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Afrox sees upside of R375m restructuring programme

Afrox sees upside of R375m restructuring programme

Photo by Duane Daws

28th August 2015

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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Gas provider African Oxygen (Afrox) says the positive effects of a R375-million restructuring programme, which saw the departure of its former chairperson, CEO and MD, as well as plant impairments, redundancies and closures, are starting to emerge, despite a 24.4% narrowing of headline earnings a share to 37.4c for the half-year ended June 30.

Presenting the company’s results, in Johannesburg, on Friday, newly appointed CEO Schalk Venter told investors that the liquefied petroleum gas (LPG), oxygen and carbon dioxide supplier had delivered pleasing results under “very, very difficult” domestic and international economic conditions.

“Depressed commodity prices have had significant effects on our traditional customers in the engineering, iron and steel sectors, while the restructuring programme has also created uncertainty [in the group].

“The one-off costs associated with the restructure have diluted earnings, as has a lack of LPG supply, which have negatively affected revenue development potential,” he noted.

Afrox had, over the period, noted a decline in infrastructure spend in Africa – where it was active in 15 countries – as well as the impact of electricity constraints in South Africa.

There were, however, pockets of growth in certain sectors on the continent, Venter asserted.

“In South Africa and elsewhere on the continent, we are seeing growth in the demand for gases for the healthcare sector, as governments are investing more in healthcare . . . [which we believe] is a trend for future growth.

“[Meanwhile], middle-class development on the continent is bringing opportunity in the hospitality and beverage markets, which require gas for carbonation. We’re [thus] investing more in markets in Southern Africa and emerging countries, such as Kenya and Zimbabwe,” he outlined.

While noting good margin management and volume growth in the group’s LPG business, the new Afrox head added that the security of supply into the market continued to hamper the growth of this business, with sales dropping 17% to R871-million on the first half of the prior year.

“While we have the largest LPG import capacity of all our competitors, it’s still woefully inadequate . . . there is just not enough capacity, so we can’t keep all our customers in stock,” he said.

Afrox was, however, looking to access the future capacity of LPG storage projects currently under development in South Africa.

The company also advised shareholders on Friday that it had retained the De Beers Group of Companies’ contract for the supply of industrial and medical gases, welding consumables and bulk LPG for the next five years.

Volumes from the group’s atmospheric gas business remained resilient relative to the market, with sales increasing 5% to R946-million in the first six months of the year.

However, underlying demand for gaseous pipeline sales, bulk and compressed gases was below the prior year and was impacted by the continued slowdown in the South African economy.

Business revenue from the Emerging Africa business decreased 6% to R437-million over the six months, owing to a combination of the slowdown in commodity markets, a shortage of LPG and the closure of a business as part of the group’s restructuring move.

The company, meanwhile, successfully commissioned its Port Elizabeth-based air separation unit in April, achieving continuous production since June.

It also finalised the civil and structural details of its new Durban-based filling plant, with completion expected in the first quarter of next year.

After selling Portion 79 of its 103 000 m2 Cornucobia property, in KwaZulu-Natal, the company continued to look for buyers for the remaining four portions.

Looking to the group’s financial showing, Afrox’s revenue slipped by 6.5% to R2.67-billion over the period, while earnings before interest, taxes, depreciation and amortisation grew 10% to R486-million.

All restructuring activities were expected to be completed by the end of the year, with the full impact of the programme – estimated at some R400-million – likely to be realised by the end of 2016.

“Challenging conditions for the foreseeable future, particularly in the key manufacturing, mining and steel production sectors of the economy, will require increased focus on cost containment, which forms an integral part of the turnaround process.

“Although overall trade conditions remain tough, Afrox’s underlying business remains strong and cash generative,” Venter held.

The company declared a dividend for the half-year of 18c a share.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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