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HLM: HULAMIN LIMITED - Unaudited interim results for the half-year ended 30 Ju... Page 1 of 4 HLM: HULAMIN LIMITED - Unaudited interim results for the half-year ended 30 June 2016 HLM: HULAMIN LIMITED - Unaudited interim results for the half-year ended 30 June 2016 Unaudited interim results for the half-year ended 30 June 2016 HULAMIN LIMITED ("Hulamin" or "the group") Registration number: 1940/013924/06 Share code: HLM ISIN: ZAE000096210 UNAUDITED INTERIM RESULTS FOR THE HALF-YEAR ENDED 30 JUNE 2016 - Operating profit up 86% in soft market conditions - Revenue increase 25% to R4.9 billion - Group sales tons up 19% (Rolled Products up 21%) - Improved risk mitigation resulting in consistent manufacturing output Richard Jacob, CEO, commented: "Improved manufacturing performance in Hulamin Rolled Products underpins this pleasing set of results. This, together with a weaker Rand on average against the US Dollar during the six months under review, mitigated the effects of continued weak global and local market conditions, local inflation and softer rolling margins. Efforts to address cost reduction opportunities and operational efficiency improvements achieved further gains in unit costs, product yields, overall sales volumes and product mix. For the balance of 2016 we expect can body stock volumes to increase in both local and export markets allowing us to source more scrap metal units locally. Efforts continue towards further improving our cost and rolling margin performance, albeit in market conditions that we forecast to remain challenging." ENQUIRIES Hulamin 033 395 6911 Richard Jacob, CEO 082 806 4068 Anton Krull, CFO 071 361 0622 CapitalVoice Johannes van Niekerk 082 921 9110 COMMENTARY Group sales volumes for the six months to 30 June 2016 totalled 110 649 tons that are 19% higher than the corresponding period and include a 21% improvement in Rolled Products sales to 205 000 tons annualised. This improvement was achieved through consistent manufacturing output and improved product yields. Market conditions, both in South Africa and in major export markets, remained subdued and over-supplied in the first six months of 2016, resulting in selling prices (rolling margins) remaining under ongoing pressure that commenced in the second half of 2015. The London Metal Exchange aluminium price rose marginally from the lows of late 2015, resulting in a slight metal price lag profit of R5 million. Turnover increased to R4.9 billion (2015 H1 R3.9 billion) driven by the higher sales volume, a Rand LME price that increased by 19% and the weakening of the Rand against the US Dollar by 30% to R/US$ 15.46 (2015: R/US$ 11.92). Locally, the economy remained weak during the first six months of 2016 and trended weaker as the period progressed. Demand for beverage can stock products in the local market failed to meet forecast demand resulting in lower procurement of used beverage can scrap metal units. Although local sales demand is forecast to improve in the second half of 2016, we have secured additional sales of export can stock to mitigate this market risk. Sales of export can end and tab stock increased by 51%. Manufacturing conversion costs in Rolled Products were 4% lower on a per unit cost basis in spite of higher US Dollar denominated costs, particularly imported LP gas, increased electricity prices and the consolidation of costs in Isizinda. The metal price lag improved by R60 million from a loss of R55 million in the corresponding period to a profit of R5 million in the current period. Earnings before interest and taxation (EBIT) at R257 million was thus 86% higher compared to the prior year and operating profit before metal price lag was 31% higher at R252 million. Net interest charges increased by 55% to R47 million, driven by higher levels of debt. Attributable earnings were R152 million for the six months under review, an