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Reviewed Interim Results for the six months ended 30 September 2019
Novus Holdings Limited
(Incorporated in the Republic of South Africa)
JSE share code: NVS
ISIN code: ZAE000202149
Registration number: 2008/011165/06
(“Novus Holdings” or “the Company” or “the Group”)
REVIEWED INTERIM RESULTS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2019
With extensive experience, Novus Holdings services the country and customers across the African continent through its print production of all short to long run requirements of magazines, retail inserts, catalogues, books, newspapers, commercial work. The Group also produces educational materials for governments and multi-national publishers.
Beyond traditional printing, the Group has a packaging division that offers wet-glue labels, wrap-around labels, pressure sensitive labels and flexible plastic packaging as well as a tissue manufacturing division.
SALIENT FEATURES
• Revenue declined by 3,0% to R2 227m (2018: R2 297m)
• Headline earnings per share decreased by 40,5% to 29,4 cents per share (2018: 49,4 cents per share)
• Earnings per share decreased by 48,5% to 24,8 cents per share (2018: 48,1 cents per share)
• Net asset value per share increased by 3,1% to 918,4 cents (2018: 891,1 cents)
PERFORMANCE OVERVIEW
The consolidated results of the Group and its divisions for the six-months ended 30 September 2019 were impacted by several factors, but principally the deferment in completion of a portion of a major print project from H1 (first half) to H2 (second half). The prevailing poor consumer demand environment in South Africa as underpinned by the muted economic growth continues to have adverse impact on the Group’s performance.
The Print segment experienced lower print volumes, further exacerbated by margin pressure. Improved Packaging and Tissue segment performance and reduced overheads were insufficient to counter this decline and therefore overall Group results were down on the prior comparative period.
PRINT
Print revenue declined by 6,3% to R1 714m and operating profit* declined by 45,3% to R117m compared to prior year during the same period.
The Print segment’s performance experienced volume declines across all categories. Books & directories were down by 13,0% due mainly to the Department of Basic Education (DBE) overall volumes being lower, coupled with less of the contract work being recognised in H1 compared to the same period last year. Retail inserts & catalogues declined by 6,4%, with magazines also seeing a decline of 17,6%. Newspapers remained relatively stable with a decline of 1,4%.
*Operating profit excluding profit/ (loss) on disposal of assets and investments, impairments and reclassification of foreign currency translation reserve.
This segment had a challenging six months with an increased level of competition causing pressure on pricing. In a bid to retain customers and in a drive to replace reduced volumes, margins were impacted. Paper, as a key raw material, experienced significant price increases and unfavourable forex movements which placed further pressure on margins. Significant cost reductions in operations mitigated price pressures to a limited extent.
PACKAGING
The entire Packaging segment showed an increase in revenue of 6,4% for this period contributing R382 m to the Group’s turnover.
ITB Flexible Packaging Solutions (ITB) increased its revenue by 15,7%. This is a strong recovery from the same period last year when the business faced extended industrial action and was also subjected to escalating raw material prices. Polymer prices have been less volatile in the current period.
While volume in the Gravure division of the Labels business increased by 14,4%, revenue is down 13,2% compared to the comparative period due to the disposal of the UV Flexo Labels division on 01 April 2019.
TISSUE
The Tissue division’s revenue increased by 19,7%, contributing 5,9% to the Group’s revenue during the period under review (2018: 4,8%).
CASH UTILIZATION
Investment in net working capital increased by R224 m from 31 March 2019, mainly due to the cyclical nature of the business and timing of customer contracts. Inventories reduced marginally but remained high leading up to the peak season. Capital expenditure remained modest at R41m. The dividend of R86 m was paid out during the period.
TRANSFORMATION
Novus Holdings operates under a Level One B-BBEE Contributor status. The Company is awaiting an updated certificate against March 2019 Audited Financial Statements, and expects to retain its current status. In addition, because the current Level One rating was achieved at the lower end of the threshold, Management has commissioned a detailed peer review of all the scorecard metrics to ensure that the Company achieves a sustainable rating over the long-term.
