IVE Group Limited (IGL) Earnings Call Transcript & Summary

Well, good morning. It's Geoff Selig here, the Chairman of the IVE Group Board. It's now 10:00 a.m., and I'm advised that the necessary quorum is present. I therefore have pleasure in opening our 2020 AGM and welcome all of the shareholders here today, both in the room here at Huntingwood and also all of our shareholders on the line. Hopefully, you can hear us clearly. As you can see, this year, we are doing things a little differently from previous years. Extra safety precautions have been made to ensure the safety of shareholders and staff. Thank you for your cooperation so far. And it's the first time our AGM is being live streamed, and we've got about 25 people registered as of yesterday afternoon to be dialing in on the call. If you could all just turn your phones off, those present, that would be appreciated as well. Before I proceed to the business of the meeting, I'd like to introduce our fellow directors and Board members: Paul Selig, Executive Director; our Nonexecutive Directors present today, Gavin Bell, Sandra Hook, James Todd and Carole Campbell. And also present, our Chief Executive Officer, Matt Aitken; and our Chief Financial Officer, Darren Dunkley. We also welcome members of the audit team from KPMG, and they are also available to ask questions at the appropriate point in time throughout the course of the meeting. Before handing over to Matt, I'll just make some brief remarks. At the introduction to the meeting, it was said that this is up on the ASX and the IVE Group website, as is Matt's presentation. So I'll just read from my document. Starting with our strategy, which is essentially in the annual report as well. We commenced the evolution from "just a printing company" as it was called to a broader products and service offering late in the 1990s through a combination of what we would describe as organic growth initiatives and long-term strategic acquisition program. Our continued growth and diversification and the convergence of technologies on the back of the digital revolution over the last decade has coincided with a meaningful consolidation across the more traditional parts of the marketing communications sector. This has resulted in, for us, a more defined competitive landscape than ever before, with a reduced number of competitors. We have led industry consolidation and innovation over the last 10 years, and today, we have the most diversified integrated marketing communications offer in the Australian market. And core to the ongoing sustainability of the business is the value proposition we take to market. It's always remained relevant by closely aligning to our clients' evolving marketing communications requirements. The diversity of our value proposition places us in a strong position relative to a number of competitors across the sector. We do not have one headline competitor that has the equivalent breadth and depth of offering, and we continue to hold dominant market positions across all of the subsectors in which we operate. In this context, we believe the impact of COVID-19 pandemic will further strengthen our position to grow market share. The strength of our long-term relationships, continued high levels of customer service, combined with the powerful commercial offer, are core to protecting and retaining revenue. This, combined with the continued drive to grow new revenues, places IVE in a unique position from which to build market share as the sector consolidates further post COVID-19. From our perspective, IVE's strengths relative to competitors place us in an ideal position to defend and grow revenue, as I've said before: our people and our culture; our customer-first philosophy; the significant and ongoing investment in our asset base and operations over many years; efficient operations enhanced further through cost recalibration and business simplification, more specifically over the last 12 months; our diversified value proposition facilitates bundled offers to clients, which is incredibly important; and the scale of our business ensures powerful buying power; and our strong financial position provides all stakeholders with stability and security. And finally, we are as a company very well credentialed in terms of quality, environmental and data security. If I move on to reflect briefly on the year that we've just been through, but I'll start with next year, which is a significant milestone for our company with the centenary year of our business. Our business was started in 1921. As I consider the unprecedented and ongoing impact of COVID-19 over the last year, it's been our heritage, the culture of our business, the collective experience and dedication of our people that placed us in a position of strength from which to respond. Notwithstanding the extent and speed with which the crisis impacted their personal and professional lives, our entire workforce of 1,700 staff responded together as one. They committed to do whatever was required to maintain a safe workplace and to ensure we continued delivering high levels of service to our clients. Under the circumstances, I do not believe IVE could have responded any better to the impacts of COVID-19. I thank our CEO, Matt Aitken, our leadership team and all of our amazing staff for their outstanding efforts and commitment over the last year, particularly the last 8 months through this pandemic. Matt moved seamlessly into the CEO's role in August of last year. And since that