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HULAMIN LIMITED - Audited results for the year ended 31 December 2015

Release Date: 22/02/2016 07:05
Code(s): HLM     PDF:  
Wrap Text
Audited results for the year ended 31 December 2015

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

AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015

-  EPS declined by 57% to 51c
-  HEPS declined by 67% to 37 cents impacted by share based payments
   (IFRS2).
-  Normalised HEPS down 50% to 55 cps with metal price lag loss negating
   currency gains.
-  Raw material supply further secured through new 4-year melting ingot
   supply agreement
-  Rolled Products sales increased 12% in the second half to 190 000 tons
   annualised
-  Rolled Products inventory levels reduced to under 50 000 tons at year-end

Richard Jacob, CEO, commented:

"Volumes and efficiencies improved in the second half of the year despite disruptions from
Liquid Petroleum Gas (LPG) supply. Global market conditions continued to deteriorate
throughout the year. The weak US Dollar London Metal aluminium prices translated to a
metal price lag loss as reported. An improved operating performance was offset by declining
rolling margins as markets traded down. Cost cutting and efficiency improvement efforts to
support margin maintenance and efficiency gains are providing relief in these challenging
market conditions which we expect to continue in the current reporting period."

ENQUIRIES
Hulamin                                033 395 6911
Richard Jacob, CEO                     082 806 4068
David Austin, CFO                      082 718 6151
CapitalVoice
Johannes van Niekerk                   082 921 9110


COMMENTARY

Sales volumes for the year to 31 December 2015 totalled 198 000 tons, 7% lower than the
corresponding period's 214 000 tons. Energy supply was inconsistent, with disruptions to
both electricity and gas supplies impacting negatively on manufacturing output. This was
compounded by planned maintenance activity, plant upgrades and quality rework on two
product lines in the first half. Despite these challenges, sales of rolled products increased by
13% in the second half with improvements in process control, yields, equipment reliability
and capacity planning.

Market conditions in South Africa and in Hulamin's major export markets were steady at the
start of 2015, resulting in selling prices (rolling margins) improving in the first half. However,
the slowdown in China's domestic economy resulted in a number of Hulamin's China-based
competitors significantly increasing their exports into Hulamin's traditional US and European
markets during the year. The resulting over-supply, coupled with a Chinese primary
aluminium price that was lower than the London Metal Exchange price, resulted in major
over-supply in many of these markets. As a consequence, rolling margins dropped
significantly but appear to have now stabilised at lower levels. The effects of this over-supply
have been seen most rapidly in Hulamin's standard product exports to the USA and Europe
and have spilled over to a number of end-user markets, albeit to a lesser extent.

Turnover increased to R8.40 billion (2014 R8.04 billion) in spite of the lower sales volume and
lower USD Aluminium price. The Rand weakened by 18% to an average of R12.76/USD,
increasing Rand revenues and partially offsetting the effects of domestic cost inflation.

Locally, the economy continued to soften during 2015. Demand however, increased from
both beverage packaging and automotive markets, which are the largest volume sectors and
thus local sales increased by 18% to 70 000 tons (2014: 59 400 tons) mostly as a result of
increased can body stock sales.

The total price of aluminium includes the London Metal Exchange price as well as
international geographic premiums, which both declined through 2015. Hulamin is exposed
to US Dollar changes in the value of its aluminium inventory, known as the metal price lag
effect and is reported in Rand. As a consequence of the decline in the US Dollar aluminium
price, the metal price lag recorded a loss of R161 million in 2015 (2014: R53 million profit), 
a year-on-year reversal of R214 million.

Manufacturing costs were 17% higher than the prior year, driven mainly by higher US Dollar
denominated costs, and the consolidation of costs from the Isizinda joint venture.
Comparable costs increased by 10%. Earnings before interest and taxation (EBIT) were 50%
lower compared to the prior year and operating profit before metal price lag was 14% lower
at R456 million.

Production volumes and efficiencies improved in the second half, in spite of two major gas
disruptions arising from a fire at a refinery that also led to a planned maintenance over-run, 
at the same refinery. Hulamin has lodged a substantial insurance claim to compensate for the volume lost
and increased costs arising from these shortages of supply. Engineering work on the
conversion to Compressed Natural Gas was successfully completed in 2015.

