4 Sep 2009 07:00
Hydrogen Group plc
4 September 2009
UNAUDITED CONDENSED CONSOLIDATED INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2009
The Board of Hydrogen Group Plc ("Hydrogen" or "the Group") is pleased to announce its unaudited interim results for the six months ended 30 June 2009.
Highlights
| Satisfactory first half performance in a very challenging market. The Group achieved break even, before exceptional items. | |
| Cash generated from operating activities, before exceptional items of £3.7m (H1 2008: £2.0m), resulting in a net cash position at 30 June 2009 of £2.3m (31 December 2008: net debt £0.9m). | |
| Despite significant cost reductions to align the cost base of the Group with market activity, continued investment in international markets and new disciplines has yielded encouraging results. | |
| Contract versus permanent mix of Net Fee Income 55:45 in favour of contract (31 December 2008: 44:56). | |
| Non-UK Net Fee Income for the period represents 19% of the Group's total (30 June 2008: 11%); Australia net fee income increased by 128% to £0.5m (2008: £0.2m). | |
| Engineering business showing strong growth increasing net fee income by 87% to £0.8m (2008: £0.4m). | |
| Reduction in administration costs of 31% on first half 2008; 27% reduction in headcount from peak in July 2008. | |
| Days of sales outstanding (DSO's) reduced by 6 to 32 (30 June 2008: 38; 31 December 2008: 40). | |
| Final dividend per share for 2008 of 2.0p (2007: 4.0p) paid in April. Proposed interim dividend of 0.5p to be paid in November. |
Commenting, Tim Smeaton, Chief Executive of Hydrogen Group plc said:
"As anticipated, the challenging trading environment seen in 2008 has continued into the first six months of the year as the global macro economic uncertainty continues to impact international recruitment markets.
Whilst the start of the second half of 2009 has seen a modest improvement in some sectors compared with the first half, we are still understandably cautious and believe the market will continue to be challenging for the remainder of the year.
In the short term we are focused on managing our business as efficiently as possible. The Group reacted quickly to the downturn in the market in 2008 and we remain vigilant for any upturn. Our net cash balance allows us flexibility to invest selectively in new markets and geographies, ensuring we are well placed for long term growth and to take advantage of future opportunities."
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 |
An analyst meeting will be held at 9.30am at Hydrogen's offices, Pountney Hill House, 6 Laurence Pountney Hill, London, EC4R 0BL on 4 Septmenber 2009.
CHAIRMAN'S STATEMENT
Overview
Hydrogen is a leading international specialist recruitment group, placing high quality staff into clients on a permanent and contract basis. The Group operates across four core disciplines, Technology, Finance, Professional and Engineering, where we have scale and strong brand recognition. We continue to leverage these strengths to grow and develop our offering into new markets and geographies.
Trading
As anticipated, the challenging trading environment seen in 2008 has continued into the first six months of the year as the global macro economic uncertainty continues to impact international recruitment markets.
The Group responded quickly to the deteriorating market trends in the second half of 2008, improving cost control and debtor management, whilst selectively investing in new sectors and markets in the UK and internationally, to ensure that the business is best positioned for the medium term.
Whilst the Group's performance for the first half has been significantly impacted by the difficult trading conditions, these actions have been effective in creating a leaner structure. During the first six months of 2009 we have continued to see the benefits, with good performances from our operations in international markets such as Australia, as well as market sectors such as Engineering and Technology.
Cash generation has been strong and we have remained focussed on cost control and debtor management. Surplus cash has been utilised to strengthen further the Group's balance sheet and we are delighted to end the half year with a net cash position.
Financial highlights
The Group delivered a satisfactory performance in a challenging market, generating revenue for the six months ended 30 June 2009 of £34.9m (2008: £49.9m). Net Fee Income ("NFI") (gross profit) fell 47% to £7.9m (2008: £14.9m) compared to the same period last year. However NFI was down a more modest 33% on the second half of 2008 (£11.8m) demonstrating the benefits of the actions we took last year to restructure the business.
We are pleased to have been able to diversify the business over the period, whilst still maintaining a strong focus on cost control. Administration costs are 31% lower than the prior year to £7.9m (2008: £11.5m).
