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SIMON BROWN: I’m chatting with Tim Holden, MD at Caxton. Results out late Friday for the six months ending December 2022. Revenue up 25.8%, headline earnings a share up 36.4%. Tim, I appreciate the time this early morning. First I want to touch on the two points you make in your results. You’re still getting input-cost pressure, but you are managing to put some of this onto price increases.
TIM HOLDEN: Yes, Simon, thanks very much for the opportunity. Over the whole period to our interim results we still had large price increases on most of our raw material inputs, driven by the overseas and local mills. But one thing we were able to do, thanks to the management at local level, was to pass these on to our customer base and manage it with our customers, which means that we tended to manage our margins pretty well over the six months. Some of our customers obviously looked at ways of mitigating those large price increases in changing grades of paper, and we managed that with them very well.
SIMON BROWN: Okay, got that. So in essence they can shop down to a [different] quality of paper if they want to try and offset those increases.
TIM HOLDEN: Correct. That is right, yes. That was more on the commercial printing part of our operation. But on the packaging side they also looked at whether there were different sources of packaging board material that we could source from other countries that were cheaper.
What we are seeing now is that cycle of increases softened tremendously, and we are now starting to see prices normalise, and hopefully that won’t need large increases going forward.
SIMON BROWN: The commercial printing – this could be the papers that you do, it’ll also be inserts, magazines for Media24. Digging through the numbers, I would imagine most folks out there say, ‘Ah, commercial printing, newspaper printing is dead. But the numbers belie that. It’s still a business which generates decent returns on good margins.
TIM HOLDEN: Absolutely, and also it’s very cash generative. If you look at our local newspaper business, we determine the print orders there. So we have a base load that we print for our local papers. And the national retailers value that distribution channel to about three million homes every single week, to get their large product-advertising material out there. And with the high increases we implemented on the insert printing, due to the raw-material price increase, you would’ve expected some demand curtailing. We never saw any of that in the first six months. Our volumes through those factories grew by 5%. So it just proves that this concept of it being a dying or sunset business is not true. The numbers show it, and we continue to manage the business as well as possible.
SIMON BROWN: It’s that point you make – the three million households there, every week.
What around load shedding? It must be impacting you to a degree. It must be impacting your customers to a degree.
TIM HOLDEN: Yes. Load shedding is an issue we are all grappling with – whether it’s ourselves or whether it’s our customers. But we prepared for this a while ago. We have generating capacity at most of our major operations. We are rolling out solar as quickly as possible. And we’ve entered into some power-curtailment arrangements with local municipalities, which gives you a much better way of handling load shedding. But, having said that, it is still a problem. We lose production hours, the stress on the electronics of your machinery leads to increased maintenance costs. So yes, it is an issue that we grapple with currently and we’ll have to deal with it going into the future as well.
SIMON BROWN: How’s the QSR [quick-service restaurant] business doing? Chatting with competitors of yours, chatting to the QSR sector, my sense is that remains fairly strong.
TIM HOLDEN: Yes. It has been in double-digit volume growth for a while now, and it continued in the six months. I think there’s always a silver lining to load shedding, and I think one is the QSR market. What we are finding, listening to our customers, is that a lot of their customers, when there’s load shedding at home, on their way home will say, ‘We can’t prepare a meal’, and they’ll get a quick-service restaurant meal to feed the family. So we are also finding that’s driving some of that growth. We’ve also increased the types of products that we do for the QSR customers. So we’ve gone into the cold-cup bucket market. I was just looking at that market, and three years ago we had our first cup-bucket forming machine. We now have 10 machines. So we’ve managed to grow in a segment that we were never involved in previously, and we are very fortunate.
SIMON BROWN: A last question. Inventories raising up at R1.8 million – is that a function of higher input costs, therefore higher holding, as well as anticipation of demand?
TIM HOLDEN: Yes, I think it’s threefold. It’s the higher prices. It is to fund the growth that we’ve seen, and also our peak trading period, which is this first six months. And thirdly it was to mitigate the supply chain globally and locally that had tightened over the six months. That’s changing. So we will be looking at trimming back our stock levels and releasing cash in the next six months. But it will take probably the next six to nine months to fully achieve a normalised level of stock holding.
SIMON BROWN: You were still seeing some supply-chain issues in the second half of last year?
TIM HOLDEN: Yes, we did. The international mills were oversubscribed, they were increasing their prices virtually on a monthly basis, especially with the energy surcharge. The Ukraine/Russian conflict impacted them in terms of energy costs, so they put forward virtually monthly [that] they were [implementing] an energy surcharge, which we had to manage. So yes, it was still tight in those first six months.
SIMON BROWN: I’d forgotten about that – the energy surcharge. Tim Holden, MD of (Caxton & CTP Publishers & Printers), I appreciate the time.
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