More annual reports from K&S Corporation Limited:
2023 ReportANNUAL REPORT 2020
OUR VISION
TO BE THE LEADING
PROVIDER OF TRANSPORT
AND LOGISTICS SOLUTIONS
WITHIN OUR TARGET
MARKETS IN AUSTRALIA
AND NEW ZEALAND.
CONTENTS
Chairman’s Report
Financial Overview
Managing Director’s Report
Directors’ Report
Remuneration Report
Financial Report
Corporate Directory
FINANCIAL CALENDAR
Annual General Meeting
Half Year Result
Full Year Result
Annual Report to Shareholders
Annual General Meeting
1
3
4
6
14
20
IBC
24 November 2020
24 February 2021
25 August 2021
15 October 2021
23 November 2021
CHAIRMAN’S
REPORT
On behalf of the Board of K&S Corporation Limited,
I am pleased to present the Company’s Annual Report
for the year ended 30 June 2020.
Trading conditions in the transport and logistics segments
and regions that the Company trades in remain challenging.
Operating revenues for the period were $790.6 million,
12.7% lower than the prior corresponding period.
The Company reported a statutory profit after tax of
$11.2 million, up 384.1% on the previous year’s statutory
profit after tax of $2.3 million.
Included in the Group comprising K&S Corporation Limited
and its subsidiaries (The Group) statutory result for FY2020
was $12.4 million (before tax) attributable to JobKeeper and
$1.3 million (before tax) in NZ wage subsidy, both of which
were received in the June 2020 quarter. Offsetting these
were a number of other significant items relating to debt
refinancing, restructuring and the sale of the WA Regal
General Freight business. These items totalled $8.4 million.
After adjusting for the above significant items including
government wage subsidies, the current year underlying
profit before tax was $12.0 million, an increase of 270.1%
on the prior corresponding period. The underlying profit
after tax was $8.4 million, up on the prior corresponding
period by $6.1 million.
Operating cashflow for the year was $83.1 million, 34.4%
higher than for the previous year, which included benefits
derived through continued and improved working capital
management as well as government wage subsidies.
Safety remains a key focus for the Group. The Group’s lost
time injury rate improved, reducing from 10.0 at the end
of last year to 6.6 in the current year.
The Australian Transport business delivered a strong
improvement in results compared to the last year. 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.
The implementation of cost reduction strategies continued
across the business, contributing strongly to improved
underlying profit. In particular, the Group has focussed on
operational efficiencies, supplier renegotiations, cessation
of underperforming activities, and the rationalisation and
replacement of specific fleet assets that reduced operating
costs. Ongoing cost reductions are expected to continue
to be accretive in the next year, although these may be
offset by possible COVID-19 related impacts.
The New Zealand business produced a sound result
in FY2020, despite the Stage 4 COVID-19 lockdowns
being put in place from 23 March 2020 to 26 April 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.
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.
K&S CORPORATION LIMITED ANNUAL REPORT 2020 1
The Directors have declared a fully franked fi nal dividend
of 3.0 cents per share (2019: 0.0 cents per share). This
follows the fully franked interim dividend of 2.0 cents per
share paid in April 2020, making the total fully franked
dividend 5.0 cents per share in respect of the year ended
30 June 2020.
The fi nal dividend will be paid on 3 November 2020, with
the date for determining entitlements being 20 October
2020. Directors have also elected to suspend the dividend
reinvestment plan (DRP) in respect of the fi nal dividend as
they believe that it is in the best interests of Shareholders
to suspend the DRP as the Group’s shares are currently
trading at too great a discount to the net tangible asset
backing of $1.74 per share and the issuing of shares
under the dividend reinvestment plan would be dilutionary
to existing shareholders.
MANAGEMENT CHANGES
Wayne Johnston ceased as Chief Financial Offi cer on
16 December 2019 and Raunak Parikh was appointed
to the position of Chief Financial Offi cer on 1 April 2020.
On behalf of the Board, I thank our customers, suppliers
and employees, who have contributed to the continued
success of the business.
In particular, I thank the senior management team, led by
Paul Sarant, for their ongoing commitment and dedication
in diffi cult times.
Tony Johnson
Chairman
CHAIRMAN’S
REPORT
COVID-19
In the June 2020 quarter, the Group experienced reduced
revenues in a number of business units in Australia and
New Zealand as a result of COVID-19. At a minimum,
the Group expects revenues to be adversely impacted
by COVID-19 in the fi rst half of FY2021.
With the exception of the Stage 4 lockdown imposed in
New Zealand between 23 March 2020 and 26 April 2020,
the Group’s operations have not been subject to any
Government mandated shut-downs or state border closures.
The Group has enacted pandemic protocols to assist
manage the safety of employees. The Group has also
implemented measures to mitigate potential impacts
of COVID-19 upon its continued ability to fulfi l core
managerial, administrative, operational and customer
service functions.
DIVIDEND
The Directors are cognisant of the fact that whilst the
statutory earnings for the current year include signifi cant
contributions from government wage subsidies,
the Group’s underlying earnings have also improved
signifi cantly compared to the prior year. The fi nal dividend
declared was determined with reference to the underlying
net profi t after tax, as opposed to the statutory profi t after
tax, and specifi cally excludes any impact of government
wage subsidies from the dividend calculation.
