Results for the first half of 2014 were influenced by a challenging trading environment and spill-over effects of Afrox’s own strike in the first quarter.

Despite achieving price increases broadly in line with increased input costs, revenue for the six months to 30 June 2014 was flat at R2.87bn (2013: R2.86bn).

Earnings before interest, tax, depreciation and amortisation (EBITDA) was down 2% at R442m (2013: R449m).

The EBITDA margin achieved was 15.4% (2013: 15.7%), reflecting the consequence of adverse sales conditions and inflationary pressure on costs; profit for the half-year was down 4.5% at R169m (2013: R176m) with headline earnings of 49.5 cents (2013: 55.1 cents).

The group’s capital revitalisation and growth plan continued to be implemented with capital expenditure of R209m incurred

during the first six months of 2014 (2013: R261m).

Business review

Uncertainty in the economy and low GDP growth in South Africa, continue to impact negatively on demand for our products in key sectors. At 30 June 2014, year-on-year mining production had fallen approximately 5.7%, with manufacturing output down 1.6% in the first quarter and 0.4% in the second. However, the company’s long-term success, and the realisation of strategic goals, depends on Afrox’s ability to adjust and respond to current and future market dynamics. “We believe the next few months will see our key South African markets continuing to move at the current lower levels of activity and accordingly we are pursuing an active cost management programme to mitigate against these difficult economic conditions,” the company stated.

“In the first half of 2014, volume erosion continued in almost every market served in South Africa. Local shortages of Liquefied Petroleum Gas (LPG) – due to unexpected shutdowns at refineries – coupled with a planned maintenance shutdown of our import storage facility, constrained our ability to meet demand for LPG in the first quarter. There was only a modest recovery in quarter two hampered by industrial action and a relatively mild start to winter in South Africa.”

“Afrox continues to import LPG to supplement the market shortfall, in the process effectively subsidising an element of these additional costs as price recovery and distribution costs of imported product remain a challenge. We plan to increase the LPG cylinder pool by a further 5% in 2014, and therefore introduced a non-refundable rental charge to justify this additional capital investment in LPG cylinders. We continue to actively manage the illegal filling threat, not only to ensure that our assets are not abused, but more importantly, to protect the public from significant safety risks.”

Output reduction at key large customers led to a reduction in demand for Atmospheric Gases in this reporting period. As a result, gaseous pipeline sales reduced and sales for bulk and compressed gases remained flat reflecting the continued reduction in activity in the manufacturing sector and the effects of strike actions in the first and second quarters.

The R350m Air Separation Unit in the Eastern Cape is expected to commence production by the second quarter of 2015, which will mark a significant improvement in security of supply to customers in this important region. Afrox also commissioned

a new R14m hydrogen facility in Pelindaba which will reduce Afrox’s dependence on imported hydrogen and enhance

customer service levels.