Afrox’s first decline in net profit since 2014, according to Bloomberg data, will not be repeated in the new financial year as the R1bn state healthcare tender and the success of the company’s cost-cutting measures are expected to pay off, says MD Schalk Venter.
Sub-Saharan Africa’s largest supplier of gases, welding and safety products on Wednesday delivered what Venter said were disappointing numbers “at first glance”.
But he said the 2019 financial year would be “substantially” better than 2018. “We enter the year with reduced costs. We are also going to have the full benefit of the state healthcare tender,” he said.
In April last year, Afrox announced that it had won the R1bn healthcare contract to supply gases to the country’s public hospitals for five years. In terms of the contract, Afrox will supply more than 400 hospitals and 1,600 clinics across SA.
He said the company did not want to blame its lacklustre performance on the struggling economy alone, saying there were once-off items that had affected its earnings.
“If you look behind the scenes, there was a R55m provision for impairment of certain facilities and another R52m for restructuring. These are non-recurring items. There are no structural weaknesses in the business,” he said.
He said the company had not lost market share. “We understand why the numbers are down. But certain decisions had to be taken,” he said, referring to cost containment measures and impairments against two air-separation units that had repeatedly broken down.
Venter, however, said the company was disappointed with the 23% decrease in headline earnings per share, the primary profit gauge in SA that strips out certain once-off items.
As a result of the reduced headline earnings per share, Afrox more than halved its second half dividend, from the previous 54c to 25c. This increases Afrox’s total dividends for the year to 77c, down from the previous 100c. The company has a policy to declare dividends twice annually.
In 2018 Afrox’s net profit fell 28.3% to R457m, while revenue was up 6.2% at R6bn mainly due to higher volumes in some sectors of the business and “successful recovery of cost inflation as a result of effective pricing management”, the company said.
The liquefied petroleum gas (LPG) business increased revenue 10.5% to R2.6bn, while its total volumes grew 0.8% to 158,000 tons. But the LPG bulk business volumes were down 1.9% because of reduced demand from industrial customers.
“Revenue was negatively impacted due to SA government not adjusting the fuel price and the maximum refinery gate price at the end of September,” Afrox said. The maximum refinery gate price, which is set by the department of energy, is the maximum price at which the country’s oil refineries are permitted to sell the product.
The hard goods business, on the other hand, increased revenue by 2.8%. Afrox, however, bemoaned lower demand from mining and steel industries which it said suppressed volumes. “We experienced reduction in volumes in welding, gas equipment and our self rescue pack business, all negatively impacted by the downturn in mining, iron and steel and manufacturing,” Afrox said.
Afrox shares were on Wednesday down 3.35% to R24.50.
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