IVE Group Limited (IGL) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the IVE Group Financial Year 2026 Financial Results Webinar. My name is Rachel Jones, and I will be your host for today. Now on the call today, we have Managing Director, Matt Aitken; and CFO, Darren Dunkley. The format, if you haven't joined us before, is a 20- to 30-minute presentation, and that will be followed by 15 minutes of Q&A. [Operator Instructions]. Now I'd like to hand over, first of all, to Managing Director, Matt Aitken, who will now start the presentation. Over to you, Matt.

Good morning, everyone, and thank you for joining the call. Darren and I are pleased to present IVE Group's FY '26 results. The disciplined result consistent with guidance we gave to the market back in H1 FY '26 in February and [ dilute ] against a genuinely difficult economic landscape. Just for those that might be new to the call, just a bit of a quick background. So IVE Group is Australia's largest diversified marketing company. We operate across every major marketing discipline. Since 1921, IVE has evolved alongside brands, technology and consumer behavior through partnerships and acquisitions. We've brought strategy, data, creativity, production, technology and fulfillment into one connected ecosystem so that we can execute from idea, we can go from idea to execution. Market shift, channels evolve and customer expectations don't stand still and we've spent more than 100 years evolving with every major change in media technology and marketing, not by chasing trends but by continuously building our capabilities around what brands need next. Our vision is to be Australia's leading marketing -- integrated marketing solutions provider, delivering impactful experiences across all channels. The results and actions on this page show where we are today against our 2030 strategy and ambition targets. For FY '26, we've achieved our EBITDA margin target of plus 15% and our EPS growth target of 3% to 5%, both on a pre-AASB 16 basis. Net debt remains within our benchmark range and our revenue mix continues to shift deliberately into growth areas while we protect our leadership in the traditional sectors. On the right, you'll see this year's highlights and summary, strengthening and scaling the business through the 3PL footprint expansion, the Kemps Creek supersite and the Impressu and Daily Press acquisitions. Progress on innovation and AI, strong new business wins and continued capital management through the buyback. And I'll take you through each of these in more detail as we go through today's presentation. When we think about the performance overview and the key highlights, we delivered a strong margin -- we delivered strong margin expansion again this year despite a difficult economic landscape contributing to the revenue softness, particularly in catalogs and publishing. Cash flow remains strong. Gearing is conservative. And during the year, we continued the on-market buyback, canceling around 1.5% of issued capital. In terms of key initiatives, on 3PL, Dandenong South became operational ahead of schedule and is already running at 85% of capacity on the back of new client wins with the benefits emerging through FY '27 that takes our national 3PL footprint to 84,000 square meters around the country. The Kemps Creek, Sydney supersite became fully operational during the fourth quarter with 5 business units relocated and consolidated onto the 1 site, giving us efficiencies and capacity for growth. And in packaging, JacPak relocated to Braeside. So from its site in Keysborough to Braeside in Victoria in the second half for additional operational efficiencies, and the Kemps Creek packaging plant is now in production with major new clients, including Arnott's coming online late in the financial year. Lasoo continued its strong momentum across all key metrics and remains on track to breakeven during FY '28. And on the acquisition front, we continued to diversify and consolidate revenue consistent with our strategy. and I'll cover Impressu and Daily Press in more detail shortly. On AI, we're commercializing the investment we've made, combining our proprietary platforms, strategic partnerships, agentic solutions and an AI-certified workforce to drive recurring revenue, client value and productivity. And again, I'll discuss some of those examples later in the presentation. And on sustainability, we continue to progress our road map, including preparing for mandatory AASB S2 climate-related financial disclosure. And we also introduced an Employee Salary Sacrifice Share Plan during the year, which we'll see about $1.2 million worth of shares purchased on market across FY '27 for those circa 450 employees that joined that plan. Let me step through the numbers in detail. Revenue was $937.4 million, down 1.8% on prior year, reflecting that difficult economic backdrop I just mentioned but material gross profit margin improved to 51.4% from 49.3%, and that drove EBITDA pre-AASB 16 of $112.6 million, up 2.8% and NPAT pre-AASB 16 of $52.5 million, up 3%. EPS likewise came in at [ $0.342 ], up 3.7%. On a post-AASB 16 basis, EBITDA was $145.8 million, up 6.6%, while NPAT was down 1.7% to $51.2 million, reflecting the noncash lease impact of new Kemps Creek and Dandenong South leases, which Darren will talk about later. Net debt was $173.2 million. Operating cash flow conversion remained strong and the Board has increased the final dividend to [ $0.09 ] per share, up from guidance in PCP of [ $0.085 ]. The IFRS NPAT was $37.4 million, impacted by the increase in nonoperating items during the year, which Darren will step you through shortly. And as such, I'll now hand over to Darren to take you through the financial section of the presentation in more detail.

