Wrap Text
Condensed unaudited consolidated results for the six months ended 30 June 2020
METAIR INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Reg No. 1948/031013/06)
Share code: MTA ISIN code: ZAE 000090692
("Metair" or "the group" or "the company")
Condensed unaudited consolidated results for the six months ended 30 June 2020
Segmental contribution 2020*
* Includes Hesto
Revenue
- Energy storage: 43%
- Automotive components: 57%
Revenue (million)
- FY 2019: 11 238
- H1 2019: 5 344
- H1 2020: 3 880
EBITDA (million)
incl. equity earnings, before impairments
- FY 2019: 1 419
- H1 2019: 699
- H1 2020: 139
HEPS (cents)
- FY 2019: 336
- H1 2019: 160
- H1 2020: (56)
- HEPS decreased by 135% to a loss of 56 cents per share
- Automotive Components Vertical ROIC down to 11%
- Cash generated from operations increased by 27%
- Energy Storage Vertical ROIC down to 11%
FINANCIAL SUMMARY
Six months ended Year ended
30 June 30 June 31 December
2020 2019 2019
R'000 R'000 R'000 Change %
Revenue 3 880 043 5 344 472 11 237 995 -27%
Operating (loss)/profit (18 069) 498 653 1 018 153 -104%
EBITDA before impairment 138 879 699 436 1 419 280 -80%
HEPS (cents) (loss)/profit (56) 160 336 -135%
EPS (cents) (loss)/profit (112) 161 325 -170%
No. of shares in issue ('000) 198 986 198 986 198 986 0%
Net asset value per share (cents) 2 128 2 068 2 186 3%
Cash generated from operations 221 380 174 816 1 229 928 27%
- Medium-to-long-term sustainability and Vision 2020
- Structured 6 pillar Covid-19 response strategy
- Employee health, safety, welfare and communication
- Solvency and liquidity
- Government interaction
- Covid-19 exit plan
- Covid-19 recovery plan
- Governance and leadership
- Response strategy approach and principles
No dividend is being declared for the interim period.
RESULTS COMMENTARY - JUNE 2020
Globally, companies' results commentaries for any period
of 2020 are going to be dominated by the impact of the
Covid-19 pandemic as the world faces unprecedented
disruptions to business. These disruptions, brought on
by governments' measures to contain the virus such as
extended lockdowns which were aimed at protecting the
health and safety of citizens, unintentionally disconnected
businesses from their employees, markets, and customers.
Our experiences will forever change the way we operate,
which in turn will present novel opportunities and challenges
as we adjust to the new normal with altered trends, demand
patterns, regulations, and operating protocols. We will have
to offer new products and services by means of accelerated
digitalisation as well as agile and more automated
manufacturing, operating and distribution systems.
From the onset of the pandemic, Metair took the threat
very seriously and designed a specific Covid-19 response
strategy, consisting of six major focus areas:
- Employee health, safety, welfare and communication;
- Results, solvency, liquidity and dividend distribution;
- High level government interaction and best possible
- economic participation;
- Covid-19 exit plan;
- Covid-19 recovery plan ("Vision 2022"); and
- Increased governance and leadership.
Employee health, safety, welfare, and communication
The welfare, health and safety of our employees is both
a priority and a key concern. Following the South African
government's declaration of a national lockdown effective
26 March 2020 ("lockdown"), we ensured that our factories
were shut down in accordance with our standardised
procedures, that our employees got home safely and that we
had the required mass communication systems via SMS and
Human Resources emergency lines in place.
The lockdown periods in our various countries of
operation temporarily suspended the normal employer-
employee relationship and we had to enter into new
employment arrangements with the aim being to protect
the most vulnerable, to be just and fair. We took the view
that government support should be forthcoming due to
government-imposed lockdowns and risk adjusted exit
strategies, and most employees sacrificed half of their
earnings during the hard lockdown.
We immediately registered for government employee
support programmes. Company welfare payments for the
period amounted to R61 million.
