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RNS
Hydrogen Group PLC   -  HYDG   

Final Results

Released 07:00 02-Apr-2019

RNS Number : 7556U
Hydrogen Group PLC
02 April 2019
 

2 April 2019

 

HYDROGEN GROUP PLC

("Hydrogen Group" or the "Company" or the "Group")

(AIM: HYDG)

 

Final results for the year ended 31 December 2018

Hydrogen Group, the global specialist recruitment group, announces final results for the year ended 31 December 2018.

Key points

·      Group revenue to 31 December 2018 totalled £135.7m (2017: £125.9m);

·      Full year Net Fee Income+ ("NFI") 34% higher at £30.5m (2017: £22.8m), partly driven by the full year impact of Argyll Scott, but also by strong underlying growth, with Group pro-forma* NFI up 14%;

·      Contractor gross margin increased by over 10% in the year to 10.8% (2017: 9.8%);

·      Profit conversion ratio increased to 9.7% (2017: 3.6%);

·      Underlying** profit before tax ("PBT") increased by £2.2m, or 264% to £3.0m (2017: £0.8m);

·      Strong cash generation. Cash generated from operations of £6.1m (2017: outflow of £2.5m);

·      Net cash as at 31 December 2018 of £4.9m (31 December 2017: net debt of £0.4m);

·      Statutory profit for the year of £2.5m (2017: loss £1.3m);

·      Final dividend of 1.0p per share proposed for approval at AGM, taking dividend for the year to 1.5p (2017: 0.8p per share), an increase of 88% for the year; and

·      Basic EPS in the year of 7.0p (2017: loss of 4.4p). Underlying** EPS in the year of 8.0p (2017: 3.2p).

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

* Pro-forma NFI includes 12 months trade of Argyll Scott Holdings Limited in the comparative.

** Underlying PBT is altered for foreign exchange gains/(losses), amortisation of acquired intangibles, share based payments and exceptional items

 

Ian Temple, CEO, commented:

"I am delighted to be reporting strong growth in Net Fee Income on both a reported and a proforma basis, in each of the EMEA, APAC and US regions, which, together with improving conversion rates, has driven a transformation of the Group's profitability and net cash position.

We look forward confidently to continued growth this year. Furthermore, the Group is now in a strong position to accelerate this growth through selective acquisition and is actively pursuing opportunities."

Enquiries:

Hydrogen Group plc                                                                           020 7090 7702

Ian Temple CEO

John Hunter COO & CFO

Shore Capital (NOMAD and Joint Broker)                                    020 7468 7904

Edward Mansfield / James Thomas

Whitman Howard (Joint Broker)                                                    020 7659 1234

Hugh Rich

Notes to Editors:

Hydrogen Group's mission is to empower peoples' careers whilst powering businesses by providing their key people from a proven global platform with clients' in over 50 countries. We deliver by building market leading specialist teams that develop a deep understanding of candidate and clients' needs and developing solutions.

http://www.hydrogengroup.com

 

 

CHAIRMAN'S STATEMENT

Introduction

I am delighted to be able to report a strong performance in 2018.  With the integration of Argyll Scott Holdings Limited ("Argyll Scott") complete, and all of the key objectives of the acquisition successfully achieved, the Group has increased its Net Fee Income ("NFI") on both a reported and a proforma basis, and its market share, in each of the EMEA, APAC and US regions.  

This growth and the associated operational gearing, together with cost savings arising from both the integration and the implementation of efficiency driving initiatives across the business, have increased conversion rates and transformed the Group's profitability. 

Furthermore, we have developed an operating model, which has been implemented across the Group, that, together with this positive trading momentum, enables us to look forward confidently to further sustainable long-term profit growth.

Performance

In 2018, the Group increased its NFI (or Gross Profit) by 34% to £30.5m (2017: £22.8m). Although this was partly driven by the full year impact of Argyll Scott, underlying NFI growth was also strong, increasing by 14% on a proforma basis.  

Although this growth has been broad based, the Group's performance in the US has been particularly impressive. Two new offices were opened in Austin and San Diego and US NFI increased by 110%, and by 118% on a constant currency basis, during the year.

The Board considers that the Group's underlying profit before exceptional items and tax is the best way to judge its trading performance as it excludes non-trading items and non-repeatable gains and losses. Underlying profit before exceptional items and tax increased by £2.2m, or 264%, to £3.0m (2017: £0.8m). Key adjustments include net exceptional expenses of £nil (2017: £2.0m), foreign exchange losses of £0.1m (2017: £nil), non-controlling profit of £0.2m (2017: £nil), share based costs of £0.1m (2017: £0.2m) and amortisation of acquired intangibles from Argyll Scott of £0.1m (2017: £0.1m). Underlying EPS was 8.0p (2017: 3.2p). The statutory profit for the year was £2.5m (2017: loss of £1.3m).

Conversion rates have improved significantly during the year. The underlying profit before tax margin (calculated as underlying profit before exceptional items and tax divided by net fee income) increased to 9.7% (2017: 3.6%).   Pleasingly, margins improved progressively through the year. The underlying profit before tax margin in H2 was 11.6%.

Cash generation during the year was strong, driven both by profit growth and improved cash conversion resulting from a focus on working capital management. As a result, net cash at 31 December 2018 was £4.9m (31 December 2017 net debt of £0.4m).

During the year, the Group acquired a further 4.9% of Tempting Ventures Limited ("Tempting Ventures"), increasing its holding to 49.9%. Tempting Ventures has traded well, delivering a profit in its first full year of operation despite adding several new investments to its portfolio. While the impact on the Group's results is not yet significant, it is well positioned for further profitable growth which will contribute to the Group's earnings growth moving forward.  

Strategy

Hydrogen Group's strategy is to build market leading specialist teams in high growth markets with a focus on developing each through a journey from incubator through fast growth to market leader where they have much greater profit conversion. Globally, the STEM (Science, Technology, Engineering & Mathematics) and Professional Services markets in which we operate are being increasingly disrupted by a combination of technological, cultural, and political change. Our model allows us to efficiently identify and appraise the niche skill sets for which this disruption will drive increased demand for, and conversely those where it will destroy demand, allowing us to deploy our resources accordingly to drive growth.

The integration of Argyll Scott has enabled the development of a new operating model that has been deployed across the Group, which, by focusing on the key drivers of our Proposition, People, Platform and Performance is further facilitating the development of scaleable market leading teams that will drive both NFI growth and additional improvements to conversion rates.  

In 2016 we set objectives that by 2020 the Group would, inter alia: be growing NFI by 10% per annum, have grown underlying EPS to 6.8p, and increased underlying profit before tax conversion rates to over 10%. I am delighted to report that these objectives were substantively achieved during 2018.

With both a strong balance sheet and a robust and scaleable operating model in place, the Board believes that these goals may best be achieved by supplementing continued sustainable organic growth with selective acquisitions that meet our strict criteria relating to financial, operational, strategic and cultural fit.  As such, the Board is actively reviewing acquisition opportunities that it believes may meet these criteria. 

People

I would like to welcome all our colleagues that joined the Hydrogen Group during 2018.  I also thank all our staff for their hard work during the year as we continued to grow the business.  I am pleased with the progress the management team has made and our strength and depth of talent has been further enhanced during the year. I am also delighted at the continued growth in of our minority interest share scheme, demonstrating our ability to attract, retain, motivate and develop key staff.

Dividend

The Board is confident in the prospects of the Group and believes that the Group should grow profitably and continue to generate cash during 2019. During the year, the Board resumed payment of a dividend and paid an annual dividend of 0.8p in respect of 2017 (2016: nil). An interim dividend was declared and paid in October for 2018 of 0.5p. In line with its policy of paying a progressive and sustainable dividend, the Board now proposes a final dividend for 2018 of 1.0p, giving a payment for the year of 1.5p representing an increase of 88% for the year. Subject to approval at the AGM, on 23 May 2019, the dividend will be paid on 31 May 2019 to all shareholders on the register on 3 May 2019.

The Board

The Board has continued to operate to high standards of corporate governance appropriate to Hydrogen Group's size and market capitalisation. The Board itself has had a stable year, with no changes in membership. In line with best practice, all Directors will stand for re-election by shareholders at the AGM.

