FDM Group Regulatory News (FDM)

27 July 2016

FDM Group (Holdings) plc

Interim Results

FDM Group (Holdings) plc and its subsidiaries ("the Group," "FDM", or "the Company"), a global professional services provider with a focus on Information Technology ("IT") today announces its Interim Results for the six months ended 30 June 2016.

Highlights

· A period of strong operational and financial performance

· Adjusted Group profit before tax up 23% to £16.5 million on revenues up 16% to £86.5 million

· Mounties assigned to client sites at the commencement of week 26 2016 was 2,452, up 34% against week 26 20152 (1,831 Mounties assigned) and 21% against week 52 2015 (2,022 Mounties assigned)

· Continued sector and geographic diversification, including strong North America and APAC growth in Mounties assigned, up 65% and 62% respectively compared with week 26 2015

· Ongoing growth supported by investment in new, enlarged training academies in a number of our territories, with global training capacity at 30 June 2016 increased by 40% over 30 June 2015

· Total headcount assigned to client sites at week 26 was 2,610 (2015: 2,176)2; (2015 week 52: 2,329)

· 701 training completions in the six months to June 2016 (30 June 2015: 554); (year to 31 December 2015: 1,240)

· Mountie utilisation rate for the six months to 30 June 2016 was 97.5% (2015: 97.8%)

· Interim dividend of 9.3 pence per share, an increase of 16% (2015: interim dividend of 8.0 pence)

· Group well placed to deliver Board expectations for full year

1 The adjusted Group operating profit, adjusted Group profit before tax and adjusted cash conversion are calculated before share option plan expenses (including associated taxes). The adjusted basic earnings per share is calculated before the impact of share option plan expenses (including associated taxes).

2 Week 26 in 2016 commenced on 27 June 2016 (2015: week 26 commenced on 22 June 2015).

Rod Flavell, Chief Executive Officer, said:

"The six months to 30 June 2016 has seen FDM again deliver a strong operational and financial performance, which is continuing into the second half, with good client engagement and new potential client interest in each of our operating regions. Non-UK trading operations represented 40% of Group revenue in the period, up from 32% for the first half last year, and we are assessing new opportunities in Australia, Scandinavia and additional geographic regions within North America. Notwithstanding the changing European political backdrop we remain confident that FDM is very well placed to meet the Board's expectations for the full year."

Enquiries

For further information:

Forward-looking statements

This Interim Report 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 be correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

About FDM

FDM Group (Holdings) plc ("the Company") and its subsidiaries (together "the Group" or "FDM") is a global professional services provider with a focus on IT.

The Group's principal business activities involve recruiting, training and placing its own permanent IT and business consultants (known as "Mounties") at client sites. These take place across a range of technical and business disciplines including Development, Testing, Support, Project Management Office, Data Services, Business Analysis, Business Intelligence and Cyber Security. The Group also supplies contractors to customers, either to supplement its own employed consultants' skill sets or to provide greater experience where required.

The Group has training academies and sales operations in dedicated facilities located in London, Leeds, Glasgow, New York, Virginia, Toronto, Frankfurt, Singapore and Hong Kong. In addition, FDM operates in China, Ireland, France, Switzerland, Austria and South Africa. FDM has established partnerships with key universities, enabling it to recruit high quality graduates to train as Mounties.

FDM is a strong advocate of diversity and inclusion in the workplace, with around 75 nationalities working together as a team. The Group encourages and supports the recruitment of women into the IT industry, promoting their advancement through the "FDM Women in IT" initiative. The Group also actively recruits ex-Forces personnel in both the UK and the USA. The Group has launched a '"Getting Back to Business" programme in the UK and Singapore, aiding those workers who are ready to re-enter the workplace after a career break. This launch follows the success of our pilot programme in Hong Kong.

Interim Management Review

Strategy

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

To drive its strategy FDM seeks to leverage its core service areas through increased Mountie headcount, the establishment of new academies, increased penetration into its existing customer base and expansion of the customer base across the territories in which it operates.

