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Challenging year for region’s biggest printer Ovato

Ovato posted a loss of $4.4 million for the 2019 financial year, compared to last year’s profit of $1.1m, with its net loss blowing out to $84.3m after the addition of significant items. Sales of $669m were down $64m on lower revenue from Ovato Australia.

kevin slaven ovato
  Kevin Slaven, CEO Ovato

The company said revenues had been hit by a fall in newspaper volumes that was greater than expected, increased competition following the printing alignment between Fairfax and News Corp and softer retail conditions.

An 8.8 percent fall in sales to $669.2m was “primarily driven by a $59m decrease in Ovato Australia revenue,” with lower than expected newspaper and magazine volumes.

On the bright side, the company said its new 80PP press is on schedule for commissioning in November at the new Super Site in Warwick Farm, Sydney, and would generate annualised cost savings of $24m.

“FY19 was a challenging year with reduced revenues leading to a reduction in profitability,” said Ovato CEO Kevin Slaven. “We have reacted with the continuation of our strong cost focus through the consolidation of manufacturing sites in NSW as well as evolving new products and services through our Marketing Services offering. We remain committed to our strategy aligned to client focus and operational efficiency.

“It is encouraging to see that our margin improvement strategies, initially focused at the Australian business, are having a positive impact with Ovato Australia’s EBITDA sales margin holding relatively steady against the prior period at 4.7% as cost savings largely offset lower sales. The Group EBITDA ratio though has fallen from 5.5% to 4.6% mainly due to the disappointing EBITDA result at Ovato NZ, down 57% on lower print sell prices.”

Slaven said the company remains committed to the continual evaluation of its manufacturing operations. “As part of these efforts, we announced earlier this year the closure of the Moorebank site and consolidation of Print and Distribution capabilities into our super-site at Warwick Farm. This project is on schedule and will deliver a significant reduction in our underlying manufacturing cost base. As previously advised, annualised savings of $24m will be generated by FY21 from the NSW site consolidation.

“We take a cautious stance on the short-term macro outlook with expected continued soft retail conditions and lower consumer confidence.”

Looking ahead, Slaven told the ASX that the first half of FY20 would see “the completion of the disruption and negative cash flow associated with the NSW site consolidation with the benefits of this project flowing through into H2FY20 and beyond. 

“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 marketing services products to offset the continued reduction in publishing print revenues.”