Hydrogen Group PLC Half-year Report (0376B)

TIDMHYDG

RNS Number : 0376B

Hydrogen Group PLC

18 September 2018

Hydrogen Group Plc

UNAUDITED RESULTS FOR THE HALF YEARED 30 JUNE 2018

The Board of Hydrogen Group plc ("Hydrogen Group" or the "Group") (AIM: HYDG) announces its unaudited results for the half year ended 30 June 2018.

Highlights

   --    Reported Group revenue for the period increased 21% to GBP68.6m (H1 2017: GBP56.8m)

-- Reported Net Fee Income ("NFI")* increased by 57% to GBP14.8m (H1 2017: GBP9.4m), due to both the acquisition of Argyll Scott and strong underlying growth across the Group:

   o    Permanent NFI grew 100% to GBP8.5m (H1 2017: GBP4.3m); 
   o    Contract NFI increased by 23% to GBP6.3m (H1 2017: GBP5.1m); 
   o    Group contract margin increased 7% to 10.4% (H1 2017: 9.7%) 
   --    Proforma NFI increased by 10%

-- Underlying** Profit Before Tax ("PBT") increased by GBP0.9m, 596% to GBP1.1m (H1 2017: GBP0.2m)

-- Strong cash generation of GBP2.0m from operations during the period (H1 2017: outflow GBP0.7m)

-- Net cash of GBP1.3m at 30 June 2018 (31 December 2017: net debt GBP0.4m and 30 June 2017: net cash GBP1.7m)

   --    Increase in adjusted basic EPS in the period of 2.5p to 2.4p (H1 2017: loss 0.1p)

-- Return to the payment of an interim dividend. Interim dividend of 0.5p per share (2017: nil) to be paid on 19 October 2018 to shareholders on the register on 21 September 2018

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

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

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

"I am pleased to be able to report a strong trading performance in the first six months of the year, with Net Fee Income on a pro-forma basis up 10% on the first six months of 2017. The key objectives of the business combination with Argyll Scott have been successfully achieved and we have established a scalable platform that enables us to look forward confidently to further sustainable long-term organic profit growth. Furthermore, with a strong balance sheet, the Group is well placed to make acquisitions and will continue to investigate potential targets.

With the current levels of activity, the Board is confident that the underlying profit and EPS for the full year will be substantially ahead of current market expectations."

Enquiries:

 
 Hydrogen Group plc                 020 7090 7702 
 Ian Temple, CEO 
  John Hunter, COO & CFO 
                                   -------------- 
 Shore Capital (NOMAD and Joint 
  Broker)                           020 7408 4090 
                                   -------------- 
 Edward Mansfield / James Thomas 
                                   -------------- 
 Whitman Howard Limited (Joint 
  Broker)                           020 7659 1234 
                                   -------------- 
 Hugh Rich 
                                   --------------

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

Argyll Scott Holdings Limited ("Argyll Scott"), which was acquired in June 2017, has now been substantially integrated into the Group. All the key objectives identified at the time of the acquisition - to accelerate growth through the scaling of our APAC operations, to realise synergies though the consolidation of support services, and to diversify customer revenue concentration - have been successfully achieved. During H1 2018 on a proforma basis, while Group NFI grew by 10%, APAC (where the majority of Argyll Scott's operations are based) NFI grew by 16%. Annualised overhead cost synergies of some GBP1.5m have been realised. Expected cross fertilisation of client relationships across the Group's brands are anticipated to generate incremental NFI of some GBP0.4m in 2018 and the Group's largest client accounted for 8% of NFI in the first half of 2018 (H1 2017:14%).

The integration project has enabled the creation of a scalable operational platform that will promote further long term sustainable profit growth, underpinned by the Group's core strategic pillars:

-- an operating model focussed on building specialist niche businesses which are each driven, through a consistent targeting and reporting model, to grow to be market leaders;

-- the minority interest share scheme launched in H2 2017 which is impacting the retention, motivation and development of key staff, as well as attracting new talent to Hydrogen Group. The Group have made two significant additions to its global leadership team in the USA and Australia during the period giving it confidence that it should be able to deliver significant growth in these markets moving forward;

-- a digital marketing programme that supports a multi brand specialist niche business strategy by allowing the development of key client and candidate relationships on a scalable, but bespoke, one to one basis;

-- a single global technology and CRM platform that promotes communication and the cross fertilisation of key client relationships across the Group and drives its "go to market" strategy; and

-- investment in people. A commitment to create a genuine learning and development culture throughout the Group. Bespoke training programmes have been developed for each job function and grade, which are being delivered across the Group by the leadership and management teams.

During the period, Hydrogen Group have continued to invest in its productive headcount. While total headcount has increased by 10 (3%) from 313 to 323, fee earner headcount has increased by 18 (7%) as the Group have begun to exploit the efficiencies created by its new operational platform.

The Board believes that future organic growth can now be supplemented by selective acquisitions to accelerate the Group's development. Strict criteria have been developed, which will be applied to any potential acquisition relating to its strategic, financial, operational, and cultural fit.

