Hulamin Limited (HLM) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Hulamin's webcast of our December 2019 annual results. The delay in releasing them, unfortunately, we've got all this cut out of the way, following the COVID and various complexities around the reporting of our 2019 performance. But welcome, everyone. The agenda for this morning will be that I, as usual, will make some opening remarks, give you an update of market conditions and then hand over to Anton. Anton will go through the financial results and then hand back to me for the operational review, as well as I'm going to talk -- I've got a few slides on the delivery plan that -- the turnaround plan that we delivered on in the second half of last year, and then I'll close off before we have questions and answers with the prospects for 2020. In terms of market conditions -- well, before I get to the market conditions so the Hulamin in 2019 really was a focus on getting through a very difficult year. The focus primarily was on protecting the balance sheet. We managed to generate ZAR 222 million of free cash flow, kept the debt equity ratio at 11%. And I think if you recall, we had a [ looning ] of inventory at half year. We managed to get that back down to normal levels, and I've got a slide [ I'm going to show on it ] later. We reduced inventory by around about 14,000 tonnes between the end of June and the end of December last year. We also have focused [ chiefly ] because of the challenging trading conditions during the year. We developed and implemented a turnaround plan that had 3 primary channels to it. The 3 channels were managing working capital, and we managed to reduce working capital by about ZAR 500 million between half and year-end. We reduced costs by about ZAR 400 million per annum, annual costs by about ZAR 400 million per annum both in rolled and extruded products, and I've got quite a lot of information about that during the course of the presentation. We also have had to rebuild our distribution channel into the United States. That, too, is fraught with complexity at the moment, with the various political things happening in the United States. We did maintain our excellent safety record, and I've got a slide on that, which I'll show you in due course, managing to keep our total recordable frequency rate per 200,000 hours at 0.24, which we're very happy with as being a best-in-class kind of safety performance. Moving on to the salient features of 2019, group sales were 219,000 tonnes compared to last -- the previous year of 245,000 tonnes, that's 11% lower. We are starting to see market conditions and distribution into the United States tightening. But particularly, we've seen market constraints, both locally and in the United States, which we -- which is a little unusual, and that's going to take a little while, particularly in the United States, to rebuild that distribution channel, probably the balance of this year will -- depending on the antidumping and countervailing duty process in the United States, probably the balance of this year will be taken in rebuilding that distribution channel. We also had to record an impairment charge of ZAR 1.3 billion approximately across both Rolled and Extruded products, which really reflects the higher risk premium to the weighted average cost of capital as well as the volatile market conditions, both locally and in the United States, and market conditions are definitely tightening around the world, particularly now because of COVID-19. The turnaround actions that I've mentioned earlier are largely complete. The split of the ZAR 400 million between Rolled and Extruded Products is roughly ZAR 250 million in Rolled and ZAR 150 million in Extrusions. We decided to close the Olifantsfontein extrusion plant and consolidate operations into Pietermaritzburg. I'll talk a bit more about that later. Also a significant reduction in inventory and consequent release of working capital, and I'll talk also a bit more about the opening up of new distribution channels into the United States. Looking at the rand dollar, the rand did weaken during the course of 2019, we've seen a considerable weakening since then. That has, I think, as you will recall, a positive impact on EBITDA through higher rand earnings from equivalent dollar receipts. However, it does have a short-term effect on increasing the absorption of working capital through the higher rand value of inventories and receivables. Now moving on to market conditions. The LME did weaken during the course of 2019 from the end of 2018. What that does is that has an impact on the metal price lag, which Anton and I will also refer to again during the presentation. That's largely as a result of softening global demand as well as the protectionism in the United States, significant impact on global supply and demand of aluminum, which has had this negative impact on the commodity aluminum. In the United States, which is still the largest consumer of aluminum globally with China catching up [ fast ]. GDP has slowed quite significant. There was massive overstocking of flat-rolled products in the United States following the Section 232 and 301 tariff protection that President Trump and the Republicans have implemented in the United States. And that's had quite a -- that had quite a sudden impact of buyers buying, panic buying and building up stocks, which took really the balance of 2019 to normalize, although stocks still remain concerningly higher. Globally, concerns around the single-use plastics have been positive for aluminum. You'll see that in -- throughout the presentation as I talk about the record performance in can end sales, the growth in demand for cans in body and tab stocks throughout the world and how Hulamin is positioning ourselves accordingly. In line with what you might have read in the press, automotive demand for aluminum has softened in line with the global softening of the automotive market, and that has had an impact on our domestic sales, where we are quite a significant supplier into the thermal part of automotive componentry. The local market remains particularly soft. The GDP growth rate for 2019 looks like about 0.2%, which is 1 of the softest years we've had in many years. And that talks to the lower sales, I'll show you some graphs on that, although we sold quite a lot of packaging product, which belies the underlying economy, but the economy, and particularly, the engineering and the construction economy in South Africa remain stubbornly weak. I'll now hand over to Anton, who can walk you through the financials.