Group results

The Group delivered a strong performance in the period with Group revenues increasing by 16% to £86.5 million (2015: £74.6 million). Mountie revenue increased by 38% to £76.7 million (2015: £55.4 million). The lower rate of growth in total revenue when compared to Mountie revenue reflects the continued shift away from contractors, with the Group's focus remaining centred on growing its core Mountie numbers, which has resulted in a positive impact on gross margin which increased to 46% (2015: 39%).

At week 26 we had 42% of our Mounties placed outside of the UK (week 26 2015: 36%). Mounties assigned to client sites at week 26 2016 totalled 2,452, an increase of 37% from 1,831 at week 26 2015 and an increase of 21% from 2,022 at week 52 2015. Total headcount assigned to client sites at week 26 2016 was 2,610 (week 26 2015: 2,176) of which 158 were contractors (week 26 2015: 345). The ex-military model continues its growth with 185 ex-military Mounties deployed worldwide at 30 June 2016 (2015: 118).

An analysis of Mountie revenue and headcount by region is set out in the table below:

Adjusted Group operating margin has increased to 19.2% (2015: 18.1%) as the headcount mix has moved toward the higher gross margin Mountie business.

Segmental review

UK and Ireland

Mounties deployed on client sites in the UK and Ireland at week 26 2016 were 1,468, an increase of 25% over week 26 2015 of 1,174, generating an increase of 27% in Mountie revenue for the six month period to 30 June 2016. Total revenue generated during the same period was up 3% to £52.7 million (2015: £51.2 million). The lower increase in total revenue is a result of the planned decrease in contractor numbers. Adjusted operating profit increased by 27% to £13.6 million (2015: £10.7 million).

January 2016 saw the opening of a new, larger Academy and sales office in Glasgow, more than doubling the training capacity in Scotland. This has provided an opportunity for us to work more closely with our university partners in the area, while creating new partnerships and developing existing relationships with customers.

Training capacity in the UK has increased by 11% compared to June 2015 as a result of the Group's investment in training facilities.

During the first half of 2016 FDM's presence in public sector services and not-for-profit organisations grew, with over 200 Mounties placed in week 26 2016 (2015: 87). The first "Getting Back to Business" class, FDM's Returners to Work programme in the UK, commenced in the period.

North America

Our North American businesses have seen rapid growth, with increasing numbers of trainees in the Academies, Mounties deployed on site, and revenues earned. The region delivered a strong performance in the six months to 30 June 2016 with revenue increasing by 53% to £25.1 million (2015: £16.4 million) and adjusted operating profit increasing to £2.8 million (2015: £2.3 million). Mounties placed on client sites totalled 702 at week 26 2016 (week 26 2015: 425). Mountie headcount in North America as a proportion of total Mountie headcount increased to 29% (2015: 23%).

Investment in facilities in North America has been focussed on geographic locations which are strategically placed to deliver to existing clients and to facilitate growth opportunities. The new enlarged Toronto centre which opened in April 2016 includes six classrooms and increases FDM's training capacity in the city by 106%, enabling FDM to meet increasing client requirements in Canada. The US training Academies increased capacity by 90% by expanding the New York Academy further and opening a new Academy in Reston, Virginia in June, allowing FDM to recruit Mounties and service the demand of new clients in the area.

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

Our EMEA business has recorded modest growth in the six months to 30 June 2016 with 143 Mounties deployed on client sites at week 26 2016 compared with 133 at week 52 2015 and 146 at week 26 2015. Revenues from our EMEA business increased by 7% to £5.8 million (2015: £5.4 million) and adjusted operating profit increased to £0.4 million from £0.3 million.

Clarity is now returning to the German market following the introduction of certain new labour legislation and it is our intention to expand our presence in Germany, through enlarging our Frankfurt office, to capitalise on opportunities more widely in Europe.

