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Financial results and dividend declaration for the year ended 31 December 2016
African Oxygen Limited
(Incorporated in the Republic of South Africa)
Registration number: 1927/000089/06
ISIN: ZAE000067120 JSE code: AFX
NSX code: AOX
FINANCIAL RESULTS AND DIVIDEND DECLARATION
for the year ended 31 December 2016
Financial features
Revenue
Up by 1%
R5.537 billion
EBITDA
Up by 23%
R1.237 billion
Headline earnings per share
Up by 36%
189.4 cents per share
Commentary
Performance highlights
Afrox increased revenue and EBITDA despite a challenging economic environment. The benefits from the successful restructuring and the litigation settlement
with ArcelorMittal South Africa Limited (AMSA) resulted in EBITDA increasing by 23.2% or R233 million to R1.237 billion for the year ended 31 December
2016. This growth was achieved despite the weakness in the South African economy and supply constraints seen in CO2 and LPG.
Reflecting the weakness of the South African economy, revenue was marginally up 1.2% at R5.537 billion (2015: R5.473 billion).
EBITDA margin increased by 400bps to 22.3% (2015: 18.3%). The overall improvement in the EBITDA contributed to headline earnings per share increasing by
36% to 189.4 cents (2015: 139.2 cents) and basic earnings per share increasing by 44% to 193.3 cents (2015: 134.2 cents).
The continued focus on inventory management, optimisation of fixed assets and underlying EBITDA growth resulted in Afrox continuing to increase its cash on
hand which now reflects a net cash position of R153 million (2015: net borrowings of R148 million).
Capital expenditure of R379 million (2015: R379 million) remained constant year-on-year reflecting that the company has sufficient production capacity to
meet expected medium-term demand.
Return on Capital Employed (ROCE) improved by 790bps to 24.6% (2015: 16.7%) reflecting the improvements in profitability and balance sheet optimisation.
Business review
Revenue from the Atmospheric Gases business increased by 9.9% to R2.319 billion (2015: R2.110 billion) from the litigation settlement payment of R165
million and improved bulk volumes, offsetting the impact of CO2 supply shortages. Packaged volumes continued to be impacted by overall economic conditions
with the second half improvement in volumes indicating a more positive future trend. Gross profit after distribution expenses (GPADE) increased by 27.5% to
R868 million (2015: R681 million) as a result of the litigation settlement and the full year benefits of 2015 restructuring.
LPG revenue decreased by 1.3% to R1.797 billion (2015: R1.820 billion) from lower market prices and lower volumes resulting from unplanned refinery shut
downs. At comparable prices, revenue would have increased by 1.3% year-on-year. With our imports of LPG during the latter part of the reporting period,
significant progress was made in meeting market demands during peak seasons resulting in improved customer service levels. GPADE increased by 15% to R369
million (2015: R321 million) with margins improving by 290bps to 20.5% (2015: 17.6%) as a result of supply chain efficiencies and improved price
management.
Hard Goods revenue reduced by 15.5% to R666 million (2015: R788 million) driven by lower volumes from the adverse business environment in mining, iron and
steel as well as product rationalisation. GPADE declined by 14.7% to R232 million (2015: R272 million) due to lower volumes and the very competitive market
environment making recovery of cost inflation a challenge. GPADE margin of 34.8% (2015: 34.5%) was maintained at slightly higher levels as a result of
product portfolio management and improved productivity.
Emerging Africa revenue remained flat at R755 million (2015: R755 million) with volumes holding up relatively well due to our exposure to consumer-led
markets. GPADE reduced by 1.6% to R306 million (2015: R311 million) from supply chain shortages (imports of CO2 and LPG from South Africa) which resulted
in alternative and more expensive sourcing in order to maintain supply levels to our customers. Both revenue and GPADE were negatively impacted by
currencies depreciating in most countries.
