CHANGE OF PACE
No drama, but Afrox directors who are leaving want to do different kinds of things
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.”