Thank you, Matt, and good morning, everybody. Now, just start taking you through the underlying profit and loss on Pages 10 and 11 of our presentation, and I'll start with revenue after allowing for an acquisition revenue of $32.3 million, revenue of $37.4 million was down 1.8% to PCP. CX and data, premiums of merchandise and 3PL, BUs, all performed well relevant to PCP. New client wins in the period include great brands such as Bunnings, Campari, HelloFresh, Nestle, Ready Express and Sydney Airport amongst others. All of these clients touch IVE's broad product range and services. Packaging new business wins of PepsiCo and Arnott's commence live production in June or successful trials earlier this year. Underlying earnings, further margin expansion more than offset revenue weakness, EBITDA up 6.6% to $145.8 million as well as an increase in EBITDA margin to 15.6%, up from 14.2% in PCP. NPAT down 1.7% to $51.2 million, partly impacted by the AASB negative impact in FY '26. On a pre-AASB 16 basis, NPAT was up 3% to $52.5 million. Material gross -- material gross profit margin, MGM, which is revenue less material cost of goods sold, MGM improved to 51.7%, up from 49.3% in PCP with all relevant -- with all revenue streams experiencing stable or improved MGM. The further improved MGM reflects continued leveraging of improved buying power as the group's scale increases as well as business mix changes reflecting further diversification. Nonoperating items. It's nonoperating items of $20.4 million pretax include $6.6 million Lasoo operating loss broadly in line with PCP and budget. On an NPAT basis, this is $4.6 million loss in line with guidance. $14.7 million of restructuring costs, predominantly relating to relocation costs, which include rent duplication, transfer of machinery and stock, all due to new sites, including Sydney Supersite at Kemps Creek, with 5 business units relocating as part of this initiative. The relocation of packaging into Braeside site in Victoria as well as Dandenong in H1. All relocations enabling future capacity for growth as well as cost efficiencies. $2 million of acquisition costs, mainly relating to Impressu and Daily Press acquisitions. These costs are partly offset by $2.1 million of net profit on sale with property and fixed assets as well as the write-back of deferred goodwill of $800,000. It should be noted that nonoperating items will reduce significantly in FY '27 post the completion of these major relocations. Turning to Page 12. Our balance sheet remains strong with cash at Bank at $44.1 million, net debt increased to $173.2 million, reflecting acquisition consideration funding and elevated CapEx for our growth initiatives. Gearing is consistent with our guidance and our internal benchmark of 1.5x pre-AASB EBITDA. Senior debt increased by $80 million to $330 million in December '25 to provide further capacity for expansion. Undrawn debt capacity of $109 million, excluding bank guarantees at balance date. Capital expenditure. Capital expenditure has been temporarily elevated due to supporting debt, the execution of major strategic initiatives in the year. Capital expenditure was $43.2 million at net of disposal proceeds, increasing investment and maintenance CapEx driven by brand activations and fit out and racking on new Dandenong South 3PL site. Significant fit-out costs associated with the Kemps Creek supersite, these are gross of cash rent incentive received to partly fund. Packaging expansion, replacement of aging sheet-fed printing presses and other equipment to facilitate IVE's packaging expansionary plans at Kemps Creek. It is important to note capital expenditure is expected to normalize in FY '27. Cash flow and dividends, Page 14. Operating cash conversion to EBITDA remained strong at 93.6%. Working capital is expected to remain relatively stable moving forward and broadly in line with revenue and seasonality. Fully franked dividend of $0.09 per share, which compares to FY '25 final dividend of $0.085 per share -- up 5.9% on PCP, reflecting a payout ratio of 55.3% rebased from circa 70% in FY '22 and prior to retain capital for growth. FY '27 dividend to be based on 55% to 65% underlying pre-AASB earnings payout ratio. I'll now hand you over to Matt for the balance of the presentation.

