HYDG.L Regulatory News (HYDG)

4 Apr 2008 07:01

Hydrogen Group PLC04 April 2008 4 April 2008 Hydrogen Group plc Share buyback, additional listing, posting of annual report and accounts, notice of AGM and adjustment to 2007 preliminary results Share buyback A number of current and recent former employees within Hydrogen Group plc ("Hydrogen") have advised the company that they wish to take the opportunity tosell shares or exercise options over Hydrogen shares and sell the resultingshares ahead of the changes to capital gains tax rates effective on 6 April2008. In the light of current circumstances, the Board of Hydrogen believesthat it would be more beneficial for the company as a whole for such shares tobe bought back by the company rather than sold into the market. Accordingly, the company has funded an Employee Benefit Trust ("EBT") to acquireup to 280,359 shares at 215p per share, the market price at the close ofbusiness on 3 April 2008. The net cost to the company, after taking account ofexercise proceeds and stamp duty/SDRT, is approximately £402,000. None of theDirectors or the founder shareholders of Hydrogen is participating in this sale. Each of the participating optionholders and shareholders has agreed that theywill not, except in certain limited circumstances or with the agreement of thecompany and Oriel Securities, its NOMAD and broker, dispose of the balance oftheir Hydrogen shares, options over Hydrogen shares and/or any other Hydrogenshares they subsequently acquire before the publication of Hydrogen'spreliminary results for the year ending 31 December 2008. The Board of Hydrogen intends to utilise the shares acquired by the EBT as partof its long term employee incentive programmes. It has no current intention ofrecommending to the EBT Trustees the allocation of shares acquired by the EBT toemployees in the near term. Under UTIF Abstract 38, until such time as theshares are vested unconditionally in the hands of beneficiaries, they will bededucted from equity within the group accounts and will not be taken intoaccount for the purposes of the calculation of earnings per share. The Trusteeshave indicated that, until such time, it would be their intention to waive anyright to dividend on the shares. The funding of the EBT will be financed through the company's existing bankfacilities and is expected to enhance earnings per share. Additional listing As a result of the above, application has been made to AIM for admission of270,259 ordinary shares of 1p each in the company. These shares, which willrank pari passu in all respects with the existing shares in issue, have beenallotted pursuant to the exercise of options. Admission is expected to becomeeffective on 10 April 2008. Posting of 2007 annual report and accounts, notice of AGM and adjustment to 2007preliminary results The Board of Hydrogen announces the posting to shareholders of its annual reportand accounts for the year ended 31 December 2007 and the convening of its AGM tobe held at 11am on 29 April 2008 at Pountney Hill House, 6 Laurence PountneyHill, London EC4R 0BL. The Board released unaudited preliminary results for the year ended 31 December2007 on 29 February 2008. These results included £1.3 million of costs andexpenses relating to the proposed acquisition of Imprint plc which were includedwithin prepayments based on circumstances at the time the preliminary resultswere approved for release by the Board and the company's auditors. The Imprint Board has subsequently changed its recommendation of Hydrogen'sproposal in favour of a third party. In finalising the audit for the 2007 AnnualReport and in the light of the change in circumstances, the Board of Hydrogenhas agreed with the company's auditors that such costs and expenses should beexpensed, as exceptional items, in the 2007 income statement. Accordingly, the2007 Annual Report includes financial statements that differ from those issuedin the preliminary statement of results. The adjusted preliminary results areset out in the Appendix to this announcement. Any additional costs in relationto the proposed acquisition of Imprint incurred since 31 December 2007, net ofany break fee received by the company from Imprint, will be charged asexceptional items in the 2008 financial statements. Press enquiries: Hydrogen Group Plc 020 7240 2500Ian Temple, Executive ChairmanTim Smeaton, Chief Operating Officer Oriel Securities 020 7710 7600NOMAD to HydrogenDavid Arch / Natalie Fortescue Hudson Sandler 020 7796 4133Financial PR AdvisersKate Hough 4 April 2008 HYDROGEN GROUP PLC Revised preliminary results for the year ended 31st December 2007 The Board of Hydrogen Group Plc ("Hydrogen" or "the Group"), one of the UK'sfastest growing specialist recruitment consultancies, is pleased to announce itsunaudited preliminary results for the twelve months ended 31st December 2007. Financial Highlights • Strong organic growth with revenue up 24.6% to £103.4m (2006: £82.9m) • Gross profit (Net Fee Income "NFI") up 14.1% to £32.0m (2006: £28.1m) • Pre-tax profit before exceptional costs of £8.0m up 31.1% (2006: £6.1m) • Conversion of NFI to Pre-tax profit before exceptional costs grew to 25.0% (2006: 21.7%) • Cash generated from operations of £12.2m (2006: £(2.6)m) • Net debt down to £4.2m (2006: £12.3m) • Trade receivable days reduced to 43 days (2006: 63 days) • Basic earnings per share before exceptional costs of 24.6p up 20.6% (2006: 20.4p) • Proposed final dividend of 4p (2006: nil) resulting in a proposed total dividend for the year of 6p (2006: 1p) Operational Highlights • Continued to strengthen market positions in high growth sectors • Broadening revenue streams and growth in client base of 31.8% to approx 869 clients (2006: approx 658) • NFI well balanced across market sectors, with Financial Services across the UK contributing 53% • Maintained average annual NFI productivity above £100,000 per head, whilst increasing staff headcount by 16% • Strong cash management Commenting on the results, Ian Temple, Executive Chairman, said: "I am delighted to report another year of strong growth for our business. Strongdemand across the sectors in which we operate and increased legislation andregulatory change continue to underpin demand for specialist staff. Independentresearch conducted for the Group found that over 80% of employers are now makingrecruitment of employees their number one priority. Trading in 2008 has started well and in line with the Board's expectations, withour brands continuing to show good growth. Whilst there have been signs ofweakness in certain areas of the financial services sector, overall activityacross the Group remains good, underlining the importance of our diversifiedbusiness model and our focus on mid level professional recruitment. The Board is carefully monitoring the market environment, however it remainsconfident of another year of good progress." Enquiries: Hydrogen Group Plc 020 7240 2500Ian Temple, Executive Chairman Hudson Sandler 020 7796 4133Financial PR AdvisersAndrew Hayes / Kate Hough Oriel Securities 020 7710 7600NOMAD to HydrogenDavid Arch / Luke Webster CHAIRMAN'S STATEMENT On behalf of the Board of Hydrogen I am delighted to report another record setof results. 