The share price of magazine distributor Ovato took a significant hit yesterday, falling 39.66% during the trading day.
This was on the back of the company releasing its half year results. In the accompanying investor presentation, the company notes, regarding the latest results, that sales reflect Lower than expected newspaper & magazine volumes. I was shocked reading that. The lower volumes are in line with trend. Who made this projection and on what basis?
Simply Wall Street published some interesting commentary regarding Ovato a few days ago. That commentary includes this:
Ovato is more than a magazine distributor. From where I sit, each division of their business faces significant challenges of disruption and considerable margin pressure.
While I have no crystal ball and seek no ill for the Ovato business and those who work in it, newsagents need to contemplate what their own businesses might look like of Ovato ceased to exist or significantly scaled back its operation.
Yesterday’s share price drop is significant and will play into confidence abut the Ovato business. Urgent and more significant change must be anticipated.
In other breaking news, horse and cart production continues to flatline.
Carts aren’t doing well, but wheels alone were going OK for a while, but they seem to have dropped off now as well…….
No carts, no cars, and a world without wheels, can you imagine that ?
I guess the horse has the last larf 😉
We’re a tad off-track here, but hey, it’s Satdy 🙂
The financial gurus have been called in, debt is up 100% in one year, sales are falling, NZ is a basket case.
It appears the company is at the limit of its borrowing capacity with cash flow still negative.
It’s a worry.
Colin, it will be interesting to see how this plays out. The accounts don’t separate our magazine performance. However, there is sufficient in the CEO/CFO commentary to anticipate that most of the 9.6% YOY decline is attributable to magazines.
I’d be surprised if Ovato is not looking atg\ operating costs, meaning redundancies and structural change. The one day a week delivery, for example, could result in savings.
Mark,
I think “interesting” is the most optimistic stance one could take.
Many will not see the documents you linked to and even the more aware on here may not read through or fully comprehend.
Time for reality, the penultimate sentence in the Auditor’s Review sums the situation up.
‘ …. these conditions …. indicate the existence of a material uncertainty which may cast significant doubt about the ability of the consolidated entity to continue as a going concern”.
Which bits might be saved is an unknown. We will know soon enough.
Yes agree Colin the audit opinion and Note 1 to the 6 month financial report is concerning reading. I am sure Bauer Media & Pacific will be watching closely. I suspect the one day a week delivery could be closer than we think and should enable Ovato and us to achieve significant cost savings. Also hoping that their diversification into other product distribution continues.
I’ve talked about single day a week delivery here and at industry meetings for a year now. I am surprised the move has not been made. In addition to this I expect: small, loss making, accounts to be closed and the bar for small accounts to be raised so more are included, tighter control on returns claims, more digital management and less human contact and back office redundancies.
Gees Mark, I’m trying to give up gluten and you hit me with this
“more digital management and less human contact and back office redundancies.”
Do you mean more or less staff?
Human contact suggests Sale, orders, problem solving which I believe would be hard for newsagents to resolve with digital management as most do not even touch on the digital availability your P.O.S. system offers and if they rid this human contact as well as back end redundancies could this be even worse.
Maybe they need better contact staff as well as redundancies for their back end digital management of data for it’s clearly not working effeciently enough.
Going to one delivery a week isn’t necessarily a cost saving for Ovato and could hamper the Market Hub business they are trying to grow. The cost savings for a one drop a week depend a lot on the contracts with the freight companies. Ovato probably already has the best cost they can get for freight and to get that cost they’d have to have in place some sort of contracts, likely long term ones that aren’t easy to get out of or renegotiating them could leave them worse off.
Thinking that less deliveries would lead to savings in the warehouse could also be wrong. One magazine drop a week means more mags to store for a longer period and then sort. It isn’t a cheap option to redesign a large logistical system and the disruptions that it will probably cause could hurt newsagents.
Payroll is the first thing looked at to save costs and I doubt there is much left to trim as they should have done it by now. Ovato has limited options if they are out of financing options. Try to grow new business like Market Hub and look at other ways to leverage their distribution network. Quit unprofitable business units which could mean selling off magazine distribution to one or several freight companies. Seek out a takeover buyer or merger.
All options and of course the worse one being administration, seem to indicate that some disruption to newsagents is coming.
Now down at 0.025, a drop of 59.016% since Feb. 26.