FDM Group Annual Report 2018

Plain-text annual report

ANNUAL REPORT AND ACCOUNTS 2018 FDM Group (Holdings) plc 1 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018 Contents Strategic Report Highlights 2 4 8 12 18 32 34 36 42 46 We are FDM Chairman’s Statement Chief Executive’s Review Corporate Responsibility Key Performance Indicators Business Model Our Markets Financial Review Risk Management Governance 56 62 Board of Directors Corporate Governance Report Audit Committee Report Nomination Committee Report Remuneration Report Directors’ Report 72 80 84 102 Financial Statements 108 Independent auditors’ report to the members of FDM Group (Holdings) plc Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements Parent Company Statement of Financial Position Parent Company Statement of Cash Flows Parent Company Statement of Changes in Equity Notes to the Parent Company Financial Statements Shareholder Information 115 116 117 118 119 120 141 142 143 144 148 2 FDM Group (Holdings) plcAnnual Report and Accounts 2018 Strategic Report 3 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Highlights Financial Revenue (£m) £244.9m 233.6 189.4 +5% 244.9 Mountie revenue1 (£m) £239.0m +15% 239.0 207.3 167.3 Adjusted operating profit2 (£m) +8% £51.3m 47.3 51.3 37.6 2016 2017 2018 2016 2017 2018 2016 2017 2018 Profit before tax (£m) £48.3m 43.7 35.3 +11% 48.3 Adjusted profit before tax2 (£m) +9% £51.3m Basic earnings per share (pence) 34.3 pence +15% 47.2 51.3 34.3 29.8 37.5 24.4 2016 2017 2018 2016 2017 2018 2016 2017 2018 Adjusted basic earnings per share2 (pence) 36.4 pence +12% Cash flow generated from operations (£m) £44.9m -7% Cash conversion3 (%) 92.9% -16% 36.4 32.6 39.4 48.3 44.9 111.5 110.6 92.9 25.8 2016 2017 2018 2016 2017 2018 2016 2017 2018 1 Mountie revenue excludes revenue from contractors. See page 43 for analysis of revenue. 2 The adjusted operating profit and adjusted profit before tax are calculated before Performance Share Plan expenses (including social security costs) of £3.0 million (2017: £3.6 million). The adjusted basic earnings per share is calculated before the impact of Performance Share Plan expenses (including social security costs and associated deferred tax). See page 43 for further details of adjusted items. 3 Cash conversion is calculated by dividing cash flow from operations by profit before tax. 4 Week 52 in 2018 commenced on 17 December 2018 (2017: week 52 commenced on 18 December 2017). 5 Utilisation is calculated as the ratio of cost of utilised Mounties to the total Mountie payroll cost. 2 FDM Group (Holdings) plcAnnual Report and Accounts 2018 Operational Recruit Over 700 university events attended in 2018 (2017: over 400) We received over 84,000 online applications (2017: over 81,000) Train 2,155 training completions in 2018, a 33% increase (2017: 1,626) Continued investment in training Academies, with global training capacity of 848 at year end, up by 9% over December 2017 7 of our 16 training locations at the end of the year were pop-up Academies Deploy Mounties assigned to client sites at week 524 were up 18% at 3,747 (2017: 3,170) Mountie utilisation5 rate unchanged at 97.3% (2017: 97.3%) 77 new clients secured globally (2017: 72) Strategic ReportGovernanceFinancial StatementsWe are FDM FDM Group (Holdings) plc (“the Company”) and its subsidiaries (together “the Group” or “FDM”) operates in the Recruit, Train and Deploy (“RTD”) sector. Our mission is to bring people and technology together, creating and inspiring exciting careers that shape our digital future. The Group’s principal business activities involve recruiting, training and deploying 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 additional experience where required. FDM specialises in a range of technical and business disciplines including Development, Testing, IT Service Management, Project Management Office, Data Services, Business Analysis, Business Intelligence, Cyber Security and Robotic Process Automation. The FDM Careers Programme bridges the gap for graduates, ex-Forces and returners to work, providing them with the Our brand evolution We don’t make or sell products – we are a people business and therefore our employees are our brand. In 2018, we embarked on a global project to reveal how the FDM brand has evolved throughout the years, gathering feedback from a variety of internal and external stakeholders at all levels. The findings revealed that despite our growth, our values have largely remained the same. We strive for success, we are committed to our clients, we say it how it is, we make it happen and together we are stronger. These values define what we stand for as a business and unite us in our mission. #FDMCareers Our purpose training and experience required to successfully launch or To achieve profitable growth for our shareholders, re-launch their careers. FDM has dedicated training centres through offering our customers a unique and high-quality and sales operations located in London, Leeds, Glasgow, service by creating and inspiring exciting careers that shape Birmingham, New York NY, Reston VA, Charlotte NC, Austin TX, our digital future. Toronto, Frankfurt, Singapore, Hong Kong, Shanghai and Sydney. Our vision To be recognised by our clients and industry as the global leader in the Recruit, Train and Deploy sector. FDM also operates in Ireland, France, Switzerland, Austria, Denmark, Spain, Luxembourg, the Netherlands and South Africa. Together, FDM is made up of a collective of almost 5,000 people, from a multitude of different backgrounds, life experiences and cultures. FDM is a strong advocate of diversity and inclusion in the workplace and the strength of its brand lies in the talent within. Together, we are FDM. Forward-looking statements This Annual Report 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 be correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. 4 FDM Group (Holdings) plcAnnual Report and Accounts 2018Together we are stronger We make it happen Our Values We strive for success Committed to our clients We say it how it is Industry awards received during the year included: • The JobCrowd’s Top 100 Companies For Graduates To Work For 2018/19 • The Guardian UK 300 Most Popular Graduate Employers for 2018/19 • UK Stock Market Awards – Growth Company of the Year 2018 • Megabuyte Quoted25 – Best Performing Consulting and Systems Integration Company 2018 • Megabuyte Quoted25 Awards – Top 25 PLCs 2018 (FDM ranked 4th) • Management Today – Agents of Change Power List 2018 – Rod Flavell, FDM CEO • Computing Women in IT Excellence Awards – Diversity Employer of the Year 2018 • Information Age Women in IT Awards – Employer of the Year 2018 • Information Age Women in IT Awards – Woman of the Year 2018 – Sheila Flavell, FDM COO • Computer Weekly 50 Most Influential Women in UK IT 2018 – Sheila Flavell, FDM COO • Mogul – Top 1,000 Companies Worldwide for Millennial Women 2018 • Working Mums Awards – Career Progression Award 2018 • Working Mums Awards – Overall Top Employer Award 2018 • Best in Biz Awards North America – Best Place to Work (Gold) 2018 • Military Times Best for Vets Employer 2018 • MilitaryHire.com Veteran Friendly Employers 2018: Opportunity category • Target Jobs Awards – AGCAS Award for Excellence in Careers and Employability Service Engagement 2018 • National Undergraduate Employability Awards – Best Collaboration between a University and Employer 2018 • MINT Minded Company and Fair Company 2018 6 FDM Group (Holdings) plcAnnual Report and Accounts 2018FDM is a strong advocate of diversity and inclusion in the workplace and the strength of its brand lies in the talent within 7 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Chairman’s Statement Total ordinary dividend +15% Ivan Martin Chairman I have been privileged to be Chairman of FDM for the past 12 years, a period which has seen unabated revenue and profit growth, and I am pleased that we have someone of David Lister’s calibre, experience and knowledge of the business, to take on the role of Chairman at this exciting point in FDM’s evolution. 8 FDM Group (Holdings) plcAnnual Report and Accounts 2018Chairman’s Statement I am pleased to present FDM’s Annual Report for the financial year ended 31 December 2018. Performance I am delighted to report another year of strong performance in 2018. The Group delivered 18% growth in overall Mountie headcount, including particularly strong Culture and values Dividend FDM’s business is supported by a strong The Group is maintaining a progressive cultural identity which helps to ensure dividend policy, aimed at increasing the that our goals are understood and annual dividend broadly in line with shared by all of our people. It was growth in the Group’s earnings per particularly rewarding to be recognised share. We intend to pay a final dividend for the eighth year running by The of 15.5 pence per share, taking the total JobCrowd in their ‘Top 100 Companies ordinary dividend to 30.0 pence per For Graduates to Work For’. Our share, up 15% on 2017. growth in the UK and Ireland, North consistently high ratings for culture, America and APAC, closing the year with colleagues and enjoyment underlines 3,747 Mounties placed on client sites. our commitment to promoting a strong People The Group’s financial position remains aims. robust with a closing cash balance of £33.9 million and no debt. Governance culture which supports our strategic We are very proud of our employees across the Group, who have again shown great commitment and professionalism during 2018. Our employees work hard to understand Strategic progress Our strong operational and financial performance is driven by our focus on the four strategic objectives set out on The Board has always considered robust what our clients want, building strong Corporate Governance and a sound relationships and creating solutions approach to risk management to be which help our clients fulfil their fundamental to the sustainability of the business ambitions. Our people Group and its operations. We continue understand that our clients’ success is pages 13 to 15 of the Annual Report, and to review and challenge our approach to our success. it is notable that we have made good progress against each again this year, including: risk management, working with our internal audit function and making Over the last few years our business has updates where appropriate to ensure expanded significantly, by the end of • More than 2,100 trainees completed that it remains effective. In July 2018 the 2018 our Mountie headcount had their training in 2018 Financial Reporting Council published increased to 3,747, and we now have 350 • We gained 77 new clients across the its new UK Corporate Governance Code permanent staff working on Group • We expanded our presence in all of our territories around the world • We placed Mounties with clients for the first time in the Netherlands and in three new US States. (“2018 Code”), which will apply to FDM recruitment, training, sales and with effect from 1 January 2019. deployment, as well as providing Amongst other things, the 2018 Code all-important support to our consultants encourages companies to engage more in the field. People underpin everything actively with stakeholders including that we do, and in recognition of this we employees, clients and shareholders, have appointed a Chief People Officer. something which we have always We regard this as a crucial new hire for focussed on at FDM. The Board and its our business, creating a senior committees will work to ensure that our executive role which reports directly to framework of risk management and the CEO and will work closely with the governance continues to evolve with the Board on succession planning and people 2018 Code and meets shareholder development which will support FDM’s expectations and best practice sustainability for the benefit of all our requirements. I report on Corporate Governance in more detail on page 62 of stakeholders. Further information on this appointment is set out in the Nomination the Annual Report. Committee Report on page 81. 9 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Our results this year reflect the dedication and hard work of our people and, on behalf of the Board, I would like to thank all our employees for their significant contribution to the performance of the Group in 2018. The Board In March 2018 FDM announced my intention to retire from the Board and that a search for a new independent Non-Executive Chairman had begun. I am delighted to say that process has been completed successfully. As announced by the Company on 7 February 2019, David Lister will be appointed to the role of Non-Executive Chairman with effect from 5 March 2019, and I shall retire from the Board on that date. David Lister has been an independent Non-Executive Director of the Company since March 2016 and brings a wealth of relevant board and IT experience after more than 39 years of working in technology and operations roles across multiple industries for international businesses. He also has valuable experience in the professional services sector. Further information about David’s background and experience is on page 59. The Board commissioned an externally facilitated evaluation of its effectiveness in 2018 (details of which are in the Nomination Committee Report on page 81). The results of that review will be helpful for David as he takes on the role of Chairman and works with his colleagues to ensure that the Board continues to operate as effectively as possible. Our aim is to create conditions that support sound decision- making, with input from other stakeholders where appropriate, to promote the long-term sustainable success of FDM. I have been privileged to be Chairman of FDM for the past 12 years, a period which has seen unabated revenue and profit growth and has seen FDM evolve from a Brighton-based business with around 550 contractors on billing to FTSE 250 Company – a truly international business with global reach and more than 3,700 Mounties on billing. I am pleased that we have someone of David’s calibre, experience and knowledge of the business, to take on the role of Chairman at this exciting point in FDM’s evolution, and I wish him and the rest of the Board every success for the future. Outlook The Board is confident that the continuing strong levels of demand for FDM’s services across all of our territories and the momentum with which we have commenced the new year will enable the Group to deliver further good operational and financial progress in 2019. Ivan Martin Chairman 5 March 2019 10 FDM Group (Holdings) plcAnnual Report and Accounts 2018Recognised by The JobCrowd ‘Top 100 Companies For Graduates to Work For’ for the eighth year running 11 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Chief Executive’s Review Mounties placed with clients +18% Mountie revenue +15% Rod Flavell Chief Executive Officer Throughout 2018 the Group invested in its people, training facilities and technology to sustain the future growth of the business. 12 FDM Group (Holdings) plcAnnual Report and Accounts 2018Chief Executive’s Review Overview Our strategy We ended the year with 3,747 Mounties FDM’s strategy is to deliver customer FDM’s strategy, which is closely linked to placed with clients, while each of our led, sustainable, profitable growth on a our business model and mirrors the operating regions increased Mountie consistent basis, through its well- Recruit, Train, Deploy sector in which we headcount in the year. The Group established Mountie model. This operate, is underpinned by four key achieved Mountie revenue of £239.0 strategy requires that all activities and objectives: Attract, train and develop million and delivered an adjusted profit before tax1 of £51.3 million. investments produce the appropriate high-calibre Mounties; Invest in level of profit and return on cash, that leading-edge training Academies; Grow they deliver sustained and measurable and diversify our client base; and 2018 represented a period of significant improvements for all our stakeholders Expand our geographic presence. investment by the Group in our people including customers, staff and and infrastructure. We increased shareholders, and that they further headcount in three key areas of the FDM’s objective of launching the careers business; sales, recruitment and of talented people worldwide, which training, thus ensuring we have a firm remains core to everything we do. foundation in place to deliver on our future growth opportunities and aspirations and our strategic objectives. Risks 1, 2, 3, Attract, tr high-calib a i n r 4 , 5 , 8 a n d a 9 e n c e s d 9 Risks 1, 5, 6, 8 a n r u Expan d o graphic p r e o e g Recruit y o l p e D BRINGING PEOPLE AND TECHNOLOGY TOGETHER G r o o w u a r n R i s k s 1 , 4 , 5 d c l i e n div t b ersify ase , 6, 7, 8 a n d 9 I n v e t s r e n d M d o e u n v e t i e l o s p e g d s mie n ai Tr t i n le ading-e a i n i n g A cade For further details on our Business Model see pages 34 to 35. For further details on our Risks and Risk Management see pages 46 to 53. 1 The adjusted profit before tax is calculated before Performance Share Plan expenses (including social security costs). 13 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018 Attract, train and develop Invest in leading-edge high-calibre Mounties training Academies In the UK, FDM remains one of the FDM Academies are dynamic, high- leading graduate employers, an technology facilities, where our skilled achievement we are striving to emulate and knowledgeable trainers provide pop-up compared with 36 in 2017. Our pop-ups are quick to establish and offer flexible availability to meet local across the Group. We are proud of the first class training. During 2018 the candidate and client demand. way we collaborate with leading capacity of our Toronto Academy was universities and multiple arms of the near doubled with the addition of 71 Training capacity (the number of military. In May 2018, we introduced our training seats making it the second available training seats at a given point innovative new Applicant Tracking largest Academy in the Group behind in time) has increased to 848 at System (JobTrain), which allows better the Flagship London centre. We have 31 December 2018 (2017: 777). Our management of applicants through the also just opened, in February 2019, our training facilities are key to securing a recruitment and training process. It new permanent Academy in Sydney (see enables applicants to source relevant page 29 for more information). information more easily and have a flow of Mounties to support our growth. As our training capacity continues to increase, so has our ratio of trainers to more user-friendly experience. With Our leveraging of pop-up centres has trainees, demonstrating our online applications up 4% year-on-year been a particular highlight for the year commitment to ensuring trainees have (at over 84,000), FDM is in a strong with 7 of our 16 training locations at the the required level of support during position at the start of 2019. end of the year being a pop-up and 175 their development. trainees completing training through a Our training programme provides thousands of people each year with the opportunity to launch or further their career, with a permanent and meaningful employment role for a minimum of two years. 2018 saw us deliver a 33% increase in training completions across the Group to 2,155 (2017: 1,626). Investment in training has generated a 27% increase in training staff, with 129 people employed across the Group’s training Academies at 31 December 2018 (2017: 99 employed in Academies). Supported by a network of peers, our Mounties have the opportunity to work for a broad range of well-known international businesses having received comprehensive and role- specific training. Of our UK graduate 2018 intake surveyed, 89% attended a state school and 44% were the first in their family to go to university. Whilst our business model operates on the premise that the average length of a Mountie’s engagement with FDM is approximately three years, the training provided by FDM enables our Mounties to develop exciting and rewarding careers beyond their time with us. 14 Training capacity in permanent Academies as at 31 December 2018 900 800 700 600 500 400 300 200 100 Singapore Frankfurt Toronto Glasgow London Hong Kong Reston New York Leeds y t i c a p a c g n n a r T i i FDM Group (Holdings) plcAnnual Report and Accounts 2018 Chief Executive’s Review Grow and diversify our client base Our service offerings FDM constantly re-evaluates its training In 2018, our biggest growth stream has FDM is committed to delivering the to ensure we deliver, at scale, a been Development (including Java and highest level of service to its clients. The consultant workforce best suited to the .Net). We have found that our Group has a concentration of clients in wide range of technology roles required. Developers are working more closely the financial services sector and is Since our training is modular, we have with client businesses, as we see client continually expanding the number of the flexibility to adapt to small-scale IT teams working closer with the service streams it offers to financial client requests to fill their particular skill business, creating synergy benefits and services clients. gap. We regularly discuss with our ultimately delivering a better outcome clients the trends they see developing in to the business. Although still in its During the year we worked with 77 new the technology market, and we make infancy, during 2018 our RPA offering clients (2017: 72 new clients) of which sure we understand how those trends has taken off and we have dedicated 71% were outside the financial services will be reflected in their future needs, so course start dates across the UK in 2019. sector. Net Mountie headcount growth that we can continue to train and was 398 from new clients and 179 from provide high-calibre Mounties. FDM’s core training proposition will existing clients. continue to evolve, remaining flexible to Expand our geographic disciplines includes; Development, Delivering effective training requires a FDM’s range of technical and business best meet the needs of our clients. presence Testing, IT Service Management combination of learning delivery (“ITSM”), Project Management Office methods including classroom based Good progress has been made in each (“PMO”), Data and Operational Analysis, training, e-learning and an emphasis on of the geographic markets in which we Business Analysis, Business Intelligence, gaining practical experience using operate with the number of Mounties Murex and Salesforce, Cyber Security appropriate tools and methodologies. on site increasing in each region. The and Robotic Process Automation (“RPA”). Mountie Headcount – split by service offering largest increase came in the UK and Ireland, which saw Mountie headcount increase by 260 (15%), followed by North America which increased headcount by 231 (24%), APAC which was up by 79 heads (26%), and EMEA which was up by seven heads (5%). Our continuing investment in our training facilities, with Toronto expanding in 2018 and Sydney having opened in February 2019, demonstrates our commitment to increasing our presence in new and existing markets for our business. An overview of the financial performance and developments in each of our markets is set out on pages 36 to 40. 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 Jun 2014 Dec 2014 Jun 2015 Dec 2015 Jun 2016 Dec 2016 Jun 2017 Dec 2017 Jun 2018 Dec 2018 Development PMO ITSM Testing Business Analysis Data and Operational Analysis Business Intelligence Murex Robotic Process Automation Salesforce Cyber Security 15 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Our people – talented, ambitious, enthusiastic and diverse Buy As You Earn share plan, which gives our employees the opportunity to become shareholders in the Company. This is an excellent opportunity for our employees to share in the success of the Company and its growth in the coming years. Looking forward I anticipate that 2019 will be another year in which FDM delivers good operational and financial performance. We are a people business and we are proud of the fact our business model continues to provide an effective platform for creating and launching exciting careers. Rewarding our people is important because they go the extra mile and take pride in contributing I would like to extend the Board’s thanks to every FDM employee, as it is their commitment and performance that enables us to continue to grow the business successfully each year, an achievement made possible by the strength and commitment of our towards the Group’s success. We offer management, recruitment, sales and networking opportunities alongside a training teams. Rod Flavell Chief Executive Officer 5 March 2019 variety of social and corporate events as well as granting achievement awards each month for exemplary work. Our focus is on ensuring that our team is performing successfully and delivering strong results which support the continuing growth and development of FDM. FDM continues to champion a number of people initiatives. It employs 280 ex-Forces personnel across the UK, USA and Australia. In 2018 FDM USA was recognised as a Most Valuable Employer for Military (by RecruitMilitary.com) and a Best for Vets Employer (by The Military Times) for the fifth year running. The Group also supports the advancement of women in the IT industry through the global “FDM Women in IT” initiative, with 30% of the workforce now female. We were delighted to show a median pay gap of 0.0% for the second consecutive year when we published our UK Gender Pay Gap Report in 2018. We continue to seek ways to retain and develop our best people. A number of our employees were rewarded for their hard work and commitment to the Company when the first tranche of share options under the FDM Group Performance Share Plan 2014 vested and became exercisable. Further awards were made under the Performance Share Plan during 2018. At the beginning of 2019 we launched a new all employee Board changes Ivan Martin has steered FDM Group through its first five years as a plc, a period which has seen significant change and consistently strong performance, which included the Company’s promotion to the FTSE 250 in June 2017. During 12 years as Chairman of the Board of FDM, Ivan has provided wisdom and leadership to his colleagues on the Board, and commitment to the Group. On behalf of the Board I thank Ivan for his service and dedication, and we wish him all the best for the future after he retires from the Board on 5 March 2019. David Lister is already a valued colleague who has made a significant contribution to the work of the Board as a Non-Executive Director over the last three years. His board experience in such a wide range of business sectors will be invaluable to the Board. I look forward to working with David even more closely in his new role as Chairman as we continue to create and inspire exciting careers that shape our digital future. 16 FDM Group (Holdings) plcAnnual Report and Accounts 2018During the year we worked with 77 new clients of which 71% were outside the financial services sector 17 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018 Corporate Responsibility Acting responsibly Diversity and inclusion We have long recognised that our FDM has always been a proactive and enthusiastic promoter of diversity, social reputation is one of the key mobility and inclusion within its workforce. We value the fact that our colleagues considerations for our clients when they come from a wide range of backgrounds and we aim to reflect the diversity of entrust our Mounties to work at the education, culture, age, ethnicity, gender and disability which is found in the heart of their most important projects. communities where we operate. By ensuring a diverse and inclusive workforce, we We have gained this reputation by not broaden the range of skills, expertise and perspectives contributing to the success of only delivering Mounties of a our business, enhancing innovation and growth and making our business more consistently high calibre, but also by robust and sustainable. We have been a signatory to the United Nations Women’s behaving responsibly. Good business Empowerment Principles (UNWEP) since 2013 and the annual FDM Everywoman in and a culture of responsible behaviour Technology Awards, recognising and celebrating the achievements of women in the are inseparable. IT industry, is now moving into its sixth successful year. By encouraging and supporting women in the industry we aim to create a more gender-balanced We work hard to nurture relationships workforce for FDM and our clients. with our clients, to become their partner and create solutions which will help them to fulfil their business ambitions. We listen to them carefully, not only focussing on their current needs, but also anticipating their future requirements to ensure that we continue to offer Mounties with skills at the leading edge of what they expect. In this year’s Hampton-Alexander Review report, we were placed first in the technology sector (FTSE 250 rankings for Women on Boards and in Leadership). We track our demographic data regularly to make sure it is up to date, and are transparent with our staff about progress towards diversity targets. • 30% of our worldwide employees are female; • 38% of our 2018 UK graduate intake identify as BAME1; and • 3% of our 2018 UK graduate intake consider themselves to have a disability. We share their goals, because we We continue to gather numerous awards in this area, including the following in 2018: understand that the success of our • Computing Women in IT Excellence Awards – Diversity Employer of the Year clients and our Mounties is what drives • Working Mums Top Employer Awards – Career Progression and Overall Top our own success. We take the same Employer Award approach with our other stakeholders in • Mogul – Top 1000 Companies Worldwide for Millennial Women the communities where we operate, • Information Age Women in IT Awards – Employer Of The Year recognising the positive impact our business can have on them, and we Our UK median gender pay gap reported in 2018 was 0.0%, and our mean gender know that our shareholders and pay gap for the same period was 5.7%. These figures are significantly below average potential investors are increasingly for the UK, but we recognise that we have more work to do. The Board has therefore interested to hear about this approach adopted a formal Board diversity policy which is included on page 65. We aim to and the activities which arise from it. further develop our succession planning and talent management programmes to include initiatives that encourage the development of a diverse range of high-calibre Our Corporate Responsibility strategy is employees. By further enhancing the level of interaction between Board members closely aligned with our business (particularly Non-Executive Directors) and our senior managers, enabling them to strategy, and by continuing to develop gain more exposure to, and understanding of, the Board’s work, we hope to create a and integrate those strategies further pipeline of talented individuals with a diversity of backgrounds and experience, who we will underpin the long-term may in the future aspire to a Board position. sustainable success of FDM, delivering value for our investors and enhancing the impact which we have on other stakeholders. 18 FDM Group (Holdings) plcAnnual Report and Accounts 2018Driving diversity and inclusion in the workplace 30% of our worldwide employees are female 38% of our UK graduate intake identify as BAME1 3% of our UK graduate intake consider themselves to have a disability Mogul – Top 1000 Companies Worldwide for Millennial Women Computing Women in IT Excellence Awards – Diversity Employer of the Year Working Mums Top Employer Awards – Career Progression and Overall Top Employer Award Information Age Women in IT Awards – Employer Of The Year 1 Black, Asian or Minority Ethnic. 19 FDM Group (Holdings) plcAnnual Report and Accounts 2018The table below shows the gender split at different levels within the Group as at 31 December 2018. As at 31 December 2018 On the Board Within Senior Management All employees Supporting social mobility Number of males Number of females 7 11 3,396 2 10 1,452 During 2018 we have reviewed our recruitment processes and made a number of changes to enhance diversity and social mobility in our recruitment channels. For example: • we aim to make our opportunities available to those who can show us that they have the aptitude to join our programme and the attitude our clients are looking for, regardless of where they grew up or went to school; • we use strength-based interview questions, ensuring candidates are not assessed on previous experience or social capital; and • all of our staff involved in interviewing applicants to FDM undergo training to help eliminate any unconscious bias. We are proud that, in 2018, 44% of UK graduate Mounties were the first in their families to go to university, whilst 89% of them attended a state school. 81% of UK graduate Mounties given the added responsibility of being a Consultant Peer Support (of which there are 43) are from non-Russell Group universities. Disability The Group gives full and fair consideration to the employment of disabled people. At the recruitment and selection stages, we encourage candidates to disclose any reasonable adjustments they may require us to make so that we can ensure all candidates have the same opportunities. These adjustments may include, for example, providing additional equipment, adapting our telephone screening process or adjusting our assessment day interviews and tests to suit individual needs. In the event of members of staff becoming disabled, every effort is made to ensure that their employment within the Group can continue either in their current role or in a suitable alternative. The Group endeavours to make any reasonable adjustments to enable disabled employees to fulfil the responsibilities of their job role. It is the Group’s policy to support disabled employees in all aspects of their training, development and promotion where it benefits the employee and the Group. We have been a member of the Business Disability Forum since 2017. The specialist advice and support which they provide enables us to improve our understanding of how we can further enhance our accessibility to disabled employees and customers. 3% of our UK graduate intake in 2018 identified themselves as having a disability. Our people Our clients tell us that our Mounties are unique and that the blend of skills, enthusiasm, professionalism and drive to services globally, for example, delivering curriculum projects with first- and second-year students to develop skills for We are committed to maintaining a great working environment for all our employees, supporting them with succeed which they embody can’t be real life business challenges, sponsoring continued personal and professional found anywhere else. We therefore student societies and university skills development, and providing them with recognise that the success of FDM’s awards, promoting opportunities for interesting and challenging work. After business as a whole is dependent on women in STEM subjects through our Mounties finish their formal training continuing to recruit people of the bespoke workshops and organising and are deployed at a client site, they highest calibre into our graduate training hackathons and other digital workshops continue to have access to a comprehensive programme to enable us to maintain the to enhance students’ technical expertise library of e-learning tools to enable them quality of our Mounties, and we regularly and industry experience. FDM’s work to build their skills further and keep review our assessment and recruitment with our university partners was them up to date. We also provide techniques and processes with this in mind. recognised when we were awarded the additional help through our consultant We draw candidates for graduate training Engagement in the TARGETjobs National from over 650 universities around the Graduate Recruitment Awards 2018, and AGCAS Award for Careers Service support network, and offer mentoring programmes to help them settle in new roles and workplaces, and to guide and world and consider students from all the award for Best Collaboration inform longer-term career decisions. degree backgrounds. We maintain close between a University and Employer in the relationships with university careers National Undergraduate Employability Awards 2018. 20 FDM Group (Holdings) plcAnnual Report and Accounts 2018Corporate Responsibility We are pleased to have introduced a and to arrange for each of our Non- reward employees who have completed new apprenticeship scheme in 2018 Executive Directors to attend a number five and ten years with FDM, in order to which has enabled a number of our staff of them during the year. We expect that thank them for their commitment and to benefit from additional learning this will enable our staff to provide long-standing contribution to the investment and support across several useful feedback about our business, and business. The CEO Award of Excellence disciplines, including an MBA course and to enable them to raise ideas or is FDM’s most prestigious award, a Leadership and Management concerns which our Non-Executive reserved for outstanding employees programme. Directors can bring back to the Board who truly go above and beyond in for further discussion. contributing to the success and growth We also continue to offer a number of of the Company. In addition: paid eight-week summer internships The Board will also continue its • During 2018 we made further awards across several departments in our programme of formal opportunities for to employees under our discretionary centres around the world. For students the managers of our different business Performance Share Plan (“PSP”). registered on a four-year sandwich/ teams to attend Board meetings and • In January 2019 we also launched a industrial placement degree course, we discuss the progress they are making, new Buy As You Earn share plan which now also offer a 12-month sandwich and challenges faced, in their work. is open to all our employees. placement in our London, Leeds and There will also be a number of informal Glasgow centres which enables those opportunities for senior managers and These plans provide a longer-term students to gain industry-relevant skills the future leaders from amongst their incentive to enable participants to share by working alongside experienced teams to meet the Non-Executive in the success of our business and reap professionals in one of our Directors without the executive team the rewards of their hard work and departmental teams. Students taking being present, enabling the Non-Executive commitment to our shared goals. part in these programmes may then Directors to gain further insight into the Details of the PSP are set out in note 24 represent FDM as Student Brand culture in our business and to discuss to the Consolidated Financial Ambassadors at their respective any concerns which may arise. Statements. universities and remain in touch with us throughout their studies. We aim to In addition to these more formal, offer many of them permanent positions on graduation. structured, events, FDM also communicates with employees regularly Engaging with our clients and shareholders Engaging with our employees face-to-face meetings in order to ensure institutional investors (and prospective via email, monthly newsletters and We welcome visits from our clients and they are supported, especially when investors) at our centres and Academies. In 2018 we carried out a project to placed remotely on site. The FDM In 2018 there were more than 850 visits develop FDM’s brand and values. We Connection Newsletter keeps by our clients to our global Academies. interviewed a wide range of employees up to date with FDM news stakeholders, including clients, but we from around the world, ranging from We work closely with our clients on the focussed particularly on a global staff important developments in our process of interviewing and selecting survey and in-depth interviews with our business to congratulating individual our trainees for deployment as staff, Mounties and Academy trainees to employees on noteworthy Mounties on client projects, and this help us identify what was important to achievements. FDM’s Social Media Hub enhances our understanding of the them about FDM and to promote the is displayed on large screens in our skills and qualities they are looking for. values shared by our whole centres globally and serves as an organisation. Our values are set out excellent tool to keep employees During 2018 we hosted more than 100 on page 5. engaged as well as up to date in real meetings with investors and potential time. We are a young, dynamic company investors, not only with our Executive During the year we also continued to that encourages employees to use social Directors but also involving other senior develop our Rising Stars breakfast media professionally and this has helped managers, to enable shareholders to events around the world for junior the Group raise brand awareness and further their understanding of our work, employees who are excelling across all engagement around the world. culture and activities in other areas. departments within the business. These events provide the opportunity to get to We believe that it is important to During 2019 we will be developing an know Sheila Flavell, our Chief Operating Officer and to brainstorm innovative ideas for our business and to share recent developments within their recognise and reward the commitment and hard work of our staff. The FDM Consultant of the Month and FDM Stars initiatives are designed to reward those in-house Investor Relations function to enhance our communication with shareholders and to increase the information available to them through departments. In 2019, we propose to that are excelling, as nominated by channels such as our website. We widen the range of events of this type, customers and other employees within expect to be able to report on progress the business. We also recognise and in this area in our 2019 Annual Report. 