Final Results

5 March 2012

Hydrogen Group plc

Preliminary results for the year ended 31 December 2011

The Board of Hydrogen Group Plc ("Hydrogen" or "the Group"), the international specialist recruitment group, is pleased to announce its audited preliminary results for the twelve months ended 31 December 2011.

Financial Highlights

§ Group revenue increased by 27% to £156.2m (2010: £123.4m)

§ Group net fee income ("NFI") increased by 8% to £29.8m (2010: £27.6m)

§ Profit before tax up 48% to £3.7m (2010: £2.5m)

§ Diluted EPS increased to 10.24p per share (2010: 7.54p)

§ International NFI increased by 25% to £11.0m (2010: £8.8m), representing 37% of Group NFI (2010: 32%)

§ Proposed final dividend of 2.9p increasing the total dividend for the year by 5% to 4.3p (2010: 4.1p)

Operational Highlights

§ NFI from contract placements increased by 28% to £16.2 (2010: £12.7m)

§ NFI from Technical and Scientific business increased by 76% to £8.6m and now represents 29% of NFI (2010:18%)

§ New offices opened in Hong Kong and Edinburgh

§ Candidates placed in more than 50 countries (2010: 40)

§ Headcount increased by 10% to 362 (31 December 2010: 329)

Commenting, Ian Temple, Executive Chairman of Hydrogen Group plc, said:

"Against a backdrop of uncertain market conditions in 2011 we continued to make good progress against our strategy, demonstrating our ability to identify and deliver growth in new sectors and geographies. Our Oil & Gas and Pharmaceuticals practices, established in 2008 and 2010 respectively, performed exceptionally well and together contributed nearly 30% of Group NFI. The year saw continued success in our overseas expansion with International NFI rising by 25% over the period.

This development has been further supported by increased headcount and continued investment in the IT infrastructure of the business in order to serve better our clients' increasingly global needs and deliver long-term growth, whilst maintaining a tight control on costs and continuing to deliver growth in profitability."

An analyst meeting will be held at 11am at Hydrogen's offices, Nicholas House, 3 Laurence Pountney Hill, London, EC4R 0EU on 5 March 2012.

Notes to Editors:

Hydrogen is a specialist recruitment business with a turnover of over £150m. We build relationships by finding specialist candidates our clients have difficulty sourcing, placing professionals in over 50 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

2011 was a very successful year for the Group, against fairly difficult market conditions. The global recovery in some permanent recruitment markets first seen in the first half of 2010 halted in the first half of 2011 continued into the second half by uncertainty surrounding the debt crisis in Europe. Despite the macroeconomic headwind, the Group posted new records for revenue and contract fee income, and overall posted a 48% increase in pre-tax profits to £3.7m (2010: £2.5m).

Transforming the Business

We have continued to transform the business whilst delivering growth in profitability. The business is now structured into Professional Support Services and Technical and Scientific markets which contain our 10 global practices. These practices have strengthened the quality of our candidate and client offer and better positioning us to drive growth in our markets. Almost 30% of the Group's NFI in 2011 was delivered from our Technical and Scientific practices: Oil & Gas and Pharmaceuticals, which have only existed since 2008 and 2010 respectively. We have incubators running in two new practices and are confident that we can convert them to profitable businesses in a similar time scale. We have continued to make the business more international, opening an office in Hong Kong in April 2011. During 2011 we placed candidates in over 50 countries resulting in 37% of Group NFI being generated outside of the UK, and by the year end 47% of our client facing employees were servicing overseas markets. The outsourcing of all of our IT hardware, infrastructure and networks to a global third party provider, and the roll out of a cloud based client relationship management system in 2012 will provide us with a very efficient and scalable model as we continue to grow and establish operations in new locations.

