Omnia sees further growth in targeted sectors, interim earnings up 30%

JSE-listed diversified chemicals producer Omnia grew its interim earnings before interest, taxes, depreciation and amortisation, excluding its Zimbabwean operations and impairments, by 30% year-on-year to R1.4-billion for the six months ended September 30.

This resulted in the group’s adjusted headline earnings a share from continuing operations being 32% higher year-on-year, at R4.01.

Group revenue from continuing operations (excluding Zimbabwe) increased by 19% to R11.6-billion, while operating profit from continuing operations (excluding Zimbabwe) rose by 47% to R1.1-billion, with the operating margin from continuing operations (excluding Zimbabwe) growing from 7.5% in the first half of the prior financial year to 9.2% in the six months under review.

Working capital increased to R5.2-billion for the six months, driven by high commodity prices and increased investments in inventory, largely in the agriculture segment owing to a more normalised sales cycle. Sales volumes increased in the second quarter and working capital is expected to decrease for the full year.

After investing R2.1-billion in working capital, Omnia maintained a positive net cash balance, excluding lease liabilities, of R140-million. This resulted in Omnia being able to meet supply to its customers in a tough and challenging environment.

CEO Seelan Gobalsamy says that, against a complex and challenging macroeconomic backdrop, Omnia leveraged the underlying strength of its business model to execute its strategy.

The successful implementation of the group’s operating model resulted in an improved performance and ensured the security of supply of ammonium nitrate, despite ammonia supply constraints, to enable the group to meet customer demand across all business segments.

“Our supply chain optimisation programme and integrated manufacturing capabilities supported the group’s competitive position, agility and responsiveness in a dynamic market environment to deliver to our agriculture, mining and manufacturing customers. This unlocked efficiencies, which enhanced margins and profitability,” he says.

Additional key performance drivers include an improvement in the volume margin mix, and greater sales of specialty and value adding chemicals in an elevated commodity price environment.

Meanwhile, in line with its commitment to lower the environmental impact of its operations, Omnia invested in a reverse osmosis (RO) water treatment plant and a solar energy plant at its Sasolburg operations.

The RO water treatment plant, which was commissioned in August, treats cooling water blow-down to produce potable water which is reused in the manufacturing process, thereby reducing effluent discharge and saving about 180-million litres of potable water a year.

Commissioned in October, Sasolburg’s solar energy plant generates 5 MW, which together with electricity generated from excess process steam at the nitric acid plants, translates into between 25% and 35% of the plant’s yearly electricity requirement.

In addition, the EnviNox emission abatement system in Sasolburg resulted in a 31% reduction in carbon emissions.

SEGMENT PERFORMANCE

Omnia’s agriculture segment (excluding Zimbabwe) delivered a 17% increase year-on-year in net revenue, to R5.8-billion – supported by growth in the AgriBio business and elevated commodity prices.

However, volumes in this segment reduced year-on-year, largely owing to South African farmers buying inputs later in the season in anticipation of softening commodity prices, inclement weather delaying harvesting and the deferred contract process in Zambia.

Operating profit for the agriculture segment rose 34% year-on-year to R658-million, owing to the segment’s focused strategy of enhancing margin mix, which was supported by efficient manufacturing facilities and an agile supply chain.

As for mining, Omnia benefited from a supportive commodity price environment which enabled the segment to achieve a 32% year-on-year increase in net revenue, to R4.3-billion, and a 44% rise in operating profit to R359-million.

However, this was partially offset by above inflationary input cost increases and lower volumes, amplified by inclement weather, industrial action, regulatory challenges and loadshedding.

The strained mining and manufacturing sectors in South Africa constrained used oil supply – a key input in the segment’s emulsion explosives, which adversely affected margins. Nonetheless, Omnia implemented a new used oil collection strategy, which includes broadening the supplier network and commissioning a new processing facility.

Omnia’s chemicals segment’s net revenue remained stable at R1.4-billion, as momentum was gained in transitioning to a specialty chemicals business across key sectors of the market.

In this segment, operating profit more than doubled to R104-million, benefitting from product-mix improvements across the business, with the emphasis placed on building a portfolio of high-performance specialty and environment-friendly products and solutions to supplement traditional chemistries.

Further, successes were achieved in the agriculture, consumer care and industrial sectors, with advances being made in biodegradable cleaning and coatings chemicals.

Going forward, Omnia is anticipating growth in targeted sectors, as the expansion and extension of the speciality products portfolio gains further traction, and should provide a sustained uplift in margins and profitability.

In the medium term, the development of green, environment-friendly alternative chemistries and technologies across the sectors remains a major strategic focus area for the business.