Poised for growth
THE LATEST 12-MONTH review of KAP International Holdings’ financial results to end-December 2006 paints a picture of a group that has truly hit its stride. Operational profits moved up 12% to R255,8m for the period, on the back of a 15% rise in revenue to R3,42bn, reflecting improved trading conditions and strong organic growth.
Paul Schouten, group CEO, says that he anticipates sustained growth over the next three to four years. “Our businesses have excellent organic growth prospects for the next 18 months, as they supply strongly growing local markets such as the automobile, plastic, construction and retail sectors. Strategic expansion initiatives are under way for both the local and export markets.”
On top of this, Schouten adds, the group is still on the look-out for prudent acquisitions that will have synergies with and add value to KAP’s existing operations.
KAP’s balance sheet also tells a heartening story, with the debt-to-equity ratio moving to 20,5% from 22,1% in 2005, and operating cash flow rising 67% to R184,5m. Meanwhile, capital expenditure for the 12 months amounted to R126,7m, of which R80,2m was spent to gear up to supply the new Toyota Corolla and Mercedes Benz C-Class cars.
During the year, the group acquired loose-lay carpet manufacturer Caravelle Carpets for R23m, for which KAP plans to pursue aggressive export initiatives in conjunction with Feltex Automotive. At the same time, the R22,5m Feltex joint venture with Australian carpet producer Futuris places Feltex strongly to supply critical products to original equipment manufacturers across the automotive sector.
KAP also recently announced – subject to Competition Commission approval and the successful completion of a due diligence – the purchase of a 60% stake in Brenner Mills (Pty) Ltd for R18m. The milling business will supply feed to Bull Brand and also has good synergies with its distribution channels.
The leather business was the only KAP operation that didn’t meet its targets, which Schouten attributes largely to a rise in hide prices. “We’ve a corrective action plan in place and we expect the business to perform substantially better in 2007.” The industrial footwear businesses of Wayne Plastics and United Fram posted good results for the 12 months as a result of strong brand performance and increased activity in their target markets. “The security, mining and construction industries are all growing very quickly. Wayne Plastics, which makes gumboots, can’t keep up with orders, they’re coming in so quickly. We will be increasing capacity at Wayne, which should make it one of the world’s largest PVC gumboot manufacturers.”
Hosaf Fibres, which manufactures and distributes polyethylene terephthalate (PET) resin for the bottle and packaging markets, also produced firm results, with revenue rising 16,8% to R828m on the back of higher commodity prices and improved plant throughput, which saw capacity expand by 10%.
“The demand for PET in SA has been growing at 10% annually and we see no signs of a slowdown,” notes Schouten. “This means a doubling of the market over the next decade, and we’re well positioned to expand capacity to meet this demand.”
In its consumer division, Bull Brand Foods, producer of popular canned meat brands including Sams, Apex, Spekenam and Gants, produced a satisfactory performance as revenue grew 21,3% to R881m. Schouten says the results were boosted by very high meat prices during most of the period as well as better efficiencies in feed lots,
Footwear manufacturer and importer Jordan & Co also recorded commendable results after expanding its ranges over the period, particularly with its own-manufactured brands Jordan, Bronx and Olympic, and the expansion of its operations into women’s footwear and house-brand leather products.
Finally, Glodina reached the R200m turnover mark for the first time on the back of strong consumer demand. The towelling manufacturer also increased its margins from already-high levels through its ongoing drive to reduce costs. “Glodina is looking at further growth opportunities in the hospitality sector, as well as expanding its factory outlets,” says Schouten. “Future growth should also be spurred by the continued store expansion of the country’s major retailers.”