Hulamin Limited (HLM) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Annual General Meeting of the Shareholders of Hulamin Limited. I am Thabo Leeuw, the Chairperson of the Board of Directors of Hulamin Limited. The AGM is being conducted in full electronic format in accordance with Section 65, 63(2)(a) of the Company's Act of 2008 as amended, and the company's memorandum of incorporation. Accordingly, the proceedings of this meeting are being recorded and broadcast live -- via live webcast. With me physically in attendance is the entire Board of Directors of Hulamin, the Company Secretary and the Interim Chief Financial Officer. Our external auditors, EY and the transfer secretaries, Computershare and sponsor are also in attendance via the webcast. The notice convening this Annual General Meeting along with the 2023 integrated report, the 2023 annual financial statements and the sustainable -- sustainability report were issued on the 25th of April 2024. Should any shareholder have questions on these documents, and the resolutions tabled at this meeting, please send your messages now through the comment section of the virtual platform. I will endeavor to respond or direct the question to the appropriate person. We will try to group the questions accordingly, according to the themes and respond to them collectively. I propose that the notice which contains the details of the ordinary and special resolutions to be considered be taken as read. Okay. In terms of the company's MOI, the quorum for an Annual General Meeting -- the quorum for an Annual General Meeting of Shareholders is 25% of the voting rights entitled to be exercised in respect of at least one matter to be decided at the meeting and at least 3 voting members present at the meeting. Company Secretary, please confirm whether we have a quorum.

The meeting is duly [ curated ] chair.

Thank you. I therefore declare the meeting to be duly constituted for the ordinary and special resolutions to be considered. In terms of clause 32 of the company's MOI, unless otherwise resolved, voting at this meeting shall proceed by way of a poll. Shareholders were encouraged to submit votes by proxy in advance of the AGM. I would like to thank the shareholders who have submitted their proxies, which have been duly received and recorded. Shareholders who wish to vote at this meeting may do so on their voting paper and e-mail the voting papers to Computershare at proxy@computershare.co.za. In order to expedite the proceedings of this meeting, I propose that you complete the voting paper after each resolution is put to the meeting. The voting paper will be collated and counted after all the resolutions have been voted upon. Where upon, I will then announce the results of all the resolutions put to the meeting. In terms of the presentation of annual financial statements, the company's audited annual financial statements for the year ended 31 December, 2023, were distributed to shareholders and made accessible on the company's website since the 25th of April, 2024. The audited annual financial statements incorporate the reports of the Audit Committee, the Directors and the external auditors. They are hereby presented at this meeting in accordance with the provisions of the Companies Act and are available for inspection. If there is no questions regarding the annual financial statements, I shall move on. And I move to the presentation of the Social Ethics and Transformation Committee report. As required in terms of Regulation 43-5(c) of the Company's Regulations of 2011, the Social Ethics and Transformation Committee report for the financial year ended 31 December 2023 is presented to shareholders. The report was issued as part of the integrated report on the 25th of April 2024 and is accessible on the company's website, which is www.hulamin.co.za. If there are no questions regarding the report of the Social Ethics and Transformation Committee, I will move on. Can I just quickly inquire from the Company Secretary of the questions that have come through the web link, are there any questions relating to the social ethics and transformation committee report.

There is no question relating to the social ethics and sustainability report, Chair. And we have just looked again there is none that have come in recently on the platform.

Thank you very much. We'll then start dealing with the ordinary resolutions number one, which deals with the reelection of nonexecutive Directors. Ordinary resolution was 1.1 to 1.3 relates to the reelection of nonexecutive directors of the company, who retired by rotation in accordance with Paragraph 33-11 of the company's MOI and who are eligible and available and have offered themselves for reelection. The resolution number -- ordinary resolution #1.1. As this first resolution relates to me, I will ask one of my colleagues, Dr. Mehlomakulu, to read and propose the resolution.

Thank you, Chairman. I propose Ordinary resolution 1.1, that Mr. Thabo Leeuw be reelected as an independent nonexecutive Director of the company.

