Prime People Plc
Annual Report 2011

Plain-text annual report

Prime People Plc Annual Report and Accounts Annual report and financial statements for the year ended 31 March 2011 2011 Contents Chairman's statement Operating review Financial review Board of Directors Report of the Directors Statement of Directors responsibilities Corporate governance Remuneration report Independent Auditors’ report Consolidated statement of comprehensive income Consolidated statement of changes in equity Consolidated statement of financial position Company statement of financial position Company statement of changes in equity Group and company cash flow statement Notes to the financial statements Directors and Advisers Notice of Annual General Meeting Form of Proxy Page 1 2 3 4 5 11 12 15 18 20 21 22 24 25 26 27 55 56 58 through Share Buy Back During the year 55,000 shares at a cost of £30,375 (2010: 25,000 shares at a cost of £8,750) were the Group‟s buy back purchased programme and the Board will be seeking shareholder approval for the renewal of the authority to repurchase up to 10% of the Group‟s issued share capital at the Annual General Meeting on 28 June 2011. Strategy With recruitment being driven to a very large extent by the economic cycle it is our strategy to broaden, whether by organic growth or acquisition, the recruitment service that the Group the time provides when opportunity arises, both by geography and sector. We continue in our established invest businesses and we are looking to extend our reach in South East Asia. We expect to add to our established presence in that region (Hong Kong since 2006) by opening an office in China. right and the to is there continues Outlook Whilst to be uncertainty surrounding recovery in the UK, there is evidence of confidence returning to our markets. Our to our revenues provide diversity overseas business and, subject to there being no systemic shocks, we look forward with some confidence to 2012. Our people Finally, I should like to thank our staff for their hard work and commitment over the last twelve months. These results are a testament to their efforts. Robert Macdonald Executive Chairman 2 June 2011 PRIME PEOPLE PLC Chairman's Statement Introduction We saw a continuation of the improvement in overall market conditions and both our net fee income and profitability in the year to 31 March 2011. The recovery has been in permanent placements, where net fee income grew by 35% in the year. Our temporary business suffered a decline in sales and net fee income as a direct result of Public Sector spending cuts. The ratio of net fee income from permanent placements temporary placements has increased from 78:22 in 2010 to 88:12 in the year being reported. to We have increased our permanent consultant headcount within our established areas of activity and broadened our business into new end markets. The Group generated 29% of its net fee income outside the UK, which is broadly similar to the 30% achieved in 2010. Results Operating profit for the year was £1.01m (2010: £0.46m), a significant improvement on the prior year. Basic earnings per share increased to 5.86p (2010: 2.79p). The conversion rate of operating profit from net fee income increased from 6.9% in 2010 to 12.5% in 2011. Gross revenue was marginally down at £13.95m reflecting the lower level of temporary business income (2010: £14.18m). However, net fee increased by 20.5% to £8.04m (2010: £6.67m). The Group maintained a strong net cash position with £3.03m as at 31 March 2011 (2010: £2.3m). During the year the Group repaid the final tranche of the bank loan entered into with Barclays Bank Plc in January 2006 to part fund the acquisition of Macdonald & Company Group Limited. Dividends The Board will be recommending an increase in the final dividend to 2.25p (2010: 1.5p) per share which combined with the interim dividend of 1.75p per share, will result in a total dividend of 4.00p (2010: 3.5p). 1 similar to 2010, productivity per head has increased by 16% and we are looking for this to further improve in 2012. A testament to the above approach is that our largest brand, Macdonald & Company, was placed in the top 100 companies to work for by the Sunday Times and achieved 2 Star Status in “The Sunday Times 100 Best Small Companies To Work For 2011”. Current Trading The outlook for the year remains positive. We believe that the strong market position of our UK business combined with the continued investment in new sectors and our overseas businesses will enable us to further increase the net fee income generated by the Group. Peter Moore Managing Director 2 June 2011 PRIME PEOPLE PLC Operating Review The Business The Group‟s principal activity is the delivery of permanent and temporary recruitment services. Historically, the Group‟s focus has been to provide these services into the built environment sector. More the Group has successfully broadened its sector focus to include provision of recruitment services for customer insight staff in the market research and data analysis sectors. recently The Group has delivered strong net fee income growth of 20.5% increasing net fee income from £6.67m to £8.04m producing an operating profit of £1.01m (2010: £0.46m). the Insight, customer In the UK business a number of our teams have had a strong year. It is very encouraging to report that Prime insight recruitment business closed with net fee income up by 147%. Against this net fee income from our temporary business reduced by 33% from £1.47m to £0.98m, as referred to in the Chairman‟s Statement this area has been affected by the government spending cuts. On the international front, net fee income grew by 15.8% from £2.02m to £2.34m, reflecting a partial return of confidence to the Middle East market and the strength of the South East Asia market. With respect the consultant headcount in our Hong Kong office during the course of the year, which we expect to provide strong net fee income growth in 2012. latter we have doubled the to and Internationally During the year we continued to invest in new market sectors. We have established teams in both the UK the environment and energy sectors and, in the UK, serving the pharmaceutical research sector. These teams have now been in place since June 2010 and we expect them to generate net fee income growth in 2012. serving Our Staff The success of our business is reliant on the quality of our staff and we have adopted an improved recruitment and training process during the year. Whilst overall headcount has remained 2 PRIME PEOPLE PLC Financial Review Trading results Gross fee income for the year from continuing operations decreased by 1.6% to £13.95m (2010: £14.18m). Net fee income increased by 20.5% to £8.04m (2010: £6.67m). The group considers net fee income to be the key indicator of the performance of the business. This is defined as the income generated from permanent placements together with the contribution earned from contract and temporary staff. Cash flow and cash position Net cash inflow of £1.58m (2010: inflow of £0.89m) was generated from operating activities during the year, which after net taxation payments taxation payment of of £0.23m (2010: net £0.03m), resulted in a net cash inflow from operating activities of £1.35m (2010: inflow of £0.86m). The group operates a centralised treasury function with a net cash position at 31 March 2011 of £3.03m, compared to a net cash position of £2.3m at 31 March 2010. Chris Heayberd Finance Director 2 June 2011 Administrative costs totalled £7.03m which represents 87% of net fee income (2010: £6.21m: 93%). A significant contributor to the reduction as a percentage of net the improvement in fee productivity across the group. Profit before tax increased by 121 per cent to £1.01m (2010: £0.46m). income was fee The taxation charge is £0.33m on a profit on ordinary activities before taxation of £1.02m which gives an overall tax rate of 31.8% (2010: 27.9 %). The reasons for the difference from the standard UK corporation tax rate of 28% are detailed in note 8 of the accounts. Earnings per share Basic earnings per share increased by 110% to 5.86pence (2010: 2.79 pence).The diluted earnings per share increased by 108% to 5.65pence (2010: 2.71pence). Dividend As outlined in the Chairman‟s statement, the Directors propose a final dividend of 2.25 pence which will, subject to shareholder approval at the Annual General Meeting, be paid on 1 July 2011 to shareholders who are on the register on 17 June 2011, making a total dividend paid to shareholders for the year of 4.00 pence per ordinary share. Balance sheet The Group‟s net assets position at 31 March 2011 is similar to last year at £13.79m (2010:13.53m) Trade receivables are slightly down on last year at £1.72m (2010:£1.78m) as is the average credit period taken by customers at 45 days (2010: 46 days). 3 PRIME PEOPLE PLC Board of Directors Directors' biographies Robert Macdonald - Executive Chairman Robert has held senior positions within the recruitment industry since 1973 when he founded Reuter Simkin Ltd, a recruitment business in both the legal and property sectors. After the sale of Reuter Simkin in 1989, he acquired shares in and was chairman of, two other recruitment companies including Straker Simkin which acquired the legal business of Reuter Simkin in the West of England from PSD in 1992 and traded as Macdonald & Company. In 1994, he established Macdonald & Company as a specialist property recruitment agency in London. Macdonald & Company was incorporated separately in 1996 when certain key members of staff, including Peter Moore, acquired equity stakes. Peter Moore MRICS - Managing Director Peter worked with Strutt & Parker from 1992 to 1995, qualifying as a Chartered Surveyor in 1994. He joined Macdonald & Company in November 1995 and was appointed Managing Director in 1996. As MD of Macdonald & Company, Peter has responsibility for its day-to-day operations. He has introduced operational tools such as customer relationship management, anonymous staff surveys, staff working groups, objective grading systems for staff and highly incentivising remuneration schemes. He specialises in advising on topics such as staff retention, mergers and acquisitions, human resource policy and remuneration benchmarking. He is also responsible for the industry's benchmark salary and benefits survey undertaken annually in conjunction with RICS. Chris Heayberd BA ACA - Finance Director Chris qualified as a Chartered Accountant in 1980 and since that date has held a number of financial positions in a broad range of industries. Since 1989 his main focus has been the business services sector. This included 4 years as Finance Director of PSD Group plc, during which time the company was admitted to trading on the London Stock Exchange. Chris rejoined the Board of Prime People in June 2000 and for a period of five years combined the role of Finance Director with other business interests. In May 2005 he returned full time to the Board. John Lewis OBE LLB (Hons) - Non-executive Director John is a solicitor (Non Practising) and a consultant to Eversheds LLP (solicitors). Previously he served as a partner in Lewis Lewis & Co which became part of Eversheds after a series of mergers. John is currently Chairman of Photo-Me International Plc and several private companies. He has served as chairman of Cliveden Plc and Principal Hotels Plc and as deputy chairman of John D Wood & Co Plc, retiring in each case when the company was sold. Simon Murphy BSc ACA - Non-executive Director Simon qualified as a Chartered Accountant with Coopers & Lybrand. He is currently Director of corporate finance for Treasury Holdings. He was previously a Managing Director in the global investment banking division of HSBC. He was Chief Executive of Prime People from May 2005 until the acquisition of Macdonald & Company Group Ltd. He is a Director of a number of private companies. 4 PRIME PEOPLE PLC Report of the Directors for the year ended 31 March 2011 The Directors present their annual report on the affairs of the Group, together with the audited financial statements for the year ended 31 March 2011. Prime People is a public limited company, incorporated and domiciled in England, and its shares are quoted on the AIM market. Principal activity The principal activity of the Group during the year was the provision of recruitment and training services. Business Review The Company is required by the Companies Act to include a business review in their report of the development and performance of the Group‟s business for the financial year and of its position at the year end as well as expected future developments. This information is contained within the Chairman‟s Statement on pages 1 and 2 and the Financial Review on page 3. Principal Risks and uncertainties The Board reviews on a regular basis the principal risks and uncertainties facing the Group. The Board‟s approach is to ascertain the key risks and develop plans to reduce the potential effects of these risks on the business. The principal risks identified are as follows: Dependence on Key People The future success of the Group is dependant on the continued service of senior management and key people. The loss of the services of the senior management and other key people could have a material effect on the business. To address this, the Group has put in to place an internal recruitment function, a training and development programme, competitive pay structures and long term remuneration plans, the aim of which is to retain the key employees. Competition Whilst the Directors believe that the Group is well positioned in its chosen markets it continues to broaden its strategy by expanding into new industry sectors to reduce reliance on any one recruitment market. This exposes the Group to increased competition and whilst the Group seeks to continue to improve its competitive positions, the actions of current or indeed potential competitors may adversely affect the Group‟s business. Strength of Property Markets The market for property recruitment services, from which the Group obtains the major part of its revenue, remains uncertain and it is difficult to predict how this market will develop in the foreseeable future. Our temporary business, which historically has been focused in the Public Sector has, following government funding cut backs, been in decline and for the time being the signs of recovery for this line of business are limited. We have taken defensive steps to ensure that this business will be in a position to exploit cyclical opportunities when they present themselves and to be prepared for the upturn in its markets when they come. A decline from current levels of activity in the property market generally could have a material adverse effect on profitability and cash flows of the business. Macro economic factors Recruitment activity is largely driven by economic cycles and the levels of business confidence. The Board looks to reduce the Group‟s cyclical risk by expanding geographically and increasing the number of sectors from which it derives revenues. Future business expansion is planned for the United Kingdom and South East Asia and therefore outcomes could be influenced by the GDP growth of these economies. Regulatory position The recruitment industry is subject to an increasing level of regulation and compliance which varies in its degree of complexity from country to country. The Group takes its responsibilities seriously and remains committed to being compliant in each of the regions in which it operates. In order to reduce the legal and compliance risks, fee earners and support staff receive regular training and updates of changes in legal and compliance requirements. 