10 Mar 2009 07:00
HYDROGEN GROUP PLC
Preliminary results for the year ended 31 December 2008
The Board of Hydrogen Group Plc ("Hydrogen" or "the Group"), the specialist professional recruitment business, is pleased to announce its audited preliminary results for the twelve months ended 31 December 2008.
Financial highlights
Group revenue fell 7% to £96.2m (2007: £103.4m)
Net fee income (NFI) fell 17% to £26.7m (2007: £32.0m)
Profit before taxation and exceptional items of £3.7m (2007: £8.0m)
Net debt reduced by £3.3m to £0.9m (2007:£4.2m)
Proposed final dividend of 2.0p per share, making a total of 4.1p for the year (2007: 6.0p)
Operational highlights
Solid performances delivered across IT, Legal and Engineering disciplines despite challenging trading environment
Streamlining of brand portfolio to strengthen client offer in core markets and drive efficiencies
Contract NFI grew 4% to £11.9m (2007: £11.4m) and now represents 45% of NFI (2007: 36%)
NFI from International businesses up to 14% (2007: 6%)
Continued focus on cost reduction and debtor management with trade debtors reduced by 21% and days of sales outstanding reduced to 40 days (2007: 43 days)
Commenting on the results, Ian Temple, Executive Chairman, said:
"In line with our expectations of deteriorating market conditions in the second half of 2008, we took swift action to reduce the cost base and focused on cash management. We are particularly pleased to have exceeded our cash generation targets.
We have continued to focus on our core markets and strengths, whilst introducing additional revenue streams within Europe and Internationally.
As a result of the business efficiencies achieved in 2008, I am pleased with the profitable start in line with expectations for 2009, despite the ongoing challenging conditions. We anticipate 2009 will be a difficult year and will continue to manage the business in line with the economic backdrop, whilst making prudent investment decisions to enter growth markets of the future, using our proven incubator model."
Enquiries:
| Hydrogen Group Plc | 020 7240 2500 |
| Ian Temple, Executive Chairman Tim Smeaton, Chief Executive Officer | |
| Hudson Sandler | 020 7796 4133 |
| Financial PR Advisers | |
| Kate Hough | |
| Oriel Securities | 020 7710 7600 |
| NOMAD to Hydrogen | |
| Natalie Fortescue / Emma Ormond |
CHAIRMAN'S STATEMENT
It has been widely reported that the uncertain macro-economic environment has resulted in more challenging trading conditions across the UK recruitment market during 2008. Whilst some of our core markets, such as financial services, have inevitably been impacted by these exceptional circumstances, we have remained focused on strengthening and scaling our key brands wherever possible and have seen solid performances across IT, legal and engineering disciplines during the year.
We have maintained tight controls during 2008 and have taken actions to reduce the cost base of the business, whilst maintaining a high quality service. Where appropriate, this has been balanced with selective investment in higher growth and international markets, where demand for high quality, specialist candidates remains robust.
Our business model is closely aligned to the long term structural growth drivers for professional recruitment. I believe the actions we have taken over the period will enable us to manage through the tougher trading environment and position us well for growth in the future.
Key financials
Against the tougher market backdrop revenue fell 7% to £96.2m (2007: £103.4m) resulting in a decrease in Net Fee Income ("NFI") of 17% to £26.7m (2007: £32.0m). Profit before taxation and exceptional items was £3.7m (2007: £8.0m) generating adjusted basic earnings per share of 11.84p (2007: 24.56p). Exceptional items relate to a provision for onerous leases relating to excess office space and the costs of reducing headcount, having taken the decision to reduce staff numbers as part of strategic brand review. Other exceptional costs relate to the remaining costs not included in the 2007 results in respect of the proposed purchase of Imprint plc.
Conversion of NFI to profit before taxation and exceptional items was 13.8% (2007: 25.0%) for the period. The value of transactions reduced faster than costs. We remained focused on careful cash management during the year and continue to manage our costs proactively whilst selectively investing to ensure we are well positioned for growth. We were also pleased to have been able to reduce net debt by £3.3m to £0.9m (2007: £4.2m) by focusing on working capital and cash management.
NFI from contractors has been more resilient than permanent recruitment during the year at £11.9m (2007: £11.4m).
