No drama, but Afrox di­rec­tors who are leav­ing want to do dif­fer­ent kinds of things

Financial Mail - Investors Monthly - - Contents - NICK HED­LEY

Afrox slims down to re­group

to re­sign in Jan­uary when the re­quire­ments of the MD changed and af­ter con­sult­ing with Afrox’s Ger­man par­ent com­pany, The Linde Group.

“He was brought in to help sta­bilise the busi­ness, which he did, to cre­ate an ex­ter­nal sales fo­cus, and to make sure that we were mak­ing the right kind of de­fen­sive in­vest­ments — be­cause there has been a short­age of in­vest­ments over a pe­riod of time — to safe­guard our mar­ket share and gen­er­ally just to sta­bilise the com­pany,” Thom­son says.

Kimber was over­see­ing a R1,5bn cap­i­tal in­vest­ment pro­gramme, which is now into its third year and nearly com­plete. He was also grow­ing the com­pany’s foot­print else­where in Africa, though the re­struc­tur­ing means Afrox is pulling out of An­gola and will rather try to con­sol­i­date its stronger po­si­tion in coun­tries such as Zam­bia.

“He was there as the cap­tain of the marathon team and was look­ing for us to grow sus­tain­ably in the longer term and to make ap­pro­pri­ate strate­gic in­vest­ments. Then there was sud­denly a fair amount of vol­ume de­clines, which meant that we needed to take some very quick ac­tion in terms of re­struc­tur­ing the busi­ness.

“He agreed with Linde that he prob­a­bly wasn’t the right MD for those kinds of ac­tions, so he agreed to step aside to al­low some­body who was bet­ter suited to drive a re­struc­tur­ing agenda, rather than a long-term strate­gic growth agenda.”

Thom­son says his own res­ig­na­tion, an­nounced in late Fe­bru­ary when Afrox re­leased its re­sults for the year ended De­cem­ber, “was much sim­pler — it was just un­for­tu­nate tim­ing”.

“I was given an op­por­tu­nity to go to a very dif­fer­ent kind of com­pany, Re­unert. I de­cided to take it,” says Thom­son, who turns 56 this year.

Afrox, un­like Re­unert, has a con­trol­ling share­holder in Linde, which means pro­cesses and de­ci­sion mak­ing in­volves both com­pany ex­ec­u­tives and the ma­jor share­holder.

“It’s a very dif­fer­ent kind of en­vi­ron­ment which I would like to have and wel­come over the last chap­ter of my work­ing ca­reer.

“In an ideal world it wouldn’t have hap­pened un­til next year, but the prob­lem is by this time next year I would have been nearly 57, and it’s un­likely that there would have been that kind of of­fer.”

Afrox’s re­struc­tur­ing is to in­clude sub­stan­tial job cuts and pos­si­ble plant clo­sures, which will first tar­get older op­er­a­tions. The pro­vi­sion of R237m cov­ers im­pair­ments to route-to-mar­ket chan­nels of R17m, and a R35m as­set im­pair­ment — which in­cludes the cost of ex­it­ing An­gola and pro­duc­tive equip­ment in SA which will be closed or sold.

The bal­ance of the cost re­lates to job cuts and con­sul­tants who are ad­vis­ing on the re­struc­tur­ing.

Thom­son says the aim of the re­struc­tur­ing is to get Afrox out of the “range-bound” mar­gins and earn­ings trap it has found it­self in for many years.

“There are years that we just scrape over R800m [Ebitda] and there are years that we’re be­low R800m. And from a mar­gin per­spec­tive we’re float­ing around 14%-15% of Ebitda.

“For a gas com­pany to be sus­tain­able it needs to make a higher mar­gin. The rea­son for that is that we typ­i­cally in­vest, in sta­ble times, about 10% of our rev­enue into new as­sets. So if you’re mak­ing 4% be­yond that, you’re not mak­ing enough to give your share­hold­ers a cash re­turn and to pay the fi­nance costs and all the rest… You need to get to a higher re­turn ba­sis and we’ve picked 20% for that.”


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