013
£’000
Company pension
contributions9
2013
£’000
Share Based
Payment
2013
£’000
–
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
Executive Directors
P Swinstead2
P Davies3
A Woolley
S Chase5
S Whyte6
Non-executive Directors
Lord Freeman
D Courtley
M Phillips7
P Luff8
N Ransome9
Total emoluments
Notes
1 P Swinstead was appointed Executive Chairman on 1 October 2013 under the terms of a Service Agreement dated 31 January 2014.
2 Previously P Swinstead was Non-executive Chairman. During 2013 The Remuneration Committee elected to pay P Swinstead an additional fee of £150,000 per
annum for discharging services as Non-executive Chairman.
3 P Davies stepped down as Chief Executive Officer with effect from 1 July 2014, to become Chairman of Parity Professionals division, thereby continuing as a Board
director. A revised Service Agreement was entered into on that date.
4 A Law was appointed 27 November 2014.
5 S Chase resigned as a Board director on 28 September 2013, but continued employment as the Group’s General Counsel and Company Secretary.
6 S Whyte resigned on 26 September 2013.
7 M Phillips stepped down on 26 September 2013.
8 P Luff was appointed on 26 September 2013, but did not stand for election on 29 May 2014.
9 N Ransome was appointed 26 September 2013.
10 Company pension contributions disclosed in the table above represent the contractual pension entitlements due to the Directors of the company.
Executive Directors’ share options
As at
1 January
2014
Lapsed/
Surrendered
in the
year
Exercised
in the
year
Awarded
In the
year
As at
31 December
2014
Exercise
period
Exercise
price
per share
Paul Davies
Senior Executive share
option plan 2010
Alastair Woolley
Executive share option plan
2011
2012
2013
2014
Sub-total
Paul Davies
Senior Executive share
option plan 2014
Total
2,851,633
300,000
60,000
300,000
–
660,000
–
3,511,633
–
–
–
–
–
–
–
-
–
–
–
–
–
–
–
-
–
2,851,633
2011-2017
£0.1000
–
–
–
300,000
2014-2021
60,000
2015-2022
300,000
2016-2023
340,000
340,000
2017-2024
340,000
1,000,000
£0.2800
£0.2625
£0.2625
£0.2112
2,000,000
2,000,000
2017-2024
£0.1675
2,340,000
5,851,633
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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 2013
(or date of appointment
if later)
13,186,470
6,250
1,275,556
56
6,521,739
–
33,000
% issued share capital
(or date of resignation) % issued share capital
Shareholding as at
31 December 2014
12.97
13,186,470
0.01
1.26
–
6.42
–
0.03
6,250
1,275,556
56
6,521,739
–
33,000
12.9 6
0.01
1.26
–
6.4 1
–
0.03
Philip Swinstead
Lord Freeman
Paul Davies
Alastair Woolley
David Courtley
Andy Law
Neal Ransome
For and on behalf of the Board
Lord Freeman
Chairman of the remuneration committee
7 April 2015
22
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
Independent Auditor’s Report to the Members of Parity Group Plc
Opinion on other matters prescribed by the Companies
Act 2006
In our opinion the information given in the Strategic Report and
the Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial
statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following 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 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 LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
E14 5GL
London
United Kingdom
7 April 2015
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We have audited the financial statements of Parity Group Plc for
the year ended 31 December 2014 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 2014 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.
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Consolidated Income Statement
for the year ended 31 December 2014
Before non-
recurring items
2014
£’000
Notes
Non-recurring
items
2014
(note 5)
£’000
Total
2014
£’000
Before non-
recurring items
2013
£’000
Non-recurring
items
2013
(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
Profi t/(loss) for the year from
continuing operations
Discontinued operations
Profit/(loss) for the year from
Discontinued operations
Profit/(loss) for the year
Attributable of owners of
the parent
Basic and diluted loss
per share
2
3
3
3
7
7
11
92,264
(9,064)
(477)
(81,838)
(91,379)
885
694
(1,173)
406
(184)
222
–
(405)
–
(409)
(814)
(814)
–
–
(814)
159
(655)
92,264
(9,469)
(477)
(82,247)
(92,193)
71
694
(1,173)
(408)
(25)
(433)
91,949
(8,163)
(271)
(82,453)
(90,887)
1,062
655
(1,066)
651
(1,115)
–
(173)
–
(1,427)
(1,600)
(1,600)
–
–
(1,600)
372
(464)
(1,228)
(1,692)
Total
2013
£’000
91,949
(8,336)
(271)
(83,880)
(92,487)
(538)
655
(1,066)
(949)
(743)
8
(5)
–
(5)
(5)
46
41
217
(655)
(438)
(469)
(1,182)
(1,651)
12
(0.43p)
(1.88p)
The notes on pages 29 to 59 form part of the financial statements.
24
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
Statements of Comprehensive Income
for the year ended 31 December 2014
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
2014
£’000
(438)
67
67
(649)
–
(649)
(582)
2013
£’000
(1,651)
(25)
(25)
220
(23)
197
172
(1,020)
(1,479)
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Statements of Changes in Equity
for the year ended 31 December 2014
Consolidated
At 1 January 2014
Loss for the year
Exchange differences on translation of
foreign operations
Actuarial loss on defined benefit pension
scheme
Issue of new ordinary shares
Share options – value of employee services
Share
capital
£’000
2,033
Deferred
shares
£’000
14,319
Share
premium
reserve
£’000
33,183
Other
reserves
£’000
44,160
–
–
–
2
–
–
–
–
–
–
–
–
–
6
–
–
–
–
–
–
Retained
earnings
£’000
(84,034)
(438)
67
Total
£’000
9,661
(438)
67
(649)
(649)
–
242
At 31 December 2014
2,035
14,319
33,189
44,160
(84,812)
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 loss 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)
Company
At 1 January 2014
Loss for the year
Issue of new ordinary shares
Share options – value of employee services
Share
capital
£’000
2,033
–
2
–
Deferred
shares
£’000
14,319
–
–
–
Share
premium
reserve
£’000
33,183
–
6
–
Other
reserves
£’000
22,729
–
–
–
Retained
earnings
£’000
(51,214)
21,050
(491)
–
34
(491)
8
34
At 31 December 2014
2,035
14,319
33,189
22,729
(51,657)
20,615
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)
–
32
Total
£’000
17,364
(3,490)
7,142
32
At 31 December 2013
2,033
14,319
33,183
22,729
(51,214)
21,050
The notes on pages 29 to 59 form part of the financial statements.
26
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
8
242
8,891
Total
£’000
3,878
(1,651)
(25)
220
(23)
7,142
120
9,661
Total
£’000
Statements of Financial Position
As at 31 December 2014
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 7 April 2015.
The notes on pages 29 to 59 form part of the financial statements.