The Group maintained the focus on cash management and yielded further strong results, reducing days of sale outstanding (DSOs) from 43 to 40. This has helped reduce net interest payments by 61% and credit risk at a time of increasing uncertainty. We are very pleased that this focus on cash management has yielded such good results and has ensured that the business is operating well within its existing facilities.
Dividend
An interim dividend of 2.1p per share was paid on 7 November 2008 (2007: 2.0p). The Board is recommending a final dividend of 2.0p per share (2007: 4.0p) bringing the total for the year to 4.1p per share (2007: 6.0p) which, subject to shareholder approval, will be paid on 11 May 2009 to shareholders on the register as at 14 April 2009. In light of the economic climate, the Board considered it prudent to reduce the final dividend for 2008. It will look to resume growth in dividend payments once there is evidence of a return to stronger trading. The dividend policy remains to pay a progressive sustainable dividend at a level that is prudent in light of the cash resources needed by the Group.
Board and Employees
During the year we were delighted to announce the promotion of Tim Smeaton to Chief Executive Officer from Chief Operating Officer. Tim has been instrumental in the building of the Group to date and the change reflects the full range of Tim's responsibilities.
I would also like to take this opportunity to thank my fellow members of the Board and all our colleagues for their hard work and commitment throughout 2008.
Outlook
In line with our expectations of deteriorating market conditions in the second half of 2008, we took swift action to reduce the cost base and focused on cash management. We are particularly pleased to have exceeded our cash generation targets.
We have continued to focus on our core markets and strengths, whilst introducing additional revenue streams within Europe and Internationally.
As a result of the business efficiencies achieved in 2008, I am pleased with the profitable start in line with expectations for 2009, despite the ongoing challenging conditions. We anticipate 2009 will be a difficult year and will continue to manage the business in line with the economic backdrop, whilst making prudent investment decisions to enter growth markets of the future, using our proven incubator model.
Ian Temple
Executive Chairman
10 March 2009
OPERATING REVIEW
The Business
Hydrogen is a global specialist recruitment group, placing high quality staff into clients on a permanent and contract basis. Our dedicated and highly experienced teams work in partnership with our clients to fill all of their professional level roles, whilst decreasing their time to hire and recruitment spend.
The tougher macro economic environment resulted in turbulent trading conditions throughout the year. Whilst cost control and debtor management have been a key priority, we have also focused on maintaining our quality of service and continued to invest carefully in new sectors and markets in the UK and internationally to ensure the business is best positioned for the medium term. We continue to apply our proven incubator methodology to identify high growth niches and have redeployed staff into a number of new markets over the course of the year, such as infrastructure projects, NHS IT contracts and business integration.
For 2008, permanent recruitment accounted for 52% of NFI (2007: 60%) and contract recruitment 45% of NFI (2007: 36%) with the balance from our Client Services division. This split reflects the stronger performance of our contract business, which grew NFI by 4% to £11.9m as a result of the more uncertain macro-economic environment and the subsequent trend towards contract employment.
Brands
Against a tougher trading environment and strong prior year comparatives, NFI for the year fell by 17% to £26.7m (2007: £32.0m). Much of this can be attributed to the downturn in the investment banking market and the impact this has had on our Finance Professionals business, which accounted for roughly 20% of NFI in 2007. Actions have been taken to reduce costs in this business whilst strengthening its position in robust and growing niches such as business transformation.
Solid performances were delivered by a number of our businesses with good growth in NFI for the year compared with 2007. Our specialist IT recruitment business, Project Partners, had a strong year, with NFI growing 29% to £9.3m (2007: £7.2m). In addition, we saw good growth from the contracts arm of Finance Professionals with NFI growth of 27% to £1.9m (2007: £1.5m) and an excellent performance from our emerging engineering recruitment business, Darwin Park, with NFI up 150% to £1.0m (2007: £0.4m).
We continue to develop our international operations where demand for specialist candidates remains high and, as a result, NFI from our international businesses was 14% (2007: 6%) of the total for the year. We have seen good growth through our office in Sydney, Australia and during the year we expanded our headcount and moved the office to a larger location to support this growing activity. We have also seen increased activity in Continental Europe and the Middle East and continue to be pleased with the progress we are making in these regions.
