Prime People Plc
Annual Report 2018

Plain-text annual report

PRIME PEOPLE PLC Annual Report and Financial Statements for the Year Ended 31 March 2018 ________________________________________________________________________________________ Contents Page 1 3 Chairman's statement Strategic report 9 Report of the Directors 12 Statement of Directors’ responsibilities 13 Corporate governance 17 Remuneration report 20 25 26 28 30 31 32 33 65 66 Independent Auditor’s report Consolidated statement of comprehensive income Consolidated statement of changes in equity Consolidated statement of financial position Company statement of financial position Company statement of changes in equity Group and Company cash flow statement Notes to the financial statements Directors and Advisers Board of Directors PRIME PEOPLE PLC Chairman's Statement Performance Overall the year ended 31 March 2018 was a good one for us in the UK where our permanent business performed well, and UK contract business held up in the face of IR35 realignments. However, in contrast, our international business fell below the performance levels that we were hoping for making a lower contribution than in the previous year. In October 2017 we were pleased to announce the acquisition of 60% of the equity of Command Recruitment Group (HK) Limited (CMD) a recruitment group focussed in the Architecture, Design, construction and engineering sectors. The new business has allowed the company to continue to advance its international strategy by extending its reach and capability both in Asia and the Middle East. CMD is trading in line with our expectations. We closed the year with Revenue of £22.92m (2017: £24.21m) and NFI of £13.15m. NFI comprises the total placement fees of permanent candidates and the margin earned in the placement of contract staff. This is a 0.38% increase on last year (2017: £13.10m). NFI in the second half of the year of £7.00m was 13.83% higher than the first half of 2018, and it is encouraging to see a second half increase over the comparable period in 2017 of 3.40%. There were number of good performances within the UK permanent property business and, in particular, Real Estate Banking and Investment generated improved NFI as did our Special Projects team. Increased staff costs across the group, including hiring and establishments costs of a new Hong Kong Insights Team, together with an exceptional investment to maintain and improve our Customer Relationship Management systems impacted on operating profit which was £1.19m, (2017: £1.9m). The conversion rate, which compares operating profit to NFI, was 9.08% (2017:14.54%) primarily because of the increased costs mentioned above. During the year NFI productivity per head was £96.26k (2017: £102.33k). The ratio of NFI derived from contract as against permanent placements was 9:91 (2017:10:90). Cash Flow The Group continues to maintain a good net cash position. At the start of the year the Group had cash of £2.40m and £1.23m at the year end. This is after the consideration and professional and other costs of approximately £1m paid for the purchase of Command Group and the £0.41m purchase of shares into treasury, referred to below. Dividend During the year, a final dividend of 3.25p per share was paid (2016:0.00p) and an interim dividend of 1.75p per share (2017: 1.75p) was paid to shareholders. The Board will be recommending a final dividend of 3.25p (2017: 3.25p) per share. This will result in a total dividend payment of 5.00p for the 2018 financial year (2017: 5.00p). Subject to market conditions and cash, the Group to pay dividend on a intends progressive basis. to continue Share Buy Back During the year 497,400 shares were purchased at a cost of £408,107 through the Group’s buyback programme (2017:129,500). At year end the Group held 565,676 shares in treasury (2017: 18,276). The Board will be seeking shareholder approval for renewal of the authority to repurchase up to 10% (2017: 10%) of the Group’s issued share capital at the Annual General Meeting. 1 PRIME PEOPLE PLC Chairman's Statement (continued) Board Current trading and outlook We have continued to advance our overseas strategy by extending our reach in Asia and expect an increase in contribution from this area in 2019. The Group retains strong and well-established client relationships and committed talent ready to exploit current and new opportunities. Whilst the Board is alert to macro-economic uncertainties, such as the effects of the UK’s departure from the EU and possible turbulence in our overseas markets, the Group will continue to react swiftly to market conditions. The Group continues to invest in people and the technology to allow it to grow shareholders’ returns by offering its clients innovative approaches to recruitment and a globally connected service. The Board believes it has continued to operate corporate governance standards appropriate to an AIM listed company of its size. 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 shareholder at the next AGM. The Board members have a mix of skills, experience, gender and backgrounds that are a considerable support to the business. People The average number of staff (excluding temporary contractors) increased from 120 last year to 136 this year. The Group has a diverse cultural and ethnic profile within the business and at the end of 2018 had a global 54:46 male to female gender ratio (2017: 54:46). The success of the Group is dependent on having competent and committed people and the Board would like to thank all the members of our staff for their hard work, commitment and contribution over the last year. Robert Macdonald Executive Chairman 2 PRIME PEOPLE PLC Strategic Report Overview The Group provides permanent and contract recruitment services to selected, niche industry sectors. The built environment continues to be the Group’s largest market, served through its main subsidiary, Macdonald & Company. During this year the Company’s acquisition of Command Recruitment the Group’s limited extended Group capabilities and reach in the built environment sector both in Asia and the Middle East. (HK) As distinct brands, Prime Insight and Prime Energy serve the data analysis & customer insight and renewable energy & sustainability sectors respectively. Our employees are vital to the continued success of the business and we invest heavily in them. As such, we take time to find and train the best talent that shares our ambition - to be the best, not simply the biggest. The business is organised into teams of specialist consultants, each managed by a team leader who is responsible for performance within the operating framework approved by the Board. The Group operates a policy of open communication in the belief that its employees are best placed to suggest operational improvements and emergent strategies that will increase earnings. The Group is committed to managing its talent on merit and provides equal opportunities for all current and future employees. It gives full and fair consideration to applications for employment from disabled persons, where a disabled person may adequately carry out the requirements of any position within the physical constraints of the Company’s offices. The Group has two locations in the UK, the London head office and Manchester, with offices in Hong Kong (established in 2007), Dubai (established in 2008), Singapore (established in 2012), and a franchise in South Africa (established in 2008). Group Revenue fell by 5.36% in the year to £22.92m (2017: £24.21m) primarily due to a lower level of contract business as contractors realigned to PAYE status under IR35. 3 NFI for the Group increased by 0.374% to £13.15m (2017: £13.1m) but after taking account of increased administration costs the business delivered a reduced operating profit of £1.19m (2017: £1.9m). Overall the UK permanent recruitment businesses performed well supported by increased NFI from our Real Estate Banking & Finance team and continued growth in our Residential team. Against this our contract business saw a reduction in NFI as a consequence of realignment of contractors to PAYE status under IR35. Both Hong Kong and Singapore experienced difficult and uncertain market conditions each business seeing a reduction in NFI in the year. this our newly acquired Command Against business helped to minimise the reduction such that by the end of the year NFI was broadly the same as last year. Our Dubai business continued to face challenging market conditions and we have made changes to realign it to expected medium term demand. We are monitoring the office’s establishment closely in the light of the needs of Command, whose business operates across the Middle East, given they are optimistic as to future performance of their business in this region. The Board remains committed in its pursuit of sustainable NFI growth and cash generation. Whilst costs have increased in the year we continue to focus on improving the profitability of the business and cost reductions where possible. Cultivating strong client relationships, investing in the best technology and employing the best people are the foundations of the Group’s success. With uncertain global growth and a world economy increasingly exposed to risk it is important that we remain flexible, able to serve our clients wherever demand may be, and that we closely monitor individual NFI performance against costs. Tight management and expenditure, together with a focus on improved productivity per head and conversion rates, position the Group to prosper. remuneration control of PRIME PEOPLE PLC Strategic Report Regional Performance UK Revenue Net fee income (NFI) Operating profit Operating profit as % of NFI Average number of employees UK revenue decreased by 5.60% to £17.52m (2017: £18.56m) whereas NFI increased by 4.17% to £7.75m (2017: £7.44m). Permanent NFI increased by 8.61% in the year compared to a reduction of 7.4% in the previous year and represents 86.2% (2017: 82.64%) of total UK NFI in 2018. The UK Permanent teams supporting the built environment and energy sectors provided the strongest NFI growth for the Group in the year. This was not the case for our UK Prime Insight team where NFI in the year reduced by 50% and consequently we have re-deployed the UK Insights team members to other parts of the UK business. For the forthcoming year our Insights business 2018 £m 17.52 7.75 0.91 2017 £m 18.56 7.44 0.82 11.74% 11.02% 80 87 will be and are focusing on strong activity in the Asia market. Contract NFI reduced by 17.05% in the year compared to an increase of 14.16% in the previous year and represents 13.8% (2017: 17.36%) of total UK NFI in 2018. Despite the turbulence resulting from the changes in legislation during the year, which created uncertainties for number of contractors, our contract business has reacted well. We are encouraged by the increase in those contractors who have chosen to become pay-rolled employees and we are confident that this trend will continue. 