APAC (Asia Pacific)

APAC revenues grew by 81% to £2.9 million (2015: £1.6 million). Mounties placed on site at the beginning of week 26 were 139, up from 86 at week 26 2015 with training starts increased from 14 to 76. The Group opened the region's first permanent Academy in Hong Kong in January 2016, with a training capacity of 40 trainees. Adjusted operating loss for the six months to 30 June 2016 was £0.2 million (2015: profit of £0.1 million) reflecting the impact of the increased investment in facilities.

Our investment strategy for APAC has seen strong Mountie growth in the region and we are in the process of identifying a longer term and larger training academy and sales office in Singapore to facilitate further growth.

Adjusting items

The Group presents adjusted results, in addition to the statutory results, as the Directors consider that they provide an indication of underlying performance. The adjusted results are stated before performance share plan expenses including associated taxes (where applicable).

The performance share plan expenses including social security costs were £1.0 million in the six months to 30 June 2016 (2015: £0.2 million). Details of the performance share plan are set out in note 11 to the Condensed Consolidated Interim Financial Statements.

Net finance expense

As the Group has no borrowings, finance costs are minimal. The net charge for the period represents £18,000 of finance income and a finance expense of £63,000 representing non-utilisation charges on the undrawn element of the Group's revolving credit facility.

Taxation

The tax charge of £4.0 million represents the effective tax charge on the Group profit before taxation at the Group's effective tax rate of 25.8% (2015: 24.9%). The effective rate is higher than the underlying UK rate because of profits earned in higher tax jurisdictions.

Earnings per share

Basic earnings per share for the period was 10.7 pence (2015: 9.2 pence). Adjusted basic earnings per share1 was 11.5 pence per share (2015: 9.3 pence). There is no difference between basic earnings per share and diluted earnings per share.

1 Adjusted basic earnings per share is calculated before share-based payment expenses and associated social security costs.

Dividend

An interim dividend of 9.3 pence per ordinary share (2015: 8.0 pence) was declared by the Directors on 26 July 2016 and will be payable on 23 September 2016 to holders of record on 26 August 2016. The Board continues to follow a progressive dividend policy, while allowing the Group to retain sufficient capital to fund ongoing operating requirements and to invest in long-term growth.

Statement of Financial Position and cash flow

The Group's cash balance at 30 June 2016 was £19.1 million (2015: £13.6 million). Net cash flow from operating activities increased by 8% in the period, from £11.0 million in 2015 to £11.9 million. Since the year end the net cash position has decreased by £3.9 million, after paying dividends of £14.5 million and investment in training and operational facilities of £1.2 million.

The Group has a revolving credit facility of £20.0 million available until August 2018; the facility was undrawn at 30 June 2016. The committed facilities are in place to support the Group's financing needs and provide headroom against forecast requirements.

Related party transactions

Details of related party transactions are included in note 12 to the Condensed Interim Financial Statements.

Board changes

Michelle Senecal de Fonseca and David Lister joined the Board as Non-Executive Directors on 15 January 2016 and 9 March 2016 respectively. Their significant experience and capabilities further strengthen the Board.

Principal risks facing the business

The Group faces a number of risks and uncertainties which could have a material impact upon its long-term performance. The principal risks and uncertainties faced by the Group are set out in the Annual Report and Accounts for the year ended 31 December 2015 on pages 18 to 22.

Since the approval of the last Annual Report and Accounts and following the result of the UK referendum on the European Union there is less certainty around key macro-economic factors. Consequently the Board has reviewed the Group's Risk Register with particular focus on the strategic risks of: economic environment, exposure in financial services sector and balancing supply and demand. To date we have not seen any material impact but we continue to keep close to our customers. The Board considers that the Group has appropriate mitigation at this time and will continue to monitor its key risks.

Summary and outlook

We are pleased with the Group's financial performance for the six months to 30 June 2016 and the Group is well placed to deliver the Board's full year expectations.

Condensed Consolidated Income Statement

for the six months ended 30 June 2016

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2016

Condensed Consolidated Statement of Financial Position

as at 30 June 2016

Condensed Consolidated Statement of Cash Flows

for the six months ended 30 June 2016

Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 June 2016

Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 June 2016

Notes to the Condensed Consolidated Interim Financial Statements

1 General information

The Group is an international professional services provider focusing principally on IT, specialising in the recruitment, training and placement of its own permanent IT consultants.

