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KAP INDUSTRIAL HOLDINGS LIMITED - Unaudited Results For The Six Months Ended 31 December 2018

Release Date: 12/02/2019 12:00
Code(s): KAP     PDF:  
 
Wrap Text
Unaudited Results For The Six Months Ended 31 December 2018

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 2018


FINANCIAL HIGHLIGHTS

Revenue up 16%
EBITDA* up 10%
Core operating profit* up 7%
Operation profit down 6% (due to non-cash B-BBEE cost)
Core headline earnings* per share up 6% 
Headline earnings per share down 19% (due to non-cash B-BBEE cost)
Cash generated from operations up 83%
B-BBEE transaction concluded in Contractual Logistics

Revenue, operating profit before capital items and headline earnings per share from continuing operations.
* Excluding the non-recurring, non-cash impact of the Unitrans B-BBEE transaction.


STRATEGIC REVIEW
The diligent implementation of the group’s strategy has produced solid results for the period in a challenging and uncertain economic 
environment, particularly with regard to cash generated from operations, which increased by 83%.

In previous financial periods, the group embarked on a number of significant expansion projects at its operations and concluded 
a number of acquisitions, resulting in the investment of R7.8 billion over the 24 months to 30 June 2018. These investments have 
been comprehensively reported on in previous financial reports. In view of the scale and complexity of these investments, the strategy 
set by the board for the 2019 financial year was to ensure the completion of the expansion projects and the effective integration 
of the acquisitions into the group, with the focus on market share growth, extraction of value and generation of cash. Management 
have made good progress during the period in this regard.


OPERATIONAL REVIEW

Diversified industrial

Integrated Timber

The Integrated Timber division previously comprised forestry, sawmilling, pole manufacture, panel manufacture and upgrading operations. 
In line with international industry peers, the resin manufacturing and paper impregnation operations are now also reported as part 
of this division, as they represent strategic raw materials to the panel products operation and reflect the group’s strategy 
of integration (prior period figures have been restated for comparative purposes). The division’s panel products operation performed 
well for the period, showing revenue and operating profit growth as it continued to pursue its strategy of technology investments 
to reduce its cost of manufacturing, increasing the proportion of value-added products and market share growth. The resin and paper 
impregnation operations also performed well as a result of increased volumes. The division’s forestry, sawmilling and pole operations 
in the southern Cape were negatively impacted by the operational effects of the extensive fires experienced in the region during 2017 
and 2018, which had a material impact on the division’s operating results.

Revenue: R1 960 million (1H18: R1 699 million)
Operating profit: R346 million (1H18: R342 million)

The division is expected to trade well for the remainder of the year with strong demand for its product at stable margins. The division 
has initiated new projects to expand particleboard capacity and improve efficiencies at both its Ugie plant (February 2020 commissioning) 
and Piet Retief plant (March 2020 commissioning) and will install an additional MFB (melamine-faced board) upgrading press (August 2019 
commissioning). The combined cost of these investments will be approximately R200 million, the majority of which will only be incurred 
in F2020. 

Automotive Components

The performance of the Automotive Components division was stable for the period. A 10% increase in industry new vehicle assembly volumes 
over the prior comparative period supported volume growth for the division. The two model replacements introduced during the previous 
financial year have been ramped up as planned. Margins during the period were however negatively impacted by certain continuous 
improvement projects and new technologies that took longer than expected to implement. The aftermarket accessories business was stable 
in spite of subdued industry new vehicle sales volumes. The loss-making canopy manufacturing operation was disposed of effective 
1 October 2018. 

Revenue: R1 189 million (1H18: R1 024 million)
Operating profit: R116 million (1H18: R116 million)

An improved performance is expected during the second half of the financial year as continuous improvement projects and new technologies 
become fully implemented. The extension of the Automotive Production and Development Programme (APDP) to 2035 provides much needed clarity 
and stability to the automotive sector, which management believes will lead to growth opportunities for the division.

Integrated Bedding

The Integrated Bedding division produced a pleasing result for the period in the context of the currently depressed retail environment, 
which represents its primary market. The division continued to implement its strategy of; technology investments to reduce its cost 
of manufacturing, integration into the manufacture of its primary raw materials, brand development and market share growth. The division 
manufactures its own knitted, woven and non-woven fabrics, foam, springs, thermo-bonded insulation pads, bed bases, plastic bedding 
components and mattresses, which it delivers to customers using its own logistics fleet, which collectively enables it to optimise margins. 
The division was able to grow volumes during the period in line with its strategy. However, margins were negatively impacted by increased 
raw material prices and the increased scale of ‘Black Friday’ sales, which extended beyond the division’s efficient manufacturing capacity 
during the period and represented a high volume of low-margin products.  

Revenue: R854 million (1H18: R759 million)
Operating profit: R132 million (1H18: R128 million)

‘Black Friday’ order volumes that were not manufactured during November and December have been rolled over into January and February. 
Thereafter the division is expected to perform well for the rest of the financial year. The mattress manufacturing and process automation 
investments associated with the R250 million Integrated Bedding plant in Johannesburg are expected to be completed before the 2019 peak 
trading period, which will facilitate production efficiencies at higher production volumes.