Thank you, Richard. Good morning. I'm just looking at the salient points for the financial year ended December 31, 2019. It was a disappointing financial performance for Hulamin with a loss per share of ZAR 3.80, which is up from ZAR 2.42 loss in the previous year. At headline level, it was again a loss per share of ZAR 76c against the previous year's headline earnings per share of ZAR 91c. And at underlying level, a sharp fall-off in sales volumes resulted in normalized EBITDA reducing by 54% to just over ZAR 300 million. There was a large -- a further large impairment loss, and Richard has alluded to that, recorded in both the Rolled products and Extrusions cash-generating units. There was -- the net after-tax was nearly a billion. Together with a deferred tax asset non-recognition this resulted in an earnings per share impact of more than ZAR 3.00 per share. And that was the result of a valuation adjustment arising from a consideration of the deteriorating conditions in the market and increased uncertainties in the environment. And that resulted in the second impairment charge that we've borne as a business. In addition, there were significant non-trading items during the year. And those are listed there, I'll go into those in more detail. And those have impacted earnings per share by nearly ZAR 80c per share. And then, of course, at the underlying level, the soft conditions experienced in particularly the U.S. markets as well as automotive and local markets and the machinery breakdown extrusions resulted in a sharp drop-off in sales volumes and Hulamin is a largely fixed cost business. So that had quite a large impact on underlying profitability. All that being said, the balance sheet, certainly from a debt perspective, has remained reasonably intact. Debt-to-equity is up by 11%, that's largely the result of the reduction in equity. But net, certainly, borrowings levels maintained at a reasonable level and free cash flow of ZAR 222 million recorded in the current period. So just moving on then to -- if you have a look at our earnings performance over the last few years, you can see an earnings level, 2 significant impairments in the prior year and in 2019, causing significant losses at an earnings per share level. And at headline earnings per share level, the non-trading items that I mentioned earlier again contributed to the loss at headline level, normalized largely a result of the reduction in volumes. I'll get into that further. We have not declared a dividend for the 2019 year after developing fairly good momentum, and unfortunately we've decided not to declare a dividend under the circumstances. So if we then just take a look at the salient features of performance. And if we look at then at the LME, which as already mentioned that the LME fell quite sharply in 2019. As we often see the rand-dollar weakened in tandem, but that weakening was outweighed by the fallen LME. So rand aluminum price has certainly fell through the period, and have contributed to a metal price lag loss. Group sales volumes down 11%, larger at the Extrusions level than at the Rolled products level. And that flowed through into the decline in revenue. EBIT, obviously largely impacted by the impairment charges, both in the current year and the prior year. And the loss increased by 50% at a normalized level. EBIT, down 59% and at EBITDA level, down 54%. And if we then just move on to the -- look at the cash flow and debt as salient features on the next slide, one will see that capital expenditure was up. If we just go back to the previous slide and capital expenditure was up 29%. That was largely a result of the weakening currency. But also some investment in some improvements that will allow us to play into more of our can stock and other higher-margin products. Net working capital has been a series of improvements in working capital, and that largely assisted us to generate the free cash flow for the current year. There was a fair bit of distortion between 2019 and 2018, and that's -- there was a late customer payment at the end of 2018 that came through in 2019, it was ZAR 208 million. Net borrowings, that came down, that's ZAR 226 million, but with the implementation of IFRS 16 and adoption in the current year, the net debt increased by ZAR 46 million as we recorded lease liabilities in line with debt accounting standard. So then if we just take a look at the impairments, the impairments generated a total of ZAR 1.3 billion in the current period, it was ZAR 1.45 million in the previous year. So Hulamin is required to test its nonfinancial assets, and particularly at a cash-generating unit level, because of the discount of the share price to the underlying net asset value in the financial statements. And in doing that test, the valuation, particularly the rolled products valuation is very sensitive to currency forecasts, to volume in conversion prices, so market outlook. And a fairly small change in those assumptions can have a large impact on valuation. And so the softer outlook for a variety of product markets and applications have resulted in a deterioration in forecast cash flows in those valuation models, along with an increase in the weighted average cost of capital. And taking into account increased uncertainty in global markets as well as the vulnerability of the domestic market. So that led to an impairment of ZAR 1.25 billion in respect of the Rolled products cash-generating unit, another ZAR 30 million in Extrusions. And there was ZAR 19 million related to specific assets. That was the property at Isizinda. That's the casthouse down in Richards Bay. And the assets held for sale in respect of the closure of the extrusions of the Olifantsfontein operation. So if we then just take a look at EBITDA before impairment charges, there were a number of non-trading items that impacted EBITDA during the