FDM Group (Holdings) plc Half-year Report (3679V)

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Fdm Group (holdings) Plc	LSE:FDM	London	Ordinary Share	GB00BLWDVP51	ORD 1P

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	-2.00	-0.60%	330.00	326.00	338.00	333.00	330.00	333.00	2,452	08:31:47

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
Computers & Software-whsl	329.97M	34.91M	0.3187	10.35	361.49M

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RNS Number : 3679V

FDM Group (Holdings) plc

23 July 2018

FDM Group (Holdings) plc

Interim Results

FDM Group (Holdings) plc ("the Company") and its subsidiaries (together "the Group" or "FDM"), a global professional services provider with a focus on Information Technology ("IT") today announces its Interim Results for the six months ended 30 June 2018.

 
                                         30 June 2018   30 June 2017   % change 
 Revenue                                    GBP117.8m      GBP117.1m        +1% 
                                        -------------  -------------  --------- 
 Mountie revenue                            GBP114.6m      GBP100.8m       +14% 
                                        -------------  -------------  --------- 
 Adjusted operating profit(1)                GBP25.0m       GBP22.4m       +12% 
                                        -------------  -------------  --------- 
 Profit before tax                           GBP23.0m       GBP20.6m       +12% 
                                        -------------  -------------  --------- 
 Adjusted profit before tax(1)               GBP25.0m       GBP22.3m       +12% 
                                        -------------  -------------  --------- 
 Basic earnings per share                       16.4p          14.0p       +17% 
                                        -------------  -------------  --------- 
 Adjusted basic earnings per share(1)           17.9p          15.5p       +15% 
                                        -------------  -------------  --------- 
 Interim dividend per share                     14.5p          12.0p       +21% 
                                        -------------  -------------  --------- 
 Cash flow generated from operations         GBP17.6m       GBP20.0m       -12% 
                                        -------------  -------------  --------- 
 Cash conversion(2)                             76.4%          96.8%     -20.4% 
                                        -------------  -------------  --------- 
 Net cash position at period end             GBP29.8m       GBP29.3m        +2% 
                                        -------------  -------------  ---------

-- Continued growth in operating profit in a period of significant investment in our people, training facilities and technology to support future growth

-- Period on period movement in revenue reflects the planned reduction in contractor revenue, which contributed to an increase in gross margin to 49% (2017: 43%)

   --       Mounties assigned to client sites at week 26(3) were up 16% at 3,416 
   --       Mountie utilisation rate(4) for the six months to 30 June 2018 was 97.2% (2017: 96.7%) 
   --       Strongest regional operating profit growth was in the UK and Ireland, up 24% 
   --       Diversified new clients across the Group with 38 new clients secured in the period

-- Further sector diversification, with 66% of new clients outside the financial services sector

   --       Good growth in ex-Forces and Getting Back to Business programmes

-- Online applications to join FDM training programmes increased by 31% compared with the first half of 2017

-- Continued investment in training resulted in training completions in the six months to 30 June 2018 of 965 up 30% (2017: 741)

-- Decrease in cash conversion due to an exceptionally strong working capital position at the close of 2017

   --       Interim dividend of 14.5 pence per share, an increase of 21% on 2017 (12.0 pence)

Rod Flavell, Chief Executive Officer, said:

"The first six months of 2018 have seen us continue to focus on investment to increase the geographic diversity and capacity of our business. During the period we have, nearly doubled the size of our Toronto centre; and trained and deployed Mounties via pop-up Academies in Birmingham and Cardiff in the UK, Austin and St Louis in the USA, Montreal and Toronto in Canada, Sydney in Australia, Madrid in Spain, Cape Town in South Africa, and Shanghai in China. We continue to increase the disciplines in which we train, the talent pools from which we recruit and the market sectors into which we deploy.

The first half of 2018 has seen a solid performance, with constant currency growth in Mountie revenue and in profit before tax of 17% and 14% respectively, culminating in Mountie headcount exceeding 3,500 today. The Board anticipates that the Group's results for the year will be in line with its expectations and that we will continue to deliver for all of our stakeholders."

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

(3) Week 26 in 2018 commenced on 25 June 2018 (2017: week 26 commenced on 26 June 2017).

