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Afrox - Interim results for the six months ended 31 March 2003
AFRICAN OXYGEN LIMITED
African Oxygen Limited
(Incorporated in the Republic of South Africa).
Registration number: 1927/000089/06.
ISINCode: ZAE000030920.
South African share code: AFX.
Namibian share code: AOX.
("Afrox" or "the Company")
Interim results for the six months ended 31 March 2003
Afrox continues excellent earnings and cash flow performance
AFRICAN OXYGEN LIMITED
Revenue up 17%
Operating profit up 23%
Headline earnings per share up 32%
Cash generated from operations 58%
The directors report that the interim results for the six months ended 31 March
2003 are as follows:
Balance Sheet
Unaudited Unaudited Audited
As at As at As at
31 March 31 March 30 Sept
R"000 2003 2002 2002
ASSETS
Non-current assets 3 127 790 2 829 091 2 988 843
Property, plant and
equipment 2 800 236 2 576 515 2 687 938
Other non-current
assets 327 554 252 576 300 905
Current assets 1 863 071 1 830 730 1 662 426
Inventories 415 047 407 114 404 319
Receivables and
prepayments 1 380 344 1 304 983 1 206 905
Cash and cash
equivalents 67 680 118 633 51 202
Total assets 4 990 861 4 659 821 4 651 269
EQUITY AND LIABILITIES
Capital and reserves 2 109 610 1 688 005 1 892 528
Issued capital 16 834 16 277 16 515
Share premium 450 292 298 756 360 478
Accumulated profits
and reserves 1 642 484 1 372 972 1 515 535
Minority interest 565 227 489 500 560 342
Non-current
liabilities 810 014 814 737 794 673
Borrowings 559 493 564 593 550 365
Other non-current
liabilities 250 521 250 144 244 308
Current liabilities 1 506 010 1 667 579 1 403 726
Current portion of
borrowings 338 821 639 064 201 067
Provisions for
liabilities and
charges 109 428 89 131 113 347
Other current
liabilities 1 057 761 939 384 1 089 312
Total equity and
liabilities 4 990 861 4 659 821 4 651 269
Statistics and Ratios
6 months 6 months 12 months
to March to March to Sept
2003 2002 2002
Statistics
Total number of shares
in issue ("000) 336 675 325 542 330 301
Number of ordinary
shares on which
earnings per share
are based ("000) 330 715 325 542 326 363
Dividends and
capitalisation
share award
per share (cents) 33,0 25,5 62,5
Ratios
Interest cover (times) 7,3 5,3 5,7
Effective tax rate (%) 33,0 32,0 32,5
Gearing (%) 22,1 31,0 20,9
Dividend cover -
headline earnings
(times) 2,3 2,3 2,2
Income Statement
Unaudited Unaudited Audited
6 months % 6 months 12 months
to March to March to Sept
R"000 2003 Change 2002 2002
Revenue 3 582 180 17 3 053 643 6 511 510
Cost of sales (2 681 753) (2 287 138) (4 732 843)
Gross profit 900 427 766 505 1 778 667
Administration and
other expenses (372 813) (336 727) (882 191)
Operating profit
before finance costs 527 614 23 429 778 896 476
Exceptional items (703) (9 782) (15 034)
Finance costs (72 372) (81 537) (157 275)
Income from
associates 17 999 13 395 27 139
Profit before
taxation 472 538 34 351 854 751 306
Income tax expense (156 169) (112 711) (244 018)
Profit after
taxation 316 369 32 239 143 507 288
Minority interest (63 775) (56 830) (117 040)
Net profit for the
period 252 594 39 182 313 390 248
Adjustments for
headline earnings:
- Exceptional items 703 9 782 15 034
- Goodwill amortised 4 832 2 574 5 916
- Loss/(Profit) on
disposal of property,
plant and equipment 1 197 (1 544) (2 622)
- Taxation effect -- -- (1 370)
Headline earnings 259 326 34 193 125 407 206
Basic earnings per
ordinary share
(cents) 76 36 56 120
Headline earnings
per ordinary
share (cents) 78 32 59 125
Segmental Information
Business segments
Corporate
R"000 PGS ISP Healthcare costs Group
Six months ended
31 March 2003
Revenue 197 270 1 233 001 2 151 909 -- 3 582 180
Operating
profit 45 741 248 497 236 916 (3 540) 527 614
Six months ended
31 March 2002
Revenue 175 871 1 069 861 1 807 911 -- 3 053 643
Operating
profit 39 999 215 325 174 050 404 429 778
Year ended
30 September 2002
Revenue 369 314 2 256 160 3 886 036 -- 6 511 510
Operating
profit 79 638 391 512 429 266 (3 940) 896 476
Cash Flow Statement
Unaudited Unaudited Audited
6 months 6 months 12 months
to March to March to Sept
R"000 2003 2002 2002
Cash generated from
operations 521 883 331 114 1 168 010
Finance costs and taxation
paid (288 548) (210 611) (374 370)
Dividends paid (32 078) (102 168) (123 221)
Net cash inflow from
operating activities 201 257 18 335 670 419
Acquisition of business (42 756) (244 239) (116 556)
Disposal of shares 2 000 95 069 --
Purchase of property, plant
and equipment (255 968) (143 272) (380 803)
Other investing cash
flows, net 6 800 36 916 6 332
Net cash outflow from
investing activities (289 924) (255 526) (491 027)
Minorities (33 168) (22 004) (38 375)
Increase/(decrease) in
borrowings 138 313 330 834 (136 809)
Net cash inflow/(outflow)
