Seventy-seven-year old Metair may have its roots in component manufacturing, but its future growth could be dependent on growing its aftermarket parts and retail business.

Announcing the JSE-listed group’s financial results for the year ended December 31 on Wednesday, CEO Paul O’Flaherty said the six businesses in Metair’s automotive component manufacturing division remained a fundamental part of the group.

It was, however, important to “deconcentrate risk” and to have “a more balanced” portfolio as South Africa’s vehicle manufacturing sector continued to face headwinds, linked largely to the rapidly growing cohort of budget vehicle imports from China and India.

The aftermarket parts and retail division currently earns 30% of Metair’s revenue.

“We need to get that to 40% as quick as we can,” said O’Flaherty.

“We are at a crossroads in the [South African] automotive industry,” he noted.

He said Metair supported strong intervention by government to boost the local vehicle and component manufacturing industry.

If local parts content in South African-assembled vehicles continued to shrink, it could destroy a significant part of the country’s manufacturing base, he added.

And, while local vehicle assembly currently remained stable, the sector was set to face severe pressure from this year onwards.

A rampant Morocco last year eclipsed South Africa as Africa’s largest vehicle manufacturer, signalling an industry that had been failing at meeting its growth targets.

Metair on Wednesday reported a healthy set of results, marred by a R431-million fine imposed on the company’s Romanian battery subsidiary, Rombat, in December.

Rombat is one of several European battery manufacturers fined by the European Commission for contravening EU competition law.

O’Flaherty said Metair lodged an appeal to the EU ruling on February 27.

The company questions the size of the fine in relation to Rombat’s market share, as well as Metair’s parental liability, as the due diligence reports ahead of the 2012 acquisition did not raise any red flags.

The appeals process could take some time to conclude, warned O’Flaherty.

Meanwhile, Rombat had provided fully for the financial effect of the fine.

Metair on Wednesday reported two sets of numbers – one inclusive of the fine, and one without.

Excluding the effects of the EU fine, revenue from continuing operations increased by 57% to R17.9-billion for the year.

Under the same circumstances earnings before interest and taxes (Ebit) increased by 99% to R1.09-billion.

While component maker Hesto provided a boost to results, parts retailer AutoZone remained a loss-making business.

The Ebit margin improved to 6.1%, up from 4.8% in the prior year.

Headline earnings per share (HEPS) from continuing operations, excluding the Rombat fine, increased by 82% to 191c a share.

Including the Rombat fine, however, HEPS from continuing operations swung to a loss of 21c a share.

In the component manufacturing division, revenue grew by 66% to R11.8-billion and Ebit by 148% to R923-million.

The aftermarket parts and retail division grew revenue by 42% to R6.1-billion, while Ebit decreased by 8% to R246-million, owing mainly to the inclusion of AutoZone.

O’Flaherty said AutoZone was six to nine months behind the targets set out in its recovery plan. He remained confident, however, that the business could be turned around.

“We are very happy with our results,” concluded O’Flaherty, who was appointed two years ago to salvage a flailing Metair.

“I believe we are making good progress.”