Afrox wins from chasing down growth pockets

Afrox says it has made up a lot of ground in financial 2017 after a legacy legal settlement with SA’s largest steel producer, ArcelorMittal SA, saw a net R161m injected into the group.

Chasing “pockets of growth in a difficult environment” after an exceedingly tough financial 2016, the gases group pushed revenue up 2.8% to R5.7bn in the year to December 2017. This came from improved volumes in its atmospheric gases and liquid petroleum gas segments.

It also came amid price recovery of inflationary costs across the company’s four businesses. These include welding and gas equipment products, and markets in other parts of Africa. This was achieved despite the continued weakness of the South African economy, the group said on Thursday.

“Windows are opening now — the turnaround is here to stay,” Afrox MD Schalk Venter said. The group had undergone a major restructuring in the past two-and-a-half years, laying off about 700 people — or 20% of staff in 2015 — in order to save R460m in costs. “It was harshly disruptive and set a negative tone. We have worked through that,” Venter said.

Earnings before interest, tax, depreciation and amortisation fell 4.4% in the year. Despite this, headline earnings per share rose 6.1% from previously. The dividend of 100c per share was up 6.4% in the period. Dividend payouts were in the top quartile of JSE-listed companies in the last three years, Afrox chief financial officer Matthias Vogt said on Thursday.

Effective balance sheet management and cost containment had resulted in an increase in the group’s cash position to R1.34bn from R1.15bn in December 2016, Venter said. But return on capital employed fell to 23.7% from 24.6% in 2016.

WINDOWS ARE OPENING NOW —THE TURNAROUND IS HERE TO STAY

Independent market analyst and Afrox retail investor John Kransdorff said the fall in capital expenditure by a “capital-intensive” group to R350m in the year from R389m in 2016 was “disappointing”. This comes as companies are sitting on cash reserves reported at more than R1-trillion. Amid a change in government in SA there is still concern over policies, especially those relating to the country’s oil and gas sector, which proposes a 20% free carry for the state.

Group capex was down because potential investments were not justified by returns in markets, Vogt said. “The moment we see an opportunity, we will invest,” he said. “We cannot burden the balance sheet.”

Venter said there was a “more positive view” in Southern African countries, across which Afrox operates.