Annual report
2019
An integrated print, distribution
and marketing services company.
Paper sourcing
The 2019 Annual Report was designed and printed by Ovato.
The paper used in this report is produced
from responsible sources, is manufactured
under an ISO14001 compliant environmental
management system and uses elemental
chlorine free, FSC® certified pulp.
Paper sourcing
Ovato’s Paper Procurement Policy requires
that all paper used by the company is sourced
in a sustainable and responsible manner
consistent with recognised international
standards. This policy enables our customers
to have a high level of confidence in the
sustainability of their printed communications.
When producing this annual report, Ovato
applied the following additional criteria:
•
Support paper suppliers who
are striving to achieve the highest
sustainability targets;
•
Insist on FSC® Certified paper.
Contents
Overview
Company Profile .............................................................................................. 3
Chairman’s Review .......................................................................................... 8
Chief Executive Officer’s (CEO) Review .............................................. 14
Financial Report
Directors’ Report .......................................................................................... 20
Remuneration Report ..................................................................................33
Independent Auditor’s Declaration ...................................................... 42
Chief Financial Officer’s (CFO) Review ............................................... 44
Financial Statements
Consolidated Statement of Profit or Loss
and Other Comprehensive Income ....................................................... 46
Consolidated Statement of Financial Position ..................................47
Consolidated Statement of Cash Flows .............................................. 48
Consolidated Statement of Changes in Equity ................................ 49
Notes to and forming part of the Financial Statements .............. 50
Directors’ Declaration.................................................................................101
Independent Auditor’s Report ...............................................................102
Five Year Summary.....................................................................................107
Shareholder Information ......................................................................... 108
Share Register Information .................................................................... 109
Ovato Limited
ABN 39 050 148 644
Registered Office:
Level 4, 60 Union Street
Pyrmont NSW 2009
Tel: 02 9412 6111
ovato.com.au
Annual General Meeting
The Annual General
Meeting will be held at
11.00am, 21 November 2019 at:
Deloitte Touche Tohmatsu
Level 9, Grosvenor Place,
225 George Street, Sydney,
NSW 2000
Details of the business of the
meeting are contained in the
Notice of Meeting.
Investor Information
Shareholders requiring information
should contact the share registry
or Chief Financial Officer:
Geoff Stephenson
Tel: 02 9412 6111
geoff.stephenson@ovato.com.au
ASX Code OVT
Share Registry
Computershare
Investor Services Pty Ltd
Level 5, 115 Grenfell Street,
Adelaide SA 5000
GPO Box 1903, Adelaide SA 5001
Enquiries:
Within Australia: 1300 556 161
International: +61 3 9415 4000
computershare.com
Board of Directors
Chairman
Matthew Bickford-Smith
CEO/Managing Director
Kevin Slaven
Non-Executive Directors
Michael Hannan
Dhun Karai
Andrew McMaster
Terry Sinclair
Wai Tang
1
2
Ovato
Company profile
We are Ovato: Australasia’s leading media, marketing and printing company. We bring
experience, expertise and scale to the challenges facing modern marketers. We turn
audiences into customers.
Our core strengths can support businesses across four main pillars of Print, Distribution,
Production, Agency.
Our expertise producing and distributing catalogues, magazines, marketing materials
and messages both physically and digitally has enabled us to develop a range of
integrated marketing solutions that help our clients understand, reach and capture
their audience’s interest.
Our vision
We are creating a smarter and sustainable business to deliver integrated marketing
solutions that turn audiences into customers.
Our values
Efficiency
Effectiveness
Integration
Speed to market for our
clients’ marketing
Improving the impact of
your campaigns
Multiplying the effect of
your message
Our co-located print and
distribution capabilities
allow our clients to make
decisions a day closer to
their message being in
market. We give them
back time. We’re building
them an even greater
advantage with workflow
and asset management
solutions that drive this
advantage upstream.
We know our letterbox
deliveries drive retail results.
Now, we have partnered
with leaders in data to build
compelling insights for our
clients, better targeting of
their customers, and precise
measurement for each of
their campaigns.
Our abilities extend far
beyond print and distribution,
offering production and
agency capabilities that
boost our clients’ existing
marketing investment.
We can also work in close
partnership with their roster
of media and creative
agencies to build value
around their brand.
3
Our capabilities
Around our core offer of Print and Distribution,
we give modern marketers the tools and services
to reach audiences and turn them into customers.
We offer an unmatched breadth of solutions for
businesses to understand, reach and inspire the
consumers that matter to them.
While our capabilities are diverse, we have a single-
minded focus on delivering quality outcomes for our
clients. Building on the physical processes of print
and distribution, our Production capabilities deliver
increased efficiency and effectiveness, while our
Agency capabilities give our clients inspired ideas to
keep customers coming back for more.
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4
Company profile
Print
Distribution
Production
Agency
We are the largest printer
operating across Australia
and New Zealand. We
produce more than
230,000 tonnes each year.
Our capabilities lead the
market. If our clients need
a physical touchpoint,
instore or in the hands of
customers – we are ready
to help.
“
A catalogue printer is
judged by their reliability
and, in the 20 years
Ovato have been printing
Bunnings catalogues
for us, they have never
missed a delivery.
”
Rosie Willis
Print Production Manager
The Brand Agency
Our agency capabilities
bring strategic thinking,
creative direction and
inspired ideas to our
clients’ marketing
challenges. We can
provide fully integrated
campaigns combining all
our capabilities or deliver
stand-out success on
a narrower brief.
Whatever you need to
say, our agency teams
can help them find a
special connection with
their audience.
“
I’m constantly impressed
at how quickly and
effectively the team has
risen to the challenge of
providing a full range of
comms support for the
combined Dell business in
ANZ. I consider them an
extension of my team.
”
Kirsty Matta
Head of Communications
ANZ
Dell Technologies
Each week, our walk force
can deliver our clients’
message to almost eight
million Australasian homes.
Each step gives them a
powerful lever through
the letterbox to drive
customers instore or online.
Our extensive on-site
mailing connections allow
clients to address each of
their customers by name.
Our trucks extend reach
even further, delivering
magazines and retail
merchandise to 11,900
retail outlets.
“
Yaffa Media has enjoyed
a solid and enduring
relationship with the Retail
Distribution business for
over 60 years. Much has
changed in the media
landscape over that time,
but they have maintained
a consistent, high quality
service. The team who
work with General
Manager, David Hogan, are
knowledgeable, efficient
and good communicators.
”
Tracy Yaffa
Managing Director
Yaffa Media
We work with Australia’s
best-known brands to
tackle the challenges of
scale. We put our people,
processes and programs
around our clients’
marketing workflow to
deliver the highest quality
outcomes, in the most
efficient manner. Whether
they’re looking to augment
their current solution or
replace it entirely – we’ve
got them covered.
“
We have worked with
the Ovato team on our
magazines and catalogues,
pre-press, post production
and distribution over many
years. We do so because
we believe they’re the
best, and because we
believe there’s strength in
long-term relationships.
We know that our partners
at what is now Ovato are
always looking around
the world at the different
ways that things are being
done in order to share best
practice with us. They do
this without losing track
of what’s important on
the ground at home:
the shared belief that
good people and
relationships are at the
heart of good business.
”
Mark Muller
Editor-in-Chief R.M.Williams
Publishing Pty Ltd
55
Our difference
Innovation
We bring more than 165 years of
experience, the scale of Australasia’s
largest of integrated print, distribution and
marketing services business; and a wealth
of proven and innovative solutions to bear
on our clients’ marketing challenges.
We have invested in game-changing
solutions and partnerships that double-
down on the marketing activities our
clients have in market.
We have established a dedicated
innovation team that can help to apply
insights and build testable concepts that
turn audiences into customers.
Customer centricity and the talent
that supports it is our everything
Our customers’ loyalty is only possible
because of the outstanding relationships
that our employees have built with them.
Our talent reflects both our legacy and
our eye on the future. Many members of
our team are in their third decade with the
company and our youngest employee was
born beyond 2000.
Experience is enhanced by more recent
team members with new skills and
apprenticeship programs that will build
our talent pipeline for decades to come.
Ovato works with leading brands,
providing them with one of the only
marketing channels that hasn’t been
fragmented – namely our residential
distribution network able to reach
over 8 million homes across Australia
and New Zealand.
We also work with publishers, printing
and distributing catalogues, magazines,
newspapers and printing books. Our
business has shared the disruption that
has changed these industries and we are
working as partners to build the models
needed to sustain and evolve them.
Our service offering is like no other
Ovato’s unique positioning has grown over the past year, as a company with:
• A clear attribution model for the
catalogue channel linked to
transactional data;
• An Advertising Production System that
automates retailers’ workflows, saving
them time and money;
• A suite of Marketing Services
• A national footprint of print sites,
businesses that can help customers
with their marketing strategy, creative
development, photography, layouts,
colour management, proofing, image
retouching, data asset management,
content creation, digital deployment,
audience engagement and
marketing automation;
ensuring the most timely and efficient
production of printed material at scale;
and access to over 11,900 retail locations
via our retail distribution network;
• The ability to reach 8 million households
via their letterboxes with our residential
distribution network.
6
Company profile
Ovato can take a
marketing idea from
concept to letterbox
— our service offering
is like no other.
7
Ovato is now a fully integrated
print, distribution and
marketing services company,
and an effective marketing
partner for leading retailers.
88
Chairman’s review
Matthew Bickford-Smith
Chairman
Dear Shareholders
Our earnings and absolute cashflow
generation were disappointing this
year. The first six months showed great
promise, with earnings at close to budget
and all our top 30 accounts tracking
at or above our expectations from a
volume perspective. This positive trend
continued into the first half of the third
quarter. However, as we approached
the federal election in May 2019, we
saw a pronounced drop in short-run
retail volumes, in addition to a dramatic
pullback in volumes across the publishing
sector. Our large retail food and beverage
clients continued to perform well, but this
highlight and tight cash control were not
enough to prevent a hard pullback of our
full year earnings expectations.
By the time you receive this report almost
all offset web print capabilities in New
South Wales will have been combined at
our Warwick Farm site and we will close
our Moorebank site. This is the last of the
large production synergies made possible
by the merger of PMP and IPMG, and we
have chosen to dramatically bring forward
this project to balance softer demand
outside of our largest retail clients.
As previously advised, annualised
savings of $24M will be generated by
FY21 from the consolidation. This project
is being monitored closely by both
management and the board of directors.
It is on schedule for milestones and the
equipment moves, but there are some
additional short-term costs incurred
during this period of disruption as
customer service is maintained.
Net debt will increase in FY20 as the
new press and NSW site consolidation
spend is completed. This final stage of
our consolidation of operations from
three sites to a super site at Warwick
Farm allows for the retirement of older,
less efficient presses and a significant
headcount reduction. Cash flow is
expected to return to positive territory
as we head towards FY21 with the
major restructuring costs behind us
and maintenance capital expenditure
to remain at circa $5M p.a.
9
Overview
FY19 Key Financials
$M
Sales Revenue
EBITDA1 (before significant items)
Depreciation and Amortisation
EBIT (before significant items)
Net (Loss)/Profit after Tax (before
significant items)
Significant Items Post Tax2
Loss (after significant items)
Cash flow from operating activities
Net Cash Flow3
Net Debt
EBITDA to Sales Revenue percentage
Net Debt / EBITDA3
FY19
669.2
30.8
(28.6)
2.2
(4.4)
(79.9)
(84.3)
(19.2)
(12.4)
(44.7)
4.6%
1.4 x
FY18
734.0
40.6
(31.3)
9.4
1.1
(44.9)
(43.8)
(6.1)
(12.6)
(32.8)
5.5%
0.8 x
Var %
(8.8%)
(24.1%)
8.4%
(76.3%)
-
-
-
-
1.0%
-
-
-
1. Before Significant items.
2. FY19 includes ($63.6M) of significant
items before tax and an ($19.8M)
impairment of deferred tax assets,
$(14.9M) of tax losses not brought to
account partially offset by $18.7M of
tax benefit on significant items and
($0.3M) of adjustments to prior year
tax losses not recognised.
3. Net Cash Flow equals Cash Flow from
Operations and Investing Cash Flows
and proceeds from issue of shares.
Ovato Australia revenue fell 9.6% over
the course of the year. Success in Retail
Distribution and Marketing Services was
offset by lower than expected EBITDA
across Print and Residential Distribution.
Strong cost savings at Print offset much of
the impact from lower volumes and higher
input costs we experienced across FY19.
Ovato New Zealand experienced a year
of difficult conditions, where revenue
fell 4.8% on a reduction of print volumes
by 4% compared to the previous year.
EBITDA fell 57% mainly due to large
contract renewals at lower sell prices in
a characteristically competitive market.
Increased competition also meant that
increases in paper prices were not able to
be recouped.
10
Chairman’s review
Ovato continues to play a leading role
in balancing production and demand to
establish a sustainable and rational market
for print in Australia.
The commitment we made to data last
year is beginning to show a return. We
have a range of clients committed to both
targeting and measurement of the return
on investment (ROI) of the catalogue.
This aspect of our strategy is crucial in
evolving our channel and the way clients
use print. The ability to define ROI for
print campaigns and use data to improve
it has opened opportunities in FMCG and
online, adjacent to our core retail and
publishing client base.
Your Board continues to evolve with the
appointment of Andrew McMaster and the
departure of Wai Tang.
Andrew McMaster has extensive
experience in both finance and
governance. Andrew spent 36 years with
KPMG, ultimately as a Partner in their
audit practice and helped transform
Service NSW in his role as CFO. Andrew
also serves as a Director of Netball NSW,
a return to governance of sport after a
22-year stint on the board of the Sydney
Swans. Following his election to the
Board, Andrew was appointed as Chair
of the Audit and Risk Committee and
the Chair of the NSW Site Consolidation
subcommittee.
The Board was sorry to lose the service
and vast retail experience of Wai Tang
in September, following her resignation.
Unfortunately, due to personal reasons
and with her increasing commitments
on other public company boards, Wai
determined that she was no longer able
to continue as a director of Ovato. Wai’s
insights in the retail market, particularly
around the ever-increasing impact data
plays in determining marketing spend will
be sorely missed.
During the year Wai chaired the
Growth and Innovation Committee, a
committee which provided a forum for
determining areas of growth driven by
digital technology and data science that
are aligned to Ovato’s retail strategy
and provided an interface between
management and the Board to report
on the Company’s progress in achieving
growth from digital technology and
data science.
Warwick Farm site
Ovato continues
to play a leading
role in balancing
supply and
demand.
11
The most significant corporate
development this year was the rights issue
in the last quarter, where the company
offered one new share for every 2.3
shares. Underwritten by our core investors
and with the support of retail investors,
the rights issue provided additional
liquidity by reducing leverage and
providing additional financial flexibility
to the company, enabling the earlier
completion of the NSW site consolidation
previously mentioned.
The year ahead will undoubtedly provide
its share of challenges. Especially
as we bed down the final stages of
the NSW site consolidation project
which will completely transform
our cost base and effectiveness in
the Australian print market. Despite a
much-improved industry environment, we
still are experiencing strong competitive
behaviours, such as very targeted and
keen pricing.
FY20 will be a breakthrough year for
Ovato, which many shareholders will
say has taken too long to materialise.
In FY20, the Board will be totally focused
on three issues. Firstly, the successful
conclusion of the NSW site consolidation.
Secondly, ensuring we have the best
possible management we can in key
operating roles. Finally, that our balance
sheet retains flexibility and all available
cash goes to reducing debt levels.
It goes without saying that we continue
to strive for a better result and focus on
delivering an efficient manufacturing base
that can support a profitable business.
Matthew Bickford-Smith
Chairman
FY20 will be a
breakthrough
year for Ovato.
12
“
We continue to be impressed with Ovato’s
commitment to innovation and agile approach to
printing, given the ever-changing environment.
We believe it is important to partner with a
company that is focused on setting up strong
foundations for future success. In light of this
we are really pleased to continue working with
Ovato and getting the best new books into the
hands of Australian readers.
”
Gavin Schwarcz
Director, Sales & Operations, Penguin Random House
1313
Your company has
come together under
the Ovato brand.
14
CEO’s review
Kevin Slaven
Chief Executive Officer
Your company has come together under
the Ovato brand and is finding new
opportunities with our clients and in the
categories adjacent to large scale retail.
We are doing a better job of delivering
the benefits our scale affords to our
clients, with less complexity. Our focus on
consolidating our sites and driving cost
savings in NSW is coming to its end and
we are well positioned to capitalise on this
momentum in FY20 and beyond.
I started my report last year expressing
gratitude for the opportunity to lead
this company, our people and take the
challenge of leading change for our
business and industry.
A year on, the Ovato team has made
real change and I am proud of what
we have been able to achieve together.
I remain engaged and grateful for the
opportunity that leading the new Ovato
business delivers. We have challenges
still to meet, but we have shifted our
mindset and accepted and undertaken
the necessary changes in the way we
operate and deliver the best product for
our clients’ marketing objectives.
It has been encouraging to see that our
margin improvement strategies, initially
focused at the Australian operations, are
having a positive impact. Ovato Australia’s
EBITDA*/sales margin held relatively
steady against the prior period at 4.7% as
cost savings largely offset lower sales. At
a Group level, our EBITDA ratio though
has fallen from 5.5% to 4.6% mainly due
to the disappointing Ovato NZ result, with
EBITDA down significantly on lower print
sell prices.
It has been another challenging year
with the disruption of our NSW site
consolidation and continuing headwinds
in the retail and publishing environments,
but we have come through it in a stronger
position. One of our enduring skills as
a business is our ability to balance a
diligent focus on cost reduction while
still delivering the best possible result
for our clients.
The new 80-page press will shortly be
commissioned and will enter full service
before the end of the current busy season.
The significance of this investment in
allowing us to more efficiently print for
the largest catalogue clients in the market
cannot be overstated. It also brings new
options for our clients to address their
marketing challenges, particularly the
ability to deliver greater customisation of
versions without sacrificing the benefits
of scale.
Lowering our net debt will be a
principal focus in the second half of
the year ahead, as the benefits of the
NSW site consolidation and reduced
capacity are felt, and we see a return
to positive cash flow.
Internally, we are focused on our people.
My talented executive team are leading
change at tremendous scale across our
business. I believe my role is best served
by giving them both the challenge to take
on tasks that are sometimes bold and
difficult, and the support to enable them
to use their skills and experience in the
best way.
*Before Significant Items.
15
Julia Farrant, who joined the executive
team last year has excelled in helping us
to create the best structures for our
business and has been leading her team in
building out the framework for the values
and culture that supports both our people
and the plans we have as a business.
Julia’s work builds on our decision to
rebrand the company in February. Our
shift to becoming Ovato has been a
success. We used the strength of our
internal teams wherever possible, only
incurring external costs in the changes
to physical signage across our unique
national footprint in both Australia and
New Zealand.
We have also made a significant addition
to our leadership team with the creation
of a Corporate Development role to
continue to drive change and explore
and implement broad opportunities across
our business.
We have renewed our voice in the market.
We communicate more regularly to our
clients and other stakeholder audiences.
These marketing efforts have generated
more than 500 new business leads since
our brand launch in February. We have
printed and distributed a catalogue for
eBay in the last quarter of FY19, the first
online retailer to follow an emerging
global trend of using physical print as
a powerful and cost-effective driver of
online sales. We have also found new
work in FMCG, leveraging insight from
the supermarket register to drive trials
through the letterbox with a significant
and measurable impact on sales.
Clients continue to shift between
the players in the market and the
ever-increasing number of channels
offering connections to different
audiences. Our strategy of focusing
on our high-volume customers,
catalogues and cost competitiveness
is working and we have clients who are
characterised by their ambition and scale.
My talented
executive team
are leading
change at
tremendous
scale across
our business.
16
CEO’s review
Our operations
Darwin
Cairns
Brisbane
Perth
Adelaide
Sydney
Auckland
Melbourne
Hobart
Christchurch
NSW
VIC
TAS
SA
QLD
WA
NT
NZ
Web Presses
Digital Presses
Sheetfed Presses
Bindery
Mailhouse
Distribution
- Current operations
•
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17
We have made significant investments
in both data and bringing our Advertising
Production Suite (APS) to market. The
APS is our workflow and production
management tool. This software-as-a-
service solution allows Ovato clients
to manage the conception, design and
approvals of advertising, and leverage
more than 20 years of evolution and
experience we have in supporting clients
through these retail intensive challenges.
We have built on our understanding of
the data we hold in the business. Large
sets of data and creative variation exist,
and we have been focused on making
these both useful and accessible for our
clients and our business. Working with
Quantium has allowed us to enrich this
data with perhaps the most useful retail
response method that exists; the purchase
behaviour of consumers. We have
conducted historical studies that show
defined increase in spend by audiences
exposed to the catalogue by between
four and eight percent. We can prove the
return on an investment in catalogues
and provide significant recommendations
based on that data to drive an improved
result. A priority for the coming year
is taking this programmatic approach
vigorously to market with our clients.
Looking towards next year, there is
much to keep us cautious. The slowing
of retail and lower consumer confidence
looks likely to deliver continued impacts
on our retail client base. We are more
prepared than we have ever been to help
them make better decisions about their
marketing spend and are able to support
clients as marketing budgets and our
clients’ businesses feel the pressure.
Our strategy of focusing our efforts
on our largest customers has been
validated, with volumes and spend
by Tier One Food & Beverage clients
remaining in line with our expectations.
We are also finding new opportunities
with customers who turned away
from print in search of better data
and measurement and extending our
relationships upstream to FMCG brand
owners who sell through our traditional
retail clients.
Our teams are focused on the challenges
that lie ahead. We share a passion for the
craft and capabilities that have defined
our business over the last decades. We
have shown the benefit and impact
our core channels bring, and we are
amplifying our understanding of data and
analytics to deliver value and insights to
our clients. We are building the next wave
of retail marketing tactics and techniques
with the largest retailers across Australia
and New Zealand. We are ready for the
challenge and excited about the change
we will drive over the next year.
Kevin Slaven
Chief Executive Officer
and Managing Director
18
Environment and safety
Health and safety
Our commitment to keeping
people safe is a core value of Ovato
through key priorities detailed in
our health and safety strategy of:
“Working Safe, Living Well,
It’s ALL About ALL of You”
headlining our HSEQ initiatives
and communications.
• Visible leadership – building
on a continuous improvement
of safety culture through
engagement and participation
at all levels of the business
•
Eliminating repeat incidents
– a well embedded process
for shared learning from
incidents and developing
business-wide solutions
• Health and Safety standards
– progression of our safety
management system to
ensure suitable design and
practical implementation
• Wellbeing – that our team
members are fit and well
for work and returning home
safely is our primary goal
The implementation of this strategy
is achieved through continuous
improvement plans and monitoring
performance of these plans.
We have launched a new internal
brand and logo for HSEQ, bringing
together initiatives that encompass
Health, Safety, Environment
and Quality under our message,
The introduction of a new
enterprise risk management
platform implemented in January
of 2019 has improved our reporting
and transparency of data and
will assist us to analyse our
performance, identify trends, track
progress and further enhance our
safety strategy.
The principal focus during the
period was on systems and
processes that manage the hazards
associated with high risk permits,
specifically confined space
and hot work, and a focus on high
risk activities, specifically forklift
safety through our Forksafe
program addressing forklift safety
across all sites.
Contractor safety has been another
area of high focus throughout
the NSW site consolidation
project. Maintaining a high level
of communication between
site operations and contractors
has been key to our success,
particularly during high risk works
on items such as; standards for
permits, housekeeping, isolations,
working at height, building works
and equipment transfers.
External audits continue to be
used to provide valuable insights
into the operation of our safety
management system and to check
the effectiveness of their operation.
We track our improvement
progress through the TRIFR (total
recordable injury frequency rate),
which is calculated based on the
number of recordable injuries
for every million hours worked.
This year, TRIFR was 10.09
down from 14.23 with the
business achieving a better
than planned reduction.
While this is a significant
improvement, there is more
work to be done as we continue
to apply a year on year 20%
reduction target.
Our improvement in safety
performance has improved
significantly over the past 2 years
and is driven by a commitment
that is supported through a
focused strategy and program
of continuous improvement.
Occupational health and safety
Greenhouse gas (GHG) emissions
FY18/19
FY17/18
TRIFR*
10.09
14.23
* Total Recordable Injury Frequency Rate.
Ovato’s comparable year-on-year Greenhouse Gas
(GHG) emissions reduced in FY19. Ovato will continue
to pursue energy efficiency measures across all
businesses to further reduce our overall emissions.
)
T
K
(
s
n
o
i
s
s
i
m
e
G
H
G
150
100
50
0
2019
105
2018
139
2017
156
2016
83
2015
84
2014
94
19
Directors’ report
For the year ended 30 June 2019
The Directors of Ovato Limited (referred to as “Ovato” or “Company”) submit their
report and the Company’s consolidated financial report for the year ended 30 June
2019 and the Auditor’s report thereon. Throughout the report, the consolidated entity
is referred to as the Group.
Matthew Bickford-Smith
Kevin Slaven
BCom, CA, GAICD
Dhun Karai
B Comm, MBA, CA ANZ, MAICD
CHAIRMAN
Appointed 2 June 2009
MD AND CEO
Appointed 27 February 2018
NON-EXECUTIVE DIRECTOR
Appointed 1 June 2016
Mr Bickford-Smith has been an
independent Non-Executive Director
of Ovato since 2009 and has been Chair
of the Board of Directors since 2012.
He has been a member of the Audit
and Risk Management Committee
since 2010. He has been a member of
the Appointments and Compensation
Committee from 2009 and is Chair of
that Committee.
Mr Bickford-Smith is also a Director
of Eastern Agricultural Australia.
Mr Bickford-Smith was previously Chief
Executive Officer of Ridley Corporation
Limited from 2000 to 2007. He was
previously with the Man Group and was
Managing Director of the Australian
operations from 1996 to 2000.
Mr Bickford-Smith has extensive
commercial experience within finance,
manufacturing, risk management
and strategy.
The Board of Ovato appointed Mr Slaven
as Managing Director (“MD”) and
Chief Executive Officer (“CEO”)
on 27 February 2018.
Prior to this he acted as interim CEO
of Ovato following the retirement of
Mr George on 30 November 2017.
Mr Slaven joined Ovato in March 2017
as CEO of Distribution and Marketing
Services following the merger with
IPMG Group.
A graduate member of the Australian
Institute of Company Directors and
Institute of Chartered Accountants,
he was appointed CEO of IPMG in
July 2013 after originally joining the
business in 2000 as Chief Financial
Officer (“CFO”) and Company Secretary.
Prior to that he worked in the chartered
accounting profession and then
subsequently in key commercial roles,
including as Commercial Manager
of CSR Timber and CFO of leading
information technology distributor
Tech Pacific.
Mr Slaven has extensive experience
in manufacturing, publishing, marketing,
business development and strategic
planning. He is experienced in managing
people and businesses through
significant change. He is currently
Chair of the Real Media Collective.
Ms Karai has been an independent
Non-Executive Director since 1 June
2016. Ms Karai was a member of the
Audit and Risk Management Committee
(“ARMC”) from 1 June 2016 to 30 May
2019. She was Chair of the ARMC from
26 August 2016. Ms Karai has been
a member of the Appointments and
Compensation Committee from
31 May 2019.
Ms Karai’s experience spans over
20 years in senior executive roles
in financial services, customer
engagement, digital / new products
development, internal audit and
risk management, initiating major
transformational projects in Australia,
New Zealand and the UK. Ms Karai held
the position of Chief Manager Personal
Markets with the Commonwealth Bank
and for over ten years as the Head of
Group Financial Services at Woolworths
spearheading its banking services,
digital partnerships, customer loyalty
and data-driven marketing initiatives.
Currently Ms Karai is a Partner at
Grant Thornton Australia.
Ms Karai’s other directorships have
included being a Non-Executive Director
of eftpos Payments Australia Limited
and GI Technology Private Limited.
Her committee memberships have
included the Australian Payments
Council, the National Financial
Literacy Program and the International
Merchants Advisory Group (USA).
20
1. Directors
The Directors of Ovato during the financial year were:
CHAIRMAN
Matthew Bickford-Smith
MANAGING DIRECTOR (“MD”) and
CHIEF EXECUTIVE OFFICER (“CEO”)
Kevin Slaven
NON-EXECUTIVE DIRECTORS
Dhun Karai
Michael Hannan
Wai Tang
Terry Sinclair
Andrew McMaster (appointed 4 October 2018)
Michael Hannan
Wai Tang
BAppSc, MBA, GAICD
Terry Sinclair
MBA, GradDipMgmt, MAICD
Andrew McMaster
BCom (Hons), CA
NON-EXECUTIVE DIRECTOR
Appointed 1 March 2017
NON-EXECUTIVE DIRECTOR
Appointed 10 October 2017
NON-EXECUTIVE DIRECTOR
Appointed 10 October 2017
NON-EXECUTIVE DIRECTOR
Appointed 4 October 2018
Mr Hannan has been a Director since
1 March 2017, following the merger
of IPMG Group with Ovato (formerly
PMP). Mr Hannan was a member of
the Appointments and Compensation
Committee from 31 May 2017 to
30 May 2019.
Mr Hannan was instrumental in taking
IPMG into printing in the early 1970s
and in the early 1980s into heatset
printing and throughout that time
continuing to drive the development of
its community newspaper group and its
consumer magazine empire.
Under Mr Hannan’s Chairship, IPMG
had the largest group of privately owned
print and digital marketing services
businesses in the southern hemisphere.
He also has responsibility for significant
Hannan family interests including
industrial, commercial, rural and
property portfolios together with
other key investments.
Ms Tang has been an independent
Non-Executive Director of Ovato since
10 October 2017. Ms Tang has been
a member of the Appointments and
Compensation Committee since
1 December 2017. On 10 September
2019, Ms Tang resigned as a
Non-Executive Director of Ovato.
Ms Tang has extensive retail industry
experience and knowledge gained
through senior executive and board
roles. Her former senior executive roles
included Operations Director for Just
Group and Chief Executive Officer of
the Just Group sleepwear business,
Peter Alexander. Prior to joining the
Just Group, Ms Tang was General
Manager of Business Development for
Pacific Brands. Ms Tang was also
co-founder of the Happy Lab retail
confectionary concept.
Ms Tang is a Non-Executive Director of
Vicinity Limited, JB Hi-Fi Limited and
Metcash Limited (appointed 1 August
2019). Ms Tang is a member of the Visit
Victoria Board and is Deputy Chair of
the Melbourne Festival. Her former
directorships include Specialty Fashion
Group, kikki.K Pty Limited and the
Melbourne Fashion Festival. She holds
a Master of Business Administration and
a Bachelor of Science degree.
Mr Sinclair has been an independent
Non-Executive Director since 10
October 2017. Mr Sinclair has been
a member of the Audit and Risk
Management Committee since
1 December 2017.
Mr Sinclair has extensive experience
across industrial, resources and
consumer services sectors including
20 years in senior management roles
in BHP (Minerals, Steel and Transport/
Logistics) and 10 years with Australia
Post (Logistics and Corporate
Development). He was previously the
Managing Director of Service Stream
Limited, Chair of AUX Investments
(jointly owned by Qantas and Australia
Post), Director of Sai Cheng Logistics
(China) and Director of Asia Pacific
Alliance (HK).
Mr Sinclair is a Non-Executive Director
of Cleanaway Waste Management
Limited, Zoom2U Pty Ltd and GMDx
Group Limited. He is also a member
of various advisory boards for private
equity ventures in e-commerce and
technology/ infrastructure. He holds
a Master of Business Administration,
a Graduate Diploma in Management
and tertiary qualifications in Mining,
including surveying.
Mr McMaster joined the Board of
Ovato as a Non-Executive Director on
4 October 2018. Mr McMaster was
appointed a member of the Audit and
Risk Management Committee on
22 February 2019 and Chair from
31 May 2019.
Mr McMaster has extensive professional
financial and accounting experience,
including 27 years as a partner of
KPMG.
During his professional accounting
career, experience was gained with a
wide range of clients in the public and
private sectors including extensive
experience in the printing, publishing,
distribution and retailing industries,
and in all aspects of governance and risk
services, with a focus on assurance,
risk management and financial advisory.
Mr McMaster was the inaugural
Chief Financial Officer of Service NSW
for five years, directly involved in all
aspects of the design and building of
the cultural, structural, governance
and financial foundations of Service
NSW as an executive agency of the
NSW government.
Mr McMaster was a Director of
Sydney Swans Limited for 22 years
until February 2017. He was also a
Director and Treasurer of The Bradman
Foundation and the Bradman Museum
Trust from 1996 to 2006. He is currently
a Director of Netball NSW.
21
2. Directors’ and Executives’ Disclosures
The disclosures required for Director share holdings and Director and Executive
remuneration are included within the Remuneration Report.
3. Company Secretary – Qualifications & Experience
Alistair Clarkson B Com, LLB, MBA, ACIS, GradDipACG
Mr Clarkson was appointed Company Secretary of Ovato Limited on 24 April 2009
and has been Company Secretary of Ovato’s subsidiaries since December 2005.
He is accountable directly to the Board, through the Chair, on all matters to do
with the proper functioning of the Board.
Mr Clarkson holds a Bachelor of Commerce, a Bachelor of Laws, a Masters
of Business Administration and a post graduate diploma of Applied Corporate
Governance. He is an associate of the Institute of Chartered Secretaries and a
member of the Law Society of NSW.
As Company Secretary of Ovato, Mr Clarkson is responsible for managing the
Company’s corporate governance framework, its continuous disclosure and listing
rule compliance and managing all matters relating to the Company’s Board of
Directors and Board Committees.
Mr Clarkson has been Corporate Counsel for Ovato since 2001 and General Counsel
since 2009. Prior to joining Ovato, Mr Clarkson was an associate at a law firm in
New Zealand.
4. Directors’ Meetings
The number of Directors’ meetings
(including meetings of Board Committees)
and the number of meetings attended by each of the
Directors of Ovato during the financial year were:
Matthew
Bickford-
Smith
Kevin
Slaven
Michael
Hannan
Dhun
Karai
Terry
Sinclair
Wai
Tang
Andrew
McMaster
Board of Directors
Audit & Risk
Management
Appointment &
Compensation
Attended
Maximum possible attended
Attended
Maximum possible attended
Attended
Maximum possible attended
21
22
4
4
9
9
21
22
20
22
8
8
20
22
3
3
1
1
19
22
4
4
17
22
9
9
14
15
1
1
Table 1. Directors’ Meetings.
