REG - Parity Group PLC - Final Results
16/05/2023 07:00
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RNS Number : 4877Z Parity Group PLC 16 May 2023
PARITY GROUP PLC
FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022
16 May 2023
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 2022.
Headlines
In 2022, we completed the transformation of the business, refocusing on its
core recruitment strengths. We have delivered a significantly improved
operating performance despite the expected reduction in net fee income during
the year and have rebuilt a highly motivated, lean and, capable team that is
supported by a flexible and scalable infrastructure.
· Significantly improved operating performance with Adjusted EBITDA of
£0.4m vs £0.1m in the prior year.
· Net Fee Income for 2022 of £3.5m compared to £4.1m in 2021.
· Break even at adjusted operating profit level compared to a £0.3m
loss in the prior year.
· Other income in FY2022 of £1m from the sale and licence back of the
Parity trademarks in the UK and EU.
· As a result of the refocus back to recruitment, historic goodwill
associated with consulting activities acquired in 1999 was impaired with a
£2m charge.
· As a result of the goodwill impairment charge Loss before tax for
2022 was £1.3m compared to £1.1m in 2021.
Key Financials
Key financials for 2022
GBP million 2022 2021
Revenue 40.6 47.0
Net Fee Income 3.5 4.1
Adjusted EBITDA (1) 0.4 0.1
Adjusted Operating loss (2) (0.0) (0.3)
Loss before tax (1.3) (1.1)
Net debt (£million) 3 (2.3) (1.2)
Notes
1 - Adjusted EBITDA is calculated as Operating profit excluding Amortisation
and Depreciation, share based payments and non underlying items
2 - Adjusted operating loss is calculated as Operating loss excluding non
underlying items
3 - Net debt represents cash and cash equivalents less loans and borrowings
and excluding leases
Mark Braund, Executive Chairman of Parity Group plc, said:
"2022 has seen us complete the shift back to focus on recruitment and reshape
the organisation, ensuring that we have a structure that is both efficient and
scalable. In amongst all the change, we have continued to invest in our teams
and develop our staff, cementing our culture and a much-improved focus on what
we are 'great' at.
The additional funding from the sale of the trademark has given us scope to
make investments in new business areas to drive longer-term sustainable profit
and growth.
In 2023 we are looking to build on the investments we have and continue to
make in new business areas and will also explore other opportunities to
support the long term development of the business and shareholder value."
Contacts
Parity Group plc Tel: + 44 (0) 20 8171 1729
Mark Braund, Executive Chairman www.parity.net
Mike Johns, Chief Financial Officer
Allenby Capital Limited (Nominated Adviser and Broker) Tel: +44 (0) 20 3328 5656
David Hart / Dan Dearden-Williams (Corporate Finance)
Tony Quirke (Sales and Corporate Broking)
Chairman's Statement
During 2022, we successfully rebuilt the recruitment business platform within
Parity.
Previously diverted resource and funds have been refocused into the core
business. We have replaced a lack of focus, over-weight management costs and
rigid overheads with a highly motivated, fit for purpose team that trains and
develops its own talent through the Parity Academy and has a clear cultural
identity. This has been married to scalable infrastructure capable of
flexing to the needs of the refocused business repositioning the Group back to
its core, as a high-quality technology recruitment business.
The business team is led by Izzy (Isobel) Brown, our Director of Recruitment
Business. She has created an organisation that delivers great service to
both clients and contractors.
Supporting the team, we build and maintain talent pools of key in demand
skills enabling us to meet client needs quickly and efficiently producing
strong conversions and fill rates.
With our platform in place we are now tackling the next challenge to address
the historic long-term decline in the top line revenue. The underlying driver
of the fall in contract recruitment revenue over the last three years was the
redirection of resource and funding away from the recruitment business,
leaving it vulnerable and less effective. The most significant business loss
was the Scottish interims framework in 2019 (worth circa £30m/year at its
peak). Covid, and decisions by previous management that decimated the old
recruitment team, have to date impacted the ability of the business to replace
this lost revenue.
In addition to rebuilding the capabilities of the recruitment team, we made
changes to the business, reducing expenditure and ensuring we have a flexible
delivery model. This, along with the injection of funds from the sale and
licence back of the Parity trademark in December 2022, enables us to make
focused investment in key areas to support growth.
With a team and cost base capable of being leveraged, we now focus on adding
to the top-line to drive profitability. We see the following as key areas of
focus:
· Continued demand for the critical and highly skilled resources we
deliver to our clients, with public sector an important segment of our
business. The government announced in Q4 of 2022 that as part of their
strategy to bring down public spending from 2025 it will be looking for
technology investment to deliver efficiencies upon which they can reduce
costs. As a supplier of the critical skills these technology investments need,
we believe this will create an opportunity for us to deploy into new areas on
critical projects, with one of our key areas for growth being the targeting of
new clients within the existing frameworks where we have a strong track record
of operating.
· We also have long-term relationships with key clients in the private
sector and have proven capability to deliver at scale to commercially
orientated businesses. We are now investing in new business development
focused on taking the in-demand talent pools we have curated out to new
clients.
· We established in 2022 a small permanent recruitment team with a mix
of experienced permanent recruiters and graduates from our academy training
programme. The team has started to build momentum and we are focusing business
development resource to further develop the pipeline and conversion to revenue
in 2023.
Together, these three areas are where we are focusing our time, effort and
resource in 2023.
As mentioned previously, we had the opportunity to realise the value we held
in owning the Parity trademark in the UK and EU, selling ownership of the
trademarks to a third party that also holds business interests using the
Parity name in a different sector. As part of the transaction, we have secured
our perpetual right to continue to use the Parity name in the same way that we
have always done and in the markets in which we operate. For the sale we have
received £950k in cash and the perpetual right to use the Parity name with no
future cost.
This is an important injection of cash for us to facilitate investment in 2023
in new business and at a time when fundraising in the markets has been
challenged by the recent economic turmoil.
Having started this report with a focus on our colleagues, I will end on the
same. Utilising capacity from the sale of the trademark has enabled us to keep
pace with the market and address the costs of living crisis with a pay
increase of 6% for our staff.
We have a strong and talented team at Parity, their commitment, ambition and
integrity make for a great place to work and a solid foundation from which to
grow. On behalf of the Board, I wish to thank them.
2023 is a year in which we will be working hard to maximise the opportunity to
build shareholder value, leveraging the recruitment platform we have created
and our position within the key markets in which we operate.
Operational and Financial Review
The Group has identified and defined alternative performance measures (APMs)
for net fee income, NFI margin, adjusted EBITDA, adjusted operating loss,
adjusted loss before tax, net debt, debtor days and creditor days. These are
the key measures the Directors use to assess the group's underlying
operational and financial performance. The APMs are fully explained and where
appropriate reconciled to IFRS line items in note 1 to the Group Consolidated
Financial Statements.
2022 Overview
· Private sector revenue up by 25% year on year to £18m.