increase of 101% on the prior period. Hulamin Extrusions performance improved measurably compared to the prior period with improved margins, stable volumes and the non-recurrence of metal price lag losses. Cash inflow before financing activities amounted to R33 million (June 2015: R495 million outflow), and included capital expenditure of R136 million. Changes to the directorate during the six month period ended June 2016: As previously announced on SENS, and with effect from 1 May 2016: - David Austin who was the Chief Financial Officer of the company resigned from the board; - Anton Krull was appointed as Chief Financial Officer; - Johannes Magwaza resigned as a non-executive director and as a committee member of the Remuneration and Nomination Committee and of the Transformation, Social and Ethics Committee; and - Gcina Zondi was appointed as an alternative director to Peter-Paul Ngwenya. The board thanks David and Johannes for their invaluable input over their tenure and wishes them well in the future. Dividend The Board is committed to the company´s dividend policy of three-times cover in the context of appropriate financial and market conditions. In this regard, the Board deemed it prudent not to declare an interim dividend for 2016 before evaluating conditions for the full year. The Board has further resolved to, in the future, determine the declaration of dividends on an annual basis. Prospects Hulamin expects the momentum gained from improved manufacturing performance in the first half of 2016 to continue in the second half, though weak market conditions are expected to persist both locally and internationally. There are early signs that the sales mix and operating margins may be better in the second half. The risk of energy disruption is expected to be lower due to further conversion from LPG to Compressed Natural Gas that is planned to accelerate in the second half. Order books for Rolled Products are full for the third quarter and we expect to fully sell all remaining capacity in the final quarter. M E Mkwanazi R G Jacob Chairman Chief Executive Officer Pietermaritzburg 25 July 2016 CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE HALF-YEAR ENDED 30 JUNE 2016 Unaudited Unaudited Half-year Half-year 30 June 30 June 2016 2015 Note R'000 R'000 Revenue 4 927 689 3 930 015 Cost of sales (4 393 268) (3 641 777) Gross profit 534 421 288 238 Selling, marketing and distribution expenses (229 608) (171 421) Administrative and other expenses (64 783) (55 194) Impairment charge (4 345) Other gains and losses 17 141 81 220 Operating profit 257 171 138 498 Interest income 462 1 023 Interest expense (47 444) (31 326) Profit before tax 210 189 108 195 Taxation 4 (58 002) (32 458) Net profit for the period 152 187 75 737 Headline and normalised earnings Net profit for the period 152 187 75 737 (Profit)/loss on disposal of property, plant and equipment (72) Impairment charge on property, plant and equipment and intangible assets 4 345 Bargain purchase gain Tax effects of adjustments (1 196) Headline earnings 152 187 78 814 Transaction costs 2 727 Past service costs credit adjustment Share-based payment costs on 2015 BEE transactions - Audited Year ended 31 December 2015 R'000 8 394 986 (7 855 025) 539 961 (382 204) (111 050) 248 773 295 480 2 085 (68 577) 228 988 (65 274) 163 714 163 714 10 538 (51 868) (3 123) 119 261 5 455 4 857 20 000 http://hulamin.hosted.inet.co.za/inews/news/story/7f5dd52d-8e18-4fde-8e6a-c3e7c37... 