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Investor Update4 June 2008
Disclaimer
This document has been prepared by Photon Group Limited (Photon) and comprises written materials/slides for a presentation concerning Photon.
This presentation is for information purposes only and does not constitute or form part of any offer or invitation to acquire, sell or otherwise dispose of, or issue, or any solicitation of any offer to sell or otherwise dispose of, purchase or subscribe for, any securities, nor does it constitute investment advice, nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on in connection with, any contract or investment decision.
Certain statements in this presentation are forward looking statements. You can identify these statements by the fact that they use words such as “anticipate”, “estimate”, “expect”, “project”, “intend”, “plan”, “believe”, “target”, “may”, “assume” and words of similar import. These forward looking statements speak only as at the date of this presentation. These statements are based on current expectations and beliefs and, by their nature, are subject to a number of known and unknown risks and uncertainties that could cause the actual results, performances and achievements to differ materially from any expected future results, performance or achievements expressed or implied by such forward looking statements.
No representation, warranty or assurance (express or implied) is given or made by Photon that the forward looking statements contained in this presentation are accurate, complete, reliable or adequate or that they will be achieved or prove to be correct. Except for any statutory liability which cannot be excluded, each of Photon, its related companies and their respective officers, employees and advisers expressly disclaim any responsibility for the accuracy or completeness of the forward looking statements and exclude all liability whatsoever (including negligence) for any direct or indirect loss or damage which may be suffered by any person as a consequence of any information in this presentation or any error or omission therefrom.
Disclaimer Cont’d
Subject to any continuing obligation under applicable law or any relevant listing rules of the ASX, Photon disclaims any obligation or undertaking to disseminate any updates or revisions to any forward looking statements in these materials to reflect any change in expectations in relation to any forward looking statements or any change in events, conditions or circumstances on which any statement is based. Nothing in these materials shall under any circumstances create an implication that there has been no change in the affairs of Photon since the date of this presentation.
Key risksThere are a number of factors that could cause actual results or performance to differ materially from those expressed or implied in the forward looking statements. Factors that could cause actual results or performance to differ materially from those described in the forward looking statements include, but are not limited to: competitive industry dynamics, the ability of Photon’s clients to terminate contracts on short notice, Photon’s dependence on key personnel, seasonality of revenues, management of profitability and growth of acquisitions, access to funding to support Photon’s business and its growth, availability of future acquisitions, the uncertainty regarding the final acquisition price for certain operating companies, international business risk including foreignexchange exposure, identification of risk in completed and future acquisitions, asset value impairment, liability for work performed for clients, systems, intellectual property and regulatory risks, and changes in economic conditions (including interest rates). Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward looking statements. Please refer to Section 5 of the Rights Issue Offer Document for further discussion of risks.
UnderwritersThe Underwriters: •have not authorised, permitted or caused the issue, lodgment, submission, dispatch, or provision of this document; •do not make, or purport to make any statement in this document, and there is no statement in this document which is based on anystatement by the Underwriters; and •to the maximum extent permitted by law, expressly disclaim all liabilities in respect of, make no representations regarding, and take no responsibility for, any part this document.
4
Definitions & Assumptions
• Pro Forma (PF) – throughout the document pro forma net revenue and EBITDA are calculated assuming ownership of all companies in the group today for the full 12 month period. Pro forma calculations for FY07 and FY08 are based on unaudited management accounts and company estimates.
• FY08 Estimates (FY08E) – FY08 estimates are based on 1H08 interim accounts for the six month period ended 31 December 2008, 2H08 year to date unaudited management accounts and management forecasts for months ending May 2008 and June 2008. Forecasts are based on budgets which take into account Photon’s historical seasonality of earnings which has historically displayed stronger revenue generation in the six months ending 30 June compared to the six months ending 31 December.
• An investment in Photon involves a number of risks and these risks could cause actual results or performance to differ materially from the outlook statements in this presentation. Readers of this presentation should review the Disclaimer and other market releases of Photon for a further description of these risks.
