Despite the effects of the El-Niño weather phenomenon and the resulting drought this past year, JSE-listed Omnia’s agriculture division delivered a “surprisingly good” performance, said Omnia CEO Rod Humphris.
The agriculture division maintained sales volumes in the difficult current economic and environmental milieu, with revenue growing 13% to R8.22-billion, despite a 4% decrease in total volumes, said Humphris at the end of last month, during the group’s results presentation for the year ended March 31.
The effects of the El-Niño weather phenomenon saw the agriculture sector contract by 14%, with growth falling by 8.4%, according to Statistics South Africa, and government last year declaring KwaZulu-Natal, Mpumalanga, the North West, Limpopo and the Free State drought disaster areas. This followed poor rainfall, which led to critical losses in crop production, especially maize production.
“[However,] the domestic and international agriculture divisions are poised for a good performance with record-high agriculture produce prices and the prospect of the drought receding, favouring a normal planting season this coming year,” said Humphris, adding that, once a normal rainfall returns, Omnia will be in a good position to record substantial volume increases.
He highlighted gains in establishing new fertiliser markets, which are likely to drive volume growth and growth opportunities in the Cape province, as well as the expansion of the new nitrophosphate facility, which would be a raw material efficiency improvement.
Omnia is considering quadrupling the capacity of the plant, which has an indicative capital of R650-million, over the next two years.
South African volumes were down only 1%, despite a 27% reduction in the total maize hectares planted and an overall reduction of 22% in the summer crop hectares planted. International volumes were down 3%, owing to lower sales in Mozambique, Botswana, the Democratic Republic of Congo and Namibia, owing to the impact of the drought.
However, operating profits dropped 25% to R494-million.
Speaking at the presentation, held in Johannesburg, Humphris attributed a narrowed profit margin to the reduction in production volumes at Omnia’s nitric acid 2 Complex, as a result of the lower downstream sales of ammonium nitrates to the mining division – a result of the slowdown in mining activities. These were negatively affected as a result of the excess inventory carried over from 2015.
Meanwhile, higher stock levels at the beginning of the year resulted in lower production volumes at the downstream granulation plants, which necessitated a planned reduction in volumes produced for the year.
The lower-than-expected production volumes at the Sasolburg factory also impacted on margins negatively, owing to the increased cost per unit produced and reduced overhead recovery costs.
Humphris also attributed 1.5% of the year-on-year margin reduction to the agriculture trading segment, which reported solid volume growth into Africa, despite difficult market conditions.
However, margins were negatively impacted on by losses in Australia, because of a poor inventory position carried forward from the previous year, resulting in a 100%, or R33-million, reduction in operating profit. This led to a 1.5% reduction in the agriculture division’s overall operating margin.
With Omnia’s chemicals division’s Protea chemicals brand’s “excellent turnaround”, according to Humphris, the group would continue to progress the division by extending the product offering to regional African markets, and to continue optimisation of the new business model.
The division’s operating profit of R169-million increased by 69%, despite South Africa’s poor economic environment and a manufacturing sector under pressure.
“The strategy to restructure and simplify the chemical division to a centralised operating model and to implement a new information technology platform has [ensured] the desired improvement in performance this year,” said Humphris.
Omnia’s overall revenue remained flat at R16.8-billion, based on an improved performance by the agriculture division, which was offset by weaker performances in the mining and chemicals divisions, owing to the general slowdown in both sectors.
Gross profit for the year under review decreased by 14% to R3.41-billion, compared with R3.94-billion in 2015, owing to lower volumes in all three divisions and competitive pricing in the mining sector. Operating profit fell 19% year-on-year to R1.19-billion, while headline earnings per share dropped 29% to R10.33.