African Oxygen Limited Year-end Results Presentation 2015
Presentation Outline Performance Summary Performance Drivers Afrox Financial Results Analysed Turnaround Update Key Project Update & Outlook Appendices 2
Performance Summary
2015 Highlights Top 10 Topics 1 Major Incidents (MIR) dropped by 70% between 2013-2015, compared to 2010-2012 2 EBITDA of R1,004m up 23%; margin improvement of 430bps 3 Restructure finalised; added efficiencies of R144m with implementation cost R47m lower 4 LPG volumes and margins improved despite worst year on record for refinery LPG supply 5 Robust Price Cost Recovery (PCR) in 2015. With increasing inflation and core market decline, PCR will be a crucial performance challenge; stringent PCR management will continue to be a focus 6 Hard Goods strategy successfully executed including the outsourcing of gas equipment supply chain 7 Rest of Africa GPADE contribution increased to R311m, 20% of Afrox total Very strong Group ROCE @ 16.7%; up 560bps with focus on profit growth and capital efficiency 8 9 Dividend declared in line with Afrox policy of 50% of HEPS, representing highest payment since 2007 10 eCommerce platforms attracted 256,000 self-service transactions resulting in 20,000 man-hours saved 4
SHEQ Performance Significant MIR reduction since 2009 MIR Trend Comments 35 MIRs Afrox 31 30 28 MIRs 1 dropped by 70% between 2013-2015 25 25 compared to the period 2010-2012 22 Lost Time Injury (LTI) increased from 20 seven in 2014 to nine in 2015 15 Truck Severity level 1 and 2 increased from 10 zero in 2014 to six in 2015 8 8 6 5 0 2009 2010 2011 2012 2013 2014 2015 1. A MIR is an incident with a major outcome and consequences which represents a significant 5 non-compliance with Afrox's Safety, Security, Health, Environment and Quality (SHEQ) Policy
Performance Drivers
Progress Against Strategic Topics By business segments Not started Work in Progress Complete Increase OPM from restructure Atmospheric Gases New CO 2 sources Increase asset utilisation and reliability Go-to-market strategy Growth in new applications Price recovery 100% of cost inflation Leading margin management LPG Security of supply Return on investment in cylinders Go-to-market model relative to industrial gases Reduce supply chain costs and increase customer supply security Rest of Africa Infrastructure in place for growth Ensure critical mass in each country and appropriate governance in place Reduce inventory Hard Goods Rationalise number of SKUs Options to rightsize fixed costs to throughput 7
Internal Performance Drivers Well positioned for growth in Africa 10 COUNTRIES 20% GPADE CONTRIBUTION FROM REST OF AFRICA • Afrox Owned 8
Internal Performance Drivers Significant asset density and strong market position 70 PLANTS 2336 PEOPLE Afrox Plant Assets 9
Afrox Financial Results Analysed
Performance 31 December 2015 Highlights ZAR m 2014 2015 yoy [%] -6.2% 1 Revenue 5,834 5,473 EBITDA 818 1,004 +22.7% EBITDA Margin 14.0% 18.3% +430bps Non-recurring items 185 79 -57.3% Operating Cash flow 623 676 +8.5% Headline EPS (cents) 36.2 139.2 +284.5% Reported EPS (cents) 26.8 134.2 +400.7% ROCE 11.1% 16.7% +560bps Revenue development negatively impacted by LPG pass through of about R413m Strong EBITDA growth reflecting benefits from restructuring initiatives Positive EBITDA margin development from restructuring and also lower LPG pass through effects Non-recurring costs reflect current restructuring and impairment charges which are lower than expected Strong cash flow with focus on inventory and ROCE improvement 11 1. Excl. market price change of LPG, total revenue favorable by +0.9%
Business Performance Despite overall lower revenues, increase in GPADE LPG ZAR m Atmospheric Gases Rest of Africa Hard Goods +3% -14% -6% -9% 2,110 2,118 867 799 2,050 755 788 1,820 Revenue 1 2014 2015 2014 2015 2014 2015 2014 2015 +11% +11% +4% -9% 746 321 272 311 300 681 288 244 GPADE 2 % Margin 28.1% 36.4% 32.3% 13.6% 17.6% 34.5% 37.5% 41.2% 2014 2015 2014 2015 2014 2015 2014 2015 1. Numbers shown on an adjusted basis with segments adjusted to align with how businesses are managed, & allocation of costs between businesses 12 have been updated to better reflect the split of operational costs. 2014 has been adjusted to be on a like for like basis with 2015. 2. GPADE is gross profit after distribution expenses
