Parity Group plc Annual Report 2019

FY2019 Annual Report · Parity Group plc

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Annual Report and
Accounts 2019

Brilliant People
Bolder Decisions

Transforming the relationship business
and government have with data.

Introduction

Making data driven
transformation a reality

Our business is based on a
simple truth; without the right
people doing the right things
the promise of data and the
transformations it can enable,
remains a dream.

By collaboratively building a
community of data experts we
will make better, faster and
surer decisions possible in our
businesses, governments and
lives.

Our mission is to release the
potential in data to help our
clients grow. We provide a
challenger spirit and expertise
that enables organisations to
make insight available to people
at every level – so they can make
better decisions.

Data doesn’t only justify

decisions, it suggests options
that were previously unimagined.
From helping chefs to plan
school menus to police forces
combat terrorism proactively, it is
transforming our world.

Positive change will depend on
seeing data not as a technical
problem of networks and
reservoirs but as a human
process. It will ultimately be
our curiosity and integrity
that delivers not only the right
commercial outcomes but also
impacts society positively.

We are partnering with
organisations to provide the
skills and knowhow to turn
information into an effective and
positive driver for change. We
are collaboratively building the
most dynamic community of data
experts, enabling our clients to
realise that vision.

Data doesn’t
only justify
decisions,
it suggests
options
that were
previously
unimagined.

Over 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.

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.

Parity annual report and accounts 2019

Introduction

About Parity

Our strategic goal

Our financial goal

To equip our clients with the data skills and
advice necessary to make bold, commercial
decisions.

To grow net profitability with a more robust
margin mix.

Our Purpose
We are the trusted partner of
data driven transformation.

Our Mission
We provide expertise that
delivers positive growth for
clients through realising the true
value of their data.

Our Vision
To build the world’s most
dynamic community of data
experts, enabling our clients to
realise their vision.

Our values

We’re collaborative
We believe in partnership - internally
and externally. By building trust and
a community of experts we make
transformation possible because
change isn’t easy and needs strong,
positive relationships.

We’re curious
A thirst for discovering what is possible
drives us. Data is changing the world,
and will answer many of humanity’s
challenges, great and small. Curiosity
inspires us to seek out new answers by
asking the right questions.

We have integrity
Building communities demands honesty
and fulfilling on your promise. Human
integrity is the bedrock of what all else is
built on and, like data integrity, creates
solutions our clients can rely on.

We bring a challenger spirit
Bringing down the walls, silos and
outdated anachronisms of data
complexity is how we challenge the
problems in front of us, bringing new
solutions, new thinking and new teams
to realise our client’s vision and realise
the true value of their data.

We’re focused on commercial
outcomes
Data exists to provide value, we don’t
problem solve in a vacuum, but with a
commercial outlook that helps us be
trusted partners to our clients as they
realise the opportunities of data driven
transformation.

Section one
Strategic report

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 02

About Parity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 03

Section one
Strategic report
Chairman’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 06

Chief Executive’s Statement . . . . . . . . . . . . . . . . . . . . . . 08

Our Timeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

A New Operating Model . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Operational and Finanicial Review . . . . . . . . . . . . . . . . . 18

Section two
Governance
Corporate Governance Report . . . . . . . . . . . . . . . . . . . . 26

The Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Corporate Social Responsibility Report . . . . . . . . . . . . . 34

Remuneration Committee Report . . . . . . . . . . . . . . . . . . 39

Audit Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . 46

Directors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Statement of Directors’ Responsibilities . . . . . . . . . . . . . 52

Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . 54

Section three
Accounts, notes and other information
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

Notes to the Financial Statements . . . . . . . . . . . . . . . . . . 70

Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . 102

Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

Strategic report

Parity annual report and accounts 2019

Strategic report

Chairman’s report

2019 – Transformation on track

Parity underwent very
significant change during 2019.
At the beginning of the year
we appointed our new chief
executive Matthew Bayfield and
the Board asked him to address
the structural changes that
were impacting our markets and
undermining our ability to earn
returns for shareholders from
the recruitment market. The loss
of a large framework contract in
Scotland at the beginning of the
year and the end of a significant
consultancy contract were both
further catalysts for change, they
gave us an urgency in our pursuit
of a new business model that will
deliver for all our stakeholders.

I am pleased to be able to report
that we have made great progress in
implementing our new strategy and
the transformation of our business is
very much on track. Whilst revenues,
EBITDA and adjusted profit before
tax are all lower than in the previous
year this is in line with the Board’s
expectations. We have moved to
a new business model, taken a
significant level of cost out of the
business and invested in new talent.
That we have been able to achieve
such a significant organisational
change whilst still reporting a
modest adjusted profit before tax,
and improving our cash position,
gives us confidence in the future of
the business.

