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  1. #981
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    Default Bad Debts at Accordant 'not so bad'? (FY2022 Perspective) 'Reconciliation'

    Quote Originally Posted by Snoopy View Post
    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
    Last edited by Snoopy; 01-07-2022 at 06:54 PM.
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  2. #982
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    Default Bad Debts at Accordant 'not so bad'? (FY2022 Perspective) 'Calculation'

    Quote Originally Posted by Snoopy View Post
    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
    Last edited by Snoopy; 01-07-2022 at 07:54 PM.
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  3. #983
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    Default Operating in tough times

    Quote Originally Posted by Snoopy View Post
    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
    Last edited by Snoopy; 02-07-2022 at 09:29 PM.
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  4. #984
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    Default Minimum Debt Repayment Time (Period: EOFY2018 to EOFY2022)

    Quote Originally Posted by Snoopy View Post

    '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 FY2018 FY2019 FY2020 FY2021
    Significant Event First full year owning AbsoluteIT JacksonStone Acquired Covid-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
    Last edited by Snoopy; 02-07-2022 at 10:44 AM.
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  5. #985
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    Default Updating the banking covenants (FY2022 perspective)

    Quote Originally Posted by Snoopy View Post
    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 Year 2017 2018 2019 2020 2021 2021.5
    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) 10.7 9.0 5.6 5.9 19.7 16.2
    Net Bank Debt {D} $32.383m $29.731m $26.643m $29.822m $13.205m $13.011m
    Leverage ratio {D}/{B} (target <3) 2.5 2.5 3.5 3.4 0.93 1.5

    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 Year 2017 2018 2019 2020 2021 2022
    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) 10.7 9.0 5.6 5.9 19.7 11.6
    Net Bank Debt {D} $32.383m $29.731m $26.643m $29.822m $13.205m $13.028m
    Leverage ratio {D}/{B} (target <3) 2.5 2.5 3.5 3.4 0.93 1.65

    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
    Last edited by Snoopy; 02-07-2022 at 11:59 AM.
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  6. #986
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    Default Cashflows vs Dividends: FY2022.5 Perspective

    Quote Originally Posted by Snoopy View Post
    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
    Last edited by Snoopy; 02-07-2022 at 06:49 PM.
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  7. #987
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    Default Interest Bill over FY2022

    Quote Originally Posted by Snoopy View Post
    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
    Last edited by Snoopy; 04-07-2022 at 11:40 AM.
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  8. #988
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    Default Covid-19 FY2021 Rent Reduction Revisited

    Quote Originally Posted by Snoopy View Post
    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.
    Looking back through this thread, I saw this 'loose end' that needed tidying up.

    Current lease liability over FY2022 (AR2022 p27) reduced to $2.231m, from the FY2021 figure of $2.264m. So it looks like the rent reductions negotiated by Simon Bennett as a result of Covid-19 really did stick. I am sorry I was cynical in my referenced post, as the rent reduction did stand up to scrutiny. An example of management doing what they said they would do. Good stuff!

    SNOOPY
    Last edited by Snoopy; 05-07-2022 at 08:53 AM.
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  9. #989
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    Default Accordant AWF division 'gets the blues'. (FY2022 Perspective)

    Quote Originally Posted by Snoopy View Post
    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.

    2018 2019 2020 2021 2021.5
    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).

    2018 2019 2020 2021 2022
    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
    Last edited by Snoopy; 07-07-2022 at 06:40 PM.
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  10. #990
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    Default Accordant 'White Collar Revelations' (FY2022 Perspective) Pt1

    Quote Originally Posted by Snoopy View Post
    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.

    2018 2019 2020 2021 2021.5
    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
    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 AR2022 (Note A1 Segment Revenue and Results). Actual 'Trade & Receivables Writedown' can be found on p41 of AR2022 (Note A4: Expected Credit Losses).

    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.

    2018 2019 2020 2021 2022
    White Collar Revenue $149.455m $151.946m $166.079m $127.720m $141.894m
    White Collar EBIT {A} $5.563m $5.957m $7.156m $4.235m $7.789m
    Actual Trade & Receivables Writedowns {B} $0m $0m $0m $0m $0m
    White Collar EBIT - Writedowns {A}-{B} $5.563m $5.957m $7.156m $4.235m $7.789m

    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).

    It is interesting to compare the above table with the previous full year construct that is six month time shifted and quoted above. You can see that although turnover is up substantially over the comparative period (+12%), EBIT is flat. Furthermore if we go back 'pre-pandemic' to FY2019, we can see that 'white collar turnover' overall is lower today, despite the successful incorporation and integration of a whole new division, JacksonStone, in the years since.

    What is the story behind these numbers?

    SNOOPY
    Last edited by Snoopy; 24-07-2022 at 10:22 AM.
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