JSE-listed aluminium semi-fabricator and exporter Hulamin is under scrutiny following a profit warning last week and plans for retrenchments within the group.
It said in a JSE trading statement on July 12 that “there is a reasonable degree of certainty” that basic earnings per share (EPS) and headline EPS for the six months ended June 30 will be at least 200% lower compared to its 2018 interim period.
This would equate to a decline of 26 cents per share and see the company reporting a headline loss of 13 cents per share for the half-year. The Pietermaritzburg-based group is set to release its interim results next month.
Hulamin’s share price has tumbled more than 44% since the beginning of the year and more than 90% since being unbundled from Tongaat Hulett in 2007.
The group is now under scrutiny by Chris Logan of Opportune Investments, a shareholder activist and vocal critic of Tongaat Hulett.
Market cap has plummeted
Speaking to Moneyweb on Thursday, Logan raised concerns about Hulamin, saying that when the group listed on the JSE in 2007 it had a market cap of around R8.6 billion; its market cap has now plummeted to around R740 million.
“While Hulamin doesn’t have accounting irregularities, the Hulamin story is just as sad as Tongaat Hulett. It is basically a culture issue and the company has seen similar factors on the management side affecting it, which I believe include a massive misallocation of capital, poor cost controls and a bloated top management and board,” he adds.
Logan notes: “Hulamin was unbundled from Tongaat Hulett in 2007 at R40 a share. Now it is around R2.50 a share – that’s a massive destruction of shareholder value.
“I don’t understand why Hulamin’s major shareholders such as the Industrial Development Corporation are not putting tough questions around this issue to the executive and the board.”
He also bemoaned Hulamin’s “misalignment of incentives” for its executives, saying the company seemed to have an “entitlement culture” around executive pay in the same vein as Tongaat Hulett. Logan also says he does not buy the company’s comments that tough global industry conditions are affecting it, saying that Hulamin’s global competitors are doing well.
Hulamin lists the reasons
Hulamin has blamed its expected interim losses on: a sharp decline in demand in the US common alloy market; a 30% reduction in sales volumes to automotive component customers globally; the slowdown in European manufacturing; the influx of Chinese aluminium imports in Europe; and tough local economic conditions. It says load shedding earlier this year also hurt the company’s operations.
It also notes in its trading statement that the Hulamin Extrusions division recorded a large operating loss in the first half, following a “severe disruption” due to failure of a major component in its largest extrusion press.
‘Aggressively addressing’ headcount
In the wake of tougher conditions for the company both globally and locally, Hulamin says that it is “aggressively addressing manpower-related costs, including contractors, consultant and employment costs”.
Responding to queries from Moneyweb around the planned retrenchments yesterday, Hulamin group communications manager Noma Kanyile said: “A notice of invitation to consult in terms of Section 189 was sent to all staff.”
She could not confirm how many jobs were on the line, saying that Hulamin “is still at the consultation phase with relevant stakeholders” and that discussions are not yet “conclusive”. The company employs some 2 000 staff, mainly in Pietermaritzburg and Johannesburg.
Asked when Hulamin’s management is anticipated to announce and finalise the job cuts, Kanyile said: “It will all depend on the negotiations.”
Pietermaritzburg Chamber of Business CEO Melanie Veness says Hulamin is the largest employer in KwaZulu-Natal’s capital city. “Consequently, Pietermaritzburg’s economic health is, to a large degree, dependent on Hulamin’s success.
“Many of their [Hulamin’s] challenges, as I understand things, are industry-specific and related to competitiveness,” she adds
“Companies in Pietermaritzburg are facing the same challenging local economic conditions being experienced by those in other parts of the country – low economic growth and an operating environment that is constraining rather than conducive. Ours is perhaps more constrained in that we [the city] are under administration for the second time in 10 years and service delivery is at an all-time low. Several large companies have indicated that retrenchments are likely in the foreseeable future, which is a real worry.”