Novus Holdings’ full year financial results are indicative of a disruptive operating environment brought on by the poor state of the South African economy, weak demand and high input costs, exacerbated by the COVID-19 pandemic.
However, there were pockets of pleasing performance indicators as the Group focused on rightsizing print operations, significantly reducing working capital, improving cash preservation, securing the sale of the Tissue operation and bolstering its B-BBEE status.
Preserve cash
The Group reported a cash conversion ratio of 119,4% (2019: 27,2%), due to its key focus on reducing working capital, which saw a reduction by R210,2 million. This yielded a net cash inflow of R293m and returned the Group to a year-end cash positive position of R175m compared to an overdraft of R54m in the prior year. This bolstered the Group’s liquidity position. The headline earnings per share (HEPS) achieved for the year was 23.4 cps (2019: 60,4 cps). Group revenue declined to R4 112 million (2019: R4,332 million). It opted to preserve cash as a result of the turmoil experienced due to the COVID-19 pandemic and therefore did not declare a dividend.
“The year-on-year decline in headline earnings is primarily as a result of declining revenues and operating profits earned in the Print segment, which suffered lower volumes across all print categories, due to reduced advertising spend, increased market competitiveness and margin squeeze,” says Neil Birch, Novus Holdings CEO.
Furthermore, Novus Holdings experienced negative financial consequences as a direct result of the COVID-19 pandemic, which impacted the 2020 FY. This is despite most of the Group’s core products being classed as essential services during the nationwide lockdown.
“Throughput was below breakeven in most facilities, customers reduced or cancelled sales orders and production ceased until the lockdown regulations were clarified. The impact of the pandemic had limited impact on our flexible packaging operations as essential food-packaging demand was mostly uninterrupted,” says Birch.
Cash neutral
The Packaging division’s revenue decreased by 8.3% to R688m mainly due to the sale of the UV Flexo division effective 1 April 2019, however on a like-for-like basis revenue grew by 1.0%. The Labels Gravure division remained static year on year.
Positively, the Group aligned balance sheet values with current realisable asset values. “The impact on future depreciation will be positive and the impairments are effectively cash neutral,” says Birch.
Contribution of non-traditional printing businesses contributed favourably to Group performance for the FY. ITB’s performance improved on the prior year by 1.6%, which returned the division to historical profitability levels after the challenging prior year. Tissue revenue increased by 10.3% to R257m.
“Another positive development during the FY is that we made headway on the Tissue business. We entered into transactional agreements that will see us dispose of this division effective 1 June 2020. We will continue to own 49% of the existing operation, which will be equity accounted. We look forward to partnering with an empowered specialist in the sector,” says Birch.
Looking forward, he said that management is firmly focussed on ensuring the Group’s sustainability in the immediate and long-term, despite the prevailing uncertainty due to COVID-19 and current market conditions.
“We will continue to drive operational efficiencies and adjust our capacity requirements, the review of which has already resulted in a lower cost-base, making future print more affordable and extending its longevity. Despite the devastation brought on by COVID-19, we are using the opportunity to evolve our business, making the Group a leaner operation capable of competing in the future,” concludes Birch.
