How is K&S Corporation share price benefitting from JobKeeper subsidy?

Summary

• K&S Corporation share price rose by 1.6%, closing at $1.27 on 28 August.
• The Group reported statutory net profit after tax of $11.2 million, up 384% than pcp, even though operating revenues fell by 12.7% to $790.6 million in FY20 results.
• The upsurge in profits was due to operational efficiencies, supplier renegotiations, termination of underperforming units, combined with the support from government wage subsidies amid COVID-19.
• The Group did not provide earnings guidance due to uncertainty created by coronavirus.

The JobKeeper scheme was designed to keep firms buoyant, and workers employed. Beginning 28 September, companies and not for profits looking to claim JobKeeper programme would be needed to show that had incurred a continuous considerable decrease in revenue utilising actual GST turnover.

Governments are paying wages to keep personnel in their jobs instead of paying unemployment benefits, when they are sacked amid the coronavirus induced recession.

Also, the unemployment rate would have been 8.3% in the place of 7.5% for July had those working 0 hours but being compensated by JobKeeper would have been considered as being unemployed. This method has helped employees and firms prepared for work amid these challenging times when the world is struggling with the ill-effects of COVID-19 outbreak.

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One such company to benefit from the JobKeeper subsidy is K&S Corporation.

K&S Corporation Limited offers transport and logistics, contract management, warehousing, fuel distribution and numerous services to companies across Australia. The company operates through 3 divisions, namely Australian transport, fuels, and NZ transport.

K&S Corporation share price rose 1.6%, closing at $1.27 on 28 August.

Source: KSC FY20 result, ASX

KSC records statutory profit before tax of $16.1 million in FY20 results

The Group announced its FY20 results ended 30 June on 28 August, with a large part of the profit growth coming from Jobkeeper. It received $12.4 million before tax in Jobkeeper subsidy and about $1.3 million in NZ wage subsidy, both of which were obtained in the June 2020 quarter.

The Group’s profit before tax stood at $16.1 million for the year ended 30 June 2020, about 403.3% higher than the pcp.

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The non-recurring costs for the Group stood at $9.6 million that were largely related to hiring purchase break costs from the debt refinancing, redundancy costs and costs related to the sale of WA based Regal General Freight business finalised in August this year.

Some of the highlights from FY20 statutory results include the following:

• The underlying profit after tax was $8.4 million, up on the pcp by $6.1 million.
• Operating revenue fell by 12.7% to $790.6 million, while operating cash flow stood at $83.1 million in FY20, 34.4% higher than for the previous year
• Australian Transport business posted strong results compared to FY19, but its revenue plummeted due to decreased customer activity, termination of contracts and divestment of disappointing business units
• NZ business delivered a sound result in FY20 even after being under Stage 4 coronavirus lockdowns
• The fuel trading business also provided sound results even after softening of demand in the June 2020 quarter consequent to COVID-19

Source: KSC FY20 result, ASX

The Group concentrated on organisational efficiencies, vendor renegotiations, termination of underperforming operations and the streamlining and substitution of particular fleet properties that lowered operating costs.

K&S Corporation also completed its debt refinancing in April 2020. It secured a new $200 million debt facility, which comprised of funding in 3-year tranches equalling $150 million and 5-year tranches equalling $50 million. It will be used for fleet capex, working capital and general corporate purposes. The net asset position of the Group was up 6.3% to $255.4 million in FY20.

The Group declared a fully franked final dividend of 3 cents per share (cps), followed by the interim dividend of 2 cps paid in April 2020. Hence, a total dividend stood at 5 cps for the year ended 30 June 2020.

The final dividend is due to be paid on 3 November 2020. The dividend will go ex on 19 October and has record date of 20 October 2020.

Restructuring activities building the profit ladder amid COVID-19

The Group finalised several business restructuring activities during the year to reduce costs.

1. Regal General Freight

Regal General Freight based in Western Australia was sold in August 2019 to Centurion Transport Co. Pty Ltd. Under the deal, Regal sold its privileges and entitlements under customer contracts to Centurion, while Centurion rendered job offers to several of the K&S workers employed in the Regal General Freight business. The sale closed on 30 August 2019.

2. Bulk Transportation

The bulk transportation business located in Port Kembla was closed in January 2020 after the departure of Illawarra Coal contract. The closure of the Port Kembla bulk business brought some progress in the underlying performance of the Group in H2FY20.

3. Chemical and energy transportation:

Several operations were withdrawn due to underperformance during the year.

The operations of the Group have not been subject to shutdowns directed by any government or state border closures except for stage 4 lockdown in NZ between March and April 2020.

However, Group revenues fell for several business units in Australia and NZ in the June 2020 quarter due to COVID-19. Hence, K&S Corporation expects revenues to be adversely impacted in H1FY21 due to coronavirus.

The collection of the JobKeeper wage subsidy further improved the financial strength of the Group and would enable it to survive long-term impacts of coronavirus on its operations.

Outlook ahead

The Group did not provide earnings guidance due to the uncertain environment created by coronavirus. It has obtained long term bank facilities and low gearing levels and plans to take a conservative approach to financial risk, while keeping an eye on the management of working capital and profit growth.

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The Group is also persistent in reviewing customer accounts that are not producing adequate financial returns and targeting organic growth, especially in contract logistics.