Hulamin faces up to dim prospects

All is not well at Hulamin, the listed aluminium fabricator in Pietermaritzburg, that has bled a staggering R2.5 billion over the past ten years. In an excerpt from the Rational Radio webinar, BizNews founder Alec Hogg delves deeper into the value destruction of a company that promised so much, with aluminium industry expert Volker Schütte and market commentator David Shapiro. – Derek Alberts.A very warm welcome to Volker Schütte. Very good to have you on the programme. It's called the Rational Radio webinar. We're going to be talking to you about what you said at the Hulamin AGM. .___STEADY_PAYWALL___.But before we go there (just by way of background), a little bit of background on yourself: you came from Germany to South Africa about 30 odd years ago. What exactly do you know about the aluminium industry, given that the aluminium sector is where Hulamin operates? .Yes, I came into South Africa in 1983. In 1985 I started a company that trades in aluminium products – semi-finished products in aluminium. I also run a company that does the same in Germany. So, I'm quite globally set up in the aluminium industry, but very much at home in South Africa. .So, since 1985, I've been in the industry in South Africa, in Shanghai and Singapore, Panama and Germany, and I know the aluminium industry, let's say, pretty well – having been in this business for such a long time. .And I certainly also know Hulamin very well. I visited their plant in 1987 for, I believe, the first time. I know Hulamin as a customer. I know them as a supplier in South Africa as well as internationally, and I also know them as a competitor. So,I know them from various angles, basically. I am also a shareholder in Hulamin..How long have you been a shareholder? .Not so long, because I saw some good potential in the company when it was at R2 and so on a year ago, but now it's at R1,00 – so I already lost a fair amount of money since then. But that doesn't mean to me that I give up. .Maybe, if you allow me Alec to just take one step back, because that's one thing that is important to me to say: in South Africa – the public, the media, and certainly the business community looks at government companies super critically – like the Eskoms, the Denels, the Transnets. And we are all – for good reasons – super critical of these entities. .Read also: Nailed for Eskom, Transnet deals: Zupta pal Anoj Singh ejected from accounting clan.But at the same time, you see quite a few companies in South Africa on the stock exchange, which are, I would say, as badly run as the Denels or the Transnets or even the Eskoms,. Companies that basically have destroyed nearly all of the capital of their shareholders. So, I just mention Nampak, TTC, Tongaat Hulett as prime examples – and certainly Hulamin. .Hulamin has lost a dramatic amount of money over the last few years, and I think it is not better run than, let's say, Eskom or Denel. Denel has to go to their shareholder (government) and ask for money, and I think Hulamin, sooner or later, will have to do the same – go to their shareholders and say: we need more money to plug the holes. .Read also: Tongaat Hulett: tale and timeline of SA titan's downfall. MUST READ!.Well, before we get into that, as you can see on the screen, we've got the graph of Hulamin – which is what we call a negative 10 bagger. Not too many of those make shareholders interested. You bought in not at R10,00 a share, but at R2,00 a share – and you've only halved your money. Other people who've been long-term shareholders have only got 10% of what they put in 10 years ago. .And you brought this up at the AGM, but I want to just play part of what you had to say. See, the problem is nowadays with virtual AGMs and things – you are on the record. But it's really good for us to just listen to this again and get an insight into exactly what the issues are, and then I'm going to ask you if you could give us more thoughts on it. So here we go.."Pretty much 90% in rand terms of the value has been lost during your terms – during your 10 years at the helm. In dollar terms – I think it's even worse. From a shareholders point of view – in these 10 years – approximately R2.5bn has been destroyed in loss. We spoke earlier about tax points and the receiver of revenue. .I think even the receiver of revenue made no money on Hulamin, as they had to pay R431m in taxes in these 10 years. So, from a shareholder point of view: I must say these were disappointing years – the last 10 years. .Now, can I ask Hulamin to maybe outline to us a bit of what your plans are for the next few months – I'm not talking about the next few years, but the next few months. To get out of this crisis at Hulamin, what is your marketing and sales drive overseas and locally? If you could share your bullet points here with us, and also your timeframe. .I understand that you are running a cost reduction