SHEQ
Safety is our number one priority and we believe that all incidents are avoidable, therefore we are saddened to report that there were three incidents,
resulting in six third-party fatalities in this reporting period. This is deeply regretted and we are intensifying our efforts to ensure the safety of our
employees and contractors and reinforcing our commitment to Zero Harm.
Board of directors
Mr Bernd Eulitz resigned as Chairman with effect from 7 September 2016. The Board would like to express their gratitude to Mr Eulitz for his valuable
contribution to Afrox during the restructure of the Company.
Ms Sue Graham Johnston was appointed to the Board on 7 September 2016 and assumed the responsibilities of Chairperson from that date. Ms Graham Johnston is
currently Managing Director of Region Africa and United Kingdom for Linde Group AG ("Linde Group"), the ultimate holding company of Afrox.
Dividend
It is the Company's policy to consider dividends twice annually. The Board of directors have declared a final cash dividend of 56.0 cents per share (2015:
51.0 cents), which together with the interim cash dividend of 38.0 cents per share (2015: 18.0 cents), totals 94.0 cents per share (2015: 69.0 cents)
declared out of the after tax profits for the year ended 31 December 2016. Based on Afrox's policy the dividend is covered two times by headline earnings
per share.
Outlook
The economic environment in South Africa is expected to remain subdued; however, Afrox will continue to focus on opportunities to grow market share and
productivity improvements to enable growth.
Sue Graham Johnston Schalk Venter 23 February 2017
Chairperson Managing Director Johannesburg
NOTICE OF FINAL DIVIDEND DECLARATION NUMBER 180 AND SALIENT FEATURES
Notice is hereby given that a gross final cash dividend of 56.0 cents per ordinary share, being the final dividend for the year ended 31 December 2016, has
been declared payable to all shareholders of Afrox recorded in the register on Friday, 7 April 2017.
The salient dates for the declaration and payment of the final dividend are as follows:
Last day to trade ordinary shares "cum" dividend Tuesday, 4 April 2017
Ordinary shares trade "ex" the dividend Wednesday, 5 April 2017
Record date Friday, 7 April 2017
Payment date Monday, 10 April 2017
Share certificates may not be dematerialised or rematerialised between Wednesday , 5 April 2017 and Friday, 7 April 2017, both days inclusive.
The local net dividend amount is 47.6 cents (2015: 43.35 cents) per share for shareholders liable to pay Dividends Tax and 56.0 cents (2015: 51.0 cents)
per share for 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 (excluding treasury shares of 34 285 308) in issue; and
- Afrox's income tax reference number is 9350042710.
By order of the Board
Cheryl Singh 23 February 2017
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.
Summarised audited consolidated statement of financial position
as at 31 December 2016
R'million Note 31 December 31 December
2016 2015
Audited Audited
ASSETS
Property, plant and equipment 3 2 952 2 988
Retirement benefits assets 406 538
Deferred taxation asset 15 19
Lease receivables 72 88
Other non-current assets 52 53
Non-current assets 3 497 3 686
Inventories 611 604
Trade and other receivables 1 044 864
Lease receivables 16 19
Derivative financial instruments - 15
Receivables from fellow subsidiaries of holding company 66 54
Taxation receivable 38 53
Cash and cash equivalents 1 175 880
Assets held for sale 6 - 120
Current assets 2 950 2 609
Total assets 6 447 6 295
EQUITY AND LIABILITIES
Equity holders of the parent company 3 657 3 431
Non-controlling interests 27 37
Total equity 3 684 3 468
Long-term borrowings 1 000 1 000
Other long-term financial liability 26 -
Deferred taxation liability 553 518
Non-current liabilities 1 579 1 518
Provisions 16 61
Trade, other payables and financial liabilities 1 109 1 198
Taxation payable 26 22
Derivative financial instruments 11 -
Bank overdrafts 22 28
Current liabilities 1 184 1 309
Total equity and liabilities 6 447 6 295
Summarised audited consolidated income statement
for the year ended 31 December 2016
R'million Note 31 December 31 December
2016 2015
Audited Audited
Revenue 5 537 5 473
Operating expenses (excluding restructuring costs) (4 300) (4 469)
Earnings before interest, taxation, depreciation,
amortisation and impairments (EBITDA) 1 237 1 004
Depreciation and amortisation (379) (390)
