Prime People Plc
Annual Report 2014

Plain-text annual report

Prime People Plc Annual Report and Financial Statements for the year ended 31 March 2014 2014 Contents Chairman’s Statement Strategic Report Financial Review Report of Directors Statement of Directors’ responsibilities Corporate governance Remuneration report Independent Auditor’s report Consolidated statement of comprehensive income Consolidated statement of changes in equity Consolidated statement of financial position Company statement of financial positon Company statement of changes in equity Group and Company cash flow statement Notes to the financial statements Directors and Advisers Board of Directors Page 1 3 6 9 11 12 16 19 21 22 23 25 26 27 28 54 55 PRIME PEOPLE PLC Chairman's Statement Performance 2014 was a year in which the recruitment sector stabilised and there were clear signs of growth in our main markets. I am pleased to report that we closed the year with Net Fee Income (NFI) of £8.3m which is a 9.2% increase on last year (2013: £7.6m). It is encouraging to see both sequential and bi-annual improvements in performance. NFI in the second half of the year of £4.5m shows an 18.4% improvement on both the first half of 2014 and second half of 2013. There were a number of strong NFI performances, noticeably from our UK property businesses, which continue to be our core market, and our most recently established business in Singapore, covering South East Asia, which has performed consistently well throughout this year. The increase in operating profit for the year from £0.76m in 2013 to £1.03m in 2014 reflects the improvement in NFI and the continued drive to control costs across the Group. NFI productivity per head has increased from £80k in 2013 to £91k this year. to shareholders by way of a reduction in capital amounting to 15 pence per share. We will continue to develop new business lines organically as opportunities arise and we have and will continue in our CRM and invest management information systems so that they are appropriate for the business now and into the future. to In order to effect a reduction of share capital the reduction must be approved by shareholders by a special resolution. If shareholders approve the reduction then as a public company, the Company must apply to the High Court for confirmation of the reduction of share capital. in more detail A circular containing a notice of the general meeting will be circulated separately to all the shareholders explaining background to and reasons for the proposed reductions in capital and convening the meeting. As stated above if shareholders approve the reduction then approval of the Court will need to be obtained which, if given, will mean that the process should be completed by the middle of July and cash will be returned to shareholders towards the end of that month. The conversion rate which compares operating profit to NFI improved from 10.05% to 12.33% due primarily to improvement in Asia. Dividend The Board will be recommending a final dividend of 3.09p (2013: 3.09p) per share which combined with the interim dividend of 1.0p per share will result in a total dividend of 4.09p for the 2014 financial year (2013: 4.09p). Share Buy Back through During the year 7,000 shares were purchased at a cost of £4,900 (2013: 55,000 shares at a cost of buyback £26,850) seeking programme. The Board will be shareholder approval for renewal of the authority to repurchase up to 10% of the Group’s issued share capital at the Annual General Meeting. the Group’s The ratio of NFI derived from permanent as against slightly temporary placements has increased in the year from 90:10 in 2013 to 91:9. Return of capital to shareholders At the start of the year the Group had net cash of £2.26m which had increased to £2.96m by the end of the year, a large proportion of which is considered by the Board to be surplus to the day to day needs of the business. The Board considers the cash needed to complete current growth plans is more than adequate and now concludes that it is appropriate to return cash 1 PRIME PEOPLE PLC Chairman's Statement (continued) Board The Board has continued to operate corporate governance standards appropriate to an AIM listed company. There have been no changes to the Board during the year. Although not required to do so, the Directors have resolved that they will retire at least once every three years and seek reappointment by shareholders at the next AGM. We are fortunate that the Board is composed of an experienced group of people, who are able to give balance and expertise to the business. People The average number of staff reduced slightly from 95 last year to 91 this year. However, we anticipate that headcount at the end of 2015 will have increased again. The success of the Group is dependent on having the right people and the Board would like to thank all of the Group’s staff for their hard work, commitment and contribution over the last year. Current trading and outlook Global We are cautiously optimistic about the current year. are economic strengthening and there are signs of growth in a number of recruitment sectors. The Group continues to enjoy strong client relationships which will allow it to capitalise on opportunities as they arise. conditions Robert Macdonald Executive Chairman 28 May 2014 2 in NFI throughout the period from our Singapore operation and improved NFI performance in the second half of the year from our Hong Kong office, whilst costs remained at the same level as last year. Our business in the Rest of the World, which is primarily directed through our Dubai office, started the year well but then, due to unforeseen licensing issues in Dubai, required restructuring there. The business has now been relocated to a Dubai Government sponsored ‘Freezone’. We remain focused on delivery profitable growth. We closely monitor individual NFI performance and productivity which, in conjunction with tightly managing costs, aim to continue to improve conversion ratios. PRIME PEOPLE PLC Strategic Report Overview The Group’s activity is the delivery of permanent and temporary recruitment services. The Group’s core market has been to provide these services to the built environment sector through its main subsidiary Macdonald & Company. This has been broadened to include provision of recruitment services for customer insight staff in the market research and data analysis sector, branded as Prime Insight and the energy & environmental sector as Macdonald & Company. 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 functional activity with team leaders responsible for running their teams 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 from disabled persons where the requirements of the job may be adequately covered by a disabled person. for employment We have two offices in the UK, London which is our head office and Manchester. Internationally we have offices in Dubai, Hong Kong, Singapore and South Africa. Group revenue and NFI were both up in 2014 which allowed us to deliver an increased operating profit of £1.03m (2013: £0.76m) and increase in profit before tax of £1.05m (2013: £0.78m). Profit before tax grew by 474% in Asia but fell in the UK and the Rest of the World. The UK had a slow start to the year but recorded a much better performance in the second half of the year. The growth in Asia was driven by a consistent increase 3 PRIME PEOPLE PLC Strategic Report Regional Performance UK Revenue Net fee income Operating profit % of NFI Average number of employees Revenue increased by 10.7% to £11.4m (2013: 10.3m) with an increase in net fee income of 8.2% to £5.3m (2013: £4.9m) Market conditions improved through the year which was reflected in our improved net fee income performance in the second half of the year which accounted for the majority of the net fee income growth during the year. The improved net fee income performance was primarily achieved by our more experienced consultants which resulted in higher than usual commissions. Asia Revenue Net fee income Operating profit % of NFI Average number of employees 2014 £m 11.4 5.3 0.72 13.6% 61 2013 £m 10.3 4.9 0.84 17.1% 64 This together with additional investment in the business contributed to the reduced operating profit as a percentage of NFI from 17.1% to 13.6%. During the year, due to difficult UK market conditions in the pharmaceutical sector in which we worked, we took the decision to close our UK pharmaceutical sector recruitment business. This comprised of two fee earners, who were then reallocated within the Group. 