Good working capital management and a reduction in trade receivables resulting from the decline in contract revenues has ensured the business has remained cash generative with surplus cash being used to repay all outstanding senior debt two years in advance of schedule. Consequently net funds at the end of the period stood at £2.3m compared to net debt of £3.8m in the prior year. Days of sales outstanding have also been reduced by six to 32.
Financing
Net finance charges dropped 62% to £48,000 (2008: £126,000) as a result of the improvement of the cash position and the lowering of interest rates. Of this charge, £33,000 related to accelerated amortisation of charges triggered by the early repayment of the term loan.
Exceptional items
The Group traded at broadly break even over the period, delivering profit before tax and exceptional items of £0.0m (2008: £3.4m). Exceptional items for the period amounted to £5.9m (2008: £0.2m) which was largely a result of a £5.6m non-cash accounting goodwill impairment charge. Consequently this resulted in a loss for the period of £5.9m generating a basic loss per share of 26.1p compared to a basic earnings per share of 9.4p in 2008 with adjusted earnings per share, pre-exceptional items, of 0.0p (2008: 10.4p).
Dividend
The Board is recommending an interim dividend of 0.5p (2008: 2.1p). Whilst trading conditions are challenging and are expected to remain so, the Board believes that this level of dividend is both appropriate and sustainable, given the cash generative characteristics of the group and its strong balance sheet. The interim dividend will be paid on 6 November 2009 to shareholders on the register on 9 October 2009.
Operations
Hydrogen focuses on four core disciplines of Technology, Finance, Engineering and Professional, working closely with blue chip clients both locally and on a global basis. In a very tough trading environment we are pleased to have seen the benefits of our selective investments in new market sectors and international geographies. The first half saw good performances delivered from our Engineering business which grew NFI by 87% during the period to £0.8m, as well as solid results from our specialist Technology recruitment business.
The Financial Services recruitment market remained depressed and this impacted our performance. However, the expertise of our teams and strong brand reputation means that we continued to be at the forefront of the increased activity seen in this area at the end of the period and are well placed to benefit when this market improves.
Across our international operations we saw a strong performance from our Australian office with NFI up 128% to £0.5m (2008: £0.2m) and we are expanding our headcount in this area. We also continue to develop our revenue from Asia, the Middle East and Europe and are pleased with the progress we have made as we develop our relationships with our blue chip client base in these markets and leverage the strength and reputation of the Hydrogen brand. International NFI for the period grew to 19% (2008: 11%) of total NFI.
The NFI split between contract and permanent business was 55% to 45% respectively, which is as expected given the current uncertain macroeconomic environment in which contract revenue has declined at a lower rate than permanent.
Clients
We have seen good client retention during the first half of 2009 as well as gaining 123 new clients, including a number of significant wins. We have maintained strong market share of our clients' placements, despite lower levels of overall activity and our experienced teams have worked hard to strengthen and develop these relationships further, positioning us to secure available business and future opportunities.
Staff
We continue to ensure that the business is the right size and shape for its position in the macro economic cycle and have seen a reduction in headcount from 261 employees to 230 employees at the end of the period. On behalf of the Board I would like to take this opportunity to thank the staff for the way they have maintained their commitment and professionalism through a very demanding period.
Current trading
Whilst the start of the second half of 2009 has seen a modest improvement in some sectors compared with the first half, we are still understandably cautious and believe the market will continue to be challenging for the remainder of the year.
In the short term we are focused on managing our business as efficiently as possible. The Group reacted quickly to the downturn in the market in 2008 and we remain vigilant for any upturn. Our net cash balance allows us flexibility to invest selectively in new markets and geographies, ensuring we are well placed for long term growth and to take advantage of future opportunities.