21 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018We understand the importance of equipping students with the skills to enjoy and engage with STEM subjects at an early age 22 FDM Group (Holdings) plcAnnual Report and Accounts 2018Corporate Responsibility Engaging with the community We work with numerous charitable partners and community groups through a combination of employee volunteering, donations, and employee time. We tailor our community activities to reflect the needs and interests of the different communities where we operate, prioritising programmes which can use our training expertise to illustrate the possibilities surrounding a career in technology – particularly for women – and maintain that each of our charitable ventures aligns with our values. Schools Engagement Programme We understand the importance of equipping students with the skills to enjoy and engage with STEM subjects at an early age. We are proud to work with schools throughout the UK to cultivate the technologists of tomorrow, supporting our mission of creating and inspiring exciting careers that shape our digital future. We aim to target schools in the “cold spots” of social mobility in order to play an active role in inspiring and developing children’s interest in IT as a career path, building employee engagement, and further demonstrating our commitment to responsible corporate citizenship. We deliver Careers Lab sessions in schools focussing on providing insight to young people to equip them with the inspiration, knowledge and skills they need to succeed. We have also partnered with The Harris Federation in and around London to provide a tailored programme to allow children to experience the commercial environment of FDM. We have also run a number of “World of Work” days in our UK Academies, combining coaching on personal branding and coding with opportunities for paid work experience. In April 2018 we celebrated International Girls in ICT Day, a global initiative designed to encourage girls of all ages to explore ICT fields and inspire a love for technology. We partnered with local schools to host girls aged from 11 to 15 in our Academies in Hong Kong, Frankfurt, London and New York running interactive Sonic Pi coding workshops. We also support events run by TeenTech, which helps teenagers to understand the wide ranges of careers available in science, engineering and technology. TeenTech enables schools and students taking part in its programmes to access resources and support, mentoring, and innovation workshops around the country. More than 180 students participated directly in our Schools Engagement Programme in 2018. Hackathons During 2018 we also hosted non-technical hackathons bringing together a wide range of clients, universities, charities and other diversity and inclusion teams across all sectors, to find and share practical solutions and ideas to tackle obstacles to enhancing diversity and inclusion. Our events in 2018 focussed on diversity, ethnicity and neurodiversity, and we have a number of other events planned for 2019 on subjects such as social mobility. 23 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Anthony Nolan FDM has entered into a partnership with Anthony Nolan, to raise funds and to encourage our employees to join the Anthony Nolan stem cell donor register. Anthony Nolan Ex-Forces and Getting Back to Business pathways particularly needs young people and donors from Black, Asian and Minority Ethnic backgrounds to join the register, to offer the best chance of a match for people who need a stem cell transplant. Our hugely diverse workforce consists We recognise that people who have served in the Armed Forces have many transferable skills, ranging from adaptability and maturity to responsibility and leadership, which are crucial to a successful career in the corporate world. We offer a dedicated ex-Forces Programme in the UK and USA which provides training to ex-Forces personnel in relevant commercial skills, assisting them to make a smooth transition into the civilian workplace and leading to deployment as one of our IT or business consultants. The Programme is run by of more than 80 different nationalities and we aim to help in ex-service personnel and employs ex-servicemen and women adding much-needed diversity to the register. We provide from all ranks and across all three services. We are proud direct sponsorship to our employees who wish to register as holders of a Gold Award from the UK government’s Defence donors, as well as supporting fundraising activities and events. The FDM University Partnerships Team has been Employer Recognition Scheme, acknowledging our strong commitment and drive in delivering our pledges under the working alongside the Anthony Nolan Marrow Group to raise Armed Forces Covenant, to which we are also a signatory. We awareness across UK universities. During the year, our people have also been ranked as one of the Military Times Best for have raised thousands of pounds and our efforts have resulted in over 60 donors joining the register. Vets Employers in 2018. Walking With The Wounded Our employees (spearheaded by the Ex-Forces Team) also work closely with Walking With The Wounded who provide support for former members of the armed forces who are struggling to re-integrate back into the civilian world and sustain their independence. Our Getting Back to Business Programme aims to address the challenges faced by professional individuals who have taken an extended career break and gives them the opportunity to re-enter the workforce at a level which is appropriate to the experience they have already gained in their earlier careers. Returners to work are an invaluable source of talent for our clients with skills shortages and our Programme aims to boost that pipeline by providing participants from a diverse range of In May 2018, 52 FDM employees raised money and took part in social, ethnic and educational backgrounds with intensive Walking With The Wounded’s Cumbrian Challenge, with 15 training to learn new skills, refresh existing knowledge and FDM teams walking a range of different routes. Employees also participated in the Walking Home for Christmas challenge help individuals to regain the confidence to return to their business careers. Approximately 80% of our participants on to raise funds. In London, we welcomed Walking With The the Programme are women, and we’re delighted that our work Wounded representatives to our annual client event in order in this area has helped us to win the Career Progression award to promote their work and to encourage clients to support the and the Overall Top Employer Award at the Working Mums Top cause. Employer Awards 2018. UN Sustainable Development Goals We recognise that the sustainability of our business has benefits not only for our investors, but for all our stakeholders, as a result of the much broader impact which we can have on the lives of those in our stakeholder communities. In 2016 the United Nations (“UN”) introduced 17 Sustainable Development Goals (“UNSDGs”) aimed at improving the lives of future generations and which the UN hopes to achieve by 2030, in partnership with governments, the private sector and civil society. In 2018 we reviewed the UNSDGs and identified the three goals which are most closely aligned to our business and strategy. We are committed to implementing our strategy in a way which will support the achievement of these goals and will enable us to make our own contribution to the UN’s work towards these ambitious targets. 24 FDM Group (Holdings) plcAnnual Report and Accounts 2018 Corporate Responsibility United Nations Sustainable Development Goals Our contribution Examples 8 Decent work and economic growth Promote sustained, Our reputation as the We provide our graduates, ex-Forces inclusive and sustainable leader in our field is personnel and returners to work with dependent on the bespoke IT and business training, economic growth, people we employ. In together with invaluable industry full and productive all the territories experience gained whilst deployed with employment and where we operate we one of our top-quality clients. decent work for all. treat our employees fairly and help them to Our Schools Engagement Programme launch fantastic aims to improve the social mobility of careers in technology. teenagers in our local communities by encouraging them to aim high and aspire to exciting careers in technology and science. 5 Gender equality Achieve gender Women currently We are a signatory to the United equality and empower all make up 30% of our Nations Women’s Empowerment global workforce and Principles (UNWEP). Our annual FDM women and girls. 48% of our senior Everywoman in Technology Awards management team. recognise and celebrate the We commit to achievements of women in the IT continue our efforts to industry, aiming to create a more improve gender gender-balanced workforce for FDM diversity in our teams and our clients. around the world, • Computing Women in IT Excellence broadening the range Awards – Diversity Employer of the of skills, expertise and Year perspectives • Working Mums Top Employer Awards contributing to the – Career Progression and Overall Top success of our Employer Award business, enhancing • Mogul – Top 1000 Companies innovation and growth Worldwide for Millennial Women and making our • Information Age Women in IT Awards business more robust – Employer Of The Year and sustainable. 12 Responsible consumption and production Ensure sustainable We are committed to For the location of our new Sydney consumption and reducing the impact Academy we chose the cutting-edge production patterns. our operations have sustainable facility at Barangaroo (see on the environment by page 29 for further information). making our consumption of We have moved our on-site and hosted energy and materials infrastructure to a cloud-based solution more sustainable. which uses best-in-class datacentres to increase energy efficiency and to reduce our carbon footprint. 25 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Human resource policies and respect for human rights As stated on page 18 we are committed to making FDM a great place for all our employees to work. We have enhanced our policies on maternity, paternity, adoption, personal and special leave, and on sickness absence, which go beyond the minimum required by law. We are committed to fulfilling our obligations in accordance with the relevant legislation for those of our applicants and existing employees who have disabilities. We give equal consideration to applicants with disabilities, and our staff who interview applicants receive training in avoiding unconscious bias in the recruitment process. We modify equipment and working practices for our disabled colleagues as far as possible, wherever it is practicable and safe to do so. We also have in place policies which prohibit discrimination and harassment in the workplace, and we work hard to promote diversity, inclusion and social mobility. Further information on these aspects of our work is on pages 18 and 20. We believe that our policies taken as a whole provide an effective framework to ensure that all our stakeholders and any other individuals with whom we interact in the course of our work are treated with respect and dignity, and in a way which accords with the Universal Declaration of Human Rights. Anti-slavery and human trafficking policy FDM is committed to ensuring that there is no modern slavery or human trafficking in its supply chains or in any part of the business. It has considered the degree of risk that modern slavery could arise within the organisation or in supply chains. The nature of FDM’s business and the direct relationship it has with applicants to the training programmes means that the risk of modern slavery in our own organisation is low. FDM has reviewed supply chains and taken a number of steps to address the potential risks of modern slavery and human trafficking. The Group has put in place an Anti-Slavery and Human Trafficking policy to assist it in mitigating this risk, and continues to implement a process of due diligence on key suppliers to ensure compliance with our policy and our obligations under the Modern Slavery Act 2015. There is a pre-contract due diligence process, used with new suppliers to ensure that they confirm their commitment to comply with our policies and values, or that they have in place appropriate equivalent policies of their own. FDM has also developed a set of standard contractual clauses for inclusion in supplier contracts which reinforces this approach. The Group aims to promote a high level of understanding of the risks of modern slavery and familiarises all staff with these policies on induction. Additional training may be provided to key staff members where appropriate. The effectiveness of these steps is monitored annually by the Board. 26 FDM Group (Holdings) plcAnnual Report and Accounts 2018Corporate Responsibility We recognise that people who have served in the Armed Forces have many transferable skills, ranging from adaptability and maturity to responsibility and leadership 27 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Environmental policies 2018 Highlights We expanded our scope of greenhouse Our emissions intensity ratio has New lease signed within carbon neutral gas reporting in partnership with reduced by 4% Barangaroo development in Carbon Smart Sydney, Australia Energy efficiency improvements from New IT disposal policy in place to reduce move to Cloud-based IT platforms environmental impact from waste Ensuring best practice environmental disclosure As an IT-focussed global professional services provider, we recognise the importance of quality data management. In 2018 FDM partnered with Carbon Smart, a leading provider of sustainability data services, to ensure that we continue to follow best practice in the assessment and reporting of our environmental performance. Our engagement with Carbon Smart has enabled us to expand the scope of our emissions reporting, providing greater transparency to stakeholders and allowing us to further identify opportunities to improve FDM’s environmental performance. As the Group aims to increase its presence in new markets, in line with our wider business strategy, the environmental impacts associated with our pop-up centres can no longer be considered negligible. We have therefore reported emissions associated with our pop-up centres for the first time. We have also increased the breadth of our reporting through the publication of direct (Scope 1) emissions. FDM’s 2018 emissions intensity (tCO2e/employee) has reduced by 4% relative to the previous financial year’s restated intensity figure. This reduction is a result of several environmental initiatives across FDM’s global operations. 28 FDM Group (Holdings) plcAnnual Report and Accounts 2018Corporate Responsibility Expanding our global presence in a sustainable manner FDM is committed to growing our business whilst reducing our impact on the environment. At the end of 2018, we signed a lease for our new Australian Academy at Barangaroo, on Sydney’s western waterfront. Barangaroo is one of only 18 projects around the world chosen to participate in the C40 Climate Positive Development Programme, which is focussed on tackling climate change through urban renewal. When completed, Barangaroo aims to be carbon neutral. This will be achieved through the reduction and offsetting of all energy used on the site; the recycling and exporting of more water than the amount of drinking water imported, and by achieving ‘zero waste’. In addition, FDM adopted a new IT disposal policy in 2018, aimed at reducing the impact of its IT waste on the environment. This policy focusses on the efficient use of charitable donations and environmentally-friendly disposal of redundant equipment. We also completed a project to move our IT infrastructure from on-site and datacentre hosting into the Microsoft Cloud. In addition to the benefits this brings in relation to security and resilience, we also expect to see significant gains in energy efficiency and reductions in carbon emissions. These benefits result from our supplier’s investment in best-in-class datacentres and cloud services, using renewable energy and realising efficiencies in infrastructure, operations and equipment. Greenhouse gas emissions FDM complies with the greenhouse gas (“GHG”) emissions reporting requirements of The Companies Act 2006 (Strategic and Directors’ Reports) Regulations 2016. The Company reports all material GHG emissions, wherever possible using tonnes of CO2-equivalent (tCO2e) as the unit, to account for all GHGs which are attributable to human activity, as defined in section 92 of the Climate Change Act 2008(a). Emissions data is reported for the Group’s worldwide operations. The methodology used to compile this data is in accordance with DEFRA’s “Environmental Reporting Guidelines: Including mandatory greenhouse gas emissions reporting guidance (June 2013)”. Using a financial control approach, calculated GHG emissions arising from business activities in the reporting year to 31 December 2018 are shown in the table below. The increase in our absolute emissions in 2018 has been driven by a 16% increase in emissions associated with air travel, as we expand our global presence. Scope 1 emissions2 Natural gas Company cars Scope 2 emissions3 Electricity 4 Purchased steam Scope 3 emissions5 Total emissions Greenhouse gas emissions intensity ratio: CO2e tonnes per employee6 Total Emissions (tCO2e) Year ended 31 December 2018 Year ended 31 December 20171 (restated) Year ended 31 December 2017 (as reported in 2017) 80 66 14 5955 570 25 1,663 2,338 0.51 81 72 9 562 562 – 1,415 2,058 0.53 – – – 562 562 – 1,594 2,156 9.27 1 2017 emissions have been restated to include Scope 1 emissions associated with natural gas and company car usage (company cars previously reported as Scope 3) and to exclude emissions associated with travel bursaries, as these are considered to be out-of-scope in accordance with best practice reporting guidelines. 2 Scope 1 Emissions: CO2e from direct fuel combustion and company owned vehicles. 3 Scope 2 Emissions: CO2e from the purchase of electricity, heat, steam or cooling by the company for FDM’s own use. This work is partially based on the country-specific CO2e emission factors developed by the International Energy Agency, ©OECD/ IEA 2018 but the resulting work has been prepared by Carbon Smart Limited and does not necessarily reflect the views of the International Energy Agency. 4 Our Scope 2 electricity emissions have been calculated using location-based emissions factors and are 570 tCO2e. In line with WRI best practice, our Scope 2 market-based emissions for electricity in 2018 are 602 CO2e tonnes. 5 Scope 3 Emissions: CO2e from company activities, not owned or controlled by the company (i.e. business travel, waste & water consumption). 6 For calculation of the intensity ratio we have replaced ‘£ million’ with ‘employee’ as this is a more useful guide to the business and more reflective of FDM’s business model. 7 In 2017 we reported an intensity ratio of 9.2 CO2e tonnes per £ million of revenue. This is the equivalent of 0.56 CO2e tonnes per employee. Non-financial performance reporting We comply with the requirements of sections 414CA and 414CB of the Companies Act 2006. The information provided above is to help our stakeholders understand our position on key non-financial matters, specifically: employees, social matters, respect of human rights; environmental matters, and anti-corruption and anti-bribery matters. 29 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 201830 FDM Group (Holdings) plcAnnual Report and Accounts 2018New lease signed within carbon neutral Barangaroo development in Sydney, Australia 31 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018 Key Performance Indicators Financial KPIs Performance Description Link to strategy Link to business model Link to risk Mountie revenue (£m) +15% Adjusted operating profit1 (£m) +8% Adjusted basic earnings per share1 (pence) +12% Cash flow generated from operations (£m) -7% Cash conversion (%) -16% Operational KPIs Mounties on client sites (week 52) +18% Mountie utilisation rate (%) +0% Training completions +33% 2018 2017 2016 2018 2017 2016 2018 2017 2016 2018 2017 2016 2018 2017 2016 2018 2017 2016 2018 2017 2016 2018 2017 2016 239 207 167 51 47 38 Significant growth in Mountie headcount of 18% has resulted in a 15% growth in Mountie revenue The Group delivered adjusted operating profit growth through increasing Mountie headcount whilst investing in its operational capacity 36.4 32.6 25.8 Our growth in adjusted basic earnings per share (‘EPS’) reflects the impact of a higher operating profit and a lower effective tax rate 45 48 The Group closed the year with cash balances of £33.9 million (2017: £36.8 million) 39 93 111 111 3,747 3,170 2,705 97.3 97.3 97.4 2,155 1,626 1,807 Cash conversion is lower than 2017 due to a strong close in 2017 in terms of billing and cash collection and changes to working capital in 2018, in particular to the mix of our receivables Increase in Mountie headcount across all regions with 77 new clients won during 2018 Mountie utilisation rate in 2018 remains unchanged from 2017 The number of Mounties completing training increased by 33%, resulting from the continued investment in training 1 The adjusted operating profit is 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). 32 Recruit Train Deploy Recruit Train Deploy Recruit Train Deploy Recruit Train Deploy Deploy Deploy Deploy Recruit Train 1 1 1 1 1 1 1 1 2 7 2 7 2 7 2 7 2 7 2 7 2 7 2 7 3 8 3 8 3 8 3 8 3 8 3 8 3 8 3 8 4 9 4 9 4 9 4 9 4 9 4 9 4 9 4 9 5 6 5 6 5 6 5 6 5 6 5 6 5 6 5 6 10 10 10 10 10 10 10 10 FDM Group (Holdings) plcAnnual Report and Accounts 2018Key Performance Indicators We focus on a number of Key Performance Indicators (“KPIs”) to identify trends in our operating and trading performance. The Group aims to increase profitability, maintain a robust balance sheet and invest in operations and new locations to underpin our organic growth. We continue to deliver strong margins, convert profits into operating cash flow for investment and to provide a return to shareholders. KPI targets, used as a basis for remuneration awards, are also included in the Remuneration Report. The adjusted numbers in the KPI analysis remove the impact of costs associated with the Performance Share Plan, to provide a clear understanding of the underlying trading performance. FDM’s four key strategic objectives: Attract, train and develop high-calibre Mounties Invest in leading-edge training Academies Grow and diversify our client base Expand our geographic presence Financial KPIs Performance Description Link to strategy Link to business model Link to risk Mountie revenue (£m) +15% Adjusted operating profit1 (£m) +8% Adjusted basic earnings per share1 (pence) Cash flow generated from operations (£m) +12% -7% Cash conversion (%) -16% Operational KPIs +18% Mountie utilisation rate (%) +0% Training completions +33% Mounties on client sites (week 52) 2018 2017 2016 2018 2017 2016 2018 2017 2016 2018 2017 2016 2018 2017 2016 2018 2017 2016 2018 2017 2016 2018 2017 2016 239 207 167 51 47 38 Significant growth in Mountie headcount of 18% has resulted in a 15% growth in Mountie revenue The Group delivered adjusted operating profit growth through increasing Mountie headcount whilst investing in its operational capacity 36.4 32.6 25.8 Our growth in adjusted basic earnings per share (‘EPS’) reflects the impact of a higher operating profit and a lower effective tax rate 45 48 The Group closed the year with cash balances of £33.9 million (2017: £36.8 million) 39 93 111 111 3,747 3,170 2,705 97.3 97.3 97.4 2,155 1,626 1,807 Cash conversion is lower than 2017 due to a strong close in 2017 in terms of billing and cash collection and changes to working capital in 2018, in particular to the mix of our receivables Increase in Mountie headcount across all regions with 77 new clients won during 2018 Mountie utilisation rate in 2018 remains unchanged from 2017 The number of Mounties completing training increased by 33%, resulting from the continued investment in training Deploy Recruit Train Deploy Recruit Train Deploy Recruit Train Deploy Recruit Train Deploy Deploy Deploy Recruit Train FDM’s principal risks are detailed on pages 46 to 52. FDM’s four key strategic objectives are explained in more detail on page 13 to 15. The components of FDM’s business model are shown on pages 34 to 35. 1 1 1 1 1 1 1 1 2 7 2 7 2 7 2 7 2 7 2 7 2 7 2 7 3 8 3 8 3 8 3 8 3 8 3 8 3 8 3 8 4 9 4 9 4 9 4 9 4 9 4 9 4 9 4 9 5 6 10 5 6 10 5 6 10 5 6 10 5 6 10 5 6 10 5 6 10 5 6 10 33 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Business Model What sets us apart How our business works Our people • As employees of FDM, our Mounties are trained to the latest industry standards Global coverage • International presence with localised support in dedicated locations • State-of-the-art training facilities Track record of success • Robust credentials and 27 years of operational success • Cost effective, value added business model Bespoke approach • Low-risk solution as FDM retains full accountability for Mounties • Scalable capacity with no minimum requirement • Ability to tailor recruitment and training • Guaranteed resource for up to two years • Option to transfer from FDM to permanent at the client after two years We recruit We recruit the best people amongst: – Graduates – Ex-Forces – Returners to work We deploy We place Mounties at a diverse range of clients; when placed, Mounties enter a two-year bond period Underpinned by our values: Together we are stronger We strive for success 34 FDM Group (Holdings) plcAnnual Report and Accounts 2018Business Model The value we create For our customers We provide our clients with a first-class, flexible resource at a competitive price 3,700+ Mounties on site For our shareholders FDM has consistently delivered value for our shareholders 15% growth in earnings per share 15% growth in annual dividends For our employees Ongoing professional development and support available to our employees throughout their career at FDM 4,800 FDM employees globally 80+ nationalities For our trainees Our award-winning training enables our trainees to transition into professional IT and business consultants, with relevant technical skills and commercial experience 2,155 training completions in 2018 We train We offer extensive training to successful candidates through our award-winning training Beyond the two years Following completion of the two-year bond period there is the option for Mounties to transition permanently with clients or embark on a new placement with FDM Committed to our clients We say it how it is We make it happen 35 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Our Markets UK and Ireland Mountie revenue +18% UK and Ireland 2018 2017 Mountie revenue £126.1m £106.7m Adjusted operating profit1 £36.7m £31.5m Mountie numbers Training completions 2,004 1,744 1,057 839 +3% EMEA Mountie revenue EMEA 2018 2017 Mountie revenue £13.5m £13.1m Adjusted operating profit1 £1.4m £0.9m Mountie numbers Training completions 162 104 155 98 1 The adjusted operating profit/ (loss) is calculated before Performance Share Plan expenses (including social security costs). 36 FDM Group (Holdings) plcAnnual Report and Accounts 2018Our Markets North America Mountie revenue +10% North America 2018 2017 Mountie revenue £81.4m £73.8m Adjusted operating profit1 £13.6m £15.3m Mountie numbers Training completions 1,196 825 965 534 +31% APAC Mountie revenue APAC 2018 2017 Mountie revenue £18.0m £13.7m Adjusted operating loss1 £(0.4)m £(0.3)m Mountie numbers Training completions 385 169 306 155 Permanent Academy FDM centre 37 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018The number of Getting Back to Business Mounties deployed on client sites at week 52 grew by 95% 38 FDM Group (Holdings) plcAnnual Report and Accounts 2018Our Markets UK and Ireland We closed the year with 2,004 Mounties placed on client sites, an increase of 15% on last year (1,744). Adjusted operating profit1 increased by 17% to £36.7 million (2017: £31.5 million), and the UK and Ireland gained 47 new clients, 85% of which were from outside the financial services and banking sector. We experienced a strong level of demand in 2018 which we see continuing into 2019. There has also been good growth in government work, with headcount up 24%, and sector diversification, with expansion of our clients in the energy and resources sector. We operated temporary training centres in Birmingham and Cardiff during 2018, allowing us to meet and generate client demand and tap into the local graduate market. At week 52, 57% of UK placements were based outside of London (2017: 55%). 1,057 Mounties completed their training (2017: 839). The number of ex-Forces Mounties placed with clients stayed near constant at 236 (2017: 239). FDM holds the MoD’s prestigious Employer Recognition Scheme Gold Award, for “Outstanding support for those who serve and have served”. The number of Getting Back to Business Mounties deployed on client sites at week 52 grew by 95% to 86 (2017: 44). There were 11 Getting Back to Business courses delivered across our London, Glasgow and Leeds Academies. As part of our planned reduction, and reflecting the fulfilment of specific customer needs in 2017, contractor revenue decreased by 80% on the prior year. The UK government announced in its October 2018 Budget that there would be further consultation in 2019 on the treatment of off-payroll workers; we see this as a potential opportunity for our clients to further benefit from our Mountie model. 1 The adjusted operating profit/ (loss) is calculated before Performance Share Plan expenses (including social security costs). 39 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018North America North America Mountie revenue grew 10%, with 16 new clients won in the year. Adjusted operating profit1 decreased by 11% to £13.6 million (2017: £15.3 million), as a result of increased investment in training. Mounties on site increased by 24% to 1,196 at week 52 compared with 965 at 2017. There was very strong demand in Canada, which meant that we brought forward our expansion plans and near doubled the training capacity of our Toronto Academy from 74 to 145 seats, by adding six new classrooms. The region added 163 heads in the second half of 2018, compared with 68 heads in the first half and 73 heads in the second half of 2017. FDM was recognised as the Best Place to Work at the North America Best in Biz Awards 2018. We have established a presence in Austin and Charlotte; where we now have over 70 Mounties placed with clients at year end. As in other regions we use temporary pop-ups to meet specific client demand, and we operated from St. Louis in the year and continue to be in Montreal. EMEA (Europe, Middle East and Africa, excluding UK and Ireland) Mountie revenue from our EMEA business grew by 3% to £13.5 million (2017: £13.1 million). Adjusted operating profit1 was 56% higher at £1.4 million (2017: £0.9 million), the 2017 adjusted operating profit having been impacted by our investment in the Frankfurt Academy. Mounties on client sites increased to 162 at week 52 compared with 155 at 2017. We have restructured our management team in Germany where we are well placed to meet future demand. Luxembourg is proving to be a successful base with a mix of demand from existing international and new local clients. There has been growth in South Africa, although from a small base. Towards the end of the year we began running training in the Netherlands to meet specific client demand, which we expect to continue into 2019. APAC (Asia Pacific) APAC Mountie revenue increased by 31% over 2017, to £18.0 million (2017: £13.7 million), with 385 Mounties placed on client site at week 52 (2017: 306). We gained nine new customers. The adjusted operating loss1 increased from £0.3 million in 2017 to £0.4 million in 2018, as result of the higher investment costs associated with the development of our Australian operations. Australian headcount more than doubled in 2018. At the end of 2018 we signed a ten-year lease for our new Sydney Academy, part of the high profile Barangaroo urban development project (see page 29 for more information on its environmental sustainability credentials). This new state-of-the-art Academy became operational in February 2019 and will provide us with our first permanent centre in Australia with six classrooms. We have also taken on new temporary space in Shanghai to provide local training. 1 The adjusted operating profit/ (loss) is calculated before Performance Share Plan expenses (including social security costs). 40 FDM Group (Holdings) plcAnnual Report and Accounts 2018FDM was recognised as ‘Best Place to Work’ at the North America Best in Biz Awards 2018 41 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Financial Review Adjusted operating profit +8% Adjusted basic EPS +12% Mike McLaren Chief Financial Officer 2018 was a year of strong financial performance and continued growth as we delivered 5% growth in revenue to £244.9 million (2017: £233.6 million) and an 8% increase in adjusted operating profit1 to £51.3 million (2017: £47.3 million), with adjusted basic earnings per share1 up 12%, to 36.4 pence (2017: 32.6 pence). We are well-positioned for future growth with a healthy balance sheet and a proven business model. FDM Group (Holdings) plcAnnual Report and Accounts 2018Financial Review Summary income statement Revenue Mountie revenue Contractor revenue Adjusted operating profit1 Adjusted profit before tax1 Profit before tax Adjusted basic EPS1 Basic EPS Overview Year ending 31 December 2018 Year ending 31 December 2017 £244.9m £239.0m £5.9m £51.3m £51.3m £48.3m £233.6m £207.3m £26.3m £47.3m £47.2m £43.7m % change +5% +15% -78% +8% +9% +11% Pence per share Pence per share % change 36.4 34.3 32.6 29.8 +12% +15% Mountie revenue increased by 15% to £239.0 million (2017: £207.3 million), a 17% increase at constant currencies. Contractor revenue decreased by 78% to £5.9 million (2017: £26.3 million), the result of meeting specific customer needs during the first three quarters of 2017, as we continue to focus on our higher-margin Mountie business. Reflecting this mix of revenues, gross margin was higher at 48.6% (2017: 44.6%). The Group’s strategy remains focussed on growing Mountie numbers and revenues whilst contractor revenues remain ancillary to the Group and will continue, over the longer term, in managed decline. An analysis of Mountie revenue and headcount by region is set out in the table below: UK and Ireland North America EMEA APAC 2018 Mountie revenue £m 126.1 81.4 13.5 18.0 239.0 2017 Mountie revenue £m 2018 Mounties assigned to client site at week 522 2017 Mountie assigned to client site at week 522 106.7 73.8 13.1 13.7 207.3 2,004 1,196 162 385 3,747 1,744 965 155 306 3,170 The Group has used cash generated from operations to continue significant investment in people and infrastructure, thus ensuring we have a firm foundation in place to deliver on our future growth opportunities and aspirations and our strategic objectives. Overheads have increased to £70.7 million (2017: £60.5 million), reflecting the Group’s investment in its management, support, recruitment, sales and training teams during the year with average headcount in these areas of the business increasing to 561 in 2018 compared with 447 in 2017. Adjusted operating margin in 2018 was 20.9%, up slightly from the previous year (2017: 20.2%). Brexit has created some uncertainty in the economy and it is difficult to predict the medium to long term potential impact on the Group. FDM has a global footprint and is diversified from a geographic perspective as it operates from well- established, self-contained operating units. Although the risks associated with the uncertainty in the UK and the potential impact across Europe remain, no material negative impact on trading has been noted to date. 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 £3.0 million in 2018 (2017: £3.6 million). Details of the Performance Share Plan are set out in note 24 to the Consolidated Financial Statements. The Directors believe that excluding these costs provides a more meaningful comparison of performance and cash generation. 1 The adjusted operating profit and adjusted profit before tax 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 2018 commenced on 17 December 2018 (2017: week 52 commenced on 18 December 2017). 43 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Net finance income As the Group has no borrowings, finance costs are minimal. The net credit for the year comprises £140,000 (2017: £29,000) of finance income and a finance expense of £94,000 (2017: £130,000) representing non-utilisation charges on the undrawn element of the Group’s revolving credit facility. reviews the Group’s dividend policy on a regular basis and is confident that there are currently 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 2018, the Company had distributable reserves of £38.3 million. Taxation The Group’s total tax charge for the year was £11.3 million, equivalent to an effective tax rate of 23.3%, on profit before tax of £48.3 million (2017: Cash flow and net funds At the end of the year, the Group had cash balances of £33.9 million (2017: effective tax rate of 26.7% based on a £36.8 million). Net cash flow from tax charge of £11.6 million and a profit operating activities decreased from before tax of £43.7 million). The effective tax rate in 2018 is higher than the underlying UK tax rate of 19% primarily due to Group profits earned in higher tax jurisdictions. The drop in effective rate in 2018 is attributable to changes in the US federal tax rate. Earnings per share The basic earnings per share increased in the year to 34.3 pence (2017: 29.8 pence), whilst adjusted basic earnings per share was 36.4 pence (2017: 32.6 pence). Diluted earnings per share was 33.8 pence (2017: 29.4 pence). Dividends £35.0 million in 2017 to £33.7 million in 2018. Dividends paid in the year totalled £30.7 million (2017: £24.0 million). Net capital expenditure was £2.7 million (2017: £1.4 million) and tax paid was £11.4 million (2017: £13.3 million). During the year, the Group, via an employee benefit trust, purchased shares sold by option holders upon the exercise of options under the FDM Performance Share Plan for a net cash cost of £3.7 million (2017: £nil). Cash conversion remains good at 93%. The decrease from 2017 is primarily due to a very strong end to 2017 in terms of billing and cash collection and also changes to working capital in 2018, in particular a change to the mix of our receivables as we have seen sustained Subject to shareholders’ approval of the demand from clients with lengthier final dividend of 15.5 pence per share, payment cycles. The planned decrease the Group’s total dividend for the year will be 30.0 pence per share (2017: 26.0 pence per share). The total ordinary in our contractor business, which is relatively less working capital intensive, has also had a minor impact in our cash dividends of 30.0 pence per share will conversion rate compared to 2017. be covered 1.14 times by basic earnings per share (2017: 1.15 times covered). 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 growth in the Group’s earnings per share. The Board Balance sheet The Group has a robust balance sheet with £33.9 million of cash and cash equivalents and no debt. Mike McLaren Chief Financial Officer 5 March 2019 44 FDM Group (Holdings) plcAnnual Report and Accounts 2018The Group has used cash generated from operations to continue significant investment in people and infrastructure 45 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Risk Management Effective risk management is critical to the delivery of the Group’s strategic objectives. Approach to risk The Board has overall responsibility for ensuring risk is effectively managed across the Group with a focus on evaluating the nature and extent of the significant risks which the Board is willing to take in achieving its strategic objectives – its ‘risk appetite’. The Board maintains direct control over the approach to risk management and the procedures for the identification, assessment, management, mitigation and reporting of risks. The Audit Committee takes responsibility for overseeing the effectiveness of sound risk management and internal control systems. Principal risks The principal risks faced by the Group, their current status and how the Group mitigates these risks are set out on pages 48 to 52. The status of each of the Group’s principal risks is considered unchanged from the prior year, with the exception of ‘the ability to upscale as a result of not securing sites’, which is no longer considered to be a principal risk. The Group’s proven track record of securing new sites, together with its ability to operate effectively on a short term basis from pop-ups has resulted in the Board downgrading this risk. The alignment to strategic objectives as set out on pages 48 to 52 indicates those aspects of the business strategy that would be impacted by the risk, were it to materialise. Identifying and monitoring key risks The Board uses the risk register as its principal tool for monitoring and reporting risk. The preparation of the register is led by the Chief Financial Officer, supported by the senior management team and it details the Group’s risks, the impact of each risk, the likelihood of that risk occurring and the strength of the mitigating controls in place and how these are evidenced. Input is obtained from all areas of the business, including support functions, as appropriate. The Board formally reviews the risk register at the half year and at the year-end. An Internal Audit review of the Group’s risk management processes carried out in 2017 concluded that the approach is appropriate given the current scale and complexity of the business. The current risk register includes 26 risks categorised between strategic, operational, compliance and financial risks, of which ten are considered to be the Group’s principal risks. 