Hulamin FY HEPS decline

Hulamin (HLM) on Monday reported diluted headline earnings per share of 25 cents for the year ended December 2011 versus 26 cents a year ago.

Rolled Products sales volumes increased 11% to 208,000 tons and turnover grew 20% to R6.96 billion, due to strong performances in both Hulamin Rolled Products and Hulamin Extrusions.

Headline earnings were up 7% to R80 million. Operating profit before the metal price lag effect, increased by 19% to R204 million, in spite of additional liquid petroleum gas (LPG) costs of R13 million and the cost of closing the Cape Town extrusion plant of R7 million. However, operating profit after the metal price lag effect declined by 22% to R170 million.

CEO Richard Jacob commented: "We are pleased that our operating performance continued to improve with increased sales volumes, better margins per ton and unit costs maintained at 2010 levels, this despite substantial increases in energy prices and disruptions in the supply of liquid petroleum gas."

Given the volatile nature of the LME aluminium price, Hulamin retained its 50% hedge of the US Dollar value of its aluminium inventory pool. This metal price lag impact of the fall of the aluminium price in the second half on the current year's income statement is a loss of R34 million on the value of Hulamin's metal inventories.

Hulamin is particularly dependant on the uninterrupted and reliable supply of LPG. The SAPREF refinery in Durban experienced several supply disruptions during the second half of 2011, resulting in five days of lost production time and the inflated cost of procuring replacement LPG supply at short notice through imports delivered intermittently.

Hulamin Rolled Products performed well despite the operational challenges. Continuing operational performance improvements from the manufacturing excellence programme resulted in increased production volumes, record yields, streamlined logistics and improved working capital efficiency.

Hulamin Extrusions also performed well in a depressed market, increasing sales by 14%. The rightsizing of manufacturing capacity is delivering reduced operating costs and efficiencies.

Domestic demand for rolled products remained flat, while extrusion volumes increased by 14%, the latter driven by the closure of a major competitor in November 2010, the company noted.

"Imports of low priced products from protected markets continue to disrupt the domestic market. It is disappointing that import duties remain at 5% on extruded products and 0% on rolled products," it said.

Demand in international markets outside Europe was stable in 2011, though still substantially off the pre-2008 highs. Demand in Europe was relatively strong at the start of 2011 but softened continuously thereafter, as the sovereign debt crisis affected confidence throughout the Eurozone and customers consequently reduced inventories. Sales of automotive products were the most affected.

Operating cost pressure is expected to continue, most notably from rising energy prices and wage inflation, with the consequent impact on profits exacerbated by the continued relative strength of the Rand, the company said.

Hulamin continues to reduce costs and improve efficiencies through the manufacturing excellence programme started in 2009 and other performance enhancement initiatives, which delivered annualised savings of R142 million in 2011.

Looking ahead, the group said European markets remain weak, the US economy appears to be strengthening, while other markets appear likely to continue the improving trend experienced in 2011. Consequently, Hulamin's order book is in good shape going into 2012, with current orders at US Dollar margins similar to or better than those in 2011.

The group would continue to focus on improving its operational performance through improved efficiencies, cost competitiveness and full capacity utilisation. The manufacturing excellence programme is expected to continue to deliver improved operational performance, it said.