Interim Results

FDM Group PLC 18 September 2007 18 September 2007 FDM Group plc ("FDM", "the Company" or the "Group") INTERIM RESULTS FOR 6 MONTHS ENDED 30 JUNE 2007 The Board of FDM Group plc, (LSE: FDMG), the IT staffing and services business, today announces its interim results for the 6 months ended 30 June 2007. Financial highlights * Revenue increased by 15.7% to £24.44 million (2006: £21.12 million) * Gross profit (net fee income) increased by 29.0% to £5.11 million (2006: £3.96 million) * Profit before tax of £1.83m (2006: £1.26m), an increase of 45.2% * Fully diluted earnings per share of 5.2p (2006: 3.8p) * Interim dividend of 0.8 pence per share (2006: 0.6p), an increase of 33% * Strong improvement in cash collection: cash generated from operations during the period was £4.14 million (2006: cash outflow of £nil) * Net cash position of £5.16 million at 30 June 2007 (30 June 2006: £1.46 million) Operating highlights * Overall gross margins increased to 20.9% (2006: 18.7%) and remain well ahead of industry average * Operating margin continued to increase to 7.1% in H1 2007 from 5.7% in H1 2006 * Internally trained, higher margin employed consultants (known as Mounties) numbered 190 at 30 June 2007 (31 December 2006: 154); Mountie utilisation slightly higher at 98.5% * Contractor headcount increased from 625 at start of year to 653 at 30 June 2007 * City of London training academy has significantly enhanced FDM's ability to recruit and train new Mounties * New clients won during the year include Bunzl, Virgin Money, EasyNet and Barclays Global Investors * Current trading conditions continue to be very favourable, with little impact experienced from volatility in the financial markets. The Board remains confident of the outcome for the current year * Following the period end the Company announced the appointment of David Templeman as Chief Financial Officer Rod Flavell, FDM's Chief Executive, commented: "FDM continues to perform impressively. Market conditions, both commercially and as a result of recent legislation, have shifted further in favour of FDM's business model. Even after recently revising upwards our expectations for the current year, we remain confident of achieving our targets." For further information please contact: FDM Group Plc Noble & Company Limited Pelham PR Tel: 0870 060 3100 Tel: 020 7763 2200 Tel: 020 7743 6679 Rod Flavell, Chief Executive Officer Nick Naylor Archie Berens Julian Divett, Chief Operating Officer Nick Athanas ABOUT FDM FDM is an international IT Group providing IT staffing and IT services to companies for over 20 years. With offices in the UK, USA and Europe, FDM has maintained its leadership in this highly competitive marketplace by investing in a unique, industry-leading IT training programme (FDM Academy). FDM provides IT services across multiple business sectors including: Financial Services; Systems Integrators and Software Houses; Telecommunications and Broadband; Media; and Transport. Clients include over 150 blue-chip organisations such as JP Morgan, Sony, Barclays, Deutsche Bank, EDS, The BBC, The AA, Siemens and T-Mobile. FDM has established solid partnerships with IT industry authorities such as IBM, Oracle, Sybase, Sun and Microsoft, enabling the Group to offer services in leading-edge technical environments. Like a number of other organisations in this sector, FDM supplies freelance IT contractors to clients. However, FDM (through the FDM Academy) also trains, certifies and places its own employed consultants (known as Mounties). This sets FDM apart from the majority of its competitors in the IT staffing market, who rely on a shared agency database of IT contractors. OPERATING STRUCTURE FDM supplies its services to clients through two business units: IT Staffing - delivering our clients with freelance contractors, IT Staffing can source the right candidate for the job. With our extensive database of freelance consultants and our ability to technically assess candidates, we continue to support new and existing clients with the quality delivery of IT personnel. Global Services - this division offers our clients training, testing, teaming, project management and helpdesk management. With exclusive access to our Mounties, the Global Services Division ensures a productive solution based on the stability of IT resource throughout the duration of the project. FDM ACADEMY FDM's award-winning Academy runs a unique fast track training programme designed to provide the programmers of today and tomorrow. The Academy offers a hi-tech apprenticeship scheme for programmers in Sun Microsystems' Java and Microsoft's C# and .Net. With recently introduced finance and testing streams, FDM Academy is well placed for the future. Over 1,000 IT professionals have now graduated from the Academy. Historically, FDM Academy has been based in Brighton but on 29th January 2007 FDM opened its City of London training academy to access a wider pool of potential Mounties. FDM Group plc ("FDM" or the "Group") Interim results for the 6 months ended 30 June 2007 Chairman's and Chief Executive's Statement Introduction We are very pleased to report that the first half of 2007 has seen FDM enjoy its most