Tuesday, 27 March 2018

Business Update 08 March 2018

BUSINESS UPDATE FOR INVESTORS

Leaders in print and manufacturing

Presented by: Keith Vroon, Chief Executive Officer

STRATEGY

CONTENTS

CONTENTS 1

2018 BUSINESS UPDATE

CURRENT MATTERS

FY19 SEGMENT FOCUS AREAS

STRATEGY GOING FORWARD

OUTLOOK & STRATEGY RECAP

2

Future expansion of packaging. Business

model focused on growing through acquisitions that yield

synergy and volume benefits.

Good cash flow and debt capacity

for further diversification

prospects.

Leverage existing relationships to grow market share in the labels / flexibles and tissue markets and build stable platforms for these divisions to perform optimally.

Match operational capacity to market

demand through continuous evaluation of operations, and

match equipment type to market trends.

Continued volume decline in most traditional print

market segments. (Media24 pricing pressure)

Challenging operating environment and

depressed economic outlook with currency

volatility remains.

1 2 3

4 5 6

STRATEGY

3

2018 BUSINESS UPDATE

2018 BUSINESS UPDATE

2018 BUSINESS UPDATE 4

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 2017.

• Capable of full production from December 2017.

• Increased volumes have been achieved. • Converting business assets were sold in

August 2017.

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

2018.

Novus Print Solutions

• Division continued to grow and deliver positive contribution to operating profit for the year.

ACQUISITIONS • Continued search for acquisitions that support the growth of the Packaging division.

5

CURRENT MATTERS

DBE Workbook Projects

• The Workbook tender was first advertised in November 2015.

• 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 2016.

• 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 re-evaluated in 2016 with a new bid evaluation and adjudication committee.

• The workbook tender was re-awarded to the consortium in March 2017.

• 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

6 CURRENT MATTERS

7 CURRENT MATTERS

MEDIA24 PRINT AGREEMENTS

Renewal process

• 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 2018.

• 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 2017.

• Final contract signature, 26 March 2018.

UPDATE ON CURRENT MATTERS

8 CURRENT MATTERS

MEDIA24 PRINT AGREEMENTS

Contract Salient Points

• Three year term, renewable at the instance of Media24, for an additional three years.

• Agreed annual pricing adjustment.

• Effective date 01 April 2018.

• 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.

UPDATE ON CURRENT MATTERS

9 CURRENT MATTERS

MEDIA24 PRINT AGREEMENTS

Impact of new print agreement

• 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 2018.

• 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.

UPDATE ON CURRENT MATTERS

10 CURRENT MATTERS

MEDIA24 PRINT AGREEMENTS

Mitigating initiatives

• 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 2018.

• Novus Holdings will disclose the positive impact of the above for FY19 in the above trading updated.

UPDATE ON CURRENT MATTERS

11 CURRENT MATTERS

MEDIA24 PRINT AGREEMENTS

Mitigating and other measures to improve results outlook

Print

• Assessment of operational footprint and equipment requirements:

• 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.

Other

• 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

12

FY19 FOCUS AREAS

2019 SEGMENT FOCUS AREAS (to be reported on separately for FY18)

FY19 FOCUS AREAS 13

• Fill available production capacity.

• Cross-selling opportunities.

• Introduce new products.

• Investments for organic growth, including digital capacity introduction.

• Divisional growth.

• Tissue business is currently being assessed.

• Sales volumes need to grow from 800 to 2 250 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.

• 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).

PRINT PACKAGING / LABELS TISSUE

14 FY19 FOCUS AREAS

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.

15

STRATEGY GOING FORWARD

OUTLOOK & STRATEGY REMAINS FOCUSSED

16

Future expansion of packaging. Business model

focused on growing through acquisitions that yield synergy and

volume benefits.

Attractive acquisition pipeline being assessed.

Disciplined capital allocation and good cash flow and debt

capacity for further diversification prospects.

Dividend policy unchanged.

EBITDA remains strong.

Good debt capacity.

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.

Match operational capacity to market demand through

continuous evaluation of operations, and match equipment

type to market trends.

Stepped change and ongoing assessment.

Continued volume decline in most traditional

print market segments.

Aggressive market share challenge to replace lost

Media24 work.

Challenging operating environment and depressed

economic outlook with currency volatility remains.

Improving operating and economic outlook, currency currently

favourable.

1 2 3

4 5 6

STRATEGY GOING FORWARD

+27 21 550 2500 Investor.Relations@novus.holdings

Investor Relations Contacts