Our value creation process

Value creation for Afrox is the sustainable and effective deliver of products and services to our customers in a profitable manner. Our Board considers the role of our risks, opportunities, strategy, business model, performance and sustainable development in this process. Review our key market differentiators and core competencies for examples of our value creation ability.

Capital capabilities and key trade-offs


Financial capital

Afrox is a capital-intensive and cash flow-generative business. Cash generated from operations is generally around 85% of EBITDA. These funds are used to meet the cost of replacing assets, dividends, finance costs and tax. Dividend cover is maintained at 50% of HEPS. Working capital management is crucial to keeping our cash-generative capacity. Particular attention is paid to managing imported inventory (Hard Goods, LPG and some Special Gases such as helium).

Significant cash holdings enhance the capacity to finance future growth opportunities. Gearing is managed within the financial covenants, which require that net interest-bearing borrowings do not exceed two-and-a-half times EBITDA and that the EBITDA interest cover ratio is not less than four times. Refer to our Financial Director’s review for details of our financial performance.

Key trade-offs in 2017

Cash and cash equivalents increased to R1 344 million resulting in a net cash position of R344 million. However, an increase in dividend payments was made to shareholders based on increased levels of profitability.

All covenants on the Company’s R1 000 million borrowings were comfortably met. The R600 million syndicated facility was repaid in December and a new R600 million five-year agreement was concluded.

The cash position is a result of reduced capital expenditure, mainly due to the continued low economic growth in the region.

Human, social and relationship capital

Our employees are a crucial conduit for a successful and sustainable business operation. We have a highly skilled workforce of 2 092 (2016: 2 142) employees at a cost of R779 million (2016: R764 million) per year. We spent R33 million (2016: R31 million) on training to enhance employee skills and R2.1 million (2016: R1.2 million) on employee wellness programmes to cater for various health and wellness needs. The average employment period for the Company remains nine years (2016: nine years), and we have a number of succession programmes in place to ensure continuity of relevant skills and expertise. Refer to Employee retention for more details.

Afrox aims to:

  • be an employer of choice;
  • have the right employee in the right position;
  • drive innovation and enhance customer solutions;
  • learn, adapt and improve continuously;
  • provide attractive careers;
  • develop management and leadership capabilities;
  • support line managers and their ability to lead employees; and
  • manage and reward performance.

We are focused on capitalising on improvement opportunities and further embedding a high‑performance culture. Our Code of Ethics underpins all our engagements and additional information can be found in Code of Ethics.

We have corporate social investment activities, supplier support and preferential procurement practices to aid previously disadvantaged individuals. Refer to Corporate social investment.

Key trade-offs in 2017

Due to the ongoing SWIFT programme, certain vacancies were not filled during the current year

Intellectual capital

We take advantage of the cutting-edge technologies and research available to us as a member of The Linde Group. Our strong brands and international distribution networks allow us to capitalise on our supply chain strengths. We believe our intellectual capital is key to delivering unique solutions that meet customers’ requirements. Afrox continuously seeks to gain a deeper understanding of customer processes to add value through process optimisation, unique product service offerings (PSOs) and value-added services aimed at the improvement of delivery, reduction of failure rates, and attainment of higher returns.

This has resulted in unique PSOs in a range of industries such as environmentally friendly energy production (predominantly welding solutions) or leading food refrigeration techniques (refer to the SHEQ award certification table for details of our unique certification).

Our intellectual property is the basis of our unique Hard Goods products and motivates our efforts in all the sectors in which we operate.

Key trade-offs in 2017

The Company sold the GEF (gas equipment factory) capabilities to Cavagna in December 2015 and the sale was finalised in 2017.

In order to enable effective operation, the Company shared key aspects of its intellectual property related to the Afrox processes and products, particularly for Hard Goods product manufacture. In exchange for the intellectual capital shared, Afrox receives a royalty and reduced operational costs, which by association, provides a financial capital saving.

Manufactured capital

Manufacturing and filling of our gases as well as other products takes place on 48 (2016: 48) sites; 33 of which are manned, and 15 automated on‑site plants. Some manufacturing sites host more than one operating unit. We have a network of strategically located Gas & Gear retail outlets and a national warehouse in Gauteng. The central scheduling centre deals with more than 20 000 customer deliveries per month.

Our distribution capabilities include liquefied bulk deliveries throughout Emerging Africa and customer-specific on-site plants. This supply chain network is capable of sourcing, manufacturing and delivering over 3 000 products and gases in 700 000 high‑pressure cylinders and 2.5 million LPG cylinders throughout South Africa. The Company’s transport fleet covers more than 25.5 million kilometres per year locally and our Emerging Africa operations cover the rest of the continent, offering similar distribution excellence, speed and safety. Refer to Emerging Africa for more on our improved governance approach.

Key trade-offs in 2017

Sale of the gas equipment factory concluded in 2017 and products now sourced from Cavagna.

Natural capital

The direct environmental impact of our operations is limited to the consumption of electricity, water and fuel. Each area has efficiency programmes in place to conserve such resources and reduce greenhouse gases, while allowing the business to remain commercially effective. All Afrox’s products are geared to ensure that its customers’ environmental compliance is adhered to and their impact is as low as possible. Refer to Governance for our environmental impact in 2017.

Our value chain

Our business model

Salient value creation outcomes

Financial value-added statement for the year ended 31 December 2017

Below is a measure of the financial value we create for various stakeholders in the course of operating our business sustainably and profitably.