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NOVUS HOLDINGS LIMITED - Novus Holdings results for the year ended 31 March 2019

Release Date: 13/06/2019 16:15
Code(s): NVS     PDF:  
 
Wrap Text
Novus Holdings results for the year ended 31 March 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”)

NOVUS HOLDINGS RESULTS FOR THE YEAR ENDED 31 MARCH 2019

Novus Holdings’ core operations comprises of an extensive network of specialised printing and manufacturing plants servicing customers across the continent. The Group’s activities include print production of all medium to long run requirements of magazines, retail inserts, catalogues, books, newspapers, commercial and digital work, labels, educational materials, flexible plastic packaging and manufacturing of tissue products.

SALIENT FEATURES
                                                                                      2019           2018
                                                                                     R’000          R’000        Change %

Revenue                                                                          4 331 800      4 308 102            0,6%
Gross profit                                                                       944 022      1 126 997          -16,2%
Margin                                                                               21,8%          26,2%
Operating profit                                                                   276 831        141 947           95,0%

Operating profit - excluding impairments, profit/(loss) on disposal 
of assets and loss on derecognition of foreign subsidiary                          293 522        500 719          -41,4%
Operating margin                                                                      6,4%           3,3%

Operating margin - excluding impairments, profit/(loss) on disposal 
of assets and loss on derecognition of foreign subsidiary                             6,8%          11,6%
Profit after tax                                                                   170 353         71 103          139,6%
Headline earnings                                                                  183 624        328 734          -44,1%
Earnings per share - cents                                                            56,4           22,0          156,1%
Headline earnings per share - cents                                                   60,4          102,9          -41,3%
Dividend per share - cents                                                            30,0           52,0          -42,3%
Free cash flow*                                                                    116 614        397 964          -70,7%
Cash conversion ratio^                                                               42,2%         108,6%          -66,4%
Debt to equity ratio                                                                  3,7%           4,1%           -0,4%

*Cash generated from operations less capital expenditure spent on property, plant and equipment and intangibles (excluding profit/(loss) on disposal of assets), less taxation paid
^Cash generated from operations less capital expenditure spent on property, plant and equipment and intangible assets, divided by operating profit, excluding impairments, profit/(loss) on disposal of assets and loss on derecognition of foreign subsidiary.


2019 was the first full year of operation with the renegotiated Media24 contracts, at reduced volumes and prices, marking a period of significant transition for the Group. All this change was successfully navigated against the backdrop of a tough economic environment, setting a new base for the future.

OPERATING ENVIRONMENT

The South African economy remains constrained with business and consumer confidence at all-time lows.
The Rand weakened in the year, against a backdrop of global trade tensions and economic uncertainty. The hedging programme has somewhat smoothed the peaks and troughs of a volatile Rand, but the weaker currency negatively impacted the cost of all key raw materials. 

The impact of Rand weakness was further exacerbated by the volatile price of crude oil (up 17% in Rand terms over the period under review) and related polymers. This had material implications for input costs in the plastic packaging business. 

Interrupted electricity supply remains a significant challenge, not only for Novus Holdings, but also for the entire South African economy. During February and March 2019 downtime experienced as a result of load shedding negatively affected profitability by approximately R10 million.

FINANCIAL PERFORMANCE REVIEW

Operating profit declined by 41,4% to R294 million (2018: R501 million). This is predominantly because of lower print revenues following the renegotiation of the Media24 contracts, reduced margins on retained print work and poor contribution on ITB Flexible Packaging Solutions (ITB) revenue.

The decrease in the cash conversion ratio from 108,6% to 42,2% was caused by a temporary delay in payments from debtors (financial year end fell on a weekend) and increased stock-holding. These factors, along with the R139 million share buy-back programme completed during the year, negatively impacted cash on hand at year end.

The closure of a key local paper mill in early 2018 necessitated the importation of certain paper grades, which increased the amount of stock held. Together with the strategic acquisition of raw material in anticipation of price increases, inventory increased by an additional R117 million. With an improved understanding of this supply chain, stock on hand will be reduced in the coming year, which will impact positively on cash generation.

Excluding the impact of some of the events above, the normalised cash conversion ratio for the year under review would have been 95,1%.

HEPS achieved for the year was 60,4 cents (2018: 102,9 cents) which was within the range of 60 to 65 cents as communicated to shareholders via SENS dated 09 January 2019 and in accordance with our trading updates on 04 June and 13 June 2019 (https://protect-za.mimecast.com/s/oTPnCQ1Xn5tvlARwFASaXo). 

Print
Print revenue decreased by 7,9% during the year under review. This was due to the reduced pricing and volumes with the renegotiated Media24 contracts coupled with a declining market and local economy.  However, retail inserts and catalogues increased by 6,2% year-on-year. This increase is mainly due to internal organic growth and existing customers increasing their print volumes and marketing spend to counter declining consumer spend. 

Print margins were eroded by the increase in input costs and capacity under-utilisation. Foreign currency volatility and raw material pricing, together with load shedding impacted the segment negatively in the last quarter.

Pleasingly, business development initiatives yielded results and the Group was awarded a material printing contract from a large South African publishing house and also awarded ballot print tenders for the Democratic Republic of Congo and Nigerian elections during the year. 

