Material matters definitions

Our material matters are defined in the table below, featuring risks and opportunities related to each. We linked these to the Company’s related strategic objectives that are discussed in our business model. There were updates to the material matters and their relevant boundaries. One new material matter was included to encompass the continuous consideration of sustainability from a business and operational environment perspective.

No Material matter Contextualisation Strategic objective Term impact1
1* Economic strain and persistent lower demand
  • The South African economic environment remains strained with low levels of Gross Domestic Product (GDP) growth, unemployment, inflation and high interest rates.
  • Actual and potential credit rating downgrades erode investor confidence. The downgrades were aggravated by factors such as lack of strong corporate governance principles coupled with political uncertainty. Political uncertainty has influenced economic stability – see the Government policy and regulation material matter for further context.
  • Service delivery challenges (e.g. water and electricity) could adversely impact operations, as would industrial action. The latter is often linked to wage increases.
  • Persistent economic difficulty may lead to a reduction in customer market sizes and increasing competition to service a shrinking pool of customers. Afrox may be forced to absorb product costs to limit passing these on to consumers (the exception is the LPG sector, where a portion of the pricing is government-regulated), which would negatively impact margins and revenue growth.
  • Afrox continues to leverage opportunities in consumer-led markets such as food and beverage, agriculture and retail. See the Emerging Africa growth material matter for further contextualisation.
  • The Company pursues the enhancement of customer-focused product offerings to meet customer needs and differentiate the Company further. Consistent positive service before, during and after sales positions Afrox to remain a preferred provider.
  • The Company’s strong balance sheet enables the management of risk exposure and provides a degree of flexibility despite economic strain.
Maintain and grow profitability and operating performance
Ensure sustainable growth while enhancing competitiveness
S, M
2 Government policy and regulation
  • The political environment influences the operating environment through policies, regulations and legislation, causing various socio-economic impacts.
  • ­Policy uncertainty and irregular response times from government departments create planning difficulty, leading to a loss of opportunities and cost implications for policy alignment.
  • ­In the consumer business (unlike the Bulk segment), a portion of the LPG market is regulated and priced through reference to the crude oil price. Thus, exchange rate fluctuations and crude oil prices have significant impacts on the LPG input cost and a corresponding impact on sales prices. The Company is in the process of implementing the recommendations of the Competition Commission’s report after its market inquiry into the LPG sector.
Maintain and grow profitability and operating performance
Ensure sustainable growth while enhancing competitiveness
S, M, L
3 Safety and security
  • The safety and security of our employees and products is imperative for sustainable operation. Crime and safety-related incidents may cause a loss of life, damage to resources or supply chain impacts.
  • Afrox ensures that safety is a way of life by supporting its leaders to lead by example and promotes the achievement of zero harm.
Maintain and grow profitability and operating performance
Embed advanced performance in areas of safety, health, environment and quality
Build a performance culture
S, M
4 Legal compliance and sound corporate governance
  • Compliance with all relevant laws and regulations is essential to our licence to operate.
  • The increasing prevalence of corporate governance irregularities among South African companies is becoming a prominent ethical and sustainability issue. These irregularities adversely affect investor confidence, diminish social trust and promote anti-establishment sentiment. Afrox views effective corporate governance as an opportunity to enhance value creation and is committed to upholding strong governance principles.
Ensure sustainable growth while enhancing competitiveness
Build a performance culture
S, M, L
5 Emerging Africa growth
  • Africa’s economic growth is constrained by its lack of infrastructural development and dependency on the fluctuating commodity industries. Foreign currency volatility, inconsistent product supply and political policy are risk areas for the Company.
  • Opportunities for growth in Africa are intrinsically linked to economic stability and improvement. In the event that the continent’s GDP rates grow concurrently with Africa’s population, the prospects of Afrox yielding value from consumer-led industries increase significantly. Afrox continues to review appropriate expansion opportunities in Emerging Africa.
Maintain and grow profitability and operating performance
Ensure sustainable growth while enhancing competitiveness
M, L
6 Supply chain reliability, efficiency and cost base
  • Afrox has operational and business sustainability risks if it inadequately or inconsistently supplies products to its markets. This could be caused by poor supply from the Company’s supplier base, industrial action or events outside the Company’s control.
  • ­Afrox obtains the bulk of its CO2 from a limited number of local suppliers and has established relationships with additional suppliers to ensure security of supply.
  • Afrox undertook plant refurbishment and infrastructure upgrades to improve its supply chain reliability. Further opportunities exist through innovative programmes, for example for helium supply.
  • ­Effective supply chain activities could result in improved operational efficiencies and reduced costs.
Ensure sustainable growth while enhancing competitiveness
S, M
7 Attracting, developing and retaining talent
  • Appropriate talent aids us in obtaining and retaining market share, innovating to produce new products and services, and ultimately delivering the exceptional customer service that further differentiates us from our competitors.
  • The Company’s employee base is stable and competent. Afrox is focused on maintaining and developing the ingrained performance culture to leverage this attribute as a competitive advantage.
  • Internal succession planning is a pivotal area of our business. Afrox is responding to the scarcity of critical skills through development programmes and education support initiatives.
Maintain and grow profitability and operating performance
Build a performance culture
S, M, L
8 Transformation including BBBEE and employment equity
  • The Company is required to comply with BBBEE legislation and sector charters to operate successfully in South Africa. Compliance provides access to contract and government tender opportunities while non-compliance significantly hampers the competitiveness of the business.
  • The impact of the Company’s focused effort to enhance its standing resulted in an improvement to a Level 4 BBBEE rating under the new codes, compared to a Level 8 in the beginning of 2017 (2016: Level 3 – under previous codes). The Group centralised all activities related to transformation under the HR structure, to allow better monitoring, through a scorecard, and management of the day-to-day activities. This was achieved with a focus on management control, various skills development programmes and an Enterprise and Supplier Development focus. The Company continually seeks to include black-owned and black women-owned businesses in all major tenders across different scopes of supplies and services.
  • The Company is actively monitoring the progression of transformation within our Board and executive management structures.
Maintain and grow profitability and operating performance
S, M, L
1 S – Short-term (2018); M – Medium-term (2019 to 2021); L – Long-term (Beyond 2021).
* New material matter that combined three material matters identified in 2016: Persistent low demand leading to a lack of growth in the mining, iron, steel and general fabrication sectors in the South African market (ranked 1 in 2016); South African economic environment (ranked 2 in 2016); Customer value creation (ranked 4 in 2016).

Material matters hierarchy

Below is a visual representation of where the material matters rank on a scale of impact and likelihood.