2 K&S CORPORATION LIMITED ANNUAL REPORT 2020
FINANCIAL
OVERVIEW
OPERATING REVENUE ($M)
OPERATING CASH FLOW ($M)
905.2
844.1
790.6
699.2
688.8
755.2
83.1
61.8
48.1
49.4
41.1
40.8
2015
2016
2017
2018
2019
2020
2015
2016
2017
2018
2019
2020
UNDERLYING PROFIT AFTER TAX ($M)
GEARING (%)
13.3
34.9
34.7
37.0
35.4
7.5
7.7
8.4
25.0
21.4
3.9
2.3
2015
2016
2017
2018
2019
2020
2015
2016
2017
2018
2019
2020
K&S CORPORATION LIMITED ANNUAL REPORT 2020 3
MANAGING
DIRECTOR’S
REPORT
Company revenue decreased from the prior corresponding
period by 12.7% to $790.6 million.
Underlying Profit before Tax increased to $12.0 million from
$3.2 million in the prior year, underpinned by various profit
improvement initiatives that were completed in the current
year, of which several were commenced in prior periods.
In August 2019, we announced the sale of our Western
Australian general freight business, Regal. The business
sale was completed on 30 August 2019 and a significant
portion of the surplus operating fleet was divested and
working capital realised in the current year. Support of
the South32 Coal operations also ceased.
The Lost Time Injury Frequency Rate across the
K&S Group decreased from 10.0 in the previous year to
6.6 in the current year. In addition, the total reportable injury
frequency rate reduced by approximately 20% compared
to the previous year. Our improvement of all facets of our
safety performance remains a high priority.
SAFETY
The global COVID-19 pandemic has presented the business
with a new series of challenges concerning the ongoing
safety our employees, contractors, sub-contractors and
those who we interact with every day to provide transport
and logistics services for our customers and communities.
The engagement, commitment and leadership displayed
by all our workers to ensure our workplace remained safe
during this pandemic has been of the highest order. As an
essential service provider, we have continued to operate
throughout the pandemic, albeit with alterations to state
and territory border crossing controls, ensuring supply
chains remain in place for our customers and the broader
community. In the year the Group had no reported
COVID-19 cases. We continue to operate with strict
control regimes in place. As we exit COVID-19 state based
restrictions, our primary concern will remain the welfare
of our employees and their extended families.
The Group has continued to invest heavily and proactively
in load restraint training. In September 2019, this investment
was recognised at the 30th Australian Freight Industry
Awards where the group was provided the Investment in
People Award. With over 600 training sessions delivered
to date using our current methods, manual handling injury
rates have declined with an approximate 25% reduction in
overall manual handling injuries, and in particular shoulder
injuries compared to last year.
4 K&S CORPORATION LIMITED ANNUAL REPORT 2020
ENVIRONMENT
Ongoing fleet upgrades have enabled the Group to
continue its emission improvements. During the year
vehicle emissions reduction reached 76% of 2003 levels
for NOx, up from 74%, and 93% for particulate matter
compared with 91% last year.
Carbon dioxide generation for 2018-19 was 180,886 tonnes,
down from 199,000 tonnes from the previous year reflecting
on business activities for the year.
COMPLIANCE
The Group has maintained ISO 9001:2015 accreditation
standards, including other relevant accreditations which
included: WA Main Roads, NHVAS Mass, Maintenance and
Basic Fatigue Management, accreditation for Food Safety/
HACCP and TruckSafe accreditation.
AUSTRALIAN TRANSPORT
Intermodal and Import/Export
Intermodal operations performed well, particularly on the
eastern seaboard. Asset utilisation was further improved
in both linehaul road and rail operations.
Intermodal steel and timber volume from our major
customers was strong. Major infrastructure projects
undertaken by the various State and Federal governments
underpinned these activity levels, and despite the recent
decline in domestic housing and apartment construction,
are forecast to remain the same in the immediate future.
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. The implementation of cost reduction
strategies continued across the business, contributing
strongly to improved underlying profit.
Contract & Specialist Logistics
Our contract logistics business has continued the
previous trend of year on year growth, with another
strong performance.
Diversification and expansion into non-traditional sectors
continued, with new contracts being awarded and
commenced during the year across the country.
A strong focus on safety, service excellence and
differentiation remain core to the business, underpinning
the value proposition to customers and establishing
long term sustainable partnerships. The core business
provides consistent volume activity and financial
returns, underpinned by focussed cost management
and fleet utilisation.
Heavy Haulage demand was firm throughout the financial
year. Fleet upgrades were progressed, with additional
assets being added early in FY2021.
Whilst not shielded from the impact of the COVID-19
pandemic, the diversified customer base and industry
segments did assist in limiting the direct impact the
pandemic has had on the business.
Chemical and Fuel Transport
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 the energy business during the COVID-19 period as fuel
demand declined significantly in the June 2020 quarter.
Aviation Services
Our specialised aviation refuelling business performed well
with strong activity levels in support of regional firefighting
efforts. With better than previous year’s rainfall, agricultural
support also increased.
Consequent to COVID-19, significant volume reductions
were experienced in the June 2020 quarter with traffic
through many regional airports that we support
materially declining.
A new refuelling installation was commissioned at Bathurst
Airport in March 2020. Construction of our largest, and
most recent installation at Port Hedland International
Airport (WA) was commenced, with commissioning
anticipated in November 2020.
The fleet upgrade and expansion program has continued
with our firefighting capacity increased further.
