Wrap Text
Unaudited Results for the Period Ended 31 December 2018
CAXTON & CTP publishers & printers LIMITED
Incorporated in the Republic of South Africa
Registration number 1947/026616/06
Share code: CAT ISIN: ZAE000043345
Preference share code: CATP ISIN: ZAE000043352
UNAUDITED RESULTS
FOR THE PERIOD ENDED
31 DECEMBER 2018
INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT AND LOSS
AND COMPREHENSIVE INCOME
Unaudited Unaudited Audited
6 months to 6 months to for the year
31 December 31 December to 30 June
R'000 % change 2018 2017 2018
Revenue 1.5% 3 404 591 3 353 930 6 333 921
Other operating income 49 786 59 423 120 288
3 454 377 3 413 353 6 454 209
Changes in inventories of finished goods and
work in progress (43 383) (48 600) 74 293
Raw materials and consumables used 1 638 877 1 540 169 2 676 178
Staff costs 760 637 758 728 1 541 741
Other operating expenses 756 013 766 415 1 402 522
Total operating expenses 3 112 144 3 016 712 5 694 734
PROFIT FROM OPERATING ACTIVITIES
BEFORE DEPRECIATION (13.7%) 342 233 396 641 759 475
Depreciation 146 809 147 827 293 669
PROFIT FROM OPERATING ACTIVITIES
AFTER DEPRECIATION (21.5%) 195 425 248 814 465 806
Impairment of investments - - 36 711
Impairment of loans - 3 300 22 682
Loss/(profit) on disposal of subsidiary 1 274 6 619 (7 835)
Impairment of plant and goodwill - - 18 701
NET PROFIT FROM OPERATING ACTIVITIES (18.7%) 194 151 238 895 395 547
Net finance income 71 680 58 039 114 657
- dividends 44 229 36 974 69 647
- interest 27 451 19 097 45 095
- Deemed interest in interest-free loan in terms
of the Share Purchase Scheme - 1 968 3 936
- net loss on foreign exchange - - (4 021)
Net income from associates 17 803 12 569 31 111
PROFIT BEFORE TAXATION (8.4%) 283 633 309 503 541 315
Income tax expense 69 385 79 584 135 565
PROFIT FOR THE PERIOD (6.8%) 214 248 229 919 405 750
Other comprehensive income:
Items that will not be reclassified subsequently
to profit or loss 18 906 (16 295) (18 935)
TOTAL COMPREHENSIVE INCOME
FOR THE PERIOD 233 154 213 624 386 815
TOTAL COMPREHENSIVE INCOME
ATTRIBUTABLE TO:
Non-controlling interests 12 494 10 668 19 303
Owners of the parent 220 660 202 956 367 512
233 154 213 624 386 815
PROFIT ATTRIBUTABLE TO:
Non-controlling interests 12 494 10 668 19 303
Owners of the parent 201 754 219 251 386 447
214 248 229 919 405 750
Earnings per share (cents) (7.0%) 51.8 55.7 98.5
Headline earnings per share (cents) (9.6%) 51.8 57.3 109.0
Preference dividend paid per share in respect
of the previous year (cents) 490 570 570
Ordinary dividend paid per share in respect
of the previous year (cents) 60 70 70
WANOS in issue 389 859 292 393 590 937 392 426 737
Reconciliation of headline earnings:
Earnings attributable to owners of company 201 754 219 251 386 447
38 6 399 41 356
Impairment of plant - - 18 701
Net profit on disposal of assets (1 716) (306) (3 805)
Loss/(profit) on disposal of subsidiary 1 274 6 619 (7 835)
Impairment of investments and goodwill - - 36 711
Tax effect on above adjustments 480 86 (2 416)
Headline earnings 201 792 225 650 427 803
Condensed segmental analysis Unaudited Unaudited Audited
6 months to 6 months to for the year
31 December 31 December to 30 June
2018 % 2017 % 2018 %
Revenue
Publishing, printing and distribution 2 066 867 61 2 072 893 62 4 005 143 63
Packaging & stationery 1 306 182 38 1 225 967 37 2 243 823 35
Other 31 542 1 55 070 2 84 955 2
3 404 591 100 3 353 930 100 6 333 921 100
Profit from operating activities before
depreciation
Publishing, printing and distribution 213 864 62 265 312 67 453 241 60
Packaging & stationery 163 628 48 159 763 40 275 527 36
Other (35 260) (10) (28 434) (7) 30 707 4
342 232 100 396 641 100 759 475 100
Profit from operating activities after
depreciation
Publishing, printing and distribution 130 357 67 176 351 71 276 968 59
Packaging & stationery 109 481 56 110 909 45 176 131 38
Other (44 413) (23) (38 446) (15) 12 707 3
195 425 100 248 814 100 465 806 100
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