time, has clearly demonstrated through his leadership how fortunate we are to have someone of his caliber, personal style and skill set at the helm of our company. The acquisition of Salmat Marketing Solutions, now IVE Distribution; Reach Media New Zealand; and Lasoo in January completed the final phase of our strategic road map over recent years to further strengthen and expand our retail offer. And Matt will touch further on this in his CEO's report. Just moving on to dividends and the recently announced share buyback. Whilst we did not pay a dividend, as shareholders would know, for the last year as a result of the pandemic, the solid financial performance of the business since listing on the ASX in December 2015 has enabled us to pay $72 million in fully franked dividends to shareholders. Notwithstanding the impacts of COVID-19 in FY '20, the company remains well capitalized and highly liquid. Our balance sheet was further strengthened recently by the divestment of IVE's Telefundraising business for consideration of $16.5 million. That represented a profit on divestment of approximately $3.5 million, and it's actually the first business we've ever sold. The company is now well on track to achieving target net debt of 1.5x net debt to EBITDA, as I communicated at our AGM this time last year. On November 12, the group announced its intention as part of its ongoing capital management strategy to conduct an on-market share buyback program of up to 10% of the ordinary capital of the company. There are approximately 148.2 million shares on issue. The Board intends to resume dividend payments consistent with our existing dividend policy, commencing with the H1 FY '21 interim dividend, as we've communicated before. So in closing, I would like to reaffirm that we are confident that IVE is ideally placed to maintain and grow our strong market position as we emerge from the COVID-19 crisis, albeit the global and domestic uncertainty and volatility prevails. We believe our investment and diversification strategy over the last decade or more to be sound, and we have confidence that the value proposition IVE takes to market and our extensive customer base places us in a flexible position to adapt to movements in client expectations over the years ahead. We are fortunate to have a highly skilled, diverse and engaged Board, and we have them since listing 5 years ago. Thank you to all of our directors for their commitment and valuable input over what has been a seminal year for the business and all of us in the context of COVID-19 pandemic. Independent Nonexecutive Director and Chair of our ARCC, Carole Campbell, will leave the Board at the conclusion of the AGM today. On behalf of the company and fellow directors, I convey our appreciation to Carole for her significant contribution since joining our Board 2 years ago, particularly in her capacity as Chair of our ARCC. Our warmest wishes and best wishes for the future, Carole. The announcement of a new independent nonexecutive director who will also chair the ARCC is imminent. I'll leave it at that. Thank you very much. And hand over to our CEO, Matt Aitken.

Thank you, Geoff. Good morning, everyone. It's my pleasure to be able to speak with you this morning. For those on the phone call, I'll try and reference the page numbers as I go through my presentation this morning so you can follow it. In my presentation today, I'll recap on FY '20 results and talk about the year ahead. Some of this content will already be familiar to you as we've covered it in the release of our full year results only 12 weeks ago. So we'll move through these sections quick and focus on the year ahead. So turn to Page 3, and we look at the financial performance highlights. Notwithstanding the impacts of COVID-19, which I'll touch on later, you can see from this slide our performance for the year was still very solid with revenue of $691.5 million and NPATA of $36.7 million. Turning to the next page, which is Page 4, and reflecting on the key elements and the highlights of the year. This year was defined by the unprecedented impact of COVID-19 on our business, and I'll touch on this in the coming slides. Notwithstanding those impacts, we believe a solid performance showed the ability of our cost base to flex and proved the benefit of a diverse value proposition for our customers. I would note too the extent all staff went through in support of the company through this period. The acquisition of Salmat Marketing Solutions, Reach Media in New Zealand and Lasoo in January 2020, the business simplification process concluded in December 2019, which culminated in the move to 1 brand. The group remains well capitalized and highly liquid, and I draw your attention to the updated cash number on this page of $89.7 million at the end of October in addition to the $30 million working capital facility, which still remains undrawn. There were no dividends paid during COVID-19, as Geoff referenced earlier. However, it is worth noting that in the past 5 years since we listed, we have paid out $72 million in fully franked dividends. Moving now to COVID-19 on Page 6. As Geoff alluded to, IVE entered this crisis in a position of strength, with the company responding very well to the unprecedented and volatile operating environment. IVE remains well capitalized, highly liquid and confident that we are well placed to maintain our strong market position as we emerge from this period of uncertainty and disruption. We moved quickly at the outset