The Motley Fool

3 Interesting Takeaways From HRnetGroup Ltd’s 2018 Annual Report

Listed in June 2017, HRnetGroup Ltd (SGX: CHZ) is the largest recruitment firm in Asia excluding Japan. The group has an impressive track record: Starting from a mere four-man operation some 25 years ago, it has grown into a multinational team that brought in more than S$400 million in revenue last year.

As a shareholder of HRnetGroup, I certainly like what I’ve seen so far. Recently, the group released its annual report for 2018. Here are my three takeaways.

Growing its employee base and productivity

HRnetGroup increased its headcount by 98 to 1,101. The increase in headcount was matched by an increase in the percentage of productive headcount.

HRnetGroup measures productive headcount as employees who bring in gross profit in excess of three times their payroll cost. In 2018, productive headcount increased from 66% to 74%.

In other words, the efficiency of its employees increased during the year. A large part of the higher productivity is likely due to HRnetGroup’s 123GROW Co-Ownership scheme. The scheme rewards productive employees whereby selected participants buy shares of the company at market price and in return are entitled to bonus shares over a 3-year period, provided they continue to meet performance criteria. As of 2017, almost half of HRnetGroup’s permanent headcount were shareholders of the company.

The drive for this incentive has probably been one of the key reasons for higher productivity and motivation in the company.

Innovating for the future

Despite its long track record of success, HRnetGroup continues to evolve and innovate. In 2018, the group introduced the mobile client management system, allowing candidates to move away from hard-copy candidate applications to a mobile version. For contract employees, HRnetGroup also launched e-timesheets in place of hard copies to verify hours worked.

In the letter to shareholders, Founding Chairman Peter Sim and Executive Director Adeline Sim emphasised:

“We are clear that there has to be a relentless drive to evolve and be better versions of ourselves. Diligently working on it yields results.”

Building more revenue streams

HRnetGroup offers professional recruitment services in all 13 Asian cities in which it operates. However, the company only offers flexible staffing product in Singapore, Hong Kong, Taipei, and Kuala Lumpur.

While the profit margin for flexible staffing is relatively lower, it brings benefits such as a more resilient and stable income stream, and it helps HRnetGroup build deeper relationships with its clients through the higher frequency of contact. The power of these relationships is emphasised by the fact that its top five customers, which contributed 13.7% of revenue in 2018, have been with HRnetGroup for an average of 18 years.

The Foolish bottom line

2018 was another fantastic year for HRnetGroup, with normalised profit attributable to shareholders at a whopping 29.3%. Despite its strong performance, the group continues to push for more growth both in markets where it already operates as well as new markets. Its drive for innovation and building new revenue streams could also be another growth catalyst for the company.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore recommends shares of HRnetGroup Ltd. Motley Fool Singapore contributor Jeremy Chia owns shares in HRnetGroup Ltd.