Wrap Text
Unaudited Results for the half-year ended 30 June 2018
HULAMIN LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1940/013924/06
Share code: HLM
ISIN: ZAE000096210
("Hulamin" or "the Company")
UNAUDITED RESULTS FOR THE HALF-YEAR ENDED 30 JUNE 2018
HIGHLIGHTS
- Headline earnings per share down 77% to 13 cents per share
- Rand 7% stronger versus US dollar at R12.30 (2017: R13.22)
- Underlying earnings(1) in constant currency(2) up 23%
- Free cash flow(3) generated of R75 million, further strengthening the balance sheet
- Steady rolled product sales of 214 000 tons annualised after record in Q2 2018
- Further cost savings realised
Richard Jacob, Hulamin's Chief Executive Officer, commented:
"Hulamin remained on course during a challenging period, experiencing difficult trading conditions locally and
internationally. Market conditions, including both currency and the LME aluminium price proved particularly volatile
during this period under review. Total Hulamin sales volumes were down 4%, driven by lower extrusions volumes and a soft
quarter one in Hulamin Rolled Products. Uncertainty around vacillating US trade actions affected our products directly.
As a result of the duties now in place, imports into the USA have been significantly curtailed, particularly from China.
This has resulted in a supply shortage and has allowed us to raise prices in the USA. We can also report ongoing cost
savings in Hulamin Rolled Products and a very strong safety performance during the period."
ENQUIRIES
Hulamin 033 395 6911
Richard Jacob, CEO 082 806 4068
Anton Krull, CFO 071 361 0622
CapitalVoice
Johannes van Niekerk 082 921 9110
COMMENTARY
While Hulamin's external environment experienced higher levels of volatility in early 2018 than in the recent past,
Hulamin Rolled Products performed well across the board, with advances in unit costs, efficiencies and working capital
management. Furthermore, US Dollar rolling margins / conversion prices improved by 6% compared to the corresponding period.
Financial results were however severely impacted by the 7% average strengthening of the Rand against the US Dollar to
average R12.30 in the first half of 2018 in comparison to R13.22 in the corresponding period.
Volatility in Hulamin's markets were largely driven by socio-political changes in South Africa and by US government intervention in
global metal markets globally. While Hulamin is not a producer of primary aluminium, short term movements in the price of aluminium
affect profits through a flow-through effect known as the metal price lag (MPL).
Following a period of tightening global aluminium supply through 2016 and early 2017, driving the LME aluminium price higher, this
trend reversed through the first four months of 2018. The LME declined consistently through this period to a low point of around
$1950 per ton in early April, a fall of some $300 per ton. This decline was suddenly reversed on the announcement of US sanctions
targeted at Russia, which placed pressure on primary aluminium supply from Rusal. As a result, the aluminium price rose quickly and
suddenly by approximately $650 per ton within two weeks. The price has since retreated to levels of around $2100 per ton. The net
impact of this volatility was a MPL loss of R25 million for the period, compared to a R78 million gain in the comparative period.
The imposition of US tariffs on aluminium in March 2018 had a major disruptive effect on imports into the US, which
eventually turned net-positive for the pricing of Hulamin's general rolled products as supply out of China contracted,
while demand remained stable. In the majority of cases, Hulamin delivers its product to the port of entry into the USA,
and our customers are paying the newly imposed import duties. Hulamin supplies foil, heat treated plate, as well as
standard coils and flat sheet into the USA market, representing approximately 22% of Hulamin sales.
Group turnover increased by 3% to R5.3 billion (2017 H1: R5.1 billion), in spite of the stronger Rand. Manufacturing conversion costs
in Rolled Products were nominally 2% lower in aggregate and 6% lower after allowing for the effects of inflation, as a result of
ongoing "cost out" efforts. Unit costs were up 2% (2% lower in real terms).
Earnings before interest and taxation ("EBIT") at R99 million decreased by 66%. This decline was driven by a sharply stronger
Rand and metal price lag reversal of R103 million compared to the prior period. EBIT before metal price lag decreased by 41% to
R124 million. Net interest charges decreased by 5% to R37 million, on the back of consistently declining borrowings that closed
at R297 million compared to R656 million in June 2017. Attributable earnings amounted to R42 million for the six months under review.
Free cash flow(3) of R75 million was generated in the period (2017 H1: R38 million outflow).
Dividends are considered on an annual basis and no interim dividend was declared.