Thank you, Dr. Mehlomakulu. I will continue with the remainder of the resolutions. I propose ordinary resolution 1.2 that Charles Boles be reelected as an independent nonexecutive Director of the company. Then move on to Ordinary Resolution #1.3. I propose Ordinary resolution 1.3, that Jeff Watson be reelected as a Non-Executive Director of the company. And then proceed to Ordinary Resolution 2, which deals with the election of Audit Committee members. Ordinary Resolution 2.1 to 2.3 relates to the reelection of members of the audit committee of the company, who are eligible and available and have offered themselves for reelection. Starting with ordinary resolution 2.1, I propose ordinary resolution 2.1 that Dr. Mehlomakulu be reelected as a member of the Audit Committee. Then Ordinary Resolution #2.2, I propose that Naran Maharajh be reelected as a member of the Audit Committee. I propose Ordinary Resolution 2.3 that Charles Boles be reelected as a member of the Audit Committee, subject to being elected as a director in terms of resolution 1.2. And I proceed to deal with Ordinary Resolution #3, which is about the election of social ethics and sustainability committee members. Ordinary Resolution 3.1 to 3.4 relate to the reelection of members of the Social Ethics and Sustainability Committee of the company, who are eligible and available and have offered themselves for reelection. Dealings first with 3.1, I propose the resolution that Vusi Khumalo be reelected as a member of the Social Ethics and Sustainability Committee. Then 3.2 propose that Peter-Paul Ngwenya be reelected as a member of the Social Ethics and Sustainability Committee. I then also propose under Resolution 3.3 that Ayanda Mngadi be reelected as a member of the Social Ethics and Sustainability Committee. Then lastly, on the 3.4, I propose that Dr. Mehlomakulu be reelected as a member of the social ethics and Sustainability Committee. Then we get to deal with Ordinary Resolution #4, which relates to the appointment of external auditors. I propose, the reappointment of Ernst & Young Inc. as an independent auditor of the company for the ensuing year and until the conclusion of the next AGM. The designated auditor being Mr. Farouk Ebrahim. Then we deal with ordinary resolution, number five, which is about the approval of the remuneration policy. To consider and, if deemed appropriate, to endorse through a nonbinding ordinary vote the company's remuneration policy as set out in the remuneration report contained on Pages 56 to 61 of the ordinary -- of the annual integrated annual report. I propose ordinary resolution 5, the approval of the remuneration policy. Then comes the remuneration implementation report under Ordinary Resolution 6. To consider and if deemed appropriate to endorse through a nonbinding advisory vote, the company's remuneration implementation report as set out on Pages 62 to 66 of the integrated report. I propose ordinary resolution 6, which is about the approval of the implementation report. Then proceeding to ordinary resolution 7, approval of authorization to sign documents. This is to consider and if deemed appropriate to endorse the authorization to sign documents to give effect 2 resolutions. I propose ordinary resolution 7, approval of authorization to sign documents to give effect to the resolutions. I'll now move away from ordinary resolutions and proceeds to deal with the special resolutions. Special resolution #1, which is the approval of Non-Executive Directors' remuneration. To consider and, if deemed appropriate, grant the company authority to remunerate its nonexecutive directors for their services as directors and/or pay any fees related thereto on the basis outlined in the notice of AGM and for the said authority to be valid with immediate effect until the next AGM in 2025. I therefore propose Special Resolution #1, the approval of nonexecutive director remuneration. Then we deal with special resolution #2, which deals with the approval of financial assistance to subsidiaries and any other related and interrelated entities. This is to consider and if deemed appropriate to authorize the company to provide financial assistance to the subsidiaries and other related and interrelated entities as contemplated in Section 45 of the Companies Act and on terms contemplated in special resolution 2 contained in the notice of AGM. So I then propose special resolution #2 that is the approval of financial assistance. Move on to special resolution #3. The approval of the general authority to repurchase the company's shares, which is to consider and if deemed appropriate to pass this special resolution to authorize the directors to approve and implement the acquisition by the company or by any other subsidiary of the company in terms of the Section 48-2(b) of the company's Act of ordinary shares issued by the company by way of a general authority, which shall only be valid until the company's next Annual General Meeting or 15 months from the date of the passing of this special resolution, whichever period is the shorter and subject to the company's act, the MOI and the JSE listing regulations. I propose special resolution #3, which is the approval of the general authority to repurchase the company's share. As all the voting of the resolutions put before the meeting is complete. I will pause to allow the scrutineers, Computershare to collect and count all the votes. While the scrutineers count the votes, does any shareholder or shareholder representative have a question on these documents and the resolutions tabled. You are kindly reminded to please send your messages through the comments section of the virtual platform. Again, I will endeavor to respond or direct the questions to the appropriate person. I think, what I will do before we go on the web link. We've already received a question or two via e-mail. So let me ask my company secretary to read those questions. And what we should do is deal with them one by one. So read the first question and then I can direct who should be responding to that question. And once that response has been provided, then move on to the next question.

