The major discussion at today’s AWF Group annual meeting was a potential capital raising and the age old conflict between a placement to institutions or a rights issue for all shareholders.

AWF, formerly known as Allied Work Force, acquired Madison Group for a maximum price of $36 million on November 4, 2013. This comprised $30 million cash and an additional payment of up to $6 million which is payable subject to Madison’s earnings exceeding certain thresholds for the 52 weeks following the acquisition. 

The consideration was in the form of cash and, as a consequence, AWF’s gross borrowings increased from $0.8 million to $28.2 million in the March 2014 year.

 AWF Group (March 31 financial years)

($m)

2014/15F

2013/14

2012/13

Revenue

200.0

148.7

130.5

EBITDA*

14.0

8.4

8.3

Underlying Net profit after tax

8.0

4.6

5.4

 

 

 

 

Borrowings

?

28.2

0.8

 

 

 

 

Dividend

14.0c   +

14.0c

15.6c

*Earnings before interest, tax, depreciation & amortisation

Chairman Ross Keenan told today’s meeting that the company was on track to achieve revenue of approximately $200m for the March 2014 year, EBITDA in excess of $14.0m and underlying earnings after tax of $8m.

He also said that a “steady lift in dividend is achievable [from 14c]”.

Keenan didn’t indicate whether Madison would exceed the thresholds that would entitle its former shareholders to receive an additional $6m cash payment.

However, the chairman did say that AWF’s debt levels were too high and the company would look to raise $8m to $10m of additional equity later this year.

The immediate response from shareholders at the annual meeting was that they strongly supported a rights issue for all shareholders instead of a placement to institutions.

Rights issues are usually the preferred form of capital raisings but the issue with AWF is that founder Simon Hull owns 58% of the company and the rights price would come under huge pressure if he wants to sell his rights instead of taking up his entitlements.

Placements are also cheaper and they can reduce the pressure on the share price, particularly if a substantial shareholder doesn’t wish to participate in the capital raising.

Capital raisings are never a simple issue of placements versus rights issues. 

                                                                                                           

Brian Gaynor

Portfolio Manager

Disclosure of interest: Milford owns 5.2% of AWF Group on behalf of clients.