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METAIR INVESTMENTS LIMITED - Interim Results for the six months ended 30 June 2014

Release Date: 18/08/2014 07:05
Code(s): MTA     PDF:  
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Interim Results for the six months ended 30 June 2014

METAIR INVESTMENTS LIMITED

(INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA)

("METAIR" OR "THE GROUP")

(Reg No. 1948/031013/06)

Share code: MTA

ISIN code: ZAE 000090692



INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2014



Increased     Increased        Decreased                Increased                  Increased               Increased

 REVENUE   OPERATING PROFIT   HEPS (cents)   NET ASSET VALUE PER SHARE (cents)       EBITDA      CASH GENERATED FROM OPERATIONS

   32%           16%             (16%)                      37%                    R485 million            R335 million



                                         Six months ended                             Year ended

                                   30 June 2014  30 June 2013                   31 December 2013

                                          R'000         R'000  Change                      R'000

                                      Unaudited     Unaudited       %                    Audited

Revenue                               3 235 218     2 459 831     32%     Increased    5 227 426

Operating profit                        318 737       274 169     16%     Increased      445 614

EBITDA                                  484 599       375 087     29%     Increased      650 799

HEPS (cents)                                120           143   (16%)     Decreased          219

No. of shares issued (‘000)             198 986       152 532     30%     Increased      198 986

Net asset value per share (cents)         1 984         1 450     37%     Increased        1 895

Cash generated from operations          334 850       226 791     48%     Increased      665 908



CONDENSED CONSOLIDATED INCOME STATEMENT

                                                                          Six months ended                 Year ended

                                                                     30 June 2014      30 June 2013  31 December 2013

                                                                            R'000             R'000             R'000

                                                                        Unaudited         Unaudited           Audited

Revenue                                                                 3 235 218         2 459 831         5 227 426

Cost of sales                                                         (2 513 659)       (1 940 270)       (4 177 984)

Gross profit                                                              721 559           519 561         1 049 442

Other operating income                                                     68 181            24 361            98 087

Distribution, administrative and other operating expenses               (471 003)         (269 753)         (701 915)

Operating profit                                                          318 737           274 169           445 614

Interest income                                                             7 801             7 356            15 421

Interest expense                                                         (49 408)          (12 586)          (27 888)

Share of results of associates                                             32 343            38 109            61 924

Profit before taxation                                                    309 473           307 048           495 071

Taxation                                                                 (58 537)          (77 946)         (121 172)

Profit for the period                                                     250 936           229 102           373 899

Attributable to:

Equity holders of the company                                             234 809           209 457           341 376

Non-controlling interests                                                  16 127            19 645            32 523

                                                                          250 936           229 102           373 899

Depreciation and amortisation included in the above expenses            (133 519)          (62 809)         (143 261)

Operating lease rentals included in the above expenses                   (11 566)          (10 944)          (32 151)

Earnings per share

Basic earnings per share (cents)                                              120               143               229

Headline earnings per share (cents)                                           120               143               219

Diluted earnings per share

Diluted earnings per share (cents)                                            119               140               223

Diluted headline earnings per share (cents)                                   119               140               214

Number of shares in issue (‘000)                                          198 986           152 532           198 986

Number of shares in issue excluding treasury shares (‘000)                195 488           146 667           194 566

Weighted average number of shares in issue (‘000)                         195 099           146 112           149 271

Adjustment for dilutive shares (‘000)                                       2 246             3 444             3 585

Number of shares used for diluted earnings calculation (‘000)             197 345           149 556           152 856

Calculation of headline earnings per share (R'000)

Net profit attributable to ordinary shareholders                          234 809           209 457           341 376

Profit on insurance recovery and impairment charges                                                          (15 342)

Taxation effect of insurance recovery and impairment charges                                                    1 243

Loss/(profit) on disposal of property, plant and equipment – net               66               (2)              (34)

Headline earnings                                                         234 875           209 455           327 243



CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

                                                                          Six months ended                 Year ended

                                                                     30 June 2014      30 June 2013  31 December 2013

                                                                            R'000             R'000             R'000

                                                                        Unaudited         Unaudited           Audited

Profit for the period                                                     250 936           229 102           373 899

Other comprehensive income:

– Actuarial gains recognised                                                                                      395

– Exchange gains arising on translation of foreign operations              84 139            73 813            51 881

– Cash flow hedges                                                                                            110 377

– Taxation on other comprehensive income                                                                        (157)

Net other comprehensive income                                             84 139            73 813           162 496