4 PRIME PEOPLE PLC Strategic Report Asia Revenue Net fee income (NFI) Operating profit Operating profit as % of NFI Average number of employees to £5.06m (2017: NFI decreased by 0.39% £5.08m). £5.06m also includes contribution from Command of 0.84m. The region is covered by our offices in Hong Kong and Singapore and represents 38.48% of Group NFI (2017: 38.78 %). In 2018, we established our Insight and Analytics team in Hong Kong offering our clients a broader service range and better ability to serve key markets in mainland China and the region. The Rest of the World 2018 £m 5.06 5.06 0.49 9.68% 47 2017 £m 5.08 5.08 1.04 20.47% 33 substantial investment in establishing the Insights and Analytics team in Hong Kong is showing promise of providing a base for improved performance in 2019. Revenue Net fee income (NFI) Operating profit Operating profit as % of NFI Average number of employees The region is covered by our offices in Dubai and South Africa. 2018 £m 0.34 0.34 -0.20 -58.82% 5 2017 £m 0.58 0.58 0.05 8.62% 4 5 PRIME PEOPLE PLC Strategic Report Financial Review Revenue Group revenue declined by 5.33% to £22.92m (2017: £24.21m). Net Fee Income (NFI) Overall the Group delivered a 0.38% increase in total NFI to £13.15m (2017: £13.10m). NFI from to permanent business £12.08m (2017: £11.81m). Fees from our contract business, which represents 8.13% of total NFI (2017: 9.85%), decreased to £1.07 million from £1.29m last year. increased by 2.29% NFI from international placements, which is included in our permanent business, decreased by 4.59% to £5.40m (2017: £5.66m). UK NFI of £7.75m increased 4.17% (2017: £7.44m). Administration Costs Administration costs for the year increased by 6.79% to £11.95m (2017: £11.19m). The increase primarily related to higher staff costs. Profit before Taxation Profit before taxation decreased by 37.37% to £1.19m (2017: £1.90m). Taxation increased credit period taken by clients to 69 days (2017: 45 days). Treasury Management and Currency Risk Approximately 76.44% of the Group’s revenue in 2018 (2017: 76.66%) was denominated in Sterling. Consequently, the Group has a degree of currency exposure in accounting for overseas operations. Currently the Group policy is not to hedge against this exposure, but it does seek to minimise the effect by converting into Sterling all cash balances in foreign currency that are not required for local short term working capital needs. The Group operates a centralised function. treasury During the year we moved our main banking arrangements from Barclays to HSBC and took the opportunity to establish a confidential invoice discounting arrangement with them in the UK to provide flexibility for cashflow and treasury management. The Group is confident that the net cash within the Group is sufficient to meet current and foreseeable liabilities as they fall due. The taxation charge is £0.17m on profit before taxation of £1.19m (from ordinary activities) which gives an effective tax rate of 14.29% (2017: 15.26%). The reasons for the difference from the standard UK corporation tax rate of 19% are detailed in note 7 of the accounts. Cash Flow and Cash Position At the start of the year the Group had cash of £2.41m. After net taxation payments of £0.26m (2017: £0.52m) cash generated from operations was £1.06m (2017: £1.46m). Earnings per Share Basic earnings per share decreased by 33.64% to 8.72p (2017: 13.14p). The diluted earnings per share options, share, decreased by 33.85% to 8.58p (2017: 12.97p). considering existing Balance Sheet Net assets at 31 March 2018 have decreased to £14.54m (2017: £15.06m). Trade receivables net of provision for doubtful debts at the year end, were up on last year at the £2.86m (2017: £2.41m) which reflects 6 PRIME PEOPLE PLC Strategic Report Financial Review Cash Flow and Cash Position (cont) on During the year the Group spent £0.23m (2017: its Customer Relationship £0.05m) the Management systems; paid £0.78m for purchase of a 60% in Command Recruitment Group (HK) Limited; paid £0.41m for the purchase of treasury shares and paid dividends to shareholders of £0.61m (2017: £0.21m). As at 31 March 2018 the Group cash was £1.23m. interest Measurements of performance in 2018 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 to senior management as follows: - Conversion rate (operating profit divided by NFI) decreased to 9.08% (2017: 14.54 %) - Productivity (NFI divided by total average staff) temporary excluding headcount decreased to £96.26k (2017: £102.33k) - Ratio of billing headcount to support headcount stayed the same at 3.2 (2017: 3.2) - Percentage of NFI paid to staff increased to 71.47% (2017: 66.26%) These key performance indicators form the 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, whilst the Group cannot eliminate risk altogether, the actions being taken to manage and control risks are intended to mitigate the effects on the business. The Board reviews the principal risks and uncertainties facing the Group on a regular basis. 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: 7 Dependence on Key People The sustainable 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 talent acquisition function and invested in management information systems, training and development programmes, competitive pay structures and long- term remuneration plans, the aim of which is to retain the key employees. The Group is fortunate to have the loyalty of the senior management team which allows the business to progress, even in uncertain markets. Competitors The Group’s focus is on specialist, niche sectors where clients need expert knowledge and high levels of service. We concentrate on markets where there is a shortage of supply of suitable candidates and opportunities to build strong and fruitful long-term relationships with clients. The Directors believe that the Group is well positioned in its chosen markets. Whilst the Group seeks to continue to improve its competitive positions, the actions of current, or indeed potential, competitors may adversely affect the Group’s business. Strength of Property Markets The market for built environment recruitment services, from which the Group obtains the major part of its revenue, is expected to be unpredictable in the United Kingdom given the uncertainties around leaving the EU. The effect of this on the property market is uncertain but it could have material adverse effects on profitability and cash flows of the business. That said, the performance in the revenue line has settled at a profitable level post 23rd June 2016 referendum. Our contract business has some reliance on the public sector and this with recent introduction of additional IR35 legislation could have an impact on this business line in the short term and possibly also the long term. The Group is using business models that evolve to operate in more innovative ways. PRIME PEOPLE PLC Strategic report Financial Review The Group seeks to maximise its potential by understanding its position in the market, which will ultimately help turn further challenges into potential opportunities. Macro-economic factors Persistent slow growth in the global economy has effects that trigger reduced output, and with it, demand and investment. A return of financial turmoil, impairing confidence globally in the next twelve months could hamper job creation in our business areas. The Board sees opportunities for development and will continue to invest in areas where growth can be delivered at acceptable levels of profitability, increasing cash generation and growing Group is geographically diversified, spanning over different countries which reduces the reliance on the success of any particular market. revenue. The Group Regulatory position The increase in regulatory scrutiny and demands on compliance are having an effect on hiring. The Group is aware of continuing challenges as procurement practice evolves but remains committed to being fully 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 on changes in legal and compliance requirements. Information Technology The Group is highly dependent on certain technology systems and the infrastructure on which they operate in order to maintain its client and candidate database. These systems rely on specific suppliers who provide the technology infrastructure and disaster recovery solutions. The performance of these suppliers is continually monitored to ensure that the services are available and maintained. The Group is aware of the increasing potential challenges to data integrity and security from both internal and external sources. infrastructure are the systems and Therefore, regularly to ensure reviewed and upgraded appropriate provision of functionality and resilience to support the business as it develops. Foreign Exchange Risk The Group’s international operations account for 23.57% of and approximately 27.33% of the Group’s assets (2017: 26.00%). Consequently, the Group has a (2017: 23.36%) revenue degree of translation exposure in accounting for overseas operations and expects this to increase in line with the growth of the Group outside the United Kingdom. Currently, the Group’s policy is not to hedge against this exposure. However, the Group seeks 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. to minimise 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. Although the financial risks to which the Group is exposed are currently considered to be minor, future interest rate, liquidity and foreign currency risks could arise. An additional bout of exchange rate depreciations in emerging market economies and a sharp decline in capital inflows could force a rapid compression of domestic demand. The depreciation of Sterling might have tangible impact on UK business. The Board continues to focus on cash flow forecasting and to manage financial and foreign exchange risk in order to define and understand the Group foreign exchange exposures and to ensure the quality of information on each exposure. 