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We take a look at the interim results for the period ending end of August 2018 of Afrimat, the construction materials and industrial minerals group.
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About Afrimat
Afrimat Limited is a leading black empowerment open pit mining company providing construction materials and industrial minerals. The group’s core subsidiaries have been in operation for more than 45 years and it is listed in the “Construction and Building Materials” sector of the JSE Main Board.
The group supplies a broad range of materials ranging from aggregates, concrete products (bricks, blocks and pavers) to readymix as well as industrial minerals and iron ore. In addition, Afrimat has established a strong foothold in contracting services comprising mobile crushing, screening, drilling and blasting; and offering flexibility even beyond its fixed areas of operation. Afrimat’s flexibility extends further – to project scale – with the group servicing major infrastructure and construction projects for public sector and government owned enterprises through to small private sector contracts. The diverse client base acts as a risk hedge and exposes Afrimat to the full range of construction and related spend in its target regions. Consistently low staff turnover has resulted in a deep skills pool. Real transformation, starting with staff and management and extending to community upliftment, is integral to the group’s sustainability. In addition, environmental conservation is an imperative part of Afrimat’s growth strategy.
The image below shows the Afrimat group structure
The group supplies a broad range of materials ranging from aggregates, concrete products (bricks, blocks and pavers) to readymix as well as industrial minerals and iron ore. In addition, Afrimat has established a strong foothold in contracting services comprising mobile crushing, screening, drilling and blasting; and offering flexibility even beyond its fixed areas of operation. Afrimat’s flexibility extends further – to project scale – with the group servicing major infrastructure and construction projects for public sector and government owned enterprises through to small private sector contracts. The diverse client base acts as a risk hedge and exposes Afrimat to the full range of construction and related spend in its target regions. Consistently low staff turnover has resulted in a deep skills pool. Real transformation, starting with staff and management and extending to community upliftment, is integral to the group’s sustainability. In addition, environmental conservation is an imperative part of Afrimat’s growth strategy.
The image below shows the Afrimat group structure
Afrimat Group Structure, which includes aggregates, concrete based products, industrial minerals, contracting and commodities
Afrimat history
The image below shows how the Afrimat group evolved over time. It has been operating since 1963.
Afrimat History
Overview of product offerings from Afrimat
The Aggregates Division produces aggregates of a wide variety of sizes and technical specifications, primarily with products including stone, gravel and sand that are used primarily for large-scale civil engineering and infrastructure projects. Afrimat’s proprietary commercial quarries – located in eight of South Africa’s provinces and in Mozambique – also supply the majority of raw materials for our Concrete Products and Readymix divisions.
The Concrete Based Products Division operates primarily in Gauteng, KwaZulu-Natal, the Free State and Worcester in the Western Cape, manufacturing concrete blocks and bricks largely for affordable housing. Precast factories manufacture concrete bricks, building blocks, brick paving, walling and moulded concrete products of which the majority carry the SABS seal of approval. The Division supplies concrete primarily to large-scale civil engineering and infrastructure projects through fixed and mobile readymix plants where concrete is batched on demand and then transported to site by concrete mixer trucks. While the mobile concrete batching can be set up in any part of the country, the fixed plants are based in the Western Cape, KwaZulu-Natal, Free State and Mpumalanga. Close to 90% of readymix’s raw material needs (excluding cement) are sourced from the group’s own quarries. All sales personnel are certified by the Concrete and Cement Institute of South Africa.
The Industrial Minerals Division supplies the steel industry with metallurgical dolomite; the construction industry with a variety of aggregate products; and the agricultural industry with agricultural lime through its Glen Douglas, Marble Hall, Lyttleton, Vredendal and Langvlei mines. Cape Lime produces quality mineral products supplied to various niche markets such as manufacturing industries producing chemicals, filler, glass, paint and food products.
Contract crushing services, operates internationally through a mobile hard rock crushing service. Plants and equipment on offer include: Tracked mobile crushers; Modular semi mobile units; High specification road materials; Screening; Primary and secondary reduction for small to mid size mining; and Load and haul and stockpile services. Drilling and blasting services Afrimat provides a full package of drilling and blasting solutions for the construction and junior mining industries. This division specialises in optimising cost and end results.
