Metair navigates perfect storm amid interims as its breaches its debt covenants

Metair released their interim results yesterday. Picture: Simphiwe Mbokazi (ANA)

Metair released their interim results yesterday. Picture: Simphiwe Mbokazi (ANA)

Published Sep 16, 2022

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Metair Investments, a manufacturer, distributor and retailer of automotive components and energy storage solutions, yesterday reported interims that were battered and bruised amid a perfect storm of headwinds, amid expansion, which led it to breach its debt covenants

For the six months ended June 30, 2022, its headline earnings per share dropping from 170 cents to 45c, were down 73 percent

Net debt ballooned by 84 percent to R2.4bn from R1.3bn, while its net debt to equity ratio increased to 49 percent.

However, Sjoerd Douwenga, Metair’s chief financial officer, said Metair should see the debt and net working capital levels normalise in the second half.

“Our funders recognise the short-term nature of this position and have been supportive in discussions around the waiver of covenants which is expected to be implemented soon,” he said.

Profit for the period fell 259 percent from R344m to R0.96m, while group operating profit decreased by 74 percent to R144m from R545m. Revenue was 2 percent lower at R5.8 billion.

The share price yesterday dipped nearly 5 percent on the results in morning trade. The share has been up 39.74 percent in the past five years.

Riaz Haffejee, the CEO of Metair said: “The results are unfortunately overshadowed by hyperinflation and certain once-off impacts whereas the underlying performance is a creditable outcome.

“Our teams did well to overcome several obstacles during the first six months of 2022. Various measures were taken to responsibly manage the business and ensure continuity, especially in our investment projects, which will support new vehicle model launches and secure attractive returns into the future,” he said.

Metair said the reporting period was characterised by reduced OEM production volumes in South Africa due to raw material shortages, supply chain delays and the KwaZulu-Natal (KZN) flooding, as well as sharp increases in energy costs in Europe owing to the conflict in Ukraine.

Planned project costs incurred ahead of new vehicle model launches and a 10-day labour strike at Mutlu Akü , as well as the non-cash impact of hyperinflation accounting for Mutlu skewed the performance, Metair said.

Automotive Components contributed R2.7bn in revenue, following a 10 percent decline in OEM production volumes.

Due to the KZN flooding, the group’s major OEM customer, Toyota South Africa Manufacturing, was forced to halt production at its Prospecton plant for several months in the second quarter, affecting turnover and volumes in the Automotive Components division. However, Toyota recommenced production in the third quarter.

A business interruption insurance claim of R360m had been accrued to June 30 with R150m in cash payments received to date. The claim was expected to reach R500m by end July and the total claim anticipated to be finalised in the second half.

The group added that it continue to closely monitor its financial position and focus on effective cash management, considering customer requirements, planned investments and conclusion of the business interruption claims.

Metair said it progressed its new vehicle model launch investment projects, which remained within budget and on time. Project costs of R115m were incurred ahead of new model launches, the most significant being the Ford Ranger, with production scheduled to start in the fourth quarter of the full year 2022.

During the reporting period Metair prioritised capacity expansion for the Automotive Components Vertical to invest in facilities, tooling and machinery required to support planned new model launches and facelifts – with expansion capex budgeted at R375m.

The Energy Storage Vertical delivered a 14 percent improvement in turnover which increased to R3.7bn, following a strong performance across all sales channels. Metair said it was considering strategic options for this vertical.

“A conclusion to this is expected in the fourth quarter,“ it said.

Looking ahead, Haffejee said: “We are intent on supporting successful launches of new models and facelifts with effective project management, improved operating efficiencies and working capital cost control being key focus areas as OEM production volumes grow.

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