· Public sector revenue declined to £22.6m in the year, pushing
overall revenue down by 13% year on year.
· Net Fee Income for 2022 of £3.5m compared to £4.1m in 2021.
· Adjusted EBITDA((1)) for 2022 of £0.4m vs £0.1m in the prior year.
· Significant improvement in operating performance in 2022 with break
even at Adjusted Operating profit ((2)) level compared to a £0.3m loss in the
prior year.
· Other income in 2022 of £1m from the sale and licence back of the
Parity trademarks in the UK and EU.
· Impairment of £2.0m of historic goodwill that dates back to 1999 and
relates to non-core activities.
· Profit before Tax and before the goodwill impairment for 2022 was
£0.6m vs loss of £1.1m in the prior year.
· After including the goodwill impairment, the reported Loss before Tax
for FY2022 was £1.3m vs a loss of £1.1m in the prior year.
Performance highlights for 2022
2022 2021
Adjusted 1 Reported Adjusted 1 Reported Variance 2
Revenue (£ million) 40.6 40.6 47.0 47.0 -14%
Net Fee Income (£ million) 3.5 3.5 4.1 4.1 -15%
EBITDA (£ million) 3 0.4 1.3 0.1 (0.4) 300%
Operating loss (£ million) (0.0) (1.0) (0.3) (0.8) -100%
Loss before tax (£ million) (0.3) (1.3) (0.6) (1.1) -50%
Basic loss per share (pence) (0.67) (1.66) (0.08) (0.62)
Net debt (£million) 4 (2.3) (2.3) (1.2) (1.2)
Notes
1 - Excludes from the Income Statement the impact of non-underlying items
identified in note 6
2 - Variance compares 2022 adjusted against 2021 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 debt represents cash and cash equivalents less loans and borrowings
and excluding leases
The financial performance in 2022, as illustrated by the key performance
indicators included in the table above and set out in the Directors' report,
reflects a year of adjustment for the Group and ends with a business model now
focused solely on generating its income from recruitment and related services.
During 2022, the last consultancy and legacy managed services contracts were
completed and the final costs associated with these revenue streams removed.
Contract recruitment revenue has declined since 2019 when the Scottish
interims framework was lost, the impact of which has taken three years to
unwind. 2022 saw the business deepen relationships with its key clients,
growing revenue across the largest private sector and public sector clients.
New clients have been added in both the public and private sectors and whilst
only contributing modest revenues in 2022 there is an ambition to develop
these accounts in 2023 alongside further new clients.
2022 has benefited from the full year impact of the decisions made in 2021 to
realign and redistribute costs, adding to client facing resources whilst
reducing corporate overheads. This along with the elimination of £0.8m of
costs associated with non-core activities has kept operating costs low and
despite the decline in revenue and NFI in 2022 the business has delivered a
break-even position at adjusted operating profit.
The Group continues to utilise the asset-based lending facility provided by
Leumi ABL and has recently extended the term of the facility to October 2025.
During 2022, the Group has seen an increase in finance costs associated with
its borrowing as a result of the rapid increase in interest rates and a delay
in payment (since resolved) from a key client in the last quarter of 2022.
With interest rates unlikely to fall significantly in 2023, the group has
increased its focus and resource applied to finding efficiencies in existing
working capital management.
Beyond the operating business, the Group continues to have responsibility for
a legacy defined benefit pension scheme to which the Group is currently
obligated to contribute approximately £0.3m per annum.
With the contraction in the business over the last few years and the cash
outflows to service the legacy pension and maintain the overhead required for
the Group's AIM listing, Parity has had limited funds to invest for growth. In
2023, the proceeds from the sale of the UK and EU 'Parity' trademarks will
give the Group scope to make investments that support growth. Alongside these
investments the directors will seek to identify further options to fund growth
and mitigate the cash outflows not directly associated with delivering
recruitment services.
With the last of the consulting and managed service projects concluded in the
year, the Group has written off the remaining £2m of goodwill acquired in
1999 that relates to consulting activities.
Excluding this non-cash adjustment for goodwill impairment, the Group would
have reported £0.6m profit before tax.
Revenue and net fee income
Growth in private sector revenue to £18m was a highlight of the year with
both the addition of new clients and growth in the largest client. Towards the
end of last year this client put a temporary pause on new assignments whilst
it reconsidered planned projects in light of the economic conditions. However
since the start of 2023, the client has recommenced recruitment creating
further opportunity for the coming year. 2022 saw the business add eight new
clients, between them generating modest revenues for the year but with active
account management these are targets to grow in 2023.
Public sector revenue of £22.6m in 2022 was £10m lower than 2021. The
largest contributor to the fall in public sector was from Scottish government
with the residual run off from Scottish interims booked in 2021 not being
replaced in 2022. In addition, projects with two clients within central
government came to a conclusion in 2022, one as a result of a change framework
and the other where budgetary constraints forced changes to project
priorities. During the year, the Group took on six new NHS clients and
although revenues are not yet significant the challenges and changes in the
NHS and technology investments present opportunities for 2023.
Net Fee income for 2022 of £3.5m was 15% lower than 2021. Net fee income as a
% of revenue for 2022 of 8.5% remains broadly in line with the prior year
although between public and private sectors the change in mix of clients has
had an impact on margins.
The conclusion of non-core consulting and legacy managed service engagements
and switch to exclusively recruitment services has resulted in NFI margin for
the private sector falling from 8.3% to 7.8%. However direct costs (included
in operating costs) attributable to the consulting and managed service
activities have been eliminated, offsetting the NFI margin impact at EBITDA
level.
The public sector margin has increased from 8.6% to 9.3% year on year as a
result of change in mix and concentration of clients against a reduced
revenue.
Operating costs
The Group has benefited in 2022 from the cost realignment undertaken in 2021
and decisions to cease non-core activities. The elimination of costs
associated with legacy managed service and consulting produced a net saving in
2022 of £0.6m. A further £0.1m net savings are attributable to lower
management costs year on year.
GBP million
2022 2021 Var
Employee benefit costs 2.0 2.7 (0.7)
Depreciation and amortisation 0.4 0.4 0.0
All other operating costs 1.1 1.2 (0.1)
Total 3.5 4.3 (0.8)
Depreciation and amortisation
In accordance with IFRS 16, the 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. During the year, there were three items classified within non
underlying items.
· £23k of costs associated with the end of a legacy managed service
contract.
· £950k of income from the sale and licence back of the UK and EU
Parity trademarks.
· With the cessation of non-recruitment activities in 2022, goodwill
associated with consulting activities that was acquired in 1999 was impaired
with a £1,952k impairment charge booked in 2022.
Further analysis of the non-underlying items is provided in note
6.
Taxation
A tax charge of £0.4m was calculated for the year (2021: £0.5m credit). The
charge arises primarily as a result of the reduction in the defined benefit
scheme surplus and an adjustment to deferred tax losses recognised.
