Annual Report and
Accounts 2018
Brilliant People
Bolder Decisions
Transforming the relationship business
and government have with data.
2
Introduction
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Introduction
3
Section one
Introduction
A few words...
2018 was a year of change in
our core markets.
The technology support and
services consulting market
hasn’t stood still. Global players
increasingly offer attractive
economies of scale and, in
recruitment, employers can now
automate many of the routine
tasks which used to always need
the help of advisors like Parity.
However, new opportunities are
opening up for us. It’s becoming
plainer to many organisations
what practical benefits a data
strategy can bring in every
area of their operations. What
they lack is a partner who
understands the relationships
between people, data and
technology; it’s an area where
Parity add value.
Parity has felt the impact of these
shifts in our markets and has
worked hard in 2018 to respond.
Our strength lies in our core
competency as relationship
experts. Our team are
knowledgeable and are trusted
by our clients; we help them find
the talent they need in these
changing times and we show
them how to use data to make
bold decisions.
Over the course of the year
we have seen the mix of our
consulting work change. We
have been talking to clients
about how they work with
data and use it to drive their
businesses; it’s a strategy
that’s starting to bear fruit
with two significant consulting
assignments at a time when we
have seen declining demand
for our legacy work in systems
development, delivery and
management.
We’re winning work across a
better mix of private and public
sector clients. Although our profit
per head compares favourably
with the rest of the sector, it
is becoming harder to protect
margins, so we have started out
on some strategic changes which
we explain in more detail in this
report.
We are able to change how
we approach the market and
manage client relationships
because of the improving health
of our balance sheet. We are
transforming at a time when our
net debt continues to reduce
and we have disposed of assets
which didn’t generate cash.
“We know that it’s
easy to forget that
bold decision-making
is a people process;
technology matters,
but trusted human
insights matter
more. When you
understand that data
is really about human
behaviour you can
clearly see the need
to have the right
people looking at it.”
In the coming years we will draw
on our core strength – trusted
relationships. Client Relationship
Managers will sit at the core
of our business to talk to our
clients about our full range of
services and bring in consulting,
recruitment, or learning and
development help as needed. It’s
a model that is focused on the
total value we can bring to clients
and ensures a consistent focus
on profitability as well as income.
Parity has come out of 2018 with
a refocused strategy aligned
to current client demand. As
advisors who know people and
know data, we provide expertise
and skills that delivers positive
growth for clients by realising the
value of their data.
Parity annual report and accounts 2018
Introduction
05
Contents
About us
Section one
Introduction
About us . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05
Section three
Governance
Corporate Governance Report . . . . . . . . . . . . . . . . . . . . 34
Parity Group at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . 06
The Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Our timeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08
Corporate Social Responsibility Report . . . . . . . . . . . . . 42
Section two
Strategic report
Chief Executive’s letter . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Looking Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
CEO Point of View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Chairman’s report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Principal risks and uncertainties . . . . . . . . . . . . . . . . . . . 25
Operational and Financial Review . . . . . . . . . . . . . . . . . . 26
Remuneration Committee Report . . . . . . . . . . . . . . . . . . 47
Audit Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . 54
Directors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Statement of Directors’ Responsibilities . . . . . . . . . . . . . 60
Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . 62
Section four
Accounts, notes and other information
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . 78
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
45 years of trusted
relationships with our clients.
Parity helps organisations
find the right people, skills
and data to support confident
data-led business decisions.
Specifically, we advise on data
and we provide access to skills
either as a managed service,
through resourcing in the
contract or permanent market
or as part of a learning and
development programme.
Our work comes from a mix
of long-term contracts with
public and private sector
organisations as well as
expanded projects with
existing clients as a result
of strong relationships and
a track record of high client
satisfaction.
Around 100 staff work in our
offices in Belfast, Edinburgh,
London and Manchester and
we had, during 2018 over 1,000
associates supporting clients
around the UK and Ireland.
Our strategic goal
To equip clients with the talent,
skills and advice necessary to
make bold data-led business
decisions confidently.
Our financial goal
To grow margin and net
profitability.
Our operating model
Applying an account
management approach to ensure
clients can choose the right
mix of our support in managed
services, resourcing, learning,
development and advice.
Our Purpose
To transform the relationship
business and government have
with data.
Our Mission
We provide expertise that
delivers positive growth for
clients through realising the true
value of their data.
Our Vision
To build a data positive world.
How we measure
our performance
Revenue – Our income comes from
contract and permanent recruitment,
and IT and data consultancy.
Adjusted Profit before Tax – Profit
before tax excluding non-recurring items
Net Debt – Cash and cash equivalents
less the Group’s borrowings
These indicators show if our strategy
of focusing on client relationship
management and developing where we
can add most value is working. They
also reflect our commitment to sound
cash and working capital management
and to net debt reduction in order to
grow lasting shareholder value.
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Introduction
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Introduction
07
Parity Group at a glance
The Parity proposition
Our clients discover the true value of their data and
make bolder decisions because we provide them
with the advice, training and contract and permanent
staffing they need.
Why invest in Parity?
With decreasing debt, strong vision and good market
fit our strategy is focused on applying our skills in
relationship management and data to evolving higher
margin opportunities within existing clients and across
the wider market.
100
Staff
4
Main offices
150
Customers
1,000 +
Associates on
client sites
£86,112,000
Generated
revenue
£853,000
Adjusted profit
before tax
UK
Operate exclusively
in the UK and Ireland
Key Projects
in 2018
In 2018 we set out to
refocus our business
on higher margin
sustainable revenues.
This involved:
•
New senior hires to
develop our consulting
proposition around data
and to professionalise our
marketing
•
•
•
•
Designing a new single
operating model for
2019 with client account
management at its heart
Commissioning new
branding and a fresh web
presence
Launching a review of
the role of technology in
recruitment services
Creating a New Business
function to bring a
single focus to business
development
Our
advantages
•
•
•
•
We’re a relationship
business. Clients trust us
and talk continually to us
about their challenges and
their needs beyond staffing
and recruitment.
We have long term clients.
We have clients who come
back time and time again and
have framework contracts
with large public sector
organisations; we carry
out multi-year consulting
projects.
We have deep market
insights. With over 1,000
associates embedded on
clients’ sites we understand
current technical issues, we
speak the language of our
clients and can advise on
what works and what doesn’t.
We have a large network
of talent. We pride ourselves
on breadth of skills we have
available and, because we
work with a pool of over
200,000 associates, our
clients can access the best
talent in the market.
•
We know that data has
to support decisions and
insight. Our focus is on client
success above everything.
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Introduction
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Introduction
09
Our timeline
Creating a new
operating model to
enable us to focus
on delivering growth
In 2018, the market told us that
our strategy needed refreshing
to match current client needs.
We ended the year with a
fresh approach which, will
see us focus on relationship
management and we’re growing
our team, processes and IP to
become truly integrated across
advisory services, learning and
development and recruitment.
FY 2018
FY 2019
FY 2020
FY 2021
FY 2022
Transforming to deliver growth
GOAL
added value and integrated client relationships
Growing revenues and margins through
Accelerating growth
GOAL
sustainable growth
Delivering sector-leading
Consolidate
Change
Capitalise
•
•
Reduce debt
Restructure advisory
proposition
•
•
New BD and Account
Management focus
New internal focus
on margin
•
New market positioning
•
•
Develop longer term
pure advisory clients
Launch new development
and technology enabled
recruitment services
Section two
Strategic report
Contents
Section one
Introduction
About us . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05
Section three
Governance
Corporate Governance Report . . . . . . . . . . . . . . . . . . . . 34
Parity Group at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . 06
The Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Our timeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08
Corporate Social Responsibility Report . . . . . . . . . . . . . 42
Section two
Strategic report
Chief Executive’s letter . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Looking Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
CEO Point of View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Chairman’s report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Principal risks and uncertainties . . . . . . . . . . . . . . . . . . . 25
Operational and Financial Review . . . . . . . . . . . . . . . . . . 26
Remuneration Committee Report . . . . . . . . . . . . . . . . . . 47
Audit Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . 54
Directors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Statement of Directors’ Responsibilities . . . . . . . . . . . . . 60
Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . 62
Section four
Accounts, notes and other information
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . 78
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
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Strategic report
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Strategic report
13
Chief Executive’s letter
The story in brief
Since my appointment as Chief
Executive two months ago I have
spent considerable time with our
clients. I have been seeking to
better understand our clients’
data and technology needs and to
review our ability to fully service
those needs. The explosion of
data analytic software and the
value potential that is created
from a better understanding of
customer behaviour is well known.
The new and ever-growing
challenges facing corporates and
government organisations in data
have become:
•
•
•
acquiring the human skills to
interpret the vast quantity of data
being generated;
attracting the people who can
adapt operating systems in light
of learnings from that data; and
inspire confident decision making
based upon reliable data and
advice.
Parity, as a specialist in the people
who know and understand the value
of data, is ideally placed to benefit
from this next stage in the data
growth story.
Parity has great strengths in
recruitment and resourcing and in
providing our clients with data and
technology experts who are focused
on delivery. Alongside our resourcing
business we have built a smaller but
higher margin consultancy business
that delivers data and technology
solutions to a small number of large
clients.
However, we have not been as
successful as we would like in
leveraging our strengths and skills
in resourcing to help us to grow
our consultancy business. Our
operating model is set up to support
a relatively low margin recruitment
business which is very focussed
on delivery but is less well suited to
selling higher margin consultancy;
the business has operated within
silos and has failed to transfer clients
between the two service lines at
scale.
The new Parity business
model
In future the Parity business model
will change, we will have three
distinct propositions to take to
clients; recruitment, learning and
development and consultancy, all
delivered through a single account
management team working to deliver
a single P&L. They will be supported
by a single and enhanced sales and
marketing function.
The three service lines will
complement each other and
encourage cross referrals and
integrated solutions, delivering what
our clients have asked for, being the
support of a collaborative partner,
that enables confident decision
making based on reliable data.
Recruitment
Our recruitment proposition
represents the heritage of our
business, it has an enviable list of
blue-chip clients in both the public
and private sector. Clients like the
excellent level of service we provide
and its specialism in the field of
data and technology. However,
the market for these services
operates on relatively low margins,
is increasingly commoditised and
is highly price sensitive. We will
continue to be active in this field but
will increasingly focus on the higher
value recruitment that fits alongside
our other service lines of learning
and development and consultancy.
Consultancy
We are also in the market offering
data and technology consulting
and whilst we have enjoyed some
successes, we have also had
challenges and they have largely
been of our own making. We
have lacked sufficient account
management skills and are failing
to fully capitalise on our proven
knowledge of the data and IT
markets. We regard this as a
significant opportunity and are
investing in senior management to
lead this effort. We announced today
that Antonio Acuna MBE, formerly
Head of the UK Government’s open
data initiative data.gov.uk, has joined
us to lead our consultancy services.
Working more closely with the
established account management
teams in recruitment we will be able
to offer integrated recruitment and
We will be relaunching the Parity
brand in the very near future with
a new more modern identity and
clearer messaging. We have a large
network of employees, consultants
and people who we have placed
within organisations all of whom
can become ambassadors and
advocates for the new Parity way of
working.
Parity is a professional services
business with unrivalled skills and
expertise in a hugely important and
fast-growing market, which gives
us great confidence in our future
prospects.
advisory packages to help solve
clients’ need for effective data
management and analysis.
Learning & Development
We will launch a new service line in
learning and development. Clients
who engage with us and buy our
recruitment and advice services are
also looking to develop their existing
people. With our proven knowledge
of the skills required of people in
data and technology we are ideally
placed to diagnose clients’ learning
and development needs. We will
design and deliver programs to
upskill our clients’ existing people
resources in data management and
analysis, whilst identifying gaps that
can be filled through recruitment
as well as data and IT projects that
require our consultancy service.
One Parity business
All three service offerings will
operate as one business reported as
such without divisional breakdowns.
We will be completely re-engineering
our sales and marketing function
and are in the process of recruiting a
new leader for this critical function.
In the past we have tended to rely
on our existing relationships and
been reactive to clients’ requests;
in the future we will be much more
proactive in leading thinking in
the area of data management and
analysis. With three integrated
market propositions that are relevant
to companies across all sectors and
almost regardless of size there is a
huge addressable market.
We will be
relaunching the
Parity brand in
the very near
future with
a new more
modern identity
and clearer
messaging.
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Strategic report
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Parity annual report and accounts 2018
Strategic report
15
Chief Executive’s letter
The full story
Parity is a changing business in an
evolving market place. Throughout
the year we experienced pressure
on our margins and changes in client
demand that saw the need to revisit
our strategy. Looking at the table
below you will see:
Increased revenue from our
Professionals business driven by
growing demand for lower value, lower
margin associates.
Consultancy revenue and margin
impacted by the loss of a major
government contract (MoD) after a
protracted period of negotiation and
a decline in scope at another mature
client.
Divisional contribution remained
static for Professionals highlighting the
direction of client demand toward lower
value, lower margin work.
At a divisional level, the 2018 financial
results looked like this:
Divisional performance
Revenue
Parity Professionals
Parity Consultancy Services
Less inter-segment revenue
Group revenue
Divisional contribution
Parity Professionals
Parity Consultancy Services
Total divisional contribution1
1 Divisional contribution is defined as divisional revenue less attributable costs
2018
£000’s
84,025
8,496
(6,409)
86,112
2,314
320
2,634
2017
£000’s
Incr./(Decr.)
%
80,036
9,543
(5,764)
83,815
2,307
1,148
3,455
5.0%
(11.0%)
-
2.7%
0.3%
(72.1%)
(23.8%)
Key drivers of performance
in 2018
Revenue growth strongest in
lower margin business
•
•
Strong performance with our public
sector framework contracts during
2018
Increasing repeat business from long
standing clients
• Wins in private sector complement
historic government strengths
Changes to consulting
business begin
•
•
•
Appointment of Antonio Acuna
to lead consulting division
New projects in data analysis and
management for private and public
sector clients
Restructuring of consulting team to
optimise margin and reflect client
demand
Cross-selling between divisions
•
Clients buying support from both
sides of the business – recruitment
and consultancy
Disposal of Inition
•
Exit from loss-making, non-core
activity Inition
Wins in
private sector
complemented
historic
government
strengths
in 2018
What has changed?
After 3 years as CEO, during which
time he has reduced the business’
debt levels and grown our revenues,
Alan Rommel stepped aside to take on
special projects and subsequently left
the Board on 8 April 2019 to pursue
other interests.
We have been bringing our consulting
and recruitment operations closer
together. Our experience is that our
clients are receptive to working with us
in multiple areas and so we have started
to lay the ground work for a unified
management of the group.
At the same time as we began to
implement our strategy of building
on our competence in relationships,
talent and technical advice, the Board
disposed of the final legacy from the
previous strategy, the Group’s 3D VR
and AR development business, Inition.
No longer a core asset, Inition had no
intra-company benefit and had little
chance of future success within Parity.
Our challenges in 2018
We had three major challenges in 2018.
A significant public sector client (MoD)
took a long time to decide about
the future of a long term consulting
assignment and consequently a
number of our experienced team were
underutilised for several months; it
particularly hit our revenues in the
second half of the year. This came as our
consulting business saw the run-down
of another very long-standing client. We
needed to reshape the consulting team
to better reflect client demand.
We also experienced variations in
the margins we earned from different
recruitment clients. Although we grew
volumes in some areas, we did it in the
face of intense price pressure.
We have taken action to address these
issues. Our consultancy operations
have been restructured to reflect client
demand at a non-recurring cost of
£382,000 and we are introducing new
account management disciplines across
Parity. We need to grow revenue and
focus on margin, longevity and cross-
pollination across our services.
What has gone well?
Against a backdrop of change in our
markets and uncertainty with some of
our traditional clients, we’ve won new
clients across the business and often in
new sectors or new services.
We’re a cash generative business and
pay great attention to cash and credit
control. This year we lowered debtor
days to 18 days and we’ve maintained
progress in reducing net debt. It means
we will be able to renew our financing
arrangements at better terms and have
a good platform for the development of
our strategy.
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Strategic report
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Parity annual report and accounts 2018
Introduction
17
Chief Executive’s letter
What will we keep doing?
We’re good at relationships and that’s
shown in our long-term contacts. We
have clients with whom we have worked
for many years.
Our focus is on developing those
relationships and the skills and
processes needed to manage accounts
in a consistent and productive way by
placing account management at the
heart of the business. We will continue
to generate revenue and cash but will
also ensure that our business quality
improves in terms of client fit, margin
and sustainability.
What will we do better?
We have a number of priorities for the
future.
We will invest in better marketing and,
in 2018, we laid the groundwork for
new branding and communications.
We will be clearer in telling our story as
business advisors who are interested
in helping clients to find the right talent
and make bold decisions.
And we will be talking to clients in a
more integrated way. We saw in 2018
that revenues generated between
the two parts of our business grew to
£6.4 million; it’s a development that is
leading us to manage client accounts
more holistically. Instead of growing
our revenue in silos we will seize the
opportunity to explore all of our clients’
advisory, staffing and development
needs. Already we are seeing the fruits
of more joined-up thinking as we have
landed projects which call for both
advisory and recruitment expertise.
There is scope for the greater use of
technology in the recruitment business.
Increasingly, we are seeing clients
turning to online tools as their first resort
and we are interested in developments
that support a lower cost service
especially for generalist and less senior
talent. We are currently assessing the
technology landscape and will evaluate
our options in 2019.
However, at our heart, we are a business
that depends on our own talented
people; we have a strong sales force
supporting a group of knowledgeable
experts. Our strategy of a more
integrated offer across service lines
requires a continuing investment in
training and skills to ensure that we can
deliver for our clients and our investors.
Conclusion
This has been a year of reflection and
change for Parity.
As client and market needs changed,
we experienced real challenges
that questioned our approach. We
responded with a roadmap for a new
operating model that includes new
service lines, a clearer emphasis on
consistent and integrated relationship
management and a stronger brand
and communication to the market. Our
strengths in financial management have
enabled us to reduce debt and continue
to generate cash and, together with a
positive initial response from clients to
our new offer, this gives us confidence
for the future.
Matthew Bayfield
Chief Executive
15 April 2019
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Parity annual report and accounts 2018
Strategic report
19
Looking Ahead
Our goal
To grow earnings and shareholder value sustainably based
on excellent services, brilliant people and trusted relationships.
We’ll do that by being...
Focused on client
relationship
management
•
•
Offering support
across all our offerings
Applying consistent
processes and
disciplines to ensure
quality, profitability and
longevity
A strong team
at every level
Innovative and
dependable
Famous and
proud
•
•
•
Focused on client
satisfaction
Excited by cross
fertilisation between
our teams
Motivated to grow our
brand and business
•
•
•
A strong brand
cleverly marketed
Disciplined
business
developers
Trusted by
clients
•
•
•
A reputation for
leading thinking
Agile in our internal
processes
Unshakable where it
matters in financial
management and a
commitment to client
need
•
Curious about new
processes and tools
Why us
Our advantage
Our plan
•
•
•
We are relationship specialists – our clients keep
coming back
We’re knowledgeable – we know our world better
than anyone else
We’re innovative – we’re proactive in a changing
market and are responsive to clients’ needs
•
•
•
•
•
Consistent and integrated relationship management
Innovative marketing of an integrated offer
Developing the team
Strong financial and operational management
Innovating in services and technology use
Key projects for 2019
Branding
New business department
•
•
Refreshed branding to unify the full Parity offering
A launch to market of the new brand identity and
Parity offering to initiate the marketing strategy to
support growth and targets
•
•
•
A strategic function
Aligned to marketing
Tasked with growth in new sectors and new service
lines
New website
Onboarding senior hires
Strategic hires in:
• Consulting Leadership
• Business Development
•
•
Client Services
Learning & Development
Technology review
•
•
Assessing opportunity
Identifying competitive advantage and operational
efficiencies
•
Seeking first mover advantage wherever possible
•
•
•
Creation of unified Parity web presence to reflect our
integrated view of the world
Increased candidate and client interaction with
improved website functionalities
A renewed focus on generating leads through the
website
Content creation for
thought leadership
•
•
•
Publishing insights drawn from our community of
associates, shaping understanding of the real issues
facing organisations in the world of data
Strategic content plan set in place for the year, to
communicate key USPs to target markets
Dissemination of content through digital and paid
channels to generate leads
Operating model restructure
•
•
New cross group operational executive
Accountable for common client development and
service growth
•
Highest possible levels of market fit
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21
CEO Point of View
How we see our world
Data, on its own, is
worthless, argues
Parity’s Matthew Bayfield.