2007 has been a year of excellent growth for Hydrogen. Strong demandacross the sectors in which we operate and increased legislation and regulatorychange continue to underpin demand for specialist staff. Through our market leading positions in the mid to senior level professionalsegments of our target markets, we have been able to drive organic growth duringthe year, with revenue exceeding £100m for the first time. In addition, weachieved a significant increase in profitability due to efficiencies gained fromeconomies of scale, cross selling and our consistent focus on productivity. Financial Highlights The Group delivered strong organic growth with revenue up 24.6% to £103.4m(2006: £82.9m), producing a 14.1% increase in NFI to £32.0m (2006: £28.1m). Pre-tax profit before exceptional costs relating to the proposed acquisition ofImprint plc was £8.0m, an increase of 31.1% on £6.1m in 2006, generatingadjusted basic earnings per share of 24.6p (2006: 20.4p). Conversion of NFI to pre-tax before exceptional costs grew to 25.0% (2006:21.7%) reflecting strong cost control and our on-going focus on creating backoffice efficiencies. Through an increased focus on cash management we generated £12.2m of cash fromoperations and reduced net debt from £12.3m to £4.2m. Dividend An interim dividend of 2.0p per share was paid on the 9 November 2007. The Boardis recommending a final dividend of 4.0p per share which, subject to shareholderapproval, will be paid on 30 April 2008 to those shareholders on the register asat 25 March 2008. As such, should the recommended proposal for the acquisitionfor Imprint Plc be successful, Imprint shareholders who receive shares as partof the offer will not be eligible to receive this dividend. The Market Independent research conducted for Hydrogen Group found that over 80% ofemployers are now making recruitment of employees their number one priority,with over half stating that it is hard to find good quality candidates. Aggressive cut backs made to the graduate intakes of major legal and accountancypractice firms between 2001 and 2004 have resulted in a shortage of qualifiedcandidates in these sectors. Within the IT sector, increased regulatory changewithin the financial institutions coupled with a decline in the number of peopleentering the profession between 2001 and 2003, has also led to a shortage ofskilled business technologists. These trends continue to force employers to keeprecruitment of these increasingly scarce professionals high on their agendas andshould continue to drive growth in 2008. Offer for Imprint Plc On 20 December 2007, the Board of Hydrogen announced a recommended proposal forthe acquisition of Imprint Plc. On 15 February 2008, following a competitiveauction process, the Board of Imprint Plc recommended a revised proposal fromHydrogen which valued the entire existing issued and to be issued share capitalof Imprint at approximately £42.9 million. There are currently two other parties with offers outstanding for Imprint plcand, as the final outcome is uncertain, the costs and expenses of £1.3mpreviously held in prepayments have been expensed in the 2007 consolidatedincome statement as exceptional costs. The Board of Hydrogen considers there to be strong strategic and culturalsynergies between Hydrogen and Imprint and believe this opportunity wouldprovide a strong platform for growth. Board and Employees I would like to take this opportunity to thank the Board and our colleagues forall their hard work and commitment in 2007. I am delighted that Hydrogen hasbeen named a Sunday Times 'Best Company to Work For' for the fourth consecutiveyear and consider these strong results to be testament to the quality ofindividuals we have within the Group. Current Trading Trading in 2008 has started well and in line with the Board's expectations, withour brands continuing to show good growth. Whilst there have been signs ofweakness in certain areas of the financial services sector, overall activityacross the Group remains high, underlining the importance of our diversifiedbusiness model and our focus on mid level professional recruitment. The Board iscarefully monitoring the market environment, however it remains confident ofanother year of good progress. Ian TempleExecutive Chairman4 April 2008 OPERATING REVIEW The Business Hydrogen is a specialist recruitment consultancy, principally engaged in therecruitment of professional permanent and contract staff for large and fastgrowing medium sized organisations. The Group has ten niche brands being ProjectPartners, Commerce Partners, Target Partners, Finance Professionals, AuditProfessionals, Law Professionals, HR Professionals, Eurisko Search, Darwin Park,each specialising in recruitment within their disciplines, and Reflect, arecruitment process outsourcing consultancy. Our specialist brands have shown good growth in NFI for the year compared with2006. Commerce Partners, which places business technologists into commerce andindustry, had a particularly strong year, with NFI growing 47% to £4.7m (2006:£3.2m). Our sales business, Target Partners, generated growth in NFI of 35% to£1.8m (2006: £1.3m), and our legal brand, Law Professionals, grew NFI by 18% to£4.4m (2006: £3.7m). These brands have now reached critical mass, benefitingfrom leading positions in specialist markets where there is strong demand forhigh quality candidates. Brand Growth Strategy Across all our brands, we continue to apply our proven methodology foridentifying niche market opportunities where there is an underlying demographicshortage of candidates. By focusing on building strength and depth within very tightly defined highgrowth segments, we are able to take dominant market positions within shorttime-frames. This level of focus and rigour has resulted in productivity of over£100,000 per head across the Group, and should underpin future growth. Our 'incubator' methodology enables us to enter new markets cost-effectively,discontinuing teams if they fail to achieve growth and profitability targetswithin a six month period. 