Following a review of our branding strategy, the decision was taken in the second half of the year to focus the business on our larger, more scalable brands. Increasingly, companies are choosing to work with a shorter list of suppliers who are able to deliver across all their core areas. Our streamlined brand portfolio will enable us to better support our clients as well as creating greater efficiencies across our business and removing any client confusion or duplication.
During the second half of the year we merged our Commerce Partners business into Project Partners, thereby creating one of the largest specialist IT recruitment businesses in the UK. We also consolidated our finance and audit offering under the Finance Professionals brand, removing the lesser known Audit Professionals name. Finally, we established Hydrogen as a brand in its own right for the first time which is now used by our international operations and our Client Services team.
Clients
We have continued to see good client retention and new client wins during the year. We pride ourselves on our strong client relationships and, whilst some of our major accounts have experienced reduced activity, we have maintained strong market share of their placements with NFI from our top 50 clients remaining broadly level with 2007 at £17m. Although we have reduced headcount within our financial services business, and in particular our investment banking teams, we continue to invest in maintaining these client relationships for the medium term. In addition to retaining key clients, we also won 390 new clients over the course of the year by remaining focused on our strategic goals of continuing to diversify into new growth markets and sectors. The breadth and size of our client base will position us well for when economic conditions and hiring activity improve.
Over the course of the year, we also evolved our client proposition with the creation of our Hydrogen Client Services team. With over 80% of clients working with only one of our specialist businesses, the Client Services team are responsible for cross selling into clients and providing a fully account managed solution.
Staff
In light of the tougher trading environment, we reduced headcount over the year by 21% to 261 (2007: 330). In challenging market conditions, we have been delighted with the dedication of our staff and the flexibility with which they have adapted to the tougher markets and changing priorities. We are pleased to have been placed in The Sunday Times Best Company to Work for the fifth consecutive year and consider this to be testament to the quality and motivation of our staff. I would like to take this opportunity to thank them for all their hard work, resilience and commitment over the year.
Tim Smeaton
Chief Executive Officer
10 March 2009
FINANCIAL REVIEW
Extraordinary economic conditions were experienced during 2008, especially during the second half of the year. The unprecedented turmoil in financial markets, tightness in credit markets, and erosion of confidence in the wider economy plunged the world's major economies into recession. The inevitable uncertainty such upheaval brings had an adverse impact on activity levels in the recruitment market.
The Group has responded quickly to the change in market conditions. The percentage of gross profit ("Net Fee Income") originating from outside the UK increased to 14% (2007: 6%) as a result of the continued growth of our Australian operations, and the start-up of incubators based in the UK but focused on markets in Europe, Asia and the Gulf States, concentrating on market sectors least impacted by the decline in economic activity. This went some way to alleviate reductions in our traditional markets. As a result the decline in revenue for the year was limited to 7% to £96.2m (2007: £103.4m). Gross profit for the year reduced by 17% to £26.7m (2007: £32.0m), reflecting the increased proportion of contract income in the revenue mix for the year.
A programme was implemented to ensure that the Group's cost base was appropriate for the current level of activity without damaging our ability to deliver a high quality of service and respond to future growth opportunities. Headcount at 31 December 2008 was 261, down 21% on the 330 employed at 31 December 2007 through natural attrition and redundancy in the second half of 2008.
Adjusting for a full year of costs for the operation in Australia, administration costs before exceptional items reduced by 4.2% to £22.8m (2007: £23.8m). The drive to internationalise the business led to a higher level of expenditure on travel costs, but this was more than offset by savings, predominantly driven by headcount reductions in the UK, and lower performance related remuneration. The reduction would have been greater but for:
Increase in bad debt written off or provided against £0.3m (2007: £nil), the worst in the history of the business;
Increase in depreciation charges to £0.6m (2007: £0.5m), arising from 2007 expenditure on new system software and office fit outs;
Increased property rental costs to £2.0m (2007: £1.5m), as a result of rent reviews and a major office move at the end of 2007; and
Lag in cost reduction subsequent to decreased staff levels.
The net finance charge of £0.3m (2007: £0.7m) reduced as a result of strong cash generation during the year.
Profit before tax and exceptional items amounted to £3.7m (2007: £8.0m) a decrease of 54%.