Changes in Directorate
During the interim period, the board of directors announced the resignation of Mr. M E Mkwanazi as Board chairman and the appointment
of Mr. TP Leeuw as the new Chairman. Mr. Mkwanazi was appointed Board chairman on the listing of Hulamin in 2007. Ms. AT Nzimande,
resigned with effect from 30 June 2017. The board thanks both Mr. Mkwanazi and Ms. Nzimande for their contributions and Mr. Mkwanazi
in particular for his outstanding leadership over the past 11 years.
Prospects
Hulamin expects the positive operational momentum from the first two quarters of 2018 to continue into the second half. Order books for
Rolled Products are firm for the balance of the year. In the United States, market conditions remain volatile, although currently at
stronger rolling margins. The Rand has weakened again since the highs of R11.50 in the first quarter that reduced profits through the
first quarter. Should these weaker levels persist, we expect improved results in the second half.
TP Leeuw RG Jacob
Chairman Chief Executive Officer
Pietermaritzburg
26 July 2018
(1) Underlying earnings represents headline earnings before metal price lag adjusted for abnormal items.
(2) Constant currency results are calculated by applying prior period exchange rates to the current period's results.
(3) Free cash flow represents cash flow before debt/equity raising or repayment, as measured by "cash flow before
financing activities" in the cash flow statement.
Condensed Consolidated Statement of Profit or Loss
Unaudited Unaudited Unaudited
Restated* Restated*
Half-year Half-year Year ended
30 June 30 June 31 December
2018 2017 2017
Notes R'000 R'000 R'000
Revenue from contracts with customers* 5 262 882 5 096 650 10 162 295
Cost of sale of goods (4 869 643) (4 532 570) (9 061 294)
Cost of providing services* (32 542) (29 962) (56 431)
Gross profit 360 697 534 118 1 044 570
Selling, marketing and distribution expenses (221 279) (220 570) (450 277)
Administrative and other expenses (89 346) (74 726) (148 152)
Net impairment reversal/(losses) on financial assets** 19 - (501)
Other gains and losses 48 423 47 611 92 326
Operating profit 98 514 286 433 537 966
Interest income 941 840 3 079
Interest expense (37 642) (39 381) (80 704)
Profit before tax 61 813 247 892 460 341
Taxation 4 (20 252) (70 010) (128 109)
Net profit for the period attributable to ordinary shareholders of the company 41 561 177 882 332 232
Earnings per share attributable to the ordinary equity holders of the company (cents) 6
Basic 13 56 104
Diluted 13 54 100
Headline earnings per share attributable to the ordinary equity holders of the company (cents)
Basic 13 56 104
Diluted 13 54 101
Dividend declared (cents per share) - - 15
Currency conversion
Rand/US dollar average 12.30 13.22 13.32
Rand/US dollar closing 13.71 13.03 12.38
* Financial information has been restated in accordance with note 10 due to the implementation of new accounting standards.
** New disclosure requirements by International Accounting Standard 1 Presentation of Financial Statements to separately disclose
on the face of the statement of profit or loss, the impairment losses on financial assets, including reversals of impairment losses.
Condensed Consolidated Statement of Comprehensive Income
Unaudited Unaudited Audited
Half-year Half-year Year ended
30 June 30 June 31 December
2018 2017 2017
R'000 R'000 R'000
Net profit for the period attributable to ordinary shareholders of the company 41 561 177 882 332 232
Other comprehensive income for the period (48 596) (9 963) 3 635
Items that may be reclassified subsequently to profit or loss: (47 125) (9 984) (3 976)
Cash flow hedges transferred to statement of profit or loss (16 014) (21 536) (21 536)
Cash flow hedges created (49 438) 7 669 16 014
Income tax effect of the above 18 327 3 883 1 546
Items that will not be reclassified to profit or loss: (1 471) 21 7 611
Remeasurement of retirement benefit obligation 933 518 8 782
Remeasurement of retirement benefit asset (2 976) (489) 1 753
Income tax effect of the above 572 (8) (2 924)
Total comprehensive income for the period attributable to ordinary shareholders of the company (7 035) 167 919 335 867
