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

[winner69]

Welcome ACCORDANT

cool stuff

[Snoopy]

Welcome ACCORDANT

cool stuff

Yes good move bringing the piano-accordion hire brigade on board. With overseas touring acts gone, we need local acts to fill the halls. And one person cannot make much more noise than behind the bellows of a piano-accordion, A piano-accordion player is a 'small cost' 'big noise' way to fill a concert hall in these Covid-19 oppressed times. And that is to be accorded, (or should that be applauded)? That suffix 'ant' in the new brand name is a stroke of genius too. The ant is probably the hardest working of all insects. Anyone who has seen the big cousin termite mounds in the Australian desert will know this. And ants get no pay. Hiring out hard working local musicians for next to nothing is definitely the future of entertainment in NZ. It doesn't sound that innovative when I put it that way though! It sounds like the kind of working conditions our local musicians have always put up with. OTOH I guess that shows what we have here is a 'proven business model': good stuff.

Now moving on to the 'meat' of Chairman Ross Keenan's address.

The announcement of no definite date for the resumption of dividends comes as no surprise. The last line announcement of no cash issue while the shares 'are at the level the share price sits' is welcome in the sense that:

1/ It confirms the group is in need of more shareholder funding (as I have been suggesting over the last few months).
2/ They have got their debt down by enough so that ASB is not in charge of any recapitalization process.

So all that is good news. However not so good is the Madison white collar recruitment division, down 50% over the lock down (refer to Chairman Ross Keenan's AGM address) . Then we have the outlook: "Madison white collar recruitment areas: we are hoping to see some confidence in contracting, but certainly don’t see signs of this yet." Code for 'still down 50%'?

"It’s pretty obvious of course that the non-specialist white collar recruiters such as Madison will stay in a very stressful position,as so many companies have either shut their doors or are struggling to find what the new business base for them is. Recruitment certainly is not on their radar."

How long can 'Accordant' go on with all that Madison goodwill on the books? Nevertheless, I do like the sound of that new measure: teaching all these unemployed white shirters the piano-accordion. That could be 'just the (discounted) ticket' going forwards!

SNOOPY

[Nor]

I'm hoping some of this will start to make sense if I have a look at the ceo's presentation as well. Here goes.

[Nor]

Accordant yuk. Nobody will ever think labour hire when they hear that. At least AWF Madison means something.

[Getty]

Not much accord on that name decision, not very cordial at all.

According to me, it sounds like a Honda with a dent.

[Getty]

What happens when they change the code to ACC?

That wont look very good to prospective labour hirers will it?

[Nor]

This idea of Labour's for 10 paid sick days a year (also known as sickies) could boost labour hire. I know from observation that many workers take every sick day off as soon as it accrues sick or usually not. This would be much harder to do with a labor hire company. (They're tough to put it mildly).

[Snoopy]

Not much accord on that name decision, not very cordial at all.

According to me, it sounds like a Honda with a dent.

I hope they didn't spend too much on consultants getting that new name. Probably Chairman Ross Keenan reaching back through the years when a Honda Accord was the car to have for a young upcoming exec. Ross reminiscing about driving his Honda Accord through the picket line and getting his car restyled by a picketer's boot. If that wasn't how 'Accordant' got its name, Ross should retrospectively adopt my explanation of how the name came about, as it would make a much better yarn.

They say the rebranding has been seven years in the coming. It has taken Vince seven years to -not- change the name of this thread to the then new name 'AWF Madison'. So Vince will probably be retired by the time he sorts out this latest name change for this thread. No worries then about the adoption of a new nebulous identity for now, even for investors. But all jesting aside, I do believe this 'Accordant' is just proposed as an all enveloping umbrella name for investors, whereas the actual business will still be conducted under the brand names: AWF, Madison, AbsoluteIT, and JacksonStone - the names we all know.

SNOOPY

[Snoopy]

That is the concept I have called MDRT (Minimum Debt Repayment Time). I wouldn't be quite as 'exclusive' in eliminating potential investment candidates as Buffett. Especially in his time of ultra low interest rates.