Packaging
The packaging segment includes ITB and Labels.

ITB
Due to ITB being fully consolidated for 12 months (six months in prior year), ITB increased its revenue contribution to the Group by 91%. However operating profit showed a decline of 57,5% year-on-year.

Margins were under pressure with gross and operating margins down 4,5% and 4,2% respectively year-on-year. Industrial action was a major reason for this underperformance. The business suffered two separate strikes at two of the plants. Production was halted at ITB for five weeks, while an unrelated service delivery protest in the area closed access to the plant for a further week just before the year end. 

Industrial action also halted production at ITB’s smaller facility in Johannesburg for almost six months. As a result, this plant was loss-making for the year under review. The direct costs of the strikes were approximately R10 million, while the secondary cost associated with margin erosion is significantly more.

The spikes in input costs, caused by a volatile oil price and weaker Rand, could not be passed on to customers during and immediately after the industrial action, while service levels were compromised. 

Labels
Labels had a good year with revenue up 16,2% over prior year. The growth in sales was predominantly driven by the gravure labels (wet-glue labels) operation, while the self-adhesive labels’ sales volumes were stable.

Gross margin improved to 25,6% up from 24,7%, on the back of improved efficiency and capacity utilisation.

Tissue
Tissue operations increased revenue by 33,3% year-on-year with additional mill capacity coming online. It ended the year breaking even on a monthly basis, indicating that this business has stabilised operationally.

Gross margin improved to 2,4% up from -10,9%, on the back of increased efficiency and the ability to pass pulp price increases on to customers.

A review of the tissue operations by management and the Board has led to the decision to dispose of this business. The potential disposal of the Tissue business will be positive for cash generation and return on net assets in the year ahead.

OUTLOOK

The management team is focused on driving further efficiencies and retaining market share while continually reviewing and adjusting the capacity requirements in the Print segment. This includes further cost cutting, business development, streamlining of operations, innovating where possible and ensuring that all operations meet individual return on net assets target hurdle rates.

Cash conversion rate should revert to normal levels in the coming year as the level of outstanding debtors normalises, the revised demand and sourcing arrangements for inventory take effect and the 2019 surplus is extracted.

The book and education markets are showing a positive resurgence after a number of years in decline. The local education market presents opportunities going forward as the new curriculum is potentially finalised, and Government commits to printing textbooks.

The Group’s packaging operations in particular will be supported to deliver appropriate returns, and ITB is expected to contribute more strongly to the Group results in future.

EVENTS AFTER REPORTING DATE

A sales agreement was entered into for the disposal of its UV Flexible labels division for an estimated proceeds value of R49 million. As a result, property, plant and equipment in this business were impaired by R8,1 million at year end.

The directors are not aware of any other matters or circumstances arising since the end of the financial year that would significantly affect the operations of the Group or the results of its operations.

MANAGEMENT AND CHANGES TO THE BOARD

Neil Birch transitioned from the position of executive chairman to chief executive officer on 19 June 2018. The Board is confident that his focus on strategic execution and getting the right personnel in key positions will stand the Group in good stead going forward.

Harry Todd was appointed as the Group’s acting chief financial officer (CFO) on 01 July 2018 and subsequently CFO on 01 October 2018, with Keshree Alwar being appointed to the executive management and CFO alternate director, effective 01 October 2018.

Bernard Olivier retired from the Board while Dennis Mack was appointed to the Board as independent non-executive director effective 20 August 2018.

The Board is also pleased with the appointment of Dr Phumla Mnganga as chair of the Board post year end on 02 April 2019. Phumla brings a wealth of experience to the business and also serves on the boards of several other listed companies.

APPOINTMENT OF COMPANY SECRETARY

Melonie Brink was appointed company secretary of Novus Holdings effective 01 October 2018.

TRANSFORMATION

The decision was taken during the year under review to significantly speed up the Group’s transformation efforts. Initiatives have resulted in an improved B-BBEE rating to Level One up from Level Three.

The Board and management team are striving, not only to comply with, but also to truly embody transformation, thus ensuring that the Group can maximise its commercial prospects in South Africa in a positive and sustainable way. This is an ongoing commitment to customers, employees and the communities in which we operate.

DIVIDENDS

The current dividend policy of 2x HEPS cover remains unchanged, but will always be dependent on the cash requirements of the business.

The Board approved dividend No. 5 of 30 cents per share (2018: 52 cents). The source of the dividend is from distributable reserves and will be paid in cash. The dividend declared is subject to dividend withholding tax at 20,0%. The tax payable is 6 cents per share, leaving shareholders who are not exempt from dividends tax with a net dividend of 24 cents per share.

Novus Holdings has 346 656 348 shares in issue as at the date of this declaration. The income tax reference number is 9656/360/15/4.

Salient dates for payment of the dividend:
Last day to trade (cum dividend)                               Tuesday, 10 September 2019
Trading ex dividend commences                                  Wednesday, 11 September 2019
Record date                                                    Friday, 13 September 2019
Payment date                                                   Monday, 16 September 2019

Share certificates may not be dematerialised or rematerialised between Wednesday, 11 September 2019 and Friday, 13 September 2019, both dates inclusive.

