Financial Director’s review

We reflect on another positive financial year supported by the effectiveness of our Turnaround Plan, which leaves us well positioned going forward.

Dorian Devers
Financial Director

Financial performance at a glance

R5.537 billion
(2015: R5.473 billion)

1.2% increase

R1.237 billion
(2015: 1.004 billion)

23.2% increase

EBITDA margin
(2015: 18.3%)

400bps increase

Operating cash flow
R573 million
(2015: R676 million)

15.2% decrease

R848 million
(2015: R508 million)

66.9% increase

Earnings per share
193.3 cents
(2015: 134.2 cents)

44% increase

Headline earnings
per share
189.4 cents
(2015: 139.2 cents)

36.1% increase

Cash generated from
R1.099 billion
(2015: R926 million)

18.7% increase

(2015: 16.7%)

790bps increase

Income statement analysis

Income statement comparison for the year ended 31 December

Trading performance

The benefits from the successful restructuring and litigation settlement (R165 million) with AMSA, a prominent steel supplier, resulted in revenue increasing by 1.2% and EBITDA increasing by 23.2%. This growth was achieved despite the weakness of the South African economy and supply constraints seen in CO2 and LPG.

Year-on year increase in revenue was achieved in the Atmospheric Gases segment as a result of the litigation settlement and growth in some sectors, however, volumes remained under pressure during the first half of the year with a moderate recovery in the second half. LPG revenue was lower due to LPG market price developments. Supply constraints due to reduced volumes from local refineries during the first quarter were addressed by debottlenecking our import storage facility, and a new import supply agreement that will ensure security of supply in the future. A difficult trading environment with a marked decline in production at key customers resulted in reduced revenue in the Hard Goods segment. Despite a weak trading environment, largely as a result of depressed commodity prices, revenue in Emerging Africa remained stable.

Operating expenses

Operating expenses reduced by 3.8% as a result of the successful restructuring activities. The reduction was achieved despite the impact of inflationary pressures on costs as well as negative currency impacts. Various savings initiatives as a result of the culmination of the restructuring activities contributed positively to the overall reduction in operating expenses.


The improvement in EBITDA is due to operational efficiencies and was further supported by the litigation settlement. There was no expenditure provided for in respect of restructuring activities, as these were fully provided for in prior years.

Restructure costs vs benefit

Net finance income

The net finance income of R14 million (2015: net finance cost R9 million) was largely as a result of the interest earned on the significant cash balances on hand during 2016 as well as an increase in the net interest income from the retirement benefit asset.


The effective tax rate is 30.5% (2015: 15%). The increase is due to the impact of the additional tax allowances received in 2015 in respect of the Port Elizabeth ASU. Foreign taxes on dividends received from subsidiaries further increased the effective rate.

Non-controlling interest

Non-controlling interest of R3 million reduced mainly as a result of the reduction in the reported profit in Zambia due to the impairment of assets in the DRC.

Headline earnings

Group adjusted earnings increased by 36.1% to R585 million. The adjustments include the after-tax and non-controlling interest impact of the profit on sale of assets held for sale and the impairment of assets in the DRC.

The weighted average number of shares remained constant at 308 567 602 during the year.

This resulted in an increase in headline earnings per share of 36.1% at 189.4 cents (2015: 139.2 cents).

Cash flow analysis

Cash flow statement comparison for the year ended 31 December

Cash generated from operations of R1 099 million increased by 18.7% as a result of the positive impact of the restructuring activities, a reduction in restructuring costs paid and the settlement received. Net finance expenses decreased due to the impact of increased interest earned on cash balances.

The cash taxation payments returned to normal levels after the reduced payments in the prior year as a result of the tax allowance received. Interim and final dividend payments resumed after the restructuring in 2015. This resulted in operating cash flow reducing by 15.2% to R573 million (2015: 676 million).

Cash utilised in investing activities reduced mainly due to inflows from the disposal of assets held for sale (R84 million) and a marginal increase in capital expenditure. Free cash flow of R301 million reduced by 15.2% and cash and cash equivalents increased by 35.3% to R1 153 million (2015: R852 million).


A final gross cash dividend of 56 cents per share in respect of the Group’s 2016 year-end was declared and the dividend will be paid on 10 April 2017. The dividend will be subject to a local dividend tax rate of 20% resulting in a net dividend of 44.8 cents per share to shareholders not exempt from dividend tax.

Refer to our summarised audited consolidated financial statements and our Valued Added Statement.

Looking ahead

The economic environment in South Africa is expected to remain subdued, however, Afrox will continue to focus on productivity improvements and opportunities to grow market share to enable growth.


I extend our gratitude to our shareholders, who continued to show confidence in our abilities, as well as our employees and leadership who continue to steer us on a path of positive operation and profitability in testing times.

Dorian Devers
Financial Director

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