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

[minimoke]

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.

SNOOPY

We have been told that "The demand for recruitment talent has had some impact on the Madison business with pressure of competition for current and future talent by growing internal recruitment teams. This has softened the Madison result." This suggests to me that finding 3,500 - 4,000 was more challenging that anticipated. Meaning greater staff overhead and reduced margin due to higher wages of census workers. Those big contracts always run on slim margins and tend to distract from core business. I wouldn't necessarily call it a "benefit"

[Snoopy]

But on the temping side, I expect Madison to have a boost in the second half, because of the one off Census contract. Statistics NZ were hoping for 50% of us filling in the forms on line. Any less than that and AWF Madison should do consummately better than expected. More people will need to be hired on the ground to follow up! It will all be a one off though.

Oh no!

https://www.stats.govt.nz/news/censu...percent-online

Looks like all the grey haired grizzle beards, got their sons, daughters or wives to fill in their census forms via the computer! 70% on line completion rate, if achieved, bad news for AWF shareholders. Could this be a temp fizzer for Madison, after all the promise made last year? 2HY2018 for Madison not so rosy after all?

SNOOPY

[winner69]

No .... good news for AWF Snoops ....still keeping all the extra people busy I reckon

[Snoopy]

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.


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

The 'Keenan preference' was made in passing by Simon Bennett in the AGM address. Time to put some numbers on what would cause the board concern:

Financial Year	2018 (HY Annualised Estimate Scenario)	2018 (Board Shock Scenario)	2018 (Horror Scenario)
EBITDA (Snoopy produced) {B}	$12.046m	$11.592m	$7.728m
Finance Cost {C}	$1.659m	$1.659m	$1.659m
Interest Coverage {B}/{C}	7.3	6.8	4.7
Net Bank Debt {D}	$23.183	$23.183m	$23.183m
Leverage ratio {D}/{B}	1.9	2.0	3.0

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 $11.592m 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 [ $11.592m - 2($0.741m) - 2($1.864m)] = $6.328m (FY2018 profit, not a great result)

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 profit (still down on the first half) of:

$6.328m - $3.418m = $2.964m

Boards hate cutting dividends. If the FY profit is there or thereabouts and the outlook is OK, I pick the dividend will be maintained. But if the FY profit is really below that reported last year (as opposed to below the result of counting Absolute IT in the fold for twelve months), we shareholders might get a dividend cut. I guess it all depends how good that cashflow is.

SNOOPY

[winner69]

Snoops - I’m still convinced that ‘less than prior period’ means earnings less than $5.9m ...but keep your hopes up

[winner69]

Snoops, so hoping cash flows are strong to maintain dividend

Do you ever look at the Cash Flow Statement and it’s component ....quite interesting

Or are you ne of these analysts who use ebitda as a proxy for operating cash flows.

[Snoopy]

Snoops, so hoping cash flows are strong to maintain dividend

Do you ever look at the Cash Flow Statement and it’s component ....quite interesting

Or are you one of these analysts who use ebitda as a proxy for operating cash flows.

I normally invest in companies with cash flows so strong, that I don't need to look at them Winner :-).

But since you mentioned it, I did have a look at the latest half year cashflows in HYR2018. I see a very strong increase in cash coming into the books over the latest half year and the pcp. + $9.2m is more than enough to cover the dividends for the whole year, almost two times over! However, last year the cash balance started at $6.967m at the end of the first half, yet it shrunk down to $1.137m by the end of the FY2017 financial year. Of course AWF acquired AbsoluteIT in 2HY2017 ($9.903m) which goes a long way to explaining where that cash went. Nothing is being acquired in 2HY2018 so cashflow ought to be pretty good over the second half year. Have I missed anything?

I am a bit surprised that the ASB bank uses EBITDA as a proxy for cashflow. I suppose taking a very short term view you could do that. But I would have thought that letting your office get shabbier and shabbier, using outdated computer software and driving around in old cars might not be good for business in the medium term?

SNOOPY

[winner69]

Snoops - AWF operating cash flows are quite seasonal with changes in working capital

Wouldn’t be a surprise to see negative operating cash flow for second half of the year ...could be a good exercise where a lot of that ‘strong’ first half cash flow came from

[Baa_Baa]

Snoops - AWF operating cash flows are quite seasonal with changes in working capital

Wouldn’t be a surprise to see negative operating cash flow for second half of the year ...could be a good exercise where a lot of that ‘strong’ first half cash flow came from

You seem to be enjoying winding-up the Snoop dog who takes the bait most times, but while cash flow is important (essential) to short term management operational measures it's secondary as you almost certainly know, to fundamental metrics around profitability and more importantly for shareholders, net earnings and payouts.

Cash flow can be volatile month to month even in a company that maintains a steady or growing annual earnings, so best to look at it from a perspective of what underlying fundamentals make AWF a good, or not good, long term investment, rather than the monthly, quarterly or half yearly fluctuations in cash flow which results from burn rates, one-off acquisitions, sitting on cash etc etc.

Given that a severe sustained cashflow deficit is a big warning, and vice versa, more often that not shorter term cash movements are a secondary and minor consideration to growing revenue, less expenses and profits arising, resulting in dividends, ergo paying out cash that is otherwise not required to grow or fund the company.

Modern accounting likes to make these basics more complicated than they really are.

[winner69]

AWF cash flows over the last 4 years. These redone in a way that beeper represents cash flows from day to day stuff and those associated with acquisitions and funding.

I always like looking at how much of free cash flow gets paid as dividends

In AWFs case the amount paid in dividends invariably exceeds cash generated on a day to day basis (excluding cost of acquisitions)

AWF have essentially had To increase debt to keep paying the dividends. That’s how I see it anyway. Note that changes in debt and the capital raised is slightly more than what they spent on acquisitions ...the extra gone to keep the dividends up

I would say this year probably won’t be much different.