Ovato job cuts leaves taxpayer up for almost $17m in payouts

The ASX-listed Ovato is the nation’s major magazine contract printer with clients such as Women’s Weekly and New Idea.

Kevin Slaven at the Sydney office of Ovato. Picture: John Feder/The Australian.

Taxpayers are set to foot the bill for $17m in employee entitlements for almost 300 workers after one of Australia’s biggest printing companies moved to liquidate several of its sites.

The ASX-listed Ovato is the nation’s major magazine contract printer with clients such as Women’s Weekly and New Idea.

The company, which emerged out of the former PMP business and is backed by the Hannan family, has shut its plant in Clayton in Melbourne’s southeast as it seeks to consolidate its operations in Sydney. The move comes amid major pressures in the contract printing market, with magazine titles being axed and the number of copies being reduced.

At the same time supermarket majors such as Coles and Woolworths have axed printed copies of their catalogues as they shift to digital publishing.

Financial advisers Duff & Phelps will handle the wind-up of the four Ovato corporate entities, after joint liquidators Marcus Ayres and Stephen Parbery were appointed this week.

The liquidation does not affect the head Ovato company, which remains listed on the ASX.

Mr Ayres said despite the corporate entities covering Victoria and NSW, most redundancies — more than 200 — were workers in Ovato’s Clayton plant.

The move leaves Ovato with almost 800 other employees across the rest of its national operations, shrinking its footprint by almost a quarter.

Mr Ayres said employees in the liquidated businesses would have to take action to receive their redundancy payouts from the federal government’s Fair Entitlements Guarantee scheme after Ovato left the corporate entities without enough funds to cover payouts.

“We have taken over a small amount of money, $2m plus some plant and equipment, that’s going to fall short of what’s going to meet their redundancy requirements,” he said.

The end-of-year move came after Ovato won its case in the NSW Supreme court after seeking to restructure the business in combination with a $40m capital raising.

The Australian Manufacturing Workers Union savaged Ovato for its moves to make almost 300 of its staff redundant and push their liabilities into underfunded corporate entities.

AMWU assistant national secretary print and packaging Lorraine Cassin said it was shocking Ovato had taken the move after negotiating recently for workers to take a 50 per cent haircut on potential redundancies as part of new EBA negotiations.

“We negotiated in good faith with Ovato and took 50 per cent off the redundancy our members were entitled to on the proviso that the company couldn’t afford redundancies and needed to restructure,” she said.

“Our members supported that but then within 14 days of that being certified the company went to the Supreme Court to ask for the unique authorisation of using subsidiary companies and leaving 330 employees’ redundancy payouts to the taxpayers.”

Ms Cassin said the redundancy reductions came after members agreed to a 40 per cent cut to wages earlier in the year, in recognition of catastrophic economic conditions that caused many to suspend printing.

“This sets a terrible precedent in the corporate world. In my career of 23 years I’ve never seen such behaviour,” she said.

“The taxpayer is footing this bill — that’s not what the Fair Entitlements Guarantee was put there for. It’s set a terrible precedent in the corporate world.”

Ovato CEO Kevin Slaven told The Weekend Australian the restructure, redundancies and capital raising set the “business back on the road to profitability and sustained success”.

“The business has incurred significant losses for some years as funds have been diverted to taking manufacturing capacity out of the market to better reflect the change in demand for printing services,” he said.

“We deeply regret having to let these employees go, but the alternative was even more devastating –— losing all 1200 Ovato employees in 2021.”

The decline of the junk mail industry and printed media has been weighing on the sector for years.

Fellow ASX-listed printer Ive has also been through a round of redundancies.

Ovato has been troubled for several years, despite listing on the ASX as part of a union of two of the three biggest printers in the country, PMP and the family-owned Hannan Group.

Its full-year results in September showed the business made a net loss of $108.8m in 2020, after a $11.2m net loss in 2019.

However, the company was pulled up by the corporate regulator, which questioned its decision to write down goodwill by $25.2m in its financial report for the 2019 half-year report.

ASIC questioned the company’s impairment assessment for its non-current assets at June 30, 2019, “given negative free cash flows and losses from operations for the year then ended”.

The closure of Ovato’s Clayton site closes a chapter on its operations in Victoria, with all customers now to be supplied from NSW operations. The company has been reducing its footprint for several years as the Australian printing industry faced falling volumes and continued consolidation.

In 2017 it closed its Noble Park factory and raised $15m after selling the property.

However, it continues to rent its Warwick Farm location from Hannan Print NSW, a company controlled by the Hannans.

The Hannans, together with Women’s Weekly publisher Are Media (previously known as Bauer Media), have underwritten $35m of the $40m capital raising Ovato undertook prior to Christmas as part of its corporate restructure.