CAXTON AND CTP PUBLISHERS AND PRINTERS LIMITED - Unaudited results for the period ended 31 December 2017

Release Date: 22/02/2018 16:59
Code(s): CAT CATP
 
Wrap Text
Unaudited results for the period ended 31 December 2017

CAXTON AND CTP PUBLISHERS AND PRINTERS LIMITED 
Incorporated in the Republic of South Africa
Registration number 1947/026616/06
Share code: CAT  ISIN code: ZAE000043345
Preference share code: CATP    ISIN code: ZAE000043352

UNAUDITED RESULTS
FOR THE PERIOD ENDED
31 DECEMBER 2017

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF PROFIT AND LOSS
AND COMPREHENSIVE INCOME
                                                                    Unaudited            Unaudited           Audited
                                                                six months to        six months to      for the year
                                                                  31 December          31 December        to 30 June
R'000                                               % change             2017                 2016              2017

Revenue                                               (4,0%)        3 353 930            3 493 161         6 407 172
Other operating income                                                 59 423               51 009           127 446
                                                                    3 413 353            3 544 170         6 534 618
Changes in inventories of finished goods and
work in progress                                                     (48 600)             (48 217)            58 318
Raw materials and consumables used                                  1 540 169            1 611 340         2 820 487
Staff costs                                                           758 728              730 966         1 495 088
Other operating expenses                                              766 415              827 643         1 412 025
Total operating expenses                                            3 016 712            3 121 732         5 785 918
PROFIT FROM OPERATING ACTIVITIES BEFORE
DEPRECIATION                                          (6,1%)          396 641              422 438           748 700
Depreciation                                                          147 827              142 287           285 744
PROFIT FROM OPERATING ACTIVITIES AFTER
DEPRECIATION                                         (11,2%)          248 814              280 151           462 956
Impairment of investments                                                   -                    -            19 875
Impairment of loans                                                     3 300                    -                 -
Loss on disposal of subsidiary                                          6 619                    -                 -
Impairment of plant and goodwill                                            -                    -             5 399
NET PROFIT FROM OPERATING ACTIVITIES                 (14,7%)          238 895              280 151           437 682
Net finance income                                                     58 039               73 099           147 799
- dividends                                                            36 974               44 023            85 485
- interest                                                             19 097               27 201            53 717 
- IFRS 2 deemed interest receivable on
  unwinding of transaction                                              1 968                1 875             3 749
- (loss) on currency hedges                                                 -                    -             4 848
Net income from associates                                             12 569               12 252            24 667
PROFIT BEFORE TAXATION                               (15,3%)          309 503              365 502           610 148
Income tax expense                                                     79 584               96 175           155 146
PROFIT FOR THE PERIOD                                (14,6%)          229 919              269 327           455 002
Other comprehensive income:
Items that will not be reclassified subsequently
to profit or loss                                                           -                    -           (1 050)
Items that will be reclassified subsequently to
profit or loss                                                       (16 295)                (292)            18 309
TOTAL COMPREHENSIVE INCOME FOR THE
PERIOD                                                                213 625              269 035           472 261
TOTAL COMPREHENSIVE INCOME
ATTRIBUTABLE TO:
Non-controlling interests                                              10 668                4 365            10 346
Owners of the parent                                                  202 957              264 670           461 915
                                                                      213 625              269 035           472 261
PROFIT ATTRIBUTABLE TO:
Non-controlling interests                                              10 668                4 365            10 346
Owners of the parent                                                  219 251              264 962           444 656
                                                                      229 919              269 327           455 002
Earnings per share (cents)                           (16,5%)             55,7                 66,7             112,2
Headline earnings per share (cents)                  (14,0%)             57,3                 66,6             115,6
Preference dividend paid per share in respect
of the previous year (cents)                                              570                  570               570
Ordinary dividend paid per share in respect 
of the previous year (cents)                                               70                   70                70
Earnings per share based on WANOS in issue                        393 590 937          396 990 567       396 219 497
Reconciliation of headline earnings:
Earnings attributable to owners of company                            219 251              264 962           461 915
                                                                        6 399                (661)            13 474
Impairment of plant and goodwill                                            -                    -             5 399
Net profit on disposal of assets                                        (306)                (918)          (14 289)
Loss on sale of subsidiary                                              6 619                    -                 -
Impairment of investments                                                   -                    -            19 875
Tax effect on above adjustments                                            86                  257             2 489