46 FDM Group (Holdings) plcAnnual Report and Accounts 2018Risk Management Key risks facing the Group 1 2 3 4 5 6 7 8 9 Changes in the macro-economic environment Concentration exposure in the financial services sector Balancing supply and demand – insufficient Mountie resource Balancing supply and demand – excess Mountie resource Recruitment and development of highly skilled Mounties Ability of business to effectively upscale – people Development of new service offerings Business interruption – caused by successful cyber attack or natural disaster Reputation 10 International regulatory non-compliance h g H i t c a p m I w o L 5 2 8 9 6 1 3 4 7 10 Unlikely Likelihood Almost certain Impact of Brexit on the Group Should the UK leave the European Union, either at the end of March 2019 or otherwise in the near term, we believe that our business model is resilient against many of the threats and uncertainties which are commonly perceived to arise from Brexit. We have a diversified global geographical footprint and our businesses in each of our territories (including the UK and other EU countries) are self-sufficient and well-established. They have their own local management teams, and recruit Mounties largely from within the territories in which they operate. We are not reliant on moving employees to or from the EU and do not expect to be significantly impacted by any changes to the arrangements for the free movement of workers between the EU and the UK. The Board recognises that some of FDM’s clients, and the economic conditions in the UK and EU, could be adversely impacted by the effects of Brexit, which could affect the spending decisions of some clients. Whilst certain scenarios are outside of the Group’s control, we believe that FDM’s business model is flexible, and the agile resource represented by our Mounties can be attractive to clients during times of economic or political uncertainty, which could potentially result in an increased demand for our services. These factors, together with FDM’s strong cash and financial position, give the Board confidence that FDM can respond appropriately to ameliorate the effect of adverse conditions which may follow Brexit. FDM Group (Holdings) plc Annual Report and Accounts 2018 47 Strategic ReportGovernanceFinancial StatementsStrategic risks Risk and impact Mitigation Movement in the year 1. Changes in the macro-economic environment No change A global downturn or a downturn in Whilst external factors such as The Board’s assessment of this risk is the territories in which FDM operates, macro-economic risks are outside of unchanged in the year, however the principally the UK and North America, the Group’s control, the Group has Board is of the view that the economic could curtail demand significantly and effective measures in place to respond environment is still a key risk to the the ability of the Group to deploy its to changes, including robust planning, Group. There has been some political Mountie resource, resulting in: an budgeting and forecasting and instability in the UK in 2018 as a result adverse impact on revenue and resource allocation procedures. of the uncertainty surrounding the operating profit; shrinking customer nature of the Brexit withdrawal base; negative impact on share price. The flexible nature of the Group’s agreement. As noted, macro-economic Risk owner: Chief Financial Officer Alignment to Strategic Objectives: 2. Concentration exposure in the financial services sector business model enables it to flex risks are outside of the Group’s control, resource availability thereby enabling but the Group will continue to focus on it to manage its cost base. ensuring it has effective measures in place to identify and react quickly to Notwithstanding the impact of risk 2 changes in macro-economic conditions. below, the Group is focused on The Group’s current financial position diversifying its customer base both by sector and by geography. is good, with a strong balance sheet and significant cash balances. No change The majority of the Group’s revenue is As above, the Group is focused on The proportion of the Group’s revenue generated from within the financial growing its customer base both by generated from the financial services services sector. A crisis in the financial sector and by geography as well as sector has decreased marginally in services sector could reduce revenue diversifying the range of services it 2018. The decrease has not resulted in significantly and have a negative offers to existing and potential a change to the overall assessment. impact on the majority of the Group’s financial services clients. The Board continues to focus on this KPIs. Risk owner: Chief Commercial Officer Alignment to Strategic Objectives: risk and the Group has broadened the spread of its service offerings within its financial services clients to cover operational, compliance and IT services, in addition to increasing its presence in other sectors. FDM’s four key strategic objectives: Attract, train and develop high-calibre Mounties Invest in leading-edge training Academies Grow and diversify our client base Expand our geographic presence FDM’s four key strategic objectives are explained in more detail on pages 13 to 15. 48 FDM Group (Holdings) plcAnnual Report and Accounts 2018Risk Management Risk and impact Mitigation Movement in the year 3. Balancing supply and demand – insufficient Mountie resource No change An inability to meet a rapid increase in The recruitment team maintains There has been a continued focus by demand due to insufficient Mountie strong links to universities and other management during the year to resource and an inability to recruit in recruitment channels. a timely manner would result in lost ensure the most efficient utilisation and deployment of Mounties. A revenue, eroded customer confidence An effective social media recruitment Mountie utilisation rate of 97% was and an adverse reputational impact. strategy is in place to maximise achieved in the year. applications. The Group’s reputation amongst Resource management meetings occur graduates, together with the career weekly to ensure supply and demand programmes it offers, means it is well issues are identified and resolved. placed to source sufficient applicants for its projected growth for the short The management team is incentivised to medium term. The Group received a to maximise utilisation and increase record number of online applications flow through of trainees within the in the year. Academies. The Group has the option of using The ex-Forces and Getting Back to contractors should a significant Business programmes, whilst increase in demand occur which relatively small in terms of total cannot be fulfilled by Mountie headcount, are growing and will help resource availability. spread the Group’s access to a wider talent pool. No change Risk owner: Chief Commercial Officer Alignment to Strategic Objectives: 4. Balancing supply and demand – excess Mountie resource An inability to utilise or redeploy The flexibility of the Group’s business The growth and diversification in the Mounties in the event of a sudden model is a key mitigation to this risk. Group’s client base by both number of decrease in demand would result in a The Group is able to flex the number clients and geographical spread reduction in margin and would of Mounties it recruits at short notice, mitigate the risk of the Group not demotivate Mounties. thereby responding quickly to a being able to fully utilise its Mountie sudden downturn. resource. Risk owner: Chief Commercial Officer Alignment to Strategic Objectives: Resource management meetings occur weekly to ensure supply and demand issues are identified and resolved in a timely manner. 49 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Operational risks Risk and impact Mitigation Movement in the year 5. Recruitment and development of highly skilled Mounties No change Mounties are the Group’s core asset. A The Group continually reviews and With the need to recruit significant failure to deliver high-quality benchmarks the remuneration numbers of Mounties to fulfil forecast Mounties into its customer base could packages and incentives it offers to growth levels, this is perceived to be result in a loss of customers and attract graduates. An increase to the one of the Group’s main risks. damage to the Group’s reputation. UK Mounties’ remuneration package took effect from 1 April 2018. A combination of the following factors indicates this risk is being managed Strong relationships exist with effectively: universities and other recruitment • recruitment levels of Mounties are channels including ex-Forces continually being monitored and personnel. The UK’s Getting Back to reviewed by the Board; Business programme is growing. • there is a broader base of talent A tailored development programme is ex-Forces and Getting Back to in place for Mounties, covering training Business programmes; and and development opportunities, • challenging recruitment targets are including opportunities after the bond being met. from which to recruit through the period. The Group actively promotes Women and use of technology to help with the in IT initiatives to attract, develop and recruitment process; for example, a retain Mountie talent. new applicant tracking system was 2018 has seen further development introduced from May 2018. The Group is focused on promoting its reputation in the marketplace as a leading employer. Risk owner: Chief Executive Officer Alignment to Strategic Objectives: 6. Ability of business to effectively upscale – people No change The inability of the business to The Group’s remuneration policy The Group’s remuneration packages effectively upscale as a result of not states that the overall remuneration remain competitive and, for senior being able to recruit and retain key package should be sufficiently employees, include long-term share staff with appropriate skills. competitive to attract, retain and options to encourage retention. motivate Executive Directors. The remuneration packages of all made from the Group’s Performance employees are reviewed and Share Plan, which was launched in benchmarked regularly to ensure they 2015. The first set of options issued During 2018, further awards were remain competitive. under the Plan vested at 100% in March 2018. Risk owner: Chief Executive Officer Alignment to Strategic Objectives: The annual appraisal system includes the identification of training requirements, which are fulfilled within the following twelve months. The Nomination Committee considers succession matters as a regular agenda item. 50 FDM Group (Holdings) plcAnnual Report and Accounts 2018Risk Management Risk and impact Mitigation Movement in the year 7. Development of new service offerings No change The inability of the Group to develop The Group employs a Chief The Group is responsive to its new service offerings and revenue Information Officer (“CIO”), who is customer needs which it identifies streams could result in a loss of responsible for the development of through regular contact and feedback customers and market share. new service offerings. from its clients. The Executive FDM’s flexible training model is able to client relationships. Directors are actively involved in key develop course material relevant to customers’ needs. FDM’s state-of-the-art training Academies are designed to provide quality training in a professional environment. The Group has a number of touch points with customers, enabling them to keep up to date with developments in the marketplace and to identify customer needs. No change Risk owner: Chief Information Officer Alignment to Strategic Objectives: 8. Business interruption – caused by successful cyber-attack or natural disaster Major IT system integrity issues or The Group’s IT Security Team has 50+ Operation of the IT environment is data security issues, either due to years of experience and industry continuously monitored and staff are internal or external factors, could certifications and includes a CISO regularly made aware of the risks of result in: actual financial loss of funds; industry-certified expert. cyber-attacks. potential loss of sensitive data with risk of litigation; loss of customer A Global Standard for Technology confidence; and damage to Security is in place. reputation. The Group’s IT security policy complies with ISO 27001. Staff are regularly made aware of the risk of a cyber-attack and the appropriate actions necessary to mitigate the risk of this occurring. IT policy and security matters are regular Board and Audit Committee agenda items. The Group’s business continuity plan has continued to be tested during 2018. The design and operational effectiveness of key IT security controls was reviewed by the Internal Audit team during 2018. Risk owner: Chief Information Officer Alignment to Strategic Objectives: 51 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018 Operational risks (continued) Risk and impact 9. Reputation Mitigation Movement in the year No change Reputation is key to the Group Robust recruitment and training The Group continues to invest in staff maintaining and growing its business. procedures are in place which reduce development, quality systems and Poor quality service or the actions of the risk of employing persons whose standard processes to mitigate the risk Mounties, staff or contractors could actions could result in a negative of operational failure. have an adverse impact on the impact on FDM’s reputation. Group’s reputation. A failure to The Board regularly consults with its manage any subsequent crisis FDM has a zero-tolerance policy with PR advisors. through a lack of reactive procedures respect to any inappropriate could also exacerbate potential behaviour by an individual employed During the year, our Company damage. Any impact could be by the Group or acting on behalf of the Secretary was appointed as Head of far-reaching: failure to meet financial Group. targets; litigation; loss of key clients; Investor Relations to manage the relationship with shareholders and key and loss of key staff. The Group focuses on strong stakeholders of the business. Risk owner: Chief Operating Officer Alignment to Strategic Objectives: relationship management and communication with external advisors. Compliance risk Risk and impact Mitigation Movement in the year 10. International regulatory non-compliance No change Failure to comply with international The Group has robust recruitment The Group continues to invest in tax, legal, employment and other procedures, which ensure the appropriately-skilled personnel and business regulations could result in employment of appropriately skilled will outsource where appropriate in significant fines and/ or revocation of personnel in areas where compliance areas where compliance and expertise business licences. with legislation is required. are required. A review of compliance issues forms part of the Group’s The Group seeks appropriate advice Internal Audit scope. and engages external advisors as necessary, particularly in overseas The Group’s existing in-house legal locations, and actively manages those and HR functions have been, and relationships. continue to be, augmented by new hires as the Group grows, bringing in more people with experience and knowledge of the territories in which the Group operates. The Group has invested in a new enterprise-wide HR solution and ensures that the relevant staff undertake training and professional studies where required. Risk owner: Chief Financial Officer Alignment to Strategic Objectives: n/a 52 FDM Group (Holdings) plcAnnual Report and Accounts 2018Risk Management Viability statement The Directors have assessed the prospects of the Group in accordance with provision C.2.2 of the Code 2016. The period selected by the Board for its assessment is three years, and was chosen for the following reasons: The core of FDM’s business is the Mountie model. The period identified approximates to the average lifecycle of Mounties’ engagement with FDM and therefore the viability period represents the Group’s normal investment cycle in its core asset. Further, the Group’s strategic plan covers a period of three years and this period is also underpinned by robust financial budgets and forecasts. In making its assessment, the Board has considered the resilience of the Group, taking into account its current position and prospects, its cash flow requirements and other key financial assumptions over the three-year period and has sensitised certain of those assumptions where considered appropriate. As the core of FDM’s business is the Mountie model, the sensitivity analysis therefore included consideration of the loss of the Group’s two largest customers. In assessing its viability, the Board has also taken into account the principal risks affecting the Group, including the impact of Brexit, and how those risks might impact the Group’s future performance, solvency and liquidity should they occur. The sensitivity analysis noted above, also took into account the impact of certain principal risks, including Brexit, occurring. The Group’s financial position is strong with cash balances of £33.9 million at the end of the year and no debt. Based on the results of this assessment, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three-year period of their assessment. The Strategic Report was approved by the Board on 5 March 2019 and signed on its behalf by: Rod Flavell Chief Executive Officer 5 March 2019 53 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 201854 FDM Group (Holdings) plcAnnual Report and Accounts 2018Governance In this section: 56 Board of Directors Corporate Governance Report 62 72 80 84 Nomination Committee Report Remuneration Report Audit Committee Report 102 Directors’ Report 55 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Board of Directors Member of Remuneration Committee Chairman of Remuneration Committee Member of the Audit Committee Chairman of the Audit Committee Member of Nomination Committee Chairman of Nomination Committee Ivan Martin Non-Executive Chairman Date of Appointment Chairman October 2006 Chairman of the Nomination Committee January 2015 Experience Ivan became Non-Executive Chairman of Xceptor (formerly known as Web Services Integration) in August 2016. Xceptor is a London based international software business backed by CBPE private equity. He has also been Non-Executive Chairman of Microgen plc since March 2016. He was a member of Misys plc’s board and headed its banking software division until 2005. Previously, Ivan worked at ACT Group plc and spent his earlier career at US multinational computer business, Unisys Corporation. Between 2007 and 2013, he was Executive Chairman of Sesame Bankhall Group. Ivan will retire from the Board and step down as Chairman of the Board and Chairman of the Nomination Committee on 5 March 2019. External Appointments: Microgen plc (Non-Executive Chairman) (appointed March 2016) Wulstan Capital LLP (various) (Member) (various appointment dates) Parch Estates Three LLP (Member) (appointed October 2018) Church Topco Limited (trading as Xceptor) (Non-Executive Chairman) (appointed August 2016) Church Bidco Limited (Chairman) (appointed August 2016) Date of Appointment Founded FDM in 1991 Experience Rod is the founder and Chief Executive Officer of FDM Group. He has been instrumental in developing the Group into an international, award-winning employer with a prestigious client base operating in multiple industries. Rod is a firm supporter of improving diversity in technology, with clear results achieved by the Group through its FDM Women in Tech, Getting Back to Business, Ex-Forces and veteran career transition initiatives. Rod was featured in the Management Today Agents of Change Power List 2018 for his work promoting gender parity in the workplace. Roderick (Rod) Flavell Chief Executive Officer External Appointments Rod has no external appointments. 56 FDM Group (Holdings) plcAnnual Report and Accounts 2018Sheila Flavell Chief Operating Officer Date of Appointment Chief Operating Officer January 2008 Joined FDM in May 1998 Experience With over 26 years of experience in both the public and private IT sectors internationally Sheila is passionate about enhancing diversity in the workplace and creating exciting careers for the next generation of digital talent. Sheila spearheads FDM’s global Women in Tech initiative and FDM’s Getting Back to Business Programme, aimed at providing opportunities for returners to work. In addition, Sheila’s experience and knowledge of the sector has been crucial in driving the Group’s global expansion programme, taking FDM into the FTSE 250 in June 2017. Sheila has been called to advise government committees on various issues around the digital skills gap and has received numerous awards throughout the years including a Lifetime Achievement Award at the Scotland Women in Technology Awards 2017, Tech Champion at the TechWomen100 Awards 2018, and being recognised as Woman of the Year at both the Computing Women in IT Excellence Awards 2017 and the Information Age Women in IT Awards 2018. External Appointments: techUK (Board member) (techUK is the operating name for Information Technology Telecommunications and Electronics Association) Institute of Coding Industry Advisory Board (Chair) Date of Appointment Chief Commercial Officer January 2008 Joined FDM 1994 Experience Andy joined FDM in 1994 and has progressed through the Group’s sales team to become Global Sales Director in 2007. Andy oversees the expansion of the Group with a focus on the sales and recruitment functions. Andy’s strategic focus is around developing new service streams in line with client demands, as well as increasing the number of applicants for the Group’s Graduate programme, which are both key areas to the success and growth of the Group. Andy also played a key role in the launch and success of the UK Ex-Forces Programme. Andrew (Andy) Brown Chief Commercial Officer External Appointments Andy has no external appointments. Date of Appointment Chief Financial Officer April 2011 Joined FDM 2011 Experience Mike is a Fellow of the Institute of Chartered Accountants in England and Wales. Prior to joining FDM, Mike fulfilled the roles of Group Finance Director and Chief Operating Officer in a premium listed business in the Software and Services sector. In addition Mike has been an Independent Non-Executive Chairman and Non-Executive Director on the boards of a number of other companies. Overall Mike has more than thirty years’ experience of working within the technology sector in a range of senior roles. Michael (Mike) McLaren Chief Financial Officer External Appointments Mike has no external appointments. 57 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Date of Appointment Non-Executive Director June 2014 Senior Independent Director June 2014 Chairman of the Remuneration Committee June 2014 Experience Peter has over twenty years of experience as an investment analyst, specialising in the Software and IT Services sector. Peter joined UBS in 2000 and led its UK small and mid-cap research team. Between 2007 and 2011 he was Chief Operating Officer of UBS European Equity Research. One of his responsibilities during this period was the oversight of the graduate recruitment, training and development programmes, both for the Research business and the Equities operation as a whole. External Appointments: Microgen plc (Senior Independent Director and Chairman of Remuneration Committee) (appointed February 2012) Keystone Law Group plc (Non-Executive Director and Chairman of Audit Committee) (appointed October 2017) TruFin plc (Non-Executive Director and Chairman of Remuneration Committee) (appointed February 2018) D4T4 Solutions plc (Non-Executive Director and Chairman of Remuneration Committee) (appointed July 2018) Date of Appointment Non-Executive Director June 2014 Chairman of the Audit Committee October 2015 Experience Robin is a member of the Institute of Chartered Accountants of Scotland. Robin brings many years of experience as a plc director, having held a variety of financial and general management roles in both Europe and North America, and has experience of financial reporting, financing, transactions and risk management. He is currently Chairman of the Audit Committee and a member of the Remuneration and Nomination Committees at EMIS Group plc, the UK leader in connected healthcare software, where he is also the Senior Independent Non-Executive Director. He is also a Non-Executive Director at Alfa Financial Software Holdings plc, a leading developer of mission-critical software for the asset finance industry. Robin’s previous roles include Chief Financial Officer of Intec Telecom Systems plc, Chief Financial Officer of ITNET plc, Chief Financial Officer of JBA Holdings plc, Non-Executive Director of Phoenix IT Group plc and Non-Executive Director of Fusionex International plc. External Appointments Emis Group plc (Senior Independent Director & Chairman of Audit Committee) (appointed March 2010) Alfa Financial Software Holdings plc (Non-Executive Director) (appointed May 2017) Peter Whiting Non-Executive Director Robin Taylor Non-Executive Director 58 FDM Group (Holdings) plcAnnual Report and Accounts 2018Board of Directors Date of Appointment Non-Executive Director January 2016 Experience Michelle has more than 25 years of experience in international Telecommunications and Technology. She is currently an area vice president for Citrix Systems after having served as the Global Director of Cloud & Hosting Services at Vodafone. Prior to Vodafone, Michelle worked at the European Bank for Reconstruction and Development where she managed the Telecom, Media & Technology banking team. Michelle is a co-founder and board member of Women and Telecoms & Technology, a UK not-for-profit organization, and is also a global council member at Thunderbird School of Global Management in Phoenix, Arizona. External Appointments Citrix Area Vice President North Europe (Appointed January 2017) Women in Telecoms and Technology Limited (Director) (Appointed May 2008) Thunderbird School of Global Management (Director) (Appointed April 2009) MOVE Capital (Investment Board member) (Appointed September 2017) Date of Appointment Non-Executive Director March 2016 Experience David has over 39 years of experience in Operations and Technology roles across multiple industries for international businesses such as Diageo, GlaxoSmithKline, Boots, Reuters, Royal Bank of Scotland and National Grid. He also has experience in the Professional Services sector where he was a management consultant at PwC. David is currently the Non-Executive chairman of HSBC Private Bank (UK) Limited, a Non-Executive Director of HSBC UK Bank plc and Interxion Holdings SA and is a Member of the Board of Governors of Nuffield Health. David will be appointed Chairman of the Board and Chairman of the Nomination Committee with effect from 5 March 2019. He will step down as a member of the Audit Committee and the Remuneration Committee on that date. External Appointments HSBC Private Bank (UK) Limited (Non-Executive Chairman) (Appointed December 2018) HSBC UK Bank plc (Non-Executive Director) (Appointed May 2018) Nuffield Health (Member of Board of Governors) (Appointed February 2014) Interxion Holdings SA (Non-Executive Director) (Appointed June 2011) Michelle Senecal de Fonseca Non-Executive Director David Lister Non-Executive Director 59 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Rod was featured in the Management Today Agents of Change Power List 2018 for his work promoting gender parity in the workplace 60 FDM Group (Holdings) plcAnnual Report and Accounts 201861 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Corporate Governance Report Chairman’s Governance Overview The promotion of sound corporate FDM is expected to comply with the governance has always been a priority, requirements which are set out in the and I am sure that it will remain high on UK Corporate Governance Code (the On behalf of the Board I am pleased to present the Corporate Governance Report. During 2018 the Board commissioned the first externally-facilitated evaluation of its effectiveness. The findings from the evaluation have provided us with an the Board’s agenda after David Lister “Code”) issued by the Financial Reporting succeeds me as Chairman. We recognise Council and published in April 2016. I am that one of the key roles of the Board is delighted to report that we are fully to ensure that FDM’s culture and values compliant with the requirements of the are aligned with our strategy. An 2016 code. We are also mindful of the effective framework of governance will help to ensure that our culture and values strengthen the implementation reforms embodied in the 2018 UK Corporate Governance Code, which applies to FDM with effect from 1 January 2019, and we have already excellent, independent insight as to how of our strategy, supporting the long- the Board operates and performs. I am particularly pleased that the evaluation concluded that the Board has effective systems and procedures in place to term sustainable success of our made good progress towards integrating business, delivering value for our the new requirements into our approach, shareholders and enhancing our where appropriate. We will report contribution to our other stakeholders further on these changes next year. meet its corporate governance and the communities in which we obligations and these are continually operate. being reviewed. We take great care to ensure that the content of our Annual Report is fair, With this in mind and recognising the balanced and understandable. A review significant expansion which FDM has undergone in the four years since its by the Audit Committee is detailed on page 77 and a formal statement from premium listing, this year FDM the Directors is included on page 104. commissioned a global research programme, interviewing a wide range Further information on the Board’s of internal and external stakeholders, to primary areas of focus in 2018 is set out refresh our mission and values, and to on page 67. This Corporate Governance understand how our culture has Report aims to provide shareholders evolved. The results of this project will and other stakeholders with an be an important tool for the Board as it understanding of how we manage our continues to develop the Group’s Group and the framework of strategy to establish our aspirations for governance and control within which we FDM in the future. work, and I hope that you will find it useful and informative. My Board colleagues will look forward to meeting some of you at our 2019 Annual General Meeting (“AGM”) and will be available then to answer any questions which our shareholders may have. We recognise that one of the key roles of the Board is to ensure that FDM’s culture and values are aligned with our strategy. 62 FDM Group (Holdings) plcAnnual Report and Accounts 2018Corporate Governance Report UK Corporate Governance Code FDM governance framework (including the Committee Chairs) Statement of Code compliance The Board considers that the Company complied with the Code throughout the financial year ended 31 December 2018. Further information on the Code can be found at: www.frc.org.uk/directors/corporate- governance-and-stewardship/ uk-corporate-governance-code The main principles of the Code applicable to listed companies are as set out below, and apply to the Board: A Leadership B Effectiveness C Accountability D Remuneration E Relations with shareholders A Leadership FDM Group (Holdings) plc Board Audit Committee Nomination Committee Remuneration Committee Robin Taylor Ivan Martin Peter Whiting The Committees play a key role in supporting the Board, and information about the membership of each Committee can be found in the relevant Committee’s report. Information is • Approving material contracts; • Approving material capital or operational expenditure; • Approving Group strategy; • Approving appointments to the supplied to the Board in advance of Board; meetings and the Chairman ensures • Determining dividend policy, as well that all Directors are properly briefed on as approving and recommending The role of the FDM Board The Board meets regularly to plan the the matters to be discussed. Group’s strategy and to review The Board closely monitors the operational and financial matters. When management and performance of the setting and monitoring the Group, ensuring it operates within the implementation of the Group’s strategy, appropriate risk-reward culture to dividends, as appropriate; • Reviewing material litigation; • Reviewing annually the effectiveness of internal control and the nature and extent of significant risks identified by management and associated the Board considers the impact that it will have on the Group’s stakeholders, deliver a sustainable and profitable business. The Group has established a mitigation strategies; and • Approving the annual budget. including shareholders, employees, core set of values which were updated customers and the wider community in which the Group operates. in 2018 to reflect the evolution of FDM’s culture. Each of the Executive Board Board decisions are generally reached by consensus at Board meetings. The Board approves the interim, preliminary and annual financial members aims to be a role-model However, should the situation arise, embodying these values – promoting decisions may be taken by a majority of them and FDM’s culture. The Board Board members. FDM’s Articles of statements, the annual budget and recognises that FDM’s values and Association provide the Chairman with a longer-term forecasts, significant contracts and capital investment. It also considers the business risks faced by the Group, ensures that appropriate controls and other steps are in place to culture are central to the continued casting vote in the case of an equality of success of the Group. votes. The Board has identified certain matters on which decisions are formally mitigate those risks, and reviews their reserved for the Board’s approval, a effectiveness. Where appropriate, it has delegated certain responsibilities to the schedule of which is available on the Group’s website www.fdmgroup.com. Audit Committee, Remuneration The Board formally reviewed the scope Committee and Nomination Committee of these matters and updated them (the “Committees”). The terms of reference and composition of these Committees are reviewed annually. during 2018. They include the following: • Approving financial results and other financial, corporate and governance matters; 63 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018The role of the FDM Board (continued) Details of the number of meetings of the Board (including sub-Committees at which only certain Directors are required to attend) and Committees and individual attendances by Directors are set out in the table below. Number of meetings held in 2018 Ivan Martin Rod Flavell Sheila Flavell Mike McLaren Andy Brown Peter Whiting Robin Taylor Michelle Senecal de Fonseca David Lister Board meetings attended Audit Committee meetings attended Remuneration Committee meetings attended Nomination Committee meetings attended 10 10 10 10 10 10 10 10 9 9 4 n/a1 n/a1,2 n/a1 n/a1,2 n/a1 4 4 4 4 4 n/a1,3 n/a1,3 n/a1 n/a1 n/a1 4 4 3 3 3 3 3 n/a1 n/a1 n/a1 3 3 2 3 1 Not applicable, not a member of the Committee and not required to attend. 2 Rod Flavell and Mike McLaren attended Audit Committee meetings by invitation, not as Committee members. Rod Flavell and Mike McLaren each attended 4/4 meetings during the year. 3 Ivan Martin and Rod Flavell each attended one meeting of the Remuneration Committee during the year at the invitation of the Committee. No Director was present during any discussion relating to his or her own remuneration. Chairman, Chief Executive and Senior Independent Director The roles of the Chairman and Chief Executive and division of responsibilities between them are clearly defined and agreed by the Board. Ivan Martin is responsible for the leadership of the Board, ensuring that it performs its role effectively, and promoting an effective working relationship between the Executive and Non-Executive Directors, as well as with FDM’s shareholders. Ivan Martin will step down as Chairman on 5 March 2019 and will be succeeded by David Lister. As Chief Executive, Rod Flavell’s main responsibility is to manage the Group’s business and to lead the executive management team in the implementation of the strategies which are adopted by the Board. The Executive Directors under the leadership of the Chief Executive are responsible for managing the day-to-day activities of the Group, communicating the Group’s objectives to the wider management team and ensuring that the necessary resources are available to enable those objectives to be achieved. This separation of roles enhances the independent oversight of executive management by the Board and more closely aligns the Board with shareholders. It also means that no one individual within the Group has unfettered powers of decision making. The Directors’ powers are set out in the Company’s Articles of Association. Peter Whiting is the Group’s Senior Independent Director. In performing this role, Peter acts as a sounding board to provide support to the Chairman and the Non-Executive Directors. He also provides shareholders with a point of contact with whom they can meet if they have any concerns which might not be addressed through normal channels, for example with the Chairman or Executive Directors. The Senior Independent Director serves as an important intermediary role in FDM’s governance process. In carrying out his role Peter ensures he maintains a thorough understanding of the views of the Company’s shareholders. Role of the Non-Executive Directors The Group’s Non-Executive Directors have a broad and complementary mix of business skills, knowledge and experience acquired across diverse business sectors and territories. This allows them to provide strong, independent, external perspectives to Board discussions, which complement the skills and experience of the Executive Directors, facilitating a diversity of views aired at Board meetings. This enables robust and constructive debate and improves the quality of the decision-making process. At the same time, it also reduces the likelihood of any one perspective prevailing unduly. A key role performed by the Non- Executive Directors is the scrutiny of executive management in meeting agreed objectives and monitoring the reporting of performance. They also constructively challenge and help develop proposals on strategy, and ensure that financial controls are rigorous and that the Group is operating within the governance and risk framework approved by the Board. 