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African Oxygen Limited - Summarised Audited Consolidated Financial Statements For The Year Ended 31 December 2014

Release Date: 26/02/2015 15:10:00      Code(s): AFX     
Corporate information
African Oxygen Limited                              
(Incorporated in the Republic of South Africa)                                                           
Registration number: 1927/000089/06        
ISIN: ZAE000067120  JSE code: AFX.       
NSX code: AOX

SUMMARISED AUDITED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2014

Revenue: R5.8 billion
EBITDA:  R818 million (-7%) 
Headline earnings per share: 36.2 cents (-62%)

Performance highlights
For the year ending 31 December 2014, Afrox's 7.0% reduction in EBITDA, combined with a decision to restructure, reduced headline earnings per share 62% to
36.2 cents (2013: 95.3 cents) and earnings per share 73% to 26.8 cents (2013: 100.1 cents). This decision to restructure resulted in a charge for
restructuring and associated impairments totalling R237 million (ref: SENS Note 29 January 2015). Revenue remained flat at R5 834 million (2013: R5 825
million). EBITDA at R818 million was 7% below 2013 reflecting the impact of overall lower volumes combined with normal inflationary cost increases.
However, Afrox continued to invest in plant modernisation, and additional capacity. In 2014, Afrox invested R533 million (2013: R507 million); with net
borrowings of R503 million (2013: R649 million) and gearing of 12.3% (2013: 14.6%).

Business review
Market activity remained depressed and cost pressures continued, as rising labour, fuel and electricity prices, coupled to a weak Rand, had a negative
impact on margins and production. A series of crippling strikes across many sectors of the economy, resulted in production in key industries, such as
mining and manufacturing, being negatively impacted.

Our focus on supply chain controls improved the cash generated as a percentage of EBITDA to 121% (2013: 95%).

LPG volumes were down 6.0% compared to 2013. Local shortages, and a planned shutdown of our import storage facility, restricted our ability to meet demand
in the first quarter. A modest recovery was hampered by the strikes and a relatively mild winter in South Africa. Despite this, we increased the LPG
cylinder pool by a further 5%. The collapse of crude oil prices in the last quarter saw a drop in the cost of LPG to customers, which is expected to spark
increased demand in the medium-term. While cash margins will not be affected, the lower cost of LPG will materially reduce revenue whilst crude oil prices
remain at these low levels. We continue to actively manage the illegal filling threat and trust the Competition Commission enquiry into the LPG market will
improve the regulation of the LPG industry.

Output reduction, strikes at key large customers and the final termination of the EVRAZ Highveld Steel and Vanadium contract, reduced demand for
Atmospheric Gases. As a result, gaseous pipeline sales declined substantially and those of compressed gases remained flat. Bulk liquid gases volumes,
however, increased nearly 8% due to new contract awards.

Merchant CO2 volumes were broadly in line with 2013. Medical atmospheric gases volumes provided to the state and private sector remained flat. The new R350
million Eastern Cape ASU is expected to begin production by Q2 of 2015. Production availability of ASU's remained world class at 98% (2013: 98%). Tonnage
power costs increased, when compared against last year, due to an average tariff increase of 7.8%.
Hard Goods volumes were down 8%, reflecting a lack of demand from key markets. Afrox is rationalising both its product range and manufacturing facilities
and driving sales of high-yield products.

Operations in African countries outside South Africa contributed 22.7% (2013: 20.4%) to gross profit after distribution expenses. Performance was impacted
by increases in logistic costs. The slow down in the commodity and oil markets has resulted in us curtailing our pace of investment into the Sub Saharan
region. As part of our review of our geographic footprint, Afrox is in the process of exiting from Angola, resulting in an initial R11 million charge
against profit.

Afrox's current level 3 B-BBEE contributor rating, is expected to be re-confirmed when next rated under the old codes in quarter one of 2015; management is
assessing the impact of the new codes which are effective in the second quarter of 2015.
Workplace and distribution safety continued to improve, with major incidents down 25%, contributing to improved customer-service levels in all areas of our
business.