25/07/2016 HLM: HULAMIN LIMITED - Unaudited interim results for the half-year ended 30 Ju... Page 2 of 4 Equity-settled share-based payment: Isizinda Normalised earnings Earnings per share Basic Diluted Headline earnings per share Basic Diluted Normalised earnings per share Basic Diluted Dividend per share Currency conversion Rand/US dollar average Rand/US dollar closing CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE HALF-YEAR ENDED 30 JUNE 2016 411 152 598 81 541 27 224 176 797 (cents) (cents) 48 44 24 23 51 50 (cents) (cents) 48 44 25 24 37 36 (cents) (cents) (cents) 48 44 - 26 25 8 55 54 8 15,46 14,86 11,92 12,27 12,77 15,56 5 Net profit for the period Other comprehensive income for the period Items that may be reclassified subsequently to profit or loss Cash flow hedges transferred to income statement Cash flow hedges created Income tax effect Items that will not be reclassified to profit or loss Remeasurement of retirement benefit obligation Remeasurement of retirement benefit asset Income tax effect Total comprehensive income for the period CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF-YEAR ENDED 30 JUNE 2016 Balance at beginning of period Total comprehensive income for the period Value of employee services Settlement of employee share incentives Tax on employee share incentives Equity settled share-based payment Share-based payment costs on 2015 BEE transaction Dividends paid Total equity CONDENSED CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2016 ASSETS Non-current assets Property, plant and equipment Intangible assets Retirement benefit asset Investments Deferred tax asset 6 Current assets Inventories Trade and other receivables Derivative financial assets Cash and cash equivalents Income tax asset Asset held for sale Total assets EQUITY Share capital and share premium BEE reserve Employee share-based payment reserve Hedging reserve Retained earnings Total equity LIABILITIES Non-current liabilities Non-current borrowings Deferred tax liability Retirement benefit obligations Current liabilities Trade and other payables Current borrowings Derivative financial liabilities Total liabilities Total equity and liabilities Net debt to equity CONDENSED CONSOLIDATED CASH FLOW STATEMENT FOR THE HALF-YEAR ENDED 30 JUNE 2016 Cash flows from operating activities Operating profit Net interest paid (Profit)/loss on disposal of property, plant and equipment Non-cash items: Depreciation and amortisation of property, plant and equipment Impairment charge Movement in derivatives Other non-cash items Income tax payment Changes in working capital Cash flows from investing activities Additions to property, plant and equipment Acquisition of business Additions to intangible assets Proceeds on disposal of property, plant and equipment (%) Unaudited Half-year 30 June 2016 R'000 152 187 89 628 90 788 127 947 (1 853) (35 306) (1 160) 439 (2 050) 451 241 815 Unaudited Half-year 30 June 2015 R'000 75 737 5 932 5 831 (9 186) 17 285 (2 268) 101 140 (39) 81 669 Audited Year ended 31 December 2015 R'000 163 714 (78 063) (98 736) (9 186) (127 947) 38 397 20 673 25 134 3 578 (8 039) 85 651 Unaudited Half-year 30 June 2016 R'000 3 854 517 241 815 16 830 (9 196) 655 4 104 621 Unaudited Half-year 30 June 2015 R'000 3 833 817 81 669 7 883 (79 892) 3 843 477 Audited Year ended 31 December 2015 R'000 3 833 817 85 651 16 777 (24 397) (3 096) 31 224 20 000 (105 459) 3 854 517 Unaudited Half-year 30 June 2016 R'000 Unaudited Half-year 30 June 2015 R'000 Audited Year ended 31 December 2015 R'000 3 163 999 63 539 134 500 19 808 3 381 846 2 909 55 140 100 23 3 230 499 592 529 672 749 041 3 166 800 66 917 142 292 20 260 3 396 269 1 795 481 1 633 076 97 410 69 689 6 832 1 588 3 604 076 6 985 922 1 996 270 1 122 926 53 248 54 951 26 370 50 872 3 304 637 6 534 678 1 784 805 1 384 390 8 457 70 158 12 461 3 260 271 6 656 540 1 817 580 51 879 55 093 (1 334) 2 181 403 4 104 621 1 817 580 49 294 12 445 1 964 158 3 843 477 1 817 580 51 224 45 707 (92 122) 2 032 128 3 854 517 189 540 236 965 000 595 035 630 48 497 239 784 059 154 476 689 216 486 227 930 000 765 997 762 1 039 832 43 1 915 2 881 6 985 786 747 138 671 301 922 23 836 1 019 51 1 906 2 691 6 534 018 102 392 512 201 678 26 806 829 235 1 871 2 802 6 656 210 401 650 261 023 540 25 Unaudited Half-year 30 June 2016 R'000 Unaudited Half-year 30 June 2015 R'000 Audited Year ended 31 December 2015 R'000 257 171 (55 702) - 138 498 (39 068) (72) 295 480 (86 943) 10 538 92 418 (155 371) 32 762 (32 947) (25 786) 112 545 65 961 4 345 ( 20 101) 9 455 (37 172) (251 162) (129 316) 148 661 63 717 21 828 (49 735) (279 771) 123 775 (132 772) (3 381) - (262 631) (100 672) (2 739) 79 (472 358) (100 170) (15 480) 44 679 http://hulamin.hosted.inet.co.za/inews/news/story/7f5dd52d-8e18-4fde-8e6a-c3e7c37... 