AGL - Accordant Group. was previously AWF Madison, Allied... [Archive] - Page 4

Snoopy

15-01-2019, 02:05 PM

I am doing what the directors (or at least the 'shareholding directors' like Simon Hull) are doing Winner. I am taking up the maximum shares I can through the dividend reinvestment plan. As for buying more on market, I will keep my gunpowder dry a little longer. This 'controlled reduction' (?) to providing workers for construction projects could be a permanent hit to the AWF side of the business.

As Simon Bennett said in the Interim Report for FY2019:
"It is clear that there is opportunity in the construction sector and that, well-managed, the opportunity exists to deploy large numbers of migrant workers. We will be conservative in the degree to which we continue to participate for the foreseeable future."

If so that recovery I am always predicting could be to a lower level than I was thinking. I see that under the latest restricted share scheme, presumably to incentivise the employees, that the 2021 to 2014 'in the money' redemption price only needs to be above $1.90. Probably employees going to work and eating their lunch would achieve this. That isn't much of a 'growth vision' for senior management to grapple with.

You might be missing an opportunity. one and 4 week low was $1.72, $1.73 which is pretty much the same as the 5 year low.

Well I didn't miss the opportunity. Managed to top up at $1.61 over the Christmas break. Average holding price now $2.13, so still 'out of the money' (not counting dividends). Not sure when I will be back in the black in capital terms, but it might have been yesterday. Buyers at $1.71 and sellers at $2.18! That is a pretty big spread, although I see things have come down to earth with the share trading at $1.70 on 'huge volume' (40,000 shares) today.

No wonder the share price is $1.73 ...though it’ll go up today as punters ‘buy’ the 8 cent divie

At least the directors have faith ...buying more to support the share price.

You need to help them out Snoops and buy some more

Have now 'done my bit' Winner, but feeling like a thief at the price I bought those shares at. Perhaps I need to turn myself in at the cop shop? I might get home detention! Then I could lie on the doghouse and spend more time studying AWF.

SNOOPY

percy

15-01-2019, 02:30 PM

I agree you should be locked up.
Perhaps at a nice place where the "guards " wear nice long white coats.!.
Ha ha hhee hheee they have come to take me away.....lol.

Snoopy

15-01-2019, 02:32 PM

What follows is my recreation of the table presented in slide 8

Financial Year2015201620172018 (HY Annualised Estimate Scenario)2018 (Horror Scenario)

EBITDA (Snoopy produced *) {B}$12.729m$11.945m$12.751m$12.046m$7.728m

Finance Cost {C}$2.109m$1.333m$1.193m$1.659m$1.659m

Interest Coverage {B}/{C} (target >3)6.09.010.77.34.7

Net Bank Debt {D}$18.608m$21.870m$32.383m$23.183$23.183m

Leverage ratio {D}/{B} (target <3)1.51.82.51.93.0

(* I calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I + DA)

So what does all this mean?

The situation we don't want is the 'horror scenario' which sees the 'leverage ratio' banking covenant broken (bottom RH corner in bold). Note that even in this 'horror scenario', the interest coverage ratio remains OK. I have made the following assumptions in my FY2018 estimates:

1/ The net bank debt is unchanged from HY2018 (the latest balance sheet information published).
2/ My first estimate simply doubles the earnings from an already depressed half year result.
3/ For my second estimate (the horror scenario), I have reduced EBITDA down to a level so that the banking covenants are broken, without changing my net debt assumption.

However, AWF does not tend to emphasize the EBITDA figures when announcing their results. They speak in terms of NPAT. So what does an EBITDA of $7.728m imply in terms of NPAT?
Assuming the interest costs and Depreciation and Amortisation costs carry over from the half year to the full year:

NPAT = 0.72 x [ EBITDA - I -DA ]
= 0.72 x [ $7.728m - 2($0.741m) - 2($1.864m)] = $1.813m

However, a $3.418m profit has already been declared for the half year. So to produce an annual result like that, would require a second half loss of :

$1.813m - $3.418m = -$1.605m

We have been told that AbsoluteIT are tracking to budget and Madison will have the benefit of the Census contract to boost their second half result. To produce this 'horror result' will require a massive second half loss to be posted by the AWF division, to drag down the other two (which should be nicely profitable) via the group result into the red. Even writing off the remaining $0.6m outstanding from the much talked about 'bad debtor' won't do it. While such a loss is possible, it just doesn't seem likely. The AWF banking covenants look pretty safe to me.

SNOOPY

P.S. Ross and the rest of the board wants the leverage ratio below 2

Financial Year20152016201720182019 (estimate)

EBITDA (Snoopy produced *) {B}$12.729m$11.945m$12.751m$11.751m$10.304m

Finance Cost {C}$2.109m$1.333m$1.193m$1.297m$1.274m

Interest Coverage {B}/{C} (target >3)6.09.010.79.08.1

Net Bank Debt {D}$18.608m$21.870m$32.383m$29.731m$27.331m

Leverage ratio {D}/{B} (target <3)1.51.82.52.52.7

(* I calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I + DA)

The table below has been used to calculate the covenant figures for the composite twelve months made up from the second half year of FY2018 and the first half year of FY2019.

Financial YearHY201820182HY2018 {A}HY2019 {B}2HY2018+HY2019 {A}+{B}

EBITDA (Snoopy produced *) {B}$7.093m$11.751m$4.652m$5.152m$9.810m

Finance Cost {C}$0.741m$1.297m$0.556m$0.637m$1.193m

Interest Coverage {B}/{C} (target >3)NM9.0NMNM8.2

Net Bank Debt {D}$23.183m$29.731m$29.731m$27.331m$27.331m

Leverage ratio {D}/{B} (target <3)NM2.5NMNM2.8

That EBITDA banking debt covenant is still a worry. We are getting close to that bank ceiling of 3 and still well away from the management target of 2. Nevertheless it looks like things have turned the corner!

SNOOPY

Snoopy

16-01-2019, 11:13 AM

epsdps (imputed)

201416.215.6

201516.814.8

201616.015.2

201719.616.0

201821.6 (*)16.2

Total90.277.8

5 year Average15.6

(*) Based on projected FY2018 NPAT earnings for the year of $7m.

For a leading market player in a nevertheless fragmented service profession I would accept a 7.5% gross dividend yield. However, with the vulnerability to weather permissible building projects as evidenced in the first half, I am pushing out my acceptable gross dividend yield to 8%

Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

= (15.6c / 0.72) / 0.08 = $2.70

Last sale on the market was $1.80. Using this valuation model, I think AWF Madison is now trading at a 33% discount to fair value.

SNOOPY

discl: holder

Just to show there is more than one way of doing things, I have slightly changed the way I am calculating underlying profit. I am now removing property plant and equipment sales profits/losses from all of my calculated profit figures.

2014: ($3.952m-$0.025m+0.72x($0.095m+$0.257m) )/ 25.805m = 16.4cps
2015: ($5.416m+$0.031m)/ 32.463m = 16.7cps
2016: ($5.202m+$0.008m)/ 32.463m = 16.0cps
2017: ($5.867m-$0.050m+0.72x($0.262m+$0.443m) )/ 32.463m = 19.6cps
2018: ($5.048m+$0.2224m-0.72x($0.170m) )/ 32.555m = 15.8cps

Notes:

1/ Due diligence cost for "Madison" removed from FY2014. "Madison Business" acquisition costs removed from FY2014.
2/ "Absolute IT" acquisition costs removed from FY2017. Legacy software write down removed from FY2017.
3/ Refund from partiual failure of AbsoluteIT earn out provision removed from FY2018 result.

Conclusion: Fail Test

Time for my FY2019 update!

epsdps (imputed)

FY201516.714.8

FY201616.015.2

FY201719.616.0

FY201815.816.2

FY201912.8 (e)16.2

Total80.978.4

5 year Average15.7

(e) = estimated profit based on doubling the half year result.

Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

= (15.7c / 0.72) / 0.08 = $2.73

However, there is a plot in the planning to increase company capital by increasing the number of shares to reduce debt.

The main long term 'problem' with AWF is their 'shortage of capital' and how many new shares will need to be issued to overcome it. The more new shares that are issued, the lower the earnings per share. All other things being equal this means a lower share price.

Estimated Capital Shortage: $27.331m - $20.608m = $6.729m

New capital is being raised twice a year via the dividend reinvestment scheme. Further cash is injected into the business, over and above the declared profit, as 'Customer Relationships' and 'Restraint of Trade' intangible assets are amortized. This effect of these two phenomena over the last two dividend payments are tabled below:

Dividend PaidDividend Money Reinvested {A}Customer Relationship Amortization {B}Restraint of Trade Amortisation {C}
Money Available for Debt Repayment {A}+{B}+{C}

1HY2019($2.704m)$0.773m$0.969m$0.109m$1.851m

2HY2019($2.637m)$0.797m$0.969m$0.109m$1.875m

FY2019($5.431m)$1.552m$1.937m$0.217m$3.706m

Over a couple of years the likely cashflow available for debt repayment is therefore poised to extinguish the excess debt that the board wants retired. The 'dividend money reinvested' part of this equation is $1.552m. If these shares are bought at $1.71, then this will require $1.552m/ $1.71 = 907,600 new shares to be issued. Adding that number to the number of shares on issue today makes the total shares on issue:

33,423,399 + 907,600 = 34,330,999

at the end of the debt reduction process.

At EOFY2018 the number of shares on issue was 32,555,193

This means that the incremental number of new shares that need to be issued to retire debt is: 34,330,999 / 32,555,193 = 5.5%

This expected increased number of shares will reduce our fair value target price as follows:

$2.73 / 1.055 = $2.59

At a share price of $1.71 (the price that the last DRP shares were issued), I therefore think that AWF is trading at a price 34% below its fair value. This is why I have been scooping up shares via the DRP and buying on market!

SNOOPY

winner69

04-02-2019, 02:36 PM

Good on you Snoops on scooping up those 14,000 shares at 168 today

Well done

Brain

05-02-2019, 07:28 AM

I still haven’t forgotten the illegal employment contracts that were written by this company. To me this indicates that there were and probably still are major underlying problems. A publicly listed employment recruitment company writing illegal contracts. It doesn’t get much worse than that.

Snoopy

05-02-2019, 08:41 AM

Good on you Snoops on scooping up those 14,000 shares at 168 today

Well done

Considering the DRP share price was $1.71, that makes $1.68 on market a good price Winner. But not me this time.

In the absence of 'new news', my instinct is to keep my powder dry and wait for the full year result. Half year result was cashflow positive, buoyed by more diligent collection of debts, the capital injection from the DRP and non cash goodwill write offs that reduced profit but not cashflow. Having said that, not as much cash was generated as the previous pcp half year. Historically cashflows have consistently exceeded profits by a significant margin for the full year. Yet I have noticed a pattern of reduced cashflows in the second half. Reduced to the extent that on occasion the full year cashflow is less than the half year cashflow! I don't really understand why this is. A 'cleansing of the books', as more construction company client troubles are quietly shuffled off the books to make a better platform from which to spring from for the coming year perhaps? But I do feel that the upcoming full year result will be a turning point, one way or the other, for the company.

SNOOPY

minimoke

05-02-2019, 09:34 AM

..........

winner69

18-02-2019, 04:36 PM

Snoopy — Hope you not feeling guilty at stealing those shares at 156

minimoke

18-02-2019, 04:43 PM

..........

Snoopy

18-02-2019, 09:42 PM

Snoopy — Hope you not feeling guilty at stealing those shares at 156

Those 27,500 shares traded out of close to 33m on issue you mean? A 2.5% share price drop can happen on a low liquidity share on an insignificant event. Could be 'Dead Fred' getting out, as the family liquidates his estate?

SNOOPY

P.S. who nevertheless is secretly hoping the share price drops to 1c. That would allow me to double my holding come the next DRP!

Snoopy

28-02-2019, 12:03 PM

As Simon Bennett said in the Interim Report for FY2019:
"It is clear that there is opportunity in the construction sector and that, well-managed, the opportunity exists to deploy large numbers of migrant workers. We will be conservative in the degree to which we continue to participate for the foreseeable future."

If so that recovery I am always predicting could be to a lower level than I was thinking. I see that under the latest restricted share scheme, presumably to incentivise the employees, that the 2021 to 2014 'in the money' redemption price only needs to be above $1.90. Probably employees going to work and eating their lunch would achieve this. That isn't much of a 'growth vision' for senior management to grapple with.

Interesting announcement to the NZX today regarding the wind up of some 'Restricted E' and 'Restricted F' shares. Information on restricted shares can be found on p51 of AR2018.

I find today's announcement opaque. I -think- a senior employee has left and any 'Restricted Shares' they have held have therefore been cancelled. These restricted shares were issued but paid for by way of an interest free loan, by AWF, to that employee. The redemption price for both classes of Restricted Shares was $2.57. And it seems AWF has had to pay $2.57 to acquire these shares back and then cancel them (?). I assume they have been cancelled, because the press release stated that they are not being held as treasury stock.

$2.57 is well above the current market price. But AWF have bought the shares anyway, paying money to themselves and then cancelling the shares (?). Is my interpretation of what has happened correct?

I wonder who the senior employee was who suddenly left?

SNOOPY

minimoke

10-04-2019, 06:46 PM

..........

winner69

09-05-2019, 03:40 PM

One bonus forfeited

But the target share price needed to get a bonus gets lower as years go by

https://quoteapi.com/resources/da9866271f9d0071/announcements/awf.nzx/334315/AWF_Capital_Change_Notice.pdf?bearer=eyJhbGciOiJIU zI1NiIsInR5cCI6IkpXVCJ9.eyJzY29wZSI6WyJndWVzdHMiLC J1c2VycyJdLCJuYmYiOjE1NTczNzI5NzgsImV4cCI6MTU1NzM3 Mzg3OCwiaXNzIjoic3RvY2tuZXNzIiwibm9uY2UiOiI2OTI4Zm ZlZDEyYmRiYWZkIiwiaWF0IjoxNTU3MzcyOTc4LCJzdWIiOjc4 OTY5NX0.IzLqXe5mygzSYkbtmgi8y5oMxbsOFkj0CilCVXzFkm g

minimoke

09-05-2019, 03:51 PM

..........

winner69

09-05-2019, 03:59 PM

The next trnache seems pretty safely locked away "

The option will only be able to be

exercised if the share price of AWF shares reaches $2. Bwahaha

Snoops will say well deserved if he gets it

Snoopy

10-05-2019, 12:12 AM

Snoops will say well deserved if he gets it

The way I read things, Simon Bennett gets to buy 450,000 shares at $2, starting from 30 days beyond the end of FY2020 and he has until 31st December 2020 to exercise them. The higher the share price is above $2, the greater the benefit to Bennett. I wonder why there is no long term bonus now? Perhaps Bennett is now seen as a 'transitional leader'? Or does the board no longer see a long term future for the company?

It all has a whiff of smashing up a train set in a spectacular derailment and then carefully putting everything back to exactly as it was before. Does our engine driver deserve a bonus for getting everything back to square one in such a circumstance?

SNOOPY

winner69

10-05-2019, 03:20 AM

Snoops ... I think Bennett pays NIL - like ZILCH or ZERO for them. AWF just print some more ...l think

He can exercise that right if the share price reaches $2 (I think anytime between now and the date even though it may be less than $2 at the date)

Looks like the intent is to ‘reward’ him $900,000 (if he’s a good boy) as they say the number of shares can be more or less than 450,000 depending on the share price of the day.

But I might be completely and utterly wrong

Good description of his role

Snoopy

10-05-2019, 09:15 AM

Snoops ... I think Bennett pays NIL - like ZILCH or ZERO for them. AWF just print some more ...l think

He can exercise that right if the share price reaches $2 (I think anytime between now and the date even though it may be less than $2 at the date)

Winner, the exact text in the press release is below (my bold):

"Under the STI Plan, the CEO is offered an option to acquire ordinary shares of AWF Madison, if the targeted share price is met. The CEO may exercise the option at least 30 days post the release of AWF Madison's results for the financial year ending 2020 and before 31 December 2020."

An "option to acquire ordinary shares" I take to mean a 'share option'. If the intent was to give Bennett $900,000 just for staying on in the job until the financial year end 2020, why not just issue the shares if he is still employed at the end of FY2020 (31-03-2020) "on that date plus 30 days"? What is the point of saying Bennett can get the money 'today' or 'at the end of year', if there is no benefit to waiting? I agree the text says that Bennett does not have to pay money for this 'share option'.

The 'variable' part of the return is the amount the share price climbs over $2. That is the incentive for Bennett as I see it. But I regard it as Bennett getting a free 'option' that if he exercises, he will still have to pay for the actual shares, but at a capped price of $2. Not saying you are wrong and I am right. I could be the one who is wrong here. But that is how I read the stock exchange announcement.

Looks like the intent is to ‘reward’ him $900,000 (if he’s a good boy) as they say the number of shares can be more or less than 450,000 depending on the share price of the day.

But I might be completely and utterly wrong

"Number issued/acquired/redeemed/: The CEO will have an option to acquire a maximum of 450,000 ordinary shares"

That sounds like the CEO determines his own choice on how many shares to acquire.

"The number of shares that will be issued to the CEO depends on the price of the AWF shares at the time that the option is exercised by the CEO."

I read that as saying that if the share price is above $2 when Bennett is given the options, then Bennett can exercise all the options. If it is under $2, then he gets to exercise none. Also if Bennett is given the options when the share price is above $2, and the share price sinks subsequent to that but before the STI expires in December 2020, then Bennett can choose not to exercise his options.

SNOOPY

winner69

10-05-2019, 09:49 AM

Snoops - on one of the notices I think it said the exercise price is NIL

Snoopy

10-05-2019, 10:19 AM

Snoops - on one of the notices I think it said the exercise price is NIL

"Issue/acquisition/redemption/ price: No consideration is payable for the issue of the share rights"

I read that as the issue price of the 'share rights' as being nil. But giving Bennett a free share option (the rights), doesn't mean that Bennett won't have to stump up cash for the underlying shares attached to those rights.

SNOOPY

winner69

10-05-2019, 10:29 AM

What does this bit mean .....all become clear next year I suppose

Question:
For an issue of Convertible Financial Products or Options, the principal terms of Conversion (for example the Conversion price and Conversion date and the ranking of the Financial Product in relation to other Classes of Financial Product) or the Option (for example, the exercise price and exercise date)

Answer:
The CEO may exercise the option to acquire ordinary shares at least 30 days post the release of AWF's results for the financial year ending 2020 and before 31 December 2020. The option will only be able to be exercised if the share price of AWF shares reaches $2 per share and the CEO remains an employee of AWF until 31 March 2020. The exercise price for the option is nil.

minimoke

10-05-2019, 10:54 AM

..........

winner69

10-05-2019, 10:58 AM

I wouldn't worry about it. It seems all dependent on SP hitting $2 sometime in the next year and I cant see that happening a long shot. Labour hire companies are popping up left right and center at the moment.

Theres a good chance the Triangular employment relations bill will get passed soon (its past its second reading) and the impact of the increase in the Minimum Adult Wage has yet to be reported. Headwinds ahead.

Snoopy buying heaps might get share price up to 2 bucks

percy

10-05-2019, 11:08 AM

Snoopy buying heaps might get share price up to 2 bucks

Mission improbable.?..lol.

winner69

29-05-2019, 06:53 PM

I think the announcement said they made a miserly $2m this year but because things are so honky dory the divie won’t be cut and next year is going to be a real boomer

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/AWF/335227/300787.pdf

minimoke

29-05-2019, 07:41 PM

..........

winner69

29-05-2019, 08:06 PM

Jeez. A year ago you could have bought a share for $1.85. And for the risk they return a net profit of $0.06 and a share reduced to $1.70. Why would you bother.

Because on a normalised result F19 was pretty good growth ......and this time next year the share price will be $2.30 odd and you would have collected a divie or two.

minimoke

29-05-2019, 08:18 PM

..........

Snoopy

02-07-2019, 03:01 PM

I'll have to look closer for the good words this year

Have you got that telescope trained on AWF HQ Minimoke? That's the only way you will get to see this years weasel words in the result, as no Annual Report has been released and it is already July. Granted we are only one week later in the AR publication date schedule than in previous years. But in the last five years shareholders have been able to peruse the Annual Report before the DRP share price is set. Not so this year, as AWF have announced that DRP price is $1.82. There has been no chance for the market to react to the full year accounts, so it is hard to know if that $1.82 price is fair. Superficially as a DRP participant I am happy, but only as happy as a mushroom shareholder can be. I expect more timely disclosure from management than we have received this 2019.

SNOOPY

Snoopy

06-07-2019, 08:39 PM

Financial Year20152016201720182019 (estimate)

EBITDA (Snoopy produced *) {B}$12.729m$11.945m$12.751m$11.751m$10.304m

Finance Cost {C}$2.109m$1.333m$1.193m$1.297m$1.274m

Interest Coverage {B}/{C} (target >3)6.09.010.79.08.1

Net Bank Debt {D}$18.608m$21.870m$32.383m$29.731m$27.331m

Leverage ratio {D}/{B} (target <3)1.51.82.52.52.7

(* I calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I + DA)

The table below has been used to calculate the covenant figures for the composite twelve months made up from the second half year of FY2018 and the first half year of FY2019.

Financial YearHY201820182HY2018 {A}HY2019 {B}2HY2018+HY2019 {A}+{B}

EBITDA (Snoopy produced *) {B}$7.093m$11.751m$4.652m$5.152m$9.810m

Finance Cost {C}$0.741m$1.297m$0.556m$0.637m$1.193m

Interest Coverage {B}/{C} (target >3)NM9.0NMNM8.2

Net Bank Debt {D}$23.183m$29.731m$29.731m$27.331m$27.331m

][
Leverage ratio {D}/{B} (target <3)NM2.5NMNM2.8

That EBITDA banking debt covenant is still a worry. We are getting close to that bank ceiling of 3 and still well away from the management target of 2. Nevertheless it looks like things have turned the corner!

The actual figures are out for FY2019 and I have been proved wrong in my estimates.

Financial Year20152016201720182019

EBITDA (Snoopy produced *) {B}$12.729m$11.945m$12.751m$11.751m$7.679m

Finance Cost {C}$2.109m$1.333m$1.193m$1.297m$1.380m

Interest Coverage {B}/{C} (target >3)6.09.010.79.05.6

Net Bank Debt {D}$18.608m$21.870m$32.383m$29.731m$26.643m

Leverage ratio {D}/{B} (target <3)1.51.82.52.53.5

(* I calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I + DA)

The table below has been used to calculate the covenant figures for the composite twelve months made up from the second half year of FY2018 and the first half year of FY2019.

Financial YearHY201820182HY2018 {A}HY2019 {B}2HY2018+HY2019 {A}+{B}

EBITDA (Snoopy produced *) {B}$7.093m$11.751m$4.652m$5.152m$9.810m

Finance Cost {C}$0.741m$1.297m$0.556m$0.637m$1.193m

Interest Coverage {B}/{C} (target >3)NM9.0NMNM8.2

Net Bank Debt {D}$23.183m$29.731m$29.731m$27.331m$27.331m

][
Leverage ratio {D}/{B} (target <3)NM2.5NMNM2.8

That EBITDA banking debt covenant has been broken for FY2019! No comment I can see in the annual report about this, other than:

"The banking facilities require the group to operate within defined financial undertakings. The group has complied with all covenant requirements during the year."

The above statement appears to be untrue! Perhaps paying down $3m of the once $36m debt is enough to keep the ASB satisfied?

SNOOPY

Snoopy

07-07-2019, 01:21 PM

Net Bank debt in the FY2018 results announcement is as follows:

FY2018

Cash & Cash Equivalents: {A}
$6.269m

Non Current Borrowings:
$36.000m

less Current Borrowings:
$0.000m

less Overdraft:
$0.000m

equals Total Borrowings: {B}$36.000m

Total Net Borrowings: {B} - {A}$29.731m

Net profit after tax {C} $5.153m

MDRT {B} - {A} / (C} 5.8 years

The net debt has gone down, but the ability to repay debt has gone down as well :-(. I do prefer this figure to be less than five years. But with the DRP, AWF have taken measures to reduce debt going forwards. The debt situation should continue top be monitored. But there is nothing here to make me tuurn off my investment tap based on this information.

Shocked at the apparent breaking of AWF's banking covenants, I have decided to look at AWF's debt issues from another angle. 'MDRT' is the answer to the question:

"If all profits for the year were put towards paying off the company's debts, how long would that take?"

My rule of thumb for the answer in years is:

years < 2: Company has low debt
2< years <5: Company has medium debt
5< years <10: Company has high debt
years >10: Company debt is cause for concern

FY2015FY2016FY2017[/TD]FY2018FY2019

Cash & Cash Equivalents: {A}
$3.151m
$0.0m
$1.225m
$6.269m
$6.357m

Non Current Borrowings:
$0.0m
$18.500m
$18.500m
$36.000m
$33.000m

add Current Borrowings:
$21.759m
$2.500m
$0.0m
$0.0m
$0.0m

add Overdraft:
$0.0m
$0.870m
$0.108m
$0.0m
$0.0m

equals Total Borrowings: {B}
$21.759m
$21.870m
$18.608m
$36.000m
$33.000m

Total Net Borrowings: {B} - {A}
$18.608m
$21.870m
$17.323m
$29.731m
$26.643m

Net profit declared {C}
$5.416m
$5.202m
$5.867m
$5.048m
$2.013m

MDRT ({B} - {A}) / (C}
3.4 years
4.2 years
3.0 years
5.8 years
13.2 years

I am still shocked. And here is the Chairman;s excuse (p2 AR2019)

"We have suffered in the construction sector, where the level of client failure in the face of their own dealings with major construction firms has caught AWF with high bad debt levels. These losses are the greatest we have experienced in more than 30 years dealing in the sector."

But will things get better in FY2020?

SNOOPY

Snoopy

07-07-2019, 08:40 PM

But will things get better in FY2020?

"We have reduced our cost base, and geared the business to return 4% to 6% EBITDA on turnover approaching $120 million." (AR2019 p14)

This implies the business is now set up to be profitable at an EBITDA of $4.8m to $7.2m.

Cost Savings

There is no easy way I can see to figure out the quantum of the referred to cost savings. One cost we do know about that should be saved next year is the $1.5m that was paid to overseas workers who could not be redeployed when the contracts they were working on fell over. (from 29th May media release). Next I am going to assume that CEO Bennett was able to take out $200,000 in annual costs out of Auckland, and $100,000 each out of Wellington and Christchurch. This adds up to losing a couple of staff in Wellington and Christchurch and four in Auckland for a total saving of $400,000. The bigger centres are likely where most of the big building project failures happened. So I think it is reasonable to assume some right sizing of the business might be appropriate in those cities.

Interest Bill

The net interest rate paid on last years (FY2019) shrinking average net loan balance can be estimated as follows:

Interest Rate = $1.380m / 0.5x($29.731m + $26.643m) = 4.9%

If we assume the average loan balance will be $3m lower over FY2020, and interest rates remain unchanged, then we can expect the FY2020 interest bill to be:

0.049 x 0.5 x($26.643 + $23.643) = $1.232m

Depreciation and Amortization

The FY2018 figure was $3.445m. I propose to use that again.

Tax

The corporate tax rate in NZ is 28%. But AWF seem to always pay close to 30% because they have various non-tax deductible expenses, So I propose to use a tax rate of 30%

Now we have enough data to estimate an upper and lower bound NPAT figure for AWF for FY2020. So let's see what it all adds up to.

SNOOPY

Snoopy

07-07-2019, 09:25 PM

Now we have enough data to estimate an upper and lower bound NPAT figure for AWF for FY2020. So let's see what it all adds up to.

Lower Estimate FY2020Higher Estimate FY2020

EBITDA$4.800m$7.200m

add Unusual Expense Saving$1.500m$1.500m

add Permanent Office Cost Savings$0.400m$0.400m

less Net Interest Expense Paid($1,232m)($1.232m)

less Depreciation and Amortization($3.445m)($3.445m)

equals Net Profit Before Tax$2.023m$4.423m

less Income Tax @ 30%($0.607m)($1.327m)

equals Net Profit After Tax$1.596m$3.096m

Note that I am assuming no underlying business growth 'year on year'.

First Impression? These are fairly dismal predictions, even though the high guess is 50% higher than actually achieved in FY2019. Keep in mind too that the cashflow, which you can estimate by adding back in to the 'DA' figure (for FY2020, maybe not FY2021) is much better than the NPAT. There should be money there to maintain dividends at current levels, notwithstanding any new capital raised by the DRP.

By putting my numbers out there so early I expect to be lauded as a hero (if I get it right) or pilloried as a fool (if I get it wrong). I don't really care either way. At least I have had a go!

SNOOPY

P.S. I am leaning towards my high estimate as the likely correct one.

winner69

08-07-2019, 08:23 AM

Snoops ...that’s how much AWF going to make

How much Madison / Absolute IT going to make?

Snoopy

08-07-2019, 09:27 AM

By putting my numbers out there so early I expect to be lauded as a hero (if I get it right) or pilloried as a fool (if I get it wrong). I don't really care either way. At least I have had a go!
.

Snoops ...that’s how much AWF going to make

How much Madison / Absolute IT going to make?

Ah well my fall from grace didn't take long then. Might as well put on that dunces cap right now <;-p

You are quite right Winner. I was fooled by the division AWF having the same name as the overall company AWF. I also first read about the AWF EBITDA forecast first in the press release which didn't make the distinction clear (it is more clear in the annual report itself). I have to admit I was struggling to figure out why Bennett's EBITDA forecasts for the whole group seemed so low. So I added back in a couple of one off fudge factors regarding changes to expenses. Thinking about it now it seems likely that Bennett has already accounted for those in his EBITDA forecasts for 'AWF'. So

1/ I am going to take those fudge factors out out and put back the contribution from the surprisingly struggling Madison and the surprisingly healthy AbsoluteIT.
2/ I am going to assume that Madison will continue to struggle while AbsoluteIT continues to improve, the net effect being zero growth in that 'white collar' division for FY2020.
3/ I am going to put in the unallocated head office admin expenses which I don't think figure in those divisional EBITDA results.

Let's see what happens.

SNOOPY

Snoopy

08-07-2019, 09:35 AM

Lower Estimate FY2020Higher Estimate FY2020

EBITDA$4.800m$7.200m

add Unusual Expense Saving$1.500m$1.500m

add Permanent Office Cost Savings$0.400m$0.400m

less Net Interest Expense Paid($1,232m)($1.232m)

less Depreciation and Amortization($3.445m)($3.445m)

equals Net Profit Before Tax$2.023m$4.423m

less Income Tax @ 30%($0.607m)($1.327m)

equals Net Profit After Tax$1.596m$3.096m

Note that I am assuming no underlying business growth 'year on year'.

First Impression? These are fairly dismal predictions, even though the high guess is 50% higher than actually achieved in FY2019. Keep in mind too that the cashflow, which you can estimate by adding back in to the 'DA' figure (for FY2020, maybe not FY2021) is much better than the NPAT. There should be money there to maintain dividends at current levels, notwithstanding any new capital raised by the DRP.

By putting my numbers out there so early I expect to be lauded as a hero (if I get it right) or pilloried as a fool (if I get it wrong). I don't really care either way. At least I have had a go!

I am leaning towards my high estimate as the likely correct one.

Thanks to Winner for pointing out a fairly fundamental error in iteration 1.0. I shall attempt to remove the halo of the dunces cap with this follow up post.

From the 29th May 2019 press release:

"Bennett said AWF had reduced its cost base, and was now geared to return 4% to 6% EBITDA on turnover approaching $120 million."

So lower and upper bound estimates of EBITDA for AWF are as follows:

$120m x 0.04 = $4.8m, $120m x 0.06 = $7.2m

Since these figures already include the cost savings I was trying to estimate in my post 791, I have removed those from my updated calculation.

Lower Estimate FY2020Higher Estimate FY2020

EBITDA (AWF Division)$4.800m$7.200m

EBITDA (Madison/AbsoluteIT)$5.597m$5.597m

less Head Office Admin and Expenses($2.649m)($2.649m)

less Net Interest Expense Paid($1,232m)($1.232m)

less Depreciation and Amortization($3.445m)($3.445m)

equals Net Profit Before Tax$3.071m$5.471m

less Income Tax @ 30%($0.921m)($1.641m)

equals Net Profit After Tax$2.150m$3.830m

Second Impression? It is looking like a slow crawl back from the construction industry supply profit bomb hole. At best profits will be back to FY2014 levels. But we have one more year of $2m odd in hidden amortizing customer relationship cashflows for FY2020. That means the amount of cash available to pay the dividend this year is $4.150m and $5.830m. Even with the growing number of shares on issue as a result of the DRP (let's say 36m in total by this time next year) that allows a 'dps' payment of 11.5c to 16.2c without 'borrowing from the bank to pay the dividend'. I have to admit that dividend payment might be looking shakey by FY2021. But Simon and his team will have had a couple of years 'reinventing the business for growth' by then. So all will be 'hunky dorey' by then, right?

SNOOPY

winner69

08-07-2019, 09:42 AM

Not a dunce Snoops ...I think they write things to confuse punters

Just that your number if it was for the group was so low it couldn’t be true.

Maybe they should change ticker to better reflect AWF Madison Group or whatever they call themselves.

percy

08-07-2019, 10:38 AM

Yeah Right.!
At $2.15 mil NPAT eps is .064 cps with a PE of 28.43.
At $3.83 mil NPAT eps is 11.45 cps with a PE of 15.89..
In either case the 16.2 cps dividend looks unsustainable.

Snoopy

26-07-2019, 07:33 PM

Snoops .......do you think that one day things will go alright with Allied with having to report bad news

Looks like profits going backwards again

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/AWF/325389/288702.pdf

Could call these one offs and show normalised profits going gangbusters so no worries

It looks like the new NZ IFRS 9 standard on Financial Instruments will require the recognition of more losses by the likes of AWF on these labour contracts, whether these losses actually exist or not (from AR2019 p52):

"',,,requires lifetime expected losses for trade and other receivables to be recognised from initial recognition of the receivable."

Effectively AWF are being asked to use a 'probabilistic model', estimating their own write offs before they happen.

To some extent AWF is already doing this. AWF runs a 'provision for impairment' that is permanently on the books.

The extra provision from IFRS 9 for specifically 'trade receivables' (I take that to mean relating to the AWF sub brand?) is $0.371m (p71 AR2019). If we then move to the actual 'Provision for Impairment of Trade Receivables' (p53 AR2019), we can see that this extra $0.371m has gone straight in. In fact, following the write offs during the year, the 'Provision Impairment Balance' would have ceased to exist without this extra payment! Did the IFRS 9 standard change occur just in time to avoid a negative provisions coming onto AWF's books (if that is even possible)?

I am a little uncomfortable with the concept of holding a 'provision for impairment' at all. By having such a thing, bad deals can be 'smoothed out' by making a small annual addition to the impairment provision. Yet inside the provision there is a whopping write down that does not affect that year's profit and loss statement. Actual write downs for 'Trade & Receivables' over the last few years, compared to the consummate changes in provisions, have lined up as follows:

20142015201620172018
2019Row Sum

Impairment Losses in P&L {A}($0.358m)($0.306m)($0.510m)($0.699m)($0.655m)($ 1.109m)

Impairment Write backs P&L {B} $0.291m$0.137m$0.100m$0.228m$0.594m$0.360m

Net Impairment in P&L {A}+{B}($0.067m)($0.169m)($0.410m)($0.471m)($0.061 m)($0.749m)($1.927m)

Actual Trade & Receivables Write down($0.088m)($0.204m)($0.163m)($0.163m)($0.815m)
($1.034m)($2.291m)

Provision for Impairment Balance$0.377m$0.342m$0.589m$0.897m$0.143m$0.229m

Over time, the two 'added up' rows should sum to about the same total. We can see that the declared result has incorporated a lower loss than the actual figures written off. But over the years a difference of $0.364m is not material. The one thing that strikes me about this table is that the 'write backs' have been quite high. One way to interpret that is that the initial write offs were overly conservative. I guess that is a good thing.

The end of year 'Provision for Impairment' balance is low enough that there can't be that much smoothing of write offs between years going forwards. I say that is good. What is not so good is that 'big impairment hits' will be felt against profits without delay - not great when you are struggling to reduce your debts! My gut feeling is that the 2019 provision balance, given it is now meant to reflect probabilistic losses that might occur, is now too low.

SNOOPY

Snoopy

27-07-2019, 09:17 AM

Snoopy

27-07-2019, 08:49 PM

The actual figures are out for FY2019 and I have been proved wrong in my estimates.

Financial Year20152016201720182019

EBITDA (Snoopy produced *) {B}$12.729m$11.945m$12.751m$11.751m$7.679m

Finance Cost {C}$2.109m$1.333m$1.193m$1.297m$1.380m

Interest Coverage {B}/{C} (target >3)6.09.010.79.05.6

Net Bank Debt {D}$18.608m$21.870m$32.383m$29.731m$26.643m

Leverage ratio {D}/{B} (target <3)1.51.82.52.53.5

(* I calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I + DA)

The table below has been used to calculate the covenant figures for the composite twelve months made up from the second half year of FY2018 and the first half year of FY2019.

Financial YearHY201820182HY2018 {A}HY2019 {B}2HY2018+HY2019 {A}+{B}

EBITDA (Snoopy produced *) {B}$7.093m$11.751m$4.652m$5.152m$9.810m

Finance Cost {C}$0.741m$1.297m$0.556m$0.637m$1.193m

Interest Coverage {B}/{C} (target >3)NM9.0NMNM8.2

Will 'Trade and Other receivabl

Net Bank Debt {D}$23.183m$29.731m$29.731m$27.331m$27.331m

][
Leverage ratio {D}/{B} (target <3)NM2.5NMNM2.8

That EBITDA banking debt covenant has been broken for FY2019! No comment I can see in the annual report about this, other than:

"The banking facilities require the group to operate within defined financial undertakings. The group has complied with all covenant requirements during the year."

The above statement appears to be untrue! Perhaps paying down $3m of the once $36m debt is enough to keep the ASB satisfied?

Financial Year2015201620172018
2019
2020e (low)2020e (high)

EBITDA (Snoopy produced *) {B}$12.729m$11.945m$12.751m$11.751m
$7.679m$10.397m$12.797m

Finance Cost {C}$2.109m$1.333m$1.193m$1.297m$1.380m$1.232m$1.23 2m

Interest Coverage {B}/{C} (target >3)6.09.010.79.05.68.410.3

Net Bank Debt {D}$18.608m$21.870m$32.383m$29.731m
$26.643m$23.643m$23.643m

Leverage ratio {D}/{B} (target <3)1.51.82.5
2.53.52.31.8

(* I have calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I + DA)

This means if Bennett's forecast figures for AWF in FY2020 can be believed and the white collar side of the business remains steady, then the banking covenants are 'back on track'. I wonder if we will get a first quarter update on FY2020 at the AGM on Wednesday?

The dividend reinvestment plan raised a useful $1.6m in new capital over FY2019. Trade and other receivables verses the equivalent payables were well controlled in FY2019.

Trade Receivables {A}Trade Payables {B}Net Receivables {A}-{B}

FY2018$41.101m$28.527m$12.574m

FY2019$32.629m$24.186m$8.443m

Net receivables were down by $4.131m year on year. This was a key factor in allowing AWF to pay back $3m in debt.
Will 'Trade and Other receivables' be as well collected in FY2020: i.e. another incremental improvement? That will be something to look out for.

SNOOPY

winner69

24-10-2019, 04:54 PM

winner69

24-10-2019, 05:18 PM

When I saw an announcement from AWF headed ‘Media Release’ I thought hell surely the blowtorch man on the convention centre roof wasn’t an Allied worker

Phew - it wasn’t

jg8512

25-10-2019, 10:44 AM

Don’t make much money do they ....but the believers should be more than happy

Love the way they highlight that netprofit was $1.32m UP on the immediate preceding six month period but 36%DOWN on last year (even though the recent acquisition is producing results)

Don’t think those statements that’ll fool Snoopy

https://www.nzx.com/announcements/343202

Winner, I'm not quite sure why the believers should be happy?

I thought that was a very weak result. they may be confident about the full year, but the 1H was very soft. Even with an on-expectations 4 month contribution from the new acquisition, the non-AWF segment profit was only flat year on year. And AWF's segment profit halved. FFS.

what bothers me a lot is the debt. AWF say $28.4m. But that excludes the $14.8m of capital lease commitments (which are debt! - they have to pay in cash) and $4m of contingent consideration (which if jackstonstone meets expectations they have to pay for too).

their full year pre-tax profit expectation is above $4.2m. given a 32% tax rate in 1h, that implies a NPAT of $3m (minimum). debt / NPAT of 7x at their stated debt figure. And much worse if you allow for the other amounts above. Sure, mgmt are confident they can do better than $4.2m pre-tax, but given the number of excuses they regularly trot out blaming sector regulation and policies - an inherent feature of their sector IMHO which they ought to manage better than anyone else - I'm not sure why investors would have much confidence in mgmt's assurances.

What price would this thing trade at if board and mgmt took the more prudent approach of cutting the dividend to improve the balance sheet?

Disc: I still hold (but not many left now)

stoploss

28-01-2020, 02:48 PM

https://www.stuff.co.nz/business/119092076/inland-revenue-supporting-secondclass-workforce-by-increasing-temp-agency-staff

Disc: Not held.

Snoopy

12-06-2020, 07:18 PM

Financial Year2015201620172018
2019
2020e (low)2020e (high)

EBITDA (Snoopy produced *) {B}$12.729m$11.945m$12.751m$11.751m
$7.679m$10.397m$12.797m

Finance Cost {C}$2.109m$1.333m$1.193m$1.297m$1.380m$1.232m$1.23 2m

Interest Coverage {B}/{C} (target >3)6.09.010.79.05.68.410.3

Net Bank Debt {D}$18.608m$21.870m$32.383m$29.731m
$26.643m$23.643m$23.643m

Leverage ratio {D}/{B} (target <3)1.51.82.5
2.53.52.31.8

(* I calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I + DA)

This means if Bennett's forecast figures for AWF in FY2020 can be believed and the white collar side of the business remains steady, then the banking covenants are 'back on track'. I wonder if we will get a first quarter update on FY2020 at the AGM on Wednesday?

The dividend reinvestment plan raised a useful $1.6m in new capital over FY2019. Trade and other receivables verses the equivalent payables were well controlled in FY2019.

Trade Receivables {A}Trade Payables {B}Net Receivables {A}-{B}

FY2019$32.629m$28.527m$12.174m

FY2018$41.101m$24.186m$8.443m

Net receivables were down by $4.131m year on year. This was a key factor in allowing AWF to pay back $3m in debt.
Will 'Trade and Other receivables' be as well collected in FY2020: i.e. another incremental improvement? That will be something to look out for.

AWF really took a hammering on the market today, down over 10%, albeit on just 28,770 shares. The share price is back to early April 2020 levels now. I wonder if the market is looking at how AWF might continue to service their substantial debt? I took a guess that the Bennster would have the finances for AWF on the right track by EOFY2020. So how did it all work out?

Financial Year2015201620172018
2019
2020

EBITDA (Snoopy produced *) {B}$12.729m$11.945m$12.751m$11.751m
$7.679m$11.593m

Finance Cost {C}$2.109m$1.333m$1.193m$1.297m$1.380m$1.584m

Interest Coverage {B}/{C} (target >3)6.09.010.79.05.67.3

Net Bank Debt {D}$18.608m$21.870m$32.383m$29.731m
$26.643m$29.822m

Leverage ratio {D}/{B} (target <3)1.51.82.5
2.53.52.6

(* I calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I (not including lease expenses) + DA. Likewise finance cost 'I' does not include lease expenses)

The banking covenants look to be back on track but only if you include 'Lease Depreciation' as part of the depreciation charges. However debt is still high, and won't go away until it can be paid off. So the big question is can EBITDA be maintained for FY2021, so that the bank maintains their confidence that debt load actually is manageable going into the future?

The dividend reinvestment plan raised a useful $1.703m in new capital over FY2020 (up from $1.569m in FY2019).

Trade and other receivables verses the equivalent payables were well controlled in FY2020, pointing to an improving pattern of debt collection.

Trade & Other Receivables {A}Trade Payables {B}Net Receivables {A}-{B}

FY2018$41.101m$28.527m$12.574m

FY2019$32.629m$24.186m$8.443m

FY2020$53.071m$46.169m$6.902m

It looks like FY2020 was another year of incremental debt collection improvement?

SNOOPY

jg8512

12-06-2020, 09:15 PM

I haven't checked your figures closely Snoopy, but is the net debt of 23.643 right as at March 2020? I had $36m less cash = ~$30m .
ALso, are you excluding the contingent consideration (that's another >$3m of future cash to be paid out). and if revenues are weak, all those lease commitments still need to be paid.

Snoopy

13-06-2020, 11:55 AM

I haven't checked your figures closely Snoopy, but is the net debt of 23.643 right as at March 2020? I had $36m less cash = ~$30m.

jg8512, you are quite right, but so am I. That $23.643m I had was under the column header '2020e', where 'e' stands for estimate. I was under the impression that AWF would be paying back debt over FY2020. But no, debt actually went up, largely because of the $10.520m shelled out for 'JacksonStone & Partners'. If you look further down in my post you will see that the actual net debt I calculated out at EOFY2020 was $29.822m - pretty much line ball with your figure.

ALso, are you excluding the contingent consideration (that's another >$3m of future cash to be paid out). and if revenues are weak, all those lease commitments still need to be paid.

Again good point. The EBITDA/I figure is a 'banking covenant' and I guess the reason for setting it at a maximum of 3 is to leave some headroom to pay other debts? I am happy to be corrected if my interpretation on this is wrong. The bank is pretty much at the top of any debt queue anyway, and as long as there is enough money left for them, then other creditors can 'get stuffed' (I think that is the correct banking industry parlance for such a situation).

Nevertheless I am a little unsure about 'I' the finance cost figure to use in my EBITDA/I ratio. On the balance sheet it is $2.084m. But if you turn to section A4 page 38, you will see that, for the first time, this figure incorporates and 'interest on contingent consideration' component and an 'interest on lease liabilities' component.

Interest on bank overdrafts and loans$1.401m

Interest on contingent consideration$0.101m

Interest on lease liabilities$0.582m

Total Finance Costs$2.084m

The previous year, only the equivalent of the $1,401m figure was used for the finance cost 'I'. So should I have added in those other two figures when calculating the finance cost or not? I remain a little confused on this point.

You are right about needing to find cash for the $1.463m contingent consideration for buying 'JacksonStone & Partners'. But there is still $3.259m worth of 'Customer Amortization' and $1.487m in 'Restraint of Trade' intangibles to be written off (p45 AR2020). That should more than balance out the contingent consideration payment due.

Personally I am not too concerned about the lease payment liability. The $9.098m lease liability is more than offset by the $11.107m of 'right to use' assets on the balance sheet. All the AWF employees have to work somewhere after all.

SNOOPY

Snoopy

13-06-2020, 03:10 PM

It looks like the new NZ IFRS 9 standard on Financial Instruments will require the recognition of more losses by the likes of AWF on these labour contracts, whether these losses actually exist or not (from AR2019 p52):

"',,,requires lifetime expected losses for trade and other receivables to be recognised from initial recognition of the receivable."

Effectively AWF are being asked to use a 'probabilistic model', estimating their own write offs before they happen.

To some extent AWF is already doing this. AWF runs a 'provision for impairment' that is permanently on the books.

The extra provision from IFRS 9 for specifically 'trade receivables' (I take that to mean relating to the AWF sub brand?) is $0.371m (p71 AR2019). If we then move to the actual 'Provision for Impairment of Trade Receivables' (p53 AR2019), we can see that this extra $0.371m has gone straight in. In fact, following the write offs during the year, the 'Provision Impairment Balance' would have ceased to exist without this extra payment! Did the IFRS 9 standard change occur just in time to avoid a negative provisions coming onto AWF's books (if that is even possible)?

I am a little uncomfortable with the concept of holding a 'provision for impairment' at all. By having such a thing, bad deals can be 'smoothed out' by making a small annual addition to the impairment provision. Yet inside the provision there is a whopping write down that does not affect that year's profit and loss statement. Actual write downs for 'Trade & Receivables' over the last few years, compared to the consummate changes in provisions, have lined up as follows:

20142015201620172018
2019Row Sum

Impairment Losses in P&L {A}($0.358m)($0.306m)($0.510m)($0.699m)($0.655m)($ 1.109m)

Impairment Write backs P&L {B} $0.291m$0.137m$0.100m$0.228m$0.594m$0.360m

Net Impairment in P&L {A}+{B}($0.067m)($0.169m)($0.410m)($0.471m)($0.061 m)($0.749m)($1.927m)

Actual Trade & Receivables Write down($0.088m)($0.204m)($0.163m)($0.163m)($0.815m)
($1.034m)($2.291m)

Provision for Impairment Balance$0.377m$0.342m$0.589m$0.897m$0.143m$0.229m

Over time, the last two rows should sum to about the same total. We can see that the declared result has incorporated a lower loss than the actual figures written off. But over the years a difference of $0.364m is not material. The one thing that strikes me about this table is that the 'write backs' have been quite high. One way to interpret that is that the initial write offs were overly conservative. I guess that is a good thing.

The end of year 'Provision for Impairment' balance is low enough that there can't be that much smoothing of write offs between years going forwards. I say that is good. What is not so good is that 'big impairment hits' will be felt against profits without delay - not great when you are struggling to reduce your debts! My gut feeling is that the 2019 provision balance, given it is now meant to reflect probabilistic losses that might occur, is now too low.

Time to update the bad debt performance of the group. This is a good thing to keep an eye on if a company has substantial debt on its balance sheet already.

The 'Impairment Losses Recognised' may be found in AR2020 Section C6 p52.
The 'Impairment Losses Reversed' may be found in AR2020 Section C6 p52.
The 'Write-offs to bad debts during the year' may be found in AR2020 Section C6 p52.
The 'Provision For Impairment Balance' may be found in AR2020 Section C6 p51.

