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Unaudited results for the six months ended 31 December 2014
KAP Industrial Holdings Limited
Registration number: 1978/000181/06
Share code: KAP
ISIN: ZAE000171963
("KAP" or "the company" or "the group")
Unaudited results for the six months ended 31 December 2014
KAP is a diversified industrial business focused on growth in African markets
Revenue
up by 9%
Headline earnings per share from continuing operations up by 14%
Cash generated before working capital of R1.2 billion, up by 12%
Gearing ratio reduced to 48% from 54%
Corporate review
During the period under review, the group continued to further its strategy of strengthening its position as a market leader in the industries
that it serves in Africa. This has been achieved by investing in established businesses that provide high barriers to entry and which enhance
the group's quality of earnings in respect of sustainability, solid margins and strong cash generation.
This resulted in the disposal of the Footwear business during the year, and the rationalisation of the group's Integrated Timber and Manufacturing
Divisions into a single Diversified Industrial Division with streamlined management structures, operational systems and controls. During the year
the group also concluded the acquisition of Restonic, which became effective on 2 January 2015, and which will provide a unique opportunity for the
group to create a fully integrated bedding business in Africa.
Diversified logistics
Fuel, Agriculture and Mining
Specialised transport, distribution and logistics services
Freight and Logistics
Specialised supply chain and logistics services
Passenger Transport
Personnel, commuter, intercity and tourism transport
Diversified industrial
Timber
Forestry and timber operations with primary and secondary manufacturing
Chemical
Manufacture of PET, resin and formaldehyde
Automotive
Manufacture of components used in new vehicle assembly
Furniture Components
Manufacture of foam, fabrics, springs, bases and mattresses
Operational review
Diversified Logistics
The Diversified Logistics Division increased revenue by 6% to
R4 158 million in a competitive market within a subdued economic
environment. The restructure of Unitrans Supply Chain Solutions
(USCS) resulted in cost savings and efficiencies that protected
margins.
The reduction in fuel prices had little effect on the contractual logistics
business as these reductions are contractually passed on to customers.
However the Passenger Division benefited from the reduction in fuel
price in the intercity and tourism markets.
In the Freight and Logistics Division, improved volumes in the Foods,
Industrial and Freight Forwarding operations offset a poor performance
in the Furniture sector. An improved performance was produced by the
Fresh Freight operation.
Growth in the Passenger Division was enhanced by the start-up of
the new personnel transport contract in Mozambique. In addition, the
Gautrain bus feeder service continued to exceed its punctuality and
availability performance targets.
Diversified Industrial
During the period under review, the timber and manufacturing businesses were combined into a single
focused industrial business in order to better align skills and extract group efficiencies. Solid growth
in revenue and margins across this segment was impacted by poor results in the furniture components
business.
The Integrated Timber Division (PG Bison) delivered solid revenue and operating profit growth over the
comparative period, underpinned by the MDF upgrade at its Boksburg plant. Technology and efficiency
benefits of this upgrade also contributed to improved margin for the business. Operational efficiency
improvements, including freight, continued to yield cost savings for the Division during the period.
The Chemical Division (Hosaf and Woodchem) delivered strong growth in revenue and operating
profit. Woodchem volumes increased over the comparative period due to market share gains, while
Hosaf increased its sales volumes in line with market growth. The formation of this division has
yielded operational efficiencies and improved strategic alignment of these businesses.
Feltex Automotive delivered strong growth in revenue and operating profit, with vehicle build volumes
increasing. Automation initiatives and efficiency improvement programs continued during the period.
The Furniture Components Division was negatively affected by competitive trading conditions in the
furniture retail sector. DesleeMattex delivered solid results, with both volume growth and margin
improvement.
Financial review
These are the unaudited results for the six months ended 31 December 2014.
During the period, the group concluded the sale of the footwear business, which has been
disclosed as a discontinued operation in the Diversified Industrial segment.
