The big (t) issue

The big (t) issue

Milnerton-based printing and packaging group Novus Holdings – formerly the old Paarl Media Group – still looks set to dispose of its tissue operation.

A recent trading update referred to the previous decision to sell the tissue segment – even though some observers have wondered whether the outbreak of the Covid-19 virus might see Novus making an about turn.

In some countries toilet paper and tissue paper were in high demand ahead of lockdowns…even leading to price increases.

The Novus trading statement made no mention of changed prospects for tissue, which has proved a costly diversification for the business in its bid to lessen its reliance on printing contracts.

Whether Covid-19 has increased the demand for tissue and toilet paper is unclear. But anecdotally, it seems South Africans were not as panicked about potential shortages of toilet paper as they were about the prohibition of sales of liquor, cigarettes and take away food brands.

Nonetheless, it will be interesting to see what price Novus – which still has debt to cull – can fetch for the tissue division.

Novus Tissue produces jumbo tissue wadding which is used by customers to produce a complete range of household and consumer products such as toilet paper, facial tissue, kitchen towels and serviettes.

Initially Novus’ ability to convert waste paper from its printing operations into jumbo tissue wadding was seen as an operational advantage as well as a green economic attribute.

But Novus has previously explained that the tissue industry is struggling in the current low growth economic environment. There is also general pricing instability in the sector with purchases shifting between local and imported products on the back of a weakening and volatile Rand.

These factors have eroded the tissue business’ profitability.

While Novus pushes for the sale of the Tissue assets, the division is delivering on CEO Neil Birch’s plan to continue improving profitability until a deal is concluded.

In the interim period to end September 2019, the tissue division’s revenue increased by almost 20% to R131 million (and contributed 6% of the group’s total revenue).

The margin was fattened by 3,4%, which – coupled to a 42% reduction in operating expenses – saw the tissue segment’s loss reduce by 62% to R5.6 million (previously a loss of nearly R15 million).

While the tissue business remains soggy at best, Novus can at least celebrate that its shift into packaging is still paying off handsomely.

The group has a packaging division that offers wet-glue labels, wrap-around labels, pressure sensitive labels and flexible plastic packaging.

Clients include big names in the local food and beverages sector.

In the last interim period, Novus saw a revenue increase of 6,4% to R382 million.
At the time Birch pointed out that ITB Flexible Packaging Solutions (ITB) increased its revenue by 15,7%. This represented a strong recovery from the same period last year when the business faced extended industrial action and also endured escalating raw material prices.

Birch said that while volume in the gravure division of the labels business increased by 14,4%, revenue went down 13% after the disposal of the UV Flexo Labels in April last year.
CBN hopes that the packaging segment continues to fire on all cylinders in the second half of the year to end March because the latest trading update suggested the core printing segment was buckling.

Novus warned of tougher trading conditions imposed by the general downturn in the economy – which resulted in further declining demand across all print categories and reduced advertising spend as well as increased market competitiveness that caused margin compression (due to reduced pricing together with increasing input costs).