Cash-generating KAP Industrial is shopping around for acquisitions of up to R5bn, CEO Gary Chaplin told Business Times this week.
The group, which manufactures products such as automotive components, mattresses, chemicals, polymers and timber items, has invested R7.8bn in the past two years to deepen its production capacity.
Cash generated from operations rose 83% to R877m in the half year till end December as the expansion projects started feeding into earnings. The steady cash flow gives KAP the ability to fund acquisitions, said Chaplin.
"If you look at our cash generation, we can fund an acquisition of R4bn to R5bn quite comfortably," he said, adding that when buying new businesses, the company will stick to Southern Africa, where it currently operates. KAP has a market capitalisation of about R22bn.
"We like big infrastructure businesses with big assets and that have a large share of the market," Chaplin said.
And KAP is "fairly open-minded" about the sector in which it plans to acquire new businesses, he said, but stressed that the targets would be "industrial in nature" and that KAP is not interested in businesses such as retail or banking. He declined to give further details of possible targets.
The company reported a 6% drop in operating profit for the six months to end-December and a 19% decline in headline earnings per share. Chaplin said KAP's results were complicated by a BEE deal in its Unitrans logistics division.
The company financed the sale of 45% of this unit, which was a one-off and non-cash occurrence.
Excluding the effect of the BEE deal, operating profit rose 7%. But it was no easy ride.
"We have found the trading environment quite tough," said Chaplin.
KAP, which derives its name from the German word for the Cape, at one time owned Jordan shoes and canned foods group Bull Brand, but has since trimmed its consumer-facing interests down to coach lines Citiliner and Greyhound.
The passenger travel business has seen profits dip despite an increase in revenue as the weak economy and the unfortunate spacing of holidays put it under pressure.
"We usually see two peaks in December, but this time there was only one peak," said Chaplin. And the environment was increasingly competitive, with passengers willing to choose other coach lines for a very small difference in price.
But passenger travel is one of the company's smallest divisions measured by operating profit, contributing about R120m.
KAP's chemicals business is the biggest division. Under the name Safripol, it produces a range of polymers that are eventually used in the manufacture of products such as pipes, textiles, containers, packaging materials and bottles.
Buoyed by expanded capacity at one of its Durban plants, the division turned an operating profit of R485m in the half year, up from R318m a year ago.
KAP was known as meat and leather producer Kolosus before German investor Claas Daun took it over in the early 2000s and stitched together a patchwork of industrial assets.
Daun, a longtime friend of fellow German Bruno Steinhoff, was also instrumental in establishing Steinhoff International in SA. KAP became a subsidiary of Steinhoff in 2012. Two years later, Steinhoff sold its stake down to 43%.
In the wake of the Steinhoff "accounting irregularities" scandal, Steinhoff reduced its stake in KAP to 26% last year.
KAP operates completely separately from its former parent, said Chaplin. Steinhoff still has two seats on KAP's board...