Low-priced Chinese imports hurt Hulamin’s aluminium extrusion business: Richard Jacob

South Africa-based aluminium supplier and exporter Hulamin has reportedly held low-priced Chinese imports and rising operating costs responsible for its distressed aluminium extrusion business.

Richard Jacob, CEO of Hulamin, pointed out on Friday that cheaper aluminium imports from China strained the South African market and therefore, took a toll on its business

“The selling prices are down quite sharply over the last two years,” Jacob said.

Richard Jacob also said, after the release of the company’s H1 2019 financial results, that Hulamin would close the Olifantsfontein factory in Gauteng and concentrate the extrusions operations in Pietermaritzburg.

In the first six months ended on June 30, 2019, Hulamin’s revenue decreased by 1 per cent to R5.25 billion, while the operating profit was down by 149 per cent to a loss of R77.7 million. Net debt, as a result, rose to R596 million. Total net loss was at R73.2 million and headline earnings slumped 174 per cent to a loss of R63 million, largely due to losses at Hulamin Extrusions and a R53 million metal price lag loss. The price lag is the difference between the buying and selling prices of metal.

Hulamin said the aluminium price on the London Metals Exchange fell an average $2,050 to $1,750 in the last six months and that affected the price lag of Hulamin’s aluminium extrusions.

Analyst Chris Logan of Opportune Investments, however, noted that the increased operational cost of Hulamin was responsible for its unsatisfactory trading conditions. Hulamin’s employee costs escalated from 8 per cent of revenue in 2007 to 10.8 per cent in 2018.

"If Hulamin had just kept its employee costs constant at 8% of revenue this would have meant an extra R323m of operating profit, which post a tax charge equates to some 73c per share of additional earnings, a huge improvement when you consider Hulamin earned 91c per share in 2018,” Logan explained.

In response to this, Jacob said the company already took steps to reduce the overhead costs.

“We have addressed [bloated executive]. We have reduced the executive by approximately 60% [from 13 to six] in the last six months. About 25% of those executives have left us and the others have taken lower-level jobs,” Jacobs said.