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Macroeconomic Analysis

Discuss abbout the Business Analysis Of Seek Limited.

SEEK is the leading company in online employment industry in Australia and New Zealand. SEEK operates in online employment, education and volunteer industries. And during the past 12 years, the company has successfully expanded the business in 14 countries. International markets are becoming more and more significant for SEEK. The expansion brings SEEK great financial success and some potential risks. This report evaluates the operation of SEEK, based on 4 main analysis, macroeconomic analysis, industry analysis, business strategy analysis and accounting analysis. The report will demonstrate how the 4 analyses would affect the operation of SEEK. Firstly, the report will highlight 5 economic factors and describe the current global economy that would influence SEEK in macroeconomic analysis. Secondly, the report will evaluate the level of competition and porter’s diagram in industry analysis. Then, the report will highlight the success factors and risk factors of business strategy and evaluate the sustainability of SEEK in business strategy analysis. Lastly, the report will provide accounting analysis, based on the six-step accounting analysis framework.

  1. Global economy

After the financial crisis in 2007 - 2008 and the Eurozone crisis in 2010 – 2012, the global economy undertook the tempestuous unstable periods. The world economy was slightly warming during 2012 to 2014 as the figure shown. In 2014 to 2016, the global economic presented a downward trend again due to the global commodity price shocks. The Seek Pty Ltd operate in a downturn period through the large floating exchange rate and unexpected global GDP growth, at 2014 to 2016. At last year, the growth of world gross product has strengthened, as the fading of the continuous obstruction from those crises. (United Nations 2018). The growth of the global economic reached the peak from 2011 until now. As the increasing trend, the labour market has obvious improvement in most of countries.

Although the trend of the growth of world gross product is developed in the right direction, the imbalance of the world economic cannot be ignored.  The stable improvement of the economic from developed courtiers may occur the overlooking of required emergency aid from the poverty countries. (Donna & Tariq 2017) In 2017, there are at least 83 million people lived in the starvation that have 70% more compare with 2015. In addition, the weak investment and low productivity caused by the financial crisis still threaten the long-term potential of global economy. (United Nation, 2018)

  1. Regional economies

Industry Analysis

The Seek limited span across 18 countries, including China, Australian, South East Asia, Brazil, New Zealand, Mexico and some unallocated countries. In 14 of those countries, the Seek Limited stand market leading position. The company was incorporated and domicile in Australia, but the proportion of the sales revenue Australian get is 29.8%, the second position over all the 18 countries (IBIS 2017). The Seek Limited got around 30.2% of total revenue from China by the ZhaoPin.

The coal transportation was disrupted, and the housing investment was sluggish because of the striking of the Cyclone Debbie at the end of March 2017 (IMF 2017). The heavy weather lead to the growth of the economy only increase 2.2% which was lower than the global growth 3.6% and the forecast of 3% in last year (Kirrily 2017). In addition, according to the bank tighten the loaning standard, and the government increase tax levy to the oversea investment, the falling in the housing price were obvious in Sydney and Melbourne. As the downturn of the housing price, the growth rate of household net wealth was lower, more people may have a negative equity, against the consumer spending, which eventually have a negative impact on the economic growth. (Tejvan 2017) On the other hand, the Wage price index holistic was in a downturn period from 2011 until 2017, but the WPI increase 0.5% in third quarter 2017 and 2% over the year as the figure shown (RBA 2017). Due to the growth of the household debt and the decline of the income growth, the household debt-to-income ratio will have a small rise. (RBA 2017) As the increase of debt to income ratio, the demand of the change a new job will increase which indicate in the increasing of Seek Limited sales revenue in ANZ employment.

SEEK operations are based in the Online Recruitment Services industry which main purpose to advertise online job advertisements to the wider public.

Porter’s five forces can be used to give a deeper understanding of SEEK’s position within this industry and will allow further analysis to be had.

