REG - Parity Group PLC - Final Results
27/04/2022 07:16
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RNS Number : 4504J Parity Group PLC 27 April 2022
PARITY GROUP PLC
FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021
27 April 2022
Parity Group plc ("Parity" or the "Group"), the data and technology focused
professional services business, announces its full year results for the year
ended 31 December 2021.
Headlines
2021 has been a year of two halves with a management change mid-year to
refocus the business on its heritage and strength in recruitment, rebuilding
capability to take advantage of growing market opportunities.
· The management structure has been streamlined, creating a much
simpler, balanced organisation with clear lines of accountability and
unlocking cost to invest in key customer-facing areas.
· The recruitment operation has been rebuilt, is highly motivated and
operating well, delivering strong conversion rate performance.
· Improvements in customer relationship management and customer
satisfaction has begun to reverse previous declines in share of
customer-wallet. Amongst early signs of success with the refocused strategy
is a material increase in revenue at three of the Group's top five customers
and 'exclusivity' arrangements with two others.
· An academy has been set up to develop talent inhouse, this has
already delivered success.
· The overall cost base of the Group has been reduced and is
significantly more scalable.
· Adjusted EBITDA for 2021 of £0.1m.
· The defined benefit pension scheme surplus increased from £0.2m to
£1.9m.
Key Financials
Financial highlights for 2021
GBP million 2021 2020
Revenue 47.0 57.8
Net Fee Income 4.1 5.6
Adjusted EBITDA ( 1) 0.1 1.1
Operating (loss)/profit before non underlying items (0.3) 0.5
Loss before tax (1.1) (0.3)
Net (debt)/cash (£million) (2) (1.2) 0.2
Defined benefit pension surplus (£ million) 1.9 0.2
Notes:
1 - Adjusted to exclude non underlying items
2 - Net (debt)/cash represents cash and cash equivalents less loans and
borrowings and excluding leases
Mark Braund, Executive Chairman of Parity Group plc, said:
"2021 has been a year of two halves, the first continuing the pursuit of a
strategy that failed to ignite, the second reclaiming the original purpose of
the Parity business, that of being a trusted and successful provider of
recruitment solutions.
Step-change improvements to back-office processes and systems alongside the
re-building of a capable and scalable recruitment solutions team places us in
a strong position to benefit from the continuing demand for digital
transformation. As organisations adapt to new ways of doing business, we are
supplying our clients with the talented and experienced people that make this
change possible.
The response from colleagues has been tremendous; their inspiration,
enthusiasm and hard work has helped us rapidly refocus the business and,
combined with strong demand in Parity's core markets, I believe we can
re-establish growth and profitability in the near to medium term"
Investor presentation
Mark Braund and Mike Johns will provide a live presentation relating
to Full year results to 31 December 2021 via the Investor Meet Company
platform on 4th May 2022 at 11:00am BST.
The presentation is open to all existing and potential shareholders. Questions
can be submitted pre-event via your Investor Meet Company dashboard up until
9am the day before the meeting or at any time during the live presentation.
Investors can sign up to Investor Meet Company for free and add to
meet Parity Group plc via:
https://www.investormeetcompany.com/parity-group-plc/register-investor
(https://www.investormeetcompany.com/parity-group-plc/register-investor)
Investors who already follow Parity Group plc on the Investor Meet Company
platform will automatically be invited.
Contacts
Parity Group PLC www.parity.net (http://www.parity.net)
Mark Braund, Executive Chairman + 44 (0) 20 8171 1729
Mike Johns, CFO
finnCap Ltd (Nomad & Broker) https://www.finncap.com/ (https://www.finncap.com/)
Jonny Franklin-Adams / Simon Hicks / Fergus Sullivan +44 (0) 20 7220 0500
This announcement contains certain statements that are or may be
forward-looking with respect to the financial condition, results or operations
and business of Parity Group plc. By their nature forward-looking statements
involve risk and uncertainty because they relate to events and depend on
circumstances that will occur in the future. There are a number of factors
that could cause actual results and developments to differ materially from
those expressed or implied by such forward-looking statements. These factors
include, but are not limited to (i) adverse changes to the current outlook for
the UK IT recruitment and solutions market, (ii) adverse changes in tax laws
and regulations, (iii) the risks associated with the introduction of new
products and services, (iv) pricing and product initiatives of competitors,
(v) changes in technology or consumer demand, (vi) the termination or delay of
key contracts and (vii) volatility in financial markets.
Chairman's Statement
Parity is a people business. At its core, the Company has a strong heritage
and brand, recognised for its strengths in engaging and placing talented
professionals to carry out important work in both the public and commercial
sectors.
Over the last few years the business had lost sight of these strengths as it
pursued a strategy in a different direction. Unfortunately, this did not
deliver the performance expected.
A change in key management in June 2021 led to a review of opportunities for
the business. The decision was made to refocus on Parity's core competence
in recruitment solutions, where its brand and reputation is strong and where
market activity provides a wealth of opportunities for value and growth.
As a result, 2021 became a year of two halves, the first continuing the
pursuit of a strategy that failed to ignite, the second reclaiming the
original purpose of the Parity business, that of being a trusted and
successful provider of recruitment solutions.
As a supplier of critical and in demand IT and data skills we have continued
to meet the needs of existing clients during the year and have had notable
successes in the second half of 2021, growing 3 of our largest accounts, one
of which has more than doubled in size over the last 18-months. We are
suppliers on the UK's key public sector frameworks for IT and Data resources
and see an opportunity in 2022 to grow this further.
High employee turnover over the previous three years and the impact of working
remotely from home during the pandemic has meant that a key focus for us
during the second half of 2021 has been rebuilding employee morale and
motivation.
We have made rapid progress creating a new culture within the business that
will enable us to foster growth and development. We have established an
academy structure around our core recruitment team to develop our own talent
and this is already adding value with a second cohort joining the academy in
January 2022. As a business we seek to offer opportunities for all and are
proud of our diverse and inclusive workforce. Whilst we strive for more, we
are proud of the fact that we have a gender balanced workforce.
Parity is now smaller than it has been historically, however changes in
back-office processes and systems alongside the re-building of a capable and
scalable recruitment solutions team places us in a strong position to benefit
from the continuing demand for digital transformation. As businesses adapt
to new ways of doing business post Covid, we are supplying our clients with
the talented and experienced people that make this change possible.
Over the last three years the Group has actively transformed itself into
highly flexible business, its cloud infrastructure and digital backbone
combined with a hybrid working environment enable the business to adapt and
scale to meet future opportunities and challenges. Alongside this we have put
in place a new three-year asset based lending facility in 2021 with Leumi ABL
that will provide support and flexibility as we grow the business.
People, remain critical to the success of most if not all, commercial and
public service activities. As technology advances, talent is relied on to
define and architect solutions, integrate and implement components, manage
change and continuously develop advances that deliver improvements to the way
things work.
This all takes place in a market where the best talent is demanding more
flexibility whilst the ecosystem demands greater productivity. Demand for
talent to support this ever-changing environment continues unabated. It is
into this environment Parity has strong foundations to acquire and provide
solutions that deliver value.
As we chart our path forwards, we are excited by the opportunity.
We end as we start, our business is all about people and the changes over the
last six to nine months have only been made possible by our talented and
committed teams in Edinburgh and London. On behalf of my colleagues, I wish
to thank the whole team at Parity for their work so far, we have more to do,
however the base from which we move forward is now solid.
Operational and Financial Review
Overview
· During 2021 the business continued to develop key relationships with
growth in 3 of top 5 client accounts.
· The refocus of investment to support the development and growth of
the core recruitment business has been delivered in 2021 without increasing
costs.
· As a result the Group recorded a modest Adjusted EBITDA profit of
£0.1m for 2021 (2020: £1.1m).
· The Group maintains its strong cash collection with a DSO of 17 days
(2020: 14 days) and no bad debts.
· During 2021 the Group replaced its previous asset based lending
facility (ABL) with a new 3 year debt facility provided by Leumi ABL,
increasing funding flexibility across both billed and unbilled assets.
· As a consequence of the changes to the business in 2021 the Group
made increased use of its ABL facility and at 31 December 2021 the net debt
was £1.2m (2020: net cash of £0.2m).
· The defined benefit pension scheme surplus has increased
significantly during 2021 to £1.9m.
Performance highlights for 2021
2021 2020
Adjusted 1 Reported Adjusted 1 Reported Variance 2
Revenue (£ million) 47.0 47.0 57.8 57.8 -19%
Net Fee Income (£ million) 4.1 4.1 5.6 5.6 -27%
EBITDA (£ million) 3 0.1 (0.4) 1.1 0.7 -89%
Operating (loss)/profit (£ million) (0.3) (0.8) 0.5 0.0 -157%
(Loss)/profit before tax (£ million) (0.6) (1.1) 0.1 (0.3) -552%
Basic earnings per share (pence) (0.08) (0.62) (0.02) (0.46)
Net (debt)/cash (£million) 4 (1.2) (1.2) 0.2 0.2
Notes
1 - Excludes from the Income Statement the impact of non-underlying items of
£0.5m in 2021 (2020: £0.4m)
2 - Variance compares 2021 adjusted against 2020 adjusted to provide a
consistent view of performance
3 - EBITDA is calculated as Operating profit excluding Amortisation and
Depreciation and share based payments
4 - Net cash represents cash and cash equivalents less loans and borrowings
and excluding leases
The financial performance in 2021 reflects the challenging year for the Group.
Whilst our strong position in the public sector helped cushion the impact of
Covid in 2020, the return of the market and contractor mobility/churn in
particular, exposed the lack of depth in the recruitment team and the business
was unable to take advantage of the increasingly buoyant recruitment market
during 2021. This has had a significant impact upon performance in 2021.
To address this, investment in H2 2021 was redirected to rebuilding the
recruitment capability. A reallocation of resource from non-core activities to
support client facing recruitment along with a streamlining of the extended
management team meant that this was achieved without an increase in operating
costs (non-underlying costs excluded). This close management of costs within
the Group has enabled the Group to deliver a modest Adjusted EBITDA for 2021
despite the fall in Net Fee Income.
Revenue
Year on year revenue has declined by 19% to £47m, driven by a fall in
contract recruitment revenue that makes up 97% of total revenue.
The impact of an under resourced recruitment team and lack of additional
capacity to pursue new business has been a year on year fall in the number of
contractors by 20%. This decline in contractor numbers has in part been
offset by an increase in average billing rates by 8% during the year, reaching
£504/day in December 2021.
This increase is attributable to two factors:
· Over the last 2 years the business has been increasingly focusing its
contract recruitment on higher value IT resources.
· The increased enforcement of IR35 legislation and potential for large
penalties has prompted many organisations to take a conservative approach to
IR35 assessments. The impact of this is an increase in roles deemed to be
inside IR35. To attract candidates, clients are in most cases having to
increase rates to offset the increased tax burden a contractor faces if inside
IR35.
Non recruitment revenues totalled £1.3m in 2021 (2020: £1.6m).
Net Fee Income
Total Net Fee Income was £4.1m in 2021, a fall of £1.5m (27%) over 2020. Of
this £0.3m is attributable non-recruitment Net Fee Income and the remaining
£1.2m is a direct consequence of the lower Contract Recruitment Net Fee
income, of £3.4m (2020: £4.6m).
Lower contractor numbers in 2021 account for £1.1m of the drop in Contract
Recruitment Net Fee Income. In parallel with the reduction in contractors the
underlying % margin has fallen from 8.2% to 7.4% resulting in a £0.4m
reduction in Net Fee Income. This margin dilution reflects the impact of the
under resourced recruitment team who were successfully able to support and
grow large key accounts but unable to manage and pursue smaller higher margin
accounts. These two adverse variances are partially tempered by the increase
in billing rate during the year which has flowed through to Net Fee income,
adding £0.3m.
With the new recruitment team in place there is now resourcing to cover all
accounts and with a renewed focus on engaging with contractors there will be a
push to win back higher margin business in 2022.