It becomes an asset
because of the people
who manage, interpret
and apply it to decisions.
In the last few years the world has
woken up to the power of data. We
have the tools that show us patterns
that were hidden to us before and
we can access insights about how
economies work, about how people
live, love and consume. We can govern
better and discover more in every
branch of industry and science. The
power of information can transform
the choices available to us and the
decisions we make.
In the last couple of years society
has become focused on the risks of
digital incompetence and increasingly,
consumers are becoming less tolerant
of service disruptions, data breaches,
fraud and political manipulation.
Yet this comes at a time when we’re
developing a healthier relationship with
data in so many aspects of our lives.
The benefits that clever data insight
brings us are an accepted and
expected feature of modern life.
We’re excited by targeted offers from
retailers, we look to government for
security from terrorists and criminals
and we’re relieved when medicine
anticipates our diseases or uncovers
new cures. Almost every sphere of
our world is influenced and improved
by the insights and information that is
available to us.
Many factors have made the advance
of data into our lives possible. The
falling cost of storage, the rising
speed of processing, the innovation
of hardware and the breadth of
applications have all brought business
intelligence within the grasp of
ordinary organisations with modest
budgets. However, these are only
tools; the real catalyst is human.
It’s people, with real personalities,
with real hopes, real likes and real
aversions who use these tools. No
matter how objective we think our
intelligence is, how dependable
we believe our tech to be or robust
our architecture, data still passes
through human hands at every stage
of its life. We rely on living, breathing
people to collect the right data, to
organise it, to protect it and ultimately
to understand it and apply it to bold
decisions. Even in the world of artificial
intelligence there is growing evidence
that a lack of diversity of the people
working in the space is having serious
implications for the types of artificial
intelligence we are developing.
Increasingly our clients want to talk
about this human side of the story
and they’re debating how to match
data with decision. After all the hype
about data being the new oil, we’ve
become aware that just gathering,
storing or processing data doesn’t
change anything. Without smart
people, data is dumb and languishes
in unexploitable bunkers. And
insight alone matters little if it doesn’t
empower and prompt decisions in our
businesses, governments and lives.
The conversation we’re having
is about the democratisation of
data. Organisations want to make
insight available to people at
every level because data driven
decision making is no longer the
preserve of the C-Suite. Right
now, data is helping chefs to plan
canteen menus, physiotherapists
create individual treatment plans
and soldiers decide on battlefield
tactics. People are clamouring to
apply data to routine planning and
operations; there’s an awareness
that data doesn’t only justify
decisions, it suggests options that
were previously unimagined even
at the most granular levels of our
organisations.
We have developed amazing tools
and now we need to make sure that
the people who use them have the
willingness, skills and imagination
to use them. Positive change will
depend on us seeing data not as a
technical problem of networks and
reservoirs but as a human process.
It will ultimately be our talent and
wisdom that decides the pace of the
data boom.
This is the conviction that is guiding
the Parity strategy. Our business is
based on this simple truth; without
the right people doing the right
things, the promise of data and
transformation remains a dream.
We’re equipping organisations
with the skills and knowhow to turn
information into an effective and
positive driver for change.
We rely on
living, breathing
people to collect
the right data,
to organise it,
to protect it and
ultimately to
understand it
and apply it to
bold decisions.
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23
Chairman’s report
2018 – a year of strategic realignment for Parity
This year has been very significant
for Parity. After a period of
consolidation and reflection we
have embarked on a course for long
term growth that will capitalise
on our strengths and develop a
proposition that meets client need.
Our experience has increasingly told
us that we have two opportunities.
We have a strong story to tell about
how data is used by organisations
which should bring us higher margin
consulting projects. We are also
seeing increasing success when
introducing clients to the breadth of
our services. The Board decided that
it is time for a more co-ordinated offer
and structure.
Results
Revenue grew at 2.7% across the
Group increasing to £86.1m for the
full year (2017: £83.8m). The Group
continues to be cash generative
and has maintained strong working
capital management with debtor
days reduced to 18 days (2017: 20
days), resulting in a further reduction
of net debt to £1.1m (2017: £1.6m),
underpinning our solid platform for
future investment and development of
the Group strategy.
Despite this, our strong first-half was
followed by a significant delay and
subsequent non-renewal of a major
project for our Consultancy Services
business. This reversed the trend of
growing contribution from this side
of the business and prompted us
to accelerate a restructuring which
we had planned to manage more
progressively.
Board changes and people
Strategy
Financing and dividend
Current trading and outlook
Banking arrangements with PNC
have been in place since 2010.
PNC has confirmed internal credit
approval to extend the facility for
a further two years on improved
terms. The renewal will result in a
£10m facility with interest charged
at 2.00% above base (previously
2.35%).
The Board is not proposing to
declare a dividend at this time but
will keep this policy under review.
Trading in the current financial year
remains in line with expectations.
The Board remains confident
in its strategy and continues to
invest to improve the operational
efficiencies in the core recruitment
service offering, the alignment of
the service offerings from both a
sales and delivery capability, and
the strengthening of the senior talent
within the firm to deliver an improved
trajectory through 2019 and beyond.
John Conoley
Non-Executive Chairman
15 April 2019
The existing management team
had made consistent progress
in simplifying the structure of the
business and aligning services
better to support our clients in the
growth markets we had identified.
The recruitment of Matthew Bayfield
in May 2018 was another significant
step in ensuring the development of
services to meet the demand for data
driven solutions. Every company is
investing to exploit the opportunities
available to make better decisions
through the mining and deciphering
of information. With his recognised
industry expertise, Matthew has
quickly been able to develop services
that have been well received by our
clients and are leading to further
opportunity.
As announced in February 2019,
Matthew Bayfield joined the Board on
5 February as Chief Executive Officer,
replacing Alan Rommel. Subsequently,
on 8 April, we announced that Alan
Rommel had stepped down from his
Board role as Chief Operating Officer
in order to pursue other interests. The
Board acknowledges and thanks Alan
for his significant contribution and
commitment to the Group over the last
25 years.
We are lucky in being supported
by a strong team of committed
professionals at every level of the
business and see investment in skills
as a key plank of our future plans.
Having been greatly encouraged
by the opportunities identified in
higher-margin data consultancy
services, the Board has restructured
the Consultancy Services division to
focus more closely on this market. In
addition to the promotion of Matthew,
we are investing significantly in senior
talent to drive thought leadership
and engage with clients at the
earliest stages of their data policy
development leading on to delivering
their data projects.
Better alignment between our
consulting and talent businesses
offers Parity a competitive advantage
as we widen the client base to which
we offer the full portfolio of our
services. Our aim is to drive further
operating margin improvement and
deliver consistent growth in earnings
and sustainable shareholder value in
the medium and long-term.
This will be supported by the
forthcoming developments in
marketing and branding which we
have initiated for roll-out in 2019.
Additionally, changes to our internal
operating model will assure consistent
quality in our relationship and account
management whilst maintaining our
strength in financial management.
The existing
management
team has made
consistent
progress in
simplifying the
structure of
the business
and aligning
services better
to support our
clients in the
growth markets
we have
identified.
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25
Principal risks and uncertainties
The Board maintains a close watch
on issues that affect our business,
markets and the wider economy.
Whilst the markets that we operate
in can be cyclical in their nature, we
take necessary action to mitigate the
risk and potential impact profile. We
have provided an overview below:
Macro-economic uncertainty
Client project decisions and recruitment
activity can both be affected by
confidence which can impact demand
for the Group’s services and therefore
revenues. To mitigate exposure to wider
macro-economic uncertainty, we operate
a largely elastic cost base with flexible
resourcing and costs (both staffing and
commissions) related to activity levels,
and managed offices on shorter-term
contracts with options to exit. The Group
is also exposed to market interest rates
and potential expected increases in
interest rates have been mitigated with a
focus on significantly reducing debt, with
our debtor days below market norms (18
days at 31 December 2018).
Brexit
Demand for the Group’s services could
reduce as an indirect result of the impact
of Brexit on the UK economy including
delays in client decisions due to the wider
macro-economic uncertainty. The Group
is not expected to suffer a direct long-
term negative impact due to Brexit, as
it is supported by the strong underlying
UK economy and the Group operates
predominately in the UK with a minor
proportion of business in Ireland. Brexit
has also driven additional opportunity to
the Group with established Public Sector
clients creating additional infrastructure
in preparation.
Legislation – e.g. IR35, GDPR
IR35 Reforms have increased the
churn rate of contractors in the Public
Sector as they leave to work in roles
which are not assessed to be within
IR35, elsewhere in the Public Sector,
or leave for roles in the Private Sector
which are assessed differently. IR35 is
set to be implemented to the Private
Sector in 2020 which could impact
revenues. In mitigation, the Group
aims for a diversified client base and
will make use of our Public Sector bias
and implementation experience to limit
the disruption. GDPR came into effect
in May 2018 with increased penalties
for serious data breaches. Due to the
volume of personal data we hold in our
recruiting business, an internal working
group has put in place a number of
measures, including staff training, to
minimise risk.
Strategy fails to deliver
anticipated growth
The Group’s anticipated growth may not
be achievable if the Group is unable to
implement its strategy effectively. The
Board seeks to mitigate this through a
robust assessment of its opportunities,
the feedback from its clients and
potential clients, clear priorities and
focus on delivering key objectives and
incentivising its team to deliver against
those objectives.
Loss of key client frameworks
A significant portion of the Group’s
revenues are dependent on the award of
framework agreements as an approved
supplier. It is possible that the Group will
lose this status. We seek to mitigate this
through closely monitoring our service
level agreements and ensuring the
quality of our delivery.
Staff
The risk is that staff do not have the
development or the tools to perform
at their best, and without a clear
career path we experience increased
staff turnover. Parity has invested in
additional direct training and training
We support
staff to achieve
expectations
in their roles
and there is
clarity on the
development
required.
resource for staff. We support staff to
achieve expectations in their roles and
there is clarity on the development
required. We support staff by reviewing
and acquiring new tools to help them
perform at their best and provide
competitive remuneration and incentives
to support retention. In addition, the
Group has various share plans at its
disposal, to provide staff with the
opportunity to benefit from the success
of the Group with minimal financial risk.
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 including those
caused by cyber breaches and attacks.
26
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27
Operational and Financial Review
A Brief Overview
•
An increase in revenue but
weighted towards lower margin
recruitment work.
•
Delay and subsequent loss of the
MoD account impacted operating
profit substantially.
•
Continued strong working capital
management resulted in a decrease
in net debt.
Continuing Operations
Key Financials
Revenue
Adjusted profit before tax1
Net debt
Ratios
Adjusted PBT margin %
Net debt / Adjusted EBITDA ratio
2018
£’000
86,112
853
(1,090)
1.0%
0.8
2017
£’000
Incr./(Decr.)
%
2.7%
(48.7%)
(33.2%)
83,815
1,662
(1,632)
2.0%
0.7
Divisional performance
Revenue
Parity Professionals
Parity Consultancy Services
Less inter-segment revenue
Group revenue
Divisional contribution
Parity Professionals
Parity Consultancy Services
Total divisional contribution
1 Adjusted profit before tax is defined as profit before tax and non-recurring items
Reconciliation of divisional contribution and adjusted
EBITDA to operating profit from continuing operations
Despite growth in its revenues, the
Group experienced a reduction in
adjusted profit before tax during the
year ended 31 December 2018. The
decline in profit derived mainly from the
mix impact of revenue growth in the
lower margin Professionals division,
and a reduction in both revenue and
contribution from the Consultancy
Services division. The trading
challenges in the Consultancy Services
division prompted a restructure of the
division with the associated one-off
costs treated as non-recurring items in
these accounts. The Group was cash
generative during the year resulting in
a further reduction to net debt.
Revenue for the year ended 31
December 2018 increased by 2.7% from
£83.8m to £86.1m driven by growth in
the Professionals division. The division’s
contractor volumes recovered from the
impact of IR35 reforms introduced in
the public sector in 2017. The trading
issues in the Consultancy Services
division are set out in the Divisional
Performance section below and led to
a weaker revenue mix. Consequently,
adjusted profit before tax fell by 48.7%
from £1.66m to £0.85m with the Group
adjusted PBT margin tightening from
2.0% to 1.0%. Non-recurring items
incurred in the year were predominately
related to restructuring and totalled
£495,000. Profit before tax after
deducting non-recurring items was
£358,000. Net cash generated from
operations was £604,000 enabling us
to reduce net debt from £1.6m to £1.1m
at the end of 2018, with the Net Debt/
Adjusted EBITDA ratio at the end of year
0.8x (2017: 0.7x).
Over the last few
years Parity have
provided RoS
with a number of
IT professionals.
Parity provide a
quick and efficient
service to RoS with
knowledgeable staff,
who provide expert
advice.
Registers of Scotland
(client)
Divisional contribution
Group costs
Share-based payment charges
Adjusted EBITDA
Depreciation and amortisation
Operating profit before non-recurring items
Non-recurring items (continuing operations)
Operating profit from continuing operations
Divisional contribution is reconciled to the income statement as part of segmental information presented in note 2 on page 84.
2018
£’000
84,025
8,496
(6,409)
86,112
2,314
320
2,634
2017
£’000
Incr./(Decr.)
%
80,036
9,543
(5,764)
83,815
2,307
1,148
3,455
2018
£’000
2,634
(1,093)
(129)
1,412
(194)
1,218
(495)
723
5.0%
(11.0%)
-
2.7%
0.3%
(72.1%)
(23.8%)
2017
£’000
3,455
(1,045)
(68)
2,342
(286)
2,056
-
2,056
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29
Operational and Financial Review
The most significant challenge related to
the long-standing MCOCS contract with
the MoD. Whilst the division maintained
the quality of its delivery to the client
during the year, an expected extension
in Q3 to the contract was delayed
due to a protracted client decision-
making process, and subsequently not
renewed. As a result of the delay the
division incurred losses associated with
its fixed cost delivery base. To a lesser
extent the division was also impacted
in H2 by a reduction in spend for our
Application Management Support
services in comparison to previous
years.
In Q4 the division acted to address its
losses, taking the decision to restructure
its delivery function. We have excluded
further work on the MCOCS project
from our financial projections, and right-
sized our delivery model for Application
Management Support. Inevitably this
resulted in some redundancies. The
associated one-off costs have been
treated as non-recurring items in these
accounts.
Good progress has been made with
other clients including the Education
and Skills Funding Agency where we
are supporting our client with its digital
projects. Most pleasingly, we have
seen early signs of success from the
investments made to focus efforts
on data consultancy services. These
investments have been instrumental in
winning work with a leading contract
catering and facilities group.
Parity Professionals
Parity Professionals provides
targeted recruitment of temporary
and permanent professionals with
the staff to deliver business change
programmes. We supply a broad
range of skills from project management
through to the niche skills in digital,
data and information security required
to ensure our clients can deliver their
projects.
Parity Professionals generated revenue
growth of 5% at £84.0m (2017: £80.0m),
building on a well-established client
base in the Public Sector with 15
framework wins and over 100 new
clients in the year. Over 50% of the new
client wins were in the Private Sector
including household names such as
Primark, not-for profit organisations
such as the British Standards Institute
and a number of housing associations.
Revenue growth was supported by a
higher number of new interim candidate
placements in the period. Contractor
volumes recovered from the impact of
the IR35 reforms which were introduced
in April 2017 and applied to contractors
working at our public sector clients.
At the end of 2018 the number of
contractors on billing was 995 (end
2017: 940). The total margin value on
new sales in the period grew by 8%
compared to 2017, and this momentum
has improved through the year, resulting
in a forward order book at year end of
£32.7m (2017: £27.5m). Revenue from
permanent recruitment was broadly
flat at £638,000 (2017: £657,000) partly
due to supply side shortages, though
average fee rates per placement
increased significantly as we targeted
more senior roles and niche skills in the
digital and cyber security markets.
Parity Consultancy Services
During 2018 the Consultancy Services
business was focused on delivering
data and technology solutions to its
clients. Whilst trading was in line with
our expectations in the first half of
the year, the division was impacted
by challenges in the second half
which resulted in a 72% drop in full
year divisional contribution to £0.3m
(2017: £1.1m). Nevertheless, we remain
convinced by the opportunity that the
data consultancy market provides to
the Group and have invested in senior
management and marketing during the
year. The difficult second half prompted
a restructuring of the division, to
align the cost base towards the more
profitable opportunities available to the
Group.
The team at Parity
have been a huge
asset in finding
and securing
contract work since
I’ve relocated to
Scotland. Everyone
I have dealt with has
been friendly, helpful
and professional
and I would
recommend your
services without
hesitation.
Candidate
Earnings per share and dividend
The basic earnings per share from
continuing operations were 0.41 pence
(2017: 2.15 pence). The decrease stems
from lower profitability and the deferred
tax credit recognised in 2017.
The Board does not propose a dividend
for 2018 (2017: nil). During the year
the Board sought external advice in
respect of the steps needed to restore
a dividend. The Board suspended the
exercise when it became clear that
profits before tax would be lower than
in 2017 but will keep the position under
review.
One challenge created by the IR35
reforms and affecting the divisions
contribution is a higher contractor churn
rate, partly due to the lure of roles in
the Private Sector, where the reforms
will not apply until 2020. The divisional
contribution margin was also affected
by the managed service win at Primark,
with lower than average contractor
gross margins initially, but with the
opportunity to improve profitability in the
future, by placing contractors that we
have sourced.
We continue to deliver the service-
wrap for the Public Sector FastStream
Graduate intake and this contract has
been extended through to September
2019, though it is expected that the
client will in-house the service provision,
TUPEing Parity staff from this point
with no stranded costs to the business.
Parity Professionals successfully
retendered for G-Cloud 10 framework
with the Crown Commercial Service
and has been awarded a managed
service for the provision of project and
programme management services
for the Scottish Government Digital
Superfast Broadband programme
underwriting our dominant position for
trusted delivery on key Public Sector
contracts.
After the year end we were informed
that a significant framework contract for
the placement of staff with the Scottish
Government would not be renewed. Our
incumbent contractors placed through
the framework will continue their
contracts until their assignments end
but we will not be able to make any new
placements. This will result in revenues
from the framework contract gradually
winding down over the next two financial
years. While this legacy type of contract
has been significant in revenue terms
it has provided relatively low levels of
margin, the loss of which will be largely
offset by costs savings mainly related to
serving this specific contract during the
period of contract run off.
In the longer term the end of this
contract will improve the Group’s net
margin performance albeit from a lower
level of revenue, consistent with the
longer term direction of travel for Parity.
Non-recurring items
Non-recurring items of £0.50m (2017:
£nil) were incurred during the year,
primarily as a result of restructuring the
Consultancy Services division, and are
analysed in note 5 on page 87.
Taxation
The tax credit on continuing profit
before tax was £63,000 (2017: tax credit
of £534,000) mainly representing a
deferred tax adjustment in respect of
prior periods. Whilst the Consultancy
Services division generated a lower
contribution than the previous year, its
outlook remains positive. Therefore, we
continue to take a prudent view on the
division’s carried forward tax losses
which remain unrecognised but will
keep this under review.
The Group did not provide for
corporation tax payable in 2018 due to
the utilisation of Group relief and the
availability of carried forward deductible
timing differences and tax losses.
Discontinued operations
We disposed of the non-core Inition
subsidiary in April 2018 for consideration
of £0.2m and recorded a loss on
disposal of £0.3m. Further details about
the disposal can be found in note 8 on
page 88. Inition was held for sale at
the start of the year and accordingly
its results to the point of disposal are
presented as discontinued. During the
portion of 2018 that Inition was owned
by the Group, it incurred an operating
loss before tax of £0.3m (2017: £1.1m).
30
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31
Operational and Financial Review
Statement of Financial
Position
Trade and other receivables
Trade and other receivables remained
at a consistent level in comparison
to the previous year at £12.0m (2017:
£12.0m). Ordinarily we would expect
the increased contractor volumes in the
Professionals division to carry a higher
working capital requirement. However,
the working capital requirement has
been offset by a further improvement in
debtor collections in the Professionals
division. Group debtor days, calculated
on billings on a countback basis,
decreased to a record low of 18 days
(2017: 20 days).