Philip Swinstead
Executive Officer
Alastair Woolley
Finance Director
Consolidated
Company
2014
£’000
9,307
602
–
–
536
10,445
27
15,524
2,974
18,525
28,970
2013
£’000
8,459
334
–
–
552
9,345
19
16,360
7,376
23,755
33,100
2014
£’000
–
2
103,460
20,527
–
2013
£’000
–
2
93,008
20,527
–
123,989
113,537
–
3,407
102
3,509
–
3,481
37
3,518
127,498
117,055
(9,559)
(8,314)
(82)
(9,909)
(10,387)
(895)
(17,955)
(21,191)
–
(7,518)
(69)
(7,587)
–
(5,238)
(895)
(6,133)
–
–
(99,296)
(89,806)
(23)
–
–
(2,101)
(2,124)
–
–
(78)
(2,170)
(2,248)
–
–
(99,296)
(20,079)
(23,439)
(106,883)
8,891
9,661
20,615
16,354
33,189
44,160
16,352
33,183
44,160
(84,812)
(84,034)
8,891
9,661
16,354
33,189
22,729
(51,657)
20,615
(66)
–
(89,872)
(96,005)
21,050
16,352
33,183
22,729
(51,214)
21,050
27
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Consolidated
Company
Notes
2014
£’000
2013
£’000
2014
£’000
2013
£’000
(438)
(1,651)
(491)
(3,490)
7
7
10
11
13
15
5
9
24
9
13
15
25
7
(694)
1,173
242
25
216
261
129
(55)
(55)
(8)
838
(1,836)
(838)
(873)
(655)
1,066
120
743
21
250
–
–
-
1
(3,324)
1,454
203
(833)
(2,357)
1,337
48
(332)
(738)
1,212
34
(658)
-
1
–
–
-
-
-
1
–
–
-
-
(1,701)
2,427
(893)
-
(2,486)
2,217
201
-
(1,858)
(2,605)
(1,961)
(3,707)
(9)
8
-
-
(1,867)
(2,597)
(1,961)
(3,707)
(623)
(1,064)
(137)
(1,824)
8
(407)
–
–
(312)
(711)
(4,402)
7,376
2,974
(500)
(724)
(169)
(1,393)
7,142
1,633
–
(46)
(234)
8,495
4,505
2,871
7,376
–
–
(1)
(1)
8
–
2,320
–
(301)
2,027
65
37
102
–
–
–
(4)
(4)
5
7,142
–
(5,522)
–
(234)
1,386
(2,325)
2,362
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Statements of Cash Flows
for the year ended 31 December 2014
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
Loss on disposal of property, plant and equipment
Gain on acquisition
Working Capital
(Increase)/decrease in stocks and work in progress
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
(Decrease)/increase in provisions
Payments to retirement benefit plan
Cash generated from operations
Income taxes (paid)/received
Net cash flows from operating activities
Investing activities
Acquisition of subsidiaries
Purchase of intangible assets
Purchase of property, plant and equipment
Net cash used in investing activities
Financing activities
Issue of ordinary shares
(Payments to)/Proceeds from finance facility
Net movements on intercompany funding
Repayment of loans acquired through business combinations
Interest paid
Net cash from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The notes on pages 29 to 59 form part of the financial statements.
28
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
Notes to the Accounts
1 Accounting policies
Basis of preparation
Parity Group plc (the “Company”) is a company incorporated and domiciled in the UK.
Both the parent company financial statements and the group financial statements have been prepared and approved by the
directors in accordance with International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”). On publishing
the parent company financial statements here together with the group financial statements, the Company is taking advantage of
the exemption in s408 of the Companies Act 2006 not to present its individual income statement and related notes that form a
part of these approved financial statements.
The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have
been consistently applied to all the years presented unless otherwise stated.
The financial statements have been prepared on a going concern basis. The Group’s business activities, together with the
factors likely to affect its future development, performance and position are set out in the Directors’ Report (Review of business
and future developments). The financial position of the Group, its cash flows, liquidity position and borrowing facilities are
described in the Financial Review on pages 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 currently extends 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
2014. Subsidiaries are entities controlled by the Group. Control exists when the Group has:
•
•
•
existing rights that give it the ability to direct the relevant activities that significantly affect the subsidiary’s returns; and
exposure, or rights, to variable returns from its involvement with the subsidiary; and
the ability to use its power over the subsidiary to affect the amount of the Group’s returns.
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 £491,000 (2013:
£3,490,000)
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 2014 adopted by the
Group and published standards not yet effective
No new standards, amendments to published standards or interpretations of existing standards effective in 2014 had a material
impact on the Group’s 2014 financial statements. No published standards that are not yet effective are expected to have a
material impact on the Group’s financial statements. In accordance with the transitional provisions of IFRS 10, the Group
reassessed the control conclusion for its investees at 1 January 2014. No modifications of previous conclusions about control
regarding the Group’s investees were required.
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Notes to the Accounts continued
1 Accounting policies continued
Measurement convention
The financial statements are prepared on the historical cost basis except that the following assets and liabilities are stated at
their fair value: derivative financial instruments and financial instruments classified as fair value through the profit or loss or as
available-for-sale. Non-current assets are stated at the lower of previous carrying amount and fair value less costs to sell.
Revenue recognition
The Group generates revenue principally through the provision of recruitment and technology services, and to a lesser extent,
through the resale of 3D equipment.
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, onerous contracts, and gains on bargain purchases.
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.
30
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
1 Accounting policies continued
Taxation continued
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial
recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a
business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in
the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the temporary difference can be utilised.
Foreign currencies
Company
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are
taken to the Income Statement.
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 Group Board.
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 software 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.
Intellectual Property
Intellectual property represents the expenditure incurred on developing new, innovative products/services that are expected to
generate future economic benefits. The carrying amount of intellectual property is its cost less any accumulated amortisation
and any provision for impairment. Intellectual property is amortised on a straight line basis over two years, with amortisation
commencing from the date that the products/services are available for sale.
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31
Notes to the Accounts continued
1 Accounting policies continued
Property, plant and equipment
Property, plant and equipment are stated at cost, net of depreciation and any provision for impairment.
Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost less estimated residual
value of each asset on a straight line basis over its expected useful economic life, as follows:
Leasehold improvements
Office equipment
The lesser of the asset life and the remaining length of the lease
Between 3 and 5 years
The carrying value of property, plant and equipment is reviewed for impairment if events or changes in circumstances indicate
the carrying value may not be recoverable.
Impairment of non-financial assets (excluding deferred tax assets)
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount, the
latter being the higher of the fair value less costs to sell associated with the CGU and its value in use. Value in use calculations
are performed using cash flow projections for the CGU to which the goodwill relates, discounted at a pre-tax rate which reflects
the asset specific risks and the time value of money.
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 may 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.
32
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
1 Accounting policies continued
Stocks and work in progress
Stocks are stated at the lower of cost and net realisable value. Cost comprises equipment for resale. Net realisable value
represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and
distribution.
Costs recoverable on contracts which are expected to benefit performance and be recoverable over the life of the contracts are
recognised in the Statement of Financial Position as work in progress and charged to the Income Statement over the life of the
contract so as to match costs with revenues.
Work in progress is stated at the lower of cost and net realisable amount and represents that element of start up costs which, at
the reporting date, has not been charged to the Income Statement. Cost includes materials, direct labour and an attributable
portion of overheads based on normal levels of activity. Net realisable amount is based on estimated selling price less further
costs expected to be incurred to completion and disposal including provision for contingencies and anticipated future losses.
Amounts recoverable on contracts and payments in advance
Amounts recoverable on contracts are stated at the net sales value of work done less amounts received as progress payments
on account. Where progress payments exceed the sales value of work done, they are included in payables as payments in
advance.
