Thank you for standing by, and welcome to the IVE Group investor and analyst call for their financial results for the first half, being six months to 31st December 2020. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you'll 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. Geoff Selig, Executive Chair. Please go ahead.
Thank you, good morning, everybody, to our results call this morning. We will work our way through the investor presentation that was uploaded to the ASX a couple of hours ago. I'm joined this morning by our Chief Executive, Matt Aitken, and our Chief Financial Officer, Darren Dunkley. We will be all speaking through the course of the presentation this morning. Just by way of introduction, I'll cover slides three and four collectively, then I'll hand over to Matt to walk us through the financial results after that. Beginning with revenue, which Matt will talk on in a little more detail shortly, AUD 340.8 million worth of revenue impacted clearly still by COVID, Matt will walk through the various impacts of that.
A strong EBITDA number of AUD 59.2 million and net profit after tax number of AUD 23 million impacted those two metrics by a reduction in revenue on PCP. Pleasingly, though, our gross profit margin remained consistent with FY 2020 as it has been for some time. I think those two metrics also demonstrate our capacity as a business to flex our cost base to mitigate the short-term revenue impacts, but also flexing the cost base that will ultimately strengthen the business on an ongoing basis. If we just move on to the balance sheet, which we'll talk to in more detail a little later, it's significantly stronger over the balance sheet this time last year. AUD 94.6 million cash on hand.
Our net debt is down to AUD 90.1 million, which is AUD 89 million lower than what it was really at the high point at the end of March last year, following the acquisitions of Salmat Marketing Solutions and Reach Media in New Zealand. As foreshadowed at our AGM and previously, we've declared an interim dividend of AUD 0.07 per share, fully franked. That is clearly on the back of not having a dividend at all over the course of the last year. A couple of other things to point on more specifically, I suppose, on page four. Firstly, the divestment of our outbound call center, IVE Tele-fundraising. It's really the first business that this group has sold. The business that we sold was a vastly improved business to what we bought in October 2015. For strategic reasons, we've decided to sell the business. AUD 16.5 million cash consideration.
It represented a 5 x multiple of FY 2020 EBITDA and a profit on divestment of AUD 4.2 million. From our perspective, a good outcome and nice to bank the proceeds of that divestment. We also undertook a share buyback that was announced on the 4th of November last year, and as at today's date, we have acquired just under 1 million shares as part of that buyback. Finally, as previously communicated, we executed a long-term contract with Australian Community Media, five-year contract, and part of that partnership with them was the acquisition for AUD 2 million of selected assets in the mines, property, plant, and equipment in Western Australia. That would be the snapshot in terms of the financial highlights of the summary, and at this point, I'll hand over to Matt to pick us up from page seven on.
Thank you, Geoff, and good morning, everyone. I'm just going to cover the key aspects across pages seven and eight of the investor presentation. Revenue, as Geoff said, of 340.8 million to PCP of 352.2 million includes letterbox distribution revenues, so the old Salmat business, of AUD 53.5 million. We estimate the revenue reduction to PCP of circa AUD 50 million as a result of the impacts of COVID-19, particularly in the retail catalog and travel sectors is where we have seen the most decline in revenue through the period of COVID. Revenue reduction to PCP of circa AUD 12 million reflects the impact of Coles ceasing to produce the letterbox version of their weekly catalog from the start of September 2020.
As you will note later in the presentation, we comment on our strong and meaningful relationship that we still have with Coles today across other aspects of their business. Gross profit margin, as Geoff said, was consistent with PCP at 47.3%, and paper pricing has continued to reflect the benefits of improved pricing relative to PCP. As may be known to some investors, there is upward pressure on freight and pulp. The strengthening of the AUD against the USD is mitigating some of that impact, and we are confident through H2 we won't have a material issue in this space around raw materials. We'll continue to work closely with our supply chain partners. EBITDA of AUD 59.2 million, inclusive of JobKeeper receipts of AUD 14.9 million to PCP of AUD 49.9 million. The business leveraged and streamlined the cost base further throughout the period.
Really over the last nine months, we've focused hard to ensure that we flex our business as we encounter the impacts of COVID-19. Through that time, we've closed three sites here in Australia. We've completed the Salmat integration. We've largely exited Salmat's Philippines operations, which has seen a reduction of 95 heads out of the Philippines. We've relocated businesses, and we've continued to refine our organizational structure as we've responded to the impacts of COVID-19. EBITDA margins of 13%, excluding JobKeeper to PCP of 14.2%. At a net profit after tax level, NPAT of AUD 20.8 million inclusive of JobKeeper to PCP AUD 15.9 million and NPAT of AUD 10.5 million exclusive of JobKeeper to PCP of AUD 15.9 million. I'll now ask Darren to take you through pages nine and 10 of this presentation.
