Kap Limited · JSE:KAP
Kap — KAP Industrial Holdings — FY2018 Earnings Presentation
48 slides from Kap's earnings presentation, September 2018
Slide 1: KAP Industrial Holdings Limited Audited Results for the Year Ended 30 June 2018
KAP INDUSTRIAL HOLDINGS LIMITED AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2018 INTEGRATED INTO EVERY DAY
Slide 2: Welcome
WELCOME JAAP DU TOIT CHAIRMAN INTEGRATED INTO EVERY DAY
Slide 3: Agenda
AGENDA WELCOME JAAP DU TOIT UNAUDITED INTERIM RESULTS FOR THE CORPORATE SIX MONTHSENVIRONMENT JO GROVÉ ENDED 31 DECEMBER 2016 STRATEGY IMPLEMENTATION GARY CHAPLIN DIVISIONAL HIGHLIGHTS GARY CHAPLIN FINANCIAL ANALYSIS FRANS OLIVIER OUTLOOK GARY CHAPLIN AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2018
Slide 4: Corporate Environment
CORPORATE ENVIRONMENT JO GROVÉ DEPUTY CHAIRMAN INTEGRATED INTO EVERY DAY
Slide 5: F2018 Unexpected Major Events
F2018 UNEXPECTED MAJOR EVENTS • Steinhoff events (Funders/Shareholders/Analysts/Press/Suppliers/Customers/Suitors) • Establishing a full Corporate Services function • East London explosion significantly affecting Automotive Components division • Durban storms affecting Chemical and Automotive Compon
Slide 6: F2018 Budget Objectives
F2018 BUDGET OBJECTIVES PROJECT EXECUTION AND ACQUISITION INTEGRATION • Extract value from PG Bison Piet Retief expansion (commissioned May 2017) • Recovery operations in relation to 4 456 ha of plantations burnt in June 2017 fires • Automotive replacement model introductions (VW Polo and BMW X3) •
Slide 7: Strategy Implementation
STRATEGY IMPLEMENTATION GARY CHAPLIN CHIEF EXECUTIVE OFFICER INTEGRATED INTO EVERY DAY
Slide 8: Strategic Drivers
STRATEGY IMPLEMENTATION STRATEGIC DRIVERS BEING THE HIGH BARRIER SUSTAINABLE SUSTAINABLE LEVERAGING LEADERS TO ENTRY MARGINS EARNINGS OUR IN THE INDUSTRIES THROUGH THROUGH AFRICAN MARKETS SPECIALISATION DIVERSITY BASE WE SERVE RESULTING IN STRONG CASH FLOW GENERATION TECHNOLOGY INVESTMENT MARKET SHA
Slide 9: Five-Year Compound Annual Growth
STRATEGY IMPLEMENTATION FIVE-YEAR COMPOUND ANNUAL GROWTH AS A RESULT OF ORGANIC EXPANSION AND ACQUISITION OF COMPLEMENTARY BUSINESSES REVENUE (Rm) – CAGR* 11% OPERATING PROFIT (Rm) – CAGR* 17% 25 000 3 000 20 000 2 000 15 000 10 000 1 000 5 000 0 0 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2
Slide 10: Group Operational Structure
STRATEGY IMPLEMENTATION GROUP OPERATIONAL STRUCTURE DIVERSIFIED INDUSTRIAL DIVERSIFIED CHEMICAL DIVERSIFIED LOGISTICS INTEGRATED TIMBER POLYMERS CONTRACTUAL LOGISTICS Integrated forestry and timber Manufacture of polyethylene terephthalate Provision of specialised contractual manufacturing operation
Slide 11: Group Segmental Analysis
STRATEGY IMPLEMENTATION GROUP SEGMENTAL ANALYSIS REVENUE OPERATING PROFIT TOTAL ASSETS DIVERSIFIED INDUSTRIAL 29% DIVERSIFIED INDUSTRIAL 38% DIVERSIFIED INDUSTRIAL 36% DIVERSIFIED CHEMICAL 34% DIVERSIFIED CHEMICAL 32% DIVERSIFIED CHEMICAL 36% DIVERSIFIED LOGISTICS 37% DIVERSIFIED LOGISTICS 30% DIVER
Slide 12: Revenue Analysis
STRATEGY IMPLEMENTATION REVENUE ANALYSIS Stable7% 10% 13% 47% 4% 79% (Rm) Industrial Chemical Logistics 000 4% 3% 22 985 111% (6%) 10% 000 000 000 2% 12% 7% 19 783 000 000 0 FY17 Integrated Automotive Integrated Safripol Hosaf Woodchem Contractual Passenger FY18 timber components bedding logistics t
Slide 13: Operating Profit Analysis
STRATEGY IMPLEMENTATION OPERATING PROFIT ANALYSIS 5% 17% 38% (Rm) Industrial Chemical Logistics 600 400 139% (81%) 6% (9%) 200 5% 2 867 000 4% 20% 20% 800 2 499 600 400 200 0 FY17 Integrated Automotive Integrated Safripol Hosaf Woodchem Contractual Passenger FY18 timber components bedding logistics