Financial liabilities
All of the Group’s financial liabilities are classified as financial liabilities carried at amortised cost. The Group does not use
derivative financial instruments or hedge account for any transactions.
Unless otherwise indicated, the carrying amounts of the Group’s financial liabilities are a reasonable approximation of their fair
values.
Financial liabilities include the following items:
•
•
•
Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently
carried at amortised cost using the effective interest method.
Finance leases which are initially measured at fair value and subsequently carried at amortised cost using the effective
interest method.
Bank borrowings, which are initially recognised at fair value net of any transaction costs directly attributable to the issue of
the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest
rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of
the liability carried in the consolidated Statement of Financial Position. Interest expense in this context includes initial
transaction costs and 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.
33
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Notes to the Accounts continued
1 Accounting policies continued
Pensions continued
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation in
respect of defined benefit pension plans is calculated by estimating the amount of future benefit that employees have earned in
return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value
of any plan assets at bid price, and any unrecognised past service costs are deducted. The liability discount rate is the yield at
the balance sheet date on AA credit rated bonds denominated in the currency of, and having maturity dates approximating to,
the terms of the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method.
When the calculation results in a benefit to the Group, the recognised asset is limited to [the total of any unrecognised past
service costs and] the present value of benefits available in the form of any future refunds from the plan, reductions in future
contributions to the plan or on settlement of the plan and takes into account the adverse effect of any minimum funding
requirements.
Share capital
Following the adoption of IAS 32, financial instruments issued by the Group are treated as equity only to the extent that they
meet the following two conditions:
(a)
(b)
they include no contractual obligations upon the company (or group as the case may be) to deliver cash or other financial
assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially
unfavourable to the company (or group); and
where the instrument will or may be settled in the company’s own equity instruments, it is either a non-derivative that
includes no obligation to deliver a variable number of the company’s own equity instruments or is a derivative that will be
settled by the company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity
instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so
classified takes the legal form of the company’s own shares, the amounts presented in these financial statements for called up
share capital and share premium account exclude amounts in relation to those shares.
For the purposes of the disclosures given in note 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 payment 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.
34
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
1 Accounting policies (continued)
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.
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 Professionals 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.
Each reporting segment is headed up by a dedicated Executive Chairman, with direct responsibility for delivering the segmental
contribution budget. The internal financial information prepared for the Group Board 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. Parity Professionals provides 92% (2013: 91%) of the
continuing Group’s revenues.
SuperCommunications – this segment delivers unique 3D creative technology, digital content production, and business
intelligence solutions designed around client problems. SuperCommunications provides 8% (2013: 9%) of the continuing
Group’s revenues.
Group costs include directors’ salaries and costs relating to group activities 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.
35
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Notes to the Accounts continued
2 Segmental information continued
Revenue from external customers
Attributable costs
Segmental contribution
Group costs
Adjusted EBITDA
Depreciation and amortisation
Share based payment
Non-recurring items
Finance income
Finance costs
Parity
Professionals
2014
£’000
84,466
(81,975)
2,491
Profit/(loss) before tax (continuing activities)
–
–
Parity
Professionals
2013
£’000
83,711
(81,329)
2,382
Super
Communi-
cations
2013
£’000
8,238
(7,128)
1,110
Revenue from external customers
Attributable costs
Segmental contribution
Central costs
Adjusted EBITDA
Depreciation and amortisation
Share based payment
Other non-recurring items
Finance income
Finance costs
Profit/(loss) before tax (continuing activities)
–
–
Super
Communi-
cations
2014
£’000
Before non-
recurring
items
£’000
Non-
recurring
items
£’000
7,798
92,264
(7,115)
(89,090)
683
Total
2014
£’000
92,264
(89,090)
3,174
(1,570)
1,604
(477)
(242)
(814)
694
(1,173)
(408)
Total
2013
£’000
91,949
(88,457)
3,492
(2,039)
1,453
(271)
(120)
–
–
–
–
–
–
–
(814)
–
–
(814)
–
–
–
–
–
–
–
( 1,600)
( 1,600)
–
–
(1,600)
655
(1,066)
(949)
3,174
(1,570)
1,604
(477)
(242)
–
694
(1,173)
406
91,949
(88,457)
3,492
(2,039)
1,453
(271)
(120)
–
655
(1,066)
651
Before non-
recurring
items
£’000
Non-
recurring
items
£’000
The continuing Group operates exclusively in the UK. All revenues are generated and all segment assets are located in the UK.
64% (2013: 55%) or £54.1m (2013: £45.8m) of the Parity Professionals revenue was generated in the Public Sector. 19% (2013:
32%) or £1.5m (2013: £2.7m) of the SuperCommunications revenue was generated in the Public Sector.
The largest single customer in Parity Professionals contributed revenue of £14.3m or 16% and was in the private sector (2013:
£12.5m or 15% and in the private sector). The largest single customer in SuperCommunications contributed revenue of £3.2m or
41% and was in the private sector (2013: £2.7m or 33% and in the private sector).
36
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
3 Operating costs
Employee benefit costs
– wages and salaries
– social security costs
– other pension costs
Depreciation and amortisation
Amortisation of intangible assets
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 from the Group’s auditor, KPMG LLP:
Audit of the Parent Company and consolidated financial statements
Other services:
Audit of the Company’s subsidiaries
Interim review
Tax compliance
Other
Consolidated
2014
£’000
2013
£‘000
8,252
7,294
939
278
816
226
9,469
8,336
216
261
477
78,377
1,065
54
1,366
(339)
326
367
6
242
783
82,247
92,193
21
250
271
78,125
1,035
56
1,472
(522)
442
405
–
120
2,747
83,880
92,487
Consolidated
2014
£’000
11
69
6
23
56
154
165
2013
£‘000
11
62
7
26
150
245
256
All other services have been performed in the United Kingdom.
Other refers to services provided in relation to potential acquisition activity, and advice relating to the Retirement Benefit Plan.
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Notes to the Accounts continued
4. Reconciliation of operating profit/(loss) to adjusted EBITDA
Operating profit/(loss) from continuing operations
Non-recurring items
Share-based payment charges
Depreciation and amortisation
Adjusted EBITDA
Note
5
3
3
2014
£’000
71
814
242
477
2013
£’000
(538)
1,600
120
271
1,604
1,453
The directors use EBITDA before non-recurring items and share-based payment charges (‘Adjusted EBITDA’) as a key
performance measure of the business.
5 Non-recurring items
Continuing Operations
Transaction costs
Gain on acquisition
Restructuring
– Employee benefit costs
– Other operating costs
Property provisions
Discontinued Operations
Property provisions
Note
9
2014
£’000
166
(55)
405
129
169
814
2013
£’000
695
–
173
–
732
1,600
–
–
(46)
(46)
The continuing operations non-recurring charge for 2014 includes transaction costs, restructuring costs and a charge relating to
surplus property. Transaction costs refer to the professional services incurred in the Group’s acquisition programme. £277,478 of
the restructuring costs relate to compensation payments incurred in reorganising the Golden Square business following its
acquisition in May 2014. A further £127,827 relates to compensation payments made in realigning the previously shared back
office functions, to the future needs of the Group’s two segments. The charge for surplus properties includes a charge of
£168,935 relating to excess property costs acquired with the Golden Square business, £76,000 relating to excess space at the
Wimbledon office, and releases of £108,000 relating mainly to a lower dilapidations charge for the Wimbledon office than
previously provided for. The other operating costs of £129,000 relates to the loss on disposal of plant and equipment following the
restructuring of the Golden Square business.
