Half-year Report

Hydrogen Group Plc

UNAUDITED RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2017

The Board of Hydrogen Group plc ("Hydrogen" or the "Group") (AIM: HYDG) announces its unaudited results for the half year ended 30 June 2017.

Financial and Operating Highlights

Operational Highlights

During the period under review, on 2 June 2017, Hydrogen completed the acquisition of Argyll Scott Holdings Limited ("Argyll Scott") (the "Acquisition"). While the Acquisition has therefore made a limited financial contribution for the period, the Board expect it to materially enhance the business and its prospects moving forward with respect to:

· Accelerating the Group's growth through the immediate scaling of its position in APAC.

· Increased economies of scale which dilute central costs and the opportunity to realise synergies through the consolidation of facilities and the alignment of IT, finance, procedures and processes.

· Diversification of customer revenue concentration within the Group and increase the proportion of NFI from outside the UK to greater than 50%.

Financial Highlights

· Group revenue for the period totalled £56.8m (H1 2016: £59.3m as restated).

· Net Fee Income ("NFI")* increased by 5% to £9.4m (H1 2016: £8.9m as restated).

o Permanent NFI grew 22% to £4.3m (H1 2016: £3.5m as restated); and

o Contract NFI declined 5% to £5.1m (H1 2016: £5.4m).

· Adjusted** PBT of £0.2m (H1 2016: £0.5m as restated)

· Net cash position of £1.7m at 30 June 2017 (31 December 2016: £2.0m and 30 June 2016: £1.0m)

· Basic EPS in the period of (loss 2.6p) (H1 2016: 4.0p as restated). Adjusted basic EPS in the loss of (0.1p) (H1 2016: 4.0p as restated).

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

** Adjusted for foreign exchange gains/losses, share based payments, loss from associate and exceptional items.

H1 2016 results have been restated to reflect the change in accounting policy set out in Note 13.

Commenting, Ian Temple, CEO of Hydrogen Group plc said:

"In common with our peer group, trading conditions in a number of our UK markets have been challenging during the period. However, the organic growth since the start of the year 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 return to sustainable long term profit growth.

I should like to thank everyone in the Group for their continued hard work and commitment to the business"

Enquiries:

Notes to the editor

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

Overview

Although trading conditions in a number of the Group's traditional UK markets have been challenging throughout the period, the operational and structural changes carried out since 2015 have enabled it to accommodate a material acquisition. As such, Hydrogen announced the conditional acquisition of Argyll Scott on 9 May and the transaction duly completed on 2 June 2017 (the "Acquisition"). Therefore the Acquisition has had a limited impact on reported results, (although exceptional costs associated with the acquisition total £0.6m) it has materially enhanced the business and its prospects moving forward through a combination of:

· Increasing group headcount by 133 to 350

· Creating critical mass in the Asia Pacific market where the enlarged group now has a combined headcount of 130 and thereby diversifying the business into generally higher growth markets. On a pro-forma basis, 53% of the enlarged group's net fee income in H1 was derived from outside the UK (H1 2016: 42%);

· Client cross fertilisation opportunities, particularly in the contract market in Asia;

· Enabling greater utilisation of the investment the Group has made into its global platform and digital marketing; and

· Exploiting significant overhead cost synergies throughout the enlarged group.

To date, the integration of Argyll Scott is progressing well and cost savings have been identified in excess of those anticipated on completion. We are making good progress in realising these gains.

The Group has also taken a minority interest in CBFG Limited, 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. We look forward to working with the team as the business grows.

Financial Highlights

Group revenue for the period declined by 4% (7% in constant currency terms) to £56.8m (H1 2016: £59.3m as restated).

Overall, Group NFI increased by 5% (remained flat in constant currency terms) or £0.5m, to £9.4m (H1 2016: £8.9m as restated). The principal driver of this was the contribution by Argyll Scott which offset a small decline in organic UK revenue.

44% of the Group's NFI for this period was denominated in currencies other than Sterling (H1 2016: 42% as restated), with the Euro, Singapore Dollar, United States Dollar, Australian Dollar and Malaysian Ringgit being the most significant. Foreign currency income, where applicable, is naturally hedged against foreign currency expenditure. The Euro is the most significant currency and any excess over expenditure is partially hedged.

The split between contract and permanent NFI for H1 2017 was 54% Contract (H1 2016: 60% as restated); 46% Permanent (H1 2016: 40% as restated). The swing towards permanent was driven by an increase in permanent revenue of 22% to £4.3m (2016: £3.5m as restated) that principally reflects the impact of Argyll Scott, which is largely a permanent business. Contract margin continued its incremental improvement. The Group achieved a contract margin of 9.7% in H1 2017 (H1 2016: 9.6%).

In EMEA (including the USA) NFI was flat at £7.4m (H1 2016: £7.4m as restated). Argyll Scott contributed £0.2m NFI, and therefore the organic business declined by £0.2m principally due to a reduction in contractor numbers at the start of the year (which has now been reversed), and a disappointing performance from the UK Life Sciences business where net fee income fell by £0.5m to £1.2m (2016: £1.7m as restated), which together offset the growth in other business units.

