Preliminary Results

Hydrogen Group plc

Preliminary results for the year ended 31 December 2010

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 2010. 

Financial Highlights

§ Group revenue increased by 67% to £123.4m (2009: £74.1m)

§ Group net fee income ("NFI") increased by 64% to £27.6m (2009: £16.8m)

§ Profit before tax was £2.5m (2009: £0.3m before exceptional costs)

§ Basic earnings per share increased to 8.0p (2009: (22.3p), before exceptional costs 2.4p)

§ International NFI increased by 138% to £8.8m (2009: £3.7m) and now represents 32% of Group NFI (2009: 22%)

§ Days of sales outstanding (DSOs) reduced by 4 days to 25 days (2009: 29 days)

§ Proposed final dividend of 2.7p maintaining the total dividend for the year at 4.1p (2009: 4.1p)

Operational Highlights

§ NFI from permanent placements increased by 83% to £14.8m (2009: £8.1m)

§ Contractors working for clients increased by 93% to 1,233 (December 2009: 640)

§ Sydney office NFI grew by 150% to £3.0m (2009: £1.2m)

§ First Asian office opened in Singapore and performed strongly generating NFI of £1.6m

§ Engineering, our newest sector, grew NFI by 160% to £3.9m (2009: £1.5m)

§ Headcount increased by 31% to 329 (31 December 2009: 252)

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

"We are pleased that the actions taken in 2010's improving market have enabled us to return to the growth levels experienced prior to the downturn. We have made excellent progress with our international expansion with strong performances from both our Australian and newly opened Singapore offices during the year.

Whilst visibility in the global recruitment markets remains limited we have seen a growth in confidence during 2010 and expect this to continue in 2011. We continue to invest in opportunities for potential growth and taking all available indicators into consideration, we remain well placed for the forthcoming year.

Enquiries:

An analyst meeting will be held at 11am at Hydrogen's offices, Nicholas House, 3 Laurence Pountney Hill, London, EC4R 0EU on 14 March 2011.

Notes to Editors:

Hydrogen is a leading international specialist recruitment group that places high quality staff into clients on a permanent and contract basis and operates across four core disciplines: Technology, Finance, Professional and Engineering. In each of these areas we have scale and strong brand recognition.

As a Group, we are focused on finding and building local and global relationships with hard to find, in demand, specialist candidates that clients cannot source themselves. We continue to leverage these strengths to grow and develop our offering into new markets and geographies, and have placed candidates in over 40 countries in the last 12 months.

The Group currently has approximately 330 employees globally.

CHAIRMAN'S STATEMENT

2010 was a year of substantial growth and investment for the Group with the actions and decisions taken over the past three years enabling us to return to the growth levels experienced prior to the downturn. Having carefully invested in new markets and sectors, whilst ensuring that our strong positions in established markets have been maintained, we were able to respond quickly to improving market conditions and deliver NFI growth of 64%.

We continued to make strong progress towards our goal of internationalising the business, with NFI from international markets representing 32% of total NFI (2009: 22%). Our office in Sydney and our new Singapore office both delivered excellent growth, and we continued to invest in new markets over the course of the year via our proven incubator model.

Our contracts business delivered a particularly strong performance, driven by a number of large project wins and the scaling up of certain existing projects. At the same time our permanent business delivered a strong set of results, driven by the rising confidence of both employers and candidates, coupled with the on-going skills shortages that exist within our markets.

Key financials

Revenue increased by 67% to £123.4m (2009: £74.1m) resulting in NFI growth of 64% to £27.6m (2009: £16.8m). Profit before taxation and exceptional costs was £2.5m (2009: £0.3m), generating increased basic earnings per share of 8.0p (2009: (22.3p), before exceptional costs 2.4p).

Trade debtors increased by 76% to £13.0m (2009: £7.4m) as a result of the significant growth in contractor activity experienced by the Group in 2010. Despite the rapid growth in activity, working capital was well controlled with trade receivables expressed in days of sales outstanding (DSOs) reducing by a further 4 days to 25 days (2009: 29 days) due to the impact of major contracts.

Cash flow has continued to be good, with operating cash flows before movements in working capital of £2.8m (2009: £0.8m).

Dividends

The Board previously declared an interim dividend of 1.4p (2009: 0.5p) which was paid on 5th November 2010. The Board is recommending a final dividend of 2.7p (2009: second interim dividend of 3.6p and final dividend of 0p) maintaining the total for the year at 4.1p per share (2009: 4.1p) which, subject to shareholder approval will be paid on 3 June 2011 to shareholders on the register as at 10 May 2011. The Board maintained a dividend through the downturn and having returned to a conventional dividend timetable will seek to pay a progressive dividend as profitability returns.

Board

2010 saw the appointment of two new members to the Board. Our Finance Director, John Glover, was appointed to the Board in March in recognition of the excellent contribution he has made since joining the business from BP plc in January 2007. In October, we were delighted to announce the appointment of Ian Fallmann as Non-Executive Director. Ian spent 15 years at Bloomberg LP Japan, as Managing Director for the Asia Pacific region, and has extensive experience of growing various businesses in Asia, a key region for the Group.

