HeadHunter Group PLC
HHR $11.00-$13.50 16.3 million ADSs Underwriters: Morgan Stanley, Goldman Sachs & Co.,
Credit Suisse, VTB Capital, BofA Merrill Lynch, Sberbank CIB Co-Managers: Proposed
trade date of 5/9. They are the leading online recruitment platform in
Russia and the Commonwealth of Independent States and focus on connecting job
seekers with employers.
HeadHunter Group PLC HHR
Click here
to view the prospectus.
https://www.sec.gov/Archives/edgar/data/1721181/000119312519119520/d734362df1a.htm
Company
Overview
They are the leading online recruitment platform in
Russia and the Commonwealth of Independent States (“CIS”) and focus on
connecting job seekers with employers. They
offer potential employers and recruiters paid access to their extensive
curriculum vitae (“CV”) database and job postings platform. They also provide
job seekers and employers with a value added services (“VAS”) portfolio
centered on their recruitment needs. Their brand and the strength of their
platform allow them to generate significant traffic, over 86% of which was free
for them as of November, 2018 according to their internal data, and they
were the third most visited job and employment website globally as of January
1, 2019, according to the latest available data from SimilarWeb. Their CV
database contained 22.1 million, 26.4 million and 36.2 million total CVs
(excluding Ukraine) as of December 31, 2016, 2017 and 2018, respectively,
the growth partially due to their acquisition of Job.ru in January 2018, and their
platform hosted a daily average of more than 344,000, 398,000 and 559,000 job
postings (excluding Ukraine) in the years ended December 31, 2016, 2017 and
2018, respectively. For the years ended December 31, 2016, 2017 and
2018, their platform averaged 16.7 million, 17.5 million and 20.0
million unique visitors per month, respectively, according to LiveInternet.
Their user base consists primarily of job seekers
who use their products and services to discover new career opportunities. The
majority of the services they provide to job seekers are free. Their customer
base consists primarily of businesses using their CV database and job posting
service to fill vacancies inside their organizations.
The quality and quantity of CVs in their database
attract an increasing number of customers, which leads to more job seekers
turning to them as their primary recruitment and related services provider,
creating a powerful network effect that has allowed them to continuously
solidify their market leadership and increase the gap between them and their
competitors.
Their portfolio of recruitment-centric VAS is
designed to improve the customer experience, increase the effectiveness of the
recruitment process for their customer base and enable them to penetrate each
link of the recruitment value chain beginning with sourcing, to engaging,
pre-selecting, interviewing and then onboarding the selected candidates. They
are working to further integrate their VAS features into their core products in
order to enhance efficiency throughout the overall recruitment process, which
they believe will increase the value proposition of their services and improve
retention rates and average revenue per customer.
They were founded in 2000 and have successfully
established a strong, trusted brand and the leading market position, which have
enabled them to achieve significant growth in recent years. They had
approximately 253,000 paying customers on their platform for the year ended
December 31, 2018. They have a highly diversified customer base,
representing the majority of the industries active in the Russian economy. Their
brand awareness is one of the highest among the Russian online recruitment
players, according to Socis MR Rus, which, coupled with a nationwide sales
force and broad customer reach, creates barriers for new entrants to their
markets.
They engage with job seekers and employers via their
desktop sites, mobile sites and mobile applications. Since launch, their
mobile applications had been downloaded 15.3 million times cumulatively as of
December 31, 2018, and their mobile platforms currently account for the
majority of their traffic. Their scalable technology platform utilizes an
increasingly clear and simple user interface enhanced by their search engine,
which is powered by artificial intelligence (“AI”) and machine learning
algorithms.
IPO
Detail
This is the initial public offering of HeadHunter
Group PLC and no public market currently exists for its common stock. HeadHunter
Group PLC is offering shares of common stock as described in the prospectus.
The company expects the initial public offering price of its common stock to be
between $11.00 and $13.50 per share. The company has applied to list its common
stock on the NASDAQ Global Market under the symbol “HHR.”
|
ADSs offered by
the selling shareholder |
16,304,348
ADSs, each representing one ordinary shares. |
|
Ordinary shares
to be outstanding immediately after this offering |
50,000,000
ordinary shares |
Use of
Proceeds
The Selling Shareholders will receive all of the net proceeds from the
sale of the ADSs. They will not receive any proceeds from the sale of ADSs by
the Selling Shareholders.
In connection with the Acquisition, Highworld Investments
Limited entered into a profit sharing arrangement with an affiliate of Ivan
Tavrin, and ELQ Investors VIII Limited in turn entered into a pro rata arrangement
with Highworld Investments Limited, pursuant to which Mr. Tavrin’s affiliate
will receive approximately 9% of any profit that Highworld Investments Limited
and ELQ Investors VIII Limited realize with regard to their investment in the
Company, including any profit realized upon the sale of its ADSs in this
offering. Pursuant to this arrangement, Mr. Tavrin’s affiliate will receive
approximately $16.0 million from the sale of ADSs by the Selling Shareholders
in this offering, assuming an initial public offering price per share of
$12.25, which is the midpoint of the price range set forth on the cover page of
this prospectus (or approximately $18.7 million if the underwriters exercise
their option to purchase additional ADSs in full). Neither Mr. Tavrin nor his
affiliate provided services in connection with the Acquisition or to the
Company. Neither Mr. Tavrin nor his affiliate is a shareholder of the Company
and neither has rights in the Company or its shares or with regard to its
management. Instead, the profit sharing arrangement with Mr. Tavrin settles the
Selling Shareholders’ obligation to Mr. Tavrin arising from his relinquishing a
previously existing position as the preferred purchaser in the Acquisition. Mr.
Tavrin is a well-known Russian telecom, media and technology entrepreneur who
was a founder, shareholder and head of a number of Russian companies. He was
CEO of Megafon from 2012 to 2016. Mr. Tavrin previously held a position on the
board of directors of Mail.Ru (but did not hold such position at the time of
the Acquisition) and affiliates of Highworld Investments Limited have
historically had and continue to have joint investment projects with Mr. Tavrin
in other businesses that are not related to the Company. Neither Mr. Tavrin nor
his affiliate is otherwise affiliated with the Selling Shareholders or the
Company, and the Company has no obligations to Mr. Tavrin or his affiliate.
Competition
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Avito |
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Yandex
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Mail.Ru
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Although professional social networking
businesses with online recruitment functions historically have not had
significant market positions in Russia, such businesses may dedicate extra
resources to expand their operations and as a result, become a significant
competitive threat in the future. In particular, should the current government
block on the services of the social networking site LinkedIn be lifted,
LinkedIn may choose to compete with them in the Russian market. Social networks
or professional networking sites like LinkedIn may benefit from access to large
pools of passive potential job seekers and a broad range of user information
that they could leverage to tailor their recruitment services.
Over the last two years, they have noticed the
emergence of mobile-only startups, which target blue collar high turnover
professions. These startups are still in the early stages, and it is uncertain
how they will affect the overall competitive climate in Russia. Several new
specialized HR technology companies are bringing new technologies to
recruitment functions and could challenge the automation of certain recruitment
related functions and have emerged as new players, which could gain a larger
presence in the market. In certain geographies and specific segments, they
compete mainly with offline media, such as local newspapers with a jobs
classifieds section.
