Abdulaziz Alkathiri, CEO of Maharah Human Resources Co.
Maharah Human Resources Co. reported a stellar performance and robust revenue in 2023 to become the largest human resources (HR) company in terms of workforce, surpassing 40,000 workers, CEO Abdulaziz Alkathiry told Argaam.
Last year’s earnings were primarily hit by the performance of some acquired, or recently set up subsidiaries, he said, adding that this weighed on gross profit margins (GPMs), which are still subject to corrective measures aimed at improving performance.
The individuals segment was hit by a 15% revenue decline due to price constraints, in addition to halting the recruitment of Indonesian workers. The company is seeking to improve the segment performance through providing innovative services and new initiatives.
Given the challenges facing the HR companies in terms of the price cap, Maharah works to change the percentages/quotas of the available nationalities, in addition to expanding the part-time manpower (on an hourly basis) segment and providing new services such as mediation, training, and female homecare services — the latter was recently lau
Alkathiry expected the individuals segment services, including the resident packages and the part-time manpower, to continue growing amid the recruitment from Indonesia and the Philippines, which resumed as of March 2024. Maharah will likely provide
The major government projects initiated after the launch of Saudi Vision 2030, the hosting of Expo 2030 and World Cup 2034, as well as the expansion and population growth plans especially in Riyadh will likely boost the local labor market, he noted, predicting this uptrend to continue. He further forecasted the company to increase its market share in the business segment, in terms of projects and part-time labor as a result of its geographical expansions.
Below are the details of the interview:
Q: Maharah’s realized net income dropped 14.8% year-on-year (YoY) in 2023, would you tell us the reasons?
A: The company achieved robust performance in 2023 in terms of revenues, which increased 12% YoY to SAR 1.9 billion for the year, making the company the largest local human resources business in terms of workforce with more than 40,000 workers. The core business portfolio generated 22% higher revenue YoY in 2023 on constant demand for services provided in all business segments (contracting, industry, operation and maintenance, hospitality, retail, medical, banks and SMEs), not to mention the major strategic projects.
Further, amid the temporary suspension of recruitment from Indonesia since Q2 2023 (the resident services), Maharah focused on the part-time labor with a target to increase the Filipino workers, which was reflected in H2 2023, when revenue from the part-time labor soared by 17% as planned by the company.
Maharah recorded operating profits of SAR 146 million from its core business (corporate and individual sectors). These positive results were achieved in terms of revenue and profits from these activities, despite the challenges faced by domestic services in the individual sector due to the decision issued on setting a price ceiling in early 2023.
This is in addition to the temporary suspension of recruitment from Indonesia and compensating for this shortage by recruiting from African nationalities where the service rate is 50% lower compared to the Indonesian nationality. Its revenue decreased by 15% YoY in 2023, impacting the segment’s profit margin.
Nevertheless, the company continues to improve its results in the individual sector and overcome these challenges through new services, such as mediation services and upcoming initiatives, which will result in the introduction of new services to this segment as part of the company's new strategy.
However, the key impact on the YoY decline in 2023 profits was due to the performance of some subsidiaries (acquired or newly established), which pressured GPMs during the year as they are still in the corrective stage to improve their operational and financial performance and create the desired added value. The company's strategy relies on diversifying services and activities.
Additionally, Maharah’s profits were affected by the increase in financing costs (FCs) related to new acquisitions (Care Shield Holding Co., Saudi Medical Systems Co.) in the third quarter of 2022. In 2023, FCs amounted to SAR 44 million, compared to SAR 11 million, representing FCs for the last four months of the previous year, as the acquisitions were made at the end of August 2022.
Furthermore, there were provisions for doubtful debts based on the expected credit loss recorded at SAR 27 million for the company and its subsidiaries, which constituted a significant change in results compared to the previous year.
It is worth mentioning that the results of the fourth quarter were hurt by accounting operations resulting from the application of the International Financial Reporting Standards (IFRS), particularly regarding the acquisition price allocation and credit loss model for the 2023 results.
Q: In light of the competition and challenges witnessed by the HR sector, do you still have a positive outlook for the company’s main segments? Are such segments witnessing continued growth in the number of workers?
