JSE-listed industrial gas group African Oxygen (Afrox) is nearing completion of its R1-billion capital 
expenditure programme (capex).

During the 2008 financial year, 
the company spent some R540-million, mainly to increase 
capacity.

“Even though we have experienced a decline in demand, all those projects are still very relevant, and it was the right thing to do,” affirms Afrox MD Tjaart Kruger.


The three major capex programme projects undertaken in 
2008 were the R165-million Ger-
miston operations centre, the R112-million carbon dioxide (CO2) plant, at Sasol, and the R135-million Kuilsrivier project, in Cape Town.

The Germiston centre is a state-of-the-art cylinder-filling station for speciality and medical gases. Half of the facility is already being used, and the rest is expected to come on line imminently.


The new CO2 plant in Sasolburg has capacity to produce some 
250 t/d of the gas. Currently, the facility is producing in the region of 140 t/d; however, the feed stream from Sasol is being 
upgraded, whereafter the facility will produce at full capacity.

The Kuilsriver facility, which produces oxygen, nitrogen and argon, was commissioned in November, although it was only opened in March, owing to declining demand, which was particularly stark in the fourth quarter of the 2008 financial year.


“All these projects were 
designed around increasing our capacity, which it has done very successfully. About two years ago, we were running short of capacity, especially in CO2. With the short-term outlook now, we probably have more capacity than what we would have had. But those projects are still very worthwhile to us,” Kruger tells Engineering News.


In addition to this capex, the group spent some R63-million on implementing SAP business software solutions, applications and services. 
This was a major project, which started in 2006 and was imple-
mented in three phases, the last of which went live in May 2008. 

Afrox says that the implementation of the systems will have beneficial effects on both costs and volumes. “It is working for us and I think it is going to make us a very productive company going forward,” says Kruger.


Going Forward
Afrox sees opportunities in the government infrastructure spending. Although not particularly able to participate in contracts for building roads, the company 
sees potential once the building of plants and structures needing steel starts.

Kruger says that Afrox has been awarded a contract for Eskom’s new-build Medupi coal-fired power station near Lephalale. He notes that the company will be opening a branch in the town near to the project site.

The company is also pleased to have been awarded a portion of the State tender for medical gases. The government previously 
used Afrox, but has made clear its intention to use more than one supplier. In February, Afrox was informed that the company got about 85% of the tender, which is on a three-year contract.

Afrox would also be responsible for a number of firefighting installations for the FIFA 2010 World Cup.

Vital in allowing Afrox to benefit from public-sector contracts is the company’s black economic-
empowerment rating. The company proudly notes that it has achieved a level four rating, meaning that, from a procurement point of view, customers get full recognition for buying from an 
empowered entity.

“It is important that we get that, not only from a transformation point of view – that we want to be a truly South African company – but also from a business point of view,” adds Kruger.

Kruger maintains that improvements in the economic climate are unlikely to materialise before 2010, and feels that 2009 will be a difficult year for the company.

Reducing the cost base, and 
improving efficiencies, which were long-term high-performance 
organisation goals for the company, have become much more critical. “These things are no longer a 2012 goal; they must happen in the next few months in 2009,” says Kruger.

Afrox supplies largely to the 
industries of automotive manufacturing, mining, manufacturing outputs, and metals and fabrication. 
“These industries are in dire straits – and they are our major customers,” Kruger states.

The automotive manufacturing industry is experiencing the lowest vehicle demand in eight years, and in January 2009 had contracted by some 35%.

The mining industry was cutting production following the significant drop in commodity 
prices, and was reducing the spend or delaying capital expenditure projects.


Manufacturing outputs fell by 7% in December 2008, and the falling commodity prices and 
reduced activity in the metals and fabrication industries affected 
demand for Afrox’s products.

Afrox’s operating profit for the 2008 financial year, characterised as the ‘year of two halves’ dropped 10%, and headline earnings a share were down 11%, to 133,7c a share.

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