20142015201620172018
20192020
Row Sum

Impairment Losses in P&L {A}($0.358m)($0.306m)($0.510m)($0.699m)($0.655m)($ 1.109m)($0.301m)

Impairment Write backs P&L {B} $0.291m$0.137m$0.100m$0.228m$0.594m$0.360m$0.046m

Net Impairment in P&L {A}+{B}($0.067m)($0.169m)($0.410m)($0.471m)($0.061 m)($0.749m)($0.255m)]
($2.182m)

Actual Trade & Receivables Write down($0.088m)($0.204m)($0.163m)($0.163m)($0.815m)
($1.034m)($0.123m)
($2.414m)

Provision for Impairment Balance$0.377m$0.342m$0.589m$0.897m$0.143m$0.229m$ 0.361m

Over time, the second to last two rows should sum to about the same total. We can see that for FY2020 the declared result (Net Impairment in Profit & Loss) has incorporated a loss almost double the actual figures written off. But looking at the cumulative effects of 'declared' verses 'actual' write offs over the years, the summed difference of $0.232m is not material. The one thing that strikes me about this table is that the 'write backs' have been quite high as a percentage of the declared losses. The possible exception to this is FY2020 where the write back percentage was 'only' 15%. One way to interpret that is that the initial write offs were overly conservative. I guess that is a good thing.

For FY2020, the end of year 'Provision for Impairment' balance has gone up from what look to be abnormally low levels from the previous two years. It is now a high percentage of the actual impairment losses. This offers the potential for declared impairment losses to be manipulated. The potential manipulation I allude to is for losses that should have been written off to be held in a bloated provision figure. However, because the absolute level of impairment losses has shrunk, any such manipulation, if it exists, should not have a material effect on the annual net profit result. With the FY2019 result I suggested that the 2019 provision balance, given it is now meant to reflect probabilistic losses that might occur, could have been too low. IMO raising the end of year provision for FY2020 has gone some way to fixing this.

SNOOPY

Snoopy

14-06-2020, 11:25 AM

What anyone sees as 'one off' charges' are usually a matter of opinion. Nevertheless, with all the turmoil in the construction sector, it might be worth adding all the write downs back onto the 'AWF Division' profit, to see what profits might have done if the construction sector had not 'gone bad'.

201420152016201720182019

AWF EBIT {A} $7.471m$7.498m$7.067m$8.726m$4,858m$1.260m

Actual Trade & Receivables Writedowns {B}($0.088m)($0.204m)($0.163m)($0.163m)($0.815m)($ 1.034m)

No redeployment of Overseas Workers (saving) {C}$1.500m

AWF EBIT - Writedowns {A}-{B}+{C}$7.559m$7.702m$7.230m$8.889m$5.673m$3.794m

This table indicates that just being more diligent in choosing the short term labour contacts that you wish to help with is not going to fix things. CEO Bennett realizes this and has already announced an unspecified amount of background cost cutting. How much of the EBIT decline is due to the adoption of the new probabilistic bad debt model under IFRS 9 in FY2019? The answer is none, because I have used 'actual write off figures' in the above table.

AWF experienced the collapse of three construction sector clients in FY2018 that had a significant effect on the 'blue collar' side of the AWF business.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/AWF/325389/288702.pdf

CEO Simon Bennet, aka 'The Bennster' vowed to fix things. So what actually happened over FY2020?

AWF divisional earnings can be found on p31 of AR2020.
Actual Trade & Receivables Writedown can be found on p52 of AR2020.

20142015201620172018
20192020

AWF EBIT {A} $7.471m$7.498m$7.067m$8.726m$4,858m$1.260m$1.692m

Actual Trade & Receivables Writedowns {B}($0.088m)($0.204m)($0.163m)($0.163m)($0.815m)
($1.034m)($0.123m)

Assuming no redeployment of Overseas Workers (creating a saving) {C}
$1.500m (1)

AWF EBIT - Writedowns {A}-{B}+{C}$7.559m$7.702m$7.230m$8.889m$5.673m$3.794m$ 1.569m

(1) From 29th May 2019 market update

This table could be the indicator that AWF's construction sector woes are far from over. Remember that the latest figures are for the year ended 31st March 2020, and that includes only a few days of the lock down. The figures for 'AWF blue collar' are so bad I am wondering if I have made a mistake ??!?? Are the glory days of AWF Madison as a group over? It looks like 'The Bennster' has some explaining to do!

The June 8th announcement to the market contains some answers:

"The reduction in Group revenue was driven by AWF, where revenue fell by 16% to $97.4 million (Snoopy edit: I think the technical market term for this is 'Ouch!'). This reflected a number of factors. The Group took the decision in 2018 to start relinquishing low margin, high cost-to-serve business in favour of customers with higher engagement levels. In addition, AWF has recently seen growth in permanent recruitment, which furnishes higher margins than temporary. Taken together, these factors constitute encouraging momentum by AWF towards a greater contribution to Group profitability."

A further insight into AWF's woes was given in the interim report from p6.

"Of more concern is the industrial relations activity we are seeing, with aggressive action by a number of Unions. We currently have a case before the Employment Relations Authority, taken by a Union, challenging the status of a number of our workers. We believe this case has no merit and, in fact, they are seeking an outcome that would have applied if the Employment Relations (Triangular Employment) Amendment Bill had not been amended prior to it becoming legislation. This action has resulted in a shift away from contingent workers in a large client of ours who is seeking to take a more conservative balance of permanent and contingent workers."

"I believe the Union is effectively bullying a number of clients in this way. It is unfortunate for our workers as now a number have been left without work opportunities as a result. We are confident this will be resolved and may, in fact, result in stronger case law for legitimate providers of temporary employees. A balance of permanent and contingent workers optimises a workforce and provides good opportunities for workers, and we are confident common sense will prevail. The result has seen our white collar segment"

There were further problems redeploying workers from Christchurch (interim report p6).

"We had expected to resolve issues with the Labour Inspectorate relating to an investigation which commenced in May of 2018, following an exaggerated and sensationalised report by the media on 9 May 2018. This investigation stalled our renewal process for Accredited Employer status with Immigration New Zealand and resulted in us having little flexibility to redeploy many workers based in Christchurch, who were surplus to requirements, with large construction projects drawing to a close. We expect to announce a long overdue pathway forward in the coming weeks."

I take no 'momentum encouragement' myself from any of this! In a post Covid-19 world, are all the big corporates out there looking to hire new people? I can see a shift back to short term contracts, and more grindingly low margins for AWF blue collar temp workers.

SNOOPY

Snoopy

14-06-2020, 04:00 PM

From the 29th May 2019 press release:

"Bennett said AWF had reduced its cost base, and was now geared to return 4% to 6% EBITDA on turnover approaching $120 million."

So lower and upper bound estimates of EBITDA for AWF are as follows:

$120m x 0.04 = $4.8m, $120m x 0'06 = $7.2m

Since these figures already include the cost savings I was trying to estimate in my post 791, I have removed those from my updated calculation.

Lower Estimate FY2020Higher Estimate FY2020

EBITDA (AWF Division)$4.800m$7.200m

EBITDA (Madison/AbsoluteIT)$5.597m$5.597m

less Head Office Admin and Expenses($2.649m)($2.649m)

less Net Interest Expense Paid($1,232m)($1.232m)

less Depreciation and Amortization($3.445m)($3.445m)

equals Net Profit Before Tax$3.071m$5.471m

less Income Tax @ 30%($0.921m)($1.641m)

equals Net Profit After Tax$2.150m$3.830m

Second Impression? It is looking like a slow crawl back from the construction industry supply profit bomb hole. At best profits will be back to FY2014 levels. But we have one more year of $2m odd in hidden amortizing customer relationship cashflows for FY2020. That means the amount of cash available to pay the dividend this year is $4.150m and $5.830m. Even with the growing number of shares on issue as a result of the DRP (let's say 36m in total by this time next year) that allows a 'dps' payment of 11.5c to 16.2c without 'borrowing from the bank to pay the dividend'. I have to admit that dividend payment might be looking shakey by FY2021. But Simon and his team will have had a couple of years 'reinventing the business for growth' by then. So all will be 'hunky dorey' by then, right?

I always find it a useful exercise to go over old predictions and see where you went wrong.

Lower Estimate FY2020
Higher Estimate FY2020
Actual Profit FY2020

EBITDA (AWF Division)$4.800m
$7.200m$1.962m

EBITDA (Madison/AbsoluteIT)$5.597m
$5.597m$7.156m

less Head Office Admin and Expenses($2.649m)
($2.649m)($2.876m)

less Net Interest Expense Paid($1,232m)
($1.232m)($2.084m)

less Depreciation and Amortization($3.445m)
($3.445m)($6.194m)

equals Net Profit Before Tax$3.071m
$5.471m$3.897m

less Income Tax (Scenario Estimates @ 30%)($0.921m)
($1.641m)($1.220m)

equals Net Profit After Tax$2.150m
$3.830m$2.677m

The actual tax paid over FY2020 was at a rate of:

$1.220m / $3.897m= 31.3%

The actual result was somewhat in the middle of my higher and lower estimate. But digging deeper that AWF division contribution was a clangor. Far far worse than my worst fears. The fix for the 'Auckland Commercial Construction' problems was to avoid the construction industry (AR2020 p12)!

The white collar contribution was up. But that was mainly due to 10 months contribution from the newly acquired 'JacksonStone' 'C' level placement consultancy. Take out that and both Madison and AbsoluteIT were down (revenue down a combined 8%).

Head office expenses were up as "directors and management all took pay reductions" (AR2020 p12)! Wasn't FY2020 also the year that the company gained the full value of putting Madison and Absolute It into the same locations in Auckland and Wellington? It is hard to reconcile administration expenses going up in the circumstances I have outlined.

The interest bill went up because I didn't model the $10.520m purchase of 'JacksonStone'. 'JacksonStone' certainly contributed to increasing White Collar profit But the downside was a much higher interest bill and restraint of trade amortisations that mostly erased the acquired business's positive EBIT contribution. I can't help wondering if in the 'quest for growth' the eye was taken off the existing balls in hand. I am not saying the acquisition of 'JacksonStone' was necessarily wrong long term, albeit the acquisition timing perhaps could have been better. I am saying that increased debt generally doesn't go away. But increased profits can.

If we go back to the interim report p7, 'the Bennster' had high hopes for Net Profit Before tax:

"We expect to achieve NPBT (Net Profit Before Tax) for the full year of above $4.2 million – nearly 50% higher than prior year. An upper range is not provided due to some uncertainty in the level of improvement within AWF and the speed at which we can ramp up temp numbers within Madison."

This was all pre Covid-19 of course. But even so, to fall short of your lowest expectations by: $4.200m - $3.897m = $0.303m, is not a great result.

SNOOPY

Snoopy

15-06-2020, 10:34 AM

There were further problems redeploying workers from Christchurch (interim report p6).

"We had expected to resolve issues with the Labour Inspectorate relating to an investigation which commenced in May of 2018, following an exaggerated and sensationalised report by the media on 9 May 2018. This investigation stalled our renewal process for Accredited Employer status with Immigration New Zealand and resulted in us having little flexibility to redeploy many workers based in Christchurch, who were surplus to requirements, with large construction projects drawing to a close. We expect to announce a long overdue pathway forward in the coming weeks."

One issue resolved at least. From:

https://www.awf.co.nz/blog/2020/03/awf-adopts-best-practice-in-contracting-overseas-workers

"The Labour Inspectorate undertook an investigation of AWF regarding employment agreements for its Filipino workers that had an unlawful addendum which was added at the request of a Philippines agency. The agreements also contained room for confusion around hours of work, in particular, in respect of minimum and maximum hours."

The unlawful addendum was added by a partner recruiting agency, HAPI (Human Aggregates Philippines Inc), in the Phillipines, not by AWF.

"a former AWF Manager had acted without authority in complying with the HAPI request."

So the miscreant manager at AWF has been sacked.

"In terms of ongoing best practice, AWF will make space available at its Auckland, Wellington and Christchurch branches for union meetings at agreed times. It will communicate to staff about such meetings and will pay any migrant worker to attend a union meeting.”

So AWF all hunky dory with the unions now. that has to be good.

"Fleur Board, AWF’s General Manager, said that having reached resolution, AWF intends to renew its accreditation for the recruitment and employment of overseas workers."

Sounds promising except NZ's borders are largely closed to overseas workers. Could be an issue for FY2021?

SNOOPY

Snoopy

15-06-2020, 05:56 PM

In the absence of 'new news', my instinct is to keep my powder dry and wait for the full year result. Half year result was cashflow positive, buoyed by more diligent collection of debts, the capital injection from the DRP and non cash goodwill write offs that reduced profit but not cashflow. Having said that, not as much cash was generated as the previous pcp half year. Historically cashflows have consistently exceeded profits by a significant margin for the full year. Yet I have noticed a pattern of reduced cashflows in the second half. Reduced to the extent that on occasion the full year cashflow is less than the half year cashflow! I don't really understand why this is. A 'cleansing of the books', as more construction company client troubles are quietly shuffled off the books to make a better platform from which to spring from for the coming year perhaps? But I do feel that the upcoming full year result will be a turning point, one way or the other, for the company.

The above comments are from 05-02-2019, before the Full Year 2019 (or Second Half Year 2019) dividend payment. It is interesting to look at the half yearly operational cashflows since.

Finance Period
Operational Cashflows
'Dividend Declared' minus 'DRP Reinvestment' (1)

HY2015
$8.330m
($1.986m)

2HY2015
($2.145m)
($1.916m)

HY2016
$6.495m
($2.660m)

2HY2016
($4.437m)
($2.392m)

HY2017
$11.399m
($2.636m)

2HY2017
($3.773m)
($2.602m)

HY2018
$11.879m
($2.476m)

2HY2018
($0.370m)
($2.645m)

HY2019
$6.143m
($1.931m)

2HY2019
$3.334m
($1.906m)

HY2020
$6.875m
($1.959m)

2HY2020
$3.014m
Nil

(1) From the HY2018 dividend, the 'capital preserving' dividend reinvestment plan was introduced.

I have used operational cashflows because I believe that best reflects the picture of the ongoing business as a going concern. You can see from the above table that the old formula of 'borrowing to pay the second half dividend' has gone after 2HY2019. Dividends are now paid out of profits, (except in the case of 2HY2020 where the dividend has been withheld because of Covid-19 uncertainty). There was certainly money there to pay it to previous years levels had macro-economic conditions been different. The problem with tables like this is that all the information is historical. No-one, not even the Bennster, really knows how AWF will trade over FY2021. Sensibly he has pushed out the AGM from July to September. By then the Bennster should at least have an initial feel as to how things are going. My gut feeling is that there will be a capital raising. I think that the 'EBITDA'/I banking covenant is in danger of being breached. And that means buying in today at what in historical terms looks to be a good price, might not be the wisest thing to do.

SNOOPY

jg8512

15-06-2020, 07:48 PM

thanks for your reply Snoopy at #807. Even if one takes net debt as $29.8m, that dwarfs the NPAT of $2.7m. Buffett has sometimes used the debt no more than 3x NPAT as an upper limit on acceptable debt levels (and it is one I use too), but on that measure AWF's debt is at 11x NPAT.

I consider that the contingent consideration (a total of $3.3m at March 2020) is really debt too. Yes, performance of the acquired business may be worse and not trigger the consideration (in which case AWF's NPAT may be lower), but if the business does trigger the maximum consideration, then AWF will need to spend cash/raise debt to do so, so its net debt will be higher. Including contingent consideration as debt, the debt/NPAT ratio is even worse. (I agree with you about not including the lease liabilities in net debt).

I too am not sure how the interest on lease liabilities should be treated for assessing compliance with the banking covenants (depends on the loan agreement I guess). While interest rates are very low, the interest charge looks manageable vs EBITDA. That said, circa $30m of debt will take many years to repay, so AWF does look very exposed to higher interest rates should that happen (which seems unlikely to be happening any time soon, I agree). If one sees oneself as a long term holder, the high level of debt, and the risk of a materially higher interest expense, seems very worrying. I'd much prefer a firm like this to have no net debt (or much, much lower debt)

GLAH

Snoopy

16-06-2020, 10:08 AM

Even if one takes net debt as $29.8m, that dwarfs the NPAT of $2.7m. Buffett has sometimes used the debt no more than 3x NPAT as an upper limit on acceptable debt levels (and it is one I use too), but on that measure AWF's debt is at 11x NPAT.

That is the concept I have called MDRT (Minimum Debt Repayment Time). I wouldn't be quite as 'exclusive' in eliminating potential investment candidates as Buffett. Especially in his time of ultra low interest rates.

'MDRT' is the answer to the question:

"If all profits for the year were put towards paying off the company's debts, how long would that take?"

My rule of thumb for the answer in years is:

years < 2: Company has low debt
2< years <5: Company has medium debt
5< years <10: Company has high debt
years >10: Company debt is cause for concern

FY2015FY2016FY2017[/TD]FY2018
FY2019FY2020

Significant EventFirst full year owning Madison[/u][/TD]First full year owning AbsoluteIT
JacksonStone Acquired

Cash & Cash Equivalents: {A}
$3.151m
$0.0m
$1.225m
$6.269m
$6.357m
$6.178m

Non Current Borrowings:
$0.0m
$18.500m
$18.500m
$36.000m
$33.000m
$36.000m

add Current Borrowings:
$21.759m
$2.500m
$0.0m
$0.0m
$0.0m
$0.0m

add Overdraft:
$0.0m
$0.870m
$0.108m
$0.0m
$0.0m
$0.0m

equals Total Borrowings: {B}
$21.759m
$21.870m
$18.608m
$36.000m
$33.000m
$36.000m

Total Net Borrowings: {B} - {A}
$18.608m
$21.870m
$17.323m
$29.731m
$26.643m
$29.822m

Net profit declared {C}
$5.416m
$5.202m
$5.867m
$5.048m
$2.013m
$2.677m

MDRT ({B} - {A}) / (C}
3.4 years
4.2 years
3.0 years
5.8 years
13.2 years
11.1 years

Laid out in this way it is a sad tale. AWF may be the largest recruitment company in NZ and it may now have four divisional cylinders to fire on. But every time a cylinder is added to the cylinder bank the spark plug that fires it appears to no longer run cleanly. Madison is in decline. AbsoluteIT is in decline and the former single cylinder stand alone power plant, AWF, definitely has a sooty plug. JacksonStone is the 'saviour' this year to complete the 'firing on all four cylinders' divisional quartet. But when you look at the additive result, the obvious question is:

"Where's the fire?"

I am probably being a bit unfair here because the principal reason behind what is now 'new normal ' profitability is AWF. The construction industry problems appear to have taken the wind out of what was this company's main driving sail. But the end result of going from a strong performing one cylinder motorbike five years ago to a 'flaccid four' today is more weight (overheads) and less performance (profit). It is enough for shareholders to think nostalgically about Simon Hull standing on the side of an Auckland Street loading the workers into a bus with a megaphone. But 'the Hullsters' approach is now history.

Today , under 'the Bennster', profitability has halved. So net debt should really be no more than half of what it was in 2015. That means we are looking at a cash issue of around $10m to fix the debt problem. Current market capitalisation is $50m, with the share price at $1.45. A 1:1 cash issue at $1 would raise approximately $30m. A 1:1 cash issue at $1.30 would raise approximately $40m. A 1:4 cash issue at $1.30 would raise approximately $10m. That's my pick on the way out.

SNOOPY

jg8512

16-06-2020, 05:18 PM

thanks Snoopy, very good post (but an awful story for AWF holders).

Snoopy

16-06-2020, 07:05 PM

Time for my FY2019 update!

epsdps (imputed)

FY201516.714.8

FY201616.015.2

FY201719.616.0

FY201815.816.2

FY201912.8 (e)16.2

Total80.978.4

5 year Average15.7

(e) = estimated profit based on doubling the half year result.

Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

= (15.7c / 0.72) / 0.08 = $2.73

However, there is a plot in the planning to increase company capital by increasing the number of shares to reduce debt.

The main long term 'problem' with AWF is their 'shortage of capital' and how many new shares will need to be issued to overcome it. The more new shares that are issued, the lower the earnings per share. All other things being equal this means a lower share price.

Estimated Capital Shortage: $27.331m - $20.608m = $6.729m

New capital is being raised twice a year via the dividend reinvestment scheme. Further cash is injected into the business, over and above the declared profit, as 'Customer Relationships' and 'Restraint of Trade' intangible assets are amortized. This effect of these two phenomena over the last two dividend payments are tabled below:

Dividend PaidDividend Money Reinvested {A}Customer Relationship Amortization {B}Restraint of Trade Amortisation {C}
Money Available for Debt Repayment {A}+{B}+{C}

1HY2019($2.704m)$0.773m$0.969m$0.109m$1.851m

2HY2019($2.637m)$0.797m$0.969m$0.109m$1.875m

FY2019($5.431m)$1.552m$1.937m$0.217m$3.706m

Over a couple of years the likely cashflow available for debt repayment is therefore poised to extinguish the excess debt that the board wants retired. The 'dividend money reinvested' part of this equation is $1.552m. If these shares are bought at $1.71, then this will require $1.552m/ $1.71 = 907,600 new shares to be issued. Adding that number to the number of shares on issue today makes the total shares on issue:

33,423,399 + 907,600 = 34,330,999

at the end of the debt reduction process.

At EOFY2018 the number of shares on issue was 32,555,193

This means that the incremental number of new shares that need to be issued to retire debt is: 34,330,999 / 32,555,193 = 5.5%

This expected increased number of shares will reduce our fair value target price as follows:

$2.73 / 1.055 = $2.59

At a share price of $1.71 (the price that the last DRP shares were issued), I therefore think that AWF is trading at a price 34% below its fair value. This is why I have been scooping up shares via the DRP and buying on market!

I am not going to pretend that the likes of Warren Buffett would find AWF a suitable investment at this time. So we need to use an alternative method for valuation. I choose the 'capitalised dividend valuation' method as appropriate here.

Time for my FY2021 (estimate) update! I am assuming a cash issue in FY2021 and because of the need to preserve capital no dividend over FY2021 either.

epsdps (imputed)

FY201719.616.0

FY201815.816.2

FY20196.216.2

FY20209.416.2

FY2021(e)?0.0

Total51.064.6

5 year Average12.9

Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

= (12.9c / 0.72) / 0.08 = $2.23

However as a result of the expected cash issue, I foresee the number of AWF shares on issue to increase by one share for every four in existence right now, or 25%. This will reduce my share price valuation accordingly.

$2.23 / 1.25 = $1.78

This is based on a net dividend per share (dividend declared) of 12.9c/1.25 = = 10.3c

Whether you believe that valuation or not depends on how well you think that AWF Madison will recover compared to pre-Covid-19 earning and dividend levels.

SNOOPY

Snoopy

17-06-2020, 07:45 PM

Interest Bill

The net interest rate paid on last years (FY2019) shrinking average net loan balance can be estimated as follows:

Interest Rate = $1.380m / 0.5x($29.731m + $26.643m) = 4.9%

If we assume the average loan balance will be $3m lower over FY2020, and interest rates remain unchanged, then we can expect the FY2020 interest bill to be:

0.049 x 0.5 x($26.643 + $23.643) = $1.232m

One way to assess how vulnerable a company is , is to look at the interest bill that the bank charges them.

The net interest rate paid on last years (FY2020) average net loan balance can be estimated as follows:

Interest Rate = $1.401m / 0.5x($26.643m + $29.822m) = 5.0%

So ASB doesn't seem too worried about the situation. Or are they just fulfilling their contractual obligations?

From AR2020 Note C7 pg54

"The Group has complied with all covenant requirements during the year. Interest is calculated on a floating rate and the annual weighted average rate is 3.13% (2019: 3.90%). The rate is reset every three months. The loan is an interest only loan and is repayable on 1 October 2021"

SNOOPY

Snoopy

18-06-2020, 12:30 PM

AWF may be the largest recruitment company in NZ and it may now have four divisional cylinders to fire on. But every time a cylinder is added to the cylinder bank the spark plug that fires it appears to no longer run cleanly. Madison is in decline. AbsoluteIT is in decline and the former single cylinder stand alone power plant, AWF, definitely has a sooty plug. JacksonStone is the 'saviour' this year to complete the 'firing on all four cylinders' divisional quartet. But when you look at the additive result, the obvious question is:

"Where's the fire?"

I don't wish to alarm shareholders (well O.K. maybe I do), but the substantial amount of 'enduring' intangible assets on the AWF Madison books requires shareholder vigilance.

MadisonAbsoluteITAWF
JacksonStoneTotal

Brand value
$7.465m$1.980m$0m
$1.029m
$10.474m

Goodwill
$20.223m$7.836m$11.212m$5.797m$45.068m

Grand Total
$55.452m

When assessing the value of these intangible assets, and I am aware that the auditors have already given these figures the big tick for FY2020, I think it is interesting to line up these intangible values against turnover and profit. This isn't easy to do. Once a new division is acquired it becomes absorbed into the 'white collar division' fold. Nevertheless,when a division is acquired, the historical earnings and revenue are made available, so useful insights may be gleaned.

FY2014FY2015
FY2016FY2017[/TD]FY2018
FY2019FY2020FY2021

Significant Event

First full year owning Madison

First full year owning AbsoluteIT

JacksonStone Acquired

Combined Madison/AbsoluteIT/JacksonStone Turnover

$69.770m
$68.786m
$98.714m
$149.455m
$151.946m
$166.079m

Madison only Turnover (assuming owned whole year)
$61.065m
$69.770m
$68.786m
$71.1m
$76.7m (e1)
n/a
n/a

AbsoluteIT only Turnover

$0.0m
$0.0m
$27.7m
$72.8m (e1)
n/a
n/a

AbsoluteIT only Turnover (assuming owned whole year)

$72.772m

JacksonStone only Turnover

n/a
n/a
n/a
n/a
n/a
$27.510m
$33.325m (e2)

Combined Madison/AbsoluteIT Turnover

n/a
n/a
$98.714m
$149.455m
$151.946m
$138.569m

Combined Madison/AbsoluteIT/JacksonStone EBIT

$4.264m
$4.004m
$3.387m
$5.963m
$5.597m
$7.156m

Madison Only Net profit
$2.513m

AbsoluteIT Only Net profit (assuming owned whole year)

$2.442m

JacksonStone Only Net profit (assuming owned whole year)

$2.405m

Whole Group Net profit declared

$5.416m
$5.202m
$5.867m
$5.048m
$2.013m
$2.677m

NPAT Margin (Madison Only)
4.1%

NPAT Margin (AbsoluteIT Only)

3.4%

NPAT Margin (JacksonStone Only)

7.2%

Notes

(e1) or estimate 1 is the full year turnover from (or derived from) the previous year of AbsoluteIT operations, assuming it had been part of the AWF group for the whole year.

(e2) Under Section G1, on page 49 of AR2020, there is this statement.

"Had this business combination been effected at 1 April 2019, the revenue of the Group from continuing operations would have been approximately $33.325m, and the net profit after tax for the year ended 31 March 2020 from continuing operations would have been approximately $2.405m."

Considering the revenue for the whole group was listed as $263.527m (AR2020 p22) it is inconceivable that the above quote is correct. I am picking that what the quote actually refers to is the revenue and earnings for JacksonStone as a stand alone entity over FY2020. I am using the quoted figure of $33.325m as an estimate of JacksonStone revenue for FY2021.

From p49 of AR2020:

"For the period 1 June 2019 to 31 March 2020, included in Group profit after tax is $1.943m and in Group revenue $27.510m attributable to JacksonStone & Partners."

This implies an actual net profit margin for JacksonStone during the part year of initial ownership of:

$1.943m / $27.510m = 7.1%

That is consistent with the surprisingly high full year figure listed in the table.

What conclusions can we draw from the revenue and earnings table? Despite the headline turnover going up, the existing combined business unit of Madison and AbslouteIT is actually declining.

On page 2 of AR2020, Chairman Ross Keenan noted:

"In Madison and Absolute IT, in addition to the increase in boutique agencies, the growing trend, by clients, to establish in-house recruitment teams contributed substantially to the businesses’ reduced performance."

So all is not well. I can't be absolutely sure, but it looks like Madison and AbsoluteIT are approximately the same size in terms of turnover today. Similarly it looks like historically AbsoluteIT makes more profit. So I do raise an eyebrow at the goodwill and brand value on the books for Madison being substantially higher than the equivalent figures for AbsoluteIT. This doesn't mean the goodwill for Madison on the books is necessarily too high. It has just been signed off by the auditors after all! But it does mean that in the event of an earnings downturn in FY2021 it is more likely to be vulnerable to a downgrade. How much of a downgrade might shareholder expect? That could be a $20m dollar question!

SNOOPY

percy

18-06-2020, 06:17 PM

Snoopy

18-06-2020, 07:04 PM

I think if I were a shareholder in AWF, I would be more than worried that their Brand value and Goodwill [$55.452 mil], exceeded their market cap [$46.34 mil] by nearly 20%.
Certainly very questionable when NPAT is taken into account.
Well according to their latest balance sheet Intangible assets – goodwill come to $61,262,000 compared with shareholders equity of just $33,734,000.
So taking out these we end up with negative equity of over $27.5 mil.

You aren't the first person to rail against the high amount of goodwill on the balance sheet Percy, and neither will you be the last. The historical reason for all that goodwill is that AWF Madison operate a 'capital light' business model. It is the people who make this business work and these 'people assets' do not appear on the balance sheet. The goodwill was created relatively recently, in the case of JacksonStone just a few months ago. AWF paid $10.530m for JacksonStone and of the full business year that company made $2.450m. The net assets purchased in this arrangement amounted to $4.723m. Or if we remove the 'JacksonStone' brand name asset, the 'Customer Relationship Asset' and the 'Restraint of Trade' asset, then we can work out the net tangible assets purchased (Figures taken from AR2020 p47).

$4.723m - ( $1.209m + $2.185m +$1.406) = -$0.077m

So just a few months ago, AWF purchased some net 'negative assets'. Yet AWF were obviously earning a very good return on the $10.530m that they laid down to purchase 'JacksonStone'.

$2.450m / $10.530m = 23.2% return before holding costs.

I can't see how anyone can argue that the purchase of 'JacksonStone' was a bad move, particularly as the founders, the people who are driving the earnings, are remaining on board. Reference the 29th May 2019 acquisition press release.

"The transaction is structured with an initial payment of $6.7 million on closing and an estimated $3.8 million payable in three instalments over the next couple of years, subject to JacksonStone achieving defined performance targets. This aligns the vendors with AWF Madison’s goals over the coming years and provides an incentive for the vendors to continue to drive performance."

The same could have been said for 'AbsoluteIT' and 'Madison' as well, at the time. But what is interesting is to compare the 'on the books' goodwill with the revenue each division is estimated to generate

MadisonAbsoluteITAWF
JacksonStoneTotal

Brand value
$7.465m$1.980m$0m
$1.029m
$10.474m

Goodwill
$20.223m$7.836m$11.212m$5.797m$45.068m

Grand Total
$55.452m

Revenue
$71.1m (1)$67.5m (2)$97.448m$33.025m

Calculation Notes

(1) Estimated Apportioned revenue for Madison $138.569m x 51.3% = $71.1m ($76.7m/$149.455m = 51.3% - my post 818)
(2) Estimated Apportioned revenue for AbsoluteIT $138.569m x 48.7% = $67.5m ($72.8m/149.455m = 48.7% -my posy 818)

What becomes obvious now is that the 'Goodwill' and 'Brand Value' attributed to Madison looks way out of proportion to the revenue generated (In comparison with 'AbsoluteIT' and 'JacksonStone') . And all of these goodwill and brand value figures are pre-Covid!

Now let me lay my cards on the table. I have been an investor in AWF Madison for five years. I like the capital light business model. I think the business model will have future in the post Covid-19 world. With so many job applicants to sort through I think more and more companies will use the services of the likes of AWF Madison. But any business is a bad investment if you pay too much for it, no matter how good the business model. I fear that in another era, without the benefit of hindsight, AWF might have done just that when they acquired Madison in FY2014. And I fear that shareholders may soon have to face up to that fact. It won't stop AWF Madison being a good investment longer term if the book value of that base investment is reduced. But in the short term at least that could mean pain for shareholders.

SNOOPY

Snoopy

12-07-2020, 03:34 PM

FY2015FY2016FY2017[/TD]FY2018
FY2019FY2020

Significant EventFirst full year owning Madison[/u][/TD]First full year owning AbsoluteIT
JacksonStone Acquired

Cash & Cash Equivalents: {A}
$3.151m
$0.0m
$1.225m
$6.269m
$6.357m
$6.178m

Non Current Borrowings:
$0.0m
$18.500m
$18.500m
$36.000m
$33.000m
$36.000m

add Current Borrowings:
$21.759m
$2.500m
$0.0m
$0.0m
$0.0m
$0.0m

add Overdraft:
$0.0m
$0.870m
$0.108m
$0.0m
$0.0m
$0.0m

equals Total Borrowings: {B}
$21.759m
$21.870m
$18.608m
$36.000m
$33.000m
$36.000m

Total Net Borrowings: {B} - {A}
$18.608m
$21.870m
$17.323m
$29.731m
$26.643m
$29.822m

Net profit declared {C}
$5.416m
$5.202m
$5.867m
$5.048m
$2.013m
$2.677m

MDRT ({B} - {A}) / (C}
3.4 years
4.2 years
3.0 years
5.8 years
13.2 years
11.1 years

The construction industry problems appear to have taken the wind out of what was this company's main driving sail. But the end result of going from a strong performing one cylinder motorbike five years ago to a 'flaccid four' today is more weight (overheads) and less performance (profit). It is enough for shareholders to think nostalgically about Simon Hull standing on the side of an Auckland Street loading the workers into a bus with a megaphone. But 'the Hullsters' approach is now history.

Today , under 'the Bennster', profitability has halved. So net debt should really be no more than half of what it was in 2015. That means we are looking at a cash issue of around $10m to fix the debt problem. Current market capitalisation is $50m, with the share price at $1.45. A 1:1 cash issue at $1 would raise approximately $30m. A 1:1 cash issue at $1.30 would raise approximately $40m. A 1:4 cash issue at $1.30 would raise approximately $10m. That's my pick on the way out.

Our Chairman, Ross Kennan, has had a couple of bites of the equity pie in the last few weeks. A 2nd July disclosure showed he bought 10,000 shares for $13,600. That works out at $1.36 per share. That follows on from the purchase of 14,016 shares declared on 30th June for $20,320.20 at an average buy price of $1.45. These purchases have not inspired the market though. The share price closed at $1.29 on Friday. The chances of getting a cash issue away at $1.30 to strengthen the balance sheet look slim now.

I am now picking a 1 for 2 cash issue at $1 to raise $15m. Some of that might be wiped out immediately by, I am picking, a writedown of the 'Madison' white collar goodwill.

MadisonAbsoluteITAWF
JacksonStoneTotal

Brand value
$7.465m$1.980m$0m
$1.029m
$10.474m

Goodwill
$20.223m$7.836m$11.212m$5.797m$45.068m

Grand Total
$55.452m

Revenue
$71.1m (1)$67.5m (2)$97.448m$33.025m

Calculation Notes

(1) Estimated Apportioned revenue for Madison $138.569m x 51.3% = $71.1m.
(2) Estimated Apportioned revenue for AbsoluteIT $138.569m x 48.7% = $67.5m

Before Madison joined the group in FY2014, it generated a net profit of $2.513m. This year (FY2020) the whole group net profit was $2.677m. The lions share of that was from 'JacksonStone' ($1.943m, ref AR2020 p69) with the remaining three divisions (AbsoluteIT, Madison and Allied Workforce) contributing $0.743m combined. That $20m in Madison goodwill in particular is starting to look ridiculous with such a consistent record of shrinking profits over many years. $15m raised would wipe out half the group debt and allow a consummate $15m to be written off Madison goodwill without affecting overall debt equity ratios. Even with that kind of cash injection, AWF Madison would not necessarily be out of the woods. Lot's of pain for shareholders on the horizon, I fear, from a dilutive cash issue. But properly capitalised, I still believe the 'AWF Madison' business model is good.

SNOOPY

discl: hold AWF, but have too many to sell, so I will be sticking with them and supporting any heavily discounted share issue. Roll on the cash issue!

Snoopy

13-07-2020, 11:31 AM

I am not going to pretend that he likes of Warren Buffett would find AWF a suitable investment at this time. So we need to use an alternative method for valuation. I choose the 'capitalised dividend valuation' method as appropriate here.

Time for my FY2021 (estimate) update! I am assuming a cash issue in FY2021 and because of the need to preserve capital no dividend over FY2021 either.

epsdps (imputed)

FY201719.616.0

FY201815.816.2

FY20196.216.2

FY20209.416.2

FY2021(e)?0.0

Total51.064.6

5 year Average12.9

Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

= (12.9c / 0.72) / 0.08 = $2.23

However as a result of the expected cash issue, I foresee the number of AWF shares on issue to increase by one share for every four in existence right now, or 25%. This will reduce my share price valuation accordingly.

$2.23 / 1.25 = $1.78

This is based on a net dividend per share (dividend declared) of 12.9c/1.25 = = 10.3c

Whether you believe that valuation or not depends on how well you think that AWF Madison will recover compared to pre-Covid-19 earning and dividend levels.

I am re-running this calculation to take into account the higher number of shares that will likely be on issue following my assumed future capital raising.

I am not going to pretend that he likes of Warren Buffett would find AWF a suitable investment at this time. So we need to use an alternative method for valuation. I choose the 'capitalised dividend valuation' method as appropriate here.

Time for my FY2021 (estimate) update! I am assuming a cash issue in FY2021 and because of the need to preserve capital no dividend over FY2021 either.

epsdps (imputed)

FY201719.616.0

FY201815.816.2

FY20196.216.2

FY20209.416.2

FY2021(e)?0.0

Total51.064.6

5 year Average12.9

Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

= (12.9c / 0.72) / 0.08 = $2.23

However as a result of the expected cash issue, I foresee the number of AWF shares on issue to increase by one share for every two in existence right now, or 50%. This will reduce my share price valuation accordingly.

$2.23 / 1.5 = $1.49

This is based on a future estimated net dividend per share (dividend declared) of 12.9c/1.5 = = 8.6c

Whether you believe that valuation or not depends on how well you think that AWF Madison will recover compared to pre-Covid-19 earning and dividend levels. I believe my valuation is realistic taking a medium term view of the business. So I am no hurry to sell on the market today at, ouch, $1.27.

SNOOPY

Snoopy

07-08-2020, 08:30 PM

As a result of the expected cash issue, I foresee the number of AWF shares on issue to increase by one share for every two in existence right now, or 50%. This will reduce my share price valuation accordingly.

$2.23 / 1.5 = $1.49

This is based on a future estimated net dividend per share (dividend declared) of 12.9c/1.5 = = 8.6c

Whether you believe that valuation or not depends on how well you think that AWF Madison will recover compared to pre-Covid-19 earning and dividend levels. I believe my valuation is realistic taking a medium term view of the business. So I am no hurry to sell on the market today at, ouch, $1.27.

I have been watching my AWF shares over the last four weeks. On the very day of my last post, July 13th, the share price took off again and made it all the way to $1.44. But from that peak it was a steady walk down so that today we close at exactly the same price today as four weeks ago - $1.27. On the day of my last post it was almost as if someone at head office had said -hey- the share price shouldn't be that low. Better get the sharsies gang on the job to cause a price rally. Actually I think the 'someone' was Ross Keenan, who to give him his credit, stood in the market and bought. Once the momentum was established the micro-liquidity push from sharesies was all that was required to keep AWF shares going up. However it hasn't lasted. I still think a cash issue is imminent. The board must be signing it off as we speak if the paperwork is going to be out for the announcement at the AGM on September 30th. As far as the prospects for AWF going forwards, I offer my following 'best practise' analysis. Some have quietly said to me some of my analyses are too complex. But this time I think I can summarise the story in a way that all punters can understand:

"i believe. I believe, I believe, I believe, I believe!"

That's it. Much easier than going through any numbers. Hopefully that will rouse the interest of the sharsies gang and it will be onwards and upwards on Monday.

SNOOPY

Nor

14-08-2020, 10:35 PM

Very useful to be alerted to the possibility of a cash issue. Might have bought more at too high a price otherwise.

Nor

17-08-2020, 01:17 PM

Ten trades today. Volume 25. At least these buyers stand little chance of losing a bundle. Gotta be a good share medium to long term. I don't see the future of work reverting to full-time permanent for their segment of the work force.

winner69

26-08-2020, 06:28 PM

Can't resist keeping an eye on the share price - one day it might be a star ;)

But jeez it's sinking to new lows at the moment

;)

DarkHorse

26-08-2020, 09:55 PM

Can't resist keeping an eye on the share price - one day it might be a star ;)

But jeez it's sinking to new lows at the moment

;)

Much prefer PPE on the asx - value AND growth.

Snoopy

27-08-2020, 09:04 PM

Much prefer PPE on the asx - value AND growth.

Interesting DarkHorse. I have been looking for some time to find a 'measuring stick' for AWF and PPE might be it. I went over to the ASX forum and couldn't find a thread on PPE. I wondered if you might tell us how PPE came to your attention?

SNOOPY

jg8512

28-08-2020, 09:07 PM

Interesting DarkHorse. I have been looking for some time to find a 'measuring stick' for AWF and PPE might be it. I went over to the ASX forum and couldn't find a thread on PPE. I wondered if you might tell us how PPE came to your attention?

SNOOPY

Snoopy, and have a look at HIT.ASX (HiTech Group). best performed recruiter on the ASX, almost pure IT recruiter play (contractors and permanents). Mkt cap of about $55-60m, net cash position of ~$7m (c/w AWF's huge debts), consistent dividend payer, multi-year consecutive eps growth. eps CAGR of 20%+ over last five years. very heavy weighting to govt departments, so low bad debts / less vulnerable to economic slowdown. largest shareholder is founder (Hazouri), who is chair while his brother IIRC is CEO. on a P/e of ~17x. Disc: long-term holder.

winner69

04-09-2020, 12:53 PM

Nor

04-09-2020, 06:25 PM

Up 11c 8.87% to 1.35 today.

Snoopy

04-09-2020, 08:18 PM

Doesn’t say what profit measure they using but this is good news -

Limited: Market Update
AWF Madison Group Limited (NZX:AWF) wishes to update the market on its expected half year financial results, which are likely to show materially higher profit than the FY2020 Half Year result on reduced turnover.

So NPBT > $2m ....not too bad ...even if the wage subsidy did pull them through.

Any profit is good in these Covid-19 times. But saying your NPBT for HY2021 is better than your worst half year profit since at least 2015 is hardly 'blow the trumpet' good news. This is particularly so when the previous half year comparative period, HY2020, included only 3 months from the poster child acquisition of JacksonStone & Partners. So I am fairly sure that comparing like for like divisions profitability has sunk to a new low for HY2021. And this is in spite of directors senior managers and a high percentage of operational teams taking pay cuts, some redundancies, and with income boosted for lower level earners by soon to be phased out wage subsidies.

From the 4th September 2020 press release:

"A number of our business units received the wage subsidy for eligible employees, which enabled us to continue to employ large numbers of our people."

AWF Madison have a cohort of full time temping staff. They could only get the wage subsidy if turnover was down 30% on the previous comparative period. So reading the forward looking counterfactual to this quote, AWF Madison are saying that when the wage subsidy comes off, as it is now, they will not be able to employ 'large numbers of our people'. IOW unless business picks up, mass redundancies are certain, which will come at a big cost.

"The Key business of Permanent Recruitment is subdued at this time, and likely to remain so,"

Permanent recruitment is a very profitable section of the business, so the above statement is very downbeat on profits going forwards.

Yet despite all this bad news, the reduction in net debt since balance date is very welcome and impressive:

Net Debt EOFY 2020$29.822m

add EOFY2020 Tax Payable$0.950m

less Final FY2020 dividend not paid (1)$2.819m

less Excess of Profit and D&A above dividend (2)$1.530m

less Reduced Capital Expenditure$?m

less Reduced Working Capital$?m

equals Net Debt EOHY 2021 (including Tax Payable)$11.500m

Notes

1/ 0.082dps x 34,325,542shares = $2.819m (Final dividend FY2020, cancelled, not paid)

2/ Estimate of D&A for HY2021: $6.194m - $3.285m = $2.909m. Estimate of 'Net Profit' added to estimate of 'Depreciation & Amortisation' (does not reduce cash on hand) for HY2021: 0.72 x $2m +$2.909m = $4.349m (Estimate is required because this post was originally made before half year result for HY2021 was released).

I had always considered AWF Madison a 'Capital Light' company. I have searched right through AR2020 looking for what their capital expenditure was and could not find a reference to them spending anything on 'capital expenditure'. So I am guessing whatever 'saving' they have made here is a small number.

'Reducing Working Capital' is another way of saying you are increasing the amount of money you are collecting from customers much faster than the new bills you are creating. But this is what happens when the size of your business decreases significantly. That isn't necessarily a good thing. Because even though the total debt has come down, your capacity to service that debt is similarly decreased.

Assuming a $1m reduction in capital expenditure, my table above is showing a 'Reduction In Working Capital' of $13.923m. If all of this has come off trade receivables at last balance date of ($53.071m - $22.206m = $30.865m), this is pointing to a decline in business of: $13.923m/$30.865m = 45% from FY2020. And remember this decline is with all the wage subsidies in place.

With the worst to come, that estimated half year profit of 0.7x$2m=$1.44m might have to do for the whole year, Divide that into the reduced debt of $11.5m and I get an MDRT figure of: $11.5m/$1.44m = 8 years. This is still a very heavily indebted company with a cloudy future. I still believe a cash issue needs to be announced at the AGM to shore up the balance sheet. At the very least there will be no dividend for the rest of the year in my view.

SNOOPY

discl: holding, but in no hurry to top up on this progress report

winner69

05-09-2020, 12:03 PM

Hey snoops ...good review but you have to admire them for ‘blowing their trumpet’ with good news

Market apparently liked it so that trick worked

But as you sort of say the devil will be in the detail when it finally comes out.

nztx

05-09-2020, 03:17 PM

Interesting analysis there snoopy

Bear in mind that the second wage subsidy was around 30/6 - so possibiiity of prepayments of future weeks in advance clouding things

A Labour Hire / HR outfit is possibly different from other bricks & mortar retail operators

Very little if any stock (the stock is heads on the books or their labour leased out at a margin) - fast debtor settlements -
so probably bode well for leveraging on balance sheet

The stock in trade (deployed & available skill sets on the books) can be redeployed elsewhere if one sector doesn't want them any more

What did the market price AWF at pre Covid-19 ?

The historic dividends haven't been too shabby either, despite similar scenarios being painted then as well.

I tend to be a bit more optimistic on AWF - more towards Win Win -- one sector will be down another up or requiring additional service

They traded reasonably in harder time when others were worse -- climbing out of it growing or recovery sectors coming out the other side should underpin AWF performance & they have an increasing head count of available talent out there to pull skills from / work for them as well for further growth

Discl: Holder

winner69

05-09-2020, 03:42 PM

nztx ....AWF was over 2 bucks pre-Covid

Like your post .....written by a true believer

But remember the devil in the detail will be revealed when the full report comes out.

Snoopy

06-09-2020, 02:39 PM

Interesting analysis there snoopy

Bear in mind that the second wage subsidy was around 30/6 - so possibility of prepayments of future weeks in advance clouding things

The first wage subsidy was released on 17th March 2020 for a duration of 12 weeks which takes us to 9th June 2020. The subsidy extension payment went from 10th June 2020 to 1st September 2020. Then late in August there was a 'Resurgence Wage Subsidy' announced with the Auckland lock down. This was not available to those workers on the original subsidy plan. The 'Resurgence Wage Subsidy' was for two weeks from the application date which was from 21st August to 3rd September, implying a last expiry date of 17th September at the latest. Given the original subsidy expired on 1st September and the AWF press release was made on 4th September, that doesn't leave much room for prepayments still being on the books at AWF Madison, except for the RWS scheme. But that is only eligible to workers not on the original wage subsidy scheme, and it is hard to think of a case where any AWF worker could qualify for that one.

A Labour Hire / HR outfit is possibly different from other bricks & mortar retail operators

Very little if any stock (the stock is heads on the books or their labour leased out at a margin) - fast debtor settlements -
so probably bode well for leveraging on balance sheet

The stock in trade (deployed & available skill sets on the books) can be redeployed elsewhere if one sector doesn't want them any more

Sounds a bit like you are harking back to the 1990s with Simon Hull on the street, eyeing up workers muscles before shouting at them with a megaphone to get on a bus to the next labouring site. I guess temporary security workers could still be dispatched this way. But these tend to be lower skilled jobs with presumably lower commissions on pay rates. Do computer programmers respond to being lined up and shouted at?

I tend to be a bit more optimistic on AWF - more towards Win Win -- one sector will be down another up or requiring additional service

Apart from more security guards to keep the increasingly unemployed rabble under control - they will be needed everywhere- , it is hard to think of another growth industry right now. My problem with your theory is that it would work well when skills are readily transferable. But how many cafe workers would make good farm labourers? And how are AWF going to find skilled overseas workers to fill the job gaps with the borders closed?

They traded reasonably in harder time when others were worse -- climbing out of it growing or recovery sectors coming out the other side should underpin AWF performance & they have an increasing head count of available talent out there to pull skills from / work for them as well for further growth

I think one of the Simons is on record as saying that AWF performs best in 'slightly tough times'. That means when companies favour a high temp component to their staff because it gives them the flexibility to respond to upturns and downturns quickly. I am not sure that right now qualifies as a 'slightly tough time'. Don't get me wrong, I do see a future for AWF. I wouldn't be on the share register otherwise. But I have a feeling we might be working from a 'new normal ' base. And until AWF itself is restructured to that 'new normal' level, I am not holding my breath for the return of any dividends for shareholders, let alone dividends to historic levels, while the AWF company labours (sic) under its own debt burden.

SNOOPY

Nor

08-09-2020, 04:36 PM

Oughta capitalize on this new popularity 1.42 and get a raising out of the way.

nztx

08-09-2020, 08:54 PM

The first wage subsidy was released on 17th March 2020 for a duration of 12 weeks which takes us to 9th June 2020. The subsidy extension payment went from 10th June 2020 to 1st September 2020. Then late in August there was a 'Resurgence Wage Subsidy' announced with the Auckland lock down. This was not available to those workers on the original subsidy plan. The 'Resurgence Wage Subsidy' was for two weeks from the application date which was from 21st August to 3rd September, implying a last expiry date of 17th September at the latest. Given the original subsidy expired on 1st September and the AWF press release was made on 4th September, that doesn't leave much room for prepayments still being on the books at AWF Madison, except for the RWS scheme. But that is only eligible to workers not on the original wage subsidy scheme, and it is hard to think of a case where any AWF worker could qualify for that one.

Sounds a bit like you are harking back to the 1990s with Simon Hull on the street, eyeing up workers muscles before shouting at them with a megaphone to get on a bus to the next labouring site. I guess temporary security workers could still be dispatched this way. But these tend to be lower skilled jobs with presumably lower commissions on pay rates. Do computer programmers respond to being lined up and shouted at?

