Canadian Foundry and Casting Industry – Trade war or not, innovation is key

Our team has worked with Canadian foundry and casting companies on various restructuring initiatives from restructuring sales agreements with major customers, revisiting cost structures and supply agreements with key suppliers and creditors, to helping restructure balance sheets with major lenders or other key stakeholders. We’ve seen ups and downs in the industry, and have helped many companies through tough times, but given current cross-border trade uncertainties, it’s understandable that the industry as a whole is feeling a bit uneasy.

The steel and aluminum industry in Canada is significant, as is its relationship with the U.S. marketplace. A National Bank of Canada report details that Canadian companies have exported roughly $18.4 billion in steel and aluminum products to the U.S. in the past 12 months, [1] with the majority coming from Ontario and Quebec. Business Development Corporation of Canada details the importance of the Canadian marketplace to American steel suppliers with Canada buying more American steel than any other country in the world, accounting for 50% of U.S. exports of steel.[2] Today this relationship is being tested.

How should a company prepare itself for whatever storm is on the horizon?

Canadian foundry and casting companies are recognizing that the stresses of today are most likely the norm. Leveraging available government funding and programming (outlined below) is a start, but companies must also use this point in time to reflect, restructure and innovate. Industry-wide, Canadian companies need a solution that puts them on the global radar – essentially, a solution that is “Made in Canada”, bolstered by innovation.

The Government of Canada has responded by making available up to $2 billion to defend and protect the interest of Canadian companies. These monies will be available to support the retention of employees, increase the capacity of job training, provide liquidity support, help diversify exports to non-U.S. markets, and most importantly offer up to $250 million in new support through the Strategic Innovation Fund[3] to help strengthen the competitiveness of Canadian manufacturers. This, coupled with ongoing federal programs including Industrial Research Assistance Program (“IRAP”) and the Scientific Research and Experimental Development Tax (“SRED”), afford Canadian companies the opportunity to act now.

A “Made in Canada” solution requires focusing on a restructuring that is innovative, long-term in nature, and give Canadian companies the chance for sustainability through future uncertainties. Canadian companies should consider a restructure around among other things, innovation that focuses on:

Recognizing the importance of utilizing raw materials and energy in an effective manner;
Reducing high rejection rates of finished goods and scrap/waste in a manufacturing process;
Reducing labor costs associated with machining and welding required to repair finished goods; and
Decreasing the costs of quality control departments and providing companies the opportunity to deploy human capital to growth and revenue expansion.

Innovation can replace costs. Adopting innovative practices and procedures can make Canadian foundry and casting products better, faster and cheaper: a “Made in Canada” reality.

“The measures… will help strengthen the competitiveness of Canada’s steel and aluminum companies and contribute to economic growth while increasing the capacity of the industries to innovate, grow value added, support product and market diversification, and create and sustain jobs for Canadians.”

Hon. Navdeep Bains, P.C., M.P., Minister of Innovation, Science and Economic Development

After spending time in the foundry and casting industry meeting clients and looking at their challenges, we’ve developed an understanding and appreciation of key issues from traditional balance sheet and income statement challenges, to SRED and IRAP applications, to understanding the manufacturing costs associated with surface and internal defects associated with gas holes, shrinkage cavities and hot tears. We understand the industry, and issues; and have helped Canadian foundry and castings companies look at their business differently. We have supported companies by (among other things):

Informally restructuring their balance sheet obligations by engaging with lenders and other stakeholders to restructure debt obligations;
Restructuring revenue contracts and pricing with major OEM’s and other customers to ensure better viability of manufacturing operations;
Engaging with major customers to be part of the innovation and restructuring;
Providing joint-venture partners and/or engineering partners to accelerate innovation, increase revenue and reduce costs;
Maximizing SRED and IRAP proceeds; and
Merger and acquisition activities or divestiture activities.

We understand the importance of this industry to Canada, to the provinces, and more importantly to the local markets that employ thousands of people who manufacture Canadian steel and aluminum products.

Our partners have the experience to help you navigate the restructuring and evaluate the options available to your business. Give us a call, let’s discuss your business and how we can help you think differently, innovate, and manage these uncertain times.

[1] “Hot Charts”. National Bank of Canada. May 31, 2018. Retrieved from: https://www.nbc.ca/content/dam/bnc/en/rates-and-analysis/economic-analysis/hot-charts-180531.pdf

[2] “Canada stands up for our steel and aluminum workers and industry.” Business Development Corporation of Canada. June 29, 2018. Retrieved from: https://www.bdc.ca/en/about/mediaroom/news_releases/pages/canada-stands-up-steel-aluminum-workers-industry.aspx

[3] “Canada stands up for our steel and aluminum workers and industry.” Business Development Corporation of Canada. June 29, 2018. Retrieved from: https://www.bdc.ca/en/about/mediaroom/news_releases/pages/canada-stands-up-steel-aluminum-workers-industry.aspx