Final Results

11 March 2013

Hydrogen Group plc

Final results for the year ended 31 December 2012

The Board of Hydrogen Group plc ("Hydrogen" or the "Group"), the specialist professional recruitment business, is pleased to announce its audited results for the twelve months ended 31 December 2012.

Highlights:

§ Group revenue increased by 7% to £167.0m (2011: £156.2m)

§ Group net fee income ("NFI") increased by 5% to £31.3m (2011: £29.8m)

§ International NFI increased by 16% to £12.8m (2011: £11.0m), representing 41% of Group NFI

§ NFI from Technical and Scientific practices increased by 42% to £12.2m (2011: £8.6m), representing 39% of Group NFI

§ Total dividend for the year increased by 5% to 4.5p (2011: 4.3p)

§ Candidates placed in more than 70 countries (2011: 50)

§ Four year strategy set out in 2008 to transform business delivered; new strategic targets set for 2016

Tim Smeaton, CEO, commented:

"Hydrogen delivered a resilient performance in 2012, further growing the business despite challenging economic conditions continuing to impact the global recruitment industry. We performed well in our Technical and Scientific markets which helped to drive growth in both revenue and Group NFI.

2012 marked the delivery of our strategy set out in 2008 to transform the business into a global and more diversified recruitment group. We are satisfied with our achievements over this period in tough markets and we have laid strong foundations for future growth.

While visibility in the recruitment industry remains limited, the business has commenced trading in 2013 in line with our expectations. We will seek to capitalise on the Group's transformation during recent years and continue to focus resources in carefully identified markets which offer growth opportunities."

An analyst meeting will be held at 11am at Hydrogen's offices, Nicholas House, 3 Laurence Pountney Hill, London, EC4R 0EU on 11 March 2013.

Copies of the full audited Annual Report and Accounts for 2012 can be downloaded from the Company's website http://www.hydrogengroup.com/Company_reports

Notes to Editors:

Hydrogen is a specialist recruitment business with revenue in excess of £160m. We build relationships by finding specialist candidates our clients have difficulty sourcing, placing professionals in more than 70 countries.

Our joined-up practice teams combine international reach with local expertise and specialist knowledge, to provide visibility of world class candidates.

CHAIRMAN'S STATEMENT

Transforming the business

2012 marked the end of a four year plan to transform Hydrogen into a global and more diversified recruitment group. We are now a very different business to the one in 2008, when we set out our vision to become a global specialist recruiter. Despite some of the most challenging economic conditions seen in our history, our achievements have been significant. We have demonstrated our ability to identify and seize opportunities in new markets by remaining agile, diversifying into Technical and Scientific markets and extending our global reach. In 2008, 88% of our Net Fee Income ('NFI') was generated in the UK. Today, we place individuals in more than 70 countries, across 5 continents representing 41% of our NFI.

The practices created in the Technical and Scientific operating segment have grown significantly, to represent almost 40% of the Group's NFI in 2012. This transformation has driven NFI growth of 86% between 2009 and 2012 (compound annual growth of 17%).

During this period we have also invested in building an infrastructure capable of supporting further growth. Our IT systems, now on one common platform, have been moved to the Cloud, allowing access from anywhere in the world.

Our strategy for the next four years to 2016 is to capitalise on this transformation and significantly increase our profitability and returns to shareholders. Our aim is to continue to grow and diversify our business both geographically and by market sector. We plan for non-UK business to increase from the current level of 41% to at least 65% of NFI by 2016. We will continue to focus our resources on growth markets, where client demand outstrips candidate supply. We plan to continue to build our Technical and Scientific operating segment to at least 50% of NFI to maintain a diversified growth business capable of delivering through different economic cycles. We will aim to maintain the balance of approximately 50% of NFI being generated from contract and 50% being generated from permanent recruitment.