Segmental performance
As noted previously, the key driver of the lower revenue and net fee income
has been a fall in contractor numbers. This has had an impact on both public
and private sector income streams with a lack of capacity in the recruitment
team during the first three quarters of the year limiting the ability to
manage beyond key accounts.
In the public sector specifically, this has resulted in a decline in net fee
income by 27%, driven by the loss of contractors in the first three quarters.
The slight drop in % margin reflects the loss of some smaller, higher margin
accounts.
Private sector has maintained revenue in line with the prior year at £14.5m
as a result of strong growth in a key account during the year that has offset
lower contractor numbers elsewhere and the impact of the failure to establish
a sustainable and scalable consultancy division.
Net fee income for private sector has dropped by £0.5m with growth from the
key account adding £0.2m to net fee income but insufficient to offset a fall
of £0.4m due to lower contractor numbers in smaller accounts where margins
are higher. Additionally, the failure to generate new consulting opportunities
was responsible for a further £0.2m of the drop in Net fee income.
The fall in net fee income as a % of revenue between 2020 and 2021 reflects a
change in revenue mix, with a fall in high % margin consulting income being
replaced by lower margin contract recruitment.
Selling and Administration Costs
2021 was a year of two halves for expenditure, H1 2021 began with the business
making further investments in management and new business capability to
support the continual development of non-recruitment activities. Following the
change in management in June 2021 investment shifted towards recruitment,
rebuilding the capacity in the team during H2 2022 to take advantage of future
opportunities in the market.
Resources engaged in non-core activities were reduced during H2 2021 and the
management team streamlined to facilitate the investment in additional
recruitment resources. This created £1.1m (Annualised) of capacity to
re-invest in recruitment and new business resources.
In addition to hiring experienced recruitment professionals, investment has
also been made into long term development of employees with the creation of an
academy structure focused on developing talent in house. The first cohort
through the academy are already thriving and second intake started in January
2022, this structure will support the Group's organic growth and profitability
in future years.
Operating costs before non-underlying items
GBP million H1 H2 FY21 H2 vs H1
Selling & Administration expenses (2.1) (1.9) (4.0) -9.1%
Share-based payment charges 0.0 0.1 0.1 n/a
Depreciation & amortisation (0.2) (0.3) (0.5) 14.6%
Total (2.3) (2.1) (4.4) -9.5%
Selling and Administration costs for H2 2021 were 9% lower than H1 2021, this
variance is primarily the result of the switch from non-core activities into
core recruitment and gives the Group scope to invest further in 2022. Against
prior year, Selling and Administration costs are 10% lower.
Depreciation and amortisation
In accordance with IFRS 16, the 2021 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 change in management in June 2021 and subsequent refocus
around the recruitment business the non-underlying costs incurred in 2021
total £0.6m (2020: £0.4m) and relate almost entirely to the costs of
departing employees. A detailed analysis of the non-underlying items is
provided in note 5.
Taxation
The tax income on profit before tax was £0.47m (2020: charge of £0.15m),
mainly representing a deferred tax adjustment in respect of recognition of tax
losses that were not recognised previously. The Group did not provide for
corporation tax payable in 2021 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 0.62 pence (2020: loss
of 0.46 pence per share). The Group's results for both 2021 and 2020 were
impacted by restructuring costs.
The Board does not propose a dividend for 2021 (2020: nil).
Statement of financial position
Trade and other receivables
The Group continues to maintain its strong performance on trade debtors,
keeping a close relationship with clients to ensure both prompt payment and
quick resolution of any issues, this approach has both maintained low debtor
days and also ensured that the business has no bad debt. Group debtor days
(calculated on billings on a countback basis) at the end of the year were 17
days (2020: 14 days).
Overall trade and other receivables decreased during the year to £4.8m (2020:
£6.1m), the main driver being the reduction in contractor numbers.
Trade and other payables
Trade and other payables decreased during the year by £1.3m to £3.6m (2020:
£4.9m). Of this, key variances were £0.6m decrease attributable to the
reduction in contractor numbers and a further £0.3m to the payment of VAT
deferred in 2020 under the Covid-19 VAT deferral scheme.
At the year end, creditor days were 23 days (2020: 23 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. In April 2021 the Group switched its ABL facility
from PNC to Leumi ABL. As a result of this switch the amount that can be
borrowed against billed and unbilled receivables increased and borrowing costs
reduced because the Group will only pay fees on amounts it borrows (under the
previous PNC facility the Group were charged a 1% fee for any unutilised
facility). The facility in place with Leumi ABL is for a minimum of 3 years
giving the Group the support it needs to optimise its working capital
requirements.
In 2021 the average borrowings were £2.5m (2020: £1.6m) and the Group only
borrowed more than £3 million for 79 days during the year (2020: 29 days).
Cash flow and net debt
Net cash outflow in the year (excluding IFRS16 adj) was £1.4m. Of this,
£0.2m related to ongoing operating activities and a further £0.4m the impact
of the non-underlying costs. In addition, the Group incurred £0.1m of capital
expenditure for the development of a data warehouse to provide business
intelligence to the Group. The balance of the cash outflow is made up of
primarily of pension costs of £0.3m (included within the FY21 finance costs
of £0.4m) and the repayment of £0.3m of VAT deferred under the government
Covid scheme.
Defined benefit pension surplus
Solid investment management of the Defined Benefit pension scheme assets has
further increased the surplus from £0.2m at the beginning of the year to
£1.9m at the end of 2021. Whilst financial markets are currently volatile
based on world events and there is always potential for surplus position to
change, the strength of the scheme's assets, is now sufficient for the Group
and Trustees to target, over the medium term, a buyout of the scheme.
During 2021 the Group paid £0.3m contributions to the scheme.
Consolidated Income Statement for the year ended 31 December 2021
2021 2020
£'000 £'000
Notes
Revenue 3 46,962 57,827
Contractor costs (42,882) (52,266)
Net Fee Income 4,080 5,561
Operating costs before non-underlying items 4 (4,349) (5,091)
Operating (loss)/profit before non-underlying items (269) 470
Non-underlying items 5 (553) (447)
Operating (loss)/profit (822) 23
Finance costs 7 (281) (348)
Loss before tax (1,103) (325)
Analysed as:
Adjusted (loss)/profit before tax(1) (550) 122
Non-underlying items 5 (553) (447)
Tax credit/ (charge) 9 467 (145)
Loss for the year attributable to owners of the parent (636) (470)
Loss per share 10
Basic 10 (0.62p) (0.46p)
Diluted (0.62p) (0.46p)
All activities comprise continuing operations.
( )
(1) Adjusted (loss)/profit before tax is a non-IFRS alternative performance
measure, defined as (loss)/profit before tax and non-underlying items.
Consolidated Statement of Comprehensive Income for the year ended 31 December
2021
2021 2020
£'000
£'000
Notes
Loss for the year (636) (470)
Other comprehensive income
Items that will never be reclassified to profit or loss
Remeasurement of defined benefit pension scheme 22 1,620 1,041
Deferred taxation on remeasurement of defined pension scheme 15 (567) (198)
Other comprehensive income for the year after tax 1,053 843
Total comprehensive income for the year attributable to owners of the parent 417 373
Statements of Changes in Equity for the year ended 31 December 2021
Consolidated Share Capital Other Retained Total
capital redemption reserves earnings £'000
£'000 Share reserve £'000 £'000
premium £'000
reserve
£'000
At 1 January 2020 (reported) 2,053 33,244 14,319 34,560 (77,753) 6,423
Effect of correction of material misstatement (Note 28) - - - - (247) (247)
At 1 January 2020 (restated) 2,053 33,244 14,319 34,560 (78,000) 6,176
Share options - value of employee services - - - - 90 90
Transactions with owners - - - - 90 90
Loss for the year - - - - (470) (470)
Remeasurement of defined benefit pension scheme - - - - 1,041 1,041
Deferred taxation on remeasurement of defined pension scheme taken directly to - - - - (198) (198)
equity
At 31 December 2020 (reported) 2,053 33,244 14,319 34,560 (77,290) 6,886
Effect of correction of material misstatement - - - - (247) (247)
At 31 December 2020 (restated) 2,053 33,244 14,319 34,560 (77,537) 6,639
Shares issues in the period 9 26 - - - 35
Share options - value of employee services - - - - (64) (64)
Transactions with owners 9 26 - - (64) (29)
Loss for the year - - - - (636) (636)
Remeasurement of defined benefit pension scheme - - - - 1,620 1,620
Deferred taxation on remeasurement of defined pension scheme taken directly to - - - - (567) (567)
equity
At 31 December 2021 2,062 33,270 14,319 34,560 (77,184) 7,027
Statements of Financial Position as at 31 December 2021
Company number 3539413 Consolidated
2021 31 December 2020 1 January 2020
Notes £'000 as restated as restated
£'000
£'000
Assets
Non-current assets
Goodwill 11 4,594 4,594 4,594
Other intangible assets 12 84 6 32
Property, plant and equipment 13 15 23 43
Right-of-use assets 14 149 247 395
Trade and other receivables 16 29 87 -
Deferred tax assets 15 528 627 970
Retirement benefit asset 22 1,939 208 -
Total non-current assets 7,338 5,792 6,034
Current assets
Trade and other receivables 16 4,768 6,062 6,739
Cash and cash equivalents 1,121 3,172 4,116
Total current assets 5,889 9,234 10,855
Total assets 13,227 15,026 16,889
Liabilities
Current liabilities
Loans and borrowings 17 (2,279) (2,941) (2,719)
Lease liabilities 14 (242) (321) (325)
Trade and other payables 18 (3,608) (4,857) (6,259)
Provisions 19 - (139) (324)
Total current liabilities (6,129) (8,258) (9,627)
Non-current liabilities
Lease liabilities 14 (29) (87) (173)
Provisions 19 (42) (42) (21)
Retirement benefit liability 22 - - (892)
Total non-current liabilities (71) (129) (1,086)
Total liabilities (6,200) (8,387) (10,713)
Net assets 7,027 6,639 6,176
Shareholders' equity
Called up share capital 23 2,062 2,053 2,053
Share premium reserve 21 33,270 33,244 33,244
Capital redemption reserve 21 14,319 14,319 14,319
Other reserves 21 34,560 34,560 34,560
Retained earnings 21 (77,184) (77,537) (78,000)
Total shareholders' equity 7,027 6,639 6,176
In accordance with Section 408 of the Companies Act 2006, the Company has not
presented its own income statement or statement of comprehensive income. The
profit for the year dealt with in the accounts of the Company was £700,000
(2020: loss of £2,909,000).
Statements of Cash Flows for the year ended 31 December 2021
Consolidated
Notes 2021 2020
£'000
£'000
Operating activities
Loss for the year (636) (470)
Adjustments for:
Net finance expense 7 281 348
Share-based payment expense/(credit) 8 (64) 90
Income tax (credit)/ charge 9 (467) 145
Amortisation of intangible assets 12 3 26
Shares issued in lieu of Directors fees 21 35 -
Depreciation of property, plant and equipment 13 12 20
Depreciation and impairment of right-of-use assets 14 414 540
Loss on write down of lease assets 14 31 -
Lease liability credit 14 - (21)
(391) 678
Working capital movements
Decrease in trade and other receivables 16 1,352 764
Decrease in trade and other payables 18 (1,249) (1,402)
Decrease in provisions 19 (139) (165)
Payments to retirement benefit plan 22 (322) (325)
Net cash flows (used in)/from operating activities (749) (450)
Investing activities
Purchase of property, plant and equipment 13 (4) -
Development of intangible assets 12 (81) -
Net cash flows used in investing activities (85) -
Financing activities
(Repayment)/drawdown of finance facility 17 (662) 222
Principal repayment of lease liabilities 14 (490) (649)
Interest paid 7 (65) (67)
Net cash flows used in financing activities (1,217) (494)
Net decrease in cash and cash equivalents (2,051) (944)
Cash and cash equivalents at the beginning of the year 3,172 4,116
Cash and cash equivalents at the end of the year 1,121 3,172
Notes to the Financial Statements for the year ended 31 December 2021
1 Accounting policies
Basis of preparation
Parity Group plc (the "Company") is a company incorporated and domiciled in
the UK.
