Operational efficiency lifts Afrox
Interims were some of the best results in recent years, says CEO
Afrox has increased revenue and profit as a result of a rise in product volumes, cost recovery through pricing and cost containment.
Revenue grew 6.8% to R2.8bn in the six months ended June 2017, despite continuing weakness in SA’s economy, as earnings before interest, tax, depreciation and amortisation (ebitda) rose 10.5%, to R578m. Profit for the period was R296m, from R244m previously.
"We’re very pleased with the results," Afrox MD Schalk Venter said on Friday. He said the interims were some of the best results in past years.
Venter also said this was the first time the gases group had seen better revenues from both better volumes and prices in the past three years.
The ebitda margin improved to 20.7%, from 20% in the 2016 interims. This helped headline earnings per share jump 22% from previously.
Afrox is much leaner since a 2015 restructuring ended in December 2016. Matthias Vogt was appointed as chief financial officer and executive director from August 1 after chief financial officer Dorian Devers resigned in May.
Vogt said the staff headcount had been cut by almost one-third over the past three years, to about 2,200 full-time employees. This came as the group had revised spending of R1.5bn amid continuing headwinds in the South African economy.
The latest improvement in profitability and the continued focus on balance sheet optimisation resulted in a net cash position of R194m, up from R153m in December 2016.
Capital expenditure of R169m was in line with previous years and reflected a lack of growth in demand.
Investec chief economist Annabel Bishop said on Friday there was still a material risk of SA losing its investment grade ratings. She said the negative politicking in the country "and in particular the perceived frequent, conflicting political and economic policy proposals, especially populist ones" had badly affected sentiment levels.
"With the country now in a run-up to the national election in 2019, and the governing party’s presidential election at the end of this year, little is expected to change to meaningfully accelerate [GDP] growth over this period. Therefore weak outcomes are forecast," she said.
But Venter said Afrox had increased its presence in food, beverage, medical gases and liquefied petroleum gas markets as heavy industrial use of gases staggered in a poor economy — especially in mining and iron and steel markets.
Liquefied petroleum gas is used in industrial processes such as hot-dip galvanising, which prevents corrosion of metals products.
It is also used widely in cooking and heating, in both homes and businesses, including in restaurants and hotels.
Return on capital employed by the group improved to 22.4%, from 18.6% in the interim period in 2016 on higher profits and asset optimisation.
"We are well positioned to take advantage of growth," Venter said.