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AFRICAN OXYGEN LIMITED
AUDITED RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 1998
TURNOVER UP 15%
REAL OPERATING PROFIT UP 16%
HEADLINE EARNINGS UP 10%
CASH GENERATED FROM OPERATIONS A HEALTHY R424 MILLION
DEAR SHAREHOLDERS
SOUND GROWTH IN POOR ECONOMIC CLIMATE
I AM PLEASED TO REPORT THAT DESPITE THE SEVERE ECONOMIC CONDITIONS, WE
CONTINUED TO GROW THE BUSINESS AND SHOWED A 10 PERCENT INCREASE IN HEADLINE
EARNINGS.
THE RESULTS ARE PARTICULARLY PLEASING CONSIDERING THEY ARE OFF A HIGH BASE.
SALES INCREASED BY R347 MILLION TO R2,633 BILLION (1997: R2,286 BILLION), AN
INCREASE OF 15 PERCENT.
AS YOUR COMPANY ACCOUNTS FOR INFLATION BY REVALUING CERTAIN ASSETS, REAL
OPERATING PROFIT INCREASED BY 16 PERCENT TO R469 MILLION (1997: R402 MILLION).
HEADLINE EARNINGS INCREASED 10 PERCENT TO R220 MILLION (1997: R201 MILLION).
AFTER THE SUBSTANTIAL CAPITAL EXPENDITURE IN PRECEDING YEARS, THIS YEAR HAS
SEEN A TIGHT CONTROL ON CAPITAL EXPENDITURE AND WORKING CAPITAL. DURING THE
YEAR BORROWINGS WERE REDUCED BY R79 MILLION. CASH GENERATED FROM OPERATIONS IS
A HEALTHY R424 MILLION WHICH ALLOWS FOR FUTURE EXPANSION. THE BALANCE SHEET
REMAINS STRONG WITH GEARING DECLINING FROM 41 PERCENT TO 38 PERCENT.
THE SOUND RESULTS HAVE PROMPTED YOUR BOARD OF DIRECTORS TO DECLARE AN INCREASED
FINAL DIVIDEND OF 23,5 CENTS (22,5 CENTS). THIS MAKES A TOTAL OF 37,7 CENTS
(35,5 CENTS), UP 6 PERCENT. THE TOTAL DIVIDEND IS COVERED 1,7 TIMES BY EARNINGS
IN MY INTERIM REPORT, I INFORMED SHAREHOLDERS THAT WE HAD ACCELERATED OUR
PRODUCTIVITY AND RESTRUCTURING INITIATIVES WHICH WERE STARTED EARLY 1998.
ALTHOUGH SOME BENEFITS HAVE BEEN ACHIEVED IN THE CURRENT FINANCIAL YEAR, MOST
WILL BE REALISED IN THE 1999 FINANCIAL YEAR. THIS YEAR, WE HAVE ABSORBED R22
MILLION IN EXCEPTIONAL ONE-OFF COSTS AS PART OF THESE INITIATIVES. THESE ARE
MAINLY REDUNDANCY AND RESTRUCTURING COSTS, AND THE DISPOSAL OR CLOSURE OF
NON-CORE BUSINESSES.
OUR INITIATIVES INCORPORATED AN ELEMENT OF RESTRUCTURING IN ORDER TO TAKE
ADVANTAGE OF BEING PART OF A TRULY GLOBAL COMPANY, THE BOC GROUP. WE ARE
PRESENTLY IN THE PROCESS OF ACHIEVING FURTHER ALIGNMENT AND SYNERGIES BETWEEN
AFROX AND BOC. THIS WILL RESULT IN AFROX ACHIEVING ADDED PRODUCT AND CUSTOMER
FOCUS, LEVERAGING BEST OPERATING PRACTICES AND GLOBAL ASSETS, AND CONSOLIDATING
ENABLING FUNCTIONS. WE ARE ALREADY WELL ADVANCED IN PLANNING TO STANDARDISE AND
CREATE SERVICE CENTRES FOR FINANCE AND ADMINISTRATION, INFORMATION TECHNOLOGY,
AND HUMAN RESOURCES. THIS HAS CONSIDERABLE FUTURE COST REDUCTION POTENTIAL.
