Annual / Quarterly Financial Statement • Mar 8, 2017
Annual / Quarterly Financial Statement
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RNS Number : 8051Y
FDM Group (Holdings) plc
08 March 2017
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
| 31 December 2016 | 31 December 2015 | % change | |
| Revenue | £189.4m | £160.7m | +18% |
| Mountie revenue | £167.3m | £119.4m | +40% |
| Adjusted operating profit1 | £37.6m | £30.2m | +25% |
| Profit before tax | £35.3m | £29.4m | +20% |
| Adjusted profit before tax1 | £37.5m | £30.1m | +25% |
| Basic earnings per share | 24.4p | 20.5p | +19% |
| Adjusted basic earnings per share1 | 25.8p | 21.0p | +23% |
| Net cash position at year end | £27.8m | £22.4m | +24% |
| Cash flow generated from operations | £39.4m | £36.5m | +8% |
| Adjusted cash conversion1 | 104.9% | 121.3% | -14% |
| Ordinary dividend per share | 19.6p | 16.5p | +19% |
· 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
For further information:
| FDM | Rod Flavell - CEO Mike McLaren - CFO |
020 7067 0000 (today) 0203 056 8240 (thereafter) |
| Weber Shandwick | Nick Oborne/ Tom Jenkins | 020 7067 0000 |
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 6th 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%.
| 2016 Mountie revenue £m |
2015 Mountie revenue £m |
2016 Mountie numbers at week 52 |
2015 Mountie numbers at week 52 |
|
| UK and Ireland | 93.9 | 74.6 | 1,505 | 1,264 |
| North America | 54.2 | 31.0 | 832 | 520 |
| EMEA | 12.0 | 10.2 | 135 | 133 |
| APAC | 7.2 | 3.6 | 233 | 105 |
| 167.3 | 119.4 | 2,705 | 2,022 |
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
| Note | 2016 | 2015 | ||
| £000 | £000 | |||
| Revenue | 4 | 189,403 | 160,656 | |
| Cost of sales | (103,291) | (97,207) | ||
| Gross profit | 86,112 | 63,449 | ||
| Administrative expenses | (50,691) | (33,932) | ||
| Operating profit | 5 | 35,421 | 29,517 | |
| Finance income | 6 | 28 | 16 | |
| Finance expense | 6 | (128) | (168) | |
| Net finance expense | (100) | (152) | ||
| Profit before income tax | 35,321 | 29,365 | ||
| Taxation | 7 | (9,139) | (7,344) | |
| Profit for the year | 26,182 | 22,021 | ||
Earnings per ordinary share
| 2016 | 2015 | |||
| pence | pence | |||
| Basic | 8 | 24.4 | 20.5 | |
| Diluted | 8 | 24.2 | 20.5 | |
The results for the year shown above arise from continuing operations.
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2016
| 2016 | 2015 | |||||
| £000 | £000 | |||||
| Profit for the year | 26,182 | 22,021 | ||||
| Other comprehensive income | ||||||
| Items that may be subsequently reclassified to profit or loss | ||||||
| Exchange differences on retranslation of foreign operations (net of tax) | 1,388 | (67) | ||||
| Total other comprehensive income/ (expense) | 1,388 | (67) | ||||
| Total comprehensive income for the year | 27,570 | 21,954 | ||||
Consolidated Statement of Financial Position
| as at 31 December 2016 | ||||||
| 2016 | 2015 | |||||
| Note | £000 | £000 | ||||
| Non-current assets | ||||||
| Property, plant and equipment | 5,011 | 4,264 | ||||
| Intangible assets | 19,533 | 19,550 | ||||
| Deferred income tax assets | 772 | 173 | ||||
| 25,316 | 23,987 | |||||
| Current assets | ||||||
| Trade and other receivables | 29,164 | 24,593 | ||||
| Cash and cash equivalents | 27,844 | 22,360 | ||||
| 57,008 | 46,953 | |||||
| Total assets | 82,324 | 70,940 | ||||
| Non-current liabilities | ||||||
| Deferred income tax liabilities | - | 282 | ||||
| - | 282 | |||||
| Current liabilities | ||||||
| Trade and other payables | 24,628 | 19,168 | ||||
| Current income tax liabilities | 4,358 | 3,089 | ||||
| 28,986 | 22,257 | |||||
| Total liabilities | 28,986 | 22,539 | ||||
| Net assets | 53,338 | 48,401 | ||||
| Equity attributable to owners of the parent | ||||||
| Share capital | 9 | 1,075 | 1,075 | |||
| Share premium | 7,873 | 7,873 | ||||
| Capital redemption reserve | 52 | 52 | ||||
| Translation reserve | 1,464 | 76 | ||||
| Other reserves | 2,470 | 589 | ||||
