Afrimat continues to ride out tough conditions
JSE materials supplier - Afrimat - continued to withstand tough business conditions and deliver growth, with a 10% top line increase for the year to February 2011 generating a 5% rise in profits. The commendable results reflect the benefits of the group's sustained focus on new business development over past years and successful expansion and diversification into high growth regions and sectors. Afrimat racked up another operational milestone during the year with a strategic acquisition instigating a foothold for the group in industrial minerals.
Revenue increased to R854 million from R778 million. Headline earnings was up 4,9% boosting headline earnings per share ("HEPS") by 3,9% to 53,3 cents, despite an effective 5,6% reduction as a result of the group's BEE transaction and the impact of new royalty-related mining legislation. Gearing remained very low at 5,2%. The group declared a final dividend for the year of 11,0 cents a share, up 10% on the previous year, taking the total dividend for the year to 17 cents a share (2010: 16 cents).
CEO Andries van Heerden says Afrimat's flexible business model is yielding benefits, with the group making significant gains in market share. "Our ability to operate anywhere in the sub-continent is a major competitive advantage. This exceptional geographic flexibility has helped mitigate the impact on the group of the prevailing construction downcycle." The 'Mining & Aggregates' division was once again the group's stellar performer and looking ahead he remains positive of continued growth in volumes, with a number of new large-scale road contracts across the country having replaced current projects coming to an end.
Van Heerden attributes Afrimat's new project wins to the New Business Development executives. "Our team enjoys considerable success in sourcing and securing new
projects." Although the Western Cape - one of Afrimat's original markets - remains economically hard-hit, van Heerden says he is cautiously optimistic that having hit rock bottom there are now the first signs of improvement in the region's economy.
The 'Readymix' and 'Concrete Products' divisions remain under pressure with intense competition eroding margins. In addition van Heerden points to delays in government housing projects which have impacted 'Readymix' specifically.
At the end of the year Afrimat entered the industrial minerals market with the acquisition of Glen Douglas Dolomite. Van Heerden says this market offers a promising avenue for growth. The Glen Douglas quarry south of Johannesburg will become the largest in Afrimat's portfolio with an annual output of over one million tonnes. He is confident the acquisition will deliver significant reward for the group once Afrimat's turnaround strategy optimises the mine's efficiencies. He says: "The mine has a strong, loyal client base which will benefit the group in the future."
Looking ahead he expects the slowly recovering market to continue on an upward trend. Further, the group's new foothold in industrial minerals is expected to continue bolstering the 'Mining & Aggregates' division which should accordingly remain the dominant segment for the foreseeable future. He is also comfortable with the 'Concrete Products' division's prospects, but is rather more cautious regarding 'Readymix'.
He concludes: "Focus will be foremost on increasing volumes and reducing costs in all operations. Above that diversification into high growth markets such as industrial minerals and open cast mining will continue, with an eye at all times on maximising profitability in the ongoing tough conditions. By keeping our noses to the grindstone so far we have succeeded in delivering to the market our promised sustained growth and we intend to continue down that path."
Afrimat's share closed yesterday at R3,55. This puts the company on a PE of 6,88 making it an attractive investment.
Michèle Mackey/Sunet Grobler
(011) 325 5944 / 082 497 9827
On behalf of: Afrimat Limited
Andries van Heerden, CEO
021 917 8840
Issue date: 12 May 2011