In APAC NFI increased by 32% to £1.9m (H1 2016: £1.5m as restated), representing a 17% growth in constant currency terms.   Although this has been largely driven by the acquisition of Argyll Scott, our organic business has performed well over the period building on the positive actions taken in 2016 to improve financial performance.

Operating profit before exceptional items fell to £0.1m (H1 2016 - £0.4m as restated) as non-exceptional administration costs increased by £0.8m to £9.6m (H1 2016 - £8.8m as restated). The increase in administration costs was almost wholly driven by Argyll Scott with organic costs remaining flat. Exceptional administration costs totalled £0.6m (H1 2016 - £nil) and principally relate to acquisition expenses and the provision for an onerous lease arising from the acquisition. The operating loss for the period was £0.6m (H1 2016 - £0.4m profit as restated).

Adjusted** PBT decreased by £0.3m to £0.2m (H1 2016: £0.5m as restated) in line with the fall in operating profit before exceptional items.

Loss before tax was £0.6m (H1 2016: Profit before tax £1.0m). The result for H1 2016 was inflated by finance income arising from a foreign exchange gain of £0.6m which was recognised on the translation of the long term intercompany loan balances with the Group's foreign operations. In 2017, new intercompany loan agreements have been drawn up to eliminate the yearly fluctuations and therefore these movements are now shown through Other Comprehensive Income.

The Board has taken the decision not to declare an interim dividend. The Board will take a view on any dividend for the full year based on how the Group performs in the second half of this year.

Cash flow and cash position

At 30 June 2017, the Group had net cash of £1.7m (31 December 2016: £2.0m and 30 June 2016: £1.0m). The £0.3m reduction in net cash since 31 December 2016 is mainly attributable to net debt acquired from the purchase of Argyll Scott and exceptional expenditure incurred as a result of the acquisition. Apart from these factors underlying cashflow remained broadly flat despite the adverse seasonality of the business' cash flow between December and June. The Group generated £0.7m of cash between 30 June 2016 and 30 June 2017.

Bank facilities

The Group has two Invoice Discounting Facilities in place with a combined value of £19.5m. Hydrogen had an existing facility of £18.0m, which was renewed in May 2017 with a commitment to 1 April 2019. The Group also acquired an additional facility on the acquisition of Argyll Scott of £1.5m which has a commitment until December 2018. After these dates, the facilities shall continue until ended by either party giving to the other not less than three months' written notice.

Current Trading

The Group has traded in line with the board's expectations since 30 June. Looking ahead, we believe that the growth in our UK contract book since the start of the year, together with a full half year impact of Argyll Scott's trading, and the client cross fertilisation and cost synergies that the enlarged group is already benefitting from will drive a return to sustainable long-term profit growth.

The notes to the accounts set out below form an integral part of this unaudited condensed consolidated interim report.

The notes to the accounts set out below form an integral part of this unaudited condensed consolidated interim report.

Unaudited Condensed Consolidated InterimStatement of Changes in Equity for the six months ended 30 June 2017

The notes to the accounts set out below form an integral part of this unaudited condensed consolidated interim report.

The notes to the accounts set out below form an integral part of this unaudited condensed consolidated interim report.

Notes to the Unaudited Condensed Consolidated Interim Report for the six months ended 30 June 2017

1 General information

The principal activity of Hydrogen Group plc ("the Company") and its subsidiaries' (together known as "the Group") is the provision of recruitment services for mid to senior level professional staff. The Group consists of two operating segments, EMEA (including USA) and APAC, offering both permanent and contract specialist recruitment consultancy for large and medium sized organisations. The Group recruits for roles in Professional Support Services (including legal, finance, technology and business transformation placements) and in Technical and Scientific market sectors (Energy and Life Sciences). The Group has operated predominantly in the United Kingdom, but has international operations in Australia, Singapore, Malaysia, Dubai, Hong Kong, Thailand, Norway, Netherlands, Switzerland, Germany, and the USA, plus a number of internationally focused teams based in the UK.

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 unaudited condensed consolidated interim report for the six months ended 30 June 2017 (including comparatives) is presented in GBP '000, and were approved and authorised for issue by the board of directors on 11 September 2017.

Copies of these interim results are available at the Company's registered office, 30 Eastcheap, London, EC3M 1HD, England, and on the Company's website - www.hydrogengroup.com.

This unaudited condensed consolidated interim report does not constitute statutory accounts of the Group within the meaning of section 434 of the Companies Act 2006. The financial information for the year ended 31 December 2016 has been extracted from the statutory accounts for that year, which have been filed with the Registrar of Companies. The auditor's report on those accounts was unqualified and did not contain a statement under section 498 of the Companies Act 2006.

2 Basis of preparation

The unaudited condensed consolidated interim report for the six months ended 30 June 2017 has been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRSs") and in accordance with IAS 34, 'Interim financial reporting' as adopted by the European Union. The unaudited condensed consolidated interim report should be read in conjunction with the annual financial statements for the year ended 31 December 2016, which were prepared in accordance with IFRSs as adopted by the European Union.

These financial statements have been prepared under the historical cost convention.

The Group has two Invoice Discounting Facilities in place with a combined value of £19.5m. Hydrogen had an existing facility of £18.0m, which was renewed in May 2017 with a commitment to 1 April 2019. The Group also acquired an additional facility on the acquisition of Argyll Scott of £1.5m which has a commitment until December 2018. After these dates, the facilities shall continue until ended by either party giving to the other not less than three months' written notice. Accordingly, the directors have adopted the going concern basis in preparing the interim report.

This unaudited condensed consolidated interim report has been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year ended 31 December 2016.

The accounting policies have been applied consistently throughout the Group for the purposes of preparation of the condensed consolidated interim report.

International Accounting Standards (IAS/IFRS) and interpretations in issue but not yet adopted

The board continues to review future applicable IFRS to the Group. In particular, the board is reviewing the impact of IFRS 9, 15 and 16 in more detail as these standards have been identified as ones that will impact future results. In particular, the Group is currently assessing the impact of IFRS 16 as, given the number of operating leases the Group has entered into, this is likely to be material. In summary, IFRS 16 will require the Group to recognise a liability and right of use asset for the majority of its leases which are currently treated as operating. This will affect fixed assets, current and non-current liabilities and the measurement and disclosure of associated lease expenses (ie depreciation and interest expense compared to operating lease rentals currently).

2 Basis of preparation (continued)

International Accounting Standards (IAS/IFRS) and interpretations in issue but not yet adopted (continued)

It is not practicable to provide a reasonable estimate of the effects of the adoption of IFRS 9, 15 or 16 until a detailed review has been completed, given the complexity of these standards.

Standards become effective as follows:

IFRS 15: 1 January 2018 (for annual periods beginning on or after)

IFRS 9: 1 January 2018

IFRS 16: 1 January 2019

The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

3 Segment reporting(a) Revenue, gross profit and operating profit/(loss) by disciplineFor management purposes, the Group is organised into two operating segments, EMEA including USA (EMEA) and Asia Pacific (APAC), based on the discipline of the candidate being placed. Both of the operating segments have similar economic characteristics and share a majority of the aggregation criteria set out in IFRS 8.12.

3. Segment reporting (continued)

(a) Revenue, gross profit and operating profit/(loss) by discipline (continued)

Revenue reported above represents revenue generated from external customers. There were no sales between segments in the six months to 30 June 2017 (30 June 2016: Nil, 31 December 2016: 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.

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.

There is one external customer that represented more than 28% of the entity's revenues with revenue of £16.0m, and approximately 14% of the Group's net fee income, included in the EMEA segment (30 June 2016: one customer, revenue £18.5m, EMEA segment; 31 December 2016: one customer, revenue £36.3m, EMEA segment).

(b) Revenue and gross profit by geography

(c) Revenue and gross profit by recruitment classification

* includes Fixed Term Contracts (FTC's)

4 Exceptional 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 Holdings and also a restructure of the Group board.

5 Income tax expense

The charge for taxation on profits for the six months amounted to £0.02m (30 June 2016: £0.07m, 31 December 2016: £0.14m), being tax on profits and adjustment to prior year amounts.

6 Earnings per share

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

Fully diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares by existing share options and share incentive plans, assuming dilution through conversion of all existing options and shares held in share plans.

7 Cash flow from operating activities

8 Trade and other receivables

9 Trade and other payables

10 Provisions

11 Investment in associate

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

12 Acquisition of Argyll Scott Holdings

On 2 June 2017, Hydrogen Group Plc acquired the entire issued share capital of Argyll Scott Holdings for £3.3m, satisfied by the issuance of ordinary shares in Hydrogen Group Plc. In the director's opinion, the consideration paid over are worth in excess of the net assets of the Argyll Scott Group and hence has given rise to the following goodwill.

On recognition of the intangible assets acquired, a deferred tax liability of £120k has also arisen. As a result, goodwill has further increased by the corresponding amount. A full valuation of the intangibles acquired is currently being reviewed and therefore there could be changes to the intangibles, deferred tax liability and goodwill balances disclosed within the applicable reporting period.

13 Prior year adjustment

During the year ended 31 December 2016, the Group changed its accounting policy with respect to the recognition and measurement of revenue. Permanent recruitment revenue was previously recognised on the acceptance of the role by a candidate. This policy has been changed to recognise revenue on the start date of a candidate.

The impact of this change in accounting policy on the comparative figures previously reported in the audited financial statements for the year ended 31 December 2016 illustrated below:

Included within the adjustment to equity as at 1 January 2015, is an amount of £264k in the translation reserve as a result of the revenue policy change. This arose from translating the foreign subsidiaries from their functional currencies in to the Group's presentational currency.

The impact of this change in accounting policy on the comparative figures previously reported in the unaudited financial statements for the period ended 30 June 2016 illustrated below:

Included within the adjustment to equity as at 30 June 2016, is an amount of £30k in the translation reserve.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) 596/2014.