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March : Evowood’s Estcourt mill remains closed after protracted strike action

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17 March, 2017

Evowood's Estcourt mill remains closed after protracted strike action



Hardboard manufacturer, Evowood (formerly Masonite), has unfortunately had to dismiss 434 workers at its Estcourt mill in the wake of protracted strike action.

Louis Marais, the chief executive of Evowood, confirmed that the Labour Court had issued an interim court order preventing employees from continuing on an illegal strike on Monday 27 February 2017. On Friday 10 March 2017, the court issued the final order.

He also confirmed that the company has acted on the findings of an independent commissioner and today issued a notice to dismiss 434 workers following a disciplinary process related to the illegal strike that brought production to a halt three weeks ago.

Despite the disruption at the mill, Evowood's head office, regional branches and distribution centres remain fully operational and contingency plans are already in place to minimize the impact of the production stoppage on valued customers and suppliers.

The present production stoppage is costing the company more than R2 million per day and the accrued costs may prove a major setback in the implementation of a comprehensive business turnaround plan aimed at returning the company to profitability.

At present, shareholders are negotiating with all affected stakeholders and examining all possible options to resume production at the mill as soon as possible.

Marais explained that the Masonite mill was on the brink of closure in December 2015 when it was acquired by a Black Empowerment consortium comprising Black Bird Capital and Jacobs Capital. The shareholders, who brought the company out of business rescue and took control in August 2016, conducted an extensive due diligence investigation with a view to putting in place a comprehensive business plan that would not only turn around the business but also create a sustainable long term future for it.

This strategic plan entailed upgrading the equipment, rebranding the company as Evowood and controlling spiralling costs at the mill.

"Our turnaround plan not only included injecting capital into the business in the short term but also putting in place a long term capital investment programme that would enable the company to reach its full potential through improving processes, products and service. However, we always recognised that no plan would be viable if all stakeholders did not come to the table to help us to rebuild the company," explained Nkosinathi Nhlangulela, a director of majority shareholder, Black Bird Capital.

Because the overall cost structure of the mill was not aligned with the long term viability of the business, cutting costs and improving efficiencies formed a key part of the turnaround plan for the business.

After a lengthy negotiation process, the workforce signed an agreement on 29 November 2016.  This stipulated a reduction of 12 percent of the basic salary of every employee to be implemented from 1 February 2017.

The formal agreement, signed by all stakeholders, ensured that there would be no retrenchments at the mill. It was concluded to ensure that the shareholders could save all 733 jobs at the company.

The agreement also provided for a minimum seven percent wage increase as per the existing bargaining council agreement. This increase would have been implemented from July 1, 2017.

In light of the entire workforce's commitment to turning around Evowood, Black Bird Capital and Jacobs Capital invested over R50 million in rebranding the business and upgrading the plant at the mill during December. However, a faction within the workforce reneged on this agreement leading to the illegal strike.

With costs building up and now jeopardizing the viability of this rescue plan, the company's shareholders are now investigating longer term options which could include scaling down production at the Estcourt operation and insourcing some materials to ensure consistency of supply.

The Evowood mill is one of only 25 large hardboard manufacturing operations and is amongst the top three in the southern hemisphere. It is also South Africa's only hardboard production facility.

The shareholders understand and are concerned that the loss of an operation such as this would be a serious blow to government's endeavours to boost economic development through the beneficiation of raw materials and the promotion of manufacturing and re-industrialisation.   

"We are not taking any decisions lightly as we are aware of the potential negative impact on the local economy. We remain committed to building sustainable businesses and to economic growth in KwaZulu-Natal. Because of this, we are open to continued communication with key stakeholders who are able to work with us to develop a viable plan," said Nhlangulela.

Wessel Jacobs, the chief executive of Jacobs Capital, said that the shareholders were weighing up their options in order to ensure that the customers' supply was maintained in the short term and to find long term alternatives.

"Our business is to grow ‘built to last' companies. We invested extensively in this business in December in good faith and have put in place significant operational resources as well as employed outside consultants to ensure the best outcome for Evowood," he said.

Observing that, without the support of labour, it was impossible to take this process forward, he said the shareholders remained committed to resolving the impasse.

Marais concluded that the company would keep all stakeholders appraised on further developments going forward.

Source: Evowood

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