Contents
Executive Summary Business Overview Approach to Growth Overview of Divisions
Specialised CommunicationsExperiential & Field MarketingStrategic Intelligence Integrated Communications & Digital Internet Marketing & Communications
Capital Structure Update Outlook
6
Executive Summary
• Photon is a diverse group of 46 market leading companies covering the full spectrum of marketing and communications services
• Photon’s earnings are underpinned by diversity of companies, clients, employees and geographies
• Photon ranked the largest marketing and communications group in Australia and the 15th
largest globally by Advertising Age
• Photon derives more than 85% of its EBITDA from non-traditional forms of marketing such as internet, field marketing, strategic intelligence and corporate communications
• Each company is an industry specialist which works together with other companies in the Photon group to extend client relationships and business opportunities
• In FY08 Photon is expecting double digit pro forma EBITDA growth
• Photon is on track to deliver FY08 Net Revenue of approximately $375 million and EBITDA of approximately $75 million
• Photon to raise $76.6 million via a 1 for 3 underwritten non-renounceable rights issue
• Proceeds from rights issue will be used to repay short term debt and provide a solid base for future growth
Business Overview
8
Divisional Structure • Photon is founded on a set of five strategic divisions, each focusing on a specific segment of the
marketing communications sector
Strategic Intelligence
Internet Marketing and Communications
Experiential and Field Marketing
Integrated Communicationsand Digital
SpecialisedCommunications
BellamyHayden The Leading EdgeJigsaw
ReturnityiMegaDark Blue Sea C4 CommunicationsFound AgencyCrystal StormGeekdom
The Bailey GroupBrand ImpactCounterpointDemonstration PlusAusrepClub Sales REL Australia
LoveAdPartnersBrass TacksThe Artel GroupKaleidoscope Belong (MessageNet)BCGBWMISS MarketingBMF
CPRABTImage BoxKineticsPrecinct Creo Mark PRAuspollPublic Insight
Strategic media planning, brand insights, marketing spend effectiveness and new product ideas.
Public affairs, public relations, impactful design, and event management.
Point of sale execution plus experiential marketing allowing consumers to experience brands.
Integrated brand strategies through traditional media, below the line, point of sale, and customer incentives.
Technology enabled marketing solutions in the emerging interactive, digital and mobile sectors.
Naked DVL SmithThe Leading Edge
OB MediaFindologyiMega
RELSledgeRetail InsightThe Bailey Group UK
Corporate Edge LikemindFrank PRHotwire/SkywriteABT China
Aus
tral
ia /
NZ
In
tern
atio
nal
9
FY08 Estimated Net Revenue
FY08 Estimated EBITDA
FY08 Estimated Net Revenue & EBITDA by Division
Excludes divisional, service centre and SEOP costs
Strategic Intelligence 12%
Integrated Communications and Digital 16%
Experiential andField Marketing 26%
Specialised Communications
21%
Internet Marketing and
Communications 25%
Strategic Intelligence 13%
Integrated Communications and Digital 23%
Experiential andField Marketing 36%
Specialised Communications
19%
Internet Marketing and
Communications 9%
FY07 Net Revenue
FY07 EBITDA
Strategic Intelligence 13%
Integrated Communications and Digital 27%
Experiential and Field Marketing 36%
Specialised Communications
16%
Internet Marketing and Communications 8%
Integrated Communications and Digital 20%
Strategic Intelligence 12%
Specialised Communications 14%
Experiential and Field Marketing 33%
Internet Marketing and
Communications 21%
10
Five Year Reported EBITDA Growth by Division
