Subdued market hits IVE Group’s half year revenue

Soft retail conditions, particularly in the home furnishings and white goods sectors, has had a 4.1 per cent revenue hit on IVE Group’s half year result with Australia’s largest diversified printing and marketing company notching half year revenues of $360.2 million.

IVE Group executive chairman Geoff Selig says despite the reduced revenue, sparked by a soft retail market and broader macro economic factors, the company has posted a strong $40.1m proforma EBITDA with gross margin stable at 48.2 per cent of total revenue.

Proforma NPAT was down 7.3 per cent to $17.6m with an interim dividend declared of 8.6 cents per share, fully franked. IVE Group has also issued a full year 2019 proforma EBITDA guidance of $75m to $79m.

Selig and IVE Group CEO Matt Aitken said the revenue decline was squarely due to the subdued market conditions with the company not losing any significant clients while gaining new ones and renewing contracts with long-held clients. They both also pointed to paper and energy pricing which while elevated is expected to remain steady while the broad impacts of the ongoing Coronavirus spread were still not being truly felt.

“The second half will remain a little bit soft and even more so with this coronavirus taking hold globally. It is an unknown at the moment but it will have a big follow on effect,” Selig told Sprinter.

Plans to unlock the potential through the recent purchase of distributing business Salmat Marketing Services and Reach Media New Zealand in January for $25.4m will soon be realised with a $25-$30m capital expenditure plan in hand for FY2021 which Selig said will be a “game-changer” in the automated collating systems and processes.

The new automated collation system will mean IVE Group’s 12,000 strong national walker distribution network will receive the catalogues already collated and ready to be distributed, saving time and improving the offer for clients.

“It takes a step out of the process which is currently manual. At the moment the walkers have to collate the catalogues themselves so it’s a huge improvement on the whole delivery channel. It helps makes it easier for walkers and delivers a better product to the retailers so that is ultimately why we are doing it,” Selig said.

The spread of Coronavirus is a massive issue for the outlook of businesses in all sectors. IVE Group is beginning to feel the pinch in its own supply chain but is protected by not having a heavy reliance on Chinese imported goods.

Selig predicted that in some way the Coronavirus may bring some positives, mainly around the potential for printing that has been done offshore to come back onshore, but overall the effects stood to be massive for all businesses in all sectors, particularly if the spread continues.

“We are feeling it but fortunately we are not overly reliant on importing so we are in a good position to be in,” Selig said.

“Most of what we buy in Asia we can source in Australia and equally there may be some customers that are getting printing done in Asia, like they have done forever, they might need in the short term to bring that back onshore so it could be a positive in some way but I don’t think there is going to be many positives at all with this whole virus.”

In the presentation to investors, Aitken pointed to the successes of the business in gaining new clients in the first half with Specsavers, Stratco, Priceline and a significant expansion of IVE’s relationship with the Spotlight Retail Group. Book publisher Pan McMillan is also IVE’s foundation client in the book publishing space.

“This validates the offer we have in the market, our value proposition and the strength of the relationships we have with our clients and even more so the value our people bring to our clients’ businesses every day of the week,” Aitken said.

“The EBITDA of $40.1m down from $43.4m is really impacted by the revenue decline. We have worked very hard to ensure the revenue lost is offset by cost efficiencies or efficiencies delivered through the cost base through stabilising gross profit and other mechanisms within the business and a continued focus by the management team on how we run the business.

On the Salmat capital expenditure, Aitken said the business plan is close to completion.

“The foreshadowed capital investment program will strengthen the national walker network and deliver a superior product as far as we are concerned that will be welcomed by the sector as an important step to enhance the catalogue channel and sustainability of the delivery network in Australia. The capital investment business plan will be complete by late February early March ready for approval and the business plan is close to being complete,” Aitken said.

“It’s early days but at this stage it has been very well received on all fronts by all key stakeholders.”

The brand unification strategy is also now well in hand with IVE going to market under the one name and bringing all of its divisions, including Blue Star Web and Franklin Web under that banner.

At the time of writing IVE’s share price was $1.895.

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