The continuing operations non-recurring charge for 2013 included transaction costs, restructuring costs and a charge relating to
surplus property. Transaction costs referred to the professional services incurred in the Group’s acquisition programme.
Restructuring costs referred 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 related 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 included a top up of £162,000 to the dilapidations provision for the Wimbledon office. The lease
expired in September 2014. £60,671 of the property charge related 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 related 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.
38
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
6 Average staff numbers
Continuing operations
Professionals – United Kingdom1
SuperCommunications – United Kingdom, including corporate office2
1 Includes 24 (2013: 27) employees providing shared services across the Group.
2 Includes 8 (2013: 8) employees of the Company.
At 31 December 2014, the Group had 159 continuing employees (2013: 148).
7 Finance income and costs
Finance income
Finance income in respect of post-retirement benefits
Finance costs
Interest expense on financial liabilities
Finance costs in respect of post-retirement benefits
2014
Number
2013
Number
93
72
165
2014
£’000
694
694
312
861
98
58
156
2013
£’000
655
655
234
832
1,173
1,066
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 £100,000.
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 other than finance costs
Non-recurring income (note 5)
Pre-tax (loss)/profit
Taxation
(Loss)/profit for the year
2014
£’000
2013
£’000
(5)
–
(5)
–
(5)
(5)
46
41
–
41
For 2014 and 2013 the pre-tax loss before non-recurring items relates to legacy overseas subsidiaries of the Group, and
comprises company secretarial and accounting fees.
The Statement of Cash Flows includes a £5,000 cash outflow (2013: £32,000 cash inflow) from operating activities in respect of
discontinued operations.
9 Acquisition of subsidiary
On 30 April 2014, SuperCommunications Limited, a wholly owned subsidiary of the Group, acquired the trade and assets of
Golden Square Post Productions Limited from its administrator. Golden Square Post Productions Limited had entered into
administration following cash flow difficulties, after failing to renew a significant contract in 2013. . On the acquisition date the
trade and assets were transferred into Golden Square Content Limited, a new, wholly owned subsidiary of SuperCommunications
Limited.
Golden Square is a London-based post-production and international content distribution business. The business has continued to
trade as Golden Square Content Limited, and sits alongside Inition (SuperCommunication’s 3D technology business) and the
Systems IT Solutions business.
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Notes to the Accounts continued
9 Acquisition of subsidiary continued
The fair values of the assets and liabilities acquired are set out in the table below.
Property, plant and equipment
Finance lease obligations
Net assets acquired
Consideration paid:
Cash paid
Gain on acquisition
Note
Book value
£’000
Fair value
adjustments
£’000
574
(146)
428
–
–
–
Fair value
£’000
574
(146)
428
373
55
The directors engaged an independent professional valuer to assess the fair value of the assets acquired. The valuer’s findings
concluded that the fair values were not materially different to their book values. A small number of assets were financed by leases,
and the directors assessed the fair values of the lease obligations to match the book values.
The directors have also assessed the potential intangible assets of Golden Square Content Limited, and concluded that none
exist.
The directors believe that the acquisition meets the definition of a “bargain purchase” under IFRS 3, in that:
•
•
the fair value of the net assets acquired exceeds the provisional fair value of the consideration paid, and
the transaction represents a distress sale, since Golden Square Post Productions Limited was in administration at the point
of acquisition.
Accordingly, the excess has been treated as a non-recurring gain in the accounts.
Golden Square contributed revenue of £744,000, a negative contribution before non-recurring items of £228,000, and a loss
before tax of £679,000 to the Group results for the year. These results are included in the segmental analysis in Note 2 within the
SuperCommunications segment.
On 29 May 2012, the Group acquired Inition Limited. The Sale and Purchase agreement included additional cash consideration
subject to the ongoing performance on 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 made a profit before interest and tax of at least £0.5m in the year to 31 March 2014.)
Inition met both of its earn-out targets and consequently £0.5 million was paid to the vendors during 2013. In 2014, £0.25m was
paid to the vendors in relation to the 2nd earn-out, and the remaining £0.25m will be paid in Q1 2015.
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 £242,000 (2013: £120,000).
40
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
10 Share based payments continued
Outstanding at beginning of the year
Granted during the year
Exercised during the year
Lapsed during the year
2014
Weighted
average
exercise
price (p)
16
20
8
22
2014
Number
7,849,445
6,372,705
(102,500)
(582,729)
Outstanding at the end of the year
18 13,536,921
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
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
17-28
2014
Weighted average
contractual life (years)
2
8
Number
4,199,133
9,337,788
13,536,921
Exercise
price (p)
7.5 - 10
17 - 28
2013
Weighted average
contractual life (years)
3
6
Number
4,301,633
3,547,812
7,849,445
Of the total number of options outstanding at the end of the year 4,499,133 (2013: 4,301,633) had vested and were exercisable
at the end of the year. The weighted average exercise price of those options was 11 pence (2013: 10 pence).
102,500 (2013: 737,500) options were exercised during the year at an average exercise price of 8 pence (2013: 9 pence)
The weighted average fair value of each option granted during the year was 9 pence (2012: 13 pence).
The following information is relevant in determining the fair value of options granted during the year under equity–settled share-
based remuneration schemes operated by the Group. There are no cash-settled schemes.
Option pricing model
Weighted average share price at grant date (p)
Weighted average exercise price (p)
Weighted average contractual life (years)
Weighted average expected life (years)
Expected volatility
Weighted average risk free rate
Expected dividend growth rate
2014
Stochastic
2013
Stochastic
20
20
10
5
26
27
10
5
54-74%
54-74%
1.37%
0.86%
0%
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. Whilst the options do not have an expiry date, for valuation purposes it is
assumed that 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%.
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Notes to the Accounts continued
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 benefit liability
Write down of deferred tax asset
Adjustments in respect of prior periods
Total tax expense
Tax expense on continuing operations
2014
£’000
2013
£’000
9
9
(19)
–
–
–
–
35
16
25
–
–
(25)
(28)
157
65
545
29
743
743
The standard rate of corporation tax in the UK changed from 23% to 21% with effect from 1 April 2014. Accordingly, the Group’s
profits for this accounting period are subject to tax at a rate of 21.5%. The Finance Act 2013 further reduced the UK corporation
tax rate to 20% with effect from 1 April 2015. This has been applied in calculating the UK deferred tax position at 31 December
2014.
The 2014 tax expense is after a tax credit of £159,000 (2013: £372,000) in respect of non-recurring items.