Both the parent company financial statements and the Group financial
statements have been prepared and approved by the Directors in accordance with
company law and UK adopted international accounting standards. Financial
Information is presented in £'000.
The financial information set out in this document does not constitute the
Group's statutory accounts for the years ended 31 December 2021 or 2020 but is
derived from those accounts. Statutory accounts for 2020 have been delivered
to the registrar of companies. The auditors have reported on those accounts;
their reports were (i) unqualified, (ii) did not contain an Emphasis of Matter
highlighting a materiality uncertainly related to going concern and (iii) did
not contain a statement under section 498 (2) or (3) of the Companies Act
2006. Statutory accounts for 2021 will be delivered to the registrar of
companies in due course. The auditors have reported on those accounts; their
reports were (i) unqualified, and (ii) did not contain a statement under
section 498 (2) or (3) of the Companies Act 2006.
The financial statements for the year ended 31 December 2021 (including the
comparatives for the year ended 31 December 2020) were approved and authorised
for issue by the Board of Directors on 27 April 2022. This results
announcement for the year ended 31 December 2021 was also approved by the
Board on 27 April 2022.
The principal accounting policies adopted in the preparation of the financial
statements are set out below. The policies have been consistently applied to
all the years presented unless otherwise stated.
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out in the Directors'
Report (Review of business and future developments). The financial position
of the Group, its cash flows, liquidity position and borrowing facilities are
described in the Operational and Financial Review and in note 20 to the
financial statements. Note 20 also includes the Group's objectives for
managing capital.
As outlined in note 20, the Group meets its day to day working capital
requirements through an asset-based finance facility. The facility contains
certain financial covenants which have been met throughout the period. During
the period the PNC facility was replaced in April 2021 with a new asset based
lending facility provided by Leumi ABL. This new facility runs for 3 years and
provides up to £9m of borrowing.
The financial statements have been prepared on a going concern basis. The
Directors have reviewed the Group's cash flow forecasts for the period to 31
December 2023, taking account of reasonably possible changes in trading
performance. Discussion of this risk is included within Principal Risks and
Uncertainties. Downside sensitivities have included reduced levels of new
business in these scenarios, the Directors do not anticipate issues with the
Group's financing requirements.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the
Company and its subsidiaries as at 31 December 2021. Subsidiaries are entities
controlled by the Group. Control exists when the Group has:
· existing rights that give it the ability to direct the relevant
activities that significantly affect the subsidiary's returns; and
· exposure, or rights, to variable returns from its involvement
with the subsidiary; and
· the ability to use its power over the subsidiary to affect the
amount of the Group's returns.
The acquisition date is the date on which control is transferred to the
acquirer. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until
the date that control ceases.
The financial statements of the subsidiaries are prepared for the same
reporting period as the parent company, using consistent accounting policies.
All intra-group balances, transactions, unrealised gains and losses resulting
from intra-group transactions and dividends are eliminated in full.
In accordance with Section 408 of the Companies Act 2006, the Company has not
presented its own income statement or statement of comprehensive income. The
profit for the year dealt with in the accounts of the Company was £700,000
(2020: loss of £2,909,000).
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method.
The related costs of acquisition other than those associated with the issue of
debt or equity securities, are recognised in the profit and loss as incurred.
The acquiree's identifiable assets and liabilities and contingent liabilities
that meet the conditions for recognition under IFRS 3 'Business Combinations'
are recognised at their fair value at the acquisition date.
Accounting policies: new standards, amendments and interpretations effective
and adopted by the Group
There are no other standards, amendments or interpretations effective this
year which have a significant impact on these financial statements.
Accounting policies: new standards, amendments and interpretations that are
not yet effective and have not been adopted early by the Group
At the date of authorisation of these financial statements, several new, but
not yet effective, standards, amendments to existing standards and
interpretations have been published. None of these have been adopted early by
the Group. New standards, amendments and interpretations not adopted in the
current year have not been disclosed as they are not expected to have a
material impact on the Group.
Measurement convention
The financial statements are prepared on the historical cost basis.
Non-current assets are stated at the lower of previous carrying amount and
fair value less costs to sell.
Alternative performance measure
In the reporting of its financial performance, the Group uses certain measures
that are not defined under IFRS, the Generally Accepted Accounting Principles
("GAAP") under which the Group reports. The Directors believe that these
non-GAAP measures assists with the understanding of the performance of the
business. These non-GAAP measures are not a substitute, or superior to, any
IFRS measures of performance but they have been included as the Directors
consider them to be an important means of comparing performance year-on-year
and they include key measures used within the business for assessing
performance.
Non-underlying items
The presentation of the alternative performance measure of adjusted profit
before tax excludes non-underlying items. The Directors consider that an
underlying profit measure better illustrates the underlying performance of the
Group and allows a more meaningful comparison of performance across periods.
Items are classified as non-underlying by nature of their magnitude, incidence
or unpredictable nature and their separate identification results in a
calculation of an underlying profit measure that is consistent with that
reviewed by the Board in their monitoring of the performance of the Group.
Events which may give rise to the classification of items as non-underlying
include gains or losses on the disposal of a business, restructuring of a
business, transaction costs, litigation and similar settlements, asset
impairments and onerous contracts.
Adjusted EBITDA
Operating profit before non-underlying items and before the deduction of
depreciation, amortisation changes and shared based payments. This is
considered a useful measure, commonly accepted and widely used when evaluation
business performance and used by the Directors to evaluate performance of the
Group and its subsidiaries.
Adjusted EBITDA
(£ 000's) 2021 2020
Operating (loss)/ profit (822) 23
Add back:
Adjustment for amortisation & depreciation 460 586
Adjustment for share based payment charge/(income) (64) 90
EBITDA (426) 699
Non underlying costs 553 447
Adjusted EBITDA 127 1,146
Net debt
Net debt is the amount of bank debt less available cash balances and is
regarded as a useful measure of the level of external debt utilised by the
Group to fund its operations. Net debt is also presented on a pre-IFRS 16
basis which excludes lease liabilities.
Revenue recognition
The Group generates revenue principally through the provision of recruitment
and consultancy services.
To determine whether to recognise revenue, the Group follows a five-step
process:
1. Identifying the contract with the customer;
2. Identifying the performance obligations;
3. Determining the transaction price;
4. Allocating the transaction price to the performance obligations;
and
5. Recognising revenue when and as performance obligations are
satisfied.
Revenue is recognised either at a point in time or over time, when the group
satisfies performance obligations by transferring promised services to its
customers. Revenue is measured at the transaction price, being the amount of
consideration expected to be entitled in exchange for services to a customer,
net of refund liabilities and value added tax.
Revenue for the provision of recruitment services
The performance obligation is the provision of temporary or permanent workers
to customers. For temporary workers, the performance obligations are satisfied
over time as the customer receives the benefit of the temporary worker, in
line with time worked by the temporary worker at pre-determined rates. For
permanent workers, the performance obligation is measured at a point in time,
which is at the point that the permanent worker commences employment, as
before this time the Group does not create or enhance an asset for the
customer and there is no enforceable right to payment until then. Refund
liabilities related to permanent workers are calculated based on a
probabilistic estimate using historic refund levels.
The Group presents revenues gross of the costs of the temporary workers where
it acts as principal under IFRS 15 and net of the costs of temporary workers
where it acts as agent. The Group acts as principal in the large majority of
its contracts, where it has the primary responsibility for fulfilling the
promise to supply a worker to a customer and has control over that supply. The
Group acts as agent where it does not have such control.
Revenue for the provision of consultancy services
Performance obligations on consultancy services contracts are satisfied over
time if the service creates an asset that the customer controls and the Group
has an enforceable right to payment. Revenue is measured using an input
measure, such as days worked as a proportion of total days to be worked,
towards the satisfaction of an obligation.
Net debt
Net debt is the amount of bank debt less available cash balances and is
regarded as a useful measure of the level of external debt utilised by the
Group to fund its operations. Net debt is also presented on a pre-IFRS 16
basis which excludes lease liabilities.
Revenue recognition
The Group generates revenue principally through the provision of recruitment
and consultancy services.
To determine whether to recognise revenue, the Group follows a five-step
process:
1. Identifying the contract with the customer;
2. Identifying the performance obligations;
3. Determining the transaction price;
4. Allocating the transaction price to the performance obligations;
and
5. Recognising revenue when and as performance obligations are
satisfied.
Revenue is recognised either at a point in time or over time, when the group
satisfies performance obligations by transferring promised services to its
customers. Revenue is measured at the transaction price, being the amount of
consideration expected to be entitled in exchange for services to a customer,
net of refund liabilities and value added tax.
Revenue for the provision of recruitment services
The performance obligation is the provision of temporary or permanent workers
to customers. For temporary workers, the performance obligations are satisfied
over time as the customer receives the benefit of the temporary worker, in
line with time worked by the temporary worker at pre-determined rates. For
permanent workers, the performance obligation is measured at a point in time,
which is at the point that the permanent worker commences employment, as
before this time the Group does not create or enhance an asset for the
customer and there is no enforceable right to payment until then. Refund
liabilities related to permanent workers are calculated based on a
probabilistic estimate using historic refund levels.
The Group presents revenues gross of the costs of the temporary workers where
it acts as principal under IFRS 15 and net of the costs of temporary workers
where it acts as agent. The Group acts as principal in the large majority of
its contracts, where it has the primary responsibility for fulfilling the
promise to supply a worker to a customer and has control over that supply. The
Group acts as agent where it does not have such control.
Revenue for the provision of consultancy services
Performance obligations on consultancy services contracts are satisfied over
time if the service creates an asset that the customer controls and the Group
has an enforceable right to payment. Revenue is measured using an input
measure, such as days worked as a proportion of total days to be worked,
towards the satisfaction of an obligation.
In obtaining some contracts, the Group may incur a number of incremental
costs, such as commissions paid to sales staff. As the amortisation period of
these costs, if capitalised, would be less than one year, the Group makes use
of the practical expedient in IFRS 15 and expenses them as incurred.
Financing income and expenses
Financing expenses comprise interest payable and finance leases recognised in
profit or loss using the effective interest method, unwinding of the discount
on the retirement benefit scheme liabilities, and net foreign exchange losses
that are recognised in the income statement (see Foreign currencies accounting
policy). Financing income comprises the expected return on the retirement
benefit scheme assets, interest receivable on funds invested, dividend income,
and net foreign exchange gains.
Interest income and interest payable is recognised in profit or loss as it
accrues, using the effective interest method. Dividend income is recognised in
the income statement on the date the entity's right to receive payments is
established. Foreign currency gains and losses are reported on a net basis.
Dividends
Final dividends proposed by the Board of Directors and unpaid at the balance
sheet date are not recognised in the financial statements until they have been
approved by the shareholders at the Annual General Meeting. Interim dividends,
which do not require shareholder approval, are recognised when paid.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax
is recognised in the income statement except to the extent that it relates to
items recognised directly in equity, in which case it is recognised in equity
or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or
loss for the year, using tax rates enacted or substantively enacted at the
balance sheet date, and any adjustment to tax payable in respect of previous
years.
Deferred tax is provided on temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. The following temporary differences are not
provided for: the initial recognition of goodwill; the initial recognition of
assets or liabilities that affect neither accounting nor taxable profit other
than in a business combination, and differences relating to investments in
subsidiaries to the extent that they will probably not reverse in the
foreseeable future. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at the
balance sheet date.
A deferred tax asset for deductible temporary differences is not recognised
unless it is probable that there will be taxable profits in the foreseeable
future against which the deferred tax asset can be utilised. A deferred tax
asset for unused tax losses carried forward is recognised on the same basis as
for deductible temporary differences. However, the existence of the unused
tax losses is strong evidence that future taxable profit may not be
available. Therefore, when an entity has a history of recent losses, the
entity recognises a deferred tax asset arising from unused tax losses only to
the extent that there is convincing evidence that sufficient taxable profit
will be available against which the unused tax losses can be utilised.