Earnings per share and dividend
The basic loss per share from continuing operations was 1.66 pence (2021: loss
of 0.62 pence per share).
The Board does not propose a dividend for 2022 (2021: nil).
Statement of financial position
Trade and other receivables
Trade receivables of £2.7m at the end of 2022 (2021: £2.1m) were £0.6m
higher than the prior year. At the year end, debtor days were 25 (2021: 16).
Both the increases in trade receivables and debtor days are primarily
attributable to a single key client whose outstanding debtor balance at the
end of the year had increased by £0.6m but crucially had £1.4m overdue at
the year-end compared with only £0.2m at the end of 2021.
Both the increase in the overall balance and the ageing of the key client debt
was caused by a failure in the client's internal approval processes that was
not resolved until after the end of the year. All outstanding amounts have now
been fully paid by the client, and its account is back into line with normal
business trading.
Within other receivables, the Group had a net recoverable VAT amount from HMRC
of £0.5m (net VAT payable in at the end of 2021 of £0.1m). The VAT debtor
has arisen as a result of increased remote working by UK base contractors (who
charge VAT) on projects for clients outside the UK (to which no VAT is
charged).
Trade and other payables
Trade and other payables decreased during the year by £0.3m to £3.3m (2021:
£3.6m) due to the impact of reduced contractor numbers and no VAT creditor.
The Group's creditors are dominated by amounts due and payable to contractors
which are settled promptly, either weekly or monthly and this means that
creditor days remain stable. At the year end, creditor days were 23 days
(2021: 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. The facility is with Leumi ABL and has been in
place since April 2021. In April 2023, the Group extended the duration of the
facility with Leumi ABL. The original agreement was due to end in April 2024,
but this has been extended to October 2025.
Cash flow and net debt
Net cash outflow in the year (excluding any adjustment for IFRS16) was a total
of £1.1m.
· The core operations of the business (excluding the impact of timing
differences) were cash neutral in 2022 with declines in income from clients
offset by a lower cost base following the realignment in 2021. In addition to
the core operations the business has a commitment to continue to fund the
defined benefit pension scheme and pay ongoing expenses and this accounted for
an outflow of £0.3m. Financing costs representing the interest charges on
drawdowns under the Leumi ABL facility were £0.2m in the year.
· Timing differences as a result of the delayed settlement of overdue
debtors by a key client and the net receivable due from HMRC accounted for a
£1.4m cash outflow in the period. Both of these timing differences have
unwound since the end of the year with the key client settling in full all
outstanding debts and the receipt of the VAT repayment and move to monthly VAT
submissions to reduce the impact of VAT on working capital.
· One off costs in the period were to complete the development of the
management information platform for the business and settlement of termination
costs incurred in 2021. Offsetting these costs was the receipt at the end of
the year of £1m from the sale and licence back of the trademark.
Removing the one off and significant timing variances from the cashflow
reduces the net cash outflow for the business to £0.5m for 2022, equivalent
to the cost of funding the historical defined benefit pension scheme
commitments and the costs of debt financing.
Defined benefit pension surplus
Despite the volatility in the equity and bond markets during the latter parts
of 2022 the defined pension scheme remains net positive with a calculated
£1.3m surplus as at 31(st) December 2022 (2021: £1.9m surplus). Of the
£0.7m reduction in the calculated surplus value, it is estimated that between
£0.2m and £0.3m is attributable to losses incurred as a result of the
volatility in the gilt markets in October 2022 and calls made by LDI funds
during that period. The balance reflects performance of assets invested
against measured liabilities of the scheme.
Having benefited from investment gains over the previous three years to
deliver a surplus, the Trustees adjusted the investment strategy in 2021 to
reduce exposure to historically more volatile equity markets and to invest in
assets that closely mirror the scheme liabilities with the intention of
locking in the gains. Despite the turmoil in markets in the last quarter of
2022, this strategy has ensured that the majority of recent years gains have
been maintained.
During 2022, the Group paid £0.3m contributions to the scheme and the
directors continue to explore opportunities, including a future buy out of the
scheme, that would enable the group to eliminate the cash contributions it
currently makes to the scheme.
Consolidated Income Statement for the year ended 31 December 2022
2022 2021
£'000 £'000
Notes
Revenue 3 40,648 46,962
Contractor costs (37,184) (42,882)
Net Fee Income 3,464 4,080
Other operating income 4 950 -
Operating costs 5 (5,443) (4,902)
Operating loss (1,029) (822)
Analysed as:
Underlying operating loss before non-underlying items (4) (269)
Non-underlying costs 6 (1,975) (553)
Non underlying income 6 950 -
Operating loss (1,029) (822)
Finance costs 8 (310) (281)
Loss before tax (1,339) (1,103)
Analysed as:
Adjusted (loss) before tax(1) (314) (550)
Non-underlying costs 6 (1,975) (553)
Non underlying income 6 950 -
Loss before tax 6 (1,339) (1,103)
Tax (charge)/ credit 10 (376) 467
Loss for the year attributable to owners of the parent (1,715) (636)
Loss per share 11
Basic 11 (1.66p) (0.62p)
Diluted (1.66p) (0.62p)
All activities comprise continuing operations.
( )
(1) Adjusted profit/(loss) before tax is a non-IFRS alternative performance
measure, defined as profit/(loss) before tax and non-underlying items.
