IVE’s acquisition of Ovato to now deliver “slightly reduced financial metrics”

IVE Group (ASX: IGL) has released its 2023 financial year (ending 30 June 2023) results, where it reported that its acquisition of Ovato is now expected to deliver “slightly reduced financial metrics”.

This includes revenue of around $145 million, an EBITDA of around $25 million and an NPAT of around $13 million, as compared with the original transaction estimates of $160 million, $28 million and $15 million respectively.

According to IVE, Ovato contributed around $136 million of revenue, $11 million of EBITDA and $4 million in NPAT to its FY23 results, while Active Display Group and AFI Branding, both of which it acquired on 1 November 2021, contributed $25 million of additional incremental revenue over the previous corresponding period.

IVE’s material gross profit margin was 45.1 per cent, down from 46.6 per cent in the previous corresponding period, which it said was primarily because of the onboarding of significant Ovato revenue at a lower material gross profit margin, combined with an increase in outsourced revenue.

“Whilst Ovato revenue… generates a lower material gross profit margin than the group’s other divisions, the Ovato revenue contributed incremental EBITDA and NPAT and is expected to generate an uplift in the group’s EBITDA and NPAT margins once operating synergies are fully captured post-completion of integration,” IVE Group CEO Matt Aitken said.

The incremental financial impact in FY24 is expected to be “modest”, with IVE saying that the full integration synergies unable to be realised until the end of FY24 when significant Warwick Farm site costs, primarily related to the $4 million lease expiry, are exited and final production efficiencies captured.

“The integration of Ovato revenue into IVE’s manufacturing footprint is generating meaningful synergies from leveraging the group’s operating assets and cost base, notwithstanding significant remaining costs at Ovato’s Warwick Farm site as we progressively ‘wind down’ and exit that operation,” Aitken said.  

“During the year, equipment from Ovato sites in Brisbane and Melbourne was either relocated or sold. A significant number of production assets from Ovato’s largest site at Warwick Farm in Sydney continue to be progressively integrated into the group’s Sunshine, Huntingwood and Silverwater web offset printing sites.”

Aitken said the Ovato integration has proceeded smoothly, with all of its equipment now expected to be installed and operational in IVE’s sites by March 2024 – three months ahead of the previously advised timetable.

Due to the decision to expedite the final phase of the integration, including exiting Ovato sites, further net costs of $3.5 million were incurred including a $2 million loss on disposal of assets (at scrap value) and a $4.2 million impairment of assets held for sale, partly offset by $2.7 million of refundable purchase consideration.

The expedited integration timetable is also said to have resulted in reduced operational risk and accelerated synergy emergence.

“Our focus in the coming 12 months will be on driving further organic growth and operational efficiency, and successfully executing the final phase of the Ovato integration,” Aitken mentioned.

“All major customers and retained staff were successfully transitioned across to IVE, while inventory (largely paper) levels were prudently increased to ensure continuity of supply.

“The expanded business continues to perform well, meeting all customer expectations, with all core business functions integrated under one leadership structure.”  

FY23 financial results

For its 2023 financial year, IVE reported revenues of $967.4 million, up 27.5per cent from the $759 million it reported in the previous corresponding period, an EBITDA of $119 million, up 23.1 per cent from the $96.6 million recorded in the previous corresponding period, and an NPAT of $39.7 million, up 19.8 per cent from the $33.1 million recorded in the previous corresponding period.

It added that its net debt of $124.2 million was up from $76.8 million at 30 June 2022, primarily reflecting the Ovato acquisition including the funding of strategically elevated inventory (paper) and integration costs.

Following two consecutive years of growth on all key financial metrics, the company said it is “well-placed” to deliver healthy returns over the year ahead.

The group’s FY24 underlying earnings guidance range includes an EBITDA of $122 million to $127 million and an NPAT of $40 million to $43 million.

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