Afrimat warned yesterday its headline earnings per share was expected to decline significantly between 75% and 85% for the six months to end-August 31, 2023 after being impacted by lower iron ore prices, higher shipping costs, a stronger rand and local rail issues.
The open pit industrial materials and bulk commodity mining company said in a trading statement it expected headline earnings (HEPS) per share to be between 65.9 cents and 39.5 cents, compared to 263.4 cents reported to August 31, 2023.
Smalltalkdaily Research analyst Anthony Clark said in a note that the depth of the forecast slide was “far greater than even my anticipation. There are some positive touchpoints, I understand, into the second half of the year that will aid, but certainly not recover the earnings side in the first half of the year”.
The share price traded 0.11% lower at R65.29 by early yesterday afternoon on the JSE, with the price 13.4% higher than it traded at a year ago.
Earnings per share (EPS) was expected to be between 243.7 cents and 218.3 cents, representing a decrease of between 4% and 14% compared to EPS of 253.9 cents for the same period a year before.
The main difference between the EPS and HEPS was the preliminary bargain purchase allocated to the Lafarge acquisition, the company said.
The performance decline was attributed to a range of external factors that were beyond the control of its management to influence.
In the first quarter, local iron ore sales volumes and revenue were significantly impacted by a major customer's furnace freeze.
Iron ore exports were hurt by a 5% decline in US dollar prices, a 31% rise in shipping costs and a concurrent strengthening of the rand. Also, rail shipment volumes via Transnet fell for the comparative period, and was about 20% below the allocated rail capacity.
The newly acquired cement business incurred losses for four of the six months following the incorporation of the businesses into Afrimat on May 1, 2023, primarily due to known reliability issues at the cement factory, resulting in limited production and stock.
“Management is prioritising the turnaround of the cement business, which is showing very good progress,” Afrimat’s board said.
The Construction Materials segment contributed positively, with volume increases and the successful integration of the Lafarge quarries, fly-ash and ready-mix batching plants into Afrimat.
The Industrial Minerals business “significantly improved” over the previous year’s corresponding period on the back of focused market development efforts and less load shedding.
Notwithstanding these impacts, iron ore sales in the domestic market improved after the reporting period, as had the international iron ore price due to better market conditions in China, the company said.
Clark said on the positive side Lafarge's cement operations were moving to profitability earlier than guided, construction materials volumes remained strong, the Nkomati mine results had improved and to a certain extent, so had the iron ore price. ACML had also resumed purchases, at slightly better than anticipated volumes, though prices are lower than prior deals.
“I maintain my positive long-term stance on Afrimat with standing guidance,” he said.