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

[Nor]

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]

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/comm...-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]

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/comm...-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]

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]

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.

FY2021	HY2021 +	2HY2021	= FY2021
Declared NPAT less Impairment	0.72 x $7,000 + $3.712m = $8.752m	$2.485m	0.72 x $7,000 + $6.197m = $11.237m
less Wage Subsidy	0.72 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]

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.

	HY2021	2HY2021	FY2021
Declared NPAT less Impairment	0.72 x $7,000 + $3.712m = $8.752m	$2.485m	0.72 x $7,000 + $6.197m = $11.237m
less Wage Subsidy	0.72 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]

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]

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]

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]

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