Buoyant demand from the mining sector helped Omnia Holdings, the chemicals, explosives and fertiliser group, to neutralise the hazards of rand strength and swing back to a first-half profit.
The group reported an after-tax profit of R167-million in the six months to September, compared with a first-half loss of R99-million a year ago.
Higher commodity prices and a small increase in volumes helped to counteract the effects of the strong rand, leaving revenue flat at R4.3-billion.
“Rand strength affects all of Omnia’s businesses,” said Alistair Lea, a portfolio manager at Coronation Fund Managers, which raised its stake in Omnia from 12 percent to 15.5 percent following a R1bn capital-raising exercise in September.
“This result is ahead of what we expected and was driven by growth in the mining business. One can only wonder how much better Omnia would have done if the rand had been weaker,” he said.
The average rand/dollar exchange rate for the period under review was R7.41, compared with R8.13 in the previous first half. Assuming all other factors had remained constant, the surging local currency would have cut Omnia’s revenue by 9 percent.
The results boosted Omnia’s share price on the JSE, with the stock closing 4.06 percent higher at R70. By comparison, Omnia issued shares at R50 apiece during the recent equity-raising programme.
Omnia managing director Rod Humphris said the mining division benefited from stronger commodity prices and resulting higher volumes. Prices of coal, gold, platinum and copper had returned to levels seen before the 2008 financial crisis, and in some cases were higher.
But Omnia’s chemicals division came under greater pressure as a result of the damage caused by rand strength on South Africa’s manufacturing sector. Average volumes in the sector were at the same level as 2005, Humphris noted.
He said the results were continued evidence of the benefits of Omnia’s diversification strategy into mining and chemicals. Group operations were once focused exclusively on Omnia’s agricultural business, but in the period under review the division contributed one-third of Omnia’s top line and 30 percent of operating profit of R293m.
The unit put in a “fairly good performance under difficult conditions”, characterised by shrinking markets, Humphris said.
But the unit was expected to benefit from the commissioning in 2013 of a new R1.4bn nitrates complex in Sasolburg to supply the fertiliser and explosives markets.
Omnia spent about R400m on the nitric acid facility this year following the equity-raising programme.
The remaining funds were used to pay back short-term debt, shrinking the group’s debt-to-equity ratio from 87 percent a year ago to 35 percent at the end of the first half.
Omnia declared no dividend, and was not likely to do so at the year-end, but Humphris said the board was likely to review dividends once the nitrates complex began generating cash. - Business Report