2014 £m 2.2 2.2 0.4 18.2% 23 2013 £m 1.7 1.7 (0.1) - 22 Net fee income grew by 29% to £2.2m (2013: £1.7.m). This is the fastest growing region and now represents 27% of Group net fee income. The region is covered by our offices in Hong Kong and Singapore. This year Net Fee Income for Hong Kong is approximately 6% down on the previous However, our Singapore office has year. performed well, exceeding its budgeted forecasts and ended significantly above last year, its first year of trading. The region is entirely focussed on permanent revenue. Average staff members were broadly the same in 2014 compared to 2013. 4 PRIME PEOPLE PLC Strategic Report Rest of the World Revenue Net fee income Operating profit % of NFI Average number of employees 2014 £m 0.8 0.8 (0.08) - 7 2013 £m 1.0 1.0 0.02 2.0 9 The Dubai business had a number of distractions over the last year, not least of which was the process of organising a move to a ‘free zone’ to simplify trading licence renewal in the future. This was a challenging process as it necessitated a complete change in the corporate structure of the business, which has now been completed. Whilst the business has made a small loss this year, the outlook for the region, as we step in to the new financial year, looks favourable and the expectation is that business will return to profit in the 2014/15 year. Peter Moore Managing Director 28 May 2014 5 PRIME PEOPLE PLC Financial Review Revenue The Group achieved a 10.6% increase in revenue to £14.42m (2013: £13.04m). Net Fee Income (NFI) NFI comprises fee of permanent candidates and the margin earned in the placement of temporary staff. total placement the Overall the Group delivered a 9.2% increase in total NFI to £8.3m (2013: £7.6m). NFI from permanent business increased by 10.4% to £7.54m temporary (2013: £6.83m). business, which represents 9.4% of total NFI (2013: 10%), increased by 2.6% to £0.78m (2013: £0.76m). NFI from international placements increased by 11.9% to £3.01m(2013: £2.69m). Fees from our Administration Costs Administration costs for the year increased by 4.3% to £7.3m (2013: £7.0m after adjusting for a gain on surrender of a property lease of £0.17m). The increased commission costs paid to employees. increase primarily related to Profit before Taxation Profit before taxation increased by 34.6% to £1.05m (2013: £0.78m) Taxation The taxation charge is £0.20m on a profit on ordinary activities before taxation of £1.05m which gives an effective tax rate of 19.4% (2013: 28.5%). The reasons for the difference from the standard UK corporation tax rate of 23% are detailed in note 7 of the accounts. Earnings Per Share Basic earnings per share increased by 51.1% to 7.10p (2013: 4.70p).The diluted earnings per share, taking into account existing share options, increased by 46.3% to 6.83p (2013: 4.67p). Dividend An interim dividend of 1.0p (2013: 1.0p) was paid on 29 November 2013 to shareholders on the register at close of business on 22 November 2013. The interim dividend was approved by the Board 6 is proposed, on 7 November 2013. A final dividend of 3.09p (2013: 3.09p) total dividend for the year to 4.09p (2013: 4.09p). The proposed dividend will be paid on 27 June 2014 to shareholders on the register on 13 June 2014 subject to approval at the AGM. taking the Balance Sheet Net assets at 31 March 2014 were slightly up on last year at £14.4m (2013: £14.08m) Trade receivables were slightly down on last year at £1.6m (2013: £1.9m) which reflects the reduced credit period taken by customers at 41 days (2013: 58 days). Treasury Management and Currency Risk Approximately 80% of the Group’s revenue in 2014 was denominated in Sterling. Consequently the Group has a degree of currency exposure in accounting for overseas operations. Currently the Groups 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 local short term working capital monetary needs. The Group operates a centralised treasury function and has chosen not to renew its borrowing facilities with Barclays Bank Plc as the Board consider that the net cash within the Group is sufficient foreseeable to meet existing and liabilities as they fall due. Cash Flow and Cash Position At the start of the year the Group had net cash of £2.26m. After net taxation payments of £0.17m (2013: £0.19m) cash generated from operations was £1.4m (2013: outflow of £0.01m). During the course of the year the Group spent £0.18m on its CRM and management information systems. A final dividend for 2013 of £0.46m was paid in June 2013 and an interim dividend for 2014 of £0.12m was paid in November 2013. At 31 March 2014 the Group had net cash of £2.96m. PRIME PEOPLE PLC Financial Review Measurements of performance in 2014 Whilst the Group considers Net Fee Income (NFI) to be the key indicator of the performance of the business there are other measures which were reported on to senior management as follows: - Conversion ratio (operating profit divided by NFI) increased to 12.33% (2013: 10.05%) - Productivity (NFI divided by total average headcount) increased to £91k (2013: £80k) - Ratio of billing headcount to support headcount reduced to 2.9 (2013: 3) These key performance indicators form a basis for reviewing the progress of the business. Principal Risks and Uncertainties Risk management is an important part of the management process throughout the group. The composition of the Board is structured to give balance and expertise when considering the principal risks and uncertainties of the Group. The Group’s strategy is designed to allow the business to grow without increasing risk beyond an acceptable limit. The profile of risks fluctuates from time to time and the actions being taken to manage and control risks are intended to mitigate the effects on risks the business, but cannot eliminate absolutely. 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: to to continue its competitive seeks positions, the actions of current or indeed potential competitors may adversely affect the Group’s business. improve Strength of Property Markets The market for built environment 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. Our temporary business continues to be focused in the Public Sector which to government funding cut backs, has been in decline but there are positive signs of recovery in this area of our business. However 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. in recent years, due 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 in its chosen markets and so therefore outcomes could be influenced by the GDP growth of economies in which we operate. 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. Dependence on Key People The future success of the Group is dependent 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 term structures remuneration plans, the aim of which is to retain the key employees. long and pay Competitors The Directors believe that the Group is well positioned in its chosen markets. Whilst the Group 7 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 technology provide 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 and infrastructure upgraded to ensure that they provide appropriate functionality and the resilience business as it develops. to support reviewed regularly the are PRIME PEOPLE PLC Financial Review Foreign Exchange Risk The Group’s international operations account for approximately 21 per cent of revenue (2013: 20 per cent) and slightly less than 7 per cent of the Group’s assets (2013: 6 per cent). 