Afrimat expands for growth during interim period

During the six months to August 2008 construction materials supplier Afrimat Limited increased exposure to government’s multi-billion Rand infrastructure spend with organic expansion initiatives and a strategic acquisition of a further quarry and readymix plant in KwaZulu-Natal.

The group’s growth projects included commissioning new quarries and plants as well as extending its footprint nationally.

CEO Andries van Heerden says while the new operations and plant position Afrimat for long-term growth, in the immediate term once-off set-up costs impacted on the bottom line.

“Afrimat has successfully established a foothold in Gauteng and Limpopo which required significant investment.”

In light of these costs he explains that core headline earnings (which exclude the once-off set-up costs as well as costs associated with introducing additional BEE shareholders) is a more meaningful reflection of the group’s performance.

Core headline earnings were 20,1% down on the same period last year.

Van Heerden attributes the decline to challenging trading conditions particularly in the Western Cape, and significantly higher diesel costs. (Headline earnings reduced by 31,3% to R32,7 million and headline earnings per share by 33,6% to 24,5 cents.)

He points out that the investment in ‘Mining & Aggregates’ operations in high growth regions has since been vindicated by demand there for Afrimat’s products.

In Gauteng the group has signed an agreement to crush and market Mining & Aggregates at a mine dump near Randfontein. In Limpopo Afrimat has partnered with a local vendor to supply Mining & Aggregates for the construction of Medupi, one of the largest coal-burning power stations in the Southern Hemisphere.

“However our ‘Mining & Aggregates’ operations in the Western Cape underperformed due to an exceptionally long and unusually wet winter in the region. Compounding this, six months into its financial year the provincial government had barely spent on infrastructure development and municipalities lagged in authorising the start of projects.”

He says while the residential construction market in the region slowed too, this did not severely impact on Afrimat as the group has negligible exposure to this sector. Afrimat’s Readymix operations in KwaZulu-Natal performed strongly off the back of major infrastructure spend in the region that saw the group produce higher volumes.

Further, additional readymix plants were commissioned in the Western Cape and Port Elizabeth in anticipation of the pending up-cycle in these areas. Similarly ongoing low-cost housing projects for government in KwaZulu-Natal drove growth at Afrimat’s Bricks and Blocks operations in the province. Volumes of concrete manufactured products increased significantly in the face of escalating demand.

Effective 1 August 2008 Afrimat bought Sunshine Crushers – a quarry and readymix plant in Dundee – to expose the group further to infrastructure and low-cost housing development in northern KwaZulu-Natal and eastern Free State.

Van Heerden says: “The new operations bolster Afrimat’s strategic location throughout KwaZulu-Natal and enable the group to seize an increased share of government Rands in the province and neighbouring regions.”

Afrimat continued its tradition of an interim dividend with a declaration of 5 cents a share.

Van Heerden anticipates that earnings in the second half of the year will show a marked improvement.

“We should begin to realise returns on investment in organic growth during the period, and continue to benefit from government’s infrastructure commitment reiterated in the medium-term budget.”

He points out that going forward the Western Cape is set to be a growth node with the region reviving as government releases more of its infrastructure budget and municipal works gain momentum. He adds that the future N1 and N2 tollroad projects in the region also bode well for growth. New business development will remain a strategic priority for the group.

Van Heerden concludes: “Afrimat will continue to pursue opportunities in existing markets. In addition further expansion of the group’s mobile crushing fleet will enable us to take advantage of other infrastructure projects outside our traditional areas of operation such as the Gauteng Freeway Improvement Project.”

A dedicated team has been appointed to identify new projects, both organic and acquisitive, and fast-track them to maximise returns for stakeholders.

The share closed yesterday at R3,59 putting the company on a PE of 5,1.

Issued by:

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

On behalf of: Afrimat Limited

Andries van Heerden, CEO
021 917 8840

Issue date: 30 October 2008

Tanya Pretorius

Afrimat: Head of Communications

Vanessa Ingram

Keyter Rech Investor Solutions