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Audited results and withdrawal of cautionary announcement for the year ended 31 December 2013
HULAMIN LIMITED
("Hulamin" or "the group")
Registration number: 1940/013924/06
Share code: HLM
ISIN: ZAE000096210
Audited Results and withdrawal of cautionary announcement
for the year ended 31 December 2013
HIGHLIGHTS
- Normalised earnings up 251% to R201 million
- HEPS increased by 128% to 57 cents per share
- Positive cash flow before financing activities of R135 million
- Non-cash once-off net impairment charge of R1,53 billion
- Growing local sales contribution
- Improved performance from Hulamin Extrusions
ENQUIRIES
Hulamin 033 395 6911
Richard Jacob, CEO 082 806 4068
David Austin, CFO 082 718 6151
Hector Molale 083 639 1021
CapitalVoice
Johannes van Niekerk 082 921 9110
COMMENTARY
We have made further progress in the year under review to position Hulamin appropriately
for growth and improved profitability.
Continuing cost savings with a 10% reduction in employee numbers and efficiency gains from
our manufacturing excellence program and other initiatives netted R96 million in 2013 and
over R200 million since inception in 2010.
The restructuring of the Rolled Products operations to achieve international best practice
benchmarks is underway, having delivered lower annualised production of 192 000 tons in
2013.
In September we successfully concluded the replacement of our debt facilities to match our
working capital cycle.
While certain operations, notably slab production, improved operating performance, and the
hot rolling line maintained its high performance levels, cold rolling and the production of can
end stock required ongoing supervision. These factors, combined with a first half unfavourable
mix and planned replacement maintenance to the Camps Drift Hot Mill, contributed to Rolled
Products sales being weaker in 2013 than in 2011 and 2012 and are being addressed in the
restructuring referred to earlier.
The impact of declining cost competitiveness and margin pressure, exacerbated by rampant
input cost increases, supply disruptions, imported rolled and extruded products in the local
market without tariff protection and general weak local demand, prompted the revalidation
of growth assumptions and a resultant revaluation of plant and equipment in terms of IAS 36,
translating to the R1,5 billion after tax, once-off non-cash impairment charge.
We remain committed to realising maximum profitability as we optimise the use of installed
capacity while unlocking promising regional growth opportunities. The spearhead of this
program is the measured introduction of all-aluminium beverage cans, and the metal
sourcing and recycling benefits it delivers, without sacrificing high value export opportunities.
By implementing new product scheduling technology, with the lighter gauge can body-driven
stock mix at its centre, we expect Hulamin Rolled Products to achieve optimal profit realisation
at a lower nominal output level of 220 000 tons annually at full capacity.
Turnover for the year under review increased to R7,56 billion (2012: R6,54 billion), supported
by an improved performance from Hulamin Extrusions and the depreciation of the Rand by
17,5% on average to the US Dollar.
Underlying operating profit before metal price lag and impairments increased by 101% to
R375 million (2012 restated: R187 million), the highest since 2008. The weakening currency
in 2013 is estimated to have contributed approximately R240 million to this number. The LME
aluminium price continued to weaken during the year, leading to a R58 million metal price
lag loss.
Net interest remained constant at R63 million and, after recognising the impairment charge,
earnings declined to a loss of R1,34 billion, from a restated R29 million profit in the prior year.
Headline earnings increased by 132% to R183 million (2012 restated: R79 million) or 57 cents
per share (2012 restated: 25 cents per share).
Normalised earnings, disregarding the impairment charge and once off costs related to the
reduction in employee complement, increased to R201 million (2012 restated: R57 million) or
63 cents per share (2012 restated: 18 cents per share).
Borrowings decreased to R612 million (2012: R742 million), reflecting a positive cash flow
before financing activities of R135 million.
Market environment
Demand in Western Europe and United States gradually improved through the year. Chinese
exports of can end stock, plate and foil continued to grow due to a major expansion of rolling
capacity in China in recent years which exceeded the growth in their domestic demand. The
growing competition from Chinese exports negatively impacted international rolling margins.
Domestic demand for rolled products showed moderate improvement, led by growth in the
beverage can market and a return to normal demand patterns in the automotive industry,
in spite of being impacted negatively by the three-week strike in August 2013. Demand for
extruded products benefited from infrastructure projects, particularly the construction of
solar electrical generation plants.