The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United
Kingdom applied to losses for the year are as follows:
Loss for the year
Income tax expense
Loss before income tax
Expected tax credit based on the standard rate of United
Kingdom corporation tax of 21.5% (2013: 23.25%)
Expenses/(income) 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
Deferred tax not provided
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 (loss)/gain on defined benefit
pension scheme
Before tax
£’000
2014
Tax
£’000
After tax
£’000
Before tax
£’000
67
(649)
(582)
–
–
–
67
(25)
(649)
(582)
220
195
2014
£’000
(438)
25
(413)
(89)
27
35
–
135
(83)
–
25
2013
Tax
£’000
–
(23)
(23)
2013
£’000
(1,651)
743
(908)
(211)
(20)
29
157
243
–
545
743
After tax
£’000
(25)
197
172
42
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
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
2014
000’s
Earnings
2014
£’000
Earnings
per share
2014
Pence
Weighted
averag e number
of shares
2013
000’s
Earnings
2013
£’000
(438)
101,655
(0.43)
(1,651)
87,905
–
–
–
(438)
101,655
(0.43)
(1,651)
87,905
Earnings
per share
2013
Pence
(1.88)
–
(1.88)
As at 31 December 2014 the number of ordinary shares in issue was 101,726,520 (2013: 101,624,020).
Basic and diluted earnings per share from discontinued operations was 0.00p (2013: basic and diluted loss per share 0.05p).
13 Intangible assets
Software
Intellectual Property
Goodwill
Total
Cost
At 1 January
Additions
2014
£’000
727
492
At 31 December
1,219
Accumulated amortisation
At 1 January
21
Charge for the year 212
At 31 December
Net book amount
233
986
2013
£’000
2014
£’000
2013
£’000
3
724
727
–
21
21
706
–
572
572
–
4
4
568
–
–
–
–
–
–
–
2014
£’000
7,753
–
7,753
–
–
–
2013
£’000
7,753
–
7,753
–
–
–
2014
£’000
8,480
1,064
9,544
21
216
237
2013
£’000
7,756
724
8,480
–
21
21
7,753
7,753
9,307
8,459
During 2014, the Group’s SuperCommunications division invested in developing a range of new products and in developing a new
website for its Inition business. This resulted in the addition of £477,000 of intellectual property. SuperCommunications also
invested in its GroupSeer business unit. GroupSeer is a joint venture with The Royal Holloway College aimed at creating a
marketing internet search engine, and has resulted in the addition of £50,000 of intellectual property.
As at 31 December 2014 the Professionals division had virtually completed its project to implement a new financial system, CRM
and website. During 2013 £408,000 of costs had been incurred and capitalised reflecting the completion of the first phases.
During 2014 further costs of £446,000 were capitalised in relation to the project.
The Company does not hold any intangible assets.
Neither the Group nor the Company had any additional capital commitments for the purchase of intangible assets as at the
balance sheet date.
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Notes to the Accounts continued
14 Goodwill
The carrying amount of goodwill is allocated to the Group’s cash generating units (CGUs). Following the acquisition of Golden
Square during 2014, the Group reorganised into two separately managed reporting divisions: Parity Professionals and the newly
launched SuperCommunications division. As a result, the Group’s goodwill was reallocated to two CGUs, rather than three CGUs
as existed at the end of 2013. Resources is now included under Parity Professionals, whilst Solutions and Digital Solutions are
now included under SuperCommunications.
Carrying amounts are as follows:
Professionals
SuperCommunications
Goodwill carrying amount
201 4
£’000
2,642
5,111
7,753
201 3
£’000
2,642
5,111
7,753
Goodwill was tested for impairment in accordance with IAS 36. No impairment was recognised during the year. The recoverable
amounts of the CGUs are based on value in use calculations using the pre-tax cash flows based on budgets approved by
management for 2015. Years from 2016 onward are based on the budget for 2015 projected forward at expected growth rates.
This is considered prudent based on current expectations of the 2015 long-term growth rate.
Major assumptions are as follows:
2014
Discount rate
Forecast revenue growth
Operating margin 2015
Operating margin 2016 onward
2013
Discount rate
Forecast revenue growth
Operating margin 2014
Operating margin 2015 onward
Super
Professionals Communications
%
%
8.0
2.2
2.5
6.5
12.1
10.0
3.1 – 3.2 12.3 – 14.8
11.9
8.3
2.5
2.9
6.8
1.5
4.2
7.1
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. For both CGUs the rates are based on
past experience of growth in revenues and future expectations of economic conditions.
Operating margins are based on past experience adjusted for investments, and cost action taken in 2014 that will reduce costs in
the future.
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.
44
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
15 Property, plant and equipment
Consolidated
At cost
Balance at 1 January 2013
Additions
Balance at 31 December 2013
Balance at 1 January 2014
Additions
Acquisition
Disposals
Balance at 31 December 2014
Accumulated depreciation
Balance at 1 January 2013
Depreciation charge for the year
Balance at 31 December 2013
Balance at 1 January 2014
Depreciation charge for the year
Disposals
Balance at 31 December 2014
Net book value
At 1 January 2013
At 31 December 2013
At 31 December 2014
Company
At Cost
Balance at 1 January 2013
Balance at 31 December 2013
Balance at 1 January 2014
Additions
Balance at 31 December 2014
Accumulated amortisation
Balance at 1 January 2013
Balance at 31 December 2013
Balance at 1 January 2014
Depreciation charge for the year
Balance at 31 December 2014
Net book value
At 1 January 2013
At 31 December 2013
At 31 December 2014
3,147
3,915
189
(82)
261
(906)
3,254
3,270
Leasehold
improvements
£’000
Offi ce
equipment
£’000
930
6
936
936
–
–
(920)
16
626
142
768
768
72
(824)
16
304
168
–
3,150
163
3,313
3,313
137
574
(168)
3,856
3,039
108
3,147
111
166
602
Leasehold
improvements
£’000
Offi ce
equipment
£’000
–
1
1
–
1
–
1
1
–
1
–
–
–
–
2
2
1
3
–
–
–
1
1
–
2
2
Total
£’000
4,080
169
4,249
4,249
137
574
(1,088)
3,872
3,665
250
3,915
415
334
602
Total
£’000
–
3
3
1
4
–
1
1
1
2
–
2
2
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Notes to the Accounts continued
15 Property, plant and equipment continued
As at 31 December 2014, neither the Group nor the Company had any capital commitments contracted for but not provided, for
the purchase of tangible assets (2013: £nil).
Leased plant and equipment
In April 2014, the Group acquired Golden Square, including several digital technology assets that were held under finance lease
agreements. At 31 December 2014 Inition had one 3D camera held under a finance lease agreement. At 31 December 2014 the
total net carrying value of the leased equipment was £191,375 (2013: £10,509).
16 Deferred tax
At 1 January
Recognised in other comprehensive income
Actuarial gain/(loss) on defined benefit 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 benefit liability
Write down
Other short term timing differences
At 31 December
The deferred tax asset of £536,000 (2013: £552,000) comprises:
Depreciation in excess of capital allowances
Short term and other timing differences
Consolidated
2014
£’000
552
–
–
(35)
19
–
–
–
536
2013
£’000
1,318
(23)
(157)
(29)
25
(65)
(545)
28
552
Consolidated
2014
£’000
476
60
536
2013
£’000
457
95
552
A deferred tax asset on tax losses brought forward is not recognised unless it is more likely than not that there will be taxable
profits in the foreseeable future against which the deferred tax asset can be offset. The Directors believe that the deferred tax
asset recognised is recoverable based on the future earning potential of the Group.
The forecasts for the business used in this review were the same as those used in the review of the impairment of goodwill (see
note 14). The forecasts for Parity Professionals comfortably support the unwinding of the deferred tax asset held by this division of
£536,000 (2013: £552,000).
The deferred tax asset at 31 December 2014 has been calculated on the rate of 20% substantively enacted at the balance sheet
date.
