Interim Results

Hydrogen Group Plc

UNAUDITED RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2019

The Board of Hydrogen Group plc ("Hydrogen Group" or the "Group") (AIM: HYDG) announces its unaudited results for the half year ended 30 June 2019.

Highlights

·; Underlying** Profit Before Tax ("PBT") increased by 51% to £1.9m (H1 2018 as restated^: £1.2m) and profit conversion of Net Fee Income* ("NFI") increased to 12.1% (H1 2018 as restated: 8.3%)

·; Reported PBT increased by 19% to £1.4m (H1 2018 as restated: £1.2m)

·; NFI increased by 4% to £15.3m (H1 2018: £14.8m)

o Permanent NFI grew 8% to £9.2m (H1 2018: £8.5m)

o Contract NFI decreased by 2% to £6.1m (H1 2018: £6.3m)

o Group contract margin increased to 11.2% (H1 2018: 10.4%)

·; Net cash of £3.4m at 30 June 2019 (31 December 2018: £4.9m and 30 June 2018: £1.3m)

·; Underlying EPS*** in the period increased by 1.3p, 38%, to 4.7p (H1 2018 restated: 3.4p)

·; Reported EPS in the period increased to 3.6p (H1 2018 restated: 2.9p)

·; 20% increase in interim dividend to 0.6p per share (2018: 0.5p per share)

* Net Fee Income is the equivalent of gross profit

** Adjusted for foreign exchange (gains)/losses, share based payments, non-controlling loss/(interest), amortisation of acquired intangibles and exceptional items.

*** Underlying PBT less tax divided by weighted average number of shares

^ Restated in respect of the first-time adoption of the new IFRS 16 standard applicable for periods beginning on or after 1 January 2019 and applied retrospectively

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

"I am delighted to be able to report continued strong earnings growth despite the Group experiencing more challenging market conditions in a number of Asian markets, and the impact of Brexit related uncertainty on demand levels for certain skill sets in the UK. The performance is a testament to both the operating model that we have developed and our agile business model that has allowed us to pivot investment into higher growth markets, particularly in the USA. Our balance sheet remains strong, and the Group continues to be well placed to make acquisitions and investigate potential targets. The Board remains confident that the full year outturn will be in line with current market expectations.

"I would like to take this opportunity to thank all our staff for their commitment and hard work over the period."

Enquiries:

Notes to the editor

Hydrogen Group is a group of specialist recruitment and people solutions businesses with a proven global platform with clients' in over 50 countries. We deliver by building market leading niche specialist teams that develop a deep understanding of candidate and clients' needs and developing solutions.

Overview

The Hydrogen Group's operational focus during the period has primarily been:

·; further developing and refining the implementation of its operating model centred on its four core strategic pillars: Proposition, Platform, People and Performance. The new global CRM, the roll out of which was completed in Q4 2018, operated well across all parts of the business driving both the development of new client relationships and the cross fertilisation of existing clients, further diversifying the Group's client base;

·; the active management of the Group's existing portfolio of niche businesses to ensure that resource and investment are concentrated on businesses in high growth markets that present the best opportunity of progressing their journey from incubator, through fast growth, to market leader, where they enjoy higher margins and much greater profit conversion, and conversely either reducing resource levels or withdrawing from lower growth and lower opportunity markets;

·; researching new potentially high growth markets. The Group has launched a number of new niche businesses during the period including, for example, in the US medical devices, and EMEA artificial intelligence sectors; and

·; driving further efficiencies in the back office through both automation and offshoring. A new "pay & bill" system was rolled out in the UK, the Group's largest contract market.

Together, these initiatives have driven an increase in underlying profit conversion rates. The conversion rate of NFI to underlying profit before tax grew to 12.1% (H1 2018 as restated: 8.3%).

The Board continues to believe that, in order to accelerate the Group's development, future organic growth can be supplemented by selective acquisitions. Therefore, it is continuing to review opportunities that may meet its strict acquisition criteria relating to strategic, financial, operational, and cultural fit.

