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Metair interim performance hampered by Covid-19

Metair interim performance hampered by Covid-19

OPTIMISTIC SECOND HALF OUTLOOK WITH FOCUS ON MAINTAINING ROBUST FINANCIAL POSITION

  • Revenue declined 27% to R3.9 billion on lower volumes
  • Focused cost containment limited operating loss to R18 million
  • EBITDA down to R139 million and headline loss per share of 56 cents
  • Cash generated from operations 27% higher at R221 million
  • Welfare support to employees and direct Covid-19 related costs of R68 million
  • Sufficient cash and available facilities to meet obligations and support growth projects
  • 2019 dividend deferred, no interim dividend declared
  • Strategic review execution timeline postponed and value unlock evaluation ongoing
  • CEO succession process on track

Metair, a leading international manufacturer, distributor and retailer of energy storage solutions and automotive components, today announced a subdued interim performance for the six months to 30 June 2020, following the disruption caused by various Covid-19 lockdowns implemented in key markets.

Theo Loock, Metair’s CEO, commented: “The Group acted quickly to limit the impact of the disruptions stemming from the pandemic, delivering a good result in difficult circumstances supported by well executed cost containment efforts. These results reflect disciplined cash utilisation and improved working capital management as well as investments made towards employee wellbeing and personal sacrifices by all employees.”

The Automotive Components vertical which derives most of its revenue from Original Equipment Manufacturers (OEMs) within South Africa was directly impacted by the national lockdown and subsequent phased reopening which resulted in a 42% drop in South African OEM production. First quarter volumes were also negatively impacted by a strike at a major OEM customer and late starts to the year by certain OEMs. Revenue decreased by 38% to R1.8 billion and an operating loss of R48 million was recorded. Despite the challenges of reduced production, tied up working capital and long lead times on imported materials, the vertical contributed  EBITDA of R21 million. Supply chain risk has been minimised as supply levels have been maintained to service customer requests. As OEMs get closer to planned vehicle build plans, the working capital cycle is expected to normalise in the third quarter.

The Energy Storage vertical performance was aided by both Mutlu Akü (Turkey) and Rombat (Romania) being able to trade throughout the period, with local aftermarket and export sales offsetting the loss of OEM sales. Automotive volumes fell 27%, mainly due to reduced OEM sales across all territories and reduced export sales volumes out of Turkey, while industrial sales volumes in South Africa and Turkey declined 35% on the back of particularly weak demand. Although revenue declined 19% to R2.5 billion,  an operating profit of R74 million and EBITDA of R178 million was achieved. The working capital cycle was well controlled resulting in strong cash generation and R339 million of free cash flow during the period. Leveraging on the strength of supply chain security, inventory levels are being stocked ahead of the second half peak cycle in Europe and as markets are anticipated to open up.

“Our timely Covid-19 response strategy has served us well to date and maps a plan for recovery in both our business verticals with both verticals showing good prospects for a second half rebound. As lockdown conditions have eased, trading levels have increased, we have seen good aftermarket demand and exports out of key markets are improving. The Automotive Components recovery should be driven by improved manufacturing volumes and stability as well as increased export demand from Europe with secured growth projects to support a quicker turnaround than would otherwise be possible,” added Loock.

A crucial element of the Covid-19 response strategy is the creation of Metair’s future vision: Vision 2022, which shapes the Group’s designed recovery post the pandemic. The focus is on a multi-stepped U-shaped recovery designed to avoid an L-shaped recovery curve, specifically supported by the Automotive Components vertical recovery which is project-based, given the anticipated full-year decline of 30% in South African production volumes in 2020.

Metair focused on new model launch projects as well as the most sustainable projects, customers, models, and markets, and approved a R1,3 billion investment to support new projects that can deliver between R25 billion and R28 billion of turnover over a 7 year period starting in 2022, depending on the final project volumes and product designs. In addition to the projects already announced, there are further model launches and planned model facelifts that could have a positive effect on the local automotive sector, even in the short term.

From an Energy Storage perspective, a significant amount of focus is on improving insight into aftermarket demand and on structurally adapting the cost base and business activities to increase agility. The ability to serve and reach export customers and markets is a key requirement to support a good second half performance.

“Our solvency and liquidity position remains strong with sufficient cash and available facilities to meet obligations and support growth projects. Management continue to closely monitor the Group’s financial position and remains focused on effective cash, cost, and capex management.

We are proactively engaging with our funders given the reduced EBITDA recorded for the period and they are supportive given the environment. We have also taken the decision not to declare an interim dividend for this reporting period and to defer the 2019 dividend declared in March in order to ensure compliance with liquidity requirements in terms of the Companies Act,” explained Sjoerd Douwenga, CFO of Metair.

Net debt levels were prudently managed and increased just slightly to R1.4 billion. Net cash on hand amounted to R1.2 billion, assisted by deferment of the 2019 financial year dividend payment, lower capital expenditure and overall improved working capital management. Unutilised and available finance facilities totalled R2.8 billion when translating foreign currency facilities into the rand equivalent. 

Given the effects of the pandemic and management attention required to address this, the Board has decided to shift the strategic review execution timeline, with it set to be re-evaluated in early 2021. Both business verticals continue to attract high levels of interest and the Board is committed to evaluate the best way forward to unlock value for stakeholders.

The CEO succession process is progressing well with all formal legalities and agreements concluded with Mr Loock who will be retiring with effect from 31 December 2020. The search for a suitable candidate has been assigned to Heinrich and Struggles and the interview process has shifted externally with the internal phase having been completed.