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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

$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,

+Ambition results are the full year ended 31 December

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  
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

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

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
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.  

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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.

Michael Overell

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

Would love your thoughts, please comment.x
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