METAIR INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1948/031013/06
ISIN: ZAE000090692
JSE share code: MTA
(“Metair” or the “Group”)

VOLUNTARY OPERATIONAL UPDATE

The Automotive Components Vertical and Energy Storage Vertical are performing well relative to their
challenging operating environments. Key projects remain on track in the Automotive Components
Vertical despite the impact of global supply chain disruptions, semi-conductor shortages and shipping
constraints, including Transnet port disruptions. The Energy Storage Vertical continues to deliver strong
automotive battery volumes and revenues despite the Turkish and Romanian operations navigating
through short term inflationary cost pressures and the ongoing war in Ukraine. Inflation in Turkey rose
dramatically during the first half of the year, as indicated during the interim reporting period, with the
annual inflation rate reaching 85.5% in October 2022. Despite the ongoing economic challenges in
Turkey, Mutlu Akü remains resilient with management interventions yielding positive results.

Automotive Components Vertical

The temporary suspension of production at Toyota South Africa Manufacturing (“Toyota SA”), following
the severe flooding in KwaZulu-Natal (“KZN”) in April 2022, impacted the South African operations
significantly, however production levels resumed during September 2022 and have stabilised at pre-
flood levels. The recovery of the Toyota SA Prospecton plant, which was severely damaged by floods,
is a huge accomplishment by Toyota SA and was critical to the wider industry, specifically suppliers
from the automotive component manufacturing sector. The Group business interruption insurance claim
progressed well with R400 million in cash received to date. The total claim is capped at R500 million
and is expected to be finalised in January 2023, with the final claim currently under review by the
insurers.

Production of the Group’s major new model investment, the next-generation Ford Ranger, commenced
on Wednesday, 16 November 2022 at Ford’s Silverton assembly plant. Metair subsidiaries have entered
production and ramp-up phases with peak production levels planned from January 2023. The vertical
expects to incur pre-production and engineering (project) cash costs of up to R475 million related to the
new model in FY2022, of which we expect at least 35% will be capitalised.

Raw material shortages (including semi-conductor chips), supply chain delays and the loss of Toyota
SA production time due to the KZN flooding have impacted Original Equipment Manufacturer (“OEM”)
volumes. While there is a degree of uncertainty around the short-term volume fluctuation for the
remainder of the year, volume expectations over the model lives remain unchanged. Metair expects
2022 industry OEM production volumes to be ahead of 2021 volumes, at c.550 000 cars, which
represents c. 90% of 2019 (pre-Covid) volumes. Metair expects OEM production volumes to be
progressively increasing in excess of c. 700,000 from 2023, subject to supply chain stability.

Management interventions to curb the impact of short-term operational pressures are in place and
ongoing investments are expected to deliver returns in line with Metair’s targets over the life of the
contracts. New model and facelift launches are expected to drive meaningful growth over the medium
to long term, most notably the ongoing contract into Ford’s investment into the South African automotive
industry, supporting incremental revenue for the Metair Group of an estimated R46bn over model life.

Energy Storage Vertical

The Energy Storage Vertical continues to perform resiliently under tough operating conditions, including
high inflation fuelled by unprecedented energy and labour cost increases across both Turkey and
Romania. Although these costs have generally been recovered from customers following a slight time
lag, margins have been negatively impacted in the short term. Market demand has remained strong
and international demand for lead acid batteries across all sales channels, but especially Turkey,
remains resilient. Hard currency export sales provide a natural hedge to limit the impact of foreign
exchange volatility and inflationary pressures.
The last quarter of the calendar year is the most volume sensitive time for the business and final annual
volumes will depend on the final sales volumes achieved in this last quarter. Currently, total automotive
battery volumes sold are expected to reach between 8.5 million and 9.0 million units for the full year, as
we anticipate Mutlu Akü export volumes increasing by at least 17% from FY2021. Volumes from Rombat
are expected to be c. 15% lower mainly due to dampened consumer confidence from the ongoing
conflict in Ukraine. With efforts to improve competitiveness and market share progressing, sales
volumes for First National Battery in South Africa are expected to be on par with FY2021.

Hyperinflation in Turkey

As previously reported, the Group applies hyperinflationary accounting (IAS 29) for amounts reported
by Mutlu Akü in Turkey. Under IAS 29, Turkish Lira results and non-monetary asset and liability
balances (including undistributed profits) are restated to present value equivalent local currency
amounts (adjusted based on CPI) before translation to ZAR at reporting-date exchange rate. Although
operations remain unchanged, with a substantial portion of commodity input costs and sales being hard
currency denominated and not directly subject to Turkish inflation, as well as Mutlu Akü’s strong non-
monetary asset base, the accounting impact on profit and loss is negative as IAS 29 requires the
restatement of Mutlu Akü’s retained income within current year earnings. Mutlu Akü continues to grow
both volumes and prices in FY2022, and strategies are in place to manage hyperinflation operationally.

Although Turkey’s central bank cut its benchmark interest rate by 1.5 percentage points to 9% despite
the country’s high inflation rate, the Turkish banking system has not passed on the lower interest rates
to customers due to the high inflation. Although there are currently no restrictions on remittances of
dividends from Turkey and access to foreign currencies remains unrestricted, the Turkish government
has issued new banking regulations which include a rule that forces exporters to sell 40% of their
foreign-currency revenue to the central bank. Mutlu Akü has assessed the impact of the financial
regulations and is developing measures to minimise interest rate and foreign exchange volatilities.

Financial position

The Group is in a satisfactory financial position to support current expansion projects, and has the
required lending facilities in place to support operations as well as the expansion programmes. The
consequences of supply chain disruptions and availability of raw materials have necessitated a greater
inventory holding strategy to mitigate shipping delays and airfreight costs. The Group formally received
the covenant waiver from lenders and adjustments to the covenant calculations, mainly for
hyperinflation (IAS 29) impacts are under consideration.

Value unlock opportunities

Metair continues to actively work towards value unlock opportunities in the short and long term within
both business Verticals. The consideration of a value unlock process within Energy Storage for
stakeholders has not translated into an executable transaction, largely due to the geopolitical climate
within Eastern Europe. The Board will revisit its strategic options as and when the operating climate
improves.

In the interim, Metair remains focused on maximising the value potential of the Energy Storage vertical
and on executing on the growth and expansion opportunities available for the Automotive Components
vertical.

The information contained in this announcement is the responsibility of the directors of Metair and does
not constitute an earnings forecast. Such information has not been audited, reviewed, or reported on
by the Group’s external auditors.


5 December 2022
Johannesburg

Sponsor
One Capital