Kap Limited · JSE:KAP
Kap — Investor Day (June 2022)
40 slides from Kap's investor day presentation, Jun 28, 2022
Slide 1: Capital Markets Day
CAPITAL MARKETS DAY 28 JUNE 2022
Slide 2: Agenda
AGENDA 10:00 – 10:05 WELCOME AND INTRODUCTION Gary Chaplin, CEO 10:05 – 11:05 KAP STRATEGY FOR GROWTH AND VALUE CREATION Gary Chaplin, CEO 11:05 – 11:35 TOPICAL MATTERS THAT AFFECT KAP Gary Chaplin, CEO Frans Olivier, CFO 11:35 – 11:50 TEA BREAK 11:50 – 12:40 WORLD-CLASS MANUFACTURING IN SOUTH AFRIC
Slide 3: KAP Strategy for Growth and Value Creation
KAP STRATEGY FOR GROWTH AND VALUE CREATION
Slide 4: Key developments that shaped the KAP portfolio
KEY DEVELOPMENTS THAT SHAPED THE KAP PORTFOLIO Over the past ten years, KAP established leadership positions for most businesses in its portfolio FY12–15 FY16–18 FY19–21 FY22 • Acquired Steinhoff • Safripol acquisition in FY17 • Continued impact • Continued impact industrial assets: PG Bison, from S
Slide 5: Three major events occupied the group's focus since FY18
THREE MAJOR EVENTS OCCUPIED THE GROUP’S FOCUS SINCE FY18 Strategy and operational excellence pursued, regardless of the external dynamics Event Responses & trade-offs Response Steinhoff corporate governance failure (Dec 17 to Jun 19) • Create independence from Steinhoff and ensure credibility of KAP
Slide 6: This has resulted in mixed performances for the divisions
THIS HAS RESULTED IN MIXED PERFORMANCES FOR THE DIVISIONS… FY22 forecast vs FY19 (pre-Covid-19) performance Revenue Operating profit* ROCE^ Commentary Capacity expansions, value-add, market share gains, biological asset revaluation forecast c. R48m lower than FY19, ROCE affected by capital work-in-p
Slide 7: Critical review and refresh of group and divisional strategies
… AND HAS PROMPTED A CRITICAL REVIEW AND REFRESH OF THE GROUP AND DIVISIONAL STRATEGIES FOR THE NEXT FIVE YEARS Internal environment Outcome from strategic review • Key strengths: best people, latest • Refined KAP value proposition and approach to building assets, great brands and products, business
Slide 8: KAP's strategy is to deliver sustainable, value-accretive growth
KAP’S STRATEGY IS TO DELIVER SUSTAINABLE, VALUE-ACCRETIVE GROWTH BY BUILDING MARKET-LEADING BUSINESSES Group vision, focus Approach to investing Market-leading businesses and broader financial targets and building businesses and brands Our vision Invest in sectors where we see growth To inspire peop
Slide 9: PG Bison strategic snapshot
PG BISON | STRATEGIC SNAPSHOT We inspire and enable beautiful living spaces. AND DEMAND DRIVERS ≈ 3 300 m3 Market growth drivers AND OPPORTUNITIES FUTURE GROWTH DRIVERS HISTORICAL MARKET GROWTH Key product segments daily SA production • Particleboard: Manufacture of furniture, • Growth in affordable
Slide 10: PG Bison big-ticket items
PG BISON | STRATEGIC SNAPSHOT PG Bison “big-ticket” items – particleboard and MDF expansions and value-add Annual particleboard and MDF* sales and value-add targets eMkhondo particleboard expansion • Completed 2H22 Sales (‘000 m3) Value-add (%) • 103 200 m3 p.a. increase in capacity 1 200 80% eMkhon
Slide 11: Safripol strategic snapshot
SAFRIPOL | STRATEGIC SNAPSHOT We shape our world through the responsible use of plastics. AND DEMAND DRIVERS ≈ 740 kt AND OPPORTUNITIES FUTURE GROWTH DRIVERS HISTORICAL MARKET GROWTH Key product segments Market growth drivers SA 2021 PET, PP, HDPE • HDPE: Broad range of applications • Consumer educa
Slide 12: Safripol big-ticket items
SAFRIPOL | STRATEGIC SNAPSHOT Safripol “big-ticket” items – raw material supply, efficiencies, value-add and PP expansion Annual PP, PET and HDPE sales volumes and value-add targets Renegotiated ethylene supply contract • Through-the-cycle operating profit margin Tonnes improved and cyclicality mode
Slide 13: Unitrans strategic snapshot