Following the acquisition of the Bayside casthouse by the Isizinda consortium, accounts for
the Isizinda/ Hulamin joint venture were consolidated for the first time. Although Hulamin only owns 40%
of the equity in Isizinda, it is deemed a subsidiary of Hulamin in terms of IFRS as Hulamin
is financing its development. The notable impacts of this change
include a cash outflow of R41 million, being the acquisition of working capital and an
additional R49 million relating to the purchase of plant and equipment that is reported on the
balance sheet under property, plant and equipment.

The cash outflow before financing activities amounted to R420 million (2014: R183 million
inflow), and was impacted by lower profits and increased capital expenditure (including the
recycling project) and included Hulamin's share of the Isizinda acquisition and the associated
working capital. Cash flow in the second half of 2015 was neutral in spite of ongoing capital
expenditure.

Dividend

Given the current uncertain market and economic outlook, the board has decided not to
declare a final dividend for 2015.

Prospects
Hulamin expects the momentum gained from improved manufacturing performance in the
second half of 2015 to continue in 2016, with weak market conditions expected to persist
both locally and internationally. The risk of energy disruption is now lower due to the
installation of standby generators and the commencement of the conversion from LPG to
CNG. The reported decline in international conversion prices is expected to be partially offset
by actions and initiatives currently being taken to preserve cash, optimise sales and achieve
cost efficiencies while benefiting from a weaker Rand against the US Dollar.


M E Mkwanazi                                             R G Jacob
Chairman                                                 Chief Executive Officer

Pietermaritzburg

22 February 2016

AUDITED RESULTS
for the year ended 31 December 2015

Condensed Consolidated Income Statement
                                                                                    2015            2014
                                                                      Note         R'000           R'000

Revenue                                                                        8 394 986       8 038 918
Cost of sales                                                                (7 855 025)     (7 119 966)
Gross profit                                                                     539 961         918 952
Selling, marketing and distribution expenses                                   (382 204)       (403 104)
Administrative and other expenses                                              (111 050)        (88 781)
Impairment reversal                                                                    -          43 405
Other gains and losses                                                           248 773         114 661
Operating profit                                                                 295 480         585 133
Interest income                                                                    2 085           2 453
Interest expense                                                                (68 577)        (48 160)
Profit before tax                                                                228 988         539 426
Taxation                                                                 3      (65 274)       (154 498)
Net profit for the year attributable to equity holders of the company            163 714         384 928

Headline earnings
Net profit for the year attributable to equity holders of the company            163 714         384 928
Loss on disposal of property, plant and equipment                                 10 538           6 498
Impairment reversal                                                                    -        (43 405)
Bargain purchase gain                                                           (51 868)               -
Tax effects                                                                      (3 123)          10 334
Headline earnings attributable to equity holders of the company                  119 261         358 355

Normalised earnings
Headline earnings attributable to equity holders of the company                  119 261         358 355
Share-based payment cost on 2015 BEE transaction                                  20 000               -
Transaction costs                                                                  5 455           7 450
Post-retirement medical aid past service costs adjustments                         4 857        (11 272)
Equity-settled share-based payment: Isizinda                                      27 224               -
Normalised earnings                                                              176 797         354 533

Earnings per share (cents)                                               4
Basic                                                                                 51             120
Diluted                                                                               50             118

Headline earnings per share (cents)                                      4
Basic                                                                                 37             112
Diluted                                                                               36             110

Normalised earnings per share (cents)                                    4
Basic                                                                                 55             111
Diluted                                                                               54             109

Dividends per share (cents)
Interim                                                                                8               -
Final                                                                                  -              25

Currency conversion
Rand/US dollar average                                                             12.76           10.85
Rand/US dollar closing                                                             15.56           11.58

Condensed Consolidated Statement of Comprehensive Income
for the year ended 31 December 2015
                                                                                    2015            2014
                                                                                   R'000           R'000
Net profit for the year attributable to equity holders of the
company                                                                          163 714         384 928

Other comprehensive (loss)/income for the year                                  (78 063)          28 037
Items that may be reclassified subsequently to profit or loss                   (98 736)          37 919
Cash flow hedges transferred to income statement                                 (9 186)          43 480
Cash flow hedges created                                                       (127 947)           9 186
Income tax effect                                                                 38 397        (14 747)