Trade and other payables
Cash flow and net debt
The Group generated positive net cash
flows from operating activities of £0.6m
(2017: £3.0m), driven by EBITDA and a
positive working capital swing with a
reduction in debtor days to 18 (2017: 20
days). The £0.6m cash generated was
after cash flows of £0.4m outflow and
£0.1m inflow in respect of non-recurring
items and discontinued operations
respectively.
As a result of the positive cash flow, net
debt reduced to £1.1m (2017: £1.6m).
Defined benefit pension deficit
During the year the pension scheme was
subject to a triennial actuarial review, the
outcome of which is in the process of
being agreed between the Trustees and
the Group.
Trade and other payables also remained
at similar levels to the previous year at
£8.3m (2017: £8.3m). At the year end,
creditor days were 28 days (2017: 28
days).
At the year end the deficit had increased
to £1.9m (2017: £1.1m), primarily due
to a fall in the value of the scheme’s
investments, reflecting weaker global
equity markets.
Assets and liabilities held for sale
The assets and liabilities held for sale on
the 2017 balance sheet related entirely
to the Inition subsidiary which was
disposed of in April 2018. Further details
of the disposal can be found in note 8
on page 88.
Roger Antony
Group Finance Director
15 April 2019
Loans and borrowings
Loans and borrowings 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 Business Credit (“PNC”), a leading
secured finance lender, allows for
borrowing of up to £15m depending on
the availability of appropriate assets as
security. The current facility, which has
been in place since 2010, is in the final
stages of being renewed on improved
terms including a reduction in the
interest rate to 2.00% above base rate
from 2.35% previously. The terms of
the agreement have been sanctioned
by PNC’s credit committee with just the
legal paperwork to tie up to complete
the renewal.
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Introduction
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Introduction
33
Section three
Governance
Contents
Section one
Introduction
About us . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05
Section three
Governance
Corporate Governance Report . . . . . . . . . . . . . . . . . . . . 34
Parity Group at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . 06
The Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Our timeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08
Corporate Social Responsibility Report . . . . . . . . . . . . . 42
Section two
Strategic report
Chief Executive’s letter . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Looking Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
CEO Point of View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Chairman’s report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Principal risks and uncertainties . . . . . . . . . . . . . . . . . . . 25
Operational and Financial Review . . . . . . . . . . . . . . . . . . 26
Remuneration Committee Report . . . . . . . . . . . . . . . . . . 47
Audit Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . 54
Directors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Statement of Directors’ Responsibilities . . . . . . . . . . . . . 60
Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . 62
Section four
Accounts, notes and other information
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . 78
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
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Introduction
Prior to 2018, the Company sought to
model its corporate governance on
the 2013 Quoted Companies Alliance
Corporate Governance Code for Small
and Mid-Size Quoted Companies, as
far as was practicable and appropriate,
having regard to the size and resources
of the Company. On 8 March 2018, the
London Stock Exchange issued revised
rules for AIM-listed companies, within
which was a requirement (Rule 26) for
AIM companies to apply a recognised
corporate governance code from 28
September 2018.
Accordingly, in September 2018, the
Company decided to apply the 2018
QCA Corporate Governance Code (the
Code) and this Corporate Governance
Report for the year ended 31 December
2018 is based upon the Code. The
principal means of communicating our
application of the Code are this Annual
Report and our website (www.parity.net).
Chairman’s statement
As Non-Executive Chairman, I am
responsible for the leadership of the
Board, ensuring its effectiveness on
all aspects of its role, including good
governance in dealing with all of our
stakeholders. 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.
I am also responsible for effective
communications with shareholders and
relaying any shareholder concerns to
the Directors.
Upon joining the Board as Non-
executive Chairman in April 2017 it was
evident that the Board had a strong
focus on corporate governance. The
Board is committed to maintaining and
evolving high standards of corporate
governance throughout the organisation
and has adopted the Code. In the
remainder of this report, I set out how
the Group applies the ten key principles
of the Code, which fall under three
broad categories.
Deliver growth
Establish a strategy and business
model which promote long term
shareholder value for shareholders
The Group’s strategy is to drive margin
improvement to sustain growth in
shareholder value. The Board will invest
in measures to accelerate growth in
the data consulting business whilst
improving the operational alignment
of our recruitment business. Data is
now of greater importance than ever
and Parity can empower and enable
clients to take advantage of this. See
the Group’s strategy as set out in the
Chief Executive’s Letter on page 12 and
Looking Ahead on page 18.
Challenges faced by the Group
in executing its strategy include
repositioning the business service
offerings, changing the internal
operating model, market competition
and macro-economic factors. The
principal risks and uncertainties faced
by the Group and potential mitigation
can be found on page 25.
Seek to understand and meet
shareholder needs and expectations
The Board seeks to understand the
needs of its shareholders through
regular engagement with its major
shareholders. At the same time the
Board recognises the need to balance
the interests of significant and minority
shareholders.
The Group engages with major
shareholders through presentations
and meetings after the announcement
of the Group’s full year results and
interim results. All shareholders are
given the opportunity to communicate
directly with the Board at the Annual
General Meeting. From time to time
the executive directors attend investor
events which provides an opportunity to
speak to both existing and prospective
retail shareholders. The de facto
Senior Independent Director acts as an
additional contact point for shareholders
if they have reason for concerns, when
contact with the normal channels has
failed to resolve their concerns.
The Group maintains an investor
website which holds all relevant
shareholder information.
Wider stakeholder and social
responsibilities
As a professional services business,
Parity’s strength derives from the
commitment, capability and cultural
diversity of its employees. The Group
encourages the participation of all
employees in the operation and
development of the business by offering
access to senior management, including
executive directors, and adopting
a policy of regular communications
through road shows and the intranet.
The Group supports an Employee Voice
forum which comprises volunteer staff
members and provides opportunity for
upward communication. The Group also
encourages participation in an annual
employee survey, which is completed
anonymously and administered by an
independent organisation.
The Group also recognises its
responsibilities to other external
stakeholders including its clients,
contractors, suppliers, the trustees of
the defined benefit pension plan and its
asset-based lender.
It is Group policy to be a good
corporate citizen wherever it operates.
Encouragement and support is provided
to employees who undertake charity or
volunteer work.
The Group’s Social, Environmental and
Ethical policies can be found in the
Corporate Social Responsibility Report
on page 42.
Embed effective risk management
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. The Group maintains an
internal risk register which is updated
quarterly and reviewed periodically by
the Audit Committee.
The Group does not consider it
necessary to have a separate internal
audit function due to the Group’s size
and its centralised administrative
function but keeps this need under
review. The Company receives regular
feedback from its external auditors
on the effectiveness of its internal
controls and aims to implement any
improvements identified.
The principal risks faced by the Group
are presented on page 25. The Board
is not aware of any significant failings
or weaknesses in the system of internal
control.
Maintain a dynamic
management environment
Maintain a well-functioning,
balanced board
At the date of this report, the Board
comprises myself as Non-Executive
Chairman, Non-Executive Director,
David Firth, Chief Executive Officer,
Matthew Bayfield, and Group Finance
Director, Roger Antony. Matthew
Bayfield was appointed Chief Executive
Officer on 5 February 2019 replacing
Alan Rommel who was appointed Chief
Operating Officer on the same date and
subsequently left the Board to pursue
other interests on 8 April 2019. The table
on page 49 sets out the dates of tenure
of the current Directors on the Board.
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 Board
considers both Non-Executive Directors
to be independent, with neither having
a length of service of greater than three
years. The Non-Executive Directors
ensure that independent judgement
is brought to Board discussions
and decisions. The Board considers
that there are no relationships or
circumstances which are likely to affect
the independent judgement of the Non-
Executive Directors.
The Board has meetings scheduled
regularly throughout the year to review
and approve the Group’s strategy and to
monitor progress against set objectives.
Additional meetings are also held as
business dictates. The Board has a
formal schedule of matters reserved for
its specific approval which includes a
review of Group strategic, operational
and financial matters such as proposed
acquisitions and divestments. All
members of the Board are normally
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37
Corporate Governance Report
supplied in advance of meetings with
the agenda and supporting papers
covering the matters which are to be
considered.
Whilst there is a clear division of
responsibilities, the Non-Executive
directors remain in regular contact with
the Executive directors outside of board
meeting. For example, I have a weekly
catch up call with the CEO, and the
Non-Executive directors are available
to support on material matters as and
when that support is required.
As Non-Executive Chairman, I am
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. I am also responsible for
effective communications with
shareholders and relaying any
shareholder concerns to the Directors.
During the year I met with the other
Non-Executive Director without the
Executive Directors being present.
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 57 and in
the separate Notice of Annual General
Meeting sent to all shareholders. I
confirm that the performance of each
Director continues to be effective and
the individuals continue to demonstrate
commitment to their role.
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.
The Board has meetings scheduled
regularly throughout the year to review
and approve the Group’s strategy and to
monitor progress against set 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 below.
During the year, 10 scheduled Board
meetings and 4 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.
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. During 2018
the Board continued to regularly track
potential risks associated with Brexit.
The Board delegates specific
responsibilities to three Committees:
the Audit Committee, the Remuneration
Committee and the Nomination
Committee. The Audit, Remuneration
and Nomination Committees of the
Board each have formal written terms of
reference. These terms of reference are
available on the Group’s website (www.
parity.net).
The Audit Committee comprises the
two Non-Executive Directors and
is chaired by David Firth. The Audit
Committee meets at least three times
a year. Details of the responsibilities
of the Audit Committee are set out in
the Audit Committee Report on pages
54 to 55. Where necessary, specialist
external consultants are used to assist
the Committee.
Board1
Audit
Nomination Remuneration
Number held
10
3
1
3
Number attended2
John Conoley
David Firth
Alan Rommel
Roger Antony
10/10
10/10
10/10
10/10
3/3
3/3
-
-
1/1
1/1
-
-
3/3
3/3
-
-
1
Scheduled Board meetings only – excludes ad-hoc Board meetings
2
All Directors who were members of the Board at the time attended the Group’s Annual General
Meeting on 24 May 2018
The Remuneration Committee
comprises both Non-Executive
Directors and is chaired by David Firth.
Details of the responsibilities of the
Remuneration Committee are set out
in the Remuneration Report on pages
47 to 52. Where necessary, specialist
external consultants are used to assist
the Committee.
The Nomination Committee comprises
both Non-Executive Directors and is
chaired by myself. The Committee
meets at least once a year and 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.
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.
Ensure the board has the necessary
up-to-date experience, skills and
capabilities
Directors who have been appointed to
the Board have been chosen because
of the skills and experience they offer.
The Directors’ biographies, which are
set out on pages 40 to 41, illustrate
the range of business backgrounds,
skills, independence and experience
contributed by each Board member. The
Board are aware of the importance of
attaining greater diversity amongst its
members.
Each member of the Board takes
responsibility for maintaining their
skill sets, which includes roles and
experience with other boards and
organisations. The Group pays
subscriptions to various professional
organisations, for example the QCA,
which provide the directors with access
to regular market and regulatory
updates. Some of the Directors have
individual membership of professional
organisations that require their members
to evidence continual professional
development on an annual basis.
All Directors have the opportunity to
undertake relevant training and attend
relevant seminars and forums.
Where the Board considers specialist
advice is required to address matters
reserved for the Board, it will seek to
engage competent external advisors.
During the year the Board engaged
with two such advisors. Firstly, a top
4 accounting firm that the Committee
decided was best suited to provide
advice on enabling a dividend was
engaged, although the Board decided
to defer this exercise due to trading
challenges in the second half of the year.
Secondly, pension scheme specialists
were engaged to provide advice on the
Trustees’ triennial review of the defined
benefit pension scheme.
David Firth acted as the de facto Senior
Independent Director during 2018.
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.
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.
Evaluating board performance and
development
The Board undertakes an annual
evaluation of its own performance and
that of its Committees and individual
Directors.
The assistance
provided by Parity,
and solution to our
recruiting needs, at
such short notice
was exceptionally
helpful to us. I
personally am very
grateful to Parity’s
Regional Director
for ensuring I had
the correct level
of information
and advice which
enabled me to bring
the right person, with
the right skills into
our work area much
quicker than I had
anticipated.
Client
The Board undertook an annual
evaluation of its own performance and
that of its Committees and individual
Directors for the year. My own
performance 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.
The results of the evaluation performed
in 2018 were satisfactory.
Promoting ethical values and
behaviours
The 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.
Further details are set out under the
“Ethics” section of the Corporate Social
Responsibility Report on page 43.
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A critical aspect of the Group’s strategy
is to be perceived as a trusted partner
of its clients. In order to achieve this
objective, 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. The Board
supports and promotes the principles
of equal opportunities in employment
and promotes a culture where every
employee is treated fairly. The Board
and management conduct themselves
ethically at all times and promote a
culture in line with the standards set out
in the employee hand book.
Maintain governance structures and
processes that are fit for purpose
The Audit, Remuneration and
Nomination Committees of the Board
each have formal written terms of
reference. These terms of reference are
available in the Corporate Governance
section of the Group’s website (www.
parity.net).
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 Group’s expense.
New Directors receive a comprehensive,
formal and tailored induction to the
Group’s operations including corporate
governance, the legislative framework.
Authority is delegated to senior
operational management through Group
authorisation limits on a structured
basis, ensuring that proper management
oversight exists at the appropriate
level. During the year, the Group
operated through two divisions, Parity
Professionals and Parity Consultancy
Services. Inition was held for sale as
a non-core business offering and was
wholly disposed of in April 2018. The
operational board comprises the Chief
Executive Officer, the Group Finance
Director, and the divisional Managing
Directors. The operational board
meetings are held monthly and are
attended by other senior management
as appropriate. Regular updates are
provided by the heads of shared service
functions such as marketing, IT and HR.
Any key issues from these meeting are
reported to the main Board.
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.
The Annual Report is designed
to present a fair, balanced and
understandable view of the Group’s
activities and prospects. The
Operational and Financial Review
provides an assessment of the Group’s
affairs and position. The Annual
Report is sent to all shareholders on
the shareholder register. The Group’s
Annual and Interim Reports and
Notices of the Annual General Meeting
for the past 5 years are available on the
Group’s website.
The Group details how it is governed
and performing both in this Annual
Report and Financial Statements and on
its website.
The reports to the shareholders of the
Audit and Remuneration Committee
can be found on pages 54 and 47
respectively.
John Conoley
Non-Executive Chairman
15 April 2019
Build trust
Communicate how the company
is governed and performing,
maintaining a dialogue with
shareholders and other relevant
stakeholders
The Board attaches great importance
to providing shareholders with clear
and transparent information on the
Group’s activities, strategy and financial
position. Details of all shareholder
communications are provided on the
Group’s website (www.parity.net).
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
40
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41
41
The Board
John Conoley (58)
Non-Executive Director
David Firth (58)
Non-Executive Director
Matthew Bayfield (44)
Chief Executive Officer
Appointment Date:
April 2017
Appointment Date:
September 2016
Appointment Date:
February 2019
Experience:
Previously Chief Executive of London
listed Psion plc and Non-Executive
Director of NetDimensions, the talent
management technology platform
Committees:
Chairman of the Nominations
Committee and Member of the
Remuneration and Audit Committees
External Appointments:
Executive Chairman at eServGlobal UK
Ltd and Non-Executive Chairman at
FireAngel Safety Technology plc
Skills brought to the board:
Over 30 years IT industry knowledge
and significant executive and non-
executive Board level experience
of AIM listed businesses
Number of Board meetings
attended in 2018:
10/10
Sector experience:
Technology software and services
Experience: Previously Finance
Director of Penna Consulting for 16
years and Group Finance Director of
Parity for 4 years
Committees:
Member of the Nominations Committee
and Chairman of the Remuneration and
Audit Committees
External Appointments:
Non-Executive Director at Best of the
Best plc and Non-Executive Director at
Summerway Capital plc
Skills brought to the board:
A wealth of experience in the people
management and consultancy markets.
Has held senior finance positions in
public companies across a number
of sectors
Number of Board meetings
attended in 2018:
10/10
Sector experience:
People management, consultancy,
finance, recruitment, IT services,
motor retailing and advertising
Experience:
Matthew joined the senior management
team of Parity in May 2018. Prior to this
Matthew has held positions as CEO of
Field London, Head of Data for Ogilvy
and Mather, and Managing Director
and Founder of Tree London
Skills brought to the board:
Having a wealth of experience in the
IT and Data sector, Matthew has
successfully founded five start-up
businesses with three taken through
to trade sale, as well as held a senior
position on the board of Ogilvy and
Mather, the world’s largest
advertising agency
Number of Board meetings
attended in 2018:
N/A
Sector experience:
IT services, management consulting
and data consultancy
Roger Antony (52)
Group Finance Director
Appointment Date:
April 2016
Experience:
Prior to his appointment, Roger
held the position of Group Financial
Controller since 2006, and prior to that
the role of Financial Controller for the
International Resources Division
Skills brought to the board:
Roger joined the Parity Group after
qualifying as an accountant in 1997,
and previously held managerial roles
within a variety of listed entity finance
departments
Number of Board meetings
attended in 2018:
10/10
Sector experience:
IT services, recruitment and retail
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Corporate Social
Responsibility Report
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. An Employee Voice
forum was introduced during 2017 in
order to create more opportunities for
upward communication and generation
of ideas from all employees. The forum
comprises volunteer staff members from
different office locations.
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
results from the 2018 survey reflected
broadly average staff engagement,
with slightly lower satisfaction levels
in comparison to the previous year. It
was noted that the less positive scoring
was localised, and that the timing of the
survey was such that it coincided with a
period of divisional restructuring.
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. Following the recent
Board changes the Group is currently
reviewing its approach to performance
appraisal and career progression, with a
view to implementing an improved talent
development programme.
Health & Safety
Social responsibilities
Energy
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.
In order to support any employees
suffering from mental health issues,
the Group has rolled out a Stress
and Wellbeing Course across all of
its locations with the aim of enabling
managers to identify any early signs of
concern and provide initial support to
individuals.
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.
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
fundraising events. For example, during
2018, members of staff in the Group’s
London office participated in a charity
fund raising event for the NSPCC that
successfully met the £15,000 target.
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 the 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.
Only energy-efficient computers and
devices 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
44
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Governance
45
I had a very
satisfactory
experience with
Parity in relation
to securing a role
in the company I
currently work for.
Once I was offered
the role, on boarding
was completed
efficiently and
everything was
explained really well.
Parity are always
very responsive
whenever I have
a question and are
always available
in person to meet
on a regular basis.
Candidate
Corporate Social
Responsibility Report
Nevertheless, this assessment is
kept under continual review and due
diligence is conducted with any new
suppliers.
•
Staff Training – during 2018 we have
continued to provide training to
all new employees on the Modern
Slavery Act 2015 and our Modern
Slavery Policy as part of our
onboarding programme to ensure
all employees are aware of their
responsibilities.
During 2018 no instances of modern
slavery were reported or identified.
General Data Protection Regulations
(GDPR)
The Company takes its data protection
obligations seriously and commenced
preparations for GDPR in 2017,
establishing a working party with
Executive Director sponsorship in order
to ensure compliance. We have also
worked with external, specialist data
protection lawyers to ensure we are fully
compliant within the spirit of the law,
whilst ensuring we make commercially
appropriate decisions.
During the year under review we have
updated our Data Protection, Privacy,
Information Security, Cookies and Data
Breach policies to comply with the new
regulations. We have also undertaken
a review of the internal processing of
personal data and have implemented a
number of measures including a purge
of obsolete data and a tightening of our
IT security. We have provided training
and guidance on the new regulations to
all staff and the guidance will form part
of each new employee’s induction.
and values which sets out the standards
of behaviour we expect from all our
employees.
Anti-Bribery Act
Parity’s Anti-Bribery and Corruption
policy is written to follow the UK
regulatory requirements in relation to
the Anti-Bribery Act. The policy has
Executive Director ownership and is
available on the Group’s intranet. Client
and supplier arrangements are regularly
reviewed and guidance forms part of
each employee’s induction.
