Higher consumer demand lifts Caxton’s profits to pre-pandemic levels

However, supply chain and inflationary challenges remain.
Image: Moneyweb

Caxton and CTP Publishers and Printers posted sharply higher profits for its interim period to the end of December, saying it has fully recovered from the economic slowdown caused by the Covid 19 pandemic.

The printing, publishing and packaging group reported its revenue rose by 12.3% to R3 billion, while headline earnings spiked 76% to R245.6 million.

In response, Caxton’s share price rose by 3% to R9.25 at 14:15. The price has rallied by 40% over the past year.

“This set of results marks a full recovery from the impact of the pandemic and is the result of the immense efforts of our employees over the past two years, as well as some well-timed strategic decisions in closing underperforming operations, and more recently, the decision to accumulate excess stock levels, taken early in the tightening global supply chain,” Caxton says in the financial statements.

Listen: Group MD Tim Holden says profitability levels shown in these interim results, were last seen in 2016

Supply chain pressure

The group says the decision to increase stock levels and good relationships with suppliers allowed it to mitigate the risks from an increased shortage of the raw materials needed to produce paper and packaging board. “Local and international mills began imposing restrictions on offtake and also instituted substantial price increases relating to energy surcharges and the cost of logistics. This scenario is unprecedented and is expected to be with us for the foreseeable future,” the group said.

Cost pressures

Caxton saw a rise in inflationary pressures, which began to intensify towards the end of the reporting period, flowing from higher staff and energy costs.

“This higher increase resulted from the comparison with the lower prior period, in which once-off staff cost reductions were instituted as part of the Covid pandemic mitigation actions.”

An increase in demand and severe increases in energy costs contributed to other operating expenses for the period increasing by 9.2% to R529.8 million from R485.3 million in the prior period.

“The group has embarked on a solar project with our large Gauteng packaging operation… to mitigate further energy increases and reduce the group’s carbon footprint,” Caxton says.

Operations

Caxton said its local newspaper business, which includes around 120 titles, more than doubled profits and it’s back at pre-Covid levels.

The group attributes this to advertising revenue rising by 17% and a reduced cost base.

“Although the year-on-year growth in advertising revenues is encouraging, both national and local sources of revenue are still trading below pre-Covid levels with national advertising trailing by 6% and local advertising by 20%. This is an opportunity to strengthen sales further and achieve a full recovery, but this will be dependant to some extent on growth in the local economy, which is expected to remain tepid, and a full recovery will take some time,” Caxton said.

The group’s packaging operations also increased profitability due to increased customer demand in several diverse markets, including packing for fast foods, “bag in a box wine” and folding cartons products.

Caxton said despite the supply chain challenges, it is confident that consumer demand will remain resilient and that the group’s profitability will continue to improve, “albeit not at the same growth levels as currently experienced.”

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