FDM Group
Annual Report 2019

Plain-text annual report

ANNUAL REPORT AND ACCOUNTS 2019 s t n e t n o C Strategic Report 2 4 8 12 18 20 22 26 30 38 Highlights We are FDM Chairman’s Statement Chief Executive’s Review Key Performance Indicators Business Model Our Markets Financial Review Risk Management Corporate Responsibility Governance 58 62 74 82 86 104 Board of Directors Corporate Governance Report Audit Committee Report Nomination Committee Report Remuneration Report Directors’ Report Financial Statements 110 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 117 118 119 120 121 122 145 146 147 148 152 Financial Operational s t h g i l Revenue (£m) Mountie revenue1 (£m) £271.5m +11% 2018: £244.9m £268.2m +12% 2018: £239.0m Adjusted operating profit2 (£m) Profit before tax (£m) £55.2m +7% 2018 (restated3): £51.8m £52.5m +9% 2018 (restated3): £48.2m Adjusted profit before tax2 (£m) Basic earnings per share (pence) £54.5m +6% 37.3 pence +9% 2018 (restated3): 34.2p 2018 (restated3): £51.2m Adjusted basic earnings per share2 (pence) h g 2018: 30.0 penceH 38.8 pence +7% 108.4% +7% i Cash conversion4 (%) 2018 (restated3): 100.9% 2018 (restated3): 36.3p Cash flow generated from operations (£m) £57.7m +17% 2018 (restated3): £49.3m Dividend per share 34.5 pence +15% Over 900 university events attended in 2019 (2018: over 700) Just under 60,000 applicants applied via our website5 We work proactively with over 200 university partnerships globally 2,115 training completions in 2019, a 2% decrease (2018: 2,155) Continued investment in training Academies, with global total training capacity6 of 988 at year end, up by 5% over December 2018 20 different training locations during the year Mounties assigned to client sites at week 527 were up 5% at 3,924 (2018: 3,747) Mountie utilisation8 rate of 96.1% 97 new clients globally (2018: 77) (2018: 97.3%) 1 Mountie revenue excludes revenue from contractors. See page 28 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 £2.0 million (2018: £3.0 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 29 for further details of adjusted items. 3 The Company has restated comparative figures following the fully retrospective adoption of IFRS 16 ‘Leases’ at 1 January 2019. See note 5 for more information. 4 Cash conversion is calculated by dividing cash flow from operations by operating profit. Previously cash conversion was calculated by dividing cash flows from operations by profit before tax. Following the adoption of IFRS 16 “Leases”, the calculation was amended and the 2018 comparative restated, to provide a more meaningful indicator. 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. 5 The recording of applications changed in 2019, such that there is no prior year like-for-like comparative. 6 Total training capacity seats is combined permanent capacity (2019: 844; 2018: 848) and temporary capacity (2019:144; 2018: 90). 7 Week 52 in 2019 commenced on 16 December 2019 (2018: week 52 commenced on 17 December 2018). 8 Utilisation is calculated as the ratio of cost of utilised Mounties to the total Mountie payroll cost. 2 3 RECRUITTRAINDEPLOYFDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019We are FDM Group (Holdings) plc (“the Company”) and its subsidiaries (together “the Group” or “FDM”) operate 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. 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, Murex, Salesforce, 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 training and experience required to make a success of launching or re-launching their careers. We have dedicated training centres and sales operations located in London, Leeds, Glasgow, Birmingham, New York NY, Herndon VA, Charlotte NC, Austin TX, Toronto, Frankfurt, Singapore, Hong Kong, Shanghai and Sydney. We also operate in Ireland, France, Switzerland, Austria, Spain, Luxembourg, the Netherlands and South Africa. FDM is a collective of over 5,000 people, from a multitude of different backgrounds, life experiences and cultures. We are a strong advocate of diversity and inclusion in the workplace and the strength of our brand arises from the talent within. Together, we are FDM. Our vision To be recognised by our clients and industry as the global leader in the Recruit, Train and Deploy sector. Our purpose To create and inspire exciting careers that shape our digital future. To deliver customer-led, sustainable, profitable growth on a consistent basis, through our well-established Mountie model: • To identify and recruit talented individuals – we attract and recruit high-calibre candidates and develop them into skilled Mounties. We currently have three pathways: Graduate, Ex-Forces, and Returners to Work. Increased awareness of our brand is helping to promote FDM further in the Recruit, Train and Deploy sector. • To train individuals through our Academies – we provide our Mounties with first-class training and ongoing development and support, giving them the best possible platform from which to launch exciting and successful careers in IT. We invest in our trainers and Academies to create leading-edge centres of excellence. • • To grow our customer presence profitably – we continually create new opportunities to deploy our Mounties amongst our existing client base and in ever- broadening and diverse new markets and territories. To identify and fill our clients’ IT skills gaps – we focus on understanding and anticipating their requirements, as well as market trends, to provide exciting career opportunities to our Mounties and other employees, delivering sustainable profitable growth for our shareholders. • To create a long-term sustainable global business – we aim to have a beneficial impact on the communities where we operate, are aware of our responsibility towards our suppliers and work to minimise our impact upon the physical environment. 4 Together we are stronger From day one, FDM has always been people-focussed. We celebrate diversity. We encourage inclusivity. We thrive on teamwork and collaboration with colleagues, clients and partners. What makes us successful is that we’re a collective made up from a multitude of backgrounds, cultures, languages, nationalities and skills. This diversity makes us stronger as one. We strive for success We are entrepreneurial, ambitious, creative and brave. We thrive on pushing the boundaries to exceed clients’ expectations. We create an inspiring place for colleagues to work and develop their careers. We encourage our colleagues to challenge themselves and help each other maximise their potential so we can continue to deliver a unique and unparalleled service to our clients and stakeholders. We make it happen We’re pioneers and innovators – a team of adaptable, agile and passionate people. We have a ‘can-do’ attitude, approaching every day with energy and enthusiasm. We seize every opportunity to provide solutions for our clients, careers for our people and to drive our business forward. Our Values Committed to our clients We all work towards a shared goal – to help our clients succeed. We are attentive, focussed and in-tune with their wants and needs. We work hard to nurture our relationships, to become our clients’ partner and to create solutions to fulfil their business ambitions. Their success is our success. We say it how it is We believe in professional integrity. We are reliable, open and trustworthy, and we are undivided in this behaviour. This approach has earned us the respect of our colleagues, clients, partners and investors and has made us the business we are today. Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019Awards • Social Mobility Employer Index 2019: Top 75 • JobCrowd Top 100 Companies For Graduates To Work For 2019/ 20 • RateMyPlacement – Top 100 Undergraduate Employer 2019/ 20 • New Year’s Honours List – CBE awarded to Sheila Flavell for “services to gender equality in IT, and graduate and returners’ employment” • Management Today – Agents of Change Power List 2019 – Rod Flavell, second consecutive year • Yahoo Finance Heroes Top Advocate Executives of 2019 – Rod Flavell • Women in Tech Employer Awards 2019 – Female Grad Tech Employer of the Year • NUE Awards – Top 100 Undergraduate Employer • TalentEgg – Best Contribution to Student Career Development Award 2019 (Canada) • Military Times Best for Vets Employer 2019 (USA) • US Department of Labor: HIRE Vets Medallion Award • AFR Top 100 Most Popular Graduate Employers 2019 (Australia) – second consecutive year • MINT Minded Company (Germany) • Fair Company award (Germany) • American Universities’ China Association – Most Popular Employer Award 2019 • Megabuyte Quoted25 2019 Awards received during the year included: TOP COMPANIES FOR GRADUATES TO WORK FOR 2019/20 2019 6 i s a F D M o v e r c o l l e c t i v e o f r o m a f 5 , 0 0 0 p e o p l e , f e r e n t f d i m u l t i t u d e o f b a c k g r o u n d s , i e n c e s f e e x p e r a n d c u l t u r e s l i FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements ’ s n a m r i a h C t n e m e t a t S I am pleased to present FDM’s Annual Report for the financial year ended 31 December 2019, my first year in the role of Chairman of the Board. Performance Culture and values Notwithstanding some challenging FDM’s business is supported by a strong conditions in certain of our markets, the cultural identity that helps to ensure our strength and flexibility of our business goals are understood and shared by all of model has enabled us to deliver a solid our people. I am particularly proud of the financial and operating performance in work we do to promote social mobility 2019. The Group has continued to and to make FDM a diverse and inclusive increase overall Mountie headcount and place to work. It was also rewarding to be revenue, closing the year with 3,924 recognised for the ninth year running by Mounties placed on client sites. The JobCrowd in their “Top 100 Companies For Graduates to Work For”. The Group’s financial position remains More information on our work in this robust with a closing cash balance of area can be found on pages 42 to 45. £37.0 million and no debt. +15% Total ordinary dividend Governance The Board has always considered robust Corporate Governance and a sound approach to risk management to be fundamental to the sustainability of the Group and its operations. In July 2018 the Financial Reporting Council published its new UK Corporate Governance Code (“2018 Code”) which we have fully adopted during the 2019 financial year. Engagement with our employees and other stakeholders has always been an important part of our approach and, encouraged by the 2018 Code, we have worked on expanding that engagement during the year. I report on Corporate Governance in more detail on page 62 and our framework of risk management and governance will continue to evolve during the coming year in line with shareholder expectations and best practice requirements. 9 David Lister Chairman FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial StatementsChairman’s Statement Dividend The Board The Group continues to apply a The Board has seen a number of changes progressive dividend policy, aimed at since the publication of our last Annual increasing the annual dividend broadly in Report. In March 2019 my predecessor line with growth in the Group’s earnings Ivan Martin stepped down from the per share, whilst taking into account the Board and I took on the role of Chairman. Board’s desire to maintain a cash buffer of approximately £30 million at a Group Since then we have also appointed two level, the ongoing needs for funding of additional Non-Executive Directors to the organic growth across the business and Board: the distributable reserves available to the Group. We intend to pay a final dividend Jacqueline de Rojas CBE joined us on of 18.5 pence per share, taking the total 1 October 2019. She is a highly regarded ordinary dividend to 34.5 pence per leader in technology in the UK, with a share, an increase of 15% on 2018. strong reputation as a champion of Robin Taylor, who has been a Non- Executive Director since June 2014 and Chair of the Audit Committee since October 2015, will be stepping down from the Board at the end of our Annual General Meeting on 29 April 2020. On behalf of the Board I would like to thank Robin for his dedication and support of the Board’s work over that remarkable period for the Group, and we wish him all the best for the future. Alan Kinnear will take on the role of Chair of the Audit Committee when Robin steps down. Outlook People Our results this year reflect the dedication and hard work of all our colleagues, our Mounties working on clients’ sites and also our recruiters, trainers, sales staff and those in support roles. Our people understand that our clients’ success is our success, and, on behalf of the Board, I would like to thank them for their great contribution to our performance during the year. The Board appointed Paula Leach as Group Chief People Officer in April 2019 to work closely with the Board on succession planning and people development. Paula has made good progress since joining us, developing and launching a Group People Strategy. This will ensure that we remain ahead of our competitors by developing our people and will support FDM’s overall sustainability for the benefit of all our stakeholders. There is further information on the Group People Strategy in the Corporate Responsibility Report on page 38. women in the sector, and as an advocate 2020 has started promisingly and in line for diversity and inclusion. The Board has with management expectations, with designated Jacqueline as the Non- strong levels of client activity and Executive Director with responsibility for demand. We anticipate a further year of ensuring that the views of our employees good operational and financial progress. David Lister Chairman 10 March 2020 are understood and taken into account in the Board’s decision making. Alan Kinnear joined the Board on 1 January 2020. As a former audit partner with PricewaterhouseCoopers LLP (“PwC”), Alan brings many years of experience in corporate governance, risk management, financial reporting and regulation. The Board will benefit greatly from the experience, insight, and diversity of approach and background that these new members bring. As we continue to build the robust structure of governance and risk management that underpins the Board’s work we will also maintain our focus on making FDM a diverse, inclusive and stimulating place to work. Sheila Flavell, our Chief Operating Officer, was recognised in the 2020 New Year’s Honours List, being awarded a CBE for her services to gender equality in IT and the employment of graduates and returners. This is a richly deserved recognition of her efforts on our diversity and social mobility agenda. 10 FDM’s business is supported by a strong cultural identity that helps to ensure that our goals are understood and shared by all of our people FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements’ s e v i t u c e x E f e h C i w e i v e R “The strength and flexibility of our business model enabled FDM to deliver a solid performance in 2019 against a backdrop of challenging conditions in certain of our markets. 2020 has started promisingly and in line with management expectations, with strong levels of client activity and demand. We anticipate a further year of good operational and financial progress.” Overview Our strategy We delivered a solid performance in FDM’s strategy is straightforward. We aim 2019. We ended the year with 3,924 to deliver customer-led, sustainable, Mounties placed with clients. The Group profitable growth on a consistent basis, recorded revenue of £271.5 million and delivered an adjusted profit before tax1 of £54.5 million. +12% Mountie revenue through our well-established and proven Mountie model. This strategy requires that all activities and investments produce the appropriate level of profit and return on cash, that they deliver sustained and measurable improvements for all our stakeholders including customers, staff and shareholders, and that they further our objective of launching the careers of talented people worldwide, which remains core to everything we do. This strategy is underpinned by four key objectives: Attract, train and develop high-calibre Mounties; Invest in leading- edge training Academies; Grow and diversify our client base; and Expand our geographic presence. Rod Flavell Chief Executive Officer 1 The adjusted profit before tax is calculated before Performance Share Plan expenses (including social security costs). 13 FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Attract, train and develop high-calibre Mounties Invest in leading-edge training Academies ruit c e R Train Bringing people and technology together Deplo y Grow and diversify our client base Expand our geographic presence Strategic objectives Attract, train and develop high-calibre Mounties Invest in leading-edge training Academies Grow and diversify our client base In the UK, FDM remains one of the Our Academies are dynamic, high- FDM is committed to delivering the leading graduate employers, and technology facilities, where our skilled highest level of service to our clients. maintains working relationships with and knowledgeable trainers provide deep Within the financial services sector, almost all of the UK’s universities. To date and empowering training to would-be where the Group has a concentration of over 720 ex-military personnel have Mounties. Each Academy is well placed clients, we continue to evolve and launched new careers with FDM whilst for public transport and easily accessible expand the number of service streams our back-to-business programme has to Mounties and clients alike. During the and disciplines we offer. During the year returned over 190 people to meaningful year we invested in a major new we increased our client base across all careers. Academy in the Barangaroo our regions and gained 97 new clients Our training programmes provide opened its doors to trainees on outside the financial services sector. Development in Sydney, Australia, which (2018: 77 new clients) of which 67% were thousands of people each year with the 1 February 2019. opportunity to launch or further their careers. 2019 saw us attract 60,000 We increased our use of pop-up applications and deliver 2,115 training Academies during the year. Six of our 15 completions across the Group (2018: training locations at the end of the year 2,155), the slight decrease being a result were pop-up centres, and 272 trainees Expand our geographic presence of the business flexing the timing of completed training through a pop-up training courses to align with client compared with 175 in 2018. We find that With the exception of the UK and Ireland, demand. pop-ups work well for the business as which saw Mountie headcount fall by 94 they are quick to establish and offer compared to week 52 2018, we have We now have almost 130 people flexible availability to meet local increased the number of Mounties on employed across the Group’s training candidate and client demand. With this in site across all regions. The reduction in Academies and we continue to grow and mind, when the lease of our premises at the UK and Ireland, which was due to diversify the disciplines in which we train Reston, VA ended during the year we reduced demand from UK Government and the depth to which we educate. moved our Reston operations to a new Ministerial Departments in advance of pop-up centre in Herndon, VA. the clarity over Brexit and political Supported by a network of peers, our leadership changes, offset good progress Mounties have the opportunity to work Our total training capacity (the number of made in other sectors in the UK. The for a broad range of household name available training seats at a given point in largest increase in headcount came in organisations having received time) was 988 at year end (2018: 938). APAC, which saw Mountie headcount comprehensive and role-specific training. Our training facilities are key to securing increase by 112, followed by North Whilst our business model operates on a flow of Mounties to support our America which increased headcount by the premise that the average length of a growth. As our training capacity 81 and then EMEA which increased Mountie’s engagement with FDM is continues to increase, so does our ratio headcount by 78. Australia and the approximately three years, the training of trainers to trainees, demonstrating our Netherlands performed particularly well we provide enables our Mounties to commitment to ensuring trainees have increasing headcount by 64 and 41 develop ongoing exciting and rewarding the required level of support during their respectively. careers. development. An overview of the financial performance and developments in each of our markets is set out on pages 22 to 24. 15 FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Chief Executive’s Review Our service offerings We constantly re-evaluate our training to ensure we deliver, at scale, a consultant workforce best suited to the wide range of roles required. We regularly discuss the trends our clients see developing in the technology market, and make sure we understand how those trends will be reflected in their future needs. FDM’s range of technical and business disciplines includes; Development, Testing, IT Service Management, Project Management Office, Data Services, Business Analysis, Business Intelligence, Murex, Salesforce, Cyber Security and Robotic Process Automation. In 2019, our biggest growth stream has been Development. In 2019 we added three new courses to our programme: Course Detail including module content Big Data Engineering This course covers a number of tools, techniques and methodologies forming part of the Hadoop Framework, and practical training in a number of other key technologies. Trainees gain an in-depth understanding of the part played by each component of the technology, including key methodologies such as: Introduction to Data Processing, Querying, In-Memory and Batch Processing and Statistical Analysis. Solution Architecture The course is aimed at developing a diverse pool of talent with a foundation across the UX/ UI (User Experience/ User Interface) Software Development Life Cycle. The training includes, but is not limited to: Stakeholder Management, Functional/ Non-Functional Requirements, Architecture Fundamentals, Design Patterns, Integration Patterns, Application Programming Interface, Networks and Cloud Computing, all concluding in a final project whereby the trainees design, develop, test and deploy an application from scratch into a live environment. Our UX and UI training covers three main phases, Discover, Design and Test. It forms an additional component of other traditional training streams including Business Analysis and Software Development. Our trainees create online portfolios during their training using InVision, Adobe XD, proto.io and other software which demonstrate their talents and show both their eye for design and their understanding of human machine interaction. Our core training proposition is modular and continues to evolve, remaining flexible to enable close alignment to the needs of our clients. Delivering effective training requires a combination of learning delivery methods including classroom-based training and e-learning, and an emphasis on gaining practical experience using appropriate tools and methodologies. Our people – talented, ambitious, enthusiastic and diverse We regularly review the operation of our (“CEO”) and regularly attends Nomination commitment that enables us to continue Academies to optimise efficiency and the Committee and Board meetings to to grow the business successfully quality of delivery in support of the provide updates on her work. each year. development of our Mounties and of our clients’ requirements. This ensures that From the analysis she has carried out our curriculum remains fully up-to-date since taking on the role, Paula has Global health issues and evolves to respond to market trends. developed a new Group People Strategy We also aim to optimise the experience with the support of the Board. The of our trainees in the Academies to strategy will be rolled out during 2020 enable them to become high-performing, and is designed to enable FDM to fulfilled and enthusiastic ambassadors maintain its position as a high-performing for our business. and impactful global organisation with a clear orientation towards sustainability, In 2018 we introduced an apprenticeship scalability, commercial efficiency, and scheme which has continued in flexibility. In order to achieve these operation this year, enabling a number of outcomes, the strategy focusses on the our staff to benefit from additional following measures: investment in their learning and development, with support across • successful deployments – by placing several disciplines, including an MBA our Mounties and clients at the course and a Leadership and Management programme. heart of our work; • an inclusive culture – where our people can thrive and be happy and We also continue to offer a number of productive; paid eight-week summer internships across several departments in our centres around the world. For university students • • a proactive business – anticipating the needs of our people and clients; quality and clarity of purpose – by registered on a four-year sandwich/ ensuring that all our employees industrial placement degree course, we promote and embody our values now also offer a 12-month sandwich and our unique service offering; and placement in our London, Leeds and • recognised leadership – in diversity Glasgow centres which enables those and inclusion, STEM, people students to gain industry-relevant skills analytics and leading-edge learning. by working alongside experienced professionals in one of our departmental During the first implementation phase of teams. Students taking part in these the strategy, the emphasis will be on programmes may then represent FDM as optimising the Mountie experience, from Student Brand Ambassadors at their joining the Academy as a trainee, respective universities and remain in throughout the period of their deployment touch with us throughout their studies. on client site, during any periods when We aim to offer many of them permanent they are not placed with a client and after positions on graduation. In 2019 we were the end of their deployment, as alumni of pleased to be included in the NUE Awards our training programme. Our business requires people to interact with people. The Coronavirus is presenting us with a range of challenges relating to remote working, attendance on client sites and mobility for our trainers. The financial impact to date of these to date has not been significant, but we continue to monitor the situation closely. We review our business continuity plan regularly and have recently updated it in the light of the Coronavirus outbreak, adding enhanced mitigations designed to ensure that our academies, sales, recruitment, and other internal teams can continue to operate in several potential scenarios. We are liaising with our clients to understand their own arrangements to respond to the challenges of the outbreak, with a view to the wellbeing of our consultants and, where possible, to help clients minimise the impact which the outbreak has on the ability of our consultants to carry out their work for our clients. We are monitoring the latest official advice given by the relevant authorities, and our Executive Management Team is liaising closely with our managers in our locations around the world, to assist them in keeping our response under review, ensuring that it evolves appropriately as circumstances change. Looking forward Top 100 Undergraduate Employers in FDM has made an encouraging start to recognition of our internship and The strategy includes KPIs and target 2020 and the Group is well placed to The success of our business is dependent on continuing to recruit trainees of the highest calibre into our Academy programmes and placement programme. indicators that will enable the Board to make continued good progress this year equipping them with skills in innovative technologies. Our typical Mountie embodies an energetic blend of skills, professionalism measure the success of the strategy and beyond. and a drive to succeed. We regularly review our techniques and processes for assessment, recruitment and training to ensure that In recognition of the central role of our using enhanced data reporting methods they remain effective in supporting these aims. people in the success of our business, in over the course of this year, and we will April 2019 we appointed Paula Leach as report further in our Annual Report 2020. We draw candidates for graduate training from over 900 universities around the world and from a wide range of degree Group Chief People Officer. Paula has backgrounds. We maintain close relationships with university careers services globally. In 2019 our University Partnerships Team many years of experience working with We have invested in our internal future delivered events on university campuses, including traditional careers fairs and other activities such as curriculum-based projects, large people-focussed organisations, talent through an organisational and hackathons, introductory coding workshops and events to promote women in STEM subjects. Further detail on these activities can having recently been chief people officer design programme to address succession Rod Flavell Chief Executive Officer be found under “Engaging with the Community” on page 41. at the Home Office, and previously planning at all levels. Further details are 10 March 2020 spending 18 years across all HR set out on page 84. disciplines at Ford Motor Company. Paula is a member of FDM’s Executive Team. She reports directly to the Chief Executive I would like to extend the Board’s thanks to every FDM employee as it is their 16 17 FDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements  Key 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. Financial KPIs Mountie revenue (£m) Performance Description +12% Link to Business Model 2019 2018 2017 Deploy 268 239 207 Mountie revenue growth was generated via an increase in Mountie headcount across a greater number of clients, including in a number of new geographies. In the UK Mountie headcount declined in Government Ministerial Departments thereby muting good progress elsewhere in the UK. Cash flow generated from operations (£m) +17% Link to Business Model Recruit Train Deploy Performance Description 2019 2018 2017 58 49 52 The Group closed the year with cash balances of £37.0 million (2018: £33.9 million). The Group targets around £30.0 million of free cash on the balance sheet at year end for contingency purposes. Cash conversion (%) Performance Description +7% Link to Business Model Recruit Train Deploy 2019 2018 2017 108 101 118 Cash conversion is higher due to strong cash collection at the end of 2019 and improved working capital, including a reduction in the level of accrued income. Operational KPIs Mounties on client sites (week 52) +5% Link to Business Model Deploy Performance Description 2019 2018 2017 3,924 3,747 3,170 Overall Mountie headcount growth was delivered from existing and new clients with 97 new clients won in the year. Adjusted operating profit1 (£m) +7% Link to Business Model Recruit Train Deploy Adjusted basic earnings per share1 (pence) +7% Link to Business Model Recruit Train Deploy Performance Description Mountie utilisation rate (%) Performance Description 2019 2018 2017 55 52 48 The Group delivered adjusted operating profit growth by increasing Mountie revenue, maintaining a high gross profit margin, whilst continuing to invest in the business with an increase in overhead spend. -1% Link to Business Model Deploy 2019 2018 2017 96.1 97.3 97.3 Mountie utilisation rate in 2019 declined by 1% driven by lower UK utilisation in a less certain economic environment. Performance Description 2019 2018 2017 38.8 36.3 32.3 Adjusted earnings grew in line with Mountie headcount growth, which was toward the lower end of our expectations, primarily because of the UK. Careful control of discretionary overhead spend allowed us to achieve our overall earnings targets. Training completions (year to 31 December 2019) -2% Link to Business Model Recruit Train Performance Description 2019 2018 2017 2,115 2,155 1,626 Training completions have fallen marginally in line with variable client demand. 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 components of FDM’s business model are shown on pages 20 to 21. the impact of Performance Share Plan expenses (including social security costs and associated deferred tax). 18 19 FDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Business Model What sets us apart How our business works The value we create Our mission To bring people and technology together, creating and inspiring exciting careers that shape our digital future Our vision To be recognised by our clients and industry as the global leader in the Recruit, Train and Deploy sector About us We recruit and train graduates, ex-Forces personnel and returners to work, transforming them into IT and business professionals before deploying them to work with our clients We work in partnership with our clients to fill their specialty skills gaps, building a diverse pipeline for the future Our people • As employees of FDM, our Mounties are trained not only to meet the requirements of our clients but to equip them well for the early stages of their nascent careers; we provide ongoing training and support throughout their tenure as FDM employees Global coverage • International presence with localised support in dedicated locations Industry standard setting training facilities • Track record of success • Robust credentials with almost 30 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 a permanent role with the client after two years (18 months in Germany) We recruit We recruit the best people amongst: – Graduates – Ex-Forces – Returners to work We train We offer extensive, award-winning, training to successful candidates We deploy We place Mounties at a diverse range of clients; when placed, Mounties enter a two-year commitment period Beyond the two years Following completion of the two-year commitment period, there is the option for Mounties to transition permanently to the client or embark on a new placement with FDM For our clients We provide our clients with a first-class, flexible resource at a competitive price 3,900+ Mounties on site at year end For our shareholders We have consistently delivered value for our shareholders +9% growth in basic earnings +15% growth in annual dividends per share For our employees Ongoing professional development and support available to our employees throughout their career at FDM 5,000+ FDM employees globally +85 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 2019 20 21 FDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Our Markets North America 2019 2018 Mountie revenue £95.7m £81.4m Adjusted operating profit1 £16.5m £13.8m Mountie headcount at client sites 1,277 1,196 Training completions 706 825 UK and Ireland 2019 2018 Mountie revenue £134.2m £126.1m Adjusted operating profit1 £37.8m £37.0m Mountie headcount at client sites 1,910 2,004 Training completions 964 1,057 50% of FDM’s global Mountie revenue 36% of FDM’s global Mountie revenue EMEA 2019 2018 Mountie revenue £16.0m £13.5m Adjusted operating profit1 £2.2m £1.4m Mountie headcount at client sites Training completions 240 155 162 104 8% of FDM’s global Mountie revenue 6% of FDM’s global Mountie revenue APAC 2019 2018 Mountie revenue £22.3m £18.0m Adjusted operating loss1 £(1.3)m £(0.4)m Mountie headcount at client sites Training completions 497 290 385 169 1 The adjusted operating profit/ (loss) is calculated before Performance Share Plan expenses (including social security costs). 2018 is restated for IFRS 16 ‘Leases’. 22 23 FDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial Statementsr a i n e d a t 2 0 l o c a t i o n s W e t i n g t h e y e a r f e r e n t f d i d u r Our Markets UK and Ireland In 2019, Mountie revenue grew 7%, with 1,910 Mounties placed on client sites, a decrease of 5% on last year (2018: 2,004). Adjusted operating profit1 increased by 2% to £37.8 million (2018 restated: £37.0 million). The UK and Ireland gained 46 new clients, 76% of which were from outside the financial services and banking sector. Performance in the insurance and banking sectors was strong during the year. However, uncertainty over Brexit and potential changes in political leadership resulted in a reduced demand from UK Government Ministerial Departments during the second quarter and for the remainder of the year. This reduction in headcount offset good progress made in other sectors in the region. Training completions were 964, a fall of 9% on last year as we flexed our training in line with demand. During 2019 we operated pop-up Academies in Birmingham, Cardiff and Dublin. These training centres allow us to tap into the graduate and client markets in the respective local areas. Getting Back to Business headcount has increased by 14% to 98 placed at clients at year end. There were 11 Getting Back to Business courses delivered across our London, Glasgow and Leeds Academies. North America North America Mountie revenue grew by 18%. Mounties placed on site increased by 7% to 1,277 at year end (2018: 1,196). Adjusted operating profit1 increased by 20% to £16.5 million (2018 restated: £13.8 million). We won 17 new clients in the year. This new client growth has been primarily in banking and financial services, with demand in that sector improving in the second half of the year after weaker market conditions had slowed activity in the second quarter. We have also widened our presence in insurance, retail and professional services. Our Canadian business, centred in our Toronto base, continues to perform well, supported by our pop-up Academy in Montreal. The lease on our Reston Academy ended during 2019 and we set up a pop-up Academy in nearby Herndon. The Austin and Charlotte centres are both performing well, with increased training capacity and Mountie placements. Training completions in the region have decreased by 14% as we flexed the timing of training courses to meet client requirements. Our work for former Veterans was again recognised when we were included in the Military Times Best for Vets: Employers listing 2019. Our ex-Forces headcount grew to 53 from 42. EMEA (Europe, Middle East and Africa, excluding UK and Ireland) Mountie revenue from our EMEA business grew by 19% to £16.0 million (2018: £13.5 million). Adjusted operating profit1 was 57% higher at £2.2 million (2018 restated: £1.4 million). Mounties on client sites increased by 48% to 240 at year end (2018: 162). Our headcount in Luxembourg continues to grow steadily. The Netherlands had 51 Mounties placed at year end, sourced and trained locally at our Rotterdam pop-up Academy, which was opened towards the end of 2018. Reflecting a change in management reporting, 30 Mounties included within UK and Ireland Mounties deployed as at 30 June 2019 have been re-allocated to EMEA Mounties deployed as at 31 December 2019; there is no change to the reported 31 December 2018 Mounties deployed. APAC (Asia Pacific) APAC Mountie revenue increased by 24% to £22.3 million (2018: £18.0 million), with 497 Mounties placed on client site at year end (2018: 385). We gained 21 new customers. The adjusted operating loss1 increased from £0.4 million in 2018 to £1.3 million in 2019, as result of the ongoing investment costs in our Sydney Academy. This new state-of-the-art Academy became operational in February 2019 and provides us with six classrooms. Australian headcount increased by 64, an increase of 133% over 2018. The Hong Kong office has also had a strong year of growth, despite the social and political disruption taking place there. During 2019, we operated pop-up Academies in Beijing and Shanghai to provide local training. 