Second half impacts on K&S profit growth

Uneven trading conditions due to a slowing economy have undermined K&S Corporation’s profit march

Second half impacts on K&S profit growth
Second half impacts on K&S profit growth
August 26, 2013

Uneven trading conditions due to a slowing economy have undermined K&S Corporation’s profit march during the past financial year.

Annual net profits fell 3 per cent to $15.9 million, despite a 1.8 per cent rise in revenues to $564.6 million and a strong first half.

"In the opening six months, we experienced extremely strong demand for logistics and transport services increasing revenues by 8 percent
to $293.5 million," Managing Director Greg Stevenson states.

"This was driven by the resources sector, with demand from manufacturers at a consistent level.

"In contrast, there was a reduced demand across all sectors in the second half as the economy slowed, with revenues declining by 4.2 per cent to $271.1 million."

While the company’s first half profit after tax saw a 37.4 per cent rise to $10.1 million, profit in the second half fell to $5.8 million.

Activity in the resources sector slowed in the second half, with declining commodity prices and miners looking to reduce their costs and scale back a number of expansionary projects.

"The manufacturing sector was impacted by higher operating costs and the high Australian dollar, with imports reducing demand for locally manufactured goods. This in turn has reduced demand for transport services," Stevenson says.

"During the difficult second half of the year we continually reviewed our cost base and reduced variable costs from the Group’s operations.

"We have reduced our subcontractor costs, casual labour and overtime costs as volumes have declined."

K&S Corporation’s operating cash flow for the year was a record of $46.4 million, up 19.6 per cent.

"During the year, we increased the focus on collections and working capital management within the business and with the strong generation of cash, we have been able to reduce our gearing to 17.6 per cent, which is well within our target range," Stevenson explains.

Net debt fell 17.6 per cent to $51.1 million. The firm kept a tight rein on outgoings, with contractor expenses rising by less than $2 million to $170 million and fleet expenses rising a little more than $1 million to $95.5 million. Employee expenses rose about $10 million to $168.7 million

Last October, K&S bought Bunbury timber haulage firm Collare Transport for $8.4 million. Collare, which had recorded annual turnover of $12 million and employed 35 staff, was folded into the K&S’s own Bunbury firm formally known as Brookes.

Last week, K&S completed the purchase of 14.6 hectares of land at Bullsbrooke, north of Perth, to consolidate subsidiary Regal Transport’s general haulage business and be a bridging depot for its heavy haulage operation.

The facility will be developed in stages with a workshop and hardstand to be built in the first half of calendar 2014.

Despite the softness in some of its markets, K&S says it will remain acquisitively minded.

"Our balance sheet and gearing are conservative and they place us in a good position to take advantage of any appropriate acquisition opportunities that come our way," Stevenson says.

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