Caxton makes bid to acquire minority stake in Cognition Holdings for R60m

JSE-listed Caxton & CTP Publishers, Printers and Distributors has made an offer to acquire the minority shareholders’ interest in its listed digital and telecommunication solutions subsidiary Cognition Holdings for a total of R60.1 million.

The offer is equivalent to R1.07 cents per share.

Shares in Cognition have traded between 98 cents and R1.10 per share in the past 90 days.

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Caxton has a 75.4% shareholding in Cognition.

The offer was disclosed in Caxton’s interim results for the six months to end-December 2023 published on Friday.

If successful, the proposed transaction will result in the delisting of Cognition.

Shareholders of both companies were first alerted to the possibility of such a transaction in November 2023 when Cognition advised that its board had commenced formal discussions with Caxton, which could result in an offer by Caxton to acquire those shares in Cognition not already held by Caxton.

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Cognition said at the time the last price paid by Caxton per Cognition share was 99 cents and it was not expected that any offer consideration would be below this level.

Synergies, cost reductions

Caxton MD Tim Holden said on Friday that if the offer is accepted, Caxton will delist Cognition and integrate it into the publishing side of its businesses, which will result in synergies and should enable more cost to be taken out of the business.

Holden said the Sens announcement about the offer will be published early this week.

“We have just paid across the monies to a trust account for the guarantees for the buyout. That happened this morning [Friday] so there will be an update early next week,” he said.

Holden said delisting Cognition will also take cost out of the business.

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“Cognition is really too small to be listed,” he said, adding that the products it offers are targeted at a very a similar customer base to the Caxton customer base.

Caxton is able to offer customers “a complete service”, from advertising campaigns to managing their competitions and providing all the services that Cognition offers.

Cognition last year disposed of its head office, Cognition House in Randburg, to Luma (Pty) Ltd for R11.87 million.

Holden said Cognition had subsequently moved into Caxton House in Jan Smuts Avenue in Johannesburg, which has also resulted in cost savings.

Results

Caxton on Friday reported that, as foreseen, a more difficult trading environment transpired in the six months to end-December 2023, with consumers battling inflation, low economic growth and load shedding.

It said the period was characterised by a decline in overall revenues and a tightening of margins, with these offset by good cost control and an increase in net finance income.

Revenue declined by 3.3% to R3.69 billion from R3.8 billion, which included the effect of the sale and closure of a subsidiary that accounted for R163.7 million of the revenue decline.

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Excluding this, revenue would have shown a slight increase of R36.2 million compared to the prior period.

Profit from operating activities before depreciation and amortisation decreased by 16.7% to R421.45 million from R505.69 million.

Headline earnings per share dropped by 6% to 85.1 cents from 90.7 cents.

Caxton reported a marked change to past trends in its local newspaper business, with national advertising revenues declining 6% year on year.

It said this decrease was mainly attributable to a decline in the technology and do-it-yourself markets, which saw a 28% reduction in media spend.

Consumers under pressure

Holden said Caxton’s local newspaper business has always in the past managed to grow its national advertising revenue from major retailers, but the technology and building materials markets had declined tremendously in the reporting period.

He referred to the financial results of building materials companies, such as Cashbuild, which were indicative of a tough market.

“Coming out of Covid-19, they had a big boom and we all benefitted from that but they have pulled back tremendously.

“It’s not that they don’t use our papers, it’s that they have decreased the frequency and also the … size of the brochure printing.

“I don’t think we are not going to see any growth in national advertising in the run up to the year-end until there is a change in the economy and interest rates start to decline and the consumer has a bit more money,” he added.

Holden said the group is trying to address this by looking for new avenues of revenue and reducing its cost to produce the newspapers.

He added that 8% of its national revenue in the period came from new customers and that people who did not previously use its media are starting to do so.

Caxton reported that its daily newspaper, The Citizen, as with other publications, is faced with declining circulations as consumers continue to consume news digitally.

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It said the decline in advertising predominantly in the national retail sector was to a certain degree compensated by an increase in legal advertising and, most encouragingly, in digital revenues which grew by 33%.

Caxton said its focus continues to be to protect its print revenues while aggressively growing its digital revenues and tightly managing costs.

Packaging operations

The group’s packaging operations produced a solid result but was unable to replicate last year’s record performance.

Caxton said turnover growth of 8.1% was commendable but margins were squeezed due to increased competition in some markets, with a higher weighted average cost of raw materials placing further pressure on profit.

In the folding carton divisions, last year’s record performance in the bulk wine Bag in the Box category was impacted by a wine shortage and a constrained consumer, which saw a year-on-year decline in volumes.

This trend is expected to continue into the current year as the wine industry reports a smaller harvest.

Caxton reported that the quick service restaurant (QSR) market ended fairly flat year-on-year following several years of double-digit growth.

“This segment is a bellwether indicator of the state of the consumer who is under severe pressure and has less discretionary spend at their disposal,” it said.

“The fast-moving consumer goods sector (FMCG) showed no growth and in some premium product segments, a decline in volume was experienced as the impact of the cash strapped consumer was felt.”

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Holden confirmed that Caxton is expecting another tough six months and only expects the trading environment to start improving once interest rates are cut and consumer spending is less depressed.

He said some of its customers are an indicator of the state of the consumer.

“If you take fast foods, for the last two years we have been growing at double digits but in this period it was flat,” he said.

“I think it just shows you the state of the consumer. Until interest rates start to decline and consumers have more money in their pocket, we are going to be faced with these conditions for the foreseeable future.”

Shares in Caxton declined by 1.72% on Friday to close at R10.30 per share.

Disclosure: Caxton’s majority shareholders are also material shareholders in African Media Entertainment (AME), the owner of Moneyweb.

This article was republished from Moneyweb. Read the original here