PARITY GROUP PLC
(PTY.L) – LSE Ticker
Parity Group plc
Dawson House, 5 Jewry Street, London EC3N 2EX
Tel: 020 8543 5353
www.parity.net
stock code: PTY
Perivan Financial Print 244774
Parity Group plc Report and Accounts
Year ended 31 December 2016
Headlines
Parity Group plc (“Parity” or the “Group”), the UK information and
technology services group, announces its full year results for the year
ended 31 December 2016.
Results Summary
● Continuing Group1 revenues increased by 11% to £91.8m from £82.6m
● Continuing Group adjusted EBITDA2 increased by 47% to £2.2m from £1.5m (£2.5m including
discontinued operations {2015: £1.6m})
● Operating profi t before non-recurring items increased by 72% to £1.77m from £1.03m and
replaces adjusted EBITDA as a key measure of performance
● Profi t before tax of £0.96m (2015: loss before tax £3.27m)
● Earnings per share 0.87p (2015: loss per share 3.37p)
● Signifi cant increase in cash infl ow from operations to £3.4m (2015: £0.2m)
● Reduction in net debt to £4.4m (2015: £7.4m)
● Signifi cant reduction in non-recurring items before tax to £0.4m (2015: £3.7m)
● £15m fi nancing facility extended with PNC Bank on improved terms
Parity Professionals – Specialising in the sourcing and development of professional staff
● Revenue increased by over 10% to £86.4m (2015: £78.2m)
● Divisional contribution3 increased by 17% to £2.66m (2015: £2.28m)
Parity Consultancy Services – Niche expertise and technology solutions
● Revenue increased by 20% to £5.3m (2015: £4.4m)
● Divisional contribution3 increased by 30% to £0.91m (2015: £0.70m)
Operational Headlines
● Delivering against new growth strategy
o Continued progress following robust H1 performance. KPIs positive with improvement in revenues,
profi tability and cash in both businesses
● Aligned functions supporting further growth opportunity in higher margin services
o Functions are maintaining expertise in their services with a shift in momentum to managed service projects
o Parity Consultancy Services awarded two new signifi cant long-term contracts with a total opportunity of
£6.7m
● Development of Parity Consultancy Services (“PCS”)
o Strengthened sales focus on data driven technology solutions to deliver business intelligence and cost
modelling applications
● Strong cost controls maintained whilst self-funding organic growth
● Inition business held for sale to allow greater focus on the core business, with the eventual sales proceeds to
be used to support the development of PCS, and to further reduce debt
● Extension of signifi cant contracts including £1.4m for Military Capability Output Costing System (“MCOCS”)
business intelligence solution for MoD in the Consultancy division and FastStream graduate recruitment
programme into the Civil Service for Parity Professionals
● Reduced pensions contributions commenced in line with the improved payment terms on the legacy
pension defi cit
● Board of Directors enhanced with the appointment of David Firth as a Non-Executive Director, and the
announcement that John Conoley will shortly replace Lord Freeman as Non-Executive Chairman
1 The Continuing Group excludes the Inition service offering, which has been classified as discontinuing operations
2 In prior years, the directors used 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 to assess the performance of the business.
3 Divisional contribution in this narrative refers to the segment contribution before Group costs4, tax, interest, non-recurring items and share based payment charge.
4 Group costs include directors’ salaries and costs relating to group activities and are not allocated to reporting segments.
01
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Chairman’s Statement
Lord Freeman – Non-Executive Chairman
Financials
The Group’s financial performance in 2016 reflects the effectiveness of the changes initiated in the second half of 2015 and is
underpinned by the operational performance through the year as the strategy has been executed. On a Continuing Group basis,
revenues improved by 11.1% to £91.8m (2015: £82.6m), and operating profit before non-recurring items increased by 71.8% to
£1.77m (2015: £1.03m).
The Parity Board has taken the decision to divest the Inition service offering as it is not in-line with our strategic direction. Inition’s
performance has improved as the focus has shifted to Virtual Reality and Augmented Reality installations and whilst an exciting and
creative arena, it provides little opportunity for collaboration with the Continuing Group.
We have presented our results with Inition as a discontinued operation. The table below represents the impact of this decision on
the Group’s results for 2016.
Year Ended 31 December 2016
Adjusted EBITDA
Depreciation and share based charges
Operating profit/(loss) before non-recurring charges
Group
Continuing
Operations
£m
2.19
(0.42)
1.77
Group
including
Inition
£m
2.51
(0.86)
1.65
Inition
£m
0.32
(0.44)
(0.12)
Parity Professionals revenues improved by 10.5% to £86.4m (2015: £78.2m) with a corresponding increase in Divisional
Contribution of 16.7% to £2.66m (2015: £2.28m). The higher margin Parity Consultancy Services business is demonstrating good
trading momentum with an improvement in revenue of 20.5% to £5.3m (2015: £4.4m) supporting a significant 30.0% increase in
Divisional Contribution to £0.91m (2015: £0.70m).
Non-recurring costs and impairment have reduced significantly (from £3.7m in 2015 to £0.4m in 2016) and include the restructuring
costs associated with the previous strategy.
As a result of the restructuring and new focus of the Group, the Directors have decided to use Operating Profit as the key measure
to assess its performance, replacing adjusted EBITDA.
Cash, Dividend and Pension
The Group has been financially proactive, further strengthening the balance sheet with net debt at the year-end of £4.4m (2015:
£7.4m) from the strong cash generation performance, extending the finance facility, and maintaining strong working capital controls.
We have also improved the payment terms for our discontinued defined benefit pension scheme with the continued support of
the trustees.
PNC Bank has provided Parity’s banking arrangements since 2010 and the relationship remains strong. On 1 September 2016
Parity extended the £15 million finance facility to 31 December 2018 at an improved discount rate.
The Group has been restructured in line with the new strategy and as a result, in order to ensure funds remain available for further
investment in Parity’s growth, the Board is not recommending that a dividend is payable for 2016. We intend to keep this policy
under review.
Board
I have very much enjoyed my involvement with the Parity Group for many years and as we have moved to a new strategic direction I
have been happy to provide an element of stability and continuity. Nevertheless, as announced in October 2016, I intend to retire
shortly and am pleased that John Conoley has agreed to join the Board as the Group’s new Chairman, to help drive our future
strategic ambitions.
On 22 April 2016, Mike Aspinall stepped down as Group Finance Director and was replaced by Roger Antony. Roger has been with
Parity for over 18 years, holding the position of Group Financial Controller since 2006, and prior to that the role of Financial
Controller for the International Resources Division. Roger joined the Group after qualifying as an accountant in 1997, and previously
held managerial roles within a variety of listed entity finance departments. He has a thorough understanding, and experience, of the
IT Services sector.
As first announced on 31 May 2016, David Firth joined the Parity Board as a Non-Executive Director. David was Finance Director of
Penna Consulting plc and Finance Director of Parity Group in the 1990s and he has been able to make an immediate positive
impact with his directly related industry experience. On 6 October 2016, Neal Ransome stepped down from the Board after three
years’ service.
On behalf of the Board, I would like to thank both Neal Ransome and Mike Aspinall for their respective contributions to the Board.
02
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Report and Accounts 201 6
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Chairman’s Statement continued
Current Trading and Outlook
The Group has made significant progress in delivering growth in all the KPIs for both Parity Professionals and Parity Consultancy
Services. These improvements have been the result of organic growth in the specialist services of each business, and additionally
the result of collaboration across the businesses. One of the opportunities we highlighted at the interim results was the ability and
opportunity to cross-sell solutions to clients, supported by the consolidation of offices and unification onto a single CRM, which
improved communication whilst also reducing costs. The divestment of Inition underwrites the ambition of the strong management
team to focus on the core businesses as well as the significant opportunities for collaboration that have been demonstrated.
With early signs of success, the management team continues to work closely to identify opportunities for the wider business that will
further consolidate our relationship with key clients as a multi-channel partner of choice with the flexibility to adjust the delivery
model to suit specific needs.
The year has certainly seen the potential for wider market impact as we progress to a future outside of the EU and with a new
President of the U.S.A. The UK Government is also closely reviewing the employment status and tax-structure of the contractors
providing services into Government projects (IR35). Despite the UK proving resilient to the broader global macro-economic outlook,
there has been an increased level of uncertainty due to Brexit with a potential for this to impact both client and candidate confidence.
With a UK focus we are somewhat de-risked on the flux impacting the global markets, and to date we have seen minimal impact as
a result of Brexit. We do not anticipate significant supply side issues in relation to access to labour. At the time of writing it is too
early to fully appreciate the potential impact due to the review of IR35 Intermediaries Legislation which will apply from April 2017,
which is intended to reform off-payroll working practices within the Public Sector. This has the potential to impact supply into the
Public Sector with engagements less attractive to contractors which may result in higher costs to the clients. There have been
delays from HMRC in publishing final legislative guidance, including the tool to assess the tax status of our clients’ roles which has
created uncertainty, though we ensure regular communication to stakeholders on the latest updates. As a Group we are well
positioned to be able to deliver both service based solutions and contingent recruitment to best meet client and market demand.
The managed service propositions are an opportunity for growth in our Consultancy Services that we are exploring. We have formed
working parties to closely monitor changes, risks and opportunities driven by Brexit and IR35.
Notwithstanding the market influences, Parity Professionals expects to maintain steady progress with the usual seasonality through
2017, whilst maintaining investment in new sales staff to target opportunities aligned with the wider Group, business transformation
and leadership, and higher demand technology skills. This growth is being managed whilst adhering to our scalable structure
enabling effective and efficient cost control underwritten by our inclusion in the Recruiter Hot 100 for 2016.
Parity Consultancy Services is an exciting growth opportunity as illustrated by the two recent awards of long-term managed service
contracts for the delivery and support of IT solutions with a total opportunity of £6.7million which will be delivered by wrapping the
very best of the wider Group services into packaged solutions. We have the ambition to develop this part of the Group with an
increased focus on technical solutions to generate competitive advantage for our clients by transforming them into data guided
organisations. We will also develop close ties in supporting clients with business transformation and project management solutions
which are now being taken to market by our industry focussed consultants which will drive revenues for the wider Group.
Despite some elements of uncertainty in the market potentially delaying decision-making, Parity should continue to benefit from
improvements in the underlying markets, the cross-sell ability, and the increasing potential in new consultancy based solutions. This
is due to the Group’s ability to adapt to market conditions due to its breadth of offerings, which enable it to react quickly and
therefore, meet the evolving needs of our clients. With current trading in-line with our expectations, the Board remains confident in
the future of the business with a clear strategy supporting its’ commitment to increasing shareholder value through both organic
growth and targeted strategic investment.
The Board is dedicated to driving profitability, cash flow and shareholder value and looks forward to 2017 with confidence.
Lord Freeman
Non-Executive Chairman
22 March 2017
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03
Summary
Parity is a client-centric organisation, delivering a range of
services and scale rapidly to meet existing and new client
objectives. Our clients’ need for change is driven by both
advances in technology, and by the demands of their
customers with the market changing ever-more rapidly. Parity
Group, as both a people and technology provider, is ideally
placed to service our clients’ needs, enabling the changes
which will drive their growth.
We have aligned the businesses and clarified the proposition to
the market with proven capability to cross-sell. We have the
ambition to further develop higher margin services whilst
delivering improvements in all key metrics across both
businesses.
The Parity Board remains confident that we are well positioned
to become the clients’ technology partner of choice where they
seek efficiency and competitive advantage. We will leverage our
established Parity Professionals business to build a strong and
stable consultancy brand, which is intended to in turn increase
revenues, generate further positive cash flows and improve
shareholder value.
Strategy
Alan Rommel – Chief Executive Officer
Parity Group is:
Driving Change, People Led, Technology Enabled
Parity has created a well-established, stable and robust
business model. We provide managed IT services, supported
by expertise and a depth of industry understanding, in order to
align the skills that clients require in their market sector. We are
now ideally placed to provide clients with the people they need
and the technology that will enable them to drive change
through two strongly defined and complementary
business units.
Parity Professionals
This division provides targeted recruitment of temporary and
permanent professionals and leadership development to
support business change. We ensure our clients have both the
capacity and capability to transform organisational performance
in high growth and rapidly evolving markets.
Parity Consultancy Services
This division is focused on niche expertise driven by senior
industry-experienced consultants, exploiting technology and
generating competitive advantage for our clients by
transforming them into data guided organisations.
We clarified a 3 year plan focused on growth, market leadership
and future investment, to be achieved by organically expanding
our established offerings and targeting strategic investment
where we identify aligned opportunity in the higher margin
consultancy proposition.
Growth
Whilst both businesses have grown independently, we have
also identified the synergies between them and are now starting
to deliver these benefits to our clients, which in turn is beneficial
for the Group. This provides us with the opportunity to develop
a much more balanced business through solutions that are of
greater value to the client and can command higher margins.
We expect this to lead to increased project revenue over longer
durations and improves forward looking visibility for our
business. Our flexible delivery structure also supports greater
agility, with a rapidly scalable and cost-effective model.
Market Leadership
Each business has its own direct sales team to ensure the
depth of understanding in their area of expertise and the quality
of service, but we have aligned the structure to facilitate
collaboration. Clients can benefit from the breadth of our
capability to select the best solution to meet their exact needs
at that time, be that individual services or an integrated solution.
This is supported by the strengthening of our shared bids and
marketing functions and scheduled further investment in our
websites and social media presence.
Future Investment
Whilst we are investing internally in marketing, sales and new
services to target the higher margin consultancy and managed
service propositions, it should be expected that there is a
lead-time to build momentum. The Parity Board is ambitious
and whilst 2016 has been focussed on establishing the
structure and organic growth, at the right point we will actively
engage in reviewing bolt-on opportunities to enhance and
accelerate the development of the higher margin consultancy
offerings in aligned services and growing sectors.
