Wrap Text
Condensed consolidated Interim Financial Statements for the six months ended 30 June 2014
African Oxygen Limited
(Incorporated in the Republic of South Africa)
Registration number: 1927/000089/06
ISIN: ZAE000067120 JSE code: AFX
NSX code: AOX
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
for the six months ended 30 June 2014
- Revenue: R2.9 billion
- EBITDA: R442 million (-2%)
- Headline earnings per share: 49.5 cents (-10.2%)
Performance highlights
Results for the first half of 2014 were influenced by a challenging trading environment which reflects the continued decline in the manufacturing, mining,
and steel sectors in South Africa exacerbated by the five-month strike in the platinum sector and spill-over effects of Afrox's own strike in the first quarter.
Despite achieving price increases broadly in line with increased input costs, revenue for the six months to 30 June 2014 was flat at R2.87 billion (2013: R2.86 billion).
Earnings before interest, tax, depreciation and amortisation (EBITDA) was down 2% at R442 million (2013: R449 million).
The EBITDA margin achieved was 15.4% (2013: 15.7%), reflecting the consequence of adverse sales conditions and inflationary pressure on costs; profit for the half-year
was down 4.5% at R169 million (2013: R176 million) with headline earnings of 49.5 cents (2013: 55.1 cents).
The Group's capital revitalisation and growth plan continued to be implemented with capital expenditure of R209 million incurred during the first six months of 2014
(2013: R261 million).
Business review
Uncertainty in the economy and low GDP growth in South Africa, continue to impact negatively on demand for our products in key sectors. At 30 June 2014, year-on-year mining
production had fallen approximately 5.7%, with manufacturing output down 1.6% in the first quarter and 0.4% in the second. However, our long-term success, and the realisation
of our strategic goals, depends on our ability to adjust and respond to current and future market dynamics. We believe the next few months will see our key South African
markets continuing to move at the current lower levels of activity and accordingly we are pursuing an active cost management programme to mitigate against these difficult
economic conditions.
In the first half of 2014, volume erosion continued in almost every market served in South Africa. Local shortages of Liquefied Petroleum Gas (LPG) - due to unexpected
shutdowns at refineries - coupled with a planned maintenance shutdown of our import storage facility, constrained our ability to meet demand for LPG in the first quarter.
There was only a modest recovery in quarter two hampered by industrial action and a relatively mild start to winter in South Africa. Afrox continues to import LPG to supplement
the market shortfall, in the process effectively subsidising an element of these additional costs as price recovery and distribution costs of imported product remain a challenge.
We plan to increase the LPG cylinder pool by a further 5% in 2014, and therefore introduced a non-refundable rental charge to justify this additional capital investment in LPG
cylinders. We continue to actively manage the illegal filling threat, not only to ensure that our assets are not abused, but more importantly, to protect the public from
significant safety risks.
Hard Goods sales were down 14.4%, reflecting lower levels of activity in all key markets, especially the platinum mining sector. To improve performance, the Group is rationalising
the current product range and focusing on driving sales of its high-yield products.
Output reduction at key large customers led to a reduction in demand for Atmospheric Gases in this reporting period. As a result, gaseous pipeline sales reduced and sales for
bulk and compressed gases remained flat reflecting the continued reduction in activity in the manufacturing sector and the effects of strike actions in the first and second quarters.
The R350 million Air Separation Unit in the Eastern Cape is expected to commence production by the second quarter of 2015, which will mark a significant improvement in
security of supply to customers in this important region. Afrox also commissioned a new R14 million hydrogen facility in Pelindaba which will reduce Afrox's dependence on
imported hydrogen and enhance customer service levels.
Plant reliability of 99.1% (2013: 98.7%) has been achieved in this reporting period. Independently monitored customer satisfaction levels, with Afrox and our National Customer
Service Centre (NCSC), stand at 95.1% (2013: 95.0%). The NCSC has also launched an eShop channel to take advantage of the growing trend across Africa for online ordering and
account solutions.