Thanks, Darren. Just quickly stepping through some of the key initiatives, which would be well known to many on the call. Kemps Creek for us is generally a transformative project for New South Wales footprint of our business. We relocated to the 42,000 square meter supersite in Western Sydney through the final quarter of FY '26. We are out of all of our legacy sites that we've left and the team are up and running there. 5 business units in total have been consolidated into that site as we mentioned. There are many benefits to come from being in that site, one of which is the avoidance of an additional $3.1 million per annum in rental increases had we -- that we're going to avoid by going near, and had we not moved that increase would have been more like $6 million per annum to our existing sites. It's clear operating efficiencies, additional space to accommodate further expansion particularly in packaging, and it is a much more modern fit-for-purpose site for our staff to be accommodated and to work from. New South Wales packaging facility within the site also became fully operational late in the financial year and in addition to providing extra capacity, we will now begin the relocation of New South Wales and Queensland packaging client revenue from Victoria up to New South Wales to enhance speed to market and reduce the transport costs. On the 3PL business and Dandenong, again, we've spoken a bit about this earlier in the presentation. So we moved into that site ahead of schedule. It's been fantastic, almost 12 months in that facility. We've won a lot of significant new business through that time, that site is now 85% of its capacity and really starting to hit its straps. And again, similar to Kemps Creek, there's a lot of benefits to go from 2 sites that we had at Braeside into this 1 site, providing dedicated in-house logistics facilities also for our packaging business, which had historically been outsourced up until recently. There are great operating efficiencies to be had from the site as well as, again, a more modern fit-for-purpose site for our staff to be based out of. Going on to Lasoo. It's delivered record retailer and unique user growth again this year with growth -- with strong growth in GTV, so gross transaction value, and repeat customer sales. Retailers live on the platform were up 20% to 362 retailers. Unique users were up 44% to $5.2 million and GTV was up 42% to $25 million. Most pleasingly, repeat customer GTV was up 76% to $4 million, now representing 16% of total GTV, up from 13% last year, which clearly demonstrates the strength of customer retention on the platform, and we'll have more to say about Lasoo as we get to the outlook and guidance. Just touching quickly on the acquisitions, which, again, we've covered at the half year. We acquired Impressive Brisbane-based print business for $13.5 million in November. We acquired that business of Domino's Pizza Enterprises. It's a business that has a digital and offset print capability along with direct mail, letter box marketing, signage, point of sale, warehousing and logistics. So a very complementary set of services to what I've had -- and the rest of its sites and how we go to market and service our clients. Long-standing clients in the quick service restaurant, retail, health care and public sectors, and the integration has gone very well with a great team of people up there. They are very focused and motivated on growing that business for us in Queensland, and we've been very happy with how they've gone in our business in the first 8 months since we've acquired them. In terms of Daily Press, they're an Australian-based creative agency that we acquired on the 31st of December. They specialize in digital, social media and performance marketing. This really advances our ambition to create a truly omnichannel value proposition, further strengthening our existing creative and content capabilities while adding depth in social and performance marketing as well as technology platforms. And so similar to my comments about Impressu, the Daily Press team are fitting in really well with work being shared back and forth across the creative teams, previously outsourced work from Daily Press is now being sent into IVE businesses to be produced and a significant amount of new business as being one in this part of the business. And in particular, customers like Campari that would not have been won by Daily Press had they not been part of the IVE Group. So that's been great to see again 6 months on after acquiring that business. Just moving into the group's position and posture currently with AI. From our perspective, before we started selling AI to clients, we got our own house in order. So we can, for some by a complex business, we have 10 different products and service lines. We have multiple sites around Australia, and we employ more than 2,000 people. But today, our group data sits on a single -- on a single snowflake platform, and that gives us one view of our clients across IVE, which we're already using to identify cross-sell opportunities. And internally, we can see run rates, waste, machine utilization and other key metrics in near real-time. This means better outcomes, faster action and more efficient results from an IVE perspective. So that Snowflake AI platform has been instrumental in driving a lot of that since we've implemented that during the H2 period of FY '26. AI at IVE isn't a pilot. It's doing real work today across lead generation, research agents, dashboards, RFP and proposal automation, fraud