Revenue and operating profit before capital items
Group revenue from continuing operations increased by 9% to R8 114 million from
R7 418 million.
The group operating profit before capital items from continuing operations increased to
R777 million from R720 million.
The operating profit of the Diversified Logistics segment increased by 10% to R430 million
from R392 million, with margins widening slightly to 10,3% from 10,0%.
The operating profit of the Diversified Industrial segment increased by 6% to R347 million from
R328 million, with margins narrowing slightly to 8,7% from 9,1% as a result of competitive
market conditions in the furniture components sector.
Capital items
Capital items of R26 million in the continuing operations relate to the impairment of goodwill
and intangible assets of the Fresh Freight operations, which were restructured during the
period.
Capital items of R10 million in the discontinued operations relate mainly to the disposal of
the Footwear division.
Cash flow
Cash generated before working capital changes increased by 12% to R1 203 million from
R1 070 million, which equates to a conversion of 152% of operating profit before capital
items into cash.
During the period, R160 million was received as proceeds on the disposal of the Footwear
division, with a futher R139 million expected to be received by 31 March 2015.
Debt structure and finance costs
The group's net interest-bearing debt reduced to R3 299 million from R3 404 million, which
equates to a gearing ratio of 48% (1H14:54%).
Debt structure
1H15 1H14
Rm Rm
Interest-bearing long-term liabilities 3 431 2 407
Interest-bearing short-term liabilities 79 400
Bank overdrafts and short-term facilities 1 088 1 893
Cash and cash equivalents (1 299) (1 296)
Net interest-bearing debt 3 299 3 404
Total equity (excluding minorities) 6 876 6 355
Net interest-bearing debt: equity 48% 54%
EBITDA including discontinued operations 1186 1 099
Net finance charges including discontinued
operations 163 174
EBITDA: interest cover (times)** 7,3 6,0
Net debt: EBITDA (times)** 1,4 1,6
**Rolling 12 months
Working capital
Consistent with previous interim periods, the first half of the financial year saw a seasonal
investment in working capital.
The net working capital of the group reduced by R37 million (3%) from the comparable period,
despite a 9% increase in revenue. Inventories reduced by R65 million and accounts payable
increased by R141 million, which more than offset an increase in accounts receivable of
R169 million.
Headline earnings per share (HEPS)
HEPS including discontinued operations increased by 19% to 19.1 cents from 16.1 cents in
the comparative period. HEPS from continuing operations increased by 14% to 18.5 cents
from 16.2 cents in the comparative period.
Net asset value (NAV)
The NAV per share increased to 293 cents from 271 cents in the comparative period.
Corporate action
The disposal of the Footwear division was in line with the strategic rationalisation of low
return non-core assets of the group in order to improve shareholder return.
Outlook
The Diversified Logistics Division continues to grow its African business in partnership with
its customers. The expansion of the Passenger Division into Mozambique is progressing
well, with new opportunities in other African countries also under investigation. The
rationalisation of under-performing contracts, and the continual focus on cost savings and
efficiencies will remain the focus for the Division within the current economic climate.
The Diversified Industrial Division is primarily focused on volume and margin growth
opportunities through capacity expansion and process improvements, and growth of market
share. The second phase upgrade of the PG Bison MDF plant at Boksburg and the installation
of the paper impregnation line at Woodchem are both progressing well. The successful
acquisition of Restonic, concluded on 2 January 2015, provides a unique opportunity to create
a fully integrated bedding business, which should deliver improved returns to shareholders.
The continued strategic initiatives and focus, with strong operational execution, provides
management with a positive outlook for the remainder of the financial year.
The group continues to apply its strategy of acquiring and optimising high barrier to entry,
cash generative assets in African markets.
Appreciation
We thank our employees, shareholders, customers and suppliers for their continued support
and loyalty.
Interim dividend
In line with historical policy, the group has not declared an interim dividend.
