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IVE Group Limited (ASX:IGL) Executive Chairman Geoff Selig discusses the company's half-year financial results, commenting on key drivers, the Lasoo platform launch, the Ovato acquisition and the company's partnership with Iberdrola.
Tim McGowen: We're talking with IVE Group (ASX:IGL) today. Market cap of around $390m. The company specialises in creative services, data-driven communications, integrated marketing, production and distribution. The company brings together capabilities, specialists and technology needed to make customer connections seamless. We have with us Geoff Selig, who is the Executive Chairman. Geoff, thanks for your time.
Geoff Selig: Nice to be here. Thank you for having me.
Tim McGowen: Now you've just released your first half of financial year 2023 results. I think it was last week. What were the highlights?
Geoff Selig: At a snapshot level, revenue well up on last year, as was EBITDA and NPAT. Some of that pick-up was as a result of a large acquisition that we completed in the first half of the year. But, outside of the acquisition, revenue from mid-September, the organic growth in revenue, was about 10 per cent. So ,very strong at the top line, bounced back to just over $500m, and that's flowed right through to a 9.5 cent fully franked dividend, which once again is well up over the same period last year. So, yeah, on all metrics, a very strong first half to the year. And we continue to maintain, as we have done since we listed seven years ago, a very strong balance sheet, which puts us in a good position to continue to pursue organic or inorganic growth opportunities for the business.
Tim McGowen: And there's different components to your business. What were the key drivers of the result?
Geoff Selig: I think the key drivers are twofold. One, across the board we had good momentum in all parts of our business in the first half. And then we acquired one of our major competitors in the print sector part of the business that we operate. In middle of September, they went into administration. So, that was an enormous amount of work to get that over the line, but it certainly was a large driver of revenue, a small contribution to earnings. But certainly when that integration is fully complete, their assets into our existing IVE Group assets, from a financial metrics perspective it's highly attractive and it's on track. So, I think they would be the two takeouts, is the acquisition came along at the right time, which has certainly kicked the revenue and made a contribution to earnings, but of more comfort, I think, was the base business across the board had good momentum.
Tim McGowen: And there's a new product you've launched, Lasoo. Can you give us an update on how that's progressing?
Geoff Selig: Yeah, yeah. Lasoo's been around for a long time, like 20-odd years, but it was fairly static and uninvested-in when we acquired it. But it did have 200,000 loyal users per month that would regularly visit the Lasoo site, essentially to view static digital versions of a catalogue. So, we decided two-and-a-half years ago to invest in Lasoo and transform Lasoo from what was a very static platform to essentially a Lasoo e-commerce marketplace. And we launched that in October. It coincided with our go-to-market campaign. And it's nice to launch a business like that, not from a walkup start, when you know you've got tens of thousands of regular users, albeit that mix of user will change as time goes on, because it's now an e-commerce site, not a static site. We still host static digital catalogues, but we've had a huge number of retailers across a very broad cross-section of the Australian retail landscapes sign up and are now actively plugged in, as they say, to the Lasoo network. So, it's been a really exciting initiative for us. It's early days. We only launched in October. But we've been working on it for two years and we're off and running. So I'd like to think, as we head towards the full year results in August, that we can provide more metrics on how that business is going.
Tim McGowen: You touched on acquisitions. Can you give us an update on the Ovato acquisition?
Geoff Selig: So, this is a major competitor of ours. They would've been the second-largest printer in Australia, if you exclude the newspaper producers. And they went into administration in August last year, so we mobilised quickly and in the end bought a number of their assets, key production assets. And we're in the process, over the next 12 months, of integrating their assets into our production facilities. Some of our gear's coming out, some of their gear's going in, simplified the staff structure and centralised the finance function already. So, on paper it is a relatively straightforward integration and we're very good at integrations like that, but we expect the revenue to be roughly $160m a year annualised, which is not insignificant. And it's nice to have the opportunity to buy a major competitor in that particular part of our market. Clients have received it really well. A number of their top five, ten clients were also clients of ours. So, there was no resistance there. In fact, I think they took a lot of comfort from the fact that IVE Group was the one that acquired the assets of the business. So, it's gone really well. Good timing, and the integration's on track.
Tim McGowen: You're in a partnership with Iberdrola. Can you give us an update on the significance of that partnership?
Geoff Selig: Yes. Well, they're one of the largest players globally in the renewable space. And they're a large player here in Australia, particularly in the generation of wind turbines and their renewable source being wind. We are large users of power — not across the board, but in a number of our businesses we're large users of power, and we also use gas. So, we were quite specific in our results last week to provide more detail around energy full stop, in relation to costs and also in relation to the heads of agreement that we just signed with Iberdrola to enter a seven-year agreement with them commencing 1 January 2024, which not only sees us lock in on price for power, so to speak, but it sees the company as part of our ESG work, one of our ESG work streams. We'll move towards being fully renewable in terms of our power source in the near future. So, I think the move for us into a power purchase agreement, certainly in our sector, is quite front foot. And I think we're going to see more of these types of agreements across corporate Australia as people look at their requirements for ESG, but also, given the volatility of energy markets, look to lock down certainty in their price. When it comes to gas, gas is incredibly volatile, and we wouldn't expect the gas price that we're paying at the moment to stay at those elevated levels for the foreseeable future. I think that would be very damaging, not only on households but on every business in the country that's using gas. So, intuition tells us that the current level of gas prices, notwithstanding the government's intervention, is not sustainable and that this will be dealt with sooner rather than later because it's hurting a lot of people.
Tim McGowen: And looking forward in regards to your financials, have you given any guidance for the next 12 months?
Geoff Selig: Yes, we did. We did last week. We essentially upgraded our guidance. Our original guidance that we provided at the AGM on 24 November was $36m NPAT, which was up quite some way on the prior year. We have upgraded that guidance. Also had a modest contribution from the Ovato revenues. And then the offset to that was the increase in electricity and gas costs in the second half. But the net wash-up of all of that is that we've upgraded our guidance from $36m NPAT to $41m NPAT for the full year, and the company has not changed our dividend policy, which remains 65 to 75 per cent payout ratio of underlying NPAT. So, yeah, upgrading guidance, and a good momentum going into the second half of the year.
Tim McGowen: A good story in this sort of market too, upgraded guidance. And so, 2023, you've got some partnerships, acquisitions. What does the rest of the year look like?
Geoff Selig: Yeah, look, I think the main focus for us outside of business as usual… Because we're nudging a billion dollars, it would seem, as we head towards the end of this financial year in revenues. So we do have a lot of moving parts in the business. So there's always a business-as-usual focus in servicing our customers. But I think the main priorities are to make sure that the Ovato integration stays absolutely on track. It's taking a lot of people's time in part of our business and we want to get that completed as soon as possible, because that's when we unlock the synergies. We have foreshadowed a move into the packaging space, the fibre-based packaging space. So, we've been somewhat delayed in that endeavour because of the Ovato acquisition happening through an administration. And then we completed a capital raise as well in September or October. So, we've sort of been a little behind in the execution of the packaging strategy, but that will be a focus for us. And then, thirdly, is to continue to monitor very closely the progress of Lasoo. And if we feel the early indications of Lasoo continue to be positive and have good momentum, it may see us invest more in the go-to-market to amplify that brand. So, they would be our principle focuses for the balance of this calendar year.
Tim McGowen: Geoff Selig, thanks for your time.
Geoff Selig: No, it's good to be back. Thanks for having me.
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