Half Yearly Report

Hydrogen Group Plc

15 September 2015 

UNAUDITED RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2015

The Board of Hydrogen Group plc ("Hydrogen" or the "Group") (AIM: HYDG) announces its unaudited results for the half year ended 30 June 2015.

Financial and Operating Highlights

· Net Fee Income ("NFI") declined by 30.8% (29.6% on a constant currency basis) to £10.1m (H1 2014: £14.6m) due primarily to:

· Continued downward pressure on Oil and Gas NFI due to the sustained low oil price which has reduced Oil and Gas NFI by 62% to £1.7m (H1 2014: £4.5m)

· 22.2% decline in NFI from largest customer to £1.4m (H1 2014: £1.8m). 17.6% decline on H2 2014 NFI of £1.7m

· Costs continue to be taken out of the business to reflect lower levels of NFI and an exceptional charge of £1.8m has been taken (H1 2014: £1.5m).

· Administrative expenses down 27.6% to £10.2m (H1 2014: £14.1m). Benefits on the cost savings are expected to flow through in the second half of the year.

· Headcount reduced to 214 (31 December 2014: 285)

· Operating loss before exceptional items £0.1m (H1 2014: Operating profit £0.5m)

· Operating profit of £0.1m (H1 2014: £0.5m) before exceptional items, and foreign exchange loss of £0.1m (H1 2014: £0.1m)

· Net cash position of £0.1m at period end (31 December 2014 net debt: £6.7m)

· Cash generation from operating activities before exceptional costs of £8.2m (£3.2m after adjusting for delayed payment from major customer at 31st December 2014) (H1 2014: £1.5m)

· Singapore continues to show strong growth outside Oil and Gas with NFI increasing by 65% on H1 2014

· UK Legal practice NFI increases NFI by 6% on H1 2014

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

"With 30% our H1 2014 NFI in Upstream Oil and Gas the sustained and material drop in the price of oil was bound to have a substantial impact. We have managed to cope with the challenge with our strong and diversified business model producing a break-even underlying performance in difficult circumstances. Since taking over as CEO in March 2015 I have conducted a thorough review of the business. We have a strong position in a number of specialist markets with a great client base. I would like to thank our highly capable staff for their loyalty and efforts as we seek to get the business back into profitable growth"

Enquiries:

Hydrogen is a global specialist recruitment business with an annual turnover in excess of £120m. We build relationships by finding specialist candidates our clients have difficulty sourcing, placing professionals in more than 50 countries.

http://www.hydrogengroup.com/

Overview

The Group has gone through a period of restructuring and rebasing in reaction to the sustained and material drop in the oil price which has forced oil companies to significantly reduce their levels of hiring in upstream exploration. We have been working hard to offset the rate of decline and have moved quickly to bring our cost base down in line with the lower NFI.

We are experiencing some margin pressure, primarily in Oil and Gas, as clients try to manage their cost base. To kick-start growth we started a detailed review of the Practices which will be concluded in the second half of the year. Current indications are that there are opportunities within the existing practices to put Hydrogen back into growth mode and reverse the current downward pressure on our margins.

In EMEA we were affected by senior management changes destabilising the business at a time when many markets were in growth mode. In addition to downsizing our Oil and Gas practice, in the early part of the year we closed our Technology Permanent business, which had been consistently loss making, to focus our resources on the more profitable Contract revenue. Certain practices have successfully focused on niche areas within their sector and, through an in depth market knowledge, have shown growth. Our Legal practice has benefitted from this strategy with a 6% growth in NFI on H1 2014. In our Life Science practice we implemented a number of structural changes in H1 to enable it to continue on its longer term growth trajectory.

In APAC the Singapore office, excluding Oil and Gas, has seen a healthy NFI growth. Technology, with the help of a major client win in 2014, doubled in size in terms of NFI. Legal continued to build on its success and increased NFI by over 60% on H1 2014. However, Australia has also been hit by the Oil and Gas downturn and the other practices in that region have not shown sufficient growth to offset the decline in NFI.

Board changes

Tim Smeaton, CEO, and John Glover, CFO, both stepped down from the Board earlier on in the year and I moved from Chairman to CEO in March with Colin Adams joining as CFO in May. We have since moved quickly to bring our cost base down in line with the lower revenues. Martyn Phillips, Non-executive Director, will step down from the Board on 30 September to take up the role of CEO of the Welsh Rugby Union. Martyn has been on the Board since 2006 and has made a significant contribution to the Group during the period. I would like to thank him for all his support over the years and wish him well for the future.

Financial Highlights

Group revenue for the period declined by 24.5% (23.7% in constant currency) to £65.9m (H1 2014: £87.3m), and Group NFI by 30.8% (29.6% in constant currency) to £10.1m (H1 2014: £14.6m).

Approximately 38% of the Group's NFI for this period was denominated in currencies other than Sterling (H1 2014: 37%), with the Euro, USD, Singapore and Australian Dollars being the most significant.

Outside Oil and Gas, the Singapore business continued to grow strongly, with NFI increasing by 65% against the same period in 2014. Trading conditions in Australia remained difficult, resulting in a NFI decline of 53% (39% excluding Oil and Gas).

The benefits from the restructuring in 2014 have come through in the first half, with administration costs of £10.2m (H1 2014: £14.1m) 27.6% down on the comparative period and 11.3% down on the second half of 2014 (H2 2014: £11.5m). Headcount has further reduced from 285 at 31 December 2014 to 214 as at 30 June. The benefits of the cost reductions in the first half of the year are expected to flow through to the second half. However, this will be partly offset with some hiring in areas where we are forecasting sustainable growth.