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 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. Client credit terms and cash collections are managed carefully, and cash balances and cash flow forecast are reviewed weekly. Monthly credit evaluation is performed on the financial condition of accounts receivable based on payment history and third-party credit references with appropriate provisions being made. Peter Moore Managing Director 8 PRIME PEOPLE PLC Report of the Directors for the Year Ended 31 March 2018 The Directors submit their report and the audited Group financial statements of Prime People Plc for the year ended 31 March 2018. Prime People Plc is a public listed company, incorporated and domiciled in England and its shares are quoted on the AIM Market. Directors The directors who served during the year were: Robert Macdonald Peter Moore Donka Zaneva-Todorinski Chris Heayberd John Lewis Simon Murphy As permitted by legislation, the company has chosen to set out the information regarding likely financial risk management objectives and policies and future developments in the business of the company, which would otherwise be required to be contained in the director's report, within strategic report. Substantial Shareholders At 21 June 2018, other than the Director’s interests shown in the Directors’ remuneration report on page 19 the Company were not required to notify any interests under the Disclosure and Transparency Rules. The mid-market quotation of the Company’s shares at close of business on 31 March 2018 was 78.50p. The highest and lowest mid-market quotations in the period from 1 April 2017 to 31 March 2018 were 110.00p and 78.5p. Going concern The Group has two revenue streams permanent and temporary recruiting. The Group has experienced a 5.33% revenue decline in 2018 primarily as a result of a reduction in contract revenue in 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. 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 continues to adopt the going concern basis when 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, 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; and Purchasing environmentally friendly materials where appropriate. 9 PRIME PEOPLE PLC Report of the Directors for the Year Ended 31 March 2018 Political Donations The Group made no political donations during the year (2017: Nil). Workplace Pensions In line with the law on workplace pensions the Group continues to operate a defined contribution plan and automatically enrols certain UK employees into NEST pension scheme. Capital Structure Details of the allotted 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. Dividend During the year, a final dividend of 3.25p per share was paid (2016:0.00p) on 28 July 2017 to shareholders on the register on 21 July 2017. The final dividend was approved by shareholders on 24 July 2017. An interim dividend of 1.75p (2017: 1.75p) was paid on 21 November 2017 to shareholders on the register at close of business on 17 November 2017. The interim dividend was approved by the Board on 8 November 2017. As outlined in the Chairman’s statement, the Board propose a final dividend for 2018 of 3.25p per share which will, subject to shareholder approval at the Annual General Meeting be paid on 27th July 2018 to shareholders who are on the register on 13th July 2018, making a total dividend paid to shareholders for the year of 5.00p per ordinary share. (2017: 5.00p). Annual General Meeting (“AGM”) The AGM will be held on Monday 19 July 2018 at 11.00am 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 497,400 shares (2017: 129,500 shares). The purchased shares are held in treasury and will be utilised to meet current and future obligations arising from share incentive arrangements with employees of the Company. 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 them aware of any relevant audit information and to establish that it has been communicated to the auditors. 10 PRIME PEOPLE PLC Report of the Directors for the Year Ended 31 March 2018 Auditor Crowe Clark Whitehill LLP has expressed its willingness to continue in office and a resolution to re-appoint the firm as Auditor and authorising the Directors to set their remuneration will be proposed at the forthcoming Annual General Meeting. By order of the Board Peter Moore Managing Director 11 PRIME PEOPLE PLC Statement of Directors’ Responsibilities The directors are responsible for preparing the Strategic Report, the Directors' Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs’) as adopted by the EU and applicable law. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and the group and of the profit or loss of the group for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgments and accounting estimates that are reasonable and prudent; • state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company 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 hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. They are further responsible for ensuring that the Strategic Report and the Report of the Directors and other information included in the Annual Report and Financial Statements is prepared in accordance with applicable law in the United Kingdom. The maintenance and integrity of the Prime People Plc web site is the responsibility of the directors; the work carried out by the auditors does not involve the consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred in the accounts since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of the accounts and the other information included in annual reports may differ from legislation in other jurisdictions. 12 PRIME PEOPLE PLC Corporate Governance Statement by the Directors on Corporate Governance The Board of the Company is committed to achieving high standards of corporate governance, professional integrity and ethics. The Directors have developed governance policies appropriate for the size of the group, with reference to the main provisions of the Corporate Governance Guidelines for Smaller Quoted Companies published by the Quoted Companies Alliance and the UK Corporate Governance Code. A statement of the Directors’ responsibilities in respect of the financial statements is set out on page 12. 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 2018 and the attendance record are summarised in the table below: Directors Board Audit Committee Remuneration Committee Robert Macdonald – Executive Chairman 6/6 (Chair) Peter Moore – Managing Director Donka Zaneva-Todorinski – Finance Director Chris Heayberd – Non-Executive Director John Lewis – Non-Executive Director Simon Murphy – Non-Executive Director 6/6 6/6 6/6 6/6 6/6 N N 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 three Non-Executive Directors. The Non-Executive Directors are John Lewis, Simon Murphy and Chris Heayberd. They 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 pages 66 and 67. The Board meets at least five times each year, or 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 Group with specific responsibility for; reviewing trading performance; resources (including key appointments); finding, setting and monitoring strategy; examining acquisition opportunities; and reporting to shareholders. 13 PRIME PEOPLE PLC Corporate Governance The Board and its Operation (continued) 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. The Board has considered the matter of the independence of its Non-Executive Directors who have served for more than 5 years or have had previous executive roles. As the Board considers itself to be a “small board” and having regard to the professional qualifications and standing of its Non-Executive Directors as set out in Biographical details for all the Directors on pages 66 and 67. 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 three Non-Executive Directors of the Company and is chaired by Simon Murphy. 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. By invitation, the meetings are also attended by the Finance Director. The Audit Committee’s principal tasks are to ensure the integrity of the Company’s Financial Reporting process, review the effectiveness of the Group’s internal controls including risk management, review the scope of the work of the external 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. 14 PRIME PEOPLE PLC Corporate Governance Remuneration Committee The Remuneration Committee comprises the three 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 remuneration of senior employees, including share schemes. The principal terms of reference of the committee are set out in the Remuneration Report on page 17. The report also contains full details of Directors' remuneration and a statement of the Company's remuneration policy. The committee meets when required to consider all aspects of the executive Directors' remuneration, drawing on outside advice as necessary. 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 2017 to the date of approval of the financial statements and believes it has the procedures in place to safeguard the Group’s assets and to ensure the reliability of information used within the business and for publication. Key elements of the system of internal control are as follows: Group Organisation The Board of Directors meets 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. The Operational Management Board meets quarterly. It acts as a conduit between the Board of Directors and the Group subsidiaries by providing information, advice and guidance to all staff. It has responsibilities for setting up, monitoring and control of the business operations globally. 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 a 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. 15 PRIME PEOPLE PLC Corporate Governance Internal Controls (continued) Levels of authority There are clear levels of authority, delegation and management structure. 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. Whistle blowing 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. The Board consider that the Annual Report and Accounts, taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the company’s position and performance, business model and strategy. Robert Macdonald Chairman 16 PRIME PEOPLE PLC Remuneration Report The role of the Remuneration Committee The Remuneration Committee met once this 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 structure 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 compensation 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 year’s notice. The service contracts also contain restrictive covenants preventing them 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 her from competing with the Group for 3 months following the termination of employment and preventing her from soliciting key employees, clients and candidates of the employing Group and Group companies for 3 months following termination of employment. Non-Executive Directors’ Remuneration and Terms of Services All 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, defined pension contributions, 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. 