A review of Board effectiveness was completed during the year to assess its overall performance. No significant concerns were noted.  The review identified three key objectives for the Board moving forward:

·      To ensure that the business continues to deliver growth in revenue and profit to enhance shareholder value;

·      To further develop the next level of leaders in the Group; and

·      To continue the drive to expand the Group through acquisitions.

Outlook

Trading to date during 2019 has been in line with the Board's expectations. The Board is mindful of the challenges and uncertainties presented by both the UK's planned exit from the European Union, however, we are confident that we will achieve continued growth this year.  

The Group's plan for the year ahead is to continue focusing on growing and developing its niche teams into market leading businesses by investing in high performing individuals and our global operating model, while continuing to explore acquisition opportunities that both meet our selection criteria and have the potential to accelerate our growth plans.  

 

Stephen Puckett

Chairman

 

2 April 2019

 

 

BUSINESS REVIEW

 

We are pleased to report that we continued to make strong progress during 2018:

The key financial highlights in 2018 were:

·      revenue increased to £135.7m (2017: £125.9m);

·      NFI increased by 34% to £30.5m (2017: £22.8m);

·      NFI earned outside the UK increased to 54% of total NFI from 48%;

·      underlying profit* in the year increased by £2.2m to £3.0m (2017: £0.8m);

·      strong cash generation. Cash generated from operations of £6.1m (2017: outflow of £2.5m); and

·      net cash as at 31 December 2018 of £4.9m (31 December 2017: net debt of £0.4m).

* Altered for non-controlling interest, foreign exchange gains, amortisation of acquired brand and database, share based payments and exceptional items.

The integration of Argyll Scott, which was acquired in June 2017, was successfully completed during the year. The integration has enabled the development of a new operating model which has helped to drive the business forward during the year and we believe will provide the basis for sustainable growth moving forward.  

Proposition - By being closer to niche disrupted markets we will take advantage of job creation and focus on what our clients and candidates need

The Group is committed to a multi brand strategy and to investing in developing strong operating brands with robust client and candidate propositions. Our operating brands are sub-divided into approximately 70 specialist niche teams each focused on a single skill set and discipline in its local market, enabling our consultants to provide genuine insight to their clients and candidates. Using objective criteria, each niche is categorised as being either an incubator, a fast growth, or a market leading business; and each is driven, through a consistent targeting and reporting model, to grow to be a market leader in its niche where both profit conversion and the sustainability of earnings are strongest.   

During the year we closed eleven low growth incubator teams and entered eight new niche markets with greater growth prospects. In total 20 teams were either promoted from incubator to fast growth or from fast growth to market leader, improving the balance of the portfolio.

People - Adopting a growth mindset, we develop our people so they can over-deliver and reap the rewards

We are committed to creating 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. There is a clear promotion pathway for everybody in the Group. The Group has a performance management system and transparent reward at every level to support an objective and high-performance working culture, which was recognised as 'One to Watch' by the 2019 Sunday Times survey.

The Group launched its minority interest scheme in 2017 and we continued to roll it out during 2018. All managers of fast growth and market leading teams qualify to join the scheme. To date, 35 individuals have joined the scheme with a further 10 expected to join during 2019.  The Board is pleased with the way the scheme is impacting performance through the attraction, retention, motivation and development of key staff.

As reported in our interim statement, the Group made two significant additions to its global leadership team in the USA and Australia during the year. Both businesses grew strongly as a result.

We have continued to invest in our productive headcount to drive our revenue earning capacity forward. Total headcount has increased by 32 (10%) from 313 to 345. Twenty eight of the net increase were fee earners as the Group has exploited the efficiencies created by this new operational platform.

As a diverse global organisation, we are in a position to support our clients to ensure they get the best people irrespective of background, gender, religion or sexual orientation and have delivered a number of initiatives to highlight positive role models and the benefits of a diverse workforce.

Platform - "Powering our business with technology to drive productivity and build closer customer relationships"

Throughout 2018 the Group migrated its teams progressively onto a single, new, global technology and CRM platform. The migration was completed in Q4 and is promoting greater communication and cross fertilisation of key client relationships throughout the Group and driving a consistent and effective "go to market" strategy.

Alongside the new CRM platform, we are continuing to develop 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

Hydrogen Group was named the 16th most socially engaged staffing consultancy business in the world in 2018, out of a field of 38,000 by LinkedIn, the second successive year it has made the Top 25. Well over 80% of our clients and candidates are registered users of LinkedIn, which has become a primary platform for building customer relationships. Using social engagement, we create and develop leads which our consultants use to facilitate sales conversions. The ranking is driven by engagement of the platform members with the Group.

Performance - Deeper understanding of data informs decisions and ensures we achieve our goals

In addition to the enhanced analysis and reporting available from our new CRM platform, we are investing in our Business Intelligence systems to combine financial and operating data to present appropriate, meaningful and focused management information to different decision maker groups across the business. We are also using innovative ways of comparing the relative performance of different mangers to drive transparency, accountability and competition.   

EMEA

NFI increased by £2.8m to £17.6m (2017: £14.8m) during the year principally as a result of the inclusion of a full year's trade of the UK and Middle East based operations of Argyll Scott. On a proforma basis, NFI grew by 7% or £1.2m. Although the growth was broad based, demand was particularly strong in our UK Legal practice.

Operating profit before exceptional items doubled from £1.4m to £2.8m.

APAC

The APAC region grew strongly during the year. NFI grew by 55% (57% in constant currency terms) to £11.0m (2017: £7.1m).  As the bulk of Argyll Scott's operations are located in the APAC region, the inclusion of a full year of its trade had a significant impact on reported NFI. However, on a pro-forma basis, NFI also grow strongly by 15% (and by 17% on a constant currency basis). This growth was broad based, however, the strong performances of our Thai and Australian businesses is noteworthy. 

Operating profit before exceptional items increased by £0.9m to £1.3m (2017: £0.4m).

A key rationale for the acquisition was the opportunity to sell our developing Hydrogen branded contract recruitment services to Argyll Scott's established APAC client base. During 2018, contractors were placed on site at 19 existing Argyll Scott clients, validating this model.   

USA

The Group achieved strong growth from a low base in the USA with NFI increasing by 110% (118% in constant currency terms) to £1.9m (2017: £0.9m) during the year. Growth accelerated through the year with 78% of NFI being earned in H2, providing a base for further strong growth during 2019. 

The Group appointed a new leader in the US in May 2018, and as a result has invested heavily in its US operating capacity. Total US headcount grew from 10 to 24 during the year, and in addition to relocating its existing Houston office to larger premises, new offices were opened in Austin and San Diego. Since the year end, a fourth office has been opened in the region, in Charlotte.

Despite this significant investment, operating profit before exceptional items also increased to £0.1m (2017: loss of £0.02m).

Permanent and Contract

Hydrogen Group places candidates in permanent roles and provides contract solutions. Permanent placements play to the Group's experience in satisfying demand for rare niche skills. Contract solutions provide clients with flexible resources usually to complete specific projects.

The Group's NFI that is derived from permanent placements grew by 55% to £17.8m (2017: £11.5m), while NFI derived from contract solutions increased by 13% to £12.7m (2017: £11.2m), driving a shift in the Group's permanent NFI to contract NFI mix to 58% permanent : 42% contract (2017: 51% permanent : 49% contract).  

The variance in the relative growth rates is largely a result of the full year inclusion of Argyll Scott, which is a business that provides, primarily, permanent recruitment services.   Argyll Scott's operations are predominantly located in Asia and the Middle East where white collar contract recruitment is relatively immature. The development of contract recruitment services in these markets offers a clear growth opportunity for the Group.   On a proforma basis, permanent NFI grew by 19% and contract NFI by 7%.

The trend of improving contract margins experienced in recent years has continued with the Group achieving a contract margin of 10.8% in 2018 (2017: 9.8%).

Clients and Candidates

Hydrogen Group has built strong and effective relationships with its clients based around its longstanding track record of delivery in specialist markets.  We would like to thank all our clients for their support over the last year.

The Group has a very strong candidate database and a proven methodology for building candidate relationships in our niche specialist teams.  The Group works with highly talented candidates and contractors and would like to thank them for trusting us to empower their careers.

Brexit

 

The UK is the largest geographical market for the Group, representing some 46% of NFI during 2018. Therefore, we have continued to review the possible impact on the business should the UK leave the European Union.