2004 2005 2006 2007 2008E
Strategic Intelligence Integrated Communications & Digital Experiential & Field Marketing Internet Marketing & Communications Specialised Communications
+73%
+28%
+34%
+105%
+147%
FY08E growth pa
11
20%79.866.3Specialised Communications
17%413.8353.7Divisional Pro Forma Net Revenue
41%38.627.3Internet Marketing and Communications
Change (same company)2008PF2007PFPro Forma YE 30 June, A$ million
12%135.1120.8Experiential and Field Marketing
11%88.279.3Integrated Communications and Digital
20%72.160.0Strategic Intelligence
2008 Pro Forma Net Revenue Growth by Division
12
1. Excluding the one-off restructuring costs associated with Belong and structural changes to participation television market, pro forma FY08 EBITDA growth for the Integrated Communications and Digital Division is 3%
19%19.015.9Specialised Communications
15%90.979.1Divisional Pro Forma EBITDA
31%(4.7)(3.6)Service Centre
52%22.014.5Internet Marketing and Communications
12%84.275.5Total Pro Forma EBITDA
Change (same company)2008PF2007PFPro Forma YE 30 June, A$ million
nm(2.0)-Senior Executive Option Plan (SEOP) Expense
1%22.622.3Experiential and Field Marketing
(19)%13.616.7 Integrated Communications and Digital1
41%13.79.7Strategic Intelligence
2008 Pro Forma EBITDA Growth by Division
13
18
21
20
23
26
25
16
17
na
15
2006 Rank
30
14
11
13
9
12
10
8
6
7
5
4
3
2
1
2006 Rank
103.3%
37.7%
5.9%
38.0%
5.6%
51.8%
32.8%
4.1%
13.8%
21.3%
(0.6)%
8.7%
5.9%
14.5%
11.6%
2006/2007 Revenue Growth
25
24
23
22
21
20
19
18
17
16
2007 Rank
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
2007 Rank
5.2%
14.9%
14.4%
26.6%
42.1%
39.6%
5.8%
18.5%
na
16.9%
2006/2007 Revenue Growth
Photon Group
Microsoft Corp.
Carlson Marketing
Media Consulta
Asatsu-DK
Alliance Data Systems (Epsilon)
MDC Partners
Hakuhodo DY Holdings
Havas
Aegis Group
Dentsu
Publicis Group
Interpublic Group of co.s
WPP Group
Omnicom Group
Company
Media Square
LBi International
Cossette Communication Group
Clemenger Communications
Grupo ABC de Comunicacao
STW Group
Sapient Corp (Sapient Interactive)
Company
George P Johnson Co.
IBM Corp (IBM Interactive)
Cheil Worldwide
Source: Advertising Age, ranked by worldwide revenue
Top 25 Global Marketing Services Companies
14
Growing Global Footprint
• Network of businesses with offices in 13 countries
Australia – New Zealand – Japan – China – Singapore – US
UK – France – Germany – Spain – Italy – Netherlands – Norway
Approach to Growth
16
Approach to Growth
Organic
Fast growing markets
Ability to grow market share
Cross-selling & collaboration
7% - 12% organic group EBITDA growth
Acquisition
34 acquisitions since 2004
Maintain structure and culture to attract industry best talent
FY08 acquisitions performing in line with expectations
Geographic Expansion
Expand internationally where market for services identified
Internal Start-ups
Entrepreneurial development of new business ideas
17
EBITDA by Geography
FY08 Estimated EBITDA
North America 19%
UK and Europe 18%
FY07 EBITDA
North America 11%
Asia Pacific 89% Asia Pacific 63%
Excludes divisional, service centre and SEOP costs
18
Acquisition HistoryFY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008
19
What Happens Post Earn-out?
• 15 companies within the group post earn out – of their approximately 60 vendors, over 50 remain with Photon
• Very good track record of retaining shareholder CEOs post earn out as result of:
• Businesses retain name, branding and independence at acquisition
• Senior management vendor remuneration above market
• Difficult to replicate business from scratch
• Being part of Photon is good fun!
