HULAMIN LIMITED - Unaudited results for the half-year ended 30 June 2014

Release Date: 28/07/2014 07:30
Code(s): HLM
 
Wrap Text
Unaudited results for the half-year ended 30 June 2014

HULAMIN LIMITED
("Hulamin" or "the group")               
Registration number: 1940/013924/06        
Share code: HLM        
ISIN: ZAE000096210


UNAUDITED RESULTS FOR THE HALF-YEAR ENDED 30 JUNE 2014

HIGHLIGHTS
- Normalised earnings increase by 42% over corresponding period benefiting from continued Rand weakness
- Headline earnings per share increase by 95% due to impact of restructuring costs on 2013
- Substantially improved safety performance
- Strong cash flow follows improved working capital management and allows substantial reduction in borrowings
- Ongoing focus on operational performance sees 5% growth in Rolled Products sales volumes
- Discussions continue with BHP Billiton around the future of the Bayside casthouse and supply of rolling slab to Hulamin
- Commercial sales of aluminium can body stock to the local market begin

David Austin (Acting CEO) commented:

"Our manufacturing performance showed some improvement with recoveries increasing off a low base.  Sales of rolled products 
are up by 9% from the second half of last year which, together with a slight improvement in conversion margins, underpinned 
our earnings growth, supported by the weaker Rand. 
This improved profitability, together with sound working capital management, produced strong cash flows that we used to pay 
down borrowings. Our efforts to improve operational performance are ongoing and should contribute to increased volumes and 
profitability in the second half."

Enquiries

Hulamin                       033 395 6911
David Austin, Acting CEO      082 718 6151
Hector Molale                 083 639 1021 
CapitalVoice                     
Johannes van Niekerk          082 921 9110


COMMENTARY

Normalised earnings for the first half of 2014 amounted to R130m, an increase of 42% over the corresponding 
period in the previous year and 18% over the R110m achieved in the second half of 2013. Hulamin reports 
normalised earnings to provide a more meaningful measure of underlying operating performance.

Headline earnings per share (HEPS) increased by 95% from 21 cents to 41 cents or, on a fully diluted basis, 
by 90% to 40 cents. Basic earnings per share growth mirrored that of HEPS. Both basic and headline earnings 
were depressed by the R25m charge in 2013 for once off restructuring costs. These costs are excluded from 
2013 normalised earnings.

Internationally, economic conditions showed some improvement but excess capacity in flat rolled products (FRP) 
ensured the industry remains fiercely competitive and Alcoa have announced the closure of two FRP plants in Australia. 
China, Brazil and the Middle East continue to bring new capacity on line and the absence of import duties make South Africa 
an attractive destination for their products. Locally, economic conditions are very challenging, exacerbated by the 
disruptions caused by ongoing strikes.

The price of aluminium, as quoted on the London Metal Exchange (LME), has moved up from USD 1 720 per ton at 
the end of 2013 to USD 1 851 at 30 June 2014 and has now exceeded USD 2 000. Hulamin is a semi-fabricator of 
aluminium products and the metal price component is mainly a flow-through although it does impact reported turnover 
and reflects, to some extent, overall demand for aluminium products.      

The average Rand/USD exchange rate for the period was 16% weaker than in the first six months of 2013 and group
 turnover increased by 14% to over R4 billion. 

Rolled Products sales volumes for the first six months increased by 5% over the corresponding period last year 
to 102 000 tons and by 9% when compared to the lower sales volumes achieved in the second half of last year. 
Conversion prices realised were slightly firmer, particularly on exports into North America and Europe. Manufacturing 
performance is beginning to show some improvement with recoveries increasing off the low base achieved in the second 
half of 2013. Safety performance improved substantially with a 53% reduction in total recordable injury frequency rate 
(TRIFR) and an 85% reduction in lost time injury frequency rate (LTIFR).

There was a significant fall in sales volumes of extruded products which are only sold into the local market. 
A decline in solar business and a marked increase in imports, placed pressure on sales and profits.  
 
Group operating profit (EBIT) reflected an increase of 71% to R210m. As a percentage of turnover, EBIT was 5.2% 
compared to 3.5% in the previous period. Hulamin hedges 50% of the metal price risk arising from holding inventory 
and all foreign currency exposures within inventory, receivables and payables. The impact of the uncovered metal price 
risk in this period was a loss of R7m, considerably lower than the R29m loss recorded in the corresponding period last year.   
 
Net finance costs fell by 10.6%, despite a general increase in interest rates, due to lower borrowings resulting 
from higher profits and improved working capital management. The effective tax rate increased by 1% to 29% and the 
assessed losses brought forward from previous years will be fully utilised by the end of the year.