THE RESULTANT EFFECT OF THE RESTRUCTURE WILL MEAN A MORE FOCUSED, STREAMLINED
BUSINESS WITH THREE DISTINCT LINES OF BUSINESS. THESE WILL BE INDUSTRIAL AND
SPECIAL PRODUCTS (WELDING PRODUCTS, CYLINDER GASES, SPECIAL AND MEDICAL GASES,
AND HANDIGAS), TONNAGE AND APPLIED GAS SOLUTIONS (LARGE GAS PRODUCING PLANTS
AND BULK GASES) AND HEALTHCARE (HOSPITALS AND HEALTHCARE SERVICES).
THIS ALIGNMENT WITH BOC COMPANIES IN 60 COUNTRIES WILL FACILITATE EASIER
IDENTIFICATION OF PRODUCT AND SERVICE OPPORTUNITIES, AND LEAD TO THE ADOPTION
OF BEST OPERATING PRACTICES TO INCREASE EFFICIENCIES.
INDUSTRIAL
AFROX GREW MARKET SHARE IN ITS CORE BUSINESSES, DESPITE INCREASED COMPETITION
AND THE PREVAILING WEAK ECONOMIC CONDITIONS.
MANAGEMENT FOCUS WAS ON DETAILED ATTENTION TO COST CONTROL, EFFICIENCY
INITIATIVES AND AGGRESSIVE MARKETING. THIS RESULTED IN INDUSTRIAL OVERHEADS
ONLY INCREASING BY 2 PERCENT. THE 3 PERCENT INCREASE IN TURNOVER RESULTED IN
HIGHER MARGINS WHICH CONVERTED TO A 10 PERCENT PROFIT IMPROVEMENT.
THERE WERE STRONG PERFORMANCES FROM LIQUID AND SPECIAL GASES. HANDIGAS PRODUCED
SOUND GROWTH, LARGELY BOOSTED BY MAJOR CONTRACTS COMING ON STREAM.
THE MPUMALANGA GAS PRODUCING PLANT WAS SUCCESSFULLY COMMISSIONED. IT IS
DESIGNED TO CATER FOR THE LONG-TERM SUPPLY OF INDUSTRIAL GASES VIA PIPELINE TO
MAJOR CUSTOMERS IN THE AREA, AND NOW ALSO PROVIDES THE MERCHANT MARKET WITH LOW
COST PRODUCT.
HEALTHCARE
OUR HEALTHCARE BUSINESSES, CONSISTING OF 28 PRIVATE HOSPITALS AND SEVERAL
HEALTHCARE SERVICES OPERATIONS, PERFORMED EXCEPTIONALLY WELL WITH SALES UP 40
PERCENT AND PROFITS 38 PERCENT HIGHER.
THE FLORA CLINIC WAS ACQUIRED AS WELL AS SIX HOSPITALS IN THE EASTERN CAPE. IN
ADDITION THE NEW SUIKERBOSRAND CLINIC WAS OPENED IN HEIDELBERG. ALL THESE
HOSPITALS HAVE BEEN SUCCESSFULLY INTEGRATED INTO THE GROUP AND HAVE EXCEEDED
BUDGETED PROFIT EXPECTATIONS.
OUR HEALTHCARE SERVICES OPERATIONS PERFORMED WELL WITH ENHANCED PROFIT LEVELS
AND WILL BE EXPANDED IN THE COMING YEAR WITH NEW PRODUCTS AND SERVICES.
YEAR 2000 COMPLIANCE
THE DIRECTORATE AND MANAGEMENT ARE COMMITTED TO ADDRESSING, EVALUATING AND
MANAGING THE RISK ASSOCIATED WITH THE YEAR 2000. THE COMPLIANCE PROGRAMME
STARTED IN NOVEMBER 1996.
PROJECT TEAMS HAVE BEEN ESTABLISHED WITHIN THE GROUP, WITH AN OVERALL
CO-ORDINATOR TO OVERSEE THE COMPLIANCE PROCESS. THE TARGET DATE FOR COMPLETION
IS JUNE 1999.
WE HAVE ASSESSED THE MAJOR AREAS OF RISK WITH BOTH SYSTEMS AND EMBEDDED CHIPS.
