Pressure on small businesses hits Caxton’s profit

The business environment in the newspaper industry is gloomy, with a sharp fall in advertising and frequent increases in raw materials, printing and publishing group Caxton said Thursday.

The rise of social and digital media has seen most newspaper firms world wide suffer a drop in circulation. Readers are resorting to the internet as a source of news.

Announcing its half year results to end-December, the group blamed the sector's woes on SA's weak economy, which it said was putting pressure on small businesses and forcing businesses to advertise less.

The group said the demand for newspapers continued to drop, while increases in the prices of raw material could not be recovered from customers, given SA’s weak economy. 

The group profit after taxation declined 18.1% to R175.5m, though finance revenue increased due to dividends from Novus. Caxton took a 5% stake in the printing group in 2018.

Pressure due to SA’s weak economy was particularly evident in its newspaper publishing and printing business, Caxton said, where small businesses were “struggling to survive”. 

The company said the bulk of the revenue decline came from its newspaper business in large metropolitan areas such as Gauteng, where it is the “newspaper printing operation that is faced with declining copies and page numbers. 

“Sadly, it looks like this trend will continue into the foreseeable future as declining circulations and possible closure of titles will continue to negatively impact this operation,” Caxton said.

“In contrast, the national advertising market held up relatively well when considering the difficult retailer environment,” the group said.

Caxton said that it had a healthy balance sheet. However, in the absence of revenue growth, profits were expected to remain under pressure. ​

The publisher's packaging operations have also managed to maintain turnover. Although margins were under continual pressure, the profitability was on par with the previous corresponding period.

The group was seeking to manage its operations as tightly as possible.

“Staff costs and other overheads are essentially flat year on year, which is a commendable performance, especially in the face of large energy cost increases,” the group said.

During the six-month period, the group disposed of 10% of its shareholding in communications and marketing agency Ince, in an empowerment transaction. This resulted in a loss on disposal of R5.1m .

Last year, businessperson Andile Khumalo bought a 26% stake in the family-owned business, in a move meant to improve the company’s BEE status and its offering to clients. 

Khumalo bought the shares from Caxton and Ince founders, the Atkinson family, which disposed of 16% of the business. 

Ince specialises in marketing and investor communications for corporate companies such as Old Mutual, Sasol, Absa, Nedbank and Liberty.

Caxton also said it had initiated an energy-cost review with an outside consultant, which had resulted in savings.

Caxton shares remained unchanged on the news in trading on Thursday, at R6.15. The company has a market capitalisation of R2.32bn.

gernetzkyk@businesslive.co.za

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