Covid slashes $130m from Ovato sales

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Heatset print giant Ovato suffered a $130m hit on its sales revenue in the 2019-2020 financial year, as catalogue and publication paginations plummeted. The company's sales fell by 19.4 per cent to $539m, down from $669m in the prior year, as Covid tore through its clients.

Happier times: Michael Hannan (left) and Kevin Slaven at the opening of the Ovatoa supersite at Warwick Farm

Revenue July to February was already 9 per cent down, then the March to June Covid period saw sales tumble by 41 per cent. While printing was smashed, the company says books, packaging, retail distribution and marketing services "held up well".

Nonetheless Ovato CEO Kevin Slaven issued a stark warning that the company needed further restructuring to align revenues with its fixed cost base, to create a "smaller but more agile and profitable company", saying it can't afford current redundancy costs, setting it on collision course with the AMWU, which has condemned the move.

Ovato EBITDA came in 70 per cent lower than last year, shrinking by $21.6m to $9.2m, while debt rose by 63 per cent to $72.9m.

Ovato reported a net loss after significant items and income tax expense of $111.2m. Significant items were employee related costs, press relocation costs, along with writedowns on goodwill, plant, and equipment.

Ovato Australia saw its sales fall by 19 per cent, dropping by $105.7m to $449.3m. Ovato New Zealand fell by 21.3 per cent or $24.3m to $90m. Its Australian EBITDA was down by 56.2 per cent compared to last year to $11.5m, while New Zealand EBITDA fell by $6.9m into a $2.3m loss.

In the first half, Ovato Australia saw a 1 per cent rise in Tier 1 catalogues, that changed to a 21 per cent decline in the second half. Food and beverage catalogues were down by 10 per cent, while non food and beverage fell by a whopping 26 per cent.

Ovato New Zealand went into loss thanks to the government’s Stage 4 shutdown of the economy and a fierce price war with main rival BlueStar.

Ovato is now seeking to terminate its current enterprise bargaining agreement with its staff so it can “restructure at an affordable cost”. It wants to drastically reduce its redundancy costs. The AMWU is strongly opposed to the move. The EBA covers about 850 of the company’s 1300 staff.

Kevin Slaven, CEO at Ovato said, “While our key Tier 1 food and beverage customers continue to use the catalogue channel to promote their products, they are currently at reduced pagination. Covid-19 has had an adverse impact on our business, with print and distribution volumes, and revenues, being significantly below those experienced before the pandemic.

“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. Given a $130m or 19.4 per cent 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.

“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. 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.”

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