Poorly performing agencies stay that way, regardless of the market

When the recruitment industry is going through a flat spot with it can provide false comfort to recruitment agency owners and leaders whose businesses are struggling to improve sales and profit.

In these circumstances it’s easy for an owner or leader to comfort themselves with the self-talk that their business is in reasonable shape. The belief that once the economy is in better shape sales and profit lines will naturally improve almost always turns out to be a delusion.

As history has generally shown the companies that grind out decent results in the tough times almost inevitably deliver excellent results in the good times and the companies that financially struggle in the tough times rarely knock it out of the park when the economy picks up.

Almost always the best-run companies move into super-profit territory when the economy is strong because they have strong fundamentals. Companies without strong fundamentals don’t have a foundation upon which they can take advantage of an improving economy.

The recruitment industry is currently experiencing a golden run. Nobody is more qualified to cast that judgment than Staffing Industry Metrics’, Nigel Harse.

Permanent recruitment is very robust with 22% average year on year growth and temporary and contact figures are revealing average growth of 25% on the previous year’s numbers

Since we first began reporting on recruitment industry performance in 2003, this is by far the strongest  market I’ve seen. (16 December 2018)

Industry news service ShortList reported (subscriber link) Harse saying that nine out of every 10 recruitment business that participated in the 2018 SIM report experienced growth, regardless of the size the firm.

What businesses were in the 10 per cent of the industry that didn’t grow or didn’t grow profitably?

Very few companies publicly report their results so there isn’t much data to draw on but here’s some facts from three whose results we know:

  1. Ambition Group Ltd: Jan – Dec 2018: Sales up 11% to $113 million and a loss of $900k after $100k profit for 2017. Comment: Pre-tax profit in 2016 was $200k on sales of $115 million so Ambition has gone backwards in the past two years on both of the key financial measures. The MD departed last month after 5 years in the role.
  1. Rubicor Group Ltd: July 2017: – June 2018 sales down 2.3% to $189 million on a like-for-like basis. Underlying EBITDA: down to $100k, from $2.7 million. Comment: Loss in 2016 was $100k on sales of $206m. Rubicor have gone backwards in the past two years on both of the key financial measures. In Nov 2018 the COO was promoted to CEO and the CEO moved to the Executive Chairman’s role. 
  1. Ignite (Clarius) Ltd: July 2017 – June 2018: Sales $142 million (down 7% on 2017) and loss of $2.6 m ($3.7 m loss in 2017). Comment: In the past five years Clarius/Ignite has accumulated losses of $22 million, currently searching for their fourth CEO and fourth CFO of the past five years but they still have the same Chairman! Most recent CEO resignation was last month. Recorded a ‘first strike’ against its remuneration report in its November 2018 AGM. 

Here’s three examples of companies at the other end of the growth trend.

  1. Workpac Pty. Ltd. July 2017 – June 2018 full year sales up 46% to 1.326 billion with net profit after tax up 125% to $12.7 million. Comment: In the past two years Workpac has grown sales by $619 m (88%) and after-tax profit by $8 million (170%).The CEO is currently in his ninth year in the role. 
  1. Talent International Pty. Ltd: July 2018 – December 2018 half year: 19% year-on-year growth in APAC revenue (to $276 million) and a 24% increase in gross margin, with EBITDA up 86%. Global revenue grew by 20%, gross margin by 22%, and EBITDA increased by 94%, on sales of $314 million. Comment: Talent is on track to improve its full year sales by close to 50% over the past two years. Specific EBITDA data is not released but from a review of the public statements it would appear that growth in profit after tax has at least matched the sales growth in the same period. The CEO is approaching the completion of his third year in the role and sixth year with the company (previously he was the CFO). 
  1. Hays Australia Pty. Ltd: July 2018 – December 2018 half year: A record net fee performance. Growth in net fees, up 10% led by IT (+ 27%), Office Support (+ 12%) and Banking (+ 20%). The number of Temp and Contracting workers reached a new record in the half, at over 21,000 per week (Aus & NZ). Australian consultant head count was up 13% year-on-year to (my estimate) 1,030. Comment: Not sure what else to say that I haven’t already said before in previous blogs about Hays but in summary; gross profit up 32% to $357 million in the three year period July 2015 – June 2018 with operating profit up 46% to $124 million over the same period. The Australia & NZ Managing Director is in his seventh year in the top job and his 26th year with the company. 

What are the fundamentals so critical to profitable growth?

This is no secret. I blogged about this very topic, using Hays Australia as my case study. This blog was prompted by economic research firm IBISWorld’s scrutiny of all large enterprises in Australia over five years to 2015, to identify the highest performing enterprises measured by return on shareholders’ funds.

You can read the full list in my previous blog but my ranking of the recruitment industry’s four most important fundamentals, of the 11 economy-wide organizational fundamentals identified by IBIS World, are:

1) They value leadership first, and management second

2) They stick to one business at a time and do not diversify

3) They are forever innovative, valuing the business’ IP

4) They develop a unique organisational culture

I suspect that if you conducted a forensic review of each of the six companies I have listed above the validity of the IBIS World research would be starkly borne out.

If each of Ambition, Rubicor and Ignite/Clarius cannot grow sales or profit in the industry’s biggest-ever bull market what sort of future do they really have?

Nobody is attracted to work for, or invest in, a company that makes no money and has almost no likelihood of a better future, especially as the current bull market is always the forerunner to the next bear market.

As Greg Savage always used to say (and I’m sure still does say) “I go to work for fun and profit and when either are gone then it’s time to get out”.

 

Related blogs

How Hays drives scalable and profitable growth around the globe

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

Big bang start-ups: The rise and fall of FutureYou (parts 1, 2 & 3).

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

1 Comment

  1. Ian Hamilton on 26/02/2019 at 8:08 am

    Thanks Ross, concise, insightful and useful.

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