HLM: HULAMIN LIMITED - Summarised Provisional Consolidated Financial Results for the year ended 31 December 2018 and Cash Dividend
Summarised Provisional Consolidated Financial Results for the year ended 31 December 2018 and Cash Dividend
HULAMIN LIMITED
("Hulamin", "the company" or "the group")
Registration number: 1940/013924/06
Share code: HLM
ISIN: ZAE000096210
Think future.
Think aluminium.
Summarised Provisional Consolidated Financial Results
for the year ended 31 December and
Cash Dividend Declaration 2018
 
Summarised provisional consolidated results
for the year ended 31 December 2018
and cash dividend declaration
-  R298 million(1) free cash flow delivery in 2018
-  R120 million to be returned to shareholders
   - R60 million share buyback to be actioned from March 2019
   - Dividend increased 20% to 18 cents per share
-  Strong second half financial performance (HEPS of 78 cents 
   versus 13 cents in H1)
-  Highest ever group sales of 245 000 tons
-  Impairment charge of R1.45 billion across both Hulamin Rolled Products
   and Extrusions
Richard Jacob, CEO, commented:
"I am proud to report another exceptional operational year in Hulamin
Rolled Products. After a strong currency first half, Hulamin produced
record profits (HEPS of 78 cents), sales and production in
the second half of 2018. This was supported by a weaker currency
(average of R14.18 versus R12.30 in the first half)."
Presentation by management
Hulamin invites you to a teleconference at 12.00 this afternoon Tuesday, 19 March, with CEO Richard Jacob and CFO Anton Krull
to discuss the annual results and prospects.
Dial +27 11 535 3600 and ask to join the Hulamin call.
The presentation will be available on http://www.hulamin.com from 11.00
Replay of the call will be available on +27 10 500 4108 and access code 23046.
Enquiries
Hulamin                                          033 395 6911
Richard Jacob, CEO                               082 806 4068
Anton Krull, CFO                                 071 361 0622
CapitalVoice                                                 
Johannes van Niekerk                             082 921 9110
Commentary
Hulamin Rolled Products delivered yet another improved year in increasing sales by 6% to 228 000 tons.
Hulamin Extrusions experienced a challenging year, with lower sales and recorded a net loss for the year. Local fabrication markets were
particularly soft throughout the year, affecting Hulamin Extrusions most severely.
Rolled Products benefitted from healthy overall demand for its products, while a superb manufacturing performance increased production,
and consequently sales, by approximately 6% to 228 000 tons for the year. This resulted in a third consecutive year of record sales volumes
We also recorded our best-ever safety performance across all operations, in line with the safest aluminium semi-fabricators globally.
Our Total Recordable Injury Frequency Rate per 200 000 hours worked was 0.24 in 2018.
Markets in Southern Africa, which appeared to be improving a year ago, deteriorated further during the course of 2018. In parallel, global
markets shifted measurably with increased trade uncertainty and polarisation.
Hulamin's export markets remained volatile with US trade policy uncertainty and tentative European reaction to the changes in the USA.
USA domestic aluminium markets began to soften in line with waning domestic economic confidence. The USA aerospace market played a
leading role in this decline. Hulamin is experiencing the symptoms of a cyclical slow-down in the US for flat rolled aluminium in particular. 
While Hulamin is not a producer of primary aluminium, short term movements in the Rand price of aluminium affect profits through a
flow-through known as the metal price lag. Although there was significant volatility in both the Rand / USD exchange rate and the US Dollar
aluminium price quoted on The London Metal Exchange (LME), the average Rand aluminium price during the last few months of 2018 was
only slightly higher than the corresponding period in 2017, while inventory levels were similar.  This resulted in an insignificant metal price
lag benefit of R4 million for the full year (2017: R150 million).  
Turnover increased to R11.5 billion (2017: R10.3 billion) on increased volume, higher USD rolling margins and a firmer Rand aluminium
price. This was marginally countered by a strengthening Rand / US Dollar that averaged 7c stronger for the year (R13.25 in 2018 versus
R13.32 in 2017).
Unit conversion costs in Rolled Products decreased again in 2018 in real terms. After two years of successive real decreases in excess of
10.0% (2016: 10.7% reduction and 2017: 10.6%), Hulamin Rolled Products' unit costs decreased further by 2.4% in 2018 (2.2% increase in
nominal terms) despite significant commodity price impacts, mainly Brent crude. Hulamin's manufacturing cost optimisation programme,
which has delivered baseline savings of R200 million since 2017, aims to deliver further measurable cost reductions of R300 million over the
next five years. This is in addition to the benefits obtained by improving the percentage of market scrap in its input metal mix.
Hulamin is focused on improving returns to shareholders. We are actively managing this through improving EBITDA performance, tighter
control over capital expenditure, paying down debt levels and now additionally through imposing a higher hurdle rate for improvement
projects. Mounting uncertainty in the macro environment and the associated rise of risk indicators, has also supported increasing the
Company's weighted average cost of capital (WACC) to more accurately value the Company's internal forecasts of future cash flows.This
WACC increase results in material changes to the valuation of assets and, as a consequence, an impairment charge of R1.376 billion has
been applied to Hulamin Rolled Products and R74 million to Hulamin Extrusions.
Earnings before interest and taxation (EBIT) thus declined by 291% to negative R950 million due the recognition of these impairment
charges. 
