Salmat is well positioned on our journey to become Australia’s leading omni-channel communication partner.
Throughout 2012, the Salmat business has once again demonstrated its resilience. We built momentum during the course of the year, in the face of a soft operating environment and restrained consumer spending that impacted our primarily consumer facing customers, with the second half outperforming the traditionally stronger first half.
The historical core, the catalogue business, has achieved solid volume growth across Australia’s major retailers. We have made good progress in the execution of our technology driven strategy, with the launch of the Salmat Digital brand reflecting continued development of our capabilities. The Contact Centre business is improving and has a strong pipeline underpinning growth prospects.
On 30 May 2012, we announced that an unsolicited approach regarding the possible acquisition of the Business Process Outsourcing Division (“BPO”) had been received. A thorough process was undertaken to ensure shareholder value was maximised, culminating in the divestment of BPO to FUJIFILM Holdings Corporation.
Sales revenue was $823.4 million for the year, which was down 4.6% on the prior year. The reduction was primarily due to the closure of a major call centre contract with Telstra at the end of 2011, together with the less than favourable macro environment. The reduction was partially offset by a full year of revenue contribution from the Digital assets acquired in 2011 and new business won in the period.
We achieved underlying EBITA of $80.6 million, down 9.0% on the prior year and within the guidance range of $78 - $83 million that we provided. The reduction in group EBITA was a result of lower revenue, the additional investment on our digital strategy and lower margin catalogue sales within Targeted Media Solutions. However, this was offset by a strong contribution from BPO.
Importantly, the business did have good momentum in the second half of the year, which is traditionally our weaker half, where we had EBITA growth of $2.8m (up 7%) and margin expansion of 100 basis points to 10.6%.
Underlying net profit after tax was $34.7 million, before a net significant item expense of $4.4 million, which brought statutory profit (net profit after tax) to $30.3 million and earnings per share to 22 cents per share.
Cash generation and working capital management continues to be a focus of the group. Operating cash flow is up significantly for the year increasing by 18% and net debt reduced to $241.6 million, down $16.7 million from 30 June 2011.
The divestment of Business Process Outsourcing (BPO) to FUJIFILM Holdings Corporation for $375 million was announced with the Annual Results on 27 August 2012.
The transaction follows an unsolicited approach regarding the possible acquisition of BPO. Following the approach, the Board received considerable interest from a range of parties, culminating in the transaction announcement.
The Board is pleased with the price achieved on the back of strong results from BPO. These results were driven by a strong sales focus, innovation and cost disciplines put in place by the management team over the past two years, during which time the business has developed significantly. However, we recognise that BPO is likely to have better growth potential with FUJIFILM Holdings Corporation, due to its superior international reach and broader outsourcing expertise, especially as it seeks to build out its e-business capabilities across Asia. Consequently, we are confident that we have received good value for BPO, a business we have built to market leader status over a 30 year period and that FUJIFILM Holdings paid fair value for a stable operating platform, long standing customer relationships, strong and secure data management capabilities and an emerging e-business product range. I thank and commend everyone at BPO for their efforts, and we wish FUJIFILM Holdings Corporation well for the fulfilment of their growth ambitions within the region.
At the time of writing, the transaction remains subject to Foreign Investment Review Board approval and completion conditions. Settlement is expected by mid-October 2012.
The divestment of BPO simplifies Salmat’s group strategy around our vision to be Australia’s leading omni-channel communication partner, assisting our clients to maximise their Return on Communication (“ROC”). It is a front end communication focus in contrast to BPO’s back office activities.
Our balance sheet is in a very strong position and the board is considering options that will further drive shareholder value, including acceleration of the growth strategy by building our scale and capability in the digital services and communications market, reviewing the appropriate business and cost structure and deleveraging the balance sheet.
The concept of “omni-channel communication” means that our principal focus is to provide B2C (business to consumer) organisations with an integrated, consistent and highly coordinated range of front office communication solutions that they can use to acquire, grow and retain their customers. We have the largest consumer reach and distribution capability in the country, via more than five billion catalogues, 21 million Lasoo visits, 720 million emails and 100 million telephone conversations each year. Salmat is in contact with more consumers on behalf of its clients than any other organisation in Australia.
Underpinning our objective of “Maximising ROC”, our business operates in the two distinct areas of brand management and commerce services.
Brand management is fundamental to our clients improving their customer engagement and retention. The most common examples of brand management solutions that we provide are e-mail and loyalty marketing campaigns, social media marketing and monitoring, Search Engine Marketing (“SEM”) and Search Engine Optimisation (“SEO”), mobile apps, loyalty management, and data insights and reporting.
Commerce solutions provides a range of activities that directly drive our customer’s sales, including catalogue distribution, E-commerce, kiosk services, voice and speech based solutions, direct sales, Lasoo, Roamz and digital catalogues.
In both activities, we become deeply embedded in our clients businesses, often providing them access to proprietary technology platforms to deliver these solutions. As a result, we are a very strategic partner. Focussing on front office opportunities presents us with a stronger strategic client relationship as we help drive their sales directly. Underpinning this is the evolution of our strategic consulting business, which is designed to assist our customers determine what services they need to maximise ROC, which we are then able to implement.
It is very important to the board that our people are able to reach their full potential – it is good for them and it is good for our business. Accordingly, we were very proud to see the results from our annual cultural survey, which highlighted that Salmat employees believe that people from diverse backgrounds are able to prosper with us.
A number of significant initiatives were launched during the year. In particular, the Leadership Academy and the Women in Leadership Council, sponsored by our CEO Grant Harrod, are providing clear development and progression plans for our current and future leaders. The health and wellbeing of our people is also a top priority and we are pleased to report that our lost time injury frequency rate (LTIFR) has fallen for the fifth consecutive year, recording a 33.3% reduction against the previous year.
The Salmat Activate program supports a range of charities that are selected annually by a staff committee. This year there was a strong focus on child welfare, both in Australia and overseas, and donations totalling $161,863 were made during 2012.
We believe in recycling as much as possible. We recycle all paper based products that we are able to, and we have instigated a program to educate our clients about environmentally preferable paper based choices.
Salmat has delivered regular dividends each year since listing and 2012 is no different. In fact, in the decade since listing, Salmat has returned more than the value of the initial share offer price in dividends, all fully franked.
In support of Salmat’s solid position and future prospects, I am pleased to confirm that the board declared a final dividend of 10.5 cents per share, fully franked, bringing the total full year dividend to 19.0 cents per share. This represents a payout ratio of 100%.
The board intends to continue delivering sound returns to shareholders, whilst being mindful of the need to reinvest for long-term benefits.
On behalf of the board, I would like to thank the entire Salmat team for a solid performance in challenging markets during 2012. I must also thank our valued shareholders, clients and partners for your continued support and also my board colleagues for their significant contribution throughout the year. I look forward to sharing news of Salmat’s initiatives, plans and performance in the coming year.
RICHARD LEEChairman
