HRnetGroup 1H 2022 Results Announcement - 12 August 2022

Okay, so it seems like we've got a good number of people who have joined us this morning, so let's get started. So a very good morning to you and welcome to our 2022 half-year results announcement. My name is Fazlin, and with me I've got our CFO Jennifer and our Executive Director and Chief Corporate Officer Madeline. And on behalf of everyone from HRNetPro, we're so grateful that you're able to join us this morning. Today we will be starting the call by sharing with you our results and updates. And then after that, we will move on to the Q&A segment by Malta. So let's kick things off with Jennifer. Over to you.

Thanks, Fuzz. Good morning, everyone. Fuzz, you are going to put up the slides for me? Thanks. It is my pleasure to report the financial results of HRNetGroup, a leading group of recruitment companies headquartered and listed in Singapore, with operations in 14 growth cities in Asia, powered by 1,282 people, including 36 business leader co-owners and 126 leaders, for the half year ended 30th June 2022. I'm just waiting for the slides to be up. Okay, so we've got the slides here. Let me just begin with happy news for everyone— dividends, interim dividends. So for the very first time, we are declaring 2.13 cents per share. Totalling S$21.3 million, to be paid out to shareholders on the 6th of September. This is 50% of our underlying profits, which rose by 36% to S$42.6 million in the first half of 2022. Together with the S$0.01 special dividend paid out in January, S$0.03 final dividends paid out in May, this S$0.213 interim dividend gives our shareholders a total of 6.13 cents dividends year-to-date. And based on the share price as of the last trading day of last year, this works out to be a yield of 7.6% year-to-date. On the 13th of June, you remember we announced a 30 million share buyback program, and between then and our blackout period, that is in less than a month, we invested 1.2 million S$1.2 million, leaving a balance of S$28.8 million. With this announcement, in fact, as of this morning, our blackout period is over and we can resume the share buyback program as and when our shares are undervalued. Let me give you a quick run-through of the key financials. We achieved double-digit growth for revenue, GP, and underlying profits. I'll start with underlying net profit. That's $42.6 million, up 36.2%. This is NPAT, stripping off the gains and loss from financial assets, which I'll explain later. Top lines: revenue of $314.2 million, up $39.1 million, or 14.2%. Professional recruitment grew grew 18.6% and flexible staffing grew 13.2%. The relative proportions of flexible staffing and professional recruitment revenues were very similar for both years at nearly 83% of flexible staffing and 16% of professional recruitment. Gross profits— gross profit rose by 12.3%, which is $91.9 million. For first half 2022. Professional recruitment, with GP margins of nearly 99.5%, grew 18.8%, while flexible staffing, which carries a 14.7% GP margin, grew at a modest 3.1%. Professional recruitment grew faster than flexible staffing this first half, thus increasing the professional recruitment relative contribution of GP from 53% to now 57%. On a blended basis, overall GP margin sustained at 29.3% versus last year's 29.7%. Moving on, let's take a look at the underlying net profit after tax. Underlying NPAT is a reflection of the operating performance of our recruitment business. Last year, we had a gain when our financial assets in HR equities were marked to market. This first half, with the equities market having a turbulent time, for example, the S&P index down 21.1%, MSCI Asia Pacific ex-Japan index down by 15.46%, our investment assets were not spared. The good news is, as of yesterday, some of these equities have already started to exhibit signs of recovery. Next, I'll move on to talk about the business dynamics. So to start with, we talk about professional recruitment revenue increased by 18.6% to $52.2 million, with higher remuneration packages across sectors even as placement volumes stayed flattish at 3,691. Professional recruitment brands such as HRnetOne, PeopleSearch, SearchAsia and Reforce saw mid to senior placement volumes inch up 2%, while case values averaged 18% higher than last year. Flexible staffing brands also do permanent placement business, and our brands RecruitExpress, RecruitFirst strategically shifted gear to reduce volume by 4% and delivered more higher-value junior to mid-level assignments resulting in an average 16% increase in case value. Overall GP per placement increased by 20%. Next, we will look at flexible staffing. Revenue rose by 13.2% to $259.8 million. Average monthly contractor volume increased by 12%, nearly 12%, to 17,954. We made rapid shifts in the deployment of contractors since the April closure of the Singapore Vaccination Centres to other healthcare clients such as the hospitals, on non-COVID businesses, and also other sectors such as technology, financial services, government, retail and consumer, and manufacturing. Our RecruitFirst business in Taiwan and Indonesia also aggressively ramped up the contractor volumes by 189% and 297% respectively, setting a higher recurring revenue contractor base for further growth. After deducting the cost of contractors, gross profit stood at $38.1 million, up 3.1%. Gross profit averaged 14.7%, with some high-volume projects delivered too rapidly establish our strong footprint in international markets. In summary, the driver of GP was primarily pricing, as you can see the circle there, for professional recruitment, while the driver for flexible staffing was primarily volume, denoted by the number of contractors that you can see in the circle there. So the dynamics that drives both business segments are pretty different, and on a blended basis, the group's overall GP margin stood at 29.3%, as the professional recruitment versus flexible staffing business mix was relatively similar