Johannesburg - There was a real risk that new vehicle production in South Africa would diminish in the future and be shared with other low-cost manufacturing countries if the labour environment did not stabilise, Metair warned yesterday.

Theo Loock, the managing director of the listed automotive components manufacturer and distributor, said the original equipment (OE) sector would be under threat if an unstable labour environment resulted in its being unable to supply and deliver export vehicles. International motor companies would reduce this risk by sharing South Africa’s production with other countries.

He said this would result in domestic production volumes declining or remaining static because labour instability had diminished the opportunity to expand vehicle exports.

The South African automotive industry was on track to report production of about 550 000 units last year on the back of increased exports from BMW and Ford, but ended the year at 514 000 units as a result of strike disruptions.

It was not possible to catch up the lost production because of the length of the strikes.

“The outlook for the South African OE automotive sector in the short term is uncertain. On the one side, there is the fantastic support structure of the Automotive Production and Development Programme and the benefits of the devaluation of the rand.

“On the other, the country appears to face a power struggle in the labour environment. It is unclear which side will prevail,” he said.

He said Metair companies were forced to close for up to nine weeks last year either because its customers were not working or its own labour was on strike.

This resulted in a R128 million dent to Metair’s profit before interest and tax in the year to December, with R87m of this attributable to Metair’s auto segment and R41m to the company’s mining segment.

Combined with the one-off acquisition expense of R78m related to its acquisition for $287.2m (R3bn) of Mutlu Akü, the largest battery manufacturer in Turkey, this resulted in Metair’s headline earnings a share declining by 29 percent to R2.19 in the year to December from R3.10 in the previous year.

Revenue rose almost 14 percent to R5.2bn from R4.6bn, boosted by the inclusion of R900m in full-year turnover from Romanian-based Rombat and three weeks of strong revenue from Mutlu Akü.

Operating profit fell by 22 percent to R445.6m from R569.8m. Cash generated from operations dropped marginally to R665.9m from R672.4m.

A gross cash dividend of 70c a share was declared, compared with a dividend of 72c in the previous year.

Metair’s performance in the year ahead would depend on a number of factors, including good OE volumes, a stable labour environment, attainment of efficiencies, internal inflation recoveries and the exchange rate.

“Subject to such factors and our ability to maximise our international acquisitions to entrench our relevance in the new markets we have access to, we anticipate a satisfactory performance for 2014,” he said.

Metair’s share price dropped 3.76 percent to close at R41.45 on the JSE yesterday, off the day’s low of R41.05. - Business Report