On behalf of the Board
J de V du Toit KJ Grové GN Chaplin
Independent Non-executive Chairman Executive Deputy Chairman Chief Executive Officer
17 February 2015
Condensed consolidated financial statements
Six months Six months
CONDENSED CONSOLIDATED ended ended Year ended
INCOME STATEMENT 31 Dec 2014 31 Dec 2013 30 Jun 2014
Unaudited Unaudited* % Audited*
Notes Rm Rm change Rm
Revenue 8 114 7 418 9 14 746
Operating profit before depreciation, amortisation and
capital items 1 170 1 102 6 2 231
Depreciation and amortisation (393) (382) (759)
Operating profit before capital items 777 720 8 1 472
Capital items 1 (26) (18) (14)
Earnings before interest, dividend income, associate and
joint-venture earnings and taxation 751 702 7 1 458
Net finance charges (162) (172) (325)
Share of profit/(loss) of associate and joint-venture companies 2 4 (5)
Profit before taxation 591 534 11 1 128
Taxation (162) (149) (302)
Profit for the period from continuing operations 429 385 11 826
Profit/(loss) for the period from discontinued operations 2 3 (15) (69)
Profit for the period 432 370 17 757
Attributable to:
Owners of the parent 415 354 17 724
Non-controlling interests 17 16 33
Profit for the period 432 370 17 757
From continuing and discontinued operations:
Headline earnings per ordinary share (cents) 19,1 16,1 19 33,8
Fully diluted headline earnings per ordinary share (cents) 18,9 16,0 18 33,4
Basic earnings per ordinary share (cents) 17,7 15,1 17 30,9
Fully diluted earnings per ordinary share (cents) 17,5 15,0 17 30,5
From continuing operations:
Headline earnings per ordinary share (cents) 18,5 16,2 14 34,1
Fully diluted headline earnings per ordinary share (cents) 18,3 16,2 13 33,7
Basic earnings per ordinary share (cents) 17,6 15,7 12 33,8
Fully diluted earnings per ordinary share (cents) 17,4 15,6 12 33,4
Number of ordinary shares in issue (m) 2 346 2 346 – 2 346
Weighted average number of ordinary shares in issue (m) 2 346 2 346 – 2 346
Earnings attributable to ordinary shareholders (Rm) 415 354 17 724
Headline earnings attributable to ordinary shareholders (Rm) 3 449 377 19 792
Six months Six months
ADDITIONAL INFORMATION ended ended Year ended
31 Dec 2014 31 Dec 2013 30 Jun 2014
Unaudited Unaudited* Audited*
Rm Rm Rm
Note 1: Capital items
From continuing operations:
Loss on disposal of property, plant and equipment and investment property – (18) (8)
Loss on disposal of investments and impairments (26) – (6)
(26) (18) (14)
From discontinued operations:
Loss on disposal of investments and impairments (10) (15) (83)
(10) (15) (83)
(36) (33) (97)
Note 2: Profit/(loss) for the period from discontinued operations
Revenue 232 632 1 047
Operating profit/(loss) before depreciation, amortisation and capital items 16 (3) (3)
Depreciation and amortisation – (5) (7)
Operating profit/(loss) before capital items 16 (8) (10)
Capital items (10) (15) (83)
Earnings/(loss) before interest, dividend income, associate and joint-venture 6 (23) (93)
earnings
and taxation
Net finance charges (1) (2) (5)
Profit/(loss) before taxation 5 (25) (98)
Taxation (2) 10 29
Profit/(loss) for the period from discontinued operations 3 (15) (69)
Note 3: Headline earnings attributable to ordinary shareholders
Earnings attributable to owners of the parent 415 354 724
Adjusted for:
Capital items (note 1) 36 33 97
Taxation effects of capital items (2) (10) (30)
Capital items of associate and joint-venture companies (net of taxation) – – 1
449 377 792
FAIR VALUES OF FINANCIAL Fair value Fair value Fair value Fair
INSTRUMENTS as at as at as at value
31 Dec 2014 31 Dec 2013 30 Jun 2014 hierarchy
Rm Rm Rm
Derivative financial assets 16 33 1 Level 2
Derivative financial liabilities (5) – (6) Level 2
Level 2 financial instruments are valued using techniques where all of the inputs that have a significant effect on the
valuation are directly of indirectly based on observable market data. These inputs include published interest rate yield
curves and foreign exchange rates.
