Interim results

30 March 2023

Gattaca plc ("Gattaca" or the "Group"), the specialist STEM staffing business, today announces its financial results for the six months ended 31 January 2023.

Financial Highlights

Highlights

·      Group NFI of £22.7 million, up 5% year-on-year

o  UK NFI up 6% at £21.4 million (2022 H1: £20.3 million)

o  Energy, Defence and Infrastructure, representing 59% of Group NFI, delivered strong growth

o  Contract NFI, which grew by 2% year-on-year, represents 67% of Group NFI (2022 H1: 70%, FY22: 71%)

o  Contract vs Perm split in 2023 H1 was as expected with changing client mix; ratio will rebalance towards Contract as contract market recovers

o  Permanent NFI up 13% year-on-year, representing 33% of Group NFI (2022 H1: 30%)

·      Early results from our increased external focus with two major client account wins in 2023 H1

·      Group underlying profit before tax of £0.9m (2022 H1: loss before tax £(0.3)m), reflecting focus on productivity improvements and cost management

·      NFI productivity per sales head improved by 20%, with enhanced performance management, total sales headcount in period down 11% versus 31 July 2022.

·      Group net cash of £20.9 million (31 July 2022: £12.3 million)

·      No interim dividend (2022 H1: nil pence); the Board remains committed to reviewing dividends at the year end

Strategic update

Continued focus on developing the four identified strategic priorities:

·      External focus

o  Implemented client and candidate service feedback surveys, with average NPS of 8.5 and 8.9 respectively

o  Improved yield by increasing average contingent perm fee by 6%, and average contract timesheet value by 9%

o  Implemented two major client accounts in 2023 H1 

o  Reduced fulfilment headcount, increased sales effort, linked to major account service changes and market dynamics

o  Launched plans to simplify Brand Architecture, due to Go Live in Q4

·      Culture

o  Completed two quarters of our new Performance Scorecard process

o  Integrated attrition reduction targets into our FY23 LTIP share option grant

o  Engagement score improved to 8.1 at 2023 H1, up from 7.6 at FY22

o  Attrition at 31 January 2023 of 40% and improving into H2; many regretted leavers returned to the business since new management appointed

·      Operational performance

o  Successfully implemented nine automations, positively impacting customer experience, engagement, operational efficiency and data quality

o  Exited low margin work, resulting in an increase in +0.7 pp in Contract margin

o  Increased sales productivity due to enhanced group wide management information, growing average NFI per sales head 20%, and 14% per total head

o  Appointed a Head of Business Improvement leading a team driving positive change in how we operate

·      Cost rebalancing

o  Continued focus on reducing third party costs, UK footprint from six buildings down to four, increasing collaboration and reducing cost

o  Implemented new automation and sales enablement technologies

o  Began the move toward a 'single pay' arrangement, with the majority of our contractor base expected to have migrated in 2023 H2, the first step to simplifying the corporate structure to drive down costs

o  Moved almost 70% of our manual time sheeting contractors to online timesheet submission, reducing administrative burden and increasing accuracy

Work on these strategic priorities will continue through 2023 H2 and onwards into FY24 as we focus on building back to sustained growth.

Outlook

Looking forward there remains a high level of macro-economic uncertainty; however, we continue to see good levels of vacancies in the STEM markets that we support, which, when combined with talent shortages, drives demand. The shift in demand towards contract labour is in line with our focus and traditional strength of providing contract resource.

The development of our strategic priorities will continue to strengthen the platform from which we grow in the future.

Matthew Wragg, Chief Executive Officer said:

"I am pleased that we have continued to progress during the first half of the year. As we continue to build to our full potential, the improvements in culture, staff retention and productivity are signs that we are on the right track to be a stronger business.

We continue to remain conscious of the macro-economic environment, which will have naturally slowed our speed of recovery, the markets that we operate in and the skillsets that we provide demonstrate the right long-term fundamentals."

The information contained within this announcement is deemed by the Group to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

The following footnotes apply, unless where otherwise indicated, throughout these Interim Results:

1. NFI is calculated as revenue less contractor payroll costs

2.  Continuing underlying results exclude the NFI and (losses) before taxation of discontinued operations (2023 H1: £(0.2)m, 2022 H1: £(0.7)m), non-underlying items within administrative expenses primarily related to restructuring costs (2023 H1: £0.2m, 2022 H1: nil), amortisation of acquired intangibles (2023 H1: £0.0m, 2022 H1: £0.3m), impairment of acquired intangibles (2023 H1: nil, 2022 H1: £2.0m), and exchange gains from revaluation of foreign assets and liabilities (2023 H1: £0.2m, 2022 H1: £0.1m).