Foreign currencies
Company
Transactions in foreign currencies are recorded at the rate ruling at the date
of the transaction. Monetary assets and liabilities denominated in foreign
currencies are retranslated at the rate of exchange ruling at the balance
sheet date. All differences are taken to the income statement.
Non-monetary assets and liabilities that are measured in terms of historical
cost in a foreign currency are translated using the exchange rate at the date
of the transaction. Non-monetary assets and liabilities denominated in foreign
currencies that are stated at fair value are retranslated to the functional
currency at foreign exchange rates ruling at the dates the fair value was
determined.
Group
On consolidation, the results of overseas operations are translated into
sterling at rates approximating to those ruling when the transactions took
place. All assets and liabilities of overseas operations are translated at the
rate ruling at the reporting date. Exchange differences arising on translating
the opening net assets at opening rate and the results of overseas operations
at actual rate are recognised in other comprehensive income. On disposal of a
foreign operation, the cumulative exchange differences recognised in other
comprehensive income relating to that operation up to the date of disposal are
transferred to the consolidated income statement as part of the profit or loss
on disposal.
Segmental reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the Chief Operating Decision Maker. The Chief Operating
Decision Maker is the Group Board.
Intangible assets
Goodwill
Goodwill represents the excess of the cost of acquisition of a business
combination over the Group's share of the fair value of identifiable net
assets of the business acquired.
After initial recognition, goodwill is stated at cost less any accumulated
impairment losses. Goodwill is allocated to cash-generating units and is not
amortised but is tested annually for impairment. In respect of equity
accounted investees, the carrying amount of goodwill is included in the
carrying amount of the investment in the investee.
Gains and losses on disposal of a business include the carrying amount of
goodwill relating to the business sold in determining the gain or loss on
disposal, except for goodwill arising on business combinations on or before 31
December 1997 which has been deducted from shareholders' equity and remains
indefinitely in shareholders' equity.
Software
The carrying amount of software is its cost less any accumulated amortisation
and provision for impairment. Software is amortised on a straight-line basis
over its expected useful economic life of three to seven years.
Property, plant and equipment
Property, plant and equipment are stated at cost, net of depreciation and
provision for impairment.
Depreciation is provided on all property, plant and equipment at rates
calculated to write off the cost less estimated residual value of each asset
on a straight-line basis over its expected useful economic life, as follows:
Leasehold improvements The lesser of the asset life and the remaining length of the lease
Office equipment Between 3 and 5 years
The carrying value of property, plant and equipment is reviewed for impairment
if events or changes in circumstances indicate the carrying value may not be
recoverable.
Impairment of non-financial assets (excluding deferred tax assets)
An impairment loss is recognised for the amount by which the asset's carrying
amount exceeds its recoverable amount, the latter being the higher of the fair
value less costs to sell associated with the cash generating unit (CGU) and
its value in use. Value in use calculations are performed using cash flow
projections for the CGU to which the goodwill relates, discounted at a pre-tax
rate which reflects the asset specific risks and the time value of money.
Impairment losses are recognised in profit or loss. Impairment losses
recognised in respect of CGUs are allocated first to reduce the carrying
amount of any goodwill allocated to the units, and then to reduce the carrying
amounts of the other assets in the unit (group of units) on a pro rata basis.
Goodwill is tested for impairment at each reporting date. The carrying value
of other intangible assets and property, plant and equipment is reviewed for
impairment if events or changes in circumstances indicate the carrying value
may not be recoverable.
For the purpose of impairment testing, assets that cannot be tested
individually are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely independent of the
cash inflows of other assets or groups of assets, being the cash generating
unit. The goodwill acquired in a business combination, for the purpose of
impairment testing, is allocated to CGUs. Subject to an operating segment
ceiling test, for the purposes of goodwill impairment testing, CGUs to which
goodwill has been allocated are aggregated so that the level at which
impairment is tested reflects the lowest level at which goodwill is monitored
for internal reporting purposes. Goodwill acquired in a business combination
is allocated to groups of CGUs that are expected to benefit from the synergies
of the combination.
An impairment loss in respect of goodwill is not reversed. In respect of other
assets, impairment losses recognised in prior periods are assessed at each
reporting date for any indications that the loss has decreased or no longer
exists. An impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount. An impairment loss is
reversed only to the extent that the asset's carrying amount does not exceed
the carrying amount that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised.
Cash and cash equivalents
Cash and short-term deposits in the consolidated balance sheet compromise cash
at bank and in hand and short-term deposits with the original maturity of
three months or less. For the purpose of the consolidated cash flow statement,
cash and cash equivalents consist of cash and short-term deposits as defined
above. Amounts drawn down from the asset-based lending facility with Leumi are
shown within loans and borrowings on the consolidated balance sheet.
Financial instruments
Financial assets and liabilities are recognised when the Group becomes a party
to the contractual provisions of the financial instrument. Financial assets
are derecognised when the contractual rights to the cash flows expire or when
substantially all the risks and rewards are transferred. A financial liability
is derecognised when it is extinguished, discharged, cancelled or expires.
Except for trade receivables that do not contain a significant financing
component and are measured at the transaction price in accordance with IFRS
15, all financial assets are initially measured at fair value adjusted for
transaction costs. Financial assets, other than those designated and effective
as hedging instruments, are classified as either amortised cost, fair value
through profit or loss (FVTPL) or fair value through other comprehensive
income (FVOCI). In the periods presented, the Group has no financial assets
categorised as FVTPL or FVOCI.
The Group's financial assets include cash and cash equivalents and trade and
other receivables. After initial recognition, these are measured at amortised
cost using the effective interest method. All income and expenses relating to
financial assets that are recognised in profit or loss are presented within
finance costs, except for impairment of trade receivables which is presented
within operating expenses. Unless otherwise indicated, the carrying amounts of
the Group's financial assets are a reasonable approximation of their fair
values.
Impairment provisions are recognised using the expected credit loss model.
Measurement of expected credit losses is determined by a probability-weighted
estimate of credit losses over the expected life of the financial instrument.
The Group makes use of a simplified approach for trade and other receivables
and contract assets and records impairment as a lifetime expected credit loss,
being the expected shortfalls in contractual cash flows, considering the
potential for default. The Group uses its historical experience, external
indicators and forward-looking information to calculate the expected credit
losses.
Cash and cash equivalents in the statement of financial position comprise cash
at bank and in hand, short term deposits and other short term liquid
investments. In the statement of cash flows, cash and cash equivalents
comprise cash and cash equivalents, net of bank overdrafts.
The Group's financial liabilities include bank borrowings, finance leases and
trade and other payables. Financial liabilities are initially measured at fair
value and subsequently measured at amortised cost using the effective interest
method. All interest related charges that are reported in profit and loss are
presented within net finance expenses. In the periods presented, the Group has
no financial liabilities categorised as FVTPL. Unless otherwise indicated, the
carrying amounts of the Group's financial liabilities are a reasonable
approximation of their fair values.
Amounts recoverable on contracts and accrued income
Amounts recoverable on contracts which are expected to benefit performance and
be recoverable over the life of the contracts are recognised in the statement
of financial position within trade and other receivables and charged to the
income statement over the life of the contract so as to match costs with
revenues.
Amounts recoverable on contracts are stated at the net sales value of work
done less amounts received as progress payments on account. Where progress
payments exceed the sales value of work done, they are included in payables as
payments in advance.
Accrued income primarily arises where temporary workers have provided their
services but approved timesheets are outstanding. As such, the amount incurred
and margin earned thereon has yet to be invoiced onto the client. In making an
accrual for time worked by contractors at the balance sheet date, management
make an estimate of the time worked based on knowledge of the contracts in
place, the number of working days outstanding and experience adjustments from
prior periods.
Leased assets
At the commencement of a lease, the Group recognises a right-of-use asset and
a lease liability. The right-of-use asset is measured at cost, comprising the
initial measurement of the lease liability, any initial direct costs incurred,
an estimate of any restoration costs and any lease payments made in advance of
the lease commencement date, net of any incentives received. The lease
liability is measured at the present value of the minimum lease payments
discounted using the rate implicit in the lease, or if that cannot be
determined, which is generally the case for the leases in the Group, the
Group's incremental borrowing rate is used. Lease payments to be made under
lease extensions are included when the option to extend is reasonably certain
to be taken up. Subsequent to initial measurement, the liability will be
reduced for payments made and increased for interest. It is remeasured to
reflect any reassessment or modification.
Expected lives of right-of-use assets are determined by reference to the lease
term and depreciated over the lease term on a straight-line basis.
Provisions
A provision is recognised when the Group has a present legal or constructive
obligation as a result of a past event, that can be reliably measured and it
is probable that an outflow of economic benefits will be required to settle
the obligation. Provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects risks specific to the liability.
From time to time the Group faces the potential of legal action in respect of
employment or other contracts. In such situations, where it is probable that a
payment will be required to settle the action, provision is made for the
Group's best estimate of the outcome.
Where leasehold properties are surplus to requirements, provisions are made
for the best estimates of the unavoidable net future costs.
Provisions for dilapidation charges that will crystallise at the end of the
period of occupancy are provided for in full on non-serviced properties.
Pensions
The Group operates a small number of retirement benefit schemes. With the
exception of the 'Parity Retirement Benefit Plan', all of the schemes are
defined contribution plans and the assets are held in separate, independently
administered funds. The Group's contributions to defined contribution plans
are charged to the income statement in the period to which the services are
rendered by the employees, and the Group has no further obligation to pay
further amounts.
The 'Parity Retirement Benefit Plan' is a defined benefit pension fund with
assets held separately from the Group. This fund has been closed to new
members since 1995 and with effect from 1 January 2005 was also closed to
future service accrual.
A defined benefit plan is a post-employment benefit plan other than a defined
contribution plan. The Group's net obligation in respect of defined benefit
pension plans is calculated by estimating the amount of future benefit that
employees have earned in return for their service in the current and prior
periods; that benefit is discounted to determine its present value, and the
fair value of any plan assets at bid price, and any unrecognised past service
costs are deducted. The liability discount rate is the yield at the balance
sheet date on AA credit rated bonds denominated in the currency of, and having
maturity dates approximating to, the terms of the Group's obligations. The
calculation is performed by a qualified actuary using the projected unit
credit method. When the calculation results in a benefit to the Group, the
recognised asset is limited to the present value of benefits available in the
form of any future refunds from the plan, reductions in future contributions
to the plan or on settlement of the plan and takes into account the adverse
effect of any minimum funding requirements.
Share capital
Financial instruments issued by the Group are treated as equity only to the
extent that they meet the following two conditions:
(a) they include no contractual obligations upon the company (or
Group as the case may be) to deliver cash or other financial assets or to
exchange financial assets or financial liabilities with another party under
conditions that are potentially unfavourable to the company (or Group); and
(b) where the instrument will or may be settled in the company's own
equity instruments, it is either a non-derivative that includes no obligation
to deliver a variable number of the company's own equity instruments or is a
derivative that will be settled by the company's exchanging a fixed amount of
cash or other financial assets for a fixed number of its own equity
instruments.
To the extent that this definition is not met, the proceeds of issue are
classified as a financial liability. Where the instrument so classified
takes the legal form of the company's own shares, the amounts presented in
these financial statements for called up share capital and share premium
account exclude amounts in relation to those shares.
For the purposes of the disclosures given in note 20, the Group considers its
capital to comprise its cash and cash equivalents, its asset-based bank
borrowings, and its equity attributable to equity holders, comprising issued
capital, reserves and retained earnings, as disclosed in the statement of
changes in equity.
Financial guarantee contracts
Where Group companies enter into financial guarantee contracts and guarantee
the indebtedness of other companies within the Group, the company considers
these to be insurance arrangements and accounts for them as such. In this
respect, the company does not recognise liabilities under the contracts until
it becomes probable that any Group company will be required to make a payment
under the guarantee.