Other comprehensive income for the period net of taxation                 335 075           302 915           536 395

Attributable to:

Equity holders of the company                                             318 881           283 085           503 872

Non-controlling interests                                                  16 194            19 830            32 523

                                                                          335 075           302 915           536 395



CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

                                                                           Six months ended                Year ended

                                                                     30 June 2014      30 June 2013  31 December 2013

                                                                            R'000             R'000             R'000

                                                                        Unaudited         Unaudited           Audited

Balance at beginning of the period                                      3 788 752         2 052 730         2 052 730

Net profit for the period                                                 250 936           229 102           373 899

Other comprehensive income for the period                                  84 139            73 813           162 496

Total comprehensive income for the period                                 335 075           302 915           536 395

Proceeds from shares issued                                                                                 1 500 000

Share issue costs                                                                                            (44 945)

Employee share plan:

 – Value of service provided                                                6 670             4 901             9 747

 – Deferred taxation                                                        5 691            16 511            15 767

Vesting of share-based payment obligation:

 – Estimated taxation effects of utilisation of treasury shares           (4 785)           (6 482)          (15 123)

 – Loss on settlement of old scheme                                       (1 263)             (586)             (586)

Transfer of cashflow hedge to purchase consideration of subsidiary                                          (110 377)

Shares disposed by the Metair Share Trust                                   2 583             1 094             1 095

Dividend *                                                              (169 004)         (155 951)         (155 951)

Balance at end of the period                                            3 963 719         2 215 132         3 788 752



* An ordinary dividend of 70 cents per share was declared in respect of the year ended 31 December 2013.

  An ordinary dividend of 95 cents per share was declared in respect of the year ended 31 December 2012.



CONDENSED CONSOLIDATED BALANCE SHEET

                                                                     30 June 2014      30 June 2013  31 December 2013

                                                                            R'000             R'000             R'000

                                                                        Unaudited         Unaudited           Audited

ASSETS    

Non-current assets    

Property, plant and equipment                                           2 886 438         1 234 127         2 844 929

Intangible assets                                                       1 262 850            84 452         1 243 531

Investment in associates                                                  215 157           189 353           199 786

Deferred taxation                                                          37 840            12 086            10 838

                                                                        4 402 285         1 520 018         4 299 084

Current assets    

Inventory                                                               1 384 863           846 094         1 264 241

Trade and other receivables                                             1 149 150           718 058         1 274 387

Derivative financial assets                                                 1 502            12 039            15 870

Taxation                                                                   16 712                              21 002

Cash and cash equivalents                                                 537 099           433 092           574 742

                                                                        3 089 326         2 009 283         3 150 242

Total assets                                                            7 491 611         3 529 301         7 449 326

EQUITY AND LIABILITIES    

Capital and reserves    

Stated capital                                                          1 497 931            42 876         1 497 931

Treasury shares                                                          (35 468)          (60 473)          (45 241)

Share-based payment reserve                                                69 313            54 113            58 215

Foreign currency translation reserve                                      171 881           110 106            87 809

Equity accounted earnings                                                 206 107           185 307           190 742

Retained earnings                                                       1 968 555         1 795 017         1 897 909

Ordinary shareholders' equity                                           3 878 319         2 126 946         3 687 365

Non-controlling interests                                                  85 400            88 186           101 387

Total equity                                                            3 963 719         2 215 132         3 788 752

Non-current liabilities    

Borrowings                                                                213 616           163 959         1 021 976

Post-employment benefits                                                  104 437            29 159           107 685

Deferred taxation                                                         382 709            61 805           378 954

Deferred grant income                                                     135 534                             125 313

Provisions for liabilities and charges                                     33 126                              21 080

                                                                          869 422           254 923         1 655 008

Current liabilities     

Trade and other payables                                                  753 205           653 160         1 472 949

Borrowings                                                              1 489 890            56 298           180 796

Taxation                                                                   18 616             7 342            41 682

Provisions for liabilities and charges                                    123 650            75 718           141 406

Derivative financial liabilities                                            1 612                               1 492

Bank overdrafts                                                           271 497           266 728           167 241

                                                                        2 658 470         1 059 246         2 005 566

Total liabilities                                                       3 527 892         1 314 169         3 660 574

Total equity and liabilities                                            7 491 611         3 529 301         7 449 326

Net asset value per share (cents) attributable to ordinary    

shareholders calculated on number of shares in issue excluding    

treasury shares                                                             1 984             1 450             1 895

Capital expenditure                                                       121 272            54 329           135 027

Capital commitments:    

– contracted                                                              110 895            96 516            68 605