6 months to 6 months to for the year
31 December 31 December to 30 June
R'000 2018 2017 2018
NET CASH FLOW FROM OPERATING ACTIVITIES 135 358 (44 421) 498 530
Cash generated by operating activities 216 256 27 844 626 959
Cash generated by operations 312 243 363 228 740 064
Changes in working capital (95 987) (335 384) (113 105)
Less: Taxation paid (80 898) (72 265) (128 429)
CASH FLOW FROM INVESTING ACTIVITIES (28 007) (409 104) (463 559)
Property, plant and equipment (73 130) (118 611) (224 941)
- additions to maintain and expand operations (87 712) (122 172) (257 695)
- proceeds from disposals 14 582 3 561 32 754
Investments 45 123 (290 493) (238 618)
Businesses acquired net of cash - (134 032) (122 939)
Associates, other investments and loans (26 557) (212 532) (228 363)
Disposal of subsidiary - - (2 057)
Net interest received 27 451 19 097 45 095
Dividends received 44 229 36 974 69 647
CASH FLOW FROM FINANCING ACTIVITIES (245 334) (347 593) (378 821)
Own shares acquired (2 335) (67 221) (79 643)
Dividends paid (242 999) (280 372) (299 178)
Net decrease in cash and cash equivalents (137 983) (801 118) (343 849)
Cash acquired - 36 290 -
Cash and cash equivalents at the beginning
of the year 1 616 099 1 959 948 1 959 948
Cash and cash equivalents at the end of the period 1 478 116 1 159 777 1 616 099
Fair value adjustment of preference shares (14 903) (20 154) (16 905)
Fair value of cash and cash equivalents
at the end of the period 1 463 213 1 139 623 1 599 194
INTERIM CONDENSED CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
Unaudited Unaudited Audited
31 December 31 December 30 June
R'000 2018 2017 2018
ASSETS
Non-current assets
Property, plant and equipment 2 582 125 2 681 102 2 650 717
Goodwill 174 463 186 345 174 463
Interest in associates 464 744 437 188 427 052
Other investments 254 583 219 629 231 517
- Listed 109 230 119 698 91 517
- Unlisted 145 353 99 931 140 000
Deferred taxation - - 17 112
Loans to directors 84 269 82 300 84 269
Total non-current assets 3 560 184 3 606 564 3 585 130
Current assets
Inventories 857 890 817 758 951 140
Accounts receivable 1 332 105 1 526 827 1 089 852
Taxation 17 295 - 1 989
Bank and cash resources 605 951 287 612 743 933
Listed bank preference shares 57 262 52 011 55 261
Unlisted bank preference shares 800 000 800 000 800 000
Total current assets 3 670 503 3 484 208 3 642 175
Total assets 7 230 687 7 090 772 7 227 305
EQUITY AND LIABILITIES
Equity 5 732 795 5 602 116 5 744 972
Equity attributable to owners of the parent 5 681 120 5 537 122 5 696 312
Preference shareholders 100 100 100
Non-controlling interest 51 575 64 894 48 560
Non-current liabilities
Deferred taxation 384 263 375 486 381 994
Current liabilities
Accounts payable 916 210 907 281 863 861
Provisions 182 173 187 804 209 781
Taxation 15 246 18 085 26 697
Total current liabilities 1 113 629 1 113 170 1 100 339
Total equity and liabilities 7 230 687 7 090 772 7 227 305
Net asset value per share (cents) 1 460 1 418 1 462
Capital expenditure 87 712 122 172 257 695
Capital expenditure committed 60 000 98 000 50 000
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
31 December 31 December 30 June
R'000 2018 2017 2018
Balance at beginning of the year 5 744 972 5 729 123 5 729 123
Total comprehensive income for the period 233 154 213 625 386 815
Non-controlling interest acquired - 18 135 18 812
Loss on sale of subsidiary - 15 418 -
Non-controlling interest disposed of - (11 250) (10 956)
Own shares acquired (2 335) (67 221) (79 643)
Dividends paid - ordinary and preference
shareholders (242 999) (295 715) (299 179)
Balance at end of the year 5 732 792 5 602 116 5 744 972
Note: Business combinations
An agreement was reached with Cognition Holdings Limited to purchase the investment in Private Property
(Pty) Ltd from the group for a consideration of R127 million with effect from 1 February 2019. The purchase
price will be settled by way of 105 833 333 Cognition shares at an issue price of 120 cents per share.