Normalised operating profit (before the impact of the impairment, restatements and metal price lag) increased by 20%. In constant
currency terms, this represents an increase of 24%. Net interest charges decreased by 5% to R74 million; net interest paid decreased by
19%.
Attributable earnings were consequently 354% lower at negative R773 million for the year. Headline earnings per share (HEPS) of 91 cents
compared to 95 cents in 2017. Normalised earnings per share was up 20% on the prior year to 77 cents, after achieving 19 cents in the
first half.
Free cash flow amounted to R280 million? (2017: R296 million), after R242 million capital expenditure. A cumulative R1 billion of free cash
flow has been generated since 2016.
The performance of Hulamin Extrusions remained unacceptable in extremely challenging trading conditions. The group has commenced a
strategic review of its investment portfolio, including its interest in Hulamin Extrusions.
Restatement of prior year accounts
The financial performance of Hulamin Rolled Products is exposed to the impact of metal price lag? and accordingly implements a hedging
programme to balance the cash flow and profit effects of this lag.
In order to apply hedge accounting as envisaged in IAS 39, the group has historically designated the sale, and not the purchase of the
inventory, as the hedged item. This designation causes a mismatch between changes in fair value of the hedged item (which includes rolling
margins, geographic premiums and transport costs) and the hedge instrument (which only relates to the commodity portion of the sale). 
We have reviewed the application of hedge accounting in terms of the IAS 39 standard and believe that the expectation of prospective
hedge effectiveness as envisaged in the accounting standard is not appropriately satisfied and could therefore create volatility which would
be expected to breach the effectiveness guidelines provided in IAS 39. The comparative results have consequently been restated. 
There is no cumulative impact on earnings and also no impact on cash resulting from this restatement. Hulamin's commodity risk
management programme is highly effective. Hulamin plans to adopt the new financial instruments standard IFRS 9 in 2019, which will
overcome the limitations of IAS 39.
Dividend
The board of directors of Hulamin ("the Board") has declared a final dividend of 18 cents per share for 2018 (before withholding tax) (2017:
15 cents per share) payable to registered shareholders of Hulamin on the Record Date, Friday,  12 April 2019.
Last day to trade                                                                                                 Tuesday, 9 April 2019
Shares trade ex dividend                                                                                       Wednesday, 10 April 2019
Record date                                                                                                       Friday, 12 April 2019
Payment date                                                                                                      Monday, 15 April 2019
Share certificates may not be dematerialised or rematerialised between Wednesday, 10 April 2019 and Friday, 12 April 2019,
both days inclusive.
Shareholders are advised of the following information:
-  the dividend has been declared out of the 2018 profits;
-  the local dividend tax rate is 20%;
-  the gross local dividend is 18 cents per share;
-  the net dividend amount for local shareholders is 14.40 cents per share:
   - exempt from payment of dividend tax is 18 cents per share;
   - liable to pay dividend tax is 14.40 cents per share;
-  the issued share capital of the company is 319 596 836 ordinary shares and 4 721 600 A1 ordinary shares;
-  the company's tax number is 9522526715.
Share Buy-Back
In addition to the increased dividend, the Board has approved a share buy-back programme of R60 million. This will commence in March
2019 and is planned to run on an even monthly basis for approximately 12 months.
At the 2018 Annual General Meeting (AGM), shareholders approved share repurchases up to a level of 5%. The validity of this resolution
expires in April 2019. Consequently, shareholders will be asked to approve the continuation of this programme at the 2019 AGM in April.
Prospects 
Hulamin remains focused on continuing the improved operational, sales and manufacturing performance in 2019, while focusing on
executing its responsible growth plans. The direction that the Rand takes in 2019 will continue to impact financial performance as a result
of Hulamin's large foreign currency sales exposure.
The local and international long-term outlook for aluminium beverage packaging demand has improved significantly since 2017. This follows
the steps being taken by more than 16 major countries and cities to ban single-use plastics in packaging, including the UK, France, Germany
and Canada. As a result, a number of Hulamin customers are seeking larger volumes and longer term can stock contracts on firmer prices.
In 2019, Hulamin will commence operating an agency and technical service trading business, reselling a major aluminium rolling mill's can
stock products to Hulamin customers. This will complement Hulamin's Pietermaritzburg product offering and increase sales revenues. This
new operation is expected to have a positive impact on profitability and cash flows.
Trade relations between the USA and China remain uncertain. There are also signs of a cyclical slow-down in US (aluminium) manufacturing,
driven partially by the slowing of aerospace build rates. Hulamin has consequently increased its efforts in its other markets (such as Europe,
Australasia, Africa and South America) to minimise these effects.  
TP Leeuw                                                                 RG Jacob
Chairman                                                                 Chief Executive Officer
                                                                          
Pietermaritzburg
18 March 2019

For the complete report see: SENS -Summarised Provisional Consolidated Financial Results for the year ended 31 December 2018 and Cash Dividend