Possible positive impact on the business:

·      Continued UK talent shortages may increase the use of recruitment consultancies in the UK;

·      The ability to use our international network to bring talent to the UK from outside the European Union due to new visa processes;

·      Business transformation projects driven by change in arrangements and regulation creating demand for our specialist staff;

·      Possible faster growth in the UK economy, increasing employment growth, as it builds trade with faster growing international markets than the EU; and

·      Should Sterling devalue, our overseas reported revenue and profit increase.

Possible negative impact on the business:

·      Delay of projects affecting the demand for resource until greater certainty of the future landscape;

·      Possible slowdown in the UK economy, decreasing employment growth and therefore the demand for staff; and

·      A strengthening of Sterling decreases our reported overseas revenue and profit.

 

FINANCIAL REVIEW
 

Revenue

Group revenue for 2018 totalled £135.7m (2017: £125.9m).

Key performance measures

We measure progress against strategic objectives using the following key performance indicators:

Profit conversion

Profit conversion is the underlying profit before tax (PBT adjusted for foreign exchange gains, amortisation of acquired brand and database, share based payments, NCI profit or loss, non-trading items and exceptional items) divided by total NFI. This is key for the business to assess the level of underlying profitability.

In 2018, profit conversion in the Group increased to 9.7% (2017: 3.6%). 

Productivity per head

Productivity per head represents total NFI divided by the average number of employees. This is important to the business to monitor the levels of activity in the business and identify fee earners who are not at full productivity.

Productivity per head fell in 2017, primarily due to the impact of Argyll Scott's operations in emerging markets in Asia where candidate salary levels and the Group's operating costs are lower. In 2018, productivity per head grew 15%, driven by the implementation of the Group's operating model, to £91,000 (2017: £79,000).

NFI split between the UK and the rest of the world

This is the NFI from the UK and the rest of the world expressed as a percentage of total NFI indicating the diversification of the business.

NFI from the rest of the world has increased by £5.6m to £16.6m and now represents 54% of the NFI for the year (2017: 48%).

Net fee income (NFI - equivalent to gross profit)

During 2018, Group NFI grew by 34% to £30.5m (2017: £22.8m).

The fluctuation of sterling decreased the value of reported NFI from overseas by 1% (£0.2m) during the year.

Operating segments

Our current management and reporting structure focuses on the performance of our three core markets: EMEA, USA and APAC. The segmental analysis disclosed in note 1 reflects this. The operating model of the business is to build market leading niche businesses. Each operating segment is made up of specialist teams that focus on a niche market defined by location, sector, role type and type of service. Each team is categorised by its size as being an incubator, a fast growth or a market leading business.

NFI from the EMEA operating segment totalled £17.6m (2017: £14.8m) and contributed 58% (2017: 65%) of total NFI. NFI from the US operating segment totalled £1.9m (2017: £0.9m) and contributed 6% (2017: 4%) of total NFI. NFI from the APAC operating segment totalled £11.0m (2017: £7.1m) and contributed 36% of total NFI (2017: 31%).

Exceptional costs

Net exceptional administration costs incurred in the year amounted to £nil and principally relate to two material offsetting factors. The first being a one-off rates rebate received, and the second being the provision for an onerous lease that was identified during the year. Further details are set out in note 4. 

Finance cost/income

Group finance cost for the year remained stable at £0.1m (2017: £0.1m).

Profit and loss before taxation

Reported profit before taxation (PBT) for the year was £2.8m (2017: £1.4m loss).

The Board's preferred measure of trading performance of the business removing one off and non-trading items has increased significantly with underlying PBT of £3.0m (2017: £0.8m).

Underlying PBT is calculated as follows:

 


 

 

2018

£'m

2017

£'m

 

Profit Before Tax / (Loss Before Tax)

 

 

 

2.8

 

(1.4)

Exceptional items

 

 

-

2.0

Non-controlling interest (profit)

 

 

(0.2)

-

Non-trading items*

 

 

0.1

-

Amortisation of acquired intangibles

 

 

0.1

0.1

Share based payments

 

 

0.1

0.2

Foreign exchange losses

 

 

0.1

-

 

Underlying PBT

 

 

 

3.0

 

0.8

*Non trading costs incurred in the year relate to professional fees on potential acquisitions. These are included within administrative expenses in the Consolidated Statement of Comprehensive Income.

Underlying EPS is calculated as follows:

 


 

 

2018

£'m

2017

£'m

 

Underlying PBT

 

 

 

3.0

 

0.8

Tax (expense)/credit

 

 

(0.4)

0.1

Underlying PAT

 

 

2.6

0.9

 

 

 

 

 

Number of shares

 

 

32.6

28.2

 

Underlying EPS

 

 

 

8.0p

 

3.2p

 

Taxation

There was a £0.4m tax charge for the year (2017: credit of £0.1m), giving an effective tax rate of 13% (2016: credit rate of 7%).

At 31 December 2018 the Group had unutilised tax losses of £6.5m (2017: £7.8m) available for offset against future profits. The Group has potential deferred tax assets of £1.4m (2017: £1.6m) which have not been recognised.

Dividend

The Board is confident in the prospects of the Group. As a result, the Board proposes a final dividend for the year 2018 of 1.0p to be agreed at the AGM on 23 May 2019. Subject to approval at the AGM, the dividend will be paid on 31 May 2019 to all shareholders on the register on 3 May 2019.

Profit per share

The basic profit per share was 7.0p (2017: loss of 4.4p). Diluted profit per share was 6.4p (2017: loss of 4.4p).

Balance Sheet

Net assets at 31 December 2018 increased by £0.9m to £21.1m (2017: £20.2m).

Goodwill remained flat at £12.2m. There were no impairments to the carrying value of goodwill in 2018 (2017: £nil).

Current trade and other receivables decreased by 17% to £19.7m (2017: £23.8m). The largest single component is trade receivables, which at year end have decreased by £3.2m to £10.8m (2017: £14.0m) as a result of improvements to transactional finance processes and a focus on working capital management. Consequently, days sales outstanding at 31 December 2018 decreased to 28 days (2017: 40 days).

The decrease of £3.8m in current liabilities is principally a result of two factors. A reduction in trade and other payables of £0.9m due to timing differences, and a decrease of £2.8m in borrowings resulting from the improvement in operating cash levels within the business.

Non-current liabilities increased by £1.0m largely due to the revalued redemption liability in relation to the expected future earn out payments associated to the purchase of certain minority interest holdings in certain subsidiaries of Argyll Scott, the arrangements for which were in place at the time of the acquisition in 2017. Further details are set out in note 21.

Short term bank deposits remain positive at £5.2m (2017: £2.8m).

Reserves

As a result of the Group's strong trading performance in the year and the impact of the revised redemption liability (note 21), total equity has increased by £0.9m to £21.1m (2017: £20.2m).

Treasury management and currency risk

Approximately 73% of the Group's revenue in 2018 (2017: 75%) was denominated in Sterling. The Group aims to match cost and revenue in the same currency to provide a natural hedge in its major markets which it achieved with the exception of the Euro.

The Group did not enter into any forward contracts and no foreign currency contracts were open as at 31 December 2018.

Cash flow and cash position

Net cash at 31 December 2018 was £4.9m (2017: net debt of £0.4m). Strong trading in the year boosted cash generation in the Group before working capital by £2.0m. Further improvements in working capital management resulted in positive cash inflows of £3.2m (2017: outflow of £3.0m) before taxes and financing costs. Total inflows as a result of operating activities were £6.1m (2017: outflow of £2.5m).

Gross borrowings decreased during the year by £2.8m to £0.3m.

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.

The average facility available during the year was £7.3m. Average utilisation in the year was 42% (£2.1m). The average available funds (including cash) for the Group grew by £2.6m to £8.4m.

Foreign Exchange Risk

The appreciation of Sterling during the year had a negative impact on the translation of the earnings of the Group's overseas subsidiaries. The extent of the appreciation of Sterling is detailed below:

 

Major currencies

Depreciation/(Appreciation) in Sterling over the 2018 financial year (average rates)

2018 NFI in local currency as a proportion of Group NFI

Singapore Dollar

(1%)

14%

Hong Kong Dollar

(4%)

10%

Euro

1%

5%

United States of America Dollar

(3%)

8%

Malaysian Ringgit

3%

2%

Australian Dollar

(5%)

3%

Thai Bhat

2%

6%

United Arab Emirates Dirham

(3%)

4%

Swiss Franc

(2%)

1%

       

 The Group is currently not hedged against this translation exposure.

