Company Comment:
Afrox managed to increase revenue and earnings before interest, tax, depreciation and amortisation in its interim results last week. Hats off to the management, considering the woeful state of SA’s economy — especially the country’s mining and metals industries.
But despite ramping up its presence in markets for food and beverages as well as medical gases, the German-backed company has had to cut about 30% of employees over the past three years. This came amid revised spending of R1.5bn and changes in top management since 2012, while also halting gases production in Angola.
The group did build an airseparation unit in the Coega industrial zone near Port Elizabeth that provides industrial gases. But the recent sale of DCD Wind Towers in the zone for a nominal R1 to the Industrial Development Corporation due to Eskom’s intransigence over paying renewable energy providers must have seriously dented sales. With the manufacturing sector in the doldrums and continuing headwinds in the economy, continued volume, revenue and earnings growth will be harder to match.
With Finance Minister Malusi Gigaba warning that SA needs to take drastic measures to grow the economy and Moody’s saying that the country’s “unpredictable” politics will lead to a further drop in business and consumer confidence, growth will be harder still.
Afrox says it has R194m in cash. It will need to spend or invest that wisely.
Picture a mining company investing millions of dollars to set up a mining company, with an understanding of what the regulatory rules and fiscal regime will be for years, but then suddenly they are changed. Could this be SA? Zambia? Tanzania? No, it’s Australia. Africa is not the only continent with a changeable fiscal and regulatory environment. First World destinations are also squeezing resources sectors for increased revenue. The developments in Tanzania are concerning. The Acacia gold mining company was slapped with a $190bn tax bill by the Tanzanian government shortly after it banned the export of concentrates from the country.
Now it’s the turn of Petra Diamonds, where the Williamson opencast mine has been closed after the state seized a parcel of nearly 72,000 carats and started questioning key staff amid allegations of undervaluing diamond exports.
While companies operating in Tanzania, such as AngloGold Ashanti at the Geita mine, are careful about what they say of changes in that country and how they address the government, the same cannot be said for miners in Australia.
Australian miners talk of “betrayal” by the West Australian government, which has proposed upping its gold royalty to 3.75%, from 2.5% and scrapping a 2,500oz threshold under which royalties are not due.
And yet there’s not a single word about the government there threatening to close mines, seize assets, detain company officials for spurious questioning or making life otherwise impossible. Many African countries do themselves no favours when they behave like bullies, particularly when it comes to implementing ideological concepts rather than pragmatic reforms that treat businesses as partners rather than enemies of the state.