Chairman’s letter

 

Hulamin extended its high levels of operational performance in 2018. This consistently high level of performance formed the basis for its ability to play its important role in the regional economy, its community, the environment and society at large.

In 2019, Hulamin will celebrate 80 years of existence in South Africa. Hulamin continued its important role in the economic, social, manufacturing, intellectual and natural eco-systems in the region in 2018, growing its footprint, creating value for stakeholders.

2018 proved a year of two halves for Hulamin. The context for the first half proved to be volatile with the Rand/USD exchange rate (that has such a major impact on Hulamin’s financial performance) strengthening to below R11.50 early in the year. Optimism surrounding the election of President Cyril Ramaphosa began to wane from late March 2018. The Rand followed this sentiment, weakening to over R15.00 in early September.

Retirement of Mr M Mkwanazi as Board Chairman

Mafika Mkwanazi served Hulamin stakeholders as Chairman of the Board from June 2007 to April 2018. During this time, his exemplary and solid leadership provided a major stabilising force that helped the organisation navigate through numerous challenging times. I wish to express my heartfelt gratitude to Mafika for his selfless and passionate leadership. On behalf of all Hulamin stakeholders, thank you!

2018 Performance

Hulamin once again achieved record operational performance in 2018. Not only did we beat previous production and sales record by around 6%, we also achieved our best safety record ever. The improving safety trend has been ongoing since 2015. It is clearly no coincidence that operational performance and safety trends have improved in parallel in recent years.

Notwithstanding the impairment charge of R1,45 billion in 2018 which arose largely due to the uncertainty of future cash flows as global markets continue to show signs of polarisation, the Board and I are proud of the underlying financial turnaround in the business since 2016 and are very focused on ensuring that this trend is sustained.

Improving value creation through business model refinement

The Board’s mandate is to provide strategic leadership to management, and to be responsible for oversight on any changes to Hulamin’s strategic direction that management propose. To this end, we have been engaged in an ongoing process to identify improvements to the Hulamin business model since 2016. In 2018, management presented a comprehensive pre-feasibility proposal for the reshaping of the Hulamin business model. This was internally know as Project Key, the “key” to unlocking value.

With a focus on growth, management’s recommendations (which was approved by the board in July) included maintaining a simplified Pietermaritzburg rolling operation as the heart of Hulamin, and to expand the Hulamin footprint into new profit pools. These include establishing a can stock agency (resale) and technical service business, expansion into Africa with a focus on aluminium scrap collection and processing and possible investments into downstream fabrication of aluminium products. All of these areas of growth are proposed to be based on existing strengths, market positions (customers) and known opportunities.

Transformation

The Board continues to place great value on the Hulamin contribution to the normalisation of the KwaZulu-Natal and South African societies. Hulamin has played a strong role in this area for many years though successes in creating opportunities for participation in the economy for those previously excluded. In 2018, the company focused on executing the Transformation plan that was approved by the board in 2017.

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

We are again pleased to see further improvement in the 2017 BEE Scorecard assessment. Hulamin scored well to qualify for a Level 4 rating although was “discounted” one level as a result of not meeting the sub-minimum on Preferential Procurement (PP). We continue to encourage South32 to improve its BEE scorecard for the Hillside smelter due to its enormous impact on the scorecards, not only of Hulamin,
but the entire Aluminium value chain.

Electricity and aluminium supply

Hulamin continues to play a vital linking role in the Southern African aluminium supply chain. The enormous and globally competitive Hillside and Mozal smelters are critical to the aluminium and manufacturing economies in South and Southern Africa. A new long-term power supply contract is critical to ensure certainty and investment in the aluminium industry. The Board therefore encourages South32 and Eskom (and its mandatory oversight body, NERSA) to reach agreement to secure future long-term supply of electricity as soon as possible. In the absence of electricity supply certainty, there is serious risk to the sustainability of the industry and the tens of thousands of jobs dependent on the supply of primary electricity. The Board will continue to support management in this regard.

Protection from sub-economical imports

In 2018 Hulamin submitted applications for the increase in import duties for both rolled and extruded aluminium products. Although duties are in place for aluminium extrusions, the flood of subsidised aluminium from Asia have increased sharply in recent years. The board supports the rationale that in these challenging times, we cannot allow our precious manufacturing economy to close down operations due to other countries dumping low priced products in our market. We therefore call on ITAC and Government to protect local manufacturing and aluminium products specifically. This is particularly problematic at present as the USA market has begun to close its doors to Chinese imports, resulting in these exporters becoming increasingly desperate to seek alternative markets.

Conclusion

The board is pleased with the ongoing high operational performance levels achieved in 2018 and the proposed improvements to the Hulamin business model. The board supports management efforts to increase value to shareholder and stakeholders through the execution of plans described above. These revisions provide the basis for significant enhancement; an exciting future for Hulamin is dawning, one where the business exceeds the reasonable expectations of all its stakeholders.

Thabo Leeuw
Chairman