Foseco products in the foundry casting process
Foseco is a world leader in the supply of consumable products to the foundry casting industry
Foundry Trading Profit1
Foundry Return on Sales1
- At constant 2013 currency
Foundry Industry overview in 2013
The light vehicle industry continued to face challenges in most parts of the world. German light vehicle production reduced 2.5% on 2012, with strong exports to China and the US not fully compensating for weak domestic demand. By contrast, NAFTA and Brazilian production grew 4% and 7% respectively as domestic demand continued to recover. In Asia, Japanese production reduced 3.5%, Korea remained flat as exports to China compensated for weaker domestic demand and India, continuing to suffer from an overall weak economy, rising fuel prices and interest rates saw 2013 car production fall 14% vs 2012. China light vehicle output grew 11%.
The global truck industry grew 4% on 2012, driven by a 50% growth in South America as Brazil recovered from a weak 2012 (which had been down 63% from 2011) due to the wider availability of fuel for the new Euro V engines. Aside from 10% growth in China, the rest of the world experienced reduced output – Europe down 4% and NAFTA down 3%.
During the second quarter it became clear that the general decline in commodity and precious metal prices was starting to impact the mining industry. New projects were delayed resulting in reduced activity for those foundries producing castings for the mining process and related equipment and vehicles. The railroad industry also suffered due to reduced mining activity. These effects were felt most severely by the North American and Australian foundry industries and in the former, the growth in shale gas as a source of energy further reduced railroad activity as coal movement reduced. A number of construction and mining equipment producers have announced rationalisation programmes.
Foundry Outlook in 2014
Global foundry activity is expected to continue in 2014 at similar levels witnessed in 2013, though the situation varies by casting end-user market segment and geography. No short-term recovery is expected in the North American or Australian mining industries, though North American and German automotive production are expected to remain firm. Activity in China continues to strengthen.
Vesuvius in the Foundry Industry
The Foundry division of Vesuvius, trading under the Foseco brand, generates 33% of total Group revenue and is focused on the global foundry industry which produces castings used in a wide variety of engineered components. Some 40% of castings (and a similar percentage of the revenue for the Foundry division) are produced for the vehicle sector, of which approximately 25% comprise light vehicle (passenger cars and light trucks) and 15% for heavy trucks. Other end-markets for foundry castings include machinery for the construction, agriculture and mining industries, power generation equipment, railroad and general engineering. Foseco is a world leader in the supply of consumable products and services to the foundry industry. These products typically represent less than 5% of a foundry's production cost, but contribute significantly to improving both product quality and manufacturing efficiency whilst reducing the environmental impact of the casting process.
Customers of the Foundry division include the world's major automotive OEMs, truck producers and manufacturers of construction, railroad and mining equipment. The foundry market is highly fragmented and Vesuvius' 20 largest foundry customers represented only 11% of the division's revenue in 2013.
Potential revenue per customer and per tonne of castings produced is strongly influenced by the technical sophistication of the casting and the process used in its production. These factors tend to correlate with the level of industrial development of the market. Therefore Vesuvius sees significant growth potential as industrial development continues to progress in developing markets, particularly certain parts of Eastern Europe and Asia.
Foundry Division performance
Revenue of £493 million represented a 7.0% reduction compared with 2012 (down 6.0% on an underlying basis). The impact of the mining and construction slowdown in the second half of the year contributed to the reduction in revenue. As mentioned, the impact was most severe in the Division's US and Australian businesses. In both locations action was taken promptly to align the cost base with activity.
In last year's report a key strength of Vesuvius was highlighted, that of having a cadre of geographically mobile senior executives whose skills are transferable across the Group, thereby facilitating the transfer of best practices and the Group's value-based culture. This remains the case, and during the year, the leadership team for the Foundry division was strengthened by the transfer of the Group Lean Director to the position of Foundry Operations Vice President.
During the year significant progress was made in implementing the Foundry division strategic plan.
Key actions included:
- The near-completion of Phase One of the China manufacturing expansion in ChangShu, due for commissioning in the first quarter of 2014. This first phase will be a state-of-the-art Feeding Systems plant
- The Board approved the Phase Two investment in ChangShu, a Coatings plant with a total investment of £8 million
- The purchase of a building in Enschede, the Netherlands, for conversion to the new Foundry central R&D facility to be commissioned in the third quarter of 2014
- The development of growth plans for the Chinese, Mexican and Central European markets followed by initial implementation actions.
The Foundry Strategy
The Foundry strategy, Performance Partnership, is focused on creating greatest value for the customer, by delivering higher casting quality and foundry process improvements. This is achieved through a partnership relationship in which the customer's highest priority growth and process improvement priorities are shared by Foseco. Foseco can then develop solutions customised to the specific customer's needs and opportunities.
Foseco's capability to develop solutions relies upon a Toolkit with four components:
- Product Technology – a wide range of best-in-class products, renewed through continual innovation
- Applications Expertise – the applications skills required to ensure that the products deliver maximum performance when used by foundries
- Foundry Process Knowledge – intimate knowledge of foundry technology, the customer and its casting processes
- Process Control Capability – a range of hardware and software to optimise product performance and consistency in use.
Ensuring that Foseco's Toolkit is always up to the job requires that we excel at product innovation based upon a deep understanding of the foundry industry needs, the development of teams of expert application engineers across the world and that we maintain a deep knowledge of the foundry industry and our customers.
In respect of product technology, Foseco is a world leader in the breadth of its product range with consumable products for all parts of the casting process. To ensure that the customer gains the full benefit from the use of Foseco's products, a high degree of applications expertise is required. Foseco has a comprehensive network of technical sales staff and application engineers across the world, thereby ensuring that customers have access to high levels of locally available technical support. This network is being expanded in developing markets.
Pictured: Foundry feeders
As a partner to its customers, Foseco must bring deep foundry process knowledge to the relationship to ensure that the proposed solutions align with each customer's unique needs. Finally, to maximise the performance of the product or process, process control capability is necessary. Foseco achieves this through a range of engineering equipment and software, all of which are designed to control and provide feedback on the performance of the product.
As set out above, Phase One of our ChangShu investment is nearing completion. Phase Two investment has already started, expected for completion in the first half of 2015. In conjunction with this the Foundry business unit manufacturing capability in China will be at the leading edge, with a technical team that continues to be strengthened through the secondment of group experts into the region.