16th April 2019
PARITY GROUP PLC
FULL YEAR RESULTS FOR THE YEAR TO 31 DECEMBER 2018
Parity Group plc (“Parity” or the “Group”), the data and technology focussed professional services business, announces its full year results for the year ended 31 December 2018.
Financial Headlines:
· Group revenues1 up by 2.7% to £86.1m (2017: £83.8m)
· Adjusted profit before tax2 declined by 48.7% to £0.85m (2017: £1.66m) primarily due to non-renewal of large consultancy contract
· Continued positive cash flow from operations of £0.6m (2017: £3.0m)
· Further reduction in net debt to £1.1m (2017: £1.6m)
1. On a continuing basis
2. Profit before tax and non-recurring items from continuing operations
Strategic and Operational Headlines:
· Revenue growth strongest in lower margin business
· Strong performance with our public sector framework contracts during 2018
· Increasing repeat business from long standing clients
· Wins in private sector complement historic government strengths
· Changes to consulting business begin
· Appointment of Antonio Acuna to lead consulting division
· New projects in data analysis and management for private and public sector clients
· Restructuring of consulting team to optimise margin and reflect client demand
· Cross-selling between divisions
· Clients buying support from both sides of the business – recruitment and consultancy
· Disposal
· Exit from loss-making, non-core activity Inition.
John Conoley, Non-Executive Chairman of Parity Group, said:
“2018 was the year when Parity revisited its long-term strategy. We set in place the foundations for growth in a market that has continued to evolve. We invested in senior talent and marketing. Reorganising and reshaping of our proposition will build on our strengths as trusted partners with deep and lasting relationships that empower clients to make bold data-led business decisions.”
“Trading remains in line with expectations and the Board’s confidence in the refreshed strategy is reflected in its continuing investment. Alongside a strengthening of senior talent, we have the foundations for growth in the coming years.”
Matthew Bayfield, Chief Executive, said:
“This has been a year of reflection and change for Parity.”
“As client and market needs changed, we experienced real challenges that questioned our approach. We responded with a roadmap for a new operating model that includes new service lines, a clearer emphasis on consistent and integrated relationship management and a stronger brand and communication to the market. Our strengths in financial management have enabled us to reduce debt and continue to generate cash and, together with a positive initial response from clients to our new offer, this gives us confidence for the future.”
For further information, contact:
| Matthew Bayfield, CEO | Parity Group plc | 020 8543 5353 |
| Roger Antony, GFD | ||
| David Beck, PR & Communications | ||
| Mike Coe | WH Ireland | 020 7220 1666 |
| Chris Savidge |
This announcement contains certain statements that are or may be forward-looking with respect to the financial condition, results or operations and business of Parity Group plc. By their nature forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include, but are not limited to (i) adverse changes to the current outlook for the UK IT recruitment and solutions market, (ii) adverse changes in tax laws and regulations, (iii) the risks associated with the introduction of new products and services, (iv) pricing and product initiatives of competitors, (v) changes in technology or consumer demand, (vi) the termination or delay of key contracts and (vii) volatility in financial markets.
Chairman’s Report
2018 – a year of strategic realignment for Parity
This year has been very significant for Parity.
After a period of consolidation and reflection we have embarked on a course for long term growth that will capitalise on our strengths and develop a proposition that meets client need.
Our experience has increasingly told us that we have two opportunities. We have a strong story to tell about how data is used by organisations which should bring us higher margin consulting projects. We are also seeing increasing success when introducing clients to the breadth of our services. The board decided that it is time for a more co-ordinated offer and structure.
Results
Revenue grew at 2.7% across the Group increasing to £86.1m for the full year (2017: £83.8m). The Group continues to be cash generative and has maintained strong working capital management with debtor days reduced to 18 days (2017: 20 days), resulting in a further reduction of net debt to £1.1m (2017: £1.6m), underpinning our solid platform for future investment and development of the Group strategy.
Despite this, our strong first-half was followed by a significant delay and subsequent non-renewal of a major project for our Consultancy Services business. This reversed the trend of growing contribution from this side of the business and prompted us to accelerate a restructuring which we had planned to manage more progressively.
Board changes and people
The existing management team had made consistent progress in simplifying the structure of the business and aligning services better to support our clients in the growth markets we had identified. The recruitment of Matthew Bayfield in May 2018 was another significant step in ensuring the development of services to meet the demand for data driven solutions. Every company is investing to exploit the opportunities available to make better decisions through the mining and deciphering of information. With his recognised industry expertise, Matthew has quickly been able to develop services that have been well received by our clients and are leading to further opportunities.
As announced in February 2019, Matthew Bayfield joined the Board on 5 February as Chief Executive Officer, replacing Alan Rommel. Subsequently, on 8 April, we announced that Alan Rommel had stepped down from his Board role as Chief Operating Officer in order to pursue other interests. The Board acknowledges and thanks Alan for his significant contribution and commitment to the Group over the last 25 years.
We are lucky in being supported by a strong team of committed professionals at every level of the business and see investment in skills as a key plank of our future plans.
Strategy
Having been greatly encouraged by the opportunities identified in higher-margin data consultancy services, the Board has restructured the Consultancy Services division to focus more closely on this market. In addition to the promotion of Matthew, we are investing significantly in senior talent to drive thought leadership and engage with clients at the earliest stages of their data policy development leading on to delivering their data projects.
Better alignment between our consulting and recruitment businesses offers Parity a competitive advantage as we widen the client base to which we offer the full portfolio of our services. Our aim is to drive further operating margin improvement and deliver consistent growth in earnings and sustainable shareholder value in the medium and long-term.
This will be supported by the forthcoming developments in marketing and branding which we have initiated for roll-out in 2019. Additionally, changes to our internal operating model will assure consistent quality in our relationship and account management whilst maintaining our strength in financial management.
Financing and dividend
Banking arrangements with PNC have been in place since 2010. PNC has confirmed internal credit approval to extend the facility for a further two years on improved terms. The renewal will result in a £10m facility with interest charged at 2.00% above base (previously 2.35%).
The Board is not proposing to declare a dividend at this time but will keep this policy under review.
Current trading and outlook
Trading in the current financial year remains in line with expectations. The Board remains confident in its strategy and continues to invest to improve the operational efficiencies in the core recruitment service offering, the alignment of the service offerings from both a sales and delivery capability, and the strengthening of the senior talent within the firm to deliver an improved trajectory through 2019 and beyond.
Chief Executive’s statement
Since my appointment as Chief Executive two months ago I have spent considerable time with our clients. I have been seeking to better understand our clients’ data and technology needs and to review our ability to fully service those needs. The explosion of data analytic software and the value potential that is created from a better understanding of customer behaviour is well known.
