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Impressive turnaround in profits for K&S Corp in FY2023 despite challenges

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2023-08-23

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Buried within the multitude of reports on June 30, a standout result emerged that is poised to be one of the most notable achievements of the 2022-23 financial year.

This achievement doesn't hail from a tech, retail, financial, or mining/resource conglomerate - it originates from an unassuming transport company that has contended with the unpredictability of elevated fuel and operational expenses, disrupted supply chains, and customers navigating similar challenges.

Based in Melbourne, K&S Corp managed a turnaround in financial performance in the fiscal year ending on June 30, outperforming expectations for even larger and more prominent enterprises.

With a 9.4% increase in revenue (surpassing inflation rates), the company reported elevated profits across the board in their report. The underlying pre-tax profit surged by 89.2% to reach $43.6 million, the pre-tax statutory profit leaped by 88.4% to hit $40.7 million, and the post-tax statutory profit witnessed a 63.4% rise, reaching $28.6 million.

This improved performance prompted the company to raise its final and full-year dividends to 8 cents per share and 18 cents per share, respectively. This figure nearly doubles the 9.5 cents per share paid out in the previous fiscal year of 2021-22. In the ongoing June 30 reporting season, very few companies can boast such a substantial increase in shareholder payouts.

"The Australian transport sector demonstrated a significantly improved financial performance in FY2023. Our operational divisions experienced notable advancements in performance, supported by stringent cost management practices and comprehensive end-to-end assessments of operational parameters for key activities and functions.

"Full-year revenue exhibited a modest uptick in FY2023, primarily driven by escalating fuel prices during the period.

"However, our Group encountered disruptions in the supply chain, leading to substantial delays in the delivery of new fleet assets in the current environment.

"While we maintain close collaboration with our equipment suppliers for fleet asset acquisition and have consistently invested in fleet renewal over an extended period, prolonged delays from equipment manufacturers will likely continue to impose operational limitations and increased fleet maintenance expenses in the foreseeable future."

"Our New Zealand business achieved yet another robust performance in FY2023, despite stagnant revenue. New Zealand's economy slipped into a recession during FY2023, with several key clients shifting focus from domestic to export markets in response.

"The fuel trading arm delivered solid financial outcomes in FY2023. Fuel retail and wholesale markets remain dynamic, characterized by intense competition. Although revenue improved from the prior year due to higher fuel prices, the fuel trading business encountered margin compression in FY2023.

"We are currently executing various projects to enhance our retail offerings, including the redevelopment of several company-owned retail sites, with national expansion plans in motion.

"Sustained benefits from the implementation of cost reduction strategies across the company have consistently contributed to underlying profit. Our focus on operational efficiency, supplier renegotiations, discontinuation of underperforming activities, and the streamlining and replacement of specific fleet assets have all led to reduced operating costs."

Anticipating the forthcoming year, challenges abound. "Predicting earnings guidance for the future remains intricate. The prevailing high inflation and interest rate environment, coupled with escalating costs of key inputs, de-stocking by certain customers, and reduced construction activity, pose significant risks for FY2024.

"Investors have taken note of K&S's achievements, driving shares up nearly 22% year-to-date, in stark contrast to the ASX 200's 2.5% increase.

"AA Scott of Mount Gambier commands the majority stake at 61%, while Linfox also features in the register with a slightly over 14% holding."

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