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2009
|
Six months ended | Year ended | ||||
| Note | 30 June 2009 £'000 | 30 June 2008 £'000 | 31 December 2008 £'000 | ||
| Revenue | 3 | 34,902 | 49,943 | 96,174 | |
| Cost of sales | (26,978) | (35,062) | (69,437) | ||
| Gross profit | 7,924 | 14,881 | 26,737 | ||
| Administration expenses | (7,914) | (11,502) | (22,806) | ||
| Operating profit before exceptional costs | 10 | 3,379 | 3,931 | ||
| Exceptional items | 4 | (5,861) | (221) | (1,686) | |
| Operating (loss)/profit | (5,851) | 3,158 | 2,245 | ||
| Finance costs | (50) | (167) | (301) | ||
| Finance income | 2 | 41 | 61 | ||
| (Loss)/profit before taxation | (5,899) | 3,032 | 2,005 | ||
| Income tax expense | 5 | - | (905) | (1,013) | |
| (Loss)/profit for the period | (5,899) | 2,127 | 992 | ||
| Other comprehensive income: | |||||
| Exchange differences on translating foreign operations | 7 | 19 | 19 | ||
| Deferred tax on share options | - | (435) | (439) | ||
| Other comprehensive income | 7 | (416) | (420) | ||
| Total comprehensive (loss)/income for the period | (5,892) | 1,711 | 572 | ||
| Attributable to: | |||||
| Equity shareholders of the parent | (5,899) | 2,127 | 992 | ||
| (Loss)/earnings per share | |||||
| Basic (loss)/earnings per share (pence) | 7 | (26.07)p | 9.41p | 4.38p | |
| Diluted (loss)/earnings per share (pence) | 7 | (26.07)p | 8.85p | 4.16p | |
| The above results relate to continuing operations. | |||||
The notes on pages 5 to 15 form an integral part of this unaudited condensed consolidated interim report.
UNAUDITED CONDENSED CONSOLIDATED INTERM STATEMENT OF FINANCIAL POSITION
As at 30 June 2009
| Note | 30 June 2009 £'000 | 30 June 2008 £'000 | 31 December 2008 £'000 | |
| Non-current assets | ||||
| Goodwill | 9 | 13,440 | 19,010 | 19,010 |
| Other intangible assets | 256 | 404 | 356 | |
| Property, plant and equipment | 367 | 955 | 493 | |
| Deferred tax assets | 128 | 305 | 129 | |
| Other financial assets | 322 | 198 | 315 | |
| 14,513 | 20,872 | 20,303 | ||
| Current assets | ||||
| Trade and other receivables | 15,027 | 23,931 | 19,644 | |
| Cash and cash equivalents | 11 | 2,348 | 287 | 566 |
| 17,375 | 24,218 | 20,210 | ||
| Total assets | 31,888 | 45,090 | 40,513 | |
| Current liabilities | ||||
| Trade and other payables | 8,528 | 10,548 | 9,693 | |
| Borrowings | 11 | 11 | 2,614 | 966 |
| Current tax liabilities | 431 | 956 | 471 | |
| Provisions | 12 | 547 | - | 571 |
| 9,517 | 14,118 | 11,701 | ||
| Non-current liabilities | ||||
| Borrowings | 11 | - | 1,449 | 480 |
| Provisions | 12 | 668 | - | 373 |
| 668 | 1,449 | 853 | ||
| Total liabilities | 10,185 | 15,667 | 12,554 | |
| Net assets | 21,703 | 29,523 | 27,959 | |
| Equity | ||||
| Capital and reserves attributable to the Company's equity holders: | ||||
| Called-up share capital | 230 | 230 | 230 | |
| Share premium account | 3,456 | 3,456 | 3,456 | |
| Merger reserve | 16,100 | 16,100 | 16,100 | |
| Own shares held | (605) | (606) | (605) | |
| Share option reserve | 100 | 100 | 100 | |
| Other reserve | 853 | 714 | 770 | |
| Translation reserve | 29 | 22 | 22 | |
| Retained earnings | 1,540 | 9,507 | 7,886 | |
| Total equity | 21,703 | 29,523 | 27,959 | |
The notes on pages 5 to 15 form an integral part of this unaudited condensed consolidated interim report.
