Final Results

2 April 2019

HYDROGEN GROUP PLC

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

(AIM: HYDG)

Final results for the year ended 31 December 2018

Hydrogen Group, the global specialist recruitment group, announces final results for the year ended 31 December 2018.

Key points

· Group revenue to 31 December 2018 totalled £135.7m (2017: £125.9m);

· Full year Net Fee Income+ ("NFI") 34% higher at £30.5m (2017: £22.8m), partly driven by the full year impact of Argyll Scott, but also by strong underlying growth, with Group pro-forma* NFI up 14%;

· Contractor gross margin increased by over 10% in the year to 10.8% (2017: 9.8%);

· Profit conversion ratio increased to 9.7% (2017: 3.6%);

· Underlying** profit before tax ("PBT") increased by £2.2m, or 264% to £3.0m (2017: £0.8m);

· Strong cash generation. Cash generated from operations of £6.1m (2017: outflow of £2.5m);

· Net cash as at 31 December 2018 of £4.9m (31 December 2017: net debt of £0.4m);

· Statutory profit for the year of £2.5m (2017: loss £1.3m);

· Final dividend of 1.0p per share proposed for approval at AGM, taking dividend for the year to 1.5p (2017: 0.8p per share), an increase of 88% for the year; and

· Basic EPS in the year of 7.0p (2017: loss of 4.4p). Underlying** EPS in the year of 8.0p (2017: 3.2p).

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

* Pro-forma NFI includes 12 months trade of Argyll Scott Holdings Limited in the comparative.

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

Ian Temple, CEO, commented:

"I am delighted to be reporting strong growth in Net Fee Income on both a reported and a proforma basis, in each of the EMEA, APAC and US regions, which, together with improving conversion rates, has driven a transformation of the Group's profitability and net cash position.

We look forward confidently to continued growth this year. Furthermore, the Group is now in a strong position to accelerate this growth through selective acquisition and is actively pursuing opportunities."

Enquiries:

Hydrogen Group plc 020 7090 7702

Ian Temple CEO

John Hunter COO & CFO

Shore Capital (NOMAD and Joint Broker) 020 7468 7904

Edward Mansfield / James Thomas

Whitman Howard (Joint Broker) 020 7659 1234

Hugh Rich

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

Introduction

I am delighted to be able to report a strong performance in 2018. With the integration of Argyll Scott Holdings Limited ("Argyll Scott") complete, and all of the key objectives of the acquisition successfully achieved, the Group has increased its Net Fee Income ("NFI") on both a reported and a proforma basis, and its market share, in each of the EMEA, APAC and US regions.

This growth and the associated operational gearing, together with cost savings arising from both the integration and the implementation of efficiency driving initiatives across the business, have increased conversion rates and transformed the Group's profitability.

Furthermore, we have developed an operating model, which has been implemented across the Group, that, together with this positive trading momentum, enables us to look forward confidently to further sustainable long-term profit growth.

Performance

In 2018, the Group increased its NFI (or Gross Profit) by 34% to £30.5m (2017: £22.8m). Although this was partly driven by the full year impact of Argyll Scott, underlying NFI growth was also strong, increasing by 14% on a proforma basis.

Although this growth has been broad based, the Group's performance in the US has been particularly impressive. Two new offices were opened in Austin and San Diego and US NFI increased by 110%, and by 118% on a constant currency basis, during the year.

The Board considers that the Group's underlying profit before exceptional items and tax is the best way to judge its trading performance as it excludes non-trading items and non-repeatable gains and losses. Underlying profit before exceptional items and tax increased by £2.2m, or 264%, to £3.0m (2017: £0.8m). Key adjustments include net exceptional expenses of £nil (2017: £2.0m), foreign exchange losses of £0.1m (2017: £nil), non-controlling profit of £0.2m (2017: £nil), share based costs of £0.1m (2017: £0.2m) and amortisation of acquired intangibles from Argyll Scott of £0.1m (2017: £0.1m). Underlying EPS was 8.0p (2017: 3.2p). The statutory profit for the year was £2.5m (2017: loss of £1.3m).

