JSE-listed aluminium supplier and exporter Hulamin’s rolled products division reported a “superb” manufacturing performance for the year ended December 31, 2018, increasing its sales by 6% to 228 000 t.
This third consecutive year of record sales volumes from rolled products helped to offset the poorer performance of the company’s extrusions division. This contributed to Hulamin posting headline earnings per share (HEPS) of 91c.
While lower than the HEPS of 95c reported for 2017, HEPS for 2018 would have been lower if not for the rolled products division’s good performance.
Hulamin declared an 18c a share dividend for the period, compared with the 15c a share dividend in 2017.
CEO Richard Jacob on Tuesday told Engineering News Online that the rolled products division is able to sell as much product as it produces.
“We have customers around the world who want more of our products, meaning our sales are driven by how much we can supply. We have had record production from our plant in Pietermaritzburg, which was mostly taken up by the strong beverage can market in South Africa, as well as the US.”
Hulamin’s extrusions division experienced a challenging year, with lower sales and recorded a net loss for the year. Jacob told Engineering News Online that the company had started a strategic review of its investment portfolio, which includes its interests in extrusions.
Jacob said the local market has been weak for some time and that the company will not wait for the market to improve.
Further, the company’s export markets remained volatile, with US trade policy uncertainty and tentative European reaction to the changes in the US. “US domestic aluminium markets began to soften in line with waning domestic confidence. The US aerospace market played a leading role in this decline.
“Hulamin was experiencing the symptoms of a cyclical slowdown in the US for flat rolled aluminium, in particular. Nonetheless, the US remained one of Hulamin’s most prominent market for exports, with healthy demand.”
As part of diversifying its income base and catering to increased demand from customers, especially for beverage cans, Hulamin has started operating an agency and technical service trading business, reselling a major aluminium rolling mill in Asia’s can stock products to Hulamin customers.
“We will manage the supply chain to our customers, because we have limited capacity in our own factory in Pietermaritzburg. We will be able to grow our sales by selling beverage can material that is produced in another mill,” said Jacob, expecting that this new operation will have a positive impact on profitability and cash flows, as well as increasing product offering and sales revenues.
Mounting uncertainty in the macroenvironment and the associated rise of risk indicators, has supported an increase in 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 R1.37-billion has been applied to the rolled products division and R74-million to the extrusions division.
“Earnings before interest and taxes (Ebit) thus declined by 291% to negative R950-million, owing to the recognition of these impairment charges,” explained Jacob, adding that Ebit will be mainly driven by the currency this year.
“If the currency strengthens from where it is today, our profits might be weaker. If the currency weakens to, for example, more than R15 a dollar, then our profits will increase.”
Normalised operating profit, before the impact of the impairment, restatements and metal price lag, increased by 20%. In constant currency terms, this represented an increase of 24%.
Attributable earnings were consequently 354% lower at negative R773-million for the year. However, normalised earnings a share were up 20% on the prior year to 77c apiece.
Meanwhile, the company this month launched a share buyback programme of R60-million, to repurchase 5% of shares, which Jacob said was as a result of good cash flow generated by the company and its intention to find ways of returning cash to shareholders.
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’s customers are seeking larger volumes and longer-term can stock contracts on firmer prices.
Hulamin will continue its efforts in other markets, to mitigate the effects of the US/China trade uncertainty and slow economic growth in South Africa.