Group Financial Director’s review

Key highlights

Income statement analysis

Trading performance

Our robust performance is attributable to higher volumes, the recovery of price-cost inflation, and efficiencies achieved through various improvement initiatives.

Afrox’s revenue increased by 2.8% through improved volumes in the Atmospheric Gases and Liquefied Petroleum Gases (LPG) segments, as well as effective price-cost recovery across all segments. Post the adjustment for non-recurring items, Afrox’s revenue increased by 6% on a comparable basis. In addition, growth has been achieved through our combined product offering. Despite the weak Southern African economies, we leveraged off our strong African footprint.

After adjusting from the impact of the litigation settlement received in 2016, Atmospheric Gases’ revenue increased by 5.9% as a result of higher volumes, and the knock-on effect of cost inflation. Gross profit, after distribution expenses (GPADE), improved our underlying profit by 130 bps. Due to the R161 million once-off settlement from AMSA in 2016, GPADE currently sits at 10.5% below projected targets. Within Atmospheric Gases, healthcare and bulk industrial gases reported growth in volumes through new business, and an increased demand from key customers.

* After adjusting for the R165 million revenue and R161 million EBITDA impact of the non-recurring settlement received in 2016
1 Earnings before interest, taxation, depreciation and amortisation
2 Earnings before interest and taxation
3 Return on capital employed

LPG experienced strong growth in revenue (11%) from higher volumes, with a comparable 11.6% revenue increase without any negative changes in the market price. We continued our import strategy to balance the available product from local refineries, and the investment in additional cylinders. Combined with our solid supply chain and going the extra mile for the customer, our efforts underpinned these superior results. GPADE increased by R139 million to R425 million, representing an increase in GPADE margin by 80 bps to 21.3%.

Hard Goods reported solid revenue of R660 million, which reflects a reduction of 0.9% due to negative growth in various key industry sectors, and the effect of once-off sales in 2016. Nevertheless, GPADE margin increased 180 bps to 36.7%. The retention of key customers, favorable import deals, and various improvements in Afrox’s premium Hard Goods product ranges, supported this positive result.

Emerging Africa’s revenue is slightly up by 0.1% (or +3% without the impact from changes in the underlying reporting currencies against the ZAR), with an increase in GPADE margin by 200 bps to 43.1%. We achieved this positive performance from good LPG volumes, strong discipline in price-cost recovery, and contributions from Afrox’s Groupwide SWIFT programme for Business Excellence. This allowed the business to benefit from proven cost reduction and operational efficiency measures.

Operating expenses

Afrox’s SWIFT programme, the internal values-based initiative to drive business excellence, delivered gross cost savings of R606 million. This represents the cumulative figure over the past three years from various efficiency programmes, as well as our streamlined operating model.


The decrease in reported EBITDA of 4.4% was largely impacted by the once-off payment received in 2016. Excluding this non-recurring item, EBITDA increased by 9.9% through better volumes, the recovery of cost inflation, and continued efficiencies that support the lower-than-inflation cost increase.


During 2016 Afrox reassessed the useful lives of its major manufacturing plants and based on the results of this assessment increased the useful lives by five years. The impact of this reassessment on the 2017 results was a reduction in the depreciation charge of R34 million.


The effective tax rate is 27.5% (2016: 30%). This decrease is mainly due to prior year adjustments in deferred tax.

Non-controlling interest

Non-controlling interest of R10 million increased by R7 million mainly due to the impact of the 2016 impairment of our investment in the DRC.

Headline earnings

The adjustment in headline earnings per share (HEPS) relates to the impact of property and equipment sales in 2017.

Operating cash flow

Operating Cash Flow reduced by R159 million to R414 million (2016: R573 million) with the year-on-year decrease largely attributable to the R165 million received in 2016 as a once-off from the litigation settlement with Arcelor Mittal SA, increase in taxes paid and higher dividend payments of R315 million (2016: R275 million).

Cash outflow from investing activities of R216 million (2016: R272 million) contains proceeds from disposal of property in both calendar years, with additions to PPE remaining at similar levels considering the current economic environment.

On a comparable basis, Afrox Free Cash Flow increased by 28.8% or R55 million during FY2017, adjusting for the R165 million once off in 2016.

With a net increase of R191 million in cash and cash equivalents to R1 344 million for the year 2017, Afrox remains net debt positive from an overall strong cash flow performance.

Cash flow analysis


Afrox declared a final gross cash dividend of 54 cents, resulting in a net dividend of 43.2 cents per share to those shareholders not exempt from dividends tax. The total dividend of 100 cents for 2017 (54 cents for the second half of 2017) is supported by continued solid profits, strong cashflow, and a high level of investment.

Based on AFROX’s policy, dividend is covered by circa two times HEPS.

Investment case

  • Stable and efficient operating model enabling our business strategy
  • Strongest footprint among gas companies in Africa, especially Southern African Development Countries
  • Part of global leader in industrial gases – exposure to technology and best practice
  • Secured LPG supply chain covering last mile to the customer
  • Well-adjusted cost base and ability to recover cost inflation via a combined product offering
  • Diverse, less cyclical portfolio, realising pockets of growth despite tough economic conditions
  • Strong balance sheet, cash-generative business and positive net debt
  • Attractive dividend policy
  • Geared for growth with a low-cost and consolidated asset base that delivers economies of scale

Total shareholder return for 2017 was at 74% considering the 100 cents dividend declared in 2018.

Dividend payment

2018 outlook

Afrox believes in its products, its people, having a strong value contribution to its customers and, ultimately, the wider South African economy. Despite reported indications of low growth in 2018, Afrox will continue to seek growth opportunities and maintain adequate levels of cost, while continuing its productivity improvement initiatives.


I would like to extend my sincere gratitude to our shareholders for their confidence in our leadership, and supporting our strategy. Thank you to all stakeholders, our leadership teams, and all employees within the Afrox Group. Finally, I would like to thank the Afrox Board for its continued guidance in these challenging but exciting times.

Matthias Vogt

Group Financial Director