NEW ZEALAND
Despite the Stage 4 COVID-19 lockdowns put in place from
23 March 2020 to 26 April 2020, which materially impacted
our fleet utilisation, our New Zealand operation has realised
a solid result in FY2020. Industry segments such as dairy,
steel and timber performed strongly this year, underpinning
the overall performance.
Operating cashflows remain strong and debt has reduced
to record low levels. Further growth and diversification
of the revenue base remain key priorities, leveraging the
strong and expandable infrastructure that has been put
in place over the past 5 years.
FUEL AGENCY
In an exceptionally competitive market, the fuel trading
business provided sound financial results. A softening
of demand was experienced 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.
Our South Australian regional network was marginally
increased with the addition of a new retail shop and service
station at Kingston SA.
HUMAN RESOURCES
Employee engagement and communications programs
remain a high priority and area of focus across the business.
Further development of our employee smartphone App
was completed to support our training and engagement
programs aligned to our core values.
We continue to align the operational and management
structures to service the needs of business units and
customers, whilst maintaining our strong focus on the
retention and development of skilled and qualified
employees as K&S’ most valuable asset.
OTHER ITEMS
The implementation and realisation of profit and cash
improvement and debt reduction strategies has successfully
continued across the business, contributing strongly to
improved underlying profit in the current year. We remain
focussed on improving operational efficiencies, achieving
increased benefits through supplier renegotiations,
the cessation of underperforming activities, and the
rationalisation and replacement of specific fleet assets
to realise reduced operating costs. As part of the year’s
changes we exited eleven externally rented properties.
Ongoing cost reductions are expected to continue to be
accretive in FY2021, although as we commence the new
period in softer market conditions adversely impacted by
COVID-19, these may be offset by other items.
I would like to take this opportunity to thank all employees,
and supporters of K&S, who have collectively worked
exceptionally hard to continue to improve our Company.
Paul Sarant
Managing Director and CEO
K&S CORPORATION LIMITED ANNUAL REPORT 2020 5
DIRECTORS’
REPORT
The Directors present their report, together with the consolidated financial report of
the Group comprising K&S Corporation Limited (the “Company”) and its subsidiaries,
for the year ended 30 June 2020 and the Auditor’s Report thereon.
DIRECTORS
The Directors of the Company in office at the date of this report, together with particulars of their qualifications,
experience and special responsibilities are set out below.
Tony Johnson Chairman
Age 73, Director since 1986
Tony Johnson BA, LLB, LLM (Companies & Securities) FAICD is a lawyer and an accredited mediator.
Mr Johnson is a founder and former Chairman of the national law firm Johnson Winter & Slattery.
He has worked extensively in the corporate advisory and commercial disputes area.
Mr Johnson is also Chairman of AA Scott Pty Ltd, the largest Shareholder of K&S Corporation Limited
and Chairman of Adelaide Community Healthcare Alliance.
Member of:
– Environmental Committee (Chairman)
– Nomination and Remuneration Committee (Chairman) (appointed 26 November 2019)
– Audit Committee
Paul Sarant Managing Director and Chief Executive Officer
Age 52, Director since 2014
Paul Sarant B.Eng., has extensive experience in the transport and logistics sector. Mr Sarant held
the position of Executive General Manager DTM for seven years at K&S Corporation prior to his
appointment as Managing Director and Chief Executive Officer. Before that, Mr Sarant occupied
a range of senior management roles, including general management and senior manufacturing,
engineering and logistics roles in the course of his fifteen years at Amcor Printing Paper Group/
PaperlinX and was former General Manager at Spicer Stationery Group.
Member of:
– Environmental Committee
Legh Winser
Age 72, Director since 2013
Legh Winser is a former Managing Director of the Company, a position which he held for 16 years.
He has extensive knowledge of the transport and logistics industry with more than 40 years’ experience.
Mr Winser is also a director of AA Scott Pty Ltd, the largest Shareholder of K&S Corporation Limited.
Member of:
– Environmental Committee
– Nomination and Remuneration Committee
6 K&S CORPORATION LIMITED ANNUAL REPORT 2020
Graham Walters AM (Independent Director)
Age 78, Director since 22 May 2018
Graham Walters AM FCA is an experienced chartered accountant and director of successful public
and private companies and associations, with extensive experience in accounting, finance, audit,
risk management and corporate governance. Mr Walters AM is a former Chairman of Partners South
Australia of KPMG and a former Chairman of Westpac South Australia.
Mr Walters AM is a Director of Adelaide Community Healthcare Alliance and Adelaide Development
Company Ltd.
Member of:
– Audit Committee (Chairman) (appointed Chairman 26 November 2019)
Sallie Emmett
Age 55, Director since 24 September 2019
Sallie Emmett LLB GDLP, is a lawyer with over 30 years’ experience as a practising solicitor in both legal
and management roles. Mrs Emmett is a former partner of national law firm Johnson Winter & Slattery.
Mrs Emmett has a broad range of commercial exposure including in workplace relations.
Mrs Emmett operates her own legal and management consulting business and has advised the boards
and management of a variety of organisations including private and public companies, government, and
educational institutions. Mrs Emmett has significant transport sector experience, having acted for a number
of transport companies. Mrs Emmett also sits on the board of a number of not for profit organisations.
