Strong cash flow, growth in revenue but decreased earnings

Level 6, 51 Shortland Street, Auckland
PO Box 12832, Penrose, Auckland 1642
Tel 09 526 8770 Fax 09 579 0224
awfmadison.co.nz
Media Release

28 May 2018

AWF Madison reports strong cash flow, growth in revenue but decreased earnings on the back of a
challenging year in AWF.

AWF Madison announces today 9% revenue growth to $279.3 million. This was made up of an increase
in Madison and the full year earnings of Absolute IT. We have made good progress in growing our
scale, reach and efficiency.

 Revenue up 8.9% to $279 million
 NPAT at $5.0 million down 14% from $5.9 million
 Increase in net cash flow from operations from $7.6 million to $11.5 million
 Final dividend steady at 8.2 cents per share
 Introduction of a Dividend Reinvestment Plan

As we had signalled last year, we have concentrated our resources where needs have dictated. This
has seen revenue and earnings in our white collar area grow beyond 51% of total revenue for the first
time.

Our acquisition of Absolute IT has delivered a strong capability in the rapidly changing IT sector. It is a
sector where ‘contract resource’ is the norm, where internal recruitment teams are less effective
recruiting directly, and do not tend to manage contractors. Absolute IT delivered year on year profit
and turnover growth and assisted the white collar division grow turnover from $98.7m to $148.9m
with segment profit (EBIT) increasing from $3.4m to $6.0m. We have successfully inducted the
Absolute IT business and transferred the intellectual property held by the former principals.

The Census Project contributed a large portion of the increased volume as we successfully delivered an
innovative and robust solution to Statistics New Zealand. This was a significant and successful learning
experience and made a positive contribution, but required a great deal of mobilisation in order to
scale up, which we can now leverage. Importantly, our internal learnings helped us further develop our
Managed Service delivery model. As a result we were able to bid for and successfully negotiate a large
long-term Managed Service contract with a government agency which commenced in April this year.

We will continue to develop our service offerings to be relevant in this changing market. We consider
the provision of ‘Managed Services for contingent workers’ to be a growth opportunity. With this
platform in place we expect to replicate this offering across both segments to targeted clients. The
recurring revenue and certainty of tenure, a cornerstone of this platform, balances our ‘just-in-time
services’ and provides added certainty to underpin investment in innovative solutions.

Level 6, 51 Shortland Street, Auckland
PO Box 12832, Penrose, Auckland 1642
Tel 09 526 8770 Fax 09 579 0224
www.awfmadison.co.nz
We have continued to drive our platform change and process efficiency in AWF, this was done within
the backdrop of a difficult changing market. AWF turnover dropped from $157.7m to $130.0m during
this transition phase, but we expect to recover over the ensuing 24 months. Matching market demand
and supply has become more challenging. We have become much more selective about clients.
Likewise, one-off smaller jobs are difficult to deliver safely. Our sweet spot is mid to large
organisations, with fair margins, and ongoing rather than sporadic demand.

We see the decline in AWF as cyclical. We anticipate a stronger contribution in the coming year,
leveraging off the transformation. Clients recognise the growing value in our service, integrating
training delivery, workforce planning and Health & Safety standards and procedures. As with our white
collar sector, AWF expects to deliver a Managed Service with a key client this financial year.

“The regulatory, economic and political environment changed during the year on the back of the 2017
election process and the formation of a new coalition Government. Administrative delays caused the
process of recruiting migrant labour to stall, resulting in a January influx, which was inopportune,” says
Group CEO Simon Bennett.

Whilst construction in Auckland creates an opportunity, there are cost constraints and the sector is
fragmented. Management of credit risk during this stage of the cycle remains front of mind and we are
happy with the current debtor’s book.

“Continuing delays in obtaining approvals across the construction sector meant that we were unable
to optimise the logistics of matching supply and demand of contingent labour. Unfortunately we
received negative publicity from our Filipino migrant business, where several factors including delays
made smooth deployment difficult. The skilled migrant sector is important to AWF and NZ and we will
continue to work with the regulators to ensure we have an efficient and compliant model.


“The future of work will require a strong contingent and flexible workforce. New Zealand still lags
behind OECD counterparts with approximately 10% of our workforce being contingent, compared with
20-30% of the labour force in the US and EU15. Skill shortages will continue in the short to medium-
term, and we are positioned well to capitalise on these across our business,” adds Bennett.


The sector offers people fantastic pathways to permanent work, flexibility and variety of roles; whilst
allowing companies and government agencies the ability to flex up and efficiently manage their
workforce. This was illustrated with our management of Census fieldworkers, where we mobilised up
to 3000 workers.

