Financial year turns sour as major customer hits wall profit plunge beckons
K&S Corporation has signalled the failure of one of its biggest customers will cost it $12.8 million.
Steel-maker Arrium’s failure was always going to be a significant blow but now K&S has enumerated just how heavy.
But that fails to take into account October’s $33 million contract extension with the firm that would have run to June 2019.
K&S is already battling downturns in its markets on both sides of the country and has now forecast a financial year result before tax of $5-6 million.
Last financial year, that figure was $18.8 million, up from $12.5 million the year before, leading to a net profit of $13.3 million.
“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 company says.
“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.”
The company has a number of transport and logistics contracts in place with Arrium for distribution of finished steel products in the eastern states, but not for its Whyalla steel making to iron ore mining operations.