Novus Holdings expects the terms of the new printing agreement with former controlling shareholder Media24 to have a material effect on the group’s results when it becomes effective after March 2018.

The just-released interim results show that despite tough trading conditions, Novus was able to generate a 13.3% increase in earnings to 71.7c a share in the six months to end-September.

The results also show the Media24 printing agreement accounted for almost 20% of Novus’s turnover in the period.

This first release of the details of sales to Media24 confirms analysts’ speculation about the importance of the agreement to Novus. During the six-month period, Media24 sales made up R450m of the total R2.3bn.

In the notes to the results, Novus discloses that the amount outstanding from Media24 for the interim period was R82m. The termination of the long-standing agreement with Media24 followed the Competition Tribunal’s ruling that Media24 had to reduce its majority shareholding in Novus to a minority stake.

The change in control led to a change in the management agreement between the two entities, which meant Media24 was able to end the decades-old printing agreement.

Although there are few alternatives available to Media24, particularly given the hostility between it and the other big media printing company, Caxton, the new agreement with Novus is expected to be on tighter margins.

Tough conditions in the print media industry, combined with the less attractive Media24 agreement terms, are behind the group’s business strategy of diversifying its investments outside the print media sector. On October 1, the group acquired 100% of ITB Manufacturing, which produces flexible plastic packaging.

During the interim period revenue rose 5.4% to R2.3bn and gross profit margins increased to 28.7%, from 26.5%. Operating profit was up R332.1m.

The controversial contract to print workbooks for the Department of Basic Education helped to boost an otherwise weak performance at Novus’s printing division, which accounts for R2.1bn of the group’s total R2.3bn turnover. The full-year department-related volumes were printed in the first six months, which pushed print revenue up 4.3%. Without the department’s work, print volumes fell 12.3% largely because of weak media-related sales.

Magazine and newspaper volumes continued to decline due to reduced circulation and title closures.

crottya@businesslive.co.za

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