Hi everyone. Welcome to the IVE Group FY24 interim financial results webinar. My name is Manny Anton and I'm your host for today. On the call we have Executive Chairman Geoff Selig, CEO Matt Aitken, and CFO Darren Dunkley. The format is a 20- to 30-minute presentation followed by 15 minutes of Q&A. If you'd like to ask a question, please click the Q&A button at the bottom of your screen and type your question into the Q&A panel. Without further ado, I'd like to hand over to Executive Chairman Geoff Selig to start the presentation. Geoff, are you there?
Yes. Thank you and good morning everybody. Thank you for making the time to join us for the IVE Group H1 results briefing this morning. We're going to walk through the investor presentation that was released to the ASX this morning titled FY24 H1 Results Presentation. As stated in the intro, I'm joined by our group CEO Matt Aitken and CFO Darren Dunkley, so we'll all be talking at various points this morning. Surprised to say a very busy and productive half of the group with the business once again delivering a solid result.
Just kicking off on page three, we'll take the financial performance commentary on page three as read because we'll cover that in more detail shortly. Two important points to make on this page. The first, under operational updates, we acquired Ovato out of administration in late 2022, as most people on the call know. The integration was complex, had multiple moving parts, and has required significant investment over the last 18 months to execute on the integration. The integration has been managed very effectively. In fact, it couldn't have gone any more seamlessly than it's gone by the team, with no disruptions to clients at all. That integration is now fully complete, which we'll touch on when we get to the financial results. And that was ahead of schedule after a decision that we made about 12 months ago to expedite the final phase. So that's the first important point to make on page three under operational updates.
The second under growth initiatives that I want to make is we had undertaken quite a lot of work, as previously communicated, over the last couple of years on scoping out the opportunity to enter the folded carton section of the packaging sector for us in natural adjacency. Our plans were delayed due to the Ovato administration, which required our complete focus at that time for some time afterwards. We're really pleased in this first half of FY24 to have entered the sector through the cornerstone acquisition of JacPak at the end of October last year. If you refer to Appendix C in the document, it is an overview of why we felt the folded carton sections of that sector were strategically attractive adjacency for our group. Just finally, on page three, we previously communicated the acquisition metrics for JacPak.
Today, Matt will focus more specifically on our organic expansion plans rather than the acquisition metrics. We'll also touch on Lasoo and content creation, but intend providing a lot more detail on both of those later in the year. Just turning to page four, which is titled The Financial Performance Dashboard. I'd like to just start on the right, the far right-hand side of that page because it's a very important point to make from our perspective. For the period, there was a AUD 5.6 million non-recurring EBITDA loss at the Ovato Warwick Farm site. That was their principal operations at that site. This loss was not unexpected as we finally wound down operations, which ultimately resulted in the final completion of the integration. If you normalise for that AUD 5.6 million EBITDA loss for the period, NPAT would have been AUD 26.6 million or 9.4% up on PCP.
Earnings per share would have been AUD 0.173, which would have been 5.1% up on PCP. And finally, the EBITDA margin, once again normalised for that AUD 5.6 million non-recurring loss, improved to 13.7% from 12.9% PCP. So we felt that was an important point to start. Moving to the left of page four with the other financial metrics, Darren will touch on revenue shortly. But suffice to say, EBITDA, NPAT, and EPS were all impacted by the significant non-recurring loss that I just walked through previously. Moving to the bottom line on page four, really nice to see our material gross profit margin increase by 2% from 44.2% to 46.2%. And Darren will cover on cash flow and net debt as we work our way through the presentation.
On the back of the solid half, we've declared a fully franked dividend of AUD 0.095 per share, which is consistent with the H1 dividend in FY 2023. So at this point, I'll hand over to Darren, walk us through the financials, and then Matt will pick us up a few pages in at the growth initiatives and then walk us through the guidance and outlook at the end of the presentation. So over to you, Darren.
