IVE Group

Geoff Selig is the Executive Chairman of IVE Group. They started out as a printer more than a century ago and they’re still in the printing business, but with a difference. 

Here's Geoff Selig, the Executive Chairman of IVE Group.

Geoff, you’re the Executive Chairman at IVE and you’ve got a company here that’s done what somebody like me who’s grown up with printing press’s underneath him, might have thought it was a very hard ask. 

The printing business has been really tough, not just here but everywhere in the world in the last couple of decades at least, but you’ve got a business that’s reporting strong growth in profits, it’s paying dividends, it’s been rationalising the industry and it’s got what looks to me to be a very interesting overlay of the more traditional print business, but also a digital online layer or piece in it as well. 

So let’s begin at the beginning, tell me what the company does and tell me how you put this together, because that’s an interesting story in itself I think. 

Yeah, I won’t do the blow by blow from 1921 when my grandfather started a newspaper when he got back from the First World War, but that is essentially how we started in printing all those years ago and then subsequent to me doing my uni degree and my older brother doing his university degree, we ended up working in the family printing business.  Essentially it was a printing business, we then took a decision in the late 1990s – we could see really I suppose where the evolution of our customers’ demand was heading and their expectations of the diversification of our business would end up evolving to and we felt as a standalone printing business that that wouldn’t serve us well in the medium or the longer term.  Really, the genesis of our evolution and growth, to put it that way, really commenced in the late 1990s.

We went about diversifying our product and service offering.  Some of that was through acquisitions and some of it was through ground up organic growth initiatives like our IVEO business, for example, which is one of our four divisions which I can touch on at some point.  Some of it was expanding our geographic footprint in the early days.

That’s beginning in Melbourne, correct?

It started in Sydney.  Originally, my grandfather started a newspaper in Balmain, 1921, and the business then expanded into Victoria and we just continued to expand our product and service offering really over a very long period of time.  It’s a difficult thing to do because as you said your intro, Malcolm, in this communications space, whether you’re a printing company or you’re a marketing communications manager, the world has changed the last 20 years and there’s been a lot of discussion around digital disruption and what does that mean for all of us.  For us in our business to navigate our way from where we were as a printing business, say in the late 1990s, to where we are today, like many people it’s been difficult.

But I think our drive to diversify and the decision we made in the late 1990s to head down that path and to accept and recognise that the comms landscape was going to change and would continue to change.  I think that decision has put us in good stead.  A lot has happened over that 20 year period, but it has resulted for us in the most diversified print and comms business in the country and it has resulted in us – I suppose if you think about the various markets in which we operate across our value proposition, we hold the number one or number two market position in each of those respective parts of the market.  But when you put it together and you look at the combination of the value proposition, we have a sort of saying internally, if we had to encapsulate our strategy that has been to maintain our relevance with our customers.  For example, two large customers of ours, AMP and Tabcorp, that has been with us for 13-14 years, they wouldn’t still be with us if they didn’t believe in the comms space our value proposition was as relevant to their needs today as what it was back in 2004 when we first started working with them.

So I suppose our strategy has been to maintain relevance and we’ve gone about trying our hardest to diversify our business and to move into adjacencies, logical adjacencies, whether that was 20 years ago or whether that’s in the last couple of years, so just more around the data analytics space and growing our personalised communications business clearly on the back of data.  This for us is all about maintaining our relevance with the customer base.  I think what that’s done for us has resulted in longer, deeper, stickier relationships with our customers through capacity to cross sell, it’s resulted in sort of margin protection because we’re not just a commodity, we genuinely are a strategic partner.

If you took a Westpac, for example, who’s a large customer of our IVEO business, we have 25 of our staff permanently based onsite across the Westpac Group – Bank SA, Bank of Melbourne, St. George, Westpac – managing millions of dollars’ worth of Westpac’s creative spend but also managing the total category spend in the comms space.  Well, for a customer like Westpac, with much fewer players in the market that’s the relationship where – I’m not wanting to sound arrogant – where that’s difficult for them to get rid of us.  But we add a lot of value and we touch many parts of their business and we’ve got 25 people permanently onsite, managing the category spend. 

