Profit hike from lower revenues follows restructures, government subsidies
The winds of change have swept through K&S Corporation, with vast restructuring delivering a much different outlook on recent years.
Last year it reported its annual net profit fell 86.4 per cent to $2.32 million, despite revenues rising 7.2 per cent to $905.2 million.
This year, K&S saw a statutory profit after tax of $11.2 million for the year, 384 per cent higher than the prior corresponding period (pcp), even though operating revenues decreased by 12.7 per cent to $790.6 million.
The change is underscored by what K&S cites as “operational efficiencies, supplier renegotiations, cessation of underperforming activities, and the rationalisation and replacement of specific fleet assets that reduced operating costs”, coupled with the support of Australian JobKeeper and NZ wage subsidy benefits during the Covid-19 pandemic.
It points to the following restructuring activities during the year, “accretive” to company profit for the year:
- Regal General Freight – the Western Australia-based business was sold in August 2019 to Centurion. 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 August 30, 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 underperforming operations were exited during the year.
Its operating conditions made K&S eligible for $12.4 million in Australian JobKeeper grants and $1.3 million NZ wage subsidies.
The company recorded redundancy expenses of $3.4 million due to its restructuring, with records showing a staff reduction from 2,749 to 2,161 over the year.
Total employee expenses therefore dropped from $299 million in FY19 to $258 million, while contractors also reduced from $218.3 million to $186 million, and fleet expenses from $176.1 million to $141.5 million.
K&S notes its statutory result also includes $9.6 million of non‐recurring costs, largely related to hire purchase break costs from its debt refinancing totalling $3.6 million, and a further $1.4 million of costs associated with the sale of Regal.
Look back on K&S’s results last year, here
Broken into individual segments, the biggest turnaround was in K&S’s core Australian Transport arm, which turned a $3.5 million deficit last year into a $5.6 million profit after tax this year – even though revenue declined $100 million (from $724 million to $624 million).
Its Fuel arm maintained a near identical $3.1 million profit from a revenue of $179 million (down from $229 million revenue), while New Zealand Transport saw a similar $2.5 million profit from $54 million revenue (up from $52 million revenue).
“The overall segment delivered a strong improvement in results compared to FY2019,” the company says of Australian Transport.
“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.
“Ongoing cost reductions are expected to continue to be accretive in FY2021, although these may be offset by possible Covid-19 related impacts.
“Intermodal steel and timber volume from our major customers were strong, with major infrastructure projects undertaken by the various state governments underpinning ongoing activity levels, despite the recent decline in domestic housing and apartment construction.
“We continue to incur increased costs in our rail transport operations as a result of increased rail network costs.
“Our contract logistics business unit again experienced a pleasing FY2020, with both our revenue base and profit contribution increasing.
“During the Covid-19 period it has proven to be quite resilient, especially in the June 2020 quarter, when some other segments experienced volume reductions.
“There has been steady improvement in our chemical and energy transportation businesses in FY2020, with a range of restructuring initiatives having a positive impact over the course of the year.
“The improvements were offset by a fall in volumes, especially in energy business during the Covid-19 period as fuel demand declined significantly in the June 2020 quarter.”
On Fuel, K&S comments: “Our specialised aviation refuelling business performed well with strong activity levels in support of regional firefighting efforts.
“It then subsequently experienced a significant fall in volumes in the June 2020 quarter as a consequence of Covid-19 as our airport refuelling services materially declined.
“Our specialist business units continue to provide strong diversification in our earnings and provide further strategic growth opportunities.”
Further, “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 remain dynamic and continue to exhibit high levels of competition.”
Meanwhile, K&S says its New Zealand business produced a sound result in FY2020, despite the Stage 4 Covid-19 lockdowns in place from March 23 to April 26, 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.”
Going forward, the company says providing earnings guidance remains difficult, particularly due to uncertainties created by Covid‐19.
“The Group has secure long term bank facilities and low gearing levels, and will continue to take a conservative approach to financial risk as well as maintaining a strong focus on working capital management and underlying profit improvement.
“The Group will continue to target organic growth, particularly in market segments such as contract logistics that will deliver stronger returns on investment.
“The Group continues to review the industry segments in which it operates as well as the ways it offers services to the market.
“The Group also continues to review customer accounts that currently do not generate adequate financial returns.”