CANADA'S LEADING INFORMATION SOURCE FOR THE METALWORKING INDUSTRY

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CANADA'S LEADING INFORMATION SOURCE FOR THE METALWORKING INDUSTRY

CANADA'S LEADING INFORMATION SOURCE FOR THE METALWORKING INDUSTRY

Back in the driver’s seat

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by Tim Wilson

Shops working at full capacity face a new set of challenges

Canada’s die and mould sector was hit hard in the 2008-2009 downturn, with many shops put out of business and others streamlined to make it through choppy waters.

Now the automotive industry is on the rebound and the sector is facing a new set of challenges, with shops working at full capacity yet often still gun-shy when it comes to investing in new machinery or labour.

“Trying to match the workforce to the actual employment market is a real problem,” says Jason Grech, a partner with KPMG Enterprise in Windsor, ON. “From 2009 to 2012 not many people enrolled in skills programs for die mould, and now we have three and a half years with fewer workers in the pipeline.”

Grech says that many workers retired or moved away out west or down east, and making up that shortfall is a challenge. Despite the resurgence in automotive activity, owners who were stung hard during the downturn remain cautious.

“They are still a little apprehensive to make capital investments,” says Grech. “If they are going to shell out for a machine, they want to be sure they will have that same level of utilization five years out.”

However, a lot of those companies that made it through the downturn have since implemented lean manufacturing and accounting practices, while also upgrading their machinery and technical support service.

“Many have improved efficiencies and now offer more value-added products and service,” says Mike Hicks, vice president at component supplier DMS and a member of the Board of Directors of The Canadian Association of Moldmakers (CAMM). “They have done this while also expanding their customer base and diversifying the industry sectors served.”

But diversification is not always easy. It requires a strategic vision and long term planning to make sure a company is well-positioned to face any future challenges. Given that demand for products made of plastics continues to grow, so will the demand for moulds. The challenge is for diversification to support ongoing economic activity in growth areas across the country.

“Medical continues to enjoy increased growth,” says Hicks. “As well, with the advance of plastic composite materials in things such as wind turbines, telephone poles, and aerospace components, there will be an increase in demand. And as auto companies strive to produce more fuel efficient vehicles, the demand for plastic parts rises there, too.”

It is hard to draw on numbers, but some estimates put the economic activity generated by the die and mould sector at between $1 billion to $1.5 billion dollars. As companies look to diversify, and to line up a solid workforce, they face another challenge: succession planning.

“A lot of die and mould shop owners are in their 50s and 60s and aren’t sure who they are going to hand the keys to,” says Grech. “The people who get that right are going to sustain their wealth.”

Grech says that awareness of the issue is on the rise–the banks are even getting the word out–but there could still be a lot of shops up for sale in the next five to ten years. At that point, if there is a glut on the market, a multiple of three to four times EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) could seem pricey.

“We could see one buyer and three sellers,” says Grech. “Those owners who don’t get succession planning right by selling to a son or daughter, or a trusted colleague, or having a management buy-out, could see their wealth diminished greatly.”  SMT 

Tim Wilson is a contributing editor.  [email protected]

 

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