Revenue at Empresaria Group plc (AIM: EMR), the international specialist staffing group, fell by 6% in constant currency for the six months ended 30 June 2023.

The group’s unaudited interim results cited challenging market conditions from H2 2022 which continued into 2023 impacting net fee income which fell 9% or 10% in constant currency (CC) year-on-year to £29.7 million against a strong comparator.

According to Empresaria, these difficult market conditions have been experienced across the group, but particularly in the US where both IT and Healthcare have seen significant declines. 

The greatest impact has been on permanent recruitment, with net fee income down 24% year-on-year, with the greatest falls in the US and UK.  Temporary and contract was down 8% and, although this has been more resilient, the group has not seen the improvements it expected to see in this market.

Adjusted operating profit was down 71% to £1.3 million year-on-year reflecting a higher cost base at the start of 2023 following 2022 investment and inflationary pressures.

Chief Executive Officer, Rhona Driggs, said, "The challenging market conditions that developed during the second half of 2022 remained through the first half of 2023. The market has yet to show any significant or sustained signs of improvement as client and candidate confidence remains at lower levels across the majority of our markets and sectors.”

“Our cost base at the start of 2023 was elevated compared to the first half of 2022 reflecting inflationary pressures and targeted investments we made in headcount during 2022 in response to client demand in the first half of that year,” Driggs added. “As a result, the fall in net fee income has had a material impact on our profits.  We have taken action to make appropriate reductions to our cost base which will benefit the second half of the year and we will continue cost control measures until we see sustained signs of improvement.”

Revenue by region

Net fee income by region

In the UK and Europe, the fall in net fee income and revenue reflected a greater decline in permanent placements compared to temporary and contract. 

The UK saw the weakest results with net fee income down 25%, driven by reductions in permanent hiring. The impact was across all of its UK operations with its Professional and IT sectors seeing the most significant reductions in demand. The performance in Germany was more solid with net fee income down 1% reflecting year-on-year growth in its logistics business which partially offset reductions elsewhere.

In APAC, revenue increased by 13% reflecting revenue growth in the aviation business.  However, this is lower margin business and net fee income for the region was down 8% reflecting performances elsewhere.

There were pockets of net fee income growth with aviation, China and Philippines all showing strong year-on-year increases.  However, in Japan IT demand fell sharply at the start of the year and in Thailand political uncertainty has significantly impacted client confidence while Singapore also performed poorly during the first half of the year. The performance in Australia continues to be of concern with net fee income down significantly on the prior year and stringent actions have been taken on cost to stabilise the business.

In the Americas, revenue was down 13%, with a sharp drop in permanent hiring reflected in a 26% reduction in net fee income. In the US the group operates primarily in the Healthcare and IT sectors, both of which experienced sharp declines in demand in the period. In IT, the group was impacted by a combination of the general decline in permanent IT demand, alongside the collapse of Silicon Valley Bank which impacted a large number of its clients. Healthcare has also dropped significantly from the high levels during Covid, with demand, particularly for travel nurses, dropping significantly and pay rates, which had been at elevated levels, also falling.

In Latin America, Impellam delivered solid increases in both net fee income and adjusted operating profit with demand for its retail outsourcing services remaining strong.

Offshore Services delivered solid growth with revenue up 13% and net fee income up 15%. Investment in infrastructure is reflected in the 6% growth in adjusted operating profit. The company said  sales to US clients, the majority of which support the IT sector, have been impacted by the wider market conditions in the US and the fall in client demand seen in the second half of 2022 has continued into 2023. 

Driggs said, “While we are disappointed with the start to 2023, we are making progress on our key strategic actions to deliver growth. Given current market conditions we continue to review our operational and investment priorities to ensure the group is best placed to realise our medium-term ambition.”

The company said it is continuing to deliver on strategic initiatives.

“The first half of 2023 has been challenging and we expect the current market conditions to continue to impact through the rest of the year,” the company stated. “Underlying drivers, such as relatively low levels of unemployment and skills shortages, remain across our markets, and we expect these to underpin and accelerate recovery as and when confidence returns.”

Empresaria Group shares last traded at £40.00, down 1.23% on the day and 9.89% above its 52-week low of £36.40, set on 27 July 2023. The company has a market cap of £20.19 million.