KAP reports 47% drop in earnings per share amid challenging economic conditions

Diversified industrial group KAP’s headline earnings a share fell 47% to 24.1 cents for the year to June 30 on lower operating profit, higher finance costs, and lower tax incentives on to new projects that came on stream, but the upcoming year's results should improve, CEO Gary Chaplin said yesterday.

“Our latest investment cycle is now complete, and with these (four) major projects fully operational, we see their contribution to our results increasing over time as we capture greater market share for our increased capacity. This is also going to support lower debt levels,” he said in a telephone interview.

Revenue was up 2% to R29.6 billion. Major projects, the investment for which amounted to R2.6bn, successfully ramped up to capacity during the year. Operating profit before capital items fell 14% to R1.9bn, affected also by the subdued macroeconomic environment.

Net debt was lower by R220 million on decreased capital expenditure after the completion of the projects, and further debt reductions were targeted in the 2026 and 2027 financial years.

“The start-up of their major projects affected the operating profit, interest, and taxation lines. I’m very pleased all these projects are now completed and operating effectively,” said Chaplin.

The results were also affected by volume and pricing pressure, due to consumer price sensitivity and increased competition, reflective of the prolonged weakness in the macroeconomic environment.

Four of KAP’s divisions delivered lower operating profit for the year, while two showed an improvement.

“We had a mixed bag of results, with a number of non-recurring or temporary factors affecting us. As this was the first year of operation of our major projects, which have useful lives of more than 20 years, we are not concerned by the short-term start-up impact that affected us this year.”

Good progress had also been made over the past year in developing new products and markets for the increased capacity, and underperforming businesses were restructured. “This positions us favourably for the future,” said Chaplin.

PG Bison, KAP’s decorative wood-based panels business, ramped up its new medium-density fibreboard (MDF) line, with full capacity reached in the fourth quarter, well ahead of the feasibility timeline of four years.

However, operating profit fell 28% despite the higher sales volumes, due to the stop-start nature of the ramp-up and the time required to enter new markets. Global MDF prices were also softer.

Feltex, which produces automotive components, experienced lower vehicle assembly volumes, leading to a 37% decline in its operating profit. The effect of lower volumes was more pronounced in the first half, as two of the division’s customers experienced temporary production disruptions, but Feltex delivered a much-improved performance in the second half, said Chaplin.

KAP’s end-to-end supply chain and operational services division, Unitrans, delivered a 14% lower operating profit to R438m, with performance affected mostly by subdued demand.

Unitrans had undergone restructuring over three years, and this was expected to be completed in the 2026 financial year.

“Unfortunately, the positive work is taking longer than we would like to reflect in the results, and the economic environment is not helping us. However, our medium-term operating profit and return targets remain intact for this division,” said Chaplin. The division is aiming for an operating profit of R700m over the medium term.

Safripol, the polymer division, grew operating profit by 43% as production constraints were resolved. Sleep Group increased operating profit by 27% as it benefitted from a shift in focus to more profitable products and markets and increased sales and marketing efforts.

Chaplin said they would focus on three objectives this year: realising value from the major projects, improving underperforming businesses, and reducing net debt.

BUSINESS REPORT