[TOP STORY] KAP interims augur continuing strong year

‘Commodity volatility and cost inflation have been a prominent theme throughout all the businesses’: CEO Gary Chaplin.

SIMON BROWN: I’m chatting with Gary Kaplan, CEO of KAP Industrial Holdings. Results out for the six months ending December: revenue up 13%, headline earnings per share up 62%. [The company] repurchased 65 million shares during the period under review.

Gary, I appreciate your time today. You make the point almost right up front of a strategic investment in inventories, and that has hurt cash generated. I was checking the numbers: your inventories are up R800 million year on year, almost R300 million from the financial year-end in June post some short-term pain; but it means the business can operate more smoothly.

GARY CHAPLIN: Hi Simon, and thanks for having me on your show. Yes, so we were affected quite severely in the past with inventory shortages coming out of the global supply-chain disruptions. So it was a conscious decision to invest in strategic inventory, really to keep our operations running efficiently and to continue supplying the markets where in a lot of instances we actually occupy a leadership position. So for us it’s important to maintain that and to maintain continuity of supply into those markets.

SIMON BROWN: And what about pricing? I’m thinking of Safripol, your polymer [producer and marketer] – I imagine you’re seeing some serious volatility in input costs in that business?

GARY CHAPLIN: We have, and not only in that business. Commodity volatility and cost inflation has been a prominent theme throughout all the businesses. In most instances we’ve been effective in passing that through to the market. Then there’ve been some isolated instances where we found it really challenging to pass it through. But I think that is a theme for the second half and possibly for the whole of 2022.

SIMON BROWN: Your polymer business was strong. I was digging into it and you make the point on the website that it’s in almost everything. It touches all of my listeners’ lives, unaware [by] them. But it had a really, really strong period. It’s doing very, very well. Is it picking up market share? Is it also partly that you’ve got the inventory so you’re able to supply demand?

GARY CHAPLIN: All of those factors, Simon. There’s been a benefit just in terms of global indices as polymer markets globally have improved, we too have improved. And then obviously with the disruptions, it’s a benefit to local manufacturers, of which we are. So yeah, we had strong demand for our products, good margins. We are also migrating our product range toward higher-margin, higher-specification products which are for more durable applications, and that saw an improvement in margins as well.

SIMON BROWN: [Wood-based panel producer] PG Bison is probably the brand you’re best known for. Well, maybe that’s not true. You’ve got [diversified supply chain solutions company] Unitrans and you’ve got [mattress manufacturer] Restonic. PG Bison is very, very strong. The new plant that we chatted about the last few times we spoke is coming on stream while you’ve got your shutdown happening now during February and March.

GARY CHAPLIN: Yes, so really exciting for us. PG performed well for the period. It’s a really stable business, consistent performance, and we’re very excited about the new plant coming online. We’ve already dry-commissioned it. The final commissioning will happen in February/March and we’re very excited about that new volume coming on. There’s a dire need for extra product in the market to supply our customers and kind of the market in general. Yeah, we’re very excited about that.

SIMON BROWN: And then you’ve got another plant coming on in about two years’ time as well, adding yet more capacity to your point that there is huge demand?

GARY CHAPLIN: Yes, there is. So again, very exciting for us. That’s been a project probably six years in the making, where we see a real need both locally and internationally for that product. So fantastic that we can do it in South Africa with the latest technology available in the world. That’s going to be about a two-year project. So we hope to commission in July 2024.

SIMON BROWN: Restonic – which is, compared to some of your others, one of your smaller businesses – wasn’t directly impacted by the riots in July last year. But of course the consumer-facing components were. Is that a product which a consumer might not have purchased back then in July owing to unavailability of supply and so on, stores being closed, but in a sense they’ll probably come back at some point, almost as demand builds up?

GARY CHAPLIN: Yeah. I think two things. Firstly, we had a very strong demand coming out of lockdown in the prior financial year, and had a fantastic year as a result. And then coming into this year, obviously there was the impact of the civil unrest on our customers. No direct damage to us, but obviously our customers’ distribution centres and retail stores were severely affected, then also finding a little softer demand. So I think from a consumer [demand] perspective we have found a little bit of softness.

SIMON BROWN: As I said,  a strong year for the group. …in one of your forward statements you comment around import competition, supply chains and the like. Volatility to some degree helps you. A decent second half of the year expected?

GARY CHAPLIN: Yes. We’ve got good momentum and we see the second half continuing from where we left off in December, with an improvement in some of the businesses that were negatively affected in the first half. So yeah, expecting a good second half.

SIMON BROWN: We’ll leave it there. Gary Chaplin, CEO of Kap Industrial Holdings, I appreciate your time today.

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