K&S reports 400 per cent improvement in profit

Transport and logistics group, K&S Corporation, has announced a statutory profit before tax of $16.1 million for the year ended 30 June 2020.

This result, according to K&S, is 403.3 per cent higher than the prior corresponding period.

Statutory profit after tax was $11.2 million, 384.1 per cent higher than the previous year – $2.3 million.

Included in the group’s statutory result for FY2020 was $12.4 million (before tax) attributable to JobKeeper and $1.3 million (before tax) in NZ wage subsidy, both of which were received in the June 2020 quarter.

The group’s statutory result also included $9.6 million of non‐recurring costs, largely related to hire purchase break costs from the Group’s debt refinancing totalling $3.6 million, $3.4 million in redundancy costs and a further $1.4 million of costs associated with the sale of the Western Australia based Regal General Freight business that was
concluded in August 2019.

After adjusting for the above significant items including government wage subsidies, the current year underlying profit before tax was $12.0 million, an increase of 270.1 per cent on the prior corresponding period.

The underlying profit after tax was $8.4 million, up on the prior corresponding period by $6.1 million.

Operating revenues decreased by 12.7 per cent to $790.6 million in FY2020.

Operating cashflow for FY2020 was $83.1 million, 34.4 per cent higher than for the previous year, which included benefits derived through continued and improved working capital management as well as government wage subsidies. 
 
Safety remains a key focus for K&S.

The group’s lost time injury rate improved, reducing from 10.0 at the end FY2019 to 6.6.

Addressing the challenges posed by Covid‐19 required considerable resourcing and was the major area of employee welfare and safety focus in the second half of FY2020 according to K&S.

“Cognisant of the group’s large and mobile workforce which services numerous customer sites, it is pleasing that at this point in time the group has had nil employee Covid‐19 cases,” K&S said in a statement.

The group's Australian transport business reportedly delivered a strong improvement in results year-on-year.

Full year revenue declined due to a combination of the cessation of contracts, divestment of underperforming business units and customer activity reduction consequent to Covid‐19.

The implementation of cost reduction strategies continued across the business, contributing strongly to improved underlying profit. 

K&S focused on operational efficiencies, supplier negotiations, cessation of underperforming activities and the rationalisation and replacement of specific fleet assets that reduced operating costs.

Ongoing cost reductions are expected to continue to be accretive in FY2021, although
these may be offset by possible Covid‐19 related impacts.

The New Zealand business realised a sound result in FY2020, despite the Stage 4 Covid‐19 lockdowns being put in place from 23 March 2020 to 26 April 2020. 

The New Zealand business continues to realise growth through the provision of its integrated and value adding service offering, with further business diversification also being achieved. 

The fuel trading business has again provided sound financial results, despite demand softening in the June 2020 quarter consequent to Covid‐19. The fuel retailing and wholesaling markets are dynamic and continue to exhibit a high level of competition. 

K&S successfully completed the refinance of its debt facilities in April 2020. The group secured a new $200 million debt facility that completely re‐financed the previous debt arrangements that included a significant number of hire‐purchase lease contracts. 

Leveraging the group’s sound balance sheet, the new debt package provides improved terms, liquidity, pricing and debt covenant headroom and does not require any mandatory amortisation in FY2021.
  
The debt facility comprises funding in three year tranches totalling $150 million and five year tranches totalling $50 million, and will be utilised for fleet capex, working capital and general corporate purposes. The debt facility was provided by two of the group’s existing lenders, Westpac and NAB, with the addition of a new lender, Bank of China.
 
The group’s net asset position increased by 6.3 per cent to $255.4 million in FY2020.
 
The group’s gearing ratio (excluding lease liabilities) reduced to 21.4 per cent at 30 June 2020, compared to 35.4 per cent in the prior year.

K&S has also restructured its business as part of its cost reduction focus. These activities include:

  • General freight – The Western Australia based Regal General Freight business was sold in August 2019 to Centurion Transport Co. Pty Ltd.  Under the agreement, Regal transferred to Centurion its rights and entitlements under customer contracts and Centurion made offers of employment to the majority of the employees of K&S working in the Regal General Freight business. The sale was completed on 30 August 2019.
  • Bulk transportation – the Port Kembla based bulk transportation business was closed in January 2020 following the exit of the Illawarra Coal contract. The closure of the Port Kembla bulk business resulted in an improvement in Group underlying performance in the second half of FY2020.
  • Chemical and energy transportation – a number of performing operations were exited during the year.

Each of the above initiatives were accretive to the FY2020 profit. The group recorded a total restructuring expense of $3.4 million in relation to these initiatives. 

As for K&S Board composition and management, there were several leadership changes during the FY2020 period.

Sallie Emmett was appointed as a Non‐Executive Director, effective 24 September 2019. Emmett is a lawyer with over 30 years of experience as a practising solicitor in both legal and management roles. Emmett has a broad range of commercial exposure, including to the transport sector, and expertise in workplace relations.  

Ray Smith retired as a Non‐Executive Director on 26 November 2019. Smith made a significant contribution over his 11 years as a Non‐Executive Director.

Wayne Johnston ceased as Chief Financial Officer (CFO) on 16 December 2019. Raunak Parikh was appointed to the position of CFO on 1 April 2020.  Parikh previously occupied the position of Group Financial Controller at K&S from May 2019.

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