KAP trading well as capital projects near commissioning

KAP had received interest in Unitrans and have responded by exploring it in a structured manner. File photo

KAP had received interest in Unitrans and have responded by exploring it in a structured manner. File photo

Published Feb 29, 2024


KAP Limited had become good at operating in the difficult environment and most of its businesses performed well in the six months to end-December, CEO Gary Chaplin said yesterday.

The diversified group with industrial, chemical and logistics businesses saw a 2% decline in revenue to R15 billion. KAP’s share price gained 1.8% to R2.25 yesterday afternoon, but this was 33% below the price at the same time last year.

There has been recent media speculation that KAP might sell its logistics business Unitrans.

Chaplin said they had “received interest in Unitrans and have responded by exploring it in a structured manner to determine if it will enhance shareholder value and if it will be beneficial to our key stakeholders. I don’t think that this is unusual in a listed environment.”

He said there was nothing of substance at this stage that required a formal announcement or other communication with stakeholders.

There was also no certainty that a sale would result from the process.

“Unitrans is a major division of KAP, and we continue to manage it in the best interests of the business, its customers and its employees,” he said.

In the past six months, KAP’s operating profit fell 17% to R1.3bn. Cash generated from operations increased by over 100% to R790 million.

Chaplin said despite the challenging environment, the firm had managed to grow market share in certain areas, delivered cost savings, made efficiency improvements and increased selling prices to offset cost inflation.

“We also made good progress with restructuring initiatives. This good work was overshadowed by a very weak global polymers sector, which severely affected our Safripol business," said Chaplin.

KAP said in a statement it had R2.5bn of capital work-in-progress on the balance sheet, which related to major capital projects and represented 16% of the group’s property, plant and equipment.

The largest of these was a R1.9bn expansion in Mkhondo, Mpumalanga, which would increase the capacity of PG Bison, KAP’s most profitable division during the period, by 33%.

“Our balance sheet is a key focus for the board and management. Our debt levels are elevated due to a number of major expansion projects that we embarked on a few years ago.

“While these are in construction, they don’t generate cash flows, which has placed pressure on our balance sheet and earnings.

“However, they are all on track for completion in the next few months and should then become cash-generative. We are excited about the growth prospects these projects bring,” said Chaplin in a statement.

KAP’s operational performance was weighed down by Safripol’s 67% decline in operating profit. Most of the company’s other divisions performed well.

PG Bison, which makes decorative wood panels, increased operating profit 18% despite lower levels of building activity. Feltex, manufacturer of automotive components, benefited from an automotive sector recovery, increasing operating profit by 31%.

Sleep products manufacturer Restonic benefited from a restructuring the prior year, more than doubling operating profit.

Unitrans reported a 21% slide in operating profit largely due to restructuring costs and a currency devaluation in one of its African territories.

Despite spending R1.1bn on expansions in the six months, net debt reduced by R708m.

Chaplin said the firm did not expect an improvement in the economy through the rest of the financial year.

However, the group’s management believed the focus on market share gains and exports to fill operating capacity, cost savings and better efficiencies was the correct strategy.

The rationalisation and restructuring of businesses that were not performing would continue, said Chaplin.