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Hydrogen Group Plc

UNAUDITED RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2018

The Board of Hydrogen Group plc ("Hydrogen Group" or the "Group") (AIM: HYDG) announces its unaudited results for the half year ended 30 June 2018.

Highlights

· Reported Group revenue for the period increased 21% to £68.6m (H1 2017: £56.8m)

· Reported Net Fee Income ("NFI")* increased by 57% to £14.8m (H1 2017: £9.4m), due to both the acquisition of Argyll Scott and strong underlying growth across the Group:

o Permanent NFI grew 100% to £8.5m (H1 2017: £4.3m);

o Contract NFI increased by 23% to £6.3m (H1 2017: £5.1m);

o Group contract margin increased 7% to 10.4% (H1 2017: 9.7%)

· Proforma NFI increased by 10%

· Underlying** Profit Before Tax ("PBT") increased by £0.9m, 596% to £1.1m (H1 2017: £0.2m)

· Strong cash generation of £2.0m from operations during the period (H1 2017: outflow £0.7m)

· Net cash of £1.3m at 30 June 2018 (31 December 2017: net debt £0.4m and 30 June 2017: net cash £1.7m)

· Increase in adjusted basic EPS in the period of 2.5p to 2.4p (H1 2017: loss 0.1p)

· Return to the payment of an interim dividend. Interim dividend of 0.5p per share (2017: nil) to be paid on 19 October 2018 to shareholders on the register on 21 September 2018

* Net Fee Income - which is the equivalent of gross profit

** Adjusted for foreign exchange gains/losses, share based payments, non-controlling interest, amortisation of acquired intangibles and exceptional items.

Commenting, Ian Temple, CEO of Hydrogen Group plc said:

"I am pleased to be able to report a strong trading performance in the first six months of the year, with Net Fee Income on a pro-forma basis up 10% on the first six months of 2017. The key objectives of the business combination with Argyll Scott have been successfully achieved and we have established a scalable platform that enables us to look forward confidently to further sustainable long-term organic profit growth. Furthermore, with a strong balance sheet, the Group is well placed to make acquisitions and will continue to investigate potential targets.

With the current levels of activity, the Board is confident that the underlying profit and EPS for the full year will be substantially ahead of current market expectations."

Enquiries:

Notes to the editor

Hydrogen Group is a group of specialist recruitment and people solutions businesses with a proven global platform with clients' in over 50 countries. We deliver by building market leading niche specialist teams that develop a deep understanding of candidate and clients' needs and developing solutions.

Overview

Argyll Scott Holdings Limited ("Argyll Scott"), which was acquired in June 2017, has now been substantially integrated into the Group. All the key objectives identified at the time of the acquisition - to accelerate growth through the scaling of our APAC operations, to realise synergies though the consolidation of support services, and to diversify customer revenue concentration - have been successfully achieved. During H1 2018 on a proforma basis, while Group NFI grew by 10%, APAC (where the majority of Argyll Scott's operations are based) NFI grew by 16%. Annualised overhead cost synergies of some £1.5m have been realised. Expected cross fertilisation of client relationships across the Group's brands are anticipated to generate incremental NFI of some £0.4m in 2018 and the Group's largest client accounted for 8% of NFI in the first half of 2018 (H1 2017:14%).

The integration project has enabled the creation of a scalable operational platform that will promote further long term sustainable profit growth, underpinned by the Group's core strategic pillars:

· an operating model focussed on building specialist niche businesses which are each driven, through a consistent targeting and reporting model, to grow to be market leaders;

· the minority interest share scheme launched in H2 2017 which is impacting the retention, motivation and development of key staff, as well as attracting new talent to Hydrogen Group. The Group have made two significant additions to its global leadership team in the USA and Australia during the period giving it confidence that it should be able to deliver significant growth in these markets moving forward;

· a digital marketing programme that supports a multi brand specialist niche business strategy by allowing the development of key client and candidate relationships on a scalable, but bespoke, one to one basis;

· a single global technology and CRM platform that promotes communication and the cross fertilisation of key client relationships across the Group and drives its "go to market" strategy; and

· investment in people. A commitment to create a genuine learning and development culture throughout the Group. Bespoke training programmes have been developed for each job function and grade, which are being delivered across the Group by the leadership and management teams.

