KAP (KAP) industrial holdings full year financial results for period ending 3 June

KAP (KAP) industrial holdings full year financial results for period ending 3 June

John Maynard  | Aug 21, 2019 01:54

We take a look at the full year financial results of KAP Industrial Holdings for the year end June 2019.

KAP Industrial Holdings Limited (KAP) is a JSE-listed diversified industrial group consisting of industrial, chemical and logistics business

About KAP

Kap Industrial Holdings Ltd (JO:KAPJ) is a JSE-listed diversified industrial group consisting of industrial, chemical and logistics businesses. The group is focused on delivering on its strategy of being a market leader in the industries it serves in a growing African market.

In July 2003, Daun & Cie gained control of Kolosus, a JSE-listed company, which was used as the basis for new transactions, mainly the acquisition of a diversified group of manufacturing companies. Kolosus then became KAP, with the new name being derived from the German translation of the Cape of Good Hope (Kap der Guten Hoffnung) and was listed on the JSE in 2004.

KAP acquired the industrial assets of Steinhoff (JO:SNHJ) Africa in 2012, and restructured into three distinct segments – diversified industrial, diversified chemical and diversified logistics – in January 2017. KAP is now truly a leading industrial business in southern Africa and has moved from a small-cap to a mid-cap listed company on the JSE. “KAP is independently funded, independently managed with strong governance structures, and maintains a clear strategy with a very effective management team.”

The image below provides a more detailed overview of KAP's divisions and their products and services delivered.

KAP's divisions, their products and services

So to the numbers we go

Highlights of the financial results reported by KAP in their financial results are as follows:
From continuing operations
  • Revenue increased by 12% to R25 602 million, from R22 813 million in the prior corresponding period.
  • Operating profit before capital items decreased by 13% to R2 527 million, from R2 901 million in the prior corresponding period.
  • Headline earnings per share (“HEPS”) decreased by 25% to 45.9 cents per share, from 61.6 cents per share in the prior corresponding period.
  • Earnings per share (“EPS”) decreased by 31% to 41.4 cents per share, from 59.6 cents per share in the prior corresponding period.​

From continuing and discontinued operations

  • Revenue increased by 12% to R25 765 million, from R23 038 million in the prior corresponding period.
  • Operating profit before capital items decreased by 14% to R2 445 million, from R2 842 million in the prior corresponding period.
  • HEPS decreased by 28% to 42.9 cents per share, from 59.8 cents per share in the prior corresponding period.
  • EPS decreased by 34% to 38.3 cents per share, from 57.7 cents per share in the prior corresponding period.
  • Net asset value per share (“NAVPS”) increased by 4% to 474 cents per share, from 454 cents per share in the prior corresponding period
  • Dividend per share (“DPS”) at 23 cents per share, unadjusted from the prior corresponding period.

The numbers we are interested in are discussed below:

  • ​​PE ratio: 11.39
  • Dividend yield: 4.7%
  • Cash generated from operations: R4 billion
  • Cash generated per share: R1.47 a share
  • Price to book value: 1.03 (basically trading at the same price as the net asset value)
  • Cash on balance sheet: R1.785 billion
  • Cash per share: 66c a share (or 13.5% of their share price)

So any comments or guidance from management on the results?

Integrated Timber
The Integrated Timber division comprises forestry, sawmilling, pole manufacture, panel manufacture and upgrading operations. In line with international industry peers, the resin manufacturing and paper impregnation operations are now reported as part of this division (previously reported as part of the diversified chemical segment), as they represent strategic raw materials to the panel products operation and reflect the group’s strategy of integration (prior year segmental analysis has been restated for comparative purposes). The division’s panel product operations performed well for the year, showing volume, revenue and operating profit growth. It continued to pursue its strategy of technology investments to reduce its cost of manufacture, increase the proportion of value-added products and grow market share. The division’s performance was positively impacted by the postponement of certain plant maintenance shutdowns. The required maintenance activities will be completed in conjunction with plant expansions planned in F2020, thereby minimizing overall production downtime. The division continued to drive exports to ensure process optimization through its plants. It discontinued the sale and distribution of solid surfacing and high-pressure laminate products during the year in order to focus on its own manufactured products. The resin operation performed well for the year with increased volume and improved sales mix. The division’s forestry, sawmilling and pole operations in the southern Cape were significantly impacted by the operational effects of the extensive fires experienced in the region during 2017 and 2018, which had a R68 million negative impact on the division’s operating results compared to the prior year. The division has initiated new projects to expand particleboard capacity and improve efficiencies at both its Ugie and Piet Retief plants, which will be commissioned in February and March 2020 respectively. An additional MFB (melamine-faced board) upgrading press at Piet Retief will be commissioned in August 2019. The combined cost of these investments will be approximately R200 million, the majority of which will be incurred in F2020
Automotive components
An 11% increase in industry new vehicle assembly volumes over the prior comparative period supported the revenue, volume and profit growth of the division. The model replacements of the VW Polo and the BMW X3 introduced during the previous financial year were ramped up as planned. Efficiency improvement projects and new technologies associated with the new model introductions were successfully implemented during the second half of the year. The aftermarket accessories business was rationalized during the year. In this regard, the Maxe operations, which are aligned with the strategy of the division and remain an area of potential expansion, performed well for the year in spite of subdued industry new vehicle sales volumes. A process for the disposal of the remaining aftermarket accessories operations was initiated during the year and will be completed during F2020. These operations, including closure costs, are reflected as discontinued operations in the company’s income statement (prior year figures have been restated for comparative purposes). The extension of the Automotive Production and Development Programme (APDP) to 2035 provides much-needed clarity and stability to the automotive sector, which management believes will lead to growth opportunities for the division. Production disruptions associated with the introduction of a replacement model are expected during F2020

John Maynard

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