Hulamin Limited (HLM) Earnings Call Transcript & Summary

Well, good afternoon, everyone, and our humble apologies for the delay today. I think the Gremlin Family had a family picnic today, and we somehow got involved in this. So all the Gremlins that could have joined the party joined the party today. But fortunately, we made the deadline. And just like to welcome a couple of new members of the team. First of all, Laren Farquharson, who has been acting as CFO since November last year and has walked through a rather challenging year-end process, difficult year to close out for obvious reasons with all the various disruptions in COVID-related issues working off-site and so on. But also a warm welcome to Mark Gounder. Mark has been with us for around about 2 weeks, joined at the beginning of April as the new CFO and has walked into this year-end results release. So a very warm welcome to you, Mark, and may this be the first of many presentations. The agenda for this afternoon, I'm going to, as usual, make some opening remarks and comments about what's happening in the market, I'll then hand over to Laren. Laren has got his usual deck of slides on the financial performance of Hulamin in 2020. He'll then hand back to me for a review of the operational performance of last year, and then I'll -- after that is finished, I'll conclude that with just some review of where we are on a strategy front and then close off the presentation prior to opening up for questions with just some prospects for 2021. I would like to add, though, that we really do apologize for the short time period between the availability of the results and SENS on this presentation. So if anyone would like to engage with us one-on-one, we're very happy to make ourselves available for any questions or any issues once you've had a bit more time. So either tomorrow or at any point today or night over the next few days, we're very happy to engage and respond to any queries or questions anybody might have. Right, moving on to the first section, just reflecting on Hulamin in 2020. As we all know, the COVID-19 pandemic posed loads of challenges to everybody throughout the world from medical services to doctors, to factory workers and Hulamin was not spared from that. We suffered quite severe disruptions into the first quarter and the second quarter of last year, as we all got used to the lockdown regulations that were promulgated by our President. It took a few weeks and a couple of months to get through that lot. If you recall, the ports were closed for a good month and a bit at the beginning of last -- of the second quarter last year and the Hulamin's 70% to 75% export exposure that provided a ban -- some challenges all over time. In addition to that, the local alcohol ban contributed a lot of challenges to our can stock sales in the local market. In addition to that, we also figured that a single serving soft drink market, which is where cans are mostly used, it goes to workers. And with the lockdown and the shutdown of the economy in the beginning of the second quarter, all can stock sales were down significantly, 49% actually during the full year last year. Hulamin extrusions is not -- did not get a CRTC certificate because it's not exposed to any essential services. And as a consequence, it was closed for more like 5.5, 6 weeks rather than a couple of weeks that rolled products was closed. So with our fixed cost base, this negative impact on volumes definitely affected profits. And therefore, we suffered losses across the board for the full year of last year. Manufacturing performance and volume performance has improved as the regulations -- the lockdown regulations have lightened as we've become more adept at working our way through them, and we are seeing that the number of the disruptions, particularly to our U.S. sales, which started in 2019 and then carried on again last year with the antidumping case has started to fall into place. And in both Rolled and Extruded products, volume performance is improving. We also remain focused on cost controls with those -- with the cost cutting and manpower headcount touching exercise that started in 2019, those -- I've got a slide to show you how we progressed in 2020. We've managed to maintain our proud safety record. We're very proud to have kept the injuries in spite of the distractions of COVID and many of our employees having lots of other things to worry about. When they come to work, we've managed to maintain our safety performance, and I'll also show that a little bit later. In addition, our prospects do seem to have improved in the local market with the International Trade Administration Commission, ITAC, finally recommending and getting approved by government that our application for input duties on rolled aluminium be approved, and that was announced late in December last year. And we have seen since then a measurable uptick in local demand. Then just some of the salient features of last year, group sales down 24%, down to 166,000 tons, which is certainly the lowest that it's been in quite a lot of years, down significantly from 219,000 tons of group sales last year and 228,000 tons, I think, the previous year. COVID-19 had an impact both on sales. In other words, our customers are not ordering as much as they always did as well as our ability to operate and manufacture during the heart of the lockdown. And in addition to that, another contributing factor to the lower sales was the rationalization of extrusions with the closure of the Olifantsfontein plant. So I'll talk a little bit more about that and how that is starting to show some decent performance, but it was always planned to reduce volumes and reduce costs even further. Working capital and cash management, we maintained our normal levels of inventory due last year. Unfortunately, the rand price of aluminum did rise quite sharply absorbing some working capital, Laren will talk a bit more about that when he gives more detail on the financial performance. And in addition to that, a number of early payment term customer supply chain finance system mechanisms that we had in place were withdrawn during the year largely as a result of tightening of credits worldwide. Net working capital, therefore, was ZAR 341 million higher in 2020. And to mitigate this, to some extent, we did sharply reduce our capital expenditure, not sustainable, but obviously, during the height of the cash crunch of last year, we managed to reduce our capital expenditure by about 55%. Looking forward, order book, as I said, has improved quite a bit in both our major operating divisions. The antidumping case in the United States has satisfactorily being resolved. We are better off than most of our competitors in the United States. And with the -- with that -- with the fact that most of them have faced quite high antidumping duties, market prices have started to rise, and we are now able to trade profitably again with our common alloy sales in the United States. Local duties, as I said, awarded or put in place by ITAC imposed by SARS at 15% for Hulamin Rolled products. And in addition to that, beverage can has returned largely with the lifting of the alcohol ban as a result of the lockdown. Looking at the rand dollar, which, as we know, affects Hulamin quite significantly. 