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Half Yearly Financial Report for the six months ended 30 June 2011

Parity Group PLC

Half Yearly Financial Report for the six months ended 30 June 2011

Parity Group plc ("Parity", the "Company" or the "Group"), the UK IT services company, announces its interim results for the six months ended 30 June 2011.


&middot Group revenues of &pound40.80 million (2010: &pound52.59 million) up 1% on the second half of 2010, reflecting a return to greater stability and control

&middot Parity Solutions1 returned to operating profit at &pound0.12 million2 (2010: &pound1.63 million loss3)

&middot Parity Resources operating profit of &pound0.91 million2 (2010: &pound1.08 million)

&middot Group EBITDA recovered to &pound0.11 million (2010: &pound2.11 million loss3)

&middot Placing of new equity in May 2011 raised &pound6.43 million net of expenses

&middot Positive cash balance at period end of &pound6.68 million (2010: &pound0.26 million)

1 Parity Solutions comprises Parity Systems and Parity Talent Management divisions which are separated internally for management and reporting purposes.

2 Operating profit/loss in this narrative statement refers to the segment profit/loss after exceptional costs but before tax.

3 Due to a change in accounting policy first adopted in the 2010 Annual Accounts in relation to accounting for pension costs and as explained in Note 1 to these accounts, the comparatives for 2010 have been restated.

Philip Swinstead, Chairman of Parity, said:

"After a lot of hard work internally during the second half of last year, the benefits can be seen in these results. Both businesses are now in profit and have stopped the negative trends of recent years and, following our fundraising in May, we are beginning to implement the various growth initiatives at which the proceeds were mainly targeted. Our markets remain challenging, particularly in the government sector but growth in the Resources commercial business has been encouraging. We have work to do in the second half on realising further identified cost savings and starting to progress the growth technology markets we have identified."

Parity Group PLC

Half Yearly Financial Report for the six months ended 30 June 2011


The Board has previously stated that, following the significant restructuring and cost savings in the second half of last year, 2011 would be a year of consolidation. Against that background, and the continued challenging economic conditions, we are encouraged by our performance in the first half of the year.

The return to positive EBITDA that has been achieved is the result both of last year's actions and of the positive attitude of management and staff across Parity. Further recovery prospects will be enhanced by the investment in new initiatives which commenced recently.

The Group completed an over-subscribed placing in May 2011 at 23 pence per share, which raised &pound6.43m net of expenses. The Board indicated that some &pound2 million of the placing proceeds was to provide additional working capital to improve the balance sheet &pound1m to reduce the cost base and that the remainder was to be used for specific growth initiatives. These were identified as being:

&middot Further strengthening the senior management team

&middot Developing a new advanced applications initiative within Parity Systems with a major partner

&middot Developing Parity Talent Management's presence in England

&middot Creating Parity Technology Laboratory in conjunction with a major partner

&middot Growing Parity Resources' presence in the private sector.

All of these are being progressed, with spend on these initiatives in the final weeks of the half of &pound0.2 million. In the interests of transparency, we will continue to identify this expenditure separately going forward.

Group revenues in the period under review were &pound40.80 million (2010: &pound52.59 million). Following the decline in Group revenues last year, revenues stabilised in this period, and were 1% higher than in the second half of last year (2010 H2: &pound40.37 million).

Both Parity Resources and Parity Solutions recorded an operating profit for the six months to 30 June with a combined profit after exceptional items of &pound1.03 million. (2010: &pound0.55 million loss).

The Group recorded a positive EBITDA for the period of &pound0.11 million (2010: &pound2.11 million loss). Group losses on continuing operations before tax reduced by 86% to a loss of &pound0.37 million (2010: &pound2.69 million loss).

In the period to 30 June 2011 and before adjusting for working capital movements there was a net cash inflow from operating activities of &pound0.18 million (2010: &pound3.15 million outflow). There was an improved cash position at the period end of &pound6.68 million (2010: &pound0.26 million) due mainly to the Placing. The underlying cash position is now stable. Net borrowings at the period end were &pound1.12 million (2010: &pound5.02 million).

Costs continue to be tightly controlled with Group costs in the period totalling &pound1.18 million, including investment in new initiatives identified at the time of the placing of &pound0.20 million (2010: Group costs of &pound1.02 million).

The improved performance, continuing tight management of cash and the placing proceeds have strengthened the balance sheet in 2011 with net assets standing at &pound7.21 million at 30 June 2011. At 30 June 2010 net assets were &pound2.89 million (31 December 2010: &pound1.33 million).

