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 2023.

· Resilient performance in 2023 against a backdrop of very challenging market conditions, with macroeconomic and geopolitical uncertainties.

· FDM's agile business model enabled us to take the action required to align recruitment, training and resource levels appropriately, a programme which continues into the current year.

· Consultants assigned to clients at week 523 stood at 3,892 (2022: 4,905), down 21% against the prior year and training completions were 1,338 (2022: 3,179), down 58%.

· Global Consultant utilisation rate4 was 92.8%, down from the prior year (2022: 97.5%) due to the Group carrying a higher number of undeployed Consultants.

· We secured 47 new clients globally (2022: 74), of which 68% were outside the financial services sector.

· Group revenue increased 1% against the prior year (up 2% on a constant currency basis); adjusted operating profit1 decreased by 5% to £49.6 million (2022: £52.2 million).

· We maintained our robust balance sheet, with £47.2 million of cash at year end (2022: £45.5 million) and no debt.

· Cash conversion was 111.8% (2022: 108.3%), reflecting continuing strong working capital management.

· We propose a final dividend of 19.0 pence per share, following an interim dividend of 17.0 pence per share declared in July 2023, a total dividend for the year of 36.0 pence per share (2022: 36.0 pence per share).

1 Adjusted operating profit and adjusted profit before tax are calculated before Performance Share Plan credit/ expense (including social security costs) of £5.4 million (2022: expense £6.4 million). Adjusted basic earnings per share are calculated before the impact of Performance Share Plan credit/ expense (including social security costs and associated deferred tax). The adjusted cash conversion is calculated by dividing cash flow generated from operations by adjusted operating profit.

2 Cash conversion is calculated by dividing cash flow generated from operations by operating profit.

3 Week 52 in 2023 commenced on 25 December 2023 (2022: week 52 commenced on 19 December 2022).

4 Utilisation is calculated as the ratio of cost of utilised Consultants to the total Consultant payroll cost.

Rod Flavell, Chief Executive Officer, said:

"Reflecting continuing worldwide macroeconomic and geopolitical uncertainties, market conditions in the early months of the current year have remained soft. As we highlighted in January, levels of client engagement remain encouraging. It is however difficult to predict when this will gain sufficient strength to deliver meaningful increases in our Consultants placed with clients.

Group-wide, our activity levels in the year to date are below our previous expectations, with 3,703 Consultants assigned to clients as at 18 March 2024. This, coupled with our strategy to maintain appropriate levels of Consultant resource, and capacity in our internal teams, to meet clients' needs promptly when our markets improve, means that the Board believes that the Group's financial performance for 2024 is likely to be materially below its earlier expectations.

FDM is a robust and agile business, with a strong balance sheet and experienced management team and Board, operating in fundamentally strong markets across a diversified portfolio of clients, sectors and geographies, and we remain confident that our business is well positioned to return to growth as more usual market conditions return."

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

Inside information

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014 (as it forms part of Retained EU Law as defined in the European Union (Withdrawal) Act 2018).

We are FDM

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

We are a global consultancy powering the people behind tech and innovation for over 30 years. We help our clients stay ahead of the latest tech trends and thrive in a rapidly changing world.

INTRODUCTION

FDM delivered a resilient performance in 2023 against a backdrop of very challenging market conditions, returning a robust financial performance overall and continuing our investment in programmes to support future growth as and when market conditions improve.

The Group delivered an adjusted profit before tax1 of £50.2 million (2022: £52.0 million). FDM's balance sheet remains strong with closing cash balances of £47.2 million (2022: £45.5 million) and no debt. The Group made dividend payments during the year of £39.3 million (2022: £38.2 million).

1 The adjusted operating profit is calculated before Performance Share Plan credit/ expense (including social security costs).

Overview

Following a strong start to 2023, market conditions became challenging from the beginning of the second quarter and remained so for the rest of the year. Macroeconomic and geopolitical uncertainties impacted client confidence, causing them to defer decisions relating to project commencements and Consultant placements. We ended the year with 3,892 Consultants placed with clients (2022: 4,905) and 1,338 Consultants were trained during the year (2022: 3,179). The Group recorded revenue of £334.0 million (2022: £330.0 million) and delivered an adjusted operating profit1 of £49.6 million (2022: £52.2 million).

FDM's scalable business model enabled the Board to respond quickly to the decrease in client demand and to take appropriate measures to adjust recruitment, training and internal staffing levels and activities to align with market conditions, a programme that continues in the current year.

