Interim Results

RNS Number : 5827X

FDM Group PLC

18 August 2009

 



For Immediate Release

18 August 2009

FDM Group plc

("FDM", the "Group" or the "Company")

Interim results for the six months ended 30 June 2009

FDM (AIM: FDMG), the international IT services business, today announces interim results for the six month period to 30 June 2009. 

Financial highlights

• Gross profit increased 6.5% to £6.92m (H1 2008: £6.50m)

• Gross profit margins moving to 27.6% (H1 2008: 25.6%)

• Profit before tax decreased 7.7% to £2.20m (H1 2008: £2.39m)

• Direct costs of newly expanded London office account for £231,000 of the increase in overheads

• Conversion ratio (the ratio of EBIT to gross profit) decreased to 31.3% from 34.9%

• Diluted earnings per share decreased 4.5% to 6.4p (H1 2008: 6.7p per share)

• Interim dividend maintained at 1.0p per share (H1 2008: 1.0p)

• Strong net cash position of £9.46m (H1 2008: £5.28m)

Operational highlights

• Mounties number 302 (FY 2008: 293, H1 2008: 237)
• Freelance contractors number 326 (FY 2008: 332, H1 2008: 401)
• New London training centre capacity extend to 100
• Continued shift in gross profit generation towards Mounties
• Continue to leverage international client base and foster cross selling opportunities

Rod Flavell, Chief Executive of FDM Group, commented:

"Our Mountie proposition continues to provide clients with a compelling alternative to a traditional outsourcing model but our markets remain fragile. Although in absolute terms we have grown the number of Mountie placements, conditions across our markets mean that the number of chargeable staff deployed is behind Board expectations and we are seeing some margin pressure particularly within our freelance contractors"

The last six months have proved to be very challenging and we fully expect this trend to continue. In such a tough economic environment it is testament to the hard work of our people  that we have been able to make the progress that we have and we extend our thanks to everybody throughout the Group."

For further information please contact:

FDM Group Rod Flavell, Chief Executive Officer David Templeman, Group Finance Director	Tel No: + 44 (0) 870 060 3100
Brewin Dolphin Investment Banking Matt Davis / Alison Barrow	Tel No: + 44 (0) 845 213 3219
Buchanan Communications Limited Lisa Baderoon / Jeremy Garcia	Tel No: + 44 (0) 207 466 5000

Chairman and Chief Executive's Statement

Interim results for the six months ended 30 June 2009

Introduction

FDM is pleased to report profit performance for the first six months broadly in line with directors' expectations despite difficult economic conditions. Our trading performance has shown continued progress as we switch income and gross profitability away from traditional freelance contracting into our unique 'Mountie' model. Profit before tax is down marginally on the comparable period in 2008, due to costs related to the transition of our London training operations into modern office space. 

At 30 June 2009 we had 302 Mounties (H1 2008: 237) and 326 freelance contractors (H1 2008: 401) compared with 293 and 332 at 31 December 2008 respectively. Although ahead of last year, numbers of deployed resources are lower than the Directors' had originally anticipated for the end of the half year reflecting the more challenging trading conditions.

Results

Gross profitability of our business operations has increased to £6.92m, up 6.5% over the comparable period (H1 2008: £6.50m) with gross profit margins increasing to 27.6% (H1 2008: 25.6%). Profit before tax amounted to £2.20m, down 7.7% on the comparable period (H1 2008: £2.39m), and consequently our conversion ratio (the ratio of EBIT to gross profit) decreased to 31.3% from 34.9% in H1 2008. Diluted earnings per share decreased by 4.5% to 6.4p (H1 2008: 6.7p per share). Direct costs of our newly expanded London office, which was opened at the beginning of the year, account for £231,000 of the increase in overheads

The Board is maintaining its dividend policy and is pleased to announce an interim dividend of 1.0p per share (H1 2008: 1.0p). The interim dividend will be paid on 28 September 2009 to shareholders on the register as at 28 August 2009.

Strategic development

Our core strategic goal remains the continued transformation of FDM into a global IT services company through the expansion of our Mountie programme. This process has continued in the first half of 2009 notwithstanding that growth in Mountie placements has been lower than we had budgeted for.

Mounties represent a highly-skilled resource to our customers charged out at significantly lower rates than freelance contractors and at comparable rates to in-house resources. Despite the general economic malaise we have continued to expand our workforce of Mounties placed at clients and the overall improvement in our gross profitability reflects the move towards a Mountie-centric, global IT services business. Gross profitability for H1 2009 shows an increase of 6.5% over the comparable period, with the gross profit split now sitting at 67%/33% (H1 2008: 56%/44%) for Mounties and freelancers respectively.

