Hydrogen Group - Investor Presentation - 16 September 2014

Half year results 30 June 2014

Ian Temple – Chairman Tim Smeaton – CEOJohn Glover – Finance Director

Page 2Half year results 30 June 2014

Hydrogen profiles

Ian is one of the founders of Hydrogen Group. As Chairman, he is responsible for ensuring the Board effectively sets the Group’s strategy and direction. He also has responsibility for investor relations.

Ian TempleChairman

Tim is one of the founders of Hydrogen Group and has been CEO since 2008. Tim has led the Group through significant global expansion and operational change. He heads the Executive Board responsible for day to day business.

Tim SmeatonCEO

John joined Hydrogen Group in 2007 as Finance Director. Under John’s financial leadership, the company has the financial controls to support its strategic goals. John’s key priorities are maintaining strong financial control and leading the IT strategy to generate competitive advantage for the business.

John GloverFinance Director


Summary

> Review of progress after sustained period of diversification

> Group focused on areas which will deliver profit growth

> Exceptional charge for the full year estimated at £1.8m, with a 6-9 month payback

> Pleased with progress in newer locations (Malaysia and US)

> Trend of improvement in profitability at end of 1H continuing into 2H

> Board confident in actions taken

> Interim dividend of 1.5p per share


2014: Operational infrastructure to deliver for our clients globally

Agile to client demand: hubs and spokes will be fluid

Technical & Scientific (T&S)

> Oil and Gas

> Life Sciences

> Power

Professional Support Services (PSS)

> Business Transformation

> Finance

> Legal

> Technology

Joined-up practices give global capacity

Successful first year for Houston; promising large scale opportunities in Kuala Lumpur

Stavanger

Dubai Hong Kong

Edinburgh

Houston

London

Singapore

Hubs

Spokes

Legal entities

Kuala Lumpur

Countries where Hydrogen places candidates

Netherlands

Sydney

Financials


Financial highlights

> Net Fee Income (NFI) declined by 8% (5% constant currency) to £14.6m

> Estimated exceptional charge for the year of £1.8m to restructure the business of which £1.5m incurred in 1H

> Impact of cost reduction programs already evident with 5% decline in operating costs 1H 2014 v 2H 2013

> DSOs 22 days (1H 2013: 21 days)

> Period end net debt improved by £0.2m to £3.8m from £4.0m at 31 December 2013

> Interim dividend maintained at 1.5p (2013: 1.5p); payable 7 November 2014 (ex div 9 October; record date 10 October)


Income statement

Period ended 30 June 2014 Period ended 30 June 2013 Change

Revenue £87.3m £91.0m (4%)

Gross Profit (Net Fee Income) £14.6m £15.9m (8%)

- Permanent NFI £6.6m £7.4m (12%)

- Contract NFI £8.0m £8.5m (5%)

Operating costs £13.9m £14.5m (4%)

Operating profit £0.7m £1.4m (50%)

- Forex losses (£0.2m) - -

- Finance costs (£0.1m) (£0.1m) -

- Exceptional item (£1.5m) - -

(Loss)/profit for the period before tax (£1.1m) £1.3m (185%)

Basic (loss) earnings per share (5.27p) 4.26p (224%)

Adjusted earnings per share 1.42p 4.26p (67%)

Interim dividend 1.5p 1.5p -

KPIs

Conversion ratio (NFI: Op profit before exceptional) 3.1% 8.8% (4.1%)

> Operating costs of £13.9m, 4% down 1H 2014 v 1H 2013 and 5% down v 2H 2013

> Exceptional costs estimated at £1.8m for the full year, for redundancy and other restructuring costs


To June 2014

Redundancy costs 718

Provision for onerous contract re leasehold property 638

Tangible fixed asset write - off 108

Advisors’ costs 24

TOTAL 1,488

> Estimated annual savings from restructuring £3m p.a. giving short payback period for exceptional costs

> Redundancy costs predominantly no more than contract notice period

> 18 month provision taken on space at Eastcheap - decision pending on future use