All-aluminium beverage cans in Southern Africa
In November 2012 Hulamin concluded a commitment with Nampak for the supply of
28 000 tons of aluminium can body stock from 2013 to 2015. Hulamin successfully commenced
qualification of its can body stock products in the fourth quarter of 2013.
Used beverage cans
The conversion of the local and regional beverage can market to the all-aluminium can has
created an opportunity for a major step forward in the recycling of packaging materials in
South Africa. The recycling of used beverage cans will contribute to job and wealth creation in
scrap collection and distribution, and will have environmental benefits from reduced littering
and an improved national carbon footprint.
Aluminium used beverage cans are particularly well suited to recycling into new can body
stock. To this end, Hulamin is investing R300 million in additional scrap separation, processing
and recycling equipment, with a planned start up in mid-2015. This investment will allow
Hulamin to secure competitively priced aluminium inputs and increase its slab production
capacity in Pietermaritzburg.
Supply of aluminium from Richards Bay
Hulamin sources melting ingot from BHP Billiton's Hillside smelter in Richards Bay.
This metal is combined with process scrap to produce rolling slab and extrusion billet in
Pietermaritzburg. Approximately two thirds of Hulamin's rolling slab and one third of its
extrusion billet requirement are produced in this way. The balance of Hulamin's rolling
slab requirement is sourced from the casthouse at BHP Billiton's Bayside smelter, also in
Richards Bay, and the majority of extrusion billet is imported.
Withdrawal of cautionary announcement
Shareholders are referred to the cautionary announcement issued by Hulamin on 16 January
2014, wherein it was advised that BHP Billiton had commenced an engagement process
with its employees over the restructuring of its Bayside operations and that Hulamin had
therefore entered into negotiations with BHP Billiton SA Holdings ("BHP Billiton") over the
future of rolling slab supply from the Bayside casthouse.
Shareholders are now advised that BHP Billiton has committed to the continued supply of
rolling slab to Hulamin to 31 December 2014 and in this regard, caution is no longer required
to be exercised by shareholders when dealing in the company's securities.
Hulamin and BHP Billiton have been in discussions for several years over the longer term
availability of rolling slab and other value added smelter products from Bayside. These
discussions are ongoing and shareholders will be advised as further developments take
place.
Dividends
The board has not declared a dividend for 2013.
Prospects
The continuing application of efficiency and improvement programmes are expected to benefit
manufacturing performance and profitability in 2014 as we progress towards full capacity
utilisation.
Local sales volumes are expected to grow in 2014 and beyond, as can production is switched
to the all-aluminium can, to be completed by 2018 to 2020.
Given Hulamin's current export position, financial performance will continue to be influenced
by the value of the Rand in exchange with foreign currencies.
ME Mkwanazi RG Jacob
Chairman CEO
CONDENSED CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2013
Restated
2013 2012
Note R'000 R'000
Revenue 7 560 007 6 541 997
Cost of sales (6 914 691) (6 111 363)*
Gross profit 645 316 430 634
Selling, marketing and distribution expenses (390 328) (361 621)
Administrative expenses (70 830) (82 713)
Impairment of property, plant and equipment and intangible assets (2 122 316) (84 057)*
Other gains and losses 132 787 198 844*
Operating (loss)/profit (1 805 371) 101 087
Interest income 1 358 621
Interest expense (64 715) (63 530)
Share of profits of associates and joint ventures - 181
(Loss)/profit before tax (1 868 728) 38 359
Taxation 4 523 769 (9 106)
Net (loss)/profit for the year (1 344 959) 29 253
Headline earnings
Net (loss)/profit for the year (1 344 959) 29 253
Profit on disposal of property, plant and equipment (143) (15 419)
Impairment of property, plant and equipment 2 122 316 84 057
Loss on sale of investment in joint venture - 3 793
Tax effects of adjustments (594 209) (22 763)
Headline earnings attributable to shareholders 183 005 78 921
Normalised earnings
Headline earnings attributable to shareholders 183 005 78 921
Severance costs (net of tax) 18 438 -
Effect of pension fund conversion (net of tax) - (21 584)
Normalised earnings 201 443 57 337
Earnings per share 5
Basic (cents) (422) 9
Diluted (cents) (417) 9
Headline earnings per share 5
Basic (cents) 57 25
Diluted (cents) 57 25
Normalised earnings per share 5
Basic (cents) 63 18
