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“There’s rough weather out there” Families give mixed outlook on economic climate

The skills of family business owners, chairmen and managers are being severely tested in the current climate. Just this week, rumours that family-owned Shaeffler's audacious takeover of larger rival Continental is beginning to unravel have surfaced. So what are some of the world's leading business-owning families saying and doing? Campden FB takes a look…

Let's start with Schaeffler. According to some media reports, the family-owned business has already started discussions with Continental about whether the latter will turn the takeover deal, signed last August, on its head and look to buy out Schaeffler.

Such has been the state of the economy and the collapse of the world's automobile markets since the takeover last summer, that Schaeffler ended up with 90% of Continental and a debt package of €12 billion. It had planned for less than 50% ownership.

Last week the company revealed that "additional cost adjustments" were necessary in light of 2009 first quarter results - the automotive division recorded a downturn of 33% compared to the previous year, while its industrial division, which accounts for 40% of total sales, sustained losses of 12% in the first quarter.

As a result, Schaeffler is aiming for annual labour cost savings of €250 million euros in Germany alone. "If we were to reach this goal through layoffs alone, it would correspond to roughly 4,500 jobs. However, we have made it clear from the start that we want to prevent layoffs wherever possible," said non-family president and CEO Jürgen M Geißinger.

While it has already cut 5,000 jobs in other countries, labour cost reductions in Germany so far have been achieved using short time, natural employee turnover and the termination of fixed-term and temporary employment contracts.

They are now attempting to reduce working hours with related adjustments to salaries and wages; negotiate voluntary agreements to terminate employment; and encourage partial retirement.

"We are convinced that this is the right way," said Geißinger said. "We will work with employee representatives to identify socially responsible solutions and options for adjusting labour costs."

Swiss luxury company Richemont, owned by the Rupert family, is also feeling the pinch. "There are currently very few encouraging signs in the global economic picture," said executive chairman and family member Johann Rupert. "The US market is very weak and conditions in Japan have been poor for some time. Most European markets are unsettled and trading remains hesitant. The Asia-Pacific region and the Middle East continue to report some positive sales trends."

He said Richemont could not predict when an overall improvement in trading will come about but hoped that measures taken to mitigate the current climate would stand it in good stead. "Having prepared for the downturn … we will emerge from these economic headwinds in a much stronger competitive position – however long it may take," he said.

In South Africa, family-controlled Altron, a $3 billion telecommunications, multimedia, IT and power electronics group, expects the challenging economic environment to continue over the medium term as market confidence remains weak and uncertainty continues.  

"This outlook calls for our focus to remain on consolidation, cash flow generation, strict working capital management as well as internal cost efficiencies," said CEO and family member Robbie Venter. He too remains confident that the group is well positioned to take advantage of any improvement in the current economic environment given the remedial actions that have been put in place.

Over in the UK, however, one family business manager was more downbeat. Joe Morris, operations director of his family's discount retail group TJ Morris, told a local newspaper that the recession could haunt the high street for another four years.

"This is here for the long term, because there's been such a fundamental change to our economics," he told the Liverpool Daily Post. "It could take three or four years to get back to where we were and sort ourselves out."

He further acknowledged that the business must fight for every penny as the competition adapts to the challenging conditions. "We have to get more efficient so that we can pass on savings to customers, the longer the recession goes on," he said.

Family-owned Gerdau doesn't have to worry about demand on the high street, but it is suffering from the contraction in world steel demand. Compared with the fourth quarter of 2008, the leading long steels production company in the Americas has seen consolidated sales volume fall by 13%, while steel production has decreased by 22%.

However, in March the company observed signs of improvement in the market, with its sales volume in that month 21% higher than in December 2008. "We managed to adjust quickly to the new market reality, drawing on our flexible operations and the concerted efforts and expertise of our teams in all countries where we have operations," said family member and CEO André B Gerdau Johannpeter.

"We increased our cash position and improved liquidity by lowering our working capital requirements. In addition, total production costs decreased by 28%, in relation to the previous quarter. These efforts by our management teams should have positive repercussions on costs in the coming quarters, which are no longer suffering impacts from the high inventories formed to meet the growing consumption observed in October 2008."

Head further north to the US and there is even better news. Co-founded in 1959 by Jay Van Andel and Rich DeVos, Amway is one of the world's largest and most successful direct selling companies. The business is part of the Alticor group of companies, which this week released revenue figures of $8.2 billion for 2008.

"Amway enters its 50th anniversary year in a strong position," said family member and chairman Steve Van Andel. "In 2008, more consumers than ever before responded positively to the appeal of the Amway business opportunity and our outstanding product brands."

Family member and president Doug DeVos agreed. " We are making changes to stay in tune with the marketplace, and the results are very encouraging," he said.

Van Andel and DeVos acknowledged that Amway bucked downward economic trends in 2008, and cautioned that current global economic forecasts would challenge all companies in 2009. "We're looking to grow this year," Van Andel said, "but there is some rough weather out there for the business community around the world."

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Photo by Don Amaro

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