2012 Financial performance

Group NFI grew by 5% to £31.3m (2011: £29.8m) despite a period of significant economic uncertainty. The investments we have made in positioning our business for further growth, after taking account of a lower than expected period of activity in the late summer, have resulted in operating profit for the year of £3.4m (2011: £3.9m). Reassuringly, business activity returned to our forecasted levels of performance towards the end of the year, but we remain vigilant and agile in reacting to the challenging environment in which we continue to operate.

Clients and candidates

Hydrogen works with many of the world's leading organisations. Our business succeeds because we are able to build strong relationships with exceptional candidates, wherever they are in the world. We recognise that our success depends on us continuing to deliver to both clients and candidates and I would like to thank them for their on-going support.

Our people

The fact that the business has managed to transform in line with our four-year strategy and grow profitably against such a challenging backdrop is testament to the commitment and quality of our people. Our business performance is down to their courage in taking on new challenges, with each playing their part in the transformation and consistently delivering to the high standards we set. On behalf of the Board, I would like to thank them for their hard work, dedication and performance during the year.

Corporate governance

Hydrogen seeks to demonstrate a high level of compliance with corporate governance standards appropriate for a company of its size, as set out in the QCA guidelines. This year, for the first time, all directors will stand for re-election at the AGM, in line with best practice for listed companies.

The Board

Concluding our 2012 objectives and setting our 2016 strategy provided us with a timely opportunity to refresh the Board. Two Non-Executive Directors ("NED"s), Ishbel Macpherson - our Senior Independent Director since listing - and Ian Fallmann, have left the Board. I am extremely grateful for the contribution they made to Hydrogen and for their assistance and steadfast support over the years.

Ishbel brought valuable City-facing and governance experience to Hydrogen, while Ian's experience and knowledge helped drive our expansion in the Asia Pacific region in particular. Martyn Phillips, who has been a NED since 2006, is now our Senior Independent Director and I am delighted that he has now been joined on the Board by three new NEDs: Barbara Anderson, Anne Baldock and Stephen Puckett.

In line with our long term succession plan I have decided that it is the right time for me to step back from day to day operational responsibility for the business, and move to a more formal Chairman role. We have a very capable CEO in Tim Smeaton who leads a strong Executive Team, determined to drive the business forward and to achieve its long term potential.

Dividend

The business has built up a strong dividend track record, having consistently paid a dividend since 2007. We propose a final dividend of 3.0p (2011: 2.9p) increasing the total dividend for the year by 5% to 4.5p (2011: 4.3p). The proposed dividend will be paid on 24 May 2013 to shareholders on the register on 3 May 2013, subject to approval at the AGM.

Current trading

While visibility in the recruitment industry remains limited, the business has commenced trading in 2013 in line with our expectations. We will seek to capitalise on the Group's transformation during recent years and continue to focus resources in carefully identified markets which offer growth opportunities.

Ian Temple

Chairman

OPERATIONAL REVIEW

2012 has been a successful year for Hydrogen, with the conclusion of our 4 year strategy to transform the business from a UK-centric professional support services recruiter into a global specialist recruitment company. The continuing global financial uncertainty has provided a challenging environment for the recruitment industry and we are extremely pleased with Hydrogen's performance during this four year period. With this strategic phase now complete, the transformation of the business has laid a solid foundation from which to increase scale and further capitalise on growth opportunities.

Achievement of our 2012 goals

In 2008 we set out our vision to transform Hydrogen into a global recruitment group, structured around specialist global practices. Our objective was to create a balanced, more diverse business, agile enough to take advantage of opportunities in markets with high demand for specialist candidates. We are extremely pleased with our achievements in what has been a challenging and complex market.

We are particularly pleased with our diversification into the Technical and Scientific markets. Since the launch of our first incubator business in these markets in 2008, the Technical and Scientific operating segment has grown to contribute nearly 40% of the Group's NFI in 2012. In 2012 alone, NFI from this operating segment increased by 42%. Within the Technical & Scientific area, our Oil & Gas practice has now placed candidates across more than 50 countries worldwide in both contract and permanent positions. Similarly, our Life Science practice has grown since its inception in 2009 to £2.9m, representing 9% of Group NFI in 2012.

