Hulamin prepares for tougher times


Hulamin prepares for tougher times

Published Date: 2020-06-29 | Source: Stephen Gunnion | Author: Stephen Gunnion

Hulamin prepares for tougher times

The aluminium products manufacturer has booked a R1.3 billion impairment of its businesses as it prepares for a further decline in demand.

Hulamin says the Covid-19 pandemic will exacerbate already tough conditions and is likely to result in a further big decline in sales volumes, countering the benefits of cost saving initiatives it undertook last year.

The aluminium products manufacturer has reported a wider basic loss for 2019 after writing down the value of its Rolled Products and Extrusions businesses by R1.3 billion and providing for restructuring costs amid a weaker market for its products. Export sales to the US were disrupted by blockages in its distribution channel, slower global economic growth and reduced local regional demand.

Hulamin addressed weak market conditions for its Rolled Products by implementing a programme to reduce costs by R250 million a year and cutting its workforce. Its Extrusions business was affected by an 11-week disruption to its largest press, which impacted sales volumes, working capital, customer service and profits.

Extrusions suffered a first-half loss, including a provision for restructuring costs in the second half. It concluded rightsizing programmes over the period, resulting in the closure of its operation in Olifantsfontein and the consolidation of operations in Pietermaritzburg.

Headline earnings were also impacted by a negative metal price lag of R68 million due to a decline in the aluminium price last year, a timing mismatch related to aluminium futures not qualifying for hedge accounting in 2018 and a charge arising from the restructuring of Isizinda Aluminium.

Although Hulamin doesn't produce primary aluminium, it is affected by short-term movements in the price of the metal. This affects profits by way of a flow-through effect known as the metal price lag. It's also impacted by exchange rate movements.

Sales volumes fell 11% to 219,000 tons over the year to end-December, resulting in a 7.2% decline in revenue to R10.7 billion. Earnings before interest, tax, depreciation and amortisation (EBITDA) fell 98% to R18 million - before the impairment charge. Normalised EBITDA came in 54% lower at R313 million. Its loss per share increased by 57% to 380c per share while it swung to a headline loss of R240 million due to the restructuring costs. It hasn't declared a dividend.

The group said its turnaround actions were now complete and it ended the year with a strong balance sheet and a net debt to equity ratio of 11%. Free cash flow for the period was R222 million, including R208 million that was only received from a customer in January but was due to be paid a month earlier.

Hulamin's shares closed 4.1% down at R1.18 on Friday.

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