Condensed Consolidated Statement of Financial Position
Unaudited Unaudited Unaudited
Half-year Half-year Year ended
30 June 30 June 31 December
2018 2017 2017
R'000 R'000 R'000
ASSETS
Non-current assets
Property, plant and equipment 3 311 540 3 303 262 3 324 593
Intangible assets 55 111 68 171 64 144
Retirement benefit asset 129 717 118 373 127 054
Deferred tax asset 46 676 25 463 21 152
3 543 044 3 515 269 3 536 943
Current assets
Inventories 2 219 908 1 860 010 2 150 061
Trade and other receivables 1 312 996 1 650 004 1 241 963
Derivative financial assets 34 546 52 872 143 767
Cash and cash equivalents 75 843 233 544 111 472
Income tax asset 40 075 - 39 331
3 683 368 3 796 430 3 686 594
Non-current asset held for sale 6 529 - 6 529
Total assets 7 232 941 7 311 699 7 230 066
EQUITY
Stated capital and consolidation shares 1 817 580 1 817 580 1 817 580
BEE reserve 51 776 51 776 51 776
Employee share-based payment reserve 59 707 42 562 71 201
Hedging reserve (35 595) 5 522 11 530
Retained earnings 2 698 827 2 537 957 2 696 590
Total equity 4 592 295 4 455 397 4 648 677
LIABILITIES
Non-current liabilities
Non-current borrowings 81 000 135 000 108 000
Deferred tax liability 593 714 524 565 578 568
Retirement benefit obligations 276 149 268 609 266 767
950 863 928 174 953 335
Current liabilities
Trade and other payables 1 260 383 1 151 989 1 262 967
Current borrowings 292 253 754 558 320 699
Derivative financial liabilities 135 323 12 053 43 267
Income tax liability 1 824 9 528 1 121
1 689 783 1 928 128 1 628 054
Total liabilities 2 640 646 2 856 302 2 581 389
Total equity and liabilities 7 232 941 7 311 699 7 230 066
Net debt to equity (%) 6 15 7
Condensed Consolidated Statement of Changes in Equity
Stated Employee
capital and share-based
consolidation Hedging payment BEE Retained Total
shares reserve reserve reserve earnings equity
R'000 R'000 R'000 R'000 R'000 R'000
Note A B C D E
Balance at 1 January 2017 1 817 580 15 506 55 852 51 776 2 405 974 4 346 688
Net profit for the period – – – – 177 882 177 882
Other comprehensive income –
net of tax – (9 984) – – 21 (9 963)
Equity-settled share-based
payment scheme – – (13 290) – 2 581 (10 709)
Dividends paid – – – – (48 501) (48 501)
Balance at 30 June 2017 1 817 580 5 522 42 562 51 776 2 537 957 4 455 397
Net profit for the period – – – – 154 350 154 350
Other comprehensive income –
net of tax – 6 008 – – 7 590 13 598
Equity-settled share-based
payment scheme – – 28 639 – (3 301) 25 338
Dividends paid – – – – (6) (6)
Balance at 31 December 2017 1 817 580 11 530 71 201 51 776 2 696 590 4 648 677
Change in accounting policy* 10 – – – – 196 196
Balance at 1 January 2018 1 817 580 11 530 71 201 51 776 2 696 786 4 648 873
Net profit for the period – – – – 41 561 41 561
Other comprehensive income –
net of tax – (47 125) – – (1 471) (48 596)
Equity-settled share-based
payment scheme – – (11 494) – 10 453 (1 041)
Dividends paid – – – – (48 502) (48 502)
Balance at 30 June 2018 1 817 580 (35 595) 59 707 51 776 2 698 827 4 592 295
NOTES
A: Stated capital and consolidation shares
Stated capital represents the group's issued share capital held by outside shareholders. Consolidation shares represent
shares held under various BEE transactions.
B: Hedging reserve
The hedging reserve is used to record gains or losses on derivatives that are considered to be effective in terms of
IFRS. Amounts are reclassified to profit or loss when the associated hedge items affects profit or loss.
C: Employee share-based payments reserve
The share-based payments reserve is used to recognise the grant date fair value of options issued to employees. On
settlement the value of the reserve is transferred to retained earnings.
D: BEE reserve
The BEE reserve is used to recognise the grant date fair value of options issued to identified BEE participants and
Isizinda BEE participants.
E: Retained earnings
The retained earnings represents the cumulative historic profit and loss reinvested in the group. No restrictions exist
on the use of the retained income.
* Financial information has been adjusted in accordance with note 10 due to the implementation of new accounting standards.