In addition, they may face competition in the
future from new entrants in the recruitment advertising industry and other
human resource industries in which they operate, such as dedicated recruitment
ads aggregators like Indeed, social networking websites such as Facebook,
career-related Internet portals and existing participants in the offline
recruitment industry who may develop online recruitment services and products,
as well as other HR service providers who may enter the market for any or all
of their services. In particular, certain specialized HR technology companies
have emerged that have advanced technological capabilities that may be
difficult to replicate and/or compete against. Furthermore, Google recently
enhanced its job search function in Russia, as well as in other countries globally,
by adding a user function called “Google for Jobs.” There can be no assurances
that this will not negatively impact their business.
Market
Opportunity
Russia is the 11th largest
economy in the world, with a GDP of $1,578 billion in 2017 according to the
World Bank, and was the 9th most populous country, with a
population of 147 million as of December 31, 2017, according to the Federal State Statistics Service
(“Rosstat”). GDP has increased by 2.3% in 2018, which is the second
consecutive year of growth following an economic downturn in 2014 and 2015,
according to Rosstat. Russia has the largest Internet audience among
European countries with 84 million users in January/February 2018, and an
Internet penetration rate of approximately 72% of the population above 18 years
old, according to the Fund Public Opinion (“FOM”). The Internet has become
an integral part of Russian consumers’ lifestyle, resulting in many activities
and services, including job search, migrating online.
Although Russia had
a large labor force of approximately 75.8 million people on average in
2017 according to the Ministry of Economic Development (“MED”), local
businesses are experiencing a shortage of employees, which translates into a
low unemployment rate, high turnover of employees and wage growth above real
GDP growth. Competition for human capital
supported the rapid expansion of job advertising services industry in the past
decade. At the same time, as Internet usage becomes ubiquitous, job searching
is moving online and increasingly to mobile platforms, and both employers and
job seekers are rapidly adopting online services.
Recovery of the Russian
Economy
The Russian
economy demonstrated higher than expected growth in 2018 due to an increase in
net exports and upward revision of construction sector output. Russia
experienced 2.3% real GDP growth in 2018, according to Rosstat’s preliminary
numbers. The MED expects Russia’s GDP to grow from 2.0% to 3.2% annually in
real terms from 2020 to 2022, supported by the growth of fixed capital
investments and the recovery in domestic demand as result of easing financial
conditions and improving consumer confidence.
Large Internet Audience
and Ubiquitous Internet Usage
Russia’s
Internet audience has experienced significant growth over the last decade,
bolstered by economic growth, the increasing affordability of personal
computers and mobile devices and substantial investments in broadband
infrastructure. According to the FOM, Russia’s monthly Internet audience was
approximately 84 million users in January/February 2018, translating into an
Internet penetration rate of approximately 72%, of the population above 18
years old, almost tripling the levels from July 2007.
The
significant growth in Internet penetration rates has resulted in the shift of
everyday activities of consumers and businesses online, further supported by
the availability of websites and mobile applications catering to the various
needs of consumers and businesses and an expansion in the range of services
offered online, including job search.
Shift of Marketing
Expenditure Online
As Internet
usage is rapidly growing and consumers are spending more time online and on
mobile devices, a larger share of marketing budgets is being allocated to
online media. In Russia, the share of total marketing spend on TV,
newspapers, outdoor, radio and other offline media declined from 88% in 2010 to
57% in 2018, while the share of advertising budgets allocated to online media
increased from 12% in 2010 to 43% in 2018, according to the Association of
Communication Agencies of Russia. Despite significant growth in recent years,
the online advertising market in Russia is far from realizing its full
potential. For example, the share of marketing budgets spent online was
significantly lower than the same share in China (53% in 2016) or the United
Kingdom (55% in 2016), according to Zenith.
Russian Labor Market
Structure and Fundamentals Support Growing Competition for Human Capital
The Russian labor
market has historically had a number of fundamental characteristics that have
resulted in a shortage of highly skilled and talented employees, high turnover
of employees and real wage growth exceeding real GDP growth and consumer
inflation rates. Although
employee turnover and real wages declined during the last economic downturn,
the fundamental market characteristics remain largely intact and are expected
to continue to support strong competition for human capital, resulting in
increased marketing spending on job advertising as the economy rebounds.
Growing Popularity of
Online Recruitment Services
Historically,
Russian companies looked for talent using offline recruitment services such as
print classifieds, local newspapers, recruitment agencies, recruitment events
and offline job advertising. As the use of Internet services among
businesses and employees has increased, job advertising and HCM services have
started migrating online and to mobile platforms. According to
J’Son & Partners, the share of job postings advertised online is
expected to increase from 29% in 2018 to 41% by 2022.
Russian Online
Recruitment Market Size
According to
J’Son & Partners, the Russian online recruitment market has grown
by 28% in 2018 as compared to the previous year. J’Son & Partners estimates
that the size of the market was approximately P10.3 billion in 2018 and
expects it to grow at a CAGR of 21.7% from 2018 to 2022 and reach
approximately P22.6 billion by 2022. The growth of online recruitment
spend is expected to be driven by a combination of an increase in the number of
small and medium enterprises using online recruitment services, wider adoption
of online recruitment in the Russian regions and the enhanced monetization of
online recruitment services and the transition of internal recruitment
procedures into online recruitment platforms. Online recruitment platforms
accounted for approximately 23% of total recruitment spend in Russia in 2018
and are expected to reach 46% of total spend by 2022, based on
J’Son & Partners’ estimates. The share of recruitment spend by other online
channels, mainly represented by professional social networks and social media,
increased from 1.4% in 2015 to 1.5% in 2018. By 2022, J’Son & Partners
expects the share of other online channels to increase to 3.5% of the Russian
online recruitment market. The share of internal costs of recruitment spend is
expected to decrease from 53% in 2018 to 35% in 2022, following the
optimization of the recruitment process, driven by wider adoption of HR
management software, such as applicant tracking systems, automated
pre-screening solutions and career development services.