CONDENSED CONSOLIDATED 31 Dec 2014 31 Dec 2013 30 Jun 2014
STATEMENT OF FINANCIAL POSITION Unaudited Unaudited Audited
Rm Rm Rm
ASSETS
Non-current assets
Goodwill and intangible assets 1 261 1 302 1 290
Property, plant and equipment and investment properties 6 860 6 496 6 633
Consumable biological assets 1 917 1 811 1 875
Investments in associate and joint-venture companies 148 146 145
Investments and loans 22 33 26
Deferred taxation assets 66 66 70
10 274 9 854 10 039
Current assets
Inventories 1 425 1 490 1 197
Accounts receivable and other current assets 2 757 2 588 2 528
Short-term loans 159 5 17
Cash and cash equivalents 1 299 1 296 1 348
Assets classified as held for sale – – 428
5 640 5 379 5 518
Total assets 15 914 15 233 15 557
EQUITY AND LIABILITIES
Capital and reserves
Ordinary stated share capital 6 970 6 970 6 970
Reserves (94) (615) (261)
6 876 6 355 6 709
Non-controlling interests 154 142 150
Total equity 7 030 6 497 6 859
Non-current liabilities
Interest-bearing long-term liabilities 3 431 2 407 3 436
Deferred taxation liabilities 1 027 923 994
Other long-term liabilities and provisions 75 70 89
4 533 3 400 4 519
Current liabilities
Accounts payable, provisions and other current liabilities 3 184 3 043 3 473
Interest-bearing short-term liabilities 79 400 68
Bank overdrafts and short-term facilities 1 088 1 893 520
Liabilities classified as held for sale – – 118
4 351 5 336 4 179
Total equity and liabilities 15 914 15 233 15 557
Net asset value per ordinary share (cents) 293 271 286
Net interest-bearing debt to equity (%) 48% 54% 40%
CONDENSED CONSOLIDATED Six months Six months
STATEMENT OF COMPREHENSIVE ended ended Year ended
INCOME 1 Dec 2014 31 Dec 2013 30 Jun 2014
Unaudited Unaudited Audited
Rm Rm Rm
Profit for the period 432 370 757
Other comprehensive income/(loss)
Items that will not be reclassified subsequently to profit or loss:
Actuarial loss on defined benefit plans – – (2)
Deferred taxation – – 1
– – (1)
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign subsidiaries 4 (3) 16
4 (3) 16
Other comprehensive income/(loss) for the period 4 (3) 15
Total comprehensive income for the period 436 367 772
Total comprehensive income attributable to:
Owners of the parent 419 352 739
Non-controlling interests 17 15 33
Total comprehensive income for the period 436 367 772
CONDENSED CONSOLIDATED Six months Six months
STATEMENT OF CHANGES IN EQUITY ended ended Year ended
31 Dec 2014 31 Dec 2013 30 Jun 2014
Unaudited Unaudited Audited
Rm Rm Rm
Balance at beginning of the period 6 859 6 301 6 301
Changes in reserves
Total comprehensive income for the period attributable to owners
of the parent 419 352 739
Dividends and capital distributions paid (282) (188) (232)
Share-based payments 29 25 33
Other reserve movements 1 – 3
Changes in non-controlling interests
Total comprehensive income for the period attributable to
non-controlling interests 17 15 33
Dividends and capital distributions paid (13) (8) (12)
Shares bought from non-controlling interests – – (6)
Balance at end of the period 7 030 6 497 6 859
Comprising:
Ordinary stated share capital 6 970 6 970 6 970
Reverse acquisition reserve (3 952) (3 952) (3 952)
Distributable reserves 3 735 3 269 3 598
Share-based payment reserve 86 49 57
Other reserves 37 19 36
Non-controlling interests 154 142 150
7 030 6 497 6 859
Six months Six months
CONDENSED CONSOLIDATED STATEMENT OF ended ended Year ended
CASH FLOWS 31 Dec 2014 31 Dec 2013 30 Jun 2014
Unaudited Unaudited Audited
Rm Rm Rm
Operating profit before capital items 777 720 1 472
Depreciation and amortisation 393 382 759
Operating profit/(loss) before depreciation, amortisation and capital items from
discontinued operations 16 (3) (3)
Net fair value adjustments of consumable biological assets and decrease due to
harvesting (40) (50) (114)
