The region’s largest printing company recorded a statutory net loss after tax and significant items (primarily NSW site consolidation) of $108.8 million for 2020, as sales revenue slumped by $130 million, mostly due to the impact of Covid-19. “In this environment it is too early to predict what our ‘new normal’ will look like,” warned CEO Kevin Slaven, flagging asset sales and redundancies.
|Ovato said site consolidation at its Warwick Farm, Sydney site (pictured above) was now complete but “full benefits from this have been delayed due to onset of COVID-19”|
“The group’s financial performance has been adversely impacted by lower than expected revenue from its printing operations in Australia and New Zealand,” the company said. “This has been further exacerbated in the last quarter of the financial year by the impacts of the COVID-19 global pandemic whereby a number of the group’s customers have temporarily ceased the printing or reduced the volume of catalogues printed. In Australia and New Zealand, revenue for the period 1 April 2020 to 30 June 2020 was 48% less than the same period in 2019.”
Financial year 2020 group sales of $539.3M were down $130.0M or 19.4%, primarily due to $105.7M lower revenues at Ovato Australia
“This was mainly due to lower Print and Residential Distribution sales in weak retail markets, combined with the unfavourable COVID-19 impact in the second half of the year,” Ovato told the ASX. “Revenues at Ovato New Zealand were $24.3M lower mostly in heatset print after the business was forced to temporarily close by Government directive as that country entered lockdown for several weeks at the onset of COVID-19.
“Year to date sales at February 2020 of $415M were 9% or $43M lower pcp in tough retail markets. The onset of COVID-19 greatly impacted the Australasian retail sector from March 2020 with sales revenues in the period from March to June 2020 down by 41% or $87M pcp as major reductions in volumes occurred across all key sectors.”
The company said it had taken a number of temporary actions to manage cash flow to offset lower sales revenues and protect liquidity. These include accessing the Australian and New Zealand Government wage subsidies, agreeing new terms with key suppliers including the ATO, rent concessions and standing down staff to lower hours in line with lower revenues.
'Further restructuring required':
Ovato CEO Kevin Slaven said the company continued to consider asset sales and is seeking “more realistic” redundancy scales.
“Given a $130M or 19.4% fall in sales in FY20 due primarily to COVID-19 and compared to the previous year, it is obvious that our fixed cost base is not aligned to revenues and further restructuring to both our manufacturing and support infrastructure is required.”
He said the company would continue its bid before the Fair Work Commission to terminate its current agreement with staff – a move that could see up to 300 jobs lost, according to the Australian Manufacturers Workers Union.
“To facilitate the restructure at an affordable cost, the company has sought to terminate the existing Print Australia Enterprise Bargaining Agreement (EBA) and replace it with more realistic redundancy scales, consistent with industry and community standards,” Slaven said. “This will enable the company to cost effectively realign the fixed cost base, produce operational savings, and assist with being able to attract new equity into the business. Restructuring under the existing EBA is prohibitive given the company’s current financial position.”
The company is also continuing to pursue asset sales. “The company’s plans to de-leverage the business via possible asset sales and/or equity re- capitalisation (as announced at the half year results in February 2020) have been delayed due to the widespread impact of COVID-19,” he said. “Such plans continue to be pursued and are expected to progress over coming months subject to market conditions permitting.
“The current Stage 4 Restrictions in Melbourne has created additional uncertainty about demand from key catalogue and publishing customers. In this environment it is too early to predict what our ‘new normal’ will look like.”
Significant items booked in FY20 were $72.5M pre-tax up $8.9M pcp. Cash significant items at $31.8M includes employee related costs, press relocation costs and NSW site consolidation related items. Non-cash significant items at $40.7M were up year on year on higher impairments of goodwill and plant & equipment.
Ovato Australia sales at $449.3M were down $105.7M or 19% on the pcp mostly from $77.2M lower print sales, with $48.8M reductions in print catalogues and $28.4M in print magazines & newspapers. While tier 1 food & beverage catalogue sales were consistent pcp in H1 of FY20, sales in H2 fell 21% pcp, however the bigger decline was in non food and beverage catalogues down 43% in H2 pcp. Residential Distribution sales fell 24.8% or $19.9M on lower existing customer volumes as a result of very slow COVID-19 retail conditions.
Ovato Australia statutory EBITDA (before significant items) was $31.2M. EBITDA pre AASB16 and before significant items at $11.5M was down 56.2% or $14.8M due mostly to lower print and residential distribution revenues from weak retail markets and COVID-19 which were partially offset by NSW site consolidation savings, tight cost controls and wage subsidies.
Ovato NZ sales at $90.0M were down $24.3M or 21.3%, with $18.8M lower print sales. Statutory EBITDA (before significant items) at $1.2M was down 73.1%, mostly due to lower print revenues which offset tight cost controls and wage subsidies. EBITDA pre AASB 16 and before significant items was a loss of $2.3M, down $6.9M on pcp.