Strategy

Our strategy is a reflection of our
clients’ needs. Data is a huge
challenge for businesses; the volume

of data in data centre storage is
five times higher than it was five
years ago and that rate of growth is
forecast to continue. For businesses,
that makes decision making more
complex and the analysis of data
more difficult, and to make matters
more challenging, data analytic
skills are scarce and data gurus at a
premium.

That is Parity’s opportunity, our
strategy is to help our clients realise
the true value of their data. We can
do that in different ways; we can help
them find data expertise because
we have access to a community of
experts, we can teach our clients’
people to become data experts and
we can take on our clients’ data
services as a consultancy project,
and of course we can offer them
any combination of all three of those
services.

Board and people

Matthew Bayfield joined the board
as Chief Executive in February 2019
and had an immediate impact on the
business. He and Roger Antony, our
CFO, have been responsible for the
implementation of the new strategy
which has seen us move a number
of people out of the business and
recruit others with the skills we
require to develop new services and
take them to market. It is never an
easy task to make such significant
people changes, we have tried very
hard to ensure that we have treated
all concerned with respect and
fairness. We have welcomed some
new and very talented people to the

business, and we have changed the
way we incentivise people to align
management and shareholder’s
interests, moving to a profit based
incentive plan.

The Board wishes to record its
thanks to all of the staff who have
contributed to the transformation
of our business, much hard work
has gone into ensuring we remain
focused on delivering for existing
clients and identifying potential new
clients. We are fortunate to have an
enthusiastic and talented team.

Results

Revenue across the Group was
6.6% lower at £80.4 million, largely
as a result of lower recruitment
revenues as our large contract with
the Scottish Government, which was
not renewed in early 2019, began to
wind down. The Group continues
to be cash generative and helped
by a reduction in working capital
we generated £3.4m in cash from
operations taking us to a net cash
positive position of £0.9m at the
year end. Adjusted profit before
tax of £115k was in line with our
expectations. After non-recurring
items of £1.2m before tax, we
recorded a loss before tax for the
year of £1.1m (2018: profit before
tax of £0.4m ). Going forward
we will look to build revenues in
higher margin service lines such
as consultancy and learning and
development and also change the
nature of our recruitment offer to
higher margin work.

Financing and dividend

In May we renewed our banking
arrangements with PNC for a further
two years at more competitive rates,
resulting in a £10m facility at 2.00%
above base. The exceptional cash
performance at the end of 2019 left
us with £0.9m of net cash at the year
end. An improved cash position
will give us further flexibility when
reviewing our facility, which has a
minimum period to May 2021. The
Board is not proposing a dividend
at this time but will keep this policy
under review.

Current trading and outlook

The significant disruption to the
world economy brought on by the
Covid-19 virus will impact almost
every single company. At this point
it is difficult to predict its impact on
Parity. The significant costs that
have come out of the business in
the last twelve months will help us to
ride out the storm.

Parity’s business is heavily weighted
towards the public sector, which
accounted for approximately 70%
of revenues in 2019. We are already
seeing signs that Government
expenditure will be more resilient as
much of it is aligned to the provision
of key public services.

However in light of the ongoing
Covid-19 the Board is unable to
forecast with any certainty 2020
revenue and profit before tax
performance at this time. We
anticipate that Covid-19 impacts will,
in part, be mitigated by cost savings

already achieved in 2019 and further
organisational design and process
mapping work instigated before
the pandemic will deliver additional
savings in 2020.

In direct response to the pandemic,
management have agreed a
20% reduction in salaries with all
Directors and staff for the three
months starting 1 April 2020.
Management are conducting a
daily review of Covid-19 impacts
with clients and contractors to
assess supply and demand in as
close to real time as possible. This
review process is designed to give
the advanced warning required
to be able to manage impacts on
the business and to help clients fill
potential gaps in their workforces.

Parity remains well capitalised, with
net cash at 31 December 2019,
and a £10m existing credit facility
providing a comfortable level of
headroom through asset-based
lending. The government’s VAT
deferral measures will provide an
additional useful help to cash flow in
the current year. The Board remains
confident that Parity has sufficient
access to cash to enable it to trade
its way through this period of global
uncertainty.