During the period, Hydrogen Group have continued to invest in its productive headcount. While total headcount has increased by 10 (3%) from 313 to 323, fee earner headcount has increased by 18 (7%) as the Group have begun to exploit the efficiencies created by its new operational platform.

The Board believes that future organic growth can now be supplemented by selective acquisitions to accelerate the Group's development. Strict criteria have been developed, which will be applied to any potential acquisition relating to its strategic, financial, operational, and cultural fit. 

Financial Highlights

Group revenue for the period increased by 21% (22% in constant currency terms) to £68.6m (H1 2017: £56.8m).

Overall, Group NFI increased by 57% (61% in constant currency terms) to £14.8m (H1 2017: £9.4m). Although the principal driver of this was the contribution by Argyll Scott, underlying NFI growth was also strong with NFI increasing by 10% on a pro forma basis.

Although the UK business has grown during the period in absolute terms, the Group have continued to reduce its reliance on the UK market in relative terms. The percentage of NFI denominated in currencies other than Sterling has increased to 53% (H1 2017: 44%). Foreign currency income, in general, is naturally hedged against foreign currency expenditure.

In EMEA NFI grew by 26% to £8.7m (H1 2017: £6.9m). On a pro forma basis the EMEA region's NFI grew by 6%, with increases in both contract and permanent revenue. This was largely driven by contractor growth in the Business Transformation practice and strong activity in the permanent Legal practice.

APAC NFI increased by £3.6m or 189% to £5.5m (H1 2017: £1.9m) and by 197% in constant currency terms. Although this growth was largely driven by the acquisition of Argyll Scott, underlying growth was also strong with pro forma NFI increasing by 16% principally as a result of strong performances from the Singapore, Thailand and Australia offices.

In the US, NFI was flat at £0.5m (H1 2017: £0.5m) however on a constant currency basis it increased by 10%. Although the performance of the permanent business was challenging, contract NFI growth was very strong, which together with the investment made in local leadership, positions the region well for future growth.

The split between contract and permanent NFI for H1 2018 was 42% contract (H1 2017: 54%); 58% permanent (H1 2017: 46%). The change towards permanent recruitment was driven by an increase in permanent NFI of 100% to £8.5m (H1 2017: £4.3m) that principally reflects the impact of Argyll Scott, which is predominantly a permanent business. In absolute terms contract NFI has also increased, growing by 23% in the period to £6.3m (H1 2017: £5.1m). The trend of improving contract margins experienced in recent period has continued with the Group achieving a contract margin of 10.4% in H1 2018 (H1 2017: 9.7%).

Operating profit before exceptional items grew to £1.2m (H1 2017 - £0.1m) driven by both the higher NFI for the period and a proportionately smaller increase in administrative expenses resulting from the cost savings realised through the integration project. While NFI has increased by 57%, administrative expenses have only increased by 45% to £13.9m (H1 2017: £9.6m). There were no exceptional costs in the first half of 2018 (H1 2017: £0.6m).

The operating profit for the period was £1.2m (H1 2017: operating loss £0.6m). Profit before tax was £1.1m (H1 2017: loss before tax £0.6m).

Underlying** PBT remains the Board's preferred measure of trading performance of the business and has increased by £0.9m to £1.1m (H1 2017: £0.2m) in line with the increase in operating profit before exceptional items.

The movement in the non-controlling interest reflects Argyll Scott's inclusion for the whole period. The reduction in the share based payments results from changes in the structure of the Group's leadership share scheme.

Cash flow and cash position

At 30 June 2018, the Group had net cash of £1.3m (31 December 2017: net debt £0.4m and 30 June 2017: net cash £1.7m). The increase in net cash during the period of £1.6m was driven by an increase in operating cashflows of £2.0m resulting both from profitable trading and improved working capital management. The cash cost of exceptional items provided for in 2017 amounted to £0.3m. Capital expenditure totalled £0.4m and principally related to the implementation of the Group's new integrated IT infrastructure.

Bank facilities

The Group have two invoice discounting facilities in place with a combined value of £19.0m.

Hydrogen has an existing facility of £18.0m, with a commitment to May 2019. Argyll Scott has a facility in place of £1.0m which has a commitment until December 2018. On 30 May 2018, six months' notice was given to terminate the existing facility in Argyll Scott as this was no longer required to fund the Group's operations. The Hydrogen facility shall continue until ended by either party giving to the other not less than three months' written notice.

