African Oxygen, in its Group results for the six months ended 30 June 2020, reported revenue of R2 694 million (2019: R3 000 million), which decreased by 10.2%, or by 7.5% when adjusted for changes in Liquefied Petroleum Gas (LPG) market prices, from lower volumes across all segments related to the COVID-19 lockdown restrictions.
This was mitigated by a stable Healthcare business and the successful recovery of cost inflation, particularly in the Atmospheric Gases and Hard Goods segments.
EBIT at R336 million (2019: R457 million) decreased by 26.5%. This decrease was mainly a result of lower volumes related to COVID-19 lockdown restrictions and increased sourcing costs for LPG resulting from the shutdown of local refineries. This could partially be mitigated by further efficiencies from restructuring activities and strong focus on cost containment initiatives.
Atmospheric Gases EBIT improved by 6.5%, LPG reduced by 63.4% and Hard Goods reported a 63.8% reduction in EBIT for the first six months of the year. The operating margin reduced overall by 270bps to 12.5% (2019: 15.2%) mainly as a result of lower economies of scale and inefficient plant modes considering lower volumes across all segments.
While both Hard Goods and LPG reported a reduction in margin compared to previous period levels, Atmospheric Gases margin improved by 280bps. Corporate expenses decreased by R26 million largely because of foreign exchange differences.
Operating cash flow of R502 million (2019: R485 million) increased by R17 million compared to June 2019, mainly as a result of better trade working capital management.
Capital expenditure of R248 million (2019: R180 million) increased as a result of investments into cylinders for LPG and the Healthcare business.
As a result of lower earnings return on capital employed (ROCE) reduced by 510bps to 16.3% (2019: 21.4%).
Given the impact of the lockdown and subsequent reduced economic activities, Afrox will continue to focus on optimising revenue opportunities, effective price cost recoveries, fixed cost containment, cash preservation and liquidity to mitigate the lower level of economic activity.
The Group’s cash balances of R1 167m places Afrox in a strong position to take advantage of future opportunities.