No wonder Bradken (BKN) won’t be paying an interim dividend for 2014-15 – the company’s finances worsened in the six months to December as weak trading conditions and the impact of a restructuring program hit home.
Bradken revealed a 64% drop in underlying interim earnings yesterday, underlining why the private equity approach fell over last month as the slide in the resources sector wreaks havoc on supplier and services companies.
The company said underlying net profit after tax fell to $13.8 million, down from $38.1 million in the December 2013 half year.
Given that slide, it‘s no wonder the company’s shares plunged more than 24% yesterday to $2.38.
But the bottom line result was a loss of a $92.6 million compared to a $38 million profit a year ago, after one-off restructuring costs and impairment charges.
Directors said restructuring costs to date were $47.1 million, while the related plant and equipment impairment was $51.1 million. The impairments related mainly to parts of the company’s businesses servicing the struggling mining sector.
Underlying earnings before interest, tax, depreciation and amortisation fell by 16% to $72.3 million.
The company said it would not pay dividends this half as it completes a business revamp, compared with the 15c a share it paid out the same time last year.
The weak result explains why those talks with private equity groups Pacific Equity Partners and Bain Capital Asia collapsed. Banks were unwilling to underwrite this offer, and yesterday’s results makes that reluctance understandable.
BKN 1Y – Bradken shares dive on weak result
Chief executive Brian Hodges said in a statement that Bradken was expecting a slight increase in overall sales revenue in the second half with an incremental improvement in margins.
He said improving mine production volumes and market share gains in some of the mining equipment it sells, such as ground engaging tools, crawler systems and mineral processing, should also underpin strong second half sales.
First half sales revenue fell 12% to $495.4 million as the slump in commodity prices had led to a fall in demand for Bradken’s mining equipment.
Given the slowdown in sales and profit fall, it’s also no wonder net debt jumped $65 million to $434 million, with more than $200 million due to mature in 2017. Bradken said it was on target to reduce overhead costs by $21 million this year, increasing to $33 million in 2016.
"Management’s efforts to rebase the cost structure and maintain competitiveness of the business for long-term growth are well advanced, with direct costs reduced in line with lower sales resulting in margins being maintained," directors said in their statement.
