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AFRICAN OXYGEN LIMITED - Abridged summarised audited consolidated financial statements for the year ended 31 December 2015

Release Date: 29/02/2016 07:05
Code(s): AFX     PDF:  
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African Oxygen Limited     

(Incorporated in the Republic of South Africa) Registration number: 1927/000089/06 ISIN: ZAE000067120 JSE code: AFX NSX code: AOX
ABRIDGED SUMMARISED AUDITED CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2015 Revenue: R5.5 billion DOWN (6%) EBITDA: R1 004 million UP (22.7%) HEPS: 139.2 cents UP (284%) Performance highlights
For the year ended 31 December 2015, the positive effects of the turnaround are evidenced with Afrox growing earnings before interest, taxes, depreciation and amortisation (EBITDA) by 22.7% or R186 million to R1.004 billion (2014: R818 million). This growth was achieved against a background of significant headwinds from the South African economy which impacted volumes. The EBITDA margin before restructuring costs increased to 18.3% (2014: 14.0%). An additional restructuring charge of R79 million was provided in the current year. Despite this provision, underlying business performance improvements saw headline earnings per share up 284% to 139.2 cents (2014: 36.2 cents) and basic earnings per share up 400% to 134.2 cents (2014: 26.8 cents). Revenue declined by 6% to R5.473 billion (2014: R5.834 billion) mainly due to the impact of lower Liquefied Petroleum Gas (LPG) prices. Gross profit after distribution expenses (GPADE) before restructuring costs was R1 585 million (2014: R1 578 million).
Capital expenditure of R377 million (2014: R527 million) has reduced, thus aligning capital requirements with the prevailing economic environment. The decision to invest in a production campus in Durban was re-evaluated resulting in a decision to secure suitable rented premises and dispose of the property instead. This will result in a capital expenditure saving of R205 million.
Lower levels of capital expenditure, focused trading working capital management, optimisation of fixed assets and underlying EBITDA growth resulted in Afrox remaining strongly cash generative. Net debt reduced by R355 million to R148 million (2014: R646 million). Return On Capital Employed (ROCE) improved to 16.7% (2014: 11.1%) reflecting the focus that the restructure has on both costs and asset utilisation. Business review
The LPG business performed well with volumes up by 4% (South Africa only). This was mainly due to the increased cost of electricity together with the unreliability of electricity supply leading to increased LPG usage for energy requirements. Lower LPG cost prices resulted in a 14.1% reduction in revenue, with the underlying margin improvement, GPADE increased by 11.5%.
Revenue from the Atmospheric Gases business increased by 2.9% mainly as a result of the performance in Afrox's market leading CO2 business, the healthcare business and speciality products. Output reduction in key markets across mining, steel and manufacturing sectors led to reductions in pipeline and compressed gases. As a result, gaseous pipeline and compressed gases sales were impacted, bulk liquid gases volumes performed relatively well as new gas applications were sold to customers. GPADE decreased by 8.7%. Hard Goods revenue reduced by 9.1% driven by lower volumes from the adverse business environment. GPADE increased by 11.5% due to one-time inventory provisions incurred in 2014. Underlying the GPADE margin improvement was the rationalisation of the product range and manufacturing facilities, closing the gas equipment factory in Germiston as part of our initiative to outsource non-core operations and supply chain review, and focusing on driving sales of high-yield products.
The Emerging Africa (formerly Rest of Africa) revenue decreased by 5.5% due to the exit from Angola, reduction in LPG market pricing, linked to lower costs and devaluation of the Zambian currency. Despite the exit from Angola and the devaluation of the Zambian currency, sales and volumes performed relatively well, with growth in most market sectors and countries, resulting in a 3.7% increase in GPADE. Turnaround
In line with the turnaround launched in 2014, there has been a significant cost-base and FTE reduction, personnel costs reduced by more than 14%, and a new operating model was implemented and aligned to a revised strategy reflective of the current economic reality.
