Chemicals, fertiliser and explosives group Omnia says half-year profit doubled as it managed to capture growing demand from mining and agriculture for inputs, but it is holding on to a hefty cash pile for now as it considers taking the next steps in for growth.
Two years of efforts to stabilise the group have paid off, CEO Seelan Gobalsamy told Business Day. Omnia has opted to hold off on rewarding shareholders for now as it considers acquisitions and organic expansion of its global mining and agriculture businesses.
Omnia, which recently established a presence in the US where it plans to build a distribution network, said much of the focus was likely to be offshore, especially on new mining ventures in Canada, Australia and Indonesia.
“With SA we are a bit concerned about the state of infrastructure and utilities, as well as after the events in July,” he said, referring to riots in which a roving mob went on a looting rampage, set commercial buildings on fire and tarnished SA credentials as a safe market for both local and foreign capital.
Omnia supplies products and services to the mining, chemical and agricultural sectors, with agriculture accounting for about half of group revenue, mining just more than a quarter and chemicals just less than a fifth. The group has operations in more than 25 countries, with its international mining and agriculture interests accounting for about a third of revenue.
Buoyant demand
Omnia has received a boost by renewed activity in SA’s agriculture and mining sectors, with favourable rainfall and robust prices ensuring that farming was one of the few parts of SA’s economy to grow during the Covid-19 pandemic. A bumper local harvest is expected in 2022 as well.
Prices of major SA commodities including iron ore and coal have reached record highs during the pandemic, when precious metal prices have also pushed to multiyear highs.
Group revenue from continuing operations rose almost a third to R9.9bn in the six months to end-September and after-tax profit more than doubled to R467m, with the group struggling with supply-chain issues, but also generally classified as an essential service wherever it operates.
The agriculture division grew revenue 28% to R5.2bn, and operating profit increased 15% to R449m, while mining grew revenue 31% to R3.3bn, and operating profit 28% to R250m.
Port congestion and supplier delays had their effects, but the group benefited a bit from its diversification, as ammonia nitrate is used in both explosives, as well as fertiliser. Increased offtake from the group's mining division bumped up plant throughput, benefiting margins in its agricultural division.
Hard decisions, such as shaking up procurement or reshuffling executive roles, had paid off, said Gobalsamy, and the group had done well in securing inputs and inventory, remaining in a healthy position.
“The centralisation of supply chains across agriculture and mining has paid off,” he said. “It's allowed us to be quite flexible.”
Cash bump
Omnia has swung into a net cash position of R719m at end-September including lease liabilities, having had net debt of R1.9bn in the prior comparative period.
The group cited a highly uncertain environment for opting not to pay an interim dividend, adding that its position will be reassessed at year’s end.
The group said it does not intend to hold a net cash position long term, and may possibly even pay a special dividend, having recently announced a deal to sell its stake in Umongo Petroleum for R1bn.
All options for the group’s cash remain on the table, said Gobalsamy, including returning it to shareholders, acquisitions and share buybacks.
In the group’s 2021 year, it received R2.2bn in proceeds from the sale of the prized Oro Agri business, while it also tapped shareholders for R2bn in September 2019.
By the market close on Monday, Omnia’s shares had gained 4.1% to R63, having risen by more than a third so far in 2021, and by almost 86% since the beginning of 2020.
Update: November 22 2021
This article has been updated with additional information throughout.
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