Half-year Report

FDM Group (Holdings) plc

Interim Results

FDM Group (Holdings) plc ("the Company") and its subsidiaries (together "the Group" or "FDM"), today announces its results for the six months ended 30 June 2024.

Highlights

·       A resilient performance in the first half of 2024 against ongoing challenging market conditions, in line with the Board's expectations.

·       Revenue decreased by 22% to £140.2 million (2023: £179.9 million) and profit before tax decreased by 48% to £15.5 million (2023: £29.8 million).

·       Consultants assigned to clients at week 26³ were 25% lower than the corresponding period at 3,469 (week 26 2023: 4,602, week 52 2023: 3,892). The split by region was: UK 1,284 (week 26 2023: 1,743); North America 1,162 (week 26 2023: 1,563); EMEA 326 (week 26 2023: 359); and APAC 697 (week 26 2023: 937).

·      Consultant utilisation rate⁴ for the six months to 30 June 2024 decreased to 91.5% (2023: 93.4%). Throughout the period steps were taken to align, as far as practicable, available resource to market demand. Consultant recruitment and the number of Consultants in our Skills Lab (previously known as our Academy) reduced and coaching completions (previously called training completions) in the first half were 466 (first half 2023: 911).

·       We remain focused on managing our cost base. In the first half we incurred exceptional costs of £2.1 million (2023: £nil) as we better aligned our internal staff and undeployed Consultants with current market dynamics. The annualised internal staff cost saving is over £4 million. The number of internal employees at 30 June 2024 was 594 (30 June 2023: 802).

·       Successful launch of a new Consultant coaching methodology, to enable us to respond better to clients' needs.

·       We secured 29 new clients globally (2023: 26), 18 of which were outside the financial services sector.

·       We maintain a robust balance sheet, with £36.9 million cash at 30 June 2024 (2023: £38.1 million) and no debt.

·       Cash conversion was 104% during the first six months of 2024 (2023: 83%). Adjusted cash conversion² was 103% (2023: 95%).

·       On 30 July 2024, the Board declared an interim dividend of 10.0 pence per ordinary share (2023: 17.0 pence), which will be payable on 1 November 2024 to shareholders on the register on 11 October 2024.

¹  The adjusted operating profit and adjusted profit before tax are calculated before; i) Share Plan expenses of £0.1 million (2023: credit of £3.8 million); and ii) exceptional costs of £2.1 million (2023: £nil) as we better aligned our internal staff and undeployed Consultants with Consultant headcount. The adjusted basic earnings per share is calculated before the impact of; i) Share Plan expenses (including associated deferred tax); and ii) exceptional costs of £2.1 million (2023: £nil).

² Cash conversion is calculated by dividing cash flows generated from operations by operating profit. The adjusted cash conversion is calculated by dividing cash flows generated from operations by operating profit adjusted for Share Plan expenses of £0.1 million (2023: credit of £3.8 million).

³  Week 26 in 2024 commenced on 24 June 2024 (2023: week 26 commenced on 26 June 2023).

⁴  The business uses the metric 'Consultant utilisation' to monitor all deployed Consultants. Utilisation rate is calculated as the ratio of the cost of deployed Consultants to the total Consultant payroll cost.

Rod Flavell, Chief Executive Officer, commented:

"The Group traded in line with the Board's expectations during the first half of the year. The softer trading conditions which we reported in our AGM Trading Statement on 14 May 2024 persist, with clients continuing to defer decisions. 

While we continue to manage the level of unallocated Consultants and our internal cost base in the light of market conditions, we remain committed to maintaining appropriate levels of resource and capacity to meet clients' needs as and when markets improve. 

The mix of tenure of Consultants deployed with clients has changed over recent periods, such that we now have an increased proportion of Consultants remaining with FDM beyond two years. This has delivered a progressive slowing in headcount decline across each of our territories. We anticipate that this trend, taken with sustained levels of encouraging client engagement, should see a more stable backdrop for the Group in the second half of this financial year as we begin to increase the number of recruits to our Skills Labs.

We have a robust balance sheet and experienced Board and management, and are focused on delivering against our objectives, both short and medium term. The Board anticipates that the Group's financial performance for the full year will be in line with its current expectations."

Enquiries

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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 at the time they are made, 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. Subject to any requirement under the Disclosure Guidance and Transparency Rules or other applicable legislation, regulation or rules, the Group does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Neither shareholders nor prospective shareholders should place undue reliance on forward-looking statements, which speak only as of the date of this Interim Report.