Any forecast information has not been reviewed or reported on by the Group’s auditors.

RESULTS PRESENTATION

Shareholders are advised that Novus Holdings will be hosting the results presentation via live audio webcast at 10h30 (SA time) on Thursday, 20 June 2019.

The webcast is available for listening at https://protect-za.mimecast.com/s/X_D6CRgXO5c40mO3FQsnLP.

Once concluded, a recording of the webcast will be available on the Group’s website at https://protect-za.mimecast.com/s/WzJkCNxGL5SkPl6gtjiv2Z.


Phumla Mnganga                           Neil Birch
Chairman                                 Chief executive officer

13 June 2019
Cape Town
Sponsor: Investec Bank Limited


SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March
                                                                                                     2019            2018
                                                                                                    R’000           R’000

ASSETS
Non-current assets                                                                              2 179 879       2 253 283 
Property, plant and equipment                                                                   1 857 753       1 919 115 
Goodwill                                                                                          182 709         173 054 
Other intangible assets                                                                            26 391          30 790 
Available-for-sale financial assets                                                                     —           3 090 
Financial assets at fair value through other comprehensive income                                   3 164               — 
Loans and receivables                                                                                   —           6 517 
Other financial assets at amortised cost                                                            4 375               — 
Deferred taxation assets                                                                          105 487         120 717 

Current assets                                                                                  1 539 293       1 520 199 
Inventory                                                                                         692 022         474 675 
Trade and other receivables                                                                       686 195         702 154 
Derivative financial instruments                                                                    8 983             731 
Current income tax receivable                                                                       4 180           8 000 
Cash and cash equivalents                                                                         120 626         243 948 
Non-current assets held for sale                                                                   27 287          90 691 

TOTAL ASSETS                                                                                    3 719 172       3 773 482 

EQUITY AND LIABILITIES
Capital and reserves attributable to the Group’s equity holders                                 2 670 648       2 787 087 
Share capital                                                                                     602 656         606 040 
Treasury shares                                                                                  (507 344)       (368 172)
Other reserves                                                                                    (71 073)        (80 596)
Retained earnings                                                                               2 646 409       2 629 815 

Non-controlling interest                                                                            2 764           3 672 
TOTAL EQUITY                                                                                    2 673 412       2 790 759 

LIABILITIES
Non-current liabilities                                                                           340 111         374 163 
Post-employment medical liability                                                                   2 873           2 634 
Provisions                                                                                         15 861          17 557 
Long-term liabilities                                                                              84 114          99 252 
Cash-settled share-based payment liability                                                              —           1 845 
Deferred taxation liabilities                                                                     207 619         221 357 
Deferred grant income                                                                              29 644          31 518 

Current liabilities                                                                               705 649         608 560 
Provisions                                                                                          2 484           4 538 
Current portion of long-term liabilities                                                           15 474          16 254 
Trade and other payables                                                                          510 604         521 519 
Cash-settled share-based payment liability                                                          1 311           7 092 
Derivative financial instruments                                                                       52          21 055 
Bank overdrafts and call loans                                                                    174 501          35 332 
Deferred grant income                                                                               1 223           2 770 

TOTAL EQUITY AND LIABILITIES                                                                    3 719 172       3 773 482 


SUMMARY CONSOLIDATED INCOME STATEMENT
For the year ended 31 March 2019

                                                                                                     2019            2018
                                                                                                    R’000           R’000

Revenue                                                                                         4 331 800       4 308 102 
Cost of sales                                                                                  (3 387 778)     (3 181 105)
Gross profit                                                                                      944 022       1 126 997 

Operating expenses                                                                               (650 500)       (626 278)
Other gains/(losses) - net                                                                        (16 691)       (358 772)
Operating profit                                                                                  276 831         141 947 

Finance income                                                                                      6 648          12 948 
Finance costs                                                                                     (45 330)        (52 894)
Profit before taxation                                                                            238 149         102 001 

Taxation                                                                                          (67 796)        (30 898)
Net profit for the year                                                                           170 353          71 103 

Attributable to:
Equity holders of the Group                                                                       171 606          70 418 
Non-controlling interest                                                                           (1 253)            685 
                                                                                                  170 353          71 103 

Earnings per share (cents)
Basic                                                                                               56,45           22,04
Diluted                                                                                             56,45           22,04


SUMMARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2019

                                                                                                     2019            2018
                                                                                                    R’000           R’000

Net profit for the year                                                                           170 353          71 103 

Other comprehensive income/(loss)

Items that may be subsequently reclassified to profit or loss

Hedging reserve                                                                                    10 033          (1 498)
Foreign exchange movement, gross                                                                   40 707          18 368 
Foreign exchange movement, tax portion                                                            (11 398)         (5 143)
Derecognised and added to asset, gross                                                             (3 382)          1 699 
Derecognised and added to asset, tax portion                                                          947            (476)
Derecognised and reported in cost of sales, gross                                                 (23 390)        (22 147)
Derecognised and reported in cost of sales, tax portion                                             6 549           6 201 