UNITRANS | STRATEGIC SNAPSHOT Through the provision of integrated operational services, we free up our clients to focus on growing their businesses. AND DEMAND DRIVERS -6% CAGR AND OPPORTUNITIES FUTURE GROWTH DRIVERS HISTORICAL MARKET GROWTH Key sectors Market growth drivers SA industry • Food • Com
Slide 14: Feltex strategic snapshot
FELTEX | STRATEGIC SNAPSHOT We provide exceptional automotive comfort and style. 499 087 Market growth AND OPPORTUNITIES AND DEMAND DRIVERS FUTURE GROWTH DRIVERS HISTORICAL MARKET GROWTH Key product segments 2021 SA vehicle • SA Automotive Masterplan 2035 – vehicle production 447 218 • Trim: e.g., c
Slide 15: Restonic strategic snapshot
RESTONIC | STRATEGIC SNAPSHOT We enable well-being and success through the power of sleep. AND DEMAND DRIVERS > R5bn AND OPPORTUNITIES FUTURE GROWTH DRIVERS HISTORICAL MARKET GROWTH Key product segments Market sector growth SA formal mattress • Mattresses: Spring and foam • Consumer awareness of the
Slide 16: DriveRisk strategic snapshot
DRIVERISK | STRATEGIC SNAPSHOT We save lives by using global best-of-breed technologies. AND DEMAND DRIVERS Key products Market growth AND OPPORTUNITIES FUTURE GROWTH DRIVERS HISTORICAL MARKET GROWTH • DriveCam • Video-enhanced telematics relatively new and growing rapidly 42% • SurfSight • AI and a
Slide 17: Capital allocation framework prioritises organic growth
CAPITAL ALLOCATION FRAMEWORK PRIORITISES ORGANIC GROWTH Flexible and optimal capital allocation Debt repayment Target net debt : EBITDA < 2.5x Maintenance and replacement Maintain asset base to ensure sustainability capex Capital allocation priorities Efficiency improvements (e.g., related to techno
Slide 18: Cash generation supportive of growth objectives
CASH GENERATION SUPPORTIVE OF GROWTH OBJECTIVES Diversified nature of cash generation allows for self-funded expansion KAP group cash flow Rm 3 000 2 000 1 000 0 -1 000 -2 000 -3 000 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Replacement capex Expansion capex Cash flow from operating activities FC
Slide 19: Expansion capital expenditure
EXPANSION CAPITAL EXPENDITURE Major investments relate to PG Bison and, potentially, Safripol Major expansion capex forecast Rm 1 600 1 400 1 200 1 000 800 600 400 200 0 FY22E FY23E FY24E FY25E FY26E PG Bison MDF expansion Potential Safripol PP expansion Note: Maintenance capital expenditure managed
Slide 20: Unpacking the >16% ROCE objective
UNPACKING THE > 16% ROCE OBJECTIVE • Unitrans has lowest ROCE with highest portion of capital employed in KAP, requiring rationalised revenue and resources toward growth in key sectors with higher margins and returns, and expansion into complementary “integrated operational services” • PG Bison ROCE
Slide 21: In summary
IN SUMMARY Who is KAP? • We are an owner and builder of unlisted, market-leading businesses/brands with world-class products and services that create lasting social and economic value. Strategy • We identify sectors with growth opportunities; we develop strategies to become sector leaders; we assemb
Slide 22: KAP corporate video
KAP CORPORATE VIDEO 22
Slide 23: Topical matters that affect KAP
TOPICAL MATTERS THAT AFFECT KAP
Slide 24: Safripol raw material margins
SAFRIPOL RAW MATERIAL MARGINS Our strategy is to “beat the index” and “moderate cyclicality” Principles of Safripol and raw material pricing • PET: PET selling prices and raw material (PTA and MEG) cost prices are all referenced to China spot indices • HDPE/PP: HDPE/PP selling prices are referenced
Slide 25: Safripol raw material margins: indexed basket guidance
SAFRIPOL RAW MATERIAL MARGINS Indexed basket guidance to provide increased transparency Safripol polymers basket composition • Actual raw material margins for PET, HDPE and PP, weighted by average annual sales volumes • PET 237 000 tonnes • HDPE 160 000 tonnes • PP 120 000 tonnes • Note: actual pric
Slide 26: Safripol raw material margins: basket margins