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 have helped our clients stay ahead of the latest tech trends and thrive in a rapidly changing world.

Our business model is focused on coaching and deploying passionate, energetic and self-motivated Consultants equipped with skills across five Practices:

·      Software Engineering;

·      Change & Transformation;

·      Data & Analytics;

·      IT Operations; and

·      Risk, Regulation & Compliance ("RRC").

These five core areas of specialism include multiple interconnected sprints within our Skills Labs, building a versatile and adaptable Consultant workforce.

Our purpose

We aim to deliver client-led, sustainable, profitable growth on a consistent basis, through our well-established Consultant model:

·       Identify talented individuals - through our programmes: Graduates, Ex-Forces, Returners and Apprentices.

·       Develop individuals through our Skills Labs - where our Consultants access expertise, up-skilling and re-skilling as part of their continual learning and career development.

·       Grow our client presence profitably - we look to create new opportunities to deploy our Consultants amongst our developing client base and into other markets and territories.

·       Identify and fill our clients' skills gaps - we focus on understanding and anticipating our clients' requirements and market trends, to ensure that we can add value in the areas where our clients need it most, provide opportunities to our Consultants, and deliver sustainable profitable growth for our shareholders.

·       Create a long-term sustainable global business - we aim to have a beneficial impact on the communities in which we operate. We are aware of our responsibility towards our clients, our suppliers, and all of our other stakeholders, whilst working to minimise our impact on the environment.

·       Engage, retain, recognise and energise internal employees - to support, enhance and grow the business to deliver our Consultant model.

Interim Management Review

Overview

Against a background of continued challenging global market conditions, the Group delivered a resilient performance for the first half of 2024, in line with Board expectations. Revenue for the six-month period ending 30 June 2024 was 22% lower (21% lower on a constant currency basis) at £140.2 million (2023: £179.9 million) and we delivered adjusted profit before tax for the first half of £17.7 million, down 32% on the equivalent period in 2023 of £26.0 million.

The number of Consultants placed with clients at week 26 was 3,469, 25% lower than week 26 2023 and 11% lower than week 52 2023. To ensure our available resource is aligned with client demand, levels of experienced Consultant resource, Consultant recruitment and the numbers of Consultants in our Skills Lab (previously known as our Academy) were closely managed during the first half, resulting in a reduction in recruitment and coaching completions in comparison with the period to 30 June 2023 and an increase in the proportion of Consultants remaining with FDM beyond two years.

We continue our focus on managing the Group's cost base. During the first half, the Group incurred exceptional costs of £2.1 million (2023: £nil), as a result of the Group taking measures to align better the number of undeployed Consultants and internal staff with current market dynamics while allowing for the Group to respond to increased demand as and when it returns.

The Group's balance sheet remains robust with cash balances at 30 June 2024 of £36.9 million (30 June 2023: £38.1 million). The Group has no debt.

Strategy

FDM's strategy remains to deliver customer-led, sustainable, profitable growth on a consistent basis through our 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. Our business model has been developed to ensure the successful delivery of our strategy.

(i)         Attract and develop talented Consultants

With challenging market conditions continuing, our levels of Consultant recruitment remain under close scrutiny to ensure that our available resource aligns, as far as practicable, with client demand across our operating locations. A key strength of our business model is that it allows us to flex recruitment and coaching and react quickly 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. We delivered a reduced 466 coaching completions in the first half of the year (2023: 911).

The strength of our University Partner relationships and our Ex-Forces and Returners Programmes will enable us to increase recruitment and training when market conditions and client demand improve. We continued to generate high numbers of applications across all our operating locations with applicants seeking the benefits of FDM's market-leading, flexible coaching. We have an excellent pipeline of assessed candidates, looking to join our Skills Labs as and when we see an uptick in market demand.

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

The first half of the year saw a major change in the delivery of our training, with the launch of the new FDM Practices methodology. This methodology, which is outlined below, enhances our ability to respond to clients' needs as they look for more specific, detailed and nuanced skillsets within each job role.

In conjunction with the implementation of the Practices, we have moved away from the more traditional methods of training to a dynamic, skills-based, experiential model which is central to our new Skills Lab. Consultants are subject to continuous assessment as they complete core and specialised sprints (designed with the knowledge of client requirements) which are led by our highly-skilled coaches within our Pods.

We are confident that the FDM Practices methodology will enable our Consultants to develop into experienced professionals with skills across multiple capabilities, delivering maximum value to our clients as they seek to stay ahead of the latest tech trends.

