Thank you for standing by, and welcome to the Enero Group Limited FY 2024 Full Year Results Call. All participants are in listen-only mode. There will be a presentation, followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Brent Scrimshaw, Enero Group CEO. Please go ahead.
Well, good morning, and thank you for joining CFO Carla Webb-Sear here, and myself for the Enero Group full year 2024 results conference call. I'd like to begin by acknowledging the traditional custodians of the land on which we work, the Gadigal people of the Eora Nation, and pay our respects to their elders past, present, and emerging. The agenda for today is outlined on slide two. I'll first provide an overview of Enero's FY 2024 business performance highlights, drivers, and metrics. Carla is then gonna take you through the group financials, and I'll then also provide some insight into the continued evolution of our strategy and, importantly, our progress against it, along with an outlook commentary. We then, of course, as always, look forward to taking your questions at the conclusion of this morning's presentation.
Starting with the business performance and turning to slide four. Consistent with half year, we've provided a like-for-like comparison of prior year, which adjusts for the proactive rebase of OB Media's business in Q4 of FY 2023. Pleasingly, our Australian-based agencies, BMF and Orchard, continued to perform strongly during the year, despite interest rate and cost of living pressure impacting local consumer sentiment. The continuation of ongoing uncertainty in the international technology sector and the global ad tech market continued to impact Hotwire and OB Media through the balance of the year. Despite these challenges, Enero Group delivered AUD 189.7 million in net revenue, a decrease of 6% on a like-for-like basis, with EBITDA declining 10% to AUD 37.4 million.
Net profit after tax grew 7% on a like-for-like basis to AUD 10.3 million, driven by lower interest expense and stronger earnings in our wholly owned businesses, despite lower profits in non-wholly owned OBMedia. Earnings per share of AUD 0.113 grew 8% on a like-for-like basis, and the group delivered AUD 21.7 million in free cashflow with 88% cash conversion. This continued strong cashflow allows us to continue our share buyback in the second half and repay the majority of our outstanding loan balance. The Board declared a final dividend of AUD 0.02 per share, fully franked, representing a payout ratio of 51% for the second half. Slide five focuses on Enero's financial highlights on an economic interest basis, reflecting our 51% ownership of OBMedia.
While revenue decreased by 6%, EBITDA declined 7%, both on a like-for-like basis, with a continued focus on cost management during the year, delivering consistent EBITDA margins. Cash conversion was at 97%, with strong cash flows in our wholly owned businesses. On slide six, we show the performance of the Technology, Healthcare, and Consumer Practice, which reflects our strategy of deep specialism and expertise in these growth industries of scale that we've prioritized. Revenue of AUD 143.5 million declined 4% on a continuing business basis, excluding the impact of divested government affairs business, CPR, with contrasting performance of agencies within the segment. EBITDA of AUD 22.8 million declined 6% on a continuing business basis, with margins broadly consistent from FY 2023 at 16%.
So now reflecting more detail at a sub-sector level, the Hotwire Group, with its deep offering in the technology industry, experienced ongoing impact directly related to softer tech market conditions globally. It should be noted that additional cost initiatives were undertaken in Q4 in response to margin compression. Now, as mentioned earlier, our Australian-based agencies, BMF and Orchard, operating in the healthcare and consumer sectors, continued their growth trajectory, delivering strong revenue growth with EBITDA margins improvement despite the inflationary environment in Australia. All of our agencies continue to make progress on relentlessly refining their products and service, particularly for clients, while maximizing synergies across the group and leveraging multiple client touchpoints. Within the Hotwire Group, these strategies continue to deliver, with 65% of its revenue now earned from clients with relationships with more than one brand or country.
For our Australian-based businesses, our synergy focus has now delivered 60% of total revenue from clients such as the Australian government and Hyundai that utilize services across both BMF and Orchard. Slide seven demonstrates the diversification of our revenue in the Technology, Healthcare, and Consumer Practice across both industries and geographies, and the multiple touchpoints we have with many of our major clients. Revenue continues to reflect our strategic focus on key verticals and remains well diversified by industry with the largest category of technology. Now, in technology, we're largely operating in the B2B segment through the Hotwire Group and its reputation, relationship, and revenue service offering to indeed capture client investment in cloud, cybersecurity, and the rapidly growing semiconductor industry.
