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KAP INDUSTRIAL HOLDINGS LIMITED - Operational Update For The Period 1 July 2020 To 30 November 2020

Release Date: 10/12/2020 17:15
Code(s): KAP     PDF:  
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Operational Update For The Period 1 July 2020 To 30 November 2020

KAP INDUSTRIAL HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1978/000181/06)
Share code: KAP
ISIN: ZAE000171963
(“KAP” or “the Company”)


OPERATIONAL UPDATE FOR THE PERIOD 1 JULY 2020 TO 30 NOVEMBER 2020


This operational update, as set out below, provides high level insight into the Company’s
operational performance for the first five months of the 2021 financial year to 30 November
2020 (“period”).

DIVISIONAL OPERATIONAL REVIEW

The Integrated Timber division performed well for the period with strong demand for its
products, which has enabled it to operate all its production facilities at full capacity. The
division has a full order book for December and the third quarter, indicating that the current
momentum will continue into the second half of the financial year. The board of directors of
KAP recently approved a R1.4 billion investment into a new medium density fibreboard (MDF)
plant, which will enable the division to continue growing its market position. This investment
will be funded through cash generated from operations.

The Automotive Components division’s volumes remained subdued due to lower global
and domestic new-vehicle assembly demand associated with Covid. While these volumes are
approximately 23% lower than the prior period, they were better than the division initially
anticipated. The division successfully completed significant restructuring activities during the
first quarter in order to right-size its operations. This should materially improve earnings in the
second quarter.

The Integrated Bedding division performed well for the period with strong demand for its
mattress brands, which enabled it to operate its production facilities at full capacity and to
leverage off its integrated raw material supply chain. The division was well prepared to
effectively manage the recent Black Friday promotional peak, thereby achieving volume
growth on the prior year Black Friday peak. The division’s order book remains full for
December, leading into the year-end trading peak.

The Polymers division performed well for the period with strong demand for all three
polymers. Sales volumes were limited only by production capacity and inventory. The division
successfully completed its five-year statutory maintenance shut and completed its final
debottlenecking project to improve efficiencies and yields at its PET facility. This resulted in
43 days of lost PET production, as reflected in the table below.

                                                  PET                       HDPE                 PP
                                             Period        Period       Period   Period    Period   Period
                                              FY21          FY20         FY21     FY20      FY21     FY20
 Sales volumes (tonnes)                      80 310        93 505       71 474  68 921     49 271   53 562
 Production volumes (tonnes)                 61 045        84 902       68 345  65 902     50 709   51 640
 Average R/USD exchange                       16.54         14.75        16.54    14.75     16.54    14.75
PET – Polyethylene terephthalate | HDPE – High density polyethylene | PP – Polypropylene
Period refers to five months from 1 July to 30 November.


PET margins improved significantly over the prior period, while both HDPE and PP margins
remained fairly stable. Margins on all three polymers showed improvement for the period
compared to the second half of FY20. This 17-month analysis indicates a positive margin
trend, which will hopefully continue into the second half of FY21.

                                             Margin variance           Margin variance
                                             Period FY21 vs            Period FY21 vs
                                               Period FY20#                     2H20*
 PET                                                    70%                       54%
 HDPE                                                    0%                       58%
 PP                                                      2%                       17%
# - Five months ended 30 November 2020 compared to the five months ended 30 November 2019.
* - Five months ended 30 November 2020 compared to the six months ended 30 June 2020.


The Contractual Logistics – South Africa division has experienced a steady monthly
improvement in demand and activity levels from July to November, with November
representing full capacity. The division continued to focus on operational efficiencies and asset
utilisation during the period in order to offset the impact of lower volumes. This has produced
encouraging results for the period.

The Contractual Logistics – Africa division performed well for the period with the exception
of its activities in Botswana. The Covid restrictions in Botswana and the related border delays
negatively impacted asset utilisation and efficiency levels in this territory. However, these
restrictions are being relaxed over time, commencing from December 2020. The division’s
recent contract renewals and new contracts secured have been fully implemented and are
operating well.

The performance of the Passenger Transport division has been disappointing for the period.
The intercity and tourism operations were severely impacted by Covid-related restrictions and
incurred significant losses. The Company will exit the intercity and tourism sectors during the
financial year. The commuter and personnel operations performed satisfactorily, but below
expectations due to lower passenger numbers. The Gautrain operations remained stable,
while activities in Mozambique continued to expand.

FINANCIAL AND LIQUIDITY REVIEW

The Company’s performance for the period and forecast for December 2020 strongly indicate
that the Company will remain well within its existing banking facilities and relevant financial
covenant ratios. Global Credit Rating Co. Proprietary Limited reviewed KAP’s credit rating in
November 2020 and confirmed its rating as A+(za) with a stable outlook.

OUTLOOK

The Company’s strategy and diversified business model have proven to be resilient through
the Covid crisis and its divisions have responded quickly to take advantage of improved market
demand as Covid restrictions have been relaxed. Management is optimistic that this positive
momentum will continue into the second half of the financial year.


By order of the Board
KAP Secretarial Services Proprietary Limited

Stellenbosch
10 December 2020

Sponsor
PSG Capital

Date: 10-12-2020 05:15:00
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