FDM Group (Holdings) plc

Preliminary 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 results for the year ended 31 December 2016.

Highlights

·    Further year of strong operational and financial progress

·    Mounties assigned to client sites at week 52² were up 34% at 2,705 (2015: 2,022)

·    1,807 training completions in 2016, up 46% (2015:1,240)

·    Mountie utilisation rate for the year to 31 December 2016 was 97.4% (2015: 97.8%)

·    Further successful geographic expansion particularly in North America and APAC, which grew Mounties assigned by 60% and 122% respectively compared with week 52 2015

·    Continued sector diversification, with  67% of new clients won during the year outside the financial services sector

·    Continued investment in training Academies, with global training capacity at the year-end up by 36% over December 2015

·    Final dividend of 10.3 pence per share giving a total ordinary dividend for the year of 19.6 pence

·    Group well positioned for continued success in 2017 and beyond

¹  The adjusted operating profit, adjusted profit before tax and adjusted cash conversion 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 2016 commenced on 26 December 2016 (2015: week 52 commenced on 21 December 2015).

Rod Flavell, Chief Executive Officer, said:

"2016 saw the Group perform well against a backdrop of political surprises, growing Mountie revenues by 40% on a reported basis and over 34% on a constant currency basis.  We have made a positive start in 2017 and I believe the Group is well placed to continue to deliver operational and financial progress this year and beyond."

Enquiries

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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 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. The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

About FDM

FDM is a global professional services provider with a focus on IT. The Group's principal business activities are recruiting, training and placing 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 greater experience where required. FDM specialises in a range of technical and business disciplines including Development, Testing, Support, Project Management Office, Data Services, Business Analysis, Business Intelligence and Cyber Security.

By combining training with commercial experience and a dynamic company culture, the Group continues to create and inspire exciting careers that shape our digital future. FDM is a people business and has won numerous awards including The JobCrowd's 'Top Companies For Graduates To Work For', for the 6^th year in a row.

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

INTRODUCTION

2016 represented another good performance by the Group. We delivered 34% growth in Mountie headcount in 2016, achieving a record number of 2,705 Mounties placed with clients at week 52 2016. Group revenues increased by 18% to £189.4 million (2015: £160.7 million) with growth in revenues being delivered by each operating region. North America has had a particularly impressive year, achieving a growth in Mountie headcount of 60% and growth in adjusted operating profit of 55%.

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 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. FDM's strategy has driven four key objectives - to attract, train and develop high calibre Mounties, to invest in leading edge training Academies, to grow and diversify the Group's client base and to expand FDM's geographic presence.

GROUP RESULTS

2016 saw FDM deliver an adjusted operating profit of £37.6 million (2015: £30.2 million) and adjusted basic earnings per share of 25.8 pence (2015: 21.0 pence), whilst investing significantly in the development of its Academies and general infrastructure to support future growth.

During the year, Group revenues increased by 18%, from £160.7 million to £189.4 million. Mountie revenue increased by 40% to £167.3 million (2015: £119.4 million) whilst contractor revenue dropped by 46% to £22.1 million (2015: £41.3 million). The reported results include the marginal benefit arising from favourable exchange rate movements; on a constant currency basis, Mountie revenue increased by 34% with profit before tax up by 15%. The significant increase in Mountie revenue and decrease in contractor revenue reflects the Group's strategy to focus on growing Mountie numbers and Mountie revenue, which represented 88% of total revenue in 2016 up from 74% in 2015. This had a positive impact on the gross margin which increased from 39.5% to 45.5%.

The Group has used cash generated from operations to continue significant investment in new and larger Academies during 2016 to support continued growth and facilitate increases in Mountie headcount. Overheads have increased to £50.7 million (2015: £33.9 million), reflecting the increased running costs associated with the new Academies. The Group has further strengthened its management, support, recruitment, sales and training teams during the year with average headcount in these areas of the business increasing to 371 in 2016, compared to 316 in 2015. Despite the increase in overheads as a result of the investment in Academies and associated infrastructure in 2016, adjusted operating margin in 2016 has increased to 19.9% from 18.8%.

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 £2.2 million in 2016 (2015: £0.7 million).