from financing activities 105 145 308 830 (175 184)
Net increase in cash and
cash equivalents 16 478 71 639 4 208
Cash and cash equivalents
at start of period 51 202 46 994 46 994
Cash and cash equivalents
at end of period 67 680 118 633 51 202
Statement of Changes in Equity
Issued Share Revaluation Accumulated
R"000 capital premium reserve profits Total
Balance at
1 October
2002 16 515 360 478 104 371 1 411 164 1 892 528
Change in
accounting
policy -- -- -- 13 563 13 563
Restated
balance 16 515 360 478 104 371 1 424 727 1 906 091
Surplus on
revaluation
of properties -- -- 1 259 -- 1 259
Other
movements -- -- (2 269) (15 987) (18 256)
Net profit
for the
period -- -- -- 252 594 252 594
Dividends
declared -- -- -- (122 211) (122 211)
Issue of share
capital 319 89 814 -- -- 90 133
Balance at
31 March 2003 16 834 450 292 103 361 1 539 123 2 109 610
Balance at
1 October
2001 16 277 298 756 87 807 1 315 965 1 718 805
Change in
accounting
policy -- -- -- (133 558) (133 558)
Restated
balance 16 277 298 756 87 807 1 182 407 1 585 247
Deficit on
revaluation
of properties -- -- (640) -- (640)
Other
movements -- -- 3 328 19 925 23 253
Net profit for
the peiord -- -- -- 182 313 182 313
Dividends
declared -- -- -- (102 168) (102 168)
Balance at
31 March 2002 16 277 298 756 90 495 1 282 477 1 688 005
The results can be viewed on the website www.afrox.com.
Dear shareholders
PERFORMANCE
For the six months to 31 March 2003 Afrox achieved an excellent 34 percent
increase in headline earnings compared with the same period a year ago. Revenue
was up 17 percent and operating profit was 23 percent higher, reflecting strong
market penetration and improved margins as a result of our efficiency enhancing
initiatives.
Focus on management of working capital produced improved cash flow and a
considerably improved gearing.
The sound results enabled the Board of directors to declare an interim dividend
of 33 cents (2002: 25,5 cents) per share an increase of 29 percent. The dividend
is covered 2,27 times by earnings of R252,6 million.
Growth
The industrial gas business grew organically, assisted by continued growth in
the manufacturing sector, further development of the value chain within the core
industrial businesses, and initiatives to improve marketing and customer
relationships. We have also expanded our safety and special products businesses.
Healthcare sustained its excellent growth record. The hospitals acquired during
2002 are now fully integrated, and the integration was a major contributor to
the healthcare operating profit increase of 36 percent and the 19 percent
increase in revenue. A focus on clinical excellence, as well as improvements in
the quality of service offered to customers in the healthcare services
businesses, elevated the healthcare delivery.
Financial results
Revenue increased by 17 percent to R3,6 billion (2002: R3,1 billion). Operating
profits increased by 23 percent to R528 million (2002: R430 million). Operating
efficiencies, cost containment, and the realisation of synergistic benefits from
last year"s Healthcare acquisitions contributed to improved margins.
The strengthening of the Rand has impacted on our business in several areas.
Foreign currency receipts from export sales and earnings in other African
countries have been unfavourably affected. Furthermore, the continuing strength
of the Rand is affecting customers whose main source of revenue is in exports.
Interest paid reduced by 11 percent to R72,4 million (2002: R81,5 million). At
31 March 2003 borrowings of R831 million were R254 million lower than the
previous year"s. The lower borrowings were achieved in spite of a robust capital
expenditure and acquisition programme, that resulted in expenditure of R256
million, the majority of which was growth related.
Gearing has reduced to 22 percent (2002: 31 percent). This improvement, due to
excellent working capital management, resulted in net current assets declining
by 9 percent to R701 million (2002: R768 million). Improved profitability and
stringent asset management significantly increased the return on capital
employed to 28 percent (2002: 25 percent).
Accounting policies
The accounting policies at 31 March 2003 are consistent with those applied at 30
September 2002, except for a change with regard to AC133: Financial Instruments
- Recognition and Measurement. These results have been prepared in accordance
with South African Statements of Generally Accepted Accounting Practice (GAAP).
Opening reserves have been adjusted according to the transitional provisions of
AC133 and disclosed in the statement of changes in equity. Comparative figures
have not been restated. The impact on the income statement for the current
financial year is immaterial.