Condensed Consolidated Cash Flow Statement
Unaudited Unaudited Audited
Half-year Half-year Year ended
30 June 30 June 31 December
2018 2017 2017
Notes R'000 R'000 R'000
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations A 227 985 223 777 783 948
Net interest paid (39 502) (52 413) (99 113)
Income tax payment (14 962) (71 868) (127 669)
173 521 99 496 557 166
Cash flows from investing activities
Additions to property, plant and equipment (98 951) (131 355) (256 427)
Additions to intangible assets - (5 901) (4 607)
(98 951) (137 256) (261 034)
Cash flows before financing activities 74 570 (37 760) 296 132
Cash flows from financing activities
Repayment of current portion of non-current borrowings (27 000) (27 000) (54 000)
Net (repayment of)/proceeds from current borrowings* (28 446) 264 114 (169 745)
Settlement of share options (9 231) (17 620) (15 153)
Dividends paid (48 502) (48 501) (48 507)
(113 179) 170 993 (287 405)
Net (decrease)/increase in cash and cash equivalents (38 609) 133 233 8 727
Cash and cash equivalents at beginning of period 111 472 75 627 75 627
Effects of exchange rate changes on cash and cash equivalents 2 980 24 684 27 118
Cash and cash equivalents at end of period 75 843 233 544 111 472
A: CASH GENERATED FROM OPERATIONS
Profit before tax 61 813 247 892 460 341
Net interest cost 36 701 38 541 77 625
Operating profit 98 514 286 433 537 966
Adjust for non-cash flow items:
Depreciation 114 804 99 129 200 598
Amortisation of intangible assets 9 033 6 888 15 776
Loss on disposal of property, plant and equipment - - 10 188
Net movement in retirement benefit asset and obligations 4 676 8 754 8 798
Value of employee services received under share schemes 11 567 (10 711) 32 991
Movements in derivatives 135 825 (5 410) (56 745)
Foreign exchange gains on cash and cash equivalents (2 980) - (27 118)
Gain on impairment reversal of investment in associate - - (6 529)
Other non-cash items 11 (588) (227)
Cash generated before working capital changes 371 450 384 495 715 698
Changes in working capital B (143 465) (160 718) 68 250
Cash generated from operations 227 985 223 777 783 948
B: CHANGES IN WORKING CAPITAL
Increase in inventories (69 847) (34 789) (324 840)
(Increase)/decrease in trade and other receivables (71 033) (136 908) 271 133
(Decrease)/increase in trade and other payables (2 585) 10 979 121 957
(143 465) (160 718) 68 250
* Movement in the current borrowings represents the net movement on the Nedbank facility which is drawn down or settled on a daily basis.
Notes to the condensed financial statements
1. Basis of preparation of half year-end report
The unaudited condensed consolidated interim financial information of the group for the half-year ended 30 June 2018 has
been prepared in accordance with IAS 34 Interim Financial Reporting, the Companies Act, 71 of 2008, the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and the Financial Pronouncements as issued by the
Financial Reporting Standards Council, under the supervision of the Chief Financial Officer, Mr AP Krull CA(SA). The
interim report does not include all the notes of the type normally included in an annual financial report. Accordingly,
this report is to be read in conjunction with the group's 2017 annual financial statements, which have been prepared in
accordance with International Financial Reporting Standards, and any public announcements made by the group during the
interim reporting period. These interim financial results have not been audited nor reviewed by the company's auditors.
The accounting policies adopted are in terms of International Financial Reporting Standards and are consistent with
those of the previous financial year and corresponding interim reporting period, except for the adoption of new and
amended standards as set out below.
(a) New and amended standards adopted by the group
A number of new or amended standards became applicable for the current reporting period and the group had to change its
accounting policies and make retrospective adjustments as a result of adopting the following standards:
- IFRS 9 Financial Instruments; and
- IFRS 15 Revenue from Contracts with Customers.
The impact of the adoption of these standards and the new accounting policies are disclosed in note 10 below. The other
standards did not have any impact on the group's accounting policies and did not require retrospective adjustments.
(b) Impact of standards issued but not yet effective
(i) IFRS 16 Leases
IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the statement of financial
position, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the
right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are
short-term and low-value leases.
The standard will affect primarily the accounting for the group's operating leases. As at the reporting date, the
group has non-cancellable operating lease commitments of R43.8 million. However, the group has not yet determined
to what extent these commitments will result in the recognition of an asset and a liability for future payments
and how this will affect the group's profit and classification of cash flows. Some of the commitments may be covered
by the exception for short-term and low-value leases.
The standard is mandatory for first interim periods within annual reporting periods beginning on or after 1 January 2019.
The group does not intend to adopt the standard before its effective date.
2. Operating Segment Analysis
The group's reportable segments, which have been determined in accordance with how the Hulamin Executive Committee,
which is the group's most senior operating decision-making body, allocates resources and evaluates performance and is
predominantly based on business segments which is representative of the internal reporting used for management purposes.
