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Audited Results For The Year Ended 30 June 2016
KAP Industrial Holdings Limited
Registration number: 1978/000181/06
Share code: KAP
ISIN: ZAE000171963
(‘KAP’ or ‘the company’ or ‘the group’)
AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2016
HIGHLIGHTS
Revenue from continuing operations up by 4% to R16.2bn
Operating profit from continuing operations up by 19% to R2bn
Headline earnings per share from continuing operations up by 18%
Cash generated from operations up by 44%
Dividend per share increased by 20%
R4.1bn Safripol acquisition post 30 June 2016
CORPORATE REVIEW
The group continued to grow through investment in strategically aligned, established businesses and operations with high barriers
to entry which enhance the group’s quality of earnings in respect of sustainability, solid margins and strong cash conversion. This
was achieved during the year through continued focus on optimising existing operations, organic expansion activities and the acquisition
of complementary businesses. The implementation and execution of the group’s strategy produced pleasing results for the year.
Operational review
Diversified Logistics revenue - 48%
Diversified Industrial revenue - 52%
Revenue breakdown by division:
Contractual logistics - 36%
Specialised contractual supply chain and logistics services
Passenger transport - 12%
Personnel, commuter, intercity and tourism transport
Integrated timber - 17%
Forestry and timber manufacturing operations with primary and secondary processing
Chemical - 18%
Manufacture of PET, resin and formaldehyde
Automotive components - 8%
Manufacture of components used in new vehicle assembly and after-market vehicle accessories
Integrated bedding - 9%
Manufacture of foam, fabrics, springs, bases and mattresses
Revenue for the Diversified Logistics segment increased marginally to R7 899 million for the period despite the lower average fuel
price which is contractually passed on to customers and which has the effect of reducing revenue. The operating profit of the Diversified
Logistics segment increased by 14% to R1 006 million from R880 million.
The consolidation and rationalisation of the Unitrans Supply Chain Solutions ("Unitrans") operations into a single Contractual Logistics
division was successfully concluded during the year. This facilitated growth within specific industry sectors, further optimising the
utilisation of assets and infrastructure, resulting in enhanced operating efficiencies. This provided the platform for the reallocation
of capital towards higher return activities and the reduction in overhead costs which improved operating margins.
Unitrans produced growth in the food, petrochemical and infrastructure sectors. Subdued activity in the mining and agriculture sectors
was well managed, with strong focus on cost containment and fleet utilisation.
The Passenger Transport division performed well with the commuter, intercity and Gautrain operations offsetting low passenger activity
in the mining sector. Activity in the tourism sector showed improvement and operations in Mozambique continued to perform well. The division
benefited from lower average fuel prices in certain sectors.
Revenue for the Diversified Industrial segment increased by 7% to R8 440 million for the period. The operating profit of the Diversified
Industrial segment increased by 24% to R978 million from R786 million.
The Integrated Timber division performed well during the period with revenue growth and operating margin improvement resulting from
its recent MDF expansion, continued focus on its value-add strategy and a significant improvement in its sawmilling operations.
The Chemical division performed well, showing revenue growth and operating margin improvement. Woodchem showed strong market share
gains and successfully commissioned its paper impregnation plant. Hosaf continued to operate at full capacity. While revenue remained
flat, operating margin at Hosaf was supported by stable international PET margins and by improved operational efficiencies and reduced
operating costs.
Investments in technology upgrades and continuous improvement projects associated with new model introductions have resulted in
a good performance by Feltex in the Automotive Components division. The Autovest operations performed well during the three months
since acquisition, and good progress was made with its integration into the group.
In the Integrated Bedding division operating margin improvement resulted from continued integration efficiency and cost-saving initiatives.
Restonic performed well, while the Vitafoam and DesleeMattex operations both showed strong improvement. The division made significant
progress in the implementation of its strategy of decentralised mattress assembly and distribution.
FINANCIAL REVIEW
These are provisional audited results for the year ended 30 June 2016.
Revenue and operating profit before capital items
Revenue from continuing operations increased by 4% to R16 232 million from R15 664 million. Operating profit before capital items from
continuing operations increased by 19% to R1 984 million from R1 666 million. Operating margin increased to 12.2% from 10.6% as a result
of an improvement in the quality of revenue and the rationalisation of the group’s cost base.
Headline earnings per share (HEPS)
HEPS from continuing operations increased by 18% to 47.8 cents from 40.6 cents in the comparative period. HEPS including discontinued
operations increased by 19% to 47.8 cents from 40.2 cents in the comparative period.
