HYDG.L Regulatory News (HYDG)

Hydrogen Group Plc

7 September 2016 

UNAUDITED RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2016

The Board of Hydrogen Group plc ("Hydrogen" or the "Group") (AIM: HYDG) announces its unaudited results for the half year ended 30 June 2016.

Financial and Operating Highlights

· Net Fee Income ("NFI") declined by 12% (12% on a constant currency basis) to £8.9m (H1 2015: £10.1m). However, the Group has moved back into growth with a 6% (3% on a constant currency basis) increase in NFI on the second half of 2015 of £8.5m which is due primarily to:

· 31% growth in EMEA Life Science to £1.7m (H2 2015: £1.3m)

· 8% growth in EMEA Business Transformation to £2.6m (H2 2015: £2.4m)

· Asia NFI up 18% to £1.3m (H2 2015: £1.1m).

· Contract NFI margin increased to 9.6% (H2 2015: 9.3%)

· EMEA Legal Practice held back in the lead up to the EU Referendum with NFI down 12.5% to £1.4m (H2 2015: £1.6m)

· EMEA Energy NFI down 25% to £0.6m (H2 2015: £0.8m)

· US Business building a Life Science contract base with NFI up to £0.2m (H2 2015 £0.1m)

· Administration costs, which are predominantly based in GBP, down 15% to £8.7m (H1 2015: £10.2m) and 6% down on H2 2015 administration costs of £9.0m

· Selective hiring to support growth. Headcount increasing 6% to 210 (31 December 2015: 199)

· Operating profit of £0.3m (H1 2015: Operating loss before exceptional items £0.1m)

· Net cash position of £1.0m at 30 June 2016 (31 December 2015: £2.6m and 30 June 2015: £0.1m)

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

"The first half of 2016 has seen a stabilisation of the business and a move back into NFI growth compared to H2 2015.  We have started hiring in the areas where we have identified sustainable growth opportunities.

We are implementing a new vision for the business focussing resource on building market leading niche businesses. The roll out will continue into Q3 but is already generating results."

Enquiries:

Notes to the editor

Empowering careers. Powering business

Our clients believe that an organisation's greatest asset is its people so we work hard to ensure that we always match people with the right role.

Using our global platform we have placed people in over 50 countries in the last year, empowering thousands of people in their careers and powering the world's leading businesses.

Overview

The first half of 2016 has seen a stabilisation of the business and a move back into NFI growth over H2 2015 with the exception of Energy and Legal. The benefits of the changes made in 2015 are now coming through. In Energy, upstream Oil and Gas continues to be challenging and revenues continued to decline but we have structured the operation so that it remains profitable. Should the oil price recover and demand for our services increase, we will be in a position to react quickly and take advantage of any upswing in the market. We are implementing a new vision for the business which focuses resource on building market leading niche businesses.

Financial Highlights

Group revenue for the period declined by 9% (11% in constant currency) to £59.4m (H1 2015: £65.9m). Group NFI declined by 12% (12% in constant currency) to £8.9m (H1 2015: £10.1m). The Group has moved back into growth with a 6% NFI increase on the second half 2015 NFI of £8.5m.

44% of the Group's NFI for this period was denominated in currencies other than Sterling (H1 2015: 38%), with the Euro, Singapore Dollars, United States Dollars, Australian Dollars and Malaysian Ringgit being the most significant. Foreign currency income, where applicable is naturally hedged against foreign currency expenditure. The Euro is the most significant currency and any excess over expenditure is hedged by drawing down on the Group's invoice finance facility and converting into sterling on the same day.

The split between contract and permanent NFI for H1 2016 was 60% contract; 40% permanent (H1 2015: 55% Contract, 45% Permanent). Contract margin continued its incremental improvement as we have reduced the number of lower margin deals on our contract book. The Group achieved a contract margin of 9.6% in H1 2016 (H1 2015: 9.1% and H2 2015: 9.3%).

There has been a change to how we report segmental analysis. Previously the operating segments were Professional Support Services and Technical and Scientific. As part of the restructure, current management reporting focuses on performance of our EMEA (including USA) and APAC businesses. The new segmental analysis reflects this. Within these operating segments are the individual practices; Technology, Finance, Energy, Legal, Life Sciences and Business Transformation.

In EMEA the Life Sciences practice showed 31% growth to £1.7m (H2 2015 £1.3m). The contract business was the main driver with improved deal flow from its client base plus new client wins. Business Transformation showed respectable growth of 8% to £2.6m (H2 2015: £2.4m) driven by growth with existing and new clients in both our London and Edinburgh offices. Legal practice permanent activity was soft in the lead up to the EU Referendum as clients held back on making decisions on placements until after the outcome. NFI was down 12.5% to £1.4m when compared to a typically stronger H2 2015 of £1.6m but was flat compared to H1 2015 of £1.4m. The Technology practice has just started to move into growth as we have refocussed its business proposition but NFI was broadly similar to H2 2015 at £0.6m. In the US we started a Life Science contract business in 2015 and this has really gained traction offsetting the decline in Energy revenues. NFI has increased 100% to £0.2m (H2 2015: £0.1m)

Asia has shown growth in the first half of 2016 compared to H2 in 2015. NFI increased 18% to £1.3m (H2 2015: £1.1m). Main contributors to growth were the Energy practice, and the Business Transformation practice where the contractor book, started in 2015, is building momentum. NFI for Australia is down 25% to £0.3m (H2 2015: £0.4m). Action was taken to reduce the cost base which has helped the operation to move into profit in 2016.