The group is organised into two major operating divisions, namely Hulamin Rolled Products and Hulamin Extrusions. The
Hulamin Rolled Products segments, which comprises the Hulamin Rolled Products and Hulamin Containers businesses,
manufactures and supplies fabricated and rolled semi-finished aluminium products. The Hulamin Extrusions segment
manufactures and supplies extruded aluminium products. Isizinda Aluminium (Pty) Ltd supplies slab to Hulamin Rolled
Products. The activities of Isizinda Aluminium are integrated into the Hulamin Rolled Products segment. Reportable
segments are based and managed in South Africa.
Unaudited Unaudited Unaudited
Half-year Half-year Year ended
30 June 30 June 31 December
2018 2017 2017
R'000 R'000 R'000
REVENUE FROM CONTRACTS WITH CUSTOMERS: EXTERNAL
Hulamin Rolled Products 4 834 283 4 663 001 9 287 442
Hulamin Extrusions 428 599 433 649 874 853
Group total revenue from contracts with customers 5 262 882 5 096 650 10 162 295
Timing of revenue recognition:
At a point in time 5 230 340 5 066 688 10 105 864
Over time 32 542 29 962 56 431
OPERATING PROFIT
Hulamin Rolled Products 112 788 272 877 522 544
Hulamin Extrusions (14 274) 13 556 15 422
Group total operating profit 98 514 286 433 537 966
Interest income 941 840 3 079
Interest expense (37 642) (39 381) (80 704)
Profit before tax 61 813 247 892 460 341
Taxation (20 252) (70 010) (128 109)
Net profit for the year 41 561 177 882 332 232
TOTAL ASSETS
Hulamin Rolled Products 6 805 535 6 926 537 6 870 355
Hulamin Extrusions 427 406 385 162 359 711
Group total 7 232 941 7 311 699 7 230 066
Sales between segments are carried out at arm's length and are eliminated on consolidation. The amounts provided to the
Hulamin Executive Committee with respect to segment revenue and segment assets are measured in a manner consistent with
that of the financial statements.
Management continues to assess the level of disaggregation to provide with regards to revenue as is required by IFRS 15
Revenue from Contracts with Customers. Full disaggregated revenue disclosure will be provided in the annual financial
statements for the 12 months ended 31 December 2018.
3. Foreign exchange and commodity price risk
The group is exposed to fluctuations in aluminium prices and exchange rates, and hedges these risks with derivative
financial instruments. The group applies hedge accounting to gains and losses arising from certain derivative financial
instruments. Hedges of forecast sales transactions are accounted for as cash flow hedges, whereas the hedges of
committed, fixed price sales are accounted for as fair value hedges.
Other gains and losses reflect the fair value adjustments arising from fair value hedges, non-hedge accounted derivative
financial instruments, non-derivative financial instruments and forward point gains.
The effective portion of cash flow hedge gains and losses are recorded in revenue from contracts with customers when the
sale occurs.
The lag between the US Dollar price at which aluminium is purchased and subsequently resold gives rise to a gain or
loss. Hulamin hedges 50% of this net exposure in terms of its hedging strategy. Included in gross profit is a pre-tax
metal price lag loss of R25.0 million (June 2017: R78 million gain, December 2017: R150 million gain) in respect of the
unhedged portion of this exposure.
4. Taxation
The taxation charge included within these condensed interim financial statements is:
Unaudited Unaudited Audited
Half-year Half-year Year ended
30 June 30 June 31 December
2018 2017 2017
R'000 R'000 R'000
Normal 14 657 59 012 66 347
Deferred 5 595 10 998 61 762
20 252 70 010 128 109
Normal rate of taxation 28.0% 28.0% 28.0%
Adjusted for:
Exempt income, non-allowable deductions and other items 4.8% 0.2% (0.2%)
Effective rate of taxation 32.8% 28.2% 27.8%
5. Related party transactions and balances
Balances and transactions between the company and its subsidiaries, which are related parties of the company, have been
eliminated on consolidation and are not disclosed in this note. Details of transactions between the group and the pension
fund are disclosed below:
Unaudited Unaudited Audited
Half-year Half-year Year ended
30 June 30 June 31 December
2018 2017 2017
R'000 R'000 R'000
Loan from pension fund 76 109 77 267 72 736
Interest cost incured 3 372 3 640 7 111
from pension fund
6. Earnings per share (EPS)
Headline and normalised earnings attributable to the ordinary equity holders of the company:
Unaudited Unaudited Audited
Half-year Half-year Year ended
30 June 30 June 31 December
2018 2017 2017
R'000 R'000 R'000
Net profit for the period 41 561 177 882 332 232
Reversal of impairment on associate - - (6 529)
Profit on disposal of property, plant and equipment - - 10 188
Tax effect of adjustments - - (2 852)
Headline earnings 41 561 177 882 333 039
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:
Number of shares Number of shares Number of shares
June 2018 June 2017 December 2017
Weighted average number of shares used for basic EPS 319 596 836 319 596 836 319 596 836
Share options 7 093 154 11 689 653 11 471 925
Weighted average number of shares used for diluted EPS 326 689 990 331 286 489 331 068 761
7. Commitments and contingent liabilities
Unaudited Unaudited Audited
Half-year Half-year Year ended
30 June 30 June 31 December
2018 2017 2017
R'000 R'000 R'000
Capital expenditure contracted for but not yet incurred 89 125 86 221 42 527
Operating lease commitments 43 883 23 685 53 573
8. Events after the reporting period
No material events have occurred subsequent to the end of the reporting period which may have an impact on the group's
reported financial position at that date.
