RYK VAN NIEKERK: Caxton and CTP Publishers and Printers is one of the largest players in the print, media and packaging industries in the country. It was founded in 1980 by Terry Moolman and Noel Coburn, and currently publishes numerous community newspapers all around the country. It publishes The Citizen newspaper as well. It also has a significant interest in the packaging and commercial printing industries.
Caxton is a so-called SA Inc company, as it earns virtually all of its revenues and profits within the South African economy. The group announced financial results today (September 20, 2021) for the financial year to the end of June. Revenues dropped by 6.3% to R5.2 billion; headline earnings, however, more than tripled to R280 million or 75 cents a share, of which 50 cents will be returned to shareholders as a dividend. There is no debt on the balance sheet and the group has close to R2 billion cash in the bank.
With me in the studio is Tim Holden, the group MD of Caxton. Tim, thank you so much for joining me. The jumping profits really are impressive. How far are you from pre-Covid levels?
TIM HOLDEN: Thank you very much. I think we’ve delivered an extremely pleasing set of results, and operating profits year on year – which is not a fair comparison because of the impacts of the hard lockdown pandemic last year – more than increased five fold. But, compared to pre-Covid levels, and we monitor our business against the pre-Covid to see how we are recovering, it is very interesting that our operating profits are nearing those levels.
So even in a year where the pandemic still affected some of our operations, we’ve managed to get back to nearly pre-Covid levels.
RYK VAN NIEKERK: Is that a form of normalisation of profitability and operations, or are you concerned that Covid and the current lockdown may still have an impact?
TIM HOLDEN: I think the country as a whole has learnt to live better with the pandemic. Obviously the health and safety of our employees are important as well as our ability to keep our operations running, but we’ve learned how to operate in this new environment. We saw the second six months with demand from our customers definitely improving and, because of the actions we took straight after the hard lockdown on costs – and closing some divisions, unfortunately – and restructuring some of the other divisions, that increased demand on a lower cost structure really impacted positively our profits.
RYK VAN NIEKERK: One of the divisions you closed was the magazine division, which is a pity because print media in South Africa is under a lot of pressure. I don’t think we will see new magazines in the near future. But do you think Covid actually impacted the publishing and printing industry? Will there be long-term harm?
TIM HOLDEN: I think the publishing of all areas that we operate in the publishing side have been the hardest hit by the pandemic. One always said about the virus that it often attacks a weak area, and that’s no different from what we found in our businesses. So where we had a weak area like magazine publishing that had been struggling, irrespective of the pandemic, for five/six/seven years with declining revenues, declining circulations, the pandemic was the last nail in the coffin. So I think as a whole the pandemic has had a tremendous effect on the publishing industry.
Having said that, though, the other side of our publishing industry, which is interesting – the local newspapers – is still a very viable business and has definitely still got a lot of legs going into the future.
RYK VAN NIEKERK: How many of those community newspapers do you still publish?
TIM HOLDEN: I think the interesting factor is we’ve got 110 different newspapers all around the country, and they deliver every week for 52 weeks a year. This is the interesting stat – three million newspapers.
So three million newspapers with all their advertising inserts that the national retailers want to get to their consumer base go every week to three million households.
RYK VAN NIEKERK: And they are delivered on their doorstep?
TIM HOLDEN: Delivered on their doorstep. Yes.
RYK VAN NIEKERK: Fantastic. Sometimes people think about the print media and don’t appreciate, just for example, the distribution efforts going into this.
TIM HOLDEN: Absolutely. I think we underplay the importance of that distribution channel to our national retailers, to get that amount of bulk product and price advertising to a consumer base every week is an unbelievable advantage.
RYK VAN NIEKERK: Caxton in the past was very dependent on the media business, the publishing side of it, like we’ve discussed now. But you’ve also invested significantly into packaging businesses. Packaging slowly but surely is becoming a very, very significant profit driver for the company. I think around 46% of the total operating profit comes from the packaging side.
What is the strategy? Will you continue to invest in that side of the business and just manage the media side?
TIM HOLDEN: Over the last five to six years packaging has become steadily a greater, greater proportion of our operating profits. As you mentioned, it’s nearing the 46% part.
We see packaging as our growth area. It’s the area in which we have invested heavily.
We have done a number of acquisitions. Notably seven years ago we bought a Nampak cartons and label business, and from a business in the stable of Nampak that was under huge pressure, we’ve turned that around into generating excellent profits. So we have managed to grow the business and we are definitely continually on the outlook for new acquisitions.
On the other side of our business, we will manage those as tightly as possible. We will generate the good cash flows that they still generate. We think that whole business model of local papers and commercial printing of the advertising material is still a very, very viable business into the future.
RYK VAN NIEKERK: And what are the main synergies between printing and packaging?