04
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stock code: PTY
Operating Review
PARITY PROFESSIONALS
Overview
Parity Professionals has a clear ‘people’ focus – building
capacity and capability for our clients to transform
organisational performance. We provide targeted recruitment of
temporary and permanent professionals and leadership
development to support business change. This broader
capability has elevated the proposition for the recruitment and
placement services with the added benefit of differentiation
through leadership and coaching services for our clients to
support large change programmes. We make significant
change programmes easier for our clients through our broad
range of integrated HR services – from graduate recruitment
and induction through to delivering high demand IT specialists
and business transformation services.
We strive to provide a more consultative range of services to
our clients, adding value and strengthening the relationship and
securing repeat business.
Revenues in the year improved by 10.5% to £86.4m (2015:
£78.2m) with divisional contribution increasing by 16.7% to
£2.66m (2015: £2.28m) with all operating overheads allocated
to the business.
The IT Resources Offering
Client side demand and recruitment activity levels remained
strong through the year in both contract and permanent
markets. The increased volumes in opportunity and in
placements delivered consistent growth though the rate of
growth softened in the fourth quarter where uncertainty on IR35
increased contractor churn and we identified a reduction in
average order value with shorter durations. Despite the impact,
the increased sales levels ensured the business delivered
improvement in all the primary KPIs including volumes (average
number of contractors on billing increased by 13% vs 2015),
margins (average weekly gross profit improved by 19% against
2015), and permanent placement fees (improved by 34%
vs 2015).
Demand for skills in the IT sector continues to outstrip supply
and remains an opportunity for organic growth, especially in the
contract market when combined with the demographic shift we
are experiencing with younger workers looking for more flexible
working as part of the ‘Gig Economy’. Research from the UK
Careers and Employability Service has predicted a 20% growth
in employment for the IT sector to 2024 which is the highest
growth in any of the main sectors of the UK economy, with a
need for 518,000 additional workers within the highest skilled
occupational groups in the digital arena by 2022.
We are afforded some protection against recruitment process
outsourcing due to our focus in high demand IT skills, and close
client relationships, through being able to offer a broad range of
solutions, including collaborations with Parity Consultancy
Services enabling managed service solutions. We also develop
and maintain strong relationships with our contractor base,
underwritten by good service and high levels of engagement
– in 2016, 93% of candidates rated the responsiveness of our
recruitment consultants to issues as “Excellent” or “Very Good”.
The focus for our resourcing offering remains on contract
placements with higher overall profitability over their full duration
and the stability it provides to our forward-order book. It is
important to balance this with an ability to provide a permanent
recruitment service to lock-in client engagement, and further
build our brand in the candidate and client community for niche
skills. The growth in our permanent business has been primarily
due to targeting skills verticals such as the digital sector,
infrastructure and information security.
This is a resilient business and we need to maintain targeted
strategic investment in new areas to support longer term
organic growth. We have proven our resilience to adapt to
market conditions, and through tough times we have by
necessity applied appropriate close cost controls in the core
business whilst ensuring sustained profitability as evidenced by
our inclusion in the Recruiter Hot 100 which assesses
profitability per head.
The Talent Management Offering
As a relatively small team, our Talent Management specialists
have re-engineered their offering to be more streamlined and
focussed upon ‘Leadership Development’ with the ability to
apply this to different audiences from graduate level through to
senior management. This more productised delivery solution
has proven successful with our clients and simplifies scalability
and replication. The focus for new sales activity has moved to
mainland GB from Northern Ireland which has improved the
average fee rates, average project value and reduced reliance
on public sector spend.
PARITY CONSULTANCY SERVICES
Overview
Whilst still able to deliver broader technical solutions with some
established contracts, the Technical Solutions team have
refined their sales offering to target data solutions to assist
clients in generating competitive advantage by transforming
them into data guided organisations.
We have supplemented our clients’ technical teams by
recruiting Practice Heads with sector expertise to drive
Business Consultancy opportunities in Health, Utilities and
Defence where we have established relationships to leverage,
and we have identified that there is significant change driven by
legislative or industry evolution.
Growth in the Consultancy Services business creates much
better balance with strong, higher margin and higher value
sales linked with greater project and recurring revenue.
Technical Solutions Offering
At the core of the Parity Consultancy Services business, the
Technical Solutions offering helps our clients by developing,
delivering and supporting IT projects with niche expertise to
provide efficiency gains and competitive advantage. This
creates an important differentiator between the people-led
Parity Professionals business and the solution driven Parity
Consultancy Services though the two businesses complement
each other as we supplement our in-house development teams
with expertise provided by Parity Professionals.
Technical solutions to a rapidly evolving market have been at
the core of Parity Group’s services from the very beginning and
we will build upon this reputation with an offer more directly
related to the fast-growing data solutions software market. This
is not new as ‘Information technology’ has always been about
successful storage, interrogation and interpretation of
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05
Operating Review continued
information, but the volumes of data have increased
exponentially whilst the sources multiply. ‘Data’ is a currency
with real value, but to leverage that value, the data needs to be
collated and interrogated to enable decision making and drive
targeted campaigns.
Our Data Consulting proposition supports the client transition to
becoming a Data-guided organisation, clarifying its:
development service with the benefit of being able to deliver all
of this through the wider Parity Group.
Current sectors are complementary to the wider business in
Health, Utilities and Defence, where we have experience and
understand the opportunity due to market dynamics or
legislation. We intend to diversify into additional sectors where
we identify strong opportunity as the offering gains momentum.
SUMMARY
In an increasingly complex landscape, Parity is uniquely placed
in being able to offer clients multi-channel access to the best
solution to fit their needs – a consultancy that understands the
challenges they face in their markets, supporting and
developing their leadership team, plus flexible access to skills
for the management and delivery of projects to give competitive
advantage with data driven decision making.
We have strong visibility of skills that are in demand across
different sectors through Parity Professionals and can use this
to our benefit with the ability to redirect focus to new and
emerging trends without recruitment and development
start-up delays.
With increased clarity of a more aligned and targeted business
strategy, and with an underlying strength in the business model,
we have leveraged several cross-selling opportunities at higher
values, leading to long-term orders. We are confident that the
business provides further enhanced growth opportunities,
positive cash flows and shareholder value.
Alan Rommel
Chief Executive Officer
22 March 2017
• Data Strategy
• Data Usage
• Data Governance
• Data Management
That leads into the technology solution and the development
and implementation of applications to support all the above,
including:
• Data Collection
• Storage
• Management
• Security
• Analysis
• Visualisation
• Monetisation
The development team have secured a further extension to the
Military Capability Output Costing System (MCOCS), a major
Business Intelligence programme for the MoD worth an
additional £1.4 million over the next two years. This team is
supplemented with interim technology skills resourced by
Parity Professionals.
We have replicated this success with the award of two longer-
term project based orders with an opportunity of £6.7m with
two new clients for Parity Consultancy Services as we establish
our managed service offering. The business has successfully
tendered for the G-Cloud and the Digital Outcomes and
Specialists frameworks which provide access to our specialist
services to Public Sector clients.
We continue to benefit from a high level of repeat business with
strong relationships developed through our customer centric
approach. In 2016, we achieved greater efficiency, with an
improvement in internal delivery staff utilisation to 80%
(2015: 73%). The new projects and frameworks, provide
additional opportunity in the future pipeline and generate
continuing recurring revenue, giving enhanced forward visibility
of our order-book and cashflow.
Business Consultancy Offering
The Practice Heads have been recruited, and are now raising
their profile with propositions that support clients in the
adoption of change, getting the most from both their people
and technology. They offer initial diagnostics to facilitate and
review business change programmes, clarify outcomes, and
understand existing capabilities to then support clients through
the transformation. The client solutions can range from
contingent access to niche specialist knowledge and skills,
through to project management, and creating a full
06
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Report and Accounts 201 6
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stock code: PTY
Financial Review
Roger Antony – Group Finance Director
Overview – Continuing Operations
Revenue
Adjusted EBITDA
Operating Profit before non-recurring items
Net Debt
Operating Margin %
Net Debt/Adjusted EBITDA ratio
2016
£’000’s
91,764
2,187
1,766
(4,386)
1.9%
2.0
2015
£’000’s
82,607
1,531
1,026
(7,379)
1.2%
4.8
Incr./(Decr.)
%
11.1%
42.8%
72.1%
(40.6%)
Group revenue in the year increased by 11% from £82.6m to £91.7m, with growth in both divisions. The revenue growth has
translated to a 72% increase in Group operating profit before non-recurring items, with Group operating margins improving from
1.2% to 1.9%. During 2016 we have made significant progress towards strengthening the balance sheet, with the Net Debt/
Adjusted EBITDA ratio at the end of year improved to 2.0x (2015: 4.8x).
We have decided to sell the Inition subsidiary, as it is not aligned to the current Group strategy. Accordingly, the Inition service
offering is presented as “Assets Held for Sale” and its financial results for 2016 and 2015 presented as “Discontinued Operations”.
Inition’s results were previously included in the Parity Consultancy Services division.
Divisional performance
Revenue
Parity Professionals
Parity Consultancy Services
Group Revenue
Divisional Contribution
Parity Professionals
Parity Consultancy Services
Total Divisional Contribution
2016
£000’s
2015
£000’s
Incr.
%
86,419
5,345
91,764
78,190
4,417
82,607
2,660
910
3,570
2,276
698
2,974
10.5%
21.0%
11.1%
16.9%
30.4%
20.0%
Both divisions grew revenues and contribution during the year. The increase in Group revenues is mainly as a result of the 10.5%
increase in revenues in the Professional’s division. The growth was predominately driven by an increase in contractor volumes, with
average contractor numbers on billing increasing to 1,009 (2015: 891).
Parity Consultancy Services revenues were enhanced by the ongoing work on the MCOCS contract for the MoD during the year,
as well as continued work with BAT. The division invested in three new senior Practice Heads in H2 2016, to support the Group’s
strategic growth plans.
Reconciliation of divisional contribution to operating profit/(loss) from continuing operations
Divisional contribution
Group costs
Depreciation and amortisation
Share-based payment charges
Operating profit before non-recurring items
Non-recurring items (continuing operations)
Impairment
Operating profit / (loss) from continuing operations
2016
£’000
3,570
(1,383)
(365)
(56)
1,766
(355)
–
1,411
2015
£’000
2,974
(1,443)
(357)
(148)
1,026
(1,731)
(1,994)
(2,699)
07
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Financial Review continued
Group costs reduced to £1.38m (2015: £1.44m) as a result of the cost reduction programme implemented in 2015. Share based
payment charges have fallen due to a one-off credit under “bad leaver” provisions.
Non-recurring items
Continuing operations
Write down of GPSeer
Impairment loss
Restructuring costs
– Employee benefit costs
– Write down of tangible fixed assets
– Other operating costs
Transaction costs
Property provisions
Insolvency dividend
2016
£’000
267
–
2015
£’000
–
1,994
260
1,077
–
36
52
46
(306)
355
341
126
125
62
–
3,725
Impairment
The £0.27m write down charge in 2016 relates to the full write down of GPSeer, an initiative under the previous Digital strategy to
develop a cutting-edge internet search engine. No further development work has been performed by the Group since the change in
strategy. In 2015, an impairment loss of £1.99m was recorded in respect of the Inition service offering.
Other non-recurring items
Employee benefit costs relate to compensation payments incurred in downsizing the Talent Management service offering in Northern
Ireland, and Board changes aligned to the Group’s strategy. The insolvency dividend relates to a one-off payment received in 2016
from the administrators of a legacy overseas subsidiary.
In 2015, employee benefit costs related to compensation payments incurred in exiting the digital acquisition strategy, the
streamlining of the Board and the closure of the Golden Square Content service offering. The impairment of tangible fixed assets
relates to the closure of Golden Square.
Earnings per share and dividend
The basic earnings per share from continuing operations was 0.87 pence (2015: loss per share 3.37 pence).
The Board does not propose a dividend for 2016 (2015: nil), but will continue to review this policy each year.
Statement of Financial Position
Intangible assets
Following the decision to sell the Inition service offering, the associated goodwill of £1.17m, and related other intangible assets of
£0.15m, have been reclassified as “Assets held for sale” at the balance sheet date.
The intellectual property in relation to GPSeer of £0.12m was written down.
Trade receivables and accrued income
Trade and other receivables decreased by £1.2m to £14.4m (2015: £15.6m). Of this movement, £0.9m was due to the
reclassification of Inition’s assets, and £0.3m broadly due to an improvement in debtor days. At the end of the year, calculated on
billings on a countback basis, debtor days decreased to 29 days (2015: 31 days).
Trade and other payables
Trade and other payables increased during the year to £9.1m (2015: £8.6m). The increase is after the reclassification of £0.5m of
liabilities relating to Inition, and relates to an increase in fees in advance of £0.3m and timing differences in the Parity Professional’s
contractor payment cycle. At the end of the year, creditor days were 26 days (2015: 26 days).
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 with PNC provides for borrowing
of up to £15m depending on the availability of appropriate assets as security. The current facility was renewed on 1 September
2016, and runs until the end of 2018. Upon renewal, the interest rate applied to borrowings improved to 2.35% from 2.50% over the
prevailing base rate.
08
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Report and Accounts 201 6
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stock code: PTY
Financial Review continued
Cash flow and net debt
The Group generated positive net cash flows from operating
activities of £3.4m (2015: £0.2m), helped by an increase in
client fees received in advance of £0.6m (includes £0.2m from
Inition), and a one-off receipt of £0.3m in respect of a legacy
overseas subsidiary.
As a result of the positive cash flow, net debt reduced to £4.4m
(2015: £7.4m).
