Engineering News

By Irma Venter

May 25th, 2012

As a country, South Africa often has a herd mentality. We have certain themes we believe and we act accordingly,” says Afrimat CEO Andries van Heerden. “We must start questioning some of the fundamental assumptions we make,” he adds.

Some of these assumptions are that infrastructure spending is not happening and that government, in general, is not paying its bills.

Van Heerden says Afrimat has not experienced payment problems. Also, government is indeed spending money on infrastructure, but contracts have become smaller, and work has moved out of the major cities. The Northern Cape, for example, is earmarked for R8-billion in roads spending over the next two to three years.

Where an average road contract was valued at R800-million to R1-billion three or four years ago, it is now R100-million, notes Van Heerden.

“We are seeing a change in our environment and a lot of the big guys find it difficult to adapt.”

Van Heerden says all players within the construction industry often select data that proves their point, adding that Afrimat’s position is that “infrastructure is alive and well and happening out there”.

As proof of this, he says, South Africa’s spend as a percentage of gross domestic product in 2012 remains above 8%, as has been the case since 2008. In 1997, this was just over 4%. Provincial and national roads expenditure has also been sustained at more than R30-billion since 2010, up from just over R10-billion in 2007.

Building plans passed have started to bottom out, adds Van Heerden, with cement sales picking up every month since August last year.

“We are not close to the levels of 2006, but the market has turned. It has bottomed out. There are no fireworks, as in 2006, but that not will happen in my lifetime again, and I’m still very young,” quips the 46-year-old executive.

However, he adds that it is all not good news, as challenges remain, such as the high fuel price, and the uncertainty surrounding the South African National Roads Agency Limited’s future as the hugely unpopular tolling process in Gauteng has started to take scalps, most notably that of CEO Nazir Alli.

Afrimat’s exposure to Sanral is not big, however, notes Van Heerden, with the agency making up only 6% of turnover in the past financial year.

Municipalities’ financial woes also remain a persistent challenge, as does congestion in Africa, pushing margins on the continent ever lower.

“The margins in Northern Mozambique are lower than in Mpumalanga and the risk-reward does not work,” says Van Heerden.

He adds that Africa is filled with Chinese, Indian, European and Brazilian companies hunting for work.

Afrimat had a good 12 months, ended Feb- ruary 29, on home ground, says Van Heerden.

“This is a really pleasing set of results.”

Revenue at R996-million was up 16.6%, compared with the previous financial year, with headline earnings per share up 17% to 62.6c.

Operating profit increased by 18.7% to R130-million, with the operating margin inching up to 13.2% from 12.8% in the 2011 financial year.

The company also had more cash than debt at the close of the year – in a “market that was very volatile”, says Van Heerden.

The new acquisition of Clinker Suppliers and SA Block will add to Afrimat’s 2013 numbers.

Van Heerden says the company will continue to look at possible acquisitions, especially as the strong balance sheet allows such a move.

However, he adds that he is aware that the most dangerous time in a company’s life emerges when everything is going well.

“We must work to keep the ‘fat cat’ syndrome away.”