Financial Highlights

The Group has adopted IFRS 16, with respect to the recognition and measurement of leases, retrospectively from 1 January 2018. The impact of this change in accounting policy on the comparative figures previously reported is disclosed in note 15. The change resulted in a £1.0m decrease in net assets as at 1 January 2018 and an increase of £0.1m to profit before tax in H1 2018.

Although it was somewhat offset by increased and higher margin contract activity in the USA, lower demand for contractors in the UK drove a decline in Group revenue for the period of 7% (9% in constant currency terms) to £64.1m (H1 2018: £68.6m).

Group NFI increased by 4% (fell by 2% in constant currency terms) to £15.3m (H1 2018: £14.8m) due to both permanent revenue growth and improved contract margins. This increase in NFI was achieved despite a significant drop in activity levels at the Group's largest client, which accounted for just 3% of NFI (H1 2018: 8%) during the period.

The Group has continued to improve the geographic diversification of its revenues, reducing its reliance on the UK market in relative terms. The percentage of NFI denominated in currencies other than Sterling has increased to 57% (H1 2018: 53%). Foreign currency income, in general, is naturally hedged against foreign currency expenditure.

EMEA NFI was broadly flat at £8.6m (H1 2018: £8.7m) on both a reported and constant currency basis. While our Middle East business grew strongly, in the UK, which accounts for the greater part of the Group's EMEA operations, client demand and confidence levels have been impacted by Brexit related uncertainty. Notwithstanding this, NFI grew in all core UK practice areas save for Business Transformation, where demand was particularly adversely impacted by the significant fall in activity levels, due to the completion of existing projects and a lack of new projects, at the Group's largest client.

In APAC, NFI fell by 12% (16% in constant currency terms) to £4.9m (H1 2018: £5.5m). Market conditions have been challenging in Hong Kong and Singapore, which has been partially offset by continued growth in Australia and Thailand. Activity levels have improved during Q3, positioning the region for a more robust performance in H2.

USA NFI grew exceptionally strongly by 255% (233% in constant currency terms) to £1.9m (H1 2018: £0.5m). Growth was driven by the Life Sciences and Technology practices both across our more established office in Houston together and our newer offices in Austin and San Diego. A fourth office in the region was opened during the period in Charlotte.

The split between contract and permanent NFI for H1 2019 has remained broadly stable at 40% contract (H1 2018: 42%); 60% permanent (H1 2018: 58%). The small change in mix towards permanent recruitment was driven by an increase in permanent NFI of 8% to £9.2m (H1 2018: £8.5m) and a marginal fall in contract NFI of 2% to £6.1m (H1 2018: £6.3m). The trend of improving contract margins experienced in recent periods has continued, with the Group achieving a contract margin of 11.2% in H1 2019 (H1 2018: 10.4%).

Operating profit for the period grew to £1.4m. (H1 2018 as restated: £1.3m), while profit before tax was £1.4m (H1 2018 as restated: £1.2m).

Underlying PBT remains the Board's preferred measure of trading performance of the business and has increased by £0.7m to £1.9m (H1 2018 as restated: £1.2m).

^Exceptional items relate to non-trading M&A costs.

Cash flow and cash position

At 30 June 2019, the Group had net cash of £3.4m (31 December 2018: £4.9m and 30 June 2018: £1.3m). Net cash was impacted by a, largely seasonal, increase in working capital (increase in receivables less increase in payables) of £3.0m, and by non-trading payments in respect of the acquisition of the remaining minority interest in Argyll Scott Asia (£0.6m), and Group dividends (£0.3m). A more meaningful like for like cash comparison can be obtained by comparison to the position at 30 June 2018. Over this 12-month period, cash has increased by £2.1m.

Bank facilities

Hydrogen has an existing facility of £18.0m, with a commitment to January 2021. This facility shall continue until ended by either party giving to the other not less than three months' written notice.