17 PRIME PEOPLE PLC Remuneration Report Emoluments of Directors The aggregate emoluments of Directors who served during the year are shown in the table below. Emoluments include management salaries, pension contributions, 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 include emoluments from the Company and its subsidiary undertakings. Notes Salaries and fees Benefits Pension Executive Chairman Robert Macdonald 3 113,284 4,332 £ £ Executive Directors Peter Moore Donka Zaneva- Todorinski Non-Executive Directors John Lewis Simon Murphy Chris Heayberd 1 & 3 192,386 106,000 8,116 1,871 25,000 25,000 30,900 - - - £ - 385 391 - - - 2018 Total £ 2017 Total £ 117,616 141,962 200,887 229,370 108,262 108,456 25,000 19,768 25,000 19,768 30,900 25,378 492,570 14,319 776 507,665 544,702 Notes to the emoluments: 1. Peter Moore is the highest paid Director, 2. Benefits include subscriptions, medical and travel allowance, 3. The Group operates a defined contribution pension scheme. Pension payments made to directors in the year relate to the minimum required employer contribution rate of 1% set by the Pension Regulator. 18 PRIME PEOPLE PLC Remuneration Report Directors’ interests in shares Directors’ beneficial interest in the shares of the Company at 31 March 2018 was as follows: Ordinary shares of 10p each held at 31 March 2018 Percentage of issued share capital at 31 March 2018 Ordinary shares of 10p each held at 31 March 2017 Percentage of issued share capital at 31 March 2017 2,780,000 2,907,721 1,250 1,074,750 330,000 24,000 22.62% 23.66% 0.01% 8.74% 2.70% 0.20% 2,780,000 2,907,721 1,250 1,062,000 330,000 24,000 22.62% 23.66% 0.01% 8.64% 2.70% 0.20% Robert Macdonald Peter Moore Donka Zaneva-Todorinski John Lewis Simon Murphy Chris Heayberd Share option schemes As at 31 March 2018 Directors’ options on ordinary shares of 10p each granted under the Prime People Enterprise Management Incentive Scheme, were as follows: Director Year of grant Exercise price Granted Number of options 31 March 2017 Cancelled Exercised Number of options 31 March 2018 Donka Zaneva- Todorinski 2013/14 2014/15 10.00p 10.00p 2015/16 58.00p 1,250 15,000 10,000 - - - - - - - - - 1,250 15,000 10,000 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 19 PRIME PEOPLE PLC Independent Auditor’s Report Independent Auditor’s Report to the Members of Prime People Plc Opinion We have audited the financial statements of Prime People plc (the “Parent Company”) and its subsidiaries (the “Group”) for the year ended 31 March 2018, which comprise: • • • • • the Group Statement of Comprehensive Income for the year ended 31 March 2018; the Group and Parent Company Statements of Financial Position as at 31 March 2018; the Group and Parent Company Statements of Cash Flows for the year then ended; the Group and Parent Company Statements of Changes In Equity for the year then ended; and the notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. 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 2018 and of the Group’s profit for the period 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. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when: • The directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or • The directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group’s or the Parent Company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. 20 PRIME PEOPLE PLC Independent Auditor’s Report (continued) Overview of our audit approach Materiality In planning and performing our audit we applied the concept of materiality. An item is considered material if it could reasonably be expected to change the economic decisions of a user of the financial statements. We used the concept of materiality to both focus our testing and to evaluate the impact of misstatements identified. Based on our professional judgement, we determined overall materiality for the Group financial statements as a whole to be £170,000 (FY17 £180,000), based on 0.75% of Group revenue. We use a different level of materiality (‘performance materiality’) to determine the extent of our testing for the audit of the financial statements. Performance materiality is set based on the audit materiality as adjusted for the judgements made as to the entity risk and our evaluation of the specific risk of each audit area having regard to the internal control environment. Where considered appropriate performance materiality may be reduced to a lower level, such as, for related party transactions and directors’ remuneration. We agreed with the Audit Committee to report to it all identified errors in excess of £5,000 (2017: £10,000). Errors below that threshold would also be reported to it if, in our opinion as auditor, disclosure was required on qualitative grounds. Overview of the scope of our audit The Group’s operations are mainly based in the UK, Hong Kong and Singapore. We performed a full scope audit on all trading components of the Group. The finance function is based in the UK at one central operating location. The audit team visited this location and performed a full scope audit. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Key audit matter Impairment of goodwill How the scope of our audit addressed the key audit matter The Group held goodwill of £10.5m (2017: £9.8m) at the year end. There is a risk that the carrying value of goodwill may be higher than the recoverable amount. Management has performed an assessment a full impairment review for goodwill and no impairment was recorded. We evaluated and challenged the directors’ future cash flow forecasts and the process by which they were drawn up and tested the underlying value in use calculations. We compared management’s forecast with the latest Board approved budget and found them to be reasonable. When a review for impairment is conducted, the recoverable amount is determined based on value in the directors’ use calculations which rely on assumptions and estimates of trading future performance. We challenged: - The key assumptions for short- and long-term growth rates in the forecasts by comparing them with historical results, as well as economic and industry forecasts for the UK recruitment market; and 21 PRIME PEOPLE PLC Independent Auditor’s Report (continued) Key audit matter Impairment of goodwill (continued) How the scope of our audit addressed the key audit matter The key assumptions applied by the directors in the impairment reviews are country-specific discount rates and future growth - The discount rate used in the calculations by assessing the cost of capital for the Group and comparable organisations. We performed sensitivity analysis on assumptions within the cash flow forecasts. the key This included sensitising the discount rate applied to the future cash flows, and the short and longer-term growth rates. Revenue recognition for permanent placements The Group has reported permanent placement revenues of £11.95m (2017: £11.66m). For permanent placements revenue is recognised at the date of acceptance. There is a risk around the timing of the recognition of revenue as a contract may be agreed with a customer and candidate several months in advance of the start of employment. Consequently, there is a risk that: - revenue recognition may occur before revenue recognition criteria have been met revenue is not recognised in the correct period the placement is not taken up as agreed, which could result the reversal of previously in recorded revenue - - result in a goodwill We ascertained the extent to which a change in these assumptions, both individually or in aggregate, would impairment, and considered the likelihood of such events occurring. We also ensured that sufficient and appropriate disclosure regarding such events was included in the Group’s financial statements. We performed following procedures on all trading components: - Updated our understanding of the revenue processes. - Selected a sample of permanent placement revenue transactions for detailed transaction testing to verify that the revenue recognition criteria had been met and to verify that the transaction had actually occurred and was recorded at the correct value. We performed analytical procedures. - Performed period-end cut off testing focusing on material items to check all revenue recognition criteria for the placements had been met and revenue had been recognised in the correct period. - Compared level of actual permanent placement revenue reversals, which occur as a result contractual placements, to the provision recorded against accrued income to determine if the provision was appropriate. non-completion the of of 22 PRIME PEOPLE PLC Independent Auditor’s Report (continued) Our audit procedures in relation to these matters were designed in the context of our audit opinion as a whole. They were not designed to enable us to express an opinion on these matters individually and we express no such opinion. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinion on other matter prescribed by the Companies Act 2006 In our opinion based on the work undertaken in the course of our audit • • 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; and the Directors’ Report and Strategic Report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In light of the knowledge and understanding of the Group and the Parent Company and their environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. 