John Conoley
Non-Executive Chairman
15 April 2020

The Board
wishes to
record its
thanks to
all of the staff
who have
contributed
to the
transformation
of our business

Strategic report

Parity annual report and accounts 2019

Strategic report

Chief Executive’s statement

A restructured business, focussed on growth

2019 saw comprehensive
changes to our business as we
implemented the strategic plan
set out a year ago.

Technology continues to transform the
recruitment market and recently this
process has been accelerated by the
Covid-19 pandemic. The multitude of
platforms that employers use to look
for candidates, the artificial intelligence
that brings speed and efficiency to the
recruitment process, and the lower
costs of technology led solutions, have
brought about fundamental changes in
the way our market operates. At Parity,
with our focus on data people and skills,
we continue to see great opportunities
from these market shifts, however we
have needed to restructure our business
in order to take full advantage.

To that end we began a ‘digital first’
transformation in our business. This
has led to a head count reduction of
over 40% with a net annualised saving
of over £2m. We have streamlined
processes that enable us to be
more agile, flexible and cost efficient
at servicing our client needs. This
transformation will continue throughout
2020.

At the beginning of 2019 we set out to
refocus our business on sustainable,
higher margin revenues. We said we
would:

• refresh our senior management with
new skills in consulting, learning and
development and marketing;

• implement a new single operating

model;

• refresh the Parity brand and upgrade

our web presence;

• review the role of technology in

recruitment services and investigate
how AI can help us keep ahead of

market changes;

• create a new business function; and

• we also set out to reduce our

overheads both to be able to afford the
investment required and to improve
the company’s net margins and cash
position.

Progress on many fronts

Stronger financially

In 2019 we reduced our operating
costs by a gross £3.3 million. These
savings were significantly ahead of what
we initially set out to achieve as our
restructuring went further and deeper
into the organisation. Staff numbers
reduced by a net 44% as we rightsized
our recruitment team and made savings
in central management. After reinvesting
a total of £1.3m, our net annualised cost
savings in 2019 were £2.0m.

The cost of achieving these savings
was a restructuring charge of £1.2m
in the full year, we will see a return
on the cost of these net savings in

less than 8 months. We were also
able to implement these cost savings
whilst making a significant further
improvement to our net cash position.
Helped by a reduction in working
capital, we generated £3.4m of cash
from operations during the year and
were net cash positive at the year end.
The business is now less constrained
by debt, this enables us to plan for the
future with greater confidence.

A refreshed and strengthened
management team

The restructuring of our operating costs
has allowed us to invest in building a
stronger senior team. Of the total £1.3m
of cost savings reinvested, £1.0m was in
new hires.

In April we appointed Antonio Acuña
MBE to head our consultancy offer.
Antonio had worked in the public sector
for over 15 years, with a foundation in
digital transformation, lean processes
and efficiencies, he mainly focused on
difficult, large projects. Since joining
Parity he has led our renewed focus on
providing clients with data consultancy
and execution using Parity data experts.
Antonio and his team have had success
within both the government and the
private sectors.

We have created a Learning &
Development Practice within our
consultancy service, reporting to
Antonio. The team based in Manchester
and Edinburgh offer organisations
support in developing their own talented
people and getting the best from their
workforce.

Lee-Ann Falconer joined as Head of
Resourcing earlier this year with a
wealth of experience within resourcing,
recruitment and leadership across a
number of sectors. Based in Edinburgh,

Lee-Ann is helping us to focus our
recruitment business on higher margin
briefs, specialising in real data experts
who we can identify from our growing
community.

Shaun O’Hara has been our new People
Director since May, he is passionate
about making Parity a great place to
work for existing and future employees,
believing that the best way to ensure
incredible service and delivery for
clients is to help nurture a motivated and
aligned team.

We have outsourced our marketing
function and are working with a firm of
specialist marketeers who are helping
with lead generation, content and
marketing plans. This is part of our
overall strategy to move from a fixed to
flexible cost base that is scalable and
aligned to market performance.

shaping and developing their existing
teams’ skills and behaviours to deliver
high performance even within complex
data environments.

Our organisation is designed to find
the right solution or combination of
solutions matched to each clients’
needs. A single account management
function allows us to be solution
agnostic and always put the client first.

Parity has more than forty-five years
history of trusted relationships with our
clients and a name that is well known
in its market. However, the Parity brand
had not been refreshed for many years
and was failing to convey our values.
Starting with last year’s annual report
and accounts we rolled out our new
branding, including a new web site,
marketing literature and social media
feeds.