Thanks, Matt, and good morning, everybody. If I just take you through page nine, net debt and capital expenditure. Net debt of 90.1 reflects a further reduction of AUD 47 million from 30 June 2020, and also, as Geoff had previously mentioned, an AUD 89 million reduction from a high point of March at the end of March 2020, and that was post the Salmat acquisition. Cash at bank is a very strong number of AUD 94.6 million, and our working capital facility of AUD 30 million remains fully undrawn. The low net debt result reflects earnings, including JobKeeper receipts, coupled with reduced working capital, as well as the net proceeds from the divestment of the IVE Tele-fundraising. Capital expenditure. As previously foreshadowed, after a period of investment, capital expenditure has significantly reduced in recent years with H1 FY 2021 CapEx of AUD 4.5 million.
This is made up of a combination of targeted investment case CapEx as well as maintenance CapEx. Continued investment in the group-wide MIS upgrades. They are progressing well and are in line with our planned rollouts. Capital expenditure excludes acquisition of land and buildings and plants and equipment relating to the ACM's WA operation of AUD 2 million. Our full-year forecast for capital expenditure is expected to be approximately AUD 10 million, as previously communicated. Page 10 is cash flow. Very strong cash flow cash generation for the period, with 119% free cash conversion to EBITDA, an excellent result. That is reflecting a significant reduction in working capital driven by excellent debtors collections, reducing our debtor days to a prior corresponding period. Targeted reduction in inventory holdings down AUD 9 million from 30 June 2020. It should also be noted that there were no bad debts during the period. Share buyback.
As you are all aware, I've commenced a share buyback program in December 2020, with shares repurchased to date of 990,000 at a cost of AUD 1.3 million. The company will continue its buyback in line with previous announcements. Earnings per share. Earnings per share on an underlying NPATA basis are AUD 0.16 inclusive of JobKeeper and AUD 0.09 excluding JobKeeper. Prior corresponding period of AUD 0.12 per share. Just on dividends, it has been well communicated that IVE paused its dividend at the start of the COVID pandemic due to the prevailing economic uncertainty, which at the time was prudent for the business to do so. Given our strong balance sheet and high cash generation, the board has reinstated its dividend with an interim dividend of AUD 0.07 per share fully franked. Thank you. I'll just hand you back to Matt.
Thanks, Darren. If you just turn to page 12, I'll just touch on some commentary around customers and revenue. Core to the ongoing sustainability of our business is the value proposition we take to market, ensuring we remain relevant by closely aligning our clients' evolving requirements. The diversity of our offering capability to bundle solutions places us in a strong position relative to a number of competitors across the sectors in which we operate. We do not have one headline competitor that has an equivalent breadth of offering. As such, we continue to hold dominant market positions in our sectors. Pleasingly, we had strong new business momentum in H1, with AUD 30 million of annualized new client revenue secured through that period. This revenue growth is across the entire group and in addition to the ACM contract that Geoff referred to earlier.
Specifically, we secured the letterbox distribution contract for Spotlight Retail Group across Australia and New Zealand. This further expands on an already substantial relationship we have with SRG that spans catalogs, personalized customer communications, and point-of-sale requirements for their Spotlight and Anaconda brands. We were also appointed in H1 to manage all of the point-of-sale marketing, kitting and fulfillment for Greencross Vets and Petbarn. Whilst early days, we've already seen further opportunities to expand our product and service offering through PPE and hygiene products and uniforms and apparel. Moving on to pages 14 and 15, these examples illustrate the diversity of our offer to customers and in particular, how we continue to grow share of wallet through our diverse range of products and services. This diversity in our customers is something that we could talk about for hours and provide countless examples of.
I just wanted to focus on a few examples this morning. We've gone deeper into the retail vertical by achieving HACCP certification at our retail display and integrated logistics sites. This has enabled us to grow the revenue opportunity and create a point of difference amongst our competitors in the sector by leveraging our combined retail display production expertise with our substantial existing capabilities in logistics and move into the product co-packing space for our FMCG clients. During H1, we've already seen strong take-up of the service by existing and new clients across the areas of food, batteries, toys, and dental products, to name a few. For our customers, they are achieving greater speed to market, reducing their marketing supply chain costs, and they're achieving greater merchandising compliance within their retail channels. You'll see some of the imagery relating to McDonald's and Blackmores in the presentation.
