kap international holdings ltd december 2006 · kap international holdings ltd december 2006...

KAP International Holdings LtdDecember 2006Results Presentation


Overview

2006 2005 IncreaseRM RM %

Revenue 3,418 2,975 14.9%

EBITDA 300 270 11.1%

Operating profit 256 228 12.3%

Net profit before tax 230 249

- excluding pension fund surplus 230 199 15.6%

Headline earnings 172 196

- excluding pension fund surplus 172 160 7.5%

Tax Rate 20.6% 16.2%


Overview Cont.

2006 2005 Increase Notecents cents %

HEPS 40.7 46.1

- excluding pension fund surplus 40.7 37.6 8.2% (1)

EPS 41.3 46.6

- excluding pension fund surplus 41.3 38.1 8.4% (1)

NAV per share 276.5 246.8 12.1%

Dividend 14.0 12.0

Operating margin 7.5% 7.6%

P/E ratio (Share price 400 cents) 9.8 8.1

Note(1) Increase in tax rate


Financial Structure

2006 2005RM RM

Net interest bearing debt 245 232

Interest bearing debt / equity % 20.8% 22.0%

Interest cover 9.2x 11.7x

Current ratio 1.77 1.8


Cash Flow

2006 2005RM RM

Cash flows from operating activities 184.5 110.5Cash generated from operations before working capital changes 297.8 216.7

Net working capital changes (78.4) (83.7)

Net finance costs (28.2) (19.4)

Taxation paid (6.7) (3.1)

Cash flows from investing activities (121.2) (139.1)

Purchase of property, plant and equipment (126.7) (165.2)

Other investing activities 5.5 26.1

Cash flow from financing activities (116.8) (81.8)

Decrease in borrowings (70.2) (73.1)

Distributions to shareholders (51.3) (8.7)

Proceeds on share issue 4.7 -

Net decrease in cash and equivalents (53.5) (110.4)


Industrial Division


• Turnover up 7.1% (excluding Wayne Rubber 13.8%)

• Operating profit up 13.1%

• Major improvement in trim division– Quality improvements– Recycling initiative– Acquisition of Caravelle– Earn benefits of prior capital investment

• Feltex Fehrer (moulded foam seats) starting to show excellent performance– Economies of scale with Toyota– Excellent management team

• Difficult trading conditions for automotive leathers– Lack of turnover for overhead recovery – Unprofitable contract to supply Holden in Australia

• Other divisions showing positive growth

• Turnover percentage per division– Fehrer 32%– Trim 40%– Leather 14%– Foam Converting 9%– Unifrax 5%

Feltex


Strategic initiatives

• Increase in local vehicle build provides organic growth– Short term decrease to June 2007

• Changeover to new C series Mercedes• Changeover to new Corolla• Slowdown in VW due to boat going aground in UK

– Long term increase to 800,000 units

• Pursue acquisition strategy and new projects

• Swift action has been taken in the auto leather division– Changes in senior personnel– Highly qualified technical person recruited– Unprofitable Australian business discontinued– Extra business secured Landrover, Nissan, BMW– Sourcing of hides from Bull Brand – quality improved

• Management focus on continuous improvement programs

• Continuous search for key strategic partners

Feltex

KAP International Holdings LtdDecember 2006Results Presentation• Turnover up 12.4%

• Operating profit down 25% from R32M to R24M– Restructuring and impairment costs of R5M

• Mossop trading conditions were difficult high raw material cost resulted in margin squeeze– Management response was immediate and decisive

• Consolidated two manufacturing sites under one roof• Cut costs (retrenchment)• Source better quality hides from Bull Brand

• Safety footwear– Demand is strong (strong brands)– Imported footwear selling well

• Gumboot division– Huge backlog in production – strong demand from mining and construction industries– Industrial footwear division sold 2.86M pairs in 2006 (2.47M pairs in 2005)


• New safety boot and gumboot designs

• PVC gumboot machine on order to cope with demand for brands

• Target tender business with safety footwear

• Mossop turnaround with sourcing of cheaper hides and cost cutting

Industrial Footwear


• Turnover was up 16.8%

• Tons sold 80,900 (2005 ; 73,400) 10.2% increase– Fibre sales stayed the same ; PET sales up 7,500 tons

• Operating margin down from 6.2% to 5.7%– Raw material prices high– Overcapacity in world markets– International margins are improving

• Hosaf is extremely competitive in PET– Low depreciation and interest costs– Excellent quality product (continuous process as opposed to local competitors batch

process)


• Plan is to increase PET capacity significantly– Fixed costs are a high percentage of total costs– Margins will improve– Turnover will increase– Additional capacity expected to come on stream late 2008– Short term loss of production for trials (6 months to June 2007)