Pension Fund
In March 2016, we reached agreement with the trustees of
the defined benefit pension scheme to reduce deficit reduction
contributions. Following a contribution holiday, the Group
resumed payments in April 2016, commencing with a lump
sum payment of £0.1m, and followed be reduced monthly
amounts. The agreement will help the Group’s interest cover
ratio and cash generating capability.
At the end of the year the deficit increased to £1.85m (2015:
£1.49m), primarily due to lower bond yields, which resulted in
a lower discount rate used to calculate scheme liabilities. There
was a good return on plan assets which partially offset the
increase in scheme liabilities.
Principal risks and uncertainties
Specific present risks, such as Reform of the Intermediaries
Legislation (IR35) are discussed in the Chairman’s Report on
pages 2 and 3.
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 public sector budget
reductions and changes to recruitment.
The Group trades almost exclusively in the UK, and is 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
opportunities in the Parity Professionals division and the new
growth areas for the Parity Consultancy Services 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 its 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.
Roger Antony
Group Finance Director
22 March 2017
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09
Board of Directors
Lord Freeman1, 2, 3
Non-Executive Chairman
Roger Freeman, 74, was appointed Non-Executive Chairman in
November 2015 and is Chairman of the Remuneration and
Nominations Committees. Roger joined as a Non-Executive
Director in 2007. 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 was chair of their UK
Advisory Board. He is Chairman of the Trustees of the Thales
UK Pension Fund.
David Firth1, 2, 3
Non-Executive Director
David Firth, 56, was appointed to the Board as a Non-Executive
Director on the 14 September 2016, and is Chairman of the
Audit Committee. David was previously the Finance Director of
Penna Consulting plc for over 16 years and has a wealth of
experience in the people management and consultancy
markets. Prior to that, David has held senior finance positions in
public companies across a number of sectors including
financial markets, recruitment, IT services, motor retailing and
advertising. He was a member of the finance team at Parity for
the period 1993 to 1999 and served as its Group Finance
Director from 1995.
Alan Rommel
Chief Executive Officer
Alan Rommel, 45, is the Chief Executive Officer of Parity and
was appointed to the Board in August 2015. Alan joined Parity
following completion of his degree in Economics and Business
Studies from the University of Sheffield. Alan is a specialist in
the sector with over 20 years’ recruitment experience and a
solid understanding of the industry. He spent 5 years as MD of
Parity Resources before promotion in 2013 to CEO of Parity
Professionals which was created by combining the recruitment
and talent management services. In addition to holding a
number of senior posts within the Parity Group, Alan was
elected to the APSCo (The Association of Professional Staffing
Companies) Executive Committee for 3 terms covering the
period 2010 – 2014.
Roger Antony
Group Finance Director
Roger Antony, 49, is the Group Financial Director and was
appointed to the Board on 22 April 2016. Roger had been with
Parity for over 18 years prior to his appointment, holding the
position of Group Financial Controller since 2006, and prior to
that the role of Financial Controller for the International
Resources Division. Roger joined the Group after qualifying as
an accountant in 1997, and previously held managerial roles
within a variety of listed entity finance departments. He has a
thorough understanding, and experience, of the IT
Services sector.
1 Member of the nominations committee
2 Member of the remuneration committee
3 Member of the audit committee
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Report and Accounts 201 6
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stock code: PTY
Directors’ Report
The Directors present their report and the audited accounts for
the year ended 31 December 2016.
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 Parity
Consultancy Services.
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
2016 its clients’ market sectors included central and local
government within the public sector and Utilities, FMCG,
Insurance, Oil, and Transport in the private sector.
The principal activities of the Parity Consultancy Services
division comprise business intelligence solutions, technology
solutions and business consultancy services. Parity
Consultancy Services delivered its services during the year to
central government departments in the public sector, and to
FMCG and Legal 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, Strategy, Operating Review and Financial Review on
pages 2 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 profit from continuing operations before taxation for
the year was £959,000 (2015: loss of £3,265,000) after
charging non-recurring items of £355,000 (2015: £3,725,000).
After a tax expense of £75,000 (2015: £164,000) and a loss
after tax from discontinued operations of £78,000 (2015:
£490,000), the retained profit of £806,000 (2015: loss of
£3,919,000) has been transferred to reserves. The results for
the year are set out in the consolidated income statement on
page 24.
Philip Swinstead
Hargreave Hale Limited
Timothy Watts
David Courtley
Citrine Investments
Dominion Holdings
Killik Asset Management
Barclays Wealth
Halifax Share Dealing
Brewin Dolphin
Dividends
The Directors do not recommend a final dividend (2015: nil
pence per ordinary share). The total dividends for the year were
nil pence per ordinary share (2015: 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 31 May 2016, to purchase in the
market 10,182,402 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
22 March 2017 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,
David Firth, who was appointed after the announcement of the
2016 AGM, will retire and offer himself for re-election at the
2017 Annual General Meeting.
The Company’s Articles of Association also require that each
Director retire from office and seek reappointment at the third
annual general meeting after the general meeting at which he
was last appointed, or reappointed. Lord Freeman is due for
re-election at the next AGM, however, as announced on
6 October 2016, he intends to retire from the Board and work is
underway to appoint a successor.
Directors’ interests
The Directors’ beneficial interests in the ordinary share capital of
the Company are set out within the remuneration report on
page 22.
Principal shareholders
At the close of business on 8 March 2017 (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
14,673,939
12,596,050
8,225,000
6,566,031
5,558,766
4,950,000
4,680,667
3,634,673
3,308,434
3,187,454
14.37
12.33
8.05
6.43
5.44
4.85
4.58
3.56
3.24
3.12
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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.
Political donations
There were no political donations made by the Group during the
year (2015: none).
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
Roger Antony
Director
22 March 2017
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
During 2016 a number of factors improved the Group’s financial
position. Firstly, the Group’s strong cash performance resulted in
a reduction of the Group’s net debt, from £7.4m to £4.4m.
Secondly, the Group’s £15.0m asset-based facility, which is
used to finance working capital requirements, was extended
until 31 December 2018. Also in 2016, the Group reached
agreement with the Trustees of the defined benefit plan to
reduce the level of contributions.
The Directors have reviewed the Group’s cash flow forecasts for
the period to 31 December 2018, taking account of reasonably
possible changes in trading performance. After making
appropriate 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, except for the finance facility
agreement with PNC. There are no 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.
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Social, Environmental and Ethical Policies
Employment policies
As a professional services business, Parity’s strength derives
from the commitment, capability and cultural diversity of its
employees. The Group aims to adopt a policy of diversity at all
levels including selection, role assignment, teamwork and
individual career development. The Group encourages the
participation of all employees in the operation and development
of the business by offering open access to senior management,
including the Executive Directors, and adopting a policy of
regular communications through road shows and the intranet.
The Group also encourages all employees to participate in an
annual employee survey. The survey is administered by an
independent organisation and responses are anonymous.
Results are communicated to staff with proposed actions to
address any identified issues.
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 support national charities and also become
involved in their local communities and fund raising events.
The Group encourages employees who undertake volunteer
work and firmly believes that the experience gained contributes
to the individual’s personal development. Where possible, the
Group provides flexibility with working hours to accommodate
such commitments outside of work.
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 where
this is appropriate for their role.
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.
Paper usage
The Group constantly strives to implement paper-saving practices
to reduce wastage. Examples include: electronic timesheets,
E-invoicing, E-payslips, and electronic expense claims.
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.
Modern Slavery Policy
Parity Group has a zero-tolerance approach to modern slavery,
and is committed to acting ethically and with integrity in all its
business dealings and relationships, and to implement and enforce
effective systems and controls to ensure modern slavery is not
taking place anywhere in its own business, or its supply chain.
In accordance with the requirements of the Modern Slavery
Act 2015, the Group has published its anti-slavery statement on
its website.
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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 2014 (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 to 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 pages
1 1 and 12.
The workings of the Board and its Committees
The Board
At the date of this report, the Board comprises the Non-
Executive Chairman, Lord Freeman, Non-Executive Director,
David Firth, Group Chief Executive, Alan Rommel and Group
Finance Director, Roger Antony. During the year Mike Aspinall
stepped down as Group Finance Director on 22 April 2016, and
Neal Ransome stepped down as a Non-Executive Director on 6
October 2016. Roger Antony joined the Board on 22 April 2016
as Group Financial Director, and David Firth joined the board as
Non-Executive Director on 14 September 2016. The table on
page 20 sets out the dates of tenure of the current Directors on
the Board. The Directors’ biographies, which are set out on
page 1 0, illustrate the range of business backgrounds, skills,
independence and experience contributed by each
Board member.
Non-Executive Chairman
The Non-Executive Chairman, Lord Freeman, 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. Annual appraisals are held of
each Director, providing feedback and reviewing any training or
development needs. The Chairman is also responsible for
effective communications with shareholders, and relaying any
shareholder concerns to the Directors. During the year the
Non-Executive Chairman met the Non-Executive Directors
without the Executive Directors present.
Senior Independent Director
Neal Ransome acted as Senior Independent Directors until he
stepped down on 6 October 2016. He was an additional
contact point for shareholders if they had reason for concern,
when contact through the normal channels of the Executive
Directors and Chairman had failed to resolve their concerns, or
where such contact was inappropriate. David Firth became the
de facto Senior Independent Director when Neal Ransome
stepped down.
Re-election of Directors
Directors appointed since the last annual General Meeting, and
those retiring by rotation will submit themselves for election or
re-election at the next Annual General Meeting, as set out in the
Directors’ report on page 1 1 and in the separate Notice of
Annual General Meeting sent to all Shareholders. The Non-
Executive Chairman confirms that the performance of each
Director continues to be effective and the individuals continue to
demonstrate commitment to their 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
which was reviewed during the year and includes a 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 November 2015.
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
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 businesses are divided into two separate
divisions, Parity Professionals comprising Parity Resources and
Talent Management and Parity Consultancy Services comprising
Parity Solutions and Inition. Each business has a Managing
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Report and Accounts 201 6
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stock code: PTY
Corporate Governance Report continued
Director. The operational boards of each business meet monthly.
The meetings are attended by the Group Chief Executive and/or
the Group Finance Director and 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 Non-Executive Chairman
was reviewed by the other Non-Executive 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.
Number held
Number attended1
Lord Freeman
David Firth2
Alan Rommel
Roger Antony3
Neal Ransome4
Mike Aspinall5
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. The Board has a
range of 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 greater diversity amongst its members.
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 11 scheduled Board meetings and 6 ad hoc
Board meetings were convened as necessary to deal with
various matters. Details of attendance at Board meetings is
summarised below. Committee attendance is shown for
Committee members only.
Board
17
14/17
4/4
17/17
12/12
13/14
4/5
Audit
Nomination
Remuneration
3
3/3
1/1
–
–
2/2
–
4
4/4
2/2
–
–
2/2
–
4
4/4
1/1
–
–
3/3
–
1 All Directors who were members of the Board at the time attended the Group’s Annual General Meeting on 31 May 2016
2 Appointed to the Board 14 September 2016
3 Appointed to the Board 22 April 2016
4 Stepped down from the Board 6 October 2016
5 Stepped down from the Board 22 April 2016
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
David Firth was appointed Chair of the Audit Committee after
Neal Ransome stepped down on 6 October 2016. Details of
Davids’s recent and relevant financial experience are set out in
his biography on page 1 0. The Audit Committee meets three
times a year. Lord Freeman is the other member of the Audit
Committee.
Audit committee meetings are attended by the external auditors
and all of the Executive Directors, at the invitation of the
Committee. 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;
• 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
15
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Corporate Governance Report continued
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 risk management framework and risk
assessments;
• 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
non-audit related services, including work in relation to
shareholder circulars and similar services. The external auditor
provided non-audit related services during 2016, details of
which are set out in note 3 to the accounts.
Remuneration Committee
The Remuneration Committee comprises both Non-Executive
Directors and is chaired by Lord Freeman. Details of the
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.
David Firth became a member after Neal Ransome stepped
down on 6 October 2016.
Nomination Committee
The Nomination Committee comprises both Non-Executive
Directors and is chaired by Lord Freeman. David Firth became a
member after Neal Ransome stepped down on 6 October 2016.
The Committee 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. Following this
process, recommendations are then made by the Committee to
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
Nomination 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 Group and parent company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare group and
parent company financial statements for each financial year.
Under that law they are required to prepare the group financial
statements in accordance with IFRSs as adopted by the EU and
applicable law and have elected to prepare the parent company
financial statements on the same basis.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the group and parent company and
of their profit or loss for that period. In preparing each of the
group and parent company financial statements, the Directors
are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable
and prudent;
• state whether they have been prepared in accordance with
IFRSs as adopted by the EU; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and the
parent company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
company’s transactions and disclose with reasonable accuracy
at any time the financial position of the parent company and
enable them to ensure that its financial statements comply with
the Companies Act 2006. They have general responsibility for
taking such steps as are reasonably open to them to safeguard
the assets of the group and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Directors’ Report that complies with
that law and those regulations.
16
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Report and Accounts 201 6
www.parity.net
stock code: PTY
Corporate Governance Report continued
This confirmation is given and should be interpreted in
accordance with the provisions of s418 of the Companies
Act 2006.
Roger Antony
Company Secretary
22 March 2017
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 AIM company requirements
governing the preparation and dissemination of financial
statements. 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 materially
complies with the Financial Reporting Council’s Risk
Management, Internal Control and Related Financial and
Business Reporting September 2014 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 Group 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 9.
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 ought to have
taken as a Director in order to make himself aware of any
relevant audit information and to establish that the
Company’s auditors are aware of that information.
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Remuneration Report
Remuneration committee
The Remuneration Committee comprises Lord Freeman as
Chairman, and David Firth who joined on 14 September 2016.
Neal Ransome was a member in the year until 6 October 2016.
