Kap Limited · JSE:KAP
Kap — KAP Industrial Holdings — FY2017 Earnings Presentation
45 slides from Kap's earnings presentation, August 2017
Slide 1: KAP Industrial Holdings Limited audited results for year ended 30 June 2017
KAP INDUSTRIAL HOLDINGS LIMITED (KAP) AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2017
Slide 2: Welcome
WELCOME JAAP DU TOIT CHAIRMAN
Slide 3: Agenda
AGENDA WELCOME JAAP DU TOIT UNAUDITED INTERIM RESULTS FOR THE STRATEGY SIX IMPLEMENTATION MONTHS GARY ENDED 31 DECEMBER CHAPLIN 2016 DIVISIONAL HIGHLIGHTS GARY CHAPLIN FINANCIAL ANALYSIS FRANS OLIVIER OUTLOOK GARY CHAPLIN AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2017 3
Slide 4: Strategy Implementation
STRATEGY IMPLEMENTATION GARY CHAPLIN CHIEF EXECUTIVE OFFICER
Slide 5: Strategic drivers
STRATEGY IMPLEMENTATION STRATEGIC DRIVERS Being the leader in the markets we serve High barrier to entry industries Resulting in strong Sustainable earnings through diversity cash flow generation Sustainable margins through specialisation Leveraging our African base AUDITED RESULTS FOR THE YEAR ENDE
Slide 6: Strategic execution timeline
STRATEGY IMPLEMENTATION STRATEGIC EXECUTION TIMELINE Strategic Disposal of Complementary Continued growth KAP acquires realignment and non-core assets acquisitions and through organic Steinhoff’s operational (food, footwear and investments facilitate investment and industrial assets improvements saw
Slide 7: Group operational structure
STRATEGY IMPLEMENTATION GROUP OPERATIONAL STRUCTURE DIVERSIFIED INDUSTRIAL DIVERSIFIED CHEMICAL DIVERSIFIED LOGISTICS INTEGRATED TIMBER POLYMERS CONTRACTUAL LOGISTICS Forestry and timber manufacturing Manufacture of high-density polyethylene Specialised contractual supply operations with primary and
Slide 8: Group segmental analysis
STRATEGY IMPLEMENTATION GROUP SEGMENTAL ANALYSIS Diversified Diversified Diversified industrial industrial industrial 31% 38% 37% Diversified Diversified Diversified Diversified Diversified Diversified logistics chemical logistics chemical logistics chemical 42% 27%* 35% 27%* 29% 34% * Safripol incl
Slide 9: Revenue analysis
STRATEGY IMPLEMENTATION REVENUE ANALYSIS Stable 10% 13% 13% 79% 10% 79% (Rm) Industrial Chemical Logistics 000 7% 19 783 11% 000 (2%) 15% 100% 000 000 5% 000 26% 10% 16 047 000 000 0 FY16 Integrated Automotive Integrated Safripol Hosaf Woodchem Contractual Passenger FY17 timber components bedding lo
Slide 10: Operating profit analysis
STRATEGY IMPLEMENTATION OPERATING PROFIT ANALYSIS (9%) 33% 111% (Rm) Industrial Chemical Logistics 600 400 100% 2% 41% (10%) (5%) 2 499 200 29% 000 68% 25% 800 1 997 600 400 200 0 FY16 Integrated Automotive Integrated Safripol Hosaf Woodchem Contractual Passenger FY17 timber components bedding logis
Slide 11: Margin analysis
STRATEGY IMPLEMENTATION MARGIN ANALYSIS KAP operating profit margin expands by 20 bps to 12.6% UNAUDITED INTERIM RESULTS FOR THE Industrial Chemical Logistics SIX MONTHS ENDED 31 DECEMBER 2016 14.8% 15.2% Operating margin* (%) 12.3% 12.3% 12.3% 12.3% 12.6% 10.4% 10.4% 11.2% 11.4% 12.6% 11.2% 10.1% 1
Slide 12: Revenue and operating profit growth analysis
STRATEGY IMPLEMENTATION REVENUE AND OPERATING PROFIT GROWTH ANALYSIS Revenue (Rm) Operating profit (Rm) 8 000 1 400 7 000 +10% 19 783 1 200 2 499 -3% +6% 6 000 +79% (15%) 1 000 +98% 5 000 800 +13% 4 000 +8% +13% 600 +25% 1 997 3 000 16 047 400 2 000 1 000 200 0 FY16 Industrial Chemical Logistics FY1