All Metair subsidiaries have policies in place to ensure
a safe working environment and to prevent the spread
of Covid-19. The policies are in accordance with section 8(1)
of the Occupational Health and Safety Act No. 85 of 1993, as
well as other regulations in their specific jurisdictions. The
policies have specific provisions to address employees who
show symptoms for Covid-19 during on-site screening. There
are on-site isolation facilities and transportation arrangements
to transfer employees suspected of having the virus to
designated Covid-19 healthcare facilities for further testing.
To date, Metair has tragically had three
employees succumb to Covid-19 and we extend our
heartfelt condolences to their families and working
colleagues. 287 employees have tested positive for
the virus, 1 029 employees have had to self-quarantine
and 225 employees are currently booked off due
to comorbidities.
Metair's results for the period, solvency, liquidity
and dividend distribution
Our business design proved to be robust as we own all our
major factories and have few rental obligations. We deferred
all major capital and project expenses, including dividend
payments, and set out to effectively preserve cash.
Consequently, the operating loss was limited to
R18 million for the period which is testament to the excellent
cost containment measures taken and the combined
sacrifices made by all, as turnover declined by 27% to
R3 880 million. Net interest expenses compared with the
prior period were down 11% at R91 million as interest rates
declined in all territories.
In Germany, businesses were already dealing
with the market effect caused by the pandemic
during the reporting period. Metair's 25% associate
investment, Akkumulatorenfabrik Moll ("Moll"), applied for
liquidation as shareholders decided not to inject more capital
into the business given the extended outlook for recovery of
the business. Metair has therefore impaired the remaining
R108 million investment in Moll based largely on the
liquidator's final business review and recommendations.
This write down, combined with interest expenses,
resulted in a loss for the period of R215,7 million, and a
headline loss per share of 56 cents and basic loss per share
of 112 cents.
This is a good result in difficult circumstances supported by various
cost containment measures. Focused cash management resulted in
R221 million cash generated from operations and net cash
inflow of R59.7 million after payment of interest and taxes.
Net debt increased by only R60 million from 31 December
2019, to R1 378 million. Although net debt levels have been
well managed, the reduction in the last twelve-months
EBITDA levels has resulted in a net debt to EBITDA ratio of
just below two times. Although we are currently compliant
with lending covenants, any significant outflows or a slower
than expected recovery will most likely result in a breach of
covenants.
Metair declared a full year dividend of 120cps in March
2020. Although solvent and liquid, Metair is currently likely
to breach incurrence covenants on its debt facilities if the
dividend is paid. This puts Metair's access to liquidity and
recovery strategy at risk, and therefore the Board has decided
to defer the payment of the dividend until such time that the
Board has reasonable certainty, in line with the requirements
of the Companies Act, that solvency and liquidity requirements
will be met after paying the dividend.
Segmental Performance
Automotive Components
Revenue decreased by 38% to R1 859 million (2019: 2 980 million).
This vertical derives most of its revenue from
Original Equipment Manufacturers (OEMs) within South
Africa and was directly impacted by the national lockdown
and subsequent phased reopening. The vertical recorded
an operating loss of R48 million (2019: R302 million profit),
but still achieved a positive EBITDA of R21 million (2019:
R367 million) as South African OEM production volumes
declined by 42%. In addition, first quarter volumes were
negatively impacted by a 10-day strike at a major OEM,
as well as some OEMs opening late in 2020. Covid-19
lockdowns eliminated any possibility to catch-back on lost
production from the first quarter, which would normally be
the case. The lockdown measures imposed restricted both
our and our customers' ability to produce, and most of
this decline in production is due to zero production during
April, below 50% limited production in May and improved
production levels above 50% in June. All efforts were
employed in conserving cash and the vertical consumed
free cash of R344 million (2019: consumed R81 million)
in the period. Working capital was tied up due to the long
lead times on imported materials combined with the lack of
production. We expect this position to normalise in the third
quarter, as OEMs get closer to planned vehicle build plans.
We maintained our supply levels according to our customer
requests, and this has limited supply chain risks.
