Kap Limited · JSE:KAP
Kap — FY2020 Earnings Presentation
46 slides from Kap's earnings presentation, Aug 20, 2020
Slide 1: Audited Results for the Year Ended 30 June 2020
AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2020
Slide 2: Agenda
AGENDA INTRODUCTION JAAP DU TOIT UNAUDITED INTERIM RESULTS FOR THE STRATEGY SIX IMPLEMENTATION MONTHS GARY ENDED 31 DECEMBER CHAPLIN 2016 DIVISIONAL OPERATIONAL REVIEW GARY CHAPLIN FINANCIAL ANALYSIS FRANS OLIVIER OUTLOOK GARY CHAPLIN Q&A GARY CHAPLIN / FRANS OLIVIER AUDITED RESULTS FOR THE YEAR END
Slide 3: Introduction
INTRODUCTION JAAP DU TOIT CHAIRMAN INTEGRATED INTO EVERY DAY
Slide 4: Strategy Implementation
STRATEGY IMPLEMENTATION GARY CHAPLIN CHIEF EXECUTIVE OFFICER INTEGRATED INTO EVERY DAY
Slide 5: Operating Environment
OPERATING ENVIRONMENT • Three primary factors that impacted FY20: • Weak SA macroeconomic and sociopolitical environment • Increasing political uncertainty and non-delivery • Increasingly unreliable electricity supply • Escalating social unrest • Low levels of business and consumer confidence • Incr
Slide 6: Operating Environment: Covid
OPERATING ENVIRONMENT: COVID • Level 5 Lockdown impact: • All divisions were negatively impacted in varying degrees • Reduced demand in essential products and services experienced • Automotive Components division already impacted in early March • Level 4 and Level 3 Lockdown impact: • Recommencement
Slide 7: Strategy: Covid
STRATEGY: COVID • Risk-based approach adopted with the following Covid-related risks identified: • Immediate and medium-term liquidity • Corporate funding capacity and financial covenants • Sustainability of revenue • Sustainability of customers and associated credit risk • Sustainability of supplie
Slide 8: Strategy: Covid
STRATEGY: COVID Risk mitigation actions included, inter alia: • Liquidity and funding capacity • Suspension of non-essential expenditure and uncommitted capex • 20% salary reductions for three months and cancellation of all incentives and FY21 inflationary salary increases • Focus on optimising work
Slide 9: Estimated Financial Impact of Covid/Lockdown on Operations
STRATEGY: COVID ESTIMATED FINANCIAL IMPACT OF COVID/LOCKDOWN ON OPERATIONS* Operating Revenue profit Division Rm Rm Integrated Timber 822 427 Automotive Components 438 154 Integrated Bedding 242 40 Polymers 203 34 Contractual Logistics – South Africa 297 50 Contractual Logistics – Africa 160 65 Pass
Slide 10: Strategy
STRATEGY • Perfect storm of outside impacts • Weak macroeconomic conditions • Deepening cyclical polymer trend • Covid • Resilience of KAP’s business model was proven • Maintained positive EBITDA and cash flow from operations throughout Lockdown • Settled R500 million corporate bond in May from exis
Slide 11: Divisional Operational Review
DIVISIONAL OPERATIONAL REVIEW GARY CHAPLIN CHIEF EXECUTIVE OFFICER INTEGRATED INTO EVERY DAY
Slide 12: Integrated Timber
INTEGRATED TIMBER • March YTD performance was ahead of budget with strong market demand • Value-added product ratio increased to 61% (FY19: 58%) in line with strategy REVENUE • • Ugie and Piet Retief particleboard plant upgrades were successfully completed Additional value-added capacity was install
Slide 13: Automotive Components
AUTOMOTIVE COMPONENTS • February YTD performance was ahead of prior year despite lower new vehicle build volumes and light commercial vehicle (LCV) sales volumes REVENUE • B-BBEE Level 4 was attained ahead of new APDP requirements • Three-year wage deal was secured, providing future industry stabili