Exceptional costs
The Group has taken an exceptional charge to cover a number of non-recurring costs. The Group's offer to acquire Imprint plc was unsuccessful and lapsed in early 2008. The remainder of advisors' and accountants' fees not provided for in 2007 have been expensed. Further, having reduced its headcount by a fifth, the Group has a surplus of leasehold office accommodation. The Group is actively pursuing options to reconfigure its office occupancy and, based on professional advice, has taken an exceptional charge to cover the estimated costs involved with sub-leasing surplus office accommodation. Redundancy and rationalisation costs associated with the headcount reduction programme have also been included as an exceptional cost.
Taxation
The total tax charge for the year is £1.0m giving an effective tax rate of 50.5% (2007: 36.9%). The increased effective rate of tax above the 2008 tax rate of 28% can be related, in the most part, to the following factors:
4% due to disallowable expenditure of £0.2m related to the aborted acquisition of Imprint plc;
7% due to disallowable charge of £0.3m and deferred tax charges of £0.1m relating to the accounting treatment of employee share options;
4% due to the exceptional fixed asset impairment charge of £0.3m not being tax deductible;
3% due to unrelieved group losses; and
3% due to depreciation in excess of capital allowances.
Dividend
The Board previously declared an interim dividend of 2.1p per share (2007: 2.0p). The Board proposes to pay a final dividend of 2.0p per share bringing the total for the year to 4.1p per share (2007: 6.0p). The final dividend will be paid on 11 May 2009 to the shareholders on the register as at 14 April 2009.
Earnings per share
Basic earnings per share declined to 4.38p (2007: 18.59p), and diluted earnings per share, taking into account existing share options, declined to 4.16p (2007: 17.63p).
Balance sheet
The Group's net assets of £28.0m at 31 December were relatively unchanged from 2007 (£28.9m).
Trade debtors reduced by 21.3% to £10.8m (2007: £13.7m), representing DSOs of 40 days (2007: 43 days).
Strong cash generation enabled the Group to repay borrowings reducing net debt by 78.9% to £0.9m (2007: £4.2m).
Cash flow
Focus on cost control and continued debtor management ensured that the business remained strongly cash generative in 2008. Cash generated from operations, before cash flows associated with exceptional costs, amounted to £8.6m (2007: £12.4m). Taxes paid were unchanged at £2.0m (2007: £2.0m) but lower borrowings led to a reduction in interest payments of 61% to £0.3m (2007: £0.7m).
Cash flows arising from exceptional costs of £0.9m (2007: £0.2m) were predominately advisors' and accountants' fees associated with abortive offer for the acquisition of Imprint plc.
The Group made scheduled repayments of £1.0m of senior debt (2007: £1.0m), and utilised surplus cash to prepay a further £1.0m scheduled for repayment in 2009. The Group has secured a two year commitment to December 2010 on its invoice discounting facility of £10m for a small increase in margin of 0.25%. At 31 December 2008, draw down on this facility was £0.5m (2007: £1.5m).
In 2008 the Group established the Hydrogen Employee Share Trust, (EBT trust) for the purpose of acquiring shares to be held in trust for the benefit of employees. The Company donated the funds to enable the EBT trust to purchase 280,359 ordinary shares of Hydrogen Group plc for a total consideration of £0.6m.
Proceeds received from exercise of employee share options were £0.2m (2007: nil).
Dividends paid to shareholders during the year were a final dividend for 2007 amounting to £0.9m (2007: nil), and an interim dividend for 2008 of £0.5m (2007: £0.5m).
Treasury management and currency risk
The Group's operations are financed by a combination of long term bank borrowings at floating interest rates based on LIBOR (London Inter-Bank Offered Rates) and short term invoice discounting at floating rates based on Bank of England Base Rate.
At the time of initial draw down of its long term bank borrowings the Group entered into derivative contracts to mitigate its exposure to interest rate risk.
The main functional currency of the individual operations within the Group is Sterling. The Group's exposure to movements in exchange rates is increasing as it grows its operations outside of the UK. The Group does not actively manage its exposure to foreign exchange risk by the use of financial instruments, but will continue to monitor its policies in this area as the impact of foreign exchange becomes more significant.
Ian Temple
Executive Chairman
10 March 2009
The Board of Directors announce the following audited results for the year ended 31 December 2008 which were approved by the Board on 9 March 2009.