During the year under review the
policy was updated, with amendments
including incorporation of the
Company’s responsibilities in respect of
tax evasion under the Criminal Finance
Act 2017. The Parity Professionals
division maintains a preferred supplier
list (PSL) for payroll companies used by
its contractors and undertakes tax due
diligence before allowing companies on
to its PSL.
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. The following actions
have been taken during 2018:
•
Supply Chain Review – we continue
to take positive steps to improve
supply chain transparency. Following
the annual review of our policy and
supply chain, we continue to believe
that we operate a supply chain with
a very low inherent risk of slave and
human trafficking potential. Our
supply chain is mainly made up of
UK based suppliers of professional
services, computer software and
equipment, office supplies and our
contractor and associate workers.
46
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47
Remuneration Committee Report
Remuneration Committee
The Remuneration Committee
comprises David Firth as Chairman and
John Conoley. At the invitation of the
Committee, other Directors may attend
meetings however individual 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 benefits packages
are competitive and appropriate. In
addition, committee members keep
themselves fully informed of all relevant
developments and best practice by
reference to the QCA’s Remuneration
Committee guide. 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 2018 are set out in
the table on page 50.
Remuneration policy
Parity aims to recruit, motivate and
retain high calibre executives capable
of achieving the objectives of the
Group and to encourage and reward
appropriately superior performance in
a manner which enhances shareholder
value. Accordingly, the Group operates
a remuneration policy which ensures
that there is a clear link to business
strategy and a close alignment with
shareholder interests and current best
practice and aims to ensure that senior
executives are rewarded fairly for their
respective individual contributions to the
Group’s performance.
The four key elements of the
remuneration package of senior
executives, including Executive
Directors, in the Group in 2018 were
basic annual salary and benefits in
kind, performance bonuses, long term
incentives including share options, and
pension arrangements.
Salaries and benefits are reviewed
annually. In order to assess the
competitiveness of the pay and benefits
packages offered by the Group,
comparisons are made to those offered
by similar companies. These are chosen
with regard to the size of the company
(turnover, profits and employee
numbers), the diversity and complexity
of their businesses, the geographical
spread of their businesses, and their
growth, expansion and change profile.
Performance bonus
The terms of an incentive bonus for
Executive Directors are agreed annually.
For 2018, performance targets were set,
but were not met, and no performance
bonuses were earned by, or paid to,
Executive Directors in 2018.
Share option schemes
During 2018 the Group operated two
types of share option scheme: An
Executive Share Option Plan, and a
Savings Related Share Option Scheme
(Sharesave Scheme).
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
through shares issued by the Company.
In the event that an employee resigns,
the options that they hold will lapse.
Options are granted at nil cost. The
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Governance
49
Remuneration Committee Report
option exercise price is set at the closing
mid-market share price on date of grant
without any discount.
Share options awarded to the
Executive Directors are disclosed in
the table under the section Directors’
Remuneration within the Remuneration
Report on page 51. All of the options
awarded to the Executive Directors have
vested or lapsed, with the exception of
the following grants:
On 19 September 2016 1,500,000
share options were awarded under this
scheme to Alan Rommel and 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.
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
16.00 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 19.20 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 22.40 pence for 5 consecutive
days.
On 5 February 2019 Matthew Bayfield
was appointed as an Executive Director.
Prior to this appointment, 500,000
share options were awarded under
this scheme to Matthew Bayfield on
3 May 2018 as a member of senior
management. The exercise price of the
options is 13.25 pence and the share
options granted have been divided into
thirds with each third being subject to
the following performance condition:
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.
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 16.56 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.
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 19.88 pence for 5
consecutive days.
On 18 May 2018 1,600,000 share
options were awarded under this
scheme to Alan Rommel and 1,000,000
share options were awarded to Roger
Antony. The exercise price of the
options is 12.8 pence and the share
options granted have been divided into
thirds with each third being subject to
the following performance condition:
iii) To exercise the final third (100% in
total) of the share options awarded
the share price must be greater
than or equal to 23.19 pence for 5
consecutive days.
All of the share options awarded to the
Executive Directors vest in 3 years from
the grant date, and lapse in 10 years
from the grant date if not exercised.
Sharesave Scheme
All UK employees, including the
Executive Directors, are eligible to
participate in the Group’s savings
related option scheme (Sharesave
Scheme) which enables them to
subscribe for ordinary shares in the
Company. Options granted under
the Sharesave Scheme do not have
performance related conditions
attached to them.
In May 2018, the Group made a grant of
options under the Sharesave Scheme.
Options were granted in conjunction
with a three year savings contract, up
to a monthly limit of £250. Options were
granted at a discount of less than 10% to
the market price. None of the Directors
held options under the Sharesave
Scheme at 31 December 2018.
I love what I
do because
we’re involved
in supporting
change in one
form or another.
For example, we
supply services
to the public
sector, we need
to match people
with programmes
to architect and
implement change
that impacts
citizen’s lives –
the impact is real
and tangible.
Gillian Wilkinson,
Regional Director,
Edinburgh Office
Share price
The Parity Group plc mid-market share
price on 31 December 2018 was 7.95
pence. During the period 1 January 2018
to 31 December 2018 shares traded at
market prices between 6.95 pence and
15.75 pence.
Directors’ pension information
Executive Directors are entitled to
a contributory company pension
contribution of 5% of basic salary.
Non-Executive Directors’
remuneration
The Board determines the remuneration
of the Non-Executive Directors with the
benefit of independent advice when
required. The fees are set at a level which
will attract individuals with the necessary
experience and ability to make a
significant contribution to the Group and
are benchmarked against those fees
paid by other UK listed companies.
The Non-Executive Directors do
not receive bonuses or pension
contributions and are not eligible for
grants under any of the Group’s share
incentive schemes. They are entitled to
be reimbursed for reasonable expenses
incurred by them in carrying out their
duties as Directors of the Company.
Service contracts and letters
of appointment
The Group’s policy is that no Director
has a service contract with a notice
period of greater than one year or
has provision for pre-determined
compensation on termination which
exceeds one year’s salary, bonus and
benefits in kind. Non-Executive Directors
have letters of appointment which set
out the terms of their appointments. All
Board appointments are subject to the
Company’s articles of association.
Contractual arrangements for current
Directors are summarised below:
Director
Contract date
Notice period
Contractual
termination
payment
John Conoley1
David Firth1
27 April 2017
3 months
3 months rolling
31 May 2016
n/a
n/a
Roger Antony
22 April 2016
6 months
6 months rolling
Matthew Bayfield2
5 February 2019
12 months
12 months rolling
1. Unless otherwise specified, the appointment of Non-Executive Directors is terminable at the
will of the parties
2. Matthew Bayfield was appointed as a Board Director on 5 February 2019
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Remuneration Committee Report
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.
Executive Directors’ share options
As at
1 January
2018
Lapsed/
surrendered
in the
year
Exercised
in the
year
Awarded
in the
year
As at 31
December
2018
Exercise
period
Exercise
price
per share
Directors’ remuneration
The remuneration of the Directors who served during the year is set out below:
Salary/fees
2018
£000’s
Benefits
2018
£000’s
Total
emoluments
2018
£000’s
Company
pension
contributions3
2018
£000’s
Share-
based
payments
2018
£000’s
200
150
60
45
455
13
12
-
-
25
213
162
60
45
480
10
8
-
-
18
33
19
-
-
52
Salary/fees
2017
£000’s
Benefits
2017
£000’s
Total
emoluments
2017
£000’s
Company
pension
contributions3
2017
£000’s
Share-
based
payments
2017
£000’s
200
150
41
13
41
445
13
12
-
-
-
25
213
162
41
13
41
470
10
8
-
-
-
18
20
10
-
-
-
30
Executive Directors
Alan Rommel
Roger Antony
Non-Executive Directors
John Conoley
David Firth
Total emoluments
Executive Directors
Alan Rommel
Roger Antony
Non-Executive Directors
John Conoley1
Lord Freeman2
David Firth
Total emoluments
1. John Conoley was appointed as a Board Director on 27 April 2017
2. Lord Freeman resigned as a Board Director on 27 April 2017
3. Company pension contributions disclosed in the table above represent the contractual pension entitlements due to the Directors of the company
Alan Rommel1
Executive share option plan
2009
2010
2010
2013
2016
2018
Sub-total
Roger Antony
150,000
150,000
100,000
160,000
1,500,000
-
2,060,000
Executive share option plan
2010
2013
2016
2018
Sub-total
Matthew Bayfield2
Executive share option plan
100,000
20,000
800,000
-
920,000
2018
Sub-total
Total
-
-
2,980,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
150,000
150,000
100,000
160,000
2012-2019
£0.0900
2013-2020
£0.0875
2013-2020
£0.0750
2016-2023
£0.2650
1,500,000
2019-2026
£0.0862
1,600,000
1,600,000
2021-2028
£0.1280
1,600,000
3,660,000
-
-
-
100,000
20,000
800,000
2013-2020
£0.0875
2016-2023
£0.2650
2019-2026
£0.0862
1,000,000
1,000,000
2021-2028
£0.1280
1,000,000
1,920,000
500,000
500,000
500,000
500,000
3,100,000
6,080,000
2021-2028
£0.1325
1.
Alan Rommel resigned as a Board Director on 8 April 2019. Under the terms of the scheme, share options may be exercised up to 12 months from his
leaving date
2. Matthew Bayfield was appointed as a Board Director on 5 February 2019
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Remuneration Committee Report
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:
Shareholding at 31
December
2017
% issued
share capital
Shareholding at
31 December
2018
% issued
share capital
-
100,000
410,632
100,000
-
0.10
0.40
0.10
-
200,000
410,632
100,000
-
0.19
0.40
0.10
John Conoley
David Firth
Alan Rommel
Roger Antony
For and on behalf of the Board
David Firth
Chairman of The Remuneration Committee
15 April 2019
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55
Audit Committee Report
Audit Committee
The Audit Committee is a sub-
committee of the Board, and comprises
David Firth as Chairman, and John
Conoley who joined on 27 April 2017.
Both David Firth and John Conoley
are Non-Executive Directors and are
considered to be independent by the
Board. Their biographies can be found
on page 40.
The Audit Committee meets at least
three times a year. Audit Committee
meetings are attended by the external
auditors and 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 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.
Meetings
There were three meetings held during
the year. Attendance at the meetings
can be found in the table on page 36.
Matters considered
During the year, the Committee:
•
•
reviewed the annual and interim
report and financial statements of the
Group, and the clarity of disclosures
made;
oversaw the relationship with the
external auditor, including a review of
the external auditor’s findings during
the audit in relation to the year ended
31 December 2017;
•
•
•
reviewed the Group’s Risk Register
and considered changes to the
Group’s risk profile;
reviewed the Group Authority
Levels; and
reviewed the external auditor’s Audit
Plan in relation to the year ended 31
December 2018.
External Auditor
In order to ensure an appropriate
balance between audit quality,
objectivity and independence, and
cost-effectiveness the Audit Committee
reviews the nature of all services,
including non-audit work, provided by
the external auditor each year. During
they year the Audit Committee decided
to run a comprehensive competitive
audit tender process, noting that KPMG
had been in post for seven years.
A balanced scorecard was used to
compare tenders, based on several
factors including audit quality and third
party references. As a result of the
process KPMG resigned as the Group’s
external auditor and Grant Thornton
were appointed to the post. 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 2018,
details of which are set out in note 4 to
the accounts.
Internal audit
The Group does not consider it
necessary to have a separate internal
audit function due to the Group’s size
and its centralised administrative
function but keeps this need under
review. The Company receives regular
feedback from its external auditors
on the effectiveness of its internal
controls and aims to implement any
improvements identified.
I joined Parity in 2018
and I like the fact
that there is so much
emphasis on repeat
business. I like that
we have time to talk
to people and can
chat about the wider
context of what they
are doing and their
future plans. People
are happy to talk
to us about more
than single projects
and they often call
up when they want
to think something
through. You can’t
have that sort of
relationship if you
see everyone as
a sales target all
the time.
Jamie Haycock,
Recruitment Consultant,
Manchester Office
David Firth
Chairman of The Audit Committee
15 April 2019
Significant issues relating to
the Financial Statements
The Audit Committee reviewed the
following issues in relation to the financial
statements for the year under review:
Judgements and estimates
The Committee reviewed the executive
management’s assessments and noted
that:
•
•
•
•
a clear distinction had been made
between judgements and estimates;
the only significant areas of
judgement were revenue recognition
and deferred tax asset recognition;
there were no other judgements
made that had a significant effect on
amounts recognised in the accounts;
and
estimates were limited to those
assumptions that carried a significant
risk of a material adjustment to the
carrying values of asset and liabilities
within the next financial year.
Valuation of goodwill
The Committee reviewed the executive
management’s support of the carrying
value of Goodwill in the Groups two
cash generating units (CGUs). The
Committee noted that:
•
•
•
the discounts rates applied were
commensurate with rates used within
the Group’s peer group;
cash flow projections were based
upon prudent growth projections; and
the sensitivity analysis demonstrated
that both CGUs had sufficient
headroom to absorb the possible
impact of key sensitivities.
Retirement benefit liability
The Committee reviewed the
assumptions made in relation to the
accounting for the Group’s defined
benefit pension scheme and were
satisfied that these were in line with
recognised market practice.
Going concern
The Committee reviewed a paper
prepared by executive management in
support of the going concern statement.
It was noted that PNC were in the final
stages of renewing the agreement for a
further two years following approval of
improved terms by their credit committee
and that the Group’s financial projections
for the period to 31 December 2020
demonstrated ample facility headroom.
Deferred taxation
The Committee reviewed a paper
prepared by the Finance team and
noted that:
•
•
the assumptions used around
recoverability of the assets were
the same assumptions used for the
valuation of goodwill; and
brought forward tax losses in the
Parity Consultancy Services division
were unrecognised, consistent with
the prior year, which was considered
appropriate in view of current trading
in the division.
IFRS 15
The Committee reviewed a paper
prepared by the Finance team and
noted that:
•
•
the new standard would have minimal
impact on the timing of the Group’s
revenue recognition, which was
consistent with the disclosure made
in the Group’s previous financial
statements;
the Group was acting as agent rather
than principal in respect of a portion
of the revenue from the managed
service contract with Primark, which
commenced in 2018. Accordingly,
the revenues were stated net of the
contractor costs, in adherence to the
standard.
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57
Directors’ Report
The Directors present their report
and the audited accounts for the year
ended 31 December 2018.
government departments in the public
sector and to FMCG and food services
clients in the private sector.
Principal activities
The Group delivers a range of
recruitment and data 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
2018 its clients’ market sectors included
central and local government within
the public sector and utilities, retail,
insurance, oil and housing in the private
sector.
The principal activities of the Parity
Consultancy Services division
comprise data consultancy services
and business intelligence solutions.
Parity Consultancy Services delivered
its services during the year to central
Review of business and future
developments
A review of the business and its outlook,
including commentary on the key
performance indicators of revenue,
gross margin, contribution, debtor days
and net debt, and the principal risks
and uncertainties facing the Group is
included in the Chairman’s Report, Chief
Executive’s Letter and the Operational
and Financial Review on pages 12 to 30.
The Group’s social, environmental and
ethical policies are set out on pages 42
to 44. A statement on the application of
the going concern principle is set out
below. Details of financial instruments
are set out in note 21 to the financial
statements. Each of the above is
incorporated in this report by reference.
Group results
of £0.53m) and a loss after tax from
discontinued operations of £0.38m
(2017: £2.18m), the retained profit of
£0.04m (2017: retained profit of £0.01m)
has been transferred to reserves. The
results for the year are set out in the
consolidated income statement on
page 70.
Dividends
The Directors do not recommend a final
dividend (2017: nil pence per ordinary
share). The total dividends for the year
were nil pence per ordinary share (2017:
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 23.
The Group profit from continuing
operations before taxation for the year
was £0.36m (2017: £1.66m). After a
tax credit of £0.06m (2017: tax credit
Purchase of own shares
At the end of the year, the Company
had authority, under the shareholders’
resolution of 24 May 2018, to purchase
in the market 10,262,402 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 15 April 2019 is set
out on pages 40 to 41, together with
details of membership of the Board
committees.
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. Roger
Antony is due for re-election at the
next AGM.
In accordance with the Company’s
Articles of Association, Matthew
Bayfield, who was appointed after the
announcement of the 2018 Annual
General Meeting, will retire and offer
himself for re-election at the 2019
Annual General Meeting.
Directors’ interests
The Directors’ beneficial interests in the
ordinary share capital of the Company
are set out within the remuneration
report on page 52.
3% of the issued share capital:
Capital structure
The Company has one class of share
in issue, ordinary shares of 2p. The
shares are listed on the London Stock
Exchange and shareholders are entitled
to vote at Company meetings, to receive
dividends and to the return of their
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.
Principal shareholders
Going concern
As at 12 April 2019 (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
Number of
ordinary
2p shares
Percentage
held
Helium Rising Stars Fund
19,512,851
19.01%
Timothy Watts
Barclays Wealth
David Courtley
Citrine Investments
Interactive Investors
Dominion Holdings
Hargreaves Landsdown Asset Management
Brewin Dolphin
Equiniti Financial Services
Killik Asset Management
John Cawthorne
Redmayne Bentley Stockbrokers
9,933,000
7,523,518
6,566,031
5,558,766
5,046,991
4,400,000
4,093,303
3,661,459
3,606,704
3,483,479
3,223,310
3,141,097
9.68%
7.33%
6.40%
5.42%
4.92%
4.29%
3.99%
3.57%
3.51%
3.39%
3.14%
3.06%
The Directors have reviewed the Group’s
cash flow forecasts for the period to
31 December 2020, taking account
of reasonably possible changes in
trading performance. The financing
facility provided by PNC was due for
renewal on 31 December 2018 and
PNC are in the final stages of renewing
the agreement for a further two years
following approval of improved terms by
their credit committee.
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
58
Governance
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Governance
59
Directors’ Report
takeover bid.
none).
Payments to suppliers
Corporate Governance
Parity Consultants
are excellent
in keeping you
informed of any
opportunities that
you may consider.
They are very
knowledgeable
of my industry
Social Housing
and they make you
feel confident and
motivated. The roles
Parity have offered
me have been
some of the best
placements in my
25-year career.
The Corporate Governance Report
on pages 34 to 38 forms part of the
Directors’ Report.
Auditor
KPMG LLP resigned as auditor of the
Company on 4 October 2018 and Grant
Thornton UK LLP were appointed.
Pursuant to section 489 of the
Companies Act 2006, resolutions will be
proposed at the 2019 Annual General
Meeting to reappoint Grant Thornton
UK LLP as auditor to the Company and
to authorise the Directors to determine
their remuneration.
Annual General Meeting
Candidate
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
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
pages 42 to 44. This statement covers
the Group’s Employment Policies,
Environmental Policy and Health and
Safety Policy.
Directors’ and officers’ liability
insurance and indemnity
The Company has purchased insurance
to cover its Directors and officers
against their costs in defending
themselves in any legal proceedings
taken against them in that capacity
and in respect of damages resulting
from the unsuccessful defence of any
proceedings.
Political donations
There were no political donations made
by the Group during the year (2017:
Roger Antony
Director
15 April 2019
60
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Parity annual report and accounts 2018
Parity annual report and accounts 2018
Governance
61
Statement of Directors’
Responsibilities
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. As required by the AIM Rules
of the London Stock Exchange they
are required to prepare the Group
financial statements in accordance
with International Financial Reporting
Standards as adopted by the EU
(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, relevant and
reliable;
state whether they have been
prepared in accordance with IFRSs
as adopted by the EU;
assess the Group and parent
Company’s ability to continue as
a going concern, disclosing, as
applicable, matters related to going
concern; and
•
use the going concern basis of
accounting unless they either intend
to liquidate the Group or the parent
Company or to cease operations, or
have no realistic alternative but to
do so.
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 are responsible for such
internal control as they determine is
necessary to enable the preparation
of financial statements that are free
from material misstatement, whether
due to fraud or error, and 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 Strategic Report and a
Directors’ Report that complies with
that law and those regulations.
Website publication
The Directors are responsible for
ensuring the annual report and
the financial statements are made
available on the Parity Group website.
