Commentary

Review of results

The board of directors is pleased to report on the results for the year ended 31 December 2005. Headline earnings per share increased by 36% to 46,1 cents compared to restated headline earnings per share.

Revenue increased from R1,9 billion to R3,0 billion, largely as a result of a full year’s trading for the operations acquired on 1 July 2004.

Industrial segment

AUTOMOTIVE

The production of locally manufactured vehicles increased by 14,5% to a record high of 497 000 units in 2005 (2004: 434 000 units) and was buoyed by the launch of three new models. The division achieved its budget despite significant raw material price increases and production disruptions caused by the start-up of new contracts and the installation of new technology. The Wayne Rubber division was discontinued during the year.

INDUSTRIAL FOOTWEAR

Although under threat from imports in the safety footwear market, the industrial footwear division continues to produce acceptable margins on its products. To complement their locally manufactured product offer, a strategic decision has been taken to import footwear.

HOSAF FIBRES

Profitability has improved significantly from the prior year, despite international pressure on dollar-denominated margins. However, management has successfully improved efficiencies by maximising production capacity to achieve good returns.

The sustained increase in worldwide demand for PET is expected to continue. Hosaf Fibres remains committed to further growing its PET output by increasing existing capacity.

Consumer segment

JORDAN & CO

Retail sales have surged in the year to the benefit of Jordan's main brands of Bronx, Jordan and Olympic. Intense margin pressure has been experienced as new importers have entered the market. Jordan continues to replace capacity in its own manufacture with increased footwear imports.

BULL BRAND FOODS

Strong local and export demand, underpinned by the largest ever generic beef advertising campaign, resulted in not only favourable red meat prices but also strong volume growth. Low maize prices also contributed to improved operating margins.

GLODINA

Continued growth in the South African economy fuelled strong consumer demand and a buoyant retail sector. Glodina also began to reap the benefits of its 3 year capital expenditure programme and sustained investment in staff training.

Balance sheet and cash flow

The balance sheet of the group remains strong, with an interest-bearing debt to equity ratio of 22,0% (2004: 20,7%) and an interest cover of 11,7 times (2004:13,3 times).

R165,2m was spent on property, plant and equipment which included R44,1m to acquire the properties occupied by the Feltex manufacturing operations, resulting in a significant decrease in operating lease commitments. A net working capital investment of R85,5m included R32,9m to increase the standing herd at Bull Brand in order to achieve economies of scale.

The apportionment of a pension fund surplus was authorised by the FSB during the year. The total surplus amounted to R70,4m before taxation, of which R19,8m was utilised to settle a portion of the post-retirement medical benefits liability. The balance of the surplus will be used as a contribution holiday with future cash benefits of R5,6m per annum.

Corporate action

On 30 November 2005, the Steinhoff International group acquired a strategic equity stake of 21% in the group. Potential synergies exist between the two groups, and these are currently being identified.

In September 2005 the terms of an agreement were finalised in respect of the acquisition of the properties occupied by the Feltex manufacturing operations from Courthiel Holdings (Pty) Ltd and Conrapp Properties (Pty) Ltd, both related parties to KAP, for R44,1m. In July 2005 the group entered into an agreement to dispose of a non-core property to African Hide Trading (Pty) Ltd, a related party to KAP, for R5,5m.

In November 2005, Motseng Investment Holdings (Pty) Ltd acquired a further 3% of the equity of the company, increasing the company's BEE shareholding to 6%.

Corporate governance

The board endorses the principles advocated by the Code of Corporate Practice and Conduct set out in the King report on Corporate Governance (King II).

Social responsibility

The group is engaged in many social responsibility programmes at operating division level.

Directors and officers

Rob Radford resigned from the group and the KAP board with effect from 22 September 2005. The board wishes to thank him for his contribution both to the board and the group, and in particular for his leadership of the Feltex group.

Danie van der Merwe (MD of Steinhoff Africa) and John Haveman were appointed to the board as a non-executive director and chief financial officer (CFO) respectively, with effect from 25 November 2005.

Markus Jooste resigned as chairman of the audit committee, and was replaced by Len Konar, an independent consultant and professional director of companies, appointed on 3 March 2006. Jan van der Merwe, CFO of Steinhoff Holdings, was also appointed to the KAP audit committee on 22 November 2005.

Capital distribution

Subject to the required shareholders’ approvals, the board has declared a distribution of 12 cents per share (2004: 5 cents). The distribution cover is 3,8 times (2004: 6,8 times). The policy of the group is to have a payout ratio of approximately 25% of headline earnings and to declare distributions annually after the year-end results have been finalised. After an initial period of consolidation by the group during 2004, an improved payout ratio was considered appropriate for 2005.

Prospects

The automotive division and Hosaf Fibres are in high-growth industries. Growth in the automotive division is expected to be realised through increased vehicle build in South Africa.

The PET industry has experienced growth rates of 8-10% over the last three years, and it is expected that the national and international markets will continue to grow by more than 7% and 10% respectively per annum. 

Our strong brands in the consumer segment are well positioned to benefit from the continued economic growth, strong consumer demand and buoyant retail sector prevalent in South Africa.

The group is thus favourably placed for further growth in 2006. For and on behalf of the board

C E Daun P C T Schouten
Chairman Chief executive officer

Capital distribution

The directors have declared, subject to the required shareholders’ approvals, a capital distribution of 12 cents per share, payable on Monday, 12 June 2006 to shareholders recorded in the register at the close of business on Friday, 9 June 2006.

To comply with the requirements of STRATE the following dates are applicable:           2006
Last date to trade cum-distribution Friday, 2 June
Trading commences ex-distribution Monday, 5 June
Record date Friday, 9 June
Posting of cheques / electronic bank transfers Monday, 12 June

Share certificates may not be dematerialised or rematerialised nor may transfers between registers take place between Monday, 5 June 2006 and Friday, 9 June 2006, both days inclusive.

Any change to the above dates and times will be advised by notification on SENS and in the press.

For and on behalf of the board
M Balladon
Company secretary
10 March 2006

Corporate information

Non-executive directors: C E Daun* (Chairman), M J Jooste, D M van der Merwe, J B Magwaza, I N Mkhari, S H Nomvete, F Möller*   * German
Executive directors: P C T Schouten (CEO), J P Haveman (CFO)
Registration number: 1978/000181/06 Share code: KAP ISIN: ZAE000059564
Registered address: 1st floor, New Link Centre, 1 New Street, Paarl, 7646
Postal address: PO Box 3639, Paarl, 7620. Telephone: 021 872 8726. Facsimile: 021 872 8904
Transfer secretaries: Computershare Investor Services 2004 (Proprietary) Limited
Address: 70 Marshall Street, Johannesburg, 2001. Postal address: PO Box 61051, Marshalltown, 2107
Telephone: 011 370 5000. Facsimile: 011 327 3003
Sponsor: PSG Capital Limited