CONDENSED CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2008
| Note | 2008 £'000 | 2007 £'000 | ||
| Revenue | 2 | 96,174 | 103,359 | |
| Cost of sales | (69,437) | (71,324) | ||
| Gross profit | 2 | 26,737 | 32,035 | |
| Administration expenses | (22,806) | (23,329) | ||
| Operating profit before exceptional costs | 3,931 | 8,706 | ||
| Exceptional costs | 3 | (1,686) | (1,347) | |
| Operating profit | 2,245 | 7,359 | ||
| Finance costs | (301) | (745) | ||
| Finance income | 61 | 36 | ||
| Profit before taxation | 2,005 | 6,650 | ||
| Income tax expense | 5 | (1,013) | (2,452) | |
| Profit for the year | 992 | 4,198 | ||
| Attributable to equity holders of the parent | 992 | 4,198 | ||
| Earnings per share | ||||
| Basic earnings per share (pence) | 6 | 4.38p | 18.59p | |
| Diluted earnings per share (pence) | 6 | 4.16p | 17.63p | |
| The above results relate to continuing operations. |
CONDENSED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFor the year ended 31 December 2008
|
| 2008 £'000 | 2007 £'000 | ||
| Exchange differences on translation of foreign operations | 19 | 3 | ||
| Deferred tax on share options | (439) | (128) | ||
| Net loss recognised directly in equity | (420) | (125) | ||
| Profit for the year | 992 | 4,198 | ||
| Total recognised income for the year | 572 | 4,073 | ||
| Attributable to: | ||||
| Equity shareholders of the parent | 572 | 4,073 |
CONDENSED CONSOLIDATED BALANCE SHEET
As at 31 December 2008
| Note | 2008 £'000 | 2007 £'000 | ||
| Non-current assets | ||||
| Goodwill | 19,010 | 19,010 | ||
| Other intangible assets | 356 | 320 | ||
| Property, plant and equipment | 493 | 963 | ||
| Deferred tax assets | 129 | 628 | ||
| Other financial assets | 315 | 84 | ||
| 20,303 | 21,005 | |||
| Current assets | ||||
| Trade and other receivables | 19,644 | 24,081 | ||
| Cash and cash equivalents | 566 | 330 | ||
| 20,210 | 24,411 | |||
| Total assets | 40,513 | 45,416 | ||
| Current liabilities | ||||
| Trade and other payables | 9,693 | 10,749 | ||
| Borrowings | 966 | 2,514 | ||
| Current tax liabilities | 471 | 1,307 | ||
| Provisions | 7 | 571 | - | |
| 11,701 | 14,570 | |||
| Non-current liabilities | ||||
| Borrowings | 480 | 1,982 | ||
| Provisions | 7 | 373 | - | |
| 853 | 1,982 | |||
| Total liabilities | 12,554 | 16,552 | ||
| Net assets | 27,959 | 28,864 | ||
| Equity | ||||
| Called-up share capital | 8 | 230 | 227 | |
| Share premium account | 8 | 3,456 | 3,220 | |
| Merger reserve | 8 | 16,100 | 16,100 | |
| Own shares held | 9 | (605) | - | |
| Share option reserve | 8 | 100 | 100 | |
| Other reserve | 8 | 770 | 494 | |
| Translation reserve | 8 | 22 | 3 | |
| Retained earnings | 8 | 7,886 | 8,720 | |
| Total equity | 27,959 | 28,864 |
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2008
| Note | 2008 £'000 | 2007 £'000 | ||
| Net cash generated from operating activities | 10 | 5,486 | 9,440 | |
| Investing activities | ||||
| Finance income | 61 | 38 | ||
| Proceeds from disposal of property, plant and equipment | 62 | 87 | ||
| Purchase of property, plant and equipment | (386) | (729) | ||
| Purchase of software assets | (164) | (237) | ||
| Net cash used in investing activities | (427) | (841) | ||
| Financing activities | ||||
| Proceeds on issuance of ordinary shares | 239 | 32 | ||
| Purchase of own shares by EBT | (605) | - | ||
| Repayment of bank loans and loan notes | (2,000) | (1,000) | ||
| Repayment of other borrowings | (1,010) | (6,987) | ||
| Repayment of obligations under finance leases | (79) | (26) | ||
| Equity dividends paid | 4 | (1,387) | (452) | |
| Net cash used in financing activities | (4,842) | (8,433) | ||
| Net increase in cash and cash equivalents | 217 | 166 | ||
| Cash and cash equivalents at beginning of year | 330 | 161 | ||
| Effect of foreign exchange rate changes | 19 | 3 | ||
| Cash and cash equivalents at end of year | 566 | 330 | ||
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2008
1 Basis of preparation
The financial information in this report does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. Statutory accounts for the year ended 31 December 2008 were authorised for issue by the Board of Directors on 9 March 2009 and signed on the Board's behalf by Ian Temple and will be filed with the Registrar of Companies in due course. The auditor's report on those accounts was unqualified and did not contain a statement made under Section 237(2) or Section 237(3) of the Companies Act 1985.
