Rubicor 2018 results: Looks like a duck, walks like a duck, quacks like a duck

Earlier this year I published a couple of blogs that dissected the woeful and clueless performance of the executives leading Rubicor, after the company’s most recent half year update was released, covering the company’s performance for the July 2017 – December 2017 period.

I concluded the first blog (15 March 2018) with:

The share market has delivered its verdict and mine is the same – the new Rubicor leadership team talked a big game when they took over nearly three years ago, but the end result is clear: the company is going backwards not forwards and recent utterances and decisions only confirm that the current board, led by David Hutchison, doesn’t have a clue how to fix it.

In the second blog, published the following week after their investor presentation slides were publicly released, I asked “How much worse can this car crash get?”

Well, I received my answer last month when Rubicor published their 2018 Annual Report: Yes, it can get worse.

Reading through this morass of underperformance, delusion, obfuscation and spin was only made worse by the conclusion that Rubicor’s three directors actually seem to believe their own BS. Yes, they actually think they are doing a good job in spite of all the evidence to the contrary.

It seems almost cruel to highlight some of the most laughable aspects of the Annual report but it seems these guys just don’t get it.

Let’s compare some of the 2018 Rubicor facts to the 2017 Rubicor facts (all data from the Rubicor 2018 Annual Report:

Revenue: down 2.3% to $189 million on a like-for-like basis

Gross profit: down 14.5%, to $28m from $32.8m

Underlying EBITDA: down to $100k, from $2.7 m

After-tax profit: down to -$13.6 m, from +$15.7 m*

Employee numbers: down 18% to 165

Year-end share price: down to 3.1 cents, from 4.8 cents (2.1 cents as at 17 Oct 2018)

Year-end cash-at-bank: down to $467k, from $1.85 m

Year-end net assets:  down to -$4.7 m, from +$9 m

CEO (D Hutchison) total remuneration: up 69% to $660k, from $390k

COO (S Loomba) total remuneration: up 95% to $664k, from $340k

Non-executive board member (A Mason) fees: up 61% to $58k, from $36k

A Mason consulting service fees: up 297% to $167k, from $42k

*includes approx. $20 m in one-off income items

What was said about these facts?

Chairman and CEO, David Hutchison said (all from Rubicor Annual report 2018, p 2):

“From my perspective, FY2018 was as transformational a time as any in the Group’s history. Rubicor is now a stronger company and following further restructuring, we expect to return to statutory profitability in the years ahead.”

My comment: Based on all the important financial measures Rubicor is undeniably a weaker company than at any time in its history.

…. we intend to further scale the reach and relevance of our services to a much broader global market.”

My comment: What’s the point of having global ambitions when you can’t even run your business profitably in Australia? This is fairyland stuff from a CEO who has a MBA.

“Following a period of restructuring and cost reduction, we have refined our roadmap to position 2019 as a critical growth year. Rubicor is one of Australasia’s largest recruitment groups, and we are now well positioned to take advantage of opportunities as they arise.”

My comment: The opportunities have been immense in the past three years, a golden age of agency recruitment no less, yet Rubicor is smaller and weaker, in comparison to all its major competitors than it was three years ago. The opportunities have been there for the taking yet Rubicor has been unable to take advantage of them.

Director and COO, Sharad Loomba said:

“During the FY2018 year, we increased our attention on sales training, performance management and communication to improve client lead generation and lift gross profit per consultant.”

My comment: What evidence is there to support your assertion? It’s not in the annual report.

“The unification of our employees behind our six core brands has improved communication and collaboration and we believe this will be reflected in our future performance.”

My comment: Well it sure hasn’t reflected in the most recent year’s financial performance.

Recognising the importance of digital technology for today’s recruiting workforce we plan to launch a new online platform that will leverage our extensive network of data. This will provide our clients and candidates with insightful information relevant to their careers and sectors. Currently under development, the platform will allow us to examine large amounts of data, extrapolating meaningful results that we can pass on to clients in easily understood formats, adding value to our service and creating an additional revenue stream. Once completed, this platform will place the Group at the forefront of the recruitment-tech industry and become a key value proposition to our clients.

My comment: Where’s the business case or pilot program results to support your assertion? You’ve been talking about this initiative for three years and there’s not a skerrick of evidence to suggest it’s ever going to generate a single cent of profit.