Income Statement Data
|
|
|
Predecessor |
|
|
|
|
|
Predecessor |
|
|
Successor |
|
||||||||||||
|
(in thousands of
RUB) |
|
For the |
|
|
Pro forma |
|
|
Period from |
|
|
Period from |
|
|
For the |
|
|
For the |
|
||||||
|
Revenue |
|
|
3,103,628 |
|
|
|
3,739,596 |
|
|
|
452,904 |
|
|
|
3,286,692 |
|
|
|
4,732,539 |
|
|
|
6,117,773 |
|
|
Operating costs and expenses (exclusive of
depreciation and amortization) |
|
|
(1,543,365 |
) |
|
|
(2,065,999 |
) |
|
|
(265,959 |
) |
|
|
(1,847,885 |
) |
|
|
(2,788,576 |
) |
|
|
(3,432,860 |
) |
|
Depreciation and amortization |
|
|
(88,657 |
) |
|
|
(540,751 |
) |
|
|
(8,743 |
) |
|
|
(459,721 |
) |
|
|
(560,961 |
) |
|
|
(586,131 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,471,606 |
|
|
|
1,132,846 |
|
|
|
178,202 |
|
|
|
979,086 |
|
|
|
1,383,002 |
|
|
|
2,098,782 |
|
|
Finance income |
|
|
123,943 |
|
|
|
28,510 |
|
|
|
4,246 |
|
|
|
24,264 |
|
|
|
70,924 |
|
|
|
90,602 |
|
|
Finance costs |
|
|
— |
|
|
|
(732,025 |
) |
|
|
— |
|
|
|
(635,308 |
) |
|
|
(706,036 |
) |
|
|
(644,326 |
) |
|
Gain on disposal of subsidiary |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
439,115 |
|
|
|
6,131 |
|
|
Net foreign exchange gain/(loss) |
|
|
74,046 |
|
|
|
(16,190 |
) |
|
|
9,720 |
|
|
|
(25,910 |
) |
|
|
96,300 |
|
|
|
(8,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before income tax |
|
|
1,669,595 |
|
|
|
413,141 |
|
|
|
192,168 |
|
|
|
342,132 |
|
|
|
1,283,305 |
|
|
|
1,542,447 |
|
|
Income tax expense |
|
|
(393,817 |
) |
|
|
(442,493 |
) |
|
|
(59,176 |
) |
|
|
(397,774 |
) |
|
|
(820,503 |
) |
|
|
(509,602 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
1,275,778 |
|
|
|
(29,352 |
) |
|
|
132,992 |
|
|
|
(55,642 |
) |
|
|
462,802 |
|
|
|
1,032,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data
|
|
|
Successor |
|
|||||
|
|
|
As of |
|
|
As of |
|
||
|
(in thousands of
RUB) |
||||||||
|
Total non-current assets |
|
|
10,640,174 |
|
|
|
10,373,068 |
|
|
Total current assets |
|
|
1,530,424 |
|
|
|
2,966,214 |
|
|
Total assets |
|
|
12,170,598 |
|
|
|
13,339,282 |
|
|
Total equity |
|
|
1,955,248 |
|
|
|
3,003,420 |
|
|
Total non-current liabilities |
|
|
7,425,329 |
|
|
|
6,287,899 |
|
|
Total current liabilities |
|
|
2,790,021 |
|
|
|
4,047,963 |
|
|
Total liabilities |
|
|
10,215,350 |
|
|
|
10,335,862 |
|
Target
Markets
Continue to broaden candidate reach They plan to continue strengthening their candidate
sourcing capabilities by enhancing coverage of the overall employable
population of Russia. In addition to their traditional white collar and
Moscow and St. Petersburg based markets, they are increasingly emphasizing
penetration into the blue collar segment and the other Russian regions, as well
as other specific categories of job seekers, such as passive candidates and
youth, where they are noticing an increase in customer demand.
Increase the share of candidates from Russian
regions They see strong demand for
both white collar and blue collar professionals in the Russian regions outside
of Moscow and St. Petersburg. As of December 31, 2018, CVs from Russian
regions accounted for 48% of their total visible CV database, compared to 45%
as of December 31, 2017. They plan to further increase this share benefiting
from their long-standing leadership by number of CVs in regions, as they were
the leader by number of CVs (including those acquired from Job.ru) in 93% of
Russian regions as of December 2018.
Increase the share of blue collar job seekers They aim to diversify their job seeker base and
increase the number of blue collar professionals using their platform, who they
believe are a segment of the Russian online job seeker market that has
historically been hard to reach online, and therefore, represents significant
potential. Their key initiatives in this regard include:
·
further simplifying the CV preparation and application processes;
·
focusing on offline marketing channels, which have proven to be effective
to date in attracting blue collar job seekers; and
·
considering potential acquisitions of smaller competitors who have
historically focused on blue collar job seekers.
In line with
this strategy:
·
they increased their top-of-mind brand awareness among blue collar job
seekers from 22% as of June 28, 2017 to 33% as of September 30, 2018, according
to Socis MR Rus; and
·
in January 2018, they acquired the assets of Job.ru, a platform that has
historically focused on blue collar job seekers.
Increase
the share of young candidates They believe that competition for entry
level professionals is set to intensify in the coming years due to demographic
factors (i.e., low birth rates in Russia in the 1990s into the beginning of the
2000s). Hence, they consider it essential to ensure high engagement and
retention of the younger audience on their platform.
They aim to
solidify their market leadership in this segment (by number of CVs of young
professionals) by significantly increasing content targeted at youth
(particularly internship postings), further improving their user interface and
conducting selective marketing efforts aimed at young professionals (if
considered necessary). They also intend to design innovative mobile
solutions to suit young professionals’ needs and employment habits, such as
elevated turnover rate, the preference for temporary or remote employment and
higher activity on-the-go.
Increase
and enhance job advertisements database Their strategic goal is to be the leader by job advertisements across
all regions of Russia and all customer segments.
Increase
customer penetration in Russian Regions They plan to capitalize on the relatively low penetration level of
online recruitment services in Russia, which, according to J’Son &
Partners, stood at approximately 10% in 2016, measured as the share of active
businesses using online recruitment platforms compared to selected developed
markets in 2016 (e.g., 30% in Australia and 25% in Germany, according to J’Son
& Partners). They aim to continue expanding into Russian regions, focusing
on cities with more than 50,000 inhabitants, where they believe high growth
opportunities in their industry exist due to the ongoing shift from offline to
online. The number of enterprises in Russian regions is forecasted to grow at a
CAGR of 2.1% from 2018 to 2022, compared to only 0.6% for Moscow and St.
Petersburg, according to J’Son & Partners, which they believe will further
support this demand. The CAGR of their number of customers in the Russian
regions, excluding Moscow and St. Petersburg, was 60% from 2015 to 2018,
compared to 25% in Moscow and St. Petersburg during the same period, which
demonstrates the importance of the regional focus of their geographical
expansion strategy.
Besides
benefiting from a steadily growing online recruitment market, they aim to gain
market share from other regional and multi-regional online job classifieds
platforms due to their strong competitive advantages, including their highly
trained, local sales force, ability to publish job postings and CVs across
broad geographies, technological edge and expansion of social media, TV and
other marketing programs to further increase their brand awareness and
engagement of job seekers and customers.
Increase
the share of Small and Medium Accounts They aim to substantially increase the number of Small and Medium
Accounts on their platform, which they believe represent the most
underpenetrated segment of the Russian job classifieds market. The number
of their Small and Medium Accounts grew at a CAGR of 40% from 2015 to 2018,
reaching approximately 223,000 accounts for the year ended December 31,
2018, while the number of Key Accounts grew on average by 13% during the same
period, reaching approximately 11,000 accounts for the year ended December 31,
2018.
Provide the
most effective candidate delivery product by maintaining technological edge
across all platforms As they
continue to grow their candidate and employer databases and as traffic on their
platform continues to increase, it is critical that they continue developing their
technology and data capabilities to optimize job seeker and employer matching,
thus enabling a streamlined and efficient recruitment process for both parties.
They will continue
to extensively use and develop AI technology and machine learning algorithms at
all key stages of interaction with job seekers and employers. Their main goals for their AI and machine learning
algorithms are to further enhance their smart search and matching
functionalities in job postings and their CV database and make their
recommendation system more tailored to specific qualities and recruitment
criteria, each of which they expect will improve the quality of their
recommendations and matches and in turn increase the number of people hired
through their platform.
They benefit from
high barriers to entry combined with the ability to compile unique data based
on the recruitment needs of their customers, which allows them to steadily
develop innovative products. Their
strategy is to continue collecting and using this data to feed into their Smart
Matching and Machine Learning Recommendation systems, while also maintaining
data protection standards and continuing to be in full compliance with all
relevant personal data related regulations. In this regard, they will continue
applying stringent information security standards and continue stress and
access testing of their IT systems under different scenarios to meet evolving
security challenges and ensure the safety and privacy of their job seekers’ and
customers’ data.