The Group's consolidated financial statements are presented in thousands of Pounds Sterling (£'000). The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union (EU) and company law applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention, except for financial instruments.
It should be recognised that any consideration of the foreseeable future involves making a judgement, at a particular point in time, about future events, which are inherently uncertain. The Group has reviewed banking facilities available and taken the following actions: - utilised surplus cash to prepay senior debt repayments scheduled for 2009, - obtained a two year commitment on its £10m invoice discounting facility.
The facilities available to the Group have been reviewed and compared to detailed cash flow forecasts prepared for the period to 31 December 2010, and there are no anticipated: - shortfalls in facilities against requirements, or - breaches of covenants. The Directors have a reasonable expectation that the Group has adequate resources to continue operating in the foreseeable future. On these grounds the Board have continued to adopt the going concern basis for the preparation of the financial statements.
2 Segment reporting
The Group operates in one business segment, being that of recruitment services, and this is the Group's primary segment. As a result, no additional business segment information is required to be provided. Revenue and assets derived from outside of the UK market (the Group's secondary segment) are less than 10% of the total revenue and assets of the Group and are not required to be disclosed. The following segmental analyses by recruitment classification has been included as additional disclosure over and above the requirements of IAS 14 'Segment reporting'.
| Recruitment classification | Revenue 2008 £'000 | Revenue 2007 £'000 | Gross profit2008 £'000 | Gross profit 2007 £'000 | |
| Permanent | 13,947 | 19,434 | 13,869 | 19,217 | |
| Contract | 79,836 | 79,826 | 11,883 | 11,379 | |
| Other | 2,391 | 4,099 | 985 | 1,439 | |
| 96,174 | 103,359 | 26,737 | 32,035 |
3 Exceptional costs
Exceptional items are non-recurring items which are presented separately due to their nature, size or incidence. The separate reporting of such items helps provide a better indication of the Group's underlying business performance.Exceptional items comprise:
| - | costs of £221,000 (2007: £1,347,000) for accountants', advisors', and other charges, net of break fees and other receipts, relating to the unsuccessful offer to acquire Imprint plc; |
| - | £944,000 (2007: nil) for onerous contracts relating to surplus leasehold property. The contract became onerous during 2008 when the Group reduced its workforce in response to difficult market conditions. The office accommodation is expected to remain surplus to requirements for the remaining lease term which expires on 1 Sept 2013. Agents have been appointed to market the surplus accommodation under a sub-lease. In calculating the provision estimates have been made for time to market the property, likely lease incentives that will be required, and shortfall in rental expected over the remainder of the lease. |
| The provision has been discounted at the Group's weighted average cost of capital 9.27%; | |
| - | £312,000 (2007: nil) impairment of leasehold improvements and surplus office equipment associated with surplus office accommodation above; and |
| - | £209,000 (2007: nil) relating to redundancy costs arising from headcount reduction programme implemented during 2008 in response to exceptional market conditions. |
|
| 2008 £'000 | 2007 £'000 | ||
| Advisors' fee relating to abortive acquisition | 221 | 1,347 | ||
| Provision for onerous contract | 944 | - | ||
| Impairment of fixed assets | 312 | - | ||
| Rationalisation costs | 209 | - | ||
| 1,686 | 1,347 |
4 Dividends
| 2008 £'000 | 2007 £'000 | |
| Amounts recognised and distributed to shareholders in the year | ||
| Interim dividend for the year ended 31 December 2008 of 2.1p per share (2007: 2p per share) | 483 | 452 |
| Final dividend for the year ended 31 December 2007 of 4p per share (2007: nil) | 904 | - |
| 1,387 | 452 |
An interim dividend of 2.1p (2007: 2p) per share was paid on 7 November 2008 to shareholders on the register at the close of business on 10 October 2008. The proposed interim dividend was approved by the Board on 8 August 2008.