The new and ever-growing challenges facing corporates and government organisations in data have become:
· acquiring the human skills to interpret the vast quantity of data being generated;
· attracting the people who can adapt operating systems in light of learnings from that data; and
· inspire confident decision making based upon reliable data and advice.
Parity, as a specialist in the people who know and understand the value of data, is ideally placed to benefit from this next stage in the data growth story.
Parity has great strengths in recruitment and resourcing and in providing our clients with data and technology experts who are focused on delivery. Alongside our resourcing business we have built a smaller but higher margin consultancy business that delivers data and technology solutions to a small number of large clients.
However, we have not been as successful as we would like in leveraging our strengths and skills in resourcing to help us to grow our consultancy business. Our operating model is set up to support a relatively low margin recruitment business which is very focussed on delivery but is less well suited to selling higher margin consultancy; the business has operated within silos and has failed to transfer clients between the two service lines at scale.
The new Parity business model
In future the Parity business model will change, we will have three distinct propositions to take to clients; recruitment, learning and development and consultancy, all delivered through a single account management team working to deliver a single P&L. They will be supported by a single and enhanced sales and marketing function.
The three service lines will complement each other and encourage cross referrals and integrated solutions, delivering what our clients have asked for, being the support of a collaborative partner, that enables confident decision making based on reliable data.
Recruitment
Our recruitment proposition represents the heritage of our business, it has an enviable list of blue-chip clients in both the public and private sector. Clients like the excellent level of service we provide and its specialism in the field of data and technology. However, the market for these services operates on relatively low margins, is increasingly commoditised and is highly price sensitive. We will continue to be active in this field but will increasingly focus on the higher value recruitment that fits alongside our other service lines of learning and development and consultancy.
Consultancy
We are also in the market offering data and technology consulting and whilst we have enjoyed some successes, we have also had challenges and they have largely been of our own making. We have lacked sufficient account management skills and are failing to fully capitalise on our proven knowledge of the data and IT markets. We regard this as a significant opportunity and are investing in senior management to lead this effort. We announced today that Antonio Acuna MBE, formerly Head of the UK Government’s open data initiative data.gov.uk, has joined us to lead our consultancy services. Working more closely with the established account management teams in recruitment we will be able to offer integrated recruitment and advisory packages to help solve clients’ need for effective data management and analysis.
Learning & Development
We will launch a new service line in learning and development. Clients who engage with us and buy our recruitment and advice services are also looking to develop their existing people. With our proven knowledge of the skills required of people in data and technology we are ideally placed to diagnose clients’ learning and development needs. We will design and deliver programs to upskill our clients’ existing people resources in data management and analysis, whilst identifying gaps that can be filled through recruitment as well as data and IT projects that require our consultancy service.
One Parity business
All three service offerings will operate as one business reported as such without divisional breakdowns. We will be completely re-engineering our sales and marketing function and are in the process of recruiting a new leader for this critical function. In the past we have tended to rely on our existing relationships and been reactive to clients’ requests; in the future we will be much more proactive in leading thinking in the area of data management and analysis. With three integrated market propositions that are relevant to companies across all sectors and almost regardless of size there is a huge addressable market.
We will be relaunching the Parity brand in the very near future with a new more modern identity and clearer messaging. We have a large network of employees, consultants and people who we have placed within organisations all of whom can become ambassadors and advocates for the new Parity way of working.
Parity is a professional services business with unrivalled skills and expertise in a hugely important and fast-growing market, which gives us great confidence in our future prospects.
Operational and Financial Review
· An increase in revenue but weighted towards lower margin recruitment work
· Delay and subsequent loss of the MoD account impacted operating profit substantially
· Continued strong working capital management resulted in a decrease in net debt
| Continuing Operations | 2018 | 2017 | Incr./(Decr.) |
| £000’s | £000’s | % | |
| Key Financials | |||
| Revenue | 86,112 | 83,815 | 2.7% |
| Adjusted profit before tax1 | 853 | 1,662 | (48.7%) |
| Net debt | (1,090) | (1,632) | (33.2%) |
| Ratios | |||
| Adjusted PBT margin % | 1.0% | 2.0% | |
| Net debt / Adjusted EBITDA ratio | 0.8 | 0.7 |
1 Adjusted profit before tax is defined as profit before tax and non-recurring items
Despite growth in its revenues, the Group experienced a reduction in adjusted profit before tax during the year ended 31 December 2018. The decline in profit derived mainly from the mix impact of revenue growth in the lower margin Professionals division, and a reduction in both revenue and contribution from the Consultancy Services division. The trading challenges in the Consultancy Services division prompted a restructure of the division with the associated one-off costs treated as non-recurring items. The Group was cash generative during the year resulting in a further reduction to net debt.
Revenue for the year ended 31 December 2018 increased by 2.7% from £83.8m to £86.1m driven by growth in the Professionals division. The division’s contractor volumes recovered from the impact of IR35 reforms introduced in the public sector in 2017. The trading issues in the Consultancy Services division led to a weaker revenue mix. Consequently, adjusted profit before tax fell by 48.7% from £1.66m to £0.85m with the Group adjusted PBT margin tightening from 2.0% to 1.0%. Non-recurring items incurred in the year were predominately related to restructuring and totalled £495,000. Profit before tax after deducting non-recurring items was £358,000. Net cash generated from operations was £604,000 enabling us to reduce net debt from £1.6m to £1.1m at the end of 2018, with the Net Debt/Adjusted EBITDA ratio at the end of year 0.8x (2017: 0.7x).
Divisional performance
| 2018 | 2017 | Incr./(Decr.) | |
| £000’s | £000’s | % | |
| Revenue | |||
| Parity Professionals | 84,025 | 80,036 | 5.0% |
| Parity Consultancy Services | 8,496 | 9,543 | (11.0%) |
| Less inter-segment revenue | (6,409) | (5,764) | – |
| Group revenue | 86,112 | 83,815 | 2.7% |
| Divisional contribution | |||
| Parity Professionals | 2,314 | 2,307 | 0.3% |
| Parity Consultancy Services | 320 | 1,148 | (72.1%) |
| Total divisional contribution | 2,634 | 3,455 | (23.8%) |
Reconciliation of divisional contribution and adjusted EBITDA to operating profit from continuing operations
| 2018 | 2017 | |
| £’000 | £’000 | |
| Divisional contribution | 2,634 | 3,455 |
| Group costs | (1,093) | (1,045) |
| Share-based payment charges | (129) | (68) |
| Adjusted EBITDA | 1,412 | 2,342 |
| Depreciation and amortisation | (194) | (286) |
| Operating profit before non-recurring items | 1,218 | 2,056 |
| Non-recurring items (continuing operations) | (495) | – |
| Operating profit from continuing operations | 723 | 2,056 |
Divisional contribution is reconciled to the income statement as part of segmental information presented in note 2.
