Metair still expects lower full-year output, but green shoots are showing

4th December 2020 By: Marleny Arnoldi - Creamer Media Online Writer

As automotive component manufacturer Metair anticipates a full-year decline of 30% in South African production volumes this year, the company remains committed to new model launch projects and overall sustainability of models, markets, projects and customers.

Planned model launches and facelifts have already had a positive effect in the second half of 2020, the JSE-listed company says.

The board earlier this year approved the automotive components vertical business’ planned multi-stepped U-shaped Covid-19 recovery plan, which includes building on the company’s Vision 2022 strategy.

Although production volumes in South Africa in the first half of 2020 were down by 42%, Metair has experienced an improvement in second half volumes and production stability from the automotive components business with increased export demand from Europe.

Metair still expects full year production volumes to be suppressed. As such, full-year revenues are forecast to fall by between 25% and 30% year-on-year, with full-year operating margins between 1% and 3%, barring any further manufacturing disruptions.

This is based on an expected second half improvement in local automotive manufacturing of about 60 000 to 70 000 units from the first half of 2020, driven by export demand and new facelifts, and the achievement of full year volumes of between 400 000 units to 440 000 units.

Metair has approved a R1.3-billion investment to support new projects that can deliver between R25-billion and R28-billion of turnover over a seven-year period from the middle of 2022, depending on the final project volumes and product designs.

However, one effect of Covid-19 has been a slight change in project timing, resulting in potentially prolonged project model life. Project timings have been under pressure owing to travel restrictions and the finalisation of market positioning, and therefore some projects have been delayed by three to six months.

Metair customers have also reassessed project model lives and the company says it appears that there is potential for the secured projects to be extended from the initial five-to-seven years, to seven-to-ten years.

The company’s recovery in the energy vertical is based on aftermarket demand, market share gains, brand positioning, economic range expansion and original equipment manufacturer projects.

Metair says aftermarket demand has returned strongly and the company has structurally adapted its cost base and business activities to increase agility.

Metair continues to increase its market visibility as Covid-19 has potentially impacted the longer term viability of its industrial manufacturing business in South Africa, owing to lower demand.

Barring any short-term setbacks, Metair is upgrading its guidance for the full-year outlook. Based on the company’s current visibility, it expects full-year revenues to be between 5% and 10% lower than the prior year, with full-year margins of between 8% and 10%.

This outlook is based on prevailing exchange rates and an average virgin lead price of $1 700/t, combined with an overall positive outlook for volumes.

“We expect total automotive battery volumes to improve by between 1.5-million and 1.7-million units from the first six months of 2020, to between 7.2-million and 7.6-million units for the full year,” Metair notes.

Despite the Covid-19 impact and lower earnings before interest, taxation, depreciation and amortisation generated for the year, the company’s financial position in terms of cash and liquidity has remained strong and with an improved outlook for the full-year 2020, Metair is highly confident that covenant requirements will be met by December 31.

Management continues to closely monitor the group’s financial position, and remains focused on effective cash management, specifically in the areas of working capital in conjunction with customer requirements, cost control and capital expenditures, taking into account planned investments required in new or upcoming customer models and facelifts.