Specialist engineering and professional services staffing firm Gattaca (GATC:LSE) reported revenue of £188.4 million for the six months ended 31 January 2024, down 2% compared to the same period a year ago.

The group noted that its H1 2023 results have been restated for the correction of a revenue cut-off error, and the subsequent reassessment of the group's accounting policy over how accrued revenue and accrued cost balances have been calculated at each period end.

The aggregated impact of these items on H1 2023 reported results is £0.2 million reduction to reported profit before tax.

In H1 2024, net fee income was down 13% over the year.

Matthew Wragg, Chief Executive Officer said, "Our strategy to invest in business development is starting to have a positive impact on the business, with two large client extensions and two more Managed Service Provider (MSP) wins for the Group in H1 and a growing pipeline. We continue to see high engagement, staff attrition below long-term targets and despite the market conditions, our productivity levels improving. In H1 we have continued to focus on specific markets and geographies. We have taken our first steps to reduce our workforce in North America to streamline the regional cost base and will continue to develop our international strategy.”

“Economic conditions have led to a challenging market in H1, and we have not been immune to this,” Wragg said. “Permanent fee income is down 38% due to much lower than anticipated volumes during late 2023 and compounded by reduced NFI from the exiting of a major programme last year. We have yet to see signs of improvement in the lead indicators for permanent fee income and expect demand to remain subdued throughout the remainder of 2024. Contract income has remained stable, and pleasingly we are starting to see growth in our contract book.”

Net fee income by sector

Infrastructure NFI decreased by 9% year-on-year, with a challenging six-month period in the transportation and water sub-sectors, marginally offset by modest growth in the rail sub-sector. Contract demand stayed stable with low growth across all sub-sectors and the start of an uptick seen at the end of 2024 H1. However, the struggling permanent market had an impact on NFI across the board and the demand for permanent candidates was low, in line with wider market trends. 

Defence NFI grew £0.3m year-on-year on a like-for-like basis excluding the (£0.9)m impact of proactively exiting a large RPO permanent recruitment client in the middle of FY23; overall, with this client included in the prior period, Defence contracted by (£0.6)m year-on-year.  The sector continues to perform with steady demand for talent and contract labour needs having seen the most growth in 2024 H1.

NFI in the Mobility market for 2024 H1 was up 1% against last half-year. This was balanced, with challenges in contract demand offset by a surge forward in permanent recruitment opportunity in 2024 H1 as Aerospace solutions clients increased demand. However, at the turn of the calendar year, the group has seen a tightening in clients' staffing plans and some temporary hiring freezes coming into place, indicating a tough 2024 H2 ahead for this sector.

Energy NFI was down 15% year-on-year, largely attributed to shortages in demand for offshore oil and gas contractors in North America after a strong 2023 H1. Pressure on global energy production continues to create opportunity in the UK market, and sector investment focus is increasing on green energy generation and updates and technological advancements to improve transmission.

Technology, Media & Telecoms NFI has increased by 10% year-on-year, against a weaker 2023 H1 when mass lay-offs were seen across the UK, European and North American markets; this increase in 2024 H1 was largely driven by demand for contract roles. The demand for experienced labour remains competitive and market focus remains around skills in digital transformation, development, cloud, and cyber security from all types and sizes of businesses in a hostile cyber environment.

Gattaca Projects' statement of work NFI has grown by 14% year-on-year. The growth is attributed to the completion of a significant multi-year contract and the successful acquisition of numerous smaller short-term contracts.

In the UK Other segment, NFI across the aggregation of the group’s other smaller markets was down 31% year-on-year partly driven by a reduction in Barclay Meade, the permanent recruitment biased professional services brand, which experienced a continued drop-off in permanent market conditions for skill sets across accounting and finance, procurement, HR, and sales. 

International NFI was down 56% year-on-year, primarily driven by the end of a large RPO permanent deal in the US technology sector in the prior year and the decision to reduce the US sales workforce; Gattaca continues to review its strategy in this country. It is increasing its focus on the infrastructure and energy contract sector in Canada, working closely with its team in the UK.

In terms of group contractor and permanent fee mix, contract fees accounted for 70% of continuing underlying NFI in 2024 H1 (2023 H1 restated: 63%, FY23: 69%). During the period, the contract base grew by 2.5%, to approximately 4,220 contractors.

Permanent fees accounted for 24% of continuing underlying NFI in 2024 H1 (2023 H1 restated: 32%, FY23: 26%). In 2024 H1, the company saw a reduction in demand for permanent hires in its contingent and solutions business across almost all of its sectors, a reversal of the trend in FY22 and FY23. Aligned to the wider recruitment sector, the group has observed several clients temporarily halting recruitment programmes due to nervousness about the UK economy.

As of 31 January 2024 Gattaca's headcount was 446, marking a reduction of 51 employees (-10%) compared to 31 January 2023. This decrease was due to performance management actions undertaken in the sales teams. 

Gattaca stated, “We continue to be mindful of the macro-economic headwinds, which have impacted demand and candidate sentiment across the recruitment sector and negatively affected performance. We continue to see permanent recruitment subdued in the short term and our focus remains on growing our contractor base. As such we expect full year underlying profit before tax to be in a range of £2.4 million to £2.7 million.”

“Despite the current market conditions, we are optimistic about the future for the group,” the company stated. “Our proactive measures, including cost-cutting initiatives and operational streamlining, have positioned us favourably to capitalise on market resurgence when it occurs. We are only actively pursuing growth opportunities in sectors, services, and geographies where we believe we can be a dominant provider. Our strategic investments will be aimed at enhancing our capability in those markets.”

Wragg added, “Recognising that short term trading conditions are expected to remain challenging, we will continue to keep tight control on operating costs. We are mindful to ensure we are well placed to build market share in our chosen sectors as the economy recovers."

Gattaca shares last traded at £98.55, down 6.14% on the day and 9.50% above its 52-week low of £90.00, set on 26 May 2023. The company has a market cap of £33.09 million.