Financial Performance

For the second successive year the Group posted record Net Fee Income ('NFI') from contract business, up 28% to £16.2m (2010: £12.7m), driven by the success of our Business Transformation practice in the UK. The post recession bounce seen in permanent recruitment in the first half of 2010 was not repeated, but despite this the strength of our contract business meant the Group posted an overall increase in NFI of 8% to £29.8m (2010: £27.6m).

As well as growth in NFI the Group continues to focus on the control of costs, working capital and cash management. The streamlining of the provision of operational support to overseas offices helped the Group restrict the increase in administration cost to 4%, and increased the conversion ratio of NFI to profit to 12.4% (2010: 9.1%) for the year.

The Group continues to demonstrate the cash generative capability of its business, with cash generated from profitable trading coupled with tight working capital control improving the year end net debt position by £0.8m to £1.4m (2010: £2.2m), after the payment of dividends of £0.9m and despite a growth in revenue of 27%.

Our People

We continued to invest in the business and year end headcount increased by 10% to 362 (2010: 329), with increases focused on high growth markets, predominantly outside of the UK. The Group continues to win awards for its employee engagement, training and development programmes, which we regard as vital in delivering a world class service to our clients. We recognise the importance of our employees to the Group and on behalf of the Board I would like to take the opportunity to thank them all for their hard work and achievement during the year.

Clients

We are mindful that we provide some of the world's leading organisations with one of their key resources: their people. The success of our business is based on the strong, long term partnerships we build with our clients and our ability to represent them, their companies and their cultures in our day to day activities. I would like to thank each of our clients for their continued support.

Dividends

We are proud to have been able to maintain dividend payments through the most severe recession experienced in recruitment markets and are delighted to propose a 5% increase in the final dividend for 2011 to 2.9p (2010: 2.7p). In making this decision the Board was mindful of the progress the business has made towards achieving the objectives in its strategy for 2012, its future prospects and the strong balance sheet. The Board previously declared an interim dividend of 1.4p (2010: 1.4p), paid on 4 November 2011, bringing the total for the year to 4.3p (2010: 4.1p). The dividend will be subject to shareholder approval at the Company's AGM on 17 May 2012 and will be paid on 25 May 2012 to shareholders on the register as at 4 May 2012.

Current trading

Uncertainty in the macro-economic environment has continued into 2012, and visibility in global recruitment markets remains limited. Whilst we remain alert to changes in market conditions, we believe through continued careful market selection and with focused investment in key areas the business is well placed to take advantage of growth opportunities.

Ian Temple

Executive Chairman

5 March 2012

OPERATIONAL REVIEW

2011 has been a successful year for Hydrogen, in which we have continued to deliver in line with the four year strategy set out in 2008. Our vision at that time was to transform the business from a UK based group, focused on the professional support services markets, to a global recruitment group, providing services to a more diverse spectrum of sectors. Despite the global financial downturn, and the worst recession in recruitment history, we are pleased to report that we are on track to hit the targets that we set ourselves for 2012, and as the transformation draws to a conclusion, we have established a strong foundation to take the business forward.

Market Overview

Global growth market

The global recruitment market has demonstrated resilience during a period of economic uncertainty driven by increasing penetration of the recruitment industry model into more emerging economies and industry sectors. There is increased demand within sectors where the demographics point to an imbalance of candidate supply and client demand, particularly within technical markets such as Oil & Gas, Infrastructure and Pharmaceuticals. Furthermore, regulatory changes, merger and acquisitions activity amongst our clients and an uncertain macro outlook, have contributed to increased demand for highly skilled professional contractors in slower growth markets.

International clients and candidates

As more organisations operate at a truly global level, they require their recruitment suppliers to operate at a similar level. Where historically there have been disparate offices and regions with their own suppliers, we have witnessed the start of global client procurement processes for recruitment services, presenting the opportunity for those recruiters with a global reach who can provide global talent pools and a consistent service. We predict this opportunity will increase to meet client and candidate demand.

