Final Results

10 April 2018

HYDROGEN GROUP PLC

("Hydrogen Group" or the "Company" or the "Group")

(AIM: HYDG)

Final results for the year ended 31 December 2017

Hydrogen Group, the global specialist recruitment group, announces final results for the year ended 31 December 2017.

Key points

· Group revenue to 31 December 2017 totalled £125.9m (2016: £116.2m)

· Full year Net Fee Income+ ("NFI") was 29% higher at £22.8m (2016: £17.7m), primarily due to the acquisition of Argyll Scott which completed on 2 June

· Underlying* profit before tax ("PBT") of £0.8m (2016: £0.8m)

· Exceptional items in 2017 of £2.0m (2016: nil) arose predominantly from the integration of Argyll Scott into the Group 

· Statutory loss for the year of £1.3m (2016: profit £1.5m)

· Strong balance sheet at year end with net assets of £21.2m (2016: £19.0m)

· Dividend of 0.8p per share proposed for approval at AGM (2016: nil)

· Basic EPS in the year of (4.4p) (2016: 6.8p). Adjusted** basic EPS in the year of 2.6p (2016: 6.8p)

+ Net Fee Income - which is the equivalent of gross profit

* Adjusted for foreign exchange gains/(losses), amortisation of acquired intangibles, share based payments and exceptional items

** Adjusted for exceptional items

Stephen Puckett, Chairman, commented:

"2017 was a transformational year for the Group principally due to the acquisition of Argyll Scott and its subsequent integration into the Group. I am pleased to report that the rationale behind the acquisition has proved sound and significant progress has been achieved against the objectives set out at the time of the acquisition.

"Organic growth in our UK contract book together with the opportunities for both revenue growth and cost synergies created by the acquisition places the Group in a position to deliver profit growth in 2018. To that end we are delighted that trading in 2018 has started well and is significantly ahead of 2017. The Board's confidence in the Group's future prospects has enabled it to re-initiate payment of a dividend with the intention to adopt a progressive dividend policy."

Enquiries:

Hydrogen Group plc 020 7090 7702

Ian Temple CEO

Stephen Puckett Chairman

Shore Capital (NOMAD and Broker) 020 7468 7904

Edward Mansfield / James Thomas

Notes to Editors:

Hydrogen Group's mission is to empower peoples careers whilst powering businesses by providing their key people from a proven global platform with clients' in over 50 countries. We deliver by building market leading specialist teams that develop a deep understanding of candidate and clients' needs and developing solutions.

http://www.hydrogengroup.com

CHAIRMAN'S STATEMENT

A year of significant change that lays a foundation for future profitable growth

2017 was a transformational year for the Group principally due to the acquisition of Argyll Scott Holdings Limited ("Argyll Scott") on 2 June 2017 and its subsequent integration into the Group.

I am pleased to report that the rationale behind the acquisition has proved sound and significant progress has been achieved against the objectives set out in the circular to shareholders. The combined management team is working well together and delivering on our plans.

One of the key objectives of the acquisition was to diversify away from the UK and in the second half of the year over 50% of Group Net Fee Income ('NFI') was derived from overseas markets.

Performance

The Group in 2017 increased its NFI (or Gross Profit) by 29% to £22.8m (2016: £17.7m) including seven months trading from Argyll Scott. Underlying NFI within the existing Hydrogen businesses (excluding Argyll Scott) declined by £0.5m predominately due to a disappointing performance from the EMEA Life Sciences practice which saw a decline in NFI of £1.2m. A restructure of the EMEA Life Sciences team was completed at the back end of 2017 and trading in 2018 has improved as a result.

I am pleased to report that following on from our H1 performance, profit before exceptional items and taxation for H2 has increased by £0.5m in comparison to H1. The Group's performance has continued to improve in H1 2018.

At the time of the acquisition of Argyll Scott, cost synergies along with economies of scales were identified and actions have been implemented to reduce operational overheads. The Group has invested in the development of a new global CRM and IT platform which resulted in the impairment of previously capitalised software costs of £0.6m. These costs together with other one-off costs associated with the acquisition and integration of Argyll Scott have been treated as an exceptional charge in 2017 of £2.0m (2016: nil) as set out in note 4. The Board expects a payback of less than two years on these exceptional costs.