For further information, please contact:

Operational Performance

1. The Gattaca Projects operating segment meets the quantitative thresholds to be reported separately for the first time in the 6-month period to 31 January 2023. In line with the requirements of IFRS 8, comparative periods have been restated to present the Gattaca Projects segment separately from the "Other" segment in which it had previously been presented.

Infrastructure

Infrastructure NFI grew by 7% year-on-year, with robust growth in the Transportation and Water and Utilities sub-divisions, despite significant underperformance in the Rail site sub-division and one major permanent recruitment program. The demand for permanent candidates seen in FY22 has lessened slightly in 2023 H1 in line with wider market trends, and contractor demand has started to increase towards the end of 2023 H1. Trends in skills that are highest in-demand are for Project Managers, Highways and Infrastructure Engineers and Transport Planners, aligning to the current phase of public sector works ongoing in the UK. Within the water market AMP7 spend has moved into its delivery phase, delivering an increase of on-site work and contractor requirements; AMP8 awards are starting to be announced. The Government commitment to infrastructure programs is welcomed 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 HS2, highway schemes and the SDF framework, all of which have a healthy demand for talent.

Defence

Defence NFI grew by 31% year-on-year, pushed up by continuing high demand for permanent talent, with contract labour needs also robust. Resource demand in the UK Defence sector has increased by 15% over 2023 H1, on top of the increases seen in salaries and pay rates. Recent Budget announcements from the UK Government show commitment to £11bn of Defence spend over the next five years, an increase in previous levels of investment. 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 top 100 suppliers, across engineering, technology, manufacturing, and IT skills, with demand specifically for systems, software, and cyber security talent.

Mobility

NFI in our Mobility market for 2023 H1 was flat against last half-year, despite a strong 2022 H2. As the Aerospace sub-division continues to recover and sees significantly increased build demand from the major OEMS, 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-division as clients in the sector continue to catch up on post-pandemic production backlogs. We have been successful with several permanent RPO programs in this market, which means our permanent demand has outweighed that of contract. Investment into the market remains strong, reflective of the elevated level of project work across the market; we are confident Gattaca's presence in this sector will continue to rebuild alongside.

Energy

Energy NFI was up 17% year-on-year, primarily driven by pressures on global energy production creating opportunity in the UK market, sector investment focus is increasing on green energy and the use of technology. Gattaca is well positioned to capture market opportunities in renewables, transmission and distribution, nuclear and oil and gas markets. In particular, demand continues to be focused on skills in project management, controls and design engineers driven by the investment in programs.

Technology, Media & Telecoms (TMT)

TMT NFI has decreased by 45% year-on-year, against a strong 2022 H1; this decline was largely driven by reduced demand across a large European RPO and MSP contract. The demand for experienced labour remains competitive; the much-publicised news of major technology companies reducing their workforces has not impacted this need in the UK but has brought more candidates to the market where there were previously shortages. Contract demand has increased, and market focus remains around skills in digital transformation, development, cloud, and security.

Gattaca Projects

Gattaca Projects NFI has grown by 67% year-on-year, although a large portion of this is in relation to contract accounting on a long-term project which is nearing the end of its delivery phase. Gattaca continues to invest in the subcontracting market as we see solid opportunity growth for us. We will continue to commit additional resource in this team as the pipeline of work grows, and our capability increases.

UK Other

NFI across the aggregation of our other smaller markets was down 3% year-on-year. Barclay Meade, our professional services brand, was up 5% year-on-year driven by continued strong permanent market conditions and sustained increases in salaries for head office skills in STEM companies. Demand for professional skill sets across accounting and finance, procurement, HR, and sales continues to be high in the permanent recruitment market with candidate shortages still a challenge. Trading in our Consumer, Manufacturing & Retail (CMR) was behind due to sharp downturns in production at some large blue-collar contract clients. Within the general training and education market we have actively taken the decision to reduce focus on the low margin skills that Alderwood has been providing, to focus more effort on our core markets and skills.

International

International NFI was down 3% year-on-year, primarily driven by the end of a large RPO permanent deal in the US technology sector. In the wider market, demand in North America is outstripping that in the UK and Europe, with Gattaca putting an increased focus on growing its contracting workforce across STEM skills. Skill trends in technology include cyber security, technology sales, software development and 'big data', alongside more traditional engineering skills across energy transmission and distribution, infrastructure, and EPC. Gattaca has now aligned the cost base in North America to focus on business development in technology skills and the Energy market.