Chairperson’s review


As a member of the Linde Executive Board of directors and Chief Executive of Europe, Middle East and Africa (EMEA), I have closely followed, supported and influenced, the positive changes undertaken within Afrox since 2015. In three years, the Company has transformed itself into a focused, cohesive and agile business – fit for purpose in these challenging economic and political times.

I am not alone in this opinion. Afrox’s share price mirrors this positive sentiment, increasing by 74.6% over the three years. EBITDA margins for the same period show a similar improvement, up 48.6% to 20.8% in 2017 (2016: 22.3%). During the same period ROCE increased by 41.9% to 23.7% in 2017.

This was achieved on the back of reduced selling, general and administrative overheads, and ongoing efficiency improvements. All of these factors contributed to an enhanced and sustained competitive position in a low growth environment.

Refer to the Managing Director’s review and Group Financial Director’s review for further detail.

Operating environment review

Afrox delivered another excellent set of results. This was achieved against a backdrop of a GDP growth rate of just 1.3% in 2017. Further contributing to this difficult market were instances of political turmoil affecting investor confidence in key markets we serve, and low government infrastructure spend in South Africa. The outlook for 2018 is similar, with the political landscape very much the determining risk and growth factor for the economy.

According to the IMF, South Africa’s GDP growth is set to increase to 1.1% by the end of 2018. This is in contrast to the SA Reserve Bank’s more optimistic forecast of 1.4% for 2018 and 1.6% for 2019 respectively. These widely differing growth predictions point to uncertain times ahead. This will certainly test Afrox’s ability to sustain its high level of performance achieved in recent years.

Political competition, decisions and actions have the potential to impact policy, investor confidence, the economy, and regulatory stability. In November 2017, credit ratings agency Standard & Poor’s downgraded South Africa’s credit rating to full junk status, while Moody’s placed the country on review for downgrade. Similarly, Fitch Ratings placed South Africa’s long-term foreign and local currency debt ratings at BB+ (which is commonly known as junk) with a stable outlook. At the time of this report’s finalisation, Moody’s Investors Service had downgraded the government of South Africa’s debt rating to Baa2 from Baa1. The outlook on this rating was changed to stable from negative.

Nevertheless, I am confident that Afrox has the right structure, management team and performance measures in place to emerge healthier and even stronger in 2018. This will not be easy to achieve, but I am certain that our leaders and committed employees are ready to face this challenge. Operations in Emerging Africa continue to be effective and robust. These are typically low-growth environments, often compounded with political uncertainty, civil unrest and a lack of investment in education, health and infrastructure. Some positive growth is forecast for sub-Saharan Africa over the next three years. Our operations in the region will continue on a steady and prudent course, leveraging the expertise of our South African business and The Linde Group’s global strengths.

* Excluding impact of R161 million on EBIT resulting from the AMSA settlement

Strategy overview

Our four strategic objectives remain unchanged and are structured as follows:

Maintain and grow profitability and operating performance.
Ensure sustainable growth while enhancing competitiveness.
Embed advanced performance in areas of safety, health, environment and quality (SHEQ).
Build a performance culture.

This strategy supported our right-sizing and improved performance and is trusted as a compass to guide further growth and profitability for Afrox.

Maintaining strong control of our cost base has proven to be a catalyst for success in recent years and a platform on which the Company can embed technologies to drive further efficiencies. Afrox will continue to invest in its e-commerce platform and the Tag ’n Trace Individual Cylinder Control (ICC) programme, for example. The ICC is expected to come to fruition in 2018.

The Company remains optimistic that growth opportunities exist in renewable energy, healthcare, hospitality, food and beverage and Special Gases markets. Growing our share of the LPG sector and helium market through improved security of supply remains a key objective in obtaining profitable new business. The transfer of knowledge, best practices and latest product offers from The Linde Group to Afrox will continue as a means of strengthening the customer experience and supporting our operations and our sales and marketing functions.


Good governance will always be at the heart of what we stand for as a business, an employer and a socially responsible corporate citizen. In-house training, regular refresher courses on ethics, anti-corruption, and business partner compliance will continue on an ongoing basis across all functions. Afrox’s Social, Ethics and Transformation (SET) Committee is in its fifth year of operation, and continues to deliver progress on our non-financial agenda, under the committee chairperson and lead independent director, Dr Khotso Mokhele. Most notably, the SET Committee oversaw a positive step-change in Afrox’s BBBEE rating, the differentiating and deciding factor in the awarding of many South African government and government-linked contracts Refer to the Managing Director’s review for details. Our BBBEE journey guide is available on

Board changes

Following the resignation of Sue Graham Johnston, I was appointed Chairman of the Board and a member of the Nominations, Governance and Management of Resources Committee (NGMR) with effect from 1 September 2017. This is my second term as Chairman, a position I previously held between 1 June 2015 and 7 September 2016. As a result of the positions I hold within The Linde Group, I cannot be considered an independent Chairman. Accordingly, Dr Khotso Mokhele will remain as the lead independent director in terms of the JSE Listings Requirements and the King IV Report on Corporate Governance in South Africa, 2016. Nolitha Fakude was appointed as a non-executive director with effect from 1 March 2017. Dorian Devers resigned as Financial Director and executive director on 9 May 2017. Matthias Vogt was appointed as Group Financial Director and executive director with effect from 1 August 2017.

In February 2018, Richard Gearing resigned from the Board after serving as a non-executive director since 2012. The Board and I would like to take this opportunity to thank Sue, Dorian and Richard for their excellent service and wish them well in the future.


We have made solid progress in transforming the Company and these actions, achieved in the face of considerable headwinds in the South African economy, should safeguard Afrox’s continued effectiveness. We remain committed to offering competitive products, delivered cost-effectively, and service that mirrors customer needs.

Like most companies in South Africa, we faced constant uncertainty in 2017, low GDP growth that skirted recession, a fluctuating Rand and lack of government policy direction. This in turn led to a climate of low business confidence, low levels of investment and low volume demand in the key sectors of manufacturing and mining (refer to our ongoing strategy for more on these external environment factors). The economic outlook for South Africa remains unclear despite some positive indicators at the start of 2018. Examples include the modest rally in global demand for commodities, a strong Rand, and an inflation outlook improvement.

Conversely, the looming 2019 general election have added to political and government policy uncertainty. Corruption, global credit agency downgrades, failing state enterprises, high unemployment and a budget deficit of R50.8 billion in 2018 (projected to rise to R89.4 billion by 2020), increase pressure on business and stifles investor confidence.

The lack of a clear line of sight for the South African economy is not unexpected, and provision for such a scenario was the trigger for Afrox’s 2015 restructuring, placing us in the best possible position to face these trying times. Our year-on-year commitment to enhance our customers experience, build our future business and focus on improving operational efficiency remains. While there will be many challenges facing us in 2018, Afrox’s Board remains confident of further success through effective strategy application.


I wish to thank my fellow Board members for their support and guidance. I also thank our management team, employees and suppliers for their dedication and commitment. Most importantly, I thank our customers, without whom we would not exist.

Bernd Eulitz


At the heart of our positive performance is sound corporate governance supported by passionate and committed employees.