FDM Practices

(iii)     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 and we secured 29 new clients in the period (2023: 26), of which 14 were in the UK, 5 in North America, 4 in EMEA and 6 in APAC. Of these new clients, 18 were secured from outside the financial services sector (2023: 18 outside the financial services sector).

(iv)      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 the Group. While the move to remote delivery of our Skills Lab coaching allows us to reduce the size and cost of our physical footprint worldwide (at the same time enabling us to reduce our greenhouse gas emissions from the use of physical premises), we retain a strong management and sales presence across all our main operating regions, as we focus on delivering sustainable growth across the Group.

Our Markets

UK

Revenue for the six-month period to 30 June 2024 decreased by 23% to £54.0 million (2023: £69.7 million). Consultants deployed at week 26 were 1,284, a decrease of 26% from 1,743 at week 26 2023 (week 52 2023: 1,411). Adjusted operating profit decreased by 36% to £7.8 million (2023: £12.2 million).

Uncertainty in the market continued into the first half of 2024 and the mix of our Consultant population shifted towards more experienced resource as clients managed reduced budgets which restricted them from both taking on new Consultants and internalising our Consultants as permanent hires. Our experienced Consultants have higher sell rates and this contributed towards the reduction in revenue being less than the reduction in headcount.

During the period we incurred £1.3 million of exceptional costs associated with the measures taken to align better the number of benched Consultants and internal staff with current market dynamics. These additional costs contributed towards operating profit decreasing by more than the reduction in headcount. We also carried a higher than normal number of undeployed Consultants into the period and adjusted our training schedules to reflect this, resulting in fewer coaching completions (2024: 129; 2023: 259).

We gained 14 new clients in the period (2023: 14).

North America

Revenue for the six-month period to 30 June 2024 decreased by 24% to £53.9 million (2023: £70.6 million). Consultants deployed at week 26 were 1,162, a decrease of 26% from 1,563 at week 26 2023 (week 52 2023: 1,322). Adjusted operating profit decreased by 17% to £8.7 million (2023: £10.5 million).

As in the UK, uncertainty in the market continued in 2024 and resulted in reduced demand for new Consultants and our Consultant mix becoming more experienced as clients lacked the budget to internalise the Consultants as their permanent staff. The shift in tenure mix contributed towards the reduction in revenue being less than the reduction in headcount.

During the period we incurred £0.5 million of exceptional costs associated with the measures taken to align better the number of benched Consultants and internal staff with current market dynamics. These measures were taken early in the year and, compared with the prior period, we ran with a lower number of benched Consultants, and reduced the number of Consultants we coached to 133 (2023: 299). The savings in these costs resulted in operating profit decreasing by less than the reduction in headcount.

During the period we gained 5 new clients (2023: 5).

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

Revenue for the six-month period to 30 June 2024 decreased by 10% to £11.0 million (2023: £12.2 million). Consultants deployed at week 26 were 326, a decrease of 9% from 359 at week 26 2023 (week 52 2023: 327). Adjusted operating profit decreased by 85% to £0.2 million (2023: £1.3 million).

EMEA Consultant headcount was somewhat less impacted by market uncertainty than the other regions, with growth in Germany and Ireland offsetting a reduction in headcount in Poland and the Netherlands. During the period we carried a higher than typical number of undeployed Consultants which contributed towards adjusted operating profit decreasing by more than headcount. We incurred £0.1 million of exceptional costs associated with the measures taken to align better the number of benched Consultants and internal staff with current market dynamics.

In the six months, we coached 57 Consultants (2023: 143) and gained 4 new clients (2023: 4).

APAC (Asia Pacific)

Revenue for the six-month period to 30 June 2024 decreased by 22% to £21.3 million (2023: £27.4 million). Consultants deployed at week 26 were 697, a decrease of 26% from 937 at week 26 2023 (week 52 2023: 832). Adjusted operating profit decreased by 53% to £0.7 million (2023: £1.5 million).

Across APAC we experienced similar market conditions to the UK and North America. We adjusted our training schedules to reflect reduced demand and during the period we coached 147 Consultants (2023: 210). We incurred £0.2 million of exceptional costs associated with the measures taken to align better the number of benched Consultants and internal staff with current market dynamics.

We opened 6 new clients in the period (2023: 3).

Financial Review

Summary income statement

Overview

Revenue was 22% lower at £140.2 million (2023: £179.9 million) (21% lower on a constant currency basis²), while adjusted operating profit¹ decreased by 32% to £17.4 million (2023: £25.5 million).

