Heavy customer power, subdued demand and strong competition to the fore
K&S Corporation may be amongst the country’s biggest transport and logistics firms but its annual results report points to this barely being enough in the present trading environment.
With a number of non-recurring financial items involved, annual net profit fell 86.4 per cent to $2.32 million, despite revenues rising 7.2 per cent to $905.2 million.
The group found the past financial year “demanding and challenging, with the transport and logistics sector continuing to experience high levels of competition and pressure on rates, the low growth economic environment, and the concentration of bargaining power in large and sophisticated buyers of transport and logistics services”.
The non-recurring items cut both ways on several lines.
For example, operating cashflow gained from $25.6 million in settlement proceeds from Aurizon and a focus on working capital management.
And there was a $9.5 million pre-tax accounting gain relating to the settlement of claims from the closure of Aurizon’s intermodal business in December 2017.
The latter was largely cancelled by $9.2 million of non-recurring costs mostly related to K&S’s exit from its WA General Freight business.
And the Aurizon withdrawal saw increased rail network costs estimated at $6.4 million.
“We continue to incur increased costs in our rail transport operations under the arrangements entered into with Pacific National following the closure of Aurizon’s intermodal business,” K&S says.
The group’s domestic presence is divided into the Australian Transport and the Fuel reportable segments.
Australian Transport saw annual revenues rise from $703 million to $723 million but post tax and other costs pushed the segment into a $3.5 million loss, compared with last year’s $12.2 million profit.
Here, steel volumes remained strong on states’ infrastructure spending and this is expected to continue next year in the eastern states.
Contract logistics revenues and profits were also strong but the loss of a major contract will see that reduced next year, though margins are seen as improving.
“While the contract logistics model deployed can be capital intensive, it provides the opportunity to share the benefits and risks of asset utilisation with customers in a more balanced and committed manner than is typically exhibited in less differentiated sectors of the transport and logistics industry,” K&S observes.
Read about the K&S deal to sell part of Regal to Centurion, here
Fuel’s revenues also rose, from $95 million to $130 million, returning a net profit of $3.2 million, up from last years $2.9 million.
Aviation-focused Aero Refuellers performed well “despite strong levels of competition, a flat agricultural season and reduced fire activity.
“Significant upgrades to Aero Refuellers’ tanker fleet were completed in FY2019. Aero Refuellers will continue to target growth opportunities in FY2020, including new airport operations and customers.”
The Bulktrans coal carrying operation gained from stronger coal volumes but next year will be more difficult.
“While Bulktrans is currently providing some transitional cartage services to the new incumbent provider for the Illawarra Coal scope, our Illawarra Coal contract expired on 30 June 2019 and we expect that this operation will make a substantially reduced contribution in FY2020,” the group says.
Chemicals division Chemtrans suffered reduced market demand, with operational efficiencies and disciplines to improve returns by Chemtrans.
K&S Energy also experienced a disappointing year, with margins falling. It has undergone a strategic review of its customer arrangements “to ensure that acceptable returns on funds employed are being achieved”.
Revenues “increased modestly” in the Western Australian-based general freight and heavy haulage operations, even as the company worked towards selling Regal Transport’s general freight division to Centurion Transport.
“The company will continue to operate and invest in its Western Australia based Regal Heavy Haulage business,” K&S says.
WA market conditions remain as difficult as ever, since the mining boom subsided early in the decade.
“Trading margins remained under pressure with the north-west Western Australia transport and logistics market continuing to exhibit sustained high levels of competition,” K&S says.
“Cost reduction strategies continue to be implemented across the business, in particular, operational efficiencies, supplier renegotiations, and the rationalisation and replacement of specific fleet.”