AFRICAN OXYGEN LIMITED - Interim results and dividend declaration for the six months ended 30 June 2018

Release Date: 10/09/2018 07:05
Code(s): AFX
 
Wrap Text
Interim results and dividend declaration for the six months ended 30 June 2018

African Oxygen Limited
(Incorporated in the Republic of South Africa)
Registration number: 1927/000089/06
ISIN: ZAE000067120         JSE code: AFX
NSX code: AOX

African Oxygen Limited
INTERIM RESULTS AND DIVIDEND DECLARATION
for the six months ended 30 June 2018
Financial features

Revenue Up R2 904 million
Increase of 3.9% from  R2 795 million at 30 June 2017

Headline earnings per share Up 104 cents
Increase of 11.5% from  93.3 cents at 30 June 2017

Earnings per share Up 105 cents
Increase of 11.2% from  94.4 cents at 30 June 2017

Earnings before interest  and taxation Up R436 million
Increase of 9.3% from  R399 million at 30 June 2017

EBITDA Up R620 million
Increase of 7.3% from  R578 million at 30 June 2017

Dividends per share Up 52 cents
Increase of 13% from 46 cents  at 30 June 2017

Commentary
Performance highlights
Afrox managed to increase both revenue and earnings before interest, taxation, depreciation and amortisation (EBITDA) as a result of volume increases in Liquefied Petroleum Gas (LPG),
Healthcare and Bulk Industrial Gases in combination with good cost control management and the impact from efficiencies across the organisation. Emerging Africa was impacted by
fluctuations in currency and subdued economic growth in some countries. Decline in volume in our Hard Goods business and marginal volume increases in our Industrial Packaged Gas
business was a result of low economic growth in South Africa. Gross profit after distribution expenses (GPADE) for operations as a whole improved by 6.7% to R913 million (2017: R856
million) or 7.5% excluding currency effects. Our focus on cost containment resulted in only a 3% increase in operating expenses during the period under review.

Due to the improvement in volumes in certain sectors of the business and successful recovery of cost inflation by effective pricing mechanisms, revenue increased by 3.9% to R2 904
million (2017: R2 795 million) or 2.1% excluding effects from currency and LPG market price changes. The volume improvement assisted by the continued drive to manage costs resulted in
an increase of 7.3% in EBITDA to R620 million (2017: R578 million). The EBITDA margin improved by 60 bps to 21.3% (2017: 20.7%). The improvement in EBITDA contributed to headline
earnings per share increasing by 11.5% to 104 cents (2017: 93.3 cents) and basic earnings per share increasing by 11.2% to 105 cents (2017: 94.4 cents). Diluted earnings per share
increased by 10.0% to 103.8 cents (2017: 94.4 cents).

The increase in Trade Working Capital was as a result of increased inventory build-up from overseas suppliers and an increase in Trade Receivables. Despite the increased investment in
Trade Working Capital, Afrox ended with a net cash position of R131 million (December 2017: R344 million, impacted by proceeds from property sales in 2017).

The lower level of capital expenditure of R140 million (2017: R169 million) is indicative of the continued uncertainty in the economic climate and the current overcapacity in the
production facilities of the Group. Return on capital employed (ROCE) improved marginally by 30 bps to 22.7% (2017: 22.4%) reflecting the current weak economic environment.

Business review
Atmospheric Gases
Overall revenue increased by 2.7% to R1 162 million (2017: R1 131 million), reflecting revenue growth in all business areas of this operating segment. There was encouraging volume 
growth from Healthcare and Bulk products combined and overall effective price cost management in this segment. This growth in revenue was achieved despite prevailing challenging 
economic conditions, impacting our compressed gas cylinder business. The diverse portfolio from a broad range of products and solutions within the Afrox industrial gas business has 
shown high levels of resilience. The unique Afrox offering led to an increase in market share and positive nominal growth within most sectors and demonstrated Afrox's ability to 
successfully compete in its core segment. Within Industrial Gases (acetylene, oxygen, nitrogen and argon) the demand for our Bulk products was above the comparative period resulting 
in increased volumes at customer installations. On-site revenue improved from pass through of higher electricity cost, volume growth from various customers, compensating for the loss 
of a large customer in the mining sector.