Directors may attend Committee meetings but where not Committee members, their attendance is
not recorded.
Mr McMaster appointed to the Board of Directors on 04/10/18. Appointed as a member of the
Audit & Risk Management Committee on 22/02/19.
Ms Karai resigned as Chair of the Audit & Risk Management Committee on 30/05/19; Mr McMaster
appointed as Chair of the Audit & Risk Management committee on 31/05/19.
Mr Hannan resigned from the Appointments and Compensation Committee on 30/05/19; Ms Karai
appointed as a member of the Appointments and Compensation Committee on 31/05/19.
Wai Tang took a leave of absence for the 5 board meetings missed due to personal reasons.
other than measurable objectives for achieving gender diversity were not set and
Mr McMaster being Chair of the Audit and Risk Management Committee is not an
independent Director by virtue of being nominated as Director by the Hannan family.
The Board of Directors approved the Corporate Governance statement on 28 August
2019, with this being the effective date for that statement.
5. Corporate Governance Statement
Ovato believes that high standards of corporate governance practices through
effective oversight, risk management and transparency are a critical prerequisite
of a successful Company and is intrinsically linked to creation of value. The core
principles of good corporate governance that Ovato has based its corporate
governance framework on are:
• Ethical business conduct;
• Responsible management and remuneration;
• Sound financial reporting and risk management; and
• Appropriate communication and disclosure.
Ovato’s corporate governance framework is designed and implemented to accord
with the best practice recommendations set by the ASX Governance Council’s
Corporate Governance Principles and Recommendations (“ASX Principles”) where
practicable. The table on the following page indicates where specific ASX Principles
are dealt with within this Statement. Ovato has followed the recommendations
22
For the year ended 30 June 2019Directors’ report
1.5
1.6
1.7
Recommendation
Principle 1 — Lay solid foundations for management and oversight
1.1
1.2
1.3
A listed entity should disclose: (a) the respective roles and responsibilities of its Board and management;
and (b) those matters expressly reserved to the Board and those delegated to management.
A listed entity should: (a) undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for
election, as a Director; and (b) provide security holders with all material information in its possession relevant to a decision on whether or
not to elect or re-elect a Director.
A listed entity should have a written agreement with each Director and senior executive setting out the terms of their appointment.
1.4
The Company Secretary of a listed entity should be accountable directly to the Board, through the Chair, on all matters to do with the proper
functioning of the Board.
A listed entity should: (a) have a diversity policy which includes requirements for the Board or a relevant committee of the Board to set
measurable objectives for achieving gender diversity and to assess annually both the objectives and the entity’s progress in achieving them;
(b) disclose that policy or a summary of it; and (c) disclose as at the end of each reporting period the measurable objectives for achieving
gender diversity set by the Board or a relevant committee of the Board in accordance with the entity’s diversity policy and its progress
towards achieving them, and either: (1) the respective proportions of men and women on the Board, in senior executive positions and
across the whole organisation (including how the entity has defined “senior executive” for these purposes); or (2) if the entity is a “relevant
employer” under the Workplace Gender Equality Act, the entity’s most recent “Gender Equality Indicators”, as defined in and published
under that Act.
Section Reference
Location
5.1
“Board Charter”
5.1
“Director appointment, training
and continuing education”
5.1
“Director appointment, training
and continuing education”
3
“Company Secretary
- Qualifications & Experience”
5.1
“Board access to information
and independent advice”
5.5
“Diversity Policy”
A listed entity should: (a) have and disclose a process for periodically evaluating the performance of the Board, its committees and
individual Directors; and (b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the
reporting period in accordance with that process.
5.1
“Board Performance Evaluation”
A listed entity should: (a) have and disclose a process for periodically evaluating the performance of its senior executives;
and (b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in
accordance with that process.
7.4
“Senior Executive Performance
Evaluation”
Principle 2 — Structure the Board to add value
2.1
The Board of a listed entity should: (a) have a nomination committee which: (1) has at least three members, a majority of whom are
independent Directors; and (2) is Chaired by an independent Director, and disclose: (3) the charter of the committee; (4) the members of the
committee; and (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual
attendances of the members at those meetings; or (b) if it does not have a nomination committee, disclose that fact and the processes it
employs to address Board succession issues and to ensure that the Board has the appropriate balance of skills, knowledge, experience,
independence and diversity to enable it to discharge its duties and responsibilities effectively.
2.2
A listed entity should have and disclose a Board skills matrix setting out the mix of skills and diversity that the Board currently has or is
looking to achieve in its membership.
2.3
A listed entity should disclose: (a) the names of the Directors considered by the Board to be independent Directors; (b) if a Director has an
interest, position, association or relationship of the type described in Box 2.3 but the Board is of the opinion that it does not compromise the
independence of the Director, the nature of the interest, position, association or relationship in question and an explanation of why the Board
is of that opinion; and (c) the length of service of each Director.
2.4
A majority of the Board of a listed entity should be independent Directors.
2.5
2.6
The Chair of the Board of a listed entity should be an independent Director and, in particular, should not be the same person
as the CEO of the entity.
A listed entity should have a program for inducting new Directors and provide appropriate professional development opportunities for
Directors to develop and maintain the skills and knowledge needed to perform their role as Directors effectively.
1
“Directors”
4
“Directors’ Meetings”
5.2
“Appointments and Compensation
Committee”
5.1
“Board Composition and
Membership” “Board Skills”
1
“Directors”
5.1
“Board Independence”
1
“Directors”
5.1
“Board Independence”
5.1
“Chair”
5.1
“Director appointment, training
and continuing education”
23
Recommendation
Principle 3 — Act ethically and responsibly
3.1
A listed entity should: (a) have a code of conduct for its Directors, senior executives and employees; and
(b) disclose that code or a summary of it.
Principle 4 — Safeguard integrity in corporate reporting
Section Reference
Location
5.5
“Code of Conduct”
The Board of a listed entity should: (a) have an audit committee which: (1) has at least three members, all of whom are Non-Executive
Directors and a majority of whom are independent Directors; and (2) is Chaired by an independent Director, who is not the Chair of the
Board, and disclose: (3) the charter of the committee; (4) the relevant qualifications and experience of the members of the committee;
and (5) in relation to each reporting period, the number of times the committee met throughout the period and the individual attendances
of the members at those meetings; or (b) if it does not have an audit committee, disclose that fact and the processes it employs that
independently verify and safeguard the integrity of its corporate reporting, including the processes for the appointment and removal of
the external auditor and the rotation of the audit engagement partner.
1
“Directors”
4
“Directors’ Meetings”
5.2
“Audit and Risk Management
Committee”
The Board of a listed entity should, before it approves the entity’s financial statements for a financial period, receive from its CEO and CFO a
declaration that, in their opinion, the financial records of the entity have been properly maintained and that the financial statements comply
with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the
opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively.
5.3
“Management Representation”
A listed entity that has an Annual General Meeting (“AGM”) should ensure that its external auditor attends its AGM and is available to answer
questions from security holders relevant to the audit.
5.4
“Investor Relations”
4.1
4.2
4.3
Principle 5 — Make timely and balanced disclosures
5.1
A listed entity should: (a) have a written policy for complying with its continuous disclosure obligations under the Listing Rules;
and (b) disclose that policy or a summary of it.
Principle 6 — Respect the rights of security holders
6.1
6.2
6.3
6.4
A listed entity should provide information about itself and its governance to investors via its website.
A listed entity should design and implement an investor relations program to facilitate effective two-way communication with investors.
A listed entity should disclose the policies and processes it has in place to facilitate and encourage participation at meetings of
security holders.
A listed entity should give security holders the option to receive communications from, and send communications to, the entity and its
security registry electronically.
Principle 7 — Recognise and manage risk
The Board of a listed entity should: (a) have a committee or committees to oversee risk, each of which:
(1) has at least three members, a majority of whom are independent Directors; and (2) is Chaired by an independent Director, and disclose:
(3) the charter of the committee; (4) the members of the committee; and (5) as at the end of each reporting period, the number of times the
committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a
risk committee or committees that satisfy (a) above, disclose that fact and the processes it employs for overseeing the entity’s risk
management framework.
5.5
“Disclosure and Shareholder
Communication Policy”
and on the Website
5.5
“Disclosure and Shareholder
Communication Policy”
and on the Website
5.4
“Investor Relations”
5.4
“Investor Relations”
5.4
“Investor Relations” and on the
Website
1
“Directors”
4
“Directors’ Meetings”
5.2
“Audit and Risk Management
Committee”
The Board or a committee of the Board should: (a) review the entity’s risk management framework at least annually to satisfy itself that it
continues to be sound; and (b) disclose, in relation to each reporting period, whether such a review has taken place.
5.3
“Risk Management Framework”
A listed entity should disclose: (a) if it has an internal audit function, how the function is structured and what role it performs; or (b) if it does
not have an internal audit function, that fact and the processes it employs for evaluating and continually improving the effectiveness of its
risk management and internal control processes.
5.3
“Internal Audit”
7.4
A listed entity should disclose whether it has any material exposure to economic, environmental and social sustainability risks and if it does
how it manages or intends to manage those risks.
6.7
“Risks, likely developments and
future prospects”
24
7.1
7.2
7.3
For the year ended 30 June 2019Directors’ report Recommendation
Principle 8 — Remunerate fairly and responsibly
8.1
The Board of a listed entity should: (a) have a remuneration committee which: (1) has at least three members, a majority of whom are
independent Directors; and (2) is Chaired by an independent Director, and disclose: (3) the charter of the committee; (4) the members of the
committee; and (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual
attendances of the members at those meetings; or (b) if it does not have a remuneration committee, disclose that fact and the processes it
employs for setting the level and composition of remuneration for Directors and senior executives and ensuring that such remuneration is
appropriate and not excessive.
8.2
A listed entity should separately disclose its policies and practices regarding the remuneration of Non-Executive Directors and the
remuneration of Executive Directors and other senior executives.
Section Reference
Location
1
“Directors”
4
“Directors’ Meetings”
5.2
“Appointments and Compensation
Committee”
7.3
“Remuneration structure”
7.6 “CEO”
7.8
“Non-Executive Director
Remuneration”
8.3
A listed entity which has an equity-based remuneration scheme should: (a) have a policy on whether participants are permitted to enter into
transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme;
and (b) disclose that policy or a summary of it.
5.5
“Trading in Ovato Shares”
5.1 Board of Directors
BOARD
Directors are selected to achieve a broad range of skills, experience and expertise
complimentary to the Group’s activities. Details of individual Directors are in Section
1. The current Board comprises seven Directors, being: the Non-Executive Chair, the
MD / CEO and five other Non-Executive Directors.
The roles of Chair and MD are not exercised by the same individual.
Ovato’s Board Charter sets out the role, responsibilities and powers of the Board of
Directors and the MD.
BOARD CHARTER
The Company’s Board is responsible for:
• Overseeing the Company, including reviewing, ratifying and monitoring
systems of risk management, internal control, code of conduct and legal
compliance, that are designed to ensure compliance with regulatory and
prudential requirements;
• Appointing and removing the CEO and ratifying the appointment and,
where appropriate, the removal of the Chief Financial Officer (”CFO”) and
the Company Secretary;
• Providing input into and final approval of management’s development of
corporate strategy and performance objectives;
• Monitoring performance against Board approved objectives, targets
and strategies;
• Succession planning for the CEO and senior executives;
• Approving the progress of major capital expenditure, capital management,
acquisitions and divestitures;
• Approving and monitoring financial and other reporting; and
• Approving delegated authority limits for senior executives.
The MD, as CEO, is responsible for:
• Implementing Board and Management decisions;
• Conducting the Company’s operational, strategic, management and general
business and affairs; and
• Bringing material and other relevant matters to the attention of the Board in an
accurate and timely manner.
The Board has set through the Delegation of Authority Policy specific limits to
management’s ability to incur expenditure, enter into contracts or acquire or dispose
of assets or businesses without Board approval.
The Charter requires that Ovato’s Board consist of a majority of independent
Non-Executive Directors who have a broad range of commercial expertise and
experience and/or appropriate professional qualifications. They must also
demonstrate a proven ability and capacity to monitor Company performance
and participate in strategy development.
While it is not mandatory for Directors to hold shares in Ovato, Directors
are encouraged to own shares in Ovato and where possible they do so.
Their share holdings are disclosed via the ASX and in the Remuneration Report.
BOARD COMPOSITION AND MEMBERSHIP
The Board (through the Appointments and Compensation Committee) seeks to
ensure that the Board and its Committees continue to have the right balance of skills,
knowledge, qualifications, diversity and business experience necessary to direct the
Company in accordance with high standards of corporate governance.
When considering appointments, the Board considers the skills, experience and
expertise which they believe to be particularly relevant for that available position.
In doing so the Board takes into account the existing collective capability of the
Board, Ovato’s strategy and the prevailing and expected market conditions.
In respect of diversity on the Board, Directors strongly believe that differences in
gender, age, ethnicity and cultural background in Board membership encourage
diversity of thought and decision making. This will, in turn, drive and improve
business efficiency and results for the Company and shareholders.
25
BOARD SKILLS
CONFLICTS OF INTEREST
When reviewing the composition of the Board and making recommendations to the
Board regarding the appointment of Directors, the Appointments and Compensation
Committee aims to ensure that the Board continues to include Directors with an
appropriate balance of skills, experience, expertise and diversity to efficiently and
effectively discharge its responsibilities and govern the Company.
Collectively, the Board has a diverse range of skills and experience relevant and
adequate for the efficient and effective management of the business. Board members,
including some who are also Directors of other ASX-listed companies, together have
a combination of experience in the following areas:
• Manufacturing including printing, publishing and logistics;
• Retail & FMCG (business operations, branding and marketing);
• Digital and Data Analytics;
• Corporate strategy;
• Business transformation;
• Finance;
• Mergers and acquisitions;
• Risk management; and
• Health, TRIFR and environment.
Directors are required to keep the Board advised, on an ongoing basis, of any interest
that could potentially conflict with those of the Company. A Director who has an
actual or potential conflict of interest or a material personal interest in a matter is
required to declare that potential or actual conflict of interest to the Board. If the
Board determines that there is a material conflict of interest, the Board may require
the relevant Director to:
• not receive the relevant papers;
• not be present at the meeting while the matter is considered; and
• not participate in any decision on the matter.
The Board may resolve to permit a Director to have an involvement in a matter
involving a potential or actual conflict of interest. In such instances, the Board will
minute full details of the basis of the determination and the nature of the conflict,
including a formal resolution concerning the matter.
CHAIR
The Chair of the Board, Mr Matthew Bickford-Smith, is an independent
Non-Executive Director. The Chair is responsible for leadership and effective
performance of the Board and the maintenance of productive relations between the
Directors and the management team. The Chair’s responsibilities are set out in more
detail in the Board Charter.
Biographies of current Directors, including details of their qualifications and
independent status, are set out in Section 1.
DIRECTOR APPOINTMENT, TRAINING AND
CONTINUING EDUCATION
Before the appointment of any Director the Company undertakes, with the consent
of the candidate, appropriate checks in relation to the potential Director’s character,
experience, education, criminal record and bankruptcy history. The Appointments
and Compensation Committee will also seek from the candidate details of his or her
other commitments and an indication of time involved with those commitments,
and acknowledgement that he or she will have sufficient time to fulfil his or her
responsibilities as a Director.
When a Director stands for election for the first time, the Company will require such
information as is necessary to allow the shareholders to make an informed decision
around the Directors appointment including: biographical details, including their
relevant qualifications and experience and the skills they bring to the Board; details
of any other material directorships currently held by the candidate; any material
adverse information revealed by the pre-appointment checks; details of any interest,
position, association or relationship that might influence, or reasonably be perceived
to influence their capacity to bring an independent judgement; and if the candidate
will qualify as an independent Director.
Each Non-Executive Director has signed a letter of appointment detailing the
key terms and conditions of their appointment, including duties, rights and
responsibilities and the matters recommended in the ASX Principles.
Induction training is provided to all new Directors. This includes amongst other
things an induction manual with information on the Company and its financial
position, culture and values, Company policies, rights and responsibilities of
Directors and the role of the Board and management. The Board has regular
discussions with the CEO and management and is invited to attend tours of
Ovato’s operational sites.
Directors are expected to maintain the skills required to discharge their obligations
to the Company. Ovato undertakes an ongoing program to keep Directors abreast of
the nature of its business, current issues and corporate strategy. Directors also have
access to, and are encouraged to undertake, continuing education opportunities
to update and enhance their skills and knowledge and have a strong working
relationship with operational management.
The Board considers its current membership represents an appropriate mix of skills,
experience, expertise and qualifications to enable the Board to effectively advise and
set the Company’s strategic direction and govern on behalf of shareholders.
DIRECTOR RETIREMENT AND RE-ELECTION
The Constitution requires Directors to retire at the third AGM following the election or
most recent re-election. The appointment of any new Directors will be based on the
principle of further strengthening the diversified composition of the Board.
When a Director stands for re-election, the Company will provide such information
as is necessary to allow the shareholders to make an informed decision around
the Directors appointment including: biographical details and their relevant
qualifications and experience and the skills they bring to the Board; details of any
other material directorships currently held by the candidate; the term of office
currently served by the Director; if the Board considers the Director to be an
independent Director, a statement to that effect; and a statement by the Board as to
whether it supports the election or re-election of the candidate.
BOARD PERFORMANCE EVALUATION
The Appointments and Compensation Committee is responsible for, amongst other
things, evaluating the performance of the Board and individual Directors. The Chair
continuously reviews and discusses with the Directors his and their collective
contribution to the Board.
BOARD INDEPENDENCE
The Board’s policy is that there should be a majority of independent Non-Executive
Directors on the Board and this requirement is embodied in the Board Charter,
ensuring that all Board discussions and decisions have the benefit of
independent judgement.
The Board reviews the independence of the Directors before they are appointed,
on an annual basis and at any other time where the circumstances of a Director
changes such as to require reassessment. Such assessment considers the factors
relevant to assessing independence consistent with the ASX Principles.
The Board assesses materiality of any contractual relationship that may affect
independence on a case-by-case basis. With the exception of Mr Hannan, who is a
substantial shareholder of the Company and Mr McMaster who was nominated for
appointment by the Hannan family shareholders, the other Non-Executive Directors
are considered to be independent.
26
For the year ended 30 June 2019Directors’ report BOARD ACCESS TO INFORMATION AND
INDEPENDENT ADVICE
Subject to identification of any conflict of interest, Directors have direct access to
senior executives as required and to any Company information in the possession of
management it considers necessary to make informed decisions and to discharge
its responsibilities.
All Directors have access to the Company Secretary who is accountable to the Board,
through the Chair. The Board must approve the appointment and removal of the
Company Secretary.
Any Director can seek independent professional advice in the discharge of their
duties and responsibilities to Ovato. Ovato will reimburse reasonable expenses
incurred in obtaining this advice. Unless the Chair determines otherwise, the advice
will generally be circulated to the Board.
BOARD MEETINGS
The Board and the Committees meet on a regular basis and additional meetings are
called when required to address specific issues. The Chair, in conjunction with the
CEO and the Company Secretary, sets the agenda for each meeting. Any Director may
request matters to be included on the agenda.
Directors receive Board papers in advance of the Board meetings and these papers
provide them with sufficient information to enable them to participate in informed
discussion at each meeting. The Board will also provide for time at board meetings to
meet without the presence of management.
Details of Board and Committee meetings held during the 2019 financial year and
attendance at those meetings are set out on page 22 of this report.
30 years audit experience, and is appropriately qualified for this role. He is not an
independent Director by virtue of being nominated by the Hannan family.
The Committee’s members and their record of attendance in the last financial year are
set out in Section 4.
Responsibilities
The Audit and Risk Management Committee provides assistance to the Board in
relation to its corporate governance and oversight responsibilities by reviewing,
assessing and making recommendations in relation to: Ethical considerations and
compliance with the Code of Conduct; Financial reporting; Internal control structure;
Risk management framework and systems; Policies to reduce exposure to fraud;
Health, safety and the environment; and Internal and external audit functions.
Ovato combines the roles and responsibilities of the Audit and the Risk Committees
in its Audit and Risk Management Committee.
The Audit and Risk Management Committee has direct and unlimited access to the
external auditors. The external and internal auditors have direct and unlimited access
to the Audit and Risk Management Committee.
APPOINTMENTS AND COMPENSATION
COMMITTEE
Composition
The charter provides that the Committee shall consist of a minimum of two
independent Directors. Where the Committee consists of more than two members,
the majority must be independent Directors.
The Committee’s members and their record of attendance in the last financial year are
set out in Section 4.
5.2 Board Committees
Responsibilities
ROLE, MEMBERSHIP AND CHARTERS
The Board has the ability under the Constitution to delegate its powers and
responsibilities to Committees of the Board. This allows the Directors to spend
additional and more focused time on specific issues.
The Board has established standing Committees to assist with the effective discharge
of its duties, as follows: Audit and Risk Management Committee; and Appointments
and Compensation Committee. The Board during the year has also established ad
hoc committees for the purposes of: due diligence when the Company issued the
corporate bond in November 2018 and for the accelerated rights issue in June 2019;
and had Directors sit on the NSW site consolidation committee and the Growth and
Innovation Committee.
Membership of the Committees is based on Directors’ qualifications,
skills and experience.
All Directors are entitled to attend meetings of the Committees where there is
no conflict of interest. Papers considered by the Committees, and minutes of
each Committee meeting, are provided to all Directors. The proceedings of each
Committee meeting are reported at the next Board meeting by the relevant
Committee Chair (if all Directors have not been present at the meeting).
Each Committee operates under a specific Charter approved by the Board,
detailing its role, duties and membership requirements.
The Board reviews the appropriateness of the existing Committee structure,
as well as the membership and Charter of each Committee.
AUDIT AND RISK MANAGEMENT COMMITTEE
Composition
The charter provides that the Committee must comprise: at least three Non-Executive
Directors, a majority of whom are required to be independent; members who are
financially literate; at least one member shall have relevant qualifications and
experience; some members shall have an understanding of the industry in which
Ovato operates; and the Chair must be an independent Non-Executive Director
who is not the Chair of the Board. Mr McMaster is the Chair of this committee and
was appointed on 31 May 2019. He was previously a Partner of KPMG with over
Ovato combines the roles and responsibilities of the Nomination Committee and the
Remuneration Committee in its Appointments and Compensation Committee.
The Appointments and Compensation Committee has ultimate authority for executive
remuneration policy. The Remuneration Report provides further detail on the role of
the Committee in respect of compensation.
In relation to appointments, the Committee: reviews Director competence standards
and Board succession plans; and evaluates the Board’s performance and makes
recommendations for appointing or removing Directors.
In relation to compensation, the Committee makes recommendations to the Board
on: executive remuneration and incentive policies; senior management remuneration
packages; recruitment, retention and termination policies for senior management;
incentive schemes; superannuation arrangements; and the remuneration framework
for Directors.
The Committee is also responsible for evaluating potential candidates for executive
positions, including the role of CEO, and overseeing the development of executive
succession plans.
The CEO has the authority to employ and remunerate executives within the scope of
the policy established by the Committee. In carrying out its duties, the Committee
is committed to providing sound remuneration policies and practices that enable
Ovato to: attract and retain high quality executives and Directors who are dedicated
to the interests of Ovato shareholders; and fairly and responsibly reward executives,
while taking into account the interests of shareholders, the Company’s performance,
performance of the relevant executive and market conditions.
In executing its responsibilities, the Committee has unlimited access to senior
management. It also has the Board’s authority to seek information it requires from
employees and external parties and obtain outside legal or other professional advice
at the expense of the Company.
27
5.3 Risk Management
Ovato recognises that shareholder value is driven by taking considered risks, and
that effective risk management is a fundamental driver to achievement of its strategic,
operational and compliance objectives, and to the Board meeting its corporate
governance responsibilities.
The Board is responsible for overseeing the implementation of an effective system
of risk management and internal control.
The responsibility for designing, implementing and maintaining a sound system
of risk management and internal control has been delegated to management
through the CEO.
The Audit and Risk Management Committee assists the Board with its oversight
responsibility by reviewing, assessing and making recommendations to the Board
in relation to the risk management framework and internal control structures put
in place by management.
APPROACH TO RISK MANAGEMENT
The Board has adopted a Risk Management Policy that sets out Ovato’s objectives for
risk management and the responsibilities of all Ovato staff in relation to management
of risk.
The Policy is supplemented by a Risk Management Framework, which provides a
consistent and systematic process to identify, evaluate, mitigate, monitor and report
material risks throughout Ovato. The Framework is aligned with Risk Management
Standard ISO: 31000 and Principle 7 of the ASX Principles.
The Risk Management Framework is periodically reviewed by the Audit and Risk
Management Committee to provide assurance as to its adequacy and effectiveness,
with the last review being undertaken in July 2019.
RISK MANAGEMENT FRAMEWORK
The CEO meets at least quarterly with the CFO and senior business managers
to oversee the implementation and effective operation of the systems of risk
management and internal controls, and to review the existing and emerging material
strategic, operational and compliance risks. Further assessment and identification
of risks is performed during the annual strategic planning cycle, and the quarterly
forecasting cycle.
Management is responsible for completing, on a six-monthly basis, the internal
control questionnaire supporting the Section 295A Corporations Act compliance
statements, and also attends Audit and Risk Management Committee meetings as
required, to assist the Committee in its oversight of risk.
In addition to the Risk Management Framework, Ovato’s approach to risk
management also incorporates input and mitigating controls from a range of existing
systems, programs and policies including:
MATERIAL ECONOMIC, ENVIRONMENTAL
AND SOCIAL SUSTAINABILITY RISKS
Ovato believes there are a number of inherent material Economic, Environmental
and Social Sustainability Risks, both specific to the industry in which it operates,
and of a general nature, which may impact its ability to achieve its business
strategies and objectives.
The identification of these risks is provided to assist stakeholders to understand the
nature of risks faced by Ovato, and the broad approach Ovato takes to mitigate these
risks. The risks are not listed in order of significance, and it is not an exhaustive list.
Economic Conditions
Ovato’s business segments are primarily in marketing services, printing and
distribution of publications including catalogues, magazines, and books.
There is a risk that Ovato’s product demand and pricing could be subject to
adverse impact from:
• Reductions in demand volume and the effect of consumer confidence
on retail marketing;
• Pagination reductions and title closures by magazine and
newspaper publishers;
• Competitive market pricing pressure; and
• Migration of advertising, entertainment and information media from print to
digital platforms.
To the extent possible, Ovato mitigates these risks by considering its future
expectations of these economic conditions, in its strategic, operational and financial
plans, and by planning contingency actions.
Operations and Service Continuity
There is a risk of:
• Lack of continuity of supply of utilities, raw material inputs and
distribution services;
• Industrial action;
• Loss of, or material damage to, an operating site; and
• Increased cost of supply of utilities, raw material inputs and distribution services
not being promptly passed on to customers.
These risks could result in unanticipated circumstances causing inability to meet
customer commitments, or significant increase in the cost of doing business,
which could adversely impact upon Ovato’s achievement of its financial
performance objectives.
Ovato mitigates these risks through:
• A comprehensive health, safety and environment programme;
• Management of raw material purchase lead times and safety stock levels and
• A Delegation of Authority Policy, including guidelines and approval limits for
operational and capital expenditure and investments;
hedging of purchase cost;
• Endeavouring to promptly pass on material input price increases to customers;
• A comprehensive annual insurance program;
• Ability to reschedule work across multi- site operations;
• A Board approved finance policy to manage exposure to credit and liquidity risks;
• Business interruption and asset insurance programmes in place; and
• Annual budgeting and monthly reporting systems for all divisions to monitor
• Effective workplace industrial relations.
performance against budget targets; and
• Detailed policies and internal controls over management of financial reporting,
management accounting and maintenance of financial records.
Health and Safety
There is a risk of a major health and safety incident which could result in a serious
injury or fatality at an Ovato workplace. Ovato mitigates this risk by implementing
training, policies, procedures and systems to comply with health and safety
requirements, which are supported by the Board-approved Group Safety Plan.
Financial Management
Ovato is exposed to credit risk, and adverse movements in foreign currency exchange
rates and interest rates. This could adversely impact Ovato’s ability to achieve its
financial performance objectives and reduce its ability to access financing facilities.
Information on how Ovato mitigates these risks is included in the Notes to the
Financial Statements in the Financial Report section of the Annual Report.
28
For the year ended 30 June 2019Directors’ report Regulatory and Legislative Requirements
There is a risk of a major change to, or a major breach of, existing regulations or
legislation, which could impact Ovato’s ability to continue its current business
operations or achieve its financial performance objectives. To the extent possible,
Ovato mitigates these risks by implementing policies, procedures and systems to
comply with regulatory requirements, and by planning contingency actions.
Technology and Cyber Security
There is a risk of outage, disruption, or security breach of IT systems. This could
result in significant business disruption or a loss of confidential business data.
Ovato mitigates this risk through IT security and infrastructure solutions. This is
supported by IT policies and procedures governing security and usage of IT systems.
MANAGEMENT REPRESENTATION
Detailed and comprehensive questionnaires are completed by all business units
and functional management on a six-monthly basis. These questionnaires include
management’s assessment of risk management, financial reporting and the internal
control environment operating within each business unit. The questionnaires
are reviewed by executive management as part of the half-yearly reporting to the
market and to achieve compliance with Section 295A of the Corporations Act and
Recommendation 4.2 of the ASX Principles.
Based on the questionnaires, the Board has received written assurance from the CEO
and the CFO that, to the best of their knowledge and belief, the declaration provided
to them is founded on a sound system of risk management and internal control and
that the system is operating effectively in relation to financial reporting risks.
INTERNAL AUDIT
The Internal Audit function provides independent assurance of management’s
control over the adequacy and effectiveness of the governance, risk management and
internal control frameworks of Ovato. The internal audits are undertaken by Ovato’s
in-house internal audit function, supplemented by services provided by external
consultants where specialist technical expertise is considered necessary.
Internal Audit conducts a series of risk-based internal audits based on a rolling
assurance activity plan which is aligned to the risks identified in Ovato’s risk register
and is agreed with management.
To ensure the independence of Internal Audit, the Audit and Risk Management
Committee review and endorse the planned internal audit and assurance activities,
and the results of all internal audit and assurance activities are summarily reported
to the Audit and Risk Management Committee on a regular basis.
5.4 Investor Relations
Ovato engages its shareholders at its AGM, providing investor presentations
following the full year and half-year results, and upon request. The investor
presentations are lodged with the ASX and the contents of those presentations
are available from the Company’s website.
Ovato facilitates participation at shareholder meetings by arranging for the
meetings to be at convenient times and locations and provides for direct voting
to allow shareholders to vote ahead of the meeting without having to attend, or
to appoint a proxy. The Chair at the AGM provides reasonable time for shareholders
to ask questions or make comments about the management of the Company.
The Company’s external auditor attends the AGM.
At any other times, shareholders can email their questions or contact the CFO if they
have any questions about the Company.
Ovato provides its shareholders with the option to receive and send communications
electronically to the Company and its share registry.
5.5 Governance Policies
CODE OF CONDUCT
Ovato recognises that its reputation is an essential element to its continued success
and that its reputation is directly attributable to the ethical behaviour of those who
represent it. Ovato has developed a Code of Conduct which sets out certain basic
principles that all Directors, employees, contractors and consultants are expected to
follow in all dealings related to Ovato, to ensure that Ovato’s business is conducted in
accordance with the laws and regulations of all areas in which it operates.
The Code of Conduct is fully endorsed by the Board and is reviewed and
updated as necessary to ensure it reflects the highest standards of behaviour
and professionalism and the practices necessary to maintain confidence in
Ovato’s integrity.
Any breach of the Code of Conduct is considered a serious matter which may result
in disciplinary action, including termination of employment. The Code of Conduct is
Ovato’s cornerstone corporate governance policy. The Code of Conduct provides a
consistent understanding of the expected behaviour towards each stakeholder.
It stipulates that:
• Ovato is to conduct its business with honesty, integrity and respect for the
interests of its stakeholders;
• Ovato employees will avoid any personal, financial or other real or apparent
conflicts of interest that could compromise the performance of their duties;
• Ovato will continually strive to be a good corporate citizen, including complying
with laws and regulations of Australia and New Zealand and in each state and
territory in which it operates;
• Ovato employees will ensure that resources of Ovato are used for their
intended use;
• Ovato is to respect the privacy of private information, including customer,
business partner and fellow employee information;
• Ovato is to continually strive to provide a safe and healthy work environment
for all employees;
• Ovato is to recognise and act upon its responsibility to limit negative impacts
on the environment and the communities within which it operates; and
• Ovato is to ensure that there is a clear communication process for material items
of concern between employees and the Board via open and non-hierarchical
communications including whistle blower provisions.
A copy of the Code is available online at ovato.com.au/investors/
Supporting the Company’s Code of Conduct are the Whistle Blower Policy, and
Probity Policy Guidelines, which further set out the Company‘s commitment to high
standards of conduct and ethical behaviour in all areas of business activity.
WHISTLE BLOWER POLICY
Key elements of Ovato’s Whistle Blower Policy are as follows:
• Ovato encourages employees to report, in good faith, any violations of the
standards, requirements and expectations described in the Code of Conduct;
• require appropriate action be taken in response to any such violations; and
• require that where an employee reports, in good faith, an actual or suspected
violation of this Code of Conduct, the position of the reporting officer will be
protected and remain confidential unless disclosure is required by law.
29
TRADING IN OVATO SHARES
Ovato’s Securities Trading Policy reinforces the Corporations Act 2001 restrictions
in relation to insider trading and prohibits Directors, Executives and other employees
from dealing in Ovato securities at any time if that person is in possession of price
sensitive information that has not been made publicly available.
Under its share purchasing policy, Ovato Directors and Executives are not permitted
to buy and sell shares in the Company when they are in possession of information
that is not generally available and if it were available, it would - or would be likely to -
influence investors in trading Ovato shares. They also may not trade in Ovato shares
during specific black-out periods. The black-out periods are:
• the period from 1 January through to the day half-year results are announced
(including the day half-year results are announced);
• the period from 1 July through to the day full year results are announced
(including the day full year results are announced); and
• the period of 30 days immediately leading up to the Annual General Meeting
(including the day of the Annual General Meeting).