Cash inflow before financing activities, but after capital expenditure of R79m, amounted to R225m compared to an 
outflow of R57m in the corresponding period of the previous year. The cash was used to repay borrowings which, on a 
net of cash basis, reduced by the R225m from R612m at December 2013 to R387m at June 2014.


ALUMINIUM RECYCLING PLANT
The construction of a new R300m recycling plant in Pietermaritzburg is proceeding according to schedule and is due 
to come on line in mid-2015. A R275m term loan is being negotiated in order to provide an appropriate source of medium term finance.

The rate at which the all-aluminium can has found acceptance in South Africa bodes well for the future supply of used beverage 
can scrap which is the primary target of the new recycling plant. The recently enacted restrictions on scrap exports were an 
important enabler ensuring commercial viability of the investment. 

Currently Hulamin supplies only can end stock in the local market. However, qualification trials of body stock material with 
can maker Nampak have now been successfully completed and sales will ramp up in the second half of the year in line with a three 
year contract.  


SUPPLY OF ALUMINIUM FROM BHP BILLITON
Hulamin sources approximately one third of its rolling slab requirements from BHP Billiton’s Bayside casthouse
with the remaining two thirds being produced by Hulamin’s casthouse in Pietermaritzburg.

On 30 June 2014, the Bayside smelter was shut down. However, the Bayside casthouse is continuing to operate 
using liquid aluminium transported from the nearby Hillside smelter. BHP Billiton has contracted to continue 
to supply Hulamin with rolling slab from Bayside until 31 December 2014. Discussions with Hulamin and other 
interested parties are taking place with a view to ensuring the supply of slab from Bayside continues thereafter.


IMPORT TARIFF PROTECTION
Hulamin exported 72% of its Rolled Products output in the six months to June 2014. Destination countries 
included Brazil and China where imports of both rolled and extruded products are subject to import duties. 
Similar products are in turn exported from Brazil and China to South Africa where no reciprocal tariff protection exists.

An application for reciprocal tariff protection is currently being prepared and will be lodged with ITAC shortly. 
The outcome of the ensuing ITAC decision will have a significant impact on the future of the aluminium industry in South Africa.


DIVIDEND
The Board has not declared an interim dividend for 2014.

PROSPECTS
Ongoing actions being taken to improve operational performance at Rolled Products are expected to increase volumes 
and profitability in the second half of the year. However, imports remain a threat to local markets.

Hulamin’s profits will continue to be impacted by the relative weakness or strength of the SA Rand against other 
currencies and, in particular, its rate of exchange with the US Dollar.


ME Mkwanazi                                               DA Austin
Chairman                                                 Acting CEO

CONDENSED CONSOLIDATED INCOME STATEMENT
for the half-year ended 30 June 2014

                                                             Unaudited     Unaudited         Audited
                                                             Half-year     Half-year      Year ended
                                                               30 June       30 June     31 December
                                                                  2014          2013            2013
                                                     Note        R'000         R'000           R'000
Revenue                                                      4 061 434     3 554 146       7 560 007
Cost of sales                                              (3 608 287)   (3 233 861)     (6 914 691)
Gross profit                                                   453 147       320 285         645 316
Selling, marketing and distribution expenses                 (211 586)     (191 968)       (390 328)
Administrative and other expenses                             (49 686)      (40 750)        (70 830)
Impairment of property, plant and equipment
  and intangible assets                                             –             –      (2 122 316)
Other gains and losses                                         18 477         35 183         132 787
Operating profit/(loss)                                       210 352        122 750     (1 805 371)
Interest income                                                 1 100            569           1 358
Interest expense                                             (28 716)       (31 453)        (64 715)
Profit/(loss) before tax                                      182 736         91 866     (1 868 728)
Taxation                                                3    (52 828)       (25 473)         523 769
Net profit/(loss) for the period                              129 908         66 393     (1 344 959)
Headline earnings
Net profit/(loss) for the period                              129 908         66 393     (1 344 959)
(Profit)/loss on disposal of property, plant
  and equipment                                                 (118)             15           (143)
Impairment of property, plant and equipment
  and intangible assets                                             –              –       2 122 316
Tax effects of adjustments                                         33            (4)       (594 209)
Headline earnings attributable to shareholders                129 823         66 404         183 005
Severance costs (net of tax)                                        –         24 860          18 438
Normalised earnings                                           129 823         91 264         201 443
Earnings per share                                      4
Basic                                      (cents)                 41             21           (422)
Diluted                                    (cents)                 40             21           (417)
Headline earnings per share
Basic                                      (cents)                 41             21              57
Diluted                                    (cents)                 40             21              57
Normalised earnings per share
Basic                                      (cents)                 41             29              63
Diluted                                    (cents)                 40             28              62
Dividend per share                         (cents)                  –              –               –
Currency conversion
Rand/US dollar average                                          10,71           9,23           9,66
Rand/US dollar closing                                          10,60           9,99          10,56

