ContiTech takes dynamic mindset into new year

FAIRLAWN, Ohio—Continental A.G.'s ContiTech business is continuing a growth trend by optimizing its manufacturing footprint and building smarter products, according to Jim Hill, CEO of North American operations for ContiTech.

Specifically, Hill's word for the company's manufacturing footprint is "dynamic," as it opens a new mobile fluid solutions plant in San Luis Potosi, Mexico, to produce air induction systems for the North and South American markets. As an assembly operation producing 25,000 pieces per week, the San Luis Potosi plant will help ContiTech service automotive original equipment manufacturers. By the end of 2017, the plant employed about 160, likely growing to 220 during 2018, according to a company release.

Last year's growth has encouraged hiring throughout the North America region, Hill said.

"In 2017, there's been a pretty robust demand for our products," he said.

Though ContiTech shut down its Hannibal, Mo., plant earlier in 2017, the company simultaneously consolidated it into its Mount Pleasant, Iowa, facility with a $12 million investment, he said.

"What we did on the Mount Pleasant side was really make an investment in new equipment and headspace there, and consolidated the two facilities," Hill said. "From a market standpoint, we will have more capacity, a better quality level than before and be able to service those customers in the PVC market better. Yes, there was consolidation, but it was really in the effort to become bigger and improve our capabilities."

The investment into the Iowa facility will add 36,000 square feet, bringing it to more than 200,000 square feet, and enables it to manufacture polyvinyl chloride. Current employment at Mount Pleasant is about 200, and the first phase of the project will bring 40 new jobs, according to Andreas Gerstenberger, global head of the Industrial Fluid Solutions business unit of ContiTech. Employees at the Hannibal plant had the chance to apply for positions at the Mount Pleasant facility.

In Georgia, ContiTech invested more than $9 million to streamline its facilities there. At the end of 2018, ContiTech will relocate operations from its location in Porterdale, which produces single end yarns for technical reinforcement applications, to its Aldora Mills facility in Barnesville, Ga.

The investment will modernize equipment at the Aldora Mills location, and increase the employee total by about 106 more on top of the current 200. Porterdale employees will have the chance to transfer to the Aldora Mills facility.

"Again, it's a consolidation in footprint, but it's an expansion in capabilities that we have," Hill said. "We try to think of it as being good opportunities where we have light manufacturing facilities or processes, and look for ways to combine or enhance those capabilities and what we can do."

The company will continue to look for ways to expand and combine facilities, especially as business has grown, and with it the need for increased rubber mixing capacity, Hill said.

Part of what fuels that push for growth is Continental's goal to become a $59 billion corporation within the next five years, with ContiTech making up about $12 billion of that total, Hill said.

"That's almost doubling our business in five years, so we've got to find some new and innovative ways to do that," Hill said. "But I think (Continental) does a good job of putting your money where your mouth is, and saying, 'We want you to grow. If you bring in a good business case, you can get the dollars to do that.' "

Another part of that effort is expansion outside North America, including growing its composite hose business for the industrial side of the market and a focus on the mining industry, Hill said.

"From an overall market in the Americas, that has one of the areas that we have some of our biggest growth opportunities from a percentage growth standpoint," Hill said. "It's not near as big a market as what we have here in North America overall, but South America is a focused region for us."

Mexico continues to be both a large manufacturing base and market for ContiTech as well, he said.

"We sell product there, but we also use it a lot to source product here," he said. "But while we have a manufacturing focus and concentration of associates down there, we still produce a majority of our dollars and product here in the U.S. It's still the biggest base for our manufacturing."

But markets outside the U.S. are a particular focus for ContiTech in terms of the current political environment and developments regarding NAFTA. Though those potential changes are still up in the air, the uncertainty hasn't altered many plans for ContiTech, Hill said.

"We've continued to expand down there just as we have in the U.S., and I'd say we have probably grown equally on both sides of the border," Hill said. "As the political environment gets more clarity with what may happen with NAFTA, we may adjust our strategy. But for right now, it's going forward as planned."

Specifically in regards to Mexico, ContiTech remains mostly balanced in terms of what it exports and imports, Hill said. With that standard, though potential changes to NAFTA could be concerning, it wouldn't be one of Hill's larger concerns.

"I think we're in a fortunate, balanced position by chance," Hill said. "We're a little bit more balanced so it's not as big an issue for us as it may be for other companies."

Market outlooks

Looking forward, Hill expects demand for ContiTech products to continue to be good compared to 2016, though possibly not as good as 2017's demand for some businesses.

"It just depends on which particular market you're looking at," Hill said. "Overall, we're forecasting to sell more Euros and more units in 2018 than 2017, but we've got to mix in individual business units as we see which are growing and which are not growing."

As an example of growth, ContiTech's Benecke-Kaliko A.G. business unit made a major acquisition of the Weissbach, Germany-based Hornschurch Group to expand its global presence. That group has a significant business in the U.S. based out of Winchester, Va., which makes coated fabrics and related products, Hill said. That acquisition adds close to $119 million worth of sales to the North American region.

Breaking the markets down, the automotive hose market is forecasting just moderate growth, though the automotive industry is forecasting a moderate decline in units, Hill said.

"We happen to be on platforms that are growing rather than declining for us here in North America, so we'll forecast an increase there," he said.

On the industrial hose side, Hill expects growth compared to 2017.

"We've had the expansions at Mount Pleasant, we'll get the PVC plant up with more capacity from that aspect," he said.