Parity Consultancy Services
During 2018 the Consultancy Services business was focused on delivering data and technology solutions to its clients. Whilst trading was in line with our expectations in the first half of the year, the division was impacted by challenges in the second half which resulted in a 72% drop in full year divisional contribution to £0.3m (2017: £1.1m). Nevertheless, we remain convinced by the opportunity that the data consultancy market provides to the Group and have invested in senior management and marketing during the year. The difficult second half prompted a restructuring of the division, to align the cost base towards the more profitable opportunities available to the Group.
The most significant challenge related to the long-standing MCOCS contract with the MoD. Whilst the division maintained the quality of its delivery to the client during the year, an expected extension in Q3 to the contract was delayed due to a protracted client decision-making process, and subsequently not renewed. As a result of the delay the division incurred losses associated with its fixed cost delivery base. To a lesser extent the division was also impacted in H2 by a reduction in spend for our Application Management Support services in comparison to previous years.
In Q4 the division acted to address its losses, taking the decision to restructure its delivery function. We have excluded further work on the MCOCS project from our financial projections, and right-sized our delivery model for Application Management Support. Inevitably this resulted in some redundancies. The associated one-off costs have been treated as non-recurring items.
Good progress has been made with other clients including the Education and Skills Funding Agency where we are supporting our client with its digital projects. Most pleasingly, we have seen early signs of success from the investments made to focus efforts on data consultancy services. These investments have been instrumental in winning work with a leading contract catering and facilities group.
Parity Professionals
Parity Professionals provides targeted recruitment of temporary and permanent professionals with the staff to deliver business change programmes. We supply a broad range of skills from project management through to the niche skills in digital, data and information security required to ensure our clients can deliver their projects.
Parity Professionals generated revenue growth of 5% at £84.0m (2017: £80.0m), building on a well-established client base in the Public Sector with 15 framework wins and over 100 new clients in the year. Over 50% of the new client wins were in the Private Sector including household names such as Primark, not-for profit organisations such as the British Standards Institute and a number of housing associations.
Revenue growth was supported by a higher number of new interim candidate placements in the period. Contractor volumes recovered from the impact of the IR35 reforms which were introduced in April 2017 and applied to contractors working at our public sector clients. At the end of 2018 the number of contractors on billing was 995 (end 2017: 940). The total margin value on new sales in the period grew by 8% compared to 2017, and this momentum has improved through the year, resulting in a forward order book at year end of £32.7m (2017: £27.5m). Revenue from permanent recruitment was broadly flat at £638,000 (2017: £657,000) partly due to supply side shortages, though average fee rates per placement increased significantly as we targeted more senior roles and niche skills in the digital and cyber security markets.
One challenge created by the IR35 reforms and affecting the divisions contribution is a higher contractor churn rate, partly due to the lure of roles in the Private Sector, where the reforms will not apply until 2020. The divisional contribution margin was also affected by the managed service win at Primark, with lower than average contractor gross margins initially, but with the opportunity to improve profitability in the future, by placing contractors that we have sourced.
We continue to deliver the service-wrap for the Public Sector FastStream Graduate intake and this contract has been extended through to September 2019, though it is expected that the client will in-house the service provision, TUPEing Parity staff from this point with no stranded costs to the business. Parity Professionals successfully retendered for G-Cloud 10 framework with the Crown Commercial Service and has been awarded a managed service for the provision of project and programme management services for the Scottish Government Digital Superfast Broadband programme underwriting our dominant position for trusted delivery on key Public Sector contracts.
After the year end we were informed that a significant framework contract for the placement of staff with the Scottish Government would not be renewed. Our incumbent contractors placed through the framework will continue their contracts until their assignments end but we will not be able to make any new placements. This will result in revenues from the framework contract gradually winding down over the next two financial years. While this legacy type of contract has been significant in revenue terms it has provided relatively low levels of margin, the loss of which will be largely offset by costs savings mainly related to serving this specific contract during the period of contract run off.
In the longer term the end of this contract will improve the Group’s net margin performance albeit from a lower level of revenue, consistent with the longer term direction of travel for Parity.
Non-recurring items
Non-recurring items of £0.50m (2017: £nil) were incurred during the year, primarily as a result of restructuring the Consultancy Services division.
Taxation
The tax credit on continuing profit before tax was £63,000 (2017: tax credit of £534,000), mainly representing a deferred tax adjustment in respect of prior periods. Whilst the Consultancy Services division generated a lower contribution than the previous year, its outlook remains positive. Therefore, we continue to take a prudent view on the division’s carried forward tax losses which remain unrecognised but will keep this under review.
The Group did not provide for corporation tax payable in 2018 due to the utilisation of Group relief and the availability of carried forward deductible timing differences and tax losses.
Discontinued operations
We disposed of the non-core Inition subsidiary in April 2018 for consideration of £0.2m and recorded a loss on disposal of £0.3m. Inition was held for sale at the start of the year and accordingly its results to the point of disposal are presented as discontinued. During the portion of 2018 that Inition was owned by the Group, it incurred an operating loss before tax of £0.3m (2017: £1.1m).
Earnings per share and dividend
The basic earnings per share from continuing operations were 0.41 pence (2017: 2.15 pence). The decrease stems from lower profitability and the deferred tax credit recognised in 2017.
The Board does not propose a dividend for 2018 (2017: nil). During the year the Board sought external advice in respect of the steps needed to restore a dividend. The Board suspended the exercise when it became clear that profits before tax would be lower than in 2017 but will keep the position under review.
Statement of Financial Position
Trade and other receivables
Trade and other receivables remained at a consistent level in comparison to the previous year at £12.0m (2017: £12.0m). Ordinarily we would expect the increased contractor volumes in the Professionals division to carry a higher working capital requirement. However, the working capital requirement has been offset by a further improvement in debtor collections in the Professionals division. Group debtor days, calculated on billings on a countback basis, decreased to a record low of 18 days (2017: 20 days).
Trade and other payables
Trade and other payables also remained at similar levels to the previous year at £8.3m (2017: £8.3m). At the year end, creditor days were 28 days (2017: 28 days).
Loans and borrowings
Loans and borrowings represent the Group’s debt under the asset-based lending facility. This is a working capital facility and is consequently linked to the same cycle as the trade receivables. The asset-based lending facility with PNC Business Credit (“PNC”), a leading secured finance lender, allows for borrowing of up to £15m depending on the availability of appropriate assets as security. The current facility which has been in place since 2010 is in the final stages of being renewed on improved terms including a reduction in the interest rate to 2.00% above base rate from 2.35% previously. The terms of the agreement have been sanctioned by PNC’s credit committee with just the legal paperwork to tie up to complete the renewal.