Operating loss for the period before exceptional costs was £0.1m (H1 2014: profit, £0.5m). Loss before tax but after exceptional costs in the first half of £1.8m (H1 2014: £1.5m) and finance costs of £0.1m (H1 2014: £0.1m) gives £1.9m (H1 2014: £1.1m). Basic loss per share was 8.62p (H1 2014: 5.27p), and loss per share adjusted to exclude exceptional costs was 0.16p (H1 2014: earnings 1.42p). During the period an exceptional charge of £1.8m was taken (H1 2014: £1.5m) relating to redundancy costs and termination payments, and impairment of tangible fixed assets.

As the Group is going through a period of major transition, the Board has taken the decision not to pay an interim dividend. The Board will take a view on its dividend for the full year based on how the Group's performs in the second half of this year.

Cash flow

The business continued to be cash flow positive, generating £8.2m (H1 2014: £1.5m) from operating activities in the first six months of the year before payments of £0.5m (H1 2014: £0.4), related to exceptional costs of restructuring. There was however a delay in a client payment of £5.0m over the 2014 financial year end which, when adjusted for, reduces the £8.2m generated from operating activities to £3.2m. We have maintained our strong track record on cash collection. Trade receivables measured as days of sale outstanding (DSO) were 22 days (H1 2014: 22 days).

After tax payments of £0.1m (H1 2014: £0.1m), capital expenditure of £0.1m (H1 2014: £0.2) and dividend payments of £0.7m (H1 2014: £0.7m), the Group finished the period with net cash of £0.1m, an improvement of £6.8m from 31 December 2014. The Group retains an £18.0m invoice finance facility committed to February 2016.

Current Trading and Outlook

With the business having been through a period of major change, there are still a number of uncertainties surrounding the business moving back into growth in the short-term. Our review has already identified a number of growth opportunities and we are confident that by focusing on our practices key propositions we will shortly be in a position to move forward.

Ian Temple, CEO

Hydrogen Group Plc

The notes on pages 8 to 14 form an integral part of this unaudited condensed consolidated interim report.

The notes on pages 8 to 14 form an integral part of this unaudited condensed consolidated interim report.

The notes on pages 8 to 14 form an integral part of this unaudited condensed consolidated interim report.

The notes on pages 8 to 14 form an integral part of this unaudited condensed consolidated interim report.

Hydrogen Group Plc

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM REPORT

For the six months ended 30 June 2015

1 General information

Hydrogen Group plc ("the Company") and its subsidiaries' (together "the Group") principal activity is the provision of recruitment services for mid to senior level professional staff. The Group is organised into eight practices offering both Permanent and Contract specialist recruitment consultancy for large and medium sized organisations. The Group operates primarily in the technology, finance, professional, and engineering sectors. The Group is becoming increasingly international, with operations in Australia, Malaysia, Singapore and USA, and 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 address of Hydrogen Group's registered office and its principal place of business is 30-40 Eastcheap, London, EC3M 1HD, England. Hydrogen Group's shares are listed on the AIM Market.

These unaudited condensed consolidated interim report for the six months ended 30 June 2015 (including comparatives) are presented in GBP '000, and were approved and authorised for issue by the board of directors on 15 September 2014.

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 2014 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 2015 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 2014, which were prepared in accordance with IFRSs as adopted by the European Union.

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

To finance its working capital requirements the Group has an £18m invoice discounting facility, committed to February 2016. The maximum amount of the invoice discount facility utilised during the period was 67%. The Group's forecasts and projections demonstrate that this facility should be adequate to meet the Group's obligations as they fall due in the foreseeable future. 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 2014.

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

3 Segment reporting(a) Revenue, gross profit and operating profit by disciplineFor management purposes, the Group is organised into two operating segments, Professional Support Services and Technical and Scientific, 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.

Segment reporting (continued)

Revenue reported above represents revenue generated from external customers. There were no sales between segments in the six months (30 June 2014: Nil, 31 December 2014: 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 32% of the entity's revenues with revenue of £21,190,000, and approximately 13% of the Group's net fee income, included in the Professional Support Services segment (30 June 2014: one customer, revenue £27,510,000, Professional Support Services segment; 31 December 2014: one customer, revenue £53,800,000, Professional Support Services segment). 

(b) Revenue and gross profit by geography

(c) Revenue and gross profit by recruitment classification

4 Exceptional itemsExceptional items are costs that are separately disclosed due to their material and non-recurring nature. They have arisen as a result of the comprehensive review of the Group's operations and actions implemented to reduce the Group's administration costs:

5 Income tax expense

The charge for taxation on losses for the six months amounted to £20,000 (30 June 2014: £55,000, 31 December 2014: £479,000), being tax on overseas profits and adjustment to prior year amounts. A deferred tax credit of £100,000 on losses arising in the first half of the year (H1 2014: nil) has been recognised.

6 Dividends

The interim dividend for 2014 was declared by the board on 10 September 2014, and was not recognised as a liability in the period to 30 June 2014. The final dividend for 2014 was proposed on 3 March 2015, and was not recognised as a liability in the year ended 31 December 2014.

7 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.

8 Cash flow from operating activities

9 Trade and other receivables

10 Trade and other payables

11 Provisions

The onerous lease contracts predominantly relate to surplus accommodation within the Group's London HQ at 30 Eastcheap. Following discussions with advisors the Group has taken an exceptional charge for 18 months' costs 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 has been assumed for the duration of any sub-lease.

The Group has also taken an exceptional charge for contractual amounts outstanding to employees serving notice of termination of employment at the balance sheet date.