A new business model and
refreshed brand

Artificial Intelligence (AI) in
our market place

Parity sets out to be the ‘trusted
partner of data driven transformation’
for our clients. We have designed and
implemented a new business model that
allows us to deliver on that purpose. We
provide solutions across three areas:

• Data Solutions. We help our clients

architect and develop their data
strategy, designing and delivering
data solutions that drive confident
commercial decision making.

• People Solutions. We understand the
people who understand data. With the
most experienced community of talent
in the market, we can help our clients
build a team of data experts and
leaders to transform their businesses.

• Development Solutions. We can

help our clients become data driven
organisations. Through training,

In 2019 we undertook to review the role
of technology in recruitment services
and to investigate how AI can help us
keep ahead of market changes. We have
already seen the impact of web and
app based recruitment tools and the
structural changes they have prompted.
Less well recognised is the impact of the
vast quantities of data that is recorded
and stored about individuals and the
role AI has to play in the intelligent
analysis of that data to assist recruiters.

In November we announced a strategic
partnership with Integumen which we
believe will help accelerate Parity’s
transformation from a predominantly
commoditised recruitment business to
a data consultancy service provider of
intelligent data management systems,
extracting value using analytics, with
a focus on return on investment for

In 2019 we
reduced our
operating costs
by a gross
£3.3 million.

our clients. Integumen’s proprietary
software includes full GDPR compliance
with secure cloud data migration from
existing legacy systems to a digital
workplace through the military grade
encryption “Drive4Growth” AI platform
powered by Integumen’s Rinodrive.

Rinodrive delivers big data, AI
functionality and world class
infrastructure to large companies with
big data problems. These include
financial services, education and life
science companies. A fully integrated
set of software tools that can ingest
data, in any volume, from any source in
any format, interact with it, learn from
it and enrich it to unlock insights and
discoveries. This data management
solution was developed by scientists
and engineers with experience in
software, sensors, AI, optofluidic
research, fintech, green-tech, travel
and healthcare. It was designed to
allow interaction, in a cyber-secure
environment, with commercially
sensitive data, and to share insights
across multi-disciplinary teams,
generating different data formats, from
multiple sources, located in different
countries.

Strategic report

Parity annual report and accounts 2019

Introduction

Chief Executive’s statement

At Parity we will continue to be at the
forefront of technological advances and
are excited by the opportunity to work
with Integumen to bring the benefits of
AI to our clients. This is another example
of how we have sought to modernise
our business and move it to higher value
solutions for our clients.

Building a higher margin
business

At the heart of our strategy is our
determination to increase our gross
profit margin in order to improve total
shareholder returns. The structural shifts
in the recruitment market described
above have meant that our already low
margin recruitment business was not
going to remain sustainable without
significant changes. The Board, in
setting out a new strategic direction
for the Company, was conscious that
at no time in our recent past have we
achieved a net profit margin of even
2%. With continued and sustained
gross margin pressure in recruitment
this record was not likely to change
unless we embraced some fundamental
changes to our business model and
strategy.

Our new business model is designed
to substantially change our financial
model. Revenues will be lower as we
reduce our exposure to relatively high
volume but low margin recruitment
revenues. Margins on the other hand
will improve as we focus on higher value
recruitment specialising in data skilled
people and build our data consultancy
and learning & development service
lines, both of which attract significantly
higher gross margins.

As is evident from the 2019 results it will
take time for the changes we have made
to our business to impact our financial
performance. The year under review
saw revenues fall by only 6.6% as we
continued to service legacy low margin
contracts, notably with the Scottish
government, and our gross margins
have also been held back by these
legacy contracts.

Conclusion

A new business model, a new team and
a new sense of purpose have all been
achieved in 2019. I am pleased to be
able to report that our transformation
is on track. In terms of cost savings we
are ahead of plan and we have been

encouraged by our clients’ support for
our new offer.

The Covid-19 pandemic has brought
significant uncertainty to our business,
however all our staff are working
remotely, enabling the business
to remain fully operational. Our
responsibility is to all stakeholders
in these difficult times and we are
committed to providing the best support
we can to protect staff, contractors and
clients.

The coming months will be challenging
for our business, but our people have
been fantastic in the way they have
reacted to the evolving needs of our
clients and contractors.

Matthew Bayfield
Chief Executive Officer
15 April 2020

I am pleased to be able to report that our transformation is on
track. In terms of cost savings we are ahead of plan and we have
been encouraged by our clients’ support for our new offer.

Strategic report

Parity annual report and accounts 2019

Strategic report

Our timeline

A new business model
focused on delivering
profitable growth

In 2018, the market told us that
our strategy needed refreshing to
match current client needs.