Our net bank debt decreased from $32.4m to $29.7m, and allowed us to complete the purchase of
Absolute IT at the end of the year and paying $3.25m in earnout. Net cash flow from operations at
$11.5 million was strong (last year $7.6 million), and excellent debtor management resulted in 93% of

Level 6, 51 Shortland Street, Auckland
PO Box 12832, Penrose, Auckland 1642
Tel 09 526 8770 Fax 09 579 0224
www.awfmadison.co.nz
debtors being current by Year End. There are no debtor issues such as those referred to last year, and
full provisions are in place to cover future contingencies.

Whilst we remain comfortable with our debt levels, the Board has for some time considered a review
of its capital structure and dividend policy, with a view to determining its capacity to invest in future
growth initiatives and reduce bank debt. It has taken independent advice on this, and to this end
proposes (subject to NZX approval) introducing a Dividend Reinvestment Plan (DRP) this year. This will
allow shareholders to reinvest up to 50% of their dividend in new equity. Simon Hull, the majority
shareholder, has indicated he will fully participate in this scheme as will the CEO and the remainder of
the Board. Despite a dip in earnings, the strong cash flow and positive outlook enables us to pay a final
dividend of 8.2 cents per share, consistent with the prior year.

Group CEO Simon Bennett says “The DRP is a great way to make a meaningful reduction in our core
debt over the coming year. It will enable us to repay the debt raised to acquire Absolute IT, once more
giving us ‘headroom in the balance sheet’ for future opportunities. It allows the Board flexibility to
increase the capital base, with the support of key shareholders, while allowing other investors the
opportunity to reinvest in new shares (up to 50% of the final dividend), at a share price to be
determined according to VWAP calculated on 5 business days from Ex Date, being the day before
Record Date.”

It is disappointing to announce a drop in NPAT at $5 million, 14% below the previous year’s $5.8
million. The robustness of our white collar business countered what was a challenging year for AWF.

The outlook for the year ahead is good. The Board is satisfied with the strategic direction and the plan
for the year ahead. We have good client and sector diversity and have a good pipeline for new client
acquisition across all of our businesses. We will continue to invest in internal efficiencies, innovation
and build stronger candidate engagement across changing engagement methodologies. The digital
landscape is well-suited to us and an area of continued opportunity and investment.


Simon Bennett
Chief Executive

For the Board:
Ross Keenan 021 685 655
Chairman




For further information contact:
Simon Bennett 021 036 8387

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Appendix 1
2.1
2.2-a
2.2-b
2.2-c
2.2-d
2.2-e
2.2-f
3.1
3.2
3.3
3.4
3.5
1.3(l)
2.3(a)
Revenue279,303 256,428
Investment revenue32 2
Fair value gain on settlement of Absolute IT Ltd earn-out170 -
Direct costs(2,187)(2,844)
Employee benefits expense(253,182)(229,150)
Depreciation and amortisation expense(3,344)(3,003)
Impairment- (443)
Other operating expenses(12,385)(10,980)
Finance costs(1,297)(1,193)
Acquisition related expenses- (262)
Profit before tax7,110 8,555
Income tax expense(2,062)(2,688)
Profit for the period5,048 5,867
Other comprehensive income- -
Total comprehensive income for the period, net of tax5,048 5,867
Profit for the year is attributable to:
Equity holders of the parent5,048 5,867
Non controlling interests- -
5,048 5,867
Total comprehensive income is attributable to:
Equity holders of the parent5,048 5,867
Non controlling interests- -
5,048 5,867
Earnings per share
Total basic earnings per share (cents/share)15.518.1
Total diluted earnings per share (cents/share)15.518.0
Full Year Preliminary Announcement
AWF Madison Group Limited
Results for announcement to the market
Reporting PeriodTwelve months to 31 March 2018
Net profit/(loss) attributable to security holders5,048-14.0%
Profit/(loss) from ordinary activities after tax attributable to security holder
Previous Reporting PeriodTwelve months to 31 March 2017
Amount
Revenue from ordinary activities279,3038.9%
$NZ'000
Percentage
change
5,048-14.0%
Record Date29-Jun-18
Interim/Final Dividend
Amount per
security
Imputed amount
per security
Final8.2 cents3.189
Comments
Dividend Payment Date10-Jul-18
See attached file
There are no material changes in accounting policies applied in the preparation of the financial statements.
The full tear financial statements have been audited.
All statements are prepared in accordance with New Zealand Equivalents to International Financial Reporting
Standards.
There are no accounting policies which the directors believe are critical to the portrayal of AWF Madison Group
Limited's financial condition and results and which require the directors judgements and estimates about
matters that are inherently uncertain.
The interim financial statements have not been audited
See attached file for further comment
Consolidated Income Statement
Reporting Period
Previous
Corresponding
Period
$NZ'000$NZ'000
NZX App 1 - Pg.1/3