Okay. Thank you, Geoff, and good morning, everyone. I will take you through the financial section of the presentation, starting page seven with revenue. Revenue of AUD 506 million is a 0.6% increase on PCP, inclusive of incremental revenue from Ovato acquired mid-September 2022 and JacPak acquired 31st of October 2023. Excluding incremental contributions from Ovato and JacPak, revenue was slightly down relative to a strong record PCP impacted by the decision to cease production in Western Australia, which reduced revenue by around AUD 10 million. Material gross profit margin, MGM, which is revenue less material cost of goods sold, MGM improved to 46.2%, up from 44.2% in PCP. The improvement in MGM primarily reflects prior period pricing initiatives coupled with some input cost relief, principally paper and freight in particular, as well as exiting lower margin revenue following the closure of the Western Australian operations.
Underlying earnings, EBITDA increased 1.3% to AUD 65.8 million from AUD 65 million PCP, with the incremental contribution from Ovato and JacPak broadly offset by increased energy and group costs, largely IT, compliance, and ESG related. EBIT included a AUD 5.6 million non-recurring Ovato Warwick Farm loss, as Geoff has touched on. Excluding this loss, EBITDA margin improved to 13.7%, up from 12.9% PCP. Net finance costs of AUD 8.6 million, up from AUD 5.7 million PCP, primarily due to the high interest rates for the period and the funding of the JacPak acquisition later in the half. Non-operating items of AUD 13.7 million pre-tax, refer Appendix A, excluded from underlying earnings, were made up of AUD 8.7 million of restructured costs primarily related to the final phase of Ovato integration, AUD 2.8 million Lasoo operating loss consistent with the guidance, and AUD 1.1 million of acquisition costs primarily related to the JacPak acquisition.
Turning to page eight, the balance sheet. Increase in net debt reflects JacPak acquisition and peak working capital seasonality. Net debt increased to AUD 165.4 million at the 31st of December 2023, up from AUD 124.2 million at 30th of June 2023, reflecting the funding of the JacPak acquisition and peak working capital seasonality, partially offset by the rebounding operating cash conversion as discussed in cash flow section to come. Cash at bank was AUD 41.7 million with undrawn facility capacity of AUD 37 million, including acquisition facility. Our balance sheet remains strong, with FY24 net debt expected to be circa 1.5 times pre-AASB or circa 1.2 times post-AASB 16 EBITDA. This is consistent with the group's agreed internal benchmark and broadly in line with 30 June 2023. Noting the majority of cash outlays related to the Ovato integration are largely complete and no further integration costs expected in FY25.
Capital expenditure, continued investment to ensure market-leading asset base. Capital expenditure was AUD 5.7 million for the half, including AUD 2.7 million related to the Ovato integration. FY24 capital expenditure is expected to be around AUD 18.5 million, including AUD 4.5 million relating to the final phase of the Ovato integration. H2 CapEx spend primarily relates to further enhancements to Lasoo platform, IT infrastructure, organically expanding our packaging capacity, which Matt will touch on later in his presentation.
On page nine, cash flow and dividends, improved operating cash flow as inventory working capital levels normalized. Operating cash conversion of 84% to EBITDA compared to 56.6% PCP. This was primarily due to the normalization of inventory, paper, holdings, and working capital following the Ovato transaction, supported by improved supply chain certainty. Reflective of the solid FY24 H1 result, the board declared a fully franked dividend of AUD 0.095 per share, stable on PCP. The group dividend policy remains unchanged, targeting a four-year payout ratio of 65%-75% underlying NPAT. I will now hand you over to Matt to take you through the balance of the presentation. Thank you.
Thank you, Darren, and good morning, everyone. I'm just going to walk through some growth initiatives, and then we'll talk about the. The delivery financial metrics continue to track in line with or above our business case expectations. The growth trend of monthly active users is encouraging, as are the number of retailers committing into the platform. And at the end of December, we had more than 180 retailers integrated in. Some of those are Barbeques Galore and Your Discount Chemist, among many other companies that joined Lasoo during that period.
