FDM Group Regulatory News (FDM)

FDM Group (Holdings) plc 

Preliminary Results

FDM Group (Holdings) plc ("the Company") and its subsidiaries (together "the Group" or "FDM"), today announces its results for the year ended 31 December 2018.

Highlights

· Strong operational and financial progress delivered Group-wide

· Year on year movement in revenue reflects the planned reduction in contractor revenue, which contributed to an increase in gross margin to 49% (2017: 45%)

· Mounties assigned to client sites at week 524 were up 18% at 3,747 (2017: 3,170)

· Mountie utilisation5 rate unchanged at 97.3% (2017 97.3%)

· 2,155 training completions in 2018, a 33% increase (2017: 1,626)

· Continued sector diversification, including expansion of client base in energy and resources; 77 new clients secured globally during the year (2017: 72)

· Further geographic expansion, including 24% growth in Mounties on site in North America

· Significant investment in people, training and technology to support future growth

· Global training capacity of 848 at year end, up by 9% over December 2017

· Over 84,000 online applications received (2017: over 81,000)

· Final dividend of 15.5 pence per share giving a total ordinary dividend for the year of

30.0 pence, an increase of 15% on 2017

· Group well positioned for continued success in 2019 and beyond

1 Mountie revenue excludes revenue from contractors.

2 The adjusted operating profit and adjusted profit before tax are calculated before Performance Share Plan expenses (including social security costs) of £3.0m (2017: £3.6m). The adjusted basic earnings per share is calculated before the impact of Performance Share Plan expenses (including social security costs and associated deferred tax).

3 Cash conversion is calculated by dividing cash flow from operations by profit before tax.

4 Week 52 in 2018 commenced on 17 December 2018 (2017: week 52 commenced on 18 December 2017).

5 Utilisation is calculated as the ratio of cost of utilised Mounties to the total Mountie payroll cost.

Rod Flavell, Chief Executive Officer, said:

"Throughout 2018 the Group invested in its people, training facilities and technology to sustain the future growth of the business.

The Board is confident that the continuing strong levels of demand for FDM's services across all of our territories and the momentum with which we have commenced the new year will enable the Group to deliver further good operational and financial progress in 2019."

Enquiries

For further information:

Forward-looking statements

This announcement contains statements which constitute 'forward-looking statements'. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

We are FDM

FDM operates in the Recruit, Train and Deploy ("RTD") sector. Our mission is to bring people and technology together, creating and inspiring exciting careers that shape our digital future.

The Group's principal business activities involve recruiting, training and deploying its own permanent IT and business consultants (Mounties) at client sites. The Group also supplies contractors to clients, either to supplement its own employed consultants' skill sets or to provide additional experience where required. FDM specialises in a range of technical and business disciplines including Development, Testing, IT Service Management, Project Management Office, Data Services, Business Analysis, Business Intelligence, Cyber Security and Robotic Process Automation.

The FDM Careers Programme bridges the gap for graduates, ex-Forces and returners to work, providing them with the training and experience required to successfully launch or re-launch their careers. FDM has dedicated training centres and sales operations located in London, Leeds, Glasgow, Birmingham, New York NY, Reston VA, Charlotte NC, Austin TX, Toronto, Frankfurt, Singapore, Hong Kong, Shanghai and Sydney. FDM also operates in Ireland, France, Switzerland, Austria, Denmark, Spain, Luxembourg, the Netherlands, Portugal and South Africa.

Together, FDM is made up of a collective of almost 5,000 people, from a multitude of different backgrounds, life experiences and cultures. FDM is a strong advocate of diversity and inclusion in the workplace and the strength of its brand lies in the talent within.

INTRODUCTION

The Group recorded another year of strong performance in 2018. The Group delivered 18% growth in overall Mountie headcount, including particularly strong growth in the UK and Ireland, North America and APAC, closing the year with 3,747 Mounties placed on client sites. The Group's financial position remains robust with a closing cash balance of £33.9 million and no debt.

STRATEGY

FDM's strategy is to deliver customer led, sustainable, profitable growth on a consistent basis, through its well-established Mountie model. This strategy requires that all activities and investments produce the appropriate level of profit and return on cash, that they deliver sustained and measurable improvements for all our stakeholders including customers, staff and shareholders, and that they further FDM's objective of launching the careers of talented people worldwide, which remains core to everything we do.

Our strategy is underpinned by four key objectives: Attract, train and develop high-calibre Mounties; Invest in leading edge training Academies; Grow and diversify our client base; and Expand our geographic presence. 