“Rubicor is now operating as a more efficient company, and we remain committed to developing our services while restoring growth and profitability”

My comment: Define what you mean by ‘more efficient’? Where’s the evidence of this efficiency?

(all the above quotes are from Rubicor Annual report 2018, page 3):

“We’ve identified who [our] key clients are and we’re trying to maximise cross-selling between them, as opposed to what we might have done in the past.”

My comment: Seriously, it’s taken you three years to do that?

Following some key general management changes during 2017, Loomba stressed the senior team is now settled and he is “very happy” with their performance.

“We think the team is strong – the strongest we’ve had in a long time – and they’re delivering for us.”

My comment: Define what you mean by ‘delivering for us’? There’s nothing in the financial results to suggest that this ‘delivery’ is related in any way to financial performance.

(all of the above quotes are from ShortList, 3 September 2018)

So what do these two executive directors actually do all day to drive such ‘performance’ at Rubicor?

Well, luckily we know the answer to this question as the COO (Sharad Loomba) recently emailed his employees the following:

“Hi everyone, 

Recently I was asked what do you and David (H) do around here? Initially taken aback, I thought maybe there is something in that question that needs an explanation. So here goes. In summary we split our time 40% reviewing operations including speaking with the GMs, reviewing their reports, reviewing financials, resolving any issues or disputes, visiting branches, considering requests, requesting information and making decisions impacting brands. Secondly, about 20% looking at new opportunities that we get presented with from time to time whether that’s new business, technology platforms or supply channels. Thirdly, 20% on board matters, financiers and shareholders and related compliance. The remaining 20% is bigger picture, strategy and projections, and talking with stakeholders.

Have a great week!”

As the person who sent me the email remarked “These fellows not only have no idea in how to run a recruitment business, they have no idea in how to pretend to run one either!”

Concluding comments:

It’s very hard to know what else to say here; I fired most of my bullets in my previous blogs.

When the current Rubicor directors took control in June 2015 they made big statements (ShortList 22 June 2015); “Simply put, the current Rubicor board has not delivered on the promised growth and continues to haemorrhage shareholder money while drawing outrageous directors’ fees” and made big promises “…expedite cost-out programs and ensure they are completed within 12 months, rather than continue to talk about them, as has occurred in the past seven annual reports”.   

These same people, over the past three years, have faffed around with unnecessary rebranding, wasted millions on a pointless “Candidate Engagement Platform” and turned over senior executives at an embarrassing rate. Unsurprisingly all the company’s critical financial indicators have gone south.

At the same time the directors awarded themselves large base salary rises, installed retention bonuses (20% of base salary)  that have no performance criteria, awarded the two executive directors massive unexplained “short term benefits” and have overseen the acceleration of “consulting services” provided by the sole non-executive director.

After the three years the reality is that Mason, Hutchison and Loomba have failed to deliver anything that’s made a positive difference to the health of the business. After three years ALL the critical indicators are flashing red.

Over the same three year period the Australian recruitment market has experienced one of its greatest ever booms. You just need to reference the Hays Australia results for the period July 2015 – June 2018 (gross profit up 32% to $357 million, operating profit up 46% to $124 million and consultant head count up 25% to 1000), to see the fields of gold that have been available to smart operators in agency recruitment.

Currently the three Rubicor directors control approximately 25 per cent of the company’s issued capital.  I wonder what the owners of the remaining three quarters of the company think about the way the company is being run? The company AGM is being held on 13 November in Brisbane. What will the shareholders that aggregate to 75% of the company’s ownership do with their votes when retiring director (and owner of 21% of Rubicor shares) Angus Mason is up for re-election?

I won’t be holding my breath for any change.

Anyway, why take anything I say seriously? I’m just an interested blogger. Let’s hear what the sober, cold-headed independent auditors of Rubicor; Pitcher Partners, have to say about Rubicor’s current financial state:

At 30 June 2018 the Group had an accumulated deficit balance of $4.7 million and its current liabilities exceed its current assets by $8.0 million. The Group made an EBITDA loss before non-recurring adjustments of $2.1 million. These conditions give rise to a material uncertainty which cast doubt about the Group’s ability to continue as a going concern. (Rubicor Annual Report 2018, page 16, my bold)

Looks like a duck, walks like a duck, quacks like a duck, it’s a …………?