We still have a very healthy pipeline of opportunities that we'll be executing on through H2. And again, some of those notable integrations will be or we expect to be a very large mainstream department store, one of Australia's largest white goods and appliance retailers, a number of liquor retailers, and some more retailers in the health and beauty sector. So a very encouraging pipeline as we look to complete H2. Conversion rates and average basket size are performing above expectations, with ABS of AUD 172 in December 2023 compared with our business case of AUD 120. And that reflects strong sales in higher value categories. And you can see a split of sales categories in the pie chart on the right of page. In November. Cyber Monday, the Lasoo GTV for the month was greater than AUD 1 million. And it is supportive of our annualised GTV expectations of AUD 15 million by June 2024, which is 64% above the original business case.
So assuming continuity with our current business plan, we expect Lasoo will break even during FY26. And I would also say, though, that based on the momentum and the better-than-expected results, we are exploring all possible growth options for the platform and the marketplace, including further platform enhancements and optimizing our marketing spend. And again, we'll provide a more detailed update to investors on our longer-term plans for Lasoo later in FY24. Turning to page 12 and touching on JacPak, as you are aware, at the end of October 2023, we entered the folding carton packaging sector with the cornerstone acquisition of JacPak. Appendix C has more information and further commentary and analysis on the packaging sector landscape that you can refer to. JacPak is leading Melbourne-based player in the short- to medium-range folding carton market with annual revenue of AUD 45 million.
We have been through the acquisition metrics both at time of acquisition and at the AGM in November, so I will take those as read. The key point to note, though, however, on page 12 is that JacPak has an additional AUD 15 million of available capacity for organic revenue growth. The group is confident of utilizing that capacity through new and expanded customer relationships, which would increase JacPak's revenue to AUD 60 million, EBITDA of almost AUD 12 million, and NPAT of AUD 5.5 million. As we turn our attention, more so do the organic expansion of our packaging strategy in referencing page 13 of today's presentation. It is still a very fragmented fiber-based packaging market, and we see an opportunity to achieve a meaningfully stronger market position over time. While bolt-on acquisitions may be considered the primary driver for our growth strategy in the sector, we'll be organic.
The equipment used in the production of folded carton packaging is similar to equipment IVE currently operates in its existing Victoria and New South Wales sites today. Consistent with our existing footprint, we will service national brands through packaging operations in both Victoria and New South Wales, supported by our national logistics network to ensure the timely production and distribution of finished packaging goods and products for our customers.
In Victoria, JacPak will continue to operate as a standalone business with annual revenue capacity of AUD 60 million. In New South Wales, we intend to leverage the operational footprint of our Silverwater facility by expanding the site's capability with the addition of die-cutting and gluing equipment to support the production of folded carton packaging. The standalone JacPak facility in Keysborough, Victoria, coupled with the Silverwater expansion, will result in total packaging revenue capacity of around AUD 90 million per annum.
Over the medium term, investment in additional equipment would add a further AUD 60 million to capacity, resulting in the group achieving its stated ambition of building a packaging business with revenues of around AUD 150 million per annum over the next three to five years. The chart on the bottom right, page 13, further illustrates the build around this. Just quickly on page 14, today's presentation illustrates some of the great work we've been doing during H1 for brands and retailers, as well as the work we've produced for major events such as FIFA Women's World Cup, which included on-field and stadium signage, activations, and merchandise licensing. Then more recently, a very wide array of requirements for Tennis Australia, and in particular, right through the Australian Open tennis event. As we turn to page 16, just touching on the Outlook and Guidance.
Encouraged by a solid first half and continued momentum, the group reaffirms the FY24 underlying earnings guidance range that I reiterated at the AGM in November last year, with the expected FY24 impact of the JacPak acquisition incorporated in the updated guidance numbers below. Those updated guidance numbers being EBITDA of AUD 127 million-AUD 132 million, EBIT of AUD 77 million-AUD 82 million, and NPAT of AUD 41 million-AUD 44 million. Significant items excluded from the guidance and underlying earnings include Lasoo, which is expected to report an after-tax loss of AUD 3.9 million, which reflects an expected 20% improvement in the FY23 EBITDA for Lasoo. Restructure and integration cost of AUD 12.5 million, which includes AUD 10 million for the final phase of the Ovato integration.
