HYDG.L Regulatory News (HYDG)

23 Mar 2007 07:01

Hydrogen Group PLC23 March 2007 23 March 2007 HYDROGEN GROUP PLC Preliminary results for the year ended 31st December 2006 The Board of Hydrogen Group Plc ("Hydrogen" or "the Group") one of the UK'sfastest growing specialist recruitment consultancies, which floated on AiM inSeptember 2006, is pleased to announce its unaudited preliminary results for thetwelve months ended 31st December 2006. Financial Highlights • Continued rapid organic growth in turnover up 39 per cent to £82.9 million (2005*: £59.5 million) • Gross profit (net fee income) up 41 per cent to £28.1 million (2005*: £19.9 million) • Conversion of net fee income to EBITA of 24 per cent (2005*: 23 per cent) • EBITA up by 48 per cent to £6.8 million (2005*: £4.6 million) • Profit before tax and amortisation of £6.1 million up 41 per cent (2005*: £4.3 million) • Profit before tax of £5.1 million up 23 per cent (2005*: £4.2 million) • Adjusted earnings per share** of 20.8p per share up 41 per cent (2005*: 14.8p) • Basic earnings per share of 16.3p up 16 per cent (2005*: 14.0p) • Maiden results in line with expectations Operational Highlights Proven strategy, as outlined at the time of the IPO, successfully implemented: • Continued to strengthen market position in high growth sectors • Increased cross selling across existing brands with 70 per cent of top 50 clients working with more than one business unit (2005: 58 per cent) • Broadening revenue streams and client base to approx 700 clients (2005: approx 600) • Net Fee Income well balanced across market sectors with Financial Services across the UK contributing 51 per cent • Current incubator brands in Procurement and Business Technologists in Continental Europe performing in line with our brand journey methodology and new brand launch of Front Office Trading for Q2 of 2007 • NFI productivity per head up by 13 per cent to £106,000 (2005*: £94,000) and average consultant numbers up by 25 per cent • Strong employee relationships recognised through the awards of The Guardian 'Best UK Employer' and The Sunday Times 15th 'Best Company to work for' * Based on proforma unaudited figures to illustrate the Group's results for the year ended 31 December 2005 on the assumption that the acquisitions of PRO and Partners occurred on 1 January 2005 rather than the actual date of 4 November 2005 **Adjusted for amortisation of goodwill Commenting on the results, Ian Temple, Executive Chairman, commented: "2006 has been a very good year for Hydrogen Group, driven by the Group'sleading positions in our target markets, where we enjoyed the benefits of strongclient demand and continued candidate scarcity. We remain dedicated to our proven strategy of focusing on higher growth marketsegments. The current financial year has started well, with trading conditionsremaining favourable, and we look forward to further success." Enquiries: Hydrogen Group Plc 020 7796 4133 on the morning ofIan Temple, Executive Chairman the 23rd March and on 020 7240 2500 thereafter Hudson Sandler 020 7796 4133 Kate Hough / Beth Murray An analyst meeting will be held at the offices of Hudson Sandler, 29 Cloth FairEC1A 7NN, on the morning of the results. Please contact Rebecca Ghent on 0207710 8904 for more details. CHAIRMAN'S STATEMENT On behalf of the Board of Hydrogen, I am delighted to report these excellentmaiden preliminary results for the year ended 31st December 2006. Strong demand across the sectors in which we operate and increased legislationand regulatory change have underpinned demand for specialist staff. 2006 has been an excellent year for Hydrogen, driven by the Group's leadingmarket positions in the mid to senior level professional segments of our targetmarkets, where we saw continued opportunities for sustained organic growth. We remain dedicated to our proven strategy of focusing on higher growth marketsectors, cross-selling opportunities across our existing brands and evaluatingopportunities in related markets through our proven incubator approach. Financial Highlights and Dividend The Group was formed through the acquisition of Pro Holdings Limited andPartners Group Limited on 4 November 2005. As a result, the 2005 consolidatedprofit and loss account presents information for only two months trading. Toprovide a more meaningful analysis of performance, all trading analysis is basedon