With its global ventures gaining momentum, chemicals, fertiliser and explosives group Omnia says its strategy to invest in high-growth international markets is paying off.
On Monday, CEO Seelan Gobalsamy said there was room for more value unlock from its existing base but future growth would come from its core Southern African Development Community (Sadc) agriculture business and mining partnerships in Australia, Indonesia and Canada.
“Our international strategy has taken off and will continue to deliver enhanced earnings in coming years in both mining and agriculture,” Gobalsamy told Business Day. “In terms of agriculture and mining, we see an immense amount of upside in both those businesses.”
He said, however, the group would watch its capital allocation as it continued to invest and grow globally. This is as Omnia readies to further expand internationally through organic expansion, partnerships, and mergers & acquisitions.
The CEO said profitability had improved in the international business, underpinned by higher volumes and profit contributions from Canada, Indonesia and West Africa. The company said international margins of 13.6% outstripped those of its SA operations at 7.3%.
Over the past year, the Canadian business secured contracts, commissioned manufacturing facilities and turned a profit, while the investment in the MNK joint venture in Indonesia delivered more than R30m in profit. However, the investment in mining in Australia remains in the investment stage and is yet to deliver profits.
More recently in Sweden, the group invested R184m for a 10% stake in Hypex Bio, which is a new-generation explosive that does not use ammonia.
Gobalsamy said plans were under way to expand Hypex-Bio into Canada in the next few months, followed by a rollout into the rest of the northern hemisphere. Testing in warmer climates will take place in the long run.
Clean, green explosive
“It’s a clean and green explosive,” he said. “It uses hydrogen peroxide and doesn’t emit gases. It is fairly mobile and can be built on a small plant,” he said. “So it is pretty unique and will take the explosive market by storm.”
Johannesburg-based Omnia supplies products and services to the mining, chemical and agricultural sectors. It has a physical presence in 26 countries and distributes to more than 40 countries.
Omnia reported a 6% drop in headline earnings per share to 699c for the year to end-March as a substantial fall in commodity prices affected its agriculture division.
The group’s revenue decreased 16% to R22.2bn while profit after tax increased marginally to R1.16bn from R1.15bn.
Gobalsamy said the company’s international diversification had helped it perform resiliently despite the commodity cycle downturn.
Though the agriculture division’s revenue dropped 22% due to lower commodity prices, strong sales volumes in SA, underpinned by disciplined working capital management, limited price risk and partially offset the effects of the commodity price volatility on overall revenue and profitability.
The CEO said there were still some untapped nodes to grow its customer base in the Sadc region.
Across Africa, the business faced macroeconomic challenges and changing market dynamics. This was partially mitigated by market diversification efforts across the region into the commercial and retail sectors. Internationally, despite reduced volumes, the business maintained strong margins.
“In Sadc our BME business has shown an immense amount of growth, winning customer contracts continuously,” he said.
“We also believe there is growth in that agri market ... while the agri sector itself has not grown over the last number of years, Omnia itself can grow in that sector by leveraging our brand strength and agronomy skills.”
Despite falling revenues, the board declared a final dividend of 375c per share and a special gross cash dividend of 325c per share.
Gobalsamy said consistent earnings and strong cash generation allowed it to invest, buy back shares and pay the special dividend.
“With a R1bn investment in our business in the current year — R200m invested in Sweden, R200m in Indonesia and R600m in our core business — we were still able to return R1bn to shareholders.”
“It demonstrates the confidence that the board and management has in the business’s ability to generate cash in future years,” he said.
Omnia’s share price closed 8.68% higher at R57.44 on Monday.
Update: June 11 2024
This story has been updated with new information throughout.
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