21 August 2008

HYDROGEN GROUP PLC

UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2008

The Board of Hydrogen Group Plc ("Hydrogen" or "the Group"), the specialist professional recruitment business, is pleased to announce its unaudited interim results for the six months ended 30 June 2008. 

Highlights

• Despite challenging conditions in key markets, Net Fee Income (NFI) is down only 1.4% on second half of 2007

• Profit before tax and exceptional item (PBT) of £3.3m (2007: £3.9m) in line with revised expectations

• Conversion of NFI to PBT remained strong at 22% (2007: 23%)

• NFI from contractors increased by 16% to £6.1m (2007: £5.3m)

• Macro economic issues impacted permanent placement markets, particularly in Finance in the UK. NFI from permanent placements of £8.2m was 25% down on first half 2007 (£10.9m), but only 2% down on second half 2007 (£8.3m)

• Permanent versus Contract mix of NFI 55:41 in favour of Permanent (2007: 64:31), (the remaining 4% being recruitment process outsourcing offering through Reflect)

• Non-UK NFI for the period grew 146% to £1.6m, now representing 11% of the Group total (2007: 4%)

• Strong focus on cost control reduced administration costs by 8.7% (2007: increase of 18%)

• Tight working capital control resulted in cash generated from operating activities before exceptional costs of £4.3m (2007 £4.0m) and net financing costs being reduced by £314k to £126k (2007: £ 440k)

• Days of sales outstanding (DSO's) reduced by 9 to 38 (30 June 2007: 47; 31 December 2007: 43)

• Employee Benefit Trust established and funded to enable purchase of 280,359 shares (1.2% of shares in issue) at a cost of £606k

• Increased Interim dividend of 2.1p to be paid in November (2007: 2.0p)

Commenting on the results, Ian Temple, Executive Chairman said: 

"Despite a positive start to 2008, the more uncertain macroeconomic environment has resulted in trading conditions for some of our brands becoming more challenging in the UK and this trend has continued into the second half of the year. 

Our flexible business model means that we are well placed to respond to these tougher conditions and continue to take action to increase our exposure to growth markets both in the UK and overseas. They currently represent a relatively small proportion of the Group's overall business and their success is not compensating for the shortfall in other areas, particularly those exposed to the Investment Banking market. The Board therefore anticipates that the second half of 2008 will be difficult and that the Group will not return to growth until 2009.

We remain focused on the balance between short term performance and achieving our mid term goals, supported by the strong structural growth drivers for professional recruitment."

Enquiries:

An analyst meeting will be held at the offices of Hudson Sandler, 29 Cloth Fair EC1A 7NN, on the morning of the results at 10.00am. Please contact Sarah Hughes on 020 7796 4133 for more details. 

Notes to editors: 

Hydrogen is a specialist recruitment consultancy, focused on mid to senior professional talent hires to financial services and commerce and industry. The Group has nine niche consultancies being Project Partners, Commerce Partners, Target Partners, Finance Professionals, Audit Professionals, Law Professionals, HR Professionals and Eurisko, specialising in recruitment within their disciplines and Reflect, a human resources outsourcing consultancy. In 2007 the Group opened its first international office in Sydney, Australia. 

CHAIRMAN'S STATEMENT

Despite a positive start to 2008, the more uncertain macroeconomic environment has resulted in trading conditions for some of our brands becoming more challenging in the UK. This has been particularly true of the investment banking market, which accounted for approximately 20% of Group Net Fee Income (NFI) in 2007.  

In light of this economic uncertainty, the Group has taken action to increase its exposure to growth markets, whilst ensuring we maintain a competitive and compelling proposition in our established markets. 

International demand for high quality specialist candidates in regions such as Australia, the Far and Middle East and Continental Europe continues to be robust and as a result the first half of the year has seen significant growth in our international operations with non-UK NFI growing 146% to £1.6m, representing 11% of NFI (2007: 4%)

Financial Highlights 

Revenue for the six months ended 30 June 2008 fell 2.1% down to £49.9m (2007: £51.0m). NFI (gross profit) fell faster by 12% to £14.9m (2007: £16.9m) reflecting the poorer performance of permanent recruitment over the period. NFI was down 1.4% on the second half of 2007. 

As a result of the fall in NFI, profit before tax and exceptional items fell by 15% to £3.3m (2007: £3.9m) generating a fall in adjusted basic earnings per share of 14% to 10.4p (2007: 12.0p).

