Recruiters play the field

Introducing the SmartCompany Dun & Bradstreet Industry Growth List, which today focuses on recruitment firms and the labour hire market. The results show that solid growth is achievable – at a cost. By TIM TREADGOLD

By Tim Treadgold  

Good, in parts. That’s the SmartCompany snapshot of the Australian recruiting and labour hire market.

One of the unhappy players in this sector is likely to be Therese Rein, wife of the prime minister-in-waiting, Kevin Rudd, and major shareholder in Ingeus, a specialist workforce business.

While some labour firms were successfully riding Australia’s strong domestic economy, Ingeus was both up and down – posting higher revenue, but a lower profit.

On a growth-in-revenue basis, the measurement used by Dun & Bradstreet in this first exclusive survey of an industry sector for SmartCompany, Ingeus was one of the top 10.

The tricky bit, however, is to allow for a planned split in Ingeus, the result of a political decision earlier in the year by Rein to sell her major Australian business, WorkDirections, and focus on international opportunities.

That move, which is yet to be completed, is being made solely to take the heat off Rein and Rudd ahead of the 24 November federal election.

The proposed sale of WorkDirections means Ingeus reported its 2007 financial year performance in two segments – continuing operations and discontinued operations.

On a combined basis, group revenue rose by $47 million (26.8%) to $221.9 million, but profit fell by $2 million (23%) to $6.7 million.

Looked at separately, the continuing operations of Ingeus lifted revenue from $88 million to $112 million, with a loss of $840,000 in 2006 converted into a profit of $3.38 million last financial year.

The discontinued operations (WorkDirections and Clements Recruiting) lifted revenue from $86.9 million to $109.5 million, while profit fell from $9.6 million to $3.3 million.

While the planned sale of a major asset has complicated the Ingeus results, one of the important messages from the company’s accounts is that revenue is strong.

That is also revealed in the D&B survey of Australian recruiting and labour hire firms (see table below) which shows that Rubicor Group was the faster growing business in 2007 with a 140% increase in revenue to $156 million.

Much of Rubicor’s growth was generated by an aggressive acquisition program ahead of the company’s stock exchange listing on 15 June– a move that was not greeted wholeheartedly by the investment community.

From an issue price of $1, Rubicor shares sank steadily to a low of 58c on 22 October, before bouncing back strongly four days later, to trade as high as 80c – earning a “speeding ticket” from the Australian Securities Exchange for its rapid rise.

Rubicor’s answer to the query was to draw the ASX’s attention to a buy note issued a few days earlier by the stockbroking firm Ord Minnett.

The Rein and Rubicor experience – up one day, down the next – is a guide to the diverse (and fast changing) world of recruiting that generally reflects the performance of the wider economy, and the challenge of low unemployment (which translates into fewer candidates for jobs).

Nigel Heap, chief executive of Hays Specialist Recruitment, told SmartCompany that his industry was riding high because of the underlying strength in the economy. “Our industry is completely dependent on economic growth,” Heap says. “High growth, plus low unemployment, equals bingo for us. In the 19 years I’ve been in this job this is the most candidate short I’ve seen.”

Heap’s assessment prompts the obvious question – if candidates are in short-supply how does a recruitment agent make money? “To us it’s all about the database we have and the ability to attract candidates to us,” he says. “We use print media to build a brand, but our internet presence is far more important.

“How do we get candidates for clients? It’s largely about our database, word-of-mouth, referrals and networking, rather than advertising in a newspaper.”

Heap’s confidence, which comes through in the D&B figures which shows Hays lifted revenue by 27% to $834 million in the 2007 financial year, was echoed in a 30 October statement from the Recruitment & Consulting Services Association – the peak body of the recruitment industry.

The association’s chief executive, Julie Mills, said in a statement that despite the availability of workers hitting a record low the recruitment and on-hire industry was maintaining a high level of business confidence.

“Necessity is driving them (her industry members) to become more innovative in how they attract good candidates,” Mills says.

The labour shortage has also focused attention on importing labour with about half of the recruiting industry using temporary work visas, such as the 457-visa to bring in skilled migrants.

Changes to the 457-visa system on 1 October has hit the recruiters because most skilled potential migrants were unable to meet the terms of the new system.

Mills says the problem was that there were not enough skilled workers to meet demand.

“An ageing population, under-investment in vocational training, and a booming economy have all conspired to leave Australia short of the skilled workers it needs to meet the demands of industry,” she says.