Kap Limited · JSE:KAP
Kap — KAP Industrial Holdings — H1 2017 Earnings Presentation
50 slides from Kap's earnings presentation, Feb 13, 2017
Slide 1: KAP Industrial Holdings Limited Unaudited Results for Six Months Ended 31 December 2016
KAP INDUSTRIAL HOLDINGS LIMITED (KAP) UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2016
Slide 2: Welcome
WELCOME KAP INDUSTRIAL HOLDINGS LIMITED JAAP DU TOIT UNAUDITED INTERIM RESULTS FOR THE Chairman SIX MONTHS ENDED 31 DECEMBER 2016
Slide 3: Agenda
AGENDA WELCOME Jaap du Toit PERIOD UNDER REVIEW Gary Chaplin DIVISIONAL HIGHLIGHTS Gary Chaplin FINANCIAL PERFORMANCE Frans Olivier OUTLOOK Gary Chaplin UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2016 3
Slide 4: Period Under Review
PERIOD KAP INDUSTRIAL UNDER REVIEW HOLDINGS LIMITED GARY CHAPLIN UNAUDITED INTERIM RESULTS FOR THE Chief SIX executive MONTHS officerENDED 31 DECEMBER 2016
Slide 5: KAP Overview: Strategic Drivers
KAP OVERVIEW 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 UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 3
Slide 6: Overview: Strategic Execution
OVERVIEW STRATEGIC EXECUTION Complementary Strategic Disposal of acquisitions and Strategy KAP acquires realignment and non-core assets investments to implementation Steinhoff’s operational (food, footwear and enhance current has set base for industrial assets improvements sawmilling) businesses con
Slide 7: Overview: Group Operational Structure
OVERVIEW GROUP OPERATIONAL STRUCTURE DIVERSIFIED LOGISTICS DIVERSIFIED INDUSTRIAL CONTRACTUAL PASSENGER INTEGRATED CHEMICAL AUTOMOTIVE INTEGRATED LOGISTICS TRANSPORT TIMBER COMPONENTS BEDDING Specialised Personnel, Forestry Manufacture Manufacture Manufacture contractual commuter, and timber of PET,
Slide 8: Financial Highlights: Diverse Revenue Base
FINANCIAL HIGHLIGHTS DIVERSE REVENUE BASE LOGISTICS INDUSTRIAL INTEGRATED TIMBER – 16% CONTRACTUAL LOGISTICS – 36% CHEMICAL – 17% PASSENGER TRANSPORT – 12% AUTOMOTIVE COMPONENTS – 11% INTEGRATED BEDDING – 8% 48% 52% UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2016 8
Slide 9: Financial Highlights
FINANCIAL HIGHLIGHTS STRATEGY IMPLEMENTATION CONTINUES TO IMPROVE QUALITY OF EARNINGS 1H17 1H16 Increase Revenue (Rm) 9 033 8 189 10% Operating profit before capital items (Rm) 1 112 898 24% Operating margin 12.3% 11.0% 130 bps Headline earnings per share (cents) 25.2 21.4 18% Cash generated from op
Slide 10: Revenue Analysis
FINANCIAL HIGHLIGHTS REVENUE ANALYSIS Stable 9% 12% Logistics Industrial 3 500 48% (2%) 9 033 3 000 8% 15% Revenue (Rm) 2 500 11% 4% 8 189 2 000 1 500 1 000 500 0 1H16 Contractual Passenger Integrated timber Chemical Automotive Integrated bedding 1H17 logistics transport components UNAUDITED RESULTS
Slide 11: Operating Profit Analysis
FINANCIAL HIGHLIGHTS OPERATING PROFIT ANALYSIS 2% 49% 1 200 Logistics Industrial 1 000 100% 16% 1 112 45% 48% 800 Operating profit (Rm) 898 (2%) 2% 600 400 200 0 1H16 Contractual Passenger Integrated timber Chemical Automotive Integrated bedding 1H17 logistics transport components UNAUDITED RESULTS
Slide 12: Margin Analysis