Financial statements are published on
the Company’s website in accordance
with 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 ongoing 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 21 to the financial statements.
Other risks and uncertainties are
discussed on page 25.
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.
This confirmation is given and
should be interpreted in accordance
with the provisions of s418 of the
Companies Act 2006.
John Conoley
Non-Executive Chairman
15 April 2019
62
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Independent Auditor’s Report
63
Independent
Auditor’s Report
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66
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68
Introduction
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Introduction
69
Section four
Accounts,
notes and other
information
Contents
Section one
Introduction
About us . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05
Section three
Governance
Corporate Governance Report . . . . . . . . . . . . . . . . . . . . 34
Parity Group at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . 06
The Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Our timeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08
Corporate Social Responsibility Report . . . . . . . . . . . . . 42
Section two
Strategic report
Chief Executive’s letter . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Looking Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
CEO Point of View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Chairman’s report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Principal risks and uncertainties . . . . . . . . . . . . . . . . . . . 25
Operational and Financial Review . . . . . . . . . . . . . . . . . . 26
Remuneration Committee Report . . . . . . . . . . . . . . . . . . 47
Audit Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . 54
Directors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Statement of Directors’ Responsibilities . . . . . . . . . . . . . 60
Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . 62
Section four
Accounts, notes and other information
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . 78
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
70
Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Accounts, notes and other information
71
Consolidated Income Statement for the year ended 31 December 2018
Consolidated Statement of Comprehensive Income for the year ended 31 December 2018
Profit for the year
Other comprehensive income
Items that may be reclassified to profit 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
Deferred taxation on remeasurement of defined pension scheme
23
15
Other comprehensive (expense)/income for the year after tax
Total comprehensive (expense)/income for the year
attributable to owners of the parent
The notes on pages 78 to 111 form part of the financial statements.
Notes
2018
£’000
40
2017
£’000
14
(3)
(39)
(1,005)
171
(837)
(797)
800
(136)
625
639
Before
non-recurring
items 2018
£’000
Non-recurring
items (note 5)
2018
£’000
86,112
(5,976)
(194)
(78,724)
(84,894)
1,218
(365)
853
(16)
837
(381)
456
-
(299)
-
(196)
(495)
(495)
-
(495)
79
(416)
-
(416)
Continuing operations
Revenue
Employee benefit costs
Depreciation and amortisation
All other operating expenses
Total operating expenses
Operating profit/(loss)
Finance costs
Profit/(loss) before tax
Tax (charge)/credit
Profit/(loss) for the year
from continuing operations
Discontinued operations
Loss from discontinued operations after tax
Profit/(loss) for the year
attributable to owners of the parent
Earnings per share – Continuing operations
Basic earnings per share
Diluted earnings per share
Notes
2,3
4
4
4
7
10
8
11
11
Earnings per share – Continuing and discontinued operations
Basic earnings per share
Diluted earnings per share
11
11
The notes on pages 78 to 111 form part of the financial statements.
Total
2018
£’000
86,112
(6,275)
(194)
(78,920)
(85,389)
723
(365)
358
63
421
(381)
40
0.41p
0.41p
0.04p
0.04p
Total
2017
£’000
83,815
(5,939)
(286)
(75,534)
(81,759)
2,056
(394)
1,662
534
2,196
(2,182)
14
2.15p
2.12p
0.01p
0.01p
72
Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Accounts, notes and other information
73
Statements of Changes in Equity for the year ended 31 December 2018
Statements of Changes in Equity for the year ended 31 December 2018 (continued)
Consolidated
At 1 January 2018
Issue of new ordinary shares
Share options – value of employee services
Transactions with owners
Profit for the year
Exchange differences on translation of foreign
operations
Remeasurement of defined benefit pension
scheme
Deferred taxation on remeasurement of defined
pension scheme taken directly to equity
Reallocation of impairment charge (note 22)
Share
capital
£’000
2,043
10
-
10
-
-
-
-
-
At 31 December 2018
2,053
Deferred
shares
£’000
Share
premium
reserve
£’000
Capital
redemption
reserve
£’000
Other
reserves
£’000
Retained
earnings
£’000
Total
£’000
-
-
-
-
-
-
-
-
-
-
33,211
14,319
44,160
(86,544)
7,189
33
-
33
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
129
129
40
(3)
43
129
172
40
(3)
(1,005)
(1,005)
171
171
(9,600)
9,600
-
33,244
14,319
34,560
(77,612)
6,564
Share
capital
£’000
Deferred
shares
£’000
Share
premium
reserve
£’000
Capital
redemption
reserve
£’000
2,037
14,319
33,195
Consolidated
At 1 January 2017
Issue of new ordinary shares
Share options – value of employee services
Cancellation of deferred shares
Transactions with owners
Profit for the year
Exchange differences on translation of foreign
operations
Remeasurement of defined benefit pension
scheme
Deferred taxation on remeasurement of defined
pension scheme taken directly to equity
6
-
-
6
-
-
-
-
-
-
(14,319)
(14,319)
-
-
-
-
-
16
-
-
16
-
-
-
-
Other
reserves
£’000
Retained
earnings
£’000
Total
£’000
44,160
(87,251)
6,460
-
-
-
-
-
-
-
-
-
68
-
68
14
22
68
-
90
14
(39)
(39)
800
800
(136)
(136)
-
-
-
14,319
14,319
-
-
-
-
At 31 December 2017
2,043
33,211
14,319
44,160
(86,544)
7,189
Company
At 1 January 2018
Issue of new ordinary shares
Share options – value of employee services
Transactions with owners
Loss for the year
Reallocation of impairment charge (note 22)
At 31 December 2018
Share
capital
£’000
2,043
10
-
10
-
-
2,053
Deferred
shares
£’000
Share
premium
reserve
£’000
Capital
redemption
reserve
£’000
Other
reserves
£’000
Retained
earnings
£’000
Total
£’000
-
-
-
-
-
-
-
33,211
14,319
22,729
(59,812)
12,490
33
-
33
-
-
-
-
-
-
-
-
-
-
-
-
52
52
43
52
95
(1,887)
(1,887)
(9,600)
9,600
-
33,244
14,319
13,129
(52,047)
10,698
Company
At 1 January 2017
Issue of new ordinary shares
Share options – value of employee services
Cancellation of deferred shares
Transactions with owners
Loss for the year
At 31 December 2017
Share
capital
£’000
Deferred
shares
£’000
Share
premium
reserve
£’000
Capital
redemption
reserve
£’000
2,037
14,319
33,195
6
-
-
6
-
2,043
-
-
(14,319)
(14,319)
-
-
16
-
-
16
-
Other
reserves
£’000
Retained
earnings
£’000
Total
£’000
22,729
(57,709)
14,571
-
-
-
-
-
-
46
-
46
22
46
-
68
(2,149)
(2,149)
-
-
-
14,319
14,319
-
33,211
14,319
22,729
(59,812)
12,490
The notes on pages 78 to 111 form part of the financial statements.
74
Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Accounts, notes and other information
75
Statements of Financial Position as at 31 December 2018
Statements of Financial Position as at 31 December 2018 (continued)
Company number 3539413
Assets
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Trade and other receivables
Investments in subsidiaries
Deferred tax assets
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Assets classified as held for sale
Total current assets
Total assets
Liabilities
Current liabilities
Loans and borrowings
Trade and other payables
Provisions
Liabilities classified as held for sale
Total current liabilities
Non-current liabilities
Loans and borrowings
Trade and other payables
Provisions
Retirement benefit liability
Total non-current liabilities
Total liabilities
Net assets
Consolidated
Company
Notes
2018
£’000
2017
£’000
2018
£’000
2017
£’000
12
13
14
16
29
15
16
17
18
19
20
17
18
19
20
23
4,594
86
69
-
-
1,153
5,902
12,018
5,829
-
17,847
23,749
(6,919)
(8,261)
(43)
-
(15,223)
-
-
(20)
(1,942)
(1,962)
(17,185)
6,564
4,594
227
78
-
-
919
5,818
12,033
4,968
791
17,792
23,610
(6,592)
(8,349)
-
(395)
(15,336)
(8)
-
(18)
(1,059)
(1,085)
(16,421)
7,189
-
-
-
123,510
20,527
-
144,037
2,304
387
-
2,691
146,728
-
(12,917)
-
-
-
-
-
122,170
20,527
-
142,697
2,202
116
-
2,318
145,015
-
(11,141)
-
-
(12,917)
(11,141)
-
-
(123,113)
(121,384)
-
-
(123,113)
(136,030)
10,698
-
-
(121,384)
(132,525)
12,490
Shareholders’ equity
Called up share capital
Share premium reserve
Capital redemption reserve
Other reserves
Retained earnings
Total shareholders’ equity
Consolidated
Company
Notes
2018
£’000
2017
£’000
2018
£’000
2017
£’000
24
22
22
22
22
2,053
33,244
14,319
34,560
(77,612)
6,564
2,043
33,211
14,319
44,160
(86,544)
7,189
2,053
33,244
14,319
13,129
(52,047)
10,698
2,043
33,211
14,319
22,729
(59,812)
12,490
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 £1,887,000 (2017: £2,149,000).
The notes on pages 78 to 111 form part of the financial statements.
Approved by the Directors and authorised for issue on 15 April 2019.
Matthew Bayfield
Chief Executive Officer
Roger Antony
Group Finance Director
76
Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Accounts, notes and other information
77
Statements of Cash Flows for the year ended 31 December 2018
Statements of Cash Flows for the year ended 31 December 2018 (continued)
Notes
Financing activities
Issue of ordinary shares
Drawdown/(repayment) of finance facility
Net movements on intercompany funding
Interest paid
7
Net cash flows from/(used in)
financing activities
Net increase in cash and
cash equivalents
Cash and cash equivalents
at the beginning of the year
Cash and cash equivalents
at the end of the year
The notes on pages 78 to 111 form part of the financial statements.
Consolidated
Company
2018
£’000
43
330
-
(181)
192
861
4,968
5,829
2017
£’000
22
(2,032)
-
(199)
(2,209)
696
4,272
4,968
2018
£’000
43
-
2,305
(181)
2,167
271
116
387
2017
£’000
22
-
759
(195)
586
5
111
116
Consolidated
Company
Notes
2018
£’000
2017
£’000
2018
£’000
2017
£’000
Cash flows from/(used in) operating activities
Profit/(loss) for the year
Adjustments for:
Net finance expense
Share-based payment expense
Income tax credit
Intercompany loans written off
Amortisation of intangible assets
Depreciation of property, plant and equipment
Impairment of goodwill
Loss on write down of intangible assets
Loss on disposal of subsidiary
7
9
8,10
28
8,13
8,14
8
8
8
Working capital movements
Decrease in work in progress
Decrease in trade and other receivables
Decrease in trade and other payables
Increase in provisions
Payments to retirement benefit plan
23
Net cash flows from/(used in)
operating activities
Investing activities
Purchase of intangible assets
Purchase of property, plant and equipment
Net proceeds from disposal of subsidiary
Net cash flows from/(used in)
investing activities
13
8,14
8
40
365
129
(236)
-
165
53
-
-
306
822
-
204
(141)
45
(326)
604
(14)
(35)
114
65
14
(1,887)
(2,149)
394
68
(619)
-
341
106
1,165
3
-
625
52
(239)
(395)
-
1
-
-
-
1,457
46
(244)
327
-
1
-
-
-
1,472
(1,843)
(562)
3
2,619
(910)
1
(184)
3,001
(5)
(91)
-
(96)
-
-
(53)
-
-
(1,896)
-
-
-
-
-
2
(21)
-
-
(581)
-
-
-
-
78
Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Accounts, notes and other information
79
Notes to the Financial Statements for the year ended 31 December 2018
1 Accounting policies
Basis of preparation
Parity Group plc (the “Company”) is a
company incorporated and domiciled in the
UK.
Both the parent company financial
statements and the Group financial
statements have been prepared and
approved by the Directors in accordance
with International Financial Reporting
Standards as adopted by the EU (“Adopted
IFRSs”). On publishing the parent company
financial statements here together with the
Group financial statements, the Company is
taking advantage of the exemption in s408
of the Companies Act 2006 not to present
its individual income statement and related
notes that form a part of these approved
financial statements.
The principal accounting policies adopted in
the preparation of the financial statements
are set out below. The policies have
been consistently applied to all the years
presented unless otherwise stated.
The financial statements have been prepared
on a going concern basis. The Group’s
business activities, together with the factors
likely to affect its future development,
performance and position are set out in the
Directors’ Report (Review of business and
future developments). The financial position
of the Group, its cash flows, liquidity position
and borrowing facilities are described in
the Operational and Financial Review on
pages 26 to 30 and in note 21 to the financial
statements. Note 21 also includes the
Group’s objectives for managing capital.
As outlined in note 21, 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 current facility, which has been in place
since 2010, is in the final stages of being
renewed on improved terms. The facility is
currently subject to six months’ notice from
either party.
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 Financial
Statements.
Basis of consolidation
The consolidated financial statements
comprise the financial statements of the
Company and its subsidiaries as at 31
December 2018. 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.
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 £1,887,000 (2017:
£2,149,000).
Business combinations
The acquisition of subsidiaries is accounted
for using the purchase method. The related
costs of acquisition other than those
associated with the issue of debt or equity
securities, are recognised in the profit and
loss as incurred. The acquiree’s identifiable
assets and liabilities and contingent liabilities
that meet the conditions for recognition
under IFRS 3 (2008) ‘Business Combinations’
are recognised at their fair value at the
acquisition date.
Accounting policies: new standards,
amendments and interpretations effective
and adopted by the Group
IFRS 15 ‘Revenue from Contracts with
Customers’
IFRS 15 ‘Revenue from Contracts with
Customers’ and the related ‘Clarifications
to IFRS 15 Revenue from Contracts and
Customers’ (hereinafter “IFRS 15”) replaces
IAS 18 ‘Revenue’ and several interpretations.
The Group has adopted the new standard
effective 1 January 2018 and applied it
retrospectively. In accordance with the
transition guidance, IFRS 15 has only been
applied to contracts that were incomplete as
at 1 January 2018 or commenced thereafter.
The Group has identified no retrospective
adjustments required to periods prior to
2018 and therefore there is no restatement or
impact to brought forward retained earnings
of the Group. Areas in which the adoption of
IFRS 15 has affected the Group’s results is
set out below.
Principal vs agent considerations
The Group derives revenue from the provision
of temporary workers to customers and the
recognition of revenue depends on whether
the Group has an obligation to provide
services itself (acting as principal) whereby
revenue is recognised gross (inclusive of
costs of temporary workers), or whether the
obligation is to arrange for services to be
provided by a third party (acting as agent)
whereby revenue is recognised net (exclusive
of costs of temporary workers). IFRS 15
requires a determination of control rather than
IAS 18’s consideration of risks and rewards.
Under IFRS 15, to determine the nature of the
relationship, the Group assesses whether it
controls the service before it is transferred to
the customer.
The Group has assessed its contracts against
these considerations and determines that
revenue of £2,049,000 (2017: £nil), relating to
contracts where the Group acts as a managed
service provider, falls under recognition as
agent under IFRS 15 that would have fallen
under recognition as principal under IAS 18.
Accordingly, if IAS 18 still applied, revenue
and operating expenses would both be higher
by £2,049,000 (2017: £nil) compared to IFRS
15. These affected contracts however were
not in place prior to 2018 therefore there is no
impact to periods prior to 2018.
The implementation of IFRS 15 did not
have an impact on the timing or amount of
revenue recognised by the Group on its other
contracts.
IFRS 9 ‘Financial Instruments’
• The nature of the expense of the above
IFRS 9 replaces IAS 39 ‘Financial
Instruments: Recognition and Measurement’,
making changes to guidance on the
classification and measurement of financial
assets and introducing an expected loss
model for the impairment of financial assets.
The Group has adopted the new standard
effective 1 January 2018 and applied
transitional relief and opted not to restate
prior periods.
For contract assets arising from IFRS 15
and trade receivables, the Group applies
a simplified model of recognising lifetime
expected credit losses where these assets
do not contain a significant financing
component.
The implementation of IFRS 9 did not have a
significant impact on the value or classification
of the Group’s financial assets and liabilities.
Accounting policies: new standards,
amendments and interpretations that
are not yet effective and have not been
adopted early by the Group
At the date of authorisation of these financial
statements, several new, but not yet
effective, standards, amendments to existing
standards and interpretations have been
published. None of these have been adopted
early by the Group. Those expected to have
an effect on the Group’s financial statements
are listed below. Those not listed below are
not disclosed as they are not expected to
have a significant impact on the Group.
IFRS 16 ‘Leases’
IFRS 16 replaces IAS 17 ‘Leases’ and
related interpretations. This will result in
operating leases previously treated solely
through profit and loss being recorded in the
statement of financial position in the form
of a right-of-use asset and a lease liability,
subject to exemptions for low value and
short-term leases. IFRS 16 is effective from
periods beginning on or after 1 January 2019.
The Group is planning to adopt IFRS 16 on
1 January 2019 using a full retrospective
approach with restated comparative
information.
Management are in the process of assessing
the full impact of the new standard but
expects impacts in the following areas:
• The Group will recognise right-of-use
assets and lease liabilities for leases of
property which are treated as operating
leases under IAS 17. At 31 December 2018,
minimum future lease payments on these
properties total approximately £1.1m.
cost will change from being an operating
expense to predominantly depreciation
with an interest expense on the lease
liability.
• The Group expects that operating costs
would be lower by approximately £0.7m
and depreciation would be higher by
approximately £0.7m in both 2018 and
2019 when applying IFRS 16 compared to
IAS 17.
Measurement convention
The financial statements are prepared on
the historical cost basis. 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
consultancy services.
The determine whether to recognise revenue,
the Group follows a five-step process:
1. Identifying the contract with the customer
2. Identifying the performance obligations
3. Determining the transaction price
4. Allocating the transaction price to the
performance obligations
5. Recognising revenue when and as
performance obligations are satisfied.
Revenue is recognised either at a point in
time or over time, when the group satisfies
performance obligations by transferring
promised services to its customers. Revenue
is measured at the transaction price, being
the amount of consideration expected to
be entitled in exchange for services to a
customer, net of refund liabilities and value
added tax.
Revenue for the provision of recruitment
services
The performance obligation is the provision
of temporary or permanent workers to
customers. For temporary workers, the
performance obligations are satisfied over
time as the customer receives the benefit
of the temporary worker, in line with time
worked by the temporary worker at pre-
determined rates. For permanent workers,
the performance obligation is measured at
a point in time, which is at the point that the
permanent worker commences employment,
as before this time the Group does not create
or enhance an asset for the customer and
there is no enforceable right to payment
until then. Refund liabilities related to
permanent workers are calculated based on
a probabilistic estimate using historic refund
levels.
The Group presents revenues gross of the
costs of the temporary workers where it acts
as principal under IFRS 15 and net of the
costs of temporary workers where it acts
as agent. The Group acts as principal in the
large majority of its contracts, where it has
the primary responsibility for fulfilling the
promise to supply a worker to a customer
and has control over that supply. The Group
acts as agent where it does not have such
control.
Revenue for the provision of consultancy
services
Performance obligations on consultancy
services contracts are satisfied over time
if the service creates an asset that the
customer controls and the Group has an
enforceable right to payment. Revenue is
measured using an input measure, such as
days worked as a proportion of total days
to be worked, towards the satisfaction of an
obligation.
In obtaining some contracts, the Group
incurs a number of incremental costs, such
as commissions paid to sales staff. As
the amortisation period of these costs, if
capitalised, would be less than one year, the
Group makes use of the practical expedient
in IFRS 15 and expenses them as incurred.
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 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.
Financing income and expenses
Financing expenses comprise interest
payable 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 currencies accounting policy).
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Accounts, notes and other information
81
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 balance sheet
date 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 for deductible
temporary differences is not recognised
unless it probable that there will be taxable
profits in the foreseeable future against
which the deferred tax asset can be
utilised. A deferred tax asset for unused
tax losses carried forward is recognised on
the same basis as for deductible temporary
differences. However, the existence of the
unused tax losses is strong evidence that
future taxable profit may not be available.