year. Richard alluded to a turnaround plan that was executed during 2019, led to the reduction of around 250 jobs at Hulamin and the closure of the Olifantsfontein Extrusions operation. And retrenchment costs arising from those activities amounted to around ZAR 114 million. The froth in the Rand LME price during the course of the year led to a metal price that cost us ZAR 68 million during the year. We reached agreement with our partners at Isizinda around the unbundling and an eventual windup of that business. And as part of that, we were able to acquire the rolling slab casting operations. There are other casting operations there, and there's also property as part of that arrangement. We agreed a settlement with our partners, and that's what that item relates to. In terms of some other items, there is a loss on disposal of some assets, and there was a timing mismatch in respect of the previous year-end, where we could not hold marked-to-market items related to our commodity risk management program in the hedge reserve and in the balance sheet, and because it was considered not effective in terms of IAS 39. We've adopted IFRS 9 in the 2019 year, and we won't have that effectiveness issue. So those are the major items that impacted EBITDA from a nontrading perspective. If I just move then on to have a look at the underlying fundamentals of financial performance, the drivers of our performance. We essentially acquired primary aluminum, and we passed it through in our revenue. And -- but there is a metal price lag because we procured it at market and we sold it at market price. And with the fall off in rand/LME during the period, that led to the metal price, price lag loss that I've alluded to. We're a largely rand cost business. So in terms of our manufacturing costs to convert the primary aluminum into rolled and extruded products. That's largely rand-based costs, and they are also significantly fixed in nature. In terms of revenue, most of the conversion fee that's earned, rolling margin is foreign currency denominated. And so we're heavily exposed to -- sensitive to the currency. And so in the 2019 period, there were some headwinds from the currency, and -- but far more important for the results this year was the sharp fall-off in volumes that impacted the business. So if we just take a look at then at normalized EBITDA, and we just compare the 2018 performance with the 2019 performance. One can see the headwinds from the currency, which brought around ZAR 200 million of support for the financials that was offset by inflation on our cost base. The sharp falloff in volumes, together with pressure on prices, [ and ] however, we took back more than ZAR 350 million, and it was also a significant EBITDA loss in the Extrusions business. And that resulted in the normalized earnings before interest, tax and depreciation falling more than 50% from the prior period. If we then just move on to -- so if we look at free cash flow for the period, cash flow from operations are reflective of normalized EBITDA. There were those retrenchment costs that we took as part of executing the turnaround plan, and we will see the fruits of that in terms of a reduced cost base as from the 2020 year. There were, again, further improvements in working capital. We did manage to turn the excess inventory position at June around, and Richard will talk to that just now. But in addition to that, we've made continued progress in terms of receivables, efficiencies so cash cycle has brought some benefit through to cash. Interest paid was pleasingly down from the prior year, and CapEx I've touched on. So that ended up with a free cash flow of ZAR 222 million for the period. If we reallocate the delayed customer payment I mentioned to the current period, free cash flow was more like ZAR 14 million for the current period, and that's after the retrenchment costs of ZAR 114 million. So if we then just take a look at the working capital performance. So you can see that there's been some significant improvements in the cash cycle. Over the last few years, there have been underlying improvements also in inventory, and that's resulted in some really good improvements in net working capital efficiencies, reducing from around 28% in 2015 through to the 18% in 2019. Just moving on into -- just talk a little bit about CapEx. So we have worked quite hard in recent years to stabilize the CapEx program, make sure that we focus on the priority items, and that remains. We did spend some money on some additions and expansions to improve our capacity in certain higher-margin products during the course of the year. And we were also, of course, impacted by the weaker currency. But I believe that we are managing this area well under the circumstances. Just having a look then at net debt. So net debt at the end of 2018, ZAR 294 million. Debt increased in the 2019 year as we adopted IFRS 16, brought some lease liabilities to book. The free cash flow then has assisted to reduce that. Against that we returned ZAR 80 million to shareholders by way of dividends and share repurchases. And we then also made a payment through to our partner in Bingelela -- in the Isizinda business that I alluded to earlier. So net debt at ZAR 272 million. If we then just put that in context on the next slide, that's -- we've had some pleasing progress in reducing our borrowings over the last few years. And I think that will stand us in good stead. The borrowings reducing down to ZAR 226 million in 2019. We did also renew a working capital facility, a 3-year working capital facility in 2019 together with a general borrowing facility. And so we have, I think, adequate liquidity looking forwards. Net debt to equity, up to 11%, largely due to the reduction in equity following from the impairment charge. So yes, I think that's it from my side, Richard, I'd like to hand back to you.