Energy Storage
Revenue decreased by 19% to R2 469 million (2019:
R3 044 million). This vertical derives its sales from four
distinct channels being OEMs, the local automotive after-
market, automotive after-market exports and industrial energy
storage. Aided by the fact that both Mutlu Aku (Turkey)
and Rombat (Romania) were able to trade throughout the
period, albeit at a much reduced level, the vertical achieved
an operating profit of R74 million (2019: R289 million) and
EBITDA of R178 million (2019: R379 million). This vertical's
local aftermarket and export sales were able to offset the
loss of OEM sales. First half automotive volumes declined
by 27%, with the major contraction being OEM across all
territories as well as reduced export sales volumes out of
Turkey. OEM volumes were impacted by European and
Turkish OEMs shutting down operations from mid-March
through to mid-May. Turkish exports were disrupted by
export country lockdown actions including the closure of
borders and economies, affecting the movement of goods.
Industrial sales in South Africa and Turkey were particularly
impacted by weak demand, and volumes reduced by 35%.
Cash generation in the business, despite lower EBITDA
was pleasing and the vertical generated R339 million (2019:
consumed R341 million) free cash flow in the period, as we
managed to control our working capital cycle. Mutlu debtors
receipting was excellent. Inventory levels are being built up
ahead of the third and fourth quarter peak cycle in Europe
and as markets are anticipated to open up. Our ability to
secure inventory supply and maintain production, despite the
operating challenges, is a strength.
Financial impact of Covid-19
The Covid-19 pandemic has developed rapidly since the
government implemented lockdown in March 2020, and
steps taken to contain the virus have negatively affected
the automotive environment and the group's results in the
reporting period. The known material impacts of Covid-19 on
the group's results for the period are:
- A decline in revenues for the first six months of 2020
compared with the same period in 2019 of 27%,
approximately R1.5 billion.
- Impairments of receivables for R45 million, mainly Moll
related, and increases in expected credit loss rates due
to economic and Covid-19 overlays on future recovery
assumptions.
- Impairment of our investment in associate Moll of
R108 million.
- Welfare (salary) support to employees during hard
lockdown and direct Covid-19 related costs of R61 million
and R7 million respectively, totalling R68 million.
- Our business interruption claims for dreaded disease
and pandemics is currently in progress with our insurers
and should be finalised in the second half of the 2020
calendar year.
- We revisited our impairment testing on material cash
generating units (CGUs) including goodwill, and have
determined that headroom still exists based on our
expectations of the market recovery, revised forecast
volumes from major customers and subsidiary adjusted
business plans.
Going concern, cash and debt covenants
Despite the Covid-19 impact and much lower EBITDA,
the company's financial position in terms of cash and
liquidity has remained strong. Net cash on hand amounted
to R1.2 billion. The position was assisted by deferring the
payment of the 2019 financial year dividend of R239 million,
lower capital expenditure and overall improved working
capital management. Unutilised and available finance
facilities were R832 million in South Africa, R1 662 million
combined equivalent at Rombat and Mutlu, and in addition,
R345 million is still available through the RCF 2 South African
facility. The extension of the RCF 1 repayment due in August
2020, for R750 million, was finalised post period end and
is now repayable in August 2021 with no change in margin.
Net debt at 30 June 2020 was R1.4 billion compared to R1.3 billion
at 31 December 2019. All covenant requirements were met in
the period and the leverage ratio increased to 1.88 times
compared to a limit of 2.5 times net debt to EBITDA.
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.
Management has considered the consequences of
Covid-19 and other events and conditions, and has
determined that they do not create a material uncertainty or
significant doubt upon the group's ability to continue as a
going concern.
High level government interaction and achieving the best
possible economic participation
Presuming the Covid-19 challenge could be with us for
a long time and that we are going to oscillate between
various risk levels over the next 18 months, it was very
important to structurally achieve the best economic
participation for each level of government risk adjusted
national disaster response.