9. Financial assets and liabilities
Financial assets and liabilities are initially measured at fair value adjusted for transaction costs. However,
transaction costs in respect of financial assets and liabilities classified as fair value through profit or loss are
expensed.
Financial assets and liabilities classified as fair value through profit or loss are measured at fair value with gains
or losses being recognised in profit or loss. Fair value, for this purpose, is market value if listed or a value arrived
at by using appropriate valuation models if unlisted.
Loans and receivables, which include trade receivables, are measured at amortised cost less impairment losses, which are
recognised in the statement of profit or loss.
The group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at
amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit
risk. For trade receivables, the group applies the simplified approach permitted by IFRS 9, which requires expected
lifetime losses to be recognised from initial recognition of the receivables.
Financial liabilities (excluding liabilities designated in a hedging relationship) that are not designated on initial
recognition as financial liabilities at fair value through profit or loss are measured at amortised cost. These consist
of trade and other payables and interest-bearing borrowings.
The fair values of derivative assets and liabilities are calculated as the difference between the contracted value and
the value to maturity at the statement of financial position date. The value to maturity of forward foreign exchange
contracts is determined using quoted forward exchange rates at the statement of financial position date. The value to
maturity of commodity futures is determined by reference to quoted prices at the statement of financial position date.
IFRS 13 requires disclosure of fair value measurements by level using the following fair value measurement hierarchy:
- Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
- Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly
(that is, as prices) or indirectly (that is, derived from prices) (level 2).
- Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
All fair values disclosed in these financial statements are recurring in nature and all derivative financial assets and
liabilities are level 2 in the valuation hierarchy (consistent with December 2017 and June 2017). Key inputs used in the
determination of the fair value relate to London Metal Exchange aluminium prices and currency exchange rates.
10. Changes in accounting policies
This note explains the impact of the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with
Customers on the group's financial statements and also discloses the new accounting policies that have been applied from
1 January 2018, where they are different to those applied in prior periods.
(a) Impact on the financial statements
As a result of the changes in the company's accounting policies, prior year financial statements had to be restated. As
explained in note 10(b) below, IFRS 9 was generally adopted without restating comparative information in accordance with
the transitional provisions. A retrospective adjustment is made in opening retained earnings on 1 Janaury 2018. The
reclassifications and the adjustments arising from the new impairment rules are therefore not reflected in the restated
statement of financial position as at 31 December 2017, but are recognised in the opening statement of financial
position on 1 January 2018.
The following tables show the adjustments recognised for each individual line item. The line items that were not
affected by the changes have not been included. As a result, the sub-totals and totals disclosed cannot be recalculated
from the numbers provided. The adjustments are explained in more detail by standard below.
31 December 2017
Statement of financial position (extract) (R'000) as originally presented IFRS 9 adjustment 1 January 2018
ASSETS
Non-current assets
Deferred tax asset 21 152 (76) 21 076
3 536 943 (76) 3 536 867
Current assets
Trade and other receivables 1 241 963 272 1 242 235
3 693 123 272 3 693 395
Total assets 7 230 066 196 7 230 262
EQUITY
Retained earnings 2 696 590 196 2 696 786
Total equity 4 648 677 196 4 648 873
LIABILITIES
Total liabilities 2 581 389 - 2 581 389
Total equity and liabilities 7 230 066 196 7 230 262
Statement of profit or loss and other comprehensive income (extract)
- six months to June 2017 (R'000) As previously presented IFRS 15 adjustment Restated June 2017
Revenue from contracts with customers 5 095 326 1 324 5 096 650
Cost of sales of goods (4 561 208) 28 638 (4 532 570)
Cost of providing services - (29 962) (29 962)
Gross profit 534 118 - 534 118
Statement of profit or loss and other comprehensive income (extract) Audited results as
- 12 months to December 2017 (R'000) previously presented IFRS 15 adjustment Restated December 2017
Revenue from contracts with customers 10 159 698 2 597 10 162 295
Cost of sales of goods (9 115 128) 53 834 (9 061 294)
Cost of providing services - (56 431) (56 431)
Gross profit 1 044 570 - 1 044 570
(b) IFRS 9 Financial Instruments - Impact of adoption
IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial
assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge
accounting.
