Hulamin suffers R1.3bn write-down amid US protectionism threat

Aluminium group Hulamin has written down its businesses by R1.3bn as it battles an operating environment characterised by increasing protectionist trade measures in the US and a deteriorating SA economy.

The writedowns are about three times the group’s R393m market capitalisation, and the group is now also bracing for the fallout from the Covid-19 pandemic.

Focus is currently on normalising group operations after the disruptions caused by the pandemic, said CEO Richard Jacob, but about 22,000 tonnes — or 1`0% — of rolled products production is under threat.

“We would struggle to replace those volumes in other markets, which could take two or three years,” he said.

Group sales volumes decreased by 11% to 219,000 tonnes in its year to end-December, with 2019 characterised by a weakening Chinese economy, and pressure on aluminium prices.

The group’s loss widened to R1.2bn, from R773m previously, and Hulamin has opted not to pay a final dividend, having distributed about R58m in final dividends to shareholders in the prior year.

The group has also suffered disruptions at its operations in SA as a result of Covid-19, which has also affected its exports.

Net debt stood at R272m at the end of December, when the group had debt facilities in excess of R1bn, but had increased to R654m at the end of April.

“The outbreak of the Covid-19 pandemic in late 2019 and early 2020 has had a serious impact on all Hulamin’s markets,” said Jacob. It is likely to reduce sales volumes considerably, counteract cost savings the group achieved in 2019, as well as offset a weaker rand, he said.

The group is also facing the prospect of further US tariffs, and is still feeling the effect of aluminium tariffs imposed in 2018, which had led consumers to stock up. These inventory levels still remained worryingly high, said Jacob.

In March, a petition for tariffs by US producers of common sheet alloys against 19 countries, including SA, was filed, and the group expects an investigation by the US International Trade Commission to be completed by December.

The total US common alloy sheet market is about 2-million tonnes per annum of which domestic US producers have historically supplied less than 65% of the market.

Hulamin’s share of this market is less than 2%, with the group selling range of products into the US, including common alloy sheet, it said.

“Hulamin strongly contends that it has not dumped its product into the US nor caused material harm to the domestic industry and has appointed legal counsel in the US to support this contention,” the group said.

Hulamin said it is unable to determine what the effect of any duties may be, and tariff rates could vary by country. Jacob said on Friday that a bright spot for the group was the continued increase in demand for aluminium packaging — such as cans — given a push back against single-use plastic products. This part of this business is expected to increase its contribution to revenue from about 48% to 52% over the next two years.

In afternoon trade on Friday, Hulamin’s share price was down 1.63% to R1.21, having fallen 47.39% in 2020.

Update: June 26 2020
This article has been updated with additional information and comment.

gernetzkyk@businesslive.co.za