1
AUDITED RESULTS
FOR THE YEAR ENDED
31 DECEMBER 2013
2
AGENDA
1 Key points
2 Financial report
3
Operational and strategic review
Progress on strategic objectives
4 Outlook
3
KEY POINTS YEAR 2013 FINANCIAL YEAR
Further progress on turnaround for growth and improved profitability
• Revised strat...
4
STRATEGIC OBJECTIVES REVISED
1. An excellent aluminium semi-fabricator
• 250 000 tons ROLLED PRODUCTS, 70% exports • 220...
5
IMPAIRMENT OF NET ASSET VALUE
Erosion of cost competitiveness
• Particularly versus China
Lower margins in international...
6
FINANCIAL REVIEW
7
CONDENSED INCOME STATEMENT
2013
Rm
2012
Rm
Revenue 7 560 6 542
Cost of sales (6 915) (6 111)
Gross profit 645 431
Sellin...
8
IMPACT OF IAS 19R ON THE COMPARATIVE PERIOD
2012
Restated
Rm
2012
Previously
reported
Rm
Restatement
effect
Rm
Revenue 6...
9
OPERATING (LOSS)/PROFIT
2013
Rm
2012
Rm
Change
Rm
Operating (loss)/profit (1 805) 101 (1 906)
Impairment 2 122 84
Profit...
10
NORMALISED EARNINGS
2013
Rm
2012
Rm
Earnings (1 345) 29
(Profit)/loss on disposal and impairment of assets 1 528 50
Hea...
11
IMPAIRMENT
2013
Rm
2012
Rm
IMPAIRMENT OF NON-CURRENT ASSETS
The impairment charges recognised in the income statement a...
12
IMPAIRMENT
Why now?
• Changes in operating environment
• Increase in the risk-free rate
• Introduction of Alpha for a s...
13
IMPAIRMENT | CONTINUED
Key assumptions in terms of IAS 36
• Excludes future capital expenditure and restructuring
• Rol...
14
BALANCE SHEET
2013
Rm
2012
Rm
Capital employed
Equity 3 403 4 748
Net borrowings 612 742
4 015 5 490
Employment of capi...
15
NET BORROWINGS
0
500
1 000
1 500
2 000
2008 2009 2010 2011 2012 2013
Rmillion
16
WORKING CAPITAL
2013
Rm
2012
Rm
Change
Rm
%
2013
Days
2012
Days
Inventories 1 807 1 516 291 19% 95 91
Trade and other r...
17
CASH FLOW STATEMENT
2013
Rm
2012 Restated
Rm
Cash flows from operating activities
Operating (loss)/profit (1 805) 101
N...
18
HEADLINE EARNINGS PER SHARE
0
20
40
60
80
100
120
2008 2009 2010 2011 2012 2013
Cents
19
STRATEGIC REVIEW
20
PROGRESS ON
KEY STRATEGIC OBJECTIVES
1. OPERATIONAL PERFORMANCE
21
TRADING ENVIRONMENT 2013
Competitors
• Alcoa Rolled Products EBITDA 2013 Q4 on Q3 down 70%
• AMAG Rolled Products Year ...
22
MARKET ENVIRONMENT 2013-2014
Demand Mill lead times Domestic inventories Margins
USA
EU
China
SA
Ref: CRU and Hulamin o...
23
ROLLED PRODUCTS – KEY FEATURES
0
50
100
150
200
250
2007 2008 2009 2010 2011 2012 2013
Tons(000’s)
Sales Volume
Local s...
24
ROLLED PRODUCTS OPERATING MARGIN IN RAND
40
60
80
100
120
140
160
2007 2008 2009 2010 2011 2012 2013 2014(f)
Indexed
Ma...
25
REVIEW OF HULAMIN ROLLED PRODUCTS
Lower sales due to
• Unfavourable mix and planned hot mill maintenance in H1
• Cold r...
26
RESTRUCTURING OF ROLLED PRODUCTS
Focus on manufacturing performance turnaround
• Asset management strategy being rolled...
27
ROLLED PRODUCTS OPERATIONAL PERFORMANCE TARGETS
Update on targets
Pre-revision Revised assumptions
Sales volume 250 000...
28
CAPITAL EXPENDITURE
* Excludes capitalised borrowing costs
0
100
200
300
400
500
600
700
800
2007 2008 2009 2010 2011 2...
29
REVIEW OF HULAMIN EXTRUSIONS
Key indicators for 2013
• Revenue up 13% on currency weakness, mix improvement and margin ...
