Omnia weathers tough economy
DESPITE an “extremely tough economic environment”, worsened by negative weather conditions, Omnia managed to end the year to March with an ungeared balance sheet.
Gearing is an important indicator. It tells you whether a company can survive ... before it has sucked investors completely dry
DESPITE an “extremely tough economic environment”, worsened by negative weather conditions, chemicals group Omnia managed to end the year to March with an ungeared balance sheet.
CEO Rod Humphris said: “Our stringent capital management has ensured that we have ended the year with an ungeared balance sheet and an increase in cash generated.”
The group’s agriculture trading segment had shown solid volume growth into Africa, he said.
But margins were negatively affected by one-off losses in Australia due to a poor stocking position carried forward from the previous year, after a customer “reneged” on a big deal.
Overall, Omnia’s operating profit margin of 7.1% was lower, with falls in agriculture and the mining division, although it saw an increase in the chemicals division.
The overall operating profit of R1.2bn dropped 19% in the period.
Group revenue of R16.68bn was flat, as gross profit fell 14% to R3.4bn. This was due to lower volumes in all three divisions, and competitive pricing in the mining sector.
Profit for the year was 25% down at R702m, as gross margins fell from 23% to 20%. This saw headline earnings per share plunge 29%.
Cash generated by the company leapt R1.3bn to R2.3bn. Foreign exchange losses of R53m were 10% lower than a year earlier. But the rand and the currencies of other African countries had stayed weaker and volatile against the US dollar, Omnia said.
The company declared a total dividend of 360c per share.
Humphris said the group had restructured and simplified the chemical division from a decentralised to a centralised operating model. It also implemented a new information technology platform in the division, improving performance.
The agriculture division had a challenging year due to the El Nino weather phenomenon, which worsened drought in Southern Africa. But Humphris said the group was well diversified geographically — both in products and sectors — and he felt the El Nino effect had dissipated.
This meant the group expected “attractive” agricultural prices in future. However, mining would remain tough.
“But we … only need one or two opportunities,” Humphris said. “I think we are probably at the bottom of the (minerals commodity) cycle.”
Orin Tambo, senior analyst at Intellidex, said on Tuesday that the biggest driver of growth in cash generated from Omnia’s operations, relative to the first half of 2015, was “excellent working capital management”.
“While the group’s day-to-day activities — debtors, creditors and inventory — utilised R878m in the comparable period, they generated R258m in the current period. That had a R1.14bn positive effect on cash generated from operations,” Tambo said.
Gearing was an important indicator for most investors in companies that were exposed to commodities.
“It tells you whether a company can survive ... before it has sucked investors completely dry. So having an ungeared balance sheet is a plus for Omnia.
“It means it can continue borrowing at favourable rates compared to its peers. And also it gives management room to continue with the acquisitive strategy,” Tambo said.
Humphris said there was also plenty of opportunity for mergers and acquisitions in future. “I am less concerned that there is major downside to come.”