A-Gas Australia managing director William Evans talks exclusively to CCN about the biggest challenges facing industry. Topics range from carbon pricing to the economic outlook and making the transition to fourth generation gases.
CCN: How would you describe the current economic climate here and overseas?
William Evans: I believe the current economic climate is challenging, but improving. As a group we are active in most regions and we feel the impact of slower economic activity.
It’s a challenging time in Europe, but we are seeing improvement in activity in the US where we have recently purchased two businesses; Asia is growing well relatively and Australia is stable.
A-Gas has a strong position in the Australian market and we are actively making long term investments in our people and new business opportunities.
While the climate is improving we recognise it will take time for confidence and greater economic activity to return to the local market.
CCN: How would you describe the current climate for the refrigerants industry?
WE: The industry is certainly in an exciting, transitional phase. There has been significant change recently - reducing HCFC quota, carbon regulation and the pending transition to fourth generation gases.
We may also see more regulation in the future that resembles the proposed F-Gas regulations in Europe. It is challenging to operate in this environment and make long-term decisions when there is regulatory uncertainty, but A-Gas has been active in regulated markets for the past 20 years.
We have strong relationships with suppliers, customers and government so we are well placed to keep our customers informed and to find a path forward.
On a more micro level, the economy is in low gear and we have historically high wholesale gas prices. Wholesale customers are seeing end-users holding off from purchasing beyond service requirements and the upcoming election has further reduced the willingness to spend.
However, systems need quality gas and servicing to run efficiently, and we expect sales for project requirements to gradually improve as we move into 2014. We will continue to focus on providing a quality offering including product integrity, cylinder tracking and technical support to our customers.
CCN: What do you think are the biggest challenges facing the industry?
WE: The three key issues that come to mind are uncertainty of regulation, the risk of contaminated product and the re-use of gas in the market. As I mentioned, regulatory uncertainty makes it difficult to make longer-term decisions.
We are fortunate in that we have certainty on HCFC quota and the carbon levy, but the carbon levy is only certain for a period. If there a change in government then any changes to the regulations impacting our industry are likely to start to take effect towards the end of 2014 or later.
While that’s not far away, it does give us time to consult with both political parties and have input into the policy decisions impacting our customers and the industry.
Contaminated product is a concern globally and Australia is no exception.
All of our bulk purchases are tested by the supplier and then we independently re-test every vessel. This might sound over the top but product quality is our priority and we will aim to maintain our reputation as the most trusted gas brand in the market.
Recently one of our customers had a product recall on systems that had contaminated gas (which was not supplied by A-Gas) and I expect there will be more of those scenarios.
In that situation, the market feedback was that the customer did a very good job on the recall, but the risk to your brand if you have contaminated product is significant and the costs of doing a recall normally far exceed the cost to ensure you have quality product from the start.
We manage and remove this risk for our customers.
Aside from these risks there is potentially a safety risk for contractors and end-users dealing with contaminated product.
A number of incidents have been reported globally and there have been several in Australia but fortunately no lives lost at this stage. We see contamination as an ongoing risk that needs to be managed in our industry.
That leads into the third challenge which is unregulated re-use in the market. Re-use is not in line with the industry code of conduct and end-users should be aware that unless product is certified as meeting AHRI 700 standards, they may not be getting their money’s worth.
Re-used product should be considered as contaminated and may deliver lower system efficiency.
It is our position that all product should be confirmed as meeting AHRI 700 standards before being used in the market and that only products approved by manufacturers should be used in systems.
Given the risks in this area we test every bottle coming back which has a missing refill protection device (RPD) and all reclaim returns. When customers see our shrink wrap intact they can be certain that A-Gas guarantees the product quality.
It is our view that further regulation and enforcement would benefit the industry and lower the potential safety risk.
CCN: How is A-Gas dealing with these challenges, and what are your plans in Australia over the next 12 months?
WE: We will continue to work closely with industry bodies such as RA and RRA and communicate directly with both sides of government.
We are also investing in people and laboratory facilities so we are positioned to manage the risks these challenges present.
For example, we have assisted other local entities with contaminated ISOs and been able to test the contents, clean and salvage the majority of the product.
I think there will be more of these situations so we will continue to build our capabilities in this area and potentially be able to provide these services in the future.
As a supplier of all types of refrigerants, fluorocarbons and not in kind (NIK) refrigerants such as CO2, ammonia and hydrocarbons, it is important that these products be only used in accordance with the original equipment’s manufacturer specifications and that increased training and enforcement policies are adopted to encourage the safe and responsible use of refrigerants that are fit for purpose.
Our customers look to A-Gas to understand and inform them about current and future market developments including regulation. We have recently employed a new customer service and marketing manager, Anush Martins, to improve the delivery of this information.
My predecessor, Andrew Ambrose, now has a regional role covering the Asia Pacific for A-Gas and has more time to meet with key regulators and understand the risks to our business. This work can be very time-consuming and we are lucky to have the resources to stay informed.
