KAP Industrial finds strength in diversity amid Covid-19 challenges

Industry, chemicals and logistics group KAP Industrial says its diversified business model has been resilient in the 11 months to end-May, which helped it maintain sales despite the Covid-19 pandemic.

KAP, which acquired Steinhoff Africa’s industrial assets in 2012, makes automotive components, mattresses, chemicals and polymers.

CEO Gary Chaplin said the company had risen to the plethora of challenges from the pandemic.

“Covid-19 created an extremely complex and uncertain environment during the period from global sociopolitical and macroeconomic 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,” Chaplin said.

“We are proud of the manner in which each one of our employees has risen to these challenges and sincerely grateful for their loyalty and commitment to the company,” he said.

KAP’s integrated timber division continued to perform well, with demand supported by increased home-related spending.

South Africans have been upgrading their homes, with KAP especially benefiting from the sale of decorative panels, which supported revenue and margin growth, Chaplin said. All production facilities operated at full capacity throughout the period.

The scheduled annual maintenance shutdowns at the company’s medium-density fibreboard plant in Boksburg and its particleboard plant in Ugie in the Eastern Cape were completed during June as planned.

“During these maintenance shutdowns we were able to fulfil our order book from inventory and maintain market share,” Chaplin said. “Our forward order book remains strong.” 

The particleboard expansion project at the facility in eMkhondo (Piet Retief) was also progressing well and remained on schedule for commissioning in January 2022.

Chaplin said the automotive components division also experienced an improvement in activity during the second half of the year when SA was experiencing a softer lockdown, even though sales were still below pre-pandemic levels.

Vehicle assembly volumes increased 8% while new vehicle sales, including passenger and light commercial vehicles, decreased  1% compared with the previous period in SA.

The automotive division was restructured during the period in line with lower industry activity, and this 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,” Chaplin said.

KAP’s mattress and bedding division performed well, in line with the traditional seasonality of the retail sector as SA entered winter.

Chaplin said the polymers division enjoyed a strong period with robust demand for all three products. Disruptions to the global supply chain and a significant rise in shipping rates supported increased demand for local polymer manufacture and supply.

Nevertheless, these supply-chain disruptions affected the stock of PTA, a key raw material for the production of polythene terephthalate (PET). This resulted in a PET production stoppage from February 11 to March 8.

“We continued to supply the market from PET inventories during this period to maintain market share,” Chaplin said.

The company’s high density polythene and polypropylene plants both operated at full available capacity throughout the period.

KAP’s contractual logistics division was highly profitable in its core African markets. Chaplin said it achieved sufficient growth compared to the prior period and this offset the continued poor performance of the group’s fuel distribution activities in Botswana.

Botswana was in a state of emergency because of Covid-19. As a result, these fuel distribution activities were being restructured within a broader road freight strategy which would make better use of available resources in future.

KAP also expanded into new mining-related activities in Botswana during the period.

The passenger transport division’s performance remained disappointing, with the SA operations broadly affected by Covid-related restrictions and associated lower passenger numbers in the personnel and commuter transport sectors.

But its activities in Mozambique were largely unaffected by the restrictions and terrorism in the northern region, and produced “a pleasing performance”.

Intercity and tourism operations were closed during the period.

Chaplin said KAP expects to record margin and sales growth for the rest of 2021 and 2022.

“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,” he said. 

“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 to provide revenue growth, margin improvement and improved returns beyond 2021.” 

KAP shares were up 3.74% to R4.16 on Tuesday.

andersona@businesslive.co.za