JSE-listed welding and gas firm, African Oxygen (Afrox), on Friday said it wants to reduce its fixed cost base over the short and medium term. This will include there reduction of overheads, streamlining of management and reviewing of the geographic footprint, distribution network, the business and product portfolios.
This program has been initiated due to prevailing depressed market conditions which have led to volume erosion in the company. It is expected that these market conditions will remain the same in the medium term.
Accordingly the company needs to significantly reduce its fixed cost base to ensure an acceptable level of trading performance in the future.
“The company is fully committed to these improvement initiatives; however it sincerely regrets the material impact on employees that these initiatives are likely to have,” Afrox said on Friday.
“All reasonable options to mitigate the impact of these initiatives on our employees will be considered during the execution of this program,” it added.
This news is surprising considering that this year alone the company has been awarded a number of critical contracts in South Africa. Afrox recently said Scaw Metals, the global steel maker, had extended Afrox’s 10-year R400 million ($36.3 million) supplier contract.
In terms of the deal, Afrox will supply 50 tons-a-day of oxygen to Scaw Metals’ Wadeville factories for the duration of the contract. This came shortly after Afrox had successfully managed to retain the R26 million ($2.3 million) a year contract to provide JSE-listed petrochemicals giant, Sasol, with compressed gases for the next five years.
This five-year Sasol contract extension is likely to lead to total sales amounting to about R150 million ($1.3 million) Since his appointment as the new Afrox MD Brett Kimber has kept these contracts coming from the beginning of this year.
Afrox signed a five-year R147 million ($13.7 million) contract with Exxaro FerroAlloys, a unit of the JSE-listed mining resources firm, Exxaro.
In terms of the deal, Afrox would supply nitrogen to Exxaro FerroAlloys’ factory in West Pretoria, South Africa. This was the fourth contract that Afrox had won this year alone.
