African Oxygen Limited (Afrox) has posted a marginal rise in revenue in its latest 2016 full-year financials after battling the challenging economic climate in South Africa.
Afrox, the country’s largest gases group and member of Tier One player The Linde Group, inched its overall revenue up by 1% to reach ZAR 5.53bn ($420m) despite the weakness in the South African economy and supply constraints seen in the region’s carbon dioxide (CO2) sector.
Its EBITDA margin skyrocketed by 400 basis points to reach 22.3% compared to 18.3% in the prior year and Afrox held a net cash amount of ZAR 153m ($11.7m) as of 31st December 2016, up from ZAR 148m ($11.3m) compared to the prior year. The company attributed the increase to its continued focus on inventory management and the optimisation of its fixed assets.
Capital expenditure of ZAR 379m ($28.9m) remained consistent year-on-year, reflecting improvements in Afrox’s profitability and balance sheet optimisation.
Whilst demand for bulk products in its Industrial Gases segment was approximately 2% above 2015 levels, the company’s growth was more than offset by the reduction in demand from the iron and steel sector and constrained availability of CO2 in the first and fourth quarter due to plant shut downs at one of Afrox’s major sources.
Despite this, revenue from its Atmospheric Gases business unit increased by almost 10% to ZAR 2.32bn ($177m) due to improved bulk volumes.
Volumes were slightly down across its onsite and packaged gases businesses compared to 2015 after continuing to be impacted by overall economic conditions. Oxygen (O2) saw the biggest variance in demand due to reduced activities in the recycling and scrap metal business driven by lower prices.
However, demand for its medical, hospitality and specialty gases saw increased sales and volumes from higher demand in the public and private sectors.
Revenue in its Hard Goods unit dropped by 15.5% to ZAR 666m ($50.8m) as a result of lower volumes in welding and gas equipment which was strongly impacted by lower volumes from the adverse business environment in mining, iron and steel, as well as product rationalisation.
Revenue in its Emerging Africa branch remained flat at ZAR 755m ($57.6m). Afrox outlined that its volumes were holding up relatively well in this segment due to its exposure in consumer-led markets.
A statement from the company portrayed an optimistic outlook in terms of future developments, “The economic environment in South Africa is expected to remain subdued; however, Afrox will continue to focus on opportunities to grow market share and productivity improvements to enable growth.”
“Across all businesses, the recovery of cost increases from the market was not sufficient and it is essential that this improves in 2017,” the statement cautiously added.
“Around 5% of the overall sales decline [in Hard Goods] reflects portfolio management, with the business exiting some low-margin products and pieces of business. To mitigate this, the business has been pursuing various initiatives for alternative growth such as continued focus to increase exports to overseas markets,” it concluded.