Resources downturn over, says Bradken
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MELBOURNE, Feb 12 AAP
February 12 2013, 4:36PM
Engineering company Bradken has impressed the market by declaring that last year's economic downturn in resources had bottomed out while posting an impressive half year profit.
Managing director Brian Hodges said the business had stabilised and he was confident that conditions would improve in the second half of 2012/13.
Its profit was broadly in line with expectations but has surprised by posting a nine per cent increase despite its sales revenue staying mostly unchanged.
Bradken made a net profit of $46.7 million in the six months to December 31, up from $43 million in the same period in the previous year.
Its sales revenue of $680.5 million is slightly down on the $683.2 million for the prior corresponding period.
The company's shares shot up 11 per cent, or 67 cents, $6.77.
Bradken was able to cut costs and lift its margins in most areas (overall up by 1.1 per cent to 15.5 per cent on profit as a percentage of sales) at a time when iron ore prices plunged and major miners started postponing or cancelling projects.
That was partly done by sacking workers, with its workforce cut from 6,500 to 6,000, although it said that could increase again with an economic upswing.
It had been identified by analysts as highly at risk of disappointing on earnings, through its exposure to the resources and rail freight industries.
Bradken makes and supplies consumable cast steel products and associated maintenance and refurbishment services.
"The company's order books have stabilised and there is evidence to suggest that we have reached the bottom of the current cycle," Mr Hodges said in a teleconference on Tuesday.
"It's not clear to me how long we'll run along at that level or when the upturn will be, but we are relatively stable."
The business is also helped by the fact that mining consumables - used in mining equipment and regularly replaced - has become a major earner.
Sales in this area jumped 15 per cent on a year ago to $209.34 million, with it less exposed to the downturn in commodity pricing, because miners are still digging up iron ore, coal, copper and gold regardless.
Revenue also rose in its mineral processing and rail businesses but fell in engineered products.
Morningstar equities analyst Ross MacMillan said the performance had surprised but that he still expected other mining services companies to struggle during the earnings season.
"They were able to maintain their working capital very well and reacted very quickly to the downturn by cutting operating costs," he told AAP.
Net debt is at a better than expected $453 million, up from $442 million in the previous quarter.
Mr Hodges said the new low-cost Xuzhou Foundry in China had now been finished and would add $25 million in sales in the next half.
When completed, the foundry was expected to produced 20,000 tonnes per annum of iron.
The company declared a fully-franked interim dividend of 20 cents per share, up from 19.5 cents at the same time in the previous year.
By Greg Roberts