Struggling Omnia flags impairments ahead of annual results
The chemicals and fertiliser maker’s shares have lost three-quarters of their value since mid-March 2018, partly on debt concerns
Chemicals and fertiliser maker Omnia, whose shares are at a 14- year low amid management changes and a surprise request for more shareholder funding, says it will announce significant impairments in its results later in June.
Omnia’s shares have lost three-quarters of their value since mid-March 2018, partly on debt concerns.
The sell-off continued earlier in June, when chair Rod Humphris stepped down with immediate effect, shortly after the company drew criticism for its plans to raise new equity despite saying a month before it was adequately funded.
The group’s shares last traded at R38.16, compared to a high of R155 in March 2018 and R239.30 in September 2014.
Omnia, which is due to publish results for the year to end-March on June 25, said on Friday that it will report a headline loss per share for the year of up to 139c. This compares to a headline profit per share of 991c the previous year.
“In financial year 2019, Omnia experienced adverse market conditions, marked by droughts and late rains, a volatile rand currency, changes in the local and international mining industry, and overall difficult global trading conditions,” it said.
The company said it would further impair “a problematic debtor” in Angola by R44m.
Its Protea Chemicals business, meanwhile, had spent R35m on a restructuring process that will remove R75m in annual costs. While another restructuring process had started, management impaired the entire goodwill balance of R324m “due to historical performance”.
Omnia said that amid droughts, the emerging-farmers programme “continues to be under stress linked to the financial pressure experienced by farmers”.
“To this end, a further provision has been made for expected losses. Management action has been implemented to reduce the risks within this business and to reduce the exposure of the group,” it said.
Meanwhile, its Zimbabwean operations had been affected by “an intentional slowdown in business” due to the liquidity constraints in the country. Financial results from that market had been reduced by about R95m, to about a quarter of their nominal value, following the introduction of an alternative currency in Zimbabwe.
Omnia said its share schemes, including its broad-based BEE scheme, had required an increased provision for non-cash-share-based payment charges of R54m.
The group said it also had to fork out transaction costs linked to the acquisition of Oro Agri of R28m.
Amid talks with lenders, Omnia said in April that “there is no requirement for any unscheduled repayment or recapitalisation”.
Weeks later, it said it planned to raise R2bn in new equity. This came amid ongoing talks with lenders to restructure debt and “ensure Omnia’s long-term sustainability”.
Humphris was replaced as chair by Ralph Havenstein, the board’s lead independent director. Humphris has spent 20 years on the board, including in the capacity of non-executive chair since June 2017. He was previously the company’s MD.
Independent analyst Anthony Clark said in a note to clients on Friday that Omnia “basically shot themselves in the foot badly” by announcing a share sale soon after saying the business was adequately funded.
Meanwhile, Clark said that while the agricultural sector “looks very promising for a better 2020 harvest” — which would boost fertiliser demand — that may not be enough “to save Omnia’s fertiliser side ... They have structural and cyclical issues at play.”
For instance, the rise of cheaper urea as a fertiliser, compared to traditional nitrates, favours blenders and importers, Clark said.
Foskor and Omnia produce about 1-million tonnes of nitrates a year, according to Clark, but with urea gaining favour, their market shares had been chipped away.
Omnia’s shares were 2.5% down at R37.22 on Friday morning.