The Board considers that the underlying profit before tax of the business is the best way to judge its trading performance as it excludes one off non-repeatable gains and losses. Key adjustments include exceptional costs of £2.0m (2016: nil) and foreign exchange gains in 2016 of £1.2m which are nil in 2017. Excluding these items, the underlying profit before tax was £0.8m (2016: £0.8m). The statutory loss for the year was £1.3m (2016: profit £1.5m).

Organic growth in our UK contract book together with the opportunities for both revenue growth and cost synergies created by the acquisition of Argyll Scott places the Group in a position to deliver profit growth in 2018.

In 2017 the Group acquired a 45% minority interest in CBFG Limited (which trades as Tempting Ventures), a start-up investment business that provides funding and advisory services to early stage recruitment businesses to help them scale and create value. Its founders have strong track records in this field and their model complements both Hydrogen and Argyll Scott's entrepreneurial roots. Tempting Ventures is operating ahead of its business plan with a small loss of £0.1m in 2017 and a profit anticipated in 2018.

Strategy

Hydrogen Group was built on building market leading specialist teams with a focus on building our teams through a journey from incubator through fast growth to market leader where we have a much greater profit conversion. Building market leading teams is supported by our minority interest share scheme which allows managers and leaders of the teams to take a stake in their niche businesses which is realised in the form of Hydrogen Group shares over time dependent on performance. The minority interest scheme was rolled out during the year following shareholder approval at the AGM in June 2017. I am pleased with the way this has been received within the business and it has already begun to impact the attraction, retention, motivation and development of key staff. We have also launched across the Group a revamped learning and development program to ensure the relevant personal development of all staff.

The Group aims to improve profit conversion by developing more of its ultra-niche teams through to market leading businesses leveraging off our global platform. The Group is committed to a multi brand strategy with each business having a strong brand and proposition. Significant progress has been made moving to one global IT platform which should provide both significant cost savings and improved usability. Our digital marketing capability was significantly enhanced during the year with Hydrogen being named as the 21st most socially engaged staffing consultancy in the world by LinkedIn. Our digital marketing trials have demonstrated the value that can be added to the business and we will be rolling these out across the Group in 2018. There has been increasing focus on cross fertilisation of clients across our specialisations and brands which has improved the strength and depth of our client relationships. The combination of our market leading knowledge and our immersion into tight markets, unlocks the relationships that make a difference to both clients and candidates.

Our focus now is taking advantage of the opportunities available to the Group through to 2020, aiming to grow NFI by at least 10% per annum and driving up profit conversion (underlying profit before tax divided by NFI) to over 15%.

People

I would like to welcome our colleagues from Argyll Scott and Tempting Ventures to the Hydrogen Group. I would also like to thank all our staff for their hard work in 2017 as we completed the integration process which gives the Group a much stronger base to move forward. I am pleased with the progress the combined management team has made and our strength and depth of talent has been significantly enhanced during the year.

Dividend

The Board is confident in the prospects of the Group and believes that the Group should grow profitably and generate cash during 2018. Consequently, the Board proposes to resume payment of a dividend and will pay an initial annual dividend of 0.8p for 2017 (2016: nil). If approved by the shareholders at the Annual General Meeting on 25 May 2018, the dividend (approx. £0.3m) will be paid on 6 July 2018 to shareholders on the register at the close of business on 1 June 2018. The Board plans to return to paying a regular and progressive dividend going forward and will review future dividends in light of the performance of the business.

The Board

As previously announced, Colin Adams resigned from the Board as Group Chief Financial Officer with effect from 4 April 2017 and I would like to thank Colin for his support and guidance over his tenure with the Group.

On completion of the Argyll Scott acquisition, John Hunter joined the Board as Managing Director and has taken responsibility for the Group's Finance and IT functions in addition to his other operational responsibilities. As a trained chartered accountant, John comes with a strong financial background and over 17 years' recruitment industry experience.

Outlook

Trading in 2018 has started well and is significantly ahead of 2017. The actions taken in 2017 are improving profitability which increases our confidence that we will achieve profit growth this year.