Consolidated Statement of Comprehensive Income for the year ended 31 December
2022
2022 2021
£'000
£'000
Notes
Loss for the year (1,715) (636)
Other comprehensive income
Items that will never be reclassified to profit or loss
Remeasurement of defined benefit pension scheme 23 (841) 1,620
Deferred taxation on remeasurement of defined pension scheme 16 290 (567)
Other comprehensive (loss)/ income for the year after tax (551) 1,053
Total comprehensive (loss)/ income for the year attributable to owners of the (2,266) 417
parent
Statements of Changes in Equity for the year ended 31 December 2022
Consolidated Share Capital Other Retained Total
capital redemption reserves earnings £'000
£'000 Share reserve £'000 £'000
premium £'000
reserve
£'000
At 1 January 2021 2,053 33,244 14,319 34,560 (77,537) 6,639
Share issues in the year 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 - - - - (567) (567)
At 31 December 2021 2,062 33,270 14,319 34,560 (77,184) 7,027
Share options - value of employee services - - - - 50 50
Transactions with owners - - - - 50 50
Loss for the year - - - - (1,715) (1,715)
Remeasurement of defined benefit pension scheme - - - - (841) (841)
Deferred taxation on remeasurement of defined pension scheme - - - - 290 290
At 31 December 2022 2,062 33,270 14,319 34,560 (79,400) 4,811
Statements of Financial Position as at 31 December 2022
Company number 3539413 Consolidated
2022 2021
Notes £'000 £'000
Assets
Non-current assets
Goodwill 12 2,642 4,594
Other intangible assets 13 188 84
Property, plant and equipment 14 10 15
Right-of-use assets 15 174 149
Trade and other receivables 17 - 29
Deferred tax assets 16 521 528
Retirement benefit asset 23 1,269 1,939
Total non-current assets 4,804 7,338
Current assets
Trade and other receivables 17 5,909 4,768
Cash and cash equivalents 2,053 1,121
Total current assets 7,962 5,889
Total assets 12,766 13,227
Liabilities
Current liabilities
Loans and borrowings 18 (4,356) (2,279)
Lease liabilities 15 (203) (242)
Trade and other payables 19 (3,340) (3,608)
Total current liabilities (7,899) (6,129)
Non-current liabilities
Lease liabilities 15 (14) (29)
Provisions 20 (42) (42)
Total non-current liabilities (56) (71)
Total liabilities (7,955) (6,200)
Net assets 4,811 7,027
Shareholders' equity
Called up share capital 24 2,062 2,062
Share premium reserve 22 33,270 33,270
Capital redemption reserve 22 14,319 14,319
Other reserves 22 34,560 34,560
Retained earnings 22 (79,400) (77,184)
Total shareholders' equity 4,811 7,027
Statements of Cash Flows for the year ended 31 December 2022
Consolidated
Notes 2022 2021
£'000
£'000
Operating activities
(Loss)/profit for the year (1,715) (636)
Adjustments for:
Net finance expense/(income) 8 310 281
Share-based payment expense/(credit) 9 50 (64)
Income tax charge/ (credit) 10 376 (467)
Amortisation of intangible assets 13 3 3
Shares issued in lieu of Directors fees 22 - 35
Depreciation of property, plant and equipment 14 10 12
Depreciation and impairment of right-of-use assets 15 346 414
Loss on write down of lease assets 15 - 31
Provision for impairment of investment in subsidiaries 28 - -
Impairment of goodwill 12 1,952 -
1,332 (391)
Working capital movements
(Increase)/decrease in trade and other receivables 17 (1,112) 1,352
(Decrease)/increase in trade and other payables 19 (343) (1,249)
(Decrease) in provisions 20 - (139)
Payments to retirement benefit plan 23 (331) (322)
Net cash flows used in operating activities (454) (749)
Investing activities
Purchase of property, plant and equipment 14 (5) (4)
Development of intangible assets 13 (109) (81)
Net cash flows used in investing activities (114) (85)
Financing activities
Drawdown/(repayment) of finance facility 18 2,077 (662)
Principal repayment of lease liabilities 15 (433) (490)
Movements on intercompany funding - -
Interest paid 8 (144) (65)
Net cash flows from/(used in) financing activities 1,500 (1,217)
Net increase/(decrease) in cash and cash equivalents 932 (2,051)
Cash and cash equivalents at the beginning of the year 1,121 3,172
Cash and cash equivalents at the end of the year 2,053 1,121
Notes to the Financial Statements for the year ended 31 December 2022
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. On publishing
the parent company financial statements here together with the Group financial
statements, the Company is taking advantage of the exemption in Section 408 of
the Companies Act 2006 not to present its individual income statement and
related notes that form a part of these approved financial statements.
Financial Information is presented in £'000.
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 21 to the
financial statements. Note 21 also includes the Group's objectives for
managing capital.
As outlined in note 21, 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.
The financial statements have been prepared on a going concern basis.
Discussion of the key risks to the Group is included within Principal Risks
and Uncertainties. As part of their assessment of going concern the Directors
have reviewed the Group's cash flow forecasts for the period to 31 December
2024 and considered scenarios that reflect reasonably possible changes in
trading performance. The scenarios model both changes to existing business and
lower expectations from new business initiatives as set out below:
· The loss of a significant client that would result in a drop in
contractor numbers by up to 15%. This models the periodic risk the business is
exposed to when frameworks and key client contracts are up for renewal.
· Lower income from permanent recruitment.
· The development of new business initiatives within contract
recruitment takes longer than planned resulting in a delay in income from
these new business lines.
The directors have considered these changes both individually and as part of a
scenario that combines multiple adverse changes in trading.
Under each scenario the directors have identified mitigating actions and the
timelines under which those actions would need to be taken to reduce the
financial impact of the lower trading expectations and continue to meet its
obligations under the existing financing agreement with Leumi.
In addition to the opportunity to delay or curtail investment costs associated
with new business initiatives the directors, as a result of actions taken by
the Group over the last 3 years to resize and restructure the operations of
the business, are also able to reduce costs within the existing business
operations if trading conditions change and can do so without significant
delay.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the
Company and its subsidiaries as at 31 December 2022. 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
loss for the year dealt with in the accounts of the Company was £7,231,000
(2021: profit of £700,000).
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 measures
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.
Net fee income
Net fee income represents revenue less cost of sales and consist of the margin
earned on the placement of contractors, the fees earned on permanent
recruitment and the revenue less the cost of third party contractors for
managed service and consultancy work.
NFI margin is the net fee income expressed as a percentage of revenue.
Both net fee income and NFI margin are metrics commonly used by businesses
delivering recruitment services to measure the element of revenue that is
attributable to the recruitment based services that the group provides to
clients. The Directors consider that net fee income and NFI margin are
important measurements used by the Board to evaluate the performance of the
Group.
Non-underlying items
The presentation of the alternative performance measure of adjusted EBITDA,
adjusted operating loss and adjusted loss 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, the proceeds from the sale of assets outside of normal
trading activities, 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) 2022 2021
Operating loss (1,029) (822)
Add back:
Adjustment for amortisation & depreciation 360 460
Adjustment for goodwill impairment 1,952 -
EBITDA 1,283 (362)
Adjustment for share based payment charge/(income) 50 (64)
Add back Non underlying items:
Income from trademark sale (950) -
Non underlying costs 23 553
Adjusted EBITDA 406 127
Adjusted operating loss is equal to operating loss before non-underlying
items.
Adjusted Operating loss
(£ 000's) 2022 2021
Operating loss (1,029) (822)
Add back non underlying items:
goodwill impairment 1,952 0
income from trademark sale (950) 0
non underlying costs 23 553
Adjusted Operating loss (4) (269)
Adjusted loss before tax is calculated as loss before tax and before
non-underlying items
Adjusted net loss before tax
(£ 000's) 2022 2021
Net loss before tax (1,339) (1,103)
Add back non underlying items:
goodwill impairment 1,952 0
income from trademark sale (950) 0
non underlying costs 23 553
Adjusted net loss before tax (314) (550)
Net profit/(loss) before tax and before goodwill impairment 613 (1,103)
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.
Debtor days
Debtor days or DSO is calculated as the year-end balance on trade receivables
/ total revenue *365. Debtor days is regarded as a useful measure of the
efficiency of the business in collecting debts owed to it by clients.