Cost reduction initiatives delivered ahead of targets and the full impact thereof is expected in 2016. Dividend
The Company retains its policy whereby headline earnings cover the dividend twice. In compliance with this policy and due to the level of restructuring costs incurred in the second half of the year, a final dividend for 2015 of 51 cents per share was declared, bringing the total dividend for 2015 to 69 cents per share (2014: 24.0 cents per share). Board of directors
No changes in the Directorate have taken place since the publication of the interim report in August 2015. Outlook
Afrox will continue to be a profitable, robust and strongly cash-generative business. However, the difficult economic conditions are expected to continue in South Africa. Our focus in the medium term will be on delivering the turnaround benefits in South Africa and realising any growth opportunities in parts of our portfolio.
Notice of final dividend declaration number 178 and salient features
Notice is hereby given that a gross final cash dividend of 51 cents per ordinary share, being the final dividend for the year ended 31 December 2015, has been declared payable to all shareholders of African Oxygen Limited recorded in the register on Friday, 15 April 2016.
The salient dates for the declaration and payment of the final dividend are as follows: Last day to trade ordinary shares "cum" dividend Friday, 8 April 2016 Ordinary shares trade "ex" the dividend Monday, 11 April 2016 Record date Friday, 15 April 2016 Payment date Monday, 18 April 2016
Share certificates may not be dematerialised or rematerialised between Monday, 11 April 2016 and Friday, 15 April 2016, both days inclusive. The local net dividend amount is 43.35 cents (2014: nil cents) per share for shareholders liable to pay Dividends Tax and 51.0 cents (2014: nil cents) per share for the shareholders exempt from Dividends Tax.
In terms of the 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; - Afrox currently has 308 567 602 ordinary shares in issue; and
- Afrox's income tax reference number is 9350042710. By order of the Board Cheryl Singh 26 February 2016 Company Secretary Johannesburg
Forward-looking statements disclaimer: This 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.
Abridged summarised audited consolidated income statement
R'million 31 December 31 December 2015 2014 Audited Audited Revenue 5 473 5 834 Operating expenses (excluding restructuring costs) (4 469) (5 016) Earnings before interest, taxation, depreciation,
amortisation and impairments (EBITDA) 1 004 818 Depreciation and amortisation (390) (381) Impairment of tangible assets (27) (35) Impairment of intangible assets - (17) Earnings before interest and taxation (EBIT)
before restructuring costs 587 385 Restructuring costs* (79) (185) Earnings before interest and taxation (EBIT) 508 200 Net finance expense (9) (12) Income from associate 1 1 Profit before taxation 500 189 Taxation (75) (93) Profit for the year 425 96 Attributable to:
Owners of the Company 414 83 Non-controlling interests 11 13 Profit for the year 425 96 Earnings per share - cents
Basic and diluted earnings per ordinary share - cents 134.2 26.8
* Net of R126 million redundancy and consultancy costs raised during the year and R47 million redundancy costs released during the year.
Abridged summarised audited consolidated statement of comprehensive income
R'million 31 December 31 December 2015 2014 Audited Audited Profit for the year 425 96 Other comprehensive income after taxation 49 (119) Items that are or may be reclassified to profit or loss 21 (41) Translation differences on foreign operations 13 (27) Translation differences relating to non-controlling interests 3 (10) Changes in fair value of cash flow hedges (net of taxation) 5 (4) Items that will never be reclassified to profit or loss 28 (78) Actuarial (losses)/gains on defined-benefit funds 39 (109) Deferred taxation relating to actuarial losses/(gains) (11) 31
Total comprehensive income for the period 474 (23) Total comprehensive income attributable to:
Owners of the Company 460 (26) Non-controlling interests 14 3 474 (23) Segmental report
R'million 31 December 31 December 2015 2014 Audited Audited Revenue* 5 473 5 834 Atmospheric Gases 2 110 2 050 LPG 1 820 2 118 Hard Goods 788 867 Emerging Africa 755 799 Gross profit after distribution expenses (GPADE) before
restructuring costs 1 585 1 578 Atmospheric Gases 681 746 LPG 321 288 Hard Goods 272 244 Emerging Africa 311 300 Reconciliation of GPADE to EBIT
GPADE for business segments before restructuring costs 1 585 1 578 Other operating expenses (971) (1 141) Impairments (27) (52) Restructuring costs (79) (185) Earnings before interest and taxation (EBIT) 508 200 * Revenue from external customers. Statistics and ratios
31 December 31 December 2015 2014 Audited Audited Average number of shares in issue during the period ('000) 308 568 308 568 Shares in issue ('000) 308 568 308 568 Dividends per share (cents) 69 24.0 Final 51.0 - Interim 18.0 24.0 Ratios