Diluted (cents) 62 18
Currency conversion
Rand/US dollar average 9,66 8,22
Rand/US dollar closing 10,56 8,47
* Prior period information has been reclassified, refer note 3.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2013
Restated
2013 2012
R'000 R'000
Net (loss)/profit for the year attributable to equity holders
of the company (1 344 959) 29 253
Other comprehensive loss for the year (4 981) (29 737)
Items that may be reclassified subsequently to profit or loss (22 407) (17 220)
Cash flow hedges transferred to income statement 12 359 (11 558)
Cash flow hedges created (43 480) (12 359)
Income tax effect 8 714 6 697
Items that will not be reclassified to profit or loss 17 426 (12 517)
Remeasurement of retirement benefit obligation 20 671 (4 313)
Remeasurement of retirement benefit asset 3 531 (13 072)
Income tax effect (6 776) 4 868
Total comprehensive loss for the year attributable to
equity holders of the company (1 349 940) (484)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2013
Restated
2013 2012
R'000 R'000
Balance at beginning of year 4 747 597 4 669 625
Impact of change in accounting policy - 86 664
Total comprehensive loss for the year (1 349 940) (484)
Shares issued 112 25
Redemption of B ordinary shares - (129)
Value of employee services 9 360 (1 878)
Settlement of employee share incentives (4 603) (6 017)
Tax on employee share incentives 284 (209)
Total equity 3 402 810 4 747 597
CONDENSED CONSOLIDATED BALANCE SHEET
as at 31 December 2013
Restated Restated
2013 2012 2011
R'000 R'000 R'000
ASSETS
Non-current assets
Property, plant and equipment 2 515 125 4 673 697 4 915 087
Intangible assets 38 093 63 437 47 499
Investments in associates and joint ventures - - 40 581
Retirement benefit asset 161 468 177 179 200 962
Deferred tax asset 27 815 33 632 25 957
2 742 501 4 947 945 5 230 086
Current assets
Inventories 1 806 575 1 515 612 1 306 702
Trade and other receivables 972 619 945 223 1 069 739
Derivative financial assets 13 889 46 990 60 747
Cash and cash equivalents 192 800 29 596 19 900
Income tax asset 1 488 - -
2 987 371 2 537 421 2 457 088
Total assets 5 729 872 7 485 366 7 687 174
EQUITY
Share capital and share premium 1 817 546 1 817 434 1 727 643
BEE reserve 174 686 174 686 174 686
Employee share-based payment reserve 29 720 101 099 105 750
Hedging reserve (31 305) (8 898) 8 322
Retained earnings 1 412 163 2 663 276 2 739 888
Total equity 3 402 810 4 747 597 4 756 289
LIABILITIES
Non-current liabilities
Non-current borrowings - 556 948 628 284
Deferred tax liability 405 311 962 518 978 640
Retirement benefit obligations 225 826 233 242 212 720
631 137 1 752 708 1 819 644
Current liabilities
Trade and other payables 826 086 718 974 816 251
Current borrowings 804 482 215 131 200 325
Derivative financial liabilities 65 357 49 443 94 360
Income tax liability - 1 513 305
1 695 925 985 061 1 111 241
Total liabilities 2 327 062 2 737 769 2 930 885
Total equity and liabilities 5 729 872 7 485 366 7 687 174
Net debt to equity (%) 18,0 15,6 17,0
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2013
Restated
2013 2012
R'000 R'000
Cash flows from operating activities
Operating (loss)/profit (1 805 371) 101 087
Net interest paid (64 212) (65 510)
Profit on disposal of property, plant and equipment (143) (15 419)
Non-cash items:
Depreciation, amortisation and impairment of property, plant and 2 332 580 306 486
equipment
Other non-cash items 59 751 (26 243)
Income tax payment (28 400) (20 338)
Changes in working capital (211 247) (181 671)
282 958 98 392
Cash flows from investing activities
Additions to property, plant and equipment (131 165) (82 319)
Additions to intangible assets (16 659) (15 621)
Proceeds on disposal of property, plant and equipment 158 34 926
Decrease in investment in joint ventures - 36 969
(147 666) (26 045)
Cash flows before financing activities 135 292 72 347
Cash flows from financing activities
Proceeds from borrowings 804 482 -
Borrowings repaid (772 079) (56 530)
Shares issued 112 25
Redemption of B ordinary shares - (129)
Settlement of share options (4 603) (6 017)
27 912 (62 651)
Net increase in cash and cash equivalents 163 204 9 696
Cash and cash equivalents at beginning of year 29 596 19 900
Cash and cash equivalents at end of year 192 800 29 596
NOTES
1. BASIS OF PREPARATION
The audited group financial statements for the year ended 31 December 2013, from which these
condensed consolidated financial statements are derived, have been prepared in accordance with
International Financial Reporting Standards, under the supervision of the Chief Financial Officer,
Mr D A Austin CA(SA). These condensed consolidated financial statements have been prepared in
terms of IAS 34 - Interim Financial Reporting.