The Group announced in December 2010 that it had agreed new bank facilities with PNC providing a total invoice discounting and accrued revenue facility of up to &pound15 million. This, together with the &pound2 million specifically raised in the Placing for working capital, has reinforced our working capital position and will provide the Group with a stronger balance sheet, and therefore platform for growth, going forward.

Parity Resources

Revenues in the period were down 22% to &pound34.55 million (2010: &pound44.50 million). Operating profits were &pound0.91 million (2010: &pound1.08 million). Compared to the performance in the second half of last year (2010 H2: revenues, &pound33.62 million operating profits, &pound0.87 million) this represented a stabilisation following several years of decline.

Growth in commercial sector contractor numbers has compensated for the continued tight control in public sector spending experienced generally across our industry, with the total number of professionals contracted to clients at 30 June 2011 standing at a little over 700.

We have identified and are now pursuing ways in which we can develop the business to respond to the changing nature of its market. This includes expanding into the permanent recruitment market, offering our clients a portfolio of services around recruitment, and re-establishing cross-Group offerings.

Parity Solutions

Revenues in the period were down 23% to &pound6.25 million (2010: &pound8.09 million). Following a number of periods in which Parity Solutions reported losses, the business has now returned to an operating profit after exceptional items of &pound0.12 million (2010: &pound1.63 million loss).

The Group continues to report the Parity Systems and Parity Talent Management (TM) divisions together as Parity Solutions, whilst the TM division is relatively small but they are separated for operations and management accounts.

Parity Systems:

The Parity Systems division went through a period of major change in the past 12 months. Most importantly it has now exited from the problematic large fixed-price contracting arena and has substantially resolved all outstanding issues. Significant cost savings were identified, achieved and reported in 2010, enabling the division to better balance cost and revenues in the current reporting period.

This result was achieved by focusing on existing and past clients with whom we have a good track record as well as maintaining a tight control on costs. In this way we have created a stable and profitable base from which to grow as our Business Intelligence initiative evolves.

Parity Talent Management:

This new initiative achieved &pound1.25 million in revenues in the reporting period and is in an area of much current interest nationally. At its current size, the division reports separately to the Board but shares overheads with the Systems division, thereby minimising costs.

The division continues to provide graduate selection and development programmes in Northern Ireland for both government and industry, as well as running the prestigious FastStream graduate programme on behalf of the Cabinet Office. Our new sales resources are now introducing graduate development services to many UK universities and corporates.

Cost savings

During the course of last year we identified and achieved substantial cost savings across the Group. At year end we reported two further areas for additional savings:-

&middot First, the Group has decided to bring its IT systems back in-house with a significant cost saving. This move has been agreed with the supplier and will be completed in the second half of 2011.

&middot Second, although significant property savings were achieved last year, there remains excess leasehold property space in our Wimbledon office which is being actively marketed.

Strategy & Future Prospects

The businesses are now able to focus on growing their revenues and improving margins, after a difficult 12 months. With the financial stability provided by the successful Placing, and by the balancing of costs and revenues to reduce losses, it is now possible for the new management team at Group and divisional level to spend more time on future planning and enacting growth strategies.

Parity Resources continues to be a major player in the important public sector market but, in response to on-going Government and public sector cutbacks, we have commenced a determined programme to enhance our private sector presence. To this end we have strengthened our sales capability in this area and in August open a new London office to place us nearer to major clients and improve our ability to attract experienced sales people.

Parity Systems is now concentrating on identifying and growing profitable revenue streams based primarily on its core abilities and reference clients in the Business Intelligence field, particularly with regard to the influence of Cloud computing. To date we have established good relationships with potential partners and are now in a position to seek additional revenue streams. As part of this initiative we are recruiting senior staff for a new consultancy capability within the division.

The Talent Management division was created in the second half of last year and is now starting to market a range of services to UK universities. The division has invested in both staff and marketing to establish potential new revenue streams around our proven processes for selecting, training and placing graduates in roles with a high probability of long term retention by employers.

The Group is in the final stages of discussion with a major partner on the creation of a Technology Laboratory in the visualisation field where emerging technologies are encouraging visual rather than text communication, more powerful web marketing and smartphone capabilities, and new natural user interfaces. This first initiative is intended to be followed by a move into the digital media world where marketing practices are currently being revolutionised by emerging and disruptive technology.

Current Trading

The second half will see further planned cost savings which have been identified above, and early efforts on all our new initiatives. It continues to be a year of consolidation and of building of business processes to prepare for further improvements in performance next year. Obviously the current economic situation and government cutbacks are not helpful in the short term but the more stable platform does provide the opportunity to make careful moves into the new markets outlined previously, in the expectation of competitive advantage in future years. Trading in the second half to date has been in line with the Board's expectations.


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