The Board of Ovato may also declare a black-out period for a specified period at other
times (such as prior to the announcement to the Australian Securities Exchange of a
significant event such as change in control transaction or capital raising). At all other
times these officers are permitted to trade in Ovato shares where such trading has
received the prior approval from the CEO.
Directors, Executives and other employees are prohibited from engaging in
short-term or speculative trading in Ovato securities and trading in derivatives
in respect of Ovato securities, including performance rights issued under Ovato
incentives schemes. This includes entering into any hedging arrangements or
acquiring financial products (such as equity swaps, caps and collars or other
hedging products) over unvested performance rights which have the effect of
reducing or limiting exposure to risks associated with the market value of Ovato
securities. The Policy also applies to parties related to the Directors,
Executives and employees of the Company.
APPROPRIATE COMMUNICATION AND
DISCLOSURE
Ovato recognises the importance of open and effective communication with all
stakeholders. Therefore, Ovato requires its officers and employees to act at all times
with integrity and in accordance with the law, including the disclosure requirements
of the ASX Listing Rules, ASX Principles and the Corporations Act. Ovato has a
Disclosure Committee comprising the CEO, CFO and Company Secretary/General
Counsel, which meet as and when required.
DISCLOSURE AND SHAREHOLDER
COMMUNICATION POLICY
Ovato’s Disclosure Policy requires any price sensitive information concerning
Ovato that is required to be disclosed to the market, be communicated to the ASX
immediately and before any other person. The policy prevents selective disclosure
by: ensuring only authorised spokespeople comment on behalf of Ovato; and
providing a process for issuing any external statement or press release that has
been previously channelled through the CEO.
DIVERSITY POLICY
Diversity Policy Statement
Ovato strives to provide industry leadership for workforce diversity by:
• integrating diversity principles in all aspects of human resources management
policies such as recruitment, selection and training;
• considering options to enable flexible working practices;
• facilitating equal employment opportunities based on merit; and
• striving to build safe working environments by taking action against inappropriate
workplace and business behaviour that does not value diversity including
discrimination, harassment, bullying, victimisation and vilification.
The Company produced its public report to the Workplace Gender Equality Agency
for the reporting period, a copy of which can be found on Ovato’s website. As a
diverse business, Ovato employs a broad range of occupational groups to staff its
creative, print and distribution businesses. Consequently, Ovato seeks to attract
talent from different labour markets, trades and professions. Ovato’s current gender
profile reflects our reliance on trades and engineers in our print business and the
associated lack of gender balance in that sector.
The proportion of females employed in the Company under the following
classifications is set out as follows:
Board of Directors
Ovato Executive Management *
Ovato Group Employees
29%
18%
24%
* These are the senior executives included in the CEO’s executive management team.
6. Other Matters
6.1 Remuneration Policy
The Group’s remuneration policies for Directors and management are detailed in
the Remuneration Report included in this report.
Non-Executive Directors’ fees are within the limits set by shareholders at
the 2004 Annual General Meeting, and are set at levels which fairly represent the
responsibilities of, and time spent by, the Non-Executive Directors on Group matters.
6.2 Principal Activities
The principal activities of the Ovato Group are marketing services, digital premedia,
commercial printing, letterbox delivery and magazine distribution services.
6.3 Results
The consolidated result after income tax of the Ovato Group for the financial year
ended 30 June 2019 was a $84.3 million loss (2018: $43.8 million loss).
6.4 Dividends
No dividends were declared or paid during the year ended 30 June 2019 (2018: Nil).
It also sets out protocols for handling trading halts, responding to market speculation
and avoiding inadvertent disclosure. The Policy ensures shareholders can make
informed decisions about their investment in Ovato by providing them with:
6.5 Review of Operations
OVERVIEW
• the annual and half-year reports;
• disclosures made to ASX;
• notices and explanatory memoranda of General Meetings;
• the AGM, where the external auditor will be available to answer questions about
the audit; and
• its website ovato.com.au.
FY19 full year EBITDA* was $30.8 million down 24.1% year on year on 8.8%
lower revenues. EBITDA*/sales ratio fell from 5.5% to 4.6% mostly due to lower
performance at Ovato New Zealand. Ovato Australia EBITDA*of $26.3 million was
down $3.7 million with EBITDA*/sales ratio down from 4.9% to 4.7%.
Ovato New Zealand EBITDA* of $4.6 million is down 57% with EBITDA*/sales ratio
down from 8.8% to 4.0%. Net debt at $44.7 million was within revised guidance.
FY19 was a challenging year with reduced revenues leading to a reduction in
profitability. We have reacted with the continuation of our strong cost focus through
30
* Before significant items
For the year ended 30 June 2019Directors’ report Net cash flow in FY19 at ($12.4) million was better by $0.1 million pcp as $5.5
million lower cash significant items and $15.1 million equity proceeds (net of fees)
were offset by lower EBITDA, higher interest paid and unfavourable working capital
movements. Net debt to EBITDA (before significant items) was up from 0.8x to 1.4x.
Net debt at June 2019 of $44.7 million is in line with market guidance.
SIGNIFICANT ITEMS
Significant items booked in FY19 were $79.9 million after tax up $34.9 million pcp.
Cash significant items at $30.1 million were $5.5 million lower in FY19 with
$30.1 million for restructuring (mainly labour related costs)and press relocations.
Non-cash significant items at $49.8 million were up year on year due to impairments
of plant and equipment and deferred tax assets.
DEBT
The company has a Net Debt position at June 2019 of $44.7 million which is in line
with FY19 market guidance and $11.9M higher than June 2018. Net Debt/EBITDA
(before significant items) is 1.4x at June 2019 vs 0.8x last year. A Commerzbank loan
has been arranged to fund the new 80-page press in FY20.
* Before significant items
6.6 Significant Changes in the state of affairs
At the Annual General Meeting held on 22 November 2018, it was resolved to
change the Company name from ‘PMP Limited’ to ‘Ovato Limited’. The name
change was effective from 7 February 2019. The Company’s ASX code changed
from PMP to OVT.
The consolidation of Ovato’s NSW sites commenced during the 2019 financial
year. The Moorebank print site will be closed in 2020 and the best equipment and
personnel from the Moorebank site will be consolidated at Warwick Farm,
Ovato’s largest and most modern print facility.
During the financial year the company undertook a 1 for 2.3 shares held accelerated
pro-rata non-renounceable institutional and retail entitlement offer to raise
$15.5 million. 222 million shares were issued at $0.07 per share. The proceeds are
being applied to accelerate the completion of the NSW site consolidation project
and strengthen the Company’s balance sheet by reducing leverage and providing
additional financial flexibility.
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 New Zealand
down 57% on lower print sell prices.
We remain committed to the continual evaluation of the most effective and efficient
footprint for our 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 single 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 $24 million will be generated
by FY21 from the NSW site consolidation. Total cash cost associated with this project
in FY20 is expected to be circa $35 million.
OVATO AUSTRALIA
EBITDA* for Ovato Australia at $26.3 million was down 12.5% or $3.7 million on
previous corresponding period (“pcp”) with the advancements in marketing services
profitability and the impact of the reducing cost base being offset by reduced print and
distribution revenues and the inefficiencies associated with the disruption surrounding
the NSW site consolidation project.
Despite these challenges, EBITDA*/sales ratio remained relatively stable against
FY19 at 4.7%. This margin is expected to improve with the ongoing revenue and cost
initiatives being implemented throughout FY20.
Tier 1 retailer catalogue volumes (particularly food & beverage) have remained
consistent with FY18. This has been offset by a general weakness in the non-grocery
retail sector market with Tier 2-3 print & distribution revenues reducing.
Subdued consumer confidence saw a continuation of soft retail conditions where the
volumes of magazines and real estate dependent publications fell further than that
anticipated when the half year results were announced in February. Year-on-year
Australian newspaper and magazine print revenues are down 35% and 16% respectively.
Ovato Retail Distribution (formerly Gordon & Gotch Australia) mitigated lower magazine
volumes delivered through an increase in the average sell price & additional revenues
from new product streams utilising the existing delivery platform to Newsagents.
We continue to work closely with Publishers to create operational efficiencies in the
distribution network that can deliver financial benefits for all parties.
Residential Distribution sales were lower against FY18 as a result of the loss of a
major customer during FY19 and continued competitive market pricing offsetting
contract wins. We remain committed to enhancing our distribution network in order
to develop solutions for both our print and distribution customers and to finding an
appropriate, sustainable solution for the industry.
Ovato Marketing Services revenues and profitability continue to increase as
momentum builds through our focus on innovation.
OVATO NEW ZEALAND
EBITDA* at $4.6 million down $6 million or 57% mostly due to lower print sell prices.
New Zealand continues to be impacted by overcapacity in the heat set printing market
and fierce competition for residential distribution volumes to support two separate
delivery networks resulting in continued intense pricing pressure leading to lower
revenues and reduced margins.
We continue to take a market leadership position in proactively seeking an industry
led solution to the current market dynamics.
OTHER
Full year FY19 statutory loss after tax was $84.3 million vs $43.8 million loss in
FY18 up $40.5 million pcp mostly due to $34.9 million higher significant items after
tax (due to higher non-cash impairments) and $7.1 million lower EBIT.
31
6.7 Risks, likely developments and future
prospects
Ovato’s business segments are primarily in printing and distribution of publications
including catalogues, magazines, and books and marketing services including premedia.
Ovato’s long term profitability and cash flows are subjected to domestic economic
conditions in Australia and New Zealand. For example, catalogue printing and distribution
is driven by consumer confidence and retailer activity and the printing of these
publications are all influenced by user migration to electronic information platforms.
As noted under the Material Economic, Environmental and Social Sustainability Risks on
page 28, Ovato believes there are a number of inherent material risks,
both specific to the industry in which it operates, and of a general nature, which may
impact its ability to achieve its business strategies and objectives.
These include fluctuations in demand volume, timing and extent of title closures
and pagination reductions by publishers, competitive market pricing pressure,
migration of media from print to digital platforms, reliance on the continuity of
supply of utilities, raw material inputs and distribution services, and fluctuations
in the cost of these supplies.
Catalogue and magazine printing and distribution make up the majority of Ovato’s earnings.
Recent experience indicates that retailers are using an integrated advertising approach where
online media and traditional media are combined for greater effect.
The print industry has been progressively shrinking for a number of years but
with the rationalisation undertaken heatset prices should become more stable.
The Company will continue to leverage the core values of our print business and
connect audiences; becoming a platform for marketing.
6.8 Environmental regulation performance
Ovato is committed to conducting its business activities with respect for the
environment, while continuing to meet its obligations to its shareholders, employees,
customers and suppliers. Ovato believes its operations are in compliance with all
environmental regulations to the extent material to its financial position or results of
its continuing operations. As of the date of this report, there were no material legal
proceedings concerning environmental matters pending against Ovato or against
any of its properties.
Ovato completed the required Australian Federal Government Environmental
Indicators Survey and the National Pollution Inventory report.
6.9 Share issues
222 million new shares were issued from the institutional and retail entitlement offer
announced by Ovato on 20 May 2019. Under the entitlement offer 1 new share for
every 2.3 shares held at the record date were issued at $0.07 per share. The new
shares have the same terms as existing fully paid ordinary shares.
6.10 Share rights
The names of the persons who currently hold rights are entered in the register of
rights kept by the Company pursuant to Section 168 of the Corporations Act 2001.
Pursuant to an Australian Securities and Investments Commission Class Order,
the Directors have taken advantage of relief available from the requirement
to disclose the names of executives not being Directors (other than the Key
Management Personnel executives of the Group) to whom rights are issued,
and the number of rights issued to each person.
6.11 Share Buy Back
There is not a current on-market buy back in place for Ovato shares.
6.12 Non-audit services
The Audit and Risk Management Committee reviewed the non-audit services
provided by Deloitte Touche Tohmatsu. These non-audit services include taxation
and related advisory services. The following non-audit services were provided during
the 12 months to 30 June 2019:
Description of non-audit services
Australia
New Zealand
Taxation and related advisory services
127,546
$
$
77,414
Unless otherwise specified all amounts have been paid or are due and payable to a member firm of
Deloitte Touche Tohmatsu or its affiliates.
In accordance with advice provided by the Audit and Risk Management Committee,
the Directors are satisfied that based on the approval procedures required for the
external auditors to provide non-audit services to Ovato and from a review of actual
services provided the non-audit services provided by Deloitte Touche Tohmatsu met
the standards of independence.
6.13 Auditor’s independence declaration
In accordance with the Audit Independence requirements of the Corporations Act
2001, the Directors have received and are satisfied with the Auditor’s Independence
Declaration provided by the Ovato Group external auditors, Deloitte Touche
Tohmatsu. The Independent Auditor’s Declaration has been attached to the Directors’
Report on page 42.
6.14 Directors’ and Officers’ liability insurance
and indemnity
Ovato has liability insurance policies for all Directors and Officers of the
Ovato Group.
The policy agreement prohibits disclosure of the policy terms and the premium paid.
Directors and Officers are also indemnified by the Company against all liabilities to
another person (other than Ovato or a related body corporate) that may arise from
their position as Directors or Officers of Ovato and the Ovato Group. The insurance
cover and indemnity is not applicable where the liability arises out of conduct
involving a lack of good faith.
6.15 Significant events after balance date
Other than the refinancing arrangements as set out in Note 12(e), the Directors are
not aware of any matter or circumstance post balance date not otherwise dealt with
in this report or the consolidated financial statements that has significantly affected
or may significantly affect the operations of the Ovato Group, the results of those
operations or the state of affairs of the Group in subsequent years.
6.16 Proceedings on behalf of the Company
No proceedings have been brought on behalf of the Company, nor have any
applications been made in respect of the Company under Section 237 of the
Corporations Act 2001.
6.17 Rounding of amounts
The company is of the kind referred to in ASIC Corporations (Rounding in Financial/
Directors’ Reports) Instrument 2016/191, dated 24 March 2016, and in accordance
with that Corporations Instrument amounts in the financial report are rounded off to
the nearest thousand dollars, unless otherwise indicated.
32
For the year ended 30 June 2019Directors’ report Remuneration
report
7. Remuneration Report
7.1 Coverage
This remuneration report outlines the Director and executive remuneration
arrangements in accordance with the requirements of the Corporations Act 2001 and
its Regulations. It covers the Directors of Ovato, the CEO, and other Key Management
Personnel (refer Section 7.7) with the authority and responsibility for planning,
directing and controlling the activities of Ovato.
The report also contains information about the broader remuneration practices
applying to management below the executive level.
7.2 Remuneration principles
Ovato’s remuneration policy provides a direct link between remuneration and
corporate performance by:
• Offering sufficiently competitive rewards to attract and retain high calibre
executives;
• Putting a significant portion of executive remuneration at risk against
pre-determined performance benchmarks;
• Setting appropriate stretch performance hurdles to variable executive
remuneration;
The three tiers of the structure are:
• Fixed remuneration made up of base salary including statutory superannuation as
prescribed by appropriate country legislation and other incidental benefits;
• Short term performance incentives (“STI”) and other accepted variable pay
schemes; and
• Longer term based incentives - which has been through an employee share rights
plan (“LTI”) to date. A cash-based component is under construction.
This three-tier structure results in management having more of their total
remuneration and reward package at risk, linked to individual performance and
business results and, in the case of longer term incentives, to the long term
performance of the Company.
To ensure executives are sufficiently motivated and aligned with Ovato company
performance objectives, executives are expected to have approximately 25% of their
maximum potential remuneration at risk.
Whilst these incentives are linked to EBITDA and other performance goals
each financial year, the Committee additionally can impart conservative
measures in restricting incentives and invoking salary freezes to support short
term business goals.
BASE SALARY
• Linking short term incentives to both Company and personal performance; and
• Linking long term incentives (including rights) to shareholder value measures
and performance hurdles.
The Board also recognises that, although remuneration is a major factor in recruiting
and retaining talented and effective people, other factors play a substantial role in
attracting suitable candidates, including: Ovato’s business operations, corporate
reputation, ethical culture and other human resources’ policies and practices.
Ovato generally sets salaries based on a classification structure which is referenced
to the market median, while also allowing flexibility from this reference point where
it is warranted by individual performance levels and where there is a critical demand
for particular skills and experience. The remuneration structure is managed by the
Human Resources function leveraging tools such as: job evaluation, career level
benchmarking and salary reviews. Ovato’s remuneration system allows some flexible
packaging of benefits via salary sacrifice at no additional total employment cost
(“TEC”) to the Company.
Combined with its policies, Ovato’s remuneration principles ensure that:
• Executive remuneration packages are appropriately benchmarked against the
market for comparative roles in similar sized entities at the time of appointment
and upon review to attract and retain critical talent;
• Executive remuneration packages for key middle and senior personnel include
an at risk variable component that is developed in line with Ovato’s short term
incentive program; and
• Variable pay schemes align to key areas of focus for the business. Current
standard performance criterion includes: Earnings Before Interest, Tax,
Depreciation and Amortisation (“EBITDA”); safety performance (measured by
the Total Recordable Injury Frequency Rate); and personal objectives that align
personal behaviours and professional development with the overall goals and
values of the Company.
7.3 Remuneration structure
The roles and responsibilities of the Appointments and Compensation Committee
are discussed on page 27. The Board believes well designed and managed incentive
plans that provide incentives over the short and long term are important elements
of employee remuneration, providing tangible incentives for employees to strive to
improve Ovato’s performance over both the short and long term, and thereby aligning
their interest with shareholders.
SUPERANNUATION
Ovato complies with all relevant statutory superannuation obligations to
its employees. The standard Company superannuation plan is primarily an
accumulation plan, providing a lump sum benefit equal to the balance of a member’s
account, which includes contributions made by the member and the relevant
Ovato group entity, together with net fund earnings.
Relevant superannuation contributions for all senior executives form part of the
executive’s total remuneration package. All such amounts are included in the fixed
remuneration disclosed for the CEO and key management personnel in this report.
OTHER BENEFITS
Ovato does not provide senior executives or Directors with benefits such as life
insurance, vehicle allowance, club memberships or retirement benefits other than the
superannuation benefits, as required by law.
33
VARIABLE REMUNERATION
Ovato links all variable remuneration to both Company and individual performance.
The proportion of variable remuneration increases with job responsibility, with senior
executives having a greater proportion of their remuneration at risk.
SHORT TERM INCENTIVES (“STI”)
The STI plan applies to key middle and senior personnel roles, directly linking
variable remuneration to Ovato’s corporate strategy. The employee’s STI is generally
between 25% to 50% of their TEC.
The STI is dependent on achieving a number of targets. For eligible personnel,
the targets are generally allocated between:
• Budgeted EBITDA (between 50% - 70% of STI);
• Improved safety (up to 20% of STI); and
• Personal objectives (between 10% - 30% of STI)
Budgeted EBITDA is measured before significant items with the Board retaining
discretion to take into account the financial impact of any acquisition, and any other
significant restructuring cost or rationalisations within the Group, or changes in
accounting standards, when calculating EBITDA in order that the target is measured
on a comparable basis.
The personal objectives align individual behaviours with Company strategy and
values. The targets are set by the CEO in consultation with the Appointments and
Compensation Committee.
Results above the target will not increase the incentive payment above the STI
percentage, unless authorised by the CEO and approved by the Appointments
and Compensation Committee.
STI entitlements are formalised after the end of year accounts have been finalised
and any entitlement is paid in September. STI payments to the CEO and other
specified executives satisfying the definition of Key Management Personnel are
disclosed in this report.
LTIs - PERFORMANCE CONDITIONS
No senior leaders will be paid an STI under the STI Plan in the 2019 financial year
due to overall business performance. EBITDA (before significant items) of $30.8
million was significantly less than the budgeted EBITDA. The safety target for the
Group was a Total Recordable Injury Frequency Rate (“TRIFR”) of 10.81 for the year.
To achieve this target the Company needed to achieve a 24% reduction on the TRIFR
for the previous year of 14.23. The Company achieved this reduction with a TRIFR for
the 2019 financial year of 10.09. Whilst Personal objectives were generally achieved,
as the EBITDA hurdle was not achieved no payments were made against these
personal objectives.
LONG TERM INCENTIVES (“LTI”)
Following on from the merger of IPMG and Ovato (formerly PMP), and with valued
input from shareholders, the Appointments and Compensation Committee continues
to review the structure of the Company’s LTIs with the intention of better aligning
executive LTI incentives with Group strategy and with the interests of shareholders.
No rights were granted during FY19 and no further performance rights will be
granted under the LTI Plan.
LTIs – PERFORMANCE RIGHTS
The Company currently has no performance rights issued under the Ovato LTI Plan.
As at 30 August 2018, following the announcement of the result to 30 June 2018
to the ASX, the performance rights issued in June 2016 to the eligible executives
under the Ovato Long Term Incentive Plan were tested. The Company’s performance
relative to the TSR hurdle was such that the Company did not outperform the 51st
percentile when measured against the peer group and accordingly no TSR rights
vested. The Company’s performance relative to the EBITDA hurdle was such that the
Company did not achieve 80% of the target EBITDA over the three years. As such the
remaining performance rights lapsed.
Table 2 summarises executive LTIs performance conditions and achievement assessment methods.
Performance rights: Issued 1 October 2015 and 1 June 2016, Expiring 30 August 2018
Rights
Rights - $436,995*. CEO/MD, EMT and Senior Managers.
Performance Hurdles
The performance hurdles are: TSR and EBITDA. 50% of rights granted are to be subject to each hurdle.
Total Shareholder Return (“TSR”)
Ovato’s (formerly PMP’s) TSR over the three year period comprising financial years 16, 17 and 18 is measured against a comparator group
of ASX listed companies ranked between S&P/ASX 200 to 300 entities (excluding entities in the metals, mining and materials indexes).
If a rank of less than the 51st percentile is achieved nil vest, if a rank of between the 51st and 75th percentile is achieved 50-100% of rights
vest and if a rank of greater than 75th percentile is achieved 100% vest.
Earnings Before Interest, Tax, Depreciation and Amortisation (“EBITDA”)
Ovato’s EBITDA over the three year period comprising financial years 16, 17 and 18 was measured against a target for the Ovato Group.
The number of rights to vest are pro rated based on a target EBTIDA range. In determining the EBITDA, the Board retains discretion to take
into account: the financial impact of any acquisition, and any other significant restructuring costs or rationalisations within the Group in
order that the target is measured on a comparable basis.
Assessment Method
Determined on TSR and EBITDA result for FY16, FY17 and FY18.
Vesting
49% of the former CEO and MD’s 3,000,000 rights vested post retirement on 1 December 2017. 0% of the executive rights vested on
30 August 2018.
Table 2. LTI Performance Hurdles and Assessment Methods.
* Calculated in accordance with AASB 2: Share-based payment.
34
For the year ended 30 June 2019Directors’ report Remuneration realised by the Executive Director and Key Management Personnel
for the year ended 30 June 2019
2019
Fixed annual
remuneration
Cash STI
Total Remuneration Realised
during FY19
K Slaven
S Ellis
MD and CEO
MD - Ovato NZ Limited
G Stephenson
CFO
$
687,500
327,109
475,000
$
—
—
—
$
687,500
327,109
475,000
Table 3. Remuneration realised by the Executive Director and Key Management Personnel for the year ended 30 June 2019.
The table discloses total remuneration realised during the 2019 financial year. This includes fixed annual remuneration and cash STI.
Fixed annual remuneration based on current gross salary package, which includes base salary, annual leave and superannuation contributions.
No STI payable for the 2019 financial year as the EBITDA hurdle was not achieved.
New Zealand dollar payment converted into Australian dollars at the average profit and loss exchange rate prevailing during 2019. Remuneration includes housing allowance.
7.4 Senior executive performance evaluation
Ovato rewards executives for both Individual and Company performance. At the
beginning of the financial year, the CEO sets objectives for each direct report,
which are reviewed by the Appointments and Compensation Committee. This
includes corporate goals such as EBITDA (before significant items), safety, values
and personal objectives, including activities to drive the development of business
opportunities across the Group. The CEO reviews performance against objectives
during the year and at the financial year end and the outcomes are used to determine
overall performance and STI payments. The CEO provides recommendations to the
Appointments and Compensation Committee in relation to the STI payments and
the performance of the executives in relation to these payments for the Committee
to ratify.
7.5 Company performance
The graph below shows Ovato’s performance over the last three years.
Ovato Share Price Performance against ASX All Ords Index*
160%
140%
120%
100%
80%
60%
40%
20%
0
01/ 0 7/16
— PMP Share Price — All Ords
Ovato Share Price
All Ords
01/ 0 7/17
01/ 0 7/18
01/ 0 7/19
Ovato Share Price Performance against ASX All Ords Index.
* Source: ASX
35
7.6 CEO
Remuneration summary
The following Section details the remuneration arrangement for Mr Slaven,
CEO of Ovato.
The remuneration paid to Mr Slaven for the year ended 30 June 2019 is set out in the
table below:
EMPLOYMENT CONTRACT
Salary Component
Mr Slaven was appointed CEO and MD of Ovato Limited on 27 February 2018.
- Base Salary (including superannuation)
A new contract was completed on 17 September 2018 for a three-year term.
Either party may terminate with 12 months’ notice.
The details of the remuneration pursuant to his contract is set out below.
SUMMARY OF REMUNERATION STRUCTURE
Fixed Remuneration:
- Non-Monetary Benefits
- LSL
- STI: Cash
- LTI : Cash
Total
Base salary including superannuation is $650,000 per annum.
Table 4. Chief Executive Officer remuneration.
2019
$687,500
—
$4,588
—
—
$692,088
Short Term Incentive (“STI”):
STI of up to 75% of his fixed remuneration (“Maximum STI”) FY19,
comprising of the following components:
(a)
(b)
performance against EBITDA target being 70% of Maximum STI
(“EBITDA Target”); and
performance against other indicators set by the board being 30%
of maximum STI (“Other Indicators”)
Any STI achieved will be paid 70% in cash and 30% in Ovato shares.
The Ovato shares will be purchased on market no later than 1 October in the
following financial year and are subject to a 12-month holding lock from the start
of that financial year. Unless at least 90% of the EBITDA target is achieved in the
financial year, Ovato may determine no payment is made under the STI plan for
the EBITDA Target. There is no gateway for the other indicators.
Long Term Incentive (“LTI”):
Under the long-term incentive bonus award arrangement, Mr Slaven may receive at
the end of the three-year performance period ending 30 June 2021 (“Performance
Period”) a maximum award of $2,437,500 (“Maximum Award”) subject to satisfying
a cumulative EBITDA performance target (“the Target”).
Where less than 80% of the Target is achieved no payment is made in relation to
the Maximum Award. Where between 80% and 110% of the Target is achieved, a
corresponding proportion (i.e. between 50% and 100%) of the Maximum Award
may be paid.
Any payment under the LTI is to be paid 50% in cash and 50% in Ovato shares
purchased on market subject to a 12-month holding lock.
The Target is tested on the earlier of 30 June 2021 or an early vesting event. Where
there is an early vesting event, nothing will be awarded before 1 July 2019 and
thereafter the Maximum Award and the Target will be pro-rated to reflect the reduced
performance period.
Appointed MD and CEO on 27/02/18. Remuneration for the period 01/07/18 to 16/09/18 was on
a base salary including superannuation of $800,000 per annum. Remuneration for the period
17/09/18 to 30/06/19 was on a base salary including superannuation of $650,000 per annum.
STI of up to a maximum of 75% of annual FY19 remuneration, comprising of an EBITDA target
(70%) and other indicators determined by the Board (30%). The Board has the discretion to withhold
payment of the EBITDA target component if achievement of at least 90% of the EBITDA target is not
achieved. No STI payable for the 2019 financial year as the EBITDA hurdle was not achieved.
A maximum award of $2,437,500 subject to satisfying a 3-year cumulative EBITDA performance
target. Where less than 80% of target is achieved no payment is made. Where between 80% and
110% of the target is achieved, a corresponding proportion (i.e. between 50% and 100%) of the
maximum award may be paid. The target is tested on 30 June 2021. No amount has been provided as
at 30 June 2019.
7.7 Key Management Personnel
(other than Non-Executive Directors)
Ovato’s Key Management Personnel (excluding Non-Executive Directors)
during the financial year are:
K Slaven
MD and CEO
(Refer section 7.6 for remuneration details.)
S Ellis
MD - Ovato NZ Limited
G Stephenson
CFO
36
For the year ended 30 June 2019Directors’ report
Employment contracts
Ovato does not (subject to limited exceptions) include termination or severance payments for Ovato executives in their employment contracts other than agreed notice
provisions and the application of the Ovato redundancy policy (where applicable).
Notice Period Ovato
Notice Period Employee
Termination Payments
Name
S Ellis
6 Months
G Stephenson
6 Months
6 Months
6 Months
No specific termination payment provided for.
Where there is a change of control or a significant and material adverse change in his
duties or responsibilities in which case if the employment is terminated Ovato is to
pay the equivalent of 12 months TEC.
Table 5. Executive Employment Contracts.
Remuneration of Key Management Personnel
The table below outlines the remuneration packages of Key Management Personnel (“KMP”) (excluding Non-Executive Directors). All rights are independently valued in
accordance with AASB 2 using either the Black Scholes Model or the Monte Carlo Simulation Model. The amounts disclosed as part of remuneration for the financial year have
been determined by allocating the grant date fair value on a straight-line basis over the period from grant date to vesting date.
Key Management Personnel
(excluding Non-Executive
Directors)
Short Term
Long Term
Total
Excluding
Rights
Equity
Rights
Grand Total
Salary
STI
Non-
Monetary
benefits
Post
Employment
Superannuation
LSL
LTI
$
$
$
$
$
$
$
$
$
K Slaven
S Ellis
A O’Connor
G Stephenson
2019
666,969
2018
2019
2018
2018
2019
2018
805,883
317,851
301,095
421,420
454,469
454,951
—
—
—
—
—
—
—
P George
2018
241,646
54,910
Total Remuneration KMP
(excluding Non-Executive
Directors)
2019 1,439,289
—
2018
2,224,995
54,910
—
—
—
—
—
—
—
—
—
—
20,531
4,588
—
692,088
20,528
12,534
333,333
1,172,278
327,109
309,865
439,832
9,258
8,770
—
—
19,651
(1,239)
20,531
7,503
20,049
7,526
8,354
(50,166)
—
—
—
—
—
—
—
—
—
—
—
692,088
1,172,278
327,109
309,865
439,832
482,503
3,701
486,204
482,526
9,248
491,774
254,744
51,023
305,767
50,320
12,091
— 1,501,700
3,701
1,505,401
77,352
(31,345)
333,333
2,659,245
60,271
2,719,516
Table 6. Key Management Personnel (excluding Non-Executive Directors) remuneration of the Company and the Group.
Appointed MD and CEO on 27/02/18. Remuneration for the period 01/07/18 to 16/09/18 was on a base salary including superannuation of $800,000 per annum. Remuneration for the period 17/09/18 to 30/06/19
was on a base salary including superannuation of $650,000 per annum.
Appointed interim CEO of Ovato (formerly PMP) Limited on 01/12/17 and MD and CEO of Ovato on 27/02/18. He was the CEO of Distribution and Marketing Services from 01/07/17 to 30/11/17. Remuneration is for
the 12 month period to 30/06/18. Annual base salary including superannuation is $800,000. During the financial year he received a back payment for wages that were underpaid during the period September 2016 to
June 2017 of $26,411.
New Zealand dollar payment converted into Australian dollars at the average profit and loss exchange rate prevailing during 2019 and 2018. Remuneration includes housing allowance.
Not considered a KMP for 2019 due to change in internal management reporting structure. Annual base salary including superannuation for 2018 was $450,000. Five days leave without pay was taken during the
financial year which equated to $8,929.
Retired on 30/11/17 (Termination payment of $600,000 excluded. Payment made on 30/11/17.).
Mr George’s salary includes non-monetary benefits being $54,910 for accommodation.
This is based on the accrued accounting value in accordance with AASB 2 Share-based Payment.
37
Key Management Personnel achievement of performance hurdles
Fixed
Remuneration
At Risk
STI
At Risk
Cash
LTI
At Risk
Equity
Settled
LTI
Annual
Remuneration
Paid During
the Year
Actual
STI
Cash
LTI
Equity
Rights
Actual
Reward
Proportion of
Remuneration
Performance
Related
K Slaven
S Ellis
G Stephenson
%
33
67
67
%
25
33
33
%
42
-
-
%
-
-
-
$
687,500
327,109
475,000
$
-
-
-
$
-
-
-
$
-
-
$
687,500
327,109
3,701
478,701
%
0%
0%
1%
Table 7. Key Management Personnel achievement of performance hurdles.
The table above represents the total remuneration mix for KMP in the current year. The at risk STI is disclosed at target levels, the at risk equity settled LTI amount is provided based on the value granted in the
current year and the at risk cash LTI is the maximum amount entitled to in the current year.
No STI payable for the 2019 financial year as the EBITDA hurdle was not achieved.
All LTIs are composed of “rights” with the exception of the existing LTI scheme for Mr Slaven. The value for the rights in this table has been independently valued at the grant date with rights subject to the TSR
hurdle valued using a Monte Carlo Simulation and the Black Scholes model used to value the rights with a EBITDA performance condition. The value disclosed is the fair value for two months (July 2018 and
August 2018) of the TSR rights issued in June 2016 recognised as an expense in the reporting period. These rights lapsed in FY19 following the release of the 2018 financial results on 30/08/18. No equity settled
LTIs were granted in FY19. Mr Slaven’s entitlement is based on a cash based LTI scheme which is described under LTIs at 7.6.
Remuneration paid in New Zealand dollars. New Zealand dollar remuneration converted into Australian dollars at the average profit and loss rate prevailing during the year.
Share rights
No Directors were granted or hold rights over shares of Ovato Limited. During and since the end of the financial year none of the Directors and top 5 remunerated officers
were granted share rights. The table below lists the top 5 remunerated officers. No share rights vested to management during the year ended 30 June 2019.
Top 5 remunerated personnel rights granted
30 June 2019
30 June 2018
Granted number
Vested Number
Granted number
Vested Number
K Slaven
A Clarkson
C Dunsford
J Hannan
A O’Connor
G Stephenson
Total
—
—
—
—
—
—
—
—
—
—
—
—
—
—
K Slaven
A Clarkson
C Dunsford
A O’Connor
B Straw
G Stephenson
Total
—
148,958
—
—
—
247,396
396,354
—
—
—
—
—
—
—
Table 8. Top 5 remunerated personnel rights granted.