Other non-cash adjustments 57 21 (43)
Cash generated before working capital changes 1 203 1 070 2 071
Increase in inventories (214) (113) (39)
Increase in receivables (306) (209) (248)
(Decrease)/increase in payables (332) (380) 104
Changes in working capital (852) (702) (183)
Cash generated from operations 351 368 1 888
Dividends received – – 5
Dividends paid (295) (196) (200)
Net finance charges (163) (174) (330)
Taxation paid (71) (61) (125)
Net cash (outflow)/inflow from operating activities (178) (63) 1 238
Additions to property, plant and equipment – expansion (213) (197) (413)
Additions to property, plant and equipment – replacement, net of proceeds and
government grants received (384) (316) (653)
Proceeds on disposal of investments 160 280 278
Other investing activities (10) (24) (50)
Net cash outflow from investing activities (447) (257) (838)
Net cash inflow/(outflow) from financing activities 575 294 (385)
Net (decrease)/increase in cash and cash equivalents (50) (26) 15
Effects of exchange rate changes on cash and cash equivalents 1 2 13
Cash and cash equivalents at beginning of period 1 348 1 320 1 320
Cash and cash equivalents at end of period 1 299 1 296 1 348
SEGMENTAL ANALYSIS Six months Six months
ended ended Year ended
31 Dec 2014 31 Dec 2013 30 Jun 2014
Unaudited Unaudited* % Audited*
Rm Rm change Rm
Revenue from continuing operations
Diversified Logistics 4 158 3 916 6 7 737
Diversified Industrial 3 981 3 592 11 7 212
8 139 7 508 8 14 949
Intersegment revenue eliminations (25) (90) (203)
8 114 7 418 9 14 746
Operating profit before capital items from
continuing operations
Diversified Logistics 430 392 10 762
Diversified Industrial 347 328 6 710
777 720 8 1 472
31 Dec 2014 31 Dec 2013 30 Jun 2014
Unaudited Unaudited Audited
Rm % Rm % Rm %
Total assets
Diversified Logistics 5 734 40 5 347 39 5 520 39
Diversified Industrial 8 461 60 8 357 61 8 501 61
14 195 100 13 704 100 14 021 100
RECONCILIATION OF TOTAL ASSETS PER
STATEMENT OF FINANCIAL POSITION TO TOTAL 31 Dec 2014 31 Dec 2013 30 Jun 2014
ASSETS PER SEGMENTAL ANALYSIS Unaudited Unaudited Audited
Rm Rm Rm
Total assets per statement of financial position 15 914 15 233 15 557
Less: Cash and cash equivalents (1 299) (1 296) (1 348)
Less: Investments in associate and joint-venture companies (148) (146) (145)
Less: Interest-bearing long-term loans receivable (22) (33) (26)
Less: Interest-bearing short-term loans receivable (159) (5) (17)
Less: Related party receivables (91) (49) –
Total assets per segmental analysis 14 195 13 704 14 021
Six months Six months
GEOGRAPHICAL ended ended Year ended
INFORMATION 31 Dec 2014 31 Dec 2013 30 Jun 2014
Unaudited Unaudited* Audited*
Rm % Rm % Rm %
Revenue
South Africa 7 140 88 6 564 88 13 137 89
Rest of Africa 974 12 854 12 1 609 11
8 114 100 7 418 100 14 746 100
31 Dec 2014 31 Dec 2013 30 Jun 2014
Unaudited Unaudited Audited
Rm % Rm % Rm %
Non-current assets
South Africa 9 292 90 9 091 92 9 184 91
Rest of Africa 982 10 763 8 855 9
10 274 100 9 854 100 10 039 100
NOTES TO THE FINANCIAL STATEMENTS
1. Statement of compliance
The consolidated interim financial information has been prepared and presented
in accordance with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards (IFRS), the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and Financial
Reporting Pronouncements as issued by the Financial Reporting Standards Council, the
Listings Requirements of the JSE Limited, the information as required by IAS 34: Interim
Financial Reporting and the requirements of the South African Companies Act 71 of 2008
as amended. The consolidated interim financial information has been prepared using
accounting policies that comply with IFRS which are consistent with those applied in the
financial statements for the year ended 30 June 2014, except for the changes mentioned
in note 5 below.