At the time of writing, all suspensive conditions have been met and the transaction has been implemented,
increasing the group's shareholding in Cognition from 34.7% to 63.0%. Due to the proximity of the effective
date and the release of the interim results, the initial accounting for the transaction is incomplete and therefore
the information is not yet available.
Goodwill
Goodwill relates to expected synergies, the bulking up of service offerings and an expansion of product
offerings in the Caxton Group.
Note: Investments listed - available for sale
Equity price risk refers to the risk that the fair value of the future cash flows of the listed investments will
fluctuate because of changes in the market prices. The Group's available for sale financial assets are valued
using the fair market value at 31 December 2018.
Fair value estimation
IFRS 13 requires disclosures of fair value measurements by level of the following fair value measurement
hierarchy:
Level 1 - Quoted prices available in active markets for identical assets or liabilities.
Level 3 - Fair value determined by valuation that uses inputs that are not based on observable market data.
The level of each investment is determined as follows:
- Mpact, AME and Novus are Level 1
- Thebe Convergent Technology is Level 3
For the level 3 valuation of the investment in Thebe Convergent Technology, a discounted
cash flow model was applied using cash flows for five years and the following key
assumptions were applied by management :
- Average growth rate of 8%
- Discount rate of 14.5%
- Terminal growth rate of 6%
Commentary
Basis of preparation
The unaudited interim financial statements for the six months ended 31 December 2018 have been prepared
in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB), the South African Institute of Chartered Accountants Financial Reporting Guides
as issued by the Accounting Practices Committee, the Financial Reporting Pronouncement as issued by the
Financial Reporting Standards Council (FRSC), the requirements of IAS 34 (Interim Financial Reporting) and the
requirements of the South African Companies Act and the JSE Listings Requirements.
The accounting policies applied in preparing these interim financial statements are consistent with those presented
in the annual financial statements for the year ended 30 June 2018. These interim financial statements have not
been reviewed or reported on by the Caxton Group auditors, BDO South Africa Inc.
Earnings
The group's performance in the six months from July to December 2018 has been remarkably resilient, bearing in
mind the circumstances prevailing in our sectors and the economy overall. The group faced continuing stagnant
trading conditions with ever-increasing pressure on consumer spending resulting in muted volumes in many of
the group's businesses .These factors, when combined with competitor activity that severely pressurised margins,
made an ultimate decline in earnings inevitable. That the overall profit after taxation decline was limited to 6.8%,
is testament to the strength and stability of the group's operations.
The difficult conditions mentioned above were manifest to varying degrees in our operations with the bulk of the
earnings decline being pinpointed to three operations in the group which either faced significant revenue loss or
margin declines due to changing mix of work and competitive pressures. On the positive front, the group's local
newspapers and the Gauteng newspaper printing plant performed admirably, as did the group's packaging
divisions.
Against a backdrop of a low growth economic environment, overall revenues were up by 1.5% to R3 405 million.
The group experienced an increase in turnover at the Gauteng newspaper plant, on the back of the Media 24
tender award, and the packaging divisions due to acquisitions and marginal growth in some market segments.
These were offset by continuing declines in revenue in the magazine divisions and a flat performance in certain
other operations.
Unfortunately, raw material input costs increased year on year by approximately 7% on the back of increasing
base prices as well as higher exchange rates that affected local and imported supplies . Staff costs and all other
operational costs were well controlled, reflecting no increase, but when combined with no real revenue growth
and increasing material costs that in many instances could not be recovered from customers, the net result is
a decline of 13.7% in profit from operating activities before depreciation, to R342.2 million. Depreciation
remained fairly constant at R146.8 million resulting in net profit from operations declining by R44.7 million,
year on year, to R194.2 million.
This was compensated to a certain extent by an increase in net finance income from R58.0 million in the prior
year to R71.7 million. This increase can be attributed to increased dividends from our investments and increased
interest due to higher average cash balances over the period. Net income from associates grew to R17.8 million
which resulted in the decline in profit before taxation being contained to 8.4 % to R283.6 million. Income tax
absorbed R69.4 million and profit after taxation declined by 6.8%, to R214.2 million.
The weighted average number of shares in issue reduced to 389 859 292 resulting in earnings per share of
51.8 cents and headline earnings per share of 51.8 cents, a decline of 7.0% and 9.6% respectively.
