Battery and vehicle component maker Metair’s management has made progress on its stabilisation and turnaround strategy, which will be concluded in the second half of its 2024 financial year.
This is despite the short-term effects of a decrease in volumes and elevated levels of debt, it said in a statement on Thursday.
The group has stabilised major new projects undertaken in 2023 with Hesto Harnesses demonstrating a strong operational recovery from the significant losses incurred in the first half of the previous financial year. Ongoing profitability improvement initiatives are expected to improve future earnings and support reduced debt gearing.
Metair’s business verticals performed resiliently despite challenging operating and trading conditions and maintained a constant supply to customers, the group said.
Despite challenges within the economies and markets in which Metair operates, which include high interest and inflation rates and continued supply chain and port disruptions, management continues to effectively address the immediate priorities set out earlier in the year.
Providing an operational update for the six months ended June, the group noted total automotive battery units sold in the Energy Storage business improved by 10% to 3.9-million units in the first half, supported by stronger aftermarket and export sale volumes.
A temporary drop in demand from a major local automotive components customer of the group affected the overall SA OEM vehicle production with volumes 8% softer. Normal production at the customer is expected to resume early in the fourth quarter of the 2024 financial year.
Borrowing costs increased significantly due to higher net debt levels to support customer expansion, higher working capital investments and the extreme interest rates in Turkey.
In Turkey, Mutlu Akü continues to recover from the challenges of the previous year, including the shortage of contract workers and the loss of material export volumes. Automotive sales volumes increased to 1.8-million batteries from 1.76-million stemming from a 28% increase in export sales and the implementation of appropriate interventions.
At Rombat in Romania, automotive volumes improved by 41% to 1.3-million batteries supported by strong market gains in exports and aftermarket sales.
The group's debt-to-equity ratio remained elevated due to increased working capital, start-up funding for new projects and the impact of hyperinflation on Mutlu Akü. The group is, however, still operating within agreed bank covenant levels.
Management formulated a debt restructure plan, which the board approved. It includes the proposed refinance of SA operations on a ring-fenced basis, the rebalancing and recapitalisation of Hesto debt, the restructuring of the Hesto balance sheet on a project finance basis and introduction of longer-term external funding from lenders and the optimisation and deleverage gearing which includes the proposed derisking from Turkey (Mutlu Akü).
“The group’s lenders remain supportive and are engaging with the board on the debt restructure and refinance programme that will ensure a sustainable capital structure in the medium term,” it said.
The debt restructure programme is expected to start in the fourth quarter.
After June 30, the group raised the rand equivalent of $38.2m in the form of a bridge loan as a first step to rebalance the shareholder loan funding in Hesto and consequently advanced about R685m as a subordinated loan to Hesto.
Metair said historically the energy storage business has performed better in the second half of the financial year, due to the European and other export markets’ winter demand cycle for batteries.
“We expect this trend to continue and aim to build on our current momentum in capturing growth opportunities in the export markets. In SA, we expect continued local market competition as we aim to increase market share and profitability,” it said.
A key challenge continues to be the operating environment in Turkey, with the devaluation of the lira and high interest and inflation rates affecting the rand-translated results. Management continues to prioritise the potential derisking and value unlock of Mutlu Akü, it said.
Metair will release interim results on September 26.
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