Novus will take revenue knock under new deal
Printing and manufacturing group Novus said on Monday it would lose up to R560m in annual revenue when its new contract with Media24 takes effect on April 1.
Under the new contract, Novus would be responsible for 58% of Media24’s printing requirements by volume, and do so at "substantially" reduced prices, it said.
Novus, which prints the newspapers and magazines of its erstwhile parent, Naspers, told shareholders in October 2017 that its printing agreement with Naspers subsidiary Media24 would lapse at the end of March 2018.
Novus said it signed new agreements on Monday that would expire after three years.
If the new contract had been in place in the financial year ending March 2018, revenue would have been R520m to R560m lower, it said. Half of that amount would have been due to lower volumes and the other half due to price reductions.
NOVUS SAID IT SIGNED NEW AGREEMENTS ON MONDAY THAT WOULD EXPIRE AFTER THREE YEARS.
"Management have commenced a number of initiatives to reduce the impact of reduced volumes and margins, which includes the closing of the Pietermaritzburg plant and decommissioning of a number of printing presses," Novus said.
The company, which has historically generated a fifth of its revenue from printing Media24’s various publications, said its growth plans and dividend policy would be unaffec-ted. Novus would be responsible for 76% of Media24’s magazine printing requirements and 50% of its newspaper requirements.
It would continue to print all of Media24’s national weekly magazines and its newspapers printed in the Western Cape, Eastern Cape and Free State.
The market indicated that the renegotiated agreements were better than expected. Novus’s share price was 1.2% higher at R4.25 at the close on Monday.
The stock has steadily declined since the company was unbundled in 2015 at a price of R16 a share.
It had been expected that Caxton and smaller independent printers would manage to secure large portions of the Media24 printing business.
Chris Wood, head of equity at Prudential Investment Managers, which has a 15% holding in Novus, told Business Day last week the market had more than priced in the expected losses from the Media24 contract.
However, Wood said he was disappointed that the company had not done enough to mitigate the decline of the printing business. "Up to now, neither the tissue nor the label businesses have shown any ability to contribute to profit," he said.