Novus: turning over a new leaf

Novus Holdings - Source: https://www.georgeherald.com/News/Article/Business/jse-intervention-forces-novus-media24-u-turn-20170711
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NOVUS Holdings, the old Paarl Media printing operation, has seen a significant change in ownership with media giant Media24 selling out its influential 17.4% stake in the struggling business last month.

Media24’s stake in Novus was always considered strategic since most of its printing work for its magazines and newspapers went to Novus. Media24 and Novus were once both ensconced in the Naspers empire.

But that has all changed – no doubt brought about by declining volumes in the mainstream printing and publishing segment. So enter A2 Investment Partners as a new strategic shareholder at Novus.

A2 may not be a well-known corporate entity – but one of its main backers, Andre van der Veen, has left an indelible mark on the local business map.

Van der Veen was a top executive at Cape Town-based investment company Hosken Consolidated Investments (HCI). At HCI he enjoyed much success – particularly with Niveus, where a potent alternative gaming hub was built in quick time.

Perhaps more importantly – especially with regards to Novus – was Van der Veen’s stint with Paarl-based liquor group KWV. KWV initially formed part of Niveus, and Van der Veer did a sterling job fortifying KWV’s operations and brand power. KWV was eventually sold by Niveus at a sizeable profit to billionaire Viv Imerman.

Long suffering shareholders in Novus – which include Caxton & CTP and Value Capital Partners – will be hoping A1 can bring on-board similar turnaround skills.

In the six months to end September 2020 Novus was still reeling from the Covid-19 lockdown disruptions.

Revenue declined by 32% to R1.5 billion – but there was some good news in that free cash flow improved by a not insignificant R145 million with cash conversion increasing by a whopping 190%.

In the interim period Novus suffered badly on the printing side as key customers announced several title closures as well as a reduction in volumes and pagination.

To make matters worse, Novus’ Labels Gravure division was significantly impacted by the ban on sales of alcoholic beverages with production only normalising in the second quarter of the interim period.

CBN reckons the new key investor at Novus will look to stabilising a smaller printing division and building up a more formidable packaging niche.

Interim revenue in the print segment slumped 35% to R1.1 billion and there was an operating loss of over R11 million.

CEO Neil Birch said all product categories experienced volume declines with retail inserts significantly down by 59,6%. Magazine and Newspaper volumes decreased by 48,6% and 49,6% respectively.

Packaging revenue dropped 28% to R275 million with ITB Flexible Packaging Solutions (ITB) down 18% and Labels Gravure down 56%.

Birch noted the lack of demand for beverage labels significantly impacted the performance of the Labels Gravure division whilst ITB was impacted by the reduced demand stemming from the weaker economy.

This segment yielded an operating profit of R2.7 million – down 92% compared to the prior year.

The group’s tissue division saw revenue flat at R131m with the gross margin showing an improvement of 5.8%. Novus is in the throes of selling a controlling stake in this business for R60 million to a company already operating in the tissue sector, which should hopefully see an improvement in operating performance.

A1’s first few months as the largest shareholder in Novus could be a testing time. The full year results to end March 2021 probably won’t be pretty.

At the interim stage Birch already cautioned that demand was expected remain muted in the second half of the year – albeit before stabilising again in the medium term.

He also warned that the restructuring programmes that were recently initiated would incur some once-off costs in the second half of the financial year. But Birch believed the future benefits in cost structure and efficiencies should materialise in the 2022 year and beyond.

The good news is that Birch indicated that capital resources would be freed up along with the further anticipated cash release to support initiatives at improving working capital efficiencies. He predicted working capital would show a further improvement with Novus maintaining a positive cash balance.

In addition, Birch said the Labels Gravure division was expected to see some form of recovery as trading normalises, while ITB’s performance was expected to remain stable.

 

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