of the pandemic to implement appropriate measures to ensure the safety and well-being of our valued staff, and I couldn't be prouder of how our leadership team and all of our staff responded through this period. All of our COVID plans and strategies were established through mid- to late-March, well before JobKeeper was known to us, and they're centered around 4 key pillars: one being the health and safety of our staff; two being our customers and continuity of revenue; three being operational continuity and supply chain; and four being our banking and liquidity. And I think we've done a fantastic job through that period to execute a strategy around those 4 pillars. Moving on to Page 7. We've already covered the rationale for the Salmat Marketing Solutions, Reach Media and Lasoo acquisitions in detail at both the half year and the full year results so I don't propose to recap that in detail. What I would say is that when it was announced earlier in the year, it was very well received by customers and shareholders and the staff of Salmat and Reach as well. Unfortunately, the timing was not the best with COVID arriving on our doorstep some 8 to 10 weeks later post completion. The team on both sides of the Tasman responded extremely well to the impacts of COVID, expediting integration plans and driving new initiatives to grow market share. And I would estimate that today, we have approximately 75% of the letterbox distribution market here in Australia. Strategically, it was the right move with such a large presence in the catalog printing sector. I would not have wanted to go through COVID without having control of the last mile. And I will touch base on Lasoo a little bit later in this presentation to give you an insight into that platform and what we're doing with that platform moving forward.

Sorry, people on the call, we've got a technical glitch. Let's keep going.

Okay. I'll keep going, and I can continue to reference the page numbers as we go. Page 8, business and brand simplification. Again, we've covered this topic in detail in previous presentations to shareholders. Suffice to say the decision has been very well received, and it was the right decision for us when we made that move to one brand. The rebrand also coincided with a number of key operational decisions, most notably the formation of our Data-Driven Communications division, which was born through the integration of 4 businesses within our group, being Blue Star DIRECT, Kalido, Pareto Fundraising and Pareto Phone, and that has formed a very powerful and very unique data-driven communications solution in the market for our customers. Moving on to the profit and loss on Page 9. There's quite a bit of information on this slide, so I'll call out 4 to 5 key points, one being that the gross margin of 47.7% remains stable. Normalized for the impact of Salmat, it would have actually been 48.6%, which was an increase on PCP of 47.9%. Two, production and administration expenses decreased by almost $25 million during FY '20. The significant reduction in the cost base through FY '20 demonstrates our ability to flex our cost base, as I mentioned earlier and Geoff also touched on. Number three, we had no bad and doubtful debts as a result of COVID. However, we thought it was a prudent measure at the full year to take up a doubtful debt provision or an increase in our provision at year-end, and we've done that accordingly. And this result that we are presenting today and that we've spoken about 12 weeks ago at our full year results release also includes a $700,000 bad debt for the Harris Scarfe collapse late in 2019. Number four, EBITDA of $76.6 million is a solid result given the impacts of COVID on our business, and our EBITDA margin of 11.1% was consistent with previous years. And we estimate that COVID impact on revenue to be $80 million to $100 million. And again, I'll pick that up as we get into some slides further forward. And finally, following the Coles' decision to cease the delivery of catalogs to letterboxes, we were required to take up a $40 million impairment in our retail catalog printing business, which was formerly known as Franklin WEB; and our distribution business, which, as you know, is formerly known as Salmat. Moving on to Page 10 and capital expenditure. Again, we've spoken a lot about CapEx before and how we're bringing that number back from where it's been in previous years. You can see that it's a number of $12.3 million, significantly less than prior financial years, and again, which is consistent with the guidance that we're providing the market, that F '21 will be circa $10 million excluding any investments and upgrades into our ERP platforms. Net debt, I'll provide an update -- or I have already provided an update on the cash position earlier in my presentation. And I'll come back to net debt when we talk about the guidance at the end of this presentation, and we'll cover that in some more detail. And similarly, with cash flow and dividend, we'll pick that up later in the presentation. But I would say we had really strong free cash conversion of 110% for the year, and it reflected some fantastic work done by our CFO, Darren, and his team, closely managing working capital right through FY '20. If we move on to Page 13, which is our integrated service offering. The evolution of one IVE brand with 4 core offerings across creative services, data-driven communications, production and distribution and integrated marketing is in recognition of our