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KAP INDUSTRIAL HOLDINGS LIMITED - Operational Update For The Period 1 July 2020 To 31 May 2021

Release Date: 29/06/2021 09:00
Code(s): KAP     PDF:  
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Operational Update For The Period 1 July 2020 To 31 May 2021

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


This operational update, as set out below, provides high level insight into the Company’s
operational performance for the first eleven months of the 2021 financial year to 31 May 2021

Covid-19 (“Covid”) created an extremely complex and uncertain environment during the
period from global socio-political and macro-economic dynamics, to impacting on the daily
transactional execution of the products and services that we deliver to our customers and on
the personal safety and wellbeing of our employees. We are very proud of the manner in which
each one of our employees have risen to these challenges and sincerely grateful for their
loyalty and commitment to the Company.


The Integrated Timber division has continued to perform well with strong demand for our
products, supported by increased home-related consumer spend, especially in the value-
added product category of decorative panels, which supported revenue and margin growth.
We operated all of our production facilities at full available capacity throughout the period. The
scheduled annual maintenance shutdowns at our Boksburg medium-density fibreboard and
Ugie particleboard plants will be completed during June 2021 as planned. During these
maintenance shutdowns we are able to fulfil our order book from inventory and maintain
market share. Our forward order book remains strong. The particleboard expansion project at
our eMkhondo (Piet Retief) production facility is progressing well and remains on schedule for
commissioning during January 2022, thereby increasing our total production capacity.

The Automotive Components division continued to experience an improvement in activity
levels during the second half of the year, albeit still below pre-Covid levels. Industry new
vehicle assembly volumes increased by 8%, while new vehicle sales (passenger and light
commercial vehicles) in South Africa decreased by 1% compared to the previous period. The
division was restructured during the period in line with lower industry activity which has
contributed to improved margins. We are well prepared for a significant new model introduction
and related increased activity levels due to commence in July 2021.

The Integrated Bedding division has continued to perform well with strong demand for our
range of sleep products, in line with the traditional seasonality of the retail sector. Our
integrated raw material value chain continued to provide access to key raw materials, thereby
protecting margins and ensuring a sustainable supply to our customers. We continued to
capitalise on opportunities to also sell our raw material-related products into adjacent sectors
in order to further grow revenue and expand margins.

The Polymers division continued to perform well with robust demand for all three polymers.
Global supply chain disruptions and a significant increase in global shipping rates have
supported increased demand for local polymer manufacture and supply. These supply chain
disruptions unfortunately interrupted the supply of PTA, a key raw material required in the
production of PET, which resulted in a PET production stoppage from 11 February 2021 to 8
March 2021. We continued to supply the market from PET inventories during this period to
maintain market share. Our HDPE and PP plants both operated at full available capacity
throughout the period.

Sales and production volumes are reflected as follows:

                                                  PET                       HDPE                    PP
                                             Period   Period            Period   Period       Period   Period
                                             FY21     FY20              FY21     FY20         FY21     FY20
Sales volumes (tonnes)                       164 915  178 962           144 863  143 276      98 827   102 009
Production volumes (tonnes)                  150 865  189 296           141 702  140 754      104 001  104 021
Average R/USD exchange                       15.53    15.54             15.53    15.54        15.53    15.54

PET – Polyethylene terephthalate | HDPE – High density polyethylene | PP – Polypropylene.
Period refers to eleven months from 1 July 2020 to 31 May 2021.

Raw material margins on all three polymers continued to strengthen during the period,
impacting positively on the performance of the division. Improvements in the raw material
margins of each polymer are reflected as follows:
                                                     Margin variance            Margin variance
                                                     Period FY21 vs             Period FY21 vs
                                                     Period FY20#               1H21*
PET                                                       74%                        23%
HDPE                                                      28%                         4%
PP                                                        18%                        19%

# - Eleven months ended 31 May 2021 compared to the eleven months ended 31 May 2020.
* - Five months ended 31 May 2021 compared to the six months ended 31 December 2020.

The Contractual Logistics – South Africa division has performed well for the period. General
economic activity levels, while still subdued, have shown improvement in most sectors in
which we operate. While the competition remains robust, we have been effective in growing
revenue and margins during the period and maintaining a strong pipeline of potential future
contract opportunities.

The Contractual Logistics – Africa division has performed well in most of our relevant
territories and markets, showing sufficient growth on the prior period to offset the continued
poor performance of our fuel distribution activities in Botswana. Botswana still remains in a
state of emergency due to Covid and, as a result, these fuel distribution activities are being
restructured within a broader road freight strategy, which will better utilise available resources
in future. We were able to successfully expand into new mining-related activities in Botswana
during the period.

The Passenger Transport division performance remained disappointing for the period. Our
operations in South Africa were broadly impacted by Covid-related restrictions and associated
lower passenger numbers in the personnel and commuter transport sectors. Our activities in
Mozambique were largely unaffected by Covid-related restrictions and terrorist activity in the
northern region and produced a pleasing performance. Our intercity and tourism operations
were closed during the period.


While Covid will continue to evolve and present unprecedented social and economic
challenges and uncertainty, our employees and business model have proven to be agile and
resilient during the period. The operational leverage of our operations provides us with the
ability to adjust rapidly as markets evolve and our strict safety protocols at all of our operations
provide a safe working environment to ensure the wellbeing of our employees and the
continuity of our operations. We remain optimistic that our government has refined its
approach to managing a resurgence of Covid infections in a manner which will minimise the
economic impact thereof.

Market demand for our products remains robust and we are therefore confident that the
Company will continue to perform well. We are focused on a number of strategic initiatives in
order to provide revenue growth, margin improvement and improved returns beyond 2021.

By order of the Board
KAP Secretarial Services Proprietary Limited

29 June 2021

PSG Capital

Date: 29-06-2021 09:00:00
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