Aluminium can market, auto sheet demand drives FY growth for Hulamin

23rd February 2015

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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Sales volumes of South African aluminium manufacturer Hulamin’s rolled products increased 3% to 196 000 t in the year ended December 31, with heat-treated plate and canstock products emerging as the portfolio’s strongest performers.

Exports of rolled products by the JSE-listed group contributed 70% of overall sales volumes for the period, while Hulamin also inked a deal with US-based Tesla Motors to supply the electric vehicle manufacturer with specialised heat-treated plate.

Automotive heat exchanger materials, which were used and exported by the major automotive original-equipment manufacturers (OEMs) continued to perform well.

“There has been a surge in demand for heat-treated [metal] from the aerospace market, as well as from the automotive sector [on the back of] the increased lightweighting of motor vehicles.

“These products also achieve a [price premium], as they are not as easy to make as commodity products and they also need to be made to a very high standard and must remain consistent,” CFO and acting CEO David Austin told Engineering News Online on Monday.

The group’s canstock products – can-end and tab stock – were, meanwhile, considered the core contributors to the gross margins of rolled products and, while manufacturing performance was in line with the previous year, pricing was generally firmer.

Over the year, the company also started the commercial production of can body stock, which it supplied to packaging group Nampak for the local manufacture of all-aluminium beverage cans.

“Currently, most of the can body stock used in South Africa is imported from Brazil and we will compete aggressively for this business as we ramp up to full production,” the company outlined in a results statement.

Lagging the rolled products business, sales by the extrusions business, all of which were into the local market, fell 12% as imports continued to gain on locally manufactured products in “tight” trading conditions.

In addition, the international market for foil products remained “very” competitive, with imports again driving local market conditions.

“Foil manufacturing operations have received a lot of attention, but we have been unable to achieve acceptable returns in this area of the business,” said the group.

PROTECTIONIST PUSH
A 12% decline in the average rand/dollar exchange rate for the 12 months did, however, provide Hulamin’s products with some relief against competing products from the Brazil-Russia-India-China economies and other countries, all of whom enjoyed some form of local market protection.

Austin added that the industry continued to lobby government to introduce greater protectionist policies for local manufacturers to provide a buffer against favourable foreign duty regimes.

“This rise in products from [the] East is a worldwide trend and isn’t confined to South Africa, but what South Africa hasn’t done, unlike other countries, is introduce a duty regime to protect local manufacturers. These are not level playing fields and that’s all we ask for; we don’t want special treatment.

“The existing support is very narrow. We have lodged an application with the International Trade Administration Commission [of South Africa] and we hope that this application will be gazetted, which we think they are close to doing,” Austin commented.

DOMESTIC INVESTMENT
Outlining additional local capacity investment, he noted that Hulamin was currently investing R300-million in an aluminium recycling plant that would reprocess used aluminium beverage cans to raw metal and, ultimately, can body stock.

“Gas-fired furnaces will provide recycled aluminium to the local market while using only a fraction of the electricity required to smelt new metal. The R300-million will be financed, in the main, by a new five-year R270-million loan
from Nedbank,” he outlined.

Meanwhile, a prefeasibility study into the local production of aluminium auto body-sheet had shown that the required investment was likely to only be viable if done through a partnership with government and in cooperation with the major OEMs.

To this end, Hulamin had partnered with the Department of Trade and Industry and was working with various OEMs, such as Mercedes-Benz and BMW, to discuss potential offtake partnerships.

Austin explained that, in South Africa, the difficulty with moving into a technology such as aluminium auto body-sheet was that the volumes were not sufficient unless there was some form of cooperation among auto manufacturers.

“The flipside is that if we don't provide what the industry needs, the automotive manufacturers will be forced to look elsewhere and I think government understands that,” he remarked.

DIVIDEND PAYOUT
Hulamin posted a R384-million net profit for the year, driving basic earnings a share of 120c and headline earnings a share of 112c.

In accordance with the newly resumed three-times dividend cover payment policy, of which two-thirds would be paid as a final dividend, the board had declared a final dividend of 25c a share for the year – the first since 2008.

Meanwhile, normalised earnings, at R355-million, were “substantially” higher than the previous best-ever earnings achieved by Hulamin of R240-million
in 2008.

The company added that ongoing focus on working capital management saw cash from operating activities increase from R283-million in 2013 to R518-million in the year under review.

A substantial increase in both expansion and replacement capital expenditure, boosted by spend on the construction of Hulamin’s new aluminium recycling facility, consumed R335-million of this, with the balance of R183-million used to reduce net debt to R437-million.

Hulamin had, meanwhile, asked shareholders to approve a new broad-based black economic-empowerment transaction, which included an employee share ownership scheme, at the annual general meeting in April.

This would enable to group to maintain a level 4 or better contributor rating under the new recently implemented Black Economic Empowerment Codes of Good Practice.

PROSPECTS
The company said it would continue to focus on its core competencies and product streams in 2015.

“Our efforts to simplify the business and establish clear accountability will improve manufacturing performance and, in particular, production recoveries,” noted Austin.

Global markets for beneficiated aluminium products were growing and, despite fierce competition, the group believed prices in the niches in which it specialised would remain stable.

“Local market prices would likely be influenced by the level of imports and, particularly, those products that were sold into the South African market at prices lower than that in the exporter’s home market,” it held.

Hulamin outlined further that it was currently cutting back 10% of its electricity consumption in terms of an agreement with both the Msunduzi municipality and energy utility Eskom.

“While all concerned should be commended for the cooperative approach taken, the reality is that Hulamin will lose at least 10% of production and profits if power disruptions continue,” it cautioned.

The group, meanwhile, reported that CEO Richard Jacob had made an “excellent” recovery following an extended medical leave of absence and would resume his post as CEO on March 1.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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