Despite our confidence in our Mountie offering we have seen a shift in buying behaviour across our client base. As with a number of sectors, IT services has seen client decision making take longer, leading to a drawn out project appraisal process with shorter contract terms being offered. The macro-economic forces behind this lack of purchasing confidence are clearly outside of our control, and mirror common experience among our quoted peers.

That aside, we have continued to develop our Mountie training centres in expectation of a general economic upturn and with a new, fit-for-purpose 100 seat London Academy in modern office space. We have added the potential to significantly grow Mountie numbers as demand for skilled IT resources picks up in the medium term. Mountie utilisation rates have declined marginally to 96.6% (H1 2008: 97.8%) while Mountie gross profitability has decreased to 50.6% at H1 2009 (H1 2008: 50.9%).

At the beginning of 2009, we made changes to the way we organise our vertical streams of operation to mirror more closely the way in which our clients buy our resources. Specifically, rather than differentiate solely on income generated from Mounties and freelance contractors, we now additionally manage and report our vertical streams of activity. This format is included for the first time within these financial statements and accordingly no comparable figures are available.

Over time, and with the ability to compare activity within each of our vertical streams of operation, we will be able to benchmark performance in an objective way across our streams, and more importantly, against our competitors who operate in each of these sectors of IT service delivery.

Our freelance offering

It is widely appreciated that freelance contractors are typically the first source of any cost rationalisation. Indeed, our Mountie resources are often seen as a valuable alternative for organisations buying freelancers in circumstances requiring skilled, entry-level resource and this substitution is one of the ways in which business development has been driven.

There are also circumstances within buying organisations where significantly experienced IT contractor skills are required and these contractors commonly work on large IT development projects which are prone to cut and review during more difficult economic times, and against this backdrop we are pleased to see only a modest decrease in freelance resources on our headcount from 332 at 31 December 2009 to 326 at 30 June 2009.

In order to maintain our presence in a difficult buying market we took the decision early this year to accept lower gross profit margins on our freelance placements and we have therefore experienced a fall in margins from the full-year ending 31 December 2008 of 15.7% to 14.1% for the half-year to 30 June 2009 (H1 2008: 15.4%).

New clients

As a result of cut-backs in the spending patterns of many global institutions many businesses now see the true value of our Mountie resources within their IT resource functions and new client wins during H1 2009 include ICAP, Syzygy and Liverpool Victoria Friendly Society.  

International business

FDM's client base remains a large group of over 200 global financial and non-financial institutions and cross-selling opportunities between our UK, mainland European, and US operations continue to act as a stimulus for our growth and the opening of new business opportunities. 

These cross-selling opportunities mean that our international operations are now beginning to provide real traction to our Group growth and in H1 2009 represented 22.0% (H1 2008: 16.3%) of Group gross profitability, up from 17.7% for the year to 31 December 2008.

Possible Offer

On 4 June 2009 the Company announced that it was in discussions with its management in respect of a possible offer for the Company. The Company has continued its discussions with the management team regarding the potential offer. Further announcements will be made in due course.

Business outlook

We face a number of challenges in 2009 none more significant than changes in the buying behaviour of our clients. This means that visibility of future earnings has reduced and predictability has become more difficult throughout our client portfolio and across our international businesses. Our ability to navigate through these uncertain times is the key determinant of our short-term success. Therefore, our focus for the second half of 2009 is to maintain our excellent client relationships, maximise all opportunities that we create and ensure that we minimise the impact of short-term economic decline. 

In the medium and longer term, the increase in our training capacity for Mounties with the addition of our enlarged London Academy will ensure that the Group is able to take full advantage of improvements in the macro-economic environment, and associated demand for our Mountie proposition.

We recognise that as a people-business our most important resources is our team of employees. In such a tough economic environment it is testament to their hard work and dedication that we have been able to make the progress that we have and we extend our thanks to everybody throughout the Group. We thank also our shareholders for their continued support.