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 Plan 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 in relation to the defined benefit scheme and
advice is taken on an ad hoc basis in relation to the defined
contribution scheme. 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 2016 are set out
in the table on page 21.
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 three key elements of the remuneration package of senior
executives, including Executive Directors, in the Group in 2016
were basic annual salary and benefits in kind; 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.
18
Parity Group plc
Report and Accounts 201 6
www.parity.net
stock code: PTY
Performance bonus
The terms of an incentive bonus for Executive Directors are
agreed annually. For 2016 no target was set and no
performance bonuses were earned by, or paid to, Executive
Directors in 2016.
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 2016 the Group operated two types of share option
scheme: An Executive Share Option Plan, and a Savings
Related Share Option Scheme (Sharesave Scheme). There are
currently no live options under the 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 15 April 2009 150,000 share options were awarded under
this scheme to Alan Rommel. The exercise price of the options
is 9 pence, and the options are subject to a performance
condition based upon the Group’s share price outperforming
the average total shareholder return of a comparator group of IT
companies. The options vested after 3 years and the
performance condition was met. The options lapse in 10 years
from the grant date if not exercised.
On 19 May 2010 a further 150,000 share options were
awarded under this scheme to Alan Rommel and 100,000
share options were awarded under this scheme to Roger
Antony. The exercise price of the options is 8.75 pence, and the
options are subject to a performance condition based upon the
Remuneration Report continued
Group’s share price outperforming the average total
shareholder return of a comparator group of IT companies. The
options vested after 3 years and the performance condition
was met. The options lapse in 10 years from the grant date if
not exercised.
On 28 September 2010 a further 100,000 share options were
awarded under this scheme to Alan Rommel. The exercise
price of the options is 7.5 pence, and the options are subject to
a performance condition based upon the Group’s share price
outperforming the average total shareholder return of a
comparator group of IT companies. The options vested after
3 years and the performance condition was met. The options
lapse in 10 years from the grant date if not exercised.
On 8 March 2013 a further 160,000 share options were
awarded under this scheme to Alan Rommel and a further
20,000 share options were awarded to Roger Antony. 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 vested after 3 years and the
performance condition was met. The options lapse in 10 years
from the grant date if not exercised.
On 18 March 2014 a further 600,000 share options were
awarded under this scheme to Alan Rommel and a further
160,000 share options were awarded to Roger Antony. 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 from the grant date if not exercised.
On 27 November 2014 2,000,000 share options were awarded
under this scheme to Andy Law. The exercise price of the
options was 16.75 pence, and the options were 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 would have vested in 3 years and lapse in 10 years
from the grant date if not exercised. However, Andy Law
stepped down from the Board on 13 August 2015, and his
options lapsed on his termination date 1 March 2016.
On 19 September 2016 a further 1,500,000 share options were
awarded under this scheme to Alan Rommel and a further
800,000 share options were awarded to Roger Antony. The
exercise price of the options is 8.62 pence and the share
options granted have been divided into thirds with each third
being subject to the following performance condition:
i)
To exercise the first third (1/3 in total) of the share options
awarded, the share price must be greater than or equal to
10.74 pence for 5 consecutive days.
ii) To exercise the second third (2/3 in total) of the share
options awarded the share price must be greater than or
equal to 12.93 pence for 5 consecutive days.
iii) To exercise the final third (100% in total) of the share options
awarded the share price must be greater than or equal to
15.08 pence for 5 consecutive days.
The options will vest in 3 years and lapse in 10 years from the
grant date if not exercised.
Sharesave schemes
All UK employees, including the Executive Directors, are eligible
to participate in the Group’s savings related option scheme
(Sharesave Scheme) which enables them to subscribe for
ordinary shares in the Company. Options granted under the
Sharesave Scheme do not have performance related conditions
attached to them.
There were no grants made under the Sharesave scheme
in 2016.
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. 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.
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Remuneration Report continued
Share price
The Parity Group plc mid-market share price on 31 December 2016 was 9.75 pence. During the period 1 January to 31 December
2016 shares traded at market prices between 6.88 pence and 14.50 pence.
Directors’ pension information
Alan Rommel and Roger Antony are entitled to a contributory company pension contribution of 5% of basic salary. Up until 30 June
2014, Paul Davies was entitled to a non-contributory company pension contribution of 11% of basic salary. As from 1 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 as a director, up to the date he stepped down from the board. Mike Aspinall and Alastair Woolley were entitled to a
contributory company pension contribution of 5% of basic salary up to their dates of resignation. Andy Law was entitled to a
contributory company pension contribution of 2% of basic salary up to his resignation.
Non-executive Directors’ remuneration
The Board determines the remuneration of the Non-executive Directors with the benefit of independent advice when required. The
fees are set at a level which will attract individuals with the necessary experience and ability to make a significant contribution to the
Group and are benchmarked against those fees paid by other UK listed companies.
The Non-executive Directors do not receive bonuses or pension contributions and are not eligible for grants under any of the
Group’s share incentive schemes. They are entitled to be reimbursed for reasonable expenses incurred by them in carrying out their
duties as Directors of the Company.
Service contracts and letters of appointment
The Group’s policy is that no Director has a service contract with a notice period of greater than one year or has provision for
pre-determined compensation on termination which exceeds one year’s salary, bonus and benefits in kind. Non-executive Directors
have letters of appointment which set out the terms of their appointments. All Board appointments are subject to the Company’s
articles of association.
Contractual arrangements for current Directors are summarised below:
Director
Lord Freeman1
Alan Rommel
Roger Antony
David Firth1
Contract date
Notice period
Contractual termination payment
1 July 2007
12 August 2015
22 April 2016
31 May 2016
n/a
12 months
6 months
n/a
n/a
12 months rolling
6 months rolling
n/a
1 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.
20
Parity Group plc
Report and Accounts 201 6
www.parity.net
stock code: PTY
Remuneration Report continued
Directors’ remuneration
The remuneration of the Directors who served during the year is set out below:
Salary/
fees
2016
£’000
200
96
48
40
13
31
428
Salary/
fees
2015
£’000
56
41
228
114
125
65
40
40
17
732
Executive Directors
A Rommel
R Antony1
M Aspinall2
Non-executive Directors
Lord Freeman
D Firth3
N Ransome4
Total emoluments
Executive Directors
A Rommel
M Aspinall2
P Swinstead5,8
P Davies6,8
A Law7,8
A Woolley9
Non-executive Directors
Lord Freeman
N Ransome4
D Courtley10
Total emoluments
Notes
Benefi ts
2016
£’000
Compensation for
loss of offi ce
2016
£’000
Total
emoluments
2016
£’000
Company pension
contributions11
2016
£’000
Share Based
Payment
2016
£’000
14
8
3
–
–
–
25
–
–
87
–
–
–
87
214
104
138
40
13
31
540
10
5
2
–
–
–
17
25
8
–
–
–
–
33
Benefi ts
2015
£’000
Compensation
for loss of offi ce
2015
£’000
Total
emoluments
2015
£’000
Company pension
contributions11
2015
£’000
Share Based
Payment
2015
£’000
5
4
–
16
3
5
–
–
–
33
–
–
–
–
–
43
–
–
–
43
61
45
228
130
128
113
40
40
17
808
3
2
–
–
3
3
–
–
–
11
1. R Antony was appointed as a Board director on 22 April 2016
2. M Aspinall resigned as a Board director on 22 April 2016
3. D Firth was appointed as a Board director on 14 September 2016
4. N Ransome resigned as a Board director on 6 October 2016
5. P Swinstead resigned as a Board director on 4 November 2015
6. P Davies resigned as a Board director on 4 November 2015
7. A Law resigned as a Board director on 13 August 2015
8. Following their respective resignations from the Board, P Swinstead, P Davies and A Law served their notice periods on gardening leave.
9. A Woolley resigned on 27 May 2015
10. D Courtley resigned on 13 August 2015
11. Company pension contributions disclosed in the table above represent the contractual pension entitlements due to the Directors of the company.
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–
–
–
46
(38)
–
–
–
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21
Remuneration Report continued
Executive Directors’ share options
As at
1 January
2016
Lapsed/
Surrendered
in the
year
Exercised
in the
year
Awarded
in the
year
As at
31 December
2016
Exercise
period
Exercise
price
per share
Alan Rommel
Executive share option plan
2009
2010
2010
2013
2014
2016
Sub-total
Roger Antony
Executive share option plan
2010
2013
2014
2016
Sub-total
Andy Law
150,000
150,000
100,000
160,000
600,000
–
1,160,000
100,000
20,000
160,000
–
280,000
–
–
–
–
–
–
–
–
–
–
–
–
Executive share option plan
2014
Total
2,000,000
(2,000,000)
3,440,000
(2,000,000)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
150,000
2012-2019
150,000
2013-2020
100,000
2013-2020
160,000
2016-2023
600,000
2017-2024
1,500,000
1,500,000
2019-2026
1,500,000
2,660,000
–
–
–
100,000
2013-2020
20,000
2016-2023
160,000
2017-2024
800,000
800,000
2019-2026
800,000
1,080,000
£0.0900
£0.0875
£0.0750
£0.2650
£0.2112
£0.0862
£0.0875
£0.2650
£0.2112
£0.0862
–
–
2017-2024
£0.1675
2,300,000
3,740,000
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 2015
(or date of appointment
if later)
% issued share capital
(or date of resignation) % issued share capital
Shareholding as at
31 December 2016
6,250
33,000
–
3,128
–
–
0.01
0.03
–
–
–
–
6,250
33,000
100,000
203,128
100,000
–
0.01
0.03
0.10
0.20
0.10
–
Lord Freeman
Neal Ransome
David Firth
Alan Rommel
Roger Antony
Mike Aspinall
For and on behalf of the Board
Lord Freeman
Chairman of the remuneration committee
22 March 2017
22
Parity Group plc
Report and Accounts 201 6
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.
Kelly Dunn (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London E14 5GL
United Kingdom
22 March 2017
We have audited the financial statements of Parity Group plc for
the year ended 31 December 2016 set out on pages 24 to 61.
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 2016 and of the group’s profit 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.
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23
Consolidated Income Statement
for the year ended 31 December 2016
Before non-
recurring items
2016
£’000
Notes
Non-recurring
items
2016
(note 5)
£’000
Before non-
recurring items
(Restated)
2015
£’000
Total
2016
£’000
Non-recurring
Items
(Restated)
2015
(note 5)
£’000
Total
(Restated)
2015
£’000
2
3
3
3
7
7
10
91,764
(6,245)
(365)
(83,388)
(89,998)
1,766
611
(1,063)
1,314
(154)
–
(260)
(115)
20
(355)
(355)
–
–
(355)
79
1,160
(276)
91,764
(6,505)
82,607
(6,765)
–
(1,077)
82,607
(7,842)
(480)
(357)
(2,335)
(2,692)
(83,368)
(90,353)
1,411
611
(1,063)
959
(75)
884
(74,459)
(81,581)
1,026
506
(1,072)
460
(353)
107
(313)
(3,725)
(3,725)
–
–
(3,725)
189
(74,772)
(85,306)
(2,699)
506
(1,072)
(3,265)
(164)
(3,536)
(3,429)
8
(78)
–
(78)
(226)
(264)
(490)
1,082
(276)
806
(119)
(3,800)
(3,919)
11
11
0.87p
0.83p
(3.37p)
(3.37p)
Continuing operations
Revenue
Employee benefit costs
Depreciation, amortisation &
impairment
All other operating expenses
Total operating expenses
Operating profit/(loss)
Finance income
Finance costs
Profit/(loss) before tax
Tax (charge)/credit
Profit/(loss) for the year from
continuing operations
Discontinued operations
Loss from discontinued
operations, net of tax
Profit/(loss) for the year
attributable to owners of
the parent
Basic earnings/(loss) per
share
Diluted earnings/(loss) per
share
The notes on pages 29 to 6 1 form part of the financial statements.
24
Parity Group plc
Report and Accounts 201 6
www.parity.net
stock code: PTY
Statement of Comprehensive Income
for the year ended 31 December 2016
Profi t/(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
Remeasurement of defined benefit pension scheme
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 6 1 form part of the financial statements.
Notes
24
Consolidated
2016
£’000
806
(13)
(13)
(413)
(413)
(426)
380
2015
£’000
(3,919)
42
42
848
848
890
(3,029)
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Statements of Changes in Equity
for the year ended 31 December 2016
Consolidated
At 1 January 2016
Profit for the year
Exchange differences on translation of
foreign operations
Remeasurement of defined benefit pension
scheme
Share options – value of employee services
Share
capital
£’000
2,037
Deferred
shares
£’000
14,319
Share
premium
reserve
£’000
33,195
Other
reserves
£’000
44,160
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Retained
earnings
£’000
(87,689)
806
(13)
(413)
58
At 31 December 2016
2,037
14,319
33,195
44,160
(87,251)
Consolidated
At 1 January 2015
Loss for the year
Exchange differences on translation of
foreign operations
Remeasurement of defined benefit pension
scheme
Issue of new ordinary shares
Share options – value of employee services
Share
capital
£’000
2,035
Deferred
shares
£’000
14,319
Share
premium
reserve
£’000
33,189
Other
reserves
£’000
44,160
–
–
–
2
–
–
–
–
–
–
–
–
–
6
–
–
–
–
–
–
Retained
earnings
£’000
(84,812)
(3,919)
42
848
–
152
Total
£’000
6,022
806
(13)
(413)
58
6,460
Total
£’000
8,891
(3,919)
42
848
8
152
At 31 December 2015
2,037
14,319
33,195
44,160
(87,689)
6,022
Company
At 1 January 2016
Loss for the year
Share options – value of employee services
Share
capital
£’000
2,037
–
–
Deferred
shares
£’000
14,319
–
–
Share
premium
reserve
£’000
33,195
–
–
Other
reserves
£’000
22,729
–
–
Retained
earnings
£’000
(53,177)
(4,531)
(1)
Total
£’000
19,103
(4,531)
(1)
At 31 December 2016
2,037
14,319
33,195
22,729
(57,709)
14,571
Company
At 1 January 2015
Loss for the year
Issue of new ordinary shares
Share options – value of employee services
Share
capital
£’000
2,035
–
2
–
Deferred
shares
£’000
14,319
–
–
–
Share
premium
reserve
£’000
33,189
–
6
–
Other
reserves
£’000
22,729
–
–
–
Retained
earnings
£’000
(51,657)
(1,558)
–
38
Total
£’000
20,615
(1,558)
8
38
At 31 December 2015
2,037
14,319
33,195
22,729
(53,177)
19,103
The notes on pages 29 to 6 1 form part of the financial statements.