Dividend

The Board is confident in the prospects of the Group. As a result, it proposes to resume payment of an interim dividend and will pay an initial interim dividend of 0.5p for 2018 (2017: nil). The dividend will be paid on 19 October 2018 to shareholders on the register at the close of business on 21 September 2018.

Current Trading

The Group have continued to trade well since the 30 June and has a strong pipeline of business moving into Q4. The Board is therefore confident that the full year outturn will be substantially ahead of current market expectations.

Hydrogen Group Plc

Unaudited Condensed Consolidated Interim Statement of Comprehensive Income

For the six months ended 30 June 2018

The notes to the accounts set out below form an integral part of this unaudited condensed consolidated interim report.

Hydrogen Group Plc

Unaudited Condensed Consolidated Interim Statement of Financial Position

For the six months ended 30 June 2018

The notes to the accounts set out below form an integral part of this unaudited condensed consolidated interim report.

Hydrogen Group Plc

Unaudited Condensed Consolidated Interim Statement of Changes in Equity

For the six months ended 30 June 2018

The notes to the accounts set out below form an integral part of this unaudited condensed consolidated interim report.

Hydrogen Group Plc

Unaudited Condensed Consolidated Interim Statement of Cash Flows

For the six months ended 30 June 2018

The notes to the accounts set out below form an integral part of this unaudited condensed consolidated interim report.

Hydrogen Group Plc

Notes to the Unaudited Condensed Consolidated Interim Report

For the six months ended 30 June 2018

1 General information

The principal activity of Hydrogen Group plc ("the Company") and its subsidiaries' (together known as "the Group") is the provision of services for mid to senior level professional staff. The Group consists of three operating segments, EMEA, USA and APAC, offering both permanent and contract services for large and medium sized organisations. The Group offers services in Professional Support Services (including legal, finance, technology and business transformation) and in Technical and Scientific market sectors (Energy and Life Sciences). The Group operates across the world from a network of offices in Australia, Dubai, Hong Kong, Malaysia, Singapore, Thailand, UK and the USA, plus a number of internationally focused teams based in the UK.

Hydrogen Group plc is the Group's ultimate parent company. The Company is a limited liability company incorporated and domiciled in the United Kingdom. The registered office address and principal place of business is 30 Eastcheap, London, EC3M 1HD, England. Hydrogen Group plc's shares are listed on AIM. Registered company number is 05563206.

The unaudited condensed consolidated interim report for the six months ended 30 June 2018 (including comparatives) is presented in GBP '000, and were approved and authorised for issue by the Board of directors on 18 September 2018.

Copies of these interim results are available at the Company's registered office, 30 Eastcheap, London, EC3M 1HD, England, and on the Company's website - www.hydrogengroup.com.

This unaudited condensed consolidated interim report does not constitute statutory accounts of the Group within the meaning of section 434 of the Companies Act 2006. The financial information for the year ended 31 December 2017 has been extracted from the statutory accounts for that year, which have been filed with the Registrar of Companies. The auditor's report on those accounts was unmodified and did not contain a statement under section 498 of the Companies Act 2006.

2 Basis of preparation

The unaudited condensed consolidated interim report for the six months ended 30 June 2018 has been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRSs") as adopted by the European Union. The unaudited condensed consolidated interim report should be read in conjunction with the annual financial statements for the year ended 31 December 2017, which were prepared in accordance with IFRSs as adopted by the European Union.

These financial statements have been prepared under the historical cost convention.

The Group has an invoice discounting facility of £18.0m with HSBC with a commitment to May 2019. After this date the facility shall continue until terminated by either party giving to the other not less than three months' written notice.

The Group also has an additional invoice discounting facility of £1.0m with Barclays. On 30 May 2018, six months' notice was given to terminate the facility as this was no longer required to fund the Group's operations.

This unaudited condensed consolidated interim report has been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year ended 31 December 2017 other than in respect of changes in policy to new standards as set out in note 3 below.

The accounting policies have been applied consistently throughout the Group for the purposes of preparation of the condensed consolidated interim report.