The Group's plan for the year ahead is to continue focusing on growing and developing its niche businesses into market leading businesses by investing in high performing individuals and our global, technology and marketing platform.

Stephen Puckett

Chairman

9 April 2018

BUSINESS REVIEW

We are pleased to report that the structural and operational changes resulting from the acquisition of Argyll Scott have significantly enhanced the prospects of the Group.

The key financial highlights in 2017 were:

· revenue increased to £125.9m (2016: £116.2m);

· NFI increased by 29% from £17.7m to £22.8m, primarily due to the acquisition of Argyll Scott;

· underlying profit* in the year remained unchanged from 2016 at £0.8m; and

· exceptional items of £2.0m arose predominantly from the integration of Argyll Scott into the Group.

* Adjusted for foreign exchange gains, amortisation of acquired brand and database, share based payments and exceptional items.

Although globally Group NFI growth was strong, performance was adversely impacted by a decline in our EMEA Life Sciences practice (NFI dropped by 31% from £3.9m to £2.7m) due to a number of staff issues. Additionally, our Singapore operations were impacted by the integration of the local operations of Argyll Scott and Hydrogen affecting the overall performance in APAC. Across the Group six office moves were completed during the year as a result of the integration. The Group has benefited from greater geographical and client diversification and these benefits have accelerated in 2018.

During the year, there have been strong performances in a number of our business practices including Technology Transformation which saw growth in global NFI of 31% to £3.1m as we took advantage of the growth in new technology rollouts by clients. Business Transformation also continued to perform strongly with NFI of £5.6m driven by a number of significant new client wins.

EMEA (including USA)

NFI increased by £1.3m during the year principally as a result of the inclusion of seven months' trade of the UK and Middle East based operations of Argyll Scott, and of increased trading in our US business. Trading in many of our core markets remains buoyant; however, the disappointing performance from Life Sciences weakened the Groups overall EMEA performance.

Operating profit before exceptional items remained flat at £1.4m. The Group continues to roll out new disciplines with a goal to drive increased productivity and as a result improved conversion rates.

APAC

The most notable change during the year was the growth in the APAC region where the bulk of Argyll Scott's operations are based. NFI grew to £7.1m (2016: £3.3m). Operating profit before exceptional items increased to £0.4m from £0.3m in 2016 and the Board believes that the business is well positioned to grow profitably in 2018.

As Argyll Scott is predominantly a permanent business in APAC, a key focus in the region continues to be the development and expansion of the predominantly Hydrogen branded contract operations into Argyll Scott's client base and office infrastructure.

Permanent and Contract

We place candidates in permanent roles and provide contract solutions. Permanent placements play to our experience in satisfying the demand for rare niche skills. Contract solutions provides more predictable revenue stream.

The proportion of the Group's NFI from permanent placements grew from 35% to 51% (£6.1m to £11.5m), mainly as a result of Argyll Scott's predominately permanent business base. Contract NFI has declined slightly by 4% to £11.2m mainly due to the challenges in the EMEA Life Sciences practice where contract NFI dropped by 57% to £1.3m. Globally we commenced 2017 with 977 live contractors and grew that during the year to 1,157 contractors including 88 acquired with Argyll Scott. This growth in the contractor book during the year has created a strong platform to further grow contractor NFI during 2018.

Clients and Candidates

We have built strong and effective relationships with our clients based around our longstanding track record of delivery and powering their businesses forward. We would like to thank all our clients for their support over the last year and look forward to powering your businesses in the future.

We have a very strong candidate database and proven methodology for building candidate relationships in our core practices. We work with highly talented candidates and contractors and would like to thank them for trusting us to empower their careers.

People

Hydrogen Group is very much a people business and we have continued to invest in our staff to increase our productivity and productive headcount. I would like to welcome all our colleagues from Argyll Scott to the Group who have greatly enhanced the breadth and depth of our internal talent pool. We have a very clear promotion pathway which we have supported by rolling out a new learning and development program for everybody in the Group. We have a performance management system and transparent reward at every level of the business to support an objective and high performance working culture which was recognised by being named as 'One to watch' by the Sunday Times Best Companies to work for survey.

