Photo by: Duane Daws
Openpit mining group Afrimat has credited an understanding of the cyclical nature of the construction industry, coupled with the intentional diversification of its industrial minerals and construction materials product portfolio, with a healthy 24% uptick in headline earnings a share for the six months ended August 31 to 76c.
Addressing a media breakfast on Monday, CEO Andries van Heerden said a conscious focus on domestic markets, whose fundamentals were driven by local supply and demand, enabled greater price control and had positioned the group ahead of its competitors.
“The construction industry is a very cyclical and project-based business,
and if you have a small base, then you are vulnerable to these cycles. The wider the base and the more products you offer, the smoother the curve becomes, and you can see from our financials that this plan is working.
“Our colleagues in the ‘fancier’ resources make a lot more money but, as a result of our diversification, in the bad times, we can still make a living,” he commented.
The group, which now boasted a market capitalisation of R3.7-billion, had, meanwhile observed a shift away from opportunities emerging through larger, infrastructure-related projects, to opportunities offered by smaller housing settlement developments.
“You have to understand the market very well and know where government is going with [its] spend.
“For example, we’ve seen a shift away from larger projects . . . [and we now] don’t focus on the big projects, such as the Gautrain, but rather on smaller housing projects,” Van Heerden remarked.
Profits rose to R109-million from R89-million in the first half of the prior year, while the contribution from operations grew 26% year-on-year, from R127-million to R161-million.
Van Heerden noted that the strong performance of the mineral operations in most regions, despite lower offtake by customers, bolstered the group’s profits during the period under review, while improved efficiencies, cost reduction and the disposal of marginal businesses also contributed to the earnings boost.
Net cash inflow from operating activities amounted to R99-million, up 33% compared with the previous period, while net asset value a share rose 13% to R6.71 for the six months.
Leading the earnings charge, Afrimat’s industrial minerals operations contributed 60% of overall income, followed by the quarrying division, at 30%, and the concrete-based products business, which accounted for 10% of earnings.
“All of our growth is from the mining and aggregates division, showing that our focus on this business is working, as there are high barriers to entry into this market.
“This strong performance is largely owing to an excellent improvement in contribution from [newly acquired] Infrasors and the KwaZulu-Natal-based operations, while the Glen Douglas dolomite mine, in Gauteng, subsidiary Clinker Supplies and the Western Cape-based businesses continue their good performance,” he said.
In line with its diversification strategy and marking its largest acquisition since inception, Afrimat over the six months acquired limestone producer Cape Lime, in the Western Cape, for R276-million.
Van Heerden, meanwhile, acknowledged the country risk in South Africa, noting that the group was seeking opportunities elsewhere on the continent and had identified promising prospects in Mozambique, as the country’s natural gas industry matured.
The company held operations in Northern Mozambique, which it believed were well-positioned to supply construction materials to large natural gas projects in the area.
“South Africa remains a risk, so we are trying to spread our wings beyond the local market,” he remarked.