detection and cybersecurity. And a great example of this is recruiting in our catalog walker network, where we have had an AI agent calling or making more than 13,000 calls which generated 563 leads that we then followed up through our staff. And that captures our model well. AI does the volume and the heavy lifting, our people provide the judgment and the expertise. We use market leaders like Salesforce and Adobe where they make sense, and we build our own IP like Indie, where we see an opportunity to create competitive advantage. Importantly, we're investing in our people, and we now have more than 100 AI certifications across IVE. This isn't one AI team sitting in a corner. AI is being put to work right across the group. Let me give you 2 real examples of that going to market. Firstly, Indie. This is where our AI capability starts becoming genuinely commercial. Marketers today are drowning and disconnected tools and end brings the entire campaign into 1 workflow plan, create, personalized, approve and execute. AI runs that process turning days into hours. And importantly, for us, the client stays within our ecosystem, and we sit across more of their marketing activity and that creates stickier client relationships and new recurring revenue opportunities. The second 1 here is AOI and how it's disrupting the traditional martech professional services model, and we are moving with it. We have been one of Australia's leading sales force in Adobe practices for many years. And historically, that model has been based on people and ours. We're now converting that into a genetic recurring revenue models already live today with a major financial services client delivering deeper personalization, real-time in the moment, decisioning and omnichannel execution. The agents do the repetitive work at scale. Our architects and strategists provide the thinking and the expertise. It's faster for the client, more scalable for us and keeps eye at the center of the martech environment, and we're targeting a 50% effort reduction on always-on campaign operations for this client. AI is fundamentally also changing the approach to creative services, particularly when we think about motion and video. We now use AI to storyboard concepts before we pick up a camera, extend sets and create effects during production and then automatically adapt one piece of content across multiple channels and audiences. That means more content produced faster and at a lower cost. But AI itself will become a commodity, as we know, everyone will have access to these tools. Our advantage is combining the best AI technology with great creative people, client knowledge, data and our ability to execute at scale. And a great example of this is in the action in this campaign film we produced for Kia at the Australian Open lending live action with AI-generated sequences, produced at a fraction of the traditional shoot cost and time and in fact, 100% of the robot shots in the film were all AI generated. So I'll leave you to review that in your own time later, but it gives you a good example of where a live client work we're using AI today. As we now move on to the outlook and guidance. for FY '27, given the continued significant economic uncertainty, we expect underlying NPAT on a pre-AASB 16 basis to be broadly stable due to a further $6 million adverse noncash lease impact mainly associated with the Kemps Creek and Dandenong South leases, and that compares with a $1.3 million adverse impact in FY '26. Underlying NPAT on a post-AASB 16 basis is expected to be down relative to FY '26. And I'd stress that impact is purely timing, and it will reverse over the life of the leases. And there is a schedule in appendix C of this presentation where you can see that reversal take its course. We're trying to give you more insights and more data around that. The IFRS NPAT on the other hand is expected to increase materially due to significantly reduced nonoperating items. Capital expenditure, as Darren mentioned, is expected to be significantly lower at around $26 million, net of disposal proceeds and net debt at 30 June 2027 is expected to be below our 1.5x pre-AASB EBITDA target. As foreshadowed at the 2025 AGM, the Board intends returning to a dividend payout ratio based on 55% to 65% of underlying pre-AASB 16 earnings for the 2027 financial year. In terms of the key initiatives and areas of focus for the business in FY '27, we're going to continue to execute on the 2030 strategy to deliver the operational efficiencies from Kemps Creek, made meaningful progress in the deployment of AI and related technologies grow our fence value proposition, which I spoke about at the release of our half year results. deliver a significant improvement in Lasoo's profitability ahead of breakeven during FY '28 and optimize the value of our recent acquisitions while investigating other strategic opportunities. So in closing this year's performance and the momentum evident in our key strategic initiatives reflects the dedication and commitment of our people right across the business, and I'd like to thank them for their ongoing contribution. Appreciation is also extended to our lead team and to the Board for their support as we execute on an ambitious but disciplined growth agenda with a strengthened balance sheet, continued margin expansion and a clear pipeline for organic initiatives and recent bolt-on acquisitions, the business remains well positioned for continued profitable growth through to 2030. Thank you, and we're now happy to take questions.

