Release Date: August 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kelsian Group Ltd (ASX:KLS, Financial) reported a record result for FY24 with revenue exceeding $2 billion, a 42.2% increase from FY23.
- The acquisition of All Aboard America Holdings Inc. (AAAHI) contributed significantly to the revenue and EBITDA growth, with AAAHI exceeding expectations in its first full year under Kelsian's ownership.
- The company successfully mobilized three new contract regions in Western Sydney, adding 700 new staff, 380 buses, and 5 bus depots.
- Kelsian Group Ltd (ASX:KLS) has established special purpose vehicles (SPVs) for ring-fenced public transport assets, enhancing capital efficiency for fleet electrification.
- The company has secured new corporate debt facilities with improved terms, including moving to an unsecured facility, providing ample capacity for growth.
Negative Points
- The company faced margin compression in its marine and tourism portfolio due to weather challenges and lower demand in the higher profitability months.
- There was a significant cost overrun of approximately $25 million for land side and marine infrastructure for Kangaroo Island, attributed to delays and escalating construction costs.
- The Singapore business experienced higher absenteeism and staff shortages, impacting performance incentives and revenue.
- The company incurred higher than normal levels of overtime in its Australian bus business, although this is expected to reduce gradually.
- The acquisition and integration of new assets and contracts have led to higher debt levels and increased interest costs.
Q & A Highlights
Q: Morning, guys. Thanks for taking my question. I just got perfect. Firstly, on the Australian bus business, it looks like some solid EBITDA margin expense and particularly in the second half you called out there that you're not seeing the KPI penalties come through. You just sort of quantify the impact of that additional overtime and how you're expecting that to continue through FY25?
A: Thanks for the question, Ben. Yeah, certainly the margin in that second half was much improved, and that's a combination of some of the efficiencies are flying through KPI penalties rolling off and of course, the mobilization costs that we had for the Western Sydney bus contracts in the first half there. Overtime is still prevalent in the business has come down quite significantly year on year in the order of 15% improvement between FY23 and FY24. So obviously still a long way to go, we're talking millions of dollars, I'm not going to quantify the exact number off the top of my head here. But yeah, there is a significant opportunity there and that will progressively kind of the future out of the business as the reorganization and the efficiencies of the new workforce and the deployment of those labor resources get spread out across the business.
Q: That's helpful, thanks. And then just looking at the CapEx number you've spoken to there that $180 million, $190 million in '25, you've got the leverage at the moment at that 2.5 times, how comfortable or how far are you pushing that leverage and you could sort of remind us where governments are or what sort of covenant metrics the covenants are assessed against?
A: Yeah, thanks. We don't disclose what our covenants are, but we have the traditional covenants in terms of leverage and interest cover and we got plenty of headroom in our existing covenants your leverage is sort of around approaching that 2.5 times is likely to elevate. In this period, given the investment that's being made but we're very comfortable with taking a little bit higher given the predictability of the cash flows and the free cash that the business will generate into FY26 to be able to bring that leverage down to below sort of levels we're targeting, which is below that 2.5 times EBITDA leverage, excluding it's [EXPTA] assets.
Q: Yeah, very helpful. And then just on the UK, obviously a disappointing result in Manchester. I imagine when you sort of get into the tenders around Liverpool, you'll be running up against very similar competition. Could you sort of talk us through what gives you sort of confidence that you'll be more successful in upcoming tenders?
A: Well, I think we take feedback from every process that we go into. And what we do know is that we have a very good reputation in the UK. So from a pricing from a reputational and quality perspective, we are scoring very well. We saw out of the Manchester process the pricing was in line with the successful operators. The area that we often focused on is covering off on any risk mitigation that the government has might have concerns around, particularly with resources and mobilization training, capacity, depot capacity to power buses. One particular thing of note, though, for the Liverpool process is that all of the assets are provided. So that's buses and depots for the major contract packages in Liverpool. And I was up in Liverpool are just a couple of weeks ago, and they are getting an outline of the process from the government and it is a very encouraging process in that regard and they have set it up to de-risk the transition process themselves and obviously, providing all those assets is a big step in that direction.
Q: Good morning, guys. A couple of questions if I can. Just staying on that UK strategy there for minute, Clint. I mean, how much of this is actually becoming an issue where to your point around the risk mitigation you were missing out on contracts in the US because you didn't have a local presence. You don't really have a local presence in the UK, you've pulled out of London. Is this going to get to a point where you actually need to buy something?
A: Well, Cameron we assess acquisitions opportunities over time. So we've kind of run a pretty critical role on that. And I think we've demonstrated in the past, we are disciplined in that regard. We went into the Manchester process, obviously not thinking that we needed a physical presence. And what we do have is the best management team in the country and our opinion, and we've had -- we've got a management team based in London that has run a very significant bus operation at a very high level. And we come with some very high quality references from transport for London in that regard. We do have a physical presence in the Channel Islands, they kind of deem that part of the UK. So these are some of the things that we're talking to the government that over time. But given that all of the assets in Liverpool, our supply the expectation is that a major presence in regional UK is not necessarily required.
Q: Okay. Thank you. If I just turn to the Bankstown rail replacement, you've obviously talked about the opportunity for this for a while. But obviously, Monday, we were surprised by the additional requirement for 60 buses. Like is that actually a requirement of the contract? Or is that an opportunistic acquisition of those buses off the back of the contract effectively providing the cash flows for you do it?
A: Well, let's just say that did the at the physical asset deployment is not being done without good consideration for the considerable return that those assets will generate in the deployment onto that service. To be honest, that service was actually the without the vehicles, it were being using the vehicles that were being displaced by the electrification program. But the government's decision go down the track was that because would they are displacing quite a number of passengers off of a train and pushing them onto a bus. Their preference was that they had a brand new bus for people to get onto rather than a second-hand diesel bus. So we've facilitated that with the government, of course, and we've done that on some good terms associated with those assets. And it also obviously has the added benefit of that of being able to replace that maintenance CapEx in other parts of the business once that rail replacement ends.
Q: So just I mean, just on that, you said two more questions, I'll hand it over just relating to that, though. So in FY26, this will be a full year contribution and then in FY27 it basically drops away. If you're going to save maintenance CapEx, what's the -- how do we think about the earnings impact of this when it rolls off?
A: Well, this is one of a string of replacement contracts. So right now we're running rail replacement in Perth and that we will get a partial year contribution this financial year, partly last year. Bankstown replacement comes in September as the Perth ones rolling off. And then in 2025, we've secured the
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