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. Responsibilities of the directors for the financial statements As explained more fully in the directors’ responsibilities statement set out on page 12 the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Group’s and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the Parent Company or to cease operations, or have no realistic alternative but to do so. 23 PRIME PEOPLE PLC Independent Auditor’s Report (continued) Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report 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. Stacy Eden (Senior Statutory Auditor) for and on behalf of Crowe Clark Whitehill LLP Statutory Auditor London 21st June 2018 24 PRIME PEOPLE PLC Consolidated Statement of Comprehensive Income For the year ended 31 March 2018 Revenue Cost of sales Net fee income Administrative expenses Operating profit Profit before taxation Income tax expense Profit for the year Other comprehensive income Items that will or may be reclassified to profit or loss: Exchange (loss)/profit on translating foreign operations Other Comprehensive income for the year, net of tax Total comprehensive income for the year Attributable to: Equity shareholders of the parent Non-controlling interest Earnings per share Basic earnings per share Diluted earnings per share Note 2, 3 2 4 7 9 2018 £’000 2017 £’000 22,916 (9,769) 24,213 (11,115) 13,147 (11,954) 13,098 (11,194) 1,193 1,904 1,193 1,904 (166) (292) 1,027 1,612 (243) 270 (243) 270 784 1,882 779 5 1,880 - 8.72p 8.58p 13.14p 12.97p The above results relate to continuing operations 25 PRIME PEOPLE PLC Consolidated Statement of Changes in Equity For the year ended 31 March 2018 Called up share capital Capital Redemption reserve Treasury shares Share premium account Merger reserve Share option reserve Translation reserve Retained Earnings £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Total attributable to equity holders of the parent £’000 Non- controlling interest Total equity £’000 £’000 At 1 April 2016 1,229 Profit for the year Other comprehensive income Adjustment in respect of share schemes Shares purchased for treasury Shares issued from treasury Adjustment on share disposal Dividend - - - - - - - At 31 March 2017 1,229 9 - - - - - - - 9 (21) 5,371 173 - - - (111) 13 98 - - - - - - - - - - - - - - - 300 - - (20) - - - - 463 - 270 - - - - - 5,892 1,612 - 108 - - (98) (215) 13,416 1,612 270 88 (111) 13 - (215) (21) 5,371 173 280 733 7,299 15,073 - - - - - - - - - 13,416 1,612 270 88 (111) 13 - (215) 15,073 26 PRIME PEOPLE PLC Consolidated Statement of Changes in Equity For the year ended 31 March 2018 Called up share capital Capital Redemption reserve Treasury shares Share premium account Merger reserve Share option reserve Translation reserve Retained Earnings £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Total attributable to equity holders of the parent £’000 Non- controlling interest Total equity £’000 £’000 At 31 March 2017 1,229 9 (21) 5,371 173 280 733 7,299 15,073 - 15,073 Total comprehensive income for the year Other comprehensive income Adjustment in respect of share schemes Shares purchased for treasury Shares issued from treasury Acquisition of subsidiary with Non- Controlling Interest Adjustment on share disposal Dividend - - - - - - - - - - - - - - - - - - - (408) 3 - 5 - - - - - - - - - - - - - - - - - - - 34 - - - - - - 1,022 1,022 (243) - (243) - - - - - - 60 - - - (5) (612) 94 (408) 3 - - (612) 5 - - - - 70 - - 1,027 (243) 94 (408) 3 70 - (612) At 31 March 2018 1,229 9 (421) 5,371 173 314 490 7,764 14,929 75 15,004 27 PRIME PEOPLE PLC Consolidated Statement of Financial Position As at 31 March 2018 Assets Non – current assets Goodwill Property, plant and equipment Deferred tax asset Current assets Trade and other receivables Current tax asset Cash at bank and in hand Total assets Liabilities Current liabilities Trade and other payables Current tax liability Non-current liabilities Deferred tax liability Total liabilities Net assets Note 11 10 16 13 21 15 16 28 2017 £’000 2018 £’000 10,527 242 45 9,769 136 43 10,814 9,948 5,616 41 1,234 6,891 5,101 - 2,409 7,510 17,705 17,458 2,679 - 2,679 22 2,701 2,310 75 2,385 - 2,385 15,004 15,073 PRIME PEOPLE PLC Consolidated Statement of Financial Position As at 31 March 2018 Note 2018 £’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 Non-controlling interest Total equity 1,229 9 (421) 5,371 173 314 490 7,764 14,929 75 15,004 2017 £’000 1,229 9 (21) 5,371 173 280 733 7,299 15,073 - 15,073 The financial statements on pages 25 to 62 were approved by the Board of Directors and authorised for issue on 21st June 2018 and are signed on its behalf by: R J G Macdonald D Zaneva-Todorinski 29 PRIME PEOPLE PLC Company Statement of Financial Position As at 31 March 2018 Assets Non-current assets Investment in subsidiaries Current assets Trade and other receivables Cash and cash equivalents Total assets Liabilities Current liabilities Other payables Total liabilities Net assets 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 Note 12 13 21 15 17 18 18 18 18 18 18 2018 £’000 11,190 11,190 9 15 24 2017 £’000 11,156 11,156 6 636 642 11,214 11,798 791 791 779 779 10,423 11,019 1,229 9 (421) 5,371 173 314 3,748 1,229 9 (21) 5,371 173 280 3,978 Total equity 10,423 11,019 The Company’s retained earnings includes profit for the year of £386,536 (2017: £487,456). The financial statements of Prime People Plc, Company Number 01729887 were approved by the Board and authorised for issue on 21st June 2018 and are signed on its behalf by: R J G Macdonald D Zaneva-Todorinski 30 PRIME PEOPLE PLC Company Statement of Changes in Equity For the year ended 31 March 2018 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 2016 1,229 9 (21) 5,371 173 300 3,803 10,864 Total comprehensive income for the year Issue of ordinary shares Shares purchased for treasury Adjustment on share disposal Investment in subsidiaries Dividend At 31 March 2017 Total comprehensive income for the year Shares purchased for treasury Shares issued from treasury Adjustment on share disposal Investment in subsidiaries Dividend At 31 March 2018 - - - - - - - - - 13 - (111) - - - 98 - - - - - - - - - - - - - - - - - 488 488 - - 13 (111) - (98) - (20) - (20) - (215) (215) 1,229 9 (21) 5,371 173 280 3,978 11,019 - - - - - - - - - (408) 3 5 - - - - - - - - - - - - 387 387 - - (5) (408) 3 - - - - - - - - - - - 34 - - (612) 34 (612) 1,229 9 (421) 5,371 173 314 3,748 10,423 31 PRIME PEOPLE PLC Group and Company Cash Flow Statement For the year ended 31 March 2018 Group 2018 £’000 2017 £’000 Company 2018 £’000 Note Cash generated from (used in) underlying operations 20 1,320 1,981 Income tax paid (256) (521) (43) (11) 2017 £’000 (126) (10) Net cash from/(used by) operating activities Cash flows from/(used in) investing activities Net purchase of property, plant and equipment Purchase of subsidiary, net of cash acquired Dividend received Net cash from / (used in) investing activities Cash flows from financing activities Issue of ordinary share capital Shares issued from treasury Shares purchased for treasury Dividend paid to shareholders Net cash used in financing activities Net (decrease)/ increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Effect of foreign exchange rate changes 1,064 1,460 (54) (136) (209) (771) - (53) - - - - - - 450 450 (980)4 (53) 450 450 - - (408) (612) 2 115 (111) (215) - 3 (408) (612) 2 13 (111) (215) (1,020) (209) (1,017) (311) (936) 1,198 (621) 3 2,409 (239) 953 258 636 633 - 15 - 636 Cash and cash equivalents at the end of the year 21 1,234 2,409 32 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 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 01729887. 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 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 2018 (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 in its consolidated financial statements as at and for the year ended 31 March 2017 and are described below. International Accounting Standards (IAS/IFRS) and Interpretations in issue but not yet EU approved 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: International Accounting Standards (IAS/IFRS) and Amendments (and EU adopted) but not yet effective • • • IFRS 9 Financial Instruments (Issued on 24 July 2014, effective date 1 January 2018) IFRS 15 Revenue from Contracts with Customers (issued on 28 May 2014) and amendments to IFRS 15: Effective date of IFRS 15 (issued on 11 September 2015), effective date 1 January 2018 IFRS 16 Leases (Issued January 2016, effective date 1 January 2019) 33 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 2 Summary of Significant Accounting Policies (continued) Amendments: • Clarifications to IFRS 15 Revenue from Contracts with Customers (issued on 12 April 2016, effective date 1 January 2018) • Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions (issued on 20 June 2016, effective date 1 January 2018) • Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (issued on 12 September 2016, effective date 1 January 2018) • Amendments to IAS 40: Transfers of Investment Property (issued on 8 December 2016, effective date 1 January 2018) • Annual Improvements to IFRS Standards 2014-2016 Cycle (issued on 8 December 2016, effective date 1 January 2018) • Amendments to IFRS 9: Prepayment Features with Negative Compensation (issued on 12 October 2017, effective date 1 January 2019) IFRS 15 - Revenue from Contracts with Customers IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under IFRS. IFRS 15 requires revenue to be recognised once value has been received by the customer and when the performance obligations have been satisfied. 34 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 Summary of Significant Accounting Policies (continued) Revenue from permanent placement Currently revenue is recognised from permanent placements on a contingent basis and is typically based on a percentage of the candidate’s remuneration package, with the revenue being recognised at the date an offer is accepted by a candidate and where a start date has been determined. It includes revenue anticipated, but not invoiced, at the balance sheet date, which is correspondingly accrued on the balance sheet within accrued income. A provision is made against accrued income for possible cancellations of placements prior to, or shortly after, the commencement of employment. Our review has concluded that the current basis of revenue recognition is not consistent with IFRS 15 and the performance obligation (the placement of the candidate) under IFRS 15 is only satisfied when the candidate starts the job. We have therefore changed our revenue recognition policy from April 2018. The impact of the transition to IFRS 15 will result in revenue currently recognised at the date an offer is made, being deferred to the point that the candidate starts the job. Where this period crosses the year end there will be a deferral of revenue from one period to the next under IFRS 15. On transition to IFRS 15 in the March 2019 financial statements, this change will be accounted for under the cumulative effect method, and will result in a reduction in the retained earnings of the group of £1.74m. Had this change in policy been applied in the current year it would not have had a material impact on the revenue or profit for the year. Temporary revenue Revenue from temporary placements, which represents amounts billed for the services of temporary staff, including the salary cost of these staff, is recognised when the service has been provided. Our review has concluded that this basis of revenue recognition is consistent with IFRS 15 and no adjustment is required as a result of the transition to IFRS 15 for revenue earned from temporary placements. IFRS 16 - Leases On adoption of IFRS 16 the Group will recognise within the balance sheet a right of use asset and a corresponding lease liability for all applicable leases. Within the income statement, operating lease rentals payable will be replaced by depreciation and interest expense. This will result in an increase in operating profit and an increase in finance costs. If IFRS 16 had been applied in the current accounting period, assets and liabilities would have increased by approximately £2.2m with an immaterial impact on the reported results. IFRS 9 - Financial Instruments Our review concluded that IFRS 9 will not have a material impact on the Group’s financial statements once it becomes effective from 1 January 2018. 