It's not all doom and gloom in SA

Businesses must see the positive signs, says Afrimat CEO Andries van Heerden

08 November 2020 - 00:00 By Chris Barron

Andries van Heerden, CEO of R5.5bn construction, industrial minerals and mining company Afrimat, says one of the biggest threats to SA's chances of recovery is excessive negativity."We've seen how the market has picked up. There's a lot of positive news out there that gets ignored. People want to believe that we're doomed. I'm afraid of that becoming a self-fulfilling prophecy."If you believe things are going to be worse then you don't invest. If you don't invest then the economy doesn't grow."We all agree the government let us down with corruption and a whole lot of other things, but so what? We don't need a government to build this country, we can do it ourselves," he says.In spite of recession, the collapse of the construction sector and lockdown, Afrimat has reported a profit growth from 18.5% to 22.7% for the interim period to end-August.Since 2009 it's achieved a compound annual growth rate in profit after tax of 21.5%, making it one of the most consistently successful companies in the country.Van Heerden, 54, believes the notion that businesses can't succeed unless the government creates the right enabling environment is rubbish, "unless you're a business dependent on tourists who are no longer coming".Businesses must look at their own weaknesses and strengths and the opportunities and threats around them, he says."That is really strategy 101. If you build on your strengths and use your opportunities and are aware of the threats, then you can take your company from a building company in 2006 to an infrastructure company in 2008 to a diversified industrial player in 2015 and a junior mining company in 2020."That's the lesson of Afrimat, which he formed and listed in 2006 thinking there was going to be a big boom in construction.In 2007 they heard that the new National Credit Act was about to be promulgated.He realised they had more than a 50% exposure to the high-end residential market and decided to diversify from pure high-end building into infrastructure."I could have said in 2008 the new National Credit Act has taken our breakfast away, and given up."That's the mindset in this country."Is he saying businesses must blame themselves for their failures rather than a hostile environment?"I'm not saying the environment is not hostile. What I'm saying is that around the world there are companies that actually manage to navigate this. So it's not impossible."Don't expect to always find value where you did in the past. You've got to adapt, and adapt very quickly."One of Afrimat's great strengths has been its flexibility, he says."We've got a dynamic board which is very strict on good governance and keeps you accountable, but in a way where you have the autonomy to move quickly."They've always tried to read emerging trends and position themselves ahead of them.In 2009 they predicted that construction spending was going to come under pressure, with work drying up, and decided to go into industrial minerals.In 2015, when "Nenegate" rocked the markets, "we started to get very worried about where the rand was going and where the country was going".They decided to diversify into iron ore and paid R400m for the Demaneng mine in the Northern Cape when the iron ore price was "rock bottom" at $35 per ton."We knew that making investments offshore is very risky and most people don't get that right. So we decided rather to do something in SA that we understand and earn dollars. That was the strategy. It gave us the international exposure we needed in terms of currency without the risk."But the price of iron ore had bombed and big players in the sector were rushing to get out."Nobody thought it was a good investment. I took a lot of flak from investors saying we were doing the wrong thing."But he'd been in mining since the early '90s and seen these cycles come and go."We knew we could come in very low on the cost curve. We did not know the price would rocket as it did this year (it hit $130.80/t in September), or that the rand would weaken like it did. So we didn't know it would work this well."He attributes Afrimat's extraordinary results during lockdown to this decision, "the fact that we could keep on earning revenue in dollars during this period".He calls it "divine intervention" but admits there's more to it than that. "We don't play around when we look at these things. We analyse our environment and try to read the trends and position ourselves."Proper due diligence before making acquisitions is key. "We've got a team in Afrimat and it's amazing what they come up with when they get into a company and work on due diligence."We've walked away from big deals just because the due diligence team went in there and found a fatal flaw in the operational plan of the target firm."My colleagues are really, really good at this kind of thing."Investing in the right people has been a "critical" factor in Afrimat's success, he says.A R2.2bn bid for Australia-listed Universal Coal in 2019 was the biggest deal they walked away from."The teaser presented to us by the corporate finance guys was very, very attractive but when we got to the due diligence we found that we wouldn't get close to that. If we'd done that deal it would have killed us."They've never allowed emotions to influence business decisions, he says. "If the sums don't work, you walk away, no matter what."At the same time, says Van Heerden, a mechanical engineer from the University of Potchefstroom, he's no "spreadsheet CEO"."We have people who do the modelling, but the best way of looking at a business is going there, meeting the people, kicking the tyres, getting yourself dirty. That's when you really feel the business and where you sense if things can work or not."He says they're seeing evidence of the government's infrastructure programme beginning to work. "Is it on a scale that can move the dial? Probably not yet, but the signs are more positive than a year ago."Business sentiment needs to reflect this, he says.

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