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Chairman’s Statement at the 2020 Annual General Meeting of Shareholders
HULAMIN LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1940/013924/06
JSE Code: HLM
ISIN: ZAE000096210
(“Hulamin” or “the Company”)
CHAIRMAN’S STATEMENT AT THE 2020 ANNUAL GENERAL MEETING OF SHAREHOLDERS
Since early 2019, Hulamin has faced a number of headwinds both locally and
internationally. In the local market, the weak economy, low investment activity,
power outages and recent lockdown regulations have conspired to measurably
limit sales. Local beverage can stock sales have been severely reduced.
Internationally, the distribution relationship between Hulamin and Ta Chen
International / Empire Resources (TCI) started to breakdown during mid-2019,
following major overstocking in the USA distributor market, the concerns raised in
the market following the imposition by the USA of stringent import controls, the
investment by TCI in its own rolling operation in the USA, the global slowdown in
automotive markets and volatile currency and commodity markets. The factors
contributed to severe disruption to the consistent distribution of Hulamin products
into our USA customer base from mid-2019. Only in recent months have sales
begun to recover.
Hulamin Rolled Products sells approximately 20% of its volume into the United
States. The overstocking and disruption to distribution during the middle period of
2019 created major problems for Hulamin, both in lost sales as well as a build-up
of working capital. Furthermore, the relationship breakdown with TCI aggravated
an already unhealthy situation. Working through the excess inventory problem in
the USA and maintaining our own salesforce on the ground, we realised that our
customers demand for Hulamin products remained healthy even though there
was excess stock in the distribution pipeline. From mid-2019, and in response
blockages in the established channels, we commenced direct sales to customers
throughout the USA. Sales of Heat-Treated Plate recovered quicker than other
products and demand reached normal / full capacity levels going into 2020. Other
products are normalising more slowly.
In order to minimize fixed, on-the-ground overhead costs and reduce investment
in working capital, while maintaining control over the customer interface, Hulamin
investigated the opportunity to partner with service providers who can offer these
services. Discussions with one such partner have reached an advanced stage.
Closing 2019 with a strong balance sheet and debt levels well under control has
provided Hulamin with the liquidity required to face these challenging times within
the constraints of available resources. Inventory and working capital levels are
well controlled.
In addition to the overstocked market, and the breakdown in relations with our
distribution partner, a further risk to common alloy, a standard product sold in
the United States, presented in March. The US Aluminum Association, on behalf of
domestic aluminium rolled products producers, launched an anti-dumping petition
against 19 importing countries, representing 36 aluminium rolling mills including
South Africa. Common alloy sheet sales (standard dimension flat sheet and coil
products affected by this case) represent approx. 10% of Rolled Products sales.
Hulamin has appointed experienced, local counsel in the USA to assist in
defending the case. The US Department of Commerce is expected to publish its
findings during October 2020.
At the end of March, and following the rapid spread of the Covid-19 virus, the SA
government announced the imposition of stringent lockdown regulations. In
addition to their intended impact of reducing the spread of this pandemic, the
various restrictions have had the effect of constraining local economic activity.
Local sales of all Hulamin products have been negatively affected. Although
automotive production has slowly started to recover, packaging material,
especially beverage can products have been negatively impacted by the ban on
alcohol sales. Current forecasts indicate that Hulamin’s local beverage can stock
sales will decline by at least 25% in 2020.
In contrast, aluminium beverage can stock is in short supply in international
markets. Hulamin has sufficient orders to maintain 100% of its capacity for end
and tab stock. Hulamin also has demand for Heat Treated Plate to operate at full
capacity.
The negative impact of the spread of the Covid-19 coronavirus has increased
measurably in recent weeks. Since our first case was diagnosed in April 2020, we
have implemented stringent health, cleansing and social distancing protocols at
Hulamin. These include routine testing for all personnel required on site and strict
“stay-away” work regulations for those employees who are able to work remotely.
To date, over 400 tests have come back positive, affecting many more employees
through our quarantining and isolation rules. Tragically, we also recorded our first
loss of life early in July when an employee succumbed to symptoms of the
disease. Maintaining safe operations is proving to be extremely challenging in the
context of surging numbers of positive cases. Manufacturing has been disrupted
on an intermittent basis.
At this time I would like to thank my colleague, Ms Nomgando Matymza for her
committed and loyal service to Hulamin and who has tendered her resignation
with effect from the end of July 2020.
Anton Krull originally joined Hulamin in 2008 and resigned late in 2015. He
rejoined Hulamin in 2016 as CFO. Earlier this week Anton tendered his resignation
and intention to leave the organisation following his notice period. On behalf of
my board colleagues, I would like to thank Anton for his dedicated and committed
service.
The prevailing Rand-US Dollar exchange rate weakened earlier in the current
year, following the Fitch downgrade, and will impact positively on Hulamin. US
Dollar and LME Aluminium price volatility in turn has been impacted by
uncertainty in unfolding trade tensions between the USA and China and global
political uncertainty. This may also affect market conditions for our products in
future; efforts are being directed to achieve a positive outcome for Hulamin.
Any forward-looking information contained in this announcement has not been
reviewed or reported on by the Company’s external auditors.
Pietermaritzburg
30 July 2020
Sponsor
Questco Corporate Advisory Proprietary Limited
Date: 30-07-2020 05:23:00
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