Packaged Gases volumes were below prior year levels. Improved recovery of cost inflation via effective pricing management supported the improvement in revenue. The continued growth in
revenue from Medical Gases was as a result of increased demand in the public and private hospital sector as well as the growing Homecare market. Afrox was awarded the State Healthcare
tender and the implementation of further installations has commenced and is expected to come onstream during 2019. The total revenue of this five-year contract is estimated at
approximately R1 billion.

Special Gases experienced reduced volumes from various customers. CO2 Bulk supply was constrained, resulting in lower than expected revenue.

GPADE improved by 9.5% to R414 million (2017: R378 million). Atmospheric Gases GPADE margin further improved by 220bps through efficiencies and a reduction in non-recurring cost in
operations and distribution.

Liquefied Petroleum Gas (LPG)
Revenue increased by 10.6% to R1,047 million (2017: R947 million) or 6.9% on a comparable basis (adjusted for the change in LPG market prices). Higher volumes enabled economies of scale
and improved levels of supply combined with non-recurring positive effects from improved cylinder management resulted in strong GPADE growth of 20.1% to R221 million (2017: R184
million). Production from local refineries was below the comparative period which resulted in an increase in imported product. Overall LPG product supply remains key in growing the
domestic market as imported product has become more competitive as a direct result of Afrox's efforts to offer a more reliable supply scheme.

The continued investment in additional LPG cylinders and the implementation of an import programme to address short supply added to this positive development. New business partnerships
with selected BBBEE distributors unlocked growth in the domestic and hospitality markets.

Hard Goods
Revenue decreased by 3.2% to R330 million (2017: R341 million) from lower volumes as a result of reduced business activity in the South African mining sector and lower than prior year
production in the manufacturing industry. Despite the overall negative trend in the related sectors of the economy, revenue growth was supported by inflationary price increases and the
currency effects from imported products. We experienced a reduction in volumes in welding, gas equipment and our Self Rescue Pack business area, which were all negatively impacted upon
by the continued downturn in mining, iron and steel and manufacturing. Afrox is exploring various options to strengthen supply, production and logistics of the operating segment, continued
focus on cost containment, efficiencies in our factories and improved, just-in-time price management assisted the overall business to mitigate the negative market trends.

GPADE decreased by 2.3% to R129 million (2017: R132 million). The improvement in GPADE margin by 60bps to 39.3% is due to further efficiency improvements, improved price cost recovery
and long-term import contracts with global suppliers.

Emerging Africa
Revenue increased by 1.4% (adjusted for the negative effect from currency), as reported revenue decreased by 2.9% to R365 million (2017: R376 million) from higher volumes in some countries
and adjustments for inflation in our pricing. Emerging Africa experienced persistent weaker economic conditions. Supply constraints in LPG and CO2 from South Africa to the Emerging Africa
subsidiaries exacerbated the reduction in volumes.

Mozambique reported volume growth and in Malawi volumes increased due to an improved performance from LPG into the agricultural sector. GPADE, excluding currency effects, decreased by
4.0% or 8.0% as reported to R149 million. Emerging Africa's GPADE margin reduced by 250bps to 40.6% compared to June 2017.

BOARD OF DIRECTORS
Mr R Gearing, a non-executive director (and member of the Safety, Health, Environment and Quality Committee) resigned effective 18 February 2018.

Dividend
It is the Company's policy to consider dividends twice annually. The Board has declared a cash dividend of 52.0 cents per share (2017: 46.0 cents), declared out of the after-tax income
for the six months ended 30 June 2018. Based on Afrox's policy the dividend is covered two times by headline earnings per share.

OUTLOOK
The low economic growth is likely to continue for the rest of the financial year. However, Afrox will focus on specific growth opportunities especially the Healthcare Tender award, and
continue with cost containment and effective price cost recoveries.

