Land and marine transport specialist Kelsian Group (ASX:KLS) has delivered healthy revenue growth in the first half of the 2025 financial year (H1 FY25) with the company firmly on track to meet its guidance for underlying operating earnings (EBITDA) in the full fiscal year.
All up, revenue jumped by 9.1 per cent year-on-year to surpass $1 billion in H1 FY25. In turn, EBITDA climbed to $132.2 million with the group’s performance during the period falling in line with expectations.
Kelsian also concluded a detailed review of its capital management and allocation framework as it looks to optimise the composition of its portfolio of businesses and identify potential opportunities for improved returns.
Established transport provider
As a background, Kelsian is an integrated multi-modal transport provider in Australia, the US, Singapore, UK, and the Channel Islands. It operates more than 5,800 buses, 115 vessels, and 24 light rail vehicles through a wide array of brands across these geographical locations.
The company is focused on growth through global expansion and strategic acquisitions, having previously nailed down the transformative 2020 purchase of Australian urban transport provider, Transit Systems.
Amongst others, the US represents a key growth market for Kelsian. It already provides transportation solutions across the nation via its All Aboard America business.
Solid financial performance
In H1 FY25, the spike in revenue was supported by several significant new and renewed contract wins, a full period of bus contracts in Western Sydney, the successful commencement of the Bankstown rail replacement service, contract indexation, and an increase in fares.
Meanwhile, a ramp up of US industrial contracts was also cited as a contributor.
Underlying net profit after tax and before amortisation (NPATA) clocked in at about $40 million in H1 FY25, with earnings per share before amortisation (EPSA) coming in at 14.7 cents per share.
The company also reported gross operational cash flow of $108.8 million during the period and continued to deliver strong cash conversion of 93 per cent.
Capital cost reduction to fuel growth
Management noted that the majority of FY25 capital expenditure was incurred in H1 FY25, positioning the company for higher free cash flow generation and future growth. It expects a lower level of net sustaining capital costs of about $85 million per annum in FY26, compared to market averages of above $100 million.
Separately, the group reduced its debt leverage ratio during the period. This metric is now projected to drop below 2.5x by the end of FY26 on the back of higher earnings and cash generation, as well as significantly lower capital investment.
Robust balance sheet and dividend
Kelsian ended H1 FY25 with net assets of $958.3 million and significant cash reserves of $131.3 million. It declared a fully franked interim dividend of 8 cents per share for the period, on par with its dividend in the previous corresponding period.
Kelsian Group managing director and chief executive officer, Clint Feuerherdt, commented:
“The result reflects the strength of our diversified, global business with a strong track record of growth, underpinned by a majority of highly defensive long-term service contracts with high quality counterparties as well as cost base protection in most contracts.”
Strategic direction for growth
Kelsian’s strategy is centred on maintaining a strong balance sheet, facilitating growth, and maximising total shareholder returns.
In turn, the company recently sold three non-strategic bus depots in Western Australia with proceeds of about $20.3 million expected to be fully realised by the end of April. The group also wrapped up the acquisition of UK bus operator Huyton Travel earlier this month, which management believes provides key strategic foothold for an upcoming pipeline of tenders.
As part of its strategy, Kelsian is targeting an improved debt leverage ratio of between 2x and 2.5x by the end of June next year and net sustained capital expenses of $85 million per annum starting in July.
The company is also aiming for a dividend payout ratio of between 40 per cent and 60 per cent of its underlying NPATA effective immediately, coupled with an effective tax rate of between 22 per cent and 25 per cent.
Management expects underlying EBITDA to range between $283 million and $295 million in FY25.