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Afrimat continues to deliver strong growth

Robust infrastructure investment continues to drive organic growth at black empowered construction materials supplier Afrimat Limited, resulting in headline earnings up by 79,5% to R92,5 million for the year to February 2008.

The group’s strong results extend to all key performance indicators in line with the trading update released in early May 2008. Two earnings-enhancing acquisitions added further impetus – Malans Quarries (including Denver Quarries) and Scottburgh – which enhanced Afrimat’s portfolio with strategically located quarries and sand mines, sophisticated mobile crushers and another brick and block factory.

Headline earnings per share (HEPS) accordingly increased 20,4% to 70,4 cents per share. Operating margins were solid at 22,4% reflecting the particularly healthy performance of two of the key divisions – ‘Mining & Aggregates’ and ‘Concrete Manufactured Products’. A final dividend of 16 cents a share was declared for the year compared with no dividend the year before.

CEO Andries van Heerden says government’s continued investment in infrastructure has kept the demand for materials supplies buoyant. “Performances across the board were pleasing with the new acquisitions as well as newly commissioned projects boosting capacity.” He continues: “The ‘Mining & Aggregates’ division had a bumper year driven by strong demand for its products, higher value products in the sales mix and improved pricing.” In addition projects in Saldanha Bay and Kommetjie boosted the division’s capacity.

‘Concrete Manufactured Products’, which produces among other products the concrete bricks used in low cost housing, benefitted from ongoing investment in this market by both government and the private sector. Van Heerden says capacity expansion at the Ladysmith plant will help generate future growth in this division. “Previously operating at full capacity, the available stock was barely sufficient to meet demand. The investment in new equipment and infrastructure will increase production at the plant substantially.” The newly installed machines are expected to assist in driving the production of blocks for Afrimat 20% higher. “This will enable us also to exploit new potential opportunities and expand our product range with new products for manufacture.”

The ‘Ready Mix Concrete’ division fared less well in the first six months, facing a harsh winter and intensified price competition, but significantly picked up its performance in the second half of the year. Van Heerden says: “Ready mix concrete is a profitable “added value” business which we undertake from many of our quarries throughout South Africa and it further opens a marketing channel for the sale of our primary product, crushed stone.” A capacity boosting upgrade at the Denver Quarries, bought as part of the Malans Quarries acquisition, is due for completion in June 2008. “This will provide a springboard for the group to penetrate the ready mix concrete market in Port Elizabeth for the first time.”

The acquisitions – Malans Quarries (including Denver Quarries) and Scottburgh – were included in these results for nine and eight months respectively. Van Heerden says integration was smooth and seamless. He adds that as a result, Afrimat has embarked on a re-branding process which will see the underlying subsidiaries – Prima and Lancaster – and the acquisitions adopting the Afrimat brand to further entrench Afrimat’s leading position in the market.

He points out that during the year Afrimat’s geographical expansion programme also started taking shape. “The group has been successful in establishing a foothold in Gauteng with a greenfields project on the West Rand and anticipates further inroads into the Gauteng market in the coming year.” He says strong emphasis was also placed on expanding the mobile crushing capacity to take advantage of infrastructure projects outside Afrimat’s traditional areas of operation.

Looking ahead he is upbeat about the future prospects notwithstanding a downturn in the economy. “Afrimat services the infrastructure and road construction sectors, which mitigates the impact on the group of a slowing private residential construction sector. In addition demand for low cost housing is set to accelerate as government moves to alleviate the backlog in delivery and the private sector, for instance mining and industrial clients and the banks seeking to fulfil Charter obligations, follow suit.”

He continues: “South Africa is in the midst of probably the most exciting infrastructure expansion drive in its history. Eskom’s commitment to building new coal-fired power stations, nuclear power stations, pump storage schemes and more will drive and sustain growth. So too will the commitment in the latest budget of the South African National Roads Agency (SANRAL) and other government bodies to an R8,2 billion spend for public transport, roads and rail infrastructure.”

Van Heerden concludes that Afrimat’s newly-established new business development team will help in keeping strict focus on sustained growth in the year ahead. The team is tasked with identifying potential new projects, both organic and acquisitive, and fast-tracking them to maximise returns for stakeholders.

The share closed yesterday at R6,29 putting the company on a PE of 8,5.

Issued by: Envisage Communications

Nicole Katz
(011) 325 5944 / 083 287 2771
Michèle Mackey
(011 325 5944 / 082 497 9827

On behalf of: Afrimat Limited
Andries van Heerden, CEO
021 917 8840
Issue date: 13 May 2008

Tanya Pretorius

Afrimat: Head of Communications

Vanessa Ingram

Keyter Rech Investor Solutions