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Interview

with Andre Goosen, Managing Director, Klinger (Pty) Ltd. South Africa

26.01.2012 / Energyboardroom

Klinger is a renowned international group with a history dating back to the 19th century. What may surprise some of our readers however, is that the Switzerland-headquartered group already came to South Africa in 1968, a time when Africa had definitely not yet been identified as the “Hopeful Continent”. Why this early presence?
A.G.: The early presence of the Klinger Group was mainly to take advantage of the mining industry here in the country. Coal, gold and diamond mining have traditionally been very big here. While our operations here have been initially South Africa-based, we have started moving offshore as from 1994.
D.v.d.W.: South Africa’s petrochemical industry only really took off with the Sasol developments in the 1950s and only became very large in the 1970s with the Secunda refinery. Klinger’s presence has changed over the years from a sheeting product line to an all encompassing fluid-sealing product range. To that extent, we can service predominantly the petrochemical industries in South Africa, even though the mining industry is still big for us here. This change also shows in our facilities, which is an amalgamation of different parts over the years that has grown into a one-stop shop for fluid-sealing products.

The argument of several businesses in South Africa is to use the nation as a springboard to do business in the continent. What are your thoughts on this?
D.v.d.W.: From an oil and gas perspective, being limited to the PetroSA operations in the Eastern Cape, we have established strong contracts. However, outside of South Africa, our supply of products has been limited to the likes of Angola and Nigeria. We certainly do some work with Kenya in their refinery too, for which we manufacture and supply products from here in South Africa.
A.G.: We are poised to function as a supplier to Africa and have the facilities to do so. The obstacle to overcome is that most of the operations in the likes of Angola and Nigeria are traditionally and historically linked to suppliers in Europe, the US and to a lesser extent to South America. This has made it very difficult for us to get into these markets from South Africa, a country that has been estranged from these markets for so long. While we have serviced the petrochemical industries in South Africa for many years, getting into these other markets is rather difficult. Thus far, most of the work in these other markets has been maintenance rather than project work.

Have these markets such as Angola and Nigeria become a “no-go area” for Klinger?
A.G.: It has not become a no-go area, but it will remain generally small within our South African footprint.
D.v.d.W.: We must also bear in mind that Klinger is an international group with operations all over the world. Our European counterparts therefore have a benefit to tap into these markets and have done so very successfully through their project departments.

On the local scene you have been able to work with Sasol for 12 years already. What enabled you in the first place to supply such a reputable company?
A.G.: The reasons for this are twofold. First, is our ability to supply locally the full spectrum of sealing products for their requirements. Some time ago, there was a move from the mining and petrochemical industries to support local industry in South Africa. Second of all, we have the ability to service various Sasol sites through local representation. We have facilities onsite in The Secunda plant as well as next door in Sasolburg. Our products are literally available 24/7.

Does this mean that you would have never been able to get such contract without having the manufacturing facilities in the country?
A.G.: Without a doubt. While there is no question that you can import some of the products from suppliers in China, India, Europe and the US, you cannot import the full range of products because there are so many non-standard products that go into the various applications in these facilities. These are critical and have to be manufactured at very short notice, i.e. within 12 to 24 hours.
D.v.d.W.: Also worth mentioning is that Sasol has been looking at strategic suppliers, where they aim to reduce their exposure to various suppliers of similar products to companies that could provide them with bigger volumes and a full range of the products they need. Klinger is perfectly poised to take advantage of this. Still today, we are unrivalled in this sense. The sheer size of our portfolio is so much greater than any other company so that there are very few other players that can threaten our position.
A.G.: There have been 2 major developments within the petrochemical industries. A first is the government’s quest to reduce emissions. The products that we sell are very much in line with Klinger International’s standards in respect of emission reduction. In a second instance, we see that safety had become a major issue in all refineries in South Africa. Sasol and other companies therefore gain comfort from products that meet our international group’s standards.

Upon launching its new range of US-manufactured products in the market late 2011, the Bearing Man Group identified one of the key challenges as the fact that many of the sector’s end-users sometimes still go for inferior lower quality products. Do you feel that this is a challenge that is still holding the industry back?
A.G.: It is definitely an aspect that needs to be taken into consideration. The more that South Africa is exposed to global practices in terms of sourcing, the more awareness is being created for cheaper products from countries such as China and India. However, as mentioned before, it remains very difficult to import a comprehensive range of products that will entirely satisfy the petrochemical industry. You cannot import timeously non-standard products. For example, we have a team of specialist highly trained engineers that will go onsite in maintenance and shut-down scenarios to:
A) make the correct selection of sealing products and
B) ensure that the fitment is carried out properly.

Part of your service-orientation also lies in your so-called joint integrity management practices. Can you elaborate to our readers what this entails exactly?
D.v.d.W.: It all started with the phasing out of asbestos products in South Africa. With the introduction of non-asbestos products, we were finding that the end-users were having serious difficulties in getting their plants leak free. A first reaction from their side was obviously that our products were inferior. As we started servicing them by installing the products on their behalf however, we pinpointed the problem to improper selection and installation onsite. This trend has developed into a service line. It is almost as if our customers prefer outsourcing gasket installation services. We are happy to offer this service, as it both validates our products while solving the problems of the customers.
This problem was fairly new to South Africa, purely because the country was very late to exit asbestos products from the industry. It has only been in the last 5 odd years that we have significantly started shifting away from such products.

The official ban of asbestos products in South Africa was implemented in 2008. Was this a significant setback for the company here? How did you cope with this challenge?
A.G.: While it was certainly challenging, we were very fortunate in that much input had gone into developing non-asbestos products back in Europe by our holding company. We thus had the alternatives available and the entire situation became more a question of educating the end-users.