proforma results as explained below*. The Group has continued to grow organically across all of our businesses.Turnover has advanced by 39 per cent* to £82.9 million producing a 41 per cent*increase in net fee income (NFI) to £28.1 million. Profit before tax andamortisation at £6.1 million has increased by 41 per cent against £4.3 million*last year and is in line with expectations. Increased conversion of NFI to EBITA* to 24% (2005*: 23%) demonstrated strongcost control, and improved productivity despite continued investment in futuregrowth. As a result EBITA grew by 48 per cent to £6.8 million (2005*: £4.6million). As outlined in our admission document at the time of our IPO, we intend to pay amaiden interim dividend in 2007. The Board I am pleased to announce that Tim Smeaton has been appointed Chief OperatingOfficer for the Group. Tim has been instrumental in the formation and growth ofHydrogen through his position as Managing Director of Partners Group. The Boardbelieves that by being fully focused on a Group role, he will be better placedto help drive the growth and development of the overall business. Following our successful IPO and these strong full year results, Janet Fricker,Finance Director, has informed the Board that she intends to leave the Group topursue an attractive opportunity closer to her home. I would like to take thisopportunity to thank Janet for her time with Hydrogen and we wish her well forthe future. Pending the recruitment of a successor, for whom a search hascommenced, I will be taking responsibility of the finance function supported byan interim replacement. I would also like to take this opportunity to welcome Ishbel Macpherson, whojoined the Board on 1st July 2006 as Senior Independent Non-Executive Director.Ishbel's wide experience in the City, as well as the broader business community,will be invaluable as we continue our development. Outlook 2006 was another good year for Hydrogen. Going forward we continue to developour successful strategy through the organic growth of our brands and weconsistently assess and exploit opportunities for further development. The Group's strong performance during 2006, despite the corporate distractionsof the IPO, is testament to our excellent business model, the commitment of ourstaff, and the experience of our management team. Trading conditions remain favourable with high demand for specialist candidatesin our target market segments. The current financial year has started stronglyacross all our brands and we look forward to the year with confidence. Ian TempleExecutive Chairman23rd March 2007 OPERATING REVIEW Introduction The Group has shown good organic growth across all our specialist brands andleveraged cross selling opportunities across our divisions. During the year wecontinued to identify niche market opportunities, which we believe will becomegrowth areas for our business. Through our proven incubator model we also continue to develop new brands suchas Procurement, Front Office Trading and Business Technologists into Europe, andcontinue to assess further opportunities. Divisions Through our specialist brand strategy we operate seven recruitment divisions;Project Partners, Commerce Partners, Target Partners, Finance Professionals,Audit Professionals, Law Professionals and HR Professionals which recruit acrossthe Business Technology, Sales, Accountancy, Financial Services and Legaldisciplines and Reflect, our human resources outsourcing consultancy. With businesses operating across a number of different specialisations, thisapproach provides us with a degree of resilience, as cycles across the differentmarkets tend to vary. Our brand journey methodology is applied across all ourbusinesses, monitoring the brands at their respective stages of development andleveraging cross-selling opportunities. All of our brands showed growth in NFI during the year compared with 2005.Project Partners, our specialist financial services business recruiting businesstechnologists, had a particularly strong year with NFI growing by 68 per cent to£7.8 million. Commerce Partners and Law Professionals continue to develop in line with ourbrand journey methodology. We are delighted with both of their performances,Commerce Partners increasing NFI by 72 per cent to £3.2 million (2005*: £1.9million) and Law Professionals increasing NFI by 51 per cent to £3.7 million(2005*: £2.5 million). We continue to maintain a broad balance between Financial Services (includinginvestment banking, insurance and retail banking) and other sectors, withFinancial Services contributing 51 per cent of our NFI. For 2006 Permanent recruitment accounted for 63 per cent of NFI, due to theparticularly strong performance from the Permanent teams. We aim for Permanentrecruitment to account for approximately 60 per cent of NFI, and have continuedto make significant investment in contract consultants to maintain this balance. 