That puts you in a strong position and we have many customers that have a similar profile to Westpac, like Loreal in Victoria.  We’ve got 17 people onsite at Loreal managing the total Loreal spend, including a lot of creative for Loreal as well.  I think we’ve done a very good job at evolution of the business, of diversifying into the right areas to maintain our relevance.  We understand when we listed two years ago that there is some cynicism around the sector.  I think when people hear the word, ‘print’, at times their knees start to wobble.  But when they understand we’re not just a newspaper printer – well, we don’t print newspapers, we’re not a newspaper printer, I should say – and that even within the word, ‘print’, we have a very broad range of different types of print we do. 

But then you rollover that to retail display or promotional merchandise or the logistics and fulfilment function or the data.  All the other things that we do, people realise that we may have had our origins firmly as a printing business but over the last 20 years we’ve evolved into something that’s far more diversified.  But understand, when we listed why some investors were somewhat cynical.  But I suppose, since listing, from our perspective, we have delivered on every financial target that we set and that we put out there publicly.  We delivered on all operational milestones that we set for ourselves.  That has enabled us as we put in our half year results back in February.  It’s enabled us to pay just over $36 million dollars in dividends since we listed just two years ago because it’s a high cash generative business.

I think people and investors are beginning to realise or have realised – and we’ve got a really good register of realised – the diversification of the business and they also realise that the industry structure – if I go back 20 years ago and think of the competitive landscape, gee whiz, there’s fewer players than what there were 20 years ago.  We’ve led industry consolidation and rationalisation over the last 20 years.

It’s basically down to you and PMP now from what, about half a dozen players at the turn of the century?

Yeah, it’s down to us and PMP only in one part of our business, which is the Franklin Web part of our business.  That is the only part of our business we compete with PMP because they are not as diversified as us and across the other parts of our business, we have competitors in the various parts of the sector in which we operate where we hold strong positions, but even the competitive landscape in that part of the business, as well as in that large Web part of the business that you just referred to before, I mean structurally the industry or the sector is in much, much better shape than what it was in 20 years ago.  It’s a little like the strong getting stronger and the more vulnerable or the people that have invested or haven’t caught up or diversified or – they’ve gone by the way.  It’s actually resulted for us in notwithstanding it’s still a competitive space like many industries, it’s resulted with us being a very, very strong player in a far more improved structural sort of environment. 

All right.  Now, I want to have a look under the bonnet, but before we do that, as you said, you’ve got four main divisions.  That’s Kalido, Blue Star, Pareto and IVEO.  Just quickly take me through what those four divisions do and how they’ve done.

Sure.  Historically, the business up until four years ago was just Blue Star and I just felt that given the diversification of the business over the years, we felt it was more appropriate to sort of front the market in a different way, in a more appropriate way, so we decided to go with IVE Group as sort of the holding, the group name.  I didn’t want to let go of Blue Star because Blue Star has a very strong brand heritage and has very strong capabilities across what I would probably refer to as maybe the more traditional manufacturing side of our business, what I would think of the Blue Star group even though put on promotional merchandise is not manufacturing and logistics, Blue Star Connect is not manufacturing. 

It would be the more traditional side of the group, I suppose, and I was keen to keep the Blue Star brands and brand architecture.  That’s what Blue Star Group is and it has seven divisions within the Blue Star Group.  That’s where our Blue Star Franklin Web, Blue Star Print, which is a commercial printing, digital printing business.  Blue Star Direct, which is our personalised variable imaging, data driven marketing business.  Blue Star Connect, which is logistics fulfilment.  Blue Star Promote, which is merchandise and then Blue Star Web is our – similar to Franklin Web, but we’ve offset printing at a smaller scale, but similar technology.   That essentially is the composition of – unless I’ve missed one there – that’s the composition of the Blue Star Group.

Kalido, which would be best described as having capabilities around creative, number one.  We employ, for example, about 50 or 60 graphic designers.  Some of them are embedded onsite like Westpac, Loreal.  Many of our customers where we have IVEO solutions have Kalido staff onsite with them where they’re performing the creative function.  Some website building.  We also do a lot of work around data analytics, so where we’re taking customers, working with customers to get a better view of their – like, I suppose, a one customer view.  It’s amazing how many corporates still run disparate databases and don’t know how to talk to their customer as though they’re the one customer versus being a customer of different parts of their group or their business. 