McDonald's has been a long-term client of ours, whilst we've always supplied a lot of physical product for McDonald's, be that tray mats or point of sale in the restaurants or general collateral and merchandise. You'll see in H1, we've been producing engaging and dynamic training videos for them as part of their AUD 40 million per annum commitment to employee training. Utilizing our creative services capability, we're managing everything from concept development through to illustration, animation, and video production for McDonald's. You can also see that we've created the McDelivery car wraps there for their delivery fleet, and these were really well received by franchisees and the local communities that this delivery fleet was deployed into. From a Blackmores perspective, another client we've had a long-standing relationship with, providing point of sale and logistic fulfillment.
We've now expanded into providing creative services for their digital and social media asset requirements across their own digital ecosystem, as well as for environments like their Amazon web store. We've continued to grow and strengthen our partnership with Woolworths as we provide a wide array of services, whether that is through their store network or directly to their customers or consumers. We're partnering Woolworths in managing customer communication requirements for the Everyday Rewards program, managing catalog distribution to millions of letterboxes each week, providing staff uniforms for promotions and launches, and producing in-store marketing campaigns, be that temporary point of sale or permanent fixture requirements like the pelmets around the freezer section in the photo on page 15 of this presentation. As many of you would know, we have a substantial capability in data-driven communications. It accounts for about 400 of our staff.
What you may not know as well is that we are one of the largest Salesforce Marketing Cloud practices in Australia, along with a substantial capability in the Adobe marketing technology stack, too. In this space, we are providing consulting services to many of Australia's largest companies. We're really proud of our partnership with Nufarm and the work we have done with them on the global integration and rollout of their Salesforce platforms, allowing Nufarm to be better connected with their customers. Having completed the North American rollout, we're currently working with them on the deployment in Australia and New Zealand ahead of turning our attention to planning for Europe. As I said earlier, we could talk about the diversity of our offer and customer relationships for hours, but hopefully some of the ground I've just covered gives you a good flavor for this.
If we turn our attention to the outlook statement on page 17, FY 2021 full year underlying EBITDA is expected to be consistent with FY 2020, being AUD 100 million underlying EBITDA for continuing operations. Gross profit margin is expected to remain stable over the remainder of FY 2021. Full year capital expenditure is expected to be approximately AUD 10 million, as Darren foreshadowed. Full year restructure and acquisition costs are expected to be approximately AUD 4 million, and forecast net debt at 30 June 2021 will be between AUD 90 million and AUD 100 million. Before handing back to Geoff, I'd like to acknowledge the contribution of all of our staff during H1, the leadership shown by our senior leadership team, and the ongoing support of the board. Back to you, Geoff.
Thanks, Matt. Thanks, Darren. Look, just in wrapping up, just to summarize just a few of the key points. I think from our perspective, the strength of our client relationships, the wonderful staff we have, the flexibility of our cost base, and the company's capacity to respond to the impacts of COVID in the half. In fact, the whole of last year, but in the half that we're talking about, ultimately came together to deliver what is a very solid financial performance for the business. The strong free cash flow has resulted in continued high levels of liquidity, and we've seen a very meaningful reduction in debt since March of last year, and it's nice to see the resumption of the dividend through the declaration of the interim dividend.
From our perspective, notwithstanding some of the challenges over the last six months, the board, the team, and the business is very satisfied with where we landed in the first half results. I'll leave it at that, and thank you all again for your time, and we can move on to Q&A.
The first question comes from Shane Bannan with Bligh Capital Securities. Please go ahead.
All right. Good morning, guys. Matt, I know you ran through it recently quickly, but could I just get you just to recover the impact on revenues? I think you made a comment that COVID had an impact of negative AUD 50 on revenue. You had the Salmat contribution come in, which compensated for that. You had the AUD 12 million loss of the Coles contract in the back end of the year or back end of the period, I should say. Is that the reconciliation between the revenue? Is that correct?
That's correct, Shane. Letterbox distribution revenue or Salmat revenue of AUD 53.5 million in the half. We estimate the impact of COVID on the revenue line PCP to be about AUD 50 million.
Right.
Very specifically in the retail catalog and travel sectors or most meaningfully in those sectors in terms of how it's affected our business. The revenue reduction to PCP of AUD 12 million relates to Coles ceasing their letterbox catalog at the start of September.
Right. Just pushing the dynamic into the current period, it's seasonally weaker typically, by a little bit, probably exaggerated a little bit now by Salmat itself. Just trying to understand the impact of the loss of the JobKeeper coming into this current period. You're forecasting implicitly a lower EBITDA anyway, but that's probably reflected by the revenue as much as the loss of JobKeeper. Is that correct?
