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AFX - African Oxygen Limited - audited results for the 15-month period ended 31

Release Date: 14/02/2008 15:03
Code(s): AFX
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AFX - African Oxygen Limited - audited results for the 15-month period ended 31 December 2007 AFRICAN OXYGEN LIMITED African Oxygen Limited (Incorporated in the Republic of South Africa) Registration number: 1927/000089/06 ISIN: ZAE000067120 JSE code: AFX NSX code: AOX ("Afrox") Audited results for the 15-month period ended 31 December 2007 REVENUE R5,9 BILLION CORE HEPS 217,5 CENTS PER SHARE TOTAL DIVIDEND 100 CENTS PER SHARE CAPEX R1 BILLION PERFORMANCE SUMMARY Afrox changed its year-end to December to align itself with the financial year- end of its ultimate holding company, linde ag. Therefore this financial reporting period ended on 31 December 2007 covers 15 months. The comparative results hereby presented are for the 12 months reporting period ended 30 September 2006. During the 15-month period ended 31 December 2007, revenue was R 5,9 billion, operating profit R 1,1 billion, with core headline earnings per share(heps) 217,5 cents per share. On an annual comparable basis, revenue increased by 16% to R 4,8 billion, with operating profit up 19% to R 854 million and core headline earnings of R 547 million up 19%. Annualised core heps, the basis for comparison in 2008, also increased 19% to 176,8 cents per share. Cash flow from operations for the 15 months was a robust R 1 billion but in turn there were high demands in the form of R 1 billion in capex to add capacity and R 475 million in dividends to shareholders. A change in year-end, together with the acquisition of the Reco refrigeration business, had a distorting effect on working capital that will normalise in 2008. Fiscal 2007 marks the first full year of majority ownership by The Linde Group, itself a combination of two world-class gases companies, Linde and BOC. Afrox has earned a leading position in its markets but a number of shortfalls against both customer expectations and company high-performance benchmarks have been identified. A far-reaching assessment of the business has been undertaken, resulting in a revised operating model and realignment of our human capital. This process towards becoming a thoroughly modern gas and welding group, fit for purpose in a demanding environment, remains work in progress; the full benefits thereof we expect to realise during 2008 and beyond. Afrox traded in a broadly favourable economic climate during the period under review, with all units experiencing strong demand for product and operating at maximum capacity utilisation. REVISED OPERATING MODEL Merchant and Packaged Gases, Tonnage, LPG and Healthcare have been identified as the four major business areas; each is responsible for strategy and the development of their markets. In turn, five operating units will implement the strategy - Manufacturing, Sales and Distribution, Technical, SHEQ and the African Operations. All will be supported by enabling functions. A renewed focus on manufacturing excellence has resulted in new skills being introduced and existing personnel redeployed to ensure alignment with performance objectives. BUSINESS REVIEW Heightened competition from new entrants, escalating input prices, and refinery shortages proved to be challenging for LPG during the period. The import and storage facility at Richards Bay has been a timely addition. Volumes were 4% higher than prior year but below budgeted levels. Growth in bulk usage, particularly in the automotive sector, together with interest by customers in using gas as opposed to electricity, is a notable feature but a growth opportunity that will be difficult to harness unless additional product can be sourced. Management continues in its dialogue with government on the advantages of LPG as a supplementary energy source but a number of logistical hurdles remain to be overcome. Tonnage commissioned three new air separation plants during the period, with R 360 million spent to add capacity. Offtake for the merchant market, in addition to customer specific requirement, is also being obtained. Notable customer wins were secured. Knowledge transfer from Linde in Germany is having a beneficial impact on operational excellence. Product supply remained finely balanced against demand and product shortages were experienced at stages in some product lines. The Healthcare business enjoyed strong gains from both public and private sector customers