We do a lot of work in the data analytics space which incorporates what you would call marketing automation, Salesforce Marketing Cloud, Adobe Marketing Cloud.  We do a lot of work deploying those sort of enterprise-wide systems across large corporates.  That’s sort of the broad range of what the Kalido business does.  Creative, data analytics, customer journey stuff, that type of thing.

Is this a business that you bought or assets that you bought, put together…?

Only part.  We’ve been in creative for a long, long time.  We bought a small business maybe 18 months ago called JBA Creative in Melbourne, a small business that was in the data analytics space.  Then we combined that into our Kalido business, but the existing Kalido business which was creative originally has been part of our group for a long time. 

Then there’s Pareto?

Pareto is an interesting one.  Pareto is like a fundraising vertical for us in the direct space.  We do a lot of direct marketing.  Of our $700 million of revenue, or thereabouts, for FY18 maybe just over $100 million of that revenue is in our Blue Star direct business, data driven, personalised, variable imaging stuff like the Woolworths loyalty rewards program, all that type of thing.  The Pareto fundraising business is an agency that consults and then executes fundraising programs for the not-for-profit sector.  Most of those fundraising programs are essentially data driven marketing campaigns, whether they be digital campaigns or whether they be like we’ve done recently for Lifeline – there’s a good case study in our annual report actually. 

Or whether they be your more traditional, let’s call it direct mail, side of fundraising.  But all driven and we do all the creative as well, so we have a part of the creative offering.  The Pareto business on that side had touched multiple parts of our existing capability, but they specialised in the not-for-profit sector.  The Pareto phone business in Brisbane is the largest outbound call centre for the not-for-profit sector in the country.  We do just over 1.25 million outbound calls a year out of Pareto phone in Brisbane.  

Telemarketing is a very effective form of fundraising and it’s part of an overall fundraising strategy, but it’s but one part in addition to a digital campaign, a print campaign, face to face – people that sort of come up to you on the street, which we don’t do, but that’s part of many charities fundraising campaign.  Our job at fundraising is to develop strategy and execute it, of which telephone or Pareto phone is an important part of the mix because it’s very, very effective.  The best way to think of Pareto would be we’ve left it as a standalone business but it’s really a vertical in the direct marketing space.  It’s a direct marketing agency that operates in the not-for-profit sector.

And then finally, IVEO itself?

Yeah, that was a ground-up initiative of ours in 2001.  It was called Blue Star IQ for a long time and it was for customers that are looking to completely outsource the management of the mar-comms category in their business.  At the smaller end of the scale, for example, might be a Beyondblue and at the larger end of the scale, someone like a Westpac, Vodafone, AMP, Tabcorp, McDonalds Australia, American Express, Foxtel, IAG, BP – a recent win, Loreal… These types of customers where they’re basically outsourcing the management of, as defined by them and working with us, what they would call the print and marketing communications category in their business.

That could range from a customer that spends $3 million a year to a customer that spends $20 million dollars a year.  We service many of those customers by embedding our people, as I said before, onsite here in Sydney and in Melbourne.   Where customers don’t want us physically onsite we service them, as we would say, by near sites.  Here in Clarence Street in CBD Sydney where I’m based, or in Church Street, Richmond, where some of our IVEO people are based as well.  But our preference is to put our people onsite, embed them into our customers’ marketing teams, that’s generally where they sit. 

We have a lot of quite sophisticated reporting and visibility around category spend.  We don’t produce everything.  We’re diversified, yes, but a large part of our IVEO offer is managing a third party supply chain. 

You’re bundling it yourselves, you’re offering a bundle but then you’re bundling external providers as well into the major…?

Yeah, we’ve got to manage a supply chain, because if you took someone like a Westpac or even our promote business where we buy a lot of stuff out of Mainland China and so on, we want to stick to what we’re good at.  We accept we don’t produce everything and we don’t want to produce everything and we can’t produce everything, so we have a sourcing hub in Guangzhou where we have 10 people that are employed by us and we, for our retail display business, for our promote business, for our IVEO business, are buying, whatever, I’m not quite sure exactly of the numbers, $30-40 million worth of stuff a year.   That’s just part of us managing an approved supply chain on behalf of a broader range of customers.

