K&S Reports 9% Drop in Underlying Profit, Revenue Falls Nearly 10%

• Underlying profit before tax down 9% to $38.3 million
• Operating revenue decreased 9.7% to $744.8 million
• Net debt nearly doubled to $49.7 million due to capital projects
• Safety incident prosecution underway, lost time injury rate increased
• Final dividend maintained at 8.0 cents per share, fully franked

Financial Performance and Revenue Pressures

K&S Corporation Limited (ASX – KSC) has released its full-year results for FY2025, revealing a mixed financial picture. The company’s underlying profit before tax fell by 9% to $38.3 million, reflecting challenges in revenue generation and operational pressures. Operating revenue declined by 9.7% to $744.8 million, influenced by the exit from several customer contracts and lower volumes across its transport and logistics operations.

Despite this, statutory profit before tax edged up 2.6% to $42.4 million, buoyed by a $4.9 million impairment reversal on property assets in Bullsbrook, Western Australia, and Townsville, Queensland. However, statutory profit after tax decreased by 6.5% to $29.2 million, impacted by a $0.7 million accounting loss on an interest rate swap instrument.

Strategic Investments and Balance Sheet Strength

The company has been actively investing in its infrastructure, with net debt rising to $49.7 million from $23.8 million the previous year. This increase is largely due to capital expenditure on a new transport terminal in Adelaide, upgrades to the Brisbane terminal, and redevelopment of the Millicent 24x7 service station. These projects are designed to improve operational efficiency and reduce lease costs, with the Adelaide terminal expected to generate synergies by replacing leased facilities.

K&S maintains a strong balance sheet with a gearing ratio of 11.7%, up from 6.3%, supported by a substantial property portfolio valued at $309.1 million. The company’s approach remains conservative, focusing on prudent capital management and working capital discipline amid a low-growth economic environment.

Operational and Safety Challenges

Operationally, the Australian transport segment saw an 11.6% decline in underlying profit after tax, despite sound cost control and service discipline. The New Zealand business delivered steady results, continuing to align services with key customer logistics needs. The fuel trading division, while profitable, faced revenue and profit declines amid intense market competition.

Safety remains a critical focus for K&S, though the lost time injury frequency rate increased from 3.8 to 4.2. The company is currently facing a prosecution by Comcare related to a 2022 incident at its Mt Gambier terminal, with potential penalties up to $1.5 million. K&S has yet to enter a plea, underscoring ongoing regulatory and reputational risks.

Dividend and Outlook

The board declared a fully franked final dividend of 8.0 cents per share, consistent with the prior year’s final dividend, bringing the total dividend for FY2025 to 16.0 cents per share. The dividend reinvestment plan remains suspended for this payment.

Looking ahead, K&S anticipates continued challenges from a subdued economic environment and rising input costs, offset partially by expected margin improvements. The company plans to maintain its focus on improving revenue quality, pursuing selective growth opportunities, and investing in its property portfolio to generate accretive returns.

Bottom Line?

K&S’s FY2025 results reflect a balancing act between strategic investment and operational headwinds, setting the stage for a cautious but focused FY2026.

Questions in the middle?

• How will the outcome of the Comcare prosecution impact K&S’s financials and reputation?
• What specific margin improvement initiatives will K&S prioritize amid rising input costs?
• How quickly will the new Adelaide terminal and other capital projects translate into operational efficiencies?