NFI up 34% at year-end 2018 for Hydrogen Group
Hydrogen Group has released its final results for the year ended 31st December 2018.
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 strong. 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 (31st 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.
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."
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 its UK legal practice. Operating profit before exceptional items doubled from £1.4m to £2.8m.
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 its 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 its 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.
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).
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