18 September 2013

Another one bites the dust: The rise and fall of HJB

Last Thursday morning the inevitable happened when ASX-listed recruitment company HJB called in the corporate undertakers.
 
During his sixteen months in charge, CEO Grahame Doyle has not been able to halt the long term decline of what was once one of the strongest brands in the Australian recruitment market.
 
The closure of both the Parramatta and Canberra offices earlier this year was a pointer of things to come as Doyle’s tenure has ended in the ultimate failure, due to factors not of his making.
 
HJB has been a perennial underperformer since its public listing on the Australian Stock Exchange twelve years ago. At the time of the IPO, HJB’s board confidently predicted revenue of $98.3 million for the 2000/2001 financial year. The actual result of $75.8 million, and the accompanying $1.7 million profit (below prospectus forecast by 65%) was a humiliating start for HJB’s life as a public company. Prophetically the headline on ShortList, announcing the result was: Hamilton, James & Bruce suffering.
 
The reality was that HJB shareholders never stopped suffering over the twelve years since that first, unacceptable result was revealed.
 
It’s a long way from what greets you on the HJB home page:
 
Hamilton James & Bruce is an acknowledged leader in the Australian recruitment industry. Working across commercial, government and not for profit sectors, Hamilton James & Bruce has forged an enviable reputation, as the consultancy that gets it right.
 
Unfortunately HJB have been getting it wrong for a very long time.
 
The company was established in Sydney in 1979 but really came to prominence in the  1990s as an advertised search powerhouse spearheaded by Greg Hamilton (founding CEO), Michael Markiewicz (CEO for all of the 1990s glory years), Allan Marks (CEO 2001 – 2004), Peter Salt, David Scambler (both Executive Directors until 2004) and Gabby Molnar (now Riddington) (Executive Director until 2005) among others.
 
In the 1990s HJB was a giant of the Sydney EGN display advertising market  battling it out with Morgan & Banks, to see which agency could book the most column centimetres each week at the pointy end of both the AFR and the SMH. 
 
The swagger of HJB was epitomised by the regular sight of the athletically thin and energised Markiewicz entering the lift of 275 George Street in Sydney, shirtless and glistening with sweat after his daily lunchtime run.
 
HJB listed on the Australian Stock Exchange in 2000, just after the mid-to-late 1990s recruitment sector boom and just before the 9/11 World Trade Centre attacks that came in the middle of a global economic slowdown. By this point HJB founder, Greg Hamilton, had sold up, taken the cash and was long gone.
 
Markiewicz left the business shortly after the IPO to start Carmichael Fisher. Allan Marks announced $22 million worth of write-downs in his first full year as CEO and within two years he had also departed, around the same time as other big billers and Executive Directors Peter Salt and David Scambler left the company (all four still remain active, separately, in Sydney’s executive recruitment market).
 
After the disastrous 2001/2002 result, industry investors Nick Burton-Taylor (founder of Accountancy Placements, which he sold to Hays) and John Plummer Senior (Director at Chandler Macleod) both increased their HJB shareholdings, fuelling rumours that Chandler Macleod had HJB in its sights for a takeover.
 
New CEO, John Colvin, came from a background of running a big legal firm and he proved to be the wrong man at the wrong time and in less than two years he had been shown the door to be replaced with HJB Chairman and ex-Hays Director, Deborah Wilson.
 
Wilson sold HJB’s biggest acquisition (HJB made four acquisitions over their life as a public company) NZ-based OCG Consulting, to concentrate on the HJB Australian operations but she was unable to replace the lost revenue and re-start stalled top line growth.
 
While OCG was in the HJB stable, HJB had reported an annual sales peak of $111 million (in 2004/05). A year after OCG was sold, HJB reported full year revenue for 2005/06 of $77 million and two years later (2007/2008), a year regarded as the Australian recruitment industry’s most profitable year ever, HJB posted a $10 million loss on sales of $79 million after $7.3 million worth of goodwill write-offs.
 
Their rights issue at end of 2008 was a flop with a vast majority of shareholders. John Plummer senior stepped in and purchased enough of the new capital to give him outright control of HJB with 56% of the issued capital.
 
Early in 2009, HJB were temporarily suspended by the ASX for failing to lodge their half-yearly reports on time as the seasonal rumours of mergers and takeovers involving the company swirled around.
 
When HJB finally publicly released their June 2008 – December 2008 half yearly result it was apparent that they were in freefall. Staff numbers had halved from around 200 to 100 in 12 months, and a $5.9 million loss for the half was announced.
 
A few months later, Jon Robertson’s Charterhouse bought HJB for $5.3 million (equivalent to 4 cents per share) and contrary to their original de-listing plans, decided to keep HJB listed on the ASX. Charterhouse CEO, Robin Jerome announced that he would be taking over as HJB CEO.
 
The full horror of the HJB collapse was detailed at the release of the 2008/09 full year results with sales dropping 32% to $52 million and headcount falling from 158 to 73 including the decrease of billing consultant numbers from 92 to 46. Reduced working hours and pay cuts were also announced. CFOs continued to come and go.
 
The 2010/11 financial year at least saw a return to top line growth but profit was negligible and all the sales gains of that year were promptly lost the following year.
 
Long term Hays Australia Director, Grahame Doyle was appointed the new CEO for HJB in May 2012 but it was far too late to stop the bleeding.
 
As I noted last October in my annual review of the results of ASX-listed recruitment companies:
 
New CEO, Grahame 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
 
So what happened to the once-mighty HJB?
 
From the outside it looks like a very similar story to that of Boston Kennedy that I detailed earlier this year (co-incidentally Boston Kennedy majority owner and CEO Sarah Mann is ex-HJB).
 
Like Boston Kennedy, HJB was unable to build and maintain sufficient specialisation and, instead, became a mass market generalist (and a high cost one).
 
Also like Boston Kennedy, HJB were destablised by constant changes in the leadership team, which flowed onto the consultants. As with Boston Kennedy, HJB had surrendered its premium brand position and seemed moribund, either unable to decide what its market position was, or weak at communicating that position to its target market.
 
HJB became another victim of the rapidly changing recruitment world; caught in the middle of nowhere, unable to effectively respond to the increasing irrelevance of their, previously successful, business model.
 
As Doyle no doubt discovered, HJB was light years away from being able to effectively compete with the major volume recruiters (like his former employer, Hays) as their costs were too high, their cash flow too weak, and their regional leadership team too inexperienced.
 
As a result, HJB was too small and under-resourced to win and profitably service large multi-site contracts or PSAs and at the other end of the market its leaders and consultants did not have the depth and breadth of relationships to consistently win exclusive high margin/high fee assignments, the core strength of HJB in the heyday of Hamilton, Markiewicz, Marks et al.
 
Going broke after 33 years in business was a sad end to a once highly regarded, highly profitable premium recruitment brand.
 
First Boston Kennedy, now HJB. The outlook is certainly looking bleak if you are a mid-sized, mid-market, under-capitalised, high-cost, multi-site generalist recruitment agency.
 
I wonder which agency will be next on the corporate chopping block?
 
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