Atlantis Foundries

AT L A N T I S FOUNDRIES

ATLANTIS FOUNDRIES

Atlantis Foundries Forging

New Opportunities PRODUCTION: David Napier

After a challenging year in 2016 as a result of the decline of the Class 8 Market in the US, Western Cape-based Atlantis Foundries, global leader in supply of heavyduty engine blocks, is looking forward to a prosperous future with a number of investments and opportunities bubbling in the pipeline.

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The ability to search out, capture and make the most of new opportunities is vital for business development, and when the market is tough, the economy is slow and the future is uncertain, this hunt for new prospects is more important than ever.

This is the situation for Atlantis Foundries; sold two years ago by Daimler to German foundry group, Neue-Halberg-Guss (NHG), the company is reviewing all of its business and hoping to forge new opportunities in new markets with new products, while continuing

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to offer first-class service to its existing clients all over the world.

Atlantis Foundries is based in the town of Atlantis in the Western Cape. It’s around 50 km from Cape Town Port and 55 km from Cape Town Airport so strongly located logistically. It’s core business is the production of cylinder blocks for heavy-duty cars and trucks, with the ability to produce other cast automotive components.

Formed 38 years ago, in 1979 by the SA government, the company has endured through social, societal, political, economic and technological change. 99% of its

produce is currently exported but, according to Chief Commercial Office Sally Redshaw, this could be about to change as Atlantis searches for opportunities closer to home to complement its existing export portfolio.

“Working with SA OEMs is absolutely something we’re looking at,” she says. “We’re focussing heavily on marketing, both locally and at group level. Because we were owned by Daimler for many years – their focus being Daimler products – they cancelled contracts with other customers with whom we had longstanding relationships so we’re

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INDUSTRY FOCUS: AUTOMOTIVE

actively trying to win those back and win new business.

“We recently participated in our first NAACAM (National Association of Automotive Component and Allied Manufacturers of South Africa) exhibition in Durban and it really exceeded our expectations.

The timing was perfect because it was part of a localisation indaba where Minister of Trade and Industry, Dr Rob Davies, announced that in order to qualify for the 2020 replacement of the current APDP (Automotive Production and Development Programme) incentive scheme, which is crucial for our competitiveness, they are looking for 60% local content for OEMs. That means that we have a much bigger opportunity to enter the local market than ever before and one of the easiest ways to localise is for the OEM’s to look at the engine build. Atlantis Foundries also offers the OEM’s the same (if not better) quality and standards that can be expected in other parts of the world and a competitive price.

The only drawback is that we are predominantly heavy-duty and we, at this stage, cannot yet produce aluminium engine blocks for passenger cars on a large scale.”

Opening up this new market would require investment into new facilities but would offer Atlantis access to a potentially major market with a first-mover competitive advantage.

“We are looking towards producing in lighter material because we see an opportunity in the local market, and an entry to expand into passenger car components – especially with the drive for localisation within SA,” says Redshaw. “Locally, there are no companies that supply engine block castings within SA and so we are looking at investment opportunities surrounding the feasibility of installing an aluminium line.”

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With a number of major global passenger and commercial players active in the manufacture of vehicles, including automotive super-powers such as BMW, VW, Ford and Toyota, South Africa produced around 600,000 vehicles in 2016; clearly an attractive market for a business like Atlantis Foundries.

PRODUCTION LINE INVESTMENT Since Daimler took control of the Atlantis business in 1999, the company went through an exponential growth period, increasing casting production from 30,000 to 69,000 net tonnes per year. Today, its reputation for quality is international. But to ensure the company remains at the peak of the industry, a strategy of continuous and ongoing improvement has been adopted.

But this is not easy for a foundry business; it’s not as simple as a software upgrade or a new machine, as Redshaw explains.

“Foundry technology is old and established, and involves very complicated processes.

There simply aren’t the same technological advancements as there are in other industries,” she says. “For improvement, we have to look internally to focus on standardisation, optimisation of layout, continuous maintenance and preventative maintenance. In terms of capacity, it’s difficult to increase in small increments in the foundry business, it’s generally a very large jump. You get to the point where you have to make a huge investment and go for a whole new mould line, new furnaces etc to get to the next level, and for that type of investment we need firm Customer Orders and commitment.