Thanks, Anton. I'm going to move on now through the operational review. Moving to some of the key features in Rolled products and in the group. This is a slide that I've shown consistently over the last few years. On the top left is the split between local and export sales. As you can see, most of the reduction in total volume came at the expense of exports. And I'll talk quite a bit more about some of the challenges we've had in distribution into the United States. Local markets roughly in line with 2018 -- or in line with 2017, slightly up on 2018, largely as a result of packaging, that's can stock products. There seems to be a fairly consistent demand for -- and growing demand for aluminum for beverage cans at the expense of glass and PVC in the local market. On the right is the safety performance that I spoke about, both the total recordable cases and the lost time injuries. As you can see, quite a pleasing trend since 2010, and we really are at a best-in-class kind of level at the level that you see in front of you. The rolling margin, or the conversion price that we charge in Rolled products, in line with 2016, 2017, slightly down on 2018, but this is the new norm. It's going to be challenging in 2020 to maintain this level, largely as a result of the global oversupply and particularly in the United States of flat rolled products, but this is a great uncertainty because of the antidumping and countervailing duties in the United States and the positioning of Hulamin relative to the other 18 countries, the other 17 countries that are being targeted in this antidumping duty. In terms of the mix, the products, as you can see there, packaging remaining strong at the expense of automotive, extrusions significantly down and other roughly the same as the prior year. I'm now going to talk about the operating margin. There you can see a significant deterioration in the contribution levels. And that's largely as a result of the fixed cost nature that Anton spoke about earlier and the absorption of overhead into a reduced volume. That should work its way out in 2020, 2021, as we normalize the volumes and open up the sales channels that were blocked in 2019 into the United States. I think the key point here is that we are now focusing much more significantly on selling and distribution. In prior years, we were definitely constrained by how much we could produce, so the focus was very much on production efficiency, throughput, productivity and so on. And the impact of the overheads, which we have now reduced in the turnaround plan, which I'll speak about in due course, gives us an opportunity to significantly widen that as we grow the volumes going forward. Looking at the half-on-half sales performance, unfortunately, looking on my slide, the common alloy sales are not particularly visible. But what you can see here is the local market being fairly consistent, although having grown through from 2015, largely as a result, as I said earlier, of the can stock sales into the local market. We now have 3 can makers and talk of a fourth. Heat-treated plate quite significantly down, a significant impact on EBITDA because of its high margin. It's a very attractive margin and that really spoke to the block in our distribution channel in 2019. That has already started to abate and is looking like normalizing in 2020. Thus far, 2020 -- the numbers are back at 2018 and 2017 levels. So that's quite encouraging with strong demand for can stock, which you can see that shot up during 2019. Looking at annualized numbers, which obviously talks to the absorption of overheads. You can see quite a significant fall off since the record in 2018. There you can see the quarter-on-quarter performance and the struggles in distribution through the middle of the year into the United States as our single distribution channel to the United States got blocked with their own excess inventory as well as excess inventory throughout the market. I'm now moving on to how the markets have tightened, but in that tightening market, our can stock sales have been strong. The second half of last year, as we shifted our focus into areas where we can -- where we could move significant volume. Can stock sales, we managed to achieve a record in the second half of last year, which was 22% up on the prior half. Can end stock globally seems to be firm in all markets. We're now being courted by a number of can makers in the United States where we haven't traditionally supplied. At the same time, demand in Europe, South America, the Middle East also looking to be firm, although there is a import duty now being applied in Saudi Arabia to protect their margin, which is one of our competitors. So that looks like it could be under [ fit ], but is likely to be counteracted by a strong demand in many other regions. With the growth in demand for flat aluminum and recycling in beverage can industry, this is going to remain a key focus for us going forward. And as Anton said, we have spent a bit of money in debottlenecking our can end stock production capability in order to further increase these record sales. So thus far in 2020 demand firm; supply, in other words, our capability and our production productivity looking good, and we will maintain our focus on achieving another record in 2020. It may not be possible, but is looking good at this point in can end, can body and can tab. Nonpackaging products, that market is definitely tightening. As we spoke of earlier, both Anton and I mentioned that in the United