09 October 2013

ASX recruiters on the southbound train: 2012/13 in review

Last month I wrote about the demise of ASX-listed recruitment agency HJB. This was the latest piece of a very long list of bad news for the Australian publicly listed recruitment sector.
 
Having reviewed the eight remaining recruitment companies (that being very generous as both SMS or Programmed (PMS) aren’t recruitment companies as their respective recruitment brands, M&T Resources and Integrated each make up less than one third of their parent companies’ revenues) there is very little good news to report.
 
Depressingly, each company except PMS, reported a revenue decline from the previous year.
 
Looking at the trends as I reviewed this year’s data, it was very hard to be optimistic about the future of listed recruitment companies.
 
Even the undisputed star performer of the past 12 months, Skilled, was unable to increase its sales, although it made up for it with a 14% jump in net profit.
 
Here's a selected summary of results for the period 1 July 2012 to 30 June 2013, unless otherwise stated. The figures in brackets in the Sales column refer to the difference compared to the previous financial year. In the After-tax Net Profit column the figures in brackets are the previous financial year's (2011/12) after-tax net profit results.

Company
Market cap at 9 Oct, 2013 (millions)
Sales (millions)
After-tax Net Profit (millions)
Net debt (millions)
Skilled
$828
$1868 (-1.1%)
$56.2 ($49.3)
$20.3
Chandler Macleod
$214
$1502 (-3.0%)
$11.1 ($16.0)
$96.2
Clarius
$25
$225 (-17.6%)
-$42.2 (-$9.4)
$0
Ambition+
$12.1
$95.4 (-8.1%)
$0.1 ($1.3)
$0
Rubicor
$4.4
$237.7 (-18.3%)
-$24.4 (-$61.6)
$86.2
Bluestone
$0.1
$280 (-14.8%)
-$54.7 (-$32.7)
$30.7
 
PMS*
$320
$1517  (+8.9%)
$32.1 ($31.2)
$67.1
SMS^
$308
$278.5 ( -21%)
$21.1 ($30.6)
$0

* PMS results are for the full year ended 31 March 2013
+ Ambition results are the full year ended 31 December 2012

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

Company
CEO/MD
2012/2013
Total cash   compensation ($000's)
Share price at close 09/10/2013
Share price 12 months ago
Skilled
Mick McMahon
$1115.8 base
$0 other
$1115.8 total
3.51
2.47
Chandler Macleod
Cameron Judson
$601.8 base
$200.0 other
$801.8 total
0.45
0.43
Clarius
Kym Quick
$483.5 base
$0 other
$483.5 total
0.28
.41
Ambition
Paul Lyons
$385.6 base
$0 other
$385.6 total
0.18
0.19
Rubicor
Kevin Levine (appointed January 2013)
$328.9 base
$0 other
$328.9 total
0.04
0.01
Bluestone
Position currently vacant
$ N/A
0.004
0.03
 
Programmed Maintenance Services
Nicolas Fairbank (CEO of Workforce division)
$ N/A
(appointed April, 2013)
2.75
2.19
SMS
Chris Sandham (CEO of M&T Resources)
$230.5 base
$0 other
$230.5 total
4.39
6.24

A brief commentary on each company's results:
 
Skilled
If you bought Skilled shares at the commencement of CEO, Mick McMahon’s tenure at Skilled, just under three years ago, you would currently be sitting on a return of about 150%.
 
The reason for this improvement is that McMahon has cut net debt in three years by about $160 million which has reduced annual interest costs by about $22 million and he also managed to almost halve operating expenses during his tenure from $180 million to $96 million.
 
It has been essential to make these savings as Skilled has experienced a significant squeeze on its margins, with gross profit margin now only 9.2% of total sales, down from 13.2% in the full year before McMahon joined Skilled.
 
McMahon's good work has resulted in a substantial increase in his 2013/14 salary to $1.5 million. It’s hard to see how McMahon can take many more costs out of Skilled without impacting revenue, so the challenge this financial year is clearly reigniting top line revenue and stopping long term margin decline.
 
Chandler Macleod
Chandler Macleod's results, compared to three years ago, along with the booking of $9 million in this years’ accounts for restructuring charges, would indicate that the acquisition of the Julia Ross business (Ross Human Directions) has not been as successful as the CMG board may have expected it to be.