successful period of trading to date as a public company. The strength of performance has been such that, immediately following the end of the six months ended 30 June 2007, we announced that we expected that our full year performance to be materially ahead of previous expectations. Since making that statement, we remain on track to meet this objective, with today's results underlining our confidence. Results Revenue for the six months ended 30 June 2007 was £24.44 million, a 15.7% increase over the equivalent period in 2006 (£21.12 million). Gross profit (net fee income) rose 29.0% to £5.11 million (H1 2006: £3.96 million). Operating profit increased by 44.6% to £1.75 million compared to £1.21 million in H1 2006. Our conversion ratio (EBITA as a percentage of gross profit), a key indicator of productivity, increased to 34.2% (H1 2006: 30.6%) and remains at the top of the industry. Pre-tax profit was £1.83 million (H1 2006: £1.26 million). Diluted earnings per share was 5.2p (H1 2006: 3.8p per share). An especially pleasing feature of the Company's performance during the period was the marked improvement in cash collection, with trade debtor days dropping from 81 to 64 days. Consequently, cash received from operations was £4.14 million (H1 2006: nil cash outflow), leading to a cash position of £5.16 million as at 30 June 2007 (30 June 2006: £1.46 million). This is the first financial statement shown under IFRS (International Financial Reporting Standards) having previously been shown under UK generally accepted accounting principals (UK GAAP). The results for comparative periods have been restated from UK GAAP to IFRS. There has been no material impact on the results from the transition, details of which are given on pages 7 to 16. Dividend The Board is raising the level of the interim dividend to 0.8p per share (H1 2006: 0.6p per share) an increase of 33%. The interim dividend will be paid on 19th October 2007 to shareholders on the register as at 28th September 2007. Our ability to increase the level of dividend once again is in line with our stated progressive dividend policy and reflects FDM's continued strong trading performance. Review of Operations FDM operates through 2 divisions: IT Staffing and Global Services. These divisions are supported by the FDM Academy, our industry-leading IT training programme. Investors will note from the results reported above that earnings have grown at a higher rate than sales. This is entirely consistent with our strategy of focusing on higher margin business. We can report that a significant proportion of the Group's net fee income earned in the period was at margins in excess of the industry average, proof that we are being successful in putting our strategy into practice. Moreover, this proportion has been steadily growing and we expect this trend to continue. A contributory factor has been the steady growth in the number of Mounties on billing, with utilisation rates at 98.5%, slightly higher than in the previous period. We also conduct regular internal reviews of all work taken on, with a view to reducing the proportion of lower margin work taken on by the Group. Notwithstanding the Group's focus on margin improvement, we are also aware of the need to drive sales. Accordingly, our sales team has been strengthened and this has been reflected in the steady stream of new customers won, as described below. IT Staffing Our IT Staffing Division operates both in the UK and overseas to provide IT contractors to clients across a broad range of sectors. These freelance IT contractors are placed quickly and effectively to help support clients' IT requirements. In the UK, the IT Staffing Division saw sales increase by 8.7% (from £16m in the 1st half of 2006 to £17.4m in 1st half of 2007) with 393 contractors on billing at 30 June 2007 (2006: 284) and 139 Mounties (2006: 93). The IT Staffing Division has also increased its client base, and has taken on over 48 new clients in the first half, including EasyNet, Barclays Private Bank and Bunzl. In mainland Europe, we continued to invest in the Sales and Mounties teams and have seen headcount growth of 5.8% to 90 on billing at 30 June 2007 (2006: 85). At 30 June 2007 we had 57 contractors and 33 Mounties deployed with clients across Europe. Global Services The Global Services Division provides managed services to customers, taking responsibility for IT and business process training, project management, application development and support, testing and quality assurance. In the 1st half of 2007, Global Services produced £7.0 million of revenue (2006: £5.0m), an increase of 29%; net fee income rose 53% to £2.9 million (2006: £1.9m). The Global Services Division has won a number of other new blue chip clients during the period, including Hamptons, Threadneedle Asset Management and UBS Bank.. FDM Academy FDM's long term goal is to continue to outperform industry operating margins. In order to do so, it is vital that we increase the number of internally trained Mounties, who can be supplied to clients at significantly higher margins than freelance contractors. During the period, FDM made excellent progress in growing its capacity to take on new Mounties. A