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‘Cautious’ Hulamin ups H1 earnings, to seek import tariff protection

‘Cautious’ Hulamin ups H1 earnings, to seek import tariff protection

Photo by Bloomberg

28th July 2014

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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Aluminium products supplier Hulamin, which on Monday reported a 42% year-on-year lift in earnings for the first half of 2014, has revealed that it is preparing an application for reciprocal import tariff protection, which it plans to lodge shortly with the International Trade Administration Commission of South Africa (ITAC).

Acting CEO David Austin explained that excess capacity in flat rolled products meant that the industry remained “fiercely competitive”.

“China, Brazil and the Middle East continue to bring new capacity on line and the absence of import duties makes South Africa an attractive destination for their products.

“The outcome of the ensuing ITAC decision will have a significant impact on the future of the aluminium industry in South Africa,” he noted.

Hulamin on Monday reported that its normalised earnings for the first half of 2014 had amounted to R130-million, a rise of 42% over the corresponding period in the previous year and 18% over the R110-million achieved in the second half of 2013.

However, Austin was quick to remind Engineering News Online that this followed a financial year in which the company’s headline and basic earnings were depressed by a R25-million charge for one-off restructuring costs.

“This is not a silver bullet, we are working on a number of issues, and [I feel I must] bring in an element of caution by saying that we need a sustained performance, not an increase off a low base,” he commented.

Headline earnings per share (HEPS) for the six months ended June 30 increased 95% from 21c to 41c or, on a fully diluted basis, by 90% to 40c. Basic earnings a share growth mirrored that of HEPS.

Group operating profit reflected an increase of 71% to R210-million for the half-year, which, as a percentage of turnover, was 5.2%, compared with 3.5% in the prior period.

MARKET SHOWING
Locally, economic conditions remained “very challenging”, exacerbated by disruptions caused by ongoing strikes. 

“This as the price of aluminium, as quoted on the London Metal Exchange, has moved up from $1 720/t at the end of 2013 to $1 851/t at June 30 and has now exceeded $2 000/t.

“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,” indicated Austin.

The average rand/dollar exchange rate for the period was 16% weaker than in the first six months of 2013, going some way towards increasing group turnover by 14% to over R4-billion for the period under review.

This drove slightly firmer conversion prices, particularly on exports into North America and Europe.  

Rolled products sales volumes, meanwhile, increased 5% over the corresponding period last year to 102 000 t and 9% compared with the lower sales volumes achieved in the second half of last year.

“Manufacturing performance is beginning to show some improvement with recoveries increasing off the low base achieved in the second half of 2013,” he noted.

Hulamin further reported a “significant” fall in sales volumes of its extruded products, which were only sold into the local market, following a decline in the domestic solar market and an increase in imports, placing pressure on sales and profits.    

FINANCING
Net finance costs fell 10.6% over the period, despite a general increase in interest rates, owing to lower borrowings resulting from higher profits and improved working capital management.

The effective tax rate increased 1% to 29% and the assessed losses brought forward from previous years would be fully utilised by the end of the year.

Cash inflow before financing activities, but after capital expenditure, of R79-million, amounted to R225-million compared with an outflow of R57-million in the corresponding period of the previous year.

SECURITY OF SUPPLY
Construction of the group’s new R300-million Pietermaritzburg-based recycling plant, aimed at securing the future supply of used beverage can scrap, was proceeding according to schedule and was due to come on line in mid-2015.

The recently enacted restrictions on scrap exports, Austin added, 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 canmaker Nampak have now been successfully completed and sales will ramp up in the second half of the year in line with a three-year contract,” he outlined.

The development of the facility was aimed at securing the supply of rolling slab for the group, after BHP Billiton indicated in 2012 that it was considering potentially closing its Bayside casthouse, from which Hulamin sourced around one-third of its rolling slab requirements.

While the mining group shut the Bayside smelter on June 30, the casthouse continued to operate using liquid aluminium transported from the nearby Hillside smelter.

“BHP Billiton has [been] contracted to continue to supply Hulamin with rolling slab from Bayside until December 31. Discussions with Hulamin and other interested parties are taking place with a view to ensuring the supply of slab from Bayside continues thereafter, but the future of the facility lies firmly with BHP Billiton,” Austin indicated. 

A R275-million term loan was being negotiated to provide an appropriate source of medium-term funding for the recycling plant.

Hulamin did not declare an interim dividend for 2014.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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