The minority interest scheme has been rolled out to the first qualifiers and launched across the Group. The scheme supported by our track record of developing our staff has greatly enhanced our ability to attract and motivate talented people.

As a diverse global organisation, we are in a position to support our clients to ensure they get the best people irrespective of background, gender, religion or sexual orientation and have delivered a number of initiatives to highlight positive role models and the benefits of a diverse workforce.

Technology

One of the key opportunities identified at the time of the acquisition of Argyll Scott was the scope for improvement in the combined Group's technology platform whilst reducing the cost per user.

During the year, after an extensive review, it was decided to outsource our IT infrastructure to a specialist provider which puts the business on one platform with 24/7/365 global support. This project is being rolled out in Q2 2018 and the cost savings should be realised from H2 2018.

We have also commenced the roll out a new client relationship management system (CRM) across the Group. The new CRM, based on salesforce.com was rolled out in Argyll Scott APAC during 2017 and is being rolled out across the rest of the Group during 2018. This platform provides the opportunity to further enhance and automate our processes.

These projects resulted in exceptional charges of £0.8m during the year, as set out in note 4 to the accounts.

Marketing

The Hydrogen Group continues to focus on building market leading ultra-niche businesses to drive its business forward. This is the original model that built Hydrogen and with the power of digital marketing presents a huge opportunity to the business. We signed an agreement with LinkedIn which gives all the consultants in the Group access to the premium licence and as we roll out our new CRM will enable cross system awareness. Hydrogen Group has strong brands that are highly recognisable within their niche markets, and we have the clients, candidates, staff and infrastructure to take advantage of these opportunities.

FINANCIAL REVIEW 

Revenue

Group revenue for 2017 totalled £125.1m (2016: £116.2m). This growth was primarily due to the inclusion of seven months' revenue from Argyll Scott.

Key performance measures

We measure our progress against our strategic objectives using the following key performance indicators:

Profit conversion

Profit conversion is the underlying profit before tax (PBT adjusted for foreign exchange gains, amortisation of acquired brand and database, share based payments and exceptional items) divided by total NFI. This is key for the business to assess the level of underlying profitability.

In 2017, profit conversion in the Group reduced to 4% (2016: 5%) and remains behind the Group's target of 15%. Following on from the acquisition of Argyll Scott and the benefits identified in the Chairman's Report, the Board believes that this target is achievable.

Productivity per head

Productivity per head represents total NFI divided by the average number of employees. This is important to the business to monitor the levels of activity in the business and identify fee earners who are not at full productivity.

In 2017, productivity per head decreased to £79,000 (2016: £83,000). This was predominantly due to a lower productivity per head at Argyll Scott which has a greater exposure to higher growth developing markets that tend to have lower unit fees (and associated costs) than more mature markets.

NFI split between the UK and the rest of the world

This is the NFI from the UK and the rest of the world expressed as a percentage of total NFI indicating the diversification of the business.

NFI from the rest of the world has increased by £3.5m to £11.0m and represents 48% of the NFI for the year (2016: 43%) principally driven by the acquisition of Argyll Scott, which predominately operates outside the UK.

Net fee income (NFI - equivalent to gross profit)

Overall, there was an increase in Group NFI of 29% to £22.8m (2016: £17.7m). The major driver for this increase in NFI was the acquisition of Argyll Scott.

Permanent NFI grew in the year by 71% to £11.5m with the majority of Argyll Scott's NFI coming from the permanent APAC market. Contract NFI declined to £11.2m (2016: £11.6m) principally as a result of the challenges in the EMEA Life Sciences practice.

The devaluation of sterling increased the value of reported NFI from overseas by 5.5% (£0.6m) during the year.

Operating segments

Our current management structure and reporting focuses on performance of our two core markets: EMEA (including USA) and APAC. The segmental analysis disclosed in note 1 reflects this. The operating model of the business is to build market leading niche businesses. Each operating segment is made up of specialist businesses that focus on a niche market defined by location, sector, role type and type of service. Each business is defined by its size as being one of an incubator, fast growth or market leading business.

