Gattaca plc (GATC) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Gattaca plc Interim Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However the company can review all questions submitted today and will publish those responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, we would just like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to CEO, Matthew Wragg. Matthew, good morning, sir.

Good morning. Thank you, Jake. And morning, everyone. So here we are again, eighth update. So I'm pleased to be sharing some more positive news of delivering on what we said we're going to do. Quick introductions for those that haven't joined one of these, myself and Oliver succeeded into the roles 4 years ago now. I've been with the organization over 24 years now and Oliver for the last 7 or 8 years as well. So a team that knows the business well, know the markets well. What I really love, I think, is what we have demonstrated in what are some tough market conditions is the resilience of the organization. So our focus on skills that are really required and going to be continue to be required on projects that have to happen and service lines, which offer greater visibility into the future as well. So we're up to now 77% of our NFI coming from our contract focus, which has been a really major focus for us over the last 2, 3 years of really building that momentum, growing our contracted book, which we're really pleased to see. And growing month-on-month now, which is fantastic. We've expanded our service offering. So we've reduced our brands, reduced our geographical diversification, reduced the number of sectors that we're trying to be famous in and really focus on those sectors and then building out additional service lines in those so that we can help more of our customers in more ways, which is we're really starting to see the benefit from that. I think our tech stack has been tested. We upgraded that about 5 years ago globally. And we continue to invest in that heavily around how do we improve the customer experience and most importantly, how do we really supercharge every consultant that we grow in the business, and that's been a really big focus for us. We've got a great business, great reputation. We've -- in the first half of this year, we've consolidated further brands and really in the staffing world, we have Matchtech now as our major go-to-market, which is a multiservice, multi-skill, multi-sector staffing organization, and we've acquired InfoSec. So we've gone from lots of different brands to different services or different skills and really making sure Matchtech is super famous. And we've welcomed the InfoSec team in August, and they are now fully integrated from a technology point of view and starting to go out to those Matchtech customer base to offer that increased capability. Big bit, all of our focus is around really engineering and technology, major in infrastructure programs as well. So projects that will happen have to happen either that for national critical infrastructure programs or simply for driving economic growth. Nice to see that we've been winning awards. I think we're really, really focused internally on making sure it's the best place to be, and that's come through now in our retention, our record engagement, but also really nice that what we're doing is also being recognized by the external market as well. We've got a great leadership team. We're exceedingly passionate bunch. There's a lot of us here who have ridden through a long time within that. There were some tough years, and we've learned lessons from those tough years and really now have a huge amount of pride coming back into the business about the direction we're on in very tough market conditions. So great to be seeing that. We've made some really specific investments over the last sort of 3 years, really scaling in fewer markets. And certainly, we're seeing the fruits of that starting to come through in the likes of energy, defense and infrastructure as well as our acquisition and equally continue to be cost effective and manage our cost base. It is a people business. We talk about we're a people business that helps people to work with people. And if you're going to be focused on that, then you've got to have a great organization. And our #1 focus 4 years ago was rebuilding that culture, rebuilding that belief. We still obsess about it, but nicely, it can now be #4 as we continue to focus on the things that take us forward. That is now our foundation. And it's what's making us a really good home for people, be that through hiring or through acquisition. So we certainly feel that's a good one for us. Summary of the first half of the year. I think the one metric over the last sort of 3.5, 4 years that Oliver and I have been in place, we haven't grown the top line NFI. So it's really pleasing to be doing that organically as well as the acquisition of 13% year-on-year NFI growth, which is great to see. As I said, infrastructure has performed well. It's our biggest area of the business, 6% up. Defense had a pretty tough half year last year. So it's really good to see that, that has recovered from that position and has good momentum. And water market is a huge amount of investment in the U.K. AMP8 is the single biggest economic investment, and we're very well positioned in that to capitalize. Energy, we took from a relatively small business area 4 years ago, and we've really invested in that, and we're seeing solid 13% year-on-year growth with much more to come within that. Energy provision, energy resilience, upgrading of the national grid, frankly, to