Financial Highlights

Group revenue for the period increased by 21% (22% in constant currency terms) to GBP68.6m (H1 2017: GBP56.8m).

Overall, Group NFI increased by 57% (61% in constant currency terms) to GBP14.8m (H1 2017: GBP9.4m). Although the principal driver of this was the contribution by Argyll Scott, underlying NFI growth was also strong with NFI increasing by 10% on a pro forma basis.

Although the UK business has grown during the period in absolute terms, the Group have continued to reduce its reliance on the UK market in relative terms. The percentage of NFI denominated in currencies other than Sterling has increased to 53% (H1 2017: 44%). Foreign currency income, in general, is naturally hedged against foreign currency expenditure.

In EMEA NFI grew by 26% to GBP8.7m (H1 2017: GBP6.9m). On a pro forma basis the EMEA region's NFI grew by 6%, with increases in both contract and permanent revenue. This was largely driven by contractor growth in the Business Transformation practice and strong activity in the permanent Legal practice.

APAC NFI increased by GBP3.6m or 189% to GBP5.5m (H1 2017: GBP1.9m) and by 197% in constant currency terms. Although this growth was largely driven by the acquisition of Argyll Scott, underlying growth was also strong with pro forma NFI increasing by 16% principally as a result of strong performances from the Singapore, Thailand and Australia offices.

In the US, NFI was flat at GBP0.5m (H1 2017: GBP0.5m) however on a constant currency basis it increased by 10%. Although the performance of the permanent business was challenging, contract NFI growth was very strong, which together with the investment made in local leadership, positions the region well for future growth.

The split between contract and permanent NFI for H1 2018 was 42% contract (H1 2017: 54%); 58% permanent (H1 2017: 46%). The change towards permanent recruitment was driven by an increase in permanent NFI of 100% to GBP8.5m (H1 2017: GBP4.3m) that principally reflects the impact of Argyll Scott, which is predominantly a permanent business. In absolute terms contract NFI has also increased, growing by 23% in the period to GBP6.3m (H1 2017: GBP5.1m). The trend of improving contract margins experienced in recent period has continued with the Group achieving a contract margin of 10.4% in H1 2018 (H1 2017: 9.7%).

Operating profit before exceptional items grew to GBP1.2m (H1 2017 - GBP0.1m) driven by both the higher NFI for the period and a proportionately smaller increase in administrative expenses resulting from the cost savings realised through the integration project. While NFI has increased by 57%, administrative expenses have only increased by 45% to GBP13.9m (H1 2017: GBP9.6m). There were no exceptional costs in the first half of 2018 (H1 2017: GBP0.6m).

The operating profit for the period was GBP1.2m (H1 2017: operating loss GBP0.6m). Profit before tax was GBP1.1m (H1 2017: loss before tax GBP0.6m).

Underlying** PBT remains the Board's preferred measure of trading performance of the business and has increased by GBP0.9m to GBP1.1m (H1 2017: GBP0.2m) in line with the increase in operating profit before exceptional items.

 
                                              Six months ended 
                                               2018       2017 
                                            GBP'000    GBP'000 
--------------------------------------    ---------  --------- 
 
   Profit Before Tax/(Loss Before 
   Tax)                                       1,121      (611) 
 Exceptional items                                -        610 
 Amortisation of acquired intangibles            45          7 
 Non-controlling interest                     (134)          9 
 Share based payments                            30        150 
 Foreign exchange losses                         71         16 
----------------------------------------  ---------  --------- 
 
   Underlying PBT                             1,133        181 
----------------------------------------  ---------  ---------

The movement in the non-controlling interest reflects Argyll Scott's inclusion for the whole period. The reduction in the share based payments results from changes in the structure of the Group's leadership share scheme.

Cash flow and cash position

At 30 June 2018, the Group had net cash of GBP1.3m (31 December 2017: net debt GBP0.4m and 30 June 2017: net cash GBP1.7m). The increase in net cash during the period of GBP1.6m was driven by an increase in operating cashflows of GBP2.0m resulting both from profitable trading and improved working capital management. The cash cost of exceptional items provided for in 2017 amounted to GBP0.3m. Capital expenditure totalled GBP0.4m and principally related to the implementation of the Group's new integrated IT infrastructure.

Bank facilities

The Group have two invoice discounting facilities in place with a combined value of GBP19.0m.

Hydrogen has an existing facility of GBP18.0m, with a commitment to May 2019. Argyll Scott has a facility in place of GBP1.0m which has a commitment until December 2018. On 30 May 2018, six months' notice was given to terminate the existing facility in Argyll Scott as this was no longer required to fund the Group's operations. The Hydrogen 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 proposes to resume payment of an interim dividend and will pay an initial interim dividend of 0.5p for 2018 (2017: nil). The dividend will be paid on 19 October 2018 to shareholders on the register at the close of business on 21 September 2018.

Current Trading

The Group have continued to trade well since the 30 June and has a strong pipeline of business moving into Q4. The Board is therefore confident that the full year outturn will be substantially ahead of current market expectations.

Hydrogen Group Plc

Unaudited Condensed Consolidated Interim Statement of Comprehensive Income