Hydrogen announces year end results & board changes
· Revenue down by 6.7% to £169.4m (2013: £181.6m)
· Net Fee Income (gross profit) of £28.2m (2013: £31.9m)
· Reported profit before tax for the year of £0.4m (2013: £2.4m)
· Profit before tax and exceptional items of £2.4m (2013: £2.4m)
· Payback period of 6 months for exceptional costs of £2.0m (2013: nil)
· Operating profit before exceptional items stable at £2.6m (2013: £2.5m)
· Dividend for the year maintained at 4.6p (2013: 4.6p) proposed final dividend of 3.1p (2013: 3.1p) (ex-dividend date 30 April 2015)
Stephen Puckett, Chairman, commented, "Hydrogen has been through a difficult period of restructuring and cost reductions and is now firmly focused on its core opportunities. The benefit of the cost reductions is apparent in the improved underlying profitability in the second half of 2014. Hydrogen's plan for 2015 is to concentrate on sustainable, profitable business.
"Despite general economic uncertainties and sector-specific disruption resulting from the fall in oil prices, the Board sees opportunities for development and will continue to invest in areas where growth can be delivered at acceptable levels of profitability.
"The Board is announcing today that Tim Smeaton, CEO and a co-founder of Hydrogen, and John Glover, Finance Director, have decided to step down from their respective Board positions with immediate effect. The Board would like to thank Tim and John for their contributions to the Group over the years. The changes to the Board which result from these resignations are intended to ensure that the Board delivers on its key objectives of improving profitability, increasing cash generation and growing the Group's revenue."
Ian Temple, chief executive, provided a financial review.
Group revenue to 31 December 2014 totalled £169.4m (2013: £181.6m).
Net Fee Income (NFI)
NFI (shown as gross profit in the income statement) comprises the total placement fees of permanent candidates and the margin earned on placement of contract candidates.
Overall, the Group saw a reduction in NFI of 11.8% (7.5% on a like for like basis) to £28.2m (2013: £31.9m) - the fall being almost entirely attributable to international placements, which declined by 26.2% to £10.3m (2013: £13.9m), representing 37% of total Group NFI (2013: 44%)
The main factors behind this decline were falling activity levels and margins in the Oil and Gas markets, most acutely in Europe, following the fall in the price of oil the weakness of economic activity in Australia, where stabilisation from mid-year enabled the business to return to growth and profitability and the overall strength of Sterling throughout the period.
In spite of these headwinds we continued to see NFI growth of 5% in Singapore (11% on a like for like basis) and an increase of over 300% in the recently opened Houston office in the USA. NFI in the UK was broadly unchanged at £17.9m (2013: £18.0m).
On a market sector basis, NFI from the Technical and Scientific operating segment totalled £11.7m (2013: £14.3m), and contributed 42% (2013: 45%) of total NFI. As discussed above, NFI growth was held back by declining activity in the Oil and Gas sector caused by project delays and cancellations a result of the fall in oil prices. In addition, as part of the business restructuring program undertaken in the first half of 2014, the business closed incubators in power and mining that failed to meet milestone KPIs.
NFI in the Professional Support Services operating segment declined by 6.3% to £16.5m (2013: £17.6m). A strong performance by the Legal practice globally was not sufficient to offset the decline in contract NFI in the Business Transformation practice, where delays in project sign-off by a major client had an adverse impact on the number of contractors placed in the period. Despite these delays, this client continued to be the Group's largest customer, representing approximately 12% of total NFI for 2014 (2013: 13%). Other than fluctuations in client demand arising in the normal course of business, and the Group's ability to win new clients, there is no expectation of significant change in this position in the foreseeable future. No other customer represents more than 5% of NFI.
The project delays in Business Transformation discussed above had the effect of reducing NFI from contract recruitment by 9.7% to £15.3m (2013: £16.9m). The weakness in Oil and Gas, partially offset by the strong performance in the Legal practice, had the effect of reducing fees from permanent recruitment by 14.1% to £12.9m (2013: £15.0m). Overall the balance between permanent and contract business continued to move in favour of contract, with fees from contract placements representing 54% of NFI, and permanent fees 46% of NFI (2013: 53% : 47%).
The Group undertook a comprehensive review of the business in the first half of 2014, with the aim of streamlining business operations, reducing complexity and increasing future profitability. The Group has taken an exceptional charge of £2.0m associated with the one-off costs of these changes. Cost savings resulted in administration costs for the year falling by £3.8m to £25.6m (2013: £29.4m), and the conversion ratio (based on operating profit before exceptional items) increased to 9.1% (2013: 7.9%).
Total headcount at 31 December 2014 was 26% lower than 2013, at 285 (2013: 383). Average total headcount for the year was 343, 13 down on the previous year (2013: 356). Productivity inevitably suffered during the course of the review, averaging £77,100 per head for the first half of the year, based on average total employees, but rebounded to the prior year level of £89,000 for the second period, giving an average for the year of £82,073 (2013: £89,612).
Finance costs were broadly unchanged from the previous year at £0.2m (2013: £0.2m).