CapEx, as Darren touched on earlier, is expected to be AUD 18.5 million, with AUD 4.5 million of that relating to the final phase of the Ovato integration. Although slightly elevated at 31 December 2023 due to the funding of the JacPak acquisition and peak working capital seasonality, net debt at 30 June 2024 is expected to be circa 1.5 times pre-AASB 16 EBITDA or circa 1.2 times post-AASB 16 EBITDA. And that is consistent with the group's agreed internal benchmark and is broadly unchanged from where we were at at 30 June 2023. Including the additional financing costs associated with the JacPak acquisition, net finance costs are expected to be around AUD 18.5 million, comprising AUD 11 million relating to our corporate debt and AUD 7.5 million relating to leases, including non-cash impacts of AASB 16.
As Darren mentioned earlier, the group's dividend policy remains unchanged, targeting a full-year payout ratio of 65%-75% of underlying NPAT. I'd like to thank all of our staff, customers, and partners for their contribution towards a strong H1 result. [ Nicole.]
Hi, if you can hear me. I think you were cut off a little bit there. You may want to repeat that.
Oh, Matt just concluded the Outlook and Guidance section on page 17. So we were just, in conclusion, thanked people for their time and just reaffirmed that we were pleased with the financial performance for the half and the completion of the Ovato integration and the kickoff of our move into the folded cartons section of the packaging sector. And we're open for questions if you can hear us.
Thanks, Geoff. Okay, so a reminder that if you'd like to ask a question, click the Q&A button at the bottom of your screen and type your question into the panel. We'll first take some questions from analysts who are covering IVE. So please, analysts, do raise your hand when you are ready to ask a question. Okay, our first question comes from Cissy Zhu at UBS. Cissy, please unmute your microphone and go ahead.
Hi. Hi, thank you. Hi, Geoff, Matt, Darren and Tony. How are you guys going?
Good. Thanks, Cissy. How are you?
Thanks for taking my questions. First question's just on margins. So strong outcome on gross margins, 46.2%, and EBITDA margins as well. Just trying to understand, the first half didn't really get that full benefit of paper cost decreases because it sounds like you guys were still working through existing inventory. So on that basis, do you expect second-half margins to kind of trend higher?
Cissy, it's Matt here. No, I mean, I would expect margins to continue to remain consistent with where they've been as we exited H1. While input prices have come down from their COVID peak, they're certainly not down to pre-COVID levels by any means. And you are right, we were continuing to unwind some of the higher-level inventory that we were carrying as we entered H1. So I don't think necessarily we're going to see them jump up significantly higher, but we would expect to maintain where we've been for sure.
Yeah. Cissy, it's Darren just on EBITDA margin. I think we would expect that to see that as similar to the EBITDA margin increase if you normalized for the EBIT loss that we discussed.
Yeah, I mean, that 13.7% normalized for that loss is a pretty healthy historically EBITDA margin.
Correct.
Yeah. Okay, thank you. My second question's just on that organic revenue. So at AUD 507 million, if we strip out AUD 7 million contribution for JacPak and incremental two and a half months for Ovato, then if we also account for the one-off web offset impacts, where does that organic revenue growth kind of net out? Yeah.
Well, as we said in our presentation, Cissy, if you look at our revenue, excluding the incremental contribution for Ovato and JacPak, revenue was slightly down on what was the record PCP last year. That's not because we've actually lost any revenue, so to speak. It's probably more timing of projects throughout H1 and H2.
Yeah, and I think we've had a good market on the new business front as well, Cissy. So again, we'd expect to see that adding to the organic revenue number as we head into H2, but we've had some really good customers join the stable through that H1 period.
Okay, thank you. I'll jump back in the queue.
Thanks.
Thanks, Cissy.
Okay, our next question comes from Shane Bannan from PAC Partners. Shane, please unmute your microphone and go ahead.