“What we try to do is make processes more efficient so that we can get more output with the same or less input. In terms of

automation, we’ve not focused robotics to reduce labour costs as the payback has been 3-5 years.

Historically, we only invested in robotics for safety, quality, or if it is impossible for a human to perform the task. However, that is changing; we are in a high inflationary country, labour rates are increasing 8-10% each year and the cost of automation is constantly reducing.

“We’re looking at it stage-bystage. We have one large robot for core dipping, we have a core drilling robot which we installed earlier this year, and we have plans for other, medium-sized robots. We’re not looking at going fully automated, that’s not easy in foundry, but we do have a lot of plans that are being discussed. The rate of installation will be dictated by our natural labour attrition.”

Any investment that can help improve efficiencies and processes will be welcomed by the company’s widespread customer base, and its 851 permanent employees. Locally, the Atlantis Foundries directorship formulates strategy and consults with NHG for large-scale expansion tactics.

“Our decision making is done locally,” explains Redshaw. “We are a separate entity although part of the group. We know that you can’t just apply the same things that work in Germany over here and that’s something we’ve learnt being part of Daimler. Only significant investment that needs approval go through the parent company.

We devise the strategies, goals and targets here in Atlantis. Of course, we do keep in mind the overall objectives and strategy of the group.”

FEELING THE HEAT? While the opportunities for Atlantis Foundries’ expansion may be great, there are some hurdles which first need to be cleared; or at least fully-

ATLANTIS FOUNDRIES

understood – you cannot expand your production line or market to new segments if the ROI is not worthy.

The major challenge faced by the company is the weak economic performance of the country. After entering recession in 2008 and rebounding in 2012, the country is once again only growing at marginal rates (approx. 0.6%) and this is worrying for those trying to expand. Of course, this situation is exacerbated by uncertainty in the global economic climate.

“Last year was difficult for us,” admits Redshaw. “There was a significant decrease in the market in the US, which dipped by almost 40%, and so we had problems at the end of the year and were forced to restructure slightly. We didn’t expect any turnaround in the volumes short-term, and that has been the case.”

She says that there is no indication that political influence has had any impact on demand from the US but politics could play a role, that the company will have to monitor, in the future.

“We are now getting indications that the market in the US is picking up again but there’s concerns for us about trade agreements, specifically with the US. 60% of our product does go to the US and under AGOA they are able to claim GSP on import tax making it interesting for them to buy from SA. We’re not sure about the future of that arrangement and that concerns us.

“Locally, the fluctuating currency price causes us problems as it disturbs pricing strategies with OEMs and there are pieces of industrial equipment and resources that we simply cannot source in SA and with a weak Rand they cost us more. The downgrading of credit status also concerns us.

“We have heard predictions that an upturn is coming and we

will soon get back to around 3% but right now we don’t know.”

If the company’s potential expansion into the passenger car industry materialises soon, this could provide a needed boost.

“In the heavy-duty industry there’s a cycle, and that’s the same for passenger cars. For heavyduty, we are currently in a down period and we could be producing a lot more but the demand simply isn’t there. With passenger cars, it follows a similar but shorter cycle and we don’t see a major problem right now; Toyota, Ford, Nissan, VW, Mercedes-Benz and now BAIC are all heavily investing and there’s a lot of interest from the OEMs,” explains Redshaw.

Away from economic concerns, Atlantis Foundries is also having to carefully consider its approach

to input costs. One of the key elements in its supply mix is steel and that industry in its own right is under increasing pressure in SA. “We need a good quality, reliable supply of steel scrap at a competitive price; it’s one of our biggest inputs into the product and it’s challenging. Many customers don’t appreciate that steel prices in SA are not aligned with general indices. In Europe for example, you can buy steel scrap at indices prices but it doesn’t work that way here,” says Redshaw.

“It’s a serious challenge. We’re competing against traders who are buying for the export market and that’s a challenge for a lot of people in the steel and foundry industries.

Also, where we are located in the Western Cape, there’s not a lot of industry so we can’t get material

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INDUSTRY FOCUS: AUTOMOTIVE

locally and that means we incur logistics costs.

“We’ve looked into importing steel and we’ve been approached by companies from China, India and Brazil trying to sell to us but the delivery time is long, quality is never guaranteed and the logistics

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costs are high so at the moment it doesn’t make sense,” she adds.

ISO 14001 CERTIFIED Another significant challenge facing Atlantis is the business worlds ever-increasing focus on environmentally friendly practise.

Companies are continuously put under pressure to reduce their impact on the environment and improve their carbon footprint.

But this is not something that Atlantis views as a challenge and the company embraces the move towards energy and environmental

ATLANTIS FOUNDRIES

efficiency as an opportunity.

“Being a responsible corporate citizen, it is a welcome concern for us. Right now, we’re facing serious water shortages in the Western Cape and in the past we’ve had loadshedding so we’re aware that effective management of resources is vital.

We have recently received our ISO 14001 certification so we do have an environmental management system within the company that pushes us to be much more conscious and aware while looking for more energy efficient methods and processes.

“We’re working on a sand reclamation programme as sand is a major input into our process. We’re looking at sand separation so we can use old sand from used moulds again and not dump it. We’ve replaced the lighting across our facilities with LEDs, we’re looking at putting solar panels across our site and we’re looking at boreholes and water re-usage programmes to ensure we remain focussed on resource and environmental efficiency, and this obviously has a positive impact on costs” says Redshaw.

CASTING THE RIGHT PEOPLE The next big obstacle for the Atlantis to conquer is that of skills.

Recruitment and development is an extremely challenging area for the company, with the oftenmentioned ‘skills gap’ coming into play but in the foundry industry, this is intensified by the fact that skills development cannot be fasttracked.

“It’s very difficult to find artisans with relevant industry experience,” details Redshaw. “The foundry industry is not a huge industry, especially in SA. There’s only a few major key players from across the globe and foundry is not something you can learn from a book; it takes a lot of years to learn the different permutations.

“We have to take on artisans with a basic skill level and knowledge and invest a lot of time, effort and money training them over a long period of time. We do have a very low attrition rate; we have a number of people who have been with us for more than 25 years and we have to plan for the future.”

To combat this problem, Atlantis Foundries looks to education for a solution.

“We have a heavy focus on CSR. Our local community is vital for us; approximately 90% of our workforce comes from Atlantis so we have a great sense of commitment and we feel responsible for our community.

We invest into schools, we pay for additional learning, we offer bursaries for students and we like to help families of our staff and others in the community.

“We have a good contact with the local colleges and universities and also, to a lesser-extent, with institutions in Johannesburg and this is usually where we source our students, artisans and learners,” says Redshaw.

INDUSTRY POLE POSITION It’s clear that although Atlantis Foundries has experienced difficulties in the past 12 months,

this specialist SA company has remained focussed on its core business and continued to delight customers with reliable, highquality supply – something which isn’t easy in the foundry business.

“There’s no other foundries in SA that can produce the size and weight of engine casting that we can,” enthuses Redshaw. “The main product that we make for Daimler is one of the most complex castings in the market and we produce it to the very highest quality, and we have a great record on quality. We don’t have a direct competitor from SA for the markets we’re in. We have a great reputation locally, we have a lot of history and we’re crucial to the Western Cape, the South African Foundry Industry and the community of Atlantis,” she adds.

The next step in taking this business to the next level is for Atlantis to secure new business, both locally and in export markets.

This will in turn allow the company to justify investment into expansion and build on its already sterling reputation while creating jobs and further benefitting the economy.

“We are always looking for innovation, efficiency and different ways of doing things to keep our competitive advantage. We’ve been in the game for many years, we have a lot of experience and that helps to carry us through,” details Redshaw.

“From our perspective, the future is bright. We think we have a sustainable future. There are many opportunities for growth and new business,” she concludes.

ATLANTIS FOUNDRIES +27 (0)21 573 7200 www.atlantisfoundries.com

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