FINANCIAL HIGHLIGHTS MARGIN ANALYSIS • KAP operating profit margin expands by 130 bps • Logistics margin impacted by competitive market conditions and normalises following prior year non-recurring items • Industrial margin driven by capital expansion projects and integration activities Logistics Ind
Slide 13: Divisional Highlights
DIVISIONAL KAP INDUSTRIAL HIGHLIGHTS HOLDINGS LIMITED GARY CHAPLIN UNAUDITED INTERIM RESULTS FOR THE Chief SIX executive MONTHS officerENDED 31 DECEMBER 2016
Slide 14: Diversified Logistics Segment
DIVISIONAL HIGHLIGHTS DIVERSIFIED LOGISTICS SEGMENT Gross revenue increases by 9% to R4 473m (1H16: R4 099m) Operating profit increases by 2% to R488m (1H16: R478m) Operating margin decreases by 80 bps to 10.9% (1H16: 11.7%) • Subdued economic environment impacts performance • Long-term contracts an
Slide 15: Contractual Logistics: Continued Execution of One Unitrans Strategy
DIVISIONAL HIGHLIGHTS: CONTRACTUAL LOGISTICS To facilitate growth within specific industry CONTINUED EXECUTION OF sectors, to consolidate our approach into Africa, “ONE UNITRANS” STRATEGY to optimise the utilisation of assets and infrastructure and to improve efficiencies. PETROCHEMICAL • Fuel • Che
Slide 16: Contractual Logistics: Diverse Revenue Base
DIVISIONAL HIGHLIGHTS: CONTRACTUAL LOGISTICS DIVERSE REVENUE BASE PETROCHEMICAL – 37% FOOD – 27% AGRICULTURE – 10% SOUTH AFRICA – 73% INFRASTRUCTURE – 8% REST OF AFRICA – 27% MINING (MATERIALS HANDLING) – 5% SPECIALISED WAREHOUSING – 6% GENERAL FREIGHT – 7% • Revenue base diversified across both sec
Slide 17: Divisional Highlights: Contractual Logistics
DIVISIONAL HIGHLIGHTS: CONTRACTUAL LOGISTICS REVENUE UP 11% OPERATING PROFIT DOWN 2% • Petrochemical division impacted by 12% lower industry fuel volumes • Agriculture division impacted by drought-related lower volumes • Mining and infrastructure divisions volumes remain subdued but stable • Food di
Slide 18: Passenger Transport: Revenue Analysis
DIVISIONAL HIGHLIGHTS: PASSENGER TRANSPORT REVENUE ANALYSIS COMMUTER AND PERSONNEL – 55% Focus remains on increasing INTERCITY – 26% long-term contractual revenue GAUTRAIN – 8% TOURISM – 7% base and conservative rest of AFRICA – 4% Africa growth 18
Slide 19: Divisional Highlights: Passenger Transport
DIVISIONAL HIGHLIGHTS: PASSENGER TRANSPORT REVENUE UP 4% OPERATING PROFIT UP 2% • Good performance and contract growth in the commuter and personnel transport divisions despite subdued activity in mining sector • Personnel transport contract in Mozambique continued to perform ahead of expectation wi
Slide 20: Diversified Industrial Segment
DIVISIONAL HIGHLIGHTS DIVERSIFIED INDUSTRIAL SEGMENT Gross revenue increases by 12% to R4 637m (1H16: R4 142m) Operating profit increases by 49% to R624m (1H16: R420m) Operating margin increases by 340 bps to 13.5% (1H16: 10.1%) • Robust organic growth in all divisions • Strategy implementation and
Slide 21: Divisional Highlights: Integrated Timber
DIVISIONAL HIGHLIGHTS: INTEGRATED TIMBER REVENUE UP 15% OPERATING PROFIT UP 48% • Continued focus on product and customer service package • Market structure evolution facilitates value-add strategy • Increased ratio of higher margin value-added products • Technology and efficiency improvements of MD