Foreign currency translation reserve                                                                   (1)         (1 942)
Exchange loss arising on translating foreign operations, gross                                         (2)         (2 697)
Deferred tax relating to loss arising on translating foreign operations, tax portion                    1             755 

Fair value reserve                                                                                     53              65 
Net fair value gains, gross                                                                            74              90 
Net fair value gains, tax portion                                                                     (21)            (25)

Items that will not be reclassified to profit or loss

Post-employment benefit obligations and provisions                                                     41             640 
Remeasurement of post-employment benefit obligations and provisions, gross                             57             730 
Remeasurement of post-employment benefit obligations and provisions, tax portion                      (16)            (90)

Total other comprehensive income/(loss), net of tax                                                10 126          (2 735)
Total comprehensive income for the year                                                           180 479          68 368 

Attributable to:
Equity holders of the Group                                                                       181 732          67 683 
Non-controlling interest                                                                           (1 253)            685 
                                                                                                  180 479          68 368 


SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2019

                                                      Share                                             Non-
                                                    capital   Treasury  Total other     Retained controlling        Total
                                                and premium     shares     reserves     earnings    interest       equity
                                           Note       R’000      R’000        R’000        R’000       R’000        R’000

Balance as at 01 April 2017                         606 040   (368 172)    (804 465)   3 449 436        (374)   2 882 465 

Total comprehensive income for the year                   —          —       (2 735)      70 418         685       68 368 
  Profit for the year                                     —          —            —       70 418         685       71 103 
  Other comprehensive income                              —          —       (2 735)           —           —       (2 735)

Transactions with owners:
Share-based compensation movement                         —          —       15 007            —           —       15 007 
Other movements                                           —          —          491           13           —          504 
Transfer from share-based compensation reserve            —          —      (18 331)      18 331           —            — 
Dividends paid                                            —          —            —     (178 946)          —     (178 946)
Transfer to/from non-distributable reserves               —          —      729 437     (729 437)          —            — 
Transactions with non-controlling interests               —          —            —            —       3 361        3 361 
Total transactions with owners                            —          —      726 604     (890 039)      3 361     (160 074)

Balance as at 31 March 2018 originally 
presented                                           606 040   (368 172)     (80 596)   2 629 815       3 672    2 790 759 
Changes in accounting policies               17           —          —            —        5 828           —        5 828 
Balance as at 31 March 2018 restated                606 040   (368 172)     (80 596)   2 635 643       3 672    2 796 587 

Total comprehensive income for the year                   —          —        10 126     171 606      (1 253)     180 479 
  Profit for the year                                     —          —             —     171 606           —      171 606 
  Other comprehensive income                              —          —        10 126           —      (1 253)       8 873 

Transactions with owners:
Share-based compensation movement                         —          —        (4 401)          —           —       (4 401)
Cancellation of repurchased shares                   (3 384)         —             —           —           —       (3 384)
Dividends paid                                            —          —             —    (160 840)          —     (160 840)
Share buy-backs                               18          —   (139 172)            —           —           —     (139 172)
Reclassification of foreign currency 
translation reserve on sale of subsidiary     19          —          —         3 798           —           —        3 798 
Transactions with non-controlling interests               —          —             —           —          345         345 
Total transactions with owners                       (3 384)  (139 172)         (603)   (160 840)         345    (303 654)

Balance as at 31 March 2019                         602 656   (507 344)      (71 073)   2 646 409       2 764   2 673 412 


SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2019


                                                                                                     2019            2018
                                                                                                    R’000           R’000

Cash generated from operating activities
Cash generated from operations                                                                    231 165         683 632 
Finance income                                                                                      6 648          12 948 
Finance costs                                                                                     (19 603)        (18 254)
Taxation paid                                                                                     (68 719)       (169 226)
Net cash generated from operating activities                                                      149 491         509 100 

Cash flows from investing activities
Property, plant and equipment acquired                                                           (106 660)       (138 065)
Proceeds on sale of property, plant and equipment                                                   1 693          21 424 
Proceeds from the sale of non-current assets held for sale                                         59 906               — 
Purchase of intangible assets                                                                        (771)         (1 887)
Insurance proceeds                                                                                      —           2 086 
Financial assets at amortised cost advanced                                                          (746)         (3 448)
Financial assets at amortised cost repaid                                                           1 614             227 
Acquisition of subsidiaries/businesses                                                            (48 030)       (202 149)
Net cash utilised in investing activities                                                         (92 994)       (321 812)

Cash flows from financing activities
Repayment of long-term loans                                                                      (15 917)        (26 950)
Dividends paid                                                                                   (160 840)       (178 946)
Payments for shares bought back                                                                  (140 756)              — 
Share buy-back transaction costs                                                                   (1 475)              — 
Net cash utilised in financing activities                                                        (318 988)       (205 896)

Net decrease in cash and cash equivalents                                                        (262 491)        (18 608)
Cash and cash equivalents at the beginning of the period                                          208 616         227 224 

Cash and cash equivalents at the end of the period                                                (53 875)        208 616 