Operations in the rest of Africa contributed 20% (2013: 19%) to the Group's half-year gross profit after distribution expenses (GPADE). Afrox businesses outside South Africa
are receiving increased investment in plant and management resources as we commence with the roll-out of our African expansion strategy. The outlook for sub-Saharan Africa
remains positive and the region continues to be central to future growth.
A management focus on workplace and distribution safety within the company continues to deliver results. Major incidents are down 67% compared to the same period last year
(2013: down 73%). Afrox achieved multisite regional ISO 90001:2008 quality management certification, effectively streamlining certification in line with the Afrox business structure
and thereby cutting costs.
Our Broad-Based Black Economic Empowerment (B-BBEE) status remains a Level 3 value adding rating.
Although overall trading conditions have been challenging in South Africa, the Group's underlying business remains strong.
Board of directors
Nomfundo Vuyiswa Lila Qangule CA(SA) has been appointed as an independent non-executive director of the company with effect from 22 July 2014. She will serve as a member of the
Afrox Board's Audit Committee.
Dividend
It is the Group's policy to consider dividends twice annually. The Board of directors have declared a gross interim cash dividend of 24.0 cents per share for the six months ended
30 June 2014 (2013: 27.0 cents). The dividend is covered two times by headline earnings per share.
Outlook
Economic conditions are likely to remain challenging for the foreseeable future, particularly in the key manufacturing, mining and steel production sectors of the
South African economy. This will require increased focus on cost containment by our company due to lack of volume growth expected in the second half of 2014.
Mike Huggon Brett Kimber 21 August 2014
Chairman Managing Director Johannesburg
NOTICE OF INTERIM DIVIDEND DECLARATION NUMBER 176 AND SALIENT FEATURES
Notice is hereby given that a gross interim cash dividend of 24.0 cents per ordinary share, being the interim dividend for the six-month period ended 30 June 2014, has been
declared payable to all shareholders of African Oxygen Limited recorded in the register on Friday, 10 October 2014.
The salient dates for the declaration and payment of the interim dividend are as follows:
Last day to trade ordinary shares "cum" dividend Friday, 3 October 2014
Ordinary shares trade "ex" the dividend Monday, 6 October 2014
Record date Friday, 10 October 2014
Payment date Monday, 13 October 2014
Share certificates may not be dematerialised or rematerialised between Monday, 6 October 2014 and Friday, 10 October 2014, both days inclusive.
The local net dividend amount is 20.4 cents per share for shareholders liable to pay the new Dividends Tax and 24.0 cents per share for shareholders exempt from the new Dividends
Tax (2013: 27.0 cents).
In terms of the new Dividends Tax, the following additional information is disclosed:
- the dividend has been declared out of income reserves;
- the local Dividends Tax rate is 15%, subject to double tax agreement;
- no Secondary Tax on Companies (STC) credits were utilised;
- Afrox currently has 308 567 602 ordinary shares in issue; and
- Afrox's income tax reference number is 9350042710.
Results presentation
Afrox will host a presentation on the financial results in Johannesburg on Friday, 22 August 2014. Anyone wishing to attend should contact Lebohang Mfeka at 011 490 0948.
The slides, which will form part of the presentation will be available on the company's website from Monday, 25 August 2014.
By order of the Board
Cheryl Singh 21 August 2014
Company Secretary Johannesburg
Forward-looking statements disclaimer: This interim results review contains statements related to our future business and financial performance and future events or
developments involving Afrox that may constitute forward-looking statements. Such statements are based on current expectations and certain assumptions of Afrox's
management are therefore subject to certain risks and uncertainties. A variety of factors, many of which are beyond Afrox's control, affect our operations, performance,
business strategy and results and could cause the actual results, performance or achievements of Afrox to be materially different from any future results, performance or
achievements that may be expressed or implied by such forward-looking statements or anticipated on the basis of historical trends.
