Wrap Text
Unaudited Results For The Six Months Ended 31 December 2016
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 2016
HIGHLIGHTS
Revenue up by 10% to R9bn
Operating profit up by 24% to R1.1bn
Headline earnings per share up by 18%
Cash generated from operations up by 27%
Net asset value up by 17%
OPERATIONAL REVIEW
The group continued to grow through investment in strategically aligned 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. The disciplined
execution of the group’s strategy produced pleasing operational results for the period.
Diversified logistics - 48% of revenue
Diversified industrial - 52% of revenue
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 - 16%
Forestry and timber manufacturing operations with primary and secondary processing
Chemical - 17%
Manufacture of PET, UF resin and impregnated paper
Automotive components - 11%
Manufacture of components used in new vehicle assembly and after-market vehicle accessories
Integrated bedding - 8%
Manufacture of foam, fabrics, springs, bases and mattresses
Revenue for the diversified logistics segment increased by 9% to R4 473 million while the operating profit of the segment increased
by 2% to R488 million.
The contractual logistics division performed well for the period in spite of subdued industrial activity and drought conditions in southern
Africa. This weighed on revenue and operating margin as a result of lower volumes in the infrastructure and mining, agriculture and
petrochemical sectors. Activity in the food and specialised warehousing sectors remained stable. Strong cost control and efficiency
improvements continued to support the overall operating margins and the competitiveness of the division.
The passenger transport division performed well, with increased activity and contract growth in the commuter, personnel and tourism
transport sectors and continued growth in its Mozambique operations. Slower activity in the intercity travel environment impacted on both
revenue and operating margin of the division’s operations in this sector.
Revenue for the diversified industrial segment increased by 12% to R4 637 million while the operating profit of the segment increased
by 49% to R624 million.
The integrated timber division performed well for the period with revenue growth and margin improvement resulting from its recent investments,
including an expansion to its MDF (medium-density fibreboard) plant, continued focus on its value-add strategy and further improvement in
its forestry, sawmilling and pole operations.
The chemical division also performed well with revenue growth and margin improvement resulting mainly from a value-add paper impregnation
plant installed at its Woodchem operation, while its Hosaf operation continued to benefit from sustained demand for PET.
The automotive components division performed well for the period due to stable vehicle assembly volumes supported by robust export volumes
and successful new model introductions in the domestic market. Technology investments, continuous improvement projects and the streamlining
of Autovest operations supported operating margin.
The integrated bedding division continued to drive integration synergies and the roll-out of their decentralised model for mattress assembly
and distribution, which provided strong operating margin improvement from a stable revenue base.
FINANCIAL REVIEW
These are the unaudited results for the six months ended 31 December 2016.
Revenue and operating profit before capital items
Revenue increased by 10% to R9 033 million (H1:16 R8 189 million). Operating profit before capital items increased by 24%
to R1 112 million (H1:16 R898 million). Operating margin increased to 12.3% (H1:16 11.0%) as a result of divisional integration benefits,
continued operational streamlining and recent capital investments.
Headline earnings per share (HEPS)
HEPS increased by 18% to 25.2 cents (H1:16 21.4 cents).
Tax rate
The effective tax rate increased to 29.2% (H1:16 28.4%) mainly as a result of withholding taxes emanating from the implementation of the
group’s policy to routinely repatriate surplus funds from non-South African territories.
Cash flow
Cash generated from operations increased by 27% to R495 million (H1:16 R391 million), supported by earnings growth and improved working
capital management. The cash flow cycle remains unchanged with a seasonal investment in working capital for the period to 31 December each
year. In line with historic performance this working capital investment is expected to normalise by 30 June.
Working capital
Net working capital decreased by R180 million to R1 125 million despite the impact of the various acquisitions concluded. Inventories
increased by R98 million and accounts receivable increased by R334 million, while accounts payable increased by R612 million.
Capital expenditure
Replacement capital expenditure continues to be managed in relation to the annual depreciation charge and amounted to R640 million for the
period. Expansion capital expenditure of R581 million resulted from continued investment in the group’s asset base to drive growth and
efficiency benefits.
Capital expenditure was mainly directed towards continued progress on an upgrade of the PG Bison Piet Retief particleboard plant; expansion
of the Hosaf PET plant; construction of a new integrated bedding facility; and logistics and passenger transport vehicles.
Capital structure
In order to facilitate the various expansion activities of the group while maintaining a healthy capital structure to facilitate future
growth for KAP, the following funding activities were concluded during the period:
- R1 500 million equity raised through a fully subscribed rights issue;
- R1 374 million raised through a combination of private and public bond issuances with 3 and 5 year tenures, with a mix of fixed and
floating interest rates; and
- R2 800 million new facilities secured as a combination of term debt and revolving credit facilities with 3 and 5 year tenures, with a mix
of fixed and floating interest rates.