In our second year of producing the Global Professionals on the Move Report in partnership with ESCP Europe, international experience was cited as being important to 60% of clients and 72% of candidates. The report also highlights the continuing appetite of candidates to work with recruitment organisations that are global specialists. The report's thoroughness and quality was marked by receiving a platinum award in the research/study category at the MarCom Awards.

Securing top talent is critical success factor

Clients are more aware that on-going innovation is necessary for long term success, and they are putting greater emphasis on ensuring that they recruit and retain the best talent, both contract and permanent, that are capable of generating this innovation and leading the organisation through change. It is only those suppliers who are able to provide a global view of this top talent, who will secure these supplier relationships. This will drive supplier consolidation and increase barriers to entry for those unable to provide credible differentiation.

Increasing complexity and regulation

The ability to conduct business with clients and candidates whilst meeting local regulations presents increasing challenges to the global recruitment industry. Those recruiters with the sufficient scale and investment within their operations to provide both local and returnhome moves will continue to gain advantage.

Our Strategy

Performance against previously set goals

In 2008 we set out our vision for 2012 to transform the business from a UK-centric, professional support services recruiter to a global recruitment group, structured around 10 specialist practices. Our objective was to create a balanced, more diverse business, with the agility to take advantage of opportunities in markets with high demand for specialist candidates.

We are pleased with the very significant progress the Group has made toward meeting its 2012 goals:

2012 Goals 2011 Performance

·; 50% + Contract NFI 54%

·; 50% + International NFI 37% (H2 2011: 40%)

·; 30% + From practices started since 2008 NFI 29%

As the transformation period for the Group concludes during 2012 we will look to build on the foundations established in developing our strategy to 2015, continuing to focus on 3 key elements of our strategy.

Market selection: successful incubation and development

A key element of our business is our proven ability to identify those markets where there is an imbalance of client demand and specialist candidate supply. Our proven incubator model allows us to test that our KPI assumptions can be achieved. This was demonstrated in 2011 by the continued success of our Pharmaceutical business. Incubated in late 2009 and formally launched in 2010, NFI grew by more than 110% to £2.1m in 2011. New incubators in 2011 included Power within our Infrastructure Practice and Mining within Natural Resources.

Market selection is not just about new markets but is also about identifying efficiencies within current practices and highlighting opportunities for growth. A strong performance by our UK Contract Business Transformation Practice, up 22% on 2010, led us to open a new office in Edinburgh in 2011 to meet growing client demand.

We are one of the few recruiters to diversify its offering away from professional support services, through careful market selection, providing resilience and opportunity for growth. In 2011 we created a Centralised Strategy Function to prioritise the pipeline of new markets, manage risk, provide research and support to our business leaders and measure return against expectations. 

Joined up practices: practice led then location led

Whilst many specialist recruiters are location focused, Hydrogen believes that the best way to deliver service to its clients and candidates is to base our offering around specialist practices that meet client demand. By joining up our practices we can provide clients with global visibility of the best candidates and candidates with worldwide opportunities.

By being joined up, Hydrogen can differentiate itself from local competition and disparate global players enabling us to win several key client global agreements with major Oil & Gas and Pharmaceutical companies.

To ensure our practices operate as truly global teams, we have created the role of Global Practice Leader, who will work with Regional Directors to develop growth strategies for their practice, including client and candidate acquisition strategies.

Infrastructure to facilitate growth

The right infrastructure is the foundation of our transformation, delivering the capability to meet the future growth aspirations of the Group.

The success of our business is dependent on having the right people in the right market at the right time. To deliver this we have our own internal recruitment, training and development function, which was recognised as best in industry at the Recruitment Consultant Industry Awards 2011. We have a track record of growing the leaders that are needed and have a pipeline of talent to meet future requirements.