5 PRIME PEOPLE PLC Report of the Directors for the year ended 31 March 2011 Principal Risks and uncertainties (continued) Information Technology To provide services to clients and candidates the Group is highly dependent on certain technology systems and the infrastructure on which they operate. These systems are dependent on specific suppliers who provide the technology infrastructure and disaster recovery solutions. The performance of these suppliers is continually monitored to ensure that the services are available and maintained. In addition the systems and infrastructure are regularly reviewed and upgraded to ensure that they provide appropriate functionality and resilience to support the business as it develops. Foreign exchange risk The Group‟s international operations account for approximately 29 per cent of net fee income and less than 10 per cent of the Group‟s assets. Consequently the Group has a degree of translation exposure in accounting for overseas operations and expects this to increase in line with the growth of the Group‟s operations outside the United Kingdom. Currently the Group‟s policy is not to hedge against this exposure. However, the Group seeks to minimise this exposure by converting into sterling all cash balances received in foreign currency that are not required for local short term working capital needs. The Group will continue to monitor its policies in this area. Treasury policies, liquidity and financial risk Surplus funds are held to support short term working capital requirements. These funds are invested through the use of short term and period deposits, with a policy of maximising fixed interest returns whilst providing the flexibility required to fund on-going operations and to invest cash safely and profitably. It is not a Group policy to invest in financial derivatives. Although the financial risks to which the group is exposed are currently considered to be minimal, future interest rate, liquidity and foreign currency risks could arise. The Board will continually review its existing policies and make changes as required to limit the financial risks of the business. Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The principal credit risk arises from the Group‟s trade receivables. Ongoing credit evaluation is performed on the financial condition of accounts receivable based on payment history and third party credit references with appropriate provisions being made. Corporate Governance The Company and the Group are committed to high standards of corporate governance, details of which are provided in the Corporate Governance Report on pages 12 to 14 and Remuneration Report on pages 15 to 17. Results The consolidated profit on ordinary activities after taxation amounted to £696k (2010: £333k). Dividends An interim dividend for 2011 of 1.75 pence per ordinary share was paid on 3 December 2010 to those shareholders on the register at 26 November 2010 (2010: Nil pence). The Directors‟ recommend the payment of a final dividend for 2011 of 2.25 pence per ordinary share which, if approved at the Annual General Meeting, will be paid on 1 July 2011 to those shareholders on the register on 17 June 2011 (2010: 1.5 pence). 6 PRIME PEOPLE PLC Report of the Directors for the year ended 31 March 2011 Directors and interests The following were Directors during the year and held office throughout the year: Robert Macdonald Peter Moore Chris Heayberd John Lewis Simon Murphy (Executive Chairman) (Managing Director) (Finance Director) (Non-executive Director) (Non-executive Director) Biographical details for all the current Directors are shown on page 4. The Directors who held office at the end of the financial period had the following interests, all of which are beneficial, in the ordinary shares of Prime People Plc, as recorded in the register of Directors' share interests: Robert Macdonald Peter Moore Chris Heayberd John Lewis Simon Murphy Ordinary shares of 10p each 31 March 2011 31 March 2010 2,480,000 2,897,500 199,000 1,180,500 230,000 2,480,000 2,897,500 199,000 1,180,500 230,000 Details of directors‟ share options are given in the Remuneration Report on pages 16 and 17. There have been no changes to the directors' interests in the ordinary share capital of Prime People Plc between 31 March 2011 and 1 June 2011. Substantial shareholders As at 16 May 2011, the Company had been notified in accordance with Chapter 5 of the Disclosure and Transparency Rules of the following substantial shareholdings: Peter Moore Robert Macdonald John Lewis Peter Hearn The Cayzer Trust Company Limited City of London PR Group Number of 10p ordinary shares Percent of issued share capital % 2,897,500 2,480,000 1,180,550 719,500 439,500 429,000 24.26 20.77 9.89 6.02 3.68 3.59 The mid market quotation of the Company‟s shares at close of business on 31 March 2011 was 65p. The highest and lowest mid market quotations in the period from 1 April 2010 to 31 March 2011 were 77p and 38p. 7 PRIME PEOPLE PLC Report of the Directors for the year ended 31 March 2011 Our employees The involvement of our employees in the business is key to our success. We endeavour to source and retain the highest calibre employees from a wide range of backgrounds. The business is organised into a number of business teams based on sector with each team leader empowered to run their operations within the operating framework of the Group. The policy of providing employees with information about the Group has been continued and employees are always encouraged to present their own suggestions and views. The Group is committed to the principles of hiring based purely on individual merit and is committed to equal opportunities. The Group gives full and fair consideration to applications for employment from disabled persons where the requirements of the job may be adequately covered by a disabled person. The Group has embraced the Government‟s policy on Stakeholder Pensions and made available schemes open to all employees. Policy and practice on payment of creditors The Group agrees payment terms with each of its major suppliers and seeks to abide by these terms, subject to satisfactory performance by the supplier. Trade creditors for the Group at the year end represent 34 days average purchases (2010: 30 days). The Company makes no trade purchases. Environmental policy The Group recognises its responsibilities for the environment and gives due consideration to the possible effects of its activities on the environment. As such our main environmental impact comes from the running of our businesses generating carbon emissions through the consumption of gas and electricity, transport activities and commuting, as well as office based waste such as paper and toners. We do not consider that the Group‟s activities have a major effect on the environment. However, it is the Group‟s aim to reduce the environmental impact of its activities and to operate in an environmentally responsible manner. We are, therefore, committed to the following principles to ensure the business operates in an environmentally sensitive manner: Encouraging the re-use and re-cycling of products and waste from our offices Ensuring efficient use of materials and energy Purchasing environmentally friendly materials where appropriate. Charitable and Political Donations During the year, the Group supported the charity ELIFAR with a number of employees donating their time to support initiatives. This year we also allowed employees the opportunity to be involved in activities with a charity, community or environmental cause and allowed them to take two working days out of the office in order “to give something back”. In addition the Group made charitable donations of £7,099 (2010: £3,184). The group made no political donations during the year (2010: £Nil). Going concern At 31 March 2011 the Group had a net cash position of £3.03m (2010: £2.3m). The Directors have prepared cash flow forecasts for a period of at least 12 months from the date of approval of the financial statements. After reviewing these forecasts and having made the appropriate enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue operating for the foreseeable future. The Group continue to adopt the going concern basis in preparing the financial statements. 8 PRIME PEOPLE PLC Report of the Directors for the year ended 31 March 2011 Directors’ and officers’ liability insurance The Company maintains liability insurance for the Directors and officers of the Company and its subsidiaries. Capital Structure Details of the authorised and issued share capital are shown in note 18. The Company has one class of ordinary shares which carry no right to fixed income and which represents 100% of the total issued nominal value of all share capital. Each share carries the right to one vote at general meetings of the Company. Details of employee share schemes are set out in note 18. Ordinary and Special business for the annual general meeting The notice of the meeting contains Ordinary and Special Resolutions to be proposed at the forthcoming Annual General Meeting to be held on Tuesday 28 June 2011. The Special Business is detailed on pages 9 and 10. Allotment of shares The Companies Act 2006 provides that the Directors of the Company may only allot unissued shares if they have the authority of shareholders or the Articles of Association to do so. Approval of shareholders will therefore be sought in resolution 7 to grant authority to allot shares up to a maximum aggregate nominal amount of £398,050. This amounts to 3,980,500 shares or approximately 33.33 per cent of the total share capital in issue as at 1 June 2011. Except for the issue of shares held under an existing Enterprise Management Incentive Scheme, details of which are set out in note 18 of these accounts the Directors have no intention, at present, of issuing any part of that capital and no issue will be made which will effectively alter control of the company without the prior approval of shareholders in general meeting. In addition, the Companies Act 2006 gives shareholders statutory rights of pre-emption, whereby any shares issued for cash must be offered to existing shareholders pro-rata to their respective holdings. Assuming the board is granted the authority to issue new shares by shareholders, authority will be sought in resolution 8 to allot shares for cash up to a maximum aggregate nominal amount of £59,700 representing 597,000 shares, being approximately 5 per cent of the issued ordinary share capital of the Company, to persons other than existing shareholders as if the statutory pre-emption rights did not apply. The authorities granted by the relevant resolutions will expire on the earlier of 27 September 2012 and the conclusion of the next Annual General Meeting of the Company. Market purchases of own shares Resolution 9 will be proposed as a special resolution at the Annual General Meeting and, if approved, will give the Company authority to make market purchases of its own shares out of the distributable profits of the Company. The Directors propose that the Company should be authorised to purchase a maximum of 1,194,150 ordinary shares of 10p each, equivalent to approximately 10 per cent of the current ordinary shares in issue. On such purchase, such ordinary shares will be cancelled. The effect of any purchases will be to reduce the number of shares in issue. In recognition that current market conditions are challenging and that liquidity for dealing in the Company‟s shares is constrained, within the limits of the resolution dealing with the purchase of its own shares at the forthcoming resolution (if duly passed by shareholders) and with an aggregate consideration not exceeding £250,000 the Company plans, from time to time, to purchase its shares in the market and to cancel them. 9 PRIME PEOPLE PLC Report of the Directors for the year ended 31 March 2011 Market purchases of own shares (continued) If the Board exercises the authority conferred by Resolution 8 the Company will have the option of holding repurchased shares in treasury. The full exercise of all options outstanding at the date of the notice of meeting may require the issue of up to 908,468 ordinary shares. This represents 8.45 per cent of the Company‟s issued share capital if the proposed authority to purchase the Company‟s own shares has been obtained and exercised in full (in each case at the date of notice of the Annual General Meeting). Statement as to disclosure of information to auditors Each of the persons who are Directors at the time when this report is approved has confirmed that: (a) so far as each Director is aware, there is no relevant audit information of which the company‟s auditors are unaware; and (b) each Director has taken all steps that ought to have been taken as a Director in order to be aware of any information needed by the company‟s auditors in connection with preparing their report and to establish that the company‟s auditors are aware of that information. Auditor Crowe Clark Whitehill LLP have expressed their willingness to continue in office and a resolution to re-appoint them as auditor and authorising the Directors to set their remuneration will be proposed at the forthcoming Annual General Meeting. By order of the Board Chris Heayberd Finance Director 2 June 2011 10 PRIME PEOPLE PLC Statement of Directors’ responsibilities The Directors are responsible for preparing the Directors' Report, Directors‟ Remuneration Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs‟) as adopted by the EU and applicable law. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgments and accounting estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company and Group's transactions and disclose with reasonable accuracy at any time the financial position of the Company and Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. They are further responsible for ensuring that the Report of the Directors and other information included in the Annual Report and Financial Statements is prepared in accordance with applicable law in the United Kingdom. The maintenance and integrity of the Prime People plc web site is the responsibility of the Directors; the work carried out by the auditors does not involve the consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred in the accounts since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of the accounts and the other information included in annual reports may differ from legislation in other jurisdictions. 11 PRIME PEOPLE PLC Corporate Governance Statement by the Directors on compliance with the Combined Code The Board of Directors has a strong commitment to high standards of corporate governance integrity and ethics. The Financial Reporting Council (FRC) published the new „UK Corporate Governance Code‟ in June 2010, replacing the „Combined Code on Corporate Governance‟, and in September 2010 the Quoted Company Alliance (QCA) published „Corporate Governance Guidelines for Smaller Quoted Companies‟ replacing previous guidelines issued in 2004 and 2005. Although as an AIM listed company it is not formally required to do so, the Group and has followed the principles of the „UK Corporate governance Code‟ so far as is practicable and appropriate for the nature and size of the Group. The Group supports the recommendations on corporate governance of the QCA and has implemented steps to reach compliance. A statement of the Directors‟ responsibilities in respect of the financial statements is set out on page 11. Below is a brief description of the role of the Board and its Committees, followed by a statement regarding the Group‟s system of internal controls. The Board and its operation The Board of Prime People Plc is the body responsible for corporate governance, establishing policies and objectives, and reviewing the management of the Group‟s resources The Board consists of an executive chairman, Robert Macdonald, two other executive Directors and two non- executive Directors. The non-executive Directors are John Lewis and Simon Murphy. Both receive a fixed fee for their services and their interests in the shares of the company are as described on pages 7 and 16. Biographies of the board members appear on page 4. The Board meets up to 6 times each year and more frequently where business needs require and the Directors receive monthly management accounts detailing the performance of the Group. The Board has a general responsibility for overseeing all day to day matters of the Company with specific responsibility for reviewing trading performance, resources (including key appointments), finding, setting and monitoring strategy, examining acquisition opportunities and reporting to shareholders. The non-executive Directors have a responsibility to ensure the strategies proposed by the executive Directors are fully considered and to bring their judgment to bear in this role. To enable the Board to function effectively and Directors to discharge their responsibilities, full and timely access is given to all relevant information. In the case of Board meetings, this consists of a comprehensive set of papers, including monthly business progress reports and discussion documents regarding specific matters. Directors are free to and regularly make further enquiries where they feel it is necessary and they are able to take independent professional advice as required at the Company's expense. This is in addition to the access which every Director has to the company secretary. The Board considers itself to be a "small board", and therefore has not set up a separate Nomination Committee. Appointments to the Board of both executive and non-executive Directors are based on approval by the full Board. Any Director appointed during the year is required, under the provisions of the company's Articles of Association, to retire and seek reappointment by shareholders at the next Annual General Meeting. The Articles also require that one-third of the Directors retire by rotation each year and seek reappointment at the Annual General Meeting. 12 PRIME PEOPLE PLC Corporate governance The Board and its operation (continued) The Directors have resolved that they will retire at least once every three years even though not required by the Company's Articles. The executive Directors abstain from any discussion or voting at full board meetings on Remuneration Committee recommendations where the recommendations have a direct bearing on their own remuneration package. Remuneration of non-executive Directors is determined by the Board. Non-executive Directors abstain from discussions concerning their own remuneration. The Company publishes a full annual report and financial statements which are available on the Prime People website, to shareholders on request and to other parties who have an interest in the Group's performance. All shareholders have the opportunity to put questions at the Company's Annual General Meeting. Audit Committee The Audit Committee comprises the two non executive Directors of the Company and is chaired by Simon Murphy. Its terms of reference require it to meet not less than twice each year and it provides a forum for reporting by the Group‟s auditors. By invitation, the meetings are also attended by the Finance Director. The Audit Committee‟s principal tasks are to ensure the integrity of the Company‟s Financial Reporting process, review the effectiveness of the Group‟s internal controls including risk management, review the scope of the work of the external auditors and their independence, consider issues raised by the external auditor, review audit effectiveness and review the half-yearly and annual accounts focusing in particular on accounting policies and compliance and on areas of management judgement and estimates. Whistleblowing policy The Company is committed to maintaining the highest ethical standards and the personal and professional integrity of its employees, suppliers, contractors and consultants. It encourages all individuals to raise any concerns that they may have about the conduct of others in the business or the way in which the business is run. The aim of the policy is to ensure that as afar as is possible, our employees are able to tell us about any wrong doing at work which they believe has occurred or is likely to occur. Remuneration Committee The members of the Remuneration Committee comprises the two non executive Directors of the Company and is chaired by John Lewis. The committee reviews the Group policy on the Executive Directors‟ remuneration and terms of employment, makes recommendations on this and also approves the provision of policies for the incentivisation of senior employees, including share schemes. The principal terms of reference of the committee are set out in the Remuneration Report on pages 15 to 17. The report also contains full details of Directors' remuneration and a statement of the Company's remuneration policy. The committee meets when required to consider all aspects of the executive Directors' remuneration, drawing on outside advice as necessary. 13 PRIME PEOPLE PLC Corporate governance Going concern The Directors believe the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts. Internal controls The Directors are responsible for the Group‟s system of internal control and for reviewing its effectiveness which, by its nature, can only provide reasonable and not absolute assurance against material misstatement or loss. When undertaking their review the Directors have considered all material controls including operational, compliance and risk management, as well as financial. The Board has assessed the effectiveness of the Group‟s internal control systems for the period 1 April 2010 to the date of approval of the financial statements and believes it has the procedures in place to safeguard the Group‟s assets and to ensure the reliability of information used within the business and for publication. Key elements of the system of internal control are as follows: Group organisation The Board of Directors meets at least six times a year focusing mainly on strategic issues, operational and financial performance. The Directors have in place an organisational structure with clearly defined levels of responsibility and delegation of authority. Annual Business Plan The Group has a comprehensive budgeting system with an annual budget approved by the Board. Monthly forecasting The Group prepares monthly fee income forecasts by individual businesses which are compared to budget. Financial Reporting Detailed monthly reports are produced showing comparison of results against budget, forecast and the prior year with performance monitoring and explanations provided for significant variances. Any significant adverse variances are examined and remedial action taken where necessary. Capital Expenditure Capital expenditure requests are reviewed by the Board. Appropriate due diligence work will be carried out if a business is to be acquired. Risk Management The Directors and operating company management have a clear responsibility for identifying risks facing each of the businesses and for putting in place procedures to mitigate and monitor risks. Risks are assessed during the annual budget process, which is monitored by the Board, and the ongoing Group strategy process. 14 PRIME PEOPLE PLC Remuneration report The Remuneration Committee meets not less than twice a year and comprises John Lewis and Simon Murphy. The Committee is chaired by John Lewis. The purpose of the Remuneration Committee is to review, on behalf of the Board, the remuneration policy for the Chairman, Executive Directors and other Senior Executives and to determine the level of remuneration, incentives and other benefits, compensation payments and terms of employment of the Executive Directors and other Senior Executives. It seeks to provide a remuneration package that strongly aligns the interests of Executive Directors with those of shareholders. Remuneration policy The main aim of the Committee is to attract, retain and motivate high calibre individuals with a remuneration package comprising of basic salary, incentives and rewards which are linked to the overall performance of the Group and which are comparable to pay levels in companies of similar size and in similar business sectors. All Executive Directors have service contracts which contain a notice period of one year which are terminable by either party giving one years notice. The service contracts also contain restrictive covenants preventing the Executive Directors from competing with the Group for one year following the termination of employment and preventing Executive Directors from soliciting key employees, clients and candidates of the employing Group and Group companies for 12 months following termination of employment. There are no provisions for liquidated damages on the early termination of any of the Directors‟ service contracts nor provisions for mitigating damages. Both Non-Executive Directors have letters of appointment which entitle either party to give three months notice. The remuneration of the Non-Executive Directors is determined by the Board. The Non-Executive Directors do not receive any pension or other benefits, other than out of pocket expenses, from the Group, nor do they participate in any bonus schemes. The remuneration agreed by the Committee for the Executive Directors contains some or all of the following elements: a base salary and benefits, an annual bonus reflecting Group and individual performance and share options. Base Salary and benefits The Committee establishes salaries and benefits by reference to those prevailing in the employment market generally for Executive Directors of companies of comparable status and market