HLM - HULAMIN LIMITED - Unaudited results for the half-year ended 30 June 2014
Unaudited results for the half-year ended 30 June 2014
("Hulamin" or "the group")
Registration number: 1940/013924/06
Share code: HLM
UNAUDITED RESULTS FOR THE HALF-YEAR ENDED 30 JUNE 2014
- Normalised earnings increase by 42% over corresponding period benefiting from continued Rand weakness
- Headline earnings per share increase by 95% due to impact of restructuring costs on 2013
- Substantially improved safety performance
- Strong cash flow follows improved working capital management and allows substantial reduction in borrowings
- Ongoing focus on operational performance sees 5% growth in Rolled Products sales volumes
- Discussions continue with BHP Billiton around the future of the Bayside casthouse and supply of rolling slab to Hulamin
- Commercial sales of aluminium can body stock to the local market begin
David Austin (Acting CEO) commented:
"Our manufacturing performance showed some improvement with recoveries increasing off a low base. Sales of rolled products
are up by 9% from the second half of last year which, together with a slight improvement in conversion margins, underpinned
our earnings growth, supported by the weaker Rand.
This improved profitability, together with sound working capital management, produced strong cash flows that we used to pay
down borrowings. Our efforts to improve operational performance are ongoing and should contribute to increased volumes and
profitability in the second half."
Hulamin 033 395 6911
David Austin, Acting CEO 082 718 6151
Hector Molale 083 639 1021
Johannes van Niekerk 082 921 9110
Normalised earnings for the first half of 2014 amounted to R130m, an increase of 42% over the corresponding
period in the previous year and 18% over the R110m achieved in the second half of 2013. Hulamin reports
normalised earnings to provide a more meaningful measure of underlying operating performance.
Headline earnings per share (HEPS) increased by 95% from 21 cents to 41 cents or, on a fully diluted basis,
by 90% to 40 cents. Basic earnings per share growth mirrored that of HEPS. Both basic and headline earnings
were depressed by the R25m charge in 2013 for once off restructuring costs. These costs are excluded from
2013 normalised earnings.
Internationally, economic conditions showed some improvement but excess capacity in flat rolled products (FRP)
ensured the industry remains fiercely competitive and Alcoa have announced the closure of two FRP plants in Australia.
China, Brazil and the Middle East continue to bring new capacity on line and the absence of import duties make South Africa
an attractive destination for their products. Locally, economic conditions are very challenging, exacerbated by the
disruptions caused by ongoing strikes.
The price of aluminium, as quoted on the London Metal Exchange (LME), has moved up from USD 1 720 per ton at
the end of 2013 to USD 1 851 at 30 June 2014 and has now exceeded USD 2 000. Hulamin is a semi-fabricator of
aluminium products and the metal price component is mainly a flow-through although it does impact reported turnover
and reflects, to some extent, overall demand for aluminium products.
The average Rand/USD exchange rate for the period was 16% weaker than in the first six months of 2013 and group
turnover increased by 14% to over R4 billion.
Rolled Products sales volumes for the first six months increased by 5% over the corresponding period last year
to 102 000 tons and by 9% when compared to the lower sales volumes achieved in the second half of last year.
Conversion prices realised were slightly firmer, particularly on exports into North America and Europe. Manufacturing
performance is beginning to show some improvement with recoveries increasing off the low base achieved in the second
half of 2013. Safety performance improved substantially with a 53% reduction in total recordable injury frequency rate
(TRIFR) and an 85% reduction in lost time injury frequency rate (LTIFR).
There was a significant fall in sales volumes of extruded products which are only sold into the local market.
A decline in solar business and a marked increase in imports, placed pressure on sales and profits.
Group operating profit (EBIT) reflected an increase of 71% to R210m. As a percentage of turnover, EBIT was 5.2%
compared to 3.5% in the previous period. Hulamin hedges 50% of the metal price risk arising from holding inventory
and all foreign currency exposures within inventory, receivables and payables. The impact of the uncovered metal price
risk in this period was a loss of R7m, considerably lower than the R29m loss recorded in the corresponding period last year.
Net finance costs fell by 10.6%, despite a general increase in interest rates, due to lower borrowings resulting
from higher profits and improved working capital management. The effective tax rate increased by 1% to 29% and the
assessed losses brought forward from previous years will be fully utilised by the end of the year.
Cash inflow before financing activities, but after capital expenditure of R79m, amounted to R225m compared to an
outflow of R57m in the corresponding period of the previous year. The cash was used to repay borrowings which, on a
net of cash basis, reduced by the R225m from R612m at December 2013 to R387m at June 2014.
ALUMINIUM RECYCLING PLANT
The construction of a new R300m recycling plant in Pietermaritzburg is proceeding according to schedule and is due
to come on line in mid-2015. A R275m term loan is being negotiated in order to provide an appropriate source of medium term finance.
The rate at which the all-aluminium can has found acceptance in South Africa bodes well for the future supply of used beverage
can scrap which is the primary target of the new recycling plant. The recently enacted restrictions on scrap exports were an
important enabler ensuring commercial viability of the investment.
Currently Hulamin supplies only can end stock in the local market. However, qualification trials of body stock material with
can maker Nampak have now been successfully completed and sales will ramp up in the second half of the year in line with a three
SUPPLY OF ALUMINIUM FROM BHP BILLITON
Hulamin sources approximately one third of its rolling slab requirements from BHP Billiton's Bayside casthouse
with the remaining two thirds being produced by Hulamin's casthouse in Pietermaritzburg.
On 30 June 2014, the Bayside smelter was shut down. However, the Bayside casthouse is continuing to operate
using liquid aluminium transported from the nearby Hillside smelter. BHP Billiton has contracted to continue
to supply Hulamin with rolling slab from Bayside until 31 December 2014. Discussions with Hulamin and other
interested parties are taking place with a view to ensuring the supply of slab from Bayside continues thereafter.
IMPORT TARIFF PROTECTION
Hulamin exported 72% of its Rolled Products output in the six months to June 2014. Destination countries
included Brazil and China where imports of both rolled and extruded products are subject to import duties.
Similar products are in turn exported from Brazil and China to South Africa where no reciprocal tariff protection exists.
An application for reciprocal tariff protection is currently being prepared and will be lodged with ITAC shortly.
The outcome of the ensuing ITAC decision will have a significant impact on the future of the aluminium industry in South Africa.
The Board has not declared an interim dividend for 2014.
Ongoing actions being taken to improve operational performance at Rolled Products are expected to increase volumes
and profitability in the second half of the year. However, imports remain a threat to local markets.
Hulamin's profits will continue to be impacted by the relative weakness or strength of the SA Rand against other
currencies and, in particular, its rate of exchange with the US Dollar.
ME Mkwanazi DA Austin
Chairman Acting CEO
Click here to see the full report.