OPERATIONAL REVIEW: FELTEX AUTOMOTIVE

Profile

The Feltex Automotive division is one of South Africa’s largest automotive component manufacturers and has manufacturing facilities situated in Durban, Rosslyn, Port Elizabeth, Ladysmith and East London, in close proximity to the Original Equipment Manufacturer (“OEM”) plants. Feltex Automotive comprises six business units that supply parts either directly or indirectly to the South African motor vehicle manufacturers (OEMs).

The six business units are:

Feltex Automotive Trim is the leading supplier of a wide range of quality automotive acoustic and trim components to all the OEMs in South Africa.
Feltex owns 74% of Feltex Fehrer, a joint venture with F.S. Fehrer Automotive GmbH of Germany. The Fehrer Group provides technical expertise to the joint venture to manufacture moulded polyurethane products, predominantly seats and headrests, for all the OEMs in South Africa.
Feltex Foam Converting produces a wide range of polyester and polyether foams principally for the automotive market.
Feltex Unifrax is a unit which uses state-of-the-art technology from Unifrax Corporation of the USA to produce mats that protect the catalytic converters in car exhausts.
Feltex owns 49% of Rieter Feltex, a joint venture with Rieter Automotive Systems Group of Switzerland. Rieter produces heat shields and underbody shields for motor vehicles.
Feltex Automotive Leathers is a tannery converting hides into leather predominantly used in the interior of motor vehicles.

While there is a strong culture of interdependence and synergy among the six business units, each is managed as an individual profit centre, led by a focused and disciplined team.

The key success factors of all operations are consistent quality, outstanding service, investment in modern technology, environmental responsibility, the valuing of our people and internationally competitive pricing.

The pursuit of excellence remains a cornerstone of this division through continuous improvement and lean manufacturing programmes.

Year under review

Fuelled by strong growth in the domestic economy, the South African automotive market showed a significant 26% year-on-year growth in new vehicle sales. The largest growth arose from imported vehicles, which now account for approximately one-third of all sales. Local vehicle build, which, grew by 14,5% from 434 000 to 497 000 units for 2005, was buoyed by the launch of three new models, namely the Toyota Hilux, BMW 3 series and the Ford Focus.

The automotive division as a whole achieved its 2005 profit target in spite of significant raw material price increases and production disruptions caused by start-up of new contracts and installation of new technology.

Feltex Fehrer, Feltex Foam Converting and Feltex Unifrax delivered good growth and acceptable returns.

Feltex Automotive Trim was adversely impacted by production problems experienced during new vehicle launches. These have been successfully overcome and the substantial additional revenue from these new models will deliver good margins in 2006.

The performance of Rieter Feltex was restricted by lost production during the installation of a Long Fibre Technology (“LFT”) plant. The LFT plant, which was commissioned late in 2005, is the only local manufacturer of automotive underbody shields.

A significant forward market share in this sector has already been secured. The consolidation of production for heat shields and underbody shields into one plant in the Rosslyn Automotive Supplier Park was completed in the second half of 2005, and a full year of the benefits arising will further influence 2006 performance.

Feltex Automotive Leathers suffered a decline in revenue due to the liquidation of MG Rover and a temporary decline in volumes during model change-overs.

The automotive sector requires ongoing investment in people and equipment. During 2005, R39 million was spent on acquiring production facilities occupied by the division, and R26 million was spent on efficiency improvements.

Prospects

The outlook for all operations in the automotive division is healthy due to anticipated growth in local vehicle build of approximately 10% in 2006. Having successfully overcome the initial production challenges relating to the three model launches and the installation of the LFT plant, in the year under review, aboveaverage growth is expected from Feltex Automotive Trim and Rieter Feltex businesses.

No new model launches are anticipated in 2006, but two new launches are expected in 2007, being the new Toyota Corolla and the Mercedes C-Class.

Feltex Automotive will continue focusing on its core competencies and the development of an enabling, challenging team-orientated work environment where responsibility, accountability and achievement are encouraged and rewarded.