Despite El Niño, Omnia maintains agri sales volumes, chemicals division excels

28th June 2016 By: Mia Breytenbach - Creamer Media Deputy Editor: Features

Despite El Niño, Omnia maintains agri sales volumes, chemicals division excels

Omnia CEO Rod Humphris
Photo by: Duane Daws

Despite the effects of the El-Niño weather phenomenon and the resulting drought this past year, JSE-listed Omnia’s Agriculture division maintained sales volumes, with revenue growing 13% to R8.22-billion.

This was despite a 4% decrease in total volumes, said group CEO Rod Humphris on Tuesday, during the group’s results presentation for the year ended March 31.

Humphris noted that the division’s performance was “surprisingly good” in the current economic and environmental milieu.

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 and the group’s total operating profit margin of 6% was lower than last year’s margin of 9%.

Speaking at the presentation, held in Johannesburg, Humphris attributed the 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, lower production volumes at the downstream granulation plants were a result of higher stock levels at the beginning of the year, which resulted in 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 by losses in Australia, as a result of a poor inventory position carried forward from the previous year, resulting in a 100%, or R33-million, reduction in operating profit. This resulted in a 1.5% reduction in the Agriculture division’s overall operating margin.

The group attributed the 3% year-on-year decrease in operating margin to the 1.5% reduction in the agriculture trading segment, noting that the continued unfavourable ammonia-to-urea ratio negatively impacted on the conversion margins at the production facilities, as well as on the production throughput volumes at Sasolburg.

“[Nevertheless,] 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 was in a good position to receive substantial volume increases.

Gains made in establishing new fertiliser markets during the past year were likely to drive volume growth, said Humphris, highlighting growth opportunities in the Cape provinces as well as the expansion of the new nitrophosphate facility, which would be a raw material efficiency improvement.

Omnia was considering quadrupling the capacity of the plant, which had an indicative capital of R650-million, over the next two years.

The company’s other focus areas for the Agriculture division included an ongoing drive to improve water and energy use, with the Sasolburg facility producing 40% of its own electricity, and the ongoing generation of carbon credits.

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 a share dropped 29% to R10.33.

Profit after tax decreased 25% to R702-million, as a result of the lower operating profit, which was still commendable under the tough macroeconomic environment and prevailing weather conditions, said Humphris.

The group’s balance sheet remained ungeared, while cash generated was up by R1.3-billion to R2.3-billion.

Omnia’s Chemicals division brand Protea Chemicals saw an “excellent turnaround”, according to Humphris, with the division’s operating profit of R169-million increasing by 69%, despite the poor economic environment in South Africa and a manufacturing sector under pressure. 

Following a deliberately rationalised product range, volumes were down 5%.

Moreover, the successful restructuring and revision of business processes undertaken from January 2015 resulted in a more focused operation with better controls over pricing and service delivery.

“The strategy to restructure and simplify the Chemicals division to a centralised operating model and to implement a new information technology platform has rendered the desired improvement in performance this year,” said Humphris.

He noted that the group would continue to progress this division through extending the product offering to regional African markets, and to continue optimisation of the new business model.