NOTICE OF interim DIVIDEND DECLARATION NUMBER 183 AND SALIENT FEATURES
Notice is hereby given that a gross cash dividend of 52.0 cents per ordinary share, being the interim dividend for the six months ended 30 June 2018, has been declared payable to all
shareholders of Afrox recorded in the register on Friday, 5 October 2018.

The salient dates for the declaration and payment of the interim dividend are as follows:

Last day to trade ordinary shares "cum" dividend           Tuesday, 2 October 2018
Ordinary shares trade "ex" the dividend                    Wednesday, 3 October 2018
Record date                                                Friday, 5 October 2018
Payment date                                               Monday, 8 October 2018

Shares may not be dematerialised or rematerialised between Wednesday, 3 October 2018 and Friday, 5 October 2018, both days inclusive.

The local net dividend amount is 41.6 cents (2017: 36.8 cents) per share for shareholders liable to pay Dividends Tax and 52.0 cents (2017: 46.0 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 20%, 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                                7 September 2018
Company Secretary                           Johannesburg

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Condensed consolidated interim income statement
for the six months ended 30 June 2018
R'million                                                                                                                      30 June      30 June  31 December
                                                                                                                                  2018         2017         2017
                                                                                                                              6 months     6 months    12 months
                                                                                                                              reviewed     reviewed      audited
Revenue                                                                                                                          2 904        2 795        5 693
Operating expenses                                                                                                              (2 284)      (2 217)      (4 510)
Earnings before interest, taxation, depreciation and amortisation (EBITDA)                                                         620          578        1 183
Depreciation and amortisation                                                                                                     (184)        (179)        (328)
Earnings before interest and taxation (EBIT)                                                                                       436          399          855
Finance expense                                                                                                                    (55)         (53)        (108)
Finance income                                                                                                                      76           66          133
Profit before taxation                                                                                                             457          412          880
Taxation                                                                                                                          (126)        (116)        (242)
Profit for the period                                                                                                              331          296          638
Attributable to:
Owners of the Company                                                                                                              324          291          628
Non-controlling interests                                                                                                            7            5           10
Profit for the period                                                                                                              331          296          638
Earnings per share - cents
Basic earnings per ordinary share - cents                                                                                        105.0         94.4        203.6
Diluted earnings per ordinary share - cents                                                                                      103.8         94.4        201.8

Condensed consolidated interim statement of comprehensive income
for the six months ended 30 June 2018
R'million                                                                                                                      30 June      30 June  31 December
                                                                                                                                  2018         2017         2017
                                                                                                                              6 months     6 months    12 months
                                                                                                                              reviewed     reviewed      audited
Profit for the period                                                                                                              331          296          638
Other comprehensive income net of taxation                                                                                           1           41           45
Items that are or may be reclassified to profit or loss                                                                             24           28            9
Translation differences on foreign operations                                                                                       18           25            9
Translation differences relating to non-controlling interests                                                                        3            1           (1)
Cash flow hedges - effective portion of changes in fair value                                                                        3            2            1
Items that will not be reclassified to profit or loss                                                                              (23)          13           36
Actuarial (losses)/gains on retirement benefit assets                                                                              (23)          13           36


