In a challenging operating environment, Omnia shows resilience and maintains security of supply to customers

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Seelan Gobalsamy CEO of Omnia Holdings

JSE-listed Omnia Holdings Limited has published its financial results for the six months ended 30 September 2023.

Commenting on the Group’s performance, Omnia’s CEO, Seelan Gobalsamy, said: “We remain committed to our purpose to positively impact global food security and livelihoods, while reducing our environmental footprint. Omnia’s half-year results reflect the diligent execution of our strategy. Against a backdrop of complex market dynamics, our operations and capital were managed effectively, resulting in a strong cash position and balance sheet.

The Group’s financial performance was significantly impacted by challenging macroeconomic conditions including weak economic growth, high inflation, volatile and declining commodity prices, and fluctuating exchange rates. Deteriorating infrastructure and utility under performance locally disrupted transportation of raw materials, impacting performance.

“Our results are characterised by a continued declining commodity cycle with a recovery in the latter part of HY2024. This follows two years of higher commodity prices and as a consequence, revenue and profitability declined. Despite this, our Agriculture segment showed resilience and the Mining segment delivered strong results supported by good execution, particularly from operations in Indonesia and Canada.

During the period commodity prices declined, with a resultant revenue decline of 14% to R10.4 billion. This was partially offset by strong sales volumes and the depreciation of the Rand. Gross profit margins were also impacted, which adversely affected the Agriculture segment. The Mining segment delivered robust margin growth driven by focused cost initiatives and improved profitability in its international business.

Working capital decreased by R1.1 billion to R4.1 billion (HY2023: R5.2 billion) as a result of declining commodity prices and further optimisation in Omnia’s supply,manufacturing and demand cycle, while continuing to provide security of supply to customers.

The Group maintained a disciplined focus on costs, prudent capital expenditure and stringent working capital management which supported its robust financial position with a net cash balance of R1.6 billion (HY2023: R140 million). This strong balance sheet ensures that Omnia is well placed in the current environment with strategic capital allocation optionality.

In October 2023, the Mining segment entered into a strategic partnership with Hypex Bio Explosives Technology (Hypex Bio), a leading green explosives solutions provider which will strengthen BME’s ability to develop sustainable blasting products.

“Recognising the escalating importance of ESG, Omnia reaffirms its commitment to further bolster sustainability initiatives and minimise environmental impact. We are pleased to report that our safety performance improved and that we have reduced our energy consumption, carbon emissions and water usage.

Safety is a top priority for Omnia, recognising that maintaining a safe work environment is critical to its ongoing success. During the period, the Group-wide Recordable Case Rate (RCR) of 0.11 improved from 0.20 in HY2023. This is a indicator of ongoing proactive initiatives to enhance personnel and process safety across operations. The Mining and Chemicals segments have maintained a zero RCR following this achievement in FY2023.

Omnia’s carbon emissions reduced, attributable to the efficient operation of the EnviNOx emission abatement systems. In addition, energy consumption and water usage per unit produced continued to decrease. In line with the commitment to promote water stewardship, the amount of water recycled has exceeded the Group’s FY2020 baseline by over 100% (13% of total water used).

Further investment in the renewable energy plant at the Sasolburg complex was completed in October 2023, bringing the Group’s current capacity to over 10MWh at peak performance. Overall, renewable energy use across the Group has increased from 63MWh in HY2023 to 5 348MWh.

“Looking ahead, we are confident that that our strategic direction and decisive actions will ensure that we remain well positioned to leverage future trends in pursuit of value-enhancing growth for all our stakeholders,” concluded Gobalsamy.

SEGMENTAL REVIEW

Agriculture (excluding Zimbabwe)

The Agriculture segment was impacted by the ongoing decline and volatility in commodity prices relative to elevated prices in the comparative period. This was

exacerbated by climate change, global supply chain disruptions and the deterioration of local infrastructure. The segment experienced a 13% decrease in revenue amounting to R5.0 billion which was partially offset by increased sales volumes and reporting currency depreciation.

Higher sales volumes were driven by the replenishment of soil nutrients and favourable agronomic conditions in South Africa. The rest of Africa showed solid year-on-year growth with a strong performance in Zambia. International volumes in the AgriBio business were lower as a result of slower order placements by two major customers.

Operating profit decreased by 47.1% to R348 million, and operating margins decreased to 6.9%. To address margin pressures, management implemented cost

optimisation measures and improved operational efficiency. Enhanced planning and a diversified supply chain, supported by integrated manufacturing capability, enabled the segment to prioritise security of supply to customers.

The AgriBio business continues to invest in the expansion of its distribution capabilities and partnerships, product registrations and trials. The Agriculture segment is well positioned to ensure supply security to its customers and benefit from good agronomic conditions. In line with seasonal demand, the segment anticipates a stronger performance during the second half of the year.

Mining

The Mining segment delivered a 5.7% decrease in revenue to R4.1 billion and a 26% increase in operating profit to R453 million. This performance was driven by growth in southern and West Africa, expansion of the international business and a robust performance in Mining Chemicals.

Improvements in operating profit were attributed to the strong performance of the international business and cost benefits arising from the recovery in utilisation of used oil in South Africa.

Mining Chemicals delivered another strong performance due to shifts in product mix. Gross profit and operating margins increased year on year, attributed to effective margin management, increased market share, and optimisation strategies. Initiatives are underway to unlock further growth potential by leveraging BME’s global infrastructure and reach.

BME’s international expansion made solid progress particularly in Indonesia where the Multi Nitrotama Kimia (MNK) joint venture has been successfully established and contracts are being ceded into the partnership. In Canada, the business is operational and production volumes are steadily increasing. During the period, the segment entered into a strategic partnership through the acquisition of a minority shareholding in Hypex Bio. This has the potential to transform the explosives industry through its ground breaking nitrate free emulsions.

The Mining segment is strategically positioned for long-term growth, which includes capitalising on new projects in SADC and investing in infrastructure in key markets  in Canada, Indonesia, and Australia.

Chemicals

The Chemicals segment faced a notably challenging operating environment characterised by a declining manufacturing sector and ongoing logistics infrastructure deterioration. Weaker consumer spending, subdued business confidence and a slow recovery in the global economy resulted in decreased demand for chemical products. As a result, the decline experienced by the segment in the second half of FY2023 persisted into the first half of FY2024. This was compounded by inventory adjustments and supplier constraints. Net revenue decreased by 24% to R1.1 billion and operating profit decreased by 95% to R5 million.

The Chemicals segment will focus on gaining market share, improving margins and managing working capital. Initiatives include focusing on top-line sales and creating efficiencies within the operations.

Outlook

Omnia is committed to executing its strategy in pursuit of sustainable growth and enhanced returns on capital. The focus remains on enhancing operational stability, optimising costs, and prioritising supply security and value-added services for customers.

The Group’s attractive organic growth businesses are well positioned to unlock further value as it grows scale and capacity. Omnia will continue to invest in the AgriBio business by enhancing its distribution footprint, and expects to deliver continued volume growth and profitability in Mining International. The successful delivery and ramp-up of these projects will also deliver higher margins and further diversification of its business.

Capital discipline, especially working capital management remains a critical focus area to maintain a strong financial position and a sustainable annual dividend payout.

By strategically investing in the mining and agriculture sectors, Omnia continues to capitalise on the increasing demand for minerals and food security, which positions it well for sustainable growth in the long term.

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