As at 28 August 2017, following the announcement of the result to 30 June 2017 to the ASX, the performance rights issued in October 2014 to eligible executives under the Ovato (formerly PMP) LTI Plan that
exceeded the hurdles vested.
38
For the year ended 30 June 2019Directors’ report Rights Holdings Key Management Personnel (excluding Non-Executive Directors)
Balance
1 July 2018
Granted as
Remuneration
Rights
Exercised
2019
K Slaven
S Ellis
G Stephenson
J Nichols
Total
—
—
431,818
345,455
777,273
—
—
—
—
—
Balance
1 July 2017
Granted as
Remuneration
Rights
Exercised
Rights
Lapsed
—
—
—
—
—
—
—
(431,818)
(345,455)
(777,273)
Rights
Lapsed
Rights
Cancelled
Other
Balance
30 June 2019
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Rights
Cancelled
Other
Balance
30 June 2018
2018
K Slaven
—
P George
3,000,000
S Ellis
—
J Nichols
741,288
A O’Connor
—
G Stephenson
926,610
Total
4,667,898
—
—
—
—
—
—
—
—
—
(1,456,650)
(1,543,350)
—
—
(197,916)
(197,917)
—
—
(247,396)
(247,396)
(1,901,962)
(1,988,663)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
345,455
—
431,818
777,273
Table 9. Rights holdings Key Management Personnel (excluding Non-Executive Directors).
Lapse of 100% of TSR and EBITDA performance rights issued in June 2016.
Retired on 31/10/17. Mr Nichols remained eligible for the rights issued in June 2016 subject to satisfaction of the performance hurdles which were assessed following the release of the 2018 financial year results
on 30/08/18. These rights have since lapsed in FY19.
Retired on 30/11/17. As at 01/12/17 with the retirement of Mr George and in accordance with the terms of the Ovato (formerly PMP) Long Term Incentive Plan and his Employee Service Agreement an early vesting
event occurred and 1,456,650 TSR rights vested (97.11% of TSR rights) with no EBITDA rights vesting.
100% of TSR performance rights issued in October 2014 were exercised.
Lapse of 100% of EBITDA performance rights issued in October 2014.
39
Shareholdings of Directors and Key Management Personnel
2019
Directors
M Bickford-Smith
K Slaven
M Hannan
D Karai
T Sinclair
W Tang
A McMaster
Total
Executives
S Ellis
G Stephenson
Total
Balance
1 July 2018
On Exercise
of Rights
Acquired
Disposed
Other
450,000
—
187,970,295
30,000
—
—
—
188,450,295
—
744,664
189,194,959
—
—
—
—
—
—
—
—
—
—
—
195,653
386,620
184,764,260
91,428
—
—
—
185,437,961
—
35,714
185,473,675
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Balance
30 June 2019
645,653
386,620
372,734,555
121,428
—
—
—
373,888,256
—
780,378
374,668,634
Table 10. Share holdings of Directors and Key Management Personnel.
Direct share holding 79,138,104 and indirect share holding 293,596,451 as at 30 June 2019.
Appointed on 04/10/18.
7.8 Non-Executive Director Remuneration
7.9 Performance assessment
The remuneration of Non-Executive Directors is determined by the full Board, within a
maximum amount approved by shareholders in a general meeting and with regard to
the level of fees paid to Non-Executive Directors by other companies of similar size.
The maximum allowance for the aggregate amount of fees has remained unchanged
since 2004 at $750,000 per annum. In the last financial year, the Board paid
$660,539 of this amount for Non-Executive Directors’ remuneration - as shown in
Table 11.
Non-Executive Directors are not entitled to retirement benefits other than statutory
superannuation or other statutory required benefits.
The Chair continuously evaluates the Board and Director performance directly
with each Director.
7.10 Retirement benefits
Non-Executive Directors receive cash remuneration plus statutory superannuation
contributions only.
Chair of the Board
Non-Executive Director
Chair of Audit and Risk
Management Committee
Member of Audit and Risk
Management Committee
Chair of Appointments and
Compensation Committee
Member of Appointments and
Compensation Committee
Fees *
$215,222
$82,125
$28,470
$14,235
$28,470
$14,235
There is no element of Non-Executive Director salaries contingent on performance.
* Inclusive of statutory superannuation of 9.5%.
40
For the year ended 30 June 2019Directors’ report Specified Director Remuneration
Specified Directors
Salary &
Fees
Non -
Monetary
Benefits
Post
Employment
Superannuation
Short
Term
Incentive
Long
Service
Leave
Long Term
Incentive
Equity
Rights
Grand
Total
$
$
$
$
$
$
$
$
Total Remuneration: Non-Executive Directors
M Bickford-Smith
(Board Chair)
M Hannan
D Karai
T Sinclair
W Tang
A McMaster
S Anstice
A Cheong
Total
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2018
196,550
196,550
86,869
88,000
99,869
101,000
88,000
62,129
88,000
62,129
61,169
73,333
22,000
2019
620,457
2018
605,141
Total Remuneration: Executive Directors
K Slaven (CEO)
2019
666,969
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
P George
Total
2018
2018
805,883
241,646
54,910
2019
666,969
—
2018
1,047,529
54,910
Total Remuneration: Directors
2019
1,287,426
—
2018
1,652,670
54,910
18,672
18,672
8,253
8,360
9,488
9,595
8,360
5,902
8,360
5,902
5,811
6,967
—
58,944
55,398
20,531
20,528
8,354
20,531
28,882
79,475
84,280
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,588
—
12,534
333,333
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
215,222
215,222
95,122
96,360
109,357
110,595
96,360
68,031
96,360
68,031
66,980
80,300
22,000
679,401
660,539
692,088
1,172,278
(50,166)
4,588
—
—
51,023
305,767
—
692,088
(37,632)
333,333
51,023
1,478,045
4,588
—
— 1,371,489
(37,632)
333,333
51,023
2,138,584
Table 11. Specified Director remuneration.
Appointed a Non-Executive Director on 04/10/18. A member of the Audit and Risk Management
Committee from 22/02/19 to 30/05/19. Appointed Chair of the Audit and Risk Management
Committee on 31/05/19.
Appointed a Non-Executive Director on 10/10/17 and a member of the Audit and Risk Management
Committee on 01/12/17.
Appointed a Non-Executive Director on 10/10/17 and a member of the Appointments and
Compensation Committee on 01/12/17.
Retired on 01/05/18.
Appointed MD and CEO on 27/02/18. Remuneration for the period 01/07/18 to 16/09/18 was
on a base salary including superannuation of $800,000 per annum. Remuneration for the period
17/09/18 to 30/06/19 was on a base salary including superannuation of $650,000 per annum.
Appointed interim CEO of Ovato (formerly PMP) Limited on 01/12/17 and MD and CEO on
27/02/18. He was the CEO of Distribution and Marketing Services from 01/07/17 to 30/11/17.
Remuneration is for the 12 month period to 30/06/18. Annual base salary including superannuation
is $800,000. During the financial year he received a back payment for wages that were underpaid
during the period September 2016 to June 2017 of $26,411.
Retired on 30/11/17 (Termination payment of $600,000 excluded. Payment made on 30/11/17.).
Mr George’s salary includes non-monetary benefits being $54,910 for accommodation.
Retired on 30/09/17. Payments made for Directorship services provided by Mr Cheong are made to
Equity rights are calculated as per Table 6.
Fraser & Neave (Singapore) Pte Ltd.
This report has been made in accordance with a resolution of Directors.
Matthew Bickford-Smith
Chair
Sydney, 13th September 2019
Kevin Slaven
Managing Director and Chief Executive Officer
41
Independent auditor’s declaration
For the year ended 30 June 2019
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
The Board of Directors
Ovato Limited
Level 4
60 Union Street
Pyrmont NSW 2009
13 September 2019
Dear Directors,
Ovato Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide
the following declaration of independence to the directors of Ovato Limited.
As lead audit partner for the audit of the financial statements of Ovato Limited for the
financial year ended 30 June 2019, I declare that to the best of my knowledge and
belief, there have been no contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
JL Gorton
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte Network.
42
43
The CFO of Ovato is responsible for all finance and support
functions in the Company as well as leading a corporate
team covering financial accounting, management reporting,
treasury, taxation and investor relations.
Mr Stephenson has over 30 years of experience with a range
of blue chip companies including Iplex Pipelines, Fairfax
Media and Goodman Fielder. He has held a range of senior
commercial and financial roles at both a divisional and head
office level working in Australia and offshore.
CFO’s review
Geoff Stephenson
B.Bus CPA GAICD
Chief Financial Officer (“CFO”)
Appointed 31 May 2010
Sales Revenue
Net Loss After Tax
Sales revenue for the year ended 30 June 2019 was $669.2 million down
$64.7 million or 8.8% due mainly to lower sales at Print Australia down
$53.2 million. At Ovato Australia, sales of $554.9 million were down
$59 million or 9.6% mostly from $53.2 million lower print sales with
$29 million reductions in property related newspapers and magazines.
Catalogue sales were down $23 million on contract losses/cessation and
lower tier 2-3 volumes. Tier 1 retailer catalogue volumes have remained
consistent with FY18. Residential Distribution Australia unaddressed
volumes were down 4.9% on pcp on contract loss and lower existing
customer volumes. Ovato New Zealand sales were down $5.8 million or
4.8% due to lower heatset revenues mainly due to lower sell prices. In
the last 12 months the company has rebranded to Ovato to promote a
broad range of its capabilities to key customers through a Group Sales
& Marketing team (vs bidding for services separately) and developed a
Growth & Innovation function to develop new revenue streams. As such
it is appropriate to change segment reporting to Ovato Australia Group
and Ovato New Zealand Group. Ovato Australia Group comprises all the
businesses in Australia as well as the Corporate function.
Earnings Before Interest, Tax and
Depreciation (“EBITDA”)
The full-year EBITDA (before significant items) at $30.8 million, was down
24.1% or $9.8 million on the prior year EBITDA (before significant items)
of $40.6 million. Ovato Australia EBITDA (before significant items) was
down $3.7 million or 12.5% as improved profits at Retail Distribution and
Marketing Services were offset by lower outcomes at Print (where lower
volumes offset strong cost savings from FY18 cost out programmes flowing
through into FY19 and the commencement of the NSW site consolidation).
Residential Distribution Australia fell as lower revenues offset lower costs.
Retail Distribution has reduced costs, higher price/mix and new products
which all offset lower volumes. Ovato New Zealand EBITDA (before
significant items) at $4.6 million was down $6.0 million or 57% year
on year as mainly due to lower print sell prices and volumes.
A net loss after tax of $84.3 million was recorded for FY19 which was $40.5
million higher than the $43.8 million loss in the previous year. EBITDA
(before significant items) was lower by $9.8 million and was partially
offset by lower depreciation. The main variance year on year was a $34.9
million increase in after tax significant items due to impairment of plant and
equipment and deferred tax assets.
Cash Flow
The Group’s net cash flow at negative $12.4 million was $0.1 million
better compared to FY18 as $5.5 million lower cash significant items
and $15.1 million of equity proceeds (net of fees) offset lower EBITDA,
higher interest expense and unfavourable working capital movements.
Working capital movements were $5.7 million unfavourable pcp.
Balance Sheet
At year end, net assets for the Group were $141.9 million,
down $68.6 million from $210.4 million in the previous year mainly
due to the $84.3 million statutory loss in fiscal 2019 and partially
offset by $15.1 million of equity proceeds. Current assets at $229.1 million
were down by $29.9 million on mainly lower debtor and cash balances.
Current liabilities at $226.9 million were down $10.4 million on lower
accounts payable.
In fiscal 2019, the company issued a new $40 million corporate bond
for 4 years at 8.25% coupon with second ranked security to replace the
previous bond. In addition, a $15.5 million equity rights issue took place
in May 2019 and June 2019 to strengthen the balance sheet and a new
Commerzbank loan was finalised to fund the new press in FY20.
44
CFO’s review
For the year ended 30 June 2019
Highlights
$M
EBITDA
(before significant items)
2019
30.8
2018
40.6
Cash Flow
% Change
$M
(24.1%)
EBITDA
(before significant items)
Depreciation & Amortisation
(28.6)
(31.3)
8.4%
Borrowing costs
EBIT
(before significant items)
Financing Costs
Income tax benefit/(expense)
(before significant items)
Net (Loss)/Profit
(before significant items)
Significant items
Income tax expense on
significant items
2.2
9.4
(76.3%)
Income tax payments
(8.4)
1.8
(7.4)
(0.8)
(4.4)
1.1
(13.0%)
—
—
Net movement in working capital
Trading cash flow
Significant items
Cash flow from operating activities
Asset sales
(63.6)
(39.4)
(61.6%)
Capital expenditure
(16.3)
(5.6)
—
Share issue
Net cash flow
Gain/(Loss) on foreign currency cash & other
Reconciliation to net debt movement
Balance Sheet~
$M
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Net Loss after income tax
(84.3)
(43.8)
(92.4%)
Segment Revenue~
$M
Sales Revenue
Ovato Australia Group
Ovato New Zealand Group
Total
2019
2018
% Change
554.9
114.3
613.9
120.1
669.2
734.0
(9.6%)
(4.8%)
(8.8%)
Segment EBITDA (before significant items)~
$M
2019
2018
% Change
EBITDA (before significant items)
Ovato Australia Group
Ovato New Zealand Group
Total
26.3
4.6
30.8
30.0
10.6
40.6
(12.5%)
(57.0%)
(24.1%)
~ The Group adjusted its segment reporting in the year under review due to changes to the way the
Group sells to its customers and a revised management structure. This has resulted in a change to
how the group defines its segments. Refer to comments on ‘Change in segment reporting’ contained
in Note 1: Summary of significant accounting policies. The 2018 comparatives have been adjusted
to reflect the changes.
2019
30.8
(9.3)
—
(10.6)
10.9
(30.1)
(19.2)
0.1
(8.4)
15.1
(12.4)
0.5
(11.9)
2019
229.1
204.6
433.7
226.9
64.9
291.8
141.9
2018
40.6
(6.2)
(0.1)
(4.9)
29.5
(35.6)
(6.1)
2.6
(9.0)
—
(12.6)
(1.7)
(14.3)
2018
259.0
259.3
518.3
237.4
70.5
307.9
210.4
45
For the year ended 30 June 2019
Consolidated statement of profit or loss and other comprehensive income
YEAR ENDED 30 JUNE 2019
Continuing operations
Sales revenue
Other revenue
Raw materials and consumables used
Cost of finished goods sold
Employee expenses
Outside production services
Freight
Repairs and maintenance
Occupancy costs
Other expenses
Depreciation and amortisation
Finance costs
Loss before income tax
Income tax expense:
Current tax benefit in respect of the current period
Deferred tax expense in respect of the current period
Total tax expense
Net loss after income tax
Other comprehensive income/(expense)
Items that will not be reclassified subsequently to profit or loss:
Defined benefit plan actuarial (losses)/gains
Income tax relating to items that will not be reclassified subsequently
Items that may be reclassified subsequently to profit or loss:
Exchange gains/(losses) arising on translation of foreign operations
Other
(Loss)/Gain on cash flow hedges taken to equity
Income tax relating to items that may be reclassified subsequently
Other comprehensive income/(expense) for the period (net of tax)
Total comprehensive loss for the year
Basic earnings per share (cents)
Diluted earnings per share (cents)
Ovato Group
2019
$’000
2018
$’000
669,236
10,754
(257,788)
(1,475)
(275,669)
(13,417)
(68,807)
(15,203)
(39,953)
(39,788)
(28,635)
(9,046)
(69,791)
15,810
(30,270)
(14,460)
(84,251)
(642)
193
(449)
1,654
-
(181)
51
1,524
1,075
733,968
12,527
(273,486)
(986)
(303,477)
(14,492)
(78,355)
(18,436)
(35,550)
(20,446)
(31,276)
(7,449)
(37,458)
15,737
(22,074)
(6,337)
(43,795)
145
(44)
101
(1,273)
(4)
391
(112)
(998)
(897)
(83,176)
(44,692)
(16.0)
(16.0)
(8.6)
(8.6)
NOTES
2(a), 20
2(a), 20
2(e), 20
3
4
21
24
24
Weighted average number of ordinary shares outstanding during the period used in the calculation of
basic earnings per share (‘000)
24(a)
526,955
509,460
The above Consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.
46
Financial statements
Consolidated statement of financial position
AS AT 30 JUNE 2019
Current assets
Cash and cash equivalents
Receivables
Inventories
Financial assets
Other
Total current assets
Non-current assets
Property, plant and equipment
Deferred tax assets
Goodwill and intangible assets
Financial assets
Other
Total non-current assets
Total assets
Current liabilities
Payables
Interest bearing liabilities
Income tax payable
Financial liabilities
Provisions
Total current liabilities
Non-current liabilities
Interest bearing liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
The above Consolidated statement of financial position should be read in conjunction with the accompanying notes.
NOTES
25(b)
5
6
14
7
8
10
9
14
7
11
12(a)
14
13
12(b)
13
15
17
Ovato Group
2019
$’000
38,701
81,783
102,692
1,205
4,739
229,120
113,410
48,812
39,117
1,207
2,011
204,557
433,677
143,875
39,735
8
144
43,172
226,934
43,243
21,627
64,870
291,804
141,873
2018
$’000
54,418
91,924
105,015
1,470
6,149
258,976
154,299
62,659
37,710
1,768
2,910
259,346
518,322
157,502
39,899
5
121
39,829
237,356
48,787
21,737
70,524
307,880
210,442
497,523
11,703
(367,353)
141,873
482,433
10,436
(282,427)
210,442
47
For the year ended 30 June 2019
Consolidated statement of cash flows
YEAR ENDED 30 JUNE 2019
NOTES
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Fee paid for early termination of corporate bond
Interest received
Interest and other costs of finance paid
Income tax paid
Net cash flow (used in)/provided by operating activities
25(a)
Cash flows from investing activities
Payments for property, plant and equipment
Payments for development and licence costs
Proceeds from sale of property, plant and equipment
Net cash flow (used in)/provided by investing activities
Cash flows from financing activities
Repayment of corporate bond
Proceeds from corporate bond
Repayments of borrowings
Proceeds from new borrowings
Proceeds from issue of shares
Net cash flow provided by/(used in) financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
12(e)
12(e)
15
Cash and cash equivalents at end of the financial year
25(b)
Ovato Group
2019
$’000
2018
$’000
1,185,560
(1,195,496)
1,319,127
(1,319,473)
(400)
488
(9,330)
(45)
(19,223)
(7,796)
(607)
95
(8,308)
(40,000)
40,000
(15,260)
11,451
15,090
11,281
(16,250)
54,418
533
38,701
—
488
(6,171)
(56)
(6,085)
(9,031)
(16)
2,571
(6,476)
—
—
(5,550)
18,407
—
12,857
296
54,340
(218)
54,418
The above Consolidated statement of cash flows should be read in conjunction with the accompanying notes.
48
Financial statements
Consolidated statement of changes in equity
YEAR ENDED 30 JUNE 2019
Attributable to equity holders of Ovato Limited
Ovato Group ($’000)
Contributed
equity
Accumulated
losses
Foreign
currency
translation
reserve
Share-
based
payment
reserve
Cash flow
hedge
reserve
Total
equity
At 1 July 2017
481,758
(238,729)
11,150
849
23
255,051
Currency translation differences
Cash flow hedges (net of tax)
Other
Defined benefit plan (net of tax)
Total (expense)/income recognised directly in equity
Loss for the year
Total comprehensive (expense)/income for the year
Share-based payments #
—
—
—
—
—
—
—
675
—
—
(4)
101
(1,273)
—
—
—
97
(1,273)
(43,795)
—
(43,698)
(1,273)
—
—
—
—
—
—
—
—
—
(592)
—
279
—
—
279
—
279
—
(1,273)
279
(4)
101
(897)
(43,795)
(44,692)
83
At 30 June 2018
482,433
(282,427)
9,877
257
302
210,442
At 1 July 2018
482,433
(282,427)
9,877
257
302
210,442
Change in accounting policy (net of tax) ~
—
(498)
Restated total equity at the beginning of the financial year
482,433
(282,925)
Currency translation differences
Cash flow hedges (net of tax)
Defined benefit plan (net of tax)
Total income/(expense) recognised directly in equity
Loss for the year
Total comprehensive (expense)/income for the year
Shares issued *
Share-based payments
—
—
—
—
—
—
15,090
—
—
9,877
1,654
—
—
1,654
—
—
—
(449)
(449)
(84,251)
(84,700)
1,654
—
272
—
—
—
257
—
—
—
—
—
—
—
(257)
—
302
—
(130)
—
(130)
—
(130)
—
—
(498)
209,944
1,654
(130)
(449)
1,075
(84,251)
(83,176)
15,090
15
At 30 June 2019
497,523
(367,353)
11,531
—
172
141,873
The above table represents the Ovato Group position.
~
Cumulative effect of the initial application of AASB 9 Financial Instruments on 1 July 2018. Refer to Changes in accounting policies in Note 1.
*
During the financial year the company undertook a 1 for every 2.3 shares held fully underwritten accelerated pro-rata non-renounceable entitlement offer. On 30 May 2019, 156,709,664 shares were issued at $0.07
per share under the institutional entitlement. On 14 June 2019, 65,110,974 shares were issued at $0.07 per share under the retail entitlement. Transaction costs arising from the institutional and retail entitlement of
$437,000 were accounted for as a deduction from equity during the financial period.
# On 28 August 2017, the performance rights issued in October 2014 to the eligible executives were exercised. The vested rights were settled by the issue of 699,204 shares on 29 August 2017 for $0.238 million, utilising
the provision. On 1 December 2017, the eligible performance rights issued on 1 October 2015 to the former Managing Director and Chief Executive Officer vested on retirement. The vested rights were settled by the issue
of 1,456,650 shares for $0.437 million, utilising the provision.
The above Consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
49
Financial
notes
1
2a
2b
2c
2d
2e
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
Summary of significant accounting policies
Revenue
Significant items
Loss before income tax
Auditors’ remuneration
Depreciation and amortisation
Finance costs
Income tax
Receivables
Inventories
Other assets
Property, plant and equipment
Goodwill and intangible assets
Deferred tax
Payables
Interest bearing liabilities
Provisions
Financial assets and financial liabilities
Contributed equity
Dividends
Reserves
Commitments
Controlled entities
Segmental information
Pension plans
Share-based payment plans
Related parties
Earnings per share
Cash flow statement notes
Financial instruments
Contingent liabilities
Subsequent events
Parent
Directors’ Declaration
Independent Auditor’s Report
50
Financial statements
Notes to and forming part of the Financial Statements
for the year ended 30 June 2019
1 Summary of significant accounting policies
Basis of preparation
The financial report is a general purpose financial report, which has been prepared
in accordance with the requirements of the Corporations Act 2001, Accounting
Standards and Interpretations, and complies with other mandatory professional
reporting requirements.
The financial report comprises the financial statements of the consolidated entity
(Ovato Group) consisting of Ovato Limited (parent) and its controlled entities. For
the purposes of preparing the consolidated financial statements, Ovato Limited is a
for-profit entity.
Historical cost convention
The financial statements have been prepared in accordance with the historical
cost convention, except for the revaluation of derivative financial instruments that
have been measured at fair value. Historical cost is based on the fair values of the
consideration given in exchange for goods and services.
Statement of compliance
Compliance with IFRS
The financial statements comply with Australian Accounting Standards, which
include Australian Equivalents to International Financial Reporting Standards
(“AIFRS”). Compliance with AIFRS ensures that the financial statements,
comprising the financial statements and notes, thereto comply with International
Financial Reporting Standards (“IFRS”). The financial statements were authorised
for issue by the Directors on 13 September 2019.
Adoption of new and revised
accounting standards
In the current year, Ovato Group has adopted all of the new and revised Standards
and Interpretations issued by the Australian Accounting Standards Board (“AASB”)
that are relevant to its operations and effective for the year ended 30 June 2019.
In preparing the consolidated financial statements for the current year, the Group
has applied the changes required by the following amendments to AASBs:
• AASB 9 Financial Instruments and the relevant amending standards
• AASB 2016-5 Amendments to Australian Accounting Standards -
Classification and Measurement of Share-based Payment Transactions.
Amendments to AASB 2 Share-based Payment.
None of these standards have had a material impact on Ovato in the current
reporting period.
Change in segment reporting
The Group applies a ‘management approach’ to identify its segments, based
on the information provided to the Group’s chief operating decision-makers.
This information is used to make decisions about resources to be allocated to the
segment and assess their performance.
During the financial year, the Group changed its internal reporting structure due to
a number of changes to the way the Group sells to its customers by making bundled
offers under a rebranded company and revised management structure. This has
resulted in a change to how the Group defines its operating segments. The Group
has combined Marketing Services Australia (includes Retail Distribution and the
digital businesses), Residential Distribution Australia, Print Group Australia and
Corporate into one discrete segment, Ovato Australia Group. There has been no
change to the Ovato New Zealand Group segment. The 2018 comparatives have
been restated.
Standards and interpretations issued not yet adopted
At the date of publication, the Standards and Interpretations that were issued but not yet effective are listed below.
Standard/Interpretation
- AASB 16 Leases.
AASB 16 Leases
Effective for annual reporting
periods beginning on or after
Expected to be initially applied in
the financial year ending
1 January 2019
30 June 2020
The Group will apply AASB 16 Leases from 1 July 2019. AASB 16 replaces existing
accounting requirements for leases under AASB 117 Leases, Interpretation 4
Determining whether an Arrangement Contains a Lease, Interpretation 115 Operating
Lease - Incentives and Interpretation 127 Evaluating the Substance of Transactions in
the Legal Form of a Lease.
AASB 16 requires lessees to recognise most leases on balance sheet. The
distinction between operating and finance leases is eliminated. Under the new
standard, an asset being a right-to-use the underlying asset and a lease liability
representing the obligation to make lease payments will be recognised. The only
recognition exceptions are short-term leases and leases of low-value assets.
i. Transition
AASB 16 must be applied retrospectively, either with the restatement of
comparatives or with the cumulative impact of adopting AASB 16 recognised as an
adjustment to the opening balance of retained earnings as at 1 July 2019. The Group
will apply the modified retrospective approach and will not restate comparative
amounts for the year prior to adoption.
The definition of a lease has changed under AASB 16 compared to that under current
guidance. There is transitional relief under AASB 16 to grandfather the definition of a
lease on transition. If elected, the relief must be applied to all contracts entered into
before 1 July 2019. The Group has elected to apply this relief.
Depreciation of leased assets and interest on the lease liabilities will be recognised
in the income statement over the useful life of the right-of-use asset.
ii. Leases in which the Group is lessee
This will primarily impact the Group’s leases of property, presses, forklifts, motor
vehicles, IT and equipment which are currently classified as operating leases. Under
current standards, lease payments are expensed on a straight-line basis to the
income statement over the term of the lease and assets and liabilities are recognised
only to the extent that there is a timing difference between actual lease payments
and the expense recognised.
AASB 16 requires an intermediate lessor to assess and classify sub-leases as either
operating or finance leases. The criteria for classification of sub-leases has been
amended under AASB 16. The Group has sub-leases in which it is the intermediate
lessor and on adoption of AASB 16 will be required to make adjustments to the
classification and accounting. Refer to iv. Estimated impact on adoption of AASB 16.
The lease liability has been measured at the present value of the remaining lease
payments as at 1 July 2019 discounted using the incremental borrowing rate at
transition.
On transition, under the modified retrospective approach, the Group has the
choice to measure the Right-Of-Use (“ROU”) assets as equal to the lease liability
(adjusted for any prepayments or accruals) or calculated retrospectively as if AASB
16 has always applied from the date of lease commencement discounted using the
incremental borrowing rate at transition. This is applied on a lease-by-lease basis.
For material property leases the Group will measure the ROU asset on transition as
if AASB 16 had always been applied. Any difference between the lease asset and
liability is recognised as an adjustment to opening retained earnings. All other ROU
assets will be measured at the amount of the lease liability on adoption.
51
1 Summary of significant accounting policies (continued)
There are a number of practical expedients available on transition under the
modified retrospective approach for leases previously classified as operating leases
which the Group will apply. The expedients applied are as follows:
The actual impacts of adopting the standard is subject to change until the Group
presents its first financial statements that include the date of initial application. This
is because the Group is still testing and assessing the controls over its new lease
accounting system, reviewing completeness and composition of the Group’s lease
portfolio and establishing new accounting policies.
• The Group has excluded any initial direct costs from the measurement of the ROU
asset on transition where the ROU asset has been calculated as if AASB 16 has
always applied.
Changes in accounting policies
AASB 9 Financial Instruments
• The Group has used hindsight when determining the lease term where the
agreement contained options to extend the lease. These have been included when
calculating the ROU asset as if AASB 16 has always applied.
• Not to bring on to the balance sheet short-term leases (remaining lease term 12
months or less at 1 July 2019 including reasonably certain options to extend).
These leases will continue to be expensed directly to the income statement on a
straight-line basis.
• The Group will adjust the ROU asset carrying amount by the amount of any
existing onerous lease provisions at 1 July 2019. An impairment review must be
performed on ROU assets at initial application of the standard. The group has
elected to rely on its onerous lease assessments under AASB 137 Provisions,
Contingent Liabilities and Contingent Assets, as at 30 June 2019 as permitted by
AASB 16.
• The Group has elected to apply a single discount rate to a portfolio of leases with
reasonably similar characteristics.
The Group has made the following additional choices as permitted by AASB 16:
• Ovato has elected not to record leases, entered into post 1 July 2019, which have
a short-term (less than 12 months from lease commencement) or are low-value
(fair value of less than $10,000 when new) as a ROU asset and lease liability. The
payments for these leases will be expensed on a straight-line basis.
• The Group has elected not to combine lease and non-lease components for
property leases. The Group will calculate the lease liability for property leases
excluding outgoings. The standalone outgoings price will be determined by
separate identification on the rental invoice.
• The Group has excluded from the measurement of the lease liability and ROU
asset, variable lease payments linked to future use of the leased item. These
costs are expensed to the profit or loss as incurred.
iii. Leases in which the Group is an intermediate lessor in a sub-lease
The criteria for classification of sub-leases for the intermediate lessor as a finance
or operating lease has been amended under AASB 16. The Group has some
sub-lease arrangements that have been reassessed at transition for classification
purposes. On 1 July 2019, some sub-leases will be reclassified as finance leases,
resulting in the recognition of finance lease receivables.
iv. Estimated impact on adoption of AASB 16
Based on the information currently available the Group has assessed that the
estimated impact of AASB 16 will be material. The Group expects on 1 July 2019
to recognise lease related liabilities of between $120 million to $130 million. The
Group also expects on 1 July 2019 to recognise right-of-use assets of between $75
million to $85 million which have been adjusted by $19 million of onerous lease
provisions and recognise finance lease receivables on reclassification of sub-leases
of between $4 million to $6 million.
The operating lease expense recognised under the existing standard will largely be
replaced by depreciation, finance costs and finance income. EBITDA will increase
as the operating lease cost is charged against EBITDA whereas depreciation and
interest are excluded from EBITDA. Short-term and low-value leasing costs, non-
lease components and variable costs will continue to be charged against EBITDA.
AASB 9 includes revised guidance on the classification and measurement of
financial instruments, new general hedge accounting requirements and a new
expected credit loss model for calculating impairment on financial assets. This
standard replaces AASB 139 Financial Instruments: Recognition and Measurement.
The Group has adopted AASB 9 Financial Instruments from 1 July 2018.
The adoption has resulted in changes in accounting policies and adjustments to
the amounts recognised in the financial statements. This has arisen from the new
impairment rules.
Comparative figures have not been restated in accordance with the transitional
provisions under the standard but adjustments have been recognised in the opening
balance sheet as at 1 July 2018.
The impact on the financial statements is a follows:
i. Classification and measurement of financial assets
Under AASB 9 classification of financial assets is based on the entity’s purpose
for holding such instruments and the contractual cash flow characteristics of the
individual financial asset.
There are 3 classification categories for financial assets under AASB 9 - amortised
cost, fair value through other comprehensive income and fair value through profit or
loss. The categories of held to maturity, loans and receivables and available for sale
have been eliminated.
Ovato Group has the following financial assets - cash and cash equivalents, trade
and other receivables and derivative financial instruments.
All assets, apart from derivatives that are used as hedging instruments which are
measured at fair value, are held to collect contractual cash flows. The cash flows
are payments of principal and interest on the principal amount. Cash and cash
equivalents and receivables have been reclassified from loans and receivables
under AASB 139 to amortised cost under AASB 9.
The contractual cash flow payments continue to be measured at amortised cost
using the effective interest method.
ii. Classification and measurement of financial liabilities
AASB 9 largely retains the classification and measurement requirements under
AASB 139 with the exception of financial liabilities which are held for trading. These
liabilities continue to be measured at fair value through profit or loss. However,
under AASB 9 the effects of changes in fair value due to changes in credit risk are
recognised in other comprehensive income.
Ovato Group has the following financial liabilities - trade and other payables,
interest bearing liabilities and derivative financial instruments.
There were no changes in the measurement of the Group’s financial liabilities.
The Group’s financial liabilities (apart from derivatives which are held for trading
and measured at fair value) continue to be measured at amortised cost using the
effective interest method.
52
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements 1 Summary of significant accounting policies (continued)
The main effects resulting from the new classification and measurement categories for each class of financial assets and liabilities at 1 July 2018 are shown in the table below:
Financial Assets/Liabilities
Cash and cash equivalents
Receivables
Payables
Interest Bearing Liabilities
AASB 139
Classification and
Measurement
Loans and Receivables
- measured at amortised cost
Loans and Receivables
- measured at amortised cost
AASB 9
Classification
Impact
Amortised Cost
No changes.
Amortised Cost
Impacted by the new
impairment requirements.
Other Financial Liabilities
- measured at amortised cost
Other Financial Liabilities
- measured at amortised cost
Other Financial Liabilities
- measured at amortised cost
Other Financial Liabilities
- measured at amortised cost
No changes.
No changes.
Forward exchange contracts used for hedging
Fair Value - hedging instrument
Fair value - hedging instrument
No changes.