2006 saw the launch of our bespoke real time information system, enabling ourdivisions to consistently monitor activity and KPI's across all of the nichesectors and teams. Coupled with client and candidate feedback each of ourdivisions are focused on the right candidate scarce markets, whilst having theagility to react swiftly to new opportunities or changes in candidatedemographics. Our proven incubator model enables us to 'start up' in new markets costeffectively and at low risk. Current incubators include Procurement, FrontOffice Trading and Business Technologists in Europe and all are performing inline with our brand journey. Clients Our 'client journey' methodology enables us to win new business quickly anddevelop our major accounts profitably. During the period we have seen a strongincrease in the number of clients to approximately 700 (2005: approximately600). We have a retention rate of 94 per cent of our top 50 clients over three years(based on our 2004 top 50 clients). We have continued to develop these relationships with NFI from our top 50clients rising by 48 per cent to £15.6 million during the period (2005*: £10.6million) and we have leveraged cross selling opportunities with 70 per cent ofour top 50 clients working with more than one brand. Our broad client base ensures that we are not overly dependent on any oneaccount and in 2006 our largest client contributed 5.7 per cent of NFI. Staff Through our brand structure, our staff develop a high degree of commitment totheir respective sectors, fellow staff, clients and candidates, becoming highlyeffective in their market segments and achieving good productivity levels in arelatively short space of time. Throughout 2006 we have continued to grow our head count productively,increasing average staff numbers by 25 per cent to 264 (2005*: 211) andimproving average NFI productivity per head by 13 per cent to £106,000 (2005*:£94,000). During the year we were delighted to be awarded a succession of awardsreflecting our strong employee relations including being named 'UK's BestEmployer' by The Guardian, 'Best Company for Training and Development' by TheSunday Times and being listed 15th in The Sunday Times 'Best Companies to Workfor'. Current Trading Trading in 2007 has started strongly across the Group and in line with ourplans. All of our recruitment brands continue to show growth and we areencouraged by the development of our incubator brands. In particular, our FrontOffice Trading incubator outperformed its targets outlined by our brand journey,and we will be launching it as a new brand in the second quarter of 2007. We continue to benefit from our market leading positions in high growth marketsegments and increased legislative and regulatory change. As a result, we arepositive about the outlook for the current year. Tim SmeatonChief Operating Officer23rd March 2007 FINANCIAL REVIEW Turnover has increased by 39 per cent to £82.9 million from £59.5* million withstrong growth from both permanent and contract recruitment. Gross profit (net fee income) up 41 per cent to £28.1 million (2005*: £19.9million) with permanent recruitment representing 63% of NFI. EBITA increased by 48 per cent to £6.8 million (2005*: £4.6 million) and fullyear conversion of NFI to EBITA increased to 24 per cent from 23 per centdespite strong investment in future growth. Profit before tax and amortisation has increased by 41 per cent to £6.1 million(2005*: £4.3 million). This resulted in adjusted earnings per share** of 20.8pfor the year, compared to 2005* 14.8p. Balance Sheet The Group had net assets of £23.4 million. Net debt amounted to £3.8 million,plus the invoice financing facility linked to our debtor book of £8.5 million.Following the listing of the Group on AiM, the loan notes of £1.5 million wererepaid in full, along with £1 million repayment of the senior