Hulamin believes normalised earnings to more accurately reflect operational performance and
is arrived at by adjusting headline earnings to take into account non-operational and abnormal
gains and losses.
The accounting policies and methods of computation adopted are consistent with those used in
the preparation of the group's 2012 annual financial statements, except as described below:
- Certain amendments to IAS 1 arising from the Annual Improvements programme (2009
to 2011). The amendments to IAS 1 introduce a grouping of items in other comprehensive
income. Items that could be reclassified to profit or loss at a future point in time now have to
be presented separately from items that will never be reclassified. The amendment affected
presentation only and has had no impact on the group's financial position or performance.
- IAS 19 (Revised 2011) - Employee Benefits (IAS 19R). IAS 19R amends the accounting for
employment benefits. The most significant impact on the group has been that IAS 19R eliminates
the option to defer the recognition of actuarial gains and losses. These remeasurements are
required to be presented in other comprehensive income in full.
IAS 19R has been applied retrospectively in accordance with its transitional provisions.
Consequently, the group has restated its reported results throughout the comparative periods
presented.
Hulamin has not adopted any other new or revised accounting standards in the current period
which have had a material impact on reported results.
The effects of the application of IAS 19R on the reported results for the years presented are as
follows:
2013 2012 2011
R'000 R'000 R'000
Impact on profit/(loss) for the period
Decrease/(increase) in cost of sales 6 886 (143 465) (9 053)
(Increase)/decrease in taxation expense (1 928) 40 170 2 535
Increase/(decrease) in net profit for the period 4 958 (103 295) (6 518)
Impact on comprehensive income/(loss)
for the period
Increase/(decrease) in remeasurement of
retirement benefit asset 3 531 (13 072) 179 082
Decrease/(increase) in remeasurement of
retirement benefit obligations 20 672 (4 314) (49 662)
(Increase)/decrease in taxation relating to items of
other comprehensive income (6 777) 4 868 (36 238)
Increase/(decrease) in other comprehensive income
for the period 17 426 (12 518) 93 182
Increase/(decrease) in total comprehensive income
for the period 22 384 (115 813) 86 664
Impact on balance sheet
Increase in retirement benefit asset 3 178 - 163 347
Increase in retirement benefit obligations (12 574) (40 484) (42 980)
Increase in deferred income tax asset 2 959 4 072 4 732
(Increase)/decrease in deferred income tax liability (328) 7 264 (38 435)
Net (decrease)/increase in net assets (6 764) (29 148) 86 664
Decrease/(increase) in retained earnings 6 764 29 148 (86 664)
Impact on earnings per share
Increase/(decrease) in basic earnings per share (cents) 2 (33) (2)
Increase/(decrease) in diluted earnings
per share (cents) 2 (32) (2)
Impact on headline earnings per share
Increase/(decrease) in basic headline earnings
per share (cents) 2 (33) (2)
Increase/(decrease) in diluted headline earnings
per share (cents) 2 (32) (2)
Restated
2013 2012
R'000 R'000
2. OPERATING SEGMENT ANALYSIS
The group is organised into two major operating segments,
namely Hulamin Rolled Products and Hulamin Extrusions.
Revenue
Hulamin Rolled Products 6 783 158 5 852 892
Hulamin Extrusions 776 849 689 105
Group total 7 560 007 6 541 997
Operating (loss)/profit
Hulamin Rolled Products (1 846 657) 109 886
Hulamin Extrusions 41 286 (8 799)
Group total (1 805 371) 101 087
Total assets
Hulamin Rolled Products 5 443 306 7 234 691
Hulamin Extrusions 286 566 250 675
Group total 5 729 872 7 485 366
3. RECLASSIFICATION
In the current year, the charge for impairment of property, plant and equipment and intangible
assets has, due to its magnitude and nature, been presented as a separate line item of the
income statement (previously reflected in cost of sales). Certain other items, previously
reflected in cost of sales, have been presented in other gains and losses in the current year. The
reclassification of the line items from cost of sales results in more appropriate presentation
as those items are not directly associated with generating revenues.