Our agency business model has a healthy mix of retainers and projects, with 49% of our revenue in the half derived from fixed retainers. And lastly, as mentioned, our strategy of maximizing the synergies within the group portfolio has delivered tangible results, with 66% of revenue earned from clients who have one relationship with more than... Sorry, who have relationships with more than one THC brand or country. On slide eight, we've continued our track record to expand our roster of blue-chip clients of scale in our key verticals across the agency portfolio, and this includes Palo Alto, Lilly, Life Healthcare, Stan, Alinta Energy, and most recently, the Endeavour Group here in Australia. At this point, I'd particularly like to call out BMF's win with the Endeavour Group.
After an extensive process, BMF was appointed as the lead creative agency across its portfolio of brands, including household names like Dan Murphy's, BWS, and Pinnacle Wine. Most importantly, though, our continued focus on winning bigger, underpinned by the expansion of new service offerings, means that we now have 34 clients globally with annual revenue greater than AUD 1 million, which is up from 27 clients this time last year. On slide nine, we show the performance of OBMedia. OBMedia revenue decreased 8% on a like-for-like basis to AUD 46.2 million, with notable market-wide weakness seen in Q3 and some positive recovery in Q4. EBITDA declined 17% on a like-for-like basis to AUD 23.5 million, with a margin of 51%, and cost management initiatives were taken in Q4 in response to ad tech market headwinds.
OBMedia also continued to invest in its data science capabilities to create AI tools that drive content creation and automated campaign activation. Last Wednesday, August the 7th, we provided an update on the OBMedia sale process to the ASX. Despite receiving multiple non-binding indicative offers and selecting a preferred bidder, in late FY 2024, at the end of lengthy negotiations, we're unfortunately not able to finalize terms. However, in order to continue a competitive sale process, and of course, to maximize shareholder value, we're now actively engaged in a non-exclusive due diligence process with multiple bidders, and anticipate engaging in contractual negotiations with a preferred bidder at the conclusion of the due diligence phase in Q2 FY 2025. So with that, I'll now hand it over to Carla, who's going to run us through the group financials.
Thanks, Brent, and thank you everyone for joining our results call today. I'll begin with a statutory profit and loss summary on slide 11. It's worth noting that OBMedia, for which Enero Group holds a 51% interest, are consolidated at 100% on this slide. Enero Group delivered net revenue of AUD 189.7 million, a decrease of 21%, with FY 2024 reflecting the rebased OBMedia business. Staff costs of AUD 133.4 million represent a staff ratio of 70%, reflecting a combination of a flat 70% ratio in the THC practice and an increase in the ratio at OBMedia from 22% in FY 2023 to 39%.
The operating cost ratio was 10%, compared to 9% in FY 2023, with the ratio impacted by OBMedia, with the group maintaining cost discipline throughout the year and containing discretionary spend, which offset some of the inflationary pressures. EBITDA of AUD 37.4 million decreased 53% year-on-year. Depreciation amortization was broadly flat. Reduction in net finance costs reflect lower present value interest unwind relating to contingent consideration payables and lower level of debt due to debt repayments of AUD 6.3 million made in the second half of FY 2024. We expect this to further decline in FY 2025. Our effective tax rate of 26% is slightly higher than the prior year of 24%, due to higher effective tax rate in the U.S. relating to state taxes, and a change in profit mix between different countries, resulting in a higher tax rate.
Non-controlling interests of AUD 8.4 million decreased from AUD 25 million in the prior year, reflecting the minority interest associated with OBMedia. Enero recognized a statutory loss of AUD 44.2 million due to significant items of AUD 54.5 million, which I'll discuss next. Turning to slide 12, we've outlined the details of significant items. The impairment losses of AUD 70.8 million are non-cash and relate to ROI·DNA and GetIT intangibles. The continued challenging macroeconomic, economic environment in the technology sector has impacted near-term performance of ROI·DNA, and GetIT, and resulted in an impairment in this reporting period. The recent performance and the uncertainty around timing of improved market conditions has resulted in lower earning expectations over the earn-out period, and a reduction in contingent consideration payable has been reflected in the AUD 22.4 million fair value adjustment in FY 2024.
The combined fair value adjustment across both years is AUD 57.1 million, the large majority relating to ROI·DNA and GetIT. Restructuring costs have predominantly been in OBMedia and Hotwire Group in FY 2024, and in the Hotwire Group in Orchard in FY 2023. The disposal of CPR resulted in the loss on sale of business of AUD 2.2 million. Tax expense on this slide relates to prior year U.S. tax adjustments of AUD 1.3 million, partially offset by AUD 1 million in tax credits relating to the lines above. Turning to slide 13, we've shown our expense by segment by half over the past two years to show the sustained manner in which we managed our costs during this challenging period.
