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AFX - Afrox - Interim financial results for the nine-month period ended
30 June 2007 and dividend declaration
African Oxygen Limited
(Incorporated in the Republic of South Africa).
Registration number: 1927/000089/06.
ISIN: ZAE000067120.
JSE code: AFX.
NSX code:
AOX. ("Afrox").
Interim financial results for the nine-month period ended 30 June 2007
- Revenue R3,3 billion
- Operating profit R605 million
- Core HEPS at 124,4 cents
- Dividend of 54,0 cents
Afrox`s Pietermaritzburg plant where a new liquefier has been installed to
increase product capacity of liquid oxygen and nitrogen.
PERFORMANCE SUMMARY African Oxygen Limited (Afrox) continued to produce sound
results in a buoyant market where demand for certain of our products outstripped
supply.
During the year, the company changed its year-end from September to December in
order to align itself with its holding company, The Linde Group, the world`s
foremost industrial gases and engineering company. As a result, the new interim
period now ends 30 June 2007. However, in this commentary, the figures have not
been compared as they are for the different periods of six and nine months.
The results for the nine-month period ended 30 June 2007, show revenue at R3,3
billion with profit from operations at R605 million and net profit at R362
million.
Headline earnings per share were 117,0 cents and core headline earnings per
share were 124,4 cents. The board of directors believes that core headline
earnings is an appropriate measure of operating performance as it adjusts for
non-recurring and non-operational items.
The balance sheet remains strong with cash flow for the period at R560 million.
Gearing is at an acceptable level of 24,5 percent, despite the current increased
investment programme.
The buoyant demand situation in the reporting period produced challenges for the
business from a supply perspective. As previously announced, the company
embarked on an extensive investment programme initiated during the 2006
financial year.
The capital expenditure for the nine-month period was R607 million and three air
separation plants have already been commissioned, and they include Afrox`s
Pietermaritzburg plant and two customer on-site plants at Xstrata and Scaw
Metals. The two customer on-site plants will also produce for the merchant
market. The full benefit of the capex programme will be realised in the 2008
financial year. LPG shortages were addressed by the commissioning of a 3 600-ton
importation and storage facility at Richards Bay in May, 2007. This will make a
significant contribution to meeting growing demand into the future.
DIVIDEND
The board of directors declared an interim cash dividend of 54,0 cents per share
(2006: 48,8 cents) which is an increase of 12,5 percent. The dividend is covered
2,30 times by core headline earnings.
ANNUAL RATINGS
Afrox`s credit rating remains unchanged for the third successive year at a high
AA- for long-term, and A1+ for short-term. It has also improved its annual BEE
rating from a BB to BBB, and is graded a level 5 contributor.
CHANGES TO THE BOARD
Tjaart Kruger (47) has joined the company as Managing Director, effective 1
April 2007. He joins Afrox from the Tiger Brands Group where he held several
senior executive positions. He succeeds Rick Hogben, the previous Managing
Director, who retired from the board at the end of March 2007. Alan Ferguson and
Jim Ford, non-executive directors and Daniel Shook, an alternate director,
resigned from the board with effect 30 March 2007, following their resignations
from The Linde Group.
James Cullens resigned from Linde and the Afrox board, effective 13 July 2007.
Alan Watkins and Jurgen Nowicki were appointed to the board as non-executive
directors with effect from 4 April 2007. They both hold executive positions with
The Linde Group. Nazmi Adams, from Linde, was appointed an alternate director.
Mlawuli Manjingolo has joined Afrox as Company Secretary.
OUTLOOK
Afrox`s current investment programme will go a long way to mitigating the supply
situation and the company will also benefit from the expected high
infrastructure spend in South Africa over the next few years. The company is,
therefore, well positioned for real growth in earnings.
Kent Masters Tjaart Kruger Johannesburg
Chairman Managing Director 26 July 2007
NOTICE OF INTERIM DIVIDEND DECLARATION AND SALIENT FEATURES
Notice is hereby given that an interim cash dividend of 54,0 cents (2006: 48,0
cents) per ordinary share, being the interim dividend for the period ended 30
June 2007, has been declared payable to all shareholders of African Oxygen
Limited recorded in the register on Friday, 12 October 2007.