6 Comments

  1. Euan Mackay on 19/10/2018 at 9:24 am

    Well written, Ross.
    Funnily enough, when I worked for Morgan & Banks many many years ago, I would estimate that Geoff and Andrew would continually spend maybe 20% (or more) of their time meeting clients. I note here that the execs at Rubicor don’t seem to see that as part of their roles. Obviously too hands-off while “the pooch is being scr-wed” to realise they really don’t have a handle on their business (or simply don’t understand it adequately).
    cheers, Euan

  2. ex-RUB on 19/10/2018 at 9:51 am

    As a long suffering shareholder of Rubicor and former member of staff I feel qualified to comment. The previous model of 23 (+/-) companies and brands meant that suppliers (Seek) refused to deal with the group as a whole and wanted separate deals for each brand so that the group could not access discounts available to larger ad buyers. Each brand had it’s own CRM, hardware technical support, finance team, admin, website hosting, telephone system and office which was an enormous expense as well as supporting a small head office function. The project to combine head office operations should have been taken by the previous regime when the group was making money instead of opening offices in Singapore (SMF) and starting brands from scratch (Opus).

    I read a comment recently that there was an attempted management buy out which is why several GM’s left – I don’t recall anything official being posted so this is just hearsay but I would be very interested to hear what happened.

    I am only holding on to the shares out of morbid curiosity, they are worth next to nothing and maybe a buyer can be found now that it is a more coherent company.

    I agree with Ross that there is a lack of recruitment experience on the board, if you search their website and Seek for actual jobs there are so few it is no wonder that revenues are falling.

    My view is that the company had lost so much value in the brands like SMF, Apsley et al that combining them into a Rubicor brand made sense – the only bright light is Xpand but I suspect that light is dimming also.

    • Interested Observer on 19/10/2018 at 7:33 pm

      Thats really interesting. Don’t shareholders get to have a vote on executive pay? So whats going on? Do you get any dividends back? That auditors report makes bleak reading

  3. ex-Rub 2 on 22/10/2018 at 12:25 pm

    Hi ex-Rub

    Regarding your MBO question – it depends on which one you are asking about… there have been a number of MBO attempts for the Xpand business over the past few years. As you said, it is a bright light in Rubicor (there are others too, by the way) and at least two management teams that I know of have attempted to rescue the business from the board’s (in)actions. The latest one was late last year when, after the board refused to consider the offer, all (or most?) of the Xpand managers walked out.

    The sad irony of this attempt is that the offer presented was pretty similar to that which the Board of Rubicor have been trying to flog Xpand for since April, when the depth of the organisation’s woes started to occur to even them.

    It would appear that the board, or at least most of it, shares your thoughts of Xpand being the bright light in the organisation. The latest ‘MBO’ attempt of Xpand is currently being undertaken by Messrs Hutchison and Loomba, who presumably have shook off any fiduciary responsibilities for Rubicor in pursuit of a bright light shaped lifeboat for themselves…

    • Ex-Rub3 on 30/10/2018 at 1:35 pm

      Hi Ex-Rub2,

      Just to clarify, are you saying that the current CEO and COO of Rubicor are the ones trying to buy Xpand?? If so, WOW.

      • Observer on 31/10/2018 at 4:46 pm

        Hi ex-Rub 1,2,3

        It seems to be the worst kept secret in certain circles that Hutchison and Loomba have been trying to buy Xpand from the parent company they are Directors of! It is truly amazing stuff. Being CEO and COO and attempting an MBO is one thing, attempting one while they sit on the Board is quite another!! Which part of the sale agreement do they intend to sign?? Both??
        The corporate governance in that organisation is non-existent – 3 Directors, 2 of whom are Executives and the third is the largest shareholder. The two Executive Director’s pay has sky rocketed in a trajectory as steep as the company’s losses and its balance sheet horror. Apparently they’ve missed the last two Quarter’s superannuation payments too! At least the two chaps running the show are being well fed!!

        Just pray for the poor xpand staff if their MBO efforts are successful! Whatever controls are on them now being a listed business would disappear and they would be free to wreak more direct havoc as private owners

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