Hulamin banks on investments to bounce back

Aluminium group Hulamin says it intends to invest R500m over the next two years in developing its wide can-body capacity, to capitalise on the growing can market in SA and return it to a growth trajectory.

The JSE-listed fabricator, which has shifted from being a lead exporter to a main supplier to the local market, said its refreshed focus on the local can market coupled with its investments into the wide-width coil and used cans, should see it hold up to 85% of the market share by 2028 — up from the today’s 65%.

In his maiden interim presentation to investors on Monday, CEO Mark Gounder said the first six months of the financial year were challenging, marked by heightened competition and operational difficulties that led to decreased volumes.

Revenue was down 6% to R6.9bn for the half-year to the end of June while operating profit fell 8% to R434m.

Earnings before interest, tax, depreciation and amortisation (ebitda) was 19% lower at R343m, affected by softer global demand with export pricing pressure continuing into the period. Headline earnings per share (HEPS), a common profit measure in SA that excludes one-off items, fell to 79c from 95c in the previous matching period.

After the release of the results Hulamin’s share price dropped as much as 13% before recovering later to close 5.24% lower at R3.98, giving it a market cap of R1.29bn. It reached a record high of R30 in 2007, when electricity prices were a fraction of what they are now. Aluminium production is fairly electricity intensive.

However, Gounder was confident of a recovery in the works, citing that export demand had begun to recover while the company’s simplified model coupled with its capital investments, up 114% to R302m in the interim period, would start to produce results by 2027. While R99m of this was allocated to strategic projects.

“Demand for Hulamin products started to improve in the first half of 2024, especially in the second quarter after a period of abnormally weak demand in our export markets since the second half of 2023, while our local demand remained robust,” he said.

Pietermaritzburg-based Hulamin, the sole manufacturing or rolling mill in Africa, is investing the extra cash to position the company to take advantage of the wide-body expanding market. It presently only produces narrow can bodies.

“In the wide product, we’re looking to spend probably about R500m over two years,” Gounder told Business Day, adding that the project would happen in three stages with the first phase already completed.

“Customers are crying out for the wide can body coil and we’re trying to cater to their needs. We’re looking to fund the entire capital investment from our own free cash flows,” he said.

Two years ago, Hulamin introduced a simplification strategy to its business model which saw it ditch unprofitable hot-rolled products in favour of lucrative cold-rolled products for cans that are in high demand.

The 89-year-old company produces semi-fabricated goods, such as rolled and extruded aluminium.

Gounder said Hulamin was now able to produce 1,720mm coils, but if it added 50mm on either side this would allow it to make more cans by using the same coil, thereby increasing efficiency and lowering their production costs.

“The energy drink market has exploded in SA over the past few years. If you look at if you look at what we’re targeting there, particularly our growth in the can market or can body, it is going to allow us to consume a lot more used beverage cans.”

He said retailers favoured can packaging over glass because it was easier to stack, less likely to break, and more mobile than bottles.

Part of that strategy entailed focusing on prioritising supplying the local market, a segment that is growing in SA at a compound average growth rate of about 5%.

Hulamin has gone from supplying about 40% of the market to 65%. “The idea is to get to 85%, at the end of our capital plan as such. By 2028, basically,” he said.

To get its used-can capacity up to 28,000 tonnes, Hulamin said it was looking at investing about R200m in the 2026 financial year.

“With aluminium, any capital investment you do spans years and the return comes through probably after a lag of maybe one to two years,” the CEO said. “Where we’re positioning our business right now and implementation of our market-driven capital spend, we’ll definitely be starting to reap the rewards in 2027.” 

Hulamin reported that its increased debt, at R1.3bn, was due to higher interest rates and increased working capital requirements in the first half, with it reporting a debt-to-equity ratio of 38.3%.

The manufacturer said a continued cost focus, working capital and efficiency improvement plus net debt reduction was a priority.

gumedemi@businesslive.co.za