During days of continued uncertainty and against a backdrop of difficult full-year financial results, African Oxygen Limited (Afrox) maintains its ‘flexible approach to the business’.

For the year ended 31st December 2009, Afrox revenue deceased by 15% to R4.8bn, while net profit was R243m.

Earnings per share were 75.2 cents for the period, down 44% compared to the 12 months ended December 2008. Earnings before interest, tax, depreciation and amortisation (EBITDA) reduced 17% to R838m, with EBITDA margin remaining constant at 18%.

Afrox described the trading conditions as ‘extremely tough’ but noted that the company maintains a ‘flexible approach’ to its business.

The company continued to invest in modernisation, capacity and efficiency enhancements, but in line with prevailing economic conditions, spending was limited to R307m compared to R603m in 2008.

Cash generated as a percentage of EBITDA was 147% compared to 66% for 2008, while cash generated from operations increased by R568m to R1.233bn and Afrox ended the year with net borrowings of R914m. Group gearing of 21% is cited as ‘a pleasing improvement’ as net borrowing levels declined.

The full-year reporting period was characterised by diminished returns and extreme pressure on sales, volumes and margins.

Actions taken in response included the consolidation in filling sites, elimination of slow-moving and minimally profitable product ranges, optimisation of routes to market and the introduction of a minimum delivery order value which has enabled distribution to schedule more economically and improve service levels.

Tjaart Kruger, Afrox Managing Director, explained in a statement, “Further measures were the reduction of electricity consumption, procurement pricing initiatives and a 4% improvement in productivity. Head-count was also reduced by more than 700, which was 17% of the workforce.”

“Together these have reduced the cost base of the business in excess of an annualised R200m. These savings are sustainable with further gains expected in 2010.”

“Trading conditions in 2009 were extremely tough and necessitated that we adopt, reform and implement processes and structures that enable and encourage the delivery of exceptional performance,” he added.

Kruger continued, “Identification of productivity gains, cost reduction and margin improvement capacity are the results of our high performance commitment and are now inherent in the way we conduct day-to-day business.”

“In these times of continued uncertainty and with no clear line of sight on the direction of the economy, we maintain a flexible approach to the business.”

As a result, the Afrox Board has resolved to declare a final cash dividend of 19 cents per share (2008: 25 cents). Together with the interim cash dividend of 19 cents per share (2008: 42 cents), a total of 38 cents per share is paid for the year.

Notable business wins in 2009 were achieved in the mining and soft drinks sectors, as well as supply contracts with the largest dissolved acetylene installation in the southern hemisphere, Transnet’s new 520km pipeline, and Eskom’s Kusile and Mendupi power station projects.

Looking ahead – A cautious outlook
Sharing the view that any recovery in 2010 is likely to be slow and gradual, Linde Group-owned Afrox has revealed that it will continue its cautious approach and faith in its cost reduction schemes.

“Focal points for 2010,” the Afrox statement elucidates, “remains working capital management, reducing overheads, minimising the cost and complexity of doing business, and preserving liquidity. There is every indication that any recovery will be off a low base and slow.”

The company believes that the coming year will be ‘challenging’ and therefore maintains a cautious outlook, while remaining optimistic that it’s 2009 cost reduction and productivity initiatives will strengthen the group’s ability to optimise its market position and service offerings in 2010.