> Estimate for full year is c. £1.8m

Exceptional items


Summary financial position

Period ended 30 June 2014 Year ended 31 December 2013 Period ended 30 June 2013

Non–current assets £17.0m £17.1m £16.0m

Intangible assets £14.8m £14.8m £14.7m

Tangible assets £1.7m £1.9m £0.6m

Other assets £0.5m £0.4m £0.7m

Current assets £33.2m £33.3m £33.1m

Debtors £31.0m £29.7m £30.5m

Cash and cash equivalents £2.2m £3.6m £2.6m

TOTAL ASSETS £50.2m £50.4m £49.1m

Current liabilities £25.2m £23.8m £22.3m

Non-current liabilities £0.3m - £0.1m

TOTAL LIABILITIES £25.5m £23.8m £22.4m

NET ASSETS £24.7m £26.6m £26.7m

Debtor days 22 23 21

Headcount at period end 344 383 351

> Continued tight control of working capital - class leading DSOs maintained

> Balance sheet remains strong with low levels of debt


Summary funds flow and net funds / (debt) position

Period ended 30 June 2014 Period ended 30 June 2013

Cash from operations £0.8m £1.8m

Working capital movement £0.9m £1.5m

Finance costs (£0.1m) (£0.1m)

Tax paid (£0.1m) (£0.4m)

Net cash invested (£0.2m) -

Equity dividends paid (£0.7m) (£0.7m)

Exceptional costs (£0.4m) -

INCREASE IN FUNDS £0.2m £2.1m

Net debt at beginning of period (£4.0m) (£2.8m)

Net debt at end of period (£3.8m) (£0.7m)

> Underlying business continues to be cash generative

> Cash released through working capital control

> Small reduction in net debt from y/e position


Core KPIs: productivity per head

2005 2006 2007 2008 2009 2010 2011 2012 2013 1H 2014

0

20

40

60

80

100

120

90858586

90

70

87

99

107

90

> Investment in headcount at end 2013 impacted productivity; projects did not come through

> 13% reduction in sales headcount during 1H 2014 has led to improving productivity trend during the period, continuing into 2H


Core KPIs: split of sales headcount at period end

> Sales headcount at 30 June 13% down on year end

> Headcount serving international markets 64% at end of period

> No significant headcount movement projected for 2H 2014

International

International focus, UK based

UK sales

2005 2006 2007 2008 2009 2010 2011 2012 2013 1H 2014

191209

247

197 193

237

269 274

0

50

100

150

200

250

300294

261


Growing a balanced business: performance against operational KPIs

UK

International

Professional Support Services

Technical & Scientific

PUBLISHEDRESULTS

2016GOALS

PUBLISHEDRESULTS

2016GOALS

0%

20%

40%

60%

80%

100%

Contract

Permanent

0%

20%

40%

60%

80%

100%

PUBLISHEDRESULTS

2016GOALS

0%

20%

40%

60%

80%

100%

2008

2009

2010

2011

2012

2013

2014

2015

2016

2008

2009

2010

2011

2012

2013

2014

2015

2016

2008

2009

2010

2011

2012

2013

2014

2015

2016

56%

44%

56%

44%

56%

44%

> KPIs stable during the period

> Balance between predictability of contract earnings and growth potential of permanent fees in niche markets

> Further growth in international placements, providing a global platform for candidate and client services

> Diverse and agile to markets with different economic cycles, balanced portfolio of client and candidate disciplines

2016 target: at least 50% contract 2016 target: at least 65% international 2016 target: at least 50% Technical & Scientific

Our strategy


2016 Strategy

INFRASTRUCTUREAND

CAPABILITY

Simple levers to manage the business

Ability to transact in multiple locations

Long term relationships with candidates and clients

Experienced leaders acting as brand ambassadors

Three key areas of focus:

> Differentiates Hydrogen

> Global client agreements

> Candidate mobility

> Agility to respond to growth markets

> Proven incubator model

> Central research function

> Single platform

> Single brand

> Operational expertise


Joined up practices

> Practices are our candidate specialisms. They offer both candidate and client access to specialist recruiters, supported by a global network

> Joining up our practices allows us to differentiate ourselves from local competition and disparate global players

> Joined up approach has enabled us to scale business with clients: opened doors into Houston; large scale client win in Malaysia

> Our key global growth practices are: Oil & Gas and Life Sciences (within T&S) and Technology (within PSS)

> Clients now hiring Hydrogen for multi practice, capability, consistent quality of candidates and service

> Investment in business development has continued through restructuring period

Oil & Gas

Business transformation

Life Sciences

Technology


Market selection

Clients

> Ability to spot new markets has transformed client list

> 2010 - 2014 period of expansion and diversification

> PSS still important to our business (banking, finance, legal, insurance) but we are pleased with the growth in new markets

