TOUGH conditions in the construction market were expected to catch up with SA's second largest construction group Murray & Roberts in the current financial year.
THE A20m takeout of minorities in SA construction group Aveng's Australian subsidiary McConnell Dowell moved a step closer to conclusion at the end of last week when a requisite body of shareholders backed the plan, Aveng said on Friday.
Afrimat increases its offer to minority shareholders of resources group Infrasors from 35c to 65c a share.
Industrial materials supplier Afrimat (AFT) has increased its offer to minority shareholders of resources group Infrasors (IRA) from 35c to 65c a share.
This is a premium to the current trading price of Infrasors of about 60c.
The group acquired a majority stake in Infrasors in March.
Afrimat CEO Andries van Heerden said the raised offer to minorities reflected the group’s commitment to achieving an effective turnaround of Infrasors‚ something he said was “made difficult by the presence of minorities and complex management structures”.
Renewable energy sector in SA is showing signs of considerable growth, with tenders put out to market demanding at least 540,000m³ of concrete for only the first phase of contracts in the Renewable Energy Independent Power Producer Programme.
Afrimat, the JSE listed open-pit mining and industrial minerals group, believes this is an opportunity beckoning in which it is ideally positioned to supply construction materials to this sector.
Afrimat CEO Andries van Heerden believes the bulk of renewable energy activity in SA is likely to be centred on wind farms, with a number of solar power projects also due to commence in the short term.
It is anticipated that as the country continues to search for alternative energy sources, renewable energy projects are likely to be “a major driver of construction activity in the future”. Meanwhile, Van Heerden says the group’s recent R33m acquisition of a majority stake in resources group Infrasors has strengthened its foothold in the industrial minerals sector and further expanded its geographical reach across SA
He says the Infrasors acquisition makes strategic sense in light of Afrimat’s existing operation at dolomite mine Glen Douglas, acquired in January 2011 and successfully turned. Silica is an additional complementary product for Afrimat brought on board by the Infrasors transaction, he says.
While Afrimat has been largely spared the acrimonious labour relations experienced in much of the mining industry, strikes remain a risk and management is focusing on minimising this risk as a priority.
Labour relations are being managed by adhering strictly to legislation as well as bargaining arrangements, and numerous stakeholder engagement processes are under way, Van Heerden says. “We are committed to keeping lines of communication open at all times.”
Building materials supplier Afrimat purchased 50,7% of Infrasors, knowing its a company with a balance sheet stretched to a point that leaves it no further leeway.
Infrasors produces minerals for the industrial, metallurgical, mining and construction sectors. It expects its EPS for the year to February to fall by between 185c and 165c, compared with the earnings of 2,8c for the corresponding period last year.
Infrasors is in intensive care, says Afrimat CE Andries van Heerden Fixing it will take between two and three years. This would be the biggest turnaround that we have ever attempted.
Afrimat paid R32m, or 35c/share, for Infrasors, matching the lowest level the share has ever traded at. The offer came at a discount to the average price (since January) of 43c and a net asset value (NAV) of 50,4c/share as at end February.
The purchase is one of the many assets acquired by Afrimat in the past few years to diversify its business. It bought Glen Douglas, a metallurgical dolomite mine in Gauteng, in 2011. After a two-year turnaround process, Van Heerden says the current years return on initial capital from Glen Douglas is about 80%, a rate he is very pleased with.
Last year Afrimat purchased the Clinker Group, a supplier and processor of raw clinker. By February 2013, the purchase returned between 35% and 40%. Van Heerden says this is very good and expects more to come. Unlike Glen Douglas, Clinker was a well-run business already, he says, with little turnaround required.
Afrimat\\\'s growth strategy is built on adding niche products to its list of offerings. When the group listed in 2006, it focused only on building materials. Had it remained this way, Van Heerden says, it would have been in big trouble.