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. 35 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 Consolidation (continued) 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. 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 contract placements, which represents amounts billed for the services of contract 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 b) Cost of Sales Cost of sales consists of the salary cost of contract 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 and the margin earned on the placement of contract candidates. 36 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 2 Summary of Significant Accounting Policies (continued) 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. (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 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. 37 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 2 Summary of Significant Accounting Policies (continued) 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: • Furniture, fittings and computer equipment 25% – 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 within profit and loss. 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, 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. 38 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 2 Summary of Significant Accounting Policies (continued) j) Pension Costs The Group operates a defined contribution pension scheme. The Group adopts both the minimum legally required employer contribution rate of 1% of qualifying earnings, and the maximum earning threshold for automatic enrolment for 2017-18, as set by the Pension Regulator. The assets of the scheme are held separately from those of the Group in independently administered workplace pension -NEST. The pension costs charged to the income statement represent the contributions payable by the Group to Nest during the year. The Pension liabilities at the Balance Sheet date represent employer and employee pension contributions, that are payable to the pension provider by the 22nd date of each month. k) Segmental Reporting IFRS8 requires operating segments to be identified on the basis of internal reports that are regularly reviewed by the Board of Directors 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. 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. 39 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 2 Summary of Significant Accounting Policies (continued) 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, bank overdrafts and other payable balances that arise from its operations. They are classified as ‘financial liabilities measured at amortised cost’. 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 16.0% of those offers where employment has yet to commence (2017: 18.9%). 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. 40 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 2 Summary of Significant Accounting Policies (continued) q) Critical Accounting Estimates and Judgements (continued) 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. 3 Segment Reporting a) Revenue and Net Fee Income, by Geographical Region Information provided to the Board is focused on regions and as a result, reportable segments are on a regional basis. UK Asia Rest of World Revenue Net fee income 2018 £’000 2017 £’000 2018 £’000 17,515 18,558 7,746 5,060 5,075 5,060 2017 £’000 7,443 5,075 341 580 341 580 22,916 24,213 13,147 13,098 All revenues disclosed by the Group are derived from external clients 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 Contract (UK) Total Revenue 2018 £’000 2017 £’000 Net fee income 2017 £’000 2018 £’000 6,551 5,060 341 6,004 5,075 580 6,548 5,060 341 5,991 5,075 580 10,964 12,554 1,198 1,452 22,916 24,213 13,147 13,098 41 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 3 Segment Reporting (continued) c) Profit before Taxation by Geographical Region UK Asia Rest of World Operating Profit Net finance income Profit before taxation 2018 £’000 906 489 (202) 1,193 - 2017 £’000 823 1,035 46 1,904 - 1,193 1,904 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 is provided. Segment operating profit is the profit earned by each operating unit and includes inter segment revenues totalling £0.72m (2017: £0.76m) for the UK, and charges of £0.63m (2017: £0.68m) for Asia and £0.09m (2017: £0.08m) for the rest of the world. Intersegmental revenue and charges relate to transfer of services from one subsidiary of the Group to another. They are based on arm’s length calculations and in proportion to segmental headcount as percentage of the total Group headcount. d) Segment Assets and Liabilities by Geographical Region UK Asia Rest of World Total Total assets Total liabilities 2018 £’000 2017 £’000 2018 £’000 2017 £’000 12,896 12,931 1,382 1,293 3,562 3,874 950 1,019 1,247 653 369 73 17,705 17,458 2,701 2,385 The analysis above is of the carrying amount of reportable segment assets and liabilities. Segment assets and liabilities include items directly attributable to a segment and include income tax assets and liabilities. 42 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 4 Profit on ordinary activities before taxation Profit for the year is arrived at after charging: - owned assets - land and buildings Depreciation Operating lease rentals Loss/(profit) on disposal of fixed assets Exchange rate loss The analysis of auditor’s remuneration is as follows: Audit of Company Audit of subsidiaries Total audit fees 5 Directors’ emoluments Emoluments for qualifying services Highest paid Director: Emoluments for qualifying services 2018 £’000 2017 £’000 123 740 - (5) 25 35 60 158 521 1 26 21 24 45 2018 £’000 2017 £’000 508 544 508 544 201 229 Details of Directors’ emoluments and interests, which form part of these financial statements, are provided in the Director’s Remuneration report on pages 17 to 19. 43 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 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 2018 Number 2017 Number 104 32 43 179 95 25 8 128 2018 Number 2017 Number The average monthly number of employees of the Company during the year, including Directors, was as follows: Management 6 5 Staff costs for all employees, including Directors, but excluding contract 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 Pension contributions Share option charge Remuneration of key management Short-term employee benefits Social security costs Share-based payments Pension contributions Key management includes executive Directors and senior divisional managers. 44 2018 £’000 8,612 704 (14) 94 2017 £’000 7,860 655 75 89 9,396 8,679 2018 £’000 1,129 118 25 2 2017 £’000 1,195 111 24 2 1,274 1,332 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 7 Taxation on Profits on Ordinary Activities a) Analysis of tax charge in the year Current tax UK Corporation tax Foreign tax Foreign tax over-provision in prior years Total current tax Deferred tax Origination and reversal of temporary differences Deferred tax on fair value share option charge 2018 £’000 2017 £’000 134 12 - 146 22 (2) 209 107 28 344 (9) (43) Total charge on profit for the year 166 292 UK corporation tax is calculated at 19% (2017: 20%) 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 19% (2017: 20%) on profit on ordinary activities Effects of: Expenses not deductible for tax purposes Depreciation for the period less than capital allowances Tax losses not utilised/(utilised) Tax rate differences Temporary differences recognised Overprovision in prior years Group relief Total current tax Deferred Tax Origination and reversal of temporary differences Tax charge for the year 45 2018 £’000 2017 £’000 1,193 1,904 227 381 28 (20) 6 (11) (20) (64) - 22 14 (2) (35) 9 (28) (17) 146 344 20 (52) 166 292 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 8 Dividends Final dividend for 2017: 3.25p per share (2016: 0.00p per share) Interim dividend for 2018: 1.75p per share (2017: 1.75p per share) 2018 £’000 2017 £’000 398 214 - 215 612 215 A final dividend of 3.25p (2017: 3.25p) was paid on 28 July 2017 to shareholders on the register on 21 July 2017. An interim dividend of 1.75p (2017: 1.75p) was paid on 24 November 2017 to shareholders on the register at the close of business on 17 November 2017. The interim dividend was approved by the Board on 8 November 2017. A final dividend of 3.25p per share will, subject to shareholder approval at the Annual General Meeting, be paid on 27 July 2018 to shareholders who are on the register on 20 July 2018, making a total dividend paid to shareholders for the year of 5.00p per ordinary share. (2017: 5.00p) 46 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 9 Earnings per share Earnings per share are 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 potentially dilutive existing options. Earnings and weighted average number of shares from continuing operations used in the calculations are shown below. Profit for the year and earnings used in basic and diluted earnings per share 2018 £’000 1,027 2017 £’000 1,612 Number Number Weighted average number of shares used for basic earnings per share Dilutive effect of share options 11,784,523 184,146 12,271,923 195,634 Diluted weighted average number of shares used for diluted earnings per share 11,968,669 12,467,557 Basic earnings per share Diluted earnings per share Pence Pence 8.72p 8.58p 13.14p 12.97p 47 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 10 Property, Plant and Equipment Group Cost At 1 April 2016 Additions Disposals Exchange difference At 1 April 2017 Additions Acquisition Disposals Exchange difference At 31 March 2018 Depreciation At 1 April 2016 Provision for the year Disposals Exchange difference At 1 April 2017 Provision for the year Acquisition Disposals Exchange difference At 31 March 2018 Net book value At 31 March 2018 At 31 March 2017 At 31 March 2016 Fixtures, fittings and equipment £’000 1,118 53 (124) 28 1,075 209 115 - (31) 1,368 889 158 (123) 15 939 123 91 0 (27) Total £’000 1,118 53 (124) 28 1,075 209 115 - (31) 1,368 889 158 (123) 15 939 123 91 0 (27) 1,126 1,126 242 136 229 242 136 229 48 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 11 Goodwill Cost At 1 April 2016, 1 April 2017 Additions At 31 March 2018 £’000 9,769 758 10,527 The total carrying value of goodwill is £10.53m, which relates to the acquisition of the Macdonald & Company Group of companies in January 2006 and Command Recruitment Group (H.K.) Limited in October 2017. It has been tested for impairment with the recoverable amount being determined from value-in-use calculations. The assessment for Macdonald & Company Group is based on UK projected results. The recoverable amount is determined on a value-in-use basis utilising the value of cash flow projections over five years with terminal value added for the UK business segment. The first year of the projections is based on detailed budgets prepared and approved by management. Subsequent years are based on extrapolations. The key assumption in calculating the value in use is that the Group will meet its budgeted growth in UK net fee income of 7.57% in the year to 31 March 2019. For the year after the end of the period covered by the budget a growth rate of 11.50% is applied. This is followed by an assumed growth rate of 10%, which is deemed reasonable and represents an above-average rate of growth in the markets in which the Group operates. The rate reflects the average growth rate for the UK business over the past four years and is based on continuation of historic organic growth for the same period. A discount rate of 6.60% has been applied, representing the weighted average cost 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) exceeds the carrying amount by £3.36m. A few potential sensitivity scenarios have been considered and these would indicate impairment in the carrying value of goodwill if the discount rate were to be increased to 10.93% or if there were no future growth. Management believes the assessment is reasonable based on average UK operating profit achieved for the past three years above £1.12m. The assessment of Command Recruitment Group (H.K) Limited is based on projected results in Hong Kong and Dubai. The approach is the same as that used for Macdonald & Company Group. In assessing value in use, the estimated future cash flows are calculated by preparing cash flow forecasts derived from the most recent financial budget and projections for five years, followed by an assumed growth rate of 0%which does not exceed the long-term average growth rate of the relevant markets. This analysis does not indicate any material impairment. Several potential sensitivity scenarios have been considered and these would only indicate material impairment in the carrying value of goodwill if the discount rate were to be increased to 9% or if the budgeted operating profit is underachieved by 15%. Management believes that both scenarios are unlikely as Command continues to perform in line with management expectations. As a result, the Group has continued to make significant investments in the business to accelerate its growth in line with the Group’s strategy to build a strong presence in Hong Kong, and maximise the long-term growth opportunities available in the market. 49 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 12 Investments Company shares in subsidiary undertakings Cost At 1 April Increase/ (decrease) in shares from subsidiary from share option reserve At 31 March 2018 £’000 2017 £’000 11,156 11,176 34 (20) 11,190 11,156 50 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 12 Investments (continued) The following are subsidiary undertakings at the end of the year and have all been included in the consolidated financial statements: Country of incorporation England and Wales Holding Company Principal activity Registered address Macdonald & Company Group Limited Macdonald & Company Property Limited Macdonald and Company Freelance Limited Macdonald & Company (Overseas) Limited Macdonald & Company Ltd England and Wales Recruitment England and Wales Recruitment England and Wales Dormant Hong Kong Recruitment Ru Yi Consulting Limited Hong Kong Dormant Macdonald and Company Pte Limited Singapore Recruitment Macdonald & Company Pty Ltd Australia Dormant Macdonald & Company Recruitment Proprietary Ltd South Africa Dormant The Prime Organisation Ltd England and Wales Dormant Command Recruitment Group (H.K.) Limited Hong Kong Recruitment 2 Harewood Place, Hanover Square, London, W1S 1BX 2 Harewood Place, Hanover Square, London, W1S 1BX 2 Harewood Place, Hanover Square, London, W1S 1BX 2 Harewood Place, Hanover Square, London, W1S 1BX Room 601,6/F., Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong Room 601,6/F., Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong 63 Market Street #05-02, Bank of Singapore Centre, Singapore 048942 Storey Blackwood & Co, Level 4, 222 Clarence Street, Sydney NSW 2000 Australia 1 Emfuleni, 79 Crassula Crescent, Woodmead, Johannesburg, 2052 South Africa 2 Harewood Place, Hanover Square, London, W1S 1BX Room 1101, 11/F, Chinachem Hollywood Plaza, 1-13 Hollywood Road, Central, Hong Kong 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 except in the case of Command Recruitment Group (H.K.) Limited, where it owns 60%. The percentage of the issued share capital held is equivalent to the percentage of voting rights for all companies. 51 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 13 Trade and other receivables Current Trade receivables Allowance for doubtful debts Other receivables Prepayments and accrued income Group 2018 £’000 2017 £’000 3,050 (178) 111 2,633 2,435 (24) 72 2,618 5,616 5,101 Company 2018 £’000 2017 £’000 - - 4 5 9 - - 3 3 6 At 31 March 2018, the average credit period taken on sales of recruitment services was 69 days (2017: 45 days) from the date of invoicing. An allowance of £178,000 (2017: £24,000) 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 2018 £’000 Provisions 2018 £’000 Gross trade receivables 2017 £’000 Provisions 2017 £’000 Not past due Past due 0-30 days Past due 30-90 days Past due more than 90 days 620 564 721 1,152 3,057 41 25 22 90 178 1,598 657 166 14 2,435 15 2 - 7 24 52 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 13 Trade and other Receivables (continued) Movement in allowance for doubtful debts: 1 April 2017 Impairment losses recognised Amounts written off as uncollectable Amounts paid by the client Impairment losses reversed 31 March 2018 14 Financial Instruments Loans and receivables Trade and other receivables Cash and cash equivalents Note 13 2018 £’000 24 178 (10) (14) - 178 2017 £’000 40 24 (31) (6) (3) 24 Group Company 2018 £’000 2017 £’000 2018 £’000 2017 £’000 4,638 1,234 4,092 2,409 5,872 6,501 5 15 20 2 636 638 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. Group Company Note 2018 £’000 2017 £’000 2018 £’000 2017 £’000 Financial liabilities and fair value through profit and loss Trade and other payables 15 614 438 614 438 1 1 1 1 During the year the Group changed from Barclays Bank Plc to HSBC Bank PLC and at the same time established Confidential Invoice Discounting facilities with HSBC Invoice Finance (UK) Ltd. There is no material difference between the book values of the Group's financial assets and liabilities and their fair values. The Group and the Company do not hold any derivative financial instruments. 53 PRIME PEOPLE PLC Notes to the financial statements For the year ended 31 March 2018 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 2018 £’000 307 307 - 845 1,220 2017 £’000 108 330 - 667 1,205 2,679 2,310 2018 £’000 2017 £’000 - 1 748 13 29 791 - 1 739 14 25 779 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 Group (Liability) At 1 April 2016 Credit to income At 31 March 2017 Debit to income At 31 March 2018 Group (Asset) At 1 April 2016 Credit to income At 1 April 2017 Credit to income At 31 March 2018 Other timing differences £’000 Total £’000 9 (9) 9 (9) - 22 22 Share Options £’000 - 43 43 2 45 - 22 22 Total £’000 - 43 43 2 45 54 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 17 Share Capital 2018 2017 Number £’000 Number £’000 ALLOTTED CALLED UP Ordinary shares of 10p each As at 1 April 2017 and 31 March 2018 12,290,199 1,229 12,290,199 1,229 Share capital includes unpaid shares of NIL (2017: 33,000). 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 24 July 2017, 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 £409,632, 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 £409,632 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 £61,451 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 2018 on 19 July 2018. 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 to change bankers to HSBC in the year. 55 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 17 Share Capital (continued) Employee Share Schemes The Company operates two share options schemes with one of them, the Save as You Earn scheme, being dormant. Enterprise Management Incentive Share Option Scheme At 31 March 2018 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 2009/10 42.00 2013-2018 2011/12 68.00 2014-2019 2013/14 Nil Nil 2016-2021 2019-2021 2014/15 10.00 10.00 2016-2021 2019-2021 2015/16 2016/17 10.00 10.00 58.00 58.00 50.00 50.00 90.00 90.00 2017-2022 2020-2022 2017-2022 2020-2022 2019-2024 2022-2027 2019-2024 2022-2027 Total 2018 Number of options 31 March 2017 3,000 3,000 12,000 68,250 48,000 279,500 20,000 30,000 45,000 90,000 25,000 55,000 25,000 40,000 743,750 Weighted average exercise price 2018 (pence) 30.37p Granted Exercised Forfeited Number of Options 31 March 2018 - (3,000) - 3,000 - (3,000) 12,000 65,250 (8,000) (12,000) 35,000 267,500 - - - (5,000) (10,000) (10,000) (5,000) (15,000) 20,000 30,000 40,000 85,000 15,000 45,000 20,000 25,000 - - - - (5,000) - - - (5,000) - - - - - (10,000) (71,000) 662,750 34.00p 48.54p 28.37p - - - - - - - - - - - - - - - - Total 2017 989,250 145,000 (132,500) (258,000) 743,750 Weighted average exercise price 2017 (pence) 19.64p 67.93p 11.21p 0.24p 30.37p There were no share options granted in the year. 56 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 There were 662,750 options outstanding at 31 March 2018 (2017: 743,750) which had a weighted average price per share of 28.37p (2017: 30.37p) and a weighted average contractual life of 5.4 years. The options vest over a period of two to five years conditional upon the option holders continued employment with the Company. The conditions applying to those options which are fully vested have been achieved. The number of outstanding options that will vest is dependent on the achievement of a number of key performance measures of the group, measured at a regional and consolidated level for the financial years 2017 and 2018. 