Thank you, Chair. The first question received via e-mail is the same question we've received on the voting platform. It's from shareholder, Mr. [indiscernible]. I will read it. And the 2 first questions are interrelated. I will try to group them together. The first question relates really to the composition of the board chairmen and I'll read it verbatim, Hulamin has 4 executive Board members. The CEO and CFO are both chartered accountants and the other 2 are industrial psychologist. I also could not find it with any of the four any technical tertiary education experience or international business exposure in their past career. This is a problem taking into account that Hulamin is an engineering company doing 50% of its sales in export markets. Second question is also related to a state to composition. Hulamin has, in addition, 8 nonexecutive Board members, of which one is a woman and 7 are men, old men, if I may say. As the average age of these non-exec is 63.5 years. We have within these 8 members, 1 chemical engineer, a PhD, one bachelor of science in agriculture, but no other member with the technical tertiary education. 3 members are CAs and the others had a B.Com or B.Sc. Two members of the nonexecutive board have some commercial experience gained in the international aluminum industry. But as both of them are 70 years and older, their active years in the industry are 8 and even more than 10 years ago. Only one director represents a shareholder on the Board for the [ IDC ] which holds 30% of the share capital. Clearly, shareholders' interest are underrepresented. If I may also include the third one, Chair, is also related to a question of composition. We all agree that Hulamin is a manufacturing company producing highly sophisticated technical products. To have a total Board of 12 people consisting of 5 CAs, 5 other members with some financial literacy, 4 persons with some commercial exposure in the past, and 2 industrial psychologists, and 1 chemical engineer, but no other educated and trained engineer is worrisome. And therefore, this Board cannot be seen as a competent board besides the general high age of its members. I personally see this composition of the Board as one main reason of the consistent underperformance of our company. And I'll stop there, Chair.

I'm going to start and then -- and my colleagues, if anyone wishes to add what I would have said, please raise your hand. But where I'd like to start in response to the above questions is really to indicate to shareholders that in December of 2023, we embarked on a board evaluation process. Admittedly, this is an exercise that hadn't been undertaken in a fair bit of time. But we nonetheless took the step to undertake a thorough process. And we appointed the Institute of Directors of South Africa to assist us in this board evaluation process. We have had a Board meeting earlier today whereas we received the report from IOD SA and the report contains a number of recommendations. As a Board, we reflected on the recommendations that had been outlined and forwarded to us by the IOD SA. We do not believe that as a Board we hold a different view, and we are definitely not opposed to the recommendations that have been put forward by the IOD SA. What we are planning to do as an immediate step is to convert those recommendations into an action plan. We are having our next board meeting in August were at we will be endorsing the action plans, and those action plans will actually get to filter down to the various Board committees. So I think the crucial part about this evaluation process is that it also covers topics such as the mix of the experience and expertise of the Board and it is an important point to make because the question that gets raised or the common theme in the 3 questions that our Company Secretary has read, deals with the composition of the Board, et cetera. So I think it is fair to respond by saying that it is definitely a matter that is with female. So that's what I will say, and let me look around the room to establish if anyone of my colleagues wishes to add anything to the explanation I have just outlined. Mr. Peter-Paul Ngwenya.

I just want to correct the notion that there's only one shareholder representative on the board. In fact, there are 2.

Thank you, Peter-Paul. You are one such shareholder representative on the board. And might I just add that this is a listed company. So the notion of all the shareholder representatives sitting around the boardroom table is one that -- that is not commonplace. And I'm saying that politely, it is one that is not commonplace in the listed landscape. Okay. Let's move on to the next question.