Net interest-bearing debt decreased by R584 million to R2 617 million and the gearing ratio improved to 25% (H1:16 40%). The debt structure
and cover ratios are reflected as follows:
31 Dec 2016 31 Dec 2015
Debt structure and cover ratios Rm Rm
Interest-bearing long-term liabilities 6 449 2 920
Interest-bearing short-term liabilities 527 1 059
Bank overdrafts and short-term facilities 164 276
Cash and cash equivalents* (4 523) (1 054)
Net interest-bearing debt 2 617 3 201
Total equity (excluding non-controlling interests) 10 294 8 037
Net interest-bearing debt: equity 25% 40%
EBITDA 1 552 1 323
Net finance charges 198 151
EBITDA: interest cover (times)** 8.4 9.4
Net debt: EBITDA (times)** 0.9 1.2
* Cash and cash equivalents were increased in order to facilitate the payment of R4 100 million for Safripol on 3 January 2017
** Rolling 12 months
Debt maturity profile
The net interest-bearing debt maturity profile of the company improved during the period as a result of the replacement of existing
facilities with longer dated facilities.
Net asset value (NAV)
The NAV per share increased by 17% to 387 cents from 330 cents.
ACQUISITIONS
The group concluded the following transactions during the period in accordance with its strategy:
Safripol Holdings (Pty) Ltd (Safripol)
The group acquired 100% of the equity and claims in Safripol for R4 100 million, 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 manufactures products which are
complementary to those manufactured by Hosaf.
Lucerne Transport (Pty) Ltd (Lucerne)
The group acquired 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.
Xinergistix (Pty) Ltd (Xinergistix)
The group acquired a controlling interest in Xinergistix effective 1 July 2016. Xinergistix operates in the logistics sector, providing
complementary services to those of Unitrans.
OUTLOOK
Management continues to focus on optimising and expanding its existing operations and on growing its market share in all areas of operation
and remains optimistic that these activities will provide a solid platform for continued growth, despite the current challenging economic
environment.
The acquisition and integration of Lucerne and the increased shareholding in Xinergistix have produced new opportunities for the
diversified logistics segment and will facilitate increased intragroup trade within KAP. Improved efficiencies and reduced costs resulting
from the recent rationalisation of the contractual logistics division continue to support the competitiveness of the division in terms of
contract renewals, extensions and the procurement of additional contracts. The contractual nature of both the contractual logistics and
passenger transport divisions continues to provide underlying support through the current economic cycle.
In the diversified industrial segment, the current momentum of existing operations is expected to continue in the second half of the
financial year. Certain key projects, including an expansion of the Hosaf PET operation, an upgrade of the PG Bison Piet Retief
particleboard plant and the construction of a new integrated bedding facility, are progressing on schedule and will support revenue and
operating profit growth in FY2018. The acquisition of Safripol is expected to bring scale benefits to the chemical division as it is
exposed to exciting new markets.
INTERIM DIVIDEND
In line with the group’s policy, the board has not declared an interim dividend.
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 Non-executive deputy chairman Chief executive officer
13 February 2017
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed consolidated income statement Six months Six months Year
ended ended ended
31 Dec 2016 31 Dec 2015 30 Jun 2016
Unaudited Unaudited % Audited
Notes Rm Rm change Rm
Revenue 9 033 8 189 10 16 232
Operating profit before depreciation, amortisation
and capital items 1 552 1 323 17 2 790
Depreciation and amortisation (440) (425) (806)
Operating profit before capital items 1 112 898 24 1 984
Capital items 1 4 (8) (20)
Earnings before interest, dividend income, associate
and joint-venture earnings and taxation 1 116 890 25 1 964
Net finance charges (198) (151) (313)
Share of profit of associate and joint-venture companies 10 10 24
Profit before taxation 928 749 24 1 675
Taxation (271) (213) (482)
Profit for the period 657 536 23 1 193
Attributable to:
Owners of the parent 629 513 23 1 147
Non-controlling interests 28 23 46
Profit for the period 657 536 23 1 193
Headline earnings per ordinary share (cents) 25.2 21.4 18 47.8
Fully diluted headline earnings per ordinary share (cents) 25.0 21.1 18 47.2
Basic earnings per ordinary share (cents) 25.3 21.2 19 47.1
Fully diluted earnings per ordinary share (cents) 25.1 20.8 21 46.5