Initially, our business was classified as a Level 3 economic
participant in South Africa. After extensive lobbying and
interaction with industry bodies such as the National
Association of Automobile Manufacturers of South Africa,
the National Association of Automotive Component and
Allied Manufacturers, Trade and Industrial Policy Strategies
and Retail Motor Industry, we managed to achieve a Level 4
economic participation classification.
We would like to thank the Department of Trade and
Industry, Minister Patel, and the CEOs of the above-
mentioned industry bodies for their accommodation and
approachability during this period.
In addition, First National Batteries managed to be
classified as an essential service provider.
Covid-19 exit plan
We realised very early on that we would need a well-
structured Covid-19 exit plan and set out to design best
practice return to work standard operating manuals and
training programmes, combined with concluding internal
start up readiness self-assessments. In South Africa, as of
4 May 2020, our employees started returning to work except
for those with comorbidities. They were supplied with the
required personal protective equipment and training, and we
began implementing the new standard operating procedures.
The return to work processes have run smoothly with
only a few minor labour incidents as businesses dealt with
the difficulty of selecting, allocating and rotating employees
according to the government imposed 50% employee
participation rate during lockdown level 4. We believe the
labour relationship environment will remain challenging and
fragile, even during level 3 of the lockdown despite being
permitted to operate at 100%, as we adapt to current lower
market demand.
To date, the extraordinary start-up cost required under
our return to work policies, regulations and procedures is
estimated at R6.5 million for the interim period, with a full year
estimate of R14 million.
Covid-19 recovery plan (Vision 2022) and outlook
In addition to executing all the activities required to manage
the Covid-19 risks, we also focused on creating our future
vision: Vision 2022, which will shape our designed recovery
post the pandemic.
Our focus was to design a multi-stepped U-shaped
recovery and to avoid an L-shaped recovery curve. The
automotive components vertical recovery is a project-based
recovery that can potentially alter the L-shaped recovery to a
U-shaped recovery as we anticipate an initial full-year decline
of 30% in South African production volumes in 2020.
Metair focused on new model launch projects as well
as the most sustainable projects, customers, models, and
markets, and approved a R1,3 billion investment to support
new projects that can deliver between R25 billion and
R28 billion of turnover over a 7 year period from the middle
of 2022, depending on the final project volumes and product
designs.
Fortunately, there are also other model launches and
planned model facelifts that could have a positive effect
even in the short term. Although first half production volumes
in South Africa were down 42%, we look forward to an
improved second half performance from the automotive
components business with an anticipated increase in export
demand from Europe. We still expect production volumes
to remain suppressed for the remainder of the year, but with
improved manufacturing stability. As such, we expect full
year revenues to be between 25% to 30% lower than 2019
(at prevailing exchange rates) with full year operating margins
between 1% and 3%, barring any manufacturing disruptions.
This is based on an expected second half improvement in
local automotive manufacturing of approximately 60 - 70
thousand units (35% - 40%) from the first 6 months of
2020, driven by exports demand and new facelifts, and
achievement of full year volumes of between 400 thousand
units to 440 thousand units. Although Metair's internal
manufacturing confidence level is high, the current general
manufacturing operating environment is affected by port
delays, a renewed wave of load shedding and reduced levels
of employee attendance due to the pandemic.
The energy vertical recovery is based on an aftermarket
demand, market share, brand positioning, economic range
expansion and OEM projects. We are currently improving
our insight into aftermarket demand, which has returned
strongly in the short term, and will look to structurally adapt
our cost base and business activities to increase agility.
We have therefore increased our interaction, transparency,
communication and customer engagements as we aim
to continue to gain greater insight into the new market
conditions. Although the outlook remains positive, we do
acknowledge that it will take some time for absolute clarity
to be achieved as we move into the traditionally higher
aftermarket demand period normally associated with the
second half. Our ability to serve and reach our export
customers and markets remains a key requirement for good
performance, and current lockdown regulations limit us in
this regard. Barring any setbacks, the second half of 2020
could be on par or deliver an improvement to the second
half of 2019. Based on our current visibility, we expect full
year revenues to be between 10% and 15% lower than the
prior year, with full year margins of between 5% and 8%.