A: Maharah has a strong goodwill in the Saudi and UAE markets, with a large market share. Therefore, it is deemed one of the largest HR companies in Saudi Arabia and the UAE. The company has a strong infrastructure and technical structure, as well as strong factors and capabilities that help it raise its market share, improve its performance and keep pace with any current or future legislative developments. The new strategy adopted by the board of directors last year, with initiatives already undertaken since the beginning of 2024, will represent a new addition to the company.
We expect continued growth in the offering of labor services at various levels and activities as well as obtaining a prominent market share with regard to projects, besides Muqeem and hourly services in the individual sector due to the company’s geographical expansion in residential areas and the Kingdom’s population growth.
This comes in light of the mega government projects kicked off after the launch of Vision 2030 and winning the bid to host Expo 2030 and 2034 FIFA World Cup, in addition to expansion plans and population growth in cities, especially Riyadh, as this unprecedented economic momentum boosts activities and labor market needs. This is confirmed by the increase in the number of the workforce, as the company recorded more than 40,000 male and female workers in 2023, with higher employment rates compared to previous years.
Maharah launched a number of new services in the public individuals sector last year, including mediation. Contracts of more than 1,000 mediation requests were signed from October until the end of 2023. This is in addition to the elite services that target VIPs in the Kingdom, the domestic worker training services at the training academy or with the client, and the Lavender Touch service.
With the reopening of recruitment from Indonesia and Philippines since March 2024, we expect continued growth in the individuals, Muqeem, and hourly services, and with the implementation of the strategic initiatives, which include a number of new services, we expect new added-value services for customers with sound profit margins.
Our positive view of the future results of the company’s segments is based on our knowledge of the company’s strength and capabilities, the labor market needs, and the study of its requirements. This appears clearly through Maharah’s Nomu strategy that was recently adopted. It focuses on three main pillars: Developing the company’s capabilities and business model and promoting digital transformation; introducing additional services for corporate and household clients, relying on harmony with subsidiaries and sister companies; and strengthening the company’s ability to provide labor services to various sectors, changing the access model of the corporate sector client, while expanding the sector of Esnad and providing professional labor services.
Q: We find that your household segment is still affected by the legislation implemented by the Ministry of Human Resources and Social Development (HRSD), such as setting a price ceiling on domestic labor services? How to improve the performance of this segment? Do we expect any new effective legislation?
A: With such challenges whether amid the legislation that has been implemented or the intense of market competition, work has been done to develop a strategy that aims to provide new services with better profit margins and exploit integration with subsidiaries and sister companies. We are also committed to diversify nationalities available to rent their services, in addition to expanding the hourly service segment and providing new services such as mediation, training, and female homecare services, which we recently launched, with more in the pipeline.
In general, there is continuous communication and coordination between the company’s management on the one hand and the National Committee for Human Resources Companies and the Coordinating Council of Recruitment Companies (CCRC) on the other through regular coordination with the HRSD Ministry.
Accordingly, the company’s management can determine if there is any new legislation coming in order to mitigate potential impacts on doing business within sufficient time.
We are also still in discussions with the HRSD Ministry to study the consequences of the price ceiling given the lack of radical solutions to this dilemma, in addition to studying draft policies and legislation to be implemented, through which the ministry aims to support the provision of labor services to household segment clients with the right quality and pricing.
Q: You talked about Esnad for Saudis. What developments have occurred and what is your vision for the future of this segment?
A: We find that this is a promising segment, and we expect healthy performance for it. Maharah has employed more than 2,000 Saudi employees since the launch of this segment, the services of which target the labor market. We are also forecast to see gradual growth and are looking forward to working on several sector-related initiatives with the HRSD Ministry. The company has concluded agreements with the Government Expenditure & Projects Efficiency Authority for recruitment in government sectors.
We also view the Saudi tourism sector as promising, boding well to the empowerment of Saudis for being one of the most key pillars of Vision 2030. Therefore, a memorandum of understanding (MoU) was signed with the Ministry of Tourism to enhance the localization of the sector professions with national cadres to achieve the common goals among both parties.
Q: You previously mentioned your efforts to create added value in certain subsidiaries, whether recently established or acquired, to rectify their trajectory. However, it appears that the results still impact the company's consolidated profit margins. What is your comment on this?
A: The company's investments are substantial and long-term, aligning with one of its primary strategic pillars focused on integration with its subsidiaries, spanning facility management, logistics transportation, and medical segments.
