Parity Group plc Annual Report 2020

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FY2020 Annual Report · Parity Group plc

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Report and
Accounts 2020

Brilliant People
Bolder Decisions

Transforming the relationship business
and government have with data.

Introduction

Parity annual report and accounts 2020

Introduction

Making data-driven transformation a reality.

Data is unequivocally one of the world’s most valuable, but largely

misunderstood, resources.

The amount of data in existence is growing by the second and when used

correctly, it is critical for decision making in all manner of circumstances,

for businesses, governments and other organisations alike.

Parity’s mission is simple: to provide skilled people and services that will

enable its clients to unearth the true potential of data.

Applying its expertise in recruitment and consulting, Parity is

helping both the public and private sector make better, faster

and smarter decisions by collaboratively building the most

skilled community of data experts in the world, to make

data-driven transformation a reality.

From analysing data to identifying how online

retailers can boost sales, to leveraging data to

prevent the spread of disease, data opens

the door to new options for action.

Data has enormous potential to be a

positive force for change, both for society

and commerce.

Parity’s mission
is simple: to
provide skilled
people and
services that will
enable its clients
to unearth the
true potential
of data.

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

Operational and Finanicial Review . . . . . . . . . . . . . . . . . 10

Section two
Governance
Corporate Governance Report . . . . . . . . . . . . . . . . . . . . 20

The Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Corporate Social Responsibility Report . . . . . . . . . . . . . 28

Remuneration Committee Report . . . . . . . . . . . . . . . . . . 33

Audit Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . 40

Directors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Statement of Directors’ Responsibilities . . . . . . . . . . . . . 46

Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . 48

Section three
Accounts, notes and other information
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Notes to the Financial Statements . . . . . . . . . . . . . . . . . . 68

Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Strategic report

Parity annual report and accounts 2020

Strategic report

Chairman’s report

2020 – Progress in difficult times

We are delighted to be able to
report real progress in 2020 despite
the obvious challenges faced in a
year that saw fundamental changes
to the way we all work. In 2019 the
Board made a decision to change
the strategic direction of the
business, to focus on the growing
opportunity in data and to position
Parity as the partner of choice for
clients who want to realise the
true potential of their data. When
this decision was taken we had of
course not foreseen the pandemic.

However, the timing was fortuitous;
while in the short term the economic
impacts of the pandemic have affected
our performance, in the longer term
it has accelerated the trends that
underpin Parity’s new strategy. As
a result, Parity has come through
2020 far more strongly than would
otherwise have been the case and
it is pleasing to be able to report a
second half profit in 2020. This has
been driven by the success of our
transformation programme, and we
remain confident of further growth
in profitability in the current financial
year.

Strategy

Data is an ever more valuable and
important commodity in both the
private and public sector. Parity’s
strategy is simple: to service the
market for people who can help
manage that valuable data. The
pandemic created its challenges,
but it has also created opportunity.

With more remote working, data
security has become of paramount

importance for almost all businesses,
increasing the demand for support
and skills around data which Parity
provides. With even more transactions
moving online, retailers need to be
able to fulfil, track and analyse very
large amounts of raw data. In the
public sector, the pandemic has
generated a huge demand for effective
and efficient tracking of data by
both the NHS and other government
entities. Furthermore, the demand for
faster, more reliable broadband has
further fuelled the demand for skilled
people who can manage data in both
the private and public sector. I am
pleased to say Parity is a partner for
businesses in all these markets and
more, and opportunities in others are
growing.

Parity is also building its reputation in
the growing data analytics space. The
ever increasing reliance on data for
decision making is resulting in more
demand for highly skilled, experience
people who are capable of collecting,
curating and analysing complex data.
These type of data analytics skills
remain scarce, which is why Parity can
play a vital role, connecting real data
experts with organisations who need
them.