at 16.6% versus 82.7%. Next, I'll go through the geography mix. Our revenue and GP performed strongly across 3 key regions for both flexible staffing and professional recruitment. I'll start off with Singapore. Singapore revenue grew by 7.4%. You can see at the right bottom corner, there's a little summary there about the growth figures. So revenue grew by 7.4% to $206.3 million, with professional recruitment grew at 19.1% and flexible staffing 6.4%. GP for Singapore grew 4.3% to $48 million., with Professional Recruitment up 19% and Flexible Staffing slight 2.8% dip. Moving on to North Asia, revenue grew 28.4% to $93.2 million, with Flexible Staffing grew at 33.4% and Professional Recruitment 19.6%. Our flexible staffing brands RecruitFirst and RecruitExpress performed strongly with double-digit growth. Across Greater China, namely mainland China, Hong Kong, and Taiwan. Professional recruitment revenue in North Asia rebounded strongly, especially in mainland China and Taiwan, where growth was 25.2% and 19.3% respectively, boosted by our specialization in the semiconductor industry. Overall for North Asia, GP grew 23.7%, to $40.5 million, with flexible staffing grew 38.2% and professional recruitment grew by 19.9%. And as for the rest of Asia that you can see in the yellow section of the charts, the revenue grew 41.5% to $14.7 million and GP grew 10.6% to $3.4 million. Volume growth in our Indonesian flexible staffing business more than tripled. Moving on, I will discuss the sector dynamics. Our top 3 sectors remain healthcare life science, technology, and finance. Healthcare life science contributed 22% revenue at $69 million, even though $3 million lower than first half of last year's COVID peak. We see strong stickiness as it's nearly double of our pre-COVID 2019 full year which only had 50 million or 12% of total revenue then. The absolute revenue from government, retail and consumer, and manufacturing were above that of last year, even though you see the proportions have reduced relative to the total. Fauz, can I have the next click so that our audience can see the numbers? So you see the relative percentages have come down. But the absolute amount has actually grown. So government sector, for example, on the right-hand side, government sector actually increased by $2.7 million. Retail and consumer at the bottom here actually went up by $3.2 million. And manufacturing at the pink shading here went up by $1.1 million. Now I'll give you more colour on technology, which is at the top here. Technology sector increased contribution from 13% to 19%, up $25 million to $60 million. $1 billion due to our capturing of pockets of growth within two key groups of clients. The first group of clients would be the semicon clients that I've talked about earlier on. All of these semicon clients are China-based local clients and quite a number of US multinationals in Taiwan. The next group within the technology space would be the fintech clients, and they are representing e-commerce, the ride-hailings, the food and delivery platforms. And interestingly, gaming sector also picked up strong momentum. The next sector that I want to give some color on would be the financial sector. The contribution increased from 14% to now 18%, mainly from our key accounts, the European banks and Asian banks. Another interesting development is revenues from buy now, pay later clients are now gaining traction. And finally, some color on manufacturing. Manufacturing sector's absolute number of revenue was up $1.1 million, although the proportion was down from 9% to 8%. The increase was led by our staffing business for semiconductor clients and white-collar manufacturing in Singapore. And moving on, we'll talk about the diversified client base that we have. Our top 5 clients, as you can see up here, have been with us for an average of 19 years. Total revenue contribution from the top 5 clients here, you can see it's 14.3%, covering mainly the healthcare, life science clients, finance clients, as well as retail and consumer. If we were to extend to top 10 clients, then the contribution would be 21.9%, and that would include the government clients. And if I were to extend further to the top 20 clients, the total contribution would be 32.6%, and that will include our technology and insurance clients. As such, investors are assured of the diversity of clients, that we are not overly reliant on any particular client, with the largest client contributing only 5.1%. Next, we will talk about our cash balance of $312.7 million, zero borrowings. That's an enviable position to be in in times like this, as we are not at the mercy of lenders and the rocketing interest rate hikes. As a veteran operator of this business for 30 years, we generated strong operating cash flow of $54 million before deploying $20 million of that into working capital and paying taxes. As such, our shareholders enjoy good dividends, $40.1 million at the listed company level and $2.7 million for our co-owners at our subsidiaries, and we have prepared yet another $21.3 million dividends to be paid out on the 6th of September. Moving on, we will look at the IPO proceeds utilisation. We raised $174.1 million at our IPO 5 years ago and have invested $128 million, or 73.5%, so far. And you can see the various distribution of the usage here. In the first half of 2022, we deploy another $1 million for investments. And going forward for the second half 2022, we have earmarked $1.2 million for an exciting startup and also injecting a further $700,000 to an existing rapid growth subsidiary in the staffing space. Do look out for our invest— our announcements coming up soon. And that's all for the financial update. First half 2022 has indeed been a very good run for us. Thank you, shareholders and colleagues, for trusting us. Let me now pass the time to Adeline, who will give you color on the strategic, the organizational developments, as well as our current take of the outlook for second half.

