Unpacking the strategy

MATERIAL MATTERS

The Executive Committee has undertaken a situational analysis to determine possible future scenarios that could form the basis of Hulamin’s external environment in the medium term. For each identified scenario the Executive Committee has developed strategic options and actively monitors how the future is unfolding to assess which scenario, or combination of scenarios, are becoming increasingly likely and how Hulamin can influence the outcome of each scenario for the benefit of all stakeholders.

Hulamin’s strategy is flexible and agile to allow the Executive Committee with the ability to adapt to changes in the external environment. During the current year, the following material matters had the most material impact on the outcomes of our strategic objectives in the current financial year and have continued to shape our short-term strategic objectives for 2019. More details about our external environment and an analysis of our risks and opportunities are provided here and here.

Enabler	Driving focus cluster	Reference
E1. Transformation	Transformation, social and political impact	C8
E2. Talent management	Hulamin capability	C5
E3. Sustainability	Climate change and social responsibility	C7
E4. Supportive regulatory environment	South African economic and manufacturing performance	C2
E5. Enterprise performance management	Hulamin capability	C5

Refer link to enablers and strategic capabilities as key risk mitigating requirements for Hulamin here.

OUR STRATEGIC RESPONSE

Drive cash-flow to earn the right to invest

Free cash-flow generation is the core requirement to enable the group’s medium-term and long-term strategy. In order for the group to remain competitive and sustainable, it must improve performance in the following three areas:

1(a)	Benchmark operational performance
	Benchmark operational performance drives cash-flow delivery through: increasing sales volumes aligned to product mix enhancements; reducing costs; increasing scrap inputs; and mitigating operational risk
1(b)	Reducing investment in working capital
	The group has focused on embedding a working capital and efficiency improvement programme that will realise systematic improvements in both trade receivables and inventories.

1(c)	Product and market segment re-positioning
	The group is currently implementing a rationalisation programme to reduce unprofitable complex products, optimising the mix and increase higher margin products. Niche product focus will assist in improving margins.

KPI

Free cash-flow generation over the next five years in excess of R3 billion, supported by:

Sustainable reduction in inventory and trade receivables days on hand
Production volume growth
Cost reduction and improvement
Overall USD/ton conversion margin
Percentage metal inputs from recycled scrap

Build capabilities to enable future business model execution

Business capability refers broadly to the ability of the group to deliver its strategic objectives. Business capability consists of people, process and systems which need to work in synergy to ensure successful delivery of Hulamin’s longer-term vision under any unfolding scenario. The scenarios described here identified key risk mitigating factors in the following areas:

2(a)	Technology research and innovation
	Hulamin seeks to foster a strong innovation culture by working closely with customers, suppliers and partners, co-creating and investing in new innovative products through the use of relevant technologies to enhance skills development, process capability and product development capability.

2(b)	New product and market development
	The group is currently investing in additional capabilities to improve market research and analysis and becoming a leader in introducing new products and alloy properties into markets. Niche product development will assist in improving margins and volumes in new growth segments.

2(c)	Internet technology and digitisation
	A digital innovation strategy can unlock many opportunities in current operations, while positioning Hulamin for global competitiveness across its operations and the value chain from suppliers to customers. Hulamin is undertaking a digitalisation strategy process that will seek to leverage emerging technologies that are collectively referred to as part of ‘Industry 4.0’.

Implement the strategic business model changes

With increasing global competition in aluminium rolled products, for Hulamin to achieve a step change in margin realisation in the future, a significant shift is required in the manner in which we operate. Supported by improving free cash-flow generation and investment in strategic capabilities, Hulamin seeks to implement a new strategic business model that includes:

product range simplification and focus on niche higher-value product range;
partnering with low-cost operators to supply sub-Saharan Africa and global markets in beverage cans and packaging segments, leveraging the Hulamin brand;
investment in downstream manufacturing capabilities to secure niche market segments;
harnessing the power of scrap metal; and
investing in business of the future.

The evaluation and investment in these business model changes are guided by the strategic risk management process described from here, with strategic options (see here) derived from the scenario planning exercise only triggered when the identified flags indicates specific unfolding scenarios.