Bad news yesterday from South Australian-based transport group, K&S Corporation (KSC).
Besides joining the earnings downgrade club with a warning late yesterday that 2015-16 profit will more than halve, directors indicated their could be a lot more pain on top of that bad news warning of a write-down on its multi-million dollar debt with failed steelmaker, Arrium (ARI).
K&S already took a major impairment of assets in the December half year because of the downturn in the mining industry in Western Australia. That produced a loss of more than $80 million for the half year (underlying earnings slid to just $3.6 million).
It warned yesterday that a further review of asset values was underway, holding out the chance of a further round of impairment losses.
Blaming the “challenging economic conditions” in some of its area of business, the company told the market yesterday that “based on currently available information, it anticipates that that the underlying profit before tax for FY16 will be in a range between $5.0 million and $6.0 million.”
If that figures is achieved, it would be around 35% to 43% of the $13.9 million net profit reported for 2014-15.
"While steps have been taken to diversify and reduce the cost base of K&S Corporation’s business and a number of our divisions are performing well, K&S Corporation is still experiencing challenging economic conditions in several of its key market sectors."
"The severe downturn in the Western Australian economy and the resources sector more broadly, the structural decline of domestic manufacturing, and reduced profitability of several of K&S Corporation’s Eastern States operations have continued to provide a drag on earnings."
"K&S Corporation is reviewing the carrying value of its assets having regard to the challenging economic conditions that continue to impact a number of our market sectors."
"It is also highly likely that K&S Corporation will need to take up a bad debt provision in respect of a significant portion of its total debtor exposure to Arrium Limited of $12.8 million.
Interim dividend was cut to 1.5 cents a share from the previous 3.5 cents. The final last year was 3.5 cents a share. That is now in considerable doubt.
K&S shares fell 3% to $1.40 yesterday.