Slide 14: Margin Analysis
STRATEGY IMPLEMENTATION MARGIN ANALYSIS KAP operating profit margin remained stable at 12.5% UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2016 Industrial Chemical Logistics Group 16.2% Operating margin (%) 14.8% 12.3% 12.6% 12.3% 12.3% 12.4% 12.6% 12.5% 11.5% 10.4% 10.2% 9.4% FY16
Slide 15: Divisional Highlights
DIVISIONAL HIGHLIGHTS GARY CHAPLIN CHIEF EXECUTIVE OFFICER INTEGRATED INTO EVERY DAY
Slide 16: Diversified Industrial
DIVERSIFIED INDUSTRIAL REVENUE INCREASED OPERATING PROFIT TOTAL ASSETS BY 7% INCREASED BY 17% INCREASED BY 3% R6 801m R1 100m R9 458m (FY17: R6 385m) (FY17: R944m) (FY17: R9 149m) AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2018 16
Slide 17: Integrated Timber
INTEGRATED TIMBER • May 2017 Piet Retief expansion operated at above capacity for F2018 • Boksburg expansion completed in January 2018 and operating above capacity REVENUE • Increased export sales to facilitate increased production • Value-add ratio increased to 56%, thereby enhancing rand/m3 profit
Slide 18: Automotive Components
AUTOMOTIVE COMPONENTS • Industry new vehicle assembly volumes remained flat • VW Polo replacement model successfully introduced in September 2017 REVENUE • BMW X3 replacement model successfully introduced in April 2018 • Sales of existing models remained buoyant 2% • Impact of East London explosion
Slide 19: Integrated Bedding
INTEGRATED BEDDING • Continued furniture retail focus on bedding category drives volume growth • Integrated business model benefits directly from continued volume growth REVENUE • Increased intra-divisional integration compensates for lower bedding selling prices • Technology and machinery upgrades
Slide 20: Diversified Chemical
DIVERSIFIED CHEMICAL REVENUE INCREASED OPERATING PROFIT TOTAL ASSETS INCREASED BY BY 47% INCREASED BY 38% 11% R8 018m R925m R9 292m (FY17: R5 467m) (FY17: R672m) (FY17: R8 354m) AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2018 20
Slide 21: Chemical Revenue and Volumes
CHEMICAL PET – 28% PET – 27% HDPE – 39% HDPE – 31% REVENUE VOLUMES PP – 25% PP – 23% UF RELATED – 8% UF RELATED – 19% AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2018 21
Slide 22: Chemical: Safripol
CHEMICAL • Safripol performs ahead of acquisition parameters – EBITDA R814 million • HDPE (high-density polyethylene) sales volumes up 108% on prior six months REVENUE • HDPE US dollar margins up 28% on prior • PP (polypropylene) sales volumes up 94% on prior six months 111% • PP US dollar margins d
Slide 23: Chemical: Hosaf
CHEMICAL • Hosaf project finally complete with a minor post commissioning shutdown in July 2018 REVENUE • Plant operating efficiently at 650 tonnes per day • Final capital cost of R1 308 million, including capitalised interest 6% • Target IRR of 17% remains in place off higher capital base • PET (po
Slide 24: Chemical: Woodchem
CHEMICAL • Woodchem operated near full capacity • Sales volumes stable, with 1% reduction on prior year REVENUE • Rand margins increased by 9%, assisted by improved mix • Paper impregnation plant sold to PG Bison effective 1 July 2018 10% OPERATING PROFIT 6% AUDITED RESULTS FOR THE YEAR ENDED 30 JUN
Slide 25: Diversified Logistics
DIVERSIFIED LOGISTICS REVENUE INCREASED OPERATING PROFIT TOTAL ASSETS BY 4% DECREASED BY 5% INCREASED BY 3% R8 971m R842m R7 280m (FY17: R8 656m) (FY17: R883m) (FY17: R7 070m) AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2018 25