GROUP RESULTS

2018 was a year of strong financial performance and continued growth as we delivered 5% growth in revenue to £244.9 million (2017: £233.6 million) and an 8% increase in adjusted operating profit1 to £51.3 million (2017: £47.3 million), with adjusted basic earnings per share1 up 12%, to 36.4 pence (2017: 32.6 pence). We are well-positioned for future growth with a healthy balance sheet and a proven business model.

Summary income statement

Mountie revenue increased by 15% to £239.0 million (2017: £207.3 million), a 17% increase at constant currencies. Contractor revenue decreased by 78% to £5.9 million (2017: £26.3 million), the result of meeting specific customer needs during the first three quarters of 2017, as we continue to focus on our higher-margin Mountie business. Reflecting this mix of revenues, gross margin was higher at 48.6% (2017: 44.6%). The Group's strategy remains focussed on growing Mountie numbers and revenues whilst contractor revenues remain ancillary to the Group and will continue, over the longer term, in managed decline.

1 The adjusted operating profit and adjusted profit before tax are calculated before Performance Share Plan expenses (including social security costs). The adjusted basic earnings per share is calculated before the impact of Performance Share Plan expenses (including social security costs and associated deferred tax).

2  Week 52 in 2018 commenced on 17 December 2018 (2017: week 52 commenced on 18 December 2017).

The Group has used cash generated from operations to continue significant investment in people and infrastructure, thus ensuring we have a firm foundation in place to deliver on our future growth opportunities and aspirations and our strategic objectives. Overheads have increased to £70.5 million (2017: £60.5 million), reflecting the Group's investment in its management, support, recruitment, sales and training teams during the year with average headcount in these areas of the business increasing to 561 in 2018 compared with 447 in 2017. Adjusted operating margin in 2018 was 20.9%, up slightly from the previous year (2017: 20.2%).

Brexit has created some uncertainty in the economy and it is difficult to predict the medium to long term potential impact on the Group. FDM has a global footprint and is diversified from a geographic perspective as it operates from well-established, self-contained operating units. Although the risks associated with the uncertainty in the UK and the potential impact across Europe remain, no material negative impact on trading has been noted to date.

Adjusting items

The Group presents adjusted results, in addition to the statutory results, as the Directors consider that they provide a useful indication of underlying performance. The adjusted results are stated before Performance Share Plan expenses including associated taxes. The Performance Share Plan expenses including social security costs were £3.0 million in 2018 (2017: £3.6 million). The Directors believe that excluding these costs provides a more meaningful comparison of performance and cash generation.

Net finance income

As the Group has no borrowings, finance costs are minimal. The net credit for the year comprises £140,000 (2017: £29,000) of finance income and a finance expense of £94,000 (2017: £130,000) representing non-utilisation charges on the undrawn element of the Group's revolving credit facility.

Taxation

The Group's total tax charge for the year was £11.3 million, equivalent to an effective tax rate of 23.3%, on profit before tax of £48.3 million (2017: effective tax rate of 26.7% based on a tax charge of £11.6 million and a profit before tax of £43.7 million). The effective tax rate in 2018 is higher than the underlying UK tax rate of 19% primarily due to Group profits earned in higher tax jurisdictions. The drop in effective rate in 2018 is attributable to changes in the US federal tax rate.

Earnings per share

The basic earnings per share increased in the year to 34.3 pence (2017: 29.8 pence), whilst adjusted basic earnings per share was 36.4 pence (2017: 32.6 pence). Diluted earnings per share was 33.8 pence (2017: 29.4 pence).

Dividends

Subject to shareholders' approval of the final dividend of 15.5 pence per share, the Group's total dividend for the year will be 30.0 pence per share (2017: 26.0 pence per share). The total ordinary dividends of 30.0 pence per share will be covered 1.14 times by basic earnings per share (2017: 1.15 times covered).

The Group has adopted a progressive dividend policy. The aim of this policy is to steadily increase the Group's base dividend, on an annual basis, approximately in line with growth in the Group's earnings per share. The Board reviews the Group's dividend policy on a regular basis and is confident that there are currently no significant constraints which would impact this policy. The Group is debt free, has no significant capital commitments (its properties are all leasehold) and has sufficient distributable reserves and cash balances to continue to apply this policy. As at 31 December 2018, the Company had distributable reserves of £38.3 million.

