IVE Group (ASX.IGL) Presentation, FNN Online Investor Event, October 2021

Company Presentations

IVE Group Limited (ASX:IGL) CEO Matt Aitken provides an update on the company's diversified portfolio of businesses that cover all aspects of marketing and communications, their resilience to competition and margin pressures, financials and outlook.
Good afternoon and thank you for having me here this afternoon to present you. So just maybe at the outset of lot to mention that we're this year celebrating our centenary year. IVE is 100 years old. It commenced in 1921. When a gentleman by the name of Oscar Selig returned from the First World War and set up a community newspaper at Balmain in Sydney called the Link and the Link really serviced the communication requirements and connected the suburbs of the Balmain, Rozelle, Glebe and its surrounding suburbs.

In the 1960s Oscar handed over to his son Gordon. And if we move forward to 2021 today, we have third generation family still in the business with Geoff Selig being an executive chairman and Paul Selig being an executive director on our board, still meaningfully involved in the running of the business and the fabric of what IVE group is about today.

Clearly through that 100 years and more so since the 1990s, we've moved significantly from being just a printer or a community newspaper producer into a very diversified broad marketing communications group. And I'll cover some of those aspects with you. As we go through today's presentation.

We recently announced our full year results for FY21, revenues of $656 million and EBITDA of just over $100 million, including job keeper and that compared to a guidance range of $98 to $100 million. So just to hit of our guidance range. Pleasingly through that period, it was great to see the gross profit margin holding up and exceeding where we were last year at 48.1%, a really good sign of our ability to leverage our supply chain and also bundle products and services that we sell to customers and protect margin accordingly. NPAT of $30.2 million, including job keeper. Earnings per share was an 8.4% increase over PCP at 13.5 cents and very strong operating cashflow at $97 million, excluding AASB16.

One of the really pleasing things of that last 12 month period, given the volatility with COVID has been the strengthening of our balance sheet. And through the last financial year, we paid down almost $60 million of net debt and finished at 30 June with $77.3 million net debt and cash on hand of $107 million. And we have since gone on. Since the announcement of our full year results to repay $50 million of our senior debt facility and our final dividend of seven cents per share fully franked, took our full year dividend to 14 cents. So a very strong set of numbers from the company and a period of time where there was extreme volatility in the markets that we operated in and a lot of uncertainty, but an excellent performance across the board from all parts of the business and the 1600 staff that we employ.

From a business perspective, as I mentioned earlier from the 1990s and through until now, we still have a very strong strategy of diversification and pursuing growth opportunities, a clearly defined and well-executed strategy that has been a mixture of both organic growth investment to the business and acquisition growth initiatives. As, we've gone along through that period of time.

The listing in 2015 of the business, on the ASX, the strong free cash flow that we generate combined with our access to capital really enabled the company to successfully execute a transformational investment program over the last six years to build out the integrated communications offer that we have today. Our business is highly resilient. We've seen a lot of change in our market over the last 18 months, but across all aspects of our value proposition, we hold leading market positions and we have a very diverse revenue mix, which enables margin protection and reliable cash flow and particular strong balance sheet.

Continuing that strategy of growth and looking for initiatives that are going to drive EPS accretive opportunities for us, we've set aside $30 to $40 million as we look over the next financial year, the current one that we're in to pursue initiatives to continue to expand our offer. So these we'll look at the enhancement and amplification of our Lasoo digital catalogue business, which I'll talk to you about in a couple of slides time, exploring complimentary adjacencies for the business, so with our exposure to fiber-based packaging today, we see an opportunity to really step more meaningfully into that sector. We have a small presence in Victoria in that space today.

But there is clearly an insatiable appetite in the world and in Australia for more fiber-based packaging solutions. And we see that as a natural sector for us to either expand into organically or through acquisition and expansion of areas like integrated logistics offer which again, today is already significant as we look to pursue more 3PL third party logistics opportunities. And we're sure as we go through the coming financial year, there will be plenty of opportunities there to bolster and look at for the bolt on acquisitions within the business. So from our perspective, we're set for growth as we go through the current FY22 financial year.

From a Lasoo perspective, just so you've got a bit of background on that. Lasoo was the first digital catalogue aggregator site in Australia and was established in 2007. We acquired this business in 2020 and despite being quite under invested and for the last five years, it still has a very loyal and active customer base with almost 10 million shopping sessions per annum browsing 24 million catalogues through that period of time and a very large array of Australia's leading retail customers being on that site. So we're going to put our attention and some focus towards re-platforming this part of the offer and taking this to market in a far more meaningful way as we head into 2022.