30
SAFETY – TOTAL RECORDABLE CASE FREQUENCY RATE
* The Total Recordable Case Frequency Rate is the number of recordable in...
31
PROGRESS ON
KEY STRATEGIC OBJECTIVES
2. INPUT COST COMPETITIVENESS
32
FOCUS ON INPUT COSTS
Manpower
• Broad restructuring across all levels
- Splits rolling and metal supply operations
- Lo...
33
MANUFACTURING COST ANALYSIS
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2008 2009 2010 2011 2012 2013
Energy Manpo...
34
PROGRESS ON
KEY STRATEGIC OBJECTIVES
3. GROWING THE REGIONAL MARKET
35
GROWING REGIONAL SALES
Beverage can market growth in progress
• Capability proven, best practices being entrenched
• Al...
36
REGIONAL SALES VOLUME GROWTH PROJECTION
0
50
100
150
200
250
300
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
(f)
...
37
PROGRESS ON
KEY STRATEGIC OBJECTIVES
4. SUSTAINABLE COMPETITIVE METAL
SUPPLY
38
LONG–TERM METAL SUPPLY
Slab supply from Bayside casthouse extended to December 2014
• Bayside Potline closing mid-2014
...
39
PROGRESS ON
KEY STRATEGIC OBJECTIVES
5. SUPPORTIVE REGULATORY
ENVIRONMENT
40
SUPPORTIVE REGULATORY ENVIRONMENT
* Integreon Nov 2013 and Econometrix Jan 2014
Scrap export legislation promulgated in...
41
OUTLOOK
42
OUTLOOK
Growth in local sales
Improved delivery from Rolled Products
Longer-term rolling slab supply
Expanding capital ...
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Hulamin Ltd FY 2013 financial results presentation

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Hulamin Ltd FY 2013 financial results presentation

  1. 1. 1 AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2013
  2. 2. 2 AGENDA 1 Key points 2 Financial report 3 Operational and strategic review Progress on strategic objectives 4 Outlook
  3. 3. 3 KEY POINTS YEAR 2013 FINANCIAL YEAR Further progress on turnaround for growth and improved profitability • Revised strategic objectives • Organisation restructured • R300 million investment in recycling Lower Rolled Products production (192 000 tons) and sales (190 000 tons) Non-cash, once-off impairment to valuation of net assets of R1.53 billion Rolling slab supply extension to December 2014 Improved profits and cash flows • HEPS up 128% to 57 cents per share • Normalised earnings up 251% to R201 million • Positive cash flow of R135 million
  4. 4. 4 STRATEGIC OBJECTIVES REVISED 1. An excellent aluminium semi-fabricator • 250 000 tons ROLLED PRODUCTS, 70% exports • 220 000 tons, light gauge can stock mix 2. Globally cost competitive • Energy, metal and employment rising at inflation and more • Competitive employee complement • Natural gas supply close to world prices • 25% of recycled metal 3. Growing regional sales to 200 000 tons annually • Local sales growing at GDP • Rapid regional can stock, automotive, infrastructure led growth to 2020 4. Secure and competitive metal supply • Sourcing from Hillside and Bayside at LME • Hillside, Bayside and scrap (25%) below LME 5. Cooperative regulatory environment • Economy open to imports and scrap exports • Imbalance in reciprocal duties • Fair duty protection • Ongoing demand side support, scrap restrictions • Inward investment Consistent profit performance from multiple drivers
  5. 5. 5 IMPAIRMENT OF NET ASSET VALUE Erosion of cost competitiveness • Particularly versus China Lower margins in international markets in past 2 years • Global (Chinese) over supply • Especially foil (up to $700 per ton), common alloy plate, standard products Increases in imported product into South Africa • Lost duty protection Weak local demand Rise in risk-free rate
  6. 6. 6 FINANCIAL REVIEW
  7. 7. 7 CONDENSED INCOME STATEMENT 2013 Rm 2012 Rm Revenue 7 560 6 542 Cost of sales (6 915) (6 111) Gross profit 645 431 Selling, marketing and distribution expenses (390) (362) Administrative expenses (71) (83) Impairment charge (2 122) (84) Other gains and losses 133 199 Operating (loss)/profit (1 805) 101 Net interest expense (63) (63) (loss)/profit before tax (1 868) 38 Taxation 523 (9) Net (loss)/profit for the year (1 345) 29
