Elias Hazouri

HiTech Group Australia Limited is a recruitment firm specialising in ICT that was founded by Ray Hazouri and his brother Elias in 1993. After a long time at 5 cents, the share price has risen steadily over the past few years to 25, then 35 and now sits around 57 cents. Ray recently moved from CEO to chairman and Elias spoke to Alan as the newly appointed CEO.

Alan Kohler:  So perhaps we could start with the background of the company It was started by your brother Ray, 20 years ago is that right?

Elias Hazouri: Excellent, yeah that's right. 1993, 24 years now. Ray started the company from its humble beginnings in my parent's living room and has grown it into the company it is today. We've been listed for 17 years or thereabouts and we are where we are today.

AK: And what was Ray's background, why did he start the company?

EH: So Ray had an IT background, he graduated as a computer science graduate and mathematics and went to the IT field and did some initial technical work and then he moved into sales roles. He wasn't very successful at those because his ideas were different to what his employers wanted to do and he decided, I could do something different. He got the idea of recruitment back in those days and thought he would give it a go because he understood, basically, IT and the thought he could add value to employers who are looking for those types of skills.

AK: And when did you join him?

EH: I have been a non-executive director since day one, but in an executive capacity that was approximately late 2001 early 2002, so I've been effectively running the organisation for more than a decade now.

AK: So, it is still Ray's company right? What does he own, 65% still?

EH: He owns a majority of the shares exactly, so effectively he is the majority shareholder.

AK: And he's still Chairman right?

EH: He is chairman, exactly, the chairman of the board.

AK: And you became CEO last August, prior to that as you say, you were running the company  as COO what changed being COO and CEO?

EH: It was really a formality, Ray didn't want to be recognised as CEO any longer. He hadn't been in that capacity for many years. He did more of a strategic guidance for the company and so we thought we should formalise it so we can distinguish it for the investors exactly who does what in the in the organisation.

AK: And you have a share a business as well?

EH: Yes, I do. I've recently acquired more shares, but I certainly do.

AK: For most of its life, the stock price seems to have bumped along around five cents, or a bit less sometimes a bit more, but then in the last 12 months or so it's done quite well, it's gone up to 20 then 30 now, 35 or 37 cents, so what's changed?

EH: Well the last two years or three years have been really a pivotal period for us the share price currently trading at 57 cents. What's changed is that I think the market has re-rated our results. For a long time we were under the radar and we were in a sense almost too small to be recognised. What's happened in recent terms, we've announced more of our results. We've always been profitable since the early days. We've never not had a strong company we've always been debt free and in recent months, and probably in the last 12 months, there has been some recognition by the investor community that perhaps we should be re-rated. Albeit we do not believe that at this stage, we have been our given the appropriate value that we deserve, our PE models are quite low that were trading at, but our focus is profits and profit growth. So as long as we keep doing that hopefully will get the recognition that we deserve as far as valuation.

AK: Apparently one of the problems was you were putting excess cash, investing excess cash in listed shares, which was kind of hiding the way your operating business was going, is that right? What was going on there?

EH: Yeah, I don't know that the right interpretation should been hiding. We weren't hiding anything. We were simply investing some of the cash reserves because we have a large cash reserve that we've always maintained, trying to get that money to work better for us. We looked at various other opportunities with our acquisitions or growth, but it was too risky. So we decided that perhaps, or the board decided that perhaps we should invest this money in another source of potential income stream and we did so. As far as the operating profit of the business that was always very positive, so it wasn't designed and for any malicious intent, it was simply try and work the capital that we had.

AK: But you promised not to do that anymore, is that right?

EH: Yes, that is completely clear, and has been for a long time so I have ensured that won't happen again.

AK: So how much cash have you got?

EH: Well in June of last year, we reported that our cash position was sitting at 4.4 million. We recently provided a revenue and gross profit guidance update which was in November and we are looking at a growth in the first half of 2017 of between 10 to 20% over the previous corresponding period and cash has grown in line with those figures.

AK: So that's 10-15% growth is in cash flow is right?

EH: Possibly.

AK: Right.

EH: I can't tell you at the moment.

AK: OK, so how has it been going since then, are you on track are you?

EH: Yes, we are on track and we're happy with the position we're in the moment.

AK: And you're still debt free.

EH: Absolutely. Have been since day one, we will continue to stay that way for as long as we can. We see no reason to acquire debt at this stage.