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 third party credit on payment history and references with appropriate provisions being made. Chris Heayberd Finance Director 28 May 2014 8 PRIME PEOPLE PLC Report of the Directors for the Year Ended 31 March 2014 The Directors submit their report and the audited Group financial statements of Prime People Plc for the year ended 31 March 2014. Prime People Plc is a public listed company, incorporated and domiciled in England and its shares are quoted on the AIM Market. Substantial Shareholders At 28 May 2014, other than the Director’s interests shown in the Directors’ remuneration report on page 16 the Company had been notified of the following interests disclosed under the Disclosure and Transparency Rules: Peter Hearn The Cayzer Trust Company Limited Number of 10p ordinary shares Percent of issued share capital % 784,500 439,500 6.50 3.64 The mid market quotation of the Company’s shares at close of business on 31 March 2014 was 88p. The highest and lowest mid market quotations in the period from 1 April 2013 to 31 March 2014 were 88p and 51p. Going concern The Group has two revenue streams permanent and temporary recruiting. The Group has experienced 10% revenue growth in 2014 evenly split between the two streams of business. The permanent business, which is largely cash generative, has provided the working capital to support the growth in the temporary business as well as increase the net cash position of the Group from £2.26m to £2.96m at the end of the year. The Directors have prepared cash flow forecasts for a period of at least 12 months from the date of approval of the financial statements. These forecasts take account of the proposed return of capital which is referred to in the Chairman’s Statement on page 1 and which, subject to shareholders’ approval will be paid to shareholders in July 2014. After reviewing these forecasts and having made 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. 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 as our environmental impact comes from the running of our business 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 Political Donations The Group made no political donations during the year (2013: Nil). 9 PRIME PEOPLE PLC Report of the Directors for the Year Ended 31 March 2014 Workplace Pensions The law on workplace pensions requires that the Group automatically enrol certain UK employees into a pension scheme which the Group will be implementing on 1 July 2014. Capital Structure Details of the authorised and issued share capital are shown in note 17. 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 17. Annual General Meeting (“AGM”) The AGM will be held on Monday 16 June 2014 at 9.00am at 2 Harewood Place, London, W1S 1BX. All shareholders are encouraged to attend. The resolutions to be put forward to the AGM are detailed in the Notice of AGM, which is being circulated separately to all shareholders. Authority to purchase own shares The Directors were given authority at last year’s AGM to purchase through the market up to 10% of the Company’s issued share capital, subject to certain restrictions on price. A request for renewal of the authority is included in the resolutions for this year’s AGM. During the year the company purchased 7,000 shares (2013: 55,000 shares). Statement as to disclosure of information to auditors The Directors who were in office on the date of approval of these financial statements have confirmed that, as far as they are aware, there is no relevant audit information of which the auditors are unaware. The Directors have confirmed that they have taken appropriate steps to make themselves aware of any relevant audit information and to establish that it has been communicated to the auditors. 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 28 May 2014 10 PRIME PEOPLE PLC Statement of Directors’ Responsibilities The Directors are responsible for preparing the Strategic Report, the Directors' Report, the 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 European Union (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 and profit or loss of the Company and 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 Group and Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and its 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 the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 11 PRIME PEOPLE PLC Corporate Governance Statement by the Directors on Compliance with the Combined Code Corporate Governance The Board of the Company is committed to achieving high standards of corporate governance, integrity and ethics. The Directors recognise the value and importance of sound corporate governance and support the principles of the UK Corporate Governance Code published in 2010. Although as an AIM listed Company it is not formally required to do so, Prime People has sought to comply with the Code so far as is practical and appropriate for a public Group of its size and nature. The Group also seeks to comply with the recommendations of the QCA on corporate governance. A statement of the Directors’ responsibilities in respect of the financial statements is set out on page 11. The Board has established two committees being the Audit Committee and the Remuneration Committee each of which operates with defined terms of reference. Membership of these committees as at the date of this report, the number of meetings held in 2014 and the attendance record are summarised in the table below: Directors Board Audit Committee Remuneration Committee Robert Macdonald – Executive Chairman 5/5 (Chair) Peter Moore – Managing Director Chris Heayberd – Finance Director John Lewis – Non-Executive Director Simon Murphy – Non-Executive Director 5/5 5/5 5/5 4/5 N N N N N N 1/1 1/1 (Chair) 1/1(Chair) 1/1 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 all of whom held office throughout the year. 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 set out in the Remuneration Report on page 17. Biographical details for all the Directors are shown on page 55. 12 PRIME PEOPLE PLC Corporate Governance The Board and its Operation (continued) 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. 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 Auditor. By invitation, the meetings are also attended by the Finance Director. During the year the committee met once which was considered sufficient by both committee members to deal with matters referred to it in the year. 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 Auditor 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. 13 PRIME PEOPLE PLC Corporate Governance 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 16 to 18. 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. 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 2013 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 meet up to six times a year and more frequently when required 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. Levels of authority There are clear levels of authority, delegation and management structure. 14 PRIME PEOPLE PLC Corporate Governance Internal Controls (continued) 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. 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 far 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. Dialogue with shareholders Many of those who continue to hold shares in the Company are, or have been employed within the business. The original owners of Macdonald & Company Group still hold considerable share interests and retain a strong interest in the company’s success and reputation. Robert Macdonald Chairman 28 May 2014 15 PRIME PEOPLE PLC Remuneration Report The role of the Remuneration Committee 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 management 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. Directors’ Service Contracts The Executive Chairman and Managing Director 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 both 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. The Finance Director has a service contract which contains a notice period of 3 months which is terminable by either party giving 3 months notice. The service contract also contains restrictive covenants preventing him from competing with the Group for 3 months following the termination of employment and preventing him from soliciting key employees, clients and candidates of the employing Group and Group companies for 3 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. Non-Executive Directors’ Remuneration and Terms of Services 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. 