Tax rate
The effective tax rate increased to 29.2% from 27.2% as a result of withholding taxes emanating from the repatriation of funds from
non-South African territories.
Cash flow
Cash generated from operations increased by 44% to R3 285 million from R2 275 million, supported by strong working capital management.
Working capital
Net working capital decreased by R379 million to negative R27 million. Inventories increased by R107 million; accounts receivable
increased by R138 million while accounts payable increased by R624 million. The net working capital of the prior period did not include
Autovest Limited, which was acquired effective 1 April 2016.
Capital expenditure
Replacement capital expenditure continues to be managed in relation to the annual depreciation charge, and amounted to R965 million
for the period.
Expansionary capital expenditure of R752 million resulted from various growth opportunities in the group, which include certain
new logistics contracts, a high-gloss finishing line in PG Bison’s Boksburg plant, a paper impregnation plant at the Woodchem operation
and progress payments on the expansion of the Hosaf PET plant and the upgrade of the Piet Retief particleboard plant.
Debt structure and finance costs
Despite the various expansion initiatives highlighted above, net interest-bearing debt reduced to R2 069 million from R2 089 million.
This reduction was due to strong profit and cash generation which resulted in a further reduction in the gearing ratio to 24% from 27%
in the previous year. The net interest-bearing debt maturity profile of the company was also improved during the year by the replacement
of certain lines of credit with longer dated facilities. The debt structure and cover ratios are reflected as follows:
30 June 2016 30 June 2015
Debt structure Rm Rm
Interest-bearing long-term liabilities 4 204 3 129
Interest-bearing short-term liabilities 431 327
Bank overdrafts and short-term facilities 36 3
Cash and cash equivalents (2 602) (1 370)
Net interest-bearing debt 2 069 2 089
Total equity (excluding non-controlling interests) 8 667 7 761
Net interest-bearing debt: equity 24% 27%
EBITDA* 2 790 2 450
Net finance charges* 313 289
EBITDA: interest cover (times) 8.9 8.5
Net debt: EBITDA (times) 0.7 0.9
*From continuing operations
Net asset value (NAV)
The NAV per share increased to 355 cents from 320 cents in the comparative period.
Business combinations
The group acquired the business of Autovest Limited effective 1 April 2016. The fair value of the assets and liabilities
of Autovest Limited was R163 million with a purchase price of R560 million, resulting in goodwill of R397 million.
Outlook
Management continues to focus on optimising and expanding its existing operations and on growing its market share in all areas of operation.
Management remains optimistic that these activities will provide a solid platform for continued growth of the group, despite the current
challenging economic environment.
In the Diversified Logistics segment, certain key contracts were renewed during the year and a healthy volume of new contracts was
secured, providing strong momentum for FY2017. It is expected that improved efficiencies and significantly reduced costs resulting
from the rationalisation of this division will result in further contract renewals, extensions and the procurement of additional contracts
in the sectors within which the group operates.
In the Diversified Industrial segment, the momentum of existing operations is expected to continue during FY2017. This will be supported
by the acquisition of Autovest Limited and certain expansion projects implemented during FY2016, which include the PG Bison high-gloss
line and the Woodchem impregnation plant. Certain key projects, including amongst others the expansion of the Hosaf PET operation,
the upgrade of the PG Bison Piet Retief particleboard line and the construction of the new Integrated Bedding factory are progressing
on schedule, and will provide revenue and operating profit growth in FY2018.
Acquisitions concluded after 30 June 2016
The group continues to pursue acquisition opportunities in accordance with its strategy.
To this end, the group has concluded the following transactions subsequent to 30 June 2016:
Safripol Holdings (Pty) Ltd (Safripol)
The group concluded a transaction, subject to certain conditions precedent, to acquire 100% of the equity and claims in Safripol
for R4.1 billion, effective 1 January 2017. Safripol is engaged in the manufacture of polypropylene and high-density polyethylene,
which are used in the manufacture of a broad range of plastic injection and blow-moulded products. This business operates with
a similar business model to that of Hosaf, and produces products that are complementary to those of Hosaf.
Lucerne Transport (Pty) Ltd (Lucerne)
The group also concluded a transaction, subject to certain conditions precedent, to acquire 100% of the equity and claims in Lucerne,
effective 1 September 2016. Lucerne’s operations are complementary to those of Unitrans, specifically in terms of bulk liquid tanker
transport of chemicals and edible oils.
