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Hulamin
Integrated Annual Report 2017
 

CHAIRMAN’S LETTER

In 2014, Hulamin celebrated 75 years of economic, social, environmental and financial contribution in Southern Africa. As a technology intensive manufacturing exporter that is committed to development and economic empowerment, Hulamin has made unusual progress in meeting the needs of a broad range of stakeholders. This momentum continued in 2017.

Hulamin extended its high levels of operational performance in 2017. This consistently high level of performance formed the basis for its ability to play an important role in the regional economy, its community, the environment and society at large.

In the year under review, the context in which Hulamin operates went through significant upheaval and change. The year started with the South African economy low on confidence, unstable relations between business and government led to low levels of investment in the economy, and perceived high-risk premiums were applied to the already high cost of capital. As the ANC’s elective conference drew nearer, uncertainty in the economy and fears that worst-case scenarios of an anti-business stance would emerge from Government resulted in a weakening of the Rand against the US Dollar and most of Hulamin’s trading currencies. This softer currency benefited Hulamin in that we continue to trade largely in US Dollars. As the results of the ANC conference emerged, confidence in a stronger emphasis on growing the economy emerged and the Rand firmed by approximately 20%.

As 2018 begins, Hulamin will face financial challenges resulting from the stronger currency. Management has anticipated these conditions and the Board looks forward to further cost reductions and US Dollar margin improvements to counter the effects of lower Rand revenues.

STRATEGIC PROCESS TO IMPROVE VALUE CREATED FOR STAKEHOLDERS

The Board’s mandate is to provide strategic leadership to management, and to provide oversight on any changes to Hulamin’s strategic direction that are proposed by management. To this end, we have been engaged in an ongoing process to identify improvements to the Hulamin business model. In 2016 this process began with a feasibility presented by management for a major capital investment to supply aluminium sheet for the local automotive industry. Unfortunately the study showed that the required return levels for the implied risk and capital investment could not be achieved. However, the Board has encouraged management to continue with this momentum to seek improvements to the value created by Hulamin for all its stakeholders. We plan to communicate with stakeholders further on this topic in 2018.

TRANSFORMATION

The Board continues to place great value on the transformational role that Hulamin needs to play in normalising South African society and creating opportunities for participation in the economy for those previously excluded. To this end, the Board approved Hulamin’s Transformation Plan in 2016. This Plan sets ambitious targets for the company over the coming five years.

Through the Transformation, Social and Ethics Committee, the Board of Directors will oversee its implementation.

We are pleased that the company scored well (to qualify for a
level 5) in the revised B-BBEE codes as published by the Department of Trade and Industry in 2015, in the 2017 assessment. In these revised codes, a heavy emphasis is placed on Preferential Procurement. To this end, companies are penalised should they not procure sufficiently from empowered companies. In Hulamin’s case, we were unfortunately penalised by one level to a level 6 in 2017, due to the poor scorecard achieved by our majority supplier, South 32. In Hulamin’s case, more than 50% of our total expenditure is on primary aluminium sourced from the Hillside Smelter that is insufficiently empowered to prevent Hulamin being penalised one level in its scorecard.

ALUMINIUM SUPPLY

Hulamin continues to play a vital linking role in the Southern African aluminium supply chain, sourcing from both the Hillside and Mozal aluminium smelters. The contribution of the aluminium industry to the regional economy is built on the certainty of primary aluminium supply from Hillside (and Mozal). A new long-term power supply contract is critical to ensure certainty and investment in the aluminium industry. The Board therefore encourages South 32 and Eskom (and its mandator, NERSA) to reach agreement to secure future long-term supply of electricity as soon as possible. In its absence, there is serious risk to the sustainability of the industry. The Board will continue to give guidance to management in this regard.

SAFETY

In 2017 Hulamin brought in a team of international safety auditors to assess safety performance and systems throughout all operational areas. Although a number of areas for improvement were identified (largely in identifying the root causes of incidents that do occur), no major concerns were raised.

Safety levels achieved in 2017 (TRCFR was 0,61) were not as good as those achieved in 2016 (0,27).

Although we maintained our improved safety incident frequency rates, on Monday, 6 November 2017, Michael Gumede, a contractor working on repairing the Foil Mill roof on our Edendale site, fell to his death. We have all felt a huge sense of loss as a result of this most unfortunate incident. Following a thorough root cause investigation, we have taken a number of strong actions to reduce the likelihood of this unfortunate incident happening again.

RETIREMENT AND SUCCESSION

The Board places great value on the development, growth and succession of Board members and management. The Board is satisfied that we have a strong executive team, well-resourced to run the business over the coming years.

After 10 years as your Chairman, the time has come for me to retire and to introduce new leadership to be your chairman. I am delighted that Thabo Leeuw, who has also served on the Board for 10 years, most recently as Chairman of the Audit Committee, has agreed to make himself available for selection as Board Chairman. After careful consideration, including a review of his independence, the Board wishes to propose Thabo as the next Hulamin Chairman. I look forward to seeing the outcome of the shareholder vote required to ratify his appointment in April 2018.

CONCLUSION AND OUTLOOK

The Board is pleased with the ongoing high operational performance level achieved in 2017. With its focus on sustainable performance, transformation and strategic execution, Hulamin is well placed to make major improvements to the value it creates for stakeholder into the future. The Board looks forward to an exciting future for Hulamin, where the business exceeds the reasonable expectations of all its stakeholders.