Afrimat's newer industrial minerals, traditional aggregates continue to perform

21st May 2015

By: Megan van Wyngaardt

Creamer Media Contributing Editor Online

  

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JOHANNESBURG (miningweekly.com) – JSE-listed Afrimat has reported a 5.1% increase in revenue to R1.99-billion for the year ended February, while its profit after tax soared by 22.9% to R200-million.

On Thursday the openpit mining and materials company advised that, as in the prior year, the group benefited from the strong performance of its newer industrial minerals operations as well as an uptick in its traditional aggregates business.

Headline earnings increased by 24.4%, translating into headline earnings a share of 135.6c compared with 109c in the previous year. This growth is attributable to focused operational improvements. Cash from operating activities amounted to R261.6-million, up 7.3% on 2014. Net asset value (NAV) a share was up to R6.56, an increase of 13.3%.

Further, the JSE-listed company, which reported that its operating profit grew to R280-million from R229.7-million in the last year, also declared a final dividend of 37c a share, bringing the total dividends for the year to 50c a share, up 28% on the 39c a share distributed in 2014.

“[Our financial highlights], from the look of it [might seem] a little pedestrian, but it is on the back of a strategy, [through which] we have been focusing on the quality of our business. We are extremely satisfied with this performance. Our theme of ‘Growth through diversification’ remains our mantra, and is clearly paying off after a concerted effort to entrench the strategy. Our focus on a strong cash conversion ratio and on being extremely prudent with our balance sheet has also continued with obvious success,” Afrimat CEO Andries van Heerden said at the company’s results presentation in Johannesburg.

He noted that there was also a “massive improvement in margins,” which grew from 12% to 13.7%.

“Also, the aggregate operation increased its contribution to earnings through a pleasing recovery in the markets it supplies and we’ve made good progress with the turnaround of the Infrasors business. Contributing to these solid results was a strong performance from the Clinker and Glen Douglas operations, reduced raw material costs in the concrete-based products segment and a concerted focus on operational efficiencies throughout the group.”

The mining and aggregates segment made up 80.5% of the contribution to operations at R220.3-million, up from R195.2-million in 2014. This was attributable to a strong performance from its Clinker operations and Glen Douglas, as well as a good recovery in the traditional business in KwaZulu-Natal and the Western Cape regions.

The concrete-based products segment contributed 20.1% of the contribution from operations to the value of R55.1-million, compared with R30.4-million in the previous year. These increased profits emanated from cost-reduction initiatives and successful market penetration.

During the 2014 financial year, the segment was hit by strike action at the South African blocks operation, which caused a reduction in profits.

“The combination of the acquired industrial minerals assets and the original aggregates assets has created a uniquely resilient business. The diversification strategy has also enabled us to enter new profitable markets,” Van Heerden said.

RISK MITIGATING
Afrimat was fortunate to not have been hit by any labour unrest in the past year, but “labour is like golf; you must not brag that you are getting it right,” Van Heerden quipped.

He highlighted that to mitigate such occurrences, the company would continue its drive to create a positive culture, through communication and upliftment, as well as its black economic-empowerment (BEE) share scheme.

“The establishment of the Afrimat BEE Trust, together with existing BEE shareholders, amounts to 26.1% of our issued shares and demonstrates our commitment to good labour relations. We care for our employees and the environment in which they operate. The respect that permeates our organisation plays a large part in our success.”

Speaking on the current energy constraint in South Africa, Van Heerden noted that some of Afrimat’s larger operations were affected by load-shedding, but “in the end it is a planning thing. As long as we know when [load shedding will happen], because our business is maintenance intensive, we can plan our maintenance for that period.

“It has just put a little bit more pressure on our planning, but we haven’t seen a significant [impact]. It’s a frustration factor,” he said.

Further, Afrimat intended to play off macroeconomic threats through constant strategic management and its strong, but conservative balance sheet. “The country risk [we face] in South Africa we take very seriously and that is why we are looking to the rest of Africa.”

As such, the company started greenfield operations in northern Mozambique last year, adding that it would continue to seek opportunities outside South Africa in the medium-term.

INDUSTRY OUTLOOK
“Over the last three years, we have been consistently saying that we do see government spending moving towards smaller projects and not the major infrastructure spend that we would all like to see,” Van Heerden said. But the year was further underpinned by increased government spend on road maintenance and smaller service delivery projects, which Afrimat, owing to its extensive geographic footprint, was able to benefit from.

He noted that government’s current spend was not because it did not have money. “No, they do. The [expenditure] on roads has been the highest ever”, Van Heerden said, adding that last year marked the first time that road expenditure exceeded the fuel levy for roads.

“The two things that government does get right [is that] because the projects [it undertakes] are so much smaller, smaller construction companies get the work [taking work from larger companies]. It makes sense, because, in that way, a lot more people are being employed,” he explained, adding that when it came to bigger projects it was almost as if the spend was “going in the opposite direction”, as the benefit associated with economies of scale, whereby more people were employed for every rand spent, was not realised.

Looking ahead, Van Heerden believed that improved operational efficiencies and the development of value-added industrial minerals products were expected to sustain the company’s growth rate into the future for a considerable time.

“Entry into new markets is expected to support volume growth, while a visible recovery in the traditional markets bodes well for the immediate future of Afrimat.

“We expect the current business climate to continue with moderate market growth. Our growth will remain driven by the successful execution of our proven strategy, implemented over the last five years,” he concluded.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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