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2009
| Called-up sharecapital£'000 | Share premium account £'000 | Merger reserve £'000 | Own shares held £'000 | Share option reserve £'000 | Other reserve £'000 | Trans-lation reserve £'000 | Retained earnings £'000 | Total equity £'000 | |
| At 1 January 2008 | 227 | 3,220 | 16,100 | - | 100 | 494 | 3 | 8,720 | 28,864 |
| Foreign currency translation | - | - | - | - | - | - | 19 | - | 19 |
| Tax on share-based charges | - | - | - | - | - | - | - | (435) | (435) |
| Other comprehensive income for the period | - | - | - | - | - | - | 19 | (435) | (416) |
| Profit for the 6m to 30.6.2008 | - | - | - | - | - | - | - | 2,127 | 2,127 |
| Total comprehensive income for the period | - | - | - | - | - | - | 19 | 1,692 | 1,711 |
| Increase in share capital | 3 | 236 | - | - | - | - | - | - | 239 |
| Share option charge | - | - | - | - | - | 220 | - | - | 220 |
| Purchase of shares by EBT | - | - | - | (606) | - | - | - | - | (606) |
| Dividends | - | - | - | - | - | - | - | (905) | (905) |
| Total movements in equity | 3 | 236 | - | (606) | - | 220 | 19 | 787 | 659 |
| At 30 June 2008 | 230 | 3,456 | 16,100 | (606) | 100 | 714 | 22 | 9,507 | 29,523 |
| Tax on share-based charges | - | - | - | - | - | - | - | (4) | (4) |
| Other comprehensive income for the period | - | - | - | - | - | - | - | (4) | (4) |
| Loss for the 6m to 31.12.2008 | - | - | - | - | - | - | - | (1,135) | (1,135) |
| Total comprehensive deficit for the period | - | - | - | - | - | - | - | (1,139) | (1,139) |
| Dividends | - | - | - | - | - | - | - | (482) | (482) |
| Share option charge | - | - | - | - | - | 56 | - | - | 56 |
| Purchase of shares by EBT | - | - | - | 1 | - | - | - | - | 1 |
| Total movements in equity | - | - | - | 1 | - | 56 | - | (1,621) | (1,564) |
| At 31 December 2008 | 230 | 3,456 | 16,100 | (605) | 100 | 770 | 22 | 7,886 | 27,959 |
| Foreign currency translation | - | - | - | - | - | - | 7 | - | 7 |
| Tax on share-based charges | - | - | - | - | - | - | - | - | - |
| Other comprehensive income for the period | - | - | - | - | - | - | 7 | - | 7 |
| Loss for the 6m to 30.6.2009 | - | - | - | - | - | - | - | (5,899) | (5,899) |
| Total comprehensive (loss)/income for the period | - | - | - | - | - | - | 7 | (5,899) | (5,892) |
| Share option charge | - | - | - | - | - | 83 | - | - | 83 |
| Dividends | - | - | - | - | - | - | - | (447) | (447) |
| Total movements in equity | - | - | - | - | - | 83 | 7 | (6,346) | (6,256) |
| At 30 June 2009 | 230 | 3,456 | 16,100 | (605) | 100 | 853 | 29 | 1,540 | 21,703 |
The notes on pages 5 to 15 form an integral part of this unaudited condensed consolidated interim report.
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOW
For the six months ended 30 June 2009
| Six months ended | Year ended | |||
| Note | 30 June 2009 £'000 | 30 June 2008 £'000 | 31 December 2008 £'000 | |
| Net cash generated from operating activities | 10 | 3,700 | 1,994 | 5,486 |
| Investing activities | ||||
| Finance income | 3 | 41 | 61 | |
| Proceeds from disposal of property, plant and equipment | 19 | 11 | 62 | |
| Purchase of property, plant and equipment | (21) | (284) | (386) | |
| Purchase of software assets | - | (106) | (164) | |
| Net cash generated/(used in) investing activities | 1 | (338) | (427) | |
| Financing activities | ||||
| Proceeds on issue of shares | - | 239 | 239 | |
| Contribution to EBT for share purchase | - | (606) | (605) | |
| Repayment of bank loans and loan notes | (1,000) | (500) | (2,000) | |
| Increase in other borrowings | - | 96 | - | |
| Repayment of other borrowings | (465) | - | (1,010) | |
| Repayment of obligations under finance leases | (14) | (42) | (79) | |
| Equity dividends paid | 6 | (447) | (905) | (1,387) |
| Net cash used in financing activities | (1,926) | (1,718) | (4,842) | |
| Net increase/(decrease) in cash and cash equivalents | 1,775 | (62) | 217 | |
| Cash and cash equivalents at beginning of period/year | 566 | 330 | 330 | |
| Effect of foreign exchange rate movements | 7 | 19 | 19 | |
| Cash and cash equivalents at end of period/year | 10 | 2,348 | 287 | 566 |
UNAUDITED RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS/(DEBT)For the six months ended 30 June 2009
| Six months ended | Year ended | |||
| Note | 30 June 2009 £'000 | 30 June 2008 £'000 | 31 December 2008 £'000 | |
| Increase/(decrease) in cash and cash equivalents in the period/year | 1,782 | (43) | 236 | |
| Change in net debt resulting from cash flows | 1,479 | 446 | 3,089 | |
| Other non-cash changes | (44) | (13) | (39) | |
| Movement in net debt in the period/year | 3,217 | 390 | 3,286 | |
| Net debt at the start of the period/year | (880) | (4,166) | (4,166) | |
| Net funds/(debt) at the end of the period/year | 11 | 2,337 | (3,776) | (880) |
The notes on pages 5 to 15 form an integral part of this unaudited condensed consolidated interim report.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM REPORT
For the six months ended 30 June 2009
