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A TRADING STATEMENT by African Oxygen (Afrox) last week will do little to ease shareholders’ concerns about the company’s waning fortunes. For one, any expectations of recovery in earnings before the end of its 2010 financial year have been sunk after an announcement that basic earnings per share could be as much as 60% lower than in the previous period. Headline earnings are expected between 10% and 30% lower. Management hopes it’s the absolute low point of the group’s earnings, which have been on a steady decline over the past three years.
Perhaps more concerning is the impairment of assets at two of the manufacturing facilities – one a welding consumables plant, the other a gas equipment factory – amounting to pre-tax cost of R112m and R50m respectively. The welding plant was actually the recipient of sizeable investment a few years ago. Group finance director Frederick Kotzee says a strong rand, high metal prices and escalating fuel prices were instrumental in the plant’s problems. Meanwhile, the impairments at the gas equipment plant are due to restructuring, Kotzee says, and those are supposed to ensure the factory performs better in future.
Afrox’s price is now at its lowest point so far this year, having fallen around 14% since the start of the year. The share’s decline is the reverse mirror image of the JSE’s chemicals index, which has steadily risen 16% over the same period. On the flipside, some respite from its lacklustre operations in South Africa may be provided by the company’s plans, announced earlier this year, to expand aggressively into the fast-growing African market. Opportunities include Angola’s oil industry, where the group already has a presence, and sub-Saharan Africa’s soft drinks market. Afrox currently has interests in 12 countries in Africa.
However, overall Finweek reckons there could be more downside on Afrox in the months ahead.
Perhaps more concerning is the impairment of assets at two of the manufacturing facilities – one a welding consumables plant, the other a gas equipment factory – amounting to pre-tax cost of R112m and R50m respectively. The welding plant was actually the recipient of sizeable investment a few years ago. Group finance director Frederick Kotzee says a strong rand, high metal prices and escalating fuel prices were instrumental in the plant’s problems. Meanwhile, the impairments at the gas equipment plant are due to restructuring, Kotzee says, and those are supposed to ensure the factory performs better in future.
Afrox’s price is now at its lowest point so far this year, having fallen around 14% since the start of the year. The share’s decline is the reverse mirror image of the JSE’s chemicals index, which has steadily risen 16% over the same period. On the flipside, some respite from its lacklustre operations in South Africa may be provided by the company’s plans, announced earlier this year, to expand aggressively into the fast-growing African market. Opportunities include Angola’s oil industry, where the group already has a presence, and sub-Saharan Africa’s soft drinks market. Afrox currently has interests in 12 countries in Africa.
However, overall Finweek reckons there could be more downside on Afrox in the months ahead.
