03 October 2012

No silver-lined clouds anywhere for ASX recruiters: 2011/12 in review

Four months ago I blogged The ASX-listed recruitment sector: The end is nigh after Geoff Morgan and Andrew Banks announced their intention to delist Talent2 and take it back into private ownership spurred on, in part, by the hammering the share price took after Talent2 announced profit warnings late last year.

In the past three years Talent2 and peoplebank (bought by Malaysian private equity interests) have been delisted and Ross Human Directions has merged into Chandler Macleod.
Humanis, the most recent addition to the ranks of ASX listed recruiters seems to be going the way of many of its peers as investors dumped the stock, causing its share price to plummet 87% since this time last year.

Looking at the numbers I reviewed this year, it’s hard to be optimistic about the future of listed recruitment companies. The sales and profit numbers posted, on the back of post-GFC trends, indicates there is little reason to think that the coming year is going to be any better.

The trend of the past three reporting seasons demonstrates how hard it is to organically grow both sales and profit consistently, and in a country with a very strong economy during a period of relatively strong employment growth, low unemployment and high demand for skilled labour.
I wonder where it’s all going to end for the remaining ASX-listed recruiters?

Here's a selected summary of results for the period 01 July 2011 to 30 June 2012, unless otherwise stated. The figure in brackets in the Sales column refers to the difference compared to the previous financial year. In the After-tax Net Profit column the figure in brackets is the previous financial year's (2010/11) after-tax net profit result.

Market cap at 1 Oct, 2012 (millions)
Sales (millions)
After-tax Net Profit (millions)
Net debt (millions)
$1890 (+3.9%)
$49.3 ($3.1)
$1394 (+14%)
$31.2 ($10.5)
Chandler Macleod
$1549 (+32.5%)
$16.3 ($12.1)
$273 (+2.2%)
-$9.4 (-$10.3)
$95.4 (-2.6%)
$1.3 ($1.2)
$334 (+51%)
-$14.0 (-$1.8)
$49.4 (-11.3%)
$0.6 ($0.4)
$290.5 (0%)
-$61.6 (-$5.3)

*PMS results are for the full year ended 31 March, 2012
+Ambition results are the full year ended 31 December 2011

Here's a summary of CEO remuneration as well as some share price data:

Total cash   compensation ($000's)
Share price at close 01/10/2012
Share price 12 months ago
Mick McMahon
$1 052.9 base
$  700.0 other
$1752.9 total
Programmed Maintenance Services
Brian Styles (CEO of Workforce division)
$347.9 base
$50.0 other
$397.9 total
Chandler Macleod
Cameron Judson*
$383.4 base
$100.0 other
$483.4.0 total
Kym Quick
$451.2 base
$15.0 other
$466.2 total
Paul Lyons
$386.1 base
$     0 other
$386.1 total
Rabyieh Krayem
$418.6 base
$     0 other
$418.6.0 total
 Graham Doyle
Commenced as MD in May 2012
Jane Beaumont
$442.9 base
$  50.8 other
$493.7 total

*Cameron Judson commenced in the role of CEO in July 2012. The remuneration total listed is for his previous role as COO

A brief commentary on each company's results:

Last year, I wrote ‘Far too many of Skilled's divisions and businesses are returning profitless growth or no growth at all. McMahon's job is straightforward; he has to cut more costs and re-start top line growth.’ Skilled CEO, Mick McMahon has done a pretty fair job of that challenge by increasing operating profit by 43% ($47.1m to $67.7m), almost all gained on the back of reducing Selling, General and Admin expenses down from $45.2m to $27.6m, as gross profit was becalmed at $206 million due to decreased margins on the back of increased sales.

McMahon’s other significant achievement has been to ease the burden of Skilled’s interest bill by 70% ($8.5m down from $28.8m) through the reduction of Skilled's mountainous debt which he has cut from $184 million to $25 million in less than two years he has been at the helm.

The bottom line impact of this fiscal discipline is seen in the 2011/12 net profit being a 44% improvement on the net profit of three years ago ($28.3m), even though the 2011/12 gross profit was 27% lower than three years ago.
McMahon’s $700,000 cash bonus for 2011/12 looks well justified in light of the impressive work he has had done to restore investor confidence in Skilled, with Skilled’s market capitalisation now more than twice what it was when McMahon took the helm in late 2010.

Programmed Maintenance Services
PMS's workforce division accounts for only 25% of the total PMS annual sales so it's debatable whether I should include PMS in this round-up. Workforce division CEO, Brian Styles couldn’t continue previous sales growth as the revenue for the workforce division dropped 4.2% to $380.9 million but the EBITA result of $11.3 million, was a $200k improvement on the previous year, indicating tight cost controls.

As a total business, PMS was able to convert better sales results (up 14%) into even better gross profit results (up 18%) and tight cost control resulted in a 197% improvement in the net profit result.

