CHAIRMAN’S STATEMENT – 2020 ALUWORKS AGM
I welcome you all to this our first virtual Annual General Meeting (AGM). The COVID-19 pandemic has changed our ways of working. On the company campus, we have had no incidents. One of our staff contracted the disease but it was while he was already ill in hospital. He recovered and has returned to work.
I wish I could have stated that it was a pleasure to present this annual report on Aluworks Ltd for the year 2019, but I hesitate. This is because over the past several years, we had always hoped that we would document progress before the next AGM. Yet, this year we have had couple of silver linings. I shall refer to these shortly.
Since our 2018 AGM, we are closer to an acceptable conclusion on new investment in the company by a strategic investor, namely Caitlyn Ltd. SSNIT is our largest shareholder at 62.62%; Caitlyn Ltd is the second at 20.86%. The two parties are trying to align their strategy intentions for Aluworks. We are confident that, sooner or later, the final desirable outcome will be reached. Throughout 2019, the company’s immediate business environment had been difficult. It impaired progress. Managements’ business objective remained: “Hold on and survive”. Some of the staff had to forego or delay aspects of their remuneration. Credit goes to management and staff for this optimism, strength and endurance.
Here is first silver lining. We have been assured by both the Ministry of Trade and Industries and the Governments’ Economic Management Team, that Aluworks Ltd will not be allowed to fold up. This is due to the strategic importance of Aluworks Ltd to the extended Bauxite-Aluminium Scheme, headed by the Ghana Integrated Aluminium Development Commission (GIADEC). We thank the authorities for this assurance. It provided additional impetus for the Board, management and staff to strive and keep the company going. Furthermore, a vibrant and profitable Aluworks Ltd is in the interest of all of you our valued shareholders. We acknowledge your support, especially in these most testing of times.
The Economic Environment in 2019
In 2019, global economic activity recorded its slowest growth rate of the decade. Global output grew by 2.9%, being 0.3% lower than earlier forecasts by the IMF. The slow growth was attributed to four factors namely, protracted trade disputes, slowdown in domestic investment, geopolitical tensions and financial stress in several big emerging markets.
The result was a sharp slowdown in international trade flows and global manufacturing activity.
Business confidence declined and low demand depressed global commodity prices. China’s economic growth shrunk to 6.1% in 2019 from a growth of 6.6% in 2018 mirroring the negative impact of China’s trade dispute with the U.S.
Africa’s economy followed the broad-based slower growth trends across other regions. According to the African Development Bank, in 2019, Africa’s economy grew by 3.4%, private consumption was reduced as investment and exports picked up.
On the local front, the Ghana Statistical Service reported the following for 2019. Ghana’s economy expanded by 6.5%, slightly up from 6.3% in 2018. Growth in the industrial sector was 6.4%, driven by the Mining and Quarrying sub-sectors, rather than manufacturing. And, growth in the non-oil economy declined to 5.8% from 6.5% in 2018.
Headline inflation remained benign throughout the year staying within the target band of 8 +/- 2%. Reacting to easing inflationary pressures, the Central Bank reduced the Monetary Policy Rate (MPR) from 17.0 % in 2018 to 16.0 % in January 2019. This remained stable throughout the year.
Hence Consumer Price Inflation (CPI) for 2019 was 7.9%, reflecting mainly the slowdown in non-food inflation supported by a tight monetary stance by the Central Bank. Cumulatively, the Ghana Cedi depreciated 14% against the US dollar in 2019, compared with 8% in 2018.
The Business Conditions Faced in 2019
Since the beginning of the year, the breakdown of negotiations between SSNIT and Caitlyn Ltd put a damper on the company’s business. With our focus on staying afloat, we began to explore other areas which could improve our business conditions.
Economic Management Team (EMT)
Thus, we wrote to the Governments’ Economic Management Team (EMT) which is chaired by His Excellency the Vice President and includes several top Ministers. We appealed for short term financial aid to serve as working capital. We were well received. The EMT directed the MOFEP, MOTI and GITC to provide the help that we needed.