• Companies with earn-out expiring in FY08 account for 7% of FY08E EBITDA
20
Divisional Reporting & Service Centre
• The divisional management structure is designed to create additional growth prospects and greater accountability and focus across the group
• Share best practices and learnings – divisional benchmarking
• Provide more focus and support for those companies which require it
• Leverage contacts and networks – employees and clients
• Clear structure for succession planning
• Tap networks to source high quality acquisitions
• Managing Directors responsible to the Photon Board for performance of division
• Small central service centre is responsible for setting and maintaining a consistent financial reporting and controls framework across the group
21
Management Structure
Internet Marketing & CommunicationsManaging Director: Caitlin Millar-Jack
Integrated Communications& DigitalManaging Director:Andrew Davie
Photon Group
Strategic Intelligence
Managing Director:Nigel Long (UK)
Company CEOs Company CEOs Company CEOs Company CEOsCompany CEOs Company CEOs
Photon Group Board
Executive Chairman – Tim HughesCEO – Matthew Bailey
Service Centre
Finance
Treasury
Legal
Corporate Finance
Experiential & Field Marketing
Managing Director:Stewart Bailey
Specialised Communications
Managing Director:Adam Kilgour
Overview of Divisions
23
Specialised Communications – Adam Kilgour
Public Relations & Public Affairs
CPR
Frank PR
Hotwire / Skywrite
Public Insight
Auspoll
Creo
Mark PR
Kinetics
Corporate Communications
Precinct
Likemind
Print & Design
Imagebox
Brand Experience
ABT
24
Specialised Communications cont’d
Five Year Reported EBITDA • Pro forma FY08 EBITDA growth of 19%
• Cost effective marketing tool which attracts greater share of marketing budgets in economic downturns
• Development of deep PR expertise in specialist industries – consumer, technology, regulatory and government
• Sharing of expert staff across jurisdictions
• Continued transition to on-line corporate communications
• FY07 impacted by losses in a discontinued business and State election timing on CPR
• Geographic expansion – Europe, North America
• Large diversified base of retainer clients are expected to drive continued organic growth in FY09
$16.7m
$6.7m$7.4m
$2.8m$1.9m
72% CAGR
FY04 FY05 FY06 FY07 FY08E
4 5 7 7 12Brands:
25
Experiential & Field Marketing – Stewart Bailey
FMCG Specialists
The Bailey Group
Counterpoint
Club Sales
Niche Channel Operators
Ausrep
Retail Insight
Experiential
Sledge
Demonstrations Plus
Brand Impact
REL
26
Experiential & Field Marketing cont’d
Five Year Reported EBITDA
$21.8m
$16.2m
$10.7m
$4.9m
$0.7m
133% CAGR
FY04 FY05 FY06 FY07 FY08E
• Continued macro trend towards out-sourcing field activities – 13% FY08E net revenue generated from new client wins
• Develop expertise outside FMCG sector – hardware, liquor, pharmaceuticals, telcoms, retailers
• Common technology & backend platforms across all field marketing companies
• Conflict brand management
• Pooling casual labour force allows for more flexibility in tight labour market and reduced training costs
• Investment in three new businesses – REL Australia, The Bailey Group UK and 4Exposure slowed EBITDA growth in 2008
• REL systems roll-out due to be completed in 2H09
• Larger client base, divisional cooperation and growth of new businesses expected to drive organic growth in FY09
1 2 4 5 9Brands:
27
Strategic Intelligence – Nigel Long
Communications Planning / Consultancy
Naked
BellamyHayden
Market Research
The Leading Edge
DVL Smith
Jigsaw
28
Strategic Intelligence cont’d
Five Year Reported EBITDA
$9.9m
$5.7m
$7.2m$6.4m
$0.3m
140% CAGR
FY04 FY05 FY06 FY07 FY08E
• Pro forma FY08 EBITDA growth of 41%