Conversion rates have improved significantly during the year. The underlying profit before tax margin (calculated as underlying profit before exceptional items and tax divided by net fee income) increased to 9.7% (2017: 3.6%). Pleasingly, margins improved progressively through the year. The underlying profit before tax margin in H2 was 11.6%.

Cash generation during the year was strong, driven both by profit growth and improved cash conversion resulting from a focus on working capital management. As a result, net cash at 31 December 2018 was £4.9m (31 December 2017 net debt of £0.4m).

During the year, the Group acquired a further 4.9% of Tempting Ventures Limited ("Tempting Ventures"), increasing its holding to 49.9%. Tempting Ventures has traded well, delivering a profit in its first full year of operation despite adding several new investments to its portfolio. While the impact on the Group's results is not yet significant, it is well positioned for further profitable growth which will contribute to the Group's earnings growth moving forward.

Strategy

Hydrogen Group's strategy is to build market leading specialist teams in high growth markets with a focus on developing each through a journey from incubator through fast growth to market leader where they have much greater profit conversion. Globally, the STEM (Science, Technology, Engineering & Mathematics) and Professional Services markets in which we operate are being increasingly disrupted by a combination of technological, cultural, and political change. Our model allows us to efficiently identify and appraise the niche skill sets for which this disruption will drive increased demand for, and conversely those where it will destroy demand, allowing us to deploy our resources accordingly to drive growth.

The integration of Argyll Scott has enabled the development of a new operating model that has been deployed across the Group, which, by focusing on the key drivers of our Proposition, People, Platform and Performance is further facilitating the development of scaleable market leading teams that will drive both NFI growth and additional improvements to conversion rates.

In 2016 we set objectives that by 2020 the Group would, inter alia: be growing NFI by 10% per annum, have grown underlying EPS to 6.8p, and increased underlying profit before tax conversion rates to over 10%. I am delighted to report that these objectives were substantively achieved during 2018.

With both a strong balance sheet and a robust and scaleable operating model in place, the Board believes that these goals may best be achieved by supplementing continued sustainable organic growth with selective acquisitions that meet our strict criteria relating to financial, operational, strategic and cultural fit. As such, the Board is actively reviewing acquisition opportunities that it believes may meet these criteria. 

People

I would like to welcome all our colleagues that joined the Hydrogen Group during 2018. I also thank all our staff for their hard work during the year as we continued to grow the business. I am pleased with the progress the management team has made and our strength and depth of talent has been further enhanced during the year. I am also delighted at the continued growth in of our minority interest share scheme, demonstrating our ability to attract, retain, motivate and develop key staff.

Dividend

The Board is confident in the prospects of the Group and believes that the Group should grow profitably and continue to generate cash during 2019. During the year, the Board resumed payment of a dividend and paid an annual dividend of 0.8p in respect of 2017 (2016: nil). An interim dividend was declared and paid in October for 2018 of 0.5p. In line with its policy of paying a progressive and sustainable dividend, the Board now proposes a final dividend for 2018 of 1.0p, giving a payment for the year of 1.5p representing an increase of 88% for the year. Subject to approval at the AGM, on 23 May 2019, the dividend will be paid on 31 May 2019 to all shareholders on the register on 3 May 2019.

The Board

The Board has continued to operate to high standards of corporate governance appropriate to Hydrogen Group's size and market capitalisation. The Board itself has had a stable year, with no changes in membership. In line with best practice, all Directors will stand for re-election by shareholders at the AGM.

A review of Board effectiveness was completed during the year to assess its overall performance. No significant concerns were noted. The review identified three key objectives for the Board moving forward:

· To ensure that the business continues to deliver growth in revenue and profit to enhance shareholder value;

· To further develop the next level of leaders in the Group; and

· To continue the drive to expand the Group through acquisitions.

Outlook

Trading to date during 2019 has been in line with the Board's expectations. The Board is mindful of the challenges and uncertainties presented by both the UK's planned exit from the European Union, however, we are confident that we will achieve continued growth this year.

The Group's plan for the year ahead is to continue focusing on growing and developing its niche teams into market leading businesses by investing in high performing individuals and our global operating model, while continuing to explore acquisition opportunities that both meet our selection criteria and have the potential to accelerate our growth plans.