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the half-year ended 30 June 2014

                                                                Unaudited   Unaudited        Audited
                                                                Half-year   Half-year     Year ended
                                                                  30 June     30 June    31 December
                                                                     2014        2013           2013
                                                                    R'000       R'000          R'000
Net profit/(loss) for the period attributable to equity
 holders of the company                                           129 908      66 393    (1 344 959)
Other comprehensive income/(loss) for the period                   13 231    (30 174)        (4 981)
Items that may be reclassified subsequently to profit or loss      11 911    (30 174)       (22 407)
Cash flow hedges transferred to income statement                   43 480      12 359         12 359
Cash flow hedges created                                         (26 936)    (54 266)       (43 480)
Income tax effect                                                 (4 633)      11 733          8 714
Items that will not be reclassified to profit or loss               1 320           –         17 426
Remeasurement of retirement benefit obligation                          –           –         20 671
Remeasurement of retirement benefit asset                           1 834           –          3 531
Income tax effect                                                   (514)           –        (6 776)


Total comprehensive income/(loss) for the period
 attributable to equity holders of the company                    143 139      36 219    (1 349 940)

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the half-year ended 30 June 2014

                                                   Unaudited   Unaudited       Audited                    
                                                   Half-year   Half-year    Year ended   
                                                     30 June     30 June   31 December   
                                                        2014        2013          2013   
                                                       R'000       R'000         R'000   
Balance at beginning of period                     3 402 810   4 747 597     4 747 597   
Total comprehensive income/(loss) for the period     143 139      36 219   (1 349 940)   
Shares issued                                             43         105           112   
Value of employee services                             6 982       4 186         9 360   
Settlement of employee share incentives                    –           –       (4 603)   
Tax on employee share incentives                           –       (281)           284   
Total equity                                       3 552 974   4 787 826     3 402 810   


CONDENSED CONSOLIDATED BALANCE SHEET
as at 30 June 2014

                                                 Unaudited    Unaudited        Audited
                                                 Half-year    Half-year     Year ended
                                                   30 June      30 June    31 December
                                                      2014         2013           2013
                                                     R'000        R'000          R'000
ASSETS    
Non-current assets    
Property, plant and equipment                    2 530 063    4 632 402      2 515 125
Intangible assets                                   45 189       60 387         38 093
Retirement benefit asset                           153 056      160 425        161 468
Deferred tax asset                                  27 128       28 538         27 815
                                                 2 755 436    4 881 752      2 742 501
Current assets    
Inventories                                      1 651 881    1 798 252      1 806 575
Trade and other receivables                      1 050 161    1 024 293        972 619
Derivative financial assets                         20 905       34 287         13 889
Cash and cash equivalents                           39 984       11 837        192 800
Income tax asset                                     9 203          384          1 488
                                                 2 772 134    2 869 053      2 987 371
Total assets                                     5 527 570    7 750 805      5 729 872
EQUITY    
Share capital and share premium                  1 817 589    1 817 539      1 817 546
BEE reserve                                        174 686      174 686        174 686
Employee share-based payment reserve                36 702      105 285         29 720
Hedging reserve                                   (19 394)     (39 072)       (31 305)
Retained earnings                                1 543 391    2 729 388      1 412 163
Total equity                                     3 552 974    4 787 826      3 402 810
LIABILITIES    
Non-current liabilities    
Non-current borrowings                                   –      520 867              –
Deferred tax liability                             448 601      963 224        405 311
Retirement benefit obligations                     232 708      239 965        225 826
                                                   681 309    1 724 056        631 137
Current liabilities    
Trade and other payables                           849 412      801 105        826 086
Current borrowings                                 427 004      290 195        804 482
Derivative financial liabilities                    16 871      147 623         65 357
                                                 1 293 287    1 238 923      1 695 925
Total liabilities                                1 974 596    2 962 979      2 327 062
Total equity and liabilities                     5 527 570    7 750 805      5 729 872
Net debt to equity                         (%)        10,9         16,7           18,0

CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the half-year ended 30 June 2014

