Listed aluminium supplier and exporter Hulamin has blamed low-priced Chinese imports and rising operating costs for the woes of its aluminium extrusions business.
Hulamin Extrusions is a supplier of standard and custom aluminium extrusions for use in the engineering and architectural markets.
Hulamin has begun the restructuring of the extrusions business, a move that will result in the retrenchment of 200 employees.
The restructuring, which will cost R37.6m, includes the disposal of the property, plant and equipment of the Olifantsfontein operation.
Hulamin CEO Richard Jacob said on Friday the extrusions business struggled because the SA market had taken strain from the influx of cheaper imports from China.
“The selling prices are down quite sharply over the last two years,” Jacob said.
Speaking after the release of the company’s results for the six months ended June, he said Hulamin would close the Olifantsfontein factory in Gauteng and concentrate the extrusions operations in Pietermaritzburg.
The company has previously singled out the impact of cheaper imports from China which it said hurt rolled and extruded aluminium products. By the end of December 2018, 57% of global aluminium was produced in China.
In the six months to June, Hulamin revenue was up 1% to R5.2bn. The company’s operating profit was down 149% to a loss of R78m and net debt rose from RR297m to R596m. Total net loss was R73.2m, while headline earnings slumped 174% to a loss of R63m, largely due to losses at Hulamin Extrusions and a R53m metal price lag loss.
The price lag is the difference between the buying and selling prices of metal.
“What happens is that we buy metal today, for example. Three months later, after we have processed it and made it into a product, we sell it again. But the world price and the rand/US dollar exchange rate change in those three months. Sometimes the difference is up and sometimes it is down,” he said.
Hulamin said from the third quarter of 2018, the London Metals Exchange (LME) price of aluminium fell $300 a ton, resulting in the R53m metal price lag loss.
The LME aluminium price fell from an average $2,050 to $1,750 in the six months. LME is a commodities exchange in London that deals in metal futures.
Analyst Chris Logan of Opportune Investments said the Hulamin cost reduction exercise is long overdue. Hulamin’s employee costs have escalated from 8% of revenue when they listed in 2007 to 10.8% of revenue in 2018, Logan said.
"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,” he said.
Responding to criticism that the company had a bloated executive structure, Jacob said the company had taken steps to reduce 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.