Apart from more security guards to keep the increasingly unemployed rabble under control - they will be needed everywhere- , it is hard to think of another growth industry right now. My problem with your theory is that it would work well when skills are readily transferable. But how many cafe workers would make good farm labourers? And how are AWF going to find skilled overseas workers to fill the job gaps with the borders closed?

I think one of the Simons is on record as saying that AWF performs best in 'slightly tough times'. That means when companies favour a high temp component to their staff because it gives them the flexibility to respond to upturns and downturns quickly. I am not sure that right now qualifies as a 'slightly tough time'. Don't get me wrong, I do see a future for AWF. I wouldn't be on the share register otherwise. But I have a feeling we might be working from a 'new normal ' base. And until AWF itself is restructured to that 'new normal' level, I am not holding my breath for the return of any dividends for shareholders, let alone dividends to historic levels, while the AWF company labours (sic) under its own debt burden.

SNOOPY

Just so long as there's sufficient cashflow generated from operations and nothing viewed as unusual or detrimental .. seems to be the yardstick in past periods for popping out a dividend..

Do you see any material change in that - barring a change between the captive honeypots actually generating the Ca$h ?

Still chomping through recent few years reports in depth, but obviously there are a few interesting points coming out of these

The captive hefty cashflow coming in probably lends itself nicely to a bit of borrowing for group betterment & acquisitions along the way, henceforth number crunching period end balance sheet figures probably deserves viewing from a slightly different angle.. it's not as if AWF cant very easily service the resident debt being carried..

Nor

08-09-2020, 09:48 PM

Never really understood the rationale for running a business on debt, just gradually accepted the idea because it's done everywhere. But when something like covid arrives and interrupts the steady flow of cash that was counted on to service the debt it looks very different.

stoploss

08-09-2020, 09:49 PM

Nor

08-09-2020, 09:58 PM

Too small to fail.

Nor

09-09-2020, 04:24 PM

Price 1.5 volume 1 million? ? ? ? ?

winner69

09-09-2020, 04:34 PM

Price 1.5 volume 1 million? ? ? ? ?

On a roll eh Nor

Hope you making zillions

Might even get to to 2 bucks next week seeing some are really keen on buying

Nor

09-09-2020, 05:06 PM

On a roll eh Nor

Hope you making zillions

Might even get to to 2 bucks next week seeing some are really keen on buying

No coming back to even. A recent buy as everything thing else was too expensive. Along with one other I am too embarrassed to name.

nztx

09-09-2020, 05:46 PM

I hate to imagine how much of a SP push up would occur if Snoops comes out with a less cautious
analysis of the underlying AWF Woodwork .. ;)

nztx

09-09-2020, 05:50 PM

No coming back to even. A recent buy as everything thing else was too expensive. Along with one other I am too embarrassed to name.

Averaging down on further lower priced buys can be useful..

I had a number of horrendously expensive buys pre covid coming through this side

A combination of averaging down & SP recoveries has seen almost all back into positive territory
even the most dreadful

BGR was one of these & I almost didn't move to average down -- fortunately, a bit of work along the
way on average priice & it's now back to paying dividends..

Nor

09-09-2020, 07:09 PM

Averaging down on further lower priced buys can be useful..

I had a number of horrendously expensive buys pre covid coming through this side

A combination of averaging down & SP recoveries has seen almost all back into positive territory
even the most dreadful

BGR was one of these & I almost didn't move to average down -- fortunately, a bit of work along the
way on average priice & it's now back to paying dividends..

Sometimes they keep on going down. Nowadays I'm happier to average down if I've been in a while and developed confidence in the company. This can lead to averaging at the best price.

JSwan

09-09-2020, 07:33 PM

Price 1.5 volume 1 million? ? ? ? ?

Probably the biggest daily volume this stock has had ever?

Snoopy

09-09-2020, 10:53 PM

Getty

10-09-2020, 09:46 AM

What is surprising is the price they managed exit at.

winner69

30-09-2020, 10:06 AM

Welcome ACCORDANT

cool stuff

Snoopy

30-09-2020, 03:27 PM

Welcome ACCORDANT

cool stuff

Yes good move bringing the piano-accordion hire brigade on board. With overseas touring acts gone, we need local acts to fill the halls. And one person cannot make much more noise than behind the bellows of a piano-accordion, A piano-accordion player is a 'small cost' 'big noise' way to fill a concert hall in these Covid-19 oppressed times. And that is to be accorded, (or should that be applauded)? That suffix 'ant' in the new brand name is a stroke of genius too. The ant is probably the hardest working of all insects. Anyone who has seen the big cousin termite mounds in the Australian desert will know this. And ants get no pay. Hiring out hard working local musicians for next to nothing is definitely the future of entertainment in NZ. It doesn't sound that innovative when I put it that way though! It sounds like the kind of working conditions our local musicians have always put up with. OTOH I guess that shows what we have here is a 'proven business model': good stuff.

Now moving on to the 'meat' of Chairman Ross Keenan's address.

The announcement of no definite date for the resumption of dividends comes as no surprise. The last line announcement of no cash issue while the shares 'are at the level the share price sits' is welcome in the sense that:

1/ It confirms the group is in need of more shareholder funding (as I have been suggesting over the last few months).
2/ They have got their debt down by enough so that ASB is not in charge of any recapitalization process.

So all that is good news. However not so good is the Madison white collar recruitment division, down 50% over the lock down (refer to Chairman Ross Keenan's AGM address) . Then we have the outlook: "Madison white collar recruitment areas: we are hoping to see some confidence in contracting, but certainly don’t see signs of this yet." Code for 'still down 50%'?

"It’s pretty obvious of course that the non-specialist white collar recruiters such as Madison will stay in a very stressful position,as so many companies have either shut their doors or are struggling to find what the new business base for them is. Recruitment certainly is not on their radar."

How long can 'Accordant' go on with all that Madison goodwill on the books? Nevertheless, I do like the sound of that new measure: teaching all these unemployed white shirters the piano-accordion. That could be 'just the (discounted) ticket' going forwards!

SNOOPY

Nor

30-09-2020, 04:21 PM

I'm hoping some of this will start to make sense if I have a look at the ceo's presentation as well. Here goes.

Nor

30-09-2020, 04:30 PM

Accordant yuk. Nobody will ever think labour hire when they hear that. At least AWF Madison means something.

Getty

30-09-2020, 05:13 PM

Not much accord on that name decision, not very cordial at all.

According to me, it sounds like a Honda with a dent.

Getty

30-09-2020, 05:18 PM

What happens when they change the code to ACC?

That wont look very good to prospective labour hirers will it?

Nor

30-09-2020, 05:28 PM

This idea of Labour's for 10 paid sick days a year (also known as sickies) could boost labour hire. I know from observation that many workers take every sick day off as soon as it accrues sick or usually not. This would be much harder to do with a labor hire company. (They're tough to put it mildly).

Snoopy

30-09-2020, 06:46 PM

Not much accord on that name decision, not very cordial at all.

According to me, it sounds like a Honda with a dent.

I hope they didn't spend too much on consultants getting that new name. Probably Chairman Ross Keenan reaching back through the years when a Honda Accord was the car to have for a young upcoming exec. Ross reminiscing about driving his Honda Accord through the picket line and getting his car restyled by a picketer's boot. If that wasn't how 'Accordant' got its name, Ross should retrospectively adopt my explanation of how the name came about, as it would make a much better yarn.

They say the rebranding has been seven years in the coming. It has taken Vince seven years to -not- change the name of this thread to the then new name 'AWF Madison'. So Vince will probably be retired by the time he sorts out this latest name change for this thread. No worries then about the adoption of a new nebulous identity for now, even for investors. But all jesting aside, I do believe this 'Accordant' is just proposed as an all enveloping umbrella name for investors, whereas the actual business will still be conducted under the brand names: AWF, Madison, AbsoluteIT, and JacksonStone - the names we all know.

SNOOPY

Snoopy

31-10-2020, 08:51 AM

That is the concept I have called MDRT (Minimum Debt Repayment Time). I wouldn't be quite as 'exclusive' in eliminating potential investment candidates as Buffett. Especially in his time of ultra low interest rates.

'MDRT' is the answer to the question:

"If all profits for the year were put towards paying off the company's debts, how long would that take?"

My rule of thumb for the answer in years is:

years < 2: Company has low debt
2< years <5: Company has medium debt
5< years <10: Company has high debt
years >10: Company debt is cause for concern

FY2015FY2016FY2017[/TD]FY2018
FY2019FY2020

Significant EventFirst full year owning Madison[/u][/TD]First full year owning AbsoluteIT
JacksonStone Acquired

Cash & Cash Equivalents: {A}
$3.151m
$0.0m
$1.225m
$6.269m
$6.357m
$6.178m

Non Current Borrowings:
$0.0m
$18.500m
$18.500m
$36.000m
$33.000m
$36.000m

add Current Borrowings:
$21.759m
$2.500m
$0.0m
$0.0m
$0.0m
$0.0m

add Overdraft:
$0.0m
$0.870m
$0.108m
$0.0m
$0.0m
$0.0m

equals Total Borrowings: {B}
$21.759m
$21.870m
$18.608m
$36.000m
$33.000m
$36.000m

Total Net Borrowings: {B} - {A}
$18.608m
$21.870m
$17.323m
$29.731m
$26.643m
$29.822m

Net profit declared {C}
$5.416m
$5.202m
$5.867m
$5.048m
$2.013m
$2.677m

MDRT ({B} - {A}) / (C}
3.4 years
4.2 years
3.0 years
5.8 years
13.2 years
11.1 years

Laid out in this way it is a sad tale. AWF may be the largest recruitment company in NZ and it may now have four divisional cylinders to fire on. But every time a cylinder is added to the cylinder bank the spark plug that fires it appears to no longer run cleanly. Madison is in decline. AbsoluteIT is in decline and the former single cylinder stand alone power plant, AWF, definitely has a sooty plug. JacksonStone is the 'saviour' this year to complete the 'firing on all four cylinders' divisional quartet. But when you look at the additive result, the obvious question is:

"Where's the fire?"

I am probably being a bit unfair here because the principal reason behind what is now 'new normal ' profitability is AWF. The construction industry problems appear to have taken the wind out of what was this company's main driving sail. But the end result of going from a strong performing one cylinder motorbike five years ago to a 'flaccid four' today is more weight (overheads) and less performance (profit). It is enough for shareholders to think nostalgically about Simon Hull standing on the side of an Auckland Street loading the workers into a bus with a megaphone. But 'the Hullsters' approach is now history.

Today , under 'the Bennster', profitability has halved. So net debt should really be no more than half of what it was in 2015. That means we are looking at a cash issue of around $10m to fix the debt problem. Current market capitalisation is $50m, with the share price at $1.45. A 1:1 cash issue at $1 would raise approximately $30m. A 1:1 cash issue at $1.30 would raise approximately $40m. A 1:4 cash issue at $1.30 would raise approximately $10m. That's my pick on the way out.

Given the difficult debt position faced by the then named AWF Madison at EOFY2020, I think it is worth reviewing the debt position of the changed name 'Accordant' at the end of the current half year

FY2020
2HY2020 + HY2021

Significant Event
JacksonStone Acquired
Covid-19

Cash & Cash Equivalents: {A}
$6.178m
$5.870m

Non Current Borrowings:
$36.000m
$15.000m

add Current Borrowings:
$0.0m
$0.0m

add Overdraft:
$0.0m
$0.0m

equals Total Borrowings: {B}
$36.000m
$15.000m

Total Net Borrowings: {B} - {A}
$29.822m
$9.130m

Net profit declared {C}
$2.677m
$5.068m

MDRT ({B} - {A}) / (C}
11.1 years
1.80 years

Net Profit for 12 months ending 30th September 2020: $3.712m + ($2.677m-$1.321m) = $5.068m

At first glance it appears a remarkable turnaround has happened. The relative debt position has improved to the best state it has been in at any time over the last five years. Looking at the balance sheet, the long term debt has effectively halved. And this has largely been achieved by very effective debt collection. Trade receivables have come down a massive $28.463m to just $24.608m. This hasn't been achieved by not paying your bills either. Trade payables are similarly down by $21.727m to $24.442m (Account Receivables are currently balance by Account Payables, which is good).

(Edit: On further reflection I believe the above explanation is wrong. 'Trade and Other Receivables' includes a Grant Income Receivable' $22.286m entry. 'Trade and Other Payables' includes 'Deferred Grant Income' of $21.778m. It is those two entries that, when converted to wage subsidy payments, reduce the 'Trade Receivables' and 'Trade Payables' balances so dramatically.)

The cancellation of dividends ($5.581m in dividends were paid over FY2020) has contributed to the ability to pay down debt as well. A further factor is that at balance date, 12 weeks of wage subsidy had been received but only two weeks worth of that had been paid out

It is no wonder, then, that long term debt has able to have been paid down. But all this has been achieved under the the Covid-19 wage support packages from the government. These payments are being wound down. So let's see what the MDRT debt picture would look like had these Covid-19 wage payments not been made. p16 of the HY2021 contains the Covid-19 payment information,

"During the six month period ended 30 September 2020, Group eligible entities claimed $13.2m and repaid $2.2m under the New Zealand Government’s COVID‑19 Wage Subsidy Schemes."

So the net amount of wage subsidy claimed over HY2021 was: $13.2m - $2.2m = $11.0m

"This was in addition to the amount claimed under the initial 12 week COVID‑19 Wage Subsidy Scheme referred to in the Group’s annual financial statements for the year ended 31 March 2020. Under the initial 12 week COVID‑19 Wage Subsidy Scheme, the Group applied for $22.9m (for 3,451 employees) subsequently refunding $1.4m (for 231 employees)."

So the net amount of wage subsidy claimed over FY2020 was: $22.9m - $1.4m = $21.5m

The NZ Covid -19 wage subsidy was introduced on 17th March 2020. So of the initial 12 week period for which wage subsidy payments were made, only 14 days (2 weeks) related to FY2020 (which ended on 31-03-2020). This means that although a net wage subsidy payment of $21.5m was made in FY2020, only:

2/12 x $21.5m = $3.583m

of that payment related to FY2020. The balance of that payment ($21.5m - $3.583m = $17.417m) related to HY2021, as did the net 8 week wage extension payment of $11.0m. This means the initial wage subsidy and extension applying to HY2021 was:

$17.417m + $11.000m = $28.417m

MDRT requires a full year of earnings for a comparison of debt paying off ability though. Over 2HY2020 and HY2011 the wage subsidy received was:

$21.5m + $11.0m = $32.5m

Now let's repeat the above MDRT table with the earnings contributions from the initial 12 week wage subsidy and the 8 week extension removed.

SNOOPY

Snoopy

31-10-2020, 10:42 AM

Now let's repeat the above MDRT table with the earnings contributions from the initial 12 week wage subsidy and the 8 week extension removed.

FY2020
2HY2020 + HY2021

Significant Event
JacksonStone Acquired
Covid-19

Cash & Cash Equivalents: {A}
$6.178m
$5.870m

Non Current Borrowings:
$36.000m
$15.000m

add Current Borrowings:
$0.0m
$0.0m

add Overdraft:
$0.0m
$0.0m

equals Total Borrowings: {B}
$36.000m
$15.000m

Total Net Borrowings: {B} - {A}
$29.822m
$9.130m

Net profit declared {C}
$2.677m
$5.068m

less Wage Subsidy Adjustment
0.72 x $3.583m
0.72 x $32.5m

equals Net Profit Adjusted {D}
$0.169m
($18.332m)

MDRT ({B} - {A}) / (D}
176 years
NM years

This picture is very different from that painted in the half year report. If the government wage subsidy is removed (as it now has been), this shows a company in desperate trouble. Yes the debt has come down. But underlying losses are enormous and there is no hope of repaying any more debt let alone servicing debt interest bills.

From p6 of HY2021 report

"We have benefited from a suspension of the March 2020 final year dividend and the various cost reduction measures have had a significant impact. These included rent reductions, employee salary sacrifice, reduction in marketing spend and travel. Your Board also sacrificed fees of 20% for a 3-month period. This, along with our profit contribution, has seen net Bank debt reduce significantly to $9.1 million. We are very comfortable at this level which also allows some headroom for another strategic acquisition."

I read the above paragraph, noted Simon Bennett's 'flower power' shirt and wondered what other trappings of the late 1960s that Bennett has been smoking. It is quite clear to me after reading the accounts that a very significant contribution to bolstering the balance sheet at HY2021 was the:

$17.417m + $11m = $28.417m

of government wage subsidy that Bennett neglected to mention. Simon, do you not realise that with the government not paying these wage bills going forwards that you at Accordant will have to! With these 'no longer subsidised costs' going forwards, I think it is doubtful that the underlying Accordant is currently making any money. So what on earth are you thinking about 'making a strategic acquisition'? Surely you have to win the battle of making the existing business profitable first? And it looks to me like you have a real battle on your hands to do that. How are you going to pay your debts? Is Accordant even solvent, based on projected future cashflows?

SNOOPY

discl: worried shareholder

Snoopy

01-11-2020, 09:13 AM

The thing that does raise my eyebrow though is the $7.465m of permanent 'Madison Brand' goodwill on the AWF Madison books. Compare that to the $1.980m of permanent 'AbsoluteIT' brand goodwill that came on board in FY2017, and compare the profitability of the two operations. Could a write down of some of that Madison brand goodwill be on the cards? Such a write down would put a real dent in the 2HY2018 results, even though it would be a 'non cash adjustment'.

It is interesting is to compare the 'on the books' goodwill with the revenue each division is estimated to generate

MadisonAbsoluteITAWF
JacksonStoneTotal

Brand value
$7.465m$1.980m$0m
$1.029m
$10.474m

Goodwill
$20.223m$7.836m$11.212m$5.797m$45.068m

Grand Total
$55.452m

Revenue
$71.1m (1)$67.5m (2)$97.448m$33.025m

Calculation Notes

(1) Estimated Apportioned revenue for Madison $138.569m x 51.3% = $71.1m.
(2) Estimated Apportioned revenue for AbsoluteIT $138.569m x 48.7% = $67.5m

What becomes obvious now is that the 'Goodwill' and 'Brand Value' attributed to Madison looks way out of proportion to the revenue generated (In comparison with 'AbsoluteIT' and 'JacksonStone') . And all of these goodwill and brand value figures are pre-Covid!

Now let me lay my cards on the table. I have been an investor in AWF Madison for five years. I like the capital light business model. I think the business model will have future in the post Covid-19 world. With so many job applicants to sort through I think more and more companies will use the services of the likes of AWF Madison. But any business is a bad investment if you pay too much for it, no matter how good the business model. I fear that in another era, without the benefit of hindsight, AWF might have done just that when they acquired Madison in FY2014. And I fear that shareholders may soon have to face up to that fact. It won't stop AWF Madison being a good investment longer term if the book value of that base investment is reduced. But in the short term at least that could mean pain for shareholders.

The half year result has proved me right: The 'Madison pain' has arrived.

From p5 HYR2021

"The large drop in permanent fee revenue in Madison has reduced the size of the business and we do not expect the business to recover fully this financial year. We predict it may well take a further 18 months. This recovery will likely be through the temp channel, rather than permanent recruitment. As a generalist and low to mid-level recruiter, there is a tendency for clients to attempt this recruitment themselves in the early stages of a recession. This has reduced the carrying value of Madison with a resulting goodwill impairment."

So management has 'bitten the bullet' on Madison goodwill, albeit not to the extent I thought they might. So how does the $7m hit on Madison goodwill reflect in the overall goodwill picture at Accordant?

MadisonAbsoluteITAWF
JacksonStoneTotal

Brand value
$7.465m$1.980m$0m
$1.029m
$10.474m

Goodwill
$13.223m$7.836m$11.212m$5.797m$45.068m

Grand Total
$55.452m

Net Profit Margin (on acquisition)
4.1%3.1%7.2%

Revenue FY2020
$71.1m (1)$67.5m (2)$97.448m$33.025m

Calculation Notes

(1) Estimated Apportioned revenue for Madison $138.569m x 51.3% = $71.1m.
(2) Estimated Apportioned revenue for AbsoluteIT $138.569m x 48.7% = $67.5m

Goodwill is created at the time a business is acquired. This is why the net profit margin at the time of acquisition is important. The more money a business is making, the more a buyer is prepared to pay for that business over and above asset value. Therefore the more goodwill will be created in such an acquisition. (note that there is no net profit on acquisition in relation to AWF, because AWF was never acquired. (AWF was the base from which all the other businesses grew from).

When goodwill at Madison was reassessed, the projected growth rate and terminal growth rate of cashflow, both 1.5%, were unchanged. However (from p17 HY2021):

"a revised discount rate of 7.62% was applied, assessed by a third-party, down from a rate of 9.14% at 31 March 2020. The reduction in the discount rate is a combination of lower risk‑free rate of return and an improvement in the Group’s gearing ratio."

That quote is interesting because a lower discount rate generally increases the value of future earnings and supports the value of any goodwill on the books. However, the fact that goodwill has been reduced as a result of these discount rate changes suggests that the projected earnings for Madison must be negative in the near future. If my interpretation is right, then surely the remaining $13.223m of Madison goodwill remains under threat. I don't think Accordant have fully face up to the goodwill book value issues of those Madison assets

SNOOPY

nztx

01-11-2020, 11:31 AM

Thanks for the analysis Snoopy .. been out of this one for a while

A lot better looking & rewarding prospects elsewhere & also in the US markets

Snoopy

05-11-2020, 08:54 PM

Our Chairman, Ross Kennan, has had a couple of bites of the equity pie in the last few weeks. A 2nd July disclosure showed he bought 10,000 shares for $13,600. That works out at $1.36 per share. That follows on from the purchase of 14,016 shares declared on 30th June for $20,320.20 at an average buy price of $1.45. These purchases have not inspired the market though. The share price closed at $1.29 on Friday. The chances of getting a cash issue away at $1.30 to strengthen the balance sheet look slim now.

I am now picking a 1 for 2 cash issue at $1 to raise $15m. Some of that might be wiped out immediately by, I am picking, a write-down of the 'Madison' white collar goodwill.

Our Chairman, Ross Keenan, has once again been busy on the market. On 3rd November he paid $29,000 for 20,000 shares. That works out at $1.45 per share. Looking at the recent share trading chart, that trade seems to have happened on October 30th. I guess it took a few days before that information was fed back to the share registry? The half year announcement came on 29th October. So 30th October would be within the window for 'good keen insiders' to accumulate shares. Following the announcement I notice that the AGL share price spiked to $1.50. Post Covid-19, $1.50 has become a share trading resistance point. With the uncertainties facing this business going forwards, I can see why Mr Market is not keen to bid the share price up further than $1.50. Save for a few 'Sharesies' players, it would seem that Ross Keenan was Mr Market last week. Since the half year results announcement,, the AGL share price has slumped back again to $1.35. $1.35 is where it ended up when bouncing back from the worst of the Covid-19 shock. My message from that is that the non-Kennan Mr Market is underwhelmed by the the heavily wage subsidised recovery so far.

I was right about the write down of the Madison goodwill, although I thought the goodwill write down might be even greater. Will I be right about the cash issue as well? Debt has come down a lot faster than I thought, mainly it seems as a result of the government wage subsidy cash injection. That allowed other money to be funnelled into debt repayment. Will business pick up enough to offset the loss of the wage subsidy going forwards? I guess the ASB, AGL's bankers, will have something to say about a cash issue if it doesn't.

SNOOPY

Discl: Still holding. Wanting more clarity into the future before I buy more

na2m1

24-03-2021, 10:09 PM

man snoopy is reallyy providing in depth insight on AGL

nztx

25-03-2021, 02:31 AM

Wonder if anything has changed since the Guy Last Year flew through the Bomb fire .. ? ;)

SP last Nov 5th 2020 - $1.35
SP 24 Mar 2021 - $1.28

Net Move - ($0.07)

Only NZX Announcement since last Nov in March - Group Co Secretary retiring

Dividend still remains suspended - Last Pay Nov 2019

Coming up to 5 months of next to Nothing .. Fairly inspiring sort of stuff - huh .. ;)

I'll leave Snoopy to make some further entries on AGL's CV here .. ;)

winner69

07-04-2021, 02:10 PM

Had a quick check on AGL share price today

Still seems to be languishing

Must be cheap as though - they intend to buy 1,000,000 shares themselves

What's up Snoops me old mate

Snoopy

07-04-2021, 03:35 PM

Had a quick check on AGL share price today

Still seems to be languishing

Must be cheap as though - they intend to buy 1,000,000 shares themselves

What's up Snoops me old mate

Ever heard the story 'A tale of two numbers?'

The story goes something like this. On 26th June 2015, a young bright eyed and bushy tailed new CEO called Simon 'Bennster' Bennett took the reins of 'whatever this company was called then'. The share price was $2.35. Today, five and bit years later, the share price is $1.40. Dividends have been suspended. A new CEO is being sought. I think those two numbers tell you most of what you need to know Winner!

However, rather than sack Bennett, he is being kicked upstairs. There will be another ex-CEO on the board, (To add to the critical eyes of Simon 'Hullster' Hull and Wynnis 'Madi' Armour). Great for spooking the next CEO incumbent! Dear old Founder Chairman Ross Keenan, our famous 'Good Keenan Man', who, I must say, was the only director to express their support for the company by buying shares over the last year, is headed for the board room exit.

Those 1,000,000 AGL shares being sought 'on market' will be a reward for the next CEO as part of the long term rewards system within the company. I imagine 'The Bennster' didn't do particularly well with his equivalent version of the same plan. So it would be prudent for executive recruitment to keep that share price nice and low for a while, so the next CEO is able to maintain hiser long term focus.

The one positive of this announcement is that at least their bankers (ASB) must have approved the cash for this buyback. There was still $15m in borrowings on the balance sheet at the half year (30-09-2020), I imagine the recruitment market will be in a soft state, with all those temporary seasonal workers the likes of AWF have brought in for 'help with harvesting' permitently excluded. Yet the entire Accordant Group must still be generating enough cash to keep those lights burning in the Bennster's den. Phew!

SNOOPY

Snoopy

20-05-2021, 07:25 PM

On 26th June 2015, a young bright eyed and bushy tailed new CEO called Simon 'Bennster' Bennett took the reins of 'whatever this company was called then'. The share price was $2.35. Today, five and bit years later, the share price is $1.40. Dividends have been suspended. A new CEO is being sought

We have a new CEO! A 'price sensitive' announcement. The share price went down 1c today. Is that good?

https://www.nzx.com/announcements/372519

"Jason has served as Group CEO and Co-Founder of Optic Security Group, Australasia’s leading converged security provider designed to mitigate the risks of Cyber and Operational Security for both Government and Enterprise organisations."

"He is a charismatic sales leader with significant success in scaling businesses and teams with strong culture."

Keenan said that Jason Cherrington demonstrated: "a willingness and capability to lead by a hands-on style with emphasis on growth whilst taking a highly motivated team with him."

On his appointment, Jason Cherrington said he was:

"Excited to join a business that is well-placed to respond to rapid changes in the employment and labour market." “As many of us have recently experienced, the changing nature and definitions of how, when and where we work signals a growing need to ensure that Aotearoa attracts, retains and optimises the essential talent needed to fuel our economic and well-being success”, he said. “I am therefore excited to join a business I feel is uniquely placed to deliver on the challenges of that dynamic market need,"

Wow, just wow that sounds fantastic! But what did he say? Jason's previous experience with security nets and mention of the 'scaling business' would suggest he is just the man to reNew Zealandise the local fishing industry. A way to squeeze out those Covid laden Russian seamen that seem to work our vessels. I sure hope he can do it. If not, I guess he just joins the board in due course?

SNOOPY

nztx

27-05-2021, 04:45 PM

We have a new CEO! A 'price sensitive' announcement. The share price went down 1c today. Is that good?

https://www.nzx.com/announcements/372519

"Jason has served as Group CEO and Co-Founder of Optic Security Group, Australasia’s leading converged security provider designed to mitigate the risks of Cyber and Operational Security for both Government and Enterprise organisations."

"He is a charismatic sales leader with significant success in scaling businesses and teams with strong culture."

Keenan said that Jason Cherrington demonstrated: "a willingness and capability to lead by a hands-on style with emphasis on growth whilst taking a highly motivated team with him."

On his appointment, Jason Cherrington said he was:

"Excited to join a business that is well-placed to respond to rapid changes in the employment and labour market." “As many of us have recently experienced, the changing nature and definitions of how, when and where we work signals a growing need to ensure that Aotearoa attracts, retains and optimises the essential talent needed to fuel our economic and well-being success”, he said. “I am therefore excited to join a business I feel is uniquely placed to deliver on the challenges of that dynamic market need,"

Wow, just wow that sounds fantastic! But what did he say? Jason's previous experience with security nets and mention of the 'scaling business' would suggest he is just the man to reNew Zealandise the local fishing industry. A way to squeeze out those Covid laden Russian seamen that seem to work our vessels. I sure hope he can do it. If not, I guess he just joins the board in due course?

SNOOPY

And on today's Reports back to Dividend paying territory:

https://www.nzx.com/announcements/372980

The 30 June 8.2 cps looks like fully imputed as well (as plenty of tax credits in the bank)

Snoopy

27-05-2021, 06:52 PM

AWF really took a hammering on the market today, down over 10%, albeit on just 28,770 shares. The share price is back to early April 2020 levels now. I wonder if the market is looking at how AWF might continue to service their substantial debt? I took a guess that the Bennster would have the finances for AWF on the right track by EOFY2020. So how did it all work out?

Financial Year2015201620172018
2019
2020

EBITDA (Snoopy produced *) {B}$12.729m$11.945m$12.751m$11.751m
$7.679m$11.593m

Finance Cost {C}$2.109m$1.333m$1.193m$1.297m$1.380m$1.584m

Interest Coverage {B}/{C} (target >3)6.09.010.79.05.67.3

Net Bank Debt {D}$18.608m$21.870m$32.383m$29.731m
$26.643m$29.822m

Leverage ratio {D}/{B} (target <3)1.51.82.5
2.53.52.6

(* I calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I (not including lease expenses) + DA. Likewise finance cost 'I' does not include lease expenses)

The banking covenants look to be back on track, but only if you include 'Lease Depreciation' as part of the depreciation charges. However debt is still high, and won't go away until it can be paid off. So the big question is can EBITDA be maintained for FY2021, so that the bank maintains their confidence that debt load actually is manageable going into the future?

The dividend reinvestment plan raised a useful $1.703m in new capital over FY2020 (up from $1.569m in FY2019).

To answer the pivotal question first: EBITDA was more than maintained for FY2021

Financial Year20172018201920202021

EBITDA (Snoopy produced *) {B}$12.751m$11.751m
$7.679m$8.795m$14.230m

Finance Cost {C}$1.193m$1.297m$1.380m$1.502m$0.723m

]
Interest Coverage {B}/{C} (target >3)10.79.05.65.919.7

Net Bank Debt {D}$32.383m$29.731m$26.643m
$29.822m$13.205m

Leverage ratio {D}/{B} (target <3)2.5
2.53.5
3.40.93

Notes

1/ Historically (up to and including FY2019), I have calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I + DA.

2/Following the introduction of IFRS16, which had the effect of turning what were 'rent expenses' into a 'right of use asset depreciation' with an associated 'interest on lease liabilities', I have had to adjust the 'annual interest change' and 'annual depreciation charge' to remove this effect.

FY2020: EBITDA = NPBT + I + DA = $3.897m+($2.084m-$0.582m)+($6.194m-$2.798m) = $8.795m (with I=$1.502m)

FY2021: EBITDA = NPBT + I + DA = $10.929m+($1.228m-$0.505m)+($5.286m-$2.702m) = $14.230m (with I=$0.723m)

Not paying dividends for a year has brought the banking covenants well and truly under control. Yet more important than this was the $33.323m received in wage subsidies during the year (AR2021 p19). Without that subsidy from the government, those banking covenants would have been busted.

SNOOPY

KJMLimited

27-05-2021, 09:07 PM

Replacement of cheap labour with robotics will eventually severely damage the operating model. But that's a while away.

Snoopy

28-05-2021, 04:55 AM

Trade and other receivables verses the equivalent payables were well controlled in FY2020, pointing to an improving pattern of debt collection.

Trade & Other Receivables {A}Trade Payables {B}Net Receivables {A}-{B}

FY2018$41.101m$28.527m$12.574m

FY2019$32.629m$24.186m$8.443m

FY2020$53.071m$46.169m$6.902m

It looks like FY2020 was another year of incremental debt collection improvement?

Trade & Other Receivables {A}Trade & Other Payables {B}
Net Receivables {A}-{B}={C}Net Receivables Ratio {C}/{A}

FY2017$45.533m$28.107m$17.426m
38.3%

FY2018$41.101m$28.527m$12.574m38.6%

FY2019$32.629m$24.186m$8.443m38.3%

FY2020($53.071m - $22.286m)($46.169m - $21.778m)$6.340m20.6%

FY2021$23.271m$20.180m$3.091m13.3%

Notes

1/ FY2020 figures now adjusted for consequential wage subsidy assets and liabilities.

On p19 of AR2021 we learn:

"Net cash flow from Operations was unfavourable (Net cashflow from operations: -$5.658m (FY2021) vs $12.685m (FY2020)). The Group paid out to suppliers, contractors and employees more than was recovered from customers, which illustrates the impact of COVID-19."

At first glance that comment does not dovetail with the table above, which shows that, in relative terms, the rate of debt collection has not blown out. This leads me to a couple of possible unfortunate conclusions as to why that operational cashflow turned negative.

1/ Due to Covid-19 peripheral effects, many contracts during the year must have been loss making. Equally unpalatable is
2/ Underlying core running costs of the business are now far too high.

Am I being too negative here, by observing that it was only the $33.323m wage subsidy that lent any respectability to the FY2021 result? Winner always says 'follow the cashflows'. I don't think this bodes well for FY2022, especially as a new CEO generally goes through the accounting closet looking for skeletons.

SNOOPY

Snoopy

31-05-2021, 11:32 AM

I am not going to pretend that the likes of Warren Buffett would find AWF a suitable investment at this time. So we need to use an alternative method for valuation. I choose the 'capitalised dividend valuation' method as appropriate here.

Time for my FY2021 (estimate) update! I am assuming a cash issue in FY2021 and because of the need to preserve capital no dividend over FY2021 either.

epsdps (imputed)

FY201719.616.0

FY201815.816.2

FY20196.216.2

FY20209.416.2

FY2021(e)?0.0

Total51.064.6

5 year Average12.9

Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

= (12.9c / 0.72) / 0.08 = $2.23

However as a result of the expected cash issue, I foresee the number of AWF shares on issue to increase by one share for every four in existence right now, or 25%. This will reduce my share price valuation accordingly.

$2.23 / 1.25 = $1.78

This is based on a net dividend per share (dividend declared) of 12.9c/1.25 = = 10.3c

Whether you believe that valuation or not depends on how well you think that AWF Madison will recover compared to pre-Covid-19 earning and dividend levels.

With Accordant announcing the reinstatement of dividends, it is worthwhile looking at how the dividend recapitalisation valuation model updates. While doing this I need to remind readers of the crudeness of this model. All I am doing is looking at the actual dividend per share paid over the last five years and projecting that forward over the next five years. Whether actual earnings over the next five years will allow such dividend payments is another matter. The cancelling of dividends during the year following the Covid-19 arrival is reflected forwards too. But as a counter to this I have not backed out any wage subsidy which I am currently forecasting will not be repeated.

epsdps (imputed)

FY201719.68.0 + 8.0

FY201815.88.2 + 8.0

FY20196.28.2 + 8.0

FY20209.48.2 + 8.0

FY202118.10.0 + 0.0

FY2022?8.2 + ?

Total69.164.8

5 year Average13.0

The non payment of dividends over FY2020 plus the government wage subsidy has allowed the Accordant debt to come under control. So unlike my previous attempt at this exercise (my post 822) , I am no longer expecting a cash issue to shore up the balance sheet.

Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

= (13.0c / 0.72) / 0.08 = $2.26

SNOOPY

discl: Not yet buying more on the strength of just this.

winner69

31-05-2021, 11:59 AM

That $33m of corporate welfare which shows up on the Cash Flow Statement is pretty impressive

Snoopy

31-05-2021, 12:23 PM

That $33m of corporate welfare which shows up on the Cash Flow Statement is pretty impressive.

Yes, particularly as at the half year ended September 2020 result, there was nothing in the cashflow statement indicating the level of wage subsidy being received. You have to hunt down in page 16 of the HYR2021 notes to find it.

"During the six month period ended 30 September 2020, Group eligible entities claimed $13.2m and repaid $2.2m under the New Zealand Government’s COVID-19 Wage Subsidy Schemes. This was in addition to the amount claimed under the initial 12 week COVID-19 Wage Subsidy Scheme referred to in the Group’s annual financial statements for the year ended 31 March 2020. Under the initial 12 week COVID-19 Wage Subsidy Scheme, the Group applied for $22.9m (for 3,451 employees) subsequently refunding $1.4m (for 231 employees). Under the initial 8 week extension of the COVID-19 Wage Subsidy Scheme, the Group applied for $13.2m (for 2,992 employees) subsequently refunding $0.8m (for 198 employees)."

"These grants supported the Group’s ability to retain personnel and pay remuneration throughout New Zealand’s COVID-19 Alert Levels 4 and 3. The grants have been offset against employee benefits expense in the statement of comprehensive income."

If I read that note correctly, the net wage subsidy claimed by Accordant over the period 01-04-2020 to 30-09-2020 was: $13.2m - $2.2m = $11m. Read on and the note says the refund on the $13.2m of wage subsidies applied for was only $0.8m. I presume the difference ( $2.2m vs $0.8m ) was due to a refund relating to the previous period but paid back during the FY2021 half year?

If we take the 'Wage Subsidy Cashflow' figure for FY2021 ($33.323m) and subtract from that the net $11m subsidy for the first half year, that means the wage subsidy paid during the second half year was a massive: $33.323m - $11.000m = $22.323m. I find it very surprising that most of that wage subsidy was received in the second half year, from 01-10-2020 to 31-03-2021.

SNOOPY

winner69

31-05-2021, 12:57 PM

Snoops ...just keeping up their record of confusing you I think

Snoopy

31-05-2021, 01:02 PM

If we take the 'Wage Subsidy Cashflow' figure for FY2021 ($33.323m) and subtract from that the net $11m subsidy for the first half year, that means the wage subsidy paid during the second half year was a massive: $33.323m - $11.000m = $22.323m. I find it very surprising that most of that wage subsidy was received in the second half year, from 01-10-2020 to 31-03-2021.

FY2021HY2021 +2HY2021= FY2021

Declared NPAT less Impairment0.72 x $7,000 + $3.712m = $8.752m
$2.485m
0.72 x $7,000 + $6.197m = $11.237m

less Wage Subsidy0.72 x $11.000m= $7.920m
$16.073m
0.72 x $33.323m = $23.993m

equals Earned NPAT$0.832m
-$13.588m
-$12.756m

Notes

1/ The impairment referred to above is a $7m write down of goodwill from the Madison business unit.

The above table shows why I am very cautious about AGL. The fact that the first half of the year was significantly affected by Covid-19 was understandable. I am prepared to look through what happened in HY2021. But what is of concern is 2HY2021 where the Covid-19 recovery picture was emerging. The underlying picture at AGL over 2HY2021 was a massive loss. I was not surprised to hear that permanent replacement job positions were well down. Nevertheless I would have expected a better underlying second half than that which I calculated in the table above. Thank goodness the debt position of AGL is now under control. Because it does appear that the current underlying structure of AGL makes it very likely currently loss making!

SNOOPY

winner69

31-05-2021, 02:24 PM

I hope that your workings don’t show AGL ‘profited’ from that chunk of corporate welfare

Snoopy

31-05-2021, 06:16 PM

One way to assess how vulnerable a company is , is to look at the interest bill that the bank charges them.

The net interest rate paid on last years (FY2020) average net loan balance can be estimated as follows:

Interest Rate = $1.401m / 0.5x($26.643m + $29.822m) = 5.0%

So ASB doesn't seem too worried about the situation. Or are they just fulfilling their contractual obligations?

From AR2020 Note C7 pg54

"The Group has complied with all covenant requirements during the year. Interest is calculated on a floating rate and the annual weighted average rate is 3.13% (2019: 3.90%). The rate is reset every three months. The loan is an interest only loan and is repayable on 1 October 2021"

One way to assess how vulnerable a company is , is to look at the interest bill that the bank charges them.

The net interest rate paid on last years (FY2021) average net loan balance can be estimated as follows:

Interest Rate = $0.707m / 0.5x($13.205m + $29.822m) = 3.3%

From AR2021 Note C7 pg56

"The Group has complied with all covenant requirements during the year. Interest is calculated on a floating rate and the annual weighted average rate is 2.21% (2020: 3.13%). The rate is reset every three months. The loan is an interest only loan and is repayable on 1 October 2022 (2020: 1 October 2021)"

This means that over the last year, the loan facility was renewed early. As part of this renewal, the maximum amount that can be borrowed from the ASB reduced from $36m to $30m. Actual term borrowings reduced to just half that figure ($15m).

"The banking facilities require the Group to operate within defined financial undertakings."

My post 870 confirms all banking covenants are being complied with. But all of this is through the obligatory historical lens. What about profitability over FY2022?

SNOOPY

Snoopy

01-06-2021, 03:05 PM

Snoopy, and have a look at HIT.ASX (HiTech Group). best performed recruiter on the ASX, almost pure IT recruiter play (contractors and permanents). Mkt cap of about $55-60m, net cash position of ~$7m (c/w AWF's huge debts), consistent dividend payer, multi-year consecutive eps growth. eps CAGR of 20%+ over last five years. very heavy weighting to govt departments, so low bad debts / less vulnerable to economic slowdown. largest shareholder is founder (Hazouri), who is chair while his brother IIRC is CEO. on a P/e of ~17x. Disc: long-term holder.

I find it useful to look 'over the fence' to see how similar companies handled the pandemic. This one can be thought of as similar to the AbsoluteIT division of Accordant. HiTech is an Australian company, but they had to navigate their way through Covid-19, just as we did on this side of the ditch.

"During FY2020, despite the Covid-19 crisis, HiTech performed stronger than ever, a record result yet again, whilst maintaining a robust balance sheet and no debt which is unique in our industry. This demonstrates the strength of our business model that was designed in the recession of 1993 and how versatile HiTech is to cope with the tough times. The fact that we have managed to navigate through this once in a lifetime event, is testament to the resilience of the culture of the HiTech Group."

Amazingly, I have looked through the FY2020 HIT accounts and can see no mention of any government assistance (*). For reporting purposes AbsoluteIT is lumped in with Madison and Jackson Stone. So we don't know exactly how well AbsoluteIT did after Covid-19 hit. The interim report said AbsoluteIT was down 10% in revenue (IRFY2021 p5). But if it followed the HIT example over the rest of the year, you would have to think AbsoluteIT will be doing 'quite well'.

SNOOPY

(*) While true, I make the observation that over 95% of HIT's business is fulfilling state and government contracts.

Snoopy

01-06-2021, 05:26 PM

Much prefer PPE on the asx - value AND growth.

PPE or 'People Infrastructure Limited', an Australian listed company, offers staffing solutions, business services and operational services:

• in speciality industry verticals where we can develop the market leading position; AND
• in industries with a strong growth profile.

From slide 15 of PR2020.

----------------------------

"As a result of Covid-19, People Infrastructure saw an immediate downturn in its business meaning that a number of its business units qualified for Jobkeeper support. As a result of this support People Infrastructure was able to keep a number of staff employed that would have otherwise been stood down or made redundant."

"• People Infrastructure received a total of $9.25m from Jobkeeper support of which
• $2m was paid to People Infrastructure internal employees. As a result of receiving this Jobkeeper support, People Infrastructure made the decision not to stand-down or terminate a large number of employees.
• $7.25m was paid to employees in the field. Over 50% of this relates to topping up hours for employees who did not work sufficient hours to be fully entitled to wages equivalent to their Jobkeeper payments. Further benefits were also passed directly onto clients.
• Senior management and the board took a reduction in salaries from April through until the end of June and have foregone bonuses for FY20, in keeping with the spirit of Jobkeeper and the hardships endured by their employees."

---------------------------

"Jobkeeper" is the Australian wage subsidy scheme introduced as a result of Covid-19. The $9.26m of assistance received over the period represents a 0.7 x $9.26m = $6.48m after tax adjustment. Compare that to net profit of $14.446m and it represents a 'profit boost' of:

$6.48m / ($14.446m - $6.48m) = +81.3%

That Jobkeeper subsidy certainly made a significant difference to the financial result for the year. However if we do the same calculation for AGL.NZX:

0.72 x $33.323m = $23.993m

$23.993m / ($11.237m - $29.993m) = -128 %

That minus sign indicates the NZ subsidy made all the difference between making a profit and making a loss.

Notwithstanding the fact that industries in which AGL and PPE operate are not strictly comparable (PPE is heavily exposed to Health and Community services - not a market for AGL), it is clear that AGL was far more affected by Covid-19 than PPE. One reason for this is that PPE has no term debt. For comparative purposes, AGL has effectively borrowed money to operate a business not operating on all cylinders. Thus AGL meets the cost of what is in figurative terms an 'underperforming engine', PLUS the interest costs on the capital required to buy it (a cost not faced by PPE).

Like AGL, PPE has an IT recruitment division about which they say this (slide 12 PR2020).

---------------------------

"The perm recruitment section of IT Division still has not entirely recovered and this is expected to occur in the next 6 months. This represents approximately 14% of People Infrastructure profit.
• The contractor section of the IT Division has experienced a more gradual decline and this is due to some client concentration in this part of the business.
• The IT recruitment industry as a whole has recovered strongly and we expect this to start being reflected in our numbers in the first half of FY21."

---------------------------

In summary, from an operational perspective overlaid with the Covid-19 shock, AGL is substantially underperforming both the PPE and HIT (see my post 880) Australian recruitment businesses.

SNOOPY

Snoopy

03-06-2021, 06:42 PM

Our Chairman, Ross Kennan, has had a couple of bites of the equity pie in the last few weeks. A 2nd July disclosure showed he bought 10,000 shares for $13,600. That works out at $1.36 per share. That follows on from the purchase of 14,016 shares declared on 30th June for $20,320.20 at an average buy price of $1.45. These purchases have not inspired the market though. The share price closed at $1.29 on Friday. The chances of getting a cash issue away at $1.30 to strengthen the balance sheet look slim now.

Our Chairman, Ross Keenan, has once again been busy on the market. On 3rd November he paid $29,000 for 20,000 shares. That works out at $1.45 per share. Looking at the recent share trading chart, that trade seems to have happened on October 30th. I guess it took a few days before that information was fed back to the share registry? The half year announcement came on 29th October. So 30th October would be within the window for 'good keen insiders' to accumulate shares. Following the announcement I notice that the AGL share price spiked to $1.50. Post Covid-19, $1.50 has become a share trading resistance point. With the uncertainties facing this business going forwards, I can see why Mr Market is not keen to bid the share price up further than $1.50. Save for a few 'Sharesies' players, it would seem that Ross Keenan was Mr Market last week. Since the half year results announcement,, the AGL share price has slumped back again to $1.35. $1.35 is where it ended up when bouncing back from the worst of the Covid-19 shock. My message from that is that the non-Kennan Mr Market is underwhelmed by the the heavily wage subsidised recovery so far.

It is hard to keep a good Keen(an) man down. An announcement to the market today ( 03-06-2021 ) states that Chairman Ross Keenan has just bought 50,000 more shares on market for a consideration of $67,500. That means the average purchase price for Ross's latest incremental purchase was:

$67,500 / 50,000 = $1.35

Nevertheless with Ross indicating that this year's AGM will be his last as Chairman, he will, after six months or so in retirement, be able to sell down his holding without further disclosure to the market, should he choose to do so. (Edit: although generally true I have realised that due to being a top 20 shareholder (and it looks like his wife is as well) we will indeed find out if the Keenans become less keen (sic) on AGL into their retirement).

Also supporting the share price is the promise to purchase 1,000,000 shares on market as part of the new CEO's long term performance incentive. So far just 76895 shares have been bought towards that 'million' goal. So plenty to go.

SNOOPY

Snoopy

04-06-2021, 11:09 AM

From p6 of HY2021 report

"We have benefited from a suspension of the March 2020 final year dividend and the various cost reduction measures have had a significant impact. These included rent reductions, employee salary sacrifice, reduction in marketing spend and travel. Your Board also sacrificed fees of 20% for a 3-month period.

All sorts of claims were made by different companies about how much money was 'saved' by tightening the belt over the Covid-19 outbreak. Now the report card is out in the form of AR2021. To see what salary was actually sacrificed, I think it is a worthwhile exercise to go over the higher salary earners in AR2021 and compare the salaries paid to the equivalent total paid to the same number of people in AR2020. For combined salary sub totals, I will assume each salary lies in the middle of any declared salary band.

Salary Band
No. of Employees FY2021Salary Band Total ($)No. of Employees FY2020Salary Band Total ($)

$100,000-$109,99912$1.260mN/AN/A

$110,000-$119,99910$1.150m9$1.035m

$120,000-$129,99910$1.250m7$0.875m

$130,000-$139,9993$0.405m8$1.080m

$140,000-$149,9996$0.870m10$1.450m

$150,000-$159,9994$0.620m5$0.775m

$160,000-$169,9996$0.990m1$0.165m

$170,000-$179,9991$0.175m3$0.525m

$180,000-$189,9991$0.185m2$0.370m

$190,000-$199,99901$0.195m

$200,000-$209,9992$0.410m4$0.820m

$210,000-$219,9993$0.645m4$0.860m

$220,000-$229,9991$0.225m0

$230,000-$239,99902$0.470m

$240,000-$249,9991$0.245m1$0.245m

$250,000-$259,9993$0.765m1$0.255m

$260,000-$269,9993$0.795m2$0.530m

$270,000-$279,99901$0.275m

$280,000-$289,99902$0.570m

$290,000-$299,99901$0.295m

$300,000-$309,9991$0.305m2$0.610m

$330,000-$339,99901$0.335m

$360,000-$369,99901$0.365m

$380,000-$389,9991$0.385m0

$480,000-$489,99901$0.495m

$660,000-$660,99901$0.665m

$690,000-$699,9991$0.695m0

Grand Total70$11.375m70$13.260m

We can see from this table that the 'salary sacrifice' was real at:

$11.375m - $13.260m = -$1.885m.

Perhaps what is not so satisfactory was that in squashing down the salaries of the senior staff, CEO 'the Bennster' has somehow increased his own take home pay by $30k. Not a good look.

If we go to AR2021 p69, we can see that the directors took a $3k pay cut during the year, except for the Chairman who took a $6k cut. That works out at $18k in total.

