Omnia to restructure as it seeks to reduce overextended balance sheet
Diversified chemicals group Omnia will, over the next two years, focus on improving the profit margins of its companies’ services and products, ensuring that its assets and investments deliver value, as well as pursuing international expansion of intellectual property-based businesses that offer good prospects without requiring large capital investments, Omnia group MD Adriaan de Lange said on Tuesday.
Speaking at a presentation of the group’s results for the financial year ended March 31, Omnia group FD Seelan Gobalsamy added the company had put in place a bridge loan and would require a R2-billion rights issue to stabilise and fix the business over the next 24 months.
It would then conduct a strategic review during 2021 to assess the restructuring and would close business units that cannot be turned around.
For the financial year under review, Omnia’s debt-to-earnings before interest, taxes, depreciation and amortisation ratio was 3.9. The group plans to reduce this to 2.4 in the short to medium term, he said.
The company posted a loss after tax of R407-million, mainly owing to one-off acquisition and restructuring costs, as well as plant costs at Omnia’s new nitrophosphate facility. Operating profit fell 98% to R24-million.
Revenue increased by 7% to R18.63-billion. However, if the newly acquired businesses are excluded, revenue declined by 2%, which illustrates the difficulty facing the company in South Africa and the Southern African region.
Similarly, its gross profit increased by 6% to R4.13-billion, but, when the acquisitions are excluded, profit was 8% lower year-on-year.
“Margin pressure was felt throughout the business. Our customers, especially in the agricultural and mining sectors, are under pressure, with some struggling to survive, and are very price sensitive. We did not lose significant customers and even gained a few new ones,” said De Lange.
Omnia’s customers continued to buy from the group, as volumes held steady in a tough environment, but the difficult conditions had a negative impact on margins and profits, said Gobalsamy.
“We believe we can turn this business around to become cash generative again. Between 2013 and 2017, the Omnia balance sheet was relatively ungeared, partly owing to the deeply cyclical nature of our operations with large amounts of working capital needed before the rainy season that is then converted to cash. We then aimed to diversify the businessinto new regions and with new products.”
The company paid R497-million to complete the development of its nitrophospate plant, in Sasolburg, in the Free State. It also acquired agricultural biotechnology company Oro Agri for R941-million, which has enabled Omnia to enter new markets.
However, this contributed to its debt increasing to R4.4-billion from R2.54-billion in 2018.
De Lange highlighted that Omnia expected difficulties in the local market to continue. The group was dealing with this by focusing on reducing working capital, improving returns on investments and rationalising costs, including rationalising and aligning the group’s structure.
However, as demonstrated by Oro Agri, Omnia’s solution-driven approach to its agricultural products and servicesstands it in good stead as natural, environment-friendly and biotechnology demands grow internationally.
“The key for us is how we can commercialise our cross-supply-chain solutions to offer them in new markets. We believe an intellectual property-based expansion model, where we can pursue opportunities without requiring significant investment in heavy manufacturing, is suitable, especially as we can then tap into lucrative markets worldwide.”
Global agricultural trends also support an intellectual property model because consumers, regulators and farmers demand more efficient nutrient and water use to grow crops, and ensure less toxic and more natural chemicals are used.
This requires in-depth understanding of the soil, nutrients, soil organisms and water use, which is one of Omnia’s strengths in the agricultural sector, owing to enduring working partnerships with farmers.
“Globally, governments are tightening environmentalregulations. Omnia is well positioned with its technology and specific chemicals, but this will require continued investment in research and development,” said De Lange.
The group’s strategy to tap lucrative markets for its miningcompanies requires that it establish subsidiaries in new markets, such as the US, Australia and Indonesia, and it does not aim to invest in new productive capacity in the medium-term, although it could deploy modular plants if demand is sufficient in a territory.
“BME is well positioned in the event of an upturn in nitric acid and emulsion demand. It retained existing customers, gained new business and did not lose significant sales volumes.”
Bulk oil, additives and lubricants company Umongo Petroleum, acquired in 2018, also provides opportunities to grow Omnia’s customer base in South Africa and sub-Saharan Africa, he said.
“We are exiting our capital expenditure investment cycle. Our customer base remains stable. We gained new routes to market and we have invested in new opportunities in Africa and international markets to safeguard our long-term profitability,” De Lange said.