HYDG.L Regulatory News (HYDG)

Hydrogen Group plc

5 September 2011

UNAUDITED CONDENSED CONSOLIDATED INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2011

The Board of Hydrogen Group Plc ("Hydrogen" or "the Group"), the specialist international recruitment Group, is pleased to announce its unaudited interim results for the six months ended 30 June 2011.

Financial Highlights

·; Group revenue increased by 45% to £80.0m (2010: £55.2m)

·; Group net fee income ('NFI') increased by 14% to £15.1m (2010: £13.2m)

·; Profit before tax increased by 64% to £1.8m (2010: £1.1m)

·; Profit conversion (ratio of profit before tax: NFI) increased by 50% to 12% (2010: 8%)

·; Basic earnings per share increased by 76% to 6.01p (2010: 3.42p)

·; Reduction in net debt to £1.5m (31 December 2010 £2.2m)

·; Interim dividend maintained at 1.4p (2010: 1.4p)

Operating Highlights

·; Strong contract performance with NFI up 41% to £8.1m (2010: £5.7m)

·; NFI from Engineering increased by 71% to £2.9m (2010: £1.7m)

·; Hong Kong office opened in April 2011

·; Headcount servicing international markets increased by 13% to 112 (31 December 2010: 99), representing 40% of Group fee earning headcount (31 December 2010: 38%)

Commenting, Ian Temple, Executive Chairman of Hydrogen Group plc said:

"The Group has delivered good results for the first six months of the year. A strong performance from our contract business, combined with continued tight control of costs has enabled us to increase profitability, whilst carefully investing in our international network to ensure we are well positioned for medium-term growth.

Whilst uncertainty in the macro economic outlook continues to result in reduced visibility in our markets, the Group is performing in line with expectations, with our performance in July and August broadly consistent with that of the previous quarter."

Enquiries:

An analyst meeting will be held at 11:30am at Hydrogen's offices, Nicholas House, 3 Laurence Pountney Hill, London, EC4R 0EU on 5 September 2011.

Notes to Editors:

Hydrogen is a leading international specialist recruitment group that places high quality staff into clients on a permanent and contract basis and operates across four core sectors: Technology, Finance, Professional and Engineering. In each of these areas we have scale and strong brand recognition.

As a Group, we are focused on finding and building local and global relationships with hard to find, in demand, specialist candidates that clients cannot source themselves. We continue to leverage these strengths to grow and develop our offering into new markets and geographies, and have placed candidates in over 40 countries in the last 12 months.

The Group currently has approximately 350 employees globally, of which 40% are international facing.

CHAIRMAN'S STATEMENT

Overview

The Group has delivered a good performance in the first six months of 2011. Net Fee Income ("NFI") rose by 14% over the period, predominantly driven by our contract business which has shown strong growth in the UK and Europe. Tight control of costs, headcount growth and productivity gains have resulted in a significant increase in profitability.

We have continued with our strategy of diversification and international expansion, positioning our business for long term growth. During the period we further strengthened our international network, investing in our established offices in Australia and Singapore and expanding our international footprint with the opening of our first office in Hong Kong in April 2011.

Financial Highlights

Group revenue for the six months ended 30 June 2011 grew by 45% to £80.0m (2010: £55.2m) with Group NFI increasing by 14% to £15.1m (2010: £13.2m).

Continued investment coupled with tight cost control has enabled us to contain growth of administration costs to 9%, as they increased to £13.2m (2010: £12.1m). This has allowed the Group to deliver a 64% increase in profit before tax of £1.8m (2010: £1.1m) and significantly improve our NFI to profit conversion rate by 50% to 12% (2010: 8%).

The charge for taxation is based on the expected annual effective tax rate of 28% (2010: 31%).

Basic earnings per share increased by 76% to 6.01p (2010: 3.42p).

We continued to exercise tight control of our working capital and days of sales outstanding (DSOs) have seen a reduction to 22 days (31 December 2010: 25 days) ahead of our target range.

Cash flow

The Group started the period with net debt of £2.2m. In the first half of the year we generated cash of £1.8m from operations, after funding an increase of £0.4m in working capital reflecting the growth in the group's contractor book.

After tax payments of £0.2m (2010: £0.2m), capital expenditure of £0.2m (2010: £0.2m) and dividend payment of £0.6m (2010: £0.8m), we finished the period with net debt of £1.5m, representing a reduction of £0.7m.

Dividend

The Group has declared a half year dividend of 1.4p (2010: 1.4p) payable on 4 November 2011 to shareholders on the register as at 5 October 2011.

Operations

The Group's continued investment in contract headcount was rewarded with a second consecutive period of record performance with NFI up 41% year on year to £8.1m (2010: £5.7m), representing 54% of Group NFI (H1 2010: 43%). In the financial services sector in the UK we frequently find ourselves on the supplier short-list for major projects involving business and technology transformation. We have also seen strong growth in the period in the Pharmaceuticals sector in Europe and the Engineering sector globally.