In 2019 we implemented a new
strategy and launched our new
business model with a leaner
team focused on profitable
growth.

newly restructured business,
with our longer-term clients
buying consultancy services,
and learning & development
solutions.

In 2020 we hope to begin to
see the financial benefits of our

FY 2019

FY 2020

FY 2021

FY 2022

Transforming to deliver profitable growth goal
GOAL

Growing margins through added value and integrated client relationships

Accelerating growth
GOAL
sustainable growth

Delivering sector-leading

Consolidate

Change

Capitalise

•

Reduce debt

Restructure advisory
proposition

• Revitalise brand

• Refresh senior team

•

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

Strategic report

Parity annual report and accounts 2019

Strategic report

Case Studies

Data consultancy for
one of the world’s
largest online fashion
retailers

We have been working with a household name
fashion retailer which is very fast growing and
was seeking to address its data workflows,
systems and services to take account of business
expansion. We have been engaged to help the
company to uplift its data maturity to enable
efficient scalability; building robust data solutions
and improving the integrity of its data systems
and architecture.

Parity has been able to help the client form a
coherent data strategy and roadmap for its data
insights, analytics and architecture using a team
of Parity data experts drawn from our existing
network of associates. We have brought together
the right team very quickly allowing the client to
see rapid progress.

Working with the NHS

The NHS is one of the largest ‘owners’ of data in the country and is undergoing a much needed digital
transformation. HDR UK (Health Data Research) is a non-profit organisation operating across the NHS and
Private Healthcare to enhance health and care outcomes via access to large scale data.

Parity has been working with HDR UK partners including NHS Digital, NHS England, The University of
Oxford, several major NHS Trusts, Public Health England and DATA-CAN (HDR Hub for Cancer) as part of a
consultancy project to enable access to healthcare data. We have been migrating this valuable data into a
single central repository from where it can be shared more efficiently across the different parts of the NHS,
charities and research organisations.

Providing value added recruitment services
to the Scottish Government

The Scottish Government is taking on additional devolved powers to pay benefit payments. Parity has been
providing value added recruitment services to Social Security Scotland as part of three lots, out of six, we
won in a tender run by Procurement Scotland.

The new managed recruitment service contract is tied to the provision of certain key IT and data skill sets,
that include cloud and integration architecture. The client benefits from a managed service that provides
amongst other things financial and management reporting and advance security clearance of contractors.

Simplifying
management of a
non-perm workforce

Our Client, a well-known high street fashion
retailer, was juggling partnerships with over
30 suppliers of IT and Digital skilled people.
This meant that sourcing, governance and
supplier management, was time-consuming
and preventing it from truly focusing on its
core business, at a time when it was growing
internationally at speed.

Through a consultative, co-design approach,
Parity identified the key pain points and
challenges, and implemented a workforce
solution that would identify and manage the best
talent, from sourcing through to offboarding, all
in an efficient and agile manner. Parity provided
the client with a scalable solution that not only
could incorporate the wider company’s non-perm
workforce, but also reduced suppliers from over
30 to 5, of which Parity remains as the lead!

Introduction

Parity annual report and accounts 2019

Introduction

A New Operating Model

A flexible operating model that
keeps costs down whilst allowing
us to scale quickly and efficiently
to deliver growth in higher margin
revenues.
We are putting in place a new operating model that will
allow us to make further reductions in our fixed costs in
favour of outsourced and easily scalable resource that
can be aligned to our business needs. The model will
allow us to work with the best in their field, handpicking
the right team and skills to deliver for our clients. We
have already implemented this in our sales and marketing
function, outsourcing marketing, communications
and lead generation to leaders in these fields. In the
current financial year we will be looking to replicate this
successful model within other of our internal functions.

OUR GOAL

To grow earnings and
shareholder value
sustainably based on
excellent services,
brilliant people and
trusted relationships.
We will achieve this
by being…

Focused on our clients’ needs and
our 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
Focused on client satisfaction
•

•

Excited by cross fertilisation between our
teams

•

Motivated to grow our brand and business

Innovative and dependable
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

Famous and proud
•

A strong brand cleverly marketed

•

Disciplined business developers

• Trusted by clients

Our advantages

• We are relationship specialists – our clients keep coming back

• We’re knowledgeable – we know our world better than anyone else

• We’re innovative – we are proactive in a changing market and are

responsive to clients’ needs

Strategic report

Parity annual report and accounts 2019

Strategic report

Operational and Financial Review

A Brief Overview

Segmental performance

•

Strategic decision to move away from
lower margin recruitment work

•

Transformation impacts profits during
the year; but encouraging wins
including first Consultancy retainer