Condensed consolidated interim income statement
30 June 30 June 31 December
2014 2013 2013
6 months 6 months 12 months
Reviewed Reviewed Audited
R'million
Revenue 2 866 2 859 5 825
Operating expenses (2 424) (2 410) (4 945)
Earnings before interest, taxation, depreciation, amortisation and
impairments (EBITDA) 442 449 880
Depreciation and amortisation (195) (178) (366)
Earnings before interest and taxation (EBIT) 247 271 514
Net finance expense (5) (20) (47)
Income from associate 1 - 1
Profit before taxation 243 251 468
Taxation (74) (75) (144)
Profit for the period 169 176 324
Attributable to:
Equity holders of the parent company 163 169 309
Non-controlling interests 6 7 15
Profit for the period 169 176 324
Earnings per share - cents
Basic and diluted earnings per ordinary share - cents 52.8 54.8 100.1
Headline earnings per ordinary share - cents 49.5 55.1 95.3
Condensed consolidated interim statement of comprehensive income
30 June 30 June 31 December
2014 2013 2013
6 months 6 months 12 months
Reviewed Reviewed Audited
R'million
Profit for the period 169 176 324
Other comprehensive income after taxation (88) 61 228
Items that can subsequently be reclassified to the income statement (26) 28 35
Translation differences on foreign operations (20) 24 29
Translation differences relating to non-controlling interests (4) 4 5
Changes in fair value of cash flow hedges (net of taxation) (2) - 1
Items that cannot subsequently be reclassified to the income statement (62) 33 193
Actuarial (losses)/gains on defined-benefit funds (86) 46 276
Deferred taxation relating to actuarial losses/ (gains) 24 (13) (83)
Total comprehensive income for the period 81 237 552
Total comprehensive income attributable to:
Equity holders of the parent company 79 226 532
Non-controlling interests 2 11 20
81 237 552
Condensed consolidated statement of financial position
30 June 30 June 31 December
2014 2013 2013
Note Reviewed Reviewed Audited
R'million
ASSETS
Property, plant and equipment 4 3 058 2 963 3 034
Retirement benefits assets 483 390 552
Deferred taxation assets 18 12 9
Lease receivables 110 103 100
Other non-current assets 83 115 99
Non-current assets 3 752 3 583 3 794
Inventories 834 873 850
Trade and other receivables 983 1 061 906
Lease receivables 17 7 7
Derivative financial instruments - 8 6
Other current assets 14 25 31
Taxation receivable 41 38 33
Cash and cash equivalents 331 430 380
Current assets 2 220 2 442 2 213
Total assets 5 972 6 025 6 007
EQUITY AND LIABILITIES
Equity holders of the parent company 3 231 2 981 3 202
Non-controlling interests 38 37 37
Total equity 3 269 3 018 3 239
Long-term borrowings 1 000 1 000 1 000
Deferred taxation liability 546 548 570
Non-current liabilities 1 546 1 548 1 570
Trade, other payables and financial liabilities 1 123 1 143 1 141
Taxation payable 26 38 28
Short-term portion of long-term borrowings - 269 3
Bank overdrafts 8 9 26
Current liabilities 1 157 1 459 1 198
Total equity and liabilities 5 972 6 025 6 007
Condensed consolidated interim statement of changes in equity
Attributable to equity holders of the parent company
Incentive
scheme
Share share and
capital share- FCTR
and based and Actuarial Non-
share payment hedging gains/ Retained controlling Total
premium reserves reserves (losses) earnings interests equity
R'million
Balance at 1 January 2013 552 8 (67) 174 2 137 27 2 831
Profit for the period - - - - 169 7 176
Other comprehensive income - - 24 33 - 4 61
Share-based payments - 7 - - - - 7
Dividends paid - - - - (56) (1) (57)
Balance at 30 June 2013 552 15 (43) 207 2 250 37 3 018
Balance at 1 January 2013 552 8 (67) 174 2 137 27 2 831
Profit for the period - - - - 309 15 324
Other comprehensive income - - 30 193 - 5 228
Shares purchased on behalf of
employees - (16) - - - - (16)
Share-based payments - 21 - - - - 21
Dividends paid - - - - (139) (10) (149)