They plan to pursue
a platform agnostic approach and boost usage of their mobile platform by
developing and improving access to a larger range of their services on “all
screens.” Growing mobile internet and smartphone penetration in Russia is a
major trend, and they aim to leverage this development to further increase their
customer and job seeker reach. They consider mobile expansion to be not only a
natural evolution of their desktop audience, but also a way to expand their
ability to access such job seekers and customers who prefer mobile to desktop
use. As of December 31, 2018, 52% of registered job seekers used their mobile
platform only (including both mobile website and apps), while 27% used the
desktop only. The share of registered job seekers only using their mobile
applications increased from 19% in January 2017 to 39% in December 2018. They
continuously seek to enhance the functionality of their mobile platform. Their
mobile app for job seekers now provides full functionality and they continue to
add functionality to their mobile app for customers. As a result, they see a
growing share of their traffic from mobile devices, reaching 64% for the year
ended December 31, 2018, and improving conversions of mobile traffic into
applications from job seekers.
Enhanced customer
monetization potential They
believe there is significant untapped monetization potential in their business
due to the relatively low costs of their services to their customers, in both
absolute terms and compared to foreign markets, which they believe leads to
relatively low elasticity of demand, particularly from large enterprises. They
aim to further enhance their monetization opportunities in order to close the
gap in their pricing, measured by annual revenue per UMV, between them and
global industry peers. They have a demonstrated track record of increasing
customer monetization in all corporate segments during the last decade.
They believe
that these efforts will be further supported by their pricing power stemming
from their clear market leadership position, which they expect to maintain and
increase due to the continuing network effect described above.
They are
continuously working on additional monetization opportunities by tailoring their
product portfolio to offer their Key Accounts premium levels of existing and
new services, as well as adapting their pricing policies and strategies to suit
particular customer segments and the broader marketplace and regulatory
environment as it continues to rapidly evolve.
Well
positioned to reach the entire recruiting value chain They plan to continue transforming their
business into a comprehensive, integrated recruiting platform by broadening
their product range along the recruitment services value chain (from sourcing
to onboarding). Their goal is to capture and automate the entire recruiting
process and seamlessly manage it through their platform. They believe that their
vast customer base, deep insight into its hiring needs as well as broad
candidate sourcing capabilities give them advantages in creating value
throughout the recruiting process while enhancing customer engagement and
increasing their overall customer retention and ARPC.
Their
proprietary Software-as-a-Service (“SaaS”) based applicant tracking system
(“ATS”), Talantix, allows employers to automate candidate processing and talent
acquisition, which is vital to creating value throughout the entire recruiting
process. Talantix has been gaining traction among their midmarket customers
that look for an end-to-end solution with minimal customization and integration
requirements. This allows them to scale this offering across a broader customer
base without embarking on long-lasting integrations.
Recently, they
acquired a 25.01% stake in a rapidly developing HR technology company, Skillaz,
which automates routine recruiting processes by implementing complex
built-to-suit integration projects. This offering complements Talantix as it
targets larger, high-end market customers who have a sophisticated recruitment
function. They also entered into option contracts to purchase the additional
40.01% ownership interest in Skillaz, which are exercisable through the period
from January 1, 2020 until June 30, 2021. These options will be exercised if they
decide that this product gains traction with their customers and fits with their
long-term strategy.
They aim to
continue to seek out acquisitions in adjacent markets, such as ATS and
automation software. They believe that integrating their online classified,
program-based, off-platform lead generation capabilities and process management
software in one solution will increase their customer value proposition,
enhance customer loyalty and increase customer spend within their recruitment
ecosystem.
Company's
Unique Strengths
Number one
online recruitment platform in Russia with a leading position in other CIS
countries They are the leading online
recruitment platform in Russia, focusing on facilitating the recruitment
process and connecting millions of job seekers with hundreds of thousands of
employers annually. They are also the leading player in Kazakhstan and Belarus
and are among the top three players in Azerbaijan, Kyrgyzstan and Uzbekistan,
which makes them a leader in online recruitment in the CIS region.
They have
more visible CVs in their database and more job postings on their platform than
any of their direct competitors. They are also among the most visited online
recruitment websites in their markets, with 20.0 million unique monthly
visitors (“UMVs”) coming to their website on average during the year ended
December 31, 2018, which is nearly three times more than their closest peer,
according to LiveInternet. They enjoy strong user traffic dynamics and are the
third most visited job and employment website based on this metric globally,
according to the latest data available from SimilarWeb as of January 1, 2019.
Their strong
operational performance has contributed to their clear number one position in
the Russian market by revenue, which was almost three times higher than that of
their closest online peer in the year ended December 31, 2017, according
to J’Son & Partners.
Powerful
network effect reinforcing their market leading position Their extensive, high quality CV database
(the owners of 17.4 million CVs, excluding those acquired from Job.ru and
HeadHunter LLC (Ukraine), or 76% of their total visible CV database, have
either applied at least once for a job posting or edited a CV in the last two
years as of December 31, 2018), large database of job postings relevant to
job seekers and significant user traffic create a strong network effect as
employers and job seekers tend to use job classifieds resources that offer the
widest range of options and the highest efficiency. This creates a cycle
that reinforced their market leadership position and increased the gap between them
and their competitors, despite the economic downturn in Russia in 2014 and
2015, as demonstrated by the following key performance metrics:
Most
recognized brand and nationwide technology-empowered sales function creating
strong customer relationships They
believe that their brand and their sales function are distinct competitive
advantages as they expand their product offering and enter new market segments.
As one of the
first online recruitment platforms in Russia (operating since 2000), they have
established “HeadHunter” as a strong brand with top-of-mind brand
awareness of 45%, which differentiates them from their competitors. Their
nearest competitor had top-of-mind brand awareness of 27%, and other
market participants had top-of-mind brand awareness in the single
digits, according to Socis MR Rus as of September 30, 2018. They were ranked
first among career-focused websites in Russia by SimilarWeb based on user
traffic as of January 1, 2019. According to their internal data, as of November
2018, 86% of their traffic was free, which demonstrates strong user affinity
for their brand and the high organic liquidity of their platform. Direct
traffic, which is comprised of organic, type-in and email distributions
traffic, accounted for 43% of their traffic. They intend to further increase
the popularity of their brand and user loyalty through the efficient use of TV
and online advertising in their markets and by focusing on the high quality of their
user experience and customer service.
Their sales
function consists of a sales force with an established and extensive presence
across Russia and the CIS, a well-developed customer support function and a
fully integrated customer relationship management (“CRM”) platform,
incorporating predictive analytics tools.
Their CRM
system serves as a powerful tool for their sales function. It is linked to their
main platform and, combined with predictive analytics tools, provides real time
analysis of customer activity on their website and suggests relevant actions to
their sales force.
The performance of
their sales function has contributed to the growth in the number of customers
paying for their services, while average revenue per customer (“ARPC”) within
each annual customer vintage has been increasing over the last decade.
Robust
business model generating diversified and growing revenue streams from a loyal
customer base Their
business model is built around four key pillars of monetization:
subscription-based access to their CV database, job posting fees, bundled
subscriptions and VAS. Their diversified revenue stream, including highly
predictable, recurring subscription-based fees (for CV database access and
bundled subscriptions) that accounted for 55% of their total revenue in the
year ended December 31, 2018, allowed them to increase their revenue at a
compound annual rate of 25% from 2015 to 2018 (including the economic downturn
period in Russia) and achieve year over year growth at a rate of 31.5% from
2017 to 2018 (excluding the revenue from CV Keskus, which they disposed of
in March 2017, and the revenue of HeadHunter LLC (Ukraine), which they disposed
of in April 2018), resulting in total revenue of P6,118 million in
the year ended December 31, 2018.