The threat of new entrants to this market is low as there is a high barrier to entry. Although having a high entry barrier, the industry’s profit margins still attract a great number of competitors to the market. The high costs of maintaining online databases and the economies of scales needed to provide advertisers an incentive as very challenging. Many entrants fail to gain any standing within the market as SEEK’s reputation and expansive reach proves very hard to compete against, as SEEK was one of the first entrants to this market and has built an established relationship with many firms.

Business Strategy Analysis

Substitutes to SEEK within this industry are quite limited but slowly growing. As printed media is slowly fading as the market turns more towards digital advertisements, the rise of other digital competitors is rising. Different ideas, such as LinkedIn, have provided a challenge to SEEKs dominance in the market.

The bargaining power of customers is quite low as there is a high concentration within the market and thus the customers do not have much variety to the companies they can choose from. Apart from more niche targeting companies, very few have the reputation and reach that SEEK does.The bargaining power of suppliers, like that of the customers is very limited. Again, due to the reach and marketing position of SEEK, suppliers in the market have very little power when dealing with SEEK.

Lastly, industry competition is quite low due to a high concentration in the industry.

SEEKs ‘largest’ competitor would be Adzuna, which is only less than 5% estimated market share (IBIS World). This shows the dominance of seek within this market.

Competitors have started targeting niche markets to try and gain a foothold in the industry, as the huge influx of job listings can prove quite difficult to navigate.

Overall SEEK holds a dominant place, nearly a monopoly, within its respective market.

It’s reputation and reach sway many when choosing to find either new jobs or more human resources.

Key success factors

SEEK company has been through a successful year in 2017 both in the financial and strategic area. The key strategic factors are increasing market share in key target market and reinvestment. In terms of the financial factor, international transaction contributes 60% of total revenue of $1billion which is the first time SEEK reached $1 billion in twenty years’ history (SEEK 2017, p.5). Expanding into international market has given SEEK huge return in the achievement of financial objectives.                                                                                                

According to annual report 2017, the business strategy includes four phases, Australian and New Zealand online marketplace commenced in 1997, International online marketplace and education commenced in 2005, Talent sourcing and placement commenced in 2012 and Human capital management commenced in 2015. Furthermore, in 2017, SEEK has made a significant organizational change in order to capture more opportunities in the international market.

Australian and New Zealand online employment marketplace

SEEK attempts to become the leading company in Australia and New Zealand in the employment industry. To achieve that, SEEK makes uses of technology and internet that enables SEEK to reduce cost largely as well as increase the effectiveness and efficiency. SEEK's low cost by using the internet is a competitive advantage over all competitors. Therefore, SEEK encourages cost leadership and use the philosophy in day-to-day business.  According to the annual report 2017, the monthly visit is over 35 million and the brand awareness is up to 82% that indicates SEEK is the leading company in the industry. (SEEK 2017, p.1-3)

Key Success Factors

International Online Employment Marketplace and Education Expansion

SEEK has been expanding the business into other countries over last 12 years. Also, SEEK has been expanding into the education business.SEEK has been operating the business in 18 countries globally, with market leadership in 14 countries. (SEEK 2017, p.3).

Talen Sourcing

In the last five years, SEEK has successfully become the market leader in the online employment marketplace and SEEK still continues to grow and maintain leadership. In terms of talent sourcing strategy, data is a critical part of SEEK. Therefore, SEEK keeps capturing more data and providing candidates with more alternatives. The data improves the efficiency and effectiveness of SEEK in existing business. For example, using more data enables SEEK to reduce a job candidate from about 50 candidates down to 5-10 most relevant candidates in the advertiser center (candidate management tool), which increases the efficiency both for SEEK and hirers.

Human Capital Management

In Australia and New Zealand, the human capital management industry is full of opportunities. SEEK has identified some problems in the industry. Sometimes, the cost is high and the efficiency is low. So, given the capability that SEEK has, SEEK aims to solve the problems. At the same time, SEEK has invested in making new products and services, such as Ximble and Workana.

