SMOKE AND MIRRORS
Why Afrox MD Brett Kimber really quit
NEW details have emerged about why Afrox MD Brett Kimber quit so abruptly in January — and they contradict the gas giant’s official story.
On January 13, Afrox said Kimber had resigned “effective January 12” to “pursue other career opportunities”. This is despite the fact its annual report says all executive directors are “retained on employment contracts containing notice periods ranging between one month and six months”.
But in an interview last week, Afrox finally came clean about the real reasons for Kimber’s departure.
Speaking from Afrox’s headquarters in downtown Johannesburg, finance director Nick Thomson conceded that Kimber had differences with the company’s 56% parent company, Linde, over strategy.
“Kimber was captain of the marathon team, but the problem was that the parlous state of the industrial world meant we needed to run the race in a series of sprints,” he said.
Kimber, well-placed insiders have said, did not agree with Linde’s restructuring strategy, which entailed a far more radical plan to slash jobs and operations than he would have preferred.
Kimber apparently believed Afrox could trade through this tough period, gradually restructuring to fit the market.
This clash will resonate with the CEOs of other companies owned by overseas giants — a list which includes Barclays Africa and Massmart — who may have felt pressure to produce better returns for their parent companies, despite South Africa’s sub-par growth of around 2%.
But Thomson, who has also resigned and will soon follow Kimber out the door, said the “restructuring” was necessary, given the state of the industrial market in South Africa.
“We’re not reacting to a oneyear trend; we’re reacting to a six-year trend. The clear message from [Linde] was that we need to get the base right,” he said.
Linde first bought into Afrox, which was formed in 1927 and makes most of its money selling gas to companies and homes in 12 African countries, in 2006.
But since then the value of the company has plummeted from around R30 a share to around R13.86 today. While the JSE’s All-Share index has climbed 61% in the past three years, Afrox has lost 28%.
The steady loss of value, as well as the appointment of a new Linde CEO in Wolfgang Büchele, seems to have made the parent company impatient for a better performance from its South African arm.
Insiders say that, right now, Linde “doesn’t appear to have much empathy” with the African business and simply wants Afrox to produce far higher profits immediately.
But this was a tough ask, given that Afrox has also been under the cosh from power shortages and the demise of the mining sector, one of the big buyers of gas as a fuel for furnaces.
“Industrial South Africa is un- der pressure,” Thomson said. “When was the last time a mine told you they were running at full capacity?”
But this controversial restructuring will cost Afrox R185-million this year, including R125million to cover the likely cost of retrenchments.
This has led some company insiders to question whether these charges were necessary — or part of a deliberate ploy to drive down Afrox’s share price so that Linde could buy the remaining 44% of the company.
Thomson said the notion that this may be “a diabolical plot to depress the share price” was far from the truth.
“There are a significant number of independent directors on the board and Afrox is properly audited,” he said.
“So you can’t just suck a number out your thumb and stick it through the financials.”
He said that Afrox’s independent directors — including Telkom CEO Sipho Maseko, former Adcock Ingram chairman Khotso Mokhele and Investec’s David Lawrence — did “challenge the basis of that provision and were comfortable in the end that this was right”.
Thomson, however, is leaving Afrox to join Reunert. And his reasons for going suggest that dissatisfaction with Linde’s interference might not have stopped at Kimber.
“Reunert isn’t owned by one major shareholder,” he said.
“When you have one controlling shareholder, you have to understand that the shareholder will have a lot of influence”.
In its official announcement, Afrox said Thomson was quitting “to pursue opportunities outside the group”.
At the time of his resignation in January, one analyst told Business Day: “We would have preferred them to be more transparent on how and why this is happening. It seems incredible that within such a short time the MD and financial officer are resigning.”
On Thursday, Afrox’s chairman, Mike Huggon, said he would step down at the end of this month “to pursue interests outside of the Linde group”.
This week, Afrox will get a chance to demonstrate how transparent it is when it holds its AGM on Thursday, where investors will get an opportunity to grill the company on the recent spate of departures, and its restructuring plan.
These shareholders will also be paying large amounts to the departing executives.
In its new annual report, Afrox revealed that Kimber will be leaving with a R16-million “severance package”, which “took into account his 24 years of service with the Linde Group and the agreed notional cost of relocating him and his family back to the US”.
Kimber also took home R7.3million in salary and bonuses last year, so he will have got R23.4-million in all.
Thomson said that while gas companies such as Afrox were under siege right now, in the long term, they should do well.
“As a story-line, the notion [that Africa’s oil and gas trade will boom] remains true — the only question is when this will happen,” he said.