Our strategy

FDM's strategy is straightforward: we aim to deliver client-led, sustainable and profitable growth on a consistent basis through our well-established and proven business model, helping clients to stay ahead of the latest tech trends and unlocking opportunities to help them thrive in a rapidly changing world. This model has enabled us to deliver a resilient performance in 2023, in the face of particularly challenging market conditions, by working to fulfil our four key strategic objectives: attract and develop talented Consultants; invest in state-of-the-art Skills Labs to provide expert training; grow and diversify our client base; and expand and consolidate our geographic presence through sustainable and efficient means.

Our strategy requires that all activities and investments produce the appropriate level of return on investment, that they deliver sustained and measurable improvements for all our stakeholders including clients, staff and shareholders, and that they further our objective of launching the careers of talented people worldwide, which remains core to everything we do.

To reinforce our strategy and leadership position, in early 2024 we engaged in a major brand refresh project. This followed extensive consultation during 2023 with all our stakeholders to understand their views on FDM, our vision and our values. The new branding reflects who we are, and what we want to achieve in the future, enabling us to give a clear message to our investors, clients and candidates reflecting what we stand for and how this benefits them.

Strategic objectives

Attract and develop talented Consultants

The strength of our business model is that it allows us to flex recruitment and training in response to changing levels of client demand, while at the same time continuing to invest in our workforce so that we are well positioned to capitalise on opportunities when conditions improve. When market conditions changed at the beginning of the second quarter, with client demand starting to decrease and Consultant placements being deferred, we were able to bring this flexibility and scalability into play, reacting quickly to make adjustments to our levels of resource. Market conditions remained difficult for the rest of the year and we therefore delivered a reduced number of training completions (2023: 1,338; 2022: 3,179), reflecting the change in levels of client demand.

We continue to have an excellent pipeline of already-assessed candidates in all our territories, which our global recruitment teams have worked hard to secure. Our ongoing investment in our Ex-Forces, Returners and Apprenticeships programmes diversify our talent pipeline further. This means that we are well placed to accelerate recruitment and training as and when market conditions and client demand improve.

We continue to attract a high number of applicants across all our operating locations evidencing the appeal that FDM's market-leading, flexible training has in tech skills and innovation globally.

Invest in state-of-the-art Skills Labs to provide expert training

Our hybrid training model offers high quality and flexible training that is attractive to our candidates and, while our training schedules were adjusted in the period in response to client demand, our highly skilled coaches continued to provide ongoing mentoring and upskilling to our benched Consultants.

We remain focused on optimising both the appeal of our training programmes to candidates and of our Consultants to clients. Accreditation of our courses provides - both to candidates and clients - external validation of FDM's programme content, delivery, approach and assessment. Through our partnership with TechSkills, we have now achieved Tech Industry Gold standard accreditation for ten programmes, with the Ex-Forces Advanced Course and the Returners (Business) Programme each achieving Tech Industry Gold accreditation during the year. A total of 325 Consultants completed accredited training in 2023 across the ten available programmes (2022: 653 Consultants completed accredited training across the eight available programmes). Most of our accredited courses have been converted to experiential delivery, replacing traditional academic exams with capability assessments, and transforming the classroom experience into real-world learning through the use of augmented digital content. All of the training content is available through a new, easy to use, and visually-appealing Skills Lab content repository run by our coaches.

As clients look for more specific, detailed and nuanced skillsets within each job role, we have adopted a practice-based approach to managing our benched Consultants. This has enhanced our ability to deploy Consultants whose skill profiles and areas of expertise are a more precise match for clients' requirements.

Our Pods, first developed as a response to the challenges of training during the pandemic, have now become the foundation of our Consultant development. The Pod experience is designed to simulate a client environment where Consultants can work on real projects. Our account managers have strong relationships with our clients which enable them to identify the most in-demand trends in emerging technologies. Our experienced coaches can then adapt the work assigned in the Pods to enable our Consultants to develop skills aligned with these emerging trends.

Grow and diversify our client base

We continue to deliver the highest level of service to our clients and work closely with them to meet their requirements. Client diversification remains a key part of our strategy, with an element of the performance bonus for the Executive Board and senior management being linked to client diversification targets. We secured 47 new clients in the year (2022: 74), of which 23 were in the UK, 7 in North America, 9 in APAC and 8 in EMEA. Of these new clients, 68% were secured from outside the financial services sector. The number of new clients does not include those clients which re-engaged with us during 2023.

Expand and consolidate our geographic presence through sustainable and efficient means

The expansion and consolidation of our geographic presence remains a key growth driver for FDM; whilst global macroeconomic conditions have impacted trading across all our operating regions, we retain a strong management and sales presence in each of our key operating regions. In the first quarter of 2023, we opened new sales offices in Tampa, Florida; Melbourne, Australia; and Limerick, Ireland, each of which contributed promising new business to our portfolio.