Cash flow
The cash and cash equivalents at fair value increased by R323.9 million over the corresponding previous
period, ending at R1 463.2 million. This increase was mainly due to improved working capital and a reduction
of investments, loans to associates and capital expenditure. At the time of writing the equivalent balance has
Operating cash flow before working capital movements declined by R50.9 million (14.0%) which reflects the
decline in profit from operating activities before depreciation. However, working capital requirements only
absorbed R95.9 million which is a significant improvement over the corresponding prior year (R335.4 million)
and can be attributed mainly to reduced accounts receivables. After taxation paid of R80.8 million, the result is
a pleasing improvement in net cash inflow from operating activities of R135.4 million as opposed to an outflow
in the prior period of R44.4 million.
There has been a significant reduction in net capital expenditure to R73.1 million and this is expected to decline
further in the medium term, until a clearer picture of the trading environment warrants further investments.
Limited investments and loans have been made in the period with the one larger investment being our 50% stake
in Safari.com.
The group has shown it has the ability to remain cash generative, even in difficult times. The group has recently
made an odd lot offer and a specific offer to shareholders to buy back shares, which will have a small effect
on our growing cash reserves. Once this corporate action has been completed the group will review its stance
on buying back shares on a targeted basis. Having said this, the group views its significant cash reserves as
being strategic and enables it to respond to investment opportunities with speed, as and when these may arise.
DIVISIONAL PERFORMANCE
Publishing, printing and distribution
Newspaper Publishing and Printing
The group's local newspapers managed to arrest the decline in advertising revenues, and with operational costs
being well controlled, there was a slight improvement in profitability over the previous year. This is pleasing as
it has reversed a declining trend in the continuing difficult trading conditions.
Local advertising revenues remain under pressure , although there are signs of improvement in certain metropolitan
areas where sales teams successfully implemented creative advertising solutions aligned to customer's needs.
National advertising revenues reversed the previous declining trend and managed to compensate for the decline
at local level.
The group is confident that our local news content is still being well received in the communities we serve and thus
we are well placed to benefit from any improvement in the current economic environment. The group continues to
develop its digital local news network and over the reporting period, has managed to grow revenues.
The group's daily newspaper, The Citizen delivered a slightly improved result on the back of stable print
circulations, increased digital advertising revenues and cost control measures which more than offset the decline
in print advertising revenues.
As part of a strategy to separate the group's investments in digital technology platforms from the legacy print
business, an agreement was reached with Cognition Holdings Limited to purchase the investment in Private
Property (Pty) Ltd from the group for a consideration of R127 million with effect from 1 February 2019.
The purchase price will be settled by way of the issue of 105 833 333 new Cognition shares at an issue price of
120 cents per share. At the time of writing, all suspensive conditions for this transaction have been met and the
transaction has been implemented, increasing our shareholding in Cognition from the current 34.7% to 63.0%.
It is the intention for Cognition to further exploit opportunities in the digital economy and acquire other digital
assets to maximise shareholder value.
Private Property continues to show growth in revenues with longer customer engagements and increased leads
being recorded. During this reporting period, the business made significant additional investments in marketing,
staff training and the appointment of key positions for the future, which led to increased operating expenses and
a decline in profitability over the prior year.
During the period, a further digital investment was made into Afritrip Group (Pty) Ltd which owns and runs the
Safari.com website focused on arranging and booking wildlife safaris in Africa, mainly for overseas visitors.
In line with the abovementioned future strategy consideration will be given to offer this as well as other digital
investments to Cognition for its consideration to acquire from the group.
The large newspaper printing operation in Gauteng posted an increase in revenue and profitability as the group-
owned local weekly newspapers maintained print orders. The recently acquired Media 24 contract as well as an
increase in commercial pamphlet printing for retail customers assisted in offsetting the printing volume declines,
in daily and weekly national newspapers. The growth in the commercial leaflet market has been assisted by
the fact that the group owns ten newspaper printing facilities strategically located around the country, which
meet our customers' needs as we are able to offer split print runs in multiple locations, thereby saving time and
distribution costs.
As previously mentioned, the Western Cape newspaper printing operation has been restructured and downsized
to mitigate the loss of the Independent Media print contract. This, however, could not prevent a large decline in
the performance of the plant. Further restructuring and the integration of this facility into our book and magazine
operation will be taking place.
Magazine Publishing and Distribution
These operations have managed to maintain performance levels in the face of continuing declines in revenues.
The declines have largely come from lower copy sales as opposed to advertising revenues which were
stable during the period under review. The decline in revenues was offset by ongoing general cost containment
measures, by introducing operating synergies amongst titles and by reducing employee numbers in support
activities.
