Cotton mills' closure deals blow to textiles

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The closure follows the demise of the Frame Group, the textile arm of Seardel, and leaves only two sizable manufacturers of cotton-based textiles in SA.

SBH has operated its Epping plant in Cape Town for almost 60 years and employs 350 people. The company is a preferred supplier for Woolworths' menswear, supplying most of its chinos range, while it also supplies other major retailers — and police uniforms.

The company is the latest victim of the credit freeze and adverse market conditions.

The company's Austrian shareholders which invested new capital in the business as recently as six months ago, have had to forego dividends from SBH for six years as rand strength, fierce competition from Asian imports and formidable cost increases cut margins to the bone. The shareholders have now decided to pull the plug.

An employee of the firm, who declined to be named, said SBH's hand was forced by its creditors. The company had an overdraft facility with Standard Bank of R25m, which the bank demanded should be halved.

SBH managed to reduce the facility within a year to R8m and by last month achieved another R2m reduction. However, the mill received a final demand from the bank this month for the outstanding amount which forced it to wind up the business.

“If we had working capital to buy raw material we would have been able to continue. The numbers are ludicrous. We have surety of R50m and R6m is a minuscule amount for a bank. One may well ask what the purpose of a bank is,” the employee said.

Standard Bank could not be reached for comment on Friday, 14 August 2009, but stakeholders in the industry have confirmed that banks have become more risk-averse and are not lending to the clothing and textile sector anymore.

SBH's MD Walter Berndörfler would not discuss its relationship with the bank on Friday, but confirmed that a lack of working capital was the reason for deciding to close down.

The Industrial Development Corporation (IDC) has bailed out several firms in distress, but declined to come to the aid of Frame. On Friday it confirmed it had had informal discussions with SBH for some months, but had not received a formal application for assistance. It could not take the initiative to intervene, said Willie Fourie, head of the clothing and textiles unit.

SBH could still avoid shutdown. It is understood that the company has had tentative discussions with the Department of Trade and Industry, and Berndörfler said the firm would again approach the IDC or potential investors.

SBH said it would deliver all confirmed orders until November.

Source: Business Day

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