Release Date: February 27, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- KAP Ltd (JSE:KAP, Financial) successfully ramped up major projects, including PG Bison's new MDF line, offering significant growth opportunities.
- The company maintained stable debt levels despite significant expansion Capex and increased working capital.
- Improved performances were noted in Safripol, Unitrans, and the Sleep Group.
- Safripol's production increased by 23%, leading to a 58% rise in operating profit.
- Unitrans showed a 22% increase in operating profits due to restructuring and efficiency-focused activities.
Negative Points
- Ramping up major projects impacted short-term earnings due to high initial costs and slow sales build-up.
- Feltex experienced a 19% drop in OEM volumes, leading to a 16% reduction in revenue.
- Operating profit decreased by 8%, largely due to the ramp-up costs of PG Bison's new plant.
- Headline earnings per share fell by 21% to 17.2 cents.
- The company faced a 20% increase in finance costs due to the end of capitalized interest from prior periods.
Q & A Highlights
Q: Can you clarify the negative impact from the new MDF line? Is it the ZAR135 million cost plus ZAR40 million in depreciation, and were these costs once-off in nature? What was the EBITDA performance excluding the new plant?
A: Gary Chaplin, CEO: The additional costs of ZAR135 million plus ZAR40 million in depreciation, and ZAR85 million in additional interest are not once-off. These costs will continue into the second half. It's the first six months of operation, and as we ramp up, sales and production start from zero, which affects pricing and margins. More detailed insights will be available at year-end.
Q: With PG Bison's new MDF expansion, are you expecting to buy significantly more raw material from third-party sources, and will this affect margins?
A: Gary Chaplin, CEO: We procure raw materials through a combination of owned, contractual, and spot sources. The timber market in the Condor area is liquid, and we haven't faced issues in procuring necessary raw materials at competitive prices. This strategy hasn't placed downward pressure on margins.
Q: Can you update the expected utilization of the Macondo MDF volumes in FY25 to FY28, and what improvement do you hope to realize from working capital attention?
A: Gary Chaplin, CEO: The working capital is currently inefficient due to the new plant's market development phase. We are focused on optimizing working capital, especially with the new capacity. As for capacity utilization, we have a four-year plan, and more meaningful forecasts will be available after a full year of operation.
Q: What is the total polyethylene capacity and its intended utilization outlook? Also, what is the outlook for Optics, and is there a risk of continued small operating profit losses?
A: Gary Chaplin, CEO: Our polyethylene production capacity is 165,000 tons per annum, fully utilized with a 65% market share domestically. We export to manage working capital. For Optics, we are building out the product and infrastructure, and have refocused the team on global sales. We expect revenue and subscriber growth, turning it into a profitable business.
Q: What are the key financial highlights from the recent period?
A: Frans Olivier, CFO: Revenue increased by 2%, operating profit decreased by 8%, and headline earnings per share fell by 21% to 17.2 cents. Net interest-bearing debt remained stable at ZAR9.3 billion. Major capital projects were successfully ramped up, impacting short-term earnings but positioning us for future growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