[Operator Instructions]. So first up, I'll open up to Chris Savage, if you would like to unmute yourself, Chris, and go ahead and ask your question.

I guess a couple of questions. One, the guidance for flat underlying NPAT on a pre-AASB 16 basis, Obviously, you've got impressed and daily press contributing for a full 12 months in '27. So that implies the underlying business will go back a bit. Where are you assuming the underlying business goes backwards.

Yes, Chris, I mean, we -- first and foremost, we still think we're in a very difficult trading environment. And so our view of the near term, there's clearly inflationary pressure right across the economy. We've got increasing rent, as I alluded to earlier on Kemps Creek, whilst we're mitigating $3 million of rent increases by moving to that site. It would have been $6 million. So that's just on those sites on -- Victoria insights. We are still seeing, as we foreshadowed previously, decline in the catalog and magazine sector. And whilst there's always great things happening in that sector in terms of retailers coming back into the channel, what they did in FY '26 with Coles and Bunnings and BIG W. We're also seeing other retailers like in Audi or a met cash really dial back their volumes in that channel. And then even just in areas like interest rate expense, we've clearly had an range of interest rate increases as we've gone through FY '26. So that's really what's underlying to the numbers that we're putting forward here or the position that we're putting forward.

So is it more in OpEx and net interest story rather than the revenue coming back?

Well, there's no doubt that interest expense is expected to be slightly higher in FY '27 than FY '26. And as I already touched on, we've had a large CapEx year, and the impact of depreciation as well will also impact as a result, Chris. But as Matt also alluded to, given the current economic conditions, we think that it's prudent to say that our guidance is stable on FY '26.

Chris, we're budgeting revenue up in terms of our head spaces, but it's a growth number on revenue over where we finished FY '26.

But is that underlying revenue or for the revenue with the pressure Daily Press.

[indiscernible].

And second question, so as you highlighted, the balance sheet remains very strong, and you've got basically a buyback potential increase in dividends and potential further M&A. Is the focus going to be across all 3? Or is there one you think you'll focus more on than the other?

Look, we'll just -- I mean the main focus for us will make sure that we continue to achieve a high operating cash conversion, keep our net debt below the 1.5x. We have as we have traditionally always looked at a pipeline of acquisitions, and we have that pipeline of acquisitions. There's nothing currently that we're working on right now, but we are always looking at something there, Chris. But on the whole, we will be concentrating on delivering below 1.5x net debt and delivering on the new payout ratio of 55% to 65% noting it is on an underlying pre-AASB 16 basis.