Did this shrink the market in a certain way?
A.G.: What we have seen is that, because of the higher prices that non-asbestos products attract, customers are more circumspect about wastage, order quantities etc. While I do not think that the market has shrunk, I certainly believe it has become more controlled.

The market for gaskets, seals and insulation materials as a whole sees numbers of up to R 600m per year in South Africa alone. Where do you now see most growth opportunities for Klinger South Africa?
A.G.: Growth in South Africa is not going to be easy without acquisitions. Organic growth within the South African borders will be difficult. We will be looking for companies with synergistic products and markets and of course, Southern Africa.

In Cape Town, Klinger South Africa has already acquired the local company Wright-Seal & Plastics (WSP). What exactly was the vision behind this buy-out and how satisfied are you with this addition to the group?
A.G.: To first provide some background, it needs to be pointed out that WSP were our distributors in Cape Town for many years. They were widely recognized to be market leaders in fluid-sealing product supply in the Western Cape market. As a company, WSP had traditionally sold a number of products that we had not, and we deemed this to be an attractive springboard to better supply some of our markets. At the same time, this allowed us to cement our presence in the Western Cape. In terms of price-sensitivity, having a dual margin in an area as significant as the Western Cape is also impractical.
We are very satisfied with this move and it has certainly been a very good acquisition for us. It has given us direct access to a market that is in fact quite oil and gas oriented, with the head offices of a large number of maintenance companies and contractors located there.

Will we also see a trend towards vertical integration, where you will be acquiring an increasing number of your distributors?
A.G.: The opportunity is obviously there, but acquisitions will only be made if the target brings us added value to our operations.
D.v.d.W.: On that front, it is worth mentioning that our distribution network is very extensive. We have our own branch network in all the major centers and have a whole host of distributors and agents that cover many of our neighboring countries too. From an acquisition point of view, there is thus not much space left for us to acquire business to enhance our geographical footprint, as we already have this presence. It is clear that the acquisition focus lies on product -rather than geographic- expansion.

Every acquisition has its own challenges. Taking WSP as an example, what were some of the particular challenges you needed to cope with in terms of integration?
A.G.: The challenges are often cultural, as companies have their own identities. Including WSP’s staff into our own group and making them feel at home was challenging. At the same time, you need to overcome issues related to differences in IT systems, accounting systems, and so on. At the end of the day, we were fortunate that we had been dealing with WSP for many years before. We already knew the staff, the people and the customers. This made the integration significantly easier.

Apart from acquisitions, we have seen several companies in the sector entering into alliances. Novus Sealing South Africa for example entered into alliances with lamons and WL Gore. What opportunities do you see in this respect?
A.G.: We already have a number of such alliances in place, including with many of the larger manufacturers of raw materials. Without a doubt, we see the importance of such alliances developing further. We are being approached on a monthly basis by major international companies seeking access to the Southern African markets. They look for companies like ourselves to take their products forward.

Many of these other Southern African countries are experiencing high growth. How do you now see the positioning of South Africa going forward?
A.G.: I personally feel that South Africa needs to critically examine some of its legislation. It is widely regarded as being fairly difficult to do business in South Africa due to red tape. A number of the legislative procedures need to be relaxed in order for us to keep up with the growth rates that some of the developing countries in Africa and beyond are experiencing.

While some of our South African interviewees have been fairly positive about the availability of talent in the country, others have stated that there is a significant gap between skills of the school leavers and what is actually required at an industry-level. What is your take on this topic?
A.G.: From our point of view, the skills pool is limited. While there is a very high unemployment rate, it is very hard for an industry like ours to attract the right skills. The system of apprenticeship has been in decline and it is our policy to bring in people that want a long-term career in our company. We therefore put a lot of emphasis on training and development and try to tackle this deficiency ourselves.
D.v.d.W.: We have also observed a dramatic decline in the skills levels of the end-users of our products. This makes life a lot more difficult for us, as we have to have much more input into product selection and installation.

Another aspect that has inevitably come into play over the years is the requirement to start complying with BBBEE levels. How did this play out within the Klinger South Africa story?
A.G.: Klinger recognized at an early stage that there was a need for transformation. In this respect, we were among the first companies in our sector to promote the idea of Black Economic Empowerment. We formed Klinger Mzansi in 2003 and were very fortunate to attract a strong BEE partner at that time. It has been a very beneficial move.

At present, Klinger South Africa is home to a significant 14,000m2 facility, with 25% of its output already destined for exports. How do you see this international dimension playing out in the future?
A.G.: As the opportunities for local growth are somewhat limited, we really need to increase these exports further. We have to increase our exports at least to the extent that they will match our domestic business.
We are the largest supplier of braided gland packings in this market and have the biggest facility and capacity. All of our sister companies around the globe use us as their supplier of gland packings. Other than that, any group company requiring gasket sheeting of over 2 meters in width will source from us. We supply these sheets to the US, Europe and Asia from here.

How do you now see the future of Klinger South Africa?
A.G.: We are very fortunate in that our shareholders have given us a lot of freedom in terms of capex. This has allowed us to significantly enhance our capacity over the years, particularly in gaskets. We continue to spend substantial capex on an annual basis in this division. We further have some requirements to automate, in order to keep pace with what is happening globally. At the same time, we also have to be a responsible employer that needs to ensure the employment of people wherever possible. In five years time, we would like to at least match our export revenues to our domestic business.

Is there anything you would still like to add?
A.G. & D.v.d.W.: Stability of the currency and the region as a whole remains critical!

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