Creditor days
Creditor days are calculated as the year-end balance of trade payables /
(contractor costs + operating expenses -employee benefit costs) *365. Credit
days are a useful measure of the efficiency with which the business pays
amounts it owes to suppliers.
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 to which it is 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.
Adjusted operating loss is equal to operating loss before non-underlying
items.
Adjusted Operating loss
(£ 000's) 2022 2021
Operating loss (1,029) (822)
Add back non underlying items:
goodwill impairment 1,952 0
income from trademark sale (950) 0
non underlying costs 23 553
Adjusted Operating loss (4) (269)
Adjusted loss before tax is calculated as loss before tax and before
non-underlying items
Adjusted net loss before tax
(£ 000's) 2022 2021
Net loss before tax (1,339) (1,103)
Add back non underlying items:
goodwill impairment 1,952 0
income from trademark sale (950) 0
non underlying costs 23 553
Adjusted net loss before tax (314) (550)
Net profit/(loss) before tax and before goodwill impairment 613 (1,103)
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.
Debtor days
Debtor days or DSO is calculated as the year-end balance on trade receivables
/ total revenue *365. Debtor days is regarded as a useful measure of the
efficiency of the business in collecting debts owed to it by clients.
Creditor days
Creditor days are calculated as the year-end balance of trade payables /
(contractor costs + operating expenses -employee benefit costs) *365. Credit
days are a useful measure of the efficiency with which the business pays
amounts it owes to suppliers.
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 to which it is 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.
Other operating income
Other income comprises income received by the Group for the sale of assets
that it owns that are not considered to be related to its normal trading
activity or classified as financing income.
On 30(th) December 2022 the Group sold the rights to the trademarks registered
by group companies in the 'Parity' name for a consideration of £950,000. This
represents the sale of an asset owned by the Group and is a one-off
transaction that is not considered part of the normal trading activities of
the group.
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.
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 are the executive directors on 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 21, 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
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 23. 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.
Investments in subsidiaries
The Company reviews its investment in subsidiaries to test for impairment. The
recoverable amounts are determined using discounted future cash flows of the
relevant subsidiaries. In performing these tests, assumptions are made in
respect of future growth rates and the discount rate to be applied to the
future cash flows, as set out in note 28. Changes in the assumptions used may
have a material effect on the income statement and 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 executive directors on the 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
2022 2022 2022
£'000 £'000 £'000
Revenue 22,616 18,032 40,648
Contractor costs (20,530) (16,654) (37,184)
Net fee income 2,086 1,378 3,464
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
No items below net fee income are allocated to segments. All assets and
liabilities are based in the UK and are not split by operating segment.
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 17 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:
2022 2021
£'000 £'000
Services transferred over time 40,484 46,934
Services transferred at a point in time 164 28
Revenue 40,648 46,962
The Group's revenue disaggregated by primary geographical market is as
follows:
2022 2021
£'000 £'000
United Kingdom 37,946 43,967
European Union 2,702 2,994
Other - 1
Revenue 40,648 46,962
The largest single customer in the public sector contributed 22% or £5.0m to
public sector revenue (2021: 26% or £8.2m). The largest single customer in
the private sector contributed 79% or £14.3m to private sector revenue (2021:
79% or £11.7m).
4 Other operating income
2022 2021
£'000 £'000
Sale and licence back of Parity trademark in UK & EU 950 -
On 30(th) December 2022 the Group sold the rights to the trademarks registered
by group companies in the 'Parity' name for a consideration of £950,000. As
part of the transaction the Group has a perpetual licence to continue to use
the trademarks in all the sectors that it currently operates and has operated
in the past.
5 Operating expenses
Consolidated
2022 2021
£'000 £'000
Employee benefit costs
- wages and salaries 1,741 2,818
- social security costs 195 316
- other pension costs 74 86
- Equity settled share-based payment charge 50 (64)
2,060 3,156
Depreciation, amortisation and impairment
Amortisation of intangible assets - software 3 3
Depreciation of owned property, plant and equipment 10 12
Depreciation of right-of-use assets 346 414
Impairment of right-of-use assets - 31
Goodwill impairment charge (note 12) 1,952 -
2,311 460
All other operating expenses
Occupancy costs 37 43
IT costs 163 236
Net exchange (gain)/loss 9 15
Other operating costs 863 992
1,072 1,286
Total operating expenses 5,443 4,902
During the year the Group obtained the following services from the Group's
auditors:
Grant Thornton UK LLP
2022 2021
Consolidated £'000 £'000
Fees payable to the auditor of the Group's annual financial statements 118 15
Fees payable to the Group's auditor for other services - -
The audit of the Company's subsidiaries pursuant to legislation - 67
Total 118 82
Tax compliance 24 17
Other services 3 -
Total fees 145 99
All other services have been performed in the UK.
6 Non-underlying items
2022 2021
£'000 £'000
Restructuring costs included in operating expenses (note 5)
- Costs related to employees 23 502
- Costs related to premises - 31
- Other costs - 20
23 553
Goodwill impairment charge (note 12) 1,952 -
Non-underlying costs 1,975 553
Income from sale and licence back of Parity trademark in UK & EU (note 4) (950) -
Total non-underlying items 1,025 553
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 2022 include costs related to payments made to
employees engaged in the termination of the BAT managed service contract.
7 Average staff numbers
The average number of staff employed by the Group during the year was as
follows:
2022 2021
Number Number
Group 37 38
The total above includes 4 (2021: 4) employees of the Company.
At 31 December 2022, the Group had 35 employees (2021: 35).
8 Finance costs
2022 2021
£'000 £'000
Interest expense on financial liabilities 143 65
Interest expense on lease liabilities 9 8
Interest income on lease assets (2) (3)
Net finance costs in respect of post-retirement benefits 160 211
310 281
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 £39,000 (2021:
£25,000).
9 Share-based payments
The Group operates several share-based reward schemes for employees:
· HMRC approved schemes for Executive Directors and senior staff;
and
· an unapproved scheme for Executive Directors and senior staff.
Until May 2021 the Group operated a Save As You Earn Scheme, this was closed
for all new participants in May 2021 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.
Under the approved and unapproved schemes, options vest if the share price
averages a target price for a defined period (either 5 consecutive days or 30
consecutive day) 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.
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 an
expense of £50,000 (2021: income of £64,000). Share-based remuneration
relating to key management personnel is disclosed in note 26.
2022 2021
Weighted average exercise price (p)
Weighted average exercise price (p)
2022 2021
Number
Number
Outstanding at beginning of the year 7 8,010,000 9 11,919,040
Granted during the year - - 7 6,000,000
Exercised during the year - - - -
Lapsed during the year - - (9) (9,909,040)
Outstanding at the end of the year 7 8,010,000 7 8,010,000
The exercise price of options and warrants outstanding at the end of the year
and their weighted average contractual life fell within the following ranges:
2022 2021
Weighted average contractual life (years) Weighted average contractual life (years)
2021
2022 2022 Exercise price (p) 2021
Exercise price (p) Number Number
7-11 8 8,000,000 7-11 9 8,000,000
11-17 - - 11-17 - -
17-28 - 10,000 17-28 1 10,000
8,010,000 8,010,000
Of the total number of options and warrants outstanding at the end of the year
10,000 (2021: 10,000) had vested and were exercisable at the end of the year.
