Managing Director’s review

Key highlights

  • Strong operation and financial performance
  • ­Achieved a Level 4 BBBEE rating
  • ­Celebrated 90 years in business

Key challenges

  • Disappointing economic growth in South Africa – placing mining and manufacturing industries under pressure
  • ­Rise in security incidents at branches and depots
  • ­Regulatory uncertainty, specifically in the energy sector
  • ­Customer closures and restrained volumes

Performance

The Company enjoys a stable and efficient operating model enabling the retention and growth of our footprint as the leading gas company in Africa, especially the SADC region. Revenue and EBITDA increased as a result of an increase in volumes, recovery of cost inflation from pricing and effectively cost containment. In this last area, positive momentum was gained by reducing the number of activities and processes that did not materially contribute to value creation.

Our strategy remains unchanged and continues to be guided by the strategic objectives that have positioned the Company positively in the last few years, despite economic flux. Afrox remains strongly cash-generative with cash reserves increasing by R191 million to R1 344 million (2016: R1 153 million). Refer to the Group Financial Director’s review.

A significant improvement was the Company’s BBBEE rating, which was the result of a strategic and intentional plan. In 2016, under the new BBBEE codes, Afrox declined to a Level 8 rating. Through guided efforts (refer to material matters) the Company is now a Level 4 and seeks to progress to Level 3 in the near future. We improved our Business Continuity Management framework to enable more efficient disaster recovery should it ever be needed. This process was supported by quarterly reviews of the risk register and thorough process investigations.

Our progress in developing integrated supplier services and positive stakeholder engagement stemmed from a renewed focus on selling value-adding services and solutions. Our Afrox eShop continues to reduce the cost to serve our customers while offering added convenience to our value proposition. New developments on this platform include customer order tracking and, the ability to open online credit accounts and quotations.

On a management note, the unity and resolve demonstrated by the executive management team continues to prevent departmental silo mentality, promoting a team-based approach to value creation in its place. This outlook has brought SWIFT behaviours to life, namely those of Agility, Collaboration, Accountability, being Engaged and Caring.

Making a difference since 1927

We took the opportunity to celebrate our 90 years in business with a new corporate video, and various internal events across South Africa to underscore the value we place on our people, and their commitment to our business.

Throughout the last 90 years, Afrox places the utmost priority on safety and continuously strives to improve workplace safety on our premises and at our customers’ sites. This is primarily driven through our Safety Solutions Programme – refer to SHEQ for examples of these activities.

Performance at a glance

Our approach to sustainability

Afrox’s approach to doing business is aligned with the governance, ethics, processes, and compliance guidelines of The Linde Group to benefit from best practice of this larger organisation. This means there are only two targets that are of relevance when it comes to driving behaviours and sustainability in Afrox, these are zero and 100:

  • Zero-tolerance of non-conformity to ethics, corruption, environmental policies, product stewardship and the safety of our people, suppliers, customers and the communities in which we operate.
  • 100% compliance when it comes to our business behaviours, practices, dedication to customer service excellence and commitment to all aspects of sustainable growth.

Outlook

Afrox is geared for growth with a low-cost and consolidated asset base, delivering economies of scale. These are further supported by a strong balance sheet. South Africa’s economic environment is expected to remain weak in the foreseeable future and Emerging Africa is expected to continue being impacted by low economic growth, and lack of investment in infrastructure projects. Despite these economic headwinds, Afrox will continue to develop specific growth opportunities in Atmospheric Gases and LPG while focusing on cost recovery and productivity improvements.

Afrox will continue to supply products and services to high-growth consumer-led markets such as hospitality, food and beverage, LPG and healthcare. We intend to drive increased Hard Goods exports to regions outside sub-Saharan Africa to support the development of our footprint. Integral to our strategy’s success is the close management of the balance between sales, gross margin and expenses while further driving appropriate behaviours such as safety and high performance.

Gratitude

I extend my sincere thanks to our customers, suppliers, employees, and members of the Board for their unwavering commitment. It is only through this support that Afrox is able to achieve sustainable long-term growth that yields positive returns.

Schalk Venter

Managing Director