debt facility,reducing the long-term debt of the Group. Capital expenditure amounted to £0.5 million in the year due to systemdevelopment for internal management information system, the introduction of acommon accounting platform across the Group and to fit-out additional officespace. Trade debtors increased as we continued to trade strongly in the latter part ofthe year particularly in our contract placement business. Consequently, anincreased invoice finance facility within creditors was implemented, andproccesses are in place to actively manage debtor days. Cash Flow At the start of the year the Group had net debt of £9.2 million. During theyear we have invested heavily in working capital to support the rapid growth inthe business resulting in the Group's net debt at the end of the year being£12.3 million. Dividend As outlined at the time of the IPO the Group intends to pay a maiden interimdividend in 2007. CONSOLIDATED PROFIT AND LOSS ACCOUNTFor the year ended 31 December 2006 Period from Pro Forma 14 September Year Ended 2005 to 31 December 31 December Notes 2006 2005 2005 £'000 £'000 £'000 Turnover 82,927 59,469 10,789Cost of sales (54,862) (39,587) (6,956) GROSS PROFIT - NET FEE INCOME 28,065 19,882 3,833 Administrative expenses (22,247) (15,431) (2,998) OPERATING PROFIT BEFORE AMORTISATION 6,776 4,610 994Goodwill amortisation (958) (159) (159)Other administrative expenses (21,289) (15,272) (2,839) Operating profit 5,818 4,451 835 Interest receivable 11 5 6Interest payable and similar charges (688) (287) (104) Profit on ordinary activities before taxation 5,141 4,169 737Taxation 2 (1,735) (1,363) (268) PROFIT FOR THE YEAR/PERIOD 3,406 2,806 469 Basic earnings per share 1 16.3p 14.0p 4.0p Fully diluted earnings per share 1 15.6p 13.6p 3.7p A Consolidated Statement of Total Recognised Gains or Losses has not beenpresented as all such gains and losses have been dealt with in the profit andloss account. CONSOLIDATED BALANCE SHEETAs at 31 December 2006 Notes 2006 2005 £'000 £'000 Fixed assetsIntangible assets 18,052 19,030Tangible assets 905 773 18,957 19,803 Current assetsDebtors 27,060 14,250Cash at bank and in hand 161 110 27,221 14,360CURRENT LIABILITIEScreditors: amounts falling due within one year (19,799) (11,601) Net current assets 7,422 2,759 Total assets less current liabilities 26,379 22,562 Creditors: amounts falling due after more than one year (2,986) (5,993)Provisions for liabilities (22) - NET ASSETS 23,371 16,569 Capital and reserves Called up share capital 225 -Share premium account 3,190 - Share option reserve 100 -Merger reserve 16,100 16,100 Profit and loss account 3,483 469 Other reserve 273 - EQUITY shareholders' funds 4 23,371 16,569 CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31 December 2006 Period from 14 September 2005 to 31 December Notes 2006 2005 £'000 £'000 Cash (outflow)/inflow from operating activities 3a (2,574) 1,394 Returns on investments and servicing of finance 3b (662) (99) Taxation (2,389) - Capital expenditure and financial investment 3b (500) (117) Acquisitions - (5,369) Equity dividends paid (200) - Cash (outflow) before financing (6,325) (4,191) Financing 3b 6,390 4,287 INCREASE IN CASH IN THE YEAR/PERIOD 65 96 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 2006 Period from 14 September 2005 to 31 December Notes 2005 £'000 £'000 Increase in cash in the year/period 65 96Change in net debt resulting from cash flows (3,113) (4,287)Debt acquired with subsidiary undertakings - (3,322)Inception of hire purchase contracts - (191)Issue of loan notes - (1,500)Other non-cash changes (96) - MOVEMENT IN NET DEBT IN THE YEAR/PERIOD (3,144) (9,204) NET DEBT AT THE START OF THE YEAR/PERIOD (9,204) - NET DEBT AT THE END OF THE YEAR/PERIOD 3c (12,348) (9,204) Notes to the accounts 1 Earnings 2006 Period from 14 September 2005 to 31 December 2005 £'000 £'000 Earnings for basic earnings per share 3,406 469 Amortisation 958 159 Earnings for adjusted earnings per share 4,364 628 Number of shares Weighted average number of shares used to calculate basic and adjusted earnings per share 20,945,975 11,657,143 Dilutive effect of share plans 835,538 1,009,299 Diluted weighted average number of shares used to calculate fully diluted earnings per share 21,781,513 12,666,442 Basic earnings per share 16.3p 4.0p Adjusted earnings per share 20.8p 5.4p Fully diluted earnings per share 