Hosaf


Consumer Division


• Turnover was up 21.3%– Cattle volumes slightly up; lamb volumes lower– Increase in sales in the cannery– Higher meat selling prices in September – November ’06

• Operating profit up 21.1%– Good operating margins until late November– Drop in margins and volumes in December

• Consumer resistance to high prices• Farmers sold market ready cattle in December

• Improvement in farming statistics (last 4 years)– Standing days in feedlots – 7.5% improvement– Mortality – 50% improvement– Morbidity – 52% improvement

• Extra costs– High price of cattle acquired– Increase in feed cost per head – R20.8M

Bull Brand


• Cost structure in fresh meat division as a % of total costAs at 2006

Cost of cattle purchase Approximately 55-60%Cost of feed Approximately 20%

• Farming performance is excellent– Standing days, mortalities, morbidities well controlled– Unlikely to get further improvements

• Abattoir is a world class facility– One of only two EU accredited in SA

• Management structures have already been cut

• New computer system may result in some savings and improved control

Bull Brand



• Backgrounding of cattle (preconditioning)– Allows Bull Brand to buy younger lighter cattle (pay per kg)– Already purchased two farms– Aim to significantly increase preconditioning over next 2 years

• Acquisition of Brenner Mills– Explore synergies and purchase feed

• Investigate further increases in the herd– Return must justify working capital implications– Timing must be correct

• Value added products where margins are better– Increase in cannery sales– Master butcher outlets– Spar Tender and Tasty range– Biltong production plant has been installed– Develop new products (can meals / burgers)

• Significant improvement in the quality of leather produced

Bull Brand


Weekly: 2001-2006


Prices

0.00

5.00

10.00

15.00

20.00

25.00

2005

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 2

Rc/

kg

Weaners Beef

Weaner vs Beef


• Turnover was up 20.2%– Excellent performance of main brands

Number of pairs 000’sBronx 601 (33% improvement)Jordan 309 (29% improvement)Olympic 420 (1% improvement)Asics 122 (32% improvement)

– Total pairs sold increased by 14.4%

• Operating profit (excluding property sale) showed significant improvement– Function of increased volumes in pairs– Forward cover taken in early part of the year


• Improve information systems

• Build on strong brands

• Grow ladies division

• Grow children's division

Jordan


• Turnover increase by 13.3%– Strong increase from Woolworths , Makro & Game– Increase mainly volume related

• Operating profit increased by 16.7%– Better production efficiencies– Benefits of capex program over last few years

• Brand is strong

• Staff morale is excellent


• Improve customer service levels

• Expand factory outlets

• Target hospitality market (current market share 20%)

• Grow with retailers as they open more stores

Glodina


Group Synergies

Brenner Bull BrandSupply feed

Hides to MossopHides to FAL

MossopFeltex“interior cockpit” partsLeather for seatsMoulded foamTrim and acoustic productsLoose lay carpetsHeat shields

Polyester for carpeting

Hosaf

Glodina

Leather

Industrial footwear Jordan Shoes

Share infrastructure to import shoes from China

Distribution outlets


• Caravelle carpets– Purchase price R15M– Manufacturer of loose lay mats– Contributed R2.7M PBIT for the six months to December– Aggressive export initiatives are being pursued– Intend to grow local market share

• Joint venture with Futuris– Investment of R13M in cash and existing plant– Manufacture tufted carpeting– Production will commence in May 2007– Supply Mercedes on the local market– Supply Caravelle with raw material allowing them to claim MIDP on exports– Pursue duty free access to American markets (long term)

• Brenner Mills– Purchase price R18M for 60% of the business– Subject to Competition Board approval– Synergies in distribution channels with Bull Brand– Supply feed to Bull Brand– Once competition approval have been obtained we will work with management to cut costs

Corporate Action


• Adequate representation in terms of non-executive directors at board level and at the audit committee and remuneration committee

• No black executive directors (currently two executive directors)

• Ownership criteria Motseng 6.1% investment

• Top management and senior management employment equity needs attention

• Skills development scorecard is good

• Preferential procurement, enterprise development and socio economic development are all receiving attention

• Our action plan– Driven by transformation committee– Each division has a team to drive the process– The issue is on the agenda of each divisional board meeting– List of fast track candidates identified– Top management get reports on all appointments / terminations– We recognise it will be a difficult process but we take the issue seriously

BEE Status


• Organic growth potential of all businesses but particularly Feltex and Hosaf

• Number of internal projects will provide good returns

• Exciting synergies between Brenner and Bull Brand

• Futuris, Feltex, JV and Caravelle exports will provide good returns

• Potential property development in Wellington

• Still pursuing acquisitions

• Well thought out long term strategic plans in place for each division

Prospects


Thank You

kap international holdings ltd december 2006 · kap international holdings ltd december 2006...

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