3 Significant accounting policies

Hydrogen Group Plc has applied the same accounting policies and methods of computation in its interim consolidated financial statements as in its 2017 annual financial statements, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2018, and will also be adopted in the 2018 annual financial statements. New standards impacting the Group that will be adopted in the annual financial statements for the year ended 31 December 2018, and which have given rise to changes in the Group's accounting policies are:

· IFRS 9 Financial Instruments; and

· IFRS 15 Revenue from Contracts with Customers

Details of the impact these two standards have had are given below. Other new and amended standards and Interpretations issued by the IASB that will apply for the first time in the next annual financial statements are not expected to impact the Group as they are either not relevant to the Group's activities or require accounting which is consistent with the Group's current accounting policies.

IFRS 9 Financial Instruments

IFRS 9 requires an entity to recognise a financial asset or a financial liability in its statement of financial position when it becomes party to the contractual provisions of the instrument. The impairment provision on financial assets measured at amortised cost (such as trade and other receivables) have been calculated in accordance with IFRS 9's expected credit loss model, which differs from the incurred loss model previously required by IAS 39.

On review of the Group's financial instruments, the Board considers that this standard has had no material impact on the Group's financial statements.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 establishes the principles that an entity applies when reporting information about the nature, amount, timing and uncertainty of revenue and cash flows from a contract with a customer and contract costs.

Hydrogen Group recognises revenue from contractor placements as services are provided and from permanent placements on start date. This policy is in line with the principles set out in IFRS 15 and therefore there is no material impact on the Group's financial statements.

International Accounting Standards (IAS/IFRS) and interpretations in issue but not yet adopted

The Board continues to review future applicable IFRS to the Group. In particular, the Board is reviewing the impact of IFRS 16 in more detail.

IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for lessors will not significantly change. The standard will affect primarily the accounting for the Group's operating leases. The Group has not yet determined to what extent these commitments will result in the recognition of an asset and a liability for future payments and how this will affect the Group's profit and classification of cash flows. However, amortisation and interest charges are likely to increase, and operating lease rentals will decrease. The effect of these changes will therefore impact some of the Group's KPI's. Some of the commitments may be covered by the exception for short-term and low-value leases and some commitments may relate to arrangements that will not qualify as leases under IFRS 16. The standard is mandatory for first interim periods within annual reporting periods beginning on or after 1 January 2019. The Group does not intend to adopt the standard before its effective date.

4 Segment reporting(a) Revenue, gross profit and operating profit/(loss) by disciplineFor management purposes, the Group is organised into three operating segments, EMEA, USA and Asia Pacific (APAC), based on the discipline of the candidate being placed. All operating segments have similar economic characteristics and share a majority of the aggregation criteria set out in IFRS 8.12.

Revenue reported above represents revenue generated from external customers. There were no sales between segments in the six months to 30 June 2018 (30 June 2017: Nil, 31 December 2017: Nil).

The accounting policies of the reportable segments are the same as the Group's accounting policies described above. Segment profit represents the profit earned by each segment without allocation of central administration costs, finance costs and finance income.

The information reviewed by the chief operating decision maker, or otherwise regularly provided to the chief operating decision maker, does not include information on net assets. The cost to develop this information would be excessive in comparison to the value that would be derived.

There is one external customer that represented more than 23% of the entity's revenues with revenue of £15.5m, and approximately 8% of the Group's NFI, included in the EMEA segment (30 June 2017: one customer, revenue £16.0m, EMEA segment; 31 December 2017: one customer, revenue £27.5m, EMEA segment).

(b) Revenue and gross profit by geography

(c) Revenue and gross profit by recruitment classification

* includes Fixed Term Contracts (FTC's)

5 Exceptional items

Exceptional items are costs that are separately disclosed due to their material and non-recurring nature. They arose as a result of the strategic decision to acquire the entire share capital of Argyll Scott and align the combined businesses going forward.

6 Income tax expense

The charge for taxation on profits for the six months amounted to £0.15m (30 June 2017: £0.02m, 31 December 2017: credit of £0.11m), being tax on profits and adjustment to prior year amounts.

7 Earnings per share

Earnings per share is calculated by dividing the profit or loss attributable to equity holders of the Group by the weighted average number of ordinary shares in issue.

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.

8 Cash flow from operating activities

9 Trade and other receivables