The weighted average exercise price of those options was 26 pence (2021: 26
pence).
No options or warrants were exercised during the year (2021: none).
No options or warrants were granted during the year (2021: 6,000,000). The
weighted average fair value of options and warrants granted in 2021 was 1
pence.
The following information is relevant in determining the fair value of options
or warrants granted during the year under equity-settled share-based
remuneration schemes operated by the Group. There are no cash-settled schemes.
2022 2021
Option valuation model N/a Stochastic
Weighted average share price at grant date (p) N/a 7
Weighted average exercise price (p) N/a 7
Weighted average contractual life (years) N/a 10
Weighted average expected life (years) N/a 5
Expected volatility N/a 47.7-48.0%
Weighted average risk-free rate N/a 0.61%
Expected dividend growth rate N/a 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 was 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%.
10 Taxation
2022 2021
£'000 £'000
Current tax
Current tax on profit for the year 75 -
Total current tax expense 75 -
Deferred tax
Accelerated capital allowances 52 (2)
Recognition of deferred tax asset on past trading losses 290 (678)
Origination and reversal of other temporary differences - 98
Adjustments in respect of prior periods (41) 115
Change in corporation tax rate
- -
Total deferred tax charge 301 (467)
Tax charge 376 (467)
The adjustment in respect of prior periods of £41,000 (2021: £115,000)
largely relates to decisions to claim or disclaim capital allowances.
Trade and other payables includes an accrual for £75,000 representing the
current tax on profits for 2022 (2021: nil)
The Group's profits for this accounting period are subject to tax at a rate of
19% (2021: 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:
2022 2021
£'000 £'000
Loss before tax (1,339) (1,103)
Expected tax credit based on the standard rate of UK
corporation tax of 19% (2021: 19%) (254) (210)
Expenses not allowable for tax purposes 8 -
Adjustments in respect of prior periods (41) 115
Tax losses not recognised 259 253
Tax losses recognised - (678)
Goodwill impairment not allowable 371 -
Change in corporation tax rate 40 33
Other (7) 20
Tax charge 376 (467)
Tax on each component of other comprehensive income is as follows:
2022 2021
Before tax After tax Before tax After tax
£'000
£'000
Tax £'000 £'000 Tax £'000 £'000
Remeasurement of defined benefit pension scheme (841) 290 (551) 1,620 (567) 1,053
11 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
2022 per share 2021 per share
Loss '000 2022 Loss '000 2021
2022 Pence 2021 Pence
£'000 £'000
Basic (1,715) 103,075 (1.66) (636) 102,854 (0.62)
Effect of dilutive options - - - - - -
Diluted (1,715) 103,075 (1.66) (636) 102,854 (0.62)
As at 31 December 2022 the number of ordinary shares in issue was 103,075,633
(2021: 103,075,633). There were 8,010,000 options that had a potential
dilutive effect in 2022 (2021: 8,010,000).
12 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 2021 and 31 December 2021 2,642 1,952 4,594
Impairment charge - (1,952) (1,952)
Balance at 31 December 2022 2,642 - 2,642
Goodwill was tested for impairment in accordance with IAS 36 at the year end
and an impairment charge of £1,952,000 was recognised to reflect the
cessation during 2022 of the consultancy activities undertaken by Parity
Consultancy Services Limited to which the goodwill from historic acquisitions
related.
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
2023. Years from 2024 to 2028 are based on the forecast for 2023 projected
forward at expected growth rates, with growth of 2% assumed beyond these years
which is line with the long-term growth rates for the United Kingdom. This
approach is considered prudent based on current expectations of the 2023
long-term growth rate.
Major assumptions are as follows:
Parity Professionals Limited Parity Consultancy Services Limited
% %
2022
Discount rate 17.2 n/a
Forecast revenue growth 4-27 n/a
Operating margin 2022 1 n/a
Operating margin 2023 onward 1.4-4.4 n/a
2021
Discount rate 11.5 11.5
Forecast revenue growth 5.0-11.5 11.3-14.9
Operating margin 2021 3.3 14.0
Operating margin 2022 onward 4.8-5.8 14.7-15.3
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 Parity Professionals
Limited CGU 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 that leverage high value talent pools created by the Group in servicing
its existing clients;
· The business plans to invest in additional headcount to support
key areas of new business within recruitment 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% movement in the value of 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 its recoverable amount.
13 Other intangible assets
Software Intellectual property Total
2022 2021 2022 2021 2022 2021
£'000 £'000 £'000 £'000 £'000 £'000
Consolidated
Cost
At 1 January 408 408 81 - 489 408
Additions - - 107 81 107 81
At 31 December 408 408 188 81 596 489
Accumulated amortisation
At 1 January 405 402 - - 405 402
Charge for the year 3 3 - - 3 3
At 31 December 408 405 - - 408 405
Net book value - 3 188 81 188 84
In 2021 and 2022 the Group made an investment 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. This
development was completed at the end of December 2022.
As at 31 December 2022, the Group had no capital commitments contracted for
but not provided for the purchase of intangible assets (2021: £nil).
14 Property, plant and equipment
Office equipment Total
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Consolidated
Cost
At 1 January 208 204 208 204
Additions 5 4 5 4
At 31 December 213 208 213 208
Accumulated depreciation
At 1 January 193 181 193 181
Charge for the year 10 12 10 12
At 31 December 203 193 203 193
Net book value 10 15 10 15
As at 31 December 2022, the Group had no capital commitments contracted for
but not provided for the purchase of property, plant and equipment (2021:
£nil).
15 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:
2022 2021
£'000 £'000
Right-of-use assets
Buildings 174 149
IT equipment - -
174 149
Lease liabilities
Current 203 242
Non-current 14 29
217 271
Additions to right-of-use assets during the year were £370,000 (2021:
£345,000). The total cash outflow for lease liabilities during the year was
£434,000 (2021: £490,000).
Amounts recognised in profit or loss in respect of the above leases are as
follows:
2022 2021
£'000 £'000
Depreciation charge on right-of-use assets
- Buildings 346 414
- IT equipment - -
Impairment charge on right-of-use-assets
- Buildings - 31
Total depreciation and impairment charge on right-of-use assets 346 445
Rent concession - -
Interest expense included in finance costs 9 8
Future minimum lease payments at 31 December 2022 were as follows:
Minimum Present
payments Interest value
2022 2022 2022
£'000 £'000 £'000
Less than one year 203 0 203
Between one and two years 14 0 14
217 0 217
At 31 December 2022, the Group was committed to £nil (2021: £nil) of future
lease payments in respect of leases not yet commenced.