26
Parity Group plc
Report and Accounts 201 6
www.parity.net
stock code: PTY
Statements of Financial Position
As at 31 December 2016
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
Assets classified as held for sale and included in
disposal groups
Total assets
Liabilities
Current liabilities
Loans and borrowings
Trade and other payables
Non-current liabilities
Loans and borrowings
Trade and other payables
Provisions
Retirement benefit liability
Liabilities associated with assets classified as held for sale
and included in disposal groups
Total liabilities
Net assets
Shareholders’ equity
Called up share capital
Share premium account
Other reserves
Retained earnings
Total shareholders’ equity
Approved by the Directors and authorised for issue on 22 March 2017.
The notes on pages 29 to 61 form part of the financial statements.
Alan Rommel
Chief Executive Officer
Roger Antony
Finance Director
Consolidated
Company
Notes
2016
£’000
2015
£’000
2016
£’000
2015
£’000
12,13
5,055
14
17
30
15
16
17
18
19
20
19
20
21
24
18
25
23
23
23
72
–
–
409
5,536
–
14,373
4,272
18,645
2,389
26,570
7,113
180
–
–
507
7,800
61
15,619
2,648
18,328
–
1
122,736
20,527
–
–
2
113,332
20,527
–
143,264
133,861
–
3,370
111
3,481
–
3,350
18
3,368
–
–
–
26,128
146,745
137,229
(8,636)
(9,104)
(17,740)
(10,016)
(8,574)
(18,590)
–
(10,919)
(10,919)
–
(9,561)
(9,561)
(22)
–
(17)
(1,848)
(1,887)
(483)
(11)
–
(14)
(1,491)
(1,516)
–
–
(121,255)
(108,565)
–
–
–
–
(121,255)
(108,565)
–
–
–
(20,110)
(20,106)
(132,174)
(118,126)
6,460
6,022
14,571
19,103
16,356
33,195
44,160
16,356
33,195
44,160
(87,251)
(87,689)
6,460
6,022
16,356
33,195
22,729
(57,709)
14,571
16,356
33,195
22,729
(53,177)
19,103
27
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Consolidated
Company
Notes
2016
£’000
2015
£’000
2016
£’000
2015
£’000
806
(3,919)
(4,531)
(1,558)
7
7
9
8,10
12
14
12,13
12
5
24
12
14
25
7
(611)
1,063
58
44
652
147
–
115
–
2,274
44
330
962
33
(231)
3,412
–
3,412
–
(22)
(129)
(151)
–
(1,360)
–
(277)
(1,637)
1,624
2,648
4,272
(506)
1,072
152
6
546
173
1,994
3
341
(138)
(34)
(96)
522
(68)
(28)
158
23
181
(250)
(349)
(92)
(691)
8
476
–
(300)
184
(326)
2,974
2,648
(1,272)
4,937
(1)
(362)
(2,077)
1,568
38
(249)
–
1
–
–
–
–
1
–
–
–
(1,228)
(2,277)
–
(1,185)
1,848
–
–
(565)
–
(565)
–
–
–
–
–
–
931
(273)
658
93
18
111
–
(1,374)
1,536
(68)
–
(2,183)
–
(2,183)
–
–
(1)
(1)
8
–
2,391
(299)
2,100
(84)
102
18
Statements of Cash Flows
for the year ended 31 December 2016
Cash flows from operating activities
Profit/(loss) for year
Adjustments for:
Finance income
Finance expense
Share-based payment expense
Income tax expense/(credit)
Amortisation of intangible assets
Depreciation of property, plant and equipment
Impairment of goodwill
Loss on write down of intangible assets
Loss on write down of property, plant and equipment
Working Capital
Decrease/(increase) in work in progress
Decrease/(increase) in trade and other receivables
Increase/(decrease) in trade and other payables
Increase/(decrease) in provisions
Payments to retirement benefit plan
Cash generated from operations
Income taxes received
Net cash flows from operating activities
Investing activities
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
(Repayment of)/proceeds from finance facility
Net movements on intercompany funding
Interest paid
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The notes on pages 29 to 6 1 form part of the financial statements.
28
Parity Group plc
Report and Accounts 201 6
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 .
Bo th 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 was renewed during 2016,
on favourable terms, and is currently subject to a minimum period up to 31st December 2018, at which point the facility
becomes evergreen rolling over on the same terms, with six months’ notice from either party. The bank has not drawn to the
attention of the Group any matters to suggest that this facility will not be continued.
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.
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
2016. 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 £4 ,531,000
(2015: £1,558,00).
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.
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29
Notes to the Accounts continued
1 Accounting policies continued
Changes in accounting policies: new standards, interpretations and amendments effective in 2016 adopted by the
Group and published standards not yet effective
No new standards, amendments to published standards or interpretations of existing standards effective in 2016 had a material
impact on the Group’s 2016 financial statements. The following new standards and interpretations to existing standards have
been published that are mandatory for the Group’s future accounting, which the Group does not expect to have significant
impact on its accounting policies or disclosures:
•
•
•
•
•
•
•
IFRS 2 ‘Classification and Measurement of Share-based Payment Transactions’ (not yet effective) – amendment
IFRS 4 ‘Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts’ (not yet effective) – amendment
IFRS 9 ‘Financial Instruments’ (not yet effective)
IFRS 15 ‘Revenue from Contracts with customers’ (not yet effective)
IFRS 16 ‘Leases’ (not yet effective)
IAS 7 ‘Disclosure Initiative’ (not yet effective)
IAS 12 ‘Recognition of Deferred Tax Assets for Unrealised Losses’ (not yet effective) – amendment
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.
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, and the stage of completion
can be measured reliably where services are delivered. 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 created based on the experience of claims.
The Group presents interim recruitment revenues, and the related direct costs of services, in accordance with IAS 18’s guidance
– Principal versus Agency Considerations. The Group acts as principal in all of its interim recruiting transactions in that it carries
the risks and rewards of ownership e.g. it has the obligation to pay the contractor, and it carries the risks of non-payment due to
insolvency or poor performance, and also the risk of pricing reductions. Accordingly, in respect of interim recruitment, the Group
reports gross revenues and gross direct costs.
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.
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.
30
Parity Group plc
Report and Accounts 2016
www.parity.net
stock code: PTY
Notes to the Accounts continued
1 Accounting policies continued
Financing income and expenses
Financing expenses comprise interest payable, finance charges on shares classified as liabilities and finance leases recognised
in profit or loss using the effective interest method, unwinding of the discount on the retirement benefit scheme liabilities, and net
foreign exchange losses that are recognised in the income statement (see foreign currency accounting policy). Financing income
comprises the expected return on the retirement benefit scheme assets, interest receivable on funds invested, dividend income,
and net foreign exchange gains.
Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method. Dividend
income is recognised in the income statement on the date the entity’s right to receive payments is established. Foreign currency
gains and losses are reported on a net basis.
Dividends
Final dividends proposed by the Board of Directors and unpaid at the year end are not recognised in the financial statements
until they have been approved by the shareholders at the Annual General Meeting. Interim dividends, which do not require
shareholder approval, are recognised when paid.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the
extent that it relates to items recognised directly in equity, in which case it is recognised in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or
substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial
recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a
business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in
the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the temporary difference can be utilised.
Foreign currencies
Company
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are
taken to the Income Statement.
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.
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Notes to the Accounts continued
1 Accounting policies continued
Intangible assets
Goodwill
Goodwill represents the excess of the cost of acquisition of a business combination over the Group’s share of the fair value of
identifiable net assets of the business acquired.
After initial recognition, goodwill is 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.
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.
32
Parity Group plc
Report and Accounts 2016
www.parity.net
stock code: PTY
Notes to the Accounts continued
1 Accounting policies continued
Financ ial assets
The Gr oup’s financial assets fall into the categories discussed below, with the allocation depending to an extent on the purpose
for which the asset was acquired.
Unless otherwise indicated, the carrying amounts of the Group’s financial assets are a reasonable approximation of their fair
values. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any
impairment losses.
Loans and receivables: these assets are non-derivative financial assets with fixed or determinable payments that are not quoted
in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables).
They are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition or issue, less
provision for impairment.
The effect of discounting on these financial instruments is not considered to be material.
Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the
counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the
terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of
the future expected cash flows associated with the impaired receivable. For trade receivables, such provisions are recorded in a
separate allowance account with the loss being recognised within other operating expenses in the Income Statement.
On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the
associated provision.
Investments: investments in subsidiary undertakings are recorded at cost. The carrying values of investments are reviewed for
impairment if events or changes in circumstances indicate that the carrying value may not be recoverable.
Cash and cash equivalents: cash and cash equivalents in the Statement of Financial Position comprise cash at bank and in
hand, short term deposits and other short-term liquid investments. In the Cash Flow Statement, cash and cash equivalents
comprise cash and cash equivalents as defined above, net of bank overdrafts.
Stocks and work in progress
Stocks are stated at the lower of cost and net realisable value. Cost comprises equipment for resale. Net realisable value represents
the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
Costs recoverable on contracts which are expected to benefit performance and be recoverable over the life of the contracts are
recognised in the Statement of Financial Position as work in progress and charged to the Income Statement over the life of the
contract so as to match costs with revenues.
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.
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Notes to the Accounts continued
1 Accounting policies continued
Operating Leases
Rentals paid under operating leases are charged to income on a straight line basis over the term of the lease. Lease incentives
received are recognised in the income statement as an integral part of the total lease expense.
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past
event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific
to the liability.
From time to time the Group faces the potential of legal action in respect of employment or other contracts. In such situations,
where it is probable that a payment will be required to settle the action, provision is made for the Group’s best estimate of
the outcome.
Where leasehold properties are surplus to requirements, provisions are made for the best estimates of the unavoidable net
future costs.
Provisions for dilapidation charges that will crystallise at the end of the period of occupancy are provided for in full on
non-serviced properties.
Pensions
The Group operates a number of retirement benefit schemes. With the exception of the ‘Parity Retirement Benefit Plan’, all of the
schemes are defined contribution plans and the assets are held in separate, independently administered funds. The Group’s
contributions to defined contribution plans are charged to the Income Statement in the period to which the services are rendered
by the employees, and the Group has no further obligation to pay further amounts.
The ‘Parity Retirement Benefit Plan’ is a defined benefit pension fund with assets held separately from the Group. This fund has
been closed to new members since 1995 and with effect from 1 January 2005 was also closed to future service accrual.
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation in
respect of defined benefit pension plans is calculated by estimating the amount of future benefit that employees have earned in
return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value
of any plan assets at bid price, and any unrecognised past service costs are deducted. The liability discount rate is the yield at
the balance sheet date on AA credit rated bonds denominated in the currency of, and having maturity dates approximating to,
the terms of the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method.
When the calculation results in a benefit to the Group, the recognised asset is limited to the 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.
34
Parity Group plc
Report and Accounts 2016
www.parity.net
stock code: PTY
Notes to the Accounts continued
1 Accounting policies continued
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.
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 13). The deferred tax asset would not require
writing down if the forecast future profitability of Parity Professionals Limited was 10% lower.
Intangible assets – intellectual property
T he Group capitalises costs incurred in developing its range of technologies and services where management believe that future
economic benefits will flow from the Group’s intellectual property. In assessing the carrying value of the intellectual property,
management estimate future related revenues, by analysing its order book and qualified sales pipeline. Management are also
required to make a judgement on the useful life of the Group’s intellectual property, which they base on the useful lives of
previously developed technologies and services, and the current pace of change within the industry.
Impairment of goodwill
The Group is required to test whether goodwill has suffered any impairment. The recoverable amounts of cash generating units
have been determined based on value-in-use calculations. The use of this method requires the estimation of future cash flows
expected to arise from the continuing operation of the cash generating unit and the choice of a suitable discount rate in order to
calculate the present value (see note 13).
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.
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.
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Notes to the Accounts continued
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. The Group
has two continuing defined cash generating units (see note 13) which form the basis of each operating segment. The
components of each segment are described below.
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.
Segmental contribution, defined as divisional revenues less attributable overheads, 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 94% (2015: 95%) of the
continuing Group’s revenues.
Parity Consultancy Services – this segment delivers business intelligence solutions designed around client problems. Parity
Consultancy Services provides 6% (2015: 5%) 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.