Cash flow and net debt
The Group generated positive net cash flows from operating activities of £0.6m (2017: £3.0m), driven by EBITDA and a positive working capital swing with a reduction in debtor days to 18 (2017: 20 days). The £0.6m cash generated was after cash flows of £0.4m outflow and £0.1m inflow in respect of non-recurring items and discontinued operations respectively.
As a result of the positive cash flow, net debt reduced to £1.1m (2017: £1.6m).
Defined benefit pension deficit
During the year the pension scheme was subject to a triennial actuarial review, the outcome of which is in the process of being agreed between the Trustees and the Group.
At the year end the deficit had increased to £1.9m (2017: £1.1m), primarily due to a fall in the value of the scheme’s investments, reflecting weaker global equity markets.
Assets and liabilities held for sale
The assets and liabilities held for sale on the 2017 balance sheet related entirely to the Inition subsidiary which was disposed of in April 2018.
Consolidated Income Statement for the year ended 31 December 2018
| Notes | Before non-recurring items | Non-recurring items (note 5) | Total | Total | |
| 2018 | 2018 | 2018 | 2017 | ||
| £’000 | £’000 | £’000 | £’000 | ||
| Continuing operations | |||||
| Revenue | 2,3 | 86,112 | – | 86,112 | 83,815 |
| Employee benefit costs | 4 | (5,976) | (299) | (6,275) | (5,939) |
| Depreciation and amortisation | 4 | (194) | – | (194) | (286) |
| All other operating expenses | 4 | (78,724) | (196) | (78,920) | (75,534) |
| Total operating expenses | (84,894) | (495) | (85,389) | (81,759) | |
| Operating profit/(loss) | 1,218 | (495) | 723 | 2,056 | |
| Finance costs | 7 | (365) | – | (365) | (394) |
| Profit/(loss) before tax | 853 | (495) | 358 | 1,662 | |
| Tax (charge)/credit | 9 | (16) | 79 | 63 | 534 |
| Profit/(loss) for the year from continuing operations | 837 | (416) | 421 | 2,196 | |
| Discontinued operations | |||||
| Loss from discontinued operations after tax | 8 | (381) | – | (381) | (2,182) |
| Profit/(loss) for the year attributable to owners of the parent | 456 | (416) | 40 | 14 | |
| Earnings per share – Continuing operations | |||||
| Basic earnings per share | 10 | 0.41p | 2.15p | ||
| Diluted earnings per share | 10 | 0.41p | 2.15p | ||
| Earnings per share – Continuing and discontinued operation | |||||
| Basic earnings per share | 10 | 0.04p | 0.01p | ||
| Diluted earnings per share | 1o | 0.04p | 0.01p |
Consolidated Statement of Comprehensive Income for the year ended 31 December 2018
| Notes | 2018 | 2017 | |
| £’000 | £’000 | ||
| Profit for the year | 40 | 14 | |
| Other comprehensive income | |||
| Items that may be reclassified to profit or loss | |||
| Exchange differences on translation of foreign operations | (3) | (39) | |
| Items that will never be reclassified to profit or loss | |||
| Remeasurement of defined benefit pension scheme | (1,005) | 800 | |
| Deferred taxation on remeasurement of defined pension scheme | 12 | 171 | (136) |
| Other comprehensive (expense)/income for the year after tax | (837) | 625 | |
| Total comprehensive (expense)/income for the year attributable to owners of the parent | (797) | 639 |
Consolidated Statement of Changes in Equity for the year ended 31 December 2018
| Share capital | Deferred shares | Share premium reserve | Capital redemption reserve | Other reserves | Retained earnings | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| At 1 January 2018 | 2,043 | – | 33,211 | 14,319 | 44,160 | (86,544) | 7,189 |
| Issue of new ordinary shares | 10 | – | 33 | – | – | – | 43 |
| Share options – value of employee services | – | – | – | – | – | 129 | 129 |
| Transactions with owners | 10 | – | 33 | – | – | 129 | 172 |
| Profit for the year | – | – | – | – | – | 40 | 40 |
| Exchange differences on translation of foreign operations | – | – | – | – | – | (3) | (3) |
| Remeasurement of defined benefit pension scheme | – | – | – | – | – | (1,005) | (1,005) |
| Deferred taxation on remeasurement of defined pension scheme taken directly to equity | – | – | – | – | – | 171 | 171 |
| Reallocation of impairment charge | – | – | – | – | (9,600) | – | 9,600 |
| At 31 December 2018 | 2,053 | – | 33,244 | 14,319 | 34,560 | (77,612) | 6,564 |
| Share capital | Deferred shares | Share premium reserve | Capital redemption reserve | Other reserves | Retained earnings | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| At 1 January 2017 | 2,037 | 14,319 | 33,195 | – | 44,160 | (87,251) | 6,460 |
| Issue of new ordinary shares | 6 | – | 16 | – | – | – | 22 |
| Share options – value of employee services | – | – | – | – | – | 68 | 68 |
| Cancellation of deferred shares | – | (14,319) | – | 14,319 | – | – | – |
| Transactions with owners | 6 | (14,319) | – | 14,319 | – | 68 | 90 |
| Profit for the year | – | – | – | – | – | 14 | 14 |
| Exchange differences on translation of foreign operations | – | – | – | – | – | (39) | (39) |
| Remeasurement of defined benefit pension scheme | – | – | – | – | – | 800 | 800 |
| Deferred taxation on remeasurement of defined pension scheme taken directly to equity | – | – | – | – | – | (136) | (136) |
| At 31 December 2017 | 2,043 | – | 33,211 | 14,319 | 44,160 | (86,544) | 7,189 |
Consolidated Statement of Financial Position as at 31 December 2018
| Notes | 2018 | 2017 | |
| £’000 | £’000 | ||
| Assests | |||
| Non-current assets | |||
| Goodwill | 11 | 4,594 | 4,594 |
| Other intangible assets | 86 | 227 | |
| Property, plant and equipment | 69 | 78 | |
| Deferred tax assets | 12 | 1,153 | 919 |
| Total non-current assets | 5,902 | 5,818 | |
| Current assets | |||
| Trade and other receivables | 12,018 | 12,033 | |
| Cash and cash equivalents | 5,829 | 4,968 | |
| Assets classified as held for sale | – | 791 | |
| Total current assets | 17,847 | 17,792 | |
| Total assets | 23,749 | 23,610 | |
| Liabilities | |||
| Current liabilities | |||
| Loans and borrowings | (6,919) | (6,592) | |
| Trade and other payables | (8,261) | (8,349) | |
| Provisions | (43) | – | |
| Liabilities classified as held for sale | – | (395) | |
| Total current liabilities | (15,223) | (15,336) | |
| Non-current liabilities | |||
| Loans and borrowings | – | (8) | |
| Provisions | (20) | (18) | |
| Retirement benefit liability | (1,942) | (1,059) | |
| Total non-current liabilities | (1,962) | (1,085) | |
| Total liabilities | (17,185) | (16,421) | |
| Net assets | 6,564 | 7,189 | |
| Shareholders’ equity | |||
| Called up share capital | 2,053 | 2,043 | |
| Share premium reserve | 33,244 | 33,211 | |
| Capital redemption reserve | 14,319 | 14,319 | |
| Other reserves | 34,560 | 44,160 | |
| Retained earnings | (77,612) | (86,544) | |
| Total shareholders’ equity | 6,564 | 7,189 |
Consolidated Statement of Cash Flows for the year ended 31 December 2018
| Notes | 2018 | 2017 | |
| £’000 | £’000 | ||
| Cash flows from operating activities | |||
| Profit for the year | 40 | 14 | |
| Adjustments for: | |||
| Net finance expense | 7 | 365 | 394 |
