Gattaca plc (LON:GATC), the specialist staffing business, has announced its financial results for the six months ended 31 January 2024.
Financial Highlights
| Continuing operations | 2024 H1 | 2023 H1(restated2) | Variance |
| Revenue (£m) | 188.4 | 192.8 | -2% |
| Net Fee Income (NFI)1 (£m) | 19.7 | 22.5 | -13% |
| Operating (loss) / profit (£m) | (0.1) | 0.4 | – |
| Underlying profit before tax3 (£m) | 0.8 | 0.7 | +10% |
| Profit before tax (£m) | 0.5 | 0.6 | -16% |
| Profit after tax (£m) | 0.2 | 0.4 | -44% |
| Loss after tax from discontinued operations | – | (0.2) | – |
| Group profit after tax | 0.2 | 0.2 | +9% |
| Basic earnings per share (pence) | 0.7 | 0.6 | +17% |
| Net cash (£m) | 22.3 | 20.9 | +7% |
Highlights
| · | Group NFI of £19.7 million, a decrease of 13% year-on-year (“YoY”) | |
| o | UK NFI down 10% at £19.1 million (2023 H12: £21.3 million) | |
| o | Defence performed strongly with 12% year-on-year growth when excluding a Recruitment Process Outsourcing (“RPO”) contract we chose to exit in the prior year | |
| o | Technology, Media & Telecoms (“TMT”) showed 10% growth in 2024 H1 | |
| o | Contract & Statement of Work (“SoW”) vs Perm split 76% / 24% of Group NFI (2023 H1: 68% / 32%) | |
| o | Contract NFI down 3% YoY, however exiting 2024 H1 with a growing contract book | |
| o | Permanent NFI down 36% YoY, due to challenging market conditions and against a strong comparative including £0.9m from the RPO account we chose to exit | |
| o | Gattaca Projects Statement of Work (“SOW”) NFI up 14% year-on-year, due to phasing on long-term contracts in 2024 H1; full-year NFI expected to be in line with FY23 | |
| · | Group underlying profit before tax of £0.8m (2023 H12: £0.7m), offsetting NFI underperformance with focus on cost management | |
| · | Total sales headcount of 306 at the end of the period down 1% versus 31 July 2023 and 11% down versus 31 January 2023; rebalancing in our Energy and Business Development teams whilst reducing headcount in non-core areas | |
| · | Net cash of £22.3 million (31 July 2023: £21.6 million) | |
| · | No interim dividend (2023 H1: nil pence) | |
Strategic update
Continued emphasis on developing the four identified strategic priorities for sustainable profitable growth:
External Focus
| · | Built and deployed our new Business Development team as part of our investment in front-line sales capability and doubled our Energy sales team with a focus on Renewables, increasing our efforts in our core markets |
| · | Implemented two new major Solutions accounts and retained two major accounts that retendered during the period |
| · | Continued emphasis on client and candidate service feedback surveys, with increased survey responses and ratings of 8.8 and 8.9 (out of 10) respectively, vs 7.7 and 8.5 in FY23 |
Culture
| · | Winner of two Business Culture awards; Best Transformation and Leading with Purpose |
| · | People engagement remains stable at 8.1 for 2024 H1 (FY23: 8.1) and attrition improved to 30% at 31 January 2024 (31 July 2023: 33%), showing our focus on culture is fully embedded in the business |
Operational Performance
| · | Average NFI per sales head has increased by +2%, and by +1% per total head YoY (excluding an RPO perm client from 2023 H1 we chose to exit) |
| · | Successfully launched a series of customer focused automations and enhanced customer platforms, which will result in streamlined processes on the back of our digital transformation |
| · | Reset Board and validated strategy and leadership structure |
Cost Rebalancing
| · | Ongoing optimisation of our UK property footprint, project to be completed in H2 with further cost reduction to be realised |
| · | Support functions in North America have been outsourced to ensure a right-sized cost base for the region |
| · | Slimmed down Board cost base |
Progress on these strategic priorities will continue throughout the second half of 2024 and extend into FY25 as we focus on building sustained growth.
Outlook
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 £2.4m to £2.7m.
Despite the current market conditions, we are optimistic about the future for the Group. 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.
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. 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.
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.”
The following footnotes apply, unless where otherwise indicated, throughout these Interim Results:
1. NFI is calculated as revenue less contractor payroll costs
2. HY23 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 HY23 reported results is £0.2m reduction to reported profit before tax. Further details are provided in Note 1.5 of the HY24 Condensed Consolidated Interim Financial Statements.
3. Continuing underlying results exclude the NFI and (losses) before taxation of discontinued operations (2024 H1: nil, 2023 H1: £(0.2)m), non-underlying items within administrative expenses primarily related to restructuring costs (2024 H1: £0.5m, 2023 H1: £0.2m), amortisation of acquired intangibles (2024 H1: £0.0m, 2023 H1: £0.0m), impairment of goodwill, acquired intangibles and right of use assets (2024 H1: £0.0m, 2023 H1: nil), and exchange gains from revaluation of foreign assets and liabilities (2024 H1: £0.2m, 2023 H1: £0.2m).