Foreign exchange

The Group works to mitigate foreign currency translation risk, including using forward exchange contracts where appropriate and self-hedging by operating across a number of regions. The impact of recent foreign currency fluctuations has benefited the reported results in 2016 and continues to be monitored.

Net finance costs

As the Group has no borrowings, finance costs are minimal. The net charge for the year comprises £28,000 (2015: £16,000) of finance income and a finance expense of £128,000 (2015: £168,000) 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 £9.1 million, equivalent to an effective tax rate of 25.9%, on profit before tax of £35.3 million (2015: effective tax rate of 25.0% based on a tax charge of £7.3 million and a profit before tax of £29.4 million). The effective tax rate in 2016 is higher than the underlying UK tax rate of 20% primarily due to Group profits earned in higher tax jurisdictions.

Earnings per share

The basic earnings per share increased in the year to 24.4 pence (2015: 20.5 pence) whilst adjusted basic earnings per share was 25.8 pence (2015: 21.0 pence). Diluted earnings per share was 24.2 pence; there was no dilution in 2015.

Dividends

Subject to shareholders' approval the Group's total dividend for the year will be 19.6 pence per share (2015: 21.5 pence per share). This comprises total ordinary dividends of 19.6 pence per share (2015: ordinary dividend of 16.5 pence per share and a special dividend of 5.0 pence per share). The total ordinary dividends of 19.6 pence per share will be covered 1.2 times by basic earnings per share.

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 the growth in the Group's EPS. The Board reviews the Group's dividend policy on a regular basis and is confident that there are presently 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 2016, the Company has distributable reserves of £29.7 million.

Cash flow and net funds

Net cash inflow generated from operating activities increased from £29.6 million in 2015 to £30.7 million in 2016. Adjusted cash conversion was 105%, with the reduction from 121% in 2015 attributable to movements in working capital. At the end of the financial year, the Group had cash balances of £27.8 million (2015: £22.4 million) and undrawn facilities of £20.0 million available until 31 August 2018 (2015: £20.0 million).

Balance sheet

The Group has a robust balance sheet, with no debt and £27.8 million of cash. The Group's largest asset is its trade receivable balance. Year end debtor days were 47 days (2015: 48 days).

SEGMENTAL PERFORMANCE

UK and Ireland

The number of Mounties deployed on client sites at week 52 increased by 19% to 1,505, up from 1,264 at week 52 2015. Adjusted operating profit¹ increased by 21% to £27.8 million (2015: £23.0 million). Total revenue increased by 3% to £112.9 million (2015: £110.0 million), reflecting the planned decrease in the number of contractors in 2016. The reduction in the proportion of non-Mountie revenues has resulted in a higher adjusted operating profit margin¹ of 25% (2015: 21%).

The growth in Mountie revenue in the UK and Ireland of 26% was achieved through an increase in demand from both existing and new customers, with 32 new clients secured in 2016. With the exception of a temporary slowdown in the fourth quarter of 2016, which has since stabilised, at one government department as a consequence of its restructure, the UK saw sustained demand through 2016 for UK government work. Mountie headcount in the public sector grew by 148% in the year to 236 at week 52 2016.

The number of training completions increased to 1,068 (2015: 779). Training capacity in the UK increased by 11% compared with December 2015 as a result of the Group's continuing investment in training facilities. Our new larger Glasgow Academy and sales office opened in January 2016, more than doubling our training capacity in the city. FDM's unique qualities and capabilities were also recognised at the Scottish Business Awards in November, when FDM was shortlisted for 'Large Business of the Year'.

The number of Ex-Forces Mounties placed with clients grew by 52% in 2016, with ex-Forces personnel recruited into both the traditional Mountie pathway and the advanced training programme in 2016. The UK ran two 'Getting Back to Business' courses, in May and September 2016, both from the London Academy. These courses assist individuals returning to work after a career break.

North America

Growth in our North American operations in 2016 was driven by Mountie headcount rising by 60% to 832 at week 52 (week 52 2015: 520) and saw Mounties provided to clients in 22 US states. Adjusted operating profit¹ increased by 55% to £9.3 million (2015: £6.0 million).

