Thank you for standing by, and welcome to the IVE Group Investor and Analyst Call for the Financial Results for the First Half Being 6 Months to 31 December 2020. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to Mr. Jeff Selig, Executive Chair.
Please go ahead.
Thank you, and good morning, everybody, as 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 34 collectively, and then I'll hand over to Matt to walk us through the financial results after that.
So beginning with revenue, which Matt will talk on in a little more detail shortly, dollars 340,800,000 worth of revenue impacted clearly still by COVID, and Matt will walk through the various impacts of that. A strong EBITDA number of $59,200,000 and net profit after tax number of 23,000,000 dollars impacted those two metrics by a reduction in revenue on PCB. Pleasingly though, our gross profit margin remained consistent with FY 2020 as it has been for some time. And 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, dollars 94,600,000 cash on hand.
Our net debt is down to $19,100,000 which is $89,000,000 lower than what it was really at the high point at the end of March last year following the acquisitions of SailMat Marketing Solutions and Reach Made in New Zealand. And as foreshadowed at our ATM and previously, we have declared an interim dividend of $0.07 per share, fully franked, and 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 4. Firstly, the divestment of our outbound call center, Iatelli Fundraising. It's really the first business that this group has sold and the business that we sold was a vastly improved business to what we bought in October 2015.
So for strategic reasons, we decided to sell the business, dollars 16,500,000 of cash consideration and represented a 5 times multiple of EBITDA, FY 2020 EBITDA a profit on divestment of $4,200,000 So I'm now expecting a good outcome and nice to bank the proceeds of that divestment. We also undertook a share buyback that was announced on the 4th November last year. And as at today's date, we had acquired just under 1,000,000 shares as part of that buyback. And then finally, as previously communicated, we executed a long term contract with Australian Community Media, 5 year contract and part of that partnership with them was the acquisition for $2,000,000 of selected assets in the mines, property, plant and equipment in Western Australia. So 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 7 on. Thank you, Jeff, and good morning, everyone. So I'm just going to cover the key aspects across Pages 7 and 8 of the investor presentation. Revenue, as Jeff said, of $340,800,000 to PCP of $352,200,000 includes litter box distribution revenues, so the old CellMap business of $53,500,000 And we estimate a revenue reduction to PCP of circa $50,000,000 as a result of the impacts of COVID-nineteen, 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 $12,000,000 reflects the impact of Coles ceasing to produce the letterbox version of their weekly catalog from the start of September 2020.
And 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 Jeff said, was consistent with PCP at 47.3%, and paper pricing has continued to reflect the benefits of improved pricing relative to PCP. However, as may be known to some investors, there is upward pressure on freight and pulp, but the strengthening of the AU dollar against the U. S. Dollar 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 $59,200,000 inclusive of JobKeeper receipts of $14,900,000 to PCP of $49,900,000 The business leveraged and streamlined the cost base further throughout the period. And really over the last 9 months, we've focused hard to ensure that we flex our business as we encounter the impacts of COVID-nineteen. And through that time, we've closed 3 sites here in Australia.
We've completed the Celmat integration. We've largely exited CellMat'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 impact of COVID-nineteen. EBITDA margin of 13% excluding JobKeeper to PCP of 14.2 percent and at a net profit after tax level, NPAT of $20,800,000 inclusive of JobKeeper to PCP $15,900,000 and impact of $10,500,000 exclusive of JobKeeper to PCP of $15,900,000 I'll now ask Darren to take you through Pages 9 and 10 of his presentation. Thanks, Matt, and good morning, everybody.
If I just take you through Page 9, net debt and capital expenditure. Net debt of $19,100,000 reflects a further reduction of $47,000,000 from 30 June 'twenty. And also, as Jeff had previously mentioned, an $89,000,000 reduction from a high point of March at the end of March 'twenty and that was post the Selmat acquisition. Cash App Bank is a very strong number of $94,600,000 and our working capital facility of $30,000,000 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 Otili 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 $4,500,000 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 $2,000,000 Our full year forecast for capital expenditure is expected to be approximately $10,000,000 as previously communicated. Page 10 is cash flow.