1 The adjusted operating profit/ (loss) is calculated before Performance Share Plan expenses (including social security costs). 2018 is restated for IFRS 16 ‘Leases’. 24 FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements “2019 was a year of solid financial performance and continued growth, against a backdrop of political uncertainties in the UK, our largest market. We delivered 11% growth in revenue to £271.5 million (2018: £244.9 million) and a 7% increase in adjusted operating profit1 to £55.2 million (2018 restated: £51.8 million), with adjusted basic earnings per share1 up 7%, to 38.8 pence (2018: 36.3 pence). We remain well positioned for future growth with investment plans appropriate to the market opportunity for each of the geographies in which we operate, a robust balance sheet and a proven business model.” +7% Adjusted operating profit +17% Cash flow generated from operations Mike McLaren Chief Financial Officer 27 l i a c n a n F i w e i v e R FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial StatementsFinancial Review Summary income statement As at 31 December 2019 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 2019 Year ending 31 December 2018 Restated £271.5m £268.2m £3.3m £55.2m £54.5m £52.5m £244.9m £239.0m £5.9m £51.8m £51.2m £48.2m Pence per share Pence per share Restated 38.8 37.3 36.3 34.2 % change +11% +12% -44% +7% +6% +9% % change +7% +9% Mountie revenue increased by 12% to £268.2 million (2018: £239.0 million), an 11% increase at constant currencies. Contractor revenue decreased, in line with our plan of curtailing such revenues, by 44% to £3.3 million (2018: £5.9 million). Gross margin remained constant at 48.5% (2018: 48.6%). The Group’s strategy remains focussed on growing Mountie numbers and revenues whilst contractor revenues, which have been ancillary to the Group for some time now, will continue to reduce and will cease entirely in the UK at the end of the first quarter 2020. An analysis of Mountie revenue and headcount by region is set out in the table below: UK and Ireland North America EMEA APAC 2019 Mountie revenue £m 134.2 95.7 16.0 22.3 268.2 2018 Mountie revenue £m 2019 Mounties assigned to client site at week 522 2018 Mounties assigned to client site at week 522 126.1 81.4 13.5 18.0 239.0 1,910 1,277 240 497 3,924 2,004 1,196 162 385 3,747 Adjusted Group operating profit margin decreased to 20.3% (2018 restated: 21.2%) of revenues, reflecting the increase in our overheads in the year to £78.4 million (2018 restated: £70.2 million), as we continue to invest in our people and infrastructure and diversify our target markets to underpin future growth. 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 2019 commenced on 16 December 2019 (2018: week 52 commenced on 17 December 2018). Restated comparative figures Group’s revolving credit facility. The significant capital commitments (with the Group’s revolving credit facility expired on exception of its leasehold properties) and 14 August 2018 and was not renewed has sufficient distributable reserves and given the Group’s strong cash position. cash balances to continue to apply this The Group has adopted IFRS 16 ‘Leases’ applying the full retrospective transition approach and has therefore restated its 2018 results. Under IFRS 16 a liability and a right-of-use asset are recognised at the inception of the lease, the lease liability being the present value of future lease payments. The charge to the Income Statement comprises i) an interest expense on the lease liability (included within finance expense) and ii) a depreciation expense on the right-of-use asset (included within operating costs). Application of the new standard on the Income Statement for the year to 31 December 2019 resulted in operating costs decreasing by £0.5 million and finance expense increasing by £0.7 million. As at 31 December 2018 there was an increase in assets of £13.9 million and liabilities of £15.3 million on the Statement of Financial Position, with a corresponding £1.4 million reduction in retained earnings. 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 Taxation The Group’s total tax charge for the year was £11.9 million, equivalent to an effective tax rate of 22.7%, on profit before tax of £52.5 million (2018 restated: effective tax rate of 23.3% based on a tax charge of £11.3 million policy. As at 31 December 2019, the Company had distributable reserves of £40.2 million. Cash flow and Statement of Financial Position and a profit before tax of £48.2 million). At the end of the year, the Group had cash The effective tax rate in 2019 is higher balances of £37.0 million (2018: £33.9 than the underlying UK tax rate of 19% million) and no debt. Net cash flow from primarily due to Group profits earned in operating activities increased from £38.0 higher tax jurisdictions. The effective tax million in 2018 (restated) to £46.8 million rate reflects the Group’s geographical in 2019. Dividends paid in the year mix of profits and the impact of items totalled £34.1 million (2018: £30.7 million). considered to be non-taxable or Net capital expenditure was £3.0 million non-deductible for tax purposes, with the (2018: £2.7 million) and tax paid was £11.0 decrease year-on-year primarily due to million (2018: £11.4 million). During the changes in these factors. year, the Group, via an employee benefit Earnings per share The basic earnings per share increased in the year to 37.3 pence (2018 restated: 34.2 pence), whilst adjusted basic earnings per share was 38.8 pence (2018 restated: 36.3 pence). Diluted earnings per share was 37.2 pence (2018 restated: 33.7 pence). Dividend trust (“EBT”), purchased shares sold by option holders upon the exercise of options under the FDM Performance Share Plan for a net cash cost of £3.0 million (2018: £3.7 million). The shares held in the EBT are available to satisfy future awards. Cash conversion is strong at 108.4% (2018 restated: 100.9%). HMRC has recently introduced changes to accelerate the timing of UK quarterly corporation tax payments, which for FDM become effective in the current year. As a consequence, FDM expects to accelerate expenses including associated taxes. The The Group continues to apply a corporation tax payments of Performance Share Plan expenses including social security costs were £2.0 million in 2019 (2018: £3.0 million). Details of the Performance Share Plan progressive dividend policy, aimed at approximately £3 – £4 million into 2020; increasing the annual dividend broadly in this does not impact the Group’s line with growth in the Group’s earnings cashflow generated from operations or per share, whilst taking into account the cash conversion KPIs or its tax charge. are set out in note 25 to the Consolidated Board’s desire to maintain a cash buffer Financial Statements. The Directors believe that excluding these costs of approximately £30 million at a Group level, the ongoing needs for funding of provides a more meaningful comparison organic growth across the business and of performance and cash generation. the distributable reserves available to the Net finance expense The finance expense costs include a lease liability interest of £0.8 million (2018 restated: £0.7 million). The Group has no bank borrowings. The reduction in the other financial expense in the period is as a result of no longer incurring non-utilisation charges on the undrawn element of the Group. We intend to pay a final dividend of 18.5 pence per share, taking the total Mike McLaren Chief Financial Officer ordinary dividend to 34.5 pence per 10 March 2020 share, an increase of 15% on 2018. The Board 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 28 29 FDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial StatementsRisk Management Principal risks The principal risks faced by the Group, their current status and how the Group mitigates these risks are set out on pages 32 to 36. The status of each of the Group’s principal risks is considered unchanged from the prior year. However, we have renamed and tailored risk 6, relating to the ability to recruit and retain key staff with the required level of skills, to be a more focussed ‘talent management and succession planning’ risk. The status of the risk remains unchanged. The alignment to our strategic objectives as set out on pages 32 to 36 indicates those aspects of the business strategy that would be impacted by the risk, were it to materialise. 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. 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, 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. A further Internal Audit review of our risk assessment processes, as part of a wider compliance review, was carried out in 2019 and no significant issues were identified. The current Risk Register includes 29 risks categorised as strategic, operational, compliance or financial risks, of which ten are considered to be the Group’s principal risks. The Risk Register was reviewed at the December Audit Committee meeting and it was agreed that no change to the risk rating of the risks was required. 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 Talent development and succession planning Development of new service offerings Business interruption – caused by successful cyber attack, natural disaster or other similar events Reputation 10 International regulatory non-compliance h g H i t c a p m I w o L 8 9 4 1 5 2 6 7 3 10 Unlikely Likelihood Almost certain Impact of Brexit on the Group We are confident that our business model is generally resilient against many of the threats and uncertainties which it is commonly perceived might arise from Brexit. In 2019 we experienced reduced demand from UK Government Ministerial Departments in advance of clarity over Brexit and political leadership changes. This impacted overall growth in our consultant headcount in the UK and offset good progress which we had made during the year in other sectors in the territory. Following the general election in December 2019 and the UK’s departure from the EU on 31 January 2020, we are hopeful that some clarity will begin to return in that market. In addition, we anticipate that the full multi-year spending review, which the Government has indicated should take place during 2020, might assist in bringing us a better understanding of the requirements for our services in those Ministerial Departments. The Board recognises that some clients may continue to be adversely impacted by uncertainty and the economic conditions in the UK and the EU during the post-Brexit transition period which is due to continue until the end of 2020. Those clients’ spending decisions may be affected until the future legal and commercial relationship between the UK and the EU becomes clear. Whilst certain scenarios are outside the Group’s control, we believe that our business model is flexible, and the agile resource represented by our Mounties can be attractive to clients during times of economic or political uncertainty. These factors, together with our strong cash and financial position, give the Board confidence that we can respond appropriately to ameliorate the effect of adverse conditions which may occur following Brexit and the ongoing transition period. 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 from within the territories in which they operate. We are not significantly reliant on moving employees to or from the EU and do not expect to be materially impacted by any changes to the arrangements for the free movement of workers between the EU and the UK. 30 31 FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019Risk Management Strategic risks Risk and impact Mitigation Movement in the year Risk and impact Mitigation Movement in the year 1.  Changes in the macro-economic environment ➔➔ No change 3.  Balancing supply and demand – insufficient Mountie resource ➔➔ No change A global downturn or a downturn in the Whilst external factors such as macro- The Board’s assessment of this risk is An inability to meet a rapid increase in The recruitment team maintains strong There has been a continued focus by territories in which FDM operates, economic risks are outside the Group’s unchanged in the year; however, the demand due to insufficient Mountie links to universities and other management during the year to ensure principally the UK and North America, control, the Group has effective measures Board is of the view that the economic resource and an inability to recruit in a recruitment channels. could curtail demand significantly and in place to respond to changes, including environment is still a key risk to the timely manner would result in lost the most efficient utilisation and deployment of Mounties. A Mountie the ability of the Group to deploy its robust planning, budgeting and Group. There continued to be political revenue, eroded customer confidence An effective social media recruitment utilisation rate of 96% was achieved in Mountie resource, resulting in: an forecasting and resource allocation instability in the UK in 2019 as a result of and an adverse reputational impact. strategy is in place to maximise the year. adverse impact on revenue and procedures. operating profit; shrinking customer the uncertainty surrounding Brexit. As noted, macro-economic risks are outside Risk owner: The Group’s reputation amongst applications. base; negative impact on share price. The flexible nature of the Group’s the Group’s control, but the Group will Chief Commercial Officer Resource management meetings occur graduates, together with the career Risk owner: Chief Financial Officer Alignment to Strategic Objectives: business model enables it to flex continue to focus on ensuring it has resource availability thereby enabling it to effective measures in place to identify manage its cost base. and react quickly to changes in macro- Notwithstanding the impact of risk 2 financial position is good, with a strong below, the Group is focussed on balance sheet and significant cash economic conditions. The Group’s current diversifying its customer base both by balances. sector and by geography. 2.  Concentration exposure in the financial services sector ➔➔ No change The majority of the Group’s revenue is As above, the Group is focussed on The proportion of the Group’s revenue generated from within the financial growing its customer base both by sector generated from the financial services services sector. A crisis in the financial and by geography as well as diversifying sector has remained the same as prior services sector could reduce revenue the range of services it offers to existing year. The Board continues to focus on significantly and have a negative impact and potential financial services clients. this risk. on the majority of the Group’s KPIs. In 2020 part of the bonus opportunity for The Group continues to broaden the Risk owner: the Executive Directors will be targeted at spread of its service offerings within its Chief Commercial Officer diversification into new client sectors. financial services clients to cover Alignment to Strategic Objectives: Further details are in the Remuneration operational, compliance and IT services, Report on page 89. in addition to increasing its presence in other sectors. Alignment to Strategic Objectives: 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 to The management team is incentivised to medium term. maximise utilisation and increase flow through of trainees within the Academies. The Group has the option of using The Ex-Forces and Getting Back to in demand occur which cannot be fulfilled Business programmes, whilst relatively by available Mountie resource. contractors should a significant increase small in terms of total headcount, are growing and will help spread the Group’s access to a wider talent pool. 4.  Balancing supply and demand – excess Mountie resource ➔➔ No change 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. The Group’s client base by both number of decrease in demand would result in a Group is able to flex the number of clients and geographical spread mitigate reduction in margin and would Mounties it recruits at short notice, the risk of the Group not being able to demotivate Mounties. thereby responding quickly to a sudden fully utilise its Mountie resource. Risk owner: Chief Commercial Officer Resource management meetings occur downturn. Alignment to Strategic Objectives: weekly to ensure supply and demand issues are identified and resolved in a timely manner. 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. 32 33 FDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Risk Management Operational risks Risk and impact Mitigation Movement in the year Risk and impact Mitigation Movement in the year 5.  Recruitment and development of highly skilled Mounties ➔➔ No change 7.  Development of new service offerings ➔➔ No change Mounties are the Group’s core asset. The Group continually reviews and With the need to recruit significant The inability of the Group to develop new FDM’s flexible training model is able to The Group is responsive to its customer A failure to deliver high-quality Mounties benchmarks the remuneration packages numbers of Mounties to fulfil forecast service offerings and revenue streams develop course material relevant to needs which it identifies through regular into its customer base could result in a and incentives it offers to attract growth levels, this is perceived to be one could result in a loss of customers and customers’ needs. contact and feedback from its clients. loss of customers and damage to the graduates. of the Group’s main risks. Group’s reputation. Risk owner: Chief Executive Officer Strong relationships exist with A combination of the following factors universities and other recruitment indicates this risk is being managed Chief Information Officer a professional environment. The Executive Directors are actively channels including ex-Forces personnel. effectively: Alignment to Strategic Objectives: involved in key client relationships. market share. Risk owner: FDM’s state-of-the-art training Academies New offerings are developed and trialled. are designed to provide quality training in Alignment to Strategic Objectives: The UK’s ‘Getting Back to Business’ programme is growing. • recruitment levels of Mounties are A tailored development programme is in reviewed by the Board; place for Mounties, covering training and • there is a broader base of talent development opportunities, including from which to recruit through the opportunities after the bond period. Ex-Forces and Getting Back to continually being monitored and Business programmes; and The Group actively promotes Women in • challenging recruitment targets are IT initiatives to attract, develop and retain being met. Mountie talent. The Group is focussed on promoting its reputation in the marketplace as a leading employer. 6.  Talent development and succession planning ➔➔ No change 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. 8.  Business interruption – caused by successful cyber-attack, natural disaster or other similar events ➔➔ No change Major IT system integrity issues or data security issues, either due to internal or Cyber-attack The Group’s IT Security Team has 50+ Operation of the IT environment is continuously monitored and staff are external factors, could result in: actual years of experience and industry regularly made aware of the risks of financial loss of funds; potential loss of certifications and includes a CISO cyber-attacks. sensitive data with risk of litigation; loss industry-certified expert. of customer confidence; and damage to The Group reviews its BCP regularly. The reputation. A Global Standard for Technology processes were reviewed by KPMG as Security is in place. part of their Internal Audit Scope in 2018. An environmental event, including the KPMG Internal Audit will undertake The ability of the business to create an The Group’s Remuneration Policy states Talent development and succession impact of climate change, natural The Group’s IT security policy complies further reviews of the Group’s BCP in appropriate environment supported by that the overall remuneration package planning is a key part of the new Group disaster, epidemic or similar health- with ISO 27001. 2020. robust procedures to facilitate the should be sufficiently competitive to People Strategy developed by our Chief related event, such as Novel Coronavirus, retention and development of key attract, retain and motivate Executive People Officer. employees, thereby enabling the Directors. which could potentially result in the Staff are regularly made aware of the risk closure of one of our training Academies, of a cyber-attack and the appropriate business to expand. Risk owner: Chief People Officer The remuneration packages of all remain competitive and, for senior the prevention of Mounties travelling to this occurring. employees are reviewed and employees, include long-term share their place of work, in regions impacted benchmarked regularly to ensure they options to encourage retention. by such events, could lead to disruption IT policy and security matters are regular The Group’s remuneration packages the temporary closing down of clients, or actions necessary to mitigate the risk of Alignment to Strategic Objectives: remain competitive. and a loss of revenue. Board and Audit Committee agenda items. During 2019 the Group launched its Buy The annual development review includes As You Earn share plan, available to all Risk owners: the identification of training employees, to reward and encourage Cyber-attack: Chief Information Other business interruption Although the occurrence of an requirements, which are fulfilled within talent retention. the following twelve months. Officer environmental event, including the impact Other: Chief Operating Officer of climate change, natural disaster, The Nomination Committee considers succession matters as a regular agenda item. Alignment to Strategic Objectives: epidemic or similar health-related event is out the Group’s control, FDM has a Business Continuity Plan (‘BCP’) which includes plans in the event of a loss of training facilities and staff being unable to travel to their place of work, and would work closely with clients to mitigate the impact from such an event. 34 35 FDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Mitigation Movement in the year The Directors have assessed the prospects of the Group in accordance with provision 31 of the 2018 Code. Viability statement The period selected by the Board for its assessment is three years. This period was chosen for the following reasons: the core of FDM’s business is the Mountie model, and three years therefore approximates the average lifecycle of Mounties’ engagement with FDM and the Group’s normal investment cycle in its most important 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. Individually, and when considered together, no reasonable combination of sensitivities could result in the Directors altering their view of the Group’s viability. The Group’s financial position is strong with cash balances of £37.0 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. Risk Management Operational risks (continued) Risk and impact 9. Reputation ➔➔ No change The Group continues to invest in staff Reputation is key to the Group Robust recruitment and training 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 of Mounties, staff or contractors could have actions could result in a negative impact operational failure. an adverse impact on the Group’s on FDM’s reputation. reputation. A failure to manage any The Board regularly consults with its PR subsequent crisis through a lack of FDM has a zero-tolerance policy with advisors. reactive procedures could also respect to any inappropriate behaviour exacerbate potential damage. Any impact by an individual employed by the Group We have a dedicated head of Investor could be far-reaching: failure to meet or acting on behalf of the Group. Relations to manage the relationship with financial targets; litigation; loss of key shareholders and stakeholders in the clients; and loss of key staff. The Group focusses on strong 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 tax, The Group has robust recruitment The Group continues to invest in legal, employment and other business procedures, which ensure the appropriately-skilled personnel and will regulations could result in significant employment of appropriately skilled outsource where appropriate in areas costs, fines and/ or revocation of personnel in areas where compliance where compliance and expertise are business licences. with legislation is required. required. Internal Audit conducted a Risk owner: Chief Financial Officer Alignment to Strategic Objectives: n/ a review of compliance in 2019. The Group seeks appropriate advice and engages external advisors as necessary, The Group’s existing in-house Legal and particularly in overseas locations, and People teams have been, and continue to actively manages those relationships. be, augmented by new hires as the Group The Group ensures that the relevant experience and knowledge of the staff undertake ongoing training and countries in which the Group operates. professional studies where required. grows, bringing in more people with 36 37 FDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial StatementsCorporate Responsibility Acting responsibly Engaging with our employees A long-standing commitment to corporate responsibility is Further information about our people and people initiatives we central to our way of working. We understand that our undertook during the year can be found in the Chief Executive reputation with clients depends on our good conduct and that Review on pages 16 to 17. of our Mounties. We focus on integrity, transparency, reliability and trustworthiness as our key values (which are set out in In line with the recommendations in the 2018 Code, during the further detail on page 5). As a people business, we know that year we have continued to take steps to enhance the Board’s engaging with our employees, clients, shareholders and other engagement with our workforce and to ensure that the voice of stakeholders is not only a matter of corporate responsibility but our employees is heard by the Board. also makes good commercial sense and is essential to the sustainability of our business. The development of our new Group People Strategy has been informed by a programme of employee engagement, including The 2018 Code emphasises an obligation to ensure that the face-to-face feedback sessions and internal workshops on our voice of our employees is heard at Board level and, in line with employee value proposition. We have also used new employee this, we have focussed, particularly during 2019 on enhancing engagement software to carry out anonymous surveys on our efforts to engage effectively with our workforce. There is diversity and inclusion and on their experience of working further detail on this area under “Our people” on pages at FDM. 16 and 17. Jacqueline de Rojas, our Independent Non-Executive Director, Our relationships with our clients are at the core of our business has been designated by the Board as the Non-Executive and we maintain a strong focus on developing those Director with primary responsibility for engaging with our relationships. By working closely with clients not only to workforce to enable employees to share ideas and concerns understand their current needs but to anticipate their future with senior management and the Board. She will be supported requirements, both operational and technological, we can by other Non-Executive Directors in this work as required. Since continue to offer the most sought-after skills in leading edge taking on this role Jacqueline has been working with our Chief technologies. The success of our clients and our Mounties is People Officer on developing our employee engagement what drives our own success, and so our goals are closely linked. programme, with the aim of creating a transparent culture that enables every voice to contribute to the success of the Group. FDM has long been a strong advocate of the benefits of Jacqueline will report regularly to the Board on the themes diversity, inclusion and social mobility. We know the positive emerging from this programme, and the Board intends to listen impact that a diverse workforce has had on our business, and to, and learn from, all aspects of its interaction with our this is an important factor which makes our Mountie model so employees. attractive to many of our clients. We believe that we can extend this positive impact beyond our Academies into the During the year Jacqueline and David Lister, Chairman of the communities where we operate, and promoting these values by Board, held a series of informal meetings with managers at engaging with the community is an important part of the work different levels across our business. These meetings enable an of our Diversity and Inclusion, and Graduate Recruitment teams. exchange of information, assisting the Non-Executive Team to There is further information on these activities under “Diversity broaden the depth of its knowledge of FDM’s business and and Inclusion” on page 48. enabling managers to put forward comments, ideas and any concerns they may have. These meetings also raise awareness Our Corporate Responsibility strategy is closely aligned with our amongst the workforce about the role of the Non-Executive business strategy, and by continuing to develop and integrate Team, and contribute towards talent development, a those strategies further we will underpin the long-term fundamental part of the Board’s succession planning (more sustainable success of FDM, delivering value for our investors details of which can be found on pages 70 and 71). and enhancing the impact which we have on other stakeholders. In 2019 we continued our “Rising Stars” breakfasts and similar events around the world for junior employees who are excelling across the business. These events provide the opportunity to get to know members of the Executive Team, to brainstorm innovative ideas for our business and to share recent developments within their departments. The Board’s agenda in 2019 included a programme of formal opportunities for the managers of our different business teams to attend Board meetings and discuss the progress they are making and challenges faced. There have also been a number of informal opportunities for senior managers and future leaders from their teams to meet the Non-Executive Directors without the executive team being present, enabling the Non-Executive Directors to gain further insight into the culture of our business and to discuss any concerns. We regularly communicate with employees via email, monthly newsletters and face-to-face meetings in order to ensure they are supported, especially when placed remotely on site. The FDM Connection Newsletter keeps all employees up to date with FDM news from around the world, from important developments in our business to congratulating individual employees on noteworthy achievements. FDM’s Social Media Hub is displayed on large screens in our centres globally and serves as an excellent tool to keep employees up to date and engaged in real time. We are a young, dynamic company that encourages employees to use social media professionally and this has helped the Group raise brand awareness and engagement around the world. We believe that it is important to recognise and reward the commitment and hard work of our colleagues. The FDM Consultant of the Month and FDM Stars initiatives reward those that are excelling, as nominated by customers and other employees within the business. We also recognise and reward the commitment and long-standing contribution of employees who have completed five and ten years with FDM. The CEO Award of Excellence is FDM’s most prestigious award, reserved for outstanding employees who go above and beyond in contributing to the success and growth of the Company. In addition: • • During 2019 we made further awards to employees under our discretionary Performance Share Plan (“PSP”). A new Buy As You Earn share plan which is open to all our employees was launched in January 2019. These plans provide a longer-term incentive to enable participants to share in the success of our business and reap the rewards of their hard work and commitment to our shared goals. Those employees who received awards under the PSP in 2016 benefitted from this success when those awards vested in full in March 2019. Details of the PSP are set out in note 25 to the Consolidated Financial Statements. Our Buy As You Earn share plan currently has more than 200 participants who have demonstrated their commitment to the business by setting aside a portion of their monthly salary to purchase shares in FDM. The shares purchased will be matched with additional shares for employees who hold their shares and remain in employment for the required period. Engaging with our clients and shareholders We welcome visits from our clients and current and prospective investors at our centres and Academies. In 2019 we had more than 850 client visits to our Academies globally. Members of our sales teams constantly strive to develop their relationships with key members of our clients’ teams. We also work closely with our clients through the process of interviewing and selecting our trainees for deployment as Mounties on client projects, which enhances our understanding of the skills and qualities they are looking for. It also helps to ensure that the Mounties we put forward are well matched to the client’s culture and project criteria, which ultimately makes for a successful deployment. This year we hosted meetings with current and potential investors, involving not only our Executive Directors but also other senior managers. These enable shareholders to further their understanding of our work, culture and activities in other areas. Our in-house investor relations function works with our external brokers and financial PR advisors to provide an overall programme of communication with shareholders and prospective investors, and to increase the information available to them through our website and other channels. 38 39 FDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements 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 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. Early Talent Programme This year we expanded our schools engagement programme to our Glasgow Academy, developing a partnership with St Margaret Mary’s school in Glasgow to encourage young people to enjoy and engage with STEM subjects from an early age. Pupils from the school attended a series of skills and work-based workshops at our Academy designed to equip them with some of the skills they may need to enter and succeed in the workplace. We were delighted to be awarded “Employer of the Month” by the Glasgow Chamber of Commerce’s “Developing the Young Workforce” team in recognition of the beneficial impact of this project. In April, we hosted a number of programming workshops to assist students at Leeds City Academy to improve their technical skills. We also sponsored the Digital Skills Category in the 2019 TeenTech Awards, and held a business breakfast in our London Academy with the winning student hosted by our Chief Information Officer in November. Events for our University Partners Over the last four years we have worked with second year computer science students at the University of Leicester as part of one of their academic group project modules. We assist the University’s academics to develop a number of real-life software development briefs which the students work on throughout the term, introducing the brief to the students, and participating in the requirement gathering sessions and the students’ final product demonstrations and presentations. We work on similar projects with Queen Mary University of London, the University of Birmingham and Newcastle University (London Campus). This work brings us into contact with students who may not otherwise engage with their university careers service, raising their awareness of the breadth of real-life roles which can be available to FDM Mounties and in the wider technology industry. In 2019 we also hosted a seminar for 40 academics and other members of staff from our partner universities which explored the extent to which universities are preparing their students for the future world of work. The event included presentations by our Chief People Officer and a Mountie who has been deployed at a university. Hackathons During the year we ran a Hackathon at our Glasgow office in conjunction with our charity partner Anthony Nolan which was attended by students from universities across Scotland. The students (supported by our Academy trainers and other staff) were challenged by the Anthony Nolan charity to identify an effective method for the charity to increase engagement with one of its key target demographics to join the Anthony Nolan stem cell register, namely Black, Asian and Minority Ethnic (BAME) males aged 18-30. Anthony Nolan We have continued our partnership with Anthony Nolan, to raise funds and to encourage our employees to join the Anthony Nolan stem cell donor register. Anthony Nolan particularly needs young people and donors from BAME 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 of more than 85 different nationalities and we aim to help in adding much-needed diversity to the register. We provide direct sponsorship to our employees who wish to register as donors, as well as supporting fundraising activities and events. Walking With The Wounded Spearheaded by the Ex-Forces Team, our employees work closely with Walking With The Wounded who provide support for former members of the armed forces struggling to re-integrate back into the civilian world and support their independence. In May, a large group of our employees raised money and took part in Walking With The Wounded’s Cumbrian Challenge, with FDM teams walking a range of different routes. Employees also participated in the Walking Home for Christmas challenge to raise funds. 