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KAP INDUSTRIAL HOLDINGS LIMITED - Trading Statement And Operational Update
Trading Statement And Operational Update 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") TRADING STATEMENT AND OPERATIONAL UPDATE The Coronavirus (Covid -19) pandemic ("Coronavirus") continues to impact all aspects of global society with serious ramifications for the global economy. President Ramaphosa recently announced a state of disaster and imposed a 21-day national lockdown ("Lockdown") in South Africa, commencing at midnight on 26 March 2020, in order to combat the spread of Coronavirus. We believe that our president has shown great leadership and has made the right decision in terms of the Lockdown. KAP will comply fully with the Lockdown requirements. As the country prepares to minimise the impact of Coronavirus, the management of KAP are working closely with customers, suppliers, staff and government bodies to prepare as best as possible to address the potential immediate and longer term effects on our business. OPERATIONAL UPDATE The Integrated Timber division has performed well for the year to date up to 28 February 2020 ("Year to Date"). Demand for its products has remained buoyant. Major maintenance and upgrade projects at its Ugie and Piet Retief particleboard plants were efficiently completed and both plants were successfully recommissioned. This division does not, however, provide essential products or services and will therefore cease all operations during the stipulated Lockdown period. The Automotive Components division also performed well for the Year to Date, in spite of subdued retail vehicle sales and lower new vehicle assembly volumes. This division does not provide essential products or services and will therefore also cease all operations during the stipulated Lockdown period. The Integrated Bedding division performed well for the Year to Date with the division's mattress manufacturing and textile operations offsetting subdued demand for foam volumes. A small part of this division's operations produce products which form part of the essential products supply chain and may continue to operate through the Lockdown period. The majority of the division's operations will, however, cease operations for the stipulated Lockdown period. The Polymers division continued to experience stable demand for its products during the Year to Date, however, margins on PET (polyethylene terephthalate) and HDPE (high density polyethylene) remain under severe pressure due to global supply and demand factors, exacerbated by the recent collapse in the oil price. Polypropylene margins remain at acceptable levels. The impact on polymer margins of the global Coronavirus pandemic remains unpredictable at this stage. The Polymers division is defined as part of the essential products supply chain and as such will continue to operate through the Lockdown period at capacity levels which match demand. The Contractual Logistics - South Africa division continued to perform well for the Year to Date, continuing its momentum from the first half. The division continued to secure new contracts at a higher rate than contract losses. A major portion of this division provides essential services in terms of food distribution, fuel distribution and distribution of chemicals used in the food value chain, which operations will continue to operate though the Lockdown period. Mining, cement and general freight operations are not considered to be essential services and will cease operations for the stipulated Lockdown period. The Contractual Logistics - Africa division continued to find trading conditions challenging for the Year to Date with extended border delays and increased competition in its fuel operations and the off-crop season in its sugar operations. New contracts secured and contract renewals are in the process of implementation, which is progressing well. The division operates primarily in fuel distribution and agriculture and as such will continue to operate as part of the essential services sector. The Passenger division continued its stable performance for the Year to Date. The division has successfully restructured certain underperforming contracts in order to improve profitability. The recent collapse in the oil price has provided relief to the division and will continue to do so at current levels. The division's tourism, intercity and commuter operations will cease during the Lockdown period. Personnel contracts related to essential services will continue to operate. The division's operations in Mozambique continue to grow and are expected to continue operating during the Lockdown period. In these uncertain and dynamic times, the Group's focus is to conserve cash resources by limiting all unnecessary operational expenses, reprioritising initiatives and deferring non- critical capital projects. Safety measures have been put in place to protect our employees who will be working in the essential goods and services sector. Relevant controls have also been put in place to protect the Company's assets. Customers remain a key priority and divisional management are working closely with them to ensure business sustainability post the Lockdown period. TRADING STATEMENT In terms of the Listings Requirements of the JSE Limited, a listed company is required to publish a trading statement once it is satisfied that a reasonable degree of certainty exists that the financial results for the next period to be reported on will differ by at least 20% from the financial results for the previous corresponding period. In view of the continued weakness in global polymer margins and potential asset impairment relating thereto, as well as the economic impacts related to the Coronavirus, it is expected that the Company's earnings will be more than 20% lower than in the previous reporting period. A further trading statement will be issued as soon as there is a reasonable degree of certainty as to the likely ranges within which the Company's headline earnings per share (HEPS) and earning per share (EPS) are expected to decrease. LIQUIDITY REVIEW Management has prepared detailed financial and cash-flow forecasts through to 30 June 2020 based on current information and is confident that the Company has sufficient liquidity and banking facilities to operate through the Lockdown period and thereafter. The current situation is unprecedented and uncertain and as such, certain assumptions have been made in the preparation of these financial and liquidity forecasts. The Company has confirmed all existing banking facilities and has initiated a process to secure additional contingency facilities and is working closely with its bankers in this regard. The financial information on which this announcement is based, has not been reviewed or reported on by the Company's auditors. By order of the Board KAP Secretarial Services Proprietary Limited Stellenbosch 26 March 2020 Sponsor PSG Capital Date: 26-03-2020 05:35:00 Produced by the JSE SENS Department. 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