Cross currency swap used for hedging
Fair Value - hedging instrument
Fair value - hedging instrument
No changes.
Receivables that were classified as loans and receivables under AASB 139 are
now classified as amortised cost. They continue to be measured under AASB 9 at
amortised cost using the effective interest method. An increase of $0.711 million
in the allowance for impairment over these receivables was recognised in opening
retained earnings at 1 July 2018 on transition to AASB 9. This was due to the
replacement of the incurred loss model with an expected credit loss model under
AASB 9. Refer to iv. Impairment of financial assets for further details.
The Group has used the exemption under AASB 9 not to restate comparative
information for prior periods. Therefore, differences in classification and
measurement (including impairments) of financial assets and liabilities resulting
from the adoption of AASB 9 are recognised in retained earnings as at 1 July 2018.
iii. Hedge accounting
Under AASB 9 the types of instruments that qualify for hedging instruments and
the types of risk components of non-financial items that are eligible for hedge
accounting has been broadened. Also, the effectiveness test has been replaced with
the principle of an ‘economic relationship’ that more closely aligns hedge accounting
with risk management activities. Retrospective assessment of hedge effectiveness is
no longer required with the standard introducing a more qualitative and forward-
looking approach to assessing hedge effectiveness.
The Group adopted the new general hedge accounting model in AASB 9 from 1 July
2018 with changes to hedge accounting policies applied prospectively. The Group
reviewed its risk management objectives and strategies and did not identify any new
qualifying hedging instruments and hedged items under the revised model at 1 July
2018. The Group assessed all of its hedging relationships and confirmed that they
were in alignment with the Group’s risk management policy. Upon application of
AASB 9 on 1 July 2018 they met the criteria for hedge accounting and qualified as
continuing hedging relationships.
The Ovato Group is exposed to foreign exchange risk when purchasing paper
and ink from foreign suppliers. This risk is managed through the use of forward
exchange currency derivatives with a portion of these transactions hedged in
accordance with the Group’s risk management policy.
The Group is also exposed to foreign exchange risk from a Euro denominated
borrowing and interest rate risk. Ovato has eliminated this risk by taking out a cross
currency swap to exchange the loan’s principal and floating Euro interest payments
for an equally valued Australian dollar loan and floating Australian dollar interest
payments in accordance with the Group’s risk management policy.
Overall there has been no impact with the adoption of AASB 9 on the Group’s
derivatives and hedge accounting.
iv. Impairment of financial assets
The incurred loss model recognised credit losses only when an event had
occurred that had a negative effect on future cash flows and the effect could be
reliably measured.
The new model does not require a loss event to occur before an impairment loss is
recognised instead an ongoing assessment will have to be made of expected credit
losses. Therefore, credit losses are recognised earlier under AASB 9 than under
AASB 139.
The model involves a three stage approach whereby financial assets move through
the three stages as their credit quality changes. The stage dictates how an entity
measures impairment losses. A simplified approach is available for financial assets
that do not have a significant financing component. The new model will apply to
financial assets measured at amortised cost (receivables) or fair value through other
comprehensive income.
Ovato’s trade debtors are the only material financial assets in scope under the AASB
9 impairment model. The Group has applied the simplified impairment approach and
recorded a lifetime expected loss allowance for all trade debtors.
To measure the expected credit losses, the Group’s trade debtors were examined
and grouped based by country and business and similar risk profile. Historical bad
debt data was extracted to calculate historical loss rates. This data was overlaid
with current and forward-looking information on macro-economic factors affecting
the ability of customers to pay. Historical loss rates are adjusted based on expected
changes in these factors.
The revised methodology for calculation of impairment for trade debtors resulted
in an additional loss allowance of $0.711 million ($0.498 million net of tax) as at
1 July 2018. A corresponding adjustment has been made to the opening balance
of retained earnings. In accordance with AASB 9, comparative information has not
been restated.
Basis of consolidation
Subsidiaries
The consolidated financial statements are those of the economic entity
(Ovato Group) comprising Ovato Limited (the head entity ‘Ovato’) and its
subsidiaries.
The consolidated financial statements include the information contained in the
financial statements of Ovato and each of its subsidiaries as from the date Ovato
obtains control until such time as control ceases. Control is achieved when
Ovato Limited:
• Has power over the investee;
AASB 9 introduces new impairment requirements for financial assets with the
replacement of the incurred loss model under AASB 139 with a forward-looking
expected credit loss model.
• Is expected, or has rights to variable returns from its involvement with the
investee; and
• Has the ability to use its power to affect its returns
53
1 Summary of significant accounting policies (continued)
• receivables and payables are stated with the GST amount included.
The financial statements of controlled entities are prepared for the same reporting
period as Ovato using consistent accounting policies.
All intercompany balances, transactions, and unrealised profits arising on
transactions between Group companies have been eliminated in full.
Foreign currencies
The individual financial statements of each entity in the Ovato Group are
presented in their functional currency which equates to their local currency.
For the purposes of the consolidated financial statements, the results and
financial position of each group entity are expressed in Australian dollars,
which is the functional currency of Ovato Limited and the presentation currency
for the consolidated financial statements.
Transactions in foreign currencies are converted to functional currency at the rate of
exchange ruling at the date of the transaction.
Monetary amounts payable to and by the entities within the Ovato Group that are
outstanding at the balance date and are denominated in foreign currencies have
been converted to functional currency using rates of exchange at the end of the year.
Non-monetary amounts that are measured at historical cost in a foreign currency are
translated using the exchange rate as at the date of the initial transaction.
The assets and liabilities of the controlled entities incorporated overseas are
translated into the Ovato Group presentation currency at the rates of exchange
ruling at balance date. The Consolidated statements of profit or loss and other
comprehensive income are translated at an average rate for the year.
Exchange differences arising on translation are taken directly to the foreign currency
translation reserve.
On the disposal of a foreign operation, a proportionate share of the amount
recognised in the foreign currency translation reserve relating to that particular
foreign operation is recognised in the Consolidated statement of profit or loss and
other comprehensive income, as part of the gain or loss on sale.
Cash and cash equivalents
For the purposes of the Consolidated cash flow statement, cash includes cash on
hand and in banks. Cash on hand and in banks is stated at nominal amount.
Leases
Finance leases, which transfer to the Group substantially all the risks and benefits
incidental to ownership of the leased item, are capitalised at the lower of present
value of the minimum lease payments or the fair value of the leased property,
disclosed as leased property, plant and equipment, and amortised over the shorter
of the lease term and useful life of the asset.
Operating leases, which do not transfer to the Group substantially all the risks
and benefits of the leased item, are not capitalised and rental payments are
included in the determination of the profit and loss in equal instalments over the
lease term.
The cost of improvements to leasehold property related to these operating leases
is capitalised and amortised over the unexpired period of the lease or the estimated
useful lives of the improvements, whichever is the shorter.
In the event that lease incentives are received to enter into operating leases, such
incentives are initially recorded as a liability and are then recognised as a reduction
in rental expense on a straight line basis over the lease term.
A provision for make good is recognised when property leases require the
restoration of premises to its original condition at the conclusion of the lease. Refer
to the Group’s accounting policy on provisions for the criteria that must be satisfied
for the recognition of a provision.
Goods and services tax (“GST”)
Revenues, expenses and assets are recognised net of the amount of GST except where:
• the GST incurred on purchase of goods and services is not recoverable from the
taxation authority, in which case, the GST is recognised as part of the cost of
acquisition of the asset or as part of the expense item applicable; and
54
The net amount of GST recoverable from, or payable to, the taxation authority
is included as part of receivables or payables in the Consolidated statement of
financial position.
Cash flows are included in the cash flow statement on a gross basis and the GST
component of cash flows arising from investing and financing activities, which is
recoverable from, or payable to, the taxation authority are classified as operating
cash flows.
CRITICAL ACCOUNTING ESTIMATES,
ASSUMPTIONS AND JUDGEMENTS
The preparation of financial statements requires management to make judgements,
estimates and assumptions that affect the application of accounting policies and the
reported amounts of assets, liabilities, income and expenses. Actual results may
differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in the period in which the estimate is revised
and in any future periods affected.
In particular, information about significant areas of estimation uncertainty and
critical judgements in applying accounting policies that have the most significant
effect on the amount recognised in the financial statements are described in the
following notes:
• Note 8 - Impairment testing of property, plant and equipment
• Note 9 - Impairment testing of goodwill
• Note 10 - Deferred tax
• Note 26 - Financial instruments
i. Goodwill, intangible assets, property, plant and equipment
The Group determines whether goodwill is impaired on a bi-annual basis and
assesses impairment of all other assets at each reporting date by evaluating
conditions specific to the Group and to the particular asset that may lead to
impairment. These include technology, economic and political environments. If
an impairment trigger exists the recoverable amount of the asset is determined.
Recoverable amount is the greater of fair value less costs of disposal and value in
use. It is determined for an individual asset, unless it does not generate inflows
that are largely independent of those from other assets or group of assets, in which
case, the recoverable amount is determined for the cash generating unit to which
the asset belongs. An estimation of recoverable amount of cash generating units is
made by using a value in use model or fair value less costs of disposal. A number of
assumptions are made by the Group in this estimation of recoverable amount.
In assessing value in use, the estimated future cash flows, excluding future
uncommitted restructurings and associated benefits, are discounted to their present
value using a pre-tax discount rate that approximates the weighted average cost of
capital for that cash generating unit.
In assessing fair value less costs of disposal, primary consideration is given to
external sources of value such as comparable transactions adjusted for costs
of disposal, market price in an actively traded market or the best information
available to reflect the amount to be obtained from disposal. In the absence of
comparable transactions, fair value has been assessed using a discounted cash flow
methodology. This is supported by EBITDA multiples which serve as an external
cross check. Ovato believe that this provides the best indication of the recoverable
amount to be obtained from disposal of the cash generating unit at arms length
between knowledgeable and willing parties.
Based on testing carried out at 30 June 2019, the Print – New Zealand business
unit impairment analysis showed a deficit. Plant and equipment of NZ$10 million
associated with this cash generating unit was impaired at 30 June 2019. After the
impairment, the Directors estimate, that if forecast EBITDA reflected in the model
were to decrease by 10%, the carrying value of this cash generating unit would
exceed the recoverable amount by approximately NZ$1 million.
While the Ovato Australia business unit impairment analysis shows a surplus
which is lower than at 30 June 2018, the Directors estimate, that if forecast EBITDA
reflected in the model were to decrease by 10%, it could result in the aggregate
carrying value of this cash generating unit exceeding the recoverable amount in the
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements
1 Summary of significant accounting policies (continued)
range of approximately $10 million to $15 million. This model includes
benefits from the new Manroland press from late 2019 onwards. In addition, the
company will continue to respond to lower volumes by addressing the fixed cost
base as applicable.
Refer to Note 8 and Note 9 for further details.
ii. Deferred tax assets
Deferred tax assets are recognised for all unused tax losses to the extent that it is
probable that future taxable profits will be available against which the losses can be
utilised. Significant management judgement is required to determine the amount
of deferred tax asset that can be recognised, based on the likely timing and level of
future taxable profits.
Consistent with prior periods, the deferred tax assets of $14.9 million pertaining
to the current financial year Australian tax loss was not recognised in the financial
statements as at 30 June 2019.
The Directors also decided to reduce the deferred tax asset balance relating to
Australian tax losses to $15 million, being an impairment of $19.8 million included
in tax expense for the year to 30 June 2019. This impairment was necessary to
ensure the deferred tax asset remains forecast to be recouped over a 6-8 year
period, a time frame that the Directors consider is a reasonable recovery period
(consistent with prior years).
The Directors believe that the reduced deferred tax asset of $15 million is
supportable given the level of forecast future tax profits from the 2020 financial year
onwards. This position will continue to be reassessed on an ongoing basis.
The New Zealand deferred tax asset value of $918,000 attributable to tax losses is
also expected to be fully recouped over the 6-8 year period (noting this increased in
2019 due to FY19 losses).
Despite the non-recognition of these losses on the Consolidated statement of
financial position, the losses will remain available indefinitely for offset against
future taxable profits, subject to continuing to meet the statutory tax tests of
continuity of ownership or failing that, the same business test.
iii. Fair value measurement and valuation process
Ovato has financial instruments that are carried at fair value in the Consolidated
statement of financial position. The best evidence of fair value is quoted prices
in an active market. If the market for a financial instrument is not active, Ovato
determines fair value by using various valuation models. The objective of using a
valuation technique is to establish the price that would be received to sell an asset
or paid to transfer a liability between market participants. The chosen valuation
models make maximum use of market inputs and relies as little as possible on entity
specific inputs. The fair values of all positions include assumptions made on the
recoverability based on the counterparty’s and Ovato’s credit risk.
Details of the inputs to the fair value of financial instruments are included in Note 26.
YEAR ENDED 30 JUNE 2019
NOTES
2a Revenue
External sales
Freight
Total sales revenue
Included in loss before income tax are the following items of other revenue:
Recoveries from the manufacturing process
Other income - external
Net gain on disposal of plant and equipment
Rental income
Interest income
Total other revenue
Total revenue
3
20
Ovato Group
2019
$’000
635,789
33,447
669,236
10,159
44
—
64
487
10,754
679,990
2018
$’000
696,217
37,751
733,968
9,973
44
1,961
59
490
12,527
746,495
(a) Significant accounting policies
Revenue is recognised when the Group transfers control of the good or service to
a customer. It is measured based on the consideration specified in a contract with
a customer and excludes amounts collected on behalf of third parties. Amounts are
recognised net of returns, discounts and rebates.
Some contracts with customers may contain multiple deliverables such as printing and
distribution. These are considered separate performance obligations. Revenues are
recognised as each performance obligation is met.
(b) Nature of goods and services
Below is a description of the principal activities from which the Group derives its
revenue separated by reportable segments.
The Group may also be engaged by customers to provide a freight service to a specified
location. These services form part of a contract with multiple deliverables. Freight is
treated as a separate performance obligation as it is a distinct service that is separately
included in the customer contract. It is not part of the overall performance obligation
as not every customer engages the Group to perform this service. Freight services are
provided across all reportable operating segments. Revenue is recognised at a point of
time, being when the freight services are provided.
For more information about reportable segments refer to Note 20.
i. Commercial and book printing
The Ovato Australia Group and Ovato New Zealand Group segments generate revenue
from the printing of magazines and books for publishers and catalogues for customers.
• Revenue is recognised when control of the good is transferred, being as
the printing jobs are completed over time. Customers provide specifications
for each job and as the printing work is performed, control is then passed to
the customer.
55
2a Revenue (continued)
• For each job, there is no alternative use for this asset to the Group, and the Group
has a right to payment for performance completed to-date. Revenue is accrued
for partly completed jobs in the month of service using the input method. This
is calculated based on resources consumed (i.e. paper issued) relative to total
resources expected to be consumed (i.e. paper allocated).
• Contracts can have separate transaction pricing for each service provided and
includes fixed and variable pricing. Variable pricing includes discounts, revenue
rebates and volume based rebates. The Group estimates the amount using a
‘most likely method’ and is included to the extent that it is highly probable that a
significant reversal of revenue will not occur.
ii. Residential distribution
The Ovato Australia Group and Ovato New Zealand Group segments generate revenue
from letterbox delivery of addressed and unaddressed, mass and targeted catalogues
and newspapers.
• Revenue is recognised when control of the goods are transferred to the customer,
which is when the product is available for delivery to the letterbox or into store in
accordance with the customers contract.
• Contracts can have separate transaction pricing for each service provided and
includes fixed and variable pricing. Variable pricing includes discounts, revenue
rebates and volume based rebates. The Group estimates the amount using a
‘most likely method’ and is included to the extent that it is highly probable that a
significant reversal of revenue will not occur.
iii. Retail distribution
• Ovato Retail Distribution distributes magazines and other products to stores
and outlets located across Australia and New Zealand. Ovato Retail Distribution
is engaged by publishers to sell magazines on their behalf to retail outlets and is
acting as an agent. A distribution fee is earned for this service based on copies
sold or delivered.
• Revenue is recognised in the accounting period in which the distribution occurs
and control is passed and the services are satisfied in accordance with the
contractual arrangements.
iv. Marketing services
• Marketing services are provided in Australia and include digital printing and
professional services (photography, creative, public relations, digital premedia
and infrastructure services).
Commercial and book printing
Distribution
Magazine distribution
Marketing services
Freight
• Professional services revenue is recognised up to the amount of the fees that the
Group is entitled to invoice for services performed to-date based on contracted
rates and the percentage of job completion. This percentage is determined by
reference to the actual hours incurred per time sheets as a proportion of the
estimated total hours expected to complete the job. The performance obligations
are satisfied over time, generally being three to six months.
• Digital printing revenue is recognised when control of the good is transferred,
being as the printing jobs are completed over time.
• Contracts may include discounts and are estimated to the extent that it is highly
probable that a significant reversal of revenue will not occur.
(c) Financing component
The Group in general does not have any contracts with a financing component as the
period between when the Group transfers the promised good or service to a customer
and the customer pays for it is less than one year. As a consequence, the Group does
not adjust any of the transaction prices for the time value of money.
(d) Contract balances
Contract assets relate to the Group’s rights to consideration for product and services
provided but not invoiced at the reporting date. Contract assets at the reporting date are
disclosed in Note 5 as Other debtors.
Contract liabilities primarily relate to consideration received in advance from customer
contracts. The Group has an immaterial contract liability balance of $0.5 million (2018:
$0.8 million) at 30 June 2019 which will be recognised in the next reporting period
on performance of outstanding marketing service obligations. Contract liabilities are
disclosed in Note 11 as Other accruals.
Changes in contract assets and liabilities during the period resulted from satisfaction of
performance obligations. The opening contract liability relating to income received in
advance was recognised as revenue during the period.
(e) Transaction price allocated to the remaining
performance obligations
The revenue expected to be recognised in the future related to performance obligations
that are unsatisfied (or partially unsatisfied) at the reporting date is disclosed in the
below table.
Ovato Group
2019
$’000
—
—
—
487
—
487
2018
$’000
—
—
—
773
—
773
The Group expects that 100% of the transaction price allocated to the
unsatisfied contracts as of 30 June 2019 will be recognised as revenue during
the next reporting period.
(f) Costs to obtain a contract
Under AASB 15 the incremental costs of obtaining a contract with a customer
are capitalised when expected to be recovered under the contract. In accordance
with AASB 15, the Group can expense the incremental costs of obtaining a contract
with a customer as incurred, as if capitalised would have been amortised within less
than 1 year.
(g) Disaggregation of revenue
The Group derives revenue at a point in time and over time. At 30 June 2019 revenue
earned over time is considered immaterial.
56
Note 20 provides details of revenue by major products and service offerings, by
geographical segment and by operating segment.
(h) Revenue other than contracts with customers
Ovato recycles materials from the manufacturing process and revenue is
recognised when the materials are sold.
Rental income is recognised on a straight line basis over the lease term.
Interest income is recognised as interest accrues.
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements
YEAR ENDED 30 JUNE 2019
NOTES
Ovato Group
2019
$’000
2018
$’000
2b Significant items
Included in net loss after income tax are the following
significant items of income and expense:
Net loss/(gain) on disposal of plant and equipment
Restructure initiatives and other one-off costs
Onerous leases and make good provisions
Relocation of presses
Impairment/(reversal) of plant and equipment due to restructure initiatives
2(c), 8(b)
Fee paid for early termination of corporate bond
Write off of prepaid financing costs
Total significant items (included in loss before interest and tax)
3
3
Tax benefit associated with significant items
Adjustment of prior year losses not recognised to actual
Tax losses not brought to account
Impairment of deferred tax asset
Tax expense included in net loss after tax
Significant items have been included in the Consolidated statement of profit or loss
and other comprehensive income within the following categories:
Other revenue
- Net gain on sale of equipment
Raw materials and consumables used
Cost of finished goods sold
Employee expenses
Freight
Repairs and maintenance
Occupancy costs
Other expenses
- Impairment/(reversal of impairment)
2(c), 8(b)
- Legal and professional fees
- Relocation of presses
- Net loss on disposal of plant and equipment
- Other expenses
Finance costs
3
749
24,689
14,483
5,019
18,017
400
231
63,588
18,733
(270)
(14,912)
(19,821)
(16,270)
—
782
—
20,540
447
186
14,483
18,017
2,291
5,019
749
443
631
(1,904)
27,015
9,614
5,502
(868)
—
—
39,359
11,581
(217)
(16,935)
—
(5,571)
(1,904)
68
431
23,749
993
229
9,614
(868)
1,378
5,502
—
167
—
63,588
39,359
57
YEAR ENDED 30 JUNE 2019
NOTES
2c Loss before income tax
Loss before income tax is arrived at after
charging/(crediting) the following items:
Lease rental expenses - operating leases
Share-based payment plans
Net loss/(gain) on disposal of plant and equipment
Impairment/(reversal) of plant and equipment
Net remeasurement of expected credit loss allowance
2d Auditors’ remuneration
Auditor of the parent entity
Auditing the accounts
Other services
- Taxation and related advisory services
Network firm of the parent entity auditor
Auditing the accounts
Other services
- Taxation and related advisory services
2e Depreciation and amortisation
Depreciation
Leasehold improvements
Plant and equipment
Total depreciation
Amortisation
Development and licence costs
Total amortisation
Total depreciation and amortisation
3
Finance costs
Interest expense
Bank loans and overdraft
Unwind of discount on long term onerous lease and make good provisions
Total interest expense
Fee paid for early termination of corporate bond
Write off of prepaid finance costs
Total finance costs
Interest income
Net finance costs
Significant accounting policies
17
2(b)
5(b)
8(a)
8(a)
9(a)
2(b)
2(b)
2(a)
Ovato Group
2019
$’000
2018
$’000
44,070
15
775
18,017
89
2019
$
38,990
83
(1,961)
(868)
283
2018
$
411,075
395,850
127,546
538,621
138,801
534,651
103,054
98,765
77,414
180,468
2019
$’000
1,165
26,945
28,110
525
525
28,635
7,179
1,236
8,415
400
231
9,046
(487)
8,559
35,600
134,365
2018
$’000
969
29,727
30,696
580
580
31,276
6,784
665
7,449
—
—
7,449
(490)
6,959
Finance costs are recognised in the Consolidated statement of profit or loss and other comprehensive income in the period in which they are incurred.
58
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements YEAR ENDED 30 JUNE 2019
4
Income tax
(a) Reconciliation of income tax expense
Loss before income tax
Prima facie income tax benefit thereon at 30% (2018: 30%)
Tax effect of non-temporary and other differences:
Non-assessable items
Effect of differences in overseas tax rate
Income tax (over)/under provided in previous year
Non-deductible items for tax purposes
Benefit of tax losses not brought to account
Impairment of deferred tax asset
Income tax expense attributable to loss
Major component of income tax expense:
Current tax benefit
Deferred tax expense
Income tax expense attributable to loss
(b) Significant accounting policies
Ovato Group
2019
$’000
(69,791)
(20,937)
—
235
(251)
680
14,912
19,821
14,460
(15,810)
30,270
14,460
2018
$’000
(37,458)
(11,237)
(338)
(89)
218
848
16,935
—
6,337
(15,737)
22,074
6,337
The income tax expense or benefit for the year is the tax payable on the current year’s taxable income based on the notional income tax rate for each
jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and
their carrying amounts in the financial statements, and unused tax losses.
(c) Deferred tax assets and deferred tax liabilities
At 30 June 2019 there is no recognised or unrecognised deferred tax liability for taxes that would be payable on the unremitted earnings of Ovato’s wholly
owned subsidiaries, as the Ovato Group has no liability for additional taxation should such amounts be remitted or any such tax due would be offset by existing
unrecognised deferred tax losses (2018: $nil).
Ovato Group
2019
$’000
2018
$’000
(d) Franking credits
The amount of franking credits available are:
Franking account balance as at the end of the financial year at 30% (2018: 30%)
62,529
62,529
(e) Tax consolidation and tax effect accounting by members of the tax consolidated group
Effective 1 July 2003, for the purposes of income taxation, Ovato Limited (formerly PMP Limited) and its 100% owned Australian subsidiaries formed a tax
consolidated group. Members of the group have entered into a tax sharing agreement in order to allocate income tax expense to the wholly owned subsidiaries
on a pro-rata basis. The agreement also provides for the allocation of income tax liabilities between the entities should the head entity default on its
obligations. At the balance date the possibility of default is remote. The head entity of the tax consolidation group is Ovato Limited.
Members of the Australian tax consolidated group have also entered into a tax funding agreement. The tax funding agreement provides for the allocation of
current tax assets and liabilities between wholly owned group members. Each group member of the Ovato tax group calculates its current year tax liability/
tax loss on the basis of the stand alone approach. Once each member has calculated its own current year tax liability/tax loss the head entity will then assume
these current year tax liabilities/tax losses and be paid/pay compensation for this assumption by way of an intercompany receivable/payable. Allocations
under the tax funding agreement are made on a yearly basis.
All 100% owned Ovato entities operating in New Zealand are members of the Ovato NZ Limited tax consolidated group. Although there is no New Zealand
tax funding agreement, Ovato NZ Limited and its group members have also calculated their current year tax liabilities/tax losses, and Ovato NZ Limited is
paid/pays compensation for this assumption by way of an intercompany receivable/payable on a yearly basis, in the same manner as the Australian tax funding
agreement operates.
(f) Tax losses not brought to account
Gross Current Year
Tax effected
Revenue losses
Capital losses
350,821
287,956
105,246
86,387
The benefit of these revenue losses has not been brought to account as realisation is not probable. Refer to Note 10 for further details. In addition, capital losses
are only able to be used against capital gains and so are not recognised until used in any tax year. The revenue losses above have increased substantially in the
current year due to the impairment of the deferred tax asset therefore increasing tax losses not recognised (in addition to the current year loss not recognised).
$’000
59
YEAR ENDED 30 JUNE 2019
5
Receivables
Trade debtors*
Allowance for expected credit losses
Net trade debtors
Other debtors
Total current receivables
NOTES
5(b)
5(d)
Ovato Group
2019
$’000
78,856
(1,211)
77,645
4,138
81,783
2018
$’000
88,236
(1,280)
86,956
4,968
91,924
* Trade debtors are non-interest bearing and are on commercial terms. There were no material unhedged foreign currency receivables.
(a) Significant accounting policies
Trade debtors are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method less any allowance
under the expected credit loss model. Bad debts are written-off as incurred. Subsequent recoveries of amounts previously written off are credited against the
same line item.
Receivables from related parties are recognised and carried at the nominal amount due less allowance for expected credit losses.
(b)
Impaired trade receivables
Ovato Group:
At 30 June 2019 an allowance for expected credit losses of $1,211,000 (2018: $1,280,000) has been recognised. This relates to a variety of customers who are
in unexpectedly difficult economic situations.
Movements in the allowance for expected credit losses are as follows:
Balance as at 1 July - calculated under AASB 139
Adjustment on initial application of AASB 9
Balance at 1 July under AASB 9
Amounts written off
Net remeasurement of allowance
Net foreign currency translation difference
Balance at 30 June
Ovato Group
2019
$’000
1,280
711
1,991
(877)
89
8
1,211
2018
$’000
1,324
—
1,324
(319)
283
(8)
1,280
2(c)
The Group has applied the simplified impairment approach in assessing the expected credit losses associated with trade debtors. This requires expected
lifetime losses to be recognised from initial recognition of all trade debtors. This has resulted in an increase in the loss allowance on 1 July 2018 by $711,000
for trade debtors. This was recognised in opening retained earnings at 1 July 2018 on transition to AASB 9.
The allowance has been calculated by grouping trade debtors by shared credit risk characteristics and the days past due. A provision matrix is then determined
based on the historic credit loss rate. This is adjusted for changes in current and forward-looking factors that affect the ability of customers to pay.
The allowance for expected credit losses as at 30 June 2019 and 1 July 2018 (on adoption of AASB 9) was determined as follows:
Trade debtors
Days past due
Current
< 30 days
30-60 days
61-90 days
> 91 days
$’000
0.30%
63,396
190
0.13%
68,782
86
$’000
1.1%
12,579
140
0.79%
15,106
120
$’000
6.9%
1,460
101
2.7%
1,524
41
$’000
30.2%
671
203
26.3%
809
213
$’000
77.0%
750
577
76.0%
2,015
1,531
Total
$’000
1.5%
78,856
1,211
2.3%
88,236
1,991
30 June 2019
Expected loss rate %
Carrying amount - trade debtors
Allowance for expected credit losses
1 July 2018
Expected loss rate %
Carrying amount - trade debtors
Allowance for expected credit losses
60
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements 2018
$’000
15,057
1,520
750
876
18,203
2018
$’000
51,885
(598)
51,287
50,076
3,652
Ovato Group
2019
$’000
55,579
(367)
55,212
44,189
3,291
102,692
105,015
YEAR ENDED 30 JUNE 2019
5
Receivables (continued)
(c) Past due but not impaired
At 30 June 2019 there were $14,439,000 (2018: $18,203,000) of trade receivables in the Ovato Group past due but not impaired.
The aging analysis of these trade receivables is as follows:
Past due 1 - 30 days
Past due 31 - 60 days
Past due 61 - 90 days
Past due greater than 90 days
Ovato Group
2019
$’000
12,439
1,359
468
173
14,439
There are no receivables that have had renegotiated terms that would otherwise, without that renegotiation, have been past due or impaired.
(d) Other debtors
Other debtors generally arise from transactions outside of the usual operating activities of the Group. Other debtors do not contain impaired assets
and are not past due. Collateral is not usually obtained.
YEAR ENDED 30 JUNE 2019
NOTES
6
Inventories
Raw materials, spare parts and stores at cost
Less: provision for diminution
Net raw materials, spare parts and stores
Finished goods at cost
Work in-progress at cost
Total current inventories
Significant accounting policies
Inventories are valued at the lower of cost and net realisable value.
Costs incurred in bringing each product to its present location and condition are accounted for as follows:
• Raw materials: cost is determined by the average cost method.
• Finished goods and work-in-progress: cost of direct material and labour and an appropriate proportion of fixed and variable manufacturing
overheads based on normal operating capacity.
YEAR ENDED 30 JUNE 2019
NOTES
7
Other assets
Current other assets
Prepayments
Total current other assets
Non-current other assets
Defined benefit plan asset
Other assets
Total non-current other assets
21
Ovato Group
2019
$’000
4,739
4,739
1,527
484
2,011
2018
$’000
6,149
6,149
2,122
788
2,910
61
YEAR ENDED 30 JUNE 2019
8
Property, plant and equipment
Leasehold improvements
At cost
Accumulated depreciation
Accumulated impairment
Net leasehold improvements
Plant and equipment
At cost
Accumulated depreciation
Accumulated impairment
Net plant and equipment
Leased plant and equipment
At cost
Accumulated depreciation
Net leased plant and equipment
Ovato Group
2019
$’000
2018
$’000
NOTES
8(a)
8(a)
15,329
(9,707)
(1,846)
3,776
560,619
(416,353)
(34,632)
109,634
220
(220)
—
14,465
(8,445)
(2,026)
3,994
619,545
(437,893)
(31,347)
150,305
220
(220)
—
Total net property, plant and equipment
8(a)
113,410
154,299
(a) Reconciliations
Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below:
Leasehold improvements
Carrying amount at beginning of year
Additions
Disposals
Transfer from other asset category
Depreciation
Impairment
Net foreign currency translation difference
Carrying amount at end of year
Plant and equipment
Carrying amount at beginning of year
Additions
Disposals
Impairment (charge)/reversal
Transfer to other asset category
Transfer from inventories
Transfer to intangibles
Depreciation
Expensed to the profit and loss
Net foreign currency translation difference
Carrying amount at end of year
Total net property, plant and equipment
(b)
Impairment
2(e)
2(b), 2(c), 8(b)
2(b), 2(c), 8(b)
9(a)
2(e)
Impairment/(Reversal) of plant and equipment
2(b), 2(c)
3,994
141
(14)
1,366
(1,165)
(630)
84
3,776
150,305
7,431
(1,562)
(17,387)
(1,366)
—
(1,239)
(26,945)
(384)
781
109,634
113,410
18,017
18,017
4,912
—
—
156
(969)
—
(105)
3,994
170,183
9,508
(609)
868
(156)
1,336
(292)
(29,727)
(48)
(758)
150,305
154,299
(868)
(868)
Based on impairment testing carried out at 30 June 2019, the Print – New Zealand business unit analysis showed a deficit. Plant and equipment of NZ$10 million
associated with this cash generating unit was impaired. The balance of the impairment in the 2019 financial year, related to the write down of individual items of plant
and equipment as part of the consolidation of Ovato’s NSW print sites.
62
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements YEAR ENDED 30 JUNE 2019
8
Property, plant and equipment (continued)
(c) Significant accounting policies
Carrying value
Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Subsequent costs are included
either in the assets carrying value or as a separate asset only when it is probable that future economic benefits will flow to the Group and the
cost can be reliably measured.
Derecognition
Property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued
use of the asset. Any gain or loss arising on the disposal or retirement is the difference between the sales proceeds and the carrying amount of
the asset and is recognised in profit or loss.
Depreciation
Property, plant and equipment is depreciated or amortised at rates based upon their expected useful lives using the straight-line method.
Major depreciation periods are consistent with the prior period and are as follows:
• Leasehold improvements
to the lease term
• Printing presses
• Computer equipment
7.5 to 20 years
3 to 4 years
Useful lives are reviewed, and adjusted, if appropriate at each reporting date. Any adjustments are made on a prospective basis.
Impairment
Property, plant and equipment is tested for impairment when there is an indication that an asset may be impaired (assessed at least at each
reporting date) or where there is an indication that an existing impairment may have changed.
Where an indicator of impairment exists, the Ovato Group makes a formal estimate of recoverable amount. Where the carrying amount of an
asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount.
Recoverable amount is the greater of fair value less costs of disposal and value in use. It is determined for an individual asset, unless it does
not generate inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is
determined for the cash generating unit to which the asset belongs.
The assumptions used in the assessment of recoverable amount are discussed in Note 9(c).
