The first few paragraphs of Omnia management’s commentary to the interim results seemed to set the scene for a horror story rather than a feel-good family feature. It outlined extremely difficult trading conditions that would have satisfied many an investor if the loss wasn’t too big.
But Omnia posted excellent results once again. In the six months to end-September 2021 profit after tax (from continuing operations) more than doubled to R467 million, and headline earnings per share increased nearly 130% to R2.86 cents.
In addition, Omnia’s cash reserves increased to a net cash position of R719 million from net debt of R1.9 billion a year ago.
Omnia CEO Seelan Gobalsamy hinted in an interview with Moneyweb that the good performance of the first half of the financial year will be repeated in the second half. “Shareholders should be happy,” he says.
The present Omnia is different from the Omnia of a few years ago. The group elected to tackle its (very big) debt problems by asking shareholders to trust it with new capital in a rights issue, admittedly at a good price. It paid off.
The performance of the last few months was achieved during difficult times.
Management noted that the Covid-19 pandemic worsened during the first quarter of the new financial year as the Delta variant of the virus spread to more countries, making doing business more difficult.
“Greater vaccine availability in some western countries has raised hopes that renewed restrictions can be avoided,” reads the introduction to the results.
“However, health authorities and governments are struggling to increase fully vaccinated communities. In poorer countries, vaccines are scarce, and most populations are still not adequately protected.
“The pandemic affected our business units and the countries in which we operate in various ways,” says management.
“Australia (one of the world biggest mining countries) experienced hard lockdowns causing operational disruptions and difficulties in logistics. Travel disruptions impacted the speed at which various commercial arrangements were concluded.”
The bad news continued. “The recent unrest in parts of SA resulted in the closure of certain Omnia sites, with others operating under heightened security with skeleton staff.
“Our focus remained on safeguarding employees, communities and our assets to enable continued secure supply of critical chemicals required for food security and other key economic sectors,” according to management.
It was so bad that some of Omnia’s products were classified as critical products and were “provided with security escorts”.
In addition, the SA mining sector remains under pressure – with Omnia citing erratic provision of utilities (electricity interruptions create havoc at mines), a lack of regulatory transparency, and the lengthy processes to obtain mining permits and licences as among the factors leading to a continuous decline in exploration spend and subdued foreign direct investment.
Gobalsamy says thankfully Omnia’s diverse portfolio across the primary agriculture and mining sectors meant its activities were generally classified as essential services in all geographies, but border crossings and imports to certain countries are still slow.
He says the biggest success story within Omnia during the last six months, and the reason for the good results, is the overhaul and optimisation of its supply chain.
“We integrated the supply chain from acquiring raw material to delivering to our customers,” he says.
“It goes beyond just-in-time delivery. We made it a priority that the right stock was in the right place at the right time. We ensured that stock was in Porterville when needed, and not in Sasolburg.”
At times this involved working closely with mining companies and commercial farmers to manage their on-site stocks of explosives and fertiliser to ensure supply.
The result was lower stock levels, reducing the cost and cash cycle, says Gobalsamy.
He chuckles when asked if the figures for the first six months can be doubled to get an estimate for the full financial year to March 2022.
“All I can say is that the year started well. Shareholders should smile come year-end.”