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CAXTON AND CTP PUBLISHERS AND PRINTERS LIMITED - Unaudited Results for the Period Ended 31 December 2018

Release Date: 28/02/2019 17:29
Code(s): CAT CATP     PDF:  
 
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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