Revenue from external customers
Inter-segment revenue
Segment revenue
Attributable costs
Segmental contribution
Group costs
Depreciation and amortisation
Share based payment
Other non-recurring items
Operating Profit
Finance income
Finance costs
Profit/(loss) before tax (continuing activities)
Parity
Professionals
2016
£’000
Parity
Consultancy
Services
2016
£’000
Before non-
recurring
Items
2016
£’000
Non-
recurring
items
2016
£’000
86,419
481
86,900
(84,240)
2,660
5,345
91,764
–
481
5,345
92,245
(4,435)
(88,675)
910
3,570
(1,383)
(365)
(56)
–
1,766
611
(1,063)
1,314
–
–
–
–
–
–
(115)
–
(240)
(355)
–
–
(355)
Total
2016
£’000
91,764
481
92,245
(88,675)
3,570
(1,383)
(480)
(56)
(240)
1,411
611
(1,063)
959
36
Parity Group plc
Report and Accounts 2016
www.parity.net
stock code: PTY
Notes to the Accounts continued
2 Segmental information continued
Revenue from external customers
Inter-segment revenue
Segment revenue
Attributable costs
Segmental contribution
Group costs
Depreciation and amortisation
Share based payment
Impairment of goodwill
Other non-recurring items
Operating Profit
Finance income
Finance costs
Parity
Professionals
2015
£’000
78,190
118
78,308
(76,032)
2,276
Parity
Consultancy
Services
2015
£’000
Before non-
recurring
Items
2015
£’000
4,417
82,607
–
4,417
(3,719)
698
118
82,725
(79,751)
2,974
(1,443)
(357)
(148)
–
–
1,026
506
(1,072)
460
Non-
recurring
items
2015
£’000
–
–
–
–
–
–
(341)
–
(1,994)
(1,390)
(3,725)
–
–
(3,725)
Total
2015
£’000
82,607
118
82,725
(79,751)
2,974
(1,443)
(698)
(148)
(1,994)
(1,390)
(2,699)
506
(1,072)
(3,265)
Profit/(loss) before tax (continuing activities)
–
–
The continuing Group operates exclusively in the UK. All revenues are generated and all segment assets are located in the UK.
All revenues are generated and all segment assets are located in the UK. Inter-segment revenue in the year is a result of Parity
Professionals selling IT recruitment services to Parity Consultancy Services.
61% (2015: 57%) or £52.7m (2015: £44.8m) of the Parity Professionals revenue was generated in the public sector. 57% (2015:
32%) or £3.0m (2015: £1.4m) of the Parity Consultancy Services revenue was generated in the Public Sector.
The largest single customer in Parity Professionals contributed revenue of £10.8m or 12% and was in the public sector (2015:
£11.8m or 15% and in the private sector). The largest single customer in Parity Consultancy Services contributed revenue of
£2.9m or 54% and was in the public sector (2015: £2.4m or 53% and in the private sector).
37
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Notes to the Accounts continued
3 Operating costs
Continuing operations
Employee benefit costs
– wages and salaries
– social security costs
– other pension costs
Depreciation and amortisation
Amortisation of intangible assets – software
Depreciation of leased property, plant and equipment
Depreciation of owned property, plant and equipment
Write down of property, plant and equipment
Write down of intangible assets
Impairment of goodwill
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
Equity settled share based payment charge
Other operating costs
Total operating expenses
Disclosures relating to the remuneration of Directors are set out on page 21.
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
2016
£’000
2015
(restated)
£‘000
5,688
6,997
639
178
660
185
6,505
7,842
294
35
36
–
115
–
480
254
27
76
341
–
1,994
2,692
80,409
72,014
350
27
775
–
147
348
56
1,256
83,368
90,353
366
37
1,003
(150)
263
249
148
842
74,772
85,306
Consolidated
2016
£’000
11
65
6
27
17
115
126
2015
£‘000
11
65
6
27
33
131
142
All other services have been performed in the United Kingdom.
Other refers to services provided in relation to advice relating to the Retirement Benefit Plan and transaction costs.
38
Parity Group plc
Report and Accounts 2016
www.parity.net
stock code: PTY
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
2016
£’000
1,411
355
56
365
2015
(restated)
£’000
(2,699)
3,725
148
357
2,187
1,531
The directors previously used 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
Write down of GPSeer
– Write down of intangible assets
– Other operating costs
Total write down of GPSeer
Impairment of goodwill
Restructuring
– Employee benefit costs
– Write down of property, plant and equipment
– Other operating costs
Transaction costs
Property provisions
Insolvency dividend
Note
2016
£’000
115
152
267
–
12,13
2015
(restated)
£’000
–
–
–
1,994
260
1,077
–
36
52
46
(306)
355
341
126
125
62
–
3,725
The continuing operations non-recurring charge for 2016 includes:
•
•
•
•
•
The write down of assets in the GPSeer joint venture. GPSeer is an initiative under the previous digital strategy to develop
a cutting-edge internet search engine. Since the change in strategy, no further development work has been performed by
the Group.
Restructuring costs including compensation payments incurred to downsize the Talent Management service offering in
Northern Ireland, the cost of Board changes aligned to the Group’s strategy, and residual expenses incurred to close the
Golden Square service offering.
Transaction costs relating to professional services incurred to implement the Board’s strategy to focus on core business.
Property provisions represent empty property costs incurred as a result of centralising the London office.
The insolvency dividend relates to a one-off payment received in 2016 from the administrators of a legacy overseas
subsidiary.
The continuing operations non-recurring charge for 2015 includes:
•
•
•
A goodwill impairment charge relating solely to the Group’s investment in Inition Limited (see note 13).
Restructuring costs of £737,000 relating to the closure of the Golden Square business (including a £341,000 write down
of tangible fixed assets) and £787,000 of compensation payments made in respect of redundancies and Board changes
following the Group’s decision to discontinue its digital acquisition initiative.
Transaction costs for professional services incurred in the Group’s acquisition programme which was discontinued during
the year.
39
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Notes to the Accounts continued
6 Average staff numbers
Continuing operations
Professionals – United Kingdom1
Consultancy Services – United Kingdom, including corporate office2
Discontinued Operations
Consultancy Services
1 Includes 22 (2015: 19) employees providing shared services across the Group.
2 Includes 7 (2015: 8) employees of the Company.
At 31 December 2016, the Group had 112 continuing employees (2015: 110).
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
2016
Number
2015
Number
89
28
117
92
32
124
22
25
2016
£’000
611
611
277
786
2015
£’000
506
506
300
772
1,063
1,072
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
In December 2016 the Group Board committed to a plan to sell the Inition cash generating unit following the strategic decision
made in May 2015 to place greater focus on the Group’s core business.
Inition was not previously classified as held-for-sale or as a discontinued operation. As such, the comparative consolidated
income statement has been restated to show the discontinued operation separately from continuing operations.
The results of discontinued operations also 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:
Revenue
Expenses
Pre-tax loss
Taxation credit
Loss for the year
Basic loss per share
Diluted loss per share
Note
11
11
2016
£’000
3,263
(3,372)
(109)
31
(78)
0.08p
0.07p
2015
£’000
2,235
(2,883)
(648)
158
(490)
0.48p
0.48p
The loss from the discontinued operation of £78,000 (2015: £490,000) is attributable entirely to the owners of the Company.
Cash flows from (used in) discontinued operations:
Net cash from operating activities
Net cash used in investing activities
Net cash flows for the year
40
Parity Group plc
Report and Accounts 2016
www.parity.net
stock code: PTY
2016
£’000
45
(88)
(43)
2015
£’000
208
(156)
52
Notes to the Accounts continued
9 Share based payments
The Group operates several share based reward schemes for employees:
•
•
•
•
•
A United Kingdom tax authority approved scheme for executive directors and senior staff;
An unapproved scheme for executive directors and senior staff;
A Co-Investment Scheme for senior management;
A Save As You Earn Scheme for all employees; and
A Senior Executive Share Option Plan for Executive Directors.
Under the approved and unapproved schemes and the Co-Investment Scheme, options vest if the share price averages a target
price for 5 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 £58,000 (2015: £152,000).
2016
Weighted
average
exercise
price (p)
2016
Number
2015
Weighted
average
exercise
price (p)
2015
Number
Outstanding at beginning of the year
19
8,452,583
18 13,536,921
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at the end of the year
9
–
19
15
3,100,000
–
(3,131,732)
8,420,851
–
8
16
19
–
(97,500)
(4,986,838)
8,452,583
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
2016
Weighted average
contractual life (years)
8
7
Number
4,200,000
4,220,851
8,420,851
Exercise
price (p)
7.5 - 10
17 - 28
2015
Weighted average
contractual life (years)
4
8
Number
1,250,000
7,202,583
8,452,583
Of the total number of options outstanding at the end of the year 2,030,000 (2015: 1,782,500) had vested and were exercisable
at the end of the year. The weighted average exercise price of those options was 17 pence (2015: 14 pence).
There were no options exercised during the year (2015: 97,500 options were exercised at an average exercise price of 8 pence).
There were 3,100,000 (2015: nil) options granted during the year. The weighted average fair value of option granted was 9 pence.
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41
Notes to the Accounts continued
9 Share based payments continued
The following information is relevant in determining the fair value of options granted during the year under equity–settled share-
based remuneration schemes operated by the Group. There are no cash-settled schemes.
Option pricing model
Weighted average share price at grant date (p)
Weighted average exercise price (p)
Weighted average contractual life (years)
Weighted average expected life (years)
Expected volatility
Weighted average risk free rate
Expected dividend growth rate
2016
Stochastic
2015
Stochastic
9
9
10
5
43 – 50%
0.27%
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%.
10 Taxation
Current tax expense
Current tax on profit for the year
Total current tax expense
Deferred tax expense
Accelerated capital allowances
Origination and reversal of other temporary differences
Change in corporation tax rate
Adjustments in respect of prior periods
Total tax expense
Tax expense on continuing operations
2016
£’000
2015
(Restated)
£’000
5
5
39
3
20
8
70
75
125
125
(7)
(7)
53
–
39
164
Tax expense on continuing operations excludes the tax income from the discontinued operation of £31,000 (2015: £158,000).
This has been included in ‘profit/(loss) from discontinued operation, net of tax’ (see Note 8).
The standard rate of corporation tax in the UK changed from 21% to 20% with effect from 1 April 2015. Accordingly, the
Group’s profits for this accounting period are subject to tax at a rate of 20% (2015: 20.25%). In his Autumn Statement, the
Chancellor confirmed there will be a reduction in the corporate tax rate from 1 April 2017 to 19%, and then a further reduction
from 1 April 2020 to 17%. As such, the tax rate of 17% has been applied in calculating the UK deferred tax position of the
Group at 31 December 2016.
The 2016 tax expense is after a tax credit of £79,000 (2015: £189,000) in respect of non-recurring items.
42
Parity Group plc
Report and Accounts 2016
www.parity.net
stock code: PTY
Notes to the Accounts continued
10 Taxation continued
The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the
United Kingdom applied to losses for the year are as follows:
Profit/(loss) before tax from continuing operations
Expected tax charge/(credit) based on the standard rate of United Kingdom
corporation tax of 20% (2015: 20.25 %)
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
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
11 Earnings per ordinary share
Before tax
£’000
2016
Tax
£’000
After tax
£’000
Before tax
£’000
(13)
(413)
(426)
–
–
–
(13)
(413)
(426)
42
848
890
2016
£’000
959
192
5
8
20
–
(150)
75
2015
Tax
£’000
–
–
–
2015
(Restated)
£’000
(3,265)
(661)
445
2
53
272
53
164
After tax
£’000
42
848
890
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. In 2015, none of
the potential ordinary shares are dilutive, as the Group made a loss on continuing activities during the year.
Basic earnings/(loss) per share
Effect of dilutive options
Diluted earnings/(loss) per share
Weighted
average number
of shares
2016
000’s
Earnings
2016
£’000
884
–
884
101,824
4,691
106,515
Earnings
per share
2016
Pence
0.87
–
0.83
Weighted
average number
of shares
2015
000’s
Earnings
2015
£’000
(3,429)
101,731
–
–
(3,429)
101,731
Earnings
per share
2015
Pence
(3.37)
–
(3.37)
As at 31 December 2016 the number of ordinary shares in issue was 101,824,020 (2015: 101,824,020).
Basic loss per share from discontinued operations was 0.08p (2015: 0.48p). Diluted loss per share from discontinued operations
was 0.07p (2015: 0.48p).
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43
Notes to the Accounts continued
12 Intangible assets
Software
Intellectual Property
Goodwill
Total
2016
£’000
2015
£’000
Cost
At 1 January
1,285
1,219
Additions
Disposals
Impairment
Transferred to
assets held
for sale
22
(51)
–
(173)
66
–
–
–
At 31 December
1,083
1,285
Accumulated amortisation
At 1 January
495
Charge for the year 287
Disposals
Transferred to
assets held
for sale
At 31 December
Net book amount
(51)
(94)
637
446
233
262
–
–
495
790
2016
£’000
852
–
–
(115)
(628)
109
288
365
–
(559)
94
15
2015
£’000
572
283
(3)
–
–
852
4
284
–
–
288
564
2016
£’000
2015
£’000
2016
£’000
2015
£’000
5,759
7,753
7,896
9,544
–
–
–
–
–
22
(51)
349
(3)
(1,994)
(115)
(1,994)
(1,165)
4,594
–
5,759
(1,966)
5,786
–
7,896
–
–
–
–
–
–
–
–
–
–
4,594
5,759
783
652
(51)
(653)
731
5,055
237
546
–
–
783
7,113
During 2016, the Inition business reduced its spending on developing new and existing technologies and utilised the intellectual
property developed in prior years. At balance date, the intangible assets held in the Inition business unit have been reclassified as
held for sale (see notes 8 and 18). Intellectual property held in the GPSeer joint arrangement has been written down to £nil due to
uncertainty surrounding the future of the project (see note 5).
During 2015, the Inition business invested in enhancing certain of its existing technologies in addition to developing new
technologies. This resulted in additional intellectual property of £157,000. Other additions to IP included content development for
the Talent Management business.
Th e 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.
13 Goodwill
The carrying amount of goodwill is allocated to the Group’s three separate cash generating units (CGUs) being; Parity
Professionals, Parity Solutions and Inition. At balance date, the goodwill associated with the Inition CGU has been reclassified
as held for sale (see notes 8 and 18).
