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HULAMIN LIMITED - Trading statement for the six months ended 30 June 2019

Release Date: 12/07/2019 13:52
Code(s): HLM     PDF:  
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Trading statement for the six months ended 30 June 2019

Hulamin Limited
(Incorporated in the Republic of South Africa)
(Registration number 1940/013924/06)
Share code: HLM
ISIN: ZAE000096210
("Hulamin", “the Group” or "the Company")


In terms of paragraph 3.4(b) of the JSE Listings Requirements, Hulamin advises that
there is a reasonable degree of certainty that basic earnings per share (“EPS”) and
headline EPS (“HEPS”) for the six months ended 30 June 2019 (“Current Period”) will
be at least 200%, being at least 26 cents per share, lower than those reported in
respect of the six months ended 30 June 2018 (“Prior Corresponding Period”) of 13
cents per share.

Normalised¹ EPS is expected to be at least 25%, being at least 5 cents per share,
lower than that reported in the Prior Corresponding Period.

Factors impacting the decline in the estimated earnings for the Current Period are:

Hulamin Rolled Products operating performance:

-   A sharp decline in demand in the US common alloy market following overstocking,
    as well as a reduction in demand for heat-treated plate, has had a severe
    impact on the financial performance of the business in the first half of the
    2019 financial year (“First Half”).   It has become apparent that the imposition
    of duties on Chinese common alloy in 2018 prompted unusually strong buying in
    the US market which has resulted in extensive import overstocking, exacerbated
    by increased availability from US rolling mills. Destocking in this market,
    with attendant lower prices, is expected to continue through the second half
    of the 2019 financial year (“Second Half”).
-   Globally, automotive production has declined since the second half of 2018,
    resulting in a 30% reduction in Hulamin’s sales volumes to automotive component
    customers in the First Half.
-   In addition, the slowdown in European manufacturing, which has also seen an
    increasing influx of Chinese aluminium imports, and tough economic conditions
    in the domestic economy, constrained Hulamin from selling additional production
    into these markets.
-   In contrast, demand for can stock, which represents around 45% of the sales
    volumes of Hulamin Rolled Products, has remained robust in both local and
    international markets.
-   The rapid reduction in non-can stock demand, as well as the associated impact
    on rolling margins, has had a large negative effect on operating profit in the
    First Half, as well as on working capital, with inventory (in tons) increasing
     over 30% since the beginning of the year due to fixed metal procurement
-    The destocking in the US, weak automotive demand and the general slowdown in
     the local and global economic and manufacturing cycles is expected to continue
     to impact the business in the Second Half.

In response to these conditions, Hulamin is aggressively pursuing alternative market
opportunities and taking cost reduction actions. These actions include:

1.   Aggressively   addressing    manpower-related   costs,   including    contractors,
     consultant and employment costs;
2.   Reducing non-manpower costs, with a specific focus on energy, metal and other
     commodity-related expenses;
3.   Pursuing opportunities to increase sales and improve product mix and rolling
     margins; and
4.   Working capital reduction: a number of actions have been taken to reduce
     inventory and improve the cash cycle. Hulamin plans to normalise the level of
     working capital by the end of the third quarter of the 2019 financial year.

The above actions are expected to positively impact Hulamin’s financial performance
mainly in the 2020 financial year.

Hulamin Extrusions operating performance:

-    Hulamin Extrusions has recorded a large operating loss in the First Half,
     following the severe disruption to the business arising from the failure of a
     major component of its largest extrusion press.
-    A restructuring programme is underway, the press has now been repaired and a
     replacement component has been ordered. Hulamin remains in discussion with its
     insurers   regarding   its   business   interruption   claim   in   terms   of   its
     comprehensive insurance programme.

A further trading statement for the six months ended 30 June 2019 will be issued
once there is reasonable certainty on the range of the financial results that will
be reported.

The financial information contained in this trading statement is the responsibility
of the directors and has not been reviewed or reported on by the Company’s external

Hulamin’s results for the six months ended 30 June 2019 are expected to be released
on the Stock Exchange News Service on or about 23 August 2019.
¹ Normalised EPS is one of the measurement bases which the Hulamin Executive
Committee uses in assessing financial performance and is calculated in a consistent
manner as per the latest annual financial statements, by dividing normalised
earnings by the weighted average number of ordinary shares in issue during the
year. Normalised earnings is defined as headline earnings excluding (i) metal price
lag and (ii) material non-trading expense or income items which, due to their
irregular     occurrence,    are   adjusted    for   in   order   to   better   present   earnings
attributable to the ongoing activities of the Group.
In the Current Period, normalised earnings includes an adjustment for restructuring
costs   and   the   timing   impact   of   a   highly-effective    commodity     risk   management
programme not qualifying for hedge accounting as at 31 December 2018 due to the
limitations of IAS 39.
The presentation of normalised earnings is not an IFRS requirement and may not be
directly comparable with the same or similar measures disclosed by other companies.

12 July 2019

Questco Corporate Advisory (Pty) Ltd

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