Yesterday, I attended the webinar by HRnetGroup at 4 pm. The information shared are as what was provided in the presentation slides found on their investor website. CFO Jennifer and ED/CCO Adeline did bulk of the presentation with ID Albert Ellis who is also the CEO of Staffline making a guest appearance from Europe at 2:30 am local time!

The general feel I get is that the group is nimble and able to move quickly to address the various challenges that they faced. I will briefly share what caught my attention from the webinar. The wordings used are not exact and not in the time sequence of their sharing. They are meshed together based on my interpretation of what they shared and interspersed with my thinking (regardless if they are logical or not).

The group is affected by the lockdown in China which resulted in a weaker 2H. With China re-opening, they expect this number to improve but there will be a time lag and the improvement is probably more significant in the second half of FY2023.

They are seeing that countries are in general getting more inwards looking. Hence they are internationalising their board so that they have local experts to provide the advice for the various countries. Albert shared that he has invested his director fees in HRnetGroup.

The group addressed why the company is retaining so much cash. Besides using it for for working capital, Adeline said that the cash pile has allowed the group to capitalise on opportunities. She shared an example where they would able to ramp up flexible staffing in a short duration when required as they had the cash available. Albert shared that the cash has provided the group with stability during a crisis and the current macro headwind. He shared that most recruitment firms do not keep so much cash and some also uses debt. So with the current environment of higher interest rate, HRnetGroup is at an advantage.

A common question is how does HRnetGroup stands out among the rest of the recruiters and they have reiterated the co-ownership model. Rewards is based on sharing of profit instead of commission and to be able to get any profit sharing, the unit must be able to generate at least 3 times the payroll cost.

When I first heard about the scheme years ago, the first thought that came to mind was a multi-level marketing (MLM) business profit sharing structure. No, I am not saying that they are the same (and I have nothing against MLM, else I won’t have invested in Best World years ago) but the basic idea is similar. To empower the people in the business, so that the driven and talented ones will help drive the business.

I though Albert’s take on this is quite interesting. He shared that the entry barrier for recruitment is not high, so the challenge is not about scaling up the business but entrepreneurs who want to go for it on their own. The co-ownership model helps in a way to retain such talents.

An anonymous participant asked why do share buyback instead of giving out more dividend. Though I have written that I would prefer more dividend in my last post, I wasn’t the one who posted the question. Jennifer explained that the two mechanisms serve different purposes. She said that while dividend is meant for every shareholders, share buybacks can be useful for stakeholders who wanted to temporary sell their shares. And the shares acquired can also be useful for M&A, employee shares and acquisition of minority right.

I am still wrapping my head around the part that it is useful for stakeholders who wanted to temporary sell their shares. I am not sure who these stakeholders referred to. From a retail investor’s perspective, if I want to sell the shares then I simply do it on the exchange. I might not get the best price but that’s my choice. Maybe for those with a larger holdings, they might face the problem of the low trading liquidity. In any case, I have my preference but I am sure they have their considerations. So I am just going to leave it as it is as this does not bother me enough.

It is always nice to hear from the management. I have heard from Adeline once years ago in a Motley Fools Singapore event and I have spoken to Jennifer once last year. So it’s good to hear from them again, together with Albert Ellis a veteran in the industry.

The group has demonstrated their resilience during the past few years. Not only did they just survive, they have grown and current revenue and profit are higher than pre-pandemic level. So I am confident that they will do even better once there is any upturn in the economy.