Hi, thank you. Morning, guys. If you could just get a bit more clarity on what you're seeing in the revenue side of things? I mean, if there was anything that surprised me a little, it was just that the revenue is being as flat as it was. I do appreciate you were cycling a big first half of the prior period. But nonetheless, generally speaking, things have been reasonably buoyant out there, and I would have thought that would have translated more insofar as your revenue was concerned.
Well, I think, Shane, as you said, we were cycling out of a very strong H1 PCP. We had some pretty big one-off projects in that prior H1 PCP period, particularly around elections. We had the WA business in that PCP period, which is obviously a AUD 10 million step out of revenue when we compare it to H1 FY24. And we had some other very large customer projects in that one-off customer projects in that PCP period too. So again, the organic growth there, as Darren said, we've not lost any customers through this period, but we've certainly been working to replace maybe some of those larger project-based revenues and the WA revenue that we carried in FY23.
That FY23, by definition, Matt, what you're saying is that that was an unusually buoyant period, and therefore, the underlying picture is still quite robust.
That's right, Shane. Yep.
Right. And kind of just another point of clarification around that AUD 5.6 you're talking with respect to Warwick Farm, was that an incremental cost just associated with walking away from the lease?
It's not just lease. We've had to produce change, Darren. We've had to produce work in the consistently produce work while we wind that site down. So there is partly lease cost, but it's a really inefficient site to produce revenue at as we've had to move capacity around to our main print web offset sites, which contributes further to the loss as well. So it's a combination of lease fixed costs as well as operational costs in running a very inefficient site that we've had to wind down.
Inefficient large site.
Correct. Yeah.
Right. So really, that 5.6, by definition, doesn't recur insofar as this period is concerned.
Correct.
That's right. Yeah.
Good. Thanks, guys.
Okay, our next question comes from Stuart Turner from Blue Ocean Equities. Stuart, please unmute your microphone and go ahead.
Sorry, guys. I just had to turn off mute. My bad. Can you hear me okay?
Yes.
Yeah, we've got you, Stuart. We can hear you.
Stuart, you're not coming through, mate. Have you definitely unmuted yourself?
Yeah. Can you hear me?
We can now.
Yeah. Everything now, Stuart. Oh, great. Listen, sorry about that hiccup. Apologies, everyone. Just a couple of questions, and perhaps it's a good segue from Shane's previous, is if maybe you could address the revenue equation from the point of view of your customer profile and their health, their sort of efficacy of their business models in this challenging environment, and whether they're actually in the position where our business is accelerating and their demands for your services are accelerating. And then if I could cheekily ask for a follow-up question on the energy input costs as well, please, Jens. Thanks.
Certainly, when I think about the retailer customer profile, Stuart, it's Matt here, they have continued to market strongly through H1, particularly in the in-store presence. So through our brand activations business, had very good, strong H1 period. And then out into our 3PL business, our logistics business as well. We've not seen any major step back in our catalogue customers. The magazine publishers have remained strong through that period. And we've also seen some of our tourism customers, like Trafalgar Tours, coming back into the market that had not been in the market for some time. So certainly around the FMCG brands and the retailers themselves, particularly in terms of what they're looking to execute in store, they've been really strong right through that H1 period. In relation to energy, pricing has been consistent with where it's been so H1, it was consistent with where it was for H2.
As of 1 January 2024, we've stepped into our agreement with Iberdrola, which sees a level of consistency in that electricity price. We look forward, notwithstanding the opportunity to sell LGCs on an annual basis through that PPA agreement.
Okay. Thank you very much.
Thanks, Stuart.
Okay. It doesn't appear we have any other questions from the analysts, unless I'm mistaken. If that is the case, then, Geoff, I'll hand back to you to answer some of the written questions.
Yeah. One of the questions, or the first question, is why pay dividends instead of paying down debt when interest rates are high? I think we have always been and continue to be focused on maintaining a strong balance sheet and to get the balance right. It's fair to say these last two years, post the Ovato acquisition, or 18 months, there's been a lot of investment in the business and cash outlays in terms of executing on that integration, the levels of which we haven't seen really since 2016, early 2017, when we acquired a business in Melbourne called Franklin Web and AIW and integrated them. We haven't had costs to that extent to fund. So as Darren said, our forecast net debt at 30 June this year is consistent with our net debt at 30 June last year.
