JSE-listed African Oxygen (Afrox) was hoping the Competition Commission enquiry into the liquefied petroleum gas (LPG) industry, of which the results were expected to be released in March 2016, would unlock opportunities for the competitive importation of LPG in to South Africa, FD Nick Thomson said on Friday.

Speaking at a presentation of the company’s financial results for the six months ended June 30, he said South Africa required an ever-increasing amount of LPG relative to the energy basket; however, local refineries were under pressure as a result of the Clean Energy Bill and ageing infrastructure.

Therefore, the country would have greater need for imported LPG.

“But to achieve that, there has to be a mechanism of creating storage and a tariff which allows us to recover the cost of bringing in LPG,” Thomson said, explaining that Afrox did currently import LPG; however, it had to discount the margin on its imports to be able to compete with local refinery products.

“What we are hoping comes out of [the Competition Commission enquiry] is a process to address the difference between the imported cost of LPG – a pricing mechanism to recover [its] higher cost,” he said. 

Meanwhile, Thomson noted that Afrox was well positioned for future growth, but warned that economic headwinds were preventing this growth from taking place.

Activity in two of Afrox’s main operating segments – manufacturing and mining – had declined significantly during the first half of the year.

The manufacturing sector had recorded declines in output of 1.6% and 0.4% for the first and second quarters respectively, while mining output declined by 5.7% during the first half of the year.

“[At Afrox], we have [gone] back to basics; we have made sure that we invested appropriately in plant maintenance to improve reliability; we have focused on the customers to make sure that we improve our service delivery; and we have looked at introducing a fair amount of cylinders; and invested expenditure to make sure again that we can improve our service offering.

“[So] what we are really waiting for, because we believe we are good to grow, is for the headwinds in the economy to turn around and become tailwinds so that we can benefit from good growth,” he stated.

Afrox MD Brett Kimbler added that while economic conditions were expected to remain challenging for the foreseeable future, the company remained determined to find growth opportunities, adding that the company was seeing significant potential in the East African oil and gas market.

During the six months ended June 30, Afrox’s operations in the rest of Africa contributed 20% to the group’s gross profit after distribution expenses, with Kimbler stating that the company saw this division contributing a larger portion of the organisation’s profit in future.

He said Afrox would continue to make strategic investments into the rest of Africa focusing on developing product and service offerings to meet local demands.

Meanwhile, in terms of its South African division, the company would pursue an active cost management programme to mitigate against the country’s difficult economic conditions.

FINANCIAL RESULTS
Afrox reported a 4.5% decline in profit for the six months ended June 30, to R169-million, while headline earnings a share were down 10.2% year-on-year to 49.5c.

The company noted that, despite achieving price increases broadly in line with increased input costs, revenue for the six months was flat at R2.87-billion, compared with R2.86-billion in the prior corresponding period.

Earnings before interest, tax, depreciation and amortisation (Ebitda) were down 2% at R442-million, with an Ebitda margin of 15.4%, down from 15.7% previously, reflecting the consequence of adverse sales conditions and inflationary pressure on costs.

During the six-month period, Afrox continued to implement its capital revitalisation and growth plan with capital expenditure of R209-million having been spent.

Afrox declared a gross interim cash dividend of 24c a share.