Total comprehensive income for the period                                                                                          332          337          683
Total comprehensive income attributable to:
Owners of the Company                                                                                                              322          331          674
Non-controlling interests                                                                                                           10            6            9
                                                                                                                                   332          337          683
Condensed consolidated interim statement of financial position
for the six months ended 30 June 2018
R'million                                                                                                    Note              30 June      30 June  31 December
                                                                                                                                  2018         2017         2017
                                                                                                                              reviewed     reviewed      audited
ASSETS
Property, plant and equipment                                                                                   4                2 933        2 945        2 964
Retirement benefits assets                                                                                                         473          439          484
Deferred taxation assets                                                                                                            13           14           13
Lease receivables                                                                                                                   65           71           66
Other non-current assets                                                                                                            35           47           39
Non-current assets                                                                                                               3 519        3 516        3 566
Inventories                                                                                                                        733          610          710
Trade and other receivables                                                                                                      1 299        1 138        1 094
Lease receivables                                                                                                                   12           12           12
Derivative financial instruments                                                                                                    27            1            -
Receivables from fellow subsidiaries of holding company                                                                            131           90          130
Taxation receivable                                                                                                                 65           53           57
Cash and cash equivalents                                                                                                        1 131        1 194        1 387
Current assets                                                                                                                   3 398        3 098        3 390
Total assets                                                                                                                     6 917        6 614        6 956
EQUITY AND LIABILITIES
Shareholders equity                                                                                                              4 119        3 804        4 001
Non-controlling interests                                                                                                           41           33           33
Total equity                                                                                                                     4 160        3 837        4 034
Long-term borrowings                                                                                                             1 000          400        1 000
Other long-term financial liability                                                                                                 21           24           20
Deferred taxation liability                                                                                                        613          571          591
Non-current liabilities                                                                                                          1 634          995        1 611
Trade, other payables and provisions                                                                                             1 018        1 110        1 126
Taxation payable                                                                                                                    37           21           26
Payables to fellow subsidiaries of holding company                                                                                  68           51           96
Derivative financial instruments                                                                                                     -            -           20
Short-term portion of long-term borrowings                                                                                           -          600            -
Bank overdrafts                                                                                                                      -            -           43
Current liabilities                                                                                                              1 123        1 782        1 311
Total equity and liabilities                                                                                                     6 917        6 614        6 956

Condensed consolidated interim statement of cash flows
for the six months ended 30 June 2018
R'million                                                                                                                      30 June      30 June  31 December
                                                                                                                                  2018        2017*        2017*
                                                                                                                              6 months     6 months    12 months
                                                                                                                              reviewed     reviewed      audited
Earnings before interest and taxation (EBIT)                                                                                       436          399          855
Adjustments for:
Depreciation and amortisation                                                                                                      184          179          328
Movements in trade receivable allowances, inventory write-downs and provisions*                                                   (18)         (33)         (58)
Movement in valuation (gain)/loss on derivative financial instruments*                                                             (43)          (9)          11
Other non-cash movements*                                                                                                          (36)          18          (37)
Operating cash flows before working capital adjustments                                                                            523          554        1 099
Working capital adjustments                                                                                                       (291)        (131)        (102)
Cash generated from operations                                                                                                     232          423          997
Interest paid                                                                                                                      (54)         (51)        (105)
Interest received                                                                                                                   39           31           74
Taxation paid                                                                                                                     (100)        (124)        (235)
Dividends received                                                                                                                   -            -            1
Cash available from operating activities                                                                                           117          279          732
Dividends paid to owners of the parent                                                                                            (167)        (173)        (315)
Dividends to non-controlling interests                                                                                              (3)           -           (3)
Net cash  (outflow)/inflow from operating activities                                                                               (53)         106          414
Additions to property, plant and equipment                                                                                        (140)        (169)        (350)
Intangible assets acquired                                                                                                           -           (1)           -
Proceeds from disposal of property, plant and equipment                                                                              6           93          106
Other investing activities                                                                                                          11           12           28
Net cash outflow from investing activities                                                                                        (123)         (65)        (216)
Incentive share scheme shares purchased on behalf of employees                                                                     (37)           -           (7)
Net cash outflow from financing activities                                                                                         (37)           -           (7)
Net (decrease)/increase in cash and cash equivalents                                                                              (213)          41          191
Cash and cash equivalents at the beginning of the period                                                                         1 344        1 153        1 153
Cash and cash equivalents at the end of the period                                                                               1 131        1 194        1 344

* Restated. Refer to note 10.

