• Group revenue increased 4% to R8 billion
• Group reported EBITDA¹ increased 8% to R729 million excluding Türkiye-related hyperinflation; after taking into account non-operational hyperinflation, EBITDA decreased 27% to R385 million
• Net finance expenses 59% or R166 million higher, largely due to extreme interest rates in Türkiye
• Hesto Harnesses, successfully turned around to deliver post-tax equity profits of R5 million
• ROIC increased to 11.9% and HEPS decreased to a loss of 3 cents from 41 cents profit largely due to hyperinflation
• Debt restructure and refinance programme approved by the Board and to commence in Q4 2024
• Proposed sale of Mutlu Akü to Quexco for c.US$110 million enterprise value on a cash free and debt free basis to derisk and support debt reduction in the Group

Metair Investments Ltd (“Metair” or “the Group”), a leading international manufacturer, distributor and retailer of energy storage solutions and automotive components, today reported its financial results for the first half of the 2024 financial year.

Within a difficult operating environment, Metair has focused on addressing strategic priorities primarily relating to Hesto Harnesses (“Hesto”), debt levels in South Africa and the sale of Mutlu Akü (“Mutlu”), its subsidiary in Türkiye.

Paul O’Flaherty, CEO of Metair comments: “By focusing on production agility and stability, improving profitability and enhancing liquidity within Hesto, we’ve managed to make positive progress in our stated strategy. Both business verticals performed resiliently relative to their challenging operating conditions and maintained constant supply to customers. We’re well progressed in solving the issues affecting the Group, including following the sale of Mutlu, a proposed debt restructuring, and we expect this strategy will continue to bear fruit into the second half of the year”.

Group revenue increased 4% to R8 billion (H1 2023: R7.6 billion). Total automotive battery volumes sold in the Energy Storage business improved by 10%, up 358 000 units from 3.6 million in the prior period to 3.9 million units, supported by stronger aftermarket and export sale volumes. Overall vehicle production volumes were 7% softer, temporarily impacted by reduced demand from TSAM, due to engine certification challenges faced globally by Toyota Motor Corporation. These issues are expected to resolve in the short term with production volumes to resume to normal levels. Group EBITDA (earnings before interest, taxation, depreciation and amortisation)¹ before the non-operational effects of hyperinflation improved to R729 million (H1 2023: R676 million) but decreased to R385 million (H1 2023: R529 million) after taking into account hyperinflation.

The Automotive Components business (including Hesto) generated revenue of R6.2 billion with EBIT of R308 million, showing a strong recovery from the prior comparative period loss of R448 million. Continued focus on operating efficiencies and stringent cost control effectively mitigated the impact of temporarily lower customer demand and supply chain disruptions. The successful turnaround at Hesto, saw the managed associate recover from the previously reported challenging model ramp-up, to deliver improved EBIT of R112 million, from a loss of R711 million. Management continues to focus on production efficiencies and cost reductions as well as preparations for new customer facelifts and model introductions.

“We are pleased to report Hesto’s strong operational recovery with Ford’s volumes having progressed in line with expectations and close collaboration between Hesto, its customers and technology partner having supported revenue and operating profit for the period, and over the remaining revised business case model life of eight years,” adds O’Flaherty.

Continued macroeconomic pressure in Türkiye resulted in the annual inflation rate increasing to 71.6%. Against this backdrop, the Energy Storage Vertical’s revenue increased by 23% to R4.6 billion however EBIT declined from R121 million in the comparative period to R6 million as a result of non-operational hyperinflation accounting. Pre-hyperinflation, revenue increased by 12% to R4.5 billion and a positive R392 million of EBIT was generated.

Rombat S.A in Romania benefitted from strong market gains in exports and aftermarket, delivering a 41% improvement in automotive volumes to 1.3 million batteries, and an EBIT of R20 million compared with an R11 million loss in the comparative period. First Battery volumes were impacted by competitive pressures however increased focus on product mix and improved manufacturing efficiencies saw the business lift its EBIT from R83 million to R152 million.

The Group invested R261 million in capital expenditure (including Hesto) to support future growth and efficiency improvements, of which 55% was spent in South Africa and 45% was spent in the international battery businesses.

Net working capital increased to R3.7 billion (FY2023: R3.33 billion) to support customer expansion as well as Mutlu’s elevated working capital cycle. Cash utilised in operations (before interest and taxes) improved from R42 million in H1 2023 to cash generated of R161 million.  Group reported net debt (borrowings less cash and cash equivalents, excluding Hesto) increased to R3.4 billion (FY2023: R2.8 billion) primarily due to working capital requirements in Türkiye. Net debt, calculated on a covenant testing methodology, which includes Hesto, amounted to R5.4 billion and remained within agreed banking covenant levels.

A debt restructure plan was formulated and approved by the Board for the proposed refinance and ring-fencing of the South African operations only, in order to rebalance and recapitalise Hesto debt. Subsequently, Hesto’s balance sheet will be restructured to introduce longer term external funding from proposed lenders to align to a project financing methodology. In line with this plan, the decision was made post period end to sell Mutlu to Quexco Incorporated for a total consideration of US$110 million on a cash free and debt free basis in order to derisk the Group and strengthen the balance sheet.

“We are committed to creating a more sustainable capital structure through the optimisation and the deleveraging of our debt. The proposed sale of Mutlu is a critical milestone in the plan as it removes our exposure to hyperinflationary pressures in Türkiye and provides the proceeds to restructure debt in the local operations,” says Anesh Jogia, CFO of Metair.

Metair operates best in a stable and high-volume production environment and full year performance is dependent upon original equipment volumes at major customers and geo-economic conditions in international markets. The Group will continue to drive effective project management and operating efficiencies to improve the current base and return on invested capital.

“After conclusion of the Mutlu disposal, it is Metair’s strategic intent to primarily be an automotive manufacturing business focused on South Africa with a strategic focus of being a key player in the Sub-Saharan African mobility and energy sector, which has compelling macro-economic tailwinds in the medium to long term. Diversification of the business in these sectors will be key,” concludes O’Flaherty.