Afrox eyes growth opportunities in Mozambique
The gas and welding company wants to supply LPG to gas construction sites
Afrox, SA’s leading supplier of gases and welding products, is eyeing growth opportunities for its liquefied petroleum gas (LPG) business in Mozambique, says MD Schalk Venter.
The nascent gas industry promises a new revenue stream for Afrox, after its LPG unit saw a drop in demand in the six months to June 30.
Momentum for new projects in Mozambique has been building since the discovery of natural gas reserves there in 2010.
Afrox CEO Schalk Venter speaks to Business Day TV about the factors that contributed to the group's improved annual financial performance.
In June, US oil and gas group Anadarko Petroleum approved a $20bn gas liquefaction and export project in Mozambique. It will be the country’s first onshore liquefied natural gas (LNG) development.
Venter said the company, which has a strong presence in Namibia, Botswana, Malawi, Zambia and Lesotho, wanted to capitalise on developments in SA’s neighbour.
Afrox would offer LPG for heating on construction sites. “We can also supply welding hard hats and equipment,” he said.
Venter was speaking after the release of the company’s half-year results. The group’s half-year revenue increased by 3.3% to R3bn.
The company attributed the improvement to its government contract and higher LPG cylinder volumes.
Operating profit was up 4.8% to R457m. Afrox's health-care contract with the government boosted performance, countering the full effect of poor conditions in the manufacturing sector and lower LPG industrial bulk volumes.
Afrox said it had benefited from an investment in more than 55,000 new 5kg cylinders for the domestic market and another 50,000 LPG cylinders for the general market. It plans to buy more LPG cylinders over the next six months.
Headline earnings per share increased by 7% to 111.3c per share, while earnings per share were up 6.7% to 112c per share. Cash flow from operating activities increased by R232m to R485m.
Afrox declared an interim dividend of 55c per share.
“Long seen as a bellwether of the domestic economy Afrox lost that lustre and positioning many years ago as the ravages of a slow growing economy and declines in domestic manufacturing saw slow growth in many of its core areas,” independent analyst Anthony Clark of Small Talk Daily said on Monday.
Clark said Afrox needed “solid” economic growth to return to a strong performance.
“The business has underperformed for years and ongoing restructuring and cost cutting seem to be the only way it can keep profits looking mildly positive until SA gains some GDP growth,” he said.
Afrox said the atmospheric gases business increased revenue by 10% largely due to a state tender and improved demand in the food and beverage, mining and automotive sectors.
Revenue at its LPG fell by 2.4%. Afrox said there had been an “economy-driven” reduction in volumes from industrial customers.
The hard goods business also saw a drop in demand, including welding consumables from the mining, manufacturing and construction sectors.
Afrox shares on Monday gained 4.91% to R20.72.