Ivan Martin                    Rod Flavell

Chairman                    Chief Executive

18 August 2009

Consolidated Income Statement (unaudited)
		Unaudited	Unaudited		Audited
		Six Months ended	Six Months ended		Year ended
		30 June 2009	30 June 2008		31 December 2008
	Note	£'000	£'000		£'000
Revenue from continuing operations	2	25,089	25,416		52,212
Cost of Sales		(18,168)	(18,919)		(38,501)
Gross Profit		6,921	6,497		13,711
Administrative Expenses		(4,756)	(4,230)		(8,686)
Operating profit before financing costs		2,165	2,267		5,025
Financial Income		37	118		249
Financial Expense		-	-		(2)
Net financial income		37	118		247
Profit Before Tax	2	2,202	2,385		5,272
Income Tax expense	3	(701)	(807)		(1,581)
Profit for the period		1,501	1,578		3,691
Earnings per Share (pence)	5
Basic		6.5	6.9		16.0
Diluted		6.4	6.7		15.7

Consolidated Statement of Comprehensive Income (unaudited)
	Unaudited	Unaudited		Audited
	Six Months ended	Six Months ended		Year ended
	30 June 2009	30 June 2008		31 December 2008
	£'000	£'000		£'000
Profit for the Period	1,501	1,578		3,691
Foreign exchange translation differences	(353)	(109)		694
Deferred tax on share-based payments	58	15		(151)
Income tax	-	-		-
Other comprehensive income for the period	(295)	(94)		543
Total comprehensive income for the period	1,206	1,484		4,234

The total comprehensive income for the period is entirely attributable to the owners of the parent.

Consolidated Balance Sheet (Unaudited)
		Unaudited		Unaudited				Audited
		Six Months ended		Six Months ended				Year ended
		30 June 2009		30 June 2008				31 December 2008
	£'000		£'000			£'000
Assets
Property, Plant and Equipment		489		351				404
Intangible Assets		119		113				102
Deferred Tax Assets		93		110				43
Total Non-Current Assets		701		574				549
Trade and other receivables		10,782		11,751				9,394
Cash and Cash Equivalents		9,458		5,283				10,058
Total Current Assets		20,240		17,034				19,452
Total Assets		20,941		17,608				20,001
Current Liabilities
Trade and other payables		5,671		5,206				4,966
Income Tax Payable		639		631				951
Total Current Liabilities		6,310		5,837				5,917
Net assets		14,631		11,771				14,084
Equity
Share Capital		232		232				232
Share Premium		3,332		3,332				3,332
Capital Redemption Reserve		63		63				63
Currency Translation Reserve		405		173				758
Retained Earnings		10,599		7,971				9,699
Total Equity		14,631		11,771				14,084

Consolidated Cashflow Statement
	Unaudited	Unaudited		Audited
	Six Months ended	Six Months ended		Year ended
	30 June 2009	30 June 2008		31 December 2008
	£'000	£'000		£'000
Profit for the period	1,501	1,578		3,691
Adjustments for:
Depreciation and amortisation	97	130		237
Financial income	(37)	(118)		(249)
Financial expense	-	-		2
Loss on disposal of non-current assets	-	-		1
Equity-settled share based payment expenses	-	15		17
Proceeds from sales of non-current assets	-	1		-
Taxation	701	807		1,581
(Increase)/decrease in trade and other receivables	(1,698)	(2,431)		736
Increase/(decrease) in trade and other payables	962	589		(179)
Interest paid	-	-		(2)
Tax paid	(1,072)	(880)		(1,503)
Net Cash from operating activities	454	(309)		4,332
Cash flows from investing activities
Interest received	37	118		249
Proceeds from sale of non-current assets	-	-		10
Acquisition of property, plant and equipment	(160)	(92)		(237)
Acquisition of other intangible assets	(40)	(21)		(30)
Net cash from investing activities	(163)	5		(8)
Cash flows from financing activities
(Decrease)/increase in cash held by Trust in period	(79)	14		(7)
Dividends paid	(580)	(434)		(664)
Net cash from financing activities	(659)	(420)		(671)
Net (decrease)/increase in cash and cash equivalents	(368)	(724)		3,653
Cash and Cash equivalents at beginning of period	10,058	5,953		5,953
Effect of exchange rate fluctuations on cash held	(232)	54		452
Cash and Cash equivalents at end of period	9,458	5,283		10,058