in compressed and bulk medical oxygen. Strong growth in demand presented a service delivery challenge ahead of new capacity coming on stream. Merchant and Packaged Gases experienced considerable growth in demand from construction and fabrication customers. In particular the sheer scale of uplift in the infrastructure has required inventive thinking to alleviate supply bottlenecks across our portfolio of products. Afrox`s new C5 hydrogen electrode is leading the market in high-specification applications. Best-of-breed gas equipment continues to make inroads in export markets. All industrial gases experienced good trading conditions, and the complementary Safety offering continued to grow at double digit rates. African Operations, now in excess of 15% of group operating profit, continue to gain footprint. New capital expenditure on infrastructure and capacity places afrox in a strong position in vibrant markets outside of South Africa. Sales and Distribution, cutting across the four major business areas, is now fully functional and proving its worth in turning strategic imperatives into revenue and profit at the sharp end of the business. Substantial resources have been expended on the SAP integrated business systems and we are on schedule to introduce live customer interfaces in May 2008. DIVIDEND The Board has resolved to declare a final cash dividend of 46 cents per share. Together with the interim cash dividend of 54 cents per share, a total of 100 cents per share (88 cents per share) is paid for the year and is covered 2,17 times in earning. In the previous financial year a special dividend of 60 cents per share was declared. OUTLOOK Afrox, under new executive leadership and with full backing from Linde, is building on acknowledged strengths and systematically addressing deficiencies in capacity and service delivery. Electricity shortages in South Africa require a concerted national effort in pursuit of the stated savings objective. Afrox is fully resolved to maximise efficiencies, re-schedule production where feasible, and partner with affected customers to ensure minimal disruption. Afrox`s reach across the economy is such that it has good defensive properties but is nevertheless well positioned in areas offering potential, not least infrastructure. Real growth is budgeted for in the medium term, accelerated by profitability gains arising from the restructuring and re-focus on core capabilities. Kent Masters Tjaart Kruger Johannesburg Chairman Managing Director 14 February 2008 NOTICE OF FINAL DIVIDEND DECLARATION NUMBER 163 AND FEATURES Notice is hereby given that a cash dividend of 46,0 cents (2006: 40,0 cents) per ordinary share, being the final dividend for the 15-month period ended 31 December 2007, has been declared payable to all shareholders of African Oxygen Limited recorded in the register on Friday, 25 April 2008. The salient dates for the declaration and payment of the final dividend are as follows: 2008 Last day to trade ordinary shares "cum" dividend Friday, 18 April Ordinary shares trade "ex" the dividend Monday, 21 April Record date Friday, 25 April Payment date Tuesday, 29 April Share certificates may not be dematerialised or rematerialised between Monday, 21 April 2008 and Friday, 25 April 2008, both days inclusive. By order of the board Mlawuli Manjingolo Company Secretary 14 February 2008 Johannesburg CONDENSED CONSOLIDATED BALANCE SHEET Restated As at As at
31 December 30 September Rm 2007 2006 ASSETS Non-current assets 3 303 2 333 Property, plant, equipment and tangibles 2 615 1 978 Investment in associates 11 11 Other non-current assets 677 344 Current assets 1 714 1 630 Inventories 684 452 Trade and other receivables 934 730 Cash and cash equivalents 96 448
Total assets 5 017 3 963 EQUITY AND LIABILITIES Total equity 2 559 2 305 Issued capital 15 15 Share premium 537 537 Accumulated profits and reserves 1 980 1 730 Minority interest 27 23 Non-current liabilities 866 478 Borrowings 490 311 Deferred tax liability 376 167 Current liabilities 1 592 1 180 Trade and other payables 961 960 Current portion of borrowings 300 205 Bank overdraft 331 15 Total equity and liabilities 5 017 3 963 CONDENSED CONSOLIDATED INCOME STATEMENT Restated 15 months to 12 months to Rm December September 2007 2006 Revenue 5 849 3 914 Operating profit 1 051 630 Profit on sale of investment - 362 Profit from operations 1 051 992 Net finance costs (89) (22) Income from associates 1 100 Profit before taxation 963 1 070 Income tax expense (350) (284) Profit for the period 613 786 Attributable to: Equity holders of the company 603 779 Minority interest 10 7 Profit for the period 613 786 EARNINGS PER SHARE 15 months Restated