Cash flow and net funds

At the end of the year, the Group had cash balances of £33.9 million (2017: £36.8 million). Net cash flow from operating activities decreased from £35.0 million in 2017 to £33.7 million in 2018. Dividends paid in the year totalled £30.7 million (2017: £24.0 million). Net capital expenditure was £2.7 million (2017: £1.4 million) and tax paid was £11.4 million (2017: £13.3 million). During the year, the Group, via an employee benefit trust, purchased shares sold by option holders upon the exercise of options under the FDM Performance Share Plan for a net cash cost of £3.7 million (2017: £nil).

Cash conversion remains good at 93%. The decrease from 2017 is primarily due to a very strong end to 2017 in terms of billing and cash collection and also changes to working capital in 2018, in particular a change to the mix of our receivables as we have seen sustained demand from clients with lengthier payment cycles. The planned decrease in our contractor business, which is relatively less working capital intensive, has also had a minor impact in our cash conversion rate compared to 2017.

Balance sheet

The Group has a robust balance sheet with £33.9 million of cash and cash equivalents and no debt.

SEGMENTAL PERFORMANCE

UK and Ireland

We closed the year with 2,004 Mounties placed on client sites, an increase of 15% on last year (1,744). Adjusted operating profit1 increased by 17% to £36.7 million (2017: £31.5 million), and the UK and Ireland gained 47 new clients, 85% of which were from outside the financial services and banking sector. We experienced a strong level of demand in 2018 which we see continuing into 2019. There has also been good growth in government work, with headcount up 24%, and sector diversification, with expansion of our clients in the energy and resources sector.

We operated temporary training centres in Birmingham and Cardiff during 2018, allowing us to meet and generate client demand and tap into the local graduate market. At week 52, 57% of UK placements were based outside of London (2017: 55%). 1,057 Mounties completed their training (2017: 839).

The number of ex-Forces Mounties placed with clients stayed near constant at 236 (2017: 239). FDM holds the MoD's prestigious Employer Recognition Scheme Gold Award, for "Outstanding support for those who serve and have served".

The number of Getting Back to Business Mounties deployed on client sites at week 52 grew by 95% to 86 (2017: 44). There were 11 Getting Back to Business courses delivered across our London, Glasgow and Leeds Academies.

As part of our planned reduction, and reflecting the fulfilment of specific customer needs in 2017, contractor revenue decreased by 80% on the prior year. The UK government announced in its October 2018 Budget that there would be further consultation in 2019 on the treatment of off-payroll workers; we see this as a potential opportunity for our clients to further benefit from our Mountie model.

North America

North America Mountie revenue grew 10%, with 16 new clients won in the year. Adjusted operating profit1 decreased by 11% to £13.6 million (2017: £15.3 million), as a result of increased investment in training. Mounties on site increased by 24% to 1,196 at week 52 compared with 965 at 2017. There was very strong demand in Canada, which meant that we brought forward our expansion plans and near doubled the training capacity of our Toronto Academy from 74 to 145 seats, by adding six new classrooms. The region added 163 heads in the second half of 2018, compared with 68 heads in the first half and 73 heads in the second half of 2017. FDM was recognised as the Best Place to Work at the North America Best in Biz Awards 2018.

We have established a presence in Austin and Charlotte; where we now have over 70 Mounties placed with clients at year end. As in other regions we use temporary pop-ups to meet specific client demand, and we operated from St. Louis in the year and continue to be in Montreal.

EMEA (Europe, Middle East and Africa, excluding UK and Ireland)

Mountie revenue from our EMEA business grew by 3% to £13.5 million (2017: £13.1 million). Adjusted operating profit1 was 56% higher at £1.4 million (2017: £0.9 million), the 2017 adjusted operating profit having been impacted by our investment in the Frankfurt Academy. Mounties on client sites increased to 162 at week 52 compared with 155 at 2017.

We have restructured our management team in Germany where we are well placed to meet future demand. Luxembourg is proving to be a successful base with a mix of demand from existing international and new local clients. There has been growth in South Africa, although from a small base. Towards the end of the year we began running training in the Netherlands to meet specific client demand, which we expect to continue into 2019. 

APAC (Asia Pacific)

APAC Mountie revenue increased by 31% over 2017, to £18.0 million (2017: £13.7 million), with 385 Mounties placed on client site at week 52 (2017: 306). We gained nine new customers.

The adjusted operating loss1 increased from £0.3 million in 2017 to £0.4 million in 2018, as result of the higher investment costs associated with the development of our Australian operations. Australian headcount more than doubled in 2018. At the end of 2018 we signed a ten-year lease for our new Sydney Academy, part of the high profile Barangaroo urban development project. This new state-of-the-art Academy became operational in February 2019 and will provide us with our first permanent centre in Australia with six classrooms. We have also taken on new temporary space in Shanghai to provide local training.