YEAR ENDED 30 JUNE 2019
9
Goodwill and intangible assets
Development and licence costs
At cost
Accumulated amortisation
Closing net book amount
Goodwill
At cost
Goodwill on acquisition
Accumulated impairment
Net foreign currency translation difference
Closing net book amount
Total net intangibles
Ovato Group
2019
$’000
2018
$’000
NOTES
7,854
(6,032)
1,822
133,963
—
(99,623)
2,955
37,295
39,117
9(a)
9(a)
9(a)
6,008
(5,507)
501
133,557
406
(99,623)
2,869
37,209
37,710
63
YEAR ENDED 30 JUNE 2019
NOTES
9
Goodwill and intangible assets (continued)
(a) Reconciliations
Development and licence costs
Carrying amount at beginning of year
Additions
Transfer from/(to) other asset category
Amortisation
Carrying amount at end of year
Goodwill
Carrying amount at beginning of year
Goodwill on acquisition
Net foreign currency translation difference
Carrying amount at end of year
Total net intangibles
(b) Significant accounting policies
Goodwill
8(a)
2(e)
9(c)
Ovato Group
2019
$’000
2018
$’000
501
607
1,239
(525)
1,822
37,209
-
86
37,295
39,117
773
16
292
(580)
501
36,875
406
(72)
37,209
37,710
Goodwill represents the excess of the purchase consideration over the fair value of identifiable net assets and contingent liabilities acquired at the
date of acquisition of a business.
Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.
Goodwill is not amortised, but is reviewed for impairment each reporting date, or more frequently if events or changes indicate that the carrying
amount may be impaired.
At the date of any acquisition, goodwill acquired is allocated to the cash generating unit or groups of cash generating units expected to benefit
from the acquisition.
Where the recoverable amount of the cash generating unit is less than the carrying amount of goodwill, an impairment loss is recognised.
Where goodwill forms part of a cash generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation
disposed of is included within the carrying amount of the operation when determining the gain or loss on disposal of the operation.
Development and licence costs
Costs incurred in acquiring products or systems that will generate future benefits are capitalised.
Amortisation is charged on a straight-line basis, the expense is taken to the Consolidated statement of profit or loss and other comprehensive income through
the “amortisation” line item as follows:
• Database development costs
• Software development costs
3 years
3 - 7 years
Useful lives are examined on an annual basis and adjustments, where applicable, are made on a prospective basis.
64
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements
YEAR ENDED 30 JUNE 2019
NOTES
Ovato Group
2019
$’000
2018
$’000
9
Goodwill and intangible assets (continued)
(c)
Impairment testing of goodwill
Carrying amount of goodwill allocated to each cash generating unit:
Ovato Residential Distribution - New Zealand
Ovato Australia
Total goodwill
2,092
35,203
37,295
2,006
35,203
37,209
9(a)
In accordance with Ovato policy, impairment testing has been undertaken at 30 June 2019 for all cash generating units (“CGU’s”) with indefinite useful life
intangible assets or where there is an indication of impairment. The testing has been conducted using the higher of a value in use model and a fair value less
costs of disposal model.
New cash generating unit
During the financial year, the Group has made a number of changes to the way the Group sells to its customers by making bundled offers under a rebranded
company and revised management structure. This has resulted in a change to how the Group defines its operating segments. From a CGU perspective, a new
CGU was created in the name of Ovato Australia that combined the existing CGU’s of Print Australia, Marketing Services and Residential Distribution Australia
into one new CGU. Ovato Book Printing Australia (formerly Griffin Press), Retail Distribution Australia (formerly Gordon & Gotch Australia) and the CGUs
within New Zealand will remain unchanged.
Fair value less costs of disposal
The recoverable amount of the CGU, Ovato Australia is determined based on a fair value less costs of disposal calculation. In the absence of comparable
transactions, fair value has been assessed using a discounted cash flow methodology with cross checks performed to external indicators, such as EBITDA
multiples. This represents a Level 3 model in line with the fair value hierarchy in accordance with AASB 13 Fair Value Measurement. Ovato believe that this
methodology provides the best indication of the price that would be received to sell the business in an orderly transaction between market participants at
balance sheet date.
In assessing fair value less costs of disposal, the estimated post tax future cash flows, including future uncommitted restructurings and associated benefits,
are discounted using a post tax rate. The key assumptions used in the calculation are disclosed in the table on the following page.
While the Ovato Australia business unit impairment analysis shows a surplus which is lower than at 30 June 2019, the Directors estimate, that if forecast
EBITDA reflected in the model were to decrease by 10%, it could result in the aggregate carrying value of this cash generating unit exceeding the recoverable
amount in the range of approximately $10 million to $15 million. This model includes benefits from the new Manroland press from late 2019 onwards. In
addition, the company will continue to respond to lower volumes by addressing the fixed cost base as applicable.
Value in use
The recoverable amount of the CGUs, Print – New Zealand, Ovato Retail Distribution - New Zealand, Ovato Residential Distribution - New Zealand,
Ovato Book Printing - Australia and Ovato Retail Distribution - Australia, is determined based on a value in use calculation.
In assessing value in use, the estimated future cash flows, excluding future uncommitted restructurings and associated benefits, are discounted to their
present value using a pre-tax discount rate. The key assumptions used are disclosed in the table on the following page.
Based on testing carried out at 30 June 2019, the Print – New Zealand business unit impairment analysis showed a deficit. Plant and equipment of NZ$10
million was impaired at 30 June 2019. After the impairment, the Directors estimate, that if forecast EBITDA reflected in the model were to decrease by 10%,
it could result in the aggregate carrying value of this CGU exceeding the recoverable amount by approximately NZ$1 million.
For all other CGUs, the Directors believe that sensitivity analyses performed indicate that if a change in EBITDA reflected in the models were to decrease
by up to 10% for the respective CGUs, it is unlikely that there will be an impairment.
65
YEAR ENDED 30 JUNE 2019
9
Goodwill and intangible assets (continued)
(c)
Impairment testing of goodwill (continued)
Key assumptions:
Management judgement is required in assessing whether the carrying value of assets can be supported by the net present value of future cash flows.
The following are the key estimates and assumptions used in determining the net present value of future cash flows using a value in use calculation and fair value
less costs of disposal calculation:
Area of judgement
Assumption used in value in use calculation
- Print (New Zealand)
- Ovato Retail Distribution (New Zealand)
- Ovato Residential Distribution (New Zealand)
- Ovato Book Printing (Australia)
- Ovato Retail Distribution (Australia)
Budgeted EBITDA
The Group prepares three year plans which are internally approved by senior management. These plans form the basis of the
discounted cash flow models used for impairment testing and are based upon past experience and future outlook.
Budgeted EBITDA is calculated as operating profit before depreciation and amortisation, based upon past experience and future
outlook. Adjustments are made to budgeted EBITDA as follows:
- removal of benefits from future uncommitted restructuring
- inclusion of working capital movements
Long term growth rate
Management’s plan is used for the first three years of the Group’s value in use calculations.
An annual growth rate of 0% for years four, five and perpetuity (where applicable) has been applied. The rate applied is based on
management’s assessment of the specific circumstances of that business.
Budgeted capital expenditure
The cash flow forecasts for capital expenditure are based on past experience and include the ongoing capital expenditure required to
maintain current fixed asset levels after taking into account budgeted repairs and maintenance.
Pre-tax discount rate
The pre-tax discount rate applied to the cash flows of each of the Group’s cash generating units in Australia and New Zealand
is 11.7% (2018: 13.4%).
The pre-tax discount rate is approximated by applying a gross up formula to the calculated post tax rate. The discount rate is based
on the risk-free rate for ten year government bonds adjusted for a risk premium to reflect the increased risk of investing in equities
(“equity market risk premium”) and the systematic risk adjustment (“beta”) to reflect the risk of the Company relative to the market
as a whole.
Area of judgement
Assumption used in fair value less costs of disposal calculation
- Ovato Australia
Budgeted EBITDA
The Group prepares three year plans which are internally approved by senior management. These plans form the basis of the
discounted cash flow models used for impairment testing, and are based upon past experience and future outlook.
Post tax cash flows used. Notional tax of 30% in Australia and 28% in New Zealand applied. Cash flows include working capital
movements as well as future uncommitted restructurings and benefits associated with those future restructurings.
Includes costs to sell cash outflow of 1.5%.
An annual growth rate of 0% has been applied.
Long term growth rate
Management’s plan is used for the first three years of the Group’s fair value less costs of disposal calculations.
An annual growth rate of 0% for years four, five and perpetuity (where applicable) has been applied. The rate applied is based on
management’s assessment of the specific circumstances of that business.
Post-tax discount rate
The post tax discount rate applied to the cash flows was 9.5% (2018: 10.0%).
66
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements
YEAR ENDED 30 JUNE 2019
NOTES
10 Deferred tax
Ovato Group
2019
$’000
2018
$’000
Deferred tax assets
Temporary differences:
- Provisions/accruals
- Property, plant and equipment
- Cash flow hedges
- Other assets
Tax losses
Total deferred tax assets
(a) Movements in deferred tax assets
At 1 July 2017
(Charged)/credited
- to profit or loss
- to other comprehensive income
- foreign currency translation reserve
- to goodwill
Utilisation of tax losses
At 30 June 2018
(Charged)/credited
- to profit or loss
- to other comprehensive income
- foreign currency translation reserve
Increase in New Zealand tax losses
Impairment of Australian tax losses
At 30 June 2019
23,075
10,819
(74)
(926)
15,918
48,812
23,429
5,475
(125)
(1,170)
35,050
62,659
10(a)
Provisions/
accruals
$’000
Other
assets
$’000
Property, plant
and equipment
Cash flow
hedges
$’000
$’000
Tax
losses
$’000
Total
$’000
26,158
(949)
5,081
(13)
36,505
66,782
(3,796)
—
(49)
1,116
—
(177)
(44)
—
—
—
23,429
(1,170)
(620)
213
53
—
—
51
193
—
—
—
(949)
—
(6)
1,349
—
5,475
5,329
—
15
—
—
—
(111)
(1)
—
—
(125)
—
50
1
—
—
—
—
(59)
—
(1,396)
35,050
—
—
10
679
(4,922)
(155)
(115)
2,465
(1,396)
62,659
4,760
456
79
679
(19,821)
(19,821)
23,075
(926)
10,819
(74)
15,918
48,812
67
YEAR ENDED 30 JUNE 2019
10 Deferred tax (continued)
(b) Significant accounting policies
Deferred tax assets and liabilities are recognised for temporary differences at the rates expected to apply when the assets are recovered or liabilities are
settled, based on the tax rates for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary
differences to measure the deferred tax asset or liability.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be
available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they
relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
(c) Deferred tax losses
Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that future taxable profits will be available against which the
losses can be utilised. Significant management judgement is required to determine the amount of deferred tax asset that can be recognised, based on the
likely timing and level of future taxable profits.
Consistent with prior periods, the deferred tax assets of $14.9 million pertaining to the current financial year Australian tax loss was not recognised in the
financial statements as at 30 June 2019.
The Directors also decided to reduce the deferred tax asset balance relating to Australian tax losses to $15 million, being an impairment of $19.8 million
included in tax expense for the year to 30 June 2019. This impairment was necessary to ensure the deferred tax asset remains forecast to be recouped over
a 6-8 year period, a time frame the Directors consider is a reasonable recovery period (consistent with prior years).
The Directors believe that the reduced Australian deferred tax asset of $15 million is supportable given the level of forecast future tax profits from the 2020
financial year onwards. This position will continue to be reassessed on an ongoing basis.
The New Zealand deferred tax asset value of $918,000 attributable to tax losses is also expected to be fully recouped over the 6-8 year period (noting this
increased in 2019 due to FY19 losses).
Despite the non-recognition of these losses on the Consolidated statement of financial position, the losses will remain available indefinitely for offset
against future taxable profits, subject to continuing to meet the statutory tax tests of continuity of ownership or failing that, the same business test.
68
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements
YEAR ENDED 30 JUNE 2019
NOTES
11 Payables
Current payables
Creditors - unsecured
Trade creditors and accruals *
Interest payable
Total current payables
* Trade creditors are non-interest bearing and are on normal commercial terms.
Significant accounting policies
Ovato Group
2019
$’000
2018
$’000
143,350
525
143,875
156,748
754
157,502
Liabilities for trade creditors and other amounts are carried at amortised cost which is the fair value of the consideration to be paid in the future for goods and
services received, whether or not billed to the consolidated entity.
Payables to related parties are carried at the principal amount.
YEAR ENDED 30 JUNE 2019
NOTES
12 Interest bearing liabilities
(a) Current interest bearing liabilities
Secured
Bank loans - working capital facility:
Australian dollars
Bank loans - repayable in:
Euros *
Equipment financing:
Receivables financing:
Other
Other:
Prepaid finance costs
Total current interest bearing liabilities
Australian dollars
Australian dollars
Australian dollars
(b) Non-current interest bearing liabilities
Secured
Bank loans - repayable in:
Euros *
Equipment financing:
Corporate bond:
Unsecured
Australian dollars
Australian dollars
Ovato Group
2019
$’000
2018
$’000
—
3,230
1,409
34,556
1,314
(774)
39,735
4,846
—
40,000
10,000
3,138
2,819
23,233
1,186
(477)
39,899
7,844
1,409
—
Corporate bond:
Australian dollars
—
40,000
Other
Prepaid finance costs
Total non-current interest bearing liabilities
* Represents Euro denominated loan of 5.0 million (2018: 7.0 million) measured at the exchange rate prevailing at balance date.
(c) Significant accounting policies
Borrowings are initially measured at fair value net of transaction costs.
(1,603)
43,243
(466)
48,787
After initial recognition, loans are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into
account any issue costs, and any discount or premium on settlement.
69
YEAR ENDED 30 JUNE 2019
12 Interest bearing liabilities (continued)
(d)
Interest bearing liabilities - facility details
Facility details
2019
Secured
Overdraft facility
Export finance facility *
Equipment financing facility
Receivables financing facility
Corporate bond
Unsecured
Other loan
Total facilities
2018
Secured
Overdraft facility
Export finance facility *
Equipment financing facility
Receivables financing facility
Working capital facility
Unsecured
Corporate bond
Other loan
Total facilities
Facility
$’000s
Drawn
$’000s
Available
$’000s
9,788
8,076
1,409
40,000
40,000
1,314
100,587
9,591
10,982
4,228
40,000
10,000
40,000
1,186
115,987
—
8,076
1,409
34,556
40,000
1,314
85,355
—
10,982
4,228
23,233
10,000
40,000
1,186
89,629
9,788
—
—
5,444
—
—
15,232
9,591
—
—
16,767
—
—
—
26,358
* Represents the loan measured at the exchange rate prevailing at balance date.
(e) Terms and conditions
Ovato entered into a fully secured $5 million Australian Dollar and $5 million New Zealand Dollar Overdraft Facility in February 2016 replacing the previous
Overdraft and a Revolving facility. A bank guarantee facility is also provided in conjunction with the overdraft facilities. These facilities have a maturity date
of 2 March 2020. ANZ Banking Group is the lender. Security pledged involves a first ranking fixed and floating charge over the assets of Ovato, including the
subsidiaries in Australia and New Zealand. The facilities are subject to a number of financial covenants, including the Ovato Group being measured against
a maximum Net Debt/EBITDA ratio and a minimum Fixed Charge Ratio. The facilities are also subject to the warranties and conditions of the agreement,
including a requirement to maintain a minimum cash balance in total of $7.5 million and also a change of control clause.
Ovato issued a secured $40 million corporate bond on 22 November 2018 replacing the previous unsecured $40 million bond which has been repaid. This new
bond has a fixed coupon of 8.25% per annum and a four year term. It is subject to a number of financial covenants, including the Ovato Group being measured
against a maximum lease effected Debt/EBITDA gearing ratio and a minimum debt service ratio. Capital management restrictions also apply which limits
payouts on the maximum dividend to be paid in any financial year.
Ovato entered into a Euro 17 million export financing bank loan agreement in February 2013, secured against an offset rotary press. As at 30 June 2019,
this loan was fully drawn and after amortisation payments had a balance of Euro 5.0 million. This facility has a maturity date of 30 September 2021 with
semi-annual amortisations. The lender is Commerzbank AG. The facility is also subject to the warranties and conditions of the agreement during the term of it.
As a result of the IPMG acquisition, Ovato took on a fully secured amortising $8.5 million Australian Dollar equipment financing facility. As at 30 June 2019,
this loan was fully drawn at $1.4 million. This facility has a maturity date of 23 November 2019 with semi-annual amortisations. The lender is ANZ Banking
Group. The facility is also subject to the warranties and conditions of the agreement during the term of it.
Ovato entered into a $35 million Australia Dollar Receivables Financing Facility in March 2017. The loan facility amount was increased to $40 million
Australian Dollars as at 31 December 2017. As at 30 June 2019, this loan was drawn to $34.6 million. ANZ Banking Group is the lender. Security pledged
involves a charge over certain receivables of the Print and Marketing Services entities. The facility is also subject to the warranties and conditions of the
agreement during the term of the facility. Ovato’s Receivables Financing Facility matures on 28 February 2020. Ovato is currently well advanced in negotiations
on refinancing this facility with a new lender with a longer maturity profile and additional flexibility on funding. Subsequent, to year end ANZ has increased the
overdraft facilities from September 2019.
Ovato entered into an Australian Dollar floating rate export financing bank loan agreement in April 2019, secured against an offset rotary press. As at 30 June
2019, this loan was undrawn and the drawings will occur when shipping of the press commences in early July 2019 with gradual drawdowns over a period of
approximately 2 months. This facility has a maturity date of 7 July 2023 with semi-annual amortisations. The lender is Commerzbank AG. The facility is also
subject to the warranties and conditions of the agreement during the term of it.
70
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements YEAR ENDED 30 JUNE 2019
12 Interest bearing liabilities (continued)
(f) Net debt
Ovato has taken out a cross currency swap to exchange the Euro 5.0 million export financing loan’s principal and floating Euro interest payments for an equally
valued AUD loan and AUD interest payments. This loan has formed part of the overall Ovato Group debt that is hedged to fixed rates. For the purposes of
calculating Ovato’s net debt, the hedged fixed rate Australian obligation of the Euro loan of $6.1 million has been used.
YEAR ENDED 30 JUNE 2019
Cash
Corporate bond:
Bank loans - working capital facility:
Bank loans - repayable in Euros
- measured at the exchange rate prevailing at balance date
Cross currency swap revaluation
- adjusted to measure the Euro denominated loan
at the hedged fixed rate of the Australian obligation
Equipment financing:
Receivables financing:
Other loan:
Net debt
Australian dollars
Australian dollars
Australian dollars
Australian dollars
Australian dollars
Ovato Group
2019
$’000
(38,701)
40,000
—
8,076
2018
$’000
(54,418)
40,000
10,000
10,982
(1,973)
(2,438)
1,409
34,556
1,314
44,681
4,228
23,233
1,186
32,773
(g) Reconciliation of liabilities arising from financing activities
Non-cash changes
2018
Cash
Flows
Other
Foreign
Exchange
Movement
Fair Value
Changes
2019
NOTES
$’000
$’000
$’000
$’000
$’000
$’000
Corporate bond
Bank loans - working capital
Bank loans - EUR
Equipment financing
Receivables financing
Other
Total current & non-current interest
bearing liabilities #
Asset held to hedge
long-term borrowings ##
12(b)
12(a)
40,000
—
10,000
(10,000)
12(a) & 12(b)
10,982
(2,441)
12(a) & 12(b)
4,228
(2,819)
12(a)
12(a)
23,233
11,323
1,186
128
89,629
(3,809)
26(i)
(2,252)
—
Total liabilities from financing activities
87,377
(3,809)
—
—
—
—
—
—
—
—
—
—
—
(465)
—
—
—
(465)
—
—
—
—
—
—
—
40,000
—
8,076
1,409
34,556
1,314
85,355
—
353
(1,899)
(465)
353
83,456
A reconciliation between the opening and closing balances arising from financing activities. This includes changes from cash flows (refer to Consolidated
statement of cash flows) and non-cash changes.
# Excludes prepaid financing costs as does not form part of cash flow from financing activities reconciliation.
## The valuation of the cross currency swap includes foreign exchange and an interest rate component.
71
YEAR ENDED 30 JUNE 2019
NOTES
13 Provisions
(a) Current provisions
Employee entitlements
Other
Total current provisions
Non-current provisions
Employee entitlements
Other
Total non-current provisions
Total provisions
(b) Significant accounting policies
13(c)
13(c)
Ovato Group
2019
$’000
27,122
16,050
43,172
1,800
19,827
21,627
64,799
2018
$’000
28,155
11,674
39,829
1,944
19,793
21,737
61,566
Provisions are recognised when the Ovato Group has a legal, equitable or constructive obligation to make a future sacrifice of economic benefits to other entities
as a result of past transactions or other past events, it is probable that a future sacrifice of economic benefits will be required and a reliable estimate can be made
of the amount of the obligation.
.
If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision
due to the passage of time is recognised as a finance cost.
Employee entitlements
Provision has been made in the financial statements for benefits accruing to employees in relation to sick leave (where mandatory obligation exists), annual
leave, long service leave and workers’ compensation. All on-costs, including superannuation, payroll tax, workers’ compensation premiums and fringe benefits
tax are included in the determination of provisions.
Liabilities arising in respect of wages and salaries, sick leave and any other employee benefits expected to be settled within twelve months of the reporting
date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. All other employee benefit
liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting
date. In determining the present value of future cash outflows, the market yield as at the reporting date on corporate bonds, which have terms to maturity
approximating the terms of the related liability, are used.
Employee benefit expenses and revenues arise in respect of the following categories:
• wages and salaries, non-monetary benefits, annual leave, long service leave, sick leave and other leave benefits; and
• other types of employee benefits are recognised against profits on a net basis in respective categories.
72
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements
YEAR ENDED 30 JUNE 2019
13 Provisions (continued)
(c) Movements in provisions
Movements in each class of provision during the financial year, other than employee benefits, are set out below:
Restructure
Make
good
Onerous leases
& contracts
Lease
Incentive
Other
Total
$’000
$’000
$’000
$’000
$’000
$’000
Current
Carrying amount at 1 July 2018
Charged/(credited) to profit or loss
- additional provisions recognised
- unused amounts reversed
- discount unwind
Transfer (to)/from current/non-current
Amounts used during the period
Net foreign currency translation difference
Carrying amount at 30 June 2019
Non-Current
Carrying amount at 1 July 2018
Charged/(credited) to profit or loss
- additional provisions recognised
- unused amounts reversed
- discount unwind
Transfer (to)/from current/non-current
Amounts used during the period
Net foreign currency translation difference
Carrying amount at 30 June 2019
YEAR ENDED 30 JUNE 2019
14
Financial assets and financial liabilities
Current financial assets
Forward currency contracts
Cross currency swaps
Total current financial assets
Non-current financial assets
Cross currency swaps
Total non-current financial assets
Total financial assets
Current financial liabilities
Forward currency contracts
Total current financial liabilities
Total financial liabilities
295
2,499
7,983
487
410
11,674
—
(295)
—
—
—
—
—
2,172
(122)
189
1,444
6,084
(138)
201
4,618
—
—
—
—
579
(127)
—
—
8,835
(682)
390
6,062
(1,708)
(7,942)
(120)
(471)
(10,241)
—
4,474
—
10,806
11
378
1
392
12
16,050
—
5,205
13,768
820
—
19,793
—
—
—
—
—
—
—
373
—
363
5,201
—
483
(1,444)
(4,618)
—
48
—
—
4,545
14,834
—
—
—
—
(395)
23
448
—
—
—
—
—
—
—
5,574
—
846
(6,062)
(395)
71
19,827
Ovato Group
NOTES
26(e)(iv)
26(c)(ii)
26(c)(ii)
26(e)(iv)
2019
$’000
513
692
1,205
1,207
1,207
2,412
144
144
144
2018
$’000
986
484
1,470
1,768
1,768
3,238
121
121
121
73
All derivatives designated as effective hedging instruments are carried at fair value.
YEAR ENDED 30 JUNE 2019
15 Contributed equity
Issued and paid up capital
Movements in ordinary share capital:
Balance as at 1 July - ordinary shares
Share movements in respect of:
- Share-based payments
- Share issue
Balance at 30 June - ordinary shares
Number
2019
’000
2018
’000
Ovato Group
2019
$’000
2018
$’000
510,184
508,028
482,433
481,758
—
221,820
732,004
2,156
—
510,184
—
15,090
497,523
675
—
482,433
During the financial year the company undertook a 1 for every 2.3 shares held fully underwritten accelerated pro-rata non-renounceable entitlement offer. On 30
May 2019, 156,709,664 shares were issued at $0.07 per share under the institutional entitlement. On 14 June 2019, 65,110,974 shares were issued at $0.07 per
share under the retail entitlement.
Transaction costs arising from the institutional and retail entitlement of $437,000 were accounted for as a deduction from equity during the financial period.
As at 1 December 2017 with the retirement of Mr George, the former MD and CEO, and in accordance with the terms of the Ovato Long Term Incentive Plan and his
Employee Service Agreement an early vesting event occurred and 1,456,650 TSR rights vested. The vested rights were settled by the issue of 1,456,650 fully paid
ordinary shares.
On 29 August 2017, Ovato issued 699,204 fully paid ordinary shares pursuant to Ovato’s Long Term Incentive Plan following the vesting of performance rights to
the eligible executives of Ovato.
Ordinary shares have no par value. Fully paid ordinary shares carry one vote per share and carry the right to dividends.
16 Dividends
No dividends were declared or paid during the year ended 30 June 2019 (2018: Nil).
Significant accounting policies
Provision is made for the amount of any dividend declared, being properly authorised and no longer at the discretion of the entity, on or prior to the financial year end
but not distributed at balance date.
Due to the statutory loss Ovato has not declared a dividend for the 2019 year (nor paid any interim dividends).
The dividend reserve of Ovato Limited has a balance of $33.0 million. Refer to Note 29.
74
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements
YEAR ENDED 30 JUNE 2019
NOTES
17 Reserves
Foreign currency translation reserve
Opening balance
Movement in reserve relating to:
- Exchange fluctuation on translation of overseas controlled entities
Total foreign currency translation reserve
2(c)
Share-based payment reserve
Opening balance
Movement in reserve relating to:
- Share-based payment expense
- Transfer to retained earnings
- Issue of shares on exercise
Total share-based payment reserve
Cash flow hedge reserve
Opening balance
Movement in reserve relating to:
- Cash flow hedge
- Tax effect of cash flow hedge
Total cash flow hedge reserve
Total reserves
Nature and purpose of reserves
i. Foreign currency translation reserve
Ovato Group
2019
$’000
2018
$’000
9,877
11,150
1,654
11,531
257
15
(272)
—
—
302
(181)
51
172
11,703
(1,273)
9,877
849
83
—
(675)
257
23
391
(112)
302
10,436
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.
ii. Share-based payment reserve
The share-based payment reserve comprises the fair value of share-based payment plans recognised as an expense in the Consolidated statement of profit or loss.
Shares issued in Ovato Limited are charged against the reserve.
iii. Cash flow hedge reserve
The cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedge
transactions that have not yet occurred. The cumulative deferred net change is recognised in the Consolidated statement of profit or loss when the hedged transaction
affects profit or loss or included in the initial cost or other carrying amount of a non-financial asset when the hedged asset is received.
75
YEAR ENDED 30 JUNE 2019
18 Commitments
The following commitments are not reflected in the balance sheet and are payable as follows:
(a) Capital expenditure (i):
- not later than one year
- later than one year but not later than five years
Total capital expenditure
(b) Operating lease rentals - Group as lessee (ii):
- not later than one year
- later than one year but not later than five years
- later than five years
Total operating lease rentals
(c) Operating lease rentals - Group as lessor (iii):
- not later than one year
- later than one year but not later than five years
Total operating lease rentals
Total net commitments for expenditure
Ovato Group
2019
$’000
2018
$’000
20,485
—
20,485
33,206
96,311
973
130,490
(2,041)
(9,791)
(11,832)
139,143
4,631
9,166
13,797
38,171
129,224
18,624
186,019
(2,510)
(2,802)
(5,312)
194,504
(i)
(ii)
At 30 June 2019 the Group capital expenditure commitments relate to the acquisition of new plant and equipment.
Operating leases are entered into in the normal course for land and buildings, motor vehicles, computer equipment and plant and machinery. Rental payments are generally fixed,
however some agreements contain inflation escalation clauses. No operating leases contain restrictions on financing or other leasing activities.
Includes operating lease commitments for onerous lease contracts recognised in the Consolidated Statement of Financial Position.
The 2018 lease rental commitments include outgoings, whereas the 2019 lease rental commitments exclude outgoings due to a change in accounting policy.
(iii)
Operating leases are entered into to sub-lease surplus office space. Rentals include fixed and inflation escalation clauses.
(iv)
The company has a number of bank guarantees in place that support various property leases in the name of either Ovato Limited or its subsidiaries.
As at 30 June 2019 the value of bank guarantees was $16.3 million (2018: $16.3 million). The company has received guarantees for properties which it sub-leases of $0.9 million
(2018: $0.1 million).
76
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements
YEAR ENDED 30 JUNE 2019
19 Controlled entities (d)
Pacific Publications Holdings Pty Limited
Attic Futura Pty Limited
Pacific O’Brien Publications Pty Limited
Total Sampling Pty Limited
PMP Publishing Pty Ltd
Ovato Print Pty Ltd (formerly PMP Print Pty Ltd)
PMP Property Pty Limited
PT Pac-Rim Kwartanusa Printing
PMP Advertising Solutions Pty Limited
PMP Home Media Pty Limited
Shomega Pty Limited
Show-Ads Pty Ltd
Linq Plus Pty Limited
PMP Wholesale Pty Ltd
Ovato Creative Services Clayton Pty Ltd (formerly PMP Digital Pty. Ltd.)
Pacific Intermedia Pty Ltd
The Argus & Australasian Pty Limited
Ovato Retail Distribution Pty Ltd (formerly Gordon and Gotch Australia Pty Limited)
A.C.N. 128 266 268 Pty Limited
Scribo Holdings Pty Ltd
The Scribo Group Pty Ltd
Tower Books Pty Limited
Gary Allen Pty Ltd
ilovemagazines.com.au Pty Ltd
PMP Directories Pty Limited
Argyle Print Pty Ltd
Red PPR Holdings Pty Ltd
Ovato Finance Pty Ltd (formerly PMP Finance Pty Limited)
PMP Share Plans Pty Limited
Manningtree Investments Pty Limited
Canberra Press Pty Limited
Ovato NZ Limited (formerly PMP (NZ) Limited)
Ovato Print NZ Limited (formerly PMP Print Limited)
PMP Maxum Limited
Ovato Residential Distribution NZ Limited (formerly PMP Distribution Limited)
Ovato Retail Distribution NZ Limited (formerly Gordon and Gotch (NZ) Limited)
PMP Digital Limited
Footnotes refer to all of Note 19.
Country of
Incorporation
NOTES
Interest held
2019
%
2018
%
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(b)
(b)
(b)
(b)
(b)
(a)
(a)
(b)
(a)
(a)
(a)
(a)
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Indonesia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
100
100
100
100
100
100
100
95
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
95
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
77
(a)
(b)
(c)
(d)
These companies entered into a Deed of Cross Guarantee dated 27 June 2008 with Ovato Limited (formerly PMP Limited) which replaced the previous deed dated 10 June 1992. The deed
provides that all parties to the deed will guarantee to each creditor payment in full of any debt of each company participating in the deed on winding up of that company. As a result of a
Corporations Instrument 2016/785 issued by the Australian Securities and Investments Commission, those companies are relieved from the requirement to prepare financial statements.
On 11 June 2009 these companies were joined as parties to the Deed of Cross Guarantee referred above.
These Companies were acquired by Ovato (formerly PMP) on 1 March 2017 and were joined on 6 June 2017 as parties to the Deed of Cross Guarantee
referred above.
Notes on the closed group:
- Ovato Limited is the ultimate parent company of the Ovato Group.
- All companies have ordinary share capital.
Country of
Incorporation
NOTES
Interest held
2019
%
2018
%
YEAR ENDED 30 JUNE 2019
19 Controlled entities (continued)
IPMG Holdco Pty Ltd
IPMG Subco Pty Ltd
Propsea Pty Limited
MJV Pty Limited
Tigerstone Pty Limited
KTAR Pty Limited
PMP Subco No.6 Pty Limited
D. Livingstone Pty. Limited
PMP Subco No.2 Pty Limited
PMP Subco No.3 Pty Limited
PMP Subco No.4 Pty Limited
IPMG Pty Limited
Hannan Finance Corporation Pty Limited
IPMG Administration Pty Limited
NDD Distribution Pty Ltd
Southern Independent Publishers Pty Limited
The Federal Publishing Co Pty Ltd
PMP Subco No.1 Pty Limited
IPMG Management (No.2) Pty Ltd
IPMG Digital Pty Ltd
Forty Two International Pty Limited
Holler Australia Pty Ltd
Holler Administration Pty Ltd
IPMG Consulting Pty Limited
Massmedia Studios Pty Ltd
Max Australia Pty Ltd
Ovato Creative Services Pty Ltd (formerly Sinnott Bros Pty Ltd)
Ovato Communications Pty Ltd (formerly Spectrum Communications Group Pty Limited)
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Ovato Communications Singapore Pte Ltd (formerly IPMG Singapore Pte Limited)
Singapore
Spin Comm. Syd. Pty. Ltd
The Gang of 4 Pty Limited
Ovato Technology Pty Ltd (formerly Traction Digital Pty Ltd)
Australia
Australia
Australia
Ovato Technology London Limited (formerly Traction Digital Limited)
United Kingdom
Ovato Technology Chennai Private Limited (formerly Traction Digital Private Limited)
The Independent Print Media Group Pty Limited
PMP Subco No.5 Pty Limited
Offset Alpine Printing Group Pty Limited
Kierle Investments Pty Ltd
Offset Alpine Printing Pty Limited
Craft Printing Pty Ltd
Hannanprint NSW Pty Limited
Hannanprint Victoria Pty Limited
SYNC Communications Management Pty Limited
Warwick Farm Business Park Pty Ltd
Woodox Pty Ltd
Inprint Pty Limited
Ovato Print Cairns Pty Ltd (formerly Bolton Print Pty Ltd)
Ovato Packaging Pty Ltd (formerly Inpack Pty. Ltd.)
