I've always held that this is a simple business and should be run as such. This story is good press, but more importantly it show that Mick understands the business and is focused on the right things that will generate profits and grow the business.
(Note: I've done many temp agency productivity/profit improvement projects in my time and many of the items Mick is focusing on we have had our clients focus on also)
FEW chief executives could say they drive around in a ute and are proud of it.
For Mick McMahon, who has been chief executive of Skilled Group for a mere seven months, the symbolism is just as important as having fun.
"I am a country boy," he says. "I told my wife it was a job requirement when really I just wanted a ute."
McMahon is following a tradition laid down over the decades by a string of former executives of the Melbourne-based labour hire and recruitment firm.
The company's founder, Frank Hargrave, used to tell them they could have any car they liked, as long as it was a ute, complete with the Skilled name plastered along the side.
Now McMahon is using that tradition to send a message to his staff and to the world.
Related Coverage Staff threaten action over 'riot' Adelaide Now, 33 minutes ago The fans still love McMahon Herald Sun, 5 days ago Skilled Group slashes its debt The Australian, 5 days ago No substitute for being at baby's birth Herald Sun, 24 Jun 2011 McMahon takes a big step forward Perth Now, 18 May 2011
After several years of underperformance after an ill-fated acquisition strategy, he wants Skilled to get back to its core and what it does best.
That means moving out of flashy head office locations, removing art collections from boardrooms, slashing brands, removing duplication and investing back in the frontline.
"This should be a very simple, down-to-earth business," he says.
"In simple terms we provide labour on a cost-plus basis. Cultural change is a big thing.
"In terms of where we want to be, the performance of the business should reflect its scale and the returns that the shareholders expect should be getting back to where they should be. Until the past four to five years this was a very high-return business. It will take a while. This is a people business. It is about process, culture, capability and skills. But in three years' time, I would hope to have this business performing to a level I can be proud of and where shareholders would feel was a more than fair reflection on the investment they have put in."
The most important task for MacMahon in his first months in the job has been to get the group's troubled balance sheet in order.
Skilled confirmed last week that it had refinanced its syndicate debt facility and it now had a $160 million facility with two tranches: $60m maturing in two years and $100m maturing in three years.
The big four Australian banks are part of the lending syndicate.
Before refinancing, Skilled's effective interest rate was 11.5 per cent but under the new deal the rate is significantly reduced.
"So we have a normal public company funding arrangement in place as opposed to one that reflects a business that is in a bit of strife and paying, therefore, a higher risk premium," McMahon says.
Earlier this year, the group shored up its balance sheet, raising $70m in fresh equity.
With the balance sheet in order, McMahon wants to get back to paying dividends as soon as he reasonably can.
The high interest costs were a legacy of an era in which former chief executive Greg Hargrave expanded the business dramatically.
A number of eclectic acquisitions pushed gearing to a stunning and unsustainable 113.7 per cent in the 2009 financial year.
That all came to an end in April when Hargrave announced his intention to step down after Skilled announced its second profit warning in six months.
The investors, including Thorney Investments and Orbis, both of which have more than 10 per cent, wanted change.
They turned to McMahon, the former chief operating officer at retailer Coles Group from 2007 to 2009.
He was also managing director of Coles Express from 2005 to 2009 and before that held senior roles with Shell International.
"There was strong support from our investors and bankers for the change in strategy," McMahon says.
"The strategy is a simple one: that we have a healthy core business. There has been a lot of complexity and cost added to that and we really need to get back to focusing on our core."
Importantly, the investors initially wanted an assurance that McMahon would be independent from the Hargrave family, which remains a significant shareholder in Skilled.
"When I first came in, the shareholders wanted to ascertain I was sufficiently independent from all shareholders," McMahon says. "But those questions went away in the first week."
In fact, McMahon is happy to acknowledge he informally stays in touch with Frank Hargrave, the father of Greg.
"I value the chats with Frank because he still has a feel for this business, the history and the cultural base," he says.
He plans on having dinner with him this week.
"Greg Hargrave has done the right thing in letting me get on with things," he says.
"But he is a major shareholder, so I talk to him occasionally. He is a director still but on leave of absence (until November)."
One of McMahon's first big moves was to pull the sale of Swan Contract Personnel, which provides white-collar staff to the resources industry.
It was one of Skilled's best-performing business units and he was wary of selling off the crown jewels, especially as he was not satisfied that bids received for Swan reflected the full value of the business.