Condensed consolidated interim statement of changes in equity
for the six months ended 30 June 2018
                                                                                                  Attributable to owners of the Company
R'million                                                                                                   Share  FCTR* and  Retained         Non-        Total
                                                                                                          capital    hedging  earnings  controlling       equity
                                                                                                        and share   reserves              interests
                                                                                                          premium
Balance at 1 January 2017                                                                                     552        (97)    3 202           27        3 684
Total comprehensive income                                                                                      -         27       304            6          337
Profit for the year                                                                                             -          -       291            5          296
Other comprehensive income, net of taxation                                                                     -         27        13            1           41
Transactions with owners
Share based payments, net of taxation                                                                           -          -       (11)           -          (11)
Dividends                                                                                                       -          -      (173)           -         (173)
Balance at 30 June 2017                                                                                       552        (70)    3 322           33        3 837
Balance at 1 January 2017                                                                                     552        (97)    3 202           27        3 684
Total comprehensive income                                                                                      -         10       664            9          683
Profit for the period                                                                                           -          -       628           10          638
Other comprehensive income, net of taxation                                                                     -         10        36           (1)          45
Shares purchased on behalf of employees                                                                         -          -        (7)           -           (7)
Share based payments, net of taxation                                                                           -          -        (8)           -           (8)
Dividends                                                                                                       -          -      (315)          (3)        (318)
Balance at 31 December 2017                                                                                   552        (87)    3 536           33        4 034
Balance at 1 January 2018, as previously reported **                                                          552        (87)    3 536           33        4 034
Adjustment on initial application of IFRS 9 (net of taxation)                                                   -          -         8            1            9
Adjusted balance at 1 January 2018                                                                            552        (87)    3 544           34        4 043
Total comprehensive income                                                                                      -         21       301           10          332
Profit for the period                                                                                           -          -       324            7          331
Other comprehensive income, net of taxation                                                                     -         21       (23)           3            1
Transactions with owners
Shares purchased on behalf of employees#                                                                        -          -       (37)           -          (37)
Share based payments, net of taxation                                                                           -          -        (8)           -           (8)
Dividends                                                                                                       -          -      (167)          (3)        (170)
Balance at 30 June 2018                                                                                       552        (66)    3 633           41        4 160

*  Foreign currency translation reserve.
** The group has initially adopted IFRS 15 and IFRS 9 at 1 January 2018. Under the transition method chosen, comparative information is not restated.
#  Shares purchased in respect of the employee share incentive scheme.

Segmental report
for the six months ended 30 June 2018
Business segments are identified on the basis of internal reports that are regularly reviewed by the Group's and Company's chief operating decision making body, the executive directors,
in order to allocate resources to the segments and assess its performance. The performance of the segments is managed and evaluated using revenue and gross profit after distribution
expenses only. Assets and liabilities are centrally managed at a corporate level and therefore not used in the decision to allocate resources to operating segments. Business segments
have been determined based on: Atmospheric Gases, LPG, Hard Goods and Emerging Africa.

R'million                                          30 June   30 June  31 December
                                                      2018      2017         2017
                                                  6 months  6 months    12 months
                                                  reviewed  reviewed      audited
Revenue*                                             2 904     2 795        5 693
Atmospheric Gases                                    1 162     1 131        2 283
LPG                                                  1 047       947        1 994
Hard Goods                                             330       341          660
Emerging Africa                                        365       376          756
Gross profit after distribution expenses (GPADE)       913       856        1 770
Atmospheric Gases                                      414       378          777
LPG                                                    221       184          425
Hard Goods                                             129       132          242
Emerging Africa                                        149       162          326
Reconciliation of GPADE to EBIT
GPADE for business segments                            913       856        1 770
Other operating expenses                              (477)     (457)        (915)
Earnings before interest and taxation (EBIT)           436       399          855
Geographical representation
Revenue                                              2 904     2 795        5 693
South Africa                                         2 539     2 419        4 937
Emerging Africa^                                       365       376          756
Non-current assets                                   3 519     3 516        3 566
South Africa                                         3 255     3 283        3 311
Emerging Africa^                                       264       233          255