Member of:
– Audit Committee (appointed 26 November 2019)
Ray Smith (Independent Director) (Retired on 26 November 2019)
Age 73, Director since 2008
Ray Smith FCPA, FAICD, Dip Com is a Director of listed entity Cleanaway Waste Management Ltd
since 2011 and is a Director of Hy-Line Australia Pty Ltd. Mr Smith brings a wealth of corporate and
financial experience in the areas of strategy, acquisitions, treasury and capital raising.
Member of:
– Audit Committee (Chairman until retirement on 26 November 2019)
– Nomination & Remuneration Committee (Chairman until retirement on 26 November 2019)
SECRETARY
Chris Bright BEc, LLB, Grad Dip CSPM, FCIS
Age 49, Secretary since 2005
Chris Bright has held the position of General Counsel for 18 years. Mr Bright was admitted as a
solicitor in South Australia in 1997. He also has experience working in private practice in Adelaide,
principally in commercial dispute resolution.
K&S CORPORATION LIMITED ANNUAL REPORT 2020 7
DIRECTORS’ MEETINGS
The number of Directors’ meetings (including meetings of Committees of Directors) and number of meetings attended
by each of the Directors of the Company during the financial year were:
Director
Number of meetings held:
Number of meetings attended:
Mr T Johnson
Mr R Smith2
Mr P Sarant
Mr L Winser
Mr G Walters AM
Mrs S Emmett3
Directors’
Meetings1
Audit Committee
Meetings
Nomination &
Remuneration
Committee
Meetings
Environmental
Committee
Meetings
19
19
8
19
17
19
13
6
6
3
–
–
6
3
1
1
1
–
1
–
–
4
4
–
4
4
–
–
1. In addition to the eleven scheduled directors’ meetings, there were a further eight directors’ meetings held in the course of FY2020.
2. Mr Smith ceased to act as a director on 26 November 2019 and attended all of the directors’ meetings as well as the audit committee and nomination and remuneration
committee meetings in respect of which he was eligible.
3. Mrs Emmett commenced to act as a director on 24 September 2019 and attended all of the directors’ meetings and audit committee meetings in respect of which she
was eligible.
PRINCIPAL ACTIVITIES
The principal activities of the Group during the course of the financial year were transport and logistics, contract
management, warehousing and distribution and fuel distribution.
There were no significant changes in the nature of the activities of the Group during the year.
OPERATING AND FINANCIAL REVIEW
The Board presents the FY2020 Operating and Financial Review, which has been designed to provide Shareholders with
a clear and concise overview of the Group’s operations, financial position, business strategies and outlook. The review
complements the financial report and has been prepared in accordance with the guidelines in ASIC RG247.
8 K&S CORPORATION LIMITED ANNUAL REPORT 2020
DIRECTORS’ REPORT The consolidated profit for the year ended 30 June 2020 attributable to the members of K&S Corporation Limited (“K&S”)
is shown below, along with comparative results for the previous corresponding period:
Financial Overview
2020
2019 % Movement
Operating Revenue
Statutory profit after tax
Statutory profit before tax
Earnings before interest and tax (EBIT)
Earnings before interest, tax and depreciation (EBITDA)2
Less legal settlement income
Less JobKeeper income and NZ wages subsidy
Less other significant items
Underlying profit before interest, tax & depreciation2
Underlying profit before interest & tax
Underlying profit before tax1
Underlying operating profit after tax1
Total assets
Net borrowings excluding lease liabilities
Shareholders’ funds
Finance costs2
Depreciation2
Dividend per share
Net tangible assets per share3
Operating cash flow2
Return on assets
Gearing ratio (excluding lease liabilities)
Employee numbers
Lost time injuries
Lost time injuries frequency rate
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
cents
$
$’000
%
%
790,639
11,237
16,090
26,410
82,426
–
(13,731)
9,648
74,758
18,742
12,007
8,405
563,344
69,608
255,367
10,320
56,016
5.0
1.74
83,074
2.0
21.4
2,161
31
6.6
905,207
2,321
3,197
11,158
60,515
(9,525)
–
9,572
60,562
11,205
3,244
2,354
579,778
131,605
240,331
7,961
49,357
2.0
1.84
61,833
0.4
35.4
2,749
57
10.0
(12.7%)
384.1%
403.3%
136.7%
36.2%
(100.0%)
100.0%
0.8%
23.4%
67.3%
270.1%
257.1%
(2.8%)
(47.1%)
6.3%
29.6%
13.5%
150.0%
(5.4%)
34.4%
398.3%
(39.6%)
(21.4%)
(45.6%)
(34.0%)
1. Underlying profits and earnings per share based on underlying profits are categorised as non-IFRS Financial information and therefore have been presented in compliance
with ASIC Regulatory Guide 230- Disclosing non-IFRS information issued in December 2011. Underlying adjustments have been considered in relation to their size and
nature, and have been adjusted from the statutory information for disclosure purposes to assist readers to better understand the financial performance of the underlying
business in each reporting period. These adjustments primarily include the Government wage subsidies received, redundancies, debt refinancing, COVID-19 related costs,
onerous lease expenses and costs associated with the sale of Regal General Freight. The exclusion of these items provides a result which, in the Directors view, is more
closely aligned with the ongoing operations of the Consolidated Group. The non-IFRS information has not been subject to audit or review by the auditor.
2. Balances include amounts arising from the adoption of the new leasing accounting standard AASB 16 Leases from 1 July 2019, refer to pages 25-26 for further details.