Presumably over FY2022, those salary sacrifices and reduced board fees will be reversed. This will affect the NPAT for Accordant for FY2022 to the tune of:

0.72x -($1.885m + $0.018m) = -$1.370m

SNOOPY

winner69

04-06-2021, 11:43 AM

Can’t wait Snoops ...hope the right hand column is greater than the middle one:)

Snoopy

04-06-2021, 07:19 PM

From IR2021 p6.

"We have benefited from a suspension of the March 2020 final year dividend and the various cost reduction measures have had a significant impact. These included rent reductions, employee salary sacrifice, reduction in marketing spend and travel."

I am not clear whether the 'rent reductions', referred to above, represent the result of an arm wrestle with 'wedded to their ways' landlords who did not want to bend under Covid-19 pressure, or the rehousing and/or combination of existing business units into a more efficient office footprint.

p27 of AR2021 shows $2.264m of current lease liabilities at EOFY2021, verses $2.501m at EOFY2020. This would suggest the reduction in lease liabilities to be written off in the current year will be:

$2.501m - $2.264m = $0.237m

less than in the previous year (FY2020).

If this number was a reflection of the 'temporary rent reduction', shareholders might expect rent rates to be restored with a consummate:

$0.237m x 0.72 = $0.171m

of profit reduction in FY2022. However, it is not clear that any 'rent reduction' -as such- was ever granted.

If we look on p11 of AR2021

"Substantive COVID-19 response measures (including business changes, cost-containment, wage subsidy, reduction in working capital and the 12-month suspension in dividend) have allowed us to reduce our debt profile."

In this updated Covid-19 commentary, rent reduction isn't even mentioned. Even if it had been mentioned, my calculated $0.171m of prospective rent adjustment is very small. This means that for future earnings projections, I believe no restoration of supposedly previously charged higher rents would stand up to scrutiny.

SNOOPY

Snoopy

05-06-2021, 11:36 AM

AWF Madison still claims to be the largest placer of workers in NZ. The competitive advantage of the company is said to be size and the fact that it is locally owned. That means it can react rapidly to local market dynamics.

Conclusion: Pass Test

'Accordant' colours up images of 'harmoney', 'being together', 'growing together', 'treating people with respect', 'nurturing their development' and 'driving around in a Honda Accord with a dent'. OK maybe the creators of that name didn't have that last image in mind, when they renamed the 'AWF Madison' company. But 'baking a cake' with a theme of 'personnel recruitment' is an image I can relate to. Our cake ingredient list consists of:

1/ AbsoluteIT: digital technology and software (branches Auckland, Hamilton, Wellington, Christchurch)
2/ Madison: entry level and support roles to professional and management positions (branches Auckland, Hamilton, Wellington, Christchurch)
3/ JacksonStone: Global executive recruitment up to CEO level (branches Auckland, Wellington)
4/ Select Recruitment: 'Matching people to jobs of all types' (Dunedin)
5/ AWF: Entry level, semi-skilled and skilled workers in 'blue collar' roles (on the end of a megaphone in Kaitaia, Kerikeri, Whangarei, Auckland, Waihi, Tauranga, Rotorua, Hamilton, New Plymouth, Hawkes Bay, Whanganui, Palmerston North, Petone, Wellington, Nelson, Blenhiem, Christchurch, and Invercargill) The former Dunedin branch has been incorporated into 'Select Recruitment' and the Hawera branch has been closed.

It is clear that the old name 'AWF Madison' was underselling what the company has become.

Competitors are the likes of 'OneStaff' (16 branches nationwide in the industrial and commercial recruitment space); Sheffield (Executive recruitment in Auckland, Wellington and Christchurch); Beyond Recruitment: Technology Transformation and Digital; Property Construction and Architecture, Human Resources, Accounting and Corporate support (Branches in Auckland, Wellington and Tauranga); and Ranstead: Accounting, Construction & Architecture, Education (Auckland, Wellington, Christchurch).

Accordant are not dominant in any recruitment sector. But they are a major player in all recruitment sectors - bar education and healthcare. As a top three player in all the recruitment sectors they choose to participate in, the passing of the 'company scale test' is not in doubt.

Conclusion: 'Pass Test'

SNOOPY

Snoopy

05-06-2021, 09:43 PM

Just to show there is more than one way of doing things, I have slightly changed the way I am calculating underlying profit. I am now removing property plant and equipment sales profits/losses from all of my calculated profit figures.

2014: ($3.952m-$0.025m+0.72x($0.095m+$0.257m) )/ 25.805m = 16.4cps
2015: ($5.416m+$0.031m)/ 32.463m = 16.7cps
2016: ($5.202m+$0.008m)/ 32.463m = 16.0cps
2017: ($5.867m-$0.050m+0.72x($0.262m+$0.443m) )/ 32.463m = 19.6cps.
2018: ($5.048m+$0.224m-0.72x($0.170m) )/ 32.555m = 15.8cps

Notes:

1/ Due diligence cost for "Madison" removed from FY2014. "Madison Business" acquisition costs removed from FY2014.
2/ "Absolute IT" acquisition costs removed from FY2017. Legacy software write down removed from FY2017.
3/ Refund from partiual failure of AbsoluteIT earn out provision removed from FY2018 result.

Conclusion: Fail Test

I am now removing property plant and equipment sales profits/(losses) [$0.050m (FY2017), ($0.224m) (FY2018), ($0.064m) (FY2019), ($0.120m) (FY2020), ($0.038m) (FY2021)], reference Annual Report 'Section C5 or C6 Cash and Cash Equivalents', from all of my calculated profit figures.

FY2017: ($5.867m-$0.050m+0.72x($0.262m+$0.443m) )/ 32.463m = 19.6cps
FY2018: ($5.048m+$0.224m-0.72x($0.170m) )/ 32.555m = 15.8cps
FY2019: ($2.013m+$0.064m+0.72x($0.014m) )/ 33.423m = 6.2cps
FY2020: ($2.677m+$0.120m+$0.260m+0.72x($0.263m))/ 34.325m = 9.5cps
FY2021: ($6.197m+$0.038m-$1.370m+0.72x($7.000m - $1.285m) )/ 34.325m = 26.2cps

Notes:

1/ "Absolute IT" acquisition related costs expense ($0.262m) removed from FY2017. Legacy software write down ($0.443m) removed from FY2017.
2/ Refund from partial failure of 'AbsoluteIT' earn out provision ($0.170m) removed from FY2018 result.
3/ 'Select Recruitment' acquisition related costs ($0.014m) removed from FY2019 result.
4/ The after tax capitalising of leases cost, from IFRS16 ($0.026m) and acquisition related costs of purchasing JacksonStone ($0.263m) -refer AR2020 p68- removed from FY2020 result.
5/ The 'salary sacrifice' (my post 883 of $1.370m) has been reversed and included as an extra expense in the FY2021 profit result.
The impairment of 'Madison Goodwill' ($7.000m) has been added back to the FY2021 profit result. Against this, the gain from the lessening of the contingent consideration payable on the balance due to former owners of JacksonStone - $1.285m - has been removed.

Conclusion: Fail Test

SNOOPY

Snoopy

06-06-2021, 09:34 PM

ROE= (Net Profit)/(EOFY Shareholders Funds)

2014: $4.180m / $20.763m = 20.1%
2015: $5.447m/ $35.931m = 15.2%
2016: $5.210m/ $36.274m = 14.4%
2017: $6.325m/ $36.935m = 17.1%
2018: $5.150m/ $36.859m = 14.0%

Conclusion: Fail test

FY2017: $6.325m/ $36.935m = 17.1%
FY2018: $5.150m/ $36.859m = 14.0%
FY2019: $2.087m/ $34.820m = 6.0%
FY2020: $3.246m/ $33.734m = 9.6%
FY2021: $8.980m/ $40.099m = 22.4%

Conclusion: Fail Test

SNOOPY

Snoopy

07-06-2021, 10:20 AM

Net Profit Margin = Net Profit/Sales

2014: $4.180m /$148.691m = 2.81%
2015: $5.447m/$197.514m = 2.76%
2016: $5.210m/ $214.589m = 2.43%
2017: $6.311m/ $256.428m = 2.46%
2018: $5.153m/ $279.303m = 1.84%

This is a picture the opposite of what we are looking for. A sorry story of a five year weakening of net profit margins with barely any respite!

Conclusion: Fail Test

Net Profit Margin = Net Profit/Sales

FY2017: $6.325m/ $256.428m = 2.47%
FY2018: $5.150m/ $279.303m = 1.84%
FY2019: $2.087m/ $267.805m = 0.78%
FY2020: $3.246m/ $263.527m = 1.23%
FY2021: $8.980m/ $205.482m = 4.37%

The turnaround in profit margin form over the last three years looks good. However the bumper normalised profit over FY2021 is entirely due to the wage relief scheme which injected $33.323m of cash into the business over FY2021. Without this, FY2021 would have been catastrophic to the point where banking covenants would have been breached and there would have been a very real prospect of administrators being called in. The level of government assistance (over three times declared profit) suggests to me that it was really the government that pulled Accordant through FY2021 and not management. Sure management have contributed, with the sharing of floor space at AbsoluteIT and Madison (for example). But with government assistance pulled for FY2022, it will take until FY2022 wraps up before we can truly see the lasting damage that Covid-19 has done to the Accordant Group. For example, the closure of the borders to many migrant workers is potentially very bad news for Accordant. If we regard the profit margin for FY2021 as an externally band-aided aberration, the conclusion on this test becomes obvious.

Conclusion: Fail Test

SNOOPY

Snoopy

07-06-2021, 02:07 PM

The above comments are from 05-02-2019, before the Full Year 2019 (or Second Half Year 2019) dividend payment. It is interesting to look at the half yearly operational cashflows since.

Finance Period
Operational Cashflows
'Dividend Declared' minus 'DRP Reinvestment' (1)

HY2015
$8.330m
($1.986m)

2HY2015
($2.145m)
($1.916m)

HY2016
$6.495m
($2.660m)

2HY2016
($4.437m)
($2.392m)

HY2017
$11.399m
($2.636m)

2HY2017
($3.773m)
($2.602m)

HY2018
$11.879m
($2.476m)

2HY2018
($0.370m)
($2.645m)

HY2019
$6.143m
($1.931m)

2HY2019
$3.334m
($1.906m)

HY2020
$6.875m
($1.959m)

2HY2020
$3.014m
Nil

(1) From the HY2018 dividend, the 'capital preserving' dividend reinvestment plan was introduced.

I have used operational cashflows because I believe that best reflects the picture of the ongoing business as a going concern. You can see from the above table that the old formula of 'borrowing to pay the second half dividend' has gone after 2HY2019. Dividends are now paid out of profits, (except in the case of 2HY2020 where the dividend has been withheld because of Covid-19 uncertainty). There was certainly money there to pay it to previous years levels had macro-economic conditions been different. The problem with tables like this is that all the information is historical. No-one, not even the Bennster, really knows how AWF will trade over FY2021. Sensibly he has pushed out the AGM from July to September. By then the Bennster should at least have an initial feel as to how things are going. My gut feeling is that there will be a capital raising. I think that the 'EBITDA'/I banking covenant is in danger of being breached. And that means buying in today at what in historical terms looks to be a good price, might not be the wisest thing to do.

Finance Period
Operational Cashflows
'Dividend Declared' minus 'DRP Reinvestment' (1)

HY2015
$8.330m
($1.986m)

2HY2015
($2.145m)
($1.916m)

HY2016
$6.495m
($2.660m)

2HY2016
($4.437m)
($2.392m)

HY2017
$11.399m
($2.636m)

2HY2017
($3.773m)
($2.602m)

HY2018 (1)
$11.879m
($2.476m)

2HY2018
($0.370m)
($2.645m)

HY2019
$6.143m
($1.931m)

2HY2019
$3.334m
($1.906m)

HY2020
$6.875m
($1.959m)

2HY2020
$3.014m
($1.919m)

HY2021
$21.950m
Nil

2HY2021
($0.053m)
Nil

HY2022
?m
($2.815m)

Notes

(1) From the HY2018 dividend, the 'capital preserving' dividend reinvestment plan was introduced.

I have used 'operational cashflows' because I believe that best reflects the picture of the ongoing business as a going concern.

There is something odd about those HY2021 / 2HY2021 results. The figure that stands out is the very high 'operational cashflow' over HY2021. If you look at the HY2021 cashflow statement, the big drop is the 'Payments to Suppliers & Employees' which dropped by nearly 20%, while the receipts from customers fell by just 7%. That 'explains' the dramatically improved cashflow over HY2021 but it doesn't explain what caused it.

HY20212HY2021FY2021

Declared NPAT less Impairment0.72 x $7,000 + $3.172m = $8.212m
$3.025m
0.72 x $7,000 + $6.197m = $11.237m

less Wage Subsidy0.72 x $11.000m= $7.920m
$16.073m
0.72 x $33.323m = $23.993m

equals Earned NPAT$0.292m
-$13.048m
-$12.758m

Notes

1/ The impairment referred to above is a $7m write down of goodwill from the Madison business unit.

I thought that I had found the answer with the 'wage subsidy' going directly to paying employees, meaning the company did not have to pay those people from its own coffers (hence the big drop in payments to employees and suppliers). However if that were the explanation I would have expected even larger positive cashflows in the second half, as most of the wage subsidies were paid in the second half. In fact, cashflows from operations were negative in the second half! So I am still baffled as to what is going on here.

The 27th May 2021 full year report letter stated the reasoning behind reinstating the dividend.

"More recently, the Group has seen a significant increase in hiring activity across both temporary and permanent markets. Together with a robust year-end balance sheet, this has given the Board confidence to resume dividend payments (following a 12-month suspension) with an 8.2 cents per share final dividend"

My reading of that is that 'Things are looking up' BUT 'If we don't get the uptake in business that we hoped for then we can just borrow to pay the dividend'. By my way of thinking this is an 'operate and hope' business model that does not fill me with confidence, especially as the immediately preceding half year was 'cashflow negative'. Nevertheless the formula of 'borrowing to pay the second half dividend' that was there before 2HY2019 and had been done in many past years. So maybe it is some 'seasonal effect' that I do not understand?

My main concern with holding AGL as a 'good dividend payer' concerns the expectation for the restoration of a dividend of 16.2cps, as was the case pre-Covid-19. This dividend rate was well ahead of profits over FY2019 and FY2020. The reason that paying dividends greatly exceeding profits has happened in the recent past is that cashflow has supported this. And this 'extra cashflow' is largely determined by the amortisation of both 'Customer relationships' and 'Restraint of Trade' assets. If you look on p48 of AR2021 you will see that both of these amortisations have almost 'played out' (a total of $3.379m or 9.8cps left). Thus it would seem obvious that looking out beyond FY2022, dividends will be more closely tied to operational profits. Unless annual profits rise to around $6m per year on a consistent basis (a figure well beyond recent profitability), then dividends from FY2023 onwards could reduce.

SNOOPY

Snoopy

07-06-2021, 07:45 PM

There is something odd about those HY2021 / 2HY2021 results. The figure that stands out is the very high 'operational cashflow' over HY2021. If you look at the HY2021 cashflow statement, the big drop is the 'Payments to Suppliers & Employees' which dropped by nearly 20%, while the receipts from customers fell by just 7%. That 'explains' the dramatically improved cashflow over HY2021 but it doesn't explain what caused it.

I thought that I had found the answer with the 'wage subsidy' going directly to paying employees, meaning the company did not have to pay those people from its own coffers (hence the big drop in payments to employees and suppliers). However if that were the explanation, I would have expected even larger positive cashflows in the second half, as most of the wage subsidies were paid in the second half. In fact, cashflows from operations were negative in the second half! So I am still baffled as to what is going on here.

I haven't yet found the answer to explain why HY2021 took in $134.644m of revenue from customers but only paid out $109.446m of payments to employees and suppliers over the same period. This mismatch is well out of step with previous years. However, eliminating some possibilities will get me closer to an answer, I hope! So here goes:

From AR2021 p36

On the general subject of accounts:

"Payment is generally due within 30-60 days from the invoicing of a contract. There is no significant financing component in any of the group's contracts with customers."

Now, back a little further on the same page:

-----------------------

Revenue Recognition from Contracts

"Revenue is recognised once value has been received by the customer, where performance obligations have been satisfied and control has transferred."

Revenue Earned on Temporary Placement

"Revenue from temporary placements <snip> including the wage costs of these staff is recognised when the service has been provided."

------------------------

In both of the above instances, it would appear that the end line customer is billed over more or less the same time-frame that the worker doing the work is paid. So there does not appear to be a time gap between paying a worker and on billing that service to the customer. If there was a time gap, this could result in the end line customers being billed before the workers who did the job were paid. But that doesn't look like what has happened here.

---------------------------

Revenue earned on Permanent Placements

This income "is recognised at the date after an offer is accepted and where a start date has been determined"

---------------------------

Payment will be a lump sum based on salary costs. So it follows that in this instance it is possible that the bill to the end line customer will significantly exceed the costs to provide the service (seeking and vetting all the candidates). However if this was the cause of the mismatch between 'billed revenues' and 'costs incurred', it would imply that a disproportionate number of permanent placements were made in the 6 months following the onset of Covid-19 restrictions. This is contrary to comments made by senior Accordant management and so this whole presumed scenario seems very unlikely.

To summarise, the above is an assessment of what didn't happen. What did happen to allow customer receipts to be so significantly out of whack with supply costs is a mystery yet to be solved.

SNOOPY

winner69

07-06-2021, 08:03 PM

Snoops

Does the RECONCILIATION OF NET PROFIT AFTER TAX TO CASH FLOWS FROM OPERATING ACTIVITIES per Note 5 throw further light on your mystery

winner69

08-06-2021, 09:08 AM

Snoops - I think they treated the wage subsidy payments in the cash flow statements differently in H1 and H2

Snoopy

08-06-2021, 09:51 AM

Snoops

Does the RECONCILIATION OF NET PROFIT AFTER TAX TO CASH FLOWS FROM OPERATING ACTIVITIES per Note 5 throw further light on your mystery

Thanks for the clue Winner (I presume you are referring to note C5).

RECONCILIATION OF NET PROFIT AFTER TAX TO CASH FLOWS FROM OPERATING ACTIVITIES

HY2020 (pcp)
HY2021
2HY2021 (calculated)FY2021

Net Profit After Income Tax {A}$1.321m
$3.712m
$2.485m$6.197m

Adjustments for operating activities non-cash items

Depreciation & Amortisation$3.285m
$2.618m
$2.668m$5.286m

Impairment$0m
$7.000m$0m$7.000m

Loss/(Gain) on disposal of Property Plant & Equipment$0.060m
$0.043m($0.005m)$0.038m

Movement in doubtful debt provision plus bad debt write off in current year$0.099m
$0.187m$0.151m$0.338m

Movement in deferred tax($0.506m)
($0.333m)($0.369m)($0.702m)

Equity Settled Share Based Payments$0.066m
($0.124m)$0.202m$0.078m

Interest on contingent consideration to the vendor of JacksonStone and Partners$0.0m
$0.062m($0.050m)$0.016m

Fair value movement on contingent consideration to the vendor of JacksonStone & Partners$0.0m
$0.000m($1.285m)($1.285m)

Total Non Cash Items {B}$3.004m
$9.453m$1.316m$10.769m

(Increase)/Decrease in trade receivables, and contract assets$5.185m
$28.587m$1.207m$29.794m

Increase/(Decrease) in trade payables, contract liabilities and provisions($2.657m)
($21.706m)($4.036m)($25.742m)

(Increase)/Decrease in taxation payable$0.022m
$1,904m($1.025m)$0.879m

Total movement in working capital {C}$2.550m
$8.785m($3.854m)$4.931m

Cash flow from operating activity {A}+{B}+{C}$6.875m
$21.950m($0.053m)$21.897m

HY2021 (1st April 2020 to 30th September 2020) is the period that covers most of the Covid-19 lock down period and the comparison with the pcp HY2020 is illuminating.

1/ The first point to note is the large $7m impairment charge, unique in HY2021, which is a non-cash item. However, I personally would not class a change in impairment as an 'operating item'. So while creating an impairment does affect cashflow, I am surprised that it changes 'operating cashflow'.

2/ Following down, the rest of the two columns of numbers are broadly similar, until we look at the decrease in trade receivables and the decrease in trade payables. This HY2021 period is concomitant with the first six months of the Covid-19 period where demand for hiring workers significantly reduced. With no new 'on the job demand', the need to pay those temp workers wages, who were not needed, rapidly decreased as well. So I can weave a story that makes the figures look like they make sense. But why is the difference between the changes in 'jobs invoiced' and the changes in 'paid work to fulfill those jobs' so large between:

HY2021 ( $28.587m - $21.706m = $6.879m ) AND

HY2020 ( $5.185m -$2.617m = $2.568m ) ?

This imbalanced difference has boosted cashflow in HY2021 vs the pcp by $4.311m.

Combine this with the $7m impairment imbalance and we get a total imbalance of $11.311m. This certainly tallies with the lions share of increased operational cashflow from HY2020 to HY2021 ( $21.950m - $6.875m = $15.075m ). But it doesn't explain the inclusion of 'impairment' as an operational matter. Nor does it explain the dramatic increase in the difference between the 'accounts receivable balance' and the 'accounts payable balance' when we compare HY2021 and HY2020. The real reason for the sharp uptick in both as at HY2021 is that a 'Grant Income Receivable' is recorded in 'Trade & Other Receivables' and 'Deferred Grant Income' is recorded in 'Trade and Other Payables' in the comparative FY2020 year. These entries relate to the wage subsidy that was paid in advance.

Now Looking at 2HY2021

The other interesting point to note is that although the cash flow from operations was extraordinarily high for FY2021, for the second half of HY2021 cashflow was negative! That fact seems to have been washed aside with all the hype of the full year result.

SNOOPY

winner69

08-06-2021, 07:00 PM

Snoops ...the other view highlights that cash flows are very dependent on when they get paid and when they pay the bills eh (all that contract stuff)

At least the wage subsidy doesn’t confuse the cash flow so much ...it’s all the profit figure.

Stil can’t see why they didn’t show the $22m subsidy in the H1 cash flow...the interim report said they had received it after year end 2o and before September.

Snoopy

08-06-2021, 09:56 PM

Snoops ...the other view highlights that cash flows are very dependent on when they get paid and when they pay the bills eh (all that contract stuff)

So your explanation is that the customers paid their bills very promptly, before Accordant had to pay wages to their own crew that did that work, so operational cashflow improved?

AR2021 p19 suggests the opposite was happening.

CASH FLOW

"Net cash flow from Operations was unfavourable. The Group paid out to suppliers, contractors and employees more than was recovered from customers which illustrates the impact of COVID-19."

At least the wage subsidy doesn’t confuse the cash flow so much ...it’s all the profit figure.

Still can’t see why they didn’t show the $22m subsidy in the H1 cash flow...the interim report said they had received it after year end and before September.

Under note C5 (AR2021 p53) in the full year report "RECONCILIATION OF NET PROFIT AFTER TAX TO CASH FLOWS FROM OPERATING ACTIVITIES", the total 'Cash flow from operating activities' comes to $21.897m. There is no mention of the wage subsidy in that note. Now go back to the Cashflow statement (AR2021 p29) The 'Cash flow from operating activities" is the same $21.897m. But this time the $33.323m of wage subsidies are in the cashflow statement. This suggests to me that the wage subsidies are in the operational cashflow table under Note C5, but reported in another category, and not described as 'wage subsidies'.

Now go back to the half year report (HY2021) and page 22 "RECONCILIATION OF NET PROFIT AFTER TAX TO CASH FLOWS FROM OPERATING ACTIVITIES". This aligns with the equivalent reconciliation in the full year report. Next go back to the half year cashflow statement in HY2021 and, as you observe Winner, the wage subsidy is not listed there. However the wage subsidy was paid in HY2021. p16 of HY2021 confirms that (net payment $11m,). So I think it must be in the HY2021 cashflow statement because 'the subsidy' was actual and measurable cashflow over HY2021. It can't be left out if p16 of HY2021 indicates the cash payment was made. The subsidy is there but under another header. Could the subsidy have been netted off against accounts payable?

Likewise that net $11m subsidy payment over HY2021 must be in the "RECONCILIATION OF NET PROFIT AFTER TAX TO CASH FLOWS FROM OPERATING ACTIVITIES" in HY2021 as well. The wage subsidy must have been put in another bucket with a different label. But that doesn't mean it is not there.

SNOOPY

bull....

09-06-2021, 07:49 AM

if agl get back to consistant dividends thats 16cps as previous years it represents round about 14% gross yield at current prices. i own some

winner69

09-06-2021, 08:19 AM

Snoops - I'm glad you have finally sussed it out

Snoopy

09-06-2021, 07:13 PM

Time to update the bad debt performance of the group. This is a good thing to keep an eye on if a company has substantial debt on its balance sheet already.

The 'Impairment Losses Recognised' may be found in AR2020 Section C6 p52.
The 'Impairment Losses Reversed' may be found in AR2020 Section C6 p52.
The 'Write-offs to bad debts during the year' may be found in AR2020 Section C6 p52.
The 'Provision For Impairment Balance' may be found in AR2020 Section C6 p51.

20142015201620172018
20192020
Row Sum

Impairment Losses in P&L {A}($0.358m)($0.306m)($0.510m)($0.699m)($0.655m)($ 1.109m)($0.301m)

Impairment Write backs P&L {B} $0.291m$0.137m$0.100m$0.228m$0.594m$0.360m$0.046m

Net Impairment in P&L {A}+{B}($0.067m)($0.169m)($0.410m)($0.471m)($0.061 m)($0.749m)($0.255m)]
($2.182m)

Actual Trade & Receivables Write down($0.088m)($0.204m)($0.163m)($0.163m)($0.815m)
($1.034m)($0.123m)
($2.414m)

Provision for Impairment Balance$0.377m$0.342m$0.589m$0.897m$0.143m$0.229m$ 0.361m

Over time, the second to last two rows should sum to about the same total. We can see that for FY2020 the declared result (Net Impairment in Profit & Loss) has incorporated a loss almost double the actual figures written off. But looking at the cumulative effects of 'declared' verses 'actual' write offs over the years, the summed difference of $0.232m is not material. The one thing that strikes me about this table is that the 'write backs' have been quite high as a percentage of the declared losses. The possible exception to this is FY2020 where the write back percentage was 'only' 15%. One way to interpret that is that the initial write offs were overly conservative. I guess that is a good thing.

For FY2020, the end of year 'Provision for Impairment' balance has gone up from what look to be abnormally low levels from the previous two years. It is now a high percentage of the actual impairment losses. This offers the potential for declared impairment losses to be manipulated. The potential manipulation I allude to is for losses that should have been written off to be held in a bloated provision figure. However, because the absolute level of impairment losses has shrunk, any such manipulation, if it exists, should not have a material effect on the annual net profit result. With the FY2019 result I suggested that the 2019 provision balance, given it is now meant to reflect probabilistic losses that might occur, could have been too low. IMO raising the end of year provision for FY2020 has gone some way to fixing this.

Time to update the bad debt performance of the group. How did it go through the Covid-19 period?

The 'Impairment Losses Recognised' may be found in AR2021 Section C6 p55.
The 'Impairment Losses Reversed' may be found in AR2021 Section C6 p55.
The 'Write-offs to bad debts during the year' may be found in AR2021 Section C6 p55.
The 'Provision For Impairment Balance' may be found in AR2021 Section C6 p55.

20172018
2019
2020
2021
Row Sum

Impairment Losses in P&L {A}
($0.699m)($0.655m)($1.109m)
($0.301m)($0.342m)

Impairment Write backs P&L {B}
$0.228m$0.594m$0.360m$0.046m$0.005m

Net Impairment in P&L {A}+{B}($0.471m)($0.061m)($0.749m)
($0.255m)]($0.337m)
($1.873m)

Actual Trade & Receivables Write down($0.163m)
($0.815m)
($1.034m)($0.123m)($0.205m)
($2.340m)

Provision for Impairment Balance$0.897m$0.143m$0.229m$0.361m
$0.493m

The 'Net Impairment Losses Recognised' in the income statement (AR2021 Note A4 p41) should over time sum to the same total as the 'Actual Trade & Receivables Write Down'. The fact that it sums to less is an indication that over the last five years, profits have been overstated by.

$2.340m - $1.873m = $0.467m

The difference being a subtraction from the bad debt provision on the balance sheet. Of particular interest over FY2021 is that, unlike previous years, the write back was almost nothing. This may have been part of a realisation that debts that looked unrecoverable, very likely were -in a Covid-19 world. Having said that, the 'net impairment' over FY2021 was only the third highest in the last five years. This points to AGL handling the debtor ledger 'quite well' during the Covid-19 pandemic.

This makes the comment in the "Financial Commentary" ( AR2021 p19 )

"CASH FLOW Net cash flow from Operations was unfavourable. The Group paid out to suppliers, contractors and employees more than was recovered from customers which illustrates the impact of COVID-19."

rather incongruous. To my thinking, that comment doesn't make sense in this context.

SNOOPY

nztx

10-06-2021, 01:15 AM

Keep up the good work - Snoops -- the SP seems to be headed the right way .. ;)

Snoopy

10-06-2021, 04:23 PM

Price 1.5 volume 1 million? ? ? ? ?

According the AR2020 top twenty shareholder list in the annual report, there are only three entities that could sell 1m (actually 998,145 shares) in one hit.

1/ The family trust associated with company founder Simon Hull.
2/ The company associated with rich lister Peter Masfen.
3/ The partnership between two Christchurch businessmen, Russelll John Field and Anthony James Palmer

The first two are substantial holders so the stock exchange will have to be informed. But if no substantial shareholder notice is forthcoming. then the seller must be 3/ No point to speculate. We might as well just wait!

Just a follow up on the 'million share sale' from 09-09-2020. There were no substantial shareholder notices issued. Then if I compare the top twenty shareholder list in AR2020 and AR2021, find

1/ The family trust associated with company founder Simon Hull.
2/ The company associated with rich lister Peter Masfen.
3/ The partnership between two Christchurch businessmen, Russelll John Field and Anthony James Palmer

have exactly the same number of shares that they had before.! What did change is that the number of shares listed under the 'New Zealand Central Securities Depository Limited' went down from 7.85% of the company to just 4.17%.

A new shareholder has popped into the top 5 list shareholder list under the name of 'Ma Janssen Limited'. This company is 100% owned by Waiheke Island based businessman Maarten Arnold JANSSEN. Maarten Arnold JANSSEN is also associated with 'Syft Technologies' (owns 3.6% of that). M.A. Janssen owns 1,117,019 or 3.25% of the AGL shares on issue.

SNOOPY

Snoopy

14-06-2021, 10:25 AM

A further insight into AWF's woes was given in the interim report from p6.

"Of more concern is the industrial relations activity we are seeing, with aggressive action by a number of Unions. We currently have a case before the Employment Relations Authority, taken by a Union, challenging the status of a number of our workers. We believe this case has no merit and, in fact, they are seeking an outcome that would have applied if the Employment Relations (Triangular Employment) Amendment Bill had not been amended prior to it becoming legislation. This action has resulted in a shift away from contingent workers in a large client of ours who is seeking to take a more conservative balance of permanent and contingent workers."

"I believe the Union is effectively bullying a number of clients in this way. It is unfortunate for our workers as now a number have been left without work opportunities as a result. We are confident this will be resolved and may, in fact, result in stronger case law for legitimate providers of temporary employees. A balance of permanent and contingent workers optimises a workforce and provides good opportunities for workers, and we are confident common sense will prevail. The result has seen our white collar segment"

The above quotes from HYR2020 relates to a case that has now been through the NZ court system over FY2021. The result, as reported in AR2021 seems favourable for Accordant. From AR2021 p10.

-----------

NEW ZEALAND’S LEGISLATIVE FRAMEWORK

"Employment legislation must cater for this growing workforce. The Employment Relations (Triangular Employment) Act 2019 is the first legislation that talks to this space, whereby an agency employer, like we are, employs workers who carry out assignments at client sites. This type of work must ensure that the responsibilities of each of the three parties are clear, and that minimum entitlements for the employee are met."

<snip>

"Last year we co-defended a status claim in the Employment Court alongside our government client. The eight plaintiffs, all former Madison employees backed by the PSA union, claimed they were not our employees, but those of our client. It was significant that a full bench of the Employment Court confirmed the legitimacy of our tripartite agreement, which underscores our temporary workforce business model. It is a strong affirmation of our processes and a benchmark for best practice. The decision was significant, being 100 percent in our favour."

--------------

SNOOPY

Snoopy

14-06-2021, 04:09 PM

AWF experienced the collapse of three construction sector clients in FY2018 that had a significant effect on the 'blue collar' side of the AWF business.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/AWF/325389/288702.pdf

CEO Simon Bennet, aka 'The Bennster' vowed to fix things. So what actually happened over FY2020?

AWF divisional earnings can be found on p31 of AR2020.
Actual Trade & Receivables Writedown can be found on p52 of AR2020.

20142015201620172018
20192020

AWF EBIT {A} $7.471m$7.498m$7.067m$8.726m$4,858m$1.260m
$1.692m

Actual Trade & Receivables Writedowns {B}($0.088m)($0.204m)($0.163m)($0.163m)($0.815m)($ 1.034m)
($0.123m)

Assuming no redeployment of Overseas Workers (creating a saving) {C}
$1.500m (1)

AWF EBIT - Writedowns {A}-{B}+{C}$7.559m$7.702m$7.230m$8.889m$5.673m$3.794m$ 1.569m

(1) From 29th May 2019 market update

This table could be the indicator that AWF's construction sector woes are far from over. Remember that the latest figures are for the year ended 31st March 2020, and that includes only a few days of the lock down. The figures for 'AWF blue collar' are so bad I am wondering if I have made a mistake ??!?? Are the glory days of AWF Madison as a group over? It looks like 'The Bennster' has some explaining to do!

The June 8th announcement to the market contains some answers:

"The reduction in Group revenue was driven by AWF, where revenue fell by 16% to $97.4 million (Snoopy edit: I think the technical market term for this is 'Ouch!'). This reflected a number of factors. The Group took the decision in 2018 to start relinquishing low margin, high cost-to-serve business in favour of customers with higher engagement levels. In addition, AWF has recently seen growth in permanent recruitment, which furnishes higher margins than temporary. Taken together, these factors constitute encouraging momentum by AWF towards a greater contribution to Group profitability."

A further insight into AWF's woes was given in the interim report from p6.

"Of more concern is the industrial relations activity we are seeing, with aggressive action by a number of Unions. We currently have a case before the Employment Relations Authority, taken by a Union, challenging the status of a number of our workers. We believe this case has no merit and, in fact, they are seeking an outcome that would have applied if the Employment Relations (Triangular Employment) Amendment Bill had not been amended prior to it becoming legislation. This action has resulted in a shift away from contingent workers in a large client of ours who is seeking to take a more conservative balance of permanent and contingent workers."

"I believe the Union is effectively bullying a number of clients in this way. It is unfortunate for our workers as now a number have been left without work opportunities as a result. We are confident this will be resolved and may, in fact, result in stronger case law for legitimate providers of temporary employees. A balance of permanent and contingent workers optimises a workforce and provides good opportunities for workers, and we are confident common sense will prevail. The result has seen our white collar segment"

There were further problems redeploying workers from Christchurch (interim report p6).

"We had expected to resolve issues with the Labour Inspectorate relating to an investigation which commenced in May of 2018, following an exaggerated and sensationalised report by the media on 9 May 2018. This investigation stalled our renewal process for Accredited Employer status with Immigration New Zealand and resulted in us having little flexibility to redeploy many workers based in Christchurch, who were surplus to requirements, with large construction projects drawing to a close. We expect to announce a long overdue pathway forward in the coming weeks."

I take no 'momentum encouragement' myself from any of this! In a post Covid-19 world, are all the big corporates out there looking to hire new people? I can see a shift back to short term contracts, and more grindingly low margins for AWF blue collar temp workers.

AWF divisional earnings can be found on p33 of AR2021 (Note A1 Segment Revenue and Results).
Actual Trade & Receivables Writedown can be found on p55 of AR2021 (Note C6: Provision for Impairment).

20172018201920202021

AWF EBIT {A} $8.726m$4,858m$1.260m$1.692m$10.782m

Actual Trade & Receivables Writedowns {B}($0.163m)($0.815m)($1.034m)($0.123m)($0.205m)

Assuming no redeployment of Overseas Workers (creating a saving) {C}
$1.500m (1)

AWF EBIT - Writedowns {A}-{B}+{C}$8.889m$5.673m$3.794m$1.569m$10.577m

Notes

(1) From 29th May 2019 market update: Regulatory issues impeded AWF from redeploying migrant workers on guaranteed wages to cities and regions where they were needed, at a direct cost of $1.5 million, plus lost opportunity margin.

From IR2021 p5,

"AWF has had a fall in permanent fee revenue and and its temporary business suffered considerably during the Level 4 lockdown. At our current recovery rate, we expect AWF to return to normal trading in its temp business by the end of the financial year."

From AR2021 p7

"With the permanent recruitment market most significantly impacted in 2020, the first to see growth was our AWF blue collar labour hire channel."

From AR2021 p19

"AWF Revenue was down $19.7m (20.2%) on the prior year."

The above comments are incongruous with the record numerical result. So what is going on? My conclusion is that the wage subsidies have been booked as normalized revenues which have no associated operating costs. This greatly boosted AWF EBIT.

Following the last AWF crisis relating the the construction sector, the 29th May 2019 wrap up press release said

"Bennett said AWF had reduced its cost base, and was now geared to return 4% to 6% EBITDA on turnover approaching $120 million."

Turnover at AWF over FY2021 was $77.762m, suggesting EBITDA of $3.1m to $4.7m. Take off $1.7m in Depreciation and Amortisation (refer my post 904) off those EBITDA estimates and I get a forecast EBIT of $1.4 to $3.0m.

Granted all of this is before Covid-19 and any longer term restructuring measures taken as a result. But there is still a major disconnect between the forecast restructured AWF EBIT from FY2019 of '$4.6m to $7.0m' (using FY2019 as a base year for earnings) verses the actual FY2021 EBIT of $10.577m. My conclusion is that EBIT for AWF over FY2021 has been grossly distorted by subsidies and a 'reality check' will loom over the HY2022 results. I will be listening with interest for any 'progress reports' at the upcoming AGM to see if my speculation is confirmed.

SNOOPY

Snoopy

15-06-2021, 10:56 AM

This post is calculation sub note for my previous post 903. To apportion amortisation & depreciation between AWF and the other business within the wider Accordant group (Madison, AbsoluteIT and JacksonStone).

AWFMadison/AbsoluteIT/JacksonStoneTotal

Revenue$76.793m$95.563m$172.356m

Revenue Percentage44.55%55.45%100.00%

I use 'relative revenue percentage' as an indicator of the wear and tear suffered by each business unit.

Amortisation & Depreciation
Amortisation & Depreciation (AWF share)
Amortisation & Depreciation (Madison/AbsoluteIT/JacksonStone) share

Depreciation of Property Plant & Equipment
$0.990m
$0.441m
$0.549m

Depreciation of Right of Use Assets
$2.702m
$1.204m
$1.498m

Amortisation of Software
$1.594m-$0.492m-$0.874m= $0.228m
$0.102m
$0.126m

Amortisation of Customer Relationships
$0.874m

$0.874m

Amortisation of Restraint of Trade
$0.492m

$0.492m

Total
$5.286m
$1.747m
$3.539m

Notes

1/ Figures $0.874m and $0.492m represent intangible assets of 'Customer Relationships' and 'Restraint of Trade' respectively, that are only applicable to the white collar divisions of Accordant.

SNOOPY

Snoopy

15-06-2021, 02:25 PM

To apportion amortisation & depreciation between AWF and the other business within the wider Accordant group (Madison, AbsoluteIT and JacksonStone), I use 'relative revenue' as an indicator of the wear and tear suffered by each business unit.

AWFMadison/AbsoluteIT/JacksonStoneTotal

Revenue$76.793m$95.563m$172.356m

Revenue Percentage44.55%55.45%100.00%

Amortisation & DepreciationAmortisation & Depreciation (White Collar share)

Property Plant & Equipment
$0.990m$0.549m

Right of Use Assets$2.702m$1.498m

Amortisation of Software$1.594m-$0.492m-$0.874m= $0.228m$0.126m

Restraint of Trade$0.492m

Customer Relationships$0.874m

Total$3.539m

SNOOPY

Snoopy

15-06-2021, 06:38 PM

That $33m of corporate welfare which shows up on the Cash Flow Statement is pretty impressive

The full declaration on the wage subsidy received over FY2021 is in AR2021 on p32

"During the financial year Group eligible entities received Government Grants totalling $35.6m (for 6,367 employees) and repaid $2.3m (for 429 employees) under the initial COVID-19 Wage Subsidy Scheme and the subsequent Government Wage Subsidy Extension scheme. A net receipt from Government grants of $33.3m."

However we need to remember that payments of the wage subsidy were made in advance. So a large proportion of the wage subsidies paid in FY2020 actually were for payouts in the FY2021 year.

From page 16 of the HYR2021

"This was in addition to the amount claimed under the initial 12 week COVID‑19 Wage Subsidy Scheme referred to in the Group’s annual financial statements for the year ended 31 March 2020. Under the initial 12 week COVID‑19 Wage Subsidy Scheme, the Group applied for $22.9m (for 3,451 employees) subsequently refunding $1.4m (for 231 employees)."

So the net amount of wage subsidy claimed over FY2020 was: $22.9m - $1.4m = $21.5m

The NZ Covid -19 wage subsidy was introduced on 17th March 2020. So of the initial 12 week period for which wage subsidy payments were made, only 14 days (2 weeks) related to FY2020 (which ended on 31-03-2020). This means that although a net wage subsidy payment of $21.5m was made in FY2020, only:

2/12 x $21.5m = $3.583m

of that payment related to FY2020. The balance of that payment ($21.5m - $3.583m = $17.417m) related to FY2021, as did the net 8 week wage extension payment of $11.0m. This means the initial wage subsidy and extension applying to FY2021 was:

$17.417m + $11.000m = $28.417m

This means the actual net payment for wage subsidies applying to the FY2021 year was:

$28.417m + $33.323m = $61.740m

Truly eye watering.

SNOOPY

Snoopy

16-06-2021, 08:21 AM

There was nothing in the cashflow statement indicating the level of wage subsidy being received. You have to hunt down in page 16 of the HYR2021 notes to find it.

"During the six month period ended 30 September 2020, Group eligible entities claimed $13.2m and repaid $2.2m under the New Zealand Government’s COVID-19 Wage Subsidy Schemes. This was in addition to the amount claimed under the initial 12 week COVID-19 Wage Subsidy Scheme referred to in the Group’s annual financial statements for the year ended 31 March 2020. Under the initial 12 week COVID-19 Wage Subsidy Scheme, the Group applied for $22.9m (for 3,451 employees) subsequently refunding $1.4m (for 231 employees). Under the initial 8 week extension of the COVID-19 Wage Subsidy Scheme, the Group applied for $13.2m (for 2,992 employees) subsequently refunding $0.8m (for 198 employees)."

"These grants supported the Group’s ability to retain personnel and pay remuneration throughout New Zealand’s COVID-19 Alert Levels 4 and 3. The grants have been offset against employee benefits expense in the statement of comprehensive income."

If I read that note correctly, the net wage subsidy claimed by Accordant over the period 01-04-2020 to 30-09-2020 was: $13.2m - $2.2m = $11m. Read on and the note says the refund on the $13.2m of wage subsidies applied for was only $0.8m. I presume the difference ( $2.2m vs $0.8m ) was due to a refund relating to the previous period but paid back during the FY2021 half year?

It looks like I have been fooled by some of the wage subsidy talk, and the inconsistent treatment of the same.

"referred to in the groups financial statements" gave me the impression the initial wage subsidy payments were incorporated in the FY2020 annual accounts. In fact the reference is in AR2021 note F6 "Events after the Reporting Date."

"Prior to reporting date, in March 2020, the Group received a grant of $534,000 and in April 2020, the Group received grant of $22,286,000. Both grants were recognised as liabilities on the dates they were claimed and shall be recognised in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the related costs for which the grants are intended to compensate."

This would suggest the total wage subsidy claimed was:

$0.534m + $33.323m = $33.857m

That figure is still very high, being over ten times FY2020 declared profit. But not quite as eye watering as my previous post (906) suggested.

The statement "Both grants were recognised as liabilities on the dates they were claimed" would suggest the wage subsidies ($22,286,000 + $534,000) could be part of the FY2020 Balance sheet. If that were the case they would form part of 'current liabilities'. The only category of 'current liabilities' of sufficient size to hold that size of "trade and other payables". Lo and behold, under note C8 'Trade and Other Payables' there it is! 'Deferred Grant Income $21.778m'.

The double entry accounting convention means there must be an equivalent book entry on the other side of the ledger. It must be a current asset to match the paired current liability accounting entry. Look under Note C6 'Trade and Other Receivables' and there it is! Grant Income Receivable' $22.286m.

Why do the two numbers not exactly match? I presume the difference ($22.286m - $21.778m = $0.508m) must represent salary top ups already earned before EOFY2020.

Man, I am starting to sound like a real accountant!

SNOOPY

percy

16-06-2021, 08:36 AM

No surprises there.!
We all have....
And that comes after trying to sort out right to occupy...lol

Snoopy

17-06-2021, 12:11 PM

the reduction in net debt since balance date is very welcome and impressive:

Net Debt EOFY 2020$29.822m

add EOFY2020 Tax Payable$0.950m

less Final FY2020 dividend not paid (1)$2.819m

less Excess of Profit and D&A above dividend (2)$1.530m

less Reduced Capital Expenditure$?m

less Reduced Working Capital$?m

equals Net Debt EOHY 2021 (including Tax Payable)$11.500m

Notes

1/ 0.082dps x 34,325,542shares = $2.819m (Final dividend FY2020, cancelled, not paid)

2/ Estimate of D&A for HY2021: $6.194m - $3.285m = $2.909m. Estimate of 'Net Profit' added to estimate of 'Depreciation & Amortisation' (does not reduce cash on hand) for HY2021: 0.72 x $2m +$2.909m = $4.349m (Estimate is required because this post was originally made before half year result for HY2021 was released).

I had always considered AWF Madison a 'Capital Light' company. I have searched right through AR2020 looking for what their capital expenditure was and could not find a reference to them spending anything on 'capital expenditure'. So I am guessing whatever 'saving' they have made here is a small number.

'Reducing Working Capital' is another way of saying you are increasing the amount of money you are collecting from customers much faster than the new bills you are creating. But this is what happens when the size of your business decreases significantly. That isn't necessarily a good thing. Because even though the total debt has come down, your capacity to service that debt is similarly decreased.

Assuming a $1m reduction in capital expenditure, my table above is showing a 'Reduction In Working Capital' of $13.923m. If all of this has come off trade receivables at last balance date of ($53.071m - $22.206m = $30.865m), this is pointing to a decline in business of: $13.923m/$30.865m = 45% from FY2020. And remember this decline is with all the wage subsidies in place.

I have been very cautious about he debt position of AGL over the last year. Yet the EOFY2021 picture has seen an improvement way above what I expected. How did it all happen?

Net Debt EOFY 2020$29.822m

add EOFY2020 Tax Payable$0.950m

less Final FY2020 and interim FY2021 dividends not paid (1)$5.561m

less Excess of Net Profit for FY2021 above dividend not paid (2)$0.636m

less Depreciation & Amortisation (3)$3.806m

less Reduced Capital Expenditure$2m?

less Reduced Working Capital$?m

equals Net Debt EOFY 2021 (including Tax Payable)$15.034m

Notes

1/ (0.08+0.082)dps x 34,325,542shares = $5.561m

2/ $6.197m - $5.561m = $0.636m

3/ Depreciation and Amortisation are non-cash deductions. 0.72 x $5.286m = $3.806m

Assuming a $2m reduction in capital expenditure (my estimate because the company says capital spending, although not large enough to be reported separately, is being reduced), my table above is implying a 'Reduction In Working Capital' of $3.735m (calculated to make the addition and subtraction elements to equate to the total).

'Reducing Working Capital' is another way of saying you are increasing the amount of money you are collecting from customers much faster than the new bills you are creating. But this is also what happens when the size of your business decreases significantly. So 'reducing working capital' isn't necessarily a good thing. Because even though the total debt has come down, your capacity to service that debt is likely similarly decreased. Nevertheless the 'wage subsidy boosted profits' of $6.197m have meant this hasn't been a problem over FY2021.

If all of this working capital decline has come off 'trade receivables' at last balance date of $53.071m - $22.286m = $30.785m, this is pointing to a decline in business of: $3.735m/$30.785m = 12% from the FY2020 comparative year. But remember this decline is with all the wage subsidies in place.

It is pertinent to note that although the net debt has reduced significantly over the year, it has gone up over the most recent half year

SNOOPY

nztx

17-06-2021, 05:24 PM

Just 34 mill shares on issue -- SP seems quite volatile

Gone Ex 8.2 cps Div today & SP still holding without a blink

May be some further upside here ?

Snoopy

20-06-2021, 09:49 PM

I always find it a useful exercise to go over old predictions and see where you went wrong.

Lower Estimate FY2020
Higher Estimate FY2020
Actual Profit FY2020

EBITDA (AWF Division)$4.800m
$7.200m$1.962m

EBITDA (Madison/AbsoluteIT)$5.597m
$5.597m$7.156m

less Head Office Admin and Expenses($2.649m)
($2.649m)($2.876m)

less Net Interest Expense Paid($1,232m)
($1.232m)($2.084m)

less Depreciation and Amortization($3.445m)
($3.445m)($6.194m)

equals Net Profit Before Tax$3.071m
$5.471m$3.897m

less Income Tax (Scenario Estimates @ 30%)($0.921m)
($1.641m)($1.220m)

equals Net Profit After Tax$2.150m
$3.830m$2.677m

The actual tax paid over FY2020 was at a rate of:

$1.220m / $3.897m= 31.3%

The actual result was somewhat in the middle of my higher and lower estimate. But digging deeper that AWF division contribution was a clangor. Far far worse than my worst fears. The fix for the 'Auckland Commercial Construction' problems was to avoid the construction industry (AR2020 p12)!

The white collar contribution was up. But that was mainly due to 10 months contribution from the newly acquired 'JacksonStone' 'C' level placement consultancy. Take out that and both Madison and AbsoluteIT were down (revenue down a combined 8%).

Head office expenses were up as "directors and management all took pay reductions" (AR2020 p12)! Wasn't FY2020 also the year that the company gained the full value of putting Madison and Absolute It into the same locations in Auckland and Wellington? It is hard to reconcile administration expenses going up in the circumstances I have outlined.

