Operational overview

Automotive

Ugo Frigerio        Divisional director; BA Hons; MPhil

Feltex Automotive comprises six strategic business units that supply products directly and indirectly to the South African OEMs [Original Equipment Manufacturers]. The Automotive division is now one of South Africa's largest automotive component manufacturers. Manufacturing facilities are situated in Durban, Rosslyn, Port Elizabeth and East London in close proximity to the assembly plants to facilitate "just in time" and "just in sequence supply". Integrated computerised information technology systems link into the customer's electronic data interchange production planning systems.

The key success factors of the automotive divisions are consistent quality, outstanding service and internationally competitive pricing. All divisions have achieved a dominant supply position in their product sectors and this has enabled the businesses to achieve competitive prices through economy of scale benefits.

Feltex Automotive Trim

Andrew Wood        Divisional director; BA Hons; PMI (Dip.)

The Trim division is the leading supplier of a wide range of quality automotive acoustic and trim components including main floor carpets, dash insulators, engine and passenger compartment insulators, trunk packages, parcel shelves and sun visors, shower curtains, seat back trim, trunk mats, roof and bonnet liners, exterior textile wheelhouse liners and loose lay mats. Acoustic components are developed to reduce the noise in the passenger compartments of motor vehicles.

A major competitive advantage is the long term technology and licensing agreements that have been established with global leaders in the manufacture of automotive and trim components. Vertical integration also improves competitiveness. The raw materials for use by the converting units are manufactured in-house. This division is a first tier supplier to all the leading OEMs and is the dominant supplier in its product range.

Feltex Fehrer

Feltex Fehrer (Proprietary) Limited was established when Feltex sold 26% of its foam mouldings division to the leading international foam mouldings manufacturer, Fehrer of Germany. This arrangement secures the continuity of technical expertise.

Feltex Fehrer manufactures moulded polyurethane products to international specifications and quality standards. The Feltex Fehrer product range includes automotive seat pads, armrests, headrests, wire frames, listing wires and suspension aid buffers.

Feltex Foam Converting

This business is situated in Durban and produces a wide range of polyester and polyether flexible, semi-rigid and rigid thermo-formable foams in peeled and shaped component format. Most of the output is delivered to the automotive market where a significant market share has been achieved. The foam laminates the fabric to the car seat. Foam products are also supplied to the apparel, filtration, footwear and leisure industries.

Feltex Unifrax

Feltex Unifrax is in partnership with Unifrax Corporation of USA to manufacture mats for catalytic converters to protect the filter in the exhaust of a motor vehicle. Unifrax is the world-leading producer of high temperature fibre products for a wide variety of industrial applications. This is a growth market with increasing environmental demands for lower motor vehicle exhaust emissions.

Rieter Feltex Automotive

The Rieter Feltex Automotive is a joint venture (JV) with the multinational Rieter Automotive Systems group, which was established in 1998. Feltex owns a minority share of 49% but has management responsibility for operations. For accounting purposes the JV is equity accounted. This arrangement secures the continuity of technical expertise.

The JV produces heatshields in Rosslyn and distributes noise and thermal protection systems as well as floor systems and interior trim. These reduce noise and stop heat from the engine from causing discomfort in the passenger compartment of a motor vehicle.

Wayne Rubber

During the year, this business was refocused on Kraiburg branded pre-cure tread for the trucking industry and rubber sheeting products for industrial applications. Kraiburg is the leading European manufacturer of pre-cured tread. A technology and supply agreement with Kraiburg is designed to promote the Kraiburg brand and increase sales volumes in the local and export markets. Manufacturing facilities are situated in Durban. Negotiations are in progress to form a JV with Kraiburg to increase its involvement in the technology, production techniques and product development.

Feltex Automative Leathers -
Ladysmith

Feltex Automotive Leathers (FAL) has a large modern leather finishing factory based in Ladysmith. It produces leather for seats, door panels, gear boot covers, gear lever covers, sun visors and service manual covers for motor manufacturers. In addition, it markets quality leather products for the furniture and aviation industries. It services both global and local markets.

The company has stringent quality standards and has achieved international quality accreditations.

Currently the production facilities have sufficient capacity to more than double throughput volumes to produce wet-blue hides/wet-white hides for automotive tanneries. FAL is proud to be associated with DaimlerChrysler, Toyota, General Motors (Opel and Isuzu) and Mitsubishi, and constantly strives to improve its global competitiveness.

MIDP [Motor Industry Development Programme]

The Automotive division benefits from the MIDP enacted in 1995 resulting from government's positive engagement with labour, component automotive original equipment manufacturers with the objective of reintegrating South Africa into the international motor industry. The result is a plan that places the local industry in a more competitive position to compete on a global basis. The MIDP has been through two reviews to fine-tune it and extend the benefits to 2012. This gives a longer planning horizon to participants and the programme is supported as being a balanced system that is feasible but challenging.

Automotive markets

The revenue driver for automotive component suppliers such as Feltex is the OEM build volume. The industry has enjoyed a buoyant year with local car sales supplemented by good export volumes.

2004 was a record-breaking year as car and light commercial vehicle [LCVs] sales in South Africa hit a record high of 450 000 units - an increase of 22% from 2003. The local vehicle build, which is the more relevant revenue driver of the Automotive division was 434 000 units - an increase of 7%. The difference is accounted for by the fact that vehicle imports increased at a faster pace than exports. Economic conditions have been favourable for vehicle sales including low interest rates resulting in more disposable income as well as restrained price increases from the OEMs and the emerging market where, in the past three years, 300 000 more people have moved into the income sector where a new vehicle is affordable.

Domestic sales 1995 to 2004 and 2005 forecast (click to enlarge)

Vehicle exports 1995 to 2005 (click to enlarge)

Review of 2004 results

Market growth has had a positive impact on the results of Feltex Automotive. Annualised turnover increases and efficiency improvements produced a substantially increased contribution to profits. All business units, with the exception of Wayne Rubber, contributed to the improvement with the Trim division, in particular, benefiting from the investment in new equipment and acquisitions of recent years.

The Automotive Leather business had an excellent year and almost doubled its profits by aggressive raw material procurement and improved yields arising from efficient conversion. Both the Foam and Unifrax businesses increased their profit contributions.

Total investment in new plant and equipment amounted to R24 million, representing major expansion investment in new car models launched in 2004 and to be launched in 2005.

Prospects

The domestic market is anticipated to expand further, with car and LCVs sales of 484 000 units forecast, representing volume growth by 5%. As exports are forecast to grow faster than imports, the build is forecast to grow 11% to 483 000 units. As a result, the Automotive division is expected to continue to show volume growth, due to the introduction of the new Toyota HiLux, BMW 3 Series and Ford Focus and Mazda models that will commence commercial production in 2005.

The division will benefit from arrangements made with overseas alliance partners to supply the new vehicle models due for launch in future years. In view of this, the business is entering an expansionary phase as these models are rolled out, with volumes peaking in 2006.

The Trim division's investment in new capacity and a waste-recycling project will improve margins and contribute to increased profitability. The leather division is likely to experience a period of consolidation but the turnaround in Wayne Rubber should more than offset this.

For these reasons, management is confident of achieving further real growth in the year ahead.