Slide 22: Divisional Highlights: Chemical
DIVISIONAL HIGHLIGHTS: CHEMICAL REVENUE UP 8% OPERATING PROFIT UP 45% • Hosaf and Woodchem performed well and continued to operate at capacity • ZAR/USD exchange rate impacts on revenue, however, with neutral impact on operating profit • Woodchem paper impregnation plant commissioning concluded in J
Slide 23: Divisional Highlights: Automotive Components
DIVISIONAL HIGHLIGHTS: AUTOMOTIVE COMPONENTS REVENUE UP 48% OPERATING PROFIT UP 100% • Autovest acquisition successfully implemented, thereby introducing a new diversified revenue stream • Solid organic revenue growth driven by 4% increase in new vehicle assembly volumes, which was supported by robu
Slide 24: Divisional Highlights: Integrated Bedding
DIVISIONAL HIGHLIGHTS: INTEGRATED BEDDING REVENUE DOWN 2% OPERATING PROFIT UP 16% • Competitive furniture retail sector drives higher volumes at lower selling prices • Volume growth in Vitafoam and DesleeMattex, facilitated by increased intragroup trade, drives operating profit growth • Temporary gl
Slide 25: Financial Performance
FINANCIAL KAP INDUSTRIAL PERFORMANCE HOLDINGS LIMITED FRANS OLIVIER UNAUDITED INTERIM RESULTS FOR THE Chief SIX financial MONTHS officer ENDED 31 DECEMBER 2016
Slide 26: Financial Highlights
FINANCIAL HIGHLIGHTS STRATEGY IMPLEMENTATION CONTINUES TO IMPROVE QUALITY OF EARNINGS 1H17 1H16 Increase Revenue (Rm) 9 033 8 189 10% Operating profit before capital items (Rm) 1 112 898 24% Operating margin 12.3% 11.0% 130 bps Headline earnings per share (cents) 25.2 21.4 18% Cash generated from op
Slide 27: Financial Performance: Income Statement
FINANCIAL PERFORMANCE INCOME STATEMENT 1H17 1H16 Rm Rm Increase Revenue 9 033 8 189 10% Operating profit before capital items 1 112 898 24% Capital items 4 (8) Net finance costs (198) (151) 31% Finance costs (278) (159) Investment income 80 8 Associate companies and joint ventures 10 10 Taxation (27
Slide 28: Revenue and Operating Profit Growth Analysis
FINANCIAL PERFORMANCE REVENUE AND OPERATING PROFIT GROWTH ANALYSIS Revenue (Rm) Operating profit (Rm) 5 000 1 000 4 500 900 4 000 800 8% 1 112 3 500 8% 9 033 700 16% 3 000 2% 600 8 189 898 2 500 500 2 000 400 1 500 300 1 000 200 500 100 0 1H16 Organic growth Acquisitions 1H17 0 1H16 Organic growth A
Slide 29: Financial Performance: Balance Sheet
FINANCIAL PERFORMANCE BALANCE SHEET Improved quality of net asset value 31 Dec 2016 31 Dec 2015 Rm Rm Property, plant, equipment and investment properties 9 404 7 600 Intangible assets and goodwill 2 204 1 603 Biological assets 1 971 1 844 Net working capital 1 125 1 305 Other assets 230 318 Assets
Slide 30: Tangible Fixed Asset Profile
FINANCIAL PERFORMANCE TANGIBLE FIXED ASSET PROFILE VEHICLES AND BUSES 37% PLANT AND MACHINERY 30% BIOLOGICAL ASSETS 17% LAND AND BUILDINGS 16% UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2016 30
Slide 31: Financial Performance: Cash Flow
FINANCIAL PERFORMANCE CASH FLOW 1H17 1H16 Rm Rm Operating profit 1 112 898 Depreciation and amortisation 440 425 EBITDA 1 552 1 323 Net revaluation of biological assets (4) (15) Other non-cash adjustments 36 45 Cash generated before working capital changes 1 584 1 353 Working capital changes (1 089)