Thanks, Jennifer. Good morning, very nice to see everybody here today. So today I'm going to actually start off by giving you a little bit of insight into the changes you would have seen to our organisation, including the Board of Directors. So I think in the last 5 years since the listing, we had a relatively stable board, and then you see in recent months some changes taking place. So as people who have lived through the economic and social impact of COVID-19, I think you would be very aware that there have been some pretty dramatic changes to labor markets and social realities. For one thing, SQ used to fly something like 28 flights a week from Singapore to Shanghai. Right this moment, I understand it is more like 1 flight a week at 60% capacity. So what we have done as a company is to make changes right at the top by bringing in local experts from key markets. If the mountain will not come to Muhammad, then Muhammad must go to the mountain. So at board level, we now have Wallace, who is a resident of Beijing and the co-founder and chairman of Career International, the very first HR company that was listed on China's A-share market. And he's very well-versed with the recruitment market of China, which is a key market for us. We're also very pleased to have Hank, a resident of Tokyo, and the CFO of BNEXT, a recruitment company listed on the Tokyo Stock Exchange, to join our board. We have known Hank since before we were listed when he was CFO of TechnoPro, one of our cornerstone investors. So Hank knows our company and business and industry very well indeed. As part of the renewal of our board, we are also pleased that Chen Yi, an expert in corporate finance and capital markets transactions, who has successfully brought 40 companies public, has joined us. So the current operating environment requires all hands on deck, and it's reassuring to have these experts on board with us. For those who know us a little better, you would also be familiar with our unique co-ownership model where our business leaders invest in the operating units they run for an equity stake, and a significant proportion of their income comes from dividends. So this is really having skin in the game, and it works. So over the past 5 years, as we have grown as a group, our business leader co-owner bench strength has increased from 22 to 36. The recent additions of Ping Chen and Miranda Chen in Taipei, Karen Koh in Hong Kong, Lee May Chin in Kuala Lumpur, and Kelvin Rimmoon in Jakarta are consistent with the fact that we consciously grow deep roots in each market, an important attribute in this era of localization of talent markets. For each V earner, who you can think of as a sales unit, what we've been working on is the improvement of sales capacity—how to make each V earner more effective, more productive, and more profitable. So what you are seeing is that each sales unit on average today clocks in SGD 130,000 in gross profits for the 6 months. And this is an improvement of 9% year-on-year, right? So it's consistent with what we're doing. And like many progressive companies, we are also intensifying our usage of contract and temp employees. This is on the right-hand column. You could say we We eat what we cook. And this is a much more cost-effective method of deployment which we are utilising to full advantage. So here you see today we have 31% of our heart town who are actually temps and contracts. The leaps in technology which the pandemic has helped us achieve are real. Today, if you say you have no idea how to use a QR code or unable to use Teams or Zoom, it is likely you have no role to play in the labour market. We have been quick to ride on the wave and have transitioned HR management from scheduling of workers to request for overtime onto our EaseApp. Job ads are now Reels on Instagram, and we have a bot which populates job postings on Telegram channels. Our professional recruitment clients across all cities today enjoy an even more cohesive experience with a unified approach to content and reporting across business units. Engaging with shareholders now takes place in person, via hybrid or virtual activities, and this is the case with all stakeholders. So what you see here would be a blood donation drive in Taipei in partnership with E-Ling Yi, which yielded 241 bags of blood, and being blood donation, it has to be in person. While our Tokyo colleagues cleaned up 4 kilometers of Enoshima Beach. During the lockdown in Shanghai, boxes of groceries were delivered to our colleagues there. And on 3rd of September this year, in-person and virtual walks with our clients will take place across 11 cities in celebration of our 30th anniversary. And this will support all charities in each city. Before we move on to talk about the outlook for the next half year, I do want to bring your attention to a series of NFTs which we have created. So those of you who collect NFTs, you'll be very interested to scan this QR code which will bring you to OpenSea. It's called Ruby City Series, and basically all the proceeds from the sale of these NFTs NFTs will go towards the charities in individual cities. I believe right at this moment, the one for Jakarta has already been sold, and so the Pediatric Cancer Care Society in Jakarta will be benefiting from the sale of that NFT. So please do take a look. Okay, so to move a little bit into the outlook for the next half year, I think, you know, it's definitely been a very interesting time because there is, of course, the threat of a inflation-triggered recession. And the fact is that the US has already reported 2 quarters of negative growth. But the thing which works in our favor is that quite unusually, the labor markets are really tight. Right. So you can see that it's quite strange because normally you expect the labor markets to be affected as well. But that is Doesn't seem to be the case just yet. And in fact, on the next slide, I think you will see that employment has been growing instead. So we tend to believe that globally the battle for talent is a long-term trend that will transcend the current business cycle. And typically we deliver above GDP growth rates as we have the benefit of maneuvering to work on pockets of growth opportunity within the sectors we specialise in. Right, so to give you an actual example, in the first half of this year, our Singapore business units actually grew top line of 7.4%, and that compares with the GDP growth rate of our country of 3.7% to 4.8%. So that's, that's quite significant. And of course, our North Asian units grew by 28%, and our other rest of Asia units group by 41.5%, which is much, much higher than GDP rates of the respective cities. Singapore is our home and largest market, contributes 70% of revenue and 56% of GP, and it remains fertile grounds for the employment business. So as I mentioned just now, unemployment rate is actually reducing, the job vacancy rates are going up, and, you know, the number of headcount being hired actually has recovered. So even though we do agree that the general macro environment is uncertain and we are concerned and definitely have an ear on the ground, but I think there are definitely quite some indicators which are in our favour. So I recap what Jennifer mentioned, which is that it's very helpful for us that we are not subject to any interest rate hikes due to our cash holdings. In fact, we are beneficiaries increase when interest rates go up. And also the fact that we do have a natural hedge in this current inflationary market as our fees are based on wages which are increasing. And of course our people are very well attuned to sniff out areas which are experiencing growth. So those are factors which definitely, you know, are beneficial to us in this current environment. So finally, I think I would just like to recap why it's well worth your while and your money to be invested in HRNetGroup. It's beyond doubt that we have strong financials. Year-on-year, revenue grew 14.2% to $314 million, while gross profit increased by 12.3% to $91.9 million. And we have underlying profit, which is the actual, you know, money in the bank, which rose to $42.6 million. We still have another $312 million of cash in the bank And I would say that in these volatile and very turbulent times, there are very few companies with such a profile that you could be invested in. Meanwhile, we have the size, the scale, the systems, and digital infrastructure to rapidly scale. So to add another 1,000, 2,000 contractors is not an issue at all. In fact, since the start of COVID we've added 5,000 contractors out on a daily basis. So our co-ownership model breeds very entrepreneurial leaders who instinctively and rapidly pivot to growth areas, always aware of, you know, where the market is moving. Finally, with a dividend yield of 7.8%, with $40 million paid and $21 million payable in dividends this year, HRNetGroup is simply a great investment. At the end of the day, it makes a huge difference that 80% of the company is owned by people who work here. We live and breathe this company, and our work and lives are fully integrated. So come walk with us. Thank you.

Thank you very much for taking time off to hear some color on the numbers.

I mean, just to kind of wrap up, right. Many of you are familiar with the public markets or even with bonds and other instruments. And I would really say at this point, especially given the interim dividends and the special dividend earlier in the year, we are giving incredible returns. Yeah. So it's, I would say, a fantastic time to to be a shareholder, and I'm grateful that you're all here with us. And perhaps you might want to buy more shares in the company because we deliver much better than FD and much better than bonds and other instruments as well. And for my colleagues who are here on the call, because many of you are co-owners as well, I would like to say thank you very much. It's really because of all your efforts When I say that it makes a difference that 80%, in fact more than 80% of this company is now owned by people who work here and it makes a huge difference, then that's definitely the case. So even while we're on this call, I'm getting some of our co-owners messaging to say, you know, they're cutting costs and stuff like that because they are so aware that in this market they have to be really on the ball. And you all are. So thank you very much to the co-owners who are on the call and our shareholders. I think, you know, the performance fully justifies your decision to be a shareholder. And I would say that, you know, to further invest in this company would be a very good call.