Stephen Puckett

Chairman

2 April 2019

BUSINESS REVIEW

We are pleased to report that we continued to make strong progress during 2018:

The key financial highlights in 2018 were:

· revenue increased to £135.7m (2017: £125.9m);

· NFI increased by 34% to £30.5m (2017: £22.8m);

· NFI earned outside the UK increased to 54% of total NFI from 48%;

· underlying profit* in the year increased by £2.2m to £3.0m (2017: £0.8m);

· strong cash generation. Cash generated from operations of £6.1m (2017: outflow of £2.5m); and

· net cash as at 31 December 2018 of £4.9m (31 December 2017: net debt of £0.4m).

* Altered for non-controlling interest, foreign exchange gains, amortisation of acquired brand and database, share based payments and exceptional items.

The integration of Argyll Scott, which was acquired in June 2017, was successfully completed during the year. The integration has enabled the development of a new operating model which has helped to drive the business forward during the year and we believe will provide the basis for sustainable growth moving forward.

Proposition - By being closer to niche disrupted markets we will take advantage of job creation and focus on what our clients and candidates need

The Group is committed to a multi brand strategy and to investing in developing strong operating brands with robust client and candidate propositions. Our operating brands are sub-divided into approximately 70 specialist niche teams each focused on a single skill set and discipline in its local market, enabling our consultants to provide genuine insight to their clients and candidates. Using objective criteria, each niche is categorised as being either an incubator, a fast growth, or a market leading business; and each is driven, through a consistent targeting and reporting model, to grow to be a market leader in its niche where both profit conversion and the sustainability of earnings are strongest.

During the year we closed eleven low growth incubator teams and entered eight new niche markets with greater growth prospects. In total 20 teams were either promoted from incubator to fast growth or from fast growth to market leader, improving the balance of the portfolio.

People - Adopting a growth mindset, we develop our people so they can over-deliver and reap the rewards

We are committed to creating a genuine learning and development culture throughout the Group. Bespoke training programmes have been developed for each job function and grade, which are being delivered across the Group by the leadership and management teams. There is a clear promotion pathway for everybody in the Group. The Group has a performance management system and transparent reward at every level to support an objective and high-performance working culture, which was recognised as 'One to Watch' by the 2019 Sunday Times survey.

The Group launched its minority interest scheme in 2017 and we continued to roll it out during 2018. All managers of fast growth and market leading teams qualify to join the scheme. To date, 35 individuals have joined the scheme with a further 10 expected to join during 2019. The Board is pleased with the way the scheme is impacting performance through the attraction, retention, motivation and development of key staff.

As reported in our interim statement, the Group made two significant additions to its global leadership team in the USA and Australia during the year. Both businesses grew strongly as a result.

We have continued to invest in our productive headcount to drive our revenue earning capacity forward. Total headcount has increased by 32 (10%) from 313 to 345. Twenty eight of the net increase were fee earners as the Group has exploited the efficiencies created by this new operational platform.

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.

Platform - "Powering our business with technology to drive productivity and build closer customer relationships"

Throughout 2018 the Group migrated its teams progressively onto a single, new, global technology and CRM platform. The migration was completed in Q4 and is promoting greater communication and cross fertilisation of key client relationships throughout the Group and driving a consistent and effective "go to market" strategy.

Alongside the new CRM platform, we are continuing to develop a digital marketing programme that supports a multi brand specialist niche business strategy by allowing the development of key client and candidate relationships on a scalable, but bespoke, one to one basis

Hydrogen Group was named the 16th most socially engaged staffing consultancy business in the world in 2018, out of a field of 38,000 by LinkedIn, the second successive year it has made the Top 25. Well over 80% of our clients and candidates are registered users of LinkedIn, which has become a primary platform for building customer relationships. Using social engagement, we create and develop leads which our consultants use to facilitate sales conversions. The ranking is driven by engagement of the platform members with the Group.

Performance - Deeper understanding of data informs decisions and ensures we achieve our goals

In addition to the enhanced analysis and reporting available from our new CRM platform, we are investing in our Business Intelligence systems to combine financial and operating data to present appropriate, meaningful and focused management information to different decision maker groups across the business. We are also using innovative ways of comparing the relative performance of different mangers to drive transparency, accountability and competition.