THE BOARD

In March 2018 FDM announced Ivan Martin's intention to retire from the Board and that a search for a new independent Non-Executive Chairman had begun. As announced by the Company on 7 February 2019, David Lister will be appointed to the role of Non-Executive Chairman with effect from 5 March 2019, and Ivan will retire from the Board on that date. David Lister has been an independent Non-Executive Director of the Company since March 2016 and brings a wealth of relevant board and IT experience after more than 39 years of working in technology and operations roles across multiple industries for international businesses. He also has valuable experience in the professional services sector.

There were no changes to the Directors of the Company in office during the year and up to the date of signing the financial statements.

OUR PEOPLE

We are very proud of our employees across the Group, who have again shown great commitment and professionalism during 2018. Our employees work hard to understand what our clients want, building strong relationships and creating solutions which help our clients fulfil their business ambitions. Our people understand that our clients' success is our success.

Over the last few years our business has expanded significantly, by the end of 2018 our Mountie headcount had increased to 3,747, and we now have more than 350 permanent staff working on recruitment, training, sales and deployment, as well as providing all-important support to our consultants in the field. People underpin everything that we do, and in recognition of this we have appointed a Chief People Officer. We regard this as a crucial new hire for our business, creating a senior executive role which reports directly to the CEO and will work closely with the Board on succession planning and people development which will support FDM's sustainability for the benefit of all our stakeholders.

CURRENT TRADING AND OUTLOOK

The Board is confident that the continuing strong levels of demand for FDM's services across all of our territories and the momentum with which we have commenced the new year will enable the Group to deliver further good operational and financial progress in 2019.

Consolidated Income Statement

for the year ended 31 December 2018

Earnings per ordinary share

The results for the year shown above arise from continuing operations.

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2018

Consolidated Statement of Financial Position

Consolidated Statement of Cash Flows

for the year ended 31 December 2018

Consolidated Statement of Changes in Equity

for the year ended 31 December 2018

Notes to the Consolidated Financial Statements

1 General information

The Company is a public limited company incorporated and domiciled in the UK with a Premium Listing on the London Stock Exchange. The Company's registered office is 3rd Floor, Cottons Centre, Cottons Lane, London.

SE1 2QG and its registered number is 07078823

 2 Basis of preparation

The financial information set out in this preliminary announcement does not constitute statutory accounts for the years ended 31 December 2018 and 31 December 2017, for the purpose of the Companies Act 2006, but is derived from those accounts. The audited statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 were approved for issue on 5 March 2019. The Group's auditor reported on the Annual Report and Accounts for the year ended 31 December 2018 on 5 March 2019. Their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.

Whilst the financial information included in this preliminary announcement has been prepared in accordance with the International Financial Reporting Standards (IFRSs) as adopted for the use in the European Union and as issued by the International Accounting Standards Board, this announcement does not itself contain sufficient information to comply with IFRS. The accounting policies applied in preparing this financial information are consistent with the Group's financial statements for the year ended 31 December 2017 with the exception of the following standards and amendments which were effective from 1 January 2018 and were adopted by the Group in preparing the financial statements. The adoption of these standards and amendments have not had a material impact on the Group's financial statements in the year:

· IFRS 9 'Financial instruments';

· IFRS 15 'Revenue from contracts with customers';

· Amendment to IFRS 2, 'Share based payments'; 

· Amendment to IAS 40, 'Investment property'; and

· Amendments to IFRS 4 Amendments regarding implementation of IFRS 9.

3 Going concern

The Group's continued and forecast global growth, positive operating cash flow and liquidity position, together with its distinctive business model and infrastructure, enable the Group to manage its business risks. The Group's forecasts and projections show that it will continue to operate with adequate cash resources and within the current working capital facilities.

The Directors therefore have a reasonable expectation that the Company and the Group will have adequate resources to continue in operational existence for the foreseeable future. Accordingly the Directors continue to adopt the going concern basis for preparing the financial statements.

4 Segmental reporting

Management has determined the operating segments based on the operating reports reviewed by the Board of Directors that are used to assess both performance and strategic decisions. Management has identified that the Executive Directors are the chief operating decision maker in accordance with the requirements of IFRS 8 'Operating segments'.

At 31 December 2018, the Board of Directors consider that the Group is organised on a worldwide basis into four core geographical operating segments:

(1) UK and Ireland;

(2) North America;

(3) Rest of Europe, Middle East and Africa, excluding UK and Ireland ("EMEA"); and

(4) Asia Pacific ("APAC").