Slide 13: Divisional Highlights
DIVISIONAL HIGHLIGHTS GARY CHAPLIN CHIEF EXECUTIVE OFFICER
Slide 14: Diversified industrial
DIVERSIFIED INDUSTRIAL REVENUE OPERATING PROFIT TOTAL ASSETS INCREASED BY 13% INCREASED BY 33% INCREASED BY 10% R6 385m (FY16: R5 632m) R944m (FY16: R709m) R9 149m (FY16: R8 325m) AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2017 14
Slide 15: Integrated timber
INTEGRATED TIMBER • Market structure evolution continues to support value-add strategy • Increased ratio of higher margin value-added products Revenue with fifth MFB press installed (sixth press available) • Positive impact of Woodchem paper impregnation line 10% • Continued focus on product and cus
Slide 16: Automotive components
AUTOMOTIVE COMPONENTS • Solid organic revenue growth despite 1% reduction in new vehicle assembly volumes Revenue • Strong sales of recent new models supports revenue and product mix improves margin 26% • Continued automation initiatives and technology investments improve margin • Autovest acquisiti
Slide 17: Integrated bedding
INTEGRATED BEDDING • Competitive furniture retail sector drives higher volumes at lower selling prices • Volume growth in Vitafoam and DesleeMattex, facilitated by a 69% increase Revenue in intragroup trade, drives operating profit growth and margin improvement • Phase 1 of new integrated bedding fa
Slide 18: Diversified chemical
DIVERSIFIED CHEMICAL REVENUE OPERATING PROFIT TOTAL ASSETS INCREASED BY 79% INCREASED BY >100% INCREASED BY >100% R5 467m (FY16: R3 060m) R672m (FY16: R319m) R8 354m (FY16: R1 509m) AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2017 18
Slide 19: Chemical revenue volumes
CHEMICAL PET – 37% POLYMERS – 85% HDPE – 21% (Six months) REVENUE VOLUMES RESINS – 15% PP – 16% (Six months) UF RELATED – 26% AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2017 19
Slide 20: Chemical
CHEMICAL • Hosaf and Woodchem performed well and continued to operate at capacity • USD commodity indexed pricing model impact on revenue Revenue • Unscheduled downtime at Hosaf impacts revenue and profit growth • Woodchem paper impregnation plant continues to exceed expectations, 79% providing stro
Slide 21: Safripol – leading supplier of HDPE and PP
CHEMICAL SAFRIPOL – LEADING SUPPLIER OF HDPE AND PP* STRATEGIC RATIONALE • Aligns with KAP strategic drivers • Combination of Safripol and Hosaf provides strategic positioning in three of the five polymers that underpin the plastics industry • Transformational transaction for KAP in terms of scale •
Slide 22: Diversified logistics
DIVERSIFIED LOGISTICS REVENUE OPERATING PROFIT TOTAL ASSETS INCREASED BY 10% DECREASED BY 9% INCREASED BY 14% R8 656m (FY16: R7 899m) R883m (FY16: R969m) R7 070m (FY16: R6 228m) AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2017 22
Slide 23: Contractual logistics – diverse revenue base
CONTRACTUAL LOGISTICS DIVERSE REVENUE BASE FUEL – 33% FOOD – 23% FREIGHT & WAREHOUSING – 18% SOUTH AFRICA – 74% AGRICULTURE – 10% REST OF AFRICA – 26% CEMENT – 8% CHEMICAL – 4% MINING (MATERIALS HANDLING) – 4% • Revenue base diversified across sectors and geographic regions • Blue chip and multinati
Slide 24: Contractual logistics
