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14 BRADKEN LIMITED ANNUAL REPORT 2013
Directors’ Report
30 June 2013
Bradken Limited
Directors’ report (continued)
30 June 2013
Page 14
Bradken Limited
C.
Review of operations (continued)
Operating and Financial Review (continued)
Mineral Processing Division
The Mineral Processing Division is a global manufacturer of custom designed products for grinding mills, crushing and
conveying equipment for the hard rock mining industry and operates a metal recycling business that purchases and
processes steel feed for the Group’s foundries. The Division’s customers include the world’s largest mining companies and
some OEMs, with products supplied to mining operations on five continents and over 30 countries. Products are
manufactured in the Division’s manufacturing facilities in Australia, Malaysia and Canada as well as obtained from other
Group facilities in Australia, China, the USA and the UK. The Division is the market leader in the manufacture of grinding
mill liners.
Sales of $250 million were in line with the previous year with gross margin increasing from 35.4% to 37.7%. The margin
gains were achieved through excellent operational performance at the Mont Joli, Canada facility, the introduction of new
differentiated products into target markets and the rationalisation of many products into the optimal plant of manufacture.
This resulted in a strong improvement in the quality of earnings with the additional margin more than offsetting a moderate
increase in overheads that included an increase in regional selling and product development resources in line with plans to
continue growing the business in the world’s major mining regions.
Engineered Products Division
The Engineered Products Division is a leading North American manufacturer of large, highly-engineered steel castings and
differentiated consumable products to the mining, resource, transportation, and energy industries. The Division is a leader in
the North American market for highly engineered steel castings greater than 4,500 kilograms.
Overall, sales of $309 million were down approximately 11% on the prior financial year. This net change resulted from a
significant second half decline due to deteriorating market conditions. The Division responded to the reduction in demand in
the second half by realigning workforce levels and reducing fixed costs and discretionary expenses to align with the current
period of slower economic activity.
Annual sales in the Industrial Product’s business, the largest portion of the Engineered Products Division, were impacted by
a softening of demand in the mining and rail locomotive sectors, with sales declining for the year compared to the previous
year. This was driven primarily by a reduction in second half sales from the comparable period in F12 after experiencing an
increase in the first half. This reduced customer demand and excess industry capacity will continue to create a very
competitive marketplace in the near term.
The Energy business’ annual sales declined in the first half but rebounded in the second half of the financial year. The
market remains highly competitive with pressure on pricing of products and services.
Rail Division
The Rail Division’s products are used by customers in Australia to move more than 320 million tonnes of product annually.
This represents more than one third of Australia’s total mineral production. The Division is renowned for the supply of high
quality rollingstock equipment and parts for mining, agricultural and general freight markets. At present, about 85% of the
Division’s sales are in rollingstock manufactured for the Australian market, while the remaining 15% is represented by parts
sales into the same market. During F13, the Rail Division produced 1,070 rail cars in the Xuzhou manufacturing facility in
China. This represented a 48% volume reduction on the prior year and is reflective of the general down-turn in the
resources sector.
Overall, sales of $223 million were down approximately 33% on the prior financial year. The Division’s margins have
improved over the last 12 months with a return to more traditional iron ore and coal wagon manufacture. Notwithstanding
the lower volumes, profitability significantly improved as a consequence of the disciplined and deliberate execution of the
Division’s “Contain and Consolidate” business plan.
Business Strategies and Outlook
The difficult market conditions are expected to continue into 2014 particularly in the first half of the year. The main business
strategy in these difficult conditions is to reduce both operating and overhead costs in line with the reduced activity levels
and to reduce working capital and capital expenditure to maximise cash flow.
Management will continue to pursue opportunities to grow the existing business both organically and through acquisitions at
the appropriate time, all the while maintaining a solid balance sheet and strategic focus consistent with the Group’ s global
business strategies.