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

[Nor]

Up 11c 8.87% to 1.35 today.

[Snoopy]

Doesn’t say what profit measure they using but this is good news -

Limited: Market Update
AWF Madison Group Limited (NZX:AWF) wishes to update the market on its expected half year financial results, which are likely to show materially higher profit than the FY2020 Half Year result on reduced turnover.

So NPBT > $2m ....not too bad ...even if the wage subsidy did pull them through.

Any profit is good in these Covid-19 times. But saying your NPBT for HY2021 is better than your worst half year profit since at least 2015 is hardly 'blow the trumpet' good news. This is particularly so when the previous half year comparative period, HY2020, included only 3 months from the poster child acquisition of JacksonStone & Partners. So I am fairly sure that comparing like for like divisions profitability has sunk to a new low for HY2021. And this is in spite of directors senior managers and a high percentage of operational teams taking pay cuts, some redundancies, and with income boosted for lower level earners by soon to be phased out wage subsidies.

From the 4th September 2020 press release:

"A number of our business units received the wage subsidy for eligible employees, which enabled us to continue to employ large numbers of our people."

AWF Madison have a cohort of full time temping staff. They could only get the wage subsidy if turnover was down 30% on the previous comparative period. So reading the forward looking counterfactual to this quote, AWF Madison are saying that when the wage subsidy comes off, as it is now, they will not be able to employ 'large numbers of our people'. IOW unless business picks up, mass redundancies are certain, which will come at a big cost.

"The Key business of Permanent Recruitment is subdued at this time, and likely to remain so,"

Permanent recruitment is a very profitable section of the business, so the above statement is very downbeat on profits going forwards.

Yet despite all this bad news, the reduction in net debt since balance date is very welcome and impressive:

Net Debt EOFY 2020	$29.822m
add EOFY2020 Tax Payable	$0.950m
less Final FY2020 dividend not paid (1)	$2.819m
less Excess of Profit and D&A above dividend (2)	$1.530m
less Reduced Capital Expenditure	$?m
less Reduced Working Capital	$?m
equals Net Debt EOHY 2021 (including Tax Payable)	$11.500m

Notes

1/ 0.082dps x 34,325,542shares = $2.819m (Final dividend FY2020, cancelled, not paid)

2/ Estimate of D&A for HY2021: $6.194m - $3.285m = $2.909m. Estimate of 'Net Profit' added to estimate of 'Depreciation & Amortisation' (does not reduce cash on hand) for HY2021: 0.72 x $2m +$2.909m = $4.349m (Estimate is required because this post was originally made before half year result for HY2021 was released).

I had always considered AWF Madison a 'Capital Light' company. I have searched right through AR2020 looking for what their capital expenditure was and could not find a reference to them spending anything on 'capital expenditure'. So I am guessing whatever 'saving' they have made here is a small number.

'Reducing Working Capital' is another way of saying you are increasing the amount of money you are collecting from customers much faster than the new bills you are creating. But this is what happens when the size of your business decreases significantly. That isn't necessarily a good thing. Because even though the total debt has come down, your capacity to service that debt is similarly decreased.

Assuming a $1m reduction in capital expenditure, my table above is showing a 'Reduction In Working Capital' of $13.923m. If all of this has come off trade receivables at last balance date of ($53.071m - $22.206m = $30.865m), this is pointing to a decline in business of: $13.923m/$30.865m = 45% from FY2020. And remember this decline is with all the wage subsidies in place.

With the worst to come, that estimated half year profit of 0.7x$2m=$1.44m might have to do for the whole year, Divide that into the reduced debt of $11.5m and I get an MDRT figure of: $11.5m/$1.44m = 8 years. This is still a very heavily indebted company with a cloudy future. I still believe a cash issue needs to be announced at the AGM to shore up the balance sheet. At the very least there will be no dividend for the rest of the year in my view.

SNOOPY

discl: holding, but in no hurry to top up on this progress report

[winner69]

Hey snoops ...good review but you have to admire them for ‘blowing their trumpet’ with good news

Market apparently liked it so that trick worked

But as you sort of say the devil will be in the detail when it finally comes out.

[nztx]

Interesting analysis there snoopy

Bear in mind that the second wage subsidy was around 30/6 - so possibiiity of prepayments of future weeks in advance clouding things

A Labour Hire / HR outfit is possibly different from other bricks & mortar retail operators

Very little if any stock (the stock is heads on the books or their labour leased out at a margin) - fast debtor settlements -
so probably bode well for leveraging on balance sheet

The stock in trade (deployed & available skill sets on the books) can be redeployed elsewhere if one sector doesn't want them any more

What did the market price AWF at pre Covid-19 ?

The historic dividends haven't been too shabby either, despite similar scenarios being painted then as well.

I tend to be a bit more optimistic on AWF - more towards Win Win -- one sector will be down another up or requiring additional service

They traded reasonably in harder time when others were worse -- climbing out of it growing or recovery sectors coming out the other side should underpin AWF performance & they have an increasing head count of available talent out there to pull skills from / work for them as well for further growth


Discl: Holder

[winner69]

nztx ....AWF was over 2 bucks pre-Covid

Like your post .....written by a true believer

But remember the devil in the detail will be revealed when the full report comes out.