2007 saw the launch of our ninth specialist brand,Eurisko Search, as well as the opening of our Sydney office in August, with bothbusinesses having met the required performance criteria at incubator stage andnow performing to management's expectations. To ensure we maintain our business balance and boost future growth, BoardDirector, Chris Cole, now focuses solely on new brand development, havingestablished a dedicated incubator programme, Darwin Park, in August 2007. Byfollowing our 'Incubator Journey', Darwin Park is able to start up in newmarkets cost effectively and at low risk. New businesses launched in Darwin Parkduring 2007 include property and administrative support. Diversity As referred to above, Hydrogen is structured around ten niche brands which spana range of markets and disciplines and each have their own drivers and marketcycles. This enables the Group to achieve a degree of market resilience, withour largest brand, Project Partners, representing only 27% of NFI. The business maintains a broad balance within financial services (includinginsurance, investment banking, retail banking, credit cards and fund managementin the front, middle and back office) and commerce, with financial servicescontributing 53% of NFI (2006: 51%). During the period, the market has been stronger for permanent recruitment, butby investing heavily in the contracts business, the mix of contract andpermanent has remained steady. In 2007, 60% of NFI was from permanentrecruitment (2006: 63%), 36% from contract (2006: 31%) and the balance fromReflect, our Recruitment Process Outsourcing division. Clients With approximately 870 clients in 2007 (2006: 658 clients), our client baseremains very broad ensuring the business does not become overly weighted towardssingle accounts. Our 'Client Journey' methodology ensures that we continue to grow revenues fromexisting clients, with NFI for our top 50 clients rising to £17.5m in 2007(2006: £15.6m). Staff The ability to recruit new staff is crucial to the growth of the business. Thishas been achieved by hiring individuals from a variety of backgrounds, with themajority of staff being new to the recruitment industry. In 2007, we increasedstaff numbers by 17% to 330 (2006: 282), whilst maintaining average annual NFIproductivity per head above £100,000. At the end of 2007, we moved our Holbornoffice to larger premises in Old Bailey to meet current and forecast headcountgrowth. Culturally, we aim to combine high levels of personal accountability andvisibility with high levels of reward and recognition. Every employee agrees aset of personal targets at the start of every quarter, and there are real-timedeal boards in each office reporting on activity and progress against targetsfor every consultant, team and brand. A significant proportion of staff compensation is related to performance, withrecruiting staff being able to earn over 100% of their base remuneration inperformance related pay. In addition, we operate a share scheme for individualsin leadership roles to incentivise them to hit their long-term NFI and profitgrowth targets. We invest heavily in training and have structured development programmes forevery stage of a recruiter's career journey. In 2007, the quality andeffectiveness of our training was recognised by The Sunday Times and TheGuardian, who both rated the quality of our training and development more highlythan any other company in the UK. Our focus in this area enables us to integrateexperienced consultants effectively and to get new consultants to add valuequickly, with many of our highest performers being home grown. During the year, we were delighted to have been placed in The Sunday Times 'BestCompanies to Work for' league for the third consecutive year, reflecting ouron-going focus on staff engagement. In addition, 2007 saw the Group being namedan 'Extraordinary Employer' by Best Companies Ltd, as well as being named 'Britain's Top Employer' by the Guardian. Tim SmeatonChief Operating Officer4 April 2008 FINANCIAL REVIEW International Financial Reporting Standards (IFRS) As an AiM listed company the Group has been required to adopt InternationalFinancial Reporting Standards as endorsed by the EU in the preparation of itsfinancial statements for 2007, including the restatement of comparativeinformation for 2006. The major impacts of adoption have been the cessation ofamortisation of goodwill, and its replacement with an annual impairment test,and a change in the accounting for the deferred tax arising on share-basedpayments. Full detail of the changes, and reconciliation to 2006 numbers aspreviously reported under UK GAAP are included in the notes to the financialstatements. Results 2007 was another successful year delivering strong growth, particularly in thecontract market. Revenue for the year was £103.4m (2006: £82.9m), an increaseof 24.6%, with a 29.5% increase in contract revenue to £79.8m (2006: £61.1m).Growth in some permanent disciplines was constrained by a lack of suitablyqualified candidates. The strong performance in the contract market meant that revenue grew fasterthan gross profit (Net Fee Income), which increased by 14.1% to £32.0m (2006:£28.1m) for the year. Economies of scale and a focus on process efficiencies reduced the level ofgrowth of administrative costs, and as a percentage of NFI they declined to72.8% (2006: 75.9%). Included in administrative expenses are one off costs of£0.2m associated with moving one of the London offices to larger premises. During 2007, the Group sought to advance its strategic objectives through theacquisition of Imprint plc. Two other parties have made rival offers and theoutcome remains uncertain. The Group has expensed in 2007, as exceptional costs,accountants and advisors fees of £1.3m relating to the offer. The net interest charge of £0.7m (2006: £0.7m) includes interest on the seniordebt facility and invoice discounting facility with HSBC. The focus on workingcapital management enabled the Group to maintain its borrowing costs despiteincreasing interest rates in 2007. The outcome of the effective cost management was an increase in the conversionratio (Pre-tax profit before exceptional costs divided by gross profit) to 25.0%(2006: 21.7%). Pre-tax before exceptional costs increased by 31.1% to £8.0m(2006: £6.1m). Tax on profits amounted to £2.5m (2006: £1.8m), representing an effective taxrate of 30.6% (2006: 30.0%) on profit before exceptional costs. Basic earnings per share