Afrimat CEO Andries van Heerden: Tough times, turnarounds, and future growth
Afrimat CEO Andries van Heerden opens up about the company's toughest half-year yet, with earnings down by 75-85%. Despite challenges including a perfect storm of iron ore setbacks and struggling acquisitions, van Heerden remains optimistic. He highlights recovery in key areas, ongoing improvements, and the company's resilience, hinting at brighter prospects as market conditions and strategic decisions take hold. Van Heerden spoke to BizNews editor Alec Hogg.
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Edited transcript of the interview ___STEADY_PAYWALL___
00:03
Alec Hogg:
Trading update today from one of the blue chips in the resources sector on the JSE. Afrimat Chief Executive, Andries van Heerden, will take us through the disappointing numbers. It doesn't seem like the market is too concerned, though.
00:28
Alec Hogg:
Andries, as always, good to be talking with you. Headline earnings per share for the six months to the end of August—you warned shareholders today—will be down by between 75% and 85%. Have you ever had a reversal like this previously in your history as a listed company?
Andries van Heerden:
No, no, this is the worst it's ever been. It's been an extremely challenging first half of the year. So no, it's the worst it's ever been.
00:55
Alec Hogg:
But what I found interesting is that although the share price dropped from, let's call it 66.5 to just below 63 when the market opened or started paying attention to this, it rebounded and is now trading virtually unchanged from yesterday. I guess that means somebody is seeing through the noise?
Andries van Heerden:
Yes, Alec, I hope so. You know, it was just a big impact. We had three events.
01:23
It was almost a perfect storm, with three blows coming at once. The first was that ArcelorMittal, one of our really big customers on our domestic sales of iron ore, had to freeze two of their kilns, and we lost a significant amount of sales to them in the first couple of months this year. That had a big impact. The second issue was on the export side.
01:53
We saw a deterioration in the volumes that Transnet could transport for us. At the same time, we saw the international iron ore price retract by a good 25%, and the rand strengthened. That combination also affected our income.
02:19
Then, we took over the cement business on May 1st, and it was in a really bad state when we took over. We've been making losses in that business for a few months. That's also now starting to turn, and I think the market can see that. On the metals side, we've seen that correction, and the volumes are back. On the cement side, we've made very good progress.
02:48
I'm expecting that turn to happen—if not this month, hopefully next month. On the export side, we saw a recovery in the iron ore price due to the recovery in the Chinese economy. I think that's what analysts are seeing.
03:14
We also released a SENS announcement earlier this year, highlighting those impacts, and I think the market has already discounted that.
Alec Hogg:
It's a lot to do with your own authenticity and credibility, which has been built up over many, many years. But looking forward, Andries, is ArcelorMittal now back on stream? And more importantly, what's it looking like internationally with iron ore prices and Transnet's ability to actually get the product through the ports?
03:53
Andries van Heerden:
From our perspective, we've actually seen an increase in volumes to ArcelorMittal over the last few months. Monthly volumes to them are higher now than they were last year, so that's a really good sign. On the international side, the iron ore price, which was as low as $89 a ton a few weeks ago, has recovered.
04:21
This morning, it was around $104 per ton. Earlier this week, it hit $108, so it's moving in that range, which is already a significant improvement. On volumes, we are about 20% below our allocated capacity.
04:51
Transnet's performance hasn't improved yet. There's a lot of work going on behind the scenes to fix the issues, but the backlog is so big that it will take time to clear. I'd be surprised if we see significant improvement in Transnet's performance in the next year or even two.
Alec Hogg:
The new CEO of Transnet needs time, presumably?
05:18
Andries van Heerden:
Yes, I think she's doing a fantastic job, but as we saw with Eskom, it takes time to go from recognizing the crisis to fixing everything. There's a lot of work happening to improve the situation, but I wouldn't expect a major improvement soon.
Alec Hogg:
The good news, I guess, is that when things do improve, it will immediately impact a business like yours. You also mentioned in your trading update that the improvement in your industrial minerals business is due to no load shedding.
06:15
Andries van Heerden:
Yes, we've seen a significant improvement in that business. We supply industrial customers who were severely impacted by load shedding. The recovery has not only benefited our business but also our customers, and we've seen a significant increase in demand from them.
Alec Hogg:
So iron ore had a rough six months to the end of August, but it's looking better now. What about the cement business? Could you give us an understanding of why you bought Lafarge's assets? Were they real bargains, and how long do you expect it to take before you recover the purchase price?
07:12
Andries van Heerden:
Lafarge has three major types of assets. The first is aggregates and ready-mix, and they have some of the best quarries in South Africa, which was a big draw for us. The second is the fly ash business, which is also well-positioned and is becoming more important with the move towards low-carbon cement. The third is the cement business itself.
07:38
The cement factory in Lichtenburg and the grinding plant in Randfontein have a lot of potential, especially for niche markets. However, the Lichtenburg cement factory was severely neglected. You wouldn't believe that an international company could let a quality asset deteriorate like that. We've placed our best people there to turn it around, and I'm speaking to you from Lichtenburg right now. I'm happy to report that the team is making good progress.
08:37
I'm cautious about predicting how long it will take to recover the purchase price, but we didn't pay a lot—about a billion rand in total—and I hope to pay that back in a very short space of time.
Alec Hogg:
Afrimat's heart is in the aggregates business, where you come from. You knew exactly what you were getting into with Lafarge.
09:05
Andries van Heerden:
Yes, exactly.
Alec Hogg:
Tell us a little more about Lichtenburg. The people there must be hopeful that you can turn the business around. It must be important for their future.
09:19
Andries van Heerden:
Yes, we are one of the largest employers in the town, and we also operate a limestone mine nearby. Our operations have a big impact on the local community, both in terms of job creation and our social and labor plans for upliftment.
Alec Hogg:
When do you expect to tell shareholders that you've accomplished the mission?
10:18
Andries van Heerden:
I've been accused of being impatient, but I hope we'll see a turnaround before the end of this financial year. Our financial year ends in February, and I'm hopeful for a significant improvement before then.
Alec Hogg:
You always tell it straight, Andries. You've had the improvement from Eskom, which has positively impacted the company. You're struggling with Transnet, and as you say, that will take time. Some businessmen are getting excited about the potential for a government of national unity. How do you see that?
11:16
Andries van Heerden:
I share that sentiment. Despite the three big impacts we faced, we're already seeing positive signs, especially in our aggregates business. Business confidence is improving. One of our big property developer clients recently approved a project in South Africa for the first time in 15 years, which is a big step.
Alec Hogg:
What about jobs? Will these green shoots lead to job creation, or will it take a long time?
12:24
Andries van Heerden:
It's hard for me to speak on a macro scale, but I can share our experience with the Nkomati anthracite mine. When we bought it in 2020, there were 150 employees. We've since turned it around, and we now employ 660 people. So, by fixing underperforming businesses, we're able to create jobs, and I expect the same to happen with the cement business.
Alec Hogg:
Why were you confident enough to pursue that deal when others were sitting on the sidelines?
13:31
Andries van Heerden:
I think it's just in our nature—my team and I are very optimistic. We had a strong balance sheet, and we knew the quality and potential of those assets. That's what we do. We buy underperforming businesses at reasonable prices and turn them around.
Alec Hogg:
You're very modest.
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