Items that will not be reclassified to profit or loss                             20 673         (9 882)
Remeasurement of retirement benefit obligation                                    25 134        (12 991)
Remeasurement of retirement benefit asset                                          3 578           (733)
Income tax effect                                                                (8 039)           3 842

Total comprehensive income for the year attributable to
equity holders of the company                                                     85 651         412 965

Condensed Consolidated Statement of Changes in Equity
for the year ended 31 December 2015
                                                                                    2015            2014
                                                                                   R'000           R'000

Balance at beginning of year                                                   3 833 817       3 402 810
Total comprehensive income for the year                                           85 651         412 965
Ordinary shares issued                                                                 -              34
Value of employee services                                                        16 777          15 156
Settlement of employee share incentives                                         (24 397)         (2 796)
Tax on employee share incentives                                                 (3 096)           7 044
Share-based payment costs on A Ordinary shares redeemed                                -           3 624
Share-based payment costs on 2015 BEE transaction                                 20 000               -
Equity-settled share-based payment: Isizinda                                      31 224               -
De-consolidation of structured entity                                                  -         (5 020)
Dividends paid                                                                 (105 459)               -

Total equity                                                                   3 854 517       3 833 817

Condensed Consolidated Balance Sheet
as at 31 December 2015
                                                                                    2015            2014
                                                                                   R'000           R'000
ASSETS
Non-current assets
Property, plant and equipment                                                  3 166 800       2 697 148
Intangible assets                                                                 66 917          59 777
Retirement benefit asset                                                         142 292         138 854
Deferred tax asset                                                                20 260          25 450
                                                                               3 396 269       2 921 229
Current assets
Inventories                                                                    1 784 805       1 958 934
Trade and other receivables                                                    1 384 390       1 037 909
Derivative financial assets                                                        8 457          44 175
Cash and cash equivalents                                                         70 158         249 106
Income tax asset                                                                  12 461           2 808
Asset held for sale                                                                    -          55 217
                                                                               3 260 271       3 348 149

Total assets                                                                   6 656 540       6 269 378

EQUITY
Share capital and share premium                                                1 817 580       1 817 580
BEE reserve                                                                       51 224               -
Employee share-based payment reserve                                              45 707          41 411
Hedging reserve                                                                 (92 122)           6 614
Retained earnings                                                              2 032 128       1 968 212
Total equity                                                                   3 854 517       3 833 817

LIABILITIES
Non-current liabilities
Non-current borrowings                                                          216 000                -
Deferred tax liability                                                          486 765          477 702
Retirement benefit obligations                                                  227 997          236 369
                                                                                930 762          714 071
Current liabilities
Trade and other payables                                                        806 210          964 827
Current borrowings                                                              829 401          686 144
Derivative financial liabilities                                                235 650           70 519
                                                                              1 871 261        1 721 490

Total liabilities                                                             2 802 023        2 435 561

Total equity and liabilities                                                  6 656 540        6 269 378

Net debt to equity                                                      %          25.3             11.4

Condensed Consolidated Cash Flow Statement
for the year ended 31 December 2015
                                                                                   2015             2014
                                                                                  R'000            R'000
Cash flows from operating activities
Operating profit                                                                295 480          585 133
Net interest paid                                                              (86 943)         (50 626)
Loss on disposal of property, plant and equipment                                10 538            6 498
Non-cash items:
 Depreciation, amortisation and impairment of property,
  plant and equipment and intangible assets                                     148 661           74 855
 Other non-cash items                                                            85 545           65 754
Income tax payment                                                             (49 735)         (84 714)
Changes in working capital                                                    (279 771)         (78 854)

                                                                                123 775          518 046
Cash flows from investing activities
Additions to property, plant and equipment                                    (472 358)        (305 572)
Acquisition of business                                                       (100 170)                -
Additions to intangible assets                                                 (15 480)         (29 992)
Proceeds on disposal of property, plant and equipment                            44 679              206

                                                                              (543 329)        (335 358)

Cash flows before financing activities                                        (419 554)          182 688

