JSE-listed African Oxygen (Afrox) has reported a 22% rise in headline earnings a share to 93.3c, though this was at the lower end of the company’s recent guidance for the half-year ended June 30.

Delivering the company’s financial results presentation in Johannesburg on Friday, CEO Schalk Venter attributed this improvement to increased volumes and operational efficiencies.

“We also increased earnings before interest, taxes, depreciation and amortisation (Ebitda), owing to an increase in volumes, recovery of cost inflation from pricing and continued effective cost containment,” he said.

Because of the improvement in volumes in certain sectors of the business, revenue increased by 6.8% to R2.80-billion.

“Growth in revenue was achieved despite the continued weakness in the South African economy. The volume improvement, supported by effective cost management, led to an increase of 10.5% in Ebitda to R578-million,” Venter noted.

The Ebitda margin improved by 70 basis points to 20.7%.

Meanwhile, the company’s improved profitability and its continued focus on balance sheet optimisation resulted in a net cash position of R194-million.

Afrox’s capital expenditure of R169-million was in line with that of prior years, reflecting a lack of demand growth in the current economic climate, coupled with the adequate production capacity of the group.

The company’s return on capital employed improved by 380 basis points to 22.4% from higher profits and asset optimisation.

SECTOR REVIEW

Owing to volume growth in most sectors, combined with effective price management, the atmospheric gases sector revenue increased by 8.3% compared with 2016.

This was achieved despite difficult economic conditions, owing to Afrox’s leveraging of its unique offering of a broad range of innovative products and solutions.

“New and regained business demonstrated Afrox’s ability to successfully compete in its core segment. Within industrial gases, which include acetylene, oxygen, nitrogen and argon, the demand for our bulk products was above the comparative period, resulting in increased volumes in most sectors,” noted Venter.

Meanwhile, Afrox’s effective cost management, combined with its efficient liquefied petroleum gas (LPG) supply chain, resulted in strong gross profit after depreciation levels (GPADE), with an underlying margin of 20.3%.

Adjusted for the change in market prices, GPADE remained at R184-million.

“Total volumes sold increased by 7% compared with the same period last year, demonstrating Afrox’s ability to grow the market. Increased production from local refineries and an increase in imported products resulted in increased volumes sold,” stated Venter.

LPG revenue grew by 11.2%, or 6.3% at comparable LPG market prices.

Afrox’s total hard goods revenue increased by 1.4% year-on-year, owing to improved pricing and business retention, with underlying growth in the company’s premium product ranges.

However, volumes in welding and gas equipment are still being negatively impacted on by the continued downturn in the mining, iron and steel and manufacturing sectors.

Volumes in Afrox’s gas equipment business also saw a year-on-year reduction, reflecting lower economic activity.

Meanwhile, the company’s underlying revenue in Africa grew by 3% to R394-million owing to improved pricing.

Adverse effects from currency translation and LPG market price changes of R18-million resulted in reported revenue being reduced by 2% year-on-year.

For the period under review, emerging African markets were confronted with continued weaker economic conditions and a lack of investment in infrastructure projects.

“This negatively impacted on sales volumes in most geographies,” Venter said.

Further impacting on sales volumes were the initial supply constraints during the first quarter of the year for LPG and carbon dioxide from South Africa to the company’s emerging African subsidiaries.

Despite these headwinds, Malawi, Mozambique and Botswana managed to achieve underlying top-line growth. However, sales volumes in Zambia remain under pressure owing to lower economic growth.

“Emerging Africa continues to invest in its combined product offering of industrial gases, hard goods and the reliable supply from its established position in the LPG market,” said Venter.

He added that the South African economic environment was expected to remain weak in the foreseeable future, and that emerging African nations would be impacted on by lower economic growth and a lack of investment in infrastructure projects.

“Despite the economic headwinds, Afrox will continue its endeavours,” he said.

The Afrox board has declared a cash dividend of 46c a share for the six months ended June 30.

Based on Afrox’s policy, the dividend is covered twice by headline earnings a share.