We originally set targets in 2008 as aspirational goals for the business, to help drive the behaviours needed to transform Hydrogen and deliver balanced growth. The international goal, whilst not being achieved by the end of 2012, was probably the most challenging and we are pleased with our achievements in this area. We have driven activity into international markets, resulting in a significant increase in NFI from non-UK markets, from 12% for 2008 to an impressive 41% for 2012.

Foundation for growth

We have made significant investment into our operational infrastructure to ensure we have the foundations for future growth. We now have six offices globally, all practices are under one brand - Hydrogen - and we have created a centralised Operations function, with centres of excellence in HR, Marketing, Finance and IT, all focused on supporting the delivery of NFI growth. Since its inception, more than 100 people have been through our fast track training, designed to develop our future leaders.

In 2012 we moved our technology into the Cloud, making it more resilient, increasing the speed and agility of our operational support and enabling us to work anywhere in the world. The backbone of our infrastructure is our new global CRM system, based on the award winning Salesforce.com platform, which was delivered during the year. This brings together client and candidate data from all our offices and enables us to leverage it across regions and practices, giving us the foundation to scale the business and join up our practices across our regions.

Clients and candidates

Joining up our practices has always been part of our vision. It enables us to continue to be specialists in our chosen fields, whilst offering clients a global network of experts and visibility of the best candidates. In turn, it provides candidates access to global opportunities. In 2012 we filled positions in over 70 countries (50 in 2011).

Joining up our practices also allows us to differentiate ourselves from both local competition and disparate global players, allowing us to meet the differing needs of clients and candidates and to win global agreements with key clients, including an oil super major in 2012. The new CRM system was designed to enhance this joined up approach and already clients are seeing the benefits of shared candidates while candidates have access to the widest range of opportunities, enabling them to move around the world to further their career.

Market Overview

Global growth market

The recruitment market continues to display resilience despite the enduring economic uncertainty. McKinsey predicts that, by 2020, in the US alone there will be a shortfall of 18 million highly skilled workers. In addition, 70% of the jobs that will exist 20 years from now don't even exist today (source: IBM). For recruitment companies to be successful, they must remain agile in order to react quickly to changes in the marketplace.

We hear from our clients the difficulties they have in sourcing the talent they require. For example, based on investment levels in the Oil & Gas industry globally, in the next 10 years at least 100,000 highly skilled engineers will be needed in the sector alone (Source: Wood Mackenzie Consultancy).

These factors all demonstrate an increased demand in specific sectors, leading to an imbalance of candidate supply and client demand. These demands are forecast to become more acute as economic conditions improve.

International clients and candidates

Our third annual 'Global Professionals on the Move' report highlights international experience as a prerequisite for senior professionals. 94% of those surveyed are considering relocating or have already done so. The report also highlights the growing importance clients place on international experience with nearly 75% of respondents confirming their employers also see it as important. The report's thoroughness and quality was recognised by a platinum award in the research/study category at the MarCom Awards for the second year running.

As more organisations operate at a truly global level, they need recruiters who can provide them with global talent pools and the expertise to select the best candidates. Coupled with this, candidates require recruitment specialists to provide them with access to global organisations.

In addition to an imbalance in demand for specific skills, the recruitment market is also seeing an imbalance in demand and supply for the same skills across different locations. The City of London has lost over 100,000 Financial Services jobs during the recession which are unlikely ever to come back (source: Centre for Economics and Business Research). However, at the same time, 400,000 Financial Services jobs are expected to be created in Shanghai alone by 2020 (source: CERB) resulting in a 160,000 shortage of local candidates. Being able to identify and build relationships with candidates who are willing to move from one geography to another is essential if we are truly to offer the service our clients require.