Yeah, Shane. Darren here. We're forecasting in line with FY 2020 results. As you're aware, we are no longer eligible for JobKeeper. There'll be no JobKeeper in the H2 result.
Right. That's probably the large part of the step down. The rest of it is just the seasonality around the revenue line.
Yes, that would be right, Shane. Yeah.
Right. Finally, Matt, one of the points Darren just made and I think you made before, is that you're quite capable of flexing the cost line. The assumption is if we're looking at AUD 100 million as your base level EBITDA on a go-forward basis, we're sort of saying, look, we can do without the JobKeeper because ideally the revenue should be building back as things return to normal, in inverted commas, and we should be able to retain the gross margin on that.
That's correct, yes.
Yeah. The revenue hasn't quite returned to normal, at this point. If you talk about Q4 of FY 2020, we had an AUD 80 million-AUD 90 million revenue hit in that quarter alone as a result of COVID. In this half, we've had an AUD 50 million hit if you just park the impact of COVID. Equally, it's somewhat of a mixed bag out there because you've got retailers that are delivering some very, very strong results, but they have a lot of products on backorder as well. JobKeeper's still been floating around in the economy. There's an interesting set of dynamics playing themselves out, which some are positive and some, when companies are doing so well, feel maybe they don't need to spend quite as much on marketing.
It certainly has improved from where it was six months ago.
Right. Lastly, could I just ask you to just give us a bit of a feel for the Salmat business now? That presumably is one that's been barely affected by what's transpired. Just your understanding of the dynamic or appreciation of the dynamic coming into this period and ideally into FY 2022. How's that stacking up and how is it relevant in the overall scheme of things?
Yeah. First of all, we wouldn't want to go through this period without controlling that last mile of delivery for the letterbox chain. We're very pleased that strategically we have the Salmat business in our stable and that product and service offering as part of our bundled solutions we take to clients. We've done a lot of work through calendar 2020 to really refine the Salmat business, both from a cost-based perspective, but also from a market offer perspective. It's a very fit, it's a very strong business that still has the leading distribution network in Australia. By far, the largest market share, in our opinion. It's a core part of our offer moving forward, particularly as we look to explore what other things we could do with 14,000 walkers going to 7 million letter boxes every single week.
That capacity is still being retained from the coming out of that?
Yes. No, we've not seen a material impact to the walker numbers or to the network coverage. You see little pockets here and there where lack of international students in the country, for instance, were strong walkers in some markets for us. Look, we've not had a material impact on the network at all as a result of COVID-19 in terms of our ability to serve our customers' requirements.
Great. Thanks very much.
Thanks, Shane. Thanks.
Thank you. Once again, if you wish to ask a question, please press star one. The next question comes from Hamish Murray with Bell Potter Securities. Please go ahead.
Hi, team. Can you hear me?
Yes.
Yes. Hi, Hamish.
Yeah. Hi, guys. Just a few extensions on Shane's questions and sorry to go back to it. I was just wondering with the AUD 50 million impact, I think you guys made it pretty clear that excludes Coles. Does that include a two-month contribution of ACM? I guess how do we think about that ACM revenue half on half? I think you guys said it could be approximately AUD 100 million, over five years. Is it as simple as thinking about it as AUD 20 million per annum or is there seasonality in that?
Yeah. Look, a couple of comments, Hamish. The half year revenue excludes some revenue that would've come from our tele fundraising business because we sold it at the end of October. There's two months worth of revenue that would come out of that business, which is roughly AUD 14 million a year business, when we sold it. The ACM revenues, as we've put somewhere in the deck they transition into the business in large part through the half that we're in now. The first half of calendar 2021. The only contribution really from ACM
Would be a small contribution from the West Australian operation, and look, that might even net itself out against the revenue that we lost from the AUD 14 million annualized of the Tele-fundraising sale. The annualized run rate for ACM really doesn't kick in until the middle of this year.
Yeah. Do we expect to see seasonality in that? Because I guess it's a bit different from the retailers, isn't it?
Yeah, not so much, Hamish. It's Matt here. Not so much seasonality in ACM. I mean, ACM themselves were producing their own mastheads and titles, which we'll be producing some of moving forward, but they were also producing partly for external customers, if you like. There'll be a little bit of seasonality in some of that revenue, but we don't think it'll be as seasonal as some other parts of our business.
Yeah. Just going back to, I guess, the AUD 50 million impact, you guys call out that, I guess it is heavily weighted towards retail catalogs and travel sectors. My assumption is that we should sort of think about travel as I mean, it's always at risk, but probably coming on over the next 18 months or coming back to some levels. How do we think about the whole AUD 50, I guess? Is some of it gone forever or is it something that we hope to return over with an 18-month view or a six to 12 month view?