Chair, we'll move on to the next question. I will just reach the other question relating to composition. Just to close out the loop, I think you have addressed it. When will the Board of Directors be reduced and changed to a competent, engaged and younger board where shareholders are more -- also more broadly represented ending the many years of underperformance in [indiscernible]. And I think, Chair, it is one of the questions you touched on respect of the composition of the Board. I will then go to the questions also coming from shareholder, Mr. [indiscernible]. In relation to the remuneration of the Board. And I'll read the second question or second category of question verbatim. The nonexec members of this Board earned in total close to ZAR 5 million last year. The Executive Board members earned in 2023, a total of ZAR 18 million. So the Board -- so the total Board received in 2023, more than -- in total, the Board received in 2023 more than ZAR 23 million, whereby the income of 2 members of the Executive Board was not stated at all for whatever reason. The income for the total board in 2022 and in 2021 was ZAR 24 million. And in 2020 was ZAR 25.6 million and in 2029 was ZAR 24.7 million. Based on the above figures, the total Board of Hulamin earned in the 5 years from 2019 to 2023, more than ZAR 120 million. We're in the same period of time, the shareholders who are providing the required capital and are accepting all commercial risks received 0 dividend. Hulamin generated in these 5 years in total, no profit after tax. The total is a loss of ZAR 48 million for those 5 years. the receiver of revenue went basically empty handed, and the number of employees dropped by 10%. So we see here only loses besides the -- so we see here only losers besides the Board of Directors. Does this make sense I ask. I will also touch on the other one, which is also related to remuneration. All 12 directors are holding according to your own analysis, share holding just over 300,000 shares, being which is less than 0.1%. Clearly, the whole Board has no skin at all in this game of Hulamin, which does not build any trust and as Charles Boles recently stated in the press, this must be seen as a sign that this Board does not see value in the Hulamin shares embarrassing to say the least.

Shall we pause there.

I will pause there, Chair.

Can I ask Chairman of the Remuneration Committee to address these questions raised.

Thanks, Chair. Good afternoon [indiscernible]. You've raised a number of issues there. And included in there, you've made a number of statements that are factually incorrect, which does make it a little bit more tricky to respond to. I'll try and take it from the top. You said there's 4 executive directors, which is not correct. And you said for some reason, 2 of them are not disclosed. I have no idea what you're referring to. But be that as it may, and there seems to be -- I mean it's disrespectfully contradictions in what you're asking. On the one hand, you say there's no international experience. Then you raise the concern about the cost. So part of the reason that the cost for the nonexecs is higher is because we have international directors. So the -- to say, reduce the cost, but have international directors, those 2 go together. The -- you've raised the issue of the fees. So the average compensation paid to the non-execs is about ZAR 570,000, ZAR 580,000, and that compares to -- according to Pricewaterhouse, a median for the top 200 of ZAR 805 000. So it's being paid well below the typical nonexecutive compensation for a JSE listed company. So the assertion that these extraordinarily high fees are being paid is just -- is just I don't think is supported by the facts. The -- you're comparing compensation to profitability over 5 years and you have raised this issue about profits before. And what we've tried to clarify on several occasions is that the profits were distorted by impairment charges, essentially that is properly plan and equipment bought long outside this period that you referred to that was no longer earning an economic return. Those decisions were made long before the current executive management even joined the company. So those impairments distort the profitability and are a function of historic decisions made and long before our time. So -- but there were decisions made a long time ago, and those distort the profitability. So it seems to make your case each year, you extend the period and that's why it's getting longer and longer from 2019 to 2024. So -- just to be clear, we had significant impairments that are not reflective of the ongoing trading profitability of the business and are an IFRS accounting charge. You then make the comment that there was nothing paid to [indiscernible] and they're losers. Well, that's just not correct because the impairment charges are not deductible. So that's again. I would say to you the -- on a positive note that as a listed company, it is a democracy. So shareholders will get their chance collectively to vote. And the history of voting has suggested that -- the majority of shareholders understand that the Board is seeking to take the company on to a different trajectory. Historically, the performance has not been where we would have wanted and the support for the directors would suggest that the vast body of shareholders do support them. But each shareholder will vote [indiscernible] as they consider appropriate. But we take your point about the skills levels. We do think that the business has put in place many good aspects to change the trajectory of the business. I think if you reflect many of the issues you raised when I met you some years ago, and we've talked over time, have been addressed. It has been in the 5-year window that you referred to a very challenging period for business, manufacturing, in particular, so we are in a difficult context as a manufacturer, but we think the business relatively performance is improving. We think many of the right things have been put in place to improve that performance. It would seem that investors support that. Over the last year, the share price is up 28%. Hopefully, that suggests that the vast majority of the consensus is that the outlook is improving, and we're making the right decisions, and we will endeavor to do that going forward.

I don't think, there was anything else. Anything else wasn't addressed?