They believe
that their business model provides a substantial degree of protection from the
volatility of economic cycles. Their customers are spread across many sectors
of the Russian economy, diversifying their exposure and protecting their
revenue from downturns and unfavorable developments in any single sector.
Furthermore, their customer mix in Russia is becoming increasingly diverse, as
the number of Small and Medium Accounts increased as a percentage of their
total customer base (Small and Medium Accounts revenue grew at a CAGR of 34.1%
from 2015 to 2018, while revenue from their Key Accounts grew at a CAGR of
22.4% in the same period). The number of CVs in their database increased during
the economic downturn in 2014 and 2015, which has generated increased
monetization opportunities during economic recoveries as employers are attracted
to a greater pool of active job seekers on their platform.
They strive
to maintain and further improve their high standards of customer service.
According to a customer survey conducted by Ipsos in November 2017, their Net
Promoter Score reached 68 points, which reflects their relentless focus on
customer satisfaction. Their business model and customer-oriented approach
allow them to maintain high rates of customer retention. Given the relatively
low cost of their services, underpinned by the relatively low elasticity of
demand for their services, they believe there is still significant room for
increased monetization.
Superior
profitability and cash flow generation profile Capitalizing on their leading market position
and the strong network effect, their scalable, asset-light, capital-efficient
operating model allows them to expand their service offering and geographical
footprint in their existing markets and increase their revenue from a growing
customer base without significant investments, while maintaining negative
working capital as they receive payments from customers for a number of their
services in advance. Their net working capital as of December 31, 2016,
December 31, 2017 and December 31, 2018 was P(1,231)
million, P(1,956) million and P(2,623) million, respectively. This is
reflected in their attractive profitability and cash conversion profile, both
in the Russian and in the global context. Their Adjusted EBITDA Margin in the
Successor 2018 Period and the Successor 2017 Period was 46.7% and 47.7%,
respectively, and they believe that, considering the high operating leverage of
their business and inspired by the example of the leading international players
in their respective markets, they have significant further upside in margins as
they further grow their market share and revenue base.
Strong
technology foundation and scalable infrastructure to support future growth They have developed a sophisticated technology
platform, focused on scalability and security, which allows them to create additional
value, to improve monetization of their products and maintain their competitive
edge.
Scalable
and robust proprietary platform. Their
IT infrastructure was built to be highly agile and scalable enabling them to
expand their product portfolio while significantly growing their user base. The scalability of their technology platform allows
them to handle large volumes of traffic without significant incremental capital
investment. In addition, they do not use third-party proprietary IT tools to avoid
vendor lock, and instead they utilize well known and proven open source tools.
Continuously
improving technology Key Performance Indicators (“KPIs”). They
work to the highest technology standards and aim to constantly improve their
platform. The number of technical bugs per
release decreased by 12% in the year ended December 31, 2018 compared to the
year ended December 31, 2017. Business continuity for their customers is
paramount to them, and they have demonstrated an average uptime rate of 99.91%,
99.92% and 99.92% in the years ended December 31, 2016, 2017 and 2018,
respectively. They create different types of user interfaces for different
users and simplify user interface forms depending on the context, which they
believe improves conversion rates and increases monetization.
Extensively
employing machine learning algorithms and artificial intelligence at all key
stages of interaction with job seekers and customers. AI lies at
the core of their platform, moderating 100% of incoming CVs (with approximately
70% of all CVs ultimately approved for publication by AI in the year ended
December 31, 2018) and they use machine learning algorithms to rank CVs in their
database and match candidates with the relevant vacancies. As a result, they
save on costs associated with CV moderation while improving conversion
throughout the job seeker’s funnel, thereby increasing the value of core
services to their customers and laying a solid base for monetization
enhancement. Their average applications to invites conversion rate for the
year ended December 31, 2018 increased by 21% compared to the year ended
December 31, 2017 and reached 0.25 invites per job application.
Best mobile
solution for job seekers and customers. They believe they are the leading HR
mobile platform in Russia, with the majority of their traffic currently coming
from mobile users. With both customers and job seekers increasingly
demanding on-the-go and on-demand access to recruiting and
HR services, they consider their mobile platform to be a strategic pillar of
their business. They
continuously enhance the user experience on their mobile apps and as of
December 2018, their mobile app was ranked among the top business-related
applications in iOS and Android appstore-generated lists in Russia, and since launch,
their mobile applications have been downloaded 15.3 million times
cumulatively as of December 31, 2018. Downloads for the year ended December 31,
2018 increased by 76% compared to the year ended December 31, 2017.
Data
protection and security. They take protection of job seekers’ personal data
and customers’ corporate data extremely seriously. All data between their
servers and customers’ browsers is transmitted over secure protocols.
They use monitoring
and protection services to limit potential hacking attacks. Their application
and database servers are located on an internal network that is isolated from
the Internet and is additionally protected by a dual firewall. They perform regular penetration testing under
multiple scenarios. Roskomnadzor inspects their compliance with applicable
personal data processing laws, and they fully comply with all such
requirements.
Company's
Unique Risks
They face
significant competition, which may cause them to suffer from a weakened market
position that would materially and adversely affect their results of
operations. The
markets for their products and services are highly competitive and rapidly
evolving. Other powerful internet companies with a broad local presence in
their markets that have extensive and loyal user bases, such as Yandex and
Mail.Ru, may decide to directly target their customers, thereby intensifying
competition in the recruitment market. Further, their existing competitors
or new market entrants may target new and emerging job seeker candidates, such
as youths, which, if successful, could harm their business and reputation.
Although professional social networking businesses with online recruitment
functions historically have not had significant market positions in Russia,
such businesses may dedicate extra resources to expand their operations and as
a result, become a significant competitive threat in the future. In particular,
should the current government block on the services of the social networking
site LinkedIn be lifted, LinkedIn may choose to compete with them in the
Russian market. Social networks or professional networking sites like LinkedIn
may benefit from access to large pools of passive potential job seekers and a
broad range of user information that they could leverage to tailor their
recruitment services.
If they
fail to improve their user experience, product offerings and technology
platform, they may not be able to attract and
retain job seekers and employers, which may have a material adverse effect on their
business, financial condition and results of operations.
If they are
not able to respond successfully to technological or industry developments,
including changes to the business models deployed in their industry, their
business may be materially and adversely affected.
Privacy and
data protection concerns, including evolving government regulation in the area
of consumer data privacy or data protection, could adversely affect their
business and operating results.
They may
not be able to successfully halt the operations of copycat websites or
misappropriation of their data. From time
to time, third parties have misappropriated their data, including CV data,
through website scraping, robots, copying CV or other data or other means and
have aggregated this data on their websites with data from other companies. In
addition, “copycat” websites may attempt to imitate the functionality of their
website. Specifically, they have in the past experienced attempts by third
parties or businesses who have purchased a paid subscription and received
authorized access to their website to copy CV or other data from their website
and use such information in a manner that violates their contractual the terms
of use with such party (such as setting up copycat websites). They cannot
assure you that similar events will not occur in the future and may materially
and adversely impact their results of operations.
They engage
in de minimis activities relating to Crimea, and these activities could impede
their ability to raise funding in international capital markets and subject
them to liability for noncompliance relating to various trade and economic
sanctions laws and regulations. Currently, less than one percent of paying job seekers and customers who
use their product and services are self-identified as being located in the
Crimea region. In addition, since 2015, significantly less than one percent of
their revenue has been generated from job seekers and customers located in the
Crimea region.
