PRP.L Regulatory News (PRP)

22 June 2018

Prime People Plc

Results for the year ended 31 March 2018

Prime People Plc ("Prime People" or the "Group"), the global specialist recruitment business for professional and technical staff working in the Real Estate & Built Environment, Energy & Environmental and Insight & Analytics sectors, today announces its audited results for the year ended 31 March 2018.

The Group's Annual Report and Accounts and Notice of Annual General Meeting have today been published and posted to shareholders, and are available to view on the Company's website at http://prime-people.co.uk/. The AGM will be held on Monday 19 July 2018 at 11.00am at 2 Harewood Place, London, W1S 1BX, and all shareholders are encouraged to attend.

Highlights:

Peter Moore, Managing Director of Prime People, said:

"We closed the year with slightly reduced Gross Fee Income but with Net Fee Income much in line with the previous year.

As announced in our trading update on 4th May 2018, operating profit for the year was £1.19m, down on £1.9m in 2017, reflecting £102k of acquisition costs relating to Command Recruitment Group, increases in staff costs particularly in Hong Kong where we have established a new Insights Team together with an exceptional investment to maintain and improve our Customer Relationship Management systems. In the UK our permanent business performed well in contrast to our international business which fell below the performance levels that we were hoping for at the beginning of the 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 have maintained a strong cash position and propose a final dividend of 3.25p, which combined with the interim dividend of 1.75p per share, will result in a total dividend of 5.00p for the 2018 financial year. (2017: 5.00p).

As we start the new accounting year, like many other recruitment businesses, we are required under IFRS 15 to change how we account for Net Fee Income. Currently this is recognised when a placement is made. With effect from 1 April 2018 the changed Standard requires us to account by invoice date. As at this date, the Board does not expect any material adjustment to reportable profits for the current year as a result of transition to IFRS 15.

Current activity is encouraging across the group and we are confident the business is well positioned to exploit opportunities as they arise."

-Ends-

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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 intends to continue to pay dividend on a progressive basis.

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.

Board

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.

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.

Robert Macdonald

Executive Chairman

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 Group (HK) limited extended the Group's capabilities and reach in the built environment sector both in Asia and the Middle East.

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.

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. Against this our newly acquired Command 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 control of remuneration and expenditure, together with a focus on improved productivity per head and conversion rates, position the Group to prosper.

Regional Performance

UK

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 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.

Asia

NFI decreased by 0.39% to £5.06m (2017: £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 substantial investment in establishing the Insights and Analytics team in Hong Kong is showing promise of providing a base for improved performance in 2019.

 Rest of the World

The region is covered by our offices in Dubai and South Africa.

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 permanent business increased by 2.29% to £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.

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

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.

Earnings per Share

Basic earnings per share decreased by 33.64% to 8.72p (2017: 13.14p). The diluted earnings per share, considering existing share options, decreased by 33.85% to 8.58p (2017: 12.97p).

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 £2.86m (2017: £2.41m) which reflects the 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 treasury function.

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.

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).

During the year the Group spent £0.23m (2017: £0.05m) on its Customer Relationship Management systems; paid £0.78m for the purchase of a 60% interest 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.

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 headcount excluding temporary staff) 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:

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.

CompetitorsThe 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.

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 revenue. The Group is geographically diversified, spanning over different countries which reduces the reliance on the success of any particular market.

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. Therefore, the systems and infrastructure are regularly reviewed and upgraded to ensure 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 revenue (2017: 23.36%) and approximately 27.33% of the Group's assets (2017: 26.00%). Consequently, the Group has a degree of translation exposure in accounting for overseas operations and expects this to increase in line with the growth of the Group outside the United Kingdom. Currently, the Group's policy is not to hedge against this exposure. However, the Group seeks to minimise this exposure by converting into sterling all cash balances received in foreign currency that are not required for local short term working capital needs. The Group will continue to monitor its policies in this area.

Treasury Policies, Liquidity and Financial Risk

Surplus funds are held to support short term working capital requirements. These funds are invested through the use of short term and period deposits, with a policy of maximising fixed interest returns, whilst providing the flexibility required to fund on-going operations and to invest cash safely and profitably.

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

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.

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.

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

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.

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:

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.

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.

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.

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

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.

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 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.

Directors' interests in shares

Directors' beneficial interest in the shares of the Company at 31 March 2018 was as follows:

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:

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

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.

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.

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.

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

The above results relate to continuing operations

Consolidated Statement of Changes in Equity

For the year ended 31 March 2018

Consolidated Statement of Changes in Equity

For the year ended 31 March 2018

Consolidated Statement of Financial Position

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

Company Statement of Financial Position

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

Group and Company Cash Flow Statement

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)

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)