HLM: HULAMIN LIMITED - Audited results for the year ended 31 December 2015
Audited results for the year ended 31 December 2015
("Hulamin" or "the group")
Registration number: 1940/013924/06
Share code: HLM
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AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
- EPS declined by 57% to 51c
- HEPS declined by 67% to 37 cents impacted by share based payments (IFRS2).
- Normalised HEPS down 50% to 55 cps with metal price lag loss negating currency gains.
- Raw material supply further secured through new 4-year melting ingot supply agreement
- Rolled Products sales increased 12% in the second half to 190 000 tons annualised
- Rolled Products inventory levels reduced to under 50 000 tons at year-end
Richard Jacob, CEO, commented:
"Volumes and efficiencies improved in the second half of the year despite disruptions from Liquid Petroleum Gas (LPG) supply. Global market conditions continued to deteriorate throughout the year. The weak US Dollar London Metal aluminium prices translated to a metal price lag loss as reported. An improved operating performance was offset by declining rolling margins as markets traded down. Cost cutting and efficiency improvement efforts to support margin maintenance and efficiency gains are providing relief in these challenging market conditions which we expect to continue in the current reporting period."
Hulamin 033 395 6911
Richard Jacob, CEO 082 806 4068
David Austin, CFO 082 718 6151
Johannes van Niekerk 082 921 9110
Sales volumes for the year to 31 December 2015 totalled 198 000 tons, 7% lower than the corresponding period's 214 000 tons. Energy supply was inconsistent, with disruptions to both electricity and gas supplies impacting negatively on manufacturing output. This was compounded by planned maintenance activity, plant upgrades and quality rework on two product lines in the first half. Despite these challenges, sales of rolled products increased by 13% in the second half with improvements in process control, yields, equipment reliability and capacity planning.
Market conditions in South Africa and in Hulamin's major export markets were steady at the start of 2015, resulting in selling prices (rolling margins) improving in the first half. However, the slowdown in China's domestic economy resulted in a number of Hulamin's China-based competitors significantly increasing their exports into Hulamin's traditional US and European markets during the year. The resulting over-supply, coupled with a Chinese primary aluminium price that was lower than the London Metal Exchange price, resulted in major over-supply in many of these markets. As a consequence, rolling margins dropped significantly but appear to have now stabilised at lower levels. The effects of this over-supply have been seen most rapidly in Hulamin's standard product exports to the USA and Europe and have spilled over to a number of end-user markets, albeit to a lesser extent. Turnover increased to R8.40 billion (2014 R8.04 billion) in spite of the lower sales volume and lower USD Aluminium price. The Rand weakened by 18% to an average of R12.76/USD, increasing Rand revenues and partially offsetting the effects of domestic cost inflation. Locally, the economy continued to soften during 2015. Demand however, increased from both beverage packaging and automotive markets, which are the largest volume sectors and thus local sales increased by 18% to 70 000 tons (2014: 59 400 tons) mostly as a result of increased can body stock sales.
The total price of aluminium includes the London Metal Exchange price as well as international geographic premiums, which both declined through 2015. Hulamin is exposed to US Dollar changes in the value of its aluminium inventory, known as the metal price lag effect and is reported in Rand. As a consequence of the decline in the US Dollar aluminium price, the metal price lag recorded a loss of R161 million in 2015 (2014: R53 million profit), a year-on-year reversal of R214 million.
Manufacturing costs were 17% higher than the prior year, driven mainly by higher US Dollar denominated costs, and the consolidation of costs from the Isizinda joint venture. Comparable costs increased by 10%. Earnings before interest and taxation (EBIT) were 50% lower compared to the prior year and operating profit before metal price lag was 14% lower at R456 million.
Production volumes and efficiencies improved in the second half, in spite of two major gas disruptions arising from a fire at a refinery that also led to a planned maintenance over-run, at the same refinery. Hulamin has lodged a substantial insurance claim to compensate for the volume lost and increased costs arising from these shortages of supply. Engineering work on the conversion to Compressed Natural Gas was successfully completed in 2015.
Following the acquisition of the Bayside casthouse by the Isizinda consortium, accounts for the Isizinda/ Hulamin joint venture were consolidated for the first time. Although Hulamin only owns 40% of the equity in Isizinda, it is deemed a subsidiary of Hulamin in terms of IFRS as Hulamin is financing its development. The notable impacts of this change include a cash outflow of R41 million, being the acquisition of working capital and an additional R49 million relating to the purchase of plant and equipment that is reported on the balance sheet under property, plant and equipment.
The cash outflow before financing activities amounted to R420 million (2014: R183 million inflow), and was impacted by lower profits and increased capital expenditure (including the recycling project) and included Hulamin's share of the Isizinda acquisition and the associated working capital. Cash flow in the second half of 2015 was neutral in spite of ongoing capital expenditure.
Given the current uncertain market and economic outlook, the board has decided not to declare a final dividend for 2015.
Hulamin expects the momentum gained from improved manufacturing performance in the second half of 2015 to continue in 2016, with weak market conditions expected to persist both locally and internationally. The risk of energy disruption is now lower due to the installation of standby generators and the commencement of the conversion from LPG to CNG. The reported decline in international conversion prices is expected to be partially offset by actions and initiatives currently being taken to preserve cash, optimise sales and achieve cost efficiencies while benefiting from a weaker Rand against the US Dollar.
M E Mkwanazi R G Jacob
Chairman Chief Executive Officer
22 February 2016
for the year ended 31 December 2015
Condensed Consolidated Income Statement