States, the Section 232 and 301 duties on aluminum products, which President Trump applied in late 2017 and through 2018 did result in a significant overstocking or over buying, due to customers being concerned of lack of supply. And that overhang pushed into 2019 and resulted in both our own distributor as well as the entire market being overstocked. Europe was flat in 2019 prior to the outbreak and the significant downgrading of the economic indicators as a result of COVID-19, which has largely been a 2020 impact. But Europe in 2019 was largely flat. The local economy, particularly last year, was flat and struggling. As I mentioned earlier, 0.2% GDP growth rate through the year. That impacted our automotive sales as well as our engineering sales, transport and everything except packaging and particularly negatively impacted extrusions in spite of the disruption to the press, which I'll speak about in a little later. A little bit more detail on the blockage in our United States distribution channel. The relationship came under strain for a range of reasons during the course of 2019, not least of which is the overstocking and the stress on their balance sheet, which reduced their ability to buffer us from market conditions in the United States. At the same time, our partner made a decision to diversify into the production of aluminum flat rolled products, that's the acronym FRP. That definitely made us realize that our future did not lie with our distribution partner in the United States. They, it appears now, seem to have had foresight of an empty dumping application by the aluminum association in the United States, and hence they bought multiple plants in the United States, a common alloy plant, which is one of our lower-margin products, but has been a significant volume buffer for our business in the past. Moving on now to the rolling margin. This is our conversion price. This is an index that we have shared with stakeholders in recent years. You saw the significant fall-off in 2015 as a result of some significant excess capacity in China impacting global markets. And then the stabilization from 2016 through 2019. This rolling margin, as I've said before, is a combination of both the prices realized by Hulamin, in other words, mix related [ to ] some of our higher-margin products. This is a weighted average mix as well as underlying market conditions. The collateral products are generally under pressure from the fact that globally flat rolled product production is higher than demand, but our ability to move into niches remains firm, and we're looking to expand our sales into can end stock some of our higher volume can end stock margin markets as well as many opportunities in the [6 Series ] plate, which are coming back now into the mix following last year's disruption. I'm now on the fourth section of the discussion around our turnaround plan. As distribution and sales started to fall off last year, resulting in growth in working capital, the absorption of working capital into the half year, we realized that we need to make some significant improvements to get back to a strong balance sheet and rebuild our distribution channels. So we focused on 3 key themes in our turnaround plan, the first being cost reduction. This, as I said, I mentioned earlier, and as we have alerted the market, Extrusions faced a significant disruption in production in the first quarter of 2019. We discussed that at the half year results last year. That resulted in us looking at rationalizing the Extrusions business, reducing cost by around about ZAR 150 million of that ZAR 400 million, largely as a result of manpower cost reductions as well as the closure and the related site costs of the Olifantsfontein plant in the South, so at Midrand. We have reached agreement on the sale of that property, and that unfortunately has been somewhat delayed. The transfer has not yet happened, largely as a result of the COVID-19 impact on the local bureaucracy process there. But that property sale, as far as we understand, is completely secure. The balance of the ZAR 400 million, in other words the ZAR 250 million having come from rolled products, largely also as a result of reduction in manpower, the total number of heads roughly 250 throughout the group. Also the shift in distribution blockages and the shift from being a production-constrained business to a sales-constrained business across all our business, although Extrusions at the moment is doing quite nicely and is returning to profitability through better production, and demand seems to be reasonable in our Extrusion business at the moment. But the reengineering, rebuilding of our U.S. distribution channel has been a very high priority. Fortunately, throughout our recent history, we've maintained strong contact with our U.S. customer base. Our partner in the U.S. was what's known as a master distributor. In other words, a major importer and sold to our customers. We managed to maintain direct contact with our customer base, in fact the end users, such as Tesla and our various other customers in the United States. And particularly HT plates demand for the Hulamin products remains firm, particularly in comparison to other suppliers of similar products into those markets. And the second half of last year, the sales rate of HT Plate particularly has improved and normalized. And we are selling HT Plate, which is not subject of the current antidumping and countervailing duty application of the aluminum association in the United