2020 was quite a spike year. As you can see in the first half of last year, the rand spiked quite sharply up to the ZAR 17, ZAR 18 to the dollar level, averaged at about ZAR 16 -- just under ZAR 16.50 for the year, but has since then with the concerns, somewhat abating around the long-term impact and the impact on markets of COVID has come back down to below ZAR 14.50, I think, it is today, which is not great for Hulamin's exports. Just a few additional comments on what's happening in markets in which we sell. The LME has risen quite a bit towards the end of last year after falling sharply as a result of the sales demand in the first half of 2020. Broad-based softness, specifically people are not investing worldwide. But we are seeing quite a strong demand in the local as well as global markets for can stock. And some of the other markets drifting better from the very low levels of quarter 2 last year. In the EU and the United States, sharp falls in GDP, but steadily recovering. And in addition, the United States and EU, protectionism blocking out some of the subsidized suppliers has taken root. However, Hulamin is less impacted for a range of reasons, largely because of our free trade agreement in Europe and the fact that the evidence shows that we were not dumping in the United States. So happy to say that our international exports remain relatively intact. Locally, I've spoken about the impact on beverage cans. We are seeing further demand returning both as a result of soft drink and alcohol sales. In other sectors of the economy, the automotive transport, marine, general engineering, other packaging, building and construction remain in the doldrums. We're seeing massive drop-off in demand and export -- sorry, GDP numbers compared to 2018 and 2019. With that, I'm going to hand over to Laren, and welcome to Laren. And if you can just remember to give me a heads-up Laren, when you want your slides change.

No problem. And thank you, Richard. So perhaps Richard with that, having said that, let's move on to the first slide of the financial section, please. Thank you. So my job, I guess, is to try and add a bit of financial consequence, if you like, to many of the operational pressures that Hulamin faced in the 2020 year. And the first point on that slide has already been thoroughly covered by Richard around the decline in the sales volume and how that's manifested, particularly in the local market through the restrictions on alcohol sales, which lead to the local volume has been down as much as 36% against the prior year. But as I said, Richard has covered many of the reasons behind that. So if you look at the effects on profit, our normalized EBITDA was a loss of ZAR 89 million for the year. Not only did we have the volume decline, but we'll cover in more detail later on, but we also had a number of excess hedged positions, I'll get into that detail, which was a negative effect on our earnings of ZAR 0.27 per share or ZAR 114 million. All -- predominantly all recognized in the first half of the year and therefore, already disclosed in our interim results. In bottom line loss, what does that mean? Well, we had a loss per share of ZAR 0.75, better than the prior year by 81%, but one means to remember, of course, that the prior year was heavily detrimented by an impairment charge of over ZAR 1 billion. But what is relevant to dwell on this moment is really in the area of loss per share is that, that was also affected by a conservative decision to not recognize a deferred tax asset of almost ZAR 0.1 billion. So ZAR 100 million in the year and later on, we'll get into a couple of reasons behind that as well. When one talks about balance sheet, Richard has already mentioned working capital, and we'll have some slides to follow on that. But the consequences of the cash flows was that our net debt did rise to 35% of equity against the 11% we achieved last year. We talked about impacted by impairment losses. We were getting impairments in the 2020 year. But certainly, it has reduced the equity against which one compares the debt. That is the impairments in years '18 and '19 have reduced the equity. Debt equity covenant is 50%, consistent with the prior year. And consequently, we all believe that number. Richard, if you don't mind, perhaps moving on to the next slide. This is another more of a summary slide. So once again, I'll probably be quite quick in talking through this slide and get into some more detail on the slides that follow. But one can see on the extreme left there when we talk about earnings per share, the 2 gray blocks representing the years '18 and '19, significant negative numbers there, almost entirely due to the significant impairments taken in these years, both of over ZAR 1 billion each. The blue block then really represents the 2020 year largely the consequence of the low volumes. If one looks in headline earnings per share towards the middle of that slide, then, of course, we're no longer looking at the effects of impairment. And one can see that in the years 2016, '17 and '18, we were on a good trajectory, if you will. Certainly, some sensible or good profitability prevailing in those years, but we have become unstuck in '19, as explained in the previous year's results and again, in this year, where we see some negative blocks coming in there. 