SINGAPORE (Aug 13): Mainboard-listed recruitment firm HRnetGroup saw its earnings drop 11.5% to $11.5 million for the 2Q19 ended June, from $13.0 million a year ago.

This translates to earnings per share of 1.14 cents for the quarter on a fully diluted basis, compared to 1.28 cents in 2Q18.

The decline comes on the back of lower margins from its flexible staffing segment, says executive director Adeline Sim in a results briefing on Tuesday.

2Q19 revenue increased marginally by 0.5% to $108.5 million, but was weighed down by the group’s businesses in Singapore as GDP growth in the city state slowed to the lowest in a decade.

Gross profit dropped 4.3% to $39.8 million in 2Q19, as gross profit margin slipped 1.8% points to 35.1% during the quarter.

The decline was led by a 10% contraction in gross profit from Singapore during the quarter.

Sim and the group’s chief financial officer, Jennifer Kang, say this comes as the city state is experiencing an economic slowdown, and a resultant contraction in hiring and an uptake in retrenchments.

Gross profit for the professional services segment in Singapore fell by $1.1 million during the quarter, while that for flexible staffing was down $700,000.

With professional services accounting for a substantial 67% of the company’s gross profit, the decline was critical in dragging overall profits.

Despite the decline in 2Q, this brings HRnetGroup’s 1H19 earnings to $30.8 million, 5.2% higher than a year ago even as revenue for the first half dipped by 1.2% y-o-y to $212.5 million.

Consistent with the uncertain environment across the region, hesitation in hiring saw its permanent recruitment business doing 4.2% fewer placements, with 4,256 placements made in 1H19.

Meanwhile, the flexible staffing business edged up marginally, with the monthly average number of contractor employees on the flexible staffing front rising 0.8% to 11,949 employees.

Sim acknowledges that the ongoing US-China trade war has clouded hiring prospects, particularly in professional services roles that are on a more permanent basis.

However, both Sim and Kang expect the flexible staffing business to see an increase in the coming months. More companies would “hire temporary staff who will reduce companies’ costs,” they say.

Given the bleak domestic economy, Sim and Kang say they are on the prowl for more companies they can collaborate with, and eventually acquire, so as to cast the opportunities wider.

They point to their recent move in the UK, where they acquired a 25.02% stake in London-listed Staffline, a recruitment company that focuses on blue-collar flexible staffing as well as workforce training.

Sim says it was an opportunistic investment that was timely, as it “coincided with the drop in the value of the pound”.

Both Sim and Kang emphasise that they adopt a proactive approach when sourcing for companies to acquire and/or work closely with. “We always talk to the people on the ground to understand the general perception of the employment market” says Kang. “Unlike funds, we do not just invest. We go down to the company and see their operations and how their people work.”

The pair say this is the philosophy that led them to Staffline, and what they will continue to follow in their prospective acquisitions and collaborations.

While Sim does not want to confine herself to a particular market, she says “[the company] will go where their clients bring [them]”.

For now, they are considering deepening their presence in China and Japan, but are also on the lookout for good opportunities elsewhere.

Ultimately, they say they are willing to collaborate so long as the “valuations of the other company are sensible”.

As at end June, HRnetGroup’s cash and cash equivalents stood at $274.4 million.

As at 3.56pm on Tuesday, shares in HRnetGroup are trading 1.5 cents lower, or down 2.2%, at a 52-week low of 66 cents.