We have successfully completed a project to move our hardware infrastructure and networks to a global third party cloud provider. While reducing costs, this gives us the flexibility to provide services wherever needed, and increases the speed and agility of our operational support to sales. To capitalise on the cloud technology, in 2012 we will roll out a new cloud based CRM system. This is based on the award winning Salesforce.com platform, and will position us to use technology to gain competitive advantage as a joined up global group and use the latest technologies to manage client and candidate relationships.

In 2011 we placed in over 55 countries (40 in 2010) whilst maintaining DSO's at less than 30 days demonstrating our ability to scale internationally whilst maintaining key controls in the business.

Tim Smeaton

Chief Executive Officer

5 March 2012

FINANCIAL REVIEW

Revenue

The Group recorded another year of revenue growth, increasing revenues by 27% to £156.2m (2010: £123.4m).

Net Fee Income (NFI)

NFI comprises the total placement fees of permanent candidates and the margin earned on the placement of contract candidates.

The Group continued to experience strong growth in contract activity, posting record NFI for the second successive year, increasing by 28% to £16.2m (2010: £12.7m). Continuing the trend from the second half of 2010 permanent recruitment remained tough and saw a marginal decline during the year, falling by 8% to £13.6m (2010: £14.8m). Overall, total Group NFI was up by 8% to £29.8m (2010: £27.6m).

The Group's objective of maintaining a balance of NFI from permanent and contract placements was achieved with fees from contract placements representing 54% of Group NFI, and permanent 46% (2010: 46:54).

The Group continued to deliver on its strategy of increasing diversification of both geographies and industry sectors. The Group opened its latest overseas office in Hong Kong in April 2011. The Group's two most recent practices, Oil & Gas and Pharmaceuticals both continued to make excellent progress, predominantly in markets outside the UK. As a result, NFI from international placements in 2011 increased by 26% to £11.0m (2010: £8.8m), representing 37% of the Group's total NFI (2010: 32%).

Administration costs

Administration costs for the year increased by 4% to £25.9m (2010: £25.0m), driven by additional headcount, which at 31 December 2011 was up 10% to 362 (2010: 329). The Group streamlined its non-billing operations during the year as part of its on-going focus on costs, which resulted in an increase in the conversion ratio to 12.4% (2010: 8.9%).

Finance costs

Finance costs remained unchanged at £0.2m (2010: £0.2m).

Profit before taxation

 Profit before taxation for the year increased by 48% to £3.7m (2010: £2.5m).

Taxation

The tax charge for the year was £1.3m (2010: £0.7m), an effective tax rate of 35% (2010: 29%), above the UK statutory rate of 26.5% due to unutilised overseas tax losses in the Group and non-deductible expenses, including charges for share option costs.  

Dividends

The Board previously declared an interim dividend of 1.4p per share (2010: 1.4p). An increased final dividend of 2.9p per share (2010: 2.7p) is proposed for 2012, bringing the total dividend for the year to 4.3p (2010: 4.1p).

Earnings per share

Basic earnings per share increased to 10.95p (2010: 7.96p) and diluted earnings per share, taking into account existing share options, increased to 10.24p (2010: 7.54p).

Balance Sheet

The Group's net assets at 31 December 2011 increased by £1.8m to £24.9m (2009: £23.1m).

Despite the significant growth in revenue experienced by the Group in 2011, working capital control was maintained, and as a consequence trade debtors decreased by 3% to £12.5m (2010: £13.0m) Expressed in days of sale outstanding (DSO's) this was an increase of 2 days to 27 days (2010: 25 days).

The Group also improved the ageing of its trade receivables, and was able to reduce its bad debt provision to 1% of trade debts (2010: 3%).

Cash flow and cash position

At the start of the year the Group had net debt of £2.2m. Before investment in working capital, and payment of taxes and interest costs, the Group generated cash from trading activities of £4.4m (2010: £2.8m). After an investment of £0.8m (2010: £4.5m) in additional working capital, payment of taxes of £0.9m (2010: £0.5m) and interest payments of £0.1m (2010: £0.2m), cash generated from operations was £2.5m (2010: cash used £2.4m).