before exceptional costs increased to 24.6p (2006:20.4p), and diluted earnings per share before exceptional costs, taking intoaccount existing share options, increased to 23.3p (2006: 19.6p). Balance Sheet The Group's balance sheet strengthened during the year with net assetsincreasing to £28.9m, predominantly due to the retained profit of £4.2m. Netdebt reduced from £12.3m to £4.2m. The Group maintained tight control over its working capital, and managed areduction in its trade receivables, despite the rapid growth in trading volumes.Trade receivables at 31 December 2007 amounted to £13.7m (2006: £18.4m)represented 43 days sales (2006: 63 days sales). Cashflow Increased profitability and tight working capital control gave rise to strongcash generation for the year. Cash generated from operations amounted to £12.2m(2006: £2.6m used in operations). Taxes paid were £2.0m (2006: £2.4m) andinterest payments were £0.7m (2006: £0.7m). £1.0m was spent on items of capital,enhancing management information systems, and fit out of new premises for themove of one of the London offices on expiry of its existing office lease. The opportunity was taken to repay significant amounts of bank borrowings, £1.0mof senior debt (2006: £1.0m), and £7.0m of invoice discounting facility (2006:£5.8m drawdown). An interim dividend was paid to shareholders of £0.5m (2006: £0.2m). Ian TempleExecutive Chairman4 April 2008 The Board of Directors announce the following unaudited results for the yearended 31st December 2007 which will be approved by the Board on 4 April 2008. CONSOLIDATED INCOME STATEMENTFor the year ended 31 December 2007 2007 2006 Note £'000 £'000 Revenue 1 103,359 82,927 Cost of sales (71,324) (54,862) Gross profit 1 32,035 28,065 Administration expenses (23,329) (21,289) Operating profit before exceptional costs 8,706 6,776Exceptional costs (1,347) - Operating profit after exceptional costs 7,359 6,776 Finance costs (745) (688)Finance income 36 11 Profit before tax 6,650 6,099 Income tax expense 3 (2,452) (1,832) Profit for the year 4,198 4,267 Attributable to equity holders of the parent 4,198 4,267 Earnings per shareBasic earnings per share (pence) 4 18.59p 20.37p Diluted earnings per share (pence) 4 17.63p 19.59p The above results relate to continuing operations. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFor the year ended 31 December 2007 2007 2006 £'000 £'000 Exchange differences on translation of foreign operations 3 -Deferred tax on share options (128) 759 Net (loss)/ income directly recognised directly in equity (125) 759 Profit for the year 4,198 4,267 Total recognised income for the year 4,073 5,026 Attributable to:Equity shareholders of the parent 4,073 5,026 CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2007 Share Share Share Merger Option Other Translation Retained Total Capital premium reserve reserve Reserve Reserve Earnings Equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 January - - 16,100 - - - 469 16,5692006Profit for the year - - - - - - 4,267 4,267Dividends - - - - - - (200) (200)Share option charge - - - 33 273 - 14 320Deferred tax on share - - - - - - 759 759optionsIncrease in share 19 4,099 - - - - - 4,118capitalOptions issued on - - - 67 - - - 67flotationExpenses of float on AIM - (909) - - - - - (909)Bonus issue of shares 206 - - - - - (206) - Balance at 31 December 225 3,190 16,100 100 273 - 5,103 24,9912006 Balance at 1 January 225 3,190 16,100 100 273 - 5,103 24,9912007Profit for the year - - - - - - 4,198 4,198Dividends - - - - - - (452) (452)Share option charge - - - - 221 - - 221Tax on share-based - - - - - - (128) (128)chargesIncrease in share 2 30 - - - - (1) 31capitalForeign currency - - - - - 3 - 3translation Balance at 31 December 227 3,220 16,100 100 494 3 8,720 28,8642007 CONSOLIDATED BALANCE SHEETAs at 31 December 2007 2007 2006 £'000 £'000Non-current assetsGoodwill 19,010 19,010Other intangible assets 320 218Property, plant and equipment 963 687Deferred tax assets 628 706Other financial assets 84 80 21,005 20,701Current assetsTrade and other receivables 24,081 26,914Cash and cash equivalents 330 161 24,411 27,075 Total assets 45,416 47,776 Current liabilitiesTrade and other payables 10,749 9,475Borrowings 2,514 9,523Current tax liabilities 1,307 801 14,570 19,799 Non-current liabilitiesBorrowings 1,982 2,986 Total liabilities 16,552 22,785 Net assets 28,864 24,991 Equity Share capital 227 225Share premium account 3,220 3,190Merger reserve 16,100 16,100Share option reserve 100 100Other reserve 494 273Translation reserve 3 -Retained earnings 8,720 5,103 Total equity 28,864 24,991 CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31 December 2007 2007 2006 Note £'000 £'000 Net cash from/(used in) operating activities 5a 9,440 (5,636) Investing activitiesInterest received 38 11Proceeds from disposal of property, plant and equipment 87 65Purchase of property, plant and equipment (729) (360)Purchase of software assets (237) (205) Net cash used in investing activities (841) (489) Financing activitiesProceeds on issuance of ordinary shares 32 3,277Repayment of bank loans and loan notes (1,000) (2,500)Increase in other borrowings - 5,754Repayment of other borrowings (6,987) -Repayment of obligations under finance leases (26) (141)Equity dividends paid 2 (452) (200) Net cash (used in)/from financing activities (8,433) 6,190 Net increase in cash and cash equivalents 166 65 Cash and cash equivalents at beginning of year 161 96Effect of foreign exchange rate changes 3 - Cash and cash equivalents at end of year 330 161 NOTES For the year ended 31 December 2007 Basis of accounting The consolidated financial statements of the Hydrogen Group plc have beenprepared under the historical cost convention and in accordance with currentInternational Financial Reporting Standards as endorsed by the EU (IFRSs). Theconsolidated financial statements are covered by IFRS 1, 'First-time Adoption ofInternational Financial Reporting Standards' because they are the firstconsolidated financial statements of the Hydrogen Group plc to be prepared inaccordance with IFRS. The consolidated financial statements of the Hydrogen Group plc were prepared inaccordance with United Kingdom Generally Accepted Accounting Principles (UKGAAP) until 31 December 2006. UK GAAP differs in some areas from IFRS. Inpreparing the 2007 consolidated financial statements management has amendedcertain accounting and valuation methods applied in the UK GAAP financialstatements to comply with IFRS. The comparative figures for 2006 were restatedto reflect these adjustments as disclosed in