Durban floods insurance claim gives Caxton a boost

Shares in JSE-listed Caxton & CTP Publishers, Printers and Distributors rose by 9.48% to close at R12.70 per share on Friday after the group reported that the finalisation of an insurance claim related to the Durban floods bolstered its financial results in a difficult trading environment in the year to end-June 2024.

Caxton MD Tim Holden said the R173.2 million proceeds from the finalisation of the insurance claim in the year, a R55 million increase from the R118.2 million received in the prior year, helped to a large extent to offset a decline in operating profits and net finance income of R237 million compared to R134.2 million in the previous year.

Profit from operating activities declined 21.1% to R598.9 million from R810.8 million.

Revenues, including a R176.1 million loss of revenue relating to the sale of a business and closure of a subsidiary, declined by 4.7% to R6.64 billion from R6.97 billion.

A loss of R45.3 million was incurred on the sale of the group’s entire shareholding in Novus Holdings, in contrast to the prior period’s R79 million profit from the sale of Private Property South Africa (Pty) Ltd.

The year also saw the group complete its acquisition of the remaining shares in its listed digital and telecommunication solutions subsidiary Cognition Holdings for R60.9 million, which was delisted from the JSE on 11 June 2024.

Headline earnings per ordinary share improved by 4% to 196.1 cents from 188.6 cents.

The group’s cash flow improved strongly by R617.4 million, with the group ending with cash and cash equivalents of R2.5 billion compared to R1.8 billion in the prior year.

An ordinary dividend of 60 cents per share and a preference dividend of 490 cents, both unchanged from the prior year, were declared.

Advertising revenue

Holden said the group’s various packaging operations produced solid results despite being lower than the previous year’s record performance, while national advertising revenues from the newspaper publishing and printing division ended 4% lower than the prior year but encouragingly showed an improving trend in the second half of the year.

He said this slight improvement in national advertising revenue can be attributed to continued support from primary food retailers, which showed a 1% growth but was offset by declines in the technology and home improvement market segments.

Holden said Caxton’s strategy of broadening its customer base is also starting to show promise, with 9% of national revenues now coming from new customers, including the quick-service restaurant and government markets.

“Without neglecting our traditional customer base, the operation will continue looking for new sources of advertising revenues to compensate for any decline in the existing customer base,” he said.

“As reported at the half year, local advertising revenues have been severely hampered by constrained consumer spending and load shedding, which has meant fewer local businesses are in a position to spend on advertising campaigns.”

Local advertising revenues in the reporting period were 3.5% lower than the prior year and, combined with increased printing and distribution costs, resulted in the publishing business delivering a constrained trading performance.

“The business operates in a mature market, which is dependent on consumer spending, and it is hoped that the combination of a more stable national government, a much lower risk of load shedding and pending interest rate cuts could offer some respite to the consumer,” said Holden.

“These factors should deliver a more robust revenue performance as our local newspapers are a proven distribution channel for bulk product and price advertising material.

“In the meantime, the operations are exploring all possible avenues to reduce costs.”

Printing operations

Holden said the group’s newspaper printing plants experienced a significant turnaround in performance from that reported upon at the interim period.

At half-year, the tonnage throughput was tracking 12% down but ended up showing growth of around 7% for the full year.

“This was achieved as some food retailers opted for more affordable coldset print solutions, which drove the increased throughput at our newspaper plants, albeit at the expense of throughputs in the heatset web and gravure printing operations,” he said.

Holden said the group’s daily newspaper, The Citizen, experienced an 8% decline in circulation, which combined with a 7% decline in print advertising revenues, delivered a reduced performance.

However, digital advertising encouragingly grew by 45% – but off a low base and could therefore not compensate for the decline in print revenues.

Holden said the difficult trading conditions for the group’s two commercial printing operations persisted into the second half of the financial year, with tonnage throughput ending 18% below the previous year.

He attributed this to some retailers limiting their requirements as their markets continued to feel the effects of restrained consumer spending, which was particularly felt in the home improvement and hardware market segments.

Holden said the book and magazine operation in the Western Cape has been faced with reduced revenues as the magazines market continues to decline and lower order volumes from educational book printing have persisted.

Packaging 

He said the group’s various packaging operations managed to increase revenues by 4.3% in difficult trading conditions but felt the impact of reduced margins in most markets because the weighted average cost of raw materials increased and could not be fully recovered from customers in a competitive market.

Holden said the quick-service restaurant market also showed volume decline, with wine bag-in-the-box volumes also softening over the year off a very high base.

“We expect this to continue for as long as the consumer is under pressure combined with the possibility of a reduced wine harvest,” he said.

Holden said the group has secured a supply agreement with a global partner to provide carton beverage packaging locally that will be beneficial for this operation, commencing at the beginning of 2025.

He said the group has invested in equipment to support this move and ensure it is well-positioned to adequately service the market.

“This represents the start of global brands moving away from plastic packaging to more environmentally friendly packaging alternatives that should benefit our operations into the future,” he said.

Other operations

Holden said the flexibles operation delivered excellent results on the back of a 20% revenue increase as it gained market share in the wine bladder market, supply of laminated films to other bladder converters, double-digit growth in the flexible beverage label sector, and market share gains with new customers on the back on its investment in the latest lamination equipment.

He said the stationery business continues to perform in line with expectations and managed to grow revenues by 7%.

Outlook

Looking ahead, Holden said the group’s operations are well placed to capitalise on any uptick in consumer spending and the hope that load-shedding risks continue to decline, inflationary pressures reduce, and interest rates drop, which translates into improved trading conditions.

“Should this not materialise, the group is fortunate that its balance sheet remains strong with significant cash balances to deploy should opportunities arise,” he said.

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

This article was republished from Moneyweb. Read the original here.