The salient dates for the declaration and payment of the interim dividend are as
follows:
2007
Last day to trade ordinary shares "cum"
dividend Friday, 5 October
Ordinary shares trade "ex" the dividend Monday, 8 October
Record date Friday, 12 October
Payment date Monday, 15 October
Share certificates may not be dematerialised or rematerialised between Monday, 8
October 2007 and Friday, 12 October 2007, both days inclusive.
By order of the board
Mlawuli Manjingolo
Company Secretary
26 July 2007
Johannesburg
Condensed consolidated balance sheet
Restated Restated
Unaudited Unaudited Audited
As at As at As at
30 June 31 March 30 Sept
Rm 2007 2006 2006
ASSETS
Non-current assets 2 863 2 400 2 337
Property, plant and 2 471 1 741 2 029
equipment
Investment in associates 11 426 11
Other non-current assets 381 233 297
Current assets 1 580 1 137 1 618
Inventories 596 408 452
Trade and other receivables 858 660 718
Cash and cash equivalents 126 69 448
Total assets 4 443 3 537 3 955
EQUITY AND LIABILITIES
Capital and reserves 2 327 1 848 2 299
Issued capital 15 15 15
Share premium 537 537 537
Accumulated profits and 1 748 1 276 1 724
reserves
Minority interest 27 20 23
Non-current liabilities 764 644 476
Borrowings 500 507 311
Other non-current 264 137 165
liabilities
Current liabilities 1 352 1 045 1 180
Current portion of 423 249 205
borrowings
Trade and other payables 900 781 960
Bank overdraft 29 15 15
Total equity and 4 443 3 537 3 955
liabilities
Condensed consolidated income statement
Restated Restated
Unaudited Unaudited Audited
9 months 6 months 12 months
to June to March to Sept
Rm 2007 2006 2006
Revenue 3 288 1 837* 3 897
Operating profit 605 376 749
Profit on sale of - - 362
investment
Profit from operations 605 376 1 111
Finance costs (47)** (14) (30)
Income from associates - 37 100
Profit before taxation 558 399 1 181
Income tax expense (196) (108) (316)
Profit for the period 362 291 865
Attributable to:
Equity holders of the 358 289 858
company
Minority interest 4 2 7
Net profit for the period 362 291 865
*Refer to note 2 **Refer to note 3
Statistics and ratios
Restated Restated
Unaudited Unaudited Audited
9 months 6 months 12 months
to June to March to Sept
Rm 2007 2006 2006
Total net profit for the
period attributable to
equity holders of the
company
358 289 858
Adjustments for headline 2 1 (267)
earnings
Headline earnings 360 290 591
Adjustments for core 23 (86) (154)
headline earnings
Core headline earnings 383 204 437
Basic earnings per ordinary 116,3 93,5 278,1
share (BEPS) - (cents)
Headline earnings per 117,0 93,7 191,4
ordinary share (HEPS)
-(cents)
Core HEPS - (cents) 124,4 66,2 141,6
Statistics
Average number of ordinary
shares in
issue during the period and 308 568 308 568 308 568
on which earnings per share
are based (`000)
Dividend per share (cents) 54,0 48,0 148,0
Ratios
Interest cover (times) 12,9 26,9 37,0
Effective tax rate (%) 35,1 27,1 26,8
Gearing (%) 24,5 26,1 3,3
Dividend cover (excluding 2,30 1,38 1,61
special) - core headline
earnings (times)
Geographical segments
Restated
Rm South Africa Rest of Africa Total
Nine months ended 30
June 2007
- revenue 2 879 409 3 288
- operating profit 510 95 605
Six months ended 31
March 2006
- revenue 1 598 239 1 837
- operating profit 327 49 376
Year ended 30
September 2006
- revenue 3 395 502 3 897
- operating profit 631 118 749
Condensed consolidated cash flow statement
Restated Restated
Unaudited Unaudited Audited
9 months 6 months 12 months
to June to March to Sept
Rm 2007 2006 2006
Cash generated from operations 560 281 747
Finance costs and taxation (281) (304) (436)
paid
Dividends received - 7 7
Cash available/(utilised) from 279 (16) 318
operations
Dividends paid (309) (123) (272)
Net cash (outflow)/inflow from (30) (139) 46
operating activities
Acquisition of business (114) - (5)
Disposal of business - - 801
Purchase of property, plant (568) (200) (549)
and equipment
Purchase of intangible assets (39) - (34)
Other investing cash flows, 9 (2) 20
net
Net cash (outflow)/inflow from (712) (202) 233
investing activities
Minorities (2) - -
Increase/(decrease) in 408 233 (8)
borrowings