ISSUES ARE BEING ADDRESSED ON A BUSINESS PRIORITY BASIS. WE ARE WELL ADVANCED
WITH OUR COMPLIANCE EFFORTS AND NO MATERIAL IMPACT TO THE BUSINESS IS
ANTICIPATED FROM THE YEAR 2000 ISSUE.
WE HAVE INCURRED DIRECT COSTS OF R15 MILLION FOR YEAR 2000 SOFTWARE AND SYSTEMS
IMPROVEMENTS. WE ANTICIPATE INCURRING A FURTHER R8 MILLION IN THE NEW FINANCIAL
YEAR TO COMPLETE THIS PROJECT.
PROSPECTS
GIVEN NO FURTHER ECONOMIC DETERIORATION, WE WILL SEE SALES GROWTH THROUGH THE
BENEFITS ARISING FROM OUR NEW BUSINESS STRUCTURES AND PRIOR INVESTMENTS. WITH
REDUCED COSTS AND INCREASED EFFICIENCIES, IMPROVED PROFITS WILL BE ACHIEVED.
ROYDEN VICE CHAIRMAN AND MANAGING DIRECTOR
ANNUAL REPORT
THE AUDITED ANNUAL FINANCIAL STATEMENTS WILL BE POSTED TO MEMBERS ON OR ABOUT
28 NOVEMBER 1998 TOGETHER WITH THE NOTICE OF THE 71ST ANNUAL GENERAL MEETING TO
BE HELD ON 4 FEBRUARY 1999.
CAPITALISATION SHARE AWARD AND CASH OPTION
THE DIRECTORS HAVE RESOLVED TO MAKE AN AWARD OF NEW FULLY PAID ORDINARY SHARES
("THE NEW SHARES") TO SHAREHOLDERS IN THE COMPANY AT THE CLOSE OF BUSINESS ON
FRIDAY 20 NOVEMBER 1998 BY WAY OF A CAPITALISATION OF DISTRIBUTABLE RESERVES
ACCORDING TO THE FOLLOWING FORMULA PER SHARE:
23,5 CENTS
2,5% OF THE RULING PRICE AT THE CLOSE OF BUSINESS ON THE JSE ON 20 NOVEMBER 199
SHAREHOLDERS WILL BE ENTITLED TO ELECT TO DECLINE THE AWARD IN RESPECT OF ALL
OR ANY PART OF THEIR SHAREHOLDING AND INSTEAD MAY ELECT TO RECEIVE A CASH
DIVIDEND OF 23,5 CENTS (1997: 22,5 CENTS).
ALL FRACTIONS OF NEW SHARES AWARDED WILL BE AGGREGATED AND SOLD ON THE
JOHANNESBURG STOCK EXCHANGE (JSE) FOR THE BENEFIT OF THE RELEVANT SHAREHOLDERS.
SUBJECT TO THE APPROVAL OF THE JSE AND THE NAMIBIAN STOCK EXCHANGE (NSE) A
LISTING OF THE NEW SHARES TO BE ISSUED PURSUANT TO THE AWARD WILL COMMENCE ON
27 JANUARY 1999. DOCUMENTATION, WHICH IS SUBJECT TO THE APPROVAL OF THE JSE AND
NSE DEALING WITH THE CAPITALISATION AWARD AND ELECTION FORMS IN RESPECT OF THE
CASH DIVIDEND WILL BE POSTED TO AFROX SHAREHOLDERS ON OR ABOUT 30 NOVEMBER
1998. IN ORDER TO BE VALID, COMPLETED ELECTION FORMS MUST BE RECEIVED BY THE
TRANSFER SECRETARIES BY NO LATER THAN 12H00 ON 22 JANUARY 1999. IT IS EXPECTED
THAT SHARE CERTIFICATES IN RESPECT OF THE NEW SHARES AND/OR PAYMENTS WILL BE
ISSUED/MADE ON OR ABOUT 27 JANUARY 1999. A FURTHER ANNOUNCEMENT WILL BE
PUBLISHED ON 27 JANUARY 1999 DETAILING THE RESULTS OF THE CAPITALISATION SHARE
AWARD AND CASH DIVIDEND.
