Healthy balance sheet and 11 years of growth

AFRIMAT’S healthy balance sheet after 11 years of earnings’ growth had enabled it to seek opportunities through the lockdown, such as participating in commodity projects or acquiring and turning around companies in distress, chief executive Andries van Heerden said yesterday.

The industrial minerals, construction materials and iron ore mining group reported a 48.5 percent rise in headline earnings to 347.7 cents per share for the year to February 29, maintaining a compound average growth in headline earnings per share of 21.6 percent per annum for 11 years.

Van Heerden said that demand for iron ore was still strong, particularly from China, due in part to supply shortages from South America.

There were ore export logistical constraints in Saldanha Bay harbour, but iron ore prices were still firm, with average prices about 14 percent higher than at the same time last year. The Demaneng iron ore mine was operating at full capacity, he said.

In industrial minerals, demand was starting to pick up again as more industrials restarted during level 4 of the lockdown.

Demand for construction materials was still muted, mainly because a number of construction companies were not able to work yet through level 4 of the lockdown.

“We are feeling positive. We had a slow April as we had expected, but we returned to profitability in May,” he said.

He said the group “essentially” had zero debt with some cash, which gave it the fire power to participate in potentially “exciting” projects in the commodity space. He said many companies in this space were finding it difficult to access finance for their projects through the lockdown,

There were also an increasing number of companies in financial distress due to the lockdown, which might present acquisition opportunities.

He ascribed the strong results of the past year due to an entrepreneurial company culture, the diversification strategy and consistent efficiency improvement initiatives.

This resulted in improved earnings from all three operating segments in the year to February 29, in spite of a difficult economy.

“Our relentless drive to find talent and develop it, especially among our youngest employees has played a significant role in the group’s performance over the last decade, and has formed a cornerstone of our transformation strategy,” he said.

The board decided not to declare a final dividend at this stage.

Van Heerden said the decision supported the group’s general conservative nature and ensured the further preservation of cash, which was desirable due to the uncertain nature of the current economic climate.

External revenue improved by 11.4 percent to R3.3 billion in the year. Operating profit increased by 27.5 percent to R601 million. Net cash from operating activities increased 64.9 percent to R676.8m, which resulted in a decrease of the net debt:equity ratio from 23.8 percent in the prior year to 8.2 percent in the current year.

The bulk commodities segment increased operating profit by 59.8 percent to R321.7m as a result of an impressive increase in volumes and favourable pricing through the year.

Industrial minerals businesses lifted operating profit increasing by 22.5 percent to R95.6m.

After a slowdown in construction materials in the prior year, the segment delivered a marginal recovery, with operating profit increasing by 1.2 percent to R192.4m. The operating margin improved slightly from 10.9 percent to 11.2 percent.

The KwaZulu-Natal business reported improved results following a successful restructuring process during the prior year, while the Western Cape aggregates business continued to deliver solid results.

In Mozambique, the business continues to supply construction materials to projects in the north of the country, in the ramp-up to the major LNG project.

The Gauteng business continues to bear the brunt of a slowdown.

Afrimat’s share prices closed 4.40 percent higher at R26.31 on the JSE yesterday.