Diversified industrial, logistics and chemical group KAP says challenges within South Africa’s operating environment have persisted, despite the easing of electricity load shedding by Eskom, with economic activity dented by consumer disposable incomes that are under pressure.
In the half year to June, KAP raised earnings per share by 106% to 43.8 cents. It attributed this to the inclusion of a R570 million non=cash impairment of intangibles in Unitrans.
However, the half year operating profit in KAP before capital items decreased by 11% to R2.2 billion, while headline earnings per share also slowed down by 4% to 45.3%. As a result of this, KAP did not declare an interim dividend for the period, with shares in the company falling 1.78% on the JSE on Friday.
The company was affected by a challenging environment prior to South Africa’s elections in May. This was despite an easing in electricity load shedding.
“The South African operating environment was challenging during the year, despite the easing of electricity load shedding in the second half of the financial year. Infrastructure disruptions, not related to load shedding, continued to challenge businesses,” said the company.
It said that South Africa’s “operating environment may remain challenging” in the months ahead.
South African businesses have generally complained of infrastructure bottlenecks such as inefficiency by Transnet. KAP noted though that “economic activity was subdued” for the greater part of the interim period under review, worsened “by political uncertainty ahead of the May 2024 elections and pressure” on consumer disposable income.
The depressed consumer disposable incomes were a consequence of elevated interest rates and high inflation, which, however, has started to trend down. Economists expect the South Africa Reserve Bank (SARB) to lower interest rates this month.
During the period under review, revenues in KAP consequently dipped by 2% to R29bn, with the company proving to be “resilient” throughout the tough persisting environment.
KAP said five of its six divisions delivered “an improved performance” compared with the prior year, although this had been offset by weaker results from the Safripol division, which was affected by a cyclical low in the global polymers industry.
“Overall, the group’s performance was supported by market share gains, cost savings, and the benefits realised from various restructuring initiatives, particularly at Unitrans,” the company said.
Operating profit for Unitrans, which is being turned around, was negatively impacted by foreign exchange losses of R52m compared with gains of R12m in the prior year. This has been attributed to the consequences of the devaluation of Malawi’s kwacha currency.
“Good progress was made with the restructuring of the division, which includes exiting low-margin, low-return activities, the disposal of underutilised assets, significant cost reductions, a refined business development approach, and more stringent capital allocation,” KAP said of the Unitrans division.
The R2.5bn invested into capital projects was mainly constituted of an investment into PG Bison’s MDF project in Mkhondo. The investment had resulted in a 33% increase in the division’s total production capacity, offering it growth opportunities over the medium term
The additional capacity is earmarked to raise the PG Bison division’s domestic and export market shares. The company is also gearing up to produce less single-use HDPE, support increased production of value-add products and reduced costs for Restonic and Feltex fibre recycling lines and for Safripol.
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