25/07/2016 HLM: HULAMIN LIMITED - Unaudited interim results for the half-year ended 30 Ju... Page 3 of 4 MCEP grant receipt Cash flows before financing activities Cash flows from financing activities (Decrease)/increase in borrowings Settlement of share options Proceeds to settle equity option Dividends paid 57 046 (79 107) 33 438 (365 963) (495 279) (543 329) (419 554) (23 654) (9 196) (32 850) 588 70 158 (1 057) 69 689 381 017 (79 893) 301 124 (194 155) 249 106 54 951 359 257 (24 397) 4 000 (105 459) 233 401 (186 153) 249 106 7 205 70 158 Net increase decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of period NOTES FOR THE HALF-YEAR ENDED 30 JUNE 2016 1. BASIS OF PREPARATION The unaudited condensed consolidated interim financial information of the group for the half-year ended 30 June 2016 has been prepared in accordance with IAS 34 - Interim Financial Reporting and the Companies Act, No 71 of 2008, under the supervision of the Chief Financial Officer, Mr A P Krull CA(SA), and should be read in conjunction with the group's 2015 annual financial statements, which have been prepared in accordance with International Financial Reporting Standards. Hulamin believes normalised earnings to more accurately reflect operational performance and is arrived at by adjusting headline earnings to take into account non-operational and abnormal gains and losses. The accounting policies and methods of computation adopted are consistent with those used in the preparation of the group's 2015 annual financial statements. Hulamin has not adopted any new or revised accounting standards in the current period which have had a material impact on reported results. Unaudited Unaudited Audited Half-year Half-year Year ended 30 June 30 June 31 December 2016 2015 2015 R'000 R'000 R'000 2. OPERATING SEGMENT ANALYSIS The group is organised into two major operating segments, namely Hulamin Rolled Products and Hulamin Extrusions. Revenue Hulamin Rolled Products 4 503 912 3 537 321 7 554 622 Hulamin Extrusions 423 777 392 694 840 364 Group total 4 927 689 3 930 015 8 394 986 Operating profit Hulamin Rolled Products 242 828 132 846 282 908 Hulamin Extrusions 14 343 5 652 12 572 Group total 257 171 138 498 295 480 Total assets Hulamin Rolled Products 6 649 841 6 178 141 6 335 986 Hulamin Extrusions 336 081 356 537 320 554 Group total 6 985 922 6 534 678 6 656 540 3. FOREIGN EXCHANGE AND COMMODITY PRICE RISK The group is exposed to fluctuations in aluminium prices and exchange rates, and hedges these risks with derivative financial instruments. The group applies hedge accounting to gains and losses arising from certain derivative financial instruments. Hedges of forecast sales transactions are accounted for as cash flow hedges, whereas the hedges of committed, fixed price sales are accounted for as fair value hedges. Other gains and losses reflect the fair value adjustments arising from fair value hedges, non-hedge accounted derivative financial instruments, non-derivative financial instruments and forward point gains. The effective portion of cash flow hedge gains and losses are recorded in revenue when the sale occurs. The lag between the price at which aluminium is purchased and subsequently resold gives rise to a gain or loss. Hulamin hedges 50% of this net exposure in terms of its hedging strategy. Included in cost of sales is a pre-tax metal price lag gain of R5 million (June 2015: R55 million loss, December 2015: R161 million loss) in respect of the unhedged portion of this