The adoption of IFRS 9 Financial Instruments from 1 January 2018 resulted in changes in accounting policies and
adjustments to the amounts recognised in the financial statements. The new accounting policies are set out in note 10(c)
below. In accordance with the transitional provisions in IFRS 9(7.2.15) and (7.2.26), comparative figures have not been
restated.
Management has elected to defer the implementation of the hedging component of IFRS 9 Financial Instruments and will
continue to account for hedges utilising IAS 39's hedging guidance until management has finalised its revised hedging
strategy and related documentation.
The total impact on the group's retained earnings as at 1 January 2018 is as follows:
R'000
Retained earnings 31 December - IAS 39 2 696 590
Decrease in provision for trade receivables and contract assets - net of tax (i) 196
Opening retained earnings 1 January - IFRS 9 (before restatement for IFRS 15) 2 696 786
(i) Impairment of financial assets
The group has trade receivables for sales of inventory and from the provision of transport services that is subject to
IFRS 9's new expected credit loss model. The group was required to revise its impairment methodology under IFRS 9. The
impact of the change in impairment methodology on the group's retained earnings is disclosed in the table in note 10(b)
above.
While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment
loss was immaterial.
The group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss
allowance method for all trade receivables. To measure the expected credit losses, trade receivables have been grouped
based on shared credit risk characteristics and the days past due. The group also covers all trade receivables through
the Credit Guarantee Insurance Company (CGIC) and cover is subject to an excess and first loss aggregate. The CGIC cover
is taken out at the inception of the sale and is integral to the enactment of the sale. Therefore the CGIC cover is
included in the calculation of the loss allowance.
The loss allowances for trade receivables as at 31 December 2017 reconcile to the opening loss allowances on 1 January
2018 as follows:
R'000 Allowance on trade receivables
At 31 December 2017 - calculated under IAS 39 1 507
Amounts restated through opening retained earnings (272)
Opening loss allowance as at 1 January 2018 - calculated under IFRS 9 1 235
The loss allowance increased by a further R2.6 million to R3.8 million during the six months to 30 June 2018. The
increase would have been R2.2 million lower had the incurred loss model of IAS 39 been applied.
Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no
reasonable expectation of recovery include, among others, the failure of a debtor to engage in a repayment plan with the
group, and failure to make contractual payments for a period of greater than 120 days past due.
(c) IFRS 9 Financial Instruments - Accounting policies applied from 1 January 2018
Classification
From 1 Janaury 2018, the group classifies its financial assets in the following measurement categories:
- Those to be measured subsequently at fair value (derivative instruments not designated in a hedging relationship).
- Those to be measured at amortised cost (trade and other receivables, cash and cash equivalents, trade and other payables
and borrowings).
- Those instruments used for the purposes of hedging.
The classification depends on the entity's business model for managing the financial assets and the contractual terms of
the cash flows.
For assets measured at fair value, gains and losses will be recorded in profit or loss. The group reclassifies debt
investments when and only when its business model for managing assets changes.
Measurement
At initial recognition, the group measures a financial asset at its fair value plus, in the case of a financial asset
not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of
the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.
Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows
are solely payment of principal and interest.
Subsequent measurement of debt instruments depends on the group's business model for managing the asset and the cash
flow characteristics of the asset. There are two measurement categories into which the group classifies its debt
instruments:
- Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely
payments of principal and interest are measured at amortised cost. Interest income from these financial assets is
included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is
recognised directly in profit or loss and presented in other gains/(losses), together with foreign exchange gains and
losses. Impairment losses are presented as a separate line in the statement of profit or loss.
- FVPL: Assets that do not meet the criteria for amortised cost are measured at FVPL. A gain or loss on a debt investment
that is subsequently measured at FVPL is recognised in profit or loss and presented net within other gains/(losses) in
the period in which it arises.
Impairment
From 1 January 2018, the group assesses on a forward-looking basis the expected credit losses associated with its debt
instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a
significant increase in credit risk.
For trade receivables, the group applies the simplified approach permitted by IFRS 9, which requires expected lifetime
losses to be recognised from initial recognition of the receivables.