Therefore, when an entity has a history
of recent losses, the entity recognises a
deferred tax asset arising from unused
tax losses only to the extent that there is
convincing evidence that sufficient taxable
profit will be available against which the
unused tax losses 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 remeasurement to
fair value less costs to sell or on disposal of
the assets or disposal groups constituting
discontinued operations.
Segmental reporting
Operating segments are reported in a
manner consistent with the internal reporting
provided to the Chief Operating Decision
Maker. The Chief Operating Decision Maker
is the Group Board.
Intangible assets
Goodwill
Goodwill represents the excess of the cost
of acquisition of a business combination
over the Group’s share of the fair value
of identifiable net assets of the business
acquired.
After initial recognition, goodwill is stated
at cost less any accumulated impairment
losses. Goodwill is allocated to cash-
generating units and is not amortised but is
tested annually for impairment. In respect
of equity accounted investees, the carrying
amount of goodwill is included in the carrying
amount of the investment in the investee.
Gains and losses on disposal of a business
include the carrying amount of goodwill
relating to the business sold in determining
the gain or loss on disposal, except for
goodwill arising on business combinations
on or before 31 December 1997 which has
been deducted from shareholders’ equity
and remains indefinitely in shareholders’
equity.
Software
The carrying amount of software is its
cost less any accumulated amortisation
and 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 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:
The lesser of the asset life and the remaining
length of the lease
Office equipment:
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” or
CGU). The goodwill acquired in a business
combination, for the purpose of impairment
testing, is allocated to cash-generating
units. Subject to an operating segment
ceiling test, for the purposes of goodwill
impairment testing, CGUs to which goodwill
has been allocated are aggregated so that
the level at which impairment is tested
reflects the lowest level at which goodwill is
monitored for internal reporting purposes.
Goodwill acquired in a business combination
is allocated to groups of CGUs that are
expected to benefit from the synergies of the
combination.
An impairment loss in respect of goodwill
is not reversed. In respect of other assets,
impairment losses recognised in prior
periods are assessed at each reporting
date for any indications that the loss
has decreased or no longer exists. An
impairment loss is reversed if there has
been a change in the estimates used to
determine the recoverable amount. An
impairment loss is reversed only to the extent
that the asset’s carrying amount does not
exceed the carrying amount that would have
been determined, net of depreciation or
amortisation, if no impairment loss had been
recognised.
Financial instruments
Financial assets and liabilities are recognised
when the Group becomes a party to the
contractual provisions of the financial
instrument. Financial assets are derecognised
when the contractual rights to the cash flows
expire or when substantially all the risks and
rewards are transferred. A financial liability
is derecognised when it is extinguished,
discharged, cancelled or expires.
Except for trade receivables that do not
contain a significant financing component
and are measured at the transaction price in
accordance with IFRS 15, all financial assets
are initially measured at fair value adjusted for
transaction costs. Financial assets, other than
those designated and effective as hedging
instruments, are classified as either amortised
cost, fair value through profit or loss (FVTPL)
or fair value through other comprehensive
income (FVOCI). In the periods presented, the
Group has no financial assets categorised as
FVTPL or FVOCI.
The Group’s financial assets include cash
and cash equivalents and trade and other
receivables. After initial recognition, these
are measured at amortised cost using the
effective interest method. All income and
expenses relating to financial assets that are
recognised in profit and loss are presented
within finance costs, except for impairment
of trade receivables which is presented
within operating expenses. Unless otherwise
indicated, the carrying amounts of the
Group’s financial assets are a reasonable
approximation of their fair values.
Impairment provisions are recognised
using the expected credit loss model.
Measurement of expected credit losses
is determined by a probability-weighted
estimate of credit losses over the expected
life of the financial instrument. The Group
makes use of a simplified approach for
trade and other receivables and contract
assets and records impairment as a lifetime
expected credit loss, being the expected
shortfalls in contractual cash flows,
considering the potential for default. The
Group uses its historical experience, external
indicators and forward-looking information to
calculate the expected credit losses.
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 statement of cash flows, cash and
cash equivalents comprise cash and cash
equivalents as defined above, net of bank
overdrafts.
The Group’s financial liabilities include bank
borrowings, finance leases and trade and
other payables. Financial liabilities are initially
measured at fair value and subsequently
measured at amortised cost using the
effective interest method. All interest related
charges that are reported in profit and loss
are presented within net finance expenses.
In the periods presented, the Group has no
financial liabilities categorised as FVTPL.
Unless otherwise indicated, the carrying
amounts of the Group’s financial liabilities
are a reasonable approximation of their fair
values.
Assets held for sale
Non-current assets, or disposal groups
comprising assets and liabilities, are
classified as held-for-sale if it is highly
probable that they will be recovered primarily
through sale rather than through continuing
use.
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Accounts, notes and other information
83
Such assets, or disposal groups, are
generally measured at the lower of their
carrying amount and fair value less costs to
sell. Any impairment loss on a disposal group
is allocated first to goodwill, and then to the
remaining assets and liabilities on a pro rata
basis, except that no loss is allocated to
work in progress, financial assets, deferred
tax assets or employee benefit assets, which
continue to be measured in accordance
with the Group’s other accounting policies.
Impairment losses on initial classification
as held-for-sale and subsequent gains and
losses on remeasurement are recognised in
profit or loss.
Amounts recoverable on contracts and
accrued income
Amounts 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 within trade and other receivables
and charged to the income statement over
the life of the contract so as to match costs
with revenues.
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.
Accrued income primarily arises where
temporary workers have provided their
services but approved timesheets are
outstanding. As such, the amount incurred
and margin earned thereon has yet to be
invoiced onto the client. In making an accrual
for time worked by contractors at the balance
sheet date, management make an estimate
of the time worked based on knowledge
of the contracts in place, the number of
working days outstanding and experience
adjustments from prior periods.
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 when the Group A
provision is recognised 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 small 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
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 21, 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
does not recognise liabilities under the
contracts until it becomes probable that any
Group company will be required to make a
payment under the guarantee.
Employee Share Ownership Plan (ESOP)
As the Company is deemed to have control
of its ESOP trust, it is treated as an agent
and consolidated for the purposes of the
consolidated financial statements. The
ESOP’s assets (other than investments in the
Company’s shares), liabilities, income and
expenses are included on a line-by-line basis
in the consolidated financial statements. The
ESOP’s investment in the Company’s shares
is deducted from shareholders’ equity in the
consolidated statement of financial position
as if they were treasury shares.
Share-based payment transactions
Share-based payment arrangements in
which the Group and Company receives
goods or services as consideration for its
own equity instruments are accounted for
as equity-settled share-based payment
transactions, regardless of how the equity
instruments are obtained by the Group and
Company.
The grant date fair value of share-based
payment awards granted to employees is
recognised as an employee expense, with
a corresponding increase in equity, over
the period that the employees become
unconditionally entitled to the awards. The
fair value of the options granted is measured
using an option valuation model, taking into
account the terms and conditions upon
which the options were granted. The amount
recognised as an expense is adjusted to
reflect the actual number of awards for which
the related service and non-market vesting
conditions are expected to be met, such
that the amount ultimately recognised as an
expense is based on the number of awards
that do meet the related service and non-
market performance conditions at the vesting
date. For share-based payment awards
with non-vesting conditions, the grant date
fair value of the share-based payment is
measured to reflect such conditions and
there is no true-up for differences between
expected and actual outcomes.
Where the terms and conditions of
options are modified before they vest, the
increase in the fair value of the options,
measured immediately before and after the
modification, is also charged to the income
statement over the remaining vesting period.
Significant management judgements
in applying accounting policies and
estimation uncertainty
When preparing the financial statements,
management make a number of judgements,
estimates and assumptions about the
recognition and measurement of assets,
liabilities, income and expenses. The
following are the judgements made by
management in applying the accounting
policies of the Group and the estimates
that have the most significant effect on the
financial statements.
Significant management judgements
Recognition of deferred tax asset
No deferred tax asset has been recognised
for unused tax losses carried forward within
Parity Consultancy Services as management
believes that their recovery is too uncertain.
As discussed in note 15, management’s
review concluded that given the division’s
history of relatively recent tax losses and the
requirement to provide convincing evidence
that sufficient taxable profit will be available,
a deferred tax asset would not be recognised
for tax losses carried forward. If it had been
determined that utilisation of the losses was
more certain then full or partial recognition of
a deferred tax asset would have taken place,
in the range of £0-£0.7m.
Revenue recognition
The main area of judgement in revenue
recognition relate to the determination
of whether the Group acts as principal
or agent in its contractual arrangements
for the provision of temporary workers
to customers. The factors considered by
management to result in recognition of
revenue as principal include that the Group:
• has a direct relationship with the worker
and is responsible for paying the worker;
• has the primary responsibility for
organising the service engagements and
fulfilling the promise to supply a worker to
a customer; and
• the Group has control over the supply of
the worker.
Estimation uncertainty
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 and sensitivities on
those assumptions are set out in note 23.
The Group takes advice from independent
actuaries relating to the appropriateness
of the assumptions. Changes in the
assumptions used may have a material effect
on the income statement and the statement
of financial position within the next year.
Investments in subsidiaries
The Company reviews its investment in
subsidiaries to test for impairment. The
recoverable amounts are determined using
discounted future cash flows of the relevant
subsidiaries. In performing these tests,
assumptions are made in respect of future
growth rates and the discount rate to be
applied to the future cash flows, as set out in
note 29. Changes in the assumptions used
may have a material effect on the income
statement and statement of financial position
within the next year.
Goodwill impairment
The Group is required to test annually
whether goodwill is impaired. Details of
the key assumptions are set out in note 12.
Although management have assessed that
changes in key assumptions are unlikely to
cause a material effect in the carrying value
of goodwill within the next year given the
level of headroom at the balance sheet date,
estimates of future cash flows and discount
rates could change in the longer term such
that an impairment arises.
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 12) 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.
Segment contribution, defined as divisional
revenue less attributable costs, profit before
tax, and assets and liabilities are internally
reported at a Group level.
(continues on the next page)
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Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Accounts, notes and other information
85
3 Revenue
All of the Group’s revenue derives from contracts with customers. Trade receivables, amounts recoverable on contracts and accrued income
as presented in note 16 arise from contracts with customers. Changes to the Group’s contract assets are attributable solely to the satisfaction
of performance obligations.
The Group’s revenue from external customers disaggregated by pattern of revenue recognition is as follows:
Continuing operations
Services transferred over time
Services transferred at a point in time
Revenue from external customers
Parity
Professionals
2018
£’000
Parity
Consultancy
Services
2018
£’000
76,978
638
77,616
8,496
-
8,496
Parity
Professionals
2017
£’000
73,615
657
74,272
Parity
Consultancy
Services
2017
£’000
9,543
-
9,543
The Group’s revenue from external customers disaggregated by primary geographical market is as follows:
Continuing operations
UK
Rest of EU
Revenue from external customers
Parity
Professionals
2018
£’000
Parity
Consultancy
Services
2018
£’000
76,033
1,583
77,616
8,496
-
8,496
Parity
Professionals
2017
£’000
74,272
-
74,272
Parity
Consultancy
Services
2017
£’000
9,543
-
9,543
72% (2017: 68%) or £56.0m (2017: £50.4m) of the Parity Professionals revenue from external customers was generated in the public sector. 83%
(2017: 82%) or £7.0m (2017: £7.8m) of the Parity Consultancy Services revenue was generated in the public sector.
The largest single customer in Parity Professionals contributed revenue of 14% or £11.7m and was in the public sector (2017: 11% or £8.8m and
in the public sector). The largest single customer in Parity Consultancy Services contributed revenue of 64% or £5.4m and was in the public
sector (2017: 46% or £4.4m and in the public sector).
Description of the types of services from which each reportable
segment derives its revenues
activities and are not allocated to reporting segments for internal
reporting purposes.
The Group has two segments:
• Parity Professionals – provides targeted recruitment of temporary
and permanent professionals to support IT and business change
programmes. Parity Professionals provides 90% (2017: 89%) of the
continuing Group’s revenues.
• Parity Consultancy Services – provides business and IT
consultancy services focusing on the provision of data solutions
and delivery of IT projects. Parity Consultancy Services provides
10% (2017: 11%) of the continuing Group’s revenues.
Group costs include Directors’ salaries and costs relating to Group
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. Inter-segment
revenue in the year is a result of Parity Professionals selling IT
recruitment services to Parity Consultancy Services.
Continuing operations
Revenue from external customers
Inter-segment revenue
Segment revenue
Attributable costs
Segment contribution
Group costs
Depreciation and amortisation
Share-based payment
Non-recurring items
Operating profit/(loss)
Finance costs
Profit/(loss) before tax
Continuing operations
Revenue from external customers
Inter-segment revenue
Segment revenue
Attributable costs
Segment contribution
Group costs
Depreciation and amortisation
Share-based payment
Non-recurring items
Operating profit
Finance costs
Profit before tax
All segment assets and liabilities are based in the UK.
Parity
Professionals
2018
£’000
Parity
Consultancy
Services
2018
£’000
Before
non-recurring
Items
2018
£’000
Non-recurring
Items
2018
£’000
77,616
6,409
84,025
(81,711)
2,314
8,496
-
8,496
(8,176)
320
86,112
6,409
92,521
(89,887)
2,634
(1,093)
(194)
(129)
-
1,218
(365)
853
-
-
-
-
-
-
-
-
(495)
(495)
-
(495)
Parity
Professionals
2017
£’000
Parity
Consultancy
Services
2017
£’000
Before
non-recurring
Items
2017
£’000
Non-recurring
Items
2017
£’000
74,272
5,764
80,036
(77,729)
2,307
9,543
-
9,543
(8,395)
1,148
83,815
5,764
89,579
(86,124)
3,455
(1,045)
(286)
(68)
-
2,056
(394)
1,662
-
-
-
-
-
-
-
-
-
-
-
-
Total
2018
£’000
86,112
6,409
92,521
(89,887)
2,634
(1,093)
(194)
(129)
(495)
723
(365)
358
Total
2017
£’000
83,815
5,764
89,579
(86,124)
3,455
(1,045)
(286)
(68)
-
2,056
(394)
1,662
86
Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Accounts, notes and other information
87
4 Operating expenses
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
All other operating expenses
Contractor costs
Sub-contracted direct costs
Operating lease rentals
– plant and machinery
– land and buildings
Other occupancy costs
IT costs
Net exchange gain
Equity settled share-based payment charge
Other operating costs
Total operating expenses
Disclosures relating to the remuneration of Directors are set out on page 50.
During the year the Group obtained the following services from the Group’s auditors:
Consolidated
2018
£’000
5,478
623
174
6,275
155
11
28
194
2017
£’000
5,138
609
192
5,939
239
9
38
286
5 Non-recurring items
Continuing operations
Restructuring
- Employee benefit costs
- Other operating costs
Legal costs
Past service cost for defined benefit pension scheme
2018
£’000
279
122
74
20
495
2017
£’000
-
-
-
-
-
Non-recurring items during 2018 in respect of continuing operations included:
• Costs related to restructuring of Parity Consultancy Services to align to the Group’s strategy of focusing on the data consultancy market.
Costs include employee termination payments, fees for professional services and costs of changes in management structure
• Legal costs for professional services fees in respect of one-off cases with no significant further related costs anticipated
• Past service cost for the Group’s defined benefit pension scheme in respect of GMP equalisation as discussed in note 23
76,067
73,088
There were no non-recurring items during 2017.
363
8
661
156
326
(6)
129
1,216
78,920
85,389
228
17
659
98
278
-
68
1,098
75,534
81,759
6 Average staff numbers
Continuing operations
Professionals – United Kingdom1
Consultancy Services – United Kingdom, including corporate office2
Discontinued operations
Consultancy Services3
1 Includes 20 (2017: 22) employees providing shared services across the Group
2 Includes 4 (2017: 4) employees of the Company
3 Average for 4 months (2017: 12 months)
Grant Thornton UK LLP
KPMG LLP
At 31 December 2018, the Group had 101 continuing employees (2017: 105).
Consolidated
Audit of the Group, Company and subsidiary financial statements
Interim review
Tax compliance
Other
Other services
Total fees
2018
£’000
2017
£’000
2018
£’000
65
-
14
-
14
79
-
-
-
-
-
-
-
-
20
20
20
2017
£’000
77
6
27
26
59
136
7 Finance costs
Finance costs
Interest expense on financial liabilities
Net finance costs in respect of post-retirement benefits
All other services have been performed in the UK. ‘Other’ refers to services provided in relation to advice relating to the Retirement Benefit
Plan, transaction costs and assistance provided with research and development tax credit applications.
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 have increased annual borrowing costs by approximately £37,000 (2017: £53,000).
2018
£’000
86
23
109
15
2018
£’000
181
184
365
2017
£’000
85
25
110
22
2017
£’000
199
195
394
88
Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Accounts, notes and other information
89
8 Discontinued operations
8 Discontinued operations (continued)
In April 2018 the Group sold Inition Limited following the strategic decision made to place greater focus on the Group’s core business. As such,
Inition Limited’s operating result for the current and comparative year, the loss on disposal and the impairment of goodwill associated with the
Inition cash generating unit is presented as discontinued.
The loss on disposal of Inition Limited was determined as follows:
Consideration
Net assets disposed of
Intangible assets
Property, plant and equipment
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Total net assets disposed of
Loss on disposal before disposal expenses
Disposal expenses
Loss on disposal of Inition Limited
Net proceeds received on disposal of Inition Limited were as follows:
Cash consideration received
Cash disposed of
Net proceeds from disposal of Inition Limited
The post-tax result of discontinued operations was determined as follows:
Revenue
Depreciation and amortisation
Loss on write down of intangible assets
All other operating expenses
Operating loss
Impairment of goodwill
Loss on disposal of Inition Limited
Debtor insolvency dividend
Loss from discontinued operations before tax
Tax credit
Loss from discontinued operations after tax
Basic loss per share
Diluted loss per share
2018
£’000
200
33
62
86
695
(485)
391
(191)
(115)
(306)
2018
£’000
200
(86)
114
2018
£’000
523
(24)
-
(787)
(288)
-
(306)
40
(554)
173
(381)
Notes
11
11
(0.37p)
(0.37p)
2017
£’000
-
-
-
-
-
-
-
-
-
-
2017
£’000
-
-
-
2017
£’000
2,324
(161)
(3)
(3,262)
(1,102)
(1,165)
-
-
(2,267)
85
(2,182)
(2.14p)
(2.14p)
The loss from the discontinued operations of £381,000 (2017: £2,182,000) is attributable entirely to the owners of the Company.
The discontinued operations operating loss relates entirely to Inition Limited. The debtor insolvency dividend of £40,000 (2017: £nil) represents
a one-off payment received from the administrators of Atraxis AG and relates to a bad debt previously written off by a former Group subsidiary
registered in Switzerland. The discontinued operations tax credit of £173,000 in 2018 relates to a research and development tax credit claimed
by Inition Limited.
Cash flows from/(used in) discontinued operations are as follows:
Net cash from/(used in) operating activities
Net cash used in investing activities
Net cash flows for the year from/(used in) discontinued operations
9 Share-based payments
The Group operates several share-based reward schemes for employees:
• A United Kingdom tax authority approved scheme for Executive Directors and senior staff;
• an unapproved scheme for Executive Directors and senior staff; and
• a Save As You Earn Scheme for all employees.
2018
£’000
105
(5)
100
2017
£’000
(674)
(38)
(712)
Under the approved and unapproved schemes, 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.
All employee options have a maximum term of ten years from the date of grant. The total share-based remuneration recognised in the income
statement was £129,000 (2017: £68,000). Share-based remuneration relating to key management personnel is disclosed in note 27.
Consolidated
Outstanding at beginning of the year
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at the end of the year
2018
Weighted
average exercise
price (p)
11
12
9
17
11
2018
Number
4,555,000
6,371,240
(500,000)
(806,800)
9,619,440
2017
Weighted
average
exercise
price (p)
15
-
8
22
11
2017
Number
8,420,851
-
(300,000)
(3,565,851)
4,555,000
The exercise price of options outstanding at the end of the year and their weighted average contractual life fell within the following ranges:
2018
Exercise price
(p)
2018
Weighted average
contractual life
(years)
7.5-11
11-17
17-28
7
9
4
2017
Exercise price
(p)
2017
Weighted average
contractual life
(years)
7.5-11
11-17
17-28
7
-
5
2018
Numberr
5,234,440
4,100,000
285,000
9,619,440
2017
Number
3,900,000
-
655,000
4,555,000
90
Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Accounts, notes and other information
91
9 Share-based payments (continued)
10 Taxation (continued)
Of the total number of options outstanding at the end of the year 1,085,000 (2017: 1,455,000) had vested and were exercisable at the end of the
year. The weighted average exercise price of those options was 13 pence (2017: 17 pence).