the reconciliations anddescriptions of the effect of the transition from UK GAAP to IFRS on the Group'sequity and its net income and cash flows are shown in note 6. Basis of consolidation The consolidated financial information incorporates those of Hydrogen Group plcand all of its subsidiary undertakings made up to 31 December each year. Wherenecessary, adjustments are made to the financial statements of subsidiaries tobring the accounting policies into line with those used by the Group.Inter-company transactions and balances on transactions between Group companiesare eliminated on consolidation. Business combinations are accounted for using the acquisition method ofaccounting. The cost of an acquisition is measured as the cash paid and the fairvalue of other assets given, equity instruments issued and liabilities incurredor assumed at the date of exchange, plus costs directly attributable to theacquisition. Goodwill arising on business combinations prior to 1 January 2006,the date of transition to IFRS, is stated at the previous UK GAAP carryingamount (see note 6). Subsidiaries are all entities over which the group has the power to govern thefinancial and operating policies generally accompanying a shareholding of morethan one half of the voting rights. Subsidiaries are fully consolidated from thedate at which control is transferred to the group. They are all deconsolidatedfrom the date that control ceases. Revenue Revenue, which excludes value added tax, comprises the value of servicesundertaken by the Group under its principal activity, which is the provision ofrecruitment consultancy services. This broadly consists of: - revenue from contractor placements, representing fees received andreceivable for the services of contractor staff including the salary cost ofthese staff, being recognised when the service has been provided; - revenue from permanent placements, representing fees received andreceivable as a percentage of the candidate's remuneration package, beingrecognised when a candidate accepts an offer of employment and a start date hasbeen determined. Revenue not invoiced at the balance sheet date is included within accruedincome. A provision is made against accrued income on account of possiblecancellations of placements before the commencement of employment. Finance Income Interest income is accrued on a time basis, by reference to the principaloutstanding and at the interest rate applicable. Cost of sales Cost of sales consists of the salary cost of temporary staff and other directcosts, principally advertising costs. Gross profit Gross profit is represented by revenue less cost of sales. Finance costs All borrowing costs are recognised the income statement in the period in whichthey are incurred. Goodwill Goodwill comprising the difference between the cost of acquisition of shares insubsidiaries and the fair value of the separable net assets acquired iscapitalised at cost and is subsequently measured at cost less any accumulatedimpairment losses. It is reviewed annually for impairment, and any impairment isrecognised immediately in the income statement and is not subsequently reversed.Determining whether goodwill is impaired requires an estimation of the value inuse of the cash-generating units to which goodwill has been allocated. The valuein use calculation requires the entity to estimate the future cash flowsexpected to arise from the cash-generating unit and a suitable discount rate inorder to calculate present value. Other Intangible assets Software costs are stated at cost less accumulated amortisation less provisionfor impairment. Amortisation is calculated to write off the cost in equalannual instalments over three years. Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulateddepreciation less provisions for impairment. Depreciation is provided on allproperty, plant and equipment at rates calculated to write off the cost lessestimated residual value on a straight line basis over their estimated usefullives, as follows:- Computer and office equipment 33% straight line Motor vehicles 25% straight line Fixtures, fittings and equipment Remaining life of lease (or 5 years if shorter) Leasehold improvements Remaining life of lease (or 5 years if shorter) The gain or loss arising on the disposal or retirement of an asset is determinedas the difference between the sale proceeds and the carrying amount of the assetand is recognised in income. Impairment of assets At each balance sheet date, the Group reviews the carrying amounts of its otherintangible and tangible assets to determine whether there is any evidence thatthose assets have suffered an impairment loss. An impairment loss is recognisedfor the amount by which the assets carrying amount exceeds its recoverableamount. The recoverable amount is the higher of an asset's fair value less coststo sell and value in use. For the purposes of impairment assets are grouped atthe lowest levels for which there are separately identifiable cash flows (cashgenerating units). Foreign currencies The individual financial statements of each Group company are presented in thecurrency of the primary economic environment in which the entity operates (thefunctional currency). The consolidated financial statements are presented insterling, which is the Company's functional and presentational currency. In preparing the financial statements of the individual companies, transactionsin currencies other than the entity's functional currency (foreign currencies)are recorded at the rates of exchange prevailing on the dates of thetransactions. Foreign exchange gains and losses resulting from the settlement ofsuch transactions and from the translation at year end exchange rates ofmonetary assets and liabilities denominated in foreign currencies are recognisedin the income statement. The results and financial position of all the Group entities that have afunctional currency different from the presentation currency are translated intothe presentation currency as follows: (i) assets and liabilities for each balance sheet presented are translated at the closing rate of that balance sheet; (ii) income and expenses for each income statement are translated at the average rates; (iii) and all resulting exchange differences are recognised as a separate component of equity. Taxation The tax expense represents the sum of the current tax expense and deferred taxexpense. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using rates and laws that havebeen enacted or substantially enacted by the balance sheet date. Deferred income tax is provided in full, using the liability method, ontemporary differences arising between the tax bases of assets and liabilitiesand their carrying amounts in the consolidated financial statements. Deferred income tax assets are recognised to the extent that it is probable thatfuture taxable profit will be available against which the temporary differencescan be utilised. Deferred income tax is measured at the tax rates that are expected to apply inthe periods in which temporary differences are expected to reverse, based on taxrates and laws that have been enacted or substantially enacted by the balancesheet date. Deferred income tax is measured on a non-discounted basis. Deferredincome tax is charged or credited in the income statement, except when itrelates to items charged or credited directly to equity, in which case thedeferred income tax is also dealt with in equity. Deferred income tax is provided on temporary timing differences arising oninvestments in subsidiaries, except where the timing of the reversal of thetemporary difference is controlled by the group and it is probable that thetemporary difference will not reverse in the foreseeable future. Leased assets and obligations Where assets are financed by leasing arrangements that give rights approximatingto ownership (finance leases), the assets are treated as if they had beenpurchased outright. The amount capitalised is the lower of fair value or thepresent value of the minimum lease payments payable during the lease term. Thecorresponding leasing commitments are shown as obligations to the lessor. Theproperty, plant or equipment acquired under finance leases is depreciated overthe shorter of the asset's useful life and the lease term. Lease payments are apportioned between finance charges and reduction in leaseobligations so as to achieve a constant rate of interest on the remainingbalance of the liability. Finance charges are charged directly to income. All other leases are operating leases and the annual rentals are charged to theincome statement on a straight line basis over the lease term. The benefit of rent free periods received for entering into a lease is spreadevenly over the lease term. Pensions The Group does not operate a pension scheme for employees but makescontributions to the personal defined contribution pension plans of certainDirectors and senior members of staff. The pension costs charged in thefinancial information represent the contributions payable by the Group duringthe year. Share Incentive Plan Under The Hydrogen Group plc Share Incentive Plan (the SIP) shares are held intrust on behalf of employees for a minimum of three years. The fair value ofshares awarded is measured at the date of grant by reference to the market priceof the shares on the day, and is expensed on a straight line basis over thevesting period, based on the Group's estimate of shares that will eventuallyvest. The finance costs and administration costs relating to the SIP are charged tothe income statement. Dividend income arising on own shares are excluded inarriving at profit before taxation and deducted from aggregate dividends paidand proposed. The shares are ignored for the purposes of calculating thecompany's earnings per share. Other share-based payments Where options are awarded after 7 November 2002 and that were unvested as of 1January 2006, the fair value of the employee services received in exchange forthe grant of the share options is charged to the income statement over thevesting period of the share option, based on the number of options which areexpected to become exercisable. A corresponding adjustment is made to equity.Fair value is measured by use of a binomial model. At each balance sheet date,the Group revises its estimates of the number of options that are expected tobecome exercisable and recognises the impact of any revision of originalestimates in the income statement with a corresponding adjustment to equity. When the options are exercised the proceeds received are credited to sharecapital and share premium. Financial instruments Financial assets and financial liabilities are recognised in the Group's balancesheet when the Group becomes a party to the contractual provisions of theinstrument. Financial assets The Group's financial assets comprise cash and various other receivable balancesthat arise from its operations. Trade receivables, loans and other receivablesthat have fixed or determinable payments that are not quoted in an active marketare classified as loans and receivables. Loans and receivables are measured atamortised cost using the effective interest rate method, less any impairment.Interest income is recognised by applying the effective interest rate, exceptfor short-term receivables when the recognition of interest would be immaterial. Financial assets are assessed for impairment at each balance sheet date, and areimpaired where there is objective evidence that, as a result of one or moreevents that occurred after the initial recognition of the financial asset, theestimated future cash flows of the investment have been impacted. The carrying amount of the financial asset is reduced by the impairment lossdirectly for all financial assets with the exception of trade receivables, wherethe carrying amount is reduced through the use of an allowance account. When atrade receivable is considered uncollectible, it is written off against theallowance account. Subsequent recoveries of amounts previously written off arecredited against the allowance account. Changes in the carrying amount of theallowance account are recognised in profit and loss.. If in a subsequent periodthe amount of the impairment loss decreases and the decreases can be relatedobjectively to an event occurring after the impairment was recognised, thepreviously recognised impairment loss is reversed through profit and loss to theextent that the carrying amount of the investment at the date the impairment isreversed does not exceed what the amortised cost would have been had theimpairment not been recognised. Cash and cash equivalents includes cash in hand and bank deposits that arereadily convertible to a known amount of cash and are subject to aninsignificant risk of changes in value. Bank overdrafts are classified withcurrent liabilities in the balance sheet. The Group derecognises a financial asset only when the contractual rights to thecash flows from the assets expire; or it transfers the financial asset andsubstantially all of the risks and rewards of ownership of the asset to anotherentity. If the Group neither transfers nor retains substantially