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

[Snoopy]

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.

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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.

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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.

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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

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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/profe...ng-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]

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/nqRblNs4jmN5...0IALwSk3zq4ecw

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/fa...ent-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]

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 Year	Computer Software	Customer Relationships {A}	Restraint of Trade {B}	Sub Total {A}+{B}
FY2014	Madison 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)
FY2017	AbsoluteIT acquired	($0.480m)	($1.659m)	($0.133m)	($1.792m)
FY2018		($0.238m)	($1.937m)	($0.217m)	($2.154m)
FY2019	Select (Dunedin) acquired	($0.350m)	($1.956m)	($0.218m)	($2.174m)
FY2020	JacksonStone 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]

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

Division	AWF	Combined White Collar
Average Liabilities	$18.527m	$24.161m
Percentage of Average Liabilities	43.4%	56.6%
Revenue	$77.762m	$127.720m
Percentage of Revenue	37.8%	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	$1.438m
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.

AWF result predicted: $1.4m profit.
AWF actual result: a loss of $0.439m.

Looks like my crystal ball was cracked.

SNOOPY

[Snoopy]

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	Madison	AbsoluteIT	JacksonStone	Total
Forecast FY2022 Turnover	$62.0m	$80.3m	$33.3m	$175.6m
Modelled Net Profit Margin	0.034	0.034	0.072
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	Madison	AbsoluteIT	JacksonStone	Total
Actual FY2022 Turnover	$78.0m (c)	$35.9m (e)	$28.0m (a)	$141.9m
Modelled Net Profit Margin	0.034	-0.039 (g)	0.072
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]

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:

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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.

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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]

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]

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).

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"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."

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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
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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.

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From HYR2022 page 6

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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.

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*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:

	2HY2021	1HY2021	2HY2020
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]

	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	$12.574m	38.6%
FY2019	$32.629m	$24.186m	$8.443m	38.3%
FY2020	($53.071m - $22.286m)	($46.169m - $21.778m)	$6.340m	20.6%
FY2021	$23.271m	$20.180m	$3.091m	13.3%

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	$12.574m	38.6%
FY2019	$32.629m	$24.186m	$8.443m	38.3%
FY2020	($53.071m - $22.286m)	($46.169m - $21.778m)	$6.340m	20.6%
FY2021	$23.271m	$20.180m	$3.091m	13.3%
FY2022	$25.868m	$24.382m	$1.486m	5.74%

Notes

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

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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]

PPE or 'People Infrastructure Limited', now renamed 'PeopleIn', is an Australian listed company, offering staffing solutions, business services and operational services.

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From PPE HYR2022 page 6

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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.

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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-wo...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-season...ress-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...sers-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