•

Swings from net debt to net cash,
bolstered by exceptional cash
collections in December 2019

Key Financials

Revenue

Adjusted profit before tax1

Net cash/(debt)

1 Adjusted profit before tax is defined as profit before tax and non-recurring items

As indicated in last year’s Annual Report
and Accounts, Group revenues were
impacted during the year by the non-
renewal of a large framework agreement
with the Scottish Government for
the supply of temporary workers.
Revenues derived from the framework
are subject to a gradual run down over
a two year period which commenced
in March 2019. During the year the
Group embarked upon a transformation
programme to move away from a
dependence on low margin recruitment
work, which has also impacted
revenues.

Adjusted profit before tax fell to £0.1m
from £0.9m as a result of lower contract
recruitment revenues and also due to
2018 including revenues from the MoD
MCOCS consultancy project.

The Group has taken action on
overheads during the year, primarily
people costs, achieving an annualised
net cost out of £2.0m. The majority of
the cost actions were taken in Q2 2019
and Q3 2019 with only a partial impact
to the 2019 results.

Non-recurring items relate to
restructuring costs incurred as part
of the transformation in relation to the
new strategy, and totalled £1.2m before
tax. Loss before tax after deducting
non-recurring items was £1.1m (2018:
profit before tax of £0.4m). Net cash
generated from operations was £3.4m
reflecting exceptional collections in
December 2019, and swinging the
Group into a cash positive position of
£0.9m at year end (2018 year end: net
debt of £1.1m ).

2019
£’000

80,409

115

899

2018
£’000

86,112

853

(1,090)

During the
year the Group
embarked upon
a transformation
programme to
move away from a
dependence on low
margin recruitment
work.

Revenue

Recruitment

Consultancy

Group revenue

External contribution

Recruitment

Consultancy

Total external contribution

Reconciliation of external contribution to operating profit

External contribution

Selling & administrative expenses

Share-based payment charges

Depreciation and amortisation

Operating profit before non-recurring items

Non-recurring items

Operating (loss)/profit

2019
£’000

73,548

6,861

80,409

6,755

1,347

8,102

2018
£’000

Incr./(Decr.)
%

77,616

8,496

86,112

7,681

1,996

9,677

2019
£’000

8,102

(6,687)

(162)

(806)

447

(1,172)

(725)

(5.2%)

(19.2%)

(6.6%)

(12.1%)

(32.5%)

(16.3%)

2018
£’000

9,677

(8,136)

(129)

(194)

1,218

(495)

723

External contribution is reconciled to the income statement as part of segmental information presented in note 2 on page 76.

Strategic report

Parity annual report and accounts 2019

Strategic report

Operational and Financial Review

During the year the Group also made the
commercial decision to discontinue two
small teams of permanent candidate
recruiters. The Group continued to
supply contract recruitment through
several established frameworks in the
public sector and to its clients such as
Primark in the private sector.

Consultancy

Whilst financial results were down
year on year, the 2018 financial year
benefitted from 8 months’ work at the
MOD, on the relatively higher margin
MCOCS project. During the year, the
Group continued consultancy delivery
to both the Department of Education
and BAT, with contract renewals at both
clients extending into 2020.

The Group appointed Antonio Acuna
as Head of the Consulting Practice
during the year to help accelerate
the data strategy. Under Antonio’s
leadership the Group won higher margin
data consultancy work with large
organisations in both the public and
private sectors. The revenues from the
new work tend to be accretive, providing
optimism for the longer term, with one
large client in the private sector signing
up to a retainer fee during the year.

Selling and Administrative
Costs

During the year, the Group took action
to right size the Group in relation to the
new strategy, and following the loss of
the Scottish Government Framework.
As a result, the Group achieved an
annualised net cost out of £2.0m. The
savings were predominately in relation
to people costs with a 44% reduction in
headcount over the course of the year.

Depreciation and Amortisation

In accordance with IFRS 16, the 2019
results are presented with lease assets

and liabilities recognised in the Group’s
Statement of Financial Position, where
the Group is the lessee. Consequently,
depreciation and amortisation include
£0.7m of expenses that were classified
as operating expenses in 2018.

Non-recurring items

Non-recurring items of £1.2m (2018:
£0.5m) before tax were incurred
during the year, primarily as a result
of restructuring the Group, following
the appointment of a new CEO, and a
change in strategy, and are analysed in
note 5 on page 79.