[Snoopy]

Interesting analysis there snoopy

Bear in mind that the second wage subsidy was around 30/6 - so possibility of prepayments of future weeks in advance clouding things

The first wage subsidy was released on 17th March 2020 for a duration of 12 weeks which takes us to 9th June 2020. The subsidy extension payment went from 10th June 2020 to 1st September 2020. Then late in August there was a 'Resurgence Wage Subsidy' announced with the Auckland lock down. This was not available to those workers on the original subsidy plan. The 'Resurgence Wage Subsidy' was for two weeks from the application date which was from 21st August to 3rd September, implying a last expiry date of 17th September at the latest. Given the original subsidy expired on 1st September and the AWF press release was made on 4th September, that doesn't leave much room for prepayments still being on the books at AWF Madison, except for the RWS scheme. But that is only eligible to workers not on the original wage subsidy scheme, and it is hard to think of a case where any AWF worker could qualify for that one.

A Labour Hire / HR outfit is possibly different from other bricks & mortar retail operators

Very little if any stock (the stock is heads on the books or their labour leased out at a margin) - fast debtor settlements -
so probably bode well for leveraging on balance sheet

The stock in trade (deployed & available skill sets on the books) can be redeployed elsewhere if one sector doesn't want them any more

Sounds a bit like you are harking back to the 1990s with Simon Hull on the street, eyeing up workers muscles before shouting at them with a megaphone to get on a bus to the next labouring site. I guess temporary security workers could still be dispatched this way. But these tend to be lower skilled jobs with presumably lower commissions on pay rates. Do computer programmers respond to being lined up and shouted at?

I tend to be a bit more optimistic on AWF - more towards Win Win -- one sector will be down another up or requiring additional service

Apart from more security guards to keep the increasingly unemployed rabble under control - they will be needed everywhere- , it is hard to think of another growth industry right now. My problem with your theory is that it would work well when skills are readily transferable. But how many cafe workers would make good farm labourers? And how are AWF going to find skilled overseas workers to fill the job gaps with the borders closed?

They traded reasonably in harder time when others were worse -- climbing out of it growing or recovery sectors coming out the other side should underpin AWF performance & they have an increasing head count of available talent out there to pull skills from / work for them as well for further growth

I think one of the Simons is on record as saying that AWF performs best in 'slightly tough times'. That means when companies favour a high temp component to their staff because it gives them the flexibility to respond to upturns and downturns quickly. I am not sure that right now qualifies as a 'slightly tough time'. Don't get me wrong, I do see a future for AWF. I wouldn't be on the share register otherwise. But I have a feeling we might be working from a 'new normal ' base. And until AWF itself is restructured to that 'new normal' level, I am not holding my breath for the return of any dividends for shareholders, let alone dividends to historic levels, while the AWF company labours (sic) under its own debt burden.

SNOOPY

[Nor]

Oughta capitalize on this new popularity 1.42 and get a raising out of the way.

[nztx]

The first wage subsidy was released on 17th March 2020 for a duration of 12 weeks which takes us to 9th June 2020. The subsidy extension payment went from 10th June 2020 to 1st September 2020. Then late in August there was a 'Resurgence Wage Subsidy' announced with the Auckland lock down. This was not available to those workers on the original subsidy plan. The 'Resurgence Wage Subsidy' was for two weeks from the application date which was from 21st August to 3rd September, implying a last expiry date of 17th September at the latest. Given the original subsidy expired on 1st September and the AWF press release was made on 4th September, that doesn't leave much room for prepayments still being on the books at AWF Madison, except for the RWS scheme. But that is only eligible to workers not on the original wage subsidy scheme, and it is hard to think of a case where any AWF worker could qualify for that one.



Sounds a bit like you are harking back to the 1990s with Simon Hull on the street, eyeing up workers muscles before shouting at them with a megaphone to get on a bus to the next labouring site. I guess temporary security workers could still be dispatched this way. But these tend to be lower skilled jobs with presumably lower commissions on pay rates. Do computer programmers respond to being lined up and shouted at?



Apart from more security guards to keep the increasingly unemployed rabble under control - they will be needed everywhere- , it is hard to think of another growth industry right now. My problem with your theory is that it would work well when skills are readily transferable. But how many cafe workers would make good farm labourers? And how are AWF going to find skilled overseas workers to fill the job gaps with the borders closed?



I think one of the Simons is on record as saying that AWF performs best in 'slightly tough times'. That means when companies favour a high temp component to their staff because it gives them the flexibility to respond to upturns and downturns quickly. I am not sure that right now qualifies as a 'slightly tough time'. Don't get me wrong, I do see a future for AWF. I wouldn't be on the share register otherwise. But I have a feeling we might be working from a 'new normal ' base. And until AWF itself is restructured to that 'new normal' level, I am not holding my breath for the return of any dividends for shareholders, let alone dividends to historic levels, while the AWF company labours (sic) under its own debt burden.

SNOOPY

Just so long as there's sufficient cashflow generated from operations and nothing viewed as unusual or detrimental .. seems to be the yardstick in past periods for popping out a dividend..

Do you see any material change in that - barring a change between the captive honeypots actually generating the Ca$h ?

Still chomping through recent few years reports in depth, but obviously there are a few interesting points coming out of these

The captive hefty cashflow coming in probably lends itself nicely to a bit of borrowing for group betterment & acquisitions along the way, henceforth number crunching period end balance sheet figures probably deserves viewing from a slightly different angle.. it's not as if AWF cant very easily service the resident debt being carried..

[Nor]

Never really understood the rationale for running a business on debt, just gradually accepted the idea because it's done everywhere. But when something like covid arrives and interrupts the steady flow of cash that was counted on to service the debt it looks very different.

[stoploss]

Never really understood the rationale for running a business on debt, just gradually accepted the idea because it's done everywhere. But when something like covid arrives and interrupts the steady flow of cash that was counted on to service the debt it looks very different.

Then the Govt steps in and starts dishing it out to you.....