| Share-based payment expense | 129 | 68 | |
| Income tax credit | 8,9 | (236) | (619) |
| Amortisation of intangible assets | 165 | 341 | |
| Depreciation of property, plant and equipment | 53 | 106 | |
| Impairment of goodwill | 8 | – | 1,165 |
| Loss on write down of intangible assets | 8 | – | 3 |
| Loss on disposal of subsidiary | 8 | 306 | – |
| 822 | 1,472 | ||
| Working capital movements | |||
| Decrease in work in progress | – | 3 | |
| Decrease in trade and other receivables | 204 | 2,619 | |
| Decrease in trade and other payables | (141) | (910) | |
| Increase in provisions | 45 | 1 | |
| Payments to retirement benefit plan | (326) | (184) | |
| Net cash flows from operating activities | 604 | 3,001 | |
| Investing activities | |||
| Purchase of intangible assets | (14) | (5) | |
| Purchase of property, plant and equipment | (35) | (91) | |
| Net proceeds from disposal of subsidiary | 8 | 114 | – |
| Net cash flows from/(used in) investing activities | 65 | (96) | |
| Financing activities | |||
| Issue of ordinary shares | 43 | 22 | |
| Drawdown/(repayment) of finance facility | 330 | (2,032) | |
| Interest paid | 7 | (181) | (199) |
| Net cash flows from/(used in) financing activities | 192 | (2,209) | |
| Net increase in cash and cash equivalents | 861 | 696 | |
| Cash and cash equivalents at the beginning of the year | 4,968 | 4,272 | |
| Cash and cash equivalents at the end of the year | 5,829 | 4,968 |
Notes to the audited preliminary results
1 Accounting policies
Basis of preparation
Parity Group plc (the “Company”) is a company incorporated and domiciled in the UK.
The financial information set out in these audited preliminary results constitutes the Group’s audited consolidated accounts for 2018 and 2017. The notes in these audited preliminary results have been extracted from the Group’s audited consolidated accounts for the year ended 31 December 2018.
The financial information set out in these audited preliminary results has been prepared in accordance with International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”). The policies have been consistently applied to all the years presented unless otherwise stated.
The Group has adopted IFRS 15 ‘Revenue from Contracts with Customers’ effective 1 January 2018 and applied it retrospectively. The Group has assessed its contracts against principal vs agent considerations and determines that revenue of £2,049,000 (2017: £nil), relating to contracts where the Group acts as a managed service provider, falls under recognition as agent under IFRS 15 that would have fallen under recognition as principal under IAS 18. Accordingly, if IAS 18 still applied, revenue and operating expenses would both be higher by £2,049,000 (2017: £nil) compared to IFRS 15. These affected contracts however were not in place prior to 2018 therefore there is no impact to periods prior to 2018. The implementation of IFRS 15 did not have an impact on the timing or amount of revenue recognised by the Group on its other contracts.
The Group has adopted IFRS 9 ‘Financial Instruments’ effective 1 January 2018 and applied transitional relief and opted not to restate prior periods. The implementation of IFRS 9 did not have a significant impact on the value or classification of the Group’s financial assets and liabilities.
2 Segmental information
In accordance with IFRS 8 ‘Operating Segments’ the Group’s management structure, and the reporting of financial information to the Chief Operating Decision Maker (the Group Board), have been used as the basis to define reporting segments. The Group has two continuing defined cash generating units (see note 11) which form the basis of each operating segment. The components of each segment are described below.
The internal financial information prepared for the Group Board includes contribution at a segmental level, and the Group Board allocates resources on the basis of this information.
Segment contribution, defined as divisional revenue less attributable costs, profit before tax, and assets and liabilities are internally reported at a Group level.
The Group has two segments:
· Parity Professionals – provides targeted recruitment of temporary and permanent professionals to support IT and business change programmes. Parity Professionals provides 90% (2017: 89%) of the continuing Group’s revenues.
· Parity Consultancy Services – provides business and IT consultancy services focusing on the provision of data solutions and delivery of IT projects. Parity Consultancy Services provides 10% (2017: 11%) of the continuing Group’s revenues.
Group costs include Directors’ salaries and costs relating to Group activities and are not allocated to reporting segments for internal reporting purposes.
The Group evaluates performance on the basis of contribution from operations before tax not including non-recurring items, such as restructuring costs.
Inter-segment sales are priced on the same basis as sales to external customers, with a discount applied to encourage the use of Group resources at a rate acceptable to the tax authorities. Inter-segment revenue in the year is a result of Parity Professionals selling IT recruitment services to Parity Consultancy Services.
| Continuing operations | Parity Professionals | Parity Consultancy Services | Before non-recurring Items | Non-recurring Items | Total |
| 2018 | 2018 | 2018 | 2018 | 2018 | |
| £’000 | £’000 | £’000 | £’000 | £’000 | |
| Revenue from external customers | 77,616 | 8,496 | 86,112 | – | 86,112 |
| Inter-segment revenue | 6,409 | – | 6,409 | – | 6,409 |
| Segment revenue | 84,025 | 8,496 | 92,521 | – | 92,521 |
| Attributable costs | (81,711) | (8,176) | (89,887) | – | (89,887) |
| Segment contribution | 2,314 | 320 | 2,634 | – | 2,634 |
| Group costs | (1,093) | – | (1,093) | ||
| Depreciation and amortisation | (194) | – | (194) | ||
| Share-based payment | (129) | – | (129) | ||
| Non-recurring items | – | (495) | (495) | ||
| Operating profit/(loss) | 1,218 | (495) | 723 | ||
| Finance costs | (365) | – | (365) | ||
| Profit/(loss) before tax | 853 | (495) | 358 |
| Continuing operations | Parity Professionals | Parity Consultancy Services | Before non-recurring Items | Non-recurring Items | Total |
| 2017 | 2017 | 2017 | 2017 | 2017 | |
| £’000 | £’000 | £’000 | £’000 | £’000 | |
| Revenue from external customers | 74,272 | 9,543 | 83,815 | – | 83,815 |
| Inter-segment revenue | 5,764 | – | 5,764 | – | 5,764 |
| Segment revenue | 80,036 | 9,543 | 89,579 | – | 89,579 |
| Attributable costs | (77,729) | (8,395) | (86,124) | – | (86,124) |
| Segment contribution | 2,307 | 1,148 | 3,455 | – | 3,455 |
| Group costs | (1,045) | – | (1,045) | ||
| Depreciation and amortisation | (286) | – | (286) | ||
| Share-based payment | (68) | – | (68) | ||
| Non-recurring item | – | – | – | ||
| Operating profit | 2,056 | – | 2,056 | ||
| Finance costs | (394) | – | (394) | ||
| Profit before tax | 1,662 | – | 1,662 |
All segment assets and liabilities are based in the UK.