Results

I am very pleased to report that the
transformation programme embarked
upon in 2019 has delivered its key
objectives and at an operating level,
the Group returned to a modest
Operating Profit in 2020 of £23k (2019:
Operating loss of £725k). This was
despite revenue across the Group

being 28% lower at £57.8 million,
largely as a result of lower recruitment
revenues as our large contract with
the Scottish Government, which was
not renewed in early 2019, continued
to wind down. Adjusted profit before
tax of £122k was very similar to the
year before. This is a significant
achievement in a challenging
environment, reflecting the progress
we have made as an organisation,
without the need to furlough
employees. The Group also continues
to benefit from strong working capital
management and debtor days remain
at an excellent average of 14 days.

After non-underlying items of £447k
before tax, all incurred in the first half,
we recorded a loss before tax for the
year of £325k (2019: loss before tax of
£1.1m).

Board and people

As Parity has undergone its
transformation to focus on the
opportunity in data, there have been
several senior leadership changes
including appointments of individuals
with strong technology experience
and who share our vision for the new
Parity.

In June, Roger Antony stepped down,
having served as Group Finance
Director for the last four years. I
would like to record the Board’s
thanks to Roger for the many years of
service he gave the company and his
professionalism throughout.

Mike Johns joined the Board as CFO in
June and brings significant experience
to the Board having worked in tech

and data led businesses for more than
20 years. At board level Mike has led
organisations through change and
development and has considerable
corporate finance experience having
led successful fundraising, acquisition
and sales processes.

We continue to strengthen the board
and in May 2020 welcomed Gerry
Brandon. Gerry is an active board
member on multiple AIM-listed
companies and is CEO of AIM-listed
DeepVerge plc.

The Board would like to record
its thanks to all of the employees
who have risen to the considerable
challenges of working through the
pandemic. We took a decision not to
furlough employees so that we could
remain close to our customers and
support them through difficult times. I
believe this was the right decision both
for the welfare of our people and in the
longer term for the business. We have
been very encouraged by the loyalty of
our customers and the level of repeat
business that we enjoy is testament
to the excellent service our people
provide.

Financing and dividend

On 20 April 2021 the Group signed
an agreement with Leumi ABL for a
new 3-year £9m asset-based lending
facility replacing the previous facility
from PNC. The new facility increases
the amount that can be borrowed
against billed and unbilled receivables
giving the Group greater flexibility and
it is expected that the new terms will
reduce annual borrowing costs.

The Board is not proposing a dividend
at this time but will keep this policy
under review.

Current trading and outlook

So far in 2021 we have been
successful with opportunities in
the public and private sectors. We
started 2021 with both new contracts
and non-competitive renewals that
range from supporting the NHS at a
critical time, and supporting national
technology infrastructure, to enabling
retailers to maximise the online
opportunity.

If the pandemic eases as expected, we
would anticipate more growth in H2
2021 as business confidence returns.
AI & Machine Learning continue
to create more unstructured data
challenges requiring digital and data
specialists. As a consequence, we
have an encouraging pipeline of both
public and private sector opportunities
to convert as we continue to leverage
our investments in people, marketing
and technology.

Finally, this is my last statement
as Non-Executive Chairman of
Parity Group plc and I leave Parity
in a strong position. The company
has made great progress over the
past few years. Having completed
its transformation into a data and
technology focused business, it is for
the first time free from past legacy
issues and in 2020 has delivered an
impressive performance despite the
challenges of the pandemic. Now
is the right time for me to hand over
the reins as Chairman and I wish my

successor every success in his new
position.

John Conoley
Non-Executive Chairman
20 April 2021

Strategic report

Parity annual report and accounts 2020

Strategic report

Chief Executive’s statement

Progress in an exceptional year

2020 was a watershed year
in so many ways for so many
people and businesses. It
would be wrong not to start
a review of the year without
acknowledging the sacrifices
and suffering endured by so
many people, and to thank
everyone for their support
during what has been a very
difficult time for everybody. I
would obviously like to single
out the people who work for
Parity who, despite the obvious
challenges, worked as hard as
ever. They have enabled us to
make real progress in the most
exceptional circumstances.