16 PRIME PEOPLE PLC Remuneration Report Emoluments of Directors The aggregate emoluments of Directors who served during the year is shown in the table below. Emoluments include management salaries, fees as Directors and 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 Benefits 2014 Total £ £ £ 2013 Total £ Executive Chairman Robert Macdonald 111,390 4,376 115,766 113,918 Executive Directors Peter Moore (Notes 1 & 2) 171,840 101,697 273,537 252,644 Chris Heayberd 62,485 3,920 66,405 109,543 Non-Executive Directors John Lewis Simon Murphy 18,925 18,925 - - 18,925 18,342 18,925 18,342 383,565 109,993 493,558 512,790 Notes to the emoluments: 1 - Peter Moore is the highest paid Director, 2 - Peter Moore relocated to Singapore in August 2012 and is provided with family accommodation, 3 - Benefits include accommodation, medical and travel allowance, 4 - The Group does not operate a defined benefit pension scheme. Directors’ interests in shares Directors’ beneficial interest in the shares of the Company at 31 March 2014 were as follows: Ordinary shares of 10p each held at 31 March 2014 Percentage of issued share capital at 31 March 2014 Ordinary shares of 10p each held at 31 March 2013 Percentage of issued share capital at 31 March 2013 2,480,000 2,897,500 324,000 1,008,500 230,000 20.55% 24.01% 2.69% 8.36% 1.91% 2,480,000 2,897,500 324,000 1,180,500 230,000 20.55% 24.01% 2.69% 9.78% 1.91% Robert Macdonald Peter Moore Chris Heayberd John Lewis Simon Murphy 17 PRIME PEOPLE PLC Remuneration Report Share option schemes During 2014 no share options were granted to Executive Directors. As at 31 March 2014 Director’s 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 2005/6 184,234 57.5p 15 May 2007 The performance criteria on Directors share options granted in 2005/6 were achieved when the Company acquired Macdonald & Company Group Limited in January 2006. Directors’ Insurance Directors’ and officers’ liability insurance is provided at the cost of the Group for all Directors’ and Officers’. 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 28 May 2014 18 PRIME PEOPLE PLC Independent Auditor’s 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 2014 which comprise Group and Parent Company Statements of Financial Position, the Group Statement of Comprehensive Income, the Group and Company Cash Flow Statements, the Group and Parent Company Statements of Changes in 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 and, as regards the parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. 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 Auditor 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 and express an opinion on 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 Auditor’s. 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. In addition, we read all the financial and non-financial information in the Strategic Report and the Directors’ Report, Chairman’s Statement, Financial Review, Corporate Governance and Remuneration Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for 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 of the parent Company's affairs as at 31 March 2014 and of the Group‘s profit for the year then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. 19 PRIME PEOPLE PLC Independent Auditor’s Report (continued) Opinion on other Matter Prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements. 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 by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or the parent Company 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 Bride’s House 10 Salisbury Square London EC4Y 8EH 28 May 2014 20 PRIME PEOPLE PLC Consolidated Statement of Comprehensive Income For the year ended 31 March 2014 Note 2, 3 2, 3 4 7 9 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 income Exchange (loss)/profit on translating foreign operations Total comprehensive income for the year Attributable to: Equity shareholders of the parent Earnings per share Basic earnings per share Diluted earnings per share The above results relate to continuing operations 21 2014 £’000 14,442 (6,115) 2013 £’000 13,038 (5,443) 8,327 (7,300) 7,595 (6,832) 1,027 20 (2) 1,045 (203) 763 20 - 783 (223) 842 560 (111) 19 731 579 731 579 7.10p 6.83p 4.70p 4.67p PRIME PEOPLE PLC Consolidated Statement of Changes in Equity For the year ended 31 March 2014 Called up share capital £’000 Capital Redemp- tion reserve £’000 Treasury shares Share premium account Merger reserve Share option reserve Trans- lation reserve Retained earnings Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 At 1 April 2012 1,207 9 (169) 7,109 173 81 404 5,080 13,894 Total comprehensive income for the year Adjustment in respect of share schemes Shares issued from treasury Shares purchased for treasury Dividend At 31 March 2013 Total comprehensive income for the year Adjustment in respect of share schemes Shares issued from treasury Shares purchased for treasury Dividend At 31 March 2014 - - - - - - - - - - - - 4 (26) - - - - - - - - - - - - 19 560 579 16 - - - - - - - 3 - 19 4 - (26) (387) (387) 1,207 9 (191) 7,109 173 97 423 5,256 14,083 - - - - - - - - - - - - 53 (5) - - - - - - - - - - - - (111) 842 731 23 - - - - - - - 23 - - 46 53 (5) (485) (485) 1,207 9 (143) 7,109 173 120 312 5,636 14,423 22 PRIME PEOPLE PLC Consolidated Statement of Financial Position As at 31 March 2014 Assets Non – current assets Goodwill Property, plant and equipment Deferred tax asset Current assets Trade and other receivables Cash at bank and in hand Total assets Liabilities Current liabilities Financial liabilities Trade and other payables Current tax liabilities Non-current liabilities Deferred tax liabilities Total liabilities Net assets 2014 £’000 9,769 328 - 2013 £’000 9,769 264 28 10,097 10,061 3,535 2,963 6,498 3,452 2,282 5,734 16,595 15,795 1 2,005 151 2,157 15 15 26 1,526 160 1,712 - - 2,172 1,712 14,423 14,083 Note 11 10 16 13 21 14 15 16 23 PRIME PEOPLE PLC Consolidated Statement of Financial Position As at 31 March 2014 Note 2014 £’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 Translation reserve Retained earnings 17 18 18 18 18 18 18 18 1,207 9 (143) 7,109 173 120 312 5,636 2013 £’000 1,207 9 (191) 7,109 173 97 423 5,256 Total equity 14,423 14,083 The financial statements on pages 21 to 53 were approved by the Board of Directors and authorised for issue on 28 May 2014 and are signed on its behalf by: R J G Macdonald C I Heayberd 24 PRIME PEOPLE PLC Company Statement of Financial Position As at 31 March 2014 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 Note 12 10 16 13 21 15 2014 £’000 10,876 - 1 10,877 15 2,672 2,687 2013 £’000 10,876 - 1 10,877 596 1,949 2,545 13,564 13,422 - 159 159 159 26 55 81 81 13,405 13,341 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 17 18 18 18 18 18 18 1,207 9 (143) 7,109 173 32 5,018 1,207 9 (191) 7,109 173 32 5,002 Total equity 13,405 13,341 The financial statements of Prime People Plc, Company Number 1729887 were approved by the Board and authorised for issue on 28 May 2014 and are signed on its behalf by: R J G Macdonald C I Heayberd 25 PRIME PEOPLE PLC Company Statement of Changes in Equity For the year ended 31 March 2014 Company Called up share capital £’000 Capital Redemp- tion reserve £’000 Treasury shares Share premium account Merger reserve Share option reserve Retained earnings Total £’000 £’000 £’000 £’000 £’000 £’000 At 1 April 2012 1,207 9 (169) 7,109 173 32 4,879 13,240 Total comprehensive income for the year Shares purchased for treasury Dividend At 31 March 2013 Total comprehensive income for the year