Ovato reports half year 2020 net loss of $59m

Ovato’s half year 2020 financial results have revealed a $59 million net loss with the media, marketing, print and distribution giant putting the slide down to competitive pricing pressures, volume reductions in some retail catalogues, non-recurring costs associated with its NSW site consolidation and a non cash goodwill impairment of $35.2m stemming from the IPMG merger.

In a statement on the ASX, the company recorded an EBITDA of $13.4 million, down 27.9 per cent from the previous corresponding period, a 9.4 per cent dip in sales to $328.9 million and a net debt of $90.9 million.

Ovato CEO Kevin Slaven said while volumes for all tier-one food and beverage catalogue customers remained strong year-on-year, the first half of the 2020 financial year was negatively impacted by greater than expected volume reductions in newspapers and non-food and beverage retail catalogues.

“The competitive landscape has also been challenging, with pricing pressure in recent tender activity and the incurrence of greater than expected disruption costs associated with the NSW site consolidation, while we ensured all client demands were met,” Slaven said.

In December 2019, Ovato officially combined its print and distribution operations in NSW with a 35,000 square metre supersite at Warwick Farm.

The company said the move completes its national manufacturing footprint and also accommodates its seven web presses, including the newest investment, a $20 million 80 page manroland Lithoman.

Its Moorebank facility has been closed and production ceased in that site prior to Christmas last year.

“All make-good costs and redundancies relating to this site closure will be completed before the end of the financial year, enabling the company to return to positive cash flows as we move into FY21,” Slaven said.

“The closure of Moorebank will deliver a significant reduction in our underlying manufacturing cost base with annualised savings exceeding $20 million.”

Ovato also outlined its priorities for the coming months as it takes a “cautious stance on the short-term macro outlook” which includes: growing its retail marketing business; optimising publishing; increasing operational efficiency; and creating a robust distribution platform.

It expects soft retail conditions and lower consumer confidence.

“We will continue to execute our margin improvement strategies and control costs to mitigate the effect of the current market conditions,” Slaven said.

“We remain confident of improved profit margins and positive cash flows as we move towards FY21 through a lower manufacturing cost base and higher margin revenues in our evolving data capabilities.

Ovato has also appointed financial advisers to assist in reducing debt levels with initiatives including non-core asset sales, raising equity and other “strategic initiatives” being considered.

At the time of publication, Ovato’s shares were trading at $0.055.

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