As expected (and forecast by the company), engineering group Bradken (BKN) reported a large slide in June 30 profit as the downturn in spending in the resources sector continues to bite.
Bradken told the ASX yesterday that full year net profit more than halved to $21.5 million. The actual fall was 63%.
That was too much for management and the board and the release concentrated on "underlying net profit after tax" of $55.1 million, which was down a slightly more palatable 43%.
"Underlying earnings before interest, tax, depreciation and amortisation" fell 19% to $173.3 million in 2013-14, a more palatable point emphasised in yesterday’s release from the company.
The shares were easier at the start, then jumped by almost 8% in later trading to close at $4.66.
The mild reaction from the market was due to the fact that the fall had been previously revealed in a statement in May revealing job losses and a revamp of its manufacturing base.
BKN 5Y – Mining services still struggling
And the maintaining of a final dividend (even though it was down on 2013) also helped market sentiment.
An unfranked final dividend of 11c per share was declared, taking the total for the year to 26c, down 32%.
Based on the net profit of $21.5 million, the company had full year earnings per share of 12.7c (down from 39.6c).
That means the lower full year dividend of 26c is nowhere covered by earnings (the usual thing is to pay it out of retained earnings).
That is a further indication of how far the board went to trying to keep the market and shareholders happy, which worked given yesterday’s strong finish to trading.
Sales revenue was down in all of the company’s divisions, including mining products, mineral processing, the rail division and US-based engineered products. Overall sales fell 14% to $1.135 billion.
The company has cut deep in the past year as the revenue slide continued. It has axed 1,800 jobs in less than two years.
But the company said there has been an improvement in orders for big ticket mining machinery in 2014.
‘‘We expect an improvement in order intake as delayed expenditure at mine sites is released and mine production volumes continue to increase, supporting sales in the second half.
‘‘It remains unclear when the mining capital cycle will improve, but we are not solely relying on it to do so," he said in yesterday’s statement.
Also helping the favourable market reaction was the news that Bradken’s net debt levels fell to $377.2 million at June 30 from $431.5 million in the previous year due mainly to the lower capital expenditure, reduced levels of working capital and also lower cash dividend payments.
Cash at the end of the financial rose to $144 million from $92 million.
Lower debt and increased cash holdings – comfort for nervy investors when market conditions are not right for a company like Bradken.
