Ellies Electronics, the maker of electrical cables and plugs, is considering cutting a fifth of its workforce, it says, citing financial losses that underline a slump in the manufacturing sector.

Ellies, which has 872 people on its payroll as of the last financial year and is a division of JSE-listed group Ellies Holdings, is the latest manufacturer to feel the pinch of an economy that has hardly grown over the past 10 years.  

Business conditions in the manufacturing sector fell for the fourth month in a row, reaching their lowest levels since 2009, according to Absa purchasing managers’ index released on Monday, hours before Ellies said it would begin talks with unions about the layoffs.

Ellies, which also makes security alarms, intercoms and floodlights, said weak demand in the local market forced it into re-examining its organisational structure, leading it to consider laying off workers to fit its revamped structure.

“This is about ensuring the long-term sustainability of the Ellies business and improving our competitive position,” CEO Shaun Prithivirajh said.

The restructuring, which would affect 183 jobs, would allow the company to focus on its core business of procurement and sale of electronic products.  

In the last financial year, employee costs were the largest expense item at group level, accounting for R228m, or 17% of Ellies Holdings’ R1.35bn revenue. The company’s profit fell 292.1% to a loss of R30.1m, from a gain of R15.7m in the previous comparable period.

The planned retrenchments could add to the already spiralling unemployment crisis in the country, with unemployment at 29.1%.

Last month Telkom said it was planning to cut about 3,000 jobs, citing a weak economic environment and the company’s declining performances in fixed-line voice, fixed-line data — due to migration to mobile data — and organisational and operational efficiencies.

This comes as Walmart-owned retailer Massmart plans to retrench about 1,440 employees across 34 DionWired and Masscash stores.

“Any retrenchment process is difficult for all involved but if we did not take action now, we would have to take even more drastic measures across the group later. We firmly believe that this initiative is in the best interest of Ellies and its stakeholders,” Prithivirajh said.

“We understand that this will be a very difficult and challenging period for our employees, but we will manage this process fairly with respect to our employees’ rights,” he said.

gavazam@businesslive.co.za