Instead, he began a sale for the call centre business, which he quickly identified was non-core.
It is expected to be completed in the next six months.
The next target is overhead costs: $10m will come out over the first two years and McMahon says Skilled is well on track to deliver on that commitment.
"Our plan is to cut our overhead costs by desimplifying and delayering the organisation, getting out of corporate offices," he says.
"This office here (in Melbourne's St Kilda Road) is very much a corporate office. We had two floors and we are off level 14 already. (Level 15 is a work in progress). We are in the process of working through a couple of options in the suburbs."
One option is a move back to Melbourne suburbia at Box Hill, the base where Frank Hargrave ran the business for decades.
Skilled had 16 operating brands when McMahon took over.
Some were from acquisitions and many had not been integrated and some were even competing with each other.
"Many of the brands and the acquired businesses are still in separate offices and locations," he says.
"In a place in Welshpool (in Western Australia) I can walk down the street and see three of our offices within the space of 100 yards. So there will be co-location of branches and brands into shared real estate, which will lower our costs," he says.
"It adds a burden on your core business which it doesn't need. We won't have 16 brands but we won't have one either.
"It will be closer to one than it will be to 16."
Although Greg Hargrave's acquisition binge in recent years was costly, he did invest more than $30m in back office IT systems that McMahon believes can be properly leveraged in the future when the group's core operations are in order.
"We want to leverage the investment that has already been made in systems to extract the benefits and to move the business from where a lot of administrative activities are happening in the branch to where they are happening in a centralised back office on a more automated basis" he says.
So far, the brokers like what they see from McMahon.
Macquarie Equities, which has a buy on the stock, is predicting 16 per cent earnings a share growth for this year and 60 per cent next year, driven by a rebound in revenue growth for its workforce services division.
"The company is well positioned to benefit from the strong growth in mining/oil and gas sectors and at 11.4 times price-earnings ratio for 2012, we believe the stock represents good value given our above market growth forecasts for 2012," Macquarie said recently.
Goldman Sachs, which also has a buy on Skilled, said recently: "The company is well placed to benefit from a strong labour market with high resources exposure (46 per cent of revenue) as well as profit turnaround initiatives (strong focus on improving profit margin, cashflow and return on capital)."
Skilled shares have risen from $1.70 in mid-January to just over $2.20 now. They rose as high as $2.40 in early May.
There are factors beyond his control that worry McMahon.
He will outline some of them at a speech to a CEDA conference in Melbourne on Wednesday.
The key factor is slowing productivity growth across the economy.
"Skills and training will be a key thing for labour productivity in coming years," he says.
"The government has done things in the budget, which is good, but it's not going to be enough."
Then there is industrial relations.
"We will have to be careful as a country that we are not locking up labour productivity as opposed to the reverse," he says.
"In our business, it is important to be able to provide labour under flexible terms and conditions."
And finally, he believes the nation has skills and labour in the wrong place and insufficient policies to address the problem.
"We fly in people from New Zealand and Tasmania all over the country," he says.
"You have to wonder how long term a solution fly-in, fly-out is. You would think there would be some policies that would assist permanent moves. Are we missing out on a wider agenda here?"
Weak economic growth remains a challenge for Skilled.
McMahon admits there has been a slowdown in the company's rate of growth over the past six weeks.
"I think it is the two-speed economy and the extent of the structural adjustment in the non-boom sector," he says.
"I don't think it is fully understood and I don't think the policy settings are going to necessarily improve productivity in those areas. We just did a roadshow in Hong Kong and Singapore and there was also more caution around China than I would have expected.
"They were also quite muted on the Australian economy because they see this two-speed thing."
But for the moment McMahon is concentrating on what he can control, and that is getting his own house in order.
There are certainly broader ambitions for the future that involve acquisitions.
"We are the market share leader with only 10 per cent market share," he says.
"Are there economies of scale to be had in this business if we can develop that leverage and then that puts you in a position to grow the business more aggressively at a point in time?" he asks.
But McMahon will only pursue them when the core group is firing again, which he says is still some time away.
"We should have built an operating model where I can grow at a much less marginal cost than my competitors," he says.
"But at this point in time, I'm not sure that is true. But in three years' time it would want to be."
SKE Price at posting:
$2.25 Sentiment: Buy Disclosure: Held