| Retained earnings | 40,404 | 38,736 | ||||
| Total equity | 53,338 | 48,401 | ||||
Consolidated Statement of Cash Flows
for the year ended 31 December 2016
| Note | 2016 | 2015 | |||||
| £000 | £000 | ||||||
| Cash flows from operating activities | |||||||
| Group profit before tax for the year | 35,321 | 29,365 | |||||
| Adjustments for: | |||||||
| Depreciation and amortisation | 1,180 | 753 | |||||
| Finance income | 6 | (28) | (16) | ||||
| Finance expense | 6 | 128 | 168 | ||||
| Share-based payment charge (including associated social security costs) | 2,217 | 710 | |||||
| (Increase)/ decrease in trade and other receivables | (4,571) | 479 | |||||
| Increase in trade and other payables | 5,126 | 5,027 | |||||
| Cash flows generated from operations | 39,373 | 36,486 | |||||
| Interest received | 28 | 16 | |||||
| Income tax paid | (8,751) | (6,920) | |||||
| Net cash generated from operating activities | 30,650 | 29,582 | |||||
| Cash flows from investing activities | |||||||
| Acquisition of property, plant and equipment | (1,735) | (2,437) | |||||
| Acquisition of intangible assets | (60) | (172) | |||||
| Net cash used in investing activities | (1,795) | (2,609) | |||||
| Cash flows from financing activities | |||||||
| Finance costs paid | (128) | (161) | |||||
| Dividends paid | 10 | (24,514) | (16,665) | ||||
| Net cash used in financing activities | (24,642) | (16,826) | |||||
| Exchange gains/ (losses) on cash and cash equivalents | 1,271 | (74) | |||||
| Net increase in cash and cash equivalents | 5,484 | 10,073 | |||||
| Cash and cash equivalents at beginning of year | 22,360 | 12,287 | |||||
| Cash and cash equivalents at end of year | 27,844 | 22,360 | |||||
Consolidated Statement of Changes in Equity
for the year ended 31 December 2016
| Share capital |
Share premium |
Capital redemption reserve | Translation reserve |
Other reserves | Retained earnings |
Total equity |
||||||
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | ||||||
| Balance at 1 January 2016 | 1,075 | 7,873 | 52 | 76 | 589 | 38,736 | 48,401 | |||||
| Profit for the year | - | - | - | - | - | 26,182 | 26,182 | |||||
| Other comprehensive income for the year |
- | - | - | 1,388 | - | - | 1,388 | |||||
| Total comprehensive income for the year | - | - | - | 1,388 | - | 26,182 | 27,570 | |||||
| Share-based payments | - | - | - | - | 1,881 | - | 1,881 | |||||
| Dividends (note 10) | - | - | - | - | - | (24,514) | (24,514) | |||||
| Total transactions with owners, recognised directly in equity | - | - | - | - | 1,881 | (24,514) | (22,633) | |||||
| Balance at 31 December 2016 | 1,075 | 7,873 | 52 | 1,464 | 2,470 | 40,404 | 53,338 | |||||
| Share capital |
Share premium |
Capital redemption reserve | Translation reserve |
Other reserves | Retained earnings |
Total equity |
||||||
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | ||||||
| Balance at 1 January 2015 | 1,127 | 8,364 | - | 143 | - | 32,889 | 42,523 | |||||
| Profit for the year | - | - | - | - | - | 22,021 | 22,021 | |||||
| Other comprehensive expense for the year | - | - | - | (67) | - | - | (67) | |||||
| Total comprehensive (expense)/ income for the year | - | - | - | (67) | - | 22,021 | 21,954 | |||||
| Share-based payments) | - | - | - | - | 589 | - | 589 | |||||
| Closure of Employee Benefit Trust | - | (491) | - | - | - | 491 | - | |||||
| Purchase of deferred shares (note 9) |
(52) | - | 52 | - | - | - | - | |||||
| Dividends (note 10) | - | - | - | - | - | (16,665) | (16,665) | |||||
| Total transactions with owners, recognised directly in equity | (52) | (491) | 52 | (67) | 589 | (16,174) | (16,076) | |||||
| Balance at 31 December 2015 | 1,075 | 7,873 | 52 | 76 | 589 | 38,736 | 48,401 | |||||
Notes to the Consolidated Financial Statements
The Company is a public limited company incorporated and domiciled in the UK with a Premium Listing on the London Stock Exchange. The Company's registered office is 3rd Floor, Cottons Centre, Cottons Lane, London, SE1 2QG and its registered number is 07078823.