The interest bill went up because I didn't model the $10.520m purchase of 'JacksonStone'. 'JacksonStone' certainly contributed to increasing White Collar profit But the downside was a much higher interest bill and restraint of trade amortisations that mostly erased the acquired business's positive EBIT contribution. I can't help wondering if in the 'quest for growth' the eye was taken off the existing balls in hand. I am not saying the acquisition of 'JacksonStone' was necessarily wrong long term, albeit the acquisition timing perhaps could have been better. I am saying that increased debt generally doesn't go away. But increased profits can.

If we go back to the interim report p7, 'the Bennster' had high hopes for Net Profit Before tax:

"We expect to achieve NPBT (Net Profit Before Tax) for the full year of above $4.2 million – nearly 50% higher than prior year. An upper range is not provided due to some uncertainty in the level of improvement within AWF and the speed at which we can ramp up temp numbers within Madison."

This was all pre Covid-19 of course. But even so, to fall short of your lowest expectations by: $4.200m - $3.897m = $0.303m, is not a great result.

This is going to be a difficult exercise with 'historical precedent' severely disrupted by Covid-19. But I shall give it a go. I like to start with some figures we know, rather than guessing. So here is the NPAT margin for each white collar business unit when it was absorbed under the Accordant umbrella.

FY2014FY2015
FY2016FY2017[/TD]FY2018
FY2019FY2020FY2021

Significant Event

First full year owning Madison

First full year owning AbsoluteIT

JacksonStone Acquired
First full year owning JacksonStone

Combined Madison/AbsoluteIT/JacksonStone Turnover

$69.770m
$68.786m
$98.714m
$149.455m
$151.946m
$166.079m
$127.720m

Madison only Turnover (assuming owned whole year)
$61.065m
$69.770m
$68.786m
$71.1m
$76.7m (e1)
n/a
n/a
n/a

AbsoluteIT only Turnover

$0.0m
$0.0m
$27.7m
$72.8m (e1)
n/a
n/a
n/a

AbsoluteIT only Turnover (assuming owned whole year)

$72.772m

JacksonStone only Turnover

n/a
n/a
n/a
n/a
n/a
$27.510m
$33.325m (e2)

Combined Madison/AbsoluteIT Turnover

n/a
n/a
$98.714m
$149.455m
$151.946m
$138.569m
$94.395m

Madison Only Net profit
$2.513m

AbsoluteIT Only Net profit (assuming owned whole year)

$2.442m

JacksonStone Only Net profit (assuming owned whole year)

$2.405m

NPAT Margin (Madison Only)
4.1%

NPAT Margin (AbsoluteIT Only)

3.4%

NPAT Margin (JacksonStone Only)

7.2%

Notes

(e1) or estimate 1 is the full year turnover from (or derived from) the previous year of AbsoluteIT operations, assuming it had been part of the AWF group for the whole year (p55 AR2017).

(e2) Under Section G1, from p49 of AR2020:

I am using the quoted figure of $33.325m for full year FY2020 as an estimate of JacksonStone revenue for FY2021.

"For the period 1 June 2019 to 31 March 2020, included in Group profit after tax is $1.943m and in Group revenue $27.510m attributable to JacksonStone & Partners."

This implies an actual net profit margin for JacksonStone during the part year of initial ownership of:

$1.943m / $27.510m = 7.1%

That is consistent with the surprisingly high full year figure listed in the table.

I am reasonably confident that the Net Profit Margins for Absolute IT (3.4%) and JacksonStone, (7.2%) as calculated in the above table, are still relevant. I expect these businesses have been 'right sized' by reducing the office footprint and reducing staff to match post Covid-19 market conditions. I am less confident that the Net Profit Margin for Madison is still relevant.

SNOOPY

Snoopy

20-06-2021, 11:17 PM

I am reasonably confident that the Net Profit Margins for Absolute IT (3.4%) and JacksonStone, (7.2%) as calculated in the above table, are still relevant. I expect these businesses have been 'right sized' by reducing the office footprint and reducing staff to match post Covid-19 market conditions. I am less confident that the Net Profit Margin for Madison is till relevant.

General remarks on 'forecasting the future' are reproduced below:

From AR2020 p3

"In Madison and AbsoluteIT, in addition to the increase in boutique agencies, the growing trend, by clients, to establish in-house recruitment teams contributed substantially to the businesses’ reduced performance."

---------------------

From HYR2021 p5

"The large drop in permanent fee revenue in Madison has reduced the size of the business and we do not expect the business to recover fully this financial year. We predict it may well take a further 18 months. This recovery will likely be through the temp channel, rather than permanent recruitment."

I read the above as saying recovery in revenue will take until FY2023. But even then profits will be lower due to change in mix finding temporary workers and less full time workers.

"AWF too has had a fall in permanent fee revenue and its temporary business suffered considerably during the Level 4 lockdown.
At our current recovery rate, we expect AWF to return to normal trading in its temp business by the end of this financial year."

I read the above as lower profits for FY2022 due to fewer permanent worker placements.

"Absolute IT has also been affected and is approximately 10% down on prior year. However, the tech sector is showing growth and we are confident of our ability to once again grow our business."

I read the above as half way to a 'full recovery' for FY2022

"Likewise, JacksonStone & Partners saw a drop, mainly in May, but is recovering well and we are confident in demand. We expect to pay the vendors of JacksonStone the maximum entitlement for the second tranche of the earnout for the purchase."

A forecast of maximum payment of the earn out fee suggests full recovery.

---------------------

From AR2021 p5

"With the permanent recruitment market most significantly impacted in 2020, the first to see growth was our AWF blue collar labour hire channel. Whilst there is a good recovery from Absolute IT and JacksonStone & Partners, the white collar Madison business has been slower to return to previous revenue across much of its private sector, albeit in the last few weeks the market has gained significant uplift."

The above is consistent with the half year comments.

From AR2021 p10

"The New Zealand labour market currently has significant shortages in ICT, construction and healthcare. We believe that, even with open borders, we cannot expect immigration settings to allow for the same volume of migrants to supplement our workforce, as they have done prior to COVID-19. Maximising workforce participation, and growing the available workforce, is crucial for our country to fill the demand for workers."

Despite healthcare not being a target market for Accordant, the lack of access to overseas workers looks like a hand brake on near term growth.

From AR2021 p11

"At the commencement of the new financial year we were operating on a lower headcount, particularly in Madison where volumes reduced significantly during the year, with a fall-off in clients’ agency spending in the initial weeks post-lockdown."

The above reinforces the bad news for Madison.

From 27th May result release cover letter

"The AWF blue-collar business was impacted by the COVID-19 disruption with revenue down 20.2% on FY2020, however it is recovering faster than anticipated."

That reads as a slight upgrade from the HY2021 position.

All in all a useful series of comments to incorporate into the mix.

SNOOPY

nztx

23-06-2021, 12:00 AM

14.5% Gross yield assuming continuing 8.0c & 8.2c Div's onwards (both fully imputed) aint to be sneezed at .. ;)

what could go wrong ? .. maybe only another lengthy Covid lockdown in our local goldfish bowl perhaps .. ;)

Snoopy

23-06-2021, 06:36 PM

All in all a useful series of comments to incorporate into the mix.

Further historical context as the business has developed over FY2018 and FY2019.

From AR2018 p3
"The completion of the purchase of Absolute IT during the year certainly validated the decision to acquire this well-led diverse white collar business, and the strong team at Absolute delivered a result that was above our expectations."

From AR2018 p3
"It has been a great pleasure to be able to report the success of Madison in delivering at all levels to the Census project for Statistics New Zealand. By year end, Madison was back up to its own growth targets."

From AR2018 p5
"Creating synergies with our group companies. Madison IT has moved across to the Absolute IT stable and we have co-located our Hamilton and Christchurch white collar teams. We will explore opportunities in Auckland and Wellington to co-locate."

From AR2018 p11
"In the last five years, job hunting and talent acquisition has changed considerably, leading to increased (Madison) delivery costs."

"Targeting growth in retained and project work will achieve a greater balance with contingent work and mitigate the higher cost of delivery."

From AR2018 p12
"Our (Absolute IT) first full year of contribution to the Group has led to the white collar segment revenue growing 51% on the prior year."

"We (AbsoluteIT) have also seen demand for permanent vacancies rise – an indication of positive economic sentiment from our clients."

From AR2018 p13
"Absolute IT has grown market share through regional business strategies delivered by a long-standing service delivery team."

From AR2019 p3
"Absolute IT had a stunning year both in terms of profitability and new clients won. Over the year our senior leaders have continued to grow and develop the business for growth."

From AR2019 p3, p4
"Madison traded well but did not achieve all the growth that we expected. However, the effect of the completion of our large
Managed Service project contract (the census) has to be factored into this comment."

"We grew the core business but did not fully ‘fill the earnings gap’ created following the end of the project."

From AR2019 p4
"Absolute IT’s Auckland branch moved in to 51 Shortland Street, where our head office and Madison are located, in early January. Late last year Madison’s Wellington branch moved in to Cornerstone House in Customhouse Quay, where Absolute IT is located."

From AR2019 p17
"Over the past year we (AbsoluteIT) have realised growth in our number of permanent placements, however contracting placements remain the backbone of our business."

SNOOPY

nztx

23-06-2021, 06:41 PM

Snoopy

24-06-2021, 08:29 AM

My white collar 'Net Profit Margin' post is based on historical information on the date the respective business units were acquired. Once acquired, these businesses are placed in a 'white collar bucket' for reporting purposes. There are commentary hints on how 'Madison', 'AbsoluteIT' and 'JacksonStone' are doing subsequent to acquisition (See my posts 912 & 914). But no actual business unit revenue and profit numbers.

The actual 'AbsoluteIT' gross revenue over FY2017 was $27.6m (AR2017 p55). This implies Madison revenue over FY2017 of:

$71.1m - $27.6m = $43.5m

This is well down on the $61.1m turnover from FY2014, the base acquisition year for Madison (My post 911).

Comments from FY2018 (my post 914) would suggest that turnover was restored to at least that $61.1m 'base level' even if operational costs increased, (meaning reduced profit margins from the FY2014 base year) or -optimistically- turnover as high as $76.7m (my post 911). As a consequence of operational costs increasing, I am reducing the projected Madson net profit margin from 4.1% to 3.4% (the same as AbsoluteIT). However, comments on the contribution of AbsoluteIT to that year's white collar revenue growth would suggest that this business unit contributed at least as much growth as Madison. If the growth in turnover from AbsoluteIT over FY2018 was 12%: $72.8m x 1.12 = $81.5m, that implies Madison turnover of $149.5m - $81.5m = $68.0m. This Madison revenue of $68m is near enough to a 12% gain on that FY2014 base turnover figure of $61m.

From FY2019 comments (my post 914) would suggest that white collar growth once again concentrated on AbsoluteIT. Zero growth at Madison over FY2019 (my post 914) would suggest turnover at AbsoluteIT over FY2019 increased to:

$151.9m - $68.0m = $83.9m

By the end of FY2019 the consolidation of worksites between Madison and Absolute IT was complete. However it is not clear that any rent savings offset the wider increased background work required to evaluate potential job candidates to more thorough investigative standards.

The combined revenue for Madison and AbsoluteIT over FY2020 (Y.E. 31-03-2020) was $138.6m. If both divisions took an equal 'hit' in terms of the percentage drop in business from FY2019 (Madison & Absolute IT revenue of $151.9m (total) , with an estimate of $69.0m (Madison) and $83.9m (AbsoluteIT) ), that would imply Madison turnover of $62.0m and AbsoluteIT turnover of $76.6m over FY2020. On a full year basis, the just acquired JacksonStone turned over $33.3m through the FY2020 period. These three turnover figures I regard as the 'base figures' from which to project earnings for FY2022. I regard FY2021 as a 'Covid affected outlier'.

Looking out to FY2022, JacksonStone is reported to be on target for the sellers of the business to meet their earn out hurdles (my post 912). I am taking that to be a forecast of a full recovery to a $33.3m turnover. Comments on AbsoluteIT being '10% down' over FY2021 ties in with a fall in turnover from $83.9m to $76.6m. I am forecasting a half way return to the baseline for FY2022, which corresponds to a turnover of $80.3m. A less profitable (due to a reduction in the proportion of permanent placements) slower recovering Madison I am modelling by holding turnover firm from FY2021.

My total forecast NPAT for FY2022, attributable to the white collar division only, is therefore:

Forecast Table

Business Unit MadisonAbsoluteIT
JacksonStone
Total

Forecast FY2022 Turnover$62.0m$80.3m
$33.3m$175.6m

Modelled Net Profit Margin0.0340.0340.072

Business Unit Net Profit$2.1m$2.7m
$2.4m
$7.2m

This equates to a total forecast net profit after tax for the Accordant white collar business group collective of $7.2m.

SNOOPY

Snoopy

25-06-2021, 07:52 PM

My total forecast NPAT for FY2022, attributable to the white collar division only, is therefore:

Business Unit MadisonAbsoluteITJacksonStone
Total

Forecast FY2022 Turnover$62.0m$80.3m
$33.3m$175.6m

Modelled Net Profit Margin0.0340.0340.072

Business Unit Net Profit$2.1m$2.7m$2.4m
$7.2m

This equates to a total forecast net profit after tax for the Accordant white collar business group collective of $7.2m.

There is a caveat to the above calculations. It all depends on, and I quote from p69 of AR2020:

"In determining the estimated revenue and profit of the Group had (Madison/AbsoluteIT/JacksonStone - take your pick of each one in turn) been acquired at the beginning of the current year, Management have:"

"Calculated borrowing costs on the funding levels, credit ratings and debt/equity position of the Group after the business combination"

The question is, how do interest rates compare in the first full year balance sheet, after the acquisition of Madison, AbsoluteIT and JacksonStone respectively, when lined up against interest rates available today?

Business Unit Acquisition & Acquisition YearMadison (FY2014)AbsoluteIT (FY2017)JacksonStone (FY2020)FY2021

Debt Ratio73.0%65.5%75.1%55.4%

Indicative Interest rate5.4%4.5%5.0% (post 817)3.3% (post 879)

Note

1/ Indicative interest rate calculation over FY2017: $1.193m / 0.5x( $32.275m +$21.000m) = 4.5%
2/ Indicative interest rate calculation over FY2014: $0.714m / 0.5x( -$0.942m +$27.477m) = 5.4%

The lower debt ratio over FY2021 and lower indicative interest rates should mean my estimates for the underlying forecast profits from all three white collar divisions going forwards are understated. However, these calculations have not assumed any change in net profit margin from the ongoing effects of Covid-19. For simplicity I am going to assume the positive effect of lower interest rates and the negative effect of less economical cost structures from Covid-19 cancel each other out. So I will stick to the 'White Collar' NPAT estimates from my post 916.

SNOOPY

Snoopy

25-06-2021, 09:33 PM

Following the last AWF crisis relating the the construction sector, the 29th May 2019 wrap up press release said

"Bennett said AWF had reduced its cost base, and was now geared to return 4% to 6% EBITDA on turnover approaching $120 million."

Turnover at AWF over FY2021 was $77.762m, suggesting EBITDA of $3.1m to $4.7m. Take off $1.7m in Depreciation and Amortisation (refer my post 904) off those EBITDA estimates and I get a forecast EBIT of $1.4 to $3.0m.

Granted all of this is before Covid-19 and any longer term restructuring measures taken as a result. But there is still a major disconnect between the forecast restructured AWF EBIT from 2019 of '$1.4m to $3.0m' verses the actual FY2021 EBIT of $10.577m. My conclusion is that EBIT for AWF over FY2021 has been grossly distorted by subsidies and a 'reality check' will loom over the HY2022 results.

When apportioning the annual interest bill between the AWF division and the 'White Collar' division, I like to apportion interest expenses in line with the respective liabilities of each division. This information can be found in AR2021 on p34. The liabilities look to have changed a lot over the year. So I will use average liabilities for my calculation

DivisionAWFCombined White Collar

Average Liabilities$18.527m$24.161m

Percentage of Average Liabilities43.4%56.6%

Interest bill attributable to AWF I therefore estimate as: $0.707m x 0.434 = $0.307m.

If I go down the middle of my previously estimated EBIT range (post 923), the expected baseline NPAT for the AWF division is:

0.72 x ($2.2m - $0.307m) = $1.4m

If I add this to my estimated profits from the white collar division I get a total indicative NPAT from all divisions of:

$1.4m + $7.2m = $8.6m

However, I still need to take away a tax adjusted Accordant group head office cost from that total. I will use the FY2021 head office costs ( AR2021 p33) as indicative:

$8.6m - 0.72x($2.860) = $6.5m

$6.5m equates to $6.5m / 34.326m shares = an eps figure of 19.0c

That is more than enough to pay the historical dividend rate of 8.0cps + 8.2cps = 16.2cps

But do you 'believe the story'? Have my extrapolations and assumptions gone too far? I guess time will tell.

SNOOPY

Snoopy

26-06-2021, 10:20 PM

14.5% Gross yield assuming continuing 8.0c & 8.2c Div's onwards (both fully imputed) aint to be sneezed at .. ;)

what could go wrong ?

In summarizing the results from the Buffett tests (My post 886 to 889 inclusive), it becomes clear that the strongest reason for buying AGL is the prospective dividend yield that NZTX refers to above.

While the Accordant 'position in the market' is good (test 1- check), the earnings per share over FY2019 and FY2020 in no way can cover the quantum of dividend that NZTX is referring to above. The very strong profit booked for FY2021 must be considered in light of the more that $33m in wage subsidies claimed over FY2021. Receiving the wage subsidy is close to the government endorsing your end of year accounts saying FY2021 was 'business as usual' and paying the company money so that it officially looks that way. With Covid-19 severely disrupting the employment of potential overseas candidates to fill skills shortages within New Zealand (particularly IT), this has to affect the recruitment market going forwards for most of the FY2022 year, and possibly longer. My forecast profit for FY2022 is $6.5m (my post 918). But I have to wonder at the FY2022 effect of pulling out a $33m (five times my modelled profit level) security blanket from a company so that it can 'recover' via 'market forces'. Furthermore, if my $6.5m profit for FY2022 is achieved, we have to evaluate that that against the net debt burden of some $13m.

$13m/$6.5m gives an MDRT figure of 2. The looks low enough to allow the company some borrowing headroom ($15m of borrowing headroom available, see note C7 AR2021). Borrowing headroom certainly reduces the short term business execution risk. So I think a second dividend payment of 8cps later in the year is probable. But whether that same outlook will be there for FY2023 onwards, once the intangible 'restraint on trade' and 'customer relationship' assets on the books are fully amortised - with concomitant reduced cashflow in the future-, is another matter.

Over FY2019 the company was beset with a series of client business failures in the formerly core construction sector, and suffered the negative effect of the the Madsion census project rolling off. FY2020 showed how weak a moat a 'specialized employment agency' can have (from p3 AR2020). With reference to Madison and AbsoluteIT there was an:

"increase in (competitor) boutique agencies, (plus) the growing trend for clients to establish in house recruitment teams."

To some extent, my FY2022 forecast is a vote of confidence in Accordant working around these issues. I do feel that a consistent ROE return above 15% is attainable going forwards. A profit margin recovery (Buffett Test 4) I am less sure about. The need for a more thorough vetting of job candidates and increased recruiting costs, both legal and other wise, will have to be paid for, and may not be able to be 'passed on'. Overall I would give Accordant a 'nervous tick of approval' for investment today on the potential of dividend returns.. However, Buffett would require rather more than this. I wouldn't be expecting to find Berkshire Hathaway on the Accordant share register any time soon.

SNOOPY

nztx

02-07-2021, 05:12 PM

Snoopy

09-07-2021, 08:24 PM

The very strong profit booked for FY2021 must be considered in light of the more that $33m in wage subsidies claimed over FY2021. Receiving the wage subsidy is close to the government endorsing your end of year accounts saying FY2021 was 'business as usual' and paying the company money so that it officially looks that way. With Covid-19 severely disrupting the employment of potential overseas candidates to fill skills shortages within New Zealand (particularly IT), this has to affect the recruitment market going forwards for most of the FY2022 year, and possibly longer. My forecast profit for FY2022 is $6.5m (my post 918). But I have to wonder at the FY2022 effect of pulling out a $33m (five times my modelled profit level) security blanket from a company so that it can 'recover' via 'market forces'.

The July 2021 monthly BNZ/Seek employment survey result is out. I thought it might be interesting to check main centre job advertising in the five main centres where Accordant operate their white collar recruitment offices (especially Madison and AbsoluteIT that have been under pressure) since the March 31st balance date. Finally I thought it worthwhile looking at employment trends in the recruitment industry itself. I have taken the percentage information from the respective categories in each monthly report, the July edition of which is here:

https://www.bnz.co.nz/assets/markets/research/BNZ-SEEK-Report_July_2021_FINAL.pdf?1782c782ba459988f2de1cb f36bd70f9ce7dbd17

and turned each percentage into a multiple: for example 20% growth month on month equals a multiple of 1.2. Lastly I have multiplied each row of multiples together to get a four month picture:

April 2021May 2021June 2021July 2021Cumulative Multiple

Auckland1.131.181.041.011.40

Waikato1.181.100.971.111.40

Wellington1.071.101.040.991.21

Canterbury1.091.111.021.031.27

Otago1.211.171.001.091.54

Human Resources & Recruitment1.201.071.021.141.49

I will be interested to see if any of this ties up with comments from the Chair and CEO of the company at the upcoming AGM. What is in the back of my mind is that these are 'advertisements'. But Accordant gets paid for 'job placements'. What happens if you don't fill a job this month? You put the same advert in next month! What I am saying is that increasing advertisements could point to increasing demand for jobs OR increasing difficulty in filling those jobs that are available (or could it be a bit of both?).

Another thing that Accordant have mentioned is that they use their own networking, via 'Facebook' and 'LinkedIn' as well as other more conventional means, rather than placing ads. That is because sometimes the best person for the job doesn't apply for it. These kinds of appointments are not reflected in the above table.

What this table is telling us is that there are a lot of opportunities for job applicants in Auckland/Hamilton and Dunedin. There are also lots of opportunities in the recruitment industry itself. Whether these opportunities are translating to profits for Accordant, and I am thinking about the real problems getting right skilled people from overseas into NZ right now, remains to be seen. As CEO Simon Bennett said in HYR2021 p5, when speaking about the Madison division.

"As a generalist and low to mid level recruiter, there is a tendency for clients to attempt this recruitment themselves in the early stages of a recession."

I read that as saying that some of these advertised HR positions are actually medium size companies deciding to do their own recruitment in direct competition to Madison.

Anyone got another take on this table?

SNOOPY

Snoopy

09-07-2021, 09:39 PM

Snoopy

04-08-2021, 06:52 PM

AWF divisional earnings can be found on p33 of AR2021 (Note A1 Segment Revenue and Results).

Following the last AWF crisis relating the the construction sector, the 29th May 2019 wrap up press release said

"Bennett said AWF had reduced its cost base, and was now geared to return 4% to 6% EBITDA on turnover approaching $120 million."

Turnover at AWF over FY2021 was $77.762m, suggesting EBITDA of $3.1m to $4.7m. Take off $1.7m in Depreciation and Amortisation (refer my post 904) off those EBITDA estimates and I get a forecast EBIT of $1.4 to $3.0m.

=> middle forecast EBIT = $2.2m

DivisionAWFCombined White Collar

Average Liabilities$18.527m$24.161m

Percentage of Average Liabilities43.4%56.6%

Interest bill attributable to AWF I therefore estimate as: $0.707m x 0.434 = $0.307m.

If I go down the middle of my previously estimated EBIT range, the expected baseline NPAT for the AWF division is:

0.72 x ($2.2m - $0.307m) = $1.4m

My white collar 'Net Profit Margin' post is based on historical information on the date the respective business units were acquired.

My total forecast NPAT for FY2022, attributable to the white collar division only, is:

Business Unit MadisonAbsoluteITJacksonStone

Forecast FY2022 Turnover$62.0m$80.3m$33.3m

Modelled Net Profit Margin0.0340.0340.072

Business Unit Net Profit$2.1m$2.7m$2.4m

Business Unit ->MadisonAbsoluteIT
JacksonStone
AWF
G&A ExpensesTotal

Forecast FY2022 Turnover$62.0m$80.3m
$33.3m$77.8m
N.A.$253.4m

Modelled Net Profit Margin0.0340.034
0.0720.018
N.A.
0.026

Business Unit Net Profit$2.1m$2.7m
$2.4m
$1.4m
-0.72x$2.850m$6.5m

A Net Profit Margin (NPM) of 0.026 is otherwise represented as 2.6%. If we look at NPM figures for FY2014 to FY2017 inclusive, before disruptive events, first customer instability in the construction industry, then Covid-19, disturbed the norm (but crucially before the profit star JackStone was part of the group), then those equivalent figures are: 2.81%, 2.76%, 2.43%, 2.46%. This shows my estimated Net Profit Margin for FY2022 is 'in the ballpark'.

Crucially, on an 'earnings per share' basis, that works out as:

$6.5m / 34.326m = 18.9cps

In recent history the annual dividend has been set at: 8.0cps + 8.2cps = 16.2cps. If you 'believe the story' as I have mapped it out, that means the 'historical dividend' looks sustainable. At the last trading price of $1.61, this means Accordant is trading at a gross dividend yield of:

161 / (16.2)(0.72) = 13.8%

Is that the best prospective dividend yield on the market today? I think it might be, if you could actually buy a decent parcel of shares at $1.61. I managed to top up my holding at that price. But despite only being after a parcel of shares that was -back in the old days (pre Sharsies)- regarded as a minimally sized economic parcel, it took me a month to acquire the said shares!

This hasn't been a great share for me. Despite owning Accordant, or whatever its ancestor was back then, since 2015 - when I bought my first tranche - I am still underwater by 20% in capital terms (my average share purchase price is now $2.04). However, I have been happy to hold for the dividends and the hoped for business recovery. The main risk I see in my modelling is that my divisional net profit margins, (I have largely used pre-Covid-19 values), are too high. There is also a chance that I have modelled the NPMs as too low. But in that scenario, I would imagine a shortage of applicants, which could see less jobs being filled, is the problem. This higher NPM would be a symptom of much lower turnover (the multiplicative product effect being bad for AGL).

$6.5m NPAT = ($6.5m/0.72) + $0.707m = EBIT of $9.7m.

Interest Coverage EBIT/I = $9.7m/$0.707m = 13.7 times. So even if my earnings forecasts are a little out, I don't think the banks will be worried

Computer software amortisation over FY2021 was $0.228m, and deprecation expense was $2.702m. This means underlying EBITDA (excluding goodwill write offs from acquired business units) can be calculated as:

$9.7m + $0.228m + $2.702m = EBITDA of $12.7m

Net debt at balance date was: $15.000m - $1.795m = $13.205m

This gives an 'Net Debt' / EBITDA ratio of $13.205m/ $12.7m = 1.04

Overall I would give Accordant a 'nervous tick of approval' for investment today on the potential of dividend returns.. However, Buffett would require rather more than this. I wouldn't be expecting to find Berkshire Hathaway on the Accordant share register any time soon.

The fact that these two debt covenants are at conservative levels is what gave me the confidence to top up my investment in Accordant. If my earnings outlook for FY2022 proves horribly wrong, then Accordant can try again in FY2023 without fear of the banks closing in, and I don't need to sell out (which for liquidity reasons I can't do even if I wanted to!)

SNOOPY

glennj

05-08-2021, 11:07 AM

I appreciate you sharing your work on this one Snoopy. I bought in to this one some years back based on my own research and it hasn't really panned out as expected/hoped and is one of the very few of my stocks in that category. Capital losses have been cancelled out by dividend income. I'm still holding and watching.

Snoopy

10-09-2021, 08:47 PM

The very strong profit booked for FY2021 must be considered in light of the more that $33m in wage subsidies claimed over FY2021. Receiving the wage subsidy is close to the government endorsing your end of year accounts saying FY2021 was 'business as usual' and paying the company money so that it officially looks that way. With Covid-19 severely disrupting the employment of potential overseas candidates to fill skills shortages within New Zealand (particularly IT), this has to affect the recruitment market going forwards for most of the FY2022 year, and possibly longer. My forecast profit for FY2022 is $6.5m (my post 918). But I have to wonder at the FY2022 effect of pulling out a $33m (five times my modelled profit level) security blanket from a company so that it can 'recover' via 'market forces'. Furthermore, if my $6.5m profit for FY2022 is achieved, we have to evaluate that that against the net debt burden of some $13m.

$13m/$6.5m gives an MDRT figure of 2.

No announcement from Accordant. But you would have to assume that possibly the greatest wage subsidy recipient on the NZX (in relation to its size anyway) is once again puckering up the government teat, and good on them. They are a labour company after all. And if the government has taken away their people's right to work, it is only fair that the government should look after those people via the wage subsidy.

The 2020 lockdowns actually worked out OK for Accordant. The wage subsidy allowed them to divert what other cashflow the company had towards retiring debt. I am hoping the same might happen again. If so, I believe that Accordant could emerge from CY2021 near to debt free. This will be great for the resilience of the company going forwards. What is not so good is how the effect of this lock down, and possibly other future lock downs, will affect the confidence of the business world going forwards. It could be there is more of a trend towards temporary workers, as a way to manage the corporate cost structure. If this happens, it could signal 'good times' for Accordant. They actually do better when the business climate is just a little off ideal. My big question mark is not that there will cease to be a demand for good workers. But will Accordant be able to source the workers they and their customers need, particularly those island workers, while the travel bubble from the islands for such workers gets pushed back? IOW job advertisements going up is not necessarily a good sign for Accordant, if they can't fill those positions. I am hoping some of the answers to my concerns will spout forth from the mouth of our 'Good Keen(an) Man" Chairman as he fronts up for his last '(Com?)batting Session' at the AGM at the end of the month.

Meanwhile that share price just keeps quietly firming between $1.60 and $1.70. I am feeling quietly confident about this one. But I am not confident enough to buy more shares before learning about 'progress from the pulpit' on September 29th.

SNOOPY

Snoopy

14-09-2021, 02:49 PM

No announcement from Accordant. But you would have to assume that possibly the greatest wage subsidy recipient on the NZX (in relation to its size anyway) is once again puckering up the government teat, and good on them. They are a labour company after all. And if the government has taken away their people's right to work, it is only fair that the government should look after those people via the wage subsidy.

The 2020 lockdowns actually worked out OK for Accordant. The wage subsidy allowed them to divert what other cashflow the company had towards retiring debt. I am hoping the same might happen again. If so, I believe that Accordant could emerge from CY2021 near to debt free. This will be great for the resilience of the company going forwards. What is not so good is how the effect of this lock down, and possibly other future lock downs, will affect the confidence of the business world going forwards. It could be there is more of a trend towards temporary workers, as a way to manage the corporate cost structure. If this happens, it could signal 'good times' for Accordant. They actually do better when the business climate is just a little off ideal. My big question mark is not that there will cease to be a demand for good workers. But will Accordant be able to source the workers they and their customers need, particularly those island workers, while the travel bubble from the islands for such workers gets pushed back? IOW job advertisements going up is not necessarily a good sign for Accordant, if they can't fill those positions. I am hoping some of the answers to my concerns will spout forth from the mouth of our 'Good Keen(an) Man" Chairman as he fronts up for his last '(Com?)batting Session' at the AGM at the end of the month.

Meanwhile that share price just keeps quietly firming between $1.60 and $1.70. I am feeling quietly confident about this one. But I am not confident enough to buy more shares before learning about 'progress from the pulpit' on September 29th.

Wow! Accordant on a tear in the market today!

Good news for those seasonal business who use Regional Seasonal Employer workers in recent days.

https://www.nzherald.co.nz/nz/covid-19-coronavirus-delta-outbreak-one-way-bubble-with-pacific-for-rse-workers-to-open-in-october/K3FCNQ6ARPIEY5BUV3Q4TC6NSQ/

I am not entirely sure if Accordant will benefit from this, although I expect they might. Perhaps this, along with the accumulation of wage subsidy cash, is behind the rise and rise of AGL shares. The price exploded today up 5%, busting through the $1.80 mark, albeit on tiny volume. It has been a tough two years for AGL shareholders. But perhaps we are about to hit that purple patch? Will retiring Chair Ross Keenan, the only director to support the share price in the last two years, be able to go out in a burst of colour after all?

SNOOPY

nztx

14-09-2021, 04:11 PM

Wow! Accordant on a tear in the market today!

Good news for those seasonal business who use Regional Seasonal Employer workers in recent days.

https://www.nzherald.co.nz/nz/covid-19-coronavirus-delta-outbreak-one-way-bubble-with-pacific-for-rse-workers-to-open-in-october/K3FCNQ6ARPIEY5BUV3Q4TC6NSQ/

I am not entirely sure if Accordant will benefit from this, although I expect they might. Perhaps this, along with the accumulation of wage subsidy cash, is behind the rise and rise of AGL shares. The price exploded today up 5%, busting through the $1.80 mark, albeit on tiny volume. It has been a tough two years for AGL shareholders. But perhaps we are about to hit that purple patch? Will retiring Chair Ross Keenan, the only director to support the share price in the last two years, be able to go out in a burst of colour after all?

SNOOPY

Share Register is as tight as - Snoops

Trying to buy this one is like trying to pull teeth and then you only wind up with a few lamp posts at a time

Share BB hasn't helped liquidity either .. but then if well primed & pressure applied, it could take off
like a rocket up the chimney on slightest hint of the right sort of signals ;)

Snoopy

17-09-2021, 03:37 PM

Share Register is as tight as - Snoops

Trying to buy this one is like trying to pull teeth and then you only wind up with a few lamp posts at a time

Share BB hasn't helped liquidity either .. but then if well primed & pressure applied, it could take off
like a rocket up the chimney on slightest hint of the right sort of signals ;)

I just had a look at the FY2021 at the gap between the results announcement date (27th May) and when the buying back of shares stopped (7th July). By my reckoning that is exactly six weeks, which may be the window allowed for 'insider buying'? Does anyone know the rules about this? I know there is a window in which directors are allowed to buy and sell. But I was under the impression that if you announced an on market buyback of shares, those same window dressing rules did not apply?

Nevertheless, we might be heading into another window of 'insider buying' once the virtual AGM kicks off on 29th September? If Accordant are getting the wage subsidy, they may elect to cancel the next dividend payment. It wouldn't be a good idea to get the 'grant from Grant' and then spit it back to shareholders in such an immediate and attention grabbing way. However, if that helps reduce the debt burden of the company, then I am OK with this course of action. If others are not O.K. with this, we shareholders with a longer term vision might man the share 'accumulation station' for any discounted top up opportunity.

I see we AGL shareholders are atop the green board today as the shares surge 9c (5%) to $1.85.

SNOOPY

Nor

17-09-2021, 03:53 PM

..If Accordant are getting the wage subsidy, they may elect to cancel the next dividend payment. It wouldn't be a good idea to get the 'grant from Grant' and then spit it back to shareholders in such an immediate and attention grabbing way. However, if that helps reduce the debt burden of the company, then I am OK with this course of action. If others are not O.K. with this, we shareholders with a longer term vision might man the share 'accumulation station' for any discounted top up opportunity.

I see we AGL shareholders are atop the green board today as the shares surge 9c (5%) to $1.85.

SNOOPY

Good thinking. Let's hope they skip the dividend.

nztx

17-09-2021, 04:34 PM

Good thinking. Let's hope they skip the dividend.

Why would they ?

It's not as if the Wage Subsidy times theoretically should produce anything other than a Loss

If there is a surplus, that would be after offsetting Lockdown week's losses, so stakeholders indirectly
& the company could already be paying for Lockdown conditions imposed on them from the Powers
in their Glass Towers as it is .. ;)

If things were entirely fair - Govt should be fully reimbursing all for 100% of their Losses & Lost
Profits arising from the Govt inflicted Lock Down periods. (in the same way as they expect to extract
the tax dollar on anything looking like a taxable surplus, no exceptions)

There is possibly good reasonings that the most recent Lock-down stems from Negligence & Failure
on one part or another at the hands of those administering MIQ facilities & Containment borders
where the most recent outbreak stemmed from ;)

Nor

18-09-2021, 01:23 PM

Why would they?

I'm not usually smart enough or persistent enough to spot Snoopy's conclusions, so having latched on to this one I'm going to go with it.

Snoopy

18-09-2021, 02:29 PM

I thought that I had found the answer with the 'wage subsidy' going directly to paying employees, meaning the company did not have to pay those people from its own coffers (hence the big drop in payments to employees and suppliers). However if that were the explanation I would have expected even larger positive cashflows in the second half, as most of the wage subsidies were paid in the second half. In fact, cashflows from operations were negative in the second half! So I am still baffled as to what is going on here.

The 27th May 2021 full year report letter stated the reasoning behind reinstating the dividend.

"More recently, the Group has seen a significant increase in hiring activity across both temporary and permanent markets. Together with a robust year-end balance sheet, this has given the Board confidence to resume dividend payments (following a 12-month suspension) with an 8.2 cents per share final dividend"

My reading of that is that 'Things are looking up' BUT 'If we don't get the uptake in business that we hoped for then we can just borrow to pay the dividend'. By my way of thinking this is an 'operate and hope' business model that does not fill me with confidence, especially as the immediately preceding half year was 'cashflow negative'. Nevertheless the formula of 'borrowing to pay the second half dividend' that was there before 2HY2019 and had been done in many past years. So maybe it is some 'seasonal effect' that I do not understand?

Why would they (cancel the dividend)?

It's not as if the Wage Subsidy times theoretically should produce anything other than a Loss. If there is a surplus, that would be after offsetting Lockdown week's losses, so stakeholders indirectly & the company could already be paying for Lockdown conditions imposed on them from the Powers in their Glass Towers as it is .. ;)

In recent years there has been enough amortisation of acquired business assets to create positive cashflow, even if the company was making a minimal headline profit. Also, for reasons I do not understand, the first half has traditionally been a lot more profit and cashflow positive than the second half (HY2022 runs from 01-04-2021 to 30-09-2021) - I am still open to anyone who can come up with a theory as to what is going on here!. So this lockdown corresponds to the equivalent prior comparative reporting period as the original 2020 four week lockdown. No dividend was declared then, which is why I am picking that the 'traditional' November dividend will be withheld this year too.

Last year the wage subsidy received was many times the declared NPAT. But do you regard the wage subsidy as:

a/ 'Just a one off government grant'? Or do you regard the wage subsidy as
b/ A fair dollar for dollar replacement of wages that would have been honestly earned, had the company been able to operate without government imposed Covid-19 restrictions?

I guess the answer you choose will be determined by whether you see Accordant as being 'long term damaged' by the NZ government's Covid-19 response. Going on from last year's lock down bounce back, I tend to think the answer is 'b'. So any 'positive cashflow the company has above the wage subsidies' (not necessarily representing profits) should be able to be directed to paying down debt, as happened last year.

In the meantime dividend or not, I am enjoying the latest 'Simply Wall Street' valuation,

https://simplywall.st/stocks/nz/commercial-services/nzx-agl/accordant-group-shares/news/is-accordant-group-nzseagl-using-too-much-debt

where they consider fair value as $31.58, or seventeen times higher than Friday's closing price! They also figure a PE of 10 is only about half the professional service industry average, while the price to book ratio is less than half the industry average too. I sometimes wonder if those SWS guys know something we don't, but somehow I doubt it.

SNOOPY

nztx

18-09-2021, 05:10 PM

In recent years there has been enough amortisation of acquired business assets to create positive cashflow, even if the company was making a minimal headline profit. Also, for reasons I do not understand, the first half has traditionally been a lot more profit and cashflow positive than the second half (HY2022 runs from 01-04-2021 to 30-09-2021) - I am still open to anyone who can come up with a theory as to what is going on here!. So this lockdown corresponds to the equivalent prior comparative reporting period as the original 2020 four week lockdown. No dividend was declared then, which is why I am picking that the 'traditional' November dividend will be withheld this year too.

Last year the wage subsidy received was many times the declared NPAT. But do you regard the wage subsidy as:

a/ 'Just a one off government grant'? Or do you regard the wage subsidy as
b/ A fair dollar for dollar replacement of wages that would have been honestly earned, had the company been able to operate without government imposed Covid-19 restrictions?

I guess the answer you choose will be determined by whether you see Accordant as being 'long term damaged' by the NZ government's Covid-19 response. Going on from last year's lock down bounce back, I tend to think the answer is 'b'. So any 'positive cashflow the company has above the wage subsidies' (not necessarily representing profits) should be able to be directed to paying down debt, as happened last year.

In the meantime dividend or not, I am enjoying the latest 'Simply Wall Street' valuation,

https://simplywall.st/stocks/nz/commercial-services/nzx-agl/accordant-group-shares/news/is-accordant-group-nzseagl-using-too-much-debt

where they consider fair value as $31.58, or seventeen times higher than Friday's closing price! They also figure a PE of 10 is only about half the professional service industry average, while the price to book ratio is less than half the industry average too. I sometimes wonder if those SWS guys know something we don't, but somehow I doubt it.

SNOOPY

I can appreciate the comparisons with prior period, however last year was far more severe - 16-18 weeks lock downs ?

Sure the northern sector is still locked down, but that's not the whole country even if supplies shortages etc
are impacting elsewhere.

I dont know if these guys look at available cash solely to make their distribution decisions or extent to which their client book
/ contracts are pread across the country - but with Nov - Dec onwards just *possibly* seeing some light ahead, they may
just run with Dividend pay pattern.

Without too much doubt, comparision of wage subsidies & resurgence against NPAT or bottom line
is potentially a flawed comparison - as theoretically most outfits having seen a portion up to 80%
of wages covered by subsidies, covering balance themselves plus say 18-20% Employment oncosts
& add-ons (KS Employer Contribs, ACC Levies etc etc) will likely have red ink out of Lockdowns
even after fixed $1500 resurgence x whatever number of Resurgence declarations.
A portion of ongoing fixed Overheads don't pay themselves or go away after all ;)

If at end of a period they come out in the black, that's after offset of any Lockdown residual losses
and for my money is fair game for potential stakeholder distribution, if they wish .. ;)

to make it absolutely clear -

BOTTOM LINE is after Residual Covid WEEK'S Losses incurred deducted (ie Net Costs & Outgoings after deducting any Subsidies)

Because there is a positive Bottom line does not mean there weren't Covid Loss Weeks (after Subsidies offset) in the
period offset by normal trading weeks in Profit

It is absolutely FLAWED THINKING to try to suggest because Wage Subsidies were received there should not be a
profit for overall Reporting Period or for that matter potentially a Dividend considered for Payment

With Resurgance Support Govt state no part of subsidy can be passed to shareholders, similar probably
can be said for wage subsidies. If both are fully utilised for intended purposes they were received, then
there are no residual amounts left over that canbe passed to stakeholders.. and therefore no restriction on
distributions being potentially considered by the Company's Board..

Subsides after all are non repayable & assumed to fully be offset by Wages or Allowable Overheads
and to extent they aren't are potentially repayable back to Government under their respective Subsidy terms .

nztx

18-09-2021, 05:43 PM

Looking further if Lock Down periods are due to failure or negligence on Part of Government
to perform (ie leaks in recent Covid lockdowns were due to some failure on Part of a Govt Ministry)
then why should Govt not be held to account & liable for all Damage caused to Businesses
and not just a selective part - which appears case currently ? ;)

Look no further than recent Kiwifruit case / MPI and case arising from that

Of course to date, Govt are very very quiet on how the recent Covid leaks occurred
but that stance could easily change too ;)

Snoopy

18-09-2021, 06:08 PM

Without too much doubt, comparision of wage subsidies & resurgence against NPAT or bottom line is potentially a flawed comparison - as theoretically most outfits having seen a portion up to 80% of wages covered by subsidies, covering balance themselves plus say 18-20% Employment oncosts & add-ons (KS Employer Contribs, ACC Levies etc etc) will likely have red ink out of Lockdowns even after fixed $1500 resurgence x whatever number of Resurgence declarations.
A portion of ongoing fixed Overheads don't pay themselves or go away after all ;)

If at end of a period they come out in the black, that's after offset of any Lockdown residual losses and for my money is fair game for potential stakeholder distribution, if they wish .. ;)

to make it absolutely clear -

BOTTOM LINE is after Residual Covid WEEK'S Losses incurred deducted (ie Net Costs & Outgoings after deducting any Subsidies)

Because there is a positive Bottom line does not mean there weren't Covid Loss Weeks (after Subsidies offset) in the period offset by normal trading weeks in Profit

It is absolutely FLAWED THINKING to try to suggest because Wage Subsidies were received there should not be a profit for overall Reporting Period or for that matter potentially a Dividend considered for Payment.

Well you wouldn't have been too impressed with the dividend declared on last years result then. Look what happens when you take the wage subsidy out of the declared profit figures.

FY2021HY2021 +2HY2021= FY2021

Declared NPAT less Impairment0.72 x $7,000 + $3.712m = $8.752m
$2.485m
0.72 x $7,000 + $6.197m = $11.237m

less Wage Subsidy0.72 x $11.000m= $7.920m
$16.073m
0.72 x $33.323m = $23.993m

equals Earned NPAT$0.832m
-$13.588m
-$12.756m

The financial year for 2021 ended on 31st March 2021, and the dividend of 8.2cps (fully imputed) on 33.808m shares = $2.772m was paid out on 30th June 2021.

SNOOPY

nztx

18-09-2021, 06:27 PM

Well you wouldn't have been too impressed with the dividend declared on last years result then. Look what happens when you take the wage subsidy out of the declared profit figures.

HY20212HY2021FY2021

Declared NPAT less Impairment0.72 x $7,000 + $3.712m = $8.752m
$2.485m
0.72 x $7,000 + $6.197m = $11.237m

less Wage Subsidy0.72 x $11.000m= $7.920m
$16.073m
0.72 x $33.323m = $23.993m

equals Earned NPAT$0.832m
-$13.588m
-$12.756m

SNOOPY

Snoops - you really should also add back the Costs covered by the subsidies as well to
come out with a more realistic comparison, if extracting subsidies .. ;)

The only costs borne by the Company are the Net residual expenses not covered by any subsidies received ..

As no dividend for FY 2020 & Int 2021 - perhaps we need to look at adding further time periods in ? ;)

Look no further than at NWF - Surplus Cashflow seems okay there - dividend no problem .. ;)

(past x years coverage by NWF NPAT not covering dividends from what I remember )

Snoopy

18-09-2021, 07:24 PM

Snoops - you really should also add back the Costs covered by the subsidies as well to
come out with a more realistic comparison, if extracting subsidies .. ;)

The only costs borne by the Company are the Net residual expenses not covered by any subsidies received ..

Yes I agree that all subsidies should be removed to evaluate 'unsubsidised profit'. But what about private sector subsidies? There were some private landlord rent discounts I believe. But I don't recall those being disclosed in dollar terms and I am fairly sure they would be trivial compared to the more that $33m in wage subsidies. Another way of looking at this angle would be to note that rent reductions in the private sector would have improved the government's tax take via reducing Accordant's expenses for the year.

As no dividend for FY 2020 & Int 2021 - perhaps we need to look at adding further time periods in ? ;)

Fair point. Profit declared for FY2020 was $2.677m with no dividend declared. That is a pretty close match for the dividend declared over FY2021 which you could think of as a 'deferred dividend' from the previous year.

However, if I follow through on your logic, which means that $33m wage subsidy deficit (plus whatever is tacked on for this year) should be earned back before any dividend distributions occur going forwards from now, I feel the 'dividend drought' for shareholders might extend five years. Let me know if you stand for the Accordant board nztx. I This dividend hound will make sure you do not get my vote!

Look no further than at NWF - Surplus Cashflow seems okay there - dividend no problem .. ;)

(past x years coverage by NWF NPAT not covering dividends from what I remember )

But did NWF even apply for a wage subsidy? I don't think any of the big four gentailers did.

SNOOPY

nztx

18-09-2021, 08:09 PM

Yes I agree that all subsidies should be removed to evaluate 'unsubsidised profit'. But what about private sector subsidies? There were some private landlord rent discounts I believe. But I don't recall those being disclosed in dollar terms and I am fairly sure they would be trivial compared to the more that $33m in wage subsidies. Another way of looking at this angle would be to note that rent reductions in the private sector would have improved the government's tax take via reducing Accordant's expenses for the year.

Fair point. Profit declared for FY2020 was $2.677m with no dividend declared. That is a pretty close match for the dividend declared over FY2021 which you could think of as a 'deferred dividend' from the previous year.

However, if I follow through on your logic, which means that $33m wage subsidy deficit (plus whatever is tacked on for this year) should be earned back before any dividend distributions occur going forwards from now, I feel the 'dividend drought' for shareholders might extend five years. Let me know if you stand for the Accordant board nztx. I This dividend hound will make sure you do not get my vote!

But did NWF even apply for a wage subsidy? I don't think any of the big four gentailers did.

SNOOPY

What I'm really saying is no need to adjust for Subsidy received or the expenses - since Govt
through the subsidies picked up the tab for a % - leaving the net difference as an expense
for AGL in the affected weeks.

If you must adjust anything - by taking out subsidies then a similar amount these were intended
to cover needs to be adjusted for on the other side

Lockdowns were not a product of anything AGL probably wished for but bar excess costs
possibly should be considered Govt prescribed jogging on the spot

Reporting wise - I'm a fan of the subsidies not being reported as a Revenue item but taken
in as an expense reduction - that way the Net expense items only are reported, which helps
in understanding AGL's net cost after these things are taken into account.

I think AGL probably have Profitable weeks in next / current upcoming reporting period.
Residual net losses from Lockdown weeks will be deducted arriving at in the overall bottom line

From this we can see productive revenue when they were open

I remain optimistic that there will still be sufficient spare cashflow surplus and business written
that there will be prospect of a dividend - there weren't as many weeks in the current lockdowns
to make as much difference as in 2020-21 periods after all.

I suspect NWF may not have applied for subsidy.
Inclusion is merely to point out that some entities not necessarily consider NPAT for their dividends
just surplus cashflow & covering reasonable future cash needs.

Maybe AGL are looking at things this way as well ?
As you point out - in differences between AGL NPAT & Cashflow, with amortisation etc etc.

Snoopy

18-09-2021, 09:47 PM

What I'm really saying is no need to adjust for Subsidy received or the expenses - since Govt through the subsidies picked up the tab for a % - leaving the net difference as an expense for AGL in the affected weeks.

If you must adjust anything - by taking out subsidies then a similar amount these were intended to cover needs to be adjusted for on the other side.