Impairment of tangible assets (10) (27)
Earnings before interest and taxation (EBIT) before restructuring costs 848 587
Restructuring costs - (79)
Earnings before interest and taxation (EBIT) 848 508
Net finance income/(expense) 14 (9)
Income from associate 2 1
Profit before taxation 864 500
Taxation (264) (75)
Profit for the year 600 425
Attributable to:
Owners of the Company 597 414
Non-controlling interests 3 11
Profit for the year 600 425
Earnings per share -cents
Basic and diluted earnings per ordinary share - cents 5 193.3 134.2
Summarised audited consolidated statement of comprehensive income
for the year ended 31 December 2016
R'million 31 December 31 December
2016 2015
Audited Audited
Profit for the year 600 425
Other comprehensive income after taxation (106) 49
Items that are or may be reclassified to profit or loss (51) 21
Translation differences on foreign operations (43) 13
Translation differences relating to non-controlling interests (4) 3
Changes in fair value of cash flow hedges (net of taxation) (4) 5
Items that will never be reclassified to profit or loss (55) 28
Actuarial (losses)/gains on defined-benefit funds (77) 39
Deferred taxation relating to actuarial losses/(gains) 22 (11)
Total comprehensive income for the year 494 474
Total comprehensive income attributable to:
Owners of the Company 495 460
Non-controlling interests (1) 14
494 474
Summarised audited consolidated statement of cash flows
for the year ended 31 December 2016
R'million 31 December 31 December
2016 2015
Audited Audited
Earnings before interest and taxation (EBIT) 848 508
Adjustments for:
Depreciation, amortisation and impairments 389 417
Other non-cash movements (67) 88
Operating cash flows before working capital adjustments 1 170 1 013
Working capital adjustments (11) 82
Cash generated from operations before restructuring costs 1 159 1 095
Restructuring costs paid (60) (169)
Cash generated from operations 1 099 926
Net finance expenses (66) (74)
Taxation paid (177) (116)
Dividends received 1 1
Cash available from operating activities 857 737
Dividends paid to owners of the parent (275) (56)
Dividends to non-controlling interests (9) (5)
Net cash inflow from operating activities 573 676
Additions to property, plant and equipment (389) (377)
Proceeds from disposal of property, plant and equipment and intangibles 84 34
Other investing activities 33 33
Net cash outflow from investing activities (272) (310)
Incentive share scheme shares purchased on behalf of employees - (11)
Net cash outflow from financing activities - (11)
Net increase in cash and cash equivalents 301 355
Cash and cash equivalents at the beginning of the year 852 497
Cash and cash equivalents at the end of the year 1 153 852
Summarised audited consolidated statement of changes in equity
for the year ended 31 December 2016
R'million Share Incentive FCTR and Actuarial Retained Non- Total
capital scheme hedging (losses)/ earnings controlling equity
and share share and reserves gains interests
premium share based
payment
reserves
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
Balance at 1 January 2016 552 - (50) 317 2 612 37 3 468
Total comprehensive income - - (47) (55) 597 (1) 494
Profit for the year - - - - 597 3 600
Other comprehensive income, net of taxation - - (47) (55) - (4) (106)
Share-based payments, net of taxation - 6 - - - - 6
Forfeited shares - (11) - - 11 - -
Dividends - - - - (275) (9) (284)
Transfer to retained earnings - 5 - (262) 257 - -
Balance at 31 December 2016 552 - (97) - 3 202 27 3 684
Segmental report
for the year ended 31 December 2016
R'million 31 December 31 December
2016 2015
Audited Audited
Revenue* 5 537 5 473
Atmospheric Gases 2 319 2 110
LPG 1 797 1 820
Hard Goods 666 788
Emerging Africa 755 755
Gross profit after distribution (GPADE) before
restructuring costs 1 775 1 585
Atmospheric Gases 868 681
LPG 369 321
Hard Goods 232 272
Emerging Africa 306 311
Reconciliation of GPADE to EBIT
GPADE for business segments before restructuring costs 1 775 1 585
Other operating expenses (917) (971)
Impairments (10) (27)
Atmospheric Gases - (27)
Emerging Africa (10)
Restructuring costs - (79)
Earnings before interest and taxation (EBIT) 848 508
Geographical representation
Revenue 5 537 5 473
South Africa 4 782 4 718
Emerging Africa# 755 755
Non-current assets 3 497 3 686
South Africa 3 242 3 439
Emerging Africa# 255 247
* Revenue from external customers.