Enero undertook material cost reductions in the second half of FY 2023 and FY 2024. The impact of this is a 14% reduction in costs on a constant currency basis when comparing H2 FY 2024 to H1 FY 2023. The disposal of CPR had a 1% impact on this figure for both the group and the THC practice. The Technology, Healthcare, and Consumer Practice delivered a 14% cost reduction in H2 compared to FY 2023 H1, with material cost reduction initiatives predominantly in Hotwire Group. We anticipate this will improve margins in FY 2025 and build towards the margins being delivered by the consumer and healthcare agencies. All practice agencies continue to make investment in strategically important areas and build capabilities to innovate, which Brent will discuss in a little more detail later.
OBMedia delivered a 9% cost reduction in H2 against FY 2023 H1, with staff savings offset by investment in tech, machine learning, and data capabilities, and cost inflation, particularly in technology costs. Additional cost management initiatives were undertaken in Q4, which will deliver a full year of savings in FY 2025. We continue to focus on carefully managing corporate costs, now representing 5.4% of the group's net revenue on an economic interest basis, an improvement from 5.9% in FY 2023. H2 FY 2024 saw an AUD 1.5 million reduction in corporate costs to AUD 4.5 million. If our portfolio was to change materially, we'll take necessary steps to continue to adjust corporate costs accordingly. Turning to Enero's cash flow on slide 14.
Cash conversion was 88% of EBITDA for the year, and on an economic basis, cash conversion was 97%, reflecting the stronger cash flows of the wholly owned businesses during the year. Operating cash flow of AUD 27 million benefited from reduced interest and tax payments. Net interest payments has reduced to AUD 1.2 million from AUD 1.5 million, relating to lower levels of debt, with net loan repayments of AUD 5.4 million during the year. Tax payments made in all jurisdictions totaling AUD 4.8 million, with a decrease coming predominantly from the U.S., Australia, and the U.K., with Australia receiving a tax refund in H2. After cash-funded CapEx and lease payments, free cashflow was AUD 21.7 million. Net investment in businesses of AUD 3.8 million relates to installments of payments for contingent consideration of MBA and ROI·DNA.
Share buyback repurchases represented AUD 2.6 million in FY 2024, and AUD 3.2 million over the twelve-month program. Turning to slide 15. Enero's strong balance sheet underpins our ability to deliver growth and manage headwinds. Our cash position of AUD 46.7 million reflects our strong operating cashflow, with a net cash position of AUD 38.2 million, increasing from AUD 13 million at June 2023. As noted, our loan balance is now AUD 3 million, with AUD 47 million of undrawn facilities. The contingent consideration balance relates to ROI·DNA and GetIT, acquired in July 2022, and MBA, acquired in April 2021. This balance of AUD 5.5 million has a maturity profile over FY 2025 to FY 2026. We remain very comfortable that our balance sheet retains flexibility to pursue Enero's growth ambitions.
Slide 16 emphasizes that we are continuing to optimize our capital position. Enero is maintaining its financial flexibility with adequate net cash position of AUD 38.2 million at balance date and zero leverage. Reflecting the company's financial performance in FY 2024 and strong balance sheet, the board declared a fully franked final dividend of AUD 0.02 per share, payable in October, representing a 51% dividend payout ratio. The overall dividend payout ratio for the year was 44%. I also want to note that as the majority of our operations are now outside of Australia, our franking credit balance at 30 June 2024 of just under AUD 1 million decreased from AUD 5.2 million at 30 June 2023. Enero completed its on-market share buyback on the 30th of April.
The program bought back a total of 2 million shares with a maximum opportunity captured, given the limited trading volumes in the share. I'll now hand back to Brent to provide an update on the company's growth strategy and our outlook for FY 2025.
Okay, thanks, Carla, and turning now to slide 18, with an updated overview of Enero's operating strategy. We operate in a competitive and evolving global marketplace, with a specific focus in our battleground industries of technology, healthcare, and consumer, combined together with our strategic pillars and strong fundamentals needed to ensure ongoing success. Enero will always continue to advance the business, transformation, and creative needs of clients globally, and we believe this continues to represent significant incremental market opportunity, particularly in a more robust technology sector. Underpinning our operating strategy is the creativity, leadership, deep category expertise, and resilience of all of our amazing people, bonded together through a culture of innovation and continuous improvement. On slide 19, FY 2024 represents continued progress in our transformational journey.
