Publications
Partners
Hulamin [JSE:HLM] has been on a wobble for quite some time. It’s currently in a difficult industry, competing with large global aluminium producers outside South Africa and facing a range of issues in this country, such as the exchange rate and cheap imports.
Its recent interim results show the business has turned – but off a low base, as CEO Richard Jacob reminds us. The business is divided into two units: the dominant Hulamin Rolled Products and Hulamin Extrusion. Sales volumes at Rolled Products increased 22% to 208 000t/year and headline earnings jumped a huge 167%, but off a low base. What’s emphasised is ongoing reduction in unit costs.
“It’s more of the same from us. We need to get to full capacity of 250 000t by 2014 and take costs out of the business,” Jacob says. Capacity and costs are largely what the business is now about. You have large fixed assets, such as mills, which have to be squeezed to get the best results.
Hulamin embraces a full range of often complex technologies. The products it makes pop up all over the show. “We’re on an optimisation curve, getting full capacity and costs out. But there are a number of challenges – not least the currency, the growth of imports into South Africa and some volatility in international markets,” Jacob says.
For Hulamin the rand continued to strengthen against the US dollar and averaged US$1/R6,91 in its interim reporting period, 8% stronger than the average of US$1/R7,54 in first half 2010. Jacob says the profit impact of the rand strengthening offset much of the operational improvements achieved. Headline earnings were also distorted a bit by an insurance settlement of R26m following a breakdown of the Camps Drift Hot Mill, which contributed to the 167% increase in headline earnings to R71m.
Jacob says Hulamin’s order book remains healthy due to solid demand. “Local sales showed modest recovery, with the exception of the building and construction sector, which has continued to constrain sales of extrusions, as have ongoing low-priced imports.”
The group will be closing its Cape Town extrusion plant at end-September. “Extrusions are a little different to Rolled Products. You’re constrained on sales and have significant excess capacity. And there are the increases in the low-cost imports from China,” Jacob says.
A R75m project to increase rolling slab capacity at Maritzburg was completed during the second quarter and the mill is being ramped up to full capacity. “In the second half of 2011 prospects have been tempered by weaker demand in Europe and the United States, disruption of LP gas supplies and the impact of the SEIFSA strike at local customers.” The strike has been an issue, Jacob says, not so much for Hulamin’s staff but for its customers, some of whom had to shut up shop.
Hulamin currently hasn’t got too much cash to play around with. Cash and cash equivalents have dropped to R8,8m from R30,2m in the previous period. But debt has reduced slightly at R326,8m, leaving gearing of 20,3% compared with 22,7% in the previous period. The cash position is important, as there’s likely to be increasing pressure on Hulamin to pay a dividend. Jacob says it’s something the board is well aware of and will address when it can. Right now it seems a balancing act between capital expenditure and a possible dividend. Hulamin last paid a dividend in 2009.
Now it seems back on track, Hulamin will have to concentrate on meeting full capacity at its plants. It still has a way to go.
Its recent interim results show the business has turned – but off a low base, as CEO Richard Jacob reminds us. The business is divided into two units: the dominant Hulamin Rolled Products and Hulamin Extrusion. Sales volumes at Rolled Products increased 22% to 208 000t/year and headline earnings jumped a huge 167%, but off a low base. What’s emphasised is ongoing reduction in unit costs.
“It’s more of the same from us. We need to get to full capacity of 250 000t by 2014 and take costs out of the business,” Jacob says. Capacity and costs are largely what the business is now about. You have large fixed assets, such as mills, which have to be squeezed to get the best results.
Hulamin embraces a full range of often complex technologies. The products it makes pop up all over the show. “We’re on an optimisation curve, getting full capacity and costs out. But there are a number of challenges – not least the currency, the growth of imports into South Africa and some volatility in international markets,” Jacob says.
For Hulamin the rand continued to strengthen against the US dollar and averaged US$1/R6,91 in its interim reporting period, 8% stronger than the average of US$1/R7,54 in first half 2010. Jacob says the profit impact of the rand strengthening offset much of the operational improvements achieved. Headline earnings were also distorted a bit by an insurance settlement of R26m following a breakdown of the Camps Drift Hot Mill, which contributed to the 167% increase in headline earnings to R71m.
Jacob says Hulamin’s order book remains healthy due to solid demand. “Local sales showed modest recovery, with the exception of the building and construction sector, which has continued to constrain sales of extrusions, as have ongoing low-priced imports.”
The group will be closing its Cape Town extrusion plant at end-September. “Extrusions are a little different to Rolled Products. You’re constrained on sales and have significant excess capacity. And there are the increases in the low-cost imports from China,” Jacob says.
A R75m project to increase rolling slab capacity at Maritzburg was completed during the second quarter and the mill is being ramped up to full capacity. “In the second half of 2011 prospects have been tempered by weaker demand in Europe and the United States, disruption of LP gas supplies and the impact of the SEIFSA strike at local customers.” The strike has been an issue, Jacob says, not so much for Hulamin’s staff but for its customers, some of whom had to shut up shop.
Hulamin currently hasn’t got too much cash to play around with. Cash and cash equivalents have dropped to R8,8m from R30,2m in the previous period. But debt has reduced slightly at R326,8m, leaving gearing of 20,3% compared with 22,7% in the previous period. The cash position is important, as there’s likely to be increasing pressure on Hulamin to pay a dividend. Jacob says it’s something the board is well aware of and will address when it can. Right now it seems a balancing act between capital expenditure and a possible dividend. Hulamin last paid a dividend in 2009.
Now it seems back on track, Hulamin will have to concentrate on meeting full capacity at its plants. It still has a way to go.
