Wrap Text
Operational update, initial trading statement and pre-close meeting
KAP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1978/000181/06)
Share code: KAP
ISIN: ZAE000171963
Company alpha code: KAP
LEI code: 3789001F51BC0045FD42
('KAP' or 'the company' or 'the group')
OPERATIONAL UPDATE, INITIAL TRADING STATEMENT AND PRE-CLOSE MEETING
The following update provides guidance on the company's operational performance for 11 months of the 2025
financial year up to 31 May 2025 ('the period'), compared with the 11 months of the 2024 financial year up to
31 May 2024 ('the prior period').
OVERVIEW
Shareholders and investors are referred to the interim financial results for the period ended 31 December 2024,
which were released on 27 February 2025 ('1H25'). We indicated in those results that the group had experienced
a generally subdued operating environment and that performance was negatively affected by the following three
issues:
• increased operating costs related to the start-up and ramp-up of PG Bison's new medium-density
fibreboard ('MDF') line;
• higher finance costs, which were capitalised during the construction phase of the group's major capital
projects completed in FY24, including the MDF line; and
• lower vehicle production by two major original equipment manufacturers ('OEMs'), which resulted in a
weaker performance by Feltex.
As expected, the effects of these three issues eased following the release of the 1H25 results, as utilisation of
the MDF line improved and vehicle production strengthened.
However, trading conditions have remained challenging, with sentiment further dampened by the uncertainty
created by the delay in the approval of the national budget, the resultant instability of the government of national
unity and the potential negative effects of the United States' tariff war. Additionally, April was a particularly weak
month due to the limited trading days.
In this context, the group delivered a modest growth in revenue, a reduction in EBITDA, a decline in operating
profit and meaningfully lower earnings during the period.
We continue to make progress with the execution of our strategy, delivering on the following key objectives of:
• realising value from the major capital projects;
• improving the financial performance of underperforming businesses, mostly Unitrans; and
• reducing net debt.
DIVISIONAL OPERATIONAL PERFORMANCE
PG Bison successfully started and ramped up its new R2 billion MDF line in Mkhondo in 1H25. While only 60%
of the line capacity was utilised during 1H25 due to the stop-start nature of the ramp-up, utilisation improved
significantly during the remainder of the period, with the fourth quarter at full utilisation. This is well ahead of the
feasibility timeline to reach full utilisation.
Revenue was higher due to a c. 90% increase in MDF domestic and export sales volumes, primarily attributable
to the higher MDF production. Particleboard sales volumes were stable. Operating profit declined as the
depreciation and running costs of the new MDF line were absorbed during the period, with utilisation not yet
optimal due to the ramp-up process. Furthermore, the increased MDF exports were at lower margins, primarily
due to depressed pricing in deep-sea markets. While operating profit was lower for the period, it relates to the
new MDF line, with the operating profit related to the particleboard operations stable.
Safripol delivered an increase in revenue and operating profit, largely due to higher production and hence sales
volumes. Production volumes in the prior period were affected by production constraints at the Sasolburg plants,
including a transformer failure and electricity supply disruptions, and a five-week commercial shutdown at the
Durban plant, which was not repeated in the current period. Indexed polymer raw material margins remained
low compared with historical averages due to global industry overcapacity, with polyethylene terephthalate
('PET') margins especially weak.
Unitrans completed a major organisational redesign in November 2024, which formed part of a deep
restructuring focused on the cessation of low-margin, low-return activities, improved asset utilisation and
reduced costs. Revenue declined due to the restructuring and subdued demand across most sectors. Operating
profit was lower, with the limited trading days in April and a delayed start to the agriculture season having a
significant negative impact. A restructuring of the division's petrochemical operations, which made up
approximately 30% of the division's revenue in 1H25, was initiated during the period as its performance remains
below expectations.
Feltex encountered challenging trading conditions, mainly because of lower vehicle production, with two major
OEM customers being meaningfully lower due to temporary operational constraints at their plants. While vehicle
production has since improved, levels have not yet normalised. Feltex's revenue and operating profit were lower
for the period, but both improved following the release of the 1H25 results.
Sleep Group increased revenue and operating profit, primarily due to growth in sales of bedding units, despite
a subdued bedding and furniture market. The division experienced a normal seasonal slowdown following the
October-to-December peak season.
Optix delivered lower revenue and operating profit, with suboptimal conversion of the sales pipeline. Interest in
the division's products remains good and its prospects are promising. The division has invested in sales and
operational capacity to accelerate sales pipeline conversion. Performance of the division remains well below the
board's expectations.
BALANCE SHEET
We have completed a major investment cycle, with all projects commissioned and operational. The only
remaining major capital commitment relates to improving the average fleet age of Unitrans' vehicles. This catch-
up capital expenditure will be phased over three to five years and we therefore do not expect it to have a major
impact in any single year.
While net debt reduction remains a key focus for the group, progress against our net debt reduction target is
below expectation mainly due to lower-than-expected EBITDA.
The company has successfully raised R1.6 billion, at favourable rates, to refinance maturing debt. We expect to
remain within financial covenants.
FOCUS AREAS AND OUTLOOK
The group remains focused on the following material items, which we expect to underpin performance over the
medium term:
• Value realisation from the major capital projects: We invested in future growth, of which PG Bison's new
MDF line is the largest and most recent investment. The line resulted in a c. 33% increase in the
division's total production capacity and offers compelling growth opportunities for the group.
• Addressing underperformance: We are making good progress in addressing areas of
underperformance, the most material of which relates to Unitrans, where an operating profit of
R700 million is targeted over the medium term.
• Reducing net debt: We expect a net debt reduction to be supported by lower capital expenditure
following the completion of recent investments, cash flow contribution from these investments, and an
improved performance from Unitrans. We anticipate that the lower net debt levels, combined with an
expected cycle of interest rate reduction, will increase balance sheet flexibility and enhance earnings.
In line with the board's succession planning, Frans Olivier was appointed as the new CEO following Gary
Chaplin's recent resignation that was announced on 29 May 2025. Gary will assist KAP to the end of October
2025 to inter alia ensure a smooth transition over the year-end and audit period.
INITIAL TRADING STATEMENT
In terms of the JSE Limited ('JSE') Listings Requirements, a listed company is required to publish a trading
statement once it is satisfied that a reasonable degree of certainty exists that the financial results for the next
period to be reported on will differ by at least 20% from the financial results for the prior corresponding period.
While one month remains of the company's financial year, ending 30 June 2025 ('FY25'), a reasonable degree
of certainty exists following the period covered by this operational update that, if current trading conditions
persist:
• earnings per share ('EPS') is expected to decrease by more than 30% for FY25, which is a decrease of
at least 13.1 cents per share, when compared to the EPS of 43.8 cents for the year ended 30 June
2024; and
• headline earnings per share ('HEPS') is expected to decrease by more than 30% for FY25, which is a
decrease of at least 13.6 cents per share, when compared to the HEPS of 45.3 cents for the year ended
30 June 2024.
A further trading statement will be issued in terms of the JSE Listings Requirements when a reasonable degree
of certainty exists about the likely range of the expected decrease in EPS and HEPS.
Shareholders are advised that the information and guidance set out above, and the financial information on
which this operational update and trading statement are based, has not been audited, reviewed or otherwise
reported on by the company's external auditors.
PRE-CLOSE MEETING
Management invites interested stakeholders to a virtual meeting for a discussion and question-and-answer
session on the operational update on 10 June 2025, at 10h00 (SAST). Please join the meeting via this link or
email christina.steyn@kap.co.za for further details.
FY25 FULL YEAR RESULTS
The results for the financial year, ending 30 June 2025, are expected to be released on or about 28 August 2025.
Stellenbosch
10 June 2025
Equity and Debt Sponsor
PSG Capital
Date: 10-06-2025 09:37:00
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