Ovato Creative Services Geebung Pty Ltd (PEP Central Pty Ltd)
78
India
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements YEAR ENDED 30 JUNE 2019
19 Controlled entities (continued)
The aggregate assets, liabilities and net result after income tax of the companies which are parties to the Deed of Cross Guarantees are as follows:
Statement of profit or loss and other comprehensive income of the closed group
Sales revenue
Other revenue
Revenue
Raw materials and consumables used
Cost of finished goods sold
Employee expenses
Outside production services
Freight
Repairs and maintenance
Occupancy costs
Other expenses
Loss before depreciation, amortisation, finance costs and income tax
Depreciation and amortisation
Loss before finance costs and income tax
Finance costs
Loss before income tax
Income tax expense
Net loss attributable to members of the closed group
Closed Group
2019
$’000
553,272
14,202
567,474
(209,287)
(1,458)
(230,425)
(12,462)
(58,411)
(12,681)
(35,439)
(39,152)
(31,841)
(24,328)
(56,169)
(8,964)
(65,133)
(17,685)
(82,818)
2018
$’000
611,976
11,216
623,192
(226,839)
(493)
(258,097)
(13,445)
(67,149)
(16,159)
(31,883)
(16,459)
(7,332)
(25,924)
(33,256)
(7,295)
(40,551)
(5,051)
(45,602)
79
Closed Group
2019
$’000
2018
$’000
27,324
68,760
84,555
1,160
4,285
186,084
101,399
43,553
37,019
1,207
30,318
213,496
399,580
115,909
39,735
30
40,204
195,878
43,243
19,421
62,664
258,542
141,038
497,523
181
(356,666)
141,038
41,945
78,270
90,863
1,277
5,527
217,882
130,183
60,830
35,698
1,768
43,085
271,564
489,446
133,767
39,899
97
37,133
210,896
48,787
20,063
68,850
279,746
209,700
482,433
441
(273,174)
209,700
YEAR ENDED 30 JUNE 2019
19 Controlled entities (continued)
Statement of financial position of the closed group
Current assets
Cash and cash equivalents
Receivables
Inventories
Financial assets
Other
Total current assets
Non-current assets
Property, plant and equipment
Deferred tax assets
Goodwill and intangible assets
Financial assets
Other
Total non-current assets
Total assets
Current liabilities
Payables
Interest bearing liabilities
Financial liabilities
Provisions
Total current liabilities
Non-current liabilities
Interest bearing liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
80
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements YEAR ENDED 30 JUNE 2019
20
Segmental information
Description of segments
Management has determined the operating segments based on the manner in which the Group is structured and managed by the Executive Management Team
(“EMT”). All reports regularly reviewed by the Chief Executive Officer and the EMT are presented on this basis which group similar operations or geographic
locations.
The Group adjusted its segment reporting in the year under review due to changes to the way it sells to its customers and a revised management structure. This
has resulted in a change to how the group defines its segments. Refer to comments on ‘Change in segment reporting’ contained in Note 1: Summary of significant
accounting policies. The 2018 comparatives have been adjusted to reflect the changes.
Ovato Australia Group includes all of the Print businesses in Australia, Ovato Residential Distribution, Ovato Retail Distribution (formerly Gordon & Gotch Australia),
the digital businesses and corporate. Ovato New Zealand Group segment includes all businesses in New Zealand.
Due to the change in segments the operational segment now agrees to the geographic segment and therefore is not shown separately.
Transactions between segments are carried out at arm’s length and are eliminated on consolidation.
Segment revenue and results
The following is an analysis of the Group’s revenue and results by reportable segment for the periods presented:
(a) Operational and Geographic Segments
2019
$’000
2018
$’000
2019
$’000
2018
$’000
2019
$’000
2018
$’000
Ovato Australia Group
Ovato New Zealand
Group
Consolidated
Revenue
External sales
Freight
Other revenue
Other revenue significant items
529,913
585,264
105,876
110,953
635,789
696,217
25,015
28,615
9,420
—
9,300
1,915
8,432
1,334
—
9,136
1,323
(11)
33,447
10,754
—
37,751
10,623
1,904
Total revenue
564,348
625,094
115,642
121,401
679,990
746,495
EBITDA ~ before significant items
Depreciation and amortisation
EBIT^ before significant items
26,286
30,026
4,561
10,600
30,847
40,626
(24,338)
(25,944)
(4,297)
(5,332)
(28,635)
(31,276)
1,948
4,082
264
Significant items before income tax
(51,001)
(38,602)
(11,956)
Segment EBIT after significant items
(49,053)
(34,520)
(11,692)
Significant items - Finance costs
Finance costs
Consolidated entity loss before income tax
Income tax expense
Net loss after income tax
~ EBITDA - Profit/(loss) before depreciation, amortisation, finance costs and income tax
^ EBIT - Profit/(loss) before finance costs and income tax
5,268
(757)
4,511
2,212
9,350
(62,957)
(60,745)
(631)
(39,359)
(30,009)
—
(8,415)
(7,449)
(69,791)
(37,458)
(14,460)
(6,337)
(84,251)
(43,795)
81
YEAR ENDED 30 JUNE 2019
20 Segmental information (continued)
(b) Significant items by operating and geographical segments
Significant items of revenue
Net gain/(loss) on disposal of plant and equipment
Total segment significant items of revenue
Significant items of expense
Ovato Australia Group
Ovato New Zealand
Group
Consolidated
2019
$’000
2018
$’000
2019
$’000
2018
$’000
2019
$’000
2018
$’000
—
—
1,915
1,915
—
—
(11)
(11)
—
—
1,904
1,904
Net loss on disposal of plant and equipment
(688)
—
(61)
—
(749)
—
Restructure initiatives and other one-off costs
(23,083)
(26,341)
(1,606)
(674)
(24,689)
(27,015)
Onerous leases and make good provisions
(13,697)
(9,614)
(786)
— (14,483)
(9,614)
Relocation of presses
(5,019)
(5,430)
—
(72)
(5,019)
(5,502)
(Impairment)/reversal of plant and equipment due to
restructure initiatives
(8,514)
868
(9,503)
—
(18,017)
868
Total segment significant items of expense
(51,001)
(40,517)
(11,956)
(746)
(62,957)
(41,263)
Total segment significant items before income tax
(51,001)
(38,602)
(11,956)
(757)
(62,957)
(39,359)
Significant items - finance costs
Fee paid for early termination of corporate bond
Write off of prepaid finance costs
Total segment significant items - finance costs
(c) Other segment information
i. Disaggregation of revenue by major product and service offerings
(400)
(231)
(631)
—
—
—
—
—
—
—
—
—
(400)
(231)
(631)
—
—
—
The Group derives revenue at a point in time and over time. Set out below is the disaggregation of the Group’s revenue from contracts with customers by operating segment.
Ovato Australia Group
Ovato New Zealand
Group
Consolidated
2019
$’000
2018
$’000
2019
$’000
2018
$’000
2019
$’000
2018
$’000
Segment Revenue
Commercial printing, marketing services and residential distribution
446,773
501,431
95,043
98,702
541,816
600,133
Book printing
Magazine distribution
Freight
Total sales revenue
ii. Major customers
28,843
27,912
—
—
28,843
27,912
54,297
55,921
10,833
12,251
65,130
68,172
25,015
28,615
8,432
9,136
33,447
37,751
554,928
613,879
114,308
120,089
669,236
733,968
Included in the Ovato Australia Group and the Ovato New Zealand Group segments are sales revenue of approximately $133.5 million (13% of Group gross sales)
which arose from sales to the Group’s largest customer (2018: The sales revenue from this customer was $155.2 million, 13% of the Group’s gross sales).
82
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements YEAR ENDED 30 JUNE 2019
20 Segmental information (continued)
(d) Significant accounting policies
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision
maker is responsible for allocating resources and assessing performance of the operating segments. Segment information is presented on the same basis as that
used for internal reporting purposes.
21 Pension plans
The Ovato Group contributes to a defined benefit fund and accumulation plans as a consequence of legislation or Trust Deeds. Legal enforceability is dependent upon
the terms of the legislation and the Trust Deeds.
Accumulation and defined benefit member accounts are held within the PEP Superannuation Plan which is a sub-plan of the AMP SuperSignature Plan.
Ovato manages superannuation commitments through a Superannuation Policy Committee in conjunction with the trustees of the AMP Superannuation Savings Trust,
within which is the AMP SuperSignature Plan. This master trust provides defined benefits based on years of membership and final average salary and accumulation
benefits (defined contribution fund). Employees contribute to the plan at various percentages of their wages and salaries.
Employer contributions to superannuation plans in the year ended 30 June 2019 totalled $11,606,070 (2018: $12,194,907).
Accumulation funds
Contribution obligations in respect of each accumulation fund for the year to 30 June 2019 was 9.5% (2018: 9.5%) of members’ wages or as defined by the
Trust Deed.
Defined benefit funds
i. Nature of the benefits provided
Defined benefit members receive lump sum benefits on retirement, death, disablement and withdrawal. The defined benefit section of the Plan is closed to new
members. All new members receive accumulation only benefits.
ii. Regulatory framework
The Superannuation Industry (Supervision) (SIS) legislation governs the superannuation industry and provides the framework within which superannuation plans
operate. The SIS Regulations require an actuarial valuation to be performed for each defined benefit superannuation plan every three years, or every year if the plan
pays defined benefit pensions.
iii. Governance of the Plan
The Plan’s Trustee is responsible for the governance of the Plan. The Trustee has a legal obligation to act solely in the best interests of Plan beneficiaries. The trustee
has the following roles:
• administration of the Plan and payment to the beneficiaries from Plan assets when required in accordance with the Plan rules;
• management and investment of the Plan assets; and
• compliance with superannuation laws and other applicable regulations.
The prudential regulator, the Australian Prudential Regulation Authority (APRA), licences and supervises regulated superannuation plans.
iv. Risks
There are a number of risks to which the Plan exposes the Company. The more significant risks relating to the defined benefits are:
• Investment risk - the risk that investment returns will be lower than assumed and the Company will need to increase contributions to offset this shortfall.
• Salary growth risk - the risk that wages or salaries (on which future benefit amounts will be based) will rise more rapidly than assumed, increasing defined
benefit amounts and thereby requiring additional employer contributions.
• Legislative risk - the risk is that legislation changes could be made which increase the cost of providing the defined benefits.
The defined benefit assets are invested in the Future Directions Balanced investment option. The assets are diversified within this investment option and therefore the
Plan has no significant concentration of investment risk.
v. Description of significant events
There were no Plan amendments affecting the defined benefits payable, curtailments or settlements during the year.
83
YEAR ENDED 30 JUNE 2019
21 Pension plans (continued)
(a) Statement of financial position impact
Defined benefit obligation
Less: fair value of plan assets
Net defined benefit plan asset
(b) Movement in net defined benefit plan asset
Net defined benefit plan asset at start of year
Defined benefit plan cost
Remeasurements recognised in other comprehensive income
Employer contributions
Net defined benefit plan asset
(c) Reconciliation of the net defined benefit plan asset
Net defined benefit plan asset at start of year
Current service cost
Net interest
Actual return on plan assets less interest income
Actuarial (losses)/gains arising from changes in financial assumptions
Actuarial (losses) arising from liability experience
Employer contributions
Net defined benefit plan asset at end of year
Ovato Group
2019
$’000
NOTES
(10,022)
11,549
1,527
2,122
(117)
(642)
164
1,527
2,122
(185)
68
255
(268)
(629)
164
1,527
7
7
7
2018
$’000
(9,967)
12,089
2,122
1,945
(147)
145
179
2,122
1,945
(209)
62
516
24
(395)
179
2,122
If a surplus exists in the plan, Ovato Limited expect to be able to take advantage of it in the form of a reduction in the required contribution rate, depending on
the advice of the Plan’s actuary.
Ovato Limited may at any time by notice to the Trustee terminate its contributions. Ovato Limited has a liability to pay the contributions due prior to the
effective date of the notice, but there is no requirement for it to pay any further contributions, irrespective of the financial condition of the plan.
(d) Significant accounting policies
An asset or liability in respect of the defined benefit fund is recognised in the Consolidated statement of financial position, and is measured as the present
value of the defined benefit obligation plus unrecognised actuarial gains/losses less the fair value of the superannuation fund’s assets at that date and any
unrecognised past service cost. The present value of the defined benefit fund has been determined using the projected unit credit actuarial valuation method.
Various assumptions are required when determining the Group’s benefit obligation.
Contributions to the defined contribution fund are recognised as an expense as they become payable.
(e) Actuarial assumptions
The principal actuarial assumptions used in determining Ovato’s pension obligations are as follows:
Discount rate
Expected salary increase rate
Ovato Group
2019
%
2.50
1.25
2018
%
3.60
1.25
84
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements YEAR ENDED 30 JUNE 2019
22 Share-based payment plans
(a) Employee long term incentive plan
Share-based payment transactions are provided to employees via the Ovato employee long term incentive plan (“LTI”).
Ordinary shares up to 5.0% (2018: 5.0%) of the total number of ordinary shares on issue may be allotted under the Ovato long term incentive plan.
Total number of employee options/performance rights issued since commencement:
Total number of employee performance rights issued as at balance date:
Rights on issue (as a percentage of total shares on issue) as at 30 June 2019:
Total number of employee performance rights issued during the year
Total number of employee performance rights issued post balance date:
Performance rights
Allotment Date
On issue at beginning of year
Issued during the year
Exercised during the year
Lapsed during the year
On issue at end of year
Lapsed subsequent to balance date
Outstanding at date of Directors’ report
Number of participants (at balance date)
Vesting date (Following the announcement of the)
Fair value per right - TSR hurdle (ii)
Fair value per right - EBITDA hurdle (ii)
79,363,811
—
0.00%
—
—
1/6/2016 (i)
Total Number
1,815,232
1,815,232
—
—
—
—
(1,815,232)
(1,815,232)
—
—
—
—
—
—
—
FY18 results
$0.30
$0.48
(i)
In June 2016, rights to the value of between 15% - 50% of each executive participant’s total employment cost were granted to executives.
The number of rights granted was determined based on the weighted average share price for the one week period up to grant date ($0.55).
Performance rights entitle participants to receive Ovato shares at nil cost after vesting. Rights will only vest if relevant performance hurdles are
achieved across the following three years FY16, FY17 and FY18 as follows:
• Ovato’s Total Shareholder Return (“TSR”) over the three year performance period comprising FY16, FY17 and FY18 is measured against a
comparator group of ASX listed companies ranked between S&P/ASX 200 to 300 entities. 50% of rights granted are subject to the TSR hurdle.
If a rank of less than the 51st percentile is achieved nil vest, if a rank of between the 51st and 75th percentile is achieved 50-100% of rights vest
and if a rank of greater than 75th percentile is achieved 100% vest.
• Ovato’s Earnings Before Interest, Tax, Depreciation and Amortisation (“EBITDA”) over the three year period comprising FY16, FY17 and FY18 is
measured against a target for the Ovato Group. 50% of rights granted are subject to an EBITDA hurdle. The number of rights to vest are pro-rated
based on a target EBTIDA range.
These performance rights lapsed on 30 August 2018, following the announcement of the results for the year ended 30 June 2018.
Neither the TSR nor the EBTIDA hurdles were met over the three year performance period.
85
YEAR ENDED 30 JUNE 2019
22 Share-based payment plans (continued)
(a) Employee long term incentive plan (continued)
(ii)
Rights subject to the TSR hurdle have been independently valued using a Monte Carlo simulation and the Black Scholes model has
been used to value the rights with a EBITDA performance condition.
The following table lists the inputs to the models used to value the rights granted:
Dividend yield
Expected volatility
Risk-free interest rate
Correlation
Share price at grant date
1/6/2016 - Executives
6.00%
40%
1.60%
Historical share prices used
to calculate the correlation
of returns of Ovato and the
constituents of the peer group.
$0.54
The fair value does not contain any discount for forfeiture due to employees leaving before vesting.
(b) Significant accounting policies
The fair value of rights is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and
recognised over the period during which the employees become unconditionally entitled to the rights. The fair value is determined by an external valuer taking
into account the terms and conditions upon which the instruments were granted.
The fair value of the rights excludes the impact of any non-market based vesting conditions. Non-market based vesting conditions are included in assumptions
about the number of rights that are expected to ultimately vest. At each balance sheet date, the Ovato Group revises its estimate of the number of rights that are
expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate.
No expense is recognised for rights that do not ultimately vest, except for rights where vesting is conditional upon a market condition.
23 Related parties
(a) Key Management Personnel
Details of Key Management Personnel, including remuneration, are included in the section titled “Remuneration Report” included in the
Directors’ Report.
No Key Management Personnel received or is entitled to receive a benefit, other than a benefit included in the aggregate amount
of emoluments. Any transactions with Key Management Personnel are made on normal commercial terms and conditions.
(b) Compensation of Key Management Personnel
The aggregate compensation made to Directors and other members of Key Management Personnel of the
company and the Group is set out below:
Short-term employee benefits
Other long-term employee benefits
Post employment benefits
Termination payments (1)
Share-based payment (2)
Total compensation
Ovato Group
2019
$
2018
$
2,059,746
2,885,046
12,091
109,264
—
3,701
301,988
132,750
600,000
60,271
2,184,802
3,980,055
(1) Mr George retired as Managing Director and Chief Executive Officer of Ovato (formerly PMP) on 30/11/17.
(2) This is based on the accrued accounting value in accordance with AASB 2 Share-based payments. All rights valued in accordance with AASB 2 have been independently valued.
In accordance with AASB 2 the non-market conditions associated with these rights were not taken into account when estimating the fair value at grant date. Instead, the number of
rights expected to eventually vest is re-assessed at the end of each reporting period.
86
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements
YEAR ENDED 30 JUNE 2019
23 Related parties (continued)
(c) Key Management Personnel shareholdings
This information is disclosed within the “Remuneration Report” included in the Directors’ Report.
(d) Transactions with Key Management Personnel and their related parties
A number of Key Management Personnel, or their related parties, hold positions in other companies that result in them having control or significant influence
over these companies.
The aggregate value of transactions and outstanding balances related to Key Management Personnel and entities over which they have control or significant
influence were as follows:
Director/Executive
Transaction
M Hannan
A O’Connor
M Hannan
T Sinclair
W Tang
Property leases (i)
Property leases (i)
Interest on corporate bond (ii)
Waste removal services (iii)
Creative services, catalogue printing and
distribution (iv)
Payments/(receipts)
transaction value
for the year ended 30 June
Payable/(receivable)
balance outstanding
as at 30 June
2019
$’000
9,429 *
—
248
539
2018
$’000
10,682 *
10,682 *
—
294
2019
$’000
—
—
45
42
2018
$’000
—
—
—
27
(4,931)
(8,255)
(242)
(717)
D Karai
Whistleblower reporting service (v)
7
7
—
—
* The 2018 lease expenses include outgoings, whereas the 2019 lease expenses exclude outgoings as a result of a change in accounting policy.
(i) Mr Hannan is a Non-Executive Director of Ovato Limited and a beneficiary of Rathdrum Property Trust (“RPT”). Mr O’Connor was a Key Management Person during the year ended
30 June 2018. He is also a beneficiary of RPT. Mr O’Connor was not considered a Key Management Person for 2019 due to a change in the internal management reporting structure.
Subsidiary companies of Ovato Limited lease some properties from RPT. All leases expire on 30 June 2024. Properties leased are Geebung QLD (Inprint and Ovato Creative Services
Geebung), Noble Park VIC (Hannan Print Victoria), Warwick Farm NSW (Hannan Print NSW) and Lidcombe NSW (Offset Alpine). Ovato Group assumed responsibility for these leases
when it acquired IPMG on 1 March 2017.
(ii) Ovato issued a secured $40 million corporate bond on 22 November 2018. The bond has a fixed coupon of 8.25% per annum and a four year term. Mr Hannan is a Non-Executive
Director of Ovato Limited and holds $5 million of the corporate bond.
(iii) Mr Sinclair is a Non-Executive Director of Cleanaway Waste Management Limited. He was appointed a Non-Executive Director of Ovato Limited on 10 October 2017. Cleanaway Waste
Management Limited provides waste removal services to companies within the Ovato Group. Amounts were billed at normal market rates for such services and payable under normal
payment terms. The transaction value disclosed for the year ended 30 June 2018 is from the date of Mr Sinclair’s appointment to 30 June 2018.
(iv) Ms Tang is a Non-Executive Director of JB Hi-Fi Limited. She was appointed a Non-Executive Director of Ovato Limited on 10 October 2017. Ovato Group distributes catalogues for
JB Hi-Fi in Australia and prints and distributes catalogues for JB Hi-Fi Ltd in NZ. The Ovato Group provides digital creative services, prints and distributes catalogues for The Good
Guys, a subsidiary of JB Hi-Fi Limited. Amounts were charged at normal market rates for such services and receivable under normal credit terms. The transaction value disclosed for
the year ended 30 June 2018 is from the date of Ms Tang’s appointment to 30 June 2018.
(v) Ms Karai is a Partner at Grant Thornton Australia. Grant Thornton provides a whistleblower reporting service to Ovato Limited. Amounts were billed at normal market rates for such
services and payable under normal payment terms.
During the financial year the following subsidiary companies of Ovato Limited incurred lease expenses in relation to RPT lease commitments.
Offset Alpine Printing Pty Limited
Hannanprint NSW Pty Limited
Hannanprint Victoria Pty Limited
Inprint Pty Limited
Ovato Creative Services Geebung Pty Ltd (formerly PEP Central Pty Ltd)
* The 2018 lease expenses include outgoings, whereas the 2019 lease expenses exclude outgoings as a result of a change in accounting policy.
2019*
$’000
2,821
3,413
1,008
2,125
62
9,429
2018*
$’000
3,194
3,946
1,127
2,347
68
10,682
87
YEAR ENDED 30 JUNE 2019
23 Related parties (continued)
(d) Transactions with Key Management Personnel and their related parties (continued)
The maturity profile of total lease commitments to RPT to 30 June 2024 is as follows:
- not later than one year
- later than one year but not later than five years
- later than five years
2019*
$’000
10,875
36,547
—
47,422
2018*
$’000
10,994
47,373
12,744
71,111
* The 2018 lease commitments include outgoings, whereas the 2019 lease commitments exclude outgoings due to a change in accounting policy.
(e) Transactions with related parties in the wholly owned group
Details of controlled entities are set out in Note 19. The entities and Ovato conduct business transactions between themselves. Such transactions include the
purchase and sale of goods, services, plant and equipment and the receipt and payment of management fees, dividends and interest. All such transactions are
conducted on the basis of normal commercial terms and conditions, have been eliminated on consolidation and are not disclosed in this note.
(f) Transactions with other related parties
There were no transactions with any other related parties of the Ovato Group.
24 Earnings per share
(a) Weighted average number of ordinary shares
Weighted average number of ordinary shares on issue used in the calculation of basic and diluted
earnings per share
526,955
509,460
2019
Number
‘000
2018
Number
‘000
(b) Earnings
Net loss after income tax
Loss used in calculating basic and diluted earnings per share
2019
$’000
(84,251)
(84,251)
2018
$’000
(43,795)
(43,795)
88
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements YEAR ENDED 30 JUNE 2019
NOTES
25 Cash flow statement notes
(a) Reconciliation of cash flow from operating activities
to operating loss after income tax
Operating loss after income tax
Adjustments for non-cash items:
Depreciation
Amortisation
Impairment/(reversal) of plant and equipment
(Credit)/provision for doubtful debts/bad debts written off
Movement in provision for tax
Net loss/(gain) on disposal of plant and equipment
Share-based payment plans
Non-cash superannuation expense
Other non-cash items
Change in assets and liabilities:
Accounts receivable
Inventories
Liabilities
Non-current assets
Provision for employee benefits
Prepayments
Net cash (used in)/provided by operating activities
Decrease
Decrease
(Decrease)
Decrease
(Decrease)
Decrease
2(e)
2(e)
2(b),2(c)
2(c)
2(c), 17
21(b)
(b) Reconciliation of cash and cash equivalents
NOTES
Cash and cash equivalents
Total cash and cash equivalents
Ovato Group
2019
$’000
2018
$’000
(84,251)
(43,795)
28,110
525
18,017
(69)
3
775
15
117
(761)
10,211
2,323
(9,217)
14,151
(582)
1,410
(19,223)
Ovato Group
2019
$’000
38,701
38,701
30,696
580
(868)
(44)
(24)
(1,961)
83
147
(879)
25,400
1,815
(19,760)
4,304
(2,195)
416
(6,085)
2018
$’000
54,418
54,418
89
YEAR ENDED 30 JUNE 2019
26 Financial instruments
The Group’s activities expose it to a variety of financial risks: market risk (including currency and interest rate risk), credit risk and liquidity risk. The Group’s overall
risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance
of the group.
Categories of financial instrument:
The Group holds the following categories of financial instruments:
Ovato Group
Financial assets
Cash and cash equivalents
Trade and other receivables
Derivative financial instruments
Financial liabilities
Trade and other payables
Interest bearing liabilities
Derivative financial instruments
(a) Significant accounting policies
NOTES
25(b)
5
14
11
12(a), 12(b)
14
2019
$’000
38,701
81,783
2,412
122,896
143,875
82,978
144
226,997
2018
$’000
54,418
91,924
3,238
149,580
157,502
88,686
121
246,309
The Ovato Group trades internationally and uses derivative financial instruments such as forward exchange contracts, interest rate swaps and cross currency
swaps to hedge its risks associated with interest rate and foreign currency fluctuations. Derivative financial instruments are initially recognised at cost on the
date a derivative contract is entered into and are subsequently re-measured to their fair value.
The fair value of forward exchange contracts is calculated by reference to current forward contracts with similar maturity profiles. The fair value of interest rate
swap and cross currency swap contracts are determined by reference to market values for similar instruments.
The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the
hedge relationship. The Ovato Group policy is to undertake hedging in respect of certain recognised assets or liabilities or a firm commitment (fair value hedge
relationships); and for highly probable forecast sales or purchases (cash flow hedge relationships).
The Ovato Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management
objective and strategy for undertaking various hedge transactions. The Ovato Group also documents its assessment, both at hedge inception and on an ongoing
basis, of whether the derivatives that are used in the hedging relationship have been and will continue to be highly effective in offsetting changes in fair values
and cash flows of hedged items.
i. Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve.
The gain or loss relating to the ineffective portion is recognised immediately in the Consolidated statement of profit or loss and other comprehensive income.
Amounts accumulated in equity are recycled in the Consolidated statement of profit or loss and other comprehensive income in the periods when the hedged
item will affect the profit and loss. However, when the forecast purchase or sale transaction that is hedged results in the recognition of a non-financial asset, the
gains and losses previously deferred in equity are transferred from equity and included as a basis adjustment to the initial cost or carrying amount of the asset.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that
point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecasted transaction occurs. If a hedged
transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the year.
ii. Derivatives that do not qualify for hedge accounting
Certain derivatives do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are
recognised immediately in the Consolidated statement of profit or loss and other comprehensive income.
90
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements
YEAR ENDED 30 JUNE 2019
26 Financial instruments (continued)
(b) Hedging policy - overview
The economic entity has adopted certain principles in relation to derivative financial instruments:
a) It does not trade in derivatives that are not used in hedging the underlying business exposure of the economic entity; and
b) All hedging is undertaken through the Group’s central treasury operation and is in accordance with Board approved policies.
(c)
Interest Rate Management
The Group enters into fixed rate instruments to manage the cash flow risks associated with the interest rates on borrowings that are floating. Interest rate
instruments allow the Group to swap floating rate borrowings into fixed rate borrowings in accordance with the Ovato Group policy. These activities are regularly
evaluated to ensure that the Group is not exposed to interest rate movements that could adversely impact its ability to meet financial obligations and to ensure
compliance with borrowing covenants.
i. Interest rate risk exposure
The following table sets out the amount of cash, variable rate borrowings, fixed rate borrowings and interest rate contracts outstanding.
Bank loans - AUD floating rate
Bank loans - AUD fixed rate
Bank loans - EUR floating rate
Corporate Bond
Cross Currency Interest Rate Swaps
- receive EUR floating rate
- pay AUD floating rate
Year end borrowing cost (excl. cash, fees & charges)
30 June 2019
30 June 2018
Weighted average
interest rate
%
3.9%
7.5%
2.0%
8.3%
1.8%
5.9%
6.2%
Balance
$’000
(35,965)
(1,314)
(8,076)
(40,000)
8,076
(6,103)
(83,382)
Weighted average
interest rate
%
4.7%
8.4%
2.0%
6.4%
1.7%
6.1%
5.7%
Balance
$’000
(37,461)
(1,186)
(10,982)
(40,000)
10,982
(8,544)
(87,191)
Cash and cash equivalents
1.3%
38,701
1.6%
54,418
As at balance date, the Group maintained floating rate borrowings of $42.1 million (2018: $46.0 million), that were not hedged by interest rate swaps.
The associated interest rate risk is partially mitigated by expected free cash flow and intra-period movements in cash requirements. In 2019, the average
borrowing rate excluding capitalised fees and charges was 6.0% (2018: 5.6%).
Ovato Limited’s receivables and payables are non-interest bearing. Cash and overdraft amounts are at the floating interest rate applicable to the Ovato Group.
ii. Fair value of cross currency swaps
Australian Dollar / Euro cross currency interest rate swaps
Total fair value of cross currency swaps
Ovato Group
2019
$’000
1,899
1,899
2018
$’000
2,252
2,252
NOTES
14
The cross currency swaps convert the Euro denominated floating debt to Australian dollar floating debt and have been designated as cash flow hedges.
At 30 June 2019, a $6,643 gain has been recorded in the Consolidated statement of profit or loss and other comprehensive income (2018: $6,061 gain).
91
YEAR ENDED 30 JUNE 2019
26 Financial instruments (continued)
(d) Liquidity risk management
Liquidity risk is the risk that funds may be insufficient to settle a transaction on the due date, and the Group may be forced to sell financial assets at a value
which is below what they are worth.
Ovato manages liquidity risk by maintaining adequate reserves, banking facilities and borrowing facilities by continually monitoring actual and forecast cash
flows and matching the maturity profiles of financial assets and liabilities.
The table below shows the Group’s financial liabilities and derivative instruments in relevant maturity groupings based on the remaining period at the reporting
date to the contractual maturity date. The amounts shown in the table are the contractual, undiscounted cash flows and include both principal and interest.
30 June 2019
Interest bearing liabilities
Corporate Bond - Australian dollars
Bank Loans - Australian dollars
Bank Loans - Euros
Cross Currency Swaps - AUD/EURO (1)
Carrying
amount
$’000
40,000
37,279
8,076
(1,899)
Ovato Group
Contractual
cash flows
Less than 1
year
$’000
$’000
1 to 2
years
$’000
2 to 5
years
$’000
> 5
years
$’000
50,622
38,433
8,322
(1,688)
3,300
6,972
40,350
38,433
—
—
3,378
3,312
1,632
(3,356)
(3,296)
(1,629)
2,746
2,595
1,252
- inflows
- outflows
Forward FX Contracts
- inflows
- outflows
Prepaid finance costs
Payables
Total
30 June 2018
Interest bearing liabilities
Corporate Bond - Australian dollars
Bank Loans - Australian dollars
Bank Loans - Euros
Cross Currency Swaps - AUD/EURO (1)
- inflows
- outflows
Forward FX Contracts
- inflows
- outflows
Prepaid finance costs
Payables
Total
(8)
(361)
(2,377)
(809) (2)
(809)
56,690 (2)
56,690
—
—
143,875
143,875
143,875
—
—
—
—
—
—
—
—
224,585
295,445
244,257
9,583
41,605
Carrying
amount
$’000
40,000
38,647
10,982
(2,252)
Ovato Group
Contractual
cash flows
Less than 1
year
$’000
43,858
39,975
11,438
(1,785)
$’000
2,572
38,500
3,345
1 to 2
years
$’000
41,286
1,475
3,281
2 to 5
years
$’000
—
—
4,812
(3,318)
(3,270)
2,930
2,786
(4,812)
3,899
(1)
(864)
(943)
(673) (2)
35,506 (2)
—
(673)
35,506
—
157,502
157,502
157,502
—
—
—
—
—
—
—
—
243,071
285,821
236,364
45,558
3,899
—
—
—
—
—
—
—
—
—
—
> 5
years
$’000
—
—
—
—
—
—
—
—
—
—
(1)
This represents the Australian Dollar equivalents of the interest and principal payments due on the cross currency swap.
For the carrying amount, it represents the fair value amount as shown in note 26(c)(ii).
(2)
This represents the Australian Dollar equivalents of the foreign currency payment/receipt leg of the forward foreign exchange contracts.
92
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements
YEAR ENDED 30 JUNE 2019
26 Financial instruments (continued)
(e) Foreign exchange management
Foreign currency risk refers to the risk that the value of a financial commitment, recognised asset or liability will fluctuate due to changes in foreign currency
rates. The Group’s foreign currency exchange risk arises primarily from where the Group has firm commitments or highly probable forecast transactions
for receipts and payments that are to be settled in foreign currencies, or where the price is dependant on foreign currencies and also the risk that arises on
translation of net investments in foreign operations.
The Group is exposed to foreign exchange risk from various currency exposures, primarily with respect to the New Zealand Dollar, the US Dollar, the Euro and the
Great British Pound.
Foreign exchange risk that arises from firm commitments or highly probable transactions are managed primarily through the use of forward foreign currency
derivatives. A portion of these transactions are hedged (such as the purchase of paper and ink from various foreign suppliers)in each currency in accordance
with the Group’s risk management policy.
Foreign exchange risk arises from foreign denominated borrowings. These borrowings are hedged back into the local currency via the use of hedging
instruments. This is to ensure that the risk from movements in exchange rates and foreign interest rates are eliminated.
Foreign currency risk also arises on translation of the net assets of Ovato’s non-Australian controlled entities which have a different functional currency.
The foreign currency gains or losses arising from this risk are recorded through the foreign currency translation reserve on translation to Australian Dollars
on consolidation.