Restructuring
The Board has commenced a comprehensive review of all the aspects of Afrox's South African business to restructure Afrox into a business which is correctly
sized and resourced for the prevailing economic conditions, ensuring that it will be appropriately and competitively positioned to take advantage of future
growth opportunities.

Borrowing facilities
Afrox has restructured undrawn committed facilities into a new R500 million seven year loan facility under its syndicated loan arrangements.

Dividend
The company retains its policy whereby headline earnings cover the dividend twice. In compliance with this policy and due to the level of restructuring
costs incurred in the second half of the year, no final dividend can be declared.

Board of directors
The following changes in the Directorate have taken place since the interim report:
- BD Kimber resigned as Managing Director with effect from 12 January 2015 and MS Huggon assumed this role, in an acting capacity, from the same
  date.
- GJ Strauss was appointed to the Board on 26 February 2015.
- NA Thomson resigned as Financial Director on 26 February 2015 which resignation will be effective from 31 May 2015.

Outlook
Afrox remains both profitable and cash generative. The main focus in 2015 will be on the effective restructuring of the company and benefits should start
to be progressively realised from the fourth quarter of 2015.

Mike Huggon                                  Nick Thomson              26 February 2015
Chairman and Acting Managing Director        Financial Director        Johannesburg

By order of the Board

Cheryl Singh              26 February 2015
Company Secretary         Johannesburg

Forward-looking statements disclaimer: This results review contains statements related to our future business and financial performance and future events
or developments involving Afrox that may constitute forward-looking statements. Such statements are based on current expectations and certain assumptions
of Afrox's management are therefore subject to certain risks and uncertainties. A variety of factors, many of which are beyond Afrox's control, affect our
operations, performance, business strategy and results and could cause the actual results, performance or achievements of Afrox to be materially different
from any future results, performance or achievements that may be expressed or implied by such forward-looking statements or anticipated on the basis of
historical trends.

Summarised consolidated income statement
R'million                                                                   31 December  31 December
                                                                                   2014         2013
                                                                                Audited      Audited
Revenue                                                                           5 834        5 825
Operating expenses (excluding restructuring costs)                               (5 016)      (4 945)
Earnings before interest, taxation, depreciation, amortisation and
impairments (EBITDA)                                                                818          880
Depreciation and amortisation                                                      (381)        (366)
Impairment of tangible assets                                                       (35)           -
Impairment of intangible assets                                                     (17)           -
Earnings before interest and taxation (EBIT) before
restructuring costs                                                                 385          514
Restructuring costs                                                                (185)           -
Earnings before interest and taxation (EBIT)                                        200          514
Net finance expense                                                                 (12)         (47)
Income from associate                                                                 1            1
Profit before taxation                                                              189          468
Taxation                                                                            (93)        (144)
Profit for the year                                                                  96          324
Attributable to:
Owners of the Company                                                                83          309
Non-controlling interests                                                            13           15
Profit for the year                                                                  96          324
Earnings per share - cents
Basic and diluted earnings per ordinary share - cents                              26.8        100.1

Summarised consolidated statement of comprehensive income
R'million                                                                   31 December  31 December
                                                                                   2014         2013
                                                                                Audited      Audited
Profit for the year                                                                  96          324
Other comprehensive income after taxation                                          (119)         228
Items that are or may be reclassified                                               (41)          35
Translation differences on foreign operations                                       (27)          29
Translation differences relating to non-controlling interests                       (10)           5
Changes in fair value of cash flow hedges (net of taxation)                          (4)           1
Items that will never be reclassified to profit or loss                             (78)         193
Actuarial (losses)/gains on defined-benefit funds                                  (109)         276
Deferred taxation relating to actuarial losses/(gains)                               31          (83)