Slide 26: Contractual Logistics: Diverse Revenue Base
CONTRACTUAL LOGISTICS DIVERSE REVENUE BASE FUEL – 28% FOOD – 23% GENERAL FREIGHT – 13% SOUTH AFRICA – 73% MINING & CEMENT – 13% REST OF AFRICA – 27% AGRICULTURE – 11% SPECIALISED WAREHOUSING – 6% CHEMICALS – 6% • Continued focus on non-discretionary goods and services • Customer base largely represe
Slide 27: Contractual Logistics
CONTRACTUAL LOGISTICS • Trading environment extremely challenging in H2 • Fuel industry evolution materially affected performance REVENUE - Pipeline efficiency reduced ad hoc bridging work - Changes in regional product flow reduced kilometres travelled - Client management of supplier concentration r
Slide 28: Passenger Transport
PASSENGER TRANSPORT • Core commuter, personnel and tourism operations performed well • Mozambique personnel operations continue to exceed expectations REVENUE and present expansion opportunities • Intercity operations remained subdued but stable 3% • Strategic review of Intercity operations in progr
Slide 29: Financial Analysis
FINANCIAL ANALYSIS FRANS OLIVIER CHIEF FINANCIAL OFFICER INTEGRATED INTO EVERY DAY
Slide 30: Financial Highlights
FINANCIAL HIGHLIGHTS STRATEGY IMPLEMENTATION PRODUCES SUSTAINABLE EARNINGS WITH STRONG CASH CONVERSION AND RESULTANT DIVIDEND GROWTH UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS Results ENDED from continuing 31 DECEMBER 2016 operations FY18 FY17 Variance Revenue (Rm) 22 985 19 783 16% Operating prof
Slide 31: Income Statement
FINANCIAL HIGHLIGHTS INCOME STATEMENT FY18 FY17 Continued operations Rm Rm Variance UNAUDITED INTERIM RESULTS FOR THE Revenue 22 985 19 783 16% SIX MONTHS ENDED 31 DECEMBER 2016 Operating profit before capital items 2 867 2 499 15% Capital items (66) (34) Net finance costs (706) (515) 37% Finance co
Slide 32: Geographic Markets
FINANCIAL ANALYSIS GEOGRAPHIC MARKETS – REVENUE AND OPERATING PROFIT ANALYSIS Revenue Operating profit1 SOUTH AFRICA – 91% SOUTH AFRICA – 87% NON-SOUTH AFRICA – 9% NON-SOUTH AFRICA – 13% • Provides diversity in markets and broader growth opportunities • Provides improved margins to compensate for so
Slide 33: Currency Drivers of Revenue and Operating Profit
FINANCIAL ANALYSIS CURRENCY DRIVERS OF REVENUE AND OPERATING PROFIT Revenue Operating profit1 RAND driven activities – 65% RAND driven activities – 64% US DOLLAR driven activities – 35% US DOLLAR driven activities – 36% • Dollar-driven activities impact revenue and raw material prices, therefore rep
Slide 34: Balance Sheet
FINANCIAL ANALYSIS BALANCE SHEET Balance sheet remains stable with quality assets FY18 FY17 Rm Rm Property, plant, equipment and investment properties 12 513 11 832 Intangible assets 4 109 4 082 Goodwill 1 283 1 251 Biological assets 1 919 1 978 Net working capital 1 330 623 Other assets 331 407 Ass
Slide 35: Continued Investments Result in Strong Asset Base
FINANCIAL ANALYSIS CONTINUED INVESTMENTS RESULT IN STRONG ASSET BASE OF NEW TECHNOLOGY ASSETS Capex and acquisition investments (Rm) Asset base at 30 June 2018 7 000 6 083 6 000 5 000 4 000 3 000 2 285 2 000 1 724 PLANT & MACHINERY – 28% 1 341 1 106 VEHICLES & BUSES – 23% 1 000 INTANGIBLE ASSETS – 2
Slide 36: Plantation Revaluation
FINANCIAL ANALYSIS PLANTATION REVALUATION 700 Normal operations Fire-related impact (Rm) 197 (189) 600 500 1 950 (9) 1 949 (65) 400 (3) 1 881 300 200 100 0 FY17 Increase Decrease due Decrease Total prior Excess Recovery FY18 due to to normal due to to effect harvesting estimate growth harvesting inf
Slide 37: Working Capital Breakdown