Number of ordinary shares in issue (m) 2 662 2 441 9 2 441
Weighted average number of ordinary shares in issue (m) 2 487 2 424 3 2 433
Earnings attributable to ordinary shareholders (Rm) 629 513 23 1 147
Headline earnings attributable to ordinary shareholders (Rm) 2 626 519 21 1 163
Additional information Six months Six months Year
ended ended ended
31 Dec 2016 31 Dec 2015 30 Jun 2016
Unaudited Unaudited Audited
Rm Rm Rm
Note 1: Capital items
Loss on disposal of property, plant and equipment and investment property - (5) (8)
Gain on bargain purchase 4 - -
Loss on disposal of investments and impairments - (3) (12)
4 (8) (20)
Note 2: Headline earnings attributable to ordinary shareholders
Earnings attributable to owners of the parent 629 513 1 147
Adjusted for:
Capital items (note 1) (4) 8 20
Taxation effects of capital items - (2) (3)
Non-controlling interests’ portion of capital items (net of taxation) 1 - -
Capital items of associate and joint-venture companies (net of taxation) - - (1)
626 519 1 163
Condensed consolidated statement of changes in equity Six months Six months Year
ended ended ended
31 Dec 2016 31 Dec 2015 30 Jun 2016
Unaudited Unaudited Audited
Rm Rm Rm
Balance at beginning of the period 8 862 7 930 7 930
Changes in ordinary stated share capital
Net shares issued 1 456 - -
Changes in reserves
Total comprehensive income for the period attributable to owners of the parent 575 606 1 198
Dividends and capital distributions paid (439) (363) (363)
Share-based payments 35 33 71
Changes in non-controlling interests
Total comprehensive income for the period attributable
to non-controlling interests 27 25 48
Dividends and capital distributions paid (12) (13) (22)
Acquired on acquisition of subsidiaries 2 - -
Arising on acquisition of subsidiaries 102 - -
Balance at end of the period 10 608 8 218 8 862
Comprising:
Ordinary stated share capital 8 774 7 318 7 318
Reverse acquisition reserve (3 952) (3 952) (3 952)
Distributable reserves 5 208 4 362 5 018
Share-based payment reserve 234 161 199
Other reserves 30 148 84
Non-controlling interests 314 181 195
10 608 8 218 8 862
Condensed consolidated statement of financial position 31 Dec 2016 31 Dec 2015 30 Jun 2016
Unaudited Unaudited Audited
Rm Rm Rm
ASSETS
Non-current assets
Goodwill and intangible assets 2 204 1 603 2 078
Property, plant and equipment and investment properties 9 404 7 600 8 128
Consumable biological assets 1 971 1 844 1 890
Investments in associate and joint-venture companies 74 152 124
Investments and loans 3 1 3
Deferred taxation assets 99 89 105
13 755 11 289 12 328
Current assets
Inventories 1 364 1 266 1 286
Accounts receivable and other current assets 3 172 2 838 2 677
Short-term loans 4 23 2
Taxation receivable 50 53 44
Cash and cash equivalents 4 523 1 054 2 602
9 113 5 234 6 611
Total assets 22 868 16 523 18 939
EQUITY AND LIABILITIES
Capital and reserves
Ordinary stated share capital 8 774 7 318 7 318
Reserves 1 520 719 1 349
10 294 8 037 8 667
Non-controlling interests 314 181 195
Total equity 10 608 8 218 8 862
Non-current liabilities
Interest-bearing long-term liabilities 6 449 2 920 4 204
Deferred taxation liabilities 1 614 1 196 1 368
Other long-term liabilities and provisions 130 92 93
8 193 4 208 5 665
Current liabilities
Accounts payable, provisions and other current liabilities 3 333 2 714 3 899
Interest-bearing short-term liabilities 527 1 059 431
Taxation payable 43 48 46
Bank overdrafts and short-term facilities 164 276 36
4 067 4 097 4 412
Total equity and liabilities 22 868 16 523 18 939
Net asset value per ordinary share (cents) 387 330 355
Net interest-bearing debt to equity (%) 25% 40% 24%
Condensed consolidated statement of cash flows Six months Six months Year
ended ended ended
31 Dec 2016 31 Dec 2015 30 Jun 2016
Unaudited Unaudited Audited
Rm Rm Rm
Operating profit before capital items 1 112 898 1 984
Depreciation and amortisation 440 425 806
Net fair value adjustments of consumable biological assets and decrease due to harvesting (4) (15) (43)
Other non-cash adjustments 36 45 111
Cash generated before working capital changes 1 584 1 353 2 858
Increase in inventories (74) (98) (73)
Increase in receivables (296) (288) (21)
(Decrease)/increase in payables (719) (576) 521
Changes in working capital (1 089) (962) 427
Cash generated from operations 495 391 3 285
Dividends received - 2 13
Dividends paid (452) (379) (385)
Net finance charges (198) (151) (313)
Taxation paid (120) (159) (266)
Net cash (outflow)/inflow from operating activities (275) (296) 2 334
Additions to property, plant and equipment (1 221) (840) (1 717)
Acquisition of investments (227) - (573)
Other investing activities (25) (23) (12)
Net cash outflow from investing activities (1 473) (863) (2 302)