# The revenue and non-current assets foreign country geographical split has been aggregated as Emerging Africa.
The individual amounts are considered to be immaterial.
Statistics and ratios
for the year ended 31 December 2016
31 December 31 December
2016 2015
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) 94.0 69.0
Final 56.0 51.0
Interim 38.0 18.0
Ratios
EBITDA margin (%) 22.3 18.3
Interest cover on EBIT before restructuring costs (times) - 66.6
Effective taxation rate (%) 30.5 15.0
Gearing (%) (1.5) 3.6
Dividend cover on headline earnings (times) 2.0 2.0
Selected notes to the summarised audited consolidated financial statements
for the year ended 31 December 2016
African Oxygen Limited ('Afrox' or the 'Company') is a South African registered company. The 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 a trading trust.
1. STATEMENT OF COMPLIANCE
The summarised audited consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements (JSE
Listings Requirements) for summarised reports, and the requirements of the Companies Act of South Africa, 71 of 2008, as amended (Companies Act) applicable
to summary financial statements. The JSE Listings Requirements require summarised 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 summarised audited consolidated financial statements were derived, are in terms of IFRS.
2. BASIS OF PREPARATION
The summarised audited consolidated financial statements do not include all the information and disclosures required for the audited consolidated financial
statements. The 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 2016 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 summarised audited consolidated financial statements are consistent with those applied for the
year ended 31 December 2015.
The 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 classified as held for sale are measured at the lower of carrying amount and fair value less costs of to sell.
The directors take full responsibility for the preparation of these summarised audited consolidated financial statements and that the financial
information has been correctly extracted from the full audited consolidated financial statements.
This report was compiled under the supervision of Dorian Devers, Financial Director.
R'million 31 December 31 December
2016 2015
Audited Audited
3. PROPERTY, PLANT AND EQUIPMENT
Opening carrying value 2 988 3 166
Additions, net of transfers from assets under construction 379 379
Transfer to assets held for sale (7) (120)
Impairments (10) (27)
Disposals (15) (28)
Depreciation (367) (369)
Translation differences (16) (13)
Closing carrying value 2 952 2 988
Impairment write-down
The Group's plant and equipment was impaired by R10 million (2015: R27 million). The impairment losses have been recognised in profit and loss as
impairment of tangible assets. The DRC subsidiary assets were impaired in line with the abandonment of operations. The recoverable amount for the assets
was determined based on the value in use of Rnil.
Change in estimate
During the year, the Company conducted a review of expected useful lives of plant and machinery based on IAS 16. As a result, the expected useful lives
of these assets increased. The effect of these changes on actual and expected depreciation expense, included in 'depreciation expenses', in current and
future years respectively is as follows:
R'million 31 December 31 December 31 December 31 December 31 December
2016 2017 2018 2019 2020
Audited Audited Audited Audited Audited
Decrease in depreciation 36 28 15 9 5
4. 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:
R'million Fair value
31 December 2016
Financial liabilities measured at fair value
Derivative financial instruments 11
31 December 2015
Financial assets measured at fair value
Derivative financial instruments 15
The derivatives are a level 2 measurement, and the fair value of the derivative financial instruments is based on broker quotes. Similar contracts are
traded in an active market and the quote reflects the actual transactions in similar instruments.
