Atmospheric Gases

Key highlights

  • Good bulk gases performance
  • Gained new business
  • Continued provision of value-adding services and customer process support
  • Consistent infrastructure development and investment

Key challenges

  • ASU reliability challenges
  • Feedstock availability constraints
  • Global helium supply constraint leading to local challenges
  • Supply constraints for propellants

Performance review

Key performance indicators

Key:

Target achieved:

Target not achieved:

1 Capital expenditure (CAPEX) refers to spending by Afrox in order to acquire or maintain fixed assets.
2 Delivered in full and on time is a measure of product delivery efficiency.

Overview

Within Industrial Gases (oxygen, nitrogen, argon and acetylene), the demand for our bulk products was above that of 2016, resulting in increased volumes in most business areas. Packaged Gases volumes remained relatively stable year-on-year with small recoveries in the demand for oxygen for various applications. The overall performance of the Atmospheric Gases segment was supported by the successful roll-out of Afrox’s Individual Cylinder Control (ICC) management system (refer below), and increased attention to cost recovery. Afrox showcased its ability to compete in this segment by regaining a number of former customers.

PGP

The PGP segment performed well, mainly as a result of manufacturing demand, increased focus on smaller end users and pursuit of opportunities through indirect channels, namely partners and distributors. The demand for PGP improved despite the continuing decline in acetylene volumes.

Tonnage

Overall, the traditional high-volume tonnage metals markets remained flat with pockets of growth towards the end of 2017. The recommissioning of a key manufacturer’s scrap-based steel-making plant in Cape Town supported Afrox’s KuilsRiver 100 ton per day ASU plant, yielding a 2% increase in volumes compared to the prior year. In the Western Cape, further investment in a petroleum-based catalytic oxidation unit enhanced supplies of high-quality carbon dioxide used primarily in the food and beverage market. Gas supplies to the pulp and paper market improved year-on-year. A significant argon agreement was signed, and delivery is expected to begin in mid-2018, supporting our Witbank ASU plant’s activities. This ASU is undergoing infrastructure revitalisation to enhance reliability and efficiency. Further key plant investments are planned in 2018.

Bulk

Bulk Gases performance was strong, supported by the steady performance of the food and beverage sector and positive activity in gold recovery operations. This 3% growth in volumes was achieved despite a lower demand for argon, predominantly influenced by the slow-down in the manufacturing sector.

Major challenges in the year were unplanned plant outages at the Highveld ASU, which put severe pressure on the supply of oxygen and nitrogen to the inland region of South Africa. Supply was particularly constrained in the first quarter of the year resulting in shortages to large customers. In addition to refurbishment, mitigation plans are in place to reduce the chance of reoccurrence.

Major refurbishment activities were undertaken during the second half of the year. These activities formed part of a five-year refurbishment plan for various plants. Other refurbishment activities included Afrox’s CO2 facilities at PetroSA, Sasol and Natref. The upgrade of the PetroSA CO2 facility has improved production capacity by enhancing the Company’s ability to recover CO2 from feedgas with changing purity characteristics, enhancing volumes and quality.

Afrox continually seeks opportunities to develop new CO2 sources across the continent, as supply sources for CO2 remain scarce. The Company considers location and feedgas source in its assessments. A five-year forecast of plant capacity and demand is used to determine when and where additional capacity for a specific product is likely to be required.

Hospitality

Product volumes for hospitality related applications could be maintained at 2016 levels. This was achieved by consistent demand in a strong consumer-led sector, specifically for fast-food outlets, shopping centres and so forth.

Special Gases

Special Gases experienced reduced revenue due to volume decline in some areas. Special Gases performance was further hampered by a global helium shortage in the middle of the year, which was exacerbated by internal supply constraints towards the end of the year.

The Company is working with energy company Renergen Limited, through its subsidiary TETRA 4 Proprietary Limited, to commercialise the Free State helium and Natural Gas field. It is envisioned that successful commercialisation will reduce the risk associated with having one major international supplier for helium. The prospects for growth are significant as Afrox would be positioned as the major helium supplier in South Africa by 2020. Our partner is evaluating options to finalise the design and engineering of the helium recovery plant before a possible on-stream date can be determined.

Continuous investment in our success

For the last six years, Afrox has invested over R10 million to upgrade the Special Gases propellant plant in Roodekop, effectively positioning the Company as an established supplier to the country’s fast-moving consumer goods personal care market.

Medical Gases1

The 4.3% growth in Medical Gases volume was a result of Afrox’s strong combined product and service offering. The Company’s tailor-made solutions continue to meet increasing demand in the public and private hospital sector, as well as the growing home care market.

1 Although not strictly atmospheric in nature, manufactured medical gases are included and reported as part of Atmospheric Gases.
Tag ’n Trace

Afrox’s Individual Cylinder Control (ICC) solution is being successfully rolled-out into the Company and will be completed in 2018. The ICC programme, known internally as Tag ’n Trace, is a first in South Africa and gives a significant competitive advantage to Afrox. This programme requires all high-pressure cylinders to be barcoded to enhance the audit trail of each cylinder and its life cycle.

More than 65% of our industrial cylinder holdings are now managed at an individual cylinder level. ICC further enhances our compressed gasses value proposition by providing time stamped data on cylinder movements at each scan point, thus improving customer cylinder holdings accuracy and asset utilisation. This improved cylinder holdings accuracy could increase revenue where holdings are understated, improve resolution of cylinder holdings disputes, assist debt collection and improve customer confidence in Afrox’s ability to manage cylinders. Afrox now has the unique ability to perform a detailed analysis of cylinders to enhance asset management. This value-adding offering applies to all portions of our business concerned with industrial high-pressure cylinders. The customer response to ICC has been positive.

Renewable energy update

Afrox has a partner with New Horizons Energy to turn organic waste destined for landfills into usable products. New Horizons Energy intends to convert organic waste into usable bio-methane at purity levels of over 90%.The project is in its final phase of commissioning. Our partner is in the process of resolving challenges regarding the lower than anticipated organic content of waste streams being processed.

Future focus areas

The Company will continue developing new markets for product supply that support new customer revenue growth. Particular attention was placed on value-added services and customer process support in 2017 and this will continue into 2018.