Taxation

The tax charge on profit before tax
was £0.03m (2018: tax credit of
£0.06m) mainly representing a deferred
tax adjustment in respect of prior
periods. The Group did not provide for
corporation tax payable in 2019 due to
the utilisation of Group relief and the
availability of carried forward deductible
timing differences and tax losses.

Discontinued operations

There were no discontinued operations
during the year. In 2018 the Group
disposed of the non-core Inition
subsidiary in April 2018 for consideration
of £0.2m and recorded a loss on
disposal of £0.3m.

Earnings per share and
dividend

The basic loss per share from
continuing operations was 1.05 pence
(2018: earnings of 0.41 pence per share).
The Group’s results were impacted by
significant restructuring costs.

The Board does not propose a dividend
for 2019 (2018: nil) but will keep the
position under review.

Recruitment

The decline in year on year revenues
was primarily driven by the loss of the
Scottish Government framework for the
supply of contract workers. Following
the announcement of the decision in
March 2019, the number of contractors
on billing through the framework was
subject to gradual run down over a
two year period ending 2021. As a
consequence, the total average number
of contractors for the Group during the
year was 871 (2018: 972) with the closing
volume of contractors at 31 December
being 648 (31 December 2018: 995).

The loss of the Scottish Government
framework reflects margin challenges
in the commoditised UK recruitment
market. The Group sought to address
this issue in two ways. Firstly, by
focussing on offering greater value
to our clients, with solutions to their
specific data challenges, and thereby
attracting higher margins. Secondly,
management took action to right-size
its operations, with particular focus on
costs associated with delivery to the
Scottish Government framework.

Cash flow and net debt
The Group generated positive net cash
flows from operating activities of £3.4m
(2018: £0.6m), driven by the positive
working capital swing (see paragraph
headed “Trade and Other Receivables”
above) with a reduction in debtor days
to 12 (2018: 18 days). The £3.4m cash
generated was after outflows of £0.7m
in respect of non-recurring items.

As a result of the positive cash flow,
the Group swung to a net cash positive
position of £0.9m (2018: net debt of
£1.1m).

Defined Benefit Pension Deficit
At the year end the deficit had improved
to £0.9m (2018: £1.9m). Whilst the
scheme liabilities increased during
the year as a result of lower long term
bond rates, the scheme investments
increased by a greater amount,
reflecting stronger global equity
markets.

During the year the triennial actuarial
review as at 5 April 2018 was
completed. The outcome of the review
was such that the Group agreed to
pay contributions of £0.3m per annum
for five years, with contributions being
assessed at the next actuarial review,
scheduled as at 5 April 2020.

Roger Antony
Group Finance Director
15 April 2020

Statement of Financial
Position

Trade and other receivables
Trade and other receivables decreased
significantly during the year to £6.7m
(2018: £12.0m). This is mainly due to
the exceptional level of cash collections
experienced in December 2019 with
Group debtor days, calculated on
billings on a countback basis, at
an all-time low of 12 days (2018: 18
days). We benefitted from a number of
clients paying ahead of terms before
the financial year end and therefore
do not expect debtor days to hold at
these unprecedented levels. To a lesser
extent, the decrease was also due to
the fall in the contractor volumes over
the year and the associated release of
working capital.

Trade and other payables
Trade and other payables decreased
during the year to £6.0m (2018: £8.3m)
mainly as a result in the reduction in
contractor volumes. At the year end,
creditor days were 24 days (2018: 28
days).

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, has been in
place since 2010 and was renewed in
May 2019 on improved terms. Following
the renewal, the facility allows for
borrowing of up to £10m depending on
the availability of appropriate assets as
security, with borrowings at a discount
rate of 2.0% above base (previously
2.35% above base). The current facility
is subject to a minimum period of two
years after which the facility becomes
evergreen.

Strategic report

Parity annual report and accounts 2019

Strategic report

Duty to promote
the success of the Group

Section 172 of the Companies Act 2006
requires the Directors to act in a way
that they consider, in good faith, would
be most likely to promote the success of
the Group for the benefit of its members
as a whole, and in doing so have regard
(amongst other matters) to:

a) the likely consequences of any

decision in the long term;

b) the interests of the company’s

employees;

c) the need to foster the company’s

business relationships with suppliers,
customers and others;

d) the impact of the company’s

operations on the community and the
environment;

e) the desirability of the company

maintaining a reputation for high
standards of business conduct; and

f) the need to act fairly as between

members of the company.

