We caught up with IMC President and CEO Jacob Harpaz at AMB in Stuttgart to chat about how the cutting tool supplier Iscar is performing after U.S. billionaire Warren Buffet bought the remaining 20% of the IMC International Metalworking Companies last year, seven years after snatching up 80% of the company.
ETMM: Jacob, nice to meet you at AMB in Stuttgart. How is the show going for Iscar and how was IMTS in Chicago last week?
Harpaz: I was surprised that IMTS was so busy this year. It was one of the biggest shows, and you have to remember that in the past IMTS used to run over 11 days. AMB is not just a local German exhibition anymore, it has developed into a “mini-EMO”; it has really grown into a European exhibition. The strong attendance at AMB is a very good sign for the German industry and I hope it will influence the rest of the European market.
ETMM: Talking about Europe – are the European sanctions against Russia influencing your business?
Harpaz: The sanctions against Russia mainly hurt the machine tool makers, they are going to suffer. So far, there are no European sanctions against cutting tool manufacturers.
ETMM: Last year, Warren Buffet paid $2bn for the remaining 20% of the IMC Group. Your value must have doubled, considering he paid $4bn for 80% of the business in 2006.
Harpaz: First of all, he bought an 80% share for $4bn in 2006. For 100% we agreed on $5bn. Considering he was not paying any dividends, you can see it as paying dividends. The company was doing better and better. We were lucky that we were doing well up until the crisis. Then 2011 was a good year again, and so was 2013. This contributes to the profit and the formula to pay more.
ETMM: What has changed since Warren Buffet bought 100% of the company?
Harpaz: I would say that the uniqueness about Berkshire Hathaway and especially Warren Buffet is that he lets us run the company the same way we had been running it before. It is still a family-oriented company, there is no change at all. The company success is based on the business culture. If you change a business culture you are going to lose people. Employees are most important. If they feel there is no change, they will continue to contribute. That is the huge advantage. Warren is not even visiting our company. He lets us run the company and we still maintain the family feeling and keep the same family culture.
ETMM: You said 2013 was a good year – are there any particular markets that have grown?
Harpaz: The huge recovery and huge demand for machine tools and cutting tools was in 2011. We have seen some recovery in 2010. Automotive is a big part of the upturn. Most of the cutting tools are going to the automotive subcontractors – China was booming in that respect and is the biggest consumer of machine tools. 48% of machine tools go to China, and with the machine tools come the cutting tools.
ETMM: Is China your biggest market?
Harpaz: The U.S. and Germany are Iscar’s biggest markets. If you take the IMC Group including Tungaloy, Japan is a big market, too. In Europe, Iscar is doing very well in Spain and Italy, the recovery started in 2013. For 2014 I would say that we are very satisfied and especially Italy started to do very well in the machine tool business. These two countries were the last to recover from the crises but they are already above 2008. I think India is also growing really fast in machine tool consumption.
ETMM: How big is the tool and mould making industry for you?
Harpaz: If I am looking at the real consumers of cutting tools, then there is automotive and general engineering, which make up around 70% of the cutting tools sales. Around 15% go into aerospace. The rest can be medical and others; the die and mould industry is around 5% or 7%.
ETMM: Thank you very much for your time.
Harpaz: You are welcome.