African Oxygen Limited (Afrox) has reported a steady rise in revenue in its latest 2018 full-year financials.
South Africa’s largest gases group and member of Linde plc saw its revenue rise by 6% to ZAR 6bn ($422m) due to a combination of higher volumes in certain sectors of the business and successful recovery of cost inflation as a result of effective pricing management.
Afrox’s Earnings before Interest and Taxes (EBIT) decreased by 30.3% to ZAR 596m ($42m). After adjusting for 2018 non-recurring items (the restricting provision of ZAR 52m ($3.7m) and the impairment of certain plants ZAR 55m ($3.9m)), the EBIT declined by 17.8% on a comparable basis.
The company attributed this reduction to higher operational cost, additional plant breakdown cost of ZAR 56m ($3.9m), LPG stock devaluation, market price impact of ZAR 32m and an increase in depreciation of ZAR 45m ($3.2m).
Despite these adverse movements in the Group Operating Profit, the underlying growth in strategic markets, solid price cost inflation recovery and continued productivity gains from various efficiency projects, helped mitigate the cost increases.
In December 2018, Afrox announced another restricting to address its fixed cost base, functional market strategy and the change in operating segments. ZAR 52m ($3.7m) was provided in 2018 for the 2019 restructuring.
The ZAR 55m impairment relates to repeated breakdowns to two air separation units (ASUs) and changes in Afrox’s supply strategy.
As part of its Atmospheric Gases business, Afrox finalised the installations for the additional healthcare business and invested additional ZAR 150m ($10.6m) during 2018 due to the tender awarded.
Afrox now delivers medical gases and regulators for all nine provinces within the public healthcare sector of South Africa.
Revenue for Afrox’s Atmospheric Gases business unit rose by 3.5%. Afrox said this increase was a result of effective pricing in line with inflation and growth from healthcare and various industrial gas bulk products and applications.
The company said the prevailing challenging economic conditions mainly impacted the compressed gas cylinder business.
Afrox’s gas business demonstrated high levels of resilience with positive nominal growth in most sectors. Within industrial gases (acetylene, oxygen, nitrogen and argon) the demand for bulk products was above the prior year resulting in increased volumes at customer installations.
Revenue in its Hard Goods unit increased by 2.8% due to effective recovery of cost inflation from imported products.
Afrox said it was continuing to see lower demand from the mining and steel industry due to reduced business activity in the South African mining sector and lower output levels in the manufacturing industry.
“We continue to explore various options to strengthen supply, production and logistics of this operating segment. Continued focus remains on cost containment, efficiencies, improved, just in time delivery and price management in line with cost inflation,” the company said.
In a statement, Afrox said, “Whilst economic growth in South Africa remains subdued, Afrox will focus on specific growth opportunities arising from the Healthcare Tender award and will continue with cost containment and effective price cost recoveries.”
gasworld’s Senior Business Analyst Karina Kocha said, “Today Afrox is by far one of the largest gas companies in South Africa with a market share of just above 30% in 2018.”
“The company revealed an average annual growth rate of about 7% over the last decade. Beyond South Africa, it also responsible for its parent company Linde plc’s business in Southern Africa in general.”