NOTES TO THE SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2019

1.REPORTING ENTITY

The financial data in the summary consolidated financial statements covers the Group’s comprehensive commercial printing and manufacturing operations in South Africa. Revenue derived from African business interests outside of South Africa is not yet material enough to warrant increased geographical reporting boundaries. The report is structured to cover the operations according to three business segments:

- Printing (including gravure, heatset, coldset, sheet-fed and digital)
- Packaging (including labels and flexible packaging)
- Other (tissue manufacturing together with other non-print or packaging products)

2.BASIS OF PREPARATION

The summary consolidated financial statements for the year ended 31 March 2019 have been prepared in accordance with the requirements of the JSE Limited (JSE) Listings Requirements for preliminary reports, and the requirements of the Companies Act, applicable to summary financial statements. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 – Interim Financial Reporting. The accounting policies applied in the preparation of the consolidated financial statements, from which the summary consolidated financial statements were derived, are in terms of IFRS and are consistent with those accounting policies applied in the preparation of the previous consolidated annual financial statements, except for the adoption of new standards.

Management considered all new accounting standards, interpretations and amendments to IFRS that were issued prior to 31 March 2019, but not yet effective on that date. The standard that is applicable to the Group, but that was not implemented early is IFRS 16: Leases.

The assessment of the impact of the new standard is set out below.

IFRS 16: Leases
IFRS 16 will result in almost all leases being recognised on the statement of financial position, as the distinction between operating and finance leases is removed, for lessee accounting. The standard will affect the accounting for the Group’s operating leases. As at the reporting date, the Group has operating lease commitments of R93 million.

The Group will adopt the standard from 01 April 2019 and intends to use the cumulative catch up transition approach. The standard will be applied retrospectively with the cumulative effect recognised as an adjustment to retained earnings at 01 April 2019. The comparative information will therefore not be restated and will continue to be reported under IAS 17: Leases.

The Group has elected to apply the exemption applicable to leases ending within 12 months from the date of initial adoption of the standard and to assets of low value. The right of use asset recognised will be adjusted with any applicable onerous lease provisions.

The effect of adopting IFRS 16 on the transition date of 01 April 2019 is estimated to be an increase in assets of R94 million, an increase in lease liabilities of R118 million (after adjustments for the straight lining of lease payments liability as at 31 March 2019 and using an incremental borrowing rate of 10,15%) and deferred tax assets of approximately R6 million. This results in a net cumulative impact on retained earnings of R17 million.

3.PREPARATION

The preparation of the summary consolidated financial statements was supervised by the chief financial officer, Harry Todd CA(SA). Any reference to future financial performance included in this announcement has not been reviewed or reported on by the Company’s auditor.

4.AUDITOR’S REPORT

This summarised report is extracted from audited information but is not itself audited. The annual financial statements were audited by PricewaterhouseCoopers Inc. who expressed an unmodified opinion thereon. The audited annual financial statements and the auditor’s report thereon are available for inspection at the Company’s registered office.
The directors take full responsibility for the preparation of the preliminary report and that the financial information has been correctly extracted from the underlying annual financial statements.

5.ACCOUNTING POLICIES

The accounting policies used in preparing the summary consolidated financial statements are in terms of International Financial Reporting Standards and are consistent with those applied in the previous annual financial statements, except for the adoption of the following new accounting standards and amendments to IFRS’s that became effective and were adopted by the Group during the current financial year:

                                                                                                          Effective date:
                                                                                                          Years beginning
Standard/Interpretation                                                                                       on or after

IFRS 15: Revenue from Contracts with Customers                                                            01 January 2018
IFRS 9: Financial instruments                                                                             01 January 2018
Amendment to IFRS 2: Share Based Payments                                                                 01 January 2018
Annual improvements 2014-2016                                                                             01 January 2018


The relevance of these amendments to the published standards has been assessed with respect to the Group’s operations. 
Refer to note 17.

6.USE OF ESTIMATES AND ASSUMPTIONS

In preparing these summary consolidated financial statements, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated annual financial statements for the year ended 31 March 2019, as well as the prior year.

7.SEGMENT INFORMATION

IFRS 8: Operating Segments requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision-maker (CODM) to allocate resources to the segments and to assess their performance. The CODM has been identified as the executive committee that makes strategic decisions.

The executive commitee has identified its operating segments based on business by service or product and aggregated it into the reportable segments based on the nature of the operating segment and it meeting the aggregation criteria in terms of IFRS 8 paragraph 12; as they have similar profit margins, production processes, customers and suppliers. These reportable segments are Print, which comprises printing of books, magazines, retail inserts and newspapers; Packaging, which produces flexible packaging products and prints flexible labels; and Other, which includes Tissue that manufactures tissue paper and all non-print or packaging related transactions. In the prior year the Other segment included Tissue, Packaging and all non-print related transactions. The prior year segment disclosure has been amended to reflect the change in reportable segments.

