Afrimat says diversification is paying off as dividend almost doubles
Demaneng iron ore mine helps boost operating profit 56.9%
JSE-listed building materials and industrial minerals group Afrimat has managed to weather anaemic conditions in SA’s construction sector, having almost doubled its interim dividend to end-August amid a healthy performance from its Demaneng iron ore mine in the Northern Cape.
SA construction companies remain battered by declining government infrastructure spending and poor economic conditions, but Afrimat has benefited from its 2016 acquisition of the high-grade Demaneng mine.
The group said its diversification plans were paying off, with interim revenue rising 19% to R1.7bn in the period and operating profit 56.9% to R318m. The company raised its dividend to 36c from 19c previously.
Revenue in its bulk commodities segment rose 77.5% to R280.4m during the period, while operating profit surged 176.2% to R138.2m.
Afrimat had benefited from high iron ore prices during the period, and while prices had decreased from highs of $120 a ton to $86, this was offset by steady volumes and improved plant efficiencies, said CEO Andries van Heerden.
“Operational efficiency initiatives aimed at expanding volumes, reducing costs and developing the required skill levels across all employees remain a key focus in all operations,” Van Heerden said.
The Demaneng mine had also benefited as Transnet had allowed more tonnage on the train line to Saldanha, said Small Talk Daily's Anthony Clark, with the “astonishing cash generation” allowing the company's gearing to fall to 9.4%. Gearing refers to the company's debt-to-equity ratio.
The question is what Afrimat will do with the cash, Clark said. Will it issue a special dividend or invest in new ventures to counterbalance the dominance of iron ore in its portfolio?
The group said on Thursday it had also seen improved results from its construction materials segment, where revenue and operating profit increased 6.1% and 6.5% respectively.
In that segment, its KwaZulu-Natal business had improved results after restructuring in the prior period, though the Gauteng business was still facing pressure from SA’s weak economy.
Its industrial minerals business also performed well, with revenue rising 5.2% to R299.2m, while operating profit rose 50.4% to R62.4m. This was largely due to the business successfully entering new markets, while also cutting costs.
At 11.45am on Thursday, Afrimat's share price was down 1.08% to R32, paring its year-to-date gain to 14.29%.