Consultants assigned to clients at week 26 2024 totalled 3,469, a decrease of 25% from 4,602 at week 26 2023 and a decrease of 11% from 3,892 at week 52 2023. Our Returners Programme had 204 deployed at week 26 2024 (week 26 2023: 239; week 52 2023: 219) and our Ex-Forces Programme accounted for 146 Consultants deployed worldwide (week 26 2023: 201; week 52 2023: 163).

The Consultant utilisation rate decreased to 91.5% (2023: 93.4%) due to higher than normal numbers of undeployed Consultants across the period.

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

Administrative expenses decreased to £46.8 million (2023: £54.3 million). Included within administrative expenses are £2.1 million of exceptional costs, as we continued our focus on the management of our cost base. The annualised internal staff cost saving is over £4 million. Adjusted Group operating margin¹ decreased to 12.4% (2023: 14.2%) reflecting the higher proportion of experienced Consultants remaining with FDM beyond two years and the cost of carrying a higher than normal number of undeployed Consultants.

¹  The adjusted operating profit and adjusted profit before tax are calculated before; i) Share Plan expenses of £0.1 million (2023: credit of £3.8 million); and ii) exceptional costs of £2.1 million (2023: £nil) as we better aligned our internal staff and undeployed Consultants with Consultant headcount. The adjusted basic earnings per share is calculated before the impact of; i) Share Plan expenses (including associated deferred tax); and ii) exceptional costs of £2.1 million (2023: £nil).

²  The constant-currency basis is calculated by translating current period and prior period reported amounts into comparable amounts using the 2024 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 26 in 2024 commenced on 24 June 2024 (2023: week 26 commenced on 26 June 2023 and week 52 commenced on 25 December 2023).

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 and cash generation. The adjusted results are stated before; i) share-based payment credit/ expense including associated taxes and social security costs; and ii) exceptional administrative expenses relating to terminating the employment of internal staff and undeployed Consultants.

Share-based payment

The share-based payment charge is 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. An expense of £0.1 million was recognised in the six months to 30 June 2024 relating to the share-based payments including social security costs, all of which was in respect of the Buy As You Earn ('BAYE') Plan (2023: credit of £3.8 million, including expenses of £0.2 million in respect of the BAYE Plan).

The credit recognised in 2023 arose as a result of a change in the adjusted earnings per share performance vesting assumptions with the outstanding awards anticipated to vest at a lower quantum. Details of the share-based payments are set out in note 14 to the Condensed Consolidated Interim Financial Statements.

Exceptional administrative expenses

During the first half, the Group incurred exceptional administrative expenses of £2.1 million (2023: £nil), as a result of the Group taking measures to align better the number of undeployed Consultants and internal staff with current market dynamics while allowing for the Group to respond to increased demand as and when it returns.

Net finance income/ (expense)

Interest on cash balances of £0.8 million (2023: £0.7 million) was recognised as finance income in the period. Finance expense includes lease liability interest of £0.6 million (2023: £0.2 million). The Group continues to have no debt.

Taxation

The Group's total tax charge for the half year was £4.3 million, equivalent to an effective tax rate of 27.5%, on profit before tax of £15.5 million (2023: effective rate of 27.5% based on a tax charge of £8.2 million and a profit before tax of £29.8 million). The effective rate is higher than the underlying UK tax rate of 25% primarily due to Group profits earned in higher tax jurisdictions.

Earnings per share

Basic earnings per share decreased in the period to 10.3 pence (2023: 19.7 pence), while adjusted basic earnings per share was 11.7 pence (2023: 16.8 pence). Diluted earnings per share was 10.3 pence (2023: 19.7 pence).

Dividend

On 30 July 2024, the Directors declared an interim dividend of 10.0 pence per ordinary share (2023: 17.0 pence) which will be payable on 1 November 2024 to shareholders on the register on 11 October 2024.

The Group continues to operate its dividend policy, to retain sufficient capital to fund ongoing operating requirements, while maintaining an appropriate level of dividend cover and sufficient funds to invest in the Group's longer-term growth.

Cash flow and Statement of Financial Position

The Group's cash balance was £36.9 million as at 30 June 2024 (2023: £38.1 million).

Dividends paid in the half year totalled £20.7 million (2023: £20.8 million). Net capital expenditure was £0.1 million (2023: £0.6 million) and tax paid was £3.8 million (2023: £7.1 million).

The Group delivered a robust working capital performance. Cash conversion for the period was 104% (2023: 83%) and adjusted cash conversion was 103% (2023: 95%).

