Omnia has reported a boost in its core business operations in the half year, but encountered challenges in its regional agriculture business due to a severe drought and regulatory issues.
Its chemicals business also was still beset by the macroenvironment and the decline in SA’s manufacturing sector.
As it reorganised its chemicals division, CEO Seelan Gobalsamy said the group was looking into ways to sell off portions of the noncore business while searching for partners with which to collaborate on the turnaround.
Omnia reported a 5% rise in revenue in the six months to end- September to R10.93bn, while operating profit grew 17% to R802m. Headline earnings per share increased 2% to 288c.
This was mainly due to sustained growth in the mining segment, which recorded a combination of new and extended contracts, increased ammonia derivative sales and new contract wins. Robust numbers were also recorded by its agriculture division, where improved marketing initiatives, as well as favourable agronomic and climatic conditions, generated larger volumes.
The agriculture segment’s revenue decreased 4% to R5.08bn as lower selling prices offset higher volumes, but operating profit increased 27% to R422m.
Mining revenue increased 15% to R4.7bn while operating profit grew by 18% to R535m ,with profitability further enhanced by improved margins and an optimised product mix.
Higher sales volumes, as well as efficient demand and supply balancing across sectors, helped increase profits while guaranteeing customer supply security, it said. This also supported an improvement in operating margins from 6.5% to 7.3%.
Gobalsamy said operational efficiency and improved margins, coupled with the company’s diversified model, had illustrated the strength of the mining and agriculture businesses. However, he said there was still a large chunk of reorganisation that must happen in the noncore chemicals business, with a turnaround expected in at least 18 months.
The chemicals segment’s revenue increased 6% to R1.15bn, but it reported an operating loss of R23m from a profit of R5m before, due to difficult macroeconomic conditions in the SA market and a subdued manufacturing sector.
Profitability was hampered by ongoing pricing pressure and increased competition, which put pressure on margins across the product line. Reorganising expenses also harmed operating profit, which led to an operating loss for the time frame. Less than 10% of revenue comes from the chemicals division, which also does not contribute to profit.
I think we’ll see portions of its asset base maybe being sold off and portions of it being slimmed down to be more effective. But we’ll eventually talk less and less about chemicals.
— CEO Seelan Gobalsamy
Omnia has stated that mining and agriculture are its main industries.
The CEO said that while Omnia had not put the chemicals business up for sale, the group was amenable to having a partner and was investigating alternative options.
“We’re looking at where we’ve got warehouses and assets that are oversized for the operation to sell those, or to close those, where we’ve got plants that are not fully operational we are looking to see what we can do differently,” Gobalsamy told Business Day.
“I think we’ll see portions of its asset base maybe being sold off and portions of it being slimmed down to be more effective. But we’ll eventually talk less and less about chemicals,” he said. “If we find the right partner to partner us with that business, we will explore that and consider a relationship with somebody who can contract that business forward.”
The CEO said whether a partner came on board or not, Omnia still had a clear plan for what it wanted to do with the business if it were unable to find a partner or sell it.
With management committed to carrying out the segment’s turnaround strategy to attain medium-term, sustainable profitability, the group said it expected tough conditions to persist in the second half of the year.
Meanwhile, the group announced it would double its ammonia nitrate storage in Sasolburg where it is investing in another 5MW solar farm to take the peak installed capacity to 15MW, which will increase the proportion of renewable energy used in operations up to 50% of electricity consumption.
Omnia, which has a R10.8bn market capitalisation on the JSE, has also commissioned six road ammonia tankers, and bought another 20 rail tankers to add to its fleet, which is now 205 rail wagons.
Moreover, the mining business secured several new contract wins in the six months, which are set to boost its next reporting numbers.
“Those contract wins are uranium mines in Namibia, iron ore mines in the Northern Cape in SA and iron mines in Indonesia. All three of those have not come through yet in our results. So that will just come through in the second half and in the next financial year.”
Update: November 11 2024
This story has been updated with new information.
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