Net cash (outflow)/inflow from operating and investing activities (1 748) (1 159) 32
Net cash inflow from financing activities 3 686 804 1 174
Net increase/(decrease) in cash and cash equivalents 1 938 (355) 1 206
Effects of exchange rate changes on cash and cash equivalents (17) 39 26
Cash and cash equivalents at beginning of period 2 602 1 370 1 370
Cash and cash equivalents at end of period 4 523 1 054 2 602
Condensed consolidated statement of comprehensive income Six months Six months Year
ended ended ended
31 Dec 2016 31 Dec 2015 30 Jun 2016
Unaudited Unaudited Audited
Rm Rm Rm
Profit for the period 657 536 1 193
Other comprehensive (loss)/income
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign subsidiaries (55) 95 53
Total comprehensive income for the period 602 631 1 246
Total comprehensive income attributable to:
Owners of the parent 575 606 1 198
Non-controlling interests 27 25 48
Total comprehensive income for the period 602 631 1 246
Segmental analysis Six months Six months Year
ended ended ended
31 Dec 2016 31 Dec 2015 30 Jun 2016
Unaudited Unaudited % Audited
Rm Rm change Rm
Revenue
Diversified logistics 4 473 4 099 9 7 899
Diversified industrial 4 637 4 142 12 8 440
9 110 8 241 11 16 339
Intersegment revenue eliminations (77) (52) (107)
9 033 8 189 10 16 232
Operating profit before capital items
Diversified logistics 488 478 2 1 006
Diversified industrial 624 420 49 978
1 112 898 24 1 984
31 Dec 2016 31 Dec 2015 30 Jun 2016
Unaudited Unaudited Audited
Rm % Rm % Rm %
Total assets
Diversified logistics 7 153 39 6 151 40 6 267 39
Diversified industrial 11 018 61 9 066 60 9 814 61
18 171 100 15 217 100 16 081 100
Reconciliation of total assets per statement of financial position
to total assets per segmental analysis 31 Dec 2016 31 Dec 2015 30 Jun 2016
Unaudited Unaudited Audited
Rm Rm Rm
Total assets per statement of financial position 22 868 16 523 18 939
Less: Cash and cash equivalents (4 523) (1 054) (2 602)
Less: Investments in associate and joint-venture companies (74) (152) (124)
Less: Interest-bearing long-term loans receivable (2) - (2)
Less: Interest-bearing short-term loans receivable (1) (23) -
Less: Related party receivables (97) (77) (130)
Total assets per segmental analysis 18 171 15 217 16 081
Geographical information Six months Six months Year
ended ended ended
31 Dec 2016 31 Dec 2015 30 Jun 2016
Unaudited Unaudited Audited
Rm % Rm % Rm %
Revenue
South Africa 8 029 89 7 170 88 14 315 88
Rest of Africa 1 004 11 1 019 12 1 917 12
9 033 100 8 189 100 16 232 100
Non-current assets
South Africa 12 609 92 10 117 90 11 112 90
Rest of Africa 1 146 8 1 172 10 1 216 10
13 755 100 11 289 100 12 328 100
Fair values of financial instruments Fair value Fair value Fair value
as at as at as at
31 Dec 2016 31 Dec 2015 30 Jun 2016
Unaudited Unaudited Audited Fair value
Rm Rm Rm hierarchy
Derivative financial assets 2 54 15 Level 2
Derivative financial liabilities (59) - (26) 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.
Selected explanatory notes
1. Statement of compliance
The condensed 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, No. 71 of 2008. 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 2016.
2. Basis of preparation
The condensed interim 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 condensed interim financial statements for the six months ended 31 December 2016 was
supervised by Frans Olivier, the group’s chief financial officer.
3. Change 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 2016.
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
13 February 2017.
5. Post-balance sheet events
With the exception of the Safripol acquisition referred to elsewhere in this announcement, no significant events have occurred in the
period between the end of the period under review and the date of this report.
6. Changes to the board/board committees
There were no changes to the board of directors during the period under review. With effect from 1 January 2017 Mr KJ (Jo) Grové retired
and as a result will now fulfil the position of non-executive deputy chairman.
KAP Industrial Holdings Limited (‘KAP’ or ‘the company’ or ‘the group’)
Non-executive directors: J de V du Toit (Chairman)*, KJ Grové (Deputy chairman), MJ Jooste, AB la Grange, IN Mkhari*, SH Müller*,
SH Nomvete*, PK Quarmby*, DM van der Merwe, CJH van Niekerk*
Executive directors: 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, Rosebank Towers, 15 Bierman Avenue, Rosebank, 2196
Company secretary
Steinhoff Secretarial Services Proprietary Limited
Auditors
Deloitte & Touche
Sponsor
PSG Capital Proprietary Limited
Date: 13/02/2017 01:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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