EBITDA margin (%) 18.3 14.0 Interest cover on EBIT before restructuring costs (times) 66.6 33.6 Effective taxation rate (%) 15.0 49.1 Gearing (%) 3.6 12.3 Dividend cover on headline earnings (times) 2.0 1.5
Abridged summarised audited consolidated statement of financial position
R'million Note 31 December 31 December 2015 2014 Audited Audited ASSETS
Property, plant and equipment 4 2 988 3 166 Retirement benefits assets 538 475 Deferred taxation asset 19 15 Lease receivables 88 104 Other non-current assets 53 59 Non-current assets 3 686 3 819 Inventories 604 634 Trade and other receivables 864 849 Lease receivables 19 19 Derivative financial instruments 15 - Receivables from fellow subsidiaries of holding company 54 30 Taxation receivable 53 32 Cash and cash equivalents 880 526 Assets held for sale 7 120 - Current assets 2 609 2 090 Total assets 6 295 5 909 EQUITY AND LIABILITIES
Equity holders of the parent company 3 431 3 019 Non-controlling interests 37 28 Total equity 3 468 3 047 Long-term borrowings 1 000 1 000 Deferred taxation liability 518 512 Non-current liabilities 1 518 1 512 Provisions 61 197 Trade, other payables and financial liabilities 1 198 1 080 Taxation payable 22 43 Derivative financial instruments - 1 Bank overdrafts 28 29 Current liabilities 1 309 1 350 Total equity and liabilities 6 295 5 909
Abridged summarised audited consolidated statement of cash flows
R'million 31 December 31 December 2015 2014 Audited Audited Earnings before interest and taxation (EBIT) 508 200 Adjustments for:
Depreciation, amortisation and impairments 417 433 Other non-cash movements 88 217 Operating cash flows before working capital adjustments 1 013 850 Working capital adjustments 82 136 Cash generated from operations before restructuring costs 1 095 986 Restructuring costs paid (169) - Cash generated from operations 926 986 Vested shares purchased on behalf of employees - (2) Net finance expenses (74) (101) Taxation paid (116) (113) Dividends received 1 1 Cash available from operating activities 737 771 Dividends paid to owners of the parent (56) (136) Dividends to non-controlling interests (5) (12) Net cash inflow from operating activities 676 623 Additions to property, plant and equipment and intangibles (362) (514) Intangible assets acquired (15) (13) Other investing activities 67 66 Net cash outflow from investing activities (310) (461) Borrowings raised - - Borrowings repaid - (3) Forfeited shares sold - 1 Incentive share scheme shares purchased on behalf of employees (11) (17) Net cash (outflow) from financing activities (11) (19) Net increase in cash and cash equivalents 355 143 Cash and cash equivalents at the beginning of the period 497 354 Cash and cash equivalents at the end of the period 852 497
Abridged summarised audited consolidated statement of changes in equity
R'million Share Incentive FCTR and Actuarial Retained Non- Total capital and scheme hedging gains/ earnings controlling equity share share and reserves (losses) interests premium share-based payment reserves Balance at 1 January 2014 552 13 (37) 367 2 307 37 3 239 Total comprehensive income - - (31) (78) 83 3 (23) Profit for the year - - - - 83 13 96 Other comprehensive income, net of taxation - - (31) (78) - (10) (119) Shares purchased on behalf of employees - (17) - - - - (17) Share-based payments,net of taxation - (4) - - - - (4) Dividends paid - - - - (136) (12) (148) Balance at 31 December 2014 552 (8) (68) 289 2 254 28 3 047 Balance at 1 January 2015 552 (8) (68) 289 2 254 28 3 047 Total comprehensive income - - 18 28 414 14 474 Profit for the year - - - - 414 11 425 Other comprehensive income, net of taxation - - 18 28 - 3 49 Shares purchased on behalf of employees - (11) - - - - (11) Share-based payments, net of taxation - 19 - - - - 19 Dividends - - - - (56) (5) (61) Balance at 31 December 2015 552 - (50) 317 2 612 37 3 468
Selected notes to the abridged summarised audited consolidated financial statements African Oxygen Limited ('Afrox' or the 'Company') is a South African registered company. The abridged summarised audited 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 and trading trust. 1. Statement of compliance
The abridged summarised audited consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements for abridged reports, and the requirements of the Companies Act applicable to summary financial statements. The Listings Requirements require abridged reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The accounting policies applied in the preparation of the consolidated financial statements, from which the summary consolidated financial statements were derived, are in terms of International Financial Reporting Standards and are consistent with the accounting policies applied in the preparation of the previous consolidated annual financial statements. 2. Basis of preparation
