Parity Group plc - Shares Down 20%
Parity Group plc, Interim Management Statement & Board Changes
Parity Group plc, the UK IT services group, today issues its Interim Management Statement covering the period from 1 January 2010 to 18 May 2010, together with planned changes to the composition of the Group's Board.
Interim Management Statement
Trading during the first half of 2010 has remained largely consistent with management expectations and with the outlook set out in our preliminary results announcement on 23 March 2010. We continue to experience volatile market conditions, creating poor short-term visibility of revenues.
Uncertainty surrounding public sector spending remains and this has delayed some contract decisions, particularly during the General Election period. We remain cautious about the impact of the new Government's spending plans. We can see more signs for optimism in the private sector but this year inevitably remains somewhat uncertain.
Our Resources division, dominated by the IT contractor business, continues to perform well. We experienced a smaller seasonal drop-off in public sector contractors in April than we had budgeted, and we have seen good growth and gross margin improvement in the commercial market. We are pleased to be bidding on all four relevant sections of the government Catalist procurement replacement.
In our Solutions division, steadily improving sales are delivering modest revenue growth over H2 2009. We recently won our largest systems integration project for three years, from NHS Direct, to develop and support a new Health Information Search Portal. This will be the first significant project to be delivered from our Microsoft Centre of Excellence in Belfast. We have however experienced some quality issues on another project which have resulted in a movement of revenue from the first half to the second half. Daily fee rates remain under pressure and, where appropriate, we are increasing the offshore content of our projects to compensate.
The Board's expectations for the current year remain unchanged, excluding any one-off costs associated with the Board changes being announced today. The phasing of profit is expected to be similar to last year's, with trading below breakeven in the first half and with an improvement in the second half.
Net debt has continued to reduce substantially throughout 2010 as trade debtors have been reduced to more normal levels.
Following consideration of various strategic options available to the Group, it has been agreed that Alwyn Welch will step down from his role as Chief Executive and leave Parity on 31 May 2010. Since joining Parity in early 2006, Alwyn has successfully led the Group through a period of considerable change and many challenges, including steering Parity through this serious recession, whilst continuing to deliver operating profits.
Paul Davies will join the Board as Chief Executive on 1 June 2010. Paul was Chief Executive Officer of Parity from its creation in 1994 until 1999, and has a long track record of senior appointments in the IT Industry. He has most recently been a non-executive Director of Microgen plc and was Chairman of MSB International plc between 2002 and its sale in 2006.
Philip Swinstead will join the Board on 1 June 2010. Philip founded Parity in 1994 and left the Board in 2001. He rejoined in late 2004 to assist in the strategic redirection of the Group, and left in October 2007 when the company had returned to profitability under new management. He is a significant shareholder in the Group. Philip was also a director of North Atlantic Smaller Companies Investment Trust plc from September 2007 to January 2009.
Following the AGM on 2 June it is the Board's intention that Philip Swinstead will become Chairman and Lord Freeman will become Non-executive Deputy Chairman. Nigel Tose who joined the Board in 2006 will continue as Senior Independent Non-Executive Director.
John Hughes, who was Executive Chairman from 2005 to 2007, has asked to step down as Non-Executive Deputy Chairman and as a Director on 31 May 2010 and will now concentrate on his other business interests.
Lord Freeman said: "Parity is a group with high quality existing businesses, strong niche market positions and a good team of people. Alwyn Welch and John Hughes, supported by our Finance Director, Ian Ketchin, deserve much credit for the way in which they have reshaped the group and, more recently, navigated through some extremely difficult market conditions. The Board is very grateful to Alwyn and John for their substantial contribution to the Group over this time, and wishes them well for the future.
Philip Swinstead said: "The last couple of years have been extremely difficult for our industry and the Board and management has done well to maintain a stable business. Parity must now set a clear strategic direction to deliver growth and much improved shareholder value as the recession lifts.
"Clearly we must reduce debt, improve profitability and aim our considerable technological skills at market sectors where we can see future expansion and again become an important player in the market. I see some exciting new market trends, which will underpin this mission.
"To work again with Paul Davies will be a particular pleasure, as it will be with my other Board colleagues. We will be patient in the near future and prepare for a new growth phase based on a highly focused strategy, which we expect to communicate to shareholders later in the year."
Shares were down 20% overnight.