Key risks factors

As discussed in macroeconomic analysis, from 2014 the global economy has been experiencing downwards trend. From the financial perspective, SEEK could be affected by the decreasing of the global economy. And the floating exchange rate could influence the international market of SEEK. On the other hand, SEEK’s business strategy has some risks factors as well. In the Australian and New Zealand online employment marketplace strategy, SEEK is faced with risks that are from new entrants in the industry and existing competitors who try to take more market share, such as Gumtree and My career, as SEEK’s business strategy is to maintain the market leader in Australian and New Zealand market.

IT Security

The potential failure of IT security could have a significant influence on SEEK’s all strategies. SEEK’s operation is mostly operated online. So, it makes IT security one of the biggest risks. Unexpected disaster or event, like hacker attack, could leak the privacy of candidates and hirers, which could lead to loss of customers and damage to SEEK’s reputation.

Change of Legislation in International Market

SEEK is operating in 14 countries as mentioned in the business strategy. Change of policy and legislation is beyond SEEK's control. It is a principal risk that SEEK needs to consider in the international online employment marketplace strategy.

Risk Factors

Sustainability

SEEK has devoted time and money to keep sustainable development. The company does not only focus on making the successful financial result but also, contributing to the society. SEEK Volunteer, as one of the most significant participants in returning to society, provides internal employees opportunity to volunteer in the society. And every dollar donated by employees can be matched by Small Change Workplace Giving program. In terms of the environment, SEEK has created SEEK Green Sustainability program to achieve the environment-friendly purpose. Apart from that, SEEK has several strategies to be sustainable.

Employee engagement

SEEK continues to keep high employee engagement which can build employees ‘confidence and make them feel respected, which in return could improve the work efficiency and effectiveness. In 2017, SEEK has been recognized as the best employer by Aon Hewitt in Australia and New Zealand for the high employee engagement.

Learning and Development

In 2017, SEEK has initiated a program called Coaching for SEEK success which custom-designed learning program for leaders is.(SEEK 2017, p.11) It aims at making leaders more skilled and confident to lead the team and teach the team. The more skilled leaders would corporate the team well and provide better training to its employees that enables the teams to work more wisely and efficiently. Also, learning development would keep employees with up-to-date skills and trigger innovation.

Equal opportunity

SEEK operates business all over the world. Therefore, it brings SEEK a large number of employees with the different background, like language, age, religion. SEEK respects and values the diversity of employees which provides the company with more potential to succeed in the future. The company policy promotes that every employee from any workplace is given the equal opportunity. The equal opportunity forms parts of the company culture.

SEEK Hackathon

During the financial year 2017, SEEK has successfully held two Hackathon events. The Hackathon event is to gather employees to share ideas which can be possibly made into prototypes, which helps SEEK innovate. It is a great opportunity for SEEK to find some future products that could meet the future's needs of the society, because, the customers'needs are changing constantly. It increases the sustainability for SEEK in the aspect of future needs. At the same time, SEEK Hackathon increases the employee engagement in some way.

Gender balance

In the financial year 2017, the Female at SEEK Thrive(FAST) was introduced. It aims to be aware of any career development barriers that could exist for female employees and eliminate them. It would increase employee’s satisfaction and higher employee satisfaction attracts more skilled potential employees from the society which leads to sustainability for SEEK in the aspect of future employees.

Sustainability

The accounting analysis of a business entity is carried out for measuring, recognizing, presenting and disclosing the information presented in the financial statements. The evaluation is carried out for facilitating the decision-making of the end-users through assessing the liquidity, stability and profitability position of a business entity (Wahlen, Baginski and Bradshaw, 2017). The evaluation of the financial information of a business entity through its financial statements helps in estimating its future performance and facilitating managers and investors to undertake important decisions (Deegan, 2013). The accounting analysis of Seek Limited will enable in evaluating its accounting system and therefore developing an in-depth understanding of the accounting policies and procedures. It consists of the following six steps:

