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Formex Industries November 09 www. bus- ex. com 169 While recessions are inevitably painful, they can also provide the opportunity for a much needed re- evaluation of company strategy, as Alan Swaby learns Catalyst change for W hen you can claim to be as competitive as any manufacturer anywhere in the world, then you know you must be doing something right. And when the quality of output is sufficient to keep the best names in the automotive business happy, then you know you must be doing everything right. That's the position South African manufacturer Formex Industries finds itself in. With two plants in Port Elizabeth and a third in Pretoria, Formex Pressings and Formex Tubing make component parts for vehicles built locally and many that are built overseas. " Around 80 per cent of the work we do," explains managing director Werner van Rensburg, " is for exhaust systems and catalytic converters. That makes us the country's largest automotive consumer of stainless steel, with the three plants using about 1,000 tons a month. The exhaust parts we make go into a wide range of local and overseas plants covering the full range from Audi to VW." The business we know today has its roots way back in the past, in the grandly named British United Engineering, established in 1915 in Port Elizabeth to support the thriving shoe industry. Initially output centred around far less grandiose tacks and nails but throughout its history, the business has changed and adapted according to circumstance. In 2003, ownership settled in the hands of HCI- a black empowerment investment organisation, 46 per cent owned by two unions and with a bewildering spread of interests from clothing to casinos. It's a very hands- off relationship, leaving Formex to run the business as it best knows how. Although the automotive industry in South Africa has been hit by the recession, it has perhaps done a little better than many other countries. " Last year," says van Rensburg, " volumes were around 70 per cent of historical highs. It was necessary to very quickly get costs in line with sales but it also provided us with the opportunity of reshaping the business." Five years ago, just after the HCI acquisition, Formex had sales of R100 million. Last year they were R900 million

170 www. bus- ex. com November 09 but much of that came from non- core activities. One of the decisions that has been made is to divest any interest outside of pressing and tube forming. As such, the sale of Baisch Engineering, a world player in the supply of automotive door lock mechanisms and assemblies and poly- V- pullies, should have been completed at the time of reading. In the short term this will have the effect of halving Formex's turnover but will enable greater focus on core activities and help to finance future development plans. The two Port Elizabeth plants have been set up for completely different purposes. One manufactures a wide variety of part numbers but in lower volumes. It's labour intensive and thus benefits from South Africa's low wage structure. The other is for a limited number of parts but made in much higher volumes. The factory is highly automated but has to cope with more complex componentry and more involved tool changeovers. What gives Formex its edge is the quality of its tool room which, according to van Rensburg, is second to none. In fact, during the recession, when the total labour force was reduced by around half, the company went to any lengths possible to protect its engineering skills. " At one stage we had experienced charge hands and supervisors manning the presses," explains van Rensburg. " Another tactic we employed was to send personnel on secondment to other companies within the HCI group. Not surprisingly, we had plenty of volunteers to go to the leisure interests!" Ensuring the availability of good quality engineers, toolmakers and fitters is one of the challenges Formex faces in its bid to continue growing. As such there are numerous programmes designed to speed up the personal development of staff and give them opportunities to progress through the ranks, either in an engineering or operational capacity. The other niggle is the cost of steel. With a monopolistic supply, there is a feeling within the industry that manufacturers are being exploited to some degree. " We have made many analyses," says van Rensburg. " Importing steel would involve a much more complex supply chain and create many logistical problems. Our suppliers very carefully pitch their price at a level which doesn't quite justify the extra work involved." Nevertheless, Formex is taking a serious look at a radical approach to overcoming the one unavoidable cost to all South African manufacturers wishing to export. The majority of Formex components that are exported are