15.6p 3.7p Fully diluted and adjusted earnings per share 20.0p 5.0p Notes to the accounts 2006 Period from2 Taxation 14 September 2005 to 31 December 2005 £'000 £'000 Current tax: UK corporation tax on profits of the year / period 1,747 290 Adjustment to tax charge in respect of previous periods (15) - Total current tax 1,732 290 Deferred taxation: Origination and reversal of timing differences 3 (22) Total deferred tax 3 (22) Tax on profit on ordinary activities 1,735 268 Factors affecting tax charge for period: The tax assessed for the period is higher than the standard rate of corporation tax in the UK (30%). The differences are explained below: Profit on ordinary activities before tax 5,141 737 Profit on ordinary activities multiplied by standard rate of corporation tax in the UK 30% 1,542 221 Effects of: Expenses not deductible for tax purposes 372 59 Difference between depreciation and capital allowances 37 12 Other timing differences (1) - Small companies relief - (2) Adjustment to tax charge in respect of previous periods (15) - Permanent differences (share based costs) (203) - Current tax charge for year / period 1,732 290 Notes to the accounts Period from3 CASH FLOW 14 September 2006 2005 to £'000 31 December 20053a Reconciliation of operating profit to net cash (outflow)/inflow from operating activities Operating profit 5,818 835 Depreciation 446 75 Goodwill amortisation 958 159 Loss/(profit) on sale of tangible fixed assets 22 (11) Share based payments charge 318 - Increase in debtors (12,790) (3,377) Increase in creditors 2,654 3,713 Net cash (outflow)/inflow from operating activities (2,574) 1,394 3b Analysis of cash flows for headings netted 2006 2005 in the cash flow £'000 £'000 Returns on investments and servicing of finance Interest received 11 6 Interest paid (673) (105) Net cash outflow from returns on investments and servicing of finance (662) (99) Capital expenditure and financial investment Purchase of tangible fixed assets (565) (131) Proceeds from sale of tangible fixed assets 65 14 Net cash outflow from capital expenditure and financial investment (500) (117) Acquisitions Purchase of subsidiary undertakings (including costs) - 4,885 Net overdrafts acquired with subsidiary undertakings - 484 Net cash outflow for acquisitions - 5,369 Financing Issue of ordinary share capital 3,277 - Repayment of bank loans and loan notes (2,500) (593) Increase in borrowings (net of finance costs) 5,754 4,896 Capital element of hire purchase rental payments (141) (16) Net cash inflow from financing 6,390 4,287 Notes to the accounts Other non cash 31 1 January Cash flow changes December3c Analysis of net debt 2006 £'000 £'000 2006 £'000 £'000 Cash at bank and in hand 110 51 - 161 Bank overdrafts (14) 14 - - 96 65 - 161 Debt due within one year (3,209) (5,754) (480) (9,443) Debt due after one year (5,916) 2,500 480 (2,936) Hire purchase contracts (175) 141 (96) (130) (9,300) (3,113) (96) (12,509) Total (9,204) (3,048) (96) (12,348) 4 RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS 2006 2005 £'000 £'000 Opening shareholders' funds 16,569 - Profit for the year/period 3,406 469 Dividends (200) - Proceeds from issue of shares on acquisition - 16,100 Increase in share capital 225 - Bonus issue of shares (206) - Share premium in the year from listing 3,190 - Share option reserve 100 - Other reserves 273 - Share based payment 14 - Closing shareholders' funds 23,371 16,569 Basis of accounting The consolidated financial information for the year ended 31 December 2006 hasbeen prepared on a basis consistent with the previous year and in accordancewith applicable UK accounting standards. The preliminary announcement does notconstitute the Group's statutory financial statements within the meaning ofS.240 of the Companies Act 1985. The financial information included in this announcement has been extracted fromthe un-audited financial statements for the year ended 31 December 2006 and theaudited financial statements for the year ended 31 December 2005. The Group's 2006 Annual Report and Financial statements are to be delivered tothe Registrar of Companies following the Company's Annual General Meeting in May2007. The Group's 2005 accounts, which contain an unqualified audit report,have been filed with the Registrar of Companies. This information is provided by RNS The company news service from the London Stock Exchange