ended 12 months to Rm December September 2007 2006 IAS 33 earnings 603 779 Total remeasurements consist of: 4 (343) - IAS 28 gains on disposal of investment - (362) - IFRS 3 impairment of goodwill - 21 - IAS 16 loss/(profit) on disposal of 4 (2) property, plant and equipment Total tax effect or adjustments - 76 Headline earnings 607 512 - profits from Life Healthcare - (115) - secondary taxation on companies on special 27 - dividend - other non-recurring items 37 58 Total remeasurements to core headline 64 (57) earnings Total tax effect or adjustments - (16) Core headline earnings 671 439 Basic earnings per ordinary share (BEPS) - 195,5 252,6 (cents) Headline earnings per ordinary share (HEPS) 196,5 165,9 - (cents) Core HEPS - (cents) 217,5 142,3 STATISTICS AND RATIOS 15 months Restated ended 12 months to December September
2007 2006 Average number of ordinary shares in issue during the period and on which earnings per share are based (`000) 308 568 308 568 Dividend per share (cents) 100,0 148,0 - Final 46,0 40,0 - Special dividend - 60,0 - Interim 54,0 48,0 Ratios Interest cover (times) 11,8 33,1 Effective tax rate (%) 36,3 26,6 Gearing (%) 25,9 3,3 Dividend cover (excluding special) - core headline earnings - (times) 2,17 1,62 SUMMARISED CONSOLIDATED CASH FLOW STATEMENT Restated
15 months to 12 months to Rm December September 2007 2006 Cash generated from operations 994 734 Finance costs, taxation paid and exceptional (369) (423) Dividends received - 7 Cash utilised from operations 625 318 Dividends paid (475) (272) Net cash inflow from operating activities 150 46 Acquisition of business (132) (5) Disposal of business - 801 Purchase of property, plant and equipment (799) (515) Purchase of intangible assets (104) (34) Expenditure on assets subject to embedded (84) (34) finance leases Other investing cash flows, net 33 20 Net cash (outflow)/inflow from investing (1 086) 233 activities Minorities (6) - Increase/(decrease) in borrowings 274 (8) Net cash inflow/(outflow) from financing 268 (8) activities Net (decrease)/increase in cash and cash (668) 271 equivalents Cash and cash equivalents at beginning of 433 162 financial period Cash and cash equivalents at end of (235) 433 financial period SUMMARISED CONSOLIDATED STATEMENTS OF RECOGNISED INCOME AND EXPENSE Restated 15 months 12 months ended ended
31 December 30 September Rm 2007 2006 Foreign currency translation differences for (9) 15 foreign operations Effective portion of changes in fair value (20) 22 of cash flow hedges Defined benefit plan actuarial gains 224 114 Other movements (7) (4) Deferred tax released or charged for the (65) (33) period Income and expenses recognised directly in 123 114 equity Profit for the financial period 613 786 Total recognised income and expense for the 736 900 financial period Attributable to: Equity holders of the company 726 889 Minority interest 10 11 Total recognised income and expenses for the 736 900 financial period RECONCILIATION OF RESTATEMENT OF PRIOR YEAR`S RESULTS DUE TO CHANGE IN ACCOUNTING STANDARDS BALANCE SHEET Rm As IFRIC 4 IAS 19 Restated previously effects effects as at reported 30 September 2006 Assets Non-current assets 2 297 36 - 2 333 Current assets 1 618 12 - 1 630 3 915 48 - 3 963 Equity and liabilities Capital and reserves 2 271 34 - 2 305 Non-current liabilities 464 14 - 478 Current liabilities 1 180 - - 1 180 3 915 48 - 3 963
INCOME STATEMENT As IAS 19 Restated Rm previously IFRIC 4 effects as at reported effects 30 September
2006 Revenue 3 914 - - 3 914 Gross margin 1 500 (10) - 1 490 Operating profit 1 116 (10) (114) 992 Net finance costs (35) 13 (22) Income from associates 100 100 Profit before taxation 1 181 3 (114) 1 070 Income tax expense (316) (1) 33 (284) Profit for the period 865 2 (81) 786 Subsequent to the publication of the June 2007 results, the calculation of the effect of IFRIC 4 was reviewed in light of The Linde Group policies and the South African economy. COMPARATIVE ANALYSIS 15 months ended 31 December 2007 Core Rm operations Other* Total Revenue 5 849 - 5 849 Operating profit 1 119 (68,0) 1 051 Basic earnings 671 (68,0) 603 Headline earnings 671 (64,0) 607 BEPS (cents) 217,5 (22,0) 195,5 HEPS (cents) 217,5 (21,0) 196,5 12 months ended 30 September 2006 Core Total