Shares purchased for treasury Dividend At 31 March 2014 - - - - - - - (22) - - - - - - - - - - 510 510 - (22) (387) (387) 1,207 9 (191) 7,109 173 32 5,002 13,341 - - - - - - 48 - - - - - - - - - 501 501 - 48 (485) (485) 1,207 9 (143) 7,109 173 32 5,018 13,405 26 PRIME PEOPLE PLC Group and Company Cash Flow Statement For the year ended 31 March 2014 Cash generated from (used in) underlying operations Income tax paid Income tax received Net cash from/(used by) operating activities Cash flows from investing activities Net interest received Net purchase of property, plant and equipment Dividend received Net cash (used in)/from investing activities Cash flows from financing activities Shares issued from treasury Shares purchased for treasury Dividend paid to shareholders Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Effect of foreign exchange rate changes Cash and cash equivalents at the end of the year Note 20 Group 2014 £’000 2013 £’000 Company 2014 £’000 2013 £’000 1,586 186 723 (223) (230) 60 (195) - (5) (6) - 1,416 (9) 718 (229) 18 (180) - 20 (189) - 18 - 450 19 - 473 (162) (169) 468 492 (5) 53 (485) 4 (26) (387) - 48 (485) - (22) (387) (437) (409) (437) (409) 817 (587) 749 (146) 2,256 2,824 1,923 2,069 (111) 19 - - 2,962 2,256 2,672 1,923 27 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 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 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 2 Harewood Place, London W1S 1BX. 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 £501,331 (2013: profit £509,038). 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 (“IFRS”) as endorsed by the European Union and also comply with IFRIC interpretations and Company Law 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 consolidated financial statements for the year ended 31 March 2014 (including comparatives) are presented in GBP ‘000. The accounting polices applied by the Group in these consolidated financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 March 2013 and are described below. International Accounting Standards (IAS/IFRS) and Interpretations in issue but not yet adopted At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published by the IASB but are not yet effective. These have not been adopted early by the Group and the initial assessment indicates that either they will not be relevant or will not have a material impact on the Group: IFRS 10 Consolidated Financial statements (effective 1 January 2013**) IFRS 11 Joint Arrangements (effective 1 January 2013**) IFRS 12 Disclosure of Interests in Other Entities (effective 1 January 2013**) IAS 27 (Revised), Separate Financial Statements (effective 1 January 2013**) IAS 28 (Revised), Investments in Associates and Joint Ventures (effective 1 January 2013**) • • • • • • Novation of Derivatives and Continuation of Hedge Accounting - Amendments to IAS 39 (effective 1 January 2014 28 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 2 Summary of Significant Accounting Policies (continued) International Accounting Standards (IAS/IFRS) and Interpretations in Issue but not yet adopted (continued) • Transition Guidance – Amendments to IFRS 10, IFRS 11 and IFRS 12 (effective 1 January 2013) • Investment Entities – Amendments to IFRS 10, IFRS 12 and IAS 27 (effective 1 January 2014) • Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36) (effective 1 January 2014). **Note: EU mandatory effective date is 1 January 2014, not 2013. 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 and balances on transactions between Group companies are eliminated in preparing the consolidated financial statements. 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. 29 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 2 Summary of Significant Accounting Policies (continued) Revenue recognition a) Revenue 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; and - 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 Sterling, which is the Company’s functional and presentation currency. (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 consolidated statement of comprehensive income. 30 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 2 Summary of Significant Accounting Policies (continued) d) Foreign Currency Translation (continued) (iii) Group Companies On consolidation the results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each year end presented are translated at the closing rate of that year end; • income and expenses for each statement of comprehensive income are translated at average exchange rates; and • all resulting exchange differences are recognised in other comprehensive income. e) 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 reviewed 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 to write the cost off in equal annual instalments over three years. f) 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 expected period of the lease. • Furniture, fittings and computer equipment 25% – 33% • Motor vehicles 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. 31 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 2 Summary of Significant Accounting Policies (continued) 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 statement of comprehensive income 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 All of the Group’s 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. 32 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 2 Summary of Significant Accounting Policies (continued) 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 instruments 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. m) Financial assets The Group’s financial assets comprise cash and various other receivable balances that arise from its operations. 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 initially measured at fair value and subsequently at amortised cost using the effective interest rate method, less any impairment. Interest incomes is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Financial assets are assessed for impairment at each balance sheet date, and are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in the profit or loss account. If in a subsequent period the amount of the impairment loss decreases and the decreases can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit and loss to the extent that the carrying amount of the financial asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. Cash and cash equivalents includes cash in hand and bank deposits that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Bank overdrafts are classified with current liabilities in the statement of financial position. n) Financial liabilities and equity Financial liabilities and equity instruments are initially measured at fair value and are classified according to the substance of the contractual arrangements entered into. Financial liabilities are subsequently measured at amortised cost. The Group’s financial liabilities comprise trade payables, borrowings, bank overdrafts and other payable balances that arise from its operations. They are classified as ‘financial liabilities measured at amortised cost’. 33 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 2 Summary of Significant Accounting Policies (continued) o) 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. p) 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. q) 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: 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 20.5% of those offers where employment has yet to commence (2013: 20.6%). 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 11. 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 13. 