In 2011 the Company contributed £0.1m (2010: £0.5m) to the Hydrogen Employee Benefit Trust (EBT) to enable it to purchase 150,000 shares, and received £0.1m (2010: nil) from the exercise of options by employees.

A final dividend of £0.6m was paid for 2010, and an interim dividend of £0.3m paid for 2011.

The Group spent £0.3m on the purchase of office equipment & improvements (2010: £1.3m), and £0.5m on licence and manpower costs associated with the rollout of its new global front office systems.

At 31 December 2011 the Group had net debt of £1.4m (2010: net debt £2.2m).

Treasury management and currency risk

The Group increased its invoice finance facility to £18m, committed to February 2014.

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 2011 the Group has utilised currency options to manage its exposure to foreign currency exchange risk.

John Glover

Finance Director

5 March 2012

The Board of Directors announce the following audited results for the year ended 31 December 2011 which were approved by the Board on 2 March 2012.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2011

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2011

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

As at 31 December 2011

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2011

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2011

1 Basis of preparation

The consolidated financial statements of the 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, as modified by the revaluation of financial assets and financial liabilities at fair value.through the statement of comprehensive income.

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 2011to align reporting more closely with its strategic objectives. Comparative data for 2010 has been restated on to the new basis.(a) Revenue, gross profit and operating profit by disciplineFor management purposes, the Group is organised into two operating segments based on the practice areas operated by the Group. Both of the operating segments have similar economic characteristics and share a majority of the aggregation criteria set out in IFRS 8.12. The Group's reportable segments are as follows:- Professional Support Services, which includes Legal, Finance, Trading and Advisory, HR and Transformational Technology practices,- Technical and Scientific, which includes Oil and Gas. Natural Resources, Infrastructure and Pharmaceutical practices.

Practice areas are based on the discipline of the candidate being placed.

Non-allocated costs in 2011 are partially offset by the utilisation of the onerous lease provision of £372,000 (2010: £413,000).

Revenue reported above represents revenue generated from external customers. There are no sales between segments in the year (2010: 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 35% of the entity's revenues, with revenue of £54,724,000, and approximately 15% of the Group's net fee income, included in the Professional support services segment (2010: one customer, revenue £31,741,000, 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 1.4p (2010: 1.4p) per share was paid on 4 November 2011 to shareholders on the register at the close of business on 7 October 2011. The interim dividend was approved by the Board on 5 September 2011.

The final dividend in relation to 2010 was recommended on 14 March 2011, and was not recognised as a liability in the year ended 31 December 2010.

The Board propose a final dividend of 2.9p per ordinary share for the year ended 31 December 2011 (2010: 2.7p), to be paid be paid on 25 May 2012 to shareholders on the register as at 4 May 2012. The proposed final dividend has not been approved by shareholders at 31 December 2011.

4 Tax

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.Adjusted earnings per share is as per basic earnings per share, with profit adjusted to add back exceptional costs.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 Own shares

During the year the Company donated the funds to enable the EBT trust to purchase 150,000 ordinary shares of Hydrogen Group plc for a total consideration of £129,000. The EBT utilised 155,692 shares to satisfy options exercised by employees.At 31 December 2011, the total number of ordinary shares held in the EBT and their values were as follows:

7 Notes to the cash flow statement

a. Reconciliation of profit/(loss) before tax to net cash inflow from operating activities

b. Reconciliation of net cash flow to movement in net funds/(debt):

8 Financial information

The financial information in this preliminary announcement which comprises the Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Financial Position, Condensed Consolidated Statement of Changes In Equity, Consolidated Cash Flow Statement and related notes is derived from the full Group financial statements for the year ended 31 December 2011 and does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006.Group statutory accounts for 31 December 2010 and 31 December 2009 have been delivered to the Registrar of Companies and those for 31 December 2011 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.