Headline earnings                                                     225 650              264 301           475 389

                                                      Unaudited             Unaudited                Audited
                                                    6 months to           6 months to           for the year
                                                    31 December           31 December             to 30 June
Condensed segmental analysis                               2017      %           2016      %            2017      %

Revenue
Publishing, printing and distribution                 2 072 893     62      2 205 966     63       4 139 261      64
Packaging & stationery                                1 225 967     37      1 215 007     35       2 156 114      34
Other                                                    55 070      2         72 188      2         111 797       2
                                                      3 353 930    100      3 493 161    100       6 407 172     100
Profit from operating activities before    
depreciation    
Publishing, printing and distribution                  264 086      67        272 571     65         468 523      63
Packaging & stationery                                 147 314      37        164 672     39         256 791      34
Other                                                 (14 759)     (4)       (14 805)    (4)          23 386       3
                                                       396 641     100        422 438    100         748 700     100
Profit from operating activities after    
depreciation    
Publishing, printing and distribution                  175 126      70        177 168     63         280 632      61
Packaging & stationery                                  98 460      40        126 711     45         176 705      38
Other                                                 (24 772)    (10)       (23 728)    (8)           5 619       1
                                                       248 814     100        280 151    100         462 956     100

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                     Unaudited            Unaudited          Audited  
                                                                   6 months to          6 months to     for the year 
                                                                   31 December          31 December       to 30 June 
R'000                                                                     2017                 2016             2017 
  
CASH FLOW FROM OPERATING ACTIVITIES                                  (304 065)            (203 189)          527 669 
Cash generated by operations                                           363 228              386 737          724 826 
Changes in working capital                                           (355 384)            (338 023)           57 466 
Cash generated by operating activities                                   7 844               48 714          782 292 
Less: Taxation paid                                                   (72 265)             (42 755)         (94 233) 
Net interest received                                                   19 097               27 201           53 717 
Dividends received                                                      36 974               44 023           85 485 
Net cash inflow from operating activities                              (8 350)               77 183          827 261 
Dividends paid                                                       (295 715)            (280 372)        (299 592)  
CASH FLOW FROM INVESTING ACTIVITIES                                  (465 175)            (271 390)        (574 588)  
   
Property, plant & equipment   
- additions to maintain & expand operations                          (122 172)            (161 221)        (355 966)  
- proceeds from disposals                                                3 561                8 148           24 459  
                                                                     (118 611)            (153 073)        (331 507)  
Investments    
- subsidiary and business acquired (net of cash  
  acquired)                                                          (134 032)            (104 047)        (157 779)  
- Associates, other investments and loans                            (212 532)             (14 270)         (85 302)  
                                                                     (346 564)            (118 317)        (243 081)  
CASH FLOWS FROM FINANCING ACTIVITIES                                  (67 221)             (13 724)         (22 939)  
Non-controlling interest disposed of                                         -                    -            1 527  
Own shares acquired                                                   (67 221)             (13 724)         (24 466)  
Net decrease in cash and cash equivalents                            (836 461)            (488 303)         (69 858)  
Cash acquired                                                           36 290                    -            (380)  
Cash and cash equivalents at the beginning of the  
year                                                                1 959 948             2 030 186        2 030 186  
Cash and cash equivalents at the end of the period                  1 159 777             1 541 883        1 959 948  
Fair value adjustment of preference shares and other  
investments                                                           (20 154)             (12 237)         (14 110)  
Fair value of cash and cash equivalents at the end of  
the period                                                           1 139 623            1 529 646        1 945 838  

