AGL - Accordant Group. was previously AWF Madison, Allied...

[Snoopy]

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

	2017	2018	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