Rm operations Other** restated Revenue 3 914 - 3 914 Operating profit 668 38 630 Basic earnings 439 340 779 Headline earnings 439 73 512 BEPS (cents) 142,3 110,3 252,6 HEPS (cents) 142,3 23,7 165,9 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 adjustments are for non-recurring items shown below: FINANCE COSTS The company incurred R37 million additional finance costs in 2007, from a structured finance transaction challenged by the South African Revenue Service. This is further explained in note 1. SECONDARY TAX ON 2006 SPECIAL DIVIDEND A secondary tax charge of R27 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:s THE RESULTS OF LIFE HEALTHCARE The share of results of the associate, Life Healthcare`s profit. 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. PROFIT ON SALE OF REMAINING STAKE IN LIFE HEALTHCARE The profit on sale of the investment in Life Healthcare of R362 million pre tax and R286 million post tax. SHARE APPRECIATION RIGHTS Cost of R58 million pre tax and after tax of R42 million relating to share appreciation rights which vested early due to change in control. OTHER ADJUSTMENTS These are goodwill impaired and loss on disposal of plant, property and equipment. NOTES TO THE CONDENSED FINANCIAL STATEMENTS 1. FINANCE COSTS In 2000, the company 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 African Revenue Service (SARS). SARS has disallowed certain interest deductions claimed by the financial institution, resulting in a settlement in the amount of R37 million being agreed as the full and final settlement to the financial institution of the taxation consequences of the arrangement. In terms of the agreement, Afrox bore the risk of adverse taxation consequences emanating from the transaction. Afrox is not exposed to any other structured finance transactions. ACCOUNTING POLICIES BASIS OF PREPARATION The condensed consolidated financial information ("financial information") announcement is based on the audited financial statements of the group for the 15-month period ended 31 December 2007, which have been prepared in accordance with International Financial Reporting Standards (IFRS), and its interpretations adopted by the International Accounting Standards Board (IASB), the listing requirements of the JSE Limited and the South African Companies Act (1973). The condensed financial statements have been prepared in accordance with the recognition requirements of IFRS and disclosure requirements of IAS 34 - Interim Financial Reporting. 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 consolidated annual financial statements as at 31 December 2007. SIGNIFICANT CHANGES IN 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 adoption of IFRIC 4 - Determining where an arrangement contains a lease. This leads to certain assets subject to long-term leases being recognised as long-term lease receivables; whereas these had previously been classified as property, plant and equipment; - the adoption of the Amendment to IAS 19 Employee Benefits - Actuarial Gains and Losses, Group Plans and Disclosures. This leads to the recognition of the full actuarial gains and loss on the defined benefits plans directly in equity, subject to the IAS 19 paragraph 58 limitation. This had been recognised in profit or loss in prior periods; and - the group has early adopted IFRS 8 (segmental reporting). This change was to align the group and company with the geographical reporting utilised by the holding company, Linde AG. AUDIT OPINION The independent auditors, KPMG Inc., have issued their opinion on the group`s financial statements for the 15-month period ended 31 December 2007. A copy of their unqualified audit report is available for inspection at the company`s registered office. GEOGRAPHICAL SEGMENTS Rm South Rest of Total Africa Africa 15 months ended 31 December 2007 - revenue 5 183 666 5 849 - operating profit 889 162 1 051 12 months ended 30 September 2006 Restated - revenue 3 412 502 3 914 - operating profit 512 118 630 AFRICAN OXYGEN LIMITED Registered office: Afrox House, 23 Webber Street, Selby, Johannesburg 2001. PO Box 5404, Johannesburg 2000. Telephone +27 (0) 11 490-0400. Transfer secretaries: Computershare Investor Services 2004 (Pty) Limited, 70 Marshall Street, Johannesburg 2001. PO Box 61051, Marshalltown 2107. Telephone +27 (0) 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, M Malebye, DK Mokhele, J Nowicki**, KJ Oliver, SM Pityana, LL van Niekerk, CJPG van Zyl, AM Watkins*** Company secretary: Mlawuli Manjingolo *American **German ***British www.afrox.com Date: 14/02/2008 15:03:01 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. 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