64 FDM Group (Holdings) plcAnnual Report and Accounts 2018Corporate Governance Report Non-Executive Directors are appointed for an initial minimum period of three years. Their appointments then continue until terminated by either the Director or the Company giving notice to terminate. They are all subject to regular re-election at AGMs and their appointments as Directors would end if they were not re-elected by the shareholders. The terms and conditions of appointment of Non-Executive Directors, including the expected time commitment, are available for inspection at the Company’s registered office. The Board regularly reviews the independence of each of the Non- conduct themselves in Board meetings, including how they exercise judgement and independent thinking. Taking these factors into account, the Board believes that all the Non-Executive Directors Executive Directors. When determining continue to demonstrate their whether a Non-Executive Director is independence. independent, the Board considers each individual against the criteria set out in the Code and also considers how they B Effectiveness Composition of the Board The Board currently comprises four Executive Directors and five Non- Executive Directors (including the Non-Executive Chairman). Further biographical details about each Director, including information on their prior experience, are set out on pages 56 to 59. Board diversity policy The Board is committed to the further The Board’s primary obligation is to • to develop further the level, make appointments based on objective frequency and quality of interaction criteria to ensure that the best between Board members (including individuals are appointed for every role. Non-Executive Directors in particular) Within this context, the Board is and those aspiring senior managers committed to a policy of promoting a to enable them to gain more exposure rounded Board which reflects a diversity to, and understanding of, the Board’s of all relevant personal attributes, work; and including skills, experience, educational • to review this policy and report on and professional background, gender, progress on an annual basis. race and age. In support of this policy, promotion of diversity and inclusiveness the Board intends: Further information and statistics on of all kinds throughout our organisation. In 2018 we were delighted to be able to report that our median gender pay-gap remained at 0.0%, and our mean gender pay-gap was 5.7%, reduced slightly from the prior year. We have also been pleased to participate again this year in the Hampton-Alexander Review which set a target for the percentage of women on FTSE boards and leadership teams to reach one third by 2020. • to continue only to engage executive gender diversity at FDM can be found search firms who have signed up to within the Corporate Responsibility the Voluntary Code of Conduct for report on page 20. Executive Search Firms on gender diversity and best practice; • to require executive search firms to Conflict of interests Procedures are in place for the identify and present an appropriately disclosure by the Directors of any diverse range of candidates for each interest that conflicts, or may possibly vacancy; conflict, with the Group’s interests and • to consider all aspects of diversity for the appropriate authorisation to be including gender and ethnicity when sought if a potential conflict arises, in reviewing the composition and accordance with the Company’s Articles We believe that by making the most of our differences of approach, and using balance of the Board as part of the of Association. Board’s annual effectiveness the collective experiences, backgrounds, evaluation; In deciding whether to authorise a skill-sets and knowledge of our talented and diverse employees, we will drive innovation and success and achieve more for our stakeholders. This applies equally to our Board. The composition of our Board is vital to its effectiveness and that, in turn, enhances good governance. • to ensure that the succession conflict or potential conflict of interest planning and talent management programme includes initiatives to only non-interested Directors (i.e. those that have no interest in the matter develop the pipeline of talent, to under consideration) will be able to take encourage and monitor the the relevant decision. In taking such a development of a diverse range of decision the Directors must act in a way internal high-calibre employees and they consider, in good faith, will be most to promote diversity in appointments likely to promote the success of the to the senior management team who Company and may impose such limits or will in turn aspire to a Board position; conditions as they think fit. The Board has reviewed the procedures in place and considers that they operate effectively. No actual conflicts of interest arose during the year under review or to the date of this report. 65 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Appointments to the Board The Board operates a formal and Board commitment When making new appointments, the • Meetings with the Company’s key advisors and major shareholders, transparent procedure for the Board considers other demands on where necessary; appointment of new directors, the Directors’ time to ensure that they are • Meetings with employees at different primary responsibility for which is able to devote sufficient time and focus delegated to the Nomination to their role at FDM. New external Committee. There is more information appointments may not be undertaken about this procedure and the way the without the prior approval of the Board, Nomination Committee applied it in and where any significant new respect of the appointment of David appointments are approved by the Lister as Chairman on page 81. Board, we intend to explain in the subsequent Annual Report the Board’s The Board recognises its responsibility rationale in giving that approval. For for succession planning and regularly FDM’s Executive Directors we recognise considers the balance of skills, that external board exposure can be experience and knowledge of the Board useful as part of their development as to ensure it remains appropriate to the Directors, but we will not normally business and that the Board is best permit them to take on more than one placed to achieve the Group’s strategic external non-executive directorship at FDM Academies and centres. In addition, the location of Board meetings is periodically rotated to ensure that Board members have further opportunity to meet employees at different sites; • Provision of a legal and regulatory memorandum and briefing on the duties of directors of listed companies; • Details of the Group’s corporate structure, Board and Committee structures and arrangements and key policies and procedures; and • The latest statutory financial reports objectives. With this in mind, the FTSE 100 level (or another equivalent and management accounts. Nomination Committee intends to ask the Group’s newly-appointed Chief significant appointment). Sheila Flavell is on the board of techUK. No other The Chairman, in conjunction with the Executive Director currently has an Company Secretary, ensures that People Officer to commence a detailed review of the existing plans for the succession and talent management for external commitment. the Board and the senior management Non-Executive Directors are expected team. Further details of this and the to commit at least 24 days per annum to other work undertaken by the FDM and in practice may commit Nomination Committee are set out on considerably more time than this. The pages 80 to 83. This is a significant project which will take some time to Board is satisfied that each of the Non-Executive Directors (including the complete, and it will continue to be a key priority for the Board throughout the current financial year. We expect to be able to report on this in further detail in Chair) has sufficient time to devote to the business of the Group and keeps this under regular review. next year’s Annual Report. The current key external commitments of the Directors are included within their biographies on pages 56 to 59. Directors are provided with updates on changes in the legal and regulatory environment in which the Company operates. These are incorporated into the annual agenda of the Board’s activities along with wider business and industry updates. The Company’s principal external advisors provide updates to the Board, at least annually, on the latest developments in their respective fields, and relevant update sessions are included in the Board’s meetings. The Company Secretary updates the Board as appropriate on developments in corporate governance and any relevant legal or regulatory Details of the remuneration received by changes. In this way, each Director each of the Executive Directors for the year ended 31 December 2018 are shown in the single figure table presented on page 89 of the Remuneration Report. Board induction and development On appointment, each Director takes keeps their skills and knowledge current so they remain competent at fulfilling their role, both on the Board and on any Committee of which they are a member. Specific training and development needs of individual directors are explored as part of board evaluations (and may be requested by individual directors directly) and are addressed by part in a tailored induction programme, the provision of in-house training or designed to give him or her an external courses, as appropriate. Each understanding of the Group’s business, of the Non-Executive Directors also governance and stakeholders. Elements of the programme include: • Briefings from senior management to provide a business overview, update on current trading conditions and strategic commercial issues; receives training and development in the course of outside roles held by them which contributes to the currency of their knowledge and experience in performing their work at FDM. 66 FDM Group (Holdings) plcAnnual Report and Accounts 2018Corporate Governance Report Information and support The Board meets regularly throughout the year, following an agenda which is agreed in advance based on themes from the Group business plan. The setting of the agenda is led by the Chairman in discussion with the Chief Executive and the Company Secretary, but all Board members are welcome to put forward topics for discussion. Standing items, including operational and financial reviews and Committee updates are considered at each scheduled Board meeting, with unplanned items such as commercial or property-related decisions considered as and when required. In addition, potential topics are identified for strategy sessions, management updates and other Board discussions. Ahead of each Board meeting, all Board members are supplied with an agenda and a pack containing specific papers on particular strategic issues, as well as reports and management information on current trading, operational issues, compliance, risk, accounting and financial matters. The Chairman works with the Company Secretary to ensure that the supporting papers are clear, accurate, timely and of sufficient detail to enable the Board to discharge its duties effectively. The Board’s forward agenda is co-ordinated with those of its Committees and the Chairs of the Committees report on the activity of their Committees at Board meetings, with copies of Committee meeting minutes being circulated to all Directors (where appropriate). At regular intervals throughout the year, senior managers from around the Group attend Board meetings to update the Board on progress being made and matters arising in their parts of the Group’s business. To ensure that there is sufficient time for the Board to discuss matters of a material or more discursive nature, Board dinners and other informal gatherings are held after certain scheduled Board meetings which allow the Directors greater time to discuss key topics with additional internal and external participants. In particular this enables the Non-Executive Directors to explore business and operational issues in greater depth with the senior managers who have reported to the Board. The key areas of focus by the Board in 2018 Strategy • Reviewed the Group’s three-year plan (2018-2020) • Review of the development of new service offerings • Strategic updates from the Group’s senior management teams Operational • Reviewed the requirements for Academy space, including approval of new Academy locations • Business updates from the Group’s senior management teams Financial • Review and renewal of treasury and risk appetite policy Risk Governance • Monthly trading statements • Full year and half year results • Group budgets and re-forecasts • Approval of dividends • Review of Risk Register and risk management process • Externally-facilitated review of the effectiveness of the Board and its committees • Launch of a new succession planning and talent development programme • Gender Pay Gap reporting • Update on Modern Slavery Act compliance • Approval of updated terms of reference for the Board’s committees • Review and update of the Schedule of Matters Reserved for the Board • Viability statement; assessment and approval • Going concern review Employees • Planning for the introduction of a new all-employee Buy-As-You-Earn share scheme All Board Directors have access to the Company Secretary, who advises them on Board and Governance matters. The Audit Committee received external training covering updates in corporate governance and corporate reporting. The Remuneration Committee received external training on developments during the year in governance and trends in shareholder expectations and good practice relating to executive remuneration. As well as the support of the Company Secretary, there is a procedure in place for any Director to take independent external professional advice at the Company’s expense in the furtherance of their duties. 67 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Evaluation of the Board and its Committees In accordance with current best practice Re-election of Directors at the 2019 AGM The Company’s Articles of Association Risk management and internal control The Board is ultimately responsible for and the Code, the Board undertakes an require that existing Directors offer maintaining sound risk management annual formal evaluation of its themselves for re-election at intervals and internal control systems. These performance and effectiveness and that of no more than three years. At the 2019 systems are designed to meet the of each Director and its Committees. AGM, in compliance with Code provision Group’s needs and to manage the risks The process is led by the Nomination B.7.1 (and reflecting the Company’s to which it is exposed, including the Committee, and it is the Board’s policy membership of the FTSE 250), all risks of failure to achieve business to invite external advisors to assist with Directors will retire and offer objectives and of material misstatement that evaluation every three years. themselves for re-election (other than or loss. However, such risks cannot be Ivan Martin, who will be retiring from eliminated. The Group’s systems can In June and July 2018 the Board and the Board on 5 March 2019). only provide reasonable but not Committee evaluation was facilitated absolute assurance. They can never externally by Carrie Coombs and Neil In determining whether a Director completely protect against factors such Britten of CK Coombs & Co, an should be proposed for re-election at as unforeseeable events, human independent consultancy firm, whose the 2019 AGM, the Board took into fallibility or fraud. only connection with the Group is its account the Nomination Committee’s work on the Board evaluation. advice based on the results of a review The Board has established a continuous of each Director’s contribution to the process for identifying and managing The final evaluation report and suggested priorities were discussed by Board’s effectiveness, which formed part of the 2018 Board evaluation. This the significant risks faced by the Group (in accordance with Financial Reporting the Board at its meeting in July 2018, and the Board has implemented a number of changes to its way of working review confirmed that all Directors continue to be effective and demonstrate commitment to their roles Council’s ‘Guidance on Risk Management Internal Control and Related Financial and Business to reflect some of the main recommendations of the evaluation report. The changes to the composition of the Board which arise as a result of the appointment of David Lister as Chairman in March 2019 will provide a further opportunity for the Board in further developing some of the priorities which were identified during the evaluation. The Chairman and Company Secretary will assess progress against the priorities agreed during the evaluation process at regular intervals during 2019. The Non-Executive Directors met without the Chairman to evaluate Ivan Martin’s performance as Chairman and concluded that he had continued to operate effectively in the role. and so the Committee recommended Reporting’ (September 2014)). The Board’s view of the Group’s key risks and how the Group seeks to manage those risks is set out on pages 46 to 52. The Group has in place appropriate internal control and risk management systems around financial reporting. The Group accounting function is centralised and financial information is held on a central accounting system, from which internal management reporting, budgeting and external reporting is collated. The Board regularly reviews the effectiveness of the Group’s internal controls which have been in place from 1 January 2018 to the date of approval of this report. their re-appointment. C Accountability Financial and business reporting In its reporting to shareholders, the Board recognises its responsibility to present a fair, balanced and understandable assessment of the Group’s position and prospects. The Board has ensured that processes are in place to achieve this and more information on the processes can be found in the Audit Committee Report on page 77. A statement of the Directors’ responsibilities in relation to the Annual Report is set out on pages 104 and 105. The Directors consider this Annual Report and Accounts, taken as a whole, to be fair, balanced and understandable, and consider that it provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. 68 FDM Group (Holdings) plcAnnual Report and Accounts 2018Corporate Governance Report An outsourced internal audit function is Workplace Harassment and in place for the Group and the scope of Information Security and the General work undertaken during the year was Data Protection Regulation. carried out in accordance with the Successful completion of the training three-year Internal Audit Plan which was is monitored and employees’ approved by the Audit Committee on understanding can be refreshed as behalf of the Board during 2017. A more appropriate; detailed overview of the areas of focus • An outsourced Internal Audit function and programme of work undertaken by is in place, working for and reporting the Internal Audit team in the year back to the Audit Committee; E Relations with shareholders During 2018 the business has continued to work to improve its communication with shareholders through a review of its reporting and the information available on the FDM website. FDM has established an internal investor appears on page 77. • A formal budgeting process occurs relations function led by Mark Heather, annually. The budgets and forecasts the Company Secretary, and we are The key elements of the system of are reviewed, approved and internal controls include: monitored by the Board; and • The Board meets on a regular basis • Regular meetings occur between the and is responsible for the operational Executive Board and senior strategy, reviewing operating results, management team. identification and mitigation of risks and communication and application of the Group’s policies and procedures; The Audit Committee The composition and work of the Audit Committee, including its relationship • The Group has a clear organisational with the external auditors, is set out in structure with defined responsibilities the Audit Committee Report on pages and accountabilities; 72 to 78. D Remuneration The Company’s policy on remuneration and detail of the remuneration of each Director is given in the Remuneration Report on pages 84 to 100. • Regular reports are made available to the Board on key developments, financial performance against budget and operational issues in the business; • Operational and financial controls and procedures are in place including: authorisation and approval policies for financial expenditure; authorisation and approval policies for contracts and agreements; signing authorities; IT application controls; and appropriate segregation of duties and reviews by management. Further, there are additional procedures in place to address other risks to the business, including a Code of Conduct and Ethics, an Anti-Fraud policy, an Anti-Slavery & Human Trafficking policy, an Anti-Bribery & Corruption policy, and a Conflicts of Interest policy; • The Group’s finance and support functions are centralised; • The Group has implemented a portal to deliver training to all employees on key regulatory and compliance matters such as Health & Safety, planning to increase significantly the quality of information which is available on our website about our approach to Corporate Responsibility and other important topics. In next year’s Annual Report we will report on the changes which have emerged from that review, with the aim of ensuring that our investment community has an enhanced understanding of FDM’s strategy, business model, competitive position, financial information and strategic progress. In order to maintain dialogue with institutional shareholders, the Chief Executive Officer and Chief Financial Officer meet with the Company’s major shareholders following interim and final results announcements and otherwise as appropriate. The Company Secretary also talks periodically with shareholders and potential investors to explain details of our business model, Mountie recruitment, training and deployment programme, and our approach to other important aspects of our work such as inclusion, diversity and social mobility. The Company uses the AGM as an opportunity to communicate with its shareholders and welcomes their participation. Shareholders who attend the AGM have the opportunity to ask questions and all Directors are expected to be available to take questions. 69 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notice of the AGM, which will be held at Together with members of the Sales 10.30am on Thursday 25 April 2019 at 5 team, the CEO, CFO and CCO meet on a New Street Square, London EC4A 3TW, regular basis with customers in our is enclosed with this report. In different territories to discuss their accordance with the Code, the Notice of particular requirements. In the last year, AGM will be sent to shareholders at we hosted over 850 client visits to our least 20 working days before the meeting FDM academy sites around the world, and any other notice of general meeting enabling our clients to see our training will be sent to shareholders at least 14 programme in action, as well as to carry days before each general meeting and out interviews and assessments prior to will include details of the proposed engaging our Mounties to work on their resolutions and explanatory notes. projects. The senior members of our sales team maintain close long-term The Board proposes separate relationships with senior executives in resolutions for each issue and proxy our client organisations which ensure forms allow shareholders who are that we are able to anticipate our clients’ unable to attend the AGM (or general needs, and regularly update the meeting, as applicable) to vote for or structure and content of our training against or withhold their vote on each programme to reflect commercial and resolution. As soon as practical after the technological changes in the sectors in conclusion of the AGM (or general which our clients work. meeting, as applicable), we will announce the proxy votes cast, The Executive Directors meet regularly including details of votes withheld, to with partners that promote the the London Stock Exchange via its transition to the civilian work Regulatory News Service. We will also environment from the Armed Forces, publish the information on our website. and those returning to work after a career break. Sheila Flavell chairs the The Company’s Articles of Association Institute of Coding’s Industry Advisory can only be amended if such Board and sits on the main Board of amendment is approved by the techUK and its Diversity Council, she has Company’s shareholders by way of special resolution. advised government committees on issues including bridging the digital skills gap and enhancing diversity in The Group’s website (www.fdmgroup.com) the workplace. The Corporate Governance Report was approved by the Board on 5 March 2019 and signed on its behalf by: Ivan Martin Chairman 5 March 2019 is the primary source of information on the Group. Engagement with stakeholders In addition to the Company’s shareholders, the Board has identified the following key stakeholders: employees, prospective candidates and customers. The Executive Directors regularly travel spending time in each of the FDM centres and meeting with employees at all levels of seniority. This enables them to promote FDM’s culture and values throughout the organisation. The FDM Newsletter allows the Group’s culture to be spread from the Executive team to each FDM employee. 70 FDM Group (Holdings) plcAnnual Report and Accounts 2018The Group has established a core set of values which were updated in 2018 to reflect the evolution of FDM’s culture 71 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Audit Committee Report Chairman’s introduction I am pleased to present the report of the Audit Committee for the year ended 31 December 2018 which sets out the key responsibilities of the Committee in more detail, together with information on our activities during the period. Last year we reported that a three-year risk-based Internal Audit Plan had been approved by the Audit Committee during 2017. That plan covers the key financial, operational and regulatory aspects of our business. The Plan was refreshed during the year but remains broadly unchanged from that approved in 2017. Details of the work undertaken by the Internal Audit team during the year are set out on page 75. This work included a review of core financial controls, a review of the Group’s commercial contracting processes, a review of resource management processes and an assessment of the current status of FDM’s business continuity plans. Effective risk management is critical to the delivery of the Group’s strategic objectives. Overall management of the risks to our business rests with the Board, but the Audit Committee has delegated responsibility for oversight of the measures we have in place, and this remains a key focus for the Committee’s work. The Audit Committee considers that the internal audit process is an effective tool in the overall context of the Group’s risk management systems. 72 FDM Group (Holdings) plcAnnual Report and Accounts 2018Audit Committee Report We carried out an internal review of the Group’s risk management process twice Priorities Last year, in addition to the business as usual work, the Committee set itself two key during the year, in accordance with our priorities for 2018. We have made good progress in respect of both priorities, as standard practice. This review resulted outlined below: 2018 priorities Progress Focus on internal controls The three-year Internal Audit Plan, and risk management, developed in 2017, has been a key with a particular emphasis mechanism in assessing the effectiveness of on assessing wider operational controls. The work carried out operational controls. during the year covered the operational areas of commercial contracting, resource management and business continuity. The Committee considered the findings of all three reviews and a number of changes have been made in each of the areas noted which will further strengthen the overall control environment. Review plans to upgrade The Group’s IT strategic plan approved in systems to support the 2017 has been further developed. The further expansion of the Committee will be monitoring progress with business internationally. the implementation of a number of projects under this plan, including an upgrade of the Group’s Billing and Finance systems. These areas will remain a key focus for 2019 as we continue to progress our three-year Internal Audit Plan and the roll out of our IT strategic plan, with particular emphasis on continuing enhancement to our cyber-security arrangements. In addition, the Committee intends to monitor closely the impact on FDM and its key markets of the UK’s withdrawal from the EU and the UK Government’s plans for future trading and finance which will emerge during the transition period that begins in March 2019. in some minor changes to our Group Risk Register, and concluded that the risk management process is operating effectively across the business. Further information about these changes is set out on page 46. Cyber security risk will always be a significant threat to the way we operate our business, and so the development of FDM’s IT systems to keep pace with the growth of the Group, with a particular emphasis on security, continues to be a key priority for the Committee, particularly with the introduction this year of the General Data Protection Regulation. As a consequence of this, the Audit Committee receives regular reports from our Chief Information Officer on the steps which are being taken to ensure we are prepared for the threat of a cyber-attack. In addition we also received an update on some recent improvements in physical security and some changes to our hardware infrastructure which have been designed to increase further the resilience and security of our systems. The Audit Committee continues to challenge management with regard to the key judgement areas and significant financial reporting items, and these are disclosed in this report on page 76. In May 2018 I visited FDM’s finance team at our office in Brighton and was encouraged by the additional insight that they were able to provide to me about their work and the controls which are in place to manage risk in their area of the business. 73 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Role of the Committee The Committee is appointed by and Composition During the year, the members of the reports to the Board. The Committee’s Committee were Robin Taylor, the terms of reference are available in the Chairman of the Committee, Michelle Corporate Governance section of the Senecal de Fonseca, David Lister and Group’s website at www.fdmgroup.com. Peter Whiting. The Board is satisfied that Robin Taylor, Committee Chair and a chartered accountant with significant The key responsibilities of the financial experience in a public company Committee are to: environment, has the current and • monitor the application of financial relevant financial and accounting reporting and internal control experience which is required by the principles set out in the Code, and to Code. Michelle Senecal de Fonseca, maintain an appropriate relationship David Lister and Peter Whiting also have During the year, the Chief Executive Officer, Chief Financial Officer, Chief Information Officer, Group Financial Controller, in-house Senior Legal Counsel, Group Data Protection Officer and other senior management attended certain meetings at the invitation of the Committee in order to ensure that the Committee remained fully informed of events and developments within the business. Presentations were received on legal, regulatory and IT security matters, contributing to the Committee’s role in monitoring the with the Company’s auditors; experience in financial and reporting management of risk. • monitor the integrity of the financial matters through their other business statements of the Company and any experience and current external roles. formal announcements relating to the The Committee as a whole has a Company’s financial performance, sufficiently wide range of business including any significant financial reporting judgements contained in them; experience and expertise, including significant experience and competence in the sector within which FDM • review the Company’s internal operates, such that the Committee can financial controls and the Company’s internal control and risk management effectively fulfil its role. systems; There have been no changes in • ensure compliance with laws, Committee membership during the regulations, ethical and other issues, year. In compliance with the Corporate and ensure that the Company Governance Code, the Committee maintains suitable arrangements for membership is limited to independent employees to raise concerns in Non-Executive Directors of the confidence; Company. • make recommendations to the Board, and for approval by shareholders, on Members’ experience is documented on the appointment, re-appointment and pages 56 to 59. removal of the external auditor; • monitor the external auditor’s independence and objectivity and the Meetings The Committee discharges its effectiveness of the external audit process; and responsibilities through a series of scheduled meetings during the year. • implement policy on the engagement The business of the meetings follows an of the external auditor to supply annual agenda planned in advance The Group’s external auditors, PricewaterhouseCoopers LLP (“PwC”) attended three of the four Committee meetings during 2018, following the March and July meetings an informal discussion was held between Committee members and PwC without any of the executive management team being present. The Committee Chairman also met with PwC on several occasions outside of the Committee. The Internal Auditors KPMG LLP (“KPMG”) attended all four meetings during the year to discuss plans for their programme of work and to present their findings. KPMG attend for the full duration of each meeting, as the Committee believes that the effectiveness of the Internal Audit function is enhanced by an understanding of other matters covered at the meetings, and of the external audit work being carried out by the PwC. KPMG and PwC have direct access to the Committee Chairman at all times non-audit services. (subject to adaptation through the year), through the year. which incorporates items driven The Committee sets its own agenda in primarily by the financial calendar of the addition to routine matters and those Group. The Committee met four times suggested by the main Board. during the financial year with all In addition to the meetings of the Committee, the Chairman and other members of the Committee met with members in attendance at all meetings. other members of the Finance team and regional operating management throughout the year. 74 FDM Group (Holdings) plcAnnual Report and Accounts 2018Audit Committee Report Activity Principal activities during the year The following principal activities have been carried out by the Committee during the financial year: March 2018 • Reviewed and recommended to the Board the approval of the Preliminary Announcements and the 2017 Annual Report. This work included: ensuring that the report is fair, balanced and understandable; reviewing the significant judgements applied in the Annual Report; considering the appropriateness of the ‘going concern’ statement and the viability statement; and approving the statement of principal risks to the business as set out in the Annual Report • Received a presentation from PwC on their audit of the financial results for the year ended 31 December 2017, and reviewed the Auditors’ Report to the Audit Committee • Reviewed the Internal Audit plan for the three year period from 2018 to 2020, adjusting the plan to reflect the Committee’s updated priorities • Reviewed proposals for the effective management of potential contractual risk arising from the new General Data Protection Regulation • Carried out an independent evaluation of the Committee’s effectiveness • Approved the Committee’s agenda for the remainder of 2018 May 2018 • Approved the updated three-year Internal Audit Plan for the period 2018 to 2020 • Received a progress report on the implementation of recommendations from the 2017 Internal Audit programme • Reviewed and approved a number of updates to the Group’s risk register • Received a progress report on the project to upgrade the Group’s finance systems • Reviewed the effectiveness of the external auditors • Reviewed the Audit Committee’s Terms of Reference July 2018 • Reviewed PwC’s report to the Committee (interim review for the six months to 30 June 2018) • Reviewed the Interim Report, including the “going concern” statement, and recommended its approval to the Board • Reviewed and approved the statement of principal risks and uncertainties set out in the Interim Report • Received a report on the findings of the Internal Auditors following their review of financial controls • Received a further update on the finance systems upgrade project • Discussed arrangements and proposed content for Audit Committee training later in the year December 2018 • Reviewed PwC’s year-end audit plan and fees for the audit of the 2018 financial results • Reviewed and updated the Group’s risk register • Received a report from the Chief Information Officer on steps taken to mitigate risk and enhance compliance and resilience through improved physical and data security, and upgrades to the Group’s central hardware infrastructure • Received a report on the findings of the Internal Auditors following their review of commercial contracting processes, resource management processes and business continuity • Received updates on corporate reporting and ensured compliance with the latest corporate governance requirements • Undertook a review of whistle-blowing and anti-bribery policies and procedures In addition to the work outlined above: • as a standing item on the agenda of every meeting, the Committee reviews the level of fees incurred with PwC on non-audit work to ensure compliance with the Group’s policy on non-audit fees; and • in November 2018 the Committee received a training session from PwC on key developments in areas relevant to the Committee’s business in the next 12 months. 75 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Significant financial reporting items The Committee pays particular attention to matters it considers important by virtue of their potential impact on the Group’s results or the level of estimates and judgements involved in their application to the Consolidated Financial Statements. To this end, the Committee receives regular reports from the Chief Financial Officer and the Group’s external auditors, PwC. The Committee has considered all significant estimates and judgements identified in note 4 to the Consolidated Financial Statements on pages 124 and 125, having received drafts of the Annual Report and financial statements in sufficient time ahead of signature to enable a thorough review, and allow for the opportunity to challenge and discuss the Report’s content. The main areas of focus during the year are unchanged from 2017 and are set out below: Area of focus Steps taken to address each area Revenue Revenue in respect of non-receipted timesheets is accrued at a percentage of the estimated contract value where The Committee discussed and reviewed revenue recognition in detail with management and PwC and remains satisfied that Group accounting policies with timesheets have not been received at the cut-off date from regard to revenue recognition have been adhered to and Mounties or contractors. that judgements remain appropriate. There is no material impact on the Group’s results from the application of the new standard IFRS 15, ‘Revenue from contracts with customers’ (effective for accounting periods beginning 1 January 2018). Share-based payments For a fourth year, the Company granted awards under the The Committee received and reviewed a paper containing the key assumptions and judgements applied in calculating FDM Performance Share Plan (“the PSP”). Associated with the share-based payment charge. The Committee is accounting for the awards are judgements relating to the satisfied that the assumptions and judgements applied are number of shares which will vest. appropriate. Going concern and viability The Committee has considered the “Going Concern” basis assumed within the financial statements and viability period. The underlying assumptions, the reasonableness of those assumptions and the headroom/funding facilities available were considered as part of the Committee’s The Committee received and reviewed a paper prepared by the Finance team supporting the adoption of the going concern basis and the appropriateness of the viability period. The Committee is satisfied with the judgements in these areas and that sufficient work was performed to enable the Committee to conclude on the adoption of the review. The review also considered the impact of a range of going concern basis. The Committee reviewed and sensitivities on the key assumptions. Impact of new accounting standards The Committee has considered the impact of new accounting standards including IFRS 9 ‘Financial Instruments’, IFRS15 ‘Revenue from contracts with customers’, and IFRS 16 ‘Leases.’ concurred with the reasonableness of the viability period included within the viability statement on page 53. The Committee has reviewed papers prepared by the Finance team, outlining the impact of new accounting standards as applied to FDM and is satisfied that the impact has been appropriately assessed. There is no material impact from the introduction of IFRS 9 and IFRS 15. The anticipated impact from the introduction of IFRS 16 from 1 January 2019 is set out in note 5 to the Consolidated Financial Statements. 