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Jul 13, 2012

Mining underpins Omnia’s earnings growth as chemicals face headwinds

Agriculture|Africa|Mining|Omnia Holdings|Africa|Chemical Products|Chemicals|Chemicals Division|Manufacturing|Manufacturing Sector|Products|Service|Services
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Fifty-eight-year-old South African chemicals, agriculture and mining services group Omnia Holdings has posted a 39% increase in profit for the 2012 financial year to a record high of R629-million.

Bolstered by a strong performance in its mining business, the group’s overall operating margin increased from 7.3% to 8.1%, with group revenue rising by 16.8% from R9.4-billion in 2011 to R10.9-billion in 2012 on the back of volume and sales price increases in the group’s mining and agriculture divisions.

Gross profit for the year increased 21.8% to R2.4-billion from R1.9-billion in 2011 and improved to 21.9% of revenue as a result of improved gross margins in the mining division, which had been partially offset by reduced margins in the agriculture division. The gross margin in the chemicals division remained on par with the previous year.

While the company reports substantial growth in its mining services division and positive results from its agricultural service business, its chemicals division experienced a challenging year on the back of a mixed global economic performance and minimal price increases for its chemical products.

In addition, the group says despite observing low domestic interest rates, economic activity levels in the South African manufacturing sector remained muted. This is partially a result of the rand strength against the dollar, which hindered the chemicals division, as its primary customer base is drawn from the South African manufacturing sector.

Protea Chemicals, the group’s chemicals divi- sion, which is active throughout Southern and Eastern Africa, reports reduced revenue of 4.9% to R3.4-billion owing to a volume decline of 5.5%, partially offset by a slight improvement in selling prices.

Volumes in the company’s polymer distribution business declined dramatically by 49%, following the implementation of a strategy to focus on increased quality and risk aversion, while volumes in the chemicals divi- sion increased by 2.6%.

Gross profit for the chemicals division decreased in line with the revenue drop, while lower overheads enabled cost-reduction measures, thus enabling operating profit to increase by 34.4% to R86-million, from R64-million in 2011.

The chemicals division’s operating margin at 2.5% is an improvement on the previous year’s 1.8% but is well below the target of between 4.5% and 5.5%.

Omnia’s agricultural services division, comprising Omnia Fertilizer and Omnia Specialities, increased its revenue by 21.6% to R4.5-billion on the back of high fertiliser commodity prices and higher volumes.

Operating profit only grew by 3.5% to R323-million owing to market compression caused by the increased use of costlier nitrates, pricing pressures, as a result of increased domestic competition and significantly lower margins from its Zambian operation as a result of increased competitor activity.

Edited by: Martin Zhuwakinyu
Creamer Media Senior Deputy Editor
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