The movements in deferred tax assets during the period are shown below:
(Charged)/
credited to
(Charged)/
credited to
other
income comprehensive
income
2014
statement
2014
£’000
£’000
19
(35)
(16)
–
–
–
Depreciation in excess of capital allowances
Other short-term timing differences
Asset
2014
£’000
476
60
536
46
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
16 Deferred tax continued
Depreciation in excess of capital allowances
Other short-term timing differences
Retirement benefit plan liability
Asset
2013
£’000
457
95
–
552
(Charged)/
credited to
(Charged)/
credited to
other
income comprehensive
income
2013
statement
2013
£’000
(436)
(16)
(291)
(743)
£’000
–
–
(23)
(23)
The Group has unrecognised carried forward tax losses of £28,802,000 (2013: £27,928,000). The Company has unrecognised
carried forward tax losses of £21,409,000 (2013: £21,899,000). The Group has unrecognised capital losses carried forward of
£281,875,386 (2013: £281,875,386). These losses may be carried forward indefinitely.
17 Stocks and work in progress
Stocks
Consolidated
2014
£’000
27
27
2013
£’000
19
19
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
Other receivables
Prepayments
Amounts falling due after one year:
Amounts owed by subsidiary undertakings
Total
Consolidated
2014
£’000
10,636
3,568
695
–
312
313
2013
£’000
8,939
5,575
1,262
–
32
552
Company
2014
£’000
2013
£’000
–
–
–
–
–
–
3,405
3,479
–
2
–
2
15,524
16,360
3,407
3,481
–
–
15,524
16,360
103,460
106,867
93,008
96,489
The fair values of trade and other receivables are not considered to differ from the values set out above.
£10,176,000 (2013: £8,173,000) of the Group’s trade receivables, and £3,946,000 (2013: £5,116,000) of the total of the Group’s
accrued income and amounts recoverable on contracts, are pledged as collateral for the asset-based borrowings. These
borrowings fluctuate daily and at the year end totalled £9,498,000 (2013: £9,904,000).
The Group records impairment losses on its trade receivables separately from gross receivables. Factors considered in making
provisions for receivables include the ability of the customer to settle the debt, the age of the debt and any other circumstance
particular to the transaction that may impact recoverability. The movements on the allowance account during the year are included
within operating costs in the consolidated income statement and are summarised below:
Opening balance
(Decreases) / increases in provisions
Written off against provisions
Recovered amounts reversed
Closing balance
Consolidated
2014
£’000
33
–
(33)
–
–
2013
£’000
33
48
(42)
(6)
33
47
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Notes to the Accounts continued
18 Trade and other receivables continued
The balance provided at 31 December 2013 was greater than 60 days old. The allowance account represented full provision
against a specific gross debt. During 2014, the debt was written off as irrecoverable.
All debts at 31 December 2014 are considered to be recoverable.
As at 31 December 2014 trade receivables of £1,970,000 (2013: £1,146,000) 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
8,666
1,152
564
254
10,636
Impaired
£’000
–
–
–
–
–
2014
Total
£’000
8,666
1,152
564
254
Gross
£’000
7,793
548
385
246
10,636
8,972
Impaired
£’000
–
–
–
(33)
(33)
2013
Total
£’000
7,793
548
385
213
8,939
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.
The Company’s receivables due from subsidiary undertakings were reviewed for impairment at the year end based on the
performance of 2014 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. The assessment was performed on a value in use basis
using discount rates of between 6.5% and 8.0% (2013: between 6.8% and 11.9%) and the other parameters used in the goodwill
impairment review, as outlined in note 14.
19 Loans & Borrowings
Non-current
Finance lease liabilities
Current
Bank and other borrowings due within one year or on demand:
Asset-based financing facility
Current portion of finance lease liabilities
Finance lease liabilities
Less than one year
Between one and two years
Future
minimum
lease
payments
2014
£’000
61
23
84
Present
value of
minimum
lease
payments
2014
£’000
52
20
72
Future
minimum
lease
payments
2013
£’000
5
–
5
Interest
2014
£’000
9
3
12
Further details of the Group’s banking facilities are given in note 22.
Consolidated
2014
£’000
2013
£’000
23
23
–
–
9,498
61
9,559
Interest
2013
£’000
–
–
–
9,904
5
9,909
Present
value of
minimum
lease
payments
2013
£’000
5
–
5
48
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
20 Trade and other payables
Amounts falling due within one year:
Payments in advance
Trade payables
Amounts due to subsidiary undertakings
Other tax and social security payables
Other payables and accruals
Amounts falling due after one year:
Amounts due to subsidiary undertakings
Total
21 Provisions
Consolidated
At 1 January 2014
Created in year
Utilised in year
Released in year
Unwind of discount
At 31 December 2014
Due within one year or less
Total
Company
At 1 January 2014
Created in year
Utilised in year
Released in year
Unwind of discount
At 31 December 2014
Due within one year or less
Total
Consolidated
Company
2013
£’000
2014
£’000
2014
£’000
439
5,366
–
1,199
1,310
8,314
312
6,767
–
1,260
2,048
10,387
2013
£’000
–
126
–
–
7,393
4,961
35
90
26
125
7,518
5,238
–
–
99,296
8,314
10,387
106,814
89,806
95,044
Leasehold
dilapidations Onerous leases
£’000
327
4
(217)
(108)
7
13
13
13
318
–
(217)
(108)
7
–
–
–
£’000
646
75
(664)
–
12
69
69
69
643
75
(661)
–
12
69
69
69
Total
£’000
973
79
(881)
(108)
19
82
82
82
961
75
(878)
(108)
19
69
69
69
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.
49
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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 2014
Financial assets
Net cash and cash equivalents
Trade and other short term receivables
Financial liabilities
Asset-based financing facility
Finance lease liabilities
Trade and other short term payables
As at 31 December 2013
Financial assets
Net cash and cash equivalents
Trade and other short term receivables
Financial liabilities
Asset-based financing facility
Finance Lease liabilities
Trade and other short term payables
Amortised
cost
£’000
Loans and
receivables
£’000
Total
£’000
–
–
–
2,974
15,211
18,185
9,498
84
7,875
17,457
–
–
–
–
–
–
–
7,376
15,808
23,184
9,904
5
10,074
19,983
–
–
–
–
2,974
15,211
18,185
9,498
84
7,875
17,457
7,376
15,808
23,184
9,904
5
10,074
19,983
50
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
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 2014
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 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
Amortised
cost
£’000
Loans and
receivables
£’000
Total
£’000
–
–
–
–
103,460
103,460
102
3,405
102
3,405
106,967
106,967
7,518
99,296
106,814
–
–
–
7,518
99,296
106,814
–
–
–
–
5,238
89,806
95,044
93,008
93,008
37
3,479
96,524
–
–
–
37
3,479
96,524
5,238
89,806
95,044
Fair values of financial instruments
The fair values of all of the Group’s, and of the Company’s, financial instruments is the same as their carrying values.
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 and other 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 60% (2013: 53%) of the Group’s turnover is derived from the public
sector. The largest customer balance represents 22% (2013: 14%) of the trade receivable balance.