Notes to un-audited interim consolidated financial statements
1 Accounting Policies 1.1 Reporting Entity These consolidated interim financial statements comprise of FDM Group plc (the 'Company') and its subsidiaries (together the 'Group'). These condensed consolidated interim financial statements are presented in pounds sterling, rounded to the nearest thousand. These statements are not audited, and nor have the Groups' auditors issued a report on these statements under the APB guidance on the review of Interim Financial Information. The comparative figures for the financial period ended 31 December 2008 are not the Group's statutory accounts for that financial year. Those accounts have been reported on by the Group's auditors and delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matter to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 1.2 Statement of Compliance These consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standard (IFRS) IAS 34 Interim Financial Reporting as adopted by the EU. They do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements for the Group for the year ended 31 December 2008. These consolidated interim financial statements have also been prepared in accordance with IAS 1 revised. The impact of this, is to remove the statement of recognised income and expenditure and replace this with the statement of comprehensive income, this has no impact on the financial figures, other than that of a change of presentational format. 1.3 Significant Account Policies The accounting policies and presentation applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements for the year ended 31 December 2008. 1.4 Estimates The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results for which form the basis of making the judgements about carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.  In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for year ended 31 December 2008. 1.5 Seasonality and Cyclicality There is no significant seasonality or cyclicality affecting the interim result.
2 Segmental Information    The segmental reporting is based on the geographical location of the division.     The Group operates in three geographic areas, the UK being the predominant area. Un-audited  Un-audited  Audited Six Months ended Six Months ended Year ended 30 June 2009 30 June 2008 31 December 2008 Revenue UK 18,200 20,987 41,814 Europe 4,252 3,103 7,034 America 2,637 1,326 3,364 25,089 25,416 52,212 Profit before tax UK 1,456 2,035 4,313 Europe 485 203 633 America 261 147 326 2,202 2,385 5,272 Depreciation & Amortisation UK (95) (119) (230) Europe (1) (9) (5) America (1) (2) (2) (97) (130) (237) Purchase of non-current Assets UK (200) (112) (266) Europe - (1) (1) America - - - (200) (113) (267) Total non-current assets UK 690 559 535 Europe 11 13 13 America 1 2 1 702 574 549 Total Assets UK 16,494 14,679 15,720 Europe 2,485 2,435 3,218 America 2,408 905 1,449 * Consolidation adjustments (445) (411) (386) 20,942 17,608 20,001 Total Liabilities UK (5,069) (5,011) (4,732) Europe (863) (788) (849) America (824) (449) (722) * Consolidation adjustments 445 411 386 (6,311) (5,837) (5,917) Equity attributable to equity holders of the parent UK 11,425 9,668 10,988 Europe 1,622 1,647 2,369 America 1,584 456 727 14,631 11,771 14,084 * The consolidation adjustments are the removal of inter-company balances. The Group reorganised the way in which it manages its business on 1st January 2009 and now shows vertical streams of operation, due to the reorganisation, whereas previously, these were shown under two business units named IT staffing and Global services. We are unable to provide comparatives for the prior period and it is not possible to segment these areas any further as they are only reported within the Group's management accounts to the extent shown. Support Consultancy Testing Training Infrastructure Total £'000s £'000s £'000s £'000s £'000s £'000s Turnover   7,222    13,307    3,090    738    732  25,089 Cost of Sales (4,770) (10,252) (2,056) (461) (629) (18,168) Gross Profit   2,452    3,055    1,034    277    103  6,921
3 Taxation Current Tax Current tax expenses for the interim periods represents the expected tax payable on the income for the period, calculated as the estimated average annual effective income tax rate applied to the pre-tax income of the interim period. Income tax for current and prior periods is classified as a current liability to the extent that it is unpaid. Amounts paid in excess of amounts owed are classified as a current asset. Deferred Tax Deferred Tax for the interim period represents the expected tax payable, calculated from the tax differences arising from the carrying values of assets and the recognition of the deferred tax asset arising from the consideration of employee share options granted but not yet exercised at the end of the period. The tax deductible on these options will not be realised until the options have been exercised. Deferred tax is classified as a non-current asset or liability dependant on its nature to the extent that it is not yet realised.
4 Dividends The Directors recommend an interim dividend of 1.0p per share (June 2008: 1.0p) to be paid on 28 September 2009 to shareholders on the register at 28 August 2009. 5 Earnings per Share The calculation of basic earnings per share is based on profit after tax. The adjusted earnings uses the basic earnings before IFRS2 share based payment charges and is presented to show more clearly the underlying performance of the Group. Earnings per share have been calculated using the weighted average number of shares in issue during the period 23,191,618 (June 08: 22,961,743). The diluted earnings per share is based on 23,440,128 (June 2008: 23,508,017) and reflects the potential exercise of share options granted. 6 Issued Capital Issued capital as at 30 June 2009 amounted to £232,220, this equates to 23,220,000 1p ordinary shares. There were no movements in the issued capital of the Group in either the current or prior interim reporting period. 7 Circulation to Shareholders Copies of the consolidated interim statements will be sent to shareholders with further copies available from the Company Secretary, FDM Group PLC, 2nd Floor Lanchester House, Trafalgar Place, Brighton, East Sussex, BN1 4FU.

 

END

 

 

IR GUUGCRUPBGQM