41 Our Schools Engagement Programme aims to improve the social mobility of teenagers in our local communities FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Corporate Responsibility Diversity and inclusion We have always been a proactive and enthusiastic promoter of diversity, social mobility and inclusion within our workforce. We value the fact that our colleagues come from a wide range of backgrounds and aim to reflect the diversity of education, culture, age, ethnicity, gender and disability found in the communities in which we operate. By building a diverse and inclusive workforce, we broaden the range of skills, expertise and perspectives contributing to the success of our business, enhancing innovation and growth and making our business more robust and sustainable. We have been a signatory to the United Nations Women’s Empowerment Principles (“UNWEP”) since 2013 and have been supporting the annual FDM Everywoman in Technology Awards, recognising and celebrating the achievements of women in the IT industry, for eight successful years. Over that period these awards have provided opportunities for candidates at all stages of their careers, and have celebrated 350 of the tech industry’s most exceptionally talented women. 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) for the second year running, and our overall ranking in the FTSE 250 has improved significantly. 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. • • • 31% of our worldwide employees are female; 53% of our 2019 UK graduates identify as BAME1; and 4% of our 2019 UK graduates consider themselves to have a disability. We continue to gather numerous awards in this area, including the following in 2019: • Social Mobility Index 2019: Top 75 • Women in Tech – Female Grad Tech Employer of the Year • Agents of Change Power List 2019 – Rod Flavell, CEO Our UK median gender pay gap reported in 2019 was -1.7% (2018: 0.0%), and our mean gender pay gap for the same period was 1.3% (2018: 5.7%). These figures are significantly better than average for the UK, but we recognise that there is always room for improvement. The Board has adopted a formal Board diversity policy which is detailed on page 57. At the time of writing, following the appointments of Jacqueline de Rojas and Alan Kinnear as Non-Executive Directors since our 2018 Annual Report, 33% of our Board members are women. We aim to further develop our succession planning and talent management programmes to include initiatives that encourage the development of a diverse range of high-calibre employees. By further enhancing the level of interaction between Board members (particularly Non-Executive Directors) and our senior managers, enabling them to gain more exposure to, and understanding of, the Board’s work, we hope to create a pipeline of talented individuals with a diversity of backgrounds and experience, who may in the future aspire to a Board position. The table below shows the gender split at different levels within the Group as at 31 December 2019. As at 31 December 2019 On the Board2 Within Senior Management (Executive Team) Within the wider Senior Management Team and their direct reports All employees Number of males Number of females 6 1 14 3,661 3 1 17 1,624 1 Black, Asian or Minority Ethnic 2 On 1 January 2020 Alan Kinnear was appointed to the Board as a Non-Executive Director, bringing the number of males on the Board to 7. 42 Driving diversity and inclusion in the workplace 31% of our worldwide employees are female 53% of our UK graduates identify as BAME1 4% of our 2019 UK graduates consider themselves to have a disability Social Mobility Employer Index 2019: Top 75 Women in Tech – Female Grad Tech Employer of the Year Agents of Change Power List 2019 – Rod Flavell, CEO FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial StatementsSupporting social mobility Our recruitment processes are reviewed regularly and are designed 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 2019, 40% of UK graduate Mounties were the first in their families to go to university, whilst 88% of them attended a state school. 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 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. 4% of our UK Mounties in 2019 identified themselves as having a disability. Ex-Forces and Getting Back to Business pathways We recognise that people who have served in the Armed Forces have many transferable skills for a successful career in the corporate world, ranging from adaptability and maturity to responsibility and leadership. 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 ex-service personnel and employs ex-servicemen and women from all ranks across all three services. We are proud holders of a Gold Award from the UK Government’s Defence Employer Recognition Scheme, acknowledging our strong commitment and drive in delivering our pledges under the Armed Forces Covenant, to which we are also a signatory. We have again been ranked as one of the Military Times Best for Vets Employers in 2019. 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 social, ethnic and educational backgrounds with intensive training to learn new skills, refresh existing knowledge and help individuals to regain the confidence to return to their business careers. Approximately 80% of our participants on the Programme are women. 45 Returners to work are an invaluable source of talent for our clients with skills shortages and our Programme aims to boost that pipeline FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial Statementsl s , A r m e d F o r c e s h a v e m a n y r o m r a n g i n g f i t y t o l e a d e r s h i p , w h i c h i t y a n d m a t u r l r a n s f e r a b l e s k i c a r e e r t o a s u c c e s s f u l l a d a p t a b i i t y a n d l d i n t h e c o r p o r a t e w o r r e s p o n s i b i a r e c r u c i a l t l Corporate Responsibility Human resource policies and respect for human rights 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 also have in place policies which prohibit discrimination and harassment in the workplace. 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 We are committed to ensuring that there is no modern slavery or human trafficking in its supply chains or in any part of the business. We have considered the degree of risk that modern slavery could arise within the organisation or in supply chains. The nature of our business and the direct relationship we have with applicants to the training programmes means that the risk of modern slavery in our own organisation is low. We have 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. We have 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. 46 FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial Statements Corporate Responsibility UN Sustainable Development Goals Environmental performance We recognise that the sustainability of our business can benefit not only our investors, but all our stakeholders, as a result of the much broader impact which we can have on the lives of those in our stakeholder communities. 2019 Highlights • Our emissions intensity has reduced by 27%, reflecting both significant business growth and environmental actions taken • • • Considerable reduction in staff business travel driven by internal policy initiatives Opening of our new Academy in the carbon neutral Barangaroo development in Sydney, Australia Pending award for Green Star certified rating for the internal fit-out of our Sydney Academy Expanding our global presence in a sustainable manner Global climate change has already had observable effects on the environment. The effects on individual regions will vary over time. The potential future effects of global climate change include an increase in the frequency, duration and intensity of events. As we increase our presence in new markets, we realise that our global reach has an associated environmental impact. Our aim is to decouple business growth from our impact on the environment. In 2019, despite a 12% growth in Mountie revenue we saw significant reduction in both global energy consumption and staff travel, reducing the intensity of our emissions (tCO2e/ £ million Mountie revenue) by 27%. Due to the nature of our business model, recruiting, training and deploying locally is a priority. As a result over half of our emissions come from staff business travel. The Group currently has travel policies in place to minimise both emissions and cost where possible. In addition to this, the Executive Team has introduced policies to promote the use of video conferencing technology and other collaborative tools to reduce the need for travel. In February 2019 we opened 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’. Our Sydney Academy is located in the Barangaroo South precinct, in a building which holds a 6 Star Green Star rating from the Australian Green Building Council, having obtained the highest ever score in the rating scheme. The Green Star rating is Australia’s mark of quality for the design, construction and operation of sustainable buildings and fit-outs, and this rating was one of the key factors in our decision to open our Academy in Barangaroo South. We undertook the fit-out of our Academy space with a view to achieving our own 6 Star rating from the Australian Green Building Council for the sustainability of the interior of our Academy. We submitted our application for this rating in December 2019 and we expect to receive the certification soon. Ensuring best practice environmental disclosure As an IT-focussed global professional services provider, we recognise the importance of quality data management. This year we again worked 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 our environmental performance. In 2016 the United Nations (“UN”) introduced 17 Sustainable Development Goals (“UNSDGs”) aimed at improving the lives of future generations in partnership with governments, the private sector and civil society, which the UN hopes to achieve by 2030. 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. United Nations Sustainable Development Goals Our contribution Examples 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 people bespoke IT and business training, together economic growth, we employ. In all territories with invaluable industry experience gained full and productive where we operate we treat whilst deployed with one of our clients. employment and our employees fairly and Our Schools Engagement Programme aims decent work for all. help them to launch to improve the social mobility of teenagers fantastic careers in in our local communities by encouraging technology. them to aim high and aspire to exciting careers in technology and science. Achieve gender Women currently make up We are a signatory to the UNWEP. Our equality and empower all 30% of our global annual FDM Everywoman in Technology workforce and 48% of our Awards recognise and celebrate the women and girls. senior management team. achievements of women in the IT industry, We are committed to aiming to create a more gender-balanced improving gender diversity workforce for FDM and our clients. in our teams around the world, broadening the • Women in Tech – Female Grad Tech range of skills, expertise Employer of the Year and perspectives • Agents of Change Power List 2019 – Rod contributing to the success Flavell, CEO of our business, enhancing innovation and growth and making our business more robust and sustainable. Ensure sustainable We are committed to Our new Sydney Academy opened in consumption and reducing the impact our February 2019 in the cutting-edge production patterns. operations have on the sustainable facility at Barangaroo (see next environment by making page for further information). our consumption of energy and materials more Our on-site and hosted infrastructure uses sustainable. a cloud-based solution using best-in-class datacentres to increase energy efficiency and to reduce our carbon footprint. 48 49 FDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial StatementsCorporate Responsibility Energy and carbon reporting Total Emissions (tCO2e) Scope 1 Emissions1 Natural Gas Company cars7 Scope 2 Emissions2 Electricity5 Purchased Steam Scope 3 Emissions3 Flights Other business travel Other building activities4 Total Emissions Global emissions (excl. UK) UK emissions Energy Consumption (kWh)6 Global consumption (kWh) (excl. UK) UK consumption (kWh) Year ended 31 December 2019 Year ended 31 December 2018 % change (vs. 2018) 87 66 21 567 543 24 1,182 978 66 139 1,836 1,188 648 80 66 13 595 570 25 1,562 1,331 79 152 2,236 1,409 827 988,640 1,202,012 963,547 1,282,815 9% 0% 52% 5% 5% 6% 24% 27% 17% 9% 18% 16% 22% 3% 6% 12% 27% We continue to meet and exceed the greenhouse gas (‘GHG’) emissions reporting requirements of The Companies Act 2006 (Strategic and Directors’ Reports) Regulations 2013. We are also aware of our forthcoming obligations under The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. We have prepared this report in accordance with the requirements for quoted companies under these new regulations. We continue to report all material GHG emissions across our global operations. The methodology used to compile this data is in accordance with Defra’s ‘Environmental Reporting Guidelines: Including streamlined energy and carbon reporting guidance (March 2019)’. We use a financial control approach and our calculated GHG emissions arising from business activities in the reporting year 1 January 2019 to 31 December 2019 are as on the prior page. Emissions 2019 breakdown by resource type 6% 58% 1,836 tCO2e 36% Energy  Travel  Other Greenhouse Gas Emissions intensity ratio: £ Million of Mountie revenue CO2e tonnes per £ Million of Mountie revenue 268.2 6.8 239.0 9.4 1 Scope 1 Emissions: CO2e from direct fuel combustion and company owned vehicles. 2 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. 3 Scope 3 Emissions: CO2e from company activities, not owned or controlled by the company (i.e. flights, other business travel which includes emissions from rail, non-company cars, taxis and buses and other building activities which includes emissions from paper, waste, water and electricity transmission and distribution). 4 Other building activities includes emissions from paper, water and waste. 2018 Water emissions were restated having minimal impact on overall carbon footprint to reflect updated industry recognised CIBSE benchmarks. 2018 paper emissions were restated to reflect Defra 2018 emissions factors where revisions were made to boundary assumptions including material use and end of life emissions. 5 Our Scope 2 electricity emissions have been calculated using location-based emissions factors and are 543 tCO2e. In line with World Resources Institute best practice, our Scope 2 market-based emissions for electricity in 2019 are 547 tCO2e. 6 Energy consumption includes the calculated energy in kWh from natural gas, company cars, electricity and purchased steam in line with Streamlined Energy and Carbon Reporting (‘SECR’) reporting requirements. 7 All company cars are pool cars for business usage only. The Group acquired a second car in the USA at the end of 2018. 50 51 FDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial StatementsCorporate Responsibility Statement by the Directors in performance of their statutory duties under s.172(1) Companies Act 2006 The Directors of the Company have an obligation to act in accordance with a general set of duties, which are set out in section 172 of the Companies Act 2006. This states that the Directors must act in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its shareholders as a whole and, in doing so, have regard (amongst other matters) to: • • • • • • the likely consequences of any decisions in the long term; the interests of the Company’s employees; the need to foster the Company’s business relationships with suppliers, customers and others; the impact of the Company’s operations on the community and environment; the desirability of the Company maintaining a reputation for high standards of business conduct; and the need to act fairly as between shareholders of the Company. Directors are briefed on these duties as part of their induction and have access to professional advice on them, from the Company Secretary or, if they consider it necessary, from an external independent advisor. The Directors fulfil this duty partly by delegating responsibility for day-to-day decision-making to the Executive Team and other senior managers, under a robust governance structure which is described in further detail in our Corporate Governance Report. The Directors consider, both individually and together, that they have acted in accordance with their duties under s.172 in the decisions taken during the year ended 31 December 2019 (see page 63). There are examples throughout this Annual Report of how we take into account the matters referred to above, but the following summarises the stakeholder groups we have identified, the key steps we have taken to engage with them and the outcomes of that engagement. Stakeholder group Importance of engagement How we have engaged Key topics, decisions and outcomes of engagement Our employees Our long-term success depends on the We discuss our activities to The Board identified the need for a commitment of our staff to deliver our engage with our Group Chief People Officer and purpose (see page 4) – both those in employees on pages 38 appointed Paula Leach, a highly our Academies and offices and also and 39. In particular: experienced and respected our skilled and professional Mounties. professional in the field, to that role in We engage with our employees to • To meet the new April 2019. ensure that we are creating an requirements of the environment in which they can thrive, 2018 Code, the Board At the Board’s request, with the and to understand their ideas and designated Jacqueline de support of the Nomination concerns. Maintaining the quality and Rojas as the Non- Committee, our Chief People Officer strength of our unique Mountie model Executive Director has developed a new Group People will enable us to continue the responsible for engaging Strategy, which is now being profitable growth of our business. with our workforce. implemented. The first phase Further detail can be focussing on optimising the found on page 68. experience of our Mounties throughout their career with FDM. • We have carried out a number of employee The Group People Strategy includes a surveys, the first in an talent development programme which ongoing programme of will support the Board’s ongoing regular employee succession planning and will provide dialogue. clear career paths and development opportunities for our internal staff. Stakeholder group Importance of engagement How we have engaged Key topics, decisions and outcomes of engagement Our university Universities can be seen as our key Information on our Our university partners continue to be partners supplier. Our ability to recruit engagement with interested in promoting focus on graduates of the highest calibre into universities can be found STEM subjects and ensuring that our Academy training programmes is on page 41. students gain as much experience as key to our ability to deliver Mounties with the qualities and attributes which our clients are looking for. We engage with our university partners to ensure that our Academy offering adapts and develops to remain competitive and attractive to graduates. possible of the variety of opportunities available in the technology industry. In response we hosted a conference for representatives of universities to discuss how students may be better prepared for the ever-changing world of work. Our trainees Our trainees are key to our Mountie All our trainees are asked As a result of our programme of model. Having recruited graduates, to provide formal feedback engagement with trainees and ex-Forces and returners to work, it is on the content and Mounties during 2019, we will be important for us to ensure that we are delivery of the courses carrying out a comprehensive review providing them with training which will which they receive during during 2020 of our Academy offering. enable them to evolve into Mounties their time in our This will ensure that our curriculum is with client-driven and cutting-edge Academies. evolving to respond to market trends, skills in the technologies which are relevant to our clients’ needs. and that the delivery of our courses makes the best possible use of available technologies to engage and enthuse our trainees (and Mounties who make use of our Academy facilities when between deployments). Our clients Understanding our clients’ needs is Further information on our In response to our engagement with central to our business. We need to engagement with clients clients we have developed and ensure that we are offering Mounties can be found on page 68. introduced three new courses (see of the right calibre, with the required personal and professional attributes and technological skills. By working with our clients to understand the new technologies which will be key to their businesses in the future, we can adapt and develop our business streams to provide Mounties with the skills clients need. page 16). As a result of our work with individual clients we continued to develop and deliver driven programmes, tailored to specific clients’ needs for their latest business projects. Our Continued access to our shareholders’ We discuss our Investors noted the strength of our shareholders capital is of vital importance to the programme of investor offering for financial services clients long-term success of our business. We engagement on page 67. and expressed an interest in look for an investor base that is Key elements of this continued diversification of our client interested in holding our shares long include our AGM, our base into new vertical sectors. In 2019, term. We engage with current and comprehensive full-year we significantly increased the number prospective investors to assist them in and half-year results of Mounties in the energy and understanding and supporting our presentations, insurance sectors, and we have strategic objectives, enabling us to participation in numerous included a new client sector generate strong financial results which other investor events, and diversification metric for Executive create value for shareholders. regular face-to-face Directors’ bonuses in 2020 (see the meetings between Directors’ Remuneration Report on individual Directors and page 89 for further details). members of the management team with current and prospective shareholders. 52 53 FDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Strategic ReportGovernanceFinancial StatementsCorporate Responsibility Stakeholder group Importance of engagement How we have engaged Key topics, decisions and outcomes of engagement The We place great importance on Further information on our We have continued our partnership community ensuring that our activities have a activities with the with the Anthony Nolan Charity and positive impact on not only our communities where we this year carried out a Hackathon employees and clients but also on the operate can be found on designed to explore solutions to a key wider communities in which we page 41. operate. Our intention is to: • behave responsibly and fairly with high standards of business conduct and good governance • play our part in working towards a diverse and inclusive society; and • continue to launch exciting careers for thousands of consultants in the technology sector, contributing to the reduction of the digital skills gap and the growth of the economies of the regions where we operate. challenge which they face in engaging young BAME males to join their stem cell register. The FDM Everywoman in Technology Awards has continued into its tenth successful year in promoting talented women in technology. We have continued our work to promote diversity, inclusion and social mobility, making further progress in improving our own gender pay gap. Sheila Flavell, our Chief Operating Officer, was awarded a CBE in the UK Government’s 2020 New Year Honours List in recognition of services to gender equality in IT and services to graduate and returners employment. The We are conscious that all business Further information on the The key outcome of our work in this environment activities have an impact on the work we have done to area in 2019 has been the opening of environment, and we are committed continue to find ways of our new Academy in the 6 Star Green to finding ways to mitigate that reducing our impact on the Star rated sustainable facility at impact. We understand the continuing environment can be found Barangaroo, Sydney (see page 49), and importance of this issue to our on pages 48 and 49. our application for our own Green Star employees, shareholders and the communities in which we work. rating for the interior fit-out of our premises. 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. The Strategic Report was approved by the Board on 10 March 2020 and signed on its behalf by: Rod Flavell Chief Executive Officer 10 March 2020 54 e m i s s i o n s r e d u c e d O u r t y h a s r e fl e c t i n g i n t e n s i b o t h s i g n i fi c a n t b y 2 7 % , b u s i n e s s g r o w t h r o n m e n t a l t a k e n a n d e n v i a c t i o n s Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019 e c n a n r e v o Directors’ ReportG Governance 58 104 62 82 74 86 Board of Directors Corporate Governance Report Audit Committee Report Nomination Committee Report Remuneration Report 56 Meet the BoardStrategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019Michelle Senecal de Fonseca Non-Executive Director Peter Whiting Non-Executive Director Jacqueline de Rojas Non-Executive Director Robin Taylor Non-Executive Director Alan Kinnear Non-Executive Director Andy Brown Chief Commercial Officer Mike McLaren Chief Financial Officer David Lister Non-Executive Chairman Rod Flavell Chief Executive Officer Sheila Flavell Chief Operating Officer Date of Appointment Non-Executive Director January 2016 Date of Appointment Non-Executive Director June 2014 Date of Appointment Non-Executive Director October 2019 Date of Appointment Non-Executive Director June 2014 Date of Appointment Non-Executive Director January Date of Appointment Chief Commercial Officer Date of Appointment Chief Financial Officer April 2011 Date of Appointment Chairman March 2019 Date of Appointment Founded FDM in 1991 Experience Michelle has more than 26 years of experience in international Senior Independent Director June 2014 Chair of the Remuneration Committee June 2014 Experience Jacqueline is a highly regarded leader in technology in the UK, with a strong telecommunications and technology. She is currently an area Vice President for Experience Peter has over 20 years of experience as reputation as a champion of women in the sector. She has been the president of Citrix Systems after having served as the an investment analyst, specialising in the technology trade association techUK Experience Robin is a member of the Institute of Chartered Accountants of Scotland. Chair of the Audit Committee 2020 October 2015 January 2008 Joined FDM 1994 Joined FDM 2011 Non-Executive Director since March 2016 Experience Alan is a member of the Institute of Chartered Accountants of Experience Andy progressed through the Experience Mike is a Fellow of the Institute of Chartered Accountants in Experience David has over 40 years of experience in Experience Rod is the founder and Chief Executive Officer of FDM Group and has more than Experience Sheila has over 27 years of experience in operations and technology roles across 35 years of experience in the technology both the public and private IT sectors. Scotland. Group’s Sales Team to become England and Wales. multiple industries for international sector. He has been instrumental in the She spearheads FDM’s global Women in Global Sales Director in 2007 and, businesses such as Diageo, development of the Group into an Tech initiative and Getting Back to Global Director of Cloud and Hosting software and IT services sector. Peter since July 2015 where she has developed Alan was with PwC for 35 years subsequently, Chief Commercial Prior to joining FDM, Mike GlaxoSmithKline, Boots, Reuters, Royal international, award-winning employer Business Programme, aimed at providing Services at Vodafone. Prior to Vodafone, joined UBS in 2000 and led its UK small and supported a manifesto for skills and Robin brings many years of until his retirement in 2015, Officer. Michelle worked at the European Bank and mid-cap research team. Between diversity in the technology industry. She experience as a plc director, including 23 years as an audit fulfilled the roles of Group Finance Director and Chief Bank of Scotland and National Grid. He with a prestigious client base operating in opportunities for returners to work. also has experience in the Professional multiple markets. for Reconstruction and Development 2007 and 2011 he was Chief Operating is also the co-chair of the Governance having held a variety of financial partner working with listed, Andy oversees the expansion of Operating Officer in a premium Services sector where he was a Sheila was awarded a CBE in the 2020 where she managed the Telecom, Media Officer of UBS European Equity Research. Board of the Institute of Coding. and general management roles in private equity-backed and the Group with a focus on the listed business in the software management consultant at PwC. Other Rod is a strong advocate of improving New Year Honours List for services to and Technology banking team. Michelle is One of his responsibilities during this both Europe and North America, fast-growth entrepreneurial sales and recruitment functions. and services sector. In addition, former non-executive appointments diversity in the technology industry, as gender equality in IT, and graduate and a co-founder and board member of period was the oversight of the graduate Prior to this, Jacqueline held senior and has experience of financial companies. He was a member of Andy’s strategic focus is around Mike has been an Independent include CIS General Insurance Limited and demonstrated by the Group’s Women in returners’ employment. Women in Telecoms and Technology, a recruitment, training and development executive roles at major tech companies reporting, financing, transactions PwC’s South East regional board developing new service streams Non-Executive Chairman and the Department for Work and Pensions. Tech, Getting Back to Business, Ex-Forces UK not-for-profit organisation, and is also programmes, both for the Research including Sage Group, Citrix Systems, CA and risk management. and a national leader for audit in line with client demands, as Non-Executive Director on the and veteran career transition initiatives. Sheila has been invited to advise a global council member at Thunderbird business and the Equities operation as a Technologies, Novell and McAfee services in the private equity well as increasing the number of boards of a number of other School of Global Management in Phoenix, whole. He has used his extensive International. She was previously a Robin’s previous executive roles sector. He has significant skills applicants to the Group’s companies. Overall Mike has External Appointments • HSBC Private Bank (UK) Limited In 2019 Rod was featured in the government committees on improving Management Today Agents of Change the digital skills shortage and gender pay Arizona. experience in the financial services and non-executive director at AO World plc include Chief Financial Officer of and experience in financial Graduate programme, which are more than 30 years’ experience (Non-Executive Chairman, appointed Power List for the second consecutive gap in the UK. Her work has been technology industries in developing a and Home Retail Group plc. In 2018 Intec Telecom Systems plc, Chief reporting, regulation, corporate both key areas to the success and of working within the technology December 2018) year for his work promoting gender recognised by numerous awards, strong technology-led NED portfolio. Jacqueline was awarded a CBE for Services Financial Officer of ITNET plc and governance and risk growth of the Group. Andy also sector in a range of senior • Marks and Spencer Financial Services equality in the workplace. including a Tech Champion Award at the Date of Appointment Chief Operating Officer January 2008 Joined FDM 1998 External Appointments • Citrix (Area Vice President North Europe, appointed January 2017) • Women in Telecoms and Technology External Appointments • Aptitude Software Group plc (formerly to International Trade in Technology. Chief Financial Officer of JBA management. played a key role in the launch financial, commercial and Plc (Non-Executive Chairman, appointed Holdings plc. He has been a and success of the UK Ex-Forces operational roles. September 2019) Jacqueline is the Board’s designated Non-Executive Director of During the year following his Programme. External Appointments Rod has no external appointments. (WITT) Limited (Director, appointed Microgen plc) (Senior Independent Non-Executive Director to engage with Phoenix IT Group plc, Fusionex retirement from PwC in 2015, May 2008) Director and Chairman of the Group’s workforce on behalf of the International plc, EMIS Group plc Alan was a non-executive director • Thunderbird School of Global Remuneration Committee, appointed Board and to enable employees to share and Alfa Financial Software with CEGA Holdings Limited. Management (Director, appointed April February 2012) ideas and concerns with senior Holdings plc. External Appointments Andy has no external appointments. External Appointments Mike has no external appointments. 2009) • Keystone Law Group plc (Non- management and the Board. • MOVE Capital (Investment Board Executive Director and Chairman of member, appointed September 2017) Audit Committee, appointed October 2017) External Appointments • Costain Group plc (Non-Executive and step down as Chair of the appointments. Audit Committee on 29 April 2020. Robin will retire from the Board External Appointments Alan has no external • D4T4 Solutions plc (Non-Executive Director), appointed November 2017 Director and Chairman of • Rightmove plc (Senior Independent Remuneration Committee, appointed Director), appointed December 2016 July 2018) External Appointments Robin has no external appointments. • HSBC UK Bank Plc (Non-Executive Director, appointed May 2018) • Interxion Holdings SA (Non-Executive Director, appointed June 2011) • Nuffield Health (Member of the Board of Governors, appointed February 2014) TechWomen100 Awards 2018, Woman of the Year award at the Information Age Women in IT Awards 2018 and a Lifetime Achievement Award at the Scotland Women in Technology Awards 2017. External Appointments • techUK (Board member) (techUK is the operating name for Information Technology Telecommunications and Electronics Association) • Institute of Coding Industry Advisory Member of Remuneration Committee Chair of Remuneration Committee Key Member of Audit Committee Chair of Audit Committee Board (Chair) Member of Nomination Committee Chair of Nomination Committee 61 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019 Corporate Governance Report Chairman’s Governance Overview On behalf of the Board I am pleased to present my first Corporate Governance Report as Chair of the Board. There have been a number of changes in the composition of the Board, see page 70 for further details. The structure of this report follows the principles of the 2018 Code, which applied to FDM with effect from 1 January 2019. We take great care to ensure that the content of our Annual Report is fair, balanced and understandable. A review by the Audit Committee is detailed on page 79 and a formal statement from the Directors is included on page 107. Further information on the Board’s primary areas of focus in 2019 is set out on pages 66 and 67. This Corporate Governance Report aims to provide shareholders and other stakeholders with an understanding of how we manage our Group and the framework of governance and control within which we 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 2020 Annual General Meeting (“AGM”) and will be available then to answer any questions which our shareholders may have. UK Corporate Governance Code 2018 As a premium listed company we are expected to explain how FDM Group has applied the main principles of the 2018 Code issued by the Financial Reporting Council in July 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 2018 Code are as follows: • Board Leadership and Company Purpose • Division of Responsibilities • Composition, Succession and Evaluation • Audit, Risk and Internal Control • Remuneration 1. Board leadership and company purpose An overview of the Board’s role One of the Board’s most important roles is to establish the Group’s purpose and to define the strategy to achieve that purpose. We believe that FDM exists to deliver customer-led, sustainable, profitable growth on a consistent basis, through our well-established Mountie model. This is our purpose, and its key components are set out in more detail on pages 20 to 21. The Board is of the view that enabling the successful delivery of FDM’s purpose will secure the long-term sustainable success of the Group for our staff, customers, and other stakeholders, generating value for shareholders. In support of this purpose, the Board has developed a strategy which will enable us to continue to launch new careers for our talented Mounties around the world, and ensures that all the investments we make and activities we carry out can deliver quantifiable improvements to our business for our customers, staff and shareholders. You can read more about our strategy and its four key objectives, including how each has been delivered during 2019, on pages 13 to 15 of the Strategic Report. The Group has also established a set of core values which reflect FDM’s culture. Each of the Executive Board members aims to be a role-model embodying these values – promoting them and FDM’s culture. FDM’s values and culture are central to the continued success of the Group and support the implementation of our strategy. The Board is responsible for identifying the risks which may stand in the way of meeting our strategic objectives, considering which of those risks the Group is prepared to take to achieve its goals, ensuring that appropriate procedures and controls are in place to manage or mitigate those risks insofar as it is reasonably practicable to do so, and regularly testing the effectiveness of those mitigations. The Board also has a remit to ensure that the Group has the necessary resources in place to achieve its strategic goals, both in terms of finance and people, and to monitor performance and measure progress towards those goals. It is the Board’s duty to support and challenge the Executive Team to ensure that FDM’s business is managed in accordance with that strategy. 