* 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 six months ended 30 June 2018
                                                             30 June   30 June  31 December
                                                                2018      2017         2017
                                                            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)                                     52.0      46.0        100.0
Final                                                                                  54.0
Interim                                                         52.0      46.0         46.0
Ratios
EBITDA margin (%)                                               21.3      20.7         20.8
Return on capital employed                                      22.7      22.4         23.7
Effective taxation rate (%)                                     27.6      28.2         27.5
Gearing (%)                                                     (3.3)     (5.4)       (10.0)
Dividend cover on headline earnings (times)                      2.0       2.0          2.0

Notes to the condensed consolidated interim financial statements
for the six months ended 30 June 2018

African Oxygen Limited ('Afrox' or the 'Company') is a South African registered company. The condensed consolidated interim 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. BASIS OF PREPARATION
The condensed consolidated interim financial statements are prepared in accordance with and containing the information required by the International Financial Reporting Standard (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
International Financial Reporting Standards and, except as described in note 2, are consistent with those applied in the annual financial statements for the year ended 31 December 2017.
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 other comprehensive income;
- Retirement benefit assets measured at the fair value of the planned assets less the present value of the defined benefit obligation; and
- Share-based payment awards are measured at fair value. The fair value of the equity instruments granted is estimated using industry-accepted techniques.

The directors take full responsibility for the preparation of the these condensed consolidated interim financial statements. The condensed consolidated interim financial statements were
compiled under the supervision of Matthias Vogt, Group Financial Director, and were approved on 7 September 2018.

2. NEW ACCOUNTING STANDARDS AND RELATED CHANGES IN SIGNIFICANT 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 at 1 January
2018:
- Foreign Currency Transactions and Advance Consideration (IFRIC 22); and
- Clarifying Share-Based Payment Accounting (Amendment to IFRS 2).

The adoption of the amendments to standards listed above did not have a significant impact on the Group's condensed consolidated interim financial statements.

The Group has adopted IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments from 1 January 2018.

IFRS 15 Revenue from Contracts with Customers
IFRS 15 established a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces IAS 18 Revenue, IAS 11 Construction Contracts and related
interpretations. The Group has adopted IFRS 15 using the cumulative effect method (without practical expedients), with the effect of initially applying this standard recognised at the
date of initial application (1 January 2018). Accordingly, the information presented for 2017 has not been restated.

(i) Overall financial effect
When compared to IAS 18, there is no quantitative impact on the adoption of IFRS 15 on the statement of profit and loss, financial position, cash flows, changes in equity and the
segmental analysis.

(ii) Disclosure effect regarding accounting policies
The adoption of IFRS 15 did not have a disclosure impact on the Group's condensed consolidated interim financial statements.

IFRS 9 Financial Instruments
IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39
Financial Instruments: Recognition and Measurements.

(i) Overall financial effect
The transition to IFRS 9 resulted in an increase to retained earnings and non-controlling interest as follows:

R'million                                           Retained  Non-controling
                                                    earnings        interest
Recognition of expected credit losses under IFRS 9        11               2
Related tax                                               (3)             (1)
Impact at 1 January 2018                                   8               1


(ii) Effect of classification and measurement of financial assets and financial liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities. However, it eliminates the previous IAS 39 categories for
financial assets of held to maturity, loans and receivables and available for sale assets. The adoption of IFRS 9 has not had a significant effect on the Group's accounting policies
related to financial liabilities and derivative financial instruments. The impact of IFRS 9 on the classification and measurement of financial assets is set out below.

Initial recognition
Under IFRS 9, on initial recognition, a financial asset is classified as measured at:
- amortised cost;
- fair value through other comprehensive income ('FVOCI') - debts investment; and
- fair value through profit and loss ('FVTPL').

The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
- it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
- its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial
recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost, or at FVOCI as at FVTPL if doing so eliminates
or significantly reduces an accounting mismatch that would otherwise arise.

A financial asset (unless it is a trade receivable without a significant financing component that is initially measured at the transaction price) is initially measured at fair value
plus, for items not at FVTPL, transaction costs that are directly attributable to at acquisition.

Subsequent recognition
The following accounting policies apply to the subsequent measurement of financial assets.

Financial assets at FVTPL
These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss.

Financial assets at amortised cost
These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains
and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.