TIM HOLDEN: Ryk, it’s putting ink on paper, it’s putting ink on board.
RYK VAN NIEKERK: Do you do it with the same printers?
TIM HOLDEN: No, you do it with different printers. There are different technologies, but it’s the same concept – you might buy the board from the same supplier that you buy your commercial grades of paper; you buy your ink from the same supplier. So there are synergies in your supply base, but essentially it’s putting ink on either paper or board.
RYK VAN NIEKERK: I want to talk about Caxton’s balance sheet. I think it must be one of the very few companies on the JSE without any debt. You also have around R2 billion of cash in the bank. Some people might say it’s a good, conservative and prudent balance sheet. Other people might think it’s a bit of a lazy balance sheet. How do you see it if you look back?
TIM HOLDEN: Traditionally, Caxton has always held cash on their balance sheet and, depending who you are, you might think it’s a good thing and conservative, or not a good thing and a lazy balance sheet. We definitely see our cash as a strategic asset.
Why do I say that? I think if you look at our history, we’ve been good allocators of capital. In this set of results, you see profit from an investment we made in fibre to the home and ISP for R400 million. Now that has given extremely good shareholder value for the use of our cash.
You’ve seen we’ve made a 32% investment in Mpact. And again, that has doubled in value since we made it.
We are not reckless investors, but when we choose an investment that we’ve investigated well, we use our cash wisely. So we think our cash is there to be used to look at acquisitions, to grow our business; therefore to actually enhance our earnings.
RYK VAN NIEKERK: I assume there are many opportunities in the market currently, and I’m assuming that many of them would run to you for a potential deal because there are many industries and companies under severe financial pressure.
TIM HOLDEN: Yes, we do get a lot of enquiries, and what we are seeing is a lot of owner-managed businesses. People are wanting to cash out, especially in some of the packaging (sectors) – and we look at those. We don’t buy them all. We definitely look at those that we have the ability to integrate into the well-equipped factories that we currently run.
RYK VAN NIEKERK: What is the strategy going forward? Is it to maybe relatively aggressively expand, or would it still be relatively conservative?
TIM HOLDEN: You’ve seen we’ve made a strategic move with our 31% of Mpact. Our strategy is we would like to actually gain a controlling interest. We’re not going to do it at any price. We’re not going to overpay for an asset. We think it’s a great company. We think it has great assets, great market position, and good management. In our view, that would be not aggressive, but a good acquisition to conclude on. As I said, we are not going to overpay for it.
So we’re going to utilise our cash for growing our packaging businesses.
There are a number of other acquisitions we’re looking at. We aren’t necessarily going to conclude on them all, but we’re always on the lookout.
RYK VAN NIEKERK: The results were for the year to the end of June. Shortly afterwards we saw some significant political unrest and looting. Did that affect you at all?
TIM HOLDEN: That definitely affected us in the month. What happened is a lot of our national retailers that advertise in our papers pulled back their campaigns because of the unrest. So it definitely impacted the July results, but it’s come back strongly in August, and we’re seeing a very strong run on it now in September as well.
RYK VAN NIEKERK: You are a South African Inc stock because you’re really dependent on the local economy. Now we’ve seen a good start at the beginning of the year, a strong economic recovery from last year, but it seems to be slowing down. Are you seeing that too in the market you are operating [in]?
TIM HOLDEN: No. I think let’s have a look at the advertising side of our business that goes into our local papers. That definitely is improving and we see that gaining, especially national advertising starting to come back closer and closer to peak pre-pandemic levels.
Having said that, the local advertisers, your mom-and-pops in the neighbourhood advertising in our papers, that is taking a bit longer because they have been severely hampered by the Covid pandemic.
On our commercial print we’ve seen throughputs in our factory steadily increasing. We’re seeing retailers starting to print more because they’re advertising more. And on our packaging side in the markets that we operate, we are dominant in fast foods, we are dominant in alcohol, we are dominant in cigarettes. The change in consumer consumption there has definitely seen an uptick in volume. So we are not seeing any slowdown in the markets we operate in.
RYK VAN NIEKERK: And just lastly, let’s talk about Covid-19. Maybe a bit closer to home: Caxton has around 5 500 employees, which is a significant workforce. What is your approach towards vaccination and the protection of those employees from the virus?
RYK VAN NIEKERK: We, without doubt, are a vaccination-pro company, and we have communicated the company’s stance or the board’s stance in respect of that. We are also partnering with government and AME (African Media Entertainment) in doing a pro-vaccination campaign in support, explaining to people why vaccinations are important. We are definitely not at the stage of forcing people to have vaccinations. We are just surveying. It’s not impacting our businesses significantly (such) that we have to (force), but we definitely do communicate with our employees that we would support them getting vaccinations.
RYK VAN NIEKERK: Thank you, Tim. That was Tim Holden, the Group MD of Caxton.