ITAC protects Kap from cheaper Chinese products

21 Aug 2019

Business Day, 20 August 2019
by Siseko Njobeni

The International Trade Administration Commission (Itac) has imposed an anti-dumping duty of 22.9% on imports from China of polyethylene terephthalate (PET) — a polymer used for making fibres, clothing and beverage containers. Diversified industrial group Kap Holdings, which complained to Itac about imports of this particular polymer, said the duty came into effect on August 2. Kap’s Safripol division manufactures polypropylene and high-density polyethylene. During its 2019 financial year, Kap spent R1.3bn expanding its PET plant in Durban. Kap CEO Gary Chaplin said on Tuesday that the company made the investment in order to increase volumes for the local market. “But what we have found is that, since our expansion, there have been a lot of imported Chinese products coming into the country at very low prices. This has resulted in us having to export our product at very low prices.

“So we made an application to Itac. They investigated it and came up with their own independent finding. We are hopeful that will allow us to sell more in the local market,” he said. In the year ended June 30, Kap increased revenue from continuing operations by 12% to R25.6bn, while net profit fell 31% to R1.1bn. Core headline earnings per share from continuing operations decreased 14% to 53.2c. Kap said it would pay a gross dividend of 23c a share for the year, unchanged from a year earlier. Chaplin said the tough economic conditions in SA hurt the company’s passenger transport business, which experienced lower numbers and stiff competition on all routes. He said that business was taking strain from the rising unemployment levels. “Those are the customers of that business. So with less people employed, we have less passengers,” Chaplin said.

He said high fuel prices also exerted pressure on the passenger transport business. The company was unable to recover the higher fuel price from existing commuter contracts with the government, Chaplin said. “The impact of a 19% higher average diesel price compared to the prior year, which the division was unable to contractually recover, amounted to R54m for the year,” Kap said in a statement. Chaplin said the company was renegotiating “onerous” conditions in the commuter contracts with government. “The fuel price increases hike the cost of doing business,” he said. Kap has contracts with the government to supply commuter bus services, which the government subsidises. “In terms of that, there are certain costs, such as tyre, fuel and wage costs. In that formula, there is a limit in terms of what they will pay for the fuel, for instance,” said Chaplin.

He said the contracts with the government were signed many years ago. “I do not think anyone expected fuel prices to get to the levels that they have. As a result of that, there is a certain upper limit in terms of what we are able to recover, and the fuel price is currently higher than those limits. We are in negotiations with government to get those limits lifted.”  Chaplin said the downturn in the economy, however, presented an opportunity to make acquisitions. “Our results are particularly important in terms of that. Our cash flow was very strong and that allowed us to reduce our debt levels. Our gearing went from 47% to 35%,” he said.

Kap’s targeted gearing range is about 50%. Chaplin said the tough economic environment would stimulate corporate activity. “But that comes with its own challenges” and the company would have to be very disciplined about this. He said the company intended to grow within the existing areas of its business: industrial, chemical and logistics. The company was eyeing two potential acquisitions but “it is still fairly early stages”.