The Mutlu Turkish division that Metair is disposing of to US-based Quexco for R1.95 billion had higher debt levels that drove up borrowing costs for the South African mobility and energy company, which is now expecting a June 2024 half year loss of between 2.7 cents and 3.3 cents per share.
The expected interim loss per share in the company compares to Metair’s per share earnings of 48 cents in the same period last year. Furthermore, Metair has projected a similar interim headline loss per share for the same period compared to headline earnings per share of 41 cents in the year earlier same period.
Metair said yesterday that the Mutlu Group, which forms up Metair Turkey, “faced a number of challenges, including a shortage of contract workers and the loss of material export” volumes. This had resulted in a drop in profitability for the Turkish division.
Borrowing costs in Mutlu “increased significantly due to higher net debt levels particularly at Mutlu Akü to support working capital within tight trading and liquidity” conditions.
The company had also incurred additional local net debt to support customer expansion and higher working capital investments. Net finance costs in Metair for the half year period to end June, excluding the impact of hyperinflation,are projected to increase by 45% from R308 million in the prior contrasting period.
This comes as the company is also expected to take a further knock from the impact of low South African Original Equipment Manufacturer (OEM) volumes, worsened by continued depreciation in the value of the Turkish lira currency.
Despite this, group revenue for the June 2024 interim period is expected to remain in line with prior year same period thresholds.
Half year earnings before interest and taxation (EBIT) margin, calculated as operating profit before interest and taxation, excluding the impact of hyperinflation complexities and restatements, is expected to range between 6.5% and 7%, it said.
Metair’s Hesto unit is expected to generate EBIT OF R110 million for the period under review, mitigating a drop in volumes from a major customer. Hesto is also recovering from a loss of R711m in the first half period of 2023, with ramp up under the current year helping recover volumes.
The R110m EBIT for Hesto is expected to cover interest charges, with revenue is expected to increase 7% from R2.7bn a year ago.
With notable non-cash adjustments before taxation including the impact of applying hyperinflation accounting on earnings of the Turkish division, further impacts on the company’s earnings are to be expected for the interim period under review.
“The annual inflation rate in Türkiye increased to 71.60% and impacted restatements to cost of goods sold,” it said.
As a consequence of this, Metair’s group EBIT margin is expected to be between 1.5% to 2% compared to 4.2% a year ago, further worsened by the impact of“a significant increase in net interest costs of R165m million” on earnings. Shares in the company traded 1.87% weaker at R15.76 in afternoon trade on the JSE yesterday after a 7% rally on Tuesday on the back of the disposal of the Turkish operations.
Proceeds from the disposal of Mutlu will “enable Metair to deleverage its balance sheet” by re-capitalising Hesto and contributing to the settlement of current debt and enabling the refinancing of the Metair Group debt.