KAP, a diversified industrial group, increased revenue and headline earnings per share substantially over its interim reporting period to December, highlighting solid growth and margins.
CEO Gary Chaplin said on Monday that despite an extremely tough operating environment, the core logistics business performed well by positioning itself in nondiscretionary spending markets — fuel and agriculture — as well as by rationalising operations.
"It’s a rewarding set of results driven by organic growth and all the technology upgrades that we have done," Chaplin said.
The logistics segment also operates in the mining and freight industries and intercity passenger and commuter transport services. The manufacturing businesses involve the timber, chemical, automotive and bedding industries.
KAP has invested heavily in technology upgrades and in plant expansions.
Group revenue grew 10% to R9bn in the period. Operating profit shot up 24% to R1.1bn, while headline earnings per share soared 18%. The group had been focusing on cash generation, which leapt 27% in the period, helped by inventory management and better control of payables and client payment terms, Chaplin said. Net asset value per share was up 17%.
"The KAP interim results were very impressive," Mark Hodgson, an analyst at Avior Capital Markets, said on Monday. The group delivered an "exceptional operating profit performance" and it largely held strong market positions.
"High barriers are likely to persist due to well-directed capex to improve margins and cost efficiencies. We expect organic earnings growth to be augmented by the major Safripol acquisition, which has been effectively financed and creates a significant chemicals earnings cluster for KAP," Hodgson said.
The R4bn buyout of raw plastics materials maker Safripol in the second half of 2016 had made KAP a bigger player in markets for plastic bottles. Safripol, previously owned by Rockwood Fund, Thebe Safripol Investments and members of the Safripol management team, manufactures polypropylene and high-density polyethylene, which are used to make a wide range of industrial and consumer goods.
The group said in August 2016, when reporting its results for the year to June, that investments including Safripol had given it a boost. At that time, KAP reported that operating profit before capital items from continuing operations shot up 19% to R2bn on higher gross operating margins and the rationalisation of the group’s cost base.
KAP consisted of companies acquired since 2004 and the industrial assets of Steinhoff Africa, which were acquired in 2012. This gave Steinhoff a majority stake in KAP.