Slide 32: Cash Flow – Continued
FINANCIAL PERFORMANCE CASH FLOW – CONTINUED 1H17 1H16 Rm Rm Cash flow from operating activities (275) (296) Investing activities (1 473) (863) Expansion capex (581) (397) Replacement capex (640) (443) Acquisition of investments (227) – Other investing activities (25) (23) Cash flow after investing a
Slide 33: Debt Structure and Cover Ratios
DEBT STRUCTURE AND COVER RATIOS 31 Dec 16 31 Dec 15 Net interest-bearing debt (Rm) 2 617 3 201 Equity excl. non-controlling interest (Rm) 10 294 8 037 Gearing: net debt:equity 25% 40% Net debt to EBITDA (times) < 3.2 (rolling 12 months) 0.9 1.2 EBITDA interest cover (times) > 4.5 (rolling 12 months)
Slide 34: Treasury Activity: Diversified Independent Funding Structure
TREASURY ACTIVITY KAP HAS DEVELOPED DIVERSIFIED INDEPENDENT FUNDING STRUCTURE SINCE 2012 2% 8% 14% FY12 1H17 45% Banks and financial institutions Listed notes Unlisted notes Steinhoff 41% 90% KAP INCREASED FIXED INTEREST RATE FUNDING EXPOSURE SINCE 2012 27% FY12 1H17 Floating interest rate funding F
Slide 35: Treasury Activity: Debt Maturity
TREASURY ACTIVITY NET INTEREST-BEARING DEBT MATURITY AS AT 31 DECEMBER 2016 8 000 AVAILABLE FACILITIES CASH AND CASH EQUIVALENTS, NET OF OVERDRAFT 6 000 DEBT REPAYMENTS 4 000 2 000 Rm 0 -2 000 -4 000 Dec 2016 Dec 2017 Dec 2018 Dec 2019 Dec 2020 Dec 2021 Dec 2022 UNAUDITED RESULTS FOR THE SIX MONTHS
Slide 36: Safripol Acquisition Funding
SAFRIPOL ACQUISITION FUNDING Rm Safripol acquisition price 4 100 Funded by: Equity 1 500 Debt 2 600 Debt instruments breakdown: 2 600 Bond issuance – 3/5 years tenure 1 374 Term/revolving funding – 3 years 1 226 Rights issue of R1.5 billion (197 million shares) fully subscribed UNAUDITED RESULTS FOR
Slide 37: Safripol Impact on KAP Gearing
SAFRIPOL IMPACT ON KAP GEARING 31 Dec 16 Pro forma* 31 Dec 16 31 Dec 15 Net interest-bearing debt (Rm) 6 717 2 617 3 201 Equity excl. non-controlling interest (Rm) 10 294 10 294 8 037 Net debt to EBITDA (times) < 3.2 (rolling 12 months) 1.8** 0.9 1.2 EBITDA interest cover (times) > 4.5 (rolling 12 m
Slide 38: Safripol Impact on Debt Maturity Profile
SAFRIPOL IMPACT ON DEBT MATURITY PROFILE 4 000 AVAILABLE FACILITIES CASH AND CASH EQUIVALENTS, NET OF OVERDRAFT 3 000 DEBT REPAYMENTS SAFRIPOL DEBT 2 000 1 000 Rm 0 -1 000 -2 000 -3 000 Dec 2016 Jun 2017 Jun 2018 Jun 2019 Jun 2020 Jun 2021 Jun 2022 UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31 DECEM
Slide 39: Outlook
OUTLOOK KAP INDUSTRIAL HOLDINGS LIMITED GARY CHAPLIN UNAUDITED INTERIM RESULTS FOR THE Chief SIX executive MONTHS officerENDED 31 DECEMBER 2016
Slide 40: Outlook: Contractual Logistics
OUTLOOK: CONTRACTUAL LOGISTICS • Economic activity in relevant sectors expected to remain subdued • Sustainability of earnings supported by long-term contractual nature of business • Reduced cost structure and improved efficiencies support competitive position • Rest of Africa operating efficiencies
Slide 41: Outlook: Passenger Transport