3. The net tangible asset backing per ordinary security has been impacted by the introduction of AASB 16. At 30 June 2020, $26.6 million of lease liabilities were included
within the net tangible assets calculation, but $25.7 million of right of use assets have been excluded as they are considered to be of an intangible nature. This has
reduced the net tangible asset per security by $0.20.
The Group is a tier one logistics provider, recognised as a leader in the development and provision of specialist logistics
solutions for its customers. The Group operates in the Australian and New Zealand markets. The Group’s success is
underpinned by a strong focus on safety, service and continuous improvement.
The environment for the transport and logistics sector in FY2020 continued to be challenging. The transport and logistics
sector continues to experience high levels of competition and pressure on rates, a low growth economic environment and
the concentration of bargaining power in large and sophisticated buyers of transport and logistics services. In addition,
in the second half of FY2020, the COVID-19 pandemic has impacted economic activity and market sentiment.
Operating revenues decreased by 12.7% to $790.6 million in FY2020.
The Group achieved a statutory profit before tax of $16.1 million, an increase of $12.9 million or 403.3% on the prior
corresponding period.
K&S CORPORATION LIMITED ANNUAL REPORT 2020 9
Included in the Group’s statutory result for FY2020 was
$12.4 million (before tax) attributable to JobKeeper and
$1.3 million (before tax) in NZ wage subsidy, both of which
were received in the June 2020 quarter. The Group’s
statutory result also included $9.6 million of costs treated
as significant items. These largely related to hire purchase
break costs from the Group’s debt refinancing totalling
$3.6 million, $3.4 million in redundancy costs and a further
$1.4 million of costs associated with the sale of the
Western Australia based Regal General Freight business
that was concluded in August 2019.
After adjusting for the above significant items including
government wage subsidies, the current year underlying
profit before tax was $12.0 million, an increase of 270.1%
on the prior corresponding period. The underlying profit
after tax was $8.4 million, up on the prior corresponding
period by $6.1 million.
Operating cashflow for FY2020 was $83.1 million, 34.4%
higher than for the previous year, which included benefits
derived through continued and improved working capital
management as well as government wage subsidies.
Safety remains a key focus for the Group. The Group’s
lost time injury rate improved, reducing from 10.0 at the
end FY2019 to 6.6 in FY2020.
Australian Transport
The overall segment delivered a strong improvement in
results compared to FY2019. 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.
The implementation of cost reduction strategies continued
across the business, contributing strongly to improved
underlying profit. In particular, the Group has focussed
on operational efficiencies, supplier renegotiations,
cessation of underperforming activities, and the
rationalisation and replacement of specific fleet assets
that reduced operating costs. 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.
10 K&S CORPORATION LIMITED ANNUAL REPORT 2020
The sale of the Western Australia based Regal General
Freight business and certain assets to Centurion Transport
Co. Pty Ltd (Centurion) was completed on 30 August 2019.
Remaining contributions from Western Australia based
heavy haulage and contract logistics were sound with
limited impact from COVID-19.
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.
Fuel Agency
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.
New Zealand Transport
The New Zealand business produced a sound result
in FY2020, despite the Stage 4 COVID-19 lockdowns
being put in place from 23 March 2020 to 26 April 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.
Balance Sheet and Funding
The Group successfully completed the refinance of its
debt facilities in April 2020. The Group secured a new
$200 million debt facility that completely refinanced the
previous debt arrangements that included a significant
number of hire-purchase lease contracts. Leveraging
the Group’s sound balance sheet, the new debt facility
provides improved terms, liquidity, pricing and debt
covenant headroom and does not require any mandatory
amortisation in FY2021.
The debt facility comprises funding in three year tranches
totalling A$150 million and five year tranches totalling
A$50 million, and will be utilised for fleet capex, working
capital and general corporate purposes. The debt facility
was provided by two of the Group’s existing lenders,
Westpac and NAB, with the addition of a new lender,
Bank of China. Previous funding arrangements with CBA
have ceased. The Group incurred a charge of $3.6 million
in break costs relating to the refinance.
During the course of the year, the Group acquired fixed
assets totalling $20.6 million, well below the prior year
amount of $64.9 million. The resulting cashflow savings
were used to repay debt.
Based upon independent valuations, the Group increased
the carrying value of its freehold property portfolio
by $6.7 million. The Group’s property portfolio consists
of high quality industrial assets that have not been
adversely impacted by COVID-19, compared to other
commercial property assets.
The Group’s gearing ratio (excluding lease liabilities)
reduced to 21.4% at 30 June 2020, compared to 35.4%
in the prior year.
DIRECTORS’ REPORT Business Restructuring
As part of the ongoing cost reduction focus, the Group
completed a number of restructuring activities during
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 30 August 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.
Each of the above initiatives were accretive to profit
in FY2020. The Group recorded a total redundancy
expense of $3.4 million in relation to these initiatives.
COVID-19
It is not possible to forecast with any certainty the
magnitude of the COVID-19 impact on the Australian
and New Zealand economies or upon the Group itself.
In the June 2020 quarter the Group experienced reduced
revenues in a number of business units in Australia and
New Zealand as a result of COVID-19. At a minimum,
the Group expects revenues to be adversely impacted
by COVID-19 in the first half of FY2021.
