Gases and welding products group African Oxygen (Afrox, AFX) witnessed a 65% leap in headline earnings per share from 55.5 cents to 91.6 cents for the year ended December.
Revenue for the period increased 11% to R5.2 billion and EBITDA increased 28% to R774 million. Net profit including impairments was R183 million.
Afrox continued with its programme to invest in plant modernisation, additional capacity and efficiency enhancements, and for the year under review spent R416 million (2010: R294 million). The Group ended the year with net borrowings of R716 million and gearing of 17.4% (2010: 20.6%).
“At the heart of our improved financial performance in 2011 are operational efficiencies, cost management and effective procurement. South Africa's manufacturing sector recovery, a key economic indicator for Afrox, did not consolidate on the path that began towards the end of 2010. As a result, Afrox was unable to achieve the projected growth in sales volumes,” the group stated.
It added that a combination of scheduled maintenance closures and unplanned outages at South African oil refineries had impacted negatively on Afrox's bulk and packaged LPG sales. As a result of these issues, demand far outstripped supply for several months, leaving the company unable to meet the needs of its diverse customer base. LPG had to be imported to correct the shortfall at significantly higher costs.
“During 2011, industrial action by unions affiliated to Cosatu spilled over into most sectors of the local economy and Afrox was unable to avoid being affected. During July, this had a negative impact on Afrox's transport fleet and consequently on production and distribution of product, despite our transport labour being spread across several unions/contractors.
“The decision to impair the assets of the MIG plant at Brits and cease production at the end of December 2010 proved to be sound. Annual savings of R23 million were achieved. The full benefits from the change to our manufacturing strategy are still to be realised during 2012.
“Afrox's Atmospheric Gases business came under pressure in 2011 and volumes were 3% down on 2010. In addition to maintenance and the upgrading of the company's air separation units (ASUs), Afrox has spent R71 million in 2011 on the new ASU to be built at its Pretoria site.
“The ASU will have Argon capability and will commence production in 2013. Volumes in the welding consumables (hard goods) market, which is traditionally linked to infrastructure development, continued to be under pressure but managed to achieve a 3% growth in 2011.
“African operations outside South Africa increased revenue to R815 million (2010 R731 million), with EBITDA of R203 million, contributing 26% to the Group EBITDA. This continued growth is backed not only by the demand for commodities and infrastructure, but also a regional population that is characterised by the rapid growth of a middle class. This has created demand for consumer products, beverages and healthcare, all areas served by Afrox,” the group said.
It added that, as previously reported, an unforeseen structural failure at the Witbank air separation unit in 2010 resulted in the disruption of service delivery to Evraz Highveld Steel (EHVS), Witbank, and via pipeline to Columbus Stainless in Middelburg.
“EHVS has given Afrox notice that it would not renew the supply agreements with Afrox effective 20 December 2013 and a decision was taken to impair the R152 million Witbank plant.
The Afrox board declared a final cash dividend of 23 cents per share for the year (2010: 8 cents). Together with the interim cash dividend of 22 cents per share (2010: 19 cents), a total of 45 cents per share (2010: 27 cents) was declared for the year and is covered 2.0 times in headline earnings per share.
Looking ahead, Afrox said that many of the internal factors that had restrained growth during 2010 had been resolved, clearing the way for an incremental return to operational and financial strength, barring unforeseen events.
“Continued low economic growth, which impact on manufacturing and infrastructure spend in South Africa, remain a real concern and as a result our outlook remains cautiously optimistic,” the group added. - I-Net Bridge