62 63 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019 Corporate Governance Report In order to carry out its responsibilities effectively, the Board meets regularly through the year to review operational and financial matters, develop and refine strategy, and monitor progress towards strategic objectives. When setting and monitoring the The Board’s agenda The Board meets regularly throughout the year, following an agenda which is agreed in advance based on themes from the Group’s implementation of the Group’s strategy, the Directors remain mindful of their individual duty to act in the way that they consider, in business plan. Although the setting of the agenda is led by the Chairman in discussion with the Chief Executive and the Company good faith, would be most likely to promote the success of the Group for the benefit of its members as a whole, as set out in s.172 of Secretary, all Board members are welcome to put forward topics for discussion. the Companies Act 2006 (“the Act”). The Directors act with reasonable care, skill and diligence in their work, taking steps to ensure that they exercise independent judgement at all times and that processes are in place to enable robust decision-making, especially Standing items, including operational and financial reviews and Committee updates are considered at each scheduled Board when there are more difficult decisions to be made. FDM has a network of stakeholders within its business, amongst shareholders meeting, with unplanned items such as commercial or property-related decisions considered as and when required. In addition, and in its client base, and outside in the wider society in which we operate. The interests of these stakeholders are varied but potential topics are identified for strategy sessions, management updates and other Board discussions. interconnected, and we recognise our responsibilities to engage with those interests and to take them into account. Additionally, in the event of a substantial vote against a Board recommendation proposed at an AGM, FDM will carefully review the voting outcomes Ahead of each Board meeting, all Board members are supplied with an agenda and a pack containing specific papers on particular and will engage with shareholders in order to seek to understand the reasons and encourage continuous dialogue between strategic issues, as well as reports and management information on current trading, operational issues, compliance, risk, accounting stakeholders. Actions taken in response will be detailed in the next Annual Report. and financial matters. This enables the Chairman to ensure all Directors are properly briefed on the matters to be discussed. The Chairman works with the Company Secretary to ensure that the supporting papers are clear, accurate, timely and of sufficient detail Accordingly, as required by the Act, we have prepared for the first time this year a s.172 Statement which can be found on page 52. 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. The agenda is designed to provide an The Board’s important responsibilities include approving the interim, preliminary and annual financial statements, the annual appropriate balance between strategic planning items and reports which enable the Board to monitor the management and budget and longer-term forecasts, significant contracts and capital investment. All of these responsibilities underpin the principles of performance of the Group, ensuring it operates within the appropriate risk-reward culture and the Board’s strategy to deliver the 2018 Code. Where appropriate, the Board has delegated certain responsibilities to the Audit Committee, Remuneration FDM’s purpose. Committee and Nomination Committee (“the Committees”). The terms of reference and composition of these Committees are reviewed annually and updated as appropriate. The Board and its Committees – a structure for robust governance The Board understands that the opportunity to promote the long-term sustainable success of the Group is maximised by maintaining a Board which is effective, has the right blend of skills and experience, and which retains the entrepreneurial culture which has been at the core of FDM since it was established more than 25 years ago. During 2019, the financial reporting team worked with the Company Secretary in consultation with individual Directors to refresh and re-structure the reports provided to the Board in advance of each meeting, with the aim of providing the required information in the most useful format to enable Board members to carry out their oversight role effectively. The new format board report was adopted from the beginning of 2020. 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. To ensure that there is sufficient time for the Board to discuss As recommended by the 2018 Code, the Board delegates some of its responsibilities to its Committees, which therefore play a key matters of a material or more discursive nature, Board dinners and other informal gatherings are held after certain scheduled Board role in supporting the Board’s aims and the application of the principles of the 2018 Code. Whilst the Board retains overall meetings which allow the Directors greater time to discuss key topics with additional internal and external participants. In particular, responsibility, the establishment of Committees enables particular aspects of the Board’s work to be carried out at a more detailed this enables the Non-Executive Directors to explore business and operational issues in greater depth with the senior managers who level by Board members who have particular expertise, experience and interest, allowing deeper analysis and oversight of those have reported to the Board. areas. The Chairs of each Committee report to the Board on decisions taken and matters considered, and make recommendations on matters for which the Board retains the final right of approval. Minutes of all Committee meetings are made available to other The Board has identified certain matters on which decisions are formally reserved for the Board’s approval, a schedule of which is Board members to be viewed at any time via the Board’s secure online portal. available on the Group’s website www.fdmgroup.com/ investors/ corporate-governance/. The Board formally reviewed the scope of these matters and updated them during 2019. They include the following: The Nomination Committee keeps under review the blend of skills, experience, independence and knowledge across the Board’s members, and leads the process for new appointments to the Board, ensuring a fresh and entrepreneurial approach which enables strategic opportunities to be identified, analysed and effectively managed to provide long-term sustainable success. The Nomination Committee also leads the process to facilitate evaluations of the Board’s effectiveness. More information about these areas is set out in the “Composition, succession and evaluation” section on page 70 and in the Nomination Committee Report on pages 82 to 84. The Audit Committee monitors the application of the financial reporting, internal control, and risk management principles set out in the 2018 Code, and ensures that the Group maintains an appropriate relationship with its auditors. More information about risk and internal controls can be found in the “Audit, risk and internal control” on page 72 and in the Audit Committee Report beginning on page 74. The Remuneration Committee is responsible for setting the Company’s Remuneration Policy, determining each Executive Director’s • • • • • • • • • Approving financial results and other financial, corporate and governance matters; Approving material contracts; Approving material capital or operational expenditure; Approving Group strategy; Approving appointments to the Board; Determining dividend policy, as well as approving and recommending 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 mitigation strategies; and Approving the annual budget. total individual remuneration package (including salary, benefits, bonus and pension entitlements, and participation in share and Board decisions are generally reached by consensus at Board meetings. However, should the situation arise, decisions may be taken other incentive schemes) and setting the targets for performance-related pay. The Remuneration Committee’s work supports the by a majority of Board members. FDM’s Articles of Association provide the Chairman with a casting vote in the case of an equality strategy set by the Board, by promoting the opportunity for long-term sustainable success, and by aligning executive remuneration of votes. to the achievement of the Group’s purpose and promotion of its values, and to the successful delivery of long-term strategic goals. The Remuneration Report, beginning on page 86, contains more information on our application of these principles of the 2018 Code. Information about the membership of each Committee can be found in the relevant Committee’s report. 64 65 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Corporate Governance Report Details of the number of meetings of the Board and Committees (which only certain Directors are required to attend) and individual attendances by Directors are set out in the table below. Board meetings attended Audit Committee meetings attended8 Remuneration Committee meetings attended Nomination Committee meetings attended Number of meetings held in 2019 David Lister Rod Flavell Sheila Flavell Mike McLaren Andy Brown Peter Whiting Robin Taylor Michelle Senecal de Fonseca Jacqueline de Rojas Ivan Martin 10 10/ 10 10/ 10 10/ 10 10/ 10 10/ 10 10/ 10 10/ 10 10/ 10 2/ 26 2/ 27 4 2/ 24 n/ a1,2 n/ a1 n/ a1,2 n/ a1 4/ 4 4/ 4 4/ 4 n/ a1 n/ a1 4 2/ 24 n/ a1 n/ a1 n/ a1 n/ a1 4/ 4 4/ 4 4/ 4 n/ a1 n/ a1 3 3/ 3 3/ 3 n/ a1,5 n/ a1,5 n/ a1,5 3/ 3 3/ 3 3/ 3 n/ a1 n/ a1 Governance • Approved the appointment of a new Chairman of the Board • Approved the appointment of two new Non-Executive Directors • Carried out an internal review of the effectiveness of the Board and its Committees • Launch of a new Group People Strategy • 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 • Received updates on roll-out of the all-employee Buy As You Earn share scheme Engagement with stakeholders The Board has identified the following key stakeholders: shareholders, employees, prospective candidates, trainees and clients. 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 Engagement with shareholders during the year. 3 Rod Flavell, Sheila Flavell and Mike McLaren 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. 4 David Lister stepped down from the Audit Committee and the Remuneration Committee upon becoming Chairman of the Board on 5 March 2019. 5 Mike McLaren, Sheila Flavell and Andy Brown attended one Nomination Committee meeting during the year at the invitation of the Committee Chair. 6 Jacqueline de Rojas joined the Board on 1 October 2019 and attended all Board meetings after that date. 7 Ivan Martin retired from the Board on 5 March 2019. 8 Alan Kinnear attended the December Audit Committee meeting at the invitation of the Committee. During 2019 the business continued to work to improve its communication with shareholders through a review of its reporting and the information available on the FDM website. We have established an internal investor relations function led by Mark Heather, the Company Secretary, who works with the Group’s brokers and financial public relations advisors to operate a programme of regular engagement with current and prospective investors. In the coming year we aim to develop the investor area of our website to provide additional information on our strategy, business model, competitive position, financial information and strategic progress. Conflict of interests Procedures are in place for the disclosure by the Directors of any interest that conflicts, or may possibly conflict, with the Group’s 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 Chief interests and for the appropriate authorisation to be sought if a potential conflict arises, in accordance with the Company’s Articles Executive Officer, Chief Financial Officer and Company Secretary also speak regularly with shareholders and potential investors to of Association. 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. In deciding whether to authorise a conflict or potential conflict of interest only non-interested Directors (i.e. those that have no interest in the matter under consideration) will be able to take the relevant decision. In taking such a decision the Directors must act During the year we hosted frequent visits from current and prospective shareholders at our offices around the world, offering many in a way they consider, in good faith, will be most likely to promote the success of the Company and may impose such limits or of them the opportunity to tour our Academies and speak informally to members of our sales and recruitment teams, as well as conditions as they think fit. The Board has reviewed the procedures in place and considers that they operate effectively. No actual trainers and trainees. Those of our investors who take advantage of these visits often tell us that they provide an ideal way to conflicts of interest arose during the year under review or to the date of this report. understand our business model, and we are glad to have the opportunity to demonstrate our purpose and the way in which our The key areas of focus by the Board in 2019 Strategy • Reviewed the Group’s three-year plan (2019-2021) • Review of the development of new service offerings • Strategic updates from the Group’s senior management teams Operational • Reviewed the requirements for Academy space and considered potential new Academy locations • Received business updates from the Group’s senior management teams • Reviewed information on recruitment and Academy utilisation • Reviewed impact of Brexit on the UK and overseas business Financial • Reviewed and renewed the treasury and risk appetite policy • Reviewed monthly business performance against strategic goals • Reviewed trading updates • Reviewed and approved full year and half year results • Reviewed and approved Group budgets and re-forecasts • Approved dividends Risk • Bi-annual review of Risk Register and risk management process culture and values support it to drive our business towards our strategic objectives. The Company also 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. Notice of the AGM, which will be held at 10.30am on Wednesday 29 April 2020 at 5 New Street Square, London EC4A 3TW, is enclosed with this report. In accordance with the 2018 Code, the Notice of AGM will be sent to shareholders at least 20 working days before the meeting and any other notice of general meeting will be sent to shareholders at least 14 days before each general meeting and will include details of the proposed resolutions and explanatory notes. The Board proposes separate resolutions for each issue and proxy forms allow shareholders who are unable to attend the AGM (or general meeting, as applicable) to vote for or against or withhold their vote on each resolution. As soon as practical after the conclusion of the AGM (or general meeting, as applicable), we will announce the proxy votes cast, including details of votes withheld, to the London Stock Exchange via its Regulatory News Service. We will also publish the information on our website. The Company’s Articles of Association can only be amended if such amendment is approved by the Company’s shareholders by way of special resolution. The Group’s website (www.fdmgroup.com) is the primary source of information on the Group. 66 67 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019 Corporate Governance Report Engagement with employees This separation of roles enhances the independent oversight of executive management by the Board and more closely aligns the The Executive Directors regularly spend time in each FDM centre and meet with employees at all levels of seniority. This enables Board with shareholders. It also means that no one individual or group of individuals dominates the Board’s decision-making. This them to promote FDM’s culture and values throughout the organisation. The FDM Newsletter allows the Group’s culture to be oversight is further strengthened by the formal reservation of certain matters for the Board’s approval, as referred on page 65. The spread from the Executive Team to all employees. Directors’ powers are set out in the Company’s Articles of Association. The Executive Directors meet regularly with partners that promote the transition to the civilian work environment from the Armed Peter Whiting is the Group’s Senior Independent Director. In performing this role, Peter acts as a sounding board to provide support Forces, and those returning to work after a career break. Sheila Flavell chairs the Institute of Coding’s Industry Advisory Board and to the Chairman and the Non-Executive Directors. He also provides shareholders with a point of contact with whom they can meet if sits on the main Board and Diversity Council of techUK. She has advised government committees on issues including bridging the they have any concerns which might not be addressed through normal channels, for example with the Chairman or Executive digital skills gap and enhancing diversity in the workplace. Directors, and ensures that meetings with the Non-Executive Directors are held at least once per annum (or more regularly, if circumstances so require) to evaluate the Chairman’s performance. The Senior Independent Director serves as an important Jacqueline de Rojas is the president of techUK, where she engages extensively with government to build policy for the technology intermediary role in FDM’s governance process. In carrying out his role, Peter ensures he maintains a thorough understanding of the industry to thrive. In her role as co-chair of the Governance Board at the Institute of Coding, she promotes lifelong learning through views of the Company’s shareholders. industry collaboration to address the growing skills gap in technology and to encourage widening participation and pathways to digital skills through diversity and inclusion programmes. Support available to the Board All Board Directors have access to the Company Secretary, who advises them on Board and governance matters. The Board has full In April 2019 Paula Leach joined FDM as global Chief People Officer, a key new executive role reporting directly to the CEO. Paula has authority to appoint and remove the Company Secretary. Members of the Audit Committee received external training covering recently been Chief People Officer at the Home Office and previously at Ford Motor Company. She works closely with the Board and updates in corporate governance and corporate reporting. The Remuneration Committee also received external updates on its Committees to assist them in assessing and monitoring the culture of FDM to ensure that policy and behaviour are aligned with developments during the year in governance and trends in shareholder expectations and good practice relating to executive the Group’s purposes and strategy. During 2019 the People Team carried out a programme of employee engagement by online remuneration. surveys and face to face consultations. The results of this programme were used as the foundation for FDM’s new Group People Strategy which was approved by the Board professional advice at the Company’s expense in the furtherance of their duties. As stated previously, the Chairman and the in December 2019. It has been launched in order to assist us in promoting a diverse, inclusive and fulfilling culture in which our Company Secretary work to ensure that comprehensive information is provided well in advance of Board meetings to give Directors people can thrive, optimising our Mounties’ experience during their time with us, and ensuring that our employees promote and the time and materials they need to contribute to an effective and efficient Board. As well as the support of the Company Secretary, there is a procedure in place for any Director to take independent external embody our values and our unique service offering. In accordance with Provision 5 of the 2018 Code, the Board has appointed Jacqueline de Rojas to engage with the workforce to 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 ensure that the voice of our employees is heard at Board level. Since her appointment to the Board in October 2019, Jacqueline has across diverse business sectors and territories. This allows them to provide strong, independent, external perspectives to Board worked with Paula Leach, Chief People Officer, to devise a programme of workforce engagement which will supplement the work discussions, which complement the skills and experience of the Executive Directors, facilitating a diversity of views aired at Board which has already been done to enable the views of the workforce to be raised in confidence, on an anonymous basis, which are meetings. This diversity of skills, expertise and backgrounds enables the Non-Executive Directors to offer specialist advice where then taken into account in the Board’s discussions and decision-making. Engagement with clients appropriate, 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 Together with members of the Sales Team, the CEO, CFO and CCO meet on a regular basis with customers in our different territories constructively challenge and help develop proposals on strategy and ensure that financial controls are rigorous and that the Group to discuss their particular requirements. In the last year, we hosted over 850 client visits to our FDM Academy sites around the is operating within the governance and risk framework approved by the Board. The Chairman works to ensure a culture of open and world, enabling clients to see our training programme in action, as well as to carry out interviews and assessments prior to engaging transparent debate in Board meetings, this was a particular area of focus at this year’s internal evaluation of the Board’s our Mounties to work on their projects. The senior members of our Sales Team maintain close long-term relationships with senior effectiveness. executives in our client organisations to ensure we are able to anticipate our clients’ needs. We regularly update the structure and content of our training programme to reflect commercial and technological changes in the sectors in which our clients work. Non-Executive Directors are appointed for an initial minimum period of three years. Their appointments then continue until 2. Division of responsibilities Chairman, Chief Executive and Senior Independent Director The roles of the Chairman and Chief Executive, as well as those of the Senior Independent Director, and the division of responsibilities between them are clearly defined and agreed by the Board. As Chairman, David Lister leads the Board and is responsible for ensuring that it performs its role effectively. The Chairman aims to ensure that Board meetings are collaborative and provide an opportunity for all Directors to express their views, to contribute and add value to the Board’s work. David Lister was appointed as Chairman on 5 March 2019 and on appointment was independent when assessed against the circumstances set out in Provision 10 of the 2018 Code. Upon his appointment as Chairman of the Board, David Lister stepped down as a member of the Audit and Remuneration Committees. As Chief Executive, Rod Flavell’s main responsibility is to manage the Group’s business and to lead the Executive 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. The Executive Team has formal monthly meetings and meets more informally at other times between those meetings. 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-Executive Directors. When determining whether a Non-Executive Director is independent, the Board considers each individual against the criteria set out in the 2018 Code and also considers how they conduct themselves in Board meetings, including how they exercise judgement and independent thinking. Taking these factors into account, the Board considers that all the Non-Executive Directors are independent when assessed against the criteria specified in Provision 10 of the 2018 Code. Board commitment When making new appointments, the Board considers other demands on Directors’ time to ensure that they are able to devote sufficient time and focus to their role at FDM. New external appointments may not be undertaken without the prior approval of the Board, and where any significant new appointments are approved by the Board, we intend to explain in the subsequent Annual Report the Board’s rationale in giving that approval. For Executive Directors we recognise that external board exposure can be useful as part of their development as Directors, but we will not normally permit them to take on more than one external non-executive directorship of a publicly listed company (or another equivalent significant appointment). Sheila Flavell is on the board of techUK. No other Executive Director currently has an external commitment. 68 69 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Corporate Governance Report Non-Executive Directors are expected to commit at least 24 days per annum to FDM and in practice may commit considerably more The Board recognises its responsibility for succession planning and regularly considers the balance of skills, experience and time than this. The Board is satisfied that each of the Non-Executive Directors (including the Chair) has sufficient time to devote to knowledge of the Board, to ensure it remains appropriate to the business and that the Board is best placed to achieve the Group’s the business of the Group and keeps this under regular review. strategic objectives. During 2019 Paula Leach, the Group’s newly-appointed Chief People Officer, developed a detailed Talent Management and Succession Planning programme which was reviewed and approved by the Nomination Committee. The key The current key external commitments of the Directors are included within their biographies on pages 59 to 61. elements of the programme are: Details of the remuneration received by each of the Executive Directors for the year ended 31 December 2019 are shown in the single figure table presented on page 91 of the Remuneration Report. 3. Composition, succession and evaluation Composition of the Board The Board currently comprises four Executive Directors and six Non-Executive Directors (including the Non-Executive Chairman). Further biographical details about each Director, including information on their prior experience, is set out on pages 59 to 61. In the period following the appointment of David Lister as Chairman, there were three independent Non-Executive Directors on the Board (other than the Chairman) and four Executive Directors. From 1 October 2019 when Jacqueline de Rojas joined the Board as an independent Non-Executive Director, half the Board (excluding the Chairman) were independent Non-Executive Directors, as required by Provision 11 of the 2018 Code. Since the end of the financial year, Alan Kinnear was appointed on 1 January 2020 as an independent Non-Executive Director. Robin Taylor will step down as a Non-Executive Director and as Chair of the Audit Committee at the end of the AGM, which is due to take place on 29 April 2020, at which point Alan Kinnear will take on the role of Chair of the Audit Committee. The Board will then comprise equal numbers of Executive Directors and independent Non-Executive Directors (excluding the Chairman), and we expect that the composition of the Board will continue to meet the requirement set out in Provision 11 of the 2018 Code. Board diversity policy The Board is committed to the promotion of diversity and inclusiveness of all kinds throughout our organisation. In 2019, we reported a median gender pay-gap of -1.7%, and our mean gender pay-gap was 1.3% (reduced from 5.7% in 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. We believe that by making the most of our differences of approach, and using the collective experiences, backgrounds, 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. At year-end 33% of our Board Directors are female and one Director is Mixed White Asian. The Board’s primary obligation is to make appointments based on objective criteria to ensure that the best individuals are appointed for every role. Within this context, the Board is committed to a policy of promoting a rounded Board which reflects a diversity of all relevant personal attributes, including skills, experience, educational and professional background, gender, race and age. In support of this policy, the Board intends: • • • • • • wherever possible to engage executive search firms who have signed up to the Voluntary Code of Conduct for Executive Search Firms on gender diversity and best practice; to require executive search firms to identify and present an appropriately diverse range of candidates for each vacancy; to consider all aspects of diversity including gender and ethnicity when reviewing the composition and balance of the Board as part of the Board’s annual effectiveness evaluation; to ensure that the succession planning and talent management programme includes initiatives to develop the pipeline of talent, to encourage and monitor the development of a diverse range of internal high-calibre employees and to promote diversity in appointments to the senior management team who will in turn aspire to a Board position; to develop further the level, frequency and quality of interaction between Board members (including Non-Executive Directors in particular) and those aspiring senior managers to enable them to gain more exposure to, and understanding of, the Board’s work; and to review this policy and report on progress on an annual basis. Appointments to the Board, succession planning and talent management During the financial year the Board appointed Jacqueline de Rojas as a Non-Executive Director, and since the end of the financial year has also appointed Alan Kinnear to the Board. The Board operates a formal, rigorous and transparent procedure for the appointment of new Directors, the primary responsibility for which is delegated to the Nomination Committee. There is more information about this procedure and the way the Nomination Committee applies it on page 83. • • • to build effective succession by proactively managing risk and distributing key knowledge and skills more widely; to ensure a well-prepared pipeline of talent in advance of requirements arising, based on merit and objective criteria, and to identify and resolve any gaps in the pipeline; and to focus on the skills and diversity of representation which the business needs to ensure sustained future growth. The programme is designed to promote sustainable organisational performance through smooth succession and to provide investors with assurance that there is stability of talent within the FDM Group. By further developing diversity in our organisation we ensure a diversity of backgrounds and approaches which will help us to avoid “groupthink” and maximise our ability to notice opportunities and potential threats. The programme also provides our senior managers with clarity with regard to career paths, which will enable increased engagement and improved retention of key talent. As we explained in last year’s Annual Report, this is a significant project which will take some time to complete, and it will continue to be a key priority for the Board throughout the current financial year. The Nomination Committee will continue to monitor progress with the roll-out of the programme in the first half of 2020 and will report further in next year’s Annual Report. Board induction and development On appointment, each Director takes part in a tailored induction programme, designed to give him or her an understanding of the Group’s business, 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; • Meetings with the Company’s key advisors and major shareholders, where necessary; • Meetings with employees at different 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 and management accounts. • • • Programmes of induction were devised using this structure for Jacqueline de Rojas and Alan Kinnear who have joined the Board since our last Annual Report. The Chairman, in conjunction with the Company Secretary, ensures that 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 changes. In this way, each Director 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 the provision of in-house training or external courses, as appropriate. Each of the Non-Executive Directors also experience development in the course of the outside roles they hold, which contributes to the currency of their knowledge and experience in performing their work at FDM. Evaluation of the Board and its Committees In accordance with current best practice and the 2018 Code, the Board undertakes an annual rigorous and formal evaluation of its performance and effectiveness and that of each Director and its Committees. The process is led by the Nomination Committee, and it is the Board’s policy to invite external advisors to assist with that evaluation every three years. Following an externally-facilitated evaluation in 2018, the Board conducted an internal evaluation of its effectiveness in 2019, using the priorities identified from the previous year’s evaluation report as the basis of the review to enable Board members to recognise key strengths and weaknesses, and to consider the Board’s composition, diversity and how effectively the different members of the Board work together to achieve the Board’s objectives. 70 71 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Corporate Governance Report The Board’s Committees conducted their own effectiveness evaluations and reported the findings to the Board. Further information The key elements of the system of internal controls include: about these evaluations is set out in the Nomination Committee report beginning on page 82. The Non-Executive Directors met without the Chairman to evaluate David Lister’s performance as Chairman and concluded that he had operated effectively in the role. Re-election of Directors at the 2020 AGM The Company’s Articles of Association require that existing Directors offer themselves for re-election at intervals of no more than three years. At the 2020 AGM, in compliance with Provision 18 of the 2018 Code (and reflecting the Company’s membership of the FTSE 250), all Directors will retire and offer themselves for re-election (other than Robin Taylor, who will be retiring from the Board at the end of the AGM on 29 April 2020 and accordingly will not be standing for re-election). In determining whether a Director should be proposed for re-election at the 2020 AGM, the Board took into account the Nomination Committee’s advice based on the results of a review of each Director’s contribution to the Board’s effectiveness, which formed part of the 2019 Board evaluation. This review confirmed that all Directors continue to be effective and demonstrate commitment to their roles and so the Committee recommended their re-appointment. 4. Audit, risk and internal control • • • • • • • • • The Board meets on a regular basis and is responsible for the operational strategy, reviewing operating results, identification and mitigation of risks and communication and application of the Group’s policies and procedures; The Group has a clear organisational structure with defined responsibilities and accountabilities; 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 and Human Trafficking policy, an Anti-Bribery and 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 and Safety, Workplace Harassment and Information Security and the General Data Protection Regulation. Successful completion of the training is monitored and employees’ understanding can be refreshed as appropriate; An outsourced Internal Audit function is in place, working for and reporting back to the Audit Committee; A formal budgeting process occurs annually. The budgets and forecasts are reviewed, approved and monitored by the Board; and Regular meetings occur between the Executive Board and senior management team. 