Going concern

It should be recognised that any consideration of the foreseeable future involves making a judgement, at a particular point in time, about future events, which are inherently uncertain.

The Group has two revenue streams, permanent and contract solutions. The cash flow characteristics of the two streams interact in a complementary fashion. The permanent business, which has minimal working capital requirement, is cash generative during the growth phase, and with tight cost control, near to cash neutral in a downturn. By contrast, the contract business has a large working capital requirement, and requires significant cash investment during a period of growth but is cash generative in the first periods of a downturn.

The Group has prepared financial forecasts for the period ending 30 June 2020 and the Directors have a reasonable expectation that the Group will have sufficient cash flow and available resources to continue operating in the foreseeable future. On these grounds the Board has continued to adopt the going concern basis for the preparation of the financial statements.

 

 

Consolidated statement of comprehensive income
For the year ended 31 December 2018

 

 

 

Note

 

2018

£'000

2017

£'000

 

Revenue

1

 

135,637

125,853

 

 

 

 

 

Cost of sales

 

 

(105,111)

(103,060)

 

 

 

 

 

Gross profit

1

 

30,526

22,793

Other administrative expenses

 

 

(28,237)

(22,605)

Exceptional administrative expenses

4

 

(1)

(1,963)

Administrative expenses

 

 

(28,238)

  (24,568)

 

 

 

 

 

Other income

1

 

529

539

 

 

 

 

 

Operating profit before exceptional items

1

 

2,818

727

Exceptional items

 

 

(1)

(1,963)

 

 

 

 

 

 

 

 

 

 

Operating profit/(loss)

 

 

2,817

(1,236)

 

 

 

 

 

Share of profit/(loss) in associate

 

 

70

(100)

Finance costs

2

 

(100)

(123)

Finance income

3

 

22

12

 

 

 

 

 

Profit/(loss) before taxation

 

 

2,809

(1,447)

 

 

 

 

 

Income tax (expense)/credit

6

 

(358)

107

 

 

 

 

 

Profit/(loss) for the year

 

 

2,451

(1,340)

 

 

 

 

 

Other comprehensive gains and losses:

 

 

 

 

Items that may be reclassified subsequently to profit or loss:

 

 

Exchange differences on translating foreign operations

6

141

Exchange differences on intercompany loans

 

207

(391)

 

 

 

 

 

Other comprehensive profit/(loss) for the year, net of tax

213

(250)

 

 

 

 

 

Total comprehensive gains/(losses) for the year

 

2,664

(1,590)

 

 

 

 

 

Profit attributable to:

 

 

 

 

Equity holders of the parent

 

 

2,292

(1,232)

Non-controlling interest

 

 

159

(108)

 

 

 

 

 

Total comprehensive income attributable to:

 

 

 

 

Equity holders of the parent

 

 

2,505

(1,482)

Non-controlling interest

 

 

159

(108)

 

 

 

 

 

Profit/(loss) per share:

 

 

 

 

Basic profit/(loss) per share (pence)

19

 

7.0p

(4.4p)

Diluted profit/(loss) per share (pence)

19

 

6.4p

(4.4p)

 

 

 

 

 

The above results relate to continuing operations.

 

 

 

 

 

 

               Consolidated statement of financial position
                       As at 31 December 2018

 

 

Note

2018

£'000

2017

£'000

 

Non-current assets

 

 

 

 

 

 

 

Goodwill

7

12,244

12,214

Investment in associate

8

120

50

Other intangible assets

9

710

789

Property, plant and equipment

10

947

882

Deferred tax assets

11

112

181

Other financial assets

12

274

312

 

 

 

 

 

 

14,407

14,428

Current assets

 

 

 

Trade and other receivables

12

19,709

23,765

Current tax receivable

 

-

290

Cash and cash equivalents

13

5,227

2,770

 

 

 

 

 

 

24,936

26,825

 

 

 

 

Total assets

 

39,343

41,253

Current liabilities

 

 

 

Trade and other payables

14

(14,705)

(15,647)

Redemption liability

21

(615)

(69)

Current tax payable

 

(2)

-

Borrowings

15

(293)

(3,132)

Provisions

16

-

(602)

 

 

 

 

 

 

(15,615)

(19,450)

Non-current liabilities

 

 

 

Redemption liability

21

(1,640)

(951)

Deferred tax liabilities

11

(117)

(136)

Provisions

16

(839)

(503)

 

 

 

 

 

 

(2,596)

(1,590)

 

 

 

 

Total liabilities

 

(18,211)

(21,040)

 

 

 

 

Net assets

 

21,132

20,213

 

 

 

 

Equity

Share capital

17

341

334

Share premium

 

3,520

3,520

Merger reserve

 

19,240

19,240

Own shares held

 

(1,546)

(1,338)

Share option reserve

 

2,014

1,735

Translation reserve

 

(386)

(599)

Forward purchase reserve

 

(2,255)

(1,020)

Retained earnings/(Deficit)

 

(61)

(1,871)

 

 

 

 

 

 

20,867

20,001

Non-controlling interest

 

265

212

 

 

 

 

Total equity

 

21,132

20,213

 

The financial statements were approved by the Board of Directors and authorised for issue on 2 April 2019 and were signed on its behalf by:

 

                                                               
Ian Temple
Chief Executive

 

 

 

Consolidated statement of changes in equity
As at 31 December 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Share
capital
£'000

Share premium
account

£'000

 

Merger reserve

£'000

Own
shares
held
£'000

Share
option
 reserve
£'000

Trans-lation reserve
£'000

Forward purchase reserve

£'000

(Deficit)/
Retained
 earnings
£'000

 

 

Owners

£'000

 

 

NCI

£'000

 

Total
equity
£'000

At 1 January 2017

239

3,520

16,100

(1,338)

2,544

(788)

-

    (1,262)

19,015

-

19,015

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of Argyll Scott

90

-

3,140

-

-

-

-

-

3,230

320

3,550

 

New shares issued

 

5

 

-

 

-

 

-

 

54

 

-

 

-

 

-

 

59

 

-

 

59

Movement in redemption liability

 

-

 

-

 

-

 

-

 

-

 

-

 

(1,020)

 

-

 

(1,020)

 

-

 

(1,020)

Share option charge

 

-

 

-

 

-

 

-

 

199

 

-

 

-

 

-

 

199

 

-

 

199

 

Transactions with owners

95

-

3,140

-

253

-

(1,020)

-

2,468

320

2,788

 

 

 

 

 

 

 

 

 

 

 

 

Reduction to share option reserve

-

-

-

-

(1,062)

-

 

-

1,062

 

-

 

-

-

Translation transfer

-

-

-

-

-

439

-

(439)

-

-

-

Loss for the year

-

-

-

-

-

-

-

(1,232)

(1,232)

(108)

(1,340)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

Exchange differences on intercompany loans                         -

-      

-  

-

-

(391)

 

-

-

 

(391)

 

-

(391)

Foreign currency translation charge

-

-

-

-

 

141

-

-

141

-

141

 

Total comprehensive loss for the year

-

-

-

-

(1,062)

189

-

(609)

(1,482)

(108)

(1,590)

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2017

 

334

 

3,520

 

19,240

 

(1,338)

 

1,735

 

(599)

 

(1,020)

  

 (1,871)

 

20,001

 

212

 

20,213

 

 

 

 

 

 

 

 

 

 

 

 

New shares issued

7

-

-

-

204

-

-

-

211

-

211

NCI purchase

-

-

-

-

-

-

142

(62)

80

(106)

(26)

Movement in redemption liability

-

-

-

-

-

-

(1,377)

-

(1,377)

-

(1,377)

Share repurchase

-

-

-

(208)

-

-

-

-

(208)

-

(208)

Share option charge

-

-

-

-

75

-

-

-

75

-

75

Dividends

-

-

-

-

-

-

-

(420)

(420)

-

(420)

 

Transactions with owners

7

-

-

(208)

279

-

(1,235)

(482)

(1,639)

(106)

(1,745)

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

-

-

2,292

2,292

159

2,451

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

Exchange differences on intercompany loans

-

-

-

-

-

207

-

-

207

-

207

Foreign currency translation charge

-

-

-

-

-

6

-

-

6

-

6

 

