Hulamin expects to return to profitability in the second half of this year

21st September 2020 By: Tasneem Bulbulia - Creamer Media Reporter

Hulamin expects to return to profitability in the second half of this year

Richard Jacob

Significant cost reduction efforts, coupled with stringent controls over working capital, helped to reduce the impact of Covid-19-related restrictions on aluminium supplier Hulamin's performance for the six months ended June 30, CEO Richard Jacob said on September 21.

The company noted that cost reduction, strict controls over working capital and a weaker exchange rate had partially offset the impact of the pandemic, which resulted in major disruptions to manufacturing operations and severe demand shocks in most markets.

He said Hulamin had emerged from this difficult period with a reasonably good order book, a stable manufacturing operation and significant liquidity to meet its forecast requirement.

The company said the turnaround actions implemented in 2019 yielded substantial structural cost reductions, lower inventory levels and reduced debt leading into this year, which positioned the business well to maintain a reasonable performance despite the impact of the pandemic.

The lockdown regulations, the infections and the economic depression from April to June, resulted in disruptions to all manufacturing operations and demand shocks, mainly in the South African market where the ban on alcohol sales had a significant impact on the local beverage can market.

“As experienced by most companies globally, the emergence of the coronavirus pandemic resulted in major disruptions to demand, as well as our manufacturing operations.

"Consequently, the first half of 2020 was a particular challenging trading period,” Jacob noted.

Owing to the difficulties, group sales volume decreased by 35% to 71 000 t, while revenue decreased by 30% to R3.7-billion.

Hulamin's loss a share increased by 26c to 75c and the company generated negative free cash flow of R302-million.

Hulamin’s balance sheet was, nevertheless, resilient, with net debt-to-equity of 27%.

No dividend was declared in respect of the period, or the comparative period.

Hulamin Extrusions’ turnaround continued. Although volumes were negatively impacted by the Covid-19 lockdown, green shoots of a successful turnaround are becoming evident. The business suffered a first-half loss, which includes costs related to the closure of the Olifantsfontein plant that have carried over into 2020.

"With the rightsizing of the business to one with a lower unit cost base, consolidated in Pietermaritzburg, largely complete, we are looking forward to a return to profitability in the second half of 2020,” noted Jacobs.

Hulamin expects the turnaround actions taken in 2019, especially the reduction in costs, to support a return to profitably in the second half of the year. Sales forecast significantly stronger volume performance in all operations, although lower than in recent years.

Together with the weakened rand, the company expects an improved second half.

The company is also expecting a preliminary outcome for the US Department of Commerce antidumping case in October, which involves “common alloys” from 18 countries including South Africa.

Hulamin is actively seeking alternative product and market opportunities as mitigation for any possible closure of the US rolled products market to the company’s business. The US has traditionally been the company’s largest export market for these products.

Hulamin said that, should the global and local economic conditions continue to improve, and especially demand for its products, it expects this to support an improvement in profitability and cash flow.