Just as they warned this time last week, Gattaca, the AIM-listed, Fareham-based group of Engineering and Technology recruitment companies previously known by its core brand Matchtech, is expecting FY17 profits (to 31st July) to come in 10-15% below plan. The confirmation came on the back of half-time results (to 31st January), which saw headline revenues grow by 2% to £304.2m but net fee income (gross profit) drop by 3%, to £35.4m, trimming gross margins from 12.2% to 11.6%. Increased SG&A left operating profit 22% down, at £5.4m, squeezing operating margins by 50bps to 1.8%.
Pretty much 90% of Gattaca’s revenues currently derive from the UK, and management is drawing on profit and cash to boost its international operations. This, along with integration costs associated with the £60m cash-and-share acquisition of (then) AIM-listed peer, Networkers International, back in January 2015, appears to have contributed to a more than £10m drop in operating cash inflow, to £3.3m, and increased Gattaca’s net debt by 13% to nearly £28m (about 3.5x EBITDA for those who look at such measures). I have found very few recruiters that have any net debt at all – that’s not how the recruitment business model is meant to work. For example, tech-heavy recruiter SThree had a £10m net cash surplus at the end of its last FY (to November 2016).
Generally speaking, vertical specialisation is a ‘good thing’ and international diversification is a ‘good thing’ – so long as you get the basics right. It’s just not obvious to me that Gattaca has.
Posted by Anthony Miller at '08:39'
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