Posted: 2009-11-05 23:56 Afrimat interims  Presenter: Andries van Heerden Guest(s): Giulietta Talevi Summit TV speaks to Andries van Heerden chief executive of Afrimat about their interim results that include revenue up 21% and an increased dividend Giulietta Talevi: Welcome to Face to Face. Construction materials group Afrimat released their first half numbers on Thursday - highlights include revenues up 21% to R393million, operating profit up 22% to R66million and headline earnings per share grew 21% to about 29.5 cents per share. Andries, you seem to have withstood the downturn in the residential construction sector fairly well compared to some of your peers - how have you weathered this period? Andries van Heerden: Our strategy about two years ago we sat down and we thought that the residential market was going to decline - we never expected it to be so severe, but thankfully at that stage we decided to target the government infrastructure programme that was in its infancy at that stage. We did a lot of work and we secured a lot of wonderful work on the government infrastructure side and that gave us the growth. Giulietta Talevi: Was that throughout your divisions? You have three divisions - that’s aggregates, manufactured concrete products and the ready mix concrete business - was it throughout the business that you managed to secure this contract? Andries van Heerden: A lot of it was on our aggregates side - but also on the ready mix and CMP side specifically on the low cost housing in KwaZulu-Natal and the Free State we managed to get a lot of work from that. Giulietta Talevi: Is that your particular area of focus - supplying to housing developments in terms of the government work that you’re doing - or is it other infrastructure projects as well? Andries van Heerden: Our focus is to a large extent open pit mining of aggregates and supplying that into the market. The current market in the infrastructure space is very lucrative so that’s where we are. We also do a little bit of value adding to our products through our ready mix and our CMP divisions and that supplies to low cost housing. To answer your question it’s not only low cost housing - it’s also roads, power stations and all sorts of infrastructure projects. Giulietta Talevi: The aggregates division seems to have done the best - you mention that it has outperformed your expectations. You talk about particularly in the Western Cape the economic downturn there has been quite severe - how have you managed to withstand that as well as you have? Andries van Heerden: We focused the business quite strongly on the roads - thankfully we had some road works in our area which gave us a market for our aggregates. On our ready mix business we had to shrink the business in the Western Cape and take some of the capacity elsewhere and go where the work is. Giulietta Talevi: You mentioned KZN where your business underperformed - what were they affected by particularly in that area? Andries van Heerden: The biggest problem in the KZN area is we have a very large exposure to government funded projects through smaller emerging contractors and we found quite a sharp deterioration in payments from government to these contractors which then leads to our credit policy being enforced and customers being put on hold until they bring their accounts up to date. That brings projects to a standstill and hampers sales… Giulietta Talevi: So it’s not always good doing business with government. That’s one of the key problems working with government - late payments and delayed projects. You seem to have had the right mix of projects or contracts with government if you look at these results… Andries van Heerden: We had a very good mix. We are happy but it’s not plain sailing - it’s a lot of hard work to make sure that you get paid for the work that you do. Giulietta Talevi: Are you seeing any improvement in the residential sector yet, or do you think the conditions that we are experiencing are going to persists well into next year? Andries van Heerden: We don’t see in the areas that we’re active in - we are active in seven of the nine provinces in the country - and as a matter of fact I don’t see any improvement for the next year from our perspective. Giulietta Talevi: Yet you are predicting an increase in volumes - is that because of the work that you’re getting from government? Andries Van Heerden: Yes, government projects - roadworks and specifically power stations like Madupi that’s been accelerated. There’s a lot of good things happening out there in our market… Giulietta Talevi: If we get onto the financials your cash seems to have dwindled yet you’ve paid out a dividend which is quite a bold move and quite welcome obviously for shareholders. You end this period with R1million cash on hand which looks like a very slim buffer against any sort of downturn - can you just talk a bit about the movement and cash flow and also the decision to pay out an increased dividend? Andries Van Heerden: To answer your question on the dividend first remember the results that you see are to the end of August. The decision to pay out the dividend was on Wednesday and since then two months of business have passed and we’ve seen a significant change in our cash position. We are very cognisant that cash is a very scarce commodity - especially if you do business with government. Our cash position was influenced in the first half because of a transaction we did with our staff where we fixed our BEE status to get to a 26% black shareholding to be in line with the Department of Minerals or the Mining Charter. We took a whole chunk of our own cash to finance that but now our BEE is sorted for a long time. Giulietta Talevi: You didn’t use debt to finance that BEE deal? Andries Van Heerden: We used our own cash resources for a big part of it, yes. Giulietta Talevi: You mentioned that you fixed the BEE problem - you had a BEE partner before but that all went sour didn’t it? Andries Van Heerden: It went sour. They breached their contract and we had to step in and buy the shares. That’s where the cash went - we had to buy the shares back. Giulietta Talevi: Who is the BEE in the shareholding? Is that an external company that you’ve aligned yourself with or is it staff? Andries Van Heerden: We still have some external BEE shareholders in the business but about close to 16% of our shares are held by our own staff now. Giulietta Talevi: Are they locked in for a certain period? Andries Van Heerden: They’re locked in for at least 10 years. Giulietta Talevi: So you’re confident that your BEE credentials are not going to come under threat in any way? Andries Van Heerden: No. That was the main driver for the way we did it. We’re still very comfortable - we funded it ourselves so there’s no risk of banks foreclosing because somebody went under water. We think this thing is secure. Giulietta Talevi: The next six months - are you anticipating an improvement or do you think it’s going to be more of the same? Andries Van Heerden: The second half is always influenced by the December holiday break that takes about one month out of our sales - but on the other hand we see very nice activity at many of the projects going on around the country so we are confident that we will have a good second half. www.summit.co.za Transcripts: 082 962 2772 mvr/met Comments Related to this transcript: Comment on this transcript... Name : Email : Comments :