                                                         Printing     Packaging         Other  Eliminations         Total
                                                            R’000         R’000         R’000         R’000         R’000

2019
External revenue                                        3 348 996       750 128       232 676             —     4 331 800 
Inter-segmental revenue                                     8 332        23 760             —       (32 092)            — 
Total Revenue                                           3 357 328       773 888       232 676       (32 092)    4 331 800 

Profit attributable to equity holders
of the company                                            169 645        17 423       (15 462)            —       171 606 

Additional disclosure
Property, plant and equipment additions                    51 669        49 935         5 056             —       106 660 
Capital commitments                                        11 740         5 768         1 484             —        18 992 
Impairment of assets                                       (1 700)       (8 079)            —             —        (9 779)
Total assets                                            3 670 913       630 029       395 847      (977 617)    3 719 172 
Total liabilities                                         808 505       496 414       718 459      (977 617)    1 045 760 

2018
External revenue                                        3 634 322       475 024       198 756             —     4 308 102 
Inter-segmental revenue                                    13 875        17 747             —       (31 622)            — 
Total Revenue                                           3 648 197       492 771       198 756       (31 622)    4 308 102 

Profit attributable to equity holders
of the company                                            229 997        14 567      (174 146)            —        70 418 

Additional disclosure
Property, plant and equipment additions                    51 417        18 492        83 620             —       153 529 
Capital commitments                                         1 754        17 634           446             —        19 834 
Impairment of assets                                     (201 985)            —      (170 166)            —      (372 151)
Total assets                                            3 692 691       610 295       395 249      (924 753)    3 773 482 
Total liabilities                                         713 111       491 908       702 457      (924 753)      982 723 


8.EARNINGS PER SHARE

Basic earnings per share
Earnings per share is calculated using the weighted average number of ordinary shares in issue during the period and is based on the net profit attributable to ordinary shareholders. For the purpose of calculating earnings per share, treasury shares are deducted from the number of ordinary shares in issue. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares and is based on the net profit attributable to ordinary shareholders, adjusted for the after-tax dilutive effect. Currently, the share options granted and vested under equity settled schemes to participating employees and directors are considered anti-dilutive.

Headline earnings per share
Headline earnings per share is calculated using the weighted average number of ordinary shares in issue during the period and is based on the earnings attributable to ordinary shareholders, after excluding those items as required by Circular 4/2018 issued by the South African Institute of Chartered Accountants (SAICA).


                                                                                                     2019            2018
Calculation of headline earnings                                                                    R’000           R’000

Earnings
Net profit attibutable to shareholders                                                            171 606          70 418 
Adjustments (net of tax):                                                                          12 018         258 316 
- Loss/(Profit) on sale of property, plant and equipment                                            2 563          (8 131)
- Insurance proceeds                                                                                    —          (1 502)
- Impairment in value of property, plant and equipment                                              7 041         213 931 
- Impairment in value of intangible assets                                                              —           8 963 
- Impairment in value of goodwill                                                                       —          45 055 
- Reclassification of foreign currency translation reserve on sale of subsidiary                    2 735               — 
- Profit on sale of foreign subsidiary                                                               (321)              — 

Headline earnings                                                                                 183 624         328 734 

Number of ordinary shares in issue                                                            346 656 348     347 332 454 
Weighted average number of shares                                                             304 020 814     319 545 857 

Earnings per ordinary share (cents)
Basic                                                                                               56,45           22,04
Diluted                                                                                             56,45           22,04

Headline earnings per ordinary share (cents)
Basic                                                                                               60,40          102,88
Diluted                                                                                             60,40          102,88


9.BUSINESS COMBINATIONS

2019
With effect from 01 March 2019, the Group acquired the publishing business of 3S Media for a purchase consideration of R10,8 million. Goodwill of R9,7 million was recognised on acquisition and is attributable to the expected benefits to be derived from the publishing business which also enables sustainability of the Print segment. The goodwill will not be deductible for tax purposes.


                                                                                                                     2019
                                                                                                                    R’000

Fair value of assets and liabilities acquired
Property, plant and equipment                                                                                          24 
Net current assets/(liabilities)                                                                                    1 149 
Identifiable assets and liabilities at acquisition date                                                             1 173 
Goodwill                                                                                                            9 655 
Total purchase consideration                                                                                       10 828 

Contingent consideration                                                                                            4 839 
Cash paid                                                                                                           5 989 
Total purchase consideration                                                                                       10 828

Cash flow
Cash consideration paid in respect of 3S Media                                                                      5 989 
Contingent consideration paid in respect of ITB Manufacturing Proprietary Limited                                  42 041
Cash flow on acquisition                                                                                           48 030


2018
With effect from 01 October 2017, the Group acquired 100% of the share capital of ITB Manufacturing Proprietary Limited for a purchase consideration of R224 million. The acquisition was to enable the Group to expand into packaging and goodwill of R80,2 million relates to the expected benefits to be derived from a larger customer base operating in a growth sector. The goodwill will not be deductible for tax purposes. Details of this business combination were disclosed in note 30 of the Group’s annual financial statements for the year ended 31 March 2018.


10.FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS

10.1Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.
The summary consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements. They should be read in conjunction with the Group’s annual financial statements as at 31 March 2019.

10.2Fair value estimation
The table below analyses specific financial instruments carried at fair value, by valuation method. The different levels have been defined.