The abridged summarised audited consolidated financial statements do not include all the information and disclosures required for the audited consolidated financial statements. The abridged summarised audited consolidated 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 2015 were prepared on the going-concern basis and are available for inspection at the Company's registered office and will be available on the Afrox website at www.afrox.com.
The accounting policies applied in the presentation of the abridged summarised audited consolidated financial statements are consistent with those applied for the year ended 31 December 2015, except for new standards that became effective 1 January 2015, refer note 3. The abridged summarised audited consolidated 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 and liabilities are measured at the fair value of the planned assets less the present value of the defined-benefit obligation. - Share-based payment awards are measured at fair value. The fair value of the equity instruments granted is estimated using industry accepted techniques. - Non-current assets held for sale are measured at the lower of carrying amount and fair value less costs of disposal.
This report was compiled under the supervision of Matthias Vogt, Head of Finance. 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 2015:
- Defined benefit plans: Employee Contributions (Amendments to IAS 19); - Annual Improvements to IFRSs 2010 - 2012 Cycle - various standards; and - Annual Improvements to IFRSs 2011 - 2013 Cycle - various standards.
The adoption of the amendments to standards listed above did not have a significant impact on the Group's abridged summarised audited consolidated financial statements. 4. Property, plant and equipment
R'million 31 December 31 December 2015 2014 Audited Audited Opening carrying value 3 166 3 034 Additions, net of transfers from assets under construction 379 533 Transfer to assets held for sale (120) Impairments (27) (35) Disposals (28) (12) Depreciation (369) (349) Translation differences (13) (5) Closing carrying value 2 988 3 166 5. Fair value classification and measurement Accounting classification and fair value
The classification of each class of financial assets and liabilities, and there fair values are:
R'million At fair value Loans and Liabilities Other Total Fair through receivables at assets carrying value profit or amortised amount loss cost Financial assets measured at fair value
Derivative financial instruments 15 - - 15 15 31 December 2015 Financial assets not measured at fair value
Trade, other receivables and financial assets - 907 - 907 907 Cash and cash equivalents - 880 - 880 880 Finance lease receivables - - - 107 107 107 Total financial assets 15 1 788 - 107 1 909 1 909 Financial liabilities not measured at fair value
Borrowings - - 1 000 1 000 919 Trade, other payables and financial liabilities - - 1 075 1 075 1 075 Bank overdrafts - - 28 28 28 Total financial liabilities - - 2 103 2 103 2 022 31 December 2014 Financial assets measured at fair value
Trade, other receivables and financial assets - 878 - 878 878 Cash and cash equivalents - 526 - 526 526 Lease receivables - - - 123 123 123 Total financial assets - 1 404 - 123 1 527 1 527 Financial liabilities measured at fair value
Derivative financial instruments 1 - - 1 1 Financial liabilities not measured at fair value
Borrowings - - 1 000 1 000 959 Trade, other payables and financial liabilities - - 925 925 925 Bank overdrafts - - 29 29 29 Total financial liabilities 1 - 1 954 1 955 1 914
Reconciliation to the abridged summarised audited consolidated statement of financial position:
R'million 31 December 31 December 2015 2014 Audited Audited Trade and other receivables 864 849 Receivables from fellow subsidiaries of holding company 54 30 Prepayments (2) - Deposits (1) (1) Value-added taxation (7) - Financial instruments 908 878 Trade, other payables and other financial liabilities 1 198 1 080 Employee benefits including leave pay, bonuses and other costs (91) (108) Deferred rentals (17) (18) Value-added taxation (15) (29) Financial instruments 1 075 925 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 31 December 2015 Financial assets measured at fair value
Derivative financial instruments - 15 - 15 31 December 2014 Financial liabilities measured at fair value
Derivative financial instruments - 1 - 1 The fair value of the derivative financial instrument is based on broker quotes. Similar contracts are traded in an active market and the quote reflects the actual transactions in similar 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 year ended 2015. 6. Earnings and headline earnings per share
Headline earnings per share are calculated on headline earnings of R429 million (2014: 111 million) and a weighted average number of ordinary shares of 308 567 602 (2014: 308 567 602) in issue during the period.
