Omnia reports interim results for the six months ended 30 September 2009
- Published: Monday, 30 November 2009 13:00
OMNIA REPORTS INTERIM RESULTS FOR THE SIX MONTHS ENDED
30 SEPTEMBER 2009
A strong rand, downward valuation of inventory and softening volumes impact margins
Omnia, today reported an earnings loss of R99 million for the half year ended 30 September 2009, down from a R373 million profit for the first half of last year, as the company’s performance continued to be impacted by depressed market conditions and the 21% strengthening of the rand.
· Revenue down 22% to R4.2 billion
· Operating profit decreased by R647 million to loss of R52 million
· Loss for the period R 99 million ( 2008: Profit R 373 million)
· Basic loss per share 218.2 cents (2008: Profit 839.0 cents per share)
· Distribution and administration costs contained: Administration costs reduced by 6% to R243 million & distribution costs increased by nominal 1% to R272 million
· Debt: equity ratio of 87% (2008: 81%)
As expected, worsening economic conditions had a substantial negative impact on sales and income amid a decline in production in South Africa, as reflected in the manufacturing index, which reported negative growth for the ten consecutive months to the end of June 2009. The decline in earnings was further aggravated by the decline in commodity prices during the latter part of the previous financial year. These price reductions also affected the key raw materials used by the Group, resulting in a downward valuation to the year end inventories.
Commenting on the results, Omnia MD, Rod Humphris said: “This interim period proved very challenging following a sharp decline in commodity prices in the prior period. This was exacerbated by excessively high inventory levels due to decreased sales in the second half driven by reduced plantings following a decline in the maize price. The Group was left holding substantial volumes of fertilizer stocks for its farming customers at the March 2009 year end. This year end inventory was fairly valued at the time when the rand exchange rate was R9.49 to the US Dollar. While further raw material price reductions took place during the period under review, mainly with respect to potash, the rand exchange rate strengthened to R7.51 to the US Dollar. This necessitated further material stock write downs during the period under review.
“To add to this, the remarkable and unexpected strengthening of the rand put additional downward pressure on our financial performance.”
Looking forward, Humphris said that there are early indications of a modest improvement in fertilizer volumes in the second half of the year and a normal fertilizer season is expected. However, prospects for the Group’s earnings for the full year are clearly depressed when compared to the extraordinary performance in the previous year.
Movement in the exchange rate will also have an important impact on future earnings.
“Against the backdrop of continued uncertainty, the Group is working aggressively to control costs and improve efficiencies, while at the same time investing in improvements in its people, its production equipment, and in developing technologies that differentiate its products thereby delivering more value to its customers. The Group continues to actively assess possible acquisitions that fit into its strategy for growth through expanding its base of product and service technologies,” he continued.
There are signs that conditions are improving slowly with demand beginning to pick up and the company is well positioned in the three critical sectors of the future (agriculture, water and alternative energy) and will be able to take advantage of any sustained improvement in the market.
“The Group is investigating a number of value enhancing growth projects, which include acquisitions as well as direct capital expenditure, especially in the critical areas of alternative energy and water purification,” Humphris concluded.
The investigation into the feasibility of erecting a second nitric acid plant is nearing its final stages and the board expects to be in a position to make a decision on this major project in the near future.
Given the need to conserve capital for growth where a number of opportunities are presenting themselves, the Board deems it prudent neither to propose nor declare a dividend for the first six months of the year under review.
For more information contact: Omnia (011) 709 8850
Rod Humphris, MD
Delwin Eggers, FD
Issued by Brunswick: (011) 502-7400
Anne Dunn 082 448 2684
Taryn Wulfsohn 083 273 1301
Gordon Letsoalo 082 881 9934