In this environment, management continues to seek and implement new cost saving measures and is looking at
a more centralised approach to the creation of content and the production of titles.
The group's distribution network continues to face declining magazine circulations and distribution revenues
from CD and DVD but has managed to mitigate these declines through cost savings. This division successfully
tendered for the distribution contract, in the Eastern Cape, from On the Dot (the magazine distribution business
of Media 24), and based on this successful pilot, other areas are being tendered for.
Commercial Printing
Web and Gravure
The tepid retail environment has impacted these divisions as retailers felt the pressure of subdued consumer
spending. This translated into only marginal turnover growth and reduced profitability at our operations. Raw
material input costs increased on the back of higher base prices and volatile exchange rates. The nature of
the market was such that, in order to maintain market share, these costs pressures could not be fully passed
onto customers. On a positive note the divisions managed other cost pressures well and have also restructured
both the Johannesburg and Durban operation to reflect the current retail market, which could take some time to
recover in any meaningful way.
Book and Magazine Printing
This division has had a difficult first half to the financial year, where reduced margins and increased costs of
production resulted in a decline in profitability. Margins were impacted by large increases from local paper
manufacturers and a volatile exchange rate for imported raw materials that could not be passed onto the customer
base. Although turnover was by and large maintained, the mix of the markets changed substantially from the
prior year. The key education textbook market continues to be hampered by lower demand from government
departments. It is our understanding that government diverted this spend to upgrade education facilities. Growth
was experienced in the magazine printing market with the recently acquired Media 24 titles being printed
for the full reporting period. The outlook remains uncertain especially in the education market and regarding
other government spending on print. Thus, cost containment remains a high priority but always retaining the
capability to ramp up capacity should the market demand it. At the time of writing, the Constitutional Court has
dismissed with costs, the appeal by Lebone Litho Printers and Novus Holdings, against last year's decision of
the Supreme Court of Appeals to set aside the contested workbook tender. It is anticipated that Caxton will have
an opportunity to re-tender for this contract, subject to the Department of Basic Education continuing the project.
Packaging and Stationery
Packaging
The packaging divisions have performed well in difficult trading conditions and have managed to grow turnover
and profitability over the corresponding prior period. The markets in which we operate are fiercely competitive
and at times, pricing levels offered by competitors are unsustainable. The group's capital investments, and
rationalisation of operations over the prior years, have proved to be successful and have enabled us to compete,
even with competitors approaching the market with seemingly predatory intent.
The label manufacturing operations saw an improved performance as the benefits of the two acquisitions, both
in the Western Cape, started to bear fruit. The beer label operation benefited from a customer's move away from
foils and self-adhesive labels to paper labels.
The folding carton market benefitted from growth in the fast food sector whilst the fast moving consumer goods
sector remained subdued .The cigarette carton market continues to decline but at a lower rate than in the past.
There is likely to be little change to these markets in the short term but there appears to be renewed effort around
curbing illicit cigarettes which hopefully can benefit that operation in the medium term.
During the period, the acquisition of another small corrugated box plant in the Western Cape was completed
for a nominal purchase price. It is the intention to incorporate this operation into a new site along with the other
acquisition that was made in the previous financial year.
Stationery
The group's stationery division performed to expectations and maintained market share and turnover. Profitability
was slightly below the previous year as the division invested in increasing its marketing exposure to increase
the profile in major retailers over the key back to school season. The success of these activities will be evaluated
post the season.
Other
The group's replication business faced a significant decline in turnover and profitability as this market enters the
sunset phase at an ever-quickening pace. This has necessitated a review of the prices charged and a significant
price increase to ensure that the division can continue to supply. We continue to explore the future options for
this business.
Prospects
It is unlikely that there will be significant improvement in the markets we serve in the near future and thus the
approach will continue to be one of austerity, until the operating environment improves. The group continues to
maintain its strong debt-free balance sheet with the fair value of our properties and cash on hand approximating
our current market capitalisation. The group is well positioned to invest in any strategic acquisition opportunities
that might arise.
Statement of responsibility
The preparation of the group's consolidated results was supervised by the Financial Director Mr TJW Holden,
BCom, CA(SA).
28 February 2019
Executive Directors: TD Moolman, PG Greyling, TJW Holden
Independent Non-Executive Directors: PM Jenkins, ACG Molusi, NA Nemukula,
J Phalane, T Slabbert
Transfer Secretaries: Computershare Investor Services Proprietary Limited
Registered office: 28 Wright Street, Industria West, Johannesburg
Sponsor
ARBOR CAPITAL
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