Reinventing to survive the downturn

2009-05-17 00:00

BURDENED by a massive drop-off in orders both locally and internationally, a number of Willowton-based manufacturers have been forced to radically reinvent their businesses.

Many are battling to keep their heads above water during a period described by some managing directors as the worst downturn in well over a decade.

A group of 12 Pietermaritzburg firms involved in the metals and engineering sector — with a collective turnover of R1,3 billion — recently predicted that they would shed 30% of their turnover and workforce (of 3 500 people).

Willowton-based Kaymac Structural Foam, which traditionally produces automotive components, is in the process of reinventing itself by focusing on other market sectors and products.

MD Graham Randall said they would like to reduce their exposure to the automotive sector to 20% of their business by 2012.

It is clearly a big move for a company that geared as much as 70% of their business toward the automotive sector in 1996.

Randall plans to concentrate on a variety of areas in the industrial market sector, including petrochemicals and chemicals, food processors, the pharmaceutical industry and the packaging industry.

The company, which has cut employee numbers from 176 to 138 since July 2008, felt the economic dampening taking hold in early 2008 during the electricity crisis.

Randall has been consistently focused on reducing the variable costs in the business.

MD of Pressure Die Castings, Mike Wolhuter, who has been involved in manufacturing for 25 years, told The Witness that this is the worst downturn he has experienced.

The firm, which began cutting overheads in April 2008, predicts a substantial drop in turnover.

“It’s the speed at which it has come in and it has affected many market sectors locally and abroad.”

Wolhuter said that recent electricity tariff and property rate increases have added to the woes of businesses.

“As a relatively big power user, we still pay double the rate compared with stainless, aluminium and steel mills.”

It is estimated that there is an 800-times multiplier effect in the aluminium foundry industry with respect to the conversion of aluminium scrap to a final machined and assembled product for the end-user.

The downturn only hit Willowton-based Interpak Books in January and February this year because their business relies heavily on peak demand prior to the calendar year-end.

This peak is usually followed by a “trough” or quiet period.

Acting MD Ian Ogilvie told The Witness that they embarked on short-time measures for the first time in more than a decade in March and April, moving from a five-day week to a four-day week. He said two major aspects of the business, legal publishing and textbooks, have been particularly hard-hit during the traditional trough period.

“We usually do legal work destined for African countries in the trough period. With the worldwide credit crunch there’s been a slowdown in NGO [non governmental organisations] donor funds for this type of work. Education has also been slow — there’s been stock maintenance production, but not much new work. You could see that it was starting to dry up, but the severity has been very deep,” said Ogilvie.

Interestingly, the demand for religious and other types of books also dropped in recent months.

Ogilvie believes that they will have to cast their net wider by tapping into under-serviced markets and products that they do not usually sell.

Another firm that is still negotiating with unions told The Witness that it has offered staff a few alternatives, including a 25% short-time measure or retrenchments. The company believes the more palatable option would be to freeze wage increases and year-end bonuses, among other measures.

One firm that has survived the downturn fairly well is local manufacturing giant Willowton Oil, which produces basic commodities.

MD Abdul Razak Moosa told The Witness that although they noticed a slackening in demand during the second half of 2008, 2009 has been a relatively good year.

Although a 30% rise in the prices of inputs used to produce oil over the past eight weeks has increased the risk of upward pressure on cooking oil prices at the shop-shelf, Moosa said they will attempt to absorb some of these costs. “Despite the decline in volumes late last year, we did not retrench any employees,” he added.

Moosa remains upbeat about the prospects of the economy. However, given the doom and gloom scenario playing itself out in the public domain on a daily basis, many MDs remain cautiously optimistic about the possibility of a turnaround next year.

 

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