Novus fighting fires
Printing company Novus is facing a tough year, with retrenchments on the cards, legal action around its BEE accreditation, and a lucrative government contract up in the air
Print and manufacturing company Novus’s tough five-year run as a listed entity looks set to roll on into 2020. It’s heading back to court at the end of the month to defend upgrades of its broad-based BEE (BBBEE) ranking, and is pushing hard to hold onto a valuable and controversial book-printing contract with the department of basic education (DBE).
In Novus’s five years as a listed entity, after being unbundled from Media24, its share price has dropped sharply, from an initial trading level of R16.80 to its current R2.20 — a fraction of its R8.78 NAV.
The drop may explain why it’s so difficult to find an analyst who tracks the company; not even major shareholders Prudential and Value Capital Partners (VCP) seem willing to comment these days.
VCP CEO Sam Sithole says it is not policy to comment on individual investee companies.
Just seven weeks down, it’s already evident 2020 hasn’t started well for the group. Of course, the year hasn’t got off to a good start for companies across the globe; in SA several listed entities kicked off the new year by announcing job cuts.
It now seems Novus is among them: it has issued section 189 retrenchment notices to employees at its printing facility in KwaZulu-Natal.
In January, group CEO Neil Birch said management was continually assessing the company’s operating capacity in relation to the expected demand for printed and packaging products, with a view to ensuring the ongoing success of the business.
"A consultation process is under way with management at Novus Print KwaZulu-Natal, and employees, customers and suppliers remain the operation’s highest priority during this period," he said.
It’s not just the sluggish economy Novus has had to contend with. The print industry worldwide is being hammered by new technology. Every print company in SA is struggling to remain relevant.
Sadly for Novus and its shareholders, the worst of its problems cannot be blamed on economic and industry pressures. It continues to struggle with the loss of a large chunk of a hugely profitable contract for all Media24’s printing requirements, due to inappropriately aggressive negotiating. And its ill-considered, recently acquired tissue business is now up for sale.
While it battles with these operational challenges, the board also has to work out how to deal with the ongoing legal battle over its BBBEE rating, as well as the challenge to the DBE contract that has bumped up volume throughput in recent years.
Last June, print and publishing group Caxton filed a complaint with the BEE Commission against Novus’s claimed level 1 BBBEE rating. Caxton alleged the rating had been issued by rating agency EVS when EVS’s accreditation had been suspended, and that the rating was based on incorrect ownership figures.
Caxton, a major competitor of Novus, followed up with a high court application to interdict Novus from using the BBBEE certificate.
A hearing set for February 10 was postponed to February 26.
In response to Caxton’s challenge, Novus has filed a new BBBEE certificate: its fourth in two years from its third certification agency. It says its revised level 2 ranking, and recent amendments to the BBBEE code, make the court challenge redundant.
Caxton chair Paul Jenkins disagrees. He says the revised rating does not address the fact that Novus unlawfully used a level 1 rating in 2019, and the new rating is still based on the problematic ownership claims.
"They have yet to disclose their ownership details," he says.
Birch, however, says he looks forward to the court action being concluded, telling the FM: "We trust in the process."
Then there’s the 2016 DBE contract — worth about R3bn over three years — awarded to Novus’s Lebone Consortium to print and distribute millions of workbooks.
Novus has filed a new BBBEE certificate — its fourth in two years from its third certification agency
Shortly after the contract was awarded Caxton initiated a legal challenge, claiming that both Caxton and Novus’s bids were treated unfairly.
In 2018 the Supreme Court of Appeal ruled in Caxton’s favour, saying the award to Novus was constitutionally invalid. But despite this, the court ruled that Novus should continue to operate the contract until it expires in March 2020, to avoid disruption.
Earlier this month, the Constitutional Court dismissed Novus’s application to appeal the ruling as it "bears no reasonable prospects of success".
The DBE did not immediately respond to an FM request for details about the new three-year tender.
It has told interested parties that evaluation and adjudication of the workbook tender has been completed and the outcome will be announced "in due course".
Birch seems upbeat about Novus’s prospects. "We remain confident in our ability to service this contract and deliver uninterrupted supply of the school workbooks," he says.
That would make 2020 a little easier, but only if the company can avoid another legal challenge from Caxton.