JSE-listed KAP skipped a dividend payment for the year to end June 2023, citing the current tough economic environment, elevated net debt levels and commitment to capital projects against the backdrop of a 43% plunge in headline earnings per share for the period.
Shares in KAP, a diversified group of industrial, chemical and logistics businesses, lost 1.59% to R2.48 on the JSE yesterday. In the prior year, KAP declared a 29 cents per share dividend.
With the South African operating environment buffeted by headwinds such as rising interest rates and inflation, subdued consumer confidence and continued infrastructure disruptions, KAP was also impacted by increased levels of electricity load-shedding during the period under review.
KAP CEO Gary Champlin, said these headwinds had resulted in “lower domestic sales volumes” and “increased finance costs” for the period under review.
Although the company had raised export sales during the full year to end June, this had come “at lower margins” against those required to normalise inventories.
“Following the record result achieved in the previous year, the group delivered a lower result for FY23, with improved performances from PG Bison, Restonic and Feltex being insufficient to offset lower performances from Safripoland Unitrans,” said CFO Frans Olivier.
Group revenue for the period paced up 6% to R29.6 billion as price increases offset raw material cost increases. To this end, Ebitda for the period fell 11% to R3.9bn, with the operating profit before capital items also lowering 19% to R2.4bn.
This meant that headline earnings per share for the period came in lower by a massive 43%at 42.7 cents. This has been attributed to “the decline in operating profit before capital items and a 59% increase in net finance costs relating mainly to higher interest” rates.
The group’s net interest-bearing debt increased by R568 million to R8bn, largely “due to lower earnings and capital expenditure to complete committed expansion projects,” the company said.
The PG Bison unit was supported by market share gains after a 14% expansion in total annual raw board capacity to 830 000 m3. In spite of the impacts of load-shedding, PG Bison sales volumes increased by 7% for the year, driven by export sales whose contribution rose from 11% to 18% of total sales volumes.
KAP has kick-started a process to consolidate the three Unitrans divisions – Unitrans South Africa, Unitrans Africa and Unitrans Passenger – into a single organisation.
This would help it operate under a single strategy and management structure.
“The consolidation is designed to increase focus, scale and expertise in the following core sectors: food, agriculture, petrochemical, mining and passenger transport. The outcome of this process is expected to improve the quality of revenue, together with cost savings and asset and infrastructure rationalisation opportunities, which will ultimately improve margins and returns,” KAP said.
The Unitrans unit, however, “delivered a disappointing performance for the year, primarily due to poor performances by the agriculture and food” operations. Passenger transport from Unitrans “delivered a good performance due to increased activity, rationalisation and cost optimisation and renegotiation of certain loss-making contracts“.
The Unitrans consolidation process has resulted in the closure of under-performing operations and the sale of related assets, leading to the company incurring operating losses of R107 million for the year. Additionally, non-recurring restructure costs of R27m were incurred for the year under Unitrans.
The rationalisation and restructuring process, together with the muted outlook for South African economic growth as well as structural changes in the local logistics industry and the loss of a major food retail contract, resulted in a R713m impairment on Unitrans’ intangible assets.