A comprehensive roadmap was devised to manage these subsidiaries, involving an initial assessment of their current status, identification of strategic directions, and development of five-year business plans.
This includes providing support to these subsidiaries through shared services offered by the parent company to bolster their administrative structures, elevate management capabilities, emphasize governance principles, and measure performance indicators. It aims to foster governance in the relationship with these investments and subsidiaries.
These prepared business plans are seen to drive long-term improvements in the performance of these subsidiaries and generate added value, complementing the offerings of the company's core segments. We anticipate a gradual enhancement in their performance in the upcoming periods, being more closely aligned with the parent company and the investments we made, thereby realizing sales synergies among these subsidiaries.
For instance, proactive steps were taken in the facility management segment to implement the company's approved strategy and direct activities towards the most profitable segments, resulting in improved outcomes.
Moreover, efforts were made to terminate unprofitable contracts in this segment, significantly contributing to its performance improvement in the current period, compared to the year-ago period, despite the 19% YoY decline in 2023 revenues. This has led to notable enhancements in the facility services segment and the YoY reduction in the company's 2023 losses.
Maharah's newly-established logistics business is still generally affected by the 2023 loss-making, despite the segment’s higher revenues.
It is currently working on completing its plans to raise delivery rates and the number of drivers while reducing costs.
It is also improving the medical segment by enhancing the administrative structure and boosting the operational activities, focusing on services with higher profit margins.
Q: What is the impact of studying investments in associates on 2022 and 2023’s financials?
A: During the third quarter of 2022, Maharah purchased ownership shares in some associates, calculating them using the equity method by recording these investments on the acquisition date at the transaction cost. The breakdown entails owning 40% of Saudi Medical Systems Co. (SMS) at an investment cost of SAR 427 million, besides holding 41.36% of Care Shield Holding Co. for SAR 307 million.
Based on the purchase and sale contracts for these investments, sellers waived their shares in these companies’ profits in favor of Maharah from the valuation date of Jan. 1, 2022.
Accordingly, Maharah recorded its share of the financial results of those associates from the valuation date to the acquisition date (the first nine months of 2022) in its financial results for 2022, based on the available information at the time.
Under International Accounting Standards, it is required to conduct a study to allocate the purchase price for each investment. This study determines the fair value of the investor's share in the assets and identifiable obligations of the entity as of the acquisition date. It also accounts for any difference between the investment cost and the investor’s share in the net fair value of the entity's assets and identifiable liabilities.
It grants a year from the acquisition date to complete this study. Acquisition processes necessitate identifying several key aspects: the date significant influence is gained, indicators of significant influence, distribution of the purchase price, fair valuation of acquired assets and liabilities at the acquisition date, fair value of the consideration transferred, and goodwill.
In 2023, the company finalized the purchase price allocation study for its acquisitions in Q3 2022, aligning with International Accounting Standards. This study set the significant influence acquisition dates for the associate companies, SMS and Care Shield, as of Aug. 30 and Sept. 31, 2022, respectively. These dates follow the initial valuation date, Jan. 1, 2022, when the investment value was first recorded in the company’s financial statements, leading to the adjustment of its share in the associate companies' earnings from this date onwards.
The completion of the purchase price allocation study led the company to make necessary financial adjustments, resulting in specific financial impacts as follows:
Recognized reversed earnings for the period from the beginning of 2022 to the acquisition dates (the first nine months of 2022) for the acquired companies (SMS and Care Shield) worth SAR 35 million. The results of these companies’ operations for this period are included in the net book value of investments (their equity) as of the acquisition dates determined for the purpose of allocating the purchase price.
Determining the fair value of these investments also resulted in intangible assets and goodwill. The company recorded SAR 5.2 million and SAR 16.7 million amortizations for 2022 and 2023, respectively, attributed to intangible assets as per IFRS No. 3.
Q: Saudi Manpower Solutions Co. (SMASCO), a competing company, announced its plan to float its stakes on TASI, what are the effects of this announcement?
A: We find this announcement very positive and inciting for industry peers to follow suit, benefiting the HR sector in general. We also wish them success in their public offering process. This was preceded by Al Mawarid Manpower Co. floating shares on TASI. This approach enhances transparency, clarity, and fair play among competing companies, in addition to creating a market based on sound indicators through performance, operational and financial metrics in the sector.
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