Reconciliation between earnings and headline earnings
R'million 31 December 31 December 2015 2014 Audited Audited Profit for the period 414 83 Adjusted for the after-taxation effects of:
Profit on disposal of property, plant and equipment (6) (19) Impairment of goodwill in subsidiaries - 17 Impairment of property, plant and equipment 27 35 435 116 Taxation (6) (5) Headline earnings 429 111 Basic and diluted earnings per share - cents 134.2 26.8 Headline earnings per share - cents 139.2 36.2 7. Assets held for sale
A decision was taken to dispose of the Group's land, situated in Cornubia, Durban. A suitable alternative rented premises was procured that enabled the Group to accommodate the Durban operations on one site. The process to dispose the land will be piecemeal and is expected to be completed within 12 months. Furthermore, as part of the Group's restructuring initiatives, the Group is undergoing a process of evaluating its property portfolio and a decision was taken to sell unutilised properties. These properties are expected to be sold within 12 months. As part of the rationalisation of the Group's manufacturing facilities, a decision was taken to close the Gas Equipment Factory and sell the assets. The sale is expected to be completed within 12 months.
R'million 31 December 31 December
2015 2014
Audited Audited
Property, plant and equipment 120 -
Total net assets held for sale 120 - 8. 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. 9. Update on key litigation matters
The Company continues to pursue its rights in terms of a disputed supply contract with a major steel producer. No revenue has been accounted for in terms of this contract since June 2012. The disputed revenue not recorded amounts to approximately R131.9 million (excluding VAT) with the total amount outstanding at approximately R233 million, including interest. The main hearing is scheduled for June/July 2016. 10. Subsequent events
Other than for the continuing impact of the adverse trading conditions, the directors are not aware of any material matter or circumstance arising between the end of the year and up to the date of this report, not otherwise dealt with in this report.
11. Summary financial statements included in the abridged report
The abridged summarised audited financial statements have been derived from the audited financial statements on the basis set out in note 1. The abridged summarised audited financial statements have not been separately audited. For a better understanding of the Company's financial position, financial performance and cash flows in accordance with IFRS, the full audited financialstatements and auditor's report thereon are available from the Company's registered office. The Company's auditor, KPMG Inc. issued an unqualified auditors report on the financial statements.
Transfer secretaries: Computershare Investor Services Proprietary Limited Sponsor in South Africa: One Capital
Sponsor in Namibia: Namibia Equity Brokers Proprietary Limited
Directors: S Venter (Managing Director), DKT Devers** (Financial Director), BH Eulitz* (Chairman), M von Plotho*, Dr KDK Mokhele, CF Wells** RJN Gearing**, NVL Qangule, GJ Strauss * German ** British Company Secretary: Cheryl Singh Auditors: KPMG Inc. www.afrox.com www.afrox.co.za Registered office Afrox House, 23 Webber Street, Selby Johannesburg 2001 PO Box 5404, Johannesburg 2000 Telephone +27 11 490 0400 Date: 29 February 2016
Date: 29/02/2016 07:05:00 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. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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