increasingly integrated value proposition, and it ensures a highly impactful, strong and simplified offer to market. As a diversified marketing company, IVE covers all aspects of the marketing mix, from idea to execution. And it's very powerful when our sales teams are looking to sell more IVE products and services every day to our 2,800 clients. We see that as a real pool of ongoing opportunity every day that we come to work to sell more to our existing clients. We have an unmatched value proposition in the market and no headline competitor, as Geoff also referenced earlier, across the full spectrum of what we deliver for our clients. If you haven't already, I would encourage you to go on to our website. There's a lot of content and information available that provides further detail on our offering and capabilities. On Page 14, we've broken down the sector spend by clients this year to give you a little bit further insight into the Tier 1 client base that we have, and we also felt it would be good to give you this insight into our revenue mix. The table on this page provides a snapshot of the revenue by sector, and specifically, we've taken the retail sector and divided that into 4 parts that we service. Clearly, the needs of a supermarket from a retail marketing perspective are different to those of a customer who's selling white goods or furniture and operating in those sectors accordingly. The following page gives you a flavor of some of those Tier 1 clients I just referenced, and we have 2,800 fantastic clients across our group. If we move on to Page 16, which is titled Revenue and Customers. The COVID-19 revenue impact, as I mentioned earlier, for the business is circa $80 million to $100 million in revenue, and this was primarily felt in our web printing and distribution business units and more specifically, across the catalog and travel sectors. In relation to catalogs, it's more so a sweet spot -- in relation to catalogs, we've seen it more so where customers who are experiencing strong retail trade are pulling back on their marketing spend, and therefore, we've seen that impacted the catalog spend of some of those customers at that current point in time. The requirements for the travel sector are showing some signs of returning, especially for domestic travel and, to a lesser extent, international travel, but indications in the travel sector are that they will be on normal run rates at a point in FY '22. Many of you would have seen the great news recently that we signed a long-term deal with Australian Community Media, ACM. That is a 5-year contract for the printing and distribution of all the publications that ACM publish themselves and also manage on behalf of other clients. That work commenced transfer into our facilities in late October when they closed their Ballarat facility in Victoria. And the transfer of all of that work over to IVE will conclude by June 2021. As part of the long-term contract with ACM, we've also acquired their Mandurah, Western Australia facility, printing operation, and that facility produces work both owned and published by ACM as well as an extensive portfolio of work with commercial clients in the WA market. And again, we would look to grow that business now that it's part of the IVE team. We envisage the contract will generate revenues of circa $100 million over the term, so a fantastic achievement by the team that worked on this deal. The group has made strong progress on new business during Q1 FY '21. And whilst we always have new business budgets to meet, I'm really pleased to say that we've already secured $26 million of new clients in the first 3 months of this year. That's in addition to the ACM win, and that is in addition to the opportunities that present every day for us to sell more of what IVE do across our products and service range to our existing 2,800 clients. Numerous contract renewals have been completed, and there has been no material customer loss at all. Moving on to Page 17, ivolve or ivolve, depending upon how you want to pronounce this. Following a successful pivot into the PPE space in Q4 FY '20, we launched our expanded range PPE & Hygiene business in October 2020, so just last month, and that is called ivolve. Our initial focus is on the return to workplace market for our customers, so consulting with them and advising them on what safety and hygiene measures they need to have in place to safely facilitate the return of their staff to the workplace. To assist our customers, we have qualified hygiene and PPE specialists on staff, and she consults with them to build out the best plan for that customer. The customer then buys products and services from us through our ivolve business. The business leverages a lot of our existing infrastructure and capabilities, specifically our onshore and offshore sourcing infrastructure and capabilities and all of our warehousing and logistics facilities in Sydney and Melbourne for the storage and distribution of product. There is an e-commerce site, which is primarily focused on the SME market that underpins the ivolve offer. And through the Salmat acquisition, we acquired a database, so we inherited a database of 24,000 active SMEs, and so we're using that database to really push the ivolve message along with other key offers from IVE group out to that SME market and really grow our exposure in the SME space. The next stage of ivolve will be expansion of the provision of products at our aged care and facilities management sectors. In