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When the going gets tough, the tough face the facts, says Afrimat CEO

Andries van Heerden

Andries van Heerden

11th November 2014

By: Irma Venter

Creamer Media Senior Deputy Editor

  

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Remember the good times when construction and construction-related companies listed on the JSE, one after the other, and their share prices immediately surged upwards? The 2010 Soccer World Cup was coming and the outlook for brick and mortar was rosy.

The boom of the mid-2000s, however, has since imploded, taking a number of companies with it, such as Erbacon Investment Holdings, Sanyati Holdings and Protech Khuthele.

One company still standing is construction materials and industrial minerals group Afrimat.

CEO Andries van Heerden says it has been anything but smooth sailing since the company listed in November 2006.

“Our shares were issued at R5, then went up above R10, and then crashed to R1.60. We are around R16 at the moment.”

Afrimat in November for the first time announced revenue of more than R1-billion for a six-month period, with operating profit at R127.3-million.

Revenue for the full financial year was R850-million in 2011, with operating profit at R106-million.

What has made Afrimat survive while others failed?

“I can’t speak for any other company, but I think it helps that we have an in-depth knowledge and understanding of our market and the environment in which we operate,” says Van Heerden.

Afrimat acquired the Clinker Group because it owned a resource producing an especially lightweight clinker, which also delivers a favourable chemical reaction in the concrete block-making process.

“All of this means you use less cement when making concrete blocks, and you transport more blocks in a single load, which has a cost implication,” says Van Heerden.

“We always look for products that are in demand, and which can be sold at higher margins, rather than delivering into markets that are over-supplied.

“We continuously search for those little gems that everybody overlooks,” he adds.

“And when we look at our operations, we always think: ‘Just a little bit more’.”

Van Heerden says Afrimat also has a well-considered strategic master plan, with management working to make changes as and when the economy demands.

“We are willing to face the brutal facts.”

And what are these brutal facts?

“This is the market, right now, so there is little use waiting for things to come right,” states Van Heerden.

“In 2007 there was enormous demand for construction materials. That is long gone, and we have to accept it. The economy is not growing, and what worked in the past will not necessarily work now.

“You have to work hard and be creative. We need to know where the projects are going to be, and position ourselves for those project 6 to 12 months ahead of time.”

Afrimat, for example, had to face the fact that the low-cost housing market in KwaZulu-Natal has declined sharply. However, there may be growth along the Nelspruit to Botswana corridor.

Afrimat also refuses to be dependent on that one big, elusive project.

“Little drops fill the bucket. In KwaZulu-Natal 40% of our bricks and blocks go to private buyers, showing up on Fridays to buy a bakkie-load full of goods,” says Van Heerden.

Other factors keeping Afrimat in business are teamwork and an entrepreneurial mindset among its employees and member companies, a positive energy among staff, a conservative approach to business, with capital expenditure carefully planned, and an eagle eye on return on investment.

“Management shares a strong value system, and we have the same vision for our company,” adds Davin Giles, MD of the Cinker subsidiary.

He believes a federal group system assists Afrimat, with freedom and accountability guaranteed in equal measure.

Another positive is that Afrimat has worked to diversify as soon as it listed, adding industrial minerals to its product list, for example.

Afrimat is not, however, interested in becoming a construction company, says Van Heerden.

The listing boom saw many construction companies acquiring construction material companies, and a number of smaller construction service companies adding construction to their skills fold.

Van Heerden says South Africa’s large construction groups, such as Group Five, Basil Read and Murray & Roberts, all underestimated the complexity of the materials market.

“This is a highly sophisticated market that requires thorough understanding. People tend to underestimate this industry.

“Our margins look good on paper, yes, but our industry works on a much smaller scale. I think a lot of companies thought that the construction material business looked like easy money, and they all burnt their fingers.”

Looking into the future, Van Heerden says Afrimat hopes to continue doing the basics right.

“We are openpit miners. That is what we do.

“We want to improve our geographic location and possibly move internationally – also beyond Africa.”

Afrimat also plans to continue its product diversification strategy.

“We can, for example, supply limestone for flue gas desulphurisation at power stations.”

Limestone is used in the water purification, road stabilisation, and cement and tile markets, for example.

Van Heerden adds, however, that Afrimat remains committed to South Africa.

“This is the country of opportunities. I almost like the current sense of negativity, it makes finding opportunities easier.”

Van Heerden believes the construction market will benefit from government’s drive to improve service delivery.

He would, however, like to see an improvement in labour relations, which he considers “too politicised at the moment”.

“We need more discipline among labour unions. There are too many illegal strikes. We all need to get back to work. We need to restore the balance between employer and employee. This will take the shackles off the economy, unlocking the capacity that already exists. Government must create a labour environment that is more investor-friendly.

“We can also do with a bit more wisdom from government in its management of the economy,” adds Van Heerden.

“Six years after the previous blackouts, we still do not have a new power station.”

Van Heerden also laments the red tape that has seen Afrimat struggle five to six years to secure a mining licence.

Afrimat owns 22 quarries, eight sand and gravel mines, 14 batch plants, eight block factories, four industrial mineral mines, while the group also operates on a few contract-crushing sites.

Edited by Creamer Media Reporter

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