2019, impacted by -- also by a large number of non-trading items, chiefly the restructuring that we embarked upon in that year to reduce our cost base as well as nonrecognition of deferred tax asset and that nonrecognition of deferred tax asset continued in 2020 year as well as the effect of the excess hedges. So we'll get into some more detail behind all these items in the slides that follow. Richard progress, please. Thank you. So here, we're starting to see some of the more detail, if you like. And to give us some context, understanding the year's performance, the average LME, or dollar price of aluminum, did decline by 5% against the prior year. That's an average -- so it's an annual average of $1,704 per ton in 2020 against $1,792 per ton in the prior year. That manifests more in the form of our working capital. So that would have assisted working capital to some extent, but it also does have a smaller effect on our profits. But more compelling or more -- a bigger factor is what Richard's already highlighted in the graph earlier on the movement in the exchange rate. And we can see as an annual average, the exchange rate was 14% weaker against the dollar than last year. And given that chiefly, almost all of our conversion prices are priced in dollars, both the local and the foreign markets, we do find that there's a significant -- ordinarily would be a significant knock-on effect on our profits, had our volume being align to enjoy that benefit. We've discussed volume already, but you can see there in numbers, 24% down in the prior year for the group as a whole and a similar percentage down for the Rolled products division. The revenue then being ZAR 8 million (sic) [ ZAR 8 billion ] or ZAR 8.5 billion for last year -- sorry, 2020 compared to ZAR 10.7 billion in the year before. In profits then as we track down to low down on that slide, ZAR 73 million earnings before interest and tax in the 2020 year improvement of the prior year, but chiefly because of prior year you had the impairment. If we normalize them, and we'll have a slide that follows it explains how we've normalized. We see a loss in the current -- or the 2020 year of ZAR 154 million against prior year of ZAR 177 million. And we'll get into some of the detail on the next slides. So Richard, maybe move forward to the next slide for us. If one -- so that was -- that previous slide was largely around profits. We're still talking some headlines here before we get into detail. But if we start looking at what does it mean for the balance sheet and cash flow, Richard has identified that we did restrict our capital expenditure in 2020 to ZAR 114 million as a comparison. One can see that last year, this is as high as ZAR 311 million, which is a more practical number probably for the business. But the combination of restricted access to the plant during the COVID rise as well as a need to look after the balance sheet around the uncertainty of not knowing how long the restrictions would last mean that we did pull back on capital expenditure throughout the year and ended 55% lower. Net working capital as a percentage of revenue is quite a bit higher than last year at 27%. It's an interesting metric in the sense that it is a -- that is a comparison of a year-end net working capital position against the annual number of revenue. So it's not directly comparable in the sense that the year-end position on net working capital is a consequence perhaps over the last quarter's activities and in preparation for the very next quarter whereas, of course, the revenue reflects the full year. And as the revenue was light for the full year due to COVID restrictions and volumes, it has contributed towards the net working capital percentage of revenue climbing in the current -- in the 2020 year. In free cash flow before financing activities, it was a significant outline year of ZAR 485 million, more detail to follow. And in terms of our net debt, that rose from ZAR 272 million on December 31, 2019, to ZAR 819 million by the end of 2020. Next slide, please, Richard. So I did say that we have a slide that gives a bit of insight into how to be normalized. This slide is that one as well as giving us a bit of detail around the Rolled products and Extrusions contribution towards the group numbers. At an EBITDA level, Rolled products was almost a breakeven, ZAR 5 million loss, Extrusions of ZAR 5 million profit, and the group essentially grow at EBITDA level. We have normalized for the items that follow on this slide. We talk about restructuring costs. So last year, a significant ZAR 114 million cost in preparation for rightsizing the business, and various cost-out initiatives. We incurred the cost in 2019 to put those initiatives in place. In the current year, a little bit of trickle, if you like, a spillover from 2019, ZAR 13 million of restructuring costs in the current year Rolled and Extrusion division. The Isizinda, last year, more significant number at ZAR 65 million being the settlement of an equity option as we restructured that entity. In the current year, a much smaller than ZAR 11 million, where we lost control of the entity, what that means is in terms of the international financial reporting standards, we are obliged to recognize an entity as a subsidiary for a number of -- in a number of instances, one of them being, if we essentially have control of that entity's assets, how those assets are used. And in last year, that was true. In the current -- in the 2020 year, it was no longer true because the assets -- the most of the productive assets there were sold into the Rolled products business and consequently, the remaining assets in the Isizinda business were no longer controlled by Hulamin as a group. And it is, therefore, treated as a joint investment and a joint venture going forward. And as we deconsolidated that item, it resulted in an ZAR 11 million effect in the 2020 year. The metal price lag at the bottom of that slide is very significant being one compares against the previous year. And then in 2019, it was a ZAR 68 million loss, which we add back would be normalizing. And in the 2020, it was ZAR 112 million profit, we deduct to arrive at a normalized EBITDA of ZAR 89 million for the group against ZAR 313 million normalized in the prior year. We don't normalize for it. However, just to highlight that the current year's ZAR 89 million normalized EBITDA loss is after excess hedges of ZAR 114 million, and I do promise to explain what that means. Richard, if we move on to the detailed slides, please? Next one. Thank you. So this has been consistency with the previous presentations, just to make sure that everyone appreciates some of the drivers