Afrisam (formerly Holcim), the cement and aggregate producer controlled by a BEE consortium, has posted a loss of over R900m for the quarter ending September 2008 after financial and operating expenses bloated markedly.
The poor performance is a blow to the BEE consortium that paid around R15bn for an 85% stake in the well known cement producer.
Afrisam was formed when BEE investors acquired a controlling stake in Holcim SA from Swiss-based Holcim in late 2006. It was not long after Holcim sold off the bulk of its 54% stake to the BEE consortium that Aveng - the other major shareholder - agreed, after initial resistance, to sell its 46% stake in Holcim to the BEE grouping.
The deals gave Holcim - then renamed Afrisam - an enterprise value of over R16bn. But Afrisam also took on a serious bit of gearing to fund the transactions.
The quarterly performance may even raise questions around whether the costs of the BEE transaction - which was even praised by former President Thabo Mbeki - can be adequately serviced.
At top line Afrisam looked in fairly good shape, notching up quarterly turnover increase of 12% to R1.94bn.
But operating profits dropped 11% to R527m as costs surged by 25% to R1.26bn. Distribution costs increased 30% (presumably due to fuel costs) by 30% to R443m, while production costs were up 23% to R828m.
CEO Charles Naude said Afrisam suffered a margin decrease due to abnormal cost increases relating mainly to high energy costs. He said this situation was expected to improve as energy costs come down.
The biggest blow to bottom line, though, came in the form of financial expenses - which relate to long-term financing of R15.9bn on Afrisam’s balance sheet. These expenses topped R1bn, which include R387m of forex losses .
Another R350m was lopped off its bottom line by expenses on non-operating assets, as a result of once-off rollover fees paid. This left Afrisam R900m in the red for the September quarter.
Naude said the exchange losses and once-off fees could skew the quarters financial performance.
The biggest concern for Afrisam at this point would be ensuring sufficient cash flows are generated from operations. The quarterly cash flow from operations was close to R900m, which covered four months of interest of R615m paid out to service the debt load.