The financial information set out in this preliminary announcement does not constitute statutory accounts for the years ended 31 December 2016 and 31 December 2015, for the purpose of the Companies Act 2006, but is derived from those accounts. The audited statutory accounts for 2015 have been delivered to the Registrar of Companies and those for 2016 were approved for issue on 7 March 2017. The Group's auditor reported on the Annual Report and Accounts for the year ended 31 December 2016 on 7 March 2017. Their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.
Whilst the financial information included in this preliminary announcement has been prepared in accordance with the International Financial Reporting Standards (IFRSs) as adopted for the use in the European Union and as issued by the International Accounting Standards Board, this announcement does not itself contain sufficient information to comply with IFRS. The accounting policies applied in preparing this financial information are consistent with the Group's financial statements for the year ended 31 December 2015 with the exception of the following amendments which were effective during the year and were adopted by the Group in preparing the financial statements. The adoption of these amendments has not had a material impact on the Group's financial statements in the year:
| · Amendments to IAS 1, 'Presentation of financial statements' disclosure initiative (effective 1 January 2016) |
| · Amendment to IAS 16, 'Property, plant and equipment' and IAS 38, 'Intangible assets', on depreciation and amortisation (effective 1 January 2016) |
3 Going concern
The Group's continued and forecast global growth, positive operating cash flow and liquidity position, together with its distinctive business model and infrastructure, enables the Group to manage its business risks. The Group's forecasts and projections show that it will continue to operate with adequate cash resources and within the current working capital facilities. The Group passed all bank covenants tested in the year and forecasts that all covenants will be passed for a period of at least twelve months from the date of signing this annual report.
The Directors therefore have a reasonable expectation that the Company and the Group will have adequate resources to continue in operational existence for the foreseeable future. Accordingly the Directors continue to adopt the going concern basis for preparing the financial statements.
Management has determined the operating segments based on the operating reports reviewed by the Board of Directors that are used to assess both performance and strategic decisions. Management has identified that the Executive Directors are the chief operating decision maker in accordance with the requirements of IFRS 8 'Operating segments'.
At 31 December 2016, the Board of Directors consider that the Group is organised on a worldwide basis into four core geographical operating segments:
(1) UK and Ireland;
(2) North America;
(3) Rest of Europe, Middle East and Africa, excluding UK and Ireland ("EMEA"); and
(4) Asia Pacific ("APAC").
Each geographical segment is engaged in providing services within a particular economic environment and is subject to risks and returns that are different from those of segments operating in other economic environments.
All segment revenue, profit before taxation, assets and liabilities are attributable to the principal activity of the Group, being a global professional services provider with a focus on IT.
| For the year ended 31 December 2016 | UK and | North | |||
| Ireland | America | EMEA | APAC | Total | |
| £000 | £000 | £000 | £000 | £000 | |
| Revenue | 112,912 | 56,782 | 12,082 | 7,627 | 189,403 |
| Depreciation and amortisation | (762) | (334) | (18) | (66) | (1,180) |
| Segment operating profit/ (loss) | 26,058 | 8,909 | 1,199 | (745) | 35,421 |
| Finance income | 20 | - | 7 | 1 | 28 |
| Finance costs | (106) | (4) | (14) | (4) | (128) |
| Profit/ (loss) before income tax | 25,972 | 8,905 | 1,192 | (748) | 35,321 |
| Total assets | 60,379 | 14,600 | 4,974 | 2,853 | 82,806 |
| Total liabilities | (17,938) | (7,021) | (1,862) | (2,647) | (29,468) |