States. We've also rebuilt our -- added to our sales resource team in the United States. We've appointed 2 new salespeople into that team, which gives us a little bit more gravitas and while at the moment, we are also in discussions with a partner who will assist us with distribution, logistics, although we will remain -- we will retain rather, contact [ with ] that customer base throughout the United States. The third component of the turnaround plan was the release of working capital as a result of inventory reduction, largely in Rolled products. We achieved a inventory reduction in excess of 14,000 tonnes in the second half of last year, roughly 23%,releasing over ZAR 500 million in working capital contributing to the strength of the balance sheet in the second half of last year. Looking at the cost savings in Rolled products, roughly 2/3, as I said earlier, came from manpower costs. That talks to the over 100 million retrenchment costs we paid out last year, resulting in a 65% contribution to the ZAR 250 million cost [ so ] annual cost savings. The balance of those were efficiency projects as well as procurement. In other words, reduced prices, negotiating different deals with suppliers, seeking new suppliers with equivalent and lower cost products and so on. And that talks to the split in the ZAR 250 million savings in Rolled products. Moving on to inventory levels, there you can see the spike in mid-year that -- but in fact, we managed to get back to normal levels, which we've managed to keep in the business since sort of late 2016, it's under between 45 and 50,000 tonnes of rolled product inventory. That's largely a structural effect as a result of our export sales, where we have to keep inventory on our books through the export logistics chain. That's a key focus of what we're looking to unlock with our -- this new partner that we're in final discussions with in the United States. And hopefully, we'll see some improvements in this regard in due course. Moving on to Hulamin Extrusions. A very disappointing year from Hulamin Extrusions, largely as a result -- the losses as a result of the manufacturing disruption, as major components that failed in the P 38, the largest press in the Pietermaritzburg operation in the first quarter of last year, resulting in significant impairment of the sales volume. And therefore, the overhead costs being distributed over a very much reduced volume. The closure cost also of Olifantsfontein, the retrenchment of people also contributing to the significant losses in Extrusions last year. Last year and this year are really theming around rightsizing the business, and we are very focused on the new management team's concept of reducing costs and reducing volumes significantly less, so that the unit cost of production of Extrusions is significantly improved and I'll show you that in the next slide in just a minute. The 2019 turnaround plan for Exclusions focused on, as I said, closing of the Olifantsfontein plant, the sale agreement, the establishing of the new management team, cost reduction, other cost reductions and the rebuilding of productivity in that business. At the same time, retaining and rebuilding the market position following the disruption in the first half of the year. This year, the focus of the business is to stabilize the business. Further impact coming from further rationalizations in metal supply, billet production and focusing on positive cash flows. At the same time, the existing market's position and particularly in the automotive area, we have a number of automotive contracts and those are starting to [ count on ] in. So this year, we'll be focused on rebuilding some of our market positions. So far this year, demand for extrusions has been surprisingly firm. And we have a bit of a backlog at the moment, with quite a lot of pressure on both presses in Pietermaritzburg to meet these volumes. But considering the cost that we've taken out of the business, this is looking quite positive. Further cost savings are -- there are significant opportunities and particularly around those, we remaster, we recycle scrap in Pietermaritzburg, which is where we plan on further rationalization between the various components in the group and looking to unlock both billet production, both locally and through our sourcing of billet internationally. Just looking at some more detail around the Extrusions. This is the orange [ the year ] so yellow with green lines are the looking forward numbers. And this shows the impact of consolidation on manpower productivity. As you can see, very stable and reducing, particularly in 2019 as a result of the press failure. But the volume throughput rate per man-hour moving forward is looking significantly improved as a result of this rationalization into Pietermaritzburg. And moving on to the unit cost, the similar account of -- because of the higher impact of manpower costs on unit manufacturing cost of Extrusions. You can see the same kind of effects align for inflation and other increases in the '21 to '20 -- 2020 to 2022 period. That's the end of the turnaround plan section. I'm now going to come on to the prospects. Unfortunately, the -- in the United States, the Trump government has been ahead of other governments globally in protecting their manufacturing industry. In -- earlier in -- at the end of quarter 1, this year, the aluminum association took the opportunity to file an antidumping and countervailing duty application against 19 countries. That's the most -- almost all