BY ORDER OF THE BOARD
IMMATTHEE COMPANY SECRETARY
JOHANNESBURG
29 OCTOBER 1998
THE DIRECTORS REPORT THAT THE AUDITED RESULTS FOR THE YEAR ENDED 30 SEPTEMBER
1998 ARE AS FOLLOWS:
1998 % 1997
INCOME STATEMENT RM CHANGE RM
TURNOVER 2 633 15 2 286
HISTORICAL COST OPERATING PROFIT 488 16 420
ADDITIONAL DEPRECIATION (19) (18)
REAL OPERATING PROFIT 469 16 402
NET INTEREST PAID (99) (84)
FINANCE LEASE CHARGES (12) -
PROFIT BEFORE EXCEPTIONAL ITEMS 358 13 318
EXCEPTIONAL ITEMS (22) -
PROFIT BEFORE TAXATION 336 6 318
TAXATION (116) (107)
PROFIT AFTER TAXATION 220 4 211
OUTSIDE SHAREHOLDERS' INTEREST (18) (11)
SHARE OF RETAINED INCOME OF
ASSOCIATED COMPANIES 1 1
PROFIT ATTRIBUTABLE TO SHAREHOLDERS 203 1 201
ADJUSTMENT FOR HEADLINE EARNINGS
- EXCEPTIONAL ITEMS 22 -
- TAX EFFECT (5) -
HEADLINE EARNINGS 220 10 201
DIVIDEND AND CAPITALISATION
SHARE AWARD (117) 7 (109)
BALANCE SHEET
EMPLOYMENT OF CAPITAL
FIXED ASSETS 1 570 1 426
ASSOCIATE COMPANIES AND TRADE
INVESTMENTS 37 53
OTHER LONG-TERM ASSETS 187 226
1 794 1 705
CURRENT ASSETS (EXCLUDING CASH) 859 765
CURRENT LIABILITIES (EXCLUDING
SHORT-TERM BORROWINGS) (693) (648)
1 960 1 822
CAPITAL EMPLOYED
SHAREHOLDERS' FUNDS 1 255 1 139
OUTSIDE SHAREHOLDERS' INTEREST 70 49
DEFERRED TAXATION 74 65
POST RETIREMENT BENEFITS 25 41
NET BORROWINGS 449 528
FINANCE LEASES 87 -
1 960 1 822
CASH FLOW STATEMENT
CASH GENERATED FROM TRADING ACTIVITIES 583 498
(INCREASE) DECREASE IN WORKING CAPITAL (83) 52
REPLACEMENT OF FIXED ASSETS (76) (131)
CASH GENERATED FROM OPERATIONS 424 419
INTEREST AND TAXATION PAID (209) (187)
DIVIDENDS PAID (81) (76)
CASH RETAINED FROM OPERATIONS 134 156
NET INVESTMENT ACTIVITIES (55) (282)
NET CASH FLOW 79 (126)
STATISTICS AND RATIOS
STATISTICS
TOTAL NUMBER OF SHARES IN ISSUE
(MILLION) 310 307
NUMBER OF ORDINARY SHARES ON
WHICH EARNINGS PER SHARE ARE
BASED (MILLION) 309 306
HEADLINE EARNINGS PER SHARE
(CENTS) 71,4 9 65,5
REAL EARNINGS PER SHARE (CENTS) 65,9 1 65,5
DIVIDEND AND CAPITALISATION
SHARE AWARD PER SHARE (CENTS) 37,7 6 35,5
RATIOS
INTEREST COVER 4,2 TIMES 4,8 TIMES
EFFECTIVE TAX RATE 34,5% 33,6%
GEARING 37,6% 40,8%
DIVIDEND COVER 1,7 TIMES 1,8 TIMES
REGISTERED OFFICE
AFROX HOUSE, 23 WEBBER STREET SELBY, JOHANNESBURG 2001
P O BOX 5404 JOHANNESBURG, 2000
TELEPHONE (011) 490-0400
WWW.AFROX.COM
REGISTRATION NUMBER 05/00089/06
TRANSFER SECRETARIES
MERCANTILE REGISTRARS LIMITED
6TH FLOOR
94 PRESIDENT STREET
JOHANNESBURG, 2001
PO BOX 1053
JOHANNESBURG 2000
TELEPHONE (011) 333-8181
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