Australian recruitment firm Ignite (IGN:ASX) provided a financial update for the first quarter ended 30 September 2022 reporting revenue of AUD 28.76 million (USD 18.43 million), a decrease of 7% compared to the same period last year.

The group said the decline was due to a renewed focus on higher margin placements, rather than filling high volume, low margin placements.

The company’s gross profit for the September 2022 quarter was AUD 3.42 million (USD 2.19 million), an increase of 2% against the same period last year. The increase in gross profit was driven largely by the higher gross profit contribution of the higher margin permanent placements versus managed services and contingent labour, as well as an improvement in the gross margin across the portfolio of contingent labour placements.

Within the Specialist Recruitment division, the federal government business was tempered by the federal government election and is yet to return to the March 2022 quarter activity levels. During the September 2022 quarter the Specialist Recruitment business contributed a gross profit increase of 3% against the same quarter last year. The gross profit increase reflected an 80% increase in permanent placement revenue, partially offset by a 5% decrease in contingent labour gross profit against the comparative quarter in FY22 with customers opting to engage candidates on a permanent rather than contingent basis.

The On Demand IT Services gross profit decreased by 13% against the comparative quarter as projects with high margin clients wound down. Additionally, break-fix work decreased as a result of store closures and redundant legacy technologies.

At the end of the June 2022 quarter, Talent Solutions underwent a rebrand to ‘Technology & Talent Solutions’ to better reflect the focus of its services. The division recorded a 44% improvement in gross profit in September 2022 against the same period a year ago.

Across all divisions, active contractors as at 30 September 2022 were 734 versus 843 as at 30 June 2022 and 863 as at 30 September 2021.

Looking ahead, customer demand for contingent labour resources is currently strong across all geographic markets and functional verticals. The permanent immigration intake is set to increase from 160,000 to 195,000 for the 2023 financial year, however with significant backlogs in visa processing, it is expected there will be a significant lag in additional skilled workers joining the labour market.

Permanent placement volume, which is proportionately a small contributor to gross profit, experienced quarter-on-quarter growth throughout FY22, however retreated in the first quarter of FY23. Any decrease in business confidence amid concerns over rising interest rates and a challenging global outlook may impact this segment of the business in the near term.

In the Specialist Recruitment division, customer demand for contingent labour is expected to strengthen from current levels during the December 2022 quarter across the company’s government and commercial customers. In particular, demand from the company’s federal government customer base in the IT and Business Support verticals is expected to continue its upward trajectory after slower June and September 2022 quarters due to the federal government election and federal agencies awaiting the finalisation of the only recently released budget.

The Specialist Recruitment division continues to actively source business leaders and recruitment consultants to join the business to ensure adequate resources are available to capitalise on the long-term market opportunity.

For On Demand IT Services, renewals of key contracts on more favourable terms towards the end of the September quarter are expected to continue the profitable operations of this business segment in the December 2022 quarter.

Following the rebrand, Technology & Talent Solutions continues to focus on building out its pipeline of new projects with existing and new customers across several service lines and revenue streams, including both corporate and government clients.

The business will enter the December quarter with a higher total employee headcount versus the comparative quarter in FY22 which is expected to result in higher salary and on costs.

“Further, consistent with the current quarter, we anticipate higher operating costs resulting from higher insurance rates, including policy renewals taking place during the quarter, as well as increased finance costs due to higher interest rates,” the group stated.

Ignite said despite the current global uncertainty, the Australian contingent labour employment market remains robust. The directors and management will continue to monitor current market conditions with a view to maintaining our focus on the key areas above.

Shares in Ignite last traded on Monday. The markets have not yet reacted to Ignite’s update. Shares last traded at AUD 0.077 (USD 0.049), no change on the day 14.93% above the 52 week low of AUD 0.067 (USD 0.043) set on 25 Aug 2022. The company has a market cap of AUD 6.90 million (USD 4.42 million).