KAP’s strategy scores 19% increase in profit

KAP Industrial Holdings has reported a surge of 19 percent in operating profit to R2 billion for the year to June.

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Johannesburg - KAP Industrial Holdings yesterday reported a surge of 19 percent in operating profit to R2 billion for the year to June.

Read also: KAP bolsters bottom line

The company, which has Steinhoff as its biggest investor, said it increased its dividend 20 percent, to 18c a share.

Cash generated from operations rose 44 percent to R3.3bn, from R2.3bn last year.

The chief executive, Gary Chaplin, said: “Following the group’s rationalisation and consolidation strategy, which took place during the past 18 months, our continued focus on optimising existing operations, organic expansion activities and the acquisition of complementary businesses has improved our market share in our areas of operation.”

He said part of the strategy was to separate the company’s non-core and core businesses and this strategy had paid dividends. “The Safripol acquisition is big and important for our business and it fits in with our products very well.”

KAP Industrial has two main divisions: the diversified industrial division and the diversified logistics unit. Revenue for the year increased by 4 percent to R16.2bn and the group said this was achieved despite the challenging economic environment. The diversified logistics division reported a strong performance despite the lower average fuel price that KAP contractually passes on to customers.

While the division’s revenue increased marginally to R7.99bn, from R7.87bn last year, its operating profit gained 14 percent to R1bn.

Increased revenue

The diversified industrial division increased revenue by 7 percent to R8.4bn. The operating profit of the diversified industrial division increased by 24 percent to R978m.

The board declared a gross dividend of 18c per share, up form 15c per share last year.

Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said: “KAP results came out ahead of expectations largely driven by better margin improvement as a result of strong cost containment.”

He said revenue was largely in line with expectations at about 4 percent higher but margin expansion drove operating profit higher by 19 percent.

“It looks like a high-quality result as the stronger earnings growth is also supported by stronger cash generation. The outlook statement is cautiously optimistic as the company has to navigate a tougher South African manufacturing environment. Although the shares have rerated significantly recently, we expect continued strong growth in 2017 driven by recent acquisitions as well as new contract wins in their logistics operations,” he said.

KAP’s share price gained 4.23 percent yesterday to R7.40.

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