The Directors propose that, subject to shareholder approval, a final dividend for 2008 of 2.0 pence per share will be paid on 11 May 2009 to the shareholders on the register as at 14 April 2009 (Final 2007 Dividend: 4p per share). The proposed dividend had not been approved by the shareholders at 31 December 2008 and consequently has not been included as a liability within the financial statements.
5 Tax
| (a) Analysis of tax charge for the year: The charge based on the profit for the year comprises: |
| 2008 £'000 | 2007 £'000 | |
| Corporation tax: | ||||
| UK corporation tax on profits of the year | 952 | 2,503 | ||
| Adjustment to tax charge in respect of previous periods | 1 | (4) | ||
| 953 | 2,499 | |||
| Foreign tax: | ||||
| Current tax | - | 3 | ||
| Total current tax | 953 | 2,502 | ||
| Deferred tax: | ||||
| Origination and reversal of temporary differences | 60 | (50) | ||
| Total deferred tax | 60 | (50) | ||
| Tax on profit for the year | 1,013 | 2,452 |
Corporation tax is calculated at 28% (2007: 30%) of the estimated assessable profits for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
(b)The charge for the year can be reconciled to the profits per the income statement as follows:
| Profit before tax | 2,005 | 6,650 | ||
| Tax at the UK corporation tax rate of 28% (2007: 30%) | 563 | 1,995 | ||
| Effects of: | ||||
| Non deductible exceptional costs | - | 404 | ||
| Expenses not deductible for tax purposes | 280 | 107 | ||
| Depreciation in excess of capital allowances | 54 | - | ||
| Tax relief on the exercise of options | (19) | - | ||
| Tax losses arising in the year not relieved | 60 | - | ||
| Profits charged at higher rates of tax | 14 | - | ||
| Adjustment to tax charge in respect of prior periods | 1 | (4) | ||
| Share-based payments | 60 | (50) | ||
| Tax charge for the year | 1,013 | 2,452 |
In addition to the amount credited to the income statement, deferred tax relating to share options amounting to £439,000 has been charged directly to equity (2007: charge of £128,000).
6 Earnings per share
Earnings per share is calculated by dividing the profit attributable to equity holders of the Group by the weighted average number of ordinary shares in issue.Adjusted earnings per share is as per basic earnings per share, with profit adjusted to add back exceptional costs.Fully diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares by existing share options and share incentive plans, assuming dilution through conversion of all existing options and shares held in share plans.
| From continuing operations |
| 2008 £'000 | 2007 £'000 | |
| Earnings | ||||
| Profit attributable to equity holders of the parent | 992 | 4,198 | ||
| Adjusted earnings | ||||
| Profit for the year | 992 | 4,198 | ||
| Exceptional costs | 1,686 | 1,347 | ||
| 2,678 | 5,545 | |||
| Number of shares | ||||
| Weighted average number of shares used for basic and adjusted earnings per share | 22,616,448 | 22,575,573 | ||
| Dilutive effect of share plans | 1,249,617 | 1,234,174 | ||
| Diluted weighted average number of shares used to calculate diluted and adjusted diluted earnings per share | 23,866,065 | 23,809,747 | ||
| Basic earnings per share (pence) | 4.38p | 18.59p | ||
| Diluted earnings per share (pence) | 4.16p | 17.63p | ||
| Adjusted basic earnings per share (pence) | 11.84p | 24.56p | ||
| Adjusted diluted earnings per share (pence) | 11.22p | 23.29p | ||
7 Provisions
| Onerous lease | ||||
| 2008 £'000 | 2007 £'000 | |||
| At 1 January | - | - | ||
| New provision | 944 | - | ||
| At 31 December | 944 | - | ||
| Of which | - expected to be incurred within 1 year | 571 | - | |
|
| - expected to be incurred in more than 1 year | 373 | - | |
Liabilities are discounted using the Group's estimated weighted cost of capital of 9.3%.