cope with the increased demand and also requirements of storage, we're well positioned and seeing the benefits for that. As I said, from a service line, like every staff out there, perm has been tough. We're pretty flat. So it's good that we're not going backwards, but it's pretty flat. The statement of work business has gone back this year, primarily due to one major customer in the defense marketplace, which was about 75% of our business a couple of years ago. That has now been paused by the government works out which projects it's committing to. And our contract revenue. So we've had really good contractor growth pretty much now for about 18 months consistent growth, which is good to see. So like-for-like contract up 15% year-on-year, which is good. Permanent down 4%. Part of that is repositioning. We've gone up the value chain offering higher level, more niche positions. That has led to a couple of the lower value volume programs that we've been swapping out. So under control, is representative of the wider lack of confidence in the wider markets at the moment. PBT, GBP 3 million for the half year. So a good increase on last year as we continue to build that momentum. We are very keen to be investing. We think, as I said, we're a good home for people now. So we are planning to grow our sales headcount in the second half of the year, but a good position to be at half year, up 187%. Cash has gone down a little bit for good reasons, one, getting back into the habit of paying out the dividends, which is certainly what we plan to be doing. Equally, the acquisition of InfoSec that we did at the beginning of the year. And clearly, as we grow our contractor base, it requires more working capital to be able to finance that. So exactly the way we want to be utilizing our strong cash position. As far as sectors, I've touched upon this bit, but good growth really. It's the first time in a long time we've been able to look at pretty much all of our markets and talk about year-on-year growth. And that just creates more of a winning environment. And a lot of that is grabbing market share. This is about us being first on the blocks, closest to our customers, obsessing about our markets, really understanding who's winning what and how well positioned they are and really getting to know them to some depth. If I look at the business 4 years ago, we were fighting in so many fronts and so many brands and so many geographies. It was impossible for us to know every single customer really well, whereas we've really narrowed that focus. And frankly, over the next couple of years, part of my job is to make sure I know every single CEO within those markets and the rest of my business likewise. So we're really starting to see the fruits of that focus come through. So strong performances across the board. In mobility, the aerospace market has a huge amount of demand, but a supply chain challenge in getting those airframes built and delivered. However, that does mean the extended life to a lot of our aircraft, a lot more MRO. U.K. or European automotive market is clearly a challenging one. So we have retracted our position there somewhat. Digital tech has been tough everywhere. I think when you hear staffing markets talk, it's generally about perm or it's about technology. Both of those are very difficult, but we have seen solid contract growth and our other sectors, which includes the acquisition of InfoSec, but also the repositioning of our old Barclay Meade brand, which does the professional skills to support our engineering and technology customers that's starting to really gain traction as the cross-sell becomes a lot easier going to market as one brand rather than multiple. So yes, good progress. These are our 4 strategic pillars when we started, and we've just continued with these. They're working well for us. I love how externally focused we are now. Now that we've got real clarity over our brand architecture, the sectors we're focused on, the types of customers we want to work with, the types of candidates that we want to be helping. We're doing more and more externally in those marketplaces. So that's fantastic. That's now led to a really structured sales plan, which really we need to just obsess over for the next 3 to 5 years and continue to get to know those customers better and by acquisition of InfoSec is now in from a technology point of view. They're fully onto our systems, both in-house and sales platforms. Now it's about introducing that new enhanced capability to the Matchtech customer base, which we're at the beginning of that journey. I'm pleased to see that all this momentum that we're building, we're doing that and increasing our customer satisfaction as well. It's a key part to any business is making sure you're close and support your customers in the right way. Our culture is wicked. We've got really record high levels of engagement still. Our retention is really high still, which is fantastic. And the attrition that we do have is very much in the controlled area of the market and what we want to be doing. And really our focus now is about hiring more and more frontline salespeople who are market makers and bringing them into what is a great business. One of the other bits we've really been focused on this year is that peer-to-peer relationship. We have a more united team with more momentum. We really want every team working super close to each other to be able to give an even better experience. That's something we're really focused on. Clearly, the average NFI per sales head has been an improving stat in the organization. I think