Gas supplier African Oxygen (Afrox) has declared a dividend of 38c a share for the six months ended June 30.
It also posted earnings before interest and taxes (Ebit) of R336-million and basic earnings a share of 77.8c.
Afrox recorded an increase in operating cash flow to R502-million, compared with operating cash flow of R485-million reported for the six months ended June 30, 2019.
Afrox posted a R244-million profit for the six months under review, compared with a profit of R347-million posted for the prior comparable six months.
The company explains that a year-on-year decrease of 10.2% in revenue to R2.6-billion was owing to lower volumes across all segments, which was as a result of the Covid-19 lockdown.
CEO Schalk Venter says there was lower demand for atmospheric gases, particularly from the steel and automotive industries in the six months under review.
This was, however, mitigated by stable healthcare demand and the successful recovery of cost inflation, particularly in Afrox’s atmospheric gases and hard goods segments. The company has also noted increased demand from the food and beverage industry.
The company adds that increased sourcing costs for liquid petroleum gas (LPG), resulting from the shutdown of local refineries, had impacted on the Ebit reported for the period.
The Ebit of Afrox’s operating segments reduced by R147-million, or 25.7%, year-on-year, to R424-million.
Ebit from the atmospheric gases segment improved by 6.5% year-on-year, LPG reduced by 63.4% year-on-year and hard goods reported a 63.8% reduction in Ebit for the six months under review.
The atmospheric gases segment achieved satisfactory revenue in its medical gases business despite noncritical operations being postponed at hospitals during the Covid-19 pandemic leading to lower oxygen offtake.
The new investment and roll-out of an in-house designed and toll manufactured integrated valve for medical oxygen cylinders delivered additional gains on a rental business basis. About 21 000 units have been installed in the South African healthcare sector since 2018.
The company’s operating margin reduced overall by 270 basis points to 12.5%, compared with an operating margin of 15.2% reported in the prior corresponding six months, mainly owing to lower economies of scale and inefficient plant modes considering lower volumes across all segments.
Afrox says that, while both the hard goods and LPG segments reported a reduction in margin compared with levels in the prior comparable six months, atmospheric gases margin improved by 280 basis points.
Total LPG volumes contracted by almost 11% year-on-year to 64 000 t, while the hard goods segment was severely impacted on by lower demand from the construction, manufacturing and mining sectors during the lockdown in South Africa.
Afrox plans to embark on a strategic partnership to strengthen its hard goods manufacturing hub north of Johannesburg.
In the LPG segment, cylinder volumes increased by 0.6% year-on-year, despite lower sales to the hospitality industry as a result of lockdown restrictions. More than 70 000 additional LPG cylinders arrived in South Africa by the end of June to further support growth, especially in the domestic sector.
The LPG bulk business volumes declined by 20.5% year-on-year adjusted for a once-off sale to a strategic partner earlier this year. This is mainly related to a reduction in demand from industrial customers, which were heavily impacted by lockdown restrictions.
Venter says Afrox will continue to focus on optimising revenue opportunities, effective price cost recoveries, fixed cost containment, cash preservation and liquidity to mitigate the lower level of economic activity in the country.
“In difficult times, we drive optimised use of key assets, including vehicles and filling sites.
“We will continue to promote and drive increased domestic use of LPG, and we continue to review the footprint of our more than 30 service centres across the country – looking at volumes profitability and agents reaching wider areas.”
Looking at the medium-term strategy, the company is focusing on efficiencies and value creation, adds Venter.
The company has a strong cash position of R1.1-billion to take advantage of future opportunities.