KAP Industrial Holdings had several growth projects that would come to fruition over the next two years, with its energy strategy, which gave it promising long-term prospects, CEO Gary Chaplin said yesterday.
Some expansion projects included the expansion of medium-density fibreboard capacity in Mkhondo and there were several projects being considered for self-generation of electricity, mostly through renewable energy, at attractive returns, he said.
There were some export opportunities in particle board and polymer businesses in the next six months, and on possible acquisitions, he said there were some opportunities being assessed, but he could not speak about these as yet.
“A great deal of time, resources and cost are being spent on energy security at the moment,” he said in a telephone interview.
One of these projects is a 10 MW photovoltaic (PV) plant at the Safripol Sasolburg site, which was completed in November 2022, and a 4 MW PV plant had begun at the PG Bison Boksburg site during the period, Chaplin said at the release of the diversified industrial group’s results for the six months to December 31.
“We are also optimising our portfolio by reallocating capital internally, which we believe will improve returns and unlock value for our shareholders,” he said.
He said the operating environment was very challenging during the period, characterised by political uncertainty to the ANC elective conference, continued electricity and infrastructure disruptions and higher interest rates and inflation.
Cash flow from operations reduced by 96% due to a R2.2 billion temporary absorption of working capital, largely due to a combination of raw material cost escalations and increased inventory following lower sales volumes, a situation he expected would mostly turn around by June. he said the group was comfortable with current debt levels.
“Our revenue was up 12%, but our volumes were down which shows good efforts in recouping our costs, but the lower volumes were due in the main to the weak consumer demand which is of concern,” he said.
The group had certain energy agreements that allowed it to flex usage and loadshedding had not yet had a material impact.
However, the cumulative downstream impact, which results in electricity inconsistencies and potential infrastructure disruptions, had become more visible as it affected customers’ ability to buy the group’s products.
“So we are selling lower volumes. And it is also starting to impact on the reliability of our manufacturing plants and increasing our maintenance costs,” said Chaplin.
In the six months the group reported a 12% increase in revenue and a 2% decline in earnings before interest, taxes, depreciation and amortisation. Operating profit before capital items declined by 8%.
He said the group remained resilient, supported by the diversity of the operations.
PG Bison, which manufactures decorative wood panels, continued to perform well, while the automotive business showed good improvement as the automotive sector started to recover. The logistics business, Unitrans, was stable.
There was softer customer demand in the polymer business, Safripol and there had a major breakdown at one of the plants, which impacted profits. Lower sales volumes had reduced Safripol operating profit by R173 million due to subdued converter demand.
A major equipment failure at the Durban PET plant caused 38 days of lost production and some lost sales. The impact was being quantified for insurance purposes.
“We also experienced softer customer demand and lower sales volumes in our bedding business, Restonic,” said Chaplin. The management team at Restonic had recently been realigned and were restructuring operations to focus on more profitable products and market segments, improving process efficiencies, and reducing operating costs.
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