Omnia H1 earnings fall on mixed divisional performance

24th November 2015

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

  

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Despite a bleak economic outlook, JSE-listed Omnia is confident of returning to an upward growth trajectory after posting a double-digit drop in earnings for the six months to September 30.

Shares in the specialised chemical products and services provider plunged over 9% on Tuesday morning after the group posted a 19% and 18% decline in headline earnings a share and earnings a share respectively to 494c.

During the first half of the year, Omnia’s three divisions – agriculture, mining and chemicals – had delivered mixed results on the back of a challenging macroeconomic environment, lower global commodity prices, unfavourable ammonia:urea ratios and a slowdown in South Africa’s manufacturing sector.

The global economy was facing headwinds on several fronts, with mining – the primary growth engine for the group over the last five years – hampered by a persistent downturn over the past year.

“Changing weather patterns and the prospect of an El Niño effect over southern Africa continue to affect the early part of the rainy season . . .  [while] statistics show that the weak manufacturing sector in South Africa continues to slow, making for a continued difficult environment for the chemicals division,” the company said in an update to investors on Tuesday.

However, group MD Rod Humphris believed the company had weathered the storm fairly well and would continue to perform in a challenging environment.

The operating environment was expected to remain weak or to deteriorate further in the short- to medium-term and would “probably not” recover for “another few years”; however, the company would be well positioned and capacitated to leverage any upturn.

In addition to pursuing organic growth possibilities, Omnia aimed to identify opportune acquisitions, with numerous potential opportunities being investigated to create further growth.

These included backward integration, market diversification as a possible fourth leg to the group’s structure and potential mergers and acquisitions.

FINANCIAL PERFORMANCE
Omnia’s profit for the six months under review decreased 18.1% to R331-million, while operating profit declined 14.9% to R536-million, with an improved operating profit in the chemicals division offset by lower profit in the agriculture and mining divisions, said group FD Wayne Koonin.

The agriculture division, comprising Omnia Fertilizer and Omnia Specialities, recorded a 6.4% decrease in operating profit to R160-million as a result of lower margins and increased expenses.

The operating profit of the mining division, which comprised BME and Protea Mining Chemicals, decreased 28.1% to R305-million.

The chemicals division’s operating profits increased from R35-million in the first half of 2014 to R71-million in the first half of this year, as restructuring efforts paid off.

Overall, Omnia’s operating margin for the six months under review was down by 1.4% to 6.9%.

While the chemicals division’s operating margin increased from 1.7% in the first half of 2014 to 3.5% in the half-year under review, the mining division’s operating margin decreased from 15.8% to 13.6% and the agriculture division’s operating margin decreased to 4.6% from 6% in the same period.

Omnia generated 2.2% higher revenue, at R7.8-billion, in the first half of this year, with “encouraging” volume growth seen in the agriculture division, offset by lower volumes in the mining division and flat prices in the chemicals division.

The agriculture division posted a revenue increase of 23.4% to R3.5-billion, owing to a 9% rise in sales volumes, while the chemicals division posted a marginal decrease to R2-billion on the back of a marginal uptick in sales volumes, a 4% reduction in unit selling prices and a change in product mix.

The mining division generated revenue of R2.2-billion, a 16.1% decrease on the R2.7-billion in the prior corresponding period, with sales volumes declining some 21%.

The group declared a dividend of 180c a share for the six months under review.

Edited by Creamer Media Reporter

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