Business review
Industrial and Special Products (ISP), Process Gas Solutions (PGS), and
Healthcare, all posted strong results.
Industrial and Special Products (ISP)
ISP comprises the core cutting and welding business; Handigas; special gases and
packaged chemicals; hospitality servicing hotels, casinos, and restaurants;
medical gases; the manufacture of safety products; and the export business.
Our welding and cutting operations grew with the resurgence in South Africa"s
mining and manufacturing sectors, and with our efforts to improve product
quality and marketing. We have developed global best commercial and operating
practices, and have succeeded in extending customer-centric marketing
initiatives to segmented customer groupings.
Handigas margins improved, and further business wins in the automotive industry
increased volumes. Initiatives to market Handigas to low-income households and
rural communities will optimise opportunities in this sector.
Good performances were achieved by the special gases and packaged chemicals
operations. New applications in these niche businesses are being researched to
augment future growth adding value and services to our customers" businesses.
The AfroxPac 35 self-rescuer, contained within the safety services and products
business, delivered superior returns on the back of substantial local and export
orders. The AfroxPac 35 is a world-class safety unit supplying oxygen to miners
in the event of an underground emergency. Increased production of these units
has necessitated the opening of a factory in Benoni.
Collectively our African operations performed well, particularly our new
Mozambican investment and our operations in Namibia, Lesotho and Swaziland.
Process Gas Solutions (PGS)
PGS satisfies the process needs of customers with long-term bulk gas contracts.
Increased volumes in bulk gas supply, and a focus on operating efficiencies,
boosted performance. Despite interruptions in the supply of carbon dioxide, as a
result of the Petro SA shutdown, detailed forecasting and attention to forward
planning enabled PGS to offer customers uninterrupted product delivery.
The acquisition last year of a hydrogen plant at Pelindaba has expanded our
hydrogen business.
Healthcare
Integration benefits from last year"s hospital acquisitions are now being
realised. In October 2002, Healthcare increased its shareholding in The Little
Company of Mary Hospital, strengthening our footprint in Pretoria. Admissions
have increased at Peglerae Hospital in Rustenburg, following a joint venture to
provide hospitalisation to mining employees.
Breaking the tradition of negotiating tariffs with umbrella bodies on a fee-for-
service basis, Healthcare engaged individually with funders on a per diem basis.
Almost all funders accepted the increased tariffs for 2003 without eliciting a
co-payment from their members.
Major expansion and enhancement projects are in progress at Flora Clinic, St
Dominic"s, Springs Parkland Clinic, Roseacres, and Peglerae Hospitals.
Healthcare launched its affordable hospital model to two medical schemes and is
targeting specific employer groups seeking healthcare services for their
uninsured employees.
Outlook
We will pursue our industrial growth strategy by optimising our core
competencies in design techniques, manufacturing, and marketing. Long-term
contracts, established branch and distribution networks, strong branding and
steady revenues from cylinder rentals underpin our businesses. We have growth
opportunities in a variety of new products, and value added services to attract
a wide range of customers.
We have developed products to provide affordable healthcare to a broad base of
low-income earners, while enhancing facilities at the acute care hospitals to
increase organic growth.
We believe that we have established a platform for further solid earnings growth
in the next six-month period.
John Walsh Rick Hogben
Chairman Managing Director
Notice of capitalisation award and option to take interim cash dividend
Notice is hereby given that the Board of directors has approved a capitalisation
award with an option to receive a cash dividend of 33 cents (2002: 25,5 cents)
per share for the six-month period ended 31 March 2003, payable to all
shareholders recorded in the register at the close of business on the record
date being Friday, 25 July 2003.
Terms of the capitalisation award will be forwarded to shareholders by way of
circular and announced in the press.
The salient dates of the capitalisation award and payment of the interim
dividend are as follows:
2003
Last date to trade ordinary shares "cum" dividend Friday, 18 July
Ordinary shares trade "ex" the dividend Monday, 21 July
Record date Friday, 25 July
Payment/Issue date Monday, 28 July
Share certificates may not be dematerialised/rematerialised between Monday, 21
July 2003 and Friday, 25 July 2003, both days inclusive.
By order of the Board
Michael Rowell Johannesburg
Company Secretary 30 April 2003
Registered office: Afrox House, 23 Webber Street, Selby, Johannesburg 2001. PO
Box 5404, Johannesburg 2000. Telephone (+27 11) 490-0400.
Transfer secretaries: Computershare Services Limited. PO Box 1053, Johannesburg
2000. Telephone (+27 11) 370-5000. Sponsor in South Africa and Namibia: Nedbank
Corporate.
Directors: JLWalsh**** (Chairman), RLHogben (Managing Director), RGCottrell, N
Deeming*, CMDFlemming, AE Isaac*, LAMacNair, R M dori**, GL Sedgwick***, GS
Sibiya, CB Strauss.
Alternate director: RK Lourey***
* British, ** French, *** Australian, **** American.
Company Secretary: MGRowell
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