2. Basis of preparation
The condensed interim financial statements are prepared on the historical cost basis,
except for certain assets and liabilities which are carried at amortised cost, and derivative
financial instruments and biological assets which are stated at their fair values and
presented in millions of South African Rands (Rm) The preparation of the condensed interim
financial statements for the six months ended 31 December 2014 was supervised by John
Haveman, the group's Chief Financial Officer.
3. Changes to comparative results
The December 2013 and June 2014 income statements were re-presented to reflect
the discontinued operations of the Footwear division. In addition, the comparatives in
the segmental analysis were restated in the new segments in which the group is now
structured, i.e. Diversified Logistics and Diversified Industrial.
4. Financial statements
These results have not been reviewed or reported on by the group's auditors. The results
were approved by the Board of directors on 17 February 2015.
5. Changes in accounting policies
The accounting policies adopted in the preparation of the condensed interim financial
information are consistent with those of the annual financial statements for the year ended
30 June 2014, except for the adoption of the following standards during the period which
did not affect the results of the group:
IAS 27 – Consolidated and separate financial statements – Equity Method in Separate
Financial Statements
IAS 36 – Impairment of assets – Recoverable amount disclosures of non-financial assets
IAS 39 – Financial instruments: recognition and measurement – Novation of derivatives
and continuation of hedge accounting
IFRIC 21 – Levies
6. Post-balance sheet events
The acquisition of Restonic became effective on 2 January 2015. Please refer to the
Outlook for more information.
7. Changes to the board / board committee
With effect from 18 November 2014, Mr. JB Magwaza, independent non-executive director,
retired from the board, Mr. KJ Grové stepped down as chief executive officer and was
appointed executive deputy chairman and Mr. GN Chaplin was appointed chief executive
officer. Mr. SH Müller replaced Mr. Magwaza as chairman of the company's human
resources and remuneration committee.
* Prior period disclosure has been restated to reflect discontinued operations as well as the new segments in which
the group is now structured.
Non-executive directors: J de V du Toit (Chairman)*, MJ Jooste, AB la Grange, IN Mkhari*, SH Müller*, SH Nomvete*,
PK Quarmby*, DM van der Merwe, CJH van Niekerk
Executive directors: KJ Grové (Executive Deputy Chairman), GN Chaplin (CEO), JP Haveman (CFO)
Registered address: 28 6th Street, Wynberg, Sandton, 2090
Postal address: PO Box 18, Stellenbosch, 7599
Telephone: 021 808 0900 Facsimile: 021 808 0901
E-mail: info@kap.co.za
Transfer secretaries: Computershare Investor Services Proprietary Limited, 70 Marshall Street, Johannesburg, 2001
Company secretary: Steinhoff Africa Secretarial Services Proprietary Limited
Auditors: Deloitte & Touche
Sponsor: PSG Capital Proprietary Limited
*Independent non-executive directors
www.kap.co.za
Date: 17/02/2015 02:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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