Our services

Our business model is focused on coaching and deploying passionate, energetic and self-motivated Consultants with skills across five Practices; Software Engineering; Data & Analytics; IT Operations; Change & Transformation; and Risk, Regulation & Compliance. These five core areas of specialism include multiple interconnected sprints within our Skills Labs, building a versatile and adaptable Consultant workforce.

Consultants acquire skills and develop experience within a diverse range of disciplines under each Practice and can undertake a number of different roles when deployed on assignments.

Our core strengths include our agility, prompt design and delivery capabilities, and, notably, our ability to adapt to the ever-evolving technology landscape. For instance, our growing expertise in AI has enabled us to stay ahead of the market, fostering strong capabilities in the AI space. We established multiple Pods covering diverse scenarios involving the integration of AI into business operations, complemented by successful workshops. These included a workshop on Prompt Engineering, which was attended by seven executives and over 45 engineers from our biggest client and received exceptionally positive feedback. Not only did it consolidate our existing clients' perception of our capabilities, but it also opened doors for FDM to engage with potential new clients regarding opportunities to work together in the future.

Consultancy Services

Underpinned by our core model, our Consultancy Services team was set up to provide added expertise and capability. We help our clients to identify problems, shape change and deliver the right solutions. Using a combination of senior professionals and those at the beginning of their careers, we have the ability to quickly mobilise high-performing teams to deliver collaborative solutions for a wide range of technology problems. Each project is supported by experienced Senior Delivery Consultants who provide management capability. Delivery can be alongside the client's workforce or by FDM Consultants. During 2023 our Consultancy Services delivered a number of very successful projects.

Technology Partnerships

Our Technology Partnerships with some of the world's most innovative organisations ensure that we are at the forefront of technological advancements. The presence of certified trainers authorised to deliver official training from these organisations enhances the support and skillsets we offer to our clients.

In 2023, our Consultants obtained training and certification from Microsoft.

Furthermore, as a Workforce Development Partner to Microsoft, we collaborated to host Industry Insight events aimed at showcasing our capabilities to clients - the events, held in our London and Toronto centres, featured panel discussions with senior leaders in the AI space from Microsoft, our clients, and FDM. They provided a platform to explore the strategies, challenges and success stories surrounding the adoption of AI technologies, while highlighting advice on how AI transformation can align with organisational goals and objectives. The attendance of a large number of clients added depth and value to these discussions.

Our Technology Partners include:

· Microsoft - Workforce Development Partner

· Salesforce - Trailhead Academy Authorised Learning Partner

· ServiceNow - Placement Partner

· AWS - AWS Approved Training Partner & AWS reStart Collaboration

· Appian - Education Partner

· nCino - Workforce Development Partner

· SAP - Partner Talent Initiative

· ISACA - Accredited Partner

GROUP RESULTS

Summary income statement

Overview

Against a backdrop of challenging market conditions from the beginning of the second quarter, the Group delivered a resilient performance in 2023. Revenue increased to £334.0 million, up 1% (2022: £330.0 million), adjusted operating profit1 decreased by 5% to £49.6 million (2022: £52.2 million), with adjusted basic earnings per share1 down 12%, to 32.9 pence (2022: 37.3 pence). We ended the year with a robust balance sheet, including cash balances of £47.2 million (2022: £45.5 million), having converted 111.8% of our operating profit into operating cash flow. We remain well positioned for future growth with a proven and agile business model that allows us to respond rapidly and effectively to market fluctuations.

Revenue increased by £4.0 million to £334.0 million (2022: £330.0 million). On a constant-currency basis2 revenue increased by 2%, or £7.4 million. Consultants assigned to clients at week 52 of 2023 decreased by 21%, totalling 3,892 (week 52 of 2022: 4,905). The average number of Consultants assigned to clients was broadly similar in 2023 compared with 2022, resulting in revenue earned in 2023 also being broadly similar to revenue earned in 2022. At week 52 of 2023 our Ex-Forces Programme accounted for 163 Consultants deployed worldwide (week 52 of 2022: 211). Our Returners Programme had 219 Consultants deployed at week 52 of 2023 (week 52 of 2022: 220). The Consultant utilisation rate dropped to 92.8% (2022: 97.5%) as a result of the Group carrying a higher-than-expected number of undeployed Consultants.

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

Adjusted Group operating profit margin decreased to 14.8% (2022: 15.8%), due primarily to the cost to the Group of carrying more undeployed Consultants. Administrative expenses, excluding the share-based payment credit/ expense, increased to £107.0 million (2022: £103.4 million) due to the costs arising from the higher number of undeployed Consultants.