Operational Performance
| Net Fee Income (NFI) £m | 2024 H1 | Restated12023 H1 | Change |
| Infrastructure | 6.5 | 7.1 | -9% |
| Defence | 3.6 | 4.2 | -12% |
| Mobility | 2.2 | 2.2 | +1% |
| Energy | 1.8 | 2.1 | -15% |
| Technology, Media & Telecoms | 1.4 | 1.2 | +10% |
| Gattaca Projects | 1.2 | 1.0 | +14% |
| Other | 2.4 | 3.5 | -31% |
| Total UK | 19.1 | 21.3 | -10% |
| International | 0.6 | 1.2 | -56% |
| Continuing Total Group NFI | 19.7 | 22.5 | -13% |
1. 2023 H1 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 2023 H1 reported results is £0.2m reduction to reported profit before tax. Further details are provided in Note 1.5 of the 2024 H1 Condensed Consolidated Interim Financial Statements.
Infrastructure
Infrastructure NFI decreased by -9% year-on-year, with a challenging 6-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. Within the water market AMP7 spend is in its delivery phase, generating an increase in on-site work and contractor requirements. The Government recognises the economic benefit of commitment to infrastructure programmes, which is expected to continue past the next General Election and Gattaca continues to be well-placed, delivering resource into the private sector companies who are actively working on the large regional and national projects such as the remaining parts of HS2, the UK National Highways programme and the many other major rail projects in progress around the country.
Defence
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.
Resource demand in the UK Defence sector continues to increase over 2024 H1, accompanied by the increases seen in salaries and pay rates. The UK government’s budget announcements show continued commitment to a further £11bn of Defence spend over the next five years. The market is well recognised for stability during economic fluctuations and Gattaca’s access to the major UK market is strong, serving over half of the UK MoD’s top 100 suppliers, across engineering, technology, manufacturing, and IT skills, with demand specifically for systems and software engineering, and cyber security talent.
Mobility
NFI in our 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, we have seen a tightening in clients’ staffing plans and some temporary hiring freezes coming into place, indicating a tough 2024 H2 ahead for this sector. Longer term, the increase in the airframe order book across the Aerospace sub-sector remains strong and the demand for quality, manufacturing and production skills remains high. We are also seeing the need for software, power electronics and systems engineering skills remaining high across the Automotive sub-sector, along with increasing levels of businesses looking for talent to support battery, fuel cells and propulsion systems development as well as manufacturing skills for low or zero carbon emitting vehicles.
Energy
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. Gattaca is well positioned to capture market opportunities in renewables, transmission and distribution, nuclear and oil and gas markets. In this half year, we have doubled our Energy team to start to capitalise on this opportunity.
Technology, Media & Telecoms (TMT)
TMT 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
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. Gattaca continues to invest in the subcontracting market as we see growth opportunity with our specialism in project management, supply chain management and quality assurance packages of work. We are continuing to commit additional resource to this team as the pipeline of work grows, and our capability increases, as this adds stronger margin to our business mix.
UK Other
NFI across the aggregation of our other smaller markets was down 31% year-on-year partly driven by a reduction in Barclay Meade, our 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. This aligns with broader patterns observed in the UK staffing market. Trading in our Smart Manufacturing and Public Sector sectors was similarly behind, due to sharp downturns in production at some large blue-collar contract clients and permanent hiring demand down as in other sectors. However, we secured a new contract MSP at the end of 2024 H1, bringing volume to the contract book in Smart Manufacturing which we expect to deliver increased NFI in 2024 H2.
International
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; we continue to review our strategy in this country. We are increasing our focus on the Infrastructure and Energy contract sector in Canada, working closely with our team in the UK.
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, we saw a reduction in demand for permanent hires in our contingent and solutions business across almost all our sectors, a reversal of the trend in FY22 and FY23. Aligned to the wider recruitment sector, we have observed several clients temporarily halting recruitment programmes due to nervousness about the UK economy.
Statement of Work NFI, from Gattaca Projects, was 6% of continuing underlying NFI in 2024 H1 (2023 H1 restated: 5%. FY23: 5%). Phasing on long-term contracts can impact NFI generation but our pipeline of projects delivering project management, supply chain management and quality assurance work packages remains strong and is widening to operate with clients across our Defence and Energy sectors.
People
As at 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. The ratio of sales to support staff was 69:31 at both 31 January 2024 and 31 January 2023. The Group is committed to growing sales staff above 75% of overall employees.