Included in total assets above are non-current assets (excluding deferred tax) as follows:
| UK and | North | ||||
| Ireland | America | EMEA | APAC | Total | |
| £000 | £000 | £000 | £000 | £000 | |
| 31 December 2016 | 22,755 | 1,551 | 26 | 212 | 24,544 |
For the year ended 31 December 2015
| UK and | North | ||||
| Ireland | America | EMEA | APAC | Total | |
| £000 | £000 | £000 | £000 | £000 | |
| Revenue | 110,011 | 36,154 | 10,672 | 3,819 | 160,656 |
| Depreciation and amortisation | (559) | (176) | (15) | (3) | (753) |
| Segment operating profit | 22,370 | 5,892 | 909 | 346 | 29,517 |
| Finance income | 14 | - | 2 | - | 16 |
| Finance costs | (152) | (4) | (9) | (3) | (168) |
| Profit before income tax | 22,232 | 5,888 | 902 | 343 | 29,365 |
| Total assets | 57,127 | 8,652 | 3,601 | 1,560 | 70,940 |
| Total liabilities | (15,861) | (4,258) | (1,600) | (820) | (22,539) |
Included in total assets above are non-current assets (excluding deferred tax) as follows:
| UK and | North | ||||
| Ireland | America | EMEA | APAC | Total | |
| £000 | £000 | £000 | £000 | £000 | |
| 31 December 2015 | 23,258 | 524 | 22 | 10 | 23,814 |
Information about major customers
Two customers each represent 10% or more of the Group's revenues from all four operating segments and are presented as follows:
| 2016 | 2015 | ||
| £000 | £000 | ||
| Revenue from customer A | 26,126 | 12,196 | |
| Revenue from customer B | 19,647 | 44,714 | |
Operating profit for the year has been arrived at after charging/ (crediting):
| 2016 | 2015 | |
| £000 | £000 | |
| Hire of property - operating leases | 3,515 | 2,627 |
| Net foreign exchange differences | 3 | (69) |
| Depreciation and amortisation | 1,180 | 753 |
| 2016 | 2015 | |||
| £000 | £000 | |||
| Bank interest | 28 | 16 | ||
| Finance income | 28 | 16 | ||
| 2016 | 2015 | |||
| £000 | £000 | |||
| Interest payable on working capital facility | - | (11) | ||
| Non utilisation fees on revolving credit facility | (80) | (109) | ||
| Finance fees and charges | (48) | (48) | ||
| Finance expense | (128) | (168) | ||
The major components of income tax expense for the years ended 31 December 2016 and 2015 are:
| 2016 | 2015 | ||
| £000 | £000 | ||
| Current income tax: | |||
| Current income tax charge | 9,956 | 7,494 | |
| Adjustments in respect of prior periods | 64 | - | |
| Total current tax | 10,020 | 7,494 | |
| Deferred tax: | |||
| Relating to origination and reversal of temporary differences | (881) | (150) | |
| Total Deferred tax | (881) | (150) | |
| Total tax expense reported in the income statement | 9,139 | 7,344 | |
The standard rate of corporation tax in the UK in 2016 was 20%. The rate changed from 21% to 20% with effect from 1 April 2015. Accordingly, the profits for the respective accounting periods are taxed at an effective rate of 20% (2015: 20.25%). The tax charge for the year is higher (2015: higher) than the standard rate of corporation tax in the UK. The differences are set out below:
| 2016 | 2015 | ||
| £000 | £000 | ||
| Profit before income tax | 35,321 | 29,365 | |
| Profit multiplied by UK standard rate of corporation tax of 20% (2015: 20.25%) | 7,064 | 5,946 | |
| Effect of different tax rates on overseas earnings | 1,893 | 1,283 | |
| Expenses not deductible for tax purposes | 118 | 115 | |
| Adjustments in respect of prior periods | 64 | - | |
| Total tax charge | 9,139 | 7,344 | |
Factors affecting future tax charges
Deferred tax assets and liabilities are measured at the rate that is expected to apply to the period when the asset is realised or the liability is settled, based on the rates that have been enacted or substantively enacted at the reporting date. Therefore, at each year end, deferred tax assets and liabilities have been calculated based on the rates that have been substantively enacted by the reporting date.
In 2015 the UK government announced legislation setting out that the main UK corporation tax rate will be 19% with effect from 1 April 2017, and 17% with effect from 1 April 2020. At 31 December 2016 and 31 December 2015, deferred tax assets and liabilities have been calculated based upon the rate at which the temporary difference is expected to reverse. These reductions may also reduce the Group's future current tax charges accordingly.