Where a subsidiary hedges foreign exchange transactions it designates hedging instruments as cash flow hedges as appropriate.
i. Foreign currency borrowings
Euro borrowings
Cross Currency Swap
Liabilities
Assets
2019
$’000
2018
$’000
2019
$’000
2018
$’000
8,076
10,982
(8,076)
(10,982)
—
—
—
—
—
—
—
—
ii. Australian entity contracts to exchange foreign currency - relating to receipts and payments
United States Dollars
- less than one year
UK Pounds
- less than one year
UK Pounds receivables
- less than one year
Euro
- less than one year
iii. New Zealand entity contracts to exchange foreign currency - relating to payments
Average exchange rate
Ovato Group
2019
$
0.706
—
0.546
0.620
2018
$
0.792
0.561
0.560
0.631
2019
$’000
2018
$’000
5,822
9,490
—
(809)
41,691
46,704
24
(673)
19,909
28,750
United States Dollars
- less than one year
Euro
- less than one year
Average exchange
rate
NZ Dollars
AUD $ Equivalent
Ovato Group
2019
$
0.671
0.578
2018
$
0.716
0.578
2019
NZD
$’000
5,009
4,575
9,584
2018
NZD
$’000
3,197
3,288
6,485
2019
$’000
4,797
4,381
9,178
2018
$’000
2,936
3,019
5,955
93
YEAR ENDED 30 JUNE 2019
26
Financial instruments (continued)
(e) Foreign exchange management (continued)
iv. Fair value of forward exchange contracts
Australian entity - foreign exchange contracts relating to receipts
Australian entity - foreign exchange contracts relating to payments
New Zealand entity - foreign exchange contracts relating to payments
Total fair value of forward exchange contracts
Comprised of:
Financial assets - current
Financial liabilities - current
Total fair value of forward exchange contracts
Ovato Group
2019
$’000
2018
$’000
NOTES
8
430
(69)
369
513
(144)
369
1
695
169
865
986
(121)
865
14
14
At 30 June 2019, a $95,000 debit (2018: $27,000 debit) has been recognised within the Consolidated statement of profit or loss and other
comprehensive income and a $0.3 million credit, excluding tax effect (2018: $0.6 million credit) is included within the cash flow hedge reserve in
equity. $43,000 credit was transferred to inventory during the financial year ended 30 June 2019 (2018: $0.2 million credit).
v. Foreign currency sensitivity risk
The following table shows the effect on equity excluding tax effect as at 30 June from a 10 percent adverse / favourable movement in exchange rates at
that date on a total portfolio basis with all other variables held constant, taking into account all underlying exposures and related hedges.
Adverse versus favourable movements are determined relative to the underlying exposure. An adverse movement in exchange rates implies an increase
in the Group’s foreign currency risk exposure and a worsening in financial position. A favourable movement in exchange rates implies a reduction in
foreign currency risk exposure and an improvement in financial position.
A sensitivity of 10 percent has been selected as this is considered reasonable given the current level of exchange rates and the volatility observed both
on a historical basis and market expectations for future movement. Comparing the Australian dollar exchange rate against the United States dollar and
the Euro and the New Zealand dollar against the United States dollar year end rates would give the following adverse and favourable rates:
Australia dollar to:
United States dollar
Euro
New Zealand dollar to:
United States dollar
Euro
Year end
rate
10% rate
increase
10% rate
decrease
0.701
0.616
0.671
0.590
0.771
0.677
0.738
0.649
0.637
0.560
0.610
0.536
The net gain/(loss) in the cash flow hedge reserve reflects the result of exchange rate movements on the derivatives held in cash flow hedges which will
be released to the Consolidated statement of profit or loss and other comprehensive income in the future as the underlying hedged item affects profit.
94
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements
YEAR ENDED 30 JUNE 2019
26 Financial instruments (continued)
(e)
Foreign exchange management (continued)
v. Foreign currency sensitivity risk (continued)
If there was a 10% increase in exchange rates with all other variables held constant - (decrease)
If there was a 10% decrease in exchange rates with all other variables held constant - increase
Ovato Group
(cash flow hedge reserve)
Equity at 30 June
2019
$000
(3,560)
5,100
2018
$000
(1,562)
3,330
The impact on the parent, Ovato Limited, would be $nil as the entity does not hold forward exchange contracts.
For the Ovato Group, foreign currency translation risk associated with Ovato’s foreign investments results in some volatility to the foreign currency
translation reserve. The impact on the foreign currency translation reserve relates to the translation of the net assets of foreign currency controlled entities
on consolidation.
(f)
Credit Risk
Credit risk is the risk that a counterparty will default on their financial obligations resulting in financial loss to the Group. Credit risk exists from cash and
cash equivalents, trade and other receivables and derivative financial instruments. The Group’s exposure to credit risk arises from the potential default of the
counter party, with a maximum exposure equal to the carrying value of these assets net of any provision for doubtful debts (refer to Note 5).
The credit risk on cash and cash equivalents and financial instruments is limited as the counterparties are financial institutions with credit ratings of A- or
higher. Also, Ovato has policies that limit the amount of credit exposure to any one financial institution.
Ovato has an approved Credit Policy Manual which provides guidelines for the management of credit risk. This provides guidance for the way in which the
credit risk of customers is assessed, and the use of credit risk rating and other information in order to set appropriate trading limits with customers.
In some instances security may be required to be supplied to Ovato from customers to minimise risk. The security is either in the form of Director guarantees
for their business which is secured over a residential property or may be an upfront payment of between 75% - 50% of the trade before executing the sale.
(g)
Capital management
Ovato Limited’s capital management plan over the medium term is to achieve a target capital structure and to optimise financial returns to investors based on
the following considerations:
• The capability to service debt and meet financial covenant constraints;
• Delivering a capital structure which meets the Group’s cash flow requirements;
• Listed comparables and market expectations; and
• Retaining flexibility for Ovato to pursue attractive investment opportunities including organic growth, acquisitions and shareholder returns.
The group has target gearing levels in the range of:
• Net debt to EBITDA (before significant items) below 1.5 times, and at 30 June 2019 was at 1.4 times
• EBITDA (before significant items) to borrowing costs of greater than 4.0 times, and at 30 June 2019 was at 4.3 times
The company currently seeks to retain flexibility through maintaining a gearing ratio that is either within the lower end or below the range taking into account
the earnings of the business over the next 12-24 months. Due to the level of EBITDA and the industry Ovato operates in, we believe that the investors expect
Ovato to maintain a lower level of gearing.
(h)
Fair values
The fair value of all financial assets and liabilities equates to the carrying value.
95
YEAR ENDED 30 JUNE 2019
26 Financial instruments (continued)
(i)
Fair value measurements
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.
The fair value measurement hierarchy:
(a)
(b)
quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices)
or indirectly (derived from prices) (Level 2); and
(c)
inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).
The following tables present the Group’s assets and liabilities measured and recognised at fair value.
Ovato Group - 30 June 2019
Financial derivatives being hedge accounted
Forward Foreign Exchange Contracts
Cross Currency Swaps
Total financial derivatives
Ovato Group - 30 June 2018
Financial derivatives being hedge accounted
Forward Foreign Exchange Contracts
Cross Currency Swaps
Total financial derivatives
Level 1
$’000
Level 2
$’000
Level 3
$’000
—
—
—
Level 1
$’000
—
—
—
369
1,899
2,268
Level 2
$’000
865
2,252
3,117
—
—
—
Level 3
$’000
—
—
—
Total
$’000
369
1,899
2,268
Total
$’000
865
2,252
3,117
The fair value of financial instruments that are not traded in an active market (for example, derivatives used for hedging) is determined using valuation
techniques. Cross currency swaps and forward foreign exchange contracts are valued using a discounted cash flow approach. Future cash flows are estimated
based on market forward interest rates (and foreign exchange rates for cross currency swaps and forward foreign exchange contracts) as at the end of the
reporting period and the contract rates, discounted at a rate that reflects the credit risk of the various respective counterparties. These instruments are
included in Level 2.
(j) Hedge Reserve Reconciliation
The cash flow hedge reserve represents the cumulative amount of gains and losses on hedging instruments deemed effective in cash flow hedges.
The cumulative deferred gain or loss on the hedging instrument is recognised in profit or loss only when the hedged transaction impacts the profit or loss,
or is included directly in the initial cost or other carrying amount of the hedged non-financial items (basis adjustment).
Cash flow hedge reserve
Ovato Group - 30 June 2019
Opening balance
Gain/(Loss) arising on changes in fair value of hedging instruments entered into for cash
flow hedges:
Movement
- Foreign currency basis
- Other
- Tax effect
Transfer out
- Foreign currency basis
- Other
- Tax effect
Total cash flow hedge reserve
96
Cross
Currency
Swaps
$’000
Forward
Exchange
Contracts
$’000
(149)
451
(4)
(193)
59
72
236
(92)
(71)
—
352
(109)
—
(644)
193
243
Total
$’000
302
(4)
159
(50)
72
(408)
101
172
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements YEAR ENDED 30 JUNE 2019
26 Financial instruments (continued)
(k) Disclosure of amounts related to designated hedging instruments
This table lists the nominal amount, the net carrying amount and hedging effectiveness of the hedging instrument.
Nominal
amount of
the Hedging
Instrument
Net carrying amount of the
Hedging Instrument
($’000)
Assets
($’000)
Liabilities
($’000)
Changes
in value of
Hedging
Instrument used
for calculating
hedge
effectiveness
($’000)
Gain / (Loss)
55,882
369
8,076
1,899
—
—
(496)
(353)
Cash Flow Hedges
Foreign Exchange Risk
- Committed foreign currency expenditure
Foreign Exchange Risk
- Cross Currency Interest Rate Swaps (hedging of foreign currency debt)
(l) Disclosure of amounts related to designated hedged items, hedge reserve and hedge ineffectiveness
Cash Flow Hedges
Foreign Exchange Risk
- Cross Currency Interest Rate Swaps (hedging of foreign currency debt)
Changes
in value of
hedged item
used for
calculating
hedge
effectiveness
for 30 June
2019
Cash Flow
Hedge
Reserve
(continuing
hedges) at
30 June 2019
Hedge
ineffectiveness
recognised in
profit or loss
1,899
(71)
—
97
YEAR ENDED 30 JUNE 2019
26 Financial instruments (continued)
(m) Amount and timing of future cash flows
Foreign Exchange Risk (AUD/USD)
- FX Forwards (hedge committed foreign
exchange expenditure)
Average contracted FX rate
Notional Amount (A$’000 Equivalent)
Fair Value (A$’000 Equivalent)
Foreign Exchange Risk (AUD/EUR)
- FX Forwards (hedge committed foreign
exchange expenditure)
Average contracted FX rate
Notional Amount (A$'000 Equivalent)
Fair Value (A$'000 Equivalent)
Foreign Exchange Risk (NZD/USD)
- FX Forwards (hedge committed foreign
exchange expenditure)
Average contracted FX rate
Notional Amount (A$'000 Equivalent)
Fair Value (A$'000 Equivalent)
Foreign Exchange Risk (NZD/EUR)
- FX Forwards (hedge committed foreign
exchange expenditure)
Average contracted FX rate
Notional Amount (A$'000 Equivalent)
Fair Value (A$'000 Equivalent)
- Cross Currency interest rate swap
(hedging foreign currency debt)
Average contracted fixed rate
Notional Amount (A$’000 Equivalent)
Notional Amounts of the Hedging Instruments ($'000)
0-6 months
7-12 months
1-2 years
2-5 years
Over 5 years
0.7068
4,899
36
0.6203
41,691
394
0.6698
3,660
(11)
0.5789
3,383
(52)
2.0%
6
0.7045
923
(0.3)
—
—
—
0.6740
1,137
1
0.5757
998
(8)
2.0%
5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2.0%
2
2.0%
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
98
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements YEAR ENDED 30 JUNE 2019
27 Contingent liabilities
Contingent liabilities classified in accordance with the party for whom the liability could arise are:
The Company:
• Ovato has guaranteed the debts of certain wholly owned Australian controlled entities in accordance with ASIC Corporations (Wholly-owned Companies) Instrument
2016/785 issued by the Australian Securities and Investments Commission, which provides relief from the requirements to prepare, audit and lodge financial
statements (refer to Note 19).
Related bodies corporate:
• Ovato has guaranteed the borrowings of Ovato Finance Pty Ltd, Ovato NZ Limited and Hannanprint NSW Pty Limited to facilitate banking arrangements.
• Wholly owned entities in the Ovato Group have provided guarantees to banks, in respect of debt and foreign currency management.
• Entities in the Ovato Group contribute to a number of defined benefit superannuation funds and have undertaken to contribute annually such amounts
as the actuaries consider necessary to secure the rights of members.
28 Subsequent events
Other than the refinancing arrangements as set out in Note 12 (e), the Directors are not aware of any matters or circumstance arising since balance date not otherwise
dealt with in this report or the financial statements, that has significantly affected or may significantly affect the operations of the Ovato Group, the results of those
operations or the state of affairs of the Ovato Group in subsequent years.
29 Parent
As at, and throughout the 2019 financial year, the parent company of Ovato Group was Ovato Limited.
Financial performance of the parent
Loss after tax
Other comprehensive (expense)/income
Total comprehensive loss
Financial position of the parent at year end
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Total equity of the parent comprising of:
Contributed equity
Accumulated losses
Share-based payment reserve
Dividend reserve *
Total equity
* During the 2015 financial year, the Directors resolved to create a separate dividend reserve account.
NOTES
Ovato Limited
2019
$’000
(121,732)
(449)
(122,181)
57,692
105,679
163,371
125,872
244
126,116
37,255
497,523
(493,256)
-
32,988
37,255
2018
$’000
(51,565)
101
(51,464)
65,879
206,859
272,738
127,160
1,248
128,408
144,330
482,433
(371,348)
257
32,988
144,330
99
YEAR ENDED 30 JUNE 2019
29 Parent (continued)
Parent capital commitments for acquisition of property, plant and equipment
Capital expenditure:
- not later than one year
Total capital expenditure
Parent operating commitments for lease rental
Operating lease rentals - parent as lessee:*
- not later than one year
- later than one year but not later than five years
- later than five years
Total operating lease rentals (lessee)
Operating lease rentals - parent as lessor:
- not later than one year
- later than one year but not later than five years
Total operating lease rentals (lessor)
Ovato Limited
2019
$’000
—
—
2,129
2,952
—
5,081
—
—
—
2018
$’000
—
—
1,814
2,357
—
4,171
—
—
—
* The 2018 lease rental commitments include outgoings, whereas the 2019 lease rental commitments exclude outgoings due to a change in accounting policy.
Investment in controlled entities
Ovato Limited has impaired its investment in controlled entities during the year ended 30 June 2019 by $79.9 million (2018: $59.8 million).
Parent capital guarantees in respect of debts of certain subsidiaries
The parent has entered into a Deed of Guarantee with subsidiaries whereby in the event of windup of a subsidiary, the parent guarantees debts of that
subsidiary. Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed are disclosed in Note 19.
Parent contingent liabilities
There were no contingent liabilities for the year ended 30 June 2019 (2018: $nil).
100
Notes to and forming part of the Financial Statements for the year ended 30 June 2019Financial statements Directors’ Declaration
for the year ended 30 June 2019
+61 2 9412 6111
Level 4, 60 Union St,
Pyrmont NSW 2009
www.ovato.com.au
In accordance with a resolution of the Directors of Ovato Limited, we state that:
(a)
(b)
(c)
in the Directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its
debts as and when they become due and payable;
in the Directors’ opinion, the attached financial statements are in compliance with the Financial Reporting
Standards, as stated in Note 1 to the financial statements;
in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the
Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of
the financial position and performance of the consolidated entity; and
(d)
the Directors have been given the declarations required by section 295A of the Corporations Act 2001
At the date of this declaration, the company is within the class of companies affected by ASIC Corporations
(Wholly-owned Companies) Instrument 2016/785. The nature of the deed of cross guarantee is such that each
company which is party to the deed guarantees to each creditor payment in full of any debt in accordance with the
deed of cross guarantee.
In the Directors’ opinion there are reasonable grounds to believe that the company and the companies to which
the ASIC Instrument applies, as detailed in Note 19 to the financial statements will, as a group, be able to meet any
obligations or liabilities to which they are, or may become liable, subject by virtue of the deed of cross guarantee.
Signed in accordance with a resolution of the Directors made pursuant to section 295(5) of the Corporations
Act 2001.
On behalf of the Directors
Matthew Bickford-Smith
Chairman
Kevin Slaven
Chief Executive Officer and Managing Director
Sydney, 13th September 2019
101
Independent Auditor’s Report
For the year ended 30 June 2019
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
Independent Auditor’s Report to the
Members of Ovato Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Ovato Limited (the “Company“) and its
subsidiaries (the “Group“), which comprises the consolidated statement of financial
position as at 30 June 2019, the consolidated statement of profit or loss and other
comprehensive income, the consolidated statement of changes in equity and the
consolidated statement of cash flows for the year then ended, and notes to the financial
statements, including a summary of significant accounting policies, and the directors’
declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the
Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the Group’s financial position as at 30 June 2019
and of its financial performance for the year then ended; and
complying with Australian Accounting Standards and the Corporations Regulations
2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our
responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Financial Report section of our report. We are
independent of the Group in accordance with the auditor independence requirements of
the Corporations Act 2001 and the ethical requirements of the Accounting Professional
and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the
Code) that are relevant to our audit of the financial report in Australia. We have also
fulfilled our other ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001,
which has been given to the directors of the Company, would be in the same terms if
given to the directors as at the time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte Network.
102
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the financial report for the current period. These matters were
addressed in the context of our audit of the financial report as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit Matter
How the scope of our audit responded to the
Key Audit Matter
Carrying value of property, plant and
equipment and intangible assets
including goodwill
As disclosed in Notes 8 and 9, at 30 June
2019 the consolidated statement of financial
position includes property, plant and
equipment of $113.4 million and goodwill and
other intangible assets of $39.1 million, after
recording an impairment loss of $18.0
million.
The evaluation of the recoverable amount of
these assets requires significant judgement in
respect of the key assumptions such as the
5-year cash flow forecasts, long term growth
rate and discount rate.
Our procedures included, but were not limited
to:
evaluating the appropriateness of
management’s process over the
evaluation of the carrying value of
property, plant and equipment and
intangible assets including goodwill to
determine any asset impairments;
assessing the identification of cash
generating units, including the allocation
of goodwill;
agreeing relevant data to board
approved budgets and latest forecasts;
challenging the forecasts by reference to
the historical forecasting accuracy of
management;
in conjunction with our valuation
specialists we assessed and challenged:
o
o
the key assumptions for long
term growth in the forecast cash
flows by comparing them to
historical results and industry
forecasts;
the discount rate applied by
comparing to an independently
determined discount rate;
performing sensitivity analysis in relation
to key assumptions including cash flow
forecasts and discount rate;
testing, on a sample basis, the
mathematical accuracy of the cash flow
models; and
assessing the appropriateness of the
disclosures included in Notes 8 and 9 to
the financial statements.
Recoverability of Deferred Tax Assets
relating to carry forward losses
As disclosed in Note 10, at 30 June 2019 the
Group has recorded a deferred tax asset of
$15.9 million in relation to carry forward tax
losses incurred by the Group, after recording
an impairment loss of $19.8 million.
Significant judgement is required to assess
whether there will be sufficient future taxable
profits to utilise the recognised deferred tax
assets.
Our procedures included, but were not limited
to:
assessing and challenging
management’s judgements relating to
the recoupment of Australian tax losses
and the forecasts of future taxable profit
and evaluating the reasonableness of
the assumptions underlying the
preparation of the taxable income
forecasts;
103
Independent Auditor’s Report
For the year ended 30 June 2019
Refinancing interest bearing liabilities
As disclosed in Note 12 the Group has total
interest bearing liabilities of $83.0m, of which
$39.7m is current.
Included in current interest bearing liabilities
is a Receivables Financing facility of $34.6m,
due to mature on 28 February 2020.
Subsequent to 30 June 2019, the Group has
negotiated an increase to the ANZ overdraft
facility of $8m. As disclosed in Note 12(e),
the Group is in advanced negotiations on
refinancing the Receivables Financing facility.
The Group is reliant upon these financing
facilities to meet its estimated on-going
liabilities and obligations. There is significant
judgement in management’s estimation of
cash flow forecasts for FY20.
assessing that the forecasts used are
consistent, to the extent relevant, with
those used in the impairment models;
evaluating whether all losses will remain
available indefinitely for offset, subject
to continuing to meet the statutory tax
tests of continuity of ownership or,
failing that the same business test; and
assessing the appropriateness of the
disclosures in Note 10 to the financial
statements.
Our procedures included, but were not limited
to:
•
•
•
•
•
•
reviewing key terms of the increased
ANZ overdraft facility and agreeing to
financier documentation;
assessing the status of refinancing
arrangements by reviewing
correspondence with the proposed
financiers of the new Receivables
Financing facility;
evaluating the appropriateness of
management’s processes over the
Group’s ability to develop and forecast
its short-term cash requirements and
the financing required to meet these;
agreeing relevant cash flow forecast
data to Board approved budgets and
forecasts;
challenging the cash flow forecasts by
reference to the historical forecasting
accuracy and testing on a sample basis,
the mathematical accuracy of the cash
flow forecast models; and
assessing the appropriateness of the
disclosures in Note 12 to the financial
statements.
Other Information
The directors are responsible for the other information. The other information comprises
the Company Profile, Chief Executive Officer’s (CEO) Review and Directors’ Report, which
we obtained prior to the date of this auditor’s report. The Chairman’s Review will be
included in the annual report, which is expected to be made available to us after that
date.
Our opinion on the financial report does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially
inconsistent with the financial report or our knowledge obtained in the audit or otherwise
appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact. We have
nothing to report in this regard.
104
When we read the Chairman’s Review and if we conclude that there is a material
misstatement therein, we are required to communicate the matter to the directors and
use our professional judgement to determine the appropriate action.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report
that gives a true and fair view in accordance with Australian Accounting Standards and
the Corporations Act 2001 and for such internal control as the directors determine is
necessary to enable the preparation of the financial report that gives a true and fair view
and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of
the Group to continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the Group or to cease operations, or has no realistic alternative
but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as
a whole is free from material misstatement, whether due to fraud or error, and to issue
an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with the
Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise
professional judgement and maintain professional scepticism throughout the audit. We
also:
Identify and assess the risks of material misstatement of the financial report,
whether due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit in order to
design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Group’s internal
control.
Evaluate the appropriateness of accounting policies used and the reasonableness
of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis
of accounting and, based on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may cast significant doubt
on the Group’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial report or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However, future events
or conditions may cause the Group to cease to continue as a going concern.
105
Independent Auditor’s Report
For the year ended 30 June 2019
Evaluate the overall presentation, structure and content of the financial report,
including the disclosures, and whether the financial report represents the
underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of
the entities or business activities within the Group to express an opinion on the
financial report. We are responsible for the direction, supervision and
performance of the Group audit. We remain solely responsible for our audit
opinion.
We communicate with the directors regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with the directors, we determine those matters that
were of most significance in the audit of the financial report of the current period and are
therefore the key audit matters. We describe these matters in our auditor’s report unless
law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 33 to 41 of the Directors’
Report for the year ended 30 June 2019.
In our opinion, the Remuneration Report of Ovato Limited, for the year ended 30 June
2019, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit
conducted in accordance with Australian Auditing Standards.
DELOITTE TOUCHE TOHMATSU
JL Gorton
Partner
Chartered Accountants
Sydney, 13 September 2019
106
Five Year Summary
For the year ended 30 June 2019
SALES REVENUE
Ovato Australia
Print Group Australia ,
Residential Distribution Australia
Distribution & Marketing Services ,
Retail Distribution Australia
Marketing Services Australia
Ovato Australia Group
Ovato New Zealand Group
Total Sales Revenue
PROFITABILITY
Ovato Australia
Print Group Australia ,
Residential Distribution Australia
Distribution & Marketing Services ,
Retail Distribution Australia
Marketing Services Australia
Ovato Australia Group
Ovato New Zealand Group
Corporate
Total EBITDA (before significant items)
Total EBIT (before significant items)
NPAT post significant items
Ovato Australia EBITDA*/sales
Print Group Australia EBITDA*/sales
Residential Distribution Australia EBITDA*/sales
Distribution & Marketing Services EBITDA*/sales
Retail Distribution Australia EBITDA*/sales
Marketing Services Australia EBITDA*/sales
Ovato Australia Group EBITDA*/sales
Ovato New Zealand Group EBITDA*/sales
Total EBITDA*/sales
OTHER
Net cash (used in)/provided by operating activities
Earnings per ordinary share (basic)
Earnings per ordinary share (diluted)
Dividend per share (paid)
Total assets
Total net debt/(net cash)
Total shareholders equity
Net debt/Equity Ratio
Interest Cover
Depreciation
Amortisation
Capital Expenditure
Employees Full Time
2015
2016
2017
,
2018
2019
% change
(Restated)
A$ mill
A$ mill
A$ mill
A$ mill
A$ mill
A$ mill
A$ mill
A$ mill
A$ mill
A$ mill
A$ mill
A$ mill
A$ mill
A$ mill
A$ mill
A$ mill
A$ mill
A$ mill
A$ mill
A$ mill
A$ mill
%
%
%
%
%
%
%
%
%
A$ mill
cents
cents
cents
A$ mill
A$ mill
A$ mill
%
times
A$ mill
A$ mill
A$ mill
No.
392.3
—
—
—
268.5
—
—
150.9
811.7
41.3
—
—
—
3.5
—
—
18.6
(5.3)
58.1
26.4
8.0
10.5
—
—
—
1.3
—
—
12.3
7.2
33.2
2.5
2.5
—
469.5
16.3
270.5
6.0
6.5
31.0
0.8
5.5
1,260
—
199.7
—
134.9
345.8
—
—
135.6
816.0
—
26.4
—
10.6
2.9
—
—
15.0
(3.7)
51.2
23.3
0.2
—
13.2
—
7.9
0.8
—
—
11.1
6.3
32.0
0.1
0.1
3.0
476.9
(0.7)
259.4
—
8.5
27.1
0.8
4.2
1,248
—
309.5
86.8
—
—
76.7
—
128.8
601.9
—
16.9
3.0
—
—
3.6
—
12.4
(3.8)
32.2
3.7
—
—
—
—
—
—
613.9
120.1
734.0
—
—
—
—
—
—
30.0
10.6
—
40.6
9.4
—
—
—
—
—
—
554.9
114.3
669.2
—
—
—
—
—
—
26.3
4.6
—
30.8
2.2
(126.4)
(43.8)
(84.3)
—
5.5
3.5
—
—
4.7
—
9.6
5.4
(12.5)
(33.3)
(32.9)
2.4
570.0
18.5
255.1
7.3
6.3
27.6
0.9
2.0
1,980
—
—
—
—
—
—
4.9
8.8
5.5
(6.1)
(8.6)
(8.6)
—
518.3
32.8
210.4
15.6
6.0
30.7
0.6
9.0
1,806
—
—
—
—
—
—
4.7
4.0
4.6
(19.2)
(16.0)
(16.0)
—
433.7
44.7
141.9
31.5
4.3
28.1
0.5
7.8
1,698
—
—
—
—
—
—
(9.6)
(4.8)
(8.8)
—
—
—
—
—
—
(12.5)
(57.0)
—
(24.1)
(76.3)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(16.3)
—
(32.6)
—
(28.2)
8.4
9.5
13.7
(6.0)
Note:
EBITDA - Earnings before
depreciation, amortisation,
finance costs and income tax.
EBIT - Earnings before finance
costs and income tax.
GST asset $1.5 million from prior period no longer recoverable. This has
been taken as an adjustment to accumulated losses and payables.
Comparatives have been restated for 2015.
Final dividend for the year ended 30 June 2015 of 1.8 cents (50% franked)
and interim dividend for the year ended 30 June 2016 of 1.2 cents (unfranked).
EBITDA before significant items / Interest.
NPAT - Net profit after tax.
Includes IPMG result for 4 months to 30 June 2017.
* - Before significant items.
Ovato Australia business segment separated into Print Group Australia and
Distribution and Marketing Services businesses in 2017 with comparables
shown for 2016.
Final dividend for the year ended 30 June 2016 of 2.4 cents (0% franked).
During 2018, Ovato changed its segment reporting structures due to a change
in the internal reporting structure after the acquisition of IPMG Holdco Pty Ltd
and its subsidiaries. Marketing Services Australia includes Retail Distribution
Australia and the digital businesses. Previously Retail Distribution Australia
was a discrete operating segment and Residential Distribution, Ovato Book
Printing and the digital businesses were combined as Distribution and
Marketing Services in 2017. Residential Distribution is now a discrete operating
segment and Print Group Australia includes Ovato Book Printing. There has
been no change to the New Zealand operating segment. Comparatives have
been restated for 2017. On 1 July 2017, Ovato Limited adopted AASB 15
Revenue from Contracts with Customers, resulting in a change in accounting
policy and a restatement of balances for the year ended 30 June 2017.
During 2019, Ovato changed its segment reporting structures due to a number
of changes to the way the Group sells to its customers by making bundled
offers under a rebranded company and revised management structure.
The Group has combined Marketing Services Australia (includes Retail
Distribution and the digital businesses), Residential Distribution Australia,
Print Group Australia and Corporate into one discrete segment, Ovato Australia
Group. There has been no change to the Ovato New Zealand Group segment.
The 2018 comparatives have been restated.
107
Shareholder information
Alistair Clarkson
B Com LLB MBA ACIS GradDipACG
COMPANY SECRETARY
APPOINTED 24 APRIL 2009
The Ovato Limited Annual General Meeting
will be held at 11.00am on
Thursday 21 November 2019 at:
Deloitte Touche Tohmatsu
Level 9 Grosvenor Place,
225 George Street
Sydney 2000
Details of the business of the meeting are contained in the
separate Notice of Meeting sent to shareholders.
ASX Code: OVT
Share Registry
Investor Information
Shareholders requiring information should contact
the share registry, or:
Geoff Stephenson
Chief Financial Officer
Telephone: 02 9412 6111
Email: geoff.stephenson@ovato.com.au
Shareholder Details
Ovato shareholders who:
• have changed their name or address
• wish to consolidate two or more
separate holdings
• wish to lodge their tax file numbers
• do not wish to receive an Annual Report
should advise Ovato’s share registry by
completing the relevant forms available from
www.computershare.com or by telephoning
1300 556 161 to request the appropriate forms.
Alternatively, shareholders can visit http://www.
computershare.com.au/easyupdate/ovt to update
their payment details, shareholder communication
elections or Tax File Number or exemption details.
Shareholders will need to key in their Holder
Identification Number (HIN) if their securities
are broker-sponsored and held in CHESS, while
shareholders with securities held in an issuer-
sponsored sub-register will need to key in their
Security Reference Number (SRN).
Tax File Numbers: It is important that Australian
resident shareholders have their tax file number or
exemption details noted by the share registry. While
it is not compulsory to provide a tax file number or
exemption details, Ovato is required by law to deduct
tax at the top marginal rate from the unfranked part of
any dividend paid to Australian resident shareholders
who have not supplied these details.
Computershare Investor Services Pty Limited
Level 5, 115 Grenfell Street
Adelaide SA 5000
GPO Box 1903
Adelaide SA 5001
Enquiries within Australia: 1300 556 161
Enquiries outside Australia: +61 3 9415 4000
Website: www.computershare.com
Receive Information by Email
Shareholders can receive notifications about Notice
of Meeting and Proxy, Statements, and company
announcements, annual and periodic reports and
other company information by email.
By registering for this service, shareholders
can be kept up to date with significant company
announcements as they happen.
To Register Electronically:
Visit http://www.computershare.com.au/easyupdate/
ovt and follow these easy steps:
Click on Register Your Email Address for
shareholder information
Then enter your personal security information:
• Holder Identification Number (HIN) or
• Security Reference Number (SRN)
• Postcode
• Read and agree with the Terms
and Conditions
Click on “Next” and follow the prompts
Chief Entity Auditors
Deloitte Touche Tohmatsu
Principal Bankers
ANZ Banking Group Limited
Commerzbank AG
108
Share register information
Substantial Shareholders of Ordinary Shares
(as reported to the ASX)
Michael Hannan, Lindsay Hannan, Sayman Pty Ltd, Adrian O’Connor, Richard O’Connor, James Hannan
Allan Gray Investment Management
Wentworth Williamson Management
Fraser and Neave Limited
Twenty Largest Shareholders* as at 28 August 2019
Mr Lindsay Hannan
Citicorp Nominees Pty Ltd
Sayman Pty Limited
Mr Michael Ashton Hannan
Sandhurst Trustees Ltd
Mr Adrian Thomas O'Connor
Mr Richard Ashton Charles O'Connor
J P Morgan Nominees Australia Pty Ltd
HSBC Custody Nominees (Australia) Limited
Mr James Michael Hannan
National Nominees Limited
Horrie Pty Ltd
Hillmorton Custodians Pty Ltd
Mr Gavin Martin Hancock + Mrs Judith Ann Hancock
Grandlodge Pty Ltd
Mr Luke Groves
Mr Peter George
Kelpador Pty Ltd
Erskine Import Pty Ltd
Mr Kenneth Edward Biddick + Mrs Catherine Ann Biddick
Totals : Top 20 Holders of Fully paid Ordinary Shares
Total Remaining Holders Balance
*Ungrouped
Distribution of Shareholders as at 31 July 2019
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - 9,999,999,999
Total Number
Unmarketable Parcels:
Shares on issue
Number of
Shares
% Voting
Power
372,734,555
86,257,644
49,872,736
39,020,117
50.92%
11.78%
6.81%
5.33%
Number of
Shares
% of Total
Issued
105,060,694
83,408,831
80,721,823
79,138,104
53,570,084
45,991,559
45,991,559
24,278,698
23,507,827
15,830,816
13,194,102
10,000,000
5,100,000
4,796,641
3,802,891
3,527,190
2,393,037
2,357,000
2,350,000
2,152,174
14.35%
11.39%
11.03%
10.81%
7.32%
6.28%
6.28%
3.32%
3.21%
2.16%
1.80%
1.37%
0.70%
0.66%
0.52%
0.48%
0.33%
0.32%
0.32%
0.29%
607,173,030
124,831,287
82.95%
17.05%
Number of
Shareholders
Number of
Shares
% of Issued
Capital
643
1,365
372
977
263
350,541
3,804,115
2,954,394
36,644,176
688,251,091
3,620
732,004,317
2,218
5,532,730
0.05%
0.52%
0.40%
5.01%
94.02%
100%
732,004,317
109
ABN 39 050 148 644
Level 4, 60 Union Street,
Pyrmont NSW 2009
+ 61 2 9412 6111
ovato.com.au