3 Revenue
All of the Group’s revenue derives from contracts with customers. Trade receivables, amounts recoverable on contracts and accrued income 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 from external customers disaggregated by pattern of revenue recognition is as follows:
| Contin Continuing operations uing operations | Parity Professionals | Parity Consultancy Services | Parity Professionals | Parity Consultancy Services |
| 2018 | 2018 | 2017 | 2017 | |
| £’000 | £’000 | £’000 | £’000 | |
| Services transferred over time | 76,978 | 8,496 | 73,615 | 9,543 |
| Services transferred at a point in time | 638 | – | 657 | – |
| Revenue from external customers | 77,616 | 8,496 | 74,272 | 9,543 |
The Group’s revenue from external customers disaggregated by primary geographical market is as follows:
| Continuing operations | Parity Professionals | Parity Consultancy Services | Parity Professionals | Parity Consultancy Services |
| 2018 | 2018 | 2017 | 2017 | |
| £’000 | £’000 | £’000 | £’000 | |
| UK | 76,033 | 8,496 | 74,272 | 9,543 |
| Rest of EU | 1,583 | – | – | – |
| Revenue from external customers | 77,616 | 8,496 | 74,272 | 9,543 |
72% (2017: 68%) or £56.0m (2017: £50.4m) of the Parity Professionals revenue from external customers was generated in the public sector. 83% (2017: 82%) or £7.0m (2017: £7.8m) of the Parity Consultancy Services revenue was generated in the public sector.
The largest single customer in Parity Professionals contributed revenue of 14% or £11.7m and was in the public sector (2017: 11% or £8.8m and in the public sector). The largest single customer in Parity Consultancy Services contributed revenue of 64% or £5.4m and was in the public sector (2017: 46% or £4.4m and in the public sector).
4 Operating expenses
| Continuing operations | 2018 | 2017 |
| £’000 | £’000 | |
| Employee benefit costs | ||
| – wages and salaries | 5,478 | 5,138 |
| – social security costs | 623 | 609 |
| – other pension costs | 174 | 192 |
| 6,275 | 5,939 | |
| Depreciation and amortisation | ||
| Amortisation of intangible assets – software | 155 | 239 |
| Depreciation of leased property, plant and equipment | 11 | 9 |
| Depreciation of owned property, plant and equipment | 28 | 38 |
| 194 | 286 | |
| All other operating expenses | ||
| Contractor costs | 76,067 | 73,088 |
| Sub-contracted direct costs | 363 | 228 |
| Operating lease rentals – plant and machinery | 8 | 17 |
| – land and building | 661 | 659 |
| Other occupancy costs | 156 | 98 |
| IT costs | 326 | 278 |
| Net exchange gain | (6) | – |
| Equity settled share-based payment charge | 129 | 68 |
| Other operating costs | 1,216 | 1,098 |
| 78,920 | 75,534 | |
| Total operating expenses | 85,389 | 81,759 |
During the year the Group obtained the following services from the Group’s auditors:
| Grant Thornton UK LLP | Grant Thornton UK LLP | KPMG LLP | KPMG LLP | |
| 2018 | 2017 | 2018 | 2017 | |
| £’000 | £’000 | £’000 | £’000 | |
| Audit of the Group, Company and subsidiary financial statements | 65 | – | – | 77 |
| Interim review | – | – | – | 6 |
| Tax compliance | 14 | – | – | 27 |
| Other | – | – | 20 | 26 |
| Other services | 14 | – | 20 | 59 |
| Total fees | 79 | – | 20 | 136 |
All other services have been performed in the UK. ‘Other’ refers to services provided in relation to advice relating to the Retirement Benefit Plan, transaction costs and assistance provided with research and development tax credit applications.
5 Non-recurring items
| Continuing operations | 2018 | 2017 |
| £’000 | £’000 | |
| Restructuring | ||
| – Employee benefit costs | 279 | – |
| – Other operating costs | 122 | – |
| Legal costs | 74 | – |
| Past service cost for defined benefit pension scheme | 20 | – |
| 495 | – |
Non-recurring items during 2018 in respect of continuing operations included:
· Costs related to restructuring of Parity Consultancy Services to align to the Group’s strategy of focusing on the data consultancy market. Costs include employee termination payments, fees for professional services and costs of changes in management structure
· Legal costs for professional services fees in respect of one-off cases with no significant further related costs anticipated
· Past service cost for the Group’s defined benefit pension scheme in respect of GMP equalisation
There were no non-recurring items during 2017.
6 Average staff numbers
| 2018 | 2017 | |
| Number | Number | |
| Continuing operations | ||
| Professionals – United Kingdom1 | 86 | 85 |
| Consultancy Services – United Kingdom, including corporate office | 23 | 25 |
| 109 | 110 | |
| Discontinued operations | ||
| Consultancy Services2 | 15 | 2 |
1 Includes 20 (2017: 22) employees providing shared services across the Group
2 Average for 4 months (2017: 12 months)
At 31 December 2018, the Group had 101 continuing employees (2017: 105).
1 Includes 20 (2017: 22) employees providing shared services across the Group
2 Average for 4 months (2017: 12 months)
At 31 December 2018, the Group had 101 continuing employees (2017: 105).
7 Finance costs
| 2018 | 2017 | |
| £’000 | £’000 | |
| Finance costs | ||
| Interest expense on financial liabilities | 181 | 199 |
| Net finance costs in respect of post-retirement benefits | 184 | 195 |
| 365 | 394 |
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 £37,000 (2017: £53,000).