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51
Notes to the Accounts continued
22 Financial instruments – risk management continued
Credit risk continued
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 financial assets
2014
Carrying
value
£’000
2,974
15,211
18,185
Maximum
exposure
£’000
2,974
15,211
18,185
2013
Carrying
value
£’000
7,376
15,808
23,184
Maximum
exposure
£’000
7,376
15,808
23,184
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 2014 and 2013 the Group’s variable rate borrowings were denominated in Sterling. Interest costs on borrowings from
the asset-based financing facility with PNC was charged at 2.5% above base rate. Amounts under this facility are repayable upon
demand.
If interest rates on borrowings had been 1% higher/lower throughout the year with all other variables held constant, the loss after
tax for the year would have been approximately £100,000 higher/lower and net assets £100,000 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.
The Company holds interest bearing loan agreements with some of its subsidiary undertakings. Interest on all loans is charged at
2.0% above the prevailing Bank of England base rate, except for one loan with Parity International B.V. which is charged at 2.0%
above the prevailing European Central Bank base rate. As at the 31 December 2014, the loan balance due by the Company to
Parity International BV, translated into Sterling, was £23,499,000 (2013: £24,471,000 payable).
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 2014 or 2013.
During the year, the underlying denomination of a large intercompany balance between the Company and one of the Group’s
inactive overseas subsidiaries was revised. As at 31 December 2013, the Company held a loan balance due to the relevant
subsidiary of £24,471,000 which was denominated in Sterling. The base currency of the Company is Sterling and the overseas
subsidiary’s base currency is Euros. In 2014, the denomination of the loan was revised to Euros, and thus subject to exchange
rate fluctuations in the books of the Company. As a result the Company recorded a translation gain of £1,440,000 (2013: £nil). As
at the 31 December 2014, the loan balance due by the Company, translated into Sterling, was £23,499,000.
52
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
22 Financial instruments – risk management continued
Foreign exchange risk continued
The currency profile of the Group’s net financial assets was as follows:
Net foreign currency
fi nancial assets
2014
£’000
Sterling
Sterling
Euro
US Dollar
Total net
exposure
–
(23,485)
4
(23,481)
2013
£’000
–
31
3
34
Functional currency of individual entity
Euro
US Dollar
2014
£’000
84
–
1,178
2013
£’000
24,545
–
1,231
2014
£’000
966
–
–
2013
£’000
966
–
–
Total
2014
£’000
2013
£’000
1,050
25,511
(23,485)
1,182
31
1,234
1,262
25,776
966
966
(21,253)
26,776
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
2013
2014
£’000
–
(23,485)
4
(23,481)
£’000
–
31
3
34
Sensitivity analysis – Group and Company
If the exchange rate between Sterling and the Euro had been 10% higher/lower at the balance sheet date, with all other variables
held constant, the effect on equity for the year would have been approximately £2,348,500 higher/lower. A 10% fluctuation in any
other currency exchange rate would not have a significant impact on profit and loss, nor equity.
Liquidity risk
Liquidity risk arises from the Group’s management of working capital and the finance charges on its borrowings under its asset-
based financing arrangements. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall
due.
The liquidity of each Group entity is managed centrally, with daily transfers to operating entities to maintain a pre-determined cash
balance. Normal supplier terms range from 2 weeks to 30 days. The level of the Group facility is approved periodically by the
Board and negotiated with the Group’s current bankers. At the reporting date, cash flow projections were considered by the
Board and the Group is forecast to have sufficient funds and available funding facilities to meet its obligations as they fall due.
The following table sets out the contractual maturities (representing undiscounted contractual cash flows) of financial liabilities:
Consolidated
At 31 December 2014
Trade and other payables
Borrowings
Total
Consolidated
At 31 December 2013
Trade and other payables
Borrowings
Total
Up to
1 month
£’000
8,231
9,498
17,729
Up to
1 month
£’000
9,887
9,904
19,791
Over
1 month
£’000
83
84
167
Over
1 month
£’000
500
5
505
Total
£’000
8,314
9,582
17,896
Total
£’000
10,387
9,909
20,296
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Notes to the Accounts continued
22 Financial instruments – risk management continued
Liquidity risk continued
Company
At 31 December 2014
Trade and other payables
Total
Company
At 31 December 2013
Trade and other payables
Total
Up to
1 month
£’000
7,518
7,518
Up to
1 month
£’000
5,238
5,238
Between
1 and
12 months
£’000
–
–
Between
1 and
12 months
£’000
–
–
Over
1 year
£’000
99,296
99,296
Over
1 year
£’000
89,806
89,806
Total
£’000
106,814
106,814
Total
£’000
95,044
95,044
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 Golden
Square. The lease represents a liability of £84,000 and is repayable within two years. The Company is funded through equity and
intercompany loans.
The Group uses an asset-based finance facility with PNC Business Credit, a member of The PNC Financial Services Group, Inc.
The facility, which enables the Group to borrow against both trade debt and accrued income and provides for borrowing of up to
£15.0m depending on the availability of appropriate assets as security.
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.
Cash and cash equivalents
Asset-based borrowings
Net Debt
2014
£’000
2,974
(9,498)
(6,524)
2013
£’000
7,376
(9,904)
(2,528)
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 (2013: 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 2014, 102,500 share options were exercised, increasing the Group’s share capital from £16,351,588 to £16,353,638.
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 exercise of share options during 2014, the share premium increased from £33,183,314 to £33,189,314.
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.
54
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
23 Reserves continued
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
(2013: £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 £278,000 (2013: £226,000).
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 inflation
Consumer price inflation
2014
%
2013
%
3.5% – 3.8% 3.7% – 4.0%
3.5%
3.0%
2.0%
4.5%
3.4%
2.4%
Note: the rate of increase in pensionable salaries is no longer applicable as the scheme is closed for future service.
In accordance with the revised IAS19, the assumption for future investment returns is the same discount rate (3.5%) used in
calculating the pension liabilities. The scheme’s assets are invested in equities, gilts and bonds in approximately equal
proportions.
The underlying mortality assumption used is in accordance with the standard table known as S1PA_H, S1PA 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 (2013 1.25% p.a.).
Contributions
In 2013 contributions were initially at a rate of £1,090,020 before being reduced to £680,000 per annum on 1 August 2013. On 1
August 2014 contributions were increased to £711,000 per annum.
In 2012 an issue was made 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
Contribution by Group
Benefits paid
Expenses met by scheme
Actuarial gain/(loss)
At the end of the year
2014
£’000
2013
£’000
20,356
17,421
(22,457)
(19,591)
(2,101)
(2,170)
2014
£’000
2013
£’000
17,421
16,620
777
873
(895)
(71)
2,251
20,356
713
833
(653)
(58)
(34)
17,421
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Notes to the Accounts continued
24 Pension commitments continued
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
Benefits paid
Actuarial loss/(gain)
At the end of the year
2014
£’000
6,518
6,906
6,793
96
43
2013
£’000
6,385
5,389
5,494
96
57
20,356
17,421
2014
£’000
2013
£’000
19,591
19,667
861
(895)
2,900
22,457
832
(653)
(255)
19,591
The actuarial loss for the year of £2,900,000 (2013: gain of £255,000) in respect of plan liabilities is mainly as a result of the
change in the discount rate assumption. The assumption is based upon the yield on AA rated corporate bonds, and these fell
significantly during the second half of 2014. The gain in 2013 was due to the mortality assumption in the period, which decreased
the value of the scheme liabilities.