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 consists of four operating segments offering both permanent and contract specialist recruitment consultancy for large and medium sized organisations. The Group operates primarily in the technology, finance, professional, and engineering sectors. Historically the Group has operated predominantly in the United Kingdom, but is becoming increasingly international, with operations in Australia 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 6 Laurence Pountney Hill, London, EC4R 0BL, England. Hydrogen Group's shares are listed on the AIM Market.
These condensed consolidated interim financial statements for the period ended 30 June 2009 (including comparatives) are presented in GBP '000, and were approved and authorised for issue by the board of directors on 3rd September 2009.
Copies of interim results are available at the Company's registered office - Pountney Hill House, 6 Laurence Pountney Hill, London EC4R 0BL, 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 2008 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 237(3) of the Companies Act 1985.
2 Basis of preparation
The unaudited condensed consolidated interim report for the six months ended 30 June 2009 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 condensed consolidated interim report should be read in conjunction with the annual financial statements for the year ended 31 December 2008, which were prepared in accordance with IFRSs as adopted by the European Union.
These financial statements have been prepared under the historical cost convention, except for revaluation of financial instruments.
Despite difficult trading conditions the Group continued to be cash generative through the first half of 2009. The Group utilised the surplus funds generated in the period to repay all of its outstanding senior debt of £1,000,000. The Group has a commitment to a £10m invoice discounting facility to December 2010, which was unutilised at 30 June 2009.
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.
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.
These unaudited condensed consolidated interim financial statements (the interim financial statements) have been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year to 31 December 2008 except for the adoption of IAS 1 Presentation of Financial Statements (Revised 2007), and IFRS 8 Operating Segments.
The adoption of IAS 1 (Revised 2007) does not affect the financial position or profits of the Group, but gives rise to additional disclosures. The measurement and recognition of the Group's assets, liabilities, income and expenses is unchanged, however some items that were recognised directly in equity are now recognised in other comprehensive income, for example exchange differences on translation of foreign operations. IAS 1 (Revised 2007) affects the presentation of owner changes in equity and introduces a 'Statement of comprehensive income'. In accordance with the new standard the entity does not present a 'Statement of recognised income and expenses (SORIE)', as was presented in the 2008 consolidated financial statements.
The adoption of IFRS 8 has changed the segments that are disclosed in the interim financial statements. In the previous annual and interim financial statements, segments were identified by reference to the dominant source and nature of the group's risks and returns. Under IFRS 8 the accounting policy for identifying segments is now based on the internal management reporting information that is regularly reviewed by the chief operating decision maker.
The accounting policies have been applied consistently throughout the Group for the purposes of preparation of these condensed consolidated interim financial statements.
3 Segment reporting As set out in note 2 the accounting policy for identifying segments has been changed. In the last annual and interim financial statements only one segment was identified. IFRS 8 requires operating segments to be identified on the basis on internal reports that are regularly reviewed by the chief operating decision maker to allocate resources and assess performance. (a) Revenue, gross profit, and operating profit by discipline For management purposes, the Group is organised into four business segments based on the discipline of the candidates being placed. All of the operating segments have similar economic characteristics and share a majority of the aggregation criteria set out in IFRS 8.12. The Group's reportable segments are as follows: - Technology, which places mid to senior IT business technologists and change professionals; - Finance, which places finance, accounting and audit professionals into mid to senior roles from part qualified ACAs and CIMAs to director level appointments; - Professional, which places lawyers from qualified to director level, and mid to senior level HR professionals; - Engineering, which places engineers, and property and construction professionals.
