Afrimat improves performance at interims
In a pleasing turnaround JSE-listed construction materials supplier, Afrimat, outperformed the comparative 2008 interim period and delivered solid growth for the six months to 31 August 2009 ("the period"). The Mining & Aggregates division was largely responsible for driving a significantly stronger performance from the group, defeating tough market conditions to accumulate good volumes throughout the country. Afrimat further achieved full compliance with the Mining Charter thresholds after implementing a BEE transaction with its own employees.
Revenue was up by 21% to R392,5 million from R323,8 million. Headline earnings grew by 21,2% to R39,6 million, translating into equivalent growth in headline earnings per share to 29,6 cents. In line with the improvement in results the group declared an interim dividend of 6 cents a share compared to 5 cents at this time last year.
CEO Andries van Heerden says Afrimat's geographic expansion programme has gained traction in the last 12 months and attributes the group's resilience in the face of the economic downturn to intensified focus on public sector infrastructure in high growth regions. He cites as examples new large-scale Mining & Aggregates projects in Gauteng, Limpopo and Mpumalanga which were secured by the group during the period. Afrimat is currently one of the three largest suppliers in the South African Mining & Aggregates industry.
Van Heerden adds that the group's extensive fleet of mobile crushers enables Afrimat to take advantage of infrastructure projects outside of its permanent bases nationwide, giving added impetus to growth.
Afrimat further augmented capacity in Gauteng during the period with the acquisition of 66% of a second Mining & Aggregates operation in the region, Blue Platinum quarry near Lanseria. Van Heerden says: "The Blue Platinum acquisition positions the group to capitalise on high demand from rife development in the Lanseria area, as well as complements our existing crusher on a mine dump near Randfontein." He says capacity enhancements to existing operations in rural KwaZulu-Natal and in the Port Elizabeth metropole have also strengthened Afrimat's Mining & Aggregates foothold there.
While the group did experience debt collection obstacles on some new government infrastructure contracts during the period, since August this has improved and government works remain a key focus for the group.
Notwithstanding the Aggregate division's impressive performance, Afrimat was nonetheless affected by the poor economy in the hard-hit Western Cape. Both the Readymix Concrete and Concrete Manufactured Products divisions showed these ill-effects in heavily reduced volumes, exacerbated by localised industrial action at two plants in KwaZulu-Natal which temporarily slowed productivity around July. Van Heerden points out that by mid-August Afrimat had restored full production at all operations in the region.
A deal during the period saw Afrimat's black employees acquire 15,8% of the company, through funding provided by Afrimat, meaning that Afrimat's total black shareholding (when also taking into account the existing 10,3% black stake) now totals 26,12% and meets Mining Charter requirements well in advance of the 2014 deadline. Van Heerden explains the transaction is 'win-win' for all stakeholders. "The transaction represents a limited dilutionary impact on existing stakeholders, achieved by Afrimat repurchasing its own shares. It also benefits 82% of the group's workforce, which in turn will facilitate retention of key staff and ensure a leadership pipeline."
Looking ahead he is cautiously optimistic that despite challenging conditions the group's business activities should remain encouraging. "We are closely aligned to government's infrastructure investment and housing development programmes which are spurring demand for our products. In addition our aggressive capacity enhancement programme has seen all our plants fully commissioned and accommodating demand across the country."
Van Heerden concludes that with a balance sheet well suited to growth and acquisitions, Afrimat will continue expansion in existing markets and pursue new opportunities in untapped growth nodes with the help of the group's dedicated business development team.
Afrimat's share closed yesterday at R3,30 putting the company on a PE of 8,15.
Issued by: Nicole Katz/ Michèle Mackey
(011) 325 5944 / 082 497 9827
On behalf of: Afrimat Limited
Andries van Heerden, CEO
Issue date: 5 November 2009