NFI from the EMEA operating segment totalled £15.7m (2016: £14.4m) and contributed 69% (2015: 81%) of total NFI. NFI from the APAC operating segment totalled £7.1m (2016: £3.3m) and contributed 31% of total NFI (2016: 19%).

Exceptional costs

Exceptional administration costs totalled £2.0m (2016: Nil) and principally relate to the integration of property and IT platforms following the acquisition of Argyll Scott. More details can be found on note 4.

Headcount

Total headcount at 31 December 2017 was 46% higher than the prior year, at 313 (2016: 215). Average total headcount for the year was 287, a 34% increase on the previous year (2016: 214).

Finance cost/income

Group finance cost for the year was £0.1m compared to net finance income in 2016 of £1.0m. In 2016 there was a £1.0m gain based on fluctuations in foreign exchange rates and trading movements within the loan balances to the Group's foreign subsidiaries. During 2017, the Group restructured its loan facilities within the Group and reclassified the majority of the balances as non-current to limit the risk of large fluctuations in the reported profit and loss from foreign exchange and to allow the better representation of the Group's underlying performance. As a result, any gains or losses on these non-current loans due to foreign exchange are included within other comprehensive income. Finance costs in the year have remained stable at £0.1m (2016: £0.1m).

Profit and loss before taxation

Reported loss before taxation (LBT) for the year was £1.4m (2016: £1.7m profit).

The Board's preferred measure of trading performance of the business removing one off adjustments is flat with underlying profit before tax (PBT) of £0.8m (2016: £0.8m).

Underlying PBT is calculated as follows:

Taxation

There was a £0.1m tax credit for the year (2016: charge of £0.1m), giving an effective credit tax rate of 7% (2016: charge of 8%).

At 31 December 2017 the Group had unutilised tax losses of £7.8m (2016: £3.7m), which grew primarily from acquired tax losses within Argyll Scott, available for offset against future profits. The Group has potential deferred tax assets of £1.6m which have not been recognised.

Dividend

The Board is proposing resuming dividends with an annual dividend of 0.8p for 2017 (2016: nil). This will be put before shareholders for approval at the Annual General Meeting on 25 May 2018.

Loss per share

The basic loss per share was 4.4p (2016: profit of 6.8p). Diluted loss per share was 4.4p (2016: profit of 6.5p).

An adjusted basic earnings per share has been calculated, excluding exceptional items of 2.6p (2016: 6.8p). Adjusted diluted earnings per share of 2.4p (2016: 6.5p).

Balance Sheet

Net assets at 31 December 2017 increased by £1.2m to £20.2m (2016: £19.0m).

Goodwill increased in the year to £12.2m (2016: £10.1m) following the acquisition of Argyll Scott. There were no impairments to the carrying value of goodwill in 2017 (2016: nil).

Current trade and other receivables increased by 33% to £23.8m (2016: £17.9m). The largest single component is trade receivables which at year end had risen by £4.3m to £13.3m (2016: £9.7m) principally due to the acquisition of Argyll Scott which accounted for £2.5m of the balance. Additionally, several large clients paid significant balances in January rather than in December and as a consequence day's sales outstanding at 31 December 2017 increased to 40 days (2016: 30 days).

The increase of £4.2m in trade and other payables is mainly a result of two factors. Increased sales taxes payable across the Group due to a growth in turnover, and the recognition of a redemption liability in relation to the expected future earn out payments associated to the purchase of certain minority interest holdings in some subsidiaries of Argyll Scott, the arrangements for which were in place at the time of the acquisition. Accruals principally comprise amounts owed to contract staff which grew in line with the growth in contractors during the year.

Short term bank deposits remain positive at £2.8m (2016: £3.1m).

Reserves

As a result of the Group's trading performance in the year and the impact of the acquisition of Argyll Scott, total equity has increased by £1.2m to £20.2m (2016: £19.0m).

Treasury management and currency risk

Approximately 75% of the Group's revenue in 2017 (2016: 77%) was denominated in Sterling. The Group aims to match cost and revenue in the same currency to provide a natural hedge in its major markets which it achieved with the exception of the Euro.

The Group entered into a £0.5m Euro forward contract in the year to manage the foreign exchange risk. This was settled before the year end and no foreign currency contracts were open as at 31 December 2017.