500,000 options were exercised during the year (2017: 300,000) at an average exercise price of 9 pence (2017: 8 pence).
6,371,240 options were granted during the year (2017: nil) at a weighted average fair value of 6 pence (2017: nil).
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 valuation 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
2018
2018
2017
2017
Stochastic Black-Scholes
Stochastic Black-Scholes
13
13
10
5
47.0-51.7%
1.18%
0%
14
10
10
3
47.5%
0.93%
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 credit
Accelerated capital allowances
Origination and reversal of other temporary differences
Recognition of deferred tax previously unprovided
Adjustments in respect of prior periods
Total deferred tax credit
Tax credit on continuing operations
2018
£’000
-
-
15
72
-
(150)
(63)
(63)
2017
£’000
112
112
68
-
(675)
(39)
(646)
(534)
The tax credit on continuing operations excludes the tax credit from discontinued operations of £173,000 (2017: £85,000). This comprises
a current tax credit of £173,000 (2017: £112,000) and a deferred tax expense of £nil (2017: £27,000). This has been included in loss from
discontinued operations after tax (see note 8). The adjustment in respect of prior periods of £150,000 (2017: £39,000) largely relates to capital
allowances that had been expected to be claimed that were subsequently not claimed.
There is no current tax payable by the Group for 2018 (2017: £nil).
The standard rate of corporation tax in the United Kingdom changed from 20% to 19% with effect from 1 April 2017 and remained at 19%
during 2018. Accordingly, the Group’s profits for this accounting period are subject to tax at a rate of 19% (2017: 19.25%). A reduction to
17% effective 1 April 2020 was substantively enacted on 15 September 2016. As such, the tax rate of 17% (2017: 17%) has been applied in
calculating the UK deferred tax position of the Group.
The reasons for the difference between the actual tax credit for the year and the standard rate of corporation tax in the UK applied to profit for
the year are as follows:
Profit before tax from continuing operations
Expected tax charge based on the standard rate of UK
corporation tax of 19% (2017: 19.25%)
Expenses not allowable for tax purposes
Adjustments in respect of prior periods
Utilisation of unprovided tax losses carried forward
Recognition of deferred tax asset previously unprovided
Other
Tax credit on continuing operations
Tax on each component of other comprehensive income is as follows:
Exchange differences on translation of foreign operations
Remeasurement of defined benefit pension scheme
2018
£’000
358
68
29
(150)
-
-
(10)
(63)
2018
2017
Before
tax
£’000
(3)
(1,005)
(1,008)
Tax
£’000
-
171
171
After
tax
£’000
(3)
(834)
(837)
Before
tax
£’000
(39)
800
761
Tax
£’000
-
(136)
(136)
2017
£’000
1,662
320
10
(39)
(141)
(675)
(9)
(534)
After
tax
£’000
(39)
664
625
92
Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Accounts, notes and other information
93
11 Earnings per ordinary share
Basic earnings per share is calculated by dividing the basic earnings 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.
Continuing operations
Basic earnings per share
Effect of dilutive options
Diluted earnings per share
Discontinued operations
Basic loss per share
Effect of dilutive options
Diluted loss per share
Continuing and discontinued operations
Basic earnings per share
Effect of dilutive options
Diluted earnings per share
Weighted
average
number
of shares
2018
‘000
Earnings/
(loss)
per share
2018
Pence
Earnings/
(loss)
2018
£’000
Weighted
average
number
of shares
2017
‘000
Earnings/
(loss)
per share
2017
Pence
Earnings/
(loss)
2017
£’000
421
-
421
102,464
1,126
103,590
0.41
-
0.41
2,196
102,087
-
1,292
2,196
103,379
(381)
102,464
(0.37)
-
-
-
(381)
102,464
(0.37)
(2,182)
102,087
-
-
(2,182)
102,087
40
-
40
102,464
1,126
103,590
0.04
-
0.04
14
-
14
102,087
1,292
103,379
2.15
-
2.12
(2.14)
-
(2.14)
0.01
-
0.01
As at 31 December 2018 the number of ordinary shares in issue was 102,624,020 (2017: 102,124,020).
12 Goodwill
The carrying amount of goodwill is allocated to the Group’s two separate continuing cash generating units (CGUs), being Parity Professionals
and Parity Consultancy Services.
Carrying amounts are as follows:
Carrying value
Balance at 1 January 2017 and 31 December 2017
Balance at 1 January 2018 and 31 December 2018
Parity
Professionals
£’000
Parity
Consultancy
Services
£’00
2,642
2,642
1,952
1,952
Total
£’000
4,594
4,594
Goodwill was tested for impairment in accordance with IAS 36 at the year end and no impairment charge was recognised.
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 2019. Years from 2020 to 2022 are based on the budget for 2019 projected forward at expected growth rates. Years from
2023 onward assume no further growth. This approach is considered prudent based on current expectations of the 2019 long-term growth
rate.
12 Goodwill (continued)
Major assumptions are as follows:
2018
Discount rate
Forecast revenue growth (years 1 to 4)
Operating margin 2019
Operating margin 2020 onward
2017
Discount rate
Forecast revenue growth (years 1 to 4)
Operating margin 2018
Operating margin 2019 onward
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 from 2019 to 2022. Growth for the
Parity Professionals CGU is based upon the
long-term growth rate for the UK economy.
Growth for the Parity Consultancy Services
is assumed to be higher than the long-term
growth rate due to the following factors:
13 Other intangible assets
Consolidated
Cost
At 1 January
Additions
Disposals
At 31 December
Accumulated amortisation
At 1 January
Charge for the year
Disposals
At 31 December
Net book amount
Parity Professionals % Parity Consultancy Services %
13.0
2.0
1.9
2.0-2.3
13.0
5.0
2.6
3.0-3.6
11.5
10.0
6.1
7.8-10.5
11.5
10.0
10.0
10.7-12.9
• The CGU is the focal point of the Group’s
• New client wins in 2018 and an extension
strategy and growth plans;
• The CGU is relatively small so higher rates
of growth are achievable from a small
base. For instance, the CGU achieved an
average growth of 47% in the financial
years 2016 and 2017;
• In 2018 the CGU was hit by issues on a
significant contract resulting in reduced
year on year revenue for the CGU. The
Directors expect this to be a one-off rather
than a trend; and
to the ESFA contract in 2019 help to
underwrite the growth forecasts.
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.
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.
Software
Intellectual property
Total
2018
£’000
2017
£’000
2018
£’000
2017
£’000
2018
£’000
2017
£’000
1,088
14
(662)
440
861
155
(662)
354
86
1,083
5
-
1,088
637
224
-
861
227
109
-
-
109
109
-
-
109
-
109
-
-
109
94
15
-
109
-
1,197
14
(662)
549
970
155
(662)
463
86
1,192
5
-
1,197
731
239
-
970
227
The Company does not hold any intangible assets.
Neither the Group nor the Company had any additional capital commitments for the purchase of intangible assets as at the balance sheet date.
During the year, a review of the Group’s fixed asset registers was undertaken. The review identified fully depreciated items, with a cost value of
£662,000 (2017: £nil), that were no longer used by the Group. As such, the Group recognised a £662,000 (2017: £nil) disposal for software at
cost and accumulated depreciation.
94
Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Accounts, notes and other information
95
14 Property, plant and equipment
14 Property, plant and equipment (continued)
Consolidated
Cost
Balance at 1 January 2017
Additions
Disposals
Balance at 31 December 2017 and 1 January 2018
Additions
Disposals
Balance at 31 December 2018
Accumulated depreciation
Balance at 1 January 2017
Depreciation charge for the year
Disposals
Balance at 31 December 2017 and 1 January 2018
Depreciation charge for the year
Disposals
Balance at 31 December 2018
Net book value
At 1 January 2017
At 31 December 2017 and 1 January 2018
At 31 December 2018
Leasehold
improvements
£’000
Office
equipment
£’000
16
-
-
16
-
(14)
2
16
-
-
16
-
(14)
2
-
-
-
3,064
53
(1,976)
1,141
30
(959)
212
2,992
47
(1,976)
1,063
39
(959)
143
72
78
69
Total
£’000
3,080
53
(1,976)
1,157
30
(973)
214
3,008
47
(1,976)
1,079
39
(973)
145
72
78
69
Company
Cost
Balance at 1 January 2017
Balance at 31 December 2017 and 1 January 2018
Balance at 31 December 2018
Accumulated depreciation
Balance at 1 January 2017
Depreciation charge for the year
Balance at 31 December 2017 and 1 January 2018
Balance at 31 December 2018
Net book value
At 1 January 2017
At 31 December 2017 and 1 January 2018
At 31 December 2018
Leasehold
improvements
£’000
Office
equipment
£’000
Total
£’000
1
1
1
1
-
1
1
-
-
-
3
3
3
2
1
3
3
1
-
-
4
4
4
3
1
4
4
1
-
-
As at 31 December 2018, neither the Group nor the Company had any capital commitments contracted for but not provided for the purchase
of tangible assets (2017: £nil).
Leased plant and equipment
At 31 December 2018 the net carrying value of leased equipment in the Group was £7,000 (2017: £18,000).
During the year, a review of the Group’s fixed asset registers was undertaken. The review identified fully depreciated items, with a cost value
of £973,000 (2017: £1,976,000), that were no longer used by the Group. As such, the Group recognised a £973,000 (2017: £1,976,000) disposal
for leasehold improvements and office equipment at cost and accumulated depreciation.
96
Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Accounts, notes and other information
97
15 Deferred tax
15 Deferred tax (continued)
Consolidated
The movements in deferred tax assets during the period are shown below:
At 1 January
Recognised in other comprehensive income
Remeasurement of defined benefit pension scheme
Recognised in the income statement
Adjustments in relation to prior periods
Capital allowances in excess of depreciation
Other short-term timing differences
Recognition of deferred tax previously unprovided
At 31 December
The deferred tax asset of £1,153,000 (2017: £919,000) comprises:
Depreciation in excess of capital allowances
Short term and other timing differences
Retirement benefit liability
2018
£’000
919
171
150
(15)
(72)
-
1,153
2017
£’000
409
(136)
39
(68)
-
675
919
Consolidated
2018
£’000
820
3
330
1,153
2017
£’000
685
54
180
919
Depreciation in excess of capital allowances
Other short-term timing differences
Retirement benefit liability
At 31 December 2018
Depreciation in excess of capital allowances
Other short-term timing differences
Retirement benefit liability
At 31 December 2017
(Charge)/
credit to
income
statement
2018
£’000
Credit to other
comprehensive
income
2018
£’000
135
(51)
(21)
63
-
-
171
171
(Charge)/
credit to
income
statement
2017
£’000
Credit to other
comprehensive
income
2017
£’000
330
-
316
646
-
-
(136)
(136)
Asset
2018
£’000
820
3
330
1,153
Asset
2017
£’000
685
54
180
919
A deferred tax asset for deductible temporary differences 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 utilised. At the balance sheet date, the Directors assessed the probability
of future taxable profits being available against which Parity Consultancy Services could recognise a deferred tax asset for previously
unrecognised deductible temporary differences. The review concluded that it is probable that future taxable profits will be available. As such,
the Directors have recognised a deferred tax asset for all deductible temporary differences available to Parity Consultancy Services.
A deferred tax asset for unused tax losses carried forward is normally recognised on the same basis as for deductible temporary differences.
However, the existence of the unused tax losses is itself strong evidence that future taxable profit may not be available. Therefore, when an
entity has a history of recent losses, the entity recognises a deferred tax asset arising from unused tax losses only to the extent that there is
convincing evidence that sufficient taxable profit will be available against which the unused tax losses can be utilised. At the balance sheet
date, the Directors considered recognising a deferred tax asset for previously unrecognised unused tax losses carried forward by Parity
Consultancy Services. The review concluded that given the division’s history of relatively recent tax losses and the additional requirement of
providing convincing evidence that sufficient taxable profit will be available, a prudent approach would be taken and deferred tax would remain
unrecognised for tax losses carried forward by the division.
The Directors believe that the deferred tax asset recognised is recoverable based on the future earning potential of the Group and the
individual cash generating divisions. The forecasts for Parity Professionals comfortably support the unwinding of the deferred tax asset held
by this division of £404,000 (2017: £380,000) and the forecasts for Parity Consultancy Services comfortably support the unwinding of the
deferred tax asset held by this division of £749,000 (2017: £539,000).
The deferred tax asset at 31 December 2018 has been calculated on the rate of 17% substantively enacted at the balance sheet date.
The Group has unrecognised carried forward tax losses of £30,187,000 (2017: £29,485,000). The Group has unrecognised capital losses
carried forward of £282,068,000 (2017: £281,937,000). These losses may be carried forward indefinitely.
The Company has unrecognised carried forward tax losses of £24,979,000 (2017: £24,538,000). The Company has unrecognised capital
losses carried forward of £281,875,000 (2017: £281,875,000). These losses may be carried forward indefinitely.
98
Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Accounts, notes and other information
99
16 Trade and other receivables
Amounts falling due within one year:
Trade receivables
Accrued income
Amounts recoverable on contracts
Amounts owed by subsidiary undertakings
Other receivables
Prepayments
Amounts falling due after one year:
Amounts owed by subsidiary undertakings
Total
Consolidated
Company
2018
£’000
6,455
3,265
1,994
-
27
277
12,018
-
12,018
2017
£’000
5,812
3,250
2,541
-
136
294
12,033
-
12,033
2018
£’000
-
-
-
2,302
-
2
2,304
2017
£’000
-
-
-
2,200
-
2
2,202
123,510
125,814
122,170
124,372
The fair values of trade and other receivables are not considered to
differ from the values set out above.
£6,455,000 (2017: £5,812,000) of the Group’s trade receivables and
£4,674,000 (2017: £4,941,000) 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 31 December 2018 totalled £6,911,000 (2017: £6,581,000).
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 balance of impaired losses for the continuing Group at 31
December 2018 was £nil (2017: nil). All debts at 31 December 2018
are considered to be recoverable.
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. The Company’s
receivables due from subsidiary undertakings were reviewed for
impairment at the balance sheet date based on the performance of
2018 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 11.5% and 13.0% (2017: between 11.5% and 13.0%) and the
other parameters used in the goodwill impairment review, as outlined
in note 12.
As at 31 December 2018 trade receivables of £1,155,000 (2017:
£737,000) 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
5,300
820
288
47
6,455
2018
Impaired
£’000
-
-
-
-
-
Total
£’000
5,300
820
288
47
6,455
Gross
£’000
5,075
588
112
37
5,812
2017
Impaired
£’000
-
-
-
-
-
Total
£’000
5,075
588
112
37
5,812
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.
17 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:
Consolidated
Intangible assets - software
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
2018
£’000
-
-
-
-
-
-
-
-
-
-
2017
£’000
44
69
637
14
27
791
(365)
(30)
(395)
396
In 2017 the assets classified as held for sale related to Inition Limited, which was disposed of during the year as discussed in note 8. Trade and
other receivables of £nil (2017: £637,000) is net of a provision for doubtful debts of £nil (2017: £134,000).
18 Loans & borrowings
Non-current
Finance lease liabilities
Current
Bank and other borrowings due within one year or on demand:
Asset-based financing facility
Finance lease liabilities
Consolidated
2018
£’000
-
-
-
6,911
8
6,919
2017
£’000
44
8
8
6,581
11
6,592
Finance lease liabilities
Less than one year
Between one and two years
Future
minimum
lease
payments
2018
£’000
8
-
8
Present value
of minimum
lease
Payments
2018
£’000
8
-
8
Interest
2018
£’000
-
-
-
Future
minimum
lease
payments
2017
£’000
11
8
19
Present value
of minimum
lease
payments
2017
£’000
11
8
19
Interest
2017
£’000
-
-
-
100
Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Accounts, notes and other information
101
18 Loans & borrowings (continued)
Changes in liabilities from financing activities
Balance at 1 January 2018
Drawdown of borrowings
Payment of finance lease liabilities
Balance at 31 December 2018
Further details of the Group’s banking facilities are given in note 21.
19 Trade and other payables
Amounts falling due within one year:
Payments in advance
Trade payables
Amounts due to subsidiary undertakings
Other tax and social security payables
Other payables and accruals
Amounts falling due after one year:
Amounts due to subsidiary undertakings
Total
20 Provisions
Consolidated
At 1 January 2018
Created in year
At 31 December 2018
Due within one year
Due after one year
Total
Loans and
borrowings
£000
Finance lease
liabilities
£000
6,581
330
-
6,911
19
-
(11)
8
21 Financial instruments – risk management
The Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and
processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is
presented throughout these financial statements.
There have been no substantive changes in the Group’s exposure to financial instrument risks and the methods used to measure them from
previous periods unless otherwise stated in this note.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are trade receivables, cash and cash
equivalents, trade and other payables and bank borrowings.
A summary by category of the financial instruments held by the Group is provided below:
Consolidated
Company
2018
£’000
30
5,919
-
1,486
826
8,261
-
8,261
2017
£’000
16
5,318
-
1,450
1,565
8,349
-
8,349
2018
£’000
-
1
12,796
23
97
12,917
2017
£’000
-
14
10,967
21
139
11,141
123,113
136,030
121,384
132,525
Leasehold
dilapidations
£’000
Restructuring
£’000
Total
£’000
18
2
20
-
20
20
-
43
43
43
-
43
18
45
63
43
20
63
Consolidated
As at 31 December 2018
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 2017
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
Total
£’000
5,829
11,741
17,570
6,911
8
8,231
15,150
4,968
11,739
16,707
6,581
19
8,333
14,933
5,829
11,741
17,570
6,911
8
8,231
15,150
4,968
11,739
16,707
6,581
19
8,333
14,933
The Company had no provisions at 31 December 2018 (2017: £nil).
Leasehold dilapidations
Restructuring
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
three to five years. The main uncertainty relates to the estimation of
the costs that will be incurred at the end of the lease.
Restructuring costs relate to estimated remaining amounts to be
settled in relation to the restructuring of Parity Consultancy Services.
These provisions are expected to be settled within one year. The main
uncertainty relates to the estimation of costs that will be incurred.
102
Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Accounts, notes and other information
103
21 Financial instruments – risk management (continued)
21 Financial instruments – risk management (continued)
A summary by category of the financial instruments held by the Company is provided below:
Company
As at 31 December 2018
Financial assets
Non-current trade and other receivables
Net cash and cash equivalents
Trade and other short term receivables
Financial liabilities
Non-current trade and other payables
Trade and other short term payables
As at 31 December 2017
Financial assets
Non-current trade and other receivables
Net cash and cash equivalents
Trade and other short term receivables
Financial liabilities
Non-current trade and other payables
Trade and other short term payables
Amortised cost
£’000
Total
£’000
123,510
123,510
387
2,302
387
2,302
126,199
126,199
123,113
12,917
136,030
123,113
12,917
136,030
122,170
122,170
116
2,200
116
2,200
124,486
124,486
121,384
11,141
132,525
121,384
11,141
132,525
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 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 primarily in the UK with 98% of generated
revenues from the UK (2017: 100%). Approximately 73% (2017:
69%) of the Group’s turnover is derived from the public sector. The
largest customer balance represents 12% (2017: 29%) of the trade
receivables balance.
Quantitative disclosures of the credit risk exposure in relation to
financial assets are set out below. Further disclosures regarding trade
and other receivables, which are neither past due nor impaired, are
provided in note 16.
Financial assets
Cash and cash equivalents
Trade and other receivables
2018
2017
Carrying
value
£’000
Maximum
exposure
£’000
Carrying
value
£’000
Maximum
exposure
£’000
5,829
11,741
17,570
5,829
11,741
17,570
4,968
11,739
16,707
4,968
11,739
16,707
Interest rate risk
Foreign exchange 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.
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.