SAFRIPOL RAW MATERIAL MARGINS Indexed basket guidance to provide increased transparency Safripol basket raw material margins Moderate the cycle • Renegotiated supply contract has improved “base” raw material margin • Cyclical trough not as deep • c. 55% of Safripol sales volume have margin adjustmen
Slide 27: Safripol raw material margins outlook
SAFRIPOL RAW MATERIAL MARGINS OUTLOOK Guidance • Global PP and HDPE demand growth expected to exceed GDP growth • Global capacity expected to outpace demand growth for all three polymers to 2025* (currently not evident due to regional dislocation) • Global VPET demand growth to fall below GDP growth
Slide 28: Environmental, social and governance (ESG)
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) Integrated into the KAP strategy | Good returns, for the return of good Responsible plastics help reduce costs, improve innovation POWER OF and make products/manufacturing more sustainable. WELL Responsible plastics enhance society and drive innovation. RES
Slide 29: ESG: manufacturing example
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) Integrated into the KAP strategy | Manufacturing example We comply with all relevant environmental We invest in technology and processes legislation and foster sustainable forestry to reduce waste and raw material best practice to ensure longevity in raw co
Slide 30: ESG: practical examples
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) Integrated into the KAP strategy | Practical examples Waste • Safripol, PG Bison and Restonic reuses/recycles c. 70% of waste (internally and externally) • PG Bison and Restonic buy in c. 300 kt of “waste” annually (biomass and textile “waste”) • c. 30% of
Slide 31: Resilience strategy
RESILIENCE STRATEGY Business continuity | Deteriorating state infrastructure and services • Detailed ERM (Enterprise Risk Management) assessment • Multifaceted approach, starting with government partnership and industry leadership • Executive Director: Corporate Affairs actively interacting at multi
Slide 32: Resilience strategy: energy strategy
RESILIENCE STRATEGY Business continuity | Energy strategy Purpose Microgrid design • Mitigate supply and interruption risks • Extract cost savings • Potentially supply third parties Diesel generator KAP electricity consumption for backup CHP or • c. 100 MWh CCHP Energy • Electricity costs c. R600m p
Slide 33: World-class manufacturing in South Africa
WORLD-CLASS MANUFACTURING IN SOUTH AFRICA
Slide 34: Operational update
OPERATIONAL UPDATE
Slide 35: Operating environment for FY22
OPERATING ENVIRONMENT FOR FY22 Continued political instability Deteriorating state Civil unrest in South Africa and policy uncertainty infrastructure and services and Eswatini Severe commodity price Covid-19 restrictions continued Floods in KZN and eastern volatility and raw material to weigh on cer
Slide 36: Operational update for the 11 months to 31 May 2022
OPERATIONAL UPDATE FOR THE 11 MONTHS TO 31 MAY 2022 PG Bison • Global supply/demand and supply chain disruptions continue to support local supply and manufacture • Robust local demand supported by continued “home spend” • eMkhondo expansion successfully completed, adding approximately 14% additional
Slide 37: Operational update: Unitrans and Restonic
OPERATIONAL UPDATE FOR THE 11 MONTHS TO 31 MAY 2022 Unitrans • Unitrans South Africa division performed well, with a slight improvement in margins and returns • Termination of major retail contract effective August 2023 • S197 transfer of staff • Termination penalty • Assets retained to facilitate f
Slide 38: Operational update: Feltex and DriveRisk
OPERATIONAL UPDATE FOR THE 11 MONTHS TO 31 MAY 2022 Feltex • Performance improved in 2H22 compared with 1H22 • Lower volumes and volatility in OEM demand due to the impact of the global shortage of semiconductor chips and the technical challenges with the start-up of its component production for a n
Slide 39: 3) Sy
3) Sy
Slide 40: Thank you
THANK YOU