INTERIM CONDENSED CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
                                                                     Unaudited            Unaudited          Audited
                                                                   31 December          31 December          30 June
R'000                                                                     2017                 2016             2017
              
ASSETS              
Non-current assets              
Property, plant and equipment                                        2 681 102            2 634 749        2 703 216
Goodwill                                                               186 345               64 700           78 167
Interest in associates                                                 437 188              286 558          354 926
Other investments                                                      219 629               92 854          108 019
- Listed                                                               119 698                8 128            8 088
- Unlisted                                                              99 931               84 726           99 931
Deferred taxation                                                            -                    -           11 363
Loans to directors                                                      82 300               76 862           80 332
Total non-current assets                                             3 606 564            3 155 723        3 336 023
Current assets              
Inventories                                                            817 758              881 456          833 410
Accounts receivable                                                  1 526 827            1 553 566        1 093 663
Taxation                                                                     -                    -            1 512
Bank and cash resources                                                287 612              419 337          835 725
Listed bank preference shares                                           52 011               59 929           58 056
Unlisted bank preference shares                                        800 000            1 050 000        1 050 000
Total assets held for sale                                                   -                    -           20 358
Total current assets                                                 3 484 208            3 964 288        3 892 724
               
Total assets                                                         7 090 772            7 120 011        7 228 747
               
EQUITY AND LIABILITIES               
Equity                                                               5 602 116            5 554 332        5 729 123
Equity attributable to owners of the parent                          5 537 122            5 493 257        5 681 978
Preference shareholders                                                    100                  100              100
Non-controlling interest                                                64 894               60 975           47 045
Non-current liabilities              
Deferred taxation                                                      375 486              353 097          377 390
Current liabilities              
Accounts payable                                                       907 281            1 005 152          873 461
Provisions                                                             187 804              187 529          219 088
Taxation                                                                18 085               19 901           24 043
Total liabilities held for sale                                              -                    -            5 642
Total current liabilities                                            1 113 170            1 212 583        1 122 234
               
Total equity and liabilities                                         7 090 772            7 120 011        7 228 747
Net asset value per share (cents)                                        1 407                1 384            1 436
Directors' valuation of unlisted investments and              
associated companies                                                   517 825              371 284          454 857
Capital expenditure                                                    122 172              161 221          355 966
Capital expenditure committed                                           98 000              112 500           90 000
           
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY      
                                                                     Unaudited            Unaudited          Audited
                                                                   31 December          31 December          30 June
R'000                                                                     2017                 2016             2016
Balance at beginning of the year                                     5 729 123            5 579 393        5 579 393
Total comprehensive income for the period                              213 625              269 035          472 261
Non-controlling interest acquired                                       18 135                    -            1 527
Loss on sale of subsidiary                                              15 418                    -                -
Non-controlling interest disposed of                                  (11 250)                    -                -
Own shares acquired                                                   (67 221)             (13 724)         (24 466)
Dividends paid - ordinary and preference                
shareholders                                                         (295 715)            (280 372)        (299 592)
Balance at end of the year                                           5 602 116            5 554 332        5 729 123
         
Note:

Business combinations

The group acquired the following businesses, which have been accounted for as business combinations during the year 
as follows:

Private Property (Pty) Ltd was acquired with an effective date of 1 July 2017 for a purchase price of R122,9  million 
and the business of Tricolor was acquired with an effective date of 1 August 2017 for a purchase price of 
R11,1 million.

The acquired businesses contributed revenue of R73,0 million and a net profit after tax of  R13.3 million.

The final purchase price accounting has not yet been completed at the end of the interim reporting period and will 
be completed within the 12 months allowed by the standard. The amounts below are therefore provision.

