JSE-listed aluminium supplier Hulamin says it experienced particularly difficult conditions during the financial year ended December 31, 2019, which resulted in its loss a share increasing by 57% year-on-year to 380c.
Headline earnings were down 182% year-on-year to a loss of R240-million, which was impacted on by restructuring costs and a negative metal price lag.
The London Metal Exchange aluminium price averaged $1 792/t in 2019 and $2 110/t in 2018. The company experienced a negative metal price lag of R68-million in 2019, compared with a R3-million gain in 2018.
Group sales volumes were also down 11% year-on-year to 219 000 t.
Hulamin’s earnings before interest, taxes, depreciation and amortisation (Ebitda) before impairment were down 98% year-on-year to R18-million and normalised Ebitda was down 54% year-on-year to R313-million.
The company incurred an impairment charge of R1.3-billion across both its divisions – rolled products and extrusions. The impairments were owing to lower forecast cash flows and an increase in the weighted average cost of capital.
Hulamin CEO Richard Jacob says Hulamin experienced particularly difficult conditions during 2019. Export sales to the US were disrupted by blockages in Hulamin’s distribution channel, the global economy slowed measurably through the year – prompted by a well recorded slowing in China, while local regional demand came under severe pressure throughout the year.
“Following the absorption of working capital in the first half of 2019, we paid specific attention to managing borrowings, to end the year 23% lower than 2018 at R226-million. This represents a positive cash flow during 2019 of R68-million.
“Hulamin extrusions suffered a first-half loss, which includes a provision for restructuring costs that were actioned largely in the second half. Sales volumes were measurably lower following a manufacturing disruption,” Jacob explains.
He adds that the company concluded rightsizing programmes, in both divisions.
This action resulted in the closure of the extrusions operation in Olifantsfontein, Gauteng, and the consolidation of operations in Pietermaritzburg.
Meanwhile, the outbreak of the Covid-19 pandemic in late 2019 and throughout this year has had a serious impact on all Hulamin’s markets. It is likely to reduce sales volumes considerably and counteract the benefits of cost saving actioned in 2019 as well as the weaker rand:dollar exchange rate.
The company declared no dividend for 2019, compared with a dividend of 18c a share in 2018.
The company says its balance sheet remains robust, with R222-million free cash flow and a net debt to equity ratio of 11%.
Following 2019 and beyond the Covid-19 shocks, the company plans on defending its position in the US market by fighting against dumping of common alloy sheet, rebuilding direct distribution channels and getting a new channel partner.
Since year-end, the company reached a long-term metal supply agreement with Hillside Aluminium.
On the local front, Hulamin expects the South African market to remain soft for the foreseeable future.