Shares in metal basher and engineering firm, Bradken (BKN) were sold off yesterday afternoon after the company announced another round of job cuts and a full year earnings downgrade.
The shares fell more than 7% to 3.62, a five year low.
Bradken cut its full-year earnings forecast and now anticipates earnings before interest, tax, depreciation and amortisation (EBIDTA) to be around $173 million for 2013-14, instead of the $180 million it forecast in February.
That compares to EBIDTA for 2012-13 of $183 million and $220 million for the 2011-12 financial year.
The company told the ASX yesterday afternoon that the job cuts will be aimed at cutting its overall operating costs by $27 million a year.
It plans to axe up to 520 jobs over the next year as it seeks to downsize the company to accommodate weak trading conditions.
"It is expected that over 60% of the savings will be achieved in the FY15 financial period. These changes are expected to materially improve medium to longer-term EBIDTA growth through sustainable lower costs,” the company said.
The company claimed $22 million of these savings will add to earnings before EBIDTA. And most of that will occur in the 2014-15 financial year.
But the cost of cutting these jobs will be around $51.4 million before tax in in the year to June 30.
That effectively is two year’s savings, which doesn’t sound enough. All the costs will be taken this financial year, to make the 2014-15 financial year figures look better.
BKN 1Y – Bradken drops the axe on more than 500 jobs
Bradken said the cost "relates mainly to retrenchment costs, plant and equipment write-offs, and other site closure costs for the affected manufacturing facilities”.
The announcement means Bradken has now chopped 1820 jobs over the past 20 months. The major saving will come from shutting down higher-cost plants including the Henderson foundry in Perth.
"Bradken intends to progressively close a number of its highest cost manufacturing facilities and reduce associated costs and by transferring work, enable the more cost effective facilities to achieve improved efficiencies through increased production levels.
"Once completed at the end of FY15, the reorganisation is expected to see Bradken’s total employee numbers reduced to 4,700, down 10% from December 2013 and 25% down from the peak in September 2012," Bradken said in yesterday’s statement.
The company said that while the current half had seen a slight rise in the company’s overall monthly order levels, "there has been no evidence of a ramp up in the capital products portion of the work”.
"With the market now at a lower level and no short to medium term improvement foreseen, Management is making a number of changes to the Company’s operations to more effectively utilise the lower cost capacity now available in some of its overseas and domestic facilities, which has resulted from earlier low cost capacity expansion initiatives," directors said yesterday.
Earlier in the year, Bradken called off an attempt to buy Austin Engineering, after strong opposition from Austin. But Bradken also used the downturn in the mining sector not to proceed with the offer.
Yesterday, Austin had good, and bad news for the market. It first said it was in ‘‘advanced negotiations” for a ”material acquisition”. It also told investors that earnings would be lower, saying it was finalising a trading update ”which is likely to disclose that current full-year earnings will be materially lower than market guidance and consensus estimates”. Oops. That, at least was a good decision by the Bradken board.