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

2 The constant-currency basis is calculated by translating current-year and prior-year reported amounts into comparable amounts using the 2023 average exchange rate for each currency. The presentation of the constant-currency basis provides a better understanding of the Group's trading performance by removing the impact on revenue of movements in foreign exchange.

3 Week 52 in 2023 commenced on 25 December 2023 (2022: week 52 commenced on 19 December 2022).

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 trading performance. The adjusted results are stated before Performance Share Plan credit including associated taxes which totalled £5.4 million (2022: expense of £6.4 million). The Directors believe that excluding these costs provides a more meaningful comparison of the trading performance. These expenses are based on estimates relating to a vesting which may occur up to three years after the date of grant and the assumptions underpinning those estimates can change from year to year.

Net finance expense

The finance expense includes lease liability interest of £0.7 million (2022: £0.5 million). The Group has no debt.

Taxation

The Group's total tax charge for the year was £14.9 million, equivalent to an effective tax rate of 26.7%, on profit before tax of £55.6 million (2022: effective tax rate of 23.5% based on a tax charge of £10.8 million and a profit before tax of £45.7 million). The effective tax rate in 2023 has increased from the prior year primarily due to the increase in the UK corporate tax rate from 19% to 25%, effective from 1 April 2023. The effective tax rate also reflects the Group's geographical mix of profits and the impact of items considered to be non-taxable or non-deductible for tax purposes.

Earnings per share

Basic earnings per share increased in the year to 37.3 pence (2022: 32.0 pence), whilst adjusted basic earnings per share were 32.9 pence (2022: 37.3 pence). Diluted earnings per share were 37.2 pence (2022: 31.8 pence).

Dividend

During the year, the Group paid two dividends with a total payment to shareholders of £39.3 million (2022: £38.2 million).

At the AGM held on 16 May 2023, a final dividend of 19.0 pence per share for 2022 was approved by shareholders and was paid on 30 June 2023. On 25 July 2023, an interim dividend of 17.0 pence per share for 2023 was declared and was paid on 13 October 2023.

The Board has recommended a final dividend of 19.0 pence per share, subject to shareholder approval at the 2024 AGM, taking the total dividend arising from the 2023 financial year to 36.0 pence per share (2022 total dividend: 36.0 pence per share).

The Board has set a minimum consistent cash buffer at a Group level and will always consider the ongoing needs for the funding of organic growth across the business and the distributable reserves available to the Group when considering dividend levels. As at 31 December 2023, the Company had distributable reserves of £44.7 million. This statement does not form part of the audited financial statements and the distributable reserves figure of £44.7 million is therefore not audited by PwC.

Cash flow and Statement of Financial Position

The Group's cash balance increased to £47.2 million (2022: £45.5 million). Cash conversion was 111.8% (2022: 108.3%) reflecting continuing strong working capital management. In particular, year-end trade receivables decreased from £34.9 million to £24.9 million. Dividends paid in the year totalled £39.3 million (2022: £38.2 million). Capital expenditure was £0.7 million (2022: £1.2 million) and tax paid was £12.7 million (2022: £13.7 million).

SEGMENTAL PERFORMANCE

UK

Macroeconomic uncertainty impacted demand for new Consultants and consequently UK Consultant headcount at week 52 of 2023 was 1,411, a decrease of 547 (28%) on the prior year (2022: 1,958). Revenue decreased by 8% to £127.8 million (2022: £139.6 million); this decrease was less than the decrease in Consultant headcount due to the phasing of headcount. During the year we continued to open new business with 23 new clients compared with the 38 that we added in 2022.

Adjusted operating profit decreased 17% to £25.1 million (2022: £30.3 million) as, although there were fewer training completions, the impact of this was outweighed by the cost of holding a higher than typical number of undeployed ("benched") Consultants to service future client demand.

In response to the change in demand, training completions decreased by 68% to 339 (2022: 1,063).

North America

As in the UK, macroeconomic uncertainty hindered demand for new Consultants and North America Consultant headcount at week 52 of 2023 was 1,322, a decrease of 296 (18%) on the prior year (2022: 1,618). Despite the reduction in headcount, revenue increased by 11% to £130.2 million (2022: £116.9 million) due to the phasing of headcount year-on-year (the 2023 average headcount was 10% higher than 2022). During the year we added seven new clients compared with the 14 that we added in 2022.