Slide 14: Integrated Bedding
INTEGRATED BEDDING • March YTD performance was in line with prior year despite subdued furniture retail sector REVENUE • Mattress operating margin improved through increased volumes, improved product mix and investments in automation and logistics R1 286m • Black Friday and December peak volumes wer
Slide 15: Polymers
POLYMERS • The following factors impacted significantly on the global polymers sector: • Subdued global consumption • Capacity expansions in the US (mainly ethylene and polyethylene) • US/China trade war resulting in an oversupply in non-US territories, including Europe, which exports duty-free to S
Slide 16: Polymers
POLYMERS PET HDPE PP FY20 FY19 FY20 FY19 FY20 FY19 Revenue (Rm) 2 907 3 703 2 502 2 902 1 892 2 085 Sales volume (tonnes) 195 064 200 839 155 688 155 288 114 218 114 816 Production volumes (tonnes) 204 430 212 318 150 598 162 445 110 634 117 230 Average R/USD exchange 15.68 14.19 15.68 14.19 15.68 1
Slide 17: Contractual Logistics – South Africa
CONTRACTUAL LOGISTICS – SOUTH AFRICA FOOD – 31% GENERAL FREIGHT – 24% PETROLEUM – 19% REVENUE CHEMICALS – 12% INDUSTRIAL – 9% MINING – 5% • The division performed well in a challenging market, showing strong growth leading up to Lockdown REVENUE • The Control Tower gained momentum and is adding real
Slide 18: Contractual Logistics – Africa
CONTRACTUAL LOGISTICS – AFRICA BOTSWANA – 31% MOZAMBIQUE – 19% ESWATINI – 15% ROAD HAULAGE – 53% REVENUE MALAWI – 13% REVENUE BY BY AGRICULTURE – 42% TANZANIA – 8% COUNTRY SECTOR MINING – 5% NAMIBIA – 7% LESOTHO – 3% MADAGASCAR – 3% ZAMBIA – 1% • March YTD performance showed good improvement over we
Slide 19: Passenger Transport
PASSENGER TRANSPORT • Performance of the division to March remained stable with Commuter, Personnel and Mozambique operations performing well. REVENUE • The restructure of underperforming commuter contracts showed improved results • Lower diesel price provided relief on certain operations R2 179m •
Slide 20: Group Revenue Analysis
DIVISIONAL OPERATIONAL REVIEW GROUP REVENUE ANALYSIS* Stable 10% 79% (20%) (16%) (5%) 500 (Rm) Industrial Chemical Logistics 25 602 (20%) 000 500 (22%) 000 (17%) (16%) 500 (4%) 000 (7%) (9%) 22 166 500 0 FY19 Integrated Automotive Integrated Polymers Contractual Contractual Passenger FY20 Timber Com
Slide 21: Group Operating Profit Analysis
DIVISIONAL OPERATIONAL REVIEW GROUP OPERATING PROFIT ANALYSIS* (56%) (79%) (8%) (Rm) Industrial Chemical Logistics 600 2 723 (60%) 400 200 (67%) 000 (28%) (79%) 800 600 400 40% (24%) (24%) 200 1 347 0 FY19 Integrated Automotive Integrated Polymers Contractual Contractual Passenger FY20 Timber Compon
Slide 22: Group Margin Analysis
DIVISIONAL OPERATIONAL REVIEW GROUP MARGIN ANALYSIS* KAP operating profit margin reduced 450 bps to 6.1% UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2016 Industrial Chemical Logistics Group 18.6% 16.9% Operating margin (%) 12.3% 12.7% 10.9% 10.6% 9.4% 9.4% 8.6% 7.0% 6.7% 6.1% 2.2%
Slide 23: Financial Analysis
FINANCIAL ANALYSIS FRANS OLIVIER CHIEF FINANCIAL OFFICER INTEGRATED INTO EVERY DAY
Slide 24: Financial Highlights
FINANCIAL HIGHLIGHTS UNAUDITED INTERIM RESULTS FOR THE SIX FromMONTHS ENDED 31 DECEMBER 2016 continuing operations FY20 FY19 Variance Revenue (Rm) 22 166 25 602 13% EBITDA (Rm) 2 707 3 713 27% Operating profit before capital items (Rm) 1 344 2 527 47% Headline earnings per share (cents) 14.8 45.9 68