Cash flows from financing activities
Proceeds from non-current borrowings                                            270 000                -
Proceeds from/(repayment of) current borrowings                                  89 257        (118 338)
Redemption of A ordinary shares                                                       -          (3 624)
Ordinary shares issued                                                                -               34
Settlement of employee share incentives                                        (24 397)          (2 796)
Proceeds to settle equity option                                                  4 000                -
Dividends paid                                                                (105 459)                -
                                                                                233 401        (124 724)

Net (decrease)/increase in cash and cash equivalents                          (186 153)           57 964

Cash and cash equivalents at beginning of year                                  249 106          192 800
De-consolidation of structured entity                                                 -          (1 658)

Effects of exchange rate changes on cash and cash equivalents                     7 205                -

Cash and cash equivalents at end of year                                         70 158          249 106

Notes

1. Basis of preparation
The audited group financial statements for the year ended 31 December 2015, from which these
condensed consolidated financial statements are derived, have been prepared in accordance with
International Financial Reporting Standards, the Companies Act, 71 of 2008 and the JSE listing
requirements, 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.

The accounting policies and methods of computation adopted are consistent with those used in the
preparation of the group’s 2014 financial statements, except for the adoption of the following
amended standard, as described below:

Amendment to IAS 19, 'Employee benefits' aimed at simplifying the accounting for contributions
that are independent of the number of years of employee service, for example, employee
contributions that are calculated according to a fixed percentage of salary.

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.

                                                                                   2015             2014
                                                                                  R'000            R'000
2. Operating Segment Analysis

The group is organised into two major operating segments, namely Hulamin Rolled Products and

REVENUE
Hulamin Rolled Products                                                       7 554 622        7 288 391
Hulamin Extrusions                                                              840 364          750 527
Group total                                                                   8 394 986        8 038 918

OPERATING PROFIT
Hulamin Rolled Products                                                         282 908          537 592
Hulamin Extrusions                                                               12 572           47 541
Group total                                                                     295 480          585 133

TOTAL ASSETS
Hulamin Rolled Products                                                       6 335 986        5 897 340
Hulamin Extrusions                                                              320 554          372 038
Group total                                                                   6 656 540        6 269 378

3. Taxation
The tax charge included within these condensed consolidated financial statements is:

Normal                                                                           40 082           83 603
Deferred                                                                         25 192           70 895
                                                                                 65 274          154 498

Normal rate of taxation                                                           28.0%            28.0%
Adjusted for:
Exempt income, non-allowable and other items                                       0.5%             0.6%
Effective rate of taxation                                                        28.5%            28.6%

4. Earnings per share
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 of        Number of
                                                                                 shares           shares
                                                                                   2015             2014

Weighted average number of shares used for basic EPS                        319 596 836      319 515 636
Share options                                                                 7 666 904        6 860 351
Weighted average number of shares used for diluted EPS                      327 263 740      326 375 987

5. Business combination
On 1 July 2015, Isizinda Aluminium (Pty) Ltd acquired the Bayside casthouse business from Hillside
Aluminium (Pty) Ltd, part of the South32 Limited group of companies. This strategic transaction
secures Hulamin's local supply of rolling slab for the next five years and beyond, and the Bayside
casthouse in Richards Bay will be developed into a broad range aluminium hub in order to re-introduce
the local supply of extrusion billet and wire rod to stimulate and support industrialisation in Richards
Bay, the growth of the domestic aluminium industry and economic growth throughout Southern Africa.

                                                                                  R'000            R'000
6. Commitments and contingent liabilities
Capital expenditure contracted for but not yet incurred                         202 632          226 759

Operating lease commitments                                                      41 034           39 896

AUDIT OPINION
The auditors, PricewaterhouseCoopers Inc., have issued their opinion on the group's financial
statements for the year ended 31 December 2015. 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 consolidated 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 consolidated
financial statements.

CORPORATE INFORMATION
HULAMIN LIMITED
("Hulamin", "the company" 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
#Resigned on 30 September 2015

Executive directors:
RG Jacob (Chief Executive Officer)
DA Austin (Chief Financial Officer)
MZ Mkhize

Company Secretary
W Fitchat

Date of SENS release: 22 February 2016


Date: 22/02/2016 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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