Automotive component manufacturer and distributor Metair had a target to build its vehicle battery production capacity to 50-million batteries a year within the next five years, said MD Theo Loock on Thursday.

Current capacity was 11-million batteries a year.

This expansion programme would be made possible largely by new global acquisitions, as well as some growth in existing capacity, said Loock.

“The bedding down of our two international acquisitions is well advanced, and we are now embarking on the next phase of our growth strategy, which is to produce 50-million batteries across five continents within five years.”

Metair had been on an aggressive growth path for a number of years.

The JSE-listed group on Thursday reported that operating profit had surged 86% for the year ended December 31, compared with the year before, to R829.3-million. Revenue had jumped 39%, to R7.3-billion.

Cash generated from operations was up 44% to R847 million. The board declared an 80c a share dividend.

The company said the results were supported by the integration of its international acquisitions, and “good progress” in achieving a more balanced contribution from parts supplied to original-equipment manufacturers (OEMs, or vehicle manufacturers) and its non-OEM business, and between battery and non-battery business.

“The group produced an excellent set of results in spite of challenging economic environments,” commented Loock.

“The results were supported by pleasing revenue growth, specifically in the aftermarket and non-auto segments, good cash generation and improved efficiencies.”

Metair in December 2013 acquired Mutlu Akü, a lead-acid battery manufacturer and distributor in Turkey and the Middle East, for R2.9 billion.

This company was now 100% owned by Metair, following a minority squeeze-out, concluded in March.

“Mutlu Akü delivered a solid performance supported by high levels of pre-existing technical expertise and innovation, as well as a strong focus on manufacturing efficiencies and excellent cost management in line with Metair’s operational business model,” noted Loock.

“We are in the process of centralising the group’s research and development centre in Turkey to bolster Metair’s ability to drive the affordability of start/stop batteries.”
 
The group’s OEM businesses traded “acceptably” against a backdrop of rising inflation in Turkey, and declining production volumes during the first half of 2014, as vehicle manufacturers geared up for the launch of new models to meet the latest carbon emission standards due in 2016.

Metair had secured participation in a number of new model changes, which could lead to volume growth opportunities if these models launched successfully.

“Start/Stop systems continue to be seen as the most viable technology to meet current emission targets, and we are particularly happy to report that we have secured Renault as a customer for both Rombat and Mutlu Akü, bringing the total number of OEM customers for our Turkish operations to four,” said Loock.

Locally, vehicle production in South Africa increased 4% in 2014, to 533 120 units.

Despite support from government’s Automotive Production and Development Programme, Loock believed that the ceiling for South African vehicle production had perhaps “prematurely hardened” around these levels.

This “hardening” had been partially brought about by electricity supply constraints from Eskom.

“Load-shedding has a negative impact on how South Africa is viewed as a manufacturing destination,” noted Loock. “This problem must be addressed urgently. When a raw material supplier has to stop production, it has a large negative multiplier effect on the economy.”

Although Metair last year increased its electricity standby capacity to prevent production losses owing to energy interruptions, production could still be halted by energy cuts at the company’s raw material suppliers, such as Hulamin.

Although contingency plans limited the impact of labour disruptions in the South African vehicle assembly sector in 2014 to two weeks, the long-term effects of continued strikes remained to be assessed, added Loock.

Competition in the aftermarket continued to intensify, with South Africa mostly impacted by cheap battery imports from Korea and China.

Aftermarket demand across Turkey, Romania and other northern hemisphere export markets was softer after an abnormally warm winter period.

The group’s performance was also impacted by geopolitical instability, particularly around countries neighbouring Turkey and Russia, which was an important market for Metair.