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February : KAP Industrial Holdings’ interim results highlight solid growth and enhanced margins

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13 February, 2017

KAP Industrial Holdings’ interim results highlight solid growth and enhanced margins


KAP

Highlights


KAP Industrial Holdings' interim results highlight solid growth and enhanced margins.
  • Revenue grows 10% to R9.0bn
  • Operating profit increases by 24% to R1.1bn
  • Headline earnings per share up by 18%
  • Cash generated from operations up by 27%
  • Net asset value per share up by 17%


Overview


Diversified industrial group, KAP Industrial Holdings Limited (‘KAP'), which incorporates logistics and industrial businesses, reported growth across all major areas of operations today in the group's interim results announcement for the six months ended 31 December 2016.

KAP reported a 10% increase in revenue for the first half of its 2017 financial year to R9.0bn (H1:2016 - R8.2bn) and a 24% improvement in operating profit to R1.1 billion (H1:2016 - R898 million), which resulted in operating margins continuing to improve to 12.3% from the previous year's 11%. During the period under review cash flow from operations increased by 27%, supported by earnings growth and improved working capital management.

"The results for the period under review reflect disciplined execution of the group's strategy by our management teams," says Gary Chaplin, chief executive officer of KAP. "These results were driven primarily by organic growth and market share gains which are the result of recent technology investments, improved efficiencies and increased integration across the group."

Operational Review

The Diversified Logistics segment which comprises Contractual Logistics in the petrochemical, food, agriculture, mining and cement industries and Passenger transport in the personnel, commuter, intercity and tourism sectors increased revenue by 9% to R4.5 billion. Operating profit increased marginally by 2% to R488 million (H1:2016 - R478 million).

"In spite of subdued economic activity in our areas of operations the Diversified Logistics operations performed well to show growth in a very challenging environment," says Chaplin. "In an environment characterised by lower volumes and increased competition, the group's strong cost control and efficiency improvements continued to support the overall operating margins and the competitiveness of the division."

The group's Diversified Industrial division, which includes Timber, Chemical, Automotive Components and Bedding operations, increased revenue by 12%, to R4.6 billion during the interim results reporting period. Operating profit improved by an impressive 49% to R624 million (H1:2016 - R420 million).

"Recent technology investments and capacity expansion within our Integrated Timber division continued to drive revenue growth and increase margins," says Chaplin. "Ongoing focus on the division's value-add strategy and further improvements in the division's forestry, sawmilling and pole operations also underpinned the division's solid performance."

The group's Chemical division performed well as a result of strong demand for its products and the commissioning of a new downstream value-add "paper impregnation" plant at its Woodchem operations. 

Stable vehicle assembly volumes, robust export volumes and successful new model introductions in the domestic market all contributed to the good performance in KAP's Automotive Components division.

The Integrated Bedding division's stable revenue base delivered strong operating margin improvements as a result of its backward integration into key raw materials.  The division continued to focus on its model for decentralised mattress assembly and distribution in order to facilitate quicker delivery at a lower cost.

Expansion
"We continue to focus on expanding our existing operations through investments in new technology plant and equipment and through complementary acquisitions," explains Chaplin. KAP is engaged in several organic expansion projects in the Diversified Industrial Division, which will see increased capacity and lower operating costs.

In line with its growth strategy, KAP also successfully concluded three acquisitions in the period under review. Effective 1 July 2016, KAP acquired a controlling stake in Xinergistix, a logistics company which provides complementary services to those of Unitrans. And on 1 September 2016, the group acquired 100% of Lucerne, also a logistics company whose operations are complementary to those of Unitrans in terms of bulk liquid tanker transport.

With an effective date subsequent to the reporting period, 1 January 2017, KAP acquired 100% of Safripol, for R4.1 billion in what Chaplin explains as "a game changing transaction for KAP in terms of scale and in terms of establishing KAP in the Chemical sector". Safripol manufactures polypropylene and high density polyethylene used to manufacture plastic injection and blow moulded products. "Safripol is similar to our Hosaf operations in terms of its business model and the products manufactured by Safripol are complementary to those produced by Hosaf," explains Chaplin.

"To facilitate current expansion activities and future growth for KAP, we concluded three key funding projects during the period," says Chaplin, "where we enjoyed strong support from shareholders and institutions". The group raised R1.5 billion equity through a fully subscribed rights issue, a further R1.4 billion through a combination of private and public bond issuances and R2.8 billion of new term debt facilities.

Outlook
"By maintaining our focus on the group's strategy to improve efficiencies and reduce costs, while simultaneously optimising and expanding existing operations, we aim to grow market share in all areas of operation. The acquisition and integration of Lucerne as well as the increased shareholding in Xinergistix have already produced exciting new growth opportunities for our Diversified Logistics segment, while as mentioned, the Safripol acquisition is a real game changer for the Industrial division. We are optimistic about the prospects for KAP, the environment is challenging, however KAP is well positioned to successfully navigate these challenges," Chaplin concludes.

Download the : Unaudited results for the six months ended 31 December 2016

For more information, contact:
Reina de Waal
, Corporate Services, KAP Industrial
Tel: (+27) 021 808 0820 | Email: reina.dewaal@kap.co.za


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