'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

	FY2015	FY2016	FY2017	FY2018	FY2019	FY2020
Significant Event	First full year owning Madison			First full year owning AbsoluteIT		JacksonStone Acquired
Cash & Cash Equivalents: {A}	$3.151m	$0.0m	$1.225m	$6.269m	$6.357m	$6.178m
Non Current Borrowings:	$0.0m	$18.500m	$18.500m	$36.000m	$33.000m	$36.000m
add Current Borrowings:	$21.759m	$2.500m	$0.0m	$0.0m	$0.0m	$0.0m
add Overdraft:	$0.0m	$0.870m	$0.108m	$0.0m	$0.0m	$0.0m
equals Total Borrowings: {B}	$21.759m	$21.870m	$18.608m	$36.000m	$33.000m	$36.000m
Total Net Borrowings: {B} - {A}	$18.608m	$21.870m	$17.323m	$29.731m	$26.643m	$29.822m
Net profit declared {C}	$5.416m	$5.202m	$5.867m	$5.048m	$2.013m	$2.677m
MDRT ({B} - {A}) / (C}	3.4 years	4.2 years	3.0 years	5.8 years	13.2 years	11.1 years

Laid out in this way it is a sad tale. AWF may be the largest recruitment company in NZ and it may now have four divisional cylinders to fire on. But every time a cylinder is added to the cylinder bank the spark plug that fires it appears to no longer run cleanly. Madison is in decline. AbsoluteIT is in decline and the former single cylinder stand alone power plant, AWF, definitely has a sooty plug. JacksonStone is the 'saviour' this year to complete the 'firing on all four cylinders' divisional quartet. But when you look at the additive result, the obvious question is:

"Where's the fire?"

I am probably being a bit unfair here because the principal reason behind what is now 'new normal ' profitability is AWF. The construction industry problems appear to have taken the wind out of what was this company's main driving sail. But the end result of going from a strong performing one cylinder motorbike five years ago to a 'flaccid four' today is more weight (overheads) and less performance (profit). It is enough for shareholders to think nostalgically about Simon Hull standing on the side of an Auckland Street loading the workers into a bus with a megaphone. But 'the Hullsters' approach is now history.

Today , under 'the Bennster', profitability has halved. So net debt should really be no more than half of what it was in 2015. That means we are looking at a cash issue of around $10m to fix the debt problem. Current market capitalisation is $50m, with the share price at $1.45. A 1:1 cash issue at $1 would raise approximately $30m. A 1:1 cash issue at $1.30 would raise approximately $40m. A 1:4 cash issue at $1.30 would raise approximately $10m. That's my pick on the way out.

Given the difficult debt position faced by the then named AWF Madison at EOFY2020, I think it is worth reviewing the debt position of the changed name 'Accordant' at the end of the current half year

	FY2020	2HY2020 + HY2021
Significant Event	JacksonStone Acquired	Covid-19
Cash & Cash Equivalents: {A}	$6.178m	$5.870m
Non Current Borrowings:	$36.000m	$15.000m
add Current Borrowings:	$0.0m	$0.0m
add Overdraft:	$0.0m	$0.0m
equals Total Borrowings: {B}	$36.000m	$15.000m
Total Net Borrowings: {B} - {A}	$29.822m	$9.130m
Net profit declared {C}	$2.677m	$5.068m
MDRT ({B} - {A}) / (C}	11.1 years	1.80 years

Net Profit for 12 months ending 30th September 2020: $3.712m + ($2.677m-$1.321m) = $5.068m

At first glance it appears a remarkable turnaround has happened. The relative debt position has improved to the best state it has been in at any time over the last five years. Looking at the balance sheet, the long term debt has effectively halved. And this has largely been achieved by very effective debt collection. Trade receivables have come down a massive $28.463m to just $24.608m. This hasn't been achieved by not paying your bills either. Trade payables are similarly down by $21.727m to $24.442m (Account Receivables are currently balance by Account Payables, which is good).

(Edit: On further reflection I believe the above explanation is wrong. 'Trade and Other Receivables' includes a Grant Income Receivable' $22.286m entry. 'Trade and Other Payables' includes 'Deferred Grant Income' of $21.778m. It is those two entries that, when converted to wage subsidy payments, reduce the 'Trade Receivables' and 'Trade Payables' balances so dramatically.)

