Afrox posts higher H1 earnings on back of restructuring, clinches various contracts
Owing to the completion of its restructuring process during the last year, JSE-listed Afrox reported a 7.6% increase in earnings before interest, taxes, depreciation and amortisation to R523-million for the six months to June 30.
Headline earnings a share were up 10.4% to 76.5c apiece.
However, as a result of the weak local economy, the gas and welding solutions provider recorded a 2.4% drop in revenue to R2.61-billion, aggravated by revenue from the atmospheric gases business decreasing slightly to R1.04-billion, owing to the impact of the market conditions and the effects of the carbon dioxide (CO2) shortage, which had now been resolved, ensuring a more positive supply outlook.
Gross profit after distribution expenses (GPADE) decreased by 8.5% to R335-million, owing to the impact of the CO2 shortage, rising cost inflation and the unplanned shutdown of its Highveld facility.
Liquefied petroleum gas (LPG) revenue also decreased by 1.2% to R852-million, intensified by product shortages as a result of unplanned refinery shutdowns during the first four months of the year.
With imported product available during the latter part of the reported period, significant progress has been made in meeting market demand. Despite lower LPG volumes, Afrox managed to increase GPADE for this business by 13.5% to R185-million with margins improving by 2.8% to 21.7% in the first half, driven by the lower supply chain costs.
Afrox noted that with the local economic environment expected to remain weak, Afrox would continue to focus on opportunities to grow markets, increase market share and contain costs to enable growth. “Although the trading conditions remain difficult, our business remains strong with significant capacity to grow in the future,” the company said in a statement.
Afrox also announced the signing of a ten-year R45-million LPG supply agreement with one of South Africa’s largest poultry producers, which supplies stores such as Woolworths, Nandos and OBC.
Under the agreement, it will also erect 16 bulk tanks. "We are proud to be the supplier of choice to one of South Africa's success story businesses. Not only did we retain their business in the face of fierce competition but we have grown it and extended the contract,” said Afrox MD Schalk Venter.
Afrox also signed agreements to supply a major concentrated solar power project with pressure storage vessels, nitrogen and LPG. The contract with the Northern Cape solar power project is worth R59-million. The project, to build a 100 MW parabolic trough plant with a five-hour thermal energy storage system using molten salts, will form part of the largest solar complex in Africa.
Further, the company clinched a five-year, R60-million agreement to supply a national network of petrol stations with Afrox’s LPG brand Handigas for onward sale to forecourt customers.
The deal, which will run until 2021, will see Handigas being made available at 244 garages across South Africa.
"Handigas is a brand synonymous with product excellence, service and safety and Afrox is delighted this national petrol station chain has chosen to partner with us to supply Handigas to their customers,” said Venter.
Lastly, the company has been contracted for a five-year, R24-million agreement to supply a South African petrochemical company with welding consumables.
Speaking to Engineering News Online at the company’s results presentation on Thursday, Venter said local LPG demand had always been constrained, paired with ageing refineries that were not geared to produce high-quality fuel in terms of green concept.
He added that, with the company’s capacity to import 64 000 t/y of LPG, it could easily supply the newly won contracts, but also push further into the Southern African Development Corridor region, as a result of continued power shortages.
“The demand for alternative energy for basic heating of water, food or space, has moved more towards LPG. We have found good markets there, driving more towards the home space,” he added.
He further noted that shopping centres and industrial areas would demand greater volumes of LPG, with Afrox to install on-site facilities.
Venter highlighted that with mining and welding markets contracting, owing to the harsh economic environment and it being driven by commodity cycles, Afrox needed to maintain those markets, while focusing more on consumer-driven, more resilient, markets.
“We will still see significant growth in the middle class across Africa, with sectors such as healthcare, food and beverage, hospitality, specialty gases such as aerosols [presenting opportunities for growth].”
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