8 Discontinued operations
In April 2018 the Group sold Inition Limited following the strategic decision made to place greater focus on the Group’s core business. As such, Inition Limited’s operating result for the current and comparative year, the loss on disposal and the impairment of goodwill associated with the Inition cash generating unit is presented as discontinued.
The loss on disposal of Inition Limited was determined as follows:
| 2018 | 2017 | |
| £’000 | £’000 | |
| Consideration | 200 | – |
| Net assets disposed of | – | |
| Intangible assets | 33 | – |
| Property, plant and equipment | 62 | – |
| Cash and cash equivalents | 86 | – |
| Trade and other receivables | 695 | – |
| Trade and other payables | (485) | – |
| Total net assets disposed of | 391 | – |
| Loss on disposal before disposal expenses | (191) | – |
| Disposal expenses | (115) | – |
| Loss on disposal of Inition Limited | (306) | – |
Net proceeds received on disposal of Inition Limited were as follows:
| 2018 | 2017 | |
| £’000 | £’000 | |
| Cash consideration received | 200 | – |
| Cash disposed of | (86) | – |
| Net proceeds from disposal of Inition Limited | 114 | – |
The post-tax result of discontinued operations was determined as follows:
| Note | 2018 | 2017 | |
| £’000 | £’000 | ||
| Revenue | 523 | 2,324 | |
| Depreciation and amortisation | (24) | (161) | |
| Loss on write down of intangible assets | – | (3) | |
| All other operating expenses | (787) | (3,262) | |
| Operating loss | (288) | (1,102) | |
| Impairment of goodwill | – | (1,165) | |
| Loss on disposal of Inition Limited | (306) | – | |
| Debtor insolvency dividend | (40) | – | |
| Loss from discontinued operations before tax | (554) | (2,267) | |
| Tax credit | 173 | 85 | |
| Loss from discontinued operations after tax | (381) | (2,182) | |
| Basic loss per share | 10 | (0.37p) | (2.14p) |
| Diluted loss per share | 10 | (0.37p) | (2.14p) |
The discontinued operations operating loss relates entirely to Inition Limited. The debtor insolvency dividend of £40,000 (2017: £nil) represents a one-off payment received from the administrators of Atraxis AG and relates to a bad debt previously written off by a former Group subsidiary registered in Switzerland. The discontinued operations tax credit of £173,000 in 2018 relates to a research and development tax credit claimed by Inition Limited.
Cash flows from/(used in) discontinued operations are as follows:
| 2018 | 2017 | |
| £’000 | £’000 | |
| Net cash from/(used in) operating activities | 105 | (674) |
| Net cash used in investing activities | (5) | (38) |
| Net cash flows for the year from/(used in) discontinued operations | 100 | (712) |
| 9 Taxation | ||
| 2018 | 2017 | |
| £’000 | £’000 | |
| Current tax expense | ||
| Current tax on profit for the year | – | 112 |
| Total current tax expense | – | 112 |
| Deferred tax credit | ||
| Accelerated capital allowances | 15 | 68 |
| Origination and reversal of other temporary differences | 72 | – |
| Recognition of deferred tax previously unprovided | – | (675) |
| Adjustments in respect of prior periods | (150) | (39) |
| Total deferred tax credit | (63) | (646) |
| Tax credit on continuing operations | (63) | (534) |
The tax credit on continuing operations excludes the tax credit from discontinued operations of £173,000 (2016: £85,000). This comprises a current tax credit of £173,000 (2017: £112,000) and a deferred tax expense of £nil (2017: £27,000). This has been included in loss from discontinued operations after tax (see note 8). The adjustment in respect of prior periods of £150,000 (2017: £39,000) largely relates to capital allowances that had been expected to be claimed that were subsequently not claimed.
There is no current tax payable by the Group for 2018 (2017: £nil).
The standard rate of corporation tax in the United Kingdom changed from 20% to 19% with effect from 1 April 2017 and remained at 19% during 2018. Accordingly, the Group’s profits for this accounting period are subject to tax at a rate of 19% (2017: 19.25%). A reduction to 17% effective 1 April 2020 was substantively enacted on 15 September 2016. As such, the tax rate of 17% (2017: 17%) has been applied in calculating the UK deferred tax position of the Group.
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:
| 2018 | 2017 | |
| £’000 | £’000 | |
| Profit before tax from continuing operations | 358 | 1,662 |
| Expected tax charge based on the standard rate of UK corporation tax of 19% (2017: 19.25%) | 68 | 320 |
| Expenses not allowable for tax purposes | 29 | 10 |
| Adjustments in respect of prior periods | (150) | (39) |
| Utilisation of unprovided tax losses carried forward | – | (141) |
| Recognition of deferred tax asset previously unprovided | – | (675) |
| Other | (10) | (9) |
| Tax credit on continuing operations | (63) | (534) |
Tax on each component of other comprehensive income is as follows:
| 2018 | 2018 | 2018 | 2017 | 2017 | 2017 | |
| Before tax | Tax | After tax | Before tax | Tax | After tax | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Exchange differences on translation of foreign operations | (3) | – | (3) | (39) | – | (39) |
| Remeasurement of defined benefit pension scheme | (1,005) | 171 | (834) | 800 | (136) | 664 |
| (1008) | 171 | (837) | 761 | (136) | 625 |
10 Earnings per ordinary share
Basic earnings per share is calculated by dividing the basic earnings for the year by the weighted average number of fully paid ordinary shares in issue during the year.
Diluted earnings per share is calculated on the same basis as the basic earnings per share with a further adjustment to the weighted average number of fully paid ordinary shares to reflect the effect of all dilutive potential ordinary shares.
| Earnings/ (loss) | Weighted average number of shares | Earnings/ (loss) per share | Earnings/ (loss) | Weighted average number of shares | Earnings/ (loss) per share | |
| 2018 | 2018 | 2018 | 2017 | 2017 | 2017 | |
| ‘000 | ‘000 | ‘000 | ‘000 | ‘000 | ‘000 | |
| Continuing operations | ||||||
| Basic earnings per share | 421 | 102,464 | 0.41 | 2,196 | 102,087 | 2.15 |
| Effect of dilutive options | – | 1,126 | – | – | 1,292 | – |
| Diluted earnings per share | 421 | 103,590 | 0.41 | 2,196 | 103,379 | 2.12 |
| Discontinued operations | ||||||
| Basic loss per share | (381) | 102,464 | (0.37) | (2,182) | 102,087 | (2.14) |
| Effect of dilutive options | – | – | – | – | – | – |
| Diluted loss per share | (381) | 102,464 | (0.37) | (2,182) | 102,087 | (2.14) |
| Continuing and discontinued operations | ||||||
| Basic earnings per share | 40 | 102,464 | 0.04 | 14 | 102,087 | 0.01 |
| Effect of dilutive options | – | 1,126 | – | – | 1,292 | – |
| Diluted earnings per share | 40 | 103,590 | 0.04 | 14 | 103,379 | 0.01 |
As at 31 December 2018 the number of ordinary shares in issue was 102,624,020 (2017: 102,124,020).
