IVE Group (ASX:IGL) Presentation, FNN Online Investor Event, September 2020

Company Presentations

IVE Group Limited (ASX:IGL) CEO Matt Aitken presents on the company's integrated service offering, clients, COVID-19 response and impacts and FY21 guidance at FNN's Investor Event.

Good afternoon, everyone. So, we might just start off by playing a short video so everyone gets a feel for the business.

Whether they're heading out or staying in. Checking their inbox or mailbox. The first thing they read in the morning or the last before bed. Creating moments of customer connection in a complex world is vital. As marketing natives we help our clients navigate the marketing maze, by unearthing insights from data, to Dave, to delivered. Creating moments for Mia, Mitch, and Mika. From the things, you can pick up, hold, and touch to the things you can't, but still touch lives. We bring together diverse capabilities, specialists, and technology to connect our clients with customers, wherever, whenever. Always going further so you can too. From idea to execution, IVE.

So as you will see from the integrated service offering on the screen at the moment ultimately we've just seen in the video clip. In late 2019 the group moved away from the legacy branding structure to move to one brand and that being IVE group. It's been an evolution of the one brand with four core offerings across creative services, data-driven communications, production and distribution, and integrated marketing as outlined on the presentation. Is in recognition of our increasingly integrated value proposition that ensures we create a highly impactful, strong and simplified offer to the market. Simply as a diversified marketing company, IVE covers all aspects of the marketing mix, and as the video said from idea to execution.

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Moving into the financial performance for FY20. These numbers are on an underlying continuing operation basis and Pre AASB16. They're also inclusive of net JobKeeper receipts of $15.1 million. Revenue of $691 million dollars and EBITDA of $76.6 million with 11.1% EBITDA margin and $36.7 million net profit after tax and amortisation. Gross profit pleasingly was consistent with margin FY19 and strong free cash conversion for place management with our working capital and cash on hand at 30 June of $51.6 million. I would add that 31 July, the cash at bank was $56.7 million. A $137.1 million net debt, which was about $36 million less or down from what it was when we did our last market update in March earlier this year.

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In the context of the last six months, we thought it would be good to provide some visibility around the sectors in which we operate and the revenues that we derived from each of those sectors. As part of this, we've taken the retail sector and divided it into four parts, so that you get a better level of visibility into the revenue mix and where we played. And as you'll see in that retail sector, the requirements of the supermarket can be quite different to the requirements of white goods or clothing or electronics customer.

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This just gives you a snapshot of the diversity of our customer base, we have 2,800 customers in total and a fantastic track record across all of our customers, and the strength of the customer base is really a significant tier one level of customers, many of whom have been with us for a long time. If I was to look, cherry pick a couple, for example there Westpac we have 25 staff embedded permanently in their premises across Sydney, Melbourne, and Adelaide. We're looking after all of their creative services and production requirements, so whether that's the marketing experience you have when you walk into a branch, whether that's how you transact and the materials that they use that are merchant, whether a restaurant, or a clothing outlet for Westpac or BED. Data-driven communications that you might receive from Westpac on your phone, or via email, or in the mailbox from a direct mail perspective.

Very similar scope of works that we performed with Commonwealth Bank with 12 staff on site there. Chemist Warehouse whether it's the catalogue you get in your letterbox, or whether it's the in-store marketing experience when you arrive into a Chemist Warehouse store, we're responsible for all of that and very similarly when you get to a McDonald's restaurant. So, that just gives you a flavour of the sort of work that we're doing for our clients and the diversity of the clients right across those 2,800 clients.

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In relation to the COVID-19 response and impacts on our business. We entered the crisis in a position of strength, with the company responding very well to the unprecedented and volatile operating environment. We moved quickly at the onset of the pandemic to implement appropriate measures, to ensure the safety and the wellbeing of our valued staff, and I couldn't be proud of how the leadership team and all of our staff responded through that period. All of our COVID plans and strategies were established through mid to late March. Well before JobKeeper was announced. And I'll cover the four key elements of this over the coming points. From a health and safety perspective our staff and business established pandemic plans, which included business continuity requirements for site failover, should it be required. We established the infrastructure to support 1000 staff to work from home at any given point of time, once an office staff was split into tribes accordingly.