Their
substantial indebtedness may adversely affect their financial health. They currently have substantial indebtedness. As
of December 31, 2018, they had total indebtedness of P6.4 billion,
which consisted of a P7 billion syndicated credit facility with VTB Bank
(PJSC), dated May 16, 2016, as amended and restated (the “Credit
Facility”), of which P790 million and P1,085 million has been
repaid as of December 31, 2018 and April 23, 2019, respectively, and
a P270 million loan that was provided by an associate of their
non-controlling shareholder, which was fully repaid on March 13, 2019. The
Credit Facility is collateralized with the shares of Headhunter FSU Limited,
HeadHunter Group PLC (formerly Zemenik Trading Limited), and participation
interests in Headhunter LLC and Zemenik LLC.
They have
significant intangible assets on their balance sheet. Consequently, potential
impairment of intangible assets may have an adverse material effect on their
profitability. Since the
Acquisition, intangible assets have represented a significant portion of their
assets. Goodwill and other intangible assets, which are comprised primarily of
their brand name, CV database and non-contractual customer
relationships, collectively amounted to 76% of their total consolidated assets
as of December 31, 2018.
Investing
in securities of issuers in emerging markets, such as the Russian Federation,
Kazakhstan and other CIS countries, generally involves a higher degree of risk
than investments in securities of issuers from more developed countries and
carries risks that are not typically associated with investing in more mature
markets.
Political risks could adversely affect the
value of investments in the Russian Federation. While the
political situation in the Russian Federation has been relatively stable since
2000, future policy and regulation may be less predictable than in less
volatile markets.
Deterioration
of Russia’s relations with other countries could negatively affect the Russian
economy and those of the nearby regions. Over
the past several years, Russia has been involved in conflicts, both economic
and military, involving other countries. On several occasions, this has
resulted in the deterioration of Russia’s relations with other members of the
international community, including the United States and various countries in Europe. Many of these jurisdictions are home to financial
institutions and corporations that are significant investors in Russia and
whose investment strategies and decisions may be affected by such conflicts and
by worsening relations between Russia and its immediate neighbors.
Economic
instability in the countries where they operate could adversely affect their
business. Since the dissolution of the Soviet
Union in 1991, the economies of Russia and other CIS countries where they
operate have experienced periods of considerable instability and have been
subject to abrupt downturns. From 2000 until the first half of 2008, Russia
experienced rapid growth in its gross domestic product, higher tax collections
and increased stability of the ruble, providing some degree of economic
soundness. However, the Russian economy was
adversely affected by the global economic crisis that began in the second half
of 2008, which manifested itself through extreme volatility in debt and equity
markets, reductions in foreign investment, sharp decreases in GDP and rise of
unemployment around the world. While the situation globally has stabilized
since to a certain extent, the Russian economy began to experience a new
slowdown in 2013. As Russia produces and exports large quantities of crude
oil, natural and metal products and other commodities, its economy is
particularly vulnerable to fluctuations in the prices of commodities on the
global market. In particular, the Brent Crude oil price suffered a
significant decrease during 2014 and 2015. The commodity’s price declined from
$111.03 per barrel on June 30, 2014 to $37.28 per barrel on
December 31, 2015. During 2016 and 2017, the Brent Crude oil price
continued to be volatile with $56.82 per barrel on December 31, 2016,
$66.73 per barrel on December 29, 2017 and $50.57 per barrel on December
28, 2018.
Crime and
corruption could disrupt their ability to conduct their business and thus,
materially adversely affect their operations. The political and economic changes in recent years
in the countries where they operate have resulted in significant changes in
authority. In addition, the local and international press have reported high
levels of corruption, including the bribing of officials for the purpose of
initiating investigations by government agencies. Press reports have also
described instances in which government officials engaged in selective
investigations and prosecutions to further the commercial interests of certain
government officials or certain companies or individuals. Additionally,
some members of the media in the countries in which they operate regularly
publish disparaging articles in return for payment. The depredations of
organized or other crime, demands of corrupt officials or claims that they have
been involved in official corruption could result in negative publicity,
disrupt their ability to conduct their business, and their business, prospects,
financial condition and results of operations could be materially and adversely
affected.
Weaknesses
relating to the legal system and legislation in the countries where they
operate create an uncertain environment for investment and business activity,
which could have a material adverse effect on the value of their shares.
Selective
or arbitrary government action could have a material adverse effect on their
business, financial condition, results of operations and prospects. Governmental
authorities in the countries where they operate have a high degree of
discretion and, at times, act selectively or arbitrarily, without hearing or
prior notice, and sometimes in a manner that is inconsistent with legislation
or influenced by political or commercial considerations. In addition, the Russian tax authorities have
aggressively brought tax evasion claims relating to Russian companies’ use
of tax-optimization schemes, and press reports have speculated that
these enforcement actions have been selective. Selective or arbitrary
government action could be directed at them, and their business, prospects, financial
condition and results of operations could be materially and adversely affected.
Russian
companies can be forced into liquidation on the basis of
formal non-compliance with certain applicable legal requirements. Certain
provisions of Russian law may allow government authorities to seek a court
order for the liquidation of a Russian legal entity on the basis of its
formal non-compliance with certain requirements during formation,
reorganization or during its operation. For example, under Russian corporate law, if the net assets of a Russian
joint stock company calculated on the basis of Russian accounting standards are
lower than its charter capital as at the end of its third or any subsequent
financial year, the company must either decrease its charter capital or be
placed in liquidation. If the company fails to comply with these requirements,
governmental or local authorities can seek the involuntary liquidation of such
company in court, and the company’s creditors will have the right to accelerate
their claims or demand early performance of the company’s obligations as well
as demand compensation of any damages.
According
to Russian legislation, shareholders and participants of Russian companies have
an opportunity to demand either liquidation of a company in a judicial
proceeding or exclusion of other shareholders or participants (except for
public joint stock companies) from the company.
The Russian
banking system remains underdeveloped, the number of creditworthy banks in
Russia is limited and another banking crisis could place severe liquidity
constraints on their business.
Russian
securities law may require them to list their securities on a stock exchange in
Russia, which could impose additional administrative burdens on them and
decrease the liquidity of trading in their shares on Nasdaq.
The Federal
Antimonopoly Service of Russia (the “FAS”) initiated an administrative
proceeding against them alleging that they violated antitrust laws, which, if
successful, may adversely affect their business, financial condition and
results of operations. The Russian Federal Law
No. 135-FZ “On Protection of Competition” dated July 26, 2006,
as amended (the “Competition Law”), establishes certain restrictions on
activities of companies that occupy a dominant position in any markets of their
operation. When determining market dominance, the FAS needs to identify and
define the relevant market, in which the entity in question operates. There are
numerous aspects to be taken into account when making this determination,
including the interchangeability or substitutability of the products and/or
services for the consumer, their pricing and intended use, and then calculate
market shares of companies operating in this market. Different approaches may
be applied in this respect by the FAS and market participants.