The Group experienced a slow start to the year in permanent recruitment in all of its markets, but activity has increased steadily during the period, driven in particular by good levels of activity in the Engineering sector.

We have continued to make good progress during the period against our strategies of internationalisation and diversification, investing selectively in robust market segments and expanding into new international markets. Our Engineering segment which we started in 2007 grew by 71% year on year and our Pharmaceutical business launched in 2010 continued to trade well. We continue to use our low risk 'incubator' approach to trial new businesses and geographies.

During the first half of 2011 we have made further investment in our international offices, enhancing the management teams in Sydney and Singapore with experienced leaders from our London office, to ensure we have the right people in place to lead these businesses into the next phase of growth. Whilst vital for long term development, these changes had some impact on short term activity levels in the first half with growth in NFI from our international business slowing, although still up 8% on the same period last year. When combined with the Group's strong UK performance during the period, contribution to Group NFI from international operations was broadly flat at 33% (H1 2010: 35%).

We have made further progress in expanding our offer across our international markets, having established our Engineering sector in our Sydney office and expanding our Singapore office to include Finance, Professional and Engineering segments. In April 2011 we opened our new office in Hong Kong where we have been pleased with early trading and have already introduced our Technology and Professional segments.

Staff

During the period, Group headcount increased by 6.4% to 350 employees (31 December 2010: 329) comprising a 7% increase in the number of fee earners and a 4% increase in the number of support staff. Investment in headcount continues to be directed towards adding new fee earners in international markets, where prospects for future growth look most promising. The Group increased headcount servicing international markets by 13 to 112, which means that 40% of the Group's consultants now service markets outside the UK.

Productivity per head improved on the second half of 2010 and was £91k per head per annum (31 December 2010: 90k). This remains below our previous peak and we expect to see this figure rise as newly appointed consultants become more established.

On behalf of the Board I would like to take this opportunity to thank the staff for all their hard work and dedication during the period which has contributed to the delivery of these results.

Current Trading and Outlook

The outlook for the broader macro economic climate remains uncertain, as a consequence of which there continues to be limited visibility in our markets, particularly in permanent recruitment. Nevertheless trading in July and August has been broadly consistent with that of the previous quarter, and the Group continues to perform in line with our expectations.

Supported by our strong balance sheet and good cash generation, we will continue to invest in the business, particularly overseas, where the Group is positioning itself to capitalise on the medium-term growth drivers.

Ian Temple Tim Smeaton

Executive Chairman Chief Executive

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2011

The notes on pages 6 to 12 form an integral part of this unaudited condensed consolidated interim report.

UNAUDITED CONDENSED CONSOLIDATED INTERM STATEMENT OF FINANCIAL POSITION

As at 30 June 2011

The notes on pages 6 to 12 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 2011

The notes on pages 6 to 12 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 2011

UNAUDITED RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET (DEBT)/FUNDSFor the six months ended 30 June 2011

The notes on pages 6 to 12 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 2011

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, Singapore, Hong Kong, 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 unaudited condensed consolidated interim report for the six months ended 30 June 2011 (including comparatives) are presented in GBP '000, and were approved and authorised for issue by the board of directors on 2 September 2011.

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 2010 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 2011 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 2010, 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.

The Group has been cash generative during the current interim six months despite continuing to experience significant revenue growth. Through management of its cash resources the Group has reduced its net debt position at the end of the period by £0.7m. To facilitate the Group's continued growth its invoice discounting facility has been increased from £13m to £18m. 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 2010, except for the adoption of 'Improvement in IFRSs 2010 (2010 Improvements)' as of 1 January 2011.

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 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, audit and corporate finance professionals into mid to senior roles;- Professional, which places lawyers from qualified to partner level, and mid to senior level HR professionals; and- Engineering, which places engineers, and other technical disciplines.

Revenue reported above represents revenue generated from external customers. There are no sales between segments in the six months (30 June 2010: Nil, 31 December 2010: 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 10% of the entity's revenues with revenue of £28,205,000 in the Technology segment (30 June 2010: one customer, £10,825,000, Technology segment; 31 December 2010: one customer, £31,741,000, Technology segment).

(b) Revenue and gross profit by geography

(c) Revenue and gross profit by recruitment classification

4 Income tax expense

The charge for taxation on profits for the interim six months amounted to £0.5m (30 June 2010: £348,000, 31 December 2010: £709,000) an effective rate of 28% (30 June 2010: 31%; 31 December 2010: 28%) on profit before tax.

5  Dividends

The proposed interim dividend for 2010 was approved by the board on 2 September 2010, and was not recognised as a liability in the period to 30 June 2010. The final dividend for 2010 was proposed on 14 March 2011, and was not recognised as a liability in the year ended 31 December 2010.

6 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.

7 Cash flow from operating activities

8  Trade and other receivables

9  Trade and other payables