With the exception of the Stage 4 lockdown imposed in
New Zealand between 23 March 2020 and 26 April 2020,
the Group’s operations have not been subject to
any Government mandated shut downs or state
border closures.
The Group has enacted pandemic protocols to assist
manage the safety of employees. The Group has also
implemented measures to mitigate potential impacts
of COVID-19 upon its continued ability to fulfil core
managerial, administrative, and operational functions.
Pleasingly, for the June 2020 quarter, the Group was
able to maintain near pre-COVID-19 levels of workforce
participation with nil major stand down actions.
The receipt of the JobKeeper wage subsidy has further
strengthened the Group’s financial position and will assist
it to withstand the longer term impacts of COVID-19
on operations.
Safety
Addressing the challenges posed by COVID-19 required
considerable resourcing and was the major area of
employee welfare and safety focus in the second half
of FY2020. Cognisant of the Group’s large and mobile
workforce which services numerous customer sites,
it is pleasing that at this point in time the Group has
had nil employee COVID-19 cases.
We continue to invest in our safety management system
and in the training of our employees.
Dividend
The Directors are cognisant of the fact that whilst
the statutory earnings for FY2020 include significant
contributions from government wage subsidies,
the Group’s underlying earnings have also improved
significantly compared to the prior year. The final dividend
declared was determined with reference to the underlying
net profit after tax, as opposed to the statutory profit after
tax, and specifically excludes any impact of government
wage subsidies from the dividend calculation.
The Directors have declared a fully franked final
dividend of 3.0 cents per share (2019: 0.0 cents per share).
This follows the fully franked interim dividend of 2.0 cents
per share paid in April 2020, making the total fully franked
dividend 5.0 cents per share in respect of the year ended
30 June 2020.
The final dividend will be paid on 3 November 2020,
with the date for determining entitlements being
20 October 2020. Directors have elected to suspend
the dividend reinvestment plan (DRP) in respect of the
final dividend. The Directors believe that it is in the best
interests of Shareholders to suspend the DRP as the
Group’s shares are currently trading at too great a discount
to the net tangible asset backing of $1.74 per share and
the issuing of shares under the dividend reinvestment
plan would be dilutionary to existing shareholders.
Board Composition and Management Changes
Sallie Emmett was appointed as a non-executive director
with effect from 24 September 2019. Mrs Emmett is a lawyer
with over 30 years’ experience as a practising solicitor in
both legal and management roles. Mrs Emmett has a broad
range of commercial exposure, including to the transport
sector, and expertise in workplace relations.
Mr Ray Smith retired as a non-executive director following
the conclusion of the Group’s annual general meeting on
26 November 2019. Mr Smith made a significant contribution
over his eleven years as a non-executive director.
Mr Wayne Johnston ceased as Chief Financial Officer
on 16 December 2019. Mr Raunak Parikh was appointed
to the position of Chief Financial Officer on 1 April 2020.
Mr Parikh previously occupied the position of Group
Financial Controller at K&S from May 2019. Prior to
commencing with K&S, Mr Parikh held senior audit roles
at KPMG.
Outlook
Providing earnings guidance going forward remains
difficult, particularly having regard to the 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.
K&S CORPORATION LIMITED ANNUAL REPORT 2020 11
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
There were no significant changes in the state of affairs
of the Group during the financial year.
ENVIRONMENTAL REGULATION AND PERFORMANCE
The Group’s operations are subject to environmental
regulations under both Commonwealth and State
legislation in relation to its transport and storage business
and its fuel business.
The Group has a Board Committee which monitors
compliance with environmental regulations.
Climate Change
Reporting under the National Greenhouse Energy Reporting
regime (NGER) was completed and submitted in FY2020.
Transport and Warehousing
The transport and warehousing business is subject to
the Dangerous Goods Acts in Commonwealth and State
Legislation. The Group monitors performance and recorded
several incidents during the year, none of which has the
potential to result in any material restrictions being placed
upon the Group’s ability to continue its operations in their
current form.
Fuel
The fuel business is subject to the South Australian
Environmental Protection Act 1993 and the South
Australian Dangerous Substances Act 1979. The Group
monitors performance and recorded a number of minor
fuel related incidents during the year. In all cases,
corrective actions have been taken.
DIVIDENDS
Dividends paid or declared by the Company to members since the end of the previous financial year were:
1 A fully franked preference dividend (taxed to 30%) of 4.0 cents per share amounting to $4,800 in respect of the year ended
30 June 2019 was declared on 30 August 2019 and paid on 2 November 2019; and
2 An interim fully franked ordinary dividend (taxed to 30%) of 2.0 cents per share in respect of the year ended 30 June 2020
was declared on 25 February 2020 and paid on 3 April 2020 amounting to $2,545,587.
The final dividend declared by the Company for the year ended 30 June 2020 and payable on 3 November 2020 in respect
of the year ended 30 June 2020 comprises:
1 A fully franked ordinary dividend (taxed to 30%) of 3.0 cents per share amounting to $3,863,563 (based on the Company’s
current issued share capital); and
2 A fully franked preference dividend (taxed to 30%) of 4.0 cents per share amounting to $4,800.
The preference share dividends are included as interest expense in determining net profit.