34 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 3 Segment Reporting a) Revenue and Net Fee Income, by Geographical Region UK Asia Rest of World Revenue Net fee income 2014 £’000 2013 £’000 2014 £’000 2013 £’000 11,432 10,345 5,317 4,902 2,230 1,746 2,230 1,746 780 947 780 947 14,442 13,038 8,327 7,595 All revenues disclosed by the Group are derived from external customers and are for the provision of recruitment services. The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 2. Segment profit before taxation represents the profit earned by each segment after allocations of central administration costs. b) Revenue and Net Fee Income, by Classification Permanent -UK -Asia -Rest of World Temporary (UK) Total Revenue 2014 £’000 2013 £’000 Net fee income 2013 £’000 2014 £’000 4,548 2,230 780 6,884 4,146 1,746 947 4,533 2,230 780 4,140 1,746 947 6,199 784 762 14,442 13,038 8,327 7,595 35 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 3 Segment Reporting (continued) c) Profit before Taxation by Geographical Region UK Asia Rest of World Operating Profit Net finance income Profit before taxation 2014 £’000 719 381 (73) 1,027 18 1,045 2013 £’000 841 (102) 24 763 20 783 Operating profit is the measure of profitability regularly reviewed by the Board, which collectively acts as the Chief Operating Decision Maker. Consequently no segmental analysis of interest or tax expenses are provided. Segment operating profit is the profit earned by each operating unit and includes inter segment revenues totalling £0.37m (2013 £0.43m) for the UK, and charges of £(0.24m) (2013 £(0.3m)) for Asia and £(0.13m) (2013 £(0.14m)) for the rest of the world. d) Segment Assets and Liabilities by Geographical Region UK Asia Rest of World Total Total non-current assets 2013 £’000 2014 £’000 Total liabilities 2014 £’000 2013 £’000 10,062 10,018 1,380 7 28 34 9 656 136 979 577 156 10,097 10,061 2,172 1,712 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 asset include property, plant and equipment and computer software. 36 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 4 Profit on ordinary activities before taxation Profit for the year is arrived at after charging: Depreciation Operating lease rentals - owned assets - land and buildings - other operating leases (Profit)/loss on disposal of fixed assets Exchange rate loss/(gain) (Profit) relating to a premium received on surrender of a lease net of associated costs The analysis of auditors remuneration is as follows: Audit of company Audit of subsidiaries Total audit fees Tax compliance services (i.e. related to assistance with corporate tax returns) Total fees 5 Directors’ emoluments Emoluments for qualifying services Highest paid Director: Emoluments for qualifying services Year ended 2014 £’000 2013 £’000 116 353 2 (2) 25 94 427 7 26 (11) - (169) 12 30 42 2 44 12 29 41 2 43 2014 £’000 2013 £’000 494 494 513 513 274 253 The Directors did not exercise any share options during the year (2013: Nil). Details of Directors’ emoluments and interests, which form part of these financial statements, are provided in the Director’s Remuneration report on pages 16 to 18. 37 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 6 Employees Group The average monthly number of employees of the Group during the year, including Directors, was as follows: Consultants Management and administration Temporary staff Company The average monthly number of employees of the Company during the year, including Directors, was as follows: 2014 Number 2013 Number 63 22 6 91 66 22 7 95 2014 Number 2013 Number Management 5 5 Staff costs for all employees, including Directors, but excluding temporary staff placed with clients are as follows and have been included in Administration expenses in the consolidated statement of comprehensive income: Group Wages and salaries Social security costs Share option charge Remuneration of key management Short term employee benefits (excluding social security costs) Share based payments 2014 £’000 4,677 388 46 2013 £’000 4,668 370 19 5,111 5,057 2014 £’000 816 11 2013 £’000 852 8 827 860 Key management includes executive Directors above and senior divisional managers. 38 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 7 Taxation on Profits on Ordinary Activities a) Analysis of tax charge in the year Current tax UK Corporation tax UK tax over provided in previous years Foreign tax Total current tax Deferred tax Origination and reversal of temporary differences Total charge on profit for the year 2014 £’000 2013 £’000 123 (23) 60 239 2 8 160 249 43 (26) 203 223 UK corporation tax is calculated at 23% (2013: 24%) of the estimated assessable profits for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. b) The charge for the year can be reconciled to the profit per the consolidated statement of comprehensive income as follows: Profit before taxation Tax at UK corporation tax rate of 23% (2013: 24%) on profit on ordinary activities Effects of: Expenses not deductible for tax purposes Capital allowances for the period less than depreciation Tax losses not (utilised)/utilised Tax rate differences Temporary differences recognised Overprovision provision in prior years 2014 £’000 2013 £’000 1,045 783 247 7 (20) (45) (21) 15 (23) 188 20 7 59 (14) (13) 2 Tax charge for the year 160 249 39 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 8 Dividends Final dividend for 2013: 3.09p per share (2012: 2.25p per share) Interim dividend for 2014: 1.00p per share (2013: 1.00p per share) 2014 £’000 2013 £’000 366 119 267 120 485 387 An interim dividend of 1.0p (2013: 1.0p) was paid on 29 November 2013 to shareholders on the register at the close of business on 22 November 2013. The interim dividend was approved by the Board on 7 November 2013. The final dividend in relation to 2013 was recommended on 28 May 2013 but was not recognised as a liability in the year ended 31 March 2013. A final dividend of 3.09p (2013: 3.09p) is proposed, taking the total dividend for the year to 4.09p (2013: 4.09p). The proposed dividend will be paid on 27 June 2014 to shareholders on the register on 13 June 2014 subject to approval at the AGM. 9 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. Retained profit for basic and diluted earnings per share 2014 £’000 2013 £’000 842 560 Number Number Weighted average number of shares used for basic earnings per share Dilutive effect of share options 11,863,698 462,126 11,896,543 83,393 Diluted weighted average number of shares used for diluted earnings per share 12,325,824 11,979,936 Basic earnings per share Diluted earnings per share 40 Pence Pence 7.10p 6.83p 4.70p 4.67p PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 10 Property, Plant and Equipment Group Cost At 1 April 2012 Additions Disposals Exchange difference At 1 April 2013 Additions Disposals Exchange difference At 31 March 2014 Depreciation At 1 April 2012 Provision for the year Disposals Exchange rate loss At 1 April 2013 Provision for the year Disposals Exchange rate gain At 31 March 2014 Net book value At 31 March 2014 At 31 March 2013 At 31 March 2012 Total £’000 1,211 190 (637) 5 769 186 (48) (11) 896 1,016 94 (610) 5 505 116 (44) (9) 568 328 264 195 Fixtures, fittings and equipment £’000 Motor vehicles £’000 21 - - 1 22 20 (22) - 20 21 - - 1 22 6 (22) - 6 14 - - 1,190 190 (637) 4 747 166 (26) (11) 876 995 94 (610) 4 483 110 (22) (9) 562 314 264 195 41 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 10 Property, Plant and Equipment (continued) Company Cost At 1 April 2012, 1 April 2013 and 31 March 2014 Depreciation At 1 April 2012, 1 April 2013 and 31 March 2014 Net book value At 1st April 2012, 1 April 2013 and 31 March 2014 11 Goodwill Cost At 1 April 2012, 1 April 2013 and 31 March 2014 Fixtures, fittings and equipment £’000 - - - £’000 9,769 The total carrying value of goodwill is £9.77m, which relates to the acquisition of the Macdonald & Company Group of companies in January 2006, has been tested for impairment with the recoverable amount being determined from value in use calculations. The recoverable amount is determined on a value in use basis utilising the value of cash flow projections. The first year of the projections is based on detailed budgets prepared and approved by management. Subsequent years are based on extrapolations. The key assumptions in calculating the value in use is that the Group will meet its budgeted growth in net fee income of 13% in the year to 31 March 2015. After the end of the period covered by the budget a 5% growth rate is applied. This growth rate represents the average rate of growth in the markets in which the Group operates. A discount rate of 9% has been applied which represents the weighted average costs of capital for the Group. Based upon this analysis the asset has not been impaired since the ‘recoverable amount’ (being the greater of the net realisable value and the value in use) is in excess of its carrying amount by £4.6m. If Operating profit remains constant with no growth into the future or if a discount factor greater than 15.7% were applied then an impairment loss would need to be recognised. 