METAIR delivers a robust H1’23 performance while navigating challenging trading conditions and investing in future growth and value creation

Metair, a leading international manufacturer, distributor and retailer of energy storage solutions and automotive components, released robust results for the six months ended 30 June 2023, despite a challenging first half characterised by a volatile operating environment and the largest single project launch in Metair’s history, requiring significant upfront investment to secure long term value uplift.

Sjoerd Douwenga, CEO of Metair commented: “The Group’s operating results achieved against a difficult trading backdrop are a credit to our active management style and the robustness of our business model which has seen us successfully navigate numerous headwinds over the past few years. In the current period, we were met with no less difficulty in the macroenvironment but also had to manage the significant complexity and upfront investment required to support the launch of production for the single biggest project in our history, which will deliver returns for years to come.”

Group revenue increased 31% to R7.6 billion reflecting improved local original equipment manufacturer (“OEM”) volumes as a result of the recovery in sales to the Group’s key customer whose production was halted last year due to the KZN floods, while mass production and volume ramp up commenced for new customer vehicle models - most notably for FMCSA (“Ford”). Operating profit margins improved from 2.5% to 4.2%, with group operating profit increasing by R180 million to R324 million, owing to stronger SA OEM vehicle production and higher profitability from Mutlu Akü (“Mutlu”). Group EBITDA increased to R536 million and EBITDA margins improved to 7.0% from 5.6%. Higher interest rates experienced across the Group’s operating geographies and higher average debt levels to support customer expansion and elevated working capital investments saw finance charges increase 125% to R280 million for the period, bringing headline earnings per share down 9% to 41 cents.

The Automotive Components Vertical reported strong revenue growth, contributing R6.6 billion, a 147% increase compared to H1’22. OEM market production rose by 11% to around 293 000 vehicles, with the group’s major customers’ volumes showing a 21% improvement. The group successfully launched production for the Ford Ranger however, production at Hesto Harnesses (“Hesto”) was extremely challenging and complicated with significant design and engineering changes required post-production commencement. Hesto incurred an operating loss of R711 million due to this complexity which required higher than expected up-front costs, labour and line capacity as well as inventory, which Metair aims to correct and recover in line with commercial customer negotiations.  Other subsidiaries with automotive operations performed well, generating operating profit of R264 million at a margin of 6.8%, slightly impacted by customer volume and mix variability. Overall, the excessive once-off airfreight and labour costs of R465 million incurred, resulted in an operating loss of R448 million for this business vertical.

Despite tough operating conditions with inflationary cost pressures and geo-political factors dampening local aftermarket and export sales, automotive battery volumes remained robust with the Energy Storage Vertical reporting 3.58 million in total unit sales, a 10% decline due to reduced export sales to Russia and the US which impacted hard currency earnings. The Energy Storage Vertical reported flat revenue of R3.74 billion, and generated operating profit of R121 million from an operating loss of R44 million a year earlier, at improved operating margins of 3.2%, up from -1.2%. This was largely due to Mutlu’s recovery from an operating loss of R160 million in H1’22 to a profit of R49 million in this reporting period.

Total Capex spend was R316 million for the period with majority focused on capacity expansion for the Automotive Components Vertical to invest in facilities, tooling and machinery required to support planned new model launches and facelifts, and technology enhancements in the Energy Storage Vertical to improve competitive positioning, efficiency and heavy-duty battery capacity. The new model and facelift launches are expected to drive meaningful growth over the medium to long term, most notably the ongoing contract to support Ford’s investment into the SA automotive industry.

Net working capital increased to R3.72 billion for various reasons, including an increase in safety stock levels to manage supply chain instability, higher raw materials on hand because of variability in customer orders, build-up of battery stocks in anticipation of the peak second half season and higher trade receivables following normalisation in automotive revenues. Cash utilised in operations amounted to R42 million and free cash flow consumed amounted to R384 million. Group net debt increased to R3.2 billion due to the higher working capital levels, debt funding on capital expenditure for new customer models and efficiency and expansion projects.

Anesh Jogia, CFO of Metair commented: “We are appreciative of the ongoing support received from our funders to date as we steer through this high investment and borrowing cycle. We remain focused on achieving effective cash management, cost control and capital expenditures as the business returns to normal production levels and the high net debt and working capital levels unwind into FY’24.”

Looking ahead, the Automotive Components Vertical continues to benefit from strong underlying operational performance with growth in OEM volumes anticipated in the coming years. Metair’s priority in the period ahead is to achieve efficient manufacturing of new models and facelifts and as OEM production volumes grow, the focus will be on effective project management, improving operating efficiencies and tight control of costs, working capital and debt. The Energy Storage Vertical continues to focus on improving volumes, securing new hard currency export markets, and expanding its traded industrial portfolio in SA. Metair continues to actively seek value creation opportunities within both business Verticals including the disposal of the Li-Ion line in Romania.

“I am excited about the prospects ahead as we manage the significant change to maximise opportunities on the horizon. We are resolute in our focus to enhance the strategic positioning of the group and the significant investments made today have laid solid foundations for value uplift in years to come,” concluded Sjoerd Douwenga, CEO of Metair.