Dividend
The board of directors is pleased to announce that a gross dividend of 18 cents per share (2015: 15 cents per share) for the year
ended 30 June 2016 has been approved.
Appreciation
The board of directors records its appreciation for the continued support and loyalty of the group’s employees, shareholders,
customers and suppliers.
On behalf of the board
J de V du Toit KJ Grové GN Chaplin
Independent non-executive chairman Executive deputy chairman Chief executive officer
15 August 2016
SUMMARISED CONSOLIDATED FINANCIAL STATEMENTS
Summarised consolidated income statement Year ended Year ended
30 June 2016 30 June 2015
Audited Audited %
Notes Rm Rm change
Revenue 16 232 15 664 4
Operating profit before depreciation, amortisation
and capital items 2 790 2 450 14
Depreciation and amortisation (806) (784)
Operating profit before capital items 1 984 1 666 19
Capital items 1 (20) (35)
Earnings before interest, dividend income, associate
and joint-venture earnings and taxation 1 964 1 631 20
Net finance charges (313) (289)
Share of profit of associate and joint-venture companies 24 -
Profit before taxation 1 675 1 342 25
Taxation (482) (361)
Profit for the year from continuing operations 1 193 981 22
Loss for the year from discontinued operations 2 - (51)
Profit for the year 1 193 930 28
Attributable to:
Owners of the parent 1 147 888 29
Non-controlling interests 46 42
Profit for the year 1 193 930 28
From continuing and discontinued operations:
Headline earnings per ordinary share (cents) 47.8 40.2 19
Fully diluted headline earnings per ordinary share (cents) 47.2 39.6 19
Basic earnings per ordinary share (cents) 47.1 37.2 27
Fully diluted earnings per ordinary share (cents) 46.5 36.7 27
From continuing operations:
Headline earnings per ordinary share (cents) 47.8 40.6 18
Fully diluted headline earnings per ordinary share (cents) 47.2 40.1 18
Basic earnings per ordinary share (cents) 47.1 39.4 20
Fully diluted earnings per ordinary share (cents) 46.5 38.8 20
Number of ordinary shares in issue (m) 2 441 2 423 1
Weighted average number of ordinary shares in issue (m) 2 433 2 384 2
Earnings attributable to ordinary shareholders (Rm) 1 147 888 29
Headline earnings attributable to ordinary shareholders (Rm) 3 1 163 959 21
Additional information Year ended Year ended
30 June 2016 30 June 2015
Audited Audited
Rm Rm
Note 1: Capital items
From continuing operations:
Loss on disposal of property, plant and equipment and investment property (8) (1)
Loss on disposal of investments and impairments (12) (34)
(20) (35)
From discontinued operations:
Loss on disposal of property, plant and equipment and investment property - (6)
Loss on disposal of investments and impairments - (51)
- (57)
(20) (92)
Note 2: Loss for the year from discontinued operations
Revenue - 474
Loss before depreciation, amortisation and capital items - (1)
Depreciation and amortisation - (7)
Loss before capital items - (8)
Capital items - (57)
Loss before interest, dividend income, associate and joint-venture earnings and taxation - (65)
Net finance charges - -
Loss before taxation - (65)
Taxation - 14
Loss for the year from discontinued operations - (51)
Note 3: Headline earnings attributable to ordinary shareholders
Earnings attributable to owners of the parent 1 147 888
Adjusted for:
Capital items (note 1) 20 92
Taxation effects of capital items (3) (21)
Non-controlling interests’ portion of capital items (net of taxation) - 1
Capital items of associate and joint-venture companies (net of taxation) (1) (1)
1 163 959
Fair values of financial instruments Fair value Fair value
as at as at
30 June 2016 30 June 2015 Fair value
Audited Audited hierarchy
Rm Rm Audited
Derivative financial assets 15 3 Level 2
Derivative financial liabilities (26) (3) 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 or indirectly based on observable market data. These inputs include published interest
rate yield curves and foreign exchange rates.