We implemented changes throughout 2015 and we have now positioned the practices, with the exception of Energy, for growth. Headcount at the end of 2015 was 199 (Sales: 143, Operations: 56). We have started hiring in the areas where we have identified sustainable growth opportunities. Headcount at 30 June 2016 increased 6% to 210 (Sales: 155, Operations: 55). During 2015 we reduced operating costs to bring practices back into profit. Energy remained profitable as a result, even though the NFI in EMEA Energy was down 25% to £0.6m (H2 2015: £0.8m). Administration costs, which are predominantly based in GBP, for the six-month period were £8.7m (H1 2015: £10.2m), 15% down on the comparative period and 6% down on the second half of 2015 (H2 2015: £9.0m). With the EU Referendum in favour of an exit from the EU, the currency swing, particularly the Euro has generated a foreign exchange gain for the six-month period of £0.14m (H1 2015: £(0.1)m).

With NFI back into growth and a lower cost base post restructure, the Group operating profit for the period was £0.3m (H1 2015: loss before exceptional items, £0.1m). Exceptional costs were nil for the six-month period (H1 2015: £1.8m). Profit before tax was £0.3m (H1 2015: £1.9m) loss after exceptional items). Basic earnings per share was 0.09p (H1 2015: (8.18)p). Fully diluted earnings per share was 0.08p (H1 2015: (8.12)p).

As a result of the Group's trading performance and the exceptional costs incurred during 2015 the consolidated group balance sheet at 30 June 2016 had negative retained earnings of £1.7m (31 December 2015: £2.1m). However, the parent company has retained earnings of £9.4m (31 December 2015: £10.0m).

As the Group is going through a period of major transition, the Board has taken the decision not to declare an interim dividend. The Board will take a view on any dividend for the full year based on how the Group performs in the second half of this year.

Cash flow

The business had a net cash outflow of £1.7m (H1 2015 inflow: £8.2m) from operating activities in the first six months of the year. Part of the working capital outflow was due to the 10.2% increase in contract NFI over H2 2015, to £5.4m (H2 2015: £4.9m). In addition, there were a couple of major clients in the UK and Asia who delayed payment which also contributed to the outflow: in aggregate we estimate the delayed payment to be less than £0.7m. Most of these delayed payments were received in the early part of H2. At the end of 2014 there was a payment from a client of £5.0m which was received in the first half of 2015. When adjusted for, it reduces the £8.2m generated from operating activities to £3.2m. We have maintained our strong track record on cash collection. Trade receivables measured as days sale outstanding (DSO) were 20 days (H1 2015: 22 days).

After tax payments of £0.1m (H1 2015: £0.1m) and capital expenditure of £0.1m (H1 2015: £0.1m) the Group finished the period with net cash of £1.0m. The Group retains an £18.0m invoice finance facility committed to April 2018.

Current Trading

We are encouraged by the growth achieved in the first half with around 45% of our NFI being generated internationally. It is too early to assess the impact of the result of the EU Referendum and the effect it could have on client and candidate confidence in our UK business. There was a slight weakness in permanent recruitment in the second quarter in the lead up to the result. Since the Referendum result there has been no discernible change in sentiment and activity.

We continue to roll out our plans to turn around the business which should continue to benefit the financial performance in the second half of the year.

Ian Temple, CEO

Hydrogen Group Plc

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

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

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

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 2016

1 General information

Hydrogen Group plc ("the Company") and its subsidiaries' (together "the Group") principal activity is the provision of recruitment services for mid to senior level professional staff. The Group is organised into seven practices offering both Permanent and Contract specialist recruitment consultancy for large and medium sized organisations. The Group operates primarily in the Technology, Finance, Energy, Legal, Life Sciences and Business Transformation sectors. The Group is becoming increasingly international, with operations in Australia, Malaysia, Singapore and USA, and 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 address of Hydrogen Group's registered office and its principal place of business is 30-40 Eastcheap, London, EC3M 1HD, England. Hydrogen Group's shares are listed on the AIM Market.

The unaudited condensed consolidated interim report for the six months ended 30 June 2016 (including comparatives) is presented in GBP '000, and were approved and authorised for issue by the board of directors on 7 September 2016.

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 2015 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 unqualified 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 2016 has been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRSs") and in accordance with IAS 34, 'Interim financial reporting' 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 2015, which were prepared in accordance with IFRSs as adopted by the European Union.

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

To finance its working capital requirements, the Group has an £18m invoice discounting facility, committed to April 2018. The maximum amount of the invoice discount facility utilised during the period was 46%. The Group's forecasts and projections demonstrate that this facility should be adequate to meet the Group's obligations as they fall due in the foreseeable future. Accordingly, the directors have adopted the going concern basis in preparing the interim report.

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 2015.

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

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

Segment reporting (continued)

Revenue reported above represents revenue generated from external customers. There were no sales between segments in the six months (30 June 2015: Nil, 31 December 2015: 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 31% of the entity's revenues with revenue of £18.5m, and approximately 16% of the Group's net fee income, included in the EMEA segment (30 June 2015: one customer, revenue £21.2m, EMEA segment; 31 December 2015: one customer, revenue £39.4m, EMEA segment).

(b) Revenue and gross profit by geography

(c) Revenue and gross profit by recruitment classification

4 Exceptional itemsExceptional items are costs that are separately disclosed due to their material and non-recurring nature. They arose as a result of the comprehensive review of the Group's operations and actions implemented to reduce the Group's administration costs:

5 Income tax expense

The charge for taxation on profits for the six months amounted to £0.1m (30 June 2015: £0.1m, 31 December 2015: £nil), being tax on profits and adjustment to prior year amounts.

6 Dividends

No dividend was proposed in respect of the year ended 31 December 2015.

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

10 Trade and other payables

11 Provisions

This announcement contains inside information.