KAP shares drop 4% on JSE as ‘perfect’ storm’ slams revenue, reduces annual profit
KAP INDUSTRIAL Holdings’ share price declined by more than 4 percent on the JSE yesterday after it reported a R2.5 billion hit on its revenue and a reduction of R800 million in its annual operating profit amid a year its chief executive Gary Chaplin described as “a perfect storm”.
The weakening macroeconomic environment in South Africa affected its operations, with headline earnings per share (Heps) declining by 68 percent for the year to end June to 13.7 cents a share, down from 42.9c compared to last year.
But Chaplin said the group’s business model had proven to be resilient in what was an extremely complex and challenging year.
“In many respects this year was a ‘perfect storm’ for KAP, but despite these challenges the group generated cash from operations of R2.1bn and remained within its banking facilities and relevant financial covenant ratios,” Chaplin said.
He said three key factors had a major impact on the group’s operational and financial performance, which included the weakening macroeconomic and socio-political environment in South Africa, the increasing cyclical imbalance in global polymer supply and demand and the effect of Covid-19 and the associated lockdowns.
The Covid-19 hit led to a 13 percent decline in revenue to R22.17bn and operating profit before capital items fell by 46 percent to R1.31bn, while earnings before interest, tax, depreciation and amortisation were down by 27 percent to R2.7bn.
KAP, a diversified group consisting of industrial, chemical and logistics businesses, said in light of Covid-19 and the effect on the economy, the company and its employees, it would not declare a dividend for the year.
The share price declined to R2.34 a share in intraday trade, down from Wednesday’s closing price of R2.44. The share closed at R2.34 yesterday.
However, Chaplin said the group was confident about its operations going forward with significant improvement already seen in July and August after its financial year-end.
“Our products and services are still in demand and we have seen a steady improvement in demand as the lockdown restrictions have been further relaxed.
“Our financial forecasts continue to reflect that the company will be profitable and cash-generative for the foreseeable future,” he said.
KAP reported non-cash impairments to its balance sheet amounting to R3.3bn, due to the increased imbalance in global polymer supply and demand and the impacts of Covid-19, in line with International Financial Reporting Standards requirements.
During the year KAP repurchased close to 5 percent of its own shares before lockdown for R544m. Chaplin said this was a clear indication of the board’s confidence in the future prospects of the group.
KAP operates different divisions, which include Integrated Timber, Automotive Components, Integrated Bedding, Polymers, Contractual Logistics and Passenger Transport.