• Macro trend toward greater accountability and analysis driving demand for services
• Strong international presence – Naked; eight countries, TLE; three countries
• Naked planning further international expansion over next 12 to 18 months (e.g. China, India) – leverage global clients
• Media neutrality of our media consultancies is a key differentiator
• Sharing of IP, proprietary data analytic tools and theories between companies
• Conflict brand management
• International expansion and growing demand for independent advice expected to drive organic growth in FY09
1 2 2 4 5Brands:
29
Integrated Communications & Digital – Andrew Davie
Traditional & Digital Agencies
BMF
BWM
Love
Adpartners
BCG
Belong
Promotional & Branding
Artel
Brass Tacks
Kaleidoscope
ISS Marketing
Corporate Edge
30
Integrated Communications & Digital cont’d
Five Year Reported EBITDA
$12.7m
$9.9m
$7.3m
$5.9m
$3.1m
43% CAGR
FY04 FY05 FY06 FY07 FY08E
5 6 7 8 11Brands:
• FY08 results impacted by disappointing performance by BCG, Love and Belong – BMF and BWM good year on year growth
• New Managing Director with Australia and Asia industry experience
• Significant new client wins – BMF, BWM
• Increased demand for and scope of digital offering –investment in digital services at BWM resulted in significant client spend
• Ability to service full spectrum of client types through agencies with different core specialisations
• Restructure of Belong in April 2008 to focus on mobile, branding and interactive expertise
• New client spend, turnaround of Love and restructure of Belong expected to drive organic growth in FY09
31
Internet Marketing & Communications – Caitlin Millar-Jack
Wed Agencies & Email Marketing
C4 Communications
Returnity
Search Engine Marketing
OB Media
iMega
Found
Findology
Geekdom
Crystal Storm
32
Internet Marketing & Communications cont’d
$20.7m
$10.1m
$0.5m$0.4m$0.04m
FY04 FY05 FY06 FY07 FY08E
1 1 1 5 8Brands:
Five Year Reported EBITDA • Pro forma FY08 EBITDA growth of 52%
• Strong organic sector growth continuing – interactive advertising forecast to grow at 27% CAGR between 2007 and 2012 (source: Kelsey Group)
• Culture of innovation - Geekdom
• Collaboration and cross selling between different specialities – web agency, email marketing, mobile
• Dark Blue Sea (24% investment) – underlying asset base remains sound
• Organic growth being driven by service diversification, innovation and increased market opportunity and advertiser spend
• Over 50 people in the internet division spend part of their day developing new products to drive earnings, including……..
383% CAGR
33
Internet Marketing & Communications – The Latest
Capital Structure Update
35
Debt Facilities • ANZ has approved an extension to the terms of two of Photon’s debt facilities • Photon will use the rights issue proceeds to repay near term debt – post rights issue c.80% of
debt due in FY11• Impact of higher margins on extended term offset by repayment of Australian Dollar drawings
with rights issue proceeds• Post rights issue 42% of Photon’s borrowings in Sterling or US Dollars – provides a natural
hedge and reduces the weighted average cost of debt
Oct 11
Oct 10
July 09
Term
$346m
$76m
$120m
$150m
Facility Limit
3.6x
2.7x
$245m
$76m
$118m
$52m
Drawn1
3.4xInterest Cover Ratio
3.3xLeverage Ratio
8.4%
7.5%
8.1%
9.5%
Av. Interest
Rate
Oct 08
Oct 10
March 09
Term
8.4%
6.7%
8.1%
9.3%
Av. Interest
Rate
$322mTotal Facilities
Drawn1Facility, A$ million
$54mFacility C
$118m Facility B
$150m Facility A
1. GBP and USD denominated borrowings converted at current exchange rate