76 FDM Group (Holdings) plcAnnual Report and Accounts 2018Audit Committee Report Fair, balanced and understandable As requested by the Board, the Internal control and risk management The Committee is responsible for Committee has considered whether, in monitoring and reviewing the its opinion, the Annual Report and effectiveness of the Group’s internal Accounts 2018 is fair, balanced and control and risk management systems. The findings from the reviews were presented to the Audit Committee throughout the year and are supported by related action plans where relevant. No serious weaknesses were identified by the Internal Audit reviews carried out understandable and provides the Through monitoring the effectiveness of during the year. information necessary for shareholders its internal controls and risk to assess the Group’s position and management, the Committee is able to performance, business model and maintain a sound understanding of the strategy. In forming its opinion, the Group’s trading performance, key Committee considered the information judgemental areas and management’s As the Internal Audit Plan is risk-based, the Audit Committee considers that the internal audit process is an effective tool in the overall context of the Group’s risk it had received and the discussions that decision-making processes. management systems. have taken place with senior managers in the business. The key elements of the Group’s internal The Chairman of the Audit Committee control framework and procedures are also met with the Internal Audit team in All members of the Committee received set out on pages 68 and 69. a full draft of the Annual Report and Accounts two weeks prior to the meeting at which it was required to provide its final opinion. The Committee reviewed the report to ensure that: it provided a balanced reflection of the Group’s performance; the presentation of adjusting items was relevant and Internal Audit The Group’s Internal Audit function is wholly outsourced. There were two elements to the Committee’s rationale in deciding to outsource the Internal Audit function: first, it is considered that outsourcing ensures the process is understandable; all material matters independent and second, it guarantees were considered; and there was internal specialist input when required, taking consistency and there were linkages into account international boundaries advance of every meeting without management present. External auditor PwC is the Group’s current external auditor, having been appointed in 2013. The Group is not required under current EU legislation to conduct a tender before the year ending 31 December 2023. Any recommendation relating to the re-appointment of the external auditors will continue to be the subject throughout, including the presentation and the need for technical specialism, of rigorous review each year. of the risks and significant judgements. particularly when reviewing non- financial areas of the business. The Committee concluded that in its opinion the Annual Report and Accounts A three-year Internal Audit Plan was 2018, taken as a whole, was fair, approved by the Audit Committee in balanced, and understandable, and 2017 and refreshed during the year. The considers that it provides the Plan is risk based and covers all key information necessary for shareholders to assess the Group’s position and performance, business model and financial, operational and regulatory parts of the business. Specifically, in 2018, the following areas were reviewed: strategy. The Committee made a commercial contracting processes; recommendation to the Board to this resource management processes; and effect. The Directors’ statement of responsibilities on a fair, balanced and understandable annual report is given on pages 104 and 105. business continuity. A second review of the Group’s key controls covering significant financial processes which are documented in the Risk Controls Matrix (“RCM”) was also carried out. These had previously been reviewed in 2016 but given the importance of ensuring we have robust controls over our financial processes, it is intended that core financial controls will continue to be reviewed on a regular basis. Auditor independence and objectivity Both the Committee and the Board keep the external auditors’ independence under review. From July 2016, the Committee has been monitoring the fees paid to the external auditor for non-audit work at each Committee meeting. Any non-audit work which will result in fees exceeding £5,000 must be approved in advance by the Chairman of the Audit Committee. More substantial work involving fees exceeding £50,000 requires the approval of the Committee as a whole. The Group receives a formal statement of independence and objectivity from PwC each year and obtains quotes in a competitive tender for all non-audit work performed. 77 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Fees for non-audit work carried out by PwC as a percentage of audit fees for Whistleblowing The Group has in place a whistleblowing the year ended 31 December 2018 were policy which enables employees to 22% (2017: 23%). Further disclosure of the non-audit fees paid during the report concerns on matters affecting the Group or their employment, without year ended 31 December 2018 can be fear of recrimination. found in note 7 to the Consolidated Financial Statements. The Group continues to engage KPMG, an independent accounting firm, to perform internal audit work, tax The Committee reviewed the Group’s whistleblowing policy and procedures in December 2018 and is satisfied that they remain appropriate. There were no instances of whistleblowing during consulting and other assignments to the year. further ensure that the independence and objectivity of the external auditor is not compromised. This internal audit function is currently carried out by KPMG, as referred to above. External audit partners are rotated every five years. The current external audit partner is Jaskamal Sarai, who has been in the role for four years. Effectiveness of external auditor During the year, the Committee reviewed the effectiveness and Anti-bribery and Corruption policy The Group has a zero-tolerance policy to bribery and corruption. The Group’s Anti-bribery and Corruption policy is issued to all employees, and training is provided to all current employees and new starters to ensure that they understand the Group’s policy and the importance of compliance. The Committee reviewed the effectiveness of the policy in December 2018 and concluded that it remains an effective tool for managing the anti-bribery and independence of the external auditor, corruption risks faced by the Group. using a questionnaire which was completed by key members of the Finance team, each member of the Committee and the Chief Financial Officer. The questionnaire asked individuals to rate the performance of the PwC audit team in the following areas: knowledge and expertise; independence and objectivity; effectiveness of the planning process; ability to firmly challenge management; and quality of audit deliverables. The feedback from the questionnaire was then used as the basis for a more wide-ranging discussion at the meeting Audit Committee effectiveness The effectiveness of the Committee in discharging its duties was considered as part of the in-depth and independent evaluation of the entire Board which took place from May to July 2018. The process of that evaluation and its findings are set out in further detail in the Nomination Committee Report on pages 81 and 82. The Committee regularly reviews its terms of reference and updates them as necessary to reflect current best practice, and to held in May 2018 (at which PwC were not ensure that its approach remains in line present). Based on the feedback and with those terms of reference and the their further discussions, the Committee Financial Reporting Council’s Guidance concluded that: • the overall audit approach, materiality, threshold and areas of audit focus were appropriate to the business; and • the audit team possessed the necessary quality, expertise and experience to provide an independent and objective audit. for Audit Committees. The Committee is satisfied that it continues to be effective in discharging its duties. Robin Taylor Chairman of the Audit Committee 5 March 2019 78 FDM Group (Holdings) plcAnnual Report and Accounts 2018The Committee will be monitoring progress with the implementation of a number of projects under the Group’s IT strategic plan 79 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Nomination Committee Report Chairman’s introduction I am pleased to present the report of the Nomination Committee for the year ended 31 December 2018. The primary role of the Nomination Committee is to monitor the composition, balance and structure of the Board, and to plan for its refreshment as appropriate. The Committee undertook a review of its effectiveness during 2018 and concluded that the Committee continues to operate effectively. Information on the activities of the Committee during the year is set out in this report. The Board evaluation is a valuable process that allows the Board to challenge itself to enhance the effective and efficient conduct of Board business, for the benefit of FDM and all its stakeholders. 80 FDM Group (Holdings) plcAnnual Report and Accounts 2018Nomination Committee Report Committee composition The Committee is appointed by and reports to the Board, and comprises the Chairman, the Chief Executive and all four of the independent Non-Executive Directors. The following members served on the Committee during the year: The main responsibilities of the The Committee engaged Sapphire Committee are to: • Review the structure, size and Partners, an external search consultancy, to assist with the process. composition of the Board and its The Board has previously engaged Committees including its balance of Sapphire Partners in relation to the skills, knowledge, experience and search for Non-Executive Directors, but diversity, and make recommendations they have no other connection with the to the Board with regard to any Company. A wide range of internal and Ivan Martin (Committee Chairman) changes; external candidates was assessed Rod Flavell Robin Taylor Peter Whiting Michelle Senecal de Fonseca David Lister Ivan Martin will step down as Committee Chairman on 5 March 2019 when he retires from the Board, and will be succeeded as Chairman of the Committee by David Lister. Role of the Nomination Committee The role of the Committee is summarised below and detailed in full in its terms of reference, a copy of which is available on the Group’s website (www.fdmgroup.com). • Lead the process for identifying against the Board’s criteria for the role, candidates to fill Board vacancies as with a thorough process resulting in a and when they arise, and recommend shortlist of preferred candidates, which new appointments to the Board for was given final consideration by the approval; Committee. The Committee • Consider succession planning for subsequently made a recommendation Directors and other senior executives to the Board, following which David taking into account the challenges and Lister will be appointed as Chairman of opportunities facing the Company, the Board on 5 March 2019. and the skills and experience needed on the Board in the future; • Keep under review the leadership needs of the Group, both executive 2018 Board effectiveness review Our view is that Board evaluation is a and non-executive, with a view to valuable process that provides a regular ensuring that FDM can continue to mechanism by which the Board can compete effectively in the marketplace; challenge itself to identify any areas where its performance can be improved • Review the results of the Board to enhance the effective and efficient performance evaluation process conduct of Board business, for the which impact on Board composition; benefit of FDM and all its stakeholders. and • Ensure that Non-Executive Directors are able to allocate sufficient time to their work at FDM to allow them to fulfil their duties. Appointment of new Board Chair In March 2018, after 12 years as The Code requires that FTSE 250 Companies should arrange for the evaluation of the Board to be externally facilitated at least every three years, and the Board decided to take the first opportunity to carry out an externally facilitated evaluation of the Board and its Committees during 2018 (FDM’s first year following its entry to the FTSE 250). Chairman of FDM, Ivan Martin informed The Nomination Committee led the the Board that he intended to step planning and implementation of this down once the search for a new Board evaluation on behalf of the Board and, Chairman had been completed. after assessing a number of potential providers, engaged Carrie Coombs and The Nomination Committee led the Neil Britten of CK Coombs & Co to carry search for the new Chair, beginning with out the work. CK Coombs & Co is a the preparation of a description of the specialist consultancy and has no other role and the capabilities required for it. connection with FDM. 81 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018The evaluation was carried out from • There are effective systems and • In recognition of the fact that the May to July 2018, based on: processes in place to ensure that FDM Board is now four years into its • A review of Board agendas, papers, fully meets its statutory and transition from a private-equity minutes, presentations and other key corporate governance obligations, backed private company to a working documents over the previous and these systems are regularly premium-listed FTSE 250 company, 16 months (including the previous reviewed. and the change in approach which year’s Board evaluation exercise); • The breadth of skill and experience this journey necessarily involves, the • Individual face to face interviews with amongst the Board members is Board intends to keep working to each Board member, using structured regularly used positively and improve further the dynamics of questions and less formal discussion effectively, particularly when material discussions in the Board’s meetings to to allow a full exploration of individual business issues are being discussed, ensure that they remain open and members’ impressions; and the Board operates effectively challenging, that the FDM values and • Interviews with a number of other and with unity when unexpected culture are consciously applied during stakeholders, including some from adverse events are encountered. the Board’s discussions, and that the within FDM and also external advisors skills and experience of all Board who work closely with the Board; The evaluation also identified areas on members can be brought to bear on • Observation of a number of Board which the Board has been focussing to all of the Board’s business. and Committee meetings; and enhance its effectiveness. The Chairman • The Board has also reviewed and • Collection and analysis of 360-degree has put in place a detailed plan to enhanced the processes and tools survey feedback. implement recommendations arising which it uses to facilitate its from the evaluation process, including management of risk. In addition to the Board and Committee evaluation, the review included an prioritising the following activities: • The development of a detailed evaluation of the individual succession plan for the Board and performance and effectiveness of each Director, each Committee Chair, and the senior management team, including a talent development plan across the Board Chairman (the latter being carried Group to support it, remains a key out separately by the Senior priority for the Board where further Independent Director working with his and more urgent progress is needed fellow Non-Executive Directors). to support the Group’s continuing growth. As a result of the Committee’s The results of the evaluation were recommendations, the Company has presented to the Board in July 2018 and summarised in a written report. The engaged a Chief People Officer to lead this project on behalf of the Board. evaluation report concluded that the Further information is set out later in Board works effectively in many areas of its work. In particular: • The current structure and size of the this report. • On completion of the evaluation, the Board immediately increased the time Board is appropriate at this stage in and focus allocated in Board meetings the Group’s growth, balancing to future strategy, strategic risk and continuity and a deep understanding external factors. By reducing the time of the FDM operating model with high spent in Board meetings on routine levels of expertise relevant to the operational and reporting issues, the Company and its sector, markets and Board can further develop and customers. The Board’s committees challenge the Group’s strategic plan all work effectively and are well- to make it more robust. I am pleased established with appropriate to report that this refreshed approach composition and regularly-reviewed has enabled a more wide-ranging terms of reference. exploration of the issues under discussion and is working well to make our Board meetings more effective. 82 FDM Group (Holdings) plcAnnual Report and Accounts 2018Nomination Committee Report Succession planning A key task of the Committee is to keep under review the Company’s succession Independence and effectiveness As recommended by the Code, plans for members of the Board over excluding myself, all the current the short, medium and longer term, to Directors will be standing for re-election ensure that the Board maintains the at the AGM in 2019. Having reviewed the appropriate balance of skills and independence and contribution of the experience to carry out its work in the Directors, the Committee confirms that most effective way. In particular, when the performance of each of the the opportunity arises for refreshment Directors continues to be effective and of the Board, the Board bears in mind each demonstrates commitment to their the need to ensure that its membership roles, including independence of is diverse. This year, the Board adopted judgement, commitment of time for the a new Board diversity policy to assist in Board and (where relevant) Committee this aim. Further details of the new meetings and their other duties. policy are on page 65. Accordingly, the Committee has recommended to the Board that all With this in mind and at the current Directors of the Company be recommendation of the Committee, in proposed for re-election at the forthcoming AGM. Ivan Martin Chairman of the Nomination Committee 5 March 2019 November 2018 the Company appointed a Chief People Officer, a senior executive role reporting regularly to the Board. The new Chief People Officer will commence a detailed succession planning exercise for the Board and the senior management team, beginning with the Executive Directors. This will be an in-depth project which will take some time to complete, and we will be in a position to provide a further progress report next year. Another key role of the Chief People Officer will be to develop a Group talent management plan to ensure that the Board and senior management succession plans are underpinned by a pipeline of talented managers with the skills, experience and deep understanding of the FDM model to support the Group in its next phase of growth. 83 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Remuneration Report Statement from the Chairman of the Remuneration Committee On behalf of the Board, I am pleased to present our Remuneration Report for the year ended 31 December 2018. Our new Directors’ Remuneration Policy was approved by shareholders at the 2018 AGM with over 97% of the votes cast in favour of it, and I was delighted to see strong shareholder support also reflected in over 98% of the votes cast at that meeting being in favour of the 2017 Directors’ Remuneration Report. The Remuneration Committee has considered the policy during 2018 and concluded that it remains appropriate. Therefore, the policy will continue to apply in 2019. However, reflecting the introduction of the new Corporate Governance Code, we are making some changes to the way in which we implement the policy, including the application of a holding period to the PSP awards and the enhancement of the recovery provisions applying to variable remuneration. We have described these changes later in this report – our approach will be formally enshrined in the policy when we next seek shareholder approval for it, which we currently plan to be at the 2021 AGM. In order to broaden the scope and benefits of employee share ownership, which is fundamental to FDM’s culture, we have adopted an all-employee share plan, which is offered to employees internationally. 84 FDM Group (Holdings) plcAnnual Report and Accounts 2018Remuneration Report We have also included in this report a CEO pay ratio, comparing the remuneration of our CEO to that of the wider workforce. Although we are not required to include this until we publish our 2019 Directors’ Remuneration Report, we have done so on a voluntary basis; the detail is set out on page 94. A “snapshot” summary of our remuneration arrangements is set out below. Salary and fees Our approach to Executive Directors’ salaries in 2018 was described in our 2017 Directors’ Remuneration Report, and more information is given below. The annual fee for the Chairman will increase to £165,000 with effect from 5 March 2019, on appointment of David Lister as Chairman. In determining the fee for the new Chairman, regard was had to the level of fees paid for chairing companies of a similar size and complexity. The additional annual fee payable to the Chair of the Nomination Committee will remain at £5,000 and David Lister will receive that fee when he takes on the Chair of the Nomination Committee with effect from 5 March 2019, in accordance with the Directors’ Remuneration Policy and in keeping with the approach taken in respect of the current Chairman. No increases are proposed to Executive Director salaries or to the fees of the Non-Executive Directors for 2019, and the salaries and fees that have applied since 1 April 2018 are set out on page 92. Annual bonus • 2018: Executive Directors’ earned bonuses of 58% of salary. Further information is given on page 90. • 2019: Whilst the policy allows for an annual bonus opportunity of 150% of salary, each Executive Director will be eligible to earn a bonus of up to 100% of salary for 2019. PSP • Awards vesting by reference to performance in 2018: Each Executive Director was granted a PSP award in 2016 over 40,000 shares. Those awards were subject to performance conditions based on EPS over the three-year period ending 31 December 2018. Reflecting the strong performance over the three year period, the awards will vest at 100%. Further information is given on page 87. • Awards granted in 2018: Each Executive Director was granted an award in 2018 over 18,500 shares in respect of the performance period 2018 – 2020. Further information is given on page 92. • 2019: PSP awards will be granted with performance conditions based on growth in EPS. Further information is given below and on page 93. • Although the policy only requires the application of a post-vesting “holding period” if awards are granted in excess of 100% of salary, a two year holding period will apply to awards granted in 2019 and future years. Our strategy Our approach to reward is linked to our strategy. Mountie revenue, profitability and earnings per share are all key performance indicators – we reflect these in our bonus and PSP performance metrics. In addition, Executive Directors’ interests are aligned with shareholders through their shareholdings and we reflect our commitment to employees by extending share plans widely, as described below. Share ownership Our Directors’ Remuneration Policy approved at the 2018 AGM increased the level of our shareholding guideline for Executive Directors to 200% of salary. Our Executive Directors all have significant shareholdings, directly aligning their interests with those of shareholders. As shown on page 91, each of our Executive Directors holds shares with a value significantly in excess of our formal shareholding guidelines. During 2019, the Committee will develop a policy on post-cessation of employment shareholdings for Executive Directors, having regard to the requirements of the new Corporate Governance Code and developing market practice in this area. We will report on this guideline in the 2019 Directors’ Remuneration Report, before formally enshrining it in the next directors’ remuneration policy. Share plan participation Reflecting our culture and the importance of employee share ownership, we extend our share plan awards widely within the Group. In 2018, as in 2017, PSP awards to Executive Directors were significantly lower than the maximum permitted under the policy in order to permit larger awards to key individuals below Board level. Additionally, the Company has implemented an all-employee share plan to further promote the employee share ownership culture at FDM. 85 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018In this report we set out the Remuneration earned by Directors in 2018 and how the policy will operate for 2019. We then set out an extract of the policy approved at the 2018 AGM; the full approved policy is available on our website. This summary highlights the key features of our Policy and what have we done this year. We hope shareholders will find this useful. We aim to be clear and transparent in our approach and we take our responsibility to shareholders seriously. We hope this summary will demonstrate how we balance appropriate reward with the delivery of value to shareholders, ensuring that Executive Directors’ remuneration is linked to the achievement of stretching performance measures, without encouraging the taking of unnecessary risk. The Remuneration Committee The role of the Committee is to: • Determine the Company’s remuneration policy for all Directors and the Chairman; • Review and determine remuneration and incentive packages for each of the Company’s Executive Directors and the first layer of senior management below the Board; • Operate the Company’s incentive plans in line with the policy report and various plan rules; and • Ensure it is kept abreast of issues affecting all aspects of executive remuneration. Details of the attendance at Committee meetings are set out in the Corporate Governance Report on page 64. The full Remuneration Committee terms of reference can be found on the Company’s website. Details of the advisors to the Committee are set out on page 95. Remuneration in 2018 The remuneration policy approved at the 2018 AGM applied during 2018. The table below summarises the principal decisions in respect of 2018 in accordance with that policy. Salary We explained in the 2017 Directors’ Remuneration Report that we would review the Executive Directors’ salaries during 2018 in light of the growth in the Company since IPO, recognising that the average salary increase of the Executive Directors since the Company’s IPO had been less than that of the wider workforce and that no Executive Director received a salary increase in 2017. Following that review, Executive Directors’ salaries were increased with effect from 1 April 2018 by 10%, below the increase for the UK workforce (excluding Mounties) in 2017 and 2018 combined. There is no current intention to increase Executive Director salaries in 2019. Bonus Our Directors’ Remuneration Policy provides for a maximum bonus opportunity of 150% of salary. Notwithstanding this, the bonus opportunity for 2018 was a maximum of 100% of salary. As with 2017, the Executive Directors’ bonus opportunity was subject to stretching targets based on Group pre-tax profit (governing 80% of the opportunity) and Mountie revenue (governing 20% of the opportunity), directly aligned to our KPIs. Bonuses earned by the Executive Directors in respect of 2018 were 58% of salary Further details of the annual bonus outturn are included in the Annual Report on Remuneration on page 90. 86 FDM Group (Holdings) plcAnnual Report and Accounts 2018Remuneration Report PSP vesting by reference to performance in 2018 PSP awards were granted in April 2016. The awards vested at 100%, reflecting the exceptionally strong performance of the Company over the three-year performance period ending 31 December 2018, as summarised below; further information is given on page 90. Compound annual growth in EPS Vesting Performance outcome (compound annual growth in adjusted1 EPS) 10% p.a. 25% Greater than 10% p.a. but Determined on a straight- less than 17% p.a. line basis between 25% and 20% 17% p.a. or greater 100% 100% In addition to the EPS targets, the extent to which each award vested was subject to the Committee’s assessment of the overall financial performance of the Company during the performance period. The Committee considered this performance and concluded that vesting at 100% was reflective of the overall financial performance of the Company such that vesting at that level should be approved. In the single figure of remuneration table on page 89, the full value of the awards is shown. The award was earned over the three-year period 2016–2018 and the value earned reflects the significant increase in the share price over that period. We have illustrated below the proportion of the value which is attributable to the starting value of the award and the proportion attributable to the growth in the share price. £224,400 (66%) £115,600 (34%) £340,000 50,000 100,000 150,000 200,000 250,000 300,000 350,000 Value attributable to starting share price Value attributable to growth in value PSP awards granted in 2018 In the Directors’ Remuneration Policy approved at the 2018 AGM, we increased the PSP limit from 100% of salary to 150% of salary. However, the purpose of the increase was to provide flexibility over the life of the policy and we have not used that additional headroom nor granted at the previous maximum of 100% of salary. In 2018, each Executive Director was granted an award over 18,500 shares, representing an award over the following percentages of salary*: Rod Flavell: 47% Sheila Flavell: 63% Mike McLaren: 65% Andy Brown: 63% 1 The Committee has at its discretion assessed performance outcome based upon adjusted EPS as defined in Note 12 in the Consolidated Financial Statements. * Calculated by reference to the salary applying with effect from 1 April 2018 87 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018 Remuneration in 2019 The policy approved at the 2018 AGM will continue to apply for 2019 and further information is given in the Annual Report on Remuneration. In summary, there are no significant changes to the approach to the application of the policy in 2018. Salary: Executive Directors’ salaries for 2019 are intended to remain at the levels set with effect from 1 April 2018, as set out on page 92. Annual Bonus: Executive Directors’ annual bonus opportunity will continue to be limited to 100% of salary, subject to the achievement of stretching targets based on PBT and Mountie revenue. PSP: PSP awards will be granted at the level of up to 100% of salary. As in previous years, the awards will be subject to performance conditions based on growth in EPS. In setting the targets for the PSP awards, the Committee has considered the Company’s continued growth and maturity, and market conditions. The Committee was mindful of the need to ensure that the targets reflect an appropriate level of stretch, and having regard to both internal and external forecasts, the Committee has set the target ranges as 8% to 13%. The Committee regards these targets ranges as requiring the same level of stretch as the targets for previous awards. Any vesting will be subject to the Committee’s assessment of the overall financial performance of the Company over the performance period. Although the policy only requires the application of a post-vesting “holding period” if awards are granted to current Executive Directors over shares with a value in excess of 100% of salary, we have agreed that a two year holding period will apply to the awards granted in 2019 and in future years. Variable pay: We have extended the circumstances in which recovery provisions (“malus” and “clawback”) may be applied to the annual bonus and PSP awards, including as a “trigger” event to these actions material corporate failure and serious reputational damage. The Committee recognises the benefits of employee share ownership, which is fundamental to the Company’s culture, and is reflected in the wide participation in our share incentive plans. In order to broaden the scope and benefits of employee share ownership the Company has adopted an all-employee share plan which will be offered to employees internationally. This will enable all employees to purchase shares in the Company and receive additional shares depending on the period of time for which the purchased shares are retained. This will enable a much broader population of employees to benefit from share ownership and will act as a tool to aide retention. Whilst this is an all-employee share plan, the Executive Directors will not participate in it. Feedback We always welcome feedback from shareholders on any aspect of our Directors’ remuneration and will continue to monitor our remuneration policy to ensure it remains aligned to the business strategy and delivery of shareholder value. Peter Whiting Chairman of the Remuneration Committee 5 March 2019 88 FDM Group (Holdings) plcAnnual Report and Accounts 2018 Remuneration Report Annual Report on Remuneration Audited Section The Audited Section of this report comprises only the following sections: • Single figure table; • Annual bonus for 2018; • Long term incentives vesting in respect of 2018; • Directors’ shareholding and share interests; • Performance Share Plan awards granted in 2018. Single figure table The table below details the total remuneration receivable by each Director for the financial years ended 31 December 2018 and 31 December 2017. Where necessary, further explanation of the values provided is included in the notes to the table or the additional information that follows it in relation to the 2018 annual bonus and the long term incentives vesting in respect of 2018. Salary and fees £000 Benefits £000 Annual bonus £000 Long term incentives £000 Pension £000 Total remuneration £000 Executive Directors Rod Flavell Sheila Flavell Mike McLaren Andy Brown Non-Executive Directors Ivan Martin Peter Whiting Robin Taylor Michelle Senecal de Fonseca David Lister 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 395.1 367.5 293.5 273.0 282.2 262.5 293.5 273.0 149.0 131.0 65.5 52.0 56.8 47.0 48.0 42.0 48.0 42.0 20.2 19.6 13.4 13.0 14.7 13.8 13.7 13.3 – – – – – – – – – – 229.5 294.0 170.5 218.4 163.9 210.0 170.5 218.4 – – – – – – – – – – 340.0 443.5 340.0 443.5 340.0 443.5 340.0 443.5 – – – – – – – – – – 10.2 9.5 7.6 7.1 7.3 6.8 7.8 8.2 – – – – – – – – – – 995.0 1,134.1 825.0 955.0 808.1 936.6 825.5 956.4 149.0 131.0 65.5 52.0 56.8 47.0 48.0 42.0 48.0 42.0 The figures in the single figure table above are derived from the following: Salary and fees The total salaries and fees paid in respect of the year. The salaries and fees were increased with effect from 1 April 2018 as described on page 92. Benefits Annual bonus Long term incentives Pension Value of benefits received in the year, comprising private medical insurance and car allowance. The cash value of the bonuses earned in respect of the year. Bonuses were calculated by reference to the salary earned in the year, and not solely by reference to the rate of salary applying with effect from 1 April 2018. The value of the Executive Directors’ long term incentives vesting by reference to performance in 2018, calculated as set out below. The cash value of Company pension contributions paid on behalf of the Executive Directors as part of the Company’s defined contribution scheme. 89 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Annual bonus for 2018 Each Executive Director’s annual bonus opportunity for 2018 was based on an adjusted profit before tax target (governing 80% of the opportunity) and a Mountie revenue target (governing 20% of the opportunity). The targets set are detailed in the table below, along with performance against those targets. While the remuneration policy permits a payment of 20% of the maximum payable upon achieving a threshold level of performance, the Committee decided not to set such a target concerning adjusted profit before tax and Mountie revenue. Adjusted profit before tax Mountie revenue Threshold (20% of maximum payable) n/a n/a Target (50% of maximum payable) £51.3m £235.7m Stretch (100% of maximum payable) £53.9m £240.0m Actual performance £51.3m £239.0m Bonus earned (percentage of maximum payable) 50% 88% Weighting 80% 20% Accordingly, each Executive Director earned a bonus equal to 58% of their salary in respect of 2018. Long term incentive awards vesting in respect of 2018 Each Executive Director was granted an award under the Company’s Performance Share Plan on 19 April 2016 over 40,000 shares. Each award was subject to a performance condition based on the compound annual growth in the Company’s Earnings Per Share1 over the performance period 2016 – 2018 in accordance with the following table. Compound annual growth Percentage of the award in EPS 10% p.a. that will vest 25% Greater than 10% p.a. but Determined on a straight- Performance outcome (compound annual growth in adjusted1 EPS) Vesting outcome less than 17% p.a. line basis between 25% and 20% 100% 17% p.a. or greater 100% 100% 1 The Committee has at its discretion assessed performance outcome based upon adjusted EPS as defined in Note 12 in the Consolidated Financial Statements. The extent to which the awards vested was subject to the Committee’s assessment of the overall financial performance of the Company during the performance period. Taking into account the strong growth in EPS and the overall financial performance of the Company over the three year period, the Committee confirmed that the vesting by reference to the principal EPS performance condition was appropriate. In the single figure table on page 89, the value for the PSPs is calculated by multiplying the number of shares in respect of which each award vested (40,000) by £8.50 (being the closing share price of £8.51 on 5 March 2019, the vesting date, less the exercise price of £0.01 per share). Former Directors During the year, no payments were made to any former Director of the Company or in respect of loss of office. 90 FDM Group (Holdings) plcAnnual Report and Accounts 2018Remuneration Report Directors’ shareholding and share interests The Committee increased its formal shareholding guideline for Executive Directors from 100% of salary to 200% of salary in the policy approved at the 2018 AGM. The current Executive Directors have shareholdings with values significantly in excess of this guideline, reflecting the Company’s historic culture of share ownership and entrepreneurialism. The interests as at 31 December 2018 were as follows: Executive Directors Rod Flavell Sheila Flavell Mike McLaren Andy Brown Non-Executive Directors Ivan Martin Robin Taylor Peter Whiting Michelle Senecal de Fonseca David Lister Ordinary shares as at 31 December 2018 Number Ordinary shares value as at 31 December 2018 £0001 8,251,255 8,251,254 499,295 4,540,801 61,307 61,307 3,710 33,738 8,000 5,226 10,453 5,459 – 59 39 78 41 – Value (x base salary2) 151.7 204.2 12.8 112.3 0.4 0.7 1.1 0.8 – 1 Calculated based on the closing share price of 743 pence on 31 December 2018. 2 Calculated on base salary and fees at 31 December 2018. There have been no changes in the Directors’ holdings in the share capital of the Company between 31 December 2018 and the date the financial statements were approved. Each Executive Director also holds awards under the Company’s PSP, as follows: Director Date of award Number at 1 January 2018 Granted in 2018 Lapsed in 2018 Exercised in 2018 Number at 31 December 2018 Rod Flavell Sheila Flavell Mike McLaren Andy Brown 20 April 20151 19 April 2016 19 April 2017 1 June 20183 20 April 20151 19 April 2016 19 April 2017 1 June 20183 20 April 20151 19 April 2016 19 April 2017 1 June 20183 20 April 20151 19 April 2016 19 April 2017 1 June 20183 50,000 40,000 20,000 – 50,000 40,000 20,000 – 50,000 40,000 20,000 – 50,000 40,000 20,000 – – – – 18,500 – – – 18,500 – – – 18,500 – – – 18,500 – – – – – – – – – – – – – – – – 50,000 – – – 50,000 – – – 50,000 – – – 50,000 – – – – 40,000 20,000 18,500 – 40,000 20,000 18,500 – 40,000 20,000 18,500 – 40,000 20,000 18,500 Status Exercised Vested2 Unvested Unvested Exercised Vested2 Unvested Unvested Exercised Vested2 Unvested Unvested Exercised Vested2 Unvested Unvested 1 Each award granted in 2015 was granted as an “Approved PSP” award to take account of potential tax advantages for the participant and Company. Each award consisted of a PSP award over 40,937 shares, a tax qualifying option over 9,063 shares with an exercise price of £3.31 per share and a “Linked Award” which is principally to fund the exercise price of the option. Each award was exercised on 8 May 2018 when, taking into account the share price, the Linked Award was exercised over 2,971 shares and lapsed over the balance of the shares subject to it. As the Linked Award was principally to fund the exercise price of the tax qualifying option, each award was equivalent to a PSP award over 50,000 shares. 2 The awards granted in 2016 vested on 5 March 2019, as described on page 90. 