Strong maiden year for Afrimat sees profit beat forecast

Black empowered building supplies group Afrimat Limited has posted maiden profit after tax for the year to February 2007 of R67,6 million, beating pre-listing forecasts by 6,3% on a year-on-year basis.

Afrimat debuted on the JSE in November last year following the merger of its two key underlying operations – well-established industry leaders Lancaster Group and Prima Quarries.

Afrimat’s diverse product range includes Mining & Aggregates, readymix concrete and concrete blocks and bricks. The group has a strong presence in the Eastern and Western Cape, Namibia, Northern KwaZulu-Natal and Free State through 18 quarries, 13 readymix plants, 8 precast factories and 4 mobile crushing plants.

The consolidated group generated revenue of R349,0 million for the year and achieved a healthy operating margin of 20%. Profit attributable to shareholders of R51,7 million translated into headline earnings per share of 58,5 cents. Net asset value per share amounted to R2,40. These results include Lancaster for a four month period only and Prima for the full 12 months as required by International Financial Reporting Standards. In contrast the forecasts in the pre-listing prospectus were based on an aggregated full year’s performance for both subsidiaries and so do not provide a meaningful comparison to the reported group results.

CEO Andries van Heerden attributes the group’s strong profitability to improved margins driven by spiralling demand in the current construction boom. He says specifically that exceptional growth in the civil engineering and commercial sectors was a key contributor to Afrimat’s performance. “Further, Lancaster is the leading supplier of concrete blocks and bricks to the low-cost housing sector in its regions of operation. As this sector is government funded, it has not experienced a slowdown as in the private residential market and is a future growth area for the group due to government’s multimillion Rand budget allocation,” he adds.

He points out that the location of Afrimat’s quarries close to major road works positioned the group well to win contracts during the year and cites as an example Afrimat’s three-year contract for the supply of ballast to the Richards Bay coal line. The mining licence awarded for a quarry in Saldanha has further positioned the group to supply aggregate for the Sishen-Saldanha iron-ore rail line going forward.

Afrimat’s R125 million acquisition of Cape-based Malans Group and Denver Quarries just before year-end is set to further boost Prima Quarries’ 45 year presence in the region with a number of well located quarries and sand mines and will further expand Afrimat’s equipment and machinery inventory. “Our first acquisition as a group since listing marks the start of our national expansion plan. We will not only benefit from Malans’ 40% share of the sand market in the Western Cape but from synergies in our product ranges across the board,” says van Heerden. Competition Commission approval remains outstanding but is due by the end of today. Afrimat expects to implement the acquisition by the beginning of June.

Although the shortage of cement constrained growth industry-wide during the year, Van Heerden is confident that capacity expansions at cement suppliers and import programmes will alleviate this in the year ahead. “For Afrimat the skills shortage at middle management level presents a more long-term challenge. To counter this we have implemented training programmes for select staff to accelerate their promotion.”

Looking ahead he says the outlook for the industry remains rosy with government’s R400 billion spend on infrastructure and parastatal expenditure fuelling activity in the construction industry. Three months into the 2008 financial year the group has already secured new contracts for the supply of aggregate valued at R87 million. It further stands to benefit from the R31,5 billion allocated to Spoornet for the expansion of the Iron Ore Corridor and the Richards Bay coal line, where Lancaster is the major supplier of ballast and product.

“The R32,4 billion specifically earmarked for low-cost housing should drive additional organic growth for the group particularly in light of Lancaster’s leading regional position in this market,” adds Van Heerden. Orders valued at R30 million for the supply of building materials to low-cost housing projects are already in hand.

Once the Malans acquisition has been integrated synergies from its neighbouring quarries are expected to prove earnings-enhancing for the group. Van Heerden says Afrimat’s acquisition strategy will continue in the year ahead to widen the group’s geographic footprint and to continue boosting capacity and enhancing the product range.

The company debuted on the JSE in November 2006 at R8,05 a share, a premium to the R5 a share in the pre-listing private placement. The share closed yesterday at R10,10.

Issued by: Envisage Communications

Michèle Mackey (011) 325 5944 / 082 497 9827
On behalf of: Afrimat Limited
Andries van Heerden, CEO 021 917 8840
Issue date: 29 May 2007