Metair’s earnings decline due to high inflation in Turkey and floods

METAIR Investments said headline earnings a share was expected to fall 71 to 76 percent in the six months to June 30 due to having to apply hyperinflation accounting on its subsidiary in Turkey, while its local companies are benefiting from new vehicle models being launched.

Metair’s local subsidiaries are in a pre-production phase for new model launches, and R115 million of project costs were incurred ahead of the new major Ford model launch in the fourth quarter of the 2022 financial year.

Group headline earnings per share are expected to be between 40 and 50 cents compared with headline earnings per share of 170c in the prior comparative period.

Inflation in Turkey has risen rapidly in the past six months and cumulative inflation over a three-year period exceeded 100 percent in the second quarter of the year to December 31, 2022. The impact of hyperinflation accounting for amounts reported by Metair’s Mutlu Akü subsidiary for the period starting January 1, 2022, included an operating profit decline of R328m and a profit after tax decline of R95m arising from the restatement of net non-monetary assets of R185m, and retained income of R280m.

A net monetary gain of R253m would be reflected, assets would uplift by about R1.7 billion, while there would be equity increase by about R1.5bn, Metair said in a trading statement. Metair’s results are expected to be published on September 15.

The group said its Automotive Components Vertical, based in South Africa, continued to deliver on customer-driven capital projects in the six months, that were nearing completion. This followed the impact of flooding on operations in KwaZulu-Natal. Operations were gradually returning to pre-flood production levels, as market demand was strong. The Energy Storage Vertical in Turkey was performing well relative to the operating environments in Romania and South Africa, and strong battery volumes and revenues were being delivered “at robust margins.”

In South Africa, raw material shortages, including semiconductor chips, supply chain delays and loss of production due to the flooding, had negatively impacted original equipment manufacturer volumes.

“While there is a degree of uncertainty around the short-term volume fluctuation for the remainder of the year as demand ramps up, volume expectations for recovery and model lives remain unchanged,” Metair said in a statement. Interventions to curb the impact of short-term operational pressures were in place and investments were expected to deliver returns in line with Metair’s targets over the life of the contracts. New model and facelift launches were expected to drive growth over the medium to long term, notably the contract to support Ford’s investment into the South African automotive industry.

Production at Toyota South Africa Manufacturing had increased steadily and the outlook for production was that a return to pre-flood levels could be achieved in the short term, depending on global supply chain stability.

Metair said its business interruption insurance claim was progressing well and a claim for about R360m had been accrued, and an interim cash payment of R150m had been received.

“Our second claim is under review by the insurers. We expect the total claim to be finalised in the second half,” the group said. The Energy Storage business continued to perform resiliently under tough operating conditions. Margins were negatively impacted in the short term from cost price increases. Nevertheless, market demand was strong and international demand for lead acid batteries in all sales channels remained resilient.