Belt-tightening at Bradken pays off with buoyant half-year result

BRADKEN has impressed the market by declaring that last year's downturn in resources had bottomed out, while posting an impressive half-year profit.

Its managing director, Brian Hodges, said the engineering company's business had stabilised and he was confident conditions would improve in the second half.

Bradken reported a net profit of $46.7 million in the six months to December 31, up from $43 million in the same period in the previous year. Revenue was $680.5 million, slightly down on the corresponding period's $683.2 million. Its shares rose 11 per cent, or 67¢, to $6.77.

Bradken was able to cut costs and lift its margins in most areas at a time when iron ore prices fell and major miners started postponing or cancelling projects. That was partly done by sacking workers, with the workforce cut from 6500 to 6000, although it said it could add jobs with an economic upswing.

Bradken had been identified by analysts as at risk of disappointing on earnings, through its exposure to the resources and rail freight industries. It makes and supplies cast steel products and associated maintenance and refurbishment services.

"The company's order books have stabilised and there is evidence to suggest that we have reached the bottom of the current cycle," Mr Hodges said. "It's not clear to me how long we'll run along at that level or when the upturn will be, but we are relatively stable."

The business was also helped by the fact that mining consumables - used in mining equipment and regularly replaced - has become a major earner. Sales in this area rose 15 per cent on a year ago to $209.34 million, with it less exposed to the downturn in commodity pricing, because miners are still digging up iron ore, coal, copper and gold regardless.

Revenue also rose in its mineral processing and rail businesses but fell in engineered products.

A Morningstar analyst, Ross MacMillan, said the performance had surprised but he still expected other mining services companies to struggle during the earnings season. "They were able to maintain their working capital very well and reacted very quickly to the downturn by cutting operating costs," he said.

Net debt is at a better than expected $453 million, up from $442 million in the previous quarter.

Mr Hodges said its low-cost Xuzhou Foundry in China had been finished and would add $25 million in sales in the next half. When operational, the foundry is expected to produced 20,000 tonnes of iron a year.

The company declared a fully-franked interim dividend of 20¢, up from 19.5¢ last time.