exposure. Unaudited Unaudited Audited Half-year Half-year Year ended 30 June 30 June 31 December 2016 2015 2015 R'000 R'000 R'000 4. TAXATION The tax charge included within these condensed consolidated financial statements is: Normal 38 576 13 610 40 082 Deferred 19 426 18 848 25 192 58 002 32 458 65 274 Normal rate of taxation (%) 28,0 28,0 28,0 Adjusted for: Exempt income, non-allowable and other items (%) (0,4) 2,0 0,5 Effective rate of taxation (%) 27,6 30,0 28,5 5. EARNINGS PER SHARE (EPS) The weighted average number of shares used in the calculation of basic and diluted earnings per share, headline earnings per share and normalised earnings per share are as follows: Number Number Number of shares of shares of shares June June December 2016 2015 2015 Weighted average number of shares used for basic EPS 319 596 836 319 596 836 319 596 836 Share options 29 487 803 8 592 876 7 666 904 Weighted average number of shares used for diluted EPS 349 084 639 328 189 712 327 263 740 6. INVESTMENTS The investment of R100,7 million at 30 June 2015 represents Hulamin's initial equity and loan funding contribution to Isizinda Aluminium, a strategic partnership between Hulamin (40%) and the Bingelela Consortium (60%), which acquired the business and assets of the Bayside Casthouse from South 32. From 1 July 2015, Isizinda Aluminium has been consolidated into the group accounts. Unaudited Unaudited Audited Half-year Half-year Year ended 30 June 30 June 31 December 2016 2015 2015 R'000 R'000 R'000 7. COMMITMENTS AND CONTINGENT LIABILITIES Capital expenditure contracted for but not yet incurred 194 888 164 269 202 632 Operating lease commitments 36 343 44 698 41 034 CORPORATE INFORMATION HULAMIN LIMITED ("Hulamin", "the company" or "the group") Registration number: 1940/013924/06 Share code: HLM ISIN: ZAE000096210 Business and postal address Moses Mabhida Road, Pietermaritzburg, 3201; PO Box 74, Pietermaritzburg, 3200 Contact details Telephone: +27 33 395 6911 Facsimile: +27 33 394 6335 Website: www.hulamin.co.za E-mail: [email protected] Securities exchange listing South Africa (Primary), JSE Limited Transfer Secretaries Computershare Investor Services (Pty) Ltd, 70 Marshall Street, Johannesburg, 2001 PO Box 61051, Marshalltown, 2107 Sponsor Rand Merchant Bank (A division of FirstRand Bank Limited) 1 Merchant Place, corner Fredman Drive and Rivonia Road, Sandton, 2196, PO Box 786273, http://hulamin.hosted.inet.co.za/inews/news/story/7f5dd52d-8e18-4fde-8e6a-c3e7c37... 25/07/2016 HLM: HULAMIN LIMITED - Unaudited interim results for the half-year ended 30 Ju... Page 4 of 4 Sandton, 2146 Directorate Non-executive directors: ME Mkwanazi* (Chairman), LC Cele*, VN Khumalo, TP Leeuw*, NNA Matyumza*, SP Ngwenya, PH Staude*, GHM Watson*, GC Zondi(#) *Independent non-executive director (#) Alternate non-executive director Executive directors: RG Jacob (Chief Executive Officer) AK Krull (Chief Financial Officer) MZ Mkhize Company Secretary W Fitchat Date of SENS release: 25 July 2016 www.hulamin.co.za Date: 25/07/2016 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limit The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS. JSE News Service (SENS) HULAMIN All JSE data delayed by 15 min. KEY: O=OPEN | C=CLOSE B=BID | A=ASK H=HIGH* | L=LOW* YH=YEAR HIGH* | YL=YEAR LOW* VOL=VOLUME P/E=PRICE/EARNINGS* | YLD=YIELD* DY=DIVIDEND YIELD* *Calculated by INET BFA 07:00:00 07/25/2016 600 N/A O N/A C 600 B 580 A 600 H N/A L N/A YH 724 YL 420 VOL N/A P/E 16.67 YLD 6.00 DY 1.33 INET BFA (Pty) Limited and its associates disclaim all liability for any loss, damage, injury or expense however caused, arising from the use of or relia information provided through this service and does not warrant the truth, accuracy or completeness of the information provided. All data is del Copyright INET BFA (Pty) Ltd, 2016 http://hulamin.hosted.inet.co.za/inews/news/story/7f5dd52d-8e18-4fde-8e6a-c3e7c37... 25/07/2016