Diversified chemical

The division performed well across its three product streams - polyethylene terephthalate (PET), high-density polyethylene (HDPE) 
and polypropylene (PP). 

                                                             PET                              HDPE                              PP
                                                     1H19           1H18             1H19             1H18             1H19           1H18
Revenue (R million)                                 1 853            910            1 478            1 591            1 092            957
Sales volume (tonnes)                              92 182         57 555           71 682           88 193           56 598         60 516
Production volume (tonnes)                        102 597         23 096           83 173           83 301           60 065         62 915
Average R/USD exchange                              14.18          13.41            14.18            13.41            14.18          13.41

The recently expanded PET operation in Durban ran at an average of 92% of rated capacity for 167 days during the period, following 
a post-commissioning shutdown during July 2018, which affected 14 days. The plant was successfully tested to 108% of nameplate capacity. 
Demand for the product was strong in both domestic and international markets, with 34 298 tonnes exported during the period. Indexed 
margins were volatile during the period as a result of international demand/supply imbalances on PET across various regions. HDPE operations 
ran above normal capacity for the period due to increased availability of ethylene raw material, which was consistent with the prior period. 
Demand for HDPE remained buoyant, which supported higher selling prices and healthy margins. PP operations ran at 94% of capacity 
as a result of an unscheduled shutdown that affected five days. Although demand for the product remained buoyant and supported increased 
selling prices, margins were affected by rising propylene prices resulting from rising oil prices, which fortunately subsided towards 
the end of the period. 

Sales volumes of all three polymers were negatively impacted during December 2018 by industrial action in the downstream plastic converters 
sector, which led to a temporary increase in inventory levels at 31 December 2018.

Revenue: R4 423 million (1H18: R3 458 million)
Operating profit: R485 million (1H18: R318 million)

The division is expected to continue its strong operational performance in terms of production volumes, efficiency levels and sales. 
Margins are expected to remain fairly volatile as a result of related global commodity and currency fluctuations. A degree of this 
volatility is mitigated by the division’s exposure to three polymers and five primary raw materials, each with independent price drivers. 
Inventory levels are expected to normalise towards year-end, with exports supplementing domestic demand.

Diversified logistics

The group concluded a B-BBEE transaction, effective 3 September 2018, whereby 45% of its South African logistics operation, Unitrans 
Supply Chain Solutions Proprietary Limited (USCS), was disposed of. This transaction and the financial effects thereof have been 
comprehensively reported to shareholders through the Johannesburg Stock Exchange News Services (SENS).

Contractual Logistics - South Africa

This division is now reported separately from the group’s non-South African operations. A new executive management structure was 
implemented during the period to focus only on South African operations. Following a stable first quarter, USCS found trading conditions 
particularly challenging during the second quarter, with subdued demand and margin pressure across all sectors. While operational 
performance in most sectors was satisfactory, operational execution difficulties in the Food operations had a material negative impact 
on margins. During the period, the division secured new contracts with annualised revenue of R151 million; renewed contracts with 
annualised revenue of R419 million; and was unsuccessful in contract renewals with annualised revenue of R66 million.

Revenue: R2 673 million (1H18: R2 452 million)
Operating profit*: R128 million (1H18: R192 million)
*Excluding B-BBEE cost

The separation of the South African and non-South African operations creates more manageable business units with focused management teams. 
For the remainder of the period the USCS management team will focus on improved operational execution in the Food business; improved asset 
utilisation; and cost reduction, in order to improve margins and returns for the division. 

Contractual Logistics - Africa

Contractual Logistics’ operations in non-South African territories comprise activities in mining, cement, petrochemical and agricultural 
sectors in southern and east African countries. Following the sale of 45% of USCS, the non-South African operations are reported 
separately as Unitrans Africa Proprietary Limited. A new executive management structure was implemented on 1 December 2018 to focus only 
on non-South African operations. The division performed well for the period, supported by strong volumes at its major operations 
and good operational execution.

Revenue: R1 092 million (1H18: R972 million)
Operating profit: R179 million (1H18: R168 million)

The strong operational execution of this division is expected to continue for the remainder of the year. 

Passenger Transport

The Passenger Transport division found trading conditions stable during the period in terms of passenger numbers and operational 
execution, but was negatively impacted by a 28% higher average diesel price compared to the prior period, which affected operating 
profit by R30 million. The commuter and personnel travel businesses performed satisfactorily in a challenging environment. 
Activity in the Intercity travel sector remained competitive, negatively impacting margins. Tourism activity remained subdued, 
with lower tourist numbers.

Revenue: R1 228 million (1H18: R1 181 million)
Operating profit: R122 million (1H18: R140 million)

The recent reductions in the price of diesel, supported by a low forecast oil price, are expected to have a positive impact on margins 
of the division in the second half of the year. The division remains focused on growth in the areas of commuter and personnel travel 
and is pursuing certain opportunities in this regard.