Operational changes to shift patterns at our production facilities, to segregate staff and allow for time in between shifts for equipment and facilities to be cleaned, this drove a level of inefficiency across our sites. That was an important part of our risk mitigation plans nonetheless. Issuance of increased levels of PPE to all staff, wipes, masks, hand sanitisers at all facilities, and ultimately I confirmed that from a continuity of operations perspective, no required facility was impacted by COVID during FY20. At a customer and revenue level IVE continues to benefit from this diversified value proposition, of a loyal strong diversified customer base, we've touched on already. To the extent we can fully measure the direct impacts of COVID on our business and FY20. We saw a meaningful reduction in catalogue production and letter box distribution for a number of our retail customers, but conversantly very strong revenue streams in our retail point of sale businesses.

And meaningful reduction across the tourism and entertainment and publishing sectors, but very strong engagement from customers and revenues through our data-driven communications business, as we saw an increased desire from our clients to communicate one-on-one with their customers, and solid revenues across the non-for-profit and health sectors. We've also experienced strong growth in sales in our personal protective equipment range since April, as we continue to meet the needs of our existing customers and new customers that came on board through that period. And the growth of this revenue stream is a really good example of our ability to pivot and leverage our existing competencies. So, both sourcing and logistics in this instance, and client relationships to drive organic revenue growth. So, our new customers were also a significant contributor to that part, with many essential services businesses coming on board, particularly in the aged care sector through Q4 FY20. And this has now resulted in a decision to more permanently enter this sector with a wider product range that we launched last week under a new brand called ivolve.

At an operational level, we executed a range of initiatives to mitigate financial impacts of COVID whilst ensuring high levels of customer service. The flexibility of that cost space has been core to mitigation, we're very fortunate of the level of flexibility that we have. We executed a range of actions to reduce both short-term and permanent labour cost staff stand downs as a component of the JobKeepers program, significant reduction of casual and temporary labour, with enhanced resource sharing across our group, reduced hours including over time, utilization of accrued annual leave and long service leave, and a voluntary temporary reduction in fixed remuneration in Q4 FY20, 50% of reduction for all board members including the executive chairman, 25% reduction for the leadership team including the CEO and CFO, and a range of fixed remuneration reductions for a meaningful number of staff across the company.

Permanent labour cost reductions were also implemented and as part of our move to that one brand that I spoke about earlier, we brought a number of parts of our business together to create the data-driven communications division. The integration of those three businesses resulted in a refinement and enhanced national structure, with a number of permanent positions removed from the business. And a number of these redundancies through that period followed a decision to also discontinue our customer experience operations in Asia and also close one of our production facilities in Queensland. The group completed the acquisition of Salmat Marketing Solutions, which is now known as IVE Distribution, and Reach Media New Zealand in January 2020. And in response to the revenue impacts as a result of COVID-19, we moved quickly to accelerate a comprehensive integration and business simplification plan, that resulted in significant redundancies across this part of our business. Further redundancies took place across the broader business, and we've continued to reduce permanent positions as we've continued to roll out new ERP upgrades across IVE group.

From a supply chain perspective, we saw no material impact to our supply chain at all and we've retained a very strong relationship with our suppliers at a domestic level. At an international level we have also seen a continuation expansion of our supply chain happened in Southeast Asia, on Southern continent, and that is beyond the existing supply chain that we have predominantly in China with a team and an office up there, in the Guangdong province managing a lot of our sourcing requirements. From a banking and liquidity perspective the group quickly at the outset of the pandemic obtained leverage covenant waivers for 30 June and 31 December 2020. Based on our trading and close management of working capital the company was covenant combined at 30 June 2020 and just as an additional note there our senior facility matures in April 2023. So, IVE remains well-capitalized highly liquid and confident that we're well-placed to maintain our strong market position as we emerge from this period of uncertainty and disruption.

Next slide, please.

In relation to FY21 guidance we expect the underlying EBITDA FY21 to be consistent with the number we've delivered in FY20. We anticipate margins to remain stable. We will have capital expenditure of approximately $10 million and our forecast net debt at 30 June will be approximately $110 million and this factors in the company's intention to resume dividend payments for the H1 FY21 interim dividend. We also don't expect the business will qualify for JobKeepers past 30 September and we have our 100-year anniversary next year so we look forward to celebrating that through the course of the year with staff, customers, partners, and investors. Thank you for your time this afternoon.


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