OUTLOOK: PASSENGER TRANSPORT • Personnel passenger numbers point toward a slow improvement in mining sector (resultant impact on commuter numbers) • New mining personnel contract started August 2016 • Mozambique personnel contract expansion continues • New coaches, improved marketing and dynamic far
Slide 42: Outlook: Integrated Timber
OUTLOOK: INTEGRATED TIMBER • Business well structured for current market conditions (low cost base, strong market focus) with a clear growth strategy • High-gloss line successfully commissioned in Boksburg • New MFB press in Piet Retief to be commissioned April 2017 • Third phase of MDF upgrade plan
Slide 43: Outlook: Automotive Components
OUTLOOK: AUTOMOTIVE COMPONENTS • Vehicle assembly volumes expected to remain stable • Technology benefits of new model introductions support margin • New model introductions provide platform for continued revenue growth in FY18 • Subdued vehicle sales expected to impact on Autovest • Autovest busine
Slide 44: Outlook: Integrated Bedding
OUTLOOK: INTEGRATED BEDDING • Continued integration activities after Restonic acquisition • Efficiencies of decentralised mattress assembly strategy expected to continue • Integration synergies in logistics, procurement and support functions in progress • Further raw material integration opportuniti
Slide 45: Outlook: Chemical
OUTLOOK: CHEMICAL • Strong demand for PET and UF resin expected to continue • Woodchem paper impregnation plant commissioned in January 2016 continues to operate ahead of expectation • Third formaldehyde line under investigation • Hosaf expansion well advanced • South African 2016 PET consumption 22
Slide 46: Outlook: Chemical – Acquisition of Safripol
OUTLOOK: CHEMICAL Acquisition of Safripol expands chemical division • High Density Polyethylene (HDPE) – 160 000 tonnes per year • Polypropylene (PP) – 120 000 tonnes per year • Business model supported by long-term industry fundamentals QUICK FACTS • Acquisition price of R4.1 billion on a debt free
Slide 47: Safripol Overview: Alignment with KAP's Strategic Themes
SAFRIPOL OVERVIEW SAFRIPOL STRATEGICALLY ALIGNS WITH KAP’S SIX STRATEGIC THEMES High Density Polyethylene (HDPE) Polypropylene – (PP) Being the leader in Sole producer of HDPE in South Africa Leading producer of PP in South Africa the markets we serve c. 65-70% market share in South Africa c. 35%-40
Slide 48: Safripol Overview: Market Segmentation by Application
SAFRIPOL OVERVIEW MARKET SEGMENTATION BY APPLICATION (2016) HDPE (High Density Polyethylene) PP (Polypropylene) CRATES 7% DOMESTIC WARE 9% CAPS AND CLOSURES 6% DISTRIBUTION 18% DISTRIBUTION 23% CRATES 3% BINS 2% CAPS AND CLOSURES 3% OTHER 3% INJECTION DISTRIBUTION DISTRIBUTION MOULDING 18% BUCKETS 6
Slide 49: Safripol Overview: Types of Plastic
SAFRIPOL OVERVIEW TYPES OF PLASTIC PET Imports Soft drink bottles, mineral water, fruit juice Polyethylene 1 terephthalate containers and cooking oil Hosaf HDPE Milk jugs, cleaning agents, laundry detergents, Imports High-density bleaching agents, shampoo bottles, washing and 2 polyethylene shower s
Slide 50: Thank You
THANK YOU INTEGRATED INTO EVERY DAY
KAP Industrial Holdings — H1 2017 Earnings Presentation on 6ix