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KAP earnings rise as strategy pays off

Johannesburg - Diversified industrial company KAP International Holdings [JSE:KAP] on Tuesday reported diluted headline earnings per share of 24.7 cents for the year ended June 2011 from 21.0c a year ago. HEPS from continuing operations rose to 32.7c from 22.7c.

Revenue from continuing operations was 10% higher at R4.22bn, while operating profit before restructuring costs improved by 34% to R265.9m.

A capital distribution of 10c per share was declared.

KAP has interests in a portfolio of diverse manufacturing businesses, including processed meat, maize milling, leather products, footwear, bottle resin, automotive products and towelling products. The group is operationally focused through an industrial (Feltex automotive, industrial footwear and Hosaf) and a consumer segment (Bull Brand Foods, Brenner Mills, Jordan & Co and Glodina).

CEO Paul Schouten described the results as a "good reflection of the strategy we've driven over the last three years."

Schouten added the company had identified what needed to be done and acted on it.

"We disposed of underperforming operations - Hosaf sold its polyester staple fibre business in Cape Town - and we significantly reduced our interest bill. Net interest-bearing borrowings decreased from R325.6m in 2010 to R134.6m, leaving us with a year-end interest bearing debt/equity ratio of 9.1%."

Chief Financial Officer John Haveman added: "Our earnings are up and our current cash flow puts us in a strong position. Not only have we declared a final capital distribution of 10c per share, but the divisions are able to grow both organically and through acquisitions over the next 12 months."

Schouten said the outstanding performance by Hosaf validated their decision in 2009 to increase production capacity. Increasing market penetration and growth has been helped by favourable market conditions plus rising commodity prices over the period.

Favourable gearing levels have also resulted in a lower interest cost for the period.

Haveman confirmed that the board was satisfied with the performance of the group. Feltex Automotive, coming off a low base in 2009, did well considering South African vehicle sales are showing a disturbing trend towards imported vehicles. Feltex employed another 200 people in this sector this year.

Cheap imports and the fact that South African consumers are under pressure hit Bull Brand hardest.

Brenner Mills held its own in a tough food produce market and Jordan, the shoe division, managed to increase sales.

Despite the impact of a 400% rise in cotton prices and the slowdown in consumer spending, Glodina managed to increase its operating profit by reducing expenses by 10 % and investing in capital upgrades to ensure that efficiencies improve.

Overall, KAP has achieved the objectives it set in 2008 and is confident in continued growth. Its cost base has remained low, leaving the company well positioned to capitalise on opportunities that may arise, it concluded. 

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