Weird and wonderful Caxton
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