Share-based payment transactions
Share-based payment arrangements in which the Group and Company receives goods
or services as consideration for its own equity instruments are accounted for
as equity-settled share-based payment transactions, regardless of how the
equity instruments are obtained by the Group and Company.
The grant date fair value of share-based payment awards granted to employees
is recognised as an employee expense, with a corresponding increase in equity,
over the period that the employees become unconditionally entitled to the
awards. The fair value of the options granted is measured using an option
valuation model, taking into account the terms and conditions upon which the
options were granted. The amount recognised as an expense is adjusted to
reflect the actual number of awards for which the related service and
non-market vesting conditions are expected to be met, such that the amount
ultimately recognised as an expense is based on the number of awards that do
meet the related service and non-market performance conditions at the vesting
date. For share-based payment awards with non-vesting conditions, the grant
date fair value of the share-based payment is measured to reflect such
conditions and there is no true-up for differences between expected and actual
outcomes.
Where the terms and conditions of options are modified before they vest, the
increase in the fair value of the options, measured immediately before and
after the modification, is also charged to the income statement over the
remaining vesting period.
Significant management judgements in applying accounting policies and
estimation uncertainty
When preparing the financial statements, management make a number of
judgements, estimates and assumptions about the recognition and measurement of
assets, liabilities, income and expenses. The following are the judgements
made by management in applying the accounting policies of the Group and the
estimates that have the most significant effect on the financial statements.
Significant management judgements
Recognition of deferred tax asset
A deferred tax asset has been recognised for unused tax losses carried forward
within Parity Consultancy Services Limited as management believes that given
the significant increase in the Retirement benefit asset during the period
there is sufficient certainty that a proportion of the tax losses carried
forward would be utilised to offset any charge arising from the realisation of
the surplus on the Retirement benefit asset. Accordingly management have
decided to include within the financial statements a deferred tax asset in
Parity consultancy Services Limited equal to the tax charge calculated on the
Retirement benefit asset during the year of £1.9m.
Revenue recognition
The main area of judgement in revenue recognition relates to the determination
of whether the Group acts as principal or agent in its contractual
arrangements for the provision of temporary workers to customers. The factors
considered by management to result in recognition of revenue as principal
include that the Group:
· has a direct relationship with the worker and is responsible for
paying the worker;
· has the primary responsibility for organising the service
engagements and fulfilling the promise to supply a worker to a customer; and
· the Group has control over the supply of the worker.
Estimation uncertainty
Retirement benefit liability
The costs, assets and liabilities of the defined benefit scheme operated by
the Group are determined using methods relying on actuarial estimates and
assumptions. Details of the key assumptions and sensitivities on those
assumptions are set out in note 22. The Group takes advice from independent
actuaries relating to the appropriateness of the assumptions. Changes in the
assumptions used may have a material effect on the income statement and the
statement of financial position within the next year.
2 Segmental information
Factors that management used to identify the Group's reporting segments
In accordance with IFRS 8 'Operating Segments' the Group's management
structure, and the reporting of financial information to the Chief Operating
Decision Maker (the Group Board), have been used as the basis to define
reporting segments.
Description of the types of services from which each reportable segment
derives its revenues
During the period the Group derived revenue from two operating segments
relating to customer sectors, being the public sector and private sector. The
reporting of financial information presented to the Chief operating Decision
maker, being the Group board of directors, is consistent with these reporting
segments. These reporting segments are supported by a combined back office and
therefore there is no allocation of overheads between sectors.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies.
Public sector Private sector Total
2021 2021 2021
£'000 £'000 £'000
Revenue 32,544 14,418 46,962
Contractor costs (29,691) (13,191) (42,882)
Net fee income 2,853 1,227 4,080
Public sector Private sector Total
2020 2020 2020
£'000 £'000 £'000
Revenue 43,283 14,544 57,827
Contractor costs (39,405) (12,861) (52,266)
Net fee income 3,878 1,683 5,561
All segment assets and liabilities are based in the UK.
3 Revenue
All of the Group's revenue derives from contracts with customers. Trade
receivables, amounts recoverable on contracts and accrued income as presented
in note 16 arise from contracts with customers. Changes to the Group's
contract assets are attributable solely to the satisfaction of performance
obligations.
The Group's revenue disaggregated by pattern of revenue recognition is as
follows:
2021 2020
£'000 £'000
Services transferred over time 46,934 57,790
Services transferred at a point in time 28 37
Revenue 46,962 57,827
The Group's revenue disaggregated by primary geographical market is as
follows:
2021 2020
£'000 £'000
United Kingdom 43,967 55,235
European Union 2,994 2,577
Other 1 15
Revenue 46,962 57,827
The largest single customer in the public sector contributed 26% or £8.2m to
public sector revenue (2020: 25% or £11.0m). The largest single customer in
the private sector contributed 79% or £11.7m to private sector revenue (2020:
46% or £6.7m).
4 Operating expenses
Consolidated
2021 2020
£'000 £'000
Employee benefit costs
- wages and salaries 2,818 2,975
- social security costs 316 342
- other pension costs 86 102
3,220 3,419
Depreciation, amortisation and impairment
Amortisation of intangible assets - software 3 26
Depreciation of leased property, plant and equipment - -
Depreciation of owned property, plant and equipment 12 20
Depreciation of right-of-use assets 414 540
Impairment of right-of-use assets 31 -
460 586
All other operating expenses
Occupancy costs 43 44
IT costs 236 464
Net exchange (gain)/loss 15 (2)
Equity settled share-based payment charge (64) 90
Other operating costs 992 937
1,222 1,533
Total operating expenses 4,902 5,538
During the year the Group obtained the following services from the Group's
auditors:
Grant Thornton UK LLP
2021 2020
Consolidated £'000 £'000
Fees payable to the auditor of the Group's annual financial statements 15 15
Fees payable to the Group's auditor for other services - -
The audit of the Company's subsidiaries pursuant to legislation 67 58
Total 82 73
Tax compliance 17 16
Other services - 16
Total fees 105 89
All other services have been performed in the UK.
5 Non-underlying items
2021 2020
£'000 £'000
Restructuring
- Costs related to employees 502 370
- Costs related to premises 31 (11)
- Other costs 20 88
553 447
Items are classified as non-underlying by nature of their magnitude, incidence
or unpredictable nature and their separate identification results in a
calculation of an underlying profit measure that is consistent with that
reviewed by the Board in their monitoring of the performance of the Group.
Non-underlying items during 2021 include costs related to changes in senior
management of the Group, including employee termination payments.
6 Average staff numbers
The average number of staff employed by the Group during the year was as
follows:
2021 2020
Number Number
Group 38 44
The total above includes 4 (2020: 5) employees of the Company.
At 31 December 2021, the Group had 35 employees (2020: 41).
7 Finance costs
2021 2020
£'000 £'000
Interest expense on financial liabilities 65 67
Interest expense on lease liabilities 8 19
Interest income on lease assets (3) (4)
Net finance costs in respect of post-retirement benefits 211 266
281 348
The interest expense on financial liabilities represents interest paid on the
Group's asset-based financing facilities. A 1% increase in the base rate would
have increased annual borrowing costs by approximately £25,000 (2020:
£17,000).
8 Share-based payments
The Group operates several share-based reward schemes for employees:
· HMRC approved schemes for Executive Directors and senior staff;
· an unapproved scheme for Executive Directors and senior staff;
and
· a Save As You Earn Scheme for all employees.
Under the approved and unapproved schemes, options vest if the share price
averages a target price for 5 consecutive days over a three-year period from
the date of grant. Options lapse if the individual leaves the Group, except
under certain circumstances such as leaving by reason of redundancy, when the
options lapse 12 months after the leaving date.
In May 2021 the Save As You Earn Scheme was closed for all new participants
and current participants were granted six months to either purchase shares at
the exercise price of 10 pence per share or to withdraw their funds from the
scheme. As at the end of 2021 all funds were withdrawn and the Save As You
Earn Scheme was closed.
All employee options have a maximum term of ten years from the date of grant.
The total share-based remuneration recognised in the income statement was a
gain of £64,000 (2020: loss of £90,000). Share-based remuneration relating
to key management personnel is disclosed in note 25.
2021 2020
Weighted average exercise price (p)
Weighted average exercise price (p)
2021 2020
Number
Number
Outstanding at beginning of the year 9 11,919,040 11 11,157,040
Granted during the year 7 6,000,000 9 6,000,000
Exercised during the year - - - -
Lapsed during the year (9) (9,909,040) (11) (5,238,000)
Outstanding at the end of the year 7 8,010,000 9 11,919,040
The exercise price of options outstanding at the end of the year and their
weighted average contractual life fell within the following ranges:
2021 2020
Weighted average contractual life (years) Weighted average contractual life (years)
2020
2021 2021 Exercise price (p) 2020
Exercise price (p) Number Number
7-11 9 8,000,000 7-11 9 10,379,040
11-17 - - 11-17 7 1,500,000
17-28 1 10,000 17-28 2 40,000
8,010,000 11,919,040
Of the total number of options outstanding at the end of the year 10,000
(2020: 840,000) had vested and were exercisable at the end of the year. The
weighted average exercise price of those options was 26 pence (2020: 9 pence).
No options were exercised during the year (2020: none).
2,500,000 options were granted during the year (2020: 6,000,000) at a weighted
average fair value of 1 pence (2020: 2 pence). In addition, 3,500,000 share
warrants were granted during the year (2020: nil) at a weighted average fair
value of 1 pence (2020: nil).
The following information is relevant in determining the fair value of options
granted during the year under equity-settled share-based remuneration schemes
operated by the Group. There are no cash-settled schemes.
2021 2020
Option valuation model Stochastic Stochastic
Weighted average share price at grant date (p) 7 7
Weighted average exercise price (p) 7 8
Weighted average contractual life (years) 10 10
Weighted average expected life (years) 5 5
Expected volatility 47.7-48.0% 47.6-48.0%
Weighted average risk-free rate 0.61% 0.09%
Expected dividend growth rate 0% 0%
The volatility assumption is calculated as the historic volatility of the
share price over a 5 year period prior to grant date.
Share options issued to defined benefit pension scheme
In December 2010 the Group issued 1,000,000 share options in Parity Group plc
to the pension scheme at an exercise price of 9 pence per share. These options
may be exercised at the discretion of the Trustees; they vested on grant and
have no expiry date. Any gain on exercise is to be used to reduce the scheme
deficit. These options were valued using the stochastic method. The share
price on the grant date was 15.75 pence. Whilst the options do not have an
expiry date, for valuation purposes it is assumed that the expected life of
the options is 8 years. The expected volatility is 64.2% and the average
risk-free rate assumed was 3.4%.
9 Taxation
2021 2020
£'000 £'000
Current tax
Current tax on profit for the year - -
Total current tax expense - -
Deferred tax
Accelerated capital allowances (2) (4)
Recognition of deferred tax asset on past trading losses (678) -
Origination and reversal of other temporary differences 98 2
Adjustments in respect of prior periods 115 230
Change in corporation tax rate
- (83)
Total deferred tax charge (467) 145
Tax charge (467) 145
The adjustment in respect of prior periods of £115,000 (2020: £230,000)
largely relates to decisions to claim or disclaim capital allowances.
There is no current tax payable by the Group for 2021 (2020: £nil).
The Group's profits for this accounting period are subject to tax at a rate of
19% (2020: 19%).
The reasons for the difference between the actual tax credit for the year and
the standard rate of corporation tax in the UK applied to profit for the year
are as follows:
2021 2020
£'000 £'000
Loss before tax (1,103) (325)
Expected tax credit based on the standard rate of UK
corporation tax of 19% (2020: 19%) (210) (62)
Expenses not allowable for tax purposes - (2)
Adjustments in respect of prior periods 115 230
Tax losses not recognised 253 85
Tax losses recognised (678) -
Change in corporation tax rate 33 (83)
Other 20 (23)
Tax charge (467) 145
Tax on each component of other comprehensive income is as follows:
2021 2020
Before tax After tax Before tax After tax
£'000
£'000
Tax £'000 £'000 Tax £'000 £'000
Remeasurement of defined benefit pension scheme 1,620 (567) 1,053 1,041 (198) 843
10 Earnings per ordinary share
Basic earnings per share is calculated by dividing the basic earnings for the
year by the weighted average number of fully paid ordinary shares in issue
during the year.