                                                                 Level 1            Level 2       Level 3           Total
                                                           Quoted prices
                                                               in active        Significant     
                                                             markets for              other   Significant
                                                        identical assets         observable  unobservable
                                                          or liabilities             inputs        inputs 
                                                                   R’000              R’000         R’000           R’000

At 31 March 2019
Assets 
Financial assets at fair value through other 
comprehensive income                                                   —              3 164             —           3 164 
Foreign exchange contracts                                             —              8 983             —           8 983 
                                                                       —             12 147             —          12 147
Liabilities
Contingent consideration                                               —                  —         6 466           6 466 
Foreign exchange contracts                                             —                 52             —              52 
                                                                       —                 52         6 466           6 518 

At 31 March 2018
Assets 
Available for sale financial assets                                    —              3 090             —           3 090 
Foreign exchange contracts                                             —                731             —             731 
                                                                       —              3 821             —           3 821 

Liabilities
Contingent consideration                                               —                  —        43 668          43 668 
Foreign exchange contracts                                             —             21 055             —          21 055 
                                                                       —             21 055        43 668          64 723 

10.2 Fair value estimation (continued)
Valuation techniques used to derive Level 2 fair values
Foreign exchange contracts - In measuring the fair value of foreign exchange contracts, the Group makes use of market observable quotes of forward foreign exchange rates on instruments that have a maturity similar to the maturity profile of the Group’s foreign exchange contracts. Key inputs used in measuring the fair value of foreign exchange contracts include current spot exchange rates, market forward exchange rates, and the term of the Group’s foreign exchange contracts.

Financial assets at fair value through other comprehensive income - the use of quoted market prices for similar instruments.

Valuation techniques and key inputs used to measure significant Level 3 fair values 
Contingent consideration – expected cash outflows are estimated and calculated based on the terms of the purchase agreement (see note 9).

The carrying value of cash generating units for impairment consideration - discounted cash flow models for calculating either value in use or fair value less costs to sell.

11.RELATED PARTY TRANSACTIONS

The Group entered into transactions and has balances with a number of related parties including shareholders and entities under common control. Transactions that are eliminated on consolidation as well as profits or losses eliminated through application of the equity method are not included. There were changes to the related parties which existed at the end of the 2018 financial year as Media24 divested itself of the majority of its shareholding in Novus Holdings to Naspers Limited, retaining a non-controlling minority stake of 17,48%. This therefore changed the relationships with the ultimate holding company and holding company which were disclosed previously. Transactions were reported for common controlled entities within the Naspers Group until 26 September 2017 in the 2018 financial year and therefore no transactions with the above mentioned entities were included in the 2019 financial year.

12.CAPITAL COMMITMENTS AND CONTINGENCIES

Commitments relate to amounts for which the Group has contracted, but that have not yet been recognised as obligations in the statement of financial position.

                                                                                                     2019            2018
                                                                                                    R’000           R’000

Authorised capital expenditure
Already contracted for but not provided for
– Property, plant and equipment                                                                    18 992          19 834

Operating leases – as lessee (expense)
Minimum lease payments due
– within one year                                                                                  23 923          18 479
– in second to fifth year inclusive                                                                44 918          50 046
– later than five years                                                                            24 291          31 436
                                                                                                  112 124         119 795


The Group leases manufacturing and office space, as well as equipment under various non-cancellable operating leases. Certain contracts contain renewal options and escalation clauses for various periods of time.

13.NON-CURRENT ASSETS HELD FOR SALE

At March 2018, the balance included the Paarl Media Paarl building which was subsequently sold in July 2018. The remaining balance relates to the Paarl Coldset Pietermaritzburg building which was classified as held for sale at March 2018, due to delays in the transfer of this property it remains as held for sale in the current year.

                                                                                                     2019            2018
                                                                                                    R’000           R’000

Opening balance                                                                                    90 691          63 404
Transfers from property, plant and equipment                                                            —          27 287
Disposals                                                                                         (63 404)              — 
Closing balance                                                                                    27 287          90 691 

14.INVENTORY

Inventory increased in the Print segment due to requirement to import newsprint paper (previously sourced locally and on a consignment basis) and the strategic acquisition of raw material in anticipation of price increases (close to year end).

15.PROPERTY, PLANT AND EQUIPMENT

Significant movements include acquisitions of property, plant and equipment (PPE) at R107 million (2018: R154 million), depreciation charge for the year at R154 million (2018: R191 million) and an impairment charge to the value of R10 million (2018: R297 million).

16.DEFERRED TAX

Deferred income tax assets are recognised for tax losses carried forward to the extent that the realisation of the related benefit through future taxable profits is probable. The deferred tax assets relate mainly to carried forward tax losses of the Tissue division in Novus Packaging Proprietary Limited. The division has incurred tax losses over the last five years following the acquisition of the business. They relate mainly to costs of integrating the operations and delays in the expansion project of the business. The Group has concluded that the deferred tax assets will be recoverable using the estimated future taxable income based on approved business plans and budgets for the subsidiary. The subsidiary is expected to utilise the deferred tax assets from the year 2023 onwards based on the above estimates.