                                                                                                        Acquiree's
R'000                                                                                                   fair value
Goodwill                                                                                                   107 176
Non-controlling interest                                                                                  (18 135)
Property, plant and equipment                                                                                8 161
Inventory                                                                                                    1 360
Investments in associates                                                                                    4 320
Accounts receivable                                                                                          3 734
Accounts payable                                                                                           (8 874)
Cash acquired                                                                                               36 290
Fair value of net assets acquired                                                                          134 032
Total cash purchase consideration                                                                          134 032

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 31December 2017.

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 is Level 1
- Thebe Convergent Technology is Level 3

Commentary

Basis of preparation

The unaudited interim financial statements for the six months ended 31 December 2017 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, Financial Reporting Pronouncements 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 2017. These interim financial statements
have not been reviewed or reported on by the Caxton Group auditors, Grant Thornton.

Earnings

Caxton has shown remarkable resilience in the face of a sluggish economy, over - extended consumers and a
dip in business confidence, all of which have had a direct effect on the Group's performance. The difficult trading
conditions experienced in the second half of the previous financial year intensified into the current reporting
period resulting in a decline in revenue of 4% and resultant decline in profit from operating activities before
depreciation of 6.1%.

Revenues in all key operational markets were under pressure and faced declining volumes as well as continued
pricing pressures. The declining economic environment even impacted national advertising revenues which
have declined, for the first time since 2010, as retailers cut back on expenditure. This obviously had a knock on
impact on volumes in our commercial printing operation and combined with the loss of the Independent Media
newspaper printing in Gauteng meant revenue in these operations declined materially. The group continues to be
faced with declining local and magazine advertising revenues that show no signs of stabilising. The packaging
divisions also experienced subdued demand in its key markets while our book printing operation was faced with
inconsistent educational demand which impacted revenues negatively.

The decline in revenues was mitigated to a certain extent by focused control on raw material inputs, staff
costs and other operating expenses. Raw material costs were managed well while staff costs increased below
inflation. Other operating costs declined by 7.4% and this meant that the decline in profit from operations before
depreciation was contained to R25,8 million over the prior period including the positive contribution from the
recently acquired business Private Property ( Pty) Ltd.

Depreciation increased to R147,8 million as the new investments in the packaging divisions were commissioned.

During the period, the group disposed of two subsidiaries being a 51% share of the loss making magazine
business Ramsay Media (Pty) Ltd to Highbury Media for a nominal amount and 100% of Moneyweb Holdings
Limited to African Media Entertainment Limited for an exchange of shares. The net loss on disposal of these
subsidiaries amounted to R6,6 million.

Net finance income declined by R15,1 million to R58,0 million as a result of reduced dividends from our
investment in Thebe Convergent Technology Holdings (Pty) Ltd and reduced interest due to lower cash balances
during the period.

Net income from associates grew marginally to R12,6 million which resulted in a decline of 15,3% in profit
before taxation to R309, 5 million. Income tax absorbed R79,6 million resulting in profit for the period declining
by 14, 6% to R229,9million.

The weighted number of shares in issue declined to 393 590 937 resulting in earnings per share of 55,7 cents
and headline earnings per share of 57,3 cents, a decline of 16,5% and 14,0% respectively.

Cash flow

The fair value of cash and cash equivalents amounted to R1,139 billion, a decline of R390,0 million over the
corresponding prior period mainly as a result of reduced cash flow from operating activities and an increase in
investing activities.

Cash generated by operations declined by 6.1% to R363.2 million which is in line with the reduced trading
performance, whilst increased working capital requirements and taxation paid along with reduced interest and
dividend income meant a net cash outflow from operating activities of R7,8 million.

Dividends paid accounted for R295,7 million while the group invested in property, plant and equipment totaling
R122,2 million. The investment in plant was mainly focused on the packaging division to recapitalise certain
operations and facilitate the Gauteng operations restructure and a new web offset press in the Johannesburg
commercial printing operation. It is expected that the level of capital expenditure will taper off in the short to
medium term.