Diluted earnings per share is calculated on the same basis as the basic
earnings per share with a further adjustment to the weighted average number of
fully paid ordinary shares to reflect the effect of all dilutive potential
ordinary shares.
Weighted Weighted
average number of average number of
shares Loss shares Loss
2021 per share 2020 per share
Loss '000 2021 Loss '000 2020
2021 Pence 2020 Pence
£'000 £'000
Basic (636) 102,854 (0.62) (470) 102,624 (0.46)
Effect of dilutive options - - - - - -
Diluted (636) 102,854 (0.62) (470) 102,624 (0.46)
As at 31 December 2021 the number of ordinary shares in issue was 103,075,633
(2020: 102,624,020). There were 8,010,000 options that had a potential
dilutive effect in 2021 (2020: Nil).
11 Goodwill
The carrying amount of goodwill is allocated to the Group's two separate
continuing cash generating units (CGUs), being Parity Professionals Limited
and Parity Consultancy Services Limited.
Carrying amounts are as follows:
Parity Consultancy Services Limited
Parity Professionals Limited £'000
£'000 Total
£'000
Carrying value
Balance at 1 January 2020 and 31 December 2020 2,642 1,952 4,594
Balance at 1 January 2021 and 31 December 2021 2,642 1,952 4,594
Goodwill was tested for impairment in accordance with IAS 36 at the year end
and no impairment charge was recognised. Impairment calculations include the
effect of changes following the application of IFRS 16.
The recoverable amounts of the CGUs are based on value in use calculations
using the pre-tax cash flows based on forecasts approved by management for
2022. Years from 2023 to 2027 are based on the forecast for 2022 projected
forward at expected growth rates, with no growth assumed beyond these years.
This approach is considered prudent based on current expectations of the 2022
long-term growth rate.
Major assumptions are as follows:
Parity Professionals Limited Parity Consultancy Services Limited
% %
2021
Discount rate 11.5 11.5
Forecast revenue growth 5.0-11.5 11.3-14.9
Operating margin 2022 3.3 14.0
Operating margin 2023 onward 4.8-5.8 14.7-15.3
2020
Discount rate 11.3 11.3
Forecast revenue growth 12.2-13.3 10.0-15.9
Operating margin 2021 3.0 4.0
Operating margin 2022 onward 3.7-3.8 4.1-12.1
Discount rates are based on the Group's weighted average cost of capital.
Forecast revenue growth rates are based on past experience and future
expectations of economic conditions. Growth for the CGUs is assumed to be
higher than the long-term growth rate for the UK economy due to the following
factors:
· There is focused investment in growing new clients and service
lines, including areas that are seeing significant growth post the Covid-19
pandemic;
· The business recruited additional heads to focus on key areas of
new business within recruitment including value added services and permanent
recruitment; and
· Market indicators and recent engagements with clients support the
increased demand for high skilled IT and data professionals and help
underwrite the growth forecasts.
A 10% change in any of the underlying assumptions used in the discounted cash
flow forecasts would not lead to the carrying value of goodwill being
materially in excess of their recoverable amounts.
12 Other intangible assets
Software Intellectual property Total
2021 2020 2021 2020 2021 2020
£'000 £'000 £'000 £'000 £'000 £'000
Consolidated
Cost
At 1 January 408 408 - - 408 408
Additions - - 81 - 81 -
Disposals - - - - - -
At 31 December 408 408 81 - 489 408
Accumulated amortisation
At 1 January 402 376 - - 402 376
Charge for the year 3 26 - - 3 26
Disposals - - - - - -
At 31 December 405 402 - - 405 402
Net book value 3 6 81 - 84 6
In 2021 the Group invested in the development of a data warehouse to support
the ongoing business operations. The additions to Intellectual Property
represent the costs associated with building the data warehouse and creating
the data asset within the data warehouse.
As at 31 December 2021, the Group had no capital commitments contracted for
but not provided for the purchase of intangible assets (2020: £nil).
13 Property, plant and equipment
Leasehold improvements
Office equipment Total
2021 2020 2021 2020 2021 2020
£'000 £'000 £'000 £'000 £'000 £'000
Consolidated
Cost
At 1 January - - 204 204 204 204
Additions - - 4 - 4 -
Disposals - - - - - -
At 31 December - - 208 204 208 204
Accumulated depreciation
At 1 January - - 181 161 181 161
Charge for the year - - 12 20 12 20
Disposals - - - - - -
At 31 December - - 193 181 193 181
Net book value - - 15 23 15 23
As at 31 December 2021, the Group had no capital commitments contracted for
but not provided for the purchase of property, plant and equipment (2020:
£nil).
14 Leases
The Group holds leases for its main office premises. Each lease is reflected
on the balance sheet as a right-of-use asset and a lease liability unless
exempt. The statement of financial position includes the following amounts in
relation to leases where the Group is a lessee:
2021 2020
£'000 £'000
Right-of-use assets
Buildings 149 247
IT equipment - -
149 247
Lease liabilities
Current 242 321
Non-current 29 87
271 408
Additions to right-of-use assets during the year were £345,000 (2020:
£562,000). The total cash outflow for lease liabilities during the year was
£490,000 (2020: £649,000).
Amounts recognised in profit or loss in respect of the above leases are as
follows:
2021 2020
£'000 £'000
Depreciation charge on right-of-use assets
- Buildings 414 537
- IT equipment - 3
Impairment charge on right-of-use-assets
- Buildings 31 -
Total depreciation and impairment charge on right-of-use assets 445 540
Rent concession - (21)
Interest expense included in finance costs 8 19
Future minimum lease payments at 31 December 2021 were as follows:
Minimum Present
payments Interest value
2021 2021 2021
£'000 £'000 £'000
Less than one year 246 (3) 243
Between one and two years 29 - 29
Between two and three years - - -
275 (3) 272
At 31 December 2021, the Group was committed to £nil (2020: £nil) of future
lease payments in respect of leases not yet commenced.
All leases held during 2021 were accounted for under IFRS 16.
15 Deferred taxation
Consolidated
2021 2020
£'000 £'000
At 1 January 627 970
Recognised in other comprehensive income
Remeasurement of defined benefit pension scheme (567) (198)
Recognised in the income statement
Adjustments in relation to prior periods (115) (230)
Recognition of deferred tax asset for prior trading losses 678 -
Change in corporation tax rate - 83
Capital allowances in excess of depreciation 2 4
Other short-term timing differences (97) (2)
At 31 December 528 627
The deferred asset of £528,000 (2020: £627,000) comprises:
Consolidated
2021 2020
£'000 £'000
Depreciation in excess of capital allowances 520 632
Other short-term timing differences 8 34
Retirement benefit (asset)/liability - (39)
528 627
A deferred tax asset for unused tax losses carried forward is normally
recognised on the same basis as for deductible temporary differences.
However, the existence of the unused tax losses is itself strong evidence that
future taxable profit may not be available. Therefore, when an entity has a
history of recent losses, the entity recognises a deferred tax asset arising
from unused tax losses only to the extent that there is convincing evidence
that sufficient taxable profit will be available against which the unused tax
losses can be utilised. At the balance sheet date, the Directors considered
recognising a deferred tax asset for previously unrecognised unused tax losses
carried forward by Parity Consultancy Services Limited. The review concluded
that as Parity Consultancy Services Limited has a deferred tax liability of
£678,000 (2020: £39,000) related to its defined benefit pension plan, a
deferred tax asset for previously unrecognised unused tax losses of £678,000
would be recognised to offset the liability.
The Directors believe that the deferred tax asset recognised is recoverable
based on the future earning potential of the Group and the individual
subsidiaries. The forecasts for Parity Professionals Limited comfortably
support the unwinding of the deferred tax asset held by this company of
£256,000 (2020: £335,000). Parity Consultancy Services Limited currently has
a deferred tax asset of £272,000 (2020: £292,000) which can be offset
against the deferred tax liability to be unwound on the same defined benefit
scheme .
The Group has unrecognised carried forward tax losses of £32,679,000 (2020:
£29,392,000). The Group has unrecognised capital losses carried forward of
£282,441,000 (2020: £282,441,000). These losses may be carried forward
indefinitely.
The Company has unrecognised carried forward tax losses of £26,522,000 (2020:
£23,511,000). The Company has unrecognised capital losses carried forward of
£281,875,000 (2020: £281,875,000). These losses may be carried forward
indefinitely.
16 Trade and other receivables
Consolidated
2021 2020
£'000 £'000
Amounts falling due within one year:
Trade receivables 2,116 2,197
Accrued income 2,435 3,591
Amounts owed by subsidiary undertakings - -
Other receivables 75 110
Prepayments 142 164
4,768 6,062
Amounts falling due after one year:
Amounts owed by subsidiary undertakings - -
Other receivables 29 87
29 87
Total 4,797 6,149
The fair values of trade and other receivables are not considered to differ
from the values set out above.
£2,116,000 (2020: £2,197,000) of the Group's trade receivables and
£2,435,000 (2020: £3,591,000) of the total of the Group's accrued income and
amounts recoverable on contracts, are pledged as collateral for the
asset-based borrowings. These borrowings fluctuate daily and at 31 December
2021 totalled £2,279,000 (2020: £2,941,000).
The movement in accrued revenue on contracts during the period is shown below:
Contract Assets
2021 2020
£'000
£'000
At 1 January 3,591 3,882
Billed and cash received during the year (3,591) (3,882)
Amounts accrued at year end 2,435 3,591
At 31 December 2,435 3,591
The Group records impairment losses on its trade receivables separately from
gross receivables. Factors considered in making provisions for receivables
include the ability of the customer to settle the debt, the age of the debt
and any other circumstance particular to the transaction that may impact
recoverability.
The balance of impaired losses for the Group at 31 December 2021 was £nil
(2020: £9,000). All debts at 31 December 2021 are considered to be
recoverable.
The Company holds interest-bearing loan agreements with some of its subsidiary
undertakings. Interest on all loans is charged at 2.0% above the prevailing
Bank of England base rate. The Company's receivables due from subsidiary
undertakings were reviewed for impairment at the balance sheet date based on
the performance of 2021 and on subsequent years' forecast projections. A
discounted future cash flow method was employed for the review. As a result
of this review, no provision was deemed necessary. The assessment was
performed on a value in use basis using a discount rate of 9.3% (2020: 11.3%)
and the other parameters used in the goodwill impairment review, as outlined
in note 11.
As at 31 December 2021 trade receivables of £523,000 (2020: £374,000) were
past due but not impaired. These relate to customers where there is no
evidence of unwillingness or of an inability to settle the debt. The ageing of
Group trade receivables is as follows:
2021 2020
Gross Impaired Total Gross Impaired Total
£'000 £'000 £'000 £'000 £'000 £'000
Not past due 1,593 - 1,593 1,823 - 1,823
31-60 days and past due 310 - 310 323 - 323
61-90 days 131 - 131 36 - 36
>90 days 82 - 82 24 (9) 15
Total 2,116 - 2,116 2,206 (9) 2,197
The Company had no provisions for trade receivables, as it has no trade
receivables. Other receivables in the Group and the Company were not past due
and not impaired.
17 Loans & borrowings
Consolidated
2021 2020
£'000 £'000
Current
Bank and other borrowings due within one year or on demand:
Asset-based financing facility 2,279 2,941
Changes in liabilities from financing activities
Loans and borrowings
£000
Balance at 1 January 2021 2,941
Repayment of borrowings (662)
Balance at 31 December 2021 2,279
Further details of the Group's banking facilities are given in note 20.