new City of London Training Academy was opened at the start of the year, enabling us to recruit 53 new Mounties in the period, compared to 30 during H1 2006. We also introduced a new incentive package, designed to encourage Mounties who complete their two years of employment with FDM to remain with the Company. This, coupled with the introduction of a Fast Track Training Programme launched to progress exceptional students through the training, has seen the number of applicants for training positions at the FDM Academy increase by over 38% during the first half of 2007. Finally, FDM's training programme has achieved recognition from the prestigious Leonardo da Vinci scheme. This is a European initiative which funds students and graduates who wish to travel to other European countries to receive training in their chosen career. This will enable European trainees to attend FDM's academies in the UK, thus increasing the throughput of Mounties and providing multilingual skilled resources to European clients. Management As announced on 13 August 2007, we are delighted to have appointed David Templeman as Chief Financial Officer. David's qualifications and experience are outstanding both in finance and in the IT industry, and we are sure that he will prove to be an excellent addition to the Board when he joins on 12th November 2007. Strategy FDM intends to continue with its strategy of improving the quality and visibility of its earnings by increasing the number of internally trained Mounties as a proportion of total headcount. Our two divisions are now structured in such a way as to facilitate a greater number of Mounties to be placed on site with clients more quickly. This is reflected by consistently high utilisation rates. We also intend to examine in more detail possible acquisitions to supplement our organic growth. Any acquisition would need to complement FDM in terms of approach, culture and commercial offering. It is possible that we may increase our overseas presence through the acquisition of a suitable business. With the company generating increasing amounts of cash, our ability to finance any transaction has been considerably enhanced. Outlook Market conditions in the IT sector continue to be favourable, as we have consistently reported since the start of the year, and show no signs of abating. In Continental Europe, we believe that the IT industry is entering a new stage of development, creating even stronger demand for our services. Our order book remains strong across all the territories in which we operate and provides a high level of visibility through to the end of the year and into 2008. We can also report that we have not experienced any impact from the recent volatility in the financial markets. Businesses across all sectors increasingly realise that complex systems subject to day-to-day change need to be kept under closer control. This means they are more reluctant to entrust the management of such systems to third parties operating offshore. Instead, they prefer to employ the skills of home grown contractors who have a greater commercial understanding and cultural awareness of their business. In addition, Her Majesties Revenue and Customs (HMRC) have recently changed the tax treatment of personal service companies, as well as making third parties liable for such companies in default of their tax payments. These changes have further strengthened the case for customers to adopt the FDM Mountie model. Against this backdrop, the Board remains confident of the outcome for the current year. Longer term growth prospects are equally encouraging and the Board looks forward to continuing with its plans for enhancing shareholder value. Ivan Martin Rod Flavell Chairman Chief Executive 18 September 2007 18 September 2007 FDM Group plc Interim results for the 6 months ended 30 June 2007 Consolidated Income Statement (unaudited) Unaudited Unaudited Unaudited Six Months ended Six Months ended Year ended 30 June 2007 30 June 2006 31 December 2006 Note £'000 £'000 £'000 Revenue 2 24,437 21,119 44,504 Cost of Sales (19,329) (17,161) (35,906) Gross Profit 5,108 3,958 8,598 Other Operating Income - - 43 Administrative Expenses (3,361) (2,746) (5,943) Operating profit before financing costs 1,747 1,212 2,698 Financial Income 86 51 100 Financial Expenses (8) (5) (19) Net financing income 78 46 81 Profit Before Tax 2 1,825 1,258 2,779 Income Tax expense (613) (371) (689) Profit for the period attributable to 1,212 887 2,090 equity holders of the parent company Earnings per Share (pence) 4 Basic 5.3p 3.9p 9.1p Diluted 5.2p 3.8p 9.0p All results are from continuing operations. Consolidated Statement of Recognised Income & Expenditure (unaudited) Unaudited Unaudited Unaudited Six Months ended Six Months ended Year ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 Foreign exchange translation differences (5) (8) (49) Deferred tax on share based payments 91 2 33 Income and expense recognised directly in 86 (6) (16) equity Profit for the Period 1,212 887 2,090 Total recognised income and expense for the 1,298 881 2,074 period attributable to equity holders of the parent company FDM Group plc Interim results for the 6 months ended 