Afrox has today released its 2019 results, highlighting an increase in revenue to R6.09bn ($397.6m) and an increase of 45.5% in EBIT.
Sub-Saharan Africa’s leading industrial gases and welding company attributed its increased revenue to volume growth in certain sectors of the business and successful recovery of cost inflation from effective pricing management.
Adjusted for the impact from the change in liquefied petroleum gas (LPG) market prices of R96m ($6.27m), total revenue growth was 2.3%.
Earnings before Interest and Taxes (EBIT or Group Operating Profit) at R867m ($56.6m) increased by 45.5%.
This increase in EBIT resulted from growth in the Healthcare business, recovery of cost inflation via pricing, efficiencies from restructuring and improved plant performance.
After adjusting for the 2018 non-recurring item, Afrox’s EBIT increased by 23.3% as a result of growth in strategic markets, solid price cost inflation recovery, continued productivity gains from various efficiency projects and the positive impact of the restructuring activities.
Despite the deterioration in the socio-economic environment, load shedding in late fourth quarter and a shortage in supply during the second quarter, the company showed its resilience during the year.
Within its Atmospheric Gases operating segment, Afrox benefited from the additional Healthcare business during the reporting period.
Afrox invested a total of R143m ($9.35m) by the end of 2019 in order to meet the requirements of the tender awarded to Afrox for the public hospital business.
Afrox delivers medical gases and regulators in all nine provinces within the public healthcare sector of South Africa.
Reduced levels of South African business activity led to a continued volume erosion in the Hard Goods segment, lower volumes in the Industrial Packaged Gas business and a reduction in the LPG Bulk volumes at industrial customers.
However, with growth of more than 3% from the LPG cylinder business, the total EBIT of the operating segments increased 19% to R1.09bn ($71.25m).
Afrox said its corporate cost has decreased by R45m due to a R28m ($1.83m) reduction in employee share scheme expenses and other non-trading income.
The subsidiaries have contributed with satisfactory results from better pricing and growth in the LPG cylinder business despite continued subdued economic conditions.
Operating cash flow of R1.4bn ($91.47m) increased by 56.4%. Afrox said the increase was a result of a decrease in trade and other working capital due to R124m ($8.1m) increase in trade and other payables; a reduction in inventory of R38m ($2.48m) partially offset by a R97m ($6.34m) increase in trade and other receivables.
Revenue increased by 7.9% compared to 2018, reflecting growth in the Healthcare business and the impact from higher prices in order to recover cost inflation.
Afrox said most market sectors have improved compared to 2018. Volumes reduced marginally; however, Afrox said this was countered by effective pricing in line with inflation.
Healthcare revenue increased significantly due to an increase of 33% largely from higher volumes of liquid oxygen.
Afrox said this growth was achieved despite challenging economic conditions. The company experienced improved plant performance delivering higher efficiencies and better plant utilisation, with only limited buy-in of product being necessary for the security of supply to our customers.
Afrox Atmospheric Gases supplies a diverse and broad portfolio of products to the sub-Saharan industry.
The business has demonstrated high levels of resilience with positive nominal growth in most sectors which demonstrated Afrox’s ability to successfully compete in its core segment.
Within Industrial Gases (acetylene, oxygen, nitrogen and argon) the demand for the company’s bulk products was above the prior year with good volumes in CO2 supplied to a major beverage producer across sub-Saharan Africa and higher demand at South African refineries.
On-site revenue improved the pass-through of higher electricity costs and volume growth from various customers, mainly stainless steel.
Afrox benefited from its new installations at public hospitals in the additional four provinces.
Afrox now supplies all public hospitals in South Africa for at least another four years as part of the Government tender awarded, with an estimated R1bn ($65.35m) revenue over the term.
Afrox will invest in ‘high-tech’ equipment and its installation to meet the growing demand within the sector.
Afrox’s Industrial Packaged Gases volumes were slightly below prior year levels. The marginal volume erosion was, however, offset by improved recovery of cost inflation due to effective pricing.
EBIT increased by 28.1% to R587m, which Afrox attributes price cost recoveries, higher volumes in Healthcare and the 2018 non-recurring R55m plant impairment.
Revenue in the Hard Goods operating segment decreased by 4%, which Afrox said was as a result of lower volumes in the welding consumable business despite effective recovery of cost inflation from imported products via pricing.
The continued lower demand from mining, steel and manufacturing resulted in this top line reduction.
The overall trend in reduced business activity in the South African mining sector and lower output levels in the manufacturing industry mainly affected this business segment.
Whilst Afrox experienced reduction in volumes in welding and gas equipment, the Self-Rescue Pack business, reported growth in sold units due to increased take-off from the mining sector.
The continued growth in sub-Saharan Africa was encouraging, the company said.
Afrox aims to embark on a strategic partnership to strengthen the manufacturing hub north of Johannesburg.
Continued focus on cost containment, efficiencies in our factories and improved, just-in-time delivery and price management in line with cost inflation assisted the business overall to mitigate the underlying negative market trends.
EBIT decreased by 15.5% to R109m as a result of lower volumes due to the continued contraction in demand across most sectors and products.