Well, I think there's no doubt that in our opinion, Hamish, the travel sector will return. The other sectors that we've not called out here, we've seen quite a decline sitting around exhibition and events in terms of how that's affected our premiums and merchandising business and the work we would normally be doing in there. Again, we expect over time, those sorts of things will come back into the market and that revenue will come back. Look, there might be some small sectors decline in and amongst that AUD 50 million, we're hopeful that a substantial portion of that does come back over time as market conditions improve.
Thank you, Matt. Thanks for that. I am on mute trying to talk to you guys. The other, just a quick one, and I know that because of the diversity of your customers and the way everything moves, it is not as simple as ever having trust in the things you guys do call out. I mean, how do we think about, I guess the AUD 30 million annualized in decline for revenue going forward? Things always are rolling off, right? Do we just think about that as something that continues to diversify your business and makes you guys more resilient, or is also going to contribute some growth or we all just waiting for more to normalization?
Yeah. It's Geoff here. I mean, I don't think, as Matt said in that part of the presentation, that annualized AUD 30 million comes from across the group offer. That revenue doesn't in itself diversify the business anymore. It just is coming from various parts of the product and service offering of the group. Look, it's a meaningful number. It excludes ACM. Yeah, we do always have revenue dropping off, to use your term, Hamish. Ultimately, we have demonstrated over the years, put aside the last year, that we year-on-year have had organic growth. There's some good wins in there. The SRG one is not an insignificant win in terms of the Walker network.
I think that's ultimately how we should look at it, is there's AUD 50 million worth of annualized new business there, albeit between ACM and the other AUD 30 million, AUD 50 million, albeit we've seen some revenue impacts. Presumably, some of them are just short-term, like we've talked about, that will come back.
Thanks, Geoff. Just one more from me on the other side of this. I guess the standout for myself and how you guys have handled COVID has just been the way you guys have been able to flex the operating costs underneath the GP line. As this revenue comes back, how do we think about the permanence of that? What proportion of it, a large degree of it won't actually come back. We'll emerge from this as a higher.
Yeah, Hamish. It's Darren here. I mean, the cost that would come back along with revenue is really the variable labor that really comes back with it. We expect our gross profit percentage still to remain consistent where it's been at around about the 47%-48% level, and then the level of direct labor that we need. We wouldn't expect that as revenue increases, that we would substantially need to increase our fixed cost base. It would only be the variable proportion of the labor that would need to come back into it.
As Matt said, I mean, we've also shut a couple of operations down. We've done a whole lot of simplification of the business in part on the back of the rebrand or the move to one brand. All these things are permanent. They're all permanent changes to the refinement of the cost base that ultimately flow onto ongoing benefits and should lead to an improvement or a return again to the EBITDA margin that we're aiming for.
Correct.
Thanks, guys. Just one more, and this is the final one, I promise. Just any comments about the market structure and I guess capacity in the industry? You saw a large competitor shut a site in Melbourne. I think it was in the last half. I was just wondering, are there opportunities still to emerge there, and did that make, I guess, the market structure even better, or what are your views around that? I mean, how does it all look? Is there anything I'm not noticing?
Yeah, look, we comment on the landscape semi-regularly. Given we don't have a headline competitor, we look at the various sub-sectors that we operate in as part of the broader Marcomm sector. The competitive landscape remains relatively unchanged, to be perfectly honest, to what it's been the last couple of years. It will just be interesting to see in the first half of this year, calendar year that we're in now, as JobKeeper rolls off and as we get back to maybe normal trading conditions, whether there's any of our competitors at whatever level that may be in a slightly weaker position or a weaker position as they come out of COVID.
We feel we've come out in a stronger position, clearly, but there'll be some that have come out of it in a weaker position that we might be competing on the ground in Victoria or in New South Wales or wherever we might be competing with. There's less competitors by a long way than what there were 15 years ago or 10 years ago and five years ago, but we haven't seen a material change in the competitive landscape over the last year. We continue to run our business, focus on our customers, manage our costs of all the things that we can be controlling and make ourselves a better option to our customers than the array of competitors we have out there.
Thank you, Geoff. That's all I have there.
Thanks, Matt.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Selig for closing remarks.
Thank you. Thank you again to Matt and Darren. Thank you to everybody on the call. Look forward to picking up on any additional questions or points of clarification offline. Enjoy the rest of your day. Thanks very much. Bye.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.