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Johannesburg - Aluminium group Hulamin [JSE:HLM] on Monday reported a decrease in headline earnings per share from 37 cents to 27 cents for the year ended December.
The group, which consists of two operations - Hulamin Rolled Products and Hulamin Extrusions - said the strong rand had offset operational improvements.
Richard Jacob, chief executive officer, commented: "Hulamin's financial results for 2010 were disappointing, largely as a result of the strong rand eroding a much improved operational performance. Costs were negatively affected by the start-up of the expansion project, ahead of the sales and revenue benefits which will accrue as the plant ramps up to full capacity and optimum product mix.
"However, our focus on operational performance resulted in a broad range of improvements. These include sales and production volumes, unit costs, the mix of high value products and US dollar margins.
"We are confident that the momentum for further improvements is well established and are encouraged by the signing of an extension to the rolling slab supply agreement to June 2012."
The group said that market conditions and plant performance had continued to improve throughout the year, resulting in increased overall sales volumes as well as those of higher margin products, particularly can-end stock, brazing sheet and heat treated plate. These increases resulted in turnover increasing to R5.81bn from R4.5bn in the previous year.
Other operational performance improvements were made in the areas of improved working capital utilisation, higher production volumes, improved recoveries and lower unit costs, while margins in dollars also improved.
As Hulamin is one of South Africa's leading beneficiating exporters, the continued strengthening of the rand against the dollar had a severe impact on translating export revenue into rand. During 2010, the rand strengthened by 13%, from an average of R8.42 in 2009 to an average of R7.32 in 2010. This had eroded most of the operational improvement benefits achieved, the group said.
Operating profit therefore reduced to R218m from R244m in 2009.
Headline earnings for the year reduced to R75m (27 cents per share) from R92m (37 cents per share) in 2009.
"In addition to the strong rand, Hulamin faced a number of other challenges, including the termination of billet supply by BHP Billiton to Hulamin. Extrusions, weak demand in the South African market and significant inflationary price increases, particularly related to manpower and electricity. The business also faced higher fixed operating costs resulting from the startup of the new Rolled Products expansion project, ahead of the revenue benefits from the new assets.
"Notwithstanding these challenges, Hulamin improved its manufacturing performance through increased focus on its manufacturing excellence programme, which resulted in direct annualised benefits of some R200m."
Given the recent earnings performance and working capital and capital expenditure required for future growth, the board has decided not to declare a dividend for the current year.
The group, which consists of two operations - Hulamin Rolled Products and Hulamin Extrusions - said the strong rand had offset operational improvements.
Richard Jacob, chief executive officer, commented: "Hulamin's financial results for 2010 were disappointing, largely as a result of the strong rand eroding a much improved operational performance. Costs were negatively affected by the start-up of the expansion project, ahead of the sales and revenue benefits which will accrue as the plant ramps up to full capacity and optimum product mix.
"However, our focus on operational performance resulted in a broad range of improvements. These include sales and production volumes, unit costs, the mix of high value products and US dollar margins.
"We are confident that the momentum for further improvements is well established and are encouraged by the signing of an extension to the rolling slab supply agreement to June 2012."
The group said that market conditions and plant performance had continued to improve throughout the year, resulting in increased overall sales volumes as well as those of higher margin products, particularly can-end stock, brazing sheet and heat treated plate. These increases resulted in turnover increasing to R5.81bn from R4.5bn in the previous year.
Other operational performance improvements were made in the areas of improved working capital utilisation, higher production volumes, improved recoveries and lower unit costs, while margins in dollars also improved.
As Hulamin is one of South Africa's leading beneficiating exporters, the continued strengthening of the rand against the dollar had a severe impact on translating export revenue into rand. During 2010, the rand strengthened by 13%, from an average of R8.42 in 2009 to an average of R7.32 in 2010. This had eroded most of the operational improvement benefits achieved, the group said.
Operating profit therefore reduced to R218m from R244m in 2009.
Headline earnings for the year reduced to R75m (27 cents per share) from R92m (37 cents per share) in 2009.
"In addition to the strong rand, Hulamin faced a number of other challenges, including the termination of billet supply by BHP Billiton to Hulamin. Extrusions, weak demand in the South African market and significant inflationary price increases, particularly related to manpower and electricity. The business also faced higher fixed operating costs resulting from the startup of the new Rolled Products expansion project, ahead of the revenue benefits from the new assets.
"Notwithstanding these challenges, Hulamin improved its manufacturing performance through increased focus on its manufacturing excellence programme, which resulted in direct annualised benefits of some R200m."
Given the recent earnings performance and working capital and capital expenditure required for future growth, the board has decided not to declare a dividend for the current year.
