Rand, Transnet strike hit Hulamin

Johannesburg - Hulamin [JSE:HLM], an independent producer of semi-finished and fabricated aluminium products, on Monday reported first half diluted headline earnings of 11c a share, which is in line with the 10c it reported for the first half of last year.

Net profit was 5.6% higher at R26.2m for the six months to end June, compared to R24.8m previously as the company reported a recovery in demand.

Revenue climbed 27.4% to R2.70bn from R2.12bn a year ago on higher sales volumes and better prices.

Sales volumes for the first half of 2010 were 94 000 tons, an increase of 32% over the equivalent period last year.

The company said overall demand for its products continued to improve in the first half of 2010, with improvements in particular in sales of can-end stock, brazing sheet and heat treated plate.

This improvement in demand has seen prices tending firmer for the second half of 2010.

But it said South African and European markets continue to disappoint.

"We have made progress in the six months to June in growing our production and sales volumes and improving the mix of high value products to the extent possible in markets that remain uncertain," said Hulamin chief executive officer Richard Jacob.

"These improvements were however offset by the significant strengthening of the rand to the US dollar and the Transnet strike in May and subsequent port congestion that constrained exports," Jacob said.

The strength of the rand, which is at a similar level to the US dollar as it was in 2003, has negatively impacted on export revenue, while the basket of costs, particularly wages and electricity, continue to rise.

Hulamin said this highlighted the risk to South African manufacturing as margins reduce due to a strong rand.

The Transnet strike and extended period during which freight has taken to normalise has resulted in delays in the invoicing of about 6 000 tons which will be recognised in the second half of the year.

"Upward cost pressures also persist, particularly in energy, labour and the start-up costs of our new plant capacity," said Jacob.

Cost of sales were 34.8% higher at R2.52bn against R1.87bn a year ago.

Operating profit was 10.9% lower at R101.8m from R114.3m previously.

But Jacob said the outlook for the business remained positive.

This, he said, was based on firm market demand and increasing sales of high value niche products as the utilisation of new plant capacity improves.

- I-Net Bridge