30 June 2007 Unaudited Unaudited Unaudited As at As at Year ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 Assets Property, Plant and Equipment 316 191 186 Intangible Assets 32 14 16 Deferred Tax Assets 184 89 117 Total Non-Current Assets 532 294 319 Trade and other receivables 8,985 9,646 10,080 Income Tax Receivable 34 - - Cash and Cash Equivalents 5,156 1,555 2,002 Total Current Assets 14,175 11,201 12,082 Total Assets 14,707 11,495 12,401 Equity Share Capital 232 232 232 Share Premium 3,332 3,332 3,332 Capital Redemption Reserve 63 63 63 Currency Translation Reserve (54) (8) (49) Retained Earnings 5,297 3,077 4,248 Total Equity 8,870 6,696 7,826 Current Liabilities Bank Overdraft - 97 27 Trade and other payables 5,233 4,199 4,107 Income Tax Payable 604 503 441 Total Current Liabilities 5,837 4,799 4,575 Total Equity and Liabilities 14,707 11,495 12,401 FDM Group plc Interim results for the 6 months ended 30 June 2007 Consolidated Cash Flow Statement (unaudited) Unaudited Unaudited Unaudited Six Months Six Months Year ended ended ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 Cash flows from operating activities Profit for the period 1,212 887 2,090 Adjustments for: Depreciation 94 48 104 Net financing income (78) (46) (81) Equity-settled share based payment expenses 69 69 137 Income tax expense 613 371 689 Operating profit before changes in working capital and 1,910 1,329 2,939 provisions Decrease /(Increase) in trade and other receivables 1,101 (2,007) (2,525) Increase in trade and other payables 1,133 673 610 Cash generated from operations 4,144 (5) 1,024 Interest paid (6) (5) (19) Income taxes paid (476) (476) (824) Net Cash from operating activities 3,662 (486) 181 Cash flows from investing activities Interest received 84 51 100 Acquisition of non-current assets (240) (49) (102) Net cash from investing activities (156) 2 (2) Cash flows from financing activities Purchase of treasury shares (22) (176) (170) Dividends paid (299) (231) (368) Net cash from financing activities (321) (407) (538) Net increase in cash and cash equivalents 3,185 (891) (359) Cash and Cash equivalents at beginning of period 1,975 2342 2,342 Effect of exchange rate fluctuations on cash held (4) 7 (8) Cash and Cash equivalents at end of period 5,156 1,458 1,975 FDM Group plc Interim results for the 6 months ended 30 June 2007 Notes to unaudited interim consolidated financial statements 1. Accounting Policies 1.1 Basis of Preparation The financial information contained herein does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The AiM listing rules require the Group's financial statements for the year ending 31 December 2007 to be prepared under International Financial Reporting Standards (IFRS). As the results presented in these consolidated interim statements will form part of the results for that year, these interim statements are accordingly presented under IFRS, and the accounting policies applied differ in some respects to the policies used for the last audited financial statements for the year ended 31 December 2006 which were presented under UK Generally Accepted Accounting Principles (UK GAAP). The Group is not required to apply IAS 34 Interim Financial Reporting at this time. The results for the comparative periods have been restated under IFRS in accordance with the requirements of IFRS 1. The comparative figures for the financial year ended 31 December 2006 are not the Group's statutory accounts for that financial year. Those accounts, which were prepared under UK GAAP, 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 matters 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. An explanation of how IFRSs has affected the reported financial position, financial performance and cash flows of the Group is shown in note 5; this note includes the reconciliation of equity and profit or loss for comparative periods under UK GAAP to those reported for those periods under IFRSs. The accounting policies applied which have resulted in those changes are those set out in paragraphs 1.3 and 1.4 below. 1.2 Consolidation Subsidiaries are entities controlled by the company. Control exists when the company has power to govern both financially and operationally the activities of the subsidiary in order to benefit from the activities. The financial statements of the subsidiaries are included in the consolidated interim financial statements from the date that control commences until the date control ceases. 1.3 Foreign currency translation a) Functional and presentation currency The financial statements are presented in Great British Pounds which are rounded to the nearest thousand. b) Transactions and balances Intragroup balances and unrealised gains or losses are eliminated in preparing the consolidated financial statements and any gain or losses arising from the translation are recognised in the income statement. c) Group subsidiaries The results and financial position of all Group subsidiaries that have a functional currency that differs from the Groups presentation currency are translated into the presentation currency as follows: Assets and Liabilities for each balance sheet are translated at the closing rate at the date of balance sheet Income and Expenses for each income statement are translated at the average exchange rate for the period; and All resulting exchange differences are recognised as a separate component of equity in accordance with IAS21 - the effects of foreign exchange rates. 