KAP Industrial expects oil price slump and Covid-19 to hit profits
The group produces polymers that are used in the production of a variety of plastic products, which has already been under pressure from oversupply
KAP Industrial, which has automotive, chemicals and logistics businesses, expects profits to fall more than a fifth as it grapples with a collapse in the oil price and the Covid-19 outbreak.
The group said it continued to battle with global oversupply of the plastic used for, among other things, bottled water, with a recent slump in the oil price expected to add further pressure.
The price of Brent crude oil has fallen about 60% so far in 2020, hit by reduced travel and economic disruption as a result of the coronavirus outbreak, and an oil dispute between Saudi Arabia and Russia. Oil is a key input in plastics manufacturing, and therefore the prices of plastics often track the oil price.
The group said headline earnings per share — a widely used profit measure in SA that strips out one-off items — was expected to fall at least 20% in its year to end-June, but would issue a more detailed trading update later. The industrial group said its earnings were expected to decline considering the economic effects of Covid-19, weakness in the global polymer margins and potential asset impairment.
“In these uncertain and dynamic times, the group’s focus is to conserve cash resources by limiting all unnecessary operational expenses, reprioritising initiatives and deferring noncritical capital projects,” KAP said.
Despite the 21-day lockdown putting activity at a standstill in some of its divisions, the company said it is confident that it has adequate liquidity and banking facilities to operate through the lockdown period and after.
“The current situation is unprecedented and uncertain and as such, certain assumptions have been made in the preparation of these financial and liquidity forecasts,” the company said.
Its integrated Timber and automotive components divisions will not be operating during the lockdown period.
The company said its tourism, intercity and commuter operations would also be halted during the 21 days, as the government seeks to restrict movement as the local Covid-19 infection rate rises. KAP said it had put in place measures to ensure the safety of its employees for its divisions that operate as part of the essential services sector.
In afternoon trade, KAP’s share price dropped 15.52% to R1.47, having fallen 65% so far in 2020.