ContiTech also recently acquired Custom Machining Services Inc., known for its CustomCrimp and ValPower products. That acquisition, as a crimper manufacturer for hydraulic hose and industrial, will bring in revenue related to those products as well, Hill said. Terms of that acquisition were not disclosed. Custom Machining employs about 50 and produces from a 46,000-sq.-ft. plant in Valparaiso, Ind.

Oil and gas will continue to be a good market and grow both onshore and offshore for the industrial hose segment, Hill said. The construction market also will continue to be robust for ContiTech.

For conveyor belting, in mining, the market is broken down into coal and rock, with a recent increase in activity from the coal market as compared to the last few years, Hill said.

"That was one of the big pluses to 2017, was the bookings we saw come in from the coal industry," he said. "We had a big, big run on the business in the first quarter of 2017. I don't think we'll see that huge spike or surge in 2018, but I think we'll certainly see a steady run rate of a good amount of business come in from mining sectors."

Business also should continue from the hard rock and oil sands segments, especially as the price of oil slides back up, he said.

On the industrial side for conveyor belting, as construction markets continue to be up, Hill continues to look for growth in that part of the business. The same goes for wood products applications, as the construction and homebuilding industry both help the lumber and wood products industry.

Building One ContiTech

ContiTech also is approaching the three-year anniversary of its acquisition of Veyance Technologies Inc., and its long-term integration has gone well, Hill said.

"I think it's been a very good experience, and one where they have been most receptive to the way we do business, the way we handle the differences between cultures and so forth," Hill said. "We've been working hard here in North America to try to become what we call 'One ContiTech' and blend the legacy ContiTech and legacy Veyance folks, and have them all come together."

ContiTech still is working on integrating some systems such as HR, but culturally, the two companies have blended together in North America, he said.

"I think our communication is getting better obviously than when we first started, but we're trying to bring everybody together under that one umbrella here in North America," Hill said.

On the business side, a lot of the integration has been focused on leveraging opportunities, mitigating conflicts between business units and setting the long-term strategic direction, he said.

"It's: How do we bring all those together so that ContiTech grows in a profitable manner here in North America in a pretty mature market?" Hill said.

Part of the effort of connecting the two companies are regular company town hall meetings that are able to be viewed online from anywhere in the world, where Hill and others discuss the business, some highlights and bring in guests from different parts of the larger company.

Another key part of the integration effort is a short, regular "podcast" that Hill records almost every other week to be sent throughout ContiTech.

"When we first started with the acquisition, we wanted to find an easy, effective thing we could do on a regular basis," Hill said. "We try to make them informal."

The podcasts, generally only 5-6 minutes long, are emailed through the company as "Huddle Up with Hill," a throwback to Hill's days as a starting lineman for the University of Kentucky football team. Hill knows employees listen, because he'll occasionally get questions sparked by a topic from a recent episode.

"I like it because we can do it frequently and it's casual, it doesn't take a whole lot. It's just a little bit of contact with everybody," Hill said.

Looking to the future, ContiTech will continue to find ways to move forward along its tagline "Smart solutions beyond rubber," Hill said.

"Rubber has been the core of our business for 100-odd years, and it's going to be the core of our business for a long time into the future," Hill said. "But we feel that we need to expand into things that are beyond rubber and more into the technology side, such as sensors in products, services and software solutions.

"All those kind of high-tech things we're working on to try to make what some people say are mundane, mature products, revitalize them with smart technologies," he said.

One example is ContiPlus, a new web-based software program that launched earlier this year, as a repository for survey work used by ContiTech distributors.

"It's an information-sharing platform where we can see how all of our conveyors are doing out in the marketplace, some of them in real time, for some it's just a repository of data," Hill said.

Additionally, ContiTech has built some product models with predictive life, which can alert by text operators when a conveyor is likely to need replaced, and include both the distributor contact and the necessary specifications. More products with similar features will debut in 2018, Hill said.

The acquisition of Custom Machining is another step toward broadening ContiTech's approach to the market, getting into the assembly side of its traditional rubber hose products, Hill said.

"So not only do we make the hose, now we make the crimpers to put the fittings on," he said.

ContiTech also is working on ways to improve communication, using technology similar to Industry 4.0 to tie the crimpers to the Internet, automatically updating specifications when changes are made.

In October, ContiTech acquired Advanced Imaging Technologies (PTY) Ltd. of Pinetown, South Africa, which develops X-ray and magnetic imaging-based technologies. Those technologies can be used for in-line monitoring of potential failures in fabric- and steel-cord reinforced conveyor belts. Terms of the acquisition were undisclosed.

"We wanted to make sure we held on to that technology," Hill said. "It's a way to improve the flow of communication, improve the reliability of our assemblies and make our assemblies safer in the future as well. We still have our core products, but we have to branch out into other areas."

ContiTech will continue looking for acquisitions going into the future as well, especially where they align with markets the company is interested in, Hill said.

"To continue to make the products smart, we're going to have to have either acquisitions or partnerships or exclusive agreements," Hill said. "Certainly, we're always on the lookout to make those acquisitions for things that benefit our products and our customers."

But even with that expansion in mind, ContiTech is not planning on leaving its core products behind, Hill said.

"For us, it's about how we're going to continue to grow here in North America. We're going to continue to invest here, both by improving and optimizing our footprint here, but also through nontraditional products," Hill said. "Most of those nontraditional products, such as the software, are going to be designed to complement our traditional products.

"It'll be a small evolution to take a lot of these trends of industry, such as Industry 4.0, and put that thought process and thinking into our manufacturing facilities and into our products," he said.