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The global recession has had a severe impact on the demand for Hulamin's products, particularly in the automotive, construction, general engineering and transport sectors. This reduced level of demand was most notable during the first four months of the year and impacted negatively on operating
efficiencies. The company has implemented a number of actions in its markets, has seen demand for its products improve and expects to fully re-establish its growth momentum in the near term.
Sales volumes in the first half of 2009 amounted to 71 000 tons which was 34% lower than the first half of 2008, with similar reductions in both local and export markets.
Although significant cost reductions have been achieved, the business has a
relatively high proportion of fixed costs and it was not possible implement
cost reductions that fully offset the effects of the sharp reduction in sales volumes. The business did, however, benefit from the weaker exchange rate which averaged R9,23/US$ compared with R7,65/US$ in the comparable period. Operating profit reduced from R270 million to R114 million.
Operating profit was shielded from the effects of the sharp reduction in the aluminium price on aluminium inventories by the metal price hedge that was implemented in 2007. The hedge has now been partially discontinued in order to protect the business against the cash flow consequences of a recovery in the aluminium price.
Finance costs increased as a consequence of the expenditure on the Rolled
Products Expansion Project. The effective tax rate in 2008 was reduced by the once-off impact of the R31 million deferred tax benefit arising from the change in the corporate tax rate, and was therefore lower than the current year's tax rate. These factors resulted in a disproportionate reduction in headline earnings to R25 million (12 cents per share) compared to the R181 million (84 cents per share) earned in the first half of 2008.
The reduction in the price of aluminium together with actions to reduce working capital and reduced capital spending have resulted in a positive cash flow during the period of R374 million. Net borrowings accordingly reduced from R1 747 million to R1 373 million.
In view of the limited earnings in the first half of 2009, and in order to
preserve the company's funding position, the board has decided not to declare an interim dividend. A final dividend for the 2009 year will be considered in the context of the performance of the business and the outlook at the end of the year.
Trading Statement for the 2009 Financial Year
In spite of the improved order book, the poor demand for Hulamin's products in the first four months of the year is expected to result in earnings(and
headline earnings) for the financial year ended December 2009 that will be more than 20% lower than those for the financial year ended 31 December 2008. However, due to the volatility of exchange rates it is not yet possible with reasonable certainty, to quantify earnings (and headline earnings) for the year to December 2009 within the 20% range required by the JSE Limited Listing Requirements. It is expected that a trading statement for the year to December 2009 will be issued later in the reporting period, which should be in November or December of 2009.
The forecast financial information on which this trading statement is based has not been reviewed and reported on by Hulamin's auditors
A Fourie
Chief Executive
M E Mkwanazi
Chairman
20 July 2009
Corporate Information
