Strong cash management and cash flow places company in a good position to take advantage of emerging opportunities, and maintain a dividend payment in line with dividend policy.
“On behalf of our shareholders and all stakeholders, the Board and management team publicly acknowledges the dedication and professionalism of our Afrox colleagues in delivering vital supplies of medical oxygen and other products to those in the frontline of the battle against COVID-19. Despite personal worries and fear for families, our people are the behind-the-scenes heroes and heroines who kept life-saving oxygen flowing to hospitals, servicing those industries so critical to South Africa’s economy and wellbeing of our fellow citizens during the height of the national disaster lockdown brought on by this pandemic. We thank you all.”Schalk Venter, Afrox Managing Director
In the face of the biggest fall in South Africa’s GDP since 1960, African Oxygen Limited has maintained a robust cash position enabling a dividend of 38 cents per share (2019: 55 cents) for the six months ended 30 June 2020.
The JSE-listed gases and welding technologies Group 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 Gross Domestic Product 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. “And while our interim results figures reflect this, Afrox continues to invest and seek out opportunities for growth”.
In the operating period to 30 June 2020, Afrox capital expenditure of R248 million (2019: R180 million) increased as a result of investments into cylinders for LPG and the Healthcare business. While return on capital employed (ROCE) reduced by 510bps to 16.3% (2019: 21.4%) 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 167 million 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.
The trend of increased imports for LPG continued in the first six months of 2020 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. 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,” said Venter.
He added: “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,” said Venter.