The group has made two acquisitions during the period which accounted for R134,0 million. This included a
52,6% share of Private Property (Pty) Ltd for R122,9 million. Private Property is the second largest property portal
and will be used to leverage our property offering at a local level. A further acquisition was made of a small
narrow web self-adhesive operation for R11.1 million.

Further investments were made in Novus Limited where we currently hold close on 5% of the equity and we
increased our non-controlling stake in Shumani Printers. The group has also continued to support its associate
Octotel (Pty) Ltd in its roll out of the fibre to the home network in Cape Town through advancing further shareholder
loans. There is a need for further capital raising which is in the process of being finalised. The group replaced
certain bank funding in its associate Universal Labelling (Pty) Ltd at commercial terms.

At the date of reporting, outstanding loans to these  associates totalled R126,5 million and have been made on commercial
terms. Taking these loans into account the fair value of cash and cash equivalents amounts to R1,265 billion.

During the period, the group acquired its own shares at a cost of R67,2 million. At the time of writing cash
balances have increased to R1,431 billion and inclusive of loans to associates the fair value of cash and cash
equivalents is R1,567 billion.

DIVISIONAL PERFORMANCE

Publishing, printing and distribution

Newspaper Publishing and Printing

The group's newspaper business was materially affected by a decline in both national and local revenues and
this impacted profits significantly due to the fixed cost nature of the branch infrastructure. For the first time since
2010 national advertising declined as retailers adjusted their budgets in line with operating conditions. Local
advertising revenues continued the declining trend as many local businesses simply cannot afford to continue the
frequency of advertising as they have in the past. This necessitated a review of our strategy at a local level in an
attempt to stimulate revenue which resulted in a certain amount of discounting. Management is in the process of
reviewing the costs in the infrastructure to realign to the declining revenues.

The Citizen has again showed a year-on-year improvement in performance with increased advertising income,
both in print and digitally, and stable circulation which is in contrast to the overall daily market.
The group continues to make great strides in its digital strategy and the local news platforms have seen a 42%
growth in unique visitors which has contributed to increased digital revenues. With the acquisition of Private
Property (Pty) Ltd there is an opportunity to leverage our local sites in growing the reach of this portal.

As reported previously the group's newspaper printing facility lost the Gauteng printing for Independent Media
which necessitated a restructure of the business and job losses. The management has done a tremendous
job in mitigating the lost turnover which meant the operation achieved similar results to the the prior period.
Negotiations with Media 24 for newspaper printing are at an advanced stage and look positive which will have
an improved outlook from April 2018.

Magazine Publishing and Distribution

Despite advertising and circulating revenues remaining depressed in line with the softer market trends, the
magazine division has recorded an improved performance over the corresponding period.

This improvement combines the ongoing focus on cost containment initiatives, especially in printing, distribution
and externally sourced content, with good growth in digital revenue.

The division continues to focus on ways of growing and diversifying its overall print and digital reach so as to
provide advertisers with better and broader audiences.

In the current period, the group disposed of 51% of its loss making subsidiary Ramsay Media to Highbury Media
in an attempt to extract back office synergies that could contribute to a turnaround in performance. The group
has committed to fund the operation and any retrenchments to January 2019.

The challenges facing the magazine industry continues to impact the profitability of the group's distribution
network. Costs have been contained and the development of new revenue streams continues but cannot mitigate
the decline in traditional revenues. With declining magazine circulations there is a need to consolidate the
industry into a single network that would be sustainable for the foreseeable future and can service publishers
effectively.

Commercial Printing

Web and Gravure

These operations were impacted by the decline in national advertising which meant they were faced with reduced
throughputs and ultimately a reduction in profitability. In order to limit the impact of the reduced throughput the
gravure plant was optimised which limited the impact only to the Johannesburg operation. These well-equipped
plants are well positioned for when the demand returns.