The first two steps in the accounting analysis aim at analyzing the accounting policy of the company and the underlying flexibility in its accounting system. The accounting flexibility refers to the ability of the company to change its accounting policies and procedures as per the business needs and requirements (Macve, 2015). It can be analyzed by assessing the accounting methods used for carrying out the financial transactions of a business entity:

  • Revenue Recognition: The Group recognizes the revenue stream at the fair value of the consideration to be received and is measured in the financial statements as net of sales taxes such as GST and VAT. The revenue is only recognized when it can be measured appropriately and it is expected that there will be the realization of future economic benefits to the entity (Penman, 2011). The accounting policy adopted by the company is as per the AASB 118 standard and there is less accounting flexibility in this accounting policy as the company recognizes revenue by standard accounting practices (Seek Limited Annual Report, 2017)
  • Intangible Assets: The Group is involved in providing technology solutions, and therefore its intangible assets are of great significance for it to achieve its objectives and goals. These assets mainly include goodwill, brands, Licenses, software and website development. They are recognized in the financial statements on the cost or at the fair value if acquired by business combination. The intangible assets are considered to have indefinite useful life and are mortised over their expected useful life’s (Dickie, 2006). They are allocated to a cash-generating-unit (CGU) and are examined annually for determining the impairment suffered by them. The recoverable amount of the CGU is assessed through the use of value-in-use or fair value through reducing the cost of disposal. The management adopts the assumptions of cash flow forecasts, application of terminal value growth rate and pre-tax discount rates. The company adopts flexibility in the accounting policies used for recognizing the value of intangible assets (Seek Limited Annual Report, 2017).
  • Business Combination: The Group has adopted the use of acquisition method of accounting for identifying and recording all the business combinations. The consideration is paid out at the fair value of the assets that are acquired and liabilities that are assumed (Fridson and Alvarez, 2011). However, for any acquisition made on acquisition bases. The non-controlling interest is recognized by the Group in acquire at fair value. There is less accounting flexibility as it has adopted the use of this significant accounting policy over a long period (Seek Limited Annual Report, 2017).
  • Segment Information: The operating segments of the Group have been aggregated consistently as per the internal reporting framework provided by the Chief Operating Decision Maker (CODM). It has adopted high flexibility in segment reporting as per the changes in the external environment. The transformation in the business model of the company has ceased majority of its business operations and therefore the segment reporting procedures of the Group are subject to larger flexibility (Seek Limited Annual Report, 2017).
  • Trade Receivables: The trade receivables are recorded at the amount stated in the invoice based on the amount that is likely to be received from the customer less the provision amount that is estimated to be unrecoverable. The provision for doubtful debts will be included in the operations and administration expense in the consolidated income statement (Robinson, Henry, Pirie and Broihahn, 2015). Thus, accounting flexibility may be taken by the Group at the time of creating the allowance for doubtful debts (Seek Limited Annual Report, 2017).

The evaluation of the accounting strategies used by Seek Limited will help in examining the authenticity and reliability of the financial information disclosed by the Group. The accounting strategy adopted by the Group is examined through comparing its performance with the top competitor’s (Healy and Palepu, 2012). As such, the key competitors of the Group selected for evaluation of the accounting strategy is Monster Worldwide Inc. Both the companies relatively adopt the use of same accounting policies for developing financial statements. The business combinations are recognised through the use of acquisition method of accounting and the trade receivables are accounted by considering the allowance for doubtful debts (Schmidlin, 2014). The intangible assets are recognised at fair value that is calculated through estimating the present value of estimated future cash flows. Both the companies value their assets and liabilities through the use of methods of fair value (Monster Annual Report, 2015). Therefore, it can be said that both the companies adopts the use of relatively same accounting strategies and as such SEEK limited uses the accounting policies as per the industry norms (Seek Limited Annual Report, 2017).