all the risksand rewards of ownership and continues to control the asset, the Grouprecognises its retained interest in the asset and associated liability foramounts it may have to pay. If the Group retains substantially all the risks andrewards of ownership of a transferred financial asset, the Group continues torecognise the financial asset and also recognises a collateralised borrowing forthe proceeds received. Financial liabilities and equity Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. The Group's financial liabilities comprise trade payables, borrowings, bankoverdrafts and other payable balances that arise from its operations. They areclassified as 'financial liabilities measured at amortised cost'. Financecharges are accounted for on an accrual basis in profit or loss using theeffective interest rate method and are added to the carrying amount of theinvestment to the extent they are not settled in the period in which they arise. The Group derecognises financial liabilities when the Group's obligations aredischarged, cancelled or they expire. Derivative financial instruments The Group manages its exposure to movements in interest rates on its debt byentering into derivative contracts for interest rate swaps and caps. Theinterest differential amounts due to and from on interest rate swaps are accrueduntil settlement date and are recognised as an adjustment to interest expense.Changes in the fair value of derivative financial instruments are recognised inthe income statement as they arise. The Group has no foreign exchange derivatives. Segment reporting The consolidated entity operates in one business segment being that ofrecruitment services (primary segment). As a result no additional businesssegment information is required to be provided. The consolidated entity operatesin two geographic segments (secondary segment), the United Kingdom and AsiaPacific. Dividends A final dividend distribution to the Company's shareholders is recognised as aliability in the Group's financial statements in the period in which thedividends are approved by the Company's shareholders. Interim dividenddistribution is recognised in the period in which they are approved and paid. Provisions Provisions are recognised when the Group has a present obligation as a resultof a past event, and it is probable that the Group will be required to settlethat obligation. Provisions are measured at the directors' best estimate of theexpenditure required to settle the obligation at the balance sheet date, and arediscounted to present value where the effect is material. Net debt Net debt comprises cash and cash equivalents less long and short termborrowings. 1 Segment reporting The Group operates in one business segment, being that of recruitment services,and this is the Group's primary segment. As a result, no additional businesssegment information is required to be provided. Revenue and assets derived fromoutside of the UK market (the Group's secondary segment) are less than 10% ofthe total revenue and assets of the Group and are not required to be disclosed. The following segmental analyses by recruitment classification has been includedas additional disclosure over and above the requirements of IAS 14 'Segmentreporting'. Recruitment classification Revenue Revenue Gross Profit Gross Profit 2007 2006 2007 2006 £'000 £'000 £'000 £'000 Permanent 19,434 17,599 19,217 17,599Contract 79,826 61,146 11,379 8,652Other 4,099 4,182 1,439 1,814 103,359 82,927 32,035 28,065 2 Dividends Amounts recognised as distributions to equity holders in the year: 2007 2006 £'000 £'000Interim dividend for the year ended 31 December 2007 of 2pper share (2006: 1p based on shares in issue post sharereorganisation) 452 200 452 200 The Directors propose that, subject to shareholder approval, a final dividendfor 2007 of 4.0 pence per share will be paid on 30 April 2008 to theshareholders on the register as at 25 March 2008 (Final 2006 Dividend: nil). 3 Tax (a) Analysis of tax charge for the year: 2007 2006The charge based on the profit for the year comprises: £'000 £'000 Corporation tax:UK corporation tax on profits of the year 2,503 1,747Adjustment to tax charge in respect of previous periods (4) (15) 2,499 1,732Foreign tax:Current tax 3 -Total current tax 2,502 1,732 Deferred tax:Origination and reversal of timing differences (50) 100Total deferred tax (50) 100 Tax on profit for the year 2,452 1,832 Corporation tax is calculated at 30% (2006: 30%) of the estimated assessableprofits for the year. Taxation for other jurisdictions is calculated at therates prevailing in the respective jurisdictions. (b) The charge for the year can be reconciled to the profits per the income statement as follows: Profit before tax 6,650 6,099 Tax at the UK corporation tax rate of 30% (2006: 30%) 1,995 1,829 Effects of:Non deductible exceptional costs 404 -Expenses not deductible for tax purposes 107 84Adjustment to tax charge in respect of prior periods (4) (15)Share-based payments (50) (66) Tax charge for the year 2,452 1,832 In addition to the amount credited to the income statement, deferred taxrelating to share options amounting to £128,000 has been charged directly toequity (2006: credit of £759,000). 4 Earnings per share From continuing operations 2007 2006 £'000 £'000EarningsProfit attributable to equity holders of the parent 4,198 4,267 Adjusted earningsProfit for the year 4,198 4,267Exceptional costs 1,347 - 5,545 4,267 Number of sharesWeighted average number of shares used for basic and adjusted earnings per share 22,575,573 20,945,975Dilutive effect of share plans 1,234,174 835,538Diluted weighted average number of shares used tocalculate fully diluted and adjusted diluted earningsper share 23,809,747 21,781,513 Basic earnings per share (pence) 18.59p 20.37pFully diluted earnings per share (pence) 17.63p 19.59pAdjusted earnings per share (pence) 24.56p 20.37pAdjusted diluted earnings per share (pence) 23.29p 19.59p Basic earnings per share is calculated by dividing the profit attributable toequity holders of the Group by the weighted average number of ordinary shares inissue. Fully diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares by existing share options and share incentive plans,assuming dilution through conversion of all existing options and shares held inshare plans. 