Recruitment firm Hydrogen Group (HYDG: AIM) reported revenue for the six months ending 30 June 2014 of £87.3 million, a decrease of -3% in constant currency, compared with £91 million during the same period last year.

Gross profit during H1 2014 fell by -5% in constant currency to £14.6 million, down from £15.9 million a year ago. The company reported an operating loss of £1.5 million for the period, against an operating profit of £1.4 million in H1 2013.

Hydrogen Group attributed a decline of -5%, in constant currency, in total net fee income (NFI), to delays in converting business activity into placements and the strength of Sterling. Prior to the release of the company’s H1 2014 results, the Group released a trading statement forecasting that NFI would be -4% (in constant currency) lower than the same period last year. 

NFI derived from permanent recruitment decreased by -12% compared with H1 2013, while contract staffing decreased by -5%.

Ian Temple, Chairman of Hydrogen Group, commented: “The Group invested heavily in headcount towards the end of 2013 on the basis of a strong client pipeline and improving activity. Unfortunately, for differing reasons, the improvement failed to materialise within the timeframe anticipated and the Group faced increased costs during a period when net fee income growth was constrained. Management acted decisively to address the situation, simplifying the organisation, focusing areas for investment, and reducing costs.”

“Throughout the change we have continued to invest in our business for the medium-term, focusing on the development of long-term relationships with strategic clients, and increasing headcount in areas where growth in NFI and profitability are available,” Mr Temple added.

The company undertook a comprehensive review of the business during the period with the aim of simplifying the business, prioritising areas for future investment, and increasing future profitability. As a result, a number of new business lines, which had been incubated in the previous 18 months but did not achieve their development KPIs, were closed and overall headcount was reduced by around -10%, from 383 at 31 December 2013 to 344 at 30 June 2014.

The implementation of these changes was substantially complete by the end of June, with the benefits evidenced in increased monthly operating profits from May. The Group expects to report an exceptional item of around £1.8 million for the full year for non-recurring costs associated with the changes.

Revenue from the company’s Professional Support Services division fell by -8.3% to £59.7 million from £62.1 million last year. Gross profit decreased by -7.3% to £8.2 million, down from £8.8 million a year ago.

The Technical & Scientific division reported revenue growth of +6.8%, rising to £27.6 million, up from £25.8 million last year. Gross profit, however, declined by -8.8% to £6.4 million, down from £7 million a year ago.

Geographically, revenue from the UK market increased by +3.6% to £71.2 million from £68.7 million last year. Gross profit, however, decline by -7% to £8.2 million, compared with £8.9 million a year ago.

Across the Rest of World region, revenue fell by -27.5% to £16.1 million, down from £22.3 million in H1 2013. Gross profit decreased by -9.2% to £6.3 million, down from £7 million last year. 

During the six-month period, Hydrogen Group announced that it has opened an office in Kuala Lumpur, to support a major contract win and support further growth in the region.

“We saw an improving trend in profitability through the half year and this has continued into the third quarter. Our focus remains on the development of client relationships, robust performance management and continued vigilance over costs. I am confident that the Group remains on target to meet its expectations for the year,” Mr Temple added.

In trading today, the company’s share price decreased by -2.3% to £0.85, a decrease of -8.8% compared with a year ago. Based on its current share price, the company has a market value of £20.1 million.