42 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 12 Investments Company Cost At 1 April 2012, 1 April 2013 and 31 March 2014 Shares in subsidiary undertakings £’000 10,876 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 Macdonald & Company Group Limited Macdonald & Company Property Limited Macdonald and Company Freelance Limited Macdonald & Company (Overseas) Limited England and Wales Macdonald & Company Ltd Hong Kong Ru Yi Consulting Limited Hong Kong Macdonald and Company Pte Limited Singapore Macdonald & Company Pty Ltd Australia Macdonald & Company Recruitment Proprietary Ltd South Africa The Prime Organisation Ltd England and Wales Dormant Recruitment Dormant Recruitment Dormant Dormant Dormant 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 2014 13 Trade and other Receivables Current Trade receivables Allowance for doubtful debts Amounts owed by subsidiary undertakings Other receivables Prepayments and accrued income Group 2014 £’000 1,613 (38) - 52 1,908 2013 £’000 1,882 (85) - 73 1,582 3,535 3,452 Company 2014 £’000 2013 £’000 - - - 5 10 15 - - 584 1 11 596 At 31 March 2014, the average credit period taken on sales of recruitment services was 41 days (2013: 58 days) from the date of invoicing. An allowance of £38,000 (2013: £85,000) has been made for estimated irrecoverable amounts. Due to the short-term nature of trade and other receivables, the Directors consider that the carrying value approximates to their fair value. Prepayments and accrued income principally comprise amounts to be billed for permanent placements with a start date within three months from the start of the new financial year. The Group does not provide against receivables solely on the basis of the age of the debt, as experience has demonstrated that this is not a reliable indicator of recoverability. The Group provides fully against all receivables where it has positive evidence that the amount is not recoverable. The ageing of trade receivables at the reporting date was: Gross trade receivables 2014 £’000 Provisions 2014 £’000 Gross trade receivables 2013 £’000 Provisions 2013 £’000 Not past due Past due 0-30 days Past due 30-90 days Past due More than 90 days 7 21 10 - 38 1,056 578 117 131 1,882 12 - 19 54 85 1,255 276 82 - 1,613 44 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 13 Trade and other Receivables (continued) Movement in allowance for doubtful debts: 1 April 2013 Impairment losses recognised Amounts written off as uncollectable Impairment losses reversed 31 March 2014 14 Financial Instruments Financial assets Trade and other receivables Cash and cash equivalents 2014 £’000 85 38 (72) (13) 38 2014 £’000 3,535 2,963 2013 £’000 146 85 (23) (123) 85 2013 £’000 3,452 2,282 6,498 5,734 Note 13 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. Financial liabilities Current Bank overdraft 2014 £’000 2013 £’000 1 1 26 26 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. 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. 45 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2014 15 Trade and other Payables Current Trade payables Other payables Amount owed to subsidiary undertakings Taxation and social security Accruals and deferred income Group Company 2014 £’000 2013 £’000 2014 £’000 2013 £’000 303 256 - 490 956 193 245 - 374 714 12 1 99 20 27 - - - 17 38 2,005 1,526 159 55 Due to the short-term nature of the trade and other payables, the Directors consider that the carrying value approximates to their fair value. Trade payables are generally on 30–60 day terms. No payables are past their due date. 16 Deferred Tax Liability Group At 1 April 2012 Credit to income At 31 March 2013 Charge to income Tax losses £’000 - (26) (26) 26 Accelerated depreciation £’000 (2) - (2) 17 Total £’000 (2) (26) (28) 43 At 31 March 2014 - 15 15 Company At 1 April 2012, 1 April 2013 and 31 March 2014 Accelerated depreciation £’000 1 Total £’000 1 46 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 17 Share Capital 2014 2013 Number £’000 Number £’000 ALLOTTED, CALLED UP AND FULLY PAID Ordinary shares of 10p each At 1 April 2012 and 1 April 2013 12,066,500 1,207 12,066,500 At 31 March 2014 12,066,500 1,207 12,066,500 1,207 1,207 The Company has one class of ordinary shares which carries 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. No person has any special rights of control over the company’s share capital and all its issued shares are fully paid. Pursuant to shareholder resolutions at the AGM of the Company on 25 June 2013, the Company has the following authorities during the period up to the next AGM. - - - - to issue new/additional ordinary shares to existing shareholders through a rights issue up to a maximum nominal amount of £402,200, representing one third of the then issued share capital of the Company; to issue new/additional ordinary shares to new shareholders up to a maximum nominal amount of £402,200 representing one third of the issued shares capital of the Company to allot equity securities for cash, without the application of pre-emption rights, up to a maximum nominal amount of £60,350 representing 5% of the then issued share capital of the Company; and to purchase through the market up to 10% of the Company’s issued share capital, subject to certain restrictions on price. Shareholders will be asked to renew these authorities at the AGM in 2014. Capital Risk Management 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 capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent comprising issued capital reserves and earnings. 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 14, has taken the decision not to renew its borrowing facilities with Barclays Bank. 47 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 17 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 2014 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 2013 2005/6 2008/9 2009/10 57.50 2007-2015* 20.77 2011-2016* 31.50 2012-2017* 31.50 2014-2019* 42.00 2013-2018 184,234 110,000 15,000 200,000 58,000 2011/12 68.00 2014-2019 105,000 Granted Exercised Cancelled Number of Options 31 March 2014 184,234 51,000 10,000 100,000 34,000 - (54,000) - (100,000) (24,000) - (5,000) (5,000) - - - - - - - - - - - (87,000) 18,000 (13,000) (11,000) 124,250 116,250 2013/14 Nil Nil 2016-2021 2019-2021 137,250 127,250 Total 2014 672,234 264,500 (178,000) (121,000) 637,734 Weighted average exercise price 2014 (pence) 43.48p Nil 29.66p 51.05p 27.86p Total 2013 741,234 Nil (17,000) (52,000) 672,234 Weighted average exercise price 2013 (pence) 44.19p Nil 20.77p 61.0p 43.48p *These options have fully vested There were 637,734 options outstanding at 31 March 2014 (2013: 672,234) which had a weighted average price per share of 27.86p (2013: 43.48p). The options vest over a period of two to five years conditional upon the option holders continued employment with the Company. 48 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 17 Share Capital (continued) The conditions which give the option holders the right to exercise their options under the EMI have been achieved. The fair value of the employee services received in exchange for the grant of the share options is charged to the profit and loss account over the vesting period of the share option, based on the number of options which are expected to become exercisable. Share price (pence) Expected volatility (%) Risk-free interest rate (%) Expected life of options (years) 2014 2013 61.5 35.0 4.0 2 & 5 - - - - Expected volatility was determined by reference to historical volatility of the Company’s share price. 