– authorised but not contracted                                           106 302            88 366           287 923



CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

                                                                           Six months ended                Year ended

                                                                     30 June 2014      30 June 2013  31 December 2013

                                                                            R'000             R'000             R'000

                                                                        Unaudited         Unaudited           Audited

Operating activities    

Profit before taxation                                                    309 473           307 048           495 071

Non-cash items                                                            168 899            18 751           211 434

Working capital changes                                                 (143 522)          (99 008)          (40 597)

Cash generated from operations                                            334 850           226 791           665 908

Interest paid                                                            (49 408)          (12 586)          (27 888)

Taxation paid                                                            (97 734)          (67 824)          (88 814)

Dividends paid                                                          (169 004)         (155 951)         (155 951)

Dividend income from associates                                            16 976            24 698            43 077

Net cash inflow from operating activities                                  35 680            15 128           436 332

Investing activities    

Interest received                                                           7 801             7 356            15 421

Net cash utilised in other investing activities                         (679 812)          (49 484)       (2 318 046)

Net cash outflow from investing activities                              (672 011)          (42 128)       (2 302 625)

Net cash inflow/(outflow) from financing activities                       493 373          (36 778)         2 099 626

Net (decrease)/increase in cash and cash equivalents                    (142 958)          (63 778)           233 333

Cash and cash equivalents at beginning of the period                      407 501           216 428           216 428

Exchange gains/(loss) on cash and cash equivalents                          1 059            13 714          (42 260)

Cash and cash equivalents at end of the period                            265 602           166 364           407 501



CONDENSED SEGMENTAL REVIEW

                                                  Revenue                    Profit before interest and taxation

                                      Six months ended        Year ended       Six months ended       Year ended

                                     30 June      30 June    31 December      30 June      30 June   31 December

                                        2014         2013           2013         2014         2013          2013

                                       R'000        R'000          R'000        R'000        R'000         R'000

                                   Unaudited    Unaudited        Audited    Unaudited    Unaudited       Audited

Local

Original equipment                 1 737 503    1 691 514      3 143 576      117 999      156 257       221 968

Aftermarket                          986 332      595 812      1 440 130      110 111       92 221       224 263

Non-auto                             308 153      233 451        486 399       41 072       12 925        18 162

                                   3 031 988    2 520 777      5 070 105      269 182      261 403       464 393

Direct exports

Original equipment                    54 587       54 210        105 307        7 715        6 888       (3 638)

Aftermarket                          543 745      283 135        772 275       41 133       24 750        60 901

Non-auto                              28 380       18 363         44 810        6 139          937         1 494

                                     626 712      355 708        922 392       54 987       32 575        58 757

Property rental                       47 790       34 503         90 671       43 172       34 013        90 026

Reconciling items: *

– Share of results of associates                                               32 343       38 109        61 924

– Managed associates               (423 482)    (416 654)      (765 071)     (42 520)     (46 410)      (62 486)

Other reconciling items **          (47 790)     (34 503)       (90 671)      (6 084)      (7 412)     (105 076)

Total                              3 235 218    2 459 831      5 227 426      351 080      312 278       507 538

Net interest expense                                                         (41 607)      (5 230)      (12 467)

Profit before taxation                                                        309 473      307 048       495 071



*  Although the results of Hesto Harnesses Proprietary Limited does not qualify for consolidation due to the application

   of IFRS 10 and IAS 28, the results of Hesto Harnesses Proprietary Limited have been included in the segmental review

   as Metair has a 74,9% equity interest and is responsible for the operational management of this associate.



** The reconciling items relate to Metair head office companies and property rental.



NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS



Accounting policies



These condensed consolidated interim financial statements for the six months ended 30 June 2014 have been prepared in

accordance with IAS 34 Interim Financial Reporting, as well as the SAICA Financial Reporting Guides as issued by the Accounting

Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council. The

condensed consolidated interim financial statements should be read in conjunction with the annual consolidated financial

statements for the year ended 31 December 2013, which have been prepared in accordance with International Financial

Reporting Standards (IFRS) and comply with the JSE Limited Listings Requirements and the requirements of the Companies Act,

71 of 2008. The accounting policies applied in the preparation of the condensed consolidated interim financial statements are

consistent with the accounting policies applied in the preparation of the previous consolidated annual financial statements.

This interim report has not been reviewed or audited by the Group's auditors.



Contingencies



At 30 June 2014, bank and other guarantees given by the group to third parties amounted to R3.7 million (2013: R3.7 million).