Early diversification let it supply contractors working on large infrastructure projects. But during the financial crisis and the subsequent recession, it chose to diversify further, with less reliance on government infrastructure spend. With a stake in Infrasors, it now has a foothold in the industrial minerals sector.
Infrasors operations include open-cast mining and beneficiation of dolomite, limestone, alluvial silica sand and silica quartz. Afrimat has made an offer to minority shareholders for the rest of the Infrasors shares.
Though the Infrasors acquisition comes with a heavy financial risk, Van Heerden is optimistic, after chasing Infrasors for many years. He says Afrimat doesn\\\'t overpay for its acquisitions. The low price it paid is testament to the reputation of Van Heerden\\\'s team for being astute deal-makers.
To protect itself in case things go awry, Afrimat has managed to ring-fence Infrasors\\\' debt in a deal with Absa. That will limit the damage if the turnaround process goes pear-shaped.
Van Heerden admits it will take a few years to extract the value from the latest purchase and that major write-downs are expected. It will require a period of stabilisation before Afrimat can conduct product development. With a structured plan to address Infrasors problems, Van Heerden believes Afrimat could be left with the best of the four mines Infrasors owns.
Even with the risk, analysts have confidence in Van Heerden and his team. Imara SP Reids Sibonginkosi Nyanga expects Afrimat to institute major writedowns of Infrasorss misleading NAV. Afrimats track record means theres a better than reasonable chance of extracting value from Infrasors assets, he says. Afrimat has the right exposure to the right market.
Meanwhile, Afrimat\\\'s own results for the year to February reveal that its run of acquisitions has been good for the company thus far. Revenue is up 34,3% to R1,3bn and headline EPS rose 22,8% to 76,9c. The company\\\'s debt:equity ratio is below 5% and its NAV rose 13,4% to 532c.
Source: Financial Mail
Afrimat says all its businesses have turned in satisfactory profits in the year to February despite tough trading conditions across most sectors.
Afrimat a minerals and construction materials supplier said on Thursday all its businesses had turned in satisfactory profits in the year to February despite tough trading conditions across most sectors.
Revenue was up 34.3% while headline earnings per share rose 22.8% on the back of very strong cash flow even as high fuel and electricity price increases and a strike in KwaZulu-Natal affected operations.
In the group\'s mining and aggregates division the industrial minerals operations performed well Afrimat said. It said it had continued to make good progress in its initiative to upgrade the equipment at Glen Douglas Dolomite while its Clinker Supplies unit performed above expectations.
CEO Andries van Heerden said what pleased him was the group was growing both profits and cash generation despite tough markets across most of SA.
He said despite paying for the Clinker Group acquisition and facilitating a R40m empowerment shareholding transaction the company\'™s balance sheet remained very strong.
He also said Afrimat\'s industrial minerals strategy embarked on three years ago was starting to pay off.
He said the acquisitions of Glen Douglas the Clinker Group and the acquisition of 50.7% of Infrasors in March had relieved pressure on the group caused by the poor performance of SA\'s construction industry.
The returns on investment are very good he said. It is really pulling us through.
The group said all its plants were fully commissioned and its flexible service delivery model which utilised mobile processing equipment enabled it to fulfil opportunities when they arose.
A solid set of numbers from one of the best management teams in building materials Anthony Clark a small and medium market analyst at Vunani Securities said on Thursday.
He said Van Heerden had again managed to defy the pressures affecting his competitors. Much of this came from what he called the benefits of past acquisitions which had offset weakness in the group\'s traditional aggregates business.
The minerals part of the business was now providing about 50% of group profits Van Heerden said.
He said the Infrasors buyout for 35c a share a company which Afrimat was busy turning around had given it metallurgical dolomite limestone and alluvial silica assets and was a pure industrial minerals play.
The group had a less than 5% debt to equity ratio. But while it expected the short-term recovery of the business environment to remain slowâ€š it said benefits should come from government\'s planned infrastructure spend.
Meanwhile initiatives aimed at expanding volumes reducing costs and improving efficiencies was a key focus for all operations.