Afrimat’s Commodities Division was established in 2016 with the acquisition of an Iron Ore mine in the Northern Cape. The Division focuses on consistently and reliably supplying quality iron ore to local and international markets. This is achieved by leveraging the group’s core competencies in uniquely positioned iron ore mines, in terms of quality, size and location. The consistent drive towards efficiency and cost effectiveness within its current operations, positions the group well within the iron ore sector.
The Concrete Based Products Division operates primarily in Gauteng, KwaZulu-Natal, the Free State and Worcester in the Western Cape, manufacturing concrete blocks and bricks largely for affordable housing. Precast factories manufacture concrete bricks, building blocks, brick paving, walling and moulded concrete products of which the majority carry the SABS seal of approval. The Division supplies concrete primarily to large-scale civil engineering and infrastructure projects through fixed and mobile readymix plants where concrete is batched on demand and then transported to site by concrete mixer trucks. While the mobile concrete batching can be set up in any part of the country, the fixed plants are based in the Western Cape, KwaZulu-Natal, Free State and Mpumalanga. Close to 90% of readymix’s raw material needs (excluding cement) are sourced from the group’s own quarries. All sales personnel are certified by the Concrete and Cement Institute of South Africa.
The Industrial Minerals Division supplies the steel industry with metallurgical dolomite; the construction industry with a variety of aggregate products; and the agricultural industry with agricultural lime through its Glen Douglas, Marble Hall, Lyttleton, Vredendal and Langvlei mines. Cape Lime produces quality mineral products supplied to various niche markets such as manufacturing industries producing chemicals, filler, glass, paint and food products.
Contract crushing services, operates internationally through a mobile hard rock crushing service. Plants and equipment on offer include: Tracked mobile crushers; Modular semi mobile units; High specification road materials; Screening; Primary and secondary reduction for small to mid size mining; and Load and haul and stockpile services. Drilling and blasting services Afrimat provides a full package of drilling and blasting solutions for the construction and junior mining industries. This division specialises in optimising cost and end results.
Afrimat’s Commodities Division was established in 2016 with the acquisition of an Iron Ore mine in the Northern Cape. The Division focuses on consistently and reliably supplying quality iron ore to local and international markets. This is achieved by leveraging the group’s core competencies in uniquely positioned iron ore mines, in terms of quality, size and location. The consistent drive towards efficiency and cost effectiveness within its current operations, positions the group well within the iron ore sector.
So get to the numbers already
So lets take a look at the main numbers published in the results update:
- Revenue up 28,6% to R1,5 billion
- Operating profit up 4,3% to R202,7 million
- Profit before tax down 9.2% to R176.6million
- Profit for the period down 4.9% to R131.6 million
- Headline earnings per share ('HEPS') of 93,6 cents
- NAV per share of R9.43
- Interim dividend per share of 19,0 cents
- Return on net operating assets 20,1%
- Cash generated from operations R211 million (or R1.47 per share)
- Cash and equivalents on the balance sheet: R164.9 million (or R1.14 per share)
So any comments from management on the results?
Below follows a few extracts from Afrimats's financial results.
The group continues to deliver satisfactory results supported by its diversification strategy despite very difficult trading conditions experienced by the construction materials businesses. The political uncertainty and economic slowdown felt during the last quarter of the previous financial year continued during this interim period and impacted the construction materials businesses the most. The bulk commodities segment, consisting of the Demaneng iron ore mine, contributed positively to the group results, which offset the lower performance of the construction materials businesses.
All operating units are strategically positioned to deliver excellent service to the group's customers, whilst acting as an efficient hedge against volatile local business conditions. The product range is well diversified to include aggregates and concrete-based products as construction materials and limestone, dolomite and silica as industrial minerals as well as iron ore as bulk commodities. Labour relations continued to be satisfactory during the period under review, with no labour action having occurred in the period. The group is committed to creating and sustaining harmonious relationships in the workplace and addressing issues proactively.
The Bulk Commodities segment, consisting of the Demaneng iron ore mine, contributed positively to the group results. The business completed the recommissioning of both its dense media separation ('DMS') plants and started with the expansion of its load-out facility, which is expected to be completed in the second half of the year. After successful collaboration with the logistical service provider the business will be in a position to sell its full monthly production. Industrial Minerals businesses across all regions delivered solid results, with the biggest impact of the economic slow-down in the construction sector felt by the Lyttelton mine.