CORPORATE ACTIVITY

The company concluded a series of transactions and funding arrangements (‘Unitrans B-BBEE transaction’) in order to facilitate greater 
than 51% ‘black ownership’ and greater than 30% ‘black women ownership’ of its South African logistics operations, Unitrans Supply Chain 
Solutions Proprietary Limited (USCS). This series of transactions resulted in the following:

- Effective sale of 23.02% of USCS to a wholly owned entity of the FWG Pieters Trust 
- Effective sale of 21.98% of USCS to a wholly owned entity of the Sakhumzi Foundation Empowerment Trust 
- Acquisition by USCS of the remaining shares of Xinergistix Proprietary Limited (Xinergistix), resulting in it being a wholly owned 
  subsidiary of USCS.

The details of this Unitrans B-BBEE transaction were published on the Stock Exchange News Service (SENS) on 18 May 2018, and a related 
circular was published on 8 June 2018. The series of transactions were approved by the competition authorities and became effective 
on 3 September 2018.

The disposal of Glodina, a division of KAP Homeware Proprietary Limited, was concluded on 22 February 2018 for R101 million and became 
effective on 3 September 2018.


FINANCIAL REVIEW

Income statement

The effect of the International Financial Reporting Standards (IFRS) accounting treatment of the Unitrans B-BBEE transaction is a non-cash 
and non-trading B-BBEE cost of R194 million in the period (refer B-BBEE cost below). The impact on earnings is material and therefore 
the B-BBEE cost is disclosed separately in the financial results. Core headline earnings and core headline earnings per share referred 
to in these results exclude the B-BBEE cost. 

Revenue from continuing operations increased by 16% to R13 290 million (1H18: R11 478 million). 

Operating profit before B-BBEE cost and capital items from continuing operations increased by 7% to R1 508 million (1H18: R1 404 million). 
Operating margin decreased to 11.3% (1H18: 12.2%).

Core headline earnings per share from continuing operations increased by 6% to 30.1 cents (1H18: 28.3 cents). 

Taxation

The effective tax rate increased to 32.8% (1H18: 28.0%), mainly due to the R194 million B-BBEE cost that is not deductible for income 
tax purposes. Excluding the B-BBEE cost, the effective tax rate decreased to 27.4% (1H18: 28.0%).

B-BBEE cost

The Unitrans B-BBEE transaction is accounted for in terms of IFRS 2 - Share-based Payment and IFRS 10 - Consolidated Financial Statements. 
In terms of these statements, KAP is deemed, through the funding structure of the B-BBEE transaction, to control both of the acquiring 
entities and is therefore required to consolidate both acquiring entities. In addition, the transaction creates a put option in favour 
of the acquiring entities. The fair value of the put options for both the acquiring entities was actuarially valued at R215 million 
(B-BBEE cost). The B-BBEE cost is non-cash and is accounted for as a charge to earnings with a corresponding credit to reserves. 
R193 million of the B-BBEE cost was expensed at the transaction date and the remaining R22 million will be expensed equally over 
the seven-year contract period.

Statement of financial position

Consumable biological assets were affected in the period by fires in the southern Cape region during November 2018, which resulted 
in damage to 845 hectares of plantations. As a result, the valuation of the plantations was reduced by R19 million, while an insurance 
debtor of R12 million was raised. There was a R4 million fair value gain in the finalisation of the 2017 fires. The net effect of both 
fires on the period was therefore a downward revaluation of R15 million.

Assets held for sale in the prior period relate to Glodina, which was disposed of as a going concern on 3 September 2018. 

Non-controlling interest decreased as a result of the Unitrans B-BBEE transaction whereby USCS acquired the remaining 49.9% shares 
of Xinergistix for an amount of R155 million, of which R73 million was paid for by the issue of ordinary shares in KAP.

The net asset value per share increased by 10% to 462 cents from 420 cents.

Cash flow and working capital

The strategy of ensuring the completion of recent expansion projects and the integration of recent acquisitions resulted in cash generated 
from operations increasing by 83% to R877 million (1H18: R479 million).

Net working capital increased by R455 million to R2 598 million. Inventories increased by R788 million, mainly due to increased 
stockholding in Polymers as a result of lower sales in December 2018 due to the plastic converters strike. This was offset by an increase 
in accounts payable of R466 million. Accounts receivable increased by R133 million. 

Capital expenditure

Replacement capital expenditure continues to be managed over time in relation to the annual depreciation charge and amounted to R462 million 
for the period (net of proceeds on disposal). Expansion capital expenditure of R240 million was invested in the group’s asset base to drive 
growth and efficiency benefits. Capital expenditure was mainly directed towards logistics long-haul vehicles and passenger transport vehicles. 

Capital structure

Strong cash generation resulted in net interest-bearing debt decreasing by R773 million to R6 687 million. Both the net debt/EBITDA ratio 
and the EBITDA/interest cover ratio remained well within target levels at 1.6 times and 5.5 times respectively. The company is well 
positioned in terms of funding future growth and expansion activities. 