Adjusted operating profit increased 32% to £20.4 million (2022: £15.4 million) which is more than the percentage increase in revenue due to lower paid training costs arising in 2023 compared to 2022. Training completions decreased by 74% to 340 (2022: 1,319) as we adjusted our training schedules to align with client demand.

We continued with our Group strategy to adjust our property footprint to reflect changes in how we train our Consultants with training now being delivered predominantly remotely. During the period, we moved our New York sales office to smaller premises with more flexible tenancy terms and opened a sales office in Florida to support client activity in the region.

EMEA

EMEA Consultant headcount at week 52 of 2023 was 327, an increase of nine (3%) on the prior year (2022: 318). Revenue increased by 22% to £24.1 million (2022: £19.7 million); this increase was more than the increase in Consultant headcount due to the phasing of headcount. During the year we added eight new clients, the same number as in 2022.

Adjusted operating profit decreased 9% to £2.1 million (2022: £2.3 million), reflecting a higher than typical number of undeployed Consultants. Training completions increased by 15% to 256 (2022: 223).

Ireland experienced good growth in the year with week 52 headcount increasing by 57% to 69 and during the period we opened a sales office in Limerick, Ireland.

APAC

APAC Consultant headcount at week 52 of 2023 was 832, a decrease of 179 (18%) on the prior year (2022: 1,011). Revenue decreased by 4% to £51.9 million (2022: £53.8 million); the decrease was less than that in the Consultant headcount due to the phasing of headcount. During the year we added nine new clients compared with the 14 that we added in 2022.

Adjusted operating profit decreased 52% to £2.0 million (2022: £4.2 million) reflecting a higher than typical number of undeployed Consultants, as seen elsewhere in the Group. Training completions decreased by 30% to 403 (2022: 574).

In Australia, we expanded our property footprint outside of Sydney, taking on a sales office in Melbourne to act as a base to support an increasing Consultant presence in the region.

THE BOARD

Rowena Murray joined the Board as a Non-Executive Director on 1 August 2023. Rowena is highly regarded for her experience in investment banking and corporate broking, and her insight into the public markets. She has a strong reputation for helping businesses implement their strategies effectively to generate growth and create value.

OUR PEOPLE AND OTHER STAKEHOLDERS

FDM is a people business, and I am particularly proud of the passion and commitment which our people across all of our operating regions continued to demonstrate, despite the uncertain market conditions we faced during 2023.

Our people strategy was designed to enable FDM to maintain its position as a high-performing and impactful global organisation with a clear focus on sustainability, scalability, commercial efficiency and flexibility. During 2023 we worked hard to ensure delivery of our strategic aims. Our Consultant Experience team helps to anticipate our Consultants' needs, so that we can deliver a positive experience for them. We have worked hard to put in place a clear structure of career pathways for our Consultants throughout their FDM journey. Optimising our Consultants' performance in this way, and using our close relationships with clients to understand their business needs, ensures that each Consultant deployment has the best chance of success for all stakeholders.

We remain committed to promoting diversity, social mobility and inclusion within our workplaces.

The wellbeing of all our people remains a key priority for the Board. The People Team continues to engage with staff to ensure that their wellbeing is monitored and safeguarded.

The Board extends its thanks to every FDM employee for the quality of their work during 2023, which has enabled us to deliver a resilient performance, while operating in challenging market conditions. Our results reflect their dedication, hard work and commitment.

THE ENVIRONMENT

We maintain our focus on reducing our impact on the environment whilst further developing the Group's response to climate-related risks and opportunities. This year we have been able to gather more emissions data from our suppliers, which means that our reported Scope 3 emissions from purchased goods and services are more accurate.

CURRENT TRADING AND OUTLOOK

Reflecting continuing worldwide macroeconomic and geopolitical uncertainties, market conditions in the early months of the current year have remained soft. As we highlighted in January, levels of client engagement remain encouraging. It is however difficult to predict when this will gain sufficient strength to deliver meaningful increases in our Consultants placed with clients.

Group-wide, our activity levels in the year to date are below our previous expectations, with 3,703 Consultants assigned to clients as at 18 March 2024. This, coupled with our strategy to maintain appropriate levels of Consultant resource, and capacity in our internal teams, to meet clients' needs promptly when our markets improve, means that the Board believes that the Group's financial performance for 2024 is likely to be materially below its earlier expectations.

FDM is a robust and agile business, with a strong balance sheet and experienced management team and Board, operating in fundamentally strong markets across a diversified portfolio of clients, sectors and geographies, and we remain confident that our business is well positioned to return to growth as more usual market conditions return.

Consolidated Income Statement

for the year ended 31 December 2023

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 2023

Consolidated Statement of Financial Position