The cumulative amount of actuarial losses recognised since 1 January 2002 in other comprehensive income is £6,818,000 (2013:
£6,169,000). 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)
2014
£’000
694
861
2013
£’000
655
832
The actual return on plan assets was £3,028,000 (2013: £679,000). 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
2014
£’000
2013
£’000
2012
£’000
2011
£’000
2010
£’000
20,356
17,421
16,620
15,206
14,550
(22,457)
(19,591)
(19,667)
(17,673)
(16,975)
(2,101)
(2,170)
(3,047)
(2,467)
(2,425)
2,251
12.9%
2,900
14.8%
(34)
(0.2%)
(255)
(1.3%)
441
2.7%
2,016
11.4%
755
5.2%
674
4.0%
529
3.7%
321
1.9%
56
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
24 Pension commitments continued
Sensitivity Analysis
Effect of change in assumptions
No change
0.25% rise in discount rate
0.25% fall in discount rate
0.25% rise in inflation
0.25% fall in inflation
25 Share capital
Authorised share capital
Authorised at 1 January
Authorised at 31 December
Issued share capital
Liabilities
£’000
22,457
21,635
23,325
22,607
22,427
Assets
£’000
20,356
20,356
20,356
20,356
20,356
Surplus/
(Deficit)
£’000
(2,101)
(1,279)
(2,969)
(2,251)
(2,071)
Increase/
(Decrease)
in deficit
£’000
–
(822)
868
150
(30)
Ordinary shares 2p each
Deferred shares of 0.04p each
2014
Number
409,044,603
409,044,603
2014
£’000
8,181
8,181
2014
Number
35,797,769,808
35,797,769,808
2014
£’000
14,319
14,319
Ordinary shares 2p each
Deferred shares of 0.04p each
2014
Number
2014
£000
2014
Number
2014
£000
Total
2014
£’000
22,500
22,500
Total
2014
£000
Issued and fully paid at 1 January
101,624,020
2,033
35,797,769,808
14,319
16,352
Share options exercised
102,500
2
–
–
2
Issued and fully paid at 31 December
101,726,520
2,035
35,797,769,808
14,319
16,354
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
2014
Number
43,143
2013
Number
43,143
The shares held by the ESOP are expected to be issued under share option contracts.
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
Land and
buildings
2014
£’000
Plant and
machinery
2014
£’000
Land and
buildings
2013
£’000
Plant and
machinery
2013
£’000
882
256
1,138
26
–
26
1,098
474
1,572
40
19
59
Operating leases – lessor
Certain properties may have been vacated by the Group prior to the end of the lease term. Where possible the Group always
endeavours to sublet such vacant space. An onerous provision is recognised where the rents receivable over the lease term are
less than the obligation to the head lessor.
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Notes to the Accounts continued
26 Operating lease commitments continued
Operating leases – lessor continued
The total future minimum rents receivable under non-cancellable operating leases on sublet properties are as follows:
Continuing operations
Amounts receivable:
Within one year
Between two and five years
27 Contingencies
Land and
buildings
2014
£’000
Land and
buildings
2013
£’000
146
–
146
339
146
485
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 2014 was £855,000
(2013: £1,151,000). This comprises emoluments received, pension contributions, compensation for loss of office and share based
payment charges. Key management remuneration is disclosed in detail within the remuneration report.
Salary and fees
Other short term benefits
Post employments benefits
Compensation for loss of office
Share-based payments
29 Related party transactions
2014
£’000
772
28
20
–
35
2013
£’000
882
42
45
148
34
855
1,151
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
2014
£’000
399
2013
£’000
152
2014
£’000
–
2013
£’000
37
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.
Amounts incurred from Group subsidiaries
Amounts charged to Group subsidiaries
Operating
costs
2014
£’000
(621)
–
Finance
income
2014
£’000
–
917
Finance
expense
2014
£’000
(1,036)
–
Operating
costs
2013
£’000
(721)
–
Finance
income
2013
£’000
–
738
Finance
expense
2013
£’000
(978)
–
At 31 December, the Company had the following amounts payable to / recoverable from Group undertakings.
58
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
29 Related party transactions continued
Company continued
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
30 Subsidiaries
2014
£’000
2013
£’000
3,405
103,460
3,479
93,008
(7,393)
(4,961)
(99,296)
(89,806)
Transaction
Amount
2014
£’000
Transaction
Amount
2013
£’000
–
10
The principal subsidiaries of Parity Group plc, which have been included in these consolidated financial statements, are Parity
Professionals Limited, Parity Solutions Limited, Inition Limited and Golden Square Content Limited. Parity Professionals Limited
and Parity Solutions Limited are wholly owned by Parity Holdings Limited and incorporated in the United Kingdom. Inition Limited
and Golden Square Content Limited are wholly owned by SuperCommunications Limited and are incorporated in the United
Kingdom. SuperCommunications Limited is a direct subsidiary of Parity Holdings Limited, and Parity Holdings Limited is a direct
subsidiary of Parity Group plc.
Parity Professionals Limited is a specialist IT recruitment and talent management services company. Parity Solutions Limited
delivers technology solutions. Inition Limited specialises in 3D solutions and equipment. Golden Square Content Limited delivers
digital content production.
The Company’s investment in subsidiaries was reviewed for impairment at the year end based on the performance of 2014 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 (2013: £20,527,000). The assessment was
performed on a value in use basis using discount rates of between 6.5% and 8.0% (2013: between 6.8% and 11.9%) 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
2 Bath Pace
Rivington Street
London EC2A 3DR
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Corporate information
Registered office
2 Bath Place
Rivington Street
London, EC2A 3DR
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: 0871 384 2382
Advisors
Auditor
KPMG LLP
15 Canada Square
London
E14 5GL
Bankers
RBS Group
9th Floor
280 Bishopsgate
London
EC2M 4RB
PNC Business Credit
8-14 The Broadway
Hayward’s Heath
West Sussex
RH16 3AP
Calls to this number cost 8p per minute plus network extras.
Iines open 8:30 a.m. to 5:30pm.,
Monday to Friday (international callers: +44 121 415 7047).
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
Enquiries concerning shareholdings in Parity Group plc
should be directed, in the fi rst instance, to the Registrars,
Equiniti, as above.
Nominated advisors & brokers
Investec
2 Gresham Street
London
EC2V 7QP
Solicitors
Pinsent Masons
30 Crown Place
London
EC2A 4ES
Investor relations
MHP Communications
60 Great Portland Street
London
W1W 7RT
Tel: 020 3128 8100
Further information for shareholders including copies of the
Annual and Interim Reports can be obtained from the company
secretary’s offi ce at the registered offi ce address below or from
the Parity Group website at www.parity.net
The Company Secretary
Parity Group PLC
2 Bath Place
Rivington Street
London, EC2A 3DR
Or by email to: cosec@parity.net
60
Parity Group plc
Report and Accounts 2014
www.parity.net
stock code: PTY
PARITY GROUP PLC
Parity Group plc
2 Bath Place, Rivington Street, London EC2A 3DR
Tel: 0845 873 0790
Fax: 020 8545 6355
www.parity.net
stock code: PTY
Perivan Financial Print 235954
Parity Group plc Report and Accounts
Year ended 31 December 2014