CONTRACTUAL LOGISTICS • Petrochemical division impacted by lower industry fuel volumes • Good operational performance in agriculture provides improved results Revenue from stable volumes • Materials handling and cement divisions volumes remain subdued but stable 11% • Food division revenue continued
Slide 25: Passenger transport revenue analysis
PASSENGER TRANSPORT REVENUE ANALYSIS COMMUTER AND PERSONNEL – 55% Focus remains on increasing INTERCITY – 25% long-term contractual revenue GAUTRAIN – 8% base and conservative rest of TOURISM – 8% Africa growth AFRICA – 4% AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2017 25
Slide 26: Passenger transport
PASSENGER TRANSPORT • Good performance and contract growth in the commuter and personnel transport divisions despite subdued activity in mining sector Revenue • Significant new personnel contract in mining sector well executed • Personnel transport contract in Mozambique continued to perform ahead 7
Slide 27: Financial Analysis
FINANCIAL ANALYSIS FRANS OLIVIER CHIEF FINANCIAL OFFICER
Slide 28: Financial highlights
FINANCIAL HIGHLIGHTS STRATEGY IMPLEMENTATION PRODUCES SUSTAINABLE, QUALITY EARNINGS UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS Results ENDED from continuing 31 DECEMBER 2016 operations FY17 FY16 Increase Revenue (Rm) 19 783 16 047 23% Operating profit before capital items (Rm) 2 499 1 997 25% Oper
Slide 29: Income statement
FINANCIAL ANALYSIS INCOME STATEMENT FY17 FY16 Rm Rm Increase UNAUDITED INTERIM RESULTS FOR THE Revenue 19 783 16 047 23% SIX MONTHS ENDED 31 DECEMBER 2016 Operating profit before capital items 2 499 1 997 25% Capital items (34) (19) Net finance costs (515) (312) 65% Finance costs (633) (356) Investm
Slide 30: Geographic markets – revenue and profitability breakdown
FINANCIAL ANALYSIS GEOGRAPHIC MARKETS – REVENUE AND PROFITABILITY BREAKDOWN Revenue Operating profit1 SOUTH AFRICA – 89% SOUTH AFRICA – 81% NON SOUTH AFRICA – 11% NON SOUTH AFRICA – 19% • Provides diversity in markets and broader growth opportunities • Provides improved margins to compensate for sov
Slide 31: Currency drivers of revenue and profitability
FINANCIAL ANALYSIS CURRENCY DRIVERS OF REVENUE AND PROFITABILITY Revenue Operating profit1 RAND driven activities – 70% RAND driven activities – 65% US DOLLAR driven activities – 30% US DOLLAR driven activities – 35% • Dollar driven activities impact revenue and raw material prices, therefore repres
Slide 32: Balance sheet
FINANCIAL ANALYSIS BALANCE SHEET Improved quality of net asset value FY17 FY16 Rm Rm Property, plant, equipment and investment properties 11 832 8 128 Intangible assets 4 082 1 167 Goodwill 1 251 911 Biological assets 1 978 1 890 Net working capital 624 (27) Other assets 407 278 Assets 20 174 12 347
Slide 33: Significant continued investments
FINANCIAL ANALYSIS SIGNIFICANT CONTINUED INVESTMENTS RESULT IN STRONG ASSET BASE OF NEW TECHNOLOGY ASSETS Capex and acquisition investments (Rm) 6 083 6 000 4 000 2 285 2 000 PLANT & MACHINERY – 27% 1 344 VEHICLES & BUSES – 23% INTANGIBLE ASSETS – 21% LAND & BUILDINGS – 12% 0 FY15 FY16 FY17 BIOLOGIC
Slide 34: Plantation revaluation
FINANCIAL ANALYSIS PLANTATION REVALUATION 900 (Rm) +235 (196) 800 Net fire impact on plantation valuation 700 1 990 (200) 600 +73 +160 1 950 1 878 500 400 300 200 100 0 FY16 opening Acquired Fair value Harvesting FY17 valuation Fire Salvage FY17 closing balance adjustments pre fire balance • Fire da