Basic earnings per share is calculated by dividing the profit attributable to ordinary equity holders of the Parent Company by the weighted average number of ordinary shares in issue during the year.
| 2016 | 2015 | |||||
| Profit for the year | £000 | 26,182 | 22,021 | |||
| Average number of ordinary shares in issue (thousands) | 107,518 | 107,518 | ||||
| Basic earnings per share | Pence | 24.4 | 20.5 | |||
| Notes to the Consolidated Financial Statements (continued) |
Adjusted basic earnings per share is calculated by dividing the profit attributable to ordinary equity holders of the Parent Company, excluding performance share plan expense (including social security costs), by the weighted average number of ordinary shares in issue during the year.
| 2016 | ||||
| Profit for the year (basic earnings) | £000 | 26,182 | ||
| Share-based payment expense (including social security costs) | £000 | 2,217 | ||
| Tax effect of share-based payment expense | £000 | (672) | ||
| Adjusted profit for the year | £000 | 27,727 | ||
| Average number of ordinary shares in issue (thousands) | 107,518 | |||
| Adjusted basic earnings per share | Pence | 25.8 | ||
Diluted earnings per share
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The company has one type of dilutive potential ordinary shares in the form of share options; the number of shares in issue has been adjusted to include the number of shares that would have been issued assuming the exercise of the share options. In 2015 there was no difference between basic and diluted earnings per share as there were no dilutive shares.
| 2016 | ||||
| Profit for the year (basic earnings) | £000 | 26,182 | ||
| Average number of ordinary shares in issue (thousands) | 107,518 | |||
| Adjustment for share options (thousands) | 585 | |||
| Diluted number of ordinary shares in issue (thousands) | 108,103 | |||
| Diluted earnings per share | Pence | 24.2 | ||
| Authorised, called up, allotted and fully paid share capital | |||||||
| 2016 | 2016 | 2015 | 2015 | ||||
| Number of shares | £000 | Number of shares |
£000 | ||||
| Ordinary shares of £0.01 each | 107,517,506 | 1,075 | 107,517,506 | 1,075 | |||
Ordinary shares
All ordinary shares rank equally for all dividends and distributions that may be declared on such shares. At general meetings of the Company, each shareholder who is present (in person, by proxy or by representative) is entitled to one vote on a show of hands and, on a poll, to one vote per share.
Deferred shares
At the Company's Annual General Meeting held on 30 April 2015, shareholders approved the purchase by the Company of 5,200,392 deferred shares for £1.00; the deferred shares had a nominal value of £0.01 each. The deferred shares were not entitled to any dividend or distribution and the holders had no right to attend, speak or vote at any general meeting of the Company by virtue of their holdings of any deferred shares. The holder of each deferred share had the right to receive, after the holders of all other shares in the capital of the Company (other than the deferred shares) then in issue had received £10,000,000 in respect of each such share held by them.
10 Dividends
| 2016 | |||||
| £000 | |||||
| Dividends paid | |||||
| Paid to shareholders | 24,514 | ||||
An interim dividend of 9.3 pence per ordinary share was declared by the Directors on 26 July 2016 and was paid on 23 September 2016 to holders of record on 26 August 2016.
The Board is proposing a final dividend of 10.3 pence per share in respect of the year to 31 December 2016, for approval by shareholders at the AGM on 27 April 2017.
Subject to shareholder approval the dividend will be paid on 16 June 2017 to shareholders of record on 26 May 2017.
This brings the Company's total dividend for the year to 19.6 pence per share (2015: 21.5 pence per share), comprising total ordinary dividends of 19.6 pence per share (2015: ordinary dividend 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 Board has adopted a progressive dividend policy; the Group will retain sufficient capital to fund ongoing operating requirements, maintain an appropriate level of dividend cover and sufficient funds to invest in the Group's longer term growth.
2015
An interim dividend of 8.0 pence per share was declared by the Directors on 28 July 2015 and paid on 25 September 2015 to holders of record on 21 August 2015. In respect of the full year to 31 December 2015, the Board proposed a final dividend of 8.5 pence per share and a special dividend of 5.0 pence per share. Both were approved by shareholders at the Annual General Meeting on 28 April 2016, and paid on 3 June 2016 to shareholders of record on 13 May 2016.
2014
An interim dividend of 7.5 pence per ordinary share in respect of the period from admission of the Company's shares to the Main Market of the London Stock Exchange on 20 June 2014 to 31 December 2014 was paid on 12 June 2015.
11 Directors' remuneration
Details of the Directors' (who also represent the key management personnel of the Group) remuneration in respect of the year ended 31 December 2016 is set out below:
| 2016 | 2015 | ||
| £000 | £000 | ||
| Short term employee benefits | 2,712 | 2,292 | |
| Post-employment benefits | 32 | 33 | |
| Share-based payments | 412 | 170 | |
| 3,156 | 2,495 | ||
12 Financial instruments
There are no differences between the fair value of the financial assets and liabilities included within the following categories in the Consolidated Statement of Financial Position and their carrying value:
• Trade and other receivables
• Cash and cash equivalents
• Trade and other payables
This information is provided by RNS
The company news service from the London Stock Exchange
END
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