Summarised consolidated statement of financial position 30 June 2016 30 June 2015
Audited Audited
Rm Rm
ASSETS
Non-current assets
Goodwill and intangible assets 2 078 1 598
Property, plant and equipment and investment properties 8 128 7 129
Consumable biological assets 1 890 1 824
Investments in associate and joint-venture companies 124 140
Investments and loans 3 1
Deferred taxation assets 105 85
12 328 10 777
Current assets
Inventories 1 286 1 179
Accounts receivable and other current assets 2 677 2 539
Short-term loans 2 23
Taxation receivable 44 36
Cash and cash equivalents 2 602 1 370
6 611 5 147
Total assets 18 939 15 924
EQUITY AND LIABILITIES
Capital and reserves
Ordinary stated share capital 7 318 7 318
Reserves 1 349 443
8 667 7 761
Non-controlling interests 195 169
Total equity 8 862 7 930
Non-current liabilities
Interest-bearing long-term liabilities 4 204 3 129
Deferred taxation liabilities 1 368 1 086
Other long-term liabilities and provisions 93 93
5 665 4 308
Current liabilities
Accounts payable, provisions and other current liabilities 3 899 3 279
Interest-bearing short-term liabilities 431 327
Taxation payable 46 77
Bank overdrafts and short-term facilities 36 3
4 412 3 686
Total equity and liabilities 18 939 15 924
Net asset value per ordinary share (cents) 355 320
Net interest-bearing debt to equity (%) 24% 27%
Summarised consolidated statement of comprehensive income Year ended Year ended
30 June 2016 30 June 2015
Audited Audited
Rm Rm
Profit for the year 1 193 930
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign subsidiaries 53 27
Total comprehensive income for the year 1 246 957
Total comprehensive income attributable to:
Owners of the parent 1 198 916
Non-controlling interests 48 41
Total comprehensive income for the year 1 246 957
Summarised consolidated statement of changes in equity Year ended Year ended
30 June 2016 30 June 2015
Audited Audited
Rm Rm
Balance at beginning of the year 7 930 6 859
Changes in ordinary stated share capital
Net shares issued - 348
Changes in reserves
Total comprehensive income for the year attributable to owners of the parent 1 198 916
Dividends and capital distributions paid (363) (286)
Share-based payments 71 71
Other reserve movements - 3
Changes in non-controlling interests
Total comprehensive income for the year attributable to non-controlling interests 48 41
Dividends and capital distributions paid (22) (22)
Balance at end of the year 8 862 7 930
Comprising:
Ordinary stated share capital 7 318 7 318
Reverse acquisition reserve (3 952) (3 952)
Distributable reserves 5 018 4 212
Share-based payment reserve 199 128
Other reserves 84 55
Non-controlling interests 195 169
8 862 7 930
Summarised consolidated statement of cash flows Year ended Year ended
30 June 2016 30 June 2015
Audited Audited
Rm Rm
Operating profit before capital items 1 984 1 666
Depreciation and amortisation 806 784
Operating loss before depreciation, amortisation
and capital items from discontinued operations - (1)
Net fair value adjustments of consumable biological assets
and decrease due to harvesting (43) (86)
Other non-cash adjustments 111 114
Cash generated before working capital changes 2 858 2 477
(Increase)/decrease in inventories (73) 1
Increase in receivables (21) (17)
Increase/(decrease) in payables 521 (186)
Changes in working capital 427 (202)
Cash generated from operations 3 285 2 275
Dividends received 13 2
Dividends paid (385) (304)
Net finance charges (313) (290)
Taxation paid (266) (200)
Net cash inflow from operating activities 2 334 1 483
Additions to property, plant and equipment and investment properties (1 717) (1 195)
Proceeds on disposal of investments - 470
Acquisition of investments (573) (142)
Other investing activities (12) (7)
Net cash outflow from investing activities (2 302) (874)
Net cash inflow from operating and investing activities 32 609
Net cash inflow/(outflow) from financing activities 1 174 (602)
Net increase in cash and cash equivalents 1 206 7
Effects of exchange rate changes on cash and cash equivalents 26 15
Cash and cash equivalents at beginning of year 1 370 1 348
Cash and cash equivalents at end of year 2 602 1 370
Segmental analysis Year ended Year ended
30 June 2016 30 June 2015
Audited Audited %
Rm Rm change
Revenue from continuing operations
Diversified Logistics 7 899 7 863 -
Diversified Industrial 8 440 7 885 7
16 339 15 748 4
Intersegment revenue eliminations (107) (84)
16 232 15 664 4
Operating profit before capital items from continuing operations
Diversified Logistics 1 006 880 14
Diversified Industrial 978 786 24
1 984 1 666 19
30 June 2016 30 June 2015
Audited Audited
Rm % Rm %
Total assets
Diversified Logistics 6 267 39 5 624 39
Diversified Industrial 9 814 61 8 616 61
16 081 100 14 240 100
Reconciliation of total assets per statement 30 June 2016 30 June 2015
of financial position to total assets per segmental analysis Audited Audited
Rm Rm
Total assets per statement of financial position 18 939 15 924
Less: Cash and cash equivalents (2 602) (1 370)
Less: Investments in associate and joint-venture companies (124) (140)
