A shift in consumer preference towards locally manufactured goods helped KAP Industrial push through price increases, says CEO Gary Chaplin, while the global shortage of semiconductors looks to be nearing its end.
This was as robust demand for timber and chemicals helped drive up profits by two-thirds in its year to end-June, allowing the group to almost double its dividend on Wednesday.
Group revenue rose 17% to R28bn and profits 67% to R1.76bn for the full-year, with global supply chain disruptions benefiting KAP as a local manufacturer, allowing it to up its final dividend 93% to 29c.
Speaking to Business Day after presenting the results, Chaplin said KAP was exposed to higher raw material costs in the period but was able to pass on some of these increases to consumers. The diversified company’s interests include mattresses and car seats.
“There certainly was a preference for locally produced products as opposed to imports,” Chaplin said. “Where we have businesses where we compete with imports, it was much easier to pass price increases through to our customers.”
Through the department of trade, industry & competition, the government has been pushing a contested localisation policy. Recent decisions taken by the ministry to remove some anti-dumping duties, however, have left the public wondering about the policy direction the state is taking.
Chaplin said KAP had struggled to find receptive customers in segments where it imports, highlighting the disappointing performance of its sleep segment, led by the Restonic brand.
“In our Restonic sleep business all of our competitors are local, so it was much more challenging to try to pass off those price increases there.”
Restonic reported operating profit fell 73% to R69m, after civil unrest hit the retail stores of its customers, as well as distribution centres. KAP said it then moved to support the market with promotional offers and improved its distribution capability.
KAP Industrial operates in 11 Sub-Saharan countries, with its businesses including PG Bison, which manufactures decorative wood panels, and producing automotive components while holding chemicals and logistics interests.
Strong demand for polymers, also used in downstream applications, helped operating profit at the firm’s Safripol business more than triple to R1.4bn, with KAP still suffering from raw material constraints as well as interruptions to its Durban plant from civil unrest, flooding and electricity outages.
Polymer prices are expected to moderate from high levels during the 2023 financial year, KAP said, but it is likely to continue to benefit from customers preferring local suppliers.
PG Bison grew its operating profit 35% to R831m, with the group saying local demand exceeded available capacity during the year, and is also likely to continue benefiting from supply-chain disruptions in 2023.
Meanwhile, supply chain disruptions resulting from semiconductor chip shortages are soon to become a thing of the past as supply is gradually improving, Chaplin said.
He estimated that the supply would improve as there was more capacity coming online, with demand easing as a result.
“I think we will find that over the next six to 12 months, the shortage will disappear as an issue,” he said.
KAP’s share price fell the most in three weeks on Wednesday, down 3.07% to R4.42.
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