Mining Boom Continues for Some

Sydney, Aug 13, 2008 (ABN Newswire) - On Monday United Group showed the way, and yesterday two other groups dependent in part or in whole on the resources industry for their business growth confirmed that for some in the sector, times are sweet.

Bradken Ltd a supplier of railcars and other metal parts to resources, industry and governments showed that it seems to be back on track after investor expectations got away from reality earlier in the year, then caned it, while engineering and services contractor, Worley Parsons expects to increase earnings again this financial year, after delivering a 53% lift in annual profit in the year to June.



Worley Parsons provides services and engineering skills to the energy, resources and infrastructure sectors, while Bradken supplies physical goods to some of these industries.

WorleyParsons said net profit rose to $343.9 million in 2008, compared with $224.8 million earned in 2007.

The market liked the result, pushing the shares up more than 3%, or $1.23, to $34.68.

"We expect the markets for WorleyParsons' services will remain strong," chief executive John Grill said in a statement accompanying the result.

"Our key markets and sectors continue to experience positive conditions, and we are well positioned to respond to these opportunities.

"Subject to conditions remaining favourable we expect to achieve increased earnings in 2009."

The company said full year earnings before interest, depreciation and amortisation (EBITDA) rose 66.1% to $587 million, with the EBITDA margin growing to 12c in the dollar, up 20% on 2007.

Revenue for the year jumped 38.6% to $4.9 billion, and Worley declared a final dividend of 47.5c, up from 32.5c in the previous year. That took the total; for the year to 86.5c, compared to 60.5c in 2007.

Mr Grill said the group's record performance for the year was pleasing.

"Positive trading conditions across the group continue and demand for our services remains high," he said.

"The operating result is outstanding.

"This is especially so in the context of the strong appreciation of the Australian dollar in the year."

The company said its hydrocarbons business generated EBITDA of $436.3 million, following the acquisition of INTEC Engineering, a consultancy specialising in deepwater subsea engineering and offshore pipelines.

The power business grew EBITDA to $66.1 million, and the minerals and metals business made EBITDA of $86.3 million and Worley said market conditions continue to be strong.

"The full extent of the current economic conditions on project development in the sector in 2009 is unknown but a significant number of projects have been awarded and WorleyParsons growing geographic footprint and capability in the 'new resource' regions should provide continued growth opportunities," Mr Grill said.

Worley also said it was withdrawing from the pursuit of opportunities in the ownership of infrastructure projects.

It plans to divest its interests in two regional power stations in Western Australia with a book value of $31.6 million.

"The company does not expect the potential sale of these investments to contribute materially to future earnings," it said.

That reflects the increased scepticism investors have to companies holding infrastructure type assets, but whose main activities are in completely different areas of the economy.

Worley Parsons is not an investor or an operator of power stations and it would seem it's heeded the experience of other companies either dabbling in these assets, or more directly invested, but with big debts and lots of gearing.

Bradken Ltd is a supplier to the resources and rail sectors and will be looking for benefits from the falling Australian dollar, should the current currency slump persists.

Management mentioned (like Cochlear, Worley Parsons and so many other companies active in the export sector) the impact of the stronger dollar on margins in its commentary and outlook yesterday.

A dollar well under the levels of a month ago, if sustained for the rest of the year, would give companies like Bradken a more than useful fillip.



Bradken said earnings for the 12 months to June 30 rose 18.1% to $58 million, thanks to strong demand for rail freight wagons and orders related to mine expansions.

Revenue for the 12 months to June 30 climbed 18.8% to $762.9 million, with the company declaring a final dividend of 22c per share, making a total of 37c for the year, up 17%.

The market (which had been a bit sour on Bradken since the interim in February when investors thought it didn't deliver what it promised) liked the result and the cautious optimism for the coming year. The shares rose 2.5% or 30c to $10 after trading as high as $10.18.

"We have confidence in the continued growth in China and longer term strength of the resources and energy cycle," managing director Brian Hodges said in a statement.

"(We) believe that Bradken is well placed to continue to benefit from the growth in these related markets."

Bradken said it planned to increase its capital expenditure program this year to upgrade facilities, build additional capacity in the industrial business, add machining capacity across the group and pursue cost reduction initiatives.

"Bradken plans to continue its increased capital expenditure focusing on the Welshpool foundry upgrade, building additional capacity in the Industrial business, adding machining capacity across the group, increase automation and general debottlenecking and pursue further cost reduction initiatives," said Mr Hodges 

"We expect gearing levels to reduce in 2009 in the absence of any new acquisitions."

"We have confidence in the continued growth in China and longer term strength of the resources and energy cycle and believe that Bradken is well placed to continue to benefit from the growth in these related markets.

"At the same time, the market for rail wagons continues to expand, however margins are likely to reduce in the short term with the strong dollar and the start-up of projects based on new designs."

"Bradken remains comfortable with the ongoing steady growth for the core consumables business and expects AmeriCast to continue to grow organically in FY09. 

The mix of higher rail sales and the addition of the AmeriCast business will blend down the EBITDA to sales margin initially; however we are confident that we can continue to grow the margin from its new base.

"We will continue to invest in capital expenditure for growth and cost reduction projects and target acquisitions in line with the globalisation of our business model, to further complement the current product offering and improve the overall quality of earnings," Mr Hodges concluded.

Late last month Bradken announced the acquisition of the remaining 83% equity interest in AmeriCast Technologies, Inc. (USA) for $114 million, funded by an institutional placement of 13,664,596 shares at a price of $8.05 and a Share Purchase Plan.

AmeriCast is a leading North American based supplier of large (greater than 4,500kg), highly engineered steel castings to the high growth global energy, mining and rail markets. 

Headquartered in Atchison, Kansas, AmeriCast employs approximately 2,000 people across five steel foundries and three machine shops in North America and a trading office in Xuzhou, China. AmeriCast's current total finished product capacity is 56,000 tonnes per year.

"The acquisition of AmeriCast is an exciting and challenging opportunity for Bradken and will significantly expand our capabilities in large steel castings and provide a base from which to expand some of Bradken's mining consumables product business in the Americas.

"The acquisition is expected to be approximately 10% EPS accretive to Bradken in FY09 based on broker consensus forecasts," the company told the ASX," Mr Hodges said.

The acquisition was the latest in a string of purchases by Bradken since June 2007, including TMS Engineering in Tasmania, Roll Neck Rings in the United Kingdom and 75% of Cast Metal Services in Queensland.

"We will continue to invest in capital expenditure for growth and cost reduction projects and target acquisitions in line with the globalisation of our business model," Mr Hodges said.


 

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