I hope Yes, in terms of shareholding by non-execs, the quantum is -- you referred to an article that I was asked for some commentary by a journalist in a very different context. So you're suggesting that my comment related to Hulamin, which it certainly doesn't. In terms of shares, we don't have a qualifying -- there's no requirement for executive directors to own shares. The incentive schemes are tied into return on equity. So there is an alignment. We think the incentive schemes that have been put in place do create the necessary short- and long-term incentives to align shareholders with the performance of the business. I hope I've managed to address your question sufficiently. Thanks very much.

Thank you, Chair. Well, Charles Boles, the Chair of Remco is on the floor. If I may also just read one more question relating to a shareholder matter. The question comes from [indiscernible] from ESG insights and REITs, remuneration policy and implementation. The metrics and the weighting used in the remuneration policy are not aligned with shareholders. particularly, financial performance targets were not met yet. Executives were awarded STI awards. They did not share the pain with shareholders, who did not receive any dividend and comment. Should I read it again, it seems to say to allude that the matrix and waiting used in the remuneration policy are not aligned with shareholders, with those our shareholders. Particularly, financial performance targets were not met, yet executives were awarded STI awards. They did not share the pain with shareholders who did not receive any dividend.

I'm not sure, I'm following the question because STI would be a short term incentive and shares [indiscernible] I suspect, and I'm surmising so if I don't answer the question correctly, please come through again. The -- so for executives, I would say to you that for senior executives, there are a metric of matters on which their performance is assessed and financial performance is the biggest factor. We did have for an Executive Director, a different matrix of performance measures for the CEO that was due to a fairly unusual circumstance, we had a replacement of management, and we had to bring in an interim CEO, and there were a number of urgent issues that we felt needed to be delivered in the business, and incentives were put in place to deal with those. So that -- you wouldn't bring an interim CEO in for a limited period and then set long-term financial targets. So -- for the interim CEO, targets were set and it was assessed relative to that performance. And we felt the issues that were identified for him to perform on were some of the key issues facing the business at that time. And yes, the incentive reflected the evaluation against those criteria.

Thank you, Mr. Boles. There's a question that company secretory will read.

Mr. Chair. The second question in respect to the composition of the Board comes from, again, [indiscernible] from ESG Insight SA. You're noting, Chair, that you have already dealt with the issue of Board composition, I will read it just in case you would like to expand on anything else. Board independence including you, Chair. You have a number of directors that have been listed as independent yet are not independent. What is noncore doing to address this anomaly, especially addressing the gender diversity on the Board.

I would say that on an annual basis in the months leading to the hosting of an annual general meeting, shareholders' meeting, we undertake an exercise where we test the independence of all the independent nonexecutive directors. So based on that test that we undertake, we remain -- we remain of the view that notwithstanding the longer tenure of many -- of some of our directors, those all our independent directors still exercise their minds independently when dealing with the affairs of this business. As I've already indicated in my opening remarks, when we opened the questions-and-answer session. We are in the process of bringing on board 2 additional new and independent nonexecutive directors. So it is a matter, the question of whether we have sufficient independent Board members around the table. It's a matter that periodically and continuously we get to exercise our minds around. And even with the existing Board members today, we still are of the view that they are independent in addressing the affairs of the company.

Chair, the 3 remaining questions relate to the operations of the company. I'll read the first one, then I'll go on -- then I'll pause for your response, Chair. Again, it comes from [indiscernible] from ESG Insight SA, Transnet Logistics. The company has highlighted the losses attributed by Transnet Logistic challenges. That resources against Transnet can Hulamin invoke. What -- if I can start again, Transnet Logistics, the company has highlighted the losses attributed by Transnet Logistic challenges. What recourse against Transnet can Hulamin invoke besides just the current engagements and talks. Surely, there should be financial penalties that can be pulled back from Transnet for these continued shortcoming as the company cannot build its own rail network, I pause there, Chair.

I'm going to ask our CEO, Mr. Mark Gounder to have a stab at that question. I suspect our interim CEO until the end of November might want to add a comment or two. But let me let you start.

Thank you, Chair. And thank you for the question. Very similar to other companies in South Africa that export the product. Unfortunately, we are unable to claw back anything back from Transnet. What we do, do is engage and proactiveness via different channels and our network to be able to support Transnet. We've definitely seen an improvement in the past recent months. in the efficiencies, and we will continue to support the program to improve the efficiencies of Transnet as a whole, Chair. Thank you.