Total comprehensive profit for the year

-

-

-

-

-

213

-

2,292

2,505

159

2,664

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2018

341

3,520

19,240

(1,546)

2,014

(386)

(2,255)

(61)

20,867

265

21,132

                           

 

 

 

Consolidated statement of cash flows
For the year ended 31 December 2018

 

 

 

 

Note

 

 

2018

£'000

2017

£'000

 

 

 

 

 

 

Net cash generated/(used) from operating activities

20a

 

 

6,140

(2,501)

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Investment in associate

8

 

 

-

(150)

Purchase of property, plant and equipment

10

 

 

(269)

(46)

Purchase of software assets

9

 

 

(102)

(255)

 

 

 

 

 

 

Net cash used in investing activities

 

 

 

(371)

(451)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

(Decrease)/increase in borrowings

15

 

 

(2,839)

2,045

Decrease in redemption liability on NCI pay-out

 

 

 

(142)

-

Purchase of treasury shares

 

 

 

(208)

-

Equity dividends paid

5

 

 

(420)

-

 

 

 

 

 

 

Net cash (used)/generated from financing activities

 

 

 

(3,609)

2,045

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

 

 

2,160

(907)

 

 

 

 

 

 

Cash and cash equivalents at beginning of year

13

 

 

2,770

3,106

 

Exchange gain on cash and cash equivalents

 

 

 

 

297

 

571

 

 

 

 

 

 

Cash and cash equivalents at end of year

13

 

 

5,227

2,770

 

 

 

 

 

 

             

 

 

Notes to the consolidated financial statements
As at 31 December 2018

Basis of preparation

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 the AIM Market. Registered company number is 05563206.

The consolidated financial statements of Hydrogen Group plc have been prepared under the historical cost convention, apart from the treatment of certain financial assets, and 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 Group's accounting policies have been consistently applied to all the periods presented other than for the adoption of IFRS 9 and 15 and the change in accounting policy for the redemption liability.

The factors considered by the Directors in exercising their judgement of the Group's ability to continue to operate in the foreseeable future are set out in the Annual Report and summarised in the Financial Review. The Group has prepared financial forecasts for the period to 30 June 2020 and the Directors have a reasonable expectation that the Group will have sufficient cash flow and available resources to continue operating in the foreseeable future. Consequently, the Board has continued to adopt the going concern basis for the preparation of the financial statements.

The consolidated financial statements for the year ended 31 December 2017 (including comparatives) are presented in GBP '000 and were approved and authorised for issue by the Board of Directors on 9 April 2018.

 

1       Segment reporting

Segment operating profit is the profit earned by each operating segment excluding the allocation of central administration costs, and is the measure reported to the Group's Board, the Group's Chief Operating Decision Maker (CODM), for performance management and resource allocation purposes.

 

 (a) Revenue, gross profit, and operating profit by discipline

For management purposes, the Group is organised into the following three operating segments based on the geography of the business unit: EMEA (covering Europe, Middle East and Africa); USA; and APAC (covering Asia and Australia). The operating segments noted reflect the information that is regularly reviewed by the Group's Chief Operating Decision Maker which is the Board of Hydrogen Group plc. All operating segments have similar economic characteristics and share a majority of the aggregation criteria set out in IFRS 8:12.

 

 

31 December 2018

 

31 December 2017

 

 

EMEA

USA

APAC

Group

Total

 

 

EMEA

USA

APAC

Group

Total

 

 

£'000

£'000

£'000

£'000

£'000

 

 

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

108,060

6,895

20,671

30

135,637

 

 

104,055

3,898 

17,900

-

125,853

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

17,617

1,921

10,958

30

30,526

 

 

14,811

916 

7,066

-

22,793

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortisation

(226)

(2)

(75)

(89)

(392)

 

 

(351)

(41)

(52)

(444)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

529

-

-

-

529

 

 

539

-

-

539

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit before exceptional items

2,817

148

1,331

(1,478)

2,818

 

 

1,447

(19) 

371

(1,072)

727

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exceptional items

(1)

-

-

-

(1)

 

 

(1,408)

(230)

(325)

(1,963)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit /(loss)

2,816

148

1,331

(1,478)

2,817

 

 

39

(19) 

141

(1,397)

(1,236)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance costs

 

 

 

 

(100)

 

 

 

 

 

 

(123)

 

Finance income

 

 

 

 

22

 

 

 

 

 

 

12

 

Profit/(loss) from associate 

 

 

 

70

 

 

 

 

 

 

(100)

 

Profit/(loss) before tax

 

 

 

2,809

 

 

 

 

 

 

(1,447)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

13,333

1,661

5,901

18,448

39,343

 

 

16,621

1,083 

6,377

17,172

41,253

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities

(8,330)

(775)

(2,053)

(7,053)

(18,211)

 

 

(15,758)

(344) 

(1,919)

(3,019)

(21,040)

 

                                                   

 

 

Group costs represent central management costs that are not allocated to operating segments.

The majority of exceptional items included in prior year are in relation to acquisition costs for Argyll Scott. Refer to note 4 for a breakdown.

Revenue reported above is generated from external customers. There were no sales between segments in the year (2017: nil).

The accounting policies of the operating segments are the same as the Group's accounting policies described above. Segment profit represents the profit earned by each segment without allocation of Group administration costs, finance costs and finance income.

Other income relates to rentals receivable by the Group for the two floors subleased in London.

There is one external customer that represented 21% (2017: 22%) of the entity's revenues, with revenue of £29.1m (2017: £27.5m), and approximately 8% (2017: 9%) of the Group's Net Fee Income ("NFI") which is included in the EMEA segment.

 

 (b) Revenue and gross profit by geography:

 

        Revenue

 

Gross profit

 

 

 

2018

£'000

2017

£'000


 

2018

£'000

2017

£'000

 

 

 

 

 

 

 

UK

 

98,822

94,984

 

13,903

11,795

Rest of world

 

36,815

30,869

 

16,623

10,998

 

 

135,637

125,853

 

30,526

22,793

                 

The 'Rest of world' revenue and gross profit numbers disclosed above have been accumulated for geographies outside of the UK on the basis that no one geography is significant in its entirety, other than the UK.

 (c) Revenue and gross profit by recruitment classification:

 

 

 

           Revenue

 

   Gross profit

 

 

2018

£'000

2017

£'000

 

2018

£'000

2017

£'000

 

 

 

 

 

 

 

Permanent

 

17,828

11,626

 

17,802

11,549

Contract

 

117,809

114,227

 

12,724

11,244

 

 

135,637

125,853

 

30,526

22,793

The information reviewed by the Chief Operating Decision Maker, or otherwise regularly provided to the Chief Operating Decision Maker, does not include information on total assets and liabilities. The cost to develop this information would be excessive in comparison to the value that would be derived.

 

2      Finance costs

 


 

 

2018

£'000

2017

£'000

 

Invoice discounting and associated costs

 

 

 

100

 

123

 

 

 

 

100

 

123

 

 

 

 

 

3      Finance income

 


 

 

2018

£'000

2017

£'000

 

Bank interest

 

 

 

22

 

12

 

 

 

 

22

 

12

 

4      Exceptional administrative items

 

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

 

 

 

2018
£'000

2017
£'000

Restructuring costs

 

66

201

Impairment of software

 

-

589

IT integration

 

-

236

Rates rebate

 

(520)

-

Onerous leases

 

455

692

Professional fees

 

-

245

 

Total

 

 

1

 

1,963

         

 

Restructuring fees are in respect to final costs incurred due to the acquisition of Argyll Scott. The rates rebate in the year relates to the net repayment of overpaid rates from the period of 2012 to 2017.

 

5      Dividends

 

2018

£'000

2017

£'000

 

Amounts recognised and distributed to shareholders in the year

 

 

Final dividend for the year ended 31 December 2017 of 0.8p per share (2016: nil per share)

257

-

Interim dividend for the year ended 31 December 2018 of 0.5p per share (2017: nil per share)

163

-

 

420

                -

 

A final dividend of 1.0p has been proposed but not yet approved for the year ended 31 December 2018.