DIVIDENDS PAID TO SHAREHOLDERS
(cents per share)
12
10
8
6
4
2
0
4.5
5.0
6.0
3.5
3.0
5.0
5.0
6.5
3.0
3.5
1.5
2.0
1.5
2.0
3.0
2.0
2.0
2.0
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
■ Interim ■ Final
12 K&S CORPORATION LIMITED ANNUAL REPORT 2020
DIRECTORS’ REPORT EVENTS SUBSEQUENT TO BALANCE DATE
TAX CONSOLIDATION
On 28 August 2020, the Directors of K&S Corporation
Limited declared a final dividend on ordinary shares
in respect of the 2020 financial year. The total amount
of the dividend is $3,863,563 which represents a fully
franked dividend of 3.0 cents per share. The dividend
has not been provided for in the 30 June 2020 financial
statements and is payable on 3 November 2020.
No other matters have arisen in the interval between
the end of the financial year and the date of this report,
including any item, transaction or event of a material
and unusual nature which, in the opinion of the Directors
of the Company, are likely to affect significantly the
operations of the Group, the results of those operations,
or the state of affairs of the Group in future financial years.
INDEMNIFICATION AND INSURANCE OF DIRECTORS
AND OFFICERS
Indemnification
The Company indemnifies current and former Directors,
Executive Officers and the Secretaries of the Company
and its controlled entities against all liabilities, costs and
expenses to another person (other than the Company or
a related body corporate) to the maximum extent permitted
by law that may arise from their position as Directors,
Executive Officers and Secretaries of the Company and
its controlled entities, except where the liability arises out
of conduct involving a lack of good faith.
Insurance premiums
Since the end of the previous financial year, the Company
has paid insurance premiums of $177,540 in respect of
Directors’ and Officers’ Liability insurance contracts for
current and former officers, including Directors, Executive
Officers and the Secretaries of the Company and its
controlled entities. The insurance premiums relate to:
– Costs and expenses incurred by the relevant officers
in successfully defending proceedings, whether civil
or criminal; and
– Other liabilities that may arise from their position,
with the exception of conduct involving a wilful breach
of duty or position to gain a personal advantage.
The Officers of the Company covered by the policy include
the current Directors: T Johnson, L Winser, S Emmett,
G Walters AM and P Sarant. Other officers covered by the
contract are Executive Officers and the Secretaries of the
Company and Directors and the Secretaries of controlled
entities (who are not also Directors of the Company), General
Managers and other Executive Officers of controlled entities.
Indemnification of auditors
To the extent permitted by law and excluding in
circumstances of negligence, the Company has agreed to
indemnify its auditors, Ernst & Young, as part of the terms
of its audit engagement agreement against claims by third
parties arising from the audit (for an unspecified amount).
No payment has been made to indemnify Ernst & Young
during or since the financial year.
Effective 1 July 2002, for the purposes of income
taxation, K&S Corporation Limited and its domestic
based 100% owned subsidiaries formed a tax consolidated
Group. Members of the Group entered into a tax sharing
arrangement in order to allocate income tax expense
to the wholly owned subsidiaries on a pro-rata basis.
In addition, the agreement provides for the allocation
of income tax liabilities between the entities should
the head entity default on its tax payment obligations.
CORPORATE GOVERNANCE
In recognising the need for the highest standards of
corporate behaviour and accountability, the Directors
of K&S Corporation Limited support the principles
of corporate governance. The Company’s Corporate
Governance Statement can be found on this URL
on our website: http://www.ksgroup.com.au/
corporate-governance/.
ROUNDING
The Company is of a kind referred to in ASIC Corporations
(Rounding in Financial/Directors’ Reports) Instrument
2016/191 dated 24 March 2016 and in accordance with
that legislative instrument, amounts in the Financial Report
and Directors’ Report have been rounded off to the nearest
thousand dollars, unless otherwise stated.
AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES
The entity’s Auditor, Ernst & Young have provided the
Group with an Auditors’ Independence Declaration which
is on page 58 of this report.
DIRECTORS’ INTERESTS
The beneficial interest of each Director in their own name
in the share capital of the Company shown in the Register
of Directors’ Shareholdings as at the date of this report is:
Mr L Winser
Mr P Sarant
Ordinary Shares
43,651
60,000
Directors of the Company have relevant interests in additional
shares as follows:
Mr L Winser
Mr T Johnson
Mr P Sarant
Mr G Walters AM
Ordinary Shares
1,252,799
542,967
126,603
5,252
K&S CORPORATION LIMITED ANNUAL REPORT 2020 13
REMUNERATION
REPORT
(AUDITED)
This remuneration report outlines the Director and executive remuneration arrangements of the
Company and the Group in accordance with the requirements of the Corporations Act 2001 and
its Regulations.
For the purposes of this report, Key Management Personnel
(KMP) of the Group are defined as those persons having
authority and responsibility for planning, directing and
controlling the major activities of the Company and
the Group, directly or indirectly, including any Director
(whether executive or otherwise) of the parent company.
The Nomination and Remuneration Committee assesses the
appropriateness of the nature and amount of remuneration
of Directors and executives on a periodic basis by reference
to relevant employment market conditions, with the overall
objective of ensuring maximum stakeholder benefit from the
retention of a high quality Board and executives.
For the purposes of this report, the term executive
encompasses the Managing Director, executives, general
managers and secretaries of the Parent and the Group.
