Kinecor Climbs Growth Curve

An eight per cent increase in growth in the first half of 2004 over the same period in 2003, with sales of $64.1 million in this year’s second quarter, is a good indication that industrial distributor Kinecor Inc. of St Laurent, Que., is doing well after suffering acquisition indigestion and flat sales from 2001 to 2003.

President Gordon Duncan, who has been running Kinecor and its United States counterpart, Spencer Industries Inc., since August 2002, has cut costs by five per cent, to just 20 per cent of sales, fixed the company’s computer distribution software problems, has made recent strategic acquisitions and has his sights set on expanding geographically and in products and services.

“We want to expand our bearing and power transmission market share in southern Ontario and in western Canada. We are also looking to expand our hydraulics capabilities, particularly our hydraulics service capabilities. We also want to expand our process equipment product line offering, which is currently the smallest part of our business,” Duncan explains.

With 650 employees, Kinecor is known as a distributor of bearings and power transmission products, hydraulics components and systems, process pumps and equipment, and automation and motion control technologies. It also manufactures power units and its in-house engineering departments design, build and install integrated systems.

Kinecor and Spencer together make up the industrial components division of parent company Wajax Ltd. of Toronto. It is the parent company’s second largest division. Wajax also distributes mobile equipment — its core business — across Canada under the Wajax Industries name. As well, it distributes diesel engines and related components through its Detroit Diesel-Allison Canada East and Waterous Detroit Diesel-Allison businesses.

Kinecor’s largest customers include Ispat, Algoma, Bowater, Tembec, Kruger and Domtar. Yet, says Duncan, “we have some customers that do only $5,000 in business a year. We are interested in doing business with all categories (from walk-in trade on up) and we have the resources to handle it.”

Kinecor, headquartered in Quebec and with 56 branches from Newfoundland to British Columbia and the Northwest Territories, was created through the merger of Wajax Motion Technologies, Wajax Process Technologies, National Bearings and Spencer Teris, on May 1, 2001. This was followed by the addition of Spencer Industries.

Kinecor then tried to integrate all of the different computer systems from the merged companies under a common architecture, but, says Duncan, “It just didn’t work out as well as planned.”

Duncan inherited several problems when he joined the company and his goal, in a word, was “survival.”

“I thought Kinecor had some major challenges: There was the computer systems issue, there were issues regarding integrating all the Kinecor offices, there was a branding issue, and a profitability issue in terms of declining sales and expenses out of control.”

He solved the computer integration issue by replacing the distribution software that Kinecor had originally purchased with a more appropriate system. He also raised the profile of cost-cutting. “One of my observations in bearing and PT is that there are a very high number of transactions from our customers to us, and us to our suppliers.

“When we look at logistics and how materials go from the manufacturer to us to our customers, I think there are ways to take costs out of the system. We are restructuring our distribution centre and reducing our freight costs. I have people assigned to reduce costs in the supply chain and elsewhere.”

Duncan also has made a number of changes at the senior management level, continues to place a high value on employee training and development, and is working to put a face to the company. “We took 10 people down to the last PTDA show.” [Editor’s note: He’s referring to the 2003 Power Transmission Distributors Association conference. He took even more — a total of 13 — to the 2004 event held just before this issue went to press, a record for the most delegates from a single distributor.]

“It was an eye opener for others to see us there. I believe in associations. It is a good opportunity to interact with vendors and distributors and get together in one place,” he says.

Duncan expects that acquisitions will account for a goodly portion of the company’s growth over the next three years. An MBA graduate from the from the University of Western Ontario, he believes that his previous 20 years experience as president and chief executive officer of Mississauga, Ont., based RNG Group, which focusses on distribution to the petroleum industry, gives him an excellent understanding of what constitutes manageable company growth. “I made a lot of acquisitions with RNG, so I do have quite a bit of experience making them and integrating them successfully into the company.”

In July 2004, Kinecor acquired Jonction de l’est, a Rimouski, Que., company that sells products to the sawmill industry, particularly in the Gasp region. “It gives us a branch in Rimouski that will serve our customers better than we have been able to in the past. We are using this as a way to set up a bearing and power transmission branch there.”

Last December, Kinecor acquired PDMF Hydraulik and its Hy-Spec trademark. PDMF exists no more and Kinecor will import and sell Hy-Spec products, which are low-cost hydraulic accessory components that include utility cylinders, agricultural and telescopic cylinders, valves and gauges for the mobile hydraulic market.

Last October, Kinecor opened a new branch in Guelph, Ont.

The distributor is particularly interested in expanding its repair capabilities, especially in the hydraulic market, explains Duncan. “A lot of customers want to know, if they buy a product from us, that we can repair the equipment as well. We want to expand that and become known. We will likely [grow this area] through acquisitions and alliances with independent repair shops,” he says.

“We are working to build on our strengths: We are a national company, we have a good line-up of products, and the best team in the country. We are working to be a cost-effective distributor, but are taking a value-added approach to the customer.”

Carroll McCormick, a Montreal-based writer, is a senior contributing editor for Machinery & Equipment MRO.