value. Reviews of such base salary and benefits are conducted annually by the committee. Annual bonus plan Annual bonuses for the Executive Directors are based on the division of a pool of profits earned during the financial year. In 2011 the bonus pool for Executive Directors was equal to 15% of Operating Profit earned above a threshold equal to two thirds of targeted Operating Profit for the year. If profits exceed 85% of the targeted level then an additional 2.5% of Operating Profit earned above the target level is added to the bonus pool. In 2011 the maximum annual bonus entitlement for Executive Directors was equal to 50% of their base salary. No annual bonus was payable under the bonus arrangement for 2011 although the Committee agreed that a discretionary award of £15,500 was to be made to Chris Heayberd which he took as a contribution into his personal pension plan. 15 PRIME PEOPLE PLC Remuneration report Emoluments of Directors The aggregate emoluments of Directors who served during the period is shown in the table below. Emoluments include management salaries, fees as Directors, pension payments and taxable benefits. Emoluments shown are in respect of each Director's period in office during the year as a Board member of Prime People Plc and includes emoluments from the Company and its subsidiary undertakings. Salaries and fees Pensions (Note1) Benefits Year ended 31 March 2011 Total 31 March 2010 Total Executive Chairman R J G Macdonald 99,066 Executive Directors P H Moore (Note 2) 159,066 £ - - £ £ £ 4,431 103,497 100,060 9,406 168,472 163,369 C I Heayberd 109,041 40,044 4,697 153,782 129,057 Non-Executive Directors J H J Lewis S J Murphy 16,831 16,831 - - - - 16,831 16,286 16,831 16,286 400,835 40,044 18,534 459,413 425,058 Notes to the emoluments: 1 - Pension payments made to Chris Heayberd represent salary payments sacrificed in to his personal pension plan. 2 – Peter Moore is the highest paid Director 3 – Benefits include items such as medical and travel allowance, 4 - The Group does not operate a defined benefit pension scheme. Share option schemes During 2011 no share options were granted to Executive Directors. As at 31 March 2011 Directors‟ options on ordinary shares of 10p each granted under the Prime People Enterprise Management Incentive Scheme, were as follows: Director Year of issue Granted Exercise Price Earliest exercise date Simon Murphy Chris Heayberd 2005/6 184,234 2009/10 184,234 57.5p 20.5p 15 May 2007 2 July 2011 16 PRIME PEOPLE PLC Remuneration report Performance criteria The performance criteria on Directors share options are as follows: Options issued in 2005/6: Options vested in full on the acquisition of Macdonald & Company Group Limited Options issued in 2009/10: Options vest in 2011/12 conditional upon Chris Heayberd‟s continued employment with the company on the exercise date. Annual resolution Shareholders will be given the opportunity to approve the Remuneration report at the Annual General Meeting. John Lewis Chairman of the Remuneration Committee 2 June 2011 17  PRIME PEOPLE PLC Independent Auditors’ report Independent Auditor’s Report to the Members of Prime People plc We have audited the financial statements of Prime People plc for the year ended 31 March 2011 which comprise the Consolidated Statement of Income, the Consolidated and Company Statement of Financial Position, the Consolidated and Company Cash Flow Statement, the Consolidated and Company Statement of Changes in Shareholders Equity, and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and Auditors As explained more fully in the Statement of Directors' Responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. We read all the financial and non financial information in the Directors‟ Report and any other surround information to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications to our report. Opinion on financial statements In our opinion, the financial statements: give a true and fair view of the state of the group‟s and company's affairs as at 31 March 2011 and of the group‟s profit for the year then ended; have been properly prepared in accordance with IFRSs as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements. 18 PRIME PEOPLE PLC Independent auditors' report Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: Adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or The financial statements are not in agreement with the accounting records and returns; or Certain disclosures of Directors' remuneration specified by law are not made; or We have not received all the information and explanations we require for our audit. Matthew Stallabrass Senior Statutory Auditor For and on behalf of Crowe Clark Whitehill LLP Statutory Auditor St Brides House 10 Salisbury Square London EC4Y 8EH 3 June 2011 19 PRIME PEOPLE PLC Consolidated statement of comprehensive income for the year ended 31 March 2011 Note 2 2 4 7 8 Revenue Cost of sales Net fee income Administrative expenses Operating profit Finance income Finance expense Profit before taxation Income tax expense Profit for the year Other comprehensive loss Year ended 31 March 2011 £’000 31 March 2010 £’000 13,953 (5,913) 14,180 (7,507) 8,040 (7,031) 6,673 (6,212) 1,009 461 19 (7) 1,021 (325) 12 (11) 462 (129) 696 333 Foreign currency exchange differences (55) (18) Total comprehensive income for the year Attributable to: 641 315 Equity shareholders of the parent 641 315 Earnings per share Basic earnings per share Diluted 10 5.86p 5.65p 2.79p 2.71p The above results relate to continuing operations 20 PRIME PEOPLE PLC Consolidated statement of changes in equity For the year ended 31 March 2011 Called up share capital £’000 Capital Redemp tion reserve £’000 Treasury shares Share premium account Merger reserve Share option reserve £’000 £’000 £’000 £’000 Foreign currency trans- lation £’000 Retained earnings Total £’000 £’000 At 1 April 2009 1,203 Total comprehensive income for the year Adjustment in respect of share schemes Shares purchased for cancellation Shares purchased for treasury Dividend - - (9) - - At 31 March 2010 1,194 Total comprehensive income for the year Adjustment in respect of share schemes Shares purchased for treasury Dividend At 31 March 2011 - - - - - - - 9 - - 9 - - - - - 7,095 173 176 486 4,335 13,468 - - - (9) - - - - - - - - - - - - (18) 333 315 (99) - - - - - - - 113 14 (18) (18) - (9) (238) (238) (9) 7,095 173 77 468 4,525 13,532 - - (30) - - - - - - - - - - (55) 696 641 31 - - - - - 6 37 - (30) (387) (387) 1,194 9 (39) 7,095 173 108 413 4,840 13,793 21 PRIME PEOPLE PLC Consolidated statement of financial position As at 31 March 2011 Assets Non – current assets Goodwill Property, plant and equipment Deferred tax asset Current assets Trade and other receivables Cash and cash equivalents Total assets Liabilities Current liabilities Financial liabilities Trade and other payables Current tax liabilities Non-current liabilities Financial liabilities – borrowings Total liabilities Net assets 2011 £’000 9,769 258 26 2010 £’000 9,769 251 54 10,053 10,074 2,956 3,104 6,060 2,795 2,783 5,578 16,113 15,652 56 2,045 198 2,299 21 2,320 476 1,514 130 2,120 - 2,120 13,793 13,532 Note 12 11 14 15 22 16 17 17 22 PRIME PEOPLE PLC Consolidated statement of financial position As at 31 March 2011 Note 2011 £’000 Capital and reserves attributable to the company’s equity holders Called up share capital Capital redemption reserve fund Treasury shares Share premium account Merger reserve Share option reserve Currency translation reserve Retained earnings 18 19 19 19 19 19 19 19 1,194 9 (39) 7,095 173 108 413 4,840 2010 £’000 1,194 9 (9) 7,095 173 77 468 4,525 Total equity 13,793 13,532 The financial statements on pages 27 to 54 were approved by the Board of Directors and authorised for issue on 2 June 2011 and are signed on its behalf by: R J G Macdonald C I Heayberd 23 PRIME PEOPLE PLC Company statement of financial position As at 31 March 2011 ____________________________________________________________________ 2011 £’000 Note 13 11 14 15 22 17 Assets Non-current assets Investment in subsidiaries Property, plant and equipment Deferred tax asset Current assets Trade and other receivables Cash and cash equivalents Total assets Liabilities Current liabilities Financial liabilities – borrowings Other payables Total liabilities Net assets 2010 £’000 10,876 3 1 10,880 200 2,211 2,411 10,876 1 1 10,878 119 2,420 2,539 13,417 13,291 29 97 126 296 33 329 329 13,291 12,962 Capital and reserves attributable to the company’s equity holders Called up share capital Capital redemption reserve fund Treasury shares Share premium account Merger reserve Share option reserve Retained earnings 18 19 19 19 19 19 19 1,194 9 (39) 7,095 173 47 4,812 1,194 9 (9) 7,095 173 37 4,463 Total equity 13,291 12,962 The financial statements of Prime People Plc, company Number 1729887 were approved by the Board and authorised for issue on 2 June 2011 and are signed on its behalf by: R J G Macdonald C I Heayberd 24 PRIME PEOPLE PLC Company statement of changes in equity For the year ended 31 March 2011 Company Called up share capital £’000 Capital Redemp tion reserve £’000 Treasury shares Share premium account Share option reserve Other reserve Retained earnings Total £’000 £’000 £’000 £’000 £’000 £’000 At 1 April 2009 1,203 Total comprehensive income for the year Shares purchased for cancellation Shares purchased for treasury Adjustment in respect of share scheme Dividend - (9) - - - At 31 March 2010 1,194 Total comprehensive income for the year Shares purchased for treasury Adjustments in respect of share schemes Dividend At 31 March 2011 - - - - - - 9 - - - 9 - - - - - - - (9) - - 7,095 65 173 4,106 12,642 - - - - - (28) - - - - - - - - - 581 553 (18) (18) - (9) 32 32 (238) (238) (9) 7,095 37 173 4,463 12,962 - (30) - - - - - - - - 10 - - - - - 736 736 - - (30) 10 (387) (387) 1,194 9 (39) 7,095 47 173 4,812 13,291 25 PRIME PEOPLE PLC Group and company cash flow statement For the year ended 31 March 2011 Group Year ended Company Year ended 31 March 2011 £’000 31 March 2010 £’000 31 March 2011 £’000 31 March 2010 £’000 Note Cash generated from underlying operations Income tax paid Income tax received Net cash from operating activities Cash flows from investing activities Interest received Net purchase of property, plant and equipment Dividend received Net cash (used in)/from investing activities Cash flows from financing activities Repayment of borrowings Capital element of hire purchase obligations Purchase of own shares Treasury shares Dividend paid to shareholders Interest paid Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Exchange loss on cash and cash equivalents Cash and cash equivalents at the end of the year 21 1,577 887 236 (229) 1 (78) 51 691 - - (3) - 1,349 860 233 691 19 (169) - 12 (51) - 18 - 645 9 - 531 (150) (39) 663 540 (280) (280) (280) 25 - (30) (387) (7) - (18) (9) (238) (11) - - (30) (387) (2) (280) - (18) (9) (238) (9) (679) (556) (697) (545) 520 265 197 677 2,587 2,350 2,195 1,518 (55) (28) - - 3,052 2,587 2,392 2,195 26 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 1 Nature of operations Prime People Plc („the Company‟) and its subsidiaries (together „the Group‟) is an international recruitment services organisation with offices in the United Kingdom, the Middle East, South Africa and the Asia Pacific region from which it serves an international client base. The Group offers both permanent and contract specialist recruitment consultancy for large and medium sized organisations. The company is a public limited company which is quoted as an AIM company and is incorporated and domiciled in the UK. The address of the registered office and the principal place of business is 40a Dover Street, London W1S 4NW. The registered number of the Company is 1729887. 2 Summary of significant accounting policies Basis of preparation The financial statements of Prime People plc consolidate the results of the Company and all its subsidiary undertakings. As permitted by Section 408 of the Companies Act 2006, the profit and loss account of the Company has not been included as part of these financial statements. The amount of profit after tax and before dividends dealt with in the financial statements of the parent is £735,794 (2010: profit £581,712). The financial statements have been prepared on a going concern basis. The consolidated financial statements of Prime People Plc have been prepared in accordance with International Financial Reporting Standards as endorsed by the European Union and also comply with IFRIC interpretations and the Companies Act 2006 applicable to Companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention modified as necessary so as to include any items at fair value, as required by accounting standards. The accounting polices applied by the Group in these consolidated financial statements are the same as those applied by the Group in it consolidated financial statements as at and for the year ended 31 March 2010 except as described below. To ensure consistency of treatment with the current year a number of comparatives have been adjusted from those disclosed in the prior years financial statements. In the opinion of the Directors none of the amendments are material and none represent a change in accounting policy. There has been no change to the reported result or net assets from the prior year. Adoption of new and revised International Accounting Standards (IAS/IFRS) and the interpretations affecting current or prior periods IFRS 3 Business Combinations - Revised 2008 (effective 1 July 2009) The revised standard introduces some changes to the existing accounting treatment of business combinations. For example, all transaction costs will be expensed. The standard is applicable to business combinations occurring in accounting periods beginning on or after 1 July 2009. Assets and liabilities arising from business combinations occurring before the date of adoption by the Group will not be restated and thus there was no effect on the Group‟s reported income or net assets on adoption. International Accounting Standards (IAS/IFRS) and Interpretations not adopted At the date of authorisation of these financial statements the following Standards and Interpretations, that have not been applied in these financial statements, were in issue but not yet effective: IFRS 9 Financial Instruments (Effective 1 January 2013)* 27 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 International Accounting Standards (IAS/IFRS) and interpretations not adopted (continued) IAS 24 (Revised 2009) Related Party Disclosures (effective 1 January 2011) IFRS1 Amendments Severe Hyperinflation and Removal of Fixed Dates for First Time Adopters (effective 1 July 2011) Prepayments of Minimum Funding Requirement – Amendments to IFRIC 14 (effective 1 January 2011) Amendment to IAS 32 Classification of Rights Issues (effective 1 February 2011) Improvements to IFRS issued May 2010 (some changes effective 1 July 2010, others effective 1 January 2011) Disclosures – Transfers of Financial Assets – Amendments to IFRS 7 (effective 1 July 2011)* Deferred Tax: Recovery of Underlying Assets – Amendments to IAS 12 Income Taxes (effective 1 January 2012)* *To be approved by the European Union The Directors anticipate that the adoption of the above Standards and interpretations in future periods will have little of no impact on the financial statements of the Group when the relevant Standards come into effect for periods commencing in or after 31 March 2011. Consolidation Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Business combinations are accounted for using the acquisition method of accounting. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the Group‟s share of the identifiable net assets acquired is recorded as goodwill. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated in preparing the consolidated financial statements. Unrealised losses are also eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Going concern The Directors have prepared cash flow forecasts for a period of at least 12 months from the date of approval of the financial statements and have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements. 28 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 Revenue recognition (a) Gross fee income Revenue, which excludes value added tax (“VAT”), constitutes the value of services undertaken by the Group from its principal activities, which are recruitment consultancy and other ancillary services. These consist of: Revenue from temporary placements, which represents amounts billed for the services of temporary staff, including the salary of these staff. This is recognised when the service has been provided; Revenue from permanent placements, which is based on a percentage of the candidate‟s remuneration package and is derived from both retained assignments (income recognised on completion of defined stages of work) and non-retained assignments (income recognised at the date an offer is accepted by a candidate, a start date has been agreed but employment has not yet commenced). The latter includes revenue anticipated but not invoiced at the balance sheet date, which is correspondingly accrued on the balance sheet within prepayments and accrued income. A provision is made against accrued income based on past historical experience for possible cancellations of placements prior to, or shortly after, the commencement of employment based on past historical experience; and Revenue from amounts billed to clients for expenses incurred on their behalf (principally advertisements) is recognised when the expense is incurred. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. (b) Cost of sales Cost of sales consist of the salary cost of temporary staff and costs incurred on behalf of clients, principally advertising costs. (c) Net fee income Net fee income represents revenue less cost of sales and consists of the total placement fees of permanent candidates, the margin earned on the placement of temporary candidates and the margin on advertising income. (d) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Group‟s entities are measured using the currency of the primary economic environment in which the entity operates („the functional currency‟). The consolidated financial statements are presented in pounds sterling (£), which is the Company‟s functional and presentation currency and rounded to the nearest thousand pounds. (ii)Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. 29 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 (d) Foreign currency translation (continued) (iii) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyper- inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; income and expenses for each income statement are translated at average exchange rates; and all resulting exchange differences are recognised as a separate component of equity. On consolidation, exchange differences arising from the translation of the net investment in foreign operations, are taken to shareholders‟ equity. (e) Property, plant and equipment All property, plant and equipment are stated at historical cost less accumulated depreciation less provisions for impairment. Depreciation is provided on all property, plant and equipment using the straight-line method at rates calculated to write off the cost less estimated residual values over their estimated useful lives, as follows: Leasehold improvements over the period of the lease. Furniture, fittings and computer equipment 20% – 33% Motor vehicles 20% – 33% The gain or loss arising on disposal or retirement of an asset is determined by comparing the sales proceeds with the carrying amount of the asset and is recognised as income. (f) Intangible assets (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group‟s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in „intangible assets‟. As permitted by the exception in IFRS1 „First time adoption of International Reporting Standards‟, the Group has elected not to apply IFRS3 „Business combinations‟ to goodwill arising on acquisition that occurred before the date of transition to IFRS. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate present value. (ii) Computer software Computer software acquired by the Group is stated at cost. These costs are amortised using the straight-line method over their estimated useful economic lives (33% per annum). 30 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 (g) Impairment of assets Assets that have an indefinite useful economic life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset‟s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset‟s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). (h) Taxation The tax expense represents the sum of the current tax expense and deferred tax expense. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group‟s liability for current tax is calculated using tax rates that have been enacted or substantially enacted by the balance sheet date. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. (i) Leased assets and obligations Where assets are financed by leasing arrangements that give rights approximating to ownership (finance leases), the assets are treated as if they had been purchased outright. The amount capitalised is the lower of fair value or the present value of the minimum lease payments payable during the lease term, The corresponding lease commitments are shown as obligations to the lessor. The property, plant or equipment acquired under finance leases is depreciated over the shorter of the asset‟s useful life and the lease term. Lease payments are apportioned between finance charges and reduction in lease obligations so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to income. All other leases are operating leases and the annual rentals are charged to profit and loss on a straight line basis over the lease term. The benefit of rent free periods received for entering into a lease is spread evenly over the lease term. (j) Pension costs The Group does not operate a pension scheme for employees but makes contributions to the personal defined contribution pension plan of one Director. The pension costs charged to profit represent the contributions payable by the Group during the year. 31 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 (k) Segmental reporting IFRS8 requires operating segments to be identified on the basis of internal reports that are regularly reviewed by the Managing Director to allocate resources to the segment and to assess their performance. (l) Financial assets and liabilities Financial assets and liabilities are recognised in the Group‟s balance sheet when the Group becomes a party to the contractual provision of the instrument. Non derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowing and trade and other payables. Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Cash and cash equivalents include cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. Trade payables are recognised initially at fair value. Other financial liabilities including borrowings are recognised at fair value net of transaction costs incurred. (m) Share-based compensation The Group operates equity-settled share-based compensation plans. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). At the balance sheet date the number of outstanding options is adjusted to reflect those options that have been granted during the year or have lapsed in the year. (n) Dividend distribution A final dividend distribution to the Company‟s shareholders is recognised as a liability in the Group‟s financial statements in the period in which the dividends are approved by the Company‟s shareholders. Interim dividend distributions are recognised in the period in which they are approved and paid. (o) Critical accounting estimates and judgements The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and judgements. It also requires management to exercise judgement in the process of applying the Company‟s accounting policies. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described below: 32 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 (o) Critical accounting estimates and judgements (continued) Revenue recognition Revenue from permanent placements is recognised when a candidate formally accepts an offer of employment, a start date has been agreed, but employment has not commenced. A „fall-through‟ provision is made by management, based on historical experience, for the proportion of those placements where the offer of employment is not taken up. Management have reviewed the past assumptions made with respect to the „fall-through‟ provisions and consider that they remain reasonable. The fall through provision is estimated at 23.8% of those offers where employment has yet to commence (2010: 24.8%). The Directors consider that a change in the range of possible outcomes, or sensitivity, would not have a material impact on the business. Goodwill impairment The Group‟s determination of whether goodwill is impaired requires an estimation of the value in use of the cash generating units to which goodwill is allocated. This requires estimation of future cash flows and the selection of a suitable discount rate details of which are disclosed in note 12. Trade receivables There is uncertainty regarding customers who may not be able to pay as their debts fall due. In reviewing the appropriateness of the provisions in respect of recoverability of trade receivables, consideration has been given to the ageing of the debt and the potential likelihood of default, taking into account current economic conditions. Details of the total amount of receivables past due and the movement in allowance for doubtful debts are disclosed in note 15. 33 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 3 Segmental analysis a) Gross fee revenue, net fee income and operating profit by geographic region Gross fee income Net fee income 31 March 2011 £’000 31 March 2010 £’000 31 March 2011 £’000 31March 2010 £’000 Operating profit 31 March 2011 £’000 31 March 2010 £’000 11,617 12,163 5,704 4,656 1,120 628 2,336 2,017 2,336 2,017 (111) (167) 13,953 14,180 8,040 6,673 1,009 461 UK Other Total All revenues disclosed are derived from external customers. The accounting policies of the reportable segments are the same as the Group‟s accounting policies described in note 2. Segment operating profit represents the profit earned by each segment after allocation of central administration costs. b) Segment assets, liabilities and capital expenditure by geographical region Total assets Total liabilities 31 March 2011 £’000 31 March 2010 £’000 31 March 2011 £’000 31March 2010 £’000 Capital expenditure 31 March 2011 £’000 31 March 2010 £’000 UK Other Total 14,963 14,120 1,934 1,605 1,150 1,532 365 515 16,113 15,652 2,299 2,120 153 19 172 49 2 51 The analysis above is of the carrying amount of reportable segment assets, liabilities and non-current assets. Segment assets and liabilities include items directly attributable to a segment and include income tax assets and liabilities. Non-current assets include property, plant and equipment and computer software. 