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

[Snoopy]

Agree ..beat up companies are often good investments. That’s what piqued my interest.

I don’t think it’s been any media beatup that caused the share price to fall where it is today ....it’s the market reaction to ongoing disappointing AWF performance.

I can’t see the current issues being resolved quickly.... it all points to more pain.

It is the construction industry that seems to be facing problems everywhere you look! Simon Bennett 'blamed the weather' for the patchy uptake of construction workers during the year.
I guess with climate change bedding in, Bennett will be within his rights to 'blame the weather' every year from now on, But the fact is, there is still an awful lot of construction activity going on. At some point the industry will have to get their cost structure right. The underlying business case for the 'AWF' sub unit remains in my view.

Maybe the next crunch point is when we know how much less than $5.9m F18 earnings turn out to be.

One thing that boost profits a bit is when they make a favourable adjustment to what they have provided to cover the earn out payment re ITAbsolute if targets aren’t met

I see looking at note G1 in AR2017, the net cash paid for AbsoluteIT, $9.903m excludes the $3.420m estimated earn out payment. Of course that $3.420m was an estimate based on the expected earn out performance at the last balance date. But in the March 1st trading update we were told

"The performance of AWF Madison’s other business, Absolute IT, continues to meet expectations."

This is despite the performance AWF and Madison business units being softer. This sounds like code for no change to the expected earn out payment for AbsoluteIT. If AbsoluteIT has a late financial year falter, that would mean all three divisions going soft. Not a good trade off for a saving in the earn out payment I would have thought! Could it be the earn out payment that is influencing the projected lower full year financial result forecast? I would have thought that any earn out payment would be capitalized expenditure in relation to the AbsoluteIT acquisition and would show up on the books as extra goodwill or something? IOW not an operating expense that would affect the upcoming profit figure. Happy to be corrected by a real accountant on this one.

SNOOPY

[winner69]

Snoops

If The forecast AbsoluteIT earn out payment of $3.420 has already been capitalised. There is also a liability of the same amount shown on the Balance Sheet

Generally adjustments/differences when settled are treated as an expense

The way you class SKC deferred license liability as debt should apply here ....maybe you should add this $3.4m to AWF debt

[Snoopy]

Snoops

If The forecast AbsoluteIT earn out payment of $3.420 has already been capitalised. There is also a liability of the same amount shown on the Balance Sheet

I am not sure if the earn out payment of $3.420m has been capitalised or not.

If I go to section B3 of AR2017, I can see $7.836m of new goodwill on the books, attributable to the Absolute IT Group.

If I then go to section G of AR2017, there is that $7.836m figure again in the 'Analysis of assets and liabilities acquired."

Net Assets	$6.882m
plus Goodwill on Acquisition	$7.836m
equals Cost of Acquisition	$14.718m

The same $14.718m acquisition cost is broken down just below that in a different way:

Paid in Cash	$11.298m
plus Earn Out Payment	$3.420m
equals Cost of Acquisition	$14.718m

So it looks to me as though the $3.420m earn out payment is already included in the cost of acquisition and has been used as a part of the calculation which determined what the AbsoluteIT goodwill on the books is. Does that mean the $3.420 earn out is already capitalised? It looks that way. But if this is so Winner, and you tell us there is also a liability of the same amount shown on the balance sheet, then where is it? Answer: Under Current Liabilities:

"AbsoluteIT Limited earn-out payment = $3.420m", listed at the bottom of 'Current Liabilities' in the balance sheet (p25 AR2017).

Generally adjustments/differences when settled are treated as an expense

If this $3.420m becomes a second half expense, that will put a big hole in the second half profit. But if it is the act of paying that $3.420m earn out fee that is the main thing that causes second half profit to plunge, is that a bad thing? All it means is that AbsoluteIT is doing really well, which is what we shareholders want, and the $3.420m extra expense is simply a 'one off' charge that reflects this. Suddenly I am a whole lot more relaxed about 2HY2018.

The way you class SKC deferred license liability as debt should apply here ....maybe you should add this $3.4m to AWF debt

I agree!

SNOOPY

[winner69]

Snoops - the $3.42m has been ‘capitalised’. Trust me

Also Snoops ....if it turns out the earn out payment is $3.42m and paid in H2 there will NO IMPACT ON PROFIT .....and that liability on the Balance Sheet will disappear (with a corresponding reduction in CASH)

We won’t bother discuss what might happen if the payment is heaps more or less ...I think they would have told us about that already if material.

[minimoke]

Isnt the 3.43 actually 4.2m - this is what was reported to market at purchase time. That is purchase price $15.3m, $11.1m payable on 1 Nov 2016 and up to $4.2m payable on / after results to 1 Nov 2017

[winner69]

Isnt the 3.43 actually 4.2m - this is what was reported to market at purchase time. That is purchase price $15.3m, $11.1m payable on 1 Nov 2016 and up to $4.2m payable on / after results to 1 Nov 2017

Correct ...but AWF calculated and then assumed they would only be paying $3.42m and not the ‘up to’ $4.2m and only ‘valued’ the acquisition at the lower figure.

Could still be up for $4.2m but I think they would have told us by now if the case.

[minimoke]

Correct ...but AWF calculated and then assumed they would only be paying $3.42m and not the ‘up to’ $4.2m and only ‘valued’ the acquisition at the lower figure.

Could still be up for $4.2m but I think they would have told us by now if the case.

So we can conclude that as at Nov 2017 Absolute IT did not deliver on its revenue, expense and profit targets. With that motivator now off the table I would expect 2nd half results to worsen. I presume rather than the $3.42 coming off the bottom line cash it will be debt funded?

[winner69]

Good strong announcement with plenty of good words like transformation, opportunity, fantastic, growth etc etc

Pity about the profit being $5.0m being way way down on last year even though they had a full year of AbsoluteIT

Bit short of Snoops’s expectations of $7m but he’ll be satisfied with $5m

Cash flow kept the divie safe.

https://www.nzx.com/announcements/318613

[percy]

Good strong announcement with plenty of good words like transformation, opportunity, fantastic, growth etc etc

Pity about the profit

https://www.nzx.com/announcements/318613

Yes it certainly was a "pity about the profit."...................lol.
Loved the gloss.

[minimoke]

Might be worth trying to normalise it a bit by taking out the Census contract. 3,000 workers has to be worth a bit of revenue that wont be seen in 2018/19.

(nicely glossed over shabby internal recruitment practices, the use of illegal employment agreements and exploitation of migrant workers)

Not sur ewalkign away form bread and butter small employers is such a good idea. There's substantial future risk trying to chase the big contracts. (its only taken them 8 years to get some value from Fleur Broad)