(4) Utilisation is calculated as the ratio of cost of utilised Mounties to the total Mountie payroll cost.

Enquiries

For further information:

 
 FDM                Rod Flavell - CEO      020 7067 0000 (today) 
                     Mike McLaren - CFO     0203 056 8240 (thereafter) 
 Weber Shandwick    Nick Oborne            020 7067 0000

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 Information Technology ("IT"). FDM brings 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 career. FDM has dedicated training centres and sales operations located in London, Leeds, Glasgow, New York, Virginia, Toronto, Frankfurt, Singapore and Hong Kong. FDM also operates in Ireland, France, Switzerland, Austria, Denmark, Spain, Luxembourg, China, Australia and South Africa.

FDM is a strong advocate of diversity and inclusion in the workplace, with over 75 nationalities working together as a team. The UK business' Gender Pay Gap Report 2018 showed a median pay gap of 0.0%, for the second consecutive year.

Interim Management Review

Overview

The Group delivered an underlying operating result in line with the Board's expectations for the period. We ended the half year with 3,416 Mounties placed with clients and delivered an adjusted profit before tax of GBP25.0 million. Market conditions remain buoyant across all our operating regions.

Strategy

We continue to make good progress in delivering on our key strategic objectives: 'Attract, train and develop high-calibre Mounties; Invest in leading-edge training Academies; Grow and diversify our client base; Expand our geographic presence.'

Our strategic objectives continue to provide a disciplined framework to focus our plans for investing in new and existing territories and for investing in the training facilities needed to attract the highest calibre of people to our business.

We have made significant strategic investments in the first six months as follows:

-- People: We have responded to encouraging levels of sales activity and demand across all our geographical regions by increasing headcount in key areas of our business, with a particular focus on sales, recruitment and training, ensuring we are best placed to capitalise on future growth opportunities. Total headcount in sales, recruitment and training has increased since 30 June 2017 by 35%, 44% and 30% respectively.

-- Training facilities: We expanded our Toronto centre in the period through a near doubling of floor space, which will add 71 seats to our training capacity. We are increasingly establishing and operating from pop-up centres to facilitate demand in localised areas. Pop-up centres have been established for various reasons, including to facilitate initial geographic penetration, to meet specific client requirements or simply to increase existing capacity. Our pop-ups are quick to establish and offer flexible availability to meet local candidate and client demand.

-- Technology: Over the past six months we have made substantial investment in our business infrastructure, in particular web and Wi-Fi upgrades and the roll-out of Office 365 and Windows 10 across the Group. The security and resilience of our technology remains key and has been strengthened through the virtualisation of the server estate.

Financial Review

Group results

Summary income statement

 
                             Six months    Six months   % change 
                             to 30 June    to 30 June 
                                   2018          2017 
                                   GBPm          GBPm 
 Mountie revenue                  114.6         100.8       +14% 
 Contractor revenue                 3.2          16.3       -80% 
-------------------------  ------------  ------------  --------- 
 Revenue                          117.8         117.1        +1% 
 Adjusted operating 
  profit                           25.0          22.4       +12% 
 Adjusted profit before 
  tax                              25.0          22.3       +12% 
 Profit before tax                 23.0          20.6       +12% 
=========================  ============  ============  ========= 
                              Pence per     Pence per   % change 
                                  share         share 
 Adjusted basic earnings 
  per share                        17.9          15.5       +15% 
 Basic earnings per 
  share                            16.4          14.0       +17% 
=========================  ============  ============  =========

Mountie revenue increased by 14% to GBP114.6 million (2017: GBP100.8 million). The reported results include the impact of adverse exchange rate movements. On a constant currency basis, Mountie revenue increased by 17% and profit before tax increased by 14%. As planned, contractor revenue decreased by 80% to GBP3.2 million (2017: GBP16.3 million). As anticipated, this had an impact on total revenue which remained broadly flat at GBP117.8 million (2017: GBP117.1 million), and resulted in an increase in gross margin to 49.0% (2017: 43.3%). The Group's strategy remains focussed on growing Mountie numbers and revenues whilst contractor revenues will remain ancillary to the Group.

