Bradken Ltd, a supplier of equipment and services to the rail and mining industries, yesterday cut its interim dividend as it battened down the hatches for the rest of the year, despite delivering an solid increase in first half profit.
The market took note of the move and the uncertain outlook, given the company’s involvement with the resources sector and sold down the shares to $1.84, a 52 week low and off almost 10% on the day. That was after being up in early trading.
Bradken directors said net profit during the six months to December 31 jumped 50.5% per cent to $34.93 million, from the previous corresponding period, due to the AmeriCast acquisition and higher sales from its mining and industrial divisions.
But despite this seemingly ‘good’ result, Bradken will pay an interim dividend of 10 cents per share, down 33% from the previous corresponding period’s 15 cents, due to "uncertainties in world financial markets".
"The directors believe that conservation of cash is a prudent approach at this point given the current and likely future volatilities," Bradken said in a statement yesterday.
Bradken said the second half of the year would be affected by de-stocking and order cancellations, while the outlook for the 2010 financial year was unclear.
"We are entering the second half of FY09 with a strong but declining order book in most operations and we expect the third quarter to continue to be impacted by de-stocking and order cancellations," Bradken managing director Brian Hodges told the ASX in a statement.
Mr Hodges said, “Bradken recognises the tightness that exists in credit markets globally and we are acting on the assumption that this will continue for some time.
"Current de-stocking of consumables and cancellations of capital goods orders are obscuring the medium term outlook for the underlying markets," Mr Hodges said.
"Major changes in world commodity pricing and exchange rates have also rearranged many relationships, which are yet to work through.
"Significantly more visibility should be available during the fourth quarter of FY09 as destocking and capital goods order cancellations stabilise.”
The Company is focusing on cash generation and a reduction of borrowing levels through the maximisation of profit by maintaining margins, reduced capital expenditure, strong focus on working capital and an ongoing consideration of underwriting the DRP.
These programs have been planned to position the Company well for refinancing prior to December 2010.
“We are entering the second half of FY09 with a strong, but declining order book in most operations and we expect the third quarter to continue to be impacted by de-stocking and order cancellations.
"Our present expectation for the second half is for the mining consumables business to be slightly down from its first half highs.
"The Rail business has contracts already in place for the second half at a similar rate. Demand from the power industry will continue to support the Power & Cement business, which should be stronger in the second half."
"The Engineered Products Division’s second half sales are expected to be down at least 20%, due to lower demand from the rail, mining and construction markets but with less impact from energy markets and a positive contribution from military and transit markets,” said Mr Hodges.
“New capital spending approvals by all Divisions have been cut back considerably with some earlier approved projects currently being completed during the second half. Planned capex spend in the second half will be $35m with further significant reductions forecast for 2010.
"Workforce downsizing to match market requirements is also in progress.”
"At this time, with the changing nature of global markets, the outlook for FY10 remains unclear, although we expect greater visibility in the fourth quarter of FY09. The early outlook for the Rail business is positive with $65m of wagon orders already locked in for FY10 and reasonable ongoing tender activity.”
A further sign of the company’s conservatism is the discount for the dividend reinvestment program; its 2.5% and the fact that it will be underwritten.
Bradken said revenue jumped 73.7% in the half to $625.69 million which produced a 69% per cent rise in earnings before interest, taxes, depreciation and amortisation (EBITDA) to $90.7 million.
"The half year result reflects strong growth in mining consumable sales, five months of trading from the Engineered Products Division (formerly AmeriCast Technologies) and a full six months trading from the Cast Metal Services (CMS) acquisition," Mr Hodges said. That’s all history now.
Meanwhile, the current state of affairs at contract printer, PMP has become clearer with yesterday’s disappointing $11.1 million first half loss, and expectations of another tough period this half.
The company recently surprised by parting company with Brian Evans, the former CEO who came from Fairfax. This week it revealed that it was closing two printing plants with the loss of jobs and was reviewing the performance of the GPS-based residential delivery system for catalogues and the like.
It said yesterday the GPS system was OK, it was "other issues" in the home delivery system that have now been sorted out for customers.
On Monday, PMP said it was cutting 76 jobs and closing a heat set operation in South Australia and a press in Queensland.
Net loss for the first half to December 31, 2008 was $11.1 m
