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UK – Gattaca full year revenue up, but swings into loss

08 November 2018

Specialist engineering and professional services staffing firm Gattaca (GATC:LSE) reported revenue of £667.5 million for the 12 months ended 31 July 2018, an increase of 4.5% compared to the same period last year. Net Fee Income (NFI) was up 6.3% over last year.

Underlying results for the year were as follows.

(£ millions) FY 2018 FY 2017 Change
Revenue 667.5 638.4 4.5%
Net Fee Income 78.9 72.4 6.3%
Gross Margin 11.8% 11.6% N/A
Profit from Operations 14.3 17.3 -17.3%
Profit before Tax 12.7 16.1 -21.1%

NFI growth during the year was driven by Engineering (1%) and IT (4%), but this was offset by the group’s telecoms performance which decreased by 20%.

Meanwhile, underlying profit before tax decreased to £12.7 million as a result of increased costs. The group added that this was in line with market expectations.

In addition, the group said it took an impairment of £33.3 million against the goodwill and intangibles arising from the Networkers acquisition. This arose following the decision to close some of its international operations and exit the telecommunications infrastructure business in Asia, Africa and Latin America. During the period, the group also decided it would close operations in Dubai, Kuala Lumpur and Qatar.

Underlying operating profit of £14.3 million was in line with the Board’s expectations communicated in its trading update in August.

During the period, Gattaca also appointed Kevin Freeguard as Chief Executive Officer and member of the Board of Directors with effect from 1 October 2018.

“This was a year of change for Gattaca as we decided to reset the business – reorganising it to establish stable foundations for future growth,” said Patrick Shanley, Chairman of the Group. “Since the half year, we have simplified our operations, removing less stable and non-core businesses which were not expected to contribute to ongoing profits. With Kevin now in place as CEO, we look forward to building on our core resilient businesses – in particular UK Engineering, UK IT and our North American operations through our Matchtech, Networkers and Gattaca Solutions brands.”

Kevin Freeguard, CEO, also commented: “I am pleased to see the progress that has been made during the second half of 2018 in resetting the business and I am looking forward to developing the business further with the Board and the rest of the Gattaca team.”

Within UK Engineering, in which NFI grew by 1% during the year, Aerospace declined 15% year on year due to the loss of two accounts and a drop in both recruitment spending and contractor requirements, along with margin pressures. The group’s infrastructure business, which represents 40% of UK Engineering, declined by 1%.  Engineering Technology achieved 19% growth, while Energy was down 5%. The Automotive sector (9%) Maritime (13%) also showed growth. Barclay Meade, the group’s professional services brand, and Alderwood, its training brand, were up 17% and 18%, respectively. General Engineering was down 6% on the year.

In UK Technology, which comprises 21% of Group NFI on a pro forma basis, NFI fell by 3% compared to last year. The group’s Telecoms business declined by 20%, however IT grew by 4%.

Within the group’s international business, which forms 19% of group NFI on a pro forma basis, the Americas region grew NFI by 28%. The group’s other international businesses declined by 13% overall as the group announced its exit of operations in Dubai, Malaysia and Qatar.

Looking ahead, the group said Brexit uncertainty continues to be a headwind for Gattaca’s end user markets and the UK staffing sector in general.

Gattaca added that trading in the first quarter of the year is in line with prior years. The group also said that its overseas office closures and exit of Telecom Infrastructure will reduce NFI, operating profit and Profit Before Tax, however this will be broadly neutral at Profit After Tax level due to the benefit of reduced withholding tax.

“Further one-off restructuring costs will be incurred in 2019 but will be offset by the positive impact of the working capital unwind of the operations being exited,” Gattaca stated.

As of last trade, Gattaca traded at £120.41, down 8.08% on the day and 22.62% above the 52-week low of £98.20 set on 26 October 2018. Based on its current share price the company has a market value of £42.10 million.

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