African Oxygen Limited (Afrox), a member of The Linde Group, has released its half year financial results ended 30th June 2009, noting a ramp up in cost-containment to counter weak demand.
The company reported revenues of R2.4bn, with operating profits of R280m for the first six months of 2009. Net profit for the period was R120m, with earnings per share 39.1 cents.

Compared to the same period in 2008, revenue is down 11%, EBITDA by 25% and operating profit by 37%, with net profits down 57%.

The balance sheet remains strong with gearing improved to 27.1%. Capex was curtailed to R115m in the period. Net borrowings decreased by R297m to R1236m as a result of increased focus on working capital. Interest paid cover on EBITDA was 3.9 times (2008: 7.2 times).

Afrox said cost containment is a key focus, with positive results expected to work through in the second half of 2009.

Restructuring and retrenchment measures previously announced will be completed in the second half of this financial year. These fundamental and structural changes to the cost base are considered essential to the company’s long-term viability, said Afrox Managing Director, Tjaart Kruger.

Kruger added, “Key drivers remain working capital reduction, reduction in the cost of doing business and healthy liquidity ratios.”

“Operational and structural changes, taken together, are on course to strip-out R200 million in underlying costs. Identification of savings is now part of the business process and from this Afrox expects to achieve ongoing efficiencies.”

In the present climate, Afrox maintains a cautious outlook amid indications that half-year results for 2009 are likely be a reflection of business trends through to fiscal year-end. The company said it will remain profitable and cash flow positive for the full year.

The board of directors have declared an interim cash dividend of 19.0 cents per share (2008: 42.0 cents). This is covered 2.05 times by earnings.

Kruger added, “Trading conditions in this reporting period were extremely tough. The substantial collapse in demand experienced in the last quarter of 2008 continued in the first half of 2009 as volumes declined in the manufacturing sector to which Afrox has substantial exposure. This was starkly reflected in the 22% year-on-year fall in manufacturing output in South Africa in the first quarter, the largest decline on record.”

For the six months to 30 June 2009, volumes, production and labour costs, generally, remained under pressure. Sales volumes across all products recorded slightly improved increases month-on-month in the second quarter, but off a severely curtailed demand base.

In response to these extreme trading conditions, Afrox maintains high market-place visibility to defend market share in the short-term and position the group for growth when economic constraints ease.

Other African operations continued to achieve very good results, contributing 27% to the group’s half-year profits.

Infrastructure spending in South Africa remains an opportunity. Afrox is competitive in this area amid increasing competition. Its Level 4 Black Economic Empowerment rating is having a positive impact on business retention and new tenders.

The capital expenditure programme, embarked on a few years ago, is coming to fruition. The capacity enhancements as a result of this programme have positioned the company for future growth.

Kruger concluded, “Change management requirements have been challenging, but the organisation is responding well. The decision to accelerate our High Performance Organisation programme, announced in the Chairman’s statement of the 2008 Annual Report, has proved timely and positive progress is being made in this respect.”