Balance at
31 December 2013 552 13 (37) 367 2 307 37 3 239
Balance at 1 January 2014 552 13 (37) 367 2 307 37 3 239
Profit for the period - - - - 163 6 169
Other comprehensive income - - (22) (62) - (4) (88)
Net share scheme transactions - 1 - - - - 1
Share-based payments - 11 - - - - 11
Dividends paid - - - - (62) (1) (63)
Balance at 30 June 2014 552 25 (59) 305 2 408 38 3 269
Condensed consolidated interim statement of cash flows
30 June 30 June 31 December
2014 2013 2013
6 months 6 months 12 months
Reviewed Reviewed Audited
R'million
Earnings before interest and taxation (EBIT) 247 271 514
Adjustments for:
Depreciation, amortisation and impairments 195 178 366
Other 18 31 153
Operating cash flows before working
capital adjustments 460 480 1 033
Working capital adjustments (84) (302) (200)
Cash generated from operations 376 178 833
Vested shares purchased on behalf of employees (2) (3) (3)
Net finance expenses (49) (43) (76)
Taxation paid (90) (81) (202)
Cash available from operating activities 235 51 552
Dividends paid to owners of the parent (62) (56) (139)
Dividends to non-controlling interests (1) (1) (10)
Net cash inflow/(outflow) from operating activities 172 (6) 403
Additions to property, plant and equipment and intangibles (209) (261) (505)
Proceeds from disposal of the RECO business - 21 36
Other investing activities 8 14 48
Net cash outflow from investing activities (201) (226) (421)
Borrowings raised - 1 000 1 216
Borrowings repaid (3) (602) (1 083)
Forfeited shares sold 1 - -
Incentive share scheme shares purchased on behalf
of employees - - (16)
Net cash (outflow)/inflow from financing activities (2) 398 117
Net (decrease)/increase in cash and cash equivalents (31) 166 99
Cash and cash equivalents at the beginning of the period 354 255 255
Cash and cash equivalents at the end
of the period 323 421 354
Operating segments
30 June 30 June 31 December
2014 2013 2013
6 months 6 months 12 months
Reviewed Reviewed Audited
R'million
Revenue 2 866 2 859 5 825
Atmospheric Gases 899 861 1 745
LPG 1 045 1 025 2 132
Hard Goods 457 523 993
Rest of Africa 465 450 955
Gross profit after distribution expenses (GPADE) 777 818 1 580
Atmospheric Gases 327 303 610
LPG 153 159 311
Hard Goods 140 201 337
Rest of Africa 157 155 322
Reconciliation of GPADE to EBIT
GPADE for business segments 777 818 1 580
Other operating expenses (530) (547) (1 066)
Earnings before interest and taxation (EBIT) 247 271 514
Statistics and ratios
30 June 30 June 31 December
2014 2013 2013
6 months 6 months 12 months
Reviewed Reviewed Audited
Average number of shares in issue during the period (000) 308 568 308 568 308 568
Shares in issue (000) 308 568 308 568 308 568
Dividends per share (cents) 24.0 27.0 47.0
Final 20.0
Interim 24.0 27.0 27.0
Ratios
EBITDA margin (%) 15.4 15.7 15.1
Interest cover on EBITDA (times) 80.7 22.5 10.9
Effective taxation rate (%) 30.3 30.1 30.8
Gearing (%) 15.0 19.2 14.6
Dividend cover on headline earnings (times) 2 2 2
Notes to the interim condensed consolidated financial statements
African Oxygen Limited ("Afrox" or the "company") is a South African registered company. The interim condensed consolidated financial statements of the company comprise the
company and its subsidiaries (together referred to as the "Group") and the Group's interest in an associate.
1. Statement of compliance
The condensed consolidated interim financial statements are prepared in accordance with International Financial Reporting Standards(IFRS), (IAS) 34 Interim Financial Reporting, the
SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting Standards Council and the
requirements of the Companies Act of South Africa. The accounting policies applied in the preparation of these interim financial statements are in terms of IFRS and are consistent
with those applied in the previous annual financial statements.