The company provided guarantees for funding provided by Absa Bank Limited to Metindustrial and Inalex and no material liabilities

are likely to arise and the financial guarantee cost is insignificant.



Borrowings



During the period the group repaid long-term loans of R0.3 million (2013: R23.7 million), raised long-term loans of R13.8 million

(2013: R0.6 million), raised short-term loans of R576.9 million (2013: Nil) and repaid short-term loans of R93.6 million

(2013: R7.7 million).



Change of directors



With effect from 25 March 2014 Mr Sjoerd Douwenga was appointed as finance director, in place of Mr Brian Jacobs.

With effect from 1 January 2014 Mr Brand Pretorius was appointed to the board as an independent non-executive director

and Mr David Wilson as non-executive director.





  The interim results presentation will be available on Metair's website (www.metair.co.za) and an investor and analyst audio

  webcast of the presentation will be broadcast on Monday, 18 August 2014 at 09:30. The audio webcast can be accessed through

  http://www.corpcam.com/Metair18082014. Alternatively a telephone conference call facility will be available at 09:30 on

  Monday, 18 August 2014 in SA on 011 535 3600 / 010 201 6800 or internationally on +27 11 535 3600 / +27 10 201 6800.



REGISTRARS                                                     SPONSOR             INVESTOR RELATIONS    

Computershare Investor  Services (Pty) Limited                 One Capital         Instinctif Partners   

70 Marshall Street                                                                                    

JOHANNESBURG 2001                                                                                     

Signed on behalf of the board in Johannesburg on 15 August 2014                                       





O M E Pooe – Chairman                                                             C T Loock – Managing Director



      The interim report was produced under the supervision of Mr S Douwenga (Finance Director) B Comm (Hons), CA (SA).



                              EXECUTIVE DIRECTORS: CT Loock (Managing); S Douwenga (Finance)

                             NON-EXECUTIVE DIRECTORS: OME Pooe (Chairman); A Joffe; DR Wilson

               INDEPENDENT NON-EXECUTIVE DIRECTORS: RS Broadley; L Soanes*; A Galiel; JG Best; SG Pretorius

                                       COMPANY SECRETARY: SM Vermaak

                                                    *British



INTERIM RESULTS COMMENTARY



Metair is pleased to report interim results for the six months ended 30 June 2014 to the market.



Profit after tax attributable to equity holders of the company increased to R234.8 million compared to R209.5 million in the

previous period. Although Mutlu Akü's performance was excellent, the contribution from the Original Equipment Manufacturer

(OEM) businesses was disappointing. Continued labour disruptions destabilised the manufacturing environment.



This is the first time that the results of Metair's latest acquisition, Mutlu Akü in Turkey, are included for a full reporting period.



The result is further distorted in that Mutlu Akü has traditionally earned the majority of its earnings in the second half of the

year. As a consequence, notwithstanding Mutlu group's (Mutlu) outstanding first half performance, the dilutionary effect of the

additional 46.4 million shares issued to acquire Mutlu and the acquisition debt of R1.35 billion has resulted in HEPS for the period

of 120 cents per share compared to 143 cents in the comparable period.



Mutlu Akü acquisition

Mutlu Akü produced excellent results for the period. Profit before interest and tax increased from R15 million to R90 million. This

was achieved as a consequence of, inter alia, reduced hard currency debt levels, excellent cost management and group synergies.

The integration of Mutlu Akü is progressing according to the plans and objectives set by Metair.



The acquisition cost of R2.9 billion was funded by a combination of internal cash resources, equity of R1.5 billion and a bridge

finance facility of R1.35 billion at JIBAR plus 150 basis points. R40.2 million of interest was incurred on the bridge funding for the

six months to 30 June 2014. In addition, R17.9 million of additional depreciation and amortisation relating to the Mutlu Akü fair

value allocation was expensed at a Metair level.



During the reporting period the group increased its shareholding in Mutlu Akü from 75% to 96,7% and in July Metair initiated

the minority squeeze-out process available under the Turkish Capital Market Board's Regulations. Our intention is to increase our

shareholding to 100% and delist Mutlu Akü.



Labour disruptions

The effect of continued labour disruptions in South Africa resulted in the destabilisation of the manufacturing environment with

resultant pressure on manufacturing excellence and efficiency.



The group was fortunate that local vehicle production was not directly negatively affected by any labour action, nor did we

experience any major production allocation shifts as a result of current and previous labour disruptions.



The competitiveness challenge in the OEM sector can only be met under a stable production environment and is paramount in

achieving overall efficiency targets.