18 Trade and other payables
Consolidated
2021 2020
restated
£'000 £'000
Amounts falling due within one year:
Payments in advance 11 27
Trade payables 2,494 3,168
Amounts due to subsidiary undertakings - -
Other tax and social security payables 367 912
Other payables and accruals 736 750
3,608 4,857
Amounts falling due after one year:
Amounts due to subsidiary undertakings - -
Total 3,608 4,857
The fair value of trade and other payables has not been separately disclosed
as, due to their short duration, the Directors consider the carrying amounts
recognised in the statement of financial position to be a reasonable
approximation of their fair value.
19 Provisions
Leasehold dilapidations £'000
Restructuring £'000 Total
£'000
Consolidated
At 1 January 2021 42 139 181
Used in year - (45) (45)
Reversed in year - (94) (94)
Created in year - - -
At 31 December 2021 42 - 42
Due within one year - - -
Due after one year 42 - 42
Total 42 - 42
The Company had no provisions at 31 December 2021 (2020: £nil).
Leasehold dilapidations
Leasehold dilapidations relate to the estimated cost of returning leasehold
properties to their original state at the end of the lease in accordance with
the lease terms. Dilapidation charges that will crystallise at the end of the
period of occupancy are provided for in full on all properties. Based on
current lease expiry dates it is estimated these provisions will be settled
over a period of one to three years. The main uncertainty relates to the
estimation of the costs that will be incurred at the end of the lease.
20 Financial instruments - risk management
The Group is exposed to risks that arise from its use of financial
instruments. This note describes the Group's objectives, policies and
processes for managing those risks and the methods used to measure them.
Further quantitative information in respect of these risks is presented
throughout these financial statements.
There have been no substantive changes in the Group's exposure to financial
instrument risks and the methods used to measure them from previous periods
unless otherwise stated in this note.
Principal financial instruments
The principal financial instruments used by the Group, from which financial
instrument risk arises, are trade receivables, cash and cash equivalents,
trade and other payables and bank borrowings.
A summary by category of the financial instruments held by the Group is
provided below:
Amortised
cost Total
Consolidated £'000 £'000
As 31 December 2021
Financial assets
Non-current trade and other 29 29
receivables
Cash and cash equivalents 1,121 1,121
Trade and other short-term receivables 4,626 4,626
5,776 5,776
Financial liabilities
Asset-based financing facility 2,279 2,279
Lease liabilities 272 272
Trade and other short-term payables 3,597 3,597
6,148 6,148
As 31 December 2020 (Restated)
Financial assets
Non-current trade and other receivables 87 87
Cash and cash equivalents 3,172 3,172
Trade and other short-term receivables 5,898 5,898
9,157 9,157
Financial liabilities
Asset-based financing facility 2,941 2,941
Lease liabilities 408 408
Trade and other short-term payables 4,830 4,830
8,179 8,179
Fair values of financial instruments
The fair values of all of the Group's and the Company's financial instruments
are the same as their carrying values.
General objectives, policies and processes - risk management
The Group is exposed through its operations to the following financial
instrument risks: credit risk; liquidity risk; interest rate risk; and foreign
currency risk.
The policy for managing these risks is set by the Board following
recommendations from the Chief Financial Officer. Certain risks are managed
centrally, while others are managed locally following guidelines communicated
from the centre. The overall objective of the Board is to set policies that
seek to reduce risk as far as possible without unduly affecting the Group's
competitiveness and flexibility. The policy for each of the above risks is
described in more detail below.
Credit risk
Credit risk arises from the Group's trade and other receivables. It is the
risk that the counterparty fails to discharge their obligation in respect of
the instrument.
The Group is mainly exposed to credit risk from credit sales. It is Group
policy to assess the credit risk of new customers before entering contracts.
Such credit ratings are then factored into the credit assessment process to
determine the appropriate credit limit for each customer. The Group does not
collect collateral to mitigate credit risk.
The Group operates primarily in the UK with 94% of generated revenues from the
UK (2020: 96%). Approximately 69% (2020: 75%) of the Group's turnover is
derived from the public sector. The largest customer balance represents 27%
(2020: 20%) of the trade receivables balance.
Quantitative disclosures of the credit risk exposure in relation to financial
assets are set out below. Further disclosures regarding trade and other
receivables, which are neither past due nor impaired, are provided in note 16.
2021 2020
Carrying Maximum exposure Carrying Maximum exposure
value £'000 value £'000
£'000 £'000
Financial assets
Cash and cash equivalents 1,121 1,121 3,172 3,172
Trade and other receivables 4,655 4,655 5,985 5,985
5,776 5,776 9,157 9,157
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in interest rates.
It is Group policy that all external Group borrowings are drawn down on the
asset-based financing facilities arranged with our bankers which bear a
floating rate of interest based on the Leumi base rate. Borrowings against the
asset-based financing facilities are typically drawn or repaid on a daily
basis in order to minimise borrowings and interest costs and transaction
charges. Although the Board accepts that this policy neither protects the
Group entirely from the risk of paying rates in excess of current market
rates, nor eliminates the cash flow risk associated with interest payments, it
considers that it achieves an appropriate balance of these risks.
Throughout 2021 the Group's variable rate borrowings were denominated in
Sterling and Euro. Interest costs on borrowings from the asset-based financing
facility with PNC (January - May) and Leumi ABL (May - December) was charged
at 2.00% above base rate for all of 2021 (2020: 2.00%). The Leumi facility has
a 3 year term of commitment, although amounts are repayable upon demand under
certain circumstances such as default. If interest rates on borrowings had
been 1% higher/lower throughout the year with all other variables held
constant, the loss after tax for the year would have been approximately
£25,000 higher/lower (2020: £17,000) and net assets £25,000 lower/higher
(2020: £17,000). The Directors consider a 1% change in base rates is the
maximum likely change over the next year, being the period to the next point
at which these disclosures are expected to be made.
The Company holds interest-bearing loan agreements with some of its subsidiary
undertakings. Interest on all loans is charged at 2.0% above the prevailing
Bank of England base rate, except for one loan with Parity International B.V.
which is charged at 2.0% above the prevailing European Central Bank base rate.
As at 31 December 2021, the loan balance due by the Company to Parity
International BV, translated into Sterling, was £28,066,000 (2020:
£29,469,000).
Foreign exchange risk
Foreign currency risk is the risk that the fair value or future cash flows of
a financial instrument will fluctuate because of changes in foreign exchange
rates.
The Group no longer has any active overseas operations but does retain certain
overseas subsidiaries that are not trading. The Group's net assets arising
from overseas operations are exposed to currency risk resulting in gains or
losses on retranslation into sterling. The asset exposure is mainly in respect
of intercompany balances.
The Group does not hedge its net investment in overseas operations as it does
not consider that the potential financial impact of such hedging techniques
warrants the reduction in volatility in consolidated net assets.
The business has limited transactions in foreign currency. The hedging of
individual contracts is considered on a case by case basis. Owing to the small
value and volume of such contracts no hedging transactions were entered in
2021 or 2020.
During 2014, the underlying denomination of a large intercompany balance
between the Company and one of the Group's inactive overseas subsidiaries was
revised, whereby the denomination of the loan was revised from Sterling to
Euros and thus subject to exchange rate fluctuations in the books of the
Company. In 2021 the Company recorded a translation gain of £1,965,000 (2020:
loss of £1,681,000). As at 31 December 2021, the loan balance due by the
Company, translated into Sterling, was £28,066,000 (2020: £29,469,000).
The currency profile of the Group's net financial assets was as follows:
Functional currency of individual entity
Sterling Euro Total
2021 2020 2021 2020 2021 2020
£'000
£'000
£'000
£'000
£'000
£'000
Net foreign currency financial assets
Sterling - - (2,462) (2,411) (2,462) (2,411)
Euro (27,279) (29,021) - - (27,279) (29,021)
US Dollar 4 4 - - 4 4
Total net exposure (27,275) (29,017) (2,462) (2,411) (29,737) (31,428)
The currency profile of the Company's net financial assets was as follows:
Sterling
2021 2020
£'000
£'000
Net foreign currency financial assets
Euro (27,680) (29,292)
US Dollar 4 4
Total net exposure (27,676) (29,288)
Sensitivity analysis - Group and Company
If the exchange rate between Sterling and the Euro had been 10% higher/lower
at the balance sheet date, with all other variables held constant, the effect
on equity for the year would have been approximately £2,728,000 higher/lower
(2020: £2,902,000). A 10% fluctuation in any other currency exchange rate
would not have a significant impact on profit and loss, nor equity.
Liquidity risk
Liquidity risk arises from the Group's management of working capital and the
finance charges on its borrowings under its asset-based financing
arrangements. It is the risk that the Group will encounter difficulty in
meeting its financial obligations as they fall due.
The liquidity of each Group entity is managed centrally, with daily transfers
to operating entities to maintain a pre-determined cash balance. Normal
supplier terms range from 2 weeks to 30 days. The level of the Group facility
is approved periodically by the Board and negotiated with the Group's current
bankers. At the reporting date, cash flow projections were considered by the
Board and the Group is forecast to have sufficient funds and available funding
facilities to meet its obligations as they fall due.
The following table sets out the contractual maturities (representing
undiscounted contractual cash flows) of financial liabilities:
Consolidated Between 1 month and 1 year
Up to £'000 Over
At 31 December 2021 1 month 1 year Total
£'000 £'000 £'000
Trade and other payables 3,597 - - 3,597
Lease liabilities 243 29 - 272
Borrowings 2,279 - - 2,279
Total 6,119 29 - 6,148
Between 1 month and 1 year
Up to £'000 Over
At 31 December 2020 (Restated) 1 month 1 year Total
£'000 £'000 £'000
Trade and other payables 4,830 - - 4,830
Lease liabilities 321 57 30 408
Borrowings 2,941 - - 2,941
Total 8,092 57 30 8,179
More detail on trade and other payables is given in note 18.
Capital disclosures
The capital structure of the Group consists of cash and cash equivalents,
equity attributable to equity holders, and asset-based financing. There is no
other long-term external debt, except for lease liabilities which are
explained more fully in note 14.
During 2021 The Group uses two asset-based financing facilities. The first
facility was with PNC Business Credit, a member of The PNC Financial Services
Group, Inc. and this agreement ran from January until May. In May a new
asset-based finance facility was agreed with LEUMI UK which is still being
utilised. Both facilities enable the Group to borrow against both trade debt
and accrued income and the current Leumi facility provides for borrowing of up
to £9.0m depending on the availability of appropriate assets as security.
The Group's and Company's objectives when maintaining capital are:
· to safeguard the entity's ability to continue as a going concern,
so that it can continue to provide returns for shareholders and benefits for
other stakeholders; and
· to provide an adequate return to shareholders by pricing products
and services commensurately with the level of risk.
The Group's net debt position is as follows:
2021 2020
Consolidated £'000 £'000
Cash and cash equivalents 1,121 3,172
Asset-based borrowings (2,279) (2,941)
Net cash before lease liabilities (1,158) 231
Lease liabilities (272) (408)
Net (debt)/cash (1,430) (177)
The Board regularly reviews the adequacy of resources available and considers
the options available to increase them. The asset-based borrowing facility
contains certain externally imposed financial covenants which have been met
throughout the period.
The Company does not currently have distributable reserves available for
dividend payments. A capital reconstruction will be necessary to create
reserves available for distribution. The Board will keep possible capital
reconstruction options under review.
21 Reserves
The Board is not proposing a dividend for the year (2020: nil pence per
share).
The following describes the nature and purpose of each reserve within
shareholders' equity:
Share capital
Share capital consists of ordinary share capital and previously consisted of
deferred share capital.
Ordinary share capital
Share capital is the amount subscribed for ordinary shares at nominal value.
During 2021, 451,613 ordinary shares were issued. No share options were
exercised during the year (2020: none).
Share premium reserve
Share premium is the amount subscribed for share capital in excess of nominal
value. During 2021 451,613 ordinary shares were issued at a premium of 5.75p
per share (2020: none).