3 Each award granted in 2018 was granted as an “Approved PSP” award, as with the 2015 awards. Each award consisted of a PSP award over 15,562 shares, a tax qualifying option over 2,938 shares with an exercise price of £10.21 per share and a “Linked Award” which is principally to fund the exercise price of the option. As the Linked Award is principally to fund the exercise price of the tax qualifying option, in practice, the award is equivalent to a PSP award over 18,500 shares 91 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Performance Share Plan awards granted in 2018 Each Executive Director was granted an award under the Company’s PSP on 1 June 2018 as set out below. Award1 PSP award Tax qualifying option Number of shares Exercise price per share Face value of award 15,562 2,938 £0.01 £10.21 £188,885 1 Each award was granted as an “Approved PSP” award to take account of potential tax advantages for the participant and Company. In addition to the PSP award and tax qualifying option, each Executive Director was granted a “linked Award” under the PSP which is principally to fund the exercise price of the option. If the tax qualifying option is exercised at a gain, the Linked Award will be exercisable over such number of shares as have a market value at the date of exercise equal to the aggregate exercise price of the tax qualifying option. If the tax qualifying option is not capable of exercise at a gain and is released, the Linked Award may be exercised in respect of 2,938 shares, subject to the satisfaction of the applicable performance conditions. The face value of the award is calculated by multiplying the number of shares subject to the PSP award (18,500) by £10.21 being the average share price over the three business days preceding the date of grant which was used to determine the exercise price of the tax qualifying option. As the Linked Award is principally to fund the exercise price of the tax qualifying option, it is not taken into account for these purposes. In practice, the value of the award is the same as if only a PSP award over 18,500 shares was awarded. The awards will vest based on compound annual EPS growth in line with the following schedule: Compound annual growth in adjusted1 EPS Percentage of the award that will vest 10% p.a. Greater than 10% p.a. but less than 15% p.a. 15% p.a. or greater 25% Determined on a straight-line basis between 25% and 100% 100% 1 The Committee has discretion to adjust EPS for the purposes of the PSP where it considers it appropriate to do so (for example, to reflect a material acquisition and/ or divestment of a Group business) and to assess performance on a fair and consistent basis from year to year. The extent to which the awards vest will be subject to the Committee’s assessment of the overall financial performance of the Company during the performance period. Final levels of vesting may be reduced should the Committee feel that the calculated levels do not reflect the performance of the Company. Approach to Directors’ remuneration for 2019 Base salary and fees As set out on page 85 the annual fee for the Chairman will increase to £165,000 with effect from 5 March 2019, on the appointment of David Lister to the role. It is not proposed to increase Executive Director salaries or the fees of the Non-Executive Directors for 2019, and the salaries and fees that are intended to apply are those which have applied since 1 April 2018, as set out below. Rod Flavell (Chief Executive Officer) Sheila Flavell (Chief Operating Officer) Mike McLaren (Chief Financial Officer) Andy Brown (Chief Commercial Officer) Ivan Martin (Chairman until 5 March 2019) David Lister (Chairman with effect from 5 March 2019) Non-Executive Director Senior Independent Director Committee Chairman (Audit Committee and Remuneration Committee) Committee Chairman (Nomination Committee) Base annual salary £404,250 £300,300 £288,750 £300,300 Annual fee £150,000 £165,000 £50,000 £10,000 £10,000 £5,000 Annual bonus for 2019 The maximum annual bonus opportunity for all Executive Directors for 2019 is 100% of salary; 80% of the bonus opportunity will be dependent on adjusted group profit before tax, with the remaining 20% based on Mountie revenue. The Committee considers that the details of the 2019 targets are commercially sensitive and they are not disclosed in this report, but will be disclosed in next year’s report. 92 FDM Group (Holdings) plcAnnual Report and Accounts 2018Remuneration Report Long Term Incentives for 2019 The Committee proposes to grant awards under the PSP in respect of 2019. In accordance with the Directors’ remuneration policy, the maximum quantum of award granted to any Executive Director will be up to 100% of salary. The vesting of the awards will be subject to performance conditions based on compound annual growth in adjusted earnings per share over the three-year performance period as follows: Compound annual growth in adjusted1 EPS Percentage of the award that will vest 8% p.a. 25% Greater than 8% p.a. but less than 13% p.a. Determined on a straight-line basis between 25% and 100% 13% p.a. or greater 100% 1 The Committee has discretion to adjust EPS for the purposes of the PSP where it considers it appropriate to do so (for example, to reflect a material acquisition and/ or divestment of a Group business) and to assess performance on a fair and consistent basis from year to year. The extent to which the awards vest will be subject to the Committee’s assessment of the overall financial performance of the Company during the performance period. Final levels of vesting may be reduced should the Committee feel that the calculated levels do not reflect the performance of the Company. Although the policy only requires the addition of a post-vesting “holding period” if awards are granted to current Executive Directors over shares with a value in excess of 100% of salary, we have agreed that a two year holding period will apply to the awards granted in 2019 and in future years. Performance graph and historical Chief Executive Officer remuneration outcomes The graph below shows the Company’s Total Shareholder Return (“TSR”) performance since the date of listing compared to the FTSE 250 index; the FTSE 250 index was chosen as the Company was a constituent of that index during the year. 400 350 300 250 200 150 100 50 ) 0 0 1 o t d e s a b e r ( n r u t e R r e d o h e r a h s l l a t o T Jun 2014 Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015 Dec 2015 Mar 2016 Jun 2016 Sep 2016 Dec 2016 Mar 2017 Jun 2017 Sep 2017 Dec 2017 Mar 2018 Jun 2018 Sep 2018 Dec 2018 FDM FTSE 250 The table below details the total remuneration, annual bonus and LTIP vesting (as a percentage of the maximum opportunity) for the Chief Executive Officer (“CEO”) for the last nine years. Note that for 2014 this is the remuneration received for the whole of 2014 and so is not directly comparable to the TSR performance chart above, which is for the period from 20 June 2014. Total remuneration (£000) Annual bonus as a % of maximum opportunity Long Term Incentives as a % of maximum opportunity 2010 2011 2012 2013 2014 2015 2016 2017 2018 455.2 100% 639.2 100% 686.2 100% 547.7 658.5 668.1 764.5 1,134.1 995.0 68% 55% 82% 100% 80% 58% n/a n/a n/a n/a n/a n/a n/a 100% 100% 93 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018 Change in CEO remuneration in relation to the wider workforce The table below shows the percentage change in salary, benefits and annual bonus for the CEO and the wider workforce between the financial years 2017 and 2018. For these purposes, the wider workforce includes all UK employees excluding Mounties, and also excludes employees based overseas in order to exclude the effects of fluctuating exchange rates. Mounties have been excluded from the UK wider workforce numbers to ensure a more meaningful comparison to the CEO’s remuneration as their remuneration is not subject to the same annual review process as the rest of the UK workforce. Percentage change Salary1 Taxable benefits Annual bonus CEO +7.5% +3.1% Wider workforce +10.7% 0% –21.9% +11.7% 1 The CEO’s salary was increased by 10% with effect from 1 April 2018, recognising that the average salary increase of the Executive Directors since the Company’s IPO had been less than that of the wider workforce and that no Executive Director received a salary increase in 2017. This increase was below the increase for the UK workforce (excluding Mounties) in 2017 and 2018 combined. Executive Director salaries are not intended to be increased in 2019. The 7.5% increase in the table above reflects that the increase applied with effect from 1 April 2018. CEO pay ratio The following table sets out the ratio of the CEO’s total remuneration in respect of the 2018 financial year (taken from the single figure table on page 89) to the 25th percentile, 50th percentile i.e. the median) and the 75th percentile full-time equivalent (FTE) of the Company’s UK employees. Under the Companies (Miscellaneous Reporting) Regulations 2018 the Company will be required to disclose this information in 2020 respect of the financial year ending 31 December 2019, but is disclosing this year on a voluntary basis in respect of the financial year ended 31 December 2018. For consistency with the ‘change in CEO remuneration in relation to the wider workforce’ disclosure, the table below also provides the same ratio in respect of the Company’s UK FTE employees excluding Mounties. As outlined above, this reflects the fact that Mounties’ remuneration is not subject to the same annual review process as the rest of the UK workforce. Total remuneration in respect of 2018 (salary component of total remuneration) Ratio of CEO total remuneration to employee total remuneration in respect of 2018 Total remuneration excluding Mounties in respect of 2018 (salary component of total remuneration) Ratio of CEO total remuneration to employee total remuneration (excluding Mounties) in respect of 2018 CEO 25th percentile FTE of UK employees 50th percentile (median) FTE of UK employees 75th percentile FTE of UK employees £995,000 (£395,100) £23,015 (£19,500) £24,722 (£19,500) £32,157 (£23,902) N/A 43:1 40:1 31:1 £995,000 (£395,100) £27,627 (£25,838) £43,596 (£41,349) £72,100 (£48,500) N/A 36:1 23:1 14:1 The Company adopted “Option A” in the regulations for the purposes of calculating the pay ratios as it considers this to be the most accurate method. Remuneration for other employees for the purposes of the calculations was as at 31 December 2018. In calculating the ratio for all UK employees in the above table, the Company has determined the total FTE remuneration for all its UK employees for the financial year and has then ranked those employees based on their total FTE remuneration from low to high. The employees whose remuneration places them at the 25th, 50th (median) and 75th percentile points in this ranking have then been identified. Mounties were then excluded and the process repeated to calculate the ratio for all UK employees excluding Mounties. As this is the Company’s first year of reporting the CEO pay ratio, there are no changes to report against the previous year. • The Group offers all its employees (including Mounties), who form a large portion of the UK workforce and in many cases are entering work for the first time) a level of pay and other benefits which reflects the competitive market in which the Group operates, but which enables the Group to recruit and retain high calibre individuals. 94 FDM Group (Holdings) plcAnnual Report and Accounts 2018Remuneration Report • The CEO’s remuneration has increased relatively modestly compared to the significant growth in the size and complexity of the Group over the same period, and the CEO’s salary remains in the lowest quartile when compared with companies in the lower half of the FTSE 250. • The Group ‘s culture ensures that percentage increases in the Executive Directors’ salaries remain broadly in line with increases in remuneration across all employees, as reflected in the disclosure on prior page (Change in CEO Remuneration in Relation to the Wider Workforce). In addition, as noted above, there is no intention to increase the salaries of any Executive Director in 2019. • To focus on the Group’s culture of broad employee equity incentivisation and enable greater participation for employees in the Group’s share plans the values of long term incentives awarded to the CEO and other Executive Directors have historically been significantly lower than the maximum permitted by the Directors’ Remuneration Policy. Spend on pay The following table sets out the percentage change in dividends paid and the overall expenditure on pay (as a whole across the organisation). Total dividends Overall expenditure on pay Year ended 31 December 2017 £000 Year ended 31 December 2018 £000 23,976 30,718 142,840 165,477 Percentage change 28% 16% Shareholder approval of our Directors’ Remuneration Policy and Directors’ Remuneration Report At the AGM held on 26 April 2018, both the Directors’ Remuneration Policy and Directors’ Remuneration Report received strong support from shareholders. The results of the votes are set out below: Resolution Approve the Directors’ Remuneration Policy Approve the Directors’ Remuneration Report Votes for 88,367,484 88,771,760 % of votes for 97.87% 98.95% Votes against 1,905,746 926,309 % votes against 2.11% 1.03% Votes withheld 0 575,161 Advisors During the financial year, the Committee received independent advice from Deloitte LLP, which was appointed by the Committee, in relation to the Committee’s consideration of matters relating to Directors’ Remuneration. Deloitte LLP was appointed in 2014 following a formal tender process. Fees for advice provided to the Remuneration Committee during the year were £7,100. Fees were charged on a time and disbursements basis. Deloitte LLP is a member of the Remuneration Consultants Group and voluntarily operates under its code of conduct in its dealing with the Remuneration Committee. The Remuneration Committee continued to review the appointment of Deloitte LLP and is satisfied that all advice received was objective and independent. Deloitte also provide advice to the Company on the operation of its employee share plans and employee benefit trust. The Chairman, Chief Executive Officer and other members of the executive management attend the Committee by invitation to provide input, but no Executive Director or other member of management is present when his or her own remuneration is discussed. Details of individual attendances by Directors at the Remuneration Committee meetings during 2018 are set out on page 64. 95 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Directors’ Remuneration Policy The Company’s Directors’ Remuneration Policy was approved by shareholders at the AGM held on 26 April 2018. Since we are not seeking shareholder approval for a revised policy at the 2019 AGM, we have set out below just the “policy tables”, but with certain date specific references updated. The full policy as approved at the 2018 AGM is available on the Company’s website at www.fdmgroup.com. Executive Directors Purpose and link to strategy Operation Maximum opportunity Performance measures Base salary Core element of fixed remuneration to reflect the individual’s role and experience as part of a broadly market competitive total remuneration package, to enable the Group to recruit and maintain the required skills and expertise to enable it to achieve its strategy. Salaries are normally reviewed annually. Salary levels are determined taking into account a range of factors, which may include (but are not limited to): • Underlying Company performance; • The size and scope of the Executive Director’s role and responsibilities; • The Executive Director’s skill, experience and performance; • Salary levels for equivalent roles at other listed companies of a similar size and/ or complexity to the Group; and • Pay and conditions elsewhere in the Group. Benefits To provide benefits as part of a broadly market- competitive total remuneration package. Executive Directors receive benefits set at an appropriate level taking into account total remuneration, market practice, the benefits provided to other employees in the Group and individual circumstances. Benefits provided currently include car allowances and private health insurance. Other benefits may be provided based on individual circumstances. These may include, for example, relocation expenses and expatriate allowances. 96 Not applicable. Not applicable. Whilst there is no maximum salary level, salary increases will normally be within the range of increases awarded to the wider workforce in percentage of salary terms. Salary increases above this level may be awarded in appropriate circumstances including but not limited to: • Where an Executive Director has been promoted or has had a change in scope or responsibility; • To reflect an individual’s development or performance in role (e.g. a newly appointed Executive Director being moved to align with the market over time); or • Where there has been a change in the size and/ or complexity of the business. Such increases may be implemented over such time period as the Committee deems appropriate. Whilst the Committee has not set an absolute maximum on the level of benefits Executive Directors may receive, the value of benefits is set at a level which the Committee considers to be appropriately positioned taking into account relevant market levels based on the nature and location of the role, the level of benefits provided for other employees in the Group and individual circumstances. FDM Group (Holdings) plcAnnual Report and Accounts 2018Remuneration Report Purpose and link to strategy Operation Retirement benefits Maximum opportunity Performance measures Maximum company pension contribution (or cash allowance equivalent) for existing Executive Directors of 3% of salary. However, the Committee may permit a higher company pension contribution (or cash allowance equivalent) for any new Executive Director, of up to 15% of salary. Maximum bonus opportunity for Executive Directors is 150% of base salary. To provide an appropriate level of retirement benefit (or cash allowance equivalent) as part of a broadly market- competitive total remuneration package. Annual bonus Rewards Executive Directors for achieving financial, strategic and/ or individual targets in the relevant year, to provide an incentive for the Group’s employees to achieve goals aligned with the Group’s strategy. Executive Directors are eligible to participate in the Company’s defined contribution scheme. In appropriate circumstances, such as where contributions exceed the annual or lifetime allowance, Executive Directors may take a taxable cash supplement instead of contributions to a pension plan. Performance measures and targets are reviewed annually and pay-out levels are determined by the Committee after the year end based on performance against the targets. The Committee has discretion to amend the pay-out should any formulaic outcome not reflect the Committee’s assessment of overall business performance. Where a bonus opportunity is offered in excess of 100% of salary, up to 33% of the bonus earned will be deferred into an award of shares, which shall be released following the end of a two-year deferral period. No bonus will be deferred where the deferred amount would otherwise be below £10,000. Deferred bonus awards may take the form of a nil or nominal cost option to acquire the relevant shares following release, or as a requirement to invest the after tax portion of the bonus into shares which must be retained until release. The Committee may award dividend equivalents on deferred amounts to reflect dividends that would have been paid on the deferred award shares over the period to their release; these dividend equivalents may be paid in cash or shares and may assume the reinvestment of dividends into Company shares on such basis as the Committee determines. Recovery Recovery provisions apply as summarised below the table. Not applicable. Performance measures and targets are set annually reflecting the Company’s strategy and aligned with key financial, strategic and/or individual targets. Pay-out of up to 20% of maximum for threshold performance (the minimum level of performance resulting in any payment), 50% of maximum for on-target performance and full pay-out for stretch performance with straight-line vesting in between each of the points. At least 80% of the bonus will be assessed against key financial performance measures which may include revenue, pre-tax profit or other key financial performance metrics of the Company. The balance of the bonus may be assessed against non-financial strategic measures and/ or individual performance. 97 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Purpose and link to strategy Operation Performance Share Plan (“PSP”) Maximum opportunity Performance measures To incentivise Executive Directors over the longer term, and to deliver performance- related pay, with a clear line of sight for Executives and direct alignment with shareholders’ interests. Awards under the PSP will typically be granted as a conditional award or the grant of a nil or nominal cost option, in either case vesting subject to the achievement of specified performance conditions, over a period of at least three years. Awards will vest following assessment of the performance conditions. Other than as noted below in relation to the existing Executive Directors, awards will be granted subject to a holding period of two years beginning on the vesting date either on the basis that they will not ordinarily be released (so that the participant is entitled to acquire the shares) until the end of that period or on the basis that the participant is entitled to acquire shares following the assessment of the applicable performance condition but that (other than as regards sales to cover tax liabilities) the award is not released (so that the participant is able to dispose of those shares) until the end of the holding period. The holding period will apply to existing Executive Directors only in respect of any award with a value at grant (ignoring any CSOP option granted as part of an APSP award as discussed below) in excess of 100% of salary. Awards under the PSP may be granted on the basis that the number of shares shall be increased to reflect dividends paid over the vesting period and/or any holding period; these dividend equivalents may be paid in cash or shares and may assume the reinvestment of dividends into Company shares on such basis as the Committee determines. The Committee may at its discretion structure awards as APSP awards comprising both an HMRC tax-favoured option granted under the Company Share Option Plan (CSOP) and a PSP award. APSP awards enable an Executive Director and the Company to benefit from HMRC tax-favoured option treatment in respect of part of the award without increasing the pre-tax value delivered to participants. APSP awards would be structured as either: (1) a tax-favoured option and a PSP award, with the vesting of the PSP award scaled back to take account of any gain made on exercise of the tax-favoured option; or (2) a tax favoured option, PSP award over a reduced number of shares and separate PSP award which is to fund the exercise price of the tax-favoured option. Other than to enable the grant of APSP awards, the Company will not grant awards to Executive Directors under the CSOP. Recovery Recovery provisions apply as summarised on the next page. The usual maximum award level under the PSP in respect of any financial year for Executive Directors is awards over shares with a value of 150% of salary. The Committee has discretion to grant awards under the PSP in respect of any financial year for Executive Directors up to a maximum of 200% of salary. The Committee may at its discretion structure awards as Approved Performance Share Plan (“APSP”) awards as described in the “Operation” column. Reflecting the interaction between the tax-favoured option and the PSP award, the shares subject to the tax-favoured option are not taken into account when assessing these limits in order to avoid double counting. Performance will be assessed against challenging performance targets. Performance will be based typically on financial measures including, but not limited to, EPS growth. Awards (other than, in accordance with the requirements of the applicable tax legislation, any tax-favoured option granted as part of an APSP award) will also be subject to a financial underpin such that PSP awards will only vest if the Committee is satisfied with the overall performance of the Company. Performance measures (and their weighting where there is more than one measure) are reviewed annually to maintain appropriateness and relevance. For threshold performance up to 25% of the award will vest, rising to 100% of the award vesting for maximum performance, typically with straight-line vesting in between. Below threshold performance, the award will not vest. Where a tax-favoured option is granted as part of an APSP award, the same performance conditions will apply to the tax-favoured option as apply to the PSP award. 98 FDM Group (Holdings) plcAnnual Report and Accounts 2018Remuneration Report PSP At the discretion of the Committee, unvested awards may be reduced, cancelled or have further conditions imposed in certain circumstances including (but not limited to): • A material misstatement of the Company’s audited financial results; • A material failure of risk management by the Company or any subsidiary company within the Group; or • A material miscalculation of any performance measure. For up to three years following the vesting of an award, the Committee may require the repayment (which may be effected by the cancellation or forfeiture of a vested but unreleased award) of some or the entire award in the event of fraud or dishonesty leading to a material misstatement of financial results. Information supporting the policy table Explanation of performance measures chosen Performance measures for the annual Operation of the Company’s share plans The PSP and any deferred bonus plan will be operated by the Committee in accordance with their rules, including the ability to adjust the number of bonus and PSP awards which reflect the shares subject to awards in the event of Company’s strategy are selected. a variation of share capital, demerger, Stretching performance targets are set delisting, special dividend, rights issue each year by the Committee taking into or other event which may, in the opinion account a number of different factors. of the Committee, affect the current or future value of shares. The annual bonus can be assessed against financial, strategic and/ or At the discretion of the Committee, individual targets determined by the awards under the PSP and any deferred Committee with at least 80% subject to bonus plan may be settled in cash (or key financial targets. The Committee granted as a cash award over a notional considers financial measures like profit number of shares). before tax and revenue to be important performance metrics because they encourage behaviours that facilitate profitable growth and the successful future strategic development of the business. Shareholding guidelines To align the interests of Executive Directors with those of shareholders, the Committee has adopted shareholding guidelines. Executive Directors are required to retain half of Long-term performance measures are any shares acquired under the PSP chosen by the Committee to provide a and any deferred bonus award (after robust and transparent basis on which sales to cover tax) until such time as to measure the Company’s performance their holding has a value equal to 200% over the longer term and to provide of salary. alignment with the business strategy. They are selected to be aligned with the Shares subject to PSP awards which interests of shareholders and to drive have vested but not been released, business performance. Currently EPS shares subject to released PSP awards growth is considered to be a key which have not been exercised, and measure of success as it encapsulates shares subject to deferred bonus the outcomes of many of the strategic awards count towards the guideline on a drivers of the business, and helps align net of assumed tax basis. management incentives with growth in shareholder value. The Committee retains the discretion to Recovery Annual bonus For up to three years following the adjust or set different performance measures or targets where it considers it appropriate to do so (for example, to payment of the non-deferred part of an annual bonus award, the Committee may require the repayment of some or reflect a change in strategy, a material acquisition and/ or a divestment of a Group business or a change in prevailing the entire cash award paid (or may cancel or reduce any deferred share award or require the forfeiture of shares market conditions) and to assess acquired pursuant to a deferred share performance on a fair and consistent award) in the event of fraud or basis from year to year. dishonesty leading to a material misstatement of financial results. 99 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Non-Executive Directors Purpose and link to strategy Operation Other items To enable the Company to attract and retain Non-Executive Directors of the required calibre by offering market- competitive rates. Non-Executive Directors may be eligible to be reimbursed travel and subsistence costs incurred in the performance of their duties and to receive other benefits relevant to the performance of their roles. The Non-Executive Directors do not participate in the Company’s annual bonus, share plans or pension schemes or other benefit in kind arrangements. The Chairman is paid a basic Chairman fee and additional fees for chairmanship of any Board committees. Non-Executive Directors receive a basic fee and additional fees for chairmanship of any Board committees. The Chairman’s fee is determined by the Remuneration Committee and the fees of the other Non-Executive Directors are determined by the Board. Fees are based on the time commitment and contribution expected for the role and the level of fees paid to Non- Executive Directors serving on the board of similar-sized UK listed companies. Overall fees paid to Non-Executive Directors will remain within the limit set by the Company’s Articles of Association from time to time. Approval This Report was approved by the Board on 5 March 2019 and signed on its behalf by: Peter Whiting Chairman of the Remuneration Committee 5 March 2019 100 FDM Group (Holdings) plcAnnual Report and Accounts 2018Reflecting our culture and the importance of employee share ownership, we extend our share plan awards widely within the Group 101 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Directors’ Report The Directors present the Directors’ Report and audited Consolidated Financial Statements of FDM Group (Holdings) plc for the year ended 31 December 2018. Principal activities, business review and future developments The principal activity of the Group is the provision of professional services focusing principally on Information Technology. The Strategic Report on pages 2 to 53 provides a review of the Group’s performance during the financial year as well as its future prospects. Results and dividends The Group reported a profit after tax for the year of £37.1 million (2017: £32.0 million). Results for the year are set out in the Consolidated Income Statement on page 115. The Directors propose a final dividend of 15.5 pence per share. Subject to shareholder approval, this dividend will be paid on 14 June 2019 to shareholders of record on 24 May 2019. An interim dividend of 14.5 pence per share was declared by the Directors on 20 July 2018 and was paid on 21 September 2018 to holders of record on 24 August 2018. Directors The Directors of the Company who were in office during the year and up to the date of signing the financial statements unless otherwise stated, were: Ivan Martin Roderick Flavell Sheila Flavell Michael McLaren Andrew Brown Peter Whiting Robin Taylor Non-Executive Chairman Chief Executive Officer Chief Operating Officer Chief Financial Officer Chief Commercial Officer Non-Executive Director Non-Executive Director Michelle Senecal de Fonseca Non-Executive Director David Lister Non-Executive Director The biographies of the currently serving Directors are provided on pages 56 to 59 of this report. As announced by the Company on 7 February 2019, Ivan Martin will retire from the Board on 5 March 2019, and will be succeeded by David Lister as Non-Executive Chairman. The Nomination Committee Report on pages 80 to 83 explains more about the appointment of the new Chairman. Director share interests Details of the interests of Directors in the shares of the Company are provided on page 91 of this report. Director long term incentive schemes For the purposes of the UK Listing Authority Listing Rules section 9.8.4C R, details of the Group’s long term incentive schemes are disclosed in the Remuneration Report starting on page 84. All other information required to be disclosed by Listing Rule section 9.8.4 R is not applicable for the year under review. Directors’ indemnity and liability insurance As permitted by the Articles of Association, the Directors have the benefit of an indemnity which is a qualifying third party indemnity provision as defined by Section 234 of the Companies Act 2006. The indemnity was in force throughout the last financial year and is currently in force. The Company also purchased and maintained throughout the financial year Directors’ and Officers’ liability insurance in respect of itself and its Directors. 102 FDM Group (Holdings) plcAnnual Report and Accounts 2018Directors’ Report Risk management objectives and policies The Group through its operations is exposed to a number of risks. Details of the Group’s financial risk management objectives and policies are set out in note 27 to the Consolidated Financial Statements. The principal risks that the Group faces are set out on pages 46 to 52 of the Strategic Report. Corporate governance For details of the Corporate Governance report see pages 62 to 105. The Corporate Responsibility report, on pages 18 to 29 includes information about the Group’s employment policies and greenhouse gas emissions. The Corporate Responsibility report also includes information on the steps taken by the Group to ensure that slavery and human trafficking are not taking place within the Group’s business, in line with the Modern Slavery Act 2015. Branches outside the UK The Group operates branches in France, Denmark and Spain. Substantial shareholders As at 31 December 2018 and as at 25 February 2019, the Company had been advised, in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority, of the following notifiable interests (whether directly or indirectly held) in 3% or more of its voting rights: Substantial shareholder Standard Life Aberdeen Roderick Flavell Sheila Flavell Columbia Threadneedle Investments Kames Capital Majedie Asset Management Andrew Brown AXA Investment Managers Oppenheimer Funds JP Morgan Chase & Co Investec Group Baillie Gifford & Co As at 31 December 2018 As at 25 February 2019 Direct/ indirect interest Indirect Direct Direct Indirect Direct Indirect Direct Indirect Indirect Indirect Indirect Indirect Number of shares % of issued share capital Number of shares % of issued share capital 9,112,156 8,251,255 8,251,254 5,996,334 5,972,284 4,664,766 4,540,801 4,521,962 4,024,375 4,023,677 3,958,934 3,733,567 8.4% 7.6% 7.6% 5.5% 5.5% 4.3% 4.2% 4.2% 3.7% 3.7% 3.7% 3.5% 9,212,910 8,251,255 8,251,254 6,006,435 5,852,069 4,585,018 4,540,801 4,666,962 4,026,985 3,801,010 4,018,630 3,745,388 8.5% 7.6% 7.6% 5.6% 5.4% 4.2% 4.2% 4.3% 3.7% 3.5% 3.7% 3.5% Political donations The Group made no political donations in the year (2017: £nil). Going concern The Group’s business activities, together with the factors that are likely to affect its future development, performance and position are summarised in the Strategic Report. The principal risks, uncertainties and risk management processes are also described in the Strategic Report. The Group’s continued and forecast global growth, positive operating cash flow and liquidity position, together with its distinctive business model and infrastructure, enable the Group to manage its business risks successfully. The Group’s forecasts and projections show that it will continue to operate with adequate cash resources. 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. 103 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Greenhouse gas emissions Details of the Group’s compliance with legislation relating to greenhouse gas emissions are set out on page 29 in the Corporate Responsibility report. Employee information Information on the Group’s employee policies is included on pages 20 and 21 in the Corporate Responsibility report. Information on the Group’s policies in respect of persons that become disabled during their employment, and the training, career development and promotion of disabled persons, is set out on page 20 in the Corporate Responsibility report. During 2018 the FDM Group Employee Company law requires the Directors to Benefit Trust was established to purchase shares sold by option holders upon exercise of options under the FDM prepare financial statements for each financial year. Under that law the Directors have prepared the Group and Performance Share Plan. The Group Company financial statements in accounts for its own shares held by the accordance with International Financial Trustee of the FDM Group Employee Reporting Standards (“IFRSs”) as Benefit Trust as a deduction from shareholders’ funds. adopted by the European Union (“EU”). Under company law the Directors must not approve the financial statements Change of control The Group has agreements in place with unless they are satisfied that they give a true and fair view of the state of affairs certain of its banking customers that of the Group and the Company and of give the bank the right to terminate the the profit or loss of the Group and contract on a change of control Company for that period. In preparing following a takeover bid for the Group. the financial statements, the Directors The Group had a Revolving Credit are required to: Facility (“RCF”) with HSBC Bank plc, • select suitable accounting policies and We use a number of methods to consult which expired on 14 August 2018 and then apply them consistently; our employees regularly so that their was not renewed. views can be taken into account in making decisions that are likely to affect their interests, and we encourage our staff to become involved in FDM Group’s performance through our discretionary Performance Share Plan and our all-employee Buy As You Earn share plan. Further information on these initiatives to engage with our employees is set out on page 21 of the Corporate Responsibility report. Capital structure The Group’s capital structure is detailed in note 20 to the Consolidated Financial The Group has no agreements with employees or Directors that provide for compensation for loss of office or employment that occurs resulting from a takeover bid. The Group knows of no agreements • state whether applicable IFRSs as adopted by the EU have been followed for the group financial statements and IFRSs as adopted by the EU have been followed for the company financial statements, subject to any material departures disclosed and explained in the financial statements; under which holders of securities in the • make judgements and accounting Company may restrict votes or transfers estimates that are reasonable and in the Company’s shares. prudent; and Post balance sheet events There have been no significant events to • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the report since the date of the balance group and parent company will Statements. During 2018 the number of sheet. continue in business. ordinary shares in issue increased from 107,517,506 at 1 January 2018 to 108,271,708 at 31 December 2018. Investment in Own shares During the AGM held on 26 April 2018, the shareholders approved that up to 10% of the Company’s shares could be purchased by the Company and held as Related party transactions The Group’s related party transactions The Directors are also responsible for safeguarding the assets of the Group are detailed in note 26 to the and Company and hence for taking Consolidated Financial Statements. reasonable steps for the prevention and Independent auditor In accordance with Section 487 of the detection of fraud and other irregularities. Companies Act 2006, a resolution for The Directors are responsible for own shares. The authority expires at the the re-appointment of conclusion of the Company’s next Annual General Meeting after the PricewaterhouseCoopers LLP as auditor of the Company is to be proposed at the keeping adequate accounting records that are sufficient to show and explain the Group and Company’s transactions passing of this resolution or, if earlier, at forthcoming Annual General Meeting. and disclose with reasonable accuracy 23:59 on 31 May 2019. Statement of Directors’ responsibilities in respect of the financial statements The Directors are responsible for at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 preparing the Annual Report and the and, as regards the Group financial financial statements in accordance with statements, Article 4 of the IAS applicable law and regulation. Regulation. 