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UK — Exposure to public sector impacts Parity results

01 September 2010

Revenue was down -16% to 52.6 million Pounds in H1 2010 at Parity Group Plc (PTY:LSE), the UK-focused IT recruitment (Resources) and consulting (Solutions) firm.

Interim results for the six months ended 30 June 2010 published yesterday lunchtime reveal that a decline in public sector business resulted in a fall in revenue at Parity Resources by -15% from 52.6 million Pounds in H1 2009 to 44.5 million Pounds in H1 2010. Operating profit at Parity Resources was down from 1.35 million Pounds in H1 2009 to 1.1 million Pounds in H1 2010.

Compared to the second half of 2009, average contractor numbers fell by -3% while average gross margin held up well at 8.3% compared to 8.4%.

The group says in a statement "it is important to continue to win government business and therefore pleasing to be selected again as a Tier One supplier under all four relevant categories of the Buying Solutions non-permanent staff framework agreement."

"Private sector business is growing and now represents some 25% of revenue. We expect this to increase further with a new sales proposition being launched shortly."

Divisional revenue was down by -21% at Parity Solutions from 10.2 million Pounds in H1 2009 to 8.1 million Pounds in H1 2010 and are expected to fall further in the second half.

The projects business, which has represented a third of Solutions revenue, had a very poor six months. One project over-ran resulting in significant extra costs in this period. A number of larger projects were bid for which, with hindsight, Solutions were unlikely to win. The consequence was a low win rate and a very significant reduction in revenues in this one area in the last three months of the period. The application management and graduate selection and development business units continue to perform well, whilst defence remains stable.

Actions to reduce costs were taken in July, and again more recently following an internal review, to better align divisional costs to the revenue now expected in the second half of 2010. There was also a need for simpler business processes and better management information.

The group comments "we conducted a thorough review of the division's capabilities and were encouraged. We have concluded that we need to focus on a few well-defined offerings, with a greatly improved sales and commercial capability, and with the more agile processes needed for smaller projects."

"Parity Solutions will be renamed Parity Systems and will add to its established business units a new focus as a Microsoft Gold Partner on their Cloud and Sharepoint businesses, where we have established capabilities and will recruit additional talent. A reorganised sales capability will be focussed on the exciting growth prospects ahead; particularly with Microsoft switching the great majority of future R & D to its Cloud offering as announced this year."

"We are also forming relationships with external partners. Small companies with particular skills in mobile internet devices and visualisation technology. The increasing use of iPads and smartphones in the workplace and the trend to visual rather than text communication are both important to our future Systems business."

"Having reduced the business to a solid base in the second half of 2010 we look to a sharper Systems division to resume a growth path next year focussed on growth market sectors."

"The coming months will see the launch of a new graduate Talent Management division alongside Parity Resources and the renamed Parity Systems divisions. Talent Management will be based round our successful businesses in graduate development at our Belfast centre and the renewal announced today of the Cabinet Office Fast Stream graduate selection contract. This is an exciting market for Parity and we are well-placed to take advantage of current government and industrial interest in the selection and development of new graduates."

After the announcement yesterday Parity's shares closed down by -1.76% to 7.25 Pence.



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