Appendix 1Full Year Preliminary Announcement
AWF Madison Group Limited
Results for announcement to the market
Treasury shares conversion & cancellation costs(2)-
Share based payments(1)80
Total transactions with shareholders(5,124)(5,206)
2.3(b)
Assets
Non-current assets
Property, plant and equipment2,498 3,348
Goodwill (Prior year comparative restated)38,620 38,620
Other intangible assets16,079 18,314
57,197 60,282
Current assets
Cash and cash equivalents6,269 1,225
Trade and other receivables41,830 45,533
48,099 46,758
Total assets105,296 107,040
Equity and liabilities
Capital and reserves
Share capital27,598 27,624
Treasury account- (319)
Equity-settled employee benefits reserve383 450
Retained earnings8,878 9,180
Equity attributable to equity holders of the parent36,859 36,935
Total equity36,859 36,935
Non-current liabilities
Deferred tax Liabilities2,748 3,117
Borrowings36,000 33,500
38,748 36,617
Current liabilities
Trade and other payables28,867 28,107
Bank Overdraft- 108
Taxation payable622 1,636
Provisions200 217
Absolute IT Limited earn-out payment- 3,420
29,689 33,488
Total liabilities68,437 70,105
Total equity and liabilities105,296 107,040
Consolidated Statement of Changes in Equity
Reporting Period
Previous
Corresponding
Period
$NZ'000$NZ'000
Dividends paid(5,350)(5,286)
Equity at beginning of period36,935 36,274
Profit for the period5,048 5,867
Consolidated Balance Sheet
Reporting Period
Previous
Corresponding
Period
Treasury shares converted229 -
Equity at end of period36,859 36,935
$NZ'000$NZ'000
NZX App 1 - Pg.2/3

Appendix 1Full Year Preliminary Announcement
AWF Madison Group Limited
Results for announcement to the market
2.3(c)Consolidated Cash Flow Statement
Cash flows from operating activities
Receipts from customers282,554 251,434
Payments to suppliers and employees(266,336)(240,074)
Net cash generated from operations16,218 11,360
Interest Received32 2
Interest paid(1,296)(1,193)
Income taxes paid(3,445)(2,543)
Net cash from operating activities11,509 7,626
Cash flows from investing activities
Proceeds on disposal of property, plant and equipment155 186
Payments for property, plant and equipment(482)(2,032)
Payments for other intangible assets(157)(1,104)
Acquisition - (9,903)
Net cash from/(used in) investing activities(484)(12,853)
Cash flows from financing activities
Proceeds from the issue of share capital229 -
Share issue costs(2)-
Dividends paid(5,350)(5,286)
Proceeds from borrowings2,500 33,500
Repayment of borrowings- (21,000)
(3,250)-
Net cash from/(used in) financing activities(5,873)7,214
Net increase/(decrease) in cash held5,152 1,987
Cash and cash equivalents at start of the year1,117 (870)
Net cash and cash equivalents at end of the year6,269 1,117
2.3(d)Final Dividend
Payment Date
Number of shares on issue (ordinary plus restricted)
Dividend per share$NZ
Total dividend monies
2.3(e)
2.3(f)Net Tangible Assets per Security
Net Tangible Assets$NZ '000
Net Tangible Assets per Security$NZ
2.3(g)Acquisitions/Disposals
Acquisition
Entity name
Control gained or lost
Date of gain or loss of control
Contribution to profit$NZ '000
Disposal
Entity name
Control gained or lost
Date of gain or loss of control
Contribution to profit$NZ '000
2.3(h)There are no associate or joint venture entities at the reporting date.
$NZ'000$NZ'000
Reporting Period
Previous
Corresponding
Period
Reporting Period
Previous
Corresponding
Period
Repayment of vendor on settlement of Absolute IT Limited earn-out
payment
$ 0.082$ 0.082
$2,698,718$2,704,950
10 July 20184 July 2017
32,911,19332,987,193
There are no dividend or distribution reinvestment plans in operation. (An application is currently with the NZX
for approval.)
809
-$ 0.46-$ 0.51
Reporting Period
Previous
Corresponding
Period
(15,092)(16,882)
Reporting Period
Previous
Corresponding
Period
1/11/2016
Absolute IT Ltd
100%
- -
-
NZX App 1 - Pg.3/3

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Ordinary and Restricted SharesNZAWFE0001S8
EMAIL: announce@nzx.com
Notice of event affecting securities
AWF Madison Group Limited
David LazarusDirectors Resolution
09-526-877509-526-26632852018
Enter N/A if not
applicable
In dollars and cents
Retained Earnings
$0.082000
NZD
$2,698,718
Date Payable
$$0.005694$0.031889
$
29 June, 201810 July, 2018