> Emphasis now is on growing existing clients

> Narrowing down to focus on profitable core offering

> Restructuring means we have right size of business and capacity to make the most of opportunities

2010 2014

Banking and finance

Tech & Media

OG/Power/Energy

OG/Power/Energy

Legal

Life Sciences

Other

Professionalservices

Professionalservices

Bankingand finance

Tech & Media

Legal

Life Sciences

Other


Driving competitive advantage

Capability > Centralised operations function resized

> Restructuring has not impacted capacity

> More experienced hires adding external viewpoint

> Professionalism, high performance , high productivity

> Thought leadership and white papers demonstrate industry knowledge

Infrastructure > Investment in IT and MI gives competitive

advantage

> Cloud based approach; single database of clients and candidates accessible from any location

> All practices under Hydrogen brand

> Brand recognition growing in newer markets such as Houston

> Fifth year of our multi award winning “Global professionals on the move” report with multinational media coverage

INFRASTRUCTUREAND

CAPABILITY


Current trading

> Improvement in profitability continued through July and August

> Cost focus will sustain and improve % profit conversion

> Significant client opportunities in PSS and O&G in the UK as well as O&G in Asia and the US

> Strengthening client pipeline

> Actions taken give Board confidence for full year

> On target to meet expectations for the year


Investment summary

> Experienced and proven senior management team with “skin in the game”

> Joined up global practices

> Sustainable progressive dividend

> Highly operationally geared

> Focus on profitable growth

> We’ve demonstrated our ability to identify and grow in hot markets, remaining agile to build a balanced business

> �Strategy�is�driving�focus�on�development�of�existing�clients,�innovative�resourcing�solutions�and�increased�profit

> Well placed to capitalise on global opportunities

Dividends paidpence per share

2009 2010 2011 2012 2013 H1 2014

0

1

2

3

4

5

1.5

4.5 4.64.3

4.14.1


Cautionary Statement

> The information contained in this presentation is not audited; it is for personal use and informational purposes only and is not intended for distribution to, or use by, any person or entity in any jurisdiction in any country where such distribution or use would be contrary to law or regulation, or which would subject any member of the Hydrogen Group to any registration requirement.

> Statutory reports and accounts and half year results are available on the Group’s website. Statutory accounts for the year ended 31 December 2013 have been filed at Companies House.

> Certain statements included or incorporated by reference within this presentation may constitute “forward–looking statements” that are based on current expectations or beliefs, as well as assumptions about future events. There are risk factors that can cause actual results to differ materially from those expressed in or implied by such statements. Accordingly, no assurance can be given that any particular expectation will be met and reliance should not be placed on any forward-looking statement.

> Hydrogen Group disclaims any intention or obligation to revise or update any forward-looking statements that may be made in this presentation, regardless of whether those statements are affected as a result of new information, future events or otherwise. Nothing in this presentation should be construed as a profit forecast.

> This presentation does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase any shares in the Company, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment or investment decision relating thereto, nor does it constitute a recommendation regarding the shares of the Company. Past performance cannot be relied upon as a guide to future performance. Liability arising from anything in this presentation shall be governed by English Law. Nothing in this presentation shall exclude any liability under applicable laws that cannot be excluded in accordance with such laws.

Hydrogen Group plc > 30 Eastcheap, London EC3M 1HD, United Kingdom > E: [email protected] > T: +44 (0)20 7002 0000 > F: +44 (0)20 7929 1200

Registered in England & Wales No. 5563206

© Hydrogen 2014

Hydrogen is a global specialist recruitment business, placing exceptional, hard to find�candidates�in�over�75�countries.�Our�joined�up�practices�combine�international�reach with local expertise and specialist knowledge.

Whilst many recruiters are location focused, Hydrogen believes the best way to deliver service to its clients and candidates is to base our offering around these�practices,�which�cover�both�Technical�&�Scientific�(Power,�Oil�&�Gas�and�Life Sciences), and Professional Support Services (Business Transformation, Finance, Legal and Technology). By being practice led and using the latest technology we provide our clients with global visibility of the best candidates.

We invest in building strong relationships with candidates over the long-term, not just when they are actively looking to move.

Date post:	07-Nov-2014
Category:	Investor Relations
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Hydrogen Group - Investor Presentation - 16 September 2014

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