8 Statement of changes in equity
| Sharecapital£'000 | Share premium £'000 | Merger reserve £'000 | Own shares £'000 | Share option reserve £'000 | Other reserve £'000 | Trans-lation reserve £'000 | Retained earnings £'000 | Total equity £'000 | |
| At 1 January 2007 | 225 | 3,190 | 16,100 | - | 100 | 273 | - | 5,103 | 24,991 |
| Profit for the year | - | - | - | - | - | - | - | 4,198 | 4,198 |
| Dividends | - | - | - | - | - | - | - | (452) | (452) |
| Share option charge | - | - | - | - | - | 221 | - | - | 221 |
| Tax on share-based charges | - | - | - | - | - | - | - | (128) | (128) |
| Increase in share capital | 2 | 30 | - | - | - | - | - | (1) | 31 |
| Foreign currency translation | - | - | - | - | - | - | 3 | - | 3 |
| At 31 December 2007 | 227 | 3,220 | 16,100 | - | 100 | 494 | 3 | 8,720 | 28,864 |
| At 1 January 2008 | 227 | 3,220 | 16,100 | - | 100 | 494 | 3 | 8,720 | 28,864 |
| Profit for the year | - | - | - | - | - | - | - | 992 | 992 |
| Dividends | - | - | - | - | - | - | - | (1,387) | (1,387) |
| Share option charge | - | - | - | - | - | 276 | - | - | 276 |
| Purchase of shares by EBT | - | - | - | (605) | - | - | - | - | (605) |
| Tax on share-based charges | - | - | - | - | - | - | - | (439) | (439) |
| Increase in share capital | 3 | 236 | - | - | - | - | - | - | 239 |
| Foreign currency translation | - | - | - | - | - | - | 19 | - | 19 |
| At 31 December 2008 | 230 | 3,456 | 16,100 | (605) | 100 | 770 | 22 | 7,886 | 27,959 |
9 Own shares
In 2008 the Company established the Hydrogen Group plc Employee Benefit Trust (EBT trust) for the purpose of acquiring shares to be held in trust for the benefit of employees. The Company donated the funds to enable the EBT trust to purchase 280,359 ordinary shares of Hydrogen Group plc for a total consideration of £605,000. On 16 May 2008, the trustees of the EBT, under the Hydrogen Group Enterprise Management Incentive (EMI) scheme and the Unapproved Share Option scheme, allocated the 280,539 ordinary shares held in the EBT to existing and new share options to employees of the Group. At 31 December 2008, the total number of ordinary shares held in the EBT and their values were as follows:
| Shares held for share option schemes | 2008 | 2007 | |||
| Number of shares | 280,359 | - | |||
| £'000 | £'000 | ||||
| Nominal value | 3 | - | |||
| Carrying value | 605 | - | |||
| Market value | 156 | - | |||
10 Notes to the cash flow statement
a. Reconciliation of profit before tax to net cash inflow from operating activities
|
| 2008 £'000 | 2007 £'000 | ||
| Profit before taxation | 2,005 | 6,650 | ||
| Adjusted for: | ||||
| Exceptional costs | 1,686 | 1,347 | ||
| Depreciation and amortisation | 618 | 511 | ||
| Gain on sale of property, plant and equipment | (10) | (8) | ||
| Share-based payments | 277 | 221 | ||
| Net finance costs | 279 | 709 | ||
| Operating cash flows before movements in working capital and exceptional costs | 4,855 | 9,430 | ||
| Decrease in receivables | 4,528 | 1,501 | ||
| (Decrease)/Increase in payables | (763) | 1,457 | ||
| Cash generated from operating activities before exceptional costs | 8,620 | 12,388 | ||
| Income taxes paid | (1,973) | (1,993) | ||
| Finance costs | (301) | (748) | ||
| Net cash inflow from operating activities before exceptional costs | 6,346 | 9,647 | ||
| Cash flows arising from exceptional costs | (860) | (207) | ||
| Net cash generated from operating activities | 5,486 | 9,440 | ||
b. Reconciliation of net cash flow to movement in net debt:
|
| 2008 £'000 | 2007 £'000 | ||
| Increase in cash and cash equivalents in the year | 236 | 169 | ||
| Change in net debt resulting from cash flows | 3,089 | 8,013 | ||
| Other non-cash changes | 39 | - | ||
| Movement in net debt in the year | 3,286 | 8,182 | ||
| Net debt at the start of the year | (4,166) | (12,348) | ||
| Net debt at the end of the year | (880) | (4,166) |