Cash flow and cash position

Net debt at 31 December 2017 was £0.4m (2016 - net cash of £2.0m). The balance was adversely impacted by a timing difference at the year end when a number of key clients delayed payment of £1.2m until the first week of January. Additionally, the Group made cash investments and loans totalling £0.4m to CBFG, and the cash cost of exceptional items associated with the acquisition and integration of Argyll Scott amounted to £0.7m.

Gross borrowings increased during the year by £2.0m to £3.1m.

The Group has an Invoice Discounting Facility of £18.0m with HSBC with a commitment to May 2019. After this date the facility shall continue until terminated by either party giving to the other not less than three months' written notice.

The Group also has an additional Invoice Discounting Facility of £1.0m with Barclays with a commitment to January 2019.

The average facility available during the year stood at £5.9m. Average utilisation in the year was noted at 56% (£3.3m). The average available funds (including cash) for the Group grew by £1.1m to £5.8m.

Foreign Exchange Risk

The depreciation of Sterling during the year had a positive impact on the translation of the earnings of the Group's overseas subsidiaries. The extent of the depreciation of Sterling is detailed below:

The Group is currently not hedged against this translation exposure.

Going concern

It should be recognised that any consideration of the foreseeable future involves making a judgement, at a particular point in time, about future events, which are inherently uncertain.

The Group has two revenue streams, permanent and contract solutions. The cash flow characteristics of the two streams interact in a complementary fashion. The permanent business, which has minimal working capital requirement, is cash generative during the growth phase, and with tight cost control, near to cash neutral in a downturn. By contrast, the contract business has a large working capital requirement, and requires significant cash investment during a period of growth but is cash generative in the first periods of a downturn.

The Group has prepared financial forecasts for the period ending 30 June 2019 and the Directors have a reasonable expectation that the Group will have sufficient cash flow and available resources to continue operating in the foreseeable future. On these grounds the Board has continued to adopt the going concern basis for the preparation of the financial statements.

Ian Temple

Chief Executive Officer

9 April 2018

The financial statements were approved by the Board of Directors and authorised for issue on 9 April 2018 and were signed on its behalf by: 

Ian TempleChief Executive

Basis of preparation

Hydrogen Group plc is the Group's ultimate parent company. The Company is a limited liability company incorporated and domiciled in the United Kingdom. The registered office address and principal place of business is 30 Eastcheap, London, EC3M 1HD, England. Hydrogen Group plc's shares are listed on the AIM Market. Registered company number is 05563206.

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 Group's accounting policies, as set out below, have been consistently applied to all the periods presented.

The factors considered by the Directors in exercising their judgement of the Group's ability to continue to operate in the foreseeable future are set out in the Annual Report and summarised in the Financial Review. The Group has prepared financial forecasts for the period to 30 June 2019. and the directors have a reasonable expectation that the Group will have sufficient cash flow and available resources to continue operating in the foreseeable future. Consequently, the Board has continued to adopt the going concern basis for the preparation of the financial statements.

The consolidated financial statements for the year ended 31 December 2017 (including comparatives) are presented in GBP '000 and were approved and authorised for issue by the Board of Directors on 9 April 2018.

1 Segment reporting

Segment operating profit is the profit earned by each operating segment excluding the allocation of central administration costs, and is the measure reported to the Group's Board, the Group's Chief Operating Decision Maker (CODM), for performance management and resource allocation purposes.

(a) Revenue, gross profit, and operating profit by discipline

For management purposes, the Group is organised into the following two operating segments based on the geography of the business unit:

- EMEA (covering Europe, Middle East, Africa and the USA); and

- APAC (covering Asia and Australia)

The operating segments noted reflect the information that is regularly reviewed by the Group's Chief Operating Decision Maker which is the Board of Hydrogen Group plc. Both operating segments have similar economic characteristics and share a majority of the aggregation criteria set out in IFRS 8:12.

Group costs represent central management costs that are not allocated to operating segments.

The majority of exceptional items included are in relation to acquisition costs for Argyll Scott. Refer to note 4 for a breakdown.

Revenue reported above is generated from external customers. There were no sales between segments in the year (2016: nil).