EMEA

NFI increased by £2.8m to £17.6m (2017: £14.8m) during the year principally as a result of the inclusion of a full year's trade of the UK and Middle East based operations of Argyll Scott. On a proforma basis, NFI grew by 7% or £1.2m. Although the growth was broad based, demand was particularly strong in our UK Legal practice.

Operating profit before exceptional items doubled from £1.4m to £2.8m.

APAC

The APAC region grew strongly during the year. NFI grew by 55% (57% in constant currency terms) to £11.0m (2017: £7.1m). As the bulk of Argyll Scott's operations are located in the APAC region, the inclusion of a full year of its trade had a significant impact on reported NFI. However, on a pro-forma basis, NFI also grow strongly by 15% (and by 17% on a constant currency basis). This growth was broad based, however, the strong performances of our Thai and Australian businesses is noteworthy.

Operating profit before exceptional items increased by £0.9m to £1.3m (2017: £0.4m).

A key rationale for the acquisition was the opportunity to sell our developing Hydrogen branded contract recruitment services to Argyll Scott's established APAC client base. During 2018, contractors were placed on site at 19 existing Argyll Scott clients, validating this model.

USA

The Group achieved strong growth from a low base in the USA with NFI increasing by 110% (118% in constant currency terms) to £1.9m (2017: £0.9m) during the year. Growth accelerated through the year with 78% of NFI being earned in H2, providing a base for further strong growth during 2019.

The Group appointed a new leader in the US in May 2018, and as a result has invested heavily in its US operating capacity. Total US headcount grew from 10 to 24 during the year, and in addition to relocating its existing Houston office to larger premises, new offices were opened in Austin and San Diego. Since the year end, a fourth office has been opened in the region, in Charlotte.

Despite this significant investment, operating profit before exceptional items also increased to £0.1m (2017: loss of £0.02m).

Permanent and Contract

Hydrogen Group places candidates in permanent roles and provides contract solutions. Permanent placements play to the Group's experience in satisfying demand for rare niche skills. Contract solutions provide clients with flexible resources usually to complete specific projects.

The Group's NFI that is derived from permanent placements grew by 55% to £17.8m (2017: £11.5m), while NFI derived from contract solutions increased by 13% to £12.7m (2017: £11.2m), driving a shift in the Group's permanent NFI to contract NFI mix to 58% permanent : 42% contract (2017: 51% permanent : 49% contract).

The variance in the relative growth rates is largely a result of the full year inclusion of Argyll Scott, which is a business that provides, primarily, permanent recruitment services. Argyll Scott's operations are predominantly located in Asia and the Middle East where white collar contract recruitment is relatively immature. The development of contract recruitment services in these markets offers a clear growth opportunity for the Group. On a proforma basis, permanent NFI grew by 19% and contract NFI by 7%.

The trend of improving contract margins experienced in recent years has continued with the Group achieving a contract margin of 10.8% in 2018 (2017: 9.8%).

Clients and Candidates

Hydrogen Group has built strong and effective relationships with its clients based around its longstanding track record of delivery in specialist markets. We would like to thank all our clients for their support over the last year.

The Group has a very strong candidate database and a proven methodology for building candidate relationships in our niche specialist teams. The Group works with highly talented candidates and contractors and would like to thank them for trusting us to empower their careers.

Brexit

The UK is the largest geographical market for the Group, representing some 46% of NFI during 2018. Therefore, we have continued to review the possible impact on the business should the UK leave the European Union.

Possible positive impact on the business:

· Continued UK talent shortages may increase the use of recruitment consultancies in the UK;

· The ability to use our international network to bring talent to the UK from outside the European Union due to new visa processes;

· Business transformation projects driven by change in arrangements and regulation creating demand for our specialist staff;

· Possible faster growth in the UK economy, increasing employment growth, as it builds trade with faster growing international markets than the EU; and

· Should Sterling devalue, our overseas reported revenue and profit increase.

Possible negative impact on the business:

· Delay of projects affecting the demand for resource until greater certainty of the future landscape;

· Possible slowdown in the UK economy, decreasing employment growth and therefore the demand for staff; and

· A strengthening of Sterling decreases our reported overseas revenue and profit.

