Ovato suffers $108.8m loss as COVID-19 ravages bottom line

One of Australia and New Zealand’s largest heatset catalogue printing and distribution businesses, Ovato, has posted a $108.8 million net loss after significant items and tax for the full 2020 year with CEO Kevin Slaven saying restructuring is needed to better align revenues with the business’ fixed cost base.

Ovato’s total revenue was reduced by 19.4 per cent for the year finishing at $539.3 million, down from $669.2 million for the 2019 year, with the company citing reduced paginations for catalogues due to the pandemic as the main factor in the reduction.

Ovato CEO Kevin Slaven at the official opening of the Warwick Farm supersite

In Australia, revenue declined 19 per cent or $105.7 million to hit $449.3 million.

In New Zealand, revenues declined by 21.3 per cent to $90 million, from $114.3 million in the 2019 year, largely driven by the NZ government’s temporary closure of print operations to stop the spread of the virus.

As at February 2020 year to date sales were at $415 million, nine per cent lower or $43 million down on the pcp across the group. But the onset of COVID-19 greatly impacted sales further as the Australasian retail sector suffered.

Sales revenue in the March to June 2020 period were down 41 per cent or $87 million on the pcp as major reductions in volumes occurred across all key sectors.

Ovato benefited from Australian and New Zealand government wage support to the tune of $12.2 million, while also adding tight cost controls across the business, but this was still not ably to offset the adverse impact from lower revenues.

Enterprise Bargaining Agreement reset

All of this has combined to bring the company to the position of needing to reset its current enterprise bargaining agreement with its substantial workforce.

Ovato has already foreshadowed it is looking to make up to 300 positions redundant across the business.

To do this the company is facing a fight with the Australian Manufacturers Workers Union (AMWU) as it seeks to terminate its current Print Australia Enterprise Bargaining Agreement (EBA) to replace it with what it calls a “more realistic redundancy scale” which is consistent with industry and community standards.

Slaven added that the current Stage 4 restrictions in Melbourne had 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,” he said.

Slaven said Ovato’s revenues are not aligned to the fixed cost base of the business, requiring further restructuring.

“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,” he 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 financial position.”

In other comments, Slaven 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 company said while catalogues had been hit hard by the pandemic, other sectors including retail distribution, books, packaging and marketing services had held up well.

The company also said despite the impacts of the coronavirus pandemic, its commitment to creating a smarter and sustainable business to deliver integrated marketing solutions that turn audiences into customers is undiminished.

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