104 FDM Group (Holdings) plcAnnual Report and Accounts 2018Directors’ Report The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors’ confirmations The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company’s position and performance, business model and strategy. Each of the Directors, whose names and functions are listed in the Directors’ Report confirm that, to the best of their knowledge: • the Company financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Company; • the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and • the Strategic Report contained in this Annual Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces. In the case of each Director in office at the date the Directors’ Report is approved: • so far as the Director is aware, there is no relevant audit information of which the Group and Company’s auditors are unaware; and • they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the Group and Company’s auditors are aware of that information. The Directors’ Report has been approved by the Board of Directors of FDM Group (Holdings) plc on 5 March 2019 and signed on its behalf by: Rod Flavell Chief Executive Officer 5 March 2019 Mike McLaren Chief Financial Officer 5 March 2019 105 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018 106 FDM Group (Holdings) plcAnnual Report and Accounts 2018Financial Statements In this section: 108 Independent auditors’ report to the members of FDM Group (Holdings) plc Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows 115 116 117 118 119 120 141 142 143 144 148 Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements Parent Company Statement of Financial Position Parent Company Statement of Cash Flows Parent Company Statement of Changes in Equity Notes to the Parent Company Financial Statements Shareholder Information 107 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial Statements Independent auditors’ report to the members of FDM Group (Holdings) plc Report on the audit of the financial statements Opinion In our opinion, FDM Group (Holdings) plc’s group financial statements and parent company financial statements (the “financial statements”): • give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2018 and of the group’s profit and the group’s and the parent company’s cash flows for the year then ended; • have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company’s financial statements, as applied in accordance with the provisions of the Companies Act 2006; and • have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which comprise: the Consolidated and Parent Company Statements of Financial Position as at 31 December 2018; the Consolidated Income Statement and Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Statements of Cash Flows and the Consolidated and Parent Company Statements of Changes in Equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Our opinion is consistent with our reporting to the Audit Committee. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company. Other than those disclosed in note 7 to the financial statements, we have provided no non-audit services to the group or the parent company in the period from 1 January 2018 to 31 December 2018. Our audit approach Overview • Overall group materiality: £2,410,000 (2017: £2,180,000), based on 5% of profit before tax. • Overall parent company materiality: £540,000 (2017: £490,000), based on 1% of total assets. Materiality • The group financial statements are a consolidation of 15 reporting units. • We performed full scope audits of the UK and USA reporting units. • We audited the revenue, trade and other receivables and cash and cash equivalent balances of Audit scope the Canada, Hong Kong and Singapore reporting units. • We also performed full scope audits of the centralised functions in the UK, comprising the parent and intermediate holding companies. Key audit matters • Our full scope audits covered 74% of revenue (with a further 19% coverage obtained through our work on the Canada, Hong Kong and Singapore reporting units) and 87% of profit before tax. • Revenue recognition in respect of uninvoiced amounts (Group). • Share option plan expenses (Group and parent). 108 FDM Group (Holdings) plcAnnual Report and Accounts 2018Independent auditors’ report to the members of FDM Group (Holdings) plc The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. Capability of the audit in detecting irregularities, including fraud Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations related to local employment laws, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006 and The Listing Rules and Tax Regulation. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to increase revenue or reduce expenditure, and management bias in accounting estimates. Audit procedures performed by the engagement team included: • Our tests included, but were not limited to, discussions with management, internal audit and the group’s legal advisors, including consideration of known or suspected instances of non-compliance with laws and regulation and fraud; • Review of any employment disputes or litigation to ensure there were no broader non-compliance issues with employment laws and regulations • review of reports from the group’s legal advisors; • review of the financial statement disclosures to underlying supporting documentation; • challenging assumptions and judgements made by management in their significant accounting estimates; and • review of internal audit reports in so far as they related to the financial statements There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Key audit matter How our audit addressed the key audit matter Revenue recognition in respect of uninvoiced amounts (Group) Refer to note 3.3 (b) to the Consolidated Financial Statements for the directors’ disclosures of the related accounting policies and page 76 (‘Significant financial reporting items’) within the Audit Committee Report. At the year-end, revenue is accrued for work performed that has not yet been invoiced. Within this estimate, revenue is recognised for contracts either where services have been provided but customer purchase orders have not yet been finalised, or where consultants’ timesheets have not yet been approved by the customer or have not been received by the group. There is some judgement in the recognition of this revenue, in that management need to estimate the amount of work performed by consultants before receipt of approved timesheets, which could lead to an under or overstatement of revenue and profit, whether intentionally or in error. We gained an understanding from management of the key assumptions underpinning the year end estimates of uninvoiced sales and compared these assumptions with the prior year. We evaluated management’s estimate for uninvoiced timesheets by comparing a sample of estimated timesheets to the timesheet submitted post year end. We noted no material exceptions in our testing. We substantively tested the year end adjustment for timesheets received but not invoiced by agreeing to subsequent cash receipt or customer approval, in order to identify any inappropriate recognition of revenue, noting no material exceptions in our testing. 109 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial StatementsKey audit matter How our audit addressed the key audit matter Share option plan expenses (Group and parent) Refer to notes 3.3 (o), 4, and 24 to the Consolidated Financial statements for the directors’ disclosures of the related accounting policies, judgements and estimates, and page 76 (‘Significant financial reporting items’) within the Audit Committee Report. During 2015, the Group implemented a share option plan for management and senior employees. The assumptions used in calculating the charge recognised in the income statement are judgemental and complex, including an estimate of the number of leavers from the scheme in each period as well as an estimate of the future growth in adjusted earnings per share of the group (refer to page 92 (‘Annual Report on Remuneration’) for details on the share option plan). These judgements could lead to an under or overstatement of the share option plan expense, whether intentionally or in error. We gained an understanding from management of the key assumptions underpinning the share option valuation model. We evaluated the assumption made by management for forecast growth in adjusted earnings per share by comparing to recent historical performance as well as reviewing budgets and forecasts approved by the Board of Directors, and found it to be appropriate. We evaluated management’s assumption for the number of leavers from the scheme by comparing to historical leavers from the scheme, and found it to be appropriate. We evaluated management’s assumption of the performance conditions based on compound earnings per share (“EPS”) growth, assessing the assumed future compound EPS growth against board approved budgets and managements history of forecasting. We evaluated the sensitivity analysis performed by management to assess the potential impact of changes in key assumptions, noting that a significant change in the assumptions would be needed to cause a material error in the share option plan expense. We concluded that stress testing these assumptions did not have a material impact on the income statement charge. We checked the mathematical integrity of the model, and found it to be accurate. We tested a sample of options granted to deeds of grant and leavers from the scheme to resignation letters, noting no exceptions in our testing. We audited the accounting for the vesting of the 2015 share options and the associated set up of the employee benefit trust, and found it to be appropriate. We also considered the disclosures made in note 24 to the financial statements and determined that they are consistent with the requirements of relevant accounting standards. How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the group and the parent company, the accounting processes and controls, and the industry in which they operate. The group is structured by division, with significant reporting units in the UK and USA, and further smaller reporting units in locations across Europe, Canada, Asia and South Africa. The group financial statements are a consolidation of 15 reporting units, comprising the group’s operating businesses and centralised functions. The accounting and financial management for all reporting units is controlled from the UK, so we as the group engagement team have performed all audit work. We determined the type of work that needed to be performed at the reporting units to be able to conclude that sufficient appropriate audit evidence had been obtained as a basis for our opinion on the group financial statements as a whole. Accordingly, we determined that audits of the complete financial information were required for four reporting units, comprising the UK and USA trading reporting units and the parent and intermediate holding companies (which contain, amongst other balances, the 110 FDM Group (Holdings) plcAnnual Report and Accounts 2018Independent auditors’ report to the members of FDM Group (Holdings) plc group’s central costs). We also included in our audit scope the revenue, trade and other receivables and cash and cash equivalents in Canada, Hong Kong and Singapore, which we performed from the group’s head office in the UK, where the accounting is administered. To support these procedures we visited the group’s offices in Hong Kong, where we met with local management. As a result, full scope audit procedures were conducted on reporting units representing 87% of the group’s profit before tax and 74% of revenue, with a further 19% coverage of revenue obtained through our work on the Canada, Hong Kong and Singapore reporting units. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall materiality £2,410,000 (2017: £2,180,000). £540,000 (2017: £490,000). How we determined it 5% of profit before tax 1% of total assets Group financial statements Parent company financial statements Rationale for benchmark applied Based on the benchmarks used in the annual report, profit before tax is the primary measure used by the shareholders in assessing the performance of the group, and is a generally accepted auditing benchmark. We believe that total assets is the primary measure used by the shareholders in assessing the performance of the entity, and is a generally accepted auditing benchmark. For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality allocated across components was between £540,000 and £2,289,500. Certain components were audited to a local statutory audit materiality that was also less than our overall group materiality. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £120,500 (Group audit) (2017: £109,000) and £27,000 (Parent company audit) (2017: £24,500) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. Going concern In accordance with ISAs (UK) we report as follows: Reporting obligation Outcome We are required to report if we have anything material to add or draw attention to in respect of the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements and the directors’ identification of any material uncertainties to the group’s and the parent company’s ability to continue as a going concern over a period of at least twelve months from the date of approval of the financial statements. We are required to report if the directors’ statement relating to Going Concern in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit. We have nothing material to add or to draw attention to. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s and parent company’s ability to continue as a going concern. For example, the terms on which the United Kingdom may withdraw from the European Union, which is currently due to occur on 29 March 2019, are not clear, and it is difficult to evaluate all of the potential implications on the company’s trade, customers, suppliers and the wider economy. We have nothing to report. 111 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial StatementsReporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic Report, Directors’ Report and Corporate Governance Statement, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06), ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described below (required by ISAs (UK) unless otherwise stated). Strategic Report and Directors’ Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the year ended 31 December 2018 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. (CA06) In light of the knowledge and understanding of the group and parent company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report. (CA06) Corporate Governance Statement In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance Statement (on pages 62 to 70) about internal controls and risk management systems in relation to financial reporting processes and about share capital structures in compliance with rules 7.2.5 and 7.2.6 of the Disclosure Guidance and Transparency Rules sourcebook of the FCA (“DTR”) is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. (CA06) In light of the knowledge and understanding of the group and parent company and their environment obtained in the course of the audit, we did not identify any material misstatements in this information. (CA06) In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance Statement (on pages 62 to 70) with respect to the parent company’s corporate governance code and practices and about its administrative, management and supervisory bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the DTR. (CA06) We have nothing to report arising from our responsibility to report if a corporate governance statement has not been prepared by the parent company. (CA06) 112 FDM Group (Holdings) plcAnnual Report and Accounts 2018Independent auditors’ report to the members of FDM Group (Holdings) plc The directors’ assessment of the prospects of the group and of the principal risks that would threaten the solvency or liquidity of the group We have nothing material to add or draw attention to regarding: • The directors’ confirmation on pages 46 to 52 of the Annual Report that they have carried out a robust assessment of the principal risks facing the group, including those that would threaten its business model, future performance, solvency or liquidity. • The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated. • The directors’ explanation on page 53 of the Annual Report as to how they have assessed the prospects of the group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of the principal risks facing the group and statement in relation to the longer-term viability of the group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the “Code”); and considering whether the statements are consistent with the knowledge and understanding of the group and parent company and their environment obtained in the course of the audit. (Listing Rules) Other Code Provisions We have nothing to report in respect of our responsibility to report when: • The statement given by the directors, on page 68, that they consider the Annual Report taken as a whole to be fair, balanced and understandable, and provides the information necessary for the members to assess the group’s and parent company’s position and performance, business model and strategy is materially inconsistent with our knowledge of the group and parent company obtained in the course of performing our audit. • The section of the Annual Report on page 75 describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee. • The directors’ statement relating to the parent company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified, under the Listing Rules, for review by the auditors. Directors’ Remuneration In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. (CA06) Responsibilities for the financial statements and the audit Responsibilities of the directors for the financial statements As explained more fully in the Statement of Directors’ Responsibilities set out on pages 104 and 105, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. 113 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial StatementsIndependent auditors’ report to the members of FDM Group (Holdings) plc Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • certain disclosures of directors’ remuneration specified by law are not made; or • the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Appointment Following the recommendation of the audit committee, we were appointed by the directors on 25 July 2013 to audit the financial statements for the year ended 31 December 2013 and subsequent financial periods. The period of total uninterrupted engagement is 6 years, covering the years ended 31 December 2013 to 31 December 2018. Jaskamal Sarai (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 5 March 2019 114 FDM Group (Holdings) plcAnnual Report and Accounts 2018Consolidated Income Statement for the year ended 31 December 2018 Revenue Cost of sales Gross profit Administrative expenses Operating profit Finance income Finance expense Net finance income/ (expense) Profit before income tax Taxation Profit for the year Earnings per ordinary share Basic Diluted The results for the year shown above arise from continuing operations. The notes on pages 120 to 140 are an integral part of these Consolidated Financial Statements. Note 6 7 10 10 11 Note 12 12 2018 £000 2017 £000 244,910 (125,875) 233,575 (129,323) 119,035 (70,748) 104,252 (60,496) 48,287 43,756 140 (94) 46 29 (130) (101) 48,333 (11,275) 43,655 (11,643) 37,058 32,012 2018 pence 2017 pence 34.3 33.8 29.8 29.4 115 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial Statements Consolidated Statement of Comprehensive Income for the year ended 31 December 2018 Profit for the year Other comprehensive income Items that may be subsequently reclassified to profit or loss Exchange differences on retranslation of foreign operations (net of tax) Total other comprehensive income/ (expense) Total comprehensive income for the year The notes on pages 120 to 140 are an integral part of these Consolidated Financial Statements. 2018 £000 2017 £000 37,058 32,012 630 630 (673) (673) 37,688 31,339 116 FDM Group (Holdings) plcAnnual Report and Accounts 2018 Consolidated Statement of Financial Position as at 31 December 2018 Non-current assets Property, plant and equipment Intangible assets Deferred income tax assets Current assets Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Current income tax liabilities Total liabilities Net assets Equity attributable to owners of the parent Share capital Share premium All other reserves Retained earnings Total equity Note 2018 £000 2017 £000 13 14 16 17 18 19 20 22 6,117 19,409 2,282 4,926 19,471 2,275 27,808 26,672 37,729 33,907 30,716 36,846 71,636 67,562 99,444 94,234 25,907 3,166 26,616 3,239 29,073 29,855 29,073 29,855 70,371 64,379 1,083 8,771 3,221 57,296 1,075 7,873 6,991 48,440 70,371 64,379 The notes on pages 120 to 140 are an integral part of these Consolidated Financial Statements. The financial statements on pages 115 to 140 were approved by the Board of Directors on 5 March 2019 and were signed on its behalf by: Rod Flavell Chief Executive Officer 5 March 2019 Mike McLaren Chief Financial Officer 5 March 2019 117 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial Statements Consolidated Statement of Cash Flows for the year ended 31 December 2018 Cash flows from operating activities Group profit before tax for the year Adjustments for: Depreciation and amortisation Loss on disposal of non-current assets Finance income Finance expense Share-based payment charge (including associated social security costs) Increase in trade and other receivables (Decrease)/ increase in trade and other payables Cash flows generated from operations Interest received Income tax paid Net cash flow from operating activities Cash flows from investing activities Acquisition of property, plant and equipment Acquisition of intangible assets Net cash used in investing activities Cash flows from financing activities Proceeds from issuance of ordinary shares Payment for shares bought back Finance costs paid Dividends paid Net cash used in financing activities Exchange gains/ (losses) on cash and cash equivalents Net (decrease)/ increase in cash and cash equivalents Cash and cash equivalents at beginning of year Note 2018 £000 2017 £000 7 10 10 25 21 48,333 43,655 1,619 3 (140) 94 2,972 (7,013) (950) 1,408 4 (29) 130 3,576 (1,552) 1,088 44,918 140 (11,407) 48,280 29 (13,263) 33,651 35,046 (2,684) (16) (1,350) (18) (2,700) (1,368) 8 (3,664) (94) (30,718) – – (130) (23,976) (34,468) (24,106) 578 (570) (2,939) 36,846 9,002 27,844 Cash and cash equivalents at end of year 18 33,907 36,846 The notes on pages 120 to 140 are an integral part of these Consolidated Financial Statements. 118 FDM Group (Holdings) plcAnnual Report and Accounts 2018Consolidated Statement of Changes in Equity for the year ended 31 December 2018 Share capital £000 Share premium £000 All Other reserves (Note 22) £000 Retained earnings £000 Total equity £000 Balance at 1 January 2018 1,075 7,873 6,991 48,440 64,379 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Share-based payments (note 24) Transfer to retained earnings New share issue Own shares bought back (note 25) Dividends (note 21) Total transactions with owners, recognised directly in equity – – – – – 8 – – 8 – – – – – 898 – – 898 – 630 630 37,058 – 37,058 630 37,058 37,688 2,678 (2,516) – (4,562) – – 2,516 – – (30,718) 2,678 – 906 (4,562) (30,718) (4,400) (28,202) (31,696) Balance at 31 December 2018 1,083 8,771 3,221 57,296 70,371 Share capital £000 Share premium £000 All Other reserves (Note 22) £000 Retained earnings £000 Total equity £000 Balance at 1 January 2017 1,075 7,873 3,986 40,404 53,338 Profit for the year Other comprehensive expense for the year Total comprehensive (expense)/ income for the year Share-based payments (note 24) Dividends (note 21) Total transactions with owners, recognised directly in equity – – – – – – – – – – – – – (673) (673) 3,678 – 3,678 32,012 – 32,012 (673) 32,012 31,339 – (23,976) 3,678 (23,976) (23,976) (20,298) Balance at 31 December 2017 1,075 7,873 6,991 48,440 64,379 The notes on pages 120 to 140 are an integral part of these Consolidated Financial Statements. 119 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial StatementsNotes to the Consolidated Financial Statements 1 General information The Group operates in the Recruit, Train and Deploy (“RTD”) sector. The Group’s principal business activities involve recruiting, training and deploying its own permanent IT and business consultants at client sites. 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 Consolidated Financial Statements consolidate those of the Company and its subsidiaries. Subsidiaries and their countries of incorporation are presented in note 3 to the Parent Company Financial Statements. The Consolidated Financial Statements present the results for the year ended 31 December 2018. The Consolidated Financial Statements were approved by Rod Flavell and Mike McLaren on behalf of the Board of Directors on 5 March 2019. 2 Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are summarised in the Strategic Report. The principal risks and uncertainties and risk management processes are also described in the Strategic Report. The Group’s continued and forecast global growth, positive operating cash flow and liquidity position, together with its distinctive business model and infrastructure, enable 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 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. 3 Accounting policies 3.1 Basis of preparation The Consolidated Financial Statements have been prepared in accordance with IFRSs as adopted by the EU, IFRS Interpretations Committee (“IFRS IC”) interpretations and the Companies Act 2006 as applicable to companies reporting under IFRSs. The Consolidated Financial Statements have been prepared on a historical cost basis. The Consolidated Financial Statements are presented in Pounds Sterling and all values are rounded to the nearest thousand (£000), except where otherwise indicated. The Group’s accounting policies have been applied consistently, except for the impact of the introduction of IFRS 9 ‘Financial instruments’ and IFRS 15 ‘Revenue from contracts with customers’, which have not had a material impact in the amounts recognised in the current or prior period, see note 5. 3.2 Basis of consolidation The Consolidated Financial Statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2018. Subsidiaries Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full. Details of the subsidiaries owned by the Group are presented in note 3 to the Parent Company Financial Statements. There are no minority interests in the subsidiaries of the Company. 120 FDM Group (Holdings) plcAnnual Report and Accounts 20183.3 Summary of significant accounting policies a) Business combinations and goodwill The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to the Group’s cash-generating unit that is expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to that unit. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. b) Revenue recognition Revenue is recognised under IFRS 15 and is measured at the fair value of the consideration received or receivable and excluding sales taxes. Rendering of services Revenue from the provision of IT consultants to third party customers is recognised as follows: • The revenue is recognised in the period in which the IT consultants perform the work at the contracted rates for each IT consultant. Revenue is based on timesheets from its IT consultants which are authorised by the Group’s customers detailing the hours and service provided; • Revenue in respect of non-receipted timesheets is accrued at the estimated contract value; and • Volume rebates are accrued in the period in which the revenue is incurred, with the value of the rebate offset against revenue. They are calculated with regard to the threshold revenue in a contractual period. To the extent they are material, amounts are disclosed along with any significant judgements made in their estimation. c) Foreign currency translation The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the company operates (its functional currency). For the purpose of the Consolidated Financial Statements, the results and financial position of each entity are expressed in Pounds Sterling (£), which is the functional currency of the parent company and the presentation currency for the Consolidated Financial Statements. In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rate prevailing at the time of the transaction. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the end of the reporting period. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using exchange rates at the date when the fair value was determined. For the purpose of presenting Consolidated Financial Statements, the assets and liabilities of the Group’s foreign operations are expressed in the Group’s presentation currency using exchange rates prevailing at the end of the reporting period. Income and expense related items are translated at the average exchange rates for the period. Exchange differences arising are classified as other comprehensive income and transferred to the Group’s translation reserve. 121 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial Statements3 Accounting policies continued d) Taxes Current income tax Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates income. Current income tax relating to items recognised directly in equity is recognised in equity and not in the income statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Deferred tax Deferred tax is provided in full, using the liability method, on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes; and the initial recognition of assets or liabilities that affect neither accounting nor taxable profit. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. e) Property, plant and equipment Property, plant and equipment are stated at cost net of accumulated depreciation. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows: Plant and equipment Fixtures and fittings 4 years 4 years Leasehold improvements Length of lease The assets’ residual values, useful lives and methods of depreciation are reviewed each financial year end and adjusted if appropriate. f) Operating leases Operating lease payments are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as part of the total lease expense. g) Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The costs of intangible assets acquired in a business combination are their fair values as at the date of acquisition. Software and software licences The Group holds acquired software and software licences as intangible assets. Acquired software and software licences are capitalised on the basis of cost and amortised over the estimated useful lives of the software which is estimated to be four years or the licence term if shorter. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period and adjusted if appropriate. 122 FDM Group (Holdings) plcAnnual Report and Accounts 2018 Goodwill Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purposes of impairment testing, goodwill is allocated to the Group’s cash-generating units. Goodwill is reviewed annually or when there is an indication of impairment. Impairment of goodwill is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash- generating unit is less than the carrying value of the cash-generating unit to which the goodwill has been allocated, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. h) Trade receivables Trade receivables are recognised initially at fair value using an expected credit loss model in line with IFRS 9. A provision for impairment of trade receivables is established based upon objective evidence that the Group will not collect all amounts due according to the original terms of the receivables. Subsequent assessment is made if there is evidence of a change in circumstances to the debtor, such as the probability that the debtor will enter bankruptcy or financial reorganisation, or default. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against administrative expenses in the income statement. i) Cash and cash equivalents Cash and cash equivalents comprise cash at banks and on hand and short-term deposits with a maturity of three months or less. j) Trade and other payables Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within thirty days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within twelve months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. k) Financial instruments Non-derivative financial instruments The Group’s non-derivative financial instruments comprise trade receivables, trade payables, cash and cash equivalents and a revolving credit facility. The Group does not have any borrowings but borrowing costs paid on the establishment of credit facilities are recognised as an expense in the income statement over the expected usage period of the facility. l) Pensions and other post-employment benefits The Group operates a number of defined contribution pension schemes. The assets of each scheme are held separately from those of the Group in an independently administered fund. The amount charged to the income statement represents the contributions payable to the schemes in respect of the accounting period. m) Provisions Provisions for legal claims are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. If the effect is material, provisions are determined by discounting the expected, risk adjusted, future cash flows at a pre-tax risk-free rate. Provisions are measured at management’s best estimate of the expenditure required to settle the Group’s liability. These estimates are reviewed each year and updated as necessary. n) Equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds. Other reserves represent the cost of equity on settled share-based payments until such share options are exercised or lapse. The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. 123 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial Statements3 Accounting policies continued o) Share-based payments Employees (including senior executives) of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (equity-settled transactions). Equity-settled transactions The cost of equity-settled transactions is recognised, together with a corresponding increase in other reserves in equity, over the period in which the performance and/ or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement expense or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period and is recognised in employee benefits expense. The equity-settled transactions are fair valued at the grant date and the expense recognised over the duration of the vesting period. No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions for which vesting is conditional upon a market or non-vesting condition. These are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/ or service conditions are satisfied. When the terms of an equity-settled transaction award are modified, the minimum expense recognised is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognised for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification. When an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. p) Segment reporting Operating segments are reported in a manner consistent with the internal reporting to the Board of Directors. The Executive Directors have been identified as the chief operating decision maker. q) Dividends Dividends are recognised as a liability in the year in which they are fully authorised, or in the case of interim dividends when paid. r) Employee Benefit Trust FDM Group (Holdings) plc has an established Employee Benefit Trust (‘EBT’) to which it is the sponsoring entity. Notwithstanding the legal duties of the Trustee, the Company considers that it has ‘de facto’ control. The EBT is included in the Parent Company Financial Statements and the Consolidated Financial Statements. No gain or loss is recognised in profit or loss or other comprehensive income on the purchase, sale or cancellation of the Company’s own equity held by the EBT. For further information, see note 25. 4 Significant accounting estimate The preparation of the Group’s financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting year. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset and liability affected in future periods. The following is considered to be the Group’s significant estimate: 124 FDM Group (Holdings) plcAnnual Report and Accounts 2018Share-based payment charge A share-based payment charge is recognised in respect of share awards based on the Directors’ best estimate of the number of shares that will vest based on the performance conditions of the awards, which comprise adjusted EPS growth and the number of employees that will leave before vesting. The charge is calculated based on the fair value on the grant date using the Black Scholes model and is expensed over the vesting period. The key assumptions in respect of the share-based payment charges are set out in note 24. No individual judgements have been made that have a significant impact on the financial statements. 5 New standards and interpretations The International Accounting Standards Board (“IASB”) and IFRS IC have issued the following new standards and 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: Effective in 2018 New standards IFRS 9, ‘Financial instruments’ IFRS 15, ‘Revenue from contracts with customers’ Amendments Amendment to IFRS 2, ‘Share based payments’ Amendment to IAS 40, ‘Investment property’ Amendments to IFRS 4 Amendments regarding implementation of IFRS 9 Effective for accounting periods beginning on or after Endorsed by the EU 1 January 2018 1 January 2018 1 January 2018 1 January 2018 1 January 2018 Yes Yes Yes Yes Yes IFRS 9 advocates an expected loss model in respect of debtor provisioning for determining the basis of providing for bad debt. The application of the expected loss model has not resulted in a change to the Group’s immaterial provision. IFRS 15 requires revenue to be apportioned from customer contracts, based on separate performance obligations and to be recognised upon satisfaction of those performance obligations. FDM recognises revenue at contracted rates when work is performed i.e. on satisfaction of performance obligations over the term of the client placement. No changes are therefore required to the Group’s revenue recognition policy in respect of the application of IFRS 15. The IASB and IFRS IC have issued the following standards and amendments with an effective date of implementation for accounting periods beginning after the date on which the Group’s financial statements for the current year commenced. With the exception of IFRS 16 ‘Leases’, the Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group’s financial statements in the period of initial application. The Group does not intend to adopt these standards before their effective date. Effective after 31 December 2018 New standards IFRS 16, ‘Leases' IFRS 17, ‘Insurance contracts' Amendments Amendment to IAS 1 and IAS 8 regarding the definition of materiality Amendment to IFRS 9, ‘Financial instruments’, on prepayment features with negative compensation Amendments to IAS 28, ‘Investments in associates’, on long term interests in associates and joint ventures Amendments to IAS 19, ‘Employee benefits’, plan amendment, curtailment or settlement Amendment to IFRS 3, ‘Business combinations’ IFRIC 23, ‘Uncertainty over income tax’ Effective for accounting periods beginning on or after Endorsed by the EU 1 January 2019 1 January 2021 1 January 2019 1 January 2019 1 January 2019 1 January 2019 1 January 2019 1 January 2019 Yes No Yes Yes No No No No 125 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial Statements 5 New standards and interpretations continued The Directors have carried out an assessment of the likely impact of IFRS 16 ‘Leases’: Nature of change IFRS 16 was issued in January 2016. It will result in all leases being recognised on the statement of financial position, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. Impact The standard will affect the accounting for the Group’s operating leases, as the Group currently does not have any finance leases. As at the reporting date of 31 December 2018, the Group has non-cancellable operating lease commitments of £27.6 million, see note 23. The Group has carried out an assessment of the impact of IFRS 16 on its lease portfolio as at 31 December 2018. Application of the new standard will result in an increase in assets of £13.9 million and liabilities of £15.3 million on the Consolidated Statement of Financial Position, with the expected impact on net assets of a £1.4 million decrease. The overall net annual impact on the Income Statement in 2019 will not be material. Mandatory application date/ date of adoption by the Group IFRS 16 is mandatory for financial years commencing on or after 1 January 2019, and the Group will adopt the standard from this date. 6 Segmental reporting 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 2018, 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 2018 Revenue Depreciation and amortisation Segment operating profit/ (loss) Finance income* Finance costs* Profit/ (loss) before income tax Total assets Total liabilities UK and Ireland £000 North America £000 EMEA £000 APAC £000 Total £000 130,978 82,119 13,519 18,294 244,910 (824) 34,309 120 (70) (595) 13,034 156 (5) 34,359 13,185 65,185 22,225 (76) 1,387 2 (12) 1,377 5,074 (124) (443) 2 (147) (1,619) 48,287 280 (234) (588) 48,333 6,960 99,444 (14,375) (5,696) (1,252) (7,750) (29,073) * Finance income and finance costs include intercompany interest which is eliminated upon consolidation 126 FDM Group (Holdings) plcAnnual Report and Accounts 2018Included in total assets on prior page are non-current assets (excluding deferred tax) as follows: 31 December 2018 For the year ended 31 December 2017 Revenue Depreciation and amortisation Segment operating profit/ (loss) Finance income Finance costs Profit/ (loss) before income tax Total assets Total liabilities UK and Ireland £000 North America £000 EMEA £000 APAC £000 Total £000 22,166 2,312 330 718 25,526 UK and Ireland £000 North America £000 EMEA £000 APAC £000 Total £000 131,479 75,069 13,077 13,950 233,575 (792) 28,694 24 (110) (447) 14,700 3 (5) 28,608 14,698 (57) 765 1 (10) 756 (112) (403) 1 (5) (1,408) 43,756 29 (130) (407) 43,655 66,565 17,601 4,563 5,505 94,234 (16,426) (6,253) (1,534) (5,642) (29,855) Included in total assets above are non-current assets (excluding deferred tax) as follows: 31 December 2017 UK and Ireland £000 North America £000 22,431 1,322 EMEA £000 384 APAC £000 Total £000 260 24,397 Information about major customers 2018 revenue from each of customer A and B is attributed across all four operating segments. Customer A represents 10% or more of the Group’s 2018 revenues. Customers A and B each represent 10% or more of the Group’s 2017 revenues. Revenue from customer A Revenue from customer B 7 Operating profit Operating profit for the year has been arrived at after charging/ (crediting): Hire of property – operating leases Net foreign exchange differences Depreciation and amortisation 2018 £000 2017 £000 25,874 23,718 10,953 40,328 2018 £000 4,555 74 2017 £000 3,946 (153) 1,619 1,408 127 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial Statements7 Operating profit continued Auditors’ remuneration During the year the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditors: Fees payable to the Group’s auditors for the audit of the Parent Company and Consolidated Financial Statements Fees payable to the Group’s auditors for other services: – The audit of the Group’s subsidiaries – Audit-related assurance services 2018 £000 70 94 36 200 2017 £000 67 93 36 196 8 Staff numbers and costs The monthly average number of persons employed by the Group (including Executive Directors) during the year, analysed by category, was as follows: IT Consultants Administration The aggregate payroll costs of these persons were as follows: Wages and salaries Social security costs Other pension costs Share-based payments 2018 Number 2017 Number 4,056 561 4,617 3,408 447 3,855 2018 £000 146,848 12,799 3,152 2,707 2017 £000 126,056 11,676 2,431 2,677 165,506 142,840 Retirement benefits The Group operates a number of defined contribution pension plans. The pension charge for the year represents contributions payable by the Group to the schemes. The pension contributions payable at 31 December 2018 were £275,000 (2017: £312,000). There were no prepaid contributions at the end of the financial year (2017: £nil). 