Like Mick McMahon, PMS’s Group CEO, Chris Sutherland has done an impressive job in reducing net debt from $210 million three years ago to just under $51 million by the end of June 2012.

Chandler Macleod
Chandler Macleod’s results, compared to two years ago, are an indication of the difficulties inherent in consistently growing both sales and profit in the recruitment sector.

2009/10 (pre Julia Ross acquisition)
2011/12 (post Julia Ross acquisition)
Total revenue
$818 million
$1549 million
Gross profit
$47.2 m
$81.1 m
Operating Profit
$16.9 m
$32.6 m
Net Profit
$13.7 m
$16.3 m

Over that two year period revenue was up 89%, gross profit up 72%, operating profit up 93% and net profit improved only 19%. That’s a lot of extra work to make not much more money.
Departing CEO, Ian Basser pocketed nearly $2 million in salary, bonuses and shares. I suspect he left at exactly the right time. New CEO, Cameron Judson has a very tough job ahead of him in improving margins across the business.

Ex-IPA CEO, Rabieh Krayem has now been leading the way at Humanis for about 18 months and the investors haven’t taken too kindly to what he’s done. The capitalisation of the company has been slashed from $55 million to just over $12 million in the past 12 months.

The pattern of listed recruitment companies being left with embarrassing write-downs on acquisitions continued with Humanis writing off $18.7 million worth of value from its Bluestone and ResCo services business units.

The good news was that, after four years, operating profit finally hit the black ($1.9 million) but the $5.2 million of interest costs and $2 million worth of merger/restructuring charges, along with the goodwill write-offs made the final result a disaster.

It’s hard to see how Krayem can turn this situation around quickly. I hope the remaining Humanis investors are very patient.

New Clarius CEO, Kym Quick has been in the Candle/Clarius business a long time and has been handpicked by founder Geoff Moles to take the company forward. Again, investors will need to be patient as this year’s results proved it’s a long haul ahead.

Although top line sales were up 2.2%, tighter margins led to gross profit dropping 11% to $46.3 million. Costs were not able to be reined in at the same pace which led to operating profit falling 42% to $4.1 million.

Another goodwill write-off ($11.5 million) after a similar write-off last year ($14.6 million) made a red ink result unavoidable.

The trend result, regardless of write-downs, doesn’t bode well for Clarius. Three years ago (2008/09) Clarius generated $4.2 million of operating profit on $293 million of sales and this year they produced $4.1 million of operating profit on sales of $273 million.

It’s hard to see what options Quick has other than to keep costs tightly under control and to drive consultant productivity.

The good news for Ambition is that they had a second year with no goodwill write-downs (after $28.9 million's worth across 2008 and 2009) and they have no debt to service. The bad news is that they have been unable to restart growth and when they issued their mid year results in June (Ambition have a 31 December year end), they announced both a revenue and profit drop, a disaster given those results were worse than the previous years’.

Ambition have a very impressive recruitment and training program for their own consultants so long suffering investors can only hope this program is some sort of light at the end of a very dark tunnel.

After an encouraging result last year, Rubicor, like every other listed recruitment company, has suffered from declining margins. Flat sales saw gross profit drop 20% to $22.9 million, Expenses could not be curtailed, quickly leading to a 50% drop in operating profit ($3.6 million). Better financing terms contributed to the interest expense dropping 46%.

Goodwill write-downs for the year of $53.4 million saw Rubicor’s accumulated net losses from the past four years top $118 million. CEO, Jane Beaumont continues to take on Australia’s toughest recruitment job and I can only admire her patience and resilience.

New CEO, Graham Doyle, after many years with the Hays profit machine, must be wondering what he has got himself into at HJB. Sales continue to decline, profit is stagnant, staff turnover remains an unresolved problem and HJB’s market and brand positioning seems south of nowhere. 

Whatever magic Doyle might be bringing with him from Hays, he better use it quick smart. HJB’s glory days of the mid 1990s seem light years away now.

Related Articles:


  1. Someone said to me once - "Recruitment is simple, but its not easy. Its persistence, honesty and constantly dealing with ups and downs, highs and lows" - You find a dedicated team that will commit to this and you've got a profitable recruitment company. My 2c worth is these companies are flailing not because of anything other than not committing to this way of working.

  2. Hi Ross - Great analysis, thanks for sharing.

    A KILLER addition would be a comparison of revenue/profit forecasts across each of these companies.
    It would obviously require a bit(!) more digging, but provide some incredible insight on the direction of the industry.

    As a side note, you could then have some fun in 12mths time, comparing the actual performance of listed recruitment companies to their respective forecasts.

    Michael Overell

    1. Good suggestion, Michael but my time invested in this blog post is the most of all of my posts each year so unless you are volunteering to do that research for me it will have to wait until I am retired (or I can afford a research assistant)!