Total comprehensive income for the period                                           (23)         552
Total comprehensive income attributable to:
Owners of the Company                                                               (26)         532
Non-controlling interests                                                             3           20
                                                                                    (23)         552
Summarised consolidated statement of financial position
R'million                                                             Note  31 December  31 December
                                                                                   2014         2013
                                                                                Audited      Audited
ASSETS
Property, plant and equipment                                            4        3 166        3 034
Retirement benefits assets                                                          475          552
Deferred taxation assets                                                             15            9
Lease receivables                                                                   104          100
Other non-current assets                                                             59           99
Non-current assets                                                                3 819        3 794
Inventories                                                                         634          850
Trade and other receivables                                                         849          906
Lease receivables                                                                    19            7
Derivative financial instruments                                                      -            6
Receivables from fellow subsidiaries of holding company                              30           31
Taxation receivable                                                                  32           33
Cash and cash equivalents                                                           526          380
Current assets                                                                    2 090        2 213
Total assets                                                                      5 909        6 007
EQUITY AND LIABILITIES
Equity holders of the Company                                                     3 019        3 202
Non-controlling interests                                                            28           37
Total equity                                                                      3 047        3 239
Long-term borrowings                                                              1 000        1 000
Deferred taxation liability                                                         512          570
Non-current liabilities                                                           1 512        1 570
Provisions                                                                          197           34
Trade, other payables and financial liabilities                                   1 080        1 107
Taxation payable                                                                     43           28
Derivative financial instruments                                                      1            -
Short-term portion of long-term borrowings                                            -            3
Bank overdrafts                                                                      29           26
Current liabilities                                                               1 350        1 198
Total equity and liabilities                                                      5 909        6 007


Summarised consolidated statement of changes in equity
R'million                                                  Share    Incentive         FCTR  Actuarial  Retained         Non-   Total
                                                         capital       scheme          and     gains/  earnings  controlling  equity
                                                             and    share and      hedging    (losses)             interests
                                                           Share       share-     reserves
                                                         premium        based
                                                                      payment
                                                                     reserves
Balance at 1 January 2013                                    552            8          (67)       174     2 137           27   2 831
Total comprehensive income                                     -            -           30        193       309           20     552
Profit for the year                                            -            -            -          -       309           15     324
Other comprehensive income, net of taxation                    -            -           30        193         -            5     228
Shares purchased on behalf  of employees                       -          (16)           -          -         -            -     (16)
Share based payments,net  of taxation                          -           21            -          -         -            -      21
Dividends paid                                                 -            -            -          -      (139)         (10)   (149)
Balance at 31 December 2013                                  552           13          (37)       367     2 307           37   3 239
Balance at 1 January 2014                                    552           13          (37)       367     2 307           37   3 239
Total comprehensive income                                     -            -          (31)       (78)       83            3     (23)
Profit for the year                                            -            -            -          -        83           13      96
Other comprehensive income, net of taxation                    -            -          (31)       (78)        -          (10)   (119)
Shares purchased on behalf  of employees                       -          (17)           -          -         -            -     (17)
Share based payments, net  of taxation                         -          ( 4)           -          -         -            -      (4)
Dividends                                                      -            -            -          -      (136)         (12)   (148)
Balance at 31 December 2014                                  552           (8)         (68)       289     2 254           28   3 047

