There was plenty to take away from the full year result from engineer and metal basher, Bradken (BKN).
Firstly, the company has come through a tough year reasonably well; secondly, ignore than 33% drop in net profit, the company’s underlying result was roughly similar to 2011-12’s result; thirdly, it sees those challenging conditions continuing for a while longer; fourthly, despite the underlying strength of the latest result, dividend has been trimmed, and finally, the company continues to pay a cost for an overseas deal that has gone bad (which resulted in the lower net profit figure).
Despite all of this, the market saw through the weaker bottom line and pushed the shares up more than 9% at one stage yesterday. Bradken shares jumped sharply, climbing more than 12%, or 65c or 9.5% to $5.89.
BKN Vs BLY 1Y – Bradken weathers downturn
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Bradken said its net profit fell 33.4% to $66.94 million in the year to June 30, down from $100.5 million in the previous 12 months.
The result included a one-off pre-tax charge of $30.4 million relating to Federal Court proceedings associated with the Norcast acquisition. Bradken has appealed an adverse Federal Court judgement.
But looking on it as earnings before interest, tax depreciation and amortisation and before the one-off charge, profit was only down 2% at $214 million, despite the tough conditions and a near 10% fall in revenues for the year.
While the $30.4 million will be written back to profit if the company’s appeal is successful, the way the underlying profit held up tells us that Bradken has managed to protect profit margins, despite the obvious pressures from the weak trading conditions.
The 9.5% fall to $1.32 billion from $1.46 billion in 2011-12, was a better indicator of just how tough the past 12 months were for the company. And, Bradken said it expected the tough market conditions to continue in 2014, particularly in the first half of the year to end December. That means shareholders can expect another weak result when the interim figures are released in February 2014.
But the company is cautiously optimistic.
The shares rose yesterday partly because management talked about cost cuts.
That was seen in a 14% fall in inventories in the year to $266 million from $308 million, as good a sign as every of a company careful about costs, especially increasing working capital to pay for production and stocks in the hope of better times ahead.
CEO Brian Hodges talked about Bradken reducing its "operating and overhead costs” given what was happening in the mining sector.
He said it was also reducing capital expenditure and working capital in order to “maximise cash flow” and ensure debt does not rise too far too quickly.
But you would expect that to happen – if it wasn’t, the shares would be down sharply and analysts and investors would be wanting to know why.
While Mr Hodges acknowledged that "miners will continue to restrict expenditure to improve cash flow due to weaker prices and high cost pressures”, he also pointed to the expectation that mine production (will) show steady increases again in financial year 2014 for most commodities, and the energy sector to remain strong for oil and gas product.
Bradken will pay a fully-franked final dividend of 18c, down 3.5c a share on the final for the previous financial year.
With the group’s interim dividend of 20c, which was lifted half a cent, Bradken’s total dividend for the year is 38c fully-franked, down 7% from the 40c a share paid in 2011-12.
The company has also suspended its dividend reinvestment plan, so it is not in need of cash. It had just over $92 million cash on hand at the end of June, down from $101 million a year earlier.