Mounties assigned to client sites at week 26 2018 totalled 3,416, an increase of 16% from 2,947 at week 26 2017 and an increase of 8% from 3,170 at week 52 2017. The ex-Forces programme continues its growth with 286 ex-Forces Mounties deployed worldwide at week 26 2018 (week 26 2017: 235). Our Getting Back to Business programme had 72 deployed at week 26 2018 (2017 week 26: 34).

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

 
                    Six months    Six months        Year to 
                    to 30 June    to 30 June    31 December         2018         2017         2017 
                          2018          2017           2017     Mounties     Mounties     Mounties 
                       Mountie       Mountie        Mountie     assigned     assigned     assigned 
                       revenue       revenue        revenue           to           to           to 
                          GBPm          GBPm           GBPm       client       client       client 
                                                                    site         site         site 
                                                                 at week      at week      at week 
                                                                      26           26           52 
 UK and Ireland           61.4          51.0          106.7        1,847        1,641        1,744 
 North America            38.1          36.9           73.8        1,033          892          965 
 EMEA                      6.6           6.5           13.1          167          143          155 
 APAC                      8.5           6.4           13.7          369          271          306 
                  ------------  ------------  -------------  -----------  -----------  ----------- 
                         114.6         100.8          207.3        3,416        2,947        3,170 
----------------  ------------  ------------  -------------  -----------  -----------  -----------

Using cash generated from operations, we have invested significantly during the period in our people, training facilities and technology. This has resulted in overheads increasing to GBP34.8 million (2017 GBP30.0 million) and adjusted operating profit increasing by 12% to GBP25.0 million (2017: GBP 22.4 million).

Segmental review

UK and Ireland

The UK and Ireland had an encouraging start to 2018 and has delivered a strong performance for the period. Mounties deployed on client sites in the UK and Ireland at week 26 2018 were 1,847, an increase of 13% over 1,641 at week 26 2017, generating an increase of 20% in Mountie revenue for the six month period to 30 June 2018. Total revenue generated in the region during the same period fell due to the planned decline in lower margin contractor revenue (2018: GBP2.8 million; 2017: GBP15.3 million). Adjusted operating profit increased by 24% to GBP18.2 million (2017: GBP14.7 million).

The number of ex-Forces Mounties placed with clients grew by 22% to 242 (2017: 199). There were seven Getting Back to Business courses delivered in the UK in the period ; the number of Getting Back to Business Mounties deployed on client sites at week 26 was 63 (2017: 26). Overall there was significant Mountie headcount growth in the energy and resources sector, as well as the public services sector.

North America

Mountie headcount in North America has passed the 1,000 milestone, with 1,033 deployed at client sites at week 26 2018 (week 26 2017: 892). Mountie revenue increased by 3% to GBP38.1 million (2017: GBP36.9 million). Significant investment to support future growth resulted in adjusted operating profit falling to GBP6.5 million (2017: GBP7.6 million). Headcount in recruitment and training in Canada has increased by 120% and 157% respectively since 30 June 2017.

In North America we gained 11 new clients in the period. In addition to the newly expanded Toronto Academy, there have been pop-up Academies operating in Toronto and Montreal, with two pop-up Academies in USA in the period; Austin and St. Louis. We are in the process of exploring further opportunities, with planned pop-ups in Charlotte and Chicago in the next quarter. These small-scale centres will allow a local FDM team to develop local demand and source local talent from a fixed location.

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

Mounties deployed on client sites was up 17% at 167 for week 26 2018 (week 26 2017: 143). Mountie revenue was GBP6.6 million (2017: GBP6.5 million). Adjusted operating profit was GBP0.5 million (2017: GBP0.3 million), the increase reflecting the Academy investments in 2017.

FDM's regional presence broadened with placements in Austria and Luxembourg. There was pop-up training in South Africa to service client demand.

APAC (Asia Pacific)

Mounties placed on site at week 26 were 369, up from 271 at week 26 2017. APAC Mountie revenue grew by 32% to GBP8.5 million (2017: GBP6.4 million) and the region delivered a reduced adjusted operating loss of GBP0.1 million (2017: loss of GBP0.3 million).

