Chief Executive Officer Gregory B Kenny spoke exclusively to The Express Tribune about the global economic recovery, commodity markets and their bearing on the cables industry.
Referring to the global economic downturn, he acknowledged that the road to recovery would be long and hard. “This is shaping out to be a very protracted recovery,” said Kenny. “Although we do not expect double-dip recession in many western markets, things will remain volatile.”
Testing times
Copper is an essential input for many of the company’s core businesses. Recent instability in prices of the metal has unnerved many stakeholders and General Cables is no exception. Given that it holds a commanding share in the global demand for copper, the company has historically been a major market setter for prices of this commodity.
“As the world’s third largest users of copper wire, we should be a good surrogate for the demand for copper, but right now we are not,” said Kenny. He explained that the overbearing influence of speculators in commodity markets has kept prices volatile and higher than expected.
“Supply and demand seem to apply differently,” he quipped, hinting that the current spike in the international price of copper is inconsistent with weak demand for the metal. “A change of one dollar per pound (in the price of copper) translates into an impact of about $100 million on our working capital,” he said.
Analysts comment that the advent of speculators has turned prices in the relatively stagnant copper market very volatile. “We have given up predicting commodity prices because they are so unstable,” said the CEO of the Fortune 500 company.
As a result of the uncertainty, the company has switched from the Last In First Out (LIFO) model of inventory accounting to average cost because ever-changing prices were becoming a hassle for financial managers.
According to the CEO, many facilities were built to cater to demand as it stood in 2006 and 2007, but current utilisation is down 30 to 40 per cent since that time. General Cables’ head honcho admitted that demand has weakened in Western markets, especially Europe, but insisted that diversifying into emerging economies was not brought on by weaker volumes in traditional markets.
“We are focusing on freeing cash from developed markets to employ it in emerging markets and this has always been a cornerstone of our strategy,” asserted Kenny.
Pakistani paradigm
Although the security situation in Pakistan leaves much to be desired for prospective investors, General Cables is no stranger to operating in similar business environments. In fact, the company has recently executed a joint venture with Oman-based International Cable Industries and made acquisitions in Egypt and India.
“Our commitment in Pakistan has a long-term focus,” said the CEO in reference to the state of law and order in Pakistan. “In time, there will be changes here and many issues currently faced by the nation and its economy will improve.” He is of the view that societies have to develop and grow in order to weed out corruption and encourage transparency.
Responding to a question on the possibility of asking Pakistan Cables to cut down its workforce, he said that the company’s global concepts of lean management would be encouraged and if the management of Pakistan Cables agrees, experts from General Cables would be brought in. However, he insisted that job cuts would not be part of the deal. “In the future Pakistan Cables must not limit itself to the local market but also become globally competitive,” commented Kenny. “Together we can create a bigger bottom line and use that to reform the workforce,” he concluded.
Published in The Express Tribune, October 3rd, 2010.
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