Key message: Cautious outlook from management with 3-4 year restructuring and stabilisation plan after recent high capex spend.
- KAP released FY24 results. HEPS declined 4% to 45.3c on a 2% and 11% decline in revenue and operating profit. HEPS was inflated by R173m of capitalised interest and Section 12i tax incentives for the Mkhondo expansion (approx. R210m lower tax). Normalised HEPS is therefore approx. 33c (down 28%).
- PG Bison: PG Bison performed well with increased value-add sales (67% vs 62%). Exports increased to 21% of sales (from 18%) with the local market remaining very competitive. Margin at 17.4% below target range of 18-20%. The new R1.9bn Mkhondo MDF line was completed a month ahead of schedule and is expected take four years to get the new capacity (+33%) into the market, likely with discounting. The margin outlook is therefore lower than the target range.
- Feltex benefitted from improved SA vehicle production and price adjustments, but there are some OEM challenges in F25. Margins are just below the target range of 10-12%. Restonic benefitted from market share gains and restructuring. The margin at 7.3%% is still below the target 13-15%. There is a focus on marketing and new products.
- Safripol: Weak global polymer margin impacted the result, particularly in PET which took a 5-week commercial shutdown as export sales became unprofitable. HDPE margins remain healthy supported by a good raw material supply contract. PP margins were flat. Sasolburg electricity supply problems did impact HDPE and PP sales. Overall sales declined 8%. The margin fell to 3.8% (guided range 7-9%) with margins likely to remain in the 4-6% range in ST (some volume recovery after shutdowns and power issues should boost margins in F25).
- Unitrans: Unitrans is undergoing a significant restructuring process with new management, the exit of low margin activities, disposal of underutilised assets and cost reductions. Exiting loss-making contracts and cost savings should boost profits by R300m by FY26 (from the FY23 base). Good progress is being made.
- A R3 billion revolving credit facility was raised to mitigate financial risk during the high-capex period. This means that available facilities and cash are sufficient to cover term loans and bonds maturing over the next two years. Debt reduction of R1bn is planned for 2H F25.
- After the high capex period KAP is entering a 3-4 year period of stabilisation, debt reduction and margin recovery.