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 5. Remuneration the processes can be found in the Audit Committee Report on page 79. A statement of the Directors’ responsibilities in relation to The Remuneration Committee is focussed on ensuring that remuneration policies and practices for Executive Directors and other the Annual Report is set out on page 107. senior managers support the Group’s strategy and promote long-term sustainable success. Targets and metrics for bonuses and long-term incentives are reviewed annually by the Committee to ensure that they incentivise the behaviours which are necessary to The Directors consider this Annual Report, taken as a whole, to be fair, balanced and understandable, and consider that it provides deliver the Group’s strategy, and promote long-term sustainable success. The primary aim of the strategy established by the Board the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. is to deliver the Group’s purpose (which is described in further detail on page 4). Setting executive remuneration in a way which promotes the delivery of that strategy ensures that remuneration is aligned to the Group’s purpose and values. Independence of internal and external audit functions The Board has in place processes which are managed on its behalf by the Audit Committee and which are intended to ensure that The Board delegates responsibility for developing policy on executive and senior managers’ remuneration to the Remuneration the services provided by the internal and external auditors remain independent and effective. Further information on these Committee to ensure that the development of the policy is formal and transparent. The Committee regularly seeks independent processes is set out in the Audit Committee Report on pages 74 to 80. Risk management and internal control The Board is ultimately responsible for maintaining sound risk management and internal control systems. These systems are designed advice from its external remuneration advisors and keeps itself informed about market trends in executive remuneration and on remuneration-related areas which are important to the Group’s shareholders. The Committee consults with key shareholders prior to making significant changes in Remuneration Policy. to meet the Group’s needs and to manage the risks to which it is exposed, including the risks of failure to achieve business objectives The Directors’ Remuneration Policy contains detailed and transparent information about the rationale behind its key provisions to and of material misstatement or loss. However, such risks cannot be eliminated. The Group’s systems can only provide reasonable but enable shareholders to understand the link between the policy and delivery of the Group’s long-term strategy. Each member of the not absolute assurance. They can never completely protect against factors such as unforeseeable events, human fallibility or fraud. Remuneration Committee exercises independent judgment and discretion when authorising remuneration outcomes, in line with The Board has established a continuous process for identifying and managing the significant risks faced by the Group (in accordance with Financial Reporting Council’s ‘Guidance on Risk Management Internal Control and Related Financial and Business Reporting’ The Board as a whole takes responsibility for approving the remuneration of Non-Executive Directors. (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 page 30 to 36. the policy. The Directors’ Remuneration Report provides more detailed information about the work of the Remuneration Committee, as well as The Group has in place appropriate internal control and risk management systems around financial reporting. The Group setting out the Company’s policy on remuneration and detail of the remuneration of each Director. 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 Corporate Governance Report was approved by the Board on 10 March 2020 and signed on its behalf by: The Board regularly reviews the effectiveness of the Group’s internal controls which have been in place from 1 January 2019 to the date of approval of this report. An outsourced Internal Audit function is in place for the Group and the scope of work undertaken during the year was carried out in accordance with the updated three-year Internal Audit Plan which was approved by the Audit Committee on behalf of the Board during 2018. A more detailed overview of the areas of focus and programme of work undertaken by the Internal Audit team in the year appears on page 79. David Lister Chairman 10 March 2020 During 2019 the work of the Internal Audit Function included a review of compliance. Having considered the findings of this review, FDM intends to enhance a number of its policies and procedures in key compliance-related areas during the first quarter of 2020 to ensure that the Group’s working practices are consistent with its values and support sustainable success. 72 73 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019 Audit Committee Report Chair’s introduction I am pleased to present the report of the three-year Internal Audit Plan during 2018. As announced on 18 December 2019, after Audit Committee for the year ended We have now completed the second year of almost six years as a Non-Executive Director 31 December 2019, which provides that plan which covers the key financial, of FDM Group and over four years as Chair of information on the Committee’s key operational and regulatory aspects of our the Audit Committee, I have decided to retire responsibilities, key activities during the business. Details of the work undertaken by from the Board and, accordingly, I will not be period, and the work we have done to assure the Internal Audit team during the year are seeking re-election at the Annual General shareholders on the integrity of the 2019 set out on page 79. This work included a Meeting due to take place on 29 April 2020. Annual Report and financial statements. follow-up review of our business continuity My colleague Alan Kinnear, who joined the plan and full reviews of our IT disaster Board in January 2020 will take on the role of Effective risk management is critical to the recovery plans, regulatory compliance, Board Audit Committee Chair with effect from the delivery of the Group’s strategic objectives. oversight of overseas operations and our close of the AGM. Over recent months we The Board establishes the nature and extent financial controls. As a standing agenda item, have been carrying out a careful handover of the risks which it is prepared to take in the Committee monitored the potential process. This has been very valuable and has order to achieve its strategic aims, and is impact of Brexit on the Group’s business. As left me confident that Alan’s background and responsible for ensuring that the Group’s we move into the final year of the current experience will enable him to lead the Audit internal control and risk management three-year plan we will be planning the next Committee proactively and with systems are effectively managed across our stage of our Internal Audit programme which independence and integrity. business, the Board has delegated to the will be reported on further next year. Audit Committee responsibility for oversight of the measures we have in place, and The Audit Committee continues to provide reviewing the effectiveness of the risk appropriate challenge to the decisions and management process remains one of the approach taken by the management team in most important areas of focus for the relation to the content and disclosures within Committee’s work. the Group financial reports. The Committee aims to ensure that the information which is As in previous years, the Committee carried provided about the key judgements and out a risk assessment and reviewed the estimates made is clear and helpful, and Group’s risk management process several assists investors in reaching a fair assessment times in the year. Our overall conclusion is of FDM’s financial position. The key that the process continues to operate management judgement areas and effectively across the Group. However, we significant financial reporting items in respect are always conscious that the risk of the financial year are disclosed in this management process can be refined and this report on page 78. year we have broadened our approach to include discussions with a wider range of In July 2019 David Lister and I visited FDM’s employees within the organisation with the Finance team at our office in Brighton and aim of increasing the breadth of information received a comprehensive update on their available to us to update our assessment. work and the controls in place to mitigate risk Further information about the principal risks in this area of the business. During the to our business is set out on pages 30 to 36. visit we were reassured by FDM’s experienced and stable management Our assessment of the principal risks as set team, who are overseeing the out in our Group Risk Register continues to development and integration of inform the planning of our Internal Audit the new Kimble Timesheet and programme. Last year we reported that the Billing System. Committee had approved a refreshed Priorities Last year, in addition to the business as usual work, the Committee set itself three key priorities for 2019. We have made good progress in respect of these priorities, as outlined below: 2019 priorities Progress Focus on internal controls The three-year Internal Audit Plan, refreshed in 2018, remains a key mechanism in assessing the and risk management, effectiveness of the Group’s operational controls. The work carried out during the year covered with a particular the operational areas of IT disaster recovery and Business Continuity, Compliance, the Board’s emphasis on assessing oversight of overseas operations, and financial controls. The Committee considered the findings wider operational of all these reviews and a number of changes have been made in each of the areas noted which controls. will further strengthen the overall control environment. Review plans to upgrade During the year the Group selected and commenced the implementation of a new time systems to support the recording, billing and expenses system which will provide significant efficiencies and benefits for further expansion of the our clients, Mounties and other staff who use it. Given the importance of this project for the business internationally. finance team the Committee monitored progress by receiving regular reports from the project team. The implementation has gone well and the system is now operational in the UK and Ireland, with the roll-out to our other territories due to be completed by the end of the third quarter of 2020. Monitor the impact on Although we believe that our business model is resilient against many of the threats and FDM and its key markets uncertainties which are commonly perceived to arise from Brexit, the Committee has continued of the UK’s withdrawal to keep the position under review. As the UK’s withdrawal from the EU progresses and the UK’s from the EU and the UK future trading and financial relationship with the EU becomes clearer the Committee will Government’s plans for continue to monitor any impact arising from these changes to ensure that appropriate steps are future trading and taken to mitigate any risk and maximise any business opportunity which may arise. finance. These areas will remain a key focus for 2020 as we continue to progress our three-year Internal Audit Plan. In addition, the Committee intends to focus on the following in the coming year: • • • • the impact of the ongoing changes to the UK’s relationship with the EU as legal and trading arrangements evolve; the Group’s cyber-security arrangements; the impact of the novel coronavirus on the Group’s business; and the increase in regulatory complexity for boards and audit committees and the Competition and Market Authority’s (“CMA’s”) proposed changes to the statutory audit profession. 75 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019Audit Committee Report Role of the Committee The Committee is appointed by, and • monitor the external auditors’ independence and objectivity and The Committee’s agenda The Committee has a broad agenda of 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 reports to, the Board. The Committee’s the effectiveness of the external business which focusses on the Group’s the Internal Audit function is enhanced by an understanding of other matters covered at the meetings, and of the external audit terms of reference were updated during audit process; and assurance, risk and audit processes work being carried out by PwC. KPMG and PwC have direct access to the Committee Chair at all times through the year. the year to reflect the changes in the • oversee the engagement of the through a series of scheduled meetings 2018 Code. The terms of reference are external auditors to supply non- during the year. The agenda follows an In addition to the meetings of the Committee, the Committee Chair and other Committee members met with other members of the available in the Corporate Governance audit services. section of the Group’s website at www.fdmgroup.com. Composition of the Committee During the year, the members of the annual plan which is set in advance in discussion with senior management, the financial reporting team, the external auditors, and the Internal Audit function. The key responsibilities of the Committee Committee were Robin Taylor (Chair of The annual plan incorporates items are to: the Committee), Michelle Senecal de driven primarily by the financial calendar • monitor the application of financial Fonseca, Peter Whiting and David Lister of the Group but also includes work on reporting and internal control (until 5 March 2019). David Lister stepped the Internal Audit programme and is principles set out in the 2018 Code, down from the Audit Committee on adapted through the year to address any and to maintain an appropriate taking the role of Chairman of the Board. other relevant matters which may relationship with the Company’s require the Committee’s attention. auditors; Alan Kinnear joined the Committee upon • monitor the integrity of the financial his appointment to the Board on The Committee acts autonomously and statements of the Company and any 1 January 2020. formal announcements relating to sets its own agenda in addition to routine matters and those suggested by the main the Company’s financial The Board is satisfied that Robin Taylor, a Board. In setting the agenda, the performance, including any chartered accountant with significant Committee keeps in mind the regulatory significant financial reporting financial experience in a public company framework, the 2018 Code and the FRC’s judgements contained in them; environment and who was Committee Chair Guidance on Audit Committees. • provide advice to the Board on during 2019, has the recent and relevant whether the Annual Report and financial and accounting experience The Committee met four times during Accounts, taken as a whole, is fair, required by the 2018 Code. Michelle the financial year with all members in balanced and understandable, and Senecal de Fonseca and Peter Whiting also attendance at all meetings. During the provides the information necessary have experience in financial and reporting year, the Chief Executive Officer, Chief for shareholders to assess the matters through their other business Financial Officer, Chief Information Company’s position and performance, experience and current external roles. The Officer, Group Financial Controller, Group business model and strategy; Committee as a whole has a sufficiently Data Protection Officer and other senior • review the Company’s internal wide range of business experience and management attended certain meetings financial controls and the Company’s expertise, including significant experience at the invitation of the Committee in internal control and risk management systems; and competence in the sector within order to ensure that the Committee which FDM operates, such that the remained fully informed of events and • monitor and review the effectiveness Committee can effectively fulfil its role. developments within the business. of the Company’s internal audit Presentations were received on legal, function; In compliance with the 2018 Code, the regulatory, IT security and disaster • review the arrangements by which Committee membership is limited to recovery matters, contributing to the the Company’s staff may raise independent Non-Executive Directors of Committee’s role in monitoring the concerns in confidence about the Company. management of risk. possible improprieties in matters of financial reporting or other matters, Members’ experience is documented in their The Group’s external auditors, PwC, and ensure that arrangements are biographies included on pages 59 to 61. attended three of the four Committee in place for the proportionate and meetings during 2019. Following each of independent investigation of such I will step down as Chair of the Committee those three meetings PwC had the matters and for appropriate and retire from the Board at the end of opportunity to hold an informal follow-up action; the Annual General Meeting on 29 April discussion with the Committee members • ensure compliance with laws, 2020, at which point Alan Kinnear will be without any of the executive management regulations, ethical and other issues; appointed Chair of the Committee. The team being present. The Committee Chair • make recommendations to the Board is satisfied that Alan Kinnear, as a also met with PwC on several occasions Board, and for approval by chartered accountant, also has the recent outside of the Committee. shareholders, on the appointment, and relevant financial experience which re-appointment and removal of the the 2018 Code requires for those taking external auditors; on the role of Audit Committee Chair. Further information about Alan’s experience is on pages 60 and 83. Finance team, senior management and regional operating management throughout the year. March 2019 • Reviewed and recommended to the Board the approval of the Preliminary Announcements and the 2018 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 2018, and reviewed and approved the Auditors’ Report to the Audit Committee • Reviewed the Internal Audit plan for 2019, making minor adjustments to the plan to reflect the Committee’s updated priorities • Reviewed final reports following the Internal Audit reviews carried out in 2018 on business continuity planning and resource management • Approved the Committee’s agenda for the remainder of 2019 • Considered the requirements of Committee members for additional training and development in areas relevant to the Committee’s business May 2019 • Approved the updated Internal Audit plan for the period 2019 to 2020 • Received a progress report on the implementation of recommendations from the 2018 Internal Audit programme • Reviewed performance of the Internal Audit function against its agreed KPIs • Received an update on progress with the upgrade of the Group’s Timesheet and Billing System • Received an update on the reporting, accounting and governance changes applicable to the Group • Reviewed the potential impact of Brexit on the Company’s operations • Reviewed the Group’s approach to risk management • Reviewed the effectiveness of the external auditors • Reviewed the Audit Committee’s Terms of Reference July 2019 • Reviewed PwC’s report to the Committee (interim review for the six months to 30 June 2019) • Reviewed the Interim Report, including the “going concern” statement, and recommended its approval to the Board • Received a report on the review of, and updates to, the Group Risk Register • Reviewed and approved the statement of principal risks and uncertainties set out in the Interim Report • Monitored the impact of Brexit on the Group’s operations • Received a report on the findings of the internal auditors following their review of financial controls • Received an update from the Chief Information Officer on the Business Continuity Plan enhancement project • Received a further update on the implementation of the Group’s updated Timesheet and Billing System • Discussed arrangements and proposed content for an Audit Committee training session which subsequently took place in January 2020 December 2019 • Reviewed and approved PwC’s year-end audit plan and fees for the audit of the 2019 financial results • Received a report from the Chief Information Officer on steps taken to manage cyber risk and an update on testing of the updated Business Continuity Plan • Received a report on the findings of the Internal Auditors following their review of: i) compliance; ii) Board oversight of overseas operations; and iii) IT disaster recovery • Received a report on a review of, and updates to, the Group Risk Register • Received an update on reporting, accounting and corporate governance changes • Received a further update on the implementation of the Group’s updated Timesheet and Billing System • Undertook a review of whistleblowing and anti-bribery policies and procedures • Carried out a review of the Committee’s effectiveness 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. 76 77 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Audit Committee Report Significant financial reporting items The Committee scrutinises matters it considers important by virtue of their potential impact on the Group’s results or the degree of estimation or judgement 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 page 127, 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 are set out below: Area of focus Steps taken to address each area Revenue Revenue in respect of non-receipted timesheets is The Committee discussed and reviewed revenue recognition in detail with management and PwC and remains satisfied that Group accrued at a percentage of the estimated contract accounting policies with regard to revenue recognition have been value where timesheets have not been received at the adhered to and that estimates remain appropriate. cut-off date from Mounties or contractors. Share-based payments For a fifth consecutive year, the Company granted The Committee is informed of the key assumptions and estimates applied in calculating the share-based payment charge. The awards under the FDM Performance Share Plan Committee is satisfied that the assumptions and estimates applied (“the PSP”). Associated with accounting for the awards are appropriate. are estimates relating to the number of shares which will vest. Going concern and viability The Committee has considered the “Going Concern” The Committee received and reviewed a paper prepared by the Finance team supporting the adoption of the going concern basis basis assumed within the financial statements and and the appropriateness of the viability period. The Committee is viability period. The underlying assumptions, the satisfied with the judgements in these areas and that sufficient work reasonableness of those assumptions and the was performed to enable the Committee to conclude on the headroom/ funding facilities available were considered adoption of the going concern basis. The Committee reviewed and as part of the Committee’s review. The review also concurred with the reasonableness of the viability period included considered the impact of a range of sensitivities on the within the viability statement on page 37. key assumptions. Provisions The Committee has considered the requirements of The Committee has discussed with PwC and management the accounting for, and disclosure of, provisions, contingent assets and IAS 37 ‘Provisions, contingent liabilities and contingent contingent liabilities, including where it relates to open legal claims, assets’ in determining the appropriateness of the and are satisfied that the application of IAS 37 is appropriate. accounting for, and disclosure of, provisions, contingent assets and contingent liabilities within the Annual Report. Impact of new accounting standards The Committee has considered the impact of new The Committee has reviewed papers prepared by the Finance team, outlining the impact of new accounting standards as applied to FDM accounting standards including IFRS 16 ‘Leases’. and is satisfied that the impact has been appropriately assessed. The impact from the introduction of IFRS 16 ‘Leases’ from 1 January 2019 is set out in note 6 to the Consolidated Financial Statements and was disclosed in our 2019 Interim Report. Fair, balanced and understandable As requested by the Board, the Internal control and risk management The Committee is responsible for Risk Controls Matrix (“RCM”) had previously been carried out in 2018, but Committee has considered whether, in monitoring and reviewing the given the importance of ensuring we its opinion, the Annual Report and effectiveness of the Group’s internal have robust controls over our financial Accounts 2019 is fair, balanced and control and risk management systems. processes, it is intended that core understandable and provides the Through monitoring the effectiveness of financial controls will continue to be information necessary for shareholders its internal controls and risk reviewed on a regular basis. to assess the Group’s position and management, the Committee is able to performance, business model and maintain a sound understanding of the The findings from the reviews were strategy. In forming its opinion, the Group’s trading performance, key presented to the Audit Committee Committee considered the information it judgemental areas and management’s throughout the year and are supported had received and the discussions that decision-making processes. by related action plans to make have taken place with senior managers in improvements where relevant. No the business. The key elements of the Group’s internal serious weaknesses were identified by control framework and procedures are the Internal Audit reviews carried out All members of the Committee received a set out on pages 72 and 73. during the year. full draft of the Annual Report and Accounts two weeks prior to the meeting at which it was required to provide its Internal Audit The Group’s Internal Audit function is The effectiveness of the Internal Audit function’s work is monitored on an final opinion. The Committee reviewed wholly outsourced to KPMG. There were ongoing basis using a number of inputs, the report to ensure that: it provided a two elements to the Committee’s including the reports received, the Audit balanced reflection of the Group’s rationale in deciding to outsource the Committee’s engagement with the Group performance; the presentation of Internal Audit function: first, the Financial Controller who is the Group’s adjusting items was relevant and Committee considers that outsourcing primary point of contact with the internal understandable; all material matters ensures the process is independent and auditors, and an assessment during the were considered; and there was internal second, it guarantees that specialist input year of the internal auditors’ consistency and there were linkages is available when required, taking into performance against the KPIs identified throughout, including the presentation of account the international nature of FDM’s in the Internal Audit Plan. The Audit the risks and significant judgements. business and the need for technical Committee considers that the Internal specialism, particularly when reviewing Audit process is an effective tool in the The Committee concluded that the non-financial areas of the business overall context of the Group’s risk Annual Report and Accounts 2019, taken (which has been particularly applicable management systems. as a whole, was fair, balanced, and during 2019). understandable, and considers that it The Audit Committee Chair also met with provides the information necessary for An updated three-year Internal Audit the Internal Audit team in advance of shareholders to assess the Group’s Plan was approved by the Audit every meeting without management position and performance, business Committee in 2018. The Plan is risk- present. model and strategy. The Committee based, prioritising reviews of the areas made a recommendation to the Board to which are identified as principal risks in this effect. The Directors’ statement of the Group Risk Register, and covering all External auditor PwC is the Group’s current external responsibilities on a fair, balanced and key financial, operational and regulatory auditors, having been appointed in 2013. understandable annual report is given on parts of the business. Specifically, in The Group is not required under current page 107. 2019, the following areas were reviewed: EU legislation to conduct a tender before Business Continuity (follow-up review), the year ending 31 December 2023. Any Financial Controls, Compliance, Board recommendation relating to the Oversight of Overseas Operations, and IT re-appointment of the external auditors Disaster Recovery. A review of the key will continue to be the subject of rigorous controls covering significant financial review each year. processes which are documented in the 78 79 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Audit Committee Report Auditors’ independence and objectivity Both the Committee and the Board keep Effectiveness of external auditors During the year, the Committee reviewed Anti-bribery and corruption policy The Group has a zero-tolerance policy to the effectiveness and independence of bribery and corruption. The Group’s the external auditors’ independence the external auditors, using a Anti-bribery and Corruption policy is under review. Since July 2016, the questionnaire which was completed by issued to all employees, and training is Committee has been monitoring the fees key members of the Finance team and provided to all current employees and paid to the external auditors for each member of the Committee. The new starters to ensure that they non-audit work at each Committee questionnaire asked individuals to rate understand the Group’s policy and the meeting. Any non-audit work which will the performance of the PwC audit team importance of compliance. The result in fees exceeding £5,000 must be in the following areas: knowledge and Committee reviewed the effectiveness of approved in advance by the Committee expertise; independence and objectivity; the policy in December 2019 and Chair. More substantial work involving effectiveness of the planning process; concluded that it remains an effective fees exceeding £50,000 requires the ability to firmly challenge management; tool for managing the anti-bribery and approval of the Committee as a whole. and quality of audit deliverables. The corruption risks faced by the Group. The Group receives a formal statement feedback from the questionnaire was of independence and objectivity from then used as the basis for a more PwC each year, and confirmation that wide-ranging discussion at the meeting Audit Committee effectiveness An evaluation of the effectiveness of the PwC’s partners and staff have complied held in May 2019 (at which PwC were not Committee in discharging its duties was with UK regulatory and professional present). Based on the feedback and conducted internally this year. The requirements, including the Ethical their further discussions, the Committee evaluation process was facilitated by the Standard issued by the Financial concluded that: Reporting Council. The Committee also Company Secretary and was based on the completion of questionnaires (which obtains quotes in a competitive tender • the overall audit approach, included questions to be scored and free for all non-audit work performed. materiality, threshold and areas of text questions) by members of the audit focus were appropriate to the Committee. The questionnaire was Fees for non-audit work carried out by business; and designed to address the key elements of PwC as a percentage of audit fees for the • the audit team possessed the Audit Committee effectiveness which are year ended 31 December 2019 were 22% necessary quality, expertise and identified in the 2018 Code, the FRC’s (2018: 22%). Further disclosure of the experience to provide an Guidance on Board Effectiveness non-audit fees paid during the year independent and objective audit. published in July 2018, and the FRC’s ended 31 December 2019 can be found in note 8 to the Consolidated Financial Statements. Whistleblowing The Group has in place a whistleblowing Guidance on Audit Committees published in April 2016. The results, once reviewed by the Company Secretary, were then policy which enables employees to report discussed with the Committee Chair and External audit partners are rotated every concerns on matters affecting the Group tabled at a meeting of the Committee for five years. The external audit partner in or their employment, without fear of discussion. The Committee regularly respect of the 2019 financial year has recrimination. been Jaskamal Sarai, who has now reviews its terms of reference and updates them as necessary to reflect completed five years in that role for FDM Whistleblowing and other compliance current best practice, and to ensure that Group. Jaskamal Sarai will therefore step matters were reviewed by KPMG during its approach remains in line with those down as audit partner for FDM Group on the year. One recommendation from this terms of reference and the Financial completion of the 2019 audit and the review, being the introduction of an Reporting Council’s Guidance for Audit Committee would like to thank him for external independent whistleblowing Committees. The Committee is satisfied his input and support in their work over helpline, is being considered. that it continues to be effective in the last five years. Katharine Finn will discharging its duties. take over as external audit partner in The Committee reviewed the Group’s respect of the 2020 financial year. whistleblowing policy and procedures in December 2019 and is satisfied that they The Group continues to engage KPMG, remain appropriate. There were no an independent accounting firm, to instances of whistleblowing during the perform Internal Audit work, tax year. consulting and other assignments to further ensure that the independence and objectivity of the external auditors is not compromised. Robin Taylor Audit Committee Chair 10 March 2020 80 t h t h e F o r a fi f c o n s e c u t i v e y e a r , C o m p a n y g r a n t e d t h e a w a r d s u n d e r f o r m a n c e F D M P e r S h a r e P l a n Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019 Nomination Committee Report Role of the Nomination Committee The role of the Committee is summarised • Keep under review the leadership needs of the Group, both executive below and detailed in full in its terms of and non-executive, with a view to reference, a copy of which is available ensuring that FDM can continue to on the Group’s website (www.fdmgroup.com). compete effectively in the marketplace; • Review the results of the Board The main responsibilities of the performance evaluation process Committee are to: which impact on Board composition; and Appointment of new Board Chair David Lister was appointed to the role of appointed to that role, the Committee on 29 April 2020. Alan was with PwC for considered that she would be an ideal 35 years until his retirement in 2015, Chairman of the Board from 5 March candidate for the new Non-Executive including 23 years as an audit partner 2019 following the retirement of Ivan Director role. On this occasion, therefore, working with listed, private equity-backed Martin. The process followed in respect the Committee felt it inappropriate and and fast-growth entrepreneurial of that appointment was set out in our unnecessary to conduct a further companies like FDM. He was a member Annual Report 2018. in-depth external search and approached of PwC’s South East regional board and a Jacqueline to gauge her interest in joining national leader for audit services in the Appointment of new Non-Executive the Board. Subsequently, following a private equity sector. Alan is a member Directors Following the retirement of Ivan Martin formal process involving interviews with of the Institute of Chartered Accountants all members of the Board and a of Scotland. The Nomination Committee as Chairman of the Board and the recommendation from the Committee to considered that his significant experience appointment of David Lister to that role the Board, Jacqueline de Rojas was in financial reporting, regulation, in March 2019, the Board wished to appointed as a Non-Executive Director on corporate governance and risk appoint another Non-Executive Director 1 October 2019. to ensure an appropriate balance management would be valuable to the Audit Committee and the Board. between Executive- and Non-Executive Another key focus for the Nomination Directors in accordance with Provision 11 Committee in the second half of the year of the 2018 Code, and to refresh the has been to identify a suitable successor 2019 Board effectiveness review Our view is that Board evaluation is a combination of skills, experience, and to Robin Taylor as Chair of the Audit valuable process that provides a regular knowledge available to contribute to the Committee after Robin indicated to us mechanism by which the Board can Board’s work. that he would plan to retire from the challenge itself to identify any areas Board in 2020 after his replacement where its performance can be improved Having considered and identified the could be found. A specification was to enhance the effective and efficient qualities, experience, skills and personal prepared which set out the qualities, conduct of Board business, for the attributes required for the new non- experience, skills and personal attributes benefit of FDM and all its stakeholders. • Review the structure, size and • Ensure that Non-Executive Directors executive position, our usual process required for this role. It was particularly The 2018 Code requires that FTSE 350 composition of the Board and its are able to allocate sufficient time to Committees including its balance of their work at FDM to allow them to skills, knowledge, experience and fulfil their duties. diversity, and make recommendations to the Board with regard to any changes; • Lead the process for identifying candidates to fill Board vacancies as and when they arise, and recommend new appointments to the Board for approval; • Consider succession planning for Directors and other senior executives taking into account the challenges and opportunities facing the Company, and the skills and experience needed on the Board in the future; would be to prepare a brief for an important for the Board at this time of Companies should arrange for the external executive search agency to use change, increasing regulatory complexity evaluation of the Board to be externally in the search for a candidate meeting our and focus on the audit profession, to facilitated at least every three years, and requirements. The Nomination identify a candidate not only with recent our last external evaluation was carried Committee had, in late 2018, conducted accounting experience but also a out by CK Coombs & Co in 2018. an in-depth search for a new Chairman background which would enable them to of the Board with the help of Sapphire set clear expectations for internal and Our evaluation of the Board and its Partners, an independent external search external auditors and to oversee their Committees was conducted internally consultancy who had previously been effectiveness. engaged by FDM in the search for this year. The evaluation of the main Board was facilitated by the Chairman of Non-Executive Directors, but who have The Company engaged Drax Executive, the Board with support from the no other connection with the Group. That an independent external executive Company Secretary, and was based on a search for a new Chairman of the Board search consultancy who has no other set of formal questions designed to had resulted in the appointment of David connection with the Group, to assist with assess the performance of the Board, Lister (and we described the process the appointment