The benefits of its successful restructuring and the litigation settlement with ArcelorMittal South Africa (AMSA) resulted in gas company African Oxygen (Afrox) reporting a 23.2% year-on-year increase in earnings before interest, taxes, depreciation and amortisation (Ebitda) to R1.24-billion for the year ended December 31.

Ebitda margin increased by 400 basis points, to 22.3%, with the overall improvement in Ebitda contributing to a 36% increase in headline earnings a share to 189.4c and a 44% increase in basic earnings a share to 193.3c.

This growth was achieved despite the weakness in the South African economy and carbon dioxide (CO₂) and liquefied petroleum gas (LPG) supply constraints, with this weakness reflected in Afrox’s revenue increasing only marginally by 1.2% to R5.53-billion.

Afrox noted that its continued focus on inventory management, optimisation of fixed assets and underlying Ebitda growth resulted in the company continuing to increase its cash on hand, which now reflects a net cash position of R153-million, up from R148-million in the prior year.

Capital expenditure of R379-million remained constant year-on-year reflecting that the company has sufficient production capacity to meet expected medium-term demand.

Revenue from the atmospheric gases business increased by 9.9% to R2.32-billion from the litigation settlement payment by AMSA of R165-million and improved bulk volumes, offsetting the impact of CO₂ supply shortages. Packaged volumes continued to be impacted by overall economic conditions with the second half improvement in volumes indicating a more positive future trend.

Gross profit after distribution expenses (GPADE) increased by 27.5% to R868-million, as a result of the litigation settlement and the full year benefits of 2015 restructuring.

LPG revenue decreased by 1.3% to R1.8-billion from lower market prices and lower volumes resulting from unplanned refinery shut downs. At comparable prices, revenue would have increased by 1.3% year-on-year.

“With our imports of LPG during the latter part of the reporting period, significant progress was made in meeting market demands during peak seasons resulting in improved customer service levels,” the company said in a statement.

GPADE increased by 15% to R369-million with margins improving by 290 basis points to 20.5% as a result of supply chain efficiencies and improved price management.

Meanwhile, the company reported a 15.5% decrease in its hard goods revenue to R666-million, driven by lower volumes from the adverse business environment in mining, iron and steel, as well as product rationalisation.

Emerging Africa revenue remained flat at R755-million, with volumes holding up relatively well owing to Afrox’s exposure to consumer-led markets.

OUTLOOK
Afrox remains optimistic about the year ahead and expects its future financial results to reflect improved growth, as the headwinds of 2016 fall away.

At a presentation of the group’s results, in Johannesburg, MD Schalk Venter said the challenges the company had faced last year, including political instability, the slump in commodity prices and the company’s inability to recover cost inflation, should even out this year.

“Political instability certainly impacted activity from our customers, which resulted in low sales, [and while] it is not in our control, so far, so good,” he said, adding that through proper management and training, the company has already achieved a significant improvement in curbing cost inflation.

The group also expected further growth through the Afrox eShop, which has attracted the registration of 8 877 entities during 2016. Venter noted that 9% of the group’s revenue now stemmed from the e-commerce platform and that Afrox was setting high expectations for its continued growth in the year ahead, “more than doubling that number”.

The e-commerce platform now has 103 353 registered users, with around 232 407 visitors and 1.2-million pages viewed. “[The platform] makes it easier for the customer to deal with us,” Venter said.