Less: Interest-bearing long-term loans receivable (2) -
Less: Interest-bearing short-term loans receivable - (23)
Less: Related party receivables (130) (151)
Total assets per segmental analysis 16 081 14 240
Geographical information Year ended Year ended
30 June 2016 30 June 2015
Audited Audited
Rm % Rm %
Revenue
South Africa 14 315 88 13 856 88
Rest of Africa 1 917 12 1 808 12
16 232 100 15 664 100
Non-current assets
South Africa 11 112 90 9 720 90
Rest of Africa 1 216 10 1 057 10
12 328 100 10 777 100
Notes to the financial statements
1. Statement of compliance
The provisional summarised consolidated financial statements have 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 at a minimum as required by IAS 34: Interim Financial
Reporting and the requirements of the South African Companies Act, No. 71 of 2008. The summarised consolidated financial statements have
been prepared using accounting policies that comply with IFRS which are consistent with those applied in the consolidated financial
statements for the year ended 30 June 2015, except for the changes mentioned in note 4 below.
2. Basis of preparation
The summarised consolidated financial statements are prepared in millions of South African Rands (Rm) 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. The preparation of the summarised consolidated financial statements for the year ended 30 June 2016
was supervised by Frans Olivier, the group’s chief financial officer.
3. Financial statements
The consolidated financial statements for the year have been audited by Deloitte & Touche, and their accompanying unmodified audit report
as well as their unmodified audit report on this set of summarised financial information is available for inspection at the company’s
registered office. Information included under the headings "Outlook" and "Operational review" and any reference to future financial
information included in the summarised financial information has not been audited or reviewed. This announcement does not include the
information required pursuant to paragraph 16A(j) of IAS 34. The full consolidated financial statements are available at the issuer’s
registered office and upon request. Shareholders are therefore advised that in order to obtain a full understanding of the nature of
the auditor’s engagement they should obtain a copy of their report on this set of summarised consolidated financial statements with
the accompanying financial information from the company’s registered office. Full details of the group’s business combinations for the year,
additions and disposals of property, plant and equipment as well as commitments and contingent liabilities are included in the consolidated
financial statements. The results were approved by the board of directors on 15 August 2016.
4. Accounting policies
The accounting policies of the group have been applied consistently to the periods presented in the summarised consolidated financial
statements.
5. Change in accounting estimate
In Unitrans Supply Chain Solutions Proprietary Limited, the residual value assessment of hazardous good tankers changed. The tankers,
which were previously sold as scrap at the end of their useful lives, are now being disposed of at market value, which has required
a reassessment of the residual value.
6. Post-balance sheet events
Other than the acquisitions disclosed under the "Financial review", no significant events have occurred in the period between the end
of the period under review and the date of this report.
7. Changes to the board/board committees
With effect from 15 April 2016, Mr JP Haveman resigned as chief financial officer. Mr FH Olivier replaced Mr Haveman as chief financial
officer and as a member of the social and ethics committee on this date.
8. Dividend timetable
The timetable in respect of the dividend is as follows:
Day Event
Tuesday, 4 October 2016 Last day to trade
Wednesday, 5 October 2016 Shares trade ex dividend
Friday, 7 October 2016 Date to be recorded in the register to receive the dividend
Monday, 10 October 2016 Payment date
Share certificates may not be demateralised or remateralised between Wednesday, 5 October 2016 and Friday, 7 October 2016.
In terms of the taxation on dividends and the amendments to section 11.17 of the JSE Listings Requirements, the following additional
information is disclosed:
(1) Local dividend tax rate is 15%.
(2) Dividends are to be paid from income reserves.
(3) The withholding tax, if applicable at the rate of 15%, will result in a net cash dividend per share of 15.3 cents.
(4) The issued ordinary share capital of KAP Industrial Holdings Limited is 2 440 936 305 shares as at 15 August 2016.
(5) KAP Industrial Holdings Limited’s tax reference number is 9999/509/71/5.
KAP Industrial Holdings Limited ("KAP" or "the company" or "the group")
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 (Chief executive officer), FH Olivier (Chief financial officer)
*Independent non-executive directors
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
www.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
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