Aluminium group Hulamin says it is continuing to focus on cost cutting after Covid-19 derailed what should have been a year of recovery for a company that shed about 15% of its workforce in 2019.
The return of volume remained key to a business with extremely high fixed costs, CEO Richard Jacob said in a results presentation on Wednesday. While Hulamin’s order book had filled up by the end of 2020, it has opted not to give forecasts.
While all operations had returned to profitability in the fourth quarter of last year, a third wave of Covid-19 remained a threat in SA, especially as it could be accompanied by yet another alcohol sales ban, Hulamin said on Wednesday.
Group sales volumes slumped 24% to 166,000 tonnes in Hulamin’s year to end-December, and revenue fell 20% to R8.55bn, amid severe supply chain disruptions as Covid-19 closed ports and lockdown restrictions temporarily shut parts of its business.
The rand-price of aluminium jumped 18% in the year, while the group also took a R114m hit due to excess hedges as sales volumes declined and the rand weakened.
Beverage can production makes up about half of the group’s business and will be a key focus in 2021 amid healthy demand, said Jacob. Hulamin generates just over a third of its revenue in SA.
Demand from other sectors was still weak as SA’s economy struggled to recover, said Jacob.
The group has been pushing a direct-to-the-customer strategy, and had doubled its sales force in the US, he said.
Hulamin was also looking to bring down costs, particularly in terms of energy. Eskom has been granted permission to increase tariffs by just over 15% from the beginning of April, and while this was “concerning”, about 60% of Hulamin’s energy came from gas, said Jacob.
The group had been investing in energy efficiency, including through insulation, and technology to recapture heat in furnaces, he said.
Hulamin cut its capital expenditure by 55% to R140m to end-December, but net debt more than tripled to R819m, which compares unfavourably with the group’s R775m market capitalisation.
The group’s net debt-to-equity ratio, a measure of the ability of a company to repay debt, rose to 35% from 11% in the previous year, though it remains below its covenant level of 50%.
Hulamin remained confident it had sufficient facilities and head room, said acting CFO Laren Farquharson, though the group was engaging with lenders to possibly restructure the debt.
Hulamin, however, narrowed its headline loss by 12% to R211m, having taken a hefty hit from restructuring costs in the prior period.
In the previous year, Hulamin had moved to cut jobs, citing soft demand in the SA market, where it is a supplier to the architectural and engineering industries.
The business turnaround plan for the Hulamin Rolled products and Hulamin Extrusions divisions resulted in the loss of 250 jobs, and restructuring costs of R114m. Hulamin employs about 1,750 staff.
In the prior year, the group also wrote down its business units by R1.3bn, but said it had achieved sustainable annual cost reductions in excess of R200m.
Hulamin’s share closed 2.85% lower at R2.39 on Wednesday, having surged 171% over the past 12 months but still halved over the past three years.
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