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 2018 and 2017 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 2.35%
above base rate throughout 2018 and 2017. 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 £37,000 higher/lower (2017: £53,000) and net assets
£37,000 lower/higher (2017: £53,000). 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 2017,
the loan balance due by the Company to Parity International BV,
translated into Sterling, was £28,307,000 (2017: £27,463,000).
The Group no longer has any active overseas operations but does
retain certain overseas subsidiaries that are not trading. 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 2018 or 2017.
During 2014, the underlying denomination of a large intercompany
balance between the Company and one of the Group’s inactive
overseas subsidiaries was revised, whereby the denomination of the
loan was revised from Sterling to Euros and thus subject to exchange
rate fluctuations in the books of the Company. In 2018 the Company
recorded a translation loss of £352,000 (2017: £1,092,000). As at 31
December 2018, the loan balance due by the Company, translated
into Sterling, was £28,307,000 (2017: £27,463,000).
The currency profile of the Group’s net financial assets was as
follows:
Sterling
Euro
US Dollar
Total
2018
Net foreign currency
financial assets
Sterling
Euro
US Dollar
2018
£’000
-
2017
£’000
-
(27,782)
(27,455)
5
5
2018
£’000
(2,296)
-
-
2017
£’000
(2,236)
-
-
Total net exposure
(27,777)
(27,450)
(2,296)
(2,236)
2018
£’000
2017
£’000
-
-
-
-
-
-
-
-
2018
£’000
(2,296)
(27,782)
5
2017
£’000
(2,236)
(27,455)
5
(30,073)
(29,686)
104
Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Accounts, notes and other information
105
21 Financial instruments – risk management (continued)
The currency profile of the Company’s net financial assets was as follows:
Net foreign currency financial assets
Euro
US Dollar
Total net exposure
21 Financial instruments – risk management
(continued)
Functional currency: Sterling
Capital disclosures
2018
£’000
(28,032)
5
2017
£’000
(27,455)
5
(28,027)
(27,450)
The capital structure of the Group consists of cash and cash
equivalents, equity attributable to equity holders, and asset-based
financing. There is no long-term external debt, except for a small
number of finance leases. The leases represent a liability of £8,000
(2017: £19,000) and are repayable within one year. The Company is
funded through equity and intercompany loans.
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.
The Group uses an asset-based financing facility with PNC Business
Credit, a member of The PNC Financial Services Group, Inc.
The Group’s net debt is as follows:
Sensitivity analysis – Group and Company
Liquidity risk
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
£2,778,000 higher/lower (2017: £2,746,300).
A 10% fluctuation in any other currency
exchange rate would not have a significant
impact on profit and loss, nor equity.
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
Cash and cash equivalents
Asset-based borrowings
Finance lease liabilities
Net debt
2018
£’000
5,829
(6,911)
(8)
(1,090)
2017
£’000
4,968
(6,581)
(19)
(1,632)
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 currently have distributable reserves available for dividend payments. A capital reconstruction will be necessary to
create reserves available for distribution. The Board plan to review possible capital reconstruction options in the near future.
Consolidated
At 31 December 2018
Trade and other payables
Borrowings
Total
At 31 December 2017
Trade and other payables
Borrowings
Total
Company
At 31 December 2018
Trade and other payables
Total
At 31 December 2017
Trade and other payables
Total
More detail on trade and other payables is given in note 19.
Up to
1 month
£’000
8,231
6,911
15,142
Up to
1 month
£’000
8,333
6,581
14,914
Between
1 and 12
months
£’000
-
-
Between
1 and 12
months
£’000
-
-
Over
1 month
£’000
-
8
8
Over
1 month
£’000
-
19
19
Over
1 year
£’000
123,113
123,113
Over
1 year
£’000
121,384
121,384
Total
£’000
8,231
6,919
15,150
Total
£’000
8,333
6,600
14,933
Total
£’000
136,030
136,030
Total
£’000
132,525
132,525
Up to
1 month
£’000
12,917
12,917
Up to
1 month
£’000
11,141
11,141
in Parity Holdings Limited, the reserve can
be used in order to absorb impairments in
the related investment. On this basis the
impairment previously recorded in retained
earnings is now reallocated to other reserves
in the Group and Company.
Retained earnings
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 (2017: £351,000).
22 Reserves
The Board is not proposing a dividend for the
year (2017: nil pence per share).
The following describes the nature and
purpose of each reserve within shareholders’
equity:
Share capital
Share capital consists of ordinary share
capital and previously consisted of deferred
share capital.
Ordinary share capital
Share capital is the amount subscribed for
ordinary shares at nominal value.
During 2018, 500,000 share options were
exercised, increasing the Group’s ordinary
share capital from £2,043,000 to £2,053,000
(2017: 300,000 share options exercised,
increasing from £2,037,000 to £2,043,000).
Deferred share capital
Deferred share capital is the nominal value
assigned to the deferred shares.
In May 2017 the Directors resolved to
compulsorily reacquire and cancel the
deferred shares of Parity Group plc. As such,
the deferred share capital at year end was
£nil (2017: £nil).
Share premium reserve
Share premium is the amount subscribed for
share capital in excess of nominal value.
Following the exercise of share options in
2018, the share premium reserve increased
from £33,211,000 to £33,244,000 (2017:
increase from £33,195,000 to £33,211,000).
Capital redemption reserve
A capital redemption reserve of £14,319,000
was created during 2017 when the Directors
resolved to cancel the deferred shares of
Parity Group plc.
Other reserves
Other reserves of the Group relate principally
to a reserve created following a change of the
Group’s ultimate parent and a corresponding
Scheme of Arrangement in July 1999, and a
reserve created following the reorganisation
of the Group’s capital structure in 2002
that resulted in the Company increasing its
investment in subsidiary undertakings.
During the year a reallocation was made in
respect of an impairment of Parity Group
plc’s investment in Parity Holdings Limited.
The impairment charge of £9,600,000 was
recorded as a loss in retained earnings
in 2010. Given that this other reserve is
represented by Parity Group plc’s investment
106
Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Accounts, notes and other information
107
23 Pension commitments
Defined benefit plan
The Group operates a small number of
pension schemes. With the exception of
the Parity Group Retirement Benefits 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 during the year were £172,000
(2017: £192,000).
In March 1995, the Group established the
Parity Retirement Benefits Plan, renamed
as the Parity Group Retirement Benefits
Plan (“the 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. The Plan is
governed by the Trustees of the plan and is
administered by Cartwright Group Limited
in accordance with the Trust Deed and
Rules, solely for the benefit of its members
and other beneficiaries. The Trustees
Pensioner members
Deferred members
Total
comprise an independent Chairman, one
‘member’ representative and one ‘employer’
representative. It 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.
The weighted average liability duration is
approximately 13 years (2017: 14 years) and
can be attributed to the scheme members as
follows:
Number of
members
Weighted
average liability
duration (years)
61
7
68
13
18
13
There was one retirement during the year
(2017: none). There was no change in total
members during the year (2017: one deferred
member elected to transfer out of the Plan).
The Plan is funded by the Group based
on the triennial actuarial valuation of the
scheme’s technical provisions. The actuarial
valuation is subject to more prudent
assumptions than the accounting valuation
under IAS 19. The next triennial actuarial
valuation is due as at April 2018 and is in
progress at the date of this report. Funding
requirements are formally set out in the
Statement of Funding Principles, Schedule
of Contributions and Recovery Plan agreed
between the Trustees and the Group.
In March 2016, agreement was reached
with the Trustees to link 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 until March 2035, with conditional
annual bonus payments predicated on
the Group’s financial performance and
the divestment of non-core assets. The
contributions increase each year in line
with RPI with the first increase applied
on 1 January 2017. The balance of the
deficit is expected to be met by asset
outperformance. The core contributions in
2018 were £16,700 per month (2017: £15,300
per month) to allow for increased scheme
expenses in addition to the inflationary
increase. Pursuant to the agreement,
during 2018, a bonus payment of £25,600
was paid based upon the Group’s 2017
financial results, in addition to a lump sum
contribution of £100,000 following the
disposal of Inition Limited. No additional
payments were made in 2017.
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.
In 2017 the Trustees changed the investment
strategy and fund choices in order to reduce
the volatility of the deficit whilst increasing
the longer term expected investment return.
This was achieved by using liability driven
investment, which provides leveraged
exposure to bond-like assets. The leverage
was used to reduce deficit volatility and
has allowed a greater share of the assets
to be invested in growth assets, as set out
in the Composition of Plan Assets table on
page 107. The liability driven investments
significantly reduced both interest rate and
inflation risk so that, using a stochastic ‘value
at risk’ model, the overall investment risk
reduced by approximately one third. The
main funding risks are as follows:
• Investment return risk – if the assets
underperform the assumed returns in
setting the funding targets then additional
contributions may be required;
• Longevity risk – if the future improvements
in mortality exceed the assumptions then
additional contributions may be required;
• Foreign currency exchange rate risk – the
diversified growth funds have the option
to use foreign currency as an asset class.
The diversified growth funds are actively
managed and, consequently, any foreign
currency exposure is constantly monitored
and addressed where the risk/reward
balance is not appropriate.
The valuation for IAS 19 has been provided
by Cartwright Group Limited, a company that
specialises in providing actuarial services, as
at 31 December 2018.
Principal actuarial assumptions
Rate of increase of pensions in payment
Discount rate
Retail price inflation
Consumer price inflation
2018
3.7-4.0%
2.80%
3.4%
2.4%
2017
3.7-3.9%
2.45%
3.3%
2.3%
23 Pension commitments (continued)
In accordance with the revised IAS 19, the assumption for future investment returns is the same discount rate of 2.80% (2017: 2.45%) used in
calculating the pension liabilities.
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. (2017: 1.25% p.a.). This results in the following life expectancies:
• Male aged 65 at 31 December 2018 has a life expectancy of 87 years (2017: 87 years)
• Female aged 65 at 31 December 2018 has a life expectancy of 89 years (2017: 89 years)
Guaranteed Minimum Payment (“GMP”) equalisation
During the year the High Court of Justice in England made judgement in a case relating to GMP equalisation. The court held that pensions
earned between 1990 and 1997 must be equalised between men and women for the effect of GMPs. Most sections of the Group’s scheme
were unaffected since they were opted in to the Second State Pension, with just one section opted out. The actuary estimates that the impact
to the scheme will be to increase liabilities by between £10,000 and £30,000. Accordingly, an adjustment has been recorded in these accounts
to increase the scheme deficit by £20,000 as at 31 December 2018. The increase in liability has been treated as a past service cost recognised
in the income statement for the year ended 31 December 2018 as a non-recurring item (see note 5).
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
Plan assets at the end of the year
2018
£’000
20,099
(22,041)
(1,942)
2018
£’000
21,880
525
326
(888)
(158)
(1,586)
20,099
2017
£’000
21,880
(22,939)
(1,059)
2017
£’000
22,465
559
184
(1,792)
(145)
609
21,880
Contributions to the scheme included £125,600 of additional payments (2017: £nil). Details of these payments are set out on page 106. Benefits
paid during 2017 included a lump sum payment to one member who opted to transfer out of the Plan. The actuarial loss on plan assets relates
to the fall in value of the scheme’s investments reflecting weak performances in global equity markets experienced in 2018.
Composition of plan assets
Diversified growth funds – Quoted
Liability driven investment funds – Quoted
Options in Parity Group plc
Cash
Total plan assets
2018
£’000
11,343
8,589
96
71
2017
£’000
12,881
8,829
96
74
20,099
21,880
108
Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Accounts, notes and other information
109
23 Pension commitments (continued)
Reconciliation of plan liabilities
At the beginning of the year
Interest cost
Past service cost
Benefits paid
Actuarial gain
Plan liabilities at the end of the year
Amounts recognised in the consolidated income statement
Included in finance costs
Expected return on plan assets, net of expenses
Unwinding of discount on plan liabilities (interest cost)
Net finance costs in respect of post-retirement benefits
Amounts recognised in the consolidated statement of comprehensive income
Actuarial (loss)/gain on plan assets
Actuarial gain on plan liabilities
Remeasurement of defined benefit pension scheme
Defined benefit obligation trends
Plan assets
Plan liabilities
Deficit
Experience adjustments on assets
Experience adjustments on liabilities
Sensitivity analysis
No change
0.25% rise in discount rate
0.25% fall in discount rate
0.25% rise in inflation
0.25% fall in inflation
2018
£’000
20,099
(22,041)
(1,942)
(1,586)
(7.3%)
581
2.6%
2017
£’000
21,880
(22,939)
(1,059)
609
2.9%
(191)
(0.8%)
Liabilities
£’000
22,041
21,342
22,777
22,057
21,935
2016
£’000
22,465
(24,313)
(1,848)
2,926
15.0%
3,339
15.9%
Assets
£’000
20,099
20,099
20,099
20,099
20,099
2018
£’000
22,939
551
20
(888)
(581)
22,041
2018
£’000
367
(551)
(184)
2018
£’000
(1,586)
581
(1,005)
2015
£’000
19,703
(21,194)
(1,491)
(401)
(2.0%)
(1,249)
(5.6%)
Deficit
£’000
(1,942)
(1,243)
(2,678)
(1,958)
(1,836)
2017
£’000
24,313
609
-
(1,792)
(191)
22,939
2017
£’000
414
(609)
(195)
2017
£’000
609
191
800
2014
£’000
20,356
(22,457)
(2,101)
2,251
12.4%
2,900
14.8%
Increase/
(decrease)
in deficit
£’000
-
(699)
736
16
(106)
24 Share capital
Authorised share capital
Authorised at 1 January and 31 December
Issued share capital
Issued and fully paid at 1 January
Issue of new ordinary shares
Issued and fully paid at 31 December
Ordinary shares 2p each
2018
Number
409,044,603
2018
£’000
8,181
Ordinary shares 2p each
2018
Number
102,124,020
500,000
102,624,020
2018
£’000
2,043
10
2,053
In May 2017, the Directors resolved to cancel the deferred shares of Parity Group plc. Upon cancellation, the value of the deferred shares
transferred to a capital redemption reserve within shareholders’ equity. The deferred shares were not listed on the London Stock Exchange,
had 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
The shares held by the ESOP are expected to be issued under share option contracts:
Ordinary shares held by the ESOP
The ESOP was wound up in November 2018 and its shares were sold as a result.
25 Operating lease commitments
Operating leases – lessee
The total future minimum rents payable under non-cancellable operating leases are as follows:
2018
Number
-
2017
£’000
43,143
Continuing operations
Amounts payable:
Within one year
Between two and five years
Over five years
Land and
buildings
2018
£’000
Plant and
machinery
2018
£’000
Land and
buildings
2017
£’000
Plant and
machinery
2017
£’000
717
404
-
1,121
8
3
-
11
650
349
34
1,033
8
11
-
19
110
Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
Accounts, notes and other information
111
26 Contingencies
In the normal course of business, the Group is exposed to the risk of claims in respect of contracts where the customer or supplier is
dissatisfied with the performance, pricing and/or completion of the contracted service or product. Such claims are normally resolved by a
combination of negotiation, further work by Parity or the supplier, and/or monetary settlement without formal legal process being necessary.
Occasionally, such claims progress into legal action. At the present time, Group management believes the resolution of any known claims or
legal proceedings will not have a material further impact on the financial position of the Group.
27 Key management remuneration
Key management comprises the Group’s Board of Directors and the Managing Directors of Parity Professionals and Parity Consultancy
Services. The total remuneration received by key management for 2018 was £1,059,000 (2017: £803,000). During the year a new Managing
Director of Parity Consultancy Services was employed with the aim of focusing on the Group’s data consultancy strategy and an existing
Managing Director left the division. Remuneration comprises emoluments received, pension contributions, share-based payment charges
and, in 2018, compensation for loss of office. Remuneration of the Board of Directors, including that of the highest paid Director A Rommel, is
disclosed in detail within the remuneration report on page 50.
Short-term employee benefits
Post-employment benefits
Compensation for loss of office
Share-based payments (note 9)
2018
£’000
918
35
10
96
1,059
2017
£’000
741
28
-
34
803
28 Related party transactions
Consolidated
There were no related party transactions during the year (2017: none).
Company
Details of the Company’s holdings in Group undertakings are given in note 29. The Company entered into transactions with Group
undertakings as shown in the table below:
Operating
expenses
2018
£’000
Finance
Income
2018
£’000
Finance
expense
2018
£’000
Loans
written off
2018
£’000
Operating
expenses
2017
£’000
Finance
Income
2017
£’000
Finance
expense
2017
£’000
Loans
written off
2017
£’000
(558)
-
(1,911)
(395)
(490)
-
(1,609)
(1,341)
54
1,818
-
-
30
1,441
-
1,668
Expenses incurred from
Group subsidiaries
Income generated from
Group subsidiaries
28 Related party transactions (continued)
The Company had the following amounts payable to and recoverable from Group undertakings:
Amounts owed by subsidiary undertakings (note 16):
Falling due within one year
Falling due after one year
Amounts due to subsidiary undertakings (note 19):
Falling due within one year
Falling due after one year
29 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 and
Inition Limited. Parity Professionals Limited and Parity Consultancy
Services 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 with trading results included to the date of disposal in April
2018. Inition Limited was wholly owned by Parity Solutions Limited
until April 2018 and is incorporated in the United Kingdom. Parity
Solutions Limited is a direct subsidiary of Parity Holdings Limited and
is incorporated in the United Kingdom. Parity Holdings Limited is a
direct subsidiary of Parity Group plc and is incorporated in the United
Kingdom.
Parity Professionals Limited is a specialist IT recruitment services
company. Parity Consultancy Services Limited provides business and
IT consultancy services focusing on the provision of data solutions
and delivery of IT projects. Inition Limited specialises in virtual reality,
augmented reality and 3D solutions.
The Company’s investment in continuing subsidiaries was reviewed
for impairment at the balance sheet date based on the performance
of 2018 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 (2017: £20,527,000). The assessment was
performed on a value in use basis using discount rates of between
11.5% and 13.0% (2017: between 11.5% and 13.0%) and the other
parameters used in the goodwill impairment review, as outlined in
note 12.
2018
£’000
2,302
123,510
2017
£’000
2,200
122,170
(12,796)
(123,113)
(10,967)
(121,384)
The remaining Group subsidiaries are listed below. These 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.
Parity Eurosoft Limited
Parity International BV
(registered at Keizersgracht 62-64,
1015 CS Amsterdam, Netherlands)
Parity Limited
Parity Resources Limited
Parity Solutions (Dublin 1999) Limited
(registered at Molyneux House,
Bride Street, Dublin 8, Ireland)
Parity Solutions (Ireland) Limited
(registered at Northern Ireland Science
Park, Queens Road, Belfast BT3 9DT)
Personnel Solutions Inc. (registered at
39 Broadway, New York, NY10006, USA)
Teltech International Corp. (registered at
39 Broadway, New York, NY10006, USA)
During 2017 a Group simplification project was undertaken which
resulted in 35 previously discontinued or dormant Group subsidiaries
being dissolved.
112
112
Accounts, notes and other information
Accounts, notes and other information
Parity annual report and accounts 2018
Parity annual report and accounts 2018
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
online. 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
David Beck
Donhead Consultants
Tel: +44 7836 293 383
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 plc website at
www.parity.net
The Company Secretary
Parity Group plc
Dawson House
5 Jewry Street
London EC3N 2EX
Advisors
Auditor
Grant Thornton UK LLP
30 Finsbury Square
London EC2A 1AG
Bankers
RBS Group
9th Floor
280 Bishopsgate
London EC2M 4RB
PNC Business Credit
8-14 The Broadway
Hayward’s Heath
West Sussex RH16 3AP
Or by email to: cosec@parity.net
Nominated advisor & broker
WH Ireland
24 Martin Lane
London EC4R 0DR
Solicitor
Pinsent Masons
30 Crown Place
London EC2A 4ES
www.parity.net
London
Dawson House
5 Jewry Street
London
EC3N 2EX
Belfast
Innovation Centre
Unit 5B Catalyst
Queen’s Road
BT3 9DT
Manchester
1st Floor
No.1 Spinningfields
Hardman Square
Manchester
M3 3EB
Edinburgh
9-10 St Andrew
Square
Edinburgh
EH2 2AF
Farnborough
The Hub
Fowler Avenue
Farnborough
GU14 7JF