All leases held during 2022 were accounted for under IFRS 16.
16 Deferred taxation
Consolidated
2022 2021
£'000 £'000
At 1 January 528 627
Recognised in other comprehensive income
Remeasurement of defined benefit pension scheme 290 (567)
Recognised in the income statement
Adjustments in relation to prior periods (41) (115)
Recognition of deferred tax asset for prior trading losses (294) 678
Capital allowances in excess of depreciation 52 2
Other short-term timing differences (14) (97)
At 31 December 521 528
The deferred asset of £521,000 (2021: £528,000) comprises:
Consolidated
2022 2021
£'000 £'000
Depreciation in excess of capital allowances 511 520
Other short-term timing differences 10 8
Trading losses 444 678
Retirement benefit asset (444) (678)
521 528
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.
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 support the
unwinding of the deferred tax asset.
At the balance sheet date, the Directors also considered whether recognising a
deferred tax asset in Parity Consultancy Services Limited was appropriate.
This company has a calculated surplus on its defined benefit pension scheme as
at the balance sheet date of £1,269,000. With a statutory tax rate of 35%
levied on surplus pension payments paid to employers there is a potential
deferred tax liability for 2022 of £444,000 (2021: £678,000). Parity
Consultancy Services Limited currently has a deferred tax asset of £240,000
(2021: £272,000) which can be offset against the deferred tax liability to be
unwound on the defined benefit scheme.
The Group has unrecognised carried forward tax losses of £32,912,000 (2021:
£32,679,000). The Group has unrecognised capital losses carried forward of
£282,441,000 (2021: £282,441,000). These losses may be carried forward
indefinitely.
17 Trade and other receivables
Consolidated
2022 2021
£'000 £'000
Amounts falling due within one year:
Trade receivables 2,746 2,116
Accrued income 2,283 2,435
Amounts owed by subsidiary undertakings - -
Other receivables 592 75
Prepayments 288 142
5,909 4,768
Amounts falling due after one year:
Amounts owed by subsidiary undertakings - -
Other receivables - 29
- 29
Total 5,909 4,797
The fair values of trade and other receivables are not considered to differ
from the values set out above.
£2,746,000 (2021: £2,116,000) of the Group's trade receivables and
£2,283,000 (2021: £2,435,000) 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
2022 totalled £4,356,000 (2021: £2,279,000).
The movement in accrued revenue on contracts during the period is shown below:
Contract Assets
2022 2021
£'000
£'000
At 1 January 2,435 3,591
Billed and cash received during the year (2,435) (3,591)
Amounts accrued at year end 2,283 2,435
At 31 December 2,283 2,435
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 2022 was £nil
(2021: £nil). All debts at 31 December 2022 are considered to be recoverable.
A review of and simplification of the group structure is underway that will
result in a consolidation and netting of amounts due to and from subsidiary
undertakings and as a result all amounts due to and from subsidiary
undertakings are considered as current.
As at 31 December 2022 trade receivables of £2,244,000 (2021: £523,000) were
past due but not impaired and relate to customers where there is no evidence
of unwillingness or of an inability to settle the debt. Included within the
past due amount is £1,479,000 due from a single client, the full amount of
which has since been paid by the client. The ageing of Group trade receivables
is as follows:
2022 2021
Gross Impaired Total Gross Impaired Total
£'000 £'000 £'000 £'000 £'000 £'000
Not past due 502 - 502 1,593 - 1,593
31-60 days and past due 757 - 757 310 - 310
61-90 days 1,165 - 1,165 131 - 131
>90 days 322 - 322 82 - 82
Total 2,746 - 2,746 2,116 - 2,116
The Group applies the IFRS9 simplified approach to measuring expected credit
losses which use a lifetime expected loss allowance for all trade receivables
and the credit loss is not material.
Other receivables in the Group were not past due and not impaired.
18 Loans & borrowings
Consolidated
2022 2021
£'000 £'000
Current
Bank and other borrowings due within one year or on demand:
Asset-based financing facility 4,356 2,279
Other borrowings - -
Total 4,356 2,279
Changes in liabilities from financing activities
Loans and borrowings
£000
Balance at 1 January 2022 2,279
New borrowings 2,077
Balance at 31 December 2022 4,356
Further details of the Group's banking facilities are given in note 21.
19 Trade and other payables
Consolidated
2022 2021
£'000 £'000
Amounts falling due within one year:
Payments in advance - 11
Trade payables 2,368 2,494
Amounts due to subsidiary undertakings - -
Other tax and social security payables 296 367
Other payables and accruals 676 736
Total 3,340 3,608
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.
A review of and simplification of the group structure is underway that will
result in a consolidation and netting of amounts due to and from subsidiary
undertakings and as a result all amounts due to and from subsidiary
undertakings are considered as current liabilities.
20 Provisions
Leasehold dilapidations £'000
Consolidated
At 31 December 2021 and 31 December 2022 42
Due within one year -
Due after one year 42
Total 42
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.
21 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 of the amortised cost by category of the financial instruments held
by the Group is provided below:
Amortised
cost
Consolidated £'000
As 31 December 2022
Financial assets
Cash and cash equivalents 2,053
Trade and other short-term receivables 5,080
7,133
Financial liabilities
Borrowings 4,356
Lease liabilities 217
Trade and other short-term payables 3,044
7,617
As 31 December 2021
Financial assets
Non-current trade and other receivables 29
Cash and cash equivalents 1,121
Trade and other short-term receivables 4,626
5,776
Financial liabilities
Asset-based financing facility 2,279
Lease liabilities 272
Trade and other short-term payables 3,597
6,148
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. 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 93% of generated revenues from the
UK (2021: 94%). Approximately 56% (2021: 69%) of the Group's turnover is
derived from the public sector. The largest customer balance represents 35%
(2021: 27%) 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 17.
2022 2021
Carrying Maximum exposure Carrying Maximum exposure
value £'000 value £'000
£'000 £'000
Financial assets
Cash and cash equivalents 2,053 2,053 1,121 1,121
Trade and other receivables 5,080 5,080 4,655 4,655
7,133 7,133 5,776 5,776
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 2022 the Group's variable rate borrowings were denominated in
Sterling and Euro. Interest costs on borrowings from the asset-based financing
facility with Leumi ABL in 2022 were charged at 2.0% above base rate (2021:
2.0%) for the borrowing against the billed receivable and 2.9% for borrowings
against the unbilled receivable (2021: 2.9%). The Leumi facility has an
initial 3 year term of commitment that has recently been extended until
October 2025, 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 £39,000
higher/lower (2021: £25,000) and net assets £39,000 lower/higher (2021:
£25,000). The Directors consider a 2% 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.
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
2022 or 2021.
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 2022 the Company recorded a translation loss of £1,568,000 (2021:
gain of £1,965,000). As at 31 December 2022, the loan balance due by the
Company, translated into Sterling, was £30,426,000 (2021: £28,066,000).