process. Drax Executive including the Chairman and individual used for that search in our Annual Report is a signatory to the Voluntary Code of Directors, against the priorities identified 2018). However, Jacqueline de Rojas had Conduct for Executive Search Firms on during last year’s externally-facilitated been one of the potential candidates gender diversity and best practice. After evaluation, and a selection of other areas identified by the Nomination Committee identifying alternative candidates who of particular priority to the Board. The in relation to the Chairman role and, were interviewed by members of the questions were provided to all Board although she was not eventually Committee and the wider Board members in advance and then formed (including the current Audit Committee the basis of a formal but open and Chair), the Nomination Committee wide-ranging round-table discussion. The recommended to the Board that Alan Chairman also had individual face to face Kinnear should be appointed. The Board discussions with individual Directors approved the recommendation and Alan around the topics which had been Kinnear was appointed as a Non- identified for particular focus. Executive Director on 1 January 2020. Alan Kinnear will take over as Audit Committee Chair when Robin Taylor steps down from the Board at the end of the Annual General Meeting to be held 83 Chair’s introduction I am pleased to present the report of the Nomination Committee for the year ended 31 December 2019. The primary role of the Nomination Committee is to lead the process for appointments to the Board, to monitor its composition, diversity and performance, and to plan for orderly succession to the Board and the Group’s senior management team. This year we have appointed two new Non-Executive Directors to the Board; Jacqueline de Rojas joined us in October 2019 and Alan Kinnear was appointed in January at the beginning of the new financial year. The Committee undertook a review of its effectiveness during 2019 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. Committee composition The Committee is appointed by, and reports, to the Board. Its members during the year were as follows:   David Lister (Committee Chair from 5 March 2019)  Rod Flavell  Robin Taylor  Peter Whiting  Michelle Senecal de Fonseca   Ivan Martin (retired from the Board and as Committee Chair on 5 March 2019) Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019Nomination Committee Report The results of the evaluation discussions The Board intends to review progress succession planning processes for the were collated and reviewed by the against the action plan on an ongoing Board and senior management teams, Chairman and the Company Secretary basis through 2020 as we consider looking in more depth at the likely and an action plan was subsequently ongoing assessment of effectiveness growth and development of the Group’s presented to the Board which will enable most likely to support a sustained focus business and the evolution of the it to address a number of areas where it on improvement. was considered that the Board’s markets in which we operate. Following the new Chief People Officer’s initial effectiveness could be improved, as well Each of the Board’s principal Committees assessment of our business, a new as recognising the strengths of the evaluated its own effectiveness using a succession planning programme was Board. A summary of the areas covered similar process, either by the completion launched in the second half of 2019, and in the evaluation is as follows: of questionnaires (using both scoring and there are further details about the • the Board will continue to promote members, or the circulation of a list of 71. The programme is closely linked with free-text questions) by Committee programme and its aims on pages 70 and diversity of thought and different key questions and topics used as the our separate organisational design and perspectives in its discussions. basis of a formal discussion, according to talent management programme, which A boardroom dynamic which the preference of each Committee Chair. was launched in December 2019 and enables ideas to be openly and The results of each Committee’s which aims to build a strong talent constructively challenged and evaluation were then presented to the pipeline for FDM’s whole organisation. robustly debated will avoid any Board. tendency towards group-think and The new programmes will be rolled out commencing in the first quarter of 2020 support effective decision making; Peter Whiting, as the Senior Independent and the Committee will monitor that • the Board will continue to enhance Director, led a review of the Chairman of process carefully and review the its regular agenda to ensure that the the Board’s performance in discussion strengths which are identified in the primary focus is on matters which with the other Non-Executive Directors. talent pipeline and actions which are support the development of the Company’s strategy, performance and culture, rather than the Succession planning A key task of the Committee is to keep which the process identifies. The Committee will also focus closely on the needed to close any gaps in the pipeline reporting of operational matters; under review the Company’s succession data arising from the programme which • in recognition of the fact that FDM’s plans for members of the Board and will help to assess diversity in the Group, people are its key strategic asset, senior management team over the short, career progression and attrition. the Group People Strategy which medium and longer term, to ensure that has been launched during 2019 will the Board maintains the appropriate remain a key focus for the Board in balance of skills and experience to carry Independence and effectiveness As recommended by the 2018 Code, all 2020. The Board intends to monitor out its work in the most effective way. In the current Directors will be standing for the implementation of the strategy particular, when the opportunity arises re-election at the AGM in 2020 (other to ensure that our people are for refreshment of the Board, the Board than Robin Taylor, who will be retiring supported and developed with the bears in mind the need to ensure that its from the Board after the AGM). Having skills and behaviours which they membership is diverse. The Board reviewed the independence and need to enhance their careers at adopted a new Board diversity policy to contribution of the Directors, the FDM and the delivery of the assist in this aim in 2018, further details Committee confirms that the Company’s long-term goals; and of which are set out on page 70. performance of each of the Directors • during 2020 the Board will focus on continues to be effective and each the processes in place to The Board’s primary aim is to make demonstrates commitment to their roles, understand and manage the key appointments based on objective criteria including independence of judgement, risks to the Group and the delivery which ensure that the best individuals commitment of time for the Board and of its strategy. Refreshing the are appointed to each Board role. We (where relevant) Committee meetings approach to risk will ensure that any also believe that a Board made up of and their other duties. Accordingly, the potential complacency about the individuals with a diverse range of Committee has recommended to the mitigation of risk is avoided and that personal attributes, including skills, Board that all current Directors of the the systems and controls which are experience, educational and professional Company be proposed for re-election at in place are robust enough to deal background, gender, race and age, will the forthcoming AGM. with a broad spectrum of risk and contribute to innovation in the Board’s agile enough to respond quickly to thinking and approach – and, in turn, will rapidly emerging risks. enhance the quality of decision-making. The Committee has worked with Paula Leach, our new Global Chief People Officer appointed in April 2019, to develop more formal and detailed David Lister Chair of the Nomination Committee 10 March 2020 84 l l T h e B o a r d w i c o n t i n u e t o p r o m o t e t h o u g h t t y o f f e r e n t d i v e r s i i n f a n d d i p e r s p e c t i v e s t s d i s c u s s i o n s i Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019 Remuneration Report Statement from the Chair of the Remuneration Committee On behalf of the Board, I am pleased to present our Remuneration Report for the year ended 31 December 2019. In this report we set out the remuneration earned by Directors in 2019 and how our Directors’ Remuneration Policy will operate for 2020. We then set out an extract of the policy approved at the 2018 AGM; the full approved policy is available on our website. We aim to be clear and transparent in our approach and we take our responsibility to shareholders seriously. We hope this report 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. Linking executive remuneration to our purpose FDM’s Remuneration Committee, and its Board more widely, are committed to the alignment of our remuneration with our culture and purpose as an organisation. Employee share ownership has been, and will remain, one of our fundamental principles, critical to our ability to recruit talented individuals. Our Executive Directors have consistently received lower PSP awards than permitted under the Directors’ Remuneration Policy, enabling us to grant awards more broadly throughout the organisation. In 2019 we were delighted to launch our new “Buy As You Earn” scheme, under which 245 employees now have a direct long-term interest in FDM’s shares and ongoing performance. We recognise the importance of creating a long-term sustainable business, and shareholders will see below that aligned with our purpose we are introducing a new bonus measure directly linked to employee satisfaction. Our Executive Directors all have significant shareholdings in the Company, providing strong alignment of their interests with the long-term interests of shareholders and ensuring a focus on sustainability. We enhanced this in 2019 with the introduction of a holding period on PSP awards and will further strengthen this in 2020 as we introduce deferral to the Executive Directors’ bonus and a formal policy on post-employment shareholding. Review of Directors’ Remuneration Policy in 2019 Our 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 97% of the votes cast at the 2019 AGM being in favour of the 2018 Directors’ Remuneration Report. The Remuneration Committee considered the policy during 2019 and concluded that it remains appropriate as it has, throughout the year, operated as intended in terms of company performance and quantum. The policy, therefore, will continue to apply in 2020, and we will seek shareholder approval for a new policy at the 2021 AGM in line with the statutory requirements. • We reported last year that, having regard to the introduction of the 2018 Code, we would change 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; those changes were applied in 2019 and will continue to apply in 2020 and beyond. We also said that during 2019 we would develop a policy on post-cessation shareholdings for Executive Directors. The development of this policy has been one of our key considerations this year. Our approach is summarised below, and will be formally enshrined in the next policy for which we seek approval in 2021. Shares will be subject to the post-cessation policy only if they are acquired from share plan awards (PSP or deferred bonuses) granted after 1 January 2020. • The Executive Director must retain: • • until the audit sign-off of the financial statements for the year in which they leave the business, such of their shares which are subject to the post-cessation policy as are equal to the in-service shareholding guideline (currently 200% of salary); and until the audit sign-off of the financial statements for the following year, such of those shares as are equal to 50% of the in-service shareholding guideline; or in either case and if fewer, all of those shares. The Committee will introduce a formal nominee arrangement in which relevant shares must be held, in order to enable the effective monitoring and implementation of the policy. The vesting of share plan awards granted from 1 January 2020 onwards will be conditional on the Executive Director agreeing to the shares being held in the nominee arrangement. Remuneration in 2019 The table below summarises the principal decisions in respect of 2019 in accordance with the policy. Salary Bonus As noted in the 2018 Directors’ Remuneration Report, the Executive Directors’ salaries were not increased in 2019. In fact, the base salary of each Executive Director, other than Mike McLaren, has increased by 15.5% in total over the five and half years since admission, an average of c.2.8% per year. Mike McLaren’s base salary has increased by c.31% over the whole period, an average of c.5.6%, which includes an exceptional increase in 2016 to reflect the increased complexity of his role including as a result of FDM’s international expansion. Our Directors’ Remuneration Policy provides for a maximum bonus opportunity of 150% of salary. Notwithstanding this, the bonus opportunity for 2019 was a maximum of 100% of salary. As with 2018, the Executive Directors’ bonus opportunity was subject to stretching targets based on Group adjusted profit before tax (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 2019 were 50% of salary. Further details of the annual bonus outturn are included in the Annual Report on Remuneration on page 92. 87 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019 Remuneration Report PSP vesting by reference to performance over the period 2017–2019 PSP awards were granted in April 2017. The awards vested at 100%, reflecting the strong performance of the Company over the three-year performance period ending 31 December 2019 as summarised below; further information is given on page 92. Compound annual growth in EPS Vesting 10% p.a. 25% Performance outcome (compound annual growth in adjusted EPS) Greater than 10% p.a. but less than 15% p.a. Determined on a straight-line basis between 25% and 100% 15.0% 15% p.a. or greater 100% Consistent with the approach in respect of previous years, the Committee has, in its discretion, assessed performance based upon adjusted EPS (as defined in note 13 in the Consolidated Financial Statements). In respect of the 2017 awards, the Committee also had regard to the impact of IFRS 16. To ensure that performance was assessed on a consistent basis so that participants in the PSP (including the Executive Directors) are treated fairly, the 2016 base year adjusted EPS was restated in line with IFRS 16. 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 91, the full value of the awards is shown. The award was earned over the three-year period 2017–2019 and the value earned reflects the increase in the share price over that period. £144,800 (88%) £20,400 (12%) £165,200 Remuneration in 2020 The policy approved at the 2018 AGM will continue to apply for 2020 and further information is given in the Annual Report on Remuneration. In summary, there are no significant changes to the application of the policy in 2020. Salary: As was the case in 2019, no increases will be made to Executive Directors’ salaries for 2020 which will therefore remain at the same levels as applied for 2019 as set out on page 94. Annual bonus: In the Directors’ Remuneration Policy approved by shareholders in 2018, we increased the maximum bonus opportunity from 100% to 150% of salary. However, in both 2018 and 2019 we maintained the bonus opportunity at 100% of salary, the level which has applied since the Company’s flotation. In 2020, we will increase the bonus opportunity, but will not utilise the full headroom, instead awarding a bonus opportunity of up to 120% of salary. The increased opportunity reflects the significantly increased size and complexity of the business since flotation, and also our desire to ensure that increases in total pay should be focussed on performance related pay rather than fixed pay. We are also mindful of the need to ensure appropriate internal relativities. The increased opportunity will be based on two of our key strategic priorities. As explained on page 4, a fundamental part of our purpose is to create a long-term sustainable business. The engagement and satisfaction of our Mounties and internal staff is critical to this, and half of the increased bonus opportunity (10% of salary) will be subject to a performance measure related to employee satisfaction. The balance of the increased opportunity will be linked to the diversification of our client base, one of our four key strategic objectives. This will enable us to continue to grow our customer presence profitably in new sectors. Each measure will permit assessment by the Committee “in the round” to ensure that the Executive Directors are appropriately rewarded for taking decisions which reflect the overall strategic direction of the Group. Deferral into shares for two years will apply to approximately 16.7% of any bonus earned, so that any bonus earned in excess of that which would have been earned for a 100% opportunity is deferred, enhancing alignment with shareholders. Shares acquired pursuant to the deferred bonus awards will be subject to the post-cessation shareholding policy introduced with effect from 1 January 2020. PSP: PSP awards will be granted at the level of up to 100% of salary. 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 As in previous years, the awards will be subject to performance conditions based on growth in EPS. PSP awards granted in 2019 In the Directors’ Remuneration Policy approved at the 2018 AGM, we increased the PSP limit from 100% of salary to 150% of salary. However, as in previous years, we have granted awards below the permitted maximum. In 2019, each Executive Director was granted an award over 29,000 shares, representing an award over the following percentages of salary: Rod Flavell: 67% Mike McLaren: 94% Sheila Flavell: 90% Andy Brown: 90% The reduced quantum of PSP awards for the Executive Directors since Admission has reflected the Board’s desire to retain scope to grant larger share awards throughout the organisation; employee share ownership is fundamental to the Company’s culture, and is reflected in the wide participation in our share incentive plans. Since 2015, awards to the Executive Directors as a percentage of salary have been: Rod Flavell 2015 47% Sheila Flavell 64% Mike McLaren 75% Andy Brown 64% 2016 61% 82% 85% 82% 2017 39% 53% 55% 53% 2018 47% 63% 65% 63% 2019 67% 90% 94% 90% 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 5.5% to 11%. The Committee regards these target 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. The awards will be subject to a two-year post-vesting holding period. Shares acquired pursuant to the awards will be subject to the post-cessation shareholding policy introduced with effect from 1 January 2020. 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 66. 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 1 The Committee has at its discretion assessed performance outcome based upon adjusted EPS as defined in note 13 in the Consolidated Financial Statements. page 97. 88 89 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019 Remuneration Report Employee engagement During the year, the Board also considered the requirements of the 2018 Code for the Board/ Committee to engage with the wider workforce to explain how executive remuneration aligns with the wider Group pay policy. Jacqueline de Rojas is the Non-Executive Director with responsibility for employee engagement and further details will be provided in the 2020 Annual Report and Accounts as to how the Company has implemented this requirement. Feedback We always welcome feedback from shareholders on any aspect of our Directors’ remuneration and will continue to monitor our Directors’ Remuneration Policy to ensure it remains aligned to the business strategy and delivery of shareholder value. Annual Report on Remuneration Audited Section The Audited Section of this report comprises only the following sections: • • • • • Single figure table Annual bonus for 2019 Long-term incentives vesting in respect of 2019 Directors’ shareholding and share interests Performance Share Plan awards granted in 2019 Peter Whiting Chair of the Remuneration Committee 10 March 2020 Single figure table The table below details the total remuneration receivable by each Director for the financial years ended 31 December 2019 and 31 December 2018. 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 2019 annual bonus and the long-term incentives vesting in respect of 2019. 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 David Lister1 Peter Whiting Robin Taylor Michelle Senecal de Fonseca Jacqueline de Rojas2 Ivan Martin3 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 404.3 395.1 300.3 293.5 288.7 282.2 300.3 293.5 148.8 48.0 70.0 65.5 60.0 56.8 50.0 48.0 12.5 n/ a 51.3 149.0 20.6 20.2 13.7 13.4 15.2 14.7 14.0 13.7 – – – – – – – – – n/ a – – 201.5 229.5 149.6 170.5 143.9 163.9 149.6 170.5 – – – – – – – – – n/ a – – 165.2 340.0 165.2 340.0 165.2 340.0 165.2 340.0 – – – – – – – – – n/ a – – 10.4 10.2 7.8 7.6 7.5 7.3 7.8 7.8 – – – – – – – – – n/ a – – 802.0 995.0 636.6 825.0 620.5 808.1 636.9 825.5 148.8 48.0 70.0 65.5 60.0 56.8 50.0 48.0 12.5 n/ a 51.3 149.0 1 David Lister was appointed as Non-Executive Chairman with effect from 5 March 2019. 2 Jacqueline de Rojas was appointed to the Board with effect from 1 October 2019. 3 Ivan Martin retired from the Board on 5 March 2019. 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. Benefits Value of benefits received in the year, comprising private medical insurance and car allowance. Annual bonus The cash value of the bonuses earned in respect of the year. Long-term incentives Pension The value of the Executive Directors’ long-term incentives vesting by reference to performance in 2019, calculated as set out below. The cash value of a salary supplement paid to the Executive Director in lieu of company pension contributions to the Company’s defined contribution scheme. 90 91 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Remuneration Report Annual bonus for 2019 Each Executive Director’s annual bonus opportunity for 2019 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 Weighting 80% 20% Threshold (20% of maximum payable) n/ a n/ a Target (50% of maximum payable) Stretch (100% of maximum payable) Actual performance Bonus earned (percentage of maximum payable) £54.0m £56.0m £54.5m 62.5% £275.7m £279.9m £268.2m 0% Accordingly, each Executive Director earned a bonus equal to 50% of their salary in respect of 2019. Long-term incentive awards vesting in respect of 2019 Each Executive Director was granted an award under the Company’s Performance Share Plan on 19 April 2017 over 20,000 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 2017 – 2019 in accordance with the following table. Compound annual growth in EPS Percentage of the award that will vest 10% p.a. 25% Performance outcome (compound annual growth in adjusted1 EPS) Vesting outcome Greater than 10% p.a. but less than 15% p.a. Determined on a straight-line basis between 25% and 100% 15.0% 100% 15% p.a. or greater 100% 1 The Committee has at its discretion assessed performance outcome based upon adjusted EPS as defined in note 13 in the Consolidated Financial Statements and with the base year adjusted EPS restated in line with IFRS 16 as described on page 88. 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 91, the value for the PSPs is calculated by multiplying the number of shares in respect of which each award vested (20,000) by £8.26 (being the closing share price of £8.27 on 10 March 2020, the vesting date, less the exercise price of £0.01 per share). Of this overall value of £165,200: • • £144,800 is attributable to the value of a share at the date the awards were granted (£7.24); and £20,400 is attributable to the growth in the value of share between the date of grant and the date of vesting. Former Directors During the year, no payments were made to any former Director of the Company or in respect of loss of office. Directors’ shareholding and share interests The Company’s formal shareholding guideline for Executive Directors is that each Executive Director holds shares with a value equal to at least 200% of salary. 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 2019 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 Jacqueline de Rojas Ordinary shares as at 31 December 2019 Number Ordinary shares value as at 31 December 2019 £0001 Value (x base salary2) 8,291,255 8,291,254 520,728 4,540,801 8,000 5,226 10,453 5,523 – – 85,732 85,732 5,384 46,952 83 54 108 57 – – 212.1 285.5 18.7 156.3 1.6 0.9 1.5 1.1 – – 1 Calculated based on the closing share price of 1034 pence on 31 December 2019. 2 Calculated on base salary and fees at 31 December 2019. There have been no changes in the Directors’ holdings in the share capital of the Company between 31 December 2019 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 2019 Granted in 2019 Lapsed in 2019 Rod Flavell Sheila Flavell Mike McLaren Andy Brown 19 April 2016 19 April 2017 1 June 20182 17 April 2019 19 April 2016 19 April 2017 1 June 20182 17 April 2019 19 April 2016 19 April 2017 1 June 20182 17 April 2019 19 April 2016 19 April 2017 1 June 20182 17 April 2019 40,000 20,000 18,500 – 40,000 20,000 18,500 – 40,000 20,000 18,500 – 40,000 20,000 18,500 – – – – 29,000 – – – 29,000 – – – 29,000 – – – 29,000 – – – – – – – – – – – – – – – – Exercised in 2019 40,000 – – – 40,000 – – – 40,000 – – – 40,000 – – – Number at 31 December 2019 – 20,000 18,500 29,000 – 20,000 18,500 29,000 – 20,000 18,500 29,000 – 20,000 18,500 29,000 Status Exercised Vested1 Unvested Unvested Exercised Vested1 Unvested Unvested Exercised Vested1 Unvested Unvested Exercised Vested1 Unvested Unvested 1 The awards granted in 2017 vested on 10 March 2020, as described on page 92. 2 Each award granted in 2018 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 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 was principally to fund the exercise price of the tax qualifying option, each award was equivalent to a PSP award over 18,500 shares. Performance Share Plan awards granted in 2019 Each Executive Director was granted an award under the Company’s PSP on 17 April 2019 as set out below. Award PSP award Number of shares Exercise price per share Face value of award 29,000 £0.01 £271,730 The face value of the award is calculated by multiplying the number of shares subject to the PSP award (29,000) by £9.37 being the average share price over the three business days preceding the date of grant. As described in the 2018 Directors’ Remuneration Report, the awards are subject to a two-year post-vesting holding period. 92 93 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Remuneration Report 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 8% p.a. 25% Long term incentives for 2020 The Committee proposes to grant awards under the PSP in respect of 2020. 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 Greater than 8% p.a. but less than 13% p.a. Determined on a straight-line basis between 25% and 100% performance period as follows: 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. Compound annual growth in adjusted1 EPS Percentage of the award that will vest 5.5% p.a. 25% Greater than 5.5% p.a. but less than 11% p.a. Determined on a straight-line basis between 25% and 100% 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 11% p.a. or greater 100% levels do not reflect the performance of the Company. Approach to Directors’ remuneration for 2020 Base salary and fees No increases will be made to the Executive Directors’ salaries, which will remain at the same level as for 2019, as set out below. However, in the light of the continued growth of the Group since the last salary review and the increased scale and complexity of the 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. roles of the Executive Directors, during 2020 as part of the overall policy review the Committee will be undertaking a thorough Although the policy only requires the addition of a post-vesting “holding period” if awards are granted to current Executive Directors review of Executive Directors’ remuneration including salaries (which have not been increased since April 2018), with the intention 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. that any changes will be implemented in 2021. Rod Flavell (Chief Executive Officer) Sheila Flavell (Chief Operating Officer) Mike McLaren (Chief Financial Officer) Andy Brown (Chief Commercial Officer) Chairman Non-Executive Director Senior Independent Director1 Committee Chair (Audit Committee and Remuneration Committee)1 Committee Chair (Nomination Committee)1 1 Fee is in addition to base annual fee. Base annual salary £404,250 £300,300 £288,750 £300,300 Annual fee £165,000 £50,000 £10,000 £10,000 £5,000 The Non-Executive Directors’ fees (with the exception of the Chairman’s fee) are currently being reviewed in the context of increases in the complexity of the Group and of the regulatory environment since the last review (which took place in April 2018). That review will include an analysis of fees paid in the market for non-executive directors of companies of a similar size and complexity to FDM. It is expected that any changes to the Non-Executive Directors’ fees which arise from that review will be implemented during the course of 2020, with the intention that they will not be reviewed again until April 2022. The Chairman’s fee was increased to £165,000 when David Lister took on the role in March 2019, and accordingly will remain unchanged in 2020 but will be reviewed in 2021. Annual bonus for 2020 The maximum annual bonus opportunity for all Executive Directors for 2020 is 120% of salary, as set out in the statement from the Chair of the Remuneration Committee on page 89. As with previous years, a bonus of up to 80% of salary may be earned dependent on adjusted group profit before tax and a bonus of up to 20% of salary may be earned based on Mountie revenue. As discussed on page 89 a bonus of up to a further 20% of salary may be earned by reference to two key strategic measures related to employee engagement and client diversification. The Committee considers that the details of the 2020 targets are commercially sensitive and they are not disclosed in this report, but will be disclosed in next year’s report. Deferral into shares for two years will apply to approximately 16% of any bonus earned. 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. ) 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 400 300 200 100 0 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 Mar 2019 Jun 2019 Sep 2019 Dec 2019 FDM FTSE 250 The table below details the total remuneration, annual bonus and long term incentive plan vesting (as a percentage of the maximum opportunity) for the CEO for the last ten 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) 455.2 639.2 686.2 547.7 658.5 668.1 764.5 1,134.1 995.0 802.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Annual bonus as a % of maximum opportunity Long-term Incentives as a % of maximum opportunity 100% 100% 100% 68% 55% 82% 100% 80% 58% 50% n/ a n/ a n/ a n/ a n/ a n/ a n/ a 100% 100% 100% 94 95 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019 Remuneration Report 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 reduction in the CEO pay ratios between 2018 and 2019 is principally a result of the CEO not receiving a salary increase in respect of 2019, whereas a salary increase was awarded to the wider workforce, and the reduction in the CEO’s bonus outturn in the financial years 2018 and 2019. For these purposes, the wider workforce includes all UK employees excluding Mounties, and also 2019 compared to 2018 – reflecting that the CEO’s remuneration is more heavily performance based than the remuneration of the excludes employees based overseas in order to exclude the effects of fluctuating exchange rates. Mounties have been excluded wider workforce, meaning that the ratio will fluctuate year on year. Having regard to the weighting of the CEO’s remuneration from the UK wider workforce numbers to ensure a more meaningful comparison to the CEO’s remuneration as their remuneration towards performance-based reward, the Committee considers that the median pay ratio for 2019 is consistent with FDM’s pay, is not subject to the same annual review process as the rest of the UK workforce. Mounties receive a salary increase upon reward and progression policies for the Group’s UK employees as a whole. progression from their first year to their second year. Percentage change Salary Taxable benefits Annual bonus CEO 0% +2.0% -12.2% Wider workforce +5.8% 0% -2.9% CEO pay ratio The following table sets out the ratio of the CEO’s total remuneration in respect of the 2019 financial year (taken from the single figure table on page 91) to the 25th percentile, 50th percentile (i.e. the median) and the 75th percentile full-time equivalent (FTE) of the Company’s UK employees. In line with the applicable regulations, the corresponding ratios for 2018 are also included. 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. Year Method 25th percentile pay ratio Median pay ratio 75th percentile pay ratio Including Mounties Excluding Mounties Including Mounties Excluding Mounties Including Mounties Excluding Mounties 2018 2019 Option A Option A 43:1 32:1 36:1 27:1 40:1 29:1 23:1 19:1 31:1 21:1 14:1 13:1 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 in each year. 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. In line with the applicable regulations, we have set out below for each employee (and for the CEO) their total remuneration in respect of 2019 and 2018 and the salary component of that remuneration. Year CEO total remuneration (salary component of total remuneration) 25th percentile employee total remuneration (salary component of total remuneration) Median employee total remuneration (salary component of total remuneration) 75th percentile employee total remuneration (salary component of total remuneration) Including Mounties Excluding Mounties Including Mounties Excluding Mounties Including Mounties Excluding Mounties 2018 2019 £995,000 (£395,100) £23,015 (£19,500) £27,627 (£25,838) £24,722 (£19,500) £43,596 (£41,349) £32,157 (£23,902) £72,100 (£48,500) £801,968 (£404,250) £24,911 (£20,000) £29,682 (£24,982) £27,339 (£20,000) £42,150 (£36,000) £37,305 (£20,000) £63,498 (£55,000) 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 2018 £000 30,718 165,506 Year ended 31 December 2019 £000 34,113 185,813 Percentage change +11% +12% Shareholder approval of our Directors’ Remuneration Policy and Directors’ Remuneration Report The Company’s Directors’ Remuneration Policy was approved at the AGM held on 26 April 2018. The Company’s 2018 Directors’ Remuneration Report was approved at the AGM held on 25 April 2019. The results of the votes are set out below: Resolution Approve the Directors’ Remuneration Policy (2018 AGM) Approve the Directors’ Remuneration Report (2019 AGM) % of Votes for votes for Votes against 88,367,484 97.89% 1,905,746 % votes against 2.11% Votes withheld 0 90,497,095 97.90% 1,938,749 2.10% 101,678 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 £9,900. 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 2019 are set out on page 66. 96 97 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Remuneration Report Directors’ Remuneration Policy The Company’s Directors’ Remuneration Policy was approved by shareholders at the AGM held on 26 April 2018. Since we are Purpose and link to strategy Benefits Operation Maximum opportunity Performance measures not seeking shareholder approval for a revised policy at the 2020 AGM, we have set out below just the “policy tables”, but with To provide Executive Directors receive benefits set at an Whilst the Committee has Not applicable. certain date-specific references updated. The full policy as approved at the 2018 AGM is available on the Company’s website at benefits as part appropriate level taking into account total not set an absolute www.fdmgroup.com. Executive Directors Purpose and link to strategy Base Salary Operation Maximum opportunity Performance measures Core element of Salaries are normally reviewed annually. Whilst there is no maximum Not applicable. fixed Salary levels are determined taking into account a salary level, salary increases remuneration to range of factors, which may include (but are not will normally be within the reflect the limited to): individual’s role and experience as part of a broadly market- • • • Underlying Company performance; The size and scope of the Executive Director’s role percentage of salary terms. and responsibilities; Salary increases above this The Executive Director’s skill, experience and level may be awarded in performance; appropriate circumstances range of increases awarded to the wider workforce in competitive total • Salary levels for equivalent roles at other listed including but not limited to: remuneration companies of a similar size and/ or complexity to • Where an Executive package, to enable the Group to recruit and maintain the required skills and expertise to enable it to achieve its strategy. the Group; and Director has been • Pay and conditions elsewhere in the Group. 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. of a broadly remuneration, market practice, the benefits provided maximum on the level of market- to other employees in the Group and individual benefits Executive Directors competitive total circumstances. Benefits provided currently include car may receive, the value of remuneration allowances and private health insurance. package. benefits is set at a level which the Committee Other benefits may be provided based on individual considers to be circumstances. These may include, for example, appropriately positioned relocation expenses and expatriate allowances. 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. Retirement benefits To provide an Executive Directors are eligible to participate in the Maximum company pension Not applicable. appropriate Company’s defined contribution scheme. contribution (or cash level of allowance equivalent) for retirement In appropriate circumstances, such as where existing Executive Directors benefit (or cash contributions exceed the annual or lifetime allowance, of 3% of salary. allowance Executive Directors may take a taxable cash equivalent) as supplement instead of contributions to a pension plan. However, the Committee part of a broadly market- competitive total remuneration package. may permit a higher company pension contribution (or cash allowance equivalent) for any new Executive Director, of up to 15% of salary. 