Ignite shareholders stare at more bleak numbers (with little change in sight)

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Last week’s Ignite AGM went down a well-worn path with a third failed attempt by activist shareholder Octavium Capital Investment (OCI) to have their nominated directors (Daniel Altiok-Brown and Trevor Robertson) voted onto the board.

OCI remains unconvinced that Ignite CEO, Tim Moran can, 18 months into his 3-year strategic plan, deliver net profits in the near future, especially with a local economy coming off the boil.

In the separate vote for the Remuneration report 42.82% of shareholder votes were cast against the report, easily surmounting the 25% hurdle required for a first strike. This is the second ‘first strike’ for Ignite’s remuneration Report, with the original occurring at the 2018 AGM.

Reviewing the CEO’s presentation to the AGM I note:

i) Gross profit growth in FY 2022 was 4.5%. By comparison market leader, Hays Australia/NZ, reported a 24% gross profit improvement. Ignite was outperformed by a factor of more than five even though they were coming from a far lower base; that’s simply embarrassing.

The Ignite underlying operating profit of $209k in the most recent financial year compares to a loss of $115k in the previous year. Hays ANZ grew its operating profit from $73 million to $95 million over the same 12-month period.

Ignite shares are currently trading at 7 cents, having reached 26 cents in early March this year.

The recent history of Ignite’s appalling decade of financial ineptitude is evidenced by the first point listed under Highlights; “Financial Year 2022 (FY22) represents the best underlying operating result and first underlying profit since 2012.”

ii) Gross profit per consultant/resourcer has plummeted 23.5% in the four months to date of the 2023 financial year. This is justified by the CEO as “investing in new headcount to improve future productivity within Federal Government and IT focus areas and improve scale of business.”

This decline is alarming because my decades of experience tell me that too many new recruiters have a double-negative impact. Firstly, a lot of cash flow is soaked up by salaries of employees who won’t produce income to cover their cost-of-desk for many months, and, secondly, a disproportionate amount of leader and senior consultant time is divested into training and coaching, and away from the frontline service delivery required to fill jobs quickly.

Hays is the master of getting this balance right – no matter many new consultants they employ their gross-profit-per-income-producer figure almost never drops.

iii) Of Ignite’s 80 employees, 58 are income-producing and 22 are not income-producing (they reside in shared services). What are all these people in Ignite’s shared services doing? It’s baffling how such a small recruitment agency could have such an overhead-heavy payroll. By contrast, of people2people‘s approximately 130 employees only 14 occupy shared services roles.

iv) Ignite’s employee expenses of $9.9 million eat up 71% of the $14.01 million gross profit. It’s very hard to provide any return to shareholders when an agency’s percentage of gross profit going to salaries exceeds the low 60s. The most productive recruitment agencies typically operate on a figure in the mid-40s.

Moran’s three-year strategic plan is currently in Year Two (“Transform”). The objectives of Year Two are listed as:

Build on strong culture that helps attract and retain top talent to achieve sustainable growth.
Hire leaders to bolster our technology expertise and establish an enterprise client development team.
Continued development of National Resource Centre servicing all business lines with deep talent pools.
Create a best-practice Shared Services function to support the business.
Take our Managed Services business strategy to market

The first and second points are undermined by the terrible Ignite Careers page I highlighted in my review of 21 agency careers sites earlier this year.

Although some tweaks have occurred since I reviewed it in May, the site is still woeful. Clicking on each of the six internal vacancies takes you to a page with nothing other than the job title; there are no responsibilities, no selection criteria, no remuneration details, and no contact information.

No matter the strength of your culture a contrary message is received by candidates when you can’t get even get the basics right in the posting of your own vacancies on your own careers page.

It’s perplexing to me why Ignite would want to take its “Managed Services business strategy to market” (the final point in the current year’s strategic objectives). In fact, what does ‘taking a business strategy to market’ actually mean?

In the 2018 Annual report this business unit (then called On Demand) generated $9.4 million in sales and produced a profit before tax and corporate overheads of $526,000.

In 2022 the equivalent figure was $8.5 million in sales and a $495,000 profit before tax and corporate overheads.

I fail to see any evidence that Managed Services possesses any market advantage worth leveraging and, as such, it’s yet another distraction that the CEO does not need when he should be focusing on the company’s core business – recruitment services.

The sheer stupidity of choosing Ignite as the new company name when it was changed from Clarius in 2016, continues to be borne out with a Google search showing Ignite “Powerful listings and reporting by realestate.com.au”, as the first result followed by Ignite Fireplace Studio before Igniteco.com turns up.

Ignite’s 2016 Annual Report justified the rebrand as follows:

“One brand will allow us to leverage the talent and offerings of our diverse business segments and address the market’s appetite for more intelligent recruitment services. This will allow us to better exploit our deep sector knowledge, build relationships in aligned markets and launch new services under a simplified brand architecture.”

There is absolutely no evidence that any of this, if it has happened at all, has helped the company deliver improvements in both sales and profit.

The second-last page of his report to the AGM contains four points listed under “My Focus as CEO….”

The second point reads “Improve the productivity of our recruiters”.

The first page of the auditors’ report (on page 66 of the Ignite 2022 Annual Report reads, “The matters described in Note 2 indicate a material uncertainty that may cast significant doubt on the Group’s ability to continue as a going concern,” which, I would suggest, is a strong hint that improving the productivity of Ignite’s recruiters should be Tim Moran’s sole focus this financial year.

The CEO’s AGM presentation notes that “Ignite becomes Great Places to Work certified. 93% of employees at Ignite say it is a great place to work compared to 56% of employees at a typical Australia based company”.

I am sure many of the long-suffering Ignite shareholders are wondering how such a great place to work still continues to produce results more appropriate to a high ranking in a Terrible Places to Invest list.

Ignite shareholders wake up (and other news of note to end the year)

Ignite/Clarius auditors activate Code Red on the back of horrific 2019 results

Ignite/Clarius board put on notice by shareholders at AGM

Clarius Results: Sales slump in booming market and another full year loss

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Posted in Recruitment