The revenue growth has been enabled by the Group's significant investment in its North American infrastructure in 2016:

·      In April 2016 the relocated Toronto Academy was opened. It provides six new state-of-the-art classrooms, doubling our training capacity in the city.

·      In Reston, Virginia, we opened an Academy and sales office in June 2016 which will, when the fit out completes, have six training rooms.

·      The New York Academy was redesigned during the first half of 2016, facilitating increased teaching space.

The infrastructure investment in North America in 2016 has been supported by FDM  recruiting new staff and the continuous development of all our people. One of FDM US's financial services clients is now our largest in North America and the third largest client in the Group. This growth was supported by the ongoing flow of high quality talent being sourced and trained locally at our Reston Academy.

In Canada, significant growth in Mountie headcount has been generated as we widen the range of areas of existing clients' businesses to which we provide Mounties. Clients have seen the tangible benefits that Mounties bring to their businesses and are keen to build upon those.

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

Mounties on client sites increased marginally to 135 at week 52 2016 compared to 133 at week 52 2015, with a creditable German performance masking weaker conditions in the small Swiss market. However, a change in the mix of placements generated an increase in Mountie revenue of 18% and an increase in adjusted operating profit¹ to £1.2 million (2015: £0.9 million).

FDM has committed to invest in a major expansion of the Frankfurt Academy and office, which will benefit our operations in Germany, Austria and Switzerland. The expansion, which will be completed in the first half of 2017, will increase training capacity in Frankfurt from 20 to 55. In addition FDM has invested in new sales and operational hires to enable growth in these regions in 2017.

Germany is the main driver of growth in EMEA; FDM also operates in Austria and Switzerland and will seek to maintain and develop its presence in these countries in 2017. New German labour leasing laws have been finalised and will be introduced in April 2017; we remain focused on developing our expertise in this area to ensure we are fully informed on the legal interpretation of the legislation, which will leave us well placed to continue to develop our presence in Germany.

APAC (Asia Pacific)

Mountie revenue in APAC has grown by over 100% in 2016, with 233 Mounties deployed at client sites at week 52 (week 52 2015: 105), with the majority of this growth occurring in the second half of 2016. The adjusted operating loss¹ was £0.7 million (2015: £0.3 million profit) as a result of higher operating costs which include: the impact of a full-year's running costs associated with the new Hong Kong Academy and sales office, greater use of flexible classrooms in Singapore and the recruitment of operational staff in the APAC region.

Across APAC there has been good customer growth with six new clients in 2016. We see growth in 2017 being generated by more new customers as well as diversification of services provided to existing customers.

Expansion in Hong Kong has been achieved through 'driven programmes' whereby Mounties are selected by the client prior to the commencement of their training with FDM, allowing their ongoing training to be specifically tailored to meet the customers' needs. We will continue to adopt this approach going forward where appropriate.

It is expected that the establishment of a permanent Academy in Singapore will allow it to mirror the growth in Hong Kong since the launch of its Academy in 2015. We have also started operations in Australia, where we are encouraged by initial client response, as we commence training locally and enter into discussions with potential new customers in this country.

¹ The adjusted operating profit/ (loss) is calculated before performance share plan expenses (including social security costs).

BOARD

Michelle Senecal de Fonseca and David Lister were welcomed to our Board during 2016, Michelle joined the Board on 15 January 2016 with David's appointment on 9 March 2016. Both Michelle's and David's diverse experiences and capabilities have further strengthened the Board.

OUR PEOPLE

I would like to thank all our employees for their hard work over the past year. FDM is a people business and it is the quality and commitment of our employees that enables us to continue to grow our business year on year. We are very proud that our unique business model enables us to create and inspire exciting careers that shape our digital future.

CURRENT TRADING AND OUTLOOK

2017 has started well for the Group and the Board is confident we are well-placed to deliver another year of good progress.

Consolidated Income Statement

for the year ended 31 December 2016

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 2016

Consolidated Statement of Financial Position

Consolidated Statement of Cash Flows

for the year ended 31 December 2016

Consolidated Statement of Changes in Equity

for the year ended 31 December 2016