So what you are saying here is that you would take the subsidies out of the income statement, but also take the wages and salaries that those subsidies paid for out of the company expenses. So the crown would be removed from both the income and expense side of the income statement. If the subsidy did not fully cover the wages, then Accordant would add in a 'supplementary wage expense' to the company expenses.

That sounds like a logical alternative way to account for things. But what this method does is externalize labour costs. This strikes me as an odd way to record how do business, even if that is - what in effect - happening here under the 'wage subsidy policy.

Lockdowns were not a product of anything AGL probably wished for but bar excess costs possibly should be considered Govt prescribed jogging on the spot

'Grant Robertson' = 'Minister of Jogging on the Spot'. I wonder if he would accept that title? I quite like it!

Reporting wise - I'm a fan of the subsidies not being reported as a Revenue item but taken in as an expense reduction - that way the Net expense items only are reported, which helps in understanding AGL's net cost after these things are taken into account.

I think AGL probably have Profitable weeks in next / current upcoming reporting period. Residual net losses from Lockdown weeks will be deducted arriving at in the overall bottom line

From this we can see productive revenue when they were open

I remain optimistic that there will still be sufficient spare cashflow surplus and business written that there will be prospect of a dividend - there weren't as many weeks in the current lockdowns to make as much difference as in 2020-21 periods after all.

I am not sure you can break things down to 'open' and 'closed' as tidily as that. Contracts to search and appoint senior leaders may last for many months by the time the right person is found', winds up their existing job, and transitions to their new role. Lower skilled jobs could involve organizing island labour - again over a period of many months.

I suspect NWF may not have applied for subsidy.
Inclusion is merely to point out that some entities not necessarily consider NPAT for their dividends just surplus cashflow & covering reasonable future cash needs.

Maybe AGL are looking at things this way as well ? As you point out - in differences between AGL NPAT & Cashflow, with amortisation etc etc.

No doubt about it. AGL have been paying out on cashflow, rather than profit, for some time.

SNOOPY

Snoopy

29-09-2021, 11:40 AM

You would have to assume that possibly the greatest wage subsidy recipient on the NZX (in relation to its size anyway) is once again puckering up the government teat, and good on them. They are a labour company after all. And if the government has taken away their people's right to work, it is only fair that the government should look after those people via the wage subsidy.

The 2020 lockdowns actually worked out OK for Accordant. The wage subsidy allowed them to divert what other cashflow the company had towards retiring debt. I am hoping the same might happen again.

From Simon Bennett's AGM address:

"AWF income dropped by over 50%, notwithstanding large numbers of workers being placed with Countdown. The business took up the initial 2-week wage subsidy to pay over 1000 workers, however, has not qualified for subsequent subsidy extensions."

So $20 per hour for 1,000 workers over 40 hours for two weeks equals:

$20 x 40 x 2 x 1,000 = $1.6m of wage subsidy coming on board (and going straight out to the workers while actual income is diverted to pay other bills)

Other divisions appear to be doing well enough not to get the wage subsidy. Maybe last years 'cost out' drive has truly given the company a sustainable smaller cost footprint?

If so, I believe that Accordant could emerge from CY2021 near to debt free. This will be great for the resilience of the company going forwards.

Net Debt Position at EOFY 2021 (31-03-2021): $15m -$1.795m = $13.205m

According to 'The Bennster's' address the end of June, the 'net debt' position is still $13.2m. So no change, a bit disappointing when first half cashflows have traditionally been strongly positive (see my post 890).

What is not so good is how the effect of this lock down, and possibly other future lock downs, will affect the confidence of the business world going forwards. It could be there is more of a trend towards temporary workers, as a way to manage the corporate cost structure. If this happens, it could signal 'good times' for Accordant. They actually do better when the business climate is just a little off ideal.

The Bennster:

"Many clients have fewer tools to reach candidates, when job boards are not working as well. This is driving client demand significantly across our businesses where the strength of our brands, candidate reach, and marketing resources result in successful candidate placements."

"JacksonStone is performing ahead of expectations."

- Sounds positive

"Madison is benefiting from the strength of the employment market and some large projects. The mix has skewed away from temp towards permanent recruitment, as a result of client demand and shortage of temp candidates. This has increased resilience to the drop-off in some temp numbers during the recent lockdown."

- The weakness of the temporary worker market and the strength of permanent recruitment is the opposite of what I thought would happen. The overall net effect sounds slightly negative, despite higher margins being earned on permanent placements.

"Absolute IT perhaps has the greatest potential with the strength of its market. The business is trading at good levels, but needs to grow consultant numbers and build more capability."

- A bit of a neutral comment?

My big question mark is not that there will cease to be a demand for good workers. But will Accordant be able to source the workers they and their customers need, particularly those island workers, while the travel bubble from the islands for such workers gets pushed back?

The Bennster:

"AWF recovered well last year, with significant client demand, however could not meet this demand due to declining candidate availability. Blue collar temp work is becoming increasingly difficult with the closed borders, resulting in lack of both migrant workers and working holiday travellers. AWF is adapting to this change in market but not as quickly as in the white collar businesses, and is significantly affected by level 4 restrictions."

My worst fears confirmed :-(

The problem with this picture is that over FY2021, the segmented result shows AWF contributing more than twice the EBIT contribution compared to all the other divisions combined. While AWF remains constrained (notice I did not use the phrase 'in trouble'), it will be a big ask for the whole group's profit to recover to pre-Covid-19 levels. Nevertheless dividends flow from cashflows. While we are not given figures, the indicative range of the projected interim dividend (dropping from a baseline average of 8cps to 6.5cps - a 19% drop) indicates the drop in profitability of the 'blue collar' business has not been made up by the 'white collar' business improvements.

I think border bubbles with the islands are going to be crucial in determining the fortunes of AGL over the second half.

IOW job advertisements going up is not necessarily a good sign for Accordant, if they can't fill those positions.

Straight from the mouth of "the Bennster."

"Very different market to last year. We are seeing rapid growth in hiring intentions, increase in job advertisements and a decrease in application numbers to each of the adverts. "

This means looking at 'the uptick' in overall job advertisements is no longer an indication of increased profitability at AGL :-(

The Bennster:
"Seeing internal staff targeted by competitors and clients alike - retention and growth of our people is of considerable focus."

Translation "Significant pay increases for our employees will be needed"

As well as the interim dividend being cut from what was projected, I wouldn't be surprised now to see the final dividend cut as well. Nevertheless the market may be reassured that both interim and final dividends look 'back on the table'. Given the share price has already been discounted AGL shares from their former trading range, this may be enough to stabilize the share price near current levels. But I don't see a genuine 'push forward' in the share price from here coming any time soon!

SNOOPY

discl: holder

nztx

27-10-2021, 05:33 PM

From far above I smell a sneaky dividend on the way .. far from the Dividend lists so far ;)

Discl: holder

Snoopy

27-10-2021, 08:06 PM

With Accordant announcing the reinstatement of dividends, it is worthwhile looking at how the dividend recapitalisation valuation model updates. While doing this I need to remind readers of the crudeness of this model. All I am doing is looking at the actual dividend per share paid over the last five years and projecting that forward over the next five years. Whether actual earnings over the next five years will allow such dividend payments is another matter. The cancelling of dividends during the year following the Covid-19 arrival is reflected forwards too. But as a counter to this I have not backed out any wage subsidy which I am currently forecasting will not be repeated.

epsdps (imputed)

FY201719.68.0 + 8.0

FY201815.88.2 + 8.0

FY20196.28.2 + 8.0

FY20209.48.2 + 8.0

FY202118.10.0 + 0.0

FY2022?8.2 + ?

Total69.164.8

5 year Average13.0

The non payment of dividends over FY2020 plus the government wage subsidy has allowed the Accordant debt to come under control. So unlike my previous attempt at this exercise (my post 822) , I am no longer expecting a cash issue to shore up the balance sheet.

Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

= (13.0c / 0.72) / 0.08 = $2.26

discl: Not yet buying more on the strength of just this.

epsdps (imputed)

FY201815.88.2 + 8.0

FY20196.28.2 + 8.0

FY20209.48.2 + 8.0

FY202118.10.0 + 0.0

FY2022?8.2 + 6.5

Total?63.3

5 year Average12.7

Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

= (12.7c / 0.72) / 0.08 = $2.20

I see the share price was bid up as high as $1.99 for the half year results announcement, but then closed on its low at $1.92 with a big gap down to the next buyer at $1.75. Nice December divie for Christmas, although it was at a lower level compared to pre-Covid years, dropping from 8c to 6.5c. Maybe the market expected more? I didn't, but am happy to keep holding.

SNOOPY

percy

27-10-2021, 09:20 PM

I sold our holdings in AWF a few days ago.
Felt the labour hire business was at maturity, and was doubtful of the growth prospects for Madison.
Had held for a number of years.

Above posted 16/07/2015.
From Yahoo charts it looks as though I sold at $2.45.
Interesting to note just over 6 years later the share price is $1.92 [today].
So has been a serial under performer since then.Could say "the lost years."

nztx

27-10-2021, 09:23 PM

Snoopy

27-10-2021, 09:55 PM

Above posted 16/07/2015.
From Yahoo charts it looks as though I sold at $2.45.
Interesting to note just over 6 years later the share price is $1.92 [today].
So has been a serial under performer since then.Could say "the lost years."

I still remember when I got that call back in 2015 from my own sharebroker. 'Mr Big' selling out of AWF (as it was then). If I wanted a 'slice of the placement action' please get back to my broker in the next few days. I remember scrambling through some old annual reports, just to get the feel of things, before saying 'Yes ' 'Yes'. I didn't realise the guy I was buying off was - 'that' - big though! I mean, Percy, otherwise known in heavy hitting trading circles as 'The Purse'! If I had known who was on the other side of that transaction, I might not have bought in!

Nevertheless it hasn't been all bad. I managed the old averaging down trick to reduce my initial buy in price from around $2.30 to just over $2 today. Then there were all those fully imputed divvies over the years:

8.0c, 7.2c, 8.0c, 8.0c, 8.2c, 8.0c, 8.2c, 8.0c, 8.2c, 8.0c, 8.2c

I total that up to be 88c after six years. So not one of my greatest investments. But still a pretty good stream of income over the years (bar the year of Covid's arrival)

Hats off to 'The Purse' though, for getting his timing right. I bet he didn't pay anything like $2.45 for those shares he sold!

SNOOPY

percy

27-10-2021, 10:07 PM

I still remember when I got that call back in 2015 from my own sharebroker. 'Mr Big' selling out of AWF (as it was then). If I wanted a 'slice of the placement action' please get back to my broker in the next few days. I remember scrambling through some old annual reports, just to get the feel of things, before saying 'Yes ' 'Yes'. I didn't realise the guy I was buying off was - 'that' - big! I mean Percy otherwise known in heavy hitting trading circles as 'The Purse'! If I had known who was on the other side of that transaction, I might not have bought in!

Nevertheless it hasn't been all bad. I managed the old averaging down trick to reduce my initial buy in price from around $2.30 to just over $2 today. Then there were all those fully impute divvies over the years:

8.0c, 7.2c, 8.0c, 8.0c, 8.2c, 8.0c, 8.2c, 8.0c, 8.2c, 8.0c, 8.2c

I total that up to be 88c after six years. So not one of my greatest investments. But still a pretty good stream of income over the years (bar the year of Covid's arrival)

Hats off to 'the purse' though, for getting his timing right. I bet he didn't pay anything like $2.45 for those shares he sold!

SNOOPY
No I followed Ian "THE REAL" purse in,and even a few years later bought into his beloved SCT.[Realised I had made a mistake and sold].
Can't recall what price I paid,but enjoyed some divies.
At the time I bought I think David Odlin and Kevin Hickman were in the top 10 or 20 shareholders.Both astute investors.
I think in hindsight the under performance was caused by the major shareholder not wanting to have his holding deluted,and perhaps the chairman not being a "gifted" businessman.
Or it could be just a difficult sector to operate in,with no real barrier to new entrants.

Snoopy

28-10-2021, 02:13 PM

No I followed Ian "THE REAL" purse in,and even a few years later bought into his beloved SCT. [Realised I had made a mistake and sold].

You mean Ian Urquhart don't you? I can't believe it is now over ten years since he left us.

http://www.stuff.co.nz/business/4166714/Habitual-investor-was-mentor-in-field

The article doesn't say so, but I think Ian made his first fortune as an early investor in Brierley Investments. He used to dress very casually, a smart T-Shirt and shorts were favoured attire IIRC. Some attending the Scott's AGM in Christchurch thought he was the janitor, with little awareness that the total value of his Scott's holding was more than the sum total of all other shareholders at the meeting put together! Very much his own man. Can't say I knew him well. But from what I did see, he seemed a top bloke.

There is still a chance to correct your SCT mistake Percy. You will be welcome back onto the SCT share register at any time :-)

Can't recall what price I paid,but enjoyed some divies.
At the time I bought I think David Odlin and Kevin Hickman were in the top 10 or 20 shareholders.Both astute investors.
I think in hindsight the under performance was caused by the major shareholder not wanting to have his holding diluted,

Yes, despite stepping back from day to day management, the Hullster (a.k.a. company founder Simon Hull) retains a controlling 53% shareholding, via his trust, to this day. He talked about selling down at some point in the future. But I guess we are not at that point yet! Acquisitions have tended to be debt funded. And if those acquisitions do not perform as expected, the company can come under 'financial scrutiny'.

As it stands, liquidity in AGL is diabolical for a share trader. But as a share investor I can cope.

and perhaps the chairman not being a "gifted" businessman.

Maybe not gifted, but makes up for it in his keenness (the only director to buy on market since 'the recent troubles') or at least 'Keenenness'. I will be a little sorry to see Ross go. It was a shame not see see him walk out of his last AGM wearing a ceremonial hard hat and hi-vis vest (like fellow former director Uncle Ted did a couple of years back), and drive away in his Honda Accord with a dent..

Or it could be just a difficult sector to operate in,with no real barrier to new entrants.

Yes renting a small office and prancing around in flowery shirt seems to be the main ingredients in moving into the 'fit the worker for the job' business model these days. I guess it explains why restraint of trade clauses are de rigeur when make an acquisition in this business space?

SNOOPY

percy

28-10-2021, 02:26 PM

You mean Ian Urquhart don't you? I can't believe it is now over ten years since he left us.

http://www.stuff.co.nz/business/4166714/Habitual-investor-was-mentor-in-field

The article doesn't say so, but I think Ian made his first fortune as an early investor in Brierley Investments. He used to dress very casually, a smart T-Shirt and shorts were favoured attire IIRC. Some attending the Scott's AGM in Christchurch thought he was the janitor, with little awareness that the total value of his Scott's holding was more than the sum total of all other shareholders at the meeting put together! Very much his own man. Can't say I knew him well. But from what I did see, he seemed a top bloke.

There is still a chance to correct your SCT mistake Percy. You will be welcome back onto the SCT share register at any time :-)

Yes, despite stepping back from day to day management, the Hullster (a.k.a. company founder Simon Hull) retains a controlling 53% shareholding, via his trust, to this day. He talked about selling down at some point in the future. But I guess we are not at that point yet! Acquisitions have tended to be debt funded. And if those acquisitions do not perform as expected, the company can come under 'financial scrutiny'.

As it stands, liquidity in AGL is diabolical for a share trader. But as a share investor I can cope.

Maybe not gifted, but makes up for it in his keenness (the only director to buy on market since 'the troubles') or at least 'Keenenness'. I will be a little sorry to see Ross go. It was a shame not see see him walk out of his last AGM wearing a ceremonial hard hat and hi-vis vest like fellow director Uncle Ted did a couple of years back.

Yes renting a small office and prancing around in flowery shirt seems to be the main ingredients in moving into the 'fit the worker for the job' business model these days. I guess it explains why restraint of trade clauses are de rigeur when make an acquisition in this business space.

SNOOPY
Yes Brierley shares set him up.
Ian was a very honest friendly modest man.I rang him one time asking his advice on Ebos.Really helpful.Used to run into him at ChCh based company's agms.
Always in Jandels.At an Ebos agm he was asked whether he had helped himself to shoes from a clothing bin,as it was the first time any one had seem him wearing shoes.lol.
Also big holding in South Port and Nuplex.

Snoopy

28-10-2021, 07:57 PM

Not wishing to muck up your Div figures, but -

the 8.0 cps paid on 29 Nov 2019 was interim for 2019/20 year
No final was paid/declared

the 8.2 cps paid 30 Jun 2021 was final for 2020/21 year
No interim was paid/declared

the upcoming 6.5 cps payable (I imagine) in November 2021 will be interim for 2021/22 year

It perhaps helps to tie in relative to each year's EPS which they belong to, rather than when they are paid out :)

Your observations are astute and correct nztx. However, a cold hard fact is that 'this years final dividend' comes out of 'next years bank balance'. If you want to find out how much money a company retains on its books at the end of the financial year, you have to take this years earnings and subtract from that this years interim dividend and last years final dividend. That is why I present the dividend figures as I do. Of course when doing a capitalised dividend valuation the amount of earnings retained does not matter. But it does matter in some alternative valuation techniques. I like to keep things consistent across different valuation methods, which is why I present the dividends grouped in the way I do.

If we followed your method of presenting the dividends adjacent to the year in which the earnings ostensibly used to pay the dividends were actually earned, then the dividend table would look like this.

epsdps (imputed)

FY201719.6NM + 8.2

FY201815.88.0 + 8.2

FY20196.28.0 + 8.2

FY20209.48.0 + 0.0

FY202118.10.0 + 8.2

FY2022?6.5 + ?

Total?63.3

5 year Average12.7

There is nothing wrong with laying out the dividends in this way. It is equally valid to the layout methodology that I choose. However, both methods are just different ways of presenting the same figures. Whatever presentation method you choose, makes no difference at all to the capitalised dividend valuation result.

SNOOPY

nztx

28-10-2021, 10:53 PM

Your observations are astute and correct nztx. However, a cold hard fact is that 'this years final dividend' comes out of 'next years bank balance'. If you want to find out how much money a company retains on its books at the end of the financial year, you have to take this years earnings and subtract from that this years interim dividend and last years final dividend. That is why I present the dividend figures as I do. Of course when doing a capitalised dividend valuation the amount of earnings retained does not matter. But it does matter in some alternative valuation techniques. I like to keep things consistent across different valuation methods, which is why I present the dividends grouped in the way I do.

If we followed your method of presenting the dividends adjacent to the year in which the earnings ostensibly used to pay the dividends were actually earned, then the dividend table would look like this.

epsdps (imputed)

FY201719.6NM + 8.2

FY201815.88.0 + 8.2

FY20196.28.0 + 8.2

FY20209.48.0 + 0.0

FY202118.10.0 + 8.2

FY2022?6.5 + ?

Total?63.3

5 year Average12.7

There is nothing wrong with laying out the dividends in this way. It is equally valid to the layout methodology that I choose. However, both methods are just different ways of presenting the same figures. Whatever presentation method you choose, makes no difference at all to the capitalised dividend valuation result.

SNOOPY

Thanks Snoops .. the logic in my suggestion is that the Board will only ever have actual figures for the preceding
Reporting period to base their considerations on the company's trading on, for the distribution.

The company clearly defines the distributions as an Interim or Final in NZX Reporting, nevertheless cash
from the new period may be intermingled in the payouts - such as a final div after period end

I note that the interim reported EPS for 6 months ended 30 Sep 2021 was 4.9 cps (page 9)

If we add back Depreciation & Amortisation for 6 months Net of Tax, we arrive at 9.735 cps
which suggests the cash was or should have been in the balance sheet at 30 Sep to fully cover
the interim 6.5 cps distribution quite comfortably :)

Hats off to AGL - not even end of month following 30 Sep 2021 yet & they have produced interim unaudited
accounts & presentation & have released these.

Snoopy

29-10-2021, 08:27 AM

Finance Period
Operational Cashflows
'Dividend Declared' minus 'DRP Reinvestment' (1)

HY2015
$8.330m
($1.986m)

2HY2015
($2.145m)
($1.916m)

HY2016
$6.495m
($2.660m)

2HY2016
($4.437m)
($2.392m)

HY2017
$11.399m
($2.636m)

2HY2017
($3.773m)
($2.602m)

HY2018 (1)
$11.879m
($2.476m)

2HY2018
($0.370m)
($2.645m)

HY2019
$6.143m
($1.931m)

2HY2019
$3.334m
($1.906m)

HY2020
$6.875m
($1.959m)

2HY2020
$3.014m
($1.919m)

HY2021
$21.950m
Nil

2HY2021
($0.053m)
Nil

HY2022
?m
($2.815m)

Notes

(1) From the HY2018 dividend, the 'capital preserving' dividend reinvestment plan was introduced.

I have used 'operational cashflows' because I believe that best reflects the picture of the on
going business as a going concern.

My main concern with holding AGL as a 'good dividend payer' is that if the expectation is for the restoration of a dividend of 16.2cps, as was the case pre-Covid-19, is that this dividend rate was well ahead of profits over FY2019 and FY2020. The reason that paying dividends greatly exceeding profits has happened in the recent past is that cashflow has supported this. And this 'extra cashflow' is largely determined by the amortisation of both 'Customer relationships' and 'Restraint of Trade' assets. If you look on p48 of AR2021 you will see that both of these amortisations have almost 'played out' (a total of $3.379m or 9.8cps left). Thus it would seem obvious that looking out beyond FY2022, dividends will be more closely tied to operational profits. Unless annual profits rise to around $6m per year on a consistent basis (a figure well beyond recent profitability), then dividends from FY2023 onwards could reduce.

I have to admit to being a little slow at getting my head around this cashflow thing. I have Winner to thank for pushing me into re-educating myself on this matter. The table below shows how despite dividends being frequently ahead of profits, Accordant has been able to maintain what I would have once regarded as 'over the top dividend payments' before, quite comfortably.

Finance Period
Operational Cashflows
'Dividend Declared' minus 'DRP Reinvestment' (1) (2)

HY2015
$8.330m
($1.986m)

2HY2015
($2.145m)
($1.916m)

HY2016
$6.495m
($2.660m)

2HY2016
($4.437m)
($2.392m)

HY2017
$11.399m
($2.636m)

2HY2017
($3.773m)
($2.602m)

HY2018 (1)
$11.879m
($2.476m)

2HY2018
($0.370m)
($2.645m)

HY2019
$6.143m
($1.931m)

2HY2019
$3.334m
($1.906m)

HY2020
$6.875m
($1.959m)

2HY2020
$3.014m
($1.919m)

HY2021
$21.950m
Nil

2HY2021
($0.053m)
Nil

HY2022 (2)
$5.654m
($2.865m)

2HY2022
$?m
($2.231m)

Notes

(1) From the HY2018 dividend, the 'capital preserving' dividend reinvestment plan was introduced.
(2) From HY2022, the period in which the final dividend from FY2021 was paid, the dividend reinvestment plan was suspended.

Since FY2019 you can see that dividends have well exceeded cashflows. Prior to that we had the rather strange phenomenon of lots of cashflow in the first half of the year, more than fully covering the dividend for both halves. I hope this trend does not continue, because operational cashflow for the first half has now dropped to an eight year low! To try and understand this, I think it is worthwhile to look at Accordant's amortisation expenses over the last few years.

SNOOPY

Snoopy

29-10-2021, 09:48 AM

Since FY2019 you can see that dividends have well exceeded cashflows. Prior to that we had the rather strange phenomenon of lots of cashflow in the first half of the year, more than fully covering the dividend for both halves. I hope this trend does not continue, because operational cashflow for the first half has now dropped to an eight year low! To try and understand this, I think it is worthwhile to look at Accordant's amortisation expenses over the last few years.

Annual Amortisation Table

During The YearComputer SoftwareCustomer Relationships {A}
Restraint of Trade {B}Sub Total {A}+{B}

FY2014Madison acquired($0.230m)($0.936m)
($0.031m)($0.967m)

FY2015($0.275m)($1.788m)
($0.073m)($1.861m)

FY2016($0.289m)($1.746m)
($0.074m)($1.820m)

FY2017AbsoluteIT acquired($0.480m)($1.659m)
($0.133m)($1.792m)

FY2018($0.238m)($1.937m)($0.217m)($2.154m)

FY2019Select (Dunedin) acquired($0.350m)($1.956m)($0.218m)($2.174m)

FY2020JacksonStone acquired($0.356m)($1.665m)($0.477m)($2.142m)

FY2021($0.228m)($0.874m)
($0.492m)($1.366m)

When I think of of 'Intangible Assets', I think of something esoteric that -over time- can be expected to 'fritter itself away' in a non-cash way. This idea doesn't really apply to 'computer software' which is a 'real asset' (except in the sense you cannot touch it or hold it in your hand) that does 'wear out' and must be periodically replaced. So computer software is generally not a source of cashflow that can be spent, without the thought of putting aside some equivalent money for its potential replacement. For this reason, I have omitted software amortisation from my sub total of 'amortisation that is available to be spent' (on dividends!), without compromising the future of the company.

There is a pattern in the above table, when the year after an acquisition is made, the 'restraint of trade' amortisation for the year tends to go up. This does make sense because the year after you buy a company, that is the first full year that new restraint of trade arrangements are fully on the books. You might think that same reasoning should apply to 'Customer Relationships', namely:

a/ An ongoing relationship with customers that is clearly identifiable and is liable to lead to extra profits that
b/ would other wise not have occurred had the business not been purchased.

However, restraint of trade assets would have a 'contractual expiry date' not related to ongoing business performance. By contrast the ongoing boost in profitability from customer relationships would have to be individually assessed with each business unit purchase. Some business relationship assets may be inherently shorter term than others.

What we can learn from this table is that from FY2021, and by extrapolation over FY2022 as well, is that the sub total of 'intangible write offs' that can be used to top up dividends is significantly reduced, now down to:

$1.366m / 34.326m = 4.0cps 'per year'

Perversely that still sounds like 'quite a bit' ;-)

SNOOPY

Snoopy

29-10-2021, 12:39 PM

I note that the interim reported EPS for 6 months ended 30 Sep 2021 was 4.9 cps (page 9)

If we add back Depreciation & Amortisation for 6 months Net of Tax, we arrive at 9.735 cps which suggests the cash was or should have been in the balance sheet at 30 Sep to fully cover the interim 6.5 cps distribution quite comfortably :)

Depreciation & Amortisation expense for HY2022 is reported as $2.573m. At EOFY2021, there were 34.326m AGL shares on issue. So I get an 'incremental cash available' figure for the half year of:

0.72x$2.573m / 34.326m = 5.4cps

Add to that the declared NPAT for the period and I get: 4.9cps + 5.4cps = 10.3cps

Same conclusion as NZTX though: It covers the interim 6.5 cps distribution quite comfortably.

Nevertheless, I would look at the ability to pay dividends a little differently. Depreciation consists of 'Property Plant and Equipment' depreciation (motor vehicles, fixtures and equipment and leasehold improvements) and 'Depreciation of Property Leases' (the equivalent of what accountants used to call rent). IOW the depreciation on the books represents items that do wear out and will need to be replaced. Unless you are thinking really short term, it is in my view, misleading to think of the depreciation as a medium term source of cash. Likewise I would not add back the amortisation of computer software for the same reason.

Referencing my post 952, I think the amount of amortisation that is available to be distributed to shareholders is 4.0cps per year, or 2.0cps per half year. Still 4.9cps + 2.0cps = 6.9cps is still enough to cover a 6.5cps dividend.

There is another aspect of 'eps' that has not yet been discussed though: The 'fair value loss' on contingent consideration of $0.585m (HYR2022 Income Statement). From p20 of HYR2020, this 'loss' is actually a bonus payment to be made to JacksonStone founders, because that business has been performing better than expected. From an Accordant perspective of building the Accordant business in the future, this is good news. So I would 'look through' this charge and see underlying half year earnings of:

$1.663m + 0.72($0.585m) = $2.084m or in per share terms $2.084m / 34.236m = 6.1cps (c.f declared dividend of 6.5cps).

Referring back to my full year forecast (post 623), we are little behind by expected run rate ($6.5m for the year or $3.25m for the half year). So can we close the earnings gap to cover the dividend in future years? Remember the amortisation boost that we shareholders have been relying on to boost dividends for the last few years is fizzling out.

There is one positive sign from this half year. My adjusted net profit margin for HY2022 is:

$2.084m / $110.447m = 1.9%

This is better than achieved over FY2018 (1.8%), FY2019 (0.78%) and FY2020 (1.2%) (albeit well below the freak circumstances of FY2021). -I am referencing my post 889 as I say this-.

SNOOPY

winner69

29-10-2021, 01:10 PM

Snoops - you've got me completely confused and dumbfounded about what you trying to show in your last couple of posts

Never mind, my loss

Snoopy

29-10-2021, 01:27 PM

Snoops - you've got me completely confused and dumbfounded about what you trying to show in your last couple of posts

Never mind, my loss

Sorry, set off in the ship without telling the crew where I wanted to go. I am trying to figure out how sustainable the level of dividend is going forwards Winner. If you read posts 952 and 953 in that light, they might make more sense.

SNOOPY

Snoopy

30-10-2021, 08:08 AM

That is the concept I have called MDRT (Minimum Debt Repayment Time). I wouldn't be quite as 'exclusive' in eliminating potential investment candidates as Buffett. Especially in his time of ultra low interest rates.

'MDRT' is the answer to the question:

"If all profits for the year were put towards paying off the company's debts, how long would that take?"

My rule of thumb for the answer in years is:

years < 2: Company has low debt
2< years <5: Company has medium debt
5< years <10: Company has high debt
years >10: Company debt is cause for concern

FY2015FY2016FY2017[/TD]FY2018
FY2019FY2020

Significant EventFirst full year owning Madison[/u][/TD]First full year owning AbsoluteIT
JacksonStone Acquired

Cash & Cash Equivalents: {A}
$3.151m
$0.0m
$1.225m
$6.269m
$6.357m
$6.178m

Non Current Borrowings:
$0.0m
$18.500m
$18.500m
$36.000m
$33.000m
$36.000m

add Current Borrowings:
$21.759m
$2.500m
$0.0m
$0.0m
$0.0m
$0.0m

add Overdraft:
$0.0m
$0.870m
$0.108m
$0.0m
$0.0m
$0.0m

equals Total Borrowings: {B}
$21.759m
$21.870m
$18.608m
$36.000m
$33.000m
$36.000m

Total Net Borrowings: {B} - {A}
$18.608m
$21.870m
$17.323m
$29.731m
$26.643m
$29.822m

Net profit declared {C}
$5.416m
$5.202m
$5.867m
$5.048m
$2.013m
$2.677m

MDRT ({B} - {A}) / (C}
3.4 years
4.2 years
3.0 years
5.8 years
13.2 years
11.1 years

Laid out in this way it is a sad tale. AWF may be the largest recruitment company in NZ and it may now have four divisional cylinders to fire on. But every time a cylinder is added to the cylinder bank the spark plug that fires it appears to no longer run cleanly. Madison is in decline. AbsoluteIT is in decline and the former single cylinder stand alone power plant, AWF, definitely has a sooty plug. JacksonStone is the 'saviour' this year to complete the 'firing on all four cylinders' divisional quartet. But when you look at the additive result, the obvious question is:

"Where's the fire?"

I am probably being a bit unfair here because the principal reason behind what is now 'new normal ' profitability is AWF. The construction industry problems appear to have taken the wind out of what was this company's main driving sail. But the end result of going from a strong performing one cylinder motorbike five years ago to a 'flaccid four' today is more weight (overheads) and less performance (profit). It is enough for shareholders to think nostalgically about Simon Hull standing on the side of an Auckland Street loading the workers into a bus with a megaphone. But 'the Hullsters' approach is now history.

Today , under 'the Bennster', profitability has halved. So net debt should really be no more than half of what it was in 2015. That means we are looking at a cash issue of around $10m to fix the debt problem. Current market capitalisation is $50m, with the share price at $1.45. A 1:1 cash issue at $1 would raise approximately $30m. A 1:1 cash issue at $1.30 would raise approximately $40m. A 1:4 cash issue at $1.30 would raise approximately $10m. That's my pick on the way out.

That is the concept I have called MDRT (Minimum Debt Repayment Time). I wouldn't be quite as 'exclusive' in eliminating potential investment candidates as Buffett. Especially in his time of ultra low interest rates.

'MDRT' is the answer to the question:

"If all profits for the year were put towards paying off the company's debts, how long would that take?"

My rule of thumb for the answer in years is:

years < 2: Company has low debt
2< years <5: Company has medium debt
5< years <10: Company has high debt
years >10: Company debt is cause for concern

FY2017[/u][/TD]FY2018
FY2019
FY2020
FY2021

Significant Event
[/u][/TD]First full year owning AbsoluteIT
JacksonStone AcquiredCovid-19 takes hold

Cash & Cash Equivalents: {A}
$1.225m
$6.269m
$6.357m
$6.178m
$1.795m

Non Current Borrowings:
$18.500m
$36.000m
$33.000m
$36.000m
$15.000m

add Current Borrowings:
$0.0m
$0.0m
$0.0m
$0.0m
$0.0m

add Overdraft:
$0.108m
$0.0m
$0.0m
$0.0m
$0.0m

equals Total Borrowings: {B}
$18.608m
$36.000m
$33.000m
$36.000m
$15.000m

Total Net Borrowings: {B} - {A}
$17.323m
$29.731m
$26.643m
$29.822m
$13.205m

Net profit declared {C}
$5.867m
$5.048m
$2.013m
$2.677m
$6.197m

MDRT ({B} - {A}) / (C}
3.0 years
5.8 years
13.2 years
11.1 years
2.1 years

The doom and gloom that I predicted after the FY2020 result did not play out. My post 894 provides more detail as to what happened. The difference in trade receivables and trade payables shrunk by $4.311m over the year, indicating that operational debt was much more tightly controlled.

The $7m impairment charge against Madison was 'taken on the chin' at the same time as the wage subsidies came in. The net effect of this was that company income that would have gone towards paying wages, was instead diverted to paying down debt. IOW the $7m 'non cash asset' that was lost ended up being indirectly offset by 'real cash' that went into debt reduction while the government took care of the wage bill that , without Covid-19, the 'real cash' would have been required to fund. Indirectly, Accordant has been bailed out by the government is how I see what unfolded. I don't think any of my previous fears from FY2020 were unfounded. But sometimes shareholders just 'get lucky' is how I see the way the situation unfolded.

$7m + $4.311m = $11.311m goes a long way to showing how the debt position of the company turned around.

Add in around $5.5m of dividends 'not paid' to shareholders during the year and you can see how the reduction in debt happened.

However, government funding for FY2022 is likely not going to be as generous and dividends have resumed. How will the FY2022 business environment effect the indebtedness prospects for Accordant going forwards?

SNOOPY

percy

30-10-2021, 09:19 AM

Looks as though you are going to have to hand back a few years' dividends.

winner69

30-10-2021, 10:42 AM

Hey Snoops - we've discussed AGL debt / dividends a few times in the past. So I've updated my database to see what's happening.

Bear in mind I've preferred looking at cash movements rather than P&L and all those awful amortisation and depreciation things which muddy the waters

As I see it the numbers below -

- It seems that overtime they have been quite happy paying out most of FCF as dividends but generally retain a few bob
- they seem quite comfortable carrying a bit of debt - big reduction in 2021 eh. Leverage currently lowest its been for year
- acquisitions have been funded by debt and new capital .... and as you point out 'paying' some of that back

I have read the AR so wouldn't have a clue whether they have made comments about dividend policy or capital position. But it seems to me that can and will continue to pay most of FCF out as divies

Covid seems to have been a great thing for AGL - a cynic would say a lot of the wage subsidy went to the banks (better than to shareholders)

Cheers

Snoopy

30-10-2021, 11:03 AM

Thanks for the clue Winner (I presume you are referring to note C5).

RECONCILIATION OF NET PROFIT AFTER TAX TO CASH FLOWS FROM OPERATING ACTIVITIES

HY2020 (pcp)
HY2021
2HY2021 (calculated)FY2021

Net Profit After Income Tax {A}$1.321m
$3.712m
$2.485m$6.197m

Adjustments for operating activities non-cash items

Depreciation & Amortisation$3.285m
$2.618m
$2.668m$5.286m

Impairment$0m
$7.000m$0m$7.000m

Loss/(Gain) on disposal of Property Plant & Equipment$0.060m
$0.043m($0.005m)$0.038m

Movement in doubtful debt provision plus bad debt write off in current year$0.099m
$0.187m$0.151m$0.338m

Movement in deferred tax($0.506m)
($0.333m)($0.369m)($0.702m)

Equity Settled Share Based Payments$0.066m
($0.124m)$0.202m$0.078m

Interest on contingent consideration to the vendor of JacksonStone and Partners$0.0m
$0.062m($0.050m)$0.016m

Fair value movement on contingent consideration to the vendor of JacksonStone & Partners$0.0m
$0.000m($1.285m)($1.285m)

Total Non Cash Items {B}$3.004m
$9.453m$1.316m$10.769m

(Increase)/Decrease in trade receivables, and contract assets$5.185m
$28.587m$1.207m$29.794m

Increase/(Decrease) in trade payables, contract liabilities and provisions($2.657m)
($21.706m)($4.036m)($25.742m)

(Increase)/Decrease in taxation payable$0.022m
$1,904m($1.025m)$0.879m

Total movement in working capital {C}$2.550m
$8.785m($3.854m)$4.931m

Cash flow from operating activity {A}+{B}+{C}$6.875m
$21.950m($0.053m)$21.897m

HY2021 (1st April 2020 to 30th September 2020) is the period that covers most of the Covid-19 lock down period and the comparison with the pcp HY2020 is illuminating.

1/ The first point to note is the large $7m impairment charge, unique in HY2021, which is a non-cash item. However, I personally would not class a change in impairment as an 'operating item'. So while creating an impairment does affect cashflow, I am surprised that it changes 'operating cashflow'.

2/ Following down, the rest of the two columns of numbers are broadly similar, until we look at the decrease in trade receivables and the decrease in trade payables. This HY2021 period is concomitant with the first six months of the Covid-19 period where demand for hiring workers significantly reduced. With no new 'on the job demand', the need to pay those temp workers wages, who were not needed, rapidly decreased as well. So I can weave a story that makes the figures look like they make sense. But why is the difference between the changes in 'jobs invoiced' and the changes in 'paid work to fulfill those jobs' so large between:

HY2021 ( $28.587m - $21.706m = $6.879m ) AND

HY2020 ( $5.185m -$2.617m = $2.568m ) ?

This imbalanced difference has boosted cashflow in HY2021 vs the pcp by $4.311m.

Combine this with the $7m impairment imbalance and we get a total imbalance of $11.311m. This certainly tallies with the lions share of increased operational cashflow from HY2020 to HY2021 ( $21.950m - $6.875m = $15.075m ). But it doesn't explain the inclusion of 'impairment' as an operational matter. Nor does it explain the dramatic increase in the difference between the 'accounts receivable balance' and the 'accounts payable balance' when we compare HY2021 and HY2020. The real reason for the sharp uptick in both as at HY2021 is that a 'Grant Income Receivable' is recorded in 'Trade & Other Receivables' and 'Deferred Grant Income' is recorded in 'Trade and Other Payables' in the comparative FY2020 year. These entries relate to the wage subsidy that was paid in advance.

Now Looking at 2HY2021

The other interesting point to note is that although the cash flow from operations was extraordinarily high for FY2021, for the second half of HY2021 cashflow was negative! That fact seems to have been washed aside with all the hype of the full year result.

Time to update this little exercise for HY2022, derived from Section C5 of the annual reports, and the equivalent information in the half yearly reports. Historically 'cashflow' has been more important that 'profit' in determining what the dividend might be for Accordant. So the first object of this exercise is to figure out how the cashflow is changing from (in this instance) half year to half year so we can try and predict where the dividend is going.

The second part of the exercise is to look at 'rolling profit' and 'rolling cashflow' over the twelve month period that includes 2HY2021 and HY2022. These figures can be used for checking banking covenants.

RECONCILIATION OF NET PROFIT AFTER TAX TO CASH FLOWS FROM OPERATING ACTIVITIES

HY2020
HY2021 (pcp)
2HY2021 (calculated)
HY2022

Net Profit After Income Tax {A}
$1.321m
$3.712m
$2.485m
$1.663m

Adjustments for operating activities non-cash items

Depreciation & Amortisation
$3.285m
$2.618m
$2.668m
$2.573m

Impairment
$0m
$7.000m
$0m
$0m

Loss/(Gain) on disposal of Property Plant & Equipment
$0.060m
$0.043m
($0.005m)
$0.002m

Movement in doubtful debt provision plus bad debt write off in current year
$0.099m
$0.187m
$0.151m
$0.045m

Movement in deferred tax
($0.506m)
($0.333m)
($0.369m)
($0.224m)

Equity Settled Share Based Payments
$0.066m
($0.124m)
$0.202m
$0.021m

Interest on contingent consideration to the vendor of JacksonStone and Partners
$0m
$0.062m
($0.050m)
$0.013m

Fair value movement on contingent consideration to the vendor of JacksonStone & Partners
$0m
$0m
($1.285m)
$0.585m

Total Non Cash Items {B}
$3.004m
$9.453m
$1.316m
j$3.015m

(Increase)/Decrease in trade receivables, and contract assets
$5.185m
$28.587m
$1.207m
$0.101m

Increase/(Decrease) in trade payables, contract liabilities and provisions
($2.657m)
($21.706m)
($4.036m)
$2.205m

(Increase)/Decrease in taxation payable
$0.022m
$1,904m
($1.025m)
($1.330m)

Total movement in working capital {C}
$2.550m
$8.785m
($3.854m)
$0.976m

Cash flow from operating activity {A}+{B}+{C}
$6.875m
$21.950m
($0.053m)
$5.654m

HY2021 (1st April 2020 to 30th September 2020) is the period that covers most of the Covid-19 lock down period. This is the prior comparative period of interest. But Covid-19 has distorted these six monthly figures, which is why I have included the figures from HY2020 as a somewhat more normalised comparison period.

1/ The first point to note is the significant difference in 'depreciation and amortisation' charge between HY2020 and subsequent half year periods. The break down of 'depreciation and amortisation' is not given in the half year reports. But from comparing AR2020 and AR2021, the one 'sub item' that has changed significantly is the amortisation of 'customer relationships'. This dropped from $1.665m to just $0.876m on an annual basis. Software amortisation fell by more than $100k over the year too. I had wondered whether there was a reduction in asset depreciation due to the centralising of some branch activities, in particular Madison sharing office space with AbsoluteIT. However, I cannot detect any meaningful 'reduction in depreciation effect' from this.

My best guess is that the now lesser reduction in the value of the 'customer relationship' asset via reduced amortisation is more likely because those particular business relationships that gave rise to the 'customer relationship' asset in the first place have now 'played out'. IOW on a business purchase, there was a pre-determined amortisation reduction plan following the appropriate accounting rule schedule. The timing is roughly five years from the Madison acquisition. So it may be that the Madison 'customer relationship' goodwill on acquisition has now expired 'according to plan'.

2/ The residual JacksonStone payment to the sellers of that business sunk in value by $1.285m over 2HY2021, only to be revised upwards again by $0.585m in HY2022. These figures are part of a balance owed which nevertheless remains as 'cash on hand' until the earn out payment is finally paid. This is why revising up the future payment over HY2022 (representing an incremental loss for Accordant) results in an increase in the cash balance of Accordant at balance date. Nevertheless, without these JacksonStone adjustments for 2HY2021 and HY2022, the total excess cash on the books over and above declared income would be about $2.5m added over both both 2HY2021 and HY2022.

3/ The 'change in trade receivables' verses the 'change in trade payables' that caused such an incremental change in the Accordant cash balance between HY2021 and HY2020 is worth reflecting on.

Look at HY2021:

HY2021: $28.587m - $21.706m = $6.879m

The reason for the sharp uptick in gross values of trade receivables and payables during 2HY2021 is that:

a/ Government 'Grant Income Receivable' is recorded in 'Trade & Other Receivables' and
b/ 'Deferred Grant Income' is recorded in 'Trade and Other Payables'.

These entries relate to the wage subsidy that was paid in advance.

The 'faster collection of accounts' combined with 'faster account payment', although a lesserly incremented payment schedule for Accordant's own bills, produced an improved 'business transaction' cash surplus of $6.879m in period. Now compare this to the operating business cashflow generated over HY2022:

HY2022: $0.101m + $2.205m = $2.306m

Here, the incremental cash surplus of $2.306m was generated largely by Accordant not paying their own bills so promptly to the tune of $2.205m. This comparatively smaller increase in cash generated from 'business transactions' is really a consequence of it being ever harder to process bills for collection and payment more and more efficiently. 'Not paying your bills' is an unsustainable way to improve cashflow.

O.K., this has been a long post, so let's get back to the main points. Net profit over 30th September 2020 to 30th September 2021 was:

$2.485m + $1.663m = $4.148m

Cashflow for the rolling twelve month period 30th September 2020 to 30th September 2021 was:

$(0.053m) + $5.564m = $5.511m

If we take out all the JacksonStone related adjustments (those shouldn't be underlying cashflow contingencies for the company in future years) I get an underlying cashflow of:

$5.511m - ( -$0.050m+$0.013m - $1.285m +$0.585m ) = $4.774m

Divide that number by the 34.326m Accordant shares currently on issue to work out the underlying cashflow per share:

$4.774m / 34.326m = 13.9c

Two 6.5cps dividends paid out each year would largely take care of that. I think this is the kind of dividend level that shareholders might look forwards to from here on in.

SNOOPY

nztx

30-10-2021, 05:36 PM

winner69

30-10-2021, 07:23 PM

Snoopy

01-11-2021, 10:45 AM

Snoops post had this -

1/ The first point to note is the large $7m impairment charge, unique in HY2021, which is a non-cash item. However, I personally would not class a change in impairment as an 'operating item'. So while creating an impairment does affect cashflow, I am surprised that it changes 'operating cashflow'.

I might have misread / misunderstood what you have said and you may have covered elsewhere but the $7m impairment is not part of Operating Cash Flow calculation (one way or the other). It does not affect cash flow. Remember you are looking at reconciliation of profit to cash flow and is just one of the reconciling items (like depreciation).

Forgive me if I did misunderstand you.

Thanks for this Winner. You are quite correct. I had my 'operating cashflow goggles' so firmly attached that I failed to take them off when looking at the "Reconciliation of Net Profit After Tax to Cashflows from Operating Activities." The $7m impairment charge is part of reconciling net profit against operating activities, but it is not part of the operating activities themselves. As Homer Simpson would say, I have had a "D'oh" moment.

I am wondering if Accordant have had a similar brain fade though? The last line on their "Reconciliation of Net Profit After Tax to cashflows from Operating Activities" says "Cashflows from Operating Activities" (AR2021 C5). As part of that last line total they have subtracted amount of $1.285m a devaluation of the contingent payment to JacksonStone founders that was previously ring fenced as a future expense. I would say this cash consideration is just part of the purchase agreement with JacksonStone, and nothing to do with how the Accordant business operates on a day to day basis. However the 'earn out payment' does depend on operational performance. So maybe there is just too much Homer Simpson in my DNA to allow me to see things clearly like an accountant would?

SNOOPY

nztx

01-11-2021, 07:26 PM

Div dates hit the NZX Div Board on AGL's filing today:

XD 18 Nov ; Pay date 1 Dec

Snoopy

02-11-2021, 10:41 AM

Just looking at published AGL accounts for 30 Sep 2020 HY & 31 Mar 2021 FY - Snoops
looks like you're on to it there

Sep 20 HY Cashflow includes includes no Inflow from Govt subsidies (unless buried)

Mar 21 FY however includes $33.3 m Subsidies inflow

The bit in bold is the key nztx. If you look at HYR2022, which refers to HY2021 as the prior comparative period, you will see that the presentation of the HY2021 cashflow figures has changed.

HY2021 (from HYR2021)HY2021 (from HYR2022)

Payments to Suppliers & Employees($109.445m)($141.768m)

Net Receipts from Government Grants$0.0m$33.323m

Total($109.445m)($109.445m)

In the original presentation of the HY2021 , the Governments Grants had been netted off against wages. In the referred presentation (from HYR2022) the government grant effect was separated out.

This presentation policy had the effect of burying the cashflow from the government, in a non-transparent way, when the HY2021 report was published. IOW there certainly was cash inflow from the government over HY2021, even though a cursory examination of the cashflow statement (without reading the notes in HYR2021 on p16) would not have uncovered any such payments.

SNOOPY

Snoopy

02-11-2021, 09:55 PM

To answer the pivotal question first: EBITDA was more than maintained for FY2021

Financial Year20172018201920202021

EBITDA (Snoopy produced *) {B}$12.751m$11.751m
$7.679m$8.795m$14.230m

Finance Cost {C}$1.193m$1.297m$1.380m$1.502m$0.723m

]
Interest Coverage {B}/{C} (target >3)10.79.05.65.919.7

Net Bank Debt {D}$32.383m$29.731m$26.643m
$29.822m$13.205m

Leverage ratio {D}/{B} (target <3)2.5
2.53.5
3.40.93

Notes

1/ Historically (up to and including FY2019), I have calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I + DA.

2/Following the introduction of IFRS16, which had the effect of turning what were 'rent expenses' into a 'right of use asset depreciation' with an associated 'interest on lease liabilities', I have had to adjust the 'annual interest change' and 'annual depreciation charge' to remove this effect.

FY2020: EBITDA = NPBT + I + DA = $3.897m+($2.084m-$0.582m)+($6.194m-$2.798m) = $8.795m (with I=$1.502m)

FY2021: EBITDA = NPBT + I + DA = $10.929m+($1.228m-$0.505m)+($5.286m-$2.702m) = $14.230m (with I=$0.723m)

Not paying dividends for a year has brought the banking covenants well and truly under control. Yet more important than this was the $33.323m received in wage subsidies during the year (AR2021 p19). Without that subsidy from the government, those banking covenants would have been busted.

Without full disclosure being available (because disclosure of certain details of the half year financial position do not match that of the full year), I have managed to cobble together the half year position of Accordant, so that I can keep an eye on those banking covenants. Specifically there is no break down of the depreciation and amortisation charges in the half year results. So I am using the depreciation and amortisation charges for FY2021 as a proxy for the combination of 2HY2021 and HY2022. I have called this 'cobbled together year of halves', year 2021.5.

Financial Year2017201820192020
20212021.5

EBITDA (Snoopy produced) {B}$12.751m$11.751m
$7.679m$8.795m
$14.230m$8.843m

Finance Cost {C}$1.193m$1.297m$1.380m$1.502m$0.723m$0.546m

]
Interest Coverage {B}/{C} (target >3)10.79.05.65.9
19.716.2

Net Bank Debt {D}$32.383m$29.731m$26.643m
$29.822m$13.205m$13.011m

Leverage ratio {D}/{B} (target <3)2.5
2.53.5
3.4
0.931.5

Notes

1/ Historically (up to and including FY2019), I have calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I + DA.

