Reko retools moldmaking operations

Reko International Group Inc. (Windsor, ON) will close seven plants in Oldcastle, ON in a bid to improve the profitability of its injection moldbuilding business. Injection toolmaking operations will all be consolidated into Reko's Lakeshore factory automation facility. The ultimate goal of the restructuring is to place greater emphasis on Reko's custom machining operations, reduce fixed costs, and eliminate excess capacity. Reko Tool & Mould, founded in 1976 by Steve Reko, produces injection, foam, and compression tooling, as well as metal stamping, trim, and hydro forming dies.

The restructuring will reduce the company's manufacturing footprint from approximately 310,000-ft² to 150,000-ft², while cutting headcount from approximately 225 employees to 160. Reko's machining capacity will drop from approximately 60 machines to 30 machines, and the company will no longer provide in-house EDM (electric discharge machining), gundrilling, or mold trials. The company says its customers are typically OEMs or their Tier 1 suppliers and are predominantly in the automotive market. Its design and manufacturing operations were carried out in nine manufacturing plants located at four industrial sites in the Windsor suburbs.

From a bookkeeping perspective, Reko believes the moves will improve its overhead cost structure, forecasting a $3.5 million reduction in labor costs, year over year, while slashing $4 million in fixed costs. Reko forecast that its annual debt service costs will drop to $2.3 million.

"Major and necessary transformation"

Diane St. John, CEO of Reko International Group, said the restructuring constitutes a "major and necessary transformation in [Reko's] business." St. John said Reko anticipates efficiency gains from the co-location of its mold and automation manufacturing into a single facility located next to the company's Concorde plant. St. John also noted that the changes reflect broader shifts in the automotive sector.

"The changing landscape in the automotive market we serve required that we evaluate our operations and adapt our cost structure to market conditions," St. John said. She noted that the changes will be "very painful", but also stressed that in her view they are "critical to the survival and future success of Reko as an organization."

The company's sales have dropped in six of the last eight quarters, falling from $14.7 million in its fiscal first quarter ending April 2009, to $8.5 million in the most recent quarter ended January 2011. Losses peaked in the company's fiscal first quarter of 2010 at $2.269 million, but have declined in each of the past three quarters to $1.256 million.

In its most recent earnings statement for the for the quarter ended January 31, 2011, consolidated sales were down $300,000, falling from $8.8 million to $8.5 million. Consolidated sales for the six months ended January 31, 2011, were up slightly to $18.4 million from $18.1 million. The company's net loss for the quarter was $1.3 million, reduced from $1.9 million, and for the six months ended January 31, the net loss was $2.5 million, down from $3.0 million.