Also, it can be analyzed from the remuneration structure of SEEK Limited that it does not adopt the use of short-term incentives that relies upon the performance of the executives and managers. The Group provides long-term incentives to the executives and managers as per the growth in share price over a three-year performance period. Therefore, it can be said that clear and transparent remuneration structure developed by the management minimizes the occurrence of fraudulent accounting strategies for gaining personal benefits of attaining higher incentives (Seek Limited Annual Report, 2017).

Accounting Analysis

The overall analysis of the annual report of Seek Limited that it is developed as per the standard accounting practices and policies as per the AASB requirements. The annual report has presented a brief overview of the Group’s current performance and its strategic intent to the shareholders in its initial section under the Chairman’s and CEO report. The detailed explanation of the accounting policies is provided by explaining the accounting transaction under each heading of notes to financial statement so that it is easily understood by the end-users. The notes to financial statement section have sufficiently explained the current performance of the Group. The Group has successfully adopted Generally Accepted Accounting Principles (GAAP) for conducting the accounting transactions and to provide reliable and accurate financial information to the end users. The annual report also discloses complete information about the operating segments of the Group in the notes to the financial statements section (Seek Limited Annual Report, 2017).

Seek Limited is having a positive financial growth and also develops its financial statements as per the standard accounting policies and thus it can be said that there is no such issues present before the Group at present. The quality of accounting information is also ensured by the report of external auditors thus guaranteeing that there are no major accounting distortions (Stickney, Weil and Francis, 2009).

Conclusion

It is analyzed from the overall discussion that future growth of SEEK Limited has been negatively impacted through the economic downturn at the macroeconomic level. Also, at industry-wise, the Group has acquired a dominant position however there is risk of new entrants in the market that can impact its business performance in the long-term. The use of cost leadership strategies has enabled it to achieve a competitive edge and is responsible for its good business growth. At last, the accounting analysis depicted that it complies with all the standard accounting policies and there is no concern regarding the potential red flags and accounting distortions in its annual report. The Group has adopted the accounting policies as per the AASB standards and there is also use of relative accounting judgments and assumptions during the preparation of the financial statements. The Group is complying with the industry norms in developing its financial statements and this has been evaluated from the comparison of its accounting strategy with the competitor. The accounting policies and estimated adopted during the preparation of the consolidated financial statements are explained in detail in the notes to the financial statements section of the report. The segment information provides information about the various operations of the Group and the accounting policies adopted for assessing their financial performance. The presence of a clear and transparent remuneration structure by the management ensures that there is no manipulation of business accounts for personal gains by the business managers.

References

Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.

Dickie, R. 2006. Financial Statement Analysis and Business Valuation for the Practical Lawyer. American Bar Association.

Fridson, M. and Alvarez, F. 2011. Financial Statement Analysis: A Practitioner's Guide. John Wiley & Sons.

Healy, P. and Palepu, K. 2012. Business Analysis Valuation: Using Financial Statements. Cengage Learning.

Macve, R. 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, or Threat?. Routledge.

Monster Annual Report. 2015. [Online]. Available at: https://www.annualreports.com/HostedData/AnnualReportArchive/m/NASDAQ_MWW_2015.pdf [Accessed on: 7 April 2018].

Penman, S. 2011. Accounting for Value. Columbia University Press.

Robinson, T., Henry, E., Pirie, W. and Broihahn, M. 2015. International Financial Statement Analysis. John Wiley & Sons.

Schmidlin, N. 2014. The Art of Company Valuation and Financial Statement Analysis. John Wiley & Sons.

Seek Limited Annual Report. 2017. [Online]. Available at: https://member.afraccess.com/media?id=CMN://3A481116&filename=20171030/SEK_01914393.pdf [Accessed on: 7 April 2018].

Stickney, C., Weil, R. and Francis, J. 2009. Financial Accounting: An Introduction to Concepts, Methods and Uses. Cengage Learning.

Wahlen, J. Baginski, S. and Bradshaw, M. 2017. Financial Reporting, Financial Statement Analysis and Valuation. Cengage Learning.

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