Financial Overview
Revenue for the period was £188.4 million (2023 H1 restated: £192.8 million, FY23: £385.2 million), down 2.3% year-on-year. NFI of £19.7 million (2023 H1 restated: £22.5 million, FY23: £43.4 million) represented a 12.8% year-on-year decrease. Contract NFI margin of 8.1% (2023 H1 restated: 8.1%, FY23: 8.5%) was flat compared with the same period in the prior year; due to a marginal mix change of blue and white-collar contractors and pricing pressure on contract renewals. Gattaca Projects SoW margin was 26.5% (2023 H1: 40.2%, FY23: 27.8%), down against the same period in the prior year due to phasing of project costs, but consistent with FY23.
Continuing underlying profit before tax for the period amounted to £0.8 million (2023 H1 restated: £0.7 million, FY23: £2.6 million). On a continuing basis, the effective tax rate was 55% (2023 H1 restated: 32%). The Group’s continuing underlying effective tax rate reported at 31 July 2023 was 43%.
Basic and diluted earnings per share from continuing operations were both 0.7 pence (2023 H1 restated: 1.3 pence) and underlying basic and diluted earnings per share from continuing operations were 1.6 pence (2023 H1 restated: 1.6 pence).
Administrative costs
Underlying administrative costs of £19.3 million (2023 H1: £21.8 million, FY23: £41.0 million) represented a decrease of 11.5% during the period, largely due to reduced staff costs, advisor fees and a reduction in the Group’s expected credit loss provision.
A breakdown of the decrease in administrative costs is shown below:
| £m | |
| 2023 H1 continuing underlying administrative costs | 21.8 |
| Sales staff costs | (0.7) |
| Commissions, bonuses and incentives | (0.9) |
| Trade receivables and accrued income expected credit loss provision release | (0.5) |
| Legal and professional fees | (0.3) |
| Other costs | (0.1) |
| 2024 H1 continuing underlying administrative costs | 19.3 |
Non-underlying costs and discontinued operations
The continuing non-underlying costs of £0.5 million (2023 H1: £0.3 million, FY23: credit of £(0.2) million), relate predominantly to employee restructuring costs in North America in 2024 H1.
In 2024 H1, no operational results have been presented as discontinued on the basis that ongoing closure costs are immaterial. In the prior periods, the loss before tax from discontinued operations of £(0.2)m in 2023 H1 (FY23: £(0.5)m) arose from ongoing closure costs in connection with the Group’s recruitment operations in South Africa, Mexico and Asia which were either sold or closed in prior periods.
Financing costs
Net finance income of £0.4 million (2023 H1: net finance costs of £0.0 million, FY23: net finance income of £0.2 million) reflected sustained lower utilisation of the working capital facility and increased interest income on money market deposits.
Debtors, cash flow, net cash / (debt) and financing
Net cash at 31 January 2024 was £22.3 million (31 July 2023: £21.6 million; 31 January 2023: £20.9 million).
The Group’s trade and other receivables balance was £46.8 million at 31 January 2024 (31 July 2023: £52.2 million), of which debtor and accrued income balances were £44.1 million (31 July 2023: £47.2 million), a £3.1 million reduction over the 6-month period from 31 July 2023. The Group’s days sales outstanding (“DSO”) over this period (on a weekly based countback method) increased by 10 days from 43 to 53 days at 31 January 2024, although 6 days lower than the DSO position at 31 January 2023. The DSO position at 31 July 2023 is considered to have been near optimal levels; there is consistently a seasonal increase in DSO following the Christmas and New Year period.
In 2024 H1, £0.5m of cash was returned to shareholders through a share buyback programme, a total of 422,586 shares were purchased and cancelled at an average price of 118 pence per share.
Capital expenditure in the period amounted to £0.1 million (2023 H1: £0.1 million, FY23: £0.2 million).
As at 31 January 2024, the Group had a working capital facility of £50 million (31 July 2023: £50m, 31 January 2023: £60m). This facility includes both recourse and non-recourse elements. Under the terms of the non-recourse facility, the trade receivables are assigned to and owned by HSBC and so are not recognised in the Group’s statement of financial position. In addition, the non-recourse working capital facility does not meet the definition of loans and borrowings under IFRS. The utilisation of this facility at 31 January 2024 was £2.0 million in credit on the recourse facility and £(4.6) million borrowing on the non-recourse facility.
Dividend
The Board is mindful of the importance of dividends to shareholders. The Board has not proposed an interim dividend for 2024 (2023 H1: nil). The Board will review in line with our policy at the year end.
Risks
The Board considers strategic, financial, and operational risks and identifies actions to mitigate those risks. Key risks and their mitigations were disclosed on pages 58 to 65 of the Annual Report for the year ended 31 July 2023.
We continue to manage several potential risks and uncertainties including contingent liabilities as noted in the interim accounts – many of which are common to other similar businesses – which could have a material impact on our longer-term performance.
Outlook
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 £2.4m to £2.7m.
Despite the current market conditions, we are optimistic about the future for the Group. 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.