That’s fascinating stuff but we’ll run out of time if I don’t have a look at some of the numbers now.  You’re valued by the market at $318 million right now.  In your June balance, in the December half, you put revenue up 73% to $359m I think?

Yeah, and so we’re full year on track for the $700-odd million and $72 to $77 million EBITDA range is what we’ve, guidance, is what we’ve put out there when we did the half-year results, yep.

EBITDA was up 57% to just over $38 million.  You make bottom line money too, the NPAT, profit after tax and so on was up 53.4% to $19.1 million.  You pay a dividend and in fact you’ve got a dividend policy, it’s around 60% of the profit I think isn’t it?

65-75% of NPAT is our dividend policy, yep that’s correct.

The interim was 8 cents and that’s a dividend yield – it must be pushing up around 7%, Geoff?

Yeah, I think it might be slightly higher.  I think it’s higher.

Well, in the year to June it was 9.2%.  That’s one of the interesting things about this company, it’s a dividend stock and you’ve got a policy to continue to pay dividends even though you’re continuing to expand.  Although, I suppose – I mean one of the questions is, now that you’ve rationalised in the traditional print business probably pretty much as far as you can go and you’ve got these add-ons, is the acquisition phase coming to an end now?

Yeah, and I did refer specifically to this at our AGM and in the annual report.  I think we listed in December ’15.  We did a capital raise when we purchased Franklin Web and entered the large format space at the end of ’16.  We’ve put $50 million dollars into developing Franklin Web, New South Wales, which that whole side of our business has gone incredibly well the last 12 months.  We did a $56 million capital raise in August last year at the same time as we did the full year results and the sources of those funds in part were for an acquisition and in part to buy some additional final equipment for Franklin Web New South Wales.

Our view now is that we need to unlock the value and deliver on what we’ve created over the last 12 months.  We do intend to slow up on the acquisition front in the short medium term.  I don’t think our investors are keen to see us issue any more shares and when you look at our projected balance sheet, net debt come June 30, ’19, which is not that far off, we’ll be just over one times EBITDA net debt and we did say when we did the IPO we would not want to be above 1.9.  At just over 1.1 times net debt on the EBITDA figures, if we use what the analysts have put out there, the three analysts, we will continue to have a very strong balance sheet and our capacity to fund – I think we’ll need to look at a capital management program because we would generate a lot of cash.  We certainly can support the current dividend policy comfortably, but what other things might we be looking at at that point?  Well, we’ll look at that a little bit further down the track, but it certainly shouldn’t impact on the dividend policy if that’s top of mind for an investor, if that’s the question you’re asking me?

Yeah.  The price earnings ratio is still kind of stubbornly low, it’s not over 10 yet.  Does that annoy you a bit?

I don’t know whether annoy would be the word that I use.  I think we have a very good business, we’ve delivered on everything we said we would deliver on.  We’ve had two capital raises.  I think we delivered a very clean half-year set of results, it couldn’t be any clearer.  I think our full year set of results will be very clean as well, which I think investors will want to see.  So whilst our share price has had a little bit of volatility, I think we’re in good shape to be rewarded for what we’ve delivered.  Over the next 6 to 12 months I would expect our share price to be more reflective of the underlying value of the business.

After the flight there was some shares held in escrow, including some of your family shares and some private equity shares were in escrow as well.  Some of those have come out and I think that you’ve indicated that your family is in for the long haul, but what is the situation with escrow stock now, how much is left and…?

When we did the original IPO, we didn’t sell down a lot.  Our shares were well out of escrow before we sold any more shares and then we sold a parcel of shares in February last year, from memory.  We run a family office as well.  Yes, we’ve been involved in this business for some time.  We have a diversified portfolio.  But no, at this stage we are long term holders of IGL stock. 

Who are the other block holders in there, can you talk about them?

Well, when we purchased a business called AIW in Melbourne at the end of 2016, at the same time as we purchased Franklin Web, because we bought two businesses at the same time or simultaneously, AIW was owned by Taverners Group out of Melbourne – Peter Scanlon…

Yep.

