Traditionally, the founding intention for a business is to generate long-term economic returns for investors. These days, most businesses today take a broader view of value creation – one that’s more in line with the deeper role of an organisation as a corporate citizen.At Metair, we’re committed to custodianship and ethical business practices. This challenges us to deliver financial returns while also ensuring we are responsible custodians of the natural environment and communities around us, and creating value for all our stakeholders. It’s this broader focus that is essential to supporting our long term sustainability.
In 2019, Metair created wealth of R3.4 billion and 57% was distributed to employees in the form of remuneration and benefits, 6% was distributed to government as taxes and 14% to providers of capital. R760 million was retained in the group, of which R465 million was allocated to future expansion.
Cost competitivenessThe markets in which we operate – automotive components and energy storage solutions – are extremely competitive. When deciding where to produce vehicles, Global OEMs weigh heavily on the cost of manufacture for their operations and their suppliers. Many of the countries that South Africa competes with as a manufacturing destination have labour costs, labour efficiency and energy costs that are far more favourable than in South Africa. Rival manufacturing destinations such as Thailand, India and China, are not only more stable with lower cost, but are also strategically attractive due to their large domestic markets for new vehicles.
Components are priced at a Start of Production (SOP) pricing, and it’s critical for this price to be a realistic reflection of the cost of production over the entire production cycle, which may stretch to seven years or longer. Certain input costs are tightly linked to hard currency rates. The recovery of foreign exchange fluctuations is particularly challenging and a significant amount of management time and effort is spent on ensuring implementation at appropriate contracting conditions and risk management policies.
Energy storage and aftermarket componentsAftermarket components and batteries are also subject to stiff competition from other local producers and importers. A rapidly expanding range of products in the market include many that are imported from low cost and subsidised Chinese and Korean manufacturers. Our marketing programme aims to raise the profile of the group’s brands in the aftermarket and to combat pressure from new market entrants.
Continuity of supply and productionOur supply chain includes suppliers of raw materials such as steel and lead, and suppliers of tooling and parts. While many of our suppliers are located in the countries in which we have manufacturing facilities, some are located in other countries, including China, Japan, the US and Europe.
A reliable supply of high-quality raw materials at a realistic price is necessary to ensure cost-competitive production. This is particularly relevant for the lead required in battery manufacture, where in certain instances our quotes have been competitive on a regional basis, but not on a global basis.
There is a risk of production interruption from natural disasters, explosions, IT and other electronic system failures due to the nature of our operations. We’ve therefore increased electricity standby capacity at our production facilities and are securing water storage facilities to reduce these risks of disruptions. There are controls in place at all operations as well as recovery plans to minimise the impact of such disasters should these occur.
Product qualityOur operating philosophy is based on a commitment to manufacturing excellence to meet the stringent quality requirements of both OEM and aftermarket customers. All operations are externally certified in the quality management systems relevant to their business, including ISO 9001 and ISO/TS 16949.
Carbon taxWe support initiatives that encourage responsible use of natural resources and reduce carbon emissions in principle, but it is important that these are implemented responsibly to avoid further eroding South Africa’s manufacturing cost competitiveness.
Our production facilities are below the threshold emission levels in the current draft carbon tax legislation and will not be impacted, but our raw material suppliers may be impacted and may have to recover the CO2 tax from their customers, and ultimately the consumer.