Metair, the international manufacturer, distributor and retailer of energy storage solutions and automotive components, said headline earnings a share (Heps) slipped 9% to 41 cents, despite a 124% increase in operating profit, after a subsidiary incurred losses as it geared up for the Ford Ranger model ramp-up.
Heps included post tax equity losses of R427 million incurred by the Hesto Harnesses subsidiary. Higher interest rates across operating geographies and higher average debt to support customer expansion and elevated working capital investments, saw finance charges increase 125% to R280m, bringing headline earnings per share down 9% to 41 cents.
CEO Sjoerd Douwenga said the results were robust in spite of challenging market conditions and it was also the largest single project launch Metair had ever undertaken, which had required significant up-front investment to secure long term uplift, a project that was expected to drive some R60 billion in future revenue.
Group revenue increased 31% to R7.6bn, reflecting improved local original equipment manufacturer (OEM) volumes. In addition 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 R180m to R324m, owing to stronger SA OEM vehicle production and higher profitability from the energy storage subsidiary Mutlu Akü (Mutlu).
Production at Hesto Harnesses (Hesto) in the automotive components vertical was “extremely challenging and complicated with significant design and engineering changes required post-production commencement”.
Hesto incurred a R711m operating loss due to this complexity, which required higher than expected up-front costs, labour and line capacity as well as inventory, which Metair aimed to correct and recover in line with commercial customer negotiations, said Douwenga.
He said in a telephone interview these kind of challenges were “absolutely normal” in a model ramp-up, and their focus in the second half would be to ensure operations ran more smoothly at Hesto, which also now had a new management team in place.
“The (group) operating results 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 met with no less difficulty in the macro-environment, but also had to manage significant complexity and up-front investment required to support the launch of production for the single biggest project in our history,” he said.
The Automotive Components Vertical reported 147% revenue growth. OEM market production rose by 11% to around 293 000 vehicles.
The group successfully launched production for the Ford Ranger, however, but production at Hesto Harnesses (Hesto) was “extremely challenging and complicated with significant design and engineering changes required post-production commencement”.
Hesto incurred a R711m operating loss due to this complexity which required higher than expected up-front costs, labour and line capacity as well as inventory, which Metair aimed to correct and recover in line with commercial customer negotiations, said Douwenga.
Other subsidiaries with automotive operations performed well, generating operating profit of R264m, slightly impacted by customer volume and mix variability. Overall, excessive once-off airfreight and labour costs of R465m resulted in an operating loss of R448m for this business vertical.
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 R3.74bn, and generated operating profit of R121m from an operating loss of R44m 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 R160m in the first half of 2022 to a profit of R49m in the current reporting period.
Douwenga said Mutlu was growing alternative export markets as in the past period, export sales to Russia and the US were impacted by geopolitical factors.
Total capex spend was R316m, mainly focused on capacity expansion for the Automotive Components Vertical 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.
Net working capital increased to R3.72bn for various reasons, including an increase in safety stock levels to manage supply chain instability, higher raw materials on hand, build-up of battery stocks in anticipation of the peak second half season and higher trade receivables following normalisation in automotive revenues. Some R200m-R300m of net working capital was expected to be released in the second half.
BUSINESS REPORT