Despite the fall in NFI, the conversion of NFI to underlying profit before tax remained strong, falling only slightly to 22% (2007: 23%), reflecting our consistent focus on productivity and strong cost control in the period. 

Good working capital management has been maintained resulting in strong cash conversion, with net debt reducing to £3.8m (30 June 2007:£9.8m). Debtor days were reduced from 47 days at 30 June 2007 to 38 days at 30 June 2008.

Dividend

The Board is pleased to declare an increase in the interim dividend of 5% to 2.1p (2007:2.0p). This will be paid on the 7th November 2008 to shareholders on the register on 10th October 2008. The increase reflects the robustness of the Group's balance sheet and Board's confidence in the prospects of the business.

Brands

Against a backdrop of a tougher macroeconomic environment and strong prior year comparatives, solid performances were still delivered from our Law Professionals, and Project Partners brands with good growth coming from Darwin Park our emerging specialist engineering brand. Finance Professionals permanent business suffered the most severely from the downturn in Investment Banking, with comparatives being exaggerated by the fact that H1 2007 was very strong and H1 2008 was exceptionally quiet. The Finance Professionals permanent Commerce and Industry business performed poorly exacerbating the outturn and action has been taken to improve performance in this area.  

As would be expected in the current trading environment, the first six months of the year have seen a particularly strong performance for contract business, which grew by 16% in the period. The permanent recruitment business declined by 25%, having been particularly affected by the decline in investment banking activity in the UK. In the first half of 2008 41% of NFI came from contract recruitment, 55% from permanent and the balance from Reflect, our recruitment process outsourcing division. Reflect has won a number of new clients, from which we should see the benefit in future periods, but was impacted in the first half of 2008 by a slowdown in activity from key clients. 

We continue to focus on leveraging opportunities for our brands in the international markets. In 2007 we opened our first office in Australia and have been pleased with its performance. Our focus to date has been on Technology recruitment and we have now expanded this into Engineering and Finance recruitment. During the period we expanded our headcount and moved the office to a larger location to support our growing activity. 

We have also seen increasing international activity in Continental Europe and the Middle East and have been very pleased with the progress we are making in developing our client relationships in these regions. Consequently, International NFI for the period grew by 146% to £1.6m representing 11% (2007: 4%) of total NFI.

Clients

Our Group customer base remains very broad, at approximately 900 clients, and we have seen good client retention and wins during the period. Whilst some of our major accounts have reduced current activity, we have maintained strong market share of their placements and are continuing to strengthen relationships. By maintaining a strong presence we continue to secure available business and are well positioned for future hiring. 

Staff

We have had a small reduction in headcount over the period from 329 to 308 employees. Our staff have adapted well to changing market conditions and priorities and we would like to thank them for their efforts over the last 6 months. We continue to have a highly motivated and effective workforce capable of developing the business through the economic cycle. 

Board

We are pleased to announce that with immediate effect Tim Smeaton has been promoted from COO to CEO. Tim has been instrumental in the building of the Group to date and the change reflects the full range of Tim's responsibilities. 

Current Trading

Trading in the second half of the year continues to be challenging. Whilst our flexible business model means that we are well placed to respond to these tougher conditions and continue to take action to increase our exposure to growth markets both in the UK and overseas, they currently represent a relatively small proportion of the Group's overall business and their success is not compensating for the shortfall in other areas of the Group's business, particularly those exposed to the Investment Banking market. The Board therefore anticipates that the second half of 2008 will be difficult and that the Group will not return to growth until 2009.

In the first half of the year the cash generated from operating activities before exceptional costs was strong at £4.3m (2007 £4.0m) and the Board expects the business to continue to be cash generative in the second half of 2008.

We remain focused on the balance between short term performance and achieving our mid term goals supported by the strong structural growth drivers for professional recruitment.

Hydrogen Group plc
UNAUDITED CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT

For the six months ended 30 June 2008

The notes on pages 5 to 11 form an integral part of this unaudited condensed consolidated interim report.

Hydrogen Group plc

UNAUDITED CONDENSED CONSOLIDATED INTERIM BALANCE SHEET
As at 30 June 2008

The notes on pages 5 to 11 form an integral part of this unaudited condensed consolidated interim report.

Hydrogen Group plc
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2008