Dividend

The Board is confident in the prospects of the Group. As a result, it will pay an interim dividend of 0.6p for 2019 (2018: 0.5p). The dividend will be paid on 11 October 2019 to shareholders on the register at the close of business on 13 September 2019 and the shares will go ex-dividend on 12 September 2019.

Share buyback

The Board was granted authority by shareholders at the Group's annual general meeting held on 23 May 2019, to purchase up to 3,422,792 Ordinary Shares. The Group has a robust balance sheet with a material cash position and, in light of recent share price weakness, the Board will continue to actively review opportunities to repurchase shares.

Current Trading

The Group has traded well since the period end, most notably in APAC where activity has returned to levels consistent with Q3 2018. The Group has a satisfactory pipeline of business moving into Q4. Although the Board is mindful of the potential impact of Brexit and of recent political unrest in Hong Kong, it remains confident that the full year outturn will be in line with current market expectations.

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.

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.

1 General information

The principal activity of Hydrogen Group plc ("the Company") and its subsidiaries' (together known as "the Group") is the provision of services for mid to senior level professional staff. The Group consists of three operating segments, EMEA, USA and APAC, offering both permanent and contract services for large and medium sized organisations. The Group offers services in Professional Support Services (including legal, finance, technology and business transformation) and in Technical and Scientific market sectors (Energy and Life Sciences). The Group operates across the world from a network of offices in Australia, Dubai, Hong Kong, Malaysia, Singapore, Thailand, UK 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 AIM. Registered company number is 05563206.

The unaudited condensed consolidated interim report for the six months ended 30 June 2019 (including comparatives) is presented in GBP '000, and were approved and authorised for issue by the Board of directors on 3 September 2019.

Copies of these interim results are available at the Company's registered office 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 2018 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 unmodified 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 2019 has been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRSs") 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 2018, 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 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.

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 2018 other than in respect of changes in policy to new standards as set out in note 3 below.

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

3 Significant accounting policies

New standards impacting the Group that will be adopted in the annual financial statements for the year ended 31 December 2019, and which have given rise to changes in the Group's accounting policies are:

·; IFRS 16 Leases;

Details of the impact of this standard are given below and in note 15. Other new and amended standards and Interpretations issued by the IASB that will apply for the first time in the next annual financial statements are not expected to impact the Group as they are either not relevant to the Group's activities or require accounting which is consistent with the Group's current accounting policies.

The Group has elected to apply the full retrospective transition approach with the cumulative effect of initially applying this standard as an adjustment to the opening balance of retained earnings as at 1 January 2018.

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2018. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2018 was 2.3%. The lease liabilities are not included within the Group's net cash/(debt) calculations.

The remeasurements to the lease liabilities were recognised as adjustments to the related right of use assets immediately after the date of initial application.

The associated right-of-use assets for property leases were measured on a retrospective basis as if the new rules had always been applied. Right of use assets are measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet as at 1 January 2018.

The Group has also elected to apply the following practical expedients:

Short-term leases (leases of less than 12 months, cancellable within 12 months and or have less than 12 months remaining) as at the date of adoption of the new standard will not be within the scope of IFRS 16.

Leases for which the asset is of low value, for example IT equipment, will not be within the scope of IFRS 16.

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

4 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 2019 (30 June 2018: Nil, 31 December 2018: 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 9% of the entity's revenues with revenue of £5.5m, and approximately 3% of the Group's NFI, included in the EMEA segment (30 June 2018: one customer, revenue £15.5m, EMEA segment; 31 December 2018: one customer, revenue £29.1m, EMEA segment).

(b) Revenue and gross profit by geography 

(c) Revenue and gross profit by recruitment classification

* includes Fixed Term Contracts (FTC's)

5 Exceptional items

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

Professional fees relate to non-trading M&A costs.

6 Taxation

The charge for taxation on profits for the six months amounted to £0.32m (30 June 2018: £0.15m, 31 December 2018: £0.36m).

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.

* Underlying PBT less tax divided by weighted average number of shares

8 Cash flow from operating activities

9 Trade and other receivables

10 Trade and other payables

11 Provisions

12 Investment in associate

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

13 Dividends