5. EARNINGS AND HEADLINE EARNINGS PER SHARE
Headline earnings per share are calculated on headline earnings of R585 million (2015: R429 million), and a weighted average number of ordinary shares of
308 567 602 (2015: 308 567 602) in issue during the year.
Reconciliation between earnings and headline earnings
R'million 31 December 31 December
2016 2015
Audited Audited
Profit for the year 597 414
Adjusted for the after-taxation effects of:
- Profit on disposal of property, plant and equipment (26) (6)
- Impairment of property, plant and equipment 10 27
581 435
Taxation 4 (6)
Headline earnings 585 429
Basic and diluted earnings per share - cents 193.3 134.2
Headline earnings per share - cents 189.4 139.2
6. ASSETS HELD FOR SALE
The sale of the Group's land, situated in Cornubia, Durban has been completed. The sale of unutilised properties and assets at Gas Equipment Factory have
also been completed as at 31 December 2016. The assets held for sale related to the Atmospheric Gases segment.
31 December 31 December
2016 2015
Audited Audited
Opening net assets held for sale 120 -
Transfer to net assets held for sale 7 120
Disposals (127) -
Total net assets held for sale - 120
7. RELATED PARTY TRANSACTIONS
As part of the restructuring, a decision was taken to divisionalise Afrox Safety (Pty) Ltd and distribute all its assets to Afrox as at 29 February 2016
as a liquidation distribution. Afrox has assumed all the liabilities of Afrox Safety as at 29 February 2016. Afrox Safety was deregistered on 21 July 2016.
The investment in subsidiary of R4 million was impaired in the current year.
The following table summarises the recognised amounts of assets and liabilities assumed at the date of liquidation.
Rm
Property, plant and equipment 4
Finance leases 15
Deferred taxation 3
Inventories 10
Trade and other receivables 11
Provisions (10)
Trade and other payables (1)
Taxation receivable 1
Net assets transferred 33
8. UPDATE ON KEY LITIGATION MATTERS
The Group and AMSA reached a settlement in 2016. The full proceeds of the settlement amounting to R165 million was received during the year. As at the
date of this report, there is no outstanding litigation of a material nature against the Group. Afrox is presently a respondent in an investigation by the
Competition Commission of South Africa with respect to the LPG sector. Afrox is cooperating fully with the Commission's investigation.
9. SUBSEQUENT EVENTS
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.
The proceeds of the disposal of certain properties amounting to R84 million were received subsequent to the year end, but before the date of this report.
10. SUMMARY FINANCIAL STATEMENTS INCLUDED IN THE SUMMARISED REPORT
The summary financial statements have been derived from the audited consolidated financial statements on the basis set out in note 2.
The summary 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 financial statements and auditor's report thereon are available from the Company's registered
office. The Company's auditor, KPMG Inc., issued an unqualified auditor's report on the financial statements.
Corporate information
Transfer secretaries: Computershare Investor Services (Pty) Limited
Sponsor in South Africa: One Capital
Sponsor in Namibia: Namibia Equity Brokers (Pty) Limited
Directors: S Venter (Managing Director), DKT Devers** (Financial Director), S Graham Johnston*** (Chairperson), M von Plotho*, Dr KDK Mokhele, CF Wells**,
RJN Gearing**, NVL Qangule, GJ Strauss
*German **British ***American
Company Secretary: Cheryl Singh
Auditors: KPMG Inc.
Registered office
Afrox House, 23 Webber Street, Selby
Johannesburg 2001
PO Box 5404, Johannesburg 2000
Telephone +27 (11) 490 0400
23 February 2017
Date: 23/02/2017 07:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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