R-Tek Ltd seeks new customers as sales fall following volume drop at key customer

Sales remain strong at R-Tek's Washington plant, but revenues were affected at the Welsh plant by a drop in orders from Honda

Leader of Sunderland City Council, Cllr Paul Watson, left, with Paul Butler, chief executive of the North East Automotive Alliance, at automotive supply company R-Tek
Leader of Sunderland City Council, Cllr Paul Watson, left, with Paul Butler, chief executive of the North East Automotive Alliance, at automotive supply company R-Tek

Car components maker R-Tek is seeking new customers to reduce its dependence upon Japanese giants Nissan and Honda, having seen sales fall in tandem with a drop in orders.

The North East headquartered business employs more than 700 people across a plant in Washington, which supplies part to Nissan, and one in Merthyr in Wales, which supplies the Honda factory.

However, latest accounts for 2014 show that while sales remained strong in Tyne and Wear thanks to Nissan’s success, volumes dropped at Merthyr as a result of a rationalisation program at Honda.

The rationalisation led to Honda slashing 800 jobs at its Swindon manufacturing facility in 2013 in response to tough market conditions in Europe.

As a result, total turnover at R-Tek Ltd was reduced by 6% year-on-year to £88.7m, operating profits dropped by 34% from £9.9m to £6.5m, and the profit margin after tax dropped from 8.1% to 5.7%.

The overall profit for the financial year was £5m, down from last year’s overall figure of £7.6m.

Headcount also dropped at the firm over the year, to an average of 762 employees from 769, but the reduction was mostly seen at Merthyr.

Established in 1991 as a joint venture between the French company J Reydel and the Kasai Kogyo Co of Japan, R-TEK is now wholly owned by Kasai Kogyo after it bought out its partner’s stake during 2012.

Directors at the firm, a member of the North East Automotive Alliance, said they had received a letter of support from Kasai Kogyo Co Ltd, confirming its ongoing commitment to the firm.

In a review of the business, directors said: “At the Washington plant, ramp-up of the Nissan Qashqai commenced in 2014. The volumes at the Washington plant remained strong with 2014 showing similar levels to 2013.

“There were no new models at the Merthyr plant, where the 2014 volumes were down due to Honda’s rationalisation program.

“As automotive companies are experiencing increasing competitive intensity, the company will continue to look for every opportunity to reduce costs.

“To meet their requirement for cost reductions, the company will continue to explore opportunities to source from diversified suppliers and improve its base operations.

“Downward pricing pressure is a characteristic of the automotive industry. The company has taken steps to reduce its operating costs to offset customer price reductions, which impact the company’s sales and profit margins.

“The company is dependent mainly on the trade of Nissan and Honda at Washington and Merthyr respectively. Any variances in the production volumes of these customers would have a significant impact on the sales volumes of the company.

“The directors are seeking to expand the company’s customer base to counteract the reliance placed on these two key customers.”

Looking ahead, directors said they expect trading to continue to be a challenge, “but based on current production forecasts directors expect the company to continue to generate profits and positive cash flows.

“A letter of support has been received from Kasai Kogyo Co Ltd confirming its commitment to provide support to the company, if required.”

A final dividend was paid during the year of 30p per share – 10p more per share than last year – amounting to a total payment of £3m.

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