Parity Regulatory News (PTY)

Parity Group plc

Trading Update - 22nd July 2010

Parity Group plc ("Parity" or the "Group"), the UK IT services group, today issues a further update to its May IMS, following Board changes in June.

Revenues and profits in the fixed-price projects area of Solutions have declined significantly resulting in a first half operating loss for the Group of about £1 million, including currently anticipated costs on an over-running project. The Board expects a small operating loss for the Group in the second half. There will be exceptional costs in the first half of 2010 including additional property provisions and significant one-off reorganisation costs, and some further reorganisation already planned for the second half. These exceptional costs are likely to total some £1.5 million for this year.

There are likely to be further property costs over the next two years as a consequence of the administration of Parity Training, which was sold early last year. The remaining debtor payment from the deal might also not be received. We expect no other cash exposure from this discontinued business.

A substantial reduction of the cost base is essential to remaining competitive at the current size. This has already started and the Board intends to have completed many of the cost reductions within three months, although some committed costs will reduce over the next 18 months. Action is being taken to find tenants for all unoccupied property.

There is much work to be done by the new management team in the second half of the year to get the business in shape for future profitable growth; but we see plenty of positive opportunities once this has been achieved.

Key to improving the Group's financial performance will be strong management, increasing efficiency, reducing costs and a tight focus on a few growing markets where the business has a successful offering and can concentrate its sales efforts. Throughout these changes cash management will remain a high priority.

It is clear that Parity has excellent staff and provides high quality services for many large organisations. The Resources business together with the Solutions talent management, defence professional services and application management businesses continue on track; but we plan to withdraw from the large fixed-price project area.

The new Board is committed to increasing shareholder value substantially over the coming years but this requires swift and decisive action to be taken in the short term, the benefit of which will start to come through in the first half of next year and set a solid base for our future growth.

Further details of the new strategy for the Group and its focused offerings will be provided in the Interim Results Statement to be announced at the end of August.