AK: So tell us how the business works, is it a traditional recruitment business where you work for a client, hire somebody and then charge percentage of salary?

EH: Correct that's part of the business. So in recruitment there are two sections, there is either permanent or contracting recruitment. We generate revenue from both of those areas. So if it's a permanent placement we charge a one off fee. If it's contracting, we look at the margin and that margin continues as long as the length of the contract is. And the other side of our business which we are actively trying to pursue is the ICT services business or consulting side. This is where we take on project work to deliver client solutions based on a methodology that is fairly agile that we've developed our self, which is project delivery as a service and we receive fees for project outcomes.

AK: And have you got some contracts along those lines yet?

EH: Yes we do.

AK: Is that a more profitable line of business than recruitment and contracting?

EH: Precisely, it can be. So that's where the premium end of the market tends to sit, but it's a perfect fit for us because we got the talent, we've got the candidate database the experts to be able deliver those projects. Normally what we would do is, on hire those individuals to IT services companies who go into the project work. We now want to be at the front of that and we'll be able to compliment that with the supply pool at the back end.

AK: Can you tell us what the difference in margin is?

EH: It is hard to quantify but it's probably a good 40% on top of what you could charge as a contracting placement.

AK: And is it more difficult to get that work, have you begun to figure out to do the marketing and get the work?

EH: Yes we have and the most clever way to do it is to leverage off our existing client base to try and mine that existing client base to offer that service to them.

AK: I thought you might mean, you aren't competing against your clients in some way that you hire out contract labour to ICT consultants who you are now competing with, is that an issue?

EH: No that's not an issue. The way we see it is as a white labels service, so we will come in at the back end with the ICT service providers and they can label it anyway they want. They can label as their service, additional service provided by us, whatever way they want. What we are more concerned about is labouring as a one-off project delivery service and then they can market it anyway they want.

AK: Right, so I'm just wondering why an ICT contractor would do it that way if it's going to cost them more money?

EH: They basically pass on the risk completely to us and we become the project manager and a service delivery manager.

AK: Do you deal with the client?

EH: Not the end client, no we don't. We deal with the service provider. We're not talking about small providers here, we are talking about large providers who have multiple multibillion-dollar contracts in place who need services companies who can be responsible for some section of their service delivery. It has worked to date. We have been able to deliver such services and we feel we can build on that.

AK: Is that part of the reason that your shares prices been moving up because the markets starting to see you more as an IT business than recruitment business?

EH: Not sure. We think that investors are probably focusing more on the bottom line which is our focus. How we generate that income is going to be something that we discuss in the future but we are focused very much still on the organic growth of the business. We believe recruitment has a long way to go and especially on the contracting side, were we can build a much stronger market position. Especially given that the majority of our contracting income comes from the government sector and that sector is poised for strong growth. So the outlook is very, very positive.

AK: So, you mentioned 10 to 20% growth this year, is that right?

EH: First half.

AK: So long term, how should investors see the business and the potential for growth over the next five years?

EH: I think they should see it as a business where we are focused on expanding our client base in the existing recruitment sector and, in fact, delivering more services to our clients and thereby expanding our contractor base. Obviously the opportunity is there for us to grow the business via acquisition or joint ventures should the opportunity arise and develop our existing small, yet interesting ICT services business. For example, we believe that there is an opportunity to apply relevant technology to our key asset which is our candidate database so that customers can access online or cloud-based talent platform to satisfy some of their recruitment needs. That kind of complimentary offering should help us generate a different line of revenue to what we have today.

AK: So you are you talking about putting your talent database online in some way?

EH: Exactly, potentially, in an intelligent way which is a complementary service rather than an opposing service to what we provide the moment. Almost a no-frills offering if you like.

AK: Right, a cheaper version, presumably, if it's online the margins will still be there.

EH: Potentially, potentially and for some clients that might be the way that they need it depending on their needs. The full service offering will be the underlying service in any case.

AK: How may staff do you have now?

EH: These are numbers we do not reveal. But I can tell you with contracting and the fact that a lot of our income is generated from contracting, there are major efficiencies versus recruiters who have the majority of their income coming from permanent placements. So that's why we believe at this stage we can grow the business through economies of scale based on the existing cost base that we have. We will get to a point we may have to increase our cost base but at this stage, we can continue with very little cost additions.

AK: Very interesting. Thanks very much for talking to us, Elias.

EH: It's a pleasure Alan, thank you for your time.