(d) IFRS 15 Revenue from Contracts with Customers - Impact of adoption
The group has adopted IFRS 15 Revenue from Contracts with Customers from 1 January 2018 which resulted in changes in
accounting policies and adjustments to the amounts recognised in the financial statements. In accordance with the
transition provisions in IFRS 15, the group has adopted the new rules retrospectively and has restated comparatives for
the 2017 financial year. The adoption of IFRS 15 Revenue from Contracts with Customers requires the group to identify
individual performance obligations. The group has determined that for certain export sales terms the group has two
performance obligations, the sale of goods and the provision of transportation services. The group does not charge a
margin on transportation services and therefore no impact on previously reported earnings before interest and tax is
noted. In summary, the following adjustments were made to the amounts recognised in the statement of profit or loss at
the date of initial application (1 January 2018):
Cut-off IFRS 15
Statement of profit or loss and other comprehensive Reclassi- adjustments for carrying
income (extract) IAS 18 fication transport still amount as at
– Six months to 30 June 2017 (R'000) reported value adjustment in progress 30 June 2017
Revenue from contracts with customers 5 095 326 - 1 324 5 096 650
Cost of sales of goods (4 561 208) 28 638 - (4 532 570)
Cost of providing services - (28 638) (1 324) (29 962)
Gross profit 534 118 - - 534 118
IFRS 15
Cut-off carrying
Statement of profit or loss and other comprehensive Reclassi- adjustments for amount as at
income (extract) IAS 18 fication transport still 31 December
– 12 months to 31 December 2017 (R'000) reported value adjustment in progress 2017
Revenue from contracts with customers 10 159 698 - 2 597 10 162 295
Cost of sales of goods (9 115 128) 53 834 - (9 061 294)
Cost of providing services - (53 834) (2 597) (56 431)
Gross profit 1 044 570 - - 1 044 570
(e) IFRS 15 Revenue from Contracts with Customers - Accounting policies
(i) Sale of goods
Revenue from contracts with customers of the group comprises revenue from the sale of fabricated and semi-fabricated
aluminium products.
Sales are recognised when control of the products has transferred to the buyer. The delivery of products and the
transfer of risks are determined by the terms of sale, and specifically by the International Chamber of Commerce Terms
of Trade, where applicable.
Products are often sold with retrospective volume discounts, rebates and early-settlement terms. Revenue from these
sales is recognised based on the price specified in the contract, net of the estimated volume discounts, rebates and
early settlement discounts. Accumulated experience is used to estimate and provide for the discounts, using the expected
value method, and revenue is only recognised to the extent that it is probable that a significant reversal will not
occur. A refund liability (included in trade and other payables) is recognised for expected volume discounts payable to
customers in relation to sales made until the end of the reporting period. No element of financing is deemed present as
the sales are not made on extended credit terms.
A receivable is recognised when control passes as this is the point in time that the consideration is unconditional
because only the passage of time is required before the payment is due.
(ii) Transportation services
Certain International Chamber of Commerce Terms of Trade used include multiple deliverables such as the sale of goods
and the provision of transportation services. For some of these specific terms control of the goods sold passes before
the transportation service has been provided. The revenue is recognised based on the actual service provided to the end
of the reporting period as a proportion of the total service to be provided, because the customer receives and uses the
benefit simultaneously. This is determined based on the actual shipping days incurred relative to the standard time to
ship to the specified destination. Where revenue is earned on multiple performance obligations the transaction price is
allocated to each performance obligation based on the stand-alone selling prices.
(iii) Time value of money
The group does not expect to have any contracts where the period between the transfer of the promised goods or services
to the customer and payment by the customer exceeds one year. As a consequence, the group does not adjust any of the
transaction prices for the time value of money.
CORPORATE INFORMATION
HULAMIN LIMITED
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 Proprietary Limited
Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196
PO Box 61051, Marshalltown, 2107
Sponsor:
Questco Proprietary Limited
First Floor, Yellowwood House, Ballywoods Office Park, 33 Ballyclare Drive, Bryanston, Johannesburg, 2055
PO Box 98956, Sloane Park, 2152
Directorate:
Non-executive directors:
TP Leeuw* (Chairman), CA Boles*, VN Khumalo, RL Larson*, N Maharajh*, NNA Matyumza*, Dr B Mehlomakulu*, SP Ngwenya,
PH Staude*, GHM Watson*, GC Zondi(#)
* Independent non-executive director
(#) Alternate non-executive director
Executive directors:
RG Jacob (Chief Executive Officer)
AP Krull (Chief Financial Officer)
MZ Mkhize
Company Secretary:
W Fitchat
Date of SENS release: 30 July 2018
Date: 30/07/2018 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