Atmospheric Gases Diversification supports revenue growth Sales by Market Sector ZAR m Financials ZAR m 2,110 2,050 2,110 2,050 Sales +10.5% Food & Beverages 274 248 +2.9% 26 Paper 25 +4.0% 176 172 Petrochemical +2.3% +4.1% 1 533 -5.3% Steel Industry 563 -2.6% 189 Mining 194 68 62 Construction +9.7% -8.7% 325 279 Healthcare +16.5% GPADE 746 681 -5.9% 1 519 Automotive + Other 505 +2.8% 2014 2015 2014 2015 Diversification across sectors supports sales Lower onsite volumes with fixed costs of large plants not flexing down in the short-term. This includes Steel sector continues to decline impact of lost Evraz account CO 2 business offers good exposure to growing food and Increase in R&M due to statutory testing beverage sector, only constraint is regarding supply requirements sources Price increases aligned to cost inflation Mining industry under pressure with 20% portfolio reduction Benefits of turnaround seen in lower distribution costs Strong Healthcare growth reflects macro trend 13 13 1. Underlying financials adjusted for impact of lost major onsite account which impacted Q1 2014
LPG Good margin management and volume growth ZAR m Financials Volume (KT) Development 2013-15 2,118 Bulk Cylinder -3% +4% Sales -14.1% 1,820 +10.8% 2013 2014 2015 GPADE 321 288 17.6% 13.6% Margin per ton development Jan-13 to Dec-15 2014 2015 Revenue impacted negatively by pass through effects Volume strong due to relatively strong value proposition offered by LPG Strong focus on margin management and distribution efficiency Revenue per ton Product cost per ton Product availability an issue with overall market constrained Jan-13 Dec -15 14
Hard Goods Impacted by slowdown in mining industry ZAR m Financials Underlying Performance 867 Sales 788 -9.2% Volumes impacted by declining markets Gas equipment factory closed making cost base more agile Restructuring as well as cost focus ahead of factory closure supported increased margin % +11.5% Improved focus on inventory management reduced 272 GPADE 244 -4.2% 1 34.5% 28.1% TWC 2014 2015 Financials impacted by significant inventory provision taken in 2014 Underlying performance reflects market conditions and successful measures taken to flex down cost based 1. Underlying numbers adjusted for R40m of one-time stock provisions taken in 2014 15
Rest of Africa Performance impacted by portfolio change and LPG shortages Financials Underlying Performance ZAR m 799 755 -5.5% Sales +6.8% 1 Seeing volume growth despite economic conditions Growth has been constrained by both LPG and CO 2 supply shortages Strong focus on LPG margin management Zambia volumes impacted by 60% fall in copper +3.7% pricing GPADE 311 300 +11.9% 1 37.5% 41.2% Strong management focus with investments to improve supply security and reduce cost 2014 2015 Financials impacted by Zambian currency devaluation, LPG pass through effects and exit from Angola Robust underlying performance considering market conditions and supply constraints 1. Underlying financials reflecting adjustments for Angola exit, LPG pass through effects and currency translation effects. GPADE is 16 gross profit after distribution expenses
Other Operating Expenses Effects of turnaround already clear 2014 Versus 2015 FTE Development -22% -15% Restructure 1,141 970 Dec-13 Dec-15 FTE reductions in line with turnaround plan Consolidation of head office implemented 2014 2015 New procurement polices in place Outsourced transactional processes to shared service centre 17
Financial Performance: Key Indicators Financial position improving from solid base Cash Flow Financial KPIs ZAR m 2014 2015 ∆ in % 0.9 0.8 0.6 0.7 Operating cash flow 623 676 +8.5% Net debt/ 0.1 EBITDA Investments (480) (321) -33.1% 16.7 10.9 12.2 Free cash flow 143 355 +148.3% 11.1 8.3 ROCE Change at the end of the 497 852 +71.4% period 2011 2014 2015 2012 2013 Strong free cash flow through business performance and capital efficiency Net debt continues to fall relative to EBITDA Strong balance sheet with undrawn facilities ROCE strong improvement due to restructure focused on performance and asset utilisation 18
Turnaround Update
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