The Flexible Work Force

In these uncertain times, we have seen a growing demand for more contractors at a senior level who offer a greater degree of flexibility. We have witnessed a high degree of change in the Financial Services sector, leading to a change in the workforce. However, the need for flexibility is not just in the Professional Support Services markets. Engineering (especially Oil & Gas and Infrastructure), Technology and Clinical & Scientific sectors are all moving quickly towards more flexible staffing on a global stage.

Overall there has been a clear move towards non-permanent recruitment in the last 3-4 years, largely driven by two key factors; cost and flexibility. Areas heavily affected by the prolonged economic downturn such as the UK, US, Japan and southern Europe are willing to employ non-permanent staff due to cost pressures. Those less affected (Germany, Singapore, China and Australia) are attracted to this approach because of the flexibility and access to the exceptional talent which contract recruitment offers.

Our strategy to 2016

Our vision is to become the choice for specialist talent, no matter where they are in the world, matching our clients with the best talent available. Delivering on our 2012 strategy has provided us with a strong foundation and we now plan to capitalise on this. We will need to be able to continue to identify hot markets, move people around the globe within these markets to meet demand and remain agile to changes in market conditions. In addition, we intend to build strong, long term relationships with our candidates and clients and develop exceptional teams internally.

With this in mind, our strategy will be delivered around three key principles:

Joined Up Practices

We continue to see the benefits of joining up our practices globally. The practices reflect our candidate specialisms and offer both candidates and clients access to our specialist recruiters and a global support network. We utilise these networks, providing our clients with new candidates, who may not currently be located locally, thus differentiating ourselves in the market place.

Market Selection

Within all of our practices, niche opportunities exist. We have demonstrated our ability to identify hot markets, where client demand outstrips candidate supply. We will continue to select our markets carefully and remain alert to growth opportunities, identifying potential new practices to incubate. Using our centralised strategy and research function we are able to identify the best opportunities for the Group. Market selection also continues to be about identifying efficiencies within practices.

Infrastructure and Capability

We continue to place high importance on having the right people in place within the business, ensuring we recruit, develop and retain exceptional recruitment staff. In addition, we continue to nurture our strong culture and values, which are lived and breathed by our people and which are critical to our success.

We will be capitalising on our new CRM system, in particular by creating competitive advantage by turning data into knowledge. The intelligent business analytics it can generate will drive behaviours needed to continue to achieve our goals, such as increasing the utilisation of our top candidates.

Outlook

We are pleased with our achievements against the goals set in 2008 which have provided a firm basis from which we can scale the business and extend our reach. We are now fully focused on our 2016 objectives: to increase the percentage of NFI generated outside the UK to at least 65% by 2016, to build our Technical and Scientific market practices to deliver at least 50% of Group NFI and to maintain the balance between permanent and contract business.

Tim Smeaton

CEO

FINANCIAL REVIEW

Revenue

The Group recorded a third successive year of revenue growth, increasing revenues by 7% to a record £167.0m (2011: £156.2m).

Net fee income (NFI)

Net fee income comprises the total placement fees of permanent candidates and the margin earned on placement of contract candidates.

Overall, the Group delivered a 5% increase in total Group NFI to £31.3m (2011: £29.8m). Fees from permanent recruitment increased by 12% to £15.2m (2011: £13.6m). Fees from contract recruitment were marginally lower at £16.1m following the record year for contract in 2011 of £16.2m.

The Group's objective of maintaining a balance of NFI from permanent and contract placements was achieved with fees from contract placements representing 51% of Group NFI, and permanent 49% (2011: 54%:46%).

The Group continued to deliver on its strategy of increasing diversification across both geographies and industry sectors. NFI from the Group's Technical and Scientific operating segment (Oil and Gas, Life Sciences, Power and Mining) was £12.2m (2011: £8.6m), a year on year growth of 42%, and contributed 39% (2011: 29%) of Group NFI. The success of Technical and Scientific practices, which operate predominantly in markets outside the UK, resulted in NFI from international placements in 2012 increasing by 16% to £12.8m (2011: £11.0m), representing 41% of the Group's total NFI (2011: 37%).