of the financial performance of Hulamin as a company or as a group. And so hopefully, it's familiar to many of the audience. But in the diagram towards the top, we just simply essentially demonstrate that the cost of aluminum is a pass-through. We acquire aluminum at the market price, and we sell it again at the market price. Naturally, there is a small delay physically between the time of purchase of any particular ton of metal and the subsequent sale thereof. And during that time, the value of the metal will change. And therefore, while the market prices change and there's a little bit of a lag that comes through on it. But over a longer term trajectory, it is a direct pass-through. Interestingly, from a cash flow point of view, that effect is less pronounced, but on profits because the financial rules require supply of FIFO to our cost of sales, we will recognize cost of sales at the historic purchase price. The top blocks in light blue, they then really start to talk about the real contributors to the group's profits in the sense that the conversion cost and some of the material costs that we incur in the production process or add to the primary aluminum to alloyed are mainly in rands and largely fixed, fixed in the sense of have a relatively low sensitivity to production and sales volumes. Towards the right, we can see that our revenue, our conversion would be a portion of the revenue or what we often refer to as rolling margin is almost entirely foreign currency-denominated. Even in the local market where the invoicing might very well be in rands, the underlying price discussions or negotiations are in foreign currency. So we have a foreign currency-based revenue, whereas a big part of our costs are actually in rands and fixed. Towards the bottom there, we're just trying to explain what does it mean in terms of the 2020 year performance. That sharp currency weakening would have certainly assisted the profits in the year. But to some extent, offset by these excess invest margin hedges, get into detail to come, I'll keep promising that. And we talk there about volume sensitivity, the fact that we do have a low volume sensitivity in our fixed costs. And as the volumes decline, it was quite tough, of course, in this business, therefore, to take significant costs out of the business. We did achieve that, but it was against the normal trend in the sense that we have this high fixed cost base. And we've always spoken about the element of being a pass-through. So Richard, if you move on to the next slide, please? Okay. So the much promised explanation of the excess hedge positions. Once again, a slide that we elected to keep consistent with the half year just to make sure that we're not confusing any members of the audience. But it's also valid because this excess hedge position was around for the first half of the year and manifested in the losses chiefly in the first half of the year. The left-hand graph is -- might look complex, but it's really just overlaying in the blue line, the movement in the dollar price per aluminum, how that ended 2019 at ZAR 1,800 per ton roughly. And during the first half of the year declined significantly to a low point around the 6th of May, where the decline was 20%. However, in the opposite direction, we had the exchange rate in yellow graph -- the yellow line rather, climbing from roughly ZAR 14 to the dollar at the start of the year to a high in May or well over ZAR 18, almost ZAR 18.88, it's almost ZAR 18.90 at that point in time. Now the combination of those, what we call our rand price of aluminum, where we take that exchange rate multiplied by the dollar price. And it's that combination that's quite relevant in understanding metal price lag. If we look -- so that's just data to interpret what happened in our hedging. Towards the right, one can see that in the top dotted line, in 2019, that reflects the sales volume for the year annualized by month at roughly 200,000 tons in the graph. And on that basis and looking forward at the time in early 2020 and late 2019, we chose to put in some hedges to protect us against auto locker what we believe to be a relatively weak rand. We locked in rates of over ZAR 15 to the dollar early in 2020 and late in 2019. But we were -- thought we were being conservative and certainly didn't choose to hedge the 100% of the exposure. We targeted roughly 80% of the exposure and hedged at below 195,000 tons. One can see, of course, the rapid fall off in our sales from around January and February, it was approaching the hedge levels right down to April, May, June at significantly lower levels. And consequently, having sold forward the currency at roughly ZAR 15 or higher per -- to the dollar as the rand weakened significantly, we incurred significant losses on those hedges. Ordinarily, we would have made opposite significant gains on our revenue, but with -- in the absence of volume, of course, the revenue wasn't enough to counteract that hedge position. So not only did the results of the COVID and the lockdowns strangle our volumes, but it also meant that the hedged strategy proved to be very much against Hulamin in the first half of the year to the tune of ZAR 114 million. Richard, if you can move to the next slide. All right. So this is now trying to compare 2019 normalized EBITDA to a similar number in 2020 and what was the effect of all of these currency and volume effects on profits. If we move from the extreme left where we put in there -- we start with our normalized EBITDA in the 2019 year of roughly ZAR 313 million. And we've spoken about the currency weakening. Currency weakening, had they been applied to a volume level of some things similar to what we achieved in 2019, would have certainly improve the profits quite significantly. That first green block there being in excess of ZAR 200 million improvement in EBIT that we would have achieved and had the volume has been around. Inflation, the next block is inevitable. We always have inflation year after year and as much as the currency assists the company, the inflation effect on our rand costs eats into that benefit to some extent. Commodity prices are small variance, but just quickly to explain what it represents. It represents some of the costs of alloying the aluminium. So we buy aluminum, but we added a couple of alloying agents and those are commodity-based prices. And we have a variety of other different factors that plan -- the