2. Basis of preparation
The condensed consolidated interim financial statements do not include all the information and disclosures required for the audited consolidated financial statements. The
condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements. The audited consolidated financial
statements for the Group as at and for the year ended 31 December 2013 were prepared on the going-concern basis and are available for inspection at the company's registered
office and on the Afrox website at www.afrox.com.
The accounting policies applied in the presentation of the condensed consolidated interim financial statements are consistent with those applied for the year ended 31 December 2013,
except for new standards that became effective 1 January 2014, refer note 3.
The condensed consolidated interim financial statements are prepared on the historical cost basis except for the following items which are measured using an alternative basis at
each reporting date:
- Derivative financial instruments measured at fair value through profit or loss
- Retirement benefit assets measured at the fair value of the plan assets less the present value of the defined benefit obligation
This report was compiled under the supervision of Nick Thomson CA(SA), Group Financial Director.
3. Changes in accounting policies
The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of
1 January 2014:
- Amendments to IFRS 10, IFRS 12 and IAS 27;
- IAS 32 Financial Instruments: Presentation;
- Novation of derivatives and continuation of hedge accounting (Amendments to IAS 39);
- IAS 36 Impairment of Assets;
- IFRIC 21 Levies.
The adaptation of the new standards listed above did not have a significant impact on the Group's reviewed condensed consolidated interim financial statements.
4. Property, plant and equipment
30 June 30 June 31 December
2014 2013 2013
Reviewed Reviewed Audited
R'million
Opening carrying value 3 034 2 854 2 854
Additions, net of transfers from assets under construction 209 261 505
Interest capitalised 7 - 2
Disposals (5) (1) (7)
Depreciation (178) (161) (332)
Translation differences (9) 10 12
Closing carrying value 3 058 2 963 3 034
5. Fair value classification and measurement
Accounting classification and fair value
The classification of each class of financial assets and liabilities, and their fair values are:
At fair
value Liabilities
through Loans at Total
profit and amortised Other carrying Fair
R'million or loss receivables cost assets amount value
30 June 2013
Financial assets measured
at fair value
Derivative financial instruments 8 - - - 8 8
Financial assets not measured at fair value
Trade and other receivables - 1 004 - - 1 004 1 004
Cash and cash equivalents - 430 - - 430 430
Finance lease receivables - - - 110 110 110
Total financial assets 8 1 434 - 110 1 552 1 552
Financial liabilities not measured
at fair value
Borrowings - - 1 000 - 1 000 1 000
Trade, other payables and financial assets - - 960 - 960 960
Bank overdrafts - - 9 - 9 9
Total financial liabilities - - 1 969 - 1 969 1 969
31 December 2013
Financial assets measured at
fair value
Derivative financial instruments 6 - - - 6 6
Financial assets not measured
at fair value
Trade and other receivables - 885 - - 885 885
Cash and cash equivalents - 380 - - 380 380
Finance lease receivables - - - 107 107 107
Total financial assets 6 1 265 - 107 1 378 1 378
Financial liabilities not measured
at fair value
Borrowings - - 1 003 - 1 003 971
Trade, other payables and financial assets - - 947 - 947 947
Bank overdrafts - - 26 - 26 26
Total financial liabilities - - 1 976 - 1 976 1 944
30 June 2014
Financial assets measured
at fair value
Derivative financial instruments - - - - - -
Financial assets not measured
at fair value
Trade and other receivables - 974 - - 974 974
Cash and cash equivalents - 331 - - 331 331
Finance lease receivables - - - 127 127 127
Total financial assets - 1 305 - 127 1 432 1 432
Financial liabilities not measured
at fair value
Borrowings - - 1 000 - 1 000 914
Trade, other payables and financial assets - - 957 - 957 957
Bank overdrafts - - 8 - 8 8
Total financial liabilities - - 1 965 - 1 965 1 879
Reconciliation to the condensed interim consolidated statement of financial position:
30 June 30 June 31 December
2014 2013 2013
Reviewed Reviewed Audited
R'million
Trade and other receivables 983 1 061 906
Prepayments (8) (12) (20)
Deposits (1) (45) (1)
Financial instruments 974 1 004 885
Trade, other payables and other financial liabilities 1 123 1 143 1 141
Employee benefits including leave pay, bonuses and other costs (98) (98) (107)
Deferred rentals (28) (39) (52)
Value added taxation (40) (46) (35)
Financial instruments 957 960 947
Fair value hierarchy
The table below analyses fair value measurements for financial instruments categorised into the fair value hierarchy based on the inputs used. The different levels are
defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date.
Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: unobservable inputs for the asset or liability.
R'million Level 1 Level 2 Level 3 Total
30 June 2013
Financial assets measured at fair value
Derivative financial instruments - 8 - 8
31 December 2013
Financial assets measured at fair value
Derivative financial instruments - 6 - 6
30 June 2014
Financial assets measured at fair value
Derivative financial instruments - - - -
Transfers
The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the transfer has occurred. There were no transfers
between level 1, 2 or 3 of the fair value hierarchy during the six months ended 30 June 2014.
6. Earnings and headline earnings per share
Headline earnings per share are calculated on headline earnings of R153 million (2013: R170 million) and a weighted average number of ordinary shares of 308 567 602
(2013: 308 567 602) in issue during the period.
Reconciliation between earnings and headline earnings
30 June 30 June 31 December
2014 2013 2013
6 months 6 months 12 months
Reviewed Reviewed Audited
R'million
Profit for the period 163 169 309
Adjusted for the after-taxation effects of:
(Profit)/loss on disposal of property, plant and equipment (10) 1 (15)
Headline earnings 153 170 294
Basic and diluted earnings per share - cents 52.8 54.8 100.1
Headline earnings per share - cents 49.5 55.1 95.3
7. Related-party transactions
The Group entered into various sale and purchase transactions with related parties, in the ordinary course of business, on an arm's length basis. The nature of related-party
transactions is consistent with those reported previously.
8. Update on key litigation matters
As at the date of this report there is no outstanding litigation of a material nature against the Group. The company continues to pursue its rights in terms of a disputed supply
contract with a major steel producer. This matter is expected to proceed to arbitration in the last quarter of 2014.
9. Subsequent events
Other than the continuing impact of the adverse trading conditions, the directors are not aware of any material matter or circumstance arising between 30 June 2014 and the date
of this report on which comment is required.
10. Independent review by the auditors
These interim condensed consolidated financial statements for the six months ended 30 June 2014 have been reviewed by the company's auditor, KPMG Inc. In their review report dated
21 August 2014, which is available for inspection at the company's registered office, KPMG Inc state that their review was conducted in accordance with the International Standard
on Review Engagements 2410, Review of interim information performed by the independent auditor of the entity, and have expressed an unmodified conclusion on the interim condensed
consolidated financial statements.
The condensed consolidated interim financial results comprise the condensed consolidated statement of financial position at 30 June 2014, condensed consolidated income statement,
condensed consolidated statement of comprehensive income, condensed consolidated statement of changes in equity and condensed consolidated statement of cash flows for the six
months then ended and selected explanatory notes.
Corporate information
African Oxygen Limited Registered office
(Incorporated in the Republic of South Africa) Afrox House, 23 Webber Street, Selby
Registration number: 1927/000089/06 Johannesburg 2001
ISIN: ZAE000067120 JSE code: AFX PO Box 5404, Johannesburg 2000
NSX code: AOX Telephone +27 11 490 0400
Transfer secretaries: Computershare Investor Services (Pty) Ltd
Sponsor in South Africa: One Capital
Sponsor in Namibia: Namibia Equity Brokers (Pty) Ltd
Directors: B Kimber (Managing Director), NA Thomson** (Financial Director), MS Huggon** (Chairman), M von Plotho*, DM Lawrence, Dr KDK Mokhele, SN Maseko, CF Wells**, RJN Gearing**,
NVL Qangule
* German ** British
Company Secretary: Cheryl Singh
Auditors: KPMG Inc.
www.afrox.com
www.afrox.co.za
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