Summarised consolidated statement of cash flows
R'million                                                           Note         31 December  31 December
                                                                                        2014         2013
                                                                                     Audited      Audited
Earnings before interest and taxation (EBIT)                                             200          514
Adjustments for:
Depreciation, amortisation and impairments                                               433          366
Other non cash movements                                                                 217          153
Operating cash flows before working capital adjustments                                  850        1 033
Working capital adjustments                                                              136         (200)
Cash generated from operations                                                           986          833
Vested shares purchased on behalf of employees                                            (2)          (3)
Net finance expenses                                                                    (101)         (76)
Taxation paid                                                                           (113)        (202)
Dividends received                                                                         1            -
Cash available from operating activities                                                 771          552
Dividends paid to owners of the parent                                                  (136)        (139)
Dividends to non-controlling interests                                                   (12)         (10)
Net cash inflow from operating activities                                                623          403
Additions to property, plant and equipment                                              (514)        (505)
Intangible assets acquired                                                               (13)           -
Proceeds from disposal of the RECO business                                                -           36
Other investing activities                                                                66           48
Net cash outflow from investing activities                                              (461)        (421)
Borrowings raised                                                                          -        1 216
Borrowings repaid                                                                         (3)      (1 083)
Forfeited shares sold                                                                      1            -
Incentive share scheme shares purchased on behalf of employees                           (17)         (16)
Net cash (outflow)/inflow from financing activities                                      (19)         117
Net increase in cash and cash equivalents                                                143           99
Cash and cash equivalents at the beginning of the period                                 354          255
Cash and cash equivalents at the end of the period                                       497          354


Segmental report
R'million                                                           31 December  31 December
                                                                           2014         2013
                                                                        Audited      Audited
Revenue                                                                   5 834        5 825
Atmospheric Gases                                                         1 776        1 745
LPG                                                                       2 135        2 132
Hard Goods                                                                  935          993
Rest of Africa                                                              988          955
Gross profit after distribution (GPADE) before restructuring costs        1 559        1 580
Atmospheric Gases                                                           663          610
LPG                                                                         313          311
Hard Goods                                                                  229          337
Rest of Africa                                                              354          322
Reconciliation of GPADE to EBIT
GPADE for business segments before restructuring costs                    1 559        1 580
Other operating expenses                                                 (1 122)      (1 066)
Impairments                                                                ( 52)
Restructuring costs                                                        (185)           -
Earnings before interest and taxation (EBIT)                                200          514

Statistics and ratios
R'million                                                           31 December  31 December
                                                                           2014         2013
                                                                        Audited      Audited
Average number of shares in issue during the period ('000)              308 568      308 568
Shares in issue ('000)                                                  308 568      308 568
Dividends per share (cents)                                                24.0         47.0
Final                                                                         -         20.0
Interim                                                                      24         27.0
Ratios
EBITDA margin (%)                                                          14.0         15.1
Interest cover on EBITDA (times)                                           33.6         10.9
Effective taxation rate (%)                                                49.1         30.8
Gearing (%)                                                                12.3         14.6
Dividend cover on headline earnings (times)                                 1.5          2.0

Selected notes to the summarised consolidated financial statements
African Oxygen Limited ("Afrox" or the "Company") is a South African registered company. The summarised consolidated financial statements of the Company
comprise the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in an associate.

1. Statement of compliance
The summarised consolidated financial statements are prepared in accordance with International Financial Reporting Standards, (IAS) 34 Interim Financial
Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial
Reporting Standards Council, the requirements of the Companies Act of South Africa and the JSE Listing Requirements.

2. Basis of preparation
The summarised consolidated financial statements have not been audited nor independently reviewed and therefore this announcement is the responsibility 
of the directors of Afrox. These summarised consolidated financial statements are a summary of the audited financial statements for the year ended 
31 December 2014. The full set of the audited consolidated financial statements for the Group as at and for the year ended 31 December 2014 have been 
prepared on the going-concern basis and will be available for inspection at the company's registered office and on the Afrox website at www.afrox.com 
with effect from 23 March 2015.

The accounting policies applied in the presentation of the summarised consolidated financial statements in terms of International Financial Reporting
Standards and are consistent with those applied for the year ended 31 December 2013, except for new standards that became effective 1 January 2014, refer
note 3.

The summarised consolidated financial statements are prepared on the historical-cost basis except for the following items which are measured using an
alternative basis at each reporting date.
- Derivative financial instruments measured at fair value through profit or loss
- Retirement benefit assets measured at the fair value of the planned assets less the present value of the defined benefit obligation
- Share based payment awards to employees are measured with reference to the fair value of equity instruments granted. The fair value of the equity
instruments granted is estimated using an industry accepted valuation technique.
This report was compiled under the supervision of Mr Nick Thompson CA(SA), Group Financial Director.

