Afrox looking to mitigate tough trading conditions

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“Uncertainty in the economy and low GDP growth in South Africa, continue to impact negatively on demand for our products in key sectors,” [DATA AFX:Afrox] said.

“We believe the next few months will see our key South African markets continuing to move at the current lower levels of activity and accordingly we are pursuing an active cost management programme to mitigate against these difficult economic conditions.”

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According to Afrox, a market leader in gases and welding products, at 30 June 2014, year-on-year mining production had fallen approximately 5.7 per cent while manufacturing output was down 1.6 per cent in the first quarter and 0.4 per cent in the second.

“Results for the first half of 2014 were influenced by a challenging trading environment which reflects the continued decline in the manufacturing, mining, and steel sectors in South Africa,” the company said.

This was exacerbated by the five-month strike in the platinum sector as well as the spill-over effects of a strike at Afrox in the first quarter.

“Local shortages of Liquefied Petroleum Gas (LPG) – due to unexpected shutdowns at refineries – coupled with a planned maintenance shutdown of our import storage facility, constrained our ability to meet demand for LPG in the first quarter,” said Afrox.

“There was only a modest recovery in quarter two hampered by industrial action and a relatively mild start to winter in South Africa. Afrox continues to import LPG to supplement the market shortfall, in the process effectively subsidising an element of these additional costs.”

Afrox also reported an increase in revenue to 2.86 billion rand for the six months ending 30 June 2014 from 2.85 billion rand for the same period in 2013.

However, earnings before interest, taxation, depreciation, amortisation and impairments (EBITDA) decreased from 449 million rand in the 2013 period to 442 million rand in 2014.

Profit before taxation declined to 243 million rand in 2014 from 251 million rand in 2013 and headline earnings per ordinary share decreased from 55.1 cents to 49.5 cents.

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“Economic conditions are likely to remain challenging for the foreseeable future, particularly in the key manufacturing, mining and steel production sectors of the South African economy,” Afrox said.

“This will require increased focus on cost containment by our company due to lack of volume growth expected in the second half of 2014.”