The Group recorded an 8% decline in its Professional Support Service operating segment (Law, Finance, Technology, Trading and Advisory and Business Transformation) to £19.1m (2011: £21.1m). Activity in the Group's traditional financial services markets remained subdued, and the Group closed its HR practice during the year as it failed to meet the Group's criteria for development.Administration costs

Administration costs for the year increased by 8% to £27.9m (2011: £25.9m), primarily driven by additional headcount, which on average for 2012 was 7% higher at 370 (2011: 347), higher levels of variable pay associated with increased NFI, and rebranding costs in connection with the move to a single global brand.

Finance costs

Finance costs were unchanged from the previous year at £0.2m (2011: £0.2m).

Profit before taxation

Profit before taxation for the year declined by 14% to £3.2m (2011: £3.7m).

Taxation

The tax charge for the year was £1.0m (2011: £1.3m), an effective tax rate of 30% (2011: 35%), above the UK statutory rate of 24.5% due to unutilised tax losses in the Group and non-deductible expenses, including charges for share option costs.

Dividends

The Board previously declared an interim dividend of 1.5p per share (2011: 1.4p). A final dividend of 3.0p per share (2011: 2.9p) is proposed for 2012, bringing the total dividend for the year to 4.5p (2011: 4.3p).

Earnings per share

Basic earnings per share was 10.10p (2011: 10.95p) and diluted earnings per share, taking into account existing share options, was 9.56p (2011: 10.24p).

Balance Sheet

The Group's net assets at 31 December 2012 increased by £1.4m to £26.3m (2011: £24.9m).

Tight control of working capital was maintained and although the increase in revenue gave rise to a 3% increase in trade receivables to £12.9m (2011: £12.5m), expressed in days of sales outstanding (DSO's) this was a decrease of 6 days to 21 days (2011: 27 days).

Time worked by contractors for the month of December is accrued on a gross basis in the financial statements, with revenue to be billed included in prepayments and accrued income in current assets, and payments due to contractors included in accruals and deferred income within current liabilities. Fees recognised for permanent placements with start dates after 31 December 2012 (forward fees) are also included in prepayments and accrued income.

The Group saw an 18% increase in prepayments and accrued income to £15.6m (2011: £13.1m), due to a higher level of forward fees arising from higher permanent activity in December, and an increase in amounts accrued to be billed for contract time worked in December 2012, arising from higher contractor numbers compared to 2011. For the latter accrual there was a corresponding increase in the amounts accrued payable to contractors for December 2012 included within current liabilities. Cash flow and cash position

At the start of the year the Group had net debt of £1.4m. Before investment in working capital and payment of taxes and interest costs, the Group generated cash from trading activities of £3.7m (2011: £4.4m). After an investment of £2.0m (2011: £0.8m) in additional working capital, payment of taxes of £1.2m (2011: £0.9m) and interest payments of £0.1m (2011: £0.1m), cash generated from operations was £0.3m (2011: £2.5m).

A final dividend of £0.7m was paid for 2011 and an interim dividend of £0.3m was paid for 2012.

The Group spent £0.1m on the purchase of office equipment & improvements (2011: £0.3m), and £0.7m (2011: £0.5m) on licence and manpower costs associated with the rollout of its new global front office systems.

At 31 December 2012 the Group had net debt of £2.8m (2011: net debt £1.4m), an increase of £1.4m during the year.

Treasury management and currency risk

The Group has an invoice finance facility of £18m, committed to February 2014, and a three year £3m revolving credit facility.

The predominance of contract recruitment in the UK means that over 80% of the Group's revenues are in Sterling, and Sterling continues to be the functional currency of the Group. During 2012 the Group utilised currency options to manage its exposure to foreign currency exchange risk.