Outlook

Whilst visibility in the global recruitment markets remains limited we have seen a growth in confidence during 2010 and expect this to continue in 2011. We continue to invest in opportunities for potential growth and taking all available indicators into consideration, we remain well placed for the forthcoming year.

Ian Temple

Executive Chairman

14 March 2011

OPERATIONAL REVIEW

The Business

Hydrogen is a global specialist recruitment group, placing mid to senior level professional staff into clients on both a permanent and contract basis. Structured around four sectors with nine specialist global practices, we focus on finding and building relationships with high quality specialist candidates that our clients cannot source themselves.

The Group delivered a strong performance in 2010 with NFI growth of 64%. It was very encouraging to see strong performances in both permanent and contract, with NFI from permanent placements up by 83% to £14.8m (2009: £8.1m), and our contractor book growing by 93% to 1,233 (December 2009: 640). With both sides of the business growing strongly, we were able to maintain a balance between our permanent and contract businesses, with permanent NFI representing 54% of NFI and contract 46% (2009: 52% contract: 48% permanent).

During the downturn, the strategic decision was taken to internationalise the business, aiming to generate 50% of our NFI from outside the UK. We were pleased to see international NFI up by 138% to £8.8m in 2010 (2009: £3.7m), representing 32% of total NFI (2009: 22%). The year has seen a strong performance from our Sydney office with NFI up 150%, and our office in Singapore has had a promising first year of trading. Both offices moved to larger premises over the year to accommodate combined headcount growth of 98%. We have also moved two of our most experienced Managing Directors from the UK to Asia and Australia, strengthening our leadership capabilities in these regions.

We have continued to invest carefully in new high growth markets, in addition to exporting our existing practices into new locations. Our Engineering sector grew NFI by 160% to £3.9m (2009: £1.5m) and our recently launched Pharmaceuticals practice has gone from strength to strength and delivered a particularly good performance in Europe. Using our proven incubator model, we have continued to incubate teams focused on new locations and potential practices and we expect these to generate further growth for the Group in the coming years.

Clients

We worked hard to maintain our long-standing client relationships during the downturn. We have continued to invest in building the pools of highly scarce candidates that our clients look to us to provide. These steps positioned us well when hiring activity began to increase. As we expand internationally, we have looked to leverage client relationships and our long-standing track record of delivery in the UK is proving very beneficial in generating business in new markets.

Candidates

2010 saw the publication of our first study into the global migratory patterns of mid to senior level professional candidates. Based on a sample size of over 3,000, the survey revealed that 9 out of 10 of these professionals are either already working abroad or willing to do so. We have been placing great emphasis on joining up the business globally to enable us to exploit this trend and offer our candidates international career opportunities. In 2010, we placed candidates in over 40 countries, and we continue to invest in the systems and processes required to grow our capability in this area.

Staff

We continued to invest in our internal training and recruitment functions over the year, which in turn enabled us to increase total headcount by 31% to 329 (December 2009: 252). It is encouraging to note that headcount has now returned to our peak 2007 levels.  Productivity per head is yet to reach the levels achieved at the peak of the last economic cycle and therefore we expect to see an incremental impact from this investment in the future.

Attracting, engaging and developing high quality staff is key to the success of the business and we were delighted to be placed in The Sunday Times "Best Companies to Work For" listings for the 6th time, and to be named one of "Britain's Top Employers" for the 5th year running in The Daily Telegraph. It was also excellent to see our training programmes being "highly commended" in the National Graduate Recruitment Awards. I would like to take this opportunity to thank everyone in the business for their part in delivering this set of results and for making Hydrogen a company we are all so proud to be a part of.

Tim Smeaton

Chief Executive Officer

14 March 2011

Financial Review

Revenue and NFI1

The Group experienced a strong recovery during the year with revenue growth of 67% to £123.4m (2009: £74.1m). This translated into NFI growth of 64% to £27.6m (2009: £16.8m).

The Group continued to deliver on its strategy of increasing diversification of both geographies and industry sectors, with international placements representing 32% of total NFI (2009: 22%), and the recently launched Pharmaceuticals practice making excellent progress.

Administration costs before exceptional costs

Administration costs for the year increased by 52% to £25.0m (2009: £16.4m). A significant contributor to the increase was additional headcount which, at 31 December 2010, was up 31% to 329 (2009: 252), and the associated training and property costs. Other factors were higher levels of variable pay and sales incentives, and increased travel costs. There were no exceptional costs in 2010.

Finance costs

Finance costs primarily relate to the unwinding of discount on onerous lease provisions, and interest on invoice discounting, where peak amounts borrowed during the payment cycle have increased but interest rates have remained low.