of the importers of common alloy. This is a particular group of products that represents, on average, about 22,000 tonnes or 10% of our sales into the United States. Not including our 6 Series of HT Plate products, which go into electric vehicle production in the United States, but also excludes can end stock. So we're starting to build some can end stock customers in the United States. Unfortunately, our capacity to shift those sales into other alloys and other products is limited by the design capacity of that equipment. And as Anton alluded to, we have spent a bit of money on debottlenecking this equipment to enable us to sell both can end stock and other products into the United States. Typically, these common alloy, standard products are low margin products. But have given us quite a significant actuator to enable us to fully utilize our hot rolling capacity. At this stage, the outcome of this application by the aluminum association is uncertain. It could go either way depending on how South Africa's or our Hulamin application is treated relative to the other 18 countries, if we are penalized more than the other countries or in line with the other countries, it seems likely that we'll be unable to sell common alloy into the United States going forward. However, if we have an easier dispensation than the other countries, things may actually improve. So it's really uncertain, and 2020 is going to be a year of significant manpower and management time on fighting off this threat. It doesn't appear -- we certainly are not overly optimistic that we'll have a particularly positive outcome. But our customer base are quite supportive, and we are putting an effort -- a significant effort into fighting this off, to see if we can engineer ourselves into a position where we have a slight -- an advantage over the other 18 countries. Our mitigating actions are focused on 2 core themes. One is other regions where we can sell similar products to other regions, both the EU, South America, Australia, Middle East. Those are the predominant areas where we can sell these products, as well as other products that are into the United States that are not affected by the AD/CVD. Those acronyms stand for antidumping and countervailing duties, and we have a number of actions in play there, not least of which is increasing our can end stock sales into both the United States and other regions. We do expect to see a return to profitability this year. Obviously, the COVID-19 shock has been a significantly negative impact both in the local and international markets. We are in the process of rebuilding our distribution channel. As I said earlier, we have already rebuilt our 6 series and some of our common alloy sales into the United States through alternatives to the master distributor that we used in 2019 and in prior years. But we are also in negotiations with a completely different type of partner, which is more of an administrative and finance partner than the physical distribution partner that we had in years gone by. So we will defend our United States market position through the various resources and alternatives that we have at hand. And to date, the sales have been in excess of our expectations. So although under pressure and having contributed to the negative sentiment and the negativity around the future which resulted in the impairment, all is not completely lost there, and we are looking to -- with the countervailing duty aside, rebuild most of our distribution into the United States during 2020. There are also risks associated with Hillside Aluminium. I've spoken about this quite significantly in the past, and this is a topic that is under scrutiny at the moment by the various authorities, NERSA and others, to verify a new electricity supply agreement between Hillside Aluminium, which is the South32 subsidiary and Eskom. That process is well underway, and we are expecting a positive outcome from that following the termination or the conclusion of the prior agreement between Hillside and Eskom. They are in a temporary period, 6-month extension there. And I think we will certainly be watching this with a very keen focus, but remains a risk to Hulamin with the local supply of primary aluminum being at risk until that electricity contract. So we have a new agreement with South32 and Hillside. But only can be ratified once this electricity supply agreement is in play. We are -- remain still optimistic about our local import duty application, and we are awaiting an announcement from DTI and government in that regard. We also expect the local markets to remain soft. The non-packaging markets are extremely soft, with automotive demand returning at between 50% and 75% of normal levels, other markets are starting to normalize slowly. But packaging can end stock has been particularly slow to return to normal, but it is returning to normal. Certainly, the impact of lockdown Level 5 and 4, where there were no alcohol sales, has been very negative for our can end stock sales into the local markets, but is starting to normalize gradually. With that, I think I'd like to hand over to the question-and-answer session. So I'm very happy to take any questions and answers that may come through.

Gentlemen, thank you for your presentation. We have 2 questions so far. The first question is from Abdul Davids from Kagiso Asset Management. Can you please unpack the ZAR 300 million CapEx? What was this spent on and what is sustainable CapEx levels?

Anton, I'm going to refer this to you.

