Afrox breathes easy on SA medical gases supply contract

Leading gases supplier Afrox posted a 7% increase in headline earnings per share to 111.3 cents and declared a cash dividend of 55c per share (2018: 52 cents) for the six months ended 30 June 2019, mainly due to an increase in its healthcare business.

Additional healthcare business – from a contract awarded in 2018 to supply all public hospitals and clinics with medical gases – and further cost savings from restructuring activities boosted revenue to R3 billion (2018: R2.9bn), the company said in an earnings update today.

In total, Afrox supplies more than 400 hospitals and 1600 clinics across South Africa.

CEO Schalk Venter said at the time Afrox has long identified the healthcare sector as a growth point and have been concentrating its efforts in recent years to ensure Afrox can operate at efficiency levels to win this new business.

The contract runs until September 2022 and provides for the supply of a range of medial and other gases including oxygen, nitrogen, nitrous oxide, carbon dioxide, hydrogen, helium, argon, gas mixtures and refrigeration gases.

However, investments into the new healthcare business, cylinders for LPG and industrial gases and investments in strategic plant spares for its air separation plants pushed capital expenditure up to R180m (2018: R140m).

Earnings before interest, taxation, depreciation and amortisation (EBITDA) grew to R659m (2018: R620m).

Afrox expects the low growth in the South African economy to persist for the balance of 2019 but says it will continue to focus on specific growth opportunities, strict cost management and effective price cost recoveries.

Afrox operates in South Africa and in nine other African countries and manages operations in five more countries on behalf of its parent company, The Linde Group, a global gases, engineering, and technology company.

The local firm said the continued contraction in South Africa’s manufacturing sector led to a reduction in volumes in welding consumables within the Hard Goods segment.