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Metair earnings hit by ‘disruptive’ auto components phase

2nd September 2016

By: Irma Venter

Creamer Media Senior Deputy Editor

  

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A struggling automotive components business saw operating profit at JSE-listed Metair drop 25%, to R260-million, for the six months ended June 30, compared with the same period last year.

Revenue at the energy storage solutions and automotive components manufacturer and distributor increased 14% in the half-year to R4-billion.

Metair FD Sjoerd Douwenga says the automotive components business underwent its most disruptive phase since the 2009 financial crisis, courtesy of the launch of new vehicle models by this business’s major customer, Toyota South Africa Motors.

The Toyota plant, based in Durban, launched the new Fortuner and Hilux models – built on the same platform – this year.

Metair’s automotive components business reported an 88% drop in operating profit to R23-million.

Douwenga says components production volumes were well below capacity during the initial launch phase. However, this was followed by a period of production in excess of capacity, resulting in significant overtime.

Hesto Harnesses struggled in particular with harnesses imported from Thailand, with this operation having to be fine-tuned to deliver on the expected volume and model mix.

Metair MD Theo Loock is, however, pleased that the business managed to renew its entire targeted components business with Toyota.

He is equally pleased that Metair’s energy storage business secured a five-year contract to supply German manufacturer Daimler with start-stop batteries for Africa, Middle East and Europe production sites.

“This is a significant contract to supply them on an international basis.”

He does not want to disclose the number of batteries Metair will supply to Daimler.

Metair’s energy storage business, which includes battery manufacturing operations in Turkey and Romania, saw operating profit for the six-month period increase by 9% to R234-million, despite an attempted coup in Turkey.

Loock says none of Metair’s employees, nor its business, has directly been negatively affected by the failed coup. However, the long-term effect remains unknown.

The Turkish government has “showed great sensitivity” thus far, notes Loock, opening a direct communication channel to Metair.

He says the attempted coup may also bring some stability to the country, which has seen four elections in the past 18 months. However, a negative is that new-vehicle sales may stagnate this year, rather than pick up by 10% to 12% as forecast initially.

An improved relationship between Russia and Turkey has also seen Metair’s Turkish operation resume exports to Russia.

Looking ahead, Loock says Metair has completed the restructuring into two business ‘verticals’, namely automotive components and energy storage.

The challenge for the automotive components business, in particular, relates to lower production volumes and margins for the next five to seven years.

Its performance may also be affected by labour instability as the South African automotive industry is currently locked in wage talks.

Loock says the relative calm with which labour disputes have been settled recently in South Africa, as well as the level of wage increases they have been settled at, seems to reflect the country’s current economic reality.

He says a short strike of one to two weeks will be acceptable, “but anything longer will be difficult”.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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