Digital catalogue’s readership is continuing to grow and it's grown 22% over the last four years. And we've seen an acceleration of that growth as we've gone through the COVID-19 period, more retailers are considering their omni-channel approach to catalogues, comprising a mix of both digital and printed. So we don't see this necessarily impacting the printed catalogue, but more being a complimentary medium as we look to push further into the sector and the loyalty and activity levels of Lasoo are growing customer and retailer base provides a solid foundation for us to further invest into this platform.

So right across our 2,800 clients, and then specifically 400 retail clients. We're really excited about what Lasoo can do to add more value into their business, to drive a better commercial outcomes for our clients and likewise, therefore for IVE group. And we will have more to say about this when we release our half year results in February 2022.

I touched a little bit earlier on the fact that we have set aside $30 to $40 million to grow the business in the current financial year, both through organic means and acquisition, we have just in the last week also announced an acquisition of Active Display Group from WPP and a business called AFI Branding Solutions.

This transaction is due to complete at the end of October. So the start of November and the value is $6.5 million of which $1.3 million is deferred over a 24 month period, depending upon revenue targets being achieved, we expect the acquisition will generate additional revenues for IVE of about $45 million per annum, and once fully integrated into our business EBITDA of $6.5 million and NPAT of $4 million. So a very meaningful set of metrics for that acquisition. And that equates still about 2.8 cents per share at an EPS level.

Active Display Group is one of the best known in retail display point of sale businesses in Australia, working with major retailers right across the country and AFI branding solutions is both a fabric signage product, but one of the largest participants in the soft signage market and has a very big capability in events and exhibitions, which clearly have been impacted through the period of COVID. And we expect events in exhibitions to come back in a major way as we move out of these lockdowns.

So we're excited about what both of these businesses bring to our existing value proposition, how we can expand our capabilities in the sector that we're already in today. The integration will commence at the start of November and conclude at 30 June, at which point, as I said, we will be aiming for this acquisition to deliver approximately $6.5 million EBITDA per annum or NPAT of $4 million.

The slide really gives you a feel for the breadth and diversity of IVE group's value proposition, and our offering in the market, as it stands today across our $656 million of revenue from FY21. The execution of our strategy has resulted in increased diversification of our revenue streams and the broader client relationships, and definitely provides some margin protection relative to other competitors that we have in the market.

It's our long term strategy to continue to evolve this value proposition and our product and service offering has resulted in a large proportion of our clients, engaging with our business across multiple parts of the business. So we have many clients engaging more than one product or service with IVE group when you look across all of those capabilities on the right hand side of the screen. We expect revenue growth across the business to return as the world emerges from these COVID-19 lockdowns. And we believe we're really well positioned to capitalise on these opportunities across multiple sectors and to continue to grow the market share of the business and take advantage of our leveraged cost base as these revenues returned to the business. And as I’ve touched on earlier, we certainly have the capacity to fund both organic and inorganic initiatives to continue to drive to diversification of our offer.

As we look towards the outlook for FY22, the solid underlying fundamentals of the business, combined with the strength of the balance sheet, clearly places us in a position to deliver strong growth as we emerged from this period of disruption. Not withstanding that though at the moment we're not able to provide specific guidance on FY-22 but importantly, I will call out the resilience of the business. I will point to the results that we've delivered over the last 18 months. And we expect that resilience to continue during this current period of time. And we may have more to say about that when we get to our AGM in later in November.

As we look forward, we're definitely experiencing revenue growth opportunities. We're seeing good strong business momentum and client retention across the business. And we expect that to continue over the coming 12 to 24 months, we do believe there will be a post lockdown economic recovery across many of the sectors that we operate in today.

Particularly some of those sectors that have been impacted during COVID. When we think about travel, events, exhibitions, and the lockdown of retail of recent months, and we believe that will further improve our market position in number of those key sectors.

I’ve touched on a little bit earlier, our operating leverage that has been heightened right across the business, and that will continue to contribute to earnings growth as revenues return. And I've already referenced the fact that we have available $30 to $40 million to drive earnings or creative growth initiatives with a targeted road fee in excess of 15%. And I've obviously just talked about one of those that we've done in the last week or so.

So where are we continuing to explore acquisition opportunities, continuing to explore opportunities to invest into business, to diversify the capability, to explore that fiber based packaging piece, the 3PL logistics component will already expand as part of the active display group acquisition.

We also have a share buyback plan in place. So from a capital management perspective that will remain in place and our dividend policy remains unchanged. At a capital expenditure level, we don't expect to be spending more than $10 million per annum, apart from our commitment to Lasoo, which is $3.5 million. So that's an addition to the $10 million and CapEx will continue at approximately 60% of annual depreciation.

So thank you for the opportunity to present to you today. You're welcome to make contact with us post this presentation. There's contact details there on the screen, and we look forward to talking to you soon.


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