Capital redemption reserve
A capital redemption reserve of £14,319,000 was created during 2017 when the
Directors resolved to cancel the deferred shares of Parity Group plc.
Other reserves
Other reserves of the Group relate principally to a reserve created following
a change of the Group's ultimate parent and a corresponding Scheme of
Arrangement in July 1999, and a reserve created following the reorganisation
of the Group's capital structure in 2002 that resulted in the Company
increasing its investment in subsidiary undertakings.
Retained earnings
Retained earnings represent the cumulative net gains and losses recognised in
the income statement.
22 Pension commitments
The Group operates a small number of pension schemes. With the exception of
the Parity Group Retirement Benefits Plan, all of the schemes are defined
contribution plans and the assets are held in separately administered funds.
Contributions to defined contribution schemes from during the year were
£86,000 (2020: £102,000).
Defined benefit plan
In March 1995, the Group established the Parity Retirement Benefits Plan,
renamed as the Parity Group Retirement Benefits Plan ("the Plan"), following a
Scheme of Arrangement in 1999, in order to facilitate the continuance of
pension entitlements for staff transferring from other schemes following
acquisitions in 1994. The Plan is governed by the Trustees of the plan and is
administered by Cartwright Group Limited in accordance with the Trust Deed and
Rules, solely for the benefit of its members and other beneficiaries. The
Trustees comprise an independent Chairman, one member representative and one
employer representative. It is a funded defined benefit scheme and has been
closed to new members since 1995. With effect from 1 January 2005 this scheme
was also closed to future service accrual and future contributions paid into
money purchase arrangements.
The weighted average liability duration is approximately 13 years (2020: 14
years) and can be attributed to the scheme members as follows:
Weighted average liability duration (years)
Number of members
Pensioner members 61 13
Deferred members 6 18
Total 67 13
There were no retirements during the year (2020: one). There was a reduction
by 2 total members during the year (2020: no change).
The Plan is funded by the Group based on the triennial actuarial valuation of
the scheme's technical provisions. The actuarial valuation is subject to more
prudent assumptions than the accounting valuation under IAS 19. The triennial
actuarial valuation due at April 2018 was finalised during 2019 and resulted
in an increase in monthly contributions from £17,260 per month to £24,300
per month. Funding requirements are formally set out in the Statement of
Funding Principles, Schedule of Contributions and Recovery Plan agreed between
the Trustees and the Group.
The valuation for IAS 19 has been provided by Cartwright Group Limited, a
company that specialises in providing actuarial services, as at 31 December
2021.
Principal actuarial assumptions
2021 2020
Rate of increase of pensions in payment 3.8-4.0% 3.6-3.9%
Discount rate 1.9% 1.3%
Retail price inflation 3.6% 3.2%
Consumer price inflation 2.6% 2.2%
In accordance with the revised IAS 19, the assumption for future investment
returns is the same discount rate of 2.0% (2020: 2.0%) used in calculating the
pension liabilities.
The underlying mortality assumption used is in accordance with the standard
table known as S1PA_H, S1PA or S1PA_L mortality, dependent on the size of each
member's pension, using the CMI_2020 projection based on year of birth with a
long-term rate of improvement of 1.25% p.a. (2020: CMI_2019 and 1.25% p.a.).
This results in the following life expectancies:
· Male aged 65 at 31 December 2021 has a life expectancy of 86
years (2020: 86 years)
· Female aged 65 at 31 December 2021 has a life expectancy of 89
years (2020: 89 years)
Guaranteed Minimum Payment ("GMP") equalisation
During 2018 the High Court of Justice in England made judgement in a case
relating to GMP equalisation. The court held that pensions earned between 1990
and 1997 must be equalised between men and women for the effect of GMPs. Most
sections of the Group's scheme were unaffected since they were opted in to the
Second State Pension, with just one section opted out. The actuary estimates
that the impact to the scheme will be to increase liabilities by between
£10,000 and £30,000. Accordingly, an adjustment is recorded in these
accounts to increase the scheme deficit by £20,000 (2020: £20,000), first
recognised as a past service cost recognised in the income statement for the
year ended 31 December 2018.
Reconciliation to consolidated statement of financial position
2021 2020
£'000 £'000
Fair value of plan assets 24,478 25,143
Present value of funded obligations (22,539) (24,935)
At the end of the year 1,939 208
Reconciliation of plan assets
2021 2020
£'000 £'000
At the beginning of the year 25,143 22,670
Expected return 320 442
Contribution by Group 322 325
Benefits paid (964) (990)
Expenses met by scheme (213) (247)
Actuarial (loss)/ gain (130) 2,943
Plan assets at the end of the year 24,478 25,143
Contributions to the scheme included £nil of additional payments (2020:
£nil). The actuarial loss on plan assets relates to the fall in value of the
scheme's investments reflecting uncertainty in global equity markets
experienced in 2021.
Composition of plan assets
2021 2020
£'000
£'000
Diversified growth funds - Quoted 24,308 20,139
Liability driven investment funds - Quoted - 4,827
Options in Parity Group plc 96 96
Cash 74 81
Total plan assets 24,478 25,143
Reconciliation of plan liabilities
2021 2020
£'000
£'000
At the beginning of the year 24,935 23,562
Interest cost 318 461
Benefits paid (964) (990)
Actuarial (gain)/loss (1,750) 1,902
Plan liabilities at the end of the year 22,539 24,935
Amounts recognised in the consolidated income statement
2021 2020
£'000
£'000
Included in finance costs
Expected return on plan assets, net of 107 195
expenses
Unwinding of discount on plan liabilities (interest cost) (318) (461)
Net finance costs in respect of post-retirement benefits (211) (266)
Amounts recognised in the consolidated statement of comprehensive income
2021 2020
£'000
£'000
Actuarial (loss)/gain on plan assets (130) 2,943
Actuarial gain/(loss) on plan liabilities 1,750 (1,902)
Remeasurement of defined benefit pension scheme 1,620 1,041
The asset recognised under this scheme is not limited under IFRIC 14 as the
Group has an unconditional right to realise the economic benefit of these
assets during the life of the plan or when the plan is settled.
Defined benefit obligation trends
2021 2020 2019 2018 2017
£'000 £'000 £'000 £'000 £'000
Plan assets 24,478 25,143 22,670 20,099 21,880
Plan liabilities (22,539) (24,935) (23,562) (22,041) (22,939)
Surplus/(deficit) 1,939 208 (892) (1,942) (1,059)
Experience adjustments on assets (130) 2,943 2,761 (1,586) 609
(0.5%) 13.3% 13.9% (7.3%) 2.9%
Experience adjustments on liabilities 1,750 (1,902) (1,830) 581 (191)
7.2% (8.3%) (8.4%) 2.6% (0.8%)
Sensitivity analysis
Increase/
(decrease) in surplus
Liabilities Assets Surplus/(deficit)
Effect of change in assumptions £'000 £'000 £'000 £'000
No change 22,539 24,478 1,863 -
0.25% rise in discount rate 21,805 24,478 2,597 734
0.25% fall in discount rate 23,273 24,478 1,129 (734)
0.25% rise in inflation 22,639 24,478 1,763 (100)
0.25% fall in inflation 22,439 24,478 1,963 100
23 Share capital
Authorised share capital
Ordinary shares 2p each
2021 2021
Number £'000
Authorised at 1 January and 31 December 409,044,603 8,181
Issued share capital
Ordinary shares 2p each
2021 2021
Number £'000
Issued and fully paid at 1 January 102,624,020 2,053
Shares issued during the year 451,613 9
Issued and fully paid at 31 December 103,075,633 2,062
24 Contingencies
In the normal course of business, the Group is exposed to the risk of claims
in respect of contracts where the customer or supplier is dissatisfied with
the performance, pricing and/or completion of the contracted service or
product. Such claims are normally resolved by a combination of negotiation,
further work by Parity or the supplier, and/or monetary settlement without
formal legal process being necessary. Occasionally, such claims progress into
legal action. At the present time, Group management believes the resolution of
any known claims or legal proceedings will not have a material further impact
on the financial position of the Group.
25 Key management remuneration
Key management comprises the Group's Board of Directors, along with Group's
executive committee of senior management. The total remuneration received by
key management for 2021 was £1,118,000 (2020: £1,209,000). Remuneration
comprises emoluments received, pension contributions, share-based payment
charges and compensation for loss of office. Remuneration of the Board of
Directors, including that of the highest paid Director Matthew Bayfield, is
disclosed in detail within the remuneration report.
2021 2020
£'000
£'000
Short-term employee benefits 843 955
Post-employment benefits 32 29
Compensation for loss of office 308 145
Share-based payments (note 8) (65) 80
1,118 1,209
26 Related party transactions
Consolidated
During the year the Group engaged the marketing services of CRM Squad. The
Executive Chairman Mark Braund is an owner and Director of CRM Squad. The
total value of services received from CRM squad in 2021 is £12,180. (2020:
none).
Company
Details of the Company's holdings in Group undertakings are given in note 27.
The Company entered into transactions with Group undertakings as shown in the
table below:
Operating Finance Finance Operating Finance Finance
expenses income expense expenses income expense
2021 2021 2021 2020 2020 2020
£'000 £'000 £'000 £'000 £'000 £'000
Expenses incurred from Group subsidiaries (208) - (1,350) (327) - (1,348)
Income generated from Group subsidiaries - 1,181 - - 1,195 -
The Company had the following amounts payable to and recoverable from Group
undertakings:
2021 2020
£'000 £'000
Amounts owed by subsidiary undertakings (note 16):
Falling due within one year 925 925
Falling due after one year 129,973 134,662
Amounts due to subsidiary undertakings (note 18):
Falling due within one year (14,844) (13,764)
Falling due after one year (132,335) (134,476)
27 Subsidiaries
The principal subsidiaries of Parity Group plc, which have been included in
these consolidated financial statements, are Parity Professionals Limited and
Parity Consultancy Services Limited. Parity Professionals Limited and Parity
Consultancy Services Limited are wholly owned by Parity Holdings Limited and
incorporated in the United Kingdom. Parity Holdings Limited is a direct
subsidiary of Parity Group plc and is incorporated in the United Kingdom.
Parity Professionals Limited is a specialist IT and data recruitment services
company. Parity Consultancy Services Limited provides IT and data services
including consultancy and value added recruitment services.
During 2021, management continued to simplify the group structure. All UK
dormant companies have been wound up and will be struck off in due time.
The remaining Group subsidiaries are listed below. These are either
discontinued or dormant, are wholly owned by the Group ultimate parent Parity
Group plc.
Parity Eurosoft Limited
Parity International BV (registered at Keizersgracht 62-64, 1015 CS Amsterdam,
Netherlands)
Parity Limited
Parity Resources Limited
Parity Solutions (Dublin 1999) Limited (registered at 13-18 City Quay, Dublin
2 D02 ED70, Ireland)
Parity Solutions (Ireland) Limited (registered at Northern Ireland Science
Park, Queens Road, Belfast BT3 9DT)
Personnel Solutions Inc. (registered at 39 Broadway, New York, NY10006, USA)
Teltech International Corp. (registered at 39 Broadway, New York, NY10006,
USA)
28 Prior period adjustment
During the year, the Group discovered that contractor expenses has been
erroneously understated in 2017 and 2018 by a cumulative amount of £247,000.
As a consequence, operating costs for the Group were understated in those
years and closing accruals have been understated since 2017. The
understatement represents a prior period error under IAS 8 and is accounted
for by correcting retrospectively in these financial statements. As the error
occurred before the earliest period presented in these financial statements,
the Group has restated the opening balances of assets, liabilities and equity
for the earliest period presented. The adjustment was posted to contractor
accruals within current liabilities on the statement of financial position.
Reconciliation of changes is Equity
1 January 2019 1 January 2020
£'000
£'000
Equity as previously reported (77,612) (77,753)
Adjustment to prior year
Restatement of contractor expense accruals (247) (247)
Equity as adjusted (77,859) (78,000)
Analysis of the effect upon equity
Retained earnings (247) (247)
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