98 99 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Remuneration Report Purpose and link to strategy Annual bonus Rewards Executive Operation Maximum opportunity Performance measures Purpose and link to strategy Operation Performance Share Plan (“PSP”) Maximum opportunity Performance measures Performance measures and targets are reviewed Maximum bonus Performance To incentivise Awards under the PSP will typically be granted as a The usual maximum award Performance will be annually and pay-out levels are determined by the opportunity for Executive measures and targets Executive conditional award or the grant of a nil or nominal cost level under the PSP in assessed against Directors for Committee after the year end based on performance Directors is 150% of base are set annually Directors over option, in either case vesting subject to the respect of any financial year challenging achieving financial, against the targets. salary. strategic and/ or The Committee has discretion to amend the pay-out individual should any formulaic outcome not reflect the targets in the Committee’s assessment of overall business relevant year, to performance. provide an incentive for the Where a bonus opportunity is offered in excess of Group’s 100% of salary, up to 33% of the bonus earned will be employees to deferred into an award of shares, which shall be achieve goals released following the end of a two-year deferral aligned with the period. No bonus will be deferred where the deferred Group’s strategy. 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. 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. performance- related pay, with a clear line of sight for Executives and direct alignment with shareholders’ interests. the longer term, achievement of specified performance conditions, for Executive Directors is performance targets. and to deliver over a period of at least three years. awards over shares with a value of 150% of salary. Awards will vest following assessment of the performance conditions. Other than as noted below in The Committee has Performance will be based typically on financial measures Awards (other than, in accordance with the requirements of the relation to the existing Executive Directors, awards will discretion to grant awards including, but not be granted subject to a holding period of two years under the PSP in respect of limited to, EPS growth. beginning on the vesting date either on the basis that any financial year for they will not ordinarily be released (so that the Executive Directors up to a participant is entitled to acquire the shares) until the maximum of 200% of salary. 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 Committee may at its applicable tax discretion structure awards legislation, any as Approved Performance tax-favoured option Share Plan (“APSP”) awards granted as part of an as described in the APSP award) will also “Operation” column. be subject to a financial The holding period will apply to existing Executive Reflecting the interaction underpin such that PSP Directors only in respect of any award with a value at between the tax-favoured awards will only vest if grant (ignoring any CSOP option granted as part of an option and the PSP award, the Committee is APSP award as discussed below) in excess of 100% of the shares subject to the satisfied with the 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: i) 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 ii) 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 below the table. tax-favoured option are not overall performance of taken into account when the Company. assessing these limits in order to avoid double counting. 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. 100 101 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Remuneration Report Information supporting the policy table Non-Executive Directors Explanation of performance measures chosen Performance measures for the annual bonus and PSP awards which reflect the Company’s strategy are selected. Stretching performance targets are set each year by the Committee taking into account a number of different factors. The annual bonus can be assessed against financial, strategic and/ or individual targets determined by the Committee with at least 80% subject to key financial targets. The Committee considers financial measures like profit 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. Long-term performance measures are chosen by the Committee to provide a robust and transparent basis on which to measure the Company’s performance over the longer term and to provide alignment with the business strategy. They are selected to be aligned with the interests of shareholders and to drive business performance. Currently EPS growth is considered to be a key measure of success as it encapsulates the outcomes of many of the strategic drivers of the business, and helps align management incentives with growth in shareholder value. The Committee retains the discretion to adjust or set different performance measures or targets where it considers it appropriate to do so (for example, to reflect a change in strategy, a material acquisition and/ or a divestment of a Group business or a change in prevailing market conditions) and to assess performance on a fair and consistent basis from year to year. 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 shares subject to awards in the event of a variation of share capital, demerger, delisting, special dividend, rights issue or other event which may, in the opinion of the Committee, affect the current or future value of shares. Purpose and link to strategy Operation Other items To enable the Company to The Chairman is paid a basic Chairman fee and Non-Executive Directors may be eligible attract and retain Non-Executive additional fees for chairmanship of any Board to be reimbursed travel and subsistence Directors of the required calibre committees. by offering market-competitive costs incurred in the performance of their duties and to receive other rates. Non-Executive Directors receive a basic fee and benefits relevant to the performance of additional fees for chairmanship of any Board their roles. committees. The Chairman’s fee is determined by the participate in the Company’s annual Remuneration Committee and the fees of the other bonus, share plans or pension schemes Non-Executive Directors are determined by the or other benefit in kind arrangements. The Non-Executive Directors do not 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. At the discretion of the Committee, awards under the PSP and any deferred bonus plan may be settled in cash (or granted as a cash award over a notional number of shares). Approval This Report was approved by the Board on 10 March 2020 and signed on its behalf by: 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 any shares acquired under the PSP and any deferred bonus award (after sales to cover tax) until such time as their holding has a value equal to 200% of salary. Shares subject to PSP awards which have vested but not been released, shares subject to released PSP awards which have not been exercised, and shares subject to deferred bonus awards count towards the guideline on a net of assumed tax basis. Recovery Annual bonus For up to three years following the payment of the non-deferred part of an annual bonus award, the Committee may require the repayment of some or the entire cash award paid (or may cancel or reduce any deferred share award or require the forfeiture of shares acquired pursuant to a deferred share award) in the event of fraud or dishonesty leading to a material misstatement of financial results. 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. Peter Whiting Chair of the Remuneration Committee 10 March 2020 102 103 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019Directors’ Report The Directors present the Directors’ Report and audited Consolidated Financial Statements of FDM Group (Holdings) plc for the year ended 31 December 2019. Principal activities, business review and future developments The principal activity of the Group is the provision of professional services focussing principally on IT. The Strategic Report on pages 2 to 54 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 £40.6 million (2018 restated: £37.0 million). Results for the year are set out in the Consolidated Income Statement on page 117. The Directors propose a final dividend of 18.5 pence per share. Subject to shareholder approval, this dividend will be paid on 12 June 2020 to shareholders of record on 22 May 2020. An interim dividend of 16.0 pence per share was declared by the Directors on 22 July 2019 and was paid on 20 September 2019 to holders of record on 23 August 2019. 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: David Lister Ivan Martin Roderick Flavell Sheila Flavell Michael McLaren Andrew Brown Peter Whiting Robin Taylor Michelle Senecal de Fonseca Jacqueline de Rojas Alan Kinnear Non-Executive Chairman (appointed on 5 March 2019) Non-Executive Chairman (resigned on 5 March 2019) Chief Executive Officer Chief Operating Officer Chief Financial Officer Chief Commercial Officer Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director (appointed 1 October 2019) Non-Executive Director (appointed 1 January 2020 The biographies of the currently serving Directors are provided on pages 58 to 61. As announced by the Company on 7 February 2019, Ivan Martin retired from the Board on 5 March 2019, and was succeeded by David Lister as Non-Executive Chairman. The Nomination Committee Report on pages 82 to 84 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 93. 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 86. 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. 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 28 to the Consolidated Financial Statements. The principal risks that the Group faces are set out on pages 30 to 36 of the Strategic Report. Controls in place over consolidation of financial results The Group’s consolidated financial statements are prepared by the Group’s Finance team. The team is based in one central location, where all the individual entity general ledgers are also maintained. The consolidation process involves preparation and separate reviews of the results by qualified and experienced finance staff. Corporate governance For details of the Corporate Governance Report see page 62. The Corporate Responsibility report, on pages 38 to 54 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 2019 and as at 24 February 2020, 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 Rod Flavell Sheila Flavell Standard Life Investments As at 31 December 2019 As at 24 February 2020 Direct/ indirect interest Number of shares % of issued share capital Number of shares % of issued share capital Direct Direct Indirect Artemis Investment Management Baillie Gifford & Co Majedie Asset Management Ameriprise Financial, Inc. and its group Direct and indirect Black Rock Andrew Brown Indirect Indirect Indirect Indirect Direct 8,291,255 8,291,254 7,924,516 5,491,747 5,461,105 5,435,803 5,314,856 5,210,213 4,540,801 7.6% 7.6% 7.3% 5.0% 5.0% 5.0% 4.9% 4.8% 4.2% 8,291,255 8,291,254 7,924,516 5,491,747 5,461,105 5,435,803 5,314,856 5,210,213 4,540,801 7.6% 7.6% 7.3% 5.0% 5.0% 5.0% 4.9% 4.8% 4.2% Political donations The Group made no political donations in the year (2018: £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. Greenhouse gas emissions Details of the Group’s compliance with legislation relating to greenhouse gas emissions are set out on pages 50 to 51 in the Corporate Responsibility report. 104 105 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019  Directors’ Report Employee engagement How the Directors have engaged with employees and have regard to their interests are detailed on pages 38, 39 and 68. Statement of Directors’ responsibilities in respect of the financial statements The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and We use a number of methods to consult our employees regularly so that their views can be taken into account in making decisions regulation. that are likely to affect their interests, and we encourage our staff to become involved in FDM Group’s performance through our Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have discretionary Performance Share Plan and our all-employee Buy As You Earn share plan. Further information on these initiatives to prepared the Group and Company financial statements in accordance with International Financial Reporting Standards (“IFRSs”) as engage with our employees is set out on pages 38 and 39 of the Corporate Responsibility report. adopted by the European Union (“EU”). Under company law, the Directors must not approve the financial statements unless they are Employee information Information on the Group’s employee policies is included on pages 45 and 46 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 45 in the Corporate Responsibility report. Capital structure The Group’s capital structure is detailed in note 22 to the Consolidated Financial Statements. During 2019 the number of ordinary satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group and Company for that period. In preparing the financial statements, the Directors are required to: • • select suitable accounting policies and then apply them consistently; 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; • make judgements and accounting estimates that are reasonable and prudent; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and parent shares in issue increased from 108,271,708 at 1 January 2019 to 109,186,739 at 31 December 2019. company will continue in business. Investment in own shares During the AGM held on 25 April 2019, the shareholders approved that up to 10% of the Company’s shares could be purchased by the Company and held as own shares, renewing the authority agreed on 26 April 2018. The authority expires at the conclusion of the The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Company’s next Annual General Meeting after the passing of this resolution or, if earlier, at 23:59 on 31 May 2020. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and During 2019, the FDM Group Employee Benefit Trust was established to purchase shares sold by option holders upon exercise of enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 options under the FDM Performance Share Plan. The Group accounts for its own shares held by the Trustee of the FDM Group and, as regards the Group financial statements, Article 4 of the IAS Regulation. Employee Benefit Trust as a deduction from shareholders’ funds. Change of control The Group has agreements in place with certain of its banking customers that give the bank the right to terminate the contract on a 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. change of control following a takeover bid for the Group. The Group had a Revolving Credit Facility (“RCF”) with HSBC Bank plc, which Directors’ confirmations expired on 14 August 2018 and was not renewed. 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 The Group has no agreements with employees or Directors that provide for compensation for loss of office or employment that strategy. occurs resulting from a takeover bid. The Group knows of no agreements under which holders of securities in the Company may restrict votes or transfers in the Company’s shares. Post balance sheet events There have been no significant events to report since the date of the balance sheet. Related party transactions The Group’s related party transactions are detailed in note 27 to the Consolidated Financial Statements. Independent auditors In accordance with Section 487 of the Companies Act 2006, a resolution for the re-appointment of PricewaterhouseCoopers LLP as 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 auditors of the Company is to be proposed at the forthcoming Annual General Meeting. 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 10 March 2020 and signed on its behalf by: 106 107 Rod Flavell Chief Executive Officer 10 March 2020 Mike McLaren Chief Financial Officer 10 March 2020 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019FDM Group (Holdings) plcAnnual Report and Accounts 2019s t n e m e t a t S l a i c n a n i F 108 Financial Statements 110 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 117 118 119 120 121 122 145 146 147 148 152 Strategic ReportGovernanceFinancial StatementsFDM Group (Holdings) plcAnnual Report and Accounts 2019 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 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. 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 2019 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 2019 (the “Annual Report”), which comprise: the Consolidated and Parent Company Statements of Financial Position as at 31 December 2019; 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 8 to the financial statements, we have provided no non-audit services to the group or the parent company in the period from 1 January 2019 to 31 December 2019. Our audit approach Overview • • • Materiality Overall group materiality: £2,600,000 (2018: £2,410,000), based on 5% of profit before tax. Overall parent company materiality: £510,000 (2018: £540,000), based on 1% of total assets. The group financial statements are a consolidation of 16 reporting units. Audit scope Key audit matters • We performed full scope audits of the UK and USA reporting units. • We audited the revenue, payroll related expenses, accruals, trade and other receivables, and cash and cash equivalents in the Canadian reporting unit, as well as property leases in the Australian reporting unit. • We also performed full scope audits of the centralised functions in the UK, comprising the parent and intermediate holding companies. • Our full scope audits covered 72% of revenue (with a further 13% coverage obtained through our work on the Canadian reporting unit) and 78% of profit before tax (with a further 10% coverage obtained through our work on the Canadian reporting unit). Revenue recognition in respect of uninvoiced amounts (Group). Share option plan expenses (Group and parent). Provision for legal claims (Group). • • • 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 are 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, 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 memorandums prepared by 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 78 (‘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 client 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 and across the group. 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 the invoice raised post year end, subsequent cash receipt and customer approval, in order to identify any inappropriate recognition of revenue, noting no material exceptions in our testing. 110 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 111 Strategic ReportGovernanceFinancial StatementsIndependent auditors’ report to the members of FDM Group (Holdings) plc Key audit matter How our audit addressed the key audit matter Share option plan expenses (Group and parent) Refer to notes 3.3 (n), 4, and 25 to the Consolidated Financial statements for the directors’ disclosures of the related accounting policies, judgements and estimates, and page 78. (‘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. Provision for legal claims (Group) Refer to note 3.3 (l) to the Consolidated Financial Statements for the directors’ disclosures of the related accounting policies. Given the size and worldwide employment levels of the Group, from time to time the Group is subject to employment related litigation. There is both judgement and estimation required under IAS 37 – ‘Provisions, contingent liabilities and contingent assets’ as to whether or not an outflow of resources embodying economic benefits is probable (provide), possible (disclose) or remote (no disclosure required). 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 2016 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 25 to the financial statements and determined that they are consistent with the requirements of relevant accounting standards. We gained an understanding from management of ongoing litigation and any associated estimates or judgements made within the financial statements. In relation to one particular ongoing legal case, we enquired with managements external counsel, to fully assess the merits of the case. This included consideration of whether any material outflow of economic benefits could be probable, possible or remote. We challenged management’s assessment of IAS 37, and their conclusions on the potential requirement of any provision or disclosure. We discussed the work we have performed with the audit committee and sought management representations, where required. We conclude that management’s application of IAS 37, including their judgement that a provision or any disclosure is not required, is appropriate. 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 16 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 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 two reporting units, comprising the UK and USA trading reporting units. We also included in our audit scope the revenue, payroll related expenses, accruals, trade and other receivables and cash and cash equivalents in the Canadian reporting unit, as well as property leases in the Australian reporting unit, 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 Frankfurt, where we met with local management. As a result, full scope audit procedures were conducted on reporting units representing 78% of the group’s profit before tax and 72% of revenue, with a further 13% coverage of revenue, and 10% of profit before tax obtained through our work on the Canadian reporting unit. 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 £2,600,000 (2018: £2,410,000). £510,000 (2018: £540,000). 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 £1,700,000 and £2,470,000. 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 £130,000 (Group audit) (2018: £120,500) and £25,500 (Parent company audit) (2018: £27,000) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. 112 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 113 Strategic ReportGovernanceFinancial StatementsIndependent auditors’ report to the members of FDM Group (Holdings) plc 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 of the United Kingdom’s withdrawal from the European Union are not clear, and it is difficult to evaluate all of the potential implications on the group’s trade, customers, suppliers and the wider economy. We have nothing to report. Reporting 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 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 73) 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) 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 30 to 36 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 37 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. other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this We have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of report, any form of assurance thereon. 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 In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or “Code”); and considering whether the statements are consistent with the knowledge and understanding of the group and parent otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are company and their environment obtained in the course of the audit. (Listing Rules) 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. Other Code Provisions We have nothing to report in respect of our responsibility to report when: • The statement given by the directors, on page 107 that they consider the Annual Report taken as a whole to be fair, balanced With respect to the Strategic Report, Directors’ Report and Corporate Governance Statement, we also considered whether the and understandable, and provides the information necessary for the members to assess the group’s and parent company’s disclosures required by the UK Companies Act 2006 have been included. position and performance, business model and strategy is materially inconsistent with our knowledge of the group and parent 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 (on pages 2 to 55) and Directors’ Report (on pages 104 to 107) for the year ended 31 December 2019 is consistent with the financial statements and • • company obtained in the course of performing our audit. The section of the Annual Report on page 78 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 Remuneration Report to be audited has been properly prepared in accordance with the Companies has been prepared in accordance with applicable legal requirements. (CA06) Act 2006. (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 73) 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 Responsibilities for the financial statements and the audit Responsibilities of the directors for the financial statements As explained more fully in the Statement of the Directors’ responsibilities in respect of the financial statements set out on page 107, 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. requirements. (CA06) 114 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 115 Strategic ReportGovernanceFinancial StatementsIndependent auditors’ report to the members of FDM Group (Holdings) plc 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. 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: Consolidated Income Statement for the year ended 31 December 2019 Revenue Cost of sales Gross profit Administrative expenses Operating profit Finance income Finance expense Net finance expense Profit before income tax Taxation Profit for the year Earnings per ordinary share Basic Diluted * See note 5 for details regarding the restatement as a result of the adoption of IFRS 16 ‘Leases’. 2019 £000 271,529 (139,953) 131,576 (78,401) 2018 Restated* £000 244,910 (125,875) 119,035 (70,210) 53,175 48,825 194 (886) (692) 52,483 (11,856) 40,627 2019 pence 37.3 37.2 140 (763) (623) 48,202 (11,252) 36,950 2018 Restated* pence 34.2 33.7 Note 7 8 11 11 12 Note 13 13 • • • • 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 The results for the year shown above arise from continuing operations. 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 Remuneration Report to be audited are not in agreement with the accounting records and returns. The notes on pages 122 to 144 are an integral part of these Consolidated Financial Statements. 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 7 years, covering the years ended 31 December 2013 to 31 December 2019. Jaskamal Sarai (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 10 March 2020 116 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 117 Strategic ReportGovernanceFinancial StatementsConsolidated Statement of Comprehensive Income for the year ended 31 December 2019 Profit for the year Other comprehensive (expense)/ income Items that may be subsequently reclassified to profit or loss Exchange differences on retranslation of foreign operations (net of tax) Total other comprehensive (expense)/ income Total comprehensive income for the year * See note 5 for details regarding the restatement as a result of the adoption of IFRS 16 ‘Leases’. The notes on pages 122 to 144 are an integral part of these Consolidated Financial Statements. 2019 £000 2018 Restated* £000 40,627 36,950 (496) (496) 630 630 40,131 37,580 Consolidated Statement of Financial Position as at 31 December 2019 Non-current assets Right-of-use 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 Lease liabilities Current income tax liabilities Non-current liabilities Lease liabilities Total liabilities Net assets Equity attributable to owners of the parent Share capital Share premium All other reserves Retained earnings Total equity Note 14 15 16 18 19 20 21 14 14 22 24 2019 £000 17,832 6,789 19,799 1,732 46,152 39,937 36,979 76,916 2018 Restated* £000 14,045 6,117 19,409 2,692 42,263 37,152 33,907 71,059 123,068 113,322 22,737 5,680 2,105 30,522 17,482 48,004 75,064 1,092 9,687 (3,241) 67,526 75,064 23,070 4,656 3,166 30,892 13,485 44,377 68,945 1,083 8,771 3,221 55,870 68,945 * See note 5 for details regarding the restatement as a result of the adoption of IFRS 16 ‘Leases’. The notes on pages 122 to 144 are an integral part of these Consolidated Financial Statements. The financial statements on pages 117 to 144 were approved by the Board of Directors on 10 March 2020 and were signed on its behalf by: Rod Flavell Chief Executive Officer 10 March 2020 Mike McLaren Chief Financial Officer 10 March 2020 118 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 119 Strategic ReportGovernanceFinancial Statements Consolidated Statement of Cash Flows for the year ended 31 December 2019 Cash flows from operating activities Group profit before tax for the year Adjustments for: Depreciation and amortisation (Profit)/ 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 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 Proceeds from sale of shares from EBT Principal elements of lease payments Interest elements of lease payments Lease incentives received Payment for shares bought back Finance costs paid Dividends paid Net cash used in financing activities Exchange (losses)/ gains on cash and cash equivalents Net increase/ (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year * See note 5 for details regarding the restatement as a result of the adoption of IFRS 16 ‘Leases’. The notes on pages 122 to 144 are an integral part of these Consolidated Financial Statements. 2019 £000 2018 Restated* £000 52,483 48,202 6,237 (9) (194) 886 2,106 (3,283) (564) 57,662 194 (11,009) 46,847 (2,711) (321) (3,032) 9 271 (4,828) (827) 1,930 (2,958) (59) (34,113) 4,934 3 (140) 763 2,972 (7,013) (439) 49,282 140 (11,407) 38,015 (2,684) (16) (2,700) 8 – (3,732) (632) – (3,664) (94) (30,718) (40,575) (38,832) (168) 3,072 33,907 36,979 578 (2,939) 36,846 33,907 Note 8 11 11 23 20 Consolidated Statement of Changes in Equity for the year ended 31 December 2019 Share capital £000 Share premium £000 All Other reserves (Note 24) £000 Retained earnings £000 Total equity £000 Balance at 1 January 2019 (Restated)* 1,083 8,771 3,221 55,870 68,945 Profit for the year Other comprehensive income for the year Total comprehensive (expense)/ income for the year Share-based payments (note 25) Transfer to retained earnings New share issue (note 22) Own shares bought back (note 26) Own shares sold Dividends (note 23) Total transactions with owners, recognised directly in equity – – – – – 9 – – – 9 – – – – – 916 – – – 916 – (496) (496) 2,825 (5,189) – (3,921) 319 – 40,627 – 40,627 (496) 40,627 40,131 – 5,189 – – (47) (34,113) 2,825 – 925 (3,921) 272 (34,113) (5,966) (28,971) (34,012) Balance at 31 December 2019 1,092 9,687 (3,241) 67,526 75,064 Share capital £000 Share premium £000 All Other reserves (Note 24) £000 Retained earnings £000 Total equity £000 Balance at 1 January 2018 (Restated)* 1,075 7,873 6,991 47,122 63,061 Profit for the year (Restated)* Other comprehensive income for the year Total comprehensive income for the year (Restated)* Share-based payments (note 25) Transfer to retained earnings New share issue Own shares bought back (note 26) Dividends (note 23) Total transactions with owners, recognised directly in equity – – – – – 8 – – 8 – – – – – 898 – – 898 – 630 630 36,950 – 36,950 630 36,950 37,580 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 (Restated)* 1,083 8,771 3,221 55,870 68,945 * See note 5 for details regarding the restatement as a result of the adoption of IFRS 16 ‘Leases’. The notes on pages 122 to 144 are an integral part of these Consolidated Financial Statements. 120 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 121 Strategic ReportGovernanceFinancial StatementsNotes 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 3.3 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 value 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 07078823. unit. 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 2019. The Consolidated Financial Statements were approved by Rod Flavell and Mike McLaren on behalf of the Board of Directors on 10 March 2020. 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 has changed its accounting policies and made retrospective adjustments as a result of adopting IFRS 16 ‘Leases’. The impact of adopting the leasing standard and the new accounting policies are disclosed in note 5 and 6 respectively. 3.2 Basis of consolidation The Consolidated Financial Statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2019. 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. 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. Sales invoices are issued following fulfilment of FDM’s performance obligation, confirmed by receipt of approved timesheets. Invoices are due for payment in line with agreed credit terms. 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 and goodwill 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 Details of the subsidiaries owned by the Group are presented in note 3 to the Parent Company Financial Statements. There are no other comprehensive income and transferred to the Group’s translation reserve. minority interests in the subsidiaries of the Company. 122 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 123 Strategic ReportGovernanceFinancial StatementsNotes to the Consolidated Financial Statements 3 Accounting policies continued d) Taxes Current income tax g) 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 Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid according to the original terms of the receivables. Subsequent assessment is made if there is evidence of a change in circumstances to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively to the debtor, such as the probability that the debtor will enter bankruptcy or financial reorganisation, or default. When a trade enacted at the reporting date in the countries where the Group operates and generates income. receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts 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. previously written off are credited against administrative expenses in the income statement. h) 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. Deferred tax Deferred tax is provided in full, using the liability method, on temporary differences between the carrying amounts of assets and i) 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 liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not are unpaid. The amounts are unsecured and are usually paid within thirty days of recognition. Trade and other payables are provided for: goodwill not deductible for tax purposes; and the initial recognition of assets or liabilities that affect neither accounting presented as current liabilities unless payment is not due within twelve months after the reporting period. They are recognised nor taxable profit. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying initially at their fair value and subsequently measured at amortised cost using the effective interest method. 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 j) Financial instruments Non-derivative financial instruments 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 The Group’s non-derivative financial instruments comprise trade receivables, trade payables, cash and cash equivalents and a realised. revolving credit facility. 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 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. k) 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. l) 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 The assets’ residual values, useful lives and methods of depreciation are reviewed each financial year end and adjusted if is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. If the appropriate. f) 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 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. FDM is a people business and, in the ordinary course, we receive legal claims from time to time, most commonly employment- related. Our in-house legal team deals with these claims where appropriate, but we engage specialist external lawyers when it is appropriate for us to access additional expertise or resource. We are confident in our employment practices and it is our policy to The Group holds acquired software and software licences as intangible assets. Acquired software and software licences are defend these claims and our business model robustly. We will also take a commercial approach and from time to time may choose capitalised on the basis of cost and amortised over the estimated useful lives of the software which is estimated to be four years or to settle claims if we consider it pragmatic to do so. The Directors evaluate the possibility of an outflow of resources to determine if the licence term if shorter. The estimated useful life and amortisation method are reviewed at the end of each annual reporting it is either remote, possible or probable. In each circumstance either adequate provisions are established or appropriate disclosures period and adjusted if appropriate. • System development costs Costs relating to the set-up of the Group’s new Timesheet and Billing System have been recognised as an addition to intangible are made in accordance with the provisions of IAS 37. m) Equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are assets. Costs of directly bringing the system into use including invoiced supplier costs and salaries of the implementation team shown in equity as a deduction, net of tax, from the proceeds. Share premium reflects the extra paid for new shares above their have been capitalised. The cost will be amortised over the estimated useful life of the software. nominal value. Goodwill Other reserves represent the cost of equity on settled share-based payments until such share options are exercised or lapse. Own Following initial recognition, goodwill is measured at cost less any accumulated impairment losses, and is revalued at the end of the shares reserve represents those Company shares held by the Trustee of the FDM Group Employee Benefit Trust and are a deduction reporting period. For the purposes of impairment testing, goodwill is allocated to the Group’s cash-generating units. from shareholders’ funds (see note 26). Goodwill is reviewed annually or when there is an indication of impairment. Impairment of goodwill is determined by assessing the The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating operations. The capital redemption reserve arose from the purchase by the Company in 2015 of 5,200,392 deferred shares, which unit is less than the carrying value of the cash-generating unit to which the goodwill has been allocated, an impairment loss is had a nominal value of £0.01 each. recognised. Impairment losses relating to goodwill cannot be reversed in future periods. 