Metair to inject over R700m into its SA automotive business

JSE-listed automotive components and energy storage solutions manufacturer Metair Investments is to invest more than R700 million in its automotive components business in South Africa this year, most of it related to the supply of components for the new Ford Ranger.

This includes a further R165 million to localise the automotive copper wire used by Hesto Harnesses.

Metair CEO Riaz Haffejee said on Thursday only the first part of this project, involving the first grade of wire and reasonable volumes, has been approved.

He said further approvals will be required for different grades of wire, which will then mean it can invest in the machinery and equipment for Unitrade, Metair’s automotive cable and wire subsidiary.

“We then need to build a new facility for that, which will be the fifth facility we eventually build for this project,” he said.

Metair chief financial officer Sjoerd Douwenga confirmed the group is investing a total of R1 billion in the Ford Ranger project.

Haffejee said R600 million of the allocated capital expenditure for the Ford Ranger project was spent in 2021, with R250 million delayed into the 2022 financial year.

Read: Ford Silverton plant is upping its game

“It is a project that impacts four of our automotive component companies as new business and another two as replacement business. The customer is intending to increase volume along the way and not just bring in a new model with great export potential.”

“We have had significant additional revenue secured over the model life as a result of the project maturing and as a result of new potential business secured from various of our subsidiaries,” he said.

Read:
Ford SA injects R600m into its Gqeberha engine plant
Ford and its suppliers invest R20.13bn in South Africa

Haffejee said the Ford Ranger project is anticipated to create more than 3 000 new jobs in Metair and increase the company’s head count in South Africa by about 50%.

He said these are permanent jobs across all Metair companies, with the majority being hired in 2023 and more hired as volumes of the new Ford Ranger increase.

Andrea Cavallaro, director of operations at Ford’s International Markets Group, said last year a total of R20.13 billion is to be invested in South Africa by the Ford Motor Company and its suppliers for the production of the new Ranger and a bakkie for Volkswagen at Ford’s assembly plant in Silverton in Pretoria and the adjacent Tshwane Automotive Special Economic Zone (TASEZ).

Cavallaro said the investment will create 1 200 new jobs at the Silverton plant to increase Ford’s workforce to 5 500 at the plant and add a further 10 000 jobs to the already 50 000 jobs across Ford’s local supply network.

Production of the new Ford Ranger is scheduled to commence in the fourth quarter of this year.

The R1 billion investment by Metair includes investments in:

• A 35 00m² facility in the KwaZulu-Natal town of Stanger for Hesto Harnesses, largely for the Ford Ranger but also for Isuzu South Africa.

• A warehouse facility in the TASEZ next to Ford SA’s production plant in Silverton, where the wiring harnesses will be sequenced for the Ford plant.

• A new facility for Automold in the TASEZ to supply plastic injection molding parts to the Ford plant.

• A new warehouse for Lumotech, which manufactures headlights, tail lights, reflectors and plastic injection mouldings.

Total capital expenditure of R1.2 billion is planned by Metair in its 2022 financial year compared to R1.3 billion in 2021.

It includes carry over allocations from 2021 and new technology investments at Mutlu Akü in Turkey in absorbent mat glass stop-start battery technology.

Haffejee said Metair has made steady progress against its strategic initiatives in its 2021 financial year, which resulted in the company delivering a record performance and continuing to demonstrate its resilience in an environment that remained constrained by the effects of Covid-19.

Energy storage business

He said the energy storage business performed exceptionally well, and ahead of its recovery plan, by capturing all round increases in market demand.

Haffejee noted that the recovery in the automotive components business was more protracted with the strong growth in customer volumes in the first half not repeated in the second because of supply chain-related disruptions and other once-off production interruptions.

“Our strategic projects, including expansion works at Hesto, are on track, enabling us to build out the capacity to support our current and future growth.

“OEM [original equipment manufacturer] production is expected to grow with an increased focus on local production and I am confident that our ongoing investments will deliver returns and drive meaningful value creation over the short to long term,” he said.

Financial results

Metair on Thursday reported a 23% increase in group revenue to R12.62 billion in the year to end-December 2021.

Haffejee said this reflects the solid rebound following lockdown restrictions in 2020.

Group operating profit rose to R1.16 billion from R0.6 billion, with the operating margin improving to 9.2%, from 5.5% in 2020.

Earnings before interest, tax, depreciation and amortisation (Ebitda), plus equity earnings and impairments, increased by 80% to R1.4 billion. Headline earnings per share grew by 139% to 354 cents from 148 cents.

An improved dividend of 90 cents per share was declared. A dividend of 75 cents was declared in 2021.

Russia-Ukraine conflict

Haffejee said there are potential challenges in Eastern Europe because of the Russia-Ukraine conflict but Metair is keeping a close eye on the situation and it has not had any great impact to date.

He said the potential impact is small because Metair is looking at mitigating those problems.

“We have exports into Russia, Moldova, Ukraine and Belarus and long standing customers in the region from both Mutlu and Rombat. In total, they form between 6% and 7% of total volume for Mutlu and Rombat.

“We do have potential customers that we can find in other markets in North America and South America. To mitigate this issue we have paid a lot more attention to those opportunities.”

Independent Securities CEO Simon Fillmore said Metair seems very well placed going forward in terms of growth, specifically with regard to the investments made for the Ford Ranger contract.

“They have grown their balance sheet, made the capex but have not seen any return come from that and we will start seeing that come through from next year.

“I think in the next three to five years the company is going to have a very decent growth profile and it’s trading at a very modest valuation for that. So we think the business is fairly attractive on that basis,” he said.

Shares in Metair rose 5.91% on Thursday to close at R27.79 per share.

Listen to Fifi Peters’s interview with Metair CEO Riaz Haffejee (or read the transcript here):