Net cash inflow/(outflow) from 406 233 (8)
financing activities
Net (decrease)/increase in (336) (108) 271
cash and cash equivalents
Cash and cash equivalents at 433 162 162
beginning of period
Cash and cash equivalents at 97 54 433
end of period
Reconciliation of restatement of prior year
results due to change in accounting standards
As at As at
31 March 30 Sept
BALANCE SHEET - Rm 2006 2006
Total assets
As previously reported 3 497 3 915
Adjusted for retrospective adjustments
- increase in finance leases 83 77
- decrease in property, plant and (43) (37)
equipment
Restated total assets 3 537 3 955
TOTAL EQUITY AND LIABILITIES
As previously reported
Adjusted for retrospective adjustments 3 497 3 915
- increase in equity (accumulated 28 28
profits and reserves)
- increase in other non-current 12 12
liabilities
Restated total equity and liabilities 3 537 3 955
INCOME STATEMENT
The net effect on profit is nil for
both periods
Condensed consolidated statement of changes in equity
Issued Share
share pre- Other
Rm - (Restated) capital mium reserves
Balance at 1 October 2006 15 537 78
Other movements - - (23)
Net profit for the period - - -
Dividend declared - - -
Balance at 30 June 2007 15 537 55
Balance at 1 October 2005 15 537 122
Change in accounting policy - - -
Other movements - - 6
Net profit for the period - - -
Dividend declared - - -
Balance at 31 March 2006 15 537 128
Condensed consolidated statement of changes in equity (continued)
Accu-
mulated Minority
Rm - (Restated) profits interest Total
Balance at 1 October 2006 1 646 23 2 299
Other movements (2) - (25)
Net profit for the period 358 4 362
Dividend declared (309) - (309)
Balance at 30 June 2007 1 693 27 2 327
Balance at 1 October 2005 958 12 1 644
Change in accounting policy 28 - 28
Other movements (4) 6 8
Net profit for the period 289 2 291
Dividend declared (123) - (123)
Balance at 31 March 2006 1 148 20 1 848
Comparative analysis
9 months ended 30 June 2007
Core Adjustment* Total
Rm operations
Revenue 3 288 - 3 288
Operating profit 605 - 605
Headline earnings 383 (23) 360
BEPS (cents) 123,7 (7,4) 116,3
HEPS (cents) 124,4 (7,4) 117,0
Comparative analysis (continued)
Restated
6 months ended 31 March 2006
Core Adjustment** Total
Rm operations restated
Revenue 1 795 42 1 837
Operating profit 315 61 376
Headline earnings 204 86 290
BEPS (cents) 65,9 27,6 93,5
HEPS (cents) 66,2 27,5 93,7
Comparative analysis (continued)
Restated
12 months ended 30 September 2006
Core Adjustment*** Total
Rm operations restated
Revenue 3 897 - 3 897
Operating profit 679 70 749
Headline earnings 437 154 591
BEPS (cents) 141,6 136,5 278,1
HEPS (cents) 141,6 49,8 191,4
Core operations
Core operations represent the sustainable business of the company. The results
under core operations also exclude non-recurring and non-operational items.
*The adjustment relates to the following:
Finance costs
The company incurred R36 million additional finance costs in 2007, from a
structured finance transaction challenged by the South African Revenue Services.
This is further explained in note 3. To date, the company has accounted for R9
million of this finance cost.
Secondary tax and special dividend
A secondary tax charge of R14 million on a special dividend declared in October
2006 has been charged. The special dividend was based on the profits on disposal
of the Life Healthcare business.
** The adjustment relates to the following:
The results of Life Healthcare
The results of the share of associate, Life Healthcare`s profit have been
excluded. This associate was disposed of in 2006. At operating profit level the
adjustment was R19 million. The adjustment is a reduction in net profit of R56
million.
Restatement of cylinder rental income
The treatment of annual cylinder rental contracts has been changed to recognise
rental income as revenue over the period of the rental, even though billed and
received annually. Therefore revenue and operating profit for the period ended
31 March 2006, has been reduced by R42 million representing rental income not
yet earned at that date. The net effect on profit is an adjustment of
R30 million.