34 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 3 Segmental analysis (continued) c) Gross fee income and net fee income generated from permanent and temporary placements Gross fee income Net fee income 31 March 2011 £’000 31March 2010 £’000 31 March 2011 £’000 31 March 2010 £’000 7,261 5,392 7,060 6,692 8,788 980 5,206 1,467 13,953 14,180 8,040 6,673 Permanent Temporary Total 4 Profit for the year Profit for the year is arrived at after charging: Fees payable to the company‟s auditor for the audit of the company‟s annual accounts Fees payable to the company‟s auditor and its associates for other services - the audit of the company‟s subsidiaries pursuant to legislation - tax services Depreciation - owned assets - leased assets Operating lease rentals - land and buildings - other operating leases Profit on disposal of fixed assets Exchange rate gain Year ended 31 March 2011 £’000 31 March 2010 £’000 12 30 4 160 3 429 14 3 (1) 12 28 1 189 - 354 13 - (1) 35 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 5 Directors’ emoluments Short term employee benefits Share based payment charge Social security contributions Highest paid Director: Emoluments Year ended 31 March 2011 £’000 31 March 2010 £’000 459 10 50 519 425 4 52 481 168 164 168 164 The Directors are the key management personnel of the group. There were no post-employment benefits provided to key management during the year and no key management exercised any share based payments. Details of Directors‟ emoluments and interests, which form part of these financial statements, are provided in the Director‟s Remuneration report on pages 15 to 17. 6 Employee information Group The average monthly number of employees of the Group during the year, including Directors, was as follows: Consultants Management and administration Temporary staff Year ended 31 March 2011 Number 31 March 2010 Number 64 25 11 59 27 17 100 103 36 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 6 Employee information (continued) Company Year ended 31 March 2011 Number 31 March 2010 Number The average monthly number of employees of the Company during the year, including Directors, was as follows: Management 5 5 Staff costs for all employees, including Directors, but excluding temporary staff placed with clients consists of: Group Wages and salaries Social security costs Pension contributions Share option charge 7 Finance expense Bank interest Year ended 31 March 2011 £’000 31 March 2010 £’000 4,542 387 40 37 3,717 334 - 174 5,006 4,225 Year ended 31 March 2011 £’000 31 March 2010 £’000 7 11 7 11 11 37 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 8 Taxation on profits on ordinary activities Analysis of charge in the year Current tax UK Corporation tax UK tax over provided in previous years Total current tax Deferred tax Origination and reversal of temporary differences Year Ended 31 March 2011 £’000 31 March 2010 £’000 297 - 135 (1) 297 134 28 (5) Total income tax expense in the income statement 325 129 The tax assessed for the year is equal to that obtained by applying the standard rate of corporation tax in the UK. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. Reconciliation of the effective tax rate Profit before taxation UK corporation tax at the standard rate of 28% (2010: 28%) on profit on ordinary activities Effects of: Expenses not deductible for tax purposes Capital allowances for the period less than depreciation Tax losses utilised Tax rate differences Marginal relief Overprovision provision in prior years Tax charge for the year Year Ended 31 March 2011 31 March 2010 1,021 462 286 129 22 22 (5) 2 (2) - 24 4 (13) (12) (2) (1) 325 129 38 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 9 Dividends Final dividend for 2010: 1.5 pence per share (2009: NIL pence per share) Interim dividend for 2011: 1.75pence per share (2010: 2.0 pence per share) Year ended 31 March 2011 £’000 31 March 2010 £’000 178 209 - 238 387 238 The Directors propose to pay a final dividend in respect of the year ended 31 March 2011 of 2.25 pence per share (2010: 1.5 pence per share) which, subject to shareholder approval, will be paid on 1 July 2011 to shareholders who are on the register on 17 June 2011. 10 Earnings per share Earnings per share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year. Fully diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares by existing share options assuming dilution through conversion of all existing options. Earnings and weighted average number of shares from continuing operations used in the calculations are shown below. Year ended 31 March 2011 £’000 31 March 2010 £’000 Retained profit for basic and diluted earnings per share 696 333 Weighted average number of shares used for basic earnings per share Dilutive effect of share options 11,883,121 440,537 11,956,824 314,761 Number Number Diluted weighted average number of shares used for diluted earnings per share 12,323,657 12,271,585 Basic earnings per share Diluted earnings per share Pence Pence 5.86p 5.65p 2.79p 2.71p 39 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 11 Property, plant and equipment Group Cost At 1 April 2009 Additions Disposals Exchange difference At 1 April 2010 Additions Disposals Exchange difference At 31 March 2011 Depreciation At 1 April 2009 Provision for the year Disposals Exchange rate loss At 1 April 2010 Provision for the year Disposals Exchange rate gain At 31 March 2011 Net book value At 31 March 2011 At 31 March 2010 At 31 March 2009 Total £’000 1,066 51 (6) 12 1,123 172 (23) (8) 1,264 687 189 (6) 2 872 163 (22) (7) 1,006 258 251 379 Fixtures, fittings and equipment £’000 Motor vehicles £’000 39 - - 5 44 30 (22) (1) 51 31 7 - - 38 8 (22) (1) 23 28 6 8 1,027 51 (6) 7 1,079 142 (1) (7) 1,213 656 182 (6) 2 834 155 - (6) 983 230 245 371 40 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 11 Property, plant and equipment (continued) Company Cost At 1 April 2009, 1 April 2010 and 31 March 2011 Depreciation At 1 April 2009 Provision for the year At 1 April 2010 Provision for the year At 31 March 2011 Net book value At 31 March 2011 At 31 March 2010 At 31 March 2009 12 Goodwill Cost At 1 April 2009, 1 April 2010 and 31 March 2011 Fixtures, fittings and equipment £’000 19 13 3 16 2 18 1 3 6 Goodwill £’000 9,769 The total carrying value of goodwill relates to the acquisition of the Macdonald & Company group of companies in January 2006 and is tested annually for impairment with the recoverable amount being determined from value in use calculations. The value in use is determined through the analysis of the discounted cash flow forecasts based on financial forecasts approved by management which takes account of both past performance and expected future market developments. The key assumptions on which the current financial forecasts are based are: 25% growth in net fee income The change in net fee income split between permanent and temporary placements disclosed in note 3 (c) is expected to be indicative of the future split of placements 41 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 12 Goodwill (continued) Projected cash flows are initially based upon budgets and forecasts approved by Management and are then projected using a constant rate of growth of 5%. The rate of growth is based upon the long term average rate of growth adjusted downwards for risk. The cash flows are then discounted at a rate of 9% which is determined after an analysis of the group‟s weighted average cost of capital. In undertaking the impairment review Management have considered the sensitivity of the calculation to reasonably possible movements in key assumptions for both the current financial forecasts and the projected cash flows. Three scenarios have been modelled using a growth rate of 0% for years following the current financial forecasts, a discount rate of 12% and the net fee income in the current financial forecast, and subsequent operating profit and cash flow, being restricted to the prior years level; in each case the carrying value did not exceed the recoverable amount. Based upon this analysis Management does not consider it reasonably possible that there will be a material change to a key assumption which would result in the carrying value exceeding the recoverable amount. Shares in subsidiary undertakings £’000 11,139 213 50 263 10,876 10,926 13 Investments Company Cost At 1 April 2009,1 April 2010 and 31 March 2011 Amounts provided At 1 April 2009 Provided in year At 31 March 2010 and 31 March 2011 At 1 April 2010 and 31 March 2011 At 1 April 2009 42 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 13 Investments (Continued) The following are subsidiary undertakings at the end of the year and have all been included in the consolidated financial statements: Country of incorporation Principal activity England and Wales Holding Company England and Wales Recruitment England and Wales Recruitment England and Wales Dormant Macdonald & Company Group Limited Macdonald & Company Property Limited Macdonald and Company Freelance Limited Macdonald & Company (Overseas) Limited Propertejobs.com Limited England and Wales Macdonald & Company Pty Ltd Australia Macdonald & Company Ltd Hong Kong Macdonald & Company Recruitment Limited Hong Kong Dormant Recruitment Recruitment Dormant Ru Yi Consulting Limited Hong Kong Dormant Macdonald & Company Recruitment Proprietary Ltd Harper Craven Associates Limited South Africa Recruitment England and Wales Management training For all undertakings listed above, the country of operation is the same as its country of incorporation. The Group holds 100% of all classes of issued share capital. The percentage of the issued share capital held is equivalent to the percentage of voting rights for all companies. 43 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 14 Deferred tax asset Group At 1 April 2009 Credit/(charge) in profit or loss for year At 31 March 2010 (Charge)/credit in profit or loss for year At 31 March 2011 Company At 1 April 2009 Charge to income At 31 March 2010 and 31 March 2011 15 Trade and other receivables Current Trade receivables Allowance for doubtful debts Amounts owed by subsidiary undertakings Other receivables Prepayments and accrued income Accelerated depreciation £’000 13 41 54 (28) 26 Accelerated depreciation £’000 1 - 1 Tax losses £’000 36 (36) - - - Tax losses £’000 36 (36) - Group 2011 £’000 1,715 (196) - 187 1,250 2010 £’000 1,779 (250) - 293 973 Total £’000 49 5 54 (28) 26 Total £’000 37 (36) 1 Company 2011 £’000 2010 £’000 - - 91 4 24 - - - 188 12 200 2,956 2,795 119 Trade receivables are recognised initially at fair value. A provision for impairment of trade receivables is established when there is evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. An allowance of £196k (2010:£250k) has been made for estimated irrecoverable amounts. 44 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 15 Trade and other receivables (continued) The ageing of trade receivables at the reporting date was: Gross trade receivables 2011 £’000 Provisions 2011 £’000 Gross trade receivables 2010 £’000 Not past due Past due 0-30 days Past due 30-90 days Past due More than 90 days 673 794 124 124 1,715 - 70 7 119 196 Movement in allowance for doubtful debts: 1 April 2010 Impairment losses recognised Amounts written off as uncollectable Impairment losses reversed 792 612 233 142 1,779 2011 £’000 250 111 (156) (9) Provisions 2010 £’000 19 73 18 140 250 2010 £’000 474 127 (121) (230) 31 March 2011 196 250 16 Financial Instruments Financial assets Trade and other receivables Cash and cash equivalents Note 15 2011 £’000 2,956 3,104 2010 £’000 2,795 2,783 6,060 5,578 Cash is held either on current account or on short term deposits at floating rates of interest determined by the relevant bank's prevailing base rate. 45 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 16 Financial Instruments (continued) Financial liabilities Current Bank loan (Secured) Bank overdraft Hire purchase liabilities Non-current Hire Purchase liabilities The maturity of these obligations is as follows: Within one year Within two to five years Obligations under finance leases and hire purchase Contracts due within five years Less: future finance charges 2011 £’000 2010 £’000 - 52 4 56 280 196 - 476 2011 £’000 2010 £’000 21 21 2011 £’000 56 21 77 31 (6) 25 - - 2010 £’000 476 - 476 - - - The Group's financial liabilities consist of a bank overdraft and hire purchase obligations, both denominated in sterling. Amounts due for obligations under finance leases and hire purchase contracts are secured on the assets to which they relate. 46 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 16 Financial Instruments (continued) The Group has not renewed its borrowing facilities with Barclays Bank Plc as the Board consider that the net cash within the group is sufficient to meet existing and foreseeable liabilities as they fall due. On 3 January 2006 the company entered into a loan agreement with Barclays Bank Plc to part fund the acquisition of Macdonald & Company Group Limited. Loan repayments commenced in April 2006 with the final repayment in January 2011. Interest on the loan was payable at 1.75 per cent over bank base rate. The balance outstanding at the year end is £Nil (2010: £280k). There is no material difference between the book values of the group's financial assets and liabilities and their fair values. The Group does not hold any derivative financial instruments. 17 Trade and other payables Current Trade payables Amounts owed to subsidiary undertakings Other payables Taxation and social security Accruals and deferred income Group Company 2011 £’000 250 - 243 512 1,040 2010 £’000 75 - 227 477 735 2,045 1,514 2011 £’000 2010 £’000 2 - - 42 53 97 - 11 - 9 13 33 Due to the short-term nature of the trade and other payables, the Directors consider that the carrying value approximates to their fair value. 