Metair sets ambitious battery production target following global acquisitions

10th April 2015

By: Irma Venter

Creamer Media Senior Deputy Editor

  

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Automotive components manufacturer and distributor Metair has set itself a target to build its vehicle battery production capacity to 50-million batteries a year within the next five years, says MD Theo Loock.

Current capacity is 11-million batteries a year.

This expansion programme will be made possible by new global acquisitions, as well as some growth in existing capacity, says 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 has been on an aggressive growth path for a number of years.

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

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

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 its battery and nonbattery business.

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

“The results were supported by pleasing revenue growth, specifically in the aftermarket and nonauto segments, good cash generation and improved efficiencies.” In December 2013, Metair acquired Mutlu Akü, a lead-acid battery manufacturer and distributor in Turkey and the Middle East, for R2.9 billion.

This company is 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,” notes 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 last year 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 has secured participation in a number of new model changes, which may lead to volume growth opportunities if these models are successful.

“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,” says 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 believes that the ceiling for South African vehicle production has perhaps “prematurely hardened” around these levels.

This “hardening” has 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,” notes Loock. “This problem must be addressed urgently. When a raw materials 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 materials 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 remain to be assessed, adds Loock.

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

Aftermarket demand across Turkey, Romania and other northern hemisphere export markets was softer in 2014 after an abnormally warm winter period.

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

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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