In the midst of all the difficulties, I am very glad to announce our second silver lining. It is more than that. It is good news. One of our initiatives has borne good fruit. We hope that we shall see more good fortune going forward with the other initiatives.
Ghana International Trade Commission (GITC)
Here is the good news. It is the recent victory won at the GITC. Shareholders will recall that we have updated them on the work of the GITC concerning the petition which we put before them in 2019. We can now share the report on their findings along with their recommendations as read out publicly at a ceremony on 15th October 2020.
The Commission found that, indeed, there has been dumping of aluminium products by China onto our local market utilizing an unfair export rebate. The Commission ruled that an additional duty of 35.77% be imposed on such goods into the future. The commissions’ report is a directive to the Ghana Revenue Authority to implement their findings in line with World Trade Organisation (WTO) rules. This is a significant ruling. It is geared towards limiting the inflow of cheap competitive material from China on the basis of unfair export rebates that China had been giving to its traders to enable them to sell cheaply here. This will level the playing field in terms of price, and, allow quality to prevail. We do have very high quality products. Therefore, going forward, we expect an influx of orders for our products. However, we still have the major problem of securing the financing to enable us meet theexpected increase in demand arising from our importing customers converting into local purchasing customers. This is a task we have embraced and are working on assiduously
MOTI Distressed Companies Scheme.
As far back as 2016, we made an application to the MOTI, but it had remained to be worked on. The EMT had directed MOTI to resurrect our application and proceed to satisfy our request. We hope for an impactful outcome by the end of 2020.
During the year, Government introduced a 50% import duty rebate on imported goods. This proved to be inimical to local manufacturers of such imported goods. Several approaches were made to Government to re-structure the duty rebate system for equity and fairness. The EMT advised that this was being amended. However as at the time of this report, the systems at the ports of entry have remained unchanged. Hence, imported goods are cheaper than goods manufactured on shore. This is seriously detrimental to the local manufacturing industry.
Other challenges we still have include the following.
VALCO continues to deduct 10% off payments for metal. This is due to the unpaid balance of their old business account with Aluworks awaiting clearance by SSNIT when the payment for the land sold to SSNIT by Aluworks is done. Meantime, it impairs both our ability to meet our customers’ requirements and our cash flow. We are aware that SSNIT Management is working on this and we are certain that this matter also will be successfully resolved by the end of 2020.
Continuing with VALCO, and, on your behalf, a courtesy call was made on Dr. Henry Benyah, the first Chairman of the newly installed Board of Directors, and another on Mr. Daniel Acheampong, Managing Director. The purpose was to congratulate them and wish them every success in our common mission.
I am glad to report that we were well received. Dr. Henry Benyah stated: “It was great meeting you today. I look forward to a great working relationship.” In the past few years we have received a noteworthy input from our association with Caitlyn Ltd. It is the supply of raw material (aluminum ingots) on a preferential basis that has supported our weak working capital situation. Thus, we received 994 metric tonnes (1,003mt in 2018) from Caitlyn, out of the total of 4,302 metric tonnes supplied by VALCO in 2019.
We have had to increasingly rely on our customers and creditors for financing to generate sufficient cash flow to keep the business turning over. The net effect was an inability to increase our turnover to the levels we had budgeted for. In 2019 we purchased only 4,302 metric tonnes of raw material from our main source VALCO supplemented by what Caitlyn offered (3,737mt in 2018). As a result we produced 4,318 tonnes in 2019, an increase of 12.4% over the 3,841 tonnes produced in 2018. This was against a budget of 5,600 metric tonnes.
Due to the challenges already discussed, including a struggle to hold our prices in the face of cheap imported alternatives, our market share had remained under pressure. We sold 4,167 tonnes, representing a 9.9% increase over sales in 2018. A total of 2,924 metric tonnes (i.e. 70%) was sold on the local market (2,897 tonnes and 76% in 2018). Export sales of 1,243 tonnes constituted 30% as compared with 893 tons or 34% in 2018.