Financial assets FVOCI
These assets are subsequently measured at fair value. On maturity, any fair value gain or loss is capitalised to the cost of the asset for which the derivative financial instrument was
acquired.

The effects of adopting IFRS 9 on the carrying amounts of financial assets at 1 January 2018 relates solely to the impairment requirements. The table below explains the original
measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group's financial assets as at 1 January 2018.

R'million                                              Original classification  New classification        Original carrying    New carrying amount  Difference
Financial assets                                                  under IAS 39        under IFRS 9      amount under IAS 39           under IFRS 9
Trade receivables                                        Loans and receivables      Amortised cost                    1 094                  1 105          11
Receivables from fellow subsidiaries of holding company  Loans and receivables      Amortised cost                      130                    130           -

When compared to the accounting policies as disclosed for the year ended 31 December 2017, the adoption of IFRS 9 did not have an impact on the Group's derivative financial instruments.

(iii) Effect of impairment of financial assets
IFRS 9 replaces the 'incurred loss' model in IAS 39 with an 'expected credit loss' (ECL) model. The new impairment model applies to financial assets measured at amortised cost, contract
assets and debt investments at FVOCI, but not to investments in equity instruments. Financial assets at amortised costs consist of trade receivables and cash and cash equivalents.

Under IFRS 9, loss allowances are measured on either of the following bases:
- 12-month ECLs: there are ECLs that result from possible default events within the 12 months after the reporting date; and
- lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.

The Group measures loss allowances at an amount equal to the lifetime ECLs, except for bank balances for which credit risk (i.e. the risk of default occurring over the expected life of
the financial instrument) has not increased significantly since initial recognition. The loss allowance for trade receivables is measured at an amount equal to the lifetime ECL.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and
supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's
historical experience and informed credit assessment and includes forward-looking information.

Current period loss allowance adjustments are not considered to be material.

Financial effect of the new impairment model
The Group has determined that the application of IFRS 9 impairment requirements as 1 January 2018 has resulted in a decrease in the impairment allowance as follows:

R'million
Loss allowance at 31 December 2017 under IAS 39               87
Decreased impairment recognised as at 1 January 2018 on:
- Trade receivable as at 31 December 2017                    (11)
Loss allowance at 1 January 2018 under IFRS 9                 76

3. FORTHCOMING CHANGES IN ACCOUNTING POLICIES
IFRS 16 Leases
The Group is continuing with its assessment of the potential impact of the adoption of IFRS 16 on the financial statements. Based on this assessment, the Group is expecting to recognise
significant right of use assets and lease liabilities relating to current properties and vehicle operating leases. The Group is in the process of evaluating whether certain items of
property, plant and equipment, that are not leased items in terms of IAS 17 and IFRC 4, may qualify as leased items in terms of IFRS 16. The standard is effective for annual periods
beginning on or after 1 January 2019.

This standard will not be adopted early.

IFRIC 23 Uncertainty over Income Tax Treatment
IFRIC 23 clarifies the accounting for income tax treatments that have yet to be accepted by tax authorities. Specifically, IFRIC 23 provides clarity on how to incorporate this
uncertainty into the measurement of tax as reported in the financial statements. IFRIC 23 does not introduce any new disclosures but reinforces the need to comply with existing
disclosure requirements about judgments made, assumptions and other estimates used, and the potential impact of uncertainties that are not reflected.

No significant impact is expected on disclosures. IFRIC 23 applies for annual periods beginning on or after 1 January 2019.
This standard will not be adopted early.