Operationally, we are investing in deploying environmental services technology that we have developed in the United Kingdom. This will give our customers access to world-leading technology which will help with the transition to new products and the phase-out of HCFCs.
There has been some concern in the market that HCFCs, or R22 specifically, will not be available. While the allowable imports are minimal from 2015, our reclamation technology will ensure that our clients have access to this product for a number of years.
We are progressing the build in stages and stage 1 (reclamation and cleaning) will be operational in this quarter.
CCN: What steps are you taking to help your customers transition to low GWP solutions?
WE: At this stage we are focused on keeping them abreast of developments (regulatory and product). Longer term, we will provide them with access to the new generation products, either as samples or once commercially available, and world-leading environmental services technology.
In July we are having an A-Gas customer forum where we will bring our customers, industry experts and government representatives together and provide detailed updates on the latest developments here and abroad.
We have also transferred Graeme Dewerson to Australia from our UK business. Graeme is now the environmental services manager based in Melbourne.
Graeme’s technically very competent and brings a wealth of experience in the transition to R407F, R32 and CO2 use in systems. He also understands the reclamation of various products already happening in the UK and European markets.
He’s a great addition to the team and I am sure our customers will get a lot of value from him in the future.
In addition to these steps we are always looking for feedback from customers regarding what they need and I will personally be spending time in wholesale branches and at customer facilities seeking direct feedback.
CCN: What are the biggest concerns raised by customers in relation to this transition and how are you accommodating them?
WE: I think our customers and the industry has been through a lot of change in the past so they seem to take the current challenges in their stride to a degree.
The key message I get from customers is that they don’t want to be disadvantaged and they don’t want surprises. Based on that, we are working to further improve our customer service and to ensure that our customers are well informed.
We will be hiring two branch representatives in this quarter. We have had branch representatives in the past and I feel our customers want that personal service and on-site access to someone who can solve any issues and answer questions.
The other concern I sometimes hear is that customers don’t want to be left holding a particular product if the market moves to another product or be caught holding higher priced product if regulatory changes lead to a price change.
This is a concern for us all and something we will all need to work on together, whether it’s in submissions to regulators or feedback in other forums.
CCN: Is carbon regulation affecting the market generally?
WE: As you are aware our market is exposed to the equivalent carbon price levy. Current market prices are higher than historical levels and volumes are lower than what we would normally see at this time of year.
In many of the transactions at an end user level the actual gas component of the total bill is minor so the impact is diluted. We hear that orders for bigger systems are slower, but much of this activity is a couple of steps down the chain from us so we don’t have complete visibility.
The behaviour at a wholesale and contractor level is changing in that they are questioning how much stock they carry, how it’s secured and what new generation products are available.
They are seeking value and the current and future regulation will, over time, cause them to migrate to lower GWP products. This is the objective of the regulations so I think they are working well and delivering the intended outcomes.
There have also been some perverse outcomes as well and the re-use of gas in the market is a good example. There is a lack of monitoring and enforcement in this area and no one wants to take ownership of this issue.
CCN: How does A-Gas differentiate from competitors?
WE: A-Gas is focused on safety, quality and the environment; we run our business to the highest standards under our ISO9001 and ISO14001 accreditation programs.
We have a fully staffed QA and R&D laboratory and in addition to supplier testing we test all of our bulk gas purchases. We also test all returns from market without an RPD intact and reclaim cylinders to ensure there is no contamination.
As a fully licensed test station we inspect, clean and certify every cylinder within our fleet to guarantee it is within test and guarantee its internal integrity. On top of this we track every cylinder via our industry leading Cyltrak system.
We have strategic supplier relationships with global manufacturers who have invested heavily in new generation product development ensuring we are at the forefront of introducing new product development programs.
We are investing in our people, our services and our facilities. We are developing world leading environmental services, reclamation and recycling capabilities in Australia. We have 20 years of experience in regulated refrigerant markets, we can draw on that experience.
CCN: What do you see as the biggest issues going forward in the next couple of years?
WE: I think the industry has a significant challenge in presenting a balanced argument to regulators and effectively influencing future regulatory decisions.
There are a number of steps in our supply chain and there are divergent views. Industry bodies need to show leadership here.
At A-Gas we need to continue with the integration of our new acquisitions, understand and manage the impacts of regulation, and further improve the service we offer to our customers.
It is a challenging market and we need to continue to reinforce our valueproposition to our customers. I think we can do a better job of that as some of our core competencies are not well understood by the market.
CCN: Any final points you want to make?
WE: We are growing globally and Australia is a very important part of that growth. Refrigerants are our business so we will continue to look for opportunities to grow in this area and our other product offerings.
This has already seen us purchase Technochem, a refrigerants business in Melbourne, and SA Rural Agencies, a fumigants business in Adelaide.
We have also been awarded the contract to manage the National Halon Bank for the Commonwealth Government. Bedding down these initiatives and delivering value to clients will keep us busy for the remainder of 2013.
It is a very exciting period for the industry and we look forward to being a part of it.