Bridge finance facility refinancing and revolving credit facility

On 13 August 2014 we announced that Metair refinanced the bridge finance facility with R1.4 billion of five-year preference shares



at a dividend rate of 69% of the South African prime rate. Metair also raised a five-year R750 million group revolving credit facility

at JIBAR plus 205 basis points which can be utilised for working capital and capital expenditure requirements.



Financial commentary

Group revenue increased to R3 235 million (2013: R2 460 million), operating profit increased to R318.7 million

(2013: R274.2 million) and profit after tax increased to R250.9 million (2013: R229.1 million). The improvement in operating

performance was mainly due to the inclusion of the full half-year contribution from Mutlu.



Although operating profit and profit before tax was negatively impacted by the additional interest and depreciation associated

with the Mutlu acquisition, we are very pleased with the group's earnings before interest, tax, depreciation and amortisation

(EBITDA) generation, which improved to R485 million (2013: R375 million).



The group also continues to benefit from operating in lower tax rate jurisdictions. In addition, as part of our refinancing and associated

internal restructuring, we have also been able to account for previously unrecognised deferred tax assets during the current reporting period.



Cash and cash equivalents increased to R266 million from R166 million at year-end. Net debt (borrowings less cash and cash

equivalents) was R1 438 million as at the end of the period compared to R795 million as at year-end. The increase in net debt from

year-end is due to draw-downs made to buy out minorities of Mutlu Akü during the mandatory tender offer process.



Operational commentary

Original equipment manufacturing (OEM) segment

The overall trend in the OEM segment was a general decline in production volumes, as manufacturers launch new models. Model

launches are necessary to meet the latest carbon emission standards taking effect in 2016.



Emerging African economies with largely improved economies and increased motorisation have introduced higher import duties on

vehicles. Vehicle exports to these markets have reduced slightly.



Aftermarket segment

Aftermarket demand for the group's products varied across the different regions and export markets during the period. The major

local markets in Romania and Turkey were softer during the period mostly on the back of a warmer than normal winter period. In

South Africa the aftermarket demand remained strong.



Non-automotive and export segment

The group is now exporting to approximately 46 countries. Demand in major export markets like Middle East, Africa and Russia

remained strong during the period.



The mining sector demand continued to be depressed as result of the protracted mining sector labour dispute.



Start/Stop battery technology



The group's Start/Stop battery strategy has evolved to centre around Mutlu Akü's Technical Centre in Turkey. The acquisition of Mutlu

Akü has assisted the group in its technical progress in becoming a leading international Start/Stop lead acid battery supplier. Mutlu Akü

have expanded and refocused the group's Start/Stop technology path to include the enhanced flooded battery (EFB) to our advanced

glass matt (AGM) product range. Mutlu Akü is already supplying three OEM customers with Start/Stop batteries from this technology.

Centralising our technology base in Turkey should enable the group to meet the ever-increasing focus on the affordability of this technology.

The group proved to be uncompetitive on enquiries received at the onset of the acquisition of Mutlu Akü. Fortunately, the group has received

further enquires that could benefit from the integration, cost savings and synergy extraction targeted from the Mutlu Akü acquisition.



Prospects

Original equipment (OE) segment

Post-June 2014 the South African automotive industry experienced a four-week strike in the steel and engineering industry.

Although well-executed contingency plans by the automotive industry limited the loss of production in the OE sector to only two

weeks, the long-term effects of continued labour disruption remain to be seen as the effects of labour disruptions both current and

previous years continue to play out.



Barring any other structural resets or labour-related changes we believe that the SA automotive industry has now prematurely

settled at current production levels. Newly launched models could reach higher production levels if international criteria for a

successful launch are met. The group will have to remain diligent and focus on stabilisation of the manufacturing environment.



The outlook in other markets remains stable at this stage.



Aftermarket segment

The second half of this year will be the first second half that the group will experience in Mutlu Akü and its markets. We remain

positive in regard to our expectation and outlook in these markets although these target markets have some geopolitical

challenges. Aftermarket demand in South Africa should be stable.



Building on the first-half performance of Mutlu Akü is an imperative.



Non-automotive segment

With the stabilisation of the mining sector labour disputes and the global focus on green and renewable energy and energy storage

solutions, we are hopeful for a return to normality in this sector.



Conclusion

Metair remains committed to executing its strategy and achieving the key performance criteria for 2014. Our financial performance

is dependent upon, inter alia, OE volumes, a stable environment, internal inflation and the exchange rate. Subject to these factors,

we expect the financial performance in 2014 to be satisfactory.





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