Slide 35: Working capital breakdown
FINANCIAL ANALYSIS WORKING CAPITAL BREAKDOWN (Rm) 750 222 682 650 550 114 450 89 350 284 250 150 50 (27) -50 FY16 Acquisitions Inventory Receivables Payables FY17 • Working capital movement affected by acquisitions and reduction in capex related payables AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 20
Slide 36: Cash flow
FINANCIAL ANALYSIS CASH FLOW FY17 FY16 Rm Rm Operating profit from continuing operations 2 499 1 997 Depreciation and amortisation 862 800 EBITDA 3 361 2 797 Net revaluation of biological assets (4) (43) Discontinued operations (44) (7) Other non-cash adjustments 28 111 Cash generated before working
Slide 37: Cash flow – continued
FINANCIAL ANALYSIS CASH FLOW – CONTINUED FY17 FY16 Rm Rm Cash flow from operating activities 1 598 2 317 Investing activities (6 083) (2 285) Expansion capex (1 050) (735) Replacement capex (1 190) (965) Acquisition of investments (3 781) (573) Other investing activities (62) (12) Cash flow after in
Slide 38: Safripol acquisition
FINANCIAL ANALYSIS SAFRIPOL ACQUISITION Rm Safripol acquisition price 3 925 Funded by: Equity (197m shares at R7.60) 1 500 Debt 2 425 Debt instruments breakdown: 2 425 Bond issuance – 3/5 years tenure 1 374 Term/revolving funding – 3 years 1 051 IFRS 3 Purchase price allocation Rm Purchase price 3 9
Slide 39: Debt structure and capacity ratios
DEBT STRUCTURE AND CAPACITY RATIOS DEBT SERVICEABILITY RATIOS REFLECTIVE OF STRONG CASH GENERATION 30 Jun 17 30 Jun 16 Net interest-bearing debt (Rm) 5 777 2 069 Equity excluding non-controlling interest (Rm) 11 035 8 667 Gearing: net debt:equity 52% 24% Net debt to EBITDA (times) < 3.2 1.7 0.7 EBIT
Slide 40: Treasury activity
TREASURY ACTIVITY NET INTEREST-BEARING DEBT MATURITY AS AT 30 JUNE 2017 Rm 4 500 AVAILABLE FACILITIES CASH AND CASH EQUIVALENTS, NET OF OVERDRAFT 3 500 DEBT REPAYMENTS 2 500 1 500 500 -500 -1 500 -2 500 -3 500 Jun 2022 Jun 2017 Jun 2018 Jun 2019 Jun 2020 Jun 2021 and thereafter AUDITED RESULTS FOR T
Slide 41: Outlook
OUTLOOK GARY CHAPLIN CHIEF EXECUTIVE OFFICER
Slide 42: Diversified industrial outlook
DIVERSIFIED INDUSTRIAL • PG Bison well structured for current market conditions (low cost base, strong market focus) with a clear growth strategy • New MFB press in Piet Retief commissioned April 2017 • Third phase of MDF upgrade planned for April to December 2017 • Piet Retief particleboard upgrade
Slide 43: Diversified chemical outlook
DIVERSIFIED CHEMICAL • Management structures and systems integration activities for the new segment largely complete • Sales, marketing and distribution project under way to extract greater value • Strong demand for PET, HDPE, PP and UF resin expected to continue • Third formaldehyde line remains un
Slide 44: Diversified logistics outlook
DIVERSIFIED LOGISTICS • Economic activity in relevant sectors expected to remain subdued • Sustainability of earnings remains supported by long-term contractual nature of business • Rapid scalability of operations remains a key factor of performance in volatile economic environment • Reduced cost st
Slide 45: Thank you
THANK YOU
KAP Industrial Holdings — FY2017 Earnings Presentation on 6ix