Omnia MD Rod Humphris. Picture: MARTIN RHODES
Omnia MD Rod Humphris. Picture: MARTIN RHODES

Is chemical manufacturing firm Omnia Holdings’ debt spiralling out of control?

When the company released its results for the six months to end-September in November 2018, the increase in net interest bearing debt to R4.6bn from R2.5bn at the end of March 2018 was hard to ignore, especially as its market capitalisation is only R4bn.

With the soaring debt came higher interest. In the six months, Omnia’s net finance expenses jumped 142% to R218m, compared with the six months ended September 2017.

The company, which will release full-year results in June, attributed the increase in finance expenses to, among others, higher working capital after the acquisition of oil products and lubricants supplier Umongo Petroleum and Oro Agri, the manufacturer of agricultural adjuvants, pesticides and foliar nutrients for agricultural, greenhouse, nursery and turf applications.  

Rod Humphris, Omnia chair and former MD, says the two acquisitions, which cost about R2bn, will improve the company’s geographic reach.

But it is the state of the company’s balance sheet that has attracted attention as Omnia’s dismal performance on the JSE persists. 

The market has been brutal. The stock has fallen more than 31% since the beginning of 2019, compared with a 11% increase in the JSE all share index. The JSE chemicals index is up 10.34% over the same period. Taken over a longer period, the picture is even bleaker. In the past five years, the stock has lost more than 74%, while the all share index has gained 19.60%.

In what could be interpreted as a move to allay the fears of investors, the group, which expects to report a headline loss of R134m for the six months to end-March, announced in April that it was in discussions with lenders to restructure its debt.

“These engagements were initiated to devise and implement a restructuring of the existing debt in order to ensure the group’s long-term sustainability,” it said. The company said it was optimistic that it would reach an amicable solution with the funders, which it would present to investors when it releases results in June.

“At this stage, the group and these debt providers are still assessing the appropriateness of the required debt package in light of the group’s operational cycle and industry-specific requirements, and there is no requirement for any unscheduled repayment or recapitalisation,” it said.

But when a company decides to sit down with its funders, it is time to pay close attention to the nature and extent of its woes.

Independent analyst Anthony Clark says Omnia has been hit by a combination of factors, some of its own doing, others not.

Clark says the downturn in the mining segment affected the demand for explosives in the domestic market, while the drought in 2016/2017 and the resultant lower crops meant lower demand for fertilisers. 

He says debt is a major concern for investors and firms with piles of debt are closely scrutinised. Given the debt of R4.6bn, Clark is not surprised that the company’s share price has dropped so significantly.

There are several options for the company to reduce its borrowings to manageable levels. These include asset sales and a cut back in nonessential capital expenditure. 

“Ultimately, Omnia needs better domestic trading conditions and I cannot see that occurring in mining or agriculture anytime soon. So, I would say their ambition to grow was their undoing as the economy went against them,” Clark says. 

The company declined to comment as it is in a closed period.

“The group will publish its annual financial results for the period ending March 31 2019 on June 25 and the outcome of its engagements with its debt providers. Omnia is currently in a closed period in preparation for the annual financial results and is unable to comment further at this stage,” it said on Tuesday.