The accounting policies of the operating segments are the same as the Group's accounting policies described above. Segment profit represents the profit earned by each segment without allocation of Group administration costs, finance costs and finance income.

Other income relates to rentals receivable by the Group for the two floors subleased in London.

There is one external customer that represented 22% (2016: 31%) of the entity's revenues, with revenue of £27.5m (2016: £36.3m), and approximately 9% (2016: 16%) of the Group's Net Fee Income ("NFI") which is included in the EMEA segment.

 (b) Revenue and gross profit by geography:

The 'Rest of world' revenue and gross profit numbers disclosed above have been accumulated for geographies outside of the UK on the basis that no one geography is significant in its entirety, other than the UK.

 (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 total assets and liabilities. The cost to develop this information would be excessive in comparison to the value that would be derived.

2 Finance costs

3 Finance income

*Foreign exchange (losses)/gains recognised on the translation of intercompany financing balances

4 Exceptional administrative items 

Exceptional items are costs that are separately disclosed due to their material and non-recurring nature. They arose as a result of the strategic decision to acquire the entire share capital of Argyll Scott and align the combined businesses going forward.

5 Dividends 

No interim dividend during the year was paid in respect of the year ended 31 December 2017 (2016: nil p per share).

A final dividend of £0.8p has been proposed but not yet approved for the year ended 31 December 2017 (2016: nil p per share).

6 Tax 

There has been no deferred tax charge relating to share options charged directly to equity (2016: nil).

In total, at the reporting date, the Group had increased unutilised tax losses due to the acquisition of Argyll Scott of £7.8m (2016: £3.7m) available for offset against future profits, for which no deferred tax assets had been recognised.

7 Goodwill

Goodwill arising on business combinations is tested annually for impairment or more frequently if there are indications that the value of goodwill may have been impaired. Goodwill has been tested for impairment by comparing the carrying value with the recoverable amount.

The recoverable amount is determined on a value-in-use basis utilising the value of cash flow projections over five years with a terminal value added. Multiple scenarios were tested, firstly using the 2017 actuals (of which key assumptions are detailed below) and secondly using detailed budgets prepared as part of the Group's performance and control procedures. Subsequent years are based on further extrapolations using the key assumptions listed below. Cash flows are discounted by the cash generating unit's weighted average cost of capital. Management believes that no reasonably possible change to the key assumptions given below would cause the carrying value to materially exceed the recoverable amount. Management determines that there has been no further impairment in the carrying value of goodwill in 2017.

The key assumptions for revenue growth rates and discount rates used in the impairment review are stated below: 

For the purposes of the goodwill impairment review, the Board consider it prudent to assume a 2.5% revenue growth on pre-tax actuals for 2018 through to 2022. The revenue growth rates for 2018-2022 are the Group's own internal forecasts, supported by external industry reports predicting improving conditions in the industry, with demand for the industry's services anticipated to pick up. The discount rate used is an estimate of the Group's weighted average cost of capital, based on the risk adjusted average weighted cost of its debt and equity financing. The Group has sensitised both the discount rate and growth rate by 2.5% with no material impact (and no impairments) noted.

8 Investment in associate

The following table provides summarised information of the Group's investment in the associated undertaking:

9 Other intangible assets

Amortisation of intangible assets is charged to administration expenses in the Consolidated Statement of Comprehensive Income.

Database and Brand intangibles were acquired as part of the acquisition of Argyll Scott.

Impairment of £0.6m noted on software development that does not support the future economic value to the Group. This has been included within exceptional IT costs in note 4.

10 Property, plant and equipment

11 Deferred tax 

No reversal of deferred tax is expected within the next twelve months (2016: nil).

In total, at the reporting date, the Group had increased unutilised tax losses due to the acquisition of Argyll Scott of £7.8m (2016: £3.7m) available for offset against future profits, for which no deferred tax assets had been recognised.

12 Trade and other receivables 

As at 31 December 2017, the average credit period taken by clients was 40 days (2016: 30 days) from the date of invoicing, and the receivables are predominantly non-interest bearing. An allowance of £135,000 (2016: £142,000) has been made for estimated irrecoverable amounts. Due to the short-term nature of trade and other receivables, the Directors consider that the carrying value approximates to their fair value. 