Global Credit Rating Co. Proprietary Limited reviewed KAP’s credit rating in November 2018 and confirmed its rating as A+(za) with 
a stable outlook.

The debt structure and capacity ratios are reflected as follows:

Debt structure and maturity profile
                                              31 Dec 2018    31 Dec 2017      30 Jun 2018
                                                Unaudited      Unaudited          Audited
                                                       Rm             Rm               Rm
Loans and borrowing long-term                       5 640          7 696            6 960
Loans and borrowing short-term                      2 400            527            1 007
Non-interest-bearing loans and borrowings             (44)          (115)             (89)
Bank overdrafts and short-term facilities               1              1                -
Cash and cash equivalents                          (1 310)          (649)          (2 151)
Net interest-bearing debt                           6 687          7 460            5 727
EBITDA*                                             1 901          1 905            3 912
Net finance costs*                                    366            328              706
EBITDA: interest cover (times)**                      5.5            5.7              5.5
Net debt: EBITDA (times)**                            1.6            2.0              1.5
Gearing %                                              54             66               47

*  From continuing operations
** Rolling 12 months 

There were no significant funding activities concluded during the period.


DIVIDEND

In line with historic practice, the board of directors has not declared an interim dividend.


OUTLOOK/PROSPECTS

The macroeconomic and political environment in South Africa is expected to remain challenging and uncertain during the second half 
of the financial year in the lead-up to the national elections. KAP will continue to implement its strategy for F2019, ensuring 
the completion of recent expansion projects and the integration of recent acquisitions in order to extract value, generate cash 
and reduce debt levels, thereby strengthening its balance sheet, enhancing its competitiveness and placing it in a strong position 
to take advantage of growth opportunities. 

Various new capacity expansion projects and technology investments have been initiated that will be commissioned during F2020. 
Management continue to seek out further capacity expansion opportunities, in line with the group’s strategy.

Acquisition opportunities that meet the group’s strategic requirements and create shareholder value remain a key element 
of the growth objectives of management. 


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                               GN Chaplin                        FH Olivier
Independent non-executive chairman           Chief executive officer           Chief financial officer

12 February 2019 


CONDENSED CONSOLIDATED INCOME STATEMENT
                                                                               Six months       Six months 
                                                                                    ended            ended                      Year ended
                                                                              31 Dec 2018      31 Dec 2017                     30 Jun 2018
                                                                                Unaudited        Unaudited                %        Audited
                                                                   Notes               Rm               Rm           change             Rm
Revenue                                                                            13 290           11 478               16         22 985 
Operating profit before B-BBEE cost and capital items                               1 508            1 404                7          2 867 
B-BBEE cost                                                                          (194)               -                               -
Capital items                                                          1                5              (26)                            (66)
Operating profit                                                                    1 319            1 378               (4)         2 801 
Net finance costs                                                                    (366)            (328)                           (706)
Share of profit of associate and joint venture companies                               17               13                              23 
Profit before taxation                                                                970            1 063               (9)         2 118 
Taxation                                                                             (322)            (297)                           (508)
Profit for the period from continuing operations                                      648              766              (15)         1 610 
Profit/(loss) for the period from discontinued operations              2               18              (14)                            (19)
Profit for the period                                                                 666              752              (11)         1 591 
Profit attributable to:     
Owners of the parent                                                                  634              720              (12)         1 540 
Non-controlling interests                                                              32               32                              51 
Profit for the period                                                                 666              752              (11)         1 591 
     
Headline earnings attributable to ordinary shareholders     
Earnings attributable to owners of the parent                                         634              720              (12)         1 540 
Adjusted for:     
  Capital items                                                        1              (30)              22                              66 
  Taxation effects of capital items                                                     7               (6)                            (10)
  Non-controlling interests’ portion of capital items
  (net of taxation)                                                                     1                2                               -
Headline earnings                                                                     612              738              (17)         1 596 
B-BBEE cost (net of taxation)                                                         194                -                               -
Core headline earnings                                                                806              738                9          1 596 
     
From continuing operations per ordinary share                                       Cents            Cents                           Cents 
Basic earnings                                                                       22.9             27.6              (17)          58.4 
Basic earnings - diluted                                                             22.7             27.4              (17)          58.0 
Headline earnings                                                                    22.8             28.3              (19)          60.5 
Headline earnings - diluted                                                          22.7             28.1              (19)          60.0 
Headline earnings - core(1)                                                          30.1             28.3                6           60.5 
  
(1) Core headline earnings per share excludes the effect of the R194 million B-BBEE cost.


CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                                                                               31 Dec 2018      31 Dec 2017    30 Jun 2018
                                                                                                 Unaudited        Unaudited        Audited
                                                                                                        Rm               Rm             Rm
ASSETS   
Non-current assets   
Goodwill and intangible assets                                                                       5 380            5 392          5 392 
Property, plant and equipment and investment property                                               12 662           12 384         12 513 
Consumable biological assets                                                                         1 907            1 926          1 919 
Investments in associate and joint venture companies                                                    84               70             75 
Investments and loans                                                                                    7                8             13 
Deferred taxation assets                                                                                89              100             68 
                                                                                                    20 129           19 880         19 980 
Current assets   
Inventories                                                                                          2 891            2 103          2 145 
Trade and other receivables                                                                          4 192            4 059          4 053 
Short-term loans receivable                                                                             18               61              6 
Taxation receivable                                                                                     94              112             87 
Cash and cash equivalents                                                                            1 310              649          2 151 
Assets classified as held for sale                                                                       -               95             82 
                                                                                                     8 505            7 079          8 524 
Total assets                                                                                        28 634           26 959         28 504 
EQUITY AND LIABILITIES   
Capital and reserves   
Stated share capital                                                                                 8 908            8 791          8 791 
Reserves                                                                                             3 590            2 454          3 364 
Total equity attributable to equity holders of the parent                                           12 498           11 245         12 155 
Non-controlling interests                                                                              197              326            322 
Total equity                                                                                        12 695           11 571         12 477 
Non-current liabilities   
Loans and borrowings                                                                                 5 640            7 696          6 960 
Deferred taxation liabilities                                                                        3 365            3 067          3 141 
Other long-term liabilities and provisions                                                              70               68             75 
                                                                                                     9 075           10 831         10 176 
Current liabilities   
Loans and borrowings                                                                                 2 400              527          1 007 
Trade and other payables                                                                             4 137            3 671          4 438 
Other current liabilities and provisions                                                               278              313            355
Taxation payable                                                                                        48               45             51 
Bank overdrafts and short-term facilities                                                                1                1              -
                                                                                                     6 864            4 557          5 851 
Total equity and liabilities                                                                        28 634           26 959         28 504 
Net asset value per ordinary share (cents)                                                             462              420            454 
Net interest-bearing debt to equity (%)                                                                 54               66             47


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                                                Six months       Six months
                                                                                                     ended            ended     Year ended
                                                                                               31 Dec 2018      31 Dec 2017    30 Jun 2018
                                                                                                 Unaudited        Unaudited        Audited
                                                                                                        Rm               Rm             Rm
Operating profit before capital items                                                                1 314            1 404          2 867 
Depreciation and amortisation                                                                          587              501          1 045 
B-BBEE cost                                                                                            194                -              -
Operating loss before depreciation, amortisation and capital items 
from discontinued operations                                                                            (4)             (17)           (25)
Net fair value adjustments of consumable biological assets(1)                                           13               56             64 
Other non-cash adjustments                                                                              36               30             38 
Cash generated before working capital changes                                                        2 140            1 974          3 989 
Increase in inventories                                                                               (739)            (363)          (389)
Increase in trade and other receivables                                                               (116)            (296)          (352)
(Decrease)/increase in trade and other payables                                                       (408)            (836)            60 
Changes in working capital                                                                          (1 263)          (1 495)          (681)
Cash generated from operations                                                                         877              479          3 308 
Dividends received                                                                                       4                -             10 
Dividends paid                                                                                        (651)            (576)          (630)
Net finance costs                                                                                     (369)            (384)          (764)
Taxation paid                                                                                         (135)            (165)          (237)
Net cash (outflow)/inflow from operating activities                                                   (274)            (646)         1 687 
Additions to property, plant and equipment and investment property(2)                                 (702)            (969)        (1 648)
Additions to intangible assets                                                                          (5)              (2)           (58)
Additions to consumable biologocal assets                                                               (1)              (5)            (5)
Net cash inflow/(outflow) on disposal/acquisition of subsidiaries and businesses                       101             (121)           (29)
Other investing activities                                                                               1              (47)            17 
Net cash outflow from investing activities                                                            (606)          (1 144)        (1 723)
Net cash outflow from operating and investing activities                                              (880)          (1 790)           (36)
Transactions with non-controlling interests                                                            (82)              51             51 
Increase in loans and borrowings                                                                       118              457            201 
Increase/(decrease) in bank overdrafts and short-term facilities                                         1              (72)           (74)
Net cash inflow from financing activities                                                               37              436            178 
Net (decrease)/increase in cash and cash equivalents                                                  (843)          (1 354)           142 
Cash and cash equivalents at beginning of period                                                     2 151            2 009          2 009 
Effects of exchange rate translations on cash and cash equivalents                                       2               (6)             -
Cash and cash equivalents at end of period                                                           1 310              649          2 151 
   
(1) Includes decrease due to harvesting and sale of livestock.
(2) Net of proceeds on disposal of property, plant and equipment and investment property and government grants received.


CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                                                                                Six months       Six months
                                                                                                     ended            ended     Year ended
                                                                                               31 Dec 2018      31 Dec 2017    30 Jun 2018
                                                                                                 Unaudited        Unaudited        Audited
                                                                                                        Rm               Rm             Rm
Profit for the period                                                                                  666              752          1 591 
Other comprehensive income/(loss)   
Items that may be reclassified subsequently to profit or loss:   
Exchange differences on translation of foreign operations                                               11              (21)            27 
Deferred taxation                                                                                        -                -             12 
Total other comprehensive income/(loss) for the period                                                  11              (21)            39 
Total comprehensive income for the period                                                              677              731          1 630 
Total comprehensive income attributable to:   
Owners of the parent                                                                                   645              700          1 579 
Non-controlling interests                                                                               32               31             51 
Total comprehensive income for the period                                                              677              731          1 630 


CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                                                                                                Six months       Six months
                                                                                                     ended            ended     Year ended
                                                                                               31 Dec 2018      31 Dec 2017    30 Jun 2018
                                                                                                 Unaudited        Unaudited        Audited
                                                                                                        Rm               Rm             Rm
Balance at beginning of the period                                                                  12 477           11 348         11 348 
Changes in stated share capital   
Net shares issued                                                                                      117               17             17 
Changes in reserves   
Total comprehensive income for the period attributable to owners of the parent                         645              700          1 579 
Dividends paid                                                                                        (618)            (559)          (559)
Share-based payments                                                                                    35               30             61 
B-BBEE cost                                                                                            194                -              -
Other reserve movements                                                                                (30)              22             22 
Changes in non-controlling interests   
Total comprehensive income for the period attributable to non-controlling interests                     32               31             51 
Dividends paid                                                                                         (33)             (46)           (71)
Shares issued to non-controlling interests                                                               -               31             31 
Shares bought from non-controlling interests                                                          (124)              (3)            (2)
Balance at end of the period                                                                        12 695           11 571         12 477 
Comprising:   
Stated share capital                                                                                 8 908            8 791          8 791 
Distributable reserves                                                                               7 021            6 074          6 905 
Share-based payment reserve                                                                            327              304            292 
Reverse acquisition reserve                                                                         (3 952)          (3 952)        (3 952)
Other reserves                                                                                         194               28            119 
Non-controlling interests                                                                              197              326            322 
                                                                                                    12 695           11 571         12 477

 
SEGMENTAL ANALYSIS
                                                                               Six months       Six months 
                                                                                    ended            ended                      Year ended
                                                                              31 Dec 2018      31 Dec 2017                     30 Jun 2018
                                                                                Unaudited        Unaudited                %        Audited
                                                                                       Rm               Rm           change             Rm
Revenue from continuing operations    
Diversified industrial                                                              4 001            3 481               15          7 051 
  Integrated Timber                                                                 1 960            1 699               15          3 612 
  Automotive Components                                                             1 189            1 024               16          2 025 
  Integrated Bedding                                                                  854              759               13          1 414 
  Intersegment revenue eliminations                                                    (2)              (1)                              -
Diversified chemical                                                                4 423            3 458               28          7 117 
  Polymers                                                                          4 423            3 458               28          7 117 
Diversified logistics                                                               4 993            4 605                8          8 971 
  Contractual Logistics - South Africa                                              2 673            2 452                9          4 925 
  Contractual Logistics - Africa                                                    1 092              972               12          1 818 
  Passenger Transport                                                               1 228            1 181                4          2 228 
                                                                                   13 417           11 544               16         23 139 
Intersegment revenue eliminations                                                    (127)             (66)                           (154)
                                                                                   13 290           11 478               16         22 985 

Operating profit before depreciation amortisation and capital items 
from continuing operations    
Diversified industrial                                                                723              702                3          1 482 
  Integrated Timber                                                                   423              413                2            953 
  Automotive Components                                                               149              145                3            271 
  Integrated Bedding                                                                  151              144                5            258 
Diversified chemical                                                                  563              360               56            896 
  Polymers                                                                            563              360               56            896 
Diversified logistics                                                                 809              843               (4)         1 534
  Contractual Logistics - South Africa                                                325              372              (13)           669 
  Contractual Logistics - Africa                                                      272              258                5            440 
  Passenger Transport                                                                 212              213                -            425 
                                                                                    2 095            1 905               10          3 912 
B-BBEE cost                                                                          (194)               -                               -
                                                                                    1 901            1 905                -          3 912 
Operating profit before capital items from continuing operations    
Diversified industrial                                                                594              586                1          1 247 
  Integrated Timber                                                                   346              342                1            809 
  Automotive Components                                                               116              116                -            214 
  Integrated Bedding                                                                  132              128                3            224 
Diversified chemical                                                                  485              318               53            778 
  Polymers                                                                            485              318               53            778 
Diversified logistics                                                                 429              500              (14)           842 
  Contractual Logistics - South Africa                                                128              192              (33)           313 
  Contractual Logistics - Africa                                                      179              168                7            268 
  Passenger Transport                                                                 122              140              (13)           261 
                                                                                    1 508            1 404                7          2 867 
B-BBEE cost                                                                          (194)               -                               -
                                                                                    1 314            1 404               (6)         2 867