commodity prices planted. And those on the whole reds, last year, were a bit lighter, a bit lower and therefore, slightly beneficial to the profits. So the next -- the first -- well, the second other large blue block the large navy blue block is what we would expect our earnings or EBITDA to have been after those externalities, after those effects on -- there's external effects on the business. To move ahead maybe a bit more rapidly, volume, you can see was a significant decline. We've already spoken about that, ZAR 586 million coming of profits due to volume and then pricing as well was under pressure in the current -- in the 2020 year, not on impacted the soft markets impact on volume, but also pulled our prices per ton down. We did manage to reduce the costs in the light of the 2019 initiatives that we've begun as well as the closure of certain parts of the plant meant that we were able to take quite a large volume of cost out of the business as represented in the green block towards the middle of the slide. Excess hedges already explained, and then we've got a small contribution from the other divisions to arrive at normalized EBITDA of about ZAR 89 million for the year. Tracking that forward to normalized headline earnings, we can see the effect of the deferred tax asset nonrecognition. It's quite a conservative approach. We don't talk about it also. I'll quickly explain what happened there. The fact that the outlook is better at the end of December 2020 than it was at June 2020, nevertheless, it felt premature to recognize the deferred tax asset, given that these are possibility of resurgence of COVID and there's a number of other -- the degree of uncertainty in the world markets are certainly higher these days than it's been in many past years. And therefore, we were conservative and elected not to recognize a deferred tax asset and that hurt the earnings feel like, I think, ZAR 0.07 per share. Richard, if you can move forward, please. In net debt terms, we've explained the position of cash flow from operations, net of the excess hedges. The other big read in the middle of the block there is one we still middle of the graph is what we still need to speak of, which is changes in working capital. So we saw the working capital, as Richard already mentioned, consuming ZAR 355 million of our cash such that our net debt by the end of the year was ZAR 818 million. Richard, if you can move forward, and we'll get into a discussion of working capital. If we look at the components then of working capital, our stock is somewhat higher than last year inventory. Less because of tons and more because of that rand price of aluminum climbing quite considerably from December '19 to December 2020. And that would have played through into all elements of working capital. So the stock tons largely unchanged, but certainly, the price increasing. Also having -- as our sales mix shifted towards the exports throughout the year with the effect on the domestic market of COVID being more significant than the export market, it meant that the cash conversion cycle there is longer, and consequently that did put pressure on our working capital. And then as Richard also already mentioned, the liquidity -- the tight liquidity generally in the market and in particular, our local market, meant that the availability of some of our customer supply chain finance mechanisms was less than 2020, and that resulted in an increase in the debtors position by the end of the year. Consequently, net working capital market be up on the prior year. Richard, move forward, please? In capital expenditure, not much to say here. We already expected that we restricted capital expenditure purposely to look after liquidity and cash flows and because we simply weren't sure when things might reverse. We're quite conservative there. The decline in that green line representing depreciation is a consequence of the large impairments in the 2018 and 2019 years. And as a result, the book -- the value of assets that needed to be depreciated has come off. Moving forward, Richard. The last slide in the finance section, it tends to just say what does that mean in terms of our ability to fund the business now and going forward. Our borrowings, we remain clearly in the green block in the 2020 and the top graph demonstrates out the borrowings increase significantly over 2019. And therefore, the headroom has reduced, nevertheless, remains healthy. We remain a growing concern, comfortably so. And if one looks forward at least 12 months or more from this point forward, we are confident that we have sufficient borrowing facilities to fund the business cash flow requirements. And as much as in the bottom graph demonstrates our debt-to-equity position also has deteriorated to 35% by the end of the year, it is still well within the debt equity covenant of 50%. And back to you, Richard.

I hope I'm unmuted now. Thanks. So just going back to the summary of 2020, a really tough year for Hulamin. We struggled on just about all fronts except safety. But health manufacturing, operations, sales, balance sheet, everything was a real tough year. There's a head down, get out of the trouble and I'll talk a little bit later about what our plan is to improve matters. But for now, just to show some of the numbers operationally of why it was so difficult. Top left, you'll see the sharp falloff in volume over the recent years. This graph goes back to 2015 and certainly our toughest year volume-wise since then. Safety wise, as I said, maintaining a good level. U.S. dollar margins are much the same for a range of reasons. I think just the only other point I wanted to make on this graph is if you look at the bottom right, the dark blue line talks largely to our can stock sales. And although not really showing it although our exports were relatively healthy last year other than during the export ban and the ports were closed, the local demand for can stock has risen sharply. So in that local sales mix, you are going to see that dark blue line rising over the next couple of years in all likelihood. We've got very strong order book from our local cans customers at the moment. Looking at this graph that I've shown for a couple of years now. This is the total costs in gray -- sorry, in blue and the total revenue in gray. And you can see, obviously, when costs are higher than revenue, you have a loss, and Laren has described that. That really is a