 

6      Tax

(a) Analysis of tax charge for the year:
 

The charge based on the profit for the year comprises:


 

 


2018

£'000


2017

£'000

 

Corporation tax:

 

 

 

 

UK corporation tax on profits for the year

 

 

348

39

Adjustment to tax charge in respect of previous periods

 

 

(44)

81

 

Foreign tax

 

 

304

120

Current tax

 

 

4

80

Total current tax

 

 

308

200

 

 

 

 

 

Deferred tax:

 

 

 

 

Origination and reversal of temporary differences

 

 

62

(72)

Adjustment to tax charge in respect of previous periods

 

 

(12)

(235)

Total deferred tax

 

 

50

(307)

 

 

 

 

 

Tax charge/(credit) on profit for the year

 

 

358

(107)

 

 

 

 

 

UK corporation tax is calculated at 19.00% (2017: 19.25%) of the estimated assessable profits for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

 

 

 

 

 

(b)  The charge for the year can be reconciled to the profit per the Consolidated Statement of Comprehensive Income as follows:

 

 

 

 

 

Profit/(loss) before tax

 

 

2,809

(1,447)

 

 

 

 

 

Tax at the UK corporation tax rate of 19.00% (2017: 19.25%)

534

(279)

 

 

 

 

 

Effects of:

 

 

 

 

Fixed asset differences

 

 

1

30

Expenses not deductible for tax purposes

 

 

80

110

Income not taxable

 

 

(68)

-

Effect of difference in tax rates

 

 

(33)

48

Utilisation of tax losses and other deductions

 

 

(224)

(91)

Tax losses carried forward not recognised for deferred tax

 

 

122

157

R&D additional tax relief

 

 

-

(17)

Adjustment to tax charge in respect of prior periods

 

 

(29)

(155)

Share-based payments

 

 

(25)

(20)

Other short term timing differences

 

 

-

110

 

 

 

 

 

Tax charge/(credit) for the year

 

 

358

(107)

There has been no deferred tax charge relating to share options charged directly to equity (2017: nil).

In total, at the reporting date, the Group had unutilised tax losses of £6.5m (2016: £7.8m) available for offset against future profits, for which no deferred tax assets had been recognised.

 

7      Goodwill

 

 

2018

£'000

2017

£'000

 

Cost

 

 

 

At 1 January

 

21,301

19,228

Additions

 

30

2,073

 

 

 

 

At 31 December

 

21,331

21,301

 

 

 

 

Accumulated impairment losses

 

 

 

At 1 January

 

(9,087)

(9,087)

Impairment charge for the year

 

-

-

 

At 31 December

 

 

(9,087)

 

(9,087)

 

 

 

 

 

 

 

 

Carrying amount at 31 December

 

12,244

12,214

 

 

 

 

Allocation of goodwill to cash generating units (CGU):

 

 

 

EMEA (including USA) Professional Support Services

 

10,141

10,141

Argyll Scott Group

 

2,103

2,073

         

Goodwill arising on business combinations is tested annually for impairment or more frequently if there are indications that the value of goodwill may have been impaired. Goodwill has been tested for impairment by comparing the carrying value with the recoverable amount.

The recoverable amount is determined on a value-in-use basis utilising the value of cash flow projections over five years with a terminal value added. Multiple scenarios were tested, firstly using the 2018 actuals (of which key assumptions are detailed below) and secondly using detailed budgets prepared as part of the Group's performance and control procedures. Subsequent years are based on further extrapolations using the key assumptions listed below. Cash flows are discounted by the cash generating unit's weighted average cost of capital. Management believes that no reasonably possible change to the key assumptions given below would cause the carrying value to materially exceed the recoverable amount. Management determines that there has been no impairment in the carrying value of goodwill in 2018.

The key assumptions for revenue growth rates and discount rates used in the impairment review are stated below:
 

 

           Growth rates

 

 

Net fee income growth rate on actuals

 

2019

%

 

2020-2023
%

 

Discount rate %

 

 

 

 

EMEA (including USA) Professional Support Services

2.5%

2.5%

7.3%

Argyll Scott Group

2.5%

2.5%

7.2%

For the purposes of the goodwill impairment review, the Board consider it prudent to assume a 2.5% revenue growth on pre-tax actuals for 2019 through to 2023. The revenue growth rates for 2019-2023 are the Group's own internal forecasts, supported by external industry reports predicting improving conditions in the industry, with demand for the industry's services anticipated to pick up. The discount rate used is an estimate of the Group's weighted average cost of capital, based on the risk adjusted average weighted cost of its debt and equity financing. The Group has sensitised both the discount rate and growth rate by 2.5% with no material impact (and no impairments) noted.

 

8      Investment in associate

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

 

 

 

2018

£'000

2017

£'000

 

 

 

1 January

50

-

Investment acquired

-

150

Share of associate's profit/(loss)

70

(100)

 

 

 

31 December

120

50

 

 

Principle associate

Investment held by

Principal activity

Country of incorporation

Equity interest

Tempting Ventures Limited (previously CBFG Limited)

Hydrogen Group Plc

Advisory services

UK

49%

 

 

Tempting Ventures Limited consolidated results as at 31 December 2018

Net Assets:

 

£0.0m

 

Gross Profit:

 

£4.7m

 

Net Profit

 

£0.5m

 

9      Other intangible assets

 


 

Computer
software
£'000

 

Database
£'000

 

Brand
£'000

 

Total
£'000

 

Cost

 

 

 

 

 

At 1 January 2017

 

2,317

-

-

2,317

Additions

 

255

-

-

255

Assets acquired

 

-

500

125

625

Disposals

 

(447)

-

-

(447)

 

At 31 December 2017

 

 

2,125

 

500

 

125

 

2,750

 

Additions

 

 

102

 

-

 

-

 

102

 

At 31 December 2018

 

2,227

500

125

2,852

 

 

 

 

 

 

Amortisation and impairment

 

 

 

 

 

At 1 January 2017

 

(1,525)

-

-

(1,525)

Charge for the year

 

(242)

(42)

(10)

(294)

Disposals

 

447

-

-

447

Impairment

 

(589)

-

-

(589)

 

At 31 December 2017

 

 

 

(1,909)

 

(42)

 

(10)

 

(1,961)

Charge for the year

 

(93)

(70)

(18)

(183)

 

At 31 December 2018

 

(2,002)

(112)

(28)

(2,142)

 

 

 

 

 

 

Net book value at 31 December 2018

 

225

388

97

710

 

Net book value at 31 December 2017

 

 

216

 

458

 

115

 

789

 

Amortisation of intangible assets is charged to administration expenses in the Consolidated Statement of Comprehensive Income.

Impairment of £0.6m noted in 2017 on software development that does not support the future economic value to the Group. This has been included within exceptional IT costs in note 4.

 

10    Property, plant and equipment

 

Computer
 and office equipment
£'000


Leasehold improvements
£'000

 


Total
£'000

 

Cost

 

 

 

 

At 1 January 2017

859

1,918

2,777

Additions

31

15

46

Assets Acquired

59

26

85

Disposals

(281)

-

(281)

 

At 31 December 2017

 

668

 

1,959

 

2,627

 

 

 

 

Additions

255

14

269

 

At 31 December 2018

 

923

 

1,973

 

2,896

 

 

 

 

Accumulated depreciation and impairment

 

 

 

At 1 January 2017

(792)

(1,127)

(1,919)

Charge for the year

(58)

(79)

(137)                 

Disposals

281

-

281

Exchange differences

25

5

30

 

At 31 December 2017

 

(544)

 

(1,201)

 

(1,745)

Charge for the year

(122)

(88)

(209)

Exchange differences

5

-

5

 

At 31 December 2018

 

(661)

 

(1,289)

 

(1,949)

 

 

 

 

Net book value at 31 December 2018

263

684

947

 

Net book value at 31 December 2017

 

124

 

758

 

882

 

 

11    Deferred tax
 



Deferred tax asset

Short term timing differences
£'000

Accelerated
depreciation
£'000


Total
£'000

 

 

 

 

 

At 1 January 2018

152

29

181

 

Charged to profit or loss

(55)

(14)

(69)

 

 

 

 

 

 

At 31 December 2018

97

15

112

 

 

 

 

 

 

             

 




Deferred tax (liability)

 

Accelerated
capital
allowances
£'000

 

Intangible Assets

£'000

 

 

Total
£'000

 

 

 

 

 

At 1 January 2018

 

(21)

(115)

(136)

Credited to profit or loss

 

1

18

19

 

 

 

 

 

At 31 December 2018

 

(20)

(97)

(117)


No reversal of deferred tax is expected within the next twelve months (2017: nil).