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.

These Condensed Interim Financial Statements were approved for issue by the Board of Directors of the Group on 26 July 2016. They have not been audited, but have been subject to an independent review by PricewaterhouseCoopers LLP, whose independent report is included on pages 21 and 22.

These Condensed Interim Financial Statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The Annual Report and Accounts for the year ended 31 December 2015 was approved by the Board of Directors of the Group on 8 March 2016 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

2 Basis of preparation

These Condensed Interim Financial Statements for the six months ended 30 June 2016 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and IAS 34 'Interim Financial Reporting' as adopted by the European Union. These Condensed Interim Financial Statements should be read in conjunction with the Annual Report and Accounts for the year ended 31 December 2015, which has been prepared in accordance with IFRSs as adopted by the European Union.

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 Group passed all bank covenants tested in the period and forecasts that all covenants will be passed for a period of at least twelve months from the date of signing this interim report.

Having reassessed the principal risks, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the interim financial information.

3 Significant accounting policies

These Condensed Interim Financial Statements have been prepared in accordance with the accounting policies, methods of computation and presentation adopted in the financial statements for the year ended 31 December 2015, except for; certain IAS 34 Interim Financial Reporting requirements in respect of income tax; and in respect of derivative financial instruments. The instruments are initially measured at fair value on the contract date and are subsequently remeasured to fair value at each reporting date.

The Directors have considered all new, revised or amended standards and interpretations which are mandatory for the first time for the financial year ending 31 December 2016, and concluded that none have had any significant impact on these interim financial statements. New, revised or amended standards and interpretations that are not yet effective have not been early adopted. With the exception of IFRS 16 'Leases', the Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group's financial statements in the period of initial application. The Directors have not yet carried out a full assessment of the likely impact of IFRS 16 'Leases,' which will be effective for the accounting periods beginning 1 January 2019.

4 Significant accounting estimates and assumptions

The preparation of the Group's Condensed Interim Financial Statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset and liability affected in future periods. The judgements, estimates and assumptions applied in the Condensed Interim Financial Statements, including the key sources of estimation uncertainty, were the same as those applied in the Group's annual financial statements for the year ended 31 December 2015, with the following exception:

· The estimate of the provision for income taxes, which is determined in the interim financial statements using the estimated average annual effective income tax rate applied to the pre-tax income of the interim period.

The following are considered to be the Group's significant areas of judgement:

Share-based payment charge

A share-based payment charge is recognised in respect of share awards based on the Directors' best estimate of the number of shares that will vest based on the performance conditions of the awards, which comprise adjusted EPS growth and the number of employees that will leave before vesting. The charge is calculated based on the fair value on the grant date using the Black Scholes model and is expensed over the vesting period.

Impairment of goodwill

For impairment testing of goodwill the weighted average cost of capital ("WACC") is calculated to reflect a required rate of return. The WACC is used to discount the estimated future cash flows of the Group to arrive at a value in use, which is compared to the carrying value of the goodwill and other net assets of the respective cash generating unit at the balance sheet date. If the value in use is greater than the carrying value of goodwill and other net assets at the balance sheet date, there is no impairment.

5 Seasonality

The Group is not significantly impacted by seasonality trends. A lower number of working days in the first half of the year is approximately offset by increased annual leave in the second half of the year.

6 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 30 June 2016, the Board of Directors consider that the Group is organised into four core geographical operating segments:

(1) UK and Ireland;

(2) North America;

(3) 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 income taxation, assets and liabilities are attributable to the principal activity of the Group, being an international professional services provider with a focus on IT.

6 Segmental reporting (continued)

Segmental reporting for the six months ended 30 June 2016

Segmental reporting for the six months ended 30 June 2015

6 Segmental reporting (continued)

Segmental reporting for the year ended 31 December 2015

Information about major customers

Two customers each represent 10% or more of the Group's revenues from all four operating segments and are presented as follows:

7 Taxation

Income tax expense is recognised based on management's estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the six months ended 30 June 2016 is 25.8% (the estimated tax rate for the six months ended 30 June 2015 was 24.9%).

