The share price of Bradken Limited (ASX: BKN) plunged 10.3% to 48 cents, after the mining consumables and heavy engineering equipment producer reported a $168 million loss thanks to a number of writedowns.
Revenues for the six months to December 2015 fell 18% to $404.5 million, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) was down 28% and underlying net profit (excluding one-off items) fell 49% to $7.1 million compared to the previous year. Sales fell across the board, with Rail & Other Capital Goods seeing a $33.5 million reduction.
Restructuring costs of $17.9 million and impairments of $186 million all took their toll. While Bradken says the impairments aren't 'cash' – investors should be under no illusion that $186 million of their capital just went up in smoke.
About the only bright spot was operating cash flow, which was up 58% to $26.6 million compared to the previous period.
Acting Managaging director Phil Arnall said, "It has been a trying first half, however, the company remains focused on its strategic intent of generating surplus cash to pay down debt."
But despite the company's goal, net debt only fell 1% between June 2015 and December 2015 and remains at $393.2 million. I guess that's what happens when you have US dollar denominated debt and the Australian dollar sinks.
It's almost difficult to believe that the company received a takeover offer at $5.10 in 2014 and then another at $2.50 in June last year. Bradken's share price has now plunged 78% in the past 12 months, and a low-ball takeover offer could be just round the corner.
Caught out by the rapid fall in mining investment, Bradken is now pulling out all stops to slash costs. The company is exiting its loss-making European operations, closing several foundries and restructuring and downsizing its workforce – all in an effort to become more efficient and survive the current downturn – which is not expected to hit bottom until 2017 (although it could well continue long after that).
Foolish takeaway
Bradken is targeting annual free cash flow of $60 million which might be a tough ask. With mining capital expenditure still falling, it's touch and go whether Bradken survives – particularly with that large lump of debt hanging over its head. Buyer beware.
