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Afrimat H1 HEPS up 24%: Andries van Heerden – CEO, Afrimat

Government is indeed spending on infrastructure, but not conspicuously.

HANNA BARRY: Open-pit mining as well as construction supplies manufacturing company Afrimat reported half-year results to August 31. Revenue up 10.5%, HEPS up nearly 24% and an interim dividend of 13c/share declared.
   Andries van Heerden is the chief executive of Afrimat and is with us in the studio. Andries, Afrimat seems to consistently outperform the sector it operates in.

ANDRIES VAN HEERDEN: Ja, Hanna, that is a dangerous thing to say. You are only as good as your next set of numbers.

HANNA BARRY: That’s true. Are you happy with these results, though?

ANDRIES VAN HEERDEN: I am very happy, yes. The nice thing is it’s a very consistent set of results throughout our business. There was no serious underperfomance anywhere, and that is a good thing.

HANNA BARRY: Afrimat’s cash generated from operations slightly lower than he previous period. What’s behind that?

ANDRIES VAN HEERDEN: Hanna, that was a planned thing. We did a change in management about a year ago at some of our subsidiaries and then the new guys went in and, in the one case, in the SA Block business, the management icreased inventories quite significantly – and in doing that they managed to bring down their manufacturing cost because of longer curing times and things like that. So it paid off very well.
   And then in our KZN business we also have a new guy there, and they increased their inventories to be able to be more reactive to customer demands, give better customer service. So that was really the main driver for that. It’s a tremporary thing and I think at full year we’ll see that the cash position is much – as a matter of fact, as we speak the cash position has already corrected again.

HANNA BARRY: So really a long-term sort of strategy behind that.
   On the ground, what is your sense of the mood in the construction sector in South Africa? We hear a lot of negative news. For someone who is there on the ground, what do you think?

ANDRIES VAN HEERDEN: Well, I think we must start with the numbers. Our numbers show that there’s good activity out there. We’ve managed to have a very good year. Last year we saw a 42% growth in HEPS; this year we are growing on top of that, and that shows that the activity is out there. It is changing, though. The projects that we supply into are becoming smaller and smaller, there are increased numbers of projects, and they are more focused on infrastructure spend in the service-delivery space. So that would be roads, water, sanitation, those sort of projects.

HANNA BARRY: And are you seeing that infrastructure spend come through from government, which we’ve also heard a lot about?

ANDRIES VAN HEERDEN: We’ve been saying for the last two years that government is definitely spending. It’s coming off a low base, but we see a consitent growth – roads, for instance growing an average of 8% per year since I think 2006. Other areas are growing faster than that. The reason why big construction companies are not seeing it, the projects in our experience are becoming smaller and smaller, so they are falling through the net for the big guys because it’s on the back of government driving for more job creation, more black economic empowerment. So the smaller construction companies tend to serve that purpose better.

HANNA BARRY: And that is surely a positive thing?

ANDRIES VAN HEERDEN: For us, definitely, yes. We can supply anybody, whether a small contractor or a large multinational – we can supply them all.

HANNA BARRY: And are you seeing the job growth from those small constractors?

ANDRIES VAN HEERDEN: I would think so, yes. I cannot comment – I haven’t seen statistics, but my gut feel says ja.

HANNA BARRY: In terms of labour more broadly, we have seen a host of labour issues across mining and manufacturing this year. With a fairly labour-intensive businesses yourselves, is Afrimat’s labour situation fairly stable?

ANDRIES VAN HEERDEN: We are very grateful to say that we’ve come through a full year without any labour action. We’ve done a lot of work to improve labour relations, get a positive culture and climate in the business, and it has paid off. But we also recognise it as the No 1 risk in any business in South Africa.

HANNA BARRY: And Andries, in terms of opportunities for expansion and new business development, where are those?

ANDRIES VAN HEERDEN: We see some exciting opportunities in South Africa still, specifically in Mpumalanga – the whole area from Nelspruit all across to Tzaneen. That whole area we see as an underserved area where we have just obtained a mining permit, and we intend entering that market. We’ve also started in Mozambique. We’ve just got the first stone on ground in a place called Cuamba. We are moving into Pemba. So there are a whole lot of exciting things happening in the Mozambican market. And internationally we see more and more opportunities opening up.

HANNA BARRY: Where are those opportunities/

ANDRIES VAN HEERDEN: I would like to not answer that right now because there are other people listening to the radio programme.

HANNA BARRY: [Laughs] Your competitors, no doubt. But overall a stellar set of results. That share price down 2.5% on the month, but up more than 23% on the year.

ANDRIES VAN HEERDEN: Ja, the market has been kind to us this year and, yes, the share price has gone up nicely,

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