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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
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