Very strong cash flow cash generation for the period with 119 percent free cash conversion to EBITDA, an excellent result. And that is reflecting a significant reduction in working capital driven by excellent debtors collections, reducing our debtor base to a prior corresponding period, targeted reduction in inventory holdings down $9,000,000 from 30 June 2020. Should also be noted that there were no bad debts during the period. Share buyback. As you are all aware, I'll commence the share buyback program in December 'twenty with shares repurchase to date of $990,000 at a cost of $1,300,000 The company will continue its buyback in line with previous announcements.
Earnings per share. Earnings per share on an underlying NPAT A basis are $0.16 inclusive of JobKeeper and $0.09 excluding JobKeeper, prior corresponding period of $0.12 per share. And just on dividends, it has been well communicated that IFRS 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 $0.07 per share fully franked. Thank you.
I'll just hand you back to Matt. Thanks, Darren. So if you just send the page as well, I'll just touch on some commentary around customers and revenue. Quarterly 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, and we do not have one headline competitor that has an equivalent breadth of offering.
And as such, we continue to hold dominant market positions in our sectors. Pleasingly, we had a strong new business momentum in H1 with $30,000,000 of annualized new client revenue secured through that period. This revenue growth is across the entire group and in addition to the ATM contract that Jeff referred to earlier. Specifically, we secured the Linumox distribution contract for Spotlight Retail Group across Australia and New Zealand, and 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 formed in Matron to manage all of the point of sale marketing, giving and fulfillment for Green Cross Pets and Pet Farm.
And whilst early days, we have already seen further opportunities to expand our product and service offering through PPE and hygiene products and uniforms and apparel. Moving on to Page 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 can talk about for hours and provide countless examples of. However, 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're achieving great speed to market, reducing their marketing supply chain costs and are achieving greater merchandising compliance within their retail channels. You'll see some of the inventory relating to McDonald's and Blackmores in the presentation. McDonald's has been a long term client of Bios and Moss.
We've always supplied a lot of physical products for McDonald's, be that tray mats or point of sale on 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 $40,000,000 grant of commitment to employee training. So utilizing our creative services capability, we're managing everything from content development through illustration, animation and video production for McDonald's. And you can also see that we've created the McDelivery car reps there for their delivery fleet, and these were really well received by franchisees in the local communities that this delivery fleet was deployed into. From a Blackmoor's perspective, another client we've had a long standing relationship with providing point of sale and logistics 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 the consumers. We're partnering with 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 pelvis 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 sales force 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 New Farm and the work we done with them on the global integration and rollout of their sales force 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 relationship for ours, 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 'twenty one full year underlying EBITDA is expected to be consistent with FY 'twenty, being $100,000,000 underlying EBITDA for continuing operations. Gross profit margin is expected to remain stable over the remainder of FY 'twenty one. Full year capital expenditure is expected to be approximately $10,000,000 as Darren foreshadowed. Full year restructure and acquisition costs are expected to be approximately $4,000,000 And forecast net debt at 30 June 2021 will be between $90,000,000 $100,000,000 Before handing back to Jeff, 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, Jeff. 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. So from our perspective, notwithstanding some of the challenges over the last 6 months, the board, the team and the business is very satisfied with where we landed in the first half results. So I'll leave it at that. And thank you all again for your time, and we can move on to Q and A.
Thank The first question comes from Shane Bannon with Bly Capital Securities. Please go ahead.
Good morning, guys. Matt, I hope you answered it quickly. Could I just get you just to recover the impact on revenues? I mean, made a comment that COVID had an impact of negative $50,000,000 on revenue Then you had the CELMAC contribution coming, which compensates to that. Then you had the $12,000,000 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?