We focused our efforts on delivering on four key strategic priorities, excuse me: strengthening our core agency business, completing the optimization of our portfolio, scaling our tech and AI capabilities, and refining our healthcare practice for the future. Today, given the strong performance of our Australian agencies, I'm going to provide a high-level overview of the technology sector, with some additional insight on the global tech marketplace opportunity and our response through AI thought leadership and tech capability development. On slide 20, whilst the tech sector remains challenging on a global basis, client organizational restructuring and churn has begun to stabilize, and valuations of a small sample of some Hotwire clients shown here, has begun to improve in 2024.
This combination of valuation growth, along with significant venture capital available for deployment, means we continue to remain optimistic in the long-term growth of the technology sector. On slide 21, and given that market opportunity, it's really critical for us that we focus on controlling what we can control and continue to position Hotwire Global to take advantage of momentum in tech when it rebounds. We continue to develop new technology and consulting solutions that help clients navigate the shifts underway in their business through digital transformation and artificial intelligence. Hotwire has recently launched their Fast to AI plan, with client-first AI solutions that provide compelling insights for clients on brand sentiment and influential media optimization outcomes, together with the continued rollout of their data and analytics IQ suite, with seven new solutions in market now over the past 18 months.
Slide 22 highlights the strong foundations now in place that position the Enero Group for future success, and most importantly, to capitalize on the return of a more robust global technology market. We've continued the strong growth trajectory of our Australian agency businesses. We've a track record of cost discipline, combined with investment in innovation for the future growth, while navigating challenging macroeconomics. The opportunity to continue to reduce complexity and simplify the group portfolio remains near term, and this will enable our focus on a unified global agency strategy. We also have capital flexibility to pursue growth opportunities while delivering shareholder returns. So given these strong fundamentals, we remain confident that Enero is better positioned than ever to create a globally scaled and differentiated marketing services business.
Turning now to slide 23, where I can now provide you with an outlook for FY 2025. Trading for July remained broadly consistent with the end of FY 2024 H2. Technology, Healthcare, and Consumer Practice continues to operate in a challenging technology industry internationally. The segment is benefiting from cost initiatives taken in FY 2024 Q4. OBMedia revenue is broadly in line with FY 2024 Q4. The OBMedia sale process remains ongoing, and Enero anticipates engaging in contractual negotiations with a preferred bidder at the conclusion of the due diligence phase in Q2 FY 2025. Enero also remains focused on proactively managing its cost base. So with that, I'd like to thank you for your attention this morning, and of course, Carla and I would be pleased to answer any questions you have. So I'll now hand it back to the operator for Q&A.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Olivier Coulon with E&P Financial Group.
Hi, guys. Thanks for taking my question. Can you hear me okay?
Yeah, no problem. Hi there.
Excellent. Is it possible to quantify the bounce back that you saw in the fourth quarter in OBMedia versus the third quarter? 'Cause obviously it's encouraging, but without kind of understanding how deep the third quarter decline was, it's hard to kind of gauge what that means.
I think what we, what we would say is, obviously, we don't disclose trading quarter by quarter, but we did refer in our prepared remarks today around ongoing market softness, ad rates in a more volatile market, I guess you could put it down to, and also there's some mix between, you know, United States and international revenues that, obviously reflects, you know, more challenging conditions in certain parts of the world, and so therefore, looking to make sure we optimize, you know, the business on an ongoing basis.
I mean, I would just add, so Q4, like we referenced, has slight margin improvements, but it's off the back of only a few months of trading. So, again-
Yeah.
Like Brent mentioned, we're not giving quarter by quarter, but slight.
Okay. And then just on the technology part, you know, you mentioned that the business overall is trading in line with kind of the back end of the second half. You've provided a bit of color around OBMedia and saying that, you know, it's bounced back from a very weak third quarter. But in terms of, you know, I suppose, the cadence, to use that word, of the revenue in the second half in the tech in the, you know, agencies business, can you provide a bit more color on that?
Well, I think again, because we're really only referencing one month of data, it really just remains very broadly consistent with what you can see in that half. There's nothing substantial that we can call out, other than what we have mentioned, is that you should anticipate, and we have started to see for one month of activity, the slight improvement in margins that's happening in that technology sector as a result of the back end of our half, having those costs out, the technology, being Hotwire Group, I should say. But again, nothing pronounced enough to call out at this point, 'cause it's only one month of trading.
Yeah. I mean, as mentioned, it, the technology industry, we clearly have long-term confidence in a rebound at some point. You know, we've taken some cost action in Q4, particularly in the Hotwire Group. But it's broadly in line, to Carla's point, with what we've seen in the second half of the year.