Slide 25: Income Statement
FINANCIAL ANALYSIS INCOME STATEMENT FY20 FY19 UNAUDITED From continuing INTERIM operations RESULTS FOR THE Rm Rm Variance SIX MONTHS ENDED 31 DECEMBER 2016 Revenue 22 166 25 602 (13%) EBITDA before B-BBEE cost 2 710 3 909 (31%) Depreciation and amortisation (1 363) (1 186) 15% B-BBEE cost (3) (196)
Slide 26: Impairments
FINANCIAL ANALYSIS IMPAIRMENTS* Property, UNAUDITED INTERIM RESULTS FORIntangible THE plant and FY20 FY20 Goodwill assets equipment Gross Net # SIX MONTHS Business unit ENDED 31 DECEMBER Rm 2016 Rm Rm Rm Rm Safripol Sasolburg 241 1 906 – 2 147 1 613 Safripol Durban – – 472 472 340 Maxe 317 3 – 320 3
Slide 27: Financial Effect of IFRS 16 – Leases on Profit
FINANCIAL ANALYSIS FINANCIAL EFFECT OF IFRS 16 – LEASES ON PROFIT BEFORE CAPITAL ITEMS AND TAX* 950 (Rm) 750 144 (119) (2) 3 (43) 550 706 689 350 150 -50 FY20 before Derecognise: Recognise: Recognise: Recognise: Recognise: FY20 after IFRS 16 Operating lease Depreciation Impairment Remeasurement Fina
Slide 28: Tax Rate Reconciliation
FINANCIAL ANALYSIS TAX RATE RECONCILIATION* FY20 FY19 UNAUDITED INTERIM RESULTS FOR THE % % SIX MONTHS ENDED 31 DECEMBER 2016 Statutory tax rate (28.0) 28.0 Impairments 7.4 1.1 Section 12I tax allowance 2.6 – B-BBEE cost – 3.2 Other (0.2) (1.1) Effective tax rate (18.2) 31.2 * From continuing operat
Slide 29: Balance Sheet
FINANCIAL ANALYSIS BALANCE SHEET Balance sheet underpinned by quality assets 30 Jun 20 30 Jun 19 Rm Rm Property, plant, equipment and investment property 12 630 12 536 Right-of-use assets 438 – Intangible assets 2 046 3 996 Goodwill 641 1 246 Biological assets 1 754 1 900 Net working capital 1 911 1
Slide 30: Strong Asset Base of New Technology Assets
FINANCIAL ANALYSIS STRONG ASSET BASE OF NEW TECHNOLOGY ASSETS Capex and acquisition investments (Rm) Asset base at 30 June 2020 2 000 1 926 1 723 1 500 1 243 1 000 PLANT & MACHINERY – 30% 500 VEHICLES & BUSES – 30% LAND & BUILDINGS – 13% INTANGIBE ASSETS – 11% 0 FY18 FY19 FY20 BIOLOGICAL ASSETS – 10
Slide 31: Plantation Revaluation
FINANCIAL ANALYSIS PLANTATION REVALUATION (Rm) 800 210 (146) 700 600 (212) 1 870 500 400 1 722 300 200 100 0 30 Jun 19 Increase due Decrease due Decrease due 30 Jun 20 to growth to harvesting to inflation differential • Harvesting completed for June 2017 and November 2018 fires • Effect of reduction
Slide 32: Working Capital Breakdown
FINANCIAL ANALYSIS WORKING CAPITAL BREAKDOWN 2(Rm) 450 1 549 1 911 1 950 1 450 1 145 (169) (614) 950 450 -50 30 FY19 Jun 19 Inventory Receivables Payables 30FY20 Jun 20 • Receivables and payables movement mainly due to lower polymer and related raw material prices • Impacted by Covid and Lockdown •
Slide 33: Cash Flow
FINANCIAL ANALYSIS CASH FLOW FY20 FY19 Rm Rm EBITDA before B-BBEE cost 2 710 3 909 Net revaluation of biological assets 149 20 Discontinued operations (28) (78) Other non-cash adjustments (14) 24 Cash generated before working capital changes 2 817 3 875 Working capital changes (741) 158 Inventory 17
Slide 34: Cash Flow (Continued)
FINANCIAL ANALYSIS CASH FLOW (CONTINUED) FY20 FY19 Rm Rm Cash flow from operating activities 1 148 3 125 Investing activities (1 939) (1 142) Expansion capex (671) (420) Replacement capex (1 241) (811) (Acquisition)/disposal of investments (13) 101 Other investing activities (14) (12) Free cash flow
Slide 35: Treasury Activity: Share Buy-backs
