Following the start to 2015 that was disrupted by a number of external and internal factors that included energy supply, planned maintenance and process improvements, these disturbances have not recurred in the first quarter of 2016.
In addition, quality and process improvements and upgraded maintenance programmes have resulted in improved efficiencies.
Operational performance in Hulamin Rolled Products has thus improved, providing a solid platform for ongoing improvements this year. Particular improvement has been recorded in production volumes of can end and tab stock products, laying a platform for increased sales during the year ahead.
The first phase of conversion from LP Gas to Compressed Natural Gas on certain assets is now operational. Orders have been placed for the next two phases to be completed in July and August 2016, respectively, as risks to continuity in the supply of LP gas remain.
Local packaging and engineering markets remains subdued, and sales of can body stock in particular have been lower than forecast for the first quarter, while automotive sales have been steady. To compensate for this, and to capitalise on available capacity and can scrap, we have secured additional can body stock export sales for the balance of the year.
In Hulamin´s international markets, rolling margins continue to be under pressure from increased supply out of China, following the slowdown of their large economy. It is thus pleasing to note that the US and Chinese governments have reached a memorandum of understanding to terminate export subsidies China has provided through the Demonstration Bases-Common Service Platform for industries that include the advanced materials and metals sector, including steel, aluminium, and titanium. We expect that this will contribute to fairer competition in the aluminium rolling industry. Despite these soft international market conditions, we have managed to fully sell our available capacity through the third quarter of this year, albeit at softer US Dollar rolling margins. Both European and US markets are showing steady demand albeit at the lower rolling margins.
It is disappointing and difficult to understand why the International Trade Administration Commission of South Africa (ITAC) has not supported Hulamin´s application for the imposition of an import tariff on rolled aluminium products. This would have had the effect of levelling the competitive landscape between South Africa and competing nations that host aluminium rolling mills worldwide, all of which have import duties that protect their domestic industry. The failure to impose duties will significantly hamper our effort to increase the recycling of aluminium in South Africa and reduce the viability of possible further investments in high technology capacity for the automotive industry. We await news on our application for import duty on extruded aluminium products.
The London Metals Exchange (LME) price of aluminium has remained weak and in a band between USD1450 and USD1550 per ton since the third quarter of 2015. This means that the metal price lag that had a significantly negative impact on Hulamin´s financial performance in the prior year, has not had a major impact on financial performance thus far in 2016.
A number of Hulamin directors will reach the end of their tenure or retire in the coming months. In particular and on behalf of the Board, I would specifically like to thank Mr. JB Magwaza who retires today from the Hulamin board, not only for his nine years of service on the board, but also the many years that he has served the company both directly and indirectly prior to the listing in 2007.
The board thanks David Austin for his loyal service during the three years he has been with Hulamin as Chief Financial Officer as he leaves at the end of April and wishes him well for the future. We look forward to welcoming Anton Krull as David´s replacement from 3 May 2016.
The Board has started a succession review and looks forward to making at least two new appointments by the third quarter of 2016 and additional appointments in 2017 as part of a structured plan to introduce new independent non-executive directors as existing directors reach the end of their tenure. It has appointed a board composition expert to assist in mapping the skills and experience necessary to meet needs of stakeholders, shareholders, the board and its committees. This process will also be completed by the third quarter of 2016.
We look forward to continuing the steady and consistent performance from the first quarter through the balance of 2016.
21 April 2016