On the back of the solid first-half result, we felt that the dividend that we've just declared is appropriate. While, yes, we could have used that money to pay down debt, we're feeling it at the full year with the forecasts similar to last year, and in the absence of ongoing high level of costs and a return to much higher cash conversion along the lines of historic or previous years, that the level of dividend is appropriate. So we're comfortable with that would be our answer to that question. One of the questions was around some smaller sorry, around reference to some "bad reviews" on the App Store from the App Store. They've tried several times. It doesn't seem to perform as expected. Searching of common groceries on items comes up with no results and a couple of other things.
I'll let Matt answer that because it does feed into our own internal analysis and also touches on some CapEx that's underway at the moment in terms of further enhancements to the Lasoo app.
Yeah. So actually, there's two questions here on Lasoo. So we might knock them both over at the same time. There's the one about the reviews in the App Store, and there's one about the key factors that attract clients to Lasoo and what are the differentiators drawing in customers to Lasoo. So let's deal with both of those. So from a client perspective or a retailer perspective, it's a unique e-commerce digital catalogue experience that enables retailers to amplify and generate a better ROI from their digital catalogue investment. There's no risk, unique or no-risk commercial model for them. So there's no setup fees or ongoing store fees. They only pay a commission on the model when it creates a win-win. So they're only paying commission on sales going through the platform, and they only pay if they sell. There's unique onboarding team for integration.
So we believe the way that we've approached the onboarding process for the retailers is unique to Lasoo and certainly makes it easier for the retailers to integrate in. We set up all the stores for the retailers, and we do a lot of the product mapping for them. And that, coupled with a very, very modern tech stack and our marketplace platform sitting in behind, makes it much easier for a retailer to integrate than most of our other most of our competitor platforms. It's uniquely selective and curated, which means retailers get a far higher share of voice on the Lasoo than they do in other platforms, with 10-200 times the amount of retailers buying for platform traffic relative to us. It's independent.
So retailers really like the fact that we don't stock any product ourselves on it. We don't push anything that we own. They're hesitant to join other platforms that are owned by other retailers. A good example of that would be things like Catch or MyDeal or Amazon, where those companies will use some of that data to further enhance and promote their own product ahead of the retailer's product. Therefore, the retailers see that there's a conflict of interest.
From a customer perspective or a consumer perspective, it's unique retailers and deals that are only available to them on Lasoo. Unique specials only offering on Lasoo. We don't sell or list all SKUs. It's very special-focused. It has a unique e-commerce digital catalogue experience, which is not available on many other competitor sites, and a superior customer service experience. That probably leads into that question about the rating in the App Store.
First of all, I would note that the rating in the App Store relates to the entire time the Lasoo app has been available in the App Store. That is many, many years. That is not specific to the last 14 months since we relaunched that app. It dates back, in fact, to the time prior to us even acquiring Lasoo as a business when we bought the Salmat business in January 2020. I think a more accurate rating to look at would be the one in Trustpilot. That's certainly the one that we focus on quite heavily. The rating in Trustpilot at 4.3 is outstanding and really, really good when you compare that to the rating against other platforms like MyDeal, like Kogan, like Catch, like Amazon, and like eBay. So hopefully, that deals with both those questions.
Then, as Geoff said, we've got a range of programs underway at the moment to drive further functional features into the platform and enhancements into the platform. That will pick up on one of the comments made there about search as well.
Look, I think the other two questions that we had online related to the revenue question, which I think we've dealt with unless there wasn't sufficiently dealt with in terms of our response. We can revisit it. But there's no other questions online at this point.
Okay. Well, I think, Geoff, that brings us to the end of the Q&A session. Thank you, everyone, for making the time to listen to the call today. If you have any further questions, please reach out to the team, and they will be happy to help. Copies of this webinar will be available on the IVE Group and FNN websites over the next few days. Thank you to everyone, and have a good afternoon.
Thank you.
Thanks, Andrew.
Thank you. Good morning, all.