Industrial minerals and aggregate products provider Afrimat CEO Andries van Heerden expects a shift in government focus away from low-income housing development towards service delivery-centered infrastructure projects, saying this would boost demand for the company’s aggregates and further drive profitability for its swelling industrial minerals and aggregates division.

“Service delivery is now appearing as a consistent theme and, I think, government really took note of last year’s service delivery protests. I believe we will now see more investment in service-related infrastructure such as schools, sewerage systems, roads and clinics. I’m very bearish about this [trend] – it is happening,” he told Engineering News Online on Thursday.

Saying that Afrimat had not yet been asked to quote on providing materials for infrastructure projects under the National Development Plan, as these were still “at least two years out”, Van Heerden added that these multibillion-rand build projects were also unlikely to impact the order books of larger construction firms.

“I believe government is likely to divide these projects into smaller tenders so that they can be awarded to emerging companies, thus, creating jobs and stimulating broad-based black economic empowerment. [The build contracts] are not going to the big guys anymore – this is very visible from where we sit,” he commented.

The company would, thus, look to mitigate the credit risk posed by financially pressured construction firms as it entered its 2015 fiscal period.

FULL-YEAR RESULTS

Reporting on its full year results on Thursday, Afrimat posted a hefty 42.1% growth in revenue to R1.9-billion for the year ended February 28, 2014, attributing the earnings leap to a prudent five-year diversification strategy, an uptick in its traditional aggregates market and upping its stake in industrial minerals producer Infrasors to 90%.

Infrasors’ results were included in Afrimat’s results for the full year for the first time.

Van Heerden said the group’s turnaround strategy at Infrasors was seeing positive results, albeit that "there is some way yet to go to capitalise on the full potential of Infrasors’ mines”, adding that Afrimat would look to assume full control of the company “hopefully by the end of the year”.

Operating profit grew to R230-million from R148-million at February 2013, while headline earnings increased 41.4%, translating into an increase in year-on-year headline earnings from 76.9c to 109c.

Net cash from operating activities grew 43.6% to R243 861, bolstering the group’s strong cash position at the end of the 12 months and delivering on what Van Heerden described as a key performance measurable.

“The company’s ability to translate profits into cash in the bank is how I measure its performance. Without this cash in hand, its like we’re eating soup with a fork,” he noted.

Afrimat declared a 39c a share dividend for the year under review.

“Maintaining consistent dividend payments for shareholders is a key objective of the group’s growth strategy,” added Van Heerden.

DIVISIONAL PERFORMANCE

Commenting on overall performance, he noted that the group’s acquisitions in industrial minerals over the past three years, namely that of the Glen Douglas openpit dolomite mine, in Gauteng, clinker manufacturer the Clinker Group as well as Infrasors had significantly contributed to its robust results, ensuring Afrimat’s resilience during the down cycle in its original markets, specifically aggregates.

The mining and aggregates segment delivered 72% of group revenue, at R1.5-billion, up from R914-million in the previous year. 

The group’s concrete-based products suffered restricted volumes and a drop in profit as a result of a strike in Gauteng, contributing only 13% of revenue.

Van Heerden pointed out, however, that it was not all “doom and gloom” in Afrimat’s traditional markets, with signs of a positive resurgence in aggregates.

“Demand for aggregates is escalating and helping to drive improved volumes in our mining and aggregates segment. We are well positioned to meet increased demand with all processing plants fully operational.

“In addition, Afrimat’s mobile plant means the group can take advantage of opportunities in an almost limitless geographical area across Africa, irrespective of the location of our fixed quarries,” he explained.

PROSPECTS

Looking ahead, Van Heerden was positive that the group’s original aggregates business would, in time, return to its former performance levels.

“Bolstered by our flourishing industrial minerals business, this bodes well for Afrimat’s continued growth,” he maintained.

The focus in the year ahead would remain on efficiency initiatives to expand volumes, reduce costs and develop employees’ skills, and would include a “look-around” beyond South Africa for growth opportunities.

“We will continue to methodically roll out our proven business strategy and maintain our efforts to anticipate market trends to address them early and ensure the group’s sustainability,” said Van Heerden.