the g spot
The road to fixing Omnia
We asked FD Seelan Gobalsamy how Omnia won them over
Pick an SA Inc share and chances are you’ve lost money in the past 12 months. So it is with Omnia, whose stock has sunk under a mountain of debt, tumbling from R128 this time last year to its present level of below R35. But its bigger investors have now rallied together to back a R2bn R20 a share rights offer. We asked FD Seelan Gobalsamy how Omnia won them over.
Let me take a step back … What Omnia did was invest in its own capability and its own plant and it put R780m in a new plant in Sasolburg; it expanded organically by investing in a number of territories and by building its explosives business, and at the same time it did these acquisitions which have been widely spoken about — Oro Agri and Umongo.
So it had leveraged its balance sheet, spent a lot of money and then ran into trouble.
What you didn’t have was a huge fraud or hole in the balance sheet or accounting misstatements — that was the first thing I wanted to check when I arrived here. I had a look at whether there was something nasty, or just sleepy management that had overinvested and were not prudent enough with the headwinds that hit the core business, and it was the latter.
The turnaround plan is focused on cash generation, on leveraging the assets we’ve got and then the ones we’ve built.
This business uses a lot of money during the year while it builds up fertiliser stocks, and as soon as the rain comes — hopefully in the next month or two — that fertiliser gets sold and converted back into cash. The working capital cycle is critical.
Then we announced our financial results … and at the same time I wanted the rights issue to be underwritten and at that stage it was underwritten by the banks because we were unable to talk to shareholders about it because we were in a closed period.
So it was a stop-gap measure, which created a lot of confusion in the market as there was so little detail.
Banks generally will not price a rights offer until much closer to the time. So they’ll wait right until the end to de-risk it for themselves. You’re right — when we announced it, I needed to do it as quickly as possible and that’s why the banks underwrote it; it also explains the lack of pricing detail. However, we’ve got a very strong shareholder base — value managers who have come forward — and so the full R2bn has been underwritten by the shareholders. It has a few implications — it’s more financially viable for the company because it’s cheaper, and it demonstrates that the shareholders support the company and will take up the excess rights. You don’t really want banks holding your shares.
There have been a few shareholders that have thrown in the towel in exasperation, like Cannon. How are you going to win back market confidence?
If you ask me why we lost the shareholders, well, they’ve been unhappy with the performance of Omnia, probably for five years. I think shareholders will come back once they see delivery, and my focus is to restructure the balance sheet, to restructure the businesses and the geographies and to relook at the management team to make sure we have the right team to take the company forward and to learn from what’s happened. SA has had a number of failures but hopefully Omnia is not going to be one of those.
You could forgive people for being sceptical; you say Omnia is going to do the right things now, but why wasn’t it doing them in the first place? It’s not a complicated business.
Let’s think about what has changed: we’ve got a new financial director, I’ve come in from a nonexecutive position; the chair has resigned, there’s a few new board members that have joined over the past few months. I think Omnia, which was known as a fertiliser company, has morphed to being an investor in chemicals. And that means you need management and a board who are able to think differently about the business. It’s not a holder of one business anymore. It’s become an investment-type business. I will talk more about the turnaround plan in the next few weeks.
Is there any evidence in your business that things in manufacturing or mining or agriculture are improving?
You’re seeing a lot of risk to the downside in terms of the SA economy. But there has been improvement in our mining business — if you look at some of the stats, the mining sector has shown a little bit of movement. The leading indicator I would look at is the soil moisture levels in the agricultural sector. They tell us that we just need a little bit of rain and farmers will plant. If the rains arrive we will be in for a very positive planting season. And that will be good for Omnia. But a big part of the turnaround plan is to fix internal issues so if we have another drought, Omnia must continue.