Carrying amounts are as follows:
Carrying value
Balance at 1 January 2016
Transferred to assets held for sale
Balance at 31 December 2016
Balance at 1 January 2015
Impairment losses
Balance at 31 December 2015
Professionals
Solutions
£’000
£’000
Inition
£’000
Total
£’000
2,642
–
2,642
2,642
–
2,642
1,952
–
1,952
1,952
–
1,952
1,165
(1,165)
–
3,159
(1,994)
1,165
5,759
(1,165)
4,594
7,753
(1,994)
5,759
44
Parity Group plc
Report and Accounts 2016
www.parity.net
stock code: PTY
Notes to the Accounts continued
13 Goodwill continued
Goodwill was tested for impairment in accordance with IAS 36 at the year end and no impairment charge was recognised (2015:
An impairment charge of £1,994,000 was recorded in respect of the Group’s investment in Inition Limited).
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 2017. Years from 2018 onward are based on the budget for 2017 projected forward at expected
growth rates. This is considered prudent based on current expectations of the 2017 long-term growth rate.
Major assumptions are as follows:
2016
Discount rate
Forecast revenue growth
Operating margin 2017
Operating margin 2018 onward
2015
Discount rate
Forecast revenue growth
Operating margin 2016
Operating margin 2017 onward
Professionals
%
Solutions
%
Inition
%
5.5
5.5
3.5
3.1
9.9
18.4
3.4 – 3.9 19.0 – 19.9
6.9
4.8
3.1
4.5
9.2
15.8
–
–
–
–
15.6
9.9
5.4
3.0 – 3.5 16.1 – 16.9
9.5 – 10.0
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 all 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.
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 their recoverable amount.
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Leasehold
improvements
£’000
Office
equipment
£’000
Total
£’000
3,872
92
(445)
3,519
129
(375)
(193)
3,856
92
(445)
3,503
129
(375)
(193)
3,064
3,080
3,254
173
(104)
3,323
147
(375)
(103)
3,270
173
(104)
3,339
147
(375)
(103)
2,992
3,008
602
180
72
602
180
72
16
–
–
16
–
–
–
16
16
–
–
16
–
–
16
–
–
–
Notes to the Accounts continued
14 Property, plant and equipment
Consolidated
At cost
Balance at 1 January 2015
Additions
Disposals
Balance at 31 December 2015 and 1 January 2016
Additions
Disposals
Transferred to assets held for sale
Balance at 31 December 2016
Accumulated depreciation
Balance at 1 January 2015
Depreciation charge for the year
Disposals
Balance at 31 December 2015 and 1 January 2016
Depreciation charge for the year
Disposals
Transferred to assets held for sale
Balance at 31 December 2016
Net book value
At 1 January 2015
At 31 December 2015
At 31 December 2016
46
Parity Group plc
Report and Accounts 2016
www.parity.net
stock code: PTY
Notes to the Accounts continued
14 Property, plant and equipment continued
Company
At Cost
Balance at 1 January 2015
Balance at 31 December 2015 and 1 January 2016
Balance at 31 December 2016
Accumulated amortisation
Balance at 1 January 2015
Depreciation charge for the year
Balance at 31 December 2015 and 1 January 2016
Depreciation charge for the year
Balance at 31 December 2016
Net book value
At 1 January 2015
At 31 December 2015
At 31 December 2016
Leasehold
improvements
£’000
Office
equipment
£’000
Total
£’000
1
1
1
1
–
1
–
1
–
–
–
3
3
3
1
–
1
1
2
2
2
1
4
4
4
2
–
2
1
3
2
2
1
At balance date, the property plant and equipment held in the Inition business unit has been reclassified as held for sale (see
notes 8 and 18).
In 2015, following the closure of the Golden Square business, its tangible fixed assets were written down resulting in a loss on
disposal of £341,000.
As at 31 December 2016, neither the Group nor the Company had any capital commitments contracted for but not provided, for
the purchase of tangible assets (2015: £nil).
Leased plant and equipment
At 31 December 2016 the total net carrying value of the leased equipment was £27,000 (2015: £28,000).
15 Deferred tax
At 1 January
Recognised in the income statement
Change in enacted tax rate
Adjustments in relation to prior periods
Depreciation in excess of capital allowances
Other short term timing differences
Transferred to assets held for sale
At 31 December
The deferred tax asset of £409,000 (2015: £507,000) comprises:
Depreciation in excess of capital allowances
Short term and other timing differences
Consolidated
2016
£’000
507
(24)
6
(23)
(3)
(54)
409
2015
£’000
536
(56)
(1)
21
7
–
507
Consolidated
2016
£’000
355
54
409
2015
£’000
447
60
507
47
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Notes to the Accounts continued
15 Deferred tax continued
A deferred tax asset on tax losses brought forward is not recognised unless it is more likely than not that there will be taxable
profits in the foreseeable future against which the deferred tax asset can be offset. The Directors believe that the deferred tax
asset recognised is recoverable based on the future earning potential of the Group.
The forecasts for the business used in this review were the same as those used in the review of the impairment of goodwill (see
note 13). The forecasts for Parity Professionals comfortably support the unwinding of the deferred tax asset held by this division of
£409,000 (2015: £479,000).
The deferred tax asset at 31 December 2016 has been calculated on the rate of 17% substantively enacted at the balance
sheet date.
The movements in deferred tax assets during the period are shown below:
Depreciation in excess of capital allowances
Other short-term timing differences
Trading losses
Depreciation in excess of capital allowances
Other short-term timing differences
(Charged)/
credited to
income
statement
2016
£’000
Transferred
to assets
held for
sale
2016
£’000
(59)
(6)
21
(44)
(33)
–
(21)
(54)
(Charged)/
credited to
income
statement
2015
£’000
Transferred
to assets
held for
sale
2015
£’000
(16)
(13)
(29)
–
–
–
Asset
2016
£’000
355
54
–
409
Asset
2015
£’000
447
60
507
The Group has unrecognised carried forward tax losses of £30,078,882 (2015: £30,611,584). The Company has unrecognised
carried forward tax losses of £24,301,882 (2015: £24,229,376). The Group has unrecognised capital losses carried forward of
£281,875,386 (2015: £281,875,386). These losses may be carried forward indefinitely.
16 Work in progress
Work in progress:
Net costs less foreseeable losses
Consolidated
2016
£’000
2015
£’000
–
61
Work in progress comprises stock on hand. At balance date, work in progress held by the Inition business has been reclassified
as held for sale (see notes 8 and 18).
17 Trade and other receivables
Amounts falling due within one year:
Trade receivables
Accrued income
Amounts recoverable on contracts
Amounts owed by subsidiary undertakings
Other receivables
Prepayments
Amounts falling due after one year:
Amounts owed by subsidiary undertakings
Total
48
Parity Group plc
Report and Accounts 2016
www.parity.net
stock code: PTY
Consolidated
2016
£’000
7,577
2,588
3,771
–
84
353
2015
£’000
9,365
4,707
946
–
259
342
Company
2016
£’000
2015
£’000
–
–
–
–
–
–
3,367
3,346
–
3
–
4
14,373
15,619
3,370
3,350
–
–
14,373
15,619
122,736
126,106
113,332
116,682
Notes to the Accounts continued
17 Trade and other receivables continued
The fair values of trade and other receivables are not considered to differ from the values set out above.
£7,430,000 (2015: £8,998,000) of the Group’s trade receivables, and £5,748,000 (2015: £4,262,000) 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 £8,613,000 (2015: £9,973,000).
The Group records impairment losses on its trade receivables separately from gross receivables. Factors considered in making
provisions for receivables include the ability of the customer to settle the debt, the age of the debt and any other circumstance
particular to the transaction that may impact recoverability. The movements on the allowance account during the year are
included within operating costs in the consolidated income statement and are summarised below:
Opening balance
Increases in provisions
Written off against provisions
Recovered amounts reversed
Closing balance
Consolidated
2016
£’000
2015
£’000
7
4
(2)
(9)
–
–
7
–
–
7
The balance of impaired losses at 31 December 2016 was £nil (2015: the balance was greater than 60 days old and the
allowance account represents full provision against specific gross debts). All other debts at 31 December 2016 are considered to
be recoverable.
As at 31 December 2016 trade receivables of £1,335,000 (2015: £1,532,000) were past due, but not impaired. These relate to
customers where there is no evidence of unwillingness or of an inability to settle the debt. The ageing of Group trade receivables
is as follows:
Not past due
31-60 days, and past due
61-90 days
>90 days
Total
Gross
£’000
6,242
957
250
128
7,577
2016
Impaired
£’000
–
–
–
–
–
Total
£’000
6,242
957
250
128
Gross
£’000
7,833
922
393
224
7,577
9,372
2015
Impaired
£’000
–
–
–
(7)
(7)
Total
£’000
7,833
922
393
217
9,365
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 2016 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 3.1% and 5.5% (2015: between 4.5% and 15.6%) and the other parameters used in the goodwill
impairment review, as outlined in note 13.
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49
Notes to the Accounts continued
18 Assets and liabilities classified as held for sale and included in disposal groups
The major classes of assets and liabilities comprising the operations classified as held for sale are set out below.
Goodwill
Intangible assets – software
Intangible assets – intellectual property
Property, plant and equipment – office equipment
Trade and other receivables
Work in progress
Deferred tax asset
Total assets classified as held for sale
Trade and other payables
Provisions
Total liabilities associated with assets classified as held for sale
Net assets of disposal group
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
2016
£’000
25
22
47
Present
value of
minimum
lease
Payments
2016
£’000
23
22
45
Future
minimum
lease
payments
2015
£’000
47
11
58
Interest
2016
£’000
2
–
2
Further details of the Group’s banking facilities are given in note 22.
31 December
2016
£’000
1,165
79
69
90
915
17
54
2,389
(453)
(30)
(483)
1,906
Consolidated
2016
£’000
22
22
2015
£’000
11
11
8,613
23
9,973
43
8,636
10,016
Present
value of
minimum
lease
payments
2015
£’000
43
11
54
Interest
2015
£’000
4
–
4
50
Parity Group plc
Report and Accounts 2016
www.parity.net
stock code: PTY
Notes to the Accounts continued
20 Trade and other payables
Consolidated
2016
£’000
594
6,018
–
1,126
1,366
9,104
–
9,104
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 2016
Created in year
Utilised in year
At 31 December 2016
Due within one year or less
Due after more than one year
Total
2015
£’000
439
5,424
Company
2016
£’000
2015
£’000
–
–
–
–
–
10,724
9,149
1,377
1,514
8,574
–
8,574
21
174
32
380
10,919
9,561
121,255
132,174
108,565
118,126
Leasehold
dilapidations
£’000
Total
£’000
14
3
–
17
–
17
17
14
3
–
17
–
17
17
At balance sheet date the Company had no provisions (2015: no provisions).
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.
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.
51
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Notes to the Accounts continued
22 Financial instruments – risk management continued
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 2016
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 2015
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
–
–
–
4,272
14,020
18,292
8,613
45
8,510
17,168
–
–
–
–
–
–
–
2,648
15,277
17,925
9,973
54
8,315
18,342
–
–
–
–
4,272
14,020
18,292
8,613
45
8,510
17,168
2,648
15,277
17,925
9,973
54
8,315
18,342
52
Parity Group plc
Report and Accounts 2016
www.parity.net
stock code: PTY
Notes to the Accounts continued
22 Financial instruments – risk management continued
Principal financial instruments continued
A summary by category of the financial instruments held by the Company is provided below:
Company
As at 31 December 2016
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 2015
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
–
–
–
–
122,736
122,736
111
3,367
111
3,367
126,214
126,214
10,919
121,255
132,174
–
–
–
10,919
121,255
132,174
–
–
–
–
113,332
113,332
18
3,346
18
3,346
116,696
116,696
9,561
108,565
118,126
–
–
–
9,561
108,565
118,126
Non-current amounts due to subsidiary undertakings have no specific repayment terms but are subject to notice periods of at
least one year.
Fair values of financial instruments
The fair values of all of the Group’s, and of the Company’s, financial instruments are 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 61% (2015: 56%) of the Group’s turnover is derived from the public
sector. The largest customer balance represents 19% (2015: 22%) of the trade receivable balance.
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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 17.
Financial assets
Cash and cash equivalents
Trade and other receivables
Total financial assets
2016
Carrying
value
£’000
Maximum
exposure
£’000
2015
Carrying
value
£’000
Maximum
exposure
£’000
4,272
14,020
18,292
4,272
14,020
18,292
2,648
15,277
17,925
2,648
15,277
17,925
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 2016 and 2015 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 until 1 September 2016, and at 2.35% above
base rate subsequently. 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 31 December 2016, the loan balance due by the Company to Parity
International BV, translated into Sterling, was £26,696,000 (2015: £22,993,000 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 2016 or 2015.
During 2014, 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, in 2016 the Company recorded a translation loss of £3,212,000 (2015: gain
of £965,000). As at the 31 December 2016, the loan balance due by the Company, translated into Sterling, was £26,696,000
(2015: £22,993,000).
