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Afrimat says margins may improve further

7 Nov 2016

Industrial minerals and construction materials specialist Afrimat - which reported a 25% hike in earnings in the six months to end August - believes its solid operating margin can be further reinforced in second-half trading.

Afrimat says margins may improve further

Afrimat's interim financial statements showed the operating margin firmed to 17.8% from 15.9% in the corresponding period last year. This meant operating profit increased an enviable 29% to R206m.

Alpha Wealth portfolio manager Keith McLachlan said Afrimat's interim numbers were excellent. "It's a well-run company with a geographic and product diversification strategy that is working very well. Cash flows are strong too."

Afrimat CEO Andries van Heerden said a strong all-round operational performance was helped by improved efficiencies, cost reduction and the disposal of marginal businesses.

He reckoned there could be scope for further margin improvement in the second half, with additional efficiencies expected to be extracted from operations in KwaZulu-Natal. These include the Bethlehem quarry, which was recently acquired from WG Wearne.

"We'll fix the margin in Bethlehem, and some of our other quarries in the province have scope to perform better."

Van Heerden expected a stronger showing from the Lyttelton quarry, which suffered recently from woes at Highveld Steel. "This has been one of the best turnarounds we've seen at Afrimat, and the operation is doing better than ever before."

Afrimat hiked the interim dividend by a quarter to 20c per share with a reassuring 15% increase in cash generated from operations to R114m underpinning the bigger payout.

The interim period was characterised by the acquisition of Cape Lime (effective at end-March) as well as securing a 60% stake in Diro Manganese and Diro Iron Ore.

Van Heerden said the Cape Lime integration was progressing well and marketing initiatives were under way to find new markets for the lime-based products. The Diro companies were bought out of business rescue for R276m. Van Heerden contended the Diro deals offered a low-capital cost way of diversifying Afrimat's product basket and revenue streams (iron ore sales are priced in dollars).

He estimated that R10m- R15m a month could initially be generated at Diro. "But there will not be a big kicker in the first year of operation ... there are a lot of legacy costs that we need to sort out. We should break even this year, but from next year, we intend ramping up production significantly."

Van Heerden said a higher margin could be achieved in the iron ore business.

Asked whether Afrimat was still on the lookout for acquisitions, Van Heerden explained that the company had a focused development team that was still "kicking tyres and turning over stones".

Source: Business Day

Source: I-Net Bridge

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