Whilst the Covid-19 pandemic has
made this a very difficult year for many
businesses, it has also underlined the
need for strong data management
and data analytics in businesses and
government bodies. This is exactly
where Parity sits and where we see
opportunity for growth – we exist to
be a trusted partner of data driven
transformation, through providing
people, skills and consulting. Whether
it be the critical nature of cyber security
with large numbers of people working
remotely, or the growth in online
shopping that has increased demand for
better data analysis of consumer trends,
the need for strong data skills has never
been clearer. We are now operating
in a truly digital economy sooner than
we expected and Parity is extremely
well placed to benefit from this, having
spent the last two years successfully
positioning the business as a specialist
in the fast-growing data skills market
with the experience and credentials to
back that up.

Continuing investment in
technology

Investing in technology has played an
important role in our transformation,
enabling us to create greater efficiency,
stronger margins and the ability to
scale our business as we pursue our
growth agenda. In the year we made
progress creating and implementing
new technology systems and platforms,
with more exciting developments
planned in due course. Specifically,
during 2020 we put in place a whole
new management information system
covering CRM, marketing, HR and
finance. Furthermore, we now have a
technology platform onto which we can
build additional customer-focussed
technology solutions.

Transformation complete

Despite the Covid-19 pandemic we
have been able to deliver an operating
profit in 2020 and report a profit before
tax in the second half of 2020, our first
unadjusted profitable half year for two
years. This change has been driven
by the transformation programme we

begun in 2019 to develop Parity into
a data focussed business, positioned
to meet the growing demand for data
skills from both the public and private
sector. I am pleased to report that the
transformation delivered everything and
more than we set out to achieve. We
now have a radically different business:

• We have a leadership team with strong
data and technology experience, who
all share the vision for the new Parity

• We have invested in technology that
will support our growth strategy and
have more plans in this area

• We have significantly improved

operational gearing with our new
operating model

• We reassessed costs and removed
£4.2m of annual operating costs,
enabling us to reinvest £1.6m back into
the business

• By reducing staff numbers and

therefore headcount costs, we have
been able to invest in new people who
have brought new skills and dynamism
to the business

• Our marketing and new business

efforts have been completely
overhauled and are now bearing fruit

• We have completely changed our
focus, and our team’s incentives,
towards profitable growth; managing
down our reliance on revenues that
delivered little or no margin and
changing our focus to net revenues
and higher margin work

Whilst there has been significant
change, we have also successfully
preserved the core strengths of Parity
that underpin our brand and market
position:

• We continue to help our clients release

the value of their data by focusing

Parity is now
more efficient,
more focussed
and clearer
about its
objectives and
purpose, as well
as growing its
margins and
profitability
again.

on the market for data skills, a fast
growing and exciting market segment

• We have maintained our excellent
reputation in the public sector as
evidenced by recent new business
wins

• We have grown our community of data
specialists; at a time when there has
been considerable flux in the market
for people with data skills we remain
the specialist provider

New business wins

The start to 2021 has been encouraging.
In January we won a new three-
year contract from the Scottish
government as its Digital Technology
Resources partner to support the
delivery of the Reaching 100% (R100)
superfast broadband infrastructure
programme. The award represents a
total opportunity of up to £5.0m over
the next three to six years for Parity.
We also renewed a contract without
competitive tender with one of our larger
clients in the retail sector and we won
new consultancy work from a very large
multinational business.

Since then, we have also been
appointed as a partner to help connect
a prominent retailer with the skilled
data and digital resources it requires to
support its various brands’ ambitious
transformation and growth plans
across UK and Europe. We also have
partnerships with IFS (a global leader
in Cloud ERP solutions) and Cedar
Bay (a partner in the IFS ecosystem)
to supply skilled data and digital
resources, as well as the extension of
an engagement with human resources
platform specialist, Resilience Engine.
In addition, we have secured a contract
within the public sector to supply data
talent for NHS Digital projects (the
national provider for the NHS in England

of information, data and IT systems).

We continue to attract excellent
talented people into the business. At the
beginning of the year, we recruited Kevin
Gould, a former Commercial Lead for
Accenture in UK and Ireland, who joins
the management team as Commercial
Director. Kevin has already helped us
access new opportunities and convert
tenders into new business.

Conclusion

It is a little over two years since I
became Chief Executive of Parity and
both the business and the environment
in which it operates have changed
considerably. As a result, we are now
in a strong position for future growth. I
have ambitious plans for this business,
there is a significant opportunity for
us in the data market and we want to
grasp it quickly. We are more confident
than ever in our ability to deliver above
average total shareholder returns in
the coming years, despite the lasting
impacts of the pandemic.

Parity is now more efficient, more
focussed and clearer about its
objectives and purpose, as well as
growing its margins and profitability
again. The market for data services
is strong and our reputation in that
market as an excellent provider of
experienced people with much sought
after data skills is very good, and
constantly improving. The people we
employ at Parity continue to be a major
differentiator. I will end, as I started, by
thanking them for their hard work and
our shareholders for their continued
support.

Matthew Bayfield
Chief Executive Officer
20 April 2021

Strategic report

Parity annual report and accounts 2020

Strategic report

Operational and Financial Review

The transformation
and restructuring
of the business
commenced in
2019 has been
successful, resulting
in both improved
operational
efficiency and
reduced costs

A Brief Overview

•

The Group’s restructuring and cost reduction over the past two years have
enabled it to remain financially robust in a year heavily impacted by the
pandemic.

The Group returned to an operating profit despite the pandemic.

Having significantly improved its working capital management over the past
two years the Group has secured a new debt facility from Leumi ABL that will
support its future growth ambitions.

Investment in new technology during the year has included the successful
implementation of a new integrated financial system from Access Group.

•

Net cash4 of £0.2m as at 31 December 2020 (2019: £1.4m).

Performance highlights for 2020

2020

2019

1
Adjusted

Reported

1
Adjusted

Reported

2
Variance

Revenue (£ million)

External contribution (£ million)

Operating profit (£ million)

3
Operating profit %

Finance costs (£ million)

Profit/(loss) before Tax (£ million)

57.8

5.6

0.5

57.8

5.6

0.0

80.4

8.1

0.4

80.4

8.1

(0.7)

8.4%

0.4%

5.5%

-8.9%

(0.3)

0.1

(0.3)

-28%

-31%

53%

-126%

-83%

(0.3)

0.1

0.09

1.4

(0.3)

(1.1)

(1.05)

1.4

Basic earnings per share (pence)

(0.02)

(0.46)

4
Net cash (£million)

0.2

1 - Excludes from the Income Statement the

impact of non-underlying items of £0.4m in
2020 (2019: £1.2m)

2 - Variance compares 2020 adjusted against

2019 adjusted to provide a consistent view of
performance

3 - Operating profit % is calculated as operating

profit as a % of external contribution

4 - Net cash represents cash and cash equivalents
less loans and borrowings and excluding leases

Despite a difficult year in which the majority of businesses and sectors have
been affected by the pandemic, the Group has made significant progress and
ends the year in a strong financial position. The transformation and restructuring
of the business commenced in 2019 has been successful, resulting in both
improved operational efficiency and reduced costs, and ultimately placing Parity
in a position of strength to be the partner of choice for companies with complex
data needs. This has enabled the Group to absorb the impact of the pandemic
and the known impact of the wind down of the Scottish Government framework
(“SG Framework”) terminated in 2019, without the need to furlough employees or
to make unplanned changes to the business.

As a result, the Group has been able
to return to an Operating Profit in
2020, a significant achievement in
such a turbulent year. Adjusted Profit
before tax has been maintained at
similar levels to 2019 and the Group
delivered an unadjusted Profit before
tax in the second half of 2020,
reflecting the progress we have
made as an organisation with our
transformation programme.

In addition to delivering a profitable
operating model, the Group
continues to manage its working
capital efficiently, reducing its
utilisation of debt facilities during
the year.

Continuing investment in technology
during the year, including the
implementation of new integrated
financial systems, will enable the
Group to drive further operational
efficiencies over coming years.

Segmental performance

2020

2019

£43.3M

£58.1M

£14.5M

£22.3M

£3.9M

£5.7M

£1.7M

£2.4M

9.0%

11.7%

9.8%

10.8%

Revenue
With the Group’s operating structure now more closely
aligned to meeting client needs, the Board has focused
reporting by client type, split between Public and Private
Sectors and this shift is reflected in the segmental reporting of
revenue.

The continued wind down in 2020 of the SG framework
was compounded by the impact of the pandemic on new
business, particularly in the private sector. As a result, total
revenue for 2020 was lower at £57.8m (2019: £80.4m).

Segmental performance

Public sector

Despite the turmoil caused by the pandemic, the Group has
demonstrated its strength in the public sector with an increase in
revenue across a number of key clients. The Group has remained
close to its Public Sector clients, assisting several with the
transition to remote working and supporting changes they have
made to projects in light of the shift in priorities forced upon them
by Covid.

With many key digital transformation projects largely unaffected
by Covid during 2020 and some clients, including ONS, creating
new projects in response to the pandemic, non-SG framework

revenues for the year increased by £7m, partially offsetting the
impact of the wind down of the SG framework.

Overall public sector revenue for the year was £43.3m (2019:
£58.1m). External contribution as a % of revenue was 9.0% (2019:
9.8%), the slight decline by 0.8% principally a consequence of
the conclusion of the UK government FastStream managed
service project that contributed £0.5m in 2019.

Private sector

With the private sector impacted most by the pandemic,
new business activity dramatically slowed and projects were
delayed as private sector clients assessed the impact of
the pandemic during the first half of 2020. Overall revenues
from the private sector declined by £7.8m to £14.5m in 2020
(2019: £22.3m) due to a combination of new business activity
dramatically slowing as clients dealt with the impact of
the pandemic and an active move away from a low margin
partnerships arrangement with Avanade. With the focus
on higher margin activities, external contribution as a % of
revenue has increased to 11.7% (2019: 10.8%).

Encouragingly, the Group has seen increased activity from
private sector clients and prospects during the latter months
of 2020 and the beginning of 2021 and expect the increase in
new business opportunities will provide a platform for growth
in 2021.

Revenue (£/millions)PublicPrivateExternalContribution(£/millions)PublicPrivate% External ContributionPublicPrivate
12

Strategic report

Parity annual report and accounts 2020

Strategic report

As a result of
the significant
improvements
made in
working capital
management
over the last two
years the Group
has reduced
its utilisation of
existing debt
facilities.

Operational and Financial Review

Reconciliation of revenue to adjusted
operating profit

£ million

Revenue
Contractor costs

2020

2019

57.8
(52.3)

80.4
(72.3)

External contribution
Selling & administration expenses 1
Share-based payment charges
Depreciation & amortisation

5.6
(4.4)
(0.1)
(0.6)

8.1
(6.7)
(0.2)
(0.8)

Operating profit 1

0.5

0.4

1 - Excludes from the Income Statement the impact of non-

underlying items of £0.4m in 2020 (2019: £1.2m)

Selling & administrative costs

During the year, the Group completed the operational
transformation that it commenced in 2019, meeting its
objective of improving operational efficiency and reducing its
cost base (both fixed and variable costs). As a direct result
of the transformation programme, the Group has removed
£4.2m of costs from the business, enabling it to reinvest
£1.6m in key new client focused roles and a new integrated
IT infrastructure. The net reduction in costs of £2.6m from
the transformation programme combined with earlier
committed cost reductions in 2018 and early 2019 bring the
total reduction in selling and administrative costs between
2018 and 2020 to £3.7m (a decrease of 46%).

Selling & administrative costs 1

1 - Excludes from the Income Statement the impact of non-
underlying items of £0.4m in 2020 (2019: £1.2m; £0.5m)

Depreciation and amortisation

In accordance with IFRS 16, the 2020 results are presented
with lease assets and liabilities recognised in the Group’s
Statement of Financial Position, where the Group is the
lessee.

Non-underlying items
The Board measures the performance of the Group after
excluding costs (and income) that would not be incurred
during the normal operation of the business and classify
these exceptional costs under the category of non-
underlying items. With the completion of the restructuring
during 2020 and no significant non-underlying items being
incurred in the second half of 2020 the total for the year was
£0.4m (2019: £1.2m) a significant reduction on the prior year.
A detailed analysis of the non-underlying items is provided in
note 5 on page 75.

