Despite the global impact of the war in the Ukraine on shipping rates, the impact of commodity prices and the effects of general inflation on JSE-listed aluminium supplier Hulamin’s production costs for the six months ended June 30, the company revealed during its interim results presentation on August 29 that it had been able to manage these factors by optimising its product sales mix and negotiating pricing to mitigate cost increases and maintain margins. 

Although the year started off with solid demand, firmer prices than in recent years and a weaker rand:dollar exchange rate than before, the company reported a 45% year-on-year increase in turnover to R7.96-billion, and a 144% increase in profit to R223.17-million for the interim period. 

Outgoing CEO Richard Jacob said this was achieved despite constraints experienced at the Durban port, the impact on the automotive market owing to the floods in KwaZulu-Natal in April and the challenges posed on working capital by the record high London Metals Exchange (LME) aluminium prices experienced in the first half of the year.  

“The focus in the first half has been on capitalising on advantageous market conditions with a growing order book, improving dollar pricing, maintaining volume momentum, continued cost optimisation and managing cash flows. Stronger demand enabled an expansion of margins contributing to Hulamin’s improved profitability,” he said. 

Despite the bulk of the company’s planned maintenance programme having been undertaken during the period, group sales volumes increased marginally to 103 300 t, up from 102 400 t in the first half of 2021.  

The year started with the LME aluminium price at $2 815/t, reaching a high of $3 850/t and closing at $2 396/t on June 30. The higher LME aluminium price in the first half of the year placed pressure on working capital, which negatively impacted on free cash flows, Jacob said.  

“The record LME aluminium price of $3 850/t resulted in an additional R530-million cash outflow of net working capital in the peak periods, an increase of 1 252%, in relation to an outflow of R46-million in the comparable period,” he said, adding that this had to be navigated by management together with the support of Hulamin’s lenders, suppliers and customers.  

The benefit of the low closing LME aluminium price of $2 396/t will be experienced in the second half through improved cash flows and reduced debt levels, Jacob explained.  

The impact of the high LME aluminium price levels achieved during the first five months of the year, however, was tempered by the sharp decline from May onwards, resulting in a lower metal price lag profit of R49-million recorded for the first half. 

Moreover, the Hulamin Extrusions unit’s turnover increased by 13% year-on-year, from R371-million to R422-million. 

Jacob attributed this to the company's improvement of margins through sales mix improvements and negotiated price increases. However, several growth projects were negatively impacted during the period by the flooding in KwaZulu-Natal, which compounded already subdued automotive demand as a result of the global microprocessor shortage and caused delays in imported billet supply. 

The Hulamin Rolled Products unit’s turnover increased by 47%, which Jacob attributed to the ongoing benefit gleaned from firm local and international demand for can stock as aluminium packaging continued to displace glass and plastic. Annualised sales volumes in Hulamin Rolled Products increased to 196 000 t, up from 192 000 t in the first half of 2021. 

He said contracted prices for can stock continued firming as can makers globally seek to secure raw material supply, resulting in higher sales volumes and margins than last year.  

Higher local can body stock volumes also supported increased scrap consumption, while cost management interventions dampened the impacts of commodity and energy inflation, Jacob explained.  

He said volume growth in the first half of the year was constrained and that the cash cycle was negatively impacted on by flood-related disruptions at the Durban port, a furnace failure at the Richards Bay Casthouse and the execution of the bulk of the planned maintenance programme. 

Jacob said Hulamin Rolled Products’ manufacturing capacity would increase in the second half of the year, with the bulk of planned maintenance shutdowns completed during the first half.  

With a full order book, he believed this would contribute to sales growth, increased scrap use and improved cash flow as the inventory build that took place in the first half translated into revenue in the second half. 

“Can stock demand remains strong as consumers continue the move from plastics to aluminium products. We anticipate the automotive market to remain soft in the second half due to the current global microprocessor shortage, impacting automotive build rates and by extension our volumes in Hulamin Extrusions,” he said. 

Meanwhile, interim Hulamin CEO Geoff Watson said he was working with the Hulamin executive committee to simplify the business and to improve volumes amid the high fixed-cost base.  

“There will be continued focus on maintaining margins and negotiating price increases to absorb any commodity price increases,” he said. 

Jacob will retire on September 30, having served the company for 32 years, and as CEO for the past 12 years. Watson will take over on October 1.