Gattaca upbeat amid struggles in permanent recruitment

Specialist staffing firm Gattaca reported a slight dip in continuing full-year net fee income in a trading update on Wednesday, with expected figures of £43.6m, compared to the previous year’s £44.1m, for a 1% year-on-year decline.

The AIM-traded firm said the distribution of the income in the 12 months ended 31 July stemmed primarily from contract at 72%, with permanent accounting for the remaining 28%.

It said it was optimistic as it forecast an underlying pre-tax profit of £2.5m for the year, surpassing initial expectations to its cost rebalancing programme and strategic departure from low-margin contracts.

While the contract net fee income remained mostly steady from the previous year, the most noticeable drop was in permanent recruitment, reflecting a 4% year-on-year decrease.

That dip was put down to pervasive client and candidate obstacles, especially pronounced in the latter half of the financial year.

The company said it saw robust sector growth of 15%, thanks to consistent commitments in defence spending.

Beneficial managed service provider acquisitions in the first half of 2023 enabled the mobility sector to grow by 13%.

Impressively, Gattaca Projects saw substantial 56% growth on the year, fuelled by a rising demand for statement of work contracts.

Further emphasising its positive trajectory, Gattaca said it surpassed its full-year targets in staff engagement scores, retention rates, and commendable customer NPS scores, which were now integrated into the firm's operational systems.

Financially, the company said it remained in a sturdy position, reporting statutory net cash of £21m as at 31 July - a substantial increase from £12m the previous year.

Gattaca also confirmed the finalisation of a share buyback initiative in May, which funnelled £0.5m to shareholders.

Looking ahead, Gattaca said that amid the prevailing macroeconomic challenges, notably uncertainties surrounding the broader economic recovery, it remained cautiously optimistic.

The board projected modest profit growth for 2024, emphasising a persistent focus on sustainable contract growth.

It added that it was set to endorse a standard full-year dividend, adhering to its 2.5p per share policy, supplemented by a one-off special dividend of 2.5p per share.

Both dividends were slated for disbursement in January.

In addition, the board said it was considering inaugurating a fresh share buyback scheme, aiming to redistribute up to £0.5m to shareholders.

“The continued improvements in culture, staff retention and productivity are good signs that we are becoming a stronger business,” said chief executive officer Matthew Wragg.

“Our progress has been impacted by the decline in the wider market, and although that is frustrating, I am pleased that we were able to continue to simplify and improve the business throughout the year and manage our cost base so as to report an improvement in profitability in the second half of the year.

“We continue to remain mindful of the macroeconomic headwinds, which have impacted demand and candidate sentiment across the recruitment sector and slowed our speed of recovery.”

Wragg said Gattaca expected permanent recruitment to remain subdued in the short term, and was increasing its focus on contractor growth, which would take longer to reflect in net fee income.

“The markets that we operate in and the STEM skill sets that we provide have the right long-term fundamentals and we enter 2024 as a leaner, more efficient and productive business, well positioned to take advantage of expected recovery in the market.”

Gattaca said it would release its results for the 2023 financial year on 24 October.

At 0933 BST, shares in Gattaca were up 7.67% at 103.9p.

Reporting by Josh White for Sharecast.com.