 
2009/10
(pre Julia Ross acquisition)
2012/13
(post Julia Ross acquisition)
Total revenue
$818 million
$1504 million
Gross profit
$47.2 m
$81.7 m
Operating Profit
$16.9 m
$34.1 m
Net Profit
$13.7 m
$11.1 m

Making no headway across two years in reducing a weekly interest expense of $163,000 makes it very hard to get ahead even with an 8% improvement in operating profit.
 
Cameron Judson, after just over one year in the CEO’s seat, still has a massive job ahead of him and the share price, becalmed across the past year, suggests that the shareholder jury is still out. Retiring the Julia Ross brand and integrating the most recent acquisitions, Trilogy Resources and Vivir Healthcare, will keep Judson very busy in the year ahead.
 
Clarius
It’s hard to find anything positive to say about the past year for Clarius. A massive top line revenue fall (17%) combined with a break-even operating profit (down from $4.1 million last year and $7.1 million in 2010/11) and $41 million worth of goodwill write-offs (making a total of $67 million in the past 3 years) are a trifecta of woe for Clarius shareholders.
 
Unsurprisingly the share price has fallen 32% in the past 12 months.
 
At the release of the 2012/13 results, CEO Kym Quick was positive about the prospects for Clarius’s operations in China but she has a massive job ahead of her to restart profitable growth in Australia.
 
Ambition
Ambition mirrors its ASX-listed recruitment peers in having very little good news to report. Top line revenue is down 10% compared to two years ago and operating profit has collapsed in that time from $2.9 million to $300,000.
 
The half year results released two months ago (Ambition has a calendar year reporting financial year) revealed further woe with gross profit down 5% for the half and a small net loss for the six months, compared to a small profit in the comparison period the year before.
 
As with Clarius, Ambition have released promising results from their Asian operations including improving sales and profit results but its UK operations remain in decline and its home business in Australia appears no closer to showing the improvement necessary to boost investor confidence.
 
Rubicor
New CEO, Kevin Levine has only been in charge since the beginning of this calendar year but he has already delivered in spades. Amazingly, Levine has negotiated to extinguish Rubicor’s total debt of $95.6m for a payment of $7 million as well as secure new funding in the form of a three year, $15 million debtor finance facility.
 
As Levine recently told Scott Recruitment Services’ Inside Recruitment ‘The additional headroom under the debtor finance facility is expected to provide Rubicor with appropriate working capital to fund the business, extinguish all vendor earn out payments, and support the growth potential of Rubicor over the medium term.’
 
Although this is all great news, the fundamentals of Rubicor’s business are still very shaky with gross profit ($14.6 million) almost half what is was two years ago ($28.6 million) while operating profit in the same period has plummeted from $7.2 million to $300,000. More goodwill write-offs this year ($15.7 million) have seen write-offs top $70 million for the past four years.
 
Levine has proven his negotiating capabilities with the top end of town; the year ahead will call on all of his leadership capabilities to drive up internal productivity in order to grow Rubicor’s sales and profit.
 
Bluestone Global (formerly Humanis)
Ex-IPA CEO, Rabieh Krayem lasted two years in the job before departing, unable to turn the ship around. Write-offs of $34.3 million this year combining with a 66% slump in gross profit down to $7.7 million with no corresponding reduction in operating expenses, led to a $14 million freefall in results turning last year’s modest $2 million operating profit into a $12 million loss this year.
 
No replacement CEO has been named and investors will need to be very, very patient as the Bluestone board sets about saving the business.
 
Programmed Maintenance Services (Integrated Workforce)
Long time Integrated Workforce division CEO, Brian Styles left earlier this year after presiding over an almost tripling of the division’s sales over a ten year period, including a revenue improvement of 6.8% over the past 12 months to $407 million (26.8% of Programmed’s total annual sales) although operating profit fell from $11.3 million to $10.7 million.
 
New Integrated Workforce CEO, Nicolas Fairbank has big shoes to fill.
 
SMS Management and Technology (M&T Resources)
M&T Resources had a year to forget booking a revenue fall of 12% across the past 12 months ($73 million to $63.9 million) with an accompanying 37% operating profit fall ($4.3 million to $2.7 million).
 
M&T Resources only accounts for 23% of SMS’s total sales; the remainder comes from management consulting and technology consulting services.
 
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