Gattaca plc Trading Update for 12 months ended 31 July 2017

Gattaca plc (LON:GATC), the UK’s leading specialist Engineering and Technology recruitment business, has today provided the following pre-close trading update for the 12 months ended 31 July 2017.

The Board expects profits to be broadly in-line with market expectations.

Highlights

Net Fee Income (NFI) performance can be summarised as follows:

¹ Like for Like (i) assumes RSL had been owned for the entire prior period, (ii) excludes NFI from the Networkers Search business divested in January 2016 and (iii) is calculated on a constant currency basis

Brian Wilkinson, Chief Executive Officer, said:

The UK continues to be our biggest market by some margin and, while we have seen some recovery following the initial uncertainty caused by the outcome of the EU referendum, continuing political uncertainty and its impact on business confidence is unlikely to lead to an increase in customer demand and candidate availability in the near and medium term.

That said, Gattaca’s exposure to skill-short STEM (Science, Technology, Engineering and Mathematics) markets should mitigate to an extent the effects of the business uncertainty that we are seeing in the UK economy relative to less specialist players. As government sponsored infrastructure and defence programmes roll out we expect to see a positive impact on our business which should offset any weakness in the overall economy. This strong position in Engineering and Technology markets, particularly where they converge, allied to our rapidly growing international business puts us in a robust position for the future.

 

Group Performance

Overall NFI declined in the year by 4% as the ongoing Brexit negotiations, IR35 tax changes and the UK General Election all eroded confidence. Whilst Q1 to Q3 NFI was down between 4% and 5%, the rate of decline improved with Q4 being 2.4% lower than last year. H2 and Q4 in particular benefited from an improvement in our International businesses especially our USA operation, as further analysed below. Whilst we continue to pursue a targeted International strategy which is clearly bringing benefits, we do remain highly dependent on the UK.

Engineering NFI declined 3% against the prior year, with H1 down 4% and H2 improving, down 1% on the prior year period. We experienced double digit percentage growth in Aerospace and Engineering Technology, however these were offset by more challenging markets in Infrastructure, Maritime, Energy and Automotive as well as in our professional staffing brand, Barclay Meade. The acquisition of Resourcing Solutions Limited (RSL) has strengthened our position in Rail and is delivering the benefits we expected at the time of acquisition.

Technology NFI declined 6% against the prior year, with both H1 and H2 down 6% on the prior year period. This was solely the result of a decline in Telco, down 10%, as demand for our network infrastructure market declined and gains from our strategic segmentation could only partially offset this. Encouragingly, in IT we saw H2 grow 1% against the prior year period as the segmentation we introduced in 2016 started to show results, particularly in Strategic Accounts, Leadership, Security and Cloud.

The investments made in our International infrastructure and headcount are beginning to bear fruit. We are particularly pleased with the growth of our USA business, which was up 52% in H2 and 21% for the full year. Year on year, NFI for the Americas region as a whole was up 29% and 9% in H2 and for the full year respectively. Asia’s FY NFI is up 2% YoY while MEA was down 17% due to contract reductions in South Africa and weak demand in Oil and Gas in the Middle East.

Total International NFI performance for the year was -3%. However, we improved from -7% in H1 to +0.3% in H2, and are seeing a positive trend as we exit 2017.

Due to the size and strategic importance of our International operations we intend to split this out as a third reporting segment within our 2017 Annual Report and thereafter. We will therefore report UK Engineering, UK Technology and International segments.

People

We continue to improve the ratio of fee earners to non-fee earners, now at 73:27 compared to 71:29 in July 2016 and moving closer to our target of 75:25 by July 2018.

We have continued to develop our sales headcount in line with the market opportunity we see and as a result our UK salesforce reduced by 3% from 385 to 373 over the course of the year. However, our International sales headcount increased by 18% from 131 to 154, driving much of the growth we are now experiencing.

Net Debt

Net debt at 31 July 2017 was £41m, up from £28m on 31 January 2017 (31 July 2016: £25.0m).

The major driver of the increase of £13m in the six months to 31 July 2017 was the acquisition of RSL in February 2017 for £11.5m (comprising £6.9m to acquire 70% of RSL’s issued share capital initially and the assumption of RSL’s existing working capital finance facilities of £4.6m).

Working capital was also a factor with debtor days being in the order of 54 compared to 52 at the half year and 50 last year end. Actions were implemented in May to improve performance in this area and are having a positive effect. Collections are a key focus for management and we expect an improvement in working capital over the course of the year.

We also expect some recovery from on-account corporation tax payments made during the year.

£7.2m of dividends were paid in cash during the year.

Preliminary Results

The Group expects to announce its full year results for the 12 months to 31 July 2017 on Thursday 9 November 2017.