Yes. That's correct, Shane. So litter box distribution revenue or sell net revenue of $53,500,000 We estimate the impact of COVID on the revenue line PCP to be about $50,000,000 very specifically in the retail catalog and travel sectors or most meaningfully in those sectors in terms of how it's affected our business. And the revenue reduction to PCP of $12,000,000 relates to Coles 6 in there, the litter box catalog at the start of September.
Right. So just turning and pushing the dynamic into the current period, it's seasonally weaker typically by a
little bit, but the extent of it
is now by Selma itself. And just trying to understand the impact of the loss of the JobKeeper coming into this current period. Now you're forecasting implicitly a lower EBITDA anyway, but that's we'll be affected by the revenue as much as the loss of job fees. Is that correct?
Yes. Shane, it's Darren here. I mean, yes, we're forecasting in line with FY 'twenty results. And as you're aware, we are no longer eligible for JobKeeper. So there'll be no JobKeeper in the H2 result.
Right. And that's probably the large part of the step down. The rest of it is just the seasonality around the revenue line.
Yes. Yes, that would be right, John. Right.
And so the only thing I mean, one of the points I think just made and I
think we made before is that you're quite capable of
flexing the cost line. So the presumption is if you're looking
at $100,000,000 as your base level EBITDA on a go forward basis, we're still saying, look, we can do without the job because ideally, the revenue should be building back as
things return to normal, in 3rd commerce, and we should be able to
retain the gross margin on that. That's correct. Yes. The revenue hasn't quite returned to normal at this point. If you talk about Q4 of FY 'twenty, we had an $80,000,000 to $90,000,000 revenue hit in that quarter alone as a result of COVID.
And in this half, we got a $50,000,000 hit if you just park the impact of coal. So less significant revenue hit and over a 6 month period. But 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. And JobKeeper has still been floating around in the economy. So 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.
So but it certainly has improved from where it was 6 months ago.
And lastly, could I just ask you to just give us a bit of a feel for the CellMat business now? I mean that presumably is one that's been very affected by what's transpired. Just your understanding of the dynamic or appreciation of the dynamic coming into this period and ideally into FY 'twenty two, how is that stacking up? And how is that relevant from the overall scheme of things?
Yes. I think so first of all, we wouldn't want to go through this period without controlling that last mile of delivery for the litter box chain. So we're very pleased that strategically we have the CellMat 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 CellMat business both from a cost base perspective, but also from a market offer perspective. And it's a very strong business.
It still has the leading distribution network in Australia, by far the largest market share in our opinion. So look, 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 7,000,000 litter boxes every single week.
And that capacity is still being retained from the end of that?
Yes. Yes. No, we've not seen a material impact to the walker numbers or to the network sort of coverage. In several pockets here and there, we have lack of international students in the country, for instance, we have strong walkers in some markets for us. But look, we've not had an internal impact to the network at all as a result of COVID in terms of our ability to serve our customers' requirements.
Great. Thanks very much.
Thanks, Sean.
Thank you. The next question comes from Hamish Murray with Bell Potter Securities. Please go ahead.
Hi, Sam. Can you hear me? Yes. Hi, Sam. Yes.
Hi, guys. Just a few extensions on Shane's questions. I'm sorry to go back to it. But I was just wondering, with the $50,000,000 impact, I mean, that I think you guys made it pretty clear that excludes Coles. Does that include a 2 month contribution of ATM?
And I guess how do we think about that ATM revenue half on half? I think as I said, it could be approximately $100,000,000 over 5 years. Like is it as simple as thinking that is 20,000,000 per annum or is there seasonality in that? Yes. Look, couple of comments, Hamish.
The half year revenue excludes some revenue that would have come from our tele fundraising business because we sold it at the end of October. So there's 2 months' worth of revenue that would come out of that business, which is roughly $14,000,000 a year business when we sold it. And 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, so the first half of calendar twenty twenty one. So the only contribution really from ATM 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 $14,000,000 annualized at the tele fundraising sale.