Taxation
The tax charge on the loss before tax was £0.15m (2019:
£0.03m), mainly representing a deferred tax adjustment in
respect of prior periods to claim capital allowances offset
by a change in the rate of corporation tax. The Group did
not provide for corporation tax payable in 2020 due to
the utilisation of Group relief and the availability of carried
forward deductible timing differences and tax losses.

Earnings per share and dividend
The basic loss per share from continuing operations was
0.46 pence (2019: loss of 1.05 pence per share). The Group’s
results for both 2020 and 2019 were impacted by significant
restructuring costs.

The Board does not propose a dividend for 2020 (2019: nil)
but will keep the position under review.

Statement of financial position

Trade and other receivables

Despite the disruption caused by the pandemic and
distraction inevitably caused by the implementation of
a new financial system, the Group has maintained its
excellent performance on trade debtors. Group debtor days
(calculated on billings on a countback basis) at the end of
the year were 14 days (2019: 12 days).

Overall Trade and other receivables decreased during the
year to £6.1m (2019: £6.7m). This was a direct result of the
reduction in contractor numbers during the year (contractors

at the end of December 2020 were 514 compared with 648 at
the end of December 2019).

Trade and other payables

Trade and other payables decreased during the year by
£1.4m to £4.6m (2019: £6.0m). £0.7m of the decrease is
directly attributable to payments in 2020 for amounts owed to
contractors at the end of 2019 that were delayed due to the
timing of public holidays. A further £0.3m of the decrease is
the payment in 2020 of non-underlying costs accrued in 2019.
The other key movements in the year were the reduction in
contractor numbers accounting for a decrease of circa £0.8m
which was partially offset by an increase in VAT accruals with
the deferral under the government scheme of £0.3m of VAT
payments until 2021.

At the year end, creditor days were 23 days (2019: 24 days).

Loans and borrowings

Loans and borrowings represent the Group’s debt under its
asset-based lending (“ABL”) facility. This is a working capital
facility and linked to the same cycle as trade receivables.
The asset-based lending facility has been in place with PNC
Business Credit (“PNC”) since 2010 in substantially the same
form and was last renewed in May 2019.

As a result of the significant improvements made in working
capital management over the last two years the Group has
reduced its utilisation of existing debt facilities. In 2020 the
average borrowings were £1.6m and the Group only borrowed
more than £3 million for 29 days during the year.

With the latest two-year extension on the PNC facility due to
end in May 2021 the Board took the decision to explore new
financing options that could provide the Group with a more
cost effective and flexible debt facility that better meets its
future growth ambitions.

On 20 April 2021 the Group signed an agreement with Leumi
ABL for a new 3-year £9m ABL facility. The new facility
increases the amount that can be borrowed against billed and
unbilled receivables and crucially the Group will only pay fees
on amounts it borrows (under the expiring PNC facility the
Group were charged a 1% fee for any unutilised facility).

The new facility has a fixed rate for borrowing of 2% above
base for receivables and 2.9% above base for unbilled
receivables (expiring PNC facility has a rate of 2% above base
for all receivables and an additional 1% charge for unutilised
funds). It is expected that the new terms will reduce annual
borrowing costs and the increase in amounts that can be
borrowed against billed and unbilled receivables will give the
group greater flexibility when utilising the facility.

2020: £4.4m2019: £6.7m2018: £8.1m

Strategic report

Parity annual report and accounts 2020

Strategic report

Operational and
Operational and
Financial Review
Financial Review

Cash flow and net debt

Defined benefit pension surplus

During the period the Group generated
£0.4m of cash from operating activities
(excluding non-underlying items)
and also benefited from a deferral of
£0.3m of VAT payments until 2021
under a government scheme. These
cash inflows were offset by £0.4m of
cash outflows for finance costs for the
Group and £0.4m of payments for 2020
non-underlying items. In addition to the
normal course cash movements in 2020
the Group also made payments totalling
£1m that related to one-off events in
2019, £0.7m being the payment to
contractors of 2019 fees delayed due to
public holidays (as previously noted) and
£0.3m of non-underlying items accrued
in 2019.