Discounting of credit sales
The treatment of credit sales has been adjusted by discounting these sales using
the average debtors collection period and prime lending rate. This is in line
with the accounting policy adopted from September 2006. The revenue has been
decreased by R22 million. Operating profit is not affected.
*** The adjustment relates to the following:
The results of Life Healthcare
The results of the share of associate, Life Healthcare`s profit have been
excluded. This associate was disposed of in 2006. At operating profit level the
adjustment was R16 million. The adjustment is a reduction in net profit of R115
million.
Pension fund
Net gain on valuation of the pension fund of R113 million pre tax and R81
million after tax was excluded for the period as it is a non-operational item.
Share appreciation rights
Cost of R59 million pre tax and after tax of R42 million relating to share
appreciation rights vested early due to change in control.
Notes to the condensed financial statements
1. Financial period
African Oxygen Limited changed its year-end to December to align itself with the
financial year-end of its holding company, The Linde Group. This financial year
will therefore end on 31 December 2007 and will cover fifteen months. The
interim results hereby presented are for nine months ended 30 June 2007 and the
comparative period covers six months ended 31 March 2006.
2. Restatement of comparatives for the six-month period ended 31 March 2006
The comparative results as of 31 March 2006 have been adjusted by the
discounting of credit sales in accordance with the accounting policy adopted
from September 2006. The discounting has been effected with reference to the
prime lending rate and average debtors collection period. The revenue as at 31
March 2006 has been decreased by R22 million. The operating profit is not
affected.
Reconciliation of 2006 turnover
6 months to 12 months to
March 2006 Sept 2006
RM
Turnover as previously reported 1 867 3 914
Discounting of credit sales
(accounting policy change
effected in September 2006) (22) -
1 845 3 914
Effect of IFRIC 4 accounting
policy change (accounting policy
change effected this year) (8) (17)
Restated turnover 1 837* 3 897*
*See comparative analysis
3. Finance costs
In 2000, Afrox entered into a structured finance arrangement with a financial
institution, the substance of which was a loan transaction. This arrangement has
subsequently been challenged by the South Africa Revenue Service (SARS). SARS
has disallowed certain interest deductions claimed by the financial institution,
resulting in a settlement in the amount of R36 million being agreed as the full
and final settlement to the financial institution of taxation consequences of
the arrangement. In terms of the agreement, Afrox bore the risk of adverse
taxation consequences emanating from the transaction. Afrox has accounted for R9
million of the 36 million. The balance will be accounted for in the remainder of
the financial year. Afrox is not exposed to any other structured finance
transactions.
Afrox accounting policies
Basis of preparation
These interim financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS"), and it`s interpretations
adopted by the International Accounting Standards Board (IASB), the preparation
and disclosure requirement of IAS 34 (Interim Financial Reporting) and the
listing requirements of the JSE Limited and Schedule 4 of the South African
Companies Act.
These financial statements do not contain all the information and disclosures
required in the annual financial statements, and should be read in conjunction
with the company consolidated annual financial statements as at 30 September
2006.
Significant accounting policies
The accounting policies applied in these condensed financial statements are
compliant with IFRS and consistent with those used in the preparation of the
financial statements for the year ended 30 September 2006, except for the first
time adoption of IFRIC 4 - Determining whether an Arrangement contains a
Lease(Embedded Leases).
IFRIC4 requires reclassification of certain assets subject to embedded lease
arrangements and recognition of long-term lease receivables.
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 2004 (Pty) Limited, 70
Marshall Street, Johannesburg 2001.
PO Box 61051, Marshalltown 2107.
Telephone: (+27 11) 370-5000.
Sponsor in South Africa: Barnard Jacobs Mellet Corporate Finance (Pty) Limited.
Sponsor in Namibia: Namibia Equity Brokers (Pty) Limited.
Directors: JK Masters* (Chairman), TN Kruger (Managing Director), DM Lawrence,
LA MacNair, DK Mokhele, J Nowicki**
SM Pityana, LL van Niekerk, CJPG van Zyl, AM Watkins***,
Alternate director: MN Adams Company secretary: Mlawuli Manjingolo
*American **German ***British
Afrox is a member of The Linde Group
www.afrox.com
Date: 26/07/2007 15:50:11 Supplied by www.sharenet.co.za
Produced by the JSE SENS Department.
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