In terms of IAS 8 - Accounting Policies, the comparative information has been reclassified
and the effect on the financial statements is as follows:
2012 2012
Previously Currently
reported reported
R'000 R'000
Included in cost of sales:
Impairment of property, plant and equipment and intangible assets 84 057 -
Profit on disposal of property, plant and equipment (15 419) -
Loss on sale of investment in joint venture 3 793 -
Net gain on curtailment and settlement of defined benefit plan (52 125) -
Insurance proceeds (93 155) -
Separate line item of income statement
Impairment of property, plant and equipment and intangible assets - 84 057
Included in other gains and losses:
Profit on disposal of property, plant and equipment - (15 419)
Loss on sale of investment in joint venture - 3 793
Net gain on curtailment and settlement of defined benefit plan - (52 125)
Insurance proceeds - (93 155)
Restated
2013 2012
R'000 R'000
4. TAXATION
The tax charge included within these condensed financial
statements is:
Normal 25 399 (18 623)
Deferred (549 168) 27 729
(523 769) 9 106
Normal rate of taxation (%) 28,0 28,0
Adjusted for:
Exempt income, non-allowable and other items (%) - (4,3)
Effective rate of taxation (%) 28,0 23,7
5. EARNINGS PER SHARE (EPS)
The weighted average number of shares used in the calculation of basic and diluted earnings per
share, headline earnings per share and normalised earnings per share is as follows:
Number Number
of shares of shares
2013 2012
Weighted average number of shares used for basic EPS 319 007 266 317 510 700
Share options 3 337 019 4 521 585
Weighted average number of shares used for diluted EPS 322 344 285 322 032 285
Restated
2013 2012
R'000 R'000
6. COMMITMENTS AND CONTINGENT LIABILITIES
Capital expenditure contracted for but not yet incurred 45 425 37 852
Operating lease commitments 41 113 3 246
Guarantees and contingent liabilities 300 300
AUDIT OPINION
The auditors, PricewaterhouseCoopers Inc., have issued their opinion on the group's
financial statements for the year ended 31 December 2013. The audit was conducted in
accordance with International Standards on Auditing. They have issued an unmodified
audit opinion. The auditor's report does not necessarily report on all the information
contained in this announcement. Shareholders are therefore advised that, in order to
obtain a full understanding of the nature of the auditor's engagement, they should obtain
a copy of the auditor's report together with the accompanying financial information
from the company's registered office. These condensed financial statements, although
not audited, have been derived from the group's audited financial statements and are
consistent, in all material respects, with the group's audited financial statements. The
directors take full responsibility for the preparation of this announcement, including
the condensed financial statements.
CORPORATE INFORMATION
HULAMIN LIMITED
("Hulamin" or "the group")
Registration number: 1940/013924/06
Share code: HLM
ISIN: ZAE000096210
Business and postal address
Moses Mabhida Road, Pietermaritzburg, 3201; PO Box 74, Pietermaritzburg, 3200
Contact details
Telephone: +27 33 395 6911
Facsimile: +27 33 394 6335
Website: www.hulamin.co.za
E-mail: hulamin@hulamin.co.za
Securities exchange listing
South Africa (Primary), JSE Limited
Transfer Secretaries
Computershare Investor Services (Pty) Ltd; 70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
1 Merchant Place, corner Fredman Drive and Rivonia Road, Sandton, 2196
PO Box 786273, Sandton, 2146
Directorate
Non-executive directors:
ME Mkwanazi* (Chairman), LC Cele*, VN Khumalo, TP Leeuw*
JB Magwaza, NNA Matyumza*, SP Ngwenya, PH Staude*, GHM Watson*
SMG Jennings* (appointed with effect from 1 July 2013)
*Independent non-executive director
Executive directors:
RG Jacob (Chief Executive Officer)
DA Austin (appointed with effect from 1 March 2013)
CD Hughes (retired with effect from 28 February 2013), MZ Mkhize
Company Secretary
W Fitchat
Date of SENS release: 24 February 2014
www.hulamin.co.za
Date: 24/02/2014 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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