The region’s biggest print company Ovato (formerly PMP) reported a net loss of $58m in H1 FY20, with subdued retail conditions hitting newspaper and non-food catalogue volumes and pushing down sales by $34m to $328m. The cost of the company’s site consolidation at Warwick Farm in Sydney has jumped by $10m to $60m due to operational and labour issues.
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| Ovato's Warwick Farm, Sydney site |
Group sales for the half-year ended 31 December 2019 were $328.9 million, down $34.1 million or 9.4% mainly due to $28.8 million drop in sales at Ovato Australia, the company told the ASX. A statutory net loss of $58.3 million was recorded in the first half of fiscal 2020, up $47.4 million on last year. EBITDA was $13.4 million, down $5.2 million or 27.9% pcp. Net debt is $90.9 million.
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"Competitive landscape":
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“While volumes for all tier one food & beverage catalogue customers have remained strong year on year, the first half of FY20 has been negatively impacted by greater than expected volume reductions in newspapers and non-food & beverage retail catalogues aligned to subdued retail conditions,” said Ovato chairman Michael Hannan.
“The competitive landscape has also been challenging with pricing pressure being experienced in recent tender activity and the incurrence of greater than expected disruption costs associated with the NSW site consolidation to ensure all client demands were met. Similar market conditions were experienced in New Zealand with both volume and price reductions impacting on H1 FY20 results.”
Hannan said the cost of upgrading the company’s NSW printing operation had blown out by $10 million.
“The NSW site consolidation progressed well with commissioning of the new 80 page manroland press at Warwick Farm on schedule in November 2019. Moorebank site closed in November 2019 after a number of presses were transferred to Warwick Farm.
“The cash costs of the project are now projected to be circa $60 million (up $10 million) due to a number of one off operational issues during the press relocations from Moorebank to Warwick Farm and commissioning of the new press that resulted in higher site operational costs mainly around labour. Annualised savings by FY21 are expected to exceed $20 million.”
No dividend was declared or paid during the half-year ended 31 December 2019.
A statutory net loss of $58.3 million was recorded in the first half of fiscal 2020 up $47.4 million on last year including a net benefit of $0.7 million from adoption of AASB 16.
Statutory EBITDA before significant items of $25.0 million is up $6.4 million on the previous corresponding period ('pcp') after an $11.6 million favourable impact from AASB 16.
Group sales in H1 FY20 at $328.9 million was down $34.1 million or 9.4% mainly due to $28.8 million drop in sales at Ovato Australia. EBITDA before significant items and pre AASB 16 was $13.4 million down $5.2 million or 27.9% pcp mostly due to $2.5 million lower earnings at Ovato NZ and $2.7 million reduction at Ovato Australia with lower outcomes at Print and Residential Distribution. Marketing Services and Retail Distribution profits were broadly in line versus last year.
Sales at Ovato Australia at $271.7 million, was $28.8 million or 9.6% lower due to lower Print Australia and Residential Distribution sales.
Ovato Australia EBITDA post AASB 16 was $22.3 million. EBITDA pre AASB 16 and before significant items was $12.4 million down $2.7 million or 18.0% from lower results at Print and Residential Distribution. Marketing Services and Retail Distribution were broadly in line versus last year.
Ovato New Zealand sales at $57.2 million was down $5.3 million or 8.5% on 14.2% lower printing tonnes. EBITDA post AASB 16 and before significant items was $2.8 million. EBITDA pre AASB 16 and before significant items at $1.0 million was down $2.5 million or 70.7% mainly from lower heatset revenues and sheetfed revenues. Higher paper costs were offset by favourable price/mix.
Statutory Cashflow from Operations for H1 FY20 was negative $18.4 million post AASB 16. Pre AASB 16 it was negative $28.0 million with $20.6 million of significant items and higher working capital/onerous lease variances year on year. Net cashflow was negative $46.3 million (including AASB 16 lease principal payments of $9.9 million) with capex at $19.1 million (new press and NSW site consolidation).
Net debt post AASB 16 is $204.6 million. Pre AASB 16, net debt is $90.9 million. Net debt to EBITDA pre AASB 16 and significant items rose from 1.1x to 3.5x.
In H1 FY20 the new Commerzbank A$16.9 million loan was drawn down for the new 80 page press at Warwick Farm. A new A$50 million three year Receivables Financing Facility ("RFF") from Asset Secure replaced the ANZ RFF.
IVE Group
Ovato competitor IVE Group has also taken a hit in subdued half year results to 31 December. Revenue fell 4.1% to $360.2m, with Pro Forma EBITDA down 7.8% to $40.1m. Net Profit After Tax (NPAT) was down 7.3% to $17.6m.
“Our business remains robust and diversified though economic conditions were subdued in the first half which is reflected in these results," said IVE executive chairman Geoff Selig.
CEO Matt Aitken added: “We expect the softness in revenue from the retail sector to continue for the second half. Additionally, expenses such as paper prices and energy while stable, remain elevated.”
IVE declared an interim dividend of 8.6 cents per share, fully franked.