result largely of the fixed cost nature of the business as the volumes increase so the unit cost decreases. And you can see that in this graph over here, the significant shortfall in volume in the first half of last year gave rise to a very significant increase in unit costs. Obviously, the denominator being under pressure. And as we see the volumes start to grow again, our plan is to, therefore, convert this back into good profitability, good EBITDA and good cash flow. Looking at the month-to-month sales, here you can see the quarters in the green yellow, whereas the month, as you can see, the very sharp fall of enrolled product in to under 100,000 tons in April of 2020, rising to closer to 200,000 by the end of quarter 4. And we are maintaining that level. But it's fair to say that even in 2021, volumes are not what they were in 2018 and 2019. It's been -- it remains quite a struggle to get the business moving to its most efficient and throughput high mode of those years. Looking at the product mix, you can see how the export common alloy fell off sharply in 2018. That was, as a result, both of the disruption to our individual, our personalized distribution channel in 2019 as well as the antidumping case that our customers or our competitors rather in the U.S. throughout in 2020. But overall, the can stock sales, as you can see, are pretty much stable. We had a record can stock year in 2019, second half. And we remain focused on that as our kind of bread-and-butter core products with a key focus on that in 2021. Both to capitalize on good market conditions, but also as a result of the local import duty in South Africa meaning that our local can store customers are dependent on Hulamin and our recycling facility. The -- as you can see, the rolling margin is pretty stable. This is obviously an index. There's not numbers in rands or dollars or gold bars or anything, but just an index number to protect against competitors. But as you can see, a pretty stable year in 2020 compared to prior years. I have made some comments about inventory levels. Inventory levels were, obviously, one of the levers that we could pull in 2020 to manage working capital. You can see that in the distribution channel problems we had in the first half of 2019, but those numbers rose sharply to close to just over 60,000 tons, but we have managed -- we did manage to get those to below 50,000 tons by the end of 2019 and maintained that level more or less a slight 3% increase in 2020, but that's a normal level of inventory in Hulamin rolled products. Looking at costs, I did show this waterfall graph last year. Just showing overall costs in 2019 billions compared to 2020, and where the differences come from. You can see that a lot of our costs are actually volume-driven even though we do have a more than 50% fixed cost base. But in addition to that, we had some mix changes. We produced more expensive products, hand stock, particularly, which -- the big chunk of that is paint and lackers, which is where our can stock products. Weaker currency means that some of our import costs are higher, inflation obviously does chip away at that. Some of the commodity prices were a little lower last year. Laren already alluded to that, and then a chunk of over ZAR 400 million of cost savings for the year. Just looking at one of the key items, I did track this in prior years. These are number of employees. We had over 2,000 employees in 2018. And in 2019, we reduced that by about 15% and maintained those numbers since the end of 2019, 2020 and going into 2021. We are looking significantly at skill levels and how we can increase throughput in the business and obviously, maintaining cost reductions while improving skill levels is a key challenge. I do want to point out that there is a necessary and important planned maintenance shutdown started last week. We have a number of key items of equipment that over and above normal routine planned maintenance. There are a few upgrades that we had planned. The which is our largest asset by value keeps having to have software upgrades, the main driver on the is being upgraded as we speak. Likewise, we did pick up some risk to the gearbox. That is also being maintained, as we speak, both seem to be going reasonably well, although as you can imagine, there always are challenges in every bit of maintenance. In addition to the hot mill we are using this opportunity to do long cycle planned maintenance in a lot of our other equipment and so on. Unfortunately, one of the other key upgrades on one of our smaller but important pieces of equipment is it that is focused on can stock. We've had to postpone until 2022 because of the unavailability of international technicians. This is a system upgrade, a software system. As you can imagine, these assets are controlled by quite high-tech control systems, and our suppliers felt that it was too risky to undertake it even though we did those risk assessments on the can stock and the others that this one particularly was too high risk to conduct on our own. Just moving on to what is our plan to get out of this really, really challenging period we've been, and I think that the easiest way to articulate it is to use this chart. It's a typical breakeven, which is on the vertical axis, our fixed costs in rands. On the horizontal axis, the volume capacity and really, our focus in the short to medium-term is very much to focus on reducing costs. As you see there, I've highlighted really taken significant costs out of manpower. We remain focused on energy and few other costs, not least of which is paints and lacquers, but at the same time, getting back up to the over 200,000 tons in rolled products is a very important throughput figure to increase the profits of Hulamin in 2021 and 2022. Moving on to what is the strategy beyond 2022. This is to continue to increase and improve our mix of high-value products. What this does is it steepens the breakeven line, which means that at the same volume, we'll be able to make higher profits. We continue with our cost reductions, but moving more into structural costs like we've shown in extrusions, rationalizing product ranges, being able to remove operations -- multiple operations by focusing on higher volumes of fewer product lines. But also, we are starting to show some significant improvement in market penetration in the automotive body panel markets, our experience with some of the hard alloys