| Revenue | Gross Profit | |||||
| Six months ended | Year ended | Six months ended | Year ended | |||
| 30 June 2009 £'000 | 30 June 2008 £'000 | 31 December 2008 £'000 | 30 June 2009 £'000 | 30 June 2008 £'000 | 31 December 2008 £'000 | |
| Technology | 26,796 | 37,592 | 72,935 | 4,389 | 7,722 | 14,221 |
| Finance | 4,741 | 7,386 | 13,682 | 1,438 | 3,458 | 5,874 |
| Professional | 1,965 | 4,137 | 7,651 | 1,344 | 3,298 | 5,635 |
| Engineering | 1,400 | 828 | 1,906 | 753 | 403 | 1,007 |
| 34,902 | 49,943 | 96,174 | 7,924 | 14,881 | 26,737 | |
| Operating profit | |||
| Six months ended | Year ended | ||
| 30 June 2009 £'000 | 30 June 2008 £'000 | 31 December 2008 £'000 | |
| Technology | 556 | 2,669 | 4,219 |
| Finance | (81) | 847 | 612 |
| Professional | (369) | 632 | 573 |
| Engineering | 25 | (115) | (215) |
| Non-allocated | (121) | (654) | (1,258) |
| 10 | 3,379 | 3,931 | |
(b) Revenue and gross profit, by geography
| Revenue | Gross Profit | |||||
| Six months ended | Year ended | Six months ended | Year ended | |||
| 30 June 2009 £'000 | 30 June 2008 £'000 | 31 December 2008 £'000 | 30 June 2009 £'000 | 30 June 2008 £'000 | 31 December 2008 £'000 | |
| UK | 31,400 | 47,007 | 90,880 | 6,433 | 13,254 | 23,646 |
| Rest of world | 3,502 | 2,936 | 5,294 | 1,491 | 1,627 | 3,091 |
| 34,902 | 49,943 | 96,174 | 7,924 | 14,881 | 26,737 | |
(c) Revenue and gross profit by recruitment classification
| Revenue | Gross Profit | |||||
| Six months ended | Year ended | Six months ended | Year ended | |||
| 30 June 2009 £'000 | 30 June 2008 £'000 | 31 December 2008 £'000 | 30 June 2009 £'000 | 30 June 2008 £'000 | 31 December 2008 £'000 | |
| Permanent | 4,091 | 9,426 | 16,338 | 3,569 | 8,742 | 14,854 |
| Contract | 30,811 | 40,517 | 79,836 | 4,355 | 6,139 | 11,883 |
| 34,902 | 49,943 | 96,174 | 7,924 | 14,881 | 26,737 | |
There are no sales between segments.
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.
4 Exceptional items
| Six months ended | Year ended | |||
|
| 30 June 2009 £'000 | 30 June 2008 £'000 | 31 December 2008 £'000 | |
| Impairment of goodwill (Note 9) | 5,570 | - | - | |
| Provision for onerous contract (Note 12) | 557 | - | 944 | |
| Abortive acquisition costs * | (266) | 221 | 221 | |
| Rationalisation costs | - | - | 209 | |
| Impairment of fixed assets | - | - | 312 | |
| 5,861 | 221 | 1,686 | ||
* (£266,000) (2008: £221,000) write back of surplus provisions on completion of accounting for acquisition costs in abortive offer to acquire Imprint plc.
5 Taxation
Income tax for the interim period is based on the average annual effective rate of 28% (30 June 2008: 27.8%; 31 December 2008: 50.5%) on pre-tax profit before exceptional costs.
6 Dividends
| Six months ended | Year ended | |||
|
| 30 June 2009 £'000 | 30 June 2008 £'000 | 31 December 2008 £'000 | |
| Final dividend for the year ended 31 December 2007 of 4p per share | - | 905 | 904 | |
| Interim dividend for the year ended 31 December 2008 of 2.1p per share | - | - | 483 | |
| Final dividend for the year ended 31 December 2008 of 2p per share | 447 | - | - | |
| 447 | 905 | 1,387 | ||
The proposed interim dividend for 2009 had not been approved by the board at 30 June 2009 and is therefore not included as a liability. The comparative interim dividend at 30 June 2008 was also not recognised as a liability in the prior period. The final dividend for 2008 was approved by members on 3 April 2009 and paid on 11 May, 2009.
