Seek’s $141m hit on Zhaopin investment on China’s woes

The online jobs group’s annual earnings will be hit by a $141m impairment charge, related to its investment in Zhaopin in China.

China’s weak economy will weigh on Seek’s annual results, which are set to be released in August.

Online employment group Seek’s annual earnings will be hit by a $141m impairment charge related to its investment in Zhaopin, as the Chinese economy continues to recover at a much slower pace than had been expected.

A combination of economic conditions has resulted in Zhaopin’s revenue declining throughout the past financial year, and revenue and cashflow forecasts for the near to medium term are down, according to Seek.

The impairment, to be recognised in the 2024 financial year results released in August, includes $120m of the carrying value and $21m of the net consideration receivable.

Investors were told on Thursday that the writedown was due to the lack of a quick recovery in China following the easing of Covid-19 restrictions in January 2023. Instead Seek said that recovery had been modes.

“In terms of employment markets, blue-collar employment has performed considerably better than the white-collar market in which Zhaopin primarily operates.

“Recovery has been modest with no clear visibility on sustained recovery,” Seek said in a statement on Thursday.

It noted that competition in the white-collar market had intensified in this period of lower than expected volumes.

The Zhaopin impairment includes the $120m carrying value of Seek’s 23.5 per cent equity accounted investment in the Chinese company. In addition, a $21m impairment of the Zhaopin net consideration receivable will be recognised in discontinued operations. The news soured investor sentiment, with shares down 1.7 per cent to $20.20 on Thursday as the ASX 200 fell to a two-week low after US mega-caps led sharp falls on Wall Street.

Following the impairment, Seek’s carrying value for the equity accounted investment in Zhaopin will be $433m and the net proceeds outstanding will be $75m.

Seek’s adjusted net profit after tax will be affected by a lower share of earnings from Zhaopin during the period – down about $5m relative to FY2023.

China’s economy last year posted some of its lowest growth in decades and is battling a prolonged property sector crisis and soaring youth unemployment.

Concerns about the economy have also weighed on Australian iron ore miners, with the price of the key steelmaking material now below $US100 per tonne.

This reflects disappointment that a major Chinese Communist Party policy meeting, the third plenum, failed to deliver major stimulus packages that might have helped to kickstart the country’s ailing construction sector and economy.

Seek has downgraded its outlook for the fiscal year and lowered its interim dividend in February as it told investors that employers had pulled back on hiring in Australia amid a slowdown in the economy.

Seek expects its profit for the 2024 financial year to be between $190m and $220m.

This compares to the $220m-$260m it had previously esti­mated.

Revenue forecasts were cut from $1.18bn-$1.26bn to $1.15bn- $1.21bn.

The Australian Bureau of Statistics reported continued growth in the domestic labour market, with 50,200 jobs added in June – more than twice the consensus forecast among economists. This came despite the unemployment rate nudging higher to 4.1 per cent.

Seek is scheduled to release its results on August 13.