SERVICE APPROACH - JSE MAGAZINE

SERVICE APPROACH

Afrimat CEO Andries van Heerden on the company’s move to ensure its longevity through optimising operational efficiency and diversification strategies

SERVICE APPROACH

It’s generally considered that the construction industry reflects the status quo of an economy. How fortunate therefore that Afrimat has a much larger pool of services and products to depend on than just the supply of construction materials, an industry that appears, say some analysts, to have a moderate outlook until at least 2021.

Conversely, iron ore – one of the minerals that Afrimat markets and sells – is now considered to be entering a supercycle, having recovered from its slump three years ago. Iron ore is the raw material required to produce steel and as more industrialisation strategies are realised, it’s not surprising that it’s in the industrial markets division where Afrimat is experiencing the biggest growth.

It was the 2016 acquisition of the manganese and iron ore-producing business Diro, since renamed Demaneng, that added bulk commodities to Afrimat’s already diversified product offering and provided the group with the ability to market and sell iron ore.
‘We have a number of opportunities as a result,’ says Andries van Heerden, CEO of Afrimat. ‘The Northern Cape has many iron ore deposits that, while small, can be mined successfully if the balance between cost and professional skills can be found. Our only challenge here is the reliance on a single-rail line from the Northern Cape, which is currently operating at maximum capacity, with limited scope for expansion.’

Entry into iron ore was a catalyst for group revenue increases in this past financial year, an increase of 10.3%. ‘The once-off start-up costs of that business resulted in headline earnings per share declining by 8% from 196.4 cents to 180.7 cents per share,’ says Van Heerden. ‘However, our operating margin remained healthy at 14.3%; return on net operating assets at 21.8%; and our balance sheet also stayed strong with a net debt-to-equity ratio of 37%.’

When Afrimat listed in late 2006, the expectation, explains Van Heerden, was for it to become a national player. ‘Not only have we met that objective, we have begun to penetrate the international market.’

Locally, the group has open-pit mines and quarries in all nine SA provinces, as well as in Mozambique. New business development strategies, however, manned by a dedicated team, are identifying and pursuing opportunities beyond Southern Africa into the global marketplace.
‘We are well-positioned to capitalise on our strategic initiatives that have seen us grow regardless of a depressed construction industry and low levels of investor confidence in the country,’ says Van Heerden. ‘That said, the construction materials market remains very important to us and there are still opportunities for consolidation.’

Operational efficiency initiatives are also part of the growth curve, aimed at expanding volumes, reducing costs and developing the required skill levels across all Afrimat’s employees. Cost reduction has to be taken seriously by all industrial minerals suppliers because traditional supply chains are now being threatened by cheap Chinese imports. ‘We all have to be aware of the down-stream risks as a result,’ he says.

Optimistically, he adds that the industry in general has a compelling outlook. ‘We envisage a future that leverages both the country’s natural and intellectual resources. Construction activity typically precedes economic growth and, as a country, we urgently need to grow our economy to motivate job creation. We do, however, need to think very carefully about how to ensure that growth.

‘A shared vision is about a desired future, and this goes beyond historical issues. It’s what will make us all competitive in a fast-moving world.’

Afrimat expects its current business climate to continue, with the group’s future growth driven by the successful execution of its proven strategy, recent acquisitions and a wider product offering to the market.

As he has been the CEO since inception in 2006, Van Heerden’s personal philosophy is intrinsically linked to the culture of the company, based on a strong set of values that are focused on high performance. His employees talk of working in an environment of positivity.

Van Heerden, while humbled, puts it somewhat differently… ‘We have been blessed with exceptional people, great assets and very good opportunities. Our conservative approach to not overgear the balance sheet and to ensure we get returns on our investment is one part of the success formula.

‘Financial success aside, and although important, Afrimat’s success is also attributed to the growth invested in our people and the contribution we make towards society. Many of our employees have been lifted out of poverty and, through the group’s assistance, become skilled artisans, clerks and other functionaries,’ he says. ‘I believe in empowering competent people to play on their strengths. There is immense power to be tapped from embracing teamwork, but you can only operate successfully in an environment of trust and integrity.’

By Kerry Dimmer