Profit before taxation

Profit before taxation for the year was £2.5m (2009: loss of £5.5m after exceptional costs).Taxation

The tax charge for the year was £0.7m (2009: tax credit £0.2m), an effective tax rate of 29%, slightly above the UK statutory rate of 28% due to non-deductible expenses. It is expected that the Group's underlying tax rate will remain at about this level.

Earnings per share

Basic earnings per share increased to 8.0p (2009: (22.3p), before exceptional costs 2.4p)

and diluted earnings per share, taking into account existing share options, increased to 7.5p (2009: (22.3p), before exceptional costs 2.4p).

Balance Sheet

The Group's net assets at 31 December 2010 remained relatively unchanged at £23.1m (2009: £22.5m).

Trade receivables increased by 76% to £13.0m (2009: £7.4m) as a result of the significant growth in contractor activity experienced by the Group in 2010. Despite the rapid growth in activity, working capital was well controlled with trade receivables expressed in days of sale outstanding (DSOs) reducing by a further 4 days to 25 days (2009: 29 days) due to the impact of major contracts.

The growth in contractor numbers also explained the increase in accrued income assets and deferred income liabilities as client billing and contractor payment for time worked in December was outstanding as at year end.

Cash flow and cash position

At the start of the year the Group had net cash of £3.1m. Operating cash flow before movements in working capital in the year was £2.8m (2009: £0.8m). An investment of £4.5m (2009: £4.5m release) in additional working capital was required to finance the significant growth in contractor numbers achieved during the year. After payment of taxes of £0.5m (2009: Nil) and interest payments of £0.2m (2009: Nil), cash used by operations was £2.4m (2009: cash generated £5.1m).

In 2010 the Company contributed £0.5m (2009; £0.2m) to the Hydrogen Employee Benefit Trust (EBT) to enable it to purchase 461,145 shares, bringing the EBT holding to 5% of the issued capital of Hydrogen Group PLC.

A second interim dividend of £0.8m was paid for 2009 and an interim dividend of £0.3m paid for 2010.

The Group spent £1.3m upgrading and expanding its office facilities in London, Singapore and Sydney, investing in additional space and upgraded training and video conferencing facilities.

The Group spent £0.2m on two acquisitions during the year, acquiring a company with an employment license in Dubai and a UK registered recruitment company trading in the finance sector.

At 31 December 2010, the Group had net debt of £2.2m (2009: net cash £3.1m).

Treasury management and currency risk

The working capital investment required to finance the rapid growth in contractor activity in 2010 has resulted in the Group moving to a net debt position. The major source of finance is invoice discounting, and the Group has increased its facility twice during 2010 from £5m to £13m, and the arrangement is in place to February 2012. Continued growth in contractor numbers in 2011 may require further increases in the Group invoice discounting facilities and the Group has no reason to believe that facilities will not be made available.

Although over 30% of the Group's NFI is derived from overseas, the concentration 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. The Group does not use financial instruments actively to manage its exposure to foreign currency exchange risk but will continue to monitor its policies in this area as its international business grows.

John Glover

Finance Director

14 March 2011

______________________________

1 Net fee income comprises the total placement fees of permanent candidates and the margin earned on placement of contract candidates.

The Board of Directors announce the following audited results for the year ended 31 December 2010 which were approved by the Board on 11 March 2011.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2010

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2010

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

As at 31 December 2010

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2010

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2010

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.

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 2010 and does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006.Group statutory accounts for 31 December 2009 and 31 December 2008 have been delivered to the Registrar of Companies and those for 31 December 2010 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.

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.(a) Revenue, gross profit and operating profit by disciplineFor management purposes, the Group is organised into four business segments based on the discipline of the candidates being placed. All 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:- Technology, which places mid to senior IT business technologists and change professionals;- Finance, which places finance, accounting and audit professionals into mid to senior roles from part qualified ACAs and CIMAs to director level appointments;- Professional, which places lawyers from qualified to partner level, and mid to senior level HR professionals; and- Engineering, which places engineers, and property and construction professionals.

Non-allocated costs in 2010 are partially offset by the utilisation of the onerous lease provision of £413,000 (2009: £653,000).

Revenue reported above represents revenue generated from external customers. There are no sales between segments in the year (2009: 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, exceptional costs (see note 2), finance costs and finance income.

There is one external customer that represented more than 10% of the entity's revenues with revenue of £31,741,000 in the Technology segment (2009: one customer, £7,716,000, Technology segment).

(b) Revenue and gross profit by geography

(c) Revenue and gross profit by recruitment classification

3 Dividends

An interim dividend of 1.4p (2009: 0.5p) per share was paid on 5 November 2010 to shareholders on the register at the close of business on 8 October 2010. The interim dividend was approved by the Board on 3 September 2010.

A second interim dividend in relation to 2009 was agreed on 12 January 2010, and was not recognised as a liability in the year ended 31 December 2009. The Directors did not propose the payment of a final dividend for 2009.

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

The Company donated the funds to enable the EBT trust to purchase 461,145 ordinary shares of Hydrogen Group plc for a total consideration of £535,000.At 31 December 2010, 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):