                                                                              31 Dec 2018      31 Dec 2017                     30 Jun 2018 
                                                                                Unaudited        Unaudited                %        Audited
                                                                                       Rm               Rm           change             Rm
Total assets (note 6)    
Diversified industrial                                                              9 678            9 739               (1)         9 813 
  Integrated Timber                                                                 6 480            6 446                1          6 510 
  Automotive Components                                                             1 698            1 840               (8)         1 863 
  Integrated Bedding                                                                1 501            1 453                3          1 440 
  Intersegment eliminations                                                            (1)               -                               -
Diversified chemical                                                                9 562            8 448               13          8 896 
  Polymers                                                                          9 562            8 448               13          8 896 
Diversified logistics                                                               7 820            7 620                3          7 360 
  Contractual Logistics - South Africa                                              4 797            4 692                2          4 482 
  Contractual Logistics - Africa                                                    1 647            1 659               (1)         1 519 
  Passenger Transport                                                               1 460            1 352                8          1 439 
  Intersegment eliminations                                                           (84)             (83)                            (80)
Corporate, consolidation and elimination                                              (15)             125                             (39)
                                                                                   27 045           25 932                4         26 030 


ADDITIONAL INFORMATION
                                                                                                Six months       Six months
                                                                                                     ended            ended     Year ended
                                                                                               31 Dec 2018      31 Dec 2017    30 Jun 2018
                                                                                                 Unaudited        Unaudited        Audited
                                                                                                        Rm               Rm             Rm
Note 1: Capital items   
From continuing operations:   
Loss on disposal of intangible assets                                                                    -                -             (1)
Profit/(loss) on disposal of property, plant and equipment and investment property                       5               (7)            (3)
Impairments                                                                                              -              (19)           (62)
                                                                                                         5              (26)           (66)
From discontinued operations:   
Profit on disposal of property, plant and equipment and investment property                              -                4              -
Profit on disposal of subsidiaries and businesses                                                       25                -              -
                                                                                                        25                4              -
                                                                                                        30              (22)           (66)

                                                                                                Six months       Six months
                                                                                                     ended            ended     Year ended
                                                                                               31 Dec 2018      31 Dec 2017    30 Jun 2018
                                                                                                 Unaudited        Unaudited        Audited
                                                                                                        Rm               Rm             Rm
Note 2: Profit/(loss) for the period from discontinued operations   
Revenue                                                                                                  5               37             57 
Operating loss before depreciation, amortisation and capital items                                      (4)             (17)           (25)
Depreciation and amortisation                                                                            -               (4)             -
Operating loss before capital items                                                                     (4)             (21)           (25)
Capital items                                                                                           25                4              -
Operating profit/(loss)                                                                                 21              (17)           (25)
Net finance costs                                                                                        -               (1)            (1)
Profit/(loss) before taxation                                                                           21              (18)           (26)
Taxation                                                                                                (3)               4              7 
Profit/(loss) for the period from discontinued operations                                               18              (14)           (19)
                                                                                       
                                                                                                     Cents            Cents          Cents
Note 3: Earnings and headline earnings per ordinary share   
From continuing and discontinued operations:   
Basic earnings                                                                                        23.6             27.0           57.7 
Basic earnings - diluted                                                                              23.4             26.8           57.2 
Headline earnings                                                                                     22.8             27.7           59.8 
Headline earnings - diluted                                                                           22.6             27.5           59.3 
From continuing operations:   
Basic earnings                                                                                        22.9             27.6           58.4 
Basic earnings - diluted                                                                              22.7             27.4           58.0 
Headline earnings                                                                                     22.8             28.3           60.5 
Headline earnings - diluted                                                                           22.7             28.1           60.0 
   
Number of ordinary shares in issue (m)                                                               2 704            2 678          2 678 
Weighted average number of ordinary shares in issue (m)                                              2 688            2 664          2 671 

Note 4: Consumable biological assets
At 31 December 2018, consumable biological assets were valued at R1 907 million (2018: R1 919 million). The valuation of the group’s 
consumable biological assets has been carried out by management. The valuation technique is consistent with the method used 
at 30 June 2018, which was independently audited. The fair value of consumable biological assets is classified as Level 3 based 
on the fair value hierarchy. There were no transfers between the levels during the period.

                                                                                               31 Dec 2018      30 Jun 2018    30 Jun 2017   
                                                                                                 Unaudited          Audited        Audited
                                                                                                  Hectares         Hectares       Hectares
Quantities of biological assets   
Pine                                                                                                33 397           33 724         35 978
Eucalyptus                                                                                           6 795            6 710          6 438
Temporary unplanted areas                                                                            3 846            3 658          1 672
                                                                                                    44 038           44 092         44 088

                                                                                                        m3               m3             m3
Reconciliation of standing timber   
Opening balance                                                                                  5 417 681        5 675 542      5 464 385
Increase due to growth(1)                                                                          292 812          456 354        546 815
Decrease due to harvesting                                                                        (325 874)        (714 215)      (541 457)
Acquired on acquisition of subsidiary                                                                    -                -        205 799
                                                                                                 5 384 619        5 417 681      5 675 542

                                                                                                       Rm3              Rm3            Rm3
Significant unobservable inputs   
Market prices(2)   
Pine                                                                                               230-910          230-910        223-838 
Eucalyptus                                                                                             371              370            358 
Harvesting costs(3)   
Pine                                                                                                97-177           97-177        110-126 
Eucalyptus                                                                                             162              162            146 

(1) Growth models are updated regularly with enumeration data. Enumerations refer to more accurate information being collected about 
    the rate of growth and stocking of trees in the plantations. Included in the growth amounts are the decreases due to fire damage.
(2) Market prices vary between log classes and between regions. The market prices are disclosed at roadside.
(3) Harvesting costs vary between terrains and the method of harvesting.