So the annualized run rate for ATM really doesn't kick in until the middle of this year. Yes. And is this do we expect to see seasonality in that? Because the guidance is a bit different from the retailer, isn't it? Yes, not so much.
I understand that here. So not so much seasonality in ATM. I mean, ATM themselves were producing their own markets and titles, which will be producing some of moving forward, but they're also producing party 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 that business. Yes.
And then just going back to, I guess, the 50 mill 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 broadly I mean, it's always at risk, but probably coming on over the next 18 months or coming back to some levels. But how do we think about the whole 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 6 to 12 month view?
Well, I think there's no doubt, in our opinion, harness and travel sector will return. The other sectors that we've not called out in here, we've seen quite a decline in and around exhibition and events in terms of how that's affected our premium to the merchandising business and the work we would normally be doing in there. And 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 sector decline in amongst that $50,000,000 but we're hopeful that a substantial portion of that does come back over time as market conditions improve. Thanks, Matt.
It's Matt. Thanks, Matt. So on Nutrane, I'll talk to you guys. And we think the other just a quick one. And I know that because of the diversity of your customers and the way that they move, it's not as simple as adding truck wins that you guys do call out.
But I mean, how do we think about, I guess, the $30,000,000 annualized in new client revenue going forward? Things are always rolling off, right? Do we just think about that as something that continues to diversify your business and makes it as more resilient? Or is it also going to contribute some growth or we're sort of waiting for it more to normalization? Yes.
It's Jesse. I mean, I don't think, as Matt said in that part of the presentation, that annualized $30,000,000 comes from across the group offer. So that revenue doesn't in itself diversify the business anymore. It's just coming from various parts of the product and service offering of the group. So it's a meaningful number.
It excludes ACM. Here, we do always have revenue dropping off to usual term aims, but ultimately, we have demonstrated over the years, put aside the last year that we year on year have had organic growth. So there's some good wins in there. The SRJ one is not in significant win in terms of the Walker network. So I think that's ultimately how we should look at it.
There's $50,000,000 worth of annualized new business there. All there, we've between ACN and the other $30,000,000 to $50,000,000 dollars Although we've seen some revenue impacts, presumably, some of them are just short term like we've talked about that will come back. Thanks, Jeff. And 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 run.
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 and so will emerge from this as a higher? Yes, Hamish, it's Darren here. I mean the cost that will come back with the in line with revenue is really the variable labor that really comes back with it. So 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.
But we wouldn't expect that as we're increasing as revenue increases that we would substantially to increase our fixed cost base. So it would only be the variable proportion of the labor that would
be made to come back into the future.
And as Matt said, we've also shut a couple of operations down. We've done a whole lot of simplification of the business in part of the back of the rebrand or the new to 1 brand. So all these things are permanent. They're all permanent changes to the refinery, the cost base that ultimately flow on the ongoing benefits and should lead to an improvement or a return again to the EBITDA margin that we're aiming for. Correct.
Thanks, guys. And 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, Shutter Site in Melbourne. I think it was in the last half.
I was just wondering, are there opportunities still to emerge there? And does 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?
Yes. Look, we comment on the landscape semi regularly, and we look at given we don't have a headline competitor, we look at the various subsectors that we operate in as part of the broader mark on sector and 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 job keeper rolls off and as we get back to maybe normal trading conditions, whether there's many 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 come out in a stronger position clearly, but there'll be some that have come out of it in a weaker position that we ex market conditions on the ground in Victoria or in New South Wales or wherever we might be competing with. So there's less competitors by a long way than what they were 15 years ago or 10 years ago and 5 years ago.
But we haven't seen a material change in the competitive landscape over the last year. So we continue to run our business, focus on our customers, manage our costs, so all the things that we can be controlling and make ourselves a better option to our customers than we arrive competitively we have at pace. Thank you, Jeff. That's I'll leave it there. Thanks, Jaime.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Saliq for closing remarks.
Thank you again, Matt and Darren. Thank you to everybody on the call and 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.