Yeah, in terms of the revenue cadence, you mean?
Yes.
Yes.
Yeah, okay.
I mean, and it, it's one month of data, so appreciate-
No, I understand. Yeah, and I'm not concerned necessarily about the long-term future of the business. I mean, it looks like you're winning clients, et cetera. It's just the question is how deep the first half nadir is effectively of the earnings, right? Is there any potential to quantify also the cost out that you executed in the second half in corporate and in, you know, the creative agencies?
I mean, what I would just reference you to is we've obviously given the cost out data for. So you can see the cost profile, sorry, which sits within our cost slide. Just trying to remember the reference. So this is slide 13. What I'd probably steer towards is that absolute cost base for that agency group. We're entering into FY 2025 broadly around the same profile, because within that practice, we've got a bit of, you know, cost inflation that comes with staff costs for the growing agencies in consumer and health, which have had that momentum throughout the second half, and that will be slightly offset then, with that growth, with the savings that are starting to pull through for technology.
But I think the best steer at this point we can give you, it's broadly consistent with the second half when you look at the entire practice. Obviously, a few moving pieces in there, but, we don't disclose and break down by brand, so it's best that we reference that in the context of the segment.
Yeah. So in terms of the 59.5, second half run rate?
Yes, you can say-
For the... Yeah
the absolute total expense
Yeah
-bucket, and I'd say that's how we're entering into FY 2025.
But I think what we also did is try to provide some longer-term dynamic as it relates to our focus on cost management. And you can see that on that slide from 2023 H1 down to 2024 H2. So you get a sense of a continued focus from a management perspective, to make sure that we continue to maintain cost relative to revenue.
Yeah. Okay. No, I appreciate that. Sorry, I might just have a last one, if possible. Just around the, the media sales processes, is there any extra color that you can provide us on, you know, the preferred, tender at the time not, you know, getting to an agreement? In terms of-
The short answer is no. But what I would say in terms of extra color is, you know, our focus is 100% on driving positive shareholder outcomes, and it's clear that we have a prized asset that's in demand, and that is reflected in a competitive process that we are in right now. So we believe that that is a great sign in terms of demand for that asset. And whilst, I think there may be some focus on speed, we definitely wanna make sure we prioritize shareholder returns versus, you know, completing any transaction with regards to a timeframe. So the good news there is, you know, we have multiple parties with significant interest, and of course, I'm sure you can appreciate we're in a process, so we can't really disclose any more than that.
Yeah. Okay. No, thanks. Appreciate that.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Conor O'Prey with Canaccord Genuity.
Hey, Conor.
Morning. How are you?
Good.
I might, a few of my questions were already asked. So I might take you to slide 8 on the deck, which is the one about the client wins, and kind of thinking about the fact that very crudely, excuse me, you've got, let's say, AUD 7 million of incremental revenue from clients, 34 - 27 x a million, AUD 7 million. Not all of that comes through in FY 2024. Agency revenue's down, I think, AUD 9 million. So what is the difference in the bridge between the sort of the uplift you're getting from new clients and, and the actual result? Is that other clients exiting, spending less, pricing pressures? How would you sort of characterize what else is going on inside the agency business from that perspective?
I think, first of all, just to clarify this slide, the blue chip clients and brands you see on this slide are FY 2024 new client wins. Not all of these clients are million-dollar clients, just to make sure that that's clear for everybody. These are, you know, continued wins in 2024 that demonstrate momentum in each of the agency practices. And we thought from a metric perspective, we've had a very clear focus on winning bigger. And so the notion of leveraging a cost base against clients of scale is delivering specific results as it relates to that strategy. So I just want to clarify that first.
And then also, Conor, I guess, because you can see that, that absolute change, we are highlighting our strategy around larger clients, but you can expect that as a result of the movement, we've also been dropping out some smaller clients, so you've got that dynamic. And then ultimately, some of these clients are recognizing revenue over time. So we're signing up to clients that have multi-year perspectives, so there's a revenue recognition over that period. But this slide was really to highlight, if you looked at a point in time, 30 June, and had a look at the size and scale of our clients, that those are the ones that sit over a million dollars. But we, as you point out, have also had smaller clients dropping off and creating a bit of that long tail drag.
Which to some degree is a deliberate strategy in terms of making sure profitability around smaller clients and analyzing that around how we think about winning bigger and the impact, not only creatively or operationally, but also from a profitability standpoint.
Mm.
All right. Thank you.
There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.