54
Parity Group plc
Report and Accounts 2016
www.parity.net
stock code: PTY
Sterling
Euro
US Dollar
Total net
exposure
Notes to the Accounts continued
22 Financial instruments – risk management continued
Foreign exchange risk continued
The currency profile of the Group’s net financial assets was as follows:
Sterling
Euro
US Dollar
Total
Functional currency of individual entity
Net foreign currency
fi nancial assets
2016
£’000
2015
£’000
–
–
(26,694)
(22,988)
2016
£’000
219
–
2015
£’000
131
–
4
18
1,350
1,150
2016
£’000
966
–
–
2015
£’000
966
–
–
2016
£’000
1,185
2015
£’000
1,097
(26,694)
(22,988)
1,354
1,168
(26,690)
(22,970)
1,569
1,281
966
966
(24,155)
(20,723)
The profile of the Company’s net financial assets was as follows:
Net foreign currency financial assets
Sterling
Euro
US Dollar
Total net exposure
Functional currency: Sterling
2015
£’000
2016
£’000
–
–
(26,694)
(22,988)
4
18
(26,690)
(22,970)
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 £2,669,600 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 2016
Trade and other payables
Borrowings
Total
Consolidated
At 31 December 2015
Trade and other payables
Borrowings
Total
Up to
1 month
£’000
8,510
8,613
17,123
Up to
1 month
£’000
8,574
9,984
18,558
Over
1 month
£’000
–
45
45
Over
1 month
£’000
–
43
43
Total
£’000
8,510
8,658
17,168
Total
£’000
8,574
10,027
18,601
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Notes to the Accounts continued
22 Financial instruments – risk management continued
Liquidity risk continued
Company
At 31 December 2016
Trade and other payables
Total
Company
At 31 December 2015
Trade and other payables
Total
Up to
1 month
£’000
10,919
10,919
Up to
1 month
£’000
9,561
9,561
Between
1 and
12 months
£’000
Over
1 year
£’000
–
–
121,255
121,255
Between
1 and
12 months
£’000
Over
1 year
£’000
–
–
108,565
108,565
Total
£’000
132,174
132,174
Total
£’000
118,126
118,126
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 small number of finance leases. The leases represent a liability of
£45,000 (2015: £54,000) and are 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
Finance lease liabilities
Net debt
2016
£’000
4,272
(8,613)
(45)
2015
£’000
2,648
(9,973)
(54)
(4,386)
(7,379)
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 (2015: 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. There was no change to share capital during
2016 (2015: 97,500 share options were exercised, increasing the Group’s share capital from £16,353,638 to £16,355,588).
Deferred share capital is the nominal value assigned to the deferred share capital.
Share premium is the amount subscribed for share capital in excess of nominal value. There was no change to share premium in
2016 (2015: Following the exercise of share options, the share premium increased from £33,189,314 to £33,195,689).
Other Reserves of the Group of £44,160,000 relate principally to a reserve created following a change of the Group’s ultimate
parent, and a corresponding Scheme of Arrangement in July 1999.
Other Reserves of the Company of £22,729,000 relate to a reorganisation of the Group’s capital structure in 2002, which resulted
in the Company increasing its investment in subsidiary undertakings.
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
(2015: £351,000).
56
Parity Group plc
Report and Accounts 2016
www.parity.net
stock code: PTY
Notes to the Accounts continued
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 from continuing operations were £178,000 (2015: £185,000).
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
2016
%
2015
%
3.7% – 4.0% 3.6% – 3.9%
2.6%
3.4%
2.4%
3.8%
3.1%
2.1%
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 (2.6%) 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_2015 projection based on year of birth with a long term rate of
improvement of 1.25% p.a. (2015: 1.25% p.a.).
Contributions
In 2015, contributions were initially at a rate of £711,000 per annum. During March 2015 the Trustees agreed to a temporary
suspension of contributions, and subsequently extended this agreement until July 2016. In February 2016, a lump sum
contribution of £100,000 was made by the Group. In March 2016, agreement was reached with the trustees of the defined benefit
pension scheme to reduce deficit reduction contributions, linking amounts payable to company performance and affordability on a
sliding scale as part of the 2015 triennial valuation review. As a result, monthly contributions of £15,000 resumed from May 2016,
with conditional annual bonus payments predicated on the Groups financial performance.
Other contributions include payments made to the Pension Protection Fund.
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 (loss)/gain
At the end of the year
2016
£’000
2015
£’000
22,465
19,703
(24,313)
(21,194)
(1,848)
(1,491)
2016
£’000
2015
£’000
19,703
20,356
728
231
(1,006)
(117)
2,926
22,465
693
28
(786)
(187)
(401)
19,703
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Notes to the Accounts continued
24 Pension commitments continued
Composition of plan assets
Equities – Quoted
Gilts
Bonds
Options in Parity Group plc
Cash
Total
Reconciliation of plan liabilities
At the beginning of the year
Interest cost
Benefits paid
Actuarial (gain)/loss
At the end of the year
2016
£’000
7,993
7,114
7,087
96
175
2015
£’000
6,722
6,436
6,404
96
45
22,465
19,703
2016
£’000
2015
£’000
21,194
22,457
786
(1,006)
3,339
24,313
772
(786)
(1,249)
21,194
The actuarial loss for the year of £3,339,000 (2015: Gain of £1,249,000) 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
decreased during 2016. The gain in 2015 was as a result of a rise in the yield on AA rated corporate bonds.
The cumulative amount of actuarial losses recognised since 1 January 2002 in other comprehensive income is £6,383,000 (2015:
£5,970,000). 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)
2016
£’000
611
786
2015
£’000
506
772
The actual return on plan assets was £3,654,000 (2015: £292,000). 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
2016
£’000
2015
£’000
2014
£’000
2013
£’000
2012
£’000
22,465
19,703
20,356
17,421
16,260
(24,313)
(21,194)
(22,457)
(19,591)
(19,667)
(1,848)
2,926
15.0%
3,339
15.9%
(1,491)
(401)
(2.0%)
(1,249)
(5.6%)
(2,101)
(2,170)
(3,407)
2,251
12.4%
2,900
14.8%
(34)
(0.2%)
(255)
(1.3%)
441
2.7%
2,016
11.4%
58
Parity Group plc
Report and Accounts 2016
www.parity.net
stock code: PTY
Notes to the Accounts continued
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’s
24,313
23,454
25,222
24,331
24,177
Assets
£’000’s
22,465
22,465
22,465
22,465
22,465
Surplus/
(Deficit)
£’000’s
(1,848)
(989)
(2,757)
(1,866)
(1,712)
Ordinary shares 2p each
Deferred shares of 0.04p each
2016
number
409,044,603
409,044,603
2016
£’000
8,181
8,181
2016
number
35,797,769,808
35,797,769,808
2016
£’000
14,319
14,319
Issued and fully paid at 1 January
101,824,020
Issued and fully paid at 31 December
101,824,020
2016
number
2016
£’000
2,037
2,037
2016
number
35,797,769,808
35,797,769,808
2016
£’000
14,319
14,319
Ordinary shares 2p each
Deferred shares of 0.04p each
Increase/
(Decrease)
in deficit
£’000’s
–
(859)
909
18
(136)
Total
2016
£’000
22,500
22,500
Total
2016
£’000
16,356
16,356
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
2016
Number
43,143
2015
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
27 Contingencies
Land and
buildings
2016
£’000
Plant and
machinery
2016
£’000
Land and
buildings
2015
£’000
Plant and
machinery
2015
£’000
854
518
1,372
17
18
35
508
90
598
27
35
62
In the normal course of business, the Group is exposed to the risk of claims in respect of contracts where the customer or
supplier is dissatisfied with the performance, pricing and/or completion of the contracted service or product. Such claims are
normally resolved by a combination of negotiation, further work by Parity or the supplier, and/or monetary settlement without
formal legal process being necessary. Occasionally, such claims progress into legal action. At the present time, Group
management believes the resolution of any known claims or legal proceedings will not have a material further impact on the
financial position of the Group.
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Notes to the Accounts continued
28 Key management remuneration
Key management comprises the Board of Directors. The total remuneration received by key management for 2016 was £590,000
(2015: £837,000). This comprises emoluments received, pension contributions, compensation for loss of office and share based
payment charges. Key management remuneration, including that of the highest paid director A Rommel, is disclosed in detail
within the remuneration report on page 21.
Salary and fees
Other short term benefits
Post employment benefits
Compensation for loss of office
Share-based payments
29 Related party transactions
Consolidated
2016
£’000
428
25
17
87
33
590
2015
£’000
732
33
11
43
18
837
There were no related party director transactions during the year. During the year to 31 December 2015 the Group transacted
with one entity over which one of the Groups directors, at the time, had control or significant influence, as follows:
Director
D. Courtley
Transaction
IT interim recruitment
Transaction value
Balance outstanding
2016
£’000
–
2015
£’000
81
2016
£’000
–
2015
£’000
–
During the comparative year, the Group provided IT contractors to Mozaic Services Limited, a company that is significantly
influenced by Mr D Courtley. Mr Courtley was a non-executive director of the Group during 2015 until he stepped down on 13
August 2015. Amounts were billed at normal market rates for such services, and were due and payable under standard client
payment terms.
Company
Details of the Company’s holding in Group undertakings are given in note 30. The Company entered into transactions with other
Group undertakings as shown in the table below.
Operating
costs
2016
£’000
Amounts incurred from Group subsidiaries
(528)
Amounts charged to Group subsidiaries
–
Finance
income
2016
£’000
–
1,272
Finance
expense
2016
£’000
1,451
–
Operating
costs
2015
£’000
(457)
–
Finance
income
2015
£’000
–
1,112
Finance
expense
2015
£’000
(1,269)
–
At 31 December, the Company had the following amounts payable to/recoverable from Group undertakings.
Amounts owed by subsidiary undertakings
Falling due within one year (note 17)
Falling due after one year (note 17)
Amounts due to subsidiary undertakings
Falling due within one year (note 20)
Falling due after one year (note 20)
2016
£’000
2015
£’000
3,367
3,346
122,736
113,332
(10,724)
(9,149)
(121,255)
(108,565)
60
Parity Group plc
Report and Accounts 2016
www.parity.net
stock code: PTY
Notes to the Accounts continued
30 Subsidiaries
The principal subsidiaries of Parity Group plc, which have been included in these consolidated financial statements, are Parity
Professionals Limited, Parity Consultancy Services Limited (formally Parity Solutions Limited), and Inition Limited. Parity
Professionals Limited and Parity Consultancy Services Limited (formally Parity Solutions Limited) are wholly owned by Parity
Holdings Limited and incorporated in the United Kingdom. Inition Limited has been included in these Consolidated financial
statements as a discontinued operation and as assets and associated liabilities held for sale. Inition Limited is wholly owned by
Parity Solutions Limited (formally Parity Consultancy Services Limited) and is incorporated in the United Kingdom. Parity Solutions
Limited (formally Parity Consultancy Services 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 Consultancy Services
Limited (formally Parity Solutions Limited) delivers technology solutions. Inition Limited specialises in virtual reality, augmented
reality and 3D solutions.
The Company’s investment in subsidiaries was reviewed for impairment at the year end based on the performance of 2016 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 (2015: £20,527,000). The assessment was
performed on a value in use basis using discount rates of between 3.1% and 5.5% (2015: between 4.5% and 15.6%) and the
other parameters used in the goodwill impairment review, as outlined in note 13.
The remaining Group subsidiaries are either discontinued or dormant, are wholly owned by the Group ultimate parent Parity Group
plc, and are registered in the UK (at Dawson House, 5 Jewry Street, London EC3N 2EX) unless stated otherwise in the list below:
Parity Solutions (Ireland) Limited
Parity Technology Laboratories Limited
Performance Agency Limited
Prime Selection Limited
Readypatch Limited
Scene Systems Limited
Software 92 Limited
Systems Support Services
Technology Media Limited
TMS Information Solutions Limited
Tobruk Limited
Trident Computer Services plc
Class Limited
Comtec Computer Training Limited
Comtec International Limited
CSS Software Solutions Limited
Disqo Limited
ESP (Europe) Limited
Eurosoft Germany Limited
Eurosoft Solutions (France) Limited
Eurosoft Solutions Limited
Golden Square Content Limited
GPSeer Limited
IC Software Limited
Information Mapping Limited
Inition LLC (registered at 10100 Santa Monica Blvd.,
7th Floor, Los Angeles, CA 90067, USA)
Interactive Developments (Scotland) Limited
Interactive Developments Limited
Intercity Consultants Limited
Integer79 Limited
Made Content Limited
Online Personnel Services Limited
Parity Computing Limited
Parity Eurosoft BV (registered at Keizersgracht 62-64,
1015 CS Amsterdam, Netherlands)
Parity Eurosoft Limited
Parity Group Quest Trustee Limited
Parity International BV (registered at Keizersgracht 62-64,
1015 CS Amsterdam, Netherlands)
Parity International plc
Parity Limited
Parity Management Limited
Parity Permanent Investments Limited
Parity Selection Limited
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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
Nominated advisors & brokers
Investec
2 Gresham Street
London
EC2V 7QP
Solicitors
Pinsent Masons
30 Crown Place
London
EC2A 4ES
Corporate information
Registered office
Dawson House
5 Jewry Street
London, EC3N 2EX
Tel: 020 8543 5353
Registered in England & Wales No. 3539413
Registrars
Equiniti Limited,
Aspect House, Spencer Road, Lancing,
West Sussex, BN99 6DA
Tel: 037 1384 2382
Equiniti offer a range of information on-line. You can access
information on your shareholding, indicative share prices and
dividend details and find practical help on transferring shares
or updating your details at www.shareview.co.uk
Enquiries concerning shareholdings in Parity Group plc
should be directed, in the first instance, to the Registrars,
Equiniti, as above.
Investor relations
MHP Communications
60 Great Portland Street
London
W1W 7RT
Tel: 020 3128 8100
Further information for shareholders including copies of the
Annual and Interim Reports can be obtained from the
company secretary’s office at the registered office address
below or from the Parity Group website at www.parity.net
The Company Secretary
Parity Group plc
Dawson House
5 Jewry Street
London, EC3N 2EX
Or by email to: cosec@parity.net
62
Parity Group plc
Report and Accounts 2016
www.parity.net
stock code: PTY
PARITY GROUP PLC
(PTY.L) – LSE Ticker
Parity Group plc
Dawson House, 5 Jewry Street, London EC3N 2EX
Tel: 020 8543 5353
www.parity.net
stock code: PTY
Perivan Financial Print 244774
Parity Group plc Report and Accounts
Year ended 31 December 2016