3. Changes in accounting policies
The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of
initial application of 1 January 2014:
- Amendments to IAS 32 Financial Instruments: Presentation: Offsetting Financial Assets and Financial Liabilities;
- Recoverable Amount Disclosures for Non Financial Assets (Amendments to IAS 36);
- IFRIC 21 Levies; and
- Novation of derivatives and continuation of hedge accounting (Amendments to IAS 39).
The adoption of the new standards listed above did not have a significant impact on the Group's audited consolidated financial statements.

4. Property, plant and equipment
R'million                                                              31 December  31 December
                                                                              2014         2013
                                                                           Audited      Audited
Opening carrying value                                                       3 034        2 854
Additions, net of transfers from assets under construction                     533          507
Impairments                                                                    (35)           -
Disposals                                                                      (12)          (7)
Depreciation                                                                  (349)        (332)
Translation differences                                                         (5)          12
Closing carrying value                                                       3 166        3 034

5. Fair value classification and measurement
Accounting classification and fair value
The classification of each class of financial assets and liabilities,
and there fair values are:
R'million                                                                    Afair        Loans  Liabilities   Other     Total   Fair
                                                                             value          and           at  assets  carrying  value
                                                                           through  receivables    amortised            amount
                                                                            profit                      cost
                                                                           or loss
31 December 2014
Financial assets not measured at  fair value
Trade and other receivables                                                      -          848            -               848    848
Cash and cash equivalents                                                        -          526            -               526    526
Lease receivables                                                                -            -            -     123       123    123
Total financial assets                                                           -        1 374            -     123     1 497  1 497
Financial liabilities not measured at  fair value
Derivative financial instruments                                                 1            -            -                 1      1
Borrowings                                                                       -            -        1 000             1 000    959
Trade, other payables and financial liabilities                                  -            -          925               925    925
Bank overdrafts                                                                  -            -           29                29     29
Total financial liabilities                                                      1            -        1 954             1 955  1 914
31 December 2013
Financial assets measured at fair value
Derivative financial instruments                                                 6            -            -                 6      6
Financial assets not measured at  fair value
Trade and other receivables                                                      -          885            -               885    885
Cash and cash equivalents                                                        -          380            -               380    380
Lease receivables                                                                -            -            -     107       107    107
Total financial assets                                                           6        1 265            -     107     1 378  1 378
Financial liabilities not measured at  fair value
Borrowings                                                                       -            -        1 003             1 003    968
Trade, other payables and financial liabilities                                  -            -          913               913    913
Bank overdrafts                                                                  -            -           26                26     26
Total financial liabilities                                                      -            -        1 942             1 942  1 907

Reconciliation to the summarised consolidated statement of financial position:
R'million                                                                       31 December  31 December
                                                                                       2014         2013
                                                                                    Audited      Audited
Trade and other receivables                                                             849          906
Prepayments                                                                               -          (20)
Deposits                                                                                 (1)          (1)
Financial instruments                                                                   848          885
Trade, other payables and other financial liabilities                                 1 080        1 107
Employee benefits including leave pay, bonuses and other costs                         (108)        (107)
Deferred rentals                                                                        (18)         (52)
Value added taxation                                                                    (29)         (35)
Financial instruments                                                                   925          913

Fair value hierarchy
The table below analyses fair value measurements for financial instruments categorised into the fair value hierarchy based on the inputs used. The
different levels are defined as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date.
Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: unobservable inputs for the asset or liability.