programme, but I think cost reductions will not do the magic here. And, Chairman, if you allow me to ask you: with the board – under your guidance – how much time will you give Richard in this executive team to achieve such a turnaround? .And I think my point of view: there is not much time left before the company will be in even more serious trouble. So, I would be very interested to get a bit of an idea what you as a chairman and the board have agreed or discussed with the executive team. Thank you very much.".So, those were two very specific questions. Now, you were talking about Richard Jacob – the chief executive – who's been there 10 years and has presided over this massive destruction of value. You put the figure of R2,5bn. .Let's ask David Shapiro, who's also – as we mentioned earlier – been watching this company for a while. Dave, if you were sitting in Richard Jacob's shoes: he's been running it for 10 years, shareholder value of R2.5bn has disappeared, 90% negative 10 bagger – surely the guy should (and he's a lovely man), but surely he should be thinking of doing something different. .For ten years! I mean, that's a long time. Alec, I've never been involved in it. I've got it in my hospital portfolio – simply because it's got bricks and mortars and it's got a lot of plant that there's got to be value in. .But I've always looked at it and gone through the numbers, and very briefly listened to their excuses. You know, there's been a whole lot of issues because. Number one – the product that they put in is rand based. It's driven by the rand / dollar rate, because it's aluminium. It's a commodity. And then the product they sell is also dependent on the rand, because it's an export side. So, the rand does have a very big bearing on it. .Remember, they make a lot of aluminium for cans and for various other products that they do sell and export. So, in effect, it's a company that should be really making a lot of money or doing well. I know the aluminium market has been under a little bit of pressure, because of where we are at the moment – but it's just been a litany of excuses for 10 years. .And the company, as we know today is trading, as you said, at R300m, R400m – which is crazy. And if you track what management has said over 10 years: each year you're given a little more comfort, a little more cover – and then they never deliver it. It's more excuses, etc. .So, I think it's not a company that's, well – at R300m, no one's going to really cover it. So, you don't get any analysts looking at it. We just look at it from an interest point of view. But as Volker says, at some point, there's got to be resolution. And I honestly think it's a business there. .In other words, there's an underlying business that can bring a lot more value. Remember, aluminium is used in pots and pans – there's a thriving industry. We've got some great brands in this. Surely some kind of deal can be done that can bring in the local manufacturers to use this or to upgrade it. I don't know where the problem is. .You put me on a spot here, because it's not a company I cover extensively, but I know that there's been year after year of it. They came onto the market at R40,00. When they were unbundled – I think it was R40,00, they were unbundled from Tongaat at that stage – this was gonna be a great business. It's just gone one way from there..How was the response from the chairman to the question that you asked of how long are they going to be giving the chief executive, given that he's had 10 years already? .The response was zero. I have not heard anything during the AGM or later on. It's now four weeks ago. I have heard nothing from them, and I believe there's nothing to come. So, the issue is closed from their point of view. .I'm happy you already stated the relevant points about the 10 years of Richard Jacob, and I think the main, let's say, stakeholders at Hulamin – in particular shareholders, employees, but also customers – must be highly disappointed in the performance of the last few years. .And as we say, downhill is always faster than uphill. Yeah, Hulamin doesn't have much time to get its act together. .Volker Schütte, thank you for your contribution today and also for updating us on what's going on at the Pietermaritzburg company. It might not be a big deal for people generally looking at the market with R338m in market cap – that's really tiny now in the context of an investors perspective – but when you think about the city of Pietermaritzburg, Hulamin is very, very important, as well as the aluminium industry in South Africa. .Most disappointing performance, but nice to hear from Volker as well, and the context that he puts in there: that it's not just when you underperform in the public sector, but that the focus should be on you in the private sector, doubly so.

Hulamin faces up to dim prospects

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