BUSINESS UPDATE FOR INVESTORS. Tuesday, 27 March Business Update 08 March Leaders in print and manufacturing

Transcription

1 BUSINESS UPDATE FOR Business Update 08 March 2018 INVESTORS Tuesday, 27 March 2018 Leaders in print and manufacturing

2 CONTENTS STRATEGY 2018 BUSINESS UPDATE CURRENT MATTERS FY19 SEGMENT FOCUS AREAS STRATEGY GOING FORWARD Presented by: Keith Vroon, Chief Executive Officer CONTENTS 1

3 OUTLOOK & STRATEGY RECAP Challenging operating environment and depressed economic outlook with currency volatility remains. Continued volume decline in most traditional print market segments. (Media24 pricing pressure) Match operational capacity to market demand through continuous evaluation of operations, and match equipment type to market trends. 6 Future expansion of packaging. Business model focused on growing through acquisitions that yield synergy and volume benefits. 5 Good cash flow and debt capacity for further diversification prospects. 4 Leverage existing relationships to grow market share in the labels / flexibles and tissue markets and build stable platforms for these divisions to perform optimally. STRATEGY 2

4 2018 BUSINESS UPDATE 3

5 2018 BUSINESS UPDATE CORE BUSINESS Both DBE volumes completed in H1. Magazines and newspaper volumes under continued pressure. DBE and Directories print volume declined by 5%. General Books showed volume increase. Retail season improved on print volumes reported on in H1. Heatset and Coldset divisions successfully consolidated. EXCHANGE RATE More favourable exchange rate scenario, client pricing points have improved. GROWTH INITIATIVES Tissue Expansion project completed in November Capable of full production from December Increased volumes have been achieved. Converting business assets were sold in August Novus Print Solutions Division continued to grow and deliver positive contribution to operating profit for the year. Packaging Labels Significant growth across all sectors of clients including wet-glue, self-adhesive and wrap-around labels achieved. Packaging ITB Plastics Successfully integrated into Group. Drive to fill capacity. Cross-selling opportunities being driven. Factory move on track, to be completed by June ACQUISITIONS Continued search for acquisitions that support the growth of the Packaging division BUSINESS UPDATE 4

6 CURRENT MATTERS 5

7 DBE Workbook Projects The Workbook tender was first advertised in November A one year extension was granted to the consortium in February 2016, due to a protracted adjudication process. Caxton contested the extension in April 2016 and said it should be awarded on merit. Despite this, the consortium continued to print workbooks for the remainder of The tender was awarded to the consortium on merit in 2016 for a three year period, renewable by two years. Caxton contested this award which resulted in it being reevaluated in 2016 with a new bid evaluation and adjudication committee. The workbook tender was re-awarded to the consortium in March Caxton once again contested this award resulting in a review application process. This process concluded on 28 February 2018 in a High Court decision upholding the Novus Holdings contract. Three year initial term (FY18 / FY19 / FY20). Two year extension (FY21 / FY22). Caxton have resolved to apply for leave to appeal. UPDATE ON CURRENT MATTERS CURRENT MATTERS 6

8 MEDIA24 PRINT AGREEMENTS Renewal process UPDATE ON CURRENT MATTERS Original print agreements concluded in 2000 (magazines) and 2008 (newspapers). Management agreement revised in 2015, on listing. Management agreement terminated on Lambert Retief s passing. Printing agreements consequently cancelled effective 31 March Media24 commenced a RFP process in October 2017 with a 22 October 2017 deadline for submissions. Verbal agreement reached on 11 December 2017, SENS issued 15 December Final contract signature, 26 March CURRENT MATTERS 7

9 MEDIA24 PRINT AGREEMENTS Contract Salient Points UPDATE ON CURRENT MATTERS Three year term, renewable at the instance of Media24, for an additional three years. Agreed annual pricing adjustment. Effective date 01 April Retention of Level 4 B-BBEE status required. Volume allocation: Magazines: Novus Holdings allocated weekly magazines and Rodale monthly titles. Competitors allocated balance of monthly magazines. Novus Holdings retains 76% of magazine volumes. Newspapers: Novus Holdings allocated Western Cape, Eastern Cape and Free State regions print work. Competitors allocated Gauteng and KZN regions print work. Novus Holdings retains 50% of newspaper volumes. CURRENT MATTERS 8

