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

[Snoopy]

What follows is my recreation of the table presented in slide 8

Financial Year	2015	2016	2017	2018 (HY Annualised Estimate Scenario)	2018 (Horror Scenario)
EBITDA (Snoopy produced *) {B}	$12.729m	$11.945m	$12.751m	$12.046m	$7.728m
Finance Cost {C}	$2.109m	$1.333m	$1.193m	$1.659m	$1.659m
Interest Coverage {B}/{C} (target >3)	6.0	9.0	10.7	7.3	4.7
Net Bank Debt {D}	$18.608m	$21.870m	$32.383m	$23.183	$23.183m
Leverage ratio {D}/{B} (target <3)	1.5	1.8	2.5	1.9	3.0

(* I calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I + DA)


So what does all this mean?

The situation we don't want is the 'horror scenario' which sees the 'leverage ratio' banking covenant broken (bottom RH corner in bold). Note that even in this 'horror scenario', the interest coverage ratio remains OK. 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.

However, 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 $7.728m 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 [ $7.728m - 2($0.741m) - 2($1.864m)] = $1.813m

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 loss of :

$1.813m - $3.418m = -$1.605m

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. To produce this 'horror result' will require a massive second half loss to be posted by the AWF division, to drag down the other two (which should be nicely profitable) via the group result into the red. Even writing off the remaining $0.6m outstanding from the much talked about 'bad debtor' won't do it. While such a loss is possible, it just doesn't seem likely. The AWF banking covenants look pretty safe to me.

SNOOPY

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

Financial Year	2015	2016	2017	2018	2019 (estimate)
EBITDA (Snoopy produced *) {B}	$12.729m	$11.945m	$12.751m	$11.751m	$10.304m
Finance Cost {C}	$2.109m	$1.333m	$1.193m	$1.297m	$1.274m
Interest Coverage {B}/{C} (target >3)	6.0	9.0	10.7	9.0	8.1
Net Bank Debt {D}	$18.608m	$21.870m	$32.383m	$29.731m	$27.331m
Leverage ratio {D}/{B} (target <3)	1.5	1.8	2.5	2.5	2.7

(* I calculated EBITDA from the income statement using the formula: EBITDA = NPBT + I + DA)

The table below has been used to calculate the covenant figures for the composite twelve months made up from the second half year of FY2018 and the first half year of FY2019.

Financial Year	HY2018	2018	2HY2018 {A}	HY2019 {B}	2HY2018+HY2019 {A}+{B}
EBITDA (Snoopy produced *) {B}	$7.093m	$11.751m	$4.652m	$5.152m	$9.810m
Finance Cost {C}	$0.741m	$1.297m	$0.556m	$0.637m	$1.193m
Interest Coverage {B}/{C} (target >3)	NM	9.0	NM	NM	8.2
Net Bank Debt {D}	$23.183m	$29.731m	$29.731m	$27.331m	$27.331m
Leverage ratio {D}/{B} (target <3)	NM	2.5	NM	NM	2.8

That EBITDA banking debt covenant is still a worry. We are getting close to that bank ceiling of 3 and still well away from the management target of 2. Nevertheless it looks like things have turned the corner!

SNOOPY