                                                              Unaudited   Unaudited        Audited
                                                              Half-year   Half-year     Year ended
                                                                30 June     30 June    31 December
                                                                   2014        2013           2013
                                                                  R'000       R'000          R'000
Cash flows from operating activities
Operating profit                                                210 352     122 750    (1 805 371)
Net interest paid                                              (28 608)    (31 145)       (64 212)
(Profit)/loss on disposal of property, plant and equipment        (118)          15          (143)
Non-cash items:
   Depreciation, amortisation and impairment of property,
    plant and equipment                                          58 230     110 202      2 332 580
   Other non-cash items                                        (14 849)      96 642         59 751
Income tax payment                                             (21 712)    (10 121)       (28 400)
Changes in working capital                                      100 478   (279 579)      (211 247)
                                                                303 773       8 764        282 958
Cash flows from investing activities
Additions to property, plant and equipment                     (68 543)    (60 342)      (131 165)
Additions to intangible assets                                 (10 736)     (5 269)       (16 659)
Proceeds on disposal of property, plant and equipment               125           –            158
                                                               (79 154)    (65 611)      (147 666)
Cash flows before financing activities                          224 619    (56 847)        135 292
Cash flows from financing activities
(Decrease)/increase in borrowings                             (377 478)      38 983         32 403
Shares issued                                                        43         105            112
Settlement of share options                                           –           –        (4 603)
                                                              (377 435)      39 088         27 912
Net (decrease)/increase in cash and cash equivalents          (152 816)    (17 759)        163 204
Cash and cash equivalents at beginning of period                192 800      29 596         29 596
Cash and cash equivalents at end of period                       39 984      11 837        192 800

NOTES

1.   BASIS OF PREPARATION
     The unaudited condensed consolidated interim financial information of the group for the half-year
     ended 30 June 2014 has been prepared in accordance with IAS 34 – Interim Financial Reporting and the
     Companies Act 71 of 2008, under the supervision of the Chief Financial Officer, Mr DA Austin CA(SA),
     and should be read in conjunction with the group's 2013 annual financial statements, which have been
     prepared in accordance with International Financial Reporting Standards.

     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 2013 annual financial statements.

     Hulamin has not adopted any new or revised accounting standards in the current period which have had
     a material impact on reported results.

                                                              Unaudited      Unaudited        Audited
                                                              Half-year      Half-year     Year ended
                                                                30 June        30 June    31 December
                                                                   2014           2013           2013
                                                                  R'000          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                                 3 716 884        3 172 139         6 783 158
     Hulamin Extrusions                                        344 550          382 007           776 849
     Group total                                             4 061 434        3 554 146         7 560 007
     Operating profit/(loss)     
     Hulamin Rolled Products                                   198 065          105 813       (1 846 657)
     Hulamin Extrusions                                         12 287           16 937            41 286
     Group total                                               210 352          122 750       (1 805 371)
     Total assets     
     Hulamin Rolled Products                                 5 206 966        7 457 428         5 443 306
     Hulamin Extrusions                                        320 604          293 377           286 566
     Group total                                             5 527 570        7 750 805         5 729 872
  
3.   TAXATION
     The taxation charge included within these
     condensed interim financial statements is:
     Normal                                                     13 997            8 224            25 399
     Deferred                                                   38 831           17 249         (549 168)
                                                                52 828           25 473         (523 769)

     Normal rate of taxation (%)                                  28,0             28,0              28,0
     Adjusted for:
     Exempt income, non-allowable and other items (%)              0,9            (0,3)               –
     Effective rate of taxation (%)                               28,9             27,7              28,0

4.   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 are as follows:

     Weighted average number of shares used
      for basic EPS (shares)                               319 432 181      318 776 685       319 007 266
     Share options (shares)                                  5 650 784        3 623 362         3 337 019
     Weighted average number of shares used
      for diluted EPS (shares)                             325 082 965      322 400 047       322 344 285


5.   COMMITMENTS AND CONTINGENT LIABILITIES
     Capital expenditure contracted for but not
      yet incurred                                            234 457            32 311            45 425
     Operating lease commitments                               35 012             1 761            41 113
     Guarantees and contingent liabilities                        300               300               300

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*
SMG Jennings*
VN Khumalo
TP Leeuw*
JB Magwaza
NNA Matyumza*
SP Ngwenya
PH Staude*
GHM Watson*
*Independent non-executive director

Executive directors:
RG Jacob (Chief Executive Officer)
DA Austin (Chief Financial officer and acting CEO with effect from 18 July 2014)
MZ Mkhize

Company Secretary
W Fitchat

Any forecast information included in this announcement has not been reviewed and reported on by the company's external auditors.

Date of SENS release: 28 July 2014

www.hulamin.co.za



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