In September
2018, the FAS requested that they provide information in connection with a
complaint by Stafori LLC alleging violation of antitrust legislation by
restricting access to their CV database for Stafori LLC’s “Robot Vera”
software, which offers automated candidate search services. Following a
review of the provided materials, the FAS prepared an analytical report
defining the market as “the market of internet-based services related to
ensuring information coordination between employees, employers and staffing
agencies” and analyzing competition in such market, and based on the report,
initiated an administrative proceeding in mid-April 2019 against them and two
of their competitors. The FAS alleges that they and their competitors
collectively hold a dominant market position in the defined market and have
used it to limit access to the market in violation of Russian antitrust
legislation. They, two of their competitors and Stafori LLC are required to
provide their views on the case and various information and explanations,
including legal, technical and economical justifications for including in their
terms of use a provision prohibiting the use of third-party software by May 20,
2019. They, among other things, are also required to provide information on
their use of Talantix. The case hearing is currently set for May 27, 2019,
however, Russian legislation permits case hearings to be postponed upon motions
filed by the case participants.
Their current terms
of use placed on their website allow them to block plugins of third parties
(like those of “Robot Vera”), and if the FAS requires them to cease blocking or
otherwise change their terms of use, they would have to allow access to
third-party plugins. They could respond to these changes by introducing limits
on the number of CVs used by the subscribers, providing access to a larger
amount of CVs at a significant additional fee. The impact of these and other
potential changes to their terms of use and monetization strategy is uncertain.
Changes in
Russian tax law could adversely affect their Russian operations.
Because of
their significant voting power, their principal shareholders will be able to
exert control over them and their significant corporate decisions. Immediately prior to this offering, their principal
shareholders, Highworld Investments Limited, an investment vehicle associated
with Elbrus Capital, and ELQ Investors VIII Limited, an investment vehicle
associated with The Goldman Sachs Group, Inc., controlled 100% of their issued
and outstanding ordinary shares. Upon completion of this offering, the
shares owned by their principal shareholders will collectively represent 67.4%
of the voting power of their outstanding capital stock. As a result, their
principal shareholders will have the ability to determine the outcome of all
matters submitted to their shareholders for approval.
Bottom Line
Their total revenue was ₽ 3,104 million, ₽ 453 million, ₽ 3,287 million, ₽ 3,740 million, ₽ 4,733 million
and ₽
6,118 million in the Predecessor 2015 Period, the Predecessor 2016 Stub
Period, the Successor 2016 Period, the pro forma year ended
December 31, 2016, the Successor 2017 Period and the Successor 2018
Period, respectively. During the same periods, their net income (loss)
was ₽ 1,276
million, ₽ 133
million, ₽ (56)
million, ₽ (29)
million, ₽ 463
million and ₽
1,033 million, respectively. In addition to their growth, they have
consistently maintained strong profitability.
They offer
potential employers and recruiters paid access to their extensive curriculum
vitae (“CV”) database and job postings platform. They also provide job seekers
and employers with a value added services (“VAS”) portfolio centered on their
recruitment needs. They were the third most visited job and employment website
globally as of January 1, 2019. For the years ended December 31, 2016,
2017 and 2018, their platform averaged 16.7 million, 17.5 million and
20.0 million unique visitors per month, respectively. The majority of the
services they provide to job seekers are free. Their customer base consists
primarily of businesses using their CV database and job posting service to fill
vacancies inside their organizations. They had approximately 253,000 paying
customers on their platform for the year ended December 31, 2018. Since launch,
their mobile applications had been downloaded 15.3 million times cumulatively
as of December 31, 2018, and their mobile platforms currently account for the
majority of their traffic.
Russia is the
11th largest economy in the world, with a GDP of $1,578 billion in
2017 according to the World Bank, and was the 9th most populous country,
with a population of 147 million as of December 31, 2017. GDP has
increased by 2.3% in 2018, which is the second consecutive year of growth
following an economic downturn in 2014 and 2015. Russia has the largest
Internet audience among European countries with 84 million users in
January/February 2018, and an Internet penetration rate of approximately 72% of
the population above 18 years old. Although Russia had a large labor force of
approximately 75.8 million people on average in 2017 according to the
Ministry of Economic Development (“MED”), local businesses are experiencing a
shortage of employees, which translates into a low unemployment rate, high
turnover of employees and wage growth above real GDP growth. The MED expects
Russia’s GDP to grow from 2.0% to 3.2% annually in real terms from 2020 to
2022, supported by the growth of fixed capital investments and the recovery in
domestic demand as result of easing financial conditions and improving consumer
confidence. Internet audience was approximately 84 million users in
January/February 2018, translating into an Internet penetration rate of approximately
72%, of the population above 18 years old, almost tripling the levels from July
2007. In Russia, the share of total marketing spend on TV, newspapers, outdoor,
radio and other offline media declined from 88% in 2010 to 57% in 2018, while
the share of advertising budgets allocated to online media increased from 12%
in 2010 to 43% in 2018. . As the use of Internet services among businesses and
employees has increased, job advertising and HCM services have started
migrating online and to mobile platforms. The share of job postings advertised
online is expected to increase from 29% in 2018 to 41% by 2022. The Russian
online recruitment market has grown by 28% in 2018 as compared to the previous
year. It is estimated that the size of the market was approximately P10.3
billion in 2018 and expects it to grow at a CAGR of 21.7% from 2018 to 2022 and
reach approximately P22.6 billion by 2022. Online recruitment platforms
accounted for approximately 23% of total recruitment spend in Russia in 2018 and
are expected to reach 46% of total spend by 2022. By 2022, J’Son & Partners
expects the share of other online channels to increase to 3.5% of the Russian
online recruitment market. The share of internal costs of recruitment spend is
expected to decrease from 53% in 2018 to 35% in 2022, following the
optimization of the recruitment process, driven by wider adoption of HR
management software.
In addition
to their traditional white collar and Moscow and St. Petersburg based markets,
they are increasingly emphasizing penetration into the blue collar segment and
the other Russian regions, as well as other specific categories of job seekers,
such as passive candidates and youth, where they are noticing an increase in
customer demand. They see strong demand for both white collar and blue collar
professionals in the Russian regions outside of Moscow and St. Petersburg. They
aim to diversify their job seeker base and increase the number of blue collar
professionals using their platform, who they believe are a segment of the Russian
online job seeker market that has historically been hard to reach online, and
therefore, represents significant potential. They believe that competition for
entry level professionals is set to intensify in the coming years due to
demographic factors (i.e., low birth rates in Russia in the 1990s into the
beginning of the 2000s). Hence, they consider it essential to ensure high
engagement and retention of the younger audience on their platform. They also
intend to design innovative mobile solutions to suit young professionals’ needs
and employment habits, such as elevated turnover rate, the preference for
temporary or remote employment and higher activity on-the-go. Their strategic
goal is to be the leader by job advertisements across all regions of Russia and
all customer segments. The CAGR of their number of customers in the Russian
regions, excluding Moscow and St. Petersburg, was 60% from 2015 to 2018,
compared to 25% in Moscow and St. Petersburg during the same period, which
demonstrates the importance of the regional focus of their geographical
expansion strategy. They aim to substantially increase the number of Small and
Medium Accounts on their platform, which they believe represent the most
underpenetrated segment of the Russian job classifieds market. They will
continue to extensively use and develop AI technology and machine learning
algorithms at all key stages of interaction with job seekers and employers.
They benefit from high barriers to entry combined with the ability to compile
unique data based on the recruitment needs of their customers, which allows
them to steadily develop innovative products. They believe there is significant
untapped monetization potential in their business due to the relatively low
costs of their services to their customers, in both absolute terms and compared
to foreign markets, which they believe leads to relatively low elasticity of
demand, particularly from large enterprises. They plan to continue transforming
their business into a comprehensive, integrated recruiting platform by
broadening their product range along the recruitment services value chain (from
sourcing to onboarding). They aim to continue to seek out acquisitions in
adjacent markets, such as ATS and automation software. They believe that integrating
their online classified, program-based, off-platform lead generation
capabilities and process management software in one solution will increase
their customer value proposition, enhance customer loyalty and increase
customer spend within their recruitment ecosystem.
