KAP’s debt reduction strategy wins over investors

The tough management actions by the top brass at industrial group KAP to reduce the group’s debt and improve core earnings are beginning to yield results and win over investors. The group’s share price surged more than 11% on Wednesday, delivering an increase in earnings before interest, taxes, depreciation and amortisation (ebitda), operating profit and earnings in the five months ended in November. It said the increase was driven by increased panel production and sales volumes, improved domestic new vehicle assembly volumes and an improvement in underperforming businesses, an improvement that will become clearer when the group releases its full-year results early next year.

“The group’s performance should be viewed in the context of a difficult trading environment, marked by subdued consumer demand, global oversupply of certain products, sustained intense competition and heightened uncertainty related to the US’s tariff war,” the company said in a trading update. The group’s PG Bison delivered increased panel production and sales volumes, while positive performance from its Unitrans unit was largely supported by increased volumes in the agriculture operations. KAP’s polymer producer and marketer Safripol is still a drag on results, with the group saying the business remains in a cyclical low in the polymers industry due to global overcapacity, with both polymer demand and pricing subdued.

“Of the division’s three polymers, polyethylene terephthalate (PET) continues to be the most affected. A five-week commercial shutdown was taken at the PET plant in Durban to draw down elevated inventory levels and to balance production with demand.” To give the balance sheet breathing space, the group approached its lenders to extend a three-year revolving credit facility of R2bn by two years, maturing on December 7 2028. “We are focused on addressing areas of underperformance, the most material of which relates to Unitrans, where we are targeting an annual operating profit of R700m over the medium term,” the company said. “We expect the reduction [in debt] to be supported by lower capital expenditure following the completion of recent investments, cash flow contribution from these investments, and an improved performance from Unitrans.