They took their entire consideration, at their request I might add, in IGL scrip.  So they still are on the register, we talk regularly, they’re long term holders of the stock. 

He’s a good bloke to have on board.

Absolutely.  We’ve got a very good relationship and they understand the sector as well having owned AIW for some time.  The register’s been relatively stable, there’s been some movement but the register’s been relatively stable.  I think our family, other than the block of shares we sold down just over a year ago, we haven’t traded any stock at all and we participated in both of the capital raises as well.  Yeah, I think there’s a sense internally, both from the family’s perspective and from investor’s perspective that our stock is still good value in terms of just the underlying growth potential of the business and the dividend yield and that we will be rewarded for that.

You know when retailers announce their numbers they announce the gross numbers and then they say, “And here are the same store numbers.”  When companies like IVE have been moving rapidly to make acquisitions and so on.  It always occurs to me it’d be a useful measure for a company that’s in that phase of its growth if there was a way of doing it.  Do you have a feel and can you tell us if you do, what the industrial equivalent of same store revenue and profit is doing?  Because one of the interesting things about the business you’re in is that you’re catering to clients like retailers who are telling us that times are as tough as they’ve been. 

You’re in the printing business which we know has been under massive disruptive pressure and so on, and yet these numbers look really good.  The wild card is if you are bolting on revenue and I think profit because you’ve been assimilating these assets extremely efficiently.  If you step back from that and look at the businesses on a sort of a same-same basis, what is it telling you about the markets that you’re operating in and how you’re travelling?

Yeah, look, if I understand the question, I answer this in two ways.  If we carved out the contribution of our increase in revenue and EBITDA as a result of just the acquisitions, the underlying growth of our business in terms of organic was pretty strong over the last 12 months.  When we listed the company, and it’s in the prospectus and we got a lot of questions around what’s the underlying organic growth of your business and we said, “Well, look, it’s low single digit organic growth business, that’s the industry that we’re in.  But there’s opportunities for us to grow in other ways in addition to the underlying organic growth and unlock value through synergies and improvement of margin…” and so on and so on.  But if you took the last 12 months our organic growth was – sorry? 

Go on, carry on.

If you took the last 12 months, our organic growth was double what it was in the first 12 months after we listed, interestingly.  That would be I suppose my first comment.  The second one, just around just maybe the retail sector, and we certainly cover a lot of different sectors from not-for-profit, the financial services sector, the entertainment sector…  But we do a lot of work obviously in the retail space.  I got this question at the AGM around what happens when retailers tighten their belts and there’s a sort of slight downturn in retail demand and so on and so on.  Well, there’s always going to be some companies that do tighten their belts in certain areas when times are a little difficult.  You’ve covered this sort of investment and business space for a long time, so you see how some companies slash and burn.

But when you’re in the retail space and you’ve got to drive foot traffic, you’ve got to drive your revenue, you shouldn’t presume that the first thing that companies cut is their marketing spend.  Because if you took say the catalogue producers, they know that catalogue production drives foot traffic, they know that.  

So at times, if anything, it should go harder?

Yeah, well some companies will go harder and there are other companies, for example, like when we list in December ’15 and two months after we list, Dick Smith goes under.   Well, sometimes those things you can’t control and there’s some specific reasons like why companies tighten their belts and make decisions to cut spend in particular areas that are more just company specific.  But at a broader level a lot of companies spend more money when times get a little difficult because they need to drive revenue.  It’s interesting.  Coles is a big client of ours.  We won the Coles contract from PMP, it started in July of last year and they couldn’t be happier with our performance, we’ve never let them down, thrilled to bits.  We worked with Coles in other areas as well.  The latest stats that came out were that Woolworths have grown their market share over Coles in the last 12 months.  Well, what would be Coles’ response to that?  It would be a range of things they might look to do in response to that.  One of them may very well be they need to spend more on marketing and they need to spend more on a particular area that touches part of our business in terms of revenue.  I don’t think – even though people talk doom and gloom at times about retail – it necessarily means that for our business, a reduction in spend, it can actually mean the opposite.

All right, well it’s very, very interesting stuff.  Geoff, thanks so much for your time.

It’s a pleasure, Malcolm.