2/ Following the introduction of IFRS16, which had the effect of turning what were 'rent expenses' into a 'right of use asset depreciation' with an associated 'interest on lease liabilities', I have had to adjust the 'annual interest change' and 'annual depreciation charge' to remove this effect.

FY2020: EBITDA = NPBT + I + DA = $3.897m+($2.084m-$0.582m)+($6.194m-$2.798m) = $8.795m (with I=$1.502m)

FY2021: EBITDA = NPBT + I + DA = $10.929m+($1.228m-$0.505m)+($5.286m-$2.702m) = $14.230m (with I=$0.723m)

FY2021.5:

EBITDA = NPBT + I + DA
= [$2.607m + ($10.929m - $7.817m) + ([$0.549m-$0.218m]+[($1.228m-$0.505m)-($0.777m-$0.269m)]) + $2.578m] = $8.843m (with I=$0.546m)

--------------------------

It is no surprise that with interest rates so low, that the interest rate cover covenant is so easily met. It is pleasing that the debt ratio coverage is back to manageable levels too. And this is after $2.865m in dividend payments were made over HY2022. Hopefully with Simon Bennett now retired as CEO, "our Bennster" will now be able to spend more time working out a better taste in shirts, rather than looking out for that debt building acquisition at Accordant. The new CEO, Jason Cherrington (HYR2022 p3) looks to have a more sensible taste in shirts, although I am not sure having the two top buttons undone is the go? Maybe that second button has fallen off, and a visit by "our Jase" to his mother to sew it back on would fix this fashion faux pas?

Our Jase has already put the boot into AbsoluteIT (p5 HYR2022), which is the very part of the business he has the skill set to fix . Kicking them when they are down will of course make our Jase look extra good when he rescues AbsoluteIT from the applicant talent drought. You can tell from this that "our Jase" has what it takes to be "Jase on the case" as we March through FY2022. With my fears from last year of a cash issue needed to shore up the capital position of the company now averted, let's hope those 'ghosts of leaders past' that are now stacking the board give the new broom 'Jase', 'some space'.

SNOOPY

discl: Now contented holder once again (haven't changed my holding, just the 'contented' bit is new)

nztx

03-11-2021, 01:57 AM

The bit in bold id the key nztx. If you look at HYR2022, which refers to HY2021 as the prior comparative period, you will see that the presentation of the HY2021 cashflow figures has changed.

HY2021 (from HYR2021)HY2021 (from HYR2022)

Payments to Suppliers & Employees($109.445m)($141.768m)

Net Receipts from Government Grants$0.0m$33.323m

Total($109.445m)($109.445m)

In the original presentation of the HY2021 , the Governments Grants had been netted off against wages. In the referred presentation (from HRY2022) the government grant effect was separated out.

This presentation policy had the effect of burying the cashflow from the government, in a non-transparent way, when the HY2021 report was published. IOW there certainly was cash inflow from the government over HY2021, even though a cursory examination of the cashflow statement (without reading the notes in HYR2021 on p16) would not have uncovered any such payments.

SNOOPY

to be frank Snoops, as an in & out, I'd far rather subsidies were netted off against the expense (rather than considered
some sort of mysterious income) with just a note disclosing - but I'm not going to cover that again ;)

Discl: Happy AGL minor holder watching the ride :)

Snoopy

03-11-2021, 09:56 AM

Going to take a darn long time to trawl up a cool 1 mill shares at the rate they're coming
over the NZX line of late .. ;)

might have to throw some more bucks at the job, if they want to avoid still being sitting trying to achieve it
this time 4 years down the track .. ;)

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/AGL/370215/343655.pdf

The share buyback of one million shares appears to have halted with the 517,289 shares offered purchased up until 8th July 2021. 8th July was some six weeks on from the 27th May profit announcement. It is likely that represents a trading window where insiders are allowed to buy shares in an equally informed market

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/AGL/375289/349907.pdf

What I have found surprising is that since the October 27th HY2022 profit announcement, there have been no more buybacks as the new buyback window remains open. There are a couple of explanations I can think of to explain this

1/ The new management line up does not appear as competent as the board thought, So less share options will be required when it comes time for the long term options hand out.
2/ The shares, currently trading with a $1.91 offer price, are now too expensive and the board has decided to wait for the share price to go down again before they dive in.

Neither explanation seems particularly palatable.

SNOOPY

Snoopy

03-11-2021, 08:01 PM

From Simon Bennett's AGM 2021 address:

"AWF income dropped by over 50%, notwithstanding large numbers of workers being placed with Countdown. The business took up the initial 2-week wage subsidy to pay over 1000 workers, however, has not qualified for subsequent subsidy extensions."

The Bennster:

"AWF recovered well last year, with significant client demand, however could not meet this demand due to declining candidate availability. Blue collar temp work is becoming increasingly difficult with the closed borders, resulting in lack of both migrant workers and working holiday travellers. AWF is adapting to this change in market but not as quickly as in the white collar businesses, and is significantly affected by level 4 restrictions."

My worst fears confirmed :-(

The problem with this picture is that over FY2021, the segmented result shows AWF contributing more than twice the EBIT contribution compared to all the other divisions combined. While AWF remains constrained (notice I did not use the phrase 'in trouble'), it will be a big ask for the whole group's profit to recover to pre-Covid-19 levels.

I think border bubbles with the islands are going to be crucial in determining the fortunes of AGL over the second half.

AWF divisional earnings can be found on p33 of AR2021 (Note A1 Segment Revenue and Results).
Actual Trade & Receivables Writedown can be found on p55 of AR2021 (Note C6: Provision for Impairment).

20172018201920202021

AWF EBIT {A} $8.726m$4,858m$1.260m$1.692m$10.782m

Actual Trade & Receivables Writedowns {B}($0.163m)($0.815m)($1.034m)($0.123m)($0.205m)

Assuming no redeployment of Overseas Workers (creating a saving) {C}
$1.500m (1)

AWF EBIT - Writedowns {A}-{B}+{C}$8.889m$5.673m$3.794m$1.569m$10.577m

Notes

(1) From 29th May 2019 market update: Regulatory issues impeded AWF from redeploying migrant workers on guaranteed wages to cities and regions where they were needed, at a direct cost of $1.5 million, plus lost opportunity margin.

From IR2021 p5,

"AWF has had a fall in permanent fee revenue and and its temporary business suffered considerably during the Level 4 lockdown. At our current recovery rate, we expect AWF to return to normal trading in its temp business by the end of the financial year."

From AR2021 p7

"With the permanent recruitment market most significantly impacted in 2020, the first to see growth was our AWF blue collar labour hire channel."

From AR2021 p19

"AWF Revenue was down $19.7m (20.2%) on the prior year."

The above comments are incongruous with the record numerical result. So what is going on? My conclusion is that the wage subsidies have been booked as normalized revenues which have no associated operating costs. This greatly boosted AWF EBIT.

Following the last AWF crisis relating the the construction sector, the 29th May 2019 wrap up press release said

"Bennett said AWF had reduced its cost base, and was now geared to return 4% to 6% EBITDA on turnover approaching $120 million."

Turnover at AWF over FY2021 was $77.762m, suggesting EBITDA of $3.1m to $4.7m. Take off $1.7m in Depreciation and Amortisation (refer my post 904) off those EBITDA estimates and I get a forecast EBIT of $1.4 to $3.0m.

Granted all of this is before Covid-19 and any longer term restructuring measures taken as a result. But there is still a major disconnect between the forecast restructured AWF EBIT from FY2019 of '$4.6m to $7.0m' (using FY2019 as a base year for earnings) verses the actual FY2021 EBIT of $10.577m. My conclusion is that EBIT for AWF over FY2021 has been grossly distorted by subsidies and a 'reality check' will loom over the HY2022 results. I will be listening with interest for any 'progress reports' at the upcoming AGM to see if my speculation is confirmed.

AWF divisional earnings can be found on p33 of AR2021 (Note A1 Segment Revenue and Results). Equivalent HY2022 information may be found in HYR2022 p15.

This table includes FY2021.5, a composite year composed of 2HY2021 and HY2022. Actual Trade & Receivables Writedown can be found on p55 of AR2021 (Note C6: Provision for Impairment). There is no such equivalent information in the half yearly report HY2022. So I have used the equivalent information from FY2021 again, as my best estimate of the trade and receivables write-down for my constructed composite year.

20182019202020212021.5

AWF Revenue $129.868m$115.859m$97.448m$77.762m$83.298m

AWF EBIT {A} $4,858m$1.260m$1.692m$10.782m$1.326m

Actual Trade & Receivables Writedowns {B}($0.815m)($1.034m)($0.123m)
($0.205m)($0.205m)

Assuming no redeployment of Overseas Workers (creating a saving) {C}
$1.500m (1)

AWF EBIT - Writedowns {A}-{B}+{C}$5.673m$3.794m$1.569m$10.577m$1.121m

Notes

(1) From 29th May 2019 market update: Regulatory issues impeded AWF from redeploying migrant workers on guaranteed wages to cities and regions where they were needed, at a direct cost of $1.5 million, plus .lost opportunity margin.

--------------------

From HYR2021 p5:
"AWF has had a fall in permanent fee revenue and its temporary business suffered considerably during the Level 4 lockdown. At our current recovery rate, we expect AWF to return to normal trading in its temp business by the end of the financial year."

Snoopy comment: We should be there by now. 'Normal trading' in an IR2021 sense looks like around $100m in revenue, and we are -still- some 20% below that. I am hoping that some of the particularly poor EBIT result is because of redundancy payments (see quote below).

From HYR2022 p5:
"A Level 4 lockdown is especially hard on the civil and construction sectors that AWF services, and we were forced to stand down a significant portion of our workforce."

From AR2021 p19
"AWF Revenue was down $19.7m (20.2%) on the prior year."

Snoopy comment: And it is still down 20%. I do not expect underlying profits to be down this much though, for as we have heard before some of those building industry temp contracts are marginally profitable.

Following the last AWF crisis relating the the construction sector, the 29th May 2019 wrap up press release said
"Bennett said AWF had reduced its cost base, and was now geared to return 4% to 6% EBITDA on turnover approaching $120 million."

Using a D&A figure (see Segmented Analysis, AR2021 p34, HYR2022 p17) of: $0.955m + ($1.964m-$0.952m) =$ 1.967m,

=> Underlying EBIT = ((0.04 to 0.06) x $83.298m) - $1.967m) = $1.365m to $3.031m

I think there is evidence here that EBIT for the AWF unit of Accordant has likely bottomed out. Yet AWF does have quite a branch network to maintain. That means cutting costs to the bone at the trough of the business cycle is not easy, and may mean minimal profitability for the AWF business unit for some time.

SNOOPY

Snoopy

04-11-2021, 02:11 PM

The 'White Collar' earnings of Accordant is an umbrella term that covers the combined earnings of Madison, AbsoluteIT and JacksonStone. "White collar" divisional earnings can be found on p33 of AR2021 (Note A1 Segment Revenue and Results). Equivalent HY2022 information may be found in HYR2022 p15.

This table includes FY2021.5, a composite year composed of 2HY2021 and HY2022. Actual 'Trade & Receivables Writedown' can be found on p55 of AR2021 (Note C6: Provision for Impairment). There is no such equivalent information in the half yearly report HY2022. So I have used the equivalent information from FY2021 again, as my best estimate of the trade and receivables write-down for my constructed composite year. I have chosen to assign all of the write downs to the blue collar division of Accordant. That may be a slight simplification. But my general reading of the Annual Reports would suggest that this is where the substantial write down risk is. This is why the 'Trade & Receivables Writedown' figures for 'White Collar' in the table below is a row of zeroes.

20182019202020212021.5

White Collar Revenue $149.455m$151.946m$166.079m$127.720m$126.709m

White Collar EBIT {A} $5.563m$5.957m$7.156m$4.235m$7.864m

Actual Trade & Receivables Writedowns {B}$0m$0m$0m
$0m$0m

White Collar EBIT - Writedowns {A}-{B}$5.563m$5.957m$7.156m$4.235m$7.864m

Notes

1/ The above table is not strictly an 'apples with apples' comparison. JacksonStone, the executive search and recruitment organisation, was only acquired in FY2020. JacksonStone's first full year under the Accordant umbrella was FY2021.
2/ I have previously estimated the revenue from JacksonStone over FY2021 was $33.325m (my post 911).
3/ EBIT for JacksonStone over FY2021.5 is estimated as follows.
3a/ NPAT for JacksonStone = $2.405m (AR2020 p69)
3b/ Proportion of revenues due to JacksonStone: $33.325m / ($95.544m+$110.447m) = 15.87%.
3c/ Share of Interest bill = 0.1587 x ($0.451m+ $0.549m) = $0.159m
3d/ EBIT= $2.405m/0.72 +$0.159m = $3.499m

I have devised a narrative based around a series of published report quotes, and how they weave together into three sub stories to explain how the dynamics of the White Collar business is changing.

--------------------

A 'White Collar Peak' at EOFY2019 has descended to a new normal

Here are seven quotes to give some historical context as the white collar business developed over FY2018 and FY2019, and beyond.

From AR2018 p3
"The completion of the purchase of Absolute IT during the year certainly validated the decision to acquire this well-led diverse white collar business, and the strong team at Absolute delivered a result that was above our expectations."

From AR2018 p3
"It has been a great pleasure to be able to report the success of Madison in delivering at all levels to the Census project for Statistics New Zealand. By year end, Madison was back up to its own growth targets."

From AR2019 p3
"Absolute IT had a stunning year both in terms of profitability and new clients won. Over the year our senior leaders have continued to grow and develop the business for growth."

From AR2019 p3,
"Madison traded well but did not achieve all the growth that we expected. However, the effect of the completion of our large Managed Service project contract (the census) has to be factored into this comment."

From AR2019 p4,
"We grew the core (Madison) business but did not fully ‘fill the earnings gap’ created following the end of the project."

From AR2021 p10
"The New Zealand labour market currently has significant shortages in ICT (affects AbsoluteIT), construction and healthcare. We believe that, even with open borders, we cannot expect immigration settings to allow for the same volume of migrants to supplement our workforce, as they have done prior to COVID-19. Maximising workforce participation, and growing the available workforce, is crucial for our country to fill the demand for workers."

From HYR2021 p5
"The large drop in permanent fee revenue in Madison has reduced the size of the business and we do not expect the business to recover fully this financial year. We predict it may well take a further 18 months. This recovery will likely be through the temp channel, rather than permanent recruitment."

Snoopy note: I interpret the above seven quotes as the White Collar business (Madison/AbsoluteIT only as it was up until EOFY2019) being at respectable revenue levels by EOFY2018 and EOFY2019. 'Respectable' (around $150m) in this context translates to an EBIT of $5.597m (achieved over FY2019). Nevertheless despite the headline figures since, it is clear that revenue from the combined Madison/AbsoluteIT business units has since plummeted. By EOFY2021.5, revenue was down to around 2/3 of what it was before Covid-19 hit. Profits in EBIT terms are down around 40% for Madison/AbsoluteIT too. It is only the strong performance of JacksonStone that is giving the White Collar combined business unit comparative respectability over the FY2021.5 period, compared with those earlier years.

--------------------

Working Harder for the Same Reward

From AR2018 p11
"In the last five years, job hunting and talent acquisition has changed considerably, leading to increased (Madison) delivery costs.

From AR2020 p3
"In Madison and AbsoluteIT, in addition to the increase in boutique agencies, the growing trend, by clients, to establish in-house recruitment teams contributed substantially to the businesses’ reduced performance."

Snoopy translation: The staff inside Madison are not losing their competence. There are more people looking after recruitment in the market generally in other firms. And a more thorough 'vetting of job applicants' is now required, that has lead to increased business running costs.

-----------------------

Pandemic Response

AR2021 p7
"The opportunity was taken to reduce overhead costs in a very aggressive manner, which lead (by year end) to overhead expenses being at around 15% lower than previous year equivalents."
"Margins are improving as care is taken to ensure sustainable growth before fixed costs are added."

HYR2022 p5 referring to the August 2021 lockdown
"We had a seamless move to working from home for our internal employees across all our businesses, and strong continued demand for our services." "Our strength across the white collar market served us very well and within this sector we did not miss a beat."

HYR2020 p6
"With the migrant channels closed and a general lack of candidates availability due to New Zealand's ongoing low unemployment rate, our clients continue to offer permanent opportunities to our workers, and we are current;y seeing growth in the permanent market."

Snoopy comment: Permanent placements are generally more lucrative for Accordant

-----------------------

If year 2021.5 is representative of the new reality of the Accordant White Collar Division, then a calculation of EBITDA/ revenues is of interest.

EBIT = $7.864m

Proportion of 'White Collar' assets = $63.062m / ($63.062m + $25.778m) = 71.0%
Hence proportion of depreciation and amortisation = 0.710 x ($2.573m+$2.668m) = $3.721m

=> EBITDA = $7.864m + $3.721m = $11.585m

Revenue for the period was $126.709m

=> EBITDA margin = $11.585m / $126.709m = 9.1%

That figure is well in excess of the go to margin at the blue collar AWF business unit.

Following the last AWF crisis relating the the construction sector, the 29th May 2019 wrap up press release said
"Bennett said AWF had reduced its cost base, and was now geared to return 4% to 6% EBITDA on turnover approaching $120 million."

However the EBITDA margin is pumped up by the amortisation of goodwill from acquisitions, to the tune of $1.366m over FY2021. Take that out and we get an adjusted underlying EBITDA margin of:

= ($11.585m-$1.366m) / $126.709m = 8.1%

That is still better than what might be realistically achieved by the blue collar placement unit. While I expect a a bounce from the all time low of AWF EBITDA, I do expect most of the sustainable growth going forwards to occur in the 'White Collar' collection of Madison, AbsoluteIT and JacksonStone.

SNOOPY

Snoopy

28-11-2021, 08:45 AM

161 / (16.2)(0.72) = 13.8%

Is that the best prospective dividend yield on the market today? I think it might be, if you could actually buy a decent parcel of shares at $1.61. I managed to top up my holding at that price. But despite only being after a parcel of shares that was -back in the old days (pre Sharsies)- regarded as a minimally sized economic parcel, it took me a month to acquire the said shares!

I am no longer using an annual dividend of 16.2cps as my 'base case' for dividend yield.

This hasn't been a great share for me. Despite owning Accordant, or whatever its ancestor was back then, since 2015 - when I bought my first tranche - I am still underwater by 20% in capital terms (my average share purchase price is now $2.04).

Interest Coverage EBIT/I = $9.7m/$0.707m = 13.7 times. So even if my earnings forecasts are a little out, I don't think the banks will be worried

Computer software amortisation over FY2021 was $0.228m, and deprecation expense was $2.702m. This means underlying EBITDA can be calculated as:

$9.7m + $0.228m + $2.702m = EBITDA of $12.7m

Net debt at balance date was: $15.000m - $1.795m = $13.205m

This gives an 'Net Debt' / EBITDA ratio of $13.205m/ $12.7m = 1.04

The fact that these two debt covenants are at conservative levels is what gave me the confidence to top up my investment in Accordant. If my earnings outlook for FY2022 proves horribly wrong, then Accordant can try again in FY2023 without fear of the banks closing in, and I don't need to sell out (which for liquidity reasons I can't do even if I wanted to!)

epsdps (imputed)

FY201815.88.2 + 8.0

FY20196.28.2 + 8.0

FY20209.48.2 + 8.0

FY202118.10.0 + 0.0

FY2022?8.2 + 6.5

Total?63.3

5 year Average12.7

Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

= (12.7c / 0.72) / 0.08 = $2.20

I see the share price was bid up as high as $1.99 for the half year results announcement, but then closed on its low at $1.92 with a big gap down to the next buyer at $1.75. Nice December divie for Christmas, although it was at a lower level compared to pre-Covid years, dropping from 8c to 6.5c. Maybe the market expected more? I didn't, but am happy to keep holding.

I have been quietly working, building up my holding in a small way. My investment case is now based on a lower forecast annual dividend (12.7cps), largely as a result of cashflow retreating towards NPAT levels. My most recent parcel was bought at $1.80, a 20% discount to my fair value assessment. So happy with that, despite my very modest purchase order having to sit in the system for a couple of weeks before it was hit! The problem is AGL is so lightly traded, by the time the market gets down to your target price, someone will jump in quickly to trump your prospective bid. My tactic has been to put my bid in the market below the immediate trading range, wait for the buyers ahead of me to drop out. There I remain in the queue, ready to be hit by the 'sell at any cost' holders. Anyway, it all seems to be working, even if it does test the patience of my broker, or more correctly my brokers bot! My average holding price is now $2.03 so still underwater, but not by much. I am comfortable snorkeling a small distance below the break even surface.

The debt covenants being under control are the important backstop to my confidence.

SNOOPY

percy

28-11-2021, 09:54 AM

Snoopy

28-11-2021, 10:38 AM

Take care you may get all you ever wanted.?

Buyers... Quantity..........No.........Price................ ..........Sellers......Quantity..........No....... ..Price.
..................2................1............$1 .80......................................13,488... .........2...........$1.85
...................3................1............$ 1.79....................................15,259.... .........1............$1.88
..................554.............1.............$1 .75
.................2025.............1............$1. 50

I don't usually bother with looking at market depth, but that is some imbalance between the buy and sell side! Thanks Percy. I saw there was a buyers bid at $1.70 on Friday morning , but that bid has obviously been removed.

Mind you, with the 'virus news' over the weekend, there may be a few companies opening up on Monday with a buy/sell imbalance like that. The real question is, how low are those sellers prepared to go? Do they really need to get out? Maybe it is Uncle Ross cashing out some of his holding to buy Christmas presents, and a 'new deck' to open them on?

If not, maybe you and I could mount a bid for control of the company? Offer a buck a share? Then when we get control, we could sack all staff, and force them to apply for new jobs through Accordant and clip the ticket on the way! Profits would skyrocket, and we could cash out big time! Become inhabitants of the 'Zillions Zone' (sounds much healthier than the Twilight Zone)! That plan sounds a bit 'ponzi like'. But I don't think it is possible for one person (or company in this case) to 'ponzi themselves'. So we would probably get away with it - all legal?

SNOOPY

percy

28-11-2021, 11:36 AM

I don't usually bother with looking at market depth, but that is some imbalance between the buy and sell side! Thanks Percy. I saw there was a buyers bid at $1.70 on Friday morning , but that bid has obviously been removed.

Mind you, with the 'virus news' over the weekend, there may be a few companies opening up on Monday with a buy/sell imbalance like that. The real question is, how low are those sellers prepared to go? Do they really need to get out? Maybe it is Uncle Ross cashing out some of his holding to buy Christmas presents, and a 'new deck' to open them on?

If not, maybe you and I could mount a bid for control of the company? Offer a buck a share? Then when we get control, we could sack all staff, and force them to apply for new jobs through Accordant and clip the ticket on the way! Profits would skyrocket, and we could cash out big time! Become inhabitants of the 'Zillions Zone' (sounds much healthier than the Twilight Zone)! That plan sounds a bit 'ponzi like'. But I don't think it is possible for one person (or company in this case) to 'ponzi themselves'. So we would probably get away with it - all legal?

SNOOPY

I will leave it to you to ask Simon Hull whether he will sell us his 53.01% at $1.00.
If he does, I will ring Jeff Greenslade at Heartland and see whether he will lend us the funds,keeping in mind we will have to make a full takeover.Jeff may take issue with AGL's negative NTA of -32.64 cps.

PS.Although it is often manipulated,I take a lot of notice when buying or selling of market depth.
I also will not show my hand ie buy/sell what is there.So if there is 22,000 for sale and I want 25,000 I will buy the 22,000 and walk away.Then if another seller shows their hand I buy the other 3,000 I want.Even more fun can be had by buying 21,000 shares and leaving the seller with a 1,000 still to sell. .
This way you are not bidding against your self as no one knows what you are doing.

Snoopy

28-11-2021, 12:54 PM

I will leave it to you to ask Simon Hull whether he will sell us his 53.01% at $1.00.
If he does, I will ring Jeff Greenslade at Heartland and see whether he will lend us the funds,keeping in mind we will have to make a full takeover.Jeff may take issue with AGL's negative NTA of -32.64 cps.

Your comment sent me straight to the Accordant annual report. And there I saw a picture of Ross Keenan with such a nice smile, I mean how could you question the financial future of a company where the Chairman photographs so well? (Granted the other four directors do look a bit dodgy in their respective mug shots). I am pretty sure that Jeff Greenslade, would be won over, and as for this NTA stuff, is that a worry? 'N'ot a'T' 'A'll, which is after all what NTA stands for.

PS.Although it is often manipulated,I take a lot of notice when buying or selling of market depth.
I also will not show my hand ie buy/sell what is there.So if there is 22,000 for sale and I want 25,000 I will buy the 22,000 and walk away.Then if another seller shows their hand I buy the other 3,000 I want. Same applies when selling.
This way you are not bidding against your self, as no one knows what you are doing.

The waltzingman would fall off his mountain bike reading that. Or at least he would, if his bike wasn't still in the workshop waiting for parts. I mean, all that fancy share trading software he has, and now you are publicly admitting your part in faking the trading input data Percy?

I have to admit, with Accordant, because it is so lightly traded, I do usually ask for the number of shares on offer before I place my buy order, so that I am 'in synch' with the market with the quantum offered in the market just above my buy price. Hey, did I just admit to being part of the manipulation game as well? I hope if the waltzingman reads this, he doesn't roll out of his kayak!

SNOOPY

percy

28-11-2021, 02:03 PM

Your comment sent me straight to the Accordant annual report. And there I saw a picture of Ross Keenan with such a nice smile, I mean how could you question the financial future of a company where the Chairman photographs so well? (Granted the other four directors do look a bit dodgy in their respective mug shots). I am pretty sure that Jeff Greenslade, would be won over, and as for this NTA stuff, is that a worry? 'N'ot a'T' 'A'll, which is after all what NTA stands for.

The waltzingman would fall off his mountain bike reading that. Or at least he would, if his bike wasn't still in the workshop waiting for parts. I mean, all that fancy share trading software he has, and now you are publicly admitting your part in faking the trading input data Percy?

I have to admit, with Accordant, because it is so lightly traded, I do usually ask for the number of shares on offer before I place my buy order, so that I am 'in synch' with the market with the quantum offered in the market just above my buy price. Hey, did I just admit to being part of the manipulation game as well? I hope if the waltzingman reads this, he doesn't roll out of his kayak!

SNOOPY

Well I have learnt something today.
I never knew Waltz had a system.I thought he was a "Sammy the Seal" follower.

Snoopy

12-06-2022, 09:42 PM

epsdps (imputed)

FY201815.88.2 + 8.0

FY20196.28.2 + 8.0

FY20209.48.2 + 8.0

FY202118.10.0 + 0.0

FY2022?8.2 + 6.5

Total?63.3

5 year Average12.7

Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

=> (12.7c / 0.72) / 0.08 = $2.20

I see the share price was bid up as high as $1.99 for the half year results announcement, but then closed on its low at $1.92 with a big gap down to the next buyer at $1.75. Nice December divie for Christmas, although it was at a lower level compared to pre-Covid years, dropping from 8c to 6.5c. Maybe the market expected more? I didn't, but am happy to keep holding.

epsdps (imputed)

FY201815.88.2 + 8.0

FY20196.28.2 + 8.0

FY20209.48.2 + 8.0

FY202118.10.0 + 0.0

FY202210.48.2 + 6.5

FY2023?5.6 + ?

Total59.960.7

5 year Average12.1

Note

1/ By coincidence the two latest dividend payouts add up to exactly the five year average dividend payout!

Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)

=> (12.1c / 0.72) / 0.08 = $2.10

I see the share price was bid up as high as $2.03 at the end of last week, as we come up to the 17th June ex-dividend date for the 5.6c dividend payment due on June 30th. That $2.03 seems a reasonable bid which is still under that 8% gross yield business cycle price. But as time marches on, those higher historical dividends roll off the historical calculation feed, to be replaced by today's lower dividends.

Despite the half year mismatch in my earnings and dividend totals above, it is clear that AGL has in effect paid out 100% of their underlying earnings as dividends over time. So if dividends are to be restored to previous levels, then so must earnings.

New CEO Jason Cherrington is making all the right noises that opportunities are there and profits can rise from the Covid malaise. But making noises and actually doing it are different things. In the meantime I am happy to hold my AGL shares.

SNOOPY

nztx

12-06-2022, 11:18 PM

Any word on Covid Leave Support Subsidies they received in the last period - Snoops ? :)

A fairly material number of bods must be cooped up on compulsary isolate with the large Covid
numbers still flying through .. AGL wont be any exception to seeing their people contracted & otherwise
isolating too as a result ..

Snoopy

13-06-2022, 09:13 AM

Any word on Covid Leave Support Subsidies they received in the last period - Snoops ? :)

A fairly material number of bods must be cooped up on compulsory isolate with the large Covid
numbers still flying through .. AGL wont be any exception to seeing their people contracted & otherwise
isolating too as a result ..

I think a large portion of AGL's workload is eminently suited to 'work from home'. Monitoring social media and connecting via Linkedin are part of the business model. Having said that, I don't think there is any wage subsidy available just because a few of your workers have Covid-19 (edit: could be wrong about that, see extended quote below). It has to be a government mandated lock-down for that kind of support to kick in. Yet with the financial year ending on 31st March, that did cover the nationwide lock-down of mid 2021. Here is what AR2022 said about it (from p32)

"During the financial year, group eligible entities received Government Grants totalling $2.283m (2021 $33,323m). (extend quote) A combination of the two week Covid-19 wage subsidy for businesses affected by the move to Alert Level 4 on 17th August 2022 together with the Covid-19 leave support scheme and Covid-19 short term absence payment schemes"

"The government grants have been offset against employee benefits expense in the statement of comprehensive income."

'Employee benefits expense' includes salaries. So AGL have netted off that employment subsidy payment against wage costs, which makes the situation more opaque than ideal in my view. If you regard the wage subsidy as literally that, then the declared profit for the year halves. However, although on line is OK for parts of the Accordant group, 'face meet and greet' is still an essential part of the business model. So I think you can say that business was genuinely restricted under the lock-down. The subsidy did save jobs, and has allowed a post Covid-19 lock-down Accordant to bounce back.

Looking back at the half year report (period ending 30th September 2021) I see government subsidies totalled $1.729m. So post lock-down grants must have totalled:

$2.283m - $1.729m = $0.554m

SNOOPY

Snoopy

13-06-2022, 05:36 PM

All in all a useful series of comments to incorporate into the mix.

The results for Jackson Stone, Absolute IT and Madison are 'lumped together' in a white collar bucket, when reporting the dollars. To get a wider picture of where these business units are going, we have to look up the comments in the annual and half year report texts.

HYR2022 p4 "All of our white collar businesses were not only seeing good client demand, but they were also able to capitalise on it. They were able to adapt to this demand with an emphasis on permanent recruitment and retained exclusive work."

Jackson Stone

HYR2022 p5 "JacksonStone & Partners have posted a record contribution at EBITDA level"
AR2022 p5 "A welcome over-performance by the business resulted in a higher final earn out payment."

From AR2022, p86, the payment for Jackson Stone was adjusted over time as follows

Deal Struck @01-06-2019
Deal @ 31-03-2021
Deal @ 31-03-2022

Initial Payment
$1.500m
$1.500mjavelin
$1.500m

Final Payment
$1.958m
$0.549m
$1.393m

Total Payment
$3.458m
$2.049m
$2.893m

Improved income since EOFY2021 resulted in a higher than expected second tranche payment. Nevertheless that was less than the original forecast second tranche earnings payout. So we can assume that the actual income earned over FY2022 was still lower than the original estimate from 01-06-2019.

Absolute IT

HYR2022 p5 "Absolute IT challenges included skills shortages driven by offshore talent being unable to enter the country."
AR2022 p8 "Absolute IT did not achieve the goals we set for the business." "Attracting and retaining key talent within the business has also been front of mind as a key enabler."

Madison

AR2022 p8 "Madison had a strong year off the back of increased demand and a number of large projects, either related to or as a result of New Zealand's Covid-19 response. They grew the number of consultants in the business by 25%"

SNOOPY

Snoopy

14-06-2022, 12:54 PM

The combined revenue for Madison and AbsoluteIT over FY2020 (Y.E. 31-03-2020) was $138.6m. If both divisions took an equal 'hit' in terms of the percentage drop in business from FY2019 (Madison & Absolute IT revenue of $151.9m (total) , with an estimate of $69.0m (Madison) and $83.9m (AbsoluteIT) ), that would imply Madison turnover of $62.0m and AbsoluteIT turnover of $76.6m over FY2020. On a full year basis, the just acquired JacksonStone turned over $33.3m through the FY2020 period. These three turnover figures I regard as the 'base figures' from which to project earnings for FY2022. I regard FY2021 as a 'Covid affected outlier'.

Looking out to FY2022, JacksonStone is reported to be on target for the sellers of the business to meet their earn out hurdles (my post 912). I am taking that to be a forecast of a full recovery to a $33.3m turnover. Comments on AbsoluteIT being '10% down' over FY2021 ties in with a fall in turnover from $83.9m to $76.6m. I am forecasting a half way return to the baseline for FY2022, which corresponds to a turnover of $80.3m. A less profitable (due to a reduction in the proportion of permanent placements) slower recovering Madison I am modelling by holding turnover firm from FY2021.

My total forecast NPAT for FY2022, attributable to the white collar division only, is therefore:

Forecast Table

Business Unit MadisonAbsoluteIT
JacksonStone
Total

Forecast FY2022 Turnover$62.0m$80.3m
$33.3m$175.6m

Modelled Net Profit Margin0.0340.0340.072

Business Unit Net Profit$2.1m$2.7m
$2.4m
$7.2m

This equates to a total forecast net profit after tax for the Accordant white collar business group collective of $7.2m.

Care must be taken when interpreting business unit profits as reported by Accordant. The declared numbers in the segment performance in AR2022 (page 33) do not include central administration costs, finance costs and income tax. We need to allocate these costs to get a true reflection of the performance of the business units.

When apportioning the annual interest bill between the AWF division and the 'White Collar' division, I like to apportion interest expenses in line with the respective liabilities of each division. This information can be found in AR2022 on p34. I have used the average liabilities over the year for my calculations. Interest being apportioned over the year amounts to $1.095m

Division
AWF
Combined White Collar
Total

Average Liabilities
$8.712m
$22.744m
$31.456m

Percentage of Average Liabilities
27.7%
72.3%
100.0%

Apportioned Interest Charge
$0.303m
$0.792m
$1.095m

When apportioning central administration costs, I prefer to do that by revenue. Divisional revenue may be found in AR2022 p33.

Division
AWF
Combined White Collar
Total

Revenue
$79.600m
$141.894m
$221.494m

Percentage of Revenue
35,9%
64.1%
100.0%

Apportioned Administration Charge
$1.039m
$1.854m
$2.893m

This means the underlying divisional net profit for Accordant Group for FY2022 can be broken down as follows

Division ->
AWF
Combined White Collar
Total

Divisional Profit
$0.904m
$7.780m
$8.693m

less Apportioned Administration Charge
$1.039m
$1.854m
$2.893m

less Apportioned Interest Charge
$0.303m
$0.792m
$1.095m

equals NPBT
($0.429m)
$5.134m
$4.705m

less Income Tax @28%
$0.0m
$1.438m
$1.438m

equals Calculated NPAT
($0.439m)
$3.696m
$3.257m

Declared Income Tax @36% Paid

$1.706m

Declared NPAT

$2.999m

In the table above, the difference between the declared NPAT, and the calculated NPAT can largely be explained by the actual tax paid being higher than the statutory 28% rate. There could be several reasons for this disparity. Actual tax paid may include a wash up amount relating to tax underpaid in the previous year. It is possible that some expenses incurred during the year were not tax deductible. Administration costs may not have been apportioned according to revenue as I had assumed. Nevertheless for 'prediction' purposes, the the $3.257m total overall profit figure stands as my yardstick.

Looking at my white collar business unit prediction only, my earlier $7.2m prediction is nearly twice the $3.696m actually achieved. How far out was I on the prediction of the AWF business unit profit (see post 994)?

SNOOPY

Snoopy

29-06-2022, 07:32 PM

Time to update the bad debt performance of the group. How did it go through the Covid-19 period?

The 'Impairment Losses Recognised' may be found in AR2021 Section C6 p55.
The 'Impairment Los

20172018
2019
2020
2021
Row Sum

Impairment Losses in P&L {A}
($0.699m)($0.655m)($1.109m)
($0.301m)($0.342m)

Impairment Write backs P&L {B}
$0.228m$0.594m$0.360m$0.046m$0.005m

Net Impairment in P&L {A}+{B}
($0.471m)($0.061m)
($0.749m)
($0.255m)]($0.337m)
($1.873m)

Actual Trade & Receivables Write down($0.163m)
($0.815m)
($1.034m)($0.123m)($0.205m)
($2.340m)

Provision for Impairment Balance$0.897m$0.143m$0.229m$0.361m
$0.493m

The 'Net Impairment Losses Recognised' in the income statement (AR2021 Note A4 p41) should over time sum to the same total as the 'Actual Trade & Receivables Write Down'. The fact that it sums to less is an indication that over the last five years, profits have been overstated by.

$2.340m - $1.873m = $0.467m

The difference being a subtraction from the bad debt provision on the balance sheet. Of particular interest over FY2021 is that, unlike previous years, the write back was almost nothing. This may have been part of a realisation that debts that looked unrecoverable, very likely were -in a Covid-19 world. Having said that, the 'net impairment' over FY2021 was only the third highest in the last five years. This points to AGL handling the debtor ledger 'quite well' during the Covid-19 pandemic.

This makes the comment in the "Financial Commentary" ( AR2021 p19 )

"CASH FLOW Net cash flow from Operations was unfavourable. The Group paid out to suppliers, contractors and employees more than was recovered from customers which illustrates the impact of COVID-19."

rather incongruous. To my thinking, that comment doesn't make sense in this context.

Time to update the bad debt performance of the group. How did it go through the second post Covid-19 period?

I really hate it when a company changes its bad debt reporting protocols between accounting periods, even if the change is reportedly made for better clarity. The question in the back of my mind is always, 'what are they trying to hide?' This 'changing presentation' has happened over FY2022. What brought my attention to this was the different reporting treatment on the provision for impairment, - both for the FY2021 year -, on p55 of AR2021 and p55 of AR2022.

Provision for Impairment Losses on Trade Receivables

FY2022 from AR2022
FY2021 from AR2022
FY2021 from AR2021

Balance at 1st April
$0.493m
$0.361m
$0.361m

Impairment losses recognised
$0.0m
$0.171m
$0.342m

Write-offs to bad debts during the year
NM
NM
($0.205m)

Impairment losses reversed
($0.112m)
($0.039m)
($0.005m)

Balance at 31st March
$0.381m
$0.493m
$0.493m

By contrast, the 'expected credit loss' information' on p41 of AR2022 and p41 of AR2021 is consistent.

Expected Credit Loss

FY2022 from AR2022
FY2021 from AR2022
FY2021 from AR2021

Impairment Losses Recognised
$0.078m
$0.206m
$0.206m

Impairment losses Recovered (from previous year)
($0.029m)
NM
$0.0m

Changes in the expected credit loss provision
($0.112m)
$0.132m
$0.132m

Total expected credit losses
($0.063m)
$0.338m
$0.338m

After much head scratching, I 'did a Percy' yesterday, and rang up the company CFO to clarify some reporting points. I can now use both the above quoted tables to figure out what happened in the changed presentation.

From the above two tables, the actual amount of debt written off during the year for FY2021 ($0.205m), is recorded under a different label as 'Impairment Losses Recognized' in the alternate 'Expected Credit Loss' table (the lower table). In the process, $0.205m has morphed to $0.206m. But I am fairly sure that this small inconsistency is a rounding error. Compare $0.206m with its 'like for like' counterpart in FY2022. We can deduce that the 'missing debt written off figure' over FY2022 was $0.078m.

A figure that does not equate from the two alternative FY2021 viewpoints is the 'impairment losses reversed'. For FY2021, this was separately listed as both $0.005m and $0.039m in respective viewing years. I was told by management that re-examining what happened lead them to revise their view, and $0.039m is the correct figure. But that revised view came with a concomitant increase in the 'impairment losses recognised' to $0.171m. What is confusing is that this 'increase' still leaves the figure way less than the $0.342m figure, a quote of the same thing from an alternative viewpoint one year earlier. The situation is resolved by noting that the $0.342m figure has not been netted off against the $0.205m in bad debts during the year. Take that away and the previously recognised figure reduces to:

$0.342m - $0.205m = $0.137m

$0.137m is indeed less than $0.342m.

For the reporting period FY2022 display purposes, the 'impairment losses recognised' (a provision) has been netted off against the 'actual right offs' that occurred during the year.

Now we can fill in that 'debt write off table' from the perspective of the last five years!

SNOOPY

Snoopy

01-07-2022, 07:53 PM

Now we can fill in that 'debt write off table' from the perspective of the last five years!

2018
2019
2020
2021
2022
Row Sum

Impairment Losses in P&L {A}
($0.655m)
($1.109m)
($0.301m)
($0.342m)
($0.078m)

Impairment Write backs P&L {B}
$0.594m
$0.360m
$0.046m
$0.005m
$0.112m

Net Impairment in P&L (Provisioning) {A}+{B}
($0.061m)
($0.749m)
($0.255m)
($0.337m)
$0.034m
($1.368m)]

Actual Trade & Receivables Write down
($0.815m)
($1.034m)
($0.123m)
($0.205m)
($0.078m)
($2.255m)

Provision for Impairment Balance
$0.143m
$0.229m
$0.361m
$0.493m
$0.381m

The 'Net Impairment Losses Recognised' in the income statement (AR2022 Note A4 p41) should, over time, sum to near to the same total as the 'Actual Trade & Receivables Write Down'(s).

The fact that it sums to less could be an indication that over the last five years, profits have been overstated (the glass half empty viewpoint) by a cumulative total of.

$2.255m - $1.368m = $0.887m

This difference is a subtraction from the on going bad debt provision on the balance sheet.

The glass half full view of what has happened here, is that, over the last five years, management have been particularly diligent at chasing down their bad debt ledger.

Of particular interest over FY2022 is the fact that the provisional impairment losses, the figures taken through the profit and loss statement, are low, only exactly matching the real write off for the year. In fact FY2022 is the only year where the bad debt provision in the profit and loss statement ended up being a net positive number (thanks to previous impairment losses being reversed). This may have been influenced by the new CEO, Jason Cherrington, wanting to put the most positive spin on his first year in charge, so that he had the best chance to exercise some of his share options. Likewise this gives the best chance for his mentor, outgoing CEO Simon Bennett, to do the same (call me cynical or what!).

SNOOPY

Snoopy

01-07-2022, 10:10 PM

I will be interested to see comments from the Chair and CEO of the company at the upcoming AGM. What is in the back of my mind is that there are job 'advertisements'. But Accordant gets paid for 'job placements'. What happens if you don't fill a job this month? You put the same advert in next month! What I am saying is that increasing advertisements could point to increasing demand for jobs OR increasing difficulty in filling those jobs that are available (or could it be a bit of both?).

Another thing that Accordant have mentioned is that they use their own networking, via 'Facebook' and 'LinkedIn' as well as other more conventional means, rather than placing ads. That is because sometimes the best person for the job doesn't apply for it.

I have reviewed the speeches made at the FY2021 AGM before (my post 940). But I finally caught up with the video version of the FY2021 AGM. It was virtual of course. Not sure where the directors were in a physical sense. With that deep blue background, I thought maybe they were in individual isolated pods in the international space station, as the camera captured the background of 'deep blue earth'.

Notwithstanding the virtual discourse, Simon Bennett, in his address, made some key observations on how the business operates in tough times that are relevant to the quoted text above. Earlier in the talk at the 12:45 minute mark we were told that in response to the pandemic, Accordant had reduced their cost base by 15%.

Things were just coming right when Auckland went into their extended five week lock-down commencing August 17th 2021. AWF were most affected by lock-downs as, despite the extra work supplying security guards for supermarkets. For most 'blue collar' workers, there is no opportunity to work from home, reflecting income down 50% for AWF over this period.

For Madison and AbsoluteIT, the current tight labour market is conducive to rapid growth in hiring intentions by NZ business in general, resulting in a rapid growth of job advertisements. But with a smaller pool of job workers available, there is a smaller pool of responders to each advertisement. Offsetting this is that the companies with vacancy hiring intent are themselves finding it more difficult to recruit directly. This makes the current environment relatively favourable for Madison and AbsoluteIT. Accordant has the brands, candidate reach and marketing resources not available to other companies.

Job placements were tilted towards filling permanent positions, and this is likely to continue as long as border travel is restricted. In particular, travellers looking for working holiday jobs just aren't there.

JacksonStone, being senior management position recruiters, are in a different situation with those candidates capable of doing such jobs already networked and on the Accordant books. JacksonStone do not 'advertise' in the conventional sense. Madison do advertise but it is measured, cost controlled, and very effective.

I mention all this because I raised the idea of looking at publicly available information on job advertisement trends, as a proxy for figuring out how successful is the current operating performance of Accordant. The answer is such figures are not a good indicator for AWF, nor Jackson Stone. OTOH, there may be some positive correlation with Madison but probably not AbsoluteIT, as there is currently a dearth of computer programming people available.

Overall it is probably not a good idea to follow trends in publicly advertised jobs, as a way to forecast the future financial performance of Accordant.

SNOOPY

Snoopy

02-07-2022, 08:56 AM

'MDRT' is the answer to the question:

"If all profits for the year were put towards paying off the company's debts, how long would that take?"

My rule of thumb for the answer in years is:

years < 2: Company has low debt
2< years <5: Company has medium debt
5< years <10: Company has high debt
years >10: Company debt is cause for concern

FY2017[/u][/TD]FY2018
FY2019
FY2020
FY2021

Significant Event
[/u][/TD]First full year owning AbsoluteIT
JacksonStone AcquiredCovid-19 takes hold

Cash & Cash Equivalents: {A}
$1.225m
$6.269m
$6.357m
$6.178m
$1.795m

Non Current Borrowings:
$18.500m
$36.000m
$33.000m
$36.000m
$15.000m

add Current Borrowings:
$0.0m
$0.0m
$0.0m
$0.0m
$0.0m

add Overdraft:
$0.108m
$0.0m
$0.0m
$0.0m
$0.0m

equals Total Borrowings: {B}
$18.608m
$36.000m
$33.000m
$36.000m
$15.000m

Total Net Borrowings: {B} - {A}
$17.323m
$29.731m
$26.643m
$29.822m
$13.205m

Net profit declared {C}
$5.867m
$5.048m
$2.013m
$2.677m
$6.197m

MDRT ({B} - {A}) / (C}
3.0 years
5.8 years
13.2 years
11.1 years
2.1 years

The doom and gloom that I predicted after the FY2020 result did not play out. My post 894 provides more detail as to what happened. The difference in trade receivables and trade payables shrunk by $4.311m over the year, indicating that operational debt was much more tightly controlled.

The $7m impairment charge against Madison was 'taken on the chin' at the same time as the wage subsidies came in. The net effect of this was that company income that would have gone towards paying wages, was instead diverted to paying down debt. IOW the $7m 'non cash asset' that was lost ended up being indirectly offset by 'real cash' that went into debt reduction while the government took care of the wage bill that , without Covid-19, the 'real cash' would have been required to fund. Indirectly, Accordant has been bailed out by the government is how I see what unfolded. I don't think any of my previous fears from FY2020 were unfounded. But sometimes shareholders just 'get lucky' is how I see the way the situation unfolded.

$7m + $4.311m = $11.311m goes a long way to showing how the debt position of the company turned around.

Add in around $5.5m of dividends 'not paid' to shareholders during the year and you can see how the reduction in debt happened.

However, government funding for FY2022 is likely not going to be as generous and dividends have resumed. How will the FY2022 business environment effect the indebtedness prospects for Accordant going forwards?

'MDRT' is the answer to the question:

"If all profits for the year were put towards paying off the company's debts, how long would that take?"

My rule of thumb for the answer in years is:

years < 2: Company has low debt
2< years <5: Company has medium debt
5< years <10: Company has high debt
years >10: Company debt is cause for concern

FY2018
FY2019
FY2020
FY2021
FY2022

Significant Event
First full year owning AbsoluteIT

JacksonStone Acquired
Covid-19 takes hold
CEO Changeover

Cash & Cash Equivalents: {A}
$6.269m
$6.357m
$6.178m
$1.795m
$4.972m

Non Current Borrowings:
$36.000m
$33.000m
$36.000m
$15.000m
$18.000m

add Current Borrowings:
$0.0m
$0.0m
$0.0m
$0.0m
$0.0m

add Overdraft:
$0.0m
$0.0m
$0.0m
$0.0m
$0.0m

equals Total Borrowings: {B}
$36.000m
$33.000m
$36.000m
$15.000m
$18.000m

Total Net Borrowings: {B} - {A}
$29.731m
$26.643m
$29.822m
$13.205m
$13.028m

Net profit declared {C}
$5.048m
$2.013m
$2.677m
$6.197m
$2.999m

MDRT ({B} - {A}) / (C}
5.8 years
13.2 years
11.1 years
2.1 years
4.3 years

The debt picture at Accordant has taken a turn for the worse. By my own measure, AGL is now a 'medium debt company'. This isn't necessarily a bad thing, provided the company is earning above their cost of capital on those borrowed funds. The 'glass half full' view is that debt can improve the 'capital efficiency' of a company.

What has lead to the deterioration in the AGL debt position? They paid dividends of $5.171m during the financial year, as opposed to none over the prior period. If they hadn't paid over that money to shareholders, then the MDRT calculation would change to:

($13.028m - $5.171m)/ $2.999m = 2.6 years

Let's be clear, I am not suggesting that Accordant should not have paid those dividends. Indeed it was the dividend yield that attracted me as a shareholder to Accordant, or AWF Madison as it was then, in the first place. What I am saying is that if the debt position of Accordant needs shoring up in the future, then 'cutting the dividend' is the obvious way to do it.

The cloud on the debt horizon for Accordant is that the recently retired CEO Simon Bennett (now chairman of the board I might add) is being engaged as a consultant to seek out acquisition opportunities. I do find it curious that Bennett considers there is sufficient banking covenant headroom to do this, and that the DRP remains suspended, apparently indefinitely. My inkling is that, should an acquisition of significant size be found, a cash issue will be required.

I have previously mused that Simon Bennett, now relieved of his day to day Accordant duties, would have more time to address his taste in shirts. Now it seems that the 'shirt fashion police' will be required to remain on alert!