They are the
leading online recruitment platform in Russia, focusing on facilitating the
recruitment process and connecting millions of job seekers with hundreds of
thousands of employers annually. They are also the leading player in Kazakhstan
and Belarus and are among the top three players in Azerbaijan, Kyrgyzstan and
Uzbekistan, which makes them a leader in online recruitment in the CIS region.
Their extensive, high quality CV database, large database of job postings
relevant to job seekers and significant user traffic create a strong network
effect as employers and job seekers tend to use job classifieds resources that
offer the widest range of options and the highest efficiency. They believe that
their brand and their sales function are distinct competitive advantages as
they expand their product offering and enter new market segments. Their
business model is built around four key pillars of monetization:
subscription-based access to their CV database, job posting fees, bundled
subscriptions and VAS. Their diversified revenue stream, including highly
predictable, recurring subscription-based fees (for CV database access and
bundled subscriptions) that accounted for 55% of their total revenue in the
year ended December 31, 2018, allowed them to increase their revenue at a
compound annual rate of 25% from 2015 to 2018 (including the economic downturn
period in Russia) and achieve year over year growth at a rate of 31.5% from
2017 to 2018. Capitalizing on their leading market position and the strong
network effect, their scalable, asset-light, capital-efficient operating model
allows them to expand their service offering and geographical footprint in
their existing markets and increase their revenue from a growing customer base
without significant investments, while maintaining negative working capital as
they receive payments from customers for a number of their services in advance.
They have developed a sophisticated technology platform, focused on scalability
and security, which allows them to create additional value, to improve
monetization of their products and maintain their competitive edge. Their IT
infrastructure was built to be highly agile and scalable enabling them to
expand their product portfolio while significantly growing their user base.
They work to the highest technology standards and aim to constantly improve
their platform. Their average applications to invites conversion rate for the
year ended December 31, 2018 increased by 21% compared to the year ended
December 31, 2017 and reached 0.25 invites per job application. They believe
they are the leading HR mobile platform in Russia, with the majority of their
traffic currently coming from mobile users. With both customers and job seekers
increasingly demanding on-the-go and on-demand access to
recruiting and HR services, they consider their mobile platform to be a
strategic pillar of their business. They use monitoring and protection services
to limit potential hacking attacks. Their application and database servers are
located on an internal network that is isolated from the Internet and is
additionally protected by a dual firewall
The markets
for their products and services are highly competitive and rapidly evolving.
Other powerful internet companies with a broad local presence in their markets
that have extensive and loyal user bases, such as Yandex and Mail.Ru, may
decide to directly target their customers, thereby intensifying competition in
the recruitment market. Should the current government block on the services of
the social networking site LinkedIn be lifted, LinkedIn may choose to compete
with them in the Russian market. Social networks or professional networking
sites like LinkedIn may benefit from access to large pools of passive potential
job seekers and a broad range of user information that they could leverage to
tailor their recruitment services. If they are not able to respond
successfully to technological or industry developments, including changes to
the business models deployed in their industry, their business may be
materially and adversely affected. Privacy and data protection concerns,
including evolving government regulation in the area of consumer data privacy
or data protection, could adversely affect their business and operating
results. From time to time, third parties have misappropriated their data,
including CV data, through website scraping, robots, copying CV or other data
or other means and have aggregated this data on their websites with data from
other companies. In addition, “copycat” websites may attempt to imitate the
functionality of their website. They engage in de minimis activities relating
to Crimea, and these activities could impede their ability to raise funding in
international capital markets and subject them to liability for noncompliance
relating to various trade and economic sanctions laws and regulations. As of
December 31, 2018, they had total indebtedness of P6.4 billion, which
consisted of a P7 billion syndicated credit facility with VTB Bank (PJSC),
dated May 16, 2016, of which P790 million and P1,085 million has been
repaid as of December 31, 2018 and April 23, 2019. Since the Acquisition,
intangible assets have represented a significant portion of their assets.
Goodwill and other intangible assets, which are comprised primarily of their
brand name, CV database and non-contractual customer relationships,
collectively amounted to 76% of their total consolidated assets as of
December 31, 2018. Investing in securities of issuers in emerging
markets, such as the Russian Federation, Kazakhstan and other CIS countries,
generally involves a higher degree of risk than investments in securities of
issuers from more developed countries and carries risks that are not typically
associated with investing in more mature markets. While the
political situation in the Russian Federation has been relatively stable since
2000, future policy and regulation may be less predictable than in less
volatile markets. Over the past
several years, Russia has been involved in conflicts, both economic and
military, involving other countries. On several occasions, this has resulted in
the deterioration of Russia’s relations with other members of the international
community, including the United States and various countries in Europe. . Since
the dissolution of the Soviet Union in 1991, the economies of Russia and other
CIS countries where they operate have experienced periods of considerable
instability and have been subject to abrupt downturns. From 2000 until the
first half of 2008, Russia experienced rapid growth in its gross domestic
product, higher tax collections and increased stability of the ruble, providing
some degree of economic soundness. As Russia produces and exports large
quantities of crude oil, natural and metal products and other commodities, its
economy is particularly vulnerable to fluctuations in the prices of commodities
on the global market. Crime and corruption could disrupt their ability to
conduct their business and thus, materially adversely affect their operations.
The local and international press have reported high levels of corruption,
including the bribing of officials for the purpose of initiating investigations
by government agencies. Press reports have also described instances in which
government officials engaged in selective investigations and prosecutions to
further the commercial interests of certain government officials or certain
companies or individuals. The depredations of organized or other crime, demands
of corrupt officials or claims that they have been involved in official
corruption could result in negative publicity, disrupt their ability to conduct
their business, and their business, prospects, financial condition and results
of operations could be materially and adversely affected. Weaknesses relating
to the legal system and legislation in the countries where they operate create
an uncertain environment for investment and business activity, which could have
a material adverse effect on the value of their shares. Selective or arbitrary
government action could have a material adverse effect on their business,
financial condition, results of operations and prospects. Governmental authorities in the countries where they
operate have a high degree of discretion and, at times, act selectively or
arbitrarily, without hearing or prior notice, and sometimes in a manner that is
inconsistent with legislation or influenced by political or commercial
considerations. Certain provisions of Russian law
may allow government authorities to seek a court order for the liquidation of a
Russian legal entity on the basis of its formal non-compliance with
certain requirements during formation, reorganization or during its operation.
According to Russian legislation, shareholders and participants of Russian
companies have an opportunity to demand either liquidation of a company in a
judicial proceeding or exclusion of other shareholders or participants (except
for public joint stock companies) from the company. The Russian banking system
remains underdeveloped, the number of creditworthy banks in Russia is limited
and another banking crisis could place severe liquidity constraints on their
business. Russian securities law may require them to list their securities on a
stock exchange in Russia, which could impose additional administrative burdens
on them and decrease the liquidity of trading in their shares on Nasdaq.
Changes in Russian tax law could adversely affect their Russian operations.
Upon completion of this offering, the shares owned by their principal
shareholders will collectively represent 67.4% of the voting power of their
outstanding capital stock. As a result, their principal shareholders will have
the ability to determine the outcome of all matters submitted to their
shareholders for approval. Rating =