FINANCIAL REVIEW 

Revenue

Group revenue for 2018 totalled £135.7m (2017: £125.9m).

Key performance measures

We measure progress against 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, NCI profit or loss, non-trading items and exceptional items) divided by total NFI. This is key for the business to assess the level of underlying profitability.

In 2018, profit conversion in the Group increased to 9.7% (2017: 3.6%). 

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.

Productivity per head fell in 2017, primarily due to the impact of Argyll Scott's operations in emerging markets in Asia where candidate salary levels and the Group's operating costs are lower. In 2018, productivity per head grew 15%, driven by the implementation of the Group's operating model, to £91,000 (2017: £79,000).

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 £5.6m to £16.6m and now represents 54% of the NFI for the year (2017: 48%).

Net fee income (NFI - equivalent to gross profit)

During 2018, Group NFI grew by 34% to £30.5m (2017: £22.8m).

The fluctuation of sterling decreased the value of reported NFI from overseas by 1% (£0.2m) during the year.

Operating segments

Our current management and reporting structure focuses on the performance of our three core markets: EMEA, 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 teams that focus on a niche market defined by location, sector, role type and type of service. Each team is categorised by its size as being an incubator, a fast growth or a market leading business.

NFI from the EMEA operating segment totalled £17.6m (2017: £14.8m) and contributed 58% (2017: 65%) of total NFI. NFI from the US operating segment totalled £1.9m (2017: £0.9m) and contributed 6% (2017: 4%) of total NFI. NFI from the APAC operating segment totalled £11.0m (2017: £7.1m) and contributed 36% of total NFI (2017: 31%).

Exceptional costs

Net exceptional administration costs incurred in the year amounted to £nil and principally relate to two material offsetting factors. The first being a one-off rates rebate received, and the second being the provision for an onerous lease that was identified during the year. Further details are set out in note 4.

Finance cost/income

Group finance cost for the year remained stable at £0.1m (2017: £0.1m).

Profit and loss before taxation

Reported profit before taxation (PBT) for the year was £2.8m (2017: £1.4m loss).

The Board's preferred measure of trading performance of the business removing one off and non-trading items has increased significantly with underlying PBT of £3.0m (2017: £0.8m).

Underlying PBT is calculated as follows:

*Non trading costs incurred in the year relate to professional fees on potential acquisitions. These are included within administrative expenses in the Consolidated Statement of Comprehensive Income.

Underlying EPS is calculated as follows:

Taxation

There was a £0.4m tax charge for the year (2017: credit of £0.1m), giving an effective tax rate of 13% (2016: credit rate of 7%).

At 31 December 2018 the Group had unutilised tax losses of £6.5m (2017: £7.8m) available for offset against future profits. The Group has potential deferred tax assets of £1.4m (2017: £1.6m) which have not been recognised.

Dividend

The Board is confident in the prospects of the Group. As a result, the Board proposes a final dividend for the year 2018 of 1.0p to be agreed at the AGM on 23 May 2019. Subject to approval at the AGM, the dividend will be paid on 31 May 2019 to all shareholders on the register on 3 May 2019.

Profit per share

The basic profit per share was 7.0p (2017: loss of 4.4p). Diluted profit per share was 6.4p (2017: loss of 4.4p).

Balance Sheet

Net assets at 31 December 2018 increased by £0.9m to £21.1m (2017: £20.2m).

Goodwill remained flat at £12.2m. There were no impairments to the carrying value of goodwill in 2018 (2017: £nil).

Current trade and other receivables decreased by 17% to £19.7m (2017: £23.8m). The largest single component is trade receivables, which at year end have decreased by £3.2m to £10.8m (2017: £14.0m) as a result of improvements to transactional finance processes and a focus on working capital management. Consequently, days sales outstanding at 31 December 2018 decreased to 28 days (2017: 40 days).

The decrease of £3.8m in current liabilities is principally a result of two factors. A reduction in trade and other payables of £0.9m due to timing differences, and a decrease of £2.8m in borrowings resulting from the improvement in operating cash levels within the business.