This outlook is based on prevailing exchange rates and an
average virgin lead price of $1,700 per tonne, combined
with an overall positive outlook for volumes. We expect total
automotive battery volumes to improve by 1.3 - 1.5 million
units (between 46% and 54%) from the first six months of
2020, to 7.0 - 7.4 million units for the full year.
Increased governance and leadership
We believe it is important to lead and set an example
during this period. We would like to thank the Metair team,
executives and leadership teams across subsidiaries for
their presence, availability and focus during this period.
Further thanks are extended to the Board, with a special
thank you to Mr Brand Pretorius, our Chairman, for his
guidance, positive encouragement, and support during this
period.
Update on the strategic review process
The Board's review of the company's strategy, policies and
processes which enable the execution of the company's
core purpose and alignment with our values, as set out in the
integrated report for the year ended 31 December 2019, is
still in progress ("Strategic Review").
Metair remains committed to its communicated strategy
and principle of unlocking value. However due to Covid-19
and the near-term focus on operational efficiency and
implementation of Covid-19 recovery strategy, we have
moved out the execution timeline to be re-evaluated in
early 2021. We will be monitoring the developments around
Covid-19 closely and continue our preparations in the
background. Market interest in both verticals remains high
and the Board continually evaluates the best way forward,
taking into consideration the Covid-19 effect not only on the
group, but also on interested parties and their desire to see
some delivery against the Covid-19 recovery strategy.
Recruitment and appointment of new CEO for Metair
During the period, the Board approved the request for early
retirement by Mr Theo Loock, the current CEO, with effect
from 31 December 2020. The Board is pleased to announce
that all formalities in respect of the retirement have been
concluded, including reaching formal separation, restraint of
trade and consultancy agreements. The Board has appointed
Heidrick & Struggles as its professional recruitment agency
for the selection and appointment of a replacement CEO
before the end of December 2020. The recruitment process
is progressing well.
Appreciation
We would like to express our appreciation and gratitude to
all employees who made enormous sacrifices during this
challenging period as we faced the Covid-19 pandemic.
A special thank you goes out to all human resource
personnel, and key medical facility practitioners and
clinic staff whose key focus during this period was our
employees' health, safety and welfare, and maintaining
communication with them.
FOR FURTHER INFORMATION
This short-form announcement is the responsibility of the directors and is only a summary of the information in the
full announcement and does not contain full or complete details. Shareholders are advised that the forecast financial
information contained in this announcement has not been reviewed or reported on by the Company's auditors and is the
responsibility of the directors of the Company. Any investment decision should be based on the full announcement that
has been published on SENS today, 19 August 2020 (https://senspdf.jse.co.za/documents/2020/JSE/ISSE/MTA/Interim20.pdf)
and is also available on our website (https://www.metair.co.za/investors/results-centre/). An investor and analyst audio
webcast of the presentation will be broadcast on Wednesday, 19 August 2020 at 14h00 (SAST). The audio webcast can be
accessed through https://www.corpcam.com/Metair19082020. Alternatively a telephone conference call facility will be
available at 14h00 (SAST) on Wednesday, 19 August 2020 in South Africa on 011 535 3600 / 010 201 6616 or internationally
on +27 11 535 3600 / +27 10 201 6616.
The full announcement is also available at our registered office and our sponsor's office for inspection,
at no charge, during office hours.
REGISTRARS SPONSOR INVESTOR RELATIONS
Computershare Investor Services (Pty) Limited One Capital Instinctif Partners
Rosebank Towers, 15 Biermann Avenue,
Rosebank, 2196
EXECUTIVE DIRECTORS:
CT Loock (Managing); S Douwenga (Finance)
INDEPENDENT NON-EXECUTIVE DIRECTORS:
SG Pretorius (Chairman); TN Mgoduso; HG Motau; B Mawasha;
CMD Flemming; S Sithole; MH Muell; NL Mkhondo
COMPANY SECRETARY:
SM Vermaak
Date: 19-08-2020 07:05:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
