International manufacturer, distributor and retailer of energy storage solutions and automotive components, Metair, is investing R650-million in a range of automotive component businesses, says MD Theo Loock.
This comes as each of the businesses in the Automotive Components Vertical “successfully secured major contracts arising from new-vehicle launches, planned to service the export and local markets”.
One such company is Hesto Harnesses, in which Metair has a 75% stake. This company will supply the full spectrum of wire harnesses to a range of new customers.
“This could see Metair add some 3 200 employees, with a capital investment of approximately R500-million, securing turnover of between R12-billion and R14-billion over the planned model life period of seven years,” said Loock on Wednesday as he announced the group’s results for the year ended December 31.
Metair’s associate company Valeo SA has also secured the manufacture and supply of heat, ventilation and cooling modules from the Mercedes-Benz plant in the Eastern Cape, for “much higher than the current units [produced] in East London, from April 2021”.
Metair on Wednesday announced a 9.4% increase in revenue to R11.2-billion, with operating profit inching up 0.9%.
Operating profit from the Automotive Components Vertical increased by 5.7%, with the Energy Storage Vertical seeing a 3.7% decline.
Profitability in the energy vertical was impacted by subdued conditions in Romania, difficult export contracts out of Turkey and lower industrial demand in South Africa.
Cash generation improved to R1.2-billion.
Turnover from the Automotive Component Vertical increased by 11.3% to R5.6-billion on improved volumes, supported by exports and the continued expansion and deepening of localisation.
The Energy Storage Vertical saw revenue growth of 7.4% to R6.9-billion, also largely on the back of increased volumes. This was supported by a strong local aftermarket that contributed to an improved performance from First National Battery.
“Our lithium-ion production line in Romania delivered its first battery cells with official production set to begin in the second quarter of 2020,” noted Loock.
Unbundle or Sell
The Metair board believed that a managed separation of the group’s two verticals “could unlock significant value and should be investigated”, noted Loock.
“Our lead acid battery business remains relevant and we are lithium-ion technology ready, meaning that we can capitalise on this opportunity.
“On the other hand, excellent automotive industrial policy clarity has built [vehicle manufacturer] confidence and led to record investment in South Africa.
“Metair is already a beneficiary of much of that investment, and we are well placed to continue supporting African exports and localisation requirements, which will underpin our growth in coming years.”
Loock said Metair’s two businesses were at different stages in their growth cycles, requiring different strategic responses and support structures.
“We are testing the market to see if there is interest. We are valuing our energy vertical, and if the value proposition is right, the board said it would consider separating or selling the energy vertical.”
Trading for the current financial year has been affected by a number of external factors, including labour disruption at the Toyota plant, in Durban, as well as declines in new-vehicle sales and exports – now exacerbated by the Covid-19 pandemic.
“Looking ahead, our focus is on managing what is within our control in delivering against each vertical’s core strategies,” said Loock.
“The outbreak of Covid-19 will reshape the way business operates.
“Government and the private sector need to work together to develop response plans that allow industry to continue operating while safeguarding public health.
“Metair is in a position to adapt quickly and we have the infrastructure and resources available to keep our employees safe while helping to control the spread of the pandemic.”
Loock added that the planned investments in the Automotive Components Vertical would strengthen Metair’s position as “the shift towards localisation accelerates in light of the inevitable structural global trade disruptions resulting from Covid-19.”