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. They can
access professional advice on their
duties from the Company Secretary
or, if they deem necessary, from an
independent advisor. The Board
confirms that, during the year, it has had
regard to the matters set out above.
Further details as to how the Directors
have fulfilled their duties with references
to relevant areas within this annual
report, are set out below.

Risk management
The Board recognises the importance
of identification, evaluation and
management of the Group’s risks.
Details of the principal risks and
uncertainties of the Group are set out
on pages 23. The Group’s statement
on going concern and future prospects
are included in the Directors’ Report
on page 48 and Chief Executive’s

Statement on page 8.

Employees
The Board is committed to the Group
being a responsible employer and
strives to create a working environment
where employees are engaged,
informed and involved. The Group’s
employment policies and related
information is set out in the Corporate
Social Responsibility Report on page 34.

Community and the environment
The Board recognises its responsibilities
to achieving good environmental
practice and making positive
contributions to the community. The
Group’s practices and policies in this
regard are set out in the Corporate
Social Responsibility Report on page 34.

Business conduct and relationships
The Board recognises the importance
of a strong corporate culture that
considers the best interest of its
employees, business partners and
shareholders. The Board recognises
its responsibilities to other external
stakeholders including its clients,
contractors and suppliers. Its strong
relationships with its clients are critical
to driving growth. The Group’s purpose,
mission, vision and values are set out on
page 3 and its ethics policies are set out
in the Corporate Social Responsibility
Report on page 34.

Shareholders
The Board is committed to openly
engaging with our shareholders and
recognises the importance of continuing
communications. It is important that
shareholders understand the Group’s
strategy and objectives so we endeavour
to explain these clearly and any issues or
questions raised are properly considered.
The Group’s engagement with
shareholders is set out in the Corporate
Governance Report on page 26.

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 a
sample below:

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.

Impact of Covid-19 and
macro-economic uncertainty
The Group, along with all other
businesses, are currently evaluating and
adjusting to the direct effects of Covid-19
and its subsequent impact on the
economy. Main risks to the Group arise
from potential delays to client project
decisions, reduced client budgets,
recruitment activity postponed, and
the effects of restriction of movements
impacting on our ability to win new
business. Although highly uncertain
given the early stages of Covid-19, at
this time the Board believes the risk to
the Group is mitigated by the fact that
(i) our client base is weighted towards
the public sector and government
expenditure is likely to be more resilient
to support key public services, (ii) our
contractor base are largely IT mobile and
able to carry out their work at home, and
(iii) the Group’s business continuity plan
means all employees have the remote
working facilities to carry on their roles as
normal. In addition, the Group operates
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.
Nevertheless, the Directors acknowledge
the significant uncertainty caused by
the Covid-19 pandemic and are closely
monitoring the outlook for the Group.
The Directors cannot be certain as to the
severity and duration of these impacts.

Strategy fails to deliver anticipated
growth
The Group’s anticipated growth may not
be achievable if the Group is unable to

Legislation – e.g. IR35
IR35 reforms were set to be implemented
in the private sector from 6 April 2020
but have been postponed until 6 April
2021 due to the impact of Covid-19.
One effect of the reforms will be to make
end clients, and/or agencies, liable for
deemed tax underpayments in the event
that elements of its temporary workforce
are found to be non-compliant with IR35
(liability largely rests with the individual
contractors at present). In response,
some well-known large private sector
organisations in the UK have announced
an embargo on any contractors working
through personal services companies.
There is a risk that the Company’s clients
could adopt the same approach which
could impact revenues and profits in the
short term.

Parity’s mix of contractors is weighted
towards the public sector, where the
IR35 reforms were introduced in 2017,
meaning that our exposure to the
risk is limited. We have retained good
knowledge from our experience of the
2017 implementation to the public sector,
with the associated internal processes
now business as usual. We will work
closely with our private sector clients to
ensure a smooth transition and are able
to offer all of our clients an established
consultancy proposition to their data and
technology challenges.

Brexit transition
The Group operates predominately
in the UK and notwithstanding delays
due to the wider macro-economic
uncertainty, is not expected to suffer a
direct long-term negative impact during

Brexit transition, as it is supported by the
strong underlying UK economy. Demand
for the Group’s services could reduce as
an indirect result of the impact of Brexit
on the UK economy, although Brexit has
also driven additional opportunity to the
Group with established Public Sector
clients creating additional infrastructure
in preparation.

Loss of key client accounts
A 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. The Group also has a
deliberate focus on winning new client
framework agreements to continue to
diversify its revenue streams.

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.

Introduction

Parity annual report and accounts 2019

Introduction

Section two
Governance