  8. 8. 8 IMPACT OF IAS 19R ON THE COMPARATIVE PERIOD 2012 Restated Rm 2012 Previously reported Rm Restatement effect Rm Revenue 6 542 6 542 - Cost of sales (6 111) (5 895) (216) Gross profit 431 647 (216) Selling, marketing and distribution expenses (362) (362) - Administrative expenses (83) (83) - Impairment charge (84) - (84) Other gains and losses 199 42 157 Operating (loss) / profit 101 245 (144) Net interest expense (63) (63) - (loss) / profit before tax 38 182 (144) Taxation (9) (49) 40 Net (loss) / profit for the year 29 133 (104) Net assets 4 748 4 777 (29)
  9. 9. 9 OPERATING (LOSS)/PROFIT 2013 Rm 2012 Rm Change Rm Operating (loss)/profit (1 805) 101 (1 906) Impairment 2 122 84 Profit/loss fixed assets - (12) "Headline EBIT" 317 173 144 Severance costs 26 Pension fund conversion (30) "Normalised EBIT" 343 143 200 Timing mismatches (10) 61 Metal price lag 58 2 "Comparable EBIT" 391 206 185 Estimated impact of Rand weakening 17% on average 246
  10. 10. 10 NORMALISED EARNINGS 2013 Rm 2012 Rm Earnings (1 345) 29 (Profit)/loss on disposal and impairment of assets 1 528 50 Headline earnings 183 79 Abnormal items included in headline earnings Effect of pension fund conversion - (22) Severance costs 18 - Normalised earnings 201 57 Net cost of hot mill failure: (7) 44 Loss of profit and material damage 17 111 Insurance claim accrued (24) (67) Normalised earnings adjusted for timing mismatches 194 101
  11. 11. 11 IMPAIRMENT 2013 Rm 2012 Rm IMPAIRMENT OF NON-CURRENT ASSETS The impairment charges recognised in the income statement are as follows: - Rolled Products cash-generating unit 2 122 - Rolled Products hot mill and other plant and equipment 54 - Extrusions plant and equipment 4 - Extrusions cash-generating unit 26 Total impairment charge 2 122 84 Taxation thereon (594 ) (23) Net impairment charge 1 528 61
  12. 12. 12 IMPAIRMENT Why now? • Changes in operating environment • Increase in the risk-free rate • Introduction of Alpha for a specific risk of 1% • HLM has been trading at a discount to its underlying R15 NAV • IAS 36 deemed indicator What? • Rolled Products • Pro-rata allocation across intangible and tangible non-current assets • Reduces NAV per share by R4.75 How? • Calculate Value in Use and compare to carrying value • Five-year detailed cash flow forecast thereafter perpetuity value • Discount back using WACC plus Alpha
  13. 13. 13 IMPAIRMENT | CONTINUED Key assumptions in terms of IAS 36 • Excludes future capital expenditure and restructuring • Rolled Products sales volume growth capped at 220 000 tons • Exchange rate to R11.39 by 2018 • Slab supply from Bayside casthouse continues at 96 000 tons p.a. • WACC at 10.5% plus 1% Alpha for currency volatility and Bayside uncertainty - Discount rate 11.5% (after tax)
  14. 14. 14 BALANCE SHEET 2013 Rm 2012 Rm Capital employed Equity 3 403 4 748 Net borrowings 612 742 4 015 5 490 Employment of capital Property, plant and equipment and intangibles 2 553 4 737 Retirement benefit asset 161 177 Net working capital (including derivatives) 1 903 1 738 Net deferred tax liability (377) (929) Retirement benefit obligations (225) (233) 4 015 5 490
  15. 15. 15 NET BORROWINGS 0 500 1 000 1 500 2 000 2008 2009 2010 2011 2012 2013 Rmillion
  16. 16. 16 WORKING CAPITAL 2013 Rm 2012 Rm Change Rm % 2013 Days 2012 Days Inventories 1 807 1 516 291 19% 95 91 Trade and other receivables 973 945 28 - Trade receivables 827 748 79 11% 40 42 - Other receivables 146 197 (51) Trade and other payables (826) (718) (108) - Trade payables (642) (544) (98) 18% 33 31 - Other payables (184) (174) (10) 1 954 1 743 211 12% Net derivatives/other (51) (4) Net working capital 1 903 1 739
  17. 17. 17 CASH FLOW STATEMENT 2013 Rm 2012 Restated Rm Cash flows from operating activities Operating (loss)/profit (1 805) 101 Net interest paid (64) (66) Impairment charge 2 122 84 Depreciation and other non-cash items 269 181 Income tax payment (28) (20) Changes in working capital (211) (182) 283 98 Cash flows from investing activities Additions to property, plant and equipment and intangibles (148) (98) Proceeds on sale of assets - 72 (148) (26) Cash flows before financing activities 135 72 Cash flows from financing activities 28 (62) Net increase in cash and cash equivalents 163 10