Non-current liabilities increased by £1.0m largely due to the revalued redemption liability in relation to the expected future earn out payments associated to the purchase of certain minority interest holdings in certain subsidiaries of Argyll Scott, the arrangements for which were in place at the time of the acquisition in 2017. Further details are set out in note 21.

Short term bank deposits remain positive at £5.2m (2017: £2.8m).

Reserves

As a result of the Group's strong trading performance in the year and the impact of the revised redemption liability (note 21), total equity has increased by £0.9m to £21.1m (2017: £20.2m).

Treasury management and currency risk

Approximately 73% of the Group's revenue in 2018 (2017: 75%) 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 did not enter into any forward contracts and no foreign currency contracts were open as at 31 December 2018.

Cash flow and cash position

Net cash at 31 December 2018 was £4.9m (2017: net debt of £0.4m). Strong trading in the year boosted cash generation in the Group before working capital by £2.0m. Further improvements in working capital management resulted in positive cash inflows of £3.2m (2017: outflow of £3.0m) before taxes and financing costs. Total inflows as a result of operating activities were £6.1m (2017: outflow of £2.5m).

Gross borrowings decreased during the year by £2.8m to £0.3m.

The Group has an Invoice Discounting facility of £18.0m with HSBC with a commitment to January 2021. After this date the facility shall continue until terminated by either party giving to the other not less than three months written notice.

The average facility available during the year was £7.3m. Average utilisation in the year was 42% (£2.1m). The average available funds (including cash) for the Group grew by £2.6m to £8.4m.

Foreign Exchange Risk

The appreciation of Sterling during the year had a negative impact on the translation of the earnings of the Group's overseas subsidiaries. The extent of the appreciation 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 2020 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.

Consolidated statement of comprehensive incomeFor the year ended 31 December 2018

The financial statements were approved by the Board of Directors and authorised for issue on 2 April 2019 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 under the historical cost convention, apart from the treatment of certain financial assets, and 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 have been consistently applied to all the periods presented other than for the adoption of IFRS 9 and 15 and the change in accounting policy for the redemption liability.

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 2020 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 three operating segments based on the geography of the business unit: EMEA (covering Europe, Middle East and Africa); 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. All 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 in prior year 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 (2017: 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 21% (2017: 22%) of the entity's revenues, with revenue of £29.1m (2017: £27.5m), and approximately 8% (2017: 9%) 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

4 Exceptional administrative items

Exceptional items are costs/(income) that are separately disclosed due to their material and non-recurring nature.

Restructuring fees are in respect to final costs incurred due to the acquisition of Argyll Scott. The rates rebate in the year relates to the net repayment of overpaid rates from the period of 2012 to 2017.

5 Dividends

A final dividend of 1.0p has been proposed but not yet approved for the year ended 31 December 2018.

6 Tax

There has been no deferred tax charge relating to share options charged directly to equity (2017: nil).

In total, at the reporting date, the Group had unutilised tax losses of £6.5m (2016: £7.8m) 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 2018 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 impairment in the carrying value of goodwill in 2018.

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 2019 through to 2023. The revenue growth rates for 2019-2023 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.

Impairment of £0.6m noted in 2017 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 (2017: nil).

In total, at the reporting date, the Group had unutilised tax losses of £6.5m (2016: £7.8m) available for offset against future profits, for which no deferred tax assets had been recognised.

12 Trade and other receivables 

As at 31 December 2018, the average credit period taken by clients was 28 days (2017: 40 days) from the date of invoicing, and the receivables are predominantly non-interest bearing. Expected credit losses of £279,000 (2017: £135,000) 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. 

Contract assets (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 major companies and major professional partnerships.

Included in the Group's trade receivable balances are receivables with a carrying amount of £2.9m (2017: £5.4m) 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 calculation of expected credit losses (2017: nil).

As at 31 December 2018 trade receivables of £156,000 (2017: nil) had lifetime credit losses of the full value of receivables. The receivables due at the end of the financial year relate to one customer, which experienced a delay in raising capital to launch their platform.

As at 31 December 2018 trade receivables to a value of £6.2m were subject to an invoice financing facility (2017: £6.8m).

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