I have been following the company for some years, and this is precisely what they did. They started as an aggregates business and soon diversified their construction products, then went into industrial minerals, and most recently into bulk commodities; specifically iron ore. In the last few years, when the traditional construction sector started coming under pressure, they walked mostly unscathed. Everyone needed their aggregates, especially in the building of roads.
However, the last financial year the weak economic conditions took their toll, and the aggregates side of the business declined. The construction materials division contributed 76percent of operations last year this time, and now it is only 56percent. Industrial minerals contribute 20percent, and the new bulk commodities division already 25percent.
Although headline earnings per share (Heps) for Afrimat decreased by 8percent, revenue was 28percent higher. Revenue was driven by the success of their new iron ore mine, producing a high-quality product. The mine was bought out of business rescue two years ago, and it took one year to bring to life.
A serious ramp-up phase characterised this first half of their financial year, and they generated an extra R350million revenue out of this mine. The 25percent it contributed to operating profit really only came at the end of the financial period, when it came into full production. The Heps was negatively impacted by the financing cost; they did borrow more money to buy and fix the mine.
There is an extra R300m of debt that they had to service and pay financing cost. Since the mine is very cash generative, it will not take long to repay debt, according to the chief executive Andries van Heerden.
The iron ore is transported on the Sishen/Saldanha line, and then on to China. Thanks to the Chinese drive for lower emissions, there is a strong demand for high-quality iron ore, which in the end delivers lower emissions. There is a robust market for their product and pricing improved, a trend they believe is set to continue. The rail constraints they experienced in December and January are out of the way now, and the mine is operating on full capacity.
The aggregates and concréte based products are combined into this single operating segment. The concréte products include bricks, blocks, paving blocks and ready-mix concréte. They find themselves in an inhospitable environment, with the broader sector struggling immensely.
Afrimat’s quarries supply products like concréte stone, road stone and other aggregates into this sector. It is still a terrific asset and a good business, but it declined from last year.
Amelia Morgenrood is a PSG Wealth financial adviser based in Pretoria. Views are of the author and not necessarily the general view of the entire PSG entity. Afrimat shares are held on behalf of clients.
The views expressed here are not necessarily those of Independent Media.