In total, at the reporting date, the Group had unutilised tax losses of £6.5m (2016: £7.8m) available for offset against future profits, for which no deferred tax assets had been recognised.

 

12    Trade and other receivables
 

Trade and other receivables are as follows:

2018
£'000

2017
£'000

 

 

 

 

Trade receivables

 

10,780

14,003

Expected credit losses

 

(279)

(135)

Contract assets (accrued income)

 

7,414

8,329

Prepayments

 

749

792

Other receivables:

 

 

 

- due within 12 months

 

1,045

776

- due after more than 12 months

 

274

312

 

 

 

 

Total

 

19,983

24,077


Current

 

19,709

23,765

Non- current

 

274

312


As at 31 December 2018, the average credit period taken by clients was 28 days (2017: 40 days) from the date of invoicing, and the receivables are predominantly non-interest bearing. Expected credit losses of £279,000 (2017: £135,000) has been made for estimated irrecoverable amounts. Due to the short-term nature of trade and other receivables, the Directors consider that the carrying value approximates to their fair value. 

Contract assets (accrued income) principally comprises accruals for amounts to be billed for contract staff for time worked in December. Other receivables due after more than 12 months are predominantly rental deposits on leasehold properties.

The Group does not provide against receivables solely on the basis of the age of the debt, as experience has demonstrated that this is not a reliable indicator of recoverability. The Group provides fully against all receivables where it has positive evidence that the amount is not recoverable.

The Group uses an external credit scoring system to assess the creditworthiness of new customers. The Group supplies mainly major companies and major professional partnerships.

Included in the Group's trade receivable balances are receivables with a carrying amount of £2.9m (2017: £5.4m) which are past due date at the reporting date for which the Group has not provided as the amounts are still considered recoverable. The Group does not hold any collateral over these balances.

 

Ageing of past 30 days but not impaired trade receivables:
(Number of days overdue)

 

2018
£'000

2017
£'000

 

 

 

 

 

 

 

0-30 days

 

 

1,963

2,579

 

30-60 days

 

 

658

1,544

 

60-90 days

 

 

161

408

 

90+ days

 

 

99

899

 

 

31 December

 

 

 

2,881

 

5,430

 

 

 

 

 

 

 

Movement in expected credit losses:

 

 

2018
£'000

2017
£'000

 

 

 

 

 

1 January

 

 

(135)

(142)

Impairment losses recognised on receivables

 

 

-

(139)

Expected credit losses

 

 

(279)

-

Impairment losses reversed

 

 

135

146

 

 

 

 

 

31 December

 

 

(279)

(135)

               

 

In determining the recoverability of trade receivables, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The Directors believe that there is no further credit provision required.

There are no individually impaired trade receivables that have been placed in administration or liquidation included in calculation of expected credit losses (2017: nil).

 

Ageing of expected credit losses:

 

Gross carrying amount

Expected loss rate %

Total
£'000

 

 

 

 

 

0-30 days

 

6,715

0.5

34

31-60 days

 

2,236

1.5

34

61-90 days

 

978

2.5

24

90+ days

 

851

3.6

31

 

 

 

 

 

31 December

 

10,780

 

123


As at 31 December 2018 trade receivables of £156,000 (2017: nil) had lifetime credit losses of the full value of receivables. The receivables due at the end of the financial year relate to one customer, which experienced a delay in raising capital to launch their platform.

As at 31 December 2018 trade receivables to a value of £6.2m were subject to an invoice financing facility (2017: £6.8m).

13    Cash and cash equivalents

 

Cash and cash equivalents are as follows:

 

2018
£'000

2017
£'000

 

 

 

 

Short-term bank deposits

 

5,227

2,770

 

 

 

 

 

 

5,227

2,770

 

 

 

 

Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less, less bank overdrafts repayable on demand. The carrying amount of these assets approximates their fair value.

14    Trade and other payables
 

Trade and other payables are as follows:

 

 

2018
£'000

 

2017
£'000

 

 

 

 

Trade payables

 

1,516

2,490

Other taxes and social security costs

 

1,279

1,315

Other payables

 

1,710

1,496

Accruals

 

10,200

10,346

 

 

 

 

 

 

14,705

15,647

 

Accruals principally comprise accruals for amounts owed to contract staff for time worked in December, in addition to a rental accrual and a bonus and commission accrual.

The average credit period taken on trade purchases, excluding contract staff costs, by the Group is 20 days (2017: 38 days), based on the average daily amount invoiced by suppliers. Interest charged by suppliers is at various rates on payables not settled within terms. The Group has procedures to ensure that payables are paid to terms wherever possible. Due to the short-term nature of trade and other payables, the Directors consider that the carrying value approximates to their fair value.

15    Borrowings

 

2018
£'000

2017
£'000

 

 

 

Invoice discounting

293

3,132

 

 

 

 

293

3,132

 

As at 31 December 2018, the Group had two (2017: two) invoice discounting facilities in operation.

The HSBC facility has a maximum drawdown of £18.0m with no year-end balance outstanding. Interest on the facility is charged at 1.7% over UK Base Rate on actual amounts drawn down, and the margin is fixed to January 2021.

The Barclays facility was terminated in January 2019. At year end the facility had a maximum drawdown of £1.0m with a year-end balance outstanding of £0.3m. Interest on the facility was charged at 2.3% over UK Base Rate on actual amounts drawn down.

 

16    Provisions
 

 

Leasehold
dilapidations

£'000

Onerous Leaseholds

£'000

System Integration £'000

Onerous contracts £'000

 

Total
£'000

At 1 January 2017

309

-

-

-

309

 

 

 

 

 

 

New provision

138

692

217

62

1,109

Utilised

-

(313)

-

-

(313)

 

At 31 December 2017

 

447

 

379

 

217

 

62

 

1,105

 

 

 

 

 

 

New provision

11

455

-

-

466

Utilised

(74)

(379)

(217)

(62)

(732)

At 31 December 2018

384

455

-

-

839

Current

-

-

-

-

-

Non-current

384

455

-

-

839

 

The dilapidations provisions relate to the Group's current leased offices in London, Singapore, Hong Kong, Kuala Lumper and Thailand. This provision will unwind over the course of the leases agreements. Leaseholds in the Group range from 2-10 years.

The onerous lease contract relates to surplus office space in our London office identified during 2018. Following discussions with advisors, the Group has taken an exceptional charge for 33 months' costs, starting from 1 October 2020 to 30 June 2023, relating to costs to cover the marketing void and rent free incentive that is assumed would be required to sublet this space along with a 35% rent shortfall for the duration of any sub-lease eventually granted.

 

17    Share capital

The share capital at 31 December 2018 was as follows:

 

2018

 

2017


Ordinary shares of 1p each


Number of shares

 


£'000

 


Number of shares

 


£'000

 

 

 

 

 

 

Issued and fully paid:

 

 

 

 

 

At 1 January

33,425,823

334

 

23,903,713

239

Issuance of new shares

 

702,104

7

 

9,522,110

95

 

 

 

 

 

 

31 December

34,127,927

341

 

33,425,823

334

 

 

 

 

 

 

During 2018, 400,000 options were exercised (2017: 450,000), all of which were satisfied by the issuance of new shares.

At 31 December 2018, 1,162,051 (2017: 1,162,051) shares were held in the EBT.

At 31 December 2018, 385,000 (2017: nil) shares were held in Treasury.

At 31 December 2018, 211,414 (2017: 211,414) ordinary shares were held in the Hydrogen Group plc Share Incentive Plan trust for employees.

 

18    Own shares held

During the year, there was no movement in the number of shares held by the EBT.

At 31 December 2018, the total number of ordinary shares held in the EBT and their values were as follows:

Shares held for share option schemes

 

 

2018

2017

 

 

 

 

 

Number of shares

 

 

1,162,051

1,162,051

 

 

 

 

 

 

 

 

£'000

£'000

Nominal value

 

 

12

12

Carrying value

 

 

1,338

1,338

 

At 31 December 2018, the total number of ordinary shares held in Treasury and their values were as follows:

Shares held in Treasury

 

 

2018

2017

 

 

 

 

 

Number of shares

 

 

385,000

-

 

 

 

 

 

 

 

 

£'000

£'000

Nominal value

 

 

4

-

Carrying value

 

 

208

-

 

Reconciliation of own shares held

 

 

 

 

2018

2017

 

 

 

£'000

£'000

 

 

 

 

 

As at 1 January

 

 

1,338

1,338

Additions

 

 

208

-

As at 31 December

 

 

1,546

1,338

 

19    Earnings/(loss) per share

Earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to equity holders of the Group by the weighted average number of ordinary shares in issue.