11 Goodwill
The carrying amount of goodwill is allocated to the Group’s two separate continuing cash generating units (CGUs), being Parity Professionals and Parity Consultancy Services.
Carrying amounts are as follows:
| ParityProfessionals | ParityConsultancy Services | Total | |
| £’000 | £’000 | £’000 | |
| Carrying Value | |||
| Balance at 1 January 2017 and 31 December 2017 | 2,642 | 1,952 | 4,594 |
| Balance at 1 January 2018 and 31 December 2018 | 2,642 | 1,952 | 4,594 |
Goodwill was tested for impairment in accordance with IAS 36 at the year end and no impairment charge was recognised.
The recoverable amounts of the CGUs are based on value in use calculations using the pre-tax cash flows based on budgets approved by management for 2019. Years from 2020 to 2022 are based on the budget for 2019 projected forward at expected growth rates. Years from 2023 onward assume no further growth. This approach is considered prudent based on current expectations of the 2019 long-term growth rate.
Major assumptions are as follows:
| Parity Professionals | Parity Consultancy Services | |
| % | % | |
| 2018 | ||
| Discount rate | 13.0 | 11.5 |
| Forecast revenue growth (years 1 to 4) | 2.0 | 10.0 |
| Operating margin 2019 | 1.9 | 6.1 |
| Operating margin 2020 onward | 2.0-2.3 | 7.8-10.5 |
| 2017 | ||
| Discount rate | 13.0 | 11.5 |
| Forecast revenue growth (years 1 to 4) | 5.0 | 10.0 |
| Operating margin 2018 | 2.6 | 10.0 |
| Operating margin 2019 onward | 3.0-3.6 | 10.7-12.9 |
Discount rates are based on the Group’s weighted average cost of capital adjusted for the specific risks of each cash generating unit.
Forecast revenue growth is expressed as the compound growth rate over the next 4 years from 2019 to 2022. Growth for the Parity Professionals CGU is based upon the long-term growth rate for the UK economy. Growth for the Parity Consultancy Services is assumed to be higher than the long-term growth rate due to the following factors:
· The CGU is the focal point of the Group’s strategy and growth plans;
· The CGU is relatively small so higher rates of growth are achievable from a small base. For instance, the CGU achieved an average growth of 47% in the financial years 2016 and 2017;
· In 2018 the CGU was hit by issue on a significant contract resulting in reduced year on year revenue for the CGU. The Directors expect this to be a one-off rather than a trend; and
· New client wins in 2018 and an extension to the ESFA contract in 2019 help to underwrite the growth forecasts.
For all CGUs the rates are based on past experience of growth in revenues and future expectations of economic conditions. Operating margins are based on past experience.
A 10% change in any of the underlying assumptions used in the discounted cash flow forecasts would not lead to the carrying value of goodwill being in excess of their recoverable amount.
12 Deferred tax
| 2018 | 2017 | |
| £’000 | £’000 | |
| At 1 January | 919 | 409 |
| Recognised in other comprehensive income | 171 | (136) |
| Remeasurement of defined benefit pension scheme | ||
| Recognised in the income statement | ||
| Adjustments in relation to prior periods | 150 | 39 |
| Capital allowances in excess of depreciation | (15) | (68) |
| Other short-term timing differences | (72) | – |
| Recognition of deferred tax previously unprovided | – | 675 |
| At 31 December | 1153 | 919 |
| The deferred tax asset of £1,153,000 (2017: £919,000) comprises: | ||
| 2018 | 2017 | |
| £’000 | £’000 | |
| Depreciation in excess of capital allowances | 820 | 685 |
| Short term and other timing differences | 3 | 54 |
| Retirement benefit liability | 330 | 180 |
| 1153 | 919 |
A deferred tax asset for deductible temporary differences is not recognised unless it is more likely than not that there will be taxable profits in the foreseeable future against which the deferred tax asset can be utilised. At the balance sheet date, the Directors assessed the probability of future taxable profits being available against which Parity Consultancy Services could recognise a deferred tax asset for previously unrecognised deductible temporary differences. The review concluded that it is probable that future taxable profits will be available. As such, the Directors have recognised a deferred tax asset for all deductible temporary differences available to Parity Consultancy Services.
A deferred tax asset for unused tax losses carried forward is normally recognised on the same basis as for deductible temporary differences. However, the existence of the unused tax losses is itself strong evidence that future taxable profit may not be available. Therefore, when an entity has a history of recent losses, the entity recognises a deferred tax asset arising from unused tax losses only to the extent that there is convincing evidence that sufficient taxable profit will be available against which the unused tax losses can be utilised. At the balance sheet date, the Directors considered recognising a deferred tax asset for previously unrecognised unused tax losses carried forward by Parity Consultancy Services. The review concluded that given the division’s history of relatively recent tax losses and the additional requirement of providing convincing evidence that sufficient taxable profit will be available, a prudent approach would be taken and deferred tax would remain unrecognised for tax losses carried forward by the division.
The Directors believe that the deferred tax asset recognised is recoverable based on the future earning potential of the Group and the individual cash generating divisions. The forecasts for Parity Professionals comfortably support the unwinding of the deferred tax asset held by this division of £404,000 (2017: £380,000) and the forecasts for Parity Consultancy Services comfortably support the unwinding of the deferred tax asset held by this division of £749,000 (2017: £539,000).
The deferred tax asset at 31 December 2018 has been calculated on the rate of 17% substantively enacted at the balance sheet date.
The movements in deferred tax assets during the period are shown below:
| Asset | (Charge)/credit to income statement | Credit to other comprehensive income | |
| 2018 | 2018 | 2018 | |
| £’000 | £’000 | £’000 | |
| Depreciation in excess of capital allowances | 820 | 135 | – |
| Other short-term timing differences | 3 | (51) | – |
| Retirement benefit liability | 330 | (21) | 171 |
| At 31 December 2018 | 1,152 | 63 | 171 |
| Asset | Credit to income statement | Charge to other comprehensive income | |
| 2017 | 2017 | 2017 | |
| £’000 | £’000 | £’000 | |
| Depreciation in excess of capital allowances | 685 | 330 | – |
| Other short-term timing differences | 54 | – | – |
| Retirement benefit liability | 180 | 316 | (136) |
| At 31 December 2017 | 919 | 646 | (136) |
The Group has unrecognised carried forward tax losses of £30,187,000 (2017: £29,485,000). The Group has unrecognised capital losses carried forward of £282,068,000 (2017: £281,937,000). These losses may be carried forward indefinitely.