JSE-listed aluminium products producer Hulamin on Monday reported a 7% increase in headline earnings to R80-million, while its turnover for the 2011 financial year ended December 31, was up by 20%, at R6.96-billion.
Operating profit, before the metal price lag effect, increased by 19% to R204-million, despite additional liquid petroleum gas (LPG) costs of R13-million and the cost of closing the Cape Town extrusion plant of R7-million. The operating profit after the metal price lag effect declined by 22% to R170-million.
The company’s improved performance was owing to the strong performances in both Hulamin Rolled Products and Hulamin Extrusions, with the rolled products sales volume increasing by 11%, to 208 000 t.
"We are pleased that our operating performance continued to improve with increased sales volumes, better margins per ton and unit costs maintained at 2010 levels. This was achieved despite substantial increases in energy prices and disruptions in the supply of LPG,” CEO Richard Jacob said in a statement.
LPG supply disruptions, as a result of problems at the Sapref refinery in Durban, resulted in five days of lost production in the second half of the year, while procuring replacement LPG supply at short notice through imports increased costs.
Margins improved by 3.5%, while unit costs were maintained at similar levels to 2010.
Operational performance improvements from the manufacturing excellence programme resulted in increased production volumes, record yields, streamlined logistics, improved working capital efficiency and savings in the year of R142-million.
Given the volatile nature of the London Metals Exchange aluminium price, Hulamin retained its 50% hedge of the dollar value of its aluminium inventory pool. The impact of the fall of the aluminium price in the second half of the year resulted in a loss of R34-million on the value of the company’s metal inventories, compared with a profit of R46-million in 2010.
Hulamin Extrusions also performed well in a depressed market, increasing sales by 14%. The rightsizing of manufacturing capacity was reported to be delivering reduced operating costs and improved efficiencies.
Meanwhile, imports of low-priced aluminium products from protected markets continued to disrupt the domestic market, with domestic demand for rolled products remaining flat, while extrusion volumes increased by 14%, the latter driven by the closure of a significant competitor in November 2010.
“It is disappointing that import duties remain at 5% on extruded products and 0% on rolled products. Demand in international markets outside Europe was stable in the year, although still substantially off the pre-2008 highs. Demand in Europe was relatively strong at the start of 2011, but softened continuously thereafter, as the sovereign debt crisis affected confidence throughout the eurozone and customers consequently reduced inventories,” the company said.
Sales of automotive products were the most affected by this.
Hulamin said it had improved sales in all its high-value product markets, with can end and heat-treated plate sales growing by 9% and 19% respectively during the year. Operating cost pressure is expected to continue, most notably from rising energy prices and wage inflation, with the consequent impact on profits exacerbated by the continued relative strength of the rand.
Further, the company produces rolling slab and extrusion billet in its own facilities in Pietermaritzburg. Additional rolling slab is bought from the Bayside smelter in Richards Bay, on supply contracts, which had previously been long term, and which have, since 2009, been limited to six and twelve months.
The current supply agreement is secured to December 2012, while discussions to secure a sustainable rolling slab supply are ongoing. To supplement local supply and internal manufacture, Hulamin imports rolling slab and extrusion billet from sources in Australia and the Middle East.
European markets are expected to remain weak, while the US economy appears to be strengthening, and other markets appear likely to continue the improving trend experienced in 2011.
“As a result, Hulamin’s order book is in good shape, with current orders at similar, or better margins than those in 2011.
“Hulamin continues to focus on improving its operational performance through improved efficiencies, cost competitiveness and full-capacity use. The manufacturing excellence programme is expected to continue to deliver improved operational performance,” Jacob said.