Diluted earnings/(loss) 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. The Employee Benefit Trust shares are ignored for the purposes of calculating the Group's earnings per share.

 

 

From continuing operations


 

 

2018

£'000

2017

£'000

Earnings

 

 

 

 

Profit/(loss) attributable to equity holders of the parent

 

 

2,292

(1,232)

 

Adjusted earnings

 

 

 

 

 

Profit/(loss) for the year

 

 

 

2,292

 

(1,232)

Add back: exceptional costs

 

 

1

1,963

 

 

 

 

2,293

 

731

 

 


 

 

 

2018

 

2017

 

Number of shares

 

 

 

 

Weighted average number of shares used for basic and adjusted earnings per share

32,608,110

28,176,049

Dilutive effect of share plans*

 

 

3,211,955

2,597,754

 

Diluted weighted average number of shares used to calculate diluted and adjusted diluted earnings per share

 

 

35,820,065

30,773,803

 

 

 

 

 

Basic profit/(loss) per share (pence)

 

 

7.03p

(4.37p)

Diluted profit/(loss) per share (pence)

 

 

6.40p

(4.37p)

Adjusted basic profit earnings per share (pence)

 

 

7.03p

2.59p

Adjusted diluted profit earnings per share (pence)

 

 

6.40p

2.38p

 

*The calculation of diluted earnings per share does not assume conversion, exercise, or other issue of potential ordinary shares that would have an antidilutive effect on earnings or loss per share.  (An antidilution is a reduction in the loss per share or an increase in the earnings per share).

 

 

20    Notes to the cash flow statement
 

a. Reconciliation of profit before tax to net cash inflow from operating activities

 

 


 

 

2018

£'000

2017

£'000

 

 

 

 

 

Profit/(loss) before taxation

 

 

2,809

(1,447)

(Profit)/loss from associate

 

 

(70)

100

Add back exceptional items

 

 

1

1,963

Adjusted profit

 

 

2,740

616

Adjusted for:

 

 

 

 

Depreciation and amortisation

 

 

392

431

Increase/ (decrease) in non-exceptional provisions

 

 

11

(7)

FX unrealised losses/(gains)

 

 

67

(6)

Share-based payments

 

 

75

199

FX realised losses

 

 

34

111

Operating cash flows before movements in working capital

3,319

1,344

 

 

 

Decrease/(increase) in receivables

 

 

3,937

(6,126)

(Decrease)/increase in payables

 

 

(786)

3,154

Income tax (expense)/credit

 

 

(358)

107

 

 

 

 

 

Cash generated/(used) in operating activities

6,112

(1,521)

Income taxes paid

 

 

(25)

(354)

Finance costs

 

 

(100)

(123)

Finance income

 

 

22

78

 

 

 

 

 

Net cash outflow from operating activities before exceptional items

6,009

(1,920)

 

 

 

Cash flows arising from exceptional costs

131

(581)

 

 

 

Net cash outflow from operating activities

(2,501)

 

b. Reconciliation of net cash and borrowings:

 

 


 

 

2018

£'000

2017

£'000

 

 

 

 

 

 

 

Cash and cash equivalents at the end of the year

 

 

5,227

2,770

 

 

 

 

 

 

 

Borrowings at the start of the year

 

 

(3,132)

(1,087)

 

Decrease/(Increase) in borrowings

 

2,839

(2,045)

 

 

 

 

 

 

 

Borrowings at the end of the year

 

 

(293)

(3,132)

 

 

 

 

 

 

 

Net cash at the end of the year

 

 

4,934

(362)

 

 

 

 

 

 

 

c. Reconciliation of financing cashflows

 

 

 

 

 

 

At 1 January 2017

Financing cash flows

Other non-cash changes

31 December

2017

 

 

 

 

 

Borrowings

(1,087)

(2,045)

-

(3,132)

Redemption liability

-

-

(1,020)

(1,020)

 

(1,087)

(2,045)

(1,020)

(4,152)

               

 

 

At 1 January 2018

Financing cash flows

Other non-cash changes

31 December

2018

 

 

 

 

 

Borrowings

(3,132)

2,839

-

(293)

Redemption liability

(1,020)

142

(1,377)

(2,255)

 

(4,152)

2,981

(1,377)

(2,548)

21    Acquisition of Argyll Scott Holdings

On 2 June 2017, Hydrogen Group plc acquired the entire issued share capital of Argyll Scott Holdings for £3.2m, satisfied by the issuance of 9,034,110 ordinary shares in Hydrogen Group Plc. Net assets acquired totalled £1.2m with goodwill arising of £2.1m.

As part of the acquisition for Argyll Scott, Hydrogen Group plc has entered into an agreement to buy back the remaining shareholding in the relevant subsidiaries so that all entities are 100% owned by the Group based on a multiple of profit after tax. As a result, a forward purchase reserve has been created which represents the unconditional amounts due to the non-controlling interests together with, where relevant, the best estimate of amounts due on the satisfaction of employment conditions for certain non-controlling interests with a redemption liability included on the face of the Statement of Financial Position.

The conditions on the buy-back are as follows:

Entity

Shareholding buy-back

Repayment dates

Consideration

Dividend payable

Argyll Scott International Ltd

10%

30 April 2021

P/E Ratio (75% of Group PE with a floor of 5 and a cap of 7.5) multiplied by average PAT of 2019 and 2020 audited accounts.

Subject to permissible laws and sufficient distributable reserves, a dividend of no less than 50% of the statutory PAT in the relevant year will be paid.

Argyll Scott Technology Ltd

Argyll Scott International (Hong Kong) Ltd

Argyll Scott Hong Kong Ltd

Argyll Scott International (Singapore) Ltd

Argyll Scott Singapore Ltd

Argyll Scott Recruitment (Thailand) Ltd

Argyll Scott Malaysia Sdn Bhd

7.5%

 

7.5%

 

7.5%

 

7.5%

 

30 April 2018

 

30 April 2019

 

30 April 2020

 

30 April 2021

 

P/E Ratio (75% of Group PE with a floor of 5 and a cap of 7.5) multiplied by PAT of previous years audited accounts.

 

During the year, Hydrogen Group plc, bought back 7.5% of the relevant entities noted on the above schedule. A total of £0.1m was paid out for the shares in Argyll Scott International (Hong Kong) Ltd, Argyll Scott Hong Kong Ltd, Argyll Scott International (Singapore) Ltd, Argyll Scott Singapore Ltd, Argyll Scott Recruitment (Thailand) Ltd and Argyll Scott Malaysia Sdn Bhd.

Redemption Liability

A financial liability is recognised in respect of the forward purchase at fair value. Movements in the year are as follows:

 

 

 

 

2018
£'000

2017
£'000

 

 

 

 

 

As at 1 January

 

 

1,020

-

Liability acquired

 

 

-

1,020

NCI pay-out

 

 

(142)

 

Fair value adjustment

 

 

1,377

-

 

 

 

 

 

As at 31 December

 

 

2,255

1,020

 

 

 

 

 

Current

 

 

615

61

Non-current

 

 

1,640

951

 

The redemption liability relates to future consideration due in respect of the acquisition of Argyll Scott. The fair value adjustment reflects an upward revision of the Board's estimate of Argyll Scott's further trading prospects, and certain changes to the agreement in respect of the future consideration relating to employment conditionality. Under the terms of the original purchase agreement, certain payments were only payable in the event that employment conditions were satisfied. During the current year, the terms of the agreement were changed such that the employment conditions were removed. As a result, the Directors' best estimate of the redemption liability has increased as the full expected liability has been recognised whereas, in the prior year, any amounts relating to employment were being recognised over time as service was provided.

22    Statutory report classification

The financial information for the year ended 31 December 2018 and the year ended 31 December 2017 does not constitute the company's statutory accounts for those years.

 

Statutory accounts for the year ended 31 December 2017 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2018 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

 

The auditors' reports on the accounts for 31 December 2018 and 31 December 2017 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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