  R'million                                     Level 1  Level 2  Level 3  Total

                                                                           
  31 December 2014
  Financial liabilities measured at fair value
  Derivative financial instruments                    -        1        -      1
  31 December 2013
  Financial assets measured at fair value
  Derivative financial instruments                    -        6        -      6

Level 2 instruments comprise forward exchange contracts for foreign currency ( FEC's). The fair value of these derivative financial instruments is
calculated using a discounted cash flow model (DCF) with the major variables being the discount rate and the spot exchange rate. The calculation has been
performed by our outsourced treasury service provider.

Transfers
The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the transfer has occurred. There
were no transfers between level 1, 2 or 3 of the fair value hierarchy during the year ended 2014.

6. Earnings and headline earnings per share
Headline earnings per share are calculated on headline earnings of R111 million (2013: 294 million) and a weighted average number of ordinary shares of
308 567 602 (2013: 308 567 602) in issue during the period.
Reconciliation between earnings and headline earnings

R'million                                            31 December  31 December
                                                            2014         2013
                                                         Audited      Audited
Profit for the period                                         83          309
Adjusted for the effects of:
Profit on disposal of property, plant and equipment          (19)         (21)
Impairment of goodwill in subsidiaries                        17            -
Impairment of property, plant and equipment                   35            -
                                                             116          288
Taxation                                                      (5)           6
Headline earnings                                            111          294
Basic and diluted earnings per share - cents                26.8        100.1
Headline earnings per share - cents                         36.2         95.3

7. Related-party transactions
The Group entered into various sale and purchase transactions with related parties, in the ordinary course of business, on an arm's length basis. The
nature of related-party transactions is consistent with those reported previously.

8. Update on key litigation matters
There is no outstanding litigation of a material nature against the Group. During the year, an appropriate commercial solution was negotiated to the major
material claim of R207 million highlighted in the 2013 annual report. The consequences of the commercial settlement, which are confidential, had been fully
provided for. The company continues to pursue its rights in terms of a disputed supply contract with a major steel producer. No revenue has been accounted
for in terms of this contract since June 2012. Heads of argument have been exchanged and it is expected that this matter will go to arbitration in the 2015
calendar year. The disputed revenue not recorded amounts to approximately R95 million (excluding VAT); in its arguments the steel company concerned has
tabled that it has over paid in terms of the contract by R184 million. No provision has been made against this counter claim.

9. Subsequent events
Other than for the continuing impact of the adverse trading conditions, the directors are not aware of any material matter or circumstance arising between
the since the end of the year and up to the date of this report, not otherwise dealt with in this report.

10. Audit opinion
These summarised consolidated financial statements for the year ended 31 December 2014 have been derived from the audited consolidated financial statements
of African Oxygen Limited for the year ended 31 December 2014, on which the auditors, KPMG Inc., have expressed an unmodified audit opinion.
The auditor's report does not necessarily report on all of the information contained in this announcement. Shareholders are therefore advised that in order
to obtain a full understanding of the of the nature of the auditor's assessment, they should obtain a copy of the auditor's report, together with the
accompanying financial information from the issuer's registered office. The auditor's reports and the audited consolidated financial statements, which have
been summarised in this report, will be available for inspection at the registered office of the company and on the Afrox website at www.afrox.com from
23 March 2015.

www.afrox.com
www.afrox.co.za      

Registered office
Afrox House, 23 Webber Street, Selby
Johannesburg 2001
PO Box 5404, Johannesburg 2000
Telephone +27 11 490 0400

Transfer secretaries: Computershare Investor Services (Pty) Ltd

Sponsor in South Africa: One Capital

Sponsor in Namibia: Namibia Equity Brokers (Pty) Ltd

Directors: NA Thomson** (Financial Director), MS Huggon** (Chairman and Acting Managing Director), M von Plotho*, DM Lawrence, Dr KDK Mokhele, SN Maseko,
CF Wells**, RJN Gearing**, NVL Qangule, GJ Strauss
* German ** British

Company Secretary: Cheryl Singh
Auditors: KPMG Inc.

Date: 26 February 2015

Date: 26/02/2015 03:10:00 Supplied by www.sharenet.co.za                     
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