TREASURY ACTIVITY SHARE BUY-BACKS Year Year ended ended Number of shares (million) 30 Jun 20 30 Jun 19 Ordinary shares in issue at beginning of the period 2 704 2 678 Shares issued – 26 Shares repurchased and held as treasury shares (36) – R544 million Shares repurchased and cancelled (97) – Ordinar
Slide 36: Movement in Net Interest-Bearing Debt
TREASURY ACTIVITY MOVEMENT IN NET INTEREST-BEARING DEBT 7(Rm) 950 801 7 041 6 950 466 (31) 524 5 950 1 750 4 950 4 488 (957) 3 950 2 950 1 950 950 -50 30 Jun 19 Settled Raised Vehicle and Lease liabilities Other Cash 30 Jun 20 asset finance IFRS 16 • Impacted by Covid and Lockdown • Increased capita
Slide 37: Significant Debt Funding Activities for the Year
TREASURY ACTIVITY SIGNIFICANT DEBT FUNDING ACTIVITIES FOR THE YEAR The following significant funding activities were concluded during the year: • Corporate bonds settled at maturity: • KAP008 – Listed: R374 million • KAP009 – Listed: R500 million • Corporate bonds issued during the year with three-
Slide 38: Debt Serviceability Ratios
TREASURY ACTIVITY DEBT SERVICEABILITY RATIOS REFLECTIVE OF RESILIENT BUSINESS MODEL 30 Jun 20 30 Jun 19 Gross interest-bearing debt (Rm) 8 042 6 273 Net interest-bearing debt (Rm) 7 041 4 488 Equity excluding non-controlling interest (Rm) 9 566 12 825 Gearing: net debt:equity 74% 35% Gearing: net de
Slide 39: Net Interest-Bearing Debt Maturity
TREASURY ACTIVITY NET INTEREST-BEARING DEBT MATURITY AS AT 30 JUNE 2020 Rm 4 000 AVAILABLE FACILITIES CASH AND CASH EQUIVALENTS, NET OF OVERDRAFT 3 000 DEBT REPAYMENTS REVOLVING CREDIT 2 000 LEASES 1 000 0 -1 000 -2 000 -3 000 Jun 25 Jun 20 Jun 21 Jun 22 Jun 23 Jun 24 and thereafter AUDITED RESULTS
Slide 40: Outlook
OUTLOOK GARY CHAPLIN CHIEF EXECUTIVE OFFICER INTEGRATED INTO EVERY DAY
Slide 41: Diversified Industrial
DIVERSIFIED INDUSTRIAL Integrated Timber • Strong market demand experienced in July and August 2020 • Demand creation activities were extended to support SMEs and informal markets • Recent digital launch of new product range to over 2 000 customers and end-users • New product introductions will supp
Slide 42: Diversified Chemical: IHS Margin – Actual and Forecast
DIVERSIFIED CHEMICAL IHS MARGIN – ACTUAL AND FORECAST Polymers USD/Tonne 250 200 150 100 50 0 -50 -100 PET HDPE PP • IHS forecasted margins remain subdued but with some improvement in FY21 • PET, HDPE and PP market demand strong in July and August 2020 • PET A-grade yield improvement expected in 2H2
Slide 43: Diversified Logistics
DIVERSIFIED LOGISTICS Contractual Logistics – South Africa • Systematic increase in activity experienced as Lockdown restrictions have been eased • July and August 2020 volumes have been satisfactory • Major industry restructuring expected to yield opportunities for growth • Positive learnings from
Slide 44: Outlook
OUTLOOK • KAP’s business model has previously facilitated growth in a distressed economic environment and has proven to be resilient through this crisis • KAP strategy remains intact with refinement to drive key investment outcomes • RoE > WACC • Real growth in HEPS Optimised capital allocation • Ca
Slide 45: Q&A
Q&A GARY CHAPLIN / FRANS OLIVIER CHIEF EXECUTIVE OFFICER / CHIEF FINANCIAL OFFICER Questions can be asked via: • Webcast Participants can submit written questions by clicking on the tab on the left-hand side of the screen. • Conference call Should you prefer to dial in your question, please register
Slide 46: Thank You
THANK YOU INTEGRATED INTO EVERY DAY