SNOOPY

Snoopy

02-07-2022, 12:25 PM

Without full disclosure being available (because disclosure of certain details of the half year financial position do not match that of the full year), I have managed to cobble together the half year position of Accordant, so that I can keep an eye on those banking covenants. Specifically there is no break down of the depreciation and amortisation charges in the half year results. So I am using the depreciation and amortisation charges for FY2021 as a proxy for the combination of 2HY2021 and HY2022. I have called this 'cobbled together year of halves', year 2021.5.

Financial Year2017201820192020
20212021.5

EBITDA (Snoopy produced) {B}$12.751m$11.751m
$7.679m$8.795m
$14.230m$8.843m

Finance Cost {C}$1.193m$1.297m$1.380m$1.502m$0.723m$0.546m

]
Interest Coverage {B}/{C} (target >3)10.79.05.65.9
19.716.2

Net Bank Debt {D}$32.383m$29.731m$26.643m
$29.822m$13.205m$13.011m

Leverage ratio {D}/{B} (target <3)2.5
2.53.5
3.4
0.931.5

Notes

1/ Historically (up to and including FY2019), I have calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I + DA.

2/ Following the introduction of IFRS16, which had the effect of turning what were 'rent expenses' into a 'right of use asset depreciation' with an associated 'interest on lease liabilities', I have had to adjust the 'annual interest change' and 'annual depreciation charge' to remove this effect.

FY2020: EBITDA = NPBT + I + DA = $3.897m+($2.084m-$0.582m)+($6.194m-$2.798m) = $8.795m (with I=$1.502m)

FY2021: EBITDA = NPBT + I + DA = $10.929m+($1.228m-$0.505m)+($5.286m-$2.702m) = $14.230m (with I=$0.723m)

FY2021.5:

EBITDA = NPBT + I + DA
= [$2.607m + ($10.929m - $7.817m) + ([$0.549m-$0.218m]+[($1.228m-$0.505m)-($0.777m-$0.269m)]) + $2.578m] = $8.843m (with I=$0.546m)

--------------------------

It is no surprise that with interest rates so low, that the interest rate cover covenant is so easily met. It is pleasing that the debt ratio coverage is back to manageable levels too. And this is after $2.865m in dividend payments were made over HY2022. Hopefully with Simon Bennett now retired as CEO, "the Bennster" will now be able to spend more time working out a better taste in shirts, rather than looking out for that debt building acquisition at Accordant. The new CEO, Jason Cherrington (HYR2022 p3) looks to have a more sensible taste in shirts, although I am not sure having the two top buttons undone is the go? Maybe that second button has fallen off, and a visit by "our Jase" to his mother to sew it back on would fix this fashion faux pas?

Our Jase has already put the boot into AbsoluteIT (p5 HYR2022), which is the very part of the business he has the skill set to fix . Kicking them when they are down will of course make our Jase look extra good when he rescues AbsoluteIT from the applicant talent drought. You can tell from this that "our Jase" has what it takes to be "Jase on the case" as we March through FY2022. With my fears from last year of a cash issue needed to shore up the capital position of the company now averted, let's hope those 'ghosts of leaders past' that are now stacking the board give the new broom 'Jase', 'some space'.

discl: Now contented holder once again (haven't changed my holding, just the 'contented' bit is new)

Financial Year2017201820192020
20212022

EBITDA (Snoopy produced) {B}$12.751m$11.751m
$7.679m$8.795m
$14.230m$7.901m

Finance Cost {C}$1.193m$1.297m$1.380m$1.502m$0.723m$0.684m

]
Interest Coverage {B}/{C} (target >3)10.79.05.65.9
19.711.6

Net Bank Debt {D}$32.383m$29.731m$26.643m
$29.822m$13.205m$13.028m

Leverage ratio {D}/{B} (target <3)2.5
2.53.5
3.4
0.931.65

Notes

1/ Historically (up to and including FY2019), I have calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I + DA.

2/ Following the introduction of IFRS16, which had the effect of turning what were 'rent expenses' into a 'right of use asset depreciation' with an associated 'interest on lease liabilities', I have had to adjust the 'annual interest change' and 'annual depreciation charge' to remove this effect.

FY2020: EBITDA = NPBT + I + DA = $3.897m+($2.084m-$0.582m)+($6.194m-$2.798m) = $8.795m (with I=$1.502m)

FY2021: EBITDA = NPBT + I + DA = $10.929m+($1.228m-$0.505m)+($5.286m-$2.702m) = $14.230m (with I=$0.723m)

FY2022: EBITDA = NPBT + I + DA = $4.705m+($1.095m-$0.411m)+($4.941m-$2.429m) = $7.901m (with I=$0.684m)

--------------------------

It is no surprise that with interest rates so low, that the 'interest rate cover' covenant is so easily met. It is pleasing that the 'debt ratio coverage' is back to manageable levels too, even if this is a slight uptick in the half year position (see quoted text). And all this is after $5.171m in dividend payments were made over FY2022. Good stuff.

I have no real concerns with the financial position of the company as it stands. Going forwards, I am hopeful that the 'opening of the borders' will allow more candidates to fill the AbsoluteIT potential job placements and allow a big recovery of profits there. On the negative side, I have fears of a 'cash issue' to make an acquisition. No doubt Simon Bennett will figure out a way that any such acquisition is 'eps accretive' (that's good). Let's just hope that it isn't neglect of the existing business units that make it so.

SNOOPY

Snoopy

02-07-2022, 07:34 PM

I have to admit to being a little slow at getting my head around this cashflow thing. I have Winner to thank for pushing me into re-educating myself on this matter. The table below shows how despite dividends being frequently ahead of profits, Accordant has been able to maintain what I would have once regarded as 'over the top dividend payments' before, quite comfortably.

Finance Period
Operational Cashflows
'Dividend Declared' minus 'DRP Reinvestment' (1) (2)

HY2015
$8.330m
($1.986m)

2HY2015
($2.145m)
($1.916m)

HY2016
$6.495m
($2.660m)

2HY2016
($4.437m)
($2.392m)

HY2017
$11.399m
($2.636m)

2HY2017
($3.773m)
($2.602m)

HY2018 (1)
$11.879m
($2.476m)

2HY2018
($0.370m)
($2.645m)

HY2019
$6.143m
($1.931m)

2HY2019
$3.334m
($1.906m)

HY2020
$6.875m
($1.959m)

2HY2020
$3.014m
($1.919m)

HY2021
$21.950m
Nil

2HY2021
($0.053m)
Nil

HY2022 (2)
$5.654m
($2.865m)

2HY2022
$?m
($2.231m)

Notes

(1) From the HY2018 dividend, the 'capital preserving' dividend reinvestment plan was introduced.
(2) From HY2022, the period in which the final dividend from FY2021 was paid, the dividend reinvestment plan was suspended.

Since FY2019 you can see that dividends have well exceeded cashflows. Prior to that we had the rather strange phenomenon of lots of cashflow in the first half of the year, more than fully covering the dividend for both halves. I hope this trend does not continue, because operational cashflow for the first half has now dropped to an eight year low! To try and understand this, I think it is worthwhile to look at Accordant's amortisation expenses over the last few years.

If you are worried about whether your dividend stream is going to continue into the future, you could do worse than following the operational cashflows.

Finance Period
Operational Cashflows
'Dividend Declared' minus 'DRP Reinvestment' (1) (2)

HY2015
$8.330m
($1.986m)

2HY2015
($2.145m)
($1.916m)

HY2016
$6.495m
($2.660m)

2HY2016
($4.437m)
($2.392m)

HY2017
$11.399m
($2.636m)

2HY2017
($3.773m)
($2.602m)

HY2018 (1)
$11.879m
($2.476m)

2HY2018
($0.370m)
($2.645m)

HY2019
$6.143m
($1.931m)

2HY2019
$3.334m
($1.906m)

HY2020
$6.875m
($1.959m)

2HY2020
$3.014m
($1.919m)

HY2021
$21.950m
Nil

2HY2021
($0.053m)
Nil

HY2022 (2)
$5.654m
($2.865m)

2HY2022
$4.865m
($2.231m)

HY2023
$?m
($1.978m)

Notes

(1) From the HY2018 dividend, the 'capital preserving' dividend reinvestment plan was introduced.
(2) From HY2022, the period in which the final dividend from FY2021 was paid, the dividend reinvestment plan was suspended.

Since FY2019 you can see that cashflows have well exceeded dividends. Prior to that we had the rather strange phenomenon of lots of cashflow in the first half of the year, more than fully covering the dividend for both halves. FY2022 produced the best result for second half operational cashflows for as far back as my records go. I guess that reflects the more rounded composition of the business unit portfolio these days, since AbsoluteIT and JacksonStone became fully integrated within the Accordant group.

Given the operational cashflow record, it looks plausible that the current dividend of 6.5cps interim and 5.6cps final will be sustainable in future years.

SNOOPY

Snoopy

04-07-2022, 12:13 PM

One way to assess how vulnerable a company is, is to look at the interest bill that the bank charges them.

The net interest rate paid on last years (FY2021) average net loan balance can be estimated as follows:

Interest Rate = $0.707m / 0.5x($13.205m + $29.822m) = 3.3%

From AR2021 Note C7 pg56

"The Group has complied with all covenant requirements during the year. Interest is calculated on a floating rate and the annual weighted average rate is 3.17% (2021: 2.21%). The rate is reset every three months. The loan is an interest only loan and is repayable on 1 October 2023 (2021: 1 October 2022)"

This means that over the last year, the loan facility was renewed early. As part of this renewal, the maximum amount that can
be borrowed from the ASB reduced from $36m to $30m. Actual term borrowings reduced to just half that figure ($15m).

"The banking facilities require the Group to operate within defined financial undertakings."

My post 870 confirms all banking covenants are being complied with. But all of this is through the obligatory historical lens. What about profitability over FY2022?

One way to assess how vulnerable a company is, is to look at the interest bill that the bank charges them.

The net interest rate paid on last years (FY2022) average net loan balance can be estimated as follows:

Interest Rate = $0.671m / 0.5x($13.028m +$13.205m) = 5.1%

From AR2022 Note C8 pg56

"The Group has complied with all covenant requirements during the year. Interest is calculated on a floating rate and the annual weighted average rate is 2.21% (2020: 3.13%). The rate is reset every three months. The loan is an interest only loan, and is repayable on 1 October 2022 (2020: 1 October 2021)"

This means that over the last year, the loan facility was renewed early. As part of this renewal, the maximum amount that can be borrowed from the ASB remains steady at $30m. Actual term borrowings have gone up from $15m to $18m over the year.

Accordant haven't been on any new capital growth initiatives during the year, although $5.171m was paid out in dividends. It looks like borrowings were used to top up the dividends (profits totalled $2.999m over the same period). I guess management are thinking very carefully about satisfying shareholder dividend demands given the dividend freeze over the Covid-19 period. I guess that is good?

"The banking facilities require the Group to operate within defined financial undertakings."

My post 985 confirms all banking covenants are being complied with.

SNOOPY

Snoopy

05-07-2022, 09:51 AM

Snoopy

05-07-2022, 10:40 AM

AWF divisional earnings can be found on p33 of AR2021 (Note A1 Segment Revenue and Results). Equivalent HY2022 information may be found in HYR2022 p15.

This table includes FY2021.5, a composite year composed of 2HY2021 and HY2022. Actual Trade & Receivables Writedown can be found on p55 of AR2021 (Note C6: Provision for Impairment). There is no such equivalent information in the half yearly report HY2022. So I have used the equivalent information from FY2021 again, as my best estimate of the trade and receivables write-down for my constructed composite year.

20182019202020212021.5

AWF Revenue $129.868m$115.859m$97.448m$77.762m$83.298m

AWF EBIT {A} $4,858m$1.260m$1.692m$10.782m$1.326m

Actual Trade & Receivables Writedowns {B}($0.815m)($1.034m)($0.123m)
($0.205m)($0.205m)

Assuming no redeployment of Overseas Workers (creating a saving) {C}
$1.500m (1)

AWF EBIT - Writedowns {A}-{B}+{C}$5.673m$3.794m$1.569m$10.577m$1.121m

Notes

(1) From 29th May 2019 market update: Regulatory issues impeded AWF from redeploying migrant workers on guaranteed wages to cities and regions where they were needed, at a direct cost of $1.5 million, plus .lost opportunity margin.

--------------------

From HYR2021 p5:
"AWF has had a fall in permanent fee revenue and its temporary business suffered considerably during the Level 4 lockdown. At our current recovery rate, we expect AWF to return to normal trading in its temp business by the end of the financial year."

Snoopy comment: We should be there by now. 'Normal trading' in an IR2021 sense looks like around $100m in revenue, and we are -still- some 20% below that. I am hoping that some of the particularly poor EBIT result is because of redundancy payments (see quote below).

From HYR2022 p5:
"A Level 4 lockdown is especially hard on the civil and construction sectors that AWF services, and we were forced to stand down a significant portion of our workforce."

From AR2021 p19
"AWF Revenue was down $19.7m (20.2%) on the prior year."

Snoopy comment: And it is still down 20%. I do not expect underlying profits to be down this much though, for as we have heard before some of those building industry temp contracts are marginally profitable.

Following the last AWF crisis relating the the construction sector, the 29th May 2019 wrap up press release said
"Bennett said AWF had reduced its cost base, and was now geared to return 4% to 6% EBITDA on turnover approaching $120 million."

Using a D&A figure (see Segmented Analysis AR2021 p34, HYR2022 p17) of: $0.955m + ($1.964m-$0.952m) =$ 1.967m,

=> Underlying EBIT = ((0.04 to 0.06) x $83.298m) - $1.967m) = $1.365m to $3.031m

I think there is evidence here that EBIT for the AWF unit of Accordant has likely bottomed out. Yet AWF does have quite a branch network to maintain. That means cutting costs to the bone at the trough of the business cycle is not easy, and may mean minimal profitability for the AWF business unit for some time.

AWF divisional earnings can be found on p33 of AR2022 (Note A1 Segment Revenue and Results).

20182019202020212022

AWF Revenue $129.868m$115.859m$97.448m$77.762m$79.600m

AWF EBIT {A} $4,858m$1.260m$1.692m$10.782m$0.904m

Actual Trade & Receivables Writedowns {B}($0.815m)($1.034m)($0.123m)
($0.205m)($0.078m)

Assuming no redeployment of Overseas Workers (creating a saving) {C}
$1.500m (1)

AWF EBIT - Writedowns {A}-{B}+{C}$5.673m$3.794m$1.569m$10.577m$0.826m

Notes

(1) From 29th May 2019 market update: Regulatory issues impeded AWF from redeploying migrant workers on guaranteed wages to cities and regions where they were needed, at a direct cost of $1.5 million, plus .lost opportunity margin.

--------------------

From HYR2022 p5:
"A Level 4 lockdown is especially hard on the civil and construction sectors that AWF services, and we were forced to stand down a significant portion of our workforce."

This comment is followed up in AR2022 on p8 where:
"demand increased and our clients took the opportunity to recruit many of our workers into their own permanent role."

While further down the same page 8:
"The landscape required us to retain our people for longer.....Looking after our people was key to this retention strategy and it is a credit to our team for their efforts in this regard, reflected in AWF winning SEEK's 'SARA Award' for excellence in candidate engagement."

Reading those last two paragraphs together, I remain unsure whether AWF retained all the workers they wanted to retain, or not!

Following the last AWF crisis relating the the construction sector, the 29th May 2019 wrap up press release said
"Bennett said AWF had reduced its cost base, and was now geared to return 4% to 6% EBITDA on turnover approaching $120 million."

Using a D&A figure (see Segmented Analysis, AR2022 p34, Note G1 p69) of: ($1.720m+$0.237m) =$ 1.957m,

=> Underlying EBIT = ((0.04 to 0.06) x $83.298m) - $1.957m) = $1.375m to $3.041m

That figure range is a long way in excess of the actual EBIT generated (+$0.904m). The evidence that EBIT for the AWF unit of Accordant has bottomed out is not there yet. Revenue has barely recovered from FY2021 levels, and is even below my constructed HY2022 year (made up of the sum of 2HY2021 and HY2022) in my quoted post.

With much reduced wage subsidy payments over FY2022, profitability at AWF is at an all time low. The 2021 lock down in Auckland (included in FY2022) was longer than the original 2020 lock down. During lock-down, many businesses were not allowed to operate. At AWF, many branches found that 70% of their workers were not required (AR2022 p8). Some of this 'worker lay off shock' was taken up by demand from logistics companies and supermarkets. Even post lock-down, health and safety regulations restricted the number of workers that could be accommodated at some sites.

In pre Covid-19 times, AWF would utilise, as potential job candidates, the cumulative arrival of international students and those on working holiday visas - up to 10,000 in most months of the year (AR2022 p5). The post Covid-19 visitor arrival environment for AWF amounts to up to 1,000 temp jobs per day being lost!

Yet the AWF branch network is still there for the recovery. That means cutting costs to the bone at the trough of the business cycle -not easy-, and may mean minimal profitability for the AWF business unit for some time. Nevertheless the expertise in sourcing and acquiring job candidates in a difficult market remains a strength at AWF. AWF can come back from this.

SNOOPY

Snoopy

07-07-2022, 08:13 PM

Snoopy

07-07-2022, 09:18 PM

I have devised a narrative based around a series of published report quotes, and how they weave together into three sub stories to explain how the dynamics of the White Collar business is changing.

--------------------

A 'White Collar Peak' at EOFY2019 has descended to a new normal

Here are seven quotes to give some historical context as the white collar business developed over FY2018 and FY2019, and beyond.

From AR2018 p3
"The completion of the purchase of Absolute IT during the year certainly validated the decision to acquire this well-led diverse white collar business, and the strong team at Absolute delivered a result that was above our expectations."

From AR2018 p3
"It has been a great pleasure to be able to report the success of Madison in delivering at all levels to the Census project for Statistics New Zealand. By year end, Madison was back up to its own growth targets."

From AR2019 p3
"Absolute IT had a stunning year both in terms of profitability and new clients won. Over the year our senior leaders have continued to grow and develop the business for growth."

From AR2019 p3,
"Madison traded well but did not achieve all the growth that we expected. However, the effect of the completion of our large Managed Service project contract (the census) has to be factored into this comment."

From AR2019 p4,
"We grew the core (Madison) business but did not fully ‘fill the earnings gap’ created following the end of the project."

From AR2021 p10
"The New Zealand labour market currently has significant shortages in ICT (affects AbsoluteIT), construction and healthcare. We believe that, even with open borders, we cannot expect immigration settings to allow for the same volume of migrants to supplement our workforce, as they have done prior to COVID-19. Maximising workforce participation, and growing the available workforce, is crucial for our country to fill the demand for workers."

From HYR2021 p5
"The large drop in permanent fee revenue in Madison has reduced the size of the business and we do not expect the business to recover fully this financial year. We predict it may well take a further 18 months. This recovery will likely be through the temp channel, rather than permanent recruitment."

Snoopy note: I interpret the above seven quotes as the White Collar business (Madison/AbsoluteIT only as it was up until EOFY2019) being at respectable revenue levels by EOFY2018 and EOFY2019. 'Respectable' (around $150m) in this context translates to an EBIT of $5.597m (achieved over FY2019). Nevertheless despite the headline figures since, it is clear that revenue from the combined Madison/AbsoluteIT business units has since plummeted. By EOFY2021.5, revenue was down to around 2/3 of what it was before Covid-19 hit. Profits in EBIT terms are down around 40% for Madison/AbsoluteIT too. It is only the strong performance of JacksonStone that is giving the White Collar combined business unit comparative respectability over the FY2021.5 period, compared with those earlier years.

--------------------

Working Harder for the Same Reward

From AR2018 p11
"In the last five years, job hunting and talent acquisition has changed considerably, leading to increased (Madison) delivery costs.

From AR2020 p3
"In Madison and AbsoluteIT, in addition to the increase in boutique agencies, the growing trend, by clients, to establish in-house recruitment teams contributed substantially to the businesses’ reduced performance."

Snoopy translation: The staff inside Madison are not losing their competence. There are more people looking after recruitment in the market generally in other firms. And a more thorough 'vetting of job applicants' is now required, that has lead to increased business running costs.

-----------------------

Pandemic Response

AR2021 p7
"The opportunity was taken to reduce overhead costs in a very aggressive manner, which lead (by year end) to overhead expenses being at around 15% lower than previous year equivalents."
"Margins are improving as care is taken to ensure sustainable growth before fixed costs are added."

HYR2022 p5 referring to the August 2021 lockdown
"We had a seamless move to working from home for our internal employees across all our businesses, and strong continued demand for our services." "Our strength across the white collar market served us very well and within this sector we did not miss a beat."

HYR2020 p6
"With the migrant channels closed and a general lack of candidates availability due to New Zealand's ongoing low unemployment rate, our clients continue to offer permanent opportunities to our workers, and we are current;y seeing growth in the permanent market."

Snoopy comment: Permanent placements are generally more lucrative for Accordant

-----------------------

Annual report FY2022 additions to the 'white collar narrative'.....

AR2022 p8
"Madison had a strong year off the back of increased demand and a number of large projects, either related to or as a result of New Zealand's Covid-19 response. They grew the number of consultants in the business by 26%, and expect to add another 15% this year."

AR2022 p8
"AbsoluteIT with their niche focus is perhaps the business with the most significant potential, however we did not achieve the goals we set for ourselves......Strong candidate management within the contracting area has been a key focus in the second half of the year. Attracting and retaining key talent within the business has also been front of mind as a key enabler."

Not sure quite what to make of the above comments. It sounds like many of their contracting staff ending up being poached by the customers they are contracted to, and there were problems recruiting IT temps to take their place.

AR2022 p8
"A welcome over performance result by the business resulted in a higher final (earn out) payment. The Jackson Stone team had an outstanding year , notwithstanding the retirement of a number of the founders of the business. Whilst their executive recruitment was very strong, even more encouraging was their growth in contractor numbers. March year on year contractor numbers are up 50% and with high numbers currently placed, they are beginning the new financial year well."

I was curious about the 'contractor business', and how such roles might overlap with Madison, so went to the Jackson Stone website for a look.

https://www.jacksonstone.co.nz/professional-contracting-consulting/

a/ A contract was for an acting CFO for 6-8 months. That is a very senior position to parachute someone into for such a short time. Perhaps they are replacing some-one on maternity leave? Or is it common practice to put a new CFO on contract to start with, so that if it doesn't work out, then they can be dismissed without a big payout?
b/ A 5-6 month contract for two business analysts 'working for the government' designing and mapping a business process then writing a 'standard operating procedure' manual incorporating 'Microsoft Visio' (flow chart software).
c/ A pan school advisory position supporting Maori Education, employed by the National Library of NZ (permanent position).
d/ A port and harbour marine code safety enabling position, working for the triumvirate of NZ Port operators, regional councils and maritime NZ to achieve safety and environmental outcomes (three year fixed term).

I think this gives a flavour of the contracts being advertised - more senior than the lower level managerial positions which you might expect at Madison.

AR2022 p9
"Our own digital transformation continues apace. We are consolidating gains, with all our white collar businesses on the same operating platform."
"It is fair to say that the immigration settings and border opening dates are very important to us.....The recent opening for working holiday visas is certainly a start"

SNOOPY

Snoopy

08-07-2022, 11:59 AM

AR2022 p9
"Our own digital transformation continues apace. We are consolidating gains, with all our white collar businesses on the same operating platform."
"It is fair to say that the immigration settings and border opening dates are very important to us.....The recent opening for working holiday visas is certainly a start"

The sentence in bold at the end of CEO Jason Cherrington's report in AR2022 is the one that sticks out to me. I get the impression that Accordant is 'primed to go', but the building blocks they cannot control are not in place. The student/travelseeker market is still down and other countries post pandemic shock are opening up faster. Will these potential workers return like they did before? The number of working holiday visas granted per year post the Covid-19 arrival shock dropped from 60,000 to under 1,000.

https://figure.nz/chart/XiAyD2LiuU82BMpD

The government seems keener on fewer higher net worth travellers who won't have to interrupt their OE to make a few bucks. Not great for AWF.

AbsoluteIT is operating in a market where the supply of students is not drying up.

https://figure.nz/chart/nqRblNs4jmN5Eo7y-W30IALwSk3zq4ecw

Post the arrival of Covid-19, domestic students in IT have taken up the slack of overseas students no longer studying in NZ. Yet somehow AbsoluteIT is not getting the growth traction management expect. It could be the more senior positions they specialise in are unattractive compared to job offers overseas. The Aussie federal government is offering a '30% refundable tax offset' for the gaming industry.

https://digitaleconomy.pmc.gov.au/fact-sheets/investment-incentives

That means that gaming companies spending $0.5m or more can operate 'income tax free'. That policy will surely take the wind out of gaming industry growth sales in NZ. In addition the Australian government is looking to increase digital economy venture capital project tax concessions.

Madison after some cool years look to be back into their stride. It is good that they have been able to take advantage of changing opportunities provided by the pandemic. But I remember how well they did out of the Census project and how business slumped after that. Hiring intentions within Madison would suggest they see more opportunity than slump on the horizon. The fact that they have hired more people and are looking to hire even more is a statement of substance over blind optimism.

Reading the JacksonStone website shows wide penetration into both the government and non-government sectors. These senior level employment search contracts are largely exclusive, rather than openly competitive. A strong income stream and satisfied customers bodes well for the future.

As an Accordant shareholder, I am feeling like I have a stake in building a highly tuned four cylinder performance internal combustion engine. Two of the cylinders are running cleanly (JacksonStone & Madison), another is showing signs of good performance but has a high speed misfire (AbsoluteIT) while the fourth cylinder (AWF) is blowing smoke and in need of a 'ring job' (they need more workers to 'ring in'). Now I imagine taking my highly tuned motor to the racetrack and putting it up against the (investment) competition. I feel positivity, I feel hope, but I don't feel as though I will be racing around at the front of the pack. My new chief mechanic, Jason Cherrington, is a bit of a wiz on motor tuning. But no matter how top notch the engine management talent is, you have to give him good equipment to work with. I don't see a quick and easy fix for AWF, which if you apportion management and interest costs to it is now loss making. It will take more than Simon Hull on a megaphone to fix it. My overall feeling is that my 'fiery little motor' is currently an 'also ran' :-(

SNOOPY

discl: Shareholder, not feeling the accumulation love :-(

Snoopy

09-07-2022, 08:49 PM

One way AGL has consistently been able to pay dividends that often exceed profits for the period is to pay out surplus cashflow. By this, I mean intangible asset write offs, where the underlying intangible assets do not ever have to be replaced.

Annual Amortisation Table

During The YearComputer SoftwareCustomer Relationships {A}
Restraint of Trade {B}Sub Total {A}+{B}

FY2014Madison acquired($0.230m)($0.936m)
($0.031m)($0.967m)

FY2015($0.275m)($1.788m)
($0.073m)($1.861m)

FY2016($0.289m)($1.746m)
($0.074m)($1.820m)

FY2017AbsoluteIT acquired($0.480m)($1.659m)
($0.133m)($1.792m)

FY2018($0.238m)($1.937m)($0.217m)($2.154m)

FY2019Select (Dunedin) acquired($0.350m)($1.956m)($0.218m)($2.174m)

FY2020JacksonStone acquired($0.356m)($1.665m)($0.477m)($2.142m)

FY2021($0.228m)($0.874m)
($0.492m)($1.366m)

FY2022$0.0m($0.874m)
($0.492m)($1.366m)

When I think of of 'Intangible Assets', I think of something esoteric that -over time- can be expected to 'fritter itself away' in a non-cash way. This idea doesn't really apply to 'computer software' which is a 'real asset' (except in the sense you cannot touch it or hold it in your hand) that does 'wear out' and must be periodically replaced. So computer software is generally not a source of cashflow that can be spent, without the thought of putting aside some equivalent money for its potential replacement. For this reason, I have omitted software amortisation from my sub total of 'amortisation that is available to be spent' (on dividends!), without compromising the future of the company. As of FY2022, software assets have been reclassified as 'software as a service'. Consequently the former 'software assets' no longer exist on the books and any associated amortisation has been removed from the books also.

There is a further class of intangible asset expense, being the 'depreciation expense' of the 'Right of Use Assets' on the books. However, this intangible asset is written down by paying a 'lease expense', something that was usually called rent under previous accounting rules. This 'lease expense' is a real cash outlay. So there is no 'spare' cash left over to pay greater dividends, once you get to the stage of fulling writing down your 'right of use' assets.

There is a pattern in the above table. The year after an acquisition is made, the 'restraint of trade' amortisation for the year tends to go up. This does make sense, because the year after you buy a company, that is the first full year that new restraint of trade arrangements are fully on the books. You might think that same reasoning should apply to 'Customer Relationships', namely:

a/ An ongoing relationship with customers that is clearly identifiable and is liable to lead to extra profits that
b/ would other wise not have occurred had the business not been purchased.

However, restraint of trade assets would have a 'contractual expiry date' not related to ongoing business performance. By contrast the ongoing boost in profitability from customer relationships would have to be individually assessed with each business unit purchase. Some business relationship assets may be inherently shorter term than others.

What we can learn from this table is that over FY2022, the sub total of 'intangible write offs' that can be used to top up dividends is now:

$1.366m / 34.326 million shares = 4.0cps 'per year'

There are enough 'Customer Relationship' and 'Restraint of Trade' write offs remaining on the balance sheet to keep this level of dividend support going for one more year.

SNOOPY

Snoopy

11-07-2022, 07:43 PM

Continued from post 980

Looking at my white collar business unit prediction only, my earlier $7.2m prediction is nearly twice the $3.696m actually achieved. How far out was I on the prediction of the AWF business unit profit?

My estimate......

The liabilities look to have changed a lot over the year. So I will use average liabilities for my calculation

DivisionAWFCombined White Collar

Average Liabilities$18.527m$24.161m

Percentage of Average Liabilities43.4%56.6%

Revenue$77.762m$127.720m

Percentage of Revenue37.8%62.2%

Interest bill attributable to AWF I therefore estimate as: $0.707m x 0.434 = $0.307m.

If I go down the middle of my previously estimated EBIT range, the expected baseline NPAT for the AWF division over FY2022 is:

0.72 x ($2.2m - $0.307m) = $1.4m

.....followed by what actually happened...

This means the underlying divisional net profit for Accordant Group for FY2022 can be broken down as follows

Division ->
AWF
Combined White Collar
Total

Divisional Profit
$0.904m
$7.780m
$8.693m

less Apportioned Administration Charge
$1.039m
$1.854m
$2.893m

less Apportioned Interest Charge
$0.303m
$0.792m
$1.095m

equals NPBT
($0.429m)
$5.134m
$4.705m

less Income Tax @28%
$0.0m
$1.438m
$1.438mgreat

equals Calculated NPAT
($0.439m)
$3.696m
$3.257m

Declared Income Tax @36% Paid

$1.706m

Declared NPAT

$2.999m

In the table above, the difference between the declared NPAT, and the calculated NPAT can largely be explained by the actual tax paid being higher than the statutory 28% rate. There could be several reasons for this disparity. Actual tax paid may include a wash up amount relating to tax underpaid in the previous year. It is possible that some expenses incurred during the year were not tax deductible. Administration costs may not have been apportioned according to revenue as I had assumed. Nevertheless for 'prediction' purposes, the the $3.257m total overall profit figure stands as my yardstick.

AWF result predicted: $1.4m profit.
AWF actual result: a loss of $0.439m.

Looks like my crystal ball was cracked.

SNOOPY

Snoopy

11-07-2022, 08:49 PM

This means the underlying divisional net profit for Accordant Group for FY2022 can be broken down as follows

Division ->
AWF
Combined White Collar
Total

Divisional Profit
$0.904m
$7.780m
$8.693m

less Apportioned Administration Charge
$1.039m
$1.854m
$2.893m

less Apportioned Interest Charge
$0.303m
$0.792m
$1.095m

equals NPBT
($0.429m)
$5.134m
$4.705m

less Income Tax @28%
$0.0m
$1.438m
$1.438m

equals Calculated NPAT
($0.439m)
$3.696m
$3.257m

Declared Income Tax @36% Paid

$1.706m

Declared NPAT

$2.999m

In the table above, the difference between the declared NPAT, and the calculated NPAT can largely be explained by the actual tax paid being higher than the statutory 28% rate. There could be several reasons for this disparity. Actual tax paid may include a wash up amount relating to tax underpaid in the previous year. It is possible that some expenses incurred during the year were not tax deductible. Administration costs may not have been apportioned according to revenue as I had assumed. Nevertheless for 'prediction' purposes, the the $3.257m total overall profit figure stands as my yardstick.

Taking out the significant figures, $3.257m = $3.3m

The final bit of this 'how did I do' analysis consists of looking inside the white collar division. These figures are not disclosed by Accordant. But in the interests of finding out truly where the strength of the company lies, I feel it is worth attempting the exercise.

The numbers in the table below contain assumptions based on continuity of historical results and my interpretation of subsequent un-quantified management commentary. The table may be compared with my forecast table referenced below that I quote from post 916.

Forecast Table

Business Unit MadisonAbsoluteIT
JacksonStone
Total

Forecast FY2022 Turnover$62.0m$80.3m
$33.3m$175.6m

Modelled Net Profit Margin0.0340.0340.072

Business Unit Net Profit$2.1m$2.7m
$2.4m
$7.2m

This equates to a total forecast net profit after tax for the Accordant white collar business group collective of $7.2m.

Derived from Declared Result

Business Unit MadisonAbsoluteIT
JacksonStone
Total

Actual FY2022 Turnover$78.0m (c)$35.9m (e)$28.0m (a)$141.9m

Modelled Net Profit Margin0.034-0.039 (g)0.072

1
Business Unit Net Profit$2.7m (d)-$1.4m (f)$2.0m (b)
$3.3m

Notes

1/ For Jackson Stone, if I reduce my base modelling case by the ratio of the reduction in capital paid for the business (2.893m / 3.458m= 0.84), then estimated turnover was: $33.3m x 0.84 = $28.0m.

2/ Madison revenue up 25% => $62m x 1.25 = $78m (post 979). If we assume the modelled profit margin is unchanged, then we can estimate the updated profit figures as follows: $78m x 0.034 = $2.7m.

3/ No quantitative adjustment comment has been made available for AbsoluteIT. So I am calculating the AbsoluteIT turnover and profit from the known white collar total, and using my estimates of the turnover and profit of the other two white collar units to estimate AbsoluteIT turnover and profit by subtraction:

3a/ AbsoluteIT revenue: $141.9m - $78.0m - $28.0m = $35.9m.
3b/ AbsoluteIT profit: $3.3m - $2.7m -$2.0m = -$1.4m

4/ AbsoluteIT unit profit margin can be calculated by dividing "AbsoluteIT Profit" by "AbsoluteIT Revenue".

5/ Letters (a)->(g) outline the order of calculation of those numbers that were calculated in the table.

6/ Modelled 'base case' Net Profit margins can be found in my post 911.

There is no mention of AbsoluteIT making a loss for the year, But if I take into account the bullish comments spoken about for Madison and JacksonStone, then I am forced to conclude that it has lost money - by simple arithmetic.

SNOOPY

Snoopy

16-07-2022, 11:47 AM

I find it useful to look 'over the fence' to see how similar companies handled the pandemic. This one can be thought of as similar to the AbsoluteIT division of Accordant. HiTech is an Australian company, but they had to navigate their way through Covid-19, just as we did on this side of the ditch.

"During FY2020, despite the Covid-19 crisis, HiTech performed stronger than ever, a record result yet again, whilst maintaining a robust balance sheet and no debt which is unique in our industry. This demonstrates the strength of our business model that was designed in the recession of 1993 and how versatile HiTech is to cope with the tough times. The fact that we have managed to navigate through this once in a lifetime event, is testament to the resilience of the culture of the HiTech Group."

Amazingly, I have looked through the FY2020 HIT accounts and can see no mention of any government assistance. For reporting purposes AbsoluteIT is lumped in with Madison and Jackson Stone. So we don't know exactly how well AbsoluteIT did after Covid-19 hit. The interim report said AbsoluteIT was down 10% in revenue (IRFY2021 p5). But if it followed the HIT example over the rest of the year, you would have to think AbsoluteIT will be doing 'quite well'.

The problem with investing in Accordant is that there is no NZX listed 'measuring stick' with which to compare it. This is why I look to Australia to see if there is a way that Accordant could do things better. Has the HiTech Group in Australia, an IT recruitment company, been seeing equivalent market pressures to NZ? Looking at their full year result presentation for FY2021 (YE 30-06-2021), the answer looks to be no.

When I say 'equivalent', it is probably more correct to say that the "HiTech Personnel' subsidiary is what I should line up most closely with 'AbsoluteIT'. However, HiTech also do Information Technology consulting and contracting in their own right. Yet when I look for a 'segment earnings breakdown' in the annual report, I get this:

--------------------

NOTE 3: SEGMENT INFORMATION

The Consolidated Group operates primarily in one geographical and in one business segment, namely the recruitment industry in Australia and reports to the Board on the performance of the Group as a whole.

----------------------

The HiTech financial results, 'double digit growth for the 7th Consecutive year' , speak for themselves. HiTech claim their 'competitive edge' is due to their database of 380,000 candidates. It all goes down well with partnering both state and federal government clients, with cyber security mentioned as an area of particular growth potential. 94% of revenue is from the Federal government, 3% from State Governments and just 3% from the private sector. It therefore seems that the real strength of this company is those long standing Federal Government relationships. That and the sense that, their own in house ICT division is a stand alone consulting company in its own right. AbsoluteIT is seemingly much more reliant on private sector demand and do not do any in house ICT team work, operating under an 'AbsoluteIT' consulting label.

I come away thinking that 'HiTech' and 'AbsoluteIT' are actually very different beasts. I do note though that in all the HiTech published material that I read post Covid-19, unlike Accordant, there was not a single mention of any problems in 'sourcing personnel' being an issue.

SNOOPY

percy

16-07-2022, 12:29 PM

Compare HIT's and AGL's chart over either 5 or 10 years.
Yes another one of my huge mistakes was selling out of HIT at 6 cents.

Snoopy

16-07-2022, 10:09 PM

Notwithstanding the fact that industries in which AGL and PPE operate are not strictly comparable (PPE is heavily exposed to Health and Community services - not a market for AGL), it is clear that AGL was far more affected by Covid-19 than PPE. One reason for this is that PPE has no term debt. For comparative purposes, AGL has effectively borrowed money to operate a business not operating on all cylinders. Thus AGL meets the cost of what is in figurative terms an 'underperforming engine', PLUS the interest costs on the capital required to buy it (a cost not faced by PPE).

Like AGL, PPE has an IT recruitment division about which they say this (slide 12 PR2020).

---------------------------

"The perm recruitment section of IT Division still has not entirely recovered and this is expected to occur in the next 6 months. This represents approximately 14% of People Infrastructure profit.
• The contractor section of the IT Division has experienced a more gradual decline and this is due to some client concentration in this part of the business.
• The IT recruitment industry as a whole has recovered strongly and we expect this to start being reflected in our numbers in the first half of FY21."

---------------------------

PPE or 'People Infrastructure Limited', now renamed 'PeopleIn', is an Australian listed company, offering staffing solutions, business services and operational services. Their IT division operates under the banner 'Technology', and is segmented further into:

1/ 'Halcyon Knights' bills itself as "Australia's and Pacific's" leading 'technology sales, IT and digital recruitment agency (IOW a similar work mission to AbsoluteIT). They employ 70 specialist recruiters. They even have an office in each of Auckland and Wellington in New Zealand!.

And how are Halcyon Knights doing in the period to 31-12-2021 (HY2022)? From HYR2022, page 2.

"$4.898m represents a non-cash expense relating to an increase in the contingent consideration that will be settled by the issue of shares in PeopleIn Limited with respect to the acquisition of Halcyon Knights. This significant increase is due to an increase in the likelihood of earn out targets being achieved."

There was no specific mention of how the NZ arm is doing.

2/ 'Project Partners' was established in 2018 as a result of demand for professionally lead IT transformation outcomes. IT transformation outcomes are a bugbear for modern business. The idea is to harness IT to enable clients to become more resilient. Services offered include: building an investment case, strategic sourcing of technology, EPMO (Enterprise Project Management Office) set up and improvement, solution architecture and cybersecurity.

3/ "Illuminate", focusses on both 'senior roles ' (includes 'Chief Information Officer', 'Heads of Leadership Teams' and 'Business Transformation' people) and 'business team solutions.' The latter include 'project management office' solutions including regulatory and compliance, business transformation (e.g. building digital channels) and system replacements. Also software development (including iOS and Android for mobile applications), cloud infrastructure and technology, and testing and quality assurance.

From p3 of AR2021
-------------

Information Technology

PeopleIn is one of the largest providers of IT staffing services to the. private sector in Australia and intends to continue to significantly grow within the technology sector in the future. Notwithstanding the impact of Covid-19, this continues to be a high growth sector of the Australian and International economy. driven by growth in IT companies as product and service providers and also by growth and utilisation of IT services by businesses across the economy. There is also significant employee mobility, due to an ever changing IT ecosystem providing increased demand for recruitment services the technology sector in the future.

-------------

From HYR2022 page 6

-------------

International recruitment:

A low unemployment rate and limited international workers mean a number of our clients are finding it difficult to recruit staff and are hence more actively seeking our services. We expect high demand for staff to continue to be evident across all of our sectors including technology, nursing, community services, hospitality, childcare, logistics, transport and civil construction. Our focus, therefore, is on finding sufficient talent to fill both internal and contractor vacancies. We’ve launched a number of recruitment initiatives aimed at employing international workers as border challenges ease.

-------------

*That says to me that active recruiting in New Zealand for IT jobs in Australia is on!*

Calculating EBITDA/Revenue

The revenue and EBITDA picture for 'Technology' over time plays out as follows:

2HY20211HY20212HY2020

Revenue$53.980m$41.811m$18.563m

EBITDA$7.268m$6.080m$2.262m

The 'Illuminate' business unit was acquired on 17th December 2020, which was effectively halfway through the FY2021 year. This explains the big jump in revenue (+$23.248m) and EBITDA (+$3.818m) from HY2021 to 2HY2021. But revenues and EBITDA continue to grow strongly after that.

I can use NPAT information in post 911, and the difference in incremental depreciation and amortisation between FY2018 and FY2017 ($3.344m-$3.003m=$0.341m) to determine an acquisition EBITDA for AbsoluteIT, back in 2017 (more up to date information is not available as 'AbsoluteIT was subsumed into the 'White Collar business unit' after that).

Using the acquisition full year turnover of AbsoluteIT of $72.772m, this represents:

$72.772m/ $279.303m = 26.1% of total Accordant revenue.

With total interest costs for Accordant over FY2018 amounting to $1.297m, we can allocate 26.1% of that figure as an 'interest cost' to 'AbsoluteIT'

EBITDA = ($2.442m/0.72) + 0.261($1.297m) + $0.341m = $4.071m

This gives an EBITDA to revenue figure for AbsoluteIT for 2017 of:
$4.071m/ $72.772m = 5.6%

Contrast this to the equivalent figure for the PeopleIn Technology division over FY2021
($7.268m+ $6.080m)/($53.980m + $41.811m)= 13.9%

My conclusion: The PeopleIn Technology division has about twice the inherent profitability that AbsoluteIT has within Accordant.

SNOOPY

Snoopy

17-07-2022, 07:57 PM

Trade & Other Receivables {A}Trade & Other Payables {B}
Net Receivables {A}-{B}={C}Net Receivables Ratio {C}/{A}

FY2017$45.533m$28.107m$17.426m
38.3%

FY2018$41.101m$28.527m$12.574m38.6%

FY2019$32.629m$24.186m$8.443m38.3%

FY2020($53.071m - $22.286m)($46.169m - $21.778m)$6.340m20.6%

FY2021$23.271m$20.180m$3.091m13.3%

Notes

1/ FY2020 figures now adjusted for consequential wage subsidy assets and liabilities.

On p19 of AR2021 we learn:

"Net cash flow from Operations was unfavourable (Net cashflow from operations: -$5.658m (FY2021) vs $12.685m (FY2020)). The Group paid out to suppliers, contractors and employees more than was recovered from customers, which illustrates the impact of COVID-19."

At first glance that comment does not dovetail with the table above, which shows that, in relative terms, the rate of debt collection has not blown out. This leads me to a couple of possible unfortunate conclusions as to why that operational cashflow turned negative.

1/ Due to Covid-19 peripheral effects, many contracts during the year must have been loss making. Equally unpalatable is
2/ Underlying core running costs of the business are now far too high.

Am I being too negative here, by observing that it was only the $33.323m wage subsidy that lent any respectability to the FY2021 result? Winner always says 'follow the cashflows'. I don't think this bodes well for FY2022, especially as a new CEO generally goes through the accounting closet looking for skeletons.

Trade & Other Receivables {A}Trade & Other Payables {B}
Net Receivables {A}-{B}={C}Net Receivables Ratio {C}/{A}

FY2018$41.101m$28.527m$12.574m38.6%

FY2019$32.629m$24.186m$8.443m38.3%

FY2020($53.071m - $22.286m)($46.169m - $21.778m)$6.340m20.6%

FY2021$23.271m$20.180m$3.091m13.3%

FY2022$25.868m$24.382m$1.486m
5.74%

Notes

1/ FY2020 figures now adjusted for consequential wage subsidy assets and liabilities.

--------

On p19 of AR2022 we learn:

"Covid-19 saw the suspension of dividend payments for both the final divdend for the year ended 31st March 2020 and the interim dividend for the year ended 31st March 2021 (Snoopy comment: since no dividends were paid out in FY2021, that had an obvious positive effect on operational cashflow).

"Cashflow from operating activities in FY2022 of $10.5m ... was in line with the FY2020 result of $9.9m."

Contributing to that was another improvement of $3.091m - $1.486m = $1.605m in the net receivables. That represents slick work in collecting outstanding bill payments. But it is doubtful there is room for more account receivable improvement in coming years.

It is pleasing to see that 'net cash generated from operations' at positive $11.141m (AR2022 p29) is back in the black. My fears about deteriorating operational cashflows from last year carrying on into this year look to be unfounded.

SNOOPY

Snoopy

18-07-2022, 01:29 PM

PPE or 'People Infrastructure Limited', now renamed 'PeopleIn', is an Australian listed company, offering staffing solutions, business services and operational services.

-------------

From PPE HYR2022 page 6

-------------

International recruitment:

A low unemployment rate and limited international workers mean a number of our clients are finding it difficult to recruit staff and are hence more actively seeking our services. We expect high demand for staff to continue to be evident across all of our sectors including technology, nursing, community services, hospitality, childcare, logistics, transport and civil construction. Our focus, therefore, is on finding sufficient talent to fill both internal and contractor vacancies. We’ve launched a number of recruitment initiatives aimed at employing international workers as border challenges ease.

-------------

From PPE HYR2022 page 4:
"The growth in the business during the first half of 2022 is two-fold being an increased organic demand for staffing services in the sectors and locations in which the Group operates reflecting a bounce back to operating levels greater than pre-Covid-19. Secondly, the acquisitions which occurred in the second half of last financial year and early in the first half of 2022."

The statement that the recruitment business has fully bounced back from Covid-19 is in stark contrast to the Accordant business in New Zealand. The desire to grow by acquisitions, however, is fully in line with Accordant board thinking.

From PPE AR2021 page 3:

Health and Community Care

"The business rebounded to pre-Covid-19 levels during the year, and also benefitted by the provision of nurses to Covid-19 testing centres, vaccination centres and hotel quarantine facilities"

Not sure how many Accordant people ended up staffing at our hotel quarantine facilities. I think our quarantine facilities were staffed with existing hotel employees, with a certain amount of military oversight added to the mix. Plenty of Accordant AWF people guarding supermarket and even public library doors though. The reason I mention this is that for the likes of Accodant's AWF division to recover, they will have to replace those Covid-19 jobs with other temporary positions first. Only then can the 'net gain' of AWF jobs start.

From PPE HYRP2022, slide 21

Growth Initiative: "Convert the interest in our international recruitment campaign and Pacific Australia Labour Mobility (PALM) scheme by onshoring international talent to meet our clients' needs."

What is this 'PALM'?

https://www.palmscheme.gov.au/

"The Pacific Australia Labour Mobility (PALM) scheme allows eligible Australian businesses to hire workers from 9 Pacific islands and Timor-Leste when there are not enough local workers available."

"Through the PALM scheme, eligible businesses can recruit workers for seasonal jobs for up to 9 months or for longer-term roles for between one and 4 years in unskilled, low-skilled and semi-skilled positions."

"Other changes from April 2022 include the removal of recruitment caps for employers with a good track record."

This sounds similar to the New Zealand government RSE scheme, which was restarted for Pacific Island Workers to arrive here between between June 2021 and March 2022.

https://devpolicy.org/pacific-rse-workers-to-new-zealand-during-2021-20211209/

"Under the first border exception, only experienced RSE workers could be recruited. An interesting feature of the 2,011 arrivals was the numbers who had been employed in the previous 2019-20 year. These workers were in New Zealand when the border closed in March 2020, returned home sometime after June 2020 when repatriation flights commenced, and were then re-recruited under the first border exception in early 2021."

https://devpolicy.org/pacific-seasonal-workers-to-new-zealand-slow-progress-20210615/

"RSE worker numbers under BE2.0 are small. With a limit of 150 workers arriving every 16 days over a ten-month period, and two weeks of the seven-month RSE visa period used up in quarantine, the maximum number at the summer harvest peak is likely to be closer to 1,850 – not 2,400 – assuming the 150 quota is filled every fortnight."

"Approximately 11,000 RSE workers were in the country for peak harvest in March 2020 before COVID-19 travel restrictions came into force. By March 2022, even with BE2.0, industry will be lucky to have more than about half that number."

Meanwhile in Australia

https://devpolicy.org/pacific-labour-mobility-growth-winners-and-losers-20220506/

A combined 23,000 island workers were currently working under the PALM scheme by March 2022, up from a total of 7981 at the end of Q12020.

That gives some credence to this comments from the PPE HYP2022, Slide 24.

"• We have delivered record hours in the period despite challenges in the supply of talent. There is still upside to our earning capacity.
• We have worked with our clients in responding to staff shortages and sourcing talent to fill both internal and contractor vacancies. This has resulted in a +19% increase in billed hours compared to H1 FY21."

Since the Covid-19 pandemic hit, Australian Island workers had increased by 15,000, while NZ Island workers have dropped by about 5500 over the same period.

You can see why the AWF unit of Accordant might be under-performing in this overall trans Tasman labour picture.

SNOOPY