Aluminium bet dents Hulamin’s annual profit

A bad bet on aluminium prices contributed to Hulamin’s profits more than halving during the year, ended December. Hulamin, an aluminium product manufacturer based in KwaZulu-Natal, South Africa, reported a net profit of R163.7m, down from R384.92 the previous year as the price of aluminium slumped 25 per cent over the period.

The share price dropped 5.47 per cent to close at R6.20 on Monday after the manufacturer did not declare a final dividend for the first time in two years. Hulamin said it needed to preserve cash in the uncertain climate. The company, which makes vehicle parts, beverage cans and other products out of aluminium, recorded a R161m loss from the portion of its inventory it does not hedge.

Hulamin’s policy is to hedge half the aluminium it sells on the export market to protect itself from exchange rate and commodity price volatility.

"We plan on maintaining production volumes, even though the aluminium price has fallen," CEO Richard Jacob said on Monday. He said that the group was in a fortunate position, in that there was ample opportunity to sell its aluminium products worldwide.

Hulamin exports two thirds of its products, mainly to the US, Europe and Southern Africa. The rest is used in SA.

In the year under review, Hulamin reported revenue growth of 4.4 per cent to R8.4bn, as the sharp depreciation of the rand offset lower sales volumes and metal prices. Manufacturing costs, however, soared 17 per cent, driven mainly by dollar denominated inputs.

"We have already attacked a number of costs", Mr Jacob said, mainly in the areas of energy, outside services gardening, and security services and discretionary employment costs, which referred to allowances and overtime pay. We are not planning on cutting jobs at this point. If aluminium prices decline any further, however, we will have to look at rationalising," Mr Jacob said.

On Monday, the group unveiled a new supply agreement with South32 - the mining company spun out of BHP Billiton that would add to its existing capacity. South32 would supply Hulamin with 95,000 tonnes each year of solid aluminium products for a four-year period, a similar tonnage to what the company receives from Bayside Casthouse, another former asset of the world’s largest miner.

Hulamin holds a 40% stake in Isizinda Aluminium, the broad-based black economic empowerment vehicle that acquired the aluminium cast house in the Richards Bay Industrial Development Zone. Bingelela Capital holds a 60% stake in Isizinda.

Despite the steep decline in profits over the period, Hulamin said local sales volumes had jumped 18 per cet, buoyed by higher demand from both beverage packing and automotives. The company recently amended its agreement to supply Nampak with canned material. Under the new contract, which begins in April, the manufacturer will supply Nampak with about 110,000 tonnes of rolled aluminium over a three year period, from 50,000 tonnes previously.

Mr Jacob said in Monday’s results statement that Hulamin battled with disruptions of electricity and gas supplies, which hurt its output. This was compounded by planned maintenance activity, plant upgrades and quality rework on two product lines in the first half of the past financial year.

Despite these challenges, sales of rolled products increased 13 per cent in the second half, with improvements in process control, yields, equipment reliability and capacity planning. The slowdown in China’s domestic economy saw a number of Hulamin’s China-based competitors significantly increasing their exports into Hulamin’s traditional US and European markets during the year.