SIMON BROWN: I’m chatting now with Tim Holden, MD of Caxton. [Annual] results came out when I was down at the beach. Headline earnings per share tripled to some 75 cents, with a 50 cent dividend [was] declared at the same time. This is a stock that’s trading at around R8.
Tim, I appreciate the time, particularly in the studio. A really strong set of results. If we go back to comparing versus 2019 – because of course last year was a year we all plan to forget – how is the business looking relative to 2019’s numbers?
TIM HOLDEN: Good morning, Simon, and good morning to your listeners. Thank you for this opportunity. Yes, if one looks at our operating profit compared to 2019, pre-pandemic, we are actually very pleasingly starting to approach those levels. We’re not far off those levels. If one analyses where that has come from in our group, we actually exceeded pre-pandemic operating profits in our commercial printing and our packaging, which came back very strongly in the second half of our financial year.
The other sector that is lagging behind a bit is our newspaper-publishing side, where it’s taking a bit of time for the advertisers to come back to the same levels they did in 2019.
Having said that, coming into the new financial year, in the first quarter we’ve definitely seen positive trends in that respect, and it shouldn’t be too long till we will get back to those pre-pandemic advertising levels.
SIMON BROWN: I was down in KZN and I picked up one of your community papers. It wasn’t as thick as it is at times, but it was certainly thicker than it has been. That’s the key; you’re publishing. People will say print is dead, except you publish – how many community papers is it?
TIM HOLDEN: It’s around 110 papers. These are weekly papers. And we deliver probably between three million to three-and-a-half million papers weekly, 52 weeks a year. So if you get your head around those statistics, you’ll see it’s an important distribution channel for large-format product and price advertising.
SIMON BROWN: Yeah. So if I am Shoprite and I want to get to a vast audience, I can go to SABC, to the Sunday Times; I can also come to yourselves.
TIM HOLDEN: Absolutely. We have a footprint of 3.5 million households. And with that we get the community news that lends itself to the people in the household reading the advertising more.
SIMON BROWN: You have exited magazines. That’s the one area which you’re out of; magazine printing is now over. You are moving very much into packaging as the sort of new focus, or a new area. What sort of markets are you operating in, in the packaging space?
TIM HOLDEN: If one looks at our packaging business, we’ve really grown it over the last seven years. It used to be about 20% of our operating profits, and is now getting closer to 50% – and we’ve done that through acquisitions. One of the major ones is we bought a portion of Nampak about seven years ago.
And the markets that we operate in – we are either number one or number two in those markets. We are very big in the label market – anything on wine, beer, spirits, canned labels. And we are the number one paper beer label supplier in the country.
And then we are also very big in folding carton, anything in a box. But I think significantly, when one talks [about] our folding carton business, we are very strong in the fast-food category.
So we are a 100% supplier to McDonald’s, we are a 95% supplier to KFC, 100% to Chicken Licken, and probably a 50% supplier to Nando’s. Those markets grow.
They’re a growing market. They’re always opening up more outlets and doing product innovations.
The other area that we are very strong on the folding carton side is cigarette packaging.
We are a 100% supplier to British American Tobacco. Obviously they’ve been impacted by the illicit trade and we’ve felt that, but we see other opportunities in Africa for cigarette packaging.
So those are the main markets that we’re playing in at the moment.
SIMON BROWN: When you said packaging, our heads always go to e-commerce – all those Takealot boxes we’re getting – but actually [there are those] QSRs, those quick service restaurants. In the pandemic we are eating more take-outs than perhaps ever before.
You’ve also got a 31% stake in Mpact, which of course is packaging. Is 31% where you leave it? Do you look to push it up? Was it opportunistic, and at some time you’ll take the money and run?
TIM HOLDEN: No, we’ve been looking at Mpact for a while and we saw the opportunity in December last year and bought in at a very, very nice price. It has more than doubled in value subsequently. That really is a great company, we think, with great assets and good management, and our intention is to want to get to control.
We want to grow in the packaging market and we see this as a really good asset that we’d like to get control of.
But, as normal, we are also looking for the right way of doing it, not necessarily to overpay.
SIMON BROWN: That’s a key point. That brings me to the balance sheet, which is either described as strong or lazy – depending on the angle we are taking. I think during a pandemic perhaps we go with the strong side, close on R2 billion of cash. That’s an important metric because your market cap is only about R3 billion or so. I say ‘only’ – but still.
You’ve certainly done capital allocation over the years. You mentioned Mpact, you mentioned the Nampak deal, which I’d forgotten about, from about 2014 or back. You’re returning some of it to shareholders in dividend, but patently keeping it for opportunity.
TIM HOLDEN: Yes. Cash has always been very strategic to Caxton. We use it to enhance shareholder value by looking for good acquisitions. I think in the results that we’ve delivered here there’s one example of that, where we took a small stake in a fibre-to-the-home business, on which we made a R400 million profit. So we have a history of allocating capital properly. We’re not going to buy everything that comes across us. We’re going to do what we think fits perfectly with our business and Mpact is one of those. We’d like to keep our cash to look at increasing our stake in Mpact and enhancing earnings.
SIMON BROWN: Final question, which is the raw-material input costs, supply chains. I imagine for most CEOs I chat to this has been one of their biggest challenges in the last year, aside from the actual practical people side of Covid.
TIM HOLDEN: Yes. We import a fair amount of our raw materials and, coming to December last year, we saw the tightening in the global supply chain and we took a decision to really build up our stocks. That has been a fantastic decision because we’ve managed to gain market share in some of our markets where our competitors have actually been far too tight on stocks. We will continue doing this. We don’t see this alleviating itself.
The other knock-on impact of that is the pricing is going up, and our focus in this year really is how we pass that through.
SIMON BROWN: That was going to be my question. Are you able to pass it on?
TIM HOLDEN: We have to. The price increases are too significant to absorb, so we have to pass them on.
SIMON BROWN: We’ll leave that there. Tim Holden, MD of Caxton, I appreciate your time in the studio this morning.