KAP Industrial profit up in bad times
Earnings at 55.6c a share
DIVERSIFIED industrial group KAP Industrial delivered a strong set or results in a tough economy and said yesterday that it was optimistic that its focus on expanding existing operations and increasing its market share would continue to grow its business.
In the year to end June, headline earnings per share from continuing operations increased 15.4 percent to 55.6 cents a share.
Chief executive Gary Chaplin said the group was pleased with the industrial and chemicals segments, but was disappointed with the logistics business.
KAP has three reporting operations: industrial, chemical and logistics.
“The logistics business is a reflection of a country that is not growing its economy,” he said. The contractual logistics division had experienced lower industry demand in fuel, mining and cement sectors, which weighed on revenue and operating margin, he said.
However, he said the group’s acquisition strategy together with investing in its existing asset base in order to drive organic growth and efficiencies would continue.
“The diverse nature of KAP’s operations with varied exposure to different territories, sectors and business models continues to buoy the group. During the year under review, KAP acquired the high-density polyethylene and polypropylene manufacturer Safripol for R3.9 billion (effective January 1, 2017),” Chaplin said.
The group said during 2017 capital expenditure of R2.2bn was mainly directed towards continued progress on the replacement of the PG Bison Piet Retief particleboard plant, expansion of the Hosaf PET plan, construction of a new integrated bedding facility and investment in logistics and passenger transport vehicles.
The group also concluded two additional transactions in its contractual logistics division during the year. It acquired 100 percent of Lucerne Transport effective September 1, 2016, for R177 million and a 51.4 percent controlling interest in Xinergistix effective July 1, 2016, thereby providing KAP with further opportunities for growth in the logistics market.
“Our new chemical segment gives us increased scale and broader exposure to new markets and opportunities. We are also significantly increasing the production capacity of Hosaf ’s PET operations, which will result in further revenue and operating profit growth for the chemical division,” Chaplin added.
The group undertook a R1.5bn rights offer in November to help fund the acquisition of Safripol.
These acquisitions had made it possible for the group to report improved profits for the year to end June.
Revenue from continuing operations increased by 23 percent to R19.8bn, while operating profit before capital items from continuing operations increased 25 percent to R2.5bn. Operating margin increased to 12.6 percent as a result of divisional integration efficiencies, continued operational streamlining and recent capital investments and acquisitions.
The board declared a gross dividend of 21 cents per share, up 16.67 percent.
Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said KAP had delivered another strong result in a tough domestic economic environment.
“They derive about 90 percent revenue from the South African economy, so delivering 15 percent headline earnings per share growth in an economy that is experiencing a technical recession is clearly an outstanding result, driven by market share gains as well as solid cost control,” Takaendesa said.
He added that revenue and operating profit growth rates had been boosted by the first time inclusion of the recently acquired Safripol business, hence the importance of looking at headline earnings per share growth to factor in the cost of that acquisition.
“The outlook statement is quite promising as they expect further earnings growth in the year ahead, driven by the recent production capacity additions as well as a strong balance sheet to fund the acquisition of new growth opportunities,” he said.