FINANCIAL ANALYSIS WORKING CAPITAL BREAKDOWN* 1(Rm) 550 344 (60) 1 367 1 350 1 150 389 950 750 681 13 550 350 150 -50 FY17 Acquisitions Inventory Receivables Payables FY18 * Including assets classified as held for sale • Inventory affected by PET expansion (R199m) and southern Cape sawlogs (R92m) in
Slide 38: Cash Flow
FINANCIAL ANALYSIS CASH FLOW FY18 FY17 Rm Rm Operating profit from continuing operations 2 867 2 499 Depreciation and amortisation 1 045 862 EBITDA 3 912 3 361 Net revaluation of biological assets 64 (4) Discontinued operations (25) (44) Other non-cash adjustments 38 28 Cash generated before working
Slide 39: Cash Flow – Continued
FINANCIAL ANALYSIS CASH FLOW – CONTINUED FY18 FY17 Rm Rm Cash flow from operating activities 1 687 1 598 Investing activities (1 723) (6 083) Expansion capex (811) (1 050) Replacement capex (837) (1 190) Acquisition of investments (29) (3 781) Other investing activities (46) (62) Cash flow after inv
Slide 40: Debt Structure and Capacity Ratios
DEBT STRUCTURE AND CAPACITY RATIOS DEBT SERVICEABILITY RATIOS REFLECTIVE OF STRONG CASH GENERATION 30 Jun 18 30 Jun 17 Net interest-bearing debt (Rm) 5 727 5 777 Equity excluding non-controlling interest (Rm) 12 155 11 035 Gearing: net debt:equity 47% 52% Net debt to EBITDA (times) < 3.2 1.5 1.7 EBI
Slide 41: Treasury Activity
TREASURY ACTIVITY NET INTEREST-BEARING DEBT MATURITY AS AT 30 JUNE 2018 Rm 5 000 AVAILABLE FACILITIES CASH AND CASH EQUIVALENTS, NET OF OVERDRAFT 4 000 DEBT REPAYMENTS 3 000 2 000 1 000 0 -1 000 -2 000 -3 000 -4 000 Jun 2023 Jun 2018 Jun 2019 Jun 2020 Jun 2021 Jun 2022 and thereafter AUDITED RESULTS
Slide 42: Corporate Feedback: Governance and Control Environment
CORPORATE FEEDBACK GOVERNANCE AND CONTROL ENVIRONMENT • Primary control environment (two-year process) – Completion of primary ERP systems integration projects – Completion of ‘financial close’ project – Centralised treasury and cash management • Independent review of internal audit • Governance str
Slide 43: Outlook
OUTLOOK GARY CHAPLIN CHIEF EXECUTIVE OFFICER INTEGRATED INTO EVERY DAY
Slide 44: Diversified Industrial Outlook
DIVERSIFIED INDUSTRIAL Integrated timber • PG Bison well positioned in terms of product mix, market position and manufacturing capacity/efficiency • Strategy remains intact and focused Automotive components • Replacement model introductions and traditional models operating well • No replacement mode
Slide 45: Diversified Chemical Outlook
DIVERSIFIED CHEMICAL • Global polymer demand and margins remain buoyant • Resin demand and margins remain buoyant • Focus on Hosaf sales volumes and margins remains a priority – Major customers regained before peak period trading – Strong export interest at sustainable margins • Focus on single poly
Slide 46: Diversified Logistics Outlook
DIVERSIFIED LOGISTICS Contractual logistics • B-BBEE transaction to be implemented • Contract renewal pipeline improving • Continued focus on technology (Control Tower) to improve efficiencies and customer service • Rest of Africa growth continues to be a focus area Passenger transport • Continued f
Slide 47: A very challenging year with some major shocks
A very challenging year with some major shocks • Shareholder of reference sterilised in terms of support • Immediate loss of corporate service functionality • R569 million project overspend and 81% profit reduction in a major business • 10% of forest holdings burnt All in a tepid economy, which prov
Slide 48: Thank You
THANK YOU INTEGRATED INTO EVERY DAY
KAP Industrial Holdings — FY2018 Earnings Presentation on 6ix