Metair navigates a tough year due to rising energy prices in Europe

interim Metair CEO Sjoerd Douwenga. Photo: Supplied

interim Metair CEO Sjoerd Douwenga. Photo: Supplied

Published Mar 31, 2023


Metair’s normalised headline earnings a share fell to 243 cents in the year to December 31 from 345 cents a share a year before as it navigated a host of external challenge in South Africa and hyperinflation in Turkey where its energy storage operations are based.

Challenges faced by vehicle component manufacturers in South Africa and the leading international maker of energy storage solutions for vehicles included global supply chain disruptions, raw material shortages, lost production due to the impact of floods on a major customer in KwaZulu-Natal, inflationary cost pressures and higher energy costs.

“Our teams did well to maintain supply to our customers and deliver on our strategic priorities. Looking through the noise, particularly the non-cash impact of hyperinflation accounting for Mutlu, our underlying business performance remains solid and our prospects are promising, with our strategic investments estimated to deliver R60 billion in revenue over the next decade,” interim CEO Sjoerd Douwenga said in a statement.

Group revenue increased 10% to R13.9 billion, reflecting growth in OEM market volume production, strong export sales out of Turkey and increased sales prices.

Group operating profit fell by R706m to R453m. On a normalised basis, operating profit was healthy at R1.2bn. Normalisation excluded hyperinflation impacts, project costs associated with the Ford model launch and transaction (advisory) costs associated with the value unlock exercise.

Earnings before interest tax depreciation and amortisation fell to R826m from R1.5 billion to R826m but was steady when normalised. No dividend was declared.

The Automotive Components Vertical contributed 5% higher revenue at R7.1bn, with original equipment manufacturer (OEM) production volumes showing growth of 7%. The Vertical generated operating profit of R45m with margins impacted by manufacturing launch inefficiencies and learning curve costs, premium logistics and other once-off model launch project costs. After adding back the impact of project costs and premium air freight, the normalised operating profit was R465m.

The South African operations loss of production for major customer, Toyota SA, following flood damage at its plant. Recovery to pre-flood levels was achieved in the fourth quarter and Metair’s business interruption insurance claim, capped at R500m, was finalised.

Production of the group’s major new model investment, the next-generation Ford Ranger, started mid-November 2022. Cash project costs of R420m were expensed for pre-production and engineering, including R128m premium air freight cost incurred in delivering on customer ramp-up requirements amid supply chain instability.

The Energy Storage Vertical faced unprecedented energy and labour costs increases across Türkiye and Romania. These costs impacted margins as they were yet to be recovered from customers.

Final annual volumes reached 8.9 million units, supported by a 17% increase in Mutlu Akü’s export volumes, with the hard currency sales providing a natural hedge to foreign exchange volatility and inflationary pressures.

Revenue increased 14.2% to R8.6bn, mainly due to improved volumes, the impact of hyperinflation and higher average lead prices. Operating profit was R195m (R746m pre-hyperinflation).

Total group capex was R1.16bn, reflecting the capital expansion phase to increase capacity ahead of new model launches and facelifts.

Cash and its equivalents totalled R980m, with net debt at R2.6bn.

Metair’s interim chief financial officer Anesh Jogia said they were closely managing the group’s financial position with a focus on cash management, specifically in working capital, cost control and capital expenditure.

“Our funders have been supportive as they understand that hyperinflation accounting is not a reflection of the underlying business performance and that the financial pressure is short-lived given the temporary loss of production and upfront investment in new projects. Covenant waivers from funders were obtained for the reporting period at December, 31, 2022 and we anticipate the leverage ratio to decline,” he said.

Looking ahead, the Automotive Components Vertical continued to benefit from strong operational performance.

Within Energy Storage, volumes were above pre-Covid-19 levels, driven by strong OEM demand. The focus was on improving volumes in hard currency export markets, managing and recovering rising energy costs in the European region, further improving FNB’s competitiveness and market share, and expanding its traded industrial portfolio in South Africa.