9 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 2018 is set out below: Short term employee benefits Post-employment benefits Share-based payments 2018 £000 2,428 33 526 2,987 2017 £000 2,490 32 566 3,088 For further information on Directors’ remuneration, see the audited sections of the Remuneration Report as defined on page 89. 128 FDM Group (Holdings) plcAnnual Report and Accounts 201810 Finance income and expense Bank interest Finance income Non utilisation fees on revolving credit facility Finance fees and charges Finance expense 11 Taxation The major components of income tax expense for the years ended 31 December 2018 and 2017 are: Current income tax: Current income tax charge Adjustments in respect of prior periods Total current tax Deferred tax: Relating to origination and reversal of temporary differences Total deferred tax Total tax expense reported in the income statement 2018 £000 140 140 2018 £000 (47) (47) (94) 2017 £000 29 29 2017 £000 (80) (50) (130) 2018 £000 2017 £000 11,820 71 11,891 (616) (616) 12,619 (474) 12,145 (502) (502) 11,275 11,643 The standard rate of corporation tax in the UK is 19%. The rate changed from 20% to 19% with effect from 1 April 2017. Accordingly, the profits for 2018 are taxed at 19% with 2017 taxed at an effective rate of 19.25%. The tax charge for the year is higher (2017: higher) than the standard rate of corporation tax in the UK. The differences are set out below: Profit before income tax Profit multiplied by UK standard rate of corporation tax of 19% (2017: 19.25%) Effect of different tax rates on overseas earnings Expenses not deductible for tax purposes Adjustments in respect of prior periods Total tax charge 2018 £000 2017 £000 48,333 43,655 9,183 1,732 289 71 8,404 3,267 446 (474) 11,275 11,643 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 17% with effect from 1 April 2020. At 31 December 2018 and 31 December 2017, deferred tax assets and liabilities have been calculated based upon the rate at which the temporary difference is expected to reverse. 129 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial Statements 12 Earnings per ordinary share 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. Profit for the year Average number of ordinary shares in issue (thousands) Basic earnings per share 2018 2017 £000 37,058 107,978 32,012 107,518 Pence 34.3 29.8 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 and associated deferred tax), by the weighted average number of ordinary shares in issue during the year. Profit for the year (basic earnings) Share-based payment expense (including social security costs) (note 24) Tax effect of share-based payment expense Adjusted profit for the year Average number of ordinary shares in issue (thousands) Adjusted basic earnings per share £000 £000 £000 £000 2018 2017 37,058 2,972 (685) 32,012 3,576 (483) 39,345 35,105 107,978 107,518 Pence 36.4 32.6 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. Profit for the year (basic earnings) Average number of ordinary shares in issue (thousands) Adjustment for share options (thousands) Diluted number of ordinary shares in issue (thousands) Diluted earnings per share 13 Property, plant and equipment £000 2018 2017 37,058 107,978 1,594 32,012 107,518 1,465 109,572 108,983 Pence 33.8 29.4 2018 Cost At 1 January 2018 Additions Disposals Effect of movements in foreign exchange At 31 December 2018 Accumulated depreciation At 1 January 2018 Depreciation charge for the year Disposals Effect of movements in foreign exchange At 31 December 2018 Net book value at 31 December 2018 130 Leasehold improvements £000 Fixtures and fittings £000 Plant and equipment £000 Total £000 9,245 2,684 (2) 109 2,679 904 (2) 38 3,619 12,036 1,713 539 – 23 2,275 1,344 4,319 1,539 – 61 5,919 6,117 5,273 1,606 – 52 6,931 1,699 776 – 24 2,499 4,432 1,293 174 – 19 1,486 907 224 – 14 1,145 341 FDM Group (Holdings) plcAnnual Report and Accounts 20182017 Cost At 1 January 2017 Additions Disposals Effect of movements in foreign exchange At 31 December 2017 Accumulated depreciation At 1 January 2017 Depreciation charge for the year Disposals Effect of movements in foreign exchange At 31 December 2017 Net book value at 31 December 2017 14 Intangible assets 2018 Cost At 1 January 2018 Additions Disposals Effect of movements in foreign exchange At 31 December 2018 Accumulated amortisation At 1 January 2018 Amortisation for the year Disposals Effect of movements in foreign exchange At 31 December 2018 Net book value at 31 December 2018 2017 Cost At 1 January 2017 Additions Disposals Effect of movements in foreign exchange At 31 December 2017 Accumulated amortisation At 1 January 2017 Amortisation for the year Disposals Effect of movements in foreign exchange At 31 December 2017 Net book value at 31 December 2017 Leasehold improvements £000 Fixtures and fittings £000 Plant and equipment £000 4,737 660 (33) (91) 5,273 1,102 655 (33) (25) 1,699 3,574 1,277 102 (50) (36) 1,293 734 247 (50) (24) 907 386 2,362 588 (221) (50) 2,679 1,529 429 (218) (27) 1,713 966 Total £000 8,376 1,350 (304) (177) 9,245 3,365 1,331 (301) (76) 4,319 4,926 Software and software licences £000 Goodwill £000 Total £000 498 16 – 3 517 349 80 – 1 430 87 19,322 – – – 19,820 16 – 3 19,322 19,839 – – – – – 349 80 – 1 430 19,322 19,409 Software and software licences £000 Goodwill £000 Total £000 512 18 (27) (5) 19,322 – – – 19,834 18 (27) (5) 498 19,322 19,820 301 77 (27) (2) 349 149 – – – – – 301 77 (27) (2) 349 19,322 19,471 131 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial Statements14 Intangible assets continued The amortisation charge is recognised in administrative expenses in the income statement. The amortisation period of the software and software licences is four years. Goodwill is not amortised but is subject to an annual impairment test. The goodwill has been allocated to cash generating units (“CGUs”) summarised as follows: Cost and net book value At 31 December 2018 and 2017 UK and Ireland £000 North America1 £000 EMEA1 £000 APAC £000 Total £000 14,843 1,397 3,082 – 19,322 1 In 2017 the goodwill in respect of North America and EMEA was disclosed under the incorrect headings, this has been corrected above. 15 Impairment testing of goodwill An overview of impairment reviews performed by CGUs is set out below. The recoverable amount of each CGU has been determined on value in use calculations using cash flow projections from financial budgets and forecasts approved by the Board covering a three year period from the date of the relevant impairment review. The key assumptions in the projections, for all CGUs, were as follows: • Revenue and gross margin were based on expected levels of activity under existing major contractual arrangements together with growth based upon medium term historical growth rates and having regard to expected economic and market conditions for other customers. • Administrative expenses were forecast to move in line with expected levels of activity in the CGU. • The growth rate used to extrapolate the cash flows beyond the three year-forecast period was 2% up to a period of 15 years in total. The pre-tax discount rates used in the calculations were as follows: UK and Ireland North America EMEA 2018 % 11.36 15.46 11.99 2017 % 10.33 14.04 10.82 As a result of the review the Directors did not identify any impairment for the goodwill in each CGU. In considering sensitivities, no reasonable change in any of the above key assumptions would cause the recoverable amount to fall below the carrying value of the CGUs. 16 Deferred income tax assets Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes: Non-current: Non-current temporary differences Deferred tax asset 2018 £000 2,282 2,282 2017 £000 2,275 2,275 The Directors consider the deferred tax asset is recoverable within two to five years. Deferred tax assets have been recognised in respect of timing differences associated with share-based payment expenses where it is considered probable that these assets will be recovered. 132 FDM Group (Holdings) plcAnnual Report and Accounts 2018Movement in deferred tax during 2018: Share-based payments Property, plant and equipment Other Movement in deferred tax during 2017: Share-based payments Property, plant and equipment Other 1 January 2018 £000 Recognised in income statement £000 Recognised in other reserves £000 Transferred to Retained Earnings £000 31 December 2018 £000 2,330 (326) 271 2,275 36 67 513 616 (14) – – (14) (595) – – (595) 1,757 (259) 784 2,282 1 January 2017 £000 Recognised in income statement £000 Recognised in other reserves £000 Transferred to Retained Earnings £000 31 December 2017 £000 846 (474) 400 772 483 148 (129) 502 1,001 – – 1,001 – – – – 2,330 (326) 271 2,275 The Group has unused tax losses for which no deferred tax asset has been recognised with a potential tax benefit of £437,000, no asset has been recognised as the losses have been generated in regions where the Group does not expect to generate profits in the short term. The losses can be carried forward indefinitely. 17 Trade and other receivables Trade receivables Other receivables Prepayments and accrued income Included within prepayments and accrued income is £6,864,000 of accrued income (2017: £3,401,000). The trade receivables as at 31 December are aged as follows: Not overdue Not more than three months past due More than three months but not more than six months past due More than six months but not more than one year past due Older than one year past due Provision for impairment 2018 £000 24,990 953 11,786 37,729 2017 £000 23,138 717 6,861 30,716 2018 £000 19,915 4,880 261 103 35 (204) 24,990 2017 £000 15,298 7,696 327 93 11 (287) 23,138 133 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial Statements17 Trade and other receivables continued An analysis of the provision for impairment by the aged receivable category it relates to is set out below: Not overdue Not more than three months past due More than three months but not more than six months past due More than six months but not more than one year past due Older than one year past due The movement in the provision for impairment is as below: At 1 January Credit/charge for the year At 31 December The carrying amounts of the Group’s trade receivables are denominated in the following currencies: Pounds Sterling US Dollar Canadian Dollar Euro Swiss Franc Hong Kong Dollar Singapore Dollar Chinese Renminbi South African Rand Australian Dollar 18 Cash and cash equivalents Cash at bank and in hand Provision for impairment 2018 £000 Provision for impairment 2017 £000 – 22 75 77 30 204 2018 £000 287 (83) 204 2018 £000 13,846 4,871 1,494 1,707 79 1,521 924 287 19 242 24,990 – 90 126 60 11 287 2017 £000 176 111 287 2017 £000 12,018 5,255 1,517 2,173 60 811 872 229 60 143 23,138 2018 £000 2017 £000 33,907 36,846 Cash and cash equivalents denominated in currencies other than Pounds Sterling amount to £9,507,000 (2017: £7,827,000), denominated in US Dollar, Canadian Dollar, Euro, Swiss Franc, Hong Kong Dollar, Singapore Dollar, Chinese Renminbi, South African Rand and Australian Dollar. The Group has issued guarantees in favour of Commerzbank for CHF150,000, CRP/ Capstone 14W Property Owner LLC totalling US$242,399 and Roza 14W LLC for a leasehold property in the USA for US$25,973. 134 FDM Group (Holdings) plcAnnual Report and Accounts 2018The credit quality of financial assets can be assessed by reference to external credit ratings issued by credit ratings agencies registered in the European Union. Cash at bank is held with banks with the following ratings: Cash at bank by credit rating AA A BBB 2018 £000 32,911 518 478 33,907 2017 £000 35,645 1,201 – 36,846 Revolving credit facility The Group had a £20,000,000 Revolving Credit Facility (“RCF”) with HSBC Bank plc which expired on 14 August 2018 and has not been renewed. The RCF was secured by way of a debenture on the assets of the Company, Astra 5.0 Limited, FDM Group Limited and FDM Group Inc. 19 Trade and other payables Trade payables Other payables Other taxes and social security Accruals and deferred income 2018 £000 1,627 915 7,032 16,333 25,907 2017 £000 1,450 760 6,382 18,024 26,616 Trade and other payables denominated in currencies other than Pounds Sterling amount to £7,565,000 (2017: £8,434,000), denominated in US Dollar, Canadian Dollar, Euro, Swiss Franc, Hong Kong Dollar, Singapore Dollar, Chinese Renminbi, South African Rand and Australian Dollar. 20 Share capital Authorised, called up, allotted and fully paid share capital Ordinary shares of £0.01 each At 1 January New issues At 31 December 2018 Number of shares 2018 £000 2017 Number of shares 107,517,506 754,202 1,075 107,517,506 – 8 108,271,708 1,083 107,517,506 2017 £000 1,075 – 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. During the year 754,202 shares were issued, the difference between market value and par value at issue resulted in an amount of £898,000 being recognised in share premium with £8,000 being recognised as an increase in issued share capital. 135 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial Statements 21 Dividends Dividends paid Paid to shareholders 2018 2018 £000 2017 £000 30,718 23,976 An interim dividend of 14.5 pence per ordinary share was declared by the Directors on 20 July 2018 and was paid on 21 September 2018 to holders of record on 24 August 2018. The Board is proposing a final dividend of 15.5 pence per share in respect of the year to 31 December 2018, for approval by shareholders at the AGM on 25 April 2019. Subject to shareholder approval the dividend will be paid on 14 June 2019 to shareholders of record on 24 May 2019. This brings the Company’s total dividend for the year to 30.0 pence per share (2017: 26.0 pence per share). The total ordinary dividends of 30.0 pence per share will be covered 1.14 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. 2017 An interim dividend of 12.0 pence per ordinary share was declared by the Directors on 28 July 2017 and was paid on 22 September 2017 to holders of record on 25 August 2017. The final dividend of 14.0 pence per share in respect of the year to 31 December 2017 was approved shareholders at the AGM on 26 April 2018, the dividend was paid on 15 June 2018 to shareholders of record on 25 May 2018. 22 All Other Reserves Balance at 1 January 2018 Other comprehensive income for the year Total comprehensive income for the year Share-based payments (note 24) Transfer to retained earnings New share issue Own shares bought back (note 25) Total transactions with owners, recognised directly in equity Capital redemption reserve £000 52 – – – – – – – Own shares reserve £000 – – – – – – (4,562) (4,562) Translation reserve £000 Other reserves £000 791 630 630 – – – – – 6,148 – – 2,678 (2,516) – – 162 6,310 Balance at 31 December 2018 52 (4,562) 1,421 Balance at 1 January 2017 Other comprehensive expense for the year Total comprehensive expense for the year Share-based payments (note 24) Total transactions with owners, recognised directly in equity Balance at 31 December 2017 Capital redemption reserve £000 Own shares reserve £000 52 – – – – 52 – – – – – – Translation reserve £000 Other reserves £000 1,464 2,470 (673) (673) – – 791 – – 3,678 3,678 6,148 136 Total of All other reserves £000 6,991 630 630 2,678 (2,516) – (4,562) (4,400) 3,221 Total of All other reserves £000 3,986 (673) (673) 3,678 3,678 6,991 FDM Group (Holdings) plcAnnual Report and Accounts 2018 23 Operating leases The Group has entered into commercial leases on certain properties. Future minimum payments under non-cancellable operating leases are as follows: Less than one year Between one and five years More than five years 2018 £000 5,640 15,002 6,936 27,578 2017 £000 4,768 13,812 3,538 22,118 There are no contingent rents, purchase options, escalation clauses or significant restrictions on any of the Group’s operating leases. 24 Share-based payments Expenses arising from equity settled share-based payment transaction Deferred tax recognised in other reserves arising from equity settled share-based payment transaction 2018 £000 2,692 (14) 2,678 2017 £000 2,677 1,001 3,678 During the year the share options issued in 2015 vested, of which 754,202 were exercised, and 179,209 linked shares lapsed (linked shares which were not required to fund the price at date of exercise). The share options exercised were satisfied by the issue of 754,202 new shares, of which 455,548 were subsequently sold to the FDM Group Employee Benefit Trust, at the market value at date of exercise. For detail of the shares held in the FDM Group Employee Benefit Trust see note 25. A transfer of £1,921,000 was made from Other reserves to Retained earnings in respect of the exercise of share options during the period. As disclosed in the Directors’ Remuneration Report, the Company granted awards on 1 June 2018, in the form of nominal cost options over ordinary shares in the Company under the FDM 2014 Performance Share Plan (“PSP”). As with the awards made in 2015, 2016 and 2017, the vesting of the awards is subject to the achievement of a three-year performance condition relating to earnings per share. Awards granted to UK participants have been structured as Approved Performance Share Plan (“APSP”) awards to enable participants to benefit from UK tax efficiencies. Each APSP award consists of a tax qualifying option under the FDM 2014 Company Share Option Plan (“CSOP”) over shares with a value of up to £30,000 and a separate award under the PSP for amounts in excess of the HMRC £30,000 limit. A Linked Award is also provided under the PSP to enable participants to fund the exercise price of the CSOP option. PSP and CSOP options are exercisable no later than the tenth anniversary of the date of grant. The table below summarises the outstanding share options: Outstanding at 1 January Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding at 31 December Exercisable at the end of the year Weighted average remaining contractual life (years) 2018 Weighted average exercise price 2017 Number of shares 2017 Weighted average exercise price 104p 2,192,690 664,897 267p (189,772) 76p – 120p – – 159p 2,667,815 – 125p 1.0 n/a 101p 135p 166p – – 104p – n/a 2018 Number of shares 2,667,815 767,194 (388,482) (754,202) – 2,292,325 8,000 1.0 The weighted average share price at the date of exercise of options exercised during the year ended 31 December 2018 was 999p (2017; not applicable). 137 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial Statements 24 Share-based payments continued The fair values of the PSP and CSOP options made were determined using the Black-Scholes valuation model. The significant inputs to the model were as follows: 2018 Share price at date of grant Exercise price Dividend yield Expected volatility Risk free interest rate Expected life Fair value at date of grant 2017 Share price at date of grant Exercise price Dividend yield Expected volatility Risk free interest rate Expected life Fair value at date of grant – issue on 19 April 2017 2016 Share price at date of grant Exercise price Dividend yield Expected volatility Risk free interest rate Expected life Fair value at date of grant – issue on 19 April 2016 Fair value at date of grant – issue on 5 September 2016 2015 Share price at date of grant Exercise price Dividend yield Expected volatility Risk free interest rate Expected life Fair value at date of grant – issue on 20 April 2015 Fair value at date of grant – issue on 10 August 2015 PSP CSOP 1021p 1p 3% 29% 0.94% 4 years 905p 1021p 1021p 3% 29% 0.94% 4 years 179p PSP CSOP 724p 1p 3% 28% 0.25% 4 years 641p 724p 724p 3% 28% 0.25% 4 years 115p PSP CSOP 561p 1p 3% 33% 0.8% 4 years 497p 557p 561p 561p 3% 33% 0.8% 4 years 113p 127p PSP CSOP 331p 1p 4% 31% 1.2% 4 years 281p 388p 331p 331p 4% 31% 1.2% 4 years 56p 125p The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. As the Company has only a limited history of quoted share price volatility, the expected volatility has been partly based on the historical volatility of comparator companies. 138 FDM Group (Holdings) plcAnnual Report and Accounts 201825 Investment in own shares During the AGM held on 26 April 2018, the shareholders approved that up to 10% of the Company’s shares could be purchased by the Company. The authority expires at the conclusion of the Company’s next Annual General Meeting after the passing of this resolution or, if earlier, at 23:59 on 31 May 2019. During 2018 the FDM Group Employee Benefit Trust was established to purchase shares sold by option holders upon exercise of options under the FDM Performance Share Plan. The Group accounts for the Company’s shares held by the Trustee of the FDM Group Employee Benefit Trust as a deduction from shareholders’ funds. The administrative costs of running the Trust have been consolidated in the results FDM Group (Holdings) plc. Number of shares in the Company owned by the EBT Nominal value of shares held Cost price of shares held Prevailing valuation per share at 31 December 2018 Total market value of shares Minimum number of shares in the Company owned by EBT during the year Maximum number of shares in the Company owned by EBT during the year 31 December 2018 455,548 £4,555 £4,561,510 £7.43 £3,384,722 – 455,548 26 Related parties During the year the Group paid rental of £36,000 (2017: £36,000) to Rod Flavell, Chief Executive Officer and Sheila Flavell, Chief Operating Officer, for rent of a London apartment used for short-term employee accommodation. The rent payable was at market rate, no balances were outstanding at year end (2017: £nil). At no time during 2018 or 2017 was the apartment used by any of the Directors. During the year the Group paid £nil (2017: £16,000) for contractor IT services to Viper Business Solutions Limited, which is a limited company wholly owned by the daughter of Sheila Flavell. The IT services performed were provided to a client of the Group and were charged at market rate, no balances were outstanding at year end (2017: £nil). A number of the Directors’ family members are employed by the Group. The employment relationships are at market rate and are carried out on an arm’s length basis. The full registered addresses of all subsidiaries of the Parent Company are disclosed on page 145. 27 Financial risk management The Group manages its capital to ensure the Company and all its subsidiaries will be able to continue as a going concern whilst maximising the return to shareholders. The use of financial instruments is managed under policies and procedures approved by the Board. These are designed to reduce the financial risks faced by the Group and Company, which primarily relate to credit, interest, liquidity, capital management and foreign currency risks, which arise in the normal course of the Group’s business. There are no adjustments between the amounts presented in the Statement of Financial Position and the fair values of the assets and liabilities. Credit risk Credit risk is managed on a Group basis and arises from cash and cash equivalents and trade receivables. The Group provides credit to customers in the normal course of business and the amount that appears in the Consolidated Statement of Financial Position is net of a provision of £204,000 (2017: £287,000). 139 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial StatementsNotes to the Consolidated Financial Statements 27 Financial risk management continued All material trade receivable balances relate to sales transactions with the Group’s blue-chip customer base. At the reporting date, although the Group had significant balances with key customers, there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset. Credit risk is managed through agreed procedures which include managing and analysing the credit risk for new customers and managing existing customers. No customers defaulted on debt during the current or prior year, £266,000 of trade receivables at 31 December 2018 is owed from new customers (less than 6 months) (2017: £305,000 owed from new customers). Interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates is limited as the Group had no borrowings therefore it has limited exposure to interest rate risk. The Group manages its interest rate risk through regular reviews of its exposure to changes in interest rates. Liquidity risk The Group manages liquidity risk by maintaining adequate cash reserves and continuously monitoring forecast and actual cash flows and where appropriate matches the maturity of financial assets and liabilities. The Group has no borrowings from third parties at the year end and therefore liquidity risk is not considered a significant risk at this time due to the Group’s cash balances and undrawn facilities. Capital management The Group’s policy is to maintain a strong capital base so as to maintain investor market, creditor, customer and employee confidence and to sustain future investment and development of the business. The capital structure of the Group consists of equity attributable to the equity holders of the Group comprising issued share capital, other reserves and retained earnings. The Board monitors the capital structure on a regular basis and determines the level of annual dividend. The Group is not exposed to any externally imposed capital requirements. Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities (when revenue or expense is denominated in a different currency from the Group’s functional currency) and the Group’s net investments in foreign subsidiaries. The currencies giving rise to this risk are primarily the US Dollar, Canadian Dollar and Euro. The Group has both cash inflows and outflows in these currencies that create a natural hedge. Fair values There is no significant difference between the carrying amounts shown in the Consolidated Statement of Financial Position and the fair values of the Group and Company’s financial instruments. For current trade and other receivables or payables with a remaining life of less than one year, the amortised cost is deemed to reflect the fair value. Assets are held as “loans and receivables” and that there are no assets or liabilities measured at fair value through profit and loss, no derivatives used for hedging, available-for-sale or other financial liabilities at amortised cost. 140 FDM Group (Holdings) plcAnnual Report and Accounts 2018Parent Company Statement of Financial Position as at 31 December 2018 Non-current assets Investments Current assets Trade and other receivables Cash and cash equivalents Total current assets Total assets Current liabilities Trade and other payables Total liabilities Net assets Equity attributable to equity holders of the parent Share capital Share premium Capital redemption reserve Own shares reserve Other reserves Retained earnings Total equity Note 3 4 5 6 7 2018 £000 5,955 5,955 2017 £000 5,147 5,147 43,633 7 44,474 24 43,640 44,498 49,595 49,645 42 42 74 74 49,553 49,571 1,083 8,771 52 (4,562) 5,955 38,254 1,075 7,873 52 – 5,147 35,424 49,553 49,571 The Parent Company made a profit for the year of £31,627,000 (2017: profit of £29,740,000). In accordance with section 408 of the Companies Act 2006, the Parent Company’s individual profit and loss account is not included in these financial statements. The notes on pages 144 to 147 are an integral part of the Parent Company Financial Statements (Registered Company 07078823). These financial statements on pages 141 to 147 were approved by the Board of Directors on 5 March 2019 and were signed on its behalf by: Rod Flavell Chief Executive Officer 5 March 2019 Mike McLaren Chief Financial Officer 5 March 2019 141 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial Statements Parent Company Statement of Cash Flows for the year ended 31 December 2018 Cash flows from operating activities Company profit before tax for the year Adjustments for: Dividends received Decrease/ (increase) in trade and other receivables (Decrease)/ increase in trade and other payables Cash flows generated from operations Cash flows from investing activities Dividends received Recharge for share based payment Net cash generated from investing activities Cash flows from financing activities Proceeds from issuance of new shares Payments for shares bought back Dividends paid Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year The notes on pages 144 to 147 are an integral part of the Parent Company Financial Statements. Note 2018 £000 2017 £000 31,627 29,740 (32,000) 841 (32) (30,000) (5,775) 10 436 (6,025) 10 32,000 1,921 30,000 – 33,921 30,000 906 (4,562) (30,718) – – (23,976) (34,374) (23,976) (17) 24 7 (1) 25 24 10 5 142 FDM Group (Holdings) plcAnnual Report and Accounts 2018Parent Company Statement of Changes in Equity for the year ended 31 December 2018 Share capital £000 Share premium £000 Capital redemption reserve £000 Own shares reserve £000 Balance at 1 January 2018 1,075 7,873 52 Profit for the year Total comprehensive income for the year Share-based payments (note 3) Transfer to retained earnings New share issue Own shares bought back Dividends paid Total transaction with owners, recognised directly in equity – – – – 8 – – 8 – – – – 898 – – 898 – – – – – – – – Other reserves £000 Retained earnings £000 Total Equity £000 5,147 35,424 49,571 – – 31,627 31,627 31,627 31,627 – – – – – – (4,562) – 2,729 (1,921) – – – – 1,921 – – (30,718) 2,729 – 906 (4,562) (30,718) (4,562) 808 (28,797) (31,645) Balance at 31 December 2018 1,083 8,771 52 (4,562) 5,955 38,254 49,553 Share capital £000 Share premium £000 Capital redemption reserve £000 Own shares reserve £000 Balance at 1 January 2017 1,075 7,873 52 Profit for the year Total comprehensive income for the year Dividends paid Share-based payments (note 3) Total transaction with owners, recognised directly in equity – – – – – – – – – – – – – – – Balance at 31 December 2017 1,075 7,873 52 – – – – – – – The notes on pages 144 to 147 are an integral part of the Parent Company Financial Statements. Other reserves £000 Retained earnings £000 Total Equity £000 2,470 29,660 41,130 – – 29,740 29,740 29,740 29,740 – 2,677 (23,976) – (23,976) 2,677 2,677 (23,976) (21,299) 5,147 35,424 49,571 143 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial Statements Notes to the Parent Company Financial Statements 1 Going concern The Directors have a reasonable expectation that with the continued support of other Group companies, the Company will have adequate resources to continue in operational existence as a holding company for the foreseeable future. Accordingly the Directors continue to adopt the going concern basis for preparing the financial statements. 2 Accounting policies The Company financial statements have been prepared in accordance with IFRSs as adopted by the EU and in accordance with the Companies Act 2006 as applicable to companies using IFRS and in accordance with IFRS IC interpretations. The Company has taken the exemption under section 408 of the Companies Act 2006 not to present the parent company income statement. The profit for the year was £31,627,000 (2017: profit of £29,740,000). The financial information has been prepared on a historical cost basis. The accounting policies of the Company are the same as those of the Group and have been applied consistently. These are set out in note 3 in the Notes to the Consolidated Financial Statements, except that the Company has no policy in respect of consolidation. Investments are carried at historical cost. Details of the Company’s significant accounting estimates, being the share-based payments, are consistent with those disclosed in note 4 to the Consolidated Financial Statements on pages 124 and 125. 3 Investments At 1 January Additions Recharge of IFRS2 investment At 31 December 2018 £000 5,147 2,729 (1,921) 5,955 2017 £000 2,470 2,677 – 5,147 The addition to investments represents the accounting in respect of the costs associated with the PSP, as the awards relate to employees of its subsidiary undertakings. For further details of the PSP see note 24 to the Consolidated Financial Statements. The Company holds the following investments in its subsidiaries: Company Astra 5.0 Limited FDM Group Limited FDM Astra Ireland Limited FDM Group Inc. FDM Group Canada Inc. FDM Group NV FDM Group GmbH FDM Switzerland GmbH FDM Group Luxembourg SA FDM South Africa (PTY) Limited FDM Singapore Consulting PTE Limited FDM Technology (Shanghai) Co. Limited FDM Group HK Limited FDM Group Australia Pty Ltd FDM Group Austria GmbH FDM Group BV Country of incorporation Class of share held Direct/ indirect Ownership Ordinary Direct Great Britain Ordinary Great Britain Ordinary Ireland Ordinary USA Ordinary Canada Ordinary Belgium Ordinary Germany Ordinary Switzerland Ordinary Luxembourg Ordinary South Africa Ordinary Singapore Ordinary China Ordinary Hong Kong Ordinary Australia Austria Ordinary The Netherlands Ordinary Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% The total cost of investments in subsidiaries, is £2 (2017: £2). Astra 5.0 Limited acts as an intermediate holding company and provides human resources and marketing services to the Group. The remaining subsidiaries carry out the principal activity of the Group. 144 FDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Parent Company Financial Statements The registered address for each subsidiary of the Company as at 31 December 2018 is listed below. The principal place of business of each company is considered the same as the registered office, with the exception of FDM Group BV which operates in the Netherlands. Company Registered address Astra 5.0 Limited FDM Group Limited FDM Astra Ireland Limited FDM Group Inc. FDM Group Canada Inc. FDM Group NV FDM Group GmbH FDM Switzerland GmbH FDM Group SA FDM South Africa (PTY) Limited FDM Singapore Consulting PTE Limited FDM Technology (Shanghai) Co. Limited FDM Group HK Limited FDM Group Australia Pty Ltd FDM Group Austria GmbH FDM Group BV 4 Trade and other receivables Amounts owed by subsidiary undertakings Prepayments and accrued income 3rd Floor, Cottons Centre, Cottons Lane, London SE1 2QG, UK 3rd Floor, Cottons Centre, Cottons Lane, London SE1 2QG, UK 25-28 North Wall Quay, Dublin 1, Ireland 14 Wall Street, New York, NY 10005, USA 1 Place Ville Marie, 37th Floor, Montreal, QC H3B 3P4, Canada Rue Medori 99, B-1020 Brussels, Belgium MainzerLandstrasse 41, 60329 Frankfurt am Main, Germany Lavaterstrasse 40, Zurich, CH 8002, Switzerland 13 Boulevard Grande-Duchesse Charlotte, L01331 Luxembourg 9 Kinross Street, Germiston South, 1401 South Africa 77 Robinson Road, #13-00 Robinson 77, 068896 Singapore Room 314, No.437 Zhi Zaoju Road, Huangpu District, Shanghai, China Suites 406 – 409 Pacific Place, 1 Queen’s Road East, Hong Kong Rialto South Tower, Level 29, 525 Collins Street, Melbourne, VIC 3000, Australia Handelskai 92/Gate 2/7A, 1200 Wien, Austria 3rd Floor, Cottons Centre, Cottons Lane, London SE1 2QG, UK 2018 £000 43,616 17 2017 £000 44,463 11 43,633 44,474 All trade and other receivables are receivable in Pounds Sterling and are fully performing. Amounts owed by subsidiary undertakings are unsecured, non-interest bearing and repayable on demand. 5 Cash and cash equivalents Cash at bank and in hand 2018 £000 7 2017 £000 24 The Company’s cash is held with a financial institution with a credit rating of AA at the date of signing the financial statements. 6 Trade and other payables Trade payables Accruals and deferred income 2018 £000 11 31 42 2017 £000 12 62 74 145 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial Statements7 Share capital Authorised, called up, allotted and fully paid share capital Ordinary shares of £0.01 each At 1 January New issues At 31 December 2018 Number of shares 2018 £000 2017 Number of shares 107,517,506 754,202 1,075 107,517,506 – 8 108,271,708 1,083 107,517,506 2017 £000 1,075 – 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. During the year 754,202 shares were issued, the difference between market value and par value at issue resulted in an amount of £898,000 being recognised in share premium with £8,000 being recognised as an increase in issued share capital. 8 Related parties The Company holds inter-company balances with certain of its subsidiary undertakings. The transactions that have taken place are in relation to inter-company loan repayments/ additions and dividends which are listed below: Astra 5.0 Limited FDM Group Limited FDM Group Inc. Dividends from related parties 2018 £000 Amounts owed by related parties 2018 £000 Dividends from related parties 2017 £000 Amounts owed by related parties 2017 £000 32,000 – – 32,000 4,333 39,269 14 43,616 30,000 – – 30,000 4,340 40,123 – 44,463 9 Financial risk management The financial risks and uncertainties the Company faces are the same as those of the Group. These are set out on pages 139 and 140. 10 Dividends Dividends received Received from subsidiaries Dividends paid Paid to shareholders 2018 £000 2017 £000 32,000 30,000 30,718 23,976 An interim dividend of 14.5 pence per ordinary share was declared by the Directors on 20 July 2018 and was paid on 21 September 2018 to holders of record on 24 August 2018. The Board is proposing a final dividend of 15.5 pence per share in respect of the year to 31 December 2018, for approval by shareholders at the AGM on 25 April 2019. Subject to shareholder approval the dividend will be paid on 14 June 2019 to shareholders of record on 24 May 2019. This brings the Company’s total dividend for the year to 30.0 pence per share (2017: 26.0 pence per share). The total ordinary dividends of 30.0 pence per share will be covered 1.14 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. 146 FDM Group (Holdings) plcAnnual Report and Accounts 2018 Notes to the Parent Company Financial Statements 2017 An interim dividend of 12.0 pence per ordinary share was declared by the Directors on 28 July 2017 and was paid on 22 September 2017 to holders of record on 25 August 2017. The final dividend of 14.0 pence per share in respect of the year to 31 December 2017 was approved shareholders at the AGM on 26 April 2018, the dividend was paid on 15 June 2018 to shareholders of record on 25 May 2018. 11 Directors’ remuneration Directors’ remuneration was paid by FDM Group Limited in both the current and prior year and no recharge was made to the Company. For further details see note 9 to the Consolidated Financial Statements on page 128. 12 Auditors’ remuneration Auditors’ remuneration of £7,000 was charged in relation to 2018 (2017: £7,000), the fees were paid by FDM Group Limited in both the current and prior year and no recharge was made to the Company. 13 Employees The Company had no employees during the current or prior year. 147 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2018Notes to the Consolidated Financial StatementsShareholder Information Directors Ivan Martin Roderick Flavell Sheila Flavell Michael McLaren Andrew Brown Peter Whiting Robin Taylor Michelle Senecal de Fonseca David Lister Non-Executive Chairman Chief Executive Officer Chief Operating Officer Chief Financial Officer Chief Commercial Officer Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Company Secretary Jonathan Mark Heather Registered office 3rd Floor Cottons Centre Cottons Lane London SE1 2QG Independent Auditors PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RH HSBC Bank plc 8 Canada Square London E14 5HQ Link Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Investec Bank plc 2 Gresham Street London EC2V 7QP Taylor Wessing LLP 5 New Street Square London EC4A 3TW Bankers Registrars Stock brokers (joint) Legal advisors 148 Stockdale Securities Limited Beaufort House 15 St. Botolph Street London EC3A 7BB FDM Group (Holdings) plcAnnual Report and Accounts 2018 UK IRELAND USA CANADA GERMANY SWITZERLAND AUSTRIA FRANCE SPAIN LUXEMBOURG THE NETHERLANDS DENMARK SOUTH AFRICA HONG KONG SINGAPORE CHINA AUSTRALIA FDM Group 3rd Floor, Cottons Centre, Cottons Lane, London SE1 2QG Tel: Fax: Email: enquiries@fdmgroup.com +44 (0) 20 3056 8240 +44 (0) 870 757 7634 © FDM Group 2019

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