1.4 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 and is 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. 2 Segmental Information Un-audited Un-audited Un-audited Six Months ended Six Months ended Year ended 30 June 2007 30 June 2006 31 December 2006 Revenues UK 20,706 17,181 37,177 Europe 2,822 2,735 5,040 America 909 1,203 2,287 24,437 21,119 44,504 Operating Profit UK 1,555 1,043 2,390 Europe 137 114 227 America 56 55 81 1,747 1,212 2,698 3 Dividends The Directors recommend an interim dividend of 0.8p per share (June 2006: 0.6p) to be paid on 19th October 2007 to shareholders on the register at 28th September 2007. 4 Earnings per Share The calculation of basic earnings per share is based on profit after tax. Earnings per share have been calculated using the weighted average number of shares in issue during the period 22,953,289 (June 06: 22,966,181). The diluted earnings per share is based on 23,490,494 (June 2006: 23,280,241) and reflects the potential exercise of share options granted. 5 Explanation of transition to IFRSs As set out in note 1, the Group is required under the AiM listing rules to present its results under IFRS for the year ending 31 December 2007. The impact of this change is set out below: a) The Group has derived deferred tax from the differences arising from the carrying amount of its assets and liability and its tax base, the deferred tax which was previously shown within current assets is now shown as a non-current asset in accordance with IAS12 - Income taxes. -The main change resulting related to share based payments where the Group has recognised an expense for the consideration of share options granted to employees. A tax deduction will not arise until the options are exercised. Therefore the Group has recognised a deferred tax asset in respect of the options outstanding at the end of the period. b) Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of transaction. All assets and liabilities denominated in foreign currency are translated into Great British Pounds at the foreign exchange rate ruling at that date. The assets and liabilities of foreign subsidiaries have been translated to Great British Pounds at the foreign exchange rate ruling at the balance sheet date. Foreign exchange differences arising on retranslation are now recognised directly in a separate component of equity. Any differences that have arisen before the 1 January 2006, the date of transition to IFRS are presented within retained profits as defined in IAS21 - The effects of changes in foreign exchange rates. Movement on financial statements on the transition to IFRS from UK GAAP Reconciliation of Equity Unaudited In thousands £000 Six Months ended Year ended 30 June 2006 31 December 2006 Effect of Audited Effect of Unaudited Transition Transition Note Previous IAS21 IAS12 IFRS Previous IAS21 IAS12 IFRS GAAP GAAP Assets Tangible Assets 191 - - 191 186 - - 186 Intangible Assets 14 - - 14 16 - - 16 Deferred Tax Assets a - - 89 89 - - 117 117 Total Non-Current Assets 205 - 89 294 202 - 117 319 Debtors a 9,693 - (47) 9,646 10,110 - (30) 10,080 Income Tax Receivable - - - 0 - - - 0 Cash at Bank and in hand 1,555 - - 1,555 2,002 - - 2,002 Total Current Assets 11,248 - (47) 11,201 12,112 - (30) 12,082 Total Assets 11,453 - 42 11,495 12,314 - 87 12,401 Equity Share Capital 232 - - 232 232 - - 232 Share Premium 3,332 - - 3,332 3,332 - - 3,332 Capital Redemption 63 - - 63 63 - - 63 Reserve Currency Translation b - (8) - (8) - (49) - (49) Reserve Retained Earnings a + b 3,027 8 42 3,077 4,112 49 87 4,248 Total Equity 6,654 42 6,696 7,739 87 7,826 Liabilities Bank Overdraft 97 - - 97 27 - - 27 Income Tax Payable 503 - - 503 441 - - 441 Trade and other payables 4,199 - - 4,199 4,107 - - 4,107 Total Current 4,799 - - 4,799 4,575 - - 4,575 Liabilities Total Equity and 11,453 - 42 11,495 12,314 - 87 12,401 Liabilities Income Statement Unaudited Six Months ended Year ended 30 June 2006 31 December 2006 Effect of Audited Effect of Unaudited Transition Transition Note Previous IAS21 IAS12 IFRS Previous IAS21 IAS12 IFRS GAAP GAAP Revenue from continuing 21,119 - - 21,119 44,504 - - 44,504 operations Cost of Sales (17,161) - - (17,161) (35,906) - - (35,906) Gross Profit 3,958 - - 3,958 8,598 - - 8,598 Other Operating Income - - - - 43 - - 43 Administrative (2,746) - - (2,746) (5,943) - - (5,943) Expenses Operating profit 1,212 - - 1,212 2,698 - - 2,698 before financing costs Financial Income 51 - - 51 100 - - 100 Financial Expenses (5) - - (5) (19) - - (19) Net financing income 46 - - 46 81 - - 81 Profit Before Tax 1,258 - - 1,258 2,779 - - 2,779 Income Tax expense a (411) - 40 (371) (743) - 54 (689) Profit for the period 847 - 40 887 2,036 - 54 2,090 Earnings per Share (pence) Basic 3.7p - 0.2 3.9p 8.9p - 0.2p 9.1p Diluted 3.6p - 0.2 3.8p 8.7p - 0.3p 9.0p 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. 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