KAP endured a bruising 2025 financial year, with operating profit down 14% and headline earnings plunging 47%.
The setbacks were threefold: heavy start-up costs at the expanded medium-density fibreboard (MDF) plant at PG Bison, stubbornly weak polymer margins and slower than expected progress from the Unitrans restructuring. Yet management insists 2025 was a year of heavy lifting, laying the foundations for recovery, with the benefits expected to start filtering through from 2026 onwards.
The MDF line at PG Bison is emblematic of KAP’s current position. It was a huge undertaking, adding roughly a third more capacity and cementing KAP’s dominance in Southern Africa’s board industry. The project was expected to take four years to reach full utilisation; KAP hit that milestone in just one.
That acceleration came at a cost. The business carried the full overhead of the new plant while margins remained under pressure as it bought market share through exports, where prices are lower. The numbers reflected this mismatch, with PG Bison’s operating profit falling 28% despite revenue rising 10%.
But global MDF demand remains firm, and prices are beginning to recover as excess capacity is gradually worked out of the market. Management is targeting margins of 18%-20% over time, with the strategy hinging on shifting more volumes into the local market to displace imports while also focusing on undersupplied overseas regions to improve pricing.
Concluding new sales contracts takes time, but once in place they should shift the mix away from lower-margin exports. To further support mix and pricing, capital has been committed to value-added capacity such as an additional melamine-faced board press.
Elsewhere in the group the picture was mixed but with more positives than headline earnings might suggest. Safripol, the polymer producer, delivered strong volume growth after commissioning its high-density polyethylene conversion project, with operating profit up 43%. The rub is that pricing and margins remain subdued globally, with the cyclical recovery in polymers now pushed out towards 2030 amid relentless Chinese capacity expansion. Meanwhile, a long-running ethylene supply dispute with Sasol could offer upside if resolved in KAP’s favour.
Unitrans, the logistics arm, continues to test investor patience. After a strong first half, the second half was hit by a rain-delayed agricultural season and weaker petrochemical volumes, pulling operating profit down 14%. Management has already taken out underperforming commuter operations and is refocusing the petrochemicals division, which makes up a third of revenue.
The Sleep Group stood out as the quiet star, with revenue up 7% and operating profit up rising 27%
The ambition remains to lift divisional operating profit to R700m from R436m now, and while the work continues the trajectory is clear: pruning low-return contracts, sweating assets harder and squeezing costs.
Feltex, the automotive components maker, had a miserable first half as Toyota’s production disruptions and BMW’s X3 model changeover cut volumes. But encouragingly, the second half showed a strong rebound, which suggests that 2026 should see a more normalised run rate, particularly as South Africa’s vehicle assembly stabilises.
The Sleep Group stood out as the quiet star, with revenue up 7% and operating profit rising 27%. Marketing and efficiency improvements have built sustainable momentum in a subdued bedding market and, with capacity in place, the division is well positioned to deliver towards its 13%-15% margin target.
Optix, KAP’s fleet optimisation and driver management technology arm, remains a problem child, with weak sales execution and another operating loss. Yet KAP continues to invest in management and product development, betting on the long-term potential of scaling this platform internationally. It may take longer to pay off, but the group has not abandoned the vision.
Balance sheet concerns, often a sticking point for investors in capex-heavy businesses, appear manageable. Net debt fell to R8.1bn, bringing gearing down to 65% and pushing net debt to earnings before interest, tax, depreciation and amortisation (ebitda) to 2.4 times, well within covenant levels. Management insists that no rights issue is needed, and with the capital cycle now complete, free cash flow should improve as projects contribute rather than consume cash. Targets to bring net debt to ebitda below two times by financial 2027 look credible if earnings recover as expected.
KAP trades on a trailing p:e multiple of just over seven, which underscores the market’s scepticism about its ability to deliver on its targets. However, if margins begin to recover and cash flow strengthens, the equity story could shift rapidly from one of balance sheet strain to one of operating leverage and value realisation.
Near-term risks are subdued consumer and industrial demand, global polymer weakness and execution risk in logistics and Optix. But the share price already discounts much of this gloom. With major projects shifting from a drag on results to drivers of growth, a leadership handover under way as Gary Chaplin passes the reins to current CFO and CEO-designate Frans Olivier, and a valuation multiple that leaves room for rerating, KAP may be worth a closer look.
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