we're about 40% up since we took over. And that's something that we can continue to push. Clearly, by hiring and increasing our sales heads for us, that's going to make it difficult in the short term. But the old traditional caps of the average NFI per head, I think the utilization of the tech stack and the real focus on where we're trying to be famous is starting to increase those levels that the market is used to talk about. And that's something over the years ahead that we're definitely going to be doing. Really pleased first time of asking to have achieved the ISO27001. Just a really good stamp of a well-run business, doing what it can to protect ourselves and our customer base. So a good nod to the team on that one. And we've been integrating various different automations and AI probably for about 2.5 years now, but we're really now into a full suite of it, not just on the back office side and not just on candidate attraction, but throughout all the customer journeys to improve the customer experience, but really to supercharge everybody in our business. I'm really keen, I love people. We are a people business. So none of this is trying to replace individuals in our business, but more so really make it so that they can be the very best they can be and also give our customers the very best of customer experience. So yes, good progress being made on that. We've continued to maintain and have good cost control. Our split between sales and support is about right. We'd still like to be growing our sales headcount, and that's a big focus for us in half year 2. We won't need to grow our support headcount ratio with that. But we're in good control over that and continue to make sure we're investing in the future capability of the organization. Market trends, we do have to move far to see the market trends and hear negative noises. It is tough out there. Hiring is a confidence game. And if volatility out in the marketplace and businesses consider whether they should be investing in growth. I think certainly in the U.K. market, the increased cost of employment has absolutely hit a certain level of worker and that will -- and is hurting the market. Equally, from a candidate point of view, if there's volatility out there, it does create a lack of confidence to move. We, like everyone else, have seen that in our permanent recruitment. But in the flip of it, uncertainty does create a challenge around where we have to get projects done and therefore, the use of flexible labor, specialist people on project-related side, we've certainly seen us grabbing market share within that. But markets continue to be challenging out there, but pleasing that we seem to be navigating very well. This is just demonstrating our kind of flow. The box on the left is vacancy trends. We have again seen volatility within that ourselves. Probably the most pleasing part on this slide for me is the boxes on the bottom of that left-hand chart. The green ones are the months where we've grown our contractor base versus stayed flat. Really pleasing as a business, we've significantly grown our membership base. We like to talk about it in that way over the last few years, and we want to make sure we continue to do that. And this year, the last few years, we've gone back to these, I would have talked about at Christmas time, we tend to see a really big drop off at year-end, and it takes us until about March in order to recover that. Actually, we saw no drop over Christmas, in fact, growth straight away in January, which again is a good sign of the momentum that we've got. Perm vacancies flow is down a little bit, again, linked to what we would expect in the wider market. I'll move to Oliver.

All right. Thank you, Matt. So looking at our NFI by sector, I'll just skip on to the next slide, which does it in a more pictorial format. So we've grown overall NFI year-on-year by 13%, 8% on a like-for-like basis, including InfoSec, which added GBP 1 million to our group NFI number. Within that 8% like-for-like growth, the largest area is defense, as Matthew talked about earlier. We -- that bounced back strongly from a weak comparative H1 and grew contractors in the defense sector. Energy was up 13%, again, reflecting the investment we've made over the last 2 years into the energy team, adding consultants and capability across the energy space. So really pleased to see that coming through in net fee income growth and contract growth. And finally, infrastructure, which at 34% of our group NFI really represents a large portion. So with that growing 6%, it always provides us a really solid base. And that said that the water sector was a real driver of that where the current AMP cycles, AMP8 is completion, AMP7 to start, AMP8 is driving demand for contractors across the water sector and the team are doing well to fulfill roles there. On PBT. So -- we had a strong H1. We moved -- year-on-year, we've grown from GBP 1 million in H1 last year to GBP 3 million this year. The key driver of that was net fee income growth, as I spoke about on the previous slide, growth in contract NFI, both from organic and the acquisition of InfoSec, slightly offset by the negative movement in statement of work net fee income. Our admin costs were up GBP 0.4 million. So within that, we absorbed the cost of the InfoSec team, the acquisition costs, we've seen increase as a result of that. The growth in NFI results in us incurring additional bonus and incentive costs where bonus incentive are typically a function of net fee income that our sales teams generate. So we saw a GBP 0.4 million increase in that. And that