Each geographical segment is engaged in providing services within a particular economic environment and is subject to risks and returns that are different from those of segments operating in other economic environments.

All segment revenue, profit before taxation, assets and liabilities are attributable to the principal activity of the Group, being a global professional services provider with a focus on IT.

4 Segmental reporting (continued)

For the year ended 31 December 2018

* Finance income and finance costs include intercompany interest which is eliminated upon consolidation

Included in total assets above are non-current assets (excluding deferred tax) as follows:

4 Segmental reporting (continued)

For the year ended 31 December 2017

Included in total assets above are non-current assets (excluding deferred tax) as follows:

Information about major customers

 2018 revenue from each of customer A and B is attributed across all four operating segments. Customer A represents 10% or more of the Group's 2018 revenues. Customers A and B each represent 10% or more of the Group's 2017 revenues.

5 Operating profit

Operating profit for the year has been arrived at after charging/ (crediting):

6 Finance income and expense

7 Taxation

The major components of income tax expense for the years ended 31 December 2018 and 2017 are:

The standard rate of corporation tax in the UK is 19%. The rate changed from 20% to 19% with effect from 1 April 2017. Accordingly, the profits for 2018 are taxed at 19% with 2017 taxed at an effective rate of 19.25%. The tax charge for the year is higher (2017: higher) than the standard rate of corporation tax in the UK. The differences are set out below:

Factors affecting future tax charges

Deferred tax assets and liabilities are measured at the rate that is expected to apply to the period when the asset is realised or the liability is settled, based on the rates that have been enacted or substantively enacted at the reporting date. Therefore, at each year end, deferred tax assets and liabilities have been calculated based on the rates that have been substantively enacted by the reporting date.

In 2015 the UK government announced legislation setting out that the main UK corporation tax rate will be 17% with effect from 1 April 2020. At 31 December 2018 and 31 December 2017, deferred tax assets and liabilities have been calculated based upon the rate at which the temporary difference is expected to reverse.

8 Earnings per ordinary share

Basic earnings per share is calculated by dividing the profit attributable to ordinary equity holders of the Parent Company by the weighted average number of ordinary shares in issue during the year.

Adjusted basic earnings per share is calculated by dividing the profit attributable to ordinary equity holders of the Parent Company, excluding Performance Share Plan expense (including social security costs and associated deferred tax), by the weighted average number of ordinary shares in issue during the year.

Diluted earnings per share

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The company has one type of dilutive potential ordinary shares in the form of share options; the number of shares in issue has been adjusted to include the number of shares that would have been issued assuming the exercise of the share options.

9 Share capital

Ordinary shares

All ordinary shares rank equally for all dividends and distributions that may be declared on such shares. At general meetings of the Company, each shareholder who is present (in person, by proxy or by representative) is entitled to one vote on a show of hands and, on a poll, to one vote per share.

During the year 754,202 shares were issued, the difference between market value and par value at issue resulted in an amount of £898,000 being recognised in share premium with £8,000 being recognised as an increase in issued share capital.

10 Dividends

2018

An interim dividend of 14.5 pence per ordinary share was declared by the Directors on 20 July 2018 and was paid on 21 September 2018 to holders of record on 24 August 2018.

The Board is proposing a final dividend of 15.5 pence per share in respect of the year to 31 December 2018, for approval by shareholders at the AGM on 25 April 2019.

Subject to shareholder approval the dividend will be paid on 14 June 2019 to shareholders of record on 24 May 2019.

This brings the Company's total dividend for the year to 30.0 pence per share (2017: 26.0 pence per share). The total ordinary dividends of 30.0 pence per share will be covered 1.14 times by basic earnings per share.

The Board has adopted a progressive dividend policy; the Group will retain sufficient capital to fund ongoing operating requirements, maintain an appropriate level of dividend cover and sufficient funds to invest in the Group's longer term growth.

2017

An interim dividend of 12.0 pence per ordinary share was declared by the Directors on 28 July 2017 and was paid on 22 September 2017 to holders of record on 25 August 2017. The final dividend of 14.0 pence per share in respect of the year to 31 December 2017 was approved shareholders at the AGM on 26 April 2018, the dividend was paid on 15 June 2018 to shareholders of record on 25 May 2018.

11 Directors' remuneration

Details of the Directors' (who also represent the key management personnel of the Group) remuneration in respect of the year ended 31 December 2018 is set out below:

12 Financial instruments

There are no differences between the fair value of the financial assets and liabilities included within the following categories in the Consolidated Statement of Financial Position and their carrying value:

• Trade and other receivables

• Cash and cash equivalents

• Trade and other payables