47 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 18 Share capital 31 March 2011 31 March 2010 Number £’000 Number £’000 AUTHORISED Ordinary shares of 10p each 16,000,000 1,600 16,000,000 1,600 ALLOTTED, CALLED UP AND FULLY PAID New ordinary shares of 10p each At beginning of period Share consolidation Share subdivision 11,941,500 - - 1,194 - - - 23,883 11,917,617 11,941,500 1,194 11,941,500 - 1,194 - 1,194 Ordinary shares of 10p each At beginning of period Shares issued Shares cancelled Share consolidation - - - - - - - - - - 12,028,900 100 (87,500) (11,941,500) 1,203 - (9) (1,194) - - The Company has one class of ordinary shares which carries no right to fixed income. Capital management disclosure The Group manages its capital to ensure that it will be able to continue as a going concern while maximising returns to shareholders through the optimisation of debt and equity balances. The Group considers capital to be comprised of all the components of equity. There are no externally imposed capital requirements on the Group. The Group manages the capital structure and makes adjustments to it in the light of changes to economic conditions and risks. In order to manage capital the Group has continued to consider and adjust the level of dividends paid to shareholders and also made purchases of its own shares which are held as Treasury Shares. As part of its strategy of seeking to optimise the Group‟s debt and equity balance the Group also considers the appropriate level of external borrowing and, as disclosed in Note 16, has taken the decision not to renew its borrowing facilities with Barclays Bank. 48 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 18 Share capital (continued) Employee share schemes The Company operates two share options schemes and a HM Revenue & Customs SAYE approved scheme. Enterprise Management Incentive Share Option Scheme At 31 March 2011 the following options had been granted and remained outstanding in respect of the Company‟s ordinary shares: Year of grant Exercise Price Pence Exercise Period Number of options 31 March 2010 2005/6 57.50 2007-2015 * 184,234 2006/7 90.50 2008-2013 2007/8 113.50 2010-2015 20.50 2011-2016 20.77 2011-2016 31.50 2012-2017 31.50 2014-2019 42.00 2013-2018 2008/9 2009/10 Total 2011 5,000 14,000 184,234 252,000 40,000 200,000 - Granted Cancelled Number of Options 31 March 2011 - - - - - - - 117,000 - - 184,234 (5,000) (14,000) - (58,000) - (11,000) - - 184,234 194,000 40,000 200,000 106,000 879,468 117,000 (88,000) 908,468 Weighted average exercise price 2011 (pence) 33.21p 42.00p 28.45p 33.48p Total 2010 699,467 736,234 (556,234) 879,467 Weighted average exercise price 2010 (pence) 95.88p 24.20p 81.67p 33.21p *These options have fully vested There were 908,468 options outstanding at 31 March 2011 (2010:879,468) which had a weighted average price per share of 33.48p (2010: 33.21p). The options vest over a period of two to four years conditional upon the option holders continued employment with the company. 49 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 18 Share capital (continued) The conditions which give the option holders the right to exercise their options under the EMI have been achieved. All the options granted during the year have been valued on a weighted average basis using the Black-Scholes option pricing model with the following assumptions: Share price (pence) Expected volatility (%) Risk-free interest rate (%) Expected life of options (years) 2011 42.00 65.00 4.0 2 2010 52.25 60.71 4.2 2 Expected volatility was determined by reference to historical volatility of the company‟s share price. 2001 Employee Share Option Scheme There are no share options held under the HM Revenue & Customs approved scheme. SAYE Share Scheme The company operates a save as you earn (SAYE) scheme for the benefit of the employees within the company which is administered by Barclays Bank Trust Company Limited. On 3 September 2007 all eligible employees within the group were invited to buy shares in Prime People Plc. On 1st November 2010 the options granted on 3 September 2007 matured. All amounts saved under the scheme together with tax free bonuses were repaid to the option holders on 8 November 2010. All option holders were given six months from the maturity date to 30 April 2011 to exercise their options. At 30 April 2011 no options had been exercised and therefore the options lapsed. Details are as follows: Year of grant Exercise price Pence Exercise period Number of options 31 March 2010 Leavers Number of Options 31 March 2011 2008 86.00 2011 72,554 (14,020) 58,534 Total 2011 72,554 (14,020) 58,534 Weighted average exercise price 2011 (pence) 86.0p 86.0p 86.0p Total 2010 135,689 (63,135) 72,554 Weighted average exercise price 2010 (pence) 86.0p 86.0p 86.0p 50 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 19 Reserves Capital redemption reserve fund The capital redemption reserve relates to the cancellation of the Company‟s own shares. Treasury Shares At 31 March 2011, 80,000 shares were held in treasury with a nominal value of £8,000 (2010: 25,000 shares with a nominal value £2,500). The maximum number of shares held in treasury during the year was 80,000 shares representing 0.007% of the called-up ordinary share capital of the company (2010: 25,000 representing 0.002% of the called-up ordinary share capital of the Company). Share Premium account The balance on the share premium account represents the amounts received in excess of the nominal value of the ordinary shares. Merger reserve The merger reserve represents the fair value of the consideration given in excess of the nominal value of the ordinary shares issued to acquire subsidiaries. Share option reserve The reserve represents the cumulative amounts charged to profit in respect of employee share option arrangements where the scheme has not yet been settled by means of an award of shares to an individual. Currency translation reserve The translation reserve comprises all foreign exchange differences arising from translation of the financial statements of foreign operations. Retained earnings The balance held on this reserve is the accumulated retained profits of the Group 51 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 20 Operating lease commitments As at 31 March 2011 the group was committed to making the following total payments in respect of non- cancellable operating leases: Group Non-cancellable operating leases which expire: Within one year Within one to two years Within two to five years After five years Land and buildings 2011 £’000 Other 2011 £’000 Land and buildings 2010 £’000 Other 2010 £’000 40 - 921 241 1,202 1 - 17 - 18 18 - 1,163 269 1,450 1 6 24 - 31 The Group leases various offices under non-cancellable operating lease agreements. The leases have varying terms as disclosed above. The Group also leases various plant and equipment under operating lease agreements with varying terms. 21 Reconciliation of profit before tax to net cash inflow from operating activities Group Year ended Company Year ended 31 March 2010 £’000 31 March 2011 £’000 31 March 2010 £’000 Profit before taxation Adjust for: Depreciation Share option reserve movement Profit on sale of plant & equipment Net finance income 31 March 2011 £’000 1,021 163 37 (3) (12) 462 189 14 - (1) Operating cash flow before changes in working capital (Increase)/decrease in receivables Increase/(decrease) payables 1,206 664 (160) 531 555 (332) Cash generated from underlying operations 1,577 887 52 119 146 2 10 - (2) 129 81 26 236 2 4 - (9) 143 566 (18) 691 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 22 Analysis of net cash Group At 1 April Cash flow At 31 March Cash at bank and in hand Bank overdraft Bank loans due within one year Obligations under finance lease < 1 year > 1 year Total cash Company Cash at bank and in hand Bank overdraft Bank loans due within one year Total (debt)/cash 23 Financial risk management 2010 £’000 2,783 (196) 2,587 (280) - - 2,307 £’000 321 144 465 280 (2) (23) 720 2011 £’000 3,104 (52) 3,052 - (2) (23) 3,027 At 1 April 2010 £’000 2,211 (16) 2,195 (280) 1,915 Cash flow £’000 210 (13) 197 280 477 At 31 March 2011 £’000 2,421 (29) 2,392 - 2,392 The Board of Directors has overall responsibility for the risk management policies that are applied by the business to identify and control the risks faced by the Group. The Group has exposure from its use of financial instruments to foreign currency risk, credit risk and liquidity risk. Foreign currency The Group‟s activities expose it primarily to the financial risks of changes in foreign currency exchange rates which will impact on future commercial transactions and recognised assets and liabilities in foreign operations. The principal foreign exchange risk is to the UAE Dirham, Hong Kong Dollar and South African Rand. 53 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2011 23 Financial risk management (continued) Foreign currency (continued) The Group‟s international operations account for approximately 17 per cent of gross fee income and slightly less than 10 per cent of the Group‟s assets and consequently the Group has a degree of translation exposure in accounting for overseas operations. Currently the Group‟s policy is not to hedge against this exposure but it does seek to minimise this exposure by converting into sterling all cash balances in foreign currency that are not required for short term working capital monetary needs. Credit risk The Group‟s principal financial assets are bank balances and trade receivables. The Group‟s credit risk is primarily in respect of trade receivables. Credit risk refers to the risk that a client will default on its contractual obligations resulting in financial loss to the Group. The Group does not have any significant credit risk exposure to any individual client. At the year end no customer represented more than 5% of the total balance of trade receivables. However, in the current economic climate, there is increased uncertainty regarding customers who may not be able to pay as their debts fall due. In reviewing the appropriateness of the provisions in respect of recoverability of trade receivables, consideration has been given to the ageing of the debt and the potential likelihood of default, taking into account current economic conditions. It is the Directors‟ opinion that no further provision for doubtful debts is required. Liquidity risk Effective liquidity risk management requires maintaining sufficient cash and or credit facilities to meet forecast cash requirements of the Group. Management monitors its forecasted cash flow requirements at a Group level based on monthly returns made by the Group‟s operating units. Apart from one HP commitment the Group has no financial liabilities other than short term trade payables and accruals as disclosed in note 17, all due within one year of the year end. The Group has net funds of £3m which the Board consider are more than adequate to meet future working capital requirements and to take advantage of business opportunities. 24 Related party transactions Prime People Plc provides various management services to its subsidiary undertakings. These services take the form of centralised finance and operations support. The total amount charged by the Company to its subsidiaries during the year is £388k (2010: £403k). The balance owed by the subsidiary undertakings at the year end is £91k (2010: £Nil). The Company also provides corporate guarantees on the subsidiary bank accounts. At 31 March 2011 amounts overdrawn by subsidiary bank accounts totalled £23k (2010: £180k). The Directors receive remuneration from the Group, which is disclosed in the Directors‟ Remuneration Report. As shareholders, the Directors also received dividends in the year from the Company amounting to £227,027 (2010: £139,740). 54 PRIME PEOPLE PLC Directors and Advisers Directors (Managing Director) Robert Macdonald (Executive Chairman) Peter Moore Chris Heayberd (Finance Director) John Lewis OBE (Non-Executive) Simon Murphy (Non-Executive) Secretary and registered office Chris Heayberd, 40a Dover Street, London, W1S 4NW. Registered number 1729887 Stockbrokers & Nominated Advisers Cenkos Securities Plc, 6.7.8 Tokenhouse Yard, London, EC2R 7AS Solicitors Howard Kennedy, 19 Cavendish Square, London, W1A 2AW. Auditors Crowe Clark Whitehill LLP, St Brides House, 10 Salisbury Square, London, EC4Y 8EH Principal bankers Barclays Bank plc, Corporate Banking, 1 Churchill Place, London E14 5HP Registrars Neville Registrars Limited, Neville House, Laurel Lane, Halesowen, West Midlands, B63 3DA. 55 PRIME PEOPLE PLC Notice of Annual General Meeting Notice is hereby given that the twenty-seventh Annual General Meeting of Prime People Plc (the “Company”) will be held at 40a Dover Street, Mayfair, London, W1S 4NW on Tuesday 28 June 2011 at 11.00am for the following purposes: Ordinary Business: 1. To receive the Company's financial statements for the year ended 31 March 2011 together with the reports of the directors and auditors thereon. 2. To approve the Remuneration Report. 3. To reappoint Mr R J G Macdonald as a Director, who retires by rotation pursuant to the articles of association, and being eligible, offers himself up for reappointment. 4. To reappoint Mr S J Murphy as a Director, who retires by rotation pursuant to the articles of association, and being eligible, offers himself up for reappointment. 5. To reappoint Crowe Clark Whitehill LLP as auditors for the ensuing year. 6. To authorise the Directors to determine the remuneration of the auditors. Special Business: 7. To consider and, if thought fit, to pass the following resolution as an ordinary resolution: That, in substitution for any existing powers, the Directors be and are hereby generally and unconditionally authorised in accordance with Section 551 of the Companies Act 2006 ('the Act') to exercise all powers of the Company to allot ordinary shares up to an aggregate nominal amount of £398,050 provided that this authority shall expire at the conclusion of the Annual General Meeting to be held in 2012 or 15 months after the passing of this resolution (whichever is the earlier) save that the Company may before such expiry make an offer or agreement which would or might require ordinary shares to be allotted after such expiry and the Directors may allot ordinary shares in pursuance of such an offer or agreement as if the authority conferred hereby had not expired. 