Successfully putting an end to the wild swings
Looking at its latest numbers, one can see that the difficult economy has not done diversified chemicals group Omnia Holdings any favours.
Yes, Omnia increased revenue 3% to a record R16,8bn and pushed up operating profit 4,2% to R1,47bn for the 12 months to the end of March. But it is quick to admit that it was not an easy period for the group.
Though its agriculture division pushed up revenue 9% to R7,28bn and its contribution to operating profit rose 52% to R656m, its mining and chemical divisions produced flat revenues and experienced sharp drops in operating profit.
“This was a challenging year with volumes under pressure, mine closures, margin squeeze and competitive pricing which affected our mining and chemicals divisions,” said Omnia CE Rod Humphris.
“We were particularly pleased that we increased revenues and maintained a stable profit in the mining division despite the turmoil in the industry.”
The macro environment has also not been kind. Though the weaker rand, in effect, improved net margins, lower commodity prices and a drop-off in sales volumes put it under pressure.
The group might have gone through a tough period and its numbers have taken strain, but even so there are signs it is on the right track. For one, its operating margin increased from 8,7% to 8,8%. Better supply chain management and reduced raw material cost contributed to improving its operating performance in its agricultural division. It was also able to increase revenue from its agricultural trading and wholesale business by 46% year-on-year.
Omnia’s numbers are not great but they are consistent. This is a remarkable achievement, given how wildly its results used to swing.
In its half-year results for September 2009 for instance, its revenue dropped 22% to R4,2bn and it incurred an operating loss of R52m.
The next year revenue remained flat but the operating loss became a R292m profit.
These swings were a result of the group’s operations basically touching every part of the economy.
If there were big changes in the agriculture, manufacturing and mining sectors, it would the first to feel it.
Over the past few years Omnia has managed to end these big swings and produce steady but still impressive growth numbers. Since it published its 2011 results, the group has made a habit of producing steady rises in revenues and earnings.
Its compound annual revenue growth rate was 16% and its compound operating profit growth was 21,1% for the past four years.
Over this period it accelerated its expansion across the continent and now has operations in 16 countries.
The group is looking for organic “growth opportunities” but it is also keen to expand its horizons.
Humphris says: “We have identified and investigated opportunities to create further growth for the group outside Africa. These opportunities range from backward integration and market diversification to potential mergers and acquisitions in similar or related businesses.”
Omnia is clearly in a better space than it was five years ago. Shareholders should be happy because the group’s share price has risen 189,26% over this period to R174,80. Though earnings are up and its share price is healthy, the share has come off record high of R247.
Given its murky outlook and its PE of 11,95, it is easy to argue that it is fully priced.
Even so, there is still potential for it to rise over the long term because it has put in place share-incentive schemes for managers and professional staff.
The group makes the point that ever since it put in place its five-year long-term incentive plan two decades ago, management has met or exceeded the five-year targets set by the board.