The cancellation of dividends ($5.581m in dividends were paid over FY2020) has contributed to the ability to pay down debt as well. A further factor is that at balance date, 12 weeks of wage subsidy had been received but only two weeks worth of that had been paid out

It is no wonder, then, that long term debt has able to have been paid down. But all this has been achieved under the the Covid-19 wage support packages from the government. These payments are being wound down. So let's see what the MDRT debt picture would look like had these Covid-19 wage payments not been made. p16 of the HY2021 contains the Covid-19 payment information,

"During the six month period ended 30 September 2020, Group eligible entities claimed $13.2m and repaid $2.2m under the New Zealand Government’s COVID‑19 Wage Subsidy Schemes."

So the net amount of wage subsidy claimed over HY2021 was: $13.2m - $2.2m = $11.0m

"This was in addition to the amount claimed under the initial 12 week COVID‑19 Wage Subsidy Scheme referred to in the Group’s annual financial statements for the year ended 31 March 2020. Under the initial 12 week COVID‑19 Wage Subsidy Scheme, the Group applied for $22.9m (for 3,451 employees) subsequently refunding $1.4m (for 231 employees)."

So the net amount of wage subsidy claimed over FY2020 was: $22.9m - $1.4m = $21.5m

The NZ Covid -19 wage subsidy was introduced on 17th March 2020. So of the initial 12 week period for which wage subsidy payments were made, only 14 days (2 weeks) related to FY2020 (which ended on 31-03-2020). This means that although a net wage subsidy payment of $21.5m was made in FY2020, only:

2/12 x $21.5m = $3.583m

of that payment related to FY2020. The balance of that payment ($21.5m - $3.583m = $17.417m) related to HY2021, as did the net 8 week wage extension payment of $11.0m. This means the initial wage subsidy and extension applying to HY2021 was:

$17.417m + $11.000m = $28.417m

MDRT requires a full year of earnings for a comparison of debt paying off ability though. Over 2HY2020 and HY2011 the wage subsidy received was:

$21.5m + $11.0m = $32.5m

Now let's repeat the above MDRT table with the earnings contributions from the initial 12 week wage subsidy and the 8 week extension removed.

SNOOPY

[Snoopy]

Now let's repeat the above MDRT table with the earnings contributions from the initial 12 week wage subsidy and the 8 week extension removed.

	FY2020	2HY2020 + HY2021
Significant Event	JacksonStone Acquired	Covid-19
Cash & Cash Equivalents: {A}	$6.178m	$5.870m
Non Current Borrowings:	$36.000m	$15.000m
add Current Borrowings:	$0.0m	$0.0m
add Overdraft:	$0.0m	$0.0m
equals Total Borrowings: {B}	$36.000m	$15.000m
Total Net Borrowings: {B} - {A}	$29.822m	$9.130m
Net profit declared {C}	$2.677m	$5.068m
less Wage Subsidy Adjustment	0.72 x $3.583m	0.72 x $32.5m
equals Net Profit Adjusted {D}	$0.169m	($18.332m)
MDRT ({B} - {A}) / (D}	176 years	NM years

This picture is very different from that painted in the half year report. If the government wage subsidy is removed (as it now has been), this shows a company in desperate trouble. Yes the debt has come down. But underlying losses are enormous and there is no hope of repaying any more debt let alone servicing debt interest bills.

From p6 of HY2021 report

"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. Your Board also sacrificed fees of 20% for a 3-month period. This, along with our profit contribution, has seen net Bank debt reduce significantly to $9.1 million. We are very comfortable at this level which also allows some headroom for another strategic acquisition."

I read the above paragraph, noted Simon Bennett's 'flower power' shirt and wondered what other trappings of the late 1960s that Bennett has been smoking. It is quite clear to me after reading the accounts that a very significant contribution to bolstering the balance sheet at HY2021 was the:

$17.417m + $11m = $28.417m

of government wage subsidy that Bennett neglected to mention. Simon, do you not realise that with the government not paying these wage bills going forwards that you at Accordant will have to! With these 'no longer subsidised costs' going forwards, I think it is doubtful that the underlying Accordant is currently making any money. So what on earth are you thinking about 'making a strategic acquisition'? Surely you have to win the battle of making the existing business profitable first? And it looks to me like you have a real battle on your hands to do that. How are you going to pay your debts? Is Accordant even solvent, based on projected future cashflows?

SNOOPY

discl: worried shareholder