As a result of a strong investment
performance during the year increasing
scheme assets, the Defined Benefit
Pension has moved from a net deficit
of £0.9m at the beginning of the year
to a net surplus of £0.2m at the end of
the year. The Group will commence a
triennial actuarial review of the pension
in April 2021 and the outcome of this
review (expected in 2022) will guide any
future contributions the Group agrees to
pay. During 2020 the Group paid £0.3m
contributions to the scheme.

FY20 Movement in net cash 1

£0.4m

£(0.7m)

£0.3m

£(0.4m)

£0.4m

£(0.3m)

£0.2m

£(0.4m)

£1.4m

n
o

i
l
l
i

m
£
P
B
G

1.6

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0.0

O pening N et C ash

F Y 19 C ontractor
pay m ent timing

F Y 19 non-
underlying

N et cash (after
F Y 19 adj)

F Y 20 Finance

C osts

F Y 20 non-
underlying

F Y 20 Year E nd

O perating C ashflo w
F Y 20 V AT
(before non-underlying ite m s)
deferral

1 -Net cash represents cash and cash equivalents less loans and borrowings excluding leases

Mike Johns
Chief Financial Officer
20 April 2021

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:

Impact of Covid-19 and macro-
economic uncertainty
The Covid pandemic has had, and
continues to have, a materially negative
impact on the UK and global economies.
The Group has seen the impact of the
pandemic primarily in a significant fall in
new business opportunities during Q2
and Q3 of 2020. Whilst the Group has
seen new business opportunities start to
increase in the last quarter of 2020 and
the early months of 2021, restrictions
still remain in place as a result of the
pandemic and the Group expects this to
continue to have some impact upon the
Group economically until all restrictions
have been lifted.

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.

The Group’s transformation programme,
commenced in 2019 and completed
during 2020 has enabled the Group
to significantly mitigate the impact of
the pandemic to date and enable the
business to continue to trade profitably.
In particular the Group has:

• delivered a more efficient and lower

cost operating model through a
reduction in headcount and investment
in new technology;

• taken the decision to utilise flexible

shared office space with shorter term
commitments (typically 2 years or less).
This enables the group to adapt to
changing economic conditions without
the drag of servicing long term lease
commitments.

• Established an IT infrastructure based
in the cloud that enables all staff to
operate remotely and flexibly whilst
also improving the speed and flow of
information across the group.

The Board also recognise that the risk to
the Group has been mitigated by a client
base weighted towards the public sector
(with government expenditure having
been more resilient as it supports key
public services) and core revenue being
generated by a highly skilled contractor
base that are IT mobile and able to carry
out their work remote from a client.

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.

Legislation – e.g. IR35
Delayed reforms to IR35 legislation
affecting the private sector are effective
from 6 April 2021. 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 Group’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,

Strategic report

Parity annual report and accounts 2020

Strategic report

also moved key systems to the cloud
during 2020 enabling it to take advantage
of the increased resilience, monitoring
and security rom its cloud service
providers.

Data

The Group routinely collects and
uses personal data. Following the
introduction of the General Data
Protection Regulation (‘GDPR’) the Group
implemented significant changes to its
data collection and processing controls.
The data privacy landscape is monitored
to ensure compliance with GDPR
and other applicable data protection
legislation.

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 as a result of
Brexit. 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 and services independent of
EU organisations.

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.

The Group maintains credit facilities that
enable it to borrow against assets on
the balance sheet to meet short term
working capital requirements. Headroom
on this facility is monitored by the Board
to maintain flexibility for the Group in the
event of unplanned short term needs.

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. The Group has

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.

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 page 15. The Group’s statement on
going concern and future prospects
are included in the Directors’ Report
on page 42 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
28.

Community and the environment
The Board recognises their
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 28.

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 28.

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 20.

Introduction

Parity annual report and accounts 2020

Introduction

Section two
Governance