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. Option pricing model used Weighted average share price at grant date (in pence) Exercise price (in pence) Fair value of options granted during the year Expected volatility (%) Risk-free interest rate (%) Expected life of options (years) 2018 Black-Scholes - - - - - - 2017 Black-Scholes 94.00, 96.30 & 91.55 50 & 90 41.12 20.0 & 24.0 4.25 2 & 5 Expected volatility was determined by reference to historical volatility of the Company’s share price. The share-based payment expense recognised within the income statement during the period was £94,315 (2017: expense £88,632). 57 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 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 2018, the total number of ordinary shares of 10p held in Treasury and their values were as follows: 2018 Number £’000 Number £’000 2017 As at 1 April Shares purchased for treasury Shares issued from treasury Equity reclassification on disposal of treasury shares As at 31 March Nominal value Market value 18,276 497,400 (10,000) - 505,676 21 408 (3) (5) 421 51 397 21,276 129,500 (132,500) - 18,276 21 111 (13) (98) 21 2 16 The maximum number of shares held in treasury during the year was 505,676 shares representing 4.1% of the called-up ordinary share capital of the Company (2017: 18,276 representing 0.15% of the called-up ordinary share capital of the Company). 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. Share Premium Account The balance on the share premium account represents the amounts received in excess of the nominal value of the ordinary shares. 58 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 18 Reserves (continued) 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. 19 Operating Lease Commitments As at 31 March 2018 the Group was committed to making the following total payments in respect of non- cancellable operating leases: Amounts payable: Within one year Within one to two years Within two to five years After five years Land and buildings 2018 £’000 Land and buildings 2017 £’000 571 471 1,200 - 545 294 696 169 2,242 1,704 The Group leases various offices under non-cancellable operating lease agreements. The leases have varying terms as disclosed above. 59 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 20 Reconciliation of Profit before Tax to Net Cash Inflow from Operating Activities Profit before taxation Adjust for: Depreciation Share based payment expense (Profit)/Loss on sale of tangible asset Group 2018 £’000 Company 2017 £’000 2018 £’000 2017 £’000 1,193 1,904 (54) 48 123 94 - 158 (13) 1 - - - - - - Operating cash flow before changes in working capital 1,410 2,050 (54) 48 (Increase)/decrease in receivables Increase/(decrease) in payables (434) 344 (163) 94 (4) 15 9 (183) Cash generated from / (used by) underlying operations 1,320 1,981 (43) (126) 21 Analysis of Cash less overdrafts Group Cash at bank and in hand Total cash Company Cash at bank and in hand Total cash At 1 April Cash flow At 31 March 2017 £’000 2,409 £’000 (1,175) 2018 £’000 1,234 2,409 (1,175) 1,234 At 1 April 2017 £’000 636 636 Cash flow £’000 (621) (621) At 31 March 2018 £’000 15 15 60 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 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. The Group’s international operations account for approximately 23.57% (2017: 23.37%) of revenue and approximately 23.88% (2017: 19.70%) of the Group’s assets and consequently the Group has a degree of translation exposure in accounting for overseas operations. The Group exposure to foreign currency risk is as follows: As at 31 March 2018 Cash at bank Trade and other receivables Trade and other payables Net exposure Euro £'000 92 - - 92 USD £'000 215 - - 215 HK$ £'000 278 690 (12) 956 S$ £'000 228 167 (4) 391 AED £'000 203 436 (4) 635 Sensitivity analysis – currency risk A 10% weakening of Sterling against the above currencies at 31 March 2018 would have increased/(decreased) equity and profit or loss by the amounts shown below. This analysis is applied currency by currency in isolation, i.e. ignoring the impact of currency correlation, and assumes that all other variables, in particular interest rates, remain constant. The amounts generated from the sensitivity analysis are forward- looking estimates of market risk assuming certain adverse market conditions occur. Actual results in the future may differ materially from those projected, due to developments in the global financial markets which may cause fluctuations in interest and exchange rates to vary from the hypothetical amounts disclosed in the table below, which therefore should not be considered a projection of likely future events and losses. Euro US Dollar Hong Kong Dollar Singapore Dollar UAE Dirham 2018 equity £'000 (8) (20) (87) (36) (58) 2018 PBT £'000 (8) (20) (87) (36) (58) A 10% strengthening of Sterling against the above currencies at 31 March 2018 would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. 61 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 22 Financial Risk Management (cont) 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 6.95% (2017: 9.07%) 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. 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 £1.23m (2017: £2.40m) which the Board consider are more than adequate to meet future working capital requirements and to take advantage of business opportunities. 62 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 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 £215k (2017: £200k). The balance owed to the subsidiary undertakings at the year end is £748k (2017: £739k). The Company also provides corporate guarantees on the subsidiary bank accounts. At 31 March 2018 amounts overdrawn by subsidiary bank accounts were £nil (2017: £nil). 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 £355,249 (2017: £120,312). 24 Business combinations during the period On 11 October 2017 the Group acquired 60% of the voting equity instruments of Command Recruitment Group (H.K.) Limited, a company whose principal activity is that of a recruitment consultancy. The principal reason for this acquisition was to expand geographical coverage. Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows: Property, plant and equipment Receivables Cash Payables Total net assets Fair value of consideration paid Cash Working capital adjustment Total consideration Non-Controlling Interest Goodwill Goodwill on acquisition 63 Fair value £’000 24 483 101 (418) 190 £’000 962 (90) 872 £’000 76 £’000 758 PRIME PEOPLE PLC Notes to the Financial Statements For the year ended 31 March 2018 24 Business combinations during the period (continued) Consolidation Non- controlling interest is measured initially at the proportionate share of the acquiree’s identifiable net assets at the date of acquisition. The goodwill arising on acquisition of the subsidiary is not deductible for tax purposes. Acquisition costs of £102k arose as a result of the transaction. These have been recognised as part of administrative expenses in the statement of comprehensive income. The main factors leading to the recognition of goodwill are: - The presence of certain intangible assets, such as the assembled workforce of the acquired entity, which do not qualify for separate recognition; and - The fact that a lower cost of capital is ascribed to the expected future cash flows of the entire operation acquired than might be to individual assets. The impact on Group Revenue and Group profit, since the acquisition date Command Recruitment Group (H.K.) Limited was £840,319 to Group revenues and £2,577 to Group profit. If the acquisition had occurred on 1 April 2017, Group revenue would have been £1,833,423 and Group profit for the period would have been £5,623. 64 PRIME PEOPLE PLC Directors and Advisers Directors Robert Macdonald Peter Moore Donka Zaneva-Todorinski Chris Heayberd John Lewis OBE Simon Murphy (Executive Chairman) (Managing Director) (Finance Director) (Non-Executive Director) (Non-Executive Director) (Non-Executive Director) Secretary and Registered Office Donka Zaneva-Todorinski, 2 Harewood Place, London, W1S 1BX. Registered Number 01729887 Stockbrokers & Nominated Advisers Cenkos Securities Plc, 6.7.8 Tokenhouse Yard, London, EC2R 7AS Solicitors Charles Russell Speechlys LLP, 5 Fleet Place, London EC4M 7RD Auditor Crowe Clark Whitehill LLP, St Bride’s House, 10 Salisbury Square, London, EC4Y 8EH Principal Bankers HSBC Bank PLC, Oxford Circus, 196 Oxford Street, Fitzrovia, London W1D 1NT Registrars Neville Registrars Limited, Neville House, Laurel Lane, Halesowen, West Midlands, B63 3DA. 65 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 and insight & analytics. Donka Zaneva-Todorinski ACCA – Finance Director Donka qualified with a Business Administration and Finance Degree from St Paul’s College in 2007. She has been a member of the Association of Chartered Certified Accountants since December 2013. Donka began her professional career in 2003 and since has held accounting positions in the recruitment, media and publishing industries. She joined Macdonald & Company in 2011 as a Management Accountant. In 2013 Donka was promoted to be Financial Controller and was then appointed to the Board of Prime People as Finance Director in October 2015. She is a member of the Finance & Management Faculty of ICAEW. Chris Heayberd BA ACA – Non-executive Directors Chris qualified as a Chartered Accountant in 1980 and after that date 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 joined the Board of Prime People in June 1995 and for a period of five years combined the role of Finance Director with other business interests. In May 2005 he took up a full-time role as Finance Director of Prime People retiring from this post in 2015 but remaining on the Board in a non- executive capacity. 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. 66 PRIME PEOPLE PLC Board of Directors Simon Murphy BSc ACA - Non-executive Director Simon qualified as a Chartered Accountant with Coopers & Lybrand. He was previously a Managing Director in the global investment banking division of HSBC. He was Chief Executive of Prime People from May 2005 until the acquisition of Macdonald & Company Group Ltd. He is Chief Executive Officer of Battersea Power Station Development Company and a Director of a number of private companies including OPD Group Limited an investment company with holdings in a number of recruitment businesses. 67 68 

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