7 (Loss)/earnings per share
(Loss)/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.
Adjusted (loss)/earnings per share is as per basic (loss)/earnings per share, with profit adjusted to add back exceptional costs.
Fully diluted (loss)/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.
| Six months ended | Year ended | |||
|
| 30 June 2009 £'000 | 30 June 2008 £'000 | 31 December 2008 £'000 | |
| (Loss)/earnings | ||||
| (Loss)/profit attributable to equity holders of the parent | (5,899) | 2,127 | 992 | |
| Adjusted (loss)/earnings | ||||
| (Loss)/profit for the period/year | (5,899) | 2,127 | 992 | |
| Exceptional costs | 5,861 | 221 | 1,686 | |
| (38) | 2,348 | 2,678 | ||
| Number of shares | Number | Number | Number | |
| Weighted average number of shares used for earnings per share | 22,621,882 | 22,612,138 | 22,616,448 | |
| Dilutive effect of share plans | 408,522 | 1,419,986 | 1,249,617 | |
| Diluted weighted average number of shares used to calculate fully diluted earnings per share | 23,030,404 | 24,032,124 | 23,866,065 | |
| pence | pence | pence | ||
| Basic (loss)/earnings per share | (26.07) | 9.41 | 4.38 | |
| Fully diluted (loss)/earnings per share | (26.07) | 8.85 | 4.16 | |
| Adjusted basic (loss)/earnings per share | 0.00 | 10.38 | 11.84 | |
| Adjusted fully diluted (loss)/earnings per share | 0.00 | 9.77 | 11.22 | |
8 Share-based payments
On 1 July 2009 the Group made its second share issue under the Hydrogen Group Share Incentive Plan. 457,101 shares were issued to all employees with qualifying service.
The Group recognised a total expense of £85,000 (30 June 2008: £220,000; 31 December 2008: £276,000) relating to equity-settled share based payment transactions in the period.
9 Goodwill
| Six months ended | Year ended | ||||
|
| 30 June 2009 £'000 | 30 June 2008 £'000 | 31 December 2008 £'000 | ||
| Cost | |||||
| At 1 January and 30 June / 31 December | 19,010 | 19,010 | 19,010 | ||
| Accumulated impairment losses | |||||
| At 1 January | - | - | - | ||
| Impairment charge | (5,570) | - | - | ||
| At 30 June / 31 December | (5,570) | - | - | ||
| Carrying amount at 30 June / 31 December | 13,440 | 19,010 | 19,010 | ||
| Allocation of goodwill to cash generating units (CGU): | |||||
| Technology operating segment | 9,530 | 9,530 | 9,530 | ||
| Finance operating segment | 1,599 | 6,371 | 6,371 | ||
| Professional operating segment | 2,311 | 3,109 | 3,109 | ||
| 13,440 | 19,010 | 19,010 | |||
The adoption of IFRS 8 'Operating Segments' resulted in goodwill being monitored for internal management purposes at a lower level of CGU, requiring a reallocation of goodwill.
The recruitment sector as a whole has experienced a significant downturn in profitability in the first half of 2009 as a result of the global economic crisis. This provided a clear indication that the value of goodwill as at 30 June 2009 might be impaired. Testing confirmed that the following impairment charges were required:
| Impairment charges | Six months ended 30 June 2009 £'000 | ||
| Finance operating segment | 4,772 | ||
| Professional operating segment | 798 | ||
| 5,570 |
The recoverable amount of each cash generating unit is determined on a value-in-use basis utilising the value of cash flow projections over eight years, which is estimated by management to be the duration of the recruitment cycle. Cash flows are discounted by the Group's weighted average cost of capital.
Growth rates and discount rates used are stated below:
| Operating segment | Growth Rate 2009 - 2012 % | Growth Rate 2013 - 2017 % | Discount Rate % |
| Technology operating segment | 0% - 5% | 4%-5% | 9.3% |
| Finance operating segment | 0% - 20% | 5% | 9.3% |
| Professional operating segment | 0% - 20% | 5% | 9.3% |
The stronger growth rates for Finance and Professional segments over the period 2009 - 2012 reflect the low base cash flow forecasts in the current and next financial year. Given Hydrogen Group's relatively small market share, in a limited number of sectors and geographies, it is not unreasonable for its growth rates in the period 2013 - 2017 to exceed the long-term growth rate of the overall market.