Accrued income principally comprises accruals for amounts to be billed for contract staff for time worked in December. Other receivables due after more than 12 months are predominantly rental deposits on leasehold properties.

The Group does not provide against receivables solely on the basis of the age of the debt, as experience has demonstrated that this is not a reliable indicator of recoverability. The Group provides fully against all receivables where it has positive evidence that the amount is not recoverable.

The Group uses an external credit scoring system to assess the creditworthiness of new customers. The Group supplies mainly FTSE 100 and other major companies and major professional partnerships.

Included in the Group's trade receivable balances are receivables with a carrying amount of £5.4m (2016: £2.1m) which are past due date at the reporting date for which the Group has not provided as the amounts are still considered recoverable. The Group does not hold any collateral over these balances.

In determining the recoverability of trade receivables, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The Directors believe that there is no further credit provision required.

There are no individually impaired trade receivables that have been placed in administration or liquidation included in the allowance for doubtful debts (2016: nil).

As at 31 December trade receivables to a value of £6.8m were subject to an invoice financing facility (2016: £4.6m).

13 Cash and cash equivalents

Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less, less bank overdrafts repayable on demand. The carrying amount of these assets approximates their fair value.

14 Trade and other payables 

Accruals principally comprise accruals for amounts owed to contract staff for time worked in December, in addition to a rental accrual and a bonus and commission accrual.

The average credit period taken on trade purchases, excluding contract staff costs, by the Group is 38 days (2016: 35 days), based on the average daily amount invoiced by suppliers. Interest charged by suppliers is at various rates on payables not settled within terms. The Group has procedures to ensure that payables are paid to terms wherever possible. Due to the short-term nature of trade and other payables, the Directors consider that the carrying value approximates to their fair value.

15 Borrowings

The Group has two invoice discounting facilities in operation. The HSBC facility has a maximum drawdown of £18.0m with a year-end balance outstanding of £2.5m. Interest on the facility is charged at 1.7% over UK Base Rate on actual amounts drawn down, and the margin is fixed to May 2019.

The Barclays facility is for £1.0m with a year-end balance outstanding of £0.6m. Interest on the facility is charged at 2.3% over UK Base Rate on actual amounts drawn down, and the margin is fixed to January 2019.

16 Provisions 

The dilapidations provisions relate to the Group's current leased offices in London and Singapore. This provision will unwind over the course of the leases agreements. Leaseholds in the Group range from 2-10 years.

The onerous lease contracts relate to surplus accommodation within the existing Argyll Scott offices in London and Singapore. Following discussions with advisors, the Group has taken an exceptional charge in London for 9 months' costs, starting from 1 June 2017, relating to this space to cover the marketing void and rent free incentive that is assumed would be required to sublet this space. No rent shortfall/surplus was assumed for the duration of any sub-lease eventually granted. The Group has also taken an exceptional charge in Singapore for 17 months' costs, starting from 1 November 2017 on the same basis as above.

System integration costs relate to the process of incorporating both Hydrogen and Argyll Scott onto the same IT and CRM platform enabling not only business synergies but providing business continuity and creating cost savings for the Group.

Onerous contracts relate to pre-agreed deals that are no longer viable for the Group following the merger with Argyll Scott.

17 Share capital

The share capital at 31 December 2017 was as follows:

During 2017, 450,000 options were exercised (2016: 12,000), all of which were satisfied by the issuance of new shares.

At 31 December 2017, 1,162,051 (2016: 1,162,051) shares were held in the EBT.

At 31 December 2017, 211,414 (2016: 211,414) ordinary shares were held in the Hydrogen Group plc Share Incentive Plan trust for employees.

18 Own shares held

During the year, there was no movement in the number of shares held by the EBT.

At 31 December 2017, the total number of ordinary shares held in the EBT and their values were as follows:

19 Earnings/ (loss) per share

Earnings/ (loss) per share is calculated by dividing the profit/(loss) attributable to equity holders of the Group by the weighted average number of ordinary shares in issue.

Diluted earnings/ (loss) 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. The Employee Benefit Trust shares are ignored for the purposes of calculating the Group's earnings per share.