Days sales outstanding at the period end were in line with Group targets, as they were in the prior period.

Related party transactions

Details of related party transactions are included in note 16 of the Condensed Interim Financial Statements.

Principal risks facing the business   

The Group faces a number of risks and uncertainties which could have a material impact upon its 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 2023 on pages 28 to 35.

Economic uncertainty

A combination of factors, including geopolitical stress, continues to contribute to an uncertain macro-economic environment and a dampening of confidence in the global banking and finance sector against a backdrop of lower global growth rates. This uncertainty remains the Group's principal risk.

Uncertain conditions affect the spending decisions of clients, causing them to delay the commencement of projects. This, in turn, slows down the rate at which the Group's Consultants are onboarded, making it more challenging for FDM to balance the supply and demand of resource (which is one of the Group's other principal risks).

While certain scenarios are outside the Group's control, we believe that FDM's business model is flexible, and the agile resource represented by our Consultants can be attractive to clients during times of economic, political and social uncertainty. The Board will continue to review the measures which it has in place to identify and react to changes in macro-economic conditions, and takes appropriate measures to adjust recruitment and coaching to ensure alignment of supply with the demand for Consultants. These mitigations, together with FDM's strong cash and financial position, give the Board confidence that FDM can continue to respond appropriately to ameliorate the effect of any adverse economic conditions which may arise.

Cyber security

The UK government and the UK's National Cyber Security Centre continue to warn that the cyber security threat to the UK's infrastructure and UK companies remains heightened. This risk remains an area of high focus for the Board, and we continue to enhance our cyber security and information safeguarding capabilities.

Climate change and other Environmental, Social and Governance ("ESG") risks

The Board considers that the risk of the direct physical effects of climate change impairing the Group's ability to continue its business activities is low. The Group's operating model is agile and adaptable, and the Board is confident that the Group is able to continue operating effectively if any of its centres become unavailable because of climate-related impacts such as fire or flood.

We are aware that our clients in some sectors could be adversely affected by future climate change and there is a risk that this could affect our business indirectly as clients' spending decisions are constrained by such challenges. We look to mitigate this risk by diversifying the sectors and geographies in which we operate.

FDM remains a constituent of the FTSE4Good Index Series and is a leader in the field of corporate social responsibility and good governance. FDM is a strong advocate of diversity, equity, inclusion and social mobility in the workplace. Further information about our work in this area is contained in our Sustainability Report on pages 36 to 63 of our Annual Report and Accounts for the year ended 31 December 2023.

The Board

In line with the Board's plans announced in our Annual Report for the year ended 31 December 2023, Peter Whiting (Senior Independent Director and Chair of the Remuneration Committee) retired from the Board with effect from 14 May 2024, having served more than nine years since his appointment. On the same date, Jacqueline de Rojas (Non-Executive Director) was appointed as Senior Independent Director, and Rowena Murray (Non-Executive Director) was appointed Chair of the Remuneration Committee.

There have been no other changes to the composition of the Board or its Committees during the period.

Summary and outlook

The Group traded in line with the Board's expectations during the first half of the year. The softer trading conditions which we reported in our AGM Trading Statement on 14 May 2024 persist, with clients continuing to defer decisions. 

While we continue to manage the level of unallocated Consultants and our internal cost base in the light of market conditions, we remain committed to maintaining appropriate levels of resource and capacity to meet clients' needs as and when markets improve. 

The mix of tenure of Consultants deployed with clients has changed over recent periods, such that we now have an increased proportion of Consultants remaining with FDM beyond two years. This has delivered a progressive slowing in headcount decline across each of our territories. We anticipate that this trend, taken with sustained levels of encouraging client engagement, should see a more stable backdrop for the Group in the second half of this financial year as we begin to increase the number of recruits to our Skills Labs.

We have a robust balance sheet and experienced Board and management, and are focused on delivering against our objectives, both short and medium term. The Board anticipates that the Group's financial performance for the full year will be in line with its current expectations. 

                                                                                By order of the Board

Condensed Consolidated Income Statement

for the six months ended 30 June 2024

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2024

Condensed Consolidated Statement of Financial Position

as at 30 June 2024

Condensed Consolidated Statement of Cash Flows

for the six months ended 30 June 2024

Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 June 2024

Condensed Consolidated Statement of Changes in Equity (continued)

for the six months ended 30 June 2023

Condensed Consolidated Statement of Changes in Equity (continued)

for the year ended 31 December 2023