10 MEDIA24 PRINT AGREEMENTS Impact of new print agreement UPDATE ON CURRENT MATTERS Media24 revenue has historically represented 21% of total group revenue. On a pro-forma basis the new Media24 print agreements would reduce revenue in FY18 between R520m to R560m: Pricing adjustment of R260m R280m. Volume loss representing revenue of R260m R280m. Management have commenced a number of initiatives to reduce the impact on earnings, which includes the closing of the Pietermaritzburg plant and decommissioning of a number of printing presses. Impact on earnings for FY18 to be provided in the trading statement update before 30 April The above revenue impacts are prior to the mitigating impact of any: Business right-sizing initiatives Cost reduction initiatives Revenue / market share opportunities. That will positively mitigate the Media24 contract impact. CURRENT MATTERS 9

11 MEDIA24 PRINT AGREEMENTS Mitigating initiatives UPDATE ON CURRENT MATTERS We are unable to give an accurate forecast of the positive impact of these initiatives at this stage. To the extent that we can, we will do so, specifically in terms of: Capacity reduction. S189 retrenchments process. Novus Holdings will disclose the FY18 negative impact of the above in a trading update in latter April Novus Holdings will disclose the positive impact of the above for FY19 in the above trading updated. CURRENT MATTERS 10

12 MEDIA24 PRINT AGREEMENTS Mitigating and other measures to improve results outlook Print Assessment of operational footprint and equipment requirements: Other Aggressively pursue revenue / market share opportunities. Right-size operations and remove capacity by way of the following measures: Closure of PCS PMB; PCS JHB equipment mothballing; Continued streamlining of Heatset / Coldset post merge. Ongoing production and procurement efficiencies. Reduction / control of fixed expenses. Continued improvement in Labels profitability. Break-even and continued improvement in Tissue results. Full-year consolidation of ITB results and volume growth. Conclude other acquisitions, where appropriate. UPDATE ON CURRENT MATTERS CURRENT MATTERS 11

13 FY19 FOCUS AREAS 12

14 2019 SEGMENT FOCUS AREAS (to be reported on separately for FY18) PRINT TISSUE PACKAGING / LABELS Implementation of measures to mitigate Media24 impact. Aggressive sales and market share drive. Cost control measures. Reduce capital investment to a minimum. Stabilise and maintain print division results (FY19 FY21). Tissue business is currently being assessed. Sales volumes need to grow from 800 to tonnes per month. (Current 1 650) Production and process efficiencies need to be achieved. Market conditions: Market volume growth of 2% pa Additional local milling capacity introduced Imports of jumbos Informal converting sector growth Softer market prices Drive to monthly EBIT break-even, EBITDA break-even achieved. Divisional growth or disposal. Fill available production capacity. Cross-selling opportunities. Introduce new products. Investments for organic growth, including digital capacity introduction. Divisional growth. FY19 FOCUS AREAS 13

15 ACQUISITIONS Value accretive acquisitions concluded Packaging focused acquisition strategy. Targeting growth sectors with: Robust margins. Barriers to entry. Accredited manufacturing standards for food grade application. B2B selling opportunities. Segmental acquisitions that achieve the following: Add scale and volume to existing operations. Increasing geographic footprint. Expanding product offerings. Offer cross-selling opportunities. Utilise balance sheet and existing cash-flows to finance acquisitions. FY19 FOCUS AREAS 14

16 STRATEGY GOING FORWARD 15

17 OUTLOOK & STRATEGY REMAINS FOCUSSED Challenging operating environment and depressed economic outlook with currency volatility remains. Improving operating and economic outlook, currency currently favourable. Continued volume decline in most traditional print market segments. Aggressive market share challenge to replace lost Media24 work. Match operational capacity to market demand through continuous evaluation of operations, and match equipment type to market trends. Stepped change and ongoing assessment. 6 Future expansion of packaging. Business model focused on growing through acquisitions that yield synergy and volume benefits. Attractive acquisition pipeline being assessed. 5 Disciplined capital allocation and good cash flow and debt capacity for further diversification prospects. Dividend policy unchanged. EBITDA remains strong. Good debt capacity. 4 Leverage existing relationships to grow market share in the labels / flexibles and tissue markets and build stable platforms for these divisions to perform optimally. Tissue market and investment assessment. Organic growth for labels and flexible plastic market. STRATEGY GOING FORWARD 16

18 Investor Relations Contacts