Book Printing

The division was successful in maintaining profitability similar to the corresponding period even in the face of
declining revenues. Education and text book printing is still marred by unpredictability and is very dependent
on government spending. In the current period, there was no repeat of the unexpected spend undertaken by the
Eastern Cape, in the corresponding period, and this contributed significantly to the revenue shortfall.

The division, however, was successful in curtailing costs as well as consolidating its position in other printing
markets. In the period under review, the division received a welcome boost in the general book market where
several political publications proved popular. In addition some unexpected gains were made in the diary market
which also contributed to the performance.

The division continues to grow in the periodical publication market and has been in negotiations with Media 24
with regard to their monthly consumer titles which would be a significant addition to the operation.

Packaging and Stationery

Packaging

The single biggest contributor to the reduced profitability, over the corresponding period, has been the subdued
demand in key market segments that the group is heavily invested in. The division is a significant supplier to both
the fast food and frozen fish markets which both experienced reduced demand as a result of constrained consumer
spending and reduced fish quotas respectively. In addition the division is a large supplier to the cigarette market
and the challenges facing this industry with respect to illicit product is impacting our customers demand negatively.
The loss of a significant portion of the ABInbev beer label tender meant our dedicated operation had to be
restructured to realign costs but this could not prevent a decline in profitability.

The division also had to contend with increased operational costs associated with the closure of the Denver
operation and the integration of the volumes into the other two Gauteng sites. Although complete the disruption
resulted in additional costs to ensure customer requirements were met. In the Western Cape the previously reported
upon acquisitions of two narrow web self-adhesive businesses have been successfully integrated into our existing
site but also encountered increased costs associated with retrenchments and moving costs.

The bulk of the capital investment in plant and machinery has been completed and with the commissioning of this
equipment the depreciation charge has increased substantially.

All divisions remain profitable and the focus continues to be on cost containment and these well-equipped sites are
now well positioned for when demand returns in our key markets.

Stationery

This division has successfully integrated the two acquisitions previously reported upon and with this increased
product range has shown revenue growth and increased market share which has impacted positively on
profitability.

Other

The replication operation faced reduced demand for both CDs and DVDs that was expected but the rate of
decline was far more significant . This operation remains profitable and there will be a continual assessment of
its viability.

Prospects

South Africa has lagged the world in terms of growth, with political uncertainty having a profound effect on
business and consumers alike. It is anticipated that the new optimism from the recent changes will spark a
recovery in our economy. The effects of this will, however, not be felt immediately. In light of this environment
the group will take all the necessary steps to contain costs and effect restructures where deemed necessary. In
certain markets there has to be consolidation and should these opportunities arise the group is well positioned
to act accordingly.

Events after the reporting period

The group has recently settled a dispute with the Competition Commission that has been ongoing since 2011.
The matter related to a structural mechanism between the advertising and media industries that have been in
existence for over one hundred years internationally. It relates to the custom of media owners paying a net
commission for services rendered, based on the value of advertising placed.

The practice has since ceased and the media and advertising industry now largely negotiate commissions
individually. Whilst the matter was contestable, the decision was made to pay an administrative penalty rather
than enter into lengthy legal proceedings. The settlement of approximately R5,8 million as well as contributions
of R0,7 million per year for three years towards a bursary and development fund for previously disadvantaged
persons in the media industry, was confirmed by the Competition Tribunal on the 16 February 2018.

Statement of responsibility

The preparation of the group's consolidated results was supervised by Mr TJW Holden, BCom, CA (SA).

22 February 2018

Sponsor
Arbor Capital Sponsors (Pty) Ltd

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

Incorporated in the Republic of South Africa
Registration number 1947/026616/06
Share code: CAT ISIN code: ZAE000043345
Preference share code: CATP ISIN code: ZAE000043352
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