  18. 18. 18 HEADLINE EARNINGS PER SHARE 0 20 40 60 80 100 120 2008 2009 2010 2011 2012 2013 Cents
  19. 19. 19 STRATEGIC REVIEW
  20. 20. 20 PROGRESS ON KEY STRATEGIC OBJECTIVES 1. OPERATIONAL PERFORMANCE
  21. 21. 21 TRADING ENVIRONMENT 2013 Competitors • Alcoa Rolled Products EBITDA 2013 Q4 on Q3 down 70% • AMAG Rolled Products Year to date EBITDA Q3 2013 down 17.7% • Aleris Rolled Products North America Q3 2013 Adjusted EBITDA down 33% • Aleris Rolled Products Europe Q3 2013 Adjusted EBITDA down 17.5% • All report pricing as main cause of poor performance • Alcoa closing all Australian rolling operations Economic indicators • LME falling since 2012 to US$1 600 - US$1 700 per ton, driving metal price lag in 2013 • Geographic premiums volatile and spiking up • Rand/US$ fell by 18.2% between January and December 2013 Interesting developments • Major auto growth from both US and Euro OEMs e.g. Ford F150 (450kg/ vehicle) • Brazilian can recycling at 97.9%
  22. 22. 22 MARKET ENVIRONMENT 2013-2014 Demand Mill lead times Domestic inventories Margins USA EU China SA Ref: CRU and Hulamin own views
  23. 23. 23 ROLLED PRODUCTS – KEY FEATURES 0 50 100 150 200 250 2007 2008 2009 2010 2011 2012 2013 Tons(000’s) Sales Volume Local sales Export sales 120 125 130 135 140 145 2007 2008 2009 2010 2011 2012 2013 US$ Margin Index 90 100 110 120 130 2007 2008 2009 2010 2011 2012 2013 Unit Cost Index in 2007 Rands 50 55 60 65 2007 2008 2009 2010 2011 2012 2013 % High Value Products
  24. 24. 24 ROLLED PRODUCTS OPERATING MARGIN IN RAND 40 60 80 100 120 140 160 2007 2008 2009 2010 2011 2012 2013 2014(f) Indexed Margin in Rand/ton Unit cost in Rand/ton
  25. 25. 25 REVIEW OF HULAMIN ROLLED PRODUCTS Lower sales due to • Unfavourable mix and planned hot mill maintenance in H1 • Cold rolling bottleneck and can end quality controls in H2 • Consequent lower yields Slab supply extended to December 2014 • Discussions ongoing Bayside rationalisation Organisation restructured for new realities • Separation of metal supply and rolling into distinct operations • New skills including introducing global expertise • Metal sourcing/ recycling start-up • Market development
  26. 26. 26 RESTRUCTURING OF ROLLED PRODUCTS Focus on manufacturing performance turnaround • Asset management strategy being rolled out • Accelerated capital expenditure • Recruitment of manufacturing skills • Simplification Growth of can stock from 2013 to largest single product by 2018 • Light gauge – cold rolling intensive • Investment in recycling infrastructure (R300m), sorting, cleaning and melting • Slab self-sufficiency to 200 000 tons Change to product mix and plant loading from 2013 to 2018 • New state of the art scheduling systems
  27. 27. 27 ROLLED PRODUCTS OPERATIONAL PERFORMANCE TARGETS Update on targets Pre-revision Revised assumptions Sales volume 250 000 tons 220 000 tons Yield >68% >67% Unit cost <US$1 150 per ton US$1 175 per ton Rolling margin >US$1 475 per ton US$1 400 per ton Working capital cash cycle <120 days 120 days
  28. 28. 28 CAPITAL EXPENDITURE * Excludes capitalised borrowing costs 0 100 200 300 400 500 600 700 800 2007 2008 2009 2010 2011 2012 2013 2014 budget Rm Normal capital expenditure * Project capital expenditure * Depreciation Recycling investment
  29. 29. 29 REVIEW OF HULAMIN EXTRUSIONS Key indicators for 2013 • Revenue up 13% on currency weakness, mix improvement and margin management • Sales volume up 3% • Unit costs down 3% • Operating profit up by R38m Strategic themes in 2014 • Focus on sales to grow volumes - Expand participation in renewable energy programmes - New automotive contract secured through 2015 • Manage changes in anodising and powder coating industry • Continued operational focus • Billet supply security and opportunities
