Omnia back on fertile ground, says CEO
Fertiliser group well set to expand around the world - cautiously
JSE-listed chemicals and fertiliser group Omnia, which has been stabilised by new management, is now well positioned to grow its various businesses abroad, especially in strong agricultural markets such as Brazil, the US and India.
But Seelan Gobalsamy, brought in as CEO in August 2019 to turn around the 66-year-old company after it became mired in debt in an overambitious bid to expand, says the group will be far more circumspect when it makes future investments.
Gobalsamy says the company “will invest where there are returns” and “instil discipline” so that it never finds itself in the position it was in at the end of its previous financial year in 2019, when it had debt of R4.4bn — exceeding its market capitalisation of R4bn at the time.
He says the company is still restructuring operations and the benefits of this process, which he estimates will take about 12 to 18 months to complete, are still to accrue to shareholders.
But he is expecting Omnia's international businesses, from which it derives about 60% of its revenue, to experience growth in profits of about 10% a year, and “in some of them between 15% and 20%".
The group, which is also involved in the explosives and fuel markets, operates in 43 countries but its main production hubs are in SA, Australia, Portugal, the US and Brazil.
One of the group's relatively new acquisitions, Oro Agri, has “pretty much doubled” its profits in the year under review. Oro Agri has an operation in the Western Cape, but the business is predominantly based in Portugal, Brazil and the US.
Oro Agri develops and manufactures a new generation of biological crop protection and fertiliser product that is applied to crops, as opposed to fertiliser, which is applied to soil to provide root nutrients.
“We have set up distribution in India, where we have taken our Oro Agri business to. Our mining business has also got a venture in Indonesia, and we are actively pursuing some new contracts in Australia. We will keep building our businesses out where it makes sense.”
Gobalsamy says Omnia's international agriculture business operates in a “highly fragmented, fast-growing market” and is a major market disrupter because it doesn't sell fertilisers in “bulk bags as we know it”. Instead, for example, it provides natural biological stimulants in small bottles that “enhance the efficacy of traditional fertilisers and water usage and nutrient usage”.
These products contain plant nutrients and bio-stimulants to optimise nutrient efficiency, crop yield and quality.
Its agricultural customers range from small to large commercial farmers in the Southern African Development Community (Sadc) region and worldwide.
Omnia makes granular and liquid fertiliser for row crops such as maize and wheat, and for high-value crops such as fruit, vegetables and nuts.
Gobalsamy believes there is still room for growth in SA, as well as the rest of the Sadc region and East Africa.
He acknowledges Omnia is fortunate its turnaround was implemented in 2019 rather than 2020, saying it may not have been able to come back from the brink amid Covid-19.
When Gobalsamy, previously CEO of Stanlib Asset Management, became CEO in August 2019, he says the group was “sailing too close to the wind”. Not only was it sinking under R4.4bn of debt, but cash flow from the underlying businesses wasn't sufficient to reduce it. Omnia not only had to go to market for a R2bn rights issue, it had to apply for a bridging loan of R6.8bn.
“What we needed was a plan [to] focus on stabilising the company first, stabilising the balance sheet and then putting in place a restructuring and a turnaround plan. We then prepared a new business case and took that to shareholders.
“The board was very decisive about changes that were needed, allowing me the flexibility to execute on a turnaround plan and stabilise the business.”
The group has reduced its working capital as well as costs, and is spending capex more effectively, he says.
This week Omnia reported that operating profit had increased to R789m in the year to March, from R24m the previous year. Its net debt is now R1.88bn, with access to R3.7bn in undrawn debt facilities.
“Has Omnia turned the corner? I think from a stability perspective, we have. There are no worries in our balance sheet, no worries about our debt. There's currently no worry about our cash position. As companies are distressed and asset prices reduce, we have a strong balance sheet that will allow us the option to buy or sell and create long-term shareholder value.”
Gobalsamy says Omnia has received an unsolicited offer for its Oro Agri business, which “gives us more optionality” and shows the group would not be a “distressed seller of any of our assets”.
Small Talk Daily analyst Anthony Clark says Omnia's management has a dilemma when it comes to whether it should consider the offer for Oro Agri. Oro Agri is seen as one of the “crown jewels” in Omnia and is involved in a number of international agricultural markets where the technology it is marketing is in strong demand.
However, given that Omnia paid $100m (R1.7bn) two years ago for Oro Agri, it's “not every day you get the potential opportunity” through a sale to settle the company's entire debt and leave cash for potential acquisitions going forward, Clark says.
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