The peer review process will assist management to enhance their understanding of all aspects of the balanced scorecard, which can be impacted by individual interpretation of the B-BBEE codes. The review process outcome will be communicated as soon as it is finalised.
Novus Holdings is committed to genuine transformation and maintaining a sustainable balanced rating.
GROUP GOVERNANCE
CHANGES TO THE BOARD
Effective 02 April 2019, Dr. Phumla Mnganga was appointed as chairman and non-executive director.
Dr. Mnganga has also taken over as chairman of the Nomination Committee, chairman of the Investment Committee and serves on the Social and Ethics Committee. Dr. Mnganga is welcomed to the Board and we look forward to her contribution to the Group.
Furthermore, shareholders are reminded that as mentioned in the Notice of Annual General Meeting (“AGM”) Jan Potgieter did not seek re-election at the AGM and accordingly retired as a director of the Board with effect 30 August 2019. The Board wishes to thank Mr. Potgieter for his dedication and invaluable contributions to Novus Holdings and wishes him well in all his endeavours.
The composition of the Board and balance of power/influence remains aligned with the requirements of the King IV Report on Corporate Governance™ for South Africa.
OUTLOOK
Anticipated continued tough trading conditions and economic uncertainty places pressure on the Group, necessitating a continued focus on optimising resources to drive sustainable growth throughout. Subject to market conditions not changing adversely management is looking forward to delivering an improvement in H2 earnings compared to prior year H2.
Packaging is expected to positively contribute to the Group revenue in H2, with ITB as a solid and established business and the Labels business growing with its extended product offering.
Print will continue to drive operational efficiencies and to adjust capacity requirements, while focusing on retaining market share in a challenging environment. Management and the Board are cognisant of general print market maturity and global overcapacity and this will inform a rigorous review of all Group asset values.
While the preferred outcome for the Tissue operation remains an exit, we remain committed to ensuring that this business' profitability continues to improve. This includes a successful continued focus on driving efficiencies and reducing operating expenses.
Raw material pricing (paper and polymer) escalated in H1, but we anticipate a welcome respite in relation to the excessive paper price increases in H2 to assist in normalising margins. We remain exposed to a fluctuating and weak Rand, which could create further margin pressures going forward.
The plan to extract meaningful net working capital is well underway, and by 31 March 2020 post the busy year-end season the targeted cash inflow from September 2019 of circa R300m will return the net cash position to positive.
Our commendable B-BBEE Level One rating positions us favourably in the market for both public and private projects. With a number of significant public sector contracts up for renewal in the next few quarters, we believe that Novus Holdings will be in a competitive position when these projects are opened for bidding.
The Board of Novus Holdings has conducted a high-level strategy review and the essence of a revised short and medium term strategy will be shared with stakeholders ahead of the Group’s next market closed period.
RESULTS PRESENTATION
Shareholders are advised that Novus Holdings will host a live audio webcast at 10h00 (SA time) on Tuesday, 12 November 2019. The webcast can be accessed at http://www.corpcam.com/Novus12112019.
Once concluded, a recording of the webcast will be available on the Group’s website at www.novus.holdings.
The preparation of the short-form results announcement was supervised by the Group’s Chief Financial Officer, Harry Todd CA (SA).
This short-form results announcement is the responsibility of the directors and is only a summary of the information in the full condensed consolidated interim report and does not contain full or complete details. The full condensed consolidated interim report can be found on the Company’s website www.novus.holdings as well as https://senspdf.jse.co.za/documents/2019/JSE/ISSE/NVSE/Interims.pdf. Copies of the full condensed consolidated interim report may also be requested from the Company’s registered office, at no charge, during office hours. Any investment decision should be based on the full condensed consolidated interim report published on SENS and on the Company’s website.
The information in this short-form announcement has been extracted from the reviewed information, but the announcement is not itself reviewed by the Company’s auditors.
On behalf of the Board
Dr. Phumla Mnganga Neil Birch Harry Todd
Chairman Chief Executive Officer Chief Financial Officer
Sponsor: Investec Bank Limited
Cape Town
11 November 2019
Date: 11/11/2019 01:15:00
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