Metair automotive component subsidiary Hesto Harnesses returned to profitability in the second half of its financial year, but there remained much work to be done to return the group to its full potential, CEO Paul OFlaherty said on Wednesday.
The international manufacturer, distributor and retailer of energy storage solutions and automotive components yesterday reported headline earnings per share (adjusted for impairments and profit on disposals) of 135 cents for the 12 months to December 31, compared to a loss of 17c in 2022.
Following the complexity and subsequent first-half losses linked to the ramp-up of Hestos new major customer model, management collaborated with Hestos customer and technology partner to turn the business around. Hestos revenue increased 222% to R5.7 billion, and the business generated R104 million in operating profit in the second half, which countered some of the R711m first-half losses.
Metair revenue increased 14% to R15.9bn and when one excludes the non-cash impact of hyperinflation accounting related to Metairs Turkish business and impairment of the lithium-ion line in Romania, the operating profit increased 46% to R1.15bn.
OFlaherty said their leadership teams had successfully navigated numerous challenges by focusing on what was within their control, and what would make the most impact on the business, and there remained challenges to navigate.
Our focus going into 2024 remains on the priority matters we have identified as a management team. This includes stabilising the leadership team after changes in the previous year, addressing high debt levels, achieving sustainable project profitability at Hesto, unlocking value from Mutlu and resolving the competition concerns in Romania, said OFlaherty.
By releasing the friction these obstacles create, the group can start to regain its momentum and return to growth. We will take the next few months to address the priority areas and evaluate the current situation, with the finalisation of a detailed turnaround strategy aimed for the second half of 2024, he said.
In the year ahead, Metairs operational priorities in the Automotive Component Vertical were to achieve efficient manufacturing of new models and facelifts, particularly concentrating on profitability at Hesto with the outlook dependent on OEM customer production volumes realised.
The Energy Storage Vertical would continue to focus on improving volumes and mix, securing new hard currency export markets and benefiting from its industrial solutions portfolio in South Africa.
Capital expenditure for the 2024 year would amount to R910m, with the focus on critical maintenance, new customer vehicle models, Rombats solar energy project and health and safety requirements, including earthquake protection upgrades at Mutlu. Capital expenditure in the past year came to R690m to support future growth and efficiency improvements.
Revenue growth was supported by improved original equipment manufacturer (OEM) production volumes in South Africa and higher material cost, content and complexity, which commanded growth in prices.
Revenue from the Energy Storage business declined to R8bn from R8.6bn, mainly due to a 34% decrease in Mutlu Aks (Mutlu) aftermarket volumes and a decline in export volumes. However, R268m operating profit was generated, an increase of 37%.
Geopolitical tensions, high inflationary and other economic pressures dampened automotive battery sales with total volumes declining 17% to 7.3 million units, and OEM battery sales volumes accounting for a slightly higher mix than targeted.
Group net debt increased to R2.8bn primarily due to capital expansion and working capital needs. Despite the high debt level, the group remained within agreed banking covenants levels.
BUSINESS REPORT