5 Notes to the cash flow statement a. Reconciliation of profit before tax to net cash inflow/(outflow) from operations 2007 2006 £'000 £'000 Profit before tax 6,650 6,099Exceptional costs 1,347 -Depreciation and amortisation 511 446(Profit)/loss on sale of property, plant and equipment (8) 22Share-based payments 221 220Net finance costs 709 677Operating cash flows before movements in working capital 9,430 7,464 Decrease/(Increase) in receivables 1,501 (12,790)Increase in payables 1,250 2,752 Cash generated by/(used in) operations 12,181 (2,574) Income taxes paid (1,993) (2,389)Interest paid (748) (673) Net cash from/(used in) operating activities 9,440 (5,636) b. Reconciliation of net cash flow to movement in net debt: 2007 2006 £'000 £'000 Increase in cash and cash equivalents in the year 169 65Change in net debt resulting from cash flows 8,013 (3,113)Other non-cash changes - (96) Movement in net debt in the year 8,182 (3,144) Net debt at the start of the year (12,348) (9,204) Net debt at the end of the year (4,166) (12,348) 6 Adoption of IFRS in 2007 The adoption of IFRS did not result in substantial changes to the Group'saccounting policies under UK GAAP and as set out in the Group's financialstatements for the year ended 31 December 2006. In summary the impact is asfollows: (i) IAS 1 "Presentation of Financial Statements" and IAS 7 "Cash FlowStatements" have affected the overall presentation and disclosures. (ii) The adoption of IFRS 3 "Business Combinations", IAS 36 "Impairmentof Assets" and IAS 38 "Intangible Assets" have resulted in a change in theaccounting policy for goodwill. Under UK GAAP, goodwill was amortised on astraight line basis over a period of 20 years and assessed for an indication ofimpairment at each balance sheet date. In accordance with the provisions of IFRS3, the Group ceased amortisation of goodwill from 1 January 2006. Accumulatedamortisation as at 1 January 2006 has been eliminated with a correspondingdecrease in the cost of goodwill. From the year ended 31 December 2006 onwards,goodwill is tested annually for impairment. (iii) The effect of adopting IAS 38 "Intangible Assets" is to reclassifycertain software costs from computer equipment to intangible assets, and toreclassify the related depreciation expense in the income statement. (iv) The adoption of IAS 12 "Income Taxes" has resulted in a change inthe accounting for the deferred tax arising on share-based payments. Under IAS12 deferred tax is calculated on the temporary difference between the tax baseof the employee services received to date, being the amount permitted as a taxdeduction in future periods, and the carrying value in the accounts of nil.Where the amount of the tax deduction for share-based payments exceeds theamount of the cumulative remuneration expensed through profit and loss, then theexcess deferred tax is recognised directly in equity. (v) The Group elected to apply the exemption possibility granted in IFRS1 in respect of business combinations that occurred prior to the transition dateof 1 January 2006. (vi) Under UK GAAP the Group had adopted FRS 20 "Share-based payments" inpreparing its financial statements for 2006. As the requirements of IFRS2 "Share-based payments" are incorporated into FRS 20 its adoption in preparing the2007 consolidated financial statements has resulted in no changes to 2006comparative information. The reconciliations set out below show the adjustments to the Group's balancesheet at 1 January 2006 and 31 December 2006, and the profit and loss accountfor 2006 in transitioning from UK GAAP to IFRS. There were no changes to thecash flow, other than presentational, as a result of the transition. 6 a. Reconciliation of Equity At 1 January 2006 At 31 December 2006 Opening Opening Under Effect of IFRS Under Effect of IFRS UK transition Balance UK Transition Balance GAAP to IFRS Sheet GAAP to IFRS Sheet Note £'000 £'000 £'000 £'000 £'000 £'000 NON-CURRENT ASSETSGoodwill (ii) 19,010 - 19,010 18,052 958 19,010Computer software (iii) 20 110 130 - 218 218Property, plant and (iii) 773 (110) 663 905 (218) 687equipmentOther financial assets 80 - 80 80 - 80Deferred income tax assets (iv) 47 - 47 66 640 706 19,930 - 19,930 19,103 1,598 20,701 CURRENT ASSETSTrade and other 14,123 - 14,123 26,914 - 26,914receivablesCash and cash equivalents 110 - 110 161 - 161 14,233 - 14,233 27,075 - 27,075 TOTAL ASSETS 34,163 - 34,163 46,178 1,598 47,776 CURRENT LIABILITIESTrade and other payables 6,822 - 6,822 9,475 - 9,475Borrowings 3,321 - 3,321 9,523 - 9,523Current tax payable 1,458 - 1,458 801 - 801 11,601 - 11,601 19,799 - 19,799 NON-CURRENT LIABILITIES Borrowings 5,993 - 5,993 2,986 - 2,986Deferred tax liabilities (iv) - - - 22 (22) - 5,993 - 5,993 3,008 (22) 2,986 TOTAL LIABILITIES 17,594 - 17,594 22,807 (22) 22,785 NET ASSETS 16,569 - 16,569 23,371 1,620 24,991 CAPITAL AND RESERVES Called-up share capital - - - 225 - 225Share premium account - - - 3,190 - 3,190Merger reserve 16,100 - 16,100 16,100 - 16,100Share option reserve - - - 100 - 100Other reserve - - - 273 - 273Retained earnings 469 - 469 3,483 1,620 5,103 TOTAL EQUITY 16,569 - 16,569 23,371 1,620 24,991 6 b. Reconciliation of profit and loss for the year ended 31 December 2006 Effect of transition UK GAAP to IFRS IFRS Note £'000 £'000 £'000 REVENUE 82,927 - 82,927 Cost of sales (54,862) - (54,862) GROSS PROFIT 28,065 - 28,065 Administration expenses (ii) (22,247) 958 (21,289) OPERATING PROFIT 5,818 958 6,776 Net finance expense (677) - (677) PROFIT BEFORE TAXATION 5,141 958 6,099 Income tax expense (iv) (1,735) (97) (1,832) PROFIT FOR THE PERIOD 3,406 861 4,267 Attributable to: Equity holders of the parent 3,406 861 4,267 Basic earnings per share (pence) 16.26p 4.11p 20.37p Diluted earnings per share (pence) 15.64p 3.95p 19.59p PROFIT UK GAAP 3,406 Goodwill not amortised after date of transition (ii) 958 Deferred tax (iv) (97) PROFIT IFRS 4,267 7 Nature of financial information The financial information in this statement does not constitute the statutoryaccounts of the Group for the year ended 31 December 2007 or 2007 within themeaning of section 240 of the Companies Act 1985, but is derived from theseaccounts. Group financial statements for 2007 prepared in accordance withInternational Financial Reporting Standards as endorsed by the EU (IFRS) will bedelivered to the Registrar of Companies in due course. Statutory accounts forthe year ended 31 December 2006, which were prepared under UK Generally AcceptedAccounting Principles (UK GAAP), have been filed with the Registrar ofCompanies. The auditor's report on those accounts was unqualified and did notcontain a statement under section 237 of the Companies Act 1985. The 2007 Annual Report and Accounts will be posted to shareholders in duecourse. This information is provided by RNS The company news service from the London Stock Exchange