we good at rolling for can stock are also used in automotive, and we're starting to show some traction there. But that's really the graphic illustration of what our plan is to turn the business around both of those graphs in the short, medium and longer term. Just a very brief update on the antidumping case. The suit was filed by the U.S. Aluminum Association that represents a cluster of our U.S. competitors roughly a year ago, broad-based against about 50 mills from about 19 countries, quite a narrow product range. It's in the commodity side of our business, which excludes our beverage can material and our hi-tech plate product. It was concluded in March this year, where our duty finally was around 8% -- just under 9% of which is better than 2/3 of our competing exporters into the United States. As a result of this blockage and imports into the United States, the demand is more resilient in the United States, whereas supply has been curtailed, and we are seeing market prices in the United States so to rise in this common alloy area. There are a number of automotive opportunities where some of our German competitors who have been worked by the antidumping case were quite exposed. We are now going to chase after and pick up some of those opportunities. And what I can say is part of the very significant challenges in 2020, the net impact of this case does seem to be turning in our favor. It is the early days, challenges remain largely in getting the volumes out. But it does appear that the target does seem to be turning in our favor. In South Africa, the long-awaited -- the import duty case that we submitted in November of 2018 finally went through and treasury in favor of local production. The ITAC rule that the technical investigation found that harm had been caused to local manufacturers as a result of those imports from low-cost countries. The customer base are protected because there remains a free trade agreement with the EU. So our customers can still import their requirements. If they're not happy with Hulamin products or our product range is not sufficient, they can still import free of duty from our EU competitors. The final duty, as I said earlier, was 15%, which is in line with the GAAP requirements. The impact on Hulamin is going to be largely in can stock, but also a broad range of other local products. I think just one qualitative comment before I move on is to say that our experience has been that with the closing of the European and U.S. markets to our Chinese competitors, there has been a significant element of dumping by these competitors in the South African market. And we're very pleased to hear that or to see that the government, the ITAC, the DTI has agreed with us on this case that there has been a significant element of dumping into the South African market. Our U.S. distribution channel had challenges, as you may recall, I reported in 2019. We've had a single channel for more than 30 years that had served us well into that market that buffered our volumes in the market. Demand was low. They would take into stock payers and market -- the demand was high, they would sell-out of stock. They offered us very competitive payment terms, very short cash cycle. Obviously, they did take that for a margin. And our experience has been that they were relatively high costs. But what we didn't see at the time was the risk of consolidation that if that distribution channel did get disrupted, we'd have a real volume problem in the business and that's what you saw in 2019. From 2020, we've gone direct to our customers. We have a very loyal customer base. They love the Hulamin brand, loves our product. We've taken on resources, additional resources. We always maintained a small team in the United States, but we've doubled up on that team and are selling direct to our customers. So we have many, many, many direct customer relationships in the U.S. and not a single channel anymore. So we've mitigated that consolidation risk. Although the margins are higher, we also have taken on higher costs. And obviously, the increase in the sales team has been fixed cost so that does contribute to the fixed cost nature of the business. These customers that we're dealing with are not able or willing to pay us on the short cash cycle. So the cash title has lengthened a bit. That has also contributed to the increased investment in working capital that Laren spoke of. But as I said, just to confirm that we now feel a lot more confident that the consolidation risk has been mitigated. to prospects, you are ready not to, in any way, be little the challenges that Hulamin faces. 2020 was a very difficult year. I did have a little bit of here at the beginning of the year, a lot of that has gone now from just the stress and the concerns and the hard work around keeping the business going, keeping the customers happy, keeping employees happy and so on. But we are very focused on rebuilding manufacturing performance in spite of the planned maintenance and equipment upgrades that we currently working on, those will be complete by the -- towards the end of April, and we'll be getting back to full volume. We have managed to build up a little bit of stock ahead of the shutdown, but it will have a negative impact of about a net impact probably of 7 or 8 days of production on the business. Local demand, as I just have alluded to on a few occasions, is stronger now, but we are waiting a third wave. Experience around the world has shown that there's quite a high probability of a third wave. And should the government reimpose an alcohol ban, that will have a negative impact on can stock sales and may disrupt some of the volume that we're now seeing in the business. Internationally, our order books are full. As I said earlier, our beverage can demand globally is strong. However, there's still lots of uncertainty, as you know, in the global markets. We are beginning to convert some of our commodity sales in the United States into end user, what we call, end user niche opportunities in the automotive markets. Those are coming through both in the electric vehicle market as well as in the standard markets. And then finally, our other focus for the year, as I said earlier, in the breakeven strategy slide is to focus -- remain focused on cost controls. We have to be cost competitive. We won't survive if we're not. I'm happy to close off there and hand over to any questions that might arise.