Sure. So the CapEx spend in 2019 had -- it's 3 main elements to it. There was obviously the improvement CapEx that we've spoken about, there was the impact of the currency. I think the other important element was the CapEx spend on an integrated shut that we were planning for 2020. So there's a routine program that happens every 2 to 3 years where we bundle up the important obsolescence and risk mitigation type work, and that work happens across the plant in a coordinated fashion over a series of weeks. And so there was around ZAR 50 million of spend in relation to that program that is planned for 2020. Implementation of that is still somewhat uncertain given the situation around COVID-19 and travel, et cetera, involvement of specialists, et cetera. But -- and so looking forwards, I think, certainly, 2020 will be below the 2018 levels that's in terms of spend. And I think the -- if one looks at the 2017, 2018 kind of levels around stay-in-business CapEx, I think those would be appropriate levels to put into your model looking forwards. I hope that helps and answers the question.

And the next question is from [ Carlos Kutter ]. What tonnage will Hulamin do in first half 2020 on the Rolled product side? Are you expecting a loss for the 30th of June 2020?

Carlos, the first half of 2020 has been particularly difficult for Hulamin, particularly as a result of COVID-19, we were forced to close the plant -- the Rolled Products plant for a couple of weeks when lockdown was announced and particularly as a result of the inability to move people in and out of the plant. Since then, we've had some 60-odd cases of -- positive cases of COVID, but we have managed to operate the plant at about 80% of normal level, both as a result of softer demand as well as the disruptions -- the stop/start nature of production as a result of COVID-19. So the run rate for the first half of 2020 will be in the sort of 160,000 to 180,000 tonnes annualized level. And as a result, we are expecting a loss in the first half. However, since we've moved down through the lockdown levels, things are starting to improve, and we are, in quarter 2, operating more in the 180,000 tonnes level, and this is forecast to improve through the quarters as we move through 2020. And certainly, I'm expecting and pushing very hard to at least break even in 2020. Anton, I don't know if you want to add to that?

Yes. No, I think that's right. I don't really have a lot to add. And certainly, the first half has been a very tough half on the business. And yes, assuming that the lightening of lockdown continues, and we are certainly seeing that things are improving. And there are obviously some risks that Richard's alluded to. But certainly, we're expecting a much better Q3 and then into Q4.

The next question is from [ Brandon Weitenberg ]. You said in the notes to the financial statements, mention of an increase in net borrowings to ZAR 654 million was made. What will the effect of additional debt attained be on the business going forward, particularly in terms of the time duration of additional debt attained and effect of the business liquidity?

And so the -- yes, the debt has increased, and I think the actions we took in 2019 to lower our cost base, certainly stand us in good stead in 2020 where we've improved breakeven levels. We have adequate liquidity to see us through 2020, and as production starts to ramp up to normal levels, we will start to see the debt ratios we have. As I mentioned, incurred additional CapEx in 2019, and we're seeing the CapEx being a lot more moderated in 2020. We've also done a lot of work to manage our working capital through the cycle. So I'm confident that, that will return the debt levels and as operations improve, and we've conducted a number of scenarios, looking at various -- looking at all the various uncertainties and have worked with our bankers and we're confident around liquidity going forwards.

Following question is from [ Oyen Emtazula ]. He said, a high bulk of your shares are exported with a different -- sorry. With the different lockdown restrictions in different countries, are you able to still export?

The -- there was a concern at the outset of the South African lockdown that we would be out of kilter with other countries. It does now appear -- and certainly, our experience since probably the beginning of May, once we moved out of lockdown Level 5 and the blockages in the ports and in the operations and so on. We are able to export. Demand internationally definitely exceeds, on a percentage basis, obviously, local demand, and we are definitely able to export. There have been the odd blockage here and there. Ships pricing has been harder. But overall, the impact is percentage points rather than major impact on our ability to export. So demand globally, although it's tough, Hulamin is a small supplier in a big global market. And we are able to maintain our export sales, albeit at a softer level than you've seen in the 2015 to 2019 period. But those are slowly, gradually returning to normal, and particularly on the cans, beverage can side, our ability to export is limited more by our inherent capacity constraints from the equipment that we have, rather than demand in the markets and our ability to export per se.

Thank you. There are no further questions. If you'd like to make some concluding remarks. That will...

Hulamin is in the process of pulling out of a very difficult period, second half of -- in fact, throughout 2019 and the first half of 2020. I think our focus on the balance sheet and cash flow has stood us in really good stead, enabled us to maintain the business without the risk of liquidity crises or anything like that through this period. It doesn't mean we're out of the woods yet, but certainly things are looking more consistent, more predictable in the period going forward than the prior quarter. There certainly were periods in 2019 that were particularly challenging, with our distribution channel in the United States having been blocked. But thank you all for your attention, and please push the share price up.