10 Cash flow from operating activities
| Six months ended | Year ended | |||
|
| 30 June 2009 £'000 | 30 June 2008 £'000 | 31 December 2008 £'000 | |
| (Loss)/profit before taxation | (5,899) | 3,032 | 2,005 | |
| Adjusted for: | ||||
| Exceptional costs | 5,861 | 221 | 1,686 | |
| Depreciation and amortisation | 241 | 306 | 618 | |
| Amortisation of finance charges | 44 | 13 | 39 | |
| Utilisation of onerous lease provision | (312) | - | - | |
| Gain on sale of property, plant and equipment | (10) | (4) | (10) | |
| Share based payments | 82 | 220 | 277 | |
| Net finance costs | 48 | 126 | 240 | |
| Operating cash flows before movements in working capital | 55 | 3,914 | 4,855 | |
| Decrease in receivables | 4,610 | 106 | 4,528 | |
| (Decrease)/increase in payables | (806) | 242 | (763) | |
| Cash generated from operating activities before exceptional costs | 3,859 | 4,262 | 8,620 | |
| Income taxes paid | 150 | (1,278) | (1,973) | |
| Interest paid | (24) | (167) | (301) | |
| Net cash inflow from operating activities before exceptional costs | 3,985 | 2,817 | 6,346 | |
| Cash flows arising from exceptional costs | (285) | (823) | (860) | |
| Net cash inflow from operating activities after exceptional costs | 3,700 | 1,994 | 5,486 | |
11 Analysis of net funds/(debt)
| Six months ended | Year ended | |||
|
| 30 June 2009 £'000 | 30 June 2008 £'000 | 31 December 2008 £'000 | |
| Cash and cash equivalents | 2,348 | 287 | 566 | |
| Debt due within one year | - | (2,552) | (945) | |
| Hire purchase contracts due within one year | (11) | (62) | (21) | |
| Debt due after one year | - | (1,449) | (476) | |
| Hire purchase contracts due after one year | - | - | (4) | |
| (11) | (4,063) | (1,446) | ||
| Total | 2,337 | (3,776) | (880) | |
The Group repaid all of its outstanding senior bank debt of £1,000,000 during the period.
12 Provisions
| Onerous leases | Six months ended | Year ended | ||
|
| 30 June 2009 £'000 | 30 June 2008 £'000 | 31 December 2008 £'000 | |
| Balance at 1 January | 944 | - | - | |
| New provision | 557 | - | 944 | |
| Utilised | (312) | - | - | |
| Unwinding of discount | 26 | - | - | |
| Total | 1,215 | - | 944 | |
| Of which - expected to be incurred within 1 year | 547 | - | 571 | |
| - expected to be incurred in more than 1 year | 668 | - | 373 | |
A further provision of £557,000 (2008: nil) has been made for onerous contracts relating to vacant leasehold property. The office accommodation is expected to remain surplus to requirements for remaining lease term which expires in 2012. Marketing activity in the period failed to result in sub-lease of the accommodation, and a further provision has been made taking into consideration time to market the property, likely lease incentives that will be offered, and shortfall in rental expected over the remainder of the lease,
13 Related party transactionsTransactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. The Directors, Ian Temple and Chris Cole are also shareholders of IQ Education Recruitment Limited (IQ) and Resourcing Associates Limited (RA). During the period there were no transactions with related parties or balances outstanding.
| Transactions during the period to 30 June2009 £'000 | Trade Receivable at 30 June 2009 £'000 | Transactions during the period to30 June 2008 £'000 | Trade Receivable at 30 June 2008 £'000 | Transactions during the year to 31 December 2008 £'000 | Trade Receivable at 31 December 2008 £'000 | |
| Fees charged to IQ | - | - | - | 7 | - | - |
| Fees charged to RA | - | - | 6 | 6 | 6 | - |
| Fees received from RA | - | - | - | 1 | - | - |
All of the transactions were carried out on an arm's length basis at open market value.