124 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 125 Strategic ReportGovernanceFinancial StatementsNotes to the Consolidated Financial Statements 3 Accounting policies continued n) Share-based payments Employees (including senior executives) of the Group receive remuneration in the form of share-based payments, whereby 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 employees render services as consideration for equity instruments (equity-settled transactions). 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 Equity-settled transactions estimate: 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 Share-based payment charge transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s A share-based payment charge is recognised in respect of share awards based on the Directors’ best estimate of the number of best estimate of the number of equity instruments that will ultimately vest. The income statement expense or credit for a period shares that will vest based on the performance conditions of the awards, which comprise adjusted EPS growth and the number of represents the movement in cumulative expense recognised as at the beginning and end of that period and is recognised in employees that will leave before vesting. The charge is calculated based on the fair value on the grant date using the Black Scholes employee benefits expense. The equity-settled transactions are fair valued at the grant date and the expense recognised over the model and is expensed over the vesting period. The key assumptions in respect of the share-based payment charges are set out in duration of the vesting period. note 25. It is considered that no reasonable or likely change in underlying assumptions could cause a material variance in the charge. 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 No individual judgements have been made that have a significant impact on the financial statements. 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 5 Adoption of IFRS 16 ‘Leases’ Under IFRS 16 ‘Leases’, a liability and an asset are recognised at the inception of the lease, the lease liability being the present value terms had not been modified, if the original terms of the award are met. An additional expense is recognised for any modification of future lease payments. A right-of-use asset is recognised as the same amount adjusted for any initial direct costs, lease incentives that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at received, or lease payments made at or before the commencement date, as applicable. 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 depreciation expense on the right-of-use asset (included within operating costs). 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 The liabilities are measured at the present value of the remaining lease payments, discounted using the lessee company’s replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the incremental borrowing rate at the date of lease inception. The associated right-of-use assets for leases are measured on a original award, as described in the previous paragraph. retrospective basis as if the new rules had always applied. The charge to the Income Statement comprises i) an interest expense on the lease liability (included within finance expense) and ii) a o) 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. For short-term leases and leases of low-value assets, the Group has chosen to recognise the associated lease payments as an expense on a straight-line basis over the lease term. p) 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. The Group has adopted IFRS 16 retrospectively and has restated the comparatives for the 2018 reporting period. The decision to adopt the full retrospective approach upon transition was made as it provides increased comparability of the Group’s results year on Initial adoption q) Employee Benefit Trust FDM Group (Holdings) plc has an established Employee Benefit Trust (‘EBT’) to which it is the sponsoring entity. Notwithstanding the The discount rate applied to leases has been calculated based on an estimated borrowing rate available to the lessee companies at year. legal duties of the Trustee, the Company considers that it has ‘de facto’ control. The EBT is included in the Parent Company Financial the date of lease inception. 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 items that were not affected by the changes have not been included. All adjustments made relate to property leases. The following tables show the adjustments recognised for individual line items as at 1 January 2018 and 31 December 2018. Line own equity held by the EBT. For further information, see note 26. r) Leases The Group’s policy on accounting for leases is set out in note 5. Income Statement for year ending 31 December 2018 (extract) Administrative expenses Operating profit Finance expense Profit before income tax Taxation Profit for the period As previously reported £000 IFRS 16 £000 Restated £000 (70,748) 48,287 (94) 48,333 (11,275) 37,058 538 538 (669) (131) 23 (108) (70,210) 48,825 (763) 48,202 (11,252) 36,950 126 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 127 Strategic ReportGovernanceFinancial StatementsNotes to the Consolidated Financial Statements 5 Adoption of IFRS 16 ‘Leases’ continued Statement of Financial Position (extract) 1 January 2018 31 December 2018 As previously reported £000 IFRS 16 £000 Restated £000 As previously reported £000 IFRS 16 £000 Restated £000 Non-current assets Right-of-use assets Deferred income tax assets Current assets Trade and other receivables Total assets Current liabilities Trade and other payables Lease liabilities Non-current liabilities Lease liabilities Total liabilities Net assets Retained earnings Translation reserve Total equity – 2,275 30,716 94,234 26,616 – – 29,855 64,379 48,440 791 64,379 17,223 391 17,223 2,666 (539) 30,177 17,075 111,309 (3,394) 4,398 17,389 18,393 (1,318) (1,318) – (1,318) 23,222 4,398 17,389 48,248 63,061 47,122 791 63,061 Cash flows generated from operations Principal elements of lease payments Interest elements of lease payments Net cash outflow from financing activities Net decrease in cash and cash equivalents – 2,282 37,729 99,444 25,907 – – 29,073 70,371 57,296 1,421 70,371 As previously reported £000 44,918 – – (34,468) (2,939) 14,045 410 14,045 2,692 (577) 37,152 13,878 113,322 (2,837) 4,656 13,485 15,304 (1,426) (1,426) – (1,426) IFRS 16 £000 4,364 (3,732) (632) (4,364) – 23,070 4,656 13,485 44,377 68,945 55,870 1,421 68,945 Restated £000 49,282 (3,732) (632) (38,832) (2,939) Lease liabilities as at 31 December 2018 The table below reconciles the Group’s operating lease commitments as at 31 December 2018 (as disclosed in note 23 in Annual Report 2018) to the lease liabilities recognised under IFRS 16. Operating leases commitment (as disclosed in note 23 in Annual Report 2018) Discounted using the lessee’s lease incremental borrowing rates Add: adjustment where lessee is reasonably certain to exercise its option to extend the lease Less: adjustment for lease not yet commenced to which lessee is committed Lease liabilities recognised Of which are: Current lease liabilities Non-current lease liabilities £000 27,578 (1,850) 2,602 (10,189) 18,141 4,656 13,485 18,141 6 New standards and interpretations The Intenational 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. With the exception of IFRS 16 ‘Leases’, as set out in note 5, the adoption of these amendments has not had a material impact on the Group’s financial statements in the year: Effective in 2019 New standards IFRS 16, ‘Leases’ Interpretation 23, ‘Uncertainty over Income Tax Treatments’ 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’ Amendment to IFRIC 23, ‘Uncertainty over income tax’ Effective after 31 December 2019 New standards IFRS 17, ‘Insurance contracts’ Amendments Revised Conceptual Framework for Financial Reporting Amendments to IAS 1 ‘Presentation of Financial Statements and IAS 8 ‘Accounting policies’ on Definition of Material Amendment to IFRS 3 ‘Business Combinations’ on Definition of a Business Amendment to IFRS 9 ‘Financial Instruments’, IAS 39 ‘Financial Instruments recognition and measurement’ and IFRS 7 ‘Financial Instruments disclosures’ on Interest rate benchmark reform Effective for accounting periods beginning on or after Endorsed by the EU 1 January 2019 1 January 2019 1 January 2019 1 January 2019 1 January 2019 1 January 2019 1 January 2019 1 January 2019 Yes Yes Yes Yes No No No No Effective for accounting periods beginning on or after Endorsed by the EU 1 January 2021 1 January 2020 1 January 2020 1 January 2020 No Yes Yes No 1 January 2020 No 7 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 2019, 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. 128 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 129 Strategic ReportGovernanceFinancial StatementsNotes to the Consolidated Financial Statements 7 Segmental reporting continued For the year ended 31 December 2019 Revenue Depreciation and amortisation Segment operating profit/ (loss) Finance income* Finance costs* Profit/ (loss) before income tax As at 31 December 2019 Total assets Total liabilities UK and Ireland £000 136,921 (2,534) 35,916 231 (388) 35,759 72,523 (17,742) North America £000 96,024 (1,866) 16,455 191 (143) 16,503 EMEA £000 15,961 (252) 2,152 9 (61) 2,100 APAC £000 Total £000 22,623 271,529 (1,585) (1,348) 2 (533) (1,879) (6,237) 53,175 433 (1,125) 52,483 25,341 8,647 16,557 123,068 (7,330) (3,525) (19,407) (48,004) * Finance income and finance costs include intercompany interest which is eliminated upon consolidation Included in total assets above are non-current assets (excluding deferred tax) as follows: 31 December 2019 For the year ended 31 December 2018 (Restated) Revenue Depreciation and amortisation Segment operating profit/ (loss) Finance income Finance costs Profit/ (loss) before income tax As at 31 December 2018 Total assets Total liabilities UK and Ireland £000 29,586 North America £000 4,134 EMEA £000 1,435 APAC £000 9,265 Total £000 44,420 UK and Ireland £000 130,978 (2,436) 34,615 120 (482) 34,253 North America £000 82,119 (1,596) 13,224 156 (172) 13,208 EMEA £000 13,519 (252) 1,416 2 (62) 1,356 APAC £000 Total £000 18,294 244,910 (650) (430) 2 (187) (615) (4,934) 48,825 280 (903) 48,202 73,407 25,543 (23,535) (9,406) 6,487 (2,696) 7,885 113,322 (8,740) (44,377) 8 Operating profit Operating profit for the year has been arrived at after (crediting)/ charging: Net foreign exchange differences Depreciation of right-of-use assets Depreciation and amortisation of other assets Expense relating to short-term leases 2019 £000 (24) 4,265 1,972 526 2018 Restated £000 74 3,315 1,619 590 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 2019 £000 70 114 41 225 2018 £000 70 94 36 200 9 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 2019 Number 2018 Number 4,532 612 5,144 4,056 561 4,617 2019 £000 165,190 14,568 4,018 2,037 185,813 2018 £000 146,848 12,799 3,152 2,707 165,506 Included in total assets above are non-current assets (excluding deferred tax) as follows: 31 December 2018 UK and Ireland £000 30,745 North America £000 5,470 EMEA £000 1,728 APAC £000 1,628 Total £000 39,571 Information about major customer 2019 revenue from customer A is attributed across all four operating segments. Customer A represents 10% or more of the Group’s 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 2019 were £373,000 (2018: £275,000). There were no prepaid contributions at the end of the financial year (2018: £nil). 10 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 2019 is set out below: 2019 and 2018 revenues. Revenue from customer A 130 FDM Group (Holdings) plc Annual Report and Accounts 2019 2019 £000 2018 £000 29,121 25,874 Short-term employee benefits Post-employment benefits Share-based payments 2019 £000 2,395 33 364 2,792 2018 £000 2,428 33 526 2,987 For further information on Directors’ remuneration, see the audited sections of the Remuneration Report as defined on page 91. FDM Group (Holdings) plc Annual Report and Accounts 2019 131 Strategic ReportGovernanceFinancial StatementsNotes to the Consolidated Financial Statements 11 Finance income and expense Bank interest Finance income Interest on lease liabilities Non utilisation fees on revolving credit facility Finance fees and charges Finance expense 12 Taxation The major components of income tax expense for the years ended 31 December 2019 and 2018 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 2019 £000 194 194 2019 £000 (827) – (59) (886) 2019 £000 13,144 (308) 12,836 (980) (980) 2018 £000 140 140 2018 Restated £000 (669) (47) (47) (763) 2018 Restated £000 11,820 71 11,891 (639) (639) 13 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 £000 Pence 2019 40,627 108,822 37.3 2018 Restated 36,950 107,978 34.2 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 25) 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 2019 40,627 2,037 (468) 42,196 2018 Restated 36,950 2,972 (685) 39,237 £000 £000 £000 £000 108,822 107,978 Pence 38.8 36.3 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. Total tax expense reported in the income statement 11,856 11,252 The standard rate of corporation tax in the UK is 19%, accordingly, the profits for 2018 and 2019 are taxed at 19%. The tax charge for the year is higher (2018: 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% (2018: 19%) Effect of different tax rates on overseas earnings Expenses not deductible for tax purposes Adjustments in respect of prior periods Total tax charge 2019 £000 2018 Restated £000 52,483 48,202 9,972 1,985 207 (308) 9,158 1,732 291 71 11,856 11,252 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. At 31 December 2019 and 31 December 2018, deferred tax assets and liabilities have been calculated based upon the rate at which the temporary difference is expected to reverse. 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 14 Leases (i) Right-of-use assets Properties Cost At 1 January Additions Disposals Effect of movements in foreign exchange At 31 December Accumulated depreciation At 1 January Depreciation charge for the year Disposals Effect of movements in foreign exchange At 31 December Net book value at 31 December £000 Pence 2019 40,627 108,822 492 109,314 37.2 2019 £000 28,641 8,502 (787) (517) 35,839 14,596 4,265 (603) (251) 18,007 17,832 2018 Restated 36,950 107,978 1,594 109,572 33.7 2018 £000 Restated 28,200 – – 441 28,641 10,976 3,315 – 305 14,596 14,045 132 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 133 Strategic ReportGovernanceFinancial StatementsNotes to the Consolidated Financial Statements 14 Leases continued (ii) Lease liabilities Current lease liabilities Non-current lease liabilities Contractual maturities of lease liabilities (at net present value) Less than one year Between 1 and 2 years Between 2 and 5 years Over 5 years Total lease liabilities at net present value Total contractual cashflows 2019 £000 5,680 17,482 23,162 2019 £000 5,013 4,384 8,780 4,985 23,162 25,566 2018 £000 Restated 4,656 13,485 18,141 2018 £000 Restated 4,205 3,948 8,214 1,774 18,141 19,688 The total cash outflow for leases was £5,655,000 (2018; £4,363,000); see also the Consolidated Statement of Cash Flows on page 120. Where there is reasonable certainty that an option to extend a lease will be exercised, lease liabilities have been recognised accordingly. (iii) Amounts recognised in the Income Statement The Income Statement shows the following amounts relating to leases: Depreciation of right-of-use assets – properties Interest expense (included in finance cost) Expense relating to short-term leases 15 Property, plant and equipment 2019 Cost At 1 January 2019 Additions Disposals Effect of movements in foreign exchange At 31 December 2019 Accumulated depreciation At 1 January 2019 Depreciation charge for the year Disposals Effect of movements in foreign exchange At 31 December 2019 Net book value at 31 December 2019 2019 £000 4,265 827 526 2018 £000 Restated 3,315 669 590 Leasehold improvements £000 Fixtures and fittings £000 Plant and equipment £000 6,931 1,550 (189) (85) 8,207 2,499 1,002 (137) (32) 3,332 4,875 1,486 241 (2) (21) 1,704 1,145 238 (1) (17) 1,365 339 3,619 921 (273) (45) 4,222 2,275 673 (271) (30) 2,647 1,575 Total £000 12,036 2,712 (464) (151) 14,133 5,919 1,913 (409) (79) 7,344 6,789 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 16 Intangible assets 2019 Cost At 1 January 2019 Additions Disposals Effect of movements in foreign exchange At 31 December 2019 Accumulated amortisation At 1 January 2019 Amortisation for the year Disposals Effect of movements in foreign exchange At 31 December 2019 Net book value at 31 December 2019 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 Leasehold improvements £000 Fixtures and fittings £000 Plant and equipment £000 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 Software and software licences £000 517 322 – (3) 836 430 59 – (2) 487 349 Software and software licences £000 498 16 – 3 517 349 80 – 1 430 87 Total £000 9,245 2,684 (2) 109 12,036 4,319 1,539 – 61 5,919 6,117 Total £000 19,839 322 – 125 20,286 430 59 – (2) 487 2,679 904 (2) 38 3,619 1,713 539 – 23 2,275 1,344 Goodwill £000 19,322 – – 128 19,450 – – – – – 19,450 19,799 Goodwill £000 19,322 – – – 19,322 – – – – – Total £000 19,820 16 – 3 19,839 349 80 – 1 430 19,322 19,409 134 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 135 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. Strategic ReportGovernanceFinancial StatementsNotes to the Consolidated Financial Statements 16 Intangible assets continued The goodwill has been allocated to cash generating units (“CGUs”) summarised as follows: Cost and NBV at 31 December 2018 Cost and NBV at 31 December 2019 UK and Ireland £000 14,843 14,843 North America £000 1,397 1,690 EMEA £000 3,082 2,917 APAC £000 – – Total £000 19,322 19,450 17 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 Movement in deferred tax during 2018: Share-based payments Right-of-use assets Property, plant and equipment Other 1 January 2018 Restated £000 Recognised in income statement £000 Recognised in other reserves £000 Transferred to retained earnings £000 31 December 2018 Restated £000 2,330 391 (326) 271 2,666 36 23 67 513 639 (14) – – – (14) (595) – – – (595) 1,757 410 (259) 784 2,692 on value in use calculations using cash flow projections from financial budgets and forecasts approved by the Board covering a The Group has unused tax losses for which no deferred tax asset has been recognised with a potential tax benefit of £1,140,000 three-year period from the date of the relevant impairment review. The key assumptions in the projections, for all CGUs, were as (2018: £437,000), no asset has been recognised as the losses have been generated in regions where the Group does not expect to follows: generate profits in the short-term. The losses can be carried forward indefinitely. • 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 19 Trade and other receivables 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: Trade receivables Other receivables Prepayments and accrued income UK and Ireland North America EMEA 2019 % 9.90 13.13 10.92 2018 % 11.36 15.46 11.99 Included within prepayments and accrued income is £1,551,000 of accrued income (2018: £6,864,000). The trade receivables as at 31 December are aged as follows: 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. 18 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: 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 Non-current: Non-current temporary differences Deferred tax asset 2019 £000 1,732 1,732 2018 Restated £000 2,692 2,692 An analysis of the provision for impairment by the aged receivable category it relates to is set out below: 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. Movement in deferred tax during 2019: Share-based payments Right-of-use assets Property, plant and equipment Other 1 January 2019 Restated £000 Recognised in income statement £000 Recognised in other reserves £000 Transferred to retained earnings £000 31 December 2019 £000 1,757 410 (259) 784 2,692 (468) (103) 92 (501) (980) 1,112 – – – 1,112 (1,092) – – – (1,092) 1,309 307 (167) 283 1,732 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 for the year At 31 December 2019 £000 33,115 1,021 5,801 39,937 2019 £000 24,932 8,033 343 9 – (202) 33,115 2018 Restated £000 24,990 953 11,209 37,152 2018 £000 19,915 4,880 261 103 35 (204) 24,990 Provision for impairment 2019 £000 Provision for impairment 2018 £000 – 49 146 7 – 202 2019 £000 204 (2) 202 – 22 75 77 30 204 2018 £000 287 (83) 204 136 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 137 Strategic ReportGovernanceFinancial StatementsNotes to the Consolidated Financial Statements 20 Cash and cash equivalents Cash at bank and in hand 2019 £000 2018 £000 36,979 33,907 The Group has issued guarantees in favour of the Swiss Office of Labour and Economy for CHF150,000, United Internet Corporate for €30,000 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. The credit quality of financial assets can be assessed by reference to external credit ratings issued by credit ratings agencies registered in the EU. Cash at bank is held with banks with the following ratings: Cash at bank by credit rating AA A BBB Revolving credit facility 2019 £000 – 36,472 507 36,979 2018 £000 32,911 518 478 33,907 23 Dividends Dividends paid Paid to shareholders 2019 2019 £000 2018 £000 34,113 30,718 An interim dividend of 16.0 pence per ordinary share was declared by the Directors on 22 July 2019 and was paid on 20 September 2019 to holders of record on 23 August 2019. The Board is proposing a final dividend of 18.5 pence per share in respect of the year to 31 December 2019, for approval by shareholders at the AGM on 29 April 2020. Subject to shareholder approval the dividend will be paid on 12 June 2020 to shareholders of record on 22 May 2020. This brings the Company’s total dividend for the year to 34.5 pence per share (2018: 30.0 pence per share). The total ordinary dividends of 34.5 pence per share will be covered 1.08 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. 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 2018 Group Inc. 21 Trade and other payables Trade payables Other payables Other taxes and social security Accruals and deferred income 2019 £000 1,923 599 8,319 11,896 22,737 2018 £000 Restated 1,627 915 7,032 13,496 23,070 22 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 2019 Number of shares 2019 £000 2018 Number of shares 108,271,708 915,031 1,083 9 107,517,506 754,202 109,186,739 1,092 108,271,708 2018 £000 1,075 8 1,083 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 915,031 shares were issued, the difference between market value and par value at issue resulted in an amount of £916,000 being recognised in share premium with £9,000 being recognised as an increase in issued share capital. 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 final dividend of 15.5 pence per share in respect of the year to 31 December 2018 was approved by shareholders at the AGM on 25 April 2019, the dividend was paid on 14 June 2019 to shareholders of record on 24 May 2019. 24 All Other Reserves Capital redemption reserve £000 Own shares reserve £000 Translation Reserve £000 Other reserves £000 Balance at 1 January 2019 (Restated) 52 (4,562) 1,421 Other comprehensive expense for the year Total comprehensive income for the year Share-based payments (note 25) Transfer to retained earnings New share issue Own shares sold Own shares bought back (note 26) Total transactions with owners, recognised directly in equity Balance at 31 December 2019 Balance at 1 January 2018 Other comprehensive income for the year Total comprehensive income for the year Share-based payments (note 25) Transfer to retained earnings Own shares bought back (note 26) Total transactions with owners, recognised directly in equity – – – – – – – – 52 Capital redemption reserve £000 52 – – – – – – – – – – – 319 (3,921) (3,602) (8,164) Own shares reserve £000 – – – – – (4,562) (4,562) (496) (496) – – – – – – 925 791 630 630 – – – – Balance at 31 December 2018 52 (4,562) 1,421 Translation Reserve £000 Other reserves £000 Total of All other reserves £000 3,221 (496) (496) 2,825 (5,189) – 319 (3,921) (5,966) (3,241) Total of All other reserves £000 6,991 630 630 2,678 (2,516) (4,562) (4,400) 3,221 6,310 – – 2,825 (5,189) – – – (2,364) 3,946 6,148 – – 2,678 (2,516) – 162 6,310 138 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 139 Strategic ReportGovernanceFinancial StatementsNotes to the Consolidated Financial Statements 25 Share-based payments The fair values of the PSP and CSOP Share options made were determined using the Black-Scholes valuation model. The significant Recognised in Income Statement Expenses arising from equity settled share-based payment transaction Social security accrued thereon Expenses arising from equity settled share-based payment transaction Recognised in Equity Expenses arising from equity settled share-based payment transaction Deferred tax recognised in other reserves arising from equity settled share-based payment transaction (See note 18) Transfer to retained earnings – Deferred tax Transfer to retained earnings – Recharge Currency difference on retranslation 2019 £000 1,601 436 2,037 2019 £000 1,601 1,112 (1,092) (4,084) 99 (2,364) 2018 £000 2,707 265 2,972 2018 £000 2,707 (14) (595) (1,921) (15) 162 During the year the share options issued in 2016 vested, of which 914,254 were exercised, and 66,656 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 915,031 new shares, of which 406,825 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 26. A transfer of £4,084,000 was made from Other reserves to Retained earnings in respect of the exercise of share options during the period (2018: transfer of £1,921,000). As disclosed in the Directors’ Remuneration Report, the Company granted awards on 17 April 2019, 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 to 2019, the vesting of the awards is subject to the achievement of a three-year performance condition relating to earnings per share. In the years 2015 to 2018 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. In 2019 only PSP options were issued. 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) 2019 Number of shares 2,292,325 703,875 (274,169) (914,254) – 1,807,777 18,800 1.31 2019 Weighted average exercise price 159p 1p 163p 90p – 131p 269p n/ a 2018 Number of shares 2,667,815 767,194 (388,482) (754,202) – 2,292,325 8,000 1.0 2018 Weighted average exercise price 104p 267p 76p 120p – 159p 125p n/ a The weighted average share price at the date of exercise of options exercised during the year ended 31 December 2019 was 959p (2018: 999p). inputs to the model were as follows: 2019 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 17 April 2019 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- issue on 1 June 2018 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 937p 1p 3.3% 28% 0.88% 4 years 820p PSP 1021p 1p 3% 29% 0.94% 4 years 905p PSP 724p 1p 3% 28% 0.25% 4 years 641p PSP 561p 1p 3% 33% 0.8% 4 years 497p 557p PSP 331p 1p 4% 31% 1.2% 4 years 281p 388p CSOP 1021p 1021p 3% 29% 0.94% 4 years 179p CSOP 724p 724p 3% 28% 0.25% 4 years 115p CSOP 561p 561p 3% 33% 0.8% 4 years 113p 127p CSOP 331p 331p 4% 31% 1.2% 4 years 56p 125p 140 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 141 Strategic ReportGovernanceFinancial StatementsNotes to the Consolidated Financial Statements 26 Investment in own shares 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. 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 £202,000 (2018: £204,000). During the AGM held on 25 April 2019, the shareholders approved that up to 10% of the Company’s shares could be purchased by the Company and held as own shares, renewing the authority agreed on 26 April 2018. 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 2020. 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. Established in 2018, the FDM Group Employee Benefit Trust was used to purchase shares sold by option holders upon exercise of options under the FDM Performance Share Plan and sell shares to the members of the FDM Group Buy As You Earn 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 of 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 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 2019 31 December 2018 830,224 £8,302 £8,165,217 455,548 £4,555 £4,561,510 £10.34 £8,584,516 £7.43 £3,384,722 449,182 834,660 – 455,548 27 Related parties Until September 2019, when the agreement expired, the Group paid rental of £24,000 (2018: £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 (2018: £nil). At no time during 2019 or 2018 was the apartment used by any of the Directors. 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 148. 28 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 is managed through agreed procedures which include managing and analysing the credit risk for new customers and managing existing customers. £1,841,000 of trade receivables at 31 December 2019 is owed from new customers (less than six months). 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. 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. 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. 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. 142 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 143 Strategic ReportGovernanceFinancial StatementsNotes to the Consolidated Financial Statements 28 Financial risk management continued Cash and cash equivalents – The Group’s cash and cash equivalents are denominated in the following currencies: Pounds Sterling US Dollar Canadian Dollar Euro Hong Kong Dollar South African Rand Chinese Renminbi Swiss Franc Singapore Dollar Australian Dollar Danish Krone 2019 £000 25,005 3,027 1,553 3,384 1,083 956 625 511 494 341 – 36,979 Trade receivables – The carrying amounts of the Group’s trade receivables are denominated in the following currencies: Pounds Sterling US Dollar Canadian Dollar Euro Hong Kong Dollar Singapore Dollar Australian Dollar Swiss Franc South African Rand Chinese Renminbi 2019 £000 15,766 6,285 3,260 3,692 1,506 1,003 831 364 346 62 33,115 2018 £000 24,040 2,691 1,772 2,686 500 494 622 383 418 265 36 33,907 2018 £000 13,846 4,871 1,494 1,707 1,521 924 242 79 19 287 24,990 Trade and other payables – The carrying amounts of the Group’s trade and other payables are denominated in the following currencies: Pounds Sterling US Dollar Canadian Dollar Euro Hong Kong Dollar Singapore Dollar Australian Dollar Swiss Franc South African Rand Chinese Renminbi 2019 £000 15,023 2,170 2,286 1,830 458 344 418 102 47 59 22,737 2018 £000 18,035 3,124 1,786 1,483 428 308 319 28 39 51 25,601 Parent Company Statement of Financial Position as at 31 December 2019 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 2019 £000 3,567 3,567 47,513 35 47,548 51,115 55 55 2018 £000 5,955 5,955 43,633 7 43,640 49,595 42 42 51,060 49,553 1,092 9,687 52 (8,164) 3,567 44,826 51,060 1,083 8,771 52 (4,562) 5,955 38,254 49,553 The Parent Company made a profit for the year of £36,648,000 (2018: profit of £31,627,000). 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 148 to 151 are an integral part of the Parent Company Financial Statements (Registered Company 07078823). These financial statements on pages 145 to 151 were approved by the Board of Directors on 10 March 2020 and were signed on its behalf by: Rod Flavell Chief Executive Officer 10 March 2020 Mike McLaren Chief Financial Officer 10 March 2020 144 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 145 Strategic ReportGovernanceFinancial Statements Parent Company Statement of Cash Flows for the year ended 31 December 2019 Cash flows from operating activities Company profit before tax for the year Adjustments for: Dividends received (Increase)/ decrease in trade and other receivables Increase/ (decrease) in trade and other payables Cash flows (used in)/ 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 increase/ (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Note 2019 £000 2018 £000 36,648 31,627 (37,000) (3,880) 14 (4,218) 37,000 4,037 41,037 9 (2,687) (34,113) (32,000) 841 (32) 436 32,000 1,921 33,921 906 (4,562) (30,718) (36,791) (34,374) 28 7 35 (17) 24 7 10 10 5 The notes on pages 148 to 151 are an integral part of the Parent Company Financial Statements. Parent Company Statement of Changes in Equity for the year ended 31 December 2019 Share capital £000 Share premium £000 Capital redemption reserve £000 Own shares reserve £000 Other reserves £000 Retained earnings £000 Total Equity £000 Balance at 1 January 2019 1,083 8,771 52 (4,562) 5,955 38,254 49,553 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 Own shares sold Dividends paid Total transaction with owners, recognised directly in equity – – – – 9 – – – 9 – – – – 916 – – – 916 – – – – – – – – – – – – – – (3,921) 319 – – – 36,648 36,648 36,648 36,648 1,696 (4,084) – – – – – 4,084 – – (47) (34,113) 1,696 – 925 (3,921) 272 (34,113) (3,602) (2,388) (30,076) (35,141) Balance at 31 December 2019 1,092 9,687 52 (8,164) 3,567 44,826 51,060 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 The notes on pages 148 to 151 are an integral part of the Parent Company Financial Statements. 146 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 147 Strategic ReportGovernanceFinancial 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 £36,648,000 (2018: profit of £31,627,000). 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 page 127. 3 Investments At 1 January Additions Recharge of IFRS 2 investment At 31 December 2019 £000 5,955 1,696 (4,084) 3,567 2018 £000 5,147 2,729 (1,921) 5,955 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 25 to the Consolidated Financial Statements. The Company holds the following investments in its subsidiaries: The registered address for each subsidiary of the Company as at 31 December 2019 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 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 Other receivables Prepayments and accrued income Registered address 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 2019 £000 47,470 29 14 47,513 2018 £000 43,616 – 17 43,633 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 2019 £000 35 The Company’s cash is held with a financial institution with a credit rating of A at the date of signing the financial statements. 2018 £000 7 2018 £000 11 31 42 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 6 Trade and other payables 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 Ordinary Austria 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% Trade payables Accruals and deferred income 2019 £000 12 43 55 The total cost of investments in subsidiaries, is £2 (2018: £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. 148 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 149 Strategic ReportGovernanceFinancial Statements2018 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 final dividend of 15.5 pence per share in respect of the year to 31 December 2018 was approved by shareholders at the AGM on 25 April 2019, the dividend was paid on 14 June 2019 to shareholders of record on 24 May 2019. 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 10 to the Consolidated Financial Statements on page 131. 12 Auditors’ remuneration Auditors’ remuneration of £7,000 was charged in relation to 2019 (2018: £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. Notes to the Parent Company Financial Statements 7 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 2019 Number of shares 2019 £000 2018 Number of shares 108,271,708 915,031 1,083 9 107,517,506 754,202 109,186,739 1,092 108,271,708 2018 £000 1,075 8 1,083 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 915,031 shares were issued, the difference between market value and par value at issue resulted in an amount of £916,000 being recognised in share premium with £9,000 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 2019 £000 37,000 – – 37,000 Amounts owed by related parties 2019 £000 4,333 43,137 – 47,470 Dividends from related parties 2018 £000 32,000 – – 32,000 Amounts owed by related parties 2018 £000 4,333 39,269 14 43,616 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 142 to 144. 10 Dividends Dividends received Received from subsidiaries Dividends paid Paid to shareholders 2019 2019 £000 2018 £000 37,000 32,000 34,113 30,718 An interim dividend of 16.0 pence per ordinary share was declared by the Directors on 22 July 2019 and was paid on 20 September 2019 to holders of record on 23 August 2019. The Board is proposing a final dividend of 18.5 pence per share in respect of the year to 31 December 2019, for approval by shareholders at the AGM on 29 April 2020. Subject to shareholder approval the dividend will be paid on 12 June 2020 to shareholders of record on 22 May 2020. This brings the Company’s total dividend for the year to 34.5 pence per share (2018: 30.0 pence per share). The total ordinary dividends of 34.5 pence per share will be covered 1.08 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. 150 FDM Group (Holdings) plc Annual Report and Accounts 2019 FDM Group (Holdings) plc Annual Report and Accounts 2019 151 Strategic ReportGovernanceFinancial StatementsShareholder Information Directors David Lister Rod Flavell Sheila Flavell Mike McLaren Andy Brown Peter Whiting Robin Taylor Michelle Senecal de Fonseca Jacqueline de Rojas Alan Kinnear 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 Non-Executive Director Company Secretary Mark Heather Registered office Independent Auditors Bankers Registrars Stockbrokers (joint) Legal advisors 3rd Floor Cottons Centre Cottons Lane London SE1 2QG 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 Stockdale Securities Limited Beaufort House 15 St. Botolph Street London EC3A 7BB 152 FDM Group (Holdings) plc Annual Report and Accounts 2019 UK Ireland USA Canada Germany Switzerland Austria France Spain Luxembourg The Netherlands 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 F D M G r o u p ( H o l d i n g s ) p l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 9 © FDM Group 2020 

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