Going forward, without the much needed investment in working capital, there is a risk of a fall in turnover and a rise in our losses. In 2019, turnover increased over that in 2018 by 23%, from GHS 62.5 million in 2018 to GHS 77.0 million in 2019. The slightly increased volume in 2019 enabled an achievement of break-even at gross margin level compared with a loss of 9% in 2018. This underlines the need to significantly increase our volumes since this is a volume business. In 2019, we made a net loss after tax of GHS 24.5 million after charging finance costs (i.e. interest and exchange losses) of GHS 22.8 million. In 2018 we made a loss of GHS 33.2 million after charging GHS16.6 million in financing costs.
As a result of all these factors, your Directors are unable to recommend a dividend payment for the year since the retained earnings account remains in deficit.
The Economic Environment and the Outlook for 2020
Covid-19 has spread rapidly worldwide. Its impact has been catastrophic on economies and
businesses. Some countries for example Europe and the USA continue to be hit hard by new waves of the pandemic in a manner yet to be accurately defined and effectively controlled.
The global economic outlook for 2020 is bleak. This projects the high level of uncertainty and downside risks. Economic growth is forecast to contract by over 5% in the advanced economies, and about 3% in sub-Saharan Africa. This is the worse in decades. However, these forecasts are on the assumption that the pandemic recedes, provided its mitigation measures are implemented, and, hopefully, effective and safe vaccines are available, affordable and uniformly accessible throughout the world.
On the local front, although the impact of Covid-19 has been milder than in other countries, Ghana anticipates a significant slowdown in GDP growth projected to decline in 2020 from 6.5% to 2.6% in a baseline scenario, and, to 1.5% in a worst case scenario. Furthermore, the forecasts expect significant shortfalls in petroleum revenues import duties and tighter financing conditions. In 2020, the Covid-19 pandemic has had a singular effect on Aluworks. Thus, it caused a fall in general imports, and, simultaneously an increased demand for local production. However, due to our deficient working capital we are yet to take full advantage of the emerging business environment. We engaged our customers to consider financed forward purchases to enhance turnover. This proved successful only with our export customers. Therefore for much of 2020 the ratio between local versus export metric has been altered. It will remain as such while we rely on our customers for financing, and, until the much awaited investment in working capital comes in.
We continue working with SSNIT and Caitlyn Ltd to close the deal to finance Aluworks Ltd. The process is outside our control. We hope for a speedy resolution. We place on record our debt of gratitude to the Ghana International Trade Commission. Firstly, the Commission confirmed that indeed, there had been dumping of aluminium products by China onto our local market. Secondly, it ruled that an additional duty of 35.77% be imposed on such goods.
With the aid of management and staff, we are focused upon maintaining the company in sound operational health. We remain optimistic irrespective of how uncertain the future may seem at the present. We will continue working with professionalism in order to enhance the recovery as well as the sustainable and inclusive growth of the business operations of not only Aluworks Ltd but also our valued customers both national and regional.
I thank my colleague Directors for their support, the Managing Director, management and staff for remaining steadfast through it all. I thank you our esteemed shareholders for your patience, prayers and purpose.
With Covid-19 I began. With Covid-19 therefore I come close to the end. Please stay safe. Wear facial covering. Keep social distancing. Wash your hands as frequently as necessary. Eat Ghanaian foods and drink dark cocoa powder. May the Almighty bless us all and see us safely through these dark days of Covid-19.
Finally, “these days, I chain my eyes to the port. And, though engulfed by nights of doubt and the sea is wild, with waves like hills, I let the Lighthouse guide my course. One flash-a-time, the coast creeps closer”. All shall be well.
Thank you all.
PROFESSOR LADÉ WOSORNU