The Construction Materials segment felt the brunt of the slowdown in economic activity, with the KwaZulu-Natal and Gauteng businesses being impacted the most. The KwaZulu-Natal business started with restructuring in order to improve the business. The Western Cape aggregates business continued to deliver solid results. The Mozambique business was in a ramp-up phase during the reporting period, after receiving an order to supply construction materials to a resettlement village. The Emfuleni Clinker Ash Dump, situated in Vereeniging and close to Afrimat's customers, will ensure an additional three to four year lifespan for both Clinker Supplies Proprietary Limited ('Clinker') and SA Block Proprietary Limited. Clinker continues to investigate further options in order to secure additional resources for the group.
BUSINESS DEVELOPMENT
New business development remains a key component of the group's growth strategy. The dedicated business development team continues to successfully identify and pursue opportunities in existing markets, as well as in anticipated new high growth areas in southern Africa.
The group continues to deliver satisfactory results supported by its diversification strategy despite very difficult trading conditions experienced by the construction materials businesses. The political uncertainty and economic slowdown felt during the last quarter of the previous financial year continued during this interim period and impacted the construction materials businesses the most. The bulk commodities segment, consisting of the Demaneng iron ore mine, contributed positively to the group results, which offset the lower performance of the construction materials businesses.
All operating units are strategically positioned to deliver excellent service to the group's customers, whilst acting as an efficient hedge against volatile local business conditions. The product range is well diversified to include aggregates and concrete-based products as construction materials and limestone, dolomite and silica as industrial minerals as well as iron ore as bulk commodities. Labour relations continued to be satisfactory during the period under review, with no labour action having occurred in the period. The group is committed to creating and sustaining harmonious relationships in the workplace and addressing issues proactively.
The Bulk Commodities segment, consisting of the Demaneng iron ore mine, contributed positively to the group results. The business completed the recommissioning of both its dense media separation ('DMS') plants and started with the expansion of its load-out facility, which is expected to be completed in the second half of the year. After successful collaboration with the logistical service provider the business will be in a position to sell its full monthly production. Industrial Minerals businesses across all regions delivered solid results, with the biggest impact of the economic slow-down in the construction sector felt by the Lyttelton mine.
The Construction Materials segment felt the brunt of the slowdown in economic activity, with the KwaZulu-Natal and Gauteng businesses being impacted the most. The KwaZulu-Natal business started with restructuring in order to improve the business. The Western Cape aggregates business continued to deliver solid results. The Mozambique business was in a ramp-up phase during the reporting period, after receiving an order to supply construction materials to a resettlement village. The Emfuleni Clinker Ash Dump, situated in Vereeniging and close to Afrimat's customers, will ensure an additional three to four year lifespan for both Clinker Supplies Proprietary Limited ('Clinker') and SA Block Proprietary Limited. Clinker continues to investigate further options in order to secure additional resources for the group.
BUSINESS DEVELOPMENT
New business development remains a key component of the group's growth strategy. The dedicated business development team continues to successfully identify and pursue opportunities in existing markets, as well as in anticipated new high growth areas in southern Africa.
PROSPECTS
The group is well positioned to capitalise on its strategic initiatives, foresees continued growth from an excellent asset base, expects further expansion of its range of unique products and turnaround initiatives of selective acquisitions to deliver. Operational efficiency initiatives aimed at expanding volumes, reducing costs and developing the requiredskill levels across all employees, remains a key focus in all operations. Afrimat expects the current business climate to continue with the group's future growth driven by thesuccessful execution of its proven strategy, recent acquisitions and a wider product offering to the market.
The group is well positioned to capitalise on its strategic initiatives, foresees continued growth from an excellent asset base, expects further expansion of its range of unique products and turnaround initiatives of selective acquisitions to deliver. Operational efficiency initiatives aimed at expanding volumes, reducing costs and developing the requiredskill levels across all employees, remains a key focus in all operations. Afrimat expects the current business climate to continue with the group's future growth driven by thesuccessful execution of its proven strategy, recent acquisitions and a wider product offering to the market.
Afrimat share price history
Below an interactive graphic showing Afrimat's share price history over the last 3 years. And as can be seen from the graphic, the share price has not done much over the course of the last 3 years. Just as the industry they are currently operating in and supplying goods to.
Percent change: