The current focus of Atlantis Foundries (AF) is to secure new business, products and customers, in addition to the existing business, says AF chief commercial officer Sally Redshaw.

“We were unable to source new business under the ownership of Daimler, as it was not part of [its] strategy.”

German carmaker Daimler sold its shareholding in AF in 2015, with the new owner a German foundry group, Neue-Halberg-Guss (NHG). NHG has plants in Leipzig and Saarbrücken, in Germany.

Founded in 1756, NHG produces cylinder blocks for cars and trucks, as well as cylinder heads for trucks and other automotive components.

AF opened its doors in 1979. The company was established by the South African government to produce Mercedes-Benz and Perkins diesel engines for the South African commercial and agriculture markets, and for military vehicles such as the Ratel, Buffel, Casspir and Samil.

Today, AF specialises in medium- and heavy-duty engine blocks for trucks, and industrial and marine applications.

“We produce heavy-duty engine blocks for Daimler, which are exported to Mannheim, Germany, and to Detroit Diesel Corporation, in the US,” says Redshaw.

“These blocks range from 407 kg to 447 kg in weight. We also produce the 400 series Mercedes-Benz engine blocks, which are predominantly used in buses. These are generally exported to Germany.

“In addition, we produce V8, V10, V12 blocks, which are used in a wide range of applications, including marine. These are exported to MAN in Germany.”

AF has a full machining facility and fully machines V Blocks and in-line blocks for MAN.

“We also still produce and fully machine a small volume of four-cylinder blocks for Perkins, which are exported to the UK, Brazil and China. These are used in off-road and agricultural applications,” says Redshaw.

Unfortunately for AF, production volumes in the last 12 months have been declining, in line with a tight global economy.

AF sold 150 581 units in 2016 (59 127 t), compared with 183 898 units sold in 2015 (72 931 t).

“The difference has no relation to the change in ownership, but is a reflection of the market demand and cycle,” explains Redshaw.

“The volumes expected for the market in 2016 did not materialise as forecast and impacted [on] our production levels negatively.

“Daimler still remains our biggest customer. We have a long-term supply agreement in place and, therefore, they will remain an important customer for AF for the foreseeable future.”

The outlook for 2017 is a sales volume of 133 300 units (55 500 t).

“This is heavily influenced by the truck market in the US and, to a lesser extent, in Europe,” notes Redshaw.

“Some supply contracts for older- generation blocks were also concluded at the end of 2016 and, therefore, non-Daimler business should be lower in 2017. The demand for blocks for older- generation engines and the aftermarket declines over time.”

Around 99.9% of AF’s volumes are exported.

SA Advantages
There are benefits to producing castings in South Africa, says Redshaw.

“We have access to natural resources, such as sand, which is a core part of the moulding and casting process. In addition, despite high inflation, labour costs are still slightly lower than in other parts of the world.

“There are also important and beneficial trade agreements in place that make buying automotive products from South Africa beneficial to the customer. Schemes such as the Automotive Production and Development Programme (APDP) provide us with incentives that allow us to remain competitive on pricing.

“Further benefits derive from trade agreements such as the African Growth and Opportunity Act, which provides import tax benefits for customers located in the US. These help us to remain competitive and provide an incentive for the customer to purchase their goods from South Africa due to the positive tax benefits.”

Energy, Steel Scrap Costs a Concern
The South African environment, however, also presents its own particular set of challenges, notes Redshaw.

“We are concerned about the availability of crucial resources such as electricity and water.”

AF uses 650 MWh of electricity, on average, a day.

The company has taken numerous steps to reduce its electricity consumption.

“AF, like many other large industrial users, benefits from lower electricity tariffs. These electricity tariffs are, however, catching up with the tariffs charged to large industrial users in Europe and our competitive advantage is continuously being eroded,” notes Redshaw.

“The same goes for water. Water is an important safety resource for us and we have invested in a number of water saving initiatives.”

Another challenge facing AF is the availability of good-quality steel scrap at competitive prices. This, says Redshaw, is a problem for foundries worldwide.

All AF product have to comply with stringent standards set by the company’s German and American customers.

“The quality of steel scrap plays an important role in the quality of the final product,” says Redshaw.

“Obtaining steel scrap for our needs is a continuous challenge for our purchasing department, especially with customers that are only willing to pay European prices for steel scrap, which are typically 10% to 15% lower than South African prices.”

Policy Support
The APDP is government’s support programme for the automotive industry. A new masterplan is being development for the industry post 2020, when the APDP comes to an end.

The APDP incentives that are currently in place have the effect of neutralising AF’s logistics costs to Europe and the US, explains Redshaw.

“At a minimum, the post-2020 masterplan should address the distance to market. Ideally, it should also aim to improve efficiencies of local manufacturing to enhance competitiveness.

“The masterplan should also provide an incentive for local components suppliers to grow their capacity, thereby creating much-needed jobs.”

AF primarily supplies the European and US markets. Customers in these countries do not evaluate AF in a vacuum when they make decisions to place contracts with the business, says Redshaw.

This means that trade agreements and the stability of the domestic economy and labour environment all play a key role in the decision-making process.

“In our environment, engine programmes run for 10 to 20 years. Car and truck manufacturers (OEMs, or original-equipment manufacturers) have to make long-term decisions that will impact [on] their own supply chains,” she notes.

“OEMs, therefore, require substantial peace of mind that their supplier functions in a stable environment.”

AF currently employs 890 people. The company also has 20 to 30 apprentices and student engineers on site.

AF is committed to providing education and actively supports the development of employees, their children and students in the surrounding community, says Redshaw.

The midterm plan for AF is to grow by selling higher-value-add products, says Redshaw.

AF’s management believes the business has the capability and expertise to supply machined components into the automotive market.

“Our focus is to obtain customers that require cast and machined components.

“At the moment, AF has surplus core- making and melting capacity due to efficiency improvements made in the last 18 months. To convert this surplus capacity into sales requires AF to invest in additional moulding capacity.”