Metair’s focused management actions drive an improved FY23 performance
Paul O’Flaherty, CEO of Metair
  • Group revenue 14% higher at R15.9 billion
  • Operating profit increased by 7% to R487 million
  • Group EBITDA increased 86% to R1.1 billion
  • HEPS increased to 135 cents from a loss of 17 cents
  • Managed associate, Hesto Harnesses, returned to profitability in H2
  • Debt restructure and refinance programme implemented, following high investment and borrowing cycle

Metair, a leading international manufacturer, distributor and retailer of energy storage solutions and automotive components, today reported its financial results for the year ended 31 December 2023. While a difficult trading environment, and high interest and inflation rates impacted financial results in the geographies where the group operates, focused management actions taken to address and stabilise performances in both business verticals, resulted in a strong improvement in the second half of the year which contributed to an overall enhanced performance for the full year.

Paul O’Flaherty, CEO of Metair commented: “By focusing on what was within our control and what would make the most impact for our business, our leadership teams successfully navigated numerous challenges to deliver an improved performance. While we are pleased with the outcomes of management’s efforts to date, particularly Hesto’s return to profitability in the second half, there is further work to be done for the group to realise its full potential and we remain focused on unlocking avenues to generate value for our stakeholders.”

Metair Group revenue increased 14% to R15.9 billion, supported by improved Original Equipment Manufacturer (OEM) production volumes in South Africa and higher material cost, content and complexity which commanded growth in prices. Group operating profit increased 7% to R487 million. When excluding the non-cash impact of hyperinflation accounting related to Metair’s Turkish business and impairment of the lithium-ion line in Romania, the operating profit totals R1.15 billion, an increase of 46%, at a satisfactory margin of 7.3%. This was achieved despite operational inefficiencies experienced during the ramp up of a major customer project across a number of subsidiaries.

Higher interest rates, specifically in Türkiye, and higher net debt levels to support customer expansion and elevated working capital investments to mitigate against supply chain disruptions, saw net finance charges increase 97% to R741 million for the period. Group EBITDA increased from R592 million to R1.1 billion while headline earnings per share (adjusted for impairments and capital profits on disposals) was 135 cents compared to a loss of 17 cents in 2022.

The Automotive Components business including Hesto Harnesses (Hesto) achieved a near doubling in revenues, benefiting from a 20% increase in OEM production volumes of passenger vehicles and light commercial vehicles, assisted by new model launches and the recovery after last year’s floods. The core subsidiary businesses (excluding Hesto) contributed R7.82 billion to group revenue, a 48% increase from 2022, and R567 million in operating profit despite OEM customer volume and mix variability and supply disruptions. Following the complexity and subsequent first half losses linked to the ramp up of Hesto’s new major customer model, management collaborated closely with Hesto’s customer and technology partner to turn the business around. Hesto’s revenue increased by 222% from R1.8 billion to R5.7 billion, and the business generated R104 million in operating profit in the second half which countered a portion of the R711 million losses it experienced in the first half.

Revenue from the Energy Storage business declined from R8.6 billion to R8.0 billion, mainly due to a 34% decrease in Mutlu Akü’s (Mutlu) aftermarket volumes and a 69% decrease in its export volumes, however, operating profit of R268 million was generated, representing an increase of 37%. Geo-political tensions, high inflationary and other economic pressures dampened automotive battery sales with total volumes declining 17% from 8.7 million to 7.3 million units, and OEM battery sales volumes accounting for a slightly higher mix than targeted.

Mutlu experienced a difficult labour environment in Türkiye, which unfortunately resulted in a shortage of contract workers during the last quarter of 2023 and production was therefore prioritised for OEM supply. New labour union wage rate negotiations were successfully concluded in February 2024 without disruptions. Against this challenging backdrop which was exacerbated by a 42.5% increase in interest rates and a peak annual inflation rate of 64.8%, Mutlu still achieved an operating profit increase of 18.7% in local currency pre-hyperinflation. Rombat in Romania continued to contend with regional instability and high energy costs, reporting a flat volume performance and lower operating profit. First Battery in South Africa achieved an 8% increase in automotive battery volumes and a 3.4% increase in operating profits on the back of a gain in local market share and began to realise the benefits of expanding its traded product portfolio with the full impact expected to materialise in 2024.

Capex spend for the period totalled R690 million to support future growth and efficiency improvements which remain a priority, with R910 million earmarked for the 2024 year. The capex will focus on critical maintenance, new customer vehicle models, Rombat’s solar energy project and health and safety requirements, including earthquake protection upgrades at Mutlu.

Net working capital increased by R128 million to R3.33 billion. Safety stock levels were increased, especially for imported components with long lead times to ensure security of supply to customers, while higher raw material and commodity prices also contributed to the raised levels of working capital. Cash generated from operations improved from R151 million to R1.2 billion and free cash generated, amounted to R306 million. Group net debt increased to R2.8 billion primarily due to extensive capital expansion and working capital needs, especially in Türkiye. Despite the high debt level, the group remained within agreed banking covenants levels.

Anesh Jogia, CFO of Metair commented: “In this high debt and capital investment period, our focus was on prudently and proactively managing our balance sheet. Our funders remain supportive of our efforts with the group’s revolving credit facility (RCF 2) funding of R525 million, which was due to expire in April 2024, successfully extended for another year. Management continues to responsibly monitor and manage debt levels and liquidity, and a range of strategies are being implemented to reduce gearing and restructure debt levels. The team has implemented a debt restructure and refinance programme that will ensure a sustainable capital structure in the medium term. In the short-term management is focusing on effective cash management and cost control, delaying non-critical capital expenditures and engaging customers for flexible support on new model capital investments.”

In the year ahead, Metair’s priorities in the Automotive Component Vertical remain on achieving efficient manufacturing of new models and facelifts, particularly concentrating on profitability at Hesto with the outlook dependent on OEM customer production volumes realised. The Energy Storage Vertical continues to focus on improving volumes and mix, securing new hard currency export markets, and benefiting from its industrial solutions portfolio in South Africa.

“Our focus going into 2024 remains on the priority matters we have identified as a management team. This includes stabilising the leadership team after numerous changes in the previous year, addressing high debt levels, achieving sustainable project profitability at Hesto, unlocking value from Mutlu and resolving the competition concerns in Romania. By releasing the friction these obstacles create, the group can start to regain its momentum and return to growth. We will take the next few months to address the priority areas and evaluate the current situation, with the finalisation of a detailed turnaround strategy aimed for the second half of 2024,” concludes O’Flaherty.