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Ovato posts $67m loss in 'transformational' 2021

ASX-listed print business Ovato recorded a net loss of $67.1 million for 2021, an improvement of $41.7 million on the previous year. Net debt of $39.8 million at June 2021 was $33.1 million better than 2020, as Covid continued to impact sales.

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For the year ended 30 June 2021, Ovato's sales of $442.7 million were down by $96.6 million or 17.9% after a $90.5 million sales reduction at Ovato Australia. Print and residential distribution revenues were down $88.8 million,  “due to substantially lower revenues mainly from weak retail markets through the continued impact of COVID-19.” H1 revenue was down $76.7M or 33.2% with customers either not returning to print or returning at lower levels. 

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   "Slower to recover than expected":
       Ovato CEO James Hannon

“Revenue was slower to recover than expected in FY21,” said James Hannon, Ovato CEO. “Throughout the course of the year we have undertaken significant work to align our fixed cost base to the lower revenues and further restructuring to both our manufacturing and support infrastructure is required into FY22, which is already well underway. Despite the negative variance in revenue year on year, it is encouraging to see the impacts from an extremely challenging year soften at the EBITDA level and to see significant improvements to Ovato’s EBIT and net loss figures.

“During the 2nd quarter of FY21, Ovato undertook a recapitalisation & restructure of its balance sheet. This was largely complete by the 3rd quarter when the remaining $15m of the corporate bond and the surrender of an onerous lease were converted to equity through a further issue of shares in Ovato.

“In the 4th quarter of FY21, Ovato entered into agreements to enable the sale of two business units, Ovato Retail Distribution (ORD) and Ovato Marketing Services (OMS). In July, Ovato completed the sale of the magazine distribution businesses (ORD) in Australia to Are Media for a headline price of $10 million (with the New Zealand sale expected to be completed as at the end of August for a headline price of $5 million) and also sold its marketing services business (OMS) to Ballygriffin for $9 million.

“These asset sales have had a significantly positive impact on Ovato’s Balance Sheet of approximately $48M by the end of August 2021, with an improvement in working capital of $24M together with sales proceeds of $24M. As a consequence, Ovato is in a much stronger financial position to complete further restructuring and to respond to any ongoing impacts of the COVID-19 pandemic.

“On 5th July 2021 Ovato announced its intention to close its letterbox distribution business with effect from 30 July 2021, which is also expected to achieve savings for the Ovato group in FY22.

“FY21 was truly transformational. We have and continue to make the hard decisions necessary to ensure a sustainable future for the Ovato business. Our new management team understands the challenge we have ahead of us and are committed to the effort and excellence it will require.

“We are returning our business to a singular focus and to the thing we do best – print production. When we hold a shared & focussed vision, success will follow. The recent restructuring and recapitalisation have strengthened our balance sheet and provided funds for further transformation and to help us find profitability in the future," Hannon said.

Ovato Australia sales of $358.8M was down $90.5M or 20.1% on the pcp mostly from $67.1M lower print sales, with $49.5M reductions in print catalogues and $19.5M reductions in print magazines & newspapers. “While tier 1 food & beverage catalogue sales were down in H1, sales in H2 were broadly in line with last year,” the company said. “Non food and beverage catalogues were down 38%, driven largely by a major retailer not returning to catalogue printing in FY21. Residential Distribution sales fell 35.8% or $21.7M on lower existing customer volumes as a result of very slow COVID-19 retail conditions.

“Ovato Australia statutory EBITDA (before significant items) at $29.0M was down 7.7% or $2.2M due mostly to lower print and residential distribution revenues from weak retail markets through the continued impact of COVID-19 which was partially offset by VIC heatset site closure savings, tight cost controls and Government wage subsidies.

"Ovato NZ sales at $84.0M was down $6.0M or 7.2% with lower print and residential distribution revenues. Statutory EBITDA (before significant items) at $2.1M was up 69.1% mostly due tight cost controls and Government wage subsidies which offset the impact of lower print revenues.”

Net debt at June 2021 of $39.8M was $33.1M lower versus June 2020. During Q1 FY21, the Asset Secure receivable finance facility  was replaced by a three-year $50 million RFF facility with Scottish Pacific.