8. To consider, and, if thought fit, to pass the following resolution as a special resolution: That, in substitution for all existing powers, under Section 570 of the Act, but without prejudice to the exercise of such power prior to the date hereof, the Directors be and are hereby empowered to allot equity securities (as defined in Section 560(1) and 560(2) of the Act) for cash pursuant to the authority conferred in accordance with Section 551 of the Act pursuant to Resolution 7 above as if Section 561of the Act did not apply to such allotment provided that this power shall be limited: a) b) to the allotment of equity securities in connection with a rights issue, open offer or otherwise in favour of the holders of equity securities in proportion to their respective holdings of such securities but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal with legal or practical problems in respect of overseas holders, fractional entitlements or otherwise; or to the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal amount of £59,700. 9. To consider, and, if thought fit, to pass the following resolution as a special resolution: That the Company be and is hereby generally and unconditionally authorised for the purposes of section 701 of the Act to make one or more market purchases (as defined in section 693 of the Act)) on the AIM Market of the London Stock Exchange plc of ordinary shares of 10p each in the capital of the Company provided that: a) The maximum aggregate number of new ordinary shares authorised to be purchased is 1,194,150 (representing approximately 10 per cent of the Company‟s current issued ordinary share capital). b) The minimum price which may be paid for such shares is £0.10 per share. c) The maximum price which may be paid for an ordinary share shall not be more than 5 per cent above the average of the middle market quotations for a new ordinary share as derived from the London Stock Exchange plc for the five business days immediately preceding the date on which the new ordinary share is purchased. d) Unless previously renewed, varied or revoked, the authority hereby conferred shall expire at the earlier of the Company‟s next Annual General Meeting or 18 months from the date of passing this resolution. e) The Company may make a contract or contracts to purchase new ordinary shares under the authority conferred prior to the expiry of such authority which will or may be executed wholly or partly after the expiry of such authority and may make a purchase of new ordinary shares in pursuance of any such contract or contracts. Registered Office By order of the Board 40a Dover Street London W1S 4NW C I Heayberd Secretary 3 June 2011 56 PRIME PEOPLE PLC Notice of Annual General Meeting (continued) Notes: . . . 1. A member entitled to speak, attend and vote at the above meeting convened by the above notice is entitled to appoint a proxy to attend, speak and vote in his place. Such proxy need not be a member of the Company. If you wish your proxy to speak on your behalf at the meeting you will need to appoint your own choice of proxy (not the Chairman) and give your instructions directly to them. 2. A member may appoint more than one proxy in relation to the meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by the member. A member wishing to appoint more than one proxy should photocopy the proxy card and indicate on each copy the name of the proxy he appoints and the number of shares in respect of which that proxy is appointed. 3. A form of proxy is enclosed. The appointment of a proxy will not prevent a Shareholder from subsequently attending and voting at the meeting in person, in which case any votes cast by the proxy will be excluded and the proxy appointment will automatically be terminated. In order to revoke a proxy appointment Shareholders will need to inform the Company by sending a signed hard copy notice clearly stating the intention to revoke the proxy appointment to the Company's registrars, Neville Registrars Limited, Neville House 18 Laurel Lane Halesowen West Midlands B63 3DA by the time appointed for holding the meeting or adjourned meeting, or in the case of a poll taken subsequently to the meeting or adjourned meeting, by the time appointed for taking the poll. 4. To be effective the instrument of proxy and the power of attorney or other written authority (if any) under which it is signed, or an office or notarially certified copy or a copy certified in accordance with the Powers of Attorney Act 1971 or the Enduring Powers of Attorney Act 1986 (or any statutory modification or re-enactment thereof for the time being in force) of any such power or written authority must be deposited at the Company's registrars, Neville Registrars Limited, Neville House 18 Laurel Lane Halesowen West Midlands B63 3DA, not less than 48 hours before the time appointed for holding the meeting or adjourned meeting, or in the case of a poll taken subsequently to the meeting or adjourned meeting, not less than 24 hours before the time appointed for taking the poll. Where a poll is not taken forthwith but is taken less than 48 hours after it was demanded, the instrument of proxy together with any other documents required to be deposited shall be deemed to have been deposited if handed to the chairman of the meeting at which the poll is validly demanded at any time prior to the commencement of such meeting and if so delivered the instrument of proxy shall be treated as valid. 5. Directors' service contracts together with a copy of the Rules to the company's Inland Revenue Approved Employee Enterprise Management Incentive Scheme and the minutes of the previous Annual General Meeting will be available for inspection during the Annual General Meeting and for at least 15 minutes before it begins. 6. In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, only those Shareholders entered on the Company‟s register of members not later than 48 hours before the time of the meeting or, if the meeting is adjourned, Shareholders entered on the Company‟s register of members not later than 48 hours before the time fixed for the adjourned meeting, will be entitled to attend and vote at the meeting. Changes to entries on the register of members after such time on such date will be disregarded in determining the rights of any person to attend and vote at the meeting. 57 PRIME PEOPLE PLC Form of Proxy For use at the Annual General Meeting convened for Tuesday 28 June 2011 at 11.00am. I/We Of being (a) member(s) of the above-named Company, hereby appoint the Chairman for the time being of the meeting or* as my/our proxy to attend, speak and vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held at 40a Dover Street, London, W1S 4NW on Tuesday 28 June 2011 at 11.00am and at any adjournment thereof. I/We direct my/our proxy to vote with an X in the spaces below on the resolutions set out in the notice convening the Annual General Meeting as follows, (if no indication is given, your proxy will vote for or against the resolution or abstain from voting as he thinks fit): ORDINARY BUSINESS FOR AGAINST ABSTAIN 1. To approve the Company's financial statements for the year ended 31 March 2011 together with the reports of the directors and auditors thereon. 2. To approve the Remuneration Report. 3. To reappoint Mr R J G Macdonald as a Director 4. To reappoint Mr S J Murphy as a Director 5. To re-appoint Crowe Clark Whitehill LLP as auditors for the ensuing year 6. To authorise the directors to determine the remuneration of the auditors. SPECIAL BUSINESS 7. To authorise the Directors to issue new shares 8. To empower the Directors to allot shares for cash. 9. To authorise the Directors to make market purchases of its own shares. If no indication is given, my/our proxy will vote or abstain from voting at his or her discretion and I/we authorise my/our proxy to vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the meeting. Signed this __________________________________________________________________________ day of 2011 Signature ___________________________________________________________________________ 58 SECOND FOLD BUSINESS REPLY SERVICE Licence No BM3865 NEVILLE REGISTRARS LIMITED NEVILLE HOUSE 18 LAUREL LANE HALESOWEN WEST MIDLANDS B63 3BR F I R S T F O L D THIRD FOLD AND TUCK IN 59 Prime People Plc Form of Proxy (continued) Notes: 1. If any other proxy is preferred, strike out the words "Chairman of the Meeting" and add the NAME and ADDRESS of the proxy you wish to appoint and initial the alteration. The proxy need not be a member. 2. To appoint more than one proxy you may photocopy this form. Please indicate the proxy holder's name and the number of shares in relation to which they are authorised to act as your proxy (which, in aggregate, should not exceed the number of shares held by you). Please also indicate if the proxy instruction is one of multiple instructions being given. All forms must be signed and should be returned together in the same envelope. 3. If the appointer is a corporation, this form must be completed under its common seal or under the hand of some officer or attorney duly authorised in writing. 4. The signature of any one of the joint holders will be sufficient, but the names of all the joint holders should be stated. In the case of joint holders of a share, the vote of the senior who tenders a vote whether in person or by proxy shall be accepted to the exclusion of the votes of the other joint holders and for this purpose seniority shall be determined by the order in which the names stand in the register of members in respect of the share. 5. To be effective this form and the power of attorney or other written authority (if any) under which it is signed, or an office or notarially certified copy or a copy certified in accordance with the Powers of Attorney Act 1971 or the Enduring Powers of Attorney Act 1986 (or any statutory modification or re-enactment thereof for the time being in force) of any such power or written authority must be deposited at the Company's registrars, Neville Registrars Limited, Neville House 18 Laurel Lane Halesowen West Midlands B63 3DA not less than 48 hours before the time appointed for holding the meeting or adjourned meeting, or in the case of a poll taken subsequently to the meeting or adjourned meeting, not less than 24 hours before the time appointed for taking the poll. Where a poll is not taken forthwith but is taken less than 48 hours after it was demanded, this form together with any other documents required to be deposited shall be deemed to have been deposited if handed to the Chairman of the Meeting at which the poll is validly demanded at any time prior to the commencement of such meeting and if so delivered the instrument of proxy shall be treated as valid. 6. The completion of this form will not preclude a member from attending the meeting and voting in person in which case any votes cast by the proxy will be excluded and your proxy appointment will automatically be terminated. In order to revoke a proxy instruction you will need to inform the Company by sending a signed hard copy notice clearly stating the intention to invoke the proxy appointment to the Company's registrars, Neville Registrars Limited, Neville House 18 Laurel Lane Halesowen West Midlands B63 3DA by the time appointed for holding the meeting or adjourned meeting, or in the case of a poll taken subsequently to the meeting or adjourned meeting, by the time appointed for taking the poll. 7. Any alteration of this form must be initialled. 8. In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, only those members entered on the Company‟s register of members not later than 48 hours before the time of the meeting or, if the meeting is adjourned, Shareholders entered on the Company‟s register of members not later than 48 hours before the adjourned meeting, will be entitled to attend and vote at the meeting. Changes to entries on the register of members after such time will be disregarded in determining the rights of any person to attend and vote at the meeting. 60 Financial Calendar Half year results Full year results Report and accounts - - - Announcement November 2011 Announcement June 2012 Posted to shareholders June 2012 Harper Craven Associates Limited Rocklands Place Boreham Lane Watling Nr Herstmonceux East Sussex T: + (0) 8707 503 630 F: + (0) 1323 834 929 www.harpercraven.co.uk E: infocentre@harpercraven.co.uk Macdonald & Company York House 20 York Street Manchester M2 3BB T: + (0) 161 605 0500 F: + (0) 20 7629 3990 www.macdonaldandcompany.co.uk E: manchester@macdonaldandcompany.com Macdonald & Company Gleneagles House Fairway Office Park 52 Grosvenor Road Bryanston South Africa T: + 27 11 361 5900 www.macdonaldandcompany.co.za E: southafrica@macdonaldandcompany.com Principal Addresses Prime People Plc 40a Dover Street Mayfair London W1S 4NW T: + (0) 20 7318 1785 F: + (0) 870 442 1737 www.prime-people.co.uk E: co.sec@prime-people.co.uk Macdonald & Company 40a Dover Street Mayfair London W1S 4NW T: + (0) 20 7629 7220 F: + (0) 20 7629 3990 www.macdonaldandcompany.co.uk E: london@macdonaldandcompany.com Macdonald & Company Office 206 - 207 Beach Park Plaza Centre Al Barsha 1 PO BOX 282196 Dubai United Arab Emirates T: + 971 4 430 9233 www.macdonaldandcompany.ae E: dubai@macdonaldandcompany.com Macdonald & Company 16th Floor 1 Duddell Street Central Hong Kong T: + 852 2248 3000 F: + 852 2526 9150 www.macdonaldandcompany.hk E: hongkong@macdonaldandcompany.com Prime People Plc 40a Dover Street Mayfair London W1S 4NW Tel: 0207 318 1785 Fax: 0870 442 1737 

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