                                                                                                Fair value       Fair value     Fair value
                                                                                                     as at            as at          as at
                                                                                               31 Dec 2018      31 Dec 2017    30 Jun 2018
                                                                               Fair value        Unaudited        Unaudited        Audited
                                                                                hierarchy               Rm               Rm             Rm
Note 5: Fair values of financial instruments    
Derivative financial assets                                                       Level 2               15                -             58 
Derivative financial liabilities                                                  Level 2              (24)             (67)            (2)

Level 2 financial instruments consist of foreign exchange contracts that 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 foreign 
exchange rates.
    
                                                                                               31 Dec 2018      31 Dec 2017    30 Jun 2018
                                                                                                 Unaudited        Unaudited        Audited
                                                                                                        Rm               Rm             Rm
Note 6: Reconciliation of total assets per statement of financial position 
to total assets per segmental analysis   
Total assets per statement of financial position                                                    28 634           26 959         28 504 
Less: Investments in associate and joint venture companies                                             (84)             (70)           (75)
Less: Interest-bearing long-term loans receivable                                                       (6)               -             (6)
Less: Deferred taxation assets                                                                         (89)            (100)           (68)
Less: Interest-bearing short-term loans receivable                                                      (6)              (1)            (5)
Less: Taxation receivable                                                                              (94)            (112)           (87)
Less: Cash and cash equivalents                                                                     (1 310)            (649)        (2 151)
Less: Assets classified as held for sale                                                                 -              (95)           (82)
Total assets per segmental analysis                                                                 27 045           25 932         26 030 


SELECTED EXPLANATORY NOTES

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, the financial 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 consolidated financial statements 
for the year ended 30 June 2018.

Basis of preparation

The condensed consolidated interim financial statements are prepared in millions of South African rand (Rm) on the historical-cost basis, 
except for certain assets and liabilities, which are carried at amortised cost, and derivative financial instruments and consumable 
biological assets, which are stated at their fair values. The preparation of the condensed consolidated interim financial statements 
for the six months ended 31 December 2018 was supervised by Frans Olivier CA(SA), the group’s chief financial officer.

Changes to comparative results

The segmental analysis has been expanded to disclose the results of the group’s seven operating divisions. The group’s resin business, 
which was previously disclosed as part of the diversified chemical segment, is now included in the diversified industrial segment as part 
of the Integrated Timber division, as it forms part of the integrated raw material supply of Integrated Timber. The comparative information 
has been restated.

Accounting policies

The accounting policies utilised in the preparation of the condensed consolidated interim financial information are consistent with those 
of the audited consolidated financial statements for the year ended 30 June 2018.

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 12 February 2019.

Post-balance sheet events

No significant events have occurred in the period between the end of the period under review and the date of this report.

Changes to the board/board committees

DM van der Merwe and CJH van Niekerk were not available for re-election at the company’s annual general meeting on 13 November 2018. 
They were consequently not reappointed to the KAP board of directors and, for the time being, the two vacancies were not filled. 

A new board committee was formed namely the investment committee to which the following directors were appointed: PK Quarmby (chairman), 
GN Chaplin, FH Olivier, KJ Grové, TLR de Klerk and SH Müller. DM van der Merwe resigned as a member from the nomination committee 
and the human resources and remuneration committee and SH Müller resigned from the nomination committee. IN Mkari and PK Quarmby were 
appointed as members of the nomination committee and KJ Grové was appointed as a member of the human resources and remuneration committee. 
The effective date of these changes was 14 August 2018. 


KAP Industrial Holdings Limited (‘KAP’ or ‘the company’ or ‘the group’)

Non-executive directors: J de V du Toit (Chairman)*, KJ Grové (Deputy chairman), TLR de Klerk, LJ du Preez, IN Mkhari*, SH Müller*, 
SH Nomvete*, PK Quarmby*
Executive directors: GN Chaplin (Chief executive officer), FH Olivier (Chief financial officer) 
*Independent

Registered address
3rd Floor, Building 2, The Views, Founders Hill Office Park, 18 Centenary Street, Modderfontein, Johannesburg 1645 

Postal address
PO Box 2766, Edenvale 1610 

Telephone: 010 005 3000 
Facsimile: 010 005 3050 
E-mail: info@kap.co.za 
www.kap.co.za

Transfer secretaries
Computershare Investor Services Proprietary Limited, Rosebank Towers, 15 Biermann Avenue, Rosebank 2196 

Company secretary 
KAP Secretarial Services Proprietary Limited 

Auditors
Deloitte & Touche 

Sponsor
PSG Capital Proprietary Limited
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