17.CHANGES IN ACCOUNTING POLICIES

The Group has applied both IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers using the modified retrospective approach by recognising the cumulative effect of initially applying IFRS 9 and IFRS 15 as an adjustment to the opening balance of equity at 01 April 2018. Therefore the comparative information has not been restated and continues to be reported under IAS 18 Revenue and IAS 39 Financial Instruments. IFRS 9 was assessed by management at the previous reporting date and concluded that there is no material impact for the Group and therefore no adjustment to the opening balance of equity at 01 April 2018.

IFRS 9 Financial instruments
The standard adresses the accounting principles for the financial reporting of financial assets and financial liabilities, including classification, measurement impairment, derecognition and hedge accounting. IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ (ECL) model. Previously, under the ‘incurred loss’ model, a provision for impairment of trade receivables was established when there was objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Evidence of impairment may have included indications that the debtors or a group of debtors is experiencing significant financial difficulty, the probability that they will enter bankruptcy or financial reorganisation, and default or late payments against agreed terms.

The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not investments in equity instruments. Under IFRS 9, credit losses are recognised earlier than under IAS 39.

Under IFRS 9, loss allowances are measured on either of the following basis:
- 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and
- Lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.

The Group will measure loss allowances at an amount equal to lifetime ECLs.                                                     
There was no change in the classification of measurement categories for financial instruments.

Changes to hedge accounting policies have been applied prospectively. All hedging relationships designated under IAS 39 at 31 March 2018, met the criteria for hedge accounting under IFRS 9 at 01 April 2018, and are therefore regarded as continuing hedging relationships.

IFRS 15 Revenue from Contracts with Customers
The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. A contract asset is raised for products printed but not yet invoiced/delivered as per the below policy. Management has assessed the effects of applying the new standard on the Group’s financial statements and has identified the following:

Type of product/service  Revenue recognition and timing                            Nature of change in accounting policy

Printing revenue         Revenue is recognised upon customer acceptance of         Revenue will be recognised once the 
                         product specifications and completion of printing         job is completed and ready for delivery 
                         to customer specifications (point in time).               rather than upon delivery under IAS 18.

Tissue revenue           Revenue is recognised at a point in time upon delivery    No change under IFRS 15.
                         og the related product and customer acceptance.

Packaging revenue        Revenue is recognised based on contractual arrangements   Revenue will be recognised once the 
                         with customers, either upon customer acceptance of        job is completed and ready for delivery 
                         product specifications and completion of the product      rather than upon delivery under IAS 18.
                         to customer specifications (point in time) or upon 
                         delivery of the related product and customer acceptance 
                         (point in time). 
  
Distribution revenue     Revenue is recognised at a point in time upon delivery    No change under IFRS 15.
                         of the related product and customer acceptance.

Waste revenue            Revenue is recognised at a point in time upon delivery    No change under IFRS 15.
                         of the related product and customer acceptance.

Other revenue            Revenue is recognised at a point in time upon delivery    No change under IFRS 15.
                         of the related product and customer acceptance.


The following table summarises the impact of transition to IFRS 15 on retained earnings at 01 April 2018:

                                                                       Previously reported                       Restated 
                                                                             31 March 2018        IFRS 15   31 March 2018
                                                                                     R’000          R’000           R’000

Income statement
Revenue                                                                          4 308 102         33 741       4 341 843 
Cost of sales                                                                   (3 181 105)       (25 644)     (3 206 749)
Deferred tax                                                                       (30 898)        (2 269)        (33 167)
Net profit after tax                                                                71 103          5 828          76 931 

Statement of financial position
Trade receivables                                                                  702 154         33 741         735 895 
Inventory                                                                          474 674        (25 644)        449 030 
Retained earnings                                                                2 629 816          5 828       2 635 644 
Deferred taxation liabilities                                                      221 357          2 269         223 626 


18.SHARE BUY-BACKS

In terms of a general authority granted by Novus Holdings Limited shareholders at the Company’s annual general meeting held on 17 August 2018, a special resolution was passed to approve the repurchase of its ordinary shares. The Group, through its subsidiary, Novus Print Proprietary Limited, purchased a total of 31 258 834 ordinary shares in the Company during the current year. The shares were acquired at an average price of R4,45 per share including share transaction costs, ranging from R4,02 to R4,78 per share. The total cost of R139 million, including transaction costs of R0,8 million was accounted for as a debit to equity as these shares are held as treasury shares in the Group.

19.DISPOSAL OF INTERNATIONAL PRINTING GROUP LIMITADA

During the reporting period, the Group disposed of its 97,74% interest in its only foreign subsidiary, International Printing Group Limitada. The exchange differences previously recognised in equity were reclassified to profit or loss with a profit of disposal of foreign subsidiary being recognised.

20.EVENTS AFTER THE REPORTING DATE

The following events took place after the reporting date:

Effective 01 April 2019, the Group acquired 49% of the ordinary share capital in Mikateko Media Proprietary Limited for a purchase consideration of R3,1 million. This investment is classified as an investment in associate.

The Group entered into a sales agreement for the disposal of its UV Flexible labels division for an estimated proceeds value of R49 million. As a result, property, plant and equipment in the division was impaired to its fair value, less costs to sell with a R8,1 million impairment charge accounted for at year end.

The directors are not aware of any other matter or circumstance arising since the end of the financial year and the date of this report.

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