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 18 August 2011 all eligible employees within the Group were invited to buy shares in Prime People Plc. Details are as follows: Year of grant Exercise price Pence Exercise period Number of options 31 March 2013 Leavers Number of Options 31 March 2014 2011 56.00 2014 92,697 (20,314) 72,383 Total 2014 92,697 (20,314) 72,383 Weighted average exercise price 2014 (pence) Weighted average exercise price 2013 (pence) 56.0p 56.0p 56.0p 56.0p 56.0p 56.0p There were 72,383 options outstanding at 31 March 2014 which had a weighted average price per share of 56.0p. The performance conditions which gives the option holder the right to exercise their options under the EMI have been achieved. There were no options granted under the SAYE scheme during this year: 49 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 18 Reserves Capital Redemption Reserve Fund The capital redemption reserve relates to the cancellation of the Company’s own shares. Treasury Shares At 31 March 2014, the total number of ordinary shares held in Treasury and their values were as follows: Number of shares Nominal value Carrying value Market value 2014 2013 35,000 £’000 206,000 £’000 4 143 29 21 191 104 The maximum number of shares held in treasury during the year was 206,000 shares representing 1.7% of the called-up ordinary share capital of the Company (2013: 206,000 representing 1.70% 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. Translation Reserve The foreign currency translation reserve comprises all presentation foreign exchange differences arising from translation of the financial statements of foreign operations into the presentation currency of the Group accounts. Retained Earnings The balance held on this reserve is the accumulated retained profits of the Group. 50 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 19 Operating Lease Commitments As at 31 March 2014 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 2014 £’000 Other 2014 £’000 Land and buildings 2013 £’000 Other 2013 £’000 23 - 223 2,115 2,361 - - - - - 10 153 372 2,332 2,867 2 - - - 2 The Group leases various offices under non-cancellable operating lease agreements. The leases have varying terms as disclosed above. The Group has a small amount of serviced office space, on annual agreements, excluded from the above. 20 Reconciliation of Profit Before Tax to Net Cash Inflow from Operating Activities Profit before taxation Adjust for: Depreciation Share option reserve movement (Profit)/loss on sale of plant & equipment Net finance income Operating cash flow before changes in working capital (Increase)/decrease in receivables Increase/(decrease) in payables Group 2014 £’000 1,045 2013 £’000 783 116 46 (2) (18) 94 19 26 (20) 1,187 902 (83) 482 (532) (184) Company 2014 £’000 2013 £’000 58 - - - (18) 40 581 102 44 - - - (19) 25 (246) (2) Cash generated from/(used by) underlying operations 1,586 186 723 (223) 51 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 21 Analysis of Net Cash Group At 1 April Cash flow At 31 March Cash at bank and in hand Bank overdraft Total cash Company Cash at bank and in hand Bank overdraft Total cash 2013 £’000 2,282 (26) £’000 681 25 2014 £’000 2,963 (1) 2,256 706 2,962 At 1 April 2013 £’000 1,949 (26) 1,923 Cash flow £’000 723 26 749 At 31 March 2014 £’000 2,672 - 2,672 22 Financial Risk Management 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 publishes its consolidated financial statements in Sterling. The functional currencies of the Group’s main operating subsidiaries are Sterling, the Singapore Dollar, the Hong Kong Dollar and the UAE Dirham. 52 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2014 22 Financial Risk Management (continued) Foreign Currency (continued) The Group’s international operations account for approximately 21 per cent (2013: 20 per cent) of revenue and slightly less than 7 per cent (2013: 11 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 capital monetary needs. The settlement of intercompany balances held with foreign operations is neither planned nor likely to occur in the foreseeable future. Therefore, exchange differences arising from the translation of the net investments are recognised in Other Comprehensive income. Credit Risk The Group’s principal financial assets are bank balances, trade and other 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 7% (2013: 12%) of the total balance of trade receivables. 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 The Group manages it liquidity risk by maintaining adequate 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 overdrawn bank account the Group has no financial liabilities other than short term trade payables and accruals as disclosed in note 15, all due within one year of the year end. The Group has net funds of £2.96m (2013: £2.26m) which the Board consider are more than adequate to meet future working capital requirements and to take advantage of business opportunities. 23 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 £220k (2013: £250k). The balance owed to the subsidiary undertakings at the year end is £(99)k (2013: £584k). The Company also provides corporate guarantees on the subsidiary bank accounts. At 31 March 2014 amounts overdrawn by subsidiary bank accounts totalled £1k (2013: £26k). 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 £290,881 (2013: £231,140). 53 PRIME PEOPLE PLC Directors and Advisers Directors (Managing Director) Robert Macdonald (Executive Chairman) Peter Moore Chris Heayberd (Finance Director) John Lewis OBE (Non-Executive Director) Simon Murphy (Non-Executive Director) Secretary and Registered Office Chris Heayberd, 2 Harewood Place, London, W1S 1BX. Registered Number 1729887 Stockbrokers & Nominated Advisers Cenkos Securities Plc, 6.7.8 Tokenhouse Yard, London, EC2R 7AS Solicitors Eversheds, One Wood Street, London, EC2V 7WS. Auditor Crowe Clark Whitehill LLP, St Bride’s 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. 54 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 Limited, a recruitment business in both the legal and property sectors. Reuter Simkin had both Kleinwort Benson Development Capital and Charterhouse Development Capital as investors. After the sale of Reuter Simkin in 1989, he acquired shares in and was Chairman of two other recruitment companies one of 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 consultancy in London. Lead by Robert and Peter Moore, Macdonald & Company Group Ltd completed the reverse takeover of Prime People Plc in January 2006. Peter Moore MRICS - Managing Director Peter graduated from the Royal Agricultural University and then worked with Strutt & Parker from 1992 to 1995, qualifying as a Charted Surveyor in 1994. He joined Macdonald & Company in 1995 and was appointed Managing Director in 1996. Under Peter’s management Macdonald & Company became the largest and most respected real estate focused recruitment provider in the market and the RICS’s preferred recruitment partner. Lead by Robert Macdonald and Peter Moore, Macdonald & Company Group Ltd completed the reverse takeover of Prime People Plc in January 2006. Since then Peter has been instrumental in developing Prime People into a global specialist recruitment business spanning real estate, energy & environmental, insight & analytics and pharmaceuticals. 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 Chief Financial Officer of Battersea Power Station Development Company and director of a number of private companies including OPD Group Limited an investment company with holdings in a number of recruitment businesses. 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. 55 Prime People Plc 2 Harewood Place Hanover Square London W1S 1BX T: +44 (0) 20 7318 1785 F: +44 (0) 870 442 1737 E: connect@prime-people.com W: prime-people.co.uk 

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