There's a question here from Tinashe. Any updates on the Hulamin, the Eskom power agreement with Hillside? Just to answer that question. Just to recap where we are, an agreement was struck between Eskom and side back in 2019. Unfortunately, the legal framework within which nurse who has to adjudicate on that deal. The legal framework was not sufficient for them to express an opinion in spite of the fact that the SOE requirement is that energy contracts need to -- of that magnitude need to be approved by That has subsequently been changed so that the process of getting the legislation -- the legislation change has now been completed. However, that is not in time for the end of 2020. But fortunately, the Eskom and boards have concluded a temporary extension until the end of July this year to give time to adjudicate on that. So we have a temporary extension until end of July. Next question is, what is the volume and EBITDA impact of the planned maintenance and upgrades? Was it possible to do the maintenance and upgrades during the period of weak demand last year? Hulamin generally produces about 500 to 800 tons of product in rolled products per day. On a good day, it's closer to 500, 600, 700 tons. On a more average day, it's close to 400, 500 tons. The shutdown, as I said, will be a net impact of, say, 8 days. So the total impact will be somewhere in the region of 4,000 to 5,000 tons in raw products. However, there obviously is quite a disruptive impact as you start equipment, even though the shut itself is only 8 days, in some cases, 10 days, in some cases, 12 days. So I would say that roughly 10,000 tons is probably a more reasonable number to expect. Could the maintain -- some of the maintenance, we do a lot of maintenance last year. Unfortunately, with the COVID-19 impact, a lot of the upgrades and spares were not available during the course of last year. So we're forced to postpone the shutdown, the technician. Some of the technicians that are on site, some of the international and local technicians were not available during the heart of the COVID crisis even though we were operating at a skeleton level. So unfortunately, these -- the major upgrades were not able to be done during the shutdown or during the start of the shutdown, the COVID crisis. Also to mention that there are items of clients that we actually need to get into on quite a detailed level. But gearbox, particularly on the, is a -- it's an item that you only want to do once. So while there is an upgrade to the replacement, let's call it, to the gearbox, there is other planned maintenance reaching -- replacing of more simple bearings and so on that can only be that -- we only want us to do that once. Too risky to try and do twice. The third question, any update to more recycled material? There is -- there has been an improvement. Unfortunately, I don't have the data, and we feel it seems to have escaped the presentation. But to if you stick around, I'll make sure that we give you that data in due course. I don't know, Laren, if you've got a number in your head?

Richard, I would also prefer just to check our numbers before we give some information about being correct.

I think if we can just pause for a minute, there don't seem to be any more questions. Otherwise, I'm just going to thank everybody and thank Laren for his input and his stress that he's incurred. Thanks to Mark, also for coming to the party in the last couple of days and Nomra, the corp can people, and thanks, everybody, and look forward to seeing you again in a few months. There we go. See, there's a question here from Karl. Would you please expand on plans to keep energy costs down, especially in the context of the Eskom tariff increase. In addition, briefly, can you provide a breakdown of revenue in terms of international or local sales. Laren, I'm going to ask you to help me on some of that. I'll talk to the first part. If you can talk to the second part, when I'm done, I'm talking about energy costs. So Karl just to point out that our energy consumption is roughly 60% gas and 40% electricity. Obviously, the sharp increases in electricity tariffs are quite concerning and do play against our ability to save money on energy consumption. However, I would say that we are quite well advanced on a number of efficiency drives. We have improved our unit gas consumption quite significantly by investing in things like insulation and better energy usage. There are a number of energy -- recapturing of energy that you can -- that we do in our furnaces to improve energy consumption. Maybe Laren, can you comment on the international/local breakdown for 2020?

Sure. So of our total revenue for the 2020 year of ZAR 8.5 billion, just shy of ZAR 3 billion was from the South African market. So therefore, the remaining ZAR 5.5 billion coming from export.

That's not far of 60-40?

Correct.

Thanks. Another question, guideline on volumes for the year? We are not issuing a forecast on volumes for the year, but I can say that we're targeting in excess of 200,000 tons. I'll refresh again to see if there's any more questions. There's a question, Laren, for you on restoring the balance sheet. I'll give you a chance to think about that, and I'll come back to you. Another question, you say that you have a full order book in the international markets, but you declared in January 2021, a kind of force majeure flows on your customers in Europe, waiting for more than 3 months for your delivery of product. Can you explain this problem a bit more? Yes, certainly. So obviously, we got into a situation where our customers, particularly in contract situations where we have contracts with customers. We overestimated our ability to turn up production during the COVID crisis. So this is really all about making sure that we, yes, protect the company from claims against non-delivery of product during the first quarter of the year, largely as a result of our inability to ramp up the volumes as we had planned. And then the last question, Laren, if you can also answer this one. Can you give us a figure of your credit headroom as the end of March taking into account your increased turnover. Unfortunately, we don't disclose these sort of numbers in between finance periods. So maybe, Laren, if you could just give a broad guidance there? The first question, Laren, just to remind you, is what are the plans to restore the balance sheet? And secondly, maybe just some broad guidance on the headroom on borrowings at the end of the second -- end of the first quarter?

Sure. So when it comes to restoring the balance sheet, naturally, we're hoping, as we go forward, we're going to return to strong profitability and strong cash generation. So there should be some organic improvement in the balance sheet. But over and above that, we are in discussions with a variety of different funders around different mechanisms of funding not only to perhaps improve the overall funding facilities just to facilitate any future needs but also perhaps to take some of the inventory working capital off the balance sheet. These are discussions that are in progress. We may or not be 100% successful with them, but we're certainly looking quite closely at different means of improving the balance sheet in that regard. In terms of the credit headroom, as at the end of the first quarter of 2021, as Richard said, we're uncomfortable giving absolute numbers. But we can certainly say that given that we're now in April, we can constantly look backwards and see that we had well -- we weren't tight. We had -- certainly had excess credit room and there weren't any concerns, both in terms of absolute borrowing levels and in terms of the various covenants that might apply to our funding facilities.

It doesn't seem like there are any more questions. I've just refreshed. So maybe that's the queue to end the presentation, and thank everybody for attending, and we look forward to greeting you and meeting you and presenting to you again in a few couple of months' time.