Afrox benefits from healthcare, LPG sector demand while cost savings drive continues
JSE-listed African Oxygen (Afrox) will continue to focus on specific growth opportunities, strict cost management and effective price cost recoveries going forward, after low economic growth persisted in the country during the six months ended June 30.
MD Schalk Venter told Engineering News Online that the company’s growth opportunities were mostly within its atmospheric gases segment, which was benefiting from demand in the healthcare space – Afrox supplies medicinal gases, oxygen and blends of oxygen to the healthcare sector.
Many companies are upgrading hospitals or building private hospitals, he said, adding that many African countries were building new clinics.
Venter also noted that the company saw opportunity for growth in its liquefied petroleum gas (LPG) segment locally. Afrox typically supplies 5 kg cylinders through distributor partner companies, which distributes gas cylinders to communities.
“It is difficult for corporate companies such as Afrox to sell to households, but through a distribution partner, we can access that customer base.”
Venter noted that, within the company’s hard goods segment, there was opportunity for growth in welding products for energy, oil and gas projects in Africa; for example, the gasfields development on the coast of Mozambique, where a lot of welding for construction is taking place, offered potential for growth.
The company declared a net dividend of 44c apiece for the six months under review, compared with a net dividend of 41.6c apiece for the six months ended June 30, 2018.
Afrox managed to increase its revenue in the reporting period by 3.3% to R3-billion, compared with R2.9-billion in the prior comparable period, owing to improved volumes in the atmospheric gases segment and growth in cylinder volumes within the company’s LPG segment.
However, during the reporting period there was a continued contraction in the manufacturing sector, leading to reduced volumes in welding consumables within Afrox’s hard goods segment. Venter explained that for manufacturing demand to improve, the economy would have to grow at an improved rate.
The company’s earnings before interest and taxes (Ebit) in atmospheric gases and LPG increased by 18.9% and 1.6% respectively, while hard goods’ Ebit declined by 5.5%.
Afrox reported earnings before interest, taxes, depreciation and amortisation (Ebitda) of R659-million in the reporting period, which is a 6.3% increase compared with the Ebitda of R620-million reported for the prior comparable period.
Headline earnings a share increased 7% year-on-year to 111.3c apiece, compared with 104c in the prior comparable period.
During the six months, Afrox spent capital expenditure of R180-million on its new healthcare business, cylinders for the LPG and industrial gases segments, and investments in strategic plant spares for the company’s air separation plants.