both of these sectors, we've had good traction during FY '20 during Q4 when we launched. So they are known sectors to us, and we believe that we could make good inroads into those sectors at the right time. We have 2 key business relocations to achieve over the coming 3 to 4 months. One is the relocation of our Retail Display business in Victoria, based in Sunshine today, opposite our catalog printing business. That will be relocating to Braeside in the southeast of Melbourne, where it will be co-located in the same business park precinct as our integrated logistics business, which will assist and expedite campaign fulfillment for customers when they're pushing campaigns out to retail stores and the storage of product. And at the same time, the building they vacate in Sunshine will become occupied by our distribution business, so the old Salmat entity, when we relocate them from the southeast of Melbourne, an area called Dandenong, all the way over to Sunshine so they're co-located on the same precinct as our catalog printing business. So that drives a reduction in occupancy costs, it eliminates our transport costs and again, expedites that customer experience between catalogs coming off the presses straight into the distribution facility and then out to the distributors from there. So both those projects will be completed by the end of January 2021. Turning to Page 18 and just coming around on Lasoo, which we've referenced a couple of times already. Lasoo is Australia's largest aggregated digital catalog site. It transforms printed materials, such as catalogs and brochures, into interactive shoppable experiences. Lasoo is the market leader in online digital catalog aggregation, attracting over 800,000 shoppers per month. They open more than 2 million digital catalogs that have 21 million interactions with those catalogs when they come and visit. Furthermore, we registered over 70,000 buy-now clicks from our site through into our retail customers' sites, getting them to proceed through the path to purchase. Digital catalogs are a complimentary channel to printed catalogs in Australia and are an important part of our growth strategy in the catalog sector. Between the subscriber database that we hold in Lasoo for the e-mails we send out every week with offers and over 800,000 visitors we have to the site each month, we clearly have the ability to provide rich data, analytics and insights to our clients. Later in FY '21, Lasoo will be relaunched with a refreshed user experience and user interface along with a commercial model that delivers tangible value for both IVE and retailers. This initiative is aimed at expanding our market leadership in the digital and printed catalog space, and we look forward to talking to you more about this in the future. In relation to ERP, I won't go into this in detail, but as you would be aware from previous presentations, we're in the midst of a multiyear transformation program in relation to the group's core systems. The next stage of this has just commenced with a commitment made to install the Oracle NetSuite platform in 2 parts of our business: one into the finance team with Darren and his team, so that will be our enterprise-wide group finance platform moving forward; and secondly, into the DDC business, so our Data-Driven Communications business, where it will replace multiple legacy platforms in that business and have a far more efficient operating business than what we have there today. Turning to Page 19 and just talk about the summary. This year was defined by the impacts of the COVID-19 pandemic. We responded very well to the crisis to manage the staff safety, maintain customer service levels, flex our cost base and ensure our ongoing strong liquidity. Notwithstanding the significant impacts of COVID-19, the company delivered a very solid financial performance. The acquisition of Salmat Marketing Solutions, Reach Media New Zealand and Lasoo in January 2020 completed the final phase of our strategic road map to strengthen our offer to our retail clients. The business was streamlined and strengthened through brand simplification through the one IVE brand. The group remains very well capitalized and highly liquid, and we remain confident that IVE is ideally placed to grow our strong market position as we emerge from the COVID-19 crisis. Geoff has already touched on the share buyback, that on the 12th of November, the group announced its intention as part of its ongoing capital management strategy to conduct an on-market share buyback program of up to 10% of the company's ordinary shares. And there are approximately 148.2 million ordinary shares currently on issue. In relation to guidance, the company reaffirms previous guidance that FY '21 revenue and underlying EBITDA is expected to be consistent with FY '20. Forecast net debt excluding any impact of the share buyback, at 30 June, 2021, following the divestment of IVE Telefundraising for the consideration of $16.5 million, is expected to be approximately $95 million. The buyback program will not impact the company's dividend policy, with the Board intending to resume dividend payments consistent with the existing dividend policy, commencing with the H1 FY '21 interim dividend. I'd like to say thank you to my leadership team and the 1,700 staff we have for their ongoing commitment and dedication to our customers and the business and to our Board for their ongoing continued support. Thank you. And I'll now hand back to our Chair, Geoff Selig.