Details of the Key Management Personnel are:
i) Directors
Mr T Johnson
Mr P Sarant
Mr R Smith
Mr L Winser
Mr G Walters AM
Mrs S Emmett
Non-Executive Chairman
Managing Director and
Chief Executive Officer
Non-Executive Director
(retired 26 November 2019)
Non-Executive Director
Non-Executive Director
Non-Executive Director
(appointed 24 September 2019)
ii) Key Management Personnel
Mr R Parikh
Mr W Johnston
Mr C Bright
Chief Financial Officer
(appointed 1 April 2020)
Chief Financial Officer
(ceased 16 December 2019)
Company Secretary
REMUNERATION PHILOSOPHY
The performance of the Group depends upon the quality
of its Directors and executives. To prosper, the Group
must attract, motivate and retain highly skilled Directors
and executives.
To this end, the Group adopts the following key principles
in its remuneration policy:
– Remuneration is set at levels that will attract and
retain good performers and motivate and reward them
to continually improve business performance.
– Remuneration is structured to reward employees for
increasing Shareholder value.
– Rewards are linked to the achievement of business targets.
THE NOMINATION AND REMUNERATION COMMITTEE
The Nomination and Remuneration Committee of the
Board of Directors of the Company is responsible for
reviewing compensation arrangements for the Directors,
the Managing Director and executives.
While the Nomination and Remuneration Committee reviews
the remuneration paid to Non-Executive Directors and the
Managing Director, and the aggregate remuneration paid
to the executive team, the Board of Directors has ultimate
responsibility for determining these amounts.
REMUNERATION STRUCTURE
In accordance with best practice corporate governance,
the structure of Non-Executive Director, Managing Director
and other executive remuneration is separate and distinct.
NON-EXECUTIVE DIRECTOR REMUNERATION
Objective
The Board seeks to set aggregate remuneration at a level
which provides the Company with the ability to attract
and retain quality Directors, whilst incurring a cost which
is acceptable to Shareholders.
Structure
The Constitution and the ASX Listing Rules specify that
the maximum aggregate remuneration of Non-Executive
Directors’ shall be determined from time to time by
a general meeting of Shareholders.
The latest determination was at the Annual General Meeting
held on 20 November 2012 when Shareholders approved
a maximum aggregate remuneration of $600,000 per year.
The amount of aggregate remuneration sought to be
approved by Shareholders and the amounts paid to Directors
is reviewed annually. The Board considers the fees paid
to Non-Executive Directors of comparable companies when
undertaking the annual review, as well as periodically taking
advice from external recruitment consultants. No advice
was taken from external recruitment consultants in relation
to the fees paid to Non-Executive Directors in FY2020.
Each Non-Executive Director receives a fee for being
a Director of the Company.
There were no increases in fees payable to Non-Executive
Directors in FY2020.
Non-Executive Directors have long been encouraged by
the Board to hold shares in the Company (purchased by the
Director on the market). It is considered good corporate
governance for Directors to have a stake in the Company
whose Board he or she sits on.
The remuneration of Non-Executive Directors for the period
ended 30 June 2020 is detailed on page 17 of this report.
14 K&S CORPORATION LIMITED ANNUAL REPORT 2020
EXECUTIVE DIRECTOR AND EXECUTIVE REMUNERATION
Objective
The Company aims to reward executives with a level and
mix of remuneration commensurate with their position
and responsibilities within the Company to:
– reward executives for Company, business unit and
individual performance against targets set by reference
to appropriate benchmarks;
– align the interests of executives with those of Shareholders;
– link reward with performance of the Company; and
– ensure total remuneration is competitive
by market standards.
Structure
In determining the level and make up of executive
remuneration, the Nomination and Remuneration
Committee seeks external information detailing market
levels of comparable executive roles from which the
Committee makes its recommendation to the Board.
For the Managing Director and the other executives,
remuneration programs are balanced with a mix
of fixed and variable rewards. The makeup and eligibility
criteria for short term incentives are approved by the
Board at the commencement of each financial year.
As safety performance is a key organisational goal and
critical to the ongoing operations of the Group, the Board
believes that aligning the payment of short term incentives
to reducing lost time injuries is appropriate and in the
interests of Shareholders.
As the Company’s annual budget for operating profit before
tax is set with a view to increasing the profit generated
by the Company, growing earnings per share, and improving
the Company’s capacity to pay dividends, the Board also
believes that aligning the payment of short term incentives
to the attainment of budgeted profit before tax on
a normalised basis is appropriate and in the interests
of Shareholders. The Board also believes that having
all of the Company’s executives aligned to the common
goal of achieving budgeted operating profit before tax
drives positive behaviours amongst the executives in
maximising Group wide benefits from operating activities.
For the year ended 30 June 2020, the Board approved
the adoption of at risk short term incentives of up to 30%
of the base remuneration of the Managing Director and
executives. The payment of such short term incentives
is settled in cash.
The Board reviews and considers the fees paid to the
Managing Director and other executives of comparable
companies when undertaking the annual review, as well
as periodically taking advice from external recruitment
consultants. No advice was taken from external recruitment
consultants in relation to the fees paid to the Managing
Director and other executives for the year ended
30 June 2020.
Payment of the short term incentive in respect of the
2020 financial year was conditional upon:
– outperformance of budgeted profit before tax on an
underlying basis and excluding any non-trading items
(e.g., government wage subsidies or restructuring
charges) (but including any non-trading items that
have been included in the budget) on a sliding scale
up to a maximum of 20% of base remuneration:
Profit
Before
Tax
STI
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