The currency profile of the Group's net financial assets was as follows:
Functional currency of individual entity
Sterling Euro Total
2022 2021 2022 2021 2022 2021
£'000
£'000
£'000
£'000
£'000
£'000
Net foreign currency financial assets
Sterling - - (2,548) (2,462) (2,548) (2,462)
Euro (30,073) (27,279) - - (30,073) (27,279)
US Dollar - 4 - - - 4
Total net exposure (30,073) (27,275) (2,548) (2,462) (32,621) (29,737)
Sensitivity analysis - Group
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 £3,007,000 higher/lower
(2021: £2,728,000). 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 2022 1 month 1 year Total
£'000 £'000 £'000
Trade and other payables 3,340 - - 3,340
Lease liabilities 203 14 - 217
Borrowings 4,356 - - 4,356
Total 7,899 14 - 7,899
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
More detail on trade and other payables is given in note 19.
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 15.
During 2022 the Group used an asset-based finance facility with Leumi ABL
which is still being utilised. The facility enables 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:
2022 2021
Consolidated £'000 £'000
Cash and cash equivalents 2,053 1,121
Asset-based borrowings (4,356) (2,279)
Net debt before lease liabilities (2,303) (1,158)
Lease liabilities (217) (272)
Net debt (2,520) (1,430)
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.
22 Reserves
The Board is not proposing a dividend for the year (2021: 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 2022, no new ordinary shares were issued (2021: 451,613). No share
options were exercised during the year (2021: none).
Share premium reserve
Share premium is the amount subscribed for share capital in excess of nominal
value. During 2022 no new ordinary shares were issued (2021: 451,613 at a
premium of 5.75p per share).
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.
23 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 during the year were £74,000
(2021: £86,000).
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 10 years (2021: 13
years) and can be attributed to the scheme members as follows:
Weighted average liability duration (years)
Number of members
Pensioner members 62 9.9
Deferred members 5 13.8
Total 67 10
There was one retirement during the year (2021: none). There was a reduction
by one member during the year (2021: reduction of two members).
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. Contribution
levels were revised in September 2022. Contributions of £13,574 per month,
increasing in line with the increase in RPI in the 12 months ended in the
previous September, are to be paid, with the first increase in January 2023.
The final contribution will be in October 2024. There will also be
contributions to meet the scheme's running costs based on a budget agreed
between the trustees of the scheme and the Group. For the year total
contributions including contributions to running costs were £331k (2021:
£322k) 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
2022.
Principal actuarial assumptions
2022 2021
Rate of increase of pensions in payment 3.6-3.9% 3.8-4.0%
Discount rate 4.8% 1.9%
Retail price inflation 3.2% 3.6%
Consumer price inflation 2.2% 2.6%
The assumption for future investment returns is 1.8% (2021: 2.0%).
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_2021 projection based on year of birth with a
long-term rate of improvement of 1.25% p.a. (2021: CMI_2020 and 1.25% p.a.).
This results in the following life expectancies:
· Male aged 65 at 31 December 2022 has a life expectancy of 86.5
years (2021: 86.4 years)
· Female aged 65 at 31 December 2022 has a life expectancy of 88.8
years (2021: 88.8 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 (2021: £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
2022 2021
£'000 £'000
Fair value of plan assets 16,734 24,478
Present value of funded obligations (15,465) (22,539)
At the end of the year 1,269 1,939
Reconciliation of plan assets
2022 2021
£'000 £'000
At the beginning of the year 24,478 25,143
Expected return 455 320
Contribution by Group 331 322
Benefits paid (978) (964)
Expenses met by scheme (196) (213)
Actuarial loss (7,356) (130)
Plan assets at the end of the year 16,734 24,478
Contributions to the scheme included £nil of additional payments (2021:
£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 2022.
Composition of plan assets
2022 2021
£'000
£'000
Diversified growth funds - Quoted 16,607 24,308
Liability driven investment funds - Quoted - -
Options in Parity Group plc 96 96
Cash 31 74
Total plan assets 16,734 24,478
Reconciliation of plan liabilities
2022 2021
£'000
£'000
At the beginning of the year 22,539 24,935
Interest cost 419 318
Benefits paid (978) (964)
Actuarial gain (6,515) (1,750)
Plan liabilities at the end of the year 15,465 22,539
Amounts recognised in the consolidated income statement
2022 2021
£'000
£'000
Included in finance costs
Expected return on plan assets, net of 259 107
expenses
Unwinding of discount on plan liabilities (interest cost) (419) (318)
Net finance costs in respect of post-retirement benefits (160) (211)
Amounts recognised in the consolidated statement of comprehensive income
2022 2021
£'000
£'000
Actuarial loss on plan assets (7,356) (130)
Actuarial gain on plan liabilities 6,515 1,750
Remeasurement of defined benefit pension scheme (841) 1,620
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
2022 2021 2020 2019 2018
£'000 £'000 £'000 £'000 £'000
Plan assets 16,734 24,478 25,143 22,670 20,099
Plan liabilities (15,465) (22,539) (24,935) (23,562) (22,041)
Surplus/(deficit) 1,269 1,939 208 (892) (1,942)
Experience adjustments on assets (7,356) (130) 2,943 2,761 (1,586)
(30.0%) (0.5%) 13.3% 13.9% (7.3%)
Experience adjustments on liabilities 6,515 1,750 (1,902) (1,830) 581
28.9% 7.2% (8.3%) (8.4%) 2.6%
Sensitivity analysis
Increase/
(decrease) in surplus
Liabilities Assets Surplus/(deficit)
Effect of change in assumptions £'000 £'000 £'000 £'000
No change 15,465 16,734 1,269 -
0.25% rise in discount rate 14,955 16,734 1,779 510
0.25% fall in discount rate 15,975 16,734 759 (510)
0.25% rise in inflation 15,527 16,734 1,207 (62)
0.25% fall in inflation 15,403 16,734 1,331 62
24 Share capital
Authorised share capital
Ordinary shares 2p each
2022 2022
Number £'000
Authorised at 1 January and 31 December 409,044,603 8,181
Issued share capital
Ordinary shares 2p each
2022 2022
Number £'000
Issued and fully paid at 1 January 103,075,633 2,062
Shares issued during the year - -
Issued and fully paid at 31 December 103,075,633 2,062
25 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 the 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.
26 Key management remuneration
Key management comprises the Group's Board of Directors, along with the
Director, Recruitment Business. The total remuneration received by key
management for 2022 was £574,000 (2021: £1,118,000). 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 Michael Johns, is disclosed in
detail within the remuneration report.
2022 2021
£'000
£'000
Short-term employee benefits 503 843
Post-employment benefits 21 32
Compensation for loss of office - 308
Share-based payments (note 9) 50 (65)
574 1,118
27 Related party transactions
Consolidated
During the year the Group continued to use 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 2022 is
£66,530. (2021: £12,180).
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