Selected notes to the condensed consolidated interim financial statements
for the six months ended 30 June 2018

R'million                                                                                                30 June   30 June  31 December
                                                                                                            2018      2017         2017
                                                                                                        6 months  6 months    12 months
                                                                                                        reviewed  reviewed      audited
4.  PROPERTY, PLANT AND EQUIPMENT
    Opening carrying value                                                                                 2 964     2 952        2 952
    Additions, net of transfers from assets under construction                                               140       169          350
    Disposals                                                                                                 (1)       (3)          (8)
    Depreciation                                                                                            (181)     (172)        (316)
    Translation differences                                                                                   11        (1)         (14)
    Closing carrying value                                                                                 2 933     2 945        2 964

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:
    R'million                                                                                         Fair Value
    30 June 2018
    Financial asset measured at fair value
    Derivative financial instruments                                                                          27
    31 December 2017
    Financial liability measured at fair value
    Derivative financial instruments                                                                          20
    30 June 2017
    Financial asset measured at fair value
    Derivative financial instruments                                                                           1

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 reflect the actual transactions in similar instruments. The carrying value of all other financial instruments closely approximates their fair value due to the short-term
nature or market related terms.

6. EARNINGS AND HEADLINE EARNINGS PER SHARE
Headline earnings per share is calculated on headline earnings of R321 million (2017: R288 million) and a weighted average number of ordinary shares of 308 567 602 (2017: 308 567 602)
in issue during the period was used to calculate headline earnings per share and 312 155 764 (2017: 308 567 602) for dilutive earning per share as 3 588 162 (2017: Nil) shares had a
dilutive impact.

Reconciliation between earnings and headline earnings
R'million                                                           30 June   30 June  31 December
                                                                       2018      2017         2017
                                                                   6 months  6 months    12 months
                                                                   reviewed  reviewed      audited
  Profit for the period attributable to the owners of the Company       324       291          628
  Adjusted for the effects of:
  Profit on disposal of property, plant and equipment                    (5)       (5)         (11)
  Taxation on profit on disposal of property, plant and equipment         2         2            3
  Headline earnings                                                     321       288          620
  Basic earnings per share - cents                                    105.0      94.4        203.6
  Diluted earnings per share - cents                                  103.8      94.4        201.8
  Headline earnings per share - cents                                 104.0      93.3        201.0
  Diluted headline earning per share - cents                          102.8      93.3        199.2

7 RELATED PARTY TRANSACTIONS
During the year, Afrox, in the ordinary course of business, entered into various sale, purchase and service transactions with associate, receivables from fellow subsidiaries of holding
company, receivables from group companies, payables to fellow subsidiaries of holding company and payables to group companies.

8 UPDATE ON KEY LITIGATION MATTERS
Afrox was a respondent in an investigation by the Competition Commission of South Africa with respect to the LPG sector. Afrox fully cooperated with the Commission's investigation. As
at the date of this report, there is no other outstanding litigation of a material nature against the Group.

9 SUBSEQUENT EVENTS
Other than the matter referred to in note 8 above, the directors are not aware of any matter or circumstance arising between 30 June 2018 and the date of this report.

10 RESTATEMENT OF PRIOR PERIODS
The 30 June 2017 interim statement of cash flows and the 31 December 2017 annual statement of cash flows were restated to separately disclose the following:
- Movements in trade receivable allowances, inventory write-downs and provisions;
- Movement in valuation of derivative financial instruments; and
- Other non-cash movements.

The restatement did not have any impact on the condensed consolidated statement of cash flows for the six months ended 30 June 2017 and for the year ended 31 December 2017.

11 INDEPENDENT REVIEW BY THE AUDITORS
The condensed consolidated interim financial statements for the six months ended 30 June 2018 have been reviewed by KPMG Inc., who expressed an unmodified review conclusion. The
auditor's report does not necessarily report on all of the information contained in these financial results. Shareholders are therefore advised that in order to obtain a full
understanding of the nature of the auditor's engagement they should obtain a copy of the auditor's report together with the accompanying financial information from the issuer's
registered office.

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), M Vogt* (Group Financial Director ), B Eulitz* (Chairman), M von Plotho*, Dr KDK Mokhele, CF Wells**, NVL Qangule,
GJ Strauss, VN Fakude
*German **British

Company Secretary: C Singh

Auditors: KPMG Inc.

Registered office
Afrox House, 23 Webber Street, Selby
Johannesburg 2001
PO Box 5404, Johannesburg 2000
Telephone +27 (11) 490 0400

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