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Aluminium products manufacturer Hulamin has recorded a 112% increase in interim earnings before interest and taxes (Ebit) to R473-million, on the back of improved trading conditions.
This was despite a 7% year-on-year decrease in sales volumes to 95 588 t.
The group reports that normalised headline earnings a share increased by 94% to 70c for the six months ended June 30, while normalised earnings before interest, taxes, depreciation and amortisation increased by 95% to R425-million.
Hulamin interim CEO Geoff Watson says improved trading conditions experienced in the 2022 financial year continued into the first half of the 2023 financial year, with the company being able to capitalise on attractive market conditions, particularly for can products.
The company’s interim results also benefitted from an 18% weaker average exchange rate in the six months under review, compared with the prior corresponding six months, and a stable cost base.
Watson elaborates that prioritisation of key product streams supported scrap consumption, which resulted in improved margins, albeit that group volumes were lower.
The Extrusions business, in particular, grew volumes by 10% year-on-year, which was largely influenced by the recovery of the automotive sector and growth in the renewable energy sector – albeit at 11% lower London Metal Exchange (LME) pricing.
Hulamin explains that because the company buys aluminium and then adds value to the product, the aluminium LME price is accordingly largely a pass-through cost to the business; therefore, while turnover will be impacted by the rand LME price, this is not the key driver of profitability. Rather, profitability is driven by the value-added margin.
There is a timing difference between the buying of aluminium and selling the final value-added product. While aluminium is largely a pass-through of the business, fluctuations in the rand LME result in a gain or loss on metal (referred to as metal price lag).
Over time, gains and losses on metal price lag tend to largely offset. During the reporting period, there was a gain on metal price lag of R109-million, which is excluded from normalised earnings.
Although the company spent 57% more on capital expenditure in the first half of this year, at R141-million, the company remains focused on debt reduction simultaneously and its simplification strategy.
Hulamin has not declared an interim dividend.
Watson expects market conditions to trend softer in the second half of the year, while a two-week employee strike at Hulamin’s operations in KwaZulu-Natal will also impact on sales.
The global beverage can market remains a long-term structural growth market which is forecast to grow at a compound rate of 4% a year from $55.6-billion this year to $66.2-billion in 2028.
The growth rate in South Africa is forecast to be higher than this, and therefore remains a priority market for Hulamin.
During the reporting period, total sales to the can industry (export and local) contributed 49% to sales volumes in the Rolled Product division, compared with 43% in the prior comparable period. This product stream will remain a focus for continued investment, Watson confirms.