  30. 30. 30 SAFETY – TOTAL RECORDABLE CASE FREQUENCY RATE * The Total Recordable Case Frequency Rate is the number of recordable injuries divided by the number of hours worked, multiplied by 200 000 2.05 1.98 2.15 1.60 1.78 1.19 1.16 1.81 1.31 1.00 1.00 0.00 0.50 1.00 1.50 2.00 2.50 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
  31. 31. 31 PROGRESS ON KEY STRATEGIC OBJECTIVES 2. INPUT COST COMPETITIVENESS
  32. 32. 32 FOCUS ON INPUT COSTS Manpower • Broad restructuring across all levels - Splits rolling and metal supply operations - Local and Regional Market Development bolstered • Comprehensive rightsizing completed - Overall numbers reduced by 211 people - Once-off cost of <R35m - Overall annual savings of R60m • Three year deal with hourly paid employees 2013 to 2016 Energy • Gas (cost) dominates Hulamin energy mix • LPG supply risk and cost competitiveness • Natural/Methane Rich Gas significantly more cost competitive • Advisors appointed to facilitate early competitive supply
  33. 33. 33 MANUFACTURING COST ANALYSIS 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2007 2008 2009 2010 2011 2012 2013 Energy Manpower (excl maintenance) Consumables Maintenance (incl manpower) Other
  34. 34. 34 PROGRESS ON KEY STRATEGIC OBJECTIVES 3. GROWING THE REGIONAL MARKET
  35. 35. 35 GROWING REGIONAL SALES Beverage can market growth in progress • Capability proven, best practices being entrenched • Aluminium cans in South Africa and Nigeria, Angola and East Africa to follow • 300 tons successfully converted into cans by March 2014 Additional focus on other markets • Global acceleration of aluminium in automotive (e.g. auto body-sheet) • Import replacement opportunities • Fabrication and entrepreneurship programme being planned • Cooperation with AFSA, Government, inward investment agencies Market development strategy being rolled out and resourced
  36. 36. 36 REGIONAL SALES VOLUME GROWTH PROJECTION 0 50 100 150 200 250 300 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (f) 2015 (f) 2016 (f) 2017 (f) 2018 (f) 2019 (f) 2020 (f) Existing Market New Can Stock New Automotive
  37. 37. 37 PROGRESS ON KEY STRATEGIC OBJECTIVES 4. SUSTAINABLE COMPETITIVE METAL SUPPLY
  38. 38. 38 LONG–TERM METAL SUPPLY Slab supply from Bayside casthouse extended to December 2014 • Bayside Potline closing mid-2014 • Casthouse supplied from Hillside • Discussions progressing over future of slab beyond 2014 Goal: To source 25% of metal units from recycling by 2018 • R300m investment in recycling capability approved • Increases Hulamin on site slab capacity to 200 000 tons sales • Includes scrap storage, separation, cleaning and melting • Planned start-up Q2 2015; interim plans in place Aluminium and Electricity • Aluminium supply security and beneficiation growth (slab, billet, melting ingot) • Strategic cooperation/ alignment with stakeholders – Government and BHP Billiton
  39. 39. 39 PROGRESS ON KEY STRATEGIC OBJECTIVES 5. SUPPORTIVE REGULATORY ENVIRONMENT
  40. 40. 40 SUPPORTIVE REGULATORY ENVIRONMENT * Integreon Nov 2013 and Econometrix Jan 2014 Scrap export legislation promulgated in August 2013 Goal alignment with Government • Growth in regional beneficiation of Aluminium/Electricity in progress • Local/Regional sales growth (fabrication) drives • Two independent studies published* - Employment growth (to 29 000 jobs) - 7 kg per capital or 386 000 tons of local consumption • Growth in recycling of aluminium/ carbon footprint benefits • Non-ferrous/ Aluminium scrap export restrictions in place Important regulatory outcomes • Continued demand side support (local content, infrastructure projects) • Gas pipeline infrastructure and internationally competitive pricing • Equitable and symmetrical import duty regime • Non-punitive and competitive carbon tax/pricing • Continued competitiveness investment support (e.g. MCEP)
  41. 41. 41 OUTLOOK
  42. 42. 42 OUTLOOK Growth in local sales Improved delivery from Rolled Products Longer-term rolling slab supply Expanding capital expenditure • Further up-scaling of maintenance capex • Recycling project Continued focus on costs and efficiencies

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