2. Leverage Ratio post rights issue is calculated as reduced debt balance divided by pro forma FY08E EBITDA. Interest Cover Ratio calculated by dividing pro forma FY08E EBITA by pro forma interest for the same period assuming reduced debt balance
Pro Forma Impact of Rights Issue2
36
23c20.0c8.0cDividend per share (ff)
34.4c27.5c17.8cAdjusted EPS2
23.3c20.3c15.4cReported EPS
25.416.310.0Adjusted NPAT2
16.311.88.7Reported NPAT (after minorities)
17.512.08.6Reported NPAT (before minorities)
35.322.115.8EBIT
9.76.02.2Depreciation & Amortisation
22.5%
18.0
80.4
2005
22.5%
28.1
124.8
2006
23.2%
45.1
194.6
2007
20.0%
75.0
375.0
2008E1 2008PFYE 30 June, A$ million
20.3%EBITDA Margin
84.2EBITDA
413.8Net Revenue
Profit & Loss Statement
1. FY08E margin impacted by the acquisition of REL and a number of start-up operations and projects across the group including, ABT China, REL Australia, The Bailey Group UK, 4Exposure (Demonstrations Plus), Public Insight and Real Connections (BellamyHayden)
2. Adjusted for amortisation of intangibles and PV interest expense associated with earn-out commitments
37
Pro Forma Balance Sheet
244.3270.0Bank – Non-Current
604.1560.9Total Assets
269.1
23.222.5Other Assets
35.035.0Non-Current
9.89.8Current
Borrowings:
-8.8Bank – Current
482.0450.4Intangibles
13.713.4Working Capital
43.535.9Cash
19.818.7Financial Assets
34.132.5Provisions
192.5Net Assets11.912.4Finance Leases and other
Deferred Consideration (PV):
22.020.0Fixed Assets @ WDV
Pro Forma131 Dec 07A$ million
1. Pro Forma Balance Sheet is 31 December 2007 balance sheet adjusted for the impact of 2H08 acquisitions (Retail Insight and Naked) and $76.6 million rights issue, but does not adjust for the costs of the Offer or any other balance sheet movements since 31 December 2007 including the impact of the payment of the FY08 interim dividend.
38
$3.00 per share (20.8% discount to theoretical ex-rights price, based on 30 May 2008 close price)
Offer Price
RG Capital Multimedia, Timothy Hughes and Matthew Bailey and other members of the Bailey family have committed to take up their entitlements
Principal Commitments
UBS and Southern Cross EquitiesUnderwriters
New shares issued under the non-renounceable entitlement offer will rank equally with existing shares
Ranking
Fixed price non-renounceable entitlement offerRecord date is Friday, 13 June 2008 (5pm, Sydney time)Eligible shareholders can take up their share entitlements before 5pm Tuesday 8 July 2008
Offer Structure
1 for 3 to raise $76.6 million Offer Size
Photon Group Limited Issuer
Rights Issue Details
39
Indicative Timetable
Friday 18 JulyDespatch holding statements
Thursday 17 JulyTrading on ASX of new shares on normal basis
Wednesday 16 JulyAllotment
Wednesday 9 JulyTrading on ASX of new shares on a deferred settlement basis
Tuesday 8 JulyOffer closing date
Tuesday 17 JuneOffer opening date
Tuesday 17 JuneOffer document despatched to eligible shareholders
Friday 13 JuneRecord date for determining entitlements
Friday 6 JuneShares quoted on an “ex” entitlement basis
Wednesday 4 JuneTrading recommences
Wednesday 4 JuneOffer document lodged with ASX
Monday 2 JuneCommencement of trading halt
DateEvent
40
Outlook
• Photon is on track to deliver FY08 Net Revenue of approximately $375 million and EBITDA of approximately $75 million
• Exceptional organic growth from strategic intelligence, internet marketing and specialised communications
• Expecting strong organic growth in FY09 driving “double digit” FY09 EPS growth1
• Photon intends to maintain prudent leverage ratios going forward – leverage ratio less than 3.0 times and interest cover ratio between 3.5 times and 4.0 times
1. Based on FY09 internal budgets and including impact of $76.6 million rights issue
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