In the face of the biggest fall in South Africa’s gross domestic product (GDP) since 1960, African Oxygen Limited (Afrox) has today reported strong cash management and cash flows in its interim results, placing the company in a good position to take advantage of emerging opportunities.
Sub-Saharan Africa’s leading industrial gases and welding company said it has steered a managed but flexible path through the economic destruction of the Covid-19 lockdown, which saw a large percentage wiped off South Africa’s GDP in a matter of months.
“Many businesses have been severely affected and many more will take years to recover from the economic disruption caused by this pandemic,” said Afrox Managing Director Schalk Venter (pictured right).
“And while our interim results figures reflect this, Afrox continues to invest and seek out opportunities for growth.”
In the operating period to 30th June 2020, Afrox reported capital expenditure of R248m, up R68m on the previous year, an increase the company attributed to investments into cylinders for LPG and its Healthcare business.
Return On Capital Employed (ROCE) reduced by 510bps to 16.3% (2019: 21.4%), which Afrox said is mostly due to the reduced profitability during the Covid-19 impact. The company maintains its commitment to improve ROCE to +20%.
“Our focus remains on efficiencies, cost and margin management, to drive a high return and performing business and shareholder value creation in this very challenging business environment,” said Venter.
“Given the impact of the lockdown and subsequent reduced economic activities, Afrox will continue to focus on optimising revenue opportunities.”
“We will continue to effect price cost recoveries, fixed cost containment, cash preservation and liquidity to mitigate the lower level of economic activity.”
“The group’s cash balance of R1.17bn places Afrox in a strong position to take advantage of future opportunities.”
Afrox aims to embark on a strategic partnership with an international partner to strengthen its manufacturing hub north of Johannesburg.
Initiatives to maintain profitability include continued focus on cost containment, efficiencies in the factories and improved, just in time delivery and price management in line with cost inflation.
Afrox said the trend of increased imports for LPG continued in the first six months of 2020, and remains a key strategic focus in growing the domestic market by providing access to imported product thereby ensuring consistent supply at competitive prices.
Afrox will also drive market entry of LPG into domestic household markets via solid black empowered resellers.
The new investment and roll out of an integrated valve and regulator for medical oxygen cylinders also delivered additional gains on a rental business basis, with 21,000 units installed in the South African Healthcare sector since 2018. Another 29,000 units to follow during 2020.
“The six months under review have been trying times, but Afrox is right sized and fit for purpose,” said Venter.
“While we have taken measures to mitigate the not unexpected fall-off in business activity we retain our level of staffing core to the flexibility needed to operate.”
“With our B-BBEE Level 1 status, Afrox will be looking to capitalise on supporting contracts resulting from the Government’s planned investment in new infrastructure in South Africa.”
“It is also part of our agenda to support government in its efforts to promote black businesses and Afrox is already playing an active role in this regard and will continue to do so as a proudly South African company.”
An exclusive interview with Schalk Venter, Afrox’s Managing Director, is coming soon to gasworld in October.