Weird and won­der­ful Cax­ton

Finweek English Edition - - FRONT PAGE - SHAUN HAR­RIS shaunhar­ris@ya­hoo.com

TERRY MOOL­MAN RUNS a tight ship. It shows in Cax­ton’s op­er­at­ing re­sults. In most cases mar­gins were main­tained and cir­cu­la­tion for many of its news­pa­pers in­creased. It’s a ship that gushes cash: R625m in its 2010 fi­nan­cial year. Bal­last is main­tained through R1,85bn in cash, up from R1,53bn in the pre­vi­ous fi­nan­cial year.

But as is well known, news­pa­per bosses can’t get ev­ery­thing right and Cax­ton got the rand wrong. Badly wrong. Cur­rency hedges taken out over the course of the year re­sulted in a R157,2m loss when marked to mar­ket at the end of its fi­nan­cial year. We don’t want to start talk­ing about knit­ting here, and once again the rand fooled many peo­ple. But per­haps Cax­ton shouldn’t be too ad­ven­tur­ous in cur­rency hedges.

One can only imag­ine the sort of lan­guage Mool­man must have been moved to when the cur­rency loss was un­rav­elled. The more ur­bane Gor­don Utian, in his MD’s re­port, says: “The strength of the rand was not an­tic­i­pated.” In the broader pic­ture the cur­rency loss isn’t that large. But it did up­set the shape of the num­bers in the an­nual re­port, de­flat­ing to­tal prof­its to be­low the pre­vi­ous year and re­sult­ing in net fi­nance in­come slip­ping into a loss of R3,5m against a profit of R107,1m the pre­vi­ous year.

Read­ers may won­der why Cax­ton has to use cur­rency hedges. Note 31 in its an­nual re­port shows it has a sub­stan­tial ex­po­sure to for­eign cur­ren­cies, chiefly Bri­tain’s pound, US dol­lars, euro and Aus­tralian dol­lars. It hedges those ex­po­sures, as many for­eign cur­rency trans­ac­tions re­late to the im­port of cap­i­tal equip­ment and in­ven­tory. That’s where Cax­ton is a step ahead, in­vest­ing sig­nif­i­cantly in presses for its own news­pa­pers and mag­a­zines and for com­mer­cial print­ing. An amount of R269m was spent on new presses and fin­ish­ing equip­ment over its fi­nan­cial year. Though the group says it has clearly de­fined poli­cies for the man­age­ment of for­eign cur­rency risks it should seek bet­ter ad­vice about the strength of the rand.

Lit­i­ga­tion is a fea­ture in Utian’s re­port. There’s the old case (dat­ing back to 2003) when it ques­tioned the suit­abil­ity of Robert McBride for pub­lic of­fice and The Cit­i­zen news­pa­per called him a “mur­derer”. The Supreme Court of Ap­peal, in what seems like a largely tech­ni­cal rul­ing, said McBride had been de­famed and wasn’t a mur­derer be­cause he’d been granted amnesty. It can only be won­dered how well that goes down with the sur­vivors of the no­to­ri­ous Ma­goos car bomb on Dur­ban’s beach­front. Any­way, The Cit­i­zen ap­pealed the find­ing in the Con­sti­tu­tional Court and is await­ing judg­ment.

More re­cently, Ele­men­tOne – that strange en­tity spun out of Avusa with noth­ing but a 17% in­ter­est in Cax­ton – went to court seek­ing dis­clo­sure of cer­tain share­holder and com­mis­sion agree­ments in place at Cax­ton. The court re­fused the or­der. It also ruled there were no re­stric­tions on Ele­men­tOne sell­ing its shares in Cax­ton, pro­vid­ing the first of­fer of dis­posal is made to Mool­man. It’s a court rul­ing but Mool­man couldn’t have said it bet­ter him­self.

But Ele­men­tOne has a strong point it wants dis­clo­sure on: it re­lates to an in­nocu­ous lit­tle Note 33 in the an­nual re­port. Part of it refers to an agree­ment in 1985 whereby mem­bers of the con­trol­ling share­holder – Mool­man and Coburn Part­ner­ship, which in­cludes Utian – are en­ti­tled to a com­mis­sion on Cax­ton’s ad­ver­tis­ing rev­enue. It’s a strange agree­ment but it was worth R41,3m in its fi­nan­cial year. That’s quite a killing and makes Mool­man look like a pirate, in the nicest sense of the word. It’s prob­a­bly a de­scrip­tion he wouldn’t be un­happy with.

TERRY MOOL­MAN Gush­ing cash

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