8 Dividends

2016

An interim dividend of 9.3 pence per ordinary share was declared by the Directors on 26 July 2016 and will be payable on 23 September 2016 to holders of record on 26 August 2016.

2015

An interim dividend of 8.0 pence per share was declared by the Directors on 28 July 2015 and paid on 25 September 2015 to holders of record on 21 August 2015. In respect of the full year to 31 December 2015, the Board proposed a final dividend of 8.5 pence per share and a special dividend of 5.0 pence per share. Both were approved by shareholders at the Annual General Meeting on 28 April 2016, and paid on 3 June 2016 to shareholders of record on 13 May 2016.

2014

An interim dividend of 7.5 pence per ordinary share in respect of the period from admission of the Company's shares to the Main Market of the London Stock Exchange on 20 June 2014 to 31 December 2014 was paid on 12 June 2015.

9 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 period. There is no difference between basic and diluted earnings per share for the period as there are no dilutive shares.

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), by the weighted average number of ordinary shares in issue during the period.

10 Analysis of net cash (non-GAAP measure)

Net cash is defined as borrowings less net cash and cash equivalents. The Group had undrawn borrowings at 30 June 2016 of £20,000,000 (2015: £20,000,000).

11 Share-based payments

During the six month period ended 30 June 2016 the Group recognised share-based payment charges of £900,000 (2015: £192,000) and associated social security costs of £133,000 (2015: £31,000).

12 Related party transactions

During the six month period ended 30 June 2016 the Company paid £18,000 (six months ended 30 June 2015: £18,000) to Rod Flavell, Chief Executive Officer and Sheila Flavell, Chief Operating Officer, for rent of an apartment used for short-term employee accommodation. The rent payable was at market rate.

During the six month period ended 30 June 2016 the Company paid £30,240 (six months ended 30 June 2015: £19,000) for contractor IT services to Viper Business Solutions Limited, which is a limited company of the daughter of Sheila Flavell. The IT services performed were at market rate, £8,064 was outstanding at 30 June 2016 (2015: £nil).

A number of the Directors' family members are employed by the Group. The employee relationships are operated at arm's length and remuneration at market rates.

The key management personnel comprise the Directors of the Group. The compensation of key management is set out below: 

13 Financial instruments

There are no material differences between the fair value of the financial assets and liabilities included within the following categories in the condensed consolidated statement of financial position and their carrying value:

• Trade and other receivables

• Cash and cash equivalents

• Trade and other payables

Statement of Directors' Responsibilities

The Directors confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union, and that the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R of the Disclosure and Transparency Rules of the Financial Conduct Authority, namely:

· An indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· Material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report.

Directors who held office during the period:

Ivan Martin (Non-Executive Chairman)

Roderick Flavell (Chief Executive Officer)

Sheila Flavell (Chief Operating Officer)

Michael McLaren (Chief Financial Officer)

Andrew Brown (Group Commercial Director)

Peter Whiting (Non-Executive Director)

Robin Taylor (Non-Executive Director)

Michelle Senecal de Fonseca (Non-Executive Director) Appointed 15 January 2016

David Lister (Non-Executive Director) Appointed 9 March 2016

The Executive Directors and Chairman of FDM were listed in the financial statements of the Company for the year ended 31 December 2015 and remained the same in the six months to 30 June 2016.

Independent review report to FDM Group (Holdings) plc

What we have reviewed

The interim financial statements comprise:

· the condensed consolidated statement of financial position as at 30 June 2016;

· the condensed consolidated income statement and the condensed consolidated statement of comprehensive income for the period then ended;

· the condensed consolidated statement of cash flows for the period then ended;

· the condensed consolidated statement of changes in equity for the period then ended; and

· the explanatory notes to the interim financial statements.

The interim financial statements included in the interim report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Our responsibilities and those of the directors

The interim report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the interim report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

26 July 2016