was really offset by a decline in staff cost in salary and staff costs, particularly for sales staff where that headcount dropped during the period, our sales, overall headcount dropped to 26. That's really our key focus as we go -- one of our key focus as we go through into H2 and into FY '27 that we start to grow that sales base headcount and increase our sales capacity both from a people point of view to allow us to continue growing. So that gets us through to GBP 3 million for H1, which was a strong result. I think in terms of admin costs, we had very, very few negatives going against us. And as we look forward into H2 this year, we are more H1 weighted in our profit expectation. We have got that investment in people that we want to make through H2 and into FY '27, which we expect will increase our sales staff costs as we go through that investment. And we're also just cautious for H2 NFI given the wider macro instability and uncertainty that we've got at the moment, both in the global and in the U.K. recruitment market. On to the net cash bridge. So net cash from the year ended 31st of July was GBP 15.7 million. We've had a GBP 2.7 million net cash outflow through the H1 period. The 2 real key drivers of that were the acquisition of InfoSec. So net cash outflow associated with the acquisition was GBP 1.2 million on acquisition. And the second element was that bar in the middle around a noncash item of lease liabilities where we've extended a couple of our property leases in H1, which would have resulted in the lease liability under IFRS 16 increasing. We've got another property extension on our main head office lease here in Whitely to conclude in H2, which will again through H2 increase lease liabilities further by around GBP 2 million. But outside of those 2 items, trading cash flow or other cash flows are pretty neutral with the profits generated through H1 really being offset by the tax costs there on the far right bar, primarily that was tax of GBP 1.4 million outflow there and the net working capital requirement associated with growing our contractor base. So as we do grow our contractor base, that requires working capital outflow with that in H1 was GBP 1 million. And finally, the dividend payment. So we paid the full year dividend or the final dividend from FY '25 and H1 '26 of GBP 0.6 million, which all combined gets us down to that GBP 13 million net cash number at the end of the year, which we expect to be pretty consistent through H2. So I'll now hand back to Matthew for outlook and final comments.

Yes. So I think in summary, we see good growth potential in the markets that we've chosen to really focus on. And I think that's -- yes, headwinds in the wider market will slow that down, but that doesn't slow growth potential at all. I think perm is the one which we will have to market sentiment, but are major programs to be delivered, a lot of work to be done, and we're well positioned for that. We're going to continue our focus on that. It's very much about getting to the point of being the most famous and dominant provider in those marketplaces, continue to expand our offering into those sectors and continue to expand our headcount to help support our customers even more so. So plenty of potential in that. And as a Board, we are optimistic about our prospects. Clearly, we had the upgrade last month, which will take us to GBP 4.5 million for this full year. So thank you very much for listening. I hand back to Jake and we'll take some questions.

[Operator Instructions] Guys, we have received a number of questions throughout your presentation this morning, and thank you to all of those on the call for taking the time to submit their questions. But Matthew, Oliver, at this point, if I may just hand back to you to read out those questions and give your responses where it's appropriate to do so. And if I pick up from you at the end, that would be great.

Lovely. Thanks very much, Jake. Yes, a couple of questions here from Mark. So the company has been a half 2 weighted for profitability historically, delivering around 2/3 of EPS in half 2. However, market forecast for just 9.3p for the full year was 6.9p delivered in half year 1. This would be just 24% H2 weighting. Why is full year '26 forecast to be different to historic trends? Yes, I think there are 2 major factors really on this, Mark. One, we have now got good momentum in the hiring of our sales workforce. That was the plan at the start of the year. Like any momentum, it takes time to build, and we really want to make sure in the second half of the year, we are increasing our investment on that. So we will be spent on that. As Oliver said, we also had a little bit of tailwind or fortunately in the first half of the year as far as most of our admin lines were just slightly down than we anticipated, which we expect that to come back through. And then the second part really is the unknown of that permanent market. We haven't made any commitments to the market in the last sort of 4 years and then not delivered on them, and we're very keen to make sure we don't. So there's a level of cautiousness as to what could happen. Clearly, contractor gives us great stability and rides through some of that volatility and hence, the stability of the whole business, but Perm can be very, very sentimental. And you can see a quick and rapid drop-off if markets are difficult. So we're being cautious on our expectations on Perm and ambitious on our expectations around hiring. And your second question was about Melo. Yes, that was our first run at Melo in London a few months ago now.

November.