KAP set on Unitrans overhaul — sale or no sale

• CEO Gary Chaplin says a lot of work is being done to return diversified industrial group’s logistics business to profit levels required

Diversified industrial group KAP’s CEO, Gary Chaplin, said a turnaround of its Unitrans logistics business is vital, regardless of whether the business is sold.

Speaking to Business Day on Wednesday after the group posted interim results, Chaplin said KAP had received expressions of interest in buying Unitrans. While there was nothing of substance at this stage requiring a formal announcement or communication with stakeholders, the group was exploring its options “in a controlled way”.

Bloomberg reported earlier this month that KAP, formerly KAP Industrial Holdings, may sell Unitrans, which is being restructured for up to R6bn. “We have had [expressions of] interest in Unitrans over an extended period and we decided to explore that in a structured way,” Chaplin said. “It may or may not result in a sale, there’s absolutely no certainty in either direction.”

“There’s a lot of work being done to return Unitrans to the profit levels we require. That needs to be done irrespective of whether we would consider selling. We are committed to doing that and showing the benefit of that,” he said.

The Unitrans restructuring happened in parallel with an expansion of the group’s particleboard business, scheduled for commissioning in March.

About R1.9bn was injected into PG Bison’s new Mkhondo medium-density fibreboard plant, expected to increase production capacity 33%.

The JSE-listed firm, which has a market capitalisation of R5.4bn, said it targeted another R200m in asset disposals and cost savings as it enters the second phase of the Unitrans restructuring.

Chaplin said a refreshed organisational design with centralisation of certain key functions would result in further savings, with the benefits expected to come through in the next financial year.

“It’s really targeted at optimising our existing business,” said Chaplin.

“Parallel to that, we will then start to build the business development capability to secure new contracts according to our margin and return metrics.”

After performing unsatisfactorily, KAP decided in 2020 to restructure Unitrans which has about R6bn in assets. That involved consolidating Unitrans SA, Africa and Passenger, exiting low-return activities, selling underutilised assets and rationalising infrastructure. The first phase included an organisational redesign, leveraging technology for efficiency and applying stringent capital allocation criteria.

In 2023, the company closed operations that incurred losses of R107m and sold about R296m of underutilised assets.

Chaplin said the efficiencies continued into the second half of the financial year with KAP selling a further R250m in underutilised assets this year, curtailing capex and redeploying other assets to improve utilisation.

In January, the group appointed a new CEO, Edwin Hewitt, to lead the next phase of the restructure. “It’s more complex, requires greater discipline and insight, and we require a fresh set of eyes to really drive that process into the second half and FY25,” said Chaplin. The second phase entails increased focus on end-to-end solutions rather than only going to tender for work. The third part of the restructuring is centred on pursuing growth as a right-sized business at the required margins and returns.

Stellenbosch-based KAP has been grappling with weak global polymer margins and loadshedding. The company was also bedevilled by a challenging operating environment with high inflation, elevated interest rates and subdued economic growth contributing to lower consumer spending. That resulted in lower domestic demand for most of the group’s products and services.

On Wednesday, the group reported that its half-year performance was weighed down by its polymers business, Safripol, high interest rates and costs associated with restructuring Unitrans. The group, which has interests ranging from mattresses to chemicals, reported a 2% drop in revenue to R15bn for the six months to endDecember while operating profit fell 17% to R1.3bn.

KAP attributed the decline to a exceedingly weak global polymers sector that resulted in Safripol reporting a 67% fall in operating profit.

Many of KAP’s other divisions performed well in the period, with the group gaining market share in some areas while higher raw material costs were passed on to consumers.

Cash generated from operations shot up to R790m from R51m, which meant the group was able to reduce net interestbearing debt by R708m in the six months to R9.2bn.

PG Bison, which manufactures decorative wood panels, increased its operating profit 18% despite lower levels of building activity in SA.

Feltex, which manufactures automotive components, benefited from a recovery in the automotive sector, increasing operating profit 31%, said KAP.

Restonic, the mattress business, more than doubled its operating profit as it continued to benefit from the restructuring of its operations in the prior year.

Headline earnings per share (Heps) were down 36% at 21.8c, primarily due to the fall in operating profit before capital items and a 20% increase in net finance costs due mainly to higher interest rates, said the company.

KAP’s share price was 1.37% higher at R2.22 shortly before close of trade on the JSE.