John Glover

Finance Director

The Board of Directors announce the following audited results for the year ended 31 December 2012 which were approved by the Board on 8 March 2013.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2012

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2012

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

As at 31 December 2012

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2012

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2012

1 Basis of preparation

The consolidated financial statements of Hydrogen Group plc have been prepared in accordance with International Financial Reporting Standards ("IFRS") as endorsed by the European Union and also comply with IFRIC interpretations and Company Law applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention.

2 Segment reporting

Segment operating profit is the profit earned by each segment excluding the allocation of central administration costs, and is the measure reported to the Group's Chief Executive for performance management and resource allocation purposes. The Group changed its reporting segments during 2011 to align reporting more closely with its strategic objectives.(a) Revenue, gross profit and operating profit by disciplineFor management purposes, the Group is organised into the following two operating segments:- Professional Support Services (the operating segment includes the legal, finance, and technology recruitment business units);- Technical and Scientific, (the operating segment includes the oil and gas, mining, power and life sciences recruitment business segments).

The operating segments noted reflect the information that is regularly reviewed by the Group's Chief Operating Decision Maker (CODM) which is the Board of Hydrogen Group plc. Both of these operating segments have similar economic characteristics.

Non-allocated costs represent central management costs that are not allocated to operating segments. In 2012 they were partially offset by the release of the onerous lease provision of £364,000 (2011: £372,000).

Revenue reported above represents revenue generated from external customers. There were no sales between segments in the year (2011: 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.

There is one external customer that represented 33% of the entity's revenues, with revenue of £54,786,000, and approximately 10% of the Group's net fee income, included in the Professional support services segment (2011: one customer, revenue £54,724,000, Professional support services segment).

(b) Revenue and gross profit by geography

(c) Revenue and gross profit by recruitment classification

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.

3 Dividends

An interim dividend of 1.5p (2011: 1.4p) per share was paid on 9 November 2012 to shareholders on the register at the close of business on 12 October 2012. The interim dividend was approved by the Board on 7 September 2012.

The final dividend in relation to 2011 was recommended on 14 March 2012, and was not recognised as a liability in the year ended 31 December 2011.

The Board proposes a final dividend of 3.0p per ordinary share for the year ended 31 December 2012 (2011: 2.9p), to be paid on 24 May 2013 to shareholders on the register as at 3 May 2013, subject to approval at the AGM. The proposed final dividend has not been approved by shareholders at 31 December 2012. No income tax consequences are expected to arise at the Hydrogen Group plc level as a result of this transaction.

4 Tax

There has been a deferred tax credit of £18,000 relating to share options charged directly to equity (2011: charge of £15,000)

5 Earnings per share

Earnings per share is calculated by dividing the profit 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.

6 Other intangible assets

7 Property, plant and equipment

Depreciation on property, plant and equipment is charged to Administration expenses in the Consolidated Statement of Comprehensive Income.

The Group has pledged all of its assets to secure banking facilities granted to the Group.

8 Trade and other receivables

9 Cash and cash equivalents

10 Trade and other payables

11 Borrowings

12 Provisions

13 Notes to the cash flow statement

a. Reconciliation of profit before tax to net cash inflow from operating activities

b. Reconciliation of net cash flow to movement in net debt:

14 Financial information

The financial information in this announcement which comprises the Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Financial Position, Condensed Consolidated Statement of Changes In Equity, Condensed Consolidated Statement of Cash Flows and related notes is derived from the full Group financial statements for the year ended 31 December 2012 and does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. Group statutory accounts for 31 December 2011 and 31 December 2010 have been delivered to the Registrar of Companies and those for 31 December 2012 will be delivered following the Company's annual general meeting. The auditors have reported on each set of Group statutory accounts and their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and(iii) did not contain a statement under Section 237(2) or Section 237(3) of the Companies Act 1985 or Section 498(2) or Section 498(3) of the Companies Act 2006.

Copies of the full audited Annual Report and Accounts for 2012 can be downloaded from the Company's website http://www.hydrogengroup.com/Company_reports