The growth of our Australian business continues, with 41 Mounties placed at clients in week 26 (week 52 2017: 20). We recently opened a pop-up Academy in Shanghai and are exploring demand with potential new clients in the city. There has been Mountie growth in the six months in Hong Kong and Singapore.

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 GBP2.0 million in the six months to 30 June 2018 (2017: GBP1.7 million). Details of the performance share plan are set out in note 11 to the Condensed Consolidated Interim Financial Statements.

Net finance income

As the Group has no borrowings, finance costs are minimal. The net credit for the period represents GBP63,000 of finance income and a finance expense of GBP60,000 representing non-utilisation charges on the undrawn element of the Group's revolving credit facility. The Group's revolving credit facility, which expires on 14 August 2018, will not be renewed given the strong cash position of the Group.

Taxation

The tax charge of GBP5.4 million represents the effective tax charge on the Group profit before taxation at the Group's effective tax rate of 23.3% (2017: 26.8%). The effective rate is higher than the underlying UK rate because of 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 period to 16.4 pence (2017: 14.0 pence), whilst adjusted basic earnings per share was 17.9 pence (2017: 15.5 pence). Diluted earnings per share was 16.3 pence (2017: 14.0 pence).

Dividend

An interim dividend of 14.5 pence per ordinary share (2017: 12.0 pence) was declared by the Directors on 20 July 2018 and will be payable on 21 September 2018 to holders of record on 24 August 2018. The Board continues to follow a progressive dividend policy, its aim being to steadily increase the Group's base dividend, on an annual basis, approximately in line with the growth in the Group's earnings per share.

Cash flow and net cash

Net cash flow from operating activities decreased from GBP13.7 million in the half year to 30 June 2017 to GBP12.2 million in the first six months to 30 June 2018. The Group's cash balance increased to GBP29.8 million as at 30 June 2018 (2017: GBP29.3 million), despite an outflow of GBP3.4 million in respect of an investment by the Group in its own shares following a share buy-back (see note 12).

Cash conversion for the period was 76% compared with 97% in the comparative prior period, the decrease primarily due to movements in working capital. The closing 2017 working capital position was exceptionally strong resulting in actual cash conversion of 111% for the year to 31 December 2017.

Related party transactions

Details of related party transactions are included in note 13 to the Condensed Interim Financial Statements.

Our people

We are a people business and are proud of the fact our business model continues to provide an effective platform for creating and launching exciting careers in the IT industry. During the first six months, we progressed the following initiatives in two key areas of our Corporate Social Responsibility strategy; 'diversity and inclusion' and 'employee experience':

Diversity and inclusion

-- The UK business Gender Pay Gap Report showed that the median gender pay gap remains at 0%, and the percentage of females increased in each quartile of period under review.

   --      We have grown our ex-Forces headcount to 286 (2017: 235).

-- We have introduced regular open evenings in UK to encourage potential applicants who are thinking of returning to work to meet the FDM team before applying.

Employment experience

-- A number of our employees were rewarded for their hard work and commitment to the Company with the first tranche of share options under the Performance Share Plan being exercised in May at a price of GBP10.10 per share. Further awards were made under the Plan in June.

-- We are rolling out a new Applicant Tracking System which enables a smoother and more efficient recruitment process and adds value to the candidate experience.

-- Our intern programme is growing with 18 interns joining us this summer to gain industry experience.

   --      FDM was sponsoring partner of the UK Employee Experience Awards 2018.

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 2017 on pages 37 to 45.

There has been one change in the principal risks faced by the Group: 'The ability to upscale as a result of not securing the required physical infrastructure (sites)' is no longer considered to be a principal risk. The Group's proven track record of securing new sites together with its